Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern
Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.
Speaker 1: Listen on demand wherever you get your podcasts, or watch
Speaker 1: us live on YouTube.
Speaker 2: Claudia Sam on Fire with us a few days ago,
Speaker 2: and she has written up a storm of brilliance. We're
Speaker 2: thrilled that she could join us. Some new century advisors
Speaker 2: or definitive work at the FED and at Michigan as well. Claudia,
Speaker 2: of all your charts, to me, the most emotional one is,
Speaker 2: unlike past expansions, the unemployment rate is rising. Are we
Speaker 2: in an expansion? Are you on the acclaimed some recession?
Speaker 2: Watch now?
Speaker 3: I mean we are in an expansion.
Speaker 4: It is very unusual to have a jobless expansion at
Speaker 4: this point, you know, on a gradual rising.
Speaker 3: The unemployment rate is still a rising.
Speaker 4: The unemployment rate, it is a problem for some workers,
Speaker 4: but it doesn't the economy does not have right now
Speaker 4: that kind of recessionary dynamic, those rapid increases in the
Speaker 4: unemployment rate, and it's been a feature of the economy
Speaker 4: for two and a half years now that we've seen this,
Speaker 4: so it's very unusual.
Speaker 5: So cloudy. If we do have an economy that is growing,
Speaker 5: but a workforce that is not necessarily growing along with it,
Speaker 5: does that mean we're more productive?
Speaker 3: Not necessarily I mean the.
Speaker 4: Low higher or maybe we'll see today no higher economy
Speaker 4: that is really rough on people coming into the labor
Speaker 4: market for the first time or maybe coming back into
Speaker 4: the labor market like this is. They are really facing
Speaker 4: a tough labor market and that loses all kinds of potential,
Speaker 4: particularly for people at the beginning of their career, to
Speaker 4: get off on the wrong foot. We're seeing a lot
Speaker 4: less movement of people from jobs to jobs, So maybe
Speaker 4: that makes it productive because they've been on the job longer.
Speaker 3: But I wouldn't you know, maybe frame it quite that way.
Speaker 2: Doctor somillby with us after the report. Let me squeeze
Speaker 2: this in, Claudia if I could. You've got a brilliant
Speaker 2: three month moving average chart, which is the way I
Speaker 2: roll in the negative intigran This is calculus talk, Paul,
Speaker 2: Stay with me here. The negative into grand is late
Speaker 2: spring last year. We're basically on revision potentially into negative
Speaker 2: non farm payrolls back to when the Red Sox were
Speaker 2: gonna win last year. Is it that grim? We've really
Speaker 2: been that saggy since April of last year.
Speaker 3: Yeah, I mean, job creation really hit a wall.
Speaker 4: Now we can argue about whether it's grim in terms
Speaker 4: of how worried we should be about this, because again
Speaker 4: the unemployment rate has been rising only gradually, not dramatically.
Speaker 4: But yeah, no, I mean, and we could see the
Speaker 4: last year when all the dust settles with the revisions,
Speaker 4: that no jobs were on net created in the US,
Speaker 4: and that is very usual outside of a recession.
Speaker 5: So we're going to have that one time kind of
Speaker 5: I guess payrolls revision here.
Speaker 6: Explain to us what that means, right.
Speaker 4: Well, every month when we get the job's day numbers,
Speaker 4: these are based on a survey of a stab of businesses.
Speaker 4: I mean, it's a large survey, but it's not all
Speaker 4: the businesses in the country. So once you're at the
Speaker 4: benchmark revision, the buyer of labor statistics uses what's administrative
Speaker 4: data Unemployment Insurance System, which is basically a census of
Speaker 4: the eleven million establishments in the country, and so then
Speaker 4: we true up the level of employment because the survey
Speaker 4: just isn't you know it can miss things the first
Speaker 4: time around. I mean, there's a lot one can say
Speaker 4: about this, but really these revisions, they're probably going to
Speaker 4: be big today, but it's a sign of us getting
Speaker 4: better quality data so we can have this conversation about
Speaker 4: what is going on in this labor market.
Speaker 2: Claudia Sam stay with us again, commercial free for you
Speaker 2: across this nation. Diane Swack and Eric Winnigrad later Carl
Speaker 2: Weinberg in the nine o'clock hour. You're in timor of Fidelity.
Speaker 2: We'll join us in the nine o'clock cover is, well,
Speaker 2: where are we in the last five minutes? Futures lift
Speaker 2: a little bit? Up three, now up eleven. Don't want
Speaker 2: to make a big deal about it. Vix comes in
Speaker 2: nicety seventeen point eighty five. The yields for those keeping score,
Speaker 2: keep your hands on the wheel for those driving four
Speaker 2: point one two percent. Yields are in a solid two
Speaker 2: basis points price up, yield down. Into this jobs report
Speaker 2: and the dollar fractionally weaker, it is time to look
Speaker 2: at the labor economy.
Speaker 7: This is what we've been waiting for. January jobs figures
Speaker 7: and the change in non farm payrolls much stronger than expected.
Speaker 7: One hundred and thirty thousand jobs added to the economy
Speaker 7: last month. The whisper number was for thirty five thousand.
Speaker 7: We've got the unemployment rate ticking down to four point
Speaker 7: three percent. Four point four percent was expected. And the
Speaker 7: big one, the final benchmark payrolls revision. We're still waiting
Speaker 7: on that. There was an expectation for a loss of
Speaker 7: eight hundred and twenty five thousand jobs. Want to look
Speaker 7: at average hourly earnings month over month, up four tenths
Speaker 7: of a percent year over year, right in line with
Speaker 7: estimates three point seven percent. The market reaction not much.
Speaker 7: We've got S and p DAL and Nasdaq futures a
Speaker 7: little changed following this report. Again the economy adding many
Speaker 7: more jobs than expected last month, one hundred and thirty thousand.
Speaker 7: The expectation was for sixty five thousand.
Speaker 2: Guys, Thanks so much, Alex. I really appreciate that we
Speaker 2: were up eleven on futures now up twenty as well.
Speaker 2: A nice lift to the market. NASDAK up six tens
Speaker 2: of a percent. VIX comes in as you'd expect, Paul,
Speaker 2: the yield space, what do you see.
Speaker 5: I'm seeing a big movement in trash exactly right. Look
Speaker 5: at the short end of the curve of the two
Speaker 5: years up nine basis points three spot five to four percent,
Speaker 5: so a big, big move there. The ten year up
Speaker 5: about four and a half basis points four point one
Speaker 5: nine percent, So the short end of the curve tome
Speaker 5: really reflecting this better than expected nonfarm pay well.
Speaker 2: Higher yields and priced down across the entire spectrum of death.
Speaker 2: The ten year real yield was a one point eight
Speaker 2: zero now out at one point eight five. I wanted
Speaker 2: two part this discussion to go back to doctor major
Speaker 2: shoutout Andrew Hollendhorse City Group just just nailed this thing.
Speaker 2: We're going to try to get doctor Hollandhorst on the phone.
Speaker 2: You know, I look, Claudia a one thirty number, but
Speaker 2: with a negative revision. I don't want to oversell it.
Speaker 2: You need a three month moving average, as you say,
Speaker 2: non farm payrolls three month moving average seventy three thousand
Speaker 2: is our first quick look at Bloomberg. But then I
Speaker 2: got the actual final benchmark revisions rounded up almost negative
Speaker 2: nine hundred thousand translate a negative eight hundred and sixty
Speaker 2: two thousand revision.
Speaker 4: Well, and I'll say the benchmark revision that goes to
Speaker 4: last March was almost nine hundred thousand down There are
Speaker 4: other revisions from the birth death model that come in
Speaker 4: the months after that. By December of last year, the
Speaker 4: downward revision was over a million jobs. Yeah, so now
Speaker 4: we got the best possible outcome today. We knew these
Speaker 4: revisions were coming, and again we can talk about what's
Speaker 4: behind them. But to see the most recent readings, we've
Speaker 4: got some lift in the payrolls in January. It's just
Speaker 4: one month, but we got some lyft and the unemployment
Speaker 4: rate ticked down. So like we want to say a
Speaker 4: labor market that's stabilizing and coming out of this, but like,
Speaker 4: these are huge revisions.
Speaker 2: Doctors, Thom, I'm sitting in the back of the class
Speaker 2: at Michigan hiding you and the smart people are up front. Okay,
Speaker 2: my fancy math is one million jobs lost for whatever,
Speaker 2: Claudia Sam Diane Swank reason divided by twelve is eighty
Speaker 2: three thousand and three hundred and thirty three jobs evaporated
Speaker 2: every thirty days out of our belief our fabric of
Speaker 2: the American labor economy. Do I have that right?
Speaker 8: So?
Speaker 3: The revisions actually go back further.
Speaker 4: The first month that will be revised down because the
Speaker 4: benchmark was April of twenty twenty four, right, they take
Speaker 4: the annual benchmark revision is wedged in over the prior
Speaker 4: twelve months, so we're that million down. That's happening over
Speaker 4: a span of time. But if you look at the
Speaker 4: monthly changes last year the new estimates, there's a lot
Speaker 4: of red I mean, there's a lot of months where
Speaker 4: we were dipping, you know, into the not you know,
Speaker 4: destroying jobs.
Speaker 3: So these are big numbers.
Speaker 4: It is spread out over a period of time, but
Speaker 4: there's something here for us to understand about what exactly
Speaker 4: is happening with job creation and how comforted should we
Speaker 4: be by the latest numbers. Have we turned the corner
Speaker 4: or is that just an aberration and we're going to
Speaker 4: get back into these really low low numbers.
Speaker 5: How do you think the Fed is going to react
Speaker 5: to these numbers? Claudia, Again, they change non farm perils
Speaker 5: coming in for the month of January much much better
Speaker 5: than expected.
Speaker 3: Yeah, so the FED knew about this.
Speaker 4: We you know, your Labor Statistics published its preliminary estimate
Speaker 4: of the benchmark revision back in September it was for
Speaker 4: a negative nine hundred thousand.
Speaker 3: My goodness, it was almost you know, right on the money.
Speaker 4: And this is certainly you've heard FED Governor Waller mentioned
Speaker 4: this in his descent, but also FED cher Powell talked about,
Speaker 4: you know, revision. So these numbers aren't surprising. I mean, really,
Speaker 4: the news today maybe the most recent months.
Speaker 3: This you know, the January.
Speaker 4: Again, not to overplay it, but you know it's good
Speaker 4: news to see that kind of number and the unemployment
Speaker 4: rate taking down. So this is not a surprise to
Speaker 4: the FED. Right, we knew this was going.
Speaker 8: To be in the data.
Speaker 2: But you published a chart last night, folks that was
Speaker 2: in English, unlike anything I would do. And Claudia Sam,
Speaker 2: I mean you said within the dynamics of the labor
Speaker 2: economy that the dearth of immigration plays into this. I
Speaker 2: mean your chart's a little spike up, a little line up.
Speaker 2: Are we at four point three percent because if immigration
Speaker 2: dynamics where we ought to be at say five point percent?
Speaker 4: So I think the immigration dynamics and we've seen a
Speaker 4: big swing, a lot more immigration than had been.
Speaker 3: Typical, and then a big slow immigration.
Speaker 4: That certainly is important and understanding what is with these
Speaker 4: jobs numbers that just really hit a wall. So that's
Speaker 4: but it is not the only factor behind it. Like
Speaker 4: we have still seen the unemployment rate drift up. We
Speaker 4: are not like labor demand for workers is not keeping
Speaker 4: up with the supply of workers, right, But so the
Speaker 4: unemployed rate is giving us a much better picture of
Speaker 4: this kind of gradual problem that's building the payrolls because
Speaker 4: it has the supply of workers has just shifted so abruptly.
Speaker 4: The message from the payrolls looks a lot scarier than
Speaker 4: it is. But I don't want to write it off, right,
Speaker 4: Like we still see wage growth slowing, unemployment rate drifting up,
Speaker 4: and certainly for groups like you know, people new to
Speaker 4: the labor market, this is a very tough job market.
Speaker 6: Tough job market.
Speaker 5: Just real quickly that eight hundred and sixty two thousand
Speaker 5: final benchmark revision just put that into context for us.
Speaker 4: It's big, Like no, it's it should be about six
Speaker 4: tenths of total payroll employment something like that, five to
Speaker 4: six tenths, and a typical before last year typical had
Speaker 4: been more like a tenth of the level. Last year's
Speaker 4: was pretty big too, So you know, the average over
Speaker 4: the last ten years hasn't been about two tents, so
Speaker 4: this is like three times larger, and we've had two
Speaker 4: of these in a row. And again I want to
Speaker 4: stress this is not a signed the Bureau of Labor
Speaker 4: Statistics is asleep at the wheel. This is just we
Speaker 4: have some major dynamics happening in the economy and it's
Speaker 4: really tough to measure them in real time, and so
Speaker 4: we're kind of catching up and it should help them
Speaker 4: with you know, people try and understand the labor market.
Speaker 4: Still a lot of puzzles, but we've got better data
Speaker 4: today and that is a really good starting point for
Speaker 4: understanding where we're going and what policy makers might want
Speaker 4: to do.
Speaker 2: So Claudia helping are for folks studying SWAT coming up
Speaker 2: and Eric Winnegretti in a moment with Alliance burnsting. So
Speaker 2: Eric Winnigrad's up in darkness freezing. I'l like the cushy
Speaker 2: ann arbor weather. Claudia sam he's taken the sevens. He's
Speaker 2: taken labor economics. Is this you're brilliance Claudia out on
Speaker 2: Twitter last night. The academics right now of our labor
Speaker 2: economics is this in the textbooks, Eric Winnigrad.
Speaker 4: Studied, I mean, every session has its own dynamics. But
Speaker 4: ever since the pandemics showed up, the labor market has
Speaker 4: been doing things that are just unusual, if nothing else
Speaker 4: in their magnitudes. We've just had some really abrupt swings.
Speaker 4: And so like, I think this cycle, this business cycle
Speaker 4: really does stand out right, and it may.
Speaker 3: Stand out in good ways.
Speaker 4: Maybe that gradual rising unemployment rate without a recession, maybe
Speaker 4: that's what a soft landing actually looks like. Like we
Speaker 4: don't ever get those, So this doesn't have to be
Speaker 4: a bad news story. But there's certainly tensions, and I
Speaker 4: just want people to do just because we avoid a
Speaker 4: recession doesn't mean it's good enough.
Speaker 2: She's you know, I mean, we lost a million jobs
Speaker 2: in summary vider stand and she's telling us it's not
Speaker 2: a bad news. Sorry, Claudia, can you stay for five
Speaker 2: more minutes?
Speaker 3: Of course?
Speaker 2: Okay, thank you so much. Joining us now, Eric Winigrad
Speaker 2: with Claudia. Some I think that the two of them,
Speaker 2: Eric has a much more international feel, maybe, but the
Speaker 2: two of them are the market economics at Alliance Bernstein
Speaker 2: of Eric winnigred with the academics of doctor, some I
Speaker 2: think it really dovetails here. Eric, how do you translate
Speaker 2: Claudia SOM's brilliant work on the labor economy, not on recession.
Speaker 2: But she's been on fire the last twenty four hours
Speaker 2: about these odd Newtonian dynamics of our labor economy.
Speaker 9: It is a very strange economy. And to answer the
Speaker 9: question that you asked, No, none of this was in
Speaker 9: the textbooks that I was looking at a dartmouth. But
Speaker 9: I think you want to put this in perspective. You
Speaker 9: just said a minute ago, Tom, we've lost eight hundred
Speaker 9: and sixty two thousand jobs as a result of this revision.
Speaker 9: That's not true. Nobody has lost a job. We're just
Speaker 9: counting it better, right, So so that is not the
Speaker 9: case that people lost jobs.
Speaker 6: It's just that the data.
Speaker 2: Helps we counted weren't there.
Speaker 9: That's correct. But again, what are we really interested in?
Speaker 9: Are we interested in the statistical minutia or are we
Speaker 9: interested in the way that people in the economy experienced this.
Speaker 9: We're more interested in the way people experience this, and
Speaker 9: nobody actually lost their job. I agree with Claudia one
Speaker 9: hundred percent that the true signal in today's report is
Speaker 9: the unemployment rate. Because the revisions to the headline series
Speaker 9: are so complicated, there is statistical artifact the unemployment rate
Speaker 9: is balancing supply and demand in the economy, and it's
Speaker 9: telling us that things are okay, not great, right, but okay.
Speaker 2: Does it reaffirm doctor some the idea of two rate cuts?
Speaker 2: I mean, how do you go to four rate cuts
Speaker 2: with a four point three percent unemployment rate?
Speaker 4: My base case is still two rate cuts this year,
Speaker 4: But we're going to get a lot more information and
Speaker 4: the Fed is going to watch the labor market extremely
Speaker 4: carefully in terms of how they adjusted going forward.
Speaker 5: Eric, how do you think AI is impacting this labor
Speaker 5: force here? Because people say it's really tough to get
Speaker 5: a job, and maybe that's the entry level job, and
Speaker 5: maybe that's the job that's being impacted by AI at
Speaker 5: least initially.
Speaker 6: Does that factor into your work at all?
Speaker 9: So it's just one of the ways in which this
Speaker 9: labor market is confusing and complicated. And I would actually
Speaker 9: refer you to a speech that the Governor of the
Speaker 9: Bank of Canada made last week, Tiff Macklin, where he
Speaker 9: said that if part of the reason the labor market
Speaker 9: is so tough is because of these structural changes, because
Speaker 9: of artificial intelligence, for example, it isn't appropriate for central
Speaker 9: banks to respond to that by cutting interest rates. You
Speaker 9: can't boost labor and demand with interest rates if the
Speaker 9: problem is AI. I think it's premature to draw that conclusion.
Speaker 9: Claudia has said, and she's right that there is some
Speaker 9: evidence that entry level workers in particular are struggling. But
Speaker 9: we're still very very early days on this.
Speaker 2: One final question, Claudia SAMs, I know you have to
Speaker 2: publish for a new century. Claudia, I want you to
Speaker 2: speak to the huge body of the nation that's not
Speaker 2: worried about their stock options on a mag seven equity holding.
Speaker 2: They're not part of the profit machine of technology in America.
Speaker 2: How flat on their back is the rest of America.
Speaker 4: Right Well, for that group of Americans, I mean, their
Speaker 4: jobs are so critical to their well being. And for
Speaker 4: people who have a job and like their job. Right now,
Speaker 4: things are really pretty good, right Wages aren't, you know,
Speaker 4: going gangbusters. Workers are not sharing in all of this
Speaker 4: productivity that it seems to be out there necessarily, but
Speaker 4: it's pretty okay.
Speaker 6: But it's the.
Speaker 4: Ones who are on the margins who don't have the
Speaker 4: job or want to switch job like, they are a
Speaker 4: lot more stuck right now. And so I think, really
Speaker 4: the labor market it has always been and will continue
Speaker 4: to be central to people, particularly those who are not
Speaker 4: plugged into the asset markets.
Speaker 2: Claudia, So I'm thank you for your commitment to Bloomberg Surveillance.
Speaker 2: Doctor Simus of the New Century advises, I can't say enough
Speaker 2: about a workout on Twitter and LinkedIn, just hugely informed.
Speaker 2: Stay with us more from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: So when you get this huge report coming up and
Speaker 2: you get the data, what do you do well to
Speaker 2: impress Lisa Shallat, I go to the ten year real yield,
Speaker 2: which is sitting at two standard dv sits under one
Speaker 2: point eight one percent of breakdown there in the ten
Speaker 2: year real yield would be a big deal. And then
Speaker 2: she knows, I go to Swiss Frank That's what you
Speaker 2: do with Morgan Stanley and I'm sorry. I got a
Speaker 2: Swiss Frank at the CUSP along with Yeana one fifty
Speaker 2: three fifty nine joining us on Lisa Schellet at Morgan Stanley,
Speaker 2: probably on a plane heading for Tokyo here at some
Speaker 2: point chief investment officer at Morgan Stanley, let me cut
Speaker 2: to the chase.
Speaker 10: Yes, sir, Brad hints my old buddy, is.
Speaker 2: AI going to replace Brandigins?
Speaker 10: So look absolutely not. You Know, what I can tell
Speaker 10: you is that, like every other technology, we fundamentally believe
Speaker 10: that AI is an enabling tool. It is an enabling
Speaker 10: tool for expertise. While there are many things that we
Speaker 10: do that can be automated in terms of a process
Speaker 10: that are repetitive, that require us to capture and intake
Speaker 10: information and summarize it, the real beauty of expertise is
Speaker 10: creativity and interpretation. And as far as I can tell,
Speaker 10: at least thus far my interactions with the technology, is
Speaker 10: that we're far, far, far away from being able to
Speaker 10: rival America. You know, an analyst, a human beings.
Speaker 5: It's tough to see you because we saw in just
Speaker 5: this year, let's several weeks, last couple of months, this
Speaker 5: AI story's evolved a little bit from how much can
Speaker 5: we spend, how big can it get to be? Who's
Speaker 5: at risk from the deployment of AI technology, and then
Speaker 5: over the less several weeks, we really hit a lot
Speaker 5: of these software companies.
Speaker 10: Yeah, so the software sell off on one level doesn't
Speaker 10: surprise me in the sense that some of these business
Speaker 10: models are ultimately you know, going to be disrupted. But
Speaker 10: what I think people have to remember is a lot
Speaker 10: of the enterprise software companies in particular, what they have
Speaker 10: done with companies is they've come to dominate, organize, optimize data.
Speaker 10: And you know where we are in terms of AI
Speaker 10: implementation in most companies is you need the data. You
Speaker 10: can't train these tools to do anything without the data.
Speaker 10: And I think it's going to be really hard to
Speaker 10: do it without some of these enterprise software companies participating
Speaker 10: in a major way.
Speaker 5: So twenty two was a solid year for US equity investors,
Speaker 5: solid returns, solid returns in the fixed income market. Here,
Speaker 5: I don't know what's the call here for twenty six
Speaker 5: that we more the same?
Speaker 6: What are you looking for?
Speaker 10: So look, I think our tagline for twenty twenty six
Speaker 10: was simply, you know, price to perfection, which means the
Speaker 10: window for upside surprise is narrower. So our view is,
Speaker 10: you know, this will be a good, solid average year
Speaker 10: in stock markets that means seven to ten percent total returns.
Speaker 10: But it's going to be a little bit more of all.
Speaker 10: It's going to be a little bit more idiosyncratic. It's
Speaker 10: going to be about fundamentals. It's going to be about earnings,
Speaker 10: achievement and surprise, and that stuff's hard.
Speaker 2: Lisa show it with us with Morgan Stanley, and this
Speaker 2: is breaking news, and it's absolutely perfect for mischell with
Speaker 2: all over decades of work of working out companies, of
Speaker 2: deciding what not to own, all the focus. And I'm
Speaker 2: as guilty of this lease as anyone else is. On
Speaker 2: two stocks. I'm an idiot. And what I'm fascinated by
Speaker 2: is the rest of corporate America left behind that's not
Speaker 2: getting it done. Craft, Hinds, kool Aid, Cello, I think
Speaker 2: they owned Vilvida, I can't remember. They're going to stop
Speaker 2: with They're split into two publicly traded companies. Organic revenue
Speaker 2: last quarter was a stunning negative four percent. I'm going
Speaker 2: to put that seven hundred beeps, eight hundred beeps by
Speaker 2: nominal GDP well, how should our how should our listeners
Speaker 2: and viewers interpret companies, big blue chip companies that just
Speaker 2: aren't getting it done?
Speaker 10: Yeah, look, I think that you've got to be come
Speaker 10: to them with an extraordinarily critical eye and ask yourself
Speaker 10: why for a lot of the consumer staples companies, they
Speaker 10: have been, you know, the victims of you know, currency movements,
Speaker 10: they've been a vic of some of the you know,
Speaker 10: consumer impacted tariff related issues, and they've been you know,
Speaker 10: victims of demographic and behavioral shifts in terms of how
Speaker 10: much staples are actually consumed at home.
Speaker 2: And in a portfolio. You say, just say no, right,
Speaker 2: you just don't own it exactly.
Speaker 10: You got to go go through name by name by
Speaker 10: name and make an active decision. Am I overweight, underweight
Speaker 10: or no weight?
Speaker 2: Brilliant Paul Pe of Craft Times nine. Yep, it's traded
Speaker 2: like international paper years ago. The dividend, we'll talk about
Speaker 2: a broken dividend on the Bloomberg.
Speaker 6: You got six di you're living for the dividend.
Speaker 5: I guess, yeah, Lisa, were constantly wealth management. How much
Speaker 5: alternative assets to your clients want to own? What's the
Speaker 5: what's an allocation there? Because I'm always shocked that it's
Speaker 5: much higher than I would have thought.
Speaker 10: You know, yeah, so our recommendations, and I h sit
Speaker 10: atop our Global Investment Committee, which derives this set allocation advice.
Speaker 10: We've routinely, you know, talked about truly private liquids at
Speaker 10: roughly you know, ten to fifteen percent of your portfolio,
Speaker 10: Hedge funds maybe at ten. So you think about just
Speaker 10: those two categories, you could get as high as twenty
Speaker 10: five for an ultra high networth client. Now that's very aspirational,
Speaker 10: it's very theoretical, you know, it's Harry Markowitz an efficient,
Speaker 10: you know, frontiers and the like. The reality is is
Speaker 10: that today, within you know, the Morgan Stanlely Wealth Management book,
Speaker 10: the penetration, the actual average allocation to alternatives is much
Speaker 10: closer to five or six percent than that twenty five
Speaker 10: percent recommendation.
Speaker 2: How about a long way to go?
Speaker 5: How about fixed income? I mean, you know, now you
Speaker 5: can be clipping some nice coupons. I'm not sure we're
Speaker 5: going to get price appreciate like we did last year,
Speaker 5: but is it okay to just sit there with a
Speaker 5: nice diversified fixing come portfolio and clip coupons.
Speaker 10: Saying yes, We yes, absolutely, but you want to be
Speaker 10: very very careful about where on the curve you are.
Speaker 10: We expect there to still be some front end volatility
Speaker 10: and those rates to come down, and on the long end,
Speaker 10: we think that there's still a bias higher to rates,
Speaker 10: and because of the long duration, that could produce some volatility.
Speaker 10: So we're focusing on the the what we call the
Speaker 10: belly of the curve, or somewhere between four and seven
Speaker 10: years of duration to truly have just clip coupon, don't
Speaker 10: don't get too aspirational about what you're going to make
Speaker 10: on price. Just try to try to try to focus
Speaker 10: on the coupon.
Speaker 8: Clip.
Speaker 10: But in the rest of fixed income, you know, credit
Speaker 10: has become extraordinarily.
Speaker 6: Richly value and so there.
Speaker 10: We're applying a similar lens to the one we're applying
Speaker 10: to stocks, which is, let's start being a little bit
Speaker 10: more discriminatory and decide to all to all of these
Speaker 10: bonds you know deserve these tight spreads.
Speaker 2: Lucky you. I got twenty seconds. Did we place the
Speaker 2: one hundred year Google yesterday into Morgan Stanley portfolios?
Speaker 10: That I don't know, I don't know where we were
Speaker 10: on the tear sheet when all is said and done.
Speaker 10: But look, it's an extraordinary moment. And you know this
Speaker 10: from prior bull market cycles.
Speaker 6: When you see these one.
Speaker 10: Hundred year type of events, they tend to get you know,
Speaker 10: marked on it.
Speaker 2: On the walking into the interns at Morgan Stanley, the
Speaker 2: gifted few chosen to sit in the class. You going
Speaker 2: to the piece of chalk and you put perpetuity up
Speaker 2: on the chalkboard and say read it and weep. Lisa,
Speaker 2: Thank you. Lisa Shallotte with us Morgan Stanley Wealth Management.
Speaker 2: Your stay with us. More from Bloomberg Surveillance coming up
Speaker 2: after this.
Speaker 1: You're listening to the Bloomberg Surveillance Pod. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Your leadership of the National Association for Business Economics is
Speaker 2: noted with KPMG. Diane Swank joins us right now. Diane,
Speaker 2: just a sixty thousand foot question for our listeners, those
Speaker 2: with the job, those with Google stock options and the
Speaker 2: Google one hundred year piece, and those flat on their
Speaker 2: back across America. How case shaped are we this morning?
Speaker 11: Well, we are as much as we've been since the
Speaker 11: data started on corporate profit share versus wade share in
Speaker 11: the economy going back to the nineteen seventies. What we're
Speaker 11: seeing is a record break between the share of profits
Speaker 11: going to wealthholders versus the amount of going to wages.
Speaker 11: And I think that's where the bulk of this is.
Speaker 11: You're seeing the productivity gains a crew to the owners
Speaker 11: of capital as opposed to workers, and that's why we're
Speaker 11: are not very happy about where things are. Also, when
Speaker 11: you think about wages, I think it's very important to
Speaker 11: understand that we are seeing this labor market looks like
Speaker 11: it's now healing after getting cratered last year. That's important,
Speaker 11: but it's healing at a pace as Claudia and Eric
Speaker 11: pointed out, where we just don't need to generate many
Speaker 11: jobs be able to bring the unemployment rate down, which
Speaker 11: could push wages higher. That's great if it does not
Speaker 11: also be accompanied by information and we know that much
Speaker 11: like stock returns compound, also inflation compounded over the last
Speaker 11: five years, leaving too many prices out of reach for
Speaker 11: too many Paul I was just going.
Speaker 2: To say for your weekend reading, it's not Friday it's when.
Speaker 5: I am I know we've got a waste to go
Speaker 5: tom or red headline crossing the Bloomberg terminal traders fully
Speaker 5: priced in FED rate cut by July versus June previously.
Speaker 5: So the WORP function kind of we're seeing it right
Speaker 5: there here on this strong labor print, Diane. We know
Speaker 5: that FED like to look at this unemployment right and boy,
Speaker 5: you ticked down from four point four percent to four
Speaker 5: point three percent. That's full, full, fully employed America, isn't it.
Speaker 3: Actually it is.
Speaker 11: It is even better under the hood. What we saw
Speaker 11: was the U six rate, which is that sort of
Speaker 11: underemployment rate where you get discouraged workers and those having
Speaker 11: just cut part time for economic reasons. That fell to
Speaker 11: eight percent from eight point four percent in December.
Speaker 3: That's an important move.
Speaker 11: It's still well above the six point two percent we
Speaker 11: saw back in twenty nineteen, but it is a move
Speaker 11: down and an important move down for those who were
Speaker 11: really struggling to get a job. What we're starting to
Speaker 11: see is some of the ice melt in the labor
Speaker 11: market now and things beginning to shift a bit. We
Speaker 11: need to keep up that momentum for workers on the
Speaker 11: flip side of it, it keeps the fed on the
Speaker 11: sidelines longer.
Speaker 5: We're not seeing, you know, what does economy, This labor
Speaker 5: economy has been described as a kind of a low higher,
Speaker 5: low fire type of environment. How about some of the
Speaker 5: industries that rely historically upon immigration, such as housing, agriculture.
Speaker 6: Are we seeing any problems there?
Speaker 11: Well, we are seeing a major shift in things like
Speaker 11: leisure and hospitality in terms of quit rates. Quit rates
Speaker 11: in that sector have soared even as they've cooled and
Speaker 11: sort of come to a near standstill across the economy,
Speaker 11: and the job openings and labor turnover survey, we saw
Speaker 11: those quit rates really soar. That has not been accompanied
Speaker 11: by a lot of wage pressures in the economy that
Speaker 11: was very weak last year, and in fact, vacations actually
Speaker 11: went down a bit over the course of the year.
Speaker 11: We saw only the affluent households continuing to spend heavily
Speaker 11: on vacations, and that showed up in the breakdown in
Speaker 11: terms of people paying to go to the front of
Speaker 11: the bus in terms of the planes and luxury hotels
Speaker 11: continue to do extremely well, but the rest of the
Speaker 11: economy side of vacations did not. In twenty twenty five.
Speaker 2: That bringing you here, folks, I believe is doctor Swank.
Speaker 2: That's that's Kevin Worshy seeing Diane swanking right now, Like
Speaker 2: Kevin Warsh is saying to Dan, we need to talk
Speaker 2: right now, Diane. One of the things here, and you know,
Speaker 2: I'll pick on. You know a city that I know
Speaker 2: is really having trouble Alexander County, Illinois. Six percent unemployment right,
Speaker 2: this is kro It's you know, southern Southern Illinois has
Speaker 2: really struggled. How do you synthesize, Diane with all your
Speaker 2: decades of work the easy gloom path versus observing the
Speaker 2: vibrancy of the American economy. I mean, the media and
Speaker 2: Tom Keen are really really good at going out and
Speaker 2: finding a six percent unemployment rate and saying, OMG, the
Speaker 2: world's going to end. But there's an America that's vital
Speaker 2: out there. How do you balance that? After this report?
Speaker 11: Well, I think the important issue is is that we
Speaker 11: know that fewer firms and fewer households accounting for more
Speaker 11: of the economic gains in the US economy. And that's
Speaker 11: where you get to the k shaped economy. We've talked
Speaker 11: about it a lot, but it's showing up and just
Speaker 11: about everywhere and every strata, even with higher income households
Speaker 11: now trading down and going to big box discounters trying
Speaker 11: to get more value because they're feeling strained as well
Speaker 11: unless they have a large stock portfolio. So there really
Speaker 11: is this delineating thread that goes through the US economy
Speaker 11: in terms of wealth versus non wealth, and it's not
Speaker 11: just housing market wealth. Equity in your home cannot be
Speaker 11: as easily tapped, but wealth in the stock market has
Speaker 11: moved up dramatically, and that is important because it's not
Speaker 11: filtering down to workers and the dichotomy of those two
Speaker 11: things happening at the same time. The hard part is
Speaker 11: that it keeps inflation void as well, and I think
Speaker 11: that's something that the FED is going to be watching for,
Speaker 11: and we know that as you heard earlier. I think
Speaker 11: Eric pointed it out. If these losses that we saw
Speaker 11: in jobs last year were more structural than cyclical in nature,
Speaker 11: than rate cuts don't help them. If they are more
Speaker 11: demand driven and the rate cuts actually helped to reignite employment,
Speaker 11: that's great, although they don't usually work quite this quickly,
Speaker 11: so I have my doubts about that. I think you
Speaker 11: are working through some big uncertainty issues that finally abated
Speaker 11: a bit, but measures of uncertainty move back up again
Speaker 11: in the month of January.
Speaker 2: Dayane Swack, thank you for your work Dayan Swanck is KPMG.
Speaker 2: Here stay with us. More from Bloomberg Surveillance coming up
Speaker 2: after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Atto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: This is an honor. I'm going to explain this as
Speaker 2: carefully as I can, and Fidelity was very very kind
Speaker 2: to me over the years. And one day I was
Speaker 2: at the old building up a number of floors just
Speaker 2: pass where they keep the Red Sox tickets, and there's
Speaker 2: a circular room with cloth walls and on it with
Speaker 2: perfect mit pins is the chart room. Urine Timer this
Speaker 2: week put out the chart of the Dow Jones Industrial
Speaker 2: Average at fifty thousand. I've been waiting to talk about
Speaker 2: this to get the Urine Timmer, director of Global Macro
Speaker 2: at Fidelity. Urine is irresponsible to extrapolate the bullmark, a
Speaker 2: trend that we are in out to sixty thousand or
Speaker 2: dare I say out to one hundred thousand down points?
Speaker 8: Well, good morning. Well certainly that chart will show you
Speaker 8: that it is safe to extrapolate, because you know, just
Speaker 8: like life, growth is it happens, but sometimes it happens slowly,
Speaker 8: sometimes happens quickly. So we will get there eventually. But
Speaker 8: you know, the dial can spend many years at one
Speaker 8: of these milestones, or it could spend literally a minute
Speaker 8: before it goes to the next one. And this one,
Speaker 8: of course, you know, we are in year at least
Speaker 8: by my estimation, we are in year seventeen of a
Speaker 8: secular bull market. And the milestones come fast and furious
Speaker 8: during secular bull markets, and they come very slowly during
Speaker 8: secular bear markets. And so I think the drivers of
Speaker 8: this secular bull are still intact. But it is long
Speaker 8: into tooths. You know, they generally don't last more than
Speaker 8: eighteen nineteen years or so, so we do have to
Speaker 8: keep an eye on the clock in that sense. But
Speaker 8: it's you know, I found it very pleasing last week
Speaker 8: that when we're worried about the SaaS stocks getting commoditized
Speaker 8: because of AI programs, and you know, are the hyperscalers
Speaker 8: overspending on capex that very quietly the Dow just in
Speaker 8: the week at a very major milestone. So it's nice
Speaker 8: to see that the market is broadening, and it's doing
Speaker 8: so in the best way possible, which is not as
Speaker 8: a zero sum where the max seven you'll fall from
Speaker 8: grace and drag the index down even though most stocks
Speaker 8: are going up, but in a way where the pie
Speaker 8: actually gets bigger. And now we'll have to see if
Speaker 8: it blasts, but it's a win for.
Speaker 6: Now you're in.
Speaker 5: We've seen I guess a rotation over the last three
Speaker 5: four five months, maybe a little bit of rotation out
Speaker 5: of some of those high growth, high multiple tech stocks,
Speaker 5: maybe a little max seven into or cyclical sectors, maybe
Speaker 5: in some small and MidCap Is that a longer term trade?
Speaker 6: Is that a short term trade? How do you think
Speaker 6: about that?
Speaker 8: I think it's a longer term trade. Right, So, if
Speaker 8: you line up a bunch of Paris trades, growth versus value, large,
Speaker 8: small US versus international, financial versus hard assets, the commodities
Speaker 8: in general, they all follow like a thirty year cycle,
Speaker 8: like a very long wave, almost like a condatif wave
Speaker 8: type of formation and on a ten year rate of
Speaker 8: change basis, a cager basis, all of those paris trades
Speaker 8: have been sort of waiting in the wings from a
Speaker 8: duration and a magnitude perspective, and we're just waiting for
Speaker 8: the catalyst, right, So as long as the Max seven
Speaker 8: are dominating, all those para trades have to sort of wait.
Speaker 8: But one by one they're springing to life. Right. International
Speaker 8: is now outperforming US, which is very nice to see
Speaker 8: because we want the market to be as broad as possible, right,
Speaker 8: we want to fish from the biggest pond possible. Commodities
Speaker 8: are moving and like you said, even small and midcaps
Speaker 8: are now starting to wake up, and so I do
Speaker 8: think that once that happens, it's a long term trend.
Speaker 8: That's like a five year plus strategic allocation type of plan.
Speaker 8: The question is, you know, again, does it come at
Speaker 8: the It always comes at the expensive growth, But does
Speaker 8: it come at the expense of the beta that the
Speaker 8: growth sector produces? And if that's the case, we're going
Speaker 8: to have less beta but more alpha. But that's to
Speaker 8: me is the big question.
Speaker 2: You're in timor with us folks, to help us get
Speaker 2: smarter with Fidelity or Carol Weinberg later on in the hour,
Speaker 2: we welcome all of you around the world on YouTube.
Speaker 2: Subscribe to Bloomberg Podcast, Sweete and I Shaking down the
Speaker 2: new Bloomberg Hub a set of videos here out at
Speaker 2: Bloomberg dot com. Look for that building out each and
Speaker 2: every day. And of course the way you listen to us,
Speaker 2: especially good morning to ninety to nine FM in Boston,
Speaker 2: Land of Fidelity, and you're in Timber, you're in which
Speaker 2: of your wonderful charts that you give us on LinkedIn
Speaker 2: and all of Fidelity? Which charts the most informative for
Speaker 2: people in their fe own case. They're inequities. They believe
Speaker 2: in the American experiment, which is the chart that matters most.
Speaker 8: I think, well, there's so many, but the one that
Speaker 8: explains the market's lofty valuations. Right, So we all spend
Speaker 8: a lot of time on like, Okay, the US stocks
Speaker 8: are so expensive, you know, thirty two x five year
Speaker 8: cape ratio, twenty five times trailing earnings. But you have
Speaker 8: to take that into context, right, if you regress those
Speaker 8: pes or equity risk premia against where investment grade or
Speaker 8: high yield credit spreads are and where operating margins are
Speaker 8: for the s and P five hundred, they actually make sense, right,
Speaker 8: So you know, the market's not stupid. It's not going
Speaker 8: to price itself at a at a level that doesn't
Speaker 8: make sense. It's very efficient. And so if you think
Speaker 8: equities are very expensive or too expensive, or even in
Speaker 8: a bubble, which I don't think they are, then by
Speaker 8: definition you have to think, in my view, that credit
Speaker 8: spreads are too low and are going to rise, and
Speaker 8: margins are too high and are going to fall. Otherwise,
Speaker 8: equities are just pricing in in the same fundamental scenario
Speaker 8: that all the other markets are pricing in. And so
Speaker 8: I think that's an important thing to keep in mind,
Speaker 8: because it's easy after a long up trend, you know,
Speaker 8: and the cyclical bull is now forty months old, the
Speaker 8: secular bull is now seventeen years old to say, you know,
Speaker 8: I'm afraid of what comes next, so I'm going to
Speaker 8: get out. But if you get out, you're not going
Speaker 8: to compound, and that's a major drawback. So looking at
Speaker 8: the market holistically and look at why valuations are where
Speaker 8: they are, what do they assume, I think is an
Speaker 8: important piece of context. Otherwise it's easy just to say
Speaker 8: Oh my god, we're in a bubble. I'm going to
Speaker 8: run for the hills.
Speaker 5: You're in twenty twenty five and in year to date
Speaker 5: so far in twenty twenty six, the US equity markets
Speaker 5: doing just fine, but rest of the world doing a
Speaker 5: lot better than fine, outperforming the US.
Speaker 6: Talk to us about US versus rest of the world
Speaker 6: these days. What's your view?
Speaker 8: Yeah, it's a it's a really great story. It happened
Speaker 8: last year, of course during sort of the tariff tantrum.
Speaker 8: But what's happening is that the global economy is waking up.
Speaker 8: You know, we all know the story from a year
Speaker 8: ago with NATO having to pull its own weight and
Speaker 8: seeing more of a fiscal impulse in Europe, and of
Speaker 8: course in Japan we're seeing that, you know, commodities are
Speaker 8: becoming a national security type of resource. So in a fragmented,
Speaker 8: multipolar world, I think commodities become a strategic asset. And
Speaker 8: so then you have you look at commodity centric countries,
Speaker 8: mostly in emerging markets that are now you know, being competitive.
Speaker 8: So when I divide the world into developed and emerging
Speaker 8: so versus e M, they both have interesting stories. Right.
Speaker 8: The companies in Japan and Europe are becoming much more
Speaker 8: shareholder savvy. They're unlocking or monetizing their balance sheets in
Speaker 8: order and by buying back shares in order to reward
Speaker 8: shareholders with a higher payout ratio. And it's interesting that
Speaker 8: the payouts, so dividends plus buybacks, is rising faster on
Speaker 8: a five year basis in both Europe and em than
Speaker 8: it is in US, which is maybe counterintuitive because in
Speaker 8: the US you figure max seven art are the engines
Speaker 8: for that story. But the payouts are competitive, the payout
Speaker 8: ratios are competitive. Yet they trade at a fifteen PE
Speaker 8: as opposed to a twenty two PE. And that's so
Speaker 8: you know, it's easy to fall into a value trap,
Speaker 8: but you have the value plus a fundamental catalyst. Boy,
Speaker 8: you got some magic and that's what we're seeing over there.
Speaker 2: Okay, I got to ask Paul was just on a
Speaker 2: rube and he's decided to move there. You're in Timor
Speaker 2: I'm there right now?
Speaker 6: Why did we know that?
Speaker 2: I I mean, I mean Urian Should we slide into
Speaker 2: the Dutch Caribbean Securities Exchange? I mean, is Will Danoff
Speaker 2: looking at every stock in there? Yeah?
Speaker 8: Well you know it's Carnival a week in a rubab
Speaker 8: and that can only mean one thing, and that is
Speaker 8: that I've got about a dozen extended Timmor family and
Speaker 8: friends right at my brother's house, and that means I
Speaker 8: get to cook. So I cooked the great twelve people
Speaker 8: last night. I'm cooking for fifteen tonight. So this is
Speaker 8: our annual tradition and.
Speaker 6: Good for you.
Speaker 8: And you know this is my ole king.
Speaker 6: We got enough Carnival.
Speaker 2: Is Abby Johnson ever Grace a Timmer household in her
Speaker 2: room but for this festivities.
Speaker 8: Uh, not that I know of, but if she, if
Speaker 8: she calls me, I would certainly makes some room.
Speaker 2: Very good, Urian. We appreciate your work. I can't say enough, folks. Literally.
Speaker 2: A reason to get on LinkedIn is to see the
Speaker 2: brilliance of fidelity in Urine Timmer. There as well Twitter
Speaker 2: as well. Urine Timmor driving everything in charts, technical analysis
Speaker 2: and macro analysis at Fidelity.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday seven to ten am Eastern on Bloomberg dot com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also Watch US live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal