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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Ameri Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Tag. Concerns continue to

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Speaker 2: weigh on equity markets worldwide. Alisha Levine of B and

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Speaker 2: Y Walth writing, we do not anticipate macro downside and

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Speaker 2: so expect the markets rally into year end. The risk

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Speaker 2: is to the upside from here. Alisa joins us now

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Speaker 2: for more. Alisha Gimnic good Morning said that last time,

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Speaker 2: what's gone wrong in the last few weeks?

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Speaker 3: Well, I don't think get anything's gone wrong yet. I mean,

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Speaker 3: if you think about it, the SMP is off about

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Speaker 3: five percent. Really it's the text that took the hit.

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Speaker 3: But what's interesting we talked about how how the multiple

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Speaker 3: was in the SMP at twenty three times, we're now

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Speaker 3: at twenty one times, so the market's done a little

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Speaker 3: bit of work here to take some of the froth out.

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Speaker 3: In the end, we're always looking forward for our client

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Speaker 3: portfolios twelve to eighteen months forward. We think this will

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Speaker 3: be a biable moment where it ends. There's going to be.

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Speaker 3: As you said, the next twenty four hours gets to

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Speaker 3: all the issues, gets to the earnings, the spending, the

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Speaker 3: depreciation issue on how the P and L is being

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Speaker 3: managed for all these tech companies, which has come up

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Speaker 3: in the last week, as well as what's happening with

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Speaker 3: the labor market as well as what's happening.

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Speaker 4: With the lower end consumer.

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Speaker 3: So you're getting all these issues answered in twenty four hours.

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Speaker 3: And I just think that market participants did not want

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Speaker 3: to carry risk into this. It's just too big because

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Speaker 3: you are getting the macro story as well as like

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Speaker 3: the micro of what's going on with this particular trade

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Speaker 3: that has driven the market for the last eighteen months.

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Speaker 2: So ly should have to unpack some of that. So

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Speaker 2: we've got a big morning tomorrow Walmart, and we've got

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Speaker 2: jobs as well, so that should give you some indication.

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Speaker 2: A little bit at least of what the FED might

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Speaker 2: do next month. I want to sit on Nvidia as

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Speaker 2: a company and as a stock. As a company, the

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Speaker 2: earning should be pretty good because we've heard from their

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Speaker 2: biggest customers, and their biggest customers want to spend more

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Speaker 2: and keep spending more. So I've got that sorted as

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Speaker 2: a stock. There's an attitude shift that's developed in this market.

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Speaker 2: The things we used to rally on we don't rally

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Speaker 2: on anymore. What's behind that and why do you see

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Speaker 2: it change?

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Speaker 4: It? Look the big.

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Speaker 3: Difference here, and you know, I can't talk about particular companies,

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Speaker 3: but this is a theoretic.

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Speaker 4: This is, you know, the entire market, it's the entire

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Speaker 4: market itself.

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Speaker 3: Is that the debt financing versus financing from equity or

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Speaker 3: financing from cash flow is the biggest change, and it

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Speaker 3: does introduce a different risk metric. So to me, it

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Speaker 3: does make sense that you're bringing the multiples in a

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Speaker 3: little bit simply because if you're debt financing, that is

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Speaker 3: a different kettle of fish. In the end, we've talked

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Speaker 3: about how the margins are so high, how the cash

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Speaker 3: flow margins are so high, particularly for the sector that

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Speaker 3: it's able to sustain higher multiples. If that is the case,

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Speaker 3: that in this new world, you're going to compress some

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Speaker 3: multiples here if there's debt financing.

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Speaker 4: So that's the big the big change here.

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Speaker 3: The tech sector as a standalone has already dropped two

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Speaker 3: turns of multiple as well, from thirty one times to

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Speaker 3: twenty nine times.

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Speaker 4: So there's been a lot of work done here. I

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Speaker 4: think it's a reset because I think we're in early

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Speaker 4: innings of this.

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Speaker 3: I also think it's healthy that there are larger questions

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Speaker 3: asked as we look forward. We expect consumer stimulus coming

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Speaker 3: from the tax code February March and aprils refunds to households,

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Speaker 3: the lower end households. I think you're getting going to

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Speaker 3: get a broadening out here in part because of the

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Speaker 3: questions about how this money is actually getting spent. And

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Speaker 3: in the end, as we know from twenty five years ago,

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Speaker 3: there are winners and losers. We've not asked ourselves that

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Speaker 3: question as a mark get as a market, and it's

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Speaker 3: almost impossible to know.

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Speaker 4: It's impossible to know.

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Speaker 3: So, you know, the companies that are the behemoths today

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Speaker 3: were like you know, a gleam in an eye of

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Speaker 3: some college kid in a basement, you know, back in

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Speaker 3: the late nineties. So that is it's hard to know

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Speaker 3: how this is going to get monetized.

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Speaker 4: But the questions are being asked. I think the questions

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Speaker 4: are good questions.

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Speaker 3: You don't want a straight upward move in the market,

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Speaker 3: so this, I think is healthier.

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Speaker 1: Although as an investor, if we're in the early stages,

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Speaker 1: how do you pick the winners for even the mid stages? Right?

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Speaker 1: And it sort of goes to the heart of do

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Speaker 1: you just honker down with the big tech names that

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Speaker 1: are the big tech names today and generating cash, or

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Speaker 1: do you bet on the evolution of AI to the

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Speaker 1: rest of the index the idea of other potential winners

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Speaker 1: in this potential race.

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Speaker 3: Well, I think part of what we're seeing here is

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Speaker 3: that evolution from sort of the picks and shovels and

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Speaker 3: the direct beneficiaries to implementation into business strategy. And you're

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Speaker 3: starting to see it in some of the industrials, and

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Speaker 3: you're even starting to see it in the hyperscalers. Like

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Speaker 3: if you just look at some of the revenue per

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Speaker 3: employee for some of the hyperscalers, it's gone remarkably higher

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Speaker 3: since chat GPT was released, so there is already implementation.

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Speaker 3: The market is going to start picking the winners and

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Speaker 3: losers in the other four.

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Speaker 4: Ninety three and that's what we're going to see.

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Speaker 3: That is a healthier place to be if you're changing

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Speaker 3: your business model. What we know is that the overall

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Speaker 3: margin for the SMP continues to march higher separate from

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Speaker 3: the top seven stocks. That means productivity is increasing, and

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Speaker 3: it's likely because there is AI being used across the

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Speaker 3: value chain in many many companies, whether if there's data

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Speaker 3: as part of the company, it's being used.

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Speaker 1: One thing that people keep saying is that all this

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Speaker 1: is predicated on enough energy to power, and increasingly a

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Speaker 1: lot of the hyper scalers are realizing, oh no, we

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Speaker 1: don't have that, so we have to come up with

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Speaker 1: a backdoor way off the grid to try to power

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Speaker 1: our sites. I just wonder at what point you can

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Speaker 1: invest in the energy sector or whether it's hamstrung between

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Speaker 1: policy and politics between Saudi Arabia and pros Trump the

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Speaker 1: potential agreements on oil.

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Speaker 3: Right, so look, there are no accidents here, right, I mean,

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Speaker 3: I think that part of the new administration, well that's

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Speaker 3: not new anymore. But part of the Trump administration's policy

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Speaker 3: was to keep a lid on energy prices, and that

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Speaker 3: is exactly what's happened. We're sending it sixty dollars on WTI,

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Speaker 3: sixty four on Brent. That's exactly what the policy has been.

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Speaker 3: And I think it's no surprise that bring energy down

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Speaker 3: to drive all of the innovation. In the end, it

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Speaker 3: is a competition with our adversaries out there, and so

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Speaker 3: this is part of the plan. There will be questions

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Speaker 3: asked along the way. You know, you know, the expression

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Speaker 3: is wiser but sadder, but wiser. We are wiser about

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Speaker 3: technological innovation than twenty five years ago. We understand there

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Speaker 3: are bumps along the way. What I see is a

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Speaker 3: remarkably resilient corporate sector. The productivity is going across all sectors.

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Speaker 4: We will see it. The margins are higher, and.

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Speaker 3: So we can ask questions about financing on the top

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Speaker 3: seven in stocks. We got four ninety three that can

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Speaker 3: also power the market. And I think we you know,

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Speaker 3: as a business, we are raising our earnings estimates for

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Speaker 3: next year and for the following year into this.

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Speaker 4: So we believe in the productivity. We see it. We

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Speaker 4: see it in earnings estimates.

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Speaker 3: Yes, some textors are coming down, like communications services because

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Speaker 3: of the spending of some of the hyperscalers, But overall

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Speaker 3: we're raising estimates.

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Speaker 2: You think is some scarring from dot com that the

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Speaker 2: issues that we saw then have conditioned a certain companies.

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Speaker 3: One hundred percent the way we've had scarring from GFC, right,

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Speaker 3: like they're scarring there about. You know, is this a

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Speaker 3: bubble while we're up one hundred percent? It's not a

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Speaker 3: great colleague of mind sent me a bunch of charts

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Speaker 3: on like what previous bubbles look like. We're just like

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Speaker 3: a tiny little speck, you know, right the appreciation in

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Speaker 3: the market and the particular companies at the at the

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Speaker 3: heart of this are actually exhibiting a shallow.

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Speaker 4: Rise in compared to what we know. Oh, we're bubbles

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Speaker 4: in the past.

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Speaker 3: We think we're actually early to mid innings of this,

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Speaker 3: and there's a way to go. The fact that the

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Speaker 3: market appreciated for six months in a row, seven percent

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Speaker 3: in the third quarter and we're quivering over a five

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Speaker 3: percent down George just tells you how great a year

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Speaker 3: it's been. And you know, there was broadening out and

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Speaker 3: I think, look, we have to get the FED question also,

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Speaker 3: like is the FED going to cut?

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Speaker 4: I think the chair has been very careful.

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Speaker 3: To keep the probabilities at fifty to fifty, even though

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Speaker 3: we've had hawkish comments. The market's not pricing in anything

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Speaker 3: less than fifty to fifty on the chances of a cut,

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Speaker 3: and that's done for a reason, because they want optionality

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Speaker 3: to cut.

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Speaker 2: Let's finish on this. What's a good number tomorrow morning?

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Speaker 2: On paying rows? I can tink you the estimate in

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Speaker 2: our survey it's fifty four. What's a good number for

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Speaker 2: this month?

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Speaker 3: I think anything over fifty is fine, right because the

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Speaker 3: three month rolling average is twenty nine and that's pretty awful.

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Speaker 3: So anything that pulls so I think fifty is fine.

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Speaker 3: That will change the probability whether we get a cut

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Speaker 3: or not. Also in December, I think overall, you'd rather

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Speaker 3: see a stronger economy in a better labor market, so

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Speaker 3: I think that's important. I think in Nvidia, you know,

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Speaker 3: we'll have to see what the earnings are, but like

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Speaker 3: you said, the hyperscalers are spending, so that's.

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Speaker 4: I think more knowable than not.

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Speaker 3: And then ultimately, for the largest retailer on Earth, you know,

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Speaker 3: half of the American population is a customer. So we'll

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Speaker 3: see what half of America is doing and the.

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Speaker 2: Other half things that group one of the airport. That's

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Speaker 2: the US economy right now. Alicia Levin of bm myy Wath, Alicia,

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Speaker 2: thank you, stay with us. More Bloomberg surveillance coming up

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Speaker 2: after this. Let's turn to the labor market, data, invest design,

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Speaker 2: the long delay September job support you tomorrow. Francis Donald

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Speaker 2: of NBC writing, we think fourth quarter to day too

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Speaker 2: will likely add more confusion than clarity. Francis joins is

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Speaker 2: now for more. Francis, welcome to the program. If we're

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Speaker 2: going to be more confused than clarified, what does that

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Speaker 2: mean for that decision on December tenth.

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Speaker 5: Well, it means the Federal Reserve is going to be

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Speaker 5: more confused and clarified, and the Federal Reserve, just like

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Speaker 5: markets and economists, are going to have to think a

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Speaker 5: little bit further out into what Q one and Q

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Speaker 5: two are going to look like. And probably that tells

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Speaker 5: us that employment will become slightly more problematic, not dramatically,

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Speaker 5: and inflation will continue to rise. It's a continuation of

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Speaker 5: that stagflation light type of environment, and even if we

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Speaker 5: have a bit of a whole here in a couple

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Speaker 5: months of data looking through, our view is still the same,

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Speaker 5: which is growth is going to be slightly below comfort

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Speaker 5: level and inflation is going to be slightly above and

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Speaker 5: that will be the situation that this federal reserve and

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Speaker 5: future federal reserves will likely continue to have.

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Speaker 2: To deal with.

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Speaker 4: What are you looking at to confirm that view?

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Speaker 1: We know that September data is going to be backward looking, yes,

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Speaker 1: we get that. Tomorrow. We know that October data is

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Speaker 1: going to be mundy at best, confusing at worst, and

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Speaker 1: potentially might even distort the picture further because of the

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Speaker 1: government shutdown, and it's unclear what CPI data we're going

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Speaker 1: to be getting. So what are your benchmark rights benchmarks?

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Speaker 2: Right now?

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Speaker 5: You know, we definitely have enough on the job side

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Speaker 5: from a variety of private sector data in order to

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Speaker 5: give us a sense of the momentum.

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Speaker 4: Do we know the exact.

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Speaker 5: Level, No, but we know it's sort of soft, stabilizing

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Speaker 5: enough to bring us towards our forecast to an unemployment

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Speaker 5: rate of about four to six later into twenty twenty six,

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Speaker 5: So that in and of itself we can see the

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Speaker 5: big problem is on the inflation side. That's where we

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Speaker 5: have really minimal perspective. We don't have the ability to

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Speaker 5: see much of what happened in October, and we're probably

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Speaker 5: not going to get full clarity on what that level

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Speaker 5: looks like until early in January, and actually you don't

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Speaker 5: even get the January data until February of that month.

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Speaker 5: But I think one of the stories here is that

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Speaker 5: we get so obsessed with month over month data. Is

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Speaker 5: if we need to see what happened last month or

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Speaker 5: three weeks ago to know the trend of the and

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Speaker 5: the truth is we don't. We actually have the ability

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Speaker 5: to map out over an extended period of time. That's

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Speaker 5: why economists have one year or five year forecasts, because

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Speaker 5: if we know the direction, we can make various assumptions.

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Speaker 5: And our assumption is that we have not seen the

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Speaker 5: inflationary impact of tariffs as of yet. We are still

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Speaker 5: drawing down on inventories in the United States, and we're

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Speaker 5: likely only going to start seeing that real pressure on

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Speaker 5: inflation in early twenty twenty six and in the middle

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Speaker 5: of twenty twenty six going forward, So we can maintain

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Speaker 5: those assumptions even if we don't have week to week,

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Speaker 5: maybe obsession over what the exact level will be.

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Speaker 1: One thing that a lot of people said during the

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Speaker 1: pandemic was listen to the companies. The companies have the

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Speaker 1: front view in terms of how to plan their businesses.

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Speaker 1: We heard from home Low's, we learned from home Depot,

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Speaker 1: we heard from Target.

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Speaker 4: Kind of a motley picture.

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Speaker 1: Here are you getting a sense from the retailers, from

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Speaker 1: the consumer facing companies of a picture that gives you

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Speaker 1: more clarity heading into twenty twenty six.

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Speaker 5: Absolutely, we're looking for anyone who can give us information.

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Speaker 5: I might add things like the FEDS Beige Book into

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Speaker 5: that story. So some of the anecdotal evidence that some

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Speaker 5: of these core themes are coming through. The big thing

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Speaker 5: we're seeing really now accepted in the broad based narrative

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Speaker 5: is something we've been talking about for well over a

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Speaker 5: year now, and that's that concept of the K shaped economy.

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Speaker 5: And while I think there is still maybe a little

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Speaker 5: bit of a view that that just means the halves

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Speaker 5: are getting richer and the not halves are getting worse off,

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Speaker 5: I don't know that we've really internalized how this is

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Speaker 5: changing the dynamic of consumer spends. That we've got some

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Speaker 5: consumers that are trading down and that benefits some companies,

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Speaker 5: and we've got other consumers that cannot trade down at all.

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Speaker 5: It even flows into conversations of, for example, potential two

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Speaker 5: thousand dollars checks to American households, will that be inflationary?

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Speaker 5: Not for the lower part of the K who are

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Speaker 5: still really struggling with affordability crises.

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Speaker 4: So we're looking for sort.

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Speaker 5: Of evidence of what the shift in the consumer is

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Speaker 5: really doing. And I'll add on top of that, it's

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Speaker 5: not just a K shaped economy, it's also an increasingly

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Speaker 5: retired consumer. What are those spending habits looking like? Because

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Speaker 5: this is really a consumer that we haven't seen for

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Speaker 5: many decades in the American economy in any time, type

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Speaker 5: of anecdotal or hard data that we can get on

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Speaker 5: it is very helpful in constructing that narrative and helping

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Speaker 5: companies navigate an increasingly difficult operating environment.

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Speaker 2: For Insis, I don't expect you to get deeply philosophical

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Speaker 2: when I asked this question, but just to take a

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Speaker 2: step back, what has gone wrong in the West? Why

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Speaker 2: do people hate these economies so much? Because it's not

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Speaker 2: unique to America. I stayed across Europe as well. What's

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Speaker 2: gone wrong care since the pandemic and what can we

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Speaker 2: get right?

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Speaker 5: Well, when we look at the data, which is the

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Speaker 5: economists perspective to the philosophical questions, what we see is

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Speaker 5: really a break in twenty twenty three. And it comes

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Speaker 5: back to this perspective that historically, while you know, the

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Speaker 5: wealthy spent more than the not wealthy, most of the

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Speaker 5: economy followed the same economic cycle. So if your upper

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Speaker 5: incomes were doing well, so were your lower incomes. It

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Speaker 5: was tides that lifted and sunk all ships at the

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Speaker 5: same time. So even though maybe some had more than others,

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Speaker 5: it really felt more egalitarian that we're all sort of

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Speaker 5: following in the same economy. After twenty twenty three, and

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Speaker 5: that's where we see the data really start to break down.

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Speaker 5: That's when we see that the haves or the upper

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Speaker 5: part of the k are really experiencing an entirely different

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Speaker 5: economy and a different economic cycle. And this is I

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Speaker 5: think the biggest question for the Federal Reserve. It's not

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Speaker 5: who's going to be the chair, is that how does

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Speaker 5: policy act in an environment where interest rates impact everybody

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Speaker 5: at the same time, but some areas of the economy

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Speaker 5: require different interest rate policy, what about things like fiscal

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Speaker 5: policy has to become extraordinarily more targeted. My concern heading

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Speaker 5: into twenty twenty six, if you've asked me to be philosophical,

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Speaker 5: is maybe that that lowercase K becomes even a upper

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Speaker 5: case K because we're going to see things like changes

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Speaker 5: to the salt cap deductions that's going to benefit the

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Speaker 5: upper part of the K. Financial markets doing well benefit

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Speaker 5: one side, and we still haven't seen any material relief

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Speaker 5: on the affordability side. So when I talk to clients

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Speaker 5: about the K shape, they say, well, what solves it?

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Speaker 5: And my answer to them is, you should really think

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Speaker 5: about this as maybe semi permanent type of dynamic. It's

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Speaker 5: not going away anytime soon. And if you're a company

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Speaker 5: trying to figure out how to service your clients, you

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Speaker 5: have to be really, really aware of which part of

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Speaker 5: that K, or maybe we should increasingly call it a

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Speaker 5: FAN you need to be looking.

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Speaker 2: At stay with us. More Bloomberg surveillance coming up after this.

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Speaker 2: Here's a view on Wall Street so far this morning.

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Speaker 2: J Emmanuel have Evercore calling for the S and P

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Speaker 2: to hit seventy seven fifty by the end of next year,

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Speaker 2: writing the path to a bullish long term is often

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Speaker 2: a series of volatile, uncomfortable short terms. This is one

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Speaker 2: of those times. Julian joined us now for more Judink.

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Speaker 6: And Mornic, Good morning.

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Speaker 2: Things have changed. Why have they changed? What's behind this

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Speaker 2: recent shift the way the market treats this story.

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Speaker 6: It's actually the debt concerns in our view. Again, because

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Speaker 6: and this is an escapable and we talked about this

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Speaker 6: a number of times throughout the year. You cannot get

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Speaker 6: away from the comparisons to the late nineteen nineties in

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Speaker 6: many respects. And when you think about the late nineteen nineties,

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Speaker 6: the problem with the bursting of the bubble, besides the

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Speaker 6: fact that the FED was hiking in nineteen ninety nine,

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Speaker 6: was the fact that a lot of the build out

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Speaker 6: was financed by companies that were incurring debt and had

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Speaker 6: no revenues on the other side. And because you've seen

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Speaker 6: this accelerating debt issuance, there is the worry that that

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Speaker 6: is coming back. And we would say that's actually a

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Speaker 6: good rational worry.

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Speaker 4: Well, and it's a worry potentially to buy.

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Speaker 1: I mean, I guess that this goes to the question

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Speaker 1: of why what makes you so bullish on an ongoing

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Speaker 1: basis despite some of the rhyming features of this particular

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Speaker 1: rally with respect to the debt component.

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Speaker 6: Well so a number of things. Again, the macro backdrop

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Speaker 6: is favorable. Okay, the Fed is going to be cutting.

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Speaker 6: We're going to have more stimulus. Whether we get two

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Speaker 6: thousand dollars in our pockets at some point next year

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Speaker 6: or not, we're going to have more stimulus. And from

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Speaker 6: evaluation perspective, as much as angst as there is, in fact,

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Speaker 6: certainly in comparison to the late nineteen nineties, these names

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Speaker 6: are I wouldn't say cheap, but they're certainly not expensive

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Speaker 6: relative to history, and they're not expensive relative to their

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Speaker 6: own history. And what we've seen over the last several

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Speaker 6: years and a lot of them is they just mark

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Speaker 6: time going sideways, so earnings catch up devaluation, and that's

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Speaker 6: an ongoing process.

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Speaker 1: At the start of the sell off, at the start

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Speaker 1: of November, it was very much what you're talking about,

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Speaker 1: a realization of the debt component. It seems like the

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Speaker 1: tone has shifted over the past couple of trading sessions

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Speaker 1: to not just a techt story, but to an everything story.

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Speaker 1: We're raising questions first about whether the FED is going

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Speaker 1: to cut next month, and second whether the US economy

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Speaker 1: is strong enough to withstand some of the optimism without

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Speaker 1: that ratecut. How much do you see that story continuing,

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Speaker 1: The idea that maybe the weakness under the hood is

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Speaker 1: part of what's pushing this story as much as the

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Speaker 1: debt overlaid artificial intelligence.

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Speaker 6: Well, a lot of it is the fact that we

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Speaker 6: simply haven't gotten data for the last month and a half.

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Speaker 6: And you know, in the beginning of it, it was okay, fine,

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Speaker 6: the market, we're doing well, you know, we're the uncertainty

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Speaker 6: is a positive. But then investors realize that uncertainty is

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Speaker 6: uncertainty and should be discounted.

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Speaker 7: You know.

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Speaker 6: Our suspicion is is that over the next number of weeks,

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Speaker 6: as we get back to normalizing the data releases, people

404
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Speaker 6: will at least have something to anchor on. And the

405
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Speaker 6: question in terms of the economy and which is certainly

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Speaker 6: the question that's the backdrop for sustaining these valuations, and

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Speaker 6: of course monetary policy, is the economy okay with the

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Speaker 6: slower speed of job growth, you know, we think the

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Speaker 6: sort of the monthly break even is somewhere between thirty

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Speaker 6: and sixty thousand jobs. Is that palatable? We think the

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Speaker 6: answer ultimately will be yes.

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Speaker 2: Jitny, forgive me. It's almost like we've forgotten what it

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Speaker 2: was like when we had the data. When we had

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Speaker 2: the data, people questioned it all the time, the question

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Speaker 2: the quality of it. They didn't like the payrolls data.

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Speaker 2: In fact, the payroll data was super weak, even if

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Speaker 2: you believed in it. And I don't know how relevant

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Speaker 2: the equity markets story was to the payroll stations that

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Speaker 2: we've seen over the last seven eight months anyway.

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Speaker 6: Well, we have never put stock in in the monthly

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Speaker 6: payrolls data. It's the weekly jobless claims data that that's

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Speaker 6: always been high frequency importance, and we've been sort of

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Speaker 6: calculating it back of the envelope at Evercore II. The

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Speaker 6: no it's you know, steady as she goes two hundred

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Speaker 6: and thirty thousand every single week. And I think once

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Speaker 6: that becomes transparent, we're going to see that again.

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Speaker 2: Does it come down to this, the stock market what

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Speaker 2: it really wants the ning story that it's already got,

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Speaker 2: but it wants the right cuts too, And to get

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Speaker 2: the right cuts you need the weak job states. Is

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Speaker 2: that what it comes down to.

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Speaker 6: Look at twenty six times, you have to have constant

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Speaker 6: positive narrative. Stocks are expensive. Stocks. Being expensive is not

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Speaker 6: a reason to sell the market. You know, it can

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Speaker 6: be a headwind as it is at the current time

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Speaker 6: when you have this uncertainty. But again, ultimately to your point, John,

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Speaker 6: is that earnings revisions are just phenomenally strong. The runway

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Speaker 6: to next year in terms of earnings growth is great,

439
00:21:12,280 --> 00:21:15,000
Speaker 6: and as I look at it, our seventy seven to

440
00:21:15,080 --> 00:21:19,280
Speaker 6: fifty price target is likely not going to imply any

441
00:21:19,359 --> 00:21:22,680
Speaker 6: multiple expansion, which makes me want to mop my brow

442
00:21:22,920 --> 00:21:23,560
Speaker 6: in relief.

443
00:21:23,760 --> 00:21:27,560
Speaker 1: Well mop your relief or put a higher multiple on

444
00:21:27,600 --> 00:21:30,760
Speaker 1: the idea of bubble territory. We're on bubble watch, or

445
00:21:30,880 --> 00:21:33,240
Speaker 1: maybe bubble call or whatever you want to use the

446
00:21:33,240 --> 00:21:36,199
Speaker 1: word B word that everyone seems to be overusing these days.

447
00:21:36,440 --> 00:21:38,480
Speaker 1: What would it take in terms of FED rate cuts

448
00:21:38,600 --> 00:21:41,640
Speaker 1: to get to your extreme bubble call full bubble, which

449
00:21:41,680 --> 00:21:44,040
Speaker 1: you put it a thirty percent chance currently for next year.

450
00:21:43,920 --> 00:21:48,960
Speaker 6: You'd probably need four or five cuts in an economy, well,

451
00:21:49,000 --> 00:21:52,240
Speaker 6: look back it up. The fact is is that in

452
00:21:52,280 --> 00:21:56,919
Speaker 6: the last several weeks, both the trajectory for growth and

453
00:21:57,040 --> 00:22:00,920
Speaker 6: the trajectory for inflation appear to be in proving. We

454
00:22:00,960 --> 00:22:03,560
Speaker 6: took our number down to two point seven on the

455
00:22:03,560 --> 00:22:06,520
Speaker 6: court PC for the end of next year. That's certainly

456
00:22:06,560 --> 00:22:10,040
Speaker 6: going to be sufficient enough for the Fed to cut.

457
00:22:10,160 --> 00:22:12,800
Speaker 6: We took our growth number up to one point nine,

458
00:22:13,400 --> 00:22:17,080
Speaker 6: and frankly, the way the setup is right now, there

459
00:22:17,080 --> 00:22:20,080
Speaker 6: could be upside to the growth number and downside to

460
00:22:20,119 --> 00:22:21,119
Speaker 6: the inflation number.

461
00:22:23,119 --> 00:22:26,640
Speaker 2: Stay with us mul Bloomberg surveillance coming up after this.

462
00:22:35,600 --> 00:22:37,760
Speaker 2: Can you persuade Americans to say, for that two thousand

463
00:22:37,800 --> 00:22:38,680
Speaker 2: dollars check good luck?

464
00:22:38,680 --> 00:22:40,760
Speaker 1: How would you persuade them you're going to get a sale.

465
00:22:40,800 --> 00:22:42,560
Speaker 4: You're going to Burken Bag in December?

466
00:22:42,600 --> 00:22:45,200
Speaker 1: If you yeah, I mean, honestly try that with kids.

467
00:22:45,000 --> 00:22:47,760
Speaker 2: Two thousand dollars can spend almost immediately. Libby cantl to

468
00:22:47,800 --> 00:22:49,919
Speaker 2: Pimco has this to say, we're very skeptical of the

469
00:22:49,920 --> 00:22:53,520
Speaker 2: Republicans in Congress at this point interested in adding more

470
00:22:53,560 --> 00:22:55,919
Speaker 2: to the deficit with another tax count Leby Joan just

471
00:22:55,920 --> 00:22:56,320
Speaker 2: now for more.

472
00:22:56,359 --> 00:22:57,520
Speaker 4: Libby, good morning, Good morning.

473
00:22:57,720 --> 00:23:00,000
Speaker 2: There's a shift of the White House affordability and folks

474
00:23:00,280 --> 00:23:03,440
Speaker 2: new initiatives. Where's the shift coming from? And is it durable?

475
00:23:03,600 --> 00:23:05,040
Speaker 2: Is it sustainable in to next year.

476
00:23:05,440 --> 00:23:07,520
Speaker 7: Yeah, well, I mean, yes, there is a shift, and

477
00:23:07,520 --> 00:23:10,520
Speaker 7: obviously it was precipitated partly at least by the election

478
00:23:10,720 --> 00:23:13,359
Speaker 7: two weeks ago when Democrats, if anybody who had a

479
00:23:13,400 --> 00:23:16,280
Speaker 7: D you know on the end of their name, basically

480
00:23:16,320 --> 00:23:19,960
Speaker 7: did well. And most Democrats did run on affordability, probably

481
00:23:20,359 --> 00:23:22,800
Speaker 7: in some ways learning the lesson from twenty twenty four

482
00:23:23,040 --> 00:23:25,720
Speaker 7: where they don't think they didn't sort of lean into

483
00:23:25,760 --> 00:23:28,480
Speaker 7: that issue as much. And so now the White House,

484
00:23:28,560 --> 00:23:31,080
Speaker 7: I think, understandably a little bit like how President Biden

485
00:23:31,119 --> 00:23:33,000
Speaker 7: did in you know, twenty twenty one and twenty twenty two,

486
00:23:33,560 --> 00:23:36,840
Speaker 7: maybe in vain is trying to shift more to affordability.

487
00:23:36,960 --> 00:23:39,080
Speaker 7: I think there are obviously limitations to what the president

488
00:23:39,119 --> 00:23:41,440
Speaker 7: can do unilatterally, and I think he's I think Secretary

489
00:23:41,480 --> 00:23:45,359
Speaker 7: Vessett understands those limitations. You do need Congress in order

490
00:23:45,400 --> 00:23:50,000
Speaker 7: to cut taxes, even if the revenues that are going

491
00:23:50,040 --> 00:23:52,120
Speaker 7: to offset that task that would come from terraces, which

492
00:23:52,119 --> 00:23:55,960
Speaker 7: obviously we're put through unilaterally. So we are skeptical now

493
00:23:56,080 --> 00:23:58,240
Speaker 7: with that said, and this is something we think that

494
00:23:58,400 --> 00:24:00,760
Speaker 7: the market is obviously focused on, is that there will

495
00:24:00,760 --> 00:24:04,919
Speaker 7: be a really nice, healthy tax refund come next spring.

496
00:24:05,160 --> 00:24:07,080
Speaker 7: I'm not even sure Americans actually realize that they're going

497
00:24:07,119 --> 00:24:09,840
Speaker 7: to get too nice and refund. But you know, on average,

498
00:24:10,000 --> 00:24:12,960
Speaker 7: you know, households will likely receive one thousand dollars kind

499
00:24:13,000 --> 00:24:15,280
Speaker 7: of plus sort of depending on their tax break and

500
00:24:15,280 --> 00:24:18,239
Speaker 7: their tax situation. So that could maybe you know, have

501
00:24:18,320 --> 00:24:20,720
Speaker 7: the same effect. But in terms of an additional task

502
00:24:20,720 --> 00:24:22,880
Speaker 7: cut paid by tariff revenues, we think.

503
00:24:22,800 --> 00:24:23,440
Speaker 4: It's very unlikely.

504
00:24:23,560 --> 00:24:24,960
Speaker 2: What do you think is on the menu? So we've

505
00:24:24,960 --> 00:24:28,320
Speaker 2: seen some tariff relief already, we're seeing the prospect of

506
00:24:28,359 --> 00:24:30,439
Speaker 2: a two thousand dollars rebak check. We've also had a

507
00:24:30,440 --> 00:24:33,240
Speaker 2: conversation about fifty mortgages as well. What else is on

508
00:24:33,280 --> 00:24:33,600
Speaker 2: the menu?

509
00:24:33,720 --> 00:24:35,840
Speaker 7: Yeah, all the proposals of so I mean, obviously the

510
00:24:35,920 --> 00:24:39,240
Speaker 7: reduction in tariffs for food stuffs, for beef, for coffee

511
00:24:39,280 --> 00:24:41,720
Speaker 7: from bananas, a little bit of a tell that maybe

512
00:24:41,800 --> 00:24:45,480
Speaker 7: tariffs do raise costs at least incrementally. And then obviously,

513
00:24:45,520 --> 00:24:47,800
Speaker 7: you know, the fifty year mortgage. You know, we again

514
00:24:47,880 --> 00:24:50,399
Speaker 7: skeptical that that actually goes through lots of issues with

515
00:24:50,480 --> 00:24:55,920
Speaker 7: that maybe provide some upfront affordability, some cost avings in

516
00:24:56,000 --> 00:24:58,920
Speaker 7: terms of mortgage payment, but obviously reduces the amount of

517
00:24:58,960 --> 00:25:02,200
Speaker 7: equity that folks are able to build in their homes.

518
00:25:02,920 --> 00:25:05,760
Speaker 7: Is not TVA eligible to be very wonky, so probably

519
00:25:05,840 --> 00:25:07,960
Speaker 7: has a liquidity issue as well. So I think the

520
00:25:08,000 --> 00:25:10,159
Speaker 7: upshot is that we think that's unlikely. Of course, the

521
00:25:10,200 --> 00:25:12,159
Speaker 7: real issue with housing, as we all know, is supply,

522
00:25:12,960 --> 00:25:17,960
Speaker 7: and so trying to incentivize developers and folks to build

523
00:25:18,320 --> 00:25:20,760
Speaker 7: that probably takes Congress as well. And there's some things

524
00:25:20,760 --> 00:25:23,600
Speaker 7: that they can do from a permitting perspective unilaterally, but

525
00:25:23,720 --> 00:25:25,760
Speaker 7: really difficult even on the federal level. So I think

526
00:25:25,760 --> 00:25:28,480
Speaker 7: the upshot here is they're just limits to what the

527
00:25:28,520 --> 00:25:31,320
Speaker 7: president can do unilaterally. He can talk about it, but

528
00:25:31,359 --> 00:25:33,159
Speaker 7: he probably eats Congress to do most of it.

529
00:25:33,240 --> 00:25:35,120
Speaker 1: But what we learned from the mid midterms, and i'll

530
00:25:35,160 --> 00:25:37,320
Speaker 1: call them the mid midterms, it's essentially what they were,

531
00:25:37,400 --> 00:25:40,040
Speaker 1: is that there is this shift to affordability, and there

532
00:25:40,040 --> 00:25:44,000
Speaker 1: seems to be bipartisan support to more to really help

533
00:25:44,080 --> 00:25:46,479
Speaker 1: consumers with the cost of living concerns that they have.

534
00:25:46,600 --> 00:25:48,600
Speaker 4: It is a bipartisan issue.

535
00:25:48,240 --> 00:25:52,400
Speaker 1: Politically, Why has the vibe shift not moved into materially

536
00:25:52,520 --> 00:25:56,240
Speaker 1: higher long term yields? If you have bipartisan support to

537
00:25:56,359 --> 00:25:58,680
Speaker 1: reduce the amount of tariffs, to reduce the amount of

538
00:25:58,760 --> 00:25:59,920
Speaker 1: cuts just broadly to.

539
00:26:00,080 --> 00:26:00,919
Speaker 4: For abit et cetera.

540
00:26:01,240 --> 00:26:03,000
Speaker 7: Yeah, I mean it's a you know, it's a good question.

541
00:26:03,080 --> 00:26:04,800
Speaker 7: I think we you know, we've obviously I mean, of

542
00:26:04,840 --> 00:26:07,000
Speaker 7: course you all know that the curve is obviously steepened

543
00:26:07,040 --> 00:26:09,040
Speaker 7: a lot of the last year, and so it still

544
00:26:09,080 --> 00:26:12,719
Speaker 7: remains relatively steep, at least relative to the very kind

545
00:26:12,760 --> 00:26:14,800
Speaker 7: of flat yel curve that we had seen, you know,

546
00:26:14,840 --> 00:26:17,480
Speaker 7: for years previously. So in some ways that term premium

547
00:26:17,480 --> 00:26:20,000
Speaker 7: has come back a little bit, but there's still is

548
00:26:20,040 --> 00:26:22,320
Speaker 7: a bit obviously for treasuries, and there's you know, we

549
00:26:22,359 --> 00:26:24,159
Speaker 7: always say the kind of the cleanest dirty shirt, This

550
00:26:24,280 --> 00:26:26,120
Speaker 7: expression of Bill Gross is our founder of him.

551
00:26:26,160 --> 00:26:26,240
Speaker 2: Go.

552
00:26:26,640 --> 00:26:28,000
Speaker 7: You used to talk about kind of the you know,

553
00:26:28,040 --> 00:26:30,040
Speaker 7: there is no alternative. You have a lot of dirty

554
00:26:30,040 --> 00:26:32,080
Speaker 7: shirts you wear. The cleanest dirty shirt doesn't look great

555
00:26:32,119 --> 00:26:34,919
Speaker 7: on absolute basis, looks good pretty, you know, relative to

556
00:26:34,960 --> 00:26:36,720
Speaker 7: the other shirts. And I think that still stand. So,

557
00:26:37,080 --> 00:26:38,840
Speaker 7: you know, there is going to be some natural limit

558
00:26:38,800 --> 00:26:41,080
Speaker 7: in terms of how at least right now, how how

559
00:26:41,240 --> 00:26:43,280
Speaker 7: you know, how high the thirty year, how how much

560
00:26:43,320 --> 00:26:46,439
Speaker 7: that term premium does expand. But all things equal, if

561
00:26:46,480 --> 00:26:48,119
Speaker 7: you just go back to where we were back in

562
00:26:48,240 --> 00:26:50,760
Speaker 7: you know, October of last year, the you know, the

563
00:26:50,840 --> 00:26:51,880
Speaker 7: Yeld curve has steepened.

564
00:26:51,960 --> 00:26:52,120
Speaker 3: Yeah.

565
00:26:52,119 --> 00:26:53,960
Speaker 1: I just wonder if bond vigilanties have either gone to

566
00:26:53,960 --> 00:26:56,280
Speaker 1: sleep or never existed, right, because at a certain point

567
00:26:56,400 --> 00:26:59,360
Speaker 1: we're talking about, you know, the deficit that at one

568
00:26:59,359 --> 00:27:01,760
Speaker 1: point was the rally and cry for people who are

569
00:27:01,760 --> 00:27:03,680
Speaker 1: saying gills are going higher, and all of a sudden,

570
00:27:03,720 --> 00:27:06,159
Speaker 1: we're looking at the potential rollback of tariff revenue, the

571
00:27:06,200 --> 00:27:09,840
Speaker 1: potential edition of policies they could potentially support consumers, whether

572
00:27:09,920 --> 00:27:12,359
Speaker 1: that two thousand dollars gets passed or not, you're talking

573
00:27:12,359 --> 00:27:14,840
Speaker 1: about a bigger deficit. Suddenly nobody cares. What's the deal?

574
00:27:15,359 --> 00:27:17,080
Speaker 7: Yeah, And I know we've been talking about kind of

575
00:27:17,119 --> 00:27:19,720
Speaker 7: the six seven percent deficits really for the foreseeble sorry

576
00:27:19,800 --> 00:27:25,320
Speaker 7: for the sample future time, but really the foreseeable future.

577
00:27:25,320 --> 00:27:27,600
Speaker 7: And that was our view going into this that regardless

578
00:27:27,600 --> 00:27:29,399
Speaker 7: of who won the election, the deficit would be the

579
00:27:29,400 --> 00:27:32,639
Speaker 7: biggest loser that has obviously come to pass. And you know,

580
00:27:32,680 --> 00:27:35,560
Speaker 7: nobody is talking about sort of fiscal responsibility. I mean,

581
00:27:35,640 --> 00:27:38,760
Speaker 7: they're not talking about increases to increasing taxes or changing

582
00:27:38,880 --> 00:27:41,600
Speaker 7: entitlement spending, and that's really what you actually would need

583
00:27:41,640 --> 00:27:44,160
Speaker 7: in order to change the fiscal trajectory. But the same

584
00:27:44,240 --> 00:27:47,000
Speaker 7: thing just from an investor's perspective, I mean, people are

585
00:27:47,040 --> 00:27:50,000
Speaker 7: looking at the US as the sort of source of growth, right.

586
00:27:50,040 --> 00:27:51,760
Speaker 7: I mean, if you just look at what's happening obviously

587
00:27:51,800 --> 00:27:55,760
Speaker 7: with AI, with labor mobility, still immigration, I mean, the

588
00:27:55,840 --> 00:27:58,880
Speaker 7: dynamics of the US economy are so much more attractive

589
00:27:58,920 --> 00:28:01,880
Speaker 7: than the other develop rich world. So I think there

590
00:28:01,960 --> 00:28:03,439
Speaker 7: is a little bit of that where there's just going

591
00:28:03,520 --> 00:28:05,240
Speaker 7: to be kind of demand at least as of now,

592
00:28:05,920 --> 00:28:08,359
Speaker 7: for you know, for our for our debt because of those.

593
00:28:08,600 --> 00:28:10,440
Speaker 2: I cannot believe six seven made it to Bloomberg.

594
00:28:10,840 --> 00:28:12,040
Speaker 4: It's okay, I think that it's great.

595
00:28:12,040 --> 00:28:13,200
Speaker 2: Man made it happen.

596
00:28:13,680 --> 00:28:16,320
Speaker 1: It's gonna be so proud you made us relevant right now?

597
00:28:16,440 --> 00:28:19,240
Speaker 4: That is yeah, exactly nice.

598
00:28:19,280 --> 00:28:25,200
Speaker 2: Okay, Where has Lebby taking this? I think pr Pimko

599
00:28:25,359 --> 00:28:27,960
Speaker 2: confused already, Libya, I want to finish on maybe a

600
00:28:28,000 --> 00:28:30,560
Speaker 2: fracture in the Republican Party. Congressman Friendship was on the

601
00:28:30,560 --> 00:28:33,240
Speaker 2: program a little bit earlier this week, and he made

602
00:28:33,480 --> 00:28:36,240
Speaker 2: the point that he didn't like broad based tariffs, and

603
00:28:36,280 --> 00:28:38,800
Speaker 2: he's typically very diplomatic, but I think a little bit

604
00:28:38,840 --> 00:28:40,840
Speaker 2: more vocal. Now we're starting to see signs of the

605
00:28:40,840 --> 00:28:43,120
Speaker 2: Republican Party on the Hill. It's pushing back a little

606
00:28:43,160 --> 00:28:45,440
Speaker 2: bit to the White House sensing the same thing.

607
00:28:46,080 --> 00:28:48,880
Speaker 7: Yes, I mean, obviously the vote on Epstein files was

608
00:28:48,920 --> 00:28:50,640
Speaker 7: a little bit like that, you know, just sort of

609
00:28:50,720 --> 00:28:54,000
Speaker 7: put the exclamation point on that sentiment. I do think

610
00:28:54,040 --> 00:28:56,840
Speaker 7: that this is again, this is actually a bipartisan phenomenon.

611
00:28:56,840 --> 00:28:59,320
Speaker 7: If you just look at the Biden administration at the

612
00:28:59,400 --> 00:29:02,440
Speaker 7: end of twenty two twenty one, the coalition around Democrats

613
00:29:02,480 --> 00:29:05,320
Speaker 7: was fracturing then as well, so there was more pushback

614
00:29:05,360 --> 00:29:08,000
Speaker 7: on President Biden by his own party. I think the

615
00:29:08,040 --> 00:29:11,000
Speaker 7: same thing is happening now. Right after the off cycle,

616
00:29:11,360 --> 00:29:14,360
Speaker 7: the midterm midterm election of two weeks ago, you are

617
00:29:14,400 --> 00:29:17,480
Speaker 7: now seeing that political runway for the president shortened. And again,

618
00:29:17,520 --> 00:29:21,640
Speaker 7: this is I think pretty consistent with history. But I

619
00:29:21,640 --> 00:29:24,000
Speaker 7: do think you will continue to see more pushback, and

620
00:29:24,040 --> 00:29:27,640
Speaker 7: as it relates to fiscal policy task cuts adding to

621
00:29:27,680 --> 00:29:30,160
Speaker 7: the deficit, a lot of Republicans very uncomfortable with that.

622
00:29:30,440 --> 00:29:33,000
Speaker 7: I also think it has implications for the FED share

623
00:29:33,120 --> 00:29:35,800
Speaker 7: in terms of who's actually the nominate you may see,

624
00:29:36,000 --> 00:29:38,200
Speaker 7: you know, if the president were to nominate somebody who

625
00:29:38,240 --> 00:29:41,000
Speaker 7: was viewed as not independent, it was viewed as too political.

626
00:29:41,320 --> 00:29:44,239
Speaker 7: I think that Republicans are increasingly feeling a little bit

627
00:29:44,280 --> 00:29:47,239
Speaker 7: more comfortable to push back. They have been privately, but

628
00:29:47,320 --> 00:29:50,520
Speaker 7: maybe more publicly as well. And again pretty consistent with

629
00:29:50,560 --> 00:29:51,720
Speaker 7: other cycles in history.

630
00:29:51,760 --> 00:29:53,200
Speaker 2: Do you think just find me that could lead to

631
00:29:53,240 --> 00:29:54,880
Speaker 2: a sensible fet chat choice.

632
00:29:55,200 --> 00:29:57,320
Speaker 4: That has been our view. We think that we think

633
00:29:57,320 --> 00:29:58,000
Speaker 4: that there's.

634
00:29:57,800 --> 00:30:01,200
Speaker 7: Going to be a much more conventional, orthodox fed share

635
00:30:01,360 --> 00:30:03,280
Speaker 7: than I think a lot of crystal is feared in

636
00:30:03,320 --> 00:30:03,720
Speaker 7: the market.

637
00:30:03,920 --> 00:30:05,400
Speaker 2: Yeah, that's what's sensiblest to me.

638
00:30:05,760 --> 00:30:08,840
Speaker 4: That's to be right exactly. He would be the easiest.

639
00:30:08,880 --> 00:30:10,000
Speaker 4: He would be the easy Would.

640
00:30:09,760 --> 00:30:12,040
Speaker 2: You think the president believes is politically correct? What does

641
00:30:12,040 --> 00:30:12,880
Speaker 2: that mean to the president?

642
00:30:12,960 --> 00:30:14,960
Speaker 7: Yeah, not not sure, but I think probably somebody who's

643
00:30:15,000 --> 00:30:18,160
Speaker 7: more familiar to Washington. So whether that is Governor Waller

644
00:30:18,320 --> 00:30:21,440
Speaker 7: or Kevin Hassett, somebody who's going to be, you know,

645
00:30:21,480 --> 00:30:23,400
Speaker 7: a little bit more familiar with different characters.

646
00:30:23,440 --> 00:30:24,600
Speaker 4: I don't know, very different.

647
00:30:24,640 --> 00:30:26,960
Speaker 2: Six seven let me get to see you, oh nice, okay?

648
00:30:27,200 --> 00:30:33,280
Speaker 2: Or from me again? Overwhelming okay, invited back Liby, You'll

649
00:30:33,320 --> 00:30:35,920
Speaker 2: be invited back. Banks of being here Levey Cantrell and Fimco.

650
00:30:37,200 --> 00:30:40,760
Speaker 2: This is the Bloomberg Sevendans podcast, bringing you the best

651
00:30:40,800 --> 00:30:44,120
Speaker 2: in markets, economics, angio politics. You can watch the show

652
00:30:44,160 --> 00:30:47,120
Speaker 2: live on Bloomberg TV weekday mornings from six am to

653
00:30:47,240 --> 00:30:51,000
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify,

654
00:30:51,160 --> 00:30:53,400
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655
00:30:53,400 --> 00:30:55,840
Speaker 2: Bloomberg Terminal and the Bloomberg Business app