Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Ameri Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Tag. Concerns continue to
Speaker 2: weigh on equity markets worldwide. Alisha Levine of B and
Speaker 2: Y Walth writing, we do not anticipate macro downside and
Speaker 2: so expect the markets rally into year end. The risk
Speaker 2: is to the upside from here. Alisa joins us now
Speaker 2: for more. Alisha Gimnic good Morning said that last time,
Speaker 2: what's gone wrong in the last few weeks?
Speaker 3: Well, I don't think get anything's gone wrong yet. I mean,
Speaker 3: if you think about it, the SMP is off about
Speaker 3: five percent. Really it's the text that took the hit.
Speaker 3: But what's interesting we talked about how how the multiple
Speaker 3: was in the SMP at twenty three times, we're now
Speaker 3: at twenty one times, so the market's done a little
Speaker 3: bit of work here to take some of the froth out.
Speaker 3: In the end, we're always looking forward for our client
Speaker 3: portfolios twelve to eighteen months forward. We think this will
Speaker 3: be a biable moment where it ends. There's going to be.
Speaker 3: As you said, the next twenty four hours gets to
Speaker 3: all the issues, gets to the earnings, the spending, the
Speaker 3: depreciation issue on how the P and L is being
Speaker 3: managed for all these tech companies, which has come up
Speaker 3: in the last week, as well as what's happening with
Speaker 3: the labor market as well as what's happening.
Speaker 4: With the lower end consumer.
Speaker 3: So you're getting all these issues answered in twenty four hours.
Speaker 3: And I just think that market participants did not want
Speaker 3: to carry risk into this. It's just too big because
Speaker 3: you are getting the macro story as well as like
Speaker 3: the micro of what's going on with this particular trade
Speaker 3: that has driven the market for the last eighteen months.
Speaker 2: So ly should have to unpack some of that. So
Speaker 2: we've got a big morning tomorrow Walmart, and we've got
Speaker 2: jobs as well, so that should give you some indication.
Speaker 2: A little bit at least of what the FED might
Speaker 2: do next month. I want to sit on Nvidia as
Speaker 2: a company and as a stock. As a company, the
Speaker 2: earning should be pretty good because we've heard from their
Speaker 2: biggest customers, and their biggest customers want to spend more
Speaker 2: and keep spending more. So I've got that sorted as
Speaker 2: a stock. There's an attitude shift that's developed in this market.
Speaker 2: The things we used to rally on we don't rally
Speaker 2: on anymore. What's behind that and why do you see
Speaker 2: it change?
Speaker 4: It? Look the big.
Speaker 3: Difference here, and you know, I can't talk about particular companies,
Speaker 3: but this is a theoretic.
Speaker 4: This is, you know, the entire market, it's the entire
Speaker 4: market itself.
Speaker 3: Is that the debt financing versus financing from equity or
Speaker 3: financing from cash flow is the biggest change, and it
Speaker 3: does introduce a different risk metric. So to me, it
Speaker 3: does make sense that you're bringing the multiples in a
Speaker 3: little bit simply because if you're debt financing, that is
Speaker 3: a different kettle of fish. In the end, we've talked
Speaker 3: about how the margins are so high, how the cash
Speaker 3: flow margins are so high, particularly for the sector that
Speaker 3: it's able to sustain higher multiples. If that is the case,
Speaker 3: that in this new world, you're going to compress some
Speaker 3: multiples here if there's debt financing.
Speaker 4: So that's the big the big change here.
Speaker 3: The tech sector as a standalone has already dropped two
Speaker 3: turns of multiple as well, from thirty one times to
Speaker 3: twenty nine times.
Speaker 4: So there's been a lot of work done here. I
Speaker 4: think it's a reset because I think we're in early
Speaker 4: innings of this.
Speaker 3: I also think it's healthy that there are larger questions
Speaker 3: asked as we look forward. We expect consumer stimulus coming
Speaker 3: from the tax code February March and aprils refunds to households,
Speaker 3: the lower end households. I think you're getting going to
Speaker 3: get a broadening out here in part because of the
Speaker 3: questions about how this money is actually getting spent. And
Speaker 3: in the end, as we know from twenty five years ago,
Speaker 3: there are winners and losers. We've not asked ourselves that
Speaker 3: question as a mark get as a market, and it's
Speaker 3: almost impossible to know.
Speaker 4: It's impossible to know.
Speaker 3: So, you know, the companies that are the behemoths today
Speaker 3: were like you know, a gleam in an eye of
Speaker 3: some college kid in a basement, you know, back in
Speaker 3: the late nineties. So that is it's hard to know
Speaker 3: how this is going to get monetized.
Speaker 4: But the questions are being asked. I think the questions
Speaker 4: are good questions.
Speaker 3: You don't want a straight upward move in the market,
Speaker 3: so this, I think is healthier.
Speaker 1: Although as an investor, if we're in the early stages,
Speaker 1: how do you pick the winners for even the mid stages? Right?
Speaker 1: And it sort of goes to the heart of do
Speaker 1: you just honker down with the big tech names that
Speaker 1: are the big tech names today and generating cash, or
Speaker 1: do you bet on the evolution of AI to the
Speaker 1: rest of the index the idea of other potential winners
Speaker 1: in this potential race.
Speaker 3: Well, I think part of what we're seeing here is
Speaker 3: that evolution from sort of the picks and shovels and
Speaker 3: the direct beneficiaries to implementation into business strategy. And you're
Speaker 3: starting to see it in some of the industrials, and
Speaker 3: you're even starting to see it in the hyperscalers. Like
Speaker 3: if you just look at some of the revenue per
Speaker 3: employee for some of the hyperscalers, it's gone remarkably higher
Speaker 3: since chat GPT was released, so there is already implementation.
Speaker 3: The market is going to start picking the winners and
Speaker 3: losers in the other four.
Speaker 4: Ninety three and that's what we're going to see.
Speaker 3: That is a healthier place to be if you're changing
Speaker 3: your business model. What we know is that the overall
Speaker 3: margin for the SMP continues to march higher separate from
Speaker 3: the top seven stocks. That means productivity is increasing, and
Speaker 3: it's likely because there is AI being used across the
Speaker 3: value chain in many many companies, whether if there's data
Speaker 3: as part of the company, it's being used.
Speaker 1: One thing that people keep saying is that all this
Speaker 1: is predicated on enough energy to power, and increasingly a
Speaker 1: lot of the hyper scalers are realizing, oh no, we
Speaker 1: don't have that, so we have to come up with
Speaker 1: a backdoor way off the grid to try to power
Speaker 1: our sites. I just wonder at what point you can
Speaker 1: invest in the energy sector or whether it's hamstrung between
Speaker 1: policy and politics between Saudi Arabia and pros Trump the
Speaker 1: potential agreements on oil.
Speaker 3: Right, so look, there are no accidents here, right, I mean,
Speaker 3: I think that part of the new administration, well that's
Speaker 3: not new anymore. But part of the Trump administration's policy
Speaker 3: was to keep a lid on energy prices, and that
Speaker 3: is exactly what's happened. We're sending it sixty dollars on WTI,
Speaker 3: sixty four on Brent. That's exactly what the policy has been.
Speaker 3: And I think it's no surprise that bring energy down
Speaker 3: to drive all of the innovation. In the end, it
Speaker 3: is a competition with our adversaries out there, and so
Speaker 3: this is part of the plan. There will be questions
Speaker 3: asked along the way. You know, you know, the expression
Speaker 3: is wiser but sadder, but wiser. We are wiser about
Speaker 3: technological innovation than twenty five years ago. We understand there
Speaker 3: are bumps along the way. What I see is a
Speaker 3: remarkably resilient corporate sector. The productivity is going across all sectors.
Speaker 4: We will see it. The margins are higher, and.
Speaker 3: So we can ask questions about financing on the top
Speaker 3: seven in stocks. We got four ninety three that can
Speaker 3: also power the market. And I think we you know,
Speaker 3: as a business, we are raising our earnings estimates for
Speaker 3: next year and for the following year into this.
Speaker 4: So we believe in the productivity. We see it. We
Speaker 4: see it in earnings estimates.
Speaker 3: Yes, some textors are coming down, like communications services because
Speaker 3: of the spending of some of the hyperscalers, But overall
Speaker 3: we're raising estimates.
Speaker 2: You think is some scarring from dot com that the
Speaker 2: issues that we saw then have conditioned a certain companies.
Speaker 3: One hundred percent the way we've had scarring from GFC, right,
Speaker 3: like they're scarring there about. You know, is this a
Speaker 3: bubble while we're up one hundred percent? It's not a
Speaker 3: great colleague of mind sent me a bunch of charts
Speaker 3: on like what previous bubbles look like. We're just like
Speaker 3: a tiny little speck, you know, right the appreciation in
Speaker 3: the market and the particular companies at the at the
Speaker 3: heart of this are actually exhibiting a shallow.
Speaker 4: Rise in compared to what we know. Oh, we're bubbles
Speaker 4: in the past.
Speaker 3: We think we're actually early to mid innings of this,
Speaker 3: and there's a way to go. The fact that the
Speaker 3: market appreciated for six months in a row, seven percent
Speaker 3: in the third quarter and we're quivering over a five
Speaker 3: percent down George just tells you how great a year
Speaker 3: it's been. And you know, there was broadening out and
Speaker 3: I think, look, we have to get the FED question also,
Speaker 3: like is the FED going to cut?
Speaker 4: I think the chair has been very careful.
Speaker 3: To keep the probabilities at fifty to fifty, even though
Speaker 3: we've had hawkish comments. The market's not pricing in anything
Speaker 3: less than fifty to fifty on the chances of a cut,
Speaker 3: and that's done for a reason, because they want optionality
Speaker 3: to cut.
Speaker 2: Let's finish on this. What's a good number tomorrow morning?
Speaker 2: On paying rows? I can tink you the estimate in
Speaker 2: our survey it's fifty four. What's a good number for
Speaker 2: this month?
Speaker 3: I think anything over fifty is fine, right because the
Speaker 3: three month rolling average is twenty nine and that's pretty awful.
Speaker 3: So anything that pulls so I think fifty is fine.
Speaker 3: That will change the probability whether we get a cut
Speaker 3: or not. Also in December, I think overall, you'd rather
Speaker 3: see a stronger economy in a better labor market, so
Speaker 3: I think that's important. I think in Nvidia, you know,
Speaker 3: we'll have to see what the earnings are, but like
Speaker 3: you said, the hyperscalers are spending, so that's.
Speaker 4: I think more knowable than not.
Speaker 3: And then ultimately, for the largest retailer on Earth, you know,
Speaker 3: half of the American population is a customer. So we'll
Speaker 3: see what half of America is doing and the.
Speaker 2: Other half things that group one of the airport. That's
Speaker 2: the US economy right now. Alicia Levin of bm myy Wath, Alicia,
Speaker 2: thank you, stay with us. More Bloomberg surveillance coming up
Speaker 2: after this. Let's turn to the labor market, data, invest design,
Speaker 2: the long delay September job support you tomorrow. Francis Donald
Speaker 2: of NBC writing, we think fourth quarter to day too
Speaker 2: will likely add more confusion than clarity. Francis joins is
Speaker 2: now for more. Francis, welcome to the program. If we're
Speaker 2: going to be more confused than clarified, what does that
Speaker 2: mean for that decision on December tenth.
Speaker 5: Well, it means the Federal Reserve is going to be
Speaker 5: more confused and clarified, and the Federal Reserve, just like
Speaker 5: markets and economists, are going to have to think a
Speaker 5: little bit further out into what Q one and Q
Speaker 5: two are going to look like. And probably that tells
Speaker 5: us that employment will become slightly more problematic, not dramatically,
Speaker 5: and inflation will continue to rise. It's a continuation of
Speaker 5: that stagflation light type of environment, and even if we
Speaker 5: have a bit of a whole here in a couple
Speaker 5: months of data looking through, our view is still the same,
Speaker 5: which is growth is going to be slightly below comfort
Speaker 5: level and inflation is going to be slightly above and
Speaker 5: that will be the situation that this federal reserve and
Speaker 5: future federal reserves will likely continue to have.
Speaker 2: To deal with.
Speaker 4: What are you looking at to confirm that view?
Speaker 1: We know that September data is going to be backward looking, yes,
Speaker 1: we get that. Tomorrow. We know that October data is
Speaker 1: going to be mundy at best, confusing at worst, and
Speaker 1: potentially might even distort the picture further because of the
Speaker 1: government shutdown, and it's unclear what CPI data we're going
Speaker 1: to be getting. So what are your benchmark rights benchmarks?
Speaker 2: Right now?
Speaker 5: You know, we definitely have enough on the job side
Speaker 5: from a variety of private sector data in order to
Speaker 5: give us a sense of the momentum.
Speaker 4: Do we know the exact.
Speaker 5: Level, No, but we know it's sort of soft, stabilizing
Speaker 5: enough to bring us towards our forecast to an unemployment
Speaker 5: rate of about four to six later into twenty twenty six,
Speaker 5: So that in and of itself we can see the
Speaker 5: big problem is on the inflation side. That's where we
Speaker 5: have really minimal perspective. We don't have the ability to
Speaker 5: see much of what happened in October, and we're probably
Speaker 5: not going to get full clarity on what that level
Speaker 5: looks like until early in January, and actually you don't
Speaker 5: even get the January data until February of that month.
Speaker 5: But I think one of the stories here is that
Speaker 5: we get so obsessed with month over month data. Is
Speaker 5: if we need to see what happened last month or
Speaker 5: three weeks ago to know the trend of the and
Speaker 5: the truth is we don't. We actually have the ability
Speaker 5: to map out over an extended period of time. That's
Speaker 5: why economists have one year or five year forecasts, because
Speaker 5: if we know the direction, we can make various assumptions.
Speaker 5: And our assumption is that we have not seen the
Speaker 5: inflationary impact of tariffs as of yet. We are still
Speaker 5: drawing down on inventories in the United States, and we're
Speaker 5: likely only going to start seeing that real pressure on
Speaker 5: inflation in early twenty twenty six and in the middle
Speaker 5: of twenty twenty six going forward, So we can maintain
Speaker 5: those assumptions even if we don't have week to week,
Speaker 5: maybe obsession over what the exact level will be.
Speaker 1: One thing that a lot of people said during the
Speaker 1: pandemic was listen to the companies. The companies have the
Speaker 1: front view in terms of how to plan their businesses.
Speaker 1: We heard from home Low's, we learned from home Depot,
Speaker 1: we heard from Target.
Speaker 4: Kind of a motley picture.
Speaker 1: Here are you getting a sense from the retailers, from
Speaker 1: the consumer facing companies of a picture that gives you
Speaker 1: more clarity heading into twenty twenty six.
Speaker 5: Absolutely, we're looking for anyone who can give us information.
Speaker 5: I might add things like the FEDS Beige Book into
Speaker 5: that story. So some of the anecdotal evidence that some
Speaker 5: of these core themes are coming through. The big thing
Speaker 5: we're seeing really now accepted in the broad based narrative
Speaker 5: is something we've been talking about for well over a
Speaker 5: year now, and that's that concept of the K shaped economy.
Speaker 5: And while I think there is still maybe a little
Speaker 5: bit of a view that that just means the halves
Speaker 5: are getting richer and the not halves are getting worse off,
Speaker 5: I don't know that we've really internalized how this is
Speaker 5: changing the dynamic of consumer spends. That we've got some
Speaker 5: consumers that are trading down and that benefits some companies,
Speaker 5: and we've got other consumers that cannot trade down at all.
Speaker 5: It even flows into conversations of, for example, potential two
Speaker 5: thousand dollars checks to American households, will that be inflationary?
Speaker 5: Not for the lower part of the K who are
Speaker 5: still really struggling with affordability crises.
Speaker 4: So we're looking for sort.
Speaker 5: Of evidence of what the shift in the consumer is
Speaker 5: really doing. And I'll add on top of that, it's
Speaker 5: not just a K shaped economy, it's also an increasingly
Speaker 5: retired consumer. What are those spending habits looking like? Because
Speaker 5: this is really a consumer that we haven't seen for
Speaker 5: many decades in the American economy in any time, type
Speaker 5: of anecdotal or hard data that we can get on
Speaker 5: it is very helpful in constructing that narrative and helping
Speaker 5: companies navigate an increasingly difficult operating environment.
Speaker 2: For Insis, I don't expect you to get deeply philosophical
Speaker 2: when I asked this question, but just to take a
Speaker 2: step back, what has gone wrong in the West? Why
Speaker 2: do people hate these economies so much? Because it's not
Speaker 2: unique to America. I stayed across Europe as well. What's
Speaker 2: gone wrong care since the pandemic and what can we
Speaker 2: get right?
Speaker 5: Well, when we look at the data, which is the
Speaker 5: economists perspective to the philosophical questions, what we see is
Speaker 5: really a break in twenty twenty three. And it comes
Speaker 5: back to this perspective that historically, while you know, the
Speaker 5: wealthy spent more than the not wealthy, most of the
Speaker 5: economy followed the same economic cycle. So if your upper
Speaker 5: incomes were doing well, so were your lower incomes. It
Speaker 5: was tides that lifted and sunk all ships at the
Speaker 5: same time. So even though maybe some had more than others,
Speaker 5: it really felt more egalitarian that we're all sort of
Speaker 5: following in the same economy. After twenty twenty three, and
Speaker 5: that's where we see the data really start to break down.
Speaker 5: That's when we see that the haves or the upper
Speaker 5: part of the k are really experiencing an entirely different
Speaker 5: economy and a different economic cycle. And this is I
Speaker 5: think the biggest question for the Federal Reserve. It's not
Speaker 5: who's going to be the chair, is that how does
Speaker 5: policy act in an environment where interest rates impact everybody
Speaker 5: at the same time, but some areas of the economy
Speaker 5: require different interest rate policy, what about things like fiscal
Speaker 5: policy has to become extraordinarily more targeted. My concern heading
Speaker 5: into twenty twenty six, if you've asked me to be philosophical,
Speaker 5: is maybe that that lowercase K becomes even a upper
Speaker 5: case K because we're going to see things like changes
Speaker 5: to the salt cap deductions that's going to benefit the
Speaker 5: upper part of the K. Financial markets doing well benefit
Speaker 5: one side, and we still haven't seen any material relief
Speaker 5: on the affordability side. So when I talk to clients
Speaker 5: about the K shape, they say, well, what solves it?
Speaker 5: And my answer to them is, you should really think
Speaker 5: about this as maybe semi permanent type of dynamic. It's
Speaker 5: not going away anytime soon. And if you're a company
Speaker 5: trying to figure out how to service your clients, you
Speaker 5: have to be really, really aware of which part of
Speaker 5: that K, or maybe we should increasingly call it a
Speaker 5: FAN you need to be looking.
Speaker 2: At stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Here's a view on Wall Street so far this morning.
Speaker 2: J Emmanuel have Evercore calling for the S and P
Speaker 2: to hit seventy seven fifty by the end of next year,
Speaker 2: writing the path to a bullish long term is often
Speaker 2: a series of volatile, uncomfortable short terms. This is one
Speaker 2: of those times. Julian joined us now for more Judink.
Speaker 6: And Mornic, Good morning.
Speaker 2: Things have changed. Why have they changed? What's behind this
Speaker 2: recent shift the way the market treats this story.
Speaker 6: It's actually the debt concerns in our view. Again, because
Speaker 6: and this is an escapable and we talked about this
Speaker 6: a number of times throughout the year. You cannot get
Speaker 6: away from the comparisons to the late nineteen nineties in
Speaker 6: many respects. And when you think about the late nineteen nineties,
Speaker 6: the problem with the bursting of the bubble, besides the
Speaker 6: fact that the FED was hiking in nineteen ninety nine,
Speaker 6: was the fact that a lot of the build out
Speaker 6: was financed by companies that were incurring debt and had
Speaker 6: no revenues on the other side. And because you've seen
Speaker 6: this accelerating debt issuance, there is the worry that that
Speaker 6: is coming back. And we would say that's actually a
Speaker 6: good rational worry.
Speaker 4: Well, and it's a worry potentially to buy.
Speaker 1: I mean, I guess that this goes to the question
Speaker 1: of why what makes you so bullish on an ongoing
Speaker 1: basis despite some of the rhyming features of this particular
Speaker 1: rally with respect to the debt component.
Speaker 6: Well so a number of things. Again, the macro backdrop
Speaker 6: is favorable. Okay, the Fed is going to be cutting.
Speaker 6: We're going to have more stimulus. Whether we get two
Speaker 6: thousand dollars in our pockets at some point next year
Speaker 6: or not, we're going to have more stimulus. And from
Speaker 6: evaluation perspective, as much as angst as there is, in fact,
Speaker 6: certainly in comparison to the late nineteen nineties, these names
Speaker 6: are I wouldn't say cheap, but they're certainly not expensive
Speaker 6: relative to history, and they're not expensive relative to their
Speaker 6: own history. And what we've seen over the last several
Speaker 6: years and a lot of them is they just mark
Speaker 6: time going sideways, so earnings catch up devaluation, and that's
Speaker 6: an ongoing process.
Speaker 1: At the start of the sell off, at the start
Speaker 1: of November, it was very much what you're talking about,
Speaker 1: a realization of the debt component. It seems like the
Speaker 1: tone has shifted over the past couple of trading sessions
Speaker 1: to not just a techt story, but to an everything story.
Speaker 1: We're raising questions first about whether the FED is going
Speaker 1: to cut next month, and second whether the US economy
Speaker 1: is strong enough to withstand some of the optimism without
Speaker 1: that ratecut. How much do you see that story continuing,
Speaker 1: The idea that maybe the weakness under the hood is
Speaker 1: part of what's pushing this story as much as the
Speaker 1: debt overlaid artificial intelligence.
Speaker 6: Well, a lot of it is the fact that we
Speaker 6: simply haven't gotten data for the last month and a half.
Speaker 6: And you know, in the beginning of it, it was okay, fine,
Speaker 6: the market, we're doing well, you know, we're the uncertainty
Speaker 6: is a positive. But then investors realize that uncertainty is
Speaker 6: uncertainty and should be discounted.
Speaker 7: You know.
Speaker 6: Our suspicion is is that over the next number of weeks,
Speaker 6: as we get back to normalizing the data releases, people
Speaker 6: will at least have something to anchor on. And the
Speaker 6: question in terms of the economy and which is certainly
Speaker 6: the question that's the backdrop for sustaining these valuations, and
Speaker 6: of course monetary policy, is the economy okay with the
Speaker 6: slower speed of job growth, you know, we think the
Speaker 6: sort of the monthly break even is somewhere between thirty
Speaker 6: and sixty thousand jobs. Is that palatable? We think the
Speaker 6: answer ultimately will be yes.
Speaker 2: Jitny, forgive me. It's almost like we've forgotten what it
Speaker 2: was like when we had the data. When we had
Speaker 2: the data, people questioned it all the time, the question
Speaker 2: the quality of it. They didn't like the payrolls data.
Speaker 2: In fact, the payroll data was super weak, even if
Speaker 2: you believed in it. And I don't know how relevant
Speaker 2: the equity markets story was to the payroll stations that
Speaker 2: we've seen over the last seven eight months anyway.
Speaker 6: Well, we have never put stock in in the monthly
Speaker 6: payrolls data. It's the weekly jobless claims data that that's
Speaker 6: always been high frequency importance, and we've been sort of
Speaker 6: calculating it back of the envelope at Evercore II. The
Speaker 6: no it's you know, steady as she goes two hundred
Speaker 6: and thirty thousand every single week. And I think once
Speaker 6: that becomes transparent, we're going to see that again.
Speaker 2: Does it come down to this, the stock market what
Speaker 2: it really wants the ning story that it's already got,
Speaker 2: but it wants the right cuts too, And to get
Speaker 2: the right cuts you need the weak job states. Is
Speaker 2: that what it comes down to.
Speaker 6: Look at twenty six times, you have to have constant
Speaker 6: positive narrative. Stocks are expensive. Stocks. Being expensive is not
Speaker 6: a reason to sell the market. You know, it can
Speaker 6: be a headwind as it is at the current time
Speaker 6: when you have this uncertainty. But again, ultimately to your point, John,
Speaker 6: is that earnings revisions are just phenomenally strong. The runway
Speaker 6: to next year in terms of earnings growth is great,
Speaker 6: and as I look at it, our seventy seven to
Speaker 6: fifty price target is likely not going to imply any
Speaker 6: multiple expansion, which makes me want to mop my brow
Speaker 6: in relief.
Speaker 1: Well mop your relief or put a higher multiple on
Speaker 1: the idea of bubble territory. We're on bubble watch, or
Speaker 1: maybe bubble call or whatever you want to use the
Speaker 1: word B word that everyone seems to be overusing these days.
Speaker 1: What would it take in terms of FED rate cuts
Speaker 1: to get to your extreme bubble call full bubble, which
Speaker 1: you put it a thirty percent chance currently for next year.
Speaker 6: You'd probably need four or five cuts in an economy, well,
Speaker 6: look back it up. The fact is is that in
Speaker 6: the last several weeks, both the trajectory for growth and
Speaker 6: the trajectory for inflation appear to be in proving. We
Speaker 6: took our number down to two point seven on the
Speaker 6: court PC for the end of next year. That's certainly
Speaker 6: going to be sufficient enough for the Fed to cut.
Speaker 6: We took our growth number up to one point nine,
Speaker 6: and frankly, the way the setup is right now, there
Speaker 6: could be upside to the growth number and downside to
Speaker 6: the inflation number.
Speaker 2: Stay with us mul Bloomberg surveillance coming up after this.
Speaker 2: Can you persuade Americans to say, for that two thousand
Speaker 2: dollars check good luck?
Speaker 1: How would you persuade them you're going to get a sale.
Speaker 4: You're going to Burken Bag in December?
Speaker 1: If you yeah, I mean, honestly try that with kids.
Speaker 2: Two thousand dollars can spend almost immediately. Libby cantl to
Speaker 2: Pimco has this to say, we're very skeptical of the
Speaker 2: Republicans in Congress at this point interested in adding more
Speaker 2: to the deficit with another tax count Leby Joan just
Speaker 2: now for more.
Speaker 4: Libby, good morning, Good morning.
Speaker 2: There's a shift of the White House affordability and folks
Speaker 2: new initiatives. Where's the shift coming from? And is it durable?
Speaker 2: Is it sustainable in to next year.
Speaker 7: Yeah, well, I mean, yes, there is a shift, and
Speaker 7: obviously it was precipitated partly at least by the election
Speaker 7: two weeks ago when Democrats, if anybody who had a
Speaker 7: D you know on the end of their name, basically
Speaker 7: did well. And most Democrats did run on affordability, probably
Speaker 7: in some ways learning the lesson from twenty twenty four
Speaker 7: where they don't think they didn't sort of lean into
Speaker 7: that issue as much. And so now the White House,
Speaker 7: I think, understandably a little bit like how President Biden
Speaker 7: did in you know, twenty twenty one and twenty twenty two,
Speaker 7: maybe in vain is trying to shift more to affordability.
Speaker 7: I think there are obviously limitations to what the president
Speaker 7: can do unilatterally, and I think he's I think Secretary
Speaker 7: Vessett understands those limitations. You do need Congress in order
Speaker 7: to cut taxes, even if the revenues that are going
Speaker 7: to offset that task that would come from terraces, which
Speaker 7: obviously we're put through unilaterally. So we are skeptical now
Speaker 7: with that said, and this is something we think that
Speaker 7: the market is obviously focused on, is that there will
Speaker 7: be a really nice, healthy tax refund come next spring.
Speaker 7: I'm not even sure Americans actually realize that they're going
Speaker 7: to get too nice and refund. But you know, on average,
Speaker 7: you know, households will likely receive one thousand dollars kind
Speaker 7: of plus sort of depending on their tax break and
Speaker 7: their tax situation. So that could maybe you know, have
Speaker 7: the same effect. But in terms of an additional task
Speaker 7: cut paid by tariff revenues, we think.
Speaker 4: It's very unlikely.
Speaker 2: What do you think is on the menu? So we've
Speaker 2: seen some tariff relief already, we're seeing the prospect of
Speaker 2: a two thousand dollars rebak check. We've also had a
Speaker 2: conversation about fifty mortgages as well. What else is on
Speaker 2: the menu?
Speaker 7: Yeah, all the proposals of so I mean, obviously the
Speaker 7: reduction in tariffs for food stuffs, for beef, for coffee
Speaker 7: from bananas, a little bit of a tell that maybe
Speaker 7: tariffs do raise costs at least incrementally. And then obviously,
Speaker 7: you know, the fifty year mortgage. You know, we again
Speaker 7: skeptical that that actually goes through lots of issues with
Speaker 7: that maybe provide some upfront affordability, some cost avings in
Speaker 7: terms of mortgage payment, but obviously reduces the amount of
Speaker 7: equity that folks are able to build in their homes.
Speaker 7: Is not TVA eligible to be very wonky, so probably
Speaker 7: has a liquidity issue as well. So I think the
Speaker 7: upshot is that we think that's unlikely. Of course, the
Speaker 7: real issue with housing, as we all know, is supply,
Speaker 7: and so trying to incentivize developers and folks to build
Speaker 7: that probably takes Congress as well. And there's some things
Speaker 7: that they can do from a permitting perspective unilaterally, but
Speaker 7: really difficult even on the federal level. So I think
Speaker 7: the upshot here is they're just limits to what the
Speaker 7: president can do unilaterally. He can talk about it, but
Speaker 7: he probably eats Congress to do most of it.
Speaker 1: But what we learned from the mid midterms, and i'll
Speaker 1: call them the mid midterms, it's essentially what they were,
Speaker 1: is that there is this shift to affordability, and there
Speaker 1: seems to be bipartisan support to more to really help
Speaker 1: consumers with the cost of living concerns that they have.
Speaker 4: It is a bipartisan issue.
Speaker 1: Politically, Why has the vibe shift not moved into materially
Speaker 1: higher long term yields? If you have bipartisan support to
Speaker 1: reduce the amount of tariffs, to reduce the amount of
Speaker 1: cuts just broadly to.
Speaker 4: For abit et cetera.
Speaker 7: Yeah, I mean it's a you know, it's a good question.
Speaker 7: I think we you know, we've obviously I mean, of
Speaker 7: course you all know that the curve is obviously steepened
Speaker 7: a lot of the last year, and so it still
Speaker 7: remains relatively steep, at least relative to the very kind
Speaker 7: of flat yel curve that we had seen, you know,
Speaker 7: for years previously. So in some ways that term premium
Speaker 7: has come back a little bit, but there's still is
Speaker 7: a bit obviously for treasuries, and there's you know, we
Speaker 7: always say the kind of the cleanest dirty shirt, This
Speaker 7: expression of Bill Gross is our founder of him.
Speaker 2: Go.
Speaker 7: You used to talk about kind of the you know,
Speaker 7: there is no alternative. You have a lot of dirty
Speaker 7: shirts you wear. The cleanest dirty shirt doesn't look great
Speaker 7: on absolute basis, looks good pretty, you know, relative to
Speaker 7: the other shirts. And I think that still stand. So,
Speaker 7: you know, there is going to be some natural limit
Speaker 7: in terms of how at least right now, how how
Speaker 7: you know, how high the thirty year, how how much
Speaker 7: that term premium does expand. But all things equal, if
Speaker 7: you just go back to where we were back in
Speaker 7: you know, October of last year, the you know, the
Speaker 7: Yeld curve has steepened.
Speaker 3: Yeah.
Speaker 1: I just wonder if bond vigilanties have either gone to
Speaker 1: sleep or never existed, right, because at a certain point
Speaker 1: we're talking about, you know, the deficit that at one
Speaker 1: point was the rally and cry for people who are
Speaker 1: saying gills are going higher, and all of a sudden,
Speaker 1: we're looking at the potential rollback of tariff revenue, the
Speaker 1: potential edition of policies they could potentially support consumers, whether
Speaker 1: that two thousand dollars gets passed or not, you're talking
Speaker 1: about a bigger deficit. Suddenly nobody cares. What's the deal?
Speaker 7: Yeah, And I know we've been talking about kind of
Speaker 7: the six seven percent deficits really for the foreseeble sorry
Speaker 7: for the sample future time, but really the foreseeable future.
Speaker 7: And that was our view going into this that regardless
Speaker 7: of who won the election, the deficit would be the
Speaker 7: biggest loser that has obviously come to pass. And you know,
Speaker 7: nobody is talking about sort of fiscal responsibility. I mean,
Speaker 7: they're not talking about increases to increasing taxes or changing
Speaker 7: entitlement spending, and that's really what you actually would need
Speaker 7: in order to change the fiscal trajectory. But the same
Speaker 7: thing just from an investor's perspective, I mean, people are
Speaker 7: looking at the US as the sort of source of growth, right.
Speaker 7: I mean, if you just look at what's happening obviously
Speaker 7: with AI, with labor mobility, still immigration, I mean, the
Speaker 7: dynamics of the US economy are so much more attractive
Speaker 7: than the other develop rich world. So I think there
Speaker 7: is a little bit of that where there's just going
Speaker 7: to be kind of demand at least as of now,
Speaker 7: for you know, for our for our debt because of those.
Speaker 2: I cannot believe six seven made it to Bloomberg.
Speaker 4: It's okay, I think that it's great.
Speaker 2: Man made it happen.
Speaker 1: It's gonna be so proud you made us relevant right now?
Speaker 4: That is yeah, exactly nice.
Speaker 2: Okay, Where has Lebby taking this? I think pr Pimko
Speaker 2: confused already, Libya, I want to finish on maybe a
Speaker 2: fracture in the Republican Party. Congressman Friendship was on the
Speaker 2: program a little bit earlier this week, and he made
Speaker 2: the point that he didn't like broad based tariffs, and
Speaker 2: he's typically very diplomatic, but I think a little bit
Speaker 2: more vocal. Now we're starting to see signs of the
Speaker 2: Republican Party on the Hill. It's pushing back a little
Speaker 2: bit to the White House sensing the same thing.
Speaker 7: Yes, I mean, obviously the vote on Epstein files was
Speaker 7: a little bit like that, you know, just sort of
Speaker 7: put the exclamation point on that sentiment. I do think
Speaker 7: that this is again, this is actually a bipartisan phenomenon.
Speaker 7: If you just look at the Biden administration at the
Speaker 7: end of twenty two twenty one, the coalition around Democrats
Speaker 7: was fracturing then as well, so there was more pushback
Speaker 7: on President Biden by his own party. I think the
Speaker 7: same thing is happening now. Right after the off cycle,
Speaker 7: the midterm midterm election of two weeks ago, you are
Speaker 7: now seeing that political runway for the president shortened. And again,
Speaker 7: this is I think pretty consistent with history. But I
Speaker 7: do think you will continue to see more pushback, and
Speaker 7: as it relates to fiscal policy task cuts adding to
Speaker 7: the deficit, a lot of Republicans very uncomfortable with that.
Speaker 7: I also think it has implications for the FED share
Speaker 7: in terms of who's actually the nominate you may see,
Speaker 7: you know, if the president were to nominate somebody who
Speaker 7: was viewed as not independent, it was viewed as too political.
Speaker 7: I think that Republicans are increasingly feeling a little bit
Speaker 7: more comfortable to push back. They have been privately, but
Speaker 7: maybe more publicly as well. And again pretty consistent with
Speaker 7: other cycles in history.
Speaker 2: Do you think just find me that could lead to
Speaker 2: a sensible fet chat choice.
Speaker 4: That has been our view. We think that we think
Speaker 4: that there's.
Speaker 7: Going to be a much more conventional, orthodox fed share
Speaker 7: than I think a lot of crystal is feared in
Speaker 7: the market.
Speaker 2: Yeah, that's what's sensiblest to me.
Speaker 4: That's to be right exactly. He would be the easiest.
Speaker 4: He would be the easy Would.
Speaker 2: You think the president believes is politically correct? What does
Speaker 2: that mean to the president?
Speaker 7: Yeah, not not sure, but I think probably somebody who's
Speaker 7: more familiar to Washington. So whether that is Governor Waller
Speaker 7: or Kevin Hassett, somebody who's going to be, you know,
Speaker 7: a little bit more familiar with different characters.
Speaker 4: I don't know, very different.
Speaker 2: Six seven let me get to see you, oh nice, okay?
Speaker 2: Or from me again? Overwhelming okay, invited back Liby, You'll
Speaker 2: be invited back. Banks of being here Levey Cantrell and Fimco.
Speaker 2: This is the Bloomberg Sevendans podcast, bringing you the best
Speaker 2: in markets, economics, angio politics. You can watch the show
Speaker 2: live on Bloomberg TV weekday mornings from six am to
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen, and as always, on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app