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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 Amrie 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. We begin this out

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Speaker 2: with stocks in jin KaiA after getting a boost from

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Speaker 2: better than expected Google earnings after the closing. About today,

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Speaker 2: we're here from Meta and Microsoft. Katrina Tadlete of Franklin

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Speaker 2: Templeton writing, people are worried, cautious, and generally bearish. We disagree.

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Speaker 2: Tech company earnings continue to be strong. Katrina joins us.

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Speaker 2: Now for more, Katrina Coomonich, Great, we would like to

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Speaker 2: be bearish with alphabet numbers like the ones we saw

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Speaker 2: after the closing value looking for more of the same.

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Speaker 3: You know what, I actually wrote that statement before the

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Speaker 3: Google the alphabet earnings came out, and I have a look.

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Speaker 3: If you look at some of the earnings that are

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Speaker 3: coming out of these technology stocks, it's really positive. And

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Speaker 3: don't forget, it's positive surprises on top of earnings growth,

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Speaker 3: which is very different versus like a positive surprise when

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Speaker 3: you're expecting earnings to go down and they go down less.

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Speaker 3: So I think it is actually very positive. But we

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Speaker 3: are worried because everyone's.

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Speaker 1: Bearish, you know.

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Speaker 3: The soft landing is kind of like, well, that's fine,

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Speaker 3: and I think that we are just generally more optimistic.

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Speaker 4: Are you worried or does it give you confidence that

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Speaker 4: you're actually on the right track. If everybody is verished,

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Speaker 4: does that mean that actually there's more upside for you.

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Speaker 3: I think that there is a lot of upside in

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Speaker 3: the market, and some of the indicators that we're looking

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Speaker 3: at is look at the productivity data. The productivity number

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Speaker 3: was two point five percent, and we haven't seen that

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Speaker 3: type of growth for a long period of time in

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Speaker 3: terms of positive productivity. The bearish people are pointing out

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Speaker 3: to the fact that it's immigration. We're not counting the

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Speaker 3: immigration numbers, we're not doing that correctly, and they're driving

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Speaker 3: all of that product activity. We take a slightly different bent.

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Speaker 3: We actually think this is one of the outcomes of

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Speaker 3: some of the supply chain shortages and some of the

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Speaker 3: reduction in the labor and tightness in that labor market.

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Speaker 3: People are actually doing more with less, and that is

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Speaker 3: productivity people.

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Speaker 4: Is this the tech companies or is this everyone? And

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Speaker 4: I'm talking at a time when some of the earnings,

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Speaker 4: particularly with auto manufacturers as well as certain consumer facing companies,

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Speaker 4: have been eh, not great. They're not the same kind

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Speaker 4: of blowout results that we're seeing from the likes of Google.

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Speaker 3: And I don't like talking about this, but if you

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Speaker 3: take a look at the low end consumer, that is

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Speaker 3: where you're seeing a lot of this weakness show up.

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Speaker 3: So you look at the McDonald's numbers and you look,

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Speaker 3: obviously we had the Ecolla issue, but you combine that

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Speaker 3: with the negative foot traffic. We are seeing the low

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Speaker 3: end consumer under some degree of stress. And I think

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Speaker 3: that's going to actually show up is potentially more in

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Speaker 3: the election versus actually showing up in the stock market,

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Speaker 3: because even though there's a lot of people in the

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Speaker 3: low end consumer, it's not a big driver of US spending.

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Speaker 3: So even though they are starting they are starting to

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Speaker 3: see pressure I'm not necessarily sure that they're actually going

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Speaker 3: to derail the economy.

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Speaker 4: So this race is a question if you do see

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Speaker 4: this over arching momentum, and that could lead to higher

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Speaker 4: yields because essentially it can mean that a growth economy

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Speaker 4: is really on the table for next year. At what

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Speaker 4: point does that create some sort of downside valuations for

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Speaker 4: equities or do you just ignore it and say start

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Speaker 4: being so verished fun market.

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Speaker 3: I think, first of all, we think in terms of valuation,

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Speaker 3: the market's probably on a multiple basis, is reasonably fairly valued.

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Speaker 3: What people are getting wrong is the earnings growth number.

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Speaker 3: And so the fact is is that even if you

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Speaker 3: just hold that multiple flat, if we continue to deliver

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Speaker 3: better than expected earnings, the market can work because we'll

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Speaker 3: still have that growth in actual underlying economy. So that's

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Speaker 3: what we think the market is missing. They're so focused

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Speaker 3: on the valuation level. We think that that higher valuation

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Speaker 3: is a reflection of some of the benefits of the

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Speaker 3: network effects, which just driving some degree of concentration in

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Speaker 3: the market, which is positive.

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Speaker 5: Is politics playing at all in your bullet view?

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Speaker 3: So let's go to politics. When you were in the countdown,

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Speaker 3: and I think it's an interesting thing. I think the

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Speaker 3: non consensus view is actually coming. If we look at

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Speaker 3: some of the quant data that's coming out, there's approximately

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Speaker 3: a sixty six zero percent chance that we have one

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Speaker 3: of these candidates with over three hundred electoral votes, which

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Speaker 3: would be a landslide victory. The problem is it's too

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Speaker 3: close to call which of the candidates is going to

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Speaker 3: be that way. I know you've seen some of the

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Speaker 3: betting data which is favorable to one candidate over the other.

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Speaker 3: We're not necessarily trusting that data. I think though, a

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Speaker 3: landslide victory would be really good for the stock market

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Speaker 3: and the economy, and therefore it actually in terms of

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Speaker 3: the November the November seventh FED decision, I think that'll

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Speaker 3: also weigh in.

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Speaker 5: A landside victory for who a red sweep.

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Speaker 1: Or a blue sweep.

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Speaker 3: That's the unknown. Unfortunately, I think that we will have

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Speaker 3: a sweep, and I think that we'll have a fairly

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Speaker 3: definitive outcome. Unfortunately, could swing either way, which, however, I

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Speaker 3: think you need to stand back and look at the

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Speaker 3: fact we're going to this election with so much uncertainty

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Speaker 3: that just having the fact that the entire country coalesced

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Speaker 3: around one candidate will be very positive in terms of

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Speaker 3: bringing the country back together, and you think.

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Speaker 5: That'll be positive regardless for stock markets, even though they

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Speaker 5: have in some regards very different policies.

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Speaker 3: Yes, so what does that mean if we have a

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Speaker 3: trunk victory. Obviously we need to start looking at the

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Speaker 3: language that he's put out there regarding tariffs. The bearish

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Speaker 3: expectation is you take him at his would and that

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Speaker 3: would be very negative in terms of the tariff levels

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Speaker 3: that he's talking the ten percent and then the higher

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Speaker 3: levels of tariffs on China. I think he's a negotiator,

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Speaker 3: so we're probably in the camp. I think it is

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Speaker 3: also within consensus the fact that he's actually just positioning

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Speaker 3: and that he won't go that far in terms of

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Speaker 3: what he's language. So I think that that in terms

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Speaker 3: of outcome is going to be more positive. We don't

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Speaker 3: see that negative downside scenario going to Kamala's policy. We

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Speaker 3: go back. Do you want to start looking at some

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Speaker 3: of those names which have been disproportionately and negative is

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Speaker 3: impacted by exposure to the low in consumer If you're

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Speaker 3: looking at McDonald's, you may want to start looking at

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Speaker 3: some of those regional gaming companies as well, So there's

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Speaker 3: definitely some beneficiaries. I think you just need to look

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Speaker 3: for those beneficiaries in some unusual places.

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Speaker 2: If we're talking about a sweep, though, we're talking about

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Speaker 2: the difference between a fifteen percent conditional corporate tax rate

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Speaker 2: or one going up to twenty eight percent, aren't we.

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Speaker 3: I don't think necessarily think fifty.

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Speaker 1: He likes round numbers.

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Speaker 3: Okay, so we're at twenty one percent, but when he

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Speaker 3: first talked about it, we were at thirty five. So

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Speaker 3: the difference of going to thirty five to twenty one

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Speaker 3: is significant. I think if he goes anywhere, it's twenty

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Speaker 3: to twenty one down to twenty. As I said, he's

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Speaker 3: a round numbers.

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Speaker 2: What about twenty one to twenty eight On the Harris

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Speaker 2: side blue sweep scenario, it.

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Speaker 3: Will be a headwind to corporate earnings. I think that

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Speaker 3: you cannot underestimate that. But offsetting that is her position

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Speaker 3: on tariffs is quite as extreme, and then you have

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Speaker 3: some of this support for the low in she's talking

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Speaker 3: in terms of some of the transfer payment metrics. The

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Speaker 3: concern that we have does the corporate tax rate increase

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Speaker 3: come in fast enough to offset any of the increase

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Speaker 3: in the fiscal deficit driven by her.

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Speaker 2: You're looking forward to see in the bank of all

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Speaker 2: of this next week.

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Speaker 1: I'm actually enjoying it.

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Speaker 3: I think it's interesting because this is what drives markets,

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Speaker 3: and this is what makes our job so interesting. But

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Speaker 3: you're right. If I come back, you're in a week's time,

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Speaker 3: we're going to be talking about something else. We will

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Speaker 3: be talking about twenty twenty five.

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Speaker 2: Actually, I hope we are. I really do, and I

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Speaker 2: hope we're still not sitting here trying to figure out

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Speaker 2: who actually won the election. Equity futures on the S

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Speaker 2: and P by a tenth of one percent. Katrina has

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Speaker 2: going to see it. Thank you great as always, Katrina,

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Speaker 2: don't be that a Franklin Temple said. So here's the latest.

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Speaker 2: There's many investors leaning into Trump trades. Some warnings begin

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Speaker 2: to build cities suggesting it might be time to take profits.

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Speaker 2: Dirk Willer writing, despite investors concluding that Trump would be

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Speaker 2: the victor, the polling bias is only moderately in his favor.

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Speaker 2: We therefore take profits in some of our Trump biased

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Speaker 2: election trades. That join us now for more. Welcome to

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Speaker 2: the program sir, Let's get into those trades. First of all,

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Speaker 2: which ones would you take off at the moment?

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Speaker 1: Yeah, thanks for having me on.

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Speaker 6: I think there's a lot of consensus among investors that

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Speaker 6: Trump has already won, right and almost every post I think, listen,

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Speaker 6: it's really very close to call still and therefore it's

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Speaker 6: not really a focal conclusion, even though the odds are

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Speaker 6: lart in this favor. So the trades we decided to

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Speaker 6: take off our one hour long break even trade. As

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Speaker 6: you know, there's a lot of concern that Trump administration

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Speaker 6: would mean more inflation both or actually for several reasons,

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Speaker 6: because of the immigration policies, because of the tariff policies,

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Speaker 6: and because of physical expansion, and so the inflation market

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Speaker 6: price meaningfully higher pretty much across the curve, and we

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Speaker 6: think that is really quite mature, and that could have

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Speaker 6: a meaningful backlash if Trump still virtual loose, And therefore

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Speaker 6: we think that is really one that we would take off.

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Speaker 6: The other one is in the dollar. People really piled

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Speaker 6: into the dollar, and of course they piled into it

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Speaker 6: for two reasons. One because the macro changed this and

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Speaker 6: if p was very strong, and that changed the sentiment

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Speaker 6: around the dollar. But the second thing was, of course

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Speaker 6: Trump again, tariffs being bulluish, trump fiscal policy being bullish dollars,

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Speaker 6: fiscal policy being bullish dollars, and that is also quite

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Speaker 6: mature trade. And so we took off our euro downside structure.

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Speaker 2: That's what makes it slightly more complex. We need to

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Speaker 2: figure out what was driving the trades to begin with.

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Speaker 2: Why do you believe this was more about Trump's prospects

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Speaker 2: than just about fundamentals the economic data and monetary policy too.

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Speaker 6: It is true, it's almost impossible to figure that out

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Speaker 6: fully because even if you say, well the door just

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Speaker 6: move with rates, well, rates moved with Trump, right, and

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Speaker 6: so what is what is somewhat hard to say. But

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Speaker 6: I would say the extent of dollar buying that we've

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Speaker 6: seen was much more extreme than what you typically get

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Speaker 6: if it's just and then a p print of it's

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Speaker 6: just a change in the economic outlook. It really was

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Speaker 6: was really quite large.

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Speaker 1: You can also see where it happened.

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Speaker 6: Investors bought most in dollar China. Door China is of

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Speaker 6: course the single biggest Trump trade that there is. It's

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Speaker 6: now a very big consensus trade. Now, I would say

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Speaker 6: we have still a structure that would benefit from higher

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Speaker 6: dollar China after an election, and we kept it. And

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Speaker 6: the reason is that I think the PBOC is really

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Speaker 6: a little bit investor's friend in calming down the volatility,

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Speaker 6: in making sure dollar China doesn't overshoot too quickly, too fast,

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Speaker 6: and so I think investors are are still able to

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Speaker 6: add to dollar China for that reason. But in general,

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Speaker 6: I to answer the question where this solid buying happened

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Speaker 6: is a clear education that a lot of it had

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Speaker 6: to do with Trump.

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Speaker 4: How many of your clients are your compatriots, Derek, are

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Speaker 4: curious about playing in the Trump media and technology group.

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Speaker 1: In bitcoin?

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Speaker 6: Yeah, I don't cover thing avities. Bitcoin is of course

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Speaker 6: also Trump trade, and it's it's a little bit similar

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Speaker 6: to gold. Gold also had had a very strong move.

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Speaker 6: Of course, now that that gold is the Trump trade

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Speaker 6: is really quite curious because usually and the same is

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Speaker 6: true some same for bitcoin, if rates go up and

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Speaker 6: the dollar goes up, that's a terrible environment for gold.

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Speaker 6: Now this time around we have rates go up, dollar

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Speaker 6: go up, and gold does great. And the reason is,

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Speaker 6: of course, again these inflationary fears with the Trump administration,

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Speaker 6: and even more so it's inflationary fears with a FED

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Speaker 6: not going to do much about it if there was

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Speaker 6: a higher inflation, and the combination of higher inflation and

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Speaker 6: a double shad is of course a great environment for

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Speaker 6: gold and also for bitcoin. So so I think that

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Speaker 6: explains a little bit of paradox.

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Speaker 4: Dirk.

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Speaker 5: Why do you think the financial markets are taking their

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Speaker 5: cues and the betting markets and not polling.

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Speaker 6: I mean, I think what is happening is that markets

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Speaker 6: love momentum, right, and the polls they are, of course,

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Speaker 6: have moved in favor of Trump. They have showed some

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Speaker 6: momentum and people just write that forward and they jump

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Speaker 6: on the momentum train. And that is what we see

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Speaker 6: in markets all the time. And that's I think how

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Speaker 6: people use the polls. And it might be right. I mean,

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Speaker 6: today is some momentum impulse and that is what we're seeing.

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Speaker 6: And you know, at this stage, Trump of course has

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Speaker 6: the upper hand, and I think there is clear both

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Speaker 6: impulse and in betting markets. But the extent to which

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Speaker 6: he has and the conferences you can have in the outcome,

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Speaker 6: I think is somewhat exaggerated in markets.

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Speaker 2: I appreciate your time so full pace, Thank you, sir.

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Speaker 2: Timely took all avent f City joining us not to

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Speaker 2: discuss as Claudia Sam of New Century Advice is a

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Speaker 2: good friend of this program. Claudia, welcome back to the show.

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Speaker 2: Let's get into this economic data. How would you characterize

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Speaker 2: the economy in America?

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Speaker 1: Good news is good news.

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Speaker 7: I mean, this is excellent on the GP, particularly when

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Speaker 7: you look at the consumer spending.

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Speaker 1: It's not just one quarter.

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Speaker 7: We have now put together four quarters that are about

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Speaker 7: three percent growth in consumer spending inflation adjusted, and as

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Speaker 7: Michael said, you put that together with business investment, like

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Speaker 7: that's what we're looking for. Like, this is a really

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Speaker 7: good report and it's not one to be afraid of.

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Speaker 7: The FED is not going to be afraid of this report.

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Speaker 7: We have a supply coming online, we have productivity higher.

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Speaker 1: Like this really is good news, Claudia.

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Speaker 4: They might not be afraid of the report, but they

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Speaker 4: could be potentially a little concerned about the response to

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Speaker 4: the report in markets. At what point does it get

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Speaker 4: the Fed's attention that longer term yields keep climbing on

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Speaker 4: the back of an ongoing string of better than expected

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Speaker 4: economic data.

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Speaker 7: The FED is going to be paying attention to what

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Speaker 7: markets do, regardless of whether it's what they're expecting or

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Speaker 7: what they're not expecting. You know, there's hard to play

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Speaker 7: three dimensional chess with markets.

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Speaker 1: There are a lot of factors that move markets.

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Speaker 7: The FED is an important player in the mix, but

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Speaker 7: it's not the only but it absolutely will be looking

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Speaker 7: at interest rates, sensitive sectors, places where it could go

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Speaker 7: in and if there needed to be some support, cut rates,

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Speaker 7: get some support. But what that's not we're seeing right now.

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Speaker 7: We're seeing a very strong economy and what the FED

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Speaker 7: has to look for are any signs of it overheating?

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Speaker 3: Right?

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Speaker 1: Is that consumer spending?

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Speaker 7: Is that demand that's really outstripping supply, And at this

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Speaker 7: point we really do not see signs of it, and

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Speaker 7: we have it for several quarters right like this, we

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Speaker 7: are in a trend place that is much better than frankly,

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Speaker 7: we went into the pandemic with.

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Speaker 4: There are two different arguments here. One is this question

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Speaker 4: of whether we're overheating and thus causing the FED stop

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Speaker 4: cutting rates, And the other question is are we underestimating

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Speaker 4: the neutral rate that we could potentially be looking at

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Speaker 4: in an economy that keeps chucking along even with rates

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Speaker 4: that the current FED says are significantly restrictive.

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Speaker 1: So which is it Claudia, because.

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Speaker 4: They are very different responses on the FED side to

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Speaker 4: either of those two potential outcomes.

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Speaker 7: At the end of the day, we want the neutral

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Speaker 7: rate as high as absolutely possible, because a high neutral

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Speaker 7: rate is a sign of a healthy economy. The low

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Speaker 7: interest rate economy that we went into the pandemic with

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Speaker 7: that was not a healthy economy. It created a lot

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Speaker 7: of distortions, but it also was just assigned interest.

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Speaker 1: Rates or a price. They are telling us something about

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Speaker 1: the economy.

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Speaker 7: And if it turns out that this economy comes out

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Speaker 7: with higher productivity growth, higher underlying line trend, well we

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Speaker 7: would expect that to show up with a higher interest rate,

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Speaker 7: and it's an interest rate that we would tolerate. It

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Speaker 7: wouldn't be restrictive, it just be we have a stronger

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Speaker 7: economy now.

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Speaker 1: It is true soon to say that is what we

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Speaker 1: have moved into.

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Speaker 7: This still could be you know, working through some of

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Speaker 7: the temporary disruptions of the pandemic, and we could go

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Speaker 7: back to a lower trend growth. And I think Europe

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Speaker 7: is very much a cautionary tale, right. They are not

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Speaker 7: having this conversation of have we gotten to this higher

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Speaker 7: trend level?

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Speaker 1: Is our star just so much higher. So there's still

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Speaker 1: a lot in the mix. But again we don't where

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Speaker 1: our star lands.

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Speaker 7: I mean that high our star is perfectly fine, but

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Speaker 7: we're in that process of discovery of like, is this

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Speaker 7: good news going to stick with us?

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Speaker 4: Well? When you say good news is good news? Does

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Speaker 4: it marshally increase your base case? The best guess about

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Speaker 4: where the neutral rate is? Do you think that it's

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Speaker 4: more likely around four now than three and a half?

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Speaker 1: Is a FEDCE projecting. I don't know if I go

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Speaker 1: quite as high as four.

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Speaker 7: I think, you know, into the solid three percent is

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Speaker 7: what this looks like.

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Speaker 1: In particularly again.

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Speaker 7: If the implicit productivity growth that goes with this GDP

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Speaker 7: number and a labor market that, while still solid, has

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Speaker 7: slowed down quite a bit, right, so we're we're getting

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Speaker 7: a lot out of the resources that we're putting into

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Speaker 7: the economy, and so if that continues, then yes, I

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Speaker 7: think something in the mid three percent probably maybe maybe

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Speaker 7: even higher would make sense. But that's where I think

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Speaker 7: the FED they have like their first hundred basis points,

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Speaker 7: like the next hundred basis points I think are pretty

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Speaker 7: safe in the like that's still restrictive.

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Speaker 1: We can ship away at that, and then there really

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Speaker 1: you do get.

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Speaker 7: Into a conversation as you get past that of okay,

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Speaker 7: is this is this where the economy wants to rest.

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Speaker 5: If we're going to live at higher interest rates, what

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Speaker 5: does that mean for the housing market?

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Speaker 7: Again, a higher interest rate environment, when when it's behind

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Speaker 7: it is productivity growth, you also have higher income growth, right,

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Speaker 7: And so interest rates are a price just like house

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Speaker 7: prices or another price that people face. And what at

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Speaker 7: the end of the day matters is the affordability. Right

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Speaker 7: you have the resources to afford those homes. Now, of course,

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Speaker 7: the higher interest rates do run into the fact that

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Speaker 7: we have had a housing underbuild for quite some time.

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Speaker 7: And so if you think that if we're going to

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Speaker 7: try and fix that underbuild just with market prices, so

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Speaker 7: the adjustments of the interest rates, that one is going

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Speaker 7: to be tricky.

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Speaker 1: But I think there are certainly.

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Speaker 7: Policy proposals on the table at various levels of government

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Speaker 7: to try and work on housing supply and not think

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Speaker 7: of it purely through interest rate mechanisms and what the

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Speaker 7: FED might be doing.

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Speaker 5: Right, but that could take years to come to fruition.

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Speaker 5: So if you're sitting on a three percent mortgage and

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Speaker 5: rates you say, are going to be higher for longer.

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Speaker 5: What impetus is there for those individuals to give that up?

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Speaker 1: There's not.

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Speaker 7: I mean what you know, there are always if there

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Speaker 7: are big shifts in the economy, there are going to

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Speaker 7: be winners and losers in terms of where they sat

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Speaker 7: on like the bet right on the information when everything changed.

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Speaker 7: So you know that that's just a reality of how

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Speaker 7: the economy works. It does mean the housing market went

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Speaker 7: into the pandemic in a place of disruption because of

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Speaker 7: the housing underbuild, and then it has been throughout this

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Speaker 7: entire period in different forms of disruption, whether it was

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Speaker 7: really fast paced demand, really low interest rates, whether it

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Speaker 7: was no inventory of housing. You know, so that is

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Speaker 7: an extremely disrupted sector, not just because of interest rates.

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Speaker 7: And I agree with you, there is no there's no

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Speaker 7: magic wand in that market. It's going to take time

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Speaker 7: and it's an extremely important one to get right sized.

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Speaker 2: One thing I know for sure is that was personal

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Speaker 2: to Amrie Claudia. She just wants to buy a house.

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Speaker 2: That's what it's about. Is that what that was about.

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Speaker 5: It feels like the boomers or those that time the

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Speaker 5: market correctly at least are the winners, and then those

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Speaker 5: that are younger trying to give in the housing market

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Speaker 5: are the absolute look boom no, I said those I know,

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Speaker 5: I called her a winner for timing in the market.

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Speaker 1: I bought in April of twenty twenty. Isn't going to

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Speaker 1: rub it in? But yes, why not?

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Speaker 2: Why not? Since we're being personal here, Claudia, can I

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Speaker 2: just have one personal note just quickly. We know you're

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Speaker 2: in your own personal battle right now, and I just

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Speaker 2: want to say on the behalf of all of us,

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Speaker 2: and if I made the whole financial community as well,

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Speaker 2: because I've had a ton of messages just before you

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Speaker 2: appeared with us. We're all thinking of you. We're all

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Speaker 2: thinking of you, and we appreciate your time. We're lucky

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Speaker 2: to have you this morning. Thank you so much for

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Speaker 2: being with us. Claudia Salm There of New Century Advisors.

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Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best

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