1 00:00:02,400 --> 00:00:08,640 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hortenn. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business App. 10 00:00:36,240 --> 00:00:38,560 Speaker 3: So Franz withs Donald of RBC, how are you reading 11 00:00:38,560 --> 00:00:39,879 Speaker 3: the tea leaves slowly? 12 00:00:40,640 --> 00:00:42,240 Speaker 1: Because there's a lot of tea leaves here. 13 00:00:42,280 --> 00:00:44,080 Speaker 4: But a couple things that jump out to me right 14 00:00:44,120 --> 00:00:46,440 Speaker 4: away is the three month moving average now for non 15 00:00:46,440 --> 00:00:49,479 Speaker 4: farm perils is about twenty two thousand. So if your 16 00:00:49,560 --> 00:00:52,279 Speaker 4: break even raid is maybe thirty to forty thousand, then 17 00:00:52,280 --> 00:00:54,520 Speaker 4: that means you're not creating enough jobs, and that's enough 18 00:00:54,520 --> 00:00:57,840 Speaker 4: to lift that une unemployment rate higher. But let's just 19 00:00:57,880 --> 00:00:59,960 Speaker 4: remember if you make a chart of the unemployment rate 20 00:01:00,080 --> 00:01:02,480 Speaker 4: going back to the nineteen seventies or only two periods 21 00:01:02,480 --> 00:01:04,839 Speaker 4: in history where the unemployment rate has been this low. 22 00:01:05,160 --> 00:01:08,440 Speaker 4: This is still a very tight labor market. So in 23 00:01:08,480 --> 00:01:10,560 Speaker 4: my mind, I'm wondering why we're not using words like 24 00:01:10,720 --> 00:01:13,920 Speaker 4: normalizing as we see that unemployment rate move back towards 25 00:01:14,000 --> 00:01:16,760 Speaker 4: levels that we're more accustomed to. But while everybody's talking 26 00:01:16,800 --> 00:01:19,240 Speaker 4: about jobs, I'm looking at the retail sales number, which 27 00:01:19,280 --> 00:01:21,920 Speaker 4: is very strong. And so the biggest question for an 28 00:01:21,920 --> 00:01:24,080 Speaker 4: economist right now it's not what is the direction of 29 00:01:24,080 --> 00:01:26,480 Speaker 4: the labor market, because that's sort of fuzzy. It's what 30 00:01:26,560 --> 00:01:29,880 Speaker 4: are the implications of a weaker job market for the economy, 31 00:01:30,000 --> 00:01:32,479 Speaker 4: And if the job market is weakening for young folks 32 00:01:32,520 --> 00:01:34,360 Speaker 4: twenty to twenty four, which is what we've seen in 33 00:01:34,400 --> 00:01:36,720 Speaker 4: the past, if it is less hiring and not so 34 00:01:36,840 --> 00:01:40,440 Speaker 4: much firing or layoffs, and the implications for spending are less. 35 00:01:40,680 --> 00:01:42,559 Speaker 4: And so my first rate on this is that, yes, 36 00:01:42,600 --> 00:01:45,679 Speaker 4: we have what we expected, ongoing softness in the labor market, 37 00:01:45,840 --> 00:01:48,520 Speaker 4: but it isn't creating a pullback in the broad economy. 38 00:01:48,640 --> 00:01:50,520 Speaker 4: And that's going to be a really key narrative moving 39 00:01:50,560 --> 00:01:51,840 Speaker 4: into twenty twenty six, which is the. 40 00:01:51,840 --> 00:01:54,960 Speaker 3: Reason why people are bidding up esque equities and risk assets, 41 00:01:55,000 --> 00:01:58,280 Speaker 3: even with potentially a worse than expected number of Michael 42 00:01:58,320 --> 00:02:01,560 Speaker 3: Collins I PGM fixing cups still with us. Mike, just congratulations, 43 00:02:01,560 --> 00:02:03,840 Speaker 3: you are positioned correctly ahead of this. I'm just wondering 44 00:02:04,160 --> 00:02:06,520 Speaker 3: whether this was the read you were looking for. If 45 00:02:06,560 --> 00:02:09,480 Speaker 3: this is just bad enough to keep the FED in play, 46 00:02:09,520 --> 00:02:12,000 Speaker 3: but good enough to the point that Francis was making 47 00:02:12,160 --> 00:02:14,480 Speaker 3: to keep risk us, it's potentially attractive. 48 00:02:15,480 --> 00:02:18,680 Speaker 5: Yeah, we haven't heard the Goldilocks economy phrase lately, but 49 00:02:19,000 --> 00:02:21,000 Speaker 5: you know, as Francis said, you know this is actually 50 00:02:21,000 --> 00:02:23,959 Speaker 5: not not bad, right. An unemployment rate, you know, ticking 51 00:02:24,040 --> 00:02:25,760 Speaker 5: up slowly, job. 52 00:02:25,520 --> 00:02:26,720 Speaker 6: Growth close to zero. 53 00:02:26,880 --> 00:02:28,880 Speaker 5: She throws out that, you know, thirty to forty thousand 54 00:02:28,960 --> 00:02:31,160 Speaker 5: numbers kind of the new normal, right, So don't be 55 00:02:31,240 --> 00:02:34,079 Speaker 5: shocked by these really low job gains. I think they're 56 00:02:34,120 --> 00:02:37,120 Speaker 5: just kind of standard given the population growth is really 57 00:02:37,200 --> 00:02:40,760 Speaker 5: trending down in terms of immigration and you know, births 58 00:02:40,960 --> 00:02:43,640 Speaker 5: and deaths, I mean, fertility rates in this country have plummeted, 59 00:02:44,040 --> 00:02:46,680 Speaker 5: and so this is a natural state, right, and it's 60 00:02:46,720 --> 00:02:49,560 Speaker 5: not bad. It keeps the FED in play, keeps rates 61 00:02:49,800 --> 00:02:52,280 Speaker 5: coming down a little bit. So this is what we 62 00:02:52,320 --> 00:02:55,000 Speaker 5: call the muddle through environment, and we have like a 63 00:02:55,040 --> 00:02:58,480 Speaker 5: fifty percent base case probability on this muddle through, which is, 64 00:02:58,639 --> 00:03:03,120 Speaker 5: you know, growth slow, okay, inflation a little sticky, but 65 00:03:03,200 --> 00:03:05,960 Speaker 5: not going up anymore, you know, maybe even coming down 66 00:03:06,000 --> 00:03:09,320 Speaker 5: a little bit. The Fed cutting rates a couple more times, right, 67 00:03:09,400 --> 00:03:12,800 Speaker 5: staying in a nice range here, and corporate earnings have 68 00:03:12,840 --> 00:03:13,880 Speaker 5: been really the star here. 69 00:03:13,960 --> 00:03:15,320 Speaker 6: Corporations, you know. 70 00:03:15,280 --> 00:03:18,240 Speaker 5: The private sector has been the star, right, and they 71 00:03:18,280 --> 00:03:20,560 Speaker 5: continue to figure out how to keep their margins up, 72 00:03:20,600 --> 00:03:25,120 Speaker 5: which has really been surprisingly impressive to me, Jamien. 73 00:03:25,200 --> 00:03:26,880 Speaker 3: We do see the move in the markets kind of 74 00:03:26,880 --> 00:03:29,520 Speaker 3: temper itself as people look at the details, look at 75 00:03:29,560 --> 00:03:31,639 Speaker 3: the fact that the response rate wasn't great, and look 76 00:03:31,639 --> 00:03:33,840 Speaker 3: at the fact that there's a lot of strength despite 77 00:03:33,840 --> 00:03:35,640 Speaker 3: some of the weakness that we see in the unemployment rate. 78 00:03:35,760 --> 00:03:38,640 Speaker 7: And in August and September we saw revised down by 79 00:03:38,640 --> 00:03:40,640 Speaker 7: another thirty three thousand as well. I mean, I'm just 80 00:03:40,680 --> 00:03:43,040 Speaker 7: looking at the unemployment rate ticking up to four point 81 00:03:43,040 --> 00:03:45,520 Speaker 7: six percent. You know, the labor force participation rate also 82 00:03:45,560 --> 00:03:47,920 Speaker 7: ticked up, so that could be fueling a little bit 83 00:03:47,920 --> 00:03:50,000 Speaker 7: of that as well, which is, you know, means it's 84 00:03:50,000 --> 00:03:52,600 Speaker 7: not as bad as you would have otherwise thought. But yeah, 85 00:03:52,640 --> 00:03:55,240 Speaker 7: I mean you had some backward divisions. Thirty three thousand 86 00:03:55,360 --> 00:03:58,160 Speaker 7: jobs lost in August and September. That's just you know, 87 00:03:58,280 --> 00:04:01,240 Speaker 7: feeding the bullish bentree here, Mike, how much. 88 00:04:01,120 --> 00:04:03,400 Speaker 3: Do you look at this data, given the fact that 89 00:04:03,680 --> 00:04:06,360 Speaker 3: we have gotten a response rates come down significantly, how 90 00:04:06,440 --> 00:04:09,080 Speaker 3: much do you look at this data as truly better 91 00:04:09,160 --> 00:04:11,280 Speaker 3: quality than some of the other data points that we've 92 00:04:11,280 --> 00:04:15,840 Speaker 3: been getting versus just as noisy, just as easy to discount. 93 00:04:16,360 --> 00:04:18,800 Speaker 5: Well, there's a lot more of it, right, We have 94 00:04:18,960 --> 00:04:22,400 Speaker 5: months worth of data out trickling out, and I don't 95 00:04:22,400 --> 00:04:25,360 Speaker 5: know if the quality of any of it is that great, Lisa, right, 96 00:04:25,400 --> 00:04:27,039 Speaker 5: So I think you all have to take all of 97 00:04:27,040 --> 00:04:29,720 Speaker 5: it with a grain of salt, which probably explains the 98 00:04:29,760 --> 00:04:30,920 Speaker 5: market reaction. 99 00:04:31,040 --> 00:04:31,800 Speaker 6: You know, you obvious see a. 100 00:04:31,800 --> 00:04:34,320 Speaker 5: Big knee jerk move when the numbers first come out, 101 00:04:34,360 --> 00:04:36,599 Speaker 5: and then they kind of settle in and many times 102 00:04:36,640 --> 00:04:39,640 Speaker 5: actually reverse right. So you know, the FED doesn't meet 103 00:04:39,680 --> 00:04:42,400 Speaker 5: for almost six weeks, so they have a lot more 104 00:04:42,480 --> 00:04:45,839 Speaker 5: data to come, and presumably the data they get over 105 00:04:45,880 --> 00:04:48,880 Speaker 5: the next six weeks will be higher quality and again 106 00:04:48,960 --> 00:04:52,560 Speaker 5: continue to paint a bigger picture of the direction of 107 00:04:52,600 --> 00:04:57,039 Speaker 5: the labor market, direction of consumption director direction of inflation. 108 00:04:57,240 --> 00:04:59,880 Speaker 6: So there's a lot more to come before the FED meets. 109 00:05:00,080 --> 00:05:01,360 Speaker 5: You know, right now, as you know, the markets are 110 00:05:01,400 --> 00:05:04,839 Speaker 5: pricing and basically the next cut not really until June, 111 00:05:05,160 --> 00:05:09,040 Speaker 5: and a second one by December, so really two next year, 112 00:05:09,480 --> 00:05:12,080 Speaker 5: but really slowly through throughout the year. 113 00:05:12,800 --> 00:05:15,000 Speaker 6: And that makes sense to us. And unless you get 114 00:05:15,000 --> 00:05:17,200 Speaker 6: a big change in the direction of this data. 115 00:05:16,880 --> 00:05:19,960 Speaker 7: Michael, we mentioned this prior to the release manufacturing payrolls. 116 00:05:19,960 --> 00:05:22,000 Speaker 7: They're now at their lowest level since March of twenty 117 00:05:22,040 --> 00:05:25,040 Speaker 7: twenty two. Certainly not what the Trump administration would like 118 00:05:25,080 --> 00:05:27,080 Speaker 7: to see. Talk to us a little bit about you know, 119 00:05:27,120 --> 00:05:27,880 Speaker 7: your read from there. 120 00:05:28,720 --> 00:05:31,440 Speaker 5: Yeah, I mean the whole, this whole manufacturing you know, 121 00:05:31,520 --> 00:05:35,640 Speaker 5: renaissance that the administration is trying to engineer is pushing 122 00:05:35,680 --> 00:05:37,719 Speaker 5: on a string to some extent. 123 00:05:37,839 --> 00:05:41,360 Speaker 6: Right, There's been lots of evidence and research. 124 00:05:41,000 --> 00:05:44,040 Speaker 5: Done on the amount of manufacturing jobs and the desire 125 00:05:44,480 --> 00:05:48,000 Speaker 5: for Americans to work in those manufacturing jobs, and the 126 00:05:48,040 --> 00:05:52,760 Speaker 5: availability and education and skill level for Americans to work 127 00:05:52,800 --> 00:05:56,120 Speaker 5: in those manufacturing jobs, right, does not bode well for 128 00:05:56,240 --> 00:06:00,840 Speaker 5: this big jump in manufacturing employment. You know, we are 129 00:06:00,920 --> 00:06:07,120 Speaker 5: a service economy where technology economy, We're a financial services economy. 130 00:06:07,880 --> 00:06:09,640 Speaker 6: That's where you know the jobs are. 131 00:06:09,640 --> 00:06:11,720 Speaker 5: Those are the sectors that are doing the best, not 132 00:06:11,720 --> 00:06:14,440 Speaker 5: not surprisingly, So yeah, I think you really have to, 133 00:06:14,600 --> 00:06:16,920 Speaker 5: you know, push back on that, the idea that we're 134 00:06:16,920 --> 00:06:19,560 Speaker 5: going to have this giant manufacturing, you know, labor market 135 00:06:19,640 --> 00:06:20,760 Speaker 5: renaissance in this country. 136 00:06:21,080 --> 00:06:23,159 Speaker 7: So Francis, I mean, equities are hirer on this news 137 00:06:23,279 --> 00:06:25,600 Speaker 7: yields you're down. What do you think the market's focused 138 00:06:25,640 --> 00:06:26,200 Speaker 7: on right here? 139 00:06:26,320 --> 00:06:28,680 Speaker 4: Well, I'm focused on the fact that you called it. 140 00:06:28,760 --> 00:06:30,760 Speaker 4: The big job in the unemployment rate is coming from 141 00:06:30,880 --> 00:06:33,720 Speaker 4: re entrance into the labor market, and this is the 142 00:06:33,720 --> 00:06:35,640 Speaker 4: big thing. We all want this number to give us 143 00:06:35,680 --> 00:06:38,400 Speaker 4: a signal up or down, but it's really the composition 144 00:06:38,480 --> 00:06:40,440 Speaker 4: that matters. So what we do is we think about 145 00:06:40,440 --> 00:06:43,680 Speaker 4: who is losing their job and who is actually being hired. 146 00:06:43,680 --> 00:06:46,920 Speaker 4: And if people are falling into unemployment because they've started 147 00:06:46,920 --> 00:06:48,960 Speaker 4: to look for a job and they haven't quite found one, 148 00:06:49,040 --> 00:06:52,000 Speaker 4: they don't represent a permanent loss of income. They're actually 149 00:06:52,040 --> 00:06:54,920 Speaker 4: starting the process again. So this is kind of bullish 150 00:06:54,960 --> 00:06:56,760 Speaker 4: in the sense that it's enough for the FED if 151 00:06:56,800 --> 00:06:59,279 Speaker 4: they want to keep cutting. This is a green light 152 00:06:59,360 --> 00:07:01,440 Speaker 4: for them, But it isn't enough to signal that there's 153 00:07:01,480 --> 00:07:04,039 Speaker 4: a hockey shaped weakness in the labor market. It is 154 00:07:04,160 --> 00:07:06,520 Speaker 4: enough to signal that growth is going to materially slow down, 155 00:07:06,720 --> 00:07:09,840 Speaker 4: or there's any sort of nefarious economic activity under the surface. 156 00:07:10,000 --> 00:07:11,840 Speaker 4: And what have we learned from the Fed? They have 157 00:07:12,040 --> 00:07:14,360 Speaker 4: a range of opinions if they want to cut. This 158 00:07:14,440 --> 00:07:16,120 Speaker 4: is the data that allows them to do that. If 159 00:07:16,160 --> 00:07:18,400 Speaker 4: you want to maintain a hawkish bias, there's enough under 160 00:07:18,400 --> 00:07:20,720 Speaker 4: here to tell you, Hey, the economy is fine, Retail 161 00:07:20,760 --> 00:07:23,080 Speaker 4: sales are up, the control group did really, really well, 162 00:07:23,400 --> 00:07:25,320 Speaker 4: and there's still a lot of uncertainty around how much 163 00:07:25,320 --> 00:07:26,520 Speaker 4: we should read into these numbers. 164 00:07:26,640 --> 00:07:29,720 Speaker 3: Mike Collins, Ephgion fixed income just quickly here, how much 165 00:07:29,720 --> 00:07:31,520 Speaker 3: do you think this really does greenlight the potential for 166 00:07:31,560 --> 00:07:33,680 Speaker 3: a rate cut given the fact that the unemployment rate 167 00:07:34,280 --> 00:07:37,200 Speaker 3: might give the ammunition that this Federal Reserve is looking for. 168 00:07:38,640 --> 00:07:43,440 Speaker 5: Yeah, I really think the Fed should pause here, take 169 00:07:43,480 --> 00:07:48,440 Speaker 5: a breather, get another handful of months of data before 170 00:07:48,480 --> 00:07:50,680 Speaker 5: they move again. Like I said, they've moved almost two 171 00:07:50,720 --> 00:07:54,200 Speaker 5: hundred basis points already, as Pala says, they're kind of 172 00:07:54,240 --> 00:07:58,360 Speaker 5: getting toward the neutral or in the neutral range right now. 173 00:07:58,400 --> 00:08:03,720 Speaker 5: The lack of consistency and consensus among the FOMC members 174 00:08:03,760 --> 00:08:06,040 Speaker 5: is really remarkable. How you have a bunch of people 175 00:08:06,040 --> 00:08:08,240 Speaker 5: who actually think they should hike rates from here, a 176 00:08:08,240 --> 00:08:10,160 Speaker 5: bunch think they should keep rates the same, and if 177 00:08:10,160 --> 00:08:12,080 Speaker 5: you think they should cut once twice, I mean it 178 00:08:12,120 --> 00:08:15,200 Speaker 5: is a real scatterplot of views among the committee. So 179 00:08:15,520 --> 00:08:18,600 Speaker 5: it feels like the general tendency is to just pause 180 00:08:18,680 --> 00:08:21,320 Speaker 5: and wait. Like I said, the markets aren't pricing in 181 00:08:21,360 --> 00:08:24,200 Speaker 5: a full cut until June, and that seems like the 182 00:08:24,280 --> 00:08:26,160 Speaker 5: right path for the FED at this point, unless things 183 00:08:26,200 --> 00:08:27,680 Speaker 5: change dramatically between now and then. 184 00:08:27,800 --> 00:08:30,680 Speaker 3: Michael Collins of PGM Fixed and Comment, thank you so much. 185 00:08:30,760 --> 00:08:31,280 Speaker 1: It seems like. 186 00:08:31,280 --> 00:08:34,280 Speaker 3: Markets have retraced a lot of where they were from 187 00:08:34,520 --> 00:08:36,920 Speaker 3: before this release. Do you agree with that, Francis that 188 00:08:36,960 --> 00:08:38,480 Speaker 3: even though there's a lot of division, it seems like 189 00:08:38,520 --> 00:08:38,920 Speaker 3: this is a. 190 00:08:38,840 --> 00:08:41,400 Speaker 1: FED that may cut but probably shouldn't. 191 00:08:41,480 --> 00:08:43,960 Speaker 4: Well, it's jobs Day, so it's the doves day. They 192 00:08:44,040 --> 00:08:46,320 Speaker 4: get to focus on their side of the mandate. But 193 00:08:46,400 --> 00:08:48,240 Speaker 4: in two days, forty eight hours you're going to be 194 00:08:48,240 --> 00:08:51,520 Speaker 4: doing inflation Day. And if consensus is right and CPI 195 00:08:51,640 --> 00:08:54,640 Speaker 4: jumps to three point one percent, well that'll be fifty 196 00:08:54,760 --> 00:08:57,559 Speaker 4: six months that inflation is above the two percent target, 197 00:08:57,720 --> 00:09:00,360 Speaker 4: going in the wrong direction, and everybody in the mother 198 00:09:00,440 --> 00:09:03,240 Speaker 4: knows that there's goods inflation still coming in the system. 199 00:09:03,360 --> 00:09:05,200 Speaker 4: So on Thursday, it's going to be really easy for 200 00:09:05,240 --> 00:09:07,280 Speaker 4: the Hawks to argue their side of the mandate. And 201 00:09:07,320 --> 00:09:09,160 Speaker 4: this is the problem when you have a dual mandate. 202 00:09:09,240 --> 00:09:12,280 Speaker 4: You're in a stagflationary light type of environment. You have 203 00:09:12,280 --> 00:09:15,360 Speaker 4: a FED that is revealing its bias towards the employment side. 204 00:09:15,440 --> 00:09:17,080 Speaker 4: But it will be easy to make the case that 205 00:09:17,120 --> 00:09:20,200 Speaker 4: inflation is still problematic at the end of this week, 206 00:09:20,240 --> 00:09:22,640 Speaker 4: So balancing those two will be important. FED speak will 207 00:09:22,640 --> 00:09:25,240 Speaker 4: be important going forward, but I'll continue to emphasize the 208 00:09:25,320 --> 00:09:27,959 Speaker 4: details matter. Four point six percent that is driven by 209 00:09:28,200 --> 00:09:30,680 Speaker 4: new entrants, that has a lot of healthcare jobs, sticky 210 00:09:30,720 --> 00:09:33,560 Speaker 4: healthcare jobs in it, that's a better type of weaker 211 00:09:33,679 --> 00:09:36,920 Speaker 4: job number, inflation that is broad based or has services 212 00:09:36,960 --> 00:09:39,440 Speaker 4: component inflation in it. On Thursday will work on the 213 00:09:39,480 --> 00:09:42,320 Speaker 4: other side. So let the doves have their day, but 214 00:09:42,400 --> 00:09:43,840 Speaker 4: Thursdays I think will belong. 215 00:09:43,640 --> 00:09:44,160 Speaker 6: To the Hawks. 216 00:09:45,800 --> 00:09:49,320 Speaker 2: Stay with us. Multpleinberg Savannah's coming up off to this. 217 00:09:58,040 --> 00:10:01,040 Speaker 3: Here's the latest lawmaker scrambling to reach a healthcare solution 218 00:10:01,160 --> 00:10:03,880 Speaker 3: with enhanced subsidies set to expire on New Year's Eve. 219 00:10:04,200 --> 00:10:06,679 Speaker 1: That was preparing to vote on a slimmed. 220 00:10:06,320 --> 00:10:09,400 Speaker 3: Down health plan this week, joining us down. Terry Haynes 221 00:10:09,400 --> 00:10:12,160 Speaker 3: at Pangaea Policy Terry, how much are people counting on 222 00:10:12,200 --> 00:10:14,920 Speaker 3: the idea that subsidies are going to fall away and 223 00:10:15,080 --> 00:10:17,280 Speaker 3: healthcare costs are going to increase when they talk about 224 00:10:17,320 --> 00:10:20,040 Speaker 3: stimulus coming down the pike in twenty twenty. 225 00:10:19,760 --> 00:10:22,240 Speaker 1: Six, Well, a couple of things lie. 226 00:10:22,360 --> 00:10:25,600 Speaker 8: So one is that you know, work expands the time 227 00:10:25,640 --> 00:10:29,440 Speaker 8: to fit a lot to fill, and you know they've 228 00:10:30,160 --> 00:10:32,000 Speaker 8: they've got a few more days here at least or 229 00:10:32,000 --> 00:10:35,280 Speaker 8: maybe in the next week. So legislatively speaking, that's a 230 00:10:35,280 --> 00:10:40,000 Speaker 8: lot of time. The mishmash of everything that's that's in 231 00:10:40,040 --> 00:10:46,200 Speaker 8: front of them suggests a solution of a small bump 232 00:10:46,720 --> 00:10:50,199 Speaker 8: in the current subsidies, you know, bump forward into twenty 233 00:10:50,240 --> 00:10:53,199 Speaker 8: twenty six, combined with a number of other things. But 234 00:10:53,280 --> 00:10:57,480 Speaker 8: what markets ought on and is that this is one 235 00:10:57,800 --> 00:11:00,199 Speaker 8: this is one step and a two step game. There's 236 00:11:00,240 --> 00:11:02,960 Speaker 8: almost certainly going to be a big, beautiful bill two 237 00:11:03,000 --> 00:11:06,040 Speaker 8: dot oh next year. I think as early as the 238 00:11:06,080 --> 00:11:10,439 Speaker 8: first quarter. Senate Budget Chair Graham's already been talking about it, 239 00:11:10,440 --> 00:11:14,160 Speaker 8: and already been talking about the need to do some 240 00:11:14,200 --> 00:11:18,719 Speaker 8: more on Obamacare subsidies and on Medicaid next year. So 241 00:11:18,800 --> 00:11:21,320 Speaker 8: what you're going to see here is a very interim 242 00:11:21,440 --> 00:11:24,640 Speaker 8: band aid solution, I think a little bit more likely 243 00:11:24,720 --> 00:11:31,200 Speaker 8: than not, combined with the UH the more likely two 244 00:11:31,240 --> 00:11:34,320 Speaker 8: dot oh solution coming early next year. So there's going 245 00:11:34,400 --> 00:11:37,439 Speaker 8: to be a lot of volatility in healthcare stocks as 246 00:11:37,440 --> 00:11:41,120 Speaker 8: a result of that, but that can't be helped. 247 00:11:41,760 --> 00:11:45,280 Speaker 7: Kerry and yesterday's Wall Street Journal Wall Street Journal interview, 248 00:11:45,440 --> 00:11:48,120 Speaker 7: Trump stated that he's, you know, he's not sure if 249 00:11:48,120 --> 00:11:50,040 Speaker 7: it's handling of the economy is going to, you know, 250 00:11:50,440 --> 00:11:52,679 Speaker 7: cause the Republicans to win the midterms. He's all but 251 00:11:52,800 --> 00:11:55,000 Speaker 7: conceded defeat there. And I'm curious to hear your thoughts 252 00:11:55,000 --> 00:11:57,880 Speaker 7: about this big, beautiful bill two point zero. What type 253 00:11:57,920 --> 00:12:00,560 Speaker 7: of reforms, what type of legislation can we to find 254 00:12:00,559 --> 00:12:00,760 Speaker 7: in that? 255 00:12:02,080 --> 00:12:04,400 Speaker 8: Well, A couple of things, Damien. First, you know, I 256 00:12:04,440 --> 00:12:09,120 Speaker 8: would I'd suggest that the jobs report may play a 257 00:12:09,200 --> 00:12:13,880 Speaker 8: role in deciding what happens in the Congress this week. 258 00:12:14,360 --> 00:12:16,560 Speaker 8: If the economy looks weak going into the holidays, I 259 00:12:16,559 --> 00:12:22,240 Speaker 8: think there's probably a greater desire to do something to 260 00:12:23,600 --> 00:12:30,040 Speaker 8: push back against that on healthcare, precisely for affordability reasons. Secondly, 261 00:12:30,080 --> 00:12:31,760 Speaker 8: what you have here, and there's been already been some 262 00:12:31,800 --> 00:12:34,480 Speaker 8: discussion on your program this morning about this, is you're 263 00:12:34,480 --> 00:12:36,280 Speaker 8: going to have a lot of stimulus happening early in 264 00:12:36,280 --> 00:12:39,319 Speaker 8: twenty twenty six. On top of that comes to you 265 00:12:39,480 --> 00:12:42,080 Speaker 8: from the twenty twenty five bill. On top of that 266 00:12:42,120 --> 00:12:45,760 Speaker 8: comes twenty twenty six, which Graham describes as a little 267 00:12:45,760 --> 00:12:48,800 Speaker 8: more of everything. A little more entitlement reform outside of 268 00:12:48,840 --> 00:12:52,160 Speaker 8: Social Security other than Social Security, a little more on Medicaid, 269 00:12:52,240 --> 00:12:54,720 Speaker 8: a little more on tax including expensing, a little more 270 00:12:54,800 --> 00:12:58,840 Speaker 8: money for the military, probably something if Graham has his 271 00:12:58,920 --> 00:13:02,280 Speaker 8: brothers on a him, I'm tariff, and I would suggest 272 00:13:02,360 --> 00:13:06,120 Speaker 8: a lot more on enshuring manufacturing incentives, because that is 273 00:13:06,240 --> 00:13:12,280 Speaker 8: key to speeding a more robust US defense industrial base. 274 00:13:12,800 --> 00:13:16,319 Speaker 7: Sorry, Polymarket currently assigns with the twenty seven percent probability 275 00:13:16,320 --> 00:13:18,800 Speaker 7: that the Supreme Court is going to vote in favor 276 00:13:18,960 --> 00:13:21,160 Speaker 7: of Trump's tariffs. This is down from high fifty three 277 00:13:21,160 --> 00:13:24,000 Speaker 7: percent just a few months back. What's the timeline here 278 00:13:24,000 --> 00:13:26,680 Speaker 7: for scotus, you know, to give us any color, how 279 00:13:26,720 --> 00:13:28,360 Speaker 7: do you believe the market's going to react if Trump's 280 00:13:28,400 --> 00:13:29,400 Speaker 7: tariffs are voted down? 281 00:13:30,440 --> 00:13:32,920 Speaker 8: Well, I think, Damien a couple of things. One is, 282 00:13:33,280 --> 00:13:36,040 Speaker 8: I wouldn't rely on polymarket too much. That's if you're 283 00:13:36,080 --> 00:13:38,000 Speaker 8: sitting around a roulette table, that's a bunch of people 284 00:13:38,040 --> 00:13:42,040 Speaker 8: kibbets behind you, so fundamentally you know, so would you 285 00:13:42,080 --> 00:13:44,600 Speaker 8: rely on them for your results or for your advice? 286 00:13:44,679 --> 00:13:50,720 Speaker 8: I'm not sure? But beyond that, you know my Firstly, 287 00:13:50,760 --> 00:13:53,280 Speaker 8: I always push back against the idea that the Court 288 00:13:54,520 --> 00:13:57,600 Speaker 8: presumptively rules against Trump's tariffs. I think that's based on 289 00:13:57,679 --> 00:14:02,480 Speaker 8: a flawed assumption at the Court doesn't take the economic 290 00:14:02,520 --> 00:14:06,680 Speaker 8: emergency seriously. So I think what happens is at the 291 00:14:06,800 --> 00:14:10,760 Speaker 8: very worst for the administration. They say they can't put 292 00:14:10,840 --> 00:14:15,240 Speaker 8: the tariffs in place using that AIPA authority, but there's 293 00:14:15,240 --> 00:14:19,920 Speaker 8: plenty of other teriff authorities. Secondly, I think they probably 294 00:14:20,000 --> 00:14:24,280 Speaker 8: give the Congress some time to fix the statute, and 295 00:14:24,520 --> 00:14:26,800 Speaker 8: that's something you can do also in that two dot 296 00:14:26,880 --> 00:14:29,080 Speaker 8: zero reconciliation bill. 297 00:14:29,120 --> 00:14:32,440 Speaker 2: Stay with US multlindex. Savana's coming up off to. 298 00:14:32,480 --> 00:14:42,960 Speaker 3: This, turning to market, it's Bank of America releasing It's 299 00:14:43,000 --> 00:14:46,920 Speaker 3: December Global Fund Manager Survey showing macro optivism at its 300 00:14:47,040 --> 00:14:50,120 Speaker 3: highest going back to twenty twenty one. Joining us now 301 00:14:50,200 --> 00:14:53,160 Speaker 3: is Elis Galu of Bank of America. Elie is great 302 00:14:53,160 --> 00:14:54,920 Speaker 3: to see you. Thank you so much for being with us. 303 00:14:55,160 --> 00:14:57,080 Speaker 3: Let's start on the cash holding. So the idea that 304 00:14:57,160 --> 00:14:59,880 Speaker 3: cash allocations fell to three point three percent the low 305 00:15:00,680 --> 00:15:03,840 Speaker 3: in Bank of America's Global Fund Manager Survey. How much 306 00:15:03,840 --> 00:15:05,960 Speaker 3: of a contrarian indicator do you see this as. 307 00:15:08,240 --> 00:15:11,280 Speaker 9: This is a very contrarian indicator, Liza, Look, I mean 308 00:15:11,440 --> 00:15:14,360 Speaker 9: just a bit of context on the FMS cash levels 309 00:15:14,400 --> 00:15:17,280 Speaker 9: which fell to a record low three point three percent today. 310 00:15:17,600 --> 00:15:20,320 Speaker 9: This series is one of the most important of the 311 00:15:20,320 --> 00:15:23,920 Speaker 9: Fund Manager survey. It has been around since ninety ninety nine, 312 00:15:24,160 --> 00:15:28,720 Speaker 9: so we are able to track several cycles through this series, 313 00:15:28,760 --> 00:15:31,480 Speaker 9: and even at the height of the Internet bubble, at 314 00:15:31,520 --> 00:15:34,520 Speaker 9: the height of the subprime bubble, and during the bomb 315 00:15:34,520 --> 00:15:38,720 Speaker 9: bubble of the post GFC era, the FMS cash level 316 00:15:38,800 --> 00:15:41,680 Speaker 9: did not drop to the level it did today three 317 00:15:41,680 --> 00:15:46,240 Speaker 9: point three percent, which is just strictly speaking and focusing 318 00:15:46,280 --> 00:15:49,840 Speaker 9: on this metric, this is a very bearish contrarian signal. 319 00:15:50,080 --> 00:15:52,960 Speaker 9: And we back tested this series since over the past 320 00:15:53,000 --> 00:15:56,720 Speaker 9: twenty five years, whenever the cash level fell to three 321 00:15:56,760 --> 00:16:00,400 Speaker 9: point six percent or below, the average four weekly for 322 00:16:00,480 --> 00:16:03,880 Speaker 9: global equities has been minus two percent, and over eight 323 00:16:03,920 --> 00:16:06,360 Speaker 9: weeks it's been global equities we're flat. 324 00:16:06,680 --> 00:16:09,320 Speaker 3: Well, as I scored with this, with the idea that 325 00:16:09,360 --> 00:16:12,040 Speaker 3: people are really optimistic about twenty twenty six returns, is 326 00:16:12,080 --> 00:16:14,680 Speaker 3: it consistent given the fact that we might see sort 327 00:16:14,680 --> 00:16:16,880 Speaker 3: of mandering stock returns heading into year end kind of 328 00:16:16,880 --> 00:16:19,280 Speaker 3: what we're seeing this morning. But next year people will 329 00:16:19,320 --> 00:16:22,680 Speaker 3: see that physical stimulas come in, that monetary stimulas come in, 330 00:16:22,800 --> 00:16:24,920 Speaker 3: and it will really support this sort of broader story 331 00:16:25,040 --> 00:16:26,400 Speaker 3: that people seem to be leaning into. 332 00:16:29,080 --> 00:16:31,560 Speaker 9: I think if we had to define the December twenty 333 00:16:31,600 --> 00:16:34,800 Speaker 9: twenty five fund manager survey, it would be the most 334 00:16:34,840 --> 00:16:39,040 Speaker 9: bullish survey of this AI led bull market. And the 335 00:16:39,080 --> 00:16:43,640 Speaker 9: culprit of this palpable bullishness is the expectation of run 336 00:16:43,640 --> 00:16:48,160 Speaker 9: it hot policies. FMS Investors look at the FED. They 337 00:16:48,280 --> 00:16:50,920 Speaker 9: know and I'm convinced that the FED under the next 338 00:16:51,040 --> 00:16:54,040 Speaker 9: chairman will be much more accomodative than in the past 339 00:16:54,040 --> 00:16:56,680 Speaker 9: few years. They know that there is a big election 340 00:16:57,160 --> 00:16:59,280 Speaker 9: in the US on November the third next year, and 341 00:16:59,320 --> 00:17:03,040 Speaker 9: they expect the administration to push up it further in 342 00:17:03,080 --> 00:17:05,800 Speaker 9: terms of fiscal policy, and they also, you know, last 343 00:17:05,800 --> 00:17:09,440 Speaker 9: week's announcement from the Fed in terms of the liquidity backstop, 344 00:17:09,600 --> 00:17:13,760 Speaker 9: I think has clearly emboldened FMS investors to increase allocation 345 00:17:13,920 --> 00:17:19,520 Speaker 9: to risk asset because another important metrics that was extreme 346 00:17:19,640 --> 00:17:22,800 Speaker 9: in this survey was the fact that liquidity conditions were 347 00:17:22,880 --> 00:17:26,199 Speaker 9: rated as the most positive since twenty twenty one, and 348 00:17:26,240 --> 00:17:30,080 Speaker 9: in fact, over the past twenty years, the liquidity conditions 349 00:17:30,119 --> 00:17:33,320 Speaker 9: have only been greater than today. At the peak of 350 00:17:33,560 --> 00:17:37,600 Speaker 9: the COVID boom in mid twenty twenty one. 351 00:17:38,040 --> 00:17:40,560 Speaker 7: Las long mag seven and long gold had been the 352 00:17:40,560 --> 00:17:42,879 Speaker 7: most crowded trades for the past three months in a row. 353 00:17:42,920 --> 00:17:45,000 Speaker 7: Yet at the margin, a small handful of investors are 354 00:17:45,040 --> 00:17:47,760 Speaker 7: now they now believe that being short ggbs and long 355 00:17:47,760 --> 00:17:50,840 Speaker 7: global bank stocks are the most crowded trades. So I'm curious, 356 00:17:50,880 --> 00:17:54,000 Speaker 7: you know, it's notable giving the impending bog ratik at 357 00:17:54,040 --> 00:17:57,000 Speaker 7: the end of this week, the near universal belief that 358 00:17:57,080 --> 00:18:00,400 Speaker 7: yield curves are going to steepen across the globe. Can 359 00:18:00,400 --> 00:18:02,640 Speaker 7: you provide just a bit more color on these newly 360 00:18:02,680 --> 00:18:03,880 Speaker 7: referenced pain trades. 361 00:18:06,080 --> 00:18:06,399 Speaker 1: Sure. 362 00:18:06,520 --> 00:18:08,560 Speaker 9: I think if you look at in the details of 363 00:18:08,560 --> 00:18:12,560 Speaker 9: the fund manager survey, the one challenge where it's actually 364 00:18:12,560 --> 00:18:17,040 Speaker 9: tough to square institutional investor bullishness is on expectations for 365 00:18:17,119 --> 00:18:20,240 Speaker 9: bond deals. There is this big conviction that bond deals 366 00:18:20,240 --> 00:18:22,960 Speaker 9: will be higher in twelve months time. This huge conviction 367 00:18:23,440 --> 00:18:27,440 Speaker 9: nets seventy five percent see an even steeper yield curve, 368 00:18:27,520 --> 00:18:31,240 Speaker 9: and then investors are very bullish risk assets. So you know, 369 00:18:31,320 --> 00:18:33,320 Speaker 9: at the end of the day, it's important to take 370 00:18:33,359 --> 00:18:35,359 Speaker 9: a step back and look at the big picture. And 371 00:18:35,400 --> 00:18:38,879 Speaker 9: the most important question here, Damien, is can risk assets 372 00:18:38,920 --> 00:18:41,560 Speaker 9: global equities US equities that are very rich in terms 373 00:18:41,600 --> 00:18:46,520 Speaker 9: of valuation with stan five percent plus bond deals and 374 00:18:46,840 --> 00:18:49,240 Speaker 9: I think you know, at this level of positioning, at 375 00:18:49,240 --> 00:18:52,560 Speaker 9: this level of valuation, risk assets will be struggling if 376 00:18:52,600 --> 00:18:56,240 Speaker 9: the thirty year treasury exceed five percent, which has been 377 00:18:56,440 --> 00:18:59,840 Speaker 9: a line in the scent for US policymakers. But for now, 378 00:19:00,080 --> 00:19:04,439 Speaker 9: investors prefer to focus on AI, the productivity gains that 379 00:19:04,520 --> 00:19:08,080 Speaker 9: AI adoption will deliver and in terms of EPs growth, 380 00:19:08,240 --> 00:19:10,439 Speaker 9: and this is what they prefer to focus on and 381 00:19:10,600 --> 00:19:13,480 Speaker 9: is also driving their the abolishness for in twenty twenty 382 00:19:13,520 --> 00:19:14,240 Speaker 9: six Elis. 383 00:19:14,320 --> 00:19:18,119 Speaker 7: Despite the pro cyclical rotation into equities and commodities, allocation 384 00:19:18,200 --> 00:19:21,040 Speaker 7: to the energy sector is nearly Tuesday on the deviations 385 00:19:21,080 --> 00:19:23,800 Speaker 7: below the twenty year average according to your FMS. Yet 386 00:19:23,840 --> 00:19:26,320 Speaker 7: with brain crude now dipping below sixty dollars this morning 387 00:19:26,320 --> 00:19:29,240 Speaker 7: and most analysts calling for it to stay, there is 388 00:19:29,240 --> 00:19:33,880 Speaker 7: there any benefit in fading that call. 389 00:19:34,080 --> 00:19:37,520 Speaker 9: It's one of the big contrariant trades of twenty twenty six. Really, 390 00:19:37,600 --> 00:19:40,840 Speaker 9: you know one. The energy sector has been has seen 391 00:19:40,840 --> 00:19:45,680 Speaker 9: a continuous underweight of FMS investors, and rightly so. Now 392 00:19:45,760 --> 00:19:48,720 Speaker 9: I think it's quite interesting to see the dichotomy between 393 00:19:49,080 --> 00:19:52,520 Speaker 9: an increase and increasing allocation to commodities. The net of 394 00:19:52,560 --> 00:19:55,480 Speaker 9: a weight on commodities is the highest in September twenty 395 00:19:55,480 --> 00:19:57,840 Speaker 9: twenty two, but at the same time a very big 396 00:19:57,960 --> 00:20:02,560 Speaker 9: underweight on energy, and that dichotomy is explains is explained 397 00:20:02,600 --> 00:20:07,199 Speaker 9: by the divergence between metals and energy. I think in 398 00:20:07,240 --> 00:20:11,040 Speaker 9: twenty twenty six, if growth surprises to the upside as 399 00:20:11,119 --> 00:20:14,359 Speaker 9: investors expect, I think clearly there is a lot of 400 00:20:14,440 --> 00:20:19,200 Speaker 9: value in the energy sectors and probably the stronger growth 401 00:20:19,359 --> 00:20:21,760 Speaker 9: will push the oil price higher. 402 00:20:22,080 --> 00:20:24,200 Speaker 3: On the flip side, Elias how much do you see 403 00:20:24,200 --> 00:20:27,560 Speaker 3: a potential contrarian trade in bonds, in particular long bonds, 404 00:20:27,560 --> 00:20:30,080 Speaker 3: This idea that maybe people are over their skis with 405 00:20:30,080 --> 00:20:32,920 Speaker 3: how much growth could increase, and something's got to give, 406 00:20:33,040 --> 00:20:36,800 Speaker 3: either as stock valuations or is where bond yields are. 407 00:20:36,840 --> 00:20:41,040 Speaker 1: And maybe it's the bond yields leading to risk off modes, some. 408 00:20:40,920 --> 00:20:43,480 Speaker 3: Moves something that people are sort of not positioned for 409 00:20:43,520 --> 00:20:46,120 Speaker 3: at all. 410 00:20:46,440 --> 00:20:48,520 Speaker 9: Sure, I mean what you saw this month, Lisa is 411 00:20:48,560 --> 00:20:51,760 Speaker 9: a very big rotation out of bonds and also a 412 00:20:51,800 --> 00:20:53,800 Speaker 9: big end of way when it comes to to bonds, 413 00:20:53,800 --> 00:20:57,080 Speaker 9: the biggest underweight since October twenty twenty two, when the 414 00:20:57,160 --> 00:21:01,200 Speaker 9: move index was above one sixty IE rates volatility was 415 00:21:01,240 --> 00:21:03,840 Speaker 9: a lot higher than it is today. Look what is 416 00:21:03,880 --> 00:21:05,960 Speaker 9: happening at you know, in this in this morning in 417 00:21:06,000 --> 00:21:10,280 Speaker 9: the US there is a big macro news, the November 418 00:21:11,000 --> 00:21:14,040 Speaker 9: you know, job jobs report, and if that report surprises 419 00:21:14,080 --> 00:21:16,600 Speaker 9: on the down side with a very weak payroll or 420 00:21:16,640 --> 00:21:19,000 Speaker 9: even in a negative payroll, I think, you know, that's 421 00:21:19,040 --> 00:21:21,359 Speaker 9: the pain trade of the day. It's going to see 422 00:21:21,680 --> 00:21:25,120 Speaker 9: BoNT yield's sharpillarwer and what I think is the biggest 423 00:21:25,119 --> 00:21:28,760 Speaker 9: pain trade of macro investors a flattening of the yield curve. 424 00:21:30,080 --> 00:21:33,560 Speaker 2: Stay with us more Blindberg surveillance coming up after this. 425 00:21:42,240 --> 00:21:45,640 Speaker 3: Lucy Baldwin City Global head of Research is bullish heading 426 00:21:45,680 --> 00:21:48,199 Speaker 3: into the new year, writing further upside is expected in 427 00:21:48,240 --> 00:21:52,480 Speaker 3: twenty twenty six. Is earnings growth broadens but elevated valuations 428 00:21:52,520 --> 00:21:54,919 Speaker 3: increase downside at risk, Lucy joins us. 429 00:21:54,920 --> 00:21:56,800 Speaker 1: Now, Lucy, this seems like kind of. 430 00:21:56,720 --> 00:21:58,760 Speaker 3: Threading a needle, and thank you so much for being 431 00:21:58,760 --> 00:22:00,560 Speaker 3: with us. And we keep hearing that, and it's sort 432 00:22:00,560 --> 00:22:01,439 Speaker 3: of diversified. 433 00:22:01,520 --> 00:22:02,040 Speaker 1: Be nimble. 434 00:22:02,280 --> 00:22:04,159 Speaker 3: We're a little worried that everyone else is bullish, but 435 00:22:04,160 --> 00:22:06,240 Speaker 3: we're bullish too. I mean, how do you sort of 436 00:22:06,880 --> 00:22:10,320 Speaker 3: just frame your sentiment heading into next year being bullish 437 00:22:10,359 --> 00:22:12,320 Speaker 3: when you know how consensus that is. 438 00:22:13,720 --> 00:22:16,480 Speaker 10: Yeah, good morning, Thanks for having me absolutely look after 439 00:22:16,520 --> 00:22:18,639 Speaker 10: a couple of amazing years, for the stock market to 440 00:22:18,680 --> 00:22:22,119 Speaker 10: be expecting another good year for US equities in particular 441 00:22:22,480 --> 00:22:24,919 Speaker 10: does feel like it's a high bar. But ultimately what 442 00:22:24,960 --> 00:22:27,879 Speaker 10: we feel is that the earnings backdrop for the S 443 00:22:27,960 --> 00:22:30,080 Speaker 10: and P five hundred looks incredibly strong. 444 00:22:30,520 --> 00:22:32,080 Speaker 1: We, like many others, expect to. 445 00:22:32,080 --> 00:22:34,919 Speaker 10: See the FED cutting a couple more times in the 446 00:22:34,960 --> 00:22:37,240 Speaker 10: new year and we think that is really quite bullish 447 00:22:37,280 --> 00:22:40,360 Speaker 10: really to be cutting into that recovery. We think you're 448 00:22:40,359 --> 00:22:42,800 Speaker 10: going to see the economy do pretty well in the 449 00:22:42,840 --> 00:22:46,879 Speaker 10: first half of next year, again fueled by that fiscal expansion, 450 00:22:47,200 --> 00:22:49,880 Speaker 10: the one big beautiful bill coming through really helping to. 451 00:22:49,840 --> 00:22:51,160 Speaker 1: See growth move forward. 452 00:22:51,520 --> 00:22:55,000 Speaker 10: So it is a pretty good Goldielocks type scenario we 453 00:22:55,040 --> 00:22:58,560 Speaker 10: think for the equities market. Our view is you probably 454 00:22:58,560 --> 00:23:01,320 Speaker 10: got about ten to twelve percent of upside for the 455 00:23:01,480 --> 00:23:04,439 Speaker 10: US S and P, which is pretty good. And I 456 00:23:04,440 --> 00:23:08,440 Speaker 10: think interestingly, we feel the tech leadership will continue to dominate. 457 00:23:08,720 --> 00:23:12,159 Speaker 10: But alongside that, we believe you can see that broadening 458 00:23:12,200 --> 00:23:15,240 Speaker 10: both in terms of the US market itself, but also 459 00:23:15,320 --> 00:23:17,000 Speaker 10: around the globe as well. We think you can have 460 00:23:17,040 --> 00:23:19,360 Speaker 10: another good year for some of the other stock markets 461 00:23:19,400 --> 00:23:20,600 Speaker 10: around the world. 462 00:23:20,400 --> 00:23:22,560 Speaker 1: As well as for the US lucie. 463 00:23:22,880 --> 00:23:26,360 Speaker 3: Just because the Fed is cutting, do the policy rates ease? 464 00:23:26,440 --> 00:23:29,160 Speaker 1: Right? Do monetary conditions ease? And I ask this because 465 00:23:29,200 --> 00:23:29,720 Speaker 1: even though. 466 00:23:29,560 --> 00:23:31,880 Speaker 3: We have had one hundred and seventy five basis points 467 00:23:31,880 --> 00:23:34,000 Speaker 3: of rate cuts by the Federal Reserve, you've seen ten 468 00:23:34,080 --> 00:23:37,000 Speaker 3: year yields actually rise by more than fifty basis points 469 00:23:37,000 --> 00:23:38,760 Speaker 3: in that period of time. You've seen thirty year yelds 470 00:23:38,800 --> 00:23:40,240 Speaker 3: rise but almost a hundred basis points. 471 00:23:40,240 --> 00:23:41,679 Speaker 1: So at a certain point. 472 00:23:41,440 --> 00:23:43,560 Speaker 3: Are we seeing tighter financial conditions in the margin the 473 00:23:43,600 --> 00:23:45,919 Speaker 3: more than some of these central bayings ease, kind of 474 00:23:45,960 --> 00:23:47,760 Speaker 3: creating a little bit of. 475 00:23:47,720 --> 00:23:48,880 Speaker 1: A fly in the ointment here. 476 00:23:50,119 --> 00:23:53,239 Speaker 10: Well, at some stage, you're right, there is a risk that, 477 00:23:53,320 --> 00:23:56,439 Speaker 10: for example, the fiscal situation, if you've got lots of 478 00:23:56,520 --> 00:23:59,600 Speaker 10: questions around FED independence. Again, coming back on the radar 479 00:23:59,640 --> 00:24:02,919 Speaker 10: nextually you could see that bear steepening start to be 480 00:24:02,960 --> 00:24:05,359 Speaker 10: problematic for risk assets. But we think they're kind of 481 00:24:05,400 --> 00:24:07,359 Speaker 10: like threading the needle at the moment really in the 482 00:24:07,400 --> 00:24:10,520 Speaker 10: sense that you've got this sort of goldilocks back drop 483 00:24:10,600 --> 00:24:15,560 Speaker 10: of good growth, inflation that's largely under control. Basically you've 484 00:24:15,560 --> 00:24:18,560 Speaker 10: got you know, that right mix of drivers. I mean, 485 00:24:18,680 --> 00:24:22,480 Speaker 10: clearly everybody's going to be watching certain things incredibly closely 486 00:24:22,520 --> 00:24:24,960 Speaker 10: in terms of risks for next year. But I think 487 00:24:25,000 --> 00:24:27,520 Speaker 10: if you can see that growth continue to be strong, 488 00:24:27,600 --> 00:24:31,360 Speaker 10: corporate earnings continue to power on, it's really that ideal 489 00:24:31,400 --> 00:24:33,520 Speaker 10: scenario where you're able to actually. 490 00:24:33,160 --> 00:24:35,719 Speaker 1: Cut into a boom. 491 00:24:35,760 --> 00:24:38,080 Speaker 10: Now it is obviously a bit of a jobless boom, 492 00:24:38,080 --> 00:24:40,240 Speaker 10: which I guess is the big question mark, right, and 493 00:24:40,280 --> 00:24:42,960 Speaker 10: it's the job side of the equation that is ultimately 494 00:24:43,000 --> 00:24:43,680 Speaker 10: allowing the. 495 00:24:43,560 --> 00:24:46,440 Speaker 1: FED to be easing into what we think. 496 00:24:46,280 --> 00:24:50,040 Speaker 10: Is actually possibly going to be this reaccelerating growth picture 497 00:24:50,400 --> 00:24:52,359 Speaker 10: in the first half of next year, which of course 498 00:24:52,440 --> 00:24:55,119 Speaker 10: is really rather unusual. And of course let's not forget 499 00:24:55,119 --> 00:24:58,000 Speaker 10: this year's been pretty unusual too. It's been the everything 500 00:24:58,040 --> 00:25:00,920 Speaker 10: boom to have had things like the US equity market 501 00:25:01,040 --> 00:25:04,560 Speaker 10: up strongly, credit go up strongly, but then also you've 502 00:25:04,600 --> 00:25:07,479 Speaker 10: seen ultimately things like gold have a phenomenal year, up 503 00:25:07,520 --> 00:25:10,000 Speaker 10: sixty percent. So it's been an unusual year this year, 504 00:25:10,359 --> 00:25:12,960 Speaker 10: and we do think it's going to be a delicate path, 505 00:25:13,000 --> 00:25:16,760 Speaker 10: but one way you can see that continued risk on momentum, 506 00:25:16,840 --> 00:25:19,480 Speaker 10: certainly into the beginning part of twenty twenty six. 507 00:25:19,680 --> 00:25:22,040 Speaker 7: You know, Lucy, I'd love to talk about gold with 508 00:25:22,119 --> 00:25:24,320 Speaker 7: you and precious metals because I know you recently had 509 00:25:24,320 --> 00:25:27,560 Speaker 7: Max Layton, City's global head of commodity research on your podcast, 510 00:25:27,640 --> 00:25:29,920 Speaker 7: and you know he was talking about the firm's out 511 00:25:29,920 --> 00:25:33,000 Speaker 7: of consensus view on gold in twenty twenty six. Ie, 512 00:25:33,119 --> 00:25:35,240 Speaker 7: he's a bit more barrassed than the street. I was 513 00:25:35,280 --> 00:25:37,520 Speaker 7: listening to you and you didn't seem quite so convinced. 514 00:25:37,600 --> 00:25:40,639 Speaker 7: I'm curious the structural drivers that are underpinning the gold 515 00:25:40,680 --> 00:25:42,879 Speaker 7: bull try, and I'm talking central bank buying, et cetera. 516 00:25:43,240 --> 00:25:45,080 Speaker 7: Do you expect that to continue or do you see 517 00:25:45,119 --> 00:25:47,120 Speaker 7: their room for downside and gold in the year head. 518 00:25:48,240 --> 00:25:50,280 Speaker 10: Yeah, Look, I think you know Max and the team, 519 00:25:50,720 --> 00:25:53,120 Speaker 10: I've got some great calls going into next year. 520 00:25:53,200 --> 00:25:53,880 Speaker 1: Right on one of. 521 00:25:53,840 --> 00:25:56,520 Speaker 10: Those calls, as you say, is this view that actually 522 00:25:56,600 --> 00:25:59,959 Speaker 10: the debasement trade is largely played out at these levels. 523 00:26:00,240 --> 00:26:03,159 Speaker 10: And yes, you've got the structural central bank buying story, 524 00:26:03,240 --> 00:26:07,760 Speaker 10: but ultimately there's probably going to be more upside in 525 00:26:07,800 --> 00:26:10,000 Speaker 10: some of the base metal things like copper that's the 526 00:26:10,080 --> 00:26:13,359 Speaker 10: sort of perfect clean cyclical play if you like, or aluminium, 527 00:26:13,359 --> 00:26:16,600 Speaker 10: which is ultimately competing alongside the data centers for power, 528 00:26:16,600 --> 00:26:19,480 Speaker 10: so you're going to probably see some positive price momentum there. 529 00:26:19,520 --> 00:26:21,920 Speaker 10: So we just think there's more upside in those base 530 00:26:22,000 --> 00:26:25,399 Speaker 10: metals rather than precious metals, and gold is obviously in 531 00:26:25,440 --> 00:26:28,920 Speaker 10: that equation. So for us, that debasement story has obviously 532 00:26:28,920 --> 00:26:30,960 Speaker 10: seen a lot of momentum this year, but we think 533 00:26:31,240 --> 00:26:33,960 Speaker 10: our core view is ultimately that the Central Bank remains 534 00:26:34,640 --> 00:26:37,800 Speaker 10: independent and very data dependent. So even if you have 535 00:26:37,960 --> 00:26:41,080 Speaker 10: a more dubbish backdrop for the FED next year, we 536 00:26:41,160 --> 00:26:44,040 Speaker 10: don't think that debasement trade runs on materially more. 537 00:26:44,080 --> 00:26:45,440 Speaker 1: I think you will see that sort. 538 00:26:45,240 --> 00:26:49,600 Speaker 10: Of slow, steady rediversification continuing for central banks. But I 539 00:26:49,600 --> 00:26:52,320 Speaker 10: don't think it's necessarily enough to give gold from here 540 00:26:52,720 --> 00:26:55,240 Speaker 10: significant legs as we go into the first half of 541 00:26:55,280 --> 00:26:57,280 Speaker 10: next year. So I would be with maxim the team 542 00:26:57,280 --> 00:27:00,679 Speaker 10: in terms of looking for other metals to really drive. 543 00:27:00,840 --> 00:27:03,440 Speaker 1: Some momentum in the first past of the new year. 544 00:27:03,960 --> 00:27:05,760 Speaker 7: Lucy, you and the team at City have been a 545 00:27:05,800 --> 00:27:08,000 Speaker 7: proponent of the carry trade, the FX carry trade for 546 00:27:08,000 --> 00:27:10,080 Speaker 7: a while now. I think you're still an advocate of it. 547 00:27:10,119 --> 00:27:11,560 Speaker 7: Talk to us a little bit about buying the high 548 00:27:11,600 --> 00:27:14,160 Speaker 7: yielding currencies versus the litw yelders. I mean, I think 549 00:27:14,240 --> 00:27:16,480 Speaker 7: nine out of eleven months this year the carry trade 550 00:27:16,520 --> 00:27:19,120 Speaker 7: has worked out and worked out well. You know, can 551 00:27:19,160 --> 00:27:22,080 Speaker 7: this continue? I mean, talk to us about redifferentials, Talk 552 00:27:22,119 --> 00:27:24,679 Speaker 7: to us about you know, currency investing and what funding 553 00:27:24,720 --> 00:27:26,520 Speaker 7: currencies stand out to you in the current environment. 554 00:27:27,760 --> 00:27:29,600 Speaker 10: Yeah, Look, I think this is this is a big 555 00:27:29,680 --> 00:27:32,240 Speaker 10: question after such a strong year, as you say, for 556 00:27:32,320 --> 00:27:35,679 Speaker 10: sort OFFX and the carry trade. I think the conundrum 557 00:27:35,680 --> 00:27:37,600 Speaker 10: we're all trying to grapple with is the dollar. 558 00:27:37,680 --> 00:27:37,800 Speaker 5: Right. 559 00:27:37,840 --> 00:27:40,000 Speaker 10: We've had lots of debates on It's Dan Tobin, who's 560 00:27:40,040 --> 00:27:43,000 Speaker 10: our FX strategist at City Research. He's got a really 561 00:27:43,080 --> 00:27:46,120 Speaker 10: out of consensus call for the dollar, right, So that's 562 00:27:46,160 --> 00:27:50,560 Speaker 10: quite interesting. He's much more bullish the dollar than pretty 563 00:27:50,600 --> 00:27:52,520 Speaker 10: much the rest of the street. And it's quite interesting 564 00:27:52,560 --> 00:27:54,680 Speaker 10: when our US chief eclomist Andrew holmand. 565 00:27:54,480 --> 00:27:56,920 Speaker 1: Horst has still got two cuts for the FED. 566 00:27:57,359 --> 00:27:59,720 Speaker 10: So, you know, what I think is quite a useful 567 00:27:59,720 --> 00:28:01,959 Speaker 10: way of framing this is looking at what our macro 568 00:28:02,040 --> 00:28:05,920 Speaker 10: strategy team says. So Adam Pickett Willer, they talk about 569 00:28:05,960 --> 00:28:09,240 Speaker 10: the dollar possibly going into next year almost having a 570 00:28:09,320 --> 00:28:12,280 Speaker 10: year of three thirds, right, So some risk that you 571 00:28:12,359 --> 00:28:14,880 Speaker 10: get some weakness in the early part of the year 572 00:28:14,880 --> 00:28:17,480 Speaker 10: as you're going into those continued cuts that we think 573 00:28:17,480 --> 00:28:19,680 Speaker 10: you're going to get out of the FED two more cuts, 574 00:28:20,680 --> 00:28:22,800 Speaker 10: and then they think, you know, in that middle part 575 00:28:22,800 --> 00:28:24,520 Speaker 10: of the year you're going to see the dollar strength 576 00:28:24,600 --> 00:28:27,080 Speaker 10: come back. And then maybe to your earlier question, you 577 00:28:27,119 --> 00:28:29,800 Speaker 10: get some risks later on in the year on the 578 00:28:29,840 --> 00:28:31,960 Speaker 10: back of some of the steepening risk in terms of 579 00:28:31,960 --> 00:28:33,280 Speaker 10: the back end of the US curve. 580 00:28:33,600 --> 00:28:35,720 Speaker 1: So what does that then mean for EMFX. 581 00:28:35,720 --> 00:28:38,040 Speaker 10: Well, I think, as we all know, right, it's very 582 00:28:38,080 --> 00:28:41,640 Speaker 10: difficult for emerging market currencies to do well when the 583 00:28:41,760 --> 00:28:45,240 Speaker 10: dollar is incredibly strong. So we're looking for those moments 584 00:28:45,280 --> 00:28:48,920 Speaker 10: of opportunity really around that dollar backdrop. I think when 585 00:28:48,960 --> 00:28:52,920 Speaker 10: you're considering all the different options for different emerging markets. 586 00:28:52,960 --> 00:28:54,960 Speaker 3: We see just quickly here at what's your black swan 587 00:28:55,000 --> 00:28:57,760 Speaker 3: event that you're sort of geeming out is an outlier 588 00:28:57,880 --> 00:29:02,520 Speaker 3: case but could potentially be incredibly counter to consensus. 589 00:29:04,080 --> 00:29:06,240 Speaker 10: Well, I think the big events that we're all watching 590 00:29:06,280 --> 00:29:08,920 Speaker 10: for is around the AI boom. 591 00:29:09,000 --> 00:29:11,160 Speaker 1: There's the debate is it a boom is it a bubble? 592 00:29:11,200 --> 00:29:13,840 Speaker 10: Look, we're in the category that we think even if 593 00:29:13,880 --> 00:29:16,800 Speaker 10: you categorize it as a bubble, because of the moves 594 00:29:16,840 --> 00:29:19,560 Speaker 10: we've seen so far, you still want to own it. 595 00:29:19,560 --> 00:29:20,600 Speaker 1: It's still got legs. 596 00:29:20,600 --> 00:29:23,040 Speaker 10: If you look at the valuations of the leaders of 597 00:29:23,080 --> 00:29:26,120 Speaker 10: this boom, we don't think they look stretched. 598 00:29:26,160 --> 00:29:26,280 Speaker 5: Right. 599 00:29:26,320 --> 00:29:29,080 Speaker 1: The earnings upgrades we've seen have been significant. You know. 600 00:29:29,200 --> 00:29:33,200 Speaker 10: If anything, people have underestimated the earnings power of these companies, 601 00:29:33,480 --> 00:29:36,320 Speaker 10: and I think even up until very very recently, it's 602 00:29:36,440 --> 00:29:39,840 Speaker 10: all largely been funded out of operating cash flow from 603 00:29:39,880 --> 00:29:42,360 Speaker 10: the big hyperscalers. I know we've sort of entered a 604 00:29:42,400 --> 00:29:45,520 Speaker 10: new paradigm in terms of potential risk because we've shifted 605 00:29:45,800 --> 00:29:49,320 Speaker 10: from the fiscal boom post COVID into more of a 606 00:29:49,320 --> 00:29:52,400 Speaker 10: credit expansion, and everybody's watching to see where the leverage 607 00:29:52,400 --> 00:29:54,800 Speaker 10: is building in the system. But we still feel this 608 00:29:54,880 --> 00:29:57,280 Speaker 10: has got legs to run for sure, and a lot 609 00:29:57,360 --> 00:30:00,000 Speaker 10: of growth. We obviously also think long term, structurally huge, 610 00:30:00,040 --> 00:30:03,480 Speaker 10: huge productivity games that can be unleashed by AI as well. 611 00:30:03,720 --> 00:30:06,080 Speaker 10: So we're bullish about it, but we're cautious and we 612 00:30:06,120 --> 00:30:09,960 Speaker 10: know that obviously there is risk as other areas of 613 00:30:10,000 --> 00:30:13,160 Speaker 10: that ecosystem take on leverage and take on risks, some 614 00:30:13,200 --> 00:30:16,080 Speaker 10: of the smaller names that don't have the operating cashflows 615 00:30:16,080 --> 00:30:19,000 Speaker 10: of the big hyperscalers. So that's obviously an area where 616 00:30:19,000 --> 00:30:22,000 Speaker 10: we're watching for risks to emerge, very very carefully and 617 00:30:22,080 --> 00:30:25,440 Speaker 10: very closely. But generally I think, you know, we're pretty 618 00:30:25,440 --> 00:30:28,440 Speaker 10: constructive next year. The other big macro risks, of course, 619 00:30:28,440 --> 00:30:31,280 Speaker 10: we're watching for, are around fiscal you know, we've just 620 00:30:31,280 --> 00:30:35,040 Speaker 10: written a piece looking at the US debt position and 621 00:30:35,200 --> 00:30:38,400 Speaker 10: updated piece on the sustainability of that, because again, you know, 622 00:30:38,440 --> 00:30:41,400 Speaker 10: that's something that's going to be very important for markets 623 00:30:41,440 --> 00:30:43,080 Speaker 10: as we go through twenty twenty six. 624 00:30:44,520 --> 00:30:48,080 Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best 625 00:30:48,080 --> 00:30:51,440 Speaker 2: in markets, economics, antient politics. You can watch the show 626 00:30:51,480 --> 00:30:54,440 Speaker 2: live on Bloomberg TV weekday mornings from six am to 627 00:30:54,560 --> 00:30:58,320 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 628 00:30:58,440 --> 00:31:00,680 Speaker 2: or anywhere else you listen, and as always on the 629 00:31:00,680 --> 00:31:03,080 Speaker 2: Bloomberg Terminal and the Bloomberg Business out 630 00:31:07,240 --> 00:31:07,680 Speaker 3: Mm hmm