Speaker 1: Welcome to Bloomberg Opinion. I'm Ronnie Quinn. This week very
Speaker 1: well could be true that the markets are right in
Speaker 1: sensing a less aggressive sed but we're just gonna have
Speaker 1: to wait and see if I think it's just more
Speaker 1: hope these days. Mike Regen on markets whip sewing again
Speaker 1: and Clara Ferrero Marquez on the Brazilian election after polls
Speaker 1: underestimated President Jayyer bol Snaro's popularity, sending the presidential race
Speaker 1: to a runoff. First, though, to the mid term elections
Speaker 1: here in the United States November eight. We heard from
Speaker 1: President Biden this week preaching unity with Republican Governor Rhonda Santas.
Speaker 1: He thanked me for the immediate response we had. He
Speaker 1: told me how much he appreciated it, said he was
Speaker 1: extremely happy with it was going on. This is not
Speaker 1: about whether or anything having to do with our disagreements politically.
Speaker 1: This is about saving people's lives, homes, and businesses. But
Speaker 1: the message community may be sure lived. With mid terms
Speaker 1: fewer than five weeks away, markets and corporations will be
Speaker 1: looking to results to figure out what happens to a
Speaker 1: slate of short term tax parks designed to sunset at
Speaker 1: the end of the year, also the prospect for legislation
Speaker 1: in the next two years regulatory risk and federal energy policy.
Speaker 1: I spoke with Bloomberg Opinions Jonathan Bernstein to gauge the
Speaker 1: state of the slate. So, Jonathan, it's important to preface
Speaker 1: everything by saying that we're still five weeks away from
Speaker 1: the mid terms, and so much can change in so
Speaker 1: many arenas, from individual candidates to what issues even Americans
Speaker 1: consider paramount But for now, at least, it does look
Speaker 1: like the Senate is favored to stay Democrats. Do you agree, Um,
Speaker 1: you know, both the House and the Senate have become
Speaker 1: so up for grabs right now. The latest polling couldn't change.
Speaker 1: But right now it looks like there's about a one
Speaker 1: third chance that Republicans would have majorities on both sides
Speaker 1: of Congress, about a one third chance that Democrats would
Speaker 1: have majorities on both sides, and a one third chance
Speaker 1: of a split Congress with Republicans having the majority in
Speaker 1: the House Democrats in the Senate. So yeah, most of
Speaker 1: the forecasters right now would say Democrats have a slightly
Speaker 1: better a chance of holding their senti majority than not.
Speaker 1: But it's very up for grabbed. What states does it
Speaker 1: depend on? Obviously we're watching Georgia. It may come down
Speaker 1: to Georgia, but other states have huge impact on where
Speaker 1: it actually ends up. Yeah, I mean, there's still several
Speaker 1: states that could go either way. Nevada, Georgia, Wisconsin, North Carolina, Pennsylvania, Ohio,
Speaker 1: Arizona and Florida, even New Hampshire even you know, there's
Speaker 1: just a lot of states that are at least if
Speaker 1: the poll isn't quite within the marginary, it's awful close
Speaker 1: to that. So you don't think that New Hampshire and
Speaker 1: Arizona are lost to Republicans yet. Then if you had
Speaker 1: me bet on even odds, I'd take the Democrats to
Speaker 1: New Hampshire and Arizona. I don't bet on elections, but
Speaker 1: if you gave me, you know, tend to want odds.
Speaker 1: I'd have to think seriously about the possibility if the
Speaker 1: environment shifts to Republicans over the last month. It's certainly
Speaker 1: possible that Republicans could get back in the game, and
Speaker 1: some of the states that right Democrats have an advantage.
Speaker 1: On the other hand, the environment could shift a little
Speaker 1: bit to the Democrats and something like Florida or Utah
Speaker 1: where we have an independent Republican running against the regular Republican,
Speaker 1: but the independent Republican would probably caucus with the Democrats
Speaker 1: if he was elected. I think I'm not sure if
Speaker 1: he's actually said that or not. You know, those could
Speaker 1: become all of a sudden in flight if things move
Speaker 1: a little bit to the Democrats, and we just don't
Speaker 1: know if that's going to happen or not, so it's
Speaker 1: all to play for. Still, it does seem like Republican
Speaker 1: money is going to Ohio and Florida. Should we read
Speaker 1: anything into that? You know, I'm sort of an outlier
Speaker 1: on opinions about money right now. My feeling is there
Speaker 1: is so much money out there, it is so easy
Speaker 1: to raise. There are so few restrictions that any candidate
Speaker 1: who has a reasonable chance is going to be funded
Speaker 1: enough that diminishing returns start sitting in. So I don't
Speaker 1: think that any candidate who would have a chance otherwise
Speaker 1: is going to be starved for funds, even in states
Speaker 1: like I believe Arizona is one where the party seemed
Speaker 1: to be deserting the candidate. If a good poll shows up,
Speaker 1: he'll have the money to spend. If it does come
Speaker 1: down to Georgia. Even if it doesn't come down to Georgia,
Speaker 1: does Harshel Walker do it? Even with these new allegations
Speaker 1: about paying for a girlfriend's abortion, even though he's staunchly
Speaker 1: anti abortion publicly. You know, I think what we should
Speaker 1: think about stuff like that is that it probably matters
Speaker 1: on the margins. After all, hardcore Republican voters, it's too
Speaker 1: late to drop him as a candidate, so he's going
Speaker 1: to be on the ballot. Hardcore Republican party actors are
Speaker 1: stuck with him. You know, we'll take something extraordinary for
Speaker 1: them to say, oh, forget it, We're going to give
Speaker 1: away one of the major swing states and give them.
Speaker 1: It's not gonna happen. Could it affect some voters, sure,
Speaker 1: even if it's one two percent of voters in Georgia. Well,
Speaker 1: if they stay home and they said, do I really
Speaker 1: want to go out to the polls and vote for
Speaker 1: this guy who has not just this latest candle but
Speaker 1: a whole series of things. Um, you know, not to
Speaker 1: mention that his qualifications for the job were very shaky.
Speaker 1: Misibility to form on the job have been very shaky
Speaker 1: in any of the settings we've seen him in, so
Speaker 1: you know, if it's a very close race, it costs
Speaker 1: some more two percentage points, that could be enough. On
Speaker 1: the other hand, we've seen plenty of big campaign issues,
Speaker 1: including important ones, come up, matter for a while and
Speaker 1: then they move on to something else, and most partisans
Speaker 1: are very good at making excuses for people on their
Speaker 1: own side. So um, sometimes campaigns really do collapse, and
Speaker 1: we've seen in this cycle some candidates running well below
Speaker 1: where their party seems to be in that state. That
Speaker 1: could happen to Walker as well, But we'll see how
Speaker 1: it plays out over several days and over the remaining weeks,
Speaker 1: and what else happens. If he has other public fights
Speaker 1: with members of his family, for example, that can't be good.
Speaker 1: But he does love them at the end of the day,
Speaker 1: apparently so so. In terms of issues, we obviously saw
Speaker 1: abortion becoming a huge issue. It's questionable as to whether
Speaker 1: it will stay an issue for the next five weeks,
Speaker 1: what happens with the economy, what happens with the inflation
Speaker 1: and so on. It will bring out more voters, though,
Speaker 1: that's for sure. Are you looking for turnout to increase
Speaker 1: this time around? The indication so far seemed to be
Speaker 1: that it will be a high turnout election. Um, we
Speaker 1: are in a relatively high turnout cycle and most recent
Speaker 1: elections was very high turnout election and for mid you know,
Speaker 1: midterms are never as high turnout, but it does look
Speaker 1: like all the indications are that this will be high
Speaker 1: turnout election. And as you know, as you implied, yes,
Speaker 1: whether first of all, an issue can get people to
Speaker 1: turn out and might not otherwise, but issues can be
Speaker 1: very Policy questions can be very important even if they
Speaker 1: don't affect vote choice. Because a whole lot of Democrats,
Speaker 1: for example, are running on the abortion issue. They may
Speaker 1: feel that that was why they want if they win,
Speaker 1: and they will then act on it if they have
Speaker 1: the votes to do so when they're elected. The same thing,
Speaker 1: you know, for Republicans who are running on other issues,
Speaker 1: those issues, even if they don't actually move votes, will
Speaker 1: be what Republicans perceived to have elected them. So, Jonathan,
Speaker 1: it's hard to postulate, given though we don't know how
Speaker 1: the next government is going to look, But if it
Speaker 1: were to be a divided government, what would that mean
Speaker 1: for Joe Biden for the next two years? In terms
Speaker 1: of reelection it probably doesn't mean anything, But in terms
Speaker 1: of getting things done well. You know, if Republicans are
Speaker 1: a House majority, in particular, Republicans don't have sort of
Speaker 1: a list of policies that they want that they will
Speaker 1: then compromise with Biden and with the Senate, since nobody's
Speaker 1: going to have sixty senators so with the filibuster, that
Speaker 1: means that whoever has the majority, they're going to have
Speaker 1: to compromise with the Senate just to get anything to Biden.
Speaker 1: But if the Republicans have a majority, we're going to
Speaker 1: see investigations, a lot of ugly smear type investigations, not
Speaker 1: sort of serious policy type or even you know, based
Speaker 1: on fact types of investigations. You know, we saw this
Speaker 1: before with Benghazi and a Republican House and Barack Obama.
Speaker 1: We will see it again. If Republicans stake control. There
Speaker 1: is a possibility that Republicans could bring the country to
Speaker 1: default over the debt feeling. If Democrats don't do something
Speaker 1: before the end of the year to make that impossible.
Speaker 1: There is I'd say a fairly good possibility that next
Speaker 1: September October will have a government shutdown. If Republicans have
Speaker 1: the majority of the House, they don't have a set
Speaker 1: of things that they want to get done that they
Speaker 1: can compromise about their running on Joe Biden being unpopular,
Speaker 1: and that's what they're going to try to do, is
Speaker 1: go after Biden. Just in that scenario, is Kevin McCarthy
Speaker 1: a shoe in for speaker? Some of the experts on
Speaker 1: the House that I've spoken to think, you know what
Speaker 1: he probably is. But it also depends on what the
Speaker 1: majority is. You know, it takes two d eighteen to
Speaker 1: have a majority in the House. Speaker elections is an
Speaker 1: election on the House floor. If Republicans from the Freedom
Speaker 1: Caucus or other even more outlier Republicans refuse to vote
Speaker 1: for McCarthy for speaker, he needs to get to eighteen.
Speaker 1: And if they only have two twenty Republicans and three
Speaker 1: Republicans refused to vote for him, they can't elect him.
Speaker 1: Is that what's going to happen? We have no idea,
Speaker 1: but it certainly is something that he's going to have
Speaker 1: to worry about. And then, of course we're assuming a
Speaker 1: lot of things now. But McCarthy, you were to be speaker,
Speaker 1: and assuming the Republicans do take the House, how would
Speaker 1: McConnell want government to look? Would McConnell want an obstrappers Congress.
Speaker 1: I think we can look at what happened during the
Speaker 1: last two years of Barack Obama's presidency. McConnell wasn't trying
Speaker 1: to bring the country into default. He has enough respect for,
Speaker 1: for example, the business interests that a lot with the
Speaker 1: Republican Party to not want to do that. But in
Speaker 1: terms of confirming nominations, confirming judicial nominations, that's not going
Speaker 1: to happen. We may have a half amfleach happening. You know,
Speaker 1: as we get to a normal cycle of cabinet members leaving,
Speaker 1: would McConnell bring up a Treasury secretary, of Defense secretary
Speaker 1: up for a vote? Would he have thoats to do
Speaker 1: it if there are fifty two or fifty three Republicans,
Speaker 1: I don't know. We may have a lot of positions
Speaker 1: that go un filled. So that kind of stuff he
Speaker 1: would certainly do. In terms of figuring out a way
Speaker 1: to get the debt feeling done, we've seen McConnell being
Speaker 1: willing to work on that, But we've also seen a
Speaker 1: couple of government shutdowns when he was the Republican leader,
Speaker 1: so you know, he won't have the ability to come
Speaker 1: up with those two eighteen votes in the House to
Speaker 1: get a debt limit increased fast or to get a
Speaker 1: continuing resolution to keep government spending going the next time
Speaker 1: it runs out. That's on the House side. He can't
Speaker 1: really control that. There's so many things to ponder because,
Speaker 1: of course, as soon as the midterms are over, then
Speaker 1: we're looking at the potential for announcements by various people,
Speaker 1: whether they're running for president or not. Obviously we know
Speaker 1: Trump is very likely to run. Biden we're not quite
Speaker 1: sure about, but I guess you'll run. But there could
Speaker 1: be a lot of other candidates too, And there are
Speaker 1: different sort of strains of Republicanism emerging. What do you
Speaker 1: see in the hinterland. Well, let's start with Democratic side.
Speaker 1: It is in Joe Biden's interest to have pretended to
Speaker 1: be running for election up to this point, and it's
Speaker 1: acted to his interest to continue to whatever he's really
Speaker 1: thinking up to the point where it would really harm
Speaker 1: Democrats for him to drop out. We don't know what
Speaker 1: he's really thinking, but that's what he's doing. It's consistent
Speaker 1: with the interests of the presidency and his presidency. Some
Speaker 1: point between election day and say Memorial Day, he's going
Speaker 1: to have to make a final decision. And you know,
Speaker 1: if he intends to not run, he's gonna have to
Speaker 1: stop pretending that he's running. If he intends to run,
Speaker 1: he's gonna have to do something dramatic enough, possibly a
Speaker 1: formal declaration of candidacy that everybody knows, Oh, yes, he
Speaker 1: really is running. Assuming that he is recent rebounding, the
Speaker 1: polls holds up, he's over. He probably does not have
Speaker 1: any serious possibility of losing the nomination, and nobody important
Speaker 1: is going to come after him. But then again, if
Speaker 1: he flips back under who knows. On the Republican side,
Speaker 1: they've been running for two years now, whether it's governor senators.
Speaker 1: A lot of candidates have been running. Trump himself never
Speaker 1: stopped running for president. That's all he does is run
Speaker 1: for president. He didn't do very much presidenting when he
Speaker 1: was elected. He declared for re election the day he
Speaker 1: was sworn in, and then didn't bother stopping the whole time.
Speaker 1: So he's running now. He may have to drop out
Speaker 1: at some point. The way that he can raise money
Speaker 1: under the law changes if he becomes a declared candidate,
Speaker 1: and that's probably one of the big questions for him
Speaker 1: as far as when he makes a formal declaration or
Speaker 1: if he eventually doesn't. Obviously he's also got legal problems
Speaker 1: over him. He may have calculations about whether a formal
Speaker 1: candidacy would help or hurt his legal situation. And then
Speaker 1: we have a whole bunch of Republicans, yeah, that are running,
Speaker 1: and some of them will probably get to the point
Speaker 1: of formally declaring even if Trump runs. Most of them
Speaker 1: will drop out if they feel like Trump is a
Speaker 1: formidable foe. We haven't seen anything like this an hundred
Speaker 1: years or whatever. It is a former president trying to
Speaker 1: win back the nomination after being defeated. I would guess
Speaker 1: that there's a lot of Republican Party actors who feel
Speaker 1: that Trump is the worst thing possible for the party.
Speaker 1: In what are your thoughts on the descantist style and
Speaker 1: whether that could take over nationally? I think that we've
Speaker 1: seen him get a lot of publicity in Republican align media.
Speaker 1: That's a very important factor in Republican nomination politics. I
Speaker 1: don't know that it's a style very different from Trump's.
Speaker 1: It looks like one of the things that we're going
Speaker 1: to have is several candidates who in various different ways
Speaker 1: stick with the Trump profile, Trump without this, or Trump
Speaker 1: plus that, something like that, because Trump is still popular
Speaker 1: among a lot of voters and some party actors. So
Speaker 1: I don't see any particular disqualifications for either of those candidates.
Speaker 1: But I don't see it for several of you know,
Speaker 1: we don't have somebody like Rudy Giuliani from several cycles ago,
Speaker 1: where it was very obvious that whatever the poll said,
Speaker 1: he had some serious problems attracting Republican voters and the
Speaker 1: support of Republican Party actors because of his policy position.
Speaker 1: For the most part, I don't see policy position problems
Speaker 1: with any of these people, any of a dozen or
Speaker 1: so Republicans who have made the trip out to Iowa,
Speaker 1: New Hampshire, and South Carolina indicating that they are running
Speaker 1: right now, or they're doing what one political scientist says,
Speaker 1: they're running four. Whether they'll be running in is another question.
Speaker 1: Some people think about the sand as the other lane
Speaker 1: locked up. It's very early for that kind of thing,
Speaker 1: and I wouldn't be very surprising at all if we
Speaker 1: have more than one candidate have a surge at some
Speaker 1: point and perhaps catch on long term, and perhaps surge
Speaker 1: and then burnout as we've seen lots of candidates doing
Speaker 1: previous cycles number opinions. Jonathan Bernstein to Brazil now on
Speaker 1: the presidential election runoff at the end of the months,
Speaker 1: which will pitt former President Lula against President Wilsonaro. This
Speaker 1: after a closer first round than predicted by pollsters. I
Speaker 1: spoke with Clara Ferra Marquez, So Clara, in a way,
Speaker 1: this was a huge loss for Lula, given that the
Speaker 1: polls are suggesting he might win in the first round. Right,
Speaker 1: it's important, I think the things that if the facts
Speaker 1: of a little bit when Brazilian elections are very rarely
Speaker 1: solved in the first round. It's only really happened twice
Speaker 1: to the advent of democracy. And I think wild colts
Speaker 1: had indicated in the weeks before that it was possible
Speaker 1: that Lula could carry the election in the first round.
Speaker 1: It was always a little bit of an outside chance.
Speaker 1: I think the surprise here was really the strength of
Speaker 1: a scenario support impulsed push him in somewhere in the midberties,
Speaker 1: and he came out of the pot. And I think,
Speaker 1: really importantly it's the strength of congressional support and the
Speaker 1: success which his allies had both in Congress and in
Speaker 1: guvenatorial races exactly a financial markets love the results. The
Speaker 1: interpretation was that if Lula wins, it will temper his
Speaker 1: more leftist tendencies. But in truth, we don't really know
Speaker 1: what either candidate would do or even be able to
Speaker 1: do in power, do we. Well, I mean, we do
Speaker 1: have some indications because both these men have been president
Speaker 1: try for two terms and Bocenaro for one. So it's
Speaker 1: a really On the one hand, there's a sense that orcenario,
Speaker 1: if re elected, would really push ahead with reform, parking
Speaker 1: back to twenties. Seen, the reality is, as president wasn't
Speaker 1: really able to do very much of that. Bulgeard his
Speaker 1: finance minister came in on this big ways of hope.
Speaker 1: There was some reform of the pension system, roll and overdue,
Speaker 1: but really it felt short of what could have been done.
Speaker 1: They haven't really tackled physical and other much needed changes,
Speaker 1: and they've mismanaged the greatest shock, which with COVID, So
Speaker 1: it's a little odd. And then on the Rula's side,
Speaker 1: you know, as president, he was a pragmatist. He really
Speaker 1: did govern from the center. I would say, you know,
Speaker 1: this probably will push them to do that even further,
Speaker 1: he'll have to move to the center in order to
Speaker 1: gain the support of third way candidates. But the fact
Speaker 1: is he was already there. His Vice President Gerald Well,
Speaker 1: whose former governor of San Fallow, is really a centric
Speaker 1: So that's the message he's been sending for Sometimes, if
Speaker 1: Lula wins, what is the danger that Bolton Arrow doesn't
Speaker 1: accept the outcome? How tense could have become very I think,
Speaker 1: and it's going to become terms for the next four weeks.
Speaker 1: We've already seen quite a lot of electoral violence. We've
Speaker 1: seen pulp, there's attacks because the white bolcenario has discredited
Speaker 1: the poles and people carrying out those poles that will
Speaker 1: only accentuate I think the real issue with Boar scenarios
Speaker 1: that taking a leaf from the Donald Trump playbook, he's
Speaker 1: really been paving the way for some sort of adventurism
Speaker 1: come October thirty and so he's questioned the electoral mechanism,
Speaker 1: even though Brazil has a very well established electronic voting system.
Speaker 1: You know, there's absolutely no evidence of fraud. He's eaten
Speaker 1: away at the balance of powers, attacking the Supreme Court.
Speaker 1: He's really cozied up to the military since twenty eighteen,
Speaker 1: and large parks didn't really have a party power base.
Speaker 1: He took to the military as a way of basking
Speaker 1: in the reflective glory of their reputation for competence. For examples,
Speaker 1: he was an army captain. He wasn't a particularly good one.
Speaker 1: That doesn't really matter if he can still do that
Speaker 1: and has done it very effectively. So that's connections to
Speaker 1: the military and with the security services generally that include
Speaker 1: the police, and that very worrying. Also the supports of
Speaker 1: gun ownership, so there's a surge and gun ownership and
Speaker 1: business a washing guns and that too. I think he's
Speaker 1: a pretty major concern as we approached this. It's not
Speaker 1: necessarily true that we would have an uprising. I mean,
Speaker 1: he has said things like I'll leave power either to
Speaker 1: go to prison or because God removes me and I'm
Speaker 1: not going to prison. They're very sort of comments. But
Speaker 1: I think the real risk here it will depend on
Speaker 1: how why the margin is between the two countilates of
Speaker 1: ruler winds, how wide is that margin between them. The
Speaker 1: other thing to bear in mind is that this might
Speaker 1: not be as outright coup as you would imagine in
Speaker 1: a nineties seventies kind of way that these are modern
Speaker 1: coups work in different ways than what we might well
Speaker 1: see is there's lots of point back point instability, and
Speaker 1: that is extremely concerning. Can we draw any conclusion about
Speaker 1: how populism is developing differently in Latin American countries, Well,
Speaker 1: it's always different, and I think Latin America we have
Speaker 1: a tendency to talk about it like it's one uniform.
Speaker 1: Play is obviously very very differently to different countries, different
Speaker 1: experiences with dictatorship. I think I have the things to
Speaker 1: point sales would be. One is to spare down this
Speaker 1: idea of the pink tide. You know, we have seen
Speaker 1: quite a lot about the bag in Chile, Peter in Colombia,
Speaker 1: there's a lot of talk of inside of ruler country
Speaker 1: are in Brazil now, the reality of these are all
Speaker 1: very different candidates. They're not on the right, but really
Speaker 1: what stands out for three of them is that they're
Speaker 1: anti incumbents. People are unhappy with the way things are going,
Speaker 1: the way economies are going in particulars, and I think
Speaker 1: also just to bear in mind that it's sorts of
Speaker 1: very different experience. When Will was first empower when there
Speaker 1: genuinely was addictively that's not really the case. Now. It's
Speaker 1: been operating from the assumption that Lula is going to win,
Speaker 1: but that's based on the polls and they were wrong.
Speaker 1: So could your ball scenarios day in power, Well, it
Speaker 1: would be unpertidented because since the advent of democraty, no
Speaker 1: one became second or did not win the first round
Speaker 1: one the second round. But we're in pretty unprecedented territory here.
Speaker 1: I think it's important to how little ruler has said
Speaker 1: about his actual agenda for when he governs, So the
Speaker 1: longer he has to wait for the next round for
Speaker 1: more details he provides, and that's less effective than just
Speaker 1: being the anti ball Canaro candidate. I think it's also
Speaker 1: notable how lukewarm some of the support has been for Lula.
Speaker 1: It's astounding, and you know, this is an election where
Speaker 1: democracy is that they can just hasn't really come across
Speaker 1: that way to a lot of people. For most people
Speaker 1: in Brazil, this is stilled an election that is about
Speaker 1: the economy, and despite you know, the reality being a
Speaker 1: lot less worthy, people still credit for scenario with quite
Speaker 1: a lot, and he'll be giving out quite a bit
Speaker 1: of cash hando that's just for the next round. So
Speaker 1: I think it's absolutely a possibility that is not to
Speaker 1: be discounted. Bloomberg Opinions Clara Ferrera Marquez. By the way,
Speaker 1: do get in touch. Comments and opinions always welcome at
Speaker 1: Foley Quinn on Twitter or email v Quinn at Bloomberg
Speaker 1: dot net. Now to the markets and another whippy week
Speaker 1: to start October, Bloomberg Market Senior Editor Mike Reagan joins,
Speaker 1: all right, Mike, Well, this week we saw stocks rebound,
Speaker 1: but it was more like perhaps a short squeeze, maybe
Speaker 1: a little bit of bargain hunting. But now we're seeing
Speaker 1: some kind of consolidation, though again it could still be
Speaker 1: just a reaction to headlines such as the opee class cuts.
Speaker 1: Where is Wall Street right now on the fourth quarter? Well,
Speaker 1: I think you're right now. This rebounding stocks we saw
Speaker 1: was a little bit of short squeeze ease, and also
Speaker 1: the drop had been so severe that valuations uh started
Speaker 1: looking attractive. But I think another thing that's really driving
Speaker 1: it is what I think of is sort of wishful thinking.
Speaker 1: Um that some of the central banks around the world
Speaker 1: are poised to be a little less aggressive with their
Speaker 1: interest rate increases. For example, a Reserve Bank of Australia
Speaker 1: only raised rates by a quarter of our percentage point.
Speaker 1: Many people were expecting much more, and prior to that,
Speaker 1: the Bank of England announced that it would start buying
Speaker 1: that country's bonds to sort of shure up the bond
Speaker 1: market there that was in turmoil. So the sense I
Speaker 1: think a lot of people have is that you know,
Speaker 1: the FED doesn't want to sort of break anything with
Speaker 1: their interest rate increases. If they tighten financial conditions enough
Speaker 1: that it causes problems in the financial system, that they
Speaker 1: will either pause or be less aggressive with rate hikes.
Speaker 1: And it is how we're wishful thinking, because I think
Speaker 1: that's possibly what it is right now. It very well
Speaker 1: could be true that the markets are right in sensing
Speaker 1: a less aggressive FED going forward, but we're just gonna
Speaker 1: have to wait and see if that's the case. I
Speaker 1: think it's just more hope that that's the case these days. Yeah,
Speaker 1: because when you think about it, Australia is a very
Speaker 1: different economy and interest rate increase in Australia affects a
Speaker 1: lot more people a lot faster. Housing is much more
Speaker 1: to do with variable rate mortgages than it is in
Speaker 1: the United States. And if you look at England, well
Speaker 1: there's a whole lot of idiosyncratic problems in England. So
Speaker 1: I guess I agree with you that maybe Wall Street
Speaker 1: is being a little bit hopeful in thinking that the
Speaker 1: FED is going to be more aggressive. If we think
Speaker 1: about what Mary Daily said this week, she pointed to
Speaker 1: real wage growth and pointed out that real wages are
Speaker 1: actually falling nine percent, And let's just have a listened
Speaker 1: to what she actually said. Unlike, it's a great time
Speaker 1: to be a worker. The workers have all this power.
Speaker 1: I don't see a lot of power if your real
Speaker 1: wages are following nine percent. And so that is sort
Speaker 1: of an example of why inflation is a corrosive If
Speaker 1: we let it go, it's a corrosive disease. So yeah,
Speaker 1: Mary Daily is the San Francisco FED, a labor economist.
Speaker 1: Her eyes are clearly on the labor market. But I
Speaker 1: mean she kind of speaks for many of the FED
Speaker 1: members these days. Yeah, I think that's an absolutely correct
Speaker 1: interpretation of her remarks. That a lot of the remarks
Speaker 1: really that we've heard from the FED um the one
Speaker 1: sort of limb that a lot of people grasp onto
Speaker 1: was Layle Brainer of the FED, very influential member the
Speaker 1: FED said something to the effect that they are monitoring
Speaker 1: for stresses in the financial system and that they don't
Speaker 1: want to aggravate anything like that. But I agree that
Speaker 1: most of the commentary from the FED has been look,
Speaker 1: inflation is our biggest problem. We are going to solve
Speaker 1: that before we worry about anything else, basically, So that
Speaker 1: is kind of why I think it's a little bit
Speaker 1: of wishful thinking in the market that they are poised
Speaker 1: to be a little bit less aggressive. But to get
Speaker 1: back to the you know, the start of the conversations
Speaker 1: has had fallen so much. You know, as of last week,
Speaker 1: we're setting new loads in the major benchmark index. Is
Speaker 1: evaluation started to look attractive again, assuming you know, you
Speaker 1: can put some faith into the earnings estimates for the
Speaker 1: rest of the year and next year, which, to be honest,
Speaker 1: not a lot of people are they expect those earnings
Speaker 1: estimates to come down. But it does sort of present
Speaker 1: an opportunity for many investors to come in and say, Okay,
Speaker 1: this might be the time to buy, even if it's
Speaker 1: just a sure term rebound. Because We've seen that all
Speaker 1: year stocks would fall very aggressively, then we'd have a
Speaker 1: very sharp rebound, and then they fall even further, set
Speaker 1: new loads, and then another rebound. So I think that
Speaker 1: rhythm big declines and then a fierce rebound have a
Speaker 1: lot of people trying to perhaps guess that this is
Speaker 1: another one of those occasions where we'll get a nice,
Speaker 1: strong rebound, even if it doesn't mean the bear markets
Speaker 1: over for good. There are these tactical opportunities to catch
Speaker 1: a bear market rebound in the middle of a nasty
Speaker 1: sell off like we've seen this year. Well, you mentioned
Speaker 1: companies and Helen of Troy, the maker of Oxe kitchen
Speaker 1: tools and hot tools, curling irons, basically the or of
Speaker 1: lots of things that people use around the house that
Speaker 1: are not extremely expensive. They said that consumers are delaying
Speaker 1: purchases and trading down. Are we seeing the beginning of
Speaker 1: what could be a more chilling earning season. I think
Speaker 1: we are, you know, and they are one of several companies,
Speaker 1: FedEx being another, Nike, CarMax. A lot of companies have
Speaker 1: sort of pre announced or at least given some sort
Speaker 1: of outlook for the rest of the year and for
Speaker 1: perhaps early next year, suggesting that yes, consumer demand is
Speaker 1: polling off. And not only that, this strong dollar, this
Speaker 1: relentless rise in the dollar we've seen all year, is
Speaker 1: very bad for companies that depend on overseas sales. You know,
Speaker 1: if you're selling products in Europe in euros and then
Speaker 1: converting it back two dollars, you're really, you know, getting
Speaker 1: hurt on that for an exchange conversion back in the
Speaker 1: dollars when it's this strong. So there are a lot
Speaker 1: of people racing for some disappointments in the earning seasons,
Speaker 1: especially from the outlook perspective, the forecast for the rest
Speaker 1: of the year and next year. That's why I say,
Speaker 1: you know, the valuation look cheap if you look at
Speaker 1: say the ratio of the SMP from fifteen les change
Speaker 1: or something now right, Yeah, yeah, it looks attractive when
Speaker 1: looking out at what is expected for next year's earnings,
Speaker 1: where the next twelve months earnings. But a lot of
Speaker 1: people are thinking, well, we can't really put a lot
Speaker 1: of faith in those earnings estimates right now because of
Speaker 1: all these issues, and that company you pointed out being
Speaker 1: a prime example of that, and and your identity in
Speaker 1: fact actually pointed out in one of his notes that
Speaker 1: you know that fifteen looks cheap, but we could actually
Speaker 1: see the four would be going down into the single digits. Mike,
Speaker 1: how is it all? Are the convulsions in the UK
Speaker 1: markets bleeding over to the US? You know, they definitely
Speaker 1: caused a lot of altility when Liz trust announced her
Speaker 1: economic plans and he saw that weakness in the pound
Speaker 1: and a rise in interest rates are very dramatic and
Speaker 1: disturbing rise in interest rates in the UK, so it
Speaker 1: did cause some added risk, the version in the US
Speaker 1: markets and global markets really, but they kind of snapped
Speaker 1: back from that because of the actions by the Bank
Speaker 1: of England and even the UK government softening their plans
Speaker 1: about the top tax bracket. So that's sort of reversal
Speaker 1: and sentiment towards England, I think is also one of
Speaker 1: the components of this rebound we saw in equity markets
Speaker 1: in the US this week. So it's certainly you know,
Speaker 1: all eyes are on England and the UK for the
Speaker 1: foreseeable future to see how all that shakes out, because
Speaker 1: it's a very crucial link in the global economy, financial
Speaker 1: center for most of Europe as well as you know,
Speaker 1: just a big, important economy that a lot of people
Speaker 1: pay closest attention to. If it looks like Britain is
Speaker 1: going into a deep recession, or that Britain won't be
Speaker 1: able to get it to act together in the next
Speaker 1: few quarters, will that have an impact in the media
Speaker 1: term on U S docks stand rates. I think that,
Speaker 1: you know, I think a lot of the economic damage
Speaker 1: that people are expecting Europe this winner and into next
Speaker 1: year a lot of authority priced into the stock market.
Speaker 1: You know, it's impossible to sit here and say exactly
Speaker 1: how much is priced in if all that damage is
Speaker 1: accurately reflected in the stock market, So you know, I
Speaker 1: think it could be another source of pain for the
Speaker 1: US stock market, but I don't think it'll be the
Speaker 1: type of thing to trigger, you know, a really severe
Speaker 1: further of the bear market. I think we have chriced
Speaker 1: in a lot of expected damage to the UK economy
Speaker 1: and the European economy as a whole, including whatever energy
Speaker 1: crisis might come up. Mentioning rates BMO. And this is
Speaker 1: a little circuitous, but BMOS as markets are trading on
Speaker 1: the thesis that good news is bad, So a good
Speaker 1: job sprint reinforces the FED stance that the economy can
Speaker 1: take a prolonged period of tighter policy, but that will
Speaker 1: end up hurting risk assets because it's good to bolster
Speaker 1: terminal rate estimates. Again a little circuitous, but it makes
Speaker 1: sense when you think about it. What we think when
Speaker 1: we look at where rates are. I mean, we've well
Speaker 1: backed off the four percent mark at this point. Yeah, well,
Speaker 1: I definitely agree with that notion that good news is
Speaker 1: bad news, and you know the obvious convers so that
Speaker 1: that bad news is good news. Um. The one interesting
Speaker 1: read we got on the US job market was that
Speaker 1: Joltz report, which is the number of job openings in
Speaker 1: the US. The number of openings has been off the
Speaker 1: charts high for a long time now, and that's sort
Speaker 1: of one of the things that has people concerned about
Speaker 1: inflation because if there's way more job openings than people
Speaker 1: looking for jobs, and obviously companies have to pay more
Speaker 1: to tract workers, that exacerbates inflation. But those job openings
Speaker 1: did come down quite a bit, by about a million
Speaker 1: in the latest report, so back down to about ten millions.
Speaker 1: Still elevated, but it's moving in that right direction, which
Speaker 1: normally would be considered, you know, obviously bad news fewer
Speaker 1: job openings in the US, But in this case, I
Speaker 1: do think it's a bad news is good news for
Speaker 1: the markets because it does alleviate at least a little
Speaker 1: bit of that concern about wage inflation feeding back into
Speaker 1: regular consumer price inflation. So it's far permission accomplished on
Speaker 1: that front by any means, but it is moving in
Speaker 1: the right direction. And I agree that bad news is
Speaker 1: good news is definitely a theme for the equity markets
Speaker 1: these days. And also the other thing I'd throw into
Speaker 1: the mix is credit Swiss, UH, the big the big
Speaker 1: investment bank. Now there's a lot of focus on UM
Speaker 1: their financial help at the moment, and I think that's also,
Speaker 1: you know, riching back into the sentiment that central banks
Speaker 1: perhaps may look at that type of situation with a
Speaker 1: major global investment bank struggling and think, Okay, maybe we're
Speaker 1: it's time to get a little less aggressive with our
Speaker 1: monetary policies. Again, it's a wishful thinking, it very well
Speaker 1: could be, but I do think it's It's part of
Speaker 1: the story on what has influenced markets that we've seen
Speaker 1: in last week. Bloomberg Market Senior Editor Mike Reagan that doesn't.
Speaker 1: For this week's Bloomberg Opinion, do get in touch. Love
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