1 00:00:00,080 --> 00:00:06,760 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 Amerie Hordernt. 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 --> 00:00:37,560 Speaker 2: Terminal and the Bloomberg Business App. Federal Reserve Governor Stephen 10 00:00:37,600 --> 00:00:40,360 Speaker 2: Maron warning of a possible downturn in the economy if 11 00:00:40,400 --> 00:00:43,920 Speaker 2: FED policy remains restrictive. Maron taking the most duvish side 12 00:00:43,920 --> 00:00:46,159 Speaker 2: of a divided FED, casting the loan vote for a 13 00:00:46,200 --> 00:00:49,519 Speaker 2: fifty basis point raycard at the Fed's October meeting. I'm 14 00:00:49,520 --> 00:00:52,080 Speaker 2: pleased to say for his first interview broadcast interview since 15 00:00:52,120 --> 00:00:54,840 Speaker 2: that conversation at the Federal Reserve, the Fed Governor Stephen 16 00:00:54,880 --> 00:00:55,800 Speaker 2: Maron joins us now for more. 17 00:00:55,840 --> 00:00:56,600 Speaker 3: Governor Maron, good. 18 00:00:56,520 --> 00:00:57,840 Speaker 4: Morning, good morning, Thanks for having me. 19 00:00:57,920 --> 00:00:59,320 Speaker 2: Hey, it's good to see you, as always, sir, So 20 00:00:59,440 --> 00:01:01,560 Speaker 2: let's spend some time. How did you approach the committee 21 00:01:01,600 --> 00:01:03,959 Speaker 2: meeting just last week and what was the argument for 22 00:01:04,000 --> 00:01:05,040 Speaker 2: fifty basis points? 23 00:01:05,400 --> 00:01:07,319 Speaker 5: So I approached it the same way approached the first one, 24 00:01:07,319 --> 00:01:09,200 Speaker 5: which is that I think that the FED is too restrictive. 25 00:01:09,240 --> 00:01:11,200 Speaker 5: I think that neutral is quite a ways below where 26 00:01:11,240 --> 00:01:15,560 Speaker 5: current policy is, and given my rather more seguent outlook 27 00:01:15,560 --> 00:01:17,640 Speaker 5: on inflation than some of the other members of the committee, 28 00:01:17,680 --> 00:01:20,000 Speaker 5: I don't see a reason for keeping policy as restrictive 29 00:01:20,040 --> 00:01:21,920 Speaker 5: for a long period of time as we are. The 30 00:01:22,000 --> 00:01:24,440 Speaker 5: longer you keep policy restrictive, the more you run the 31 00:01:24,520 --> 00:01:27,160 Speaker 5: risk that Montaro policy itself causes a downturn in the economy. 32 00:01:27,200 --> 00:01:29,160 Speaker 2: What was interesting about last week, as you know, is 33 00:01:29,160 --> 00:01:31,280 Speaker 2: that a send cup both ways. We also had this 34 00:01:31,440 --> 00:01:34,399 Speaker 2: argument from President's Smith of Kansas City FED, who put 35 00:01:34,440 --> 00:01:37,200 Speaker 2: out a long statement I've cherry picked a quote forgive me. 36 00:01:37,520 --> 00:01:40,240 Speaker 2: I see the starts of policy as being only modestly restrictive. 37 00:01:40,280 --> 00:01:43,960 Speaker 2: Financial market conditions appear to be easy across many metrics. 38 00:01:43,959 --> 00:01:46,000 Speaker 2: When you heard that kind of argument, what was the 39 00:01:46,040 --> 00:01:48,120 Speaker 2: counterpoint to what he's seeing in markets? 40 00:01:48,320 --> 00:01:49,800 Speaker 4: Yeah, so I'd say a couple things. 41 00:01:49,800 --> 00:01:51,560 Speaker 5: First of all, I'd say the financial markets are driven 42 00:01:51,640 --> 00:01:54,520 Speaker 5: by a lot of things, not just montary policy. They're driven, 43 00:01:54,600 --> 00:01:56,360 Speaker 5: of course in park by Montori policy, but there's a 44 00:01:56,400 --> 00:01:58,920 Speaker 5: lot of things that drive financial markets. For example, I 45 00:01:58,920 --> 00:02:00,480 Speaker 5: think on this program you probably spend a lot of 46 00:02:00,480 --> 00:02:03,000 Speaker 5: time thinking about AI and new technologies. If you have 47 00:02:03,080 --> 00:02:06,080 Speaker 5: AI or a new technology, it could push financial markets higher, 48 00:02:06,080 --> 00:02:08,280 Speaker 5: which would look like an easing and financial conditions, But 49 00:02:08,320 --> 00:02:10,239 Speaker 5: that doesn't necessarily tell you anything about the stance of 50 00:02:10,280 --> 00:02:13,440 Speaker 5: monitary policy. Indeed, very often, in response to a supply 51 00:02:13,480 --> 00:02:15,360 Speaker 5: shock or a positive supply shock, although of course it 52 00:02:15,400 --> 00:02:17,359 Speaker 5: depends what kind of supply shock, you might think that 53 00:02:17,400 --> 00:02:20,160 Speaker 5: the appropriate sense of monitary policy would be lower and 54 00:02:20,320 --> 00:02:22,359 Speaker 5: not tighter all Lse eqal. But of course there's a 55 00:02:22,400 --> 00:02:24,400 Speaker 5: lot of sort of what ifs and thinking about the 56 00:02:24,960 --> 00:02:27,200 Speaker 5: type of the supply shock. But I think that it's 57 00:02:27,200 --> 00:02:29,200 Speaker 5: a mistake to look at financial conditions and sort of 58 00:02:29,200 --> 00:02:32,080 Speaker 5: conclude something automatically about the stance of monitary policy. 59 00:02:32,280 --> 00:02:33,160 Speaker 4: And I also want to. 60 00:02:33,120 --> 00:02:35,160 Speaker 5: Point out that some of the financial conditions that look 61 00:02:35,200 --> 00:02:38,320 Speaker 5: the easiest, things like the stock market, things like you know, 62 00:02:38,360 --> 00:02:40,839 Speaker 5: sort of various parts of credit spreads, you know, those 63 00:02:40,880 --> 00:02:45,080 Speaker 5: are not necessarily the financial conditions that feed the most 64 00:02:45,120 --> 00:02:48,240 Speaker 5: into economic activity. Yes, the stock marketing, credit spreads matter, 65 00:02:48,280 --> 00:02:50,000 Speaker 5: they matter a lot, But then you sort of think 66 00:02:50,000 --> 00:02:52,399 Speaker 5: about something like housing. I think housing matters a lot 67 00:02:52,440 --> 00:02:54,720 Speaker 5: more for the cyclical position of the economy. And some 68 00:02:54,760 --> 00:02:56,760 Speaker 5: of these things don't matter, But is that they're only 69 00:02:56,800 --> 00:02:58,320 Speaker 5: part of the picture. And if you look at financial 70 00:02:58,320 --> 00:03:00,680 Speaker 5: conditions that affect housing, I think they're quite You look 71 00:03:00,720 --> 00:03:02,680 Speaker 5: at financial conditions that are affecting parts of the private 72 00:03:02,680 --> 00:03:06,119 Speaker 5: credit market, that also looks tighter. And I wonder if 73 00:03:06,240 --> 00:03:08,440 Speaker 5: what we're seeing now in some of the distresses that 74 00:03:08,480 --> 00:03:11,320 Speaker 5: you see in private markets means that financial conditions have 75 00:03:11,320 --> 00:03:13,840 Speaker 5: actually been tighter, but it's been masked by the fact 76 00:03:13,840 --> 00:03:15,800 Speaker 5: that we don't get marks for those on a regular basis. 77 00:03:15,840 --> 00:03:17,440 Speaker 2: So, Governor, I think I want to give you some time. 78 00:03:17,560 --> 00:03:19,040 Speaker 2: I think we should give you some time on a 79 00:03:19,040 --> 00:03:21,880 Speaker 2: central alignment of yours that this year you believe policy 80 00:03:21,919 --> 00:03:25,200 Speaker 2: is actually passively tightened through twenty twenty five. And don't 81 00:03:25,240 --> 00:03:27,359 Speaker 2: think that's an argument I've heard many people make you 82 00:03:27,600 --> 00:03:28,800 Speaker 2: just spend some time fleshing that out. 83 00:03:28,840 --> 00:03:29,560 Speaker 3: What do you mean by that? 84 00:03:29,919 --> 00:03:30,239 Speaker 4: Sure? 85 00:03:30,400 --> 00:03:33,240 Speaker 5: So my perspective is that there's been a number of 86 00:03:33,240 --> 00:03:36,040 Speaker 5: shocks that have hit the economy, driven in large part 87 00:03:36,080 --> 00:03:39,040 Speaker 5: by economic policy not from the FED, from outside of 88 00:03:39,040 --> 00:03:42,200 Speaker 5: the FED that pushed neutral rates higher last year and 89 00:03:42,240 --> 00:03:44,040 Speaker 5: lower this year. And so I think, if you look 90 00:03:44,080 --> 00:03:45,800 Speaker 5: where my neutral rate is, it's not that I'm out 91 00:03:45,800 --> 00:03:48,120 Speaker 5: of bounds for where the rest of the committee is unneutral. 92 00:03:48,320 --> 00:03:49,880 Speaker 5: It's just that I flipped from having one of the 93 00:03:49,960 --> 00:03:52,040 Speaker 5: highest neutral rates last year to now one. 94 00:03:51,960 --> 00:03:53,080 Speaker 4: Of the lowest neutral rates. 95 00:03:53,120 --> 00:03:56,440 Speaker 5: And that's driven by things like population growth, right, It's 96 00:03:56,520 --> 00:03:59,360 Speaker 5: driven by things like fiscal deficits, and if you think 97 00:03:59,360 --> 00:04:01,880 Speaker 5: about popularation growth, right, that's normally considered to be one 98 00:04:01,920 --> 00:04:04,800 Speaker 5: of the biggest drivers of neutral rates, and it's part 99 00:04:04,840 --> 00:04:06,760 Speaker 5: of the reason why people think that neutral usually moves 100 00:04:06,880 --> 00:04:10,320 Speaker 5: very very slowly, because population growth changes only very very 101 00:04:10,360 --> 00:04:13,960 Speaker 5: slowly as new technologies and cultural trends drive people to 102 00:04:13,960 --> 00:04:16,760 Speaker 5: have fewer kids over time. But we experienced the last 103 00:04:16,800 --> 00:04:19,640 Speaker 5: few years, thirty years worth of population growth change in 104 00:04:19,720 --> 00:04:20,360 Speaker 5: only three years. 105 00:04:20,680 --> 00:04:20,760 Speaker 6: Right. 106 00:04:20,839 --> 00:04:23,200 Speaker 5: When you look at the rate of population growth, it 107 00:04:23,279 --> 00:04:24,760 Speaker 5: changed more in the last three years than it did 108 00:04:24,760 --> 00:04:27,440 Speaker 5: in the previous thirty years in both directions. It round 109 00:04:27,480 --> 00:04:30,359 Speaker 5: tripped completely. And so if the drivers, if the drivers 110 00:04:30,360 --> 00:04:32,760 Speaker 5: have changes, the neutral rate accelerate over time, it would 111 00:04:32,760 --> 00:04:34,479 Speaker 5: only make sense to me that the neutral rate itself 112 00:04:34,520 --> 00:04:36,760 Speaker 5: would change more rapidly over time as well, And so 113 00:04:36,839 --> 00:04:40,080 Speaker 5: that's pushed neutral higher last year and lower this year, 114 00:04:40,240 --> 00:04:43,279 Speaker 5: which means that policy is passively tightened. Because what matters 115 00:04:43,279 --> 00:04:45,520 Speaker 5: for the stance of policy is where you are relative 116 00:04:45,520 --> 00:04:47,280 Speaker 5: to the neutral rate, And if neutral is here and 117 00:04:47,320 --> 00:04:49,560 Speaker 5: policies up here, you're very tight. If neutral's here and 118 00:04:49,600 --> 00:04:52,040 Speaker 5: policies down here, you're very loose. But if you stay 119 00:04:52,040 --> 00:04:55,720 Speaker 5: where you are and then neutral goes down, you've passively 120 00:04:55,720 --> 00:04:58,520 Speaker 5: tightened because the neutral rate has shifted, and so policy 121 00:04:58,520 --> 00:05:00,640 Speaker 5: has grown tighter over the course of the U year. Now, 122 00:05:00,640 --> 00:05:02,480 Speaker 5: it's not the case that you would expect to see 123 00:05:02,839 --> 00:05:06,080 Speaker 5: a significant downturn in the economy immediately as a result 124 00:05:06,120 --> 00:05:08,480 Speaker 5: of that, because Montero policy works with lags. It hits 125 00:05:08,520 --> 00:05:10,719 Speaker 5: the economy with long and variable lags, as we all know. 126 00:05:11,160 --> 00:05:13,880 Speaker 5: But if you maintain that very restrictive stance of policy 127 00:05:13,880 --> 00:05:16,440 Speaker 5: for a long period of time, you really increase the 128 00:05:16,520 --> 00:05:20,080 Speaker 5: chances that those lags come to manifest In that Monterey policy, 129 00:05:20,160 --> 00:05:22,320 Speaker 5: then itself induces a downturn in the economy. 130 00:05:22,360 --> 00:05:23,640 Speaker 4: Why wasn't your decent bigger. 131 00:05:24,040 --> 00:05:26,040 Speaker 6: You were talking about a fifty basis point cut that 132 00:05:26,040 --> 00:05:28,039 Speaker 6: you would have preferred to see in the September meeting. 133 00:05:28,320 --> 00:05:31,760 Speaker 6: Why didn't you go for a seventy five basis basis 134 00:05:31,760 --> 00:05:34,200 Speaker 6: point cut descent last month? 135 00:05:34,480 --> 00:05:34,880 Speaker 4: Of course? 136 00:05:35,240 --> 00:05:37,000 Speaker 5: So look, you know, I think that we're I think 137 00:05:37,040 --> 00:05:38,800 Speaker 5: that we're a fair way from neutral, and I think 138 00:05:38,800 --> 00:05:40,560 Speaker 5: that we could get there a bit faster. I could 139 00:05:40,560 --> 00:05:43,760 Speaker 5: imagine getting there in a series of fifty clips. I 140 00:05:43,800 --> 00:05:45,400 Speaker 5: don't think it's the case that we need to get 141 00:05:45,400 --> 00:05:46,960 Speaker 5: there and more than that, because I don't think that 142 00:05:47,120 --> 00:05:49,440 Speaker 5: I don't think the economy is dysfunctional right now, I 143 00:05:49,480 --> 00:05:51,960 Speaker 5: don't think that financial markers are dysfunctional right now. I 144 00:05:52,000 --> 00:05:54,000 Speaker 5: don't think we need to move even faster than that 145 00:05:54,040 --> 00:05:57,640 Speaker 5: for those for those reasons. If I did, then you know, 146 00:05:57,680 --> 00:06:00,559 Speaker 5: I would have no problem voting for voting for your cuts. 147 00:06:00,600 --> 00:06:02,880 Speaker 5: But I think sort of getting there in fifties instead 148 00:06:02,880 --> 00:06:04,680 Speaker 5: of twenty five's is fine. 149 00:06:04,920 --> 00:06:06,880 Speaker 6: So you would be open to dissenting again for a 150 00:06:06,920 --> 00:06:09,000 Speaker 6: fifty basis point cut if the rest of the committee 151 00:06:09,080 --> 00:06:12,080 Speaker 6: wasn't around for that next month or in December rather. 152 00:06:12,160 --> 00:06:14,320 Speaker 5: Yeah, well, I don't want to commit to that because 153 00:06:14,360 --> 00:06:16,159 Speaker 5: a lot can happen between now and the next meeting. 154 00:06:16,320 --> 00:06:18,160 Speaker 5: We're getting a lot of data, I hope, between now 155 00:06:18,160 --> 00:06:20,120 Speaker 5: and then, and only data about the near term, but 156 00:06:20,200 --> 00:06:22,400 Speaker 5: data about the recent past as well that we don't have. 157 00:06:22,640 --> 00:06:23,680 Speaker 4: So things could change. 158 00:06:23,680 --> 00:06:26,080 Speaker 5: But if things play out according to my forecast, then 159 00:06:27,000 --> 00:06:28,640 Speaker 5: yes I would Governor Do you think. 160 00:06:28,480 --> 00:06:33,120 Speaker 7: Your advocacy for a fifty bait cut is hardening the 161 00:06:33,120 --> 00:06:35,760 Speaker 7: opposition to cuts it all? 162 00:06:36,160 --> 00:06:38,240 Speaker 4: I don't think so. I think everybody is. 163 00:06:38,320 --> 00:06:41,440 Speaker 5: Everybody is doing their own analysis of the economy and 164 00:06:41,800 --> 00:06:45,440 Speaker 5: inflation in the labor market and financial markets too, and 165 00:06:45,800 --> 00:06:48,000 Speaker 5: coming to a conclusion. And you know, I don't think 166 00:06:48,000 --> 00:06:51,520 Speaker 5: anybody is necessarily changing their mind sort of to not 167 00:06:51,560 --> 00:06:54,000 Speaker 5: support a cut because I just because I want to 168 00:06:54,040 --> 00:06:54,520 Speaker 5: cut more. 169 00:06:54,760 --> 00:06:57,719 Speaker 7: Is there a lot of discussion at the FED about 170 00:06:57,760 --> 00:06:59,520 Speaker 7: the fact that you're all doing your own analysis, but 171 00:06:59,800 --> 00:07:01,400 Speaker 7: what data are you all using if we're in the 172 00:07:01,400 --> 00:07:03,120 Speaker 7: miss still in the middle of a government shutdown thirty 173 00:07:03,120 --> 00:07:03,880 Speaker 7: four days today. 174 00:07:04,320 --> 00:07:07,320 Speaker 5: Yeah, so there's a lot of talk about that. Let 175 00:07:07,320 --> 00:07:09,479 Speaker 5: me say a couple things about that. First of all, 176 00:07:09,600 --> 00:07:12,640 Speaker 5: you know, it's my perspective that being excessively data dependent 177 00:07:12,720 --> 00:07:16,040 Speaker 5: makes you backward looking, because the data are always backward looking, 178 00:07:16,080 --> 00:07:18,000 Speaker 5: and because of collection lags, because the amount of time 179 00:07:18,000 --> 00:07:21,000 Speaker 5: that you're doing comparisons over right, and given mantary policy 180 00:07:21,040 --> 00:07:22,840 Speaker 5: takes lags to hit the economy, you want to be 181 00:07:22,840 --> 00:07:25,000 Speaker 5: forward looking. So you want to make policy based on 182 00:07:25,040 --> 00:07:27,160 Speaker 5: your forecast. Now, there are times when you might not 183 00:07:27,240 --> 00:07:28,840 Speaker 5: have a lot of confidence in your forecast, and so 184 00:07:28,880 --> 00:07:31,000 Speaker 5: you need to be data dependent. But you should be 185 00:07:31,040 --> 00:07:32,880 Speaker 5: data dependent only to the extent that you don't have 186 00:07:32,920 --> 00:07:35,680 Speaker 5: confidence in your forecast. My perspective is that we know 187 00:07:35,760 --> 00:07:37,400 Speaker 5: the size of the shocks that have hit the economy 188 00:07:37,400 --> 00:07:40,760 Speaker 5: this year, things like population growth. That's a known quantity. 189 00:07:40,880 --> 00:07:42,640 Speaker 5: We know what it does to the economy, we know 190 00:07:42,720 --> 00:07:44,480 Speaker 5: what it does to neutral we know the size of that. 191 00:07:45,080 --> 00:07:48,080 Speaker 5: It's not a mystery. So therefore I have a lot 192 00:07:48,080 --> 00:07:52,360 Speaker 5: of confidence in my forecast. And therefore, to the extent 193 00:07:52,440 --> 00:07:54,080 Speaker 5: that we would get data that would make me change 194 00:07:54,080 --> 00:07:56,520 Speaker 5: my forecast, I would then change my policy. I look, 195 00:07:57,120 --> 00:07:59,040 Speaker 5: so the question is that am I missing data because 196 00:07:59,080 --> 00:08:01,280 Speaker 5: of the government shutdown that would lead me to change 197 00:08:01,280 --> 00:08:04,120 Speaker 5: my forecast. And given so much of my forecast for 198 00:08:04,160 --> 00:08:08,000 Speaker 5: inflation depends on the housing market, and depends on the 199 00:08:08,000 --> 00:08:09,720 Speaker 5: housing market, I would assume that I would see that 200 00:08:09,760 --> 00:08:12,320 Speaker 5: in the reporting that Bloomberg and others do, even if 201 00:08:12,360 --> 00:08:14,520 Speaker 5: I'm not getting data in the short term. Now, something 202 00:08:14,560 --> 00:08:17,760 Speaker 5: like that lasts a couple of months, right, make Can 203 00:08:17,800 --> 00:08:19,840 Speaker 5: I continue to sort of have this degree of confidence 204 00:08:19,920 --> 00:08:22,040 Speaker 5: if we go six months with that data? 205 00:08:22,360 --> 00:08:23,480 Speaker 4: Absolutely not so. 206 00:08:23,560 --> 00:08:25,440 Speaker 5: I do think this is something people are attentive to. 207 00:08:25,760 --> 00:08:28,320 Speaker 5: And there's also alternative data. As you guys are aware, 208 00:08:28,720 --> 00:08:31,240 Speaker 5: I find the alternative data on inflation to be not 209 00:08:31,320 --> 00:08:33,920 Speaker 5: super useful. I do find it to be more useful 210 00:08:33,960 --> 00:08:35,640 Speaker 5: on the labor market. And when you sort of look 211 00:08:35,640 --> 00:08:38,120 Speaker 5: at alternative data on the labor market, you see data 212 00:08:38,160 --> 00:08:41,640 Speaker 5: that's consistent with continual ebbing of demand, which again is 213 00:08:41,679 --> 00:08:45,559 Speaker 5: a signal that policy is too tight. If the decline 214 00:08:45,600 --> 00:08:49,240 Speaker 5: in hiring was a result of negative supply shocks from immigration, 215 00:08:49,520 --> 00:08:51,360 Speaker 5: you would see higher wages, and you would see and 216 00:08:51,360 --> 00:08:54,400 Speaker 5: you would see firms and people giving answering surveys in 217 00:08:54,440 --> 00:08:57,000 Speaker 5: a way that indicated that jobs were plentiful or it 218 00:08:57,040 --> 00:08:58,079 Speaker 5: was difficult to find workers. 219 00:08:58,120 --> 00:08:59,480 Speaker 4: From the firm perspective, you're not. 220 00:08:59,520 --> 00:09:02,640 Speaker 2: Seeing developments in private credit as as well as evidence 221 00:09:02,679 --> 00:09:04,520 Speaker 2: that we're restrictive. Perhaps it was the fault of our 222 00:09:04,559 --> 00:09:06,440 Speaker 2: pairs that this didn't come up much of the news conference. 223 00:09:06,480 --> 00:09:09,240 Speaker 2: I was somewhat surprised did it come up much in 224 00:09:09,320 --> 00:09:11,040 Speaker 2: the meeting the two day meeting last week. 225 00:09:11,360 --> 00:09:14,920 Speaker 5: Well, I mentioned it at the meeting as a reason 226 00:09:14,960 --> 00:09:19,240 Speaker 5: why it was potentially a mistake to make to make 227 00:09:19,760 --> 00:09:23,320 Speaker 5: very confident inferences from the stance of equity markets to 228 00:09:23,440 --> 00:09:27,559 Speaker 5: the stance of monetary policy. But other than that, I 229 00:09:27,600 --> 00:09:30,360 Speaker 5: think that sort of folks were focused on private credit 230 00:09:30,400 --> 00:09:33,040 Speaker 5: as a financial stability risk and sort of thinking about 231 00:09:33,040 --> 00:09:35,480 Speaker 5: how much do we care about this, what are the risks? 232 00:09:35,559 --> 00:09:37,360 Speaker 4: You know, you know, what are the risks? Where could 233 00:09:37,360 --> 00:09:37,600 Speaker 4: this go? 234 00:09:38,000 --> 00:09:40,760 Speaker 5: Just sort of analyzing it from a financial stability perspective, 235 00:09:41,040 --> 00:09:43,760 Speaker 5: Whereas I was making the point as well that there's 236 00:09:43,760 --> 00:09:45,600 Speaker 5: a chance that because we don't get marks on these 237 00:09:45,600 --> 00:09:49,200 Speaker 5: things very frequently, that distresses are actually greater than we 238 00:09:49,280 --> 00:09:51,480 Speaker 5: thought they were, especially when you think about the share 239 00:09:51,520 --> 00:09:53,960 Speaker 5: of credit that has been created in private markets in 240 00:09:54,000 --> 00:09:56,400 Speaker 5: the last few years. You know, so it's slowed down recently, 241 00:09:56,440 --> 00:09:58,120 Speaker 5: but over the last years it's been a greater share 242 00:09:58,400 --> 00:10:00,000 Speaker 5: of credit that's been sent into the economy. 243 00:10:00,120 --> 00:10:01,880 Speaker 4: So it could be that we're just not seeing it. 244 00:10:01,920 --> 00:10:04,040 Speaker 2: Do you think we're missing something here because somebody guests 245 00:10:04,040 --> 00:10:06,920 Speaker 2: come on the program and say it's idiosyncratic, just signs 246 00:10:06,920 --> 00:10:09,640 Speaker 2: if isolated fraud, not a big deal, not systemic, not 247 00:10:09,679 --> 00:10:10,240 Speaker 2: broad enough. 248 00:10:10,480 --> 00:10:11,240 Speaker 3: Do you share that for. 249 00:10:11,160 --> 00:10:15,520 Speaker 5: You so you know, look, I think that probably at 250 00:10:15,520 --> 00:10:18,800 Speaker 5: the end of the day, that's what it is. However, 251 00:10:18,920 --> 00:10:20,880 Speaker 5: I do want to make the point that when you 252 00:10:21,040 --> 00:10:26,839 Speaker 5: get series of seemingly uncorrelated, non systematic problem sorry, non 253 00:10:26,920 --> 00:10:30,400 Speaker 5: systematic issues like that, it can be an indication that 254 00:10:30,480 --> 00:10:33,760 Speaker 5: montary policy is restrictive. We've seen this in the past, 255 00:10:33,840 --> 00:10:38,320 Speaker 5: when you have a series of seemingly uncorrelated, uncorrelated credit 256 00:10:38,360 --> 00:10:40,160 Speaker 5: problems that had been masked for a while and then 257 00:10:40,160 --> 00:10:42,760 Speaker 5: suddenly come to light. Yeah, it tells you something about 258 00:10:42,800 --> 00:10:43,920 Speaker 5: the stance of montary policy. 259 00:10:44,720 --> 00:10:48,240 Speaker 2: Stay with us more Bloomberg surveillance coming up after this 260 00:10:56,920 --> 00:10:59,680 Speaker 2: self senching Kaya to kick off a new month of trading. 261 00:11:00,000 --> 00:11:01,880 Speaker 2: Mike Wilson of Mark and Stanley Rights in the following 262 00:11:01,880 --> 00:11:04,560 Speaker 2: We expect the uptrend in earnings revision's breadth to resume 263 00:11:04,800 --> 00:11:07,840 Speaker 2: into year end twenty six. Third quarter earning season provides 264 00:11:07,840 --> 00:11:11,160 Speaker 2: a strong stop picking environment. Mike John Just now for more, Mike, 265 00:11:11,200 --> 00:11:13,200 Speaker 2: good morning, sir Morty, John, I want to pick up 266 00:11:13,200 --> 00:11:15,000 Speaker 2: on a think a core view of yours for twenty 267 00:11:15,040 --> 00:11:18,520 Speaker 2: twenty five going into twenty twenty six, recessions behind us. 268 00:11:18,760 --> 00:11:20,760 Speaker 2: I think that's somewhat unique to you and a team 269 00:11:20,760 --> 00:11:22,600 Speaker 2: at Morgan Stanley just built that out for us. 270 00:11:22,960 --> 00:11:24,559 Speaker 8: Yeah, I mean, you know, we try to work six 271 00:11:24,559 --> 00:11:26,280 Speaker 8: months in the future. I think you know, a year ago, 272 00:11:26,320 --> 00:11:28,240 Speaker 8: I think remember we had this conversation after the election. 273 00:11:28,360 --> 00:11:30,800 Speaker 8: You were saying, make you sound more optimistic than I've 274 00:11:30,800 --> 00:11:32,200 Speaker 8: heard you in a while, and it was kind of 275 00:11:32,200 --> 00:11:34,040 Speaker 8: we were thinking six months in advance. We thought the 276 00:11:34,040 --> 00:11:36,720 Speaker 8: first half would be tough as they transition from the 277 00:11:36,760 --> 00:11:39,440 Speaker 8: kind of growth negative policies to these growth positive policies. 278 00:11:39,440 --> 00:11:42,200 Speaker 8: All this campex you're talking about is right in line 279 00:11:42,200 --> 00:11:44,200 Speaker 8: with the big beautiful bill. I mean, they're trying to 280 00:11:44,200 --> 00:11:48,239 Speaker 8: basically reduce consumption increase investment. Okay, it's a totally different economy. 281 00:11:48,400 --> 00:11:51,679 Speaker 8: And what that is, it's a higher velocity economy. For 282 00:11:51,760 --> 00:11:53,720 Speaker 8: all the companies that haven't been doing well for the 283 00:11:53,760 --> 00:11:55,559 Speaker 8: last I would say three years, we've been sort of 284 00:11:55,600 --> 00:11:58,360 Speaker 8: in a recession. I would argue strong, We've done the 285 00:11:58,400 --> 00:11:59,920 Speaker 8: work on this, and you know, we've done it now 286 00:12:00,400 --> 00:12:02,880 Speaker 8: with respect to the rolling recession that has been in 287 00:12:02,920 --> 00:12:05,080 Speaker 8: place for I would say three years, most of the privatey, 288 00:12:05,080 --> 00:12:07,800 Speaker 8: economy kind of suffering, government kind of carrying the water, 289 00:12:08,240 --> 00:12:10,120 Speaker 8: and then we basically saw all of that come to 290 00:12:10,640 --> 00:12:13,640 Speaker 8: fruition at the end in April. April capitulation day as 291 00:12:13,679 --> 00:12:16,400 Speaker 8: I call it, was basically the government recession that was 292 00:12:16,440 --> 00:12:19,000 Speaker 8: the final piece of the rolling recession. And if you 293 00:12:19,040 --> 00:12:21,320 Speaker 8: actually look at the Challenger job cuts and you look 294 00:12:21,320 --> 00:12:23,400 Speaker 8: at the revision data now on the on the NFL, 295 00:12:23,520 --> 00:12:26,000 Speaker 8: on the payroll data, it clearly looks to me like 296 00:12:26,000 --> 00:12:28,720 Speaker 8: a rate of change low okay in payrolls and a 297 00:12:28,800 --> 00:12:31,920 Speaker 8: rate of change high in Challenger job cuts came in April. 298 00:12:32,160 --> 00:12:34,120 Speaker 8: So the market's figured all this out. That's why revision 299 00:12:34,120 --> 00:12:35,000 Speaker 8: breath has gone straight up. 300 00:12:35,080 --> 00:12:38,040 Speaker 3: So roll in recovery. Where aren't we that s So. 301 00:12:37,960 --> 00:12:40,920 Speaker 8: We deemed at the rolling recovery in April, and we're 302 00:12:40,960 --> 00:12:43,400 Speaker 8: now seeing that, like these areas of the marketer, not 303 00:12:43,440 --> 00:12:45,440 Speaker 8: everything's going to recover at once, because it's a it's 304 00:12:45,440 --> 00:12:48,439 Speaker 8: an unorthodox recession. It's not like everything flushed at once 305 00:12:48,480 --> 00:12:49,760 Speaker 8: and everything recovers at once. 306 00:12:49,960 --> 00:12:51,880 Speaker 1: So it is going to be staged, and we've seen 307 00:12:51,880 --> 00:12:52,480 Speaker 1: it in the market. 308 00:12:52,480 --> 00:12:55,480 Speaker 8: We're still narrow quite frankly, AI campex is still is 309 00:12:55,760 --> 00:12:58,360 Speaker 8: kind of one of early recoveries here, semiconductors being an 310 00:12:58,400 --> 00:13:00,800 Speaker 8: early cycle group. But we're not seeing the other quote 311 00:13:00,880 --> 00:13:04,280 Speaker 8: unquote early cycle groups recover the way they typically do 312 00:13:04,440 --> 00:13:07,439 Speaker 8: in a new economic cycle. Why because the FED is 313 00:13:07,480 --> 00:13:09,360 Speaker 8: behind a curve. The FED is way behind a curve 314 00:13:09,400 --> 00:13:11,959 Speaker 8: on rates. They need rates much lower if you really 315 00:13:12,000 --> 00:13:14,640 Speaker 8: want to get the private economy moving, rates are too high. 316 00:13:14,760 --> 00:13:16,840 Speaker 6: Much lower? How much lower do you think that really 317 00:13:16,880 --> 00:13:18,360 Speaker 6: is required to get that broadening out. 318 00:13:18,480 --> 00:13:20,480 Speaker 1: Let's just start with the two year treasury yield. 319 00:13:20,559 --> 00:13:23,360 Speaker 8: Okay, so my barometer is always the FED is behind 320 00:13:23,360 --> 00:13:26,719 Speaker 8: the curve. If they Fed funds is above two year 321 00:13:26,760 --> 00:13:29,600 Speaker 8: treasure yields, and in order to stimulate the private economy, 322 00:13:29,600 --> 00:13:31,199 Speaker 8: I would say they need to be well below that. 323 00:13:31,480 --> 00:13:33,400 Speaker 8: So that's fifty basis points just to get the neutral 324 00:13:33,600 --> 00:13:35,960 Speaker 8: and maybe another one hundred plus to get to something 325 00:13:35,960 --> 00:13:38,959 Speaker 8: that's more stimulative for the average company and the average consumer. 326 00:13:39,120 --> 00:13:42,480 Speaker 6: Are you right now betting on that broadening out and 327 00:13:42,559 --> 00:13:46,959 Speaker 6: expecting maybe AI to underperform going forward as they invest 328 00:13:47,080 --> 00:13:50,760 Speaker 6: more in some of these debt sales and the infrastructure 329 00:13:50,840 --> 00:13:53,679 Speaker 6: side and the rest of the economy plays catch up. 330 00:13:53,720 --> 00:13:56,360 Speaker 8: Absolutely, think about the trickle down effect of this capital spending. 331 00:13:56,440 --> 00:13:58,720 Speaker 8: I mean, it's not just going to be semidunter companies. 332 00:13:58,720 --> 00:14:00,679 Speaker 8: There's there's a lot of infrat rushers, a lot of 333 00:14:00,720 --> 00:14:03,240 Speaker 8: job creation. There's a lot of velocity in a real economy, 334 00:14:03,440 --> 00:14:06,280 Speaker 8: and the lending channel starts getting going, perhaps for small 335 00:14:06,320 --> 00:14:07,720 Speaker 8: medium businesses that job creation. 336 00:14:07,840 --> 00:14:09,720 Speaker 1: Deregulation is another part of that story. 337 00:14:09,920 --> 00:14:13,240 Speaker 8: Okay, so absolutely that's what should happen if things play 338 00:14:13,240 --> 00:14:14,360 Speaker 8: out the way they could. 339 00:14:14,559 --> 00:14:15,679 Speaker 1: Now, there's risk to that. 340 00:14:15,960 --> 00:14:18,040 Speaker 8: Let's say that FED continues to say, hey, you know, 341 00:14:18,080 --> 00:14:20,320 Speaker 8: we still think there's inflation risk. We don't like the 342 00:14:20,520 --> 00:14:21,760 Speaker 8: inflation rate of three percent. 343 00:14:21,800 --> 00:14:22,400 Speaker 1: We're not going to. 344 00:14:22,400 --> 00:14:25,320 Speaker 8: Raise our targets there, and then we just kind of 345 00:14:25,360 --> 00:14:25,960 Speaker 8: drag their feet. 346 00:14:26,000 --> 00:14:26,880 Speaker 1: It's going to stay narrow. 347 00:14:26,920 --> 00:14:28,840 Speaker 8: Then it's going to stay up the quality curve, and 348 00:14:28,840 --> 00:14:30,640 Speaker 8: that's where we are right now. He says that people 349 00:14:30,680 --> 00:14:34,000 Speaker 8: basically are trying to choose between those two outcomes, and 350 00:14:34,040 --> 00:14:36,440 Speaker 8: I would say right now, most institutional community is still 351 00:14:36,560 --> 00:14:39,280 Speaker 8: huddled into the high quality stocks. They haven't really made 352 00:14:39,360 --> 00:14:42,520 Speaker 8: the transition yet. Well, we have in some of our guidance. 353 00:14:42,600 --> 00:14:44,120 Speaker 1: Yeah. Absolutely, in order. 354 00:14:43,920 --> 00:14:46,240 Speaker 7: For that transition to work, the FED has to cut though. 355 00:14:46,480 --> 00:14:47,680 Speaker 7: That's what it's contingent on. 356 00:14:47,920 --> 00:14:50,120 Speaker 8: It's one of the main things now. Drag is a 357 00:14:50,120 --> 00:14:52,040 Speaker 8: big part of that. Okay, the capital. 358 00:14:51,720 --> 00:14:52,720 Speaker 1: Spending is a part of that. 359 00:14:52,720 --> 00:14:55,760 Speaker 8: Those can happen without the FED cutting significantly, but it 360 00:14:55,800 --> 00:14:57,000 Speaker 8: would really, it would really. 361 00:14:56,880 --> 00:14:57,640 Speaker 1: Solidify it for me. 362 00:14:57,680 --> 00:14:58,880 Speaker 8: And if you go back and look at all these 363 00:14:58,880 --> 00:15:03,200 Speaker 8: different economic cycles, small caps and you know, lower quality 364 00:15:03,240 --> 00:15:05,760 Speaker 8: stocks typically don't outperform until the FED gets. 365 00:15:05,520 --> 00:15:07,000 Speaker 1: Below two year treasury deals. 366 00:15:07,000 --> 00:15:09,400 Speaker 8: We've documented this, so, by the way, doesn't mean these 367 00:15:09,400 --> 00:15:11,840 Speaker 8: stocks can't work in absolute terms, it just means that 368 00:15:11,920 --> 00:15:15,440 Speaker 8: relative outperformers you typically get in that early cycle rotation 369 00:15:16,000 --> 00:15:17,840 Speaker 8: needs FED funds to be much lower. 370 00:15:18,040 --> 00:15:19,720 Speaker 7: If you look at the FED next year, are you 371 00:15:19,800 --> 00:15:23,120 Speaker 7: just expecting a federal reserve that's markedly different than it 372 00:15:23,200 --> 00:15:24,640 Speaker 7: was today than it is today. 373 00:15:24,560 --> 00:15:26,680 Speaker 8: Well, I think they're just I think they're being patient here, 374 00:15:26,880 --> 00:15:29,000 Speaker 8: they're doing their job. I'm not wanting to sit here 375 00:15:29,000 --> 00:15:31,560 Speaker 8: and criticize the Fed left and right. What I see 376 00:15:31,640 --> 00:15:34,880 Speaker 8: is just a very weird economic cycle. And I think 377 00:15:34,960 --> 00:15:37,280 Speaker 8: we've kind of we've sold the puzzle a little bit 378 00:15:37,320 --> 00:15:39,280 Speaker 8: on this, and that's why I feel fairly confident that 379 00:15:39,560 --> 00:15:41,520 Speaker 8: our narrative we laid out this year is played out. 380 00:15:41,560 --> 00:15:41,720 Speaker 6: Now. 381 00:15:41,760 --> 00:15:44,320 Speaker 8: I'm getting evidence in the marketplace, and I feel more 382 00:15:44,320 --> 00:15:45,400 Speaker 8: confident in that narrative. 383 00:15:45,720 --> 00:15:46,560 Speaker 1: And that's sort of the difference. 384 00:15:46,600 --> 00:15:48,160 Speaker 8: I just think they're not there yet, you know, they're 385 00:15:48,320 --> 00:15:50,080 Speaker 8: They're not where I am in my head. I could 386 00:15:50,120 --> 00:15:52,080 Speaker 8: be wrong, but I'm pretty confident about that outcome. 387 00:15:52,160 --> 00:15:53,200 Speaker 3: Can we finish on big tech? 388 00:15:53,400 --> 00:15:53,640 Speaker 1: Sure? 389 00:15:53,760 --> 00:15:56,880 Speaker 2: These companies are changing way used to companies that weren't 390 00:15:56,920 --> 00:15:59,760 Speaker 2: investing tons ultimately that we giving it back to shareholders. 391 00:16:00,080 --> 00:16:02,040 Speaker 2: We're seeen a subtle twist, I think from the likes 392 00:16:02,040 --> 00:16:04,680 Speaker 2: of say Meta, who was spending tons and tons and 393 00:16:04,720 --> 00:16:07,160 Speaker 2: tons and then coming to the debt market to fund it. 394 00:16:07,440 --> 00:16:10,040 Speaker 2: That's not what we're used to with these names typically 395 00:16:10,120 --> 00:16:13,600 Speaker 2: the asset like capital return heavy. You noticeing the same change? 396 00:16:13,640 --> 00:16:16,120 Speaker 2: And how should we treat those companies differently, if at all? 397 00:16:16,280 --> 00:16:16,880 Speaker 3: Because of that? 398 00:16:17,160 --> 00:16:19,080 Speaker 1: So let's talk about the risks for the bullmarket. 399 00:16:19,120 --> 00:16:21,520 Speaker 8: We think a bull market started in April new economic 400 00:16:21,600 --> 00:16:22,280 Speaker 8: earning cycle. 401 00:16:22,600 --> 00:16:23,600 Speaker 1: Okay, there are two risks. 402 00:16:23,600 --> 00:16:26,240 Speaker 8: One is it the Fed drags their feet Liquidity streped 403 00:16:26,240 --> 00:16:28,760 Speaker 8: funding market stresses kind of pop up. The second one 404 00:16:28,800 --> 00:16:30,400 Speaker 8: is what you just talked about, is that the market 405 00:16:30,440 --> 00:16:33,200 Speaker 8: starts to push back on the fact that free cash 406 00:16:33,240 --> 00:16:36,000 Speaker 8: flow growth is actually decelerating for some of these businesses 407 00:16:36,040 --> 00:16:39,120 Speaker 8: and the asset light story is being called into question. 408 00:16:39,200 --> 00:16:40,080 Speaker 1: We haven't seen it yeto. 409 00:16:40,120 --> 00:16:42,560 Speaker 8: The last week was the first sign we saw pretty 410 00:16:42,640 --> 00:16:46,200 Speaker 8: diversion performance between some of these And that's a risk 411 00:16:46,280 --> 00:16:48,000 Speaker 8: because if all of a sudden, the market starts to 412 00:16:48,520 --> 00:16:51,920 Speaker 8: become a governing factor on those stocks. I can guarantee 413 00:16:51,960 --> 00:16:53,640 Speaker 8: you that the management teams are going to say, well, 414 00:16:53,640 --> 00:16:55,240 Speaker 8: maybe we weren't going to spend quite as much, just 415 00:16:55,240 --> 00:16:56,880 Speaker 8: like we saw in the fall of twenty twenty four 416 00:16:56,880 --> 00:16:59,440 Speaker 8: as we talked about the deceleration in campex, and also 417 00:16:59,480 --> 00:17:02,120 Speaker 8: we saw that with you know, other times when these 418 00:17:02,160 --> 00:17:05,200 Speaker 8: companies spend much money, the market is a governing factor. 419 00:17:05,280 --> 00:17:08,240 Speaker 8: The management change their view how they're guiding. 420 00:17:07,920 --> 00:17:08,359 Speaker 1: On the campex. 421 00:17:08,480 --> 00:17:11,280 Speaker 8: Right now, they're getting rewarded for more campex the market. 422 00:17:11,560 --> 00:17:13,280 Speaker 2: Is it welcome news that they're leaning on the debt 423 00:17:13,320 --> 00:17:15,639 Speaker 2: market a little bit more, just as it s equity 424 00:17:15,640 --> 00:17:16,760 Speaker 2: market starts to push back. 425 00:17:16,920 --> 00:17:18,240 Speaker 1: Well, I think that, I mean I think it's a 426 00:17:18,320 --> 00:17:19,080 Speaker 1: natural evolution. 427 00:17:19,280 --> 00:17:22,000 Speaker 8: And just to be clear, in all these buildouts, whether 428 00:17:22,000 --> 00:17:24,920 Speaker 8: it's railroads, electricity, uh, the internet itself. 429 00:17:24,960 --> 00:17:27,520 Speaker 1: Okay, we got to we're now to the debt part. 430 00:17:27,640 --> 00:17:30,320 Speaker 8: Okay, so now they just raised a ton of capital, Well, 431 00:17:30,359 --> 00:17:31,960 Speaker 8: they're not going to send They're going to spend it. 432 00:17:32,280 --> 00:17:34,760 Speaker 8: So like that's another reason to be excited on one hand, 433 00:17:34,760 --> 00:17:36,560 Speaker 8: because we know that money is going to get spent, 434 00:17:36,680 --> 00:17:39,040 Speaker 8: not going to sit there and collect dust. So so 435 00:17:39,280 --> 00:17:41,720 Speaker 8: you know, typically it could last a year, two three, 436 00:17:41,800 --> 00:17:43,879 Speaker 8: I don't know. I mean, but it's hard for me 437 00:17:43,920 --> 00:17:46,000 Speaker 8: to believe that the spending cycles over when they just 438 00:17:46,119 --> 00:17:47,600 Speaker 8: raised gobs and gobs of dollars. 439 00:17:47,720 --> 00:17:50,479 Speaker 2: Do you think it japanizes comforitive return programs as these 440 00:17:50,520 --> 00:17:51,800 Speaker 2: companies take on more leverage. 441 00:17:51,840 --> 00:17:53,720 Speaker 8: Yeah, it's competing for the for the free cash flow. 442 00:17:53,760 --> 00:17:55,479 Speaker 8: So whether it's camp and by the way, campex now 443 00:17:55,520 --> 00:17:57,880 Speaker 8: is a percentage of free cash flow is pretty high 444 00:17:57,880 --> 00:17:59,959 Speaker 8: for these businesses. But once again, I want to go back, 445 00:18:00,080 --> 00:18:03,200 Speaker 8: this is this is by design. Okay. The tax bill 446 00:18:03,760 --> 00:18:06,880 Speaker 8: is basically incenting these companies to do it. Now, I mean, 447 00:18:07,000 --> 00:18:11,359 Speaker 8: the government administration is really encouraging businesses of all types 448 00:18:11,520 --> 00:18:13,720 Speaker 8: to start investing for the first time in fifteen years. 449 00:18:13,760 --> 00:18:17,480 Speaker 8: We've underinvested in so many things, not just you know, AI, 450 00:18:17,680 --> 00:18:22,400 Speaker 8: but like infrastructure and factories and you know, automating production 451 00:18:22,480 --> 00:18:24,640 Speaker 8: and robotics and things like that. I mean, this bill 452 00:18:24,720 --> 00:18:27,639 Speaker 8: is designed to get that engine of growth moving. 453 00:18:27,359 --> 00:18:29,840 Speaker 3: And it's happening. It's just putting all these pieces together. 454 00:18:30,480 --> 00:18:32,440 Speaker 2: This was a core theme, I think, a core pillar 455 00:18:32,480 --> 00:18:35,240 Speaker 2: for being long US equities for a long long time, 456 00:18:35,640 --> 00:18:38,040 Speaker 2: and now it's changed. Is it still good? I think 457 00:18:38,040 --> 00:18:39,280 Speaker 2: that's what I'm trying to get out here. Is this 458 00:18:39,320 --> 00:18:40,920 Speaker 2: still an argument to buy US equities? 459 00:18:41,000 --> 00:18:43,479 Speaker 8: I think that the valuation, you know, is telling you 460 00:18:43,520 --> 00:18:45,160 Speaker 8: that the growth is going to be better than we think. 461 00:18:45,200 --> 00:18:46,680 Speaker 8: My view is that earnings is going to be better 462 00:18:46,720 --> 00:18:47,960 Speaker 8: next year than people expect. 463 00:18:47,960 --> 00:18:48,240 Speaker 1: Now. 464 00:18:49,040 --> 00:18:50,680 Speaker 8: On the other side of that, I do think we're 465 00:18:50,680 --> 00:18:52,720 Speaker 8: in a different environment where we have these hotter but 466 00:18:52,800 --> 00:18:55,760 Speaker 8: shorter cycles. Okay, so we're not in these ten year 467 00:18:55,840 --> 00:18:58,760 Speaker 8: economic expansions anymore, and so it's two years on, one 468 00:18:58,840 --> 00:19:00,800 Speaker 8: year off, two years on. When that's what we've had 469 00:19:00,800 --> 00:19:03,960 Speaker 8: since COVID right twenty twenty, twenty twenty one, good, twenty two, bad, 470 00:19:04,160 --> 00:19:05,600 Speaker 8: twenty three, twenty four good twenty four. 471 00:19:05,480 --> 00:19:06,840 Speaker 1: To twenty five, and that's so good. Now we're into 472 00:19:06,840 --> 00:19:07,680 Speaker 1: a new two year cycle. 473 00:19:07,760 --> 00:19:10,280 Speaker 8: So you just have to understand that because inflation is 474 00:19:10,320 --> 00:19:12,520 Speaker 8: right under the surface and now you have a higher 475 00:19:12,560 --> 00:19:15,480 Speaker 8: velocity economy. That means you're going to have to treat 476 00:19:15,520 --> 00:19:17,160 Speaker 8: it a little bit more. But right now I think 477 00:19:17,240 --> 00:19:18,840 Speaker 8: it's you know, we're in a pretty good position. 478 00:19:19,520 --> 00:19:23,040 Speaker 3: Stay with us. More Bloomberg Surveillance coming up after this. 479 00:19:31,760 --> 00:19:34,240 Speaker 2: Turning to tech, Alphabet returning to Europe's debt market for 480 00:19:34,320 --> 00:19:37,200 Speaker 2: the second time this year, looking to sell three billion 481 00:19:37,400 --> 00:19:40,280 Speaker 2: in europe denominated bonds to fund this AI expansion. The 482 00:19:40,280 --> 00:19:44,280 Speaker 2: announcement coming after Meta sold thirty billion dollars of corporate 483 00:19:44,280 --> 00:19:46,320 Speaker 2: bonds just last week. Amount of line up a black 484 00:19:46,359 --> 00:19:48,120 Speaker 2: Rock joined us Now for more, Amanda. 485 00:19:47,800 --> 00:19:49,080 Speaker 3: Good morning morning. Thank you for having me. 486 00:19:49,080 --> 00:19:51,880 Speaker 2: The amount of debt that's coming to market from tech. Yes, 487 00:19:52,200 --> 00:19:53,840 Speaker 2: this is a big development. We need to track how 488 00:19:53,880 --> 00:19:55,080 Speaker 2: are you going to see track and things? 489 00:19:55,400 --> 00:19:57,440 Speaker 9: So thank you for having me. It is I would 490 00:19:57,480 --> 00:19:59,320 Speaker 9: say it's a pretty big paradigm shift. If you look 491 00:19:59,320 --> 00:20:03,080 Speaker 9: at data from deal Logic USIG tech issuance has already 492 00:20:03,080 --> 00:20:05,800 Speaker 9: surpassed all of the full years on record so far 493 00:20:05,840 --> 00:20:08,359 Speaker 9: in twenty twenty five, so this is something that is 494 00:20:08,400 --> 00:20:11,320 Speaker 9: actually gaining further momentum. We think there's more room to run. 495 00:20:11,760 --> 00:20:13,400 Speaker 9: There are a couple things that I would note. One, 496 00:20:13,520 --> 00:20:17,280 Speaker 9: in USIG, we look at gross issuance and net issuance, 497 00:20:17,320 --> 00:20:19,520 Speaker 9: and we also look at gross leverage and net debt. 498 00:20:19,760 --> 00:20:21,639 Speaker 9: The reason I mentioned that is that a lot of 499 00:20:21,680 --> 00:20:23,560 Speaker 9: these companies, not all of them, but some of the 500 00:20:23,600 --> 00:20:26,200 Speaker 9: largest companies are actually still in a net cash position, 501 00:20:26,560 --> 00:20:29,360 Speaker 9: so they're issuing debt, but they actually still have more 502 00:20:29,400 --> 00:20:31,960 Speaker 9: cash on their balance sheet relative to debt. Now, the 503 00:20:32,160 --> 00:20:34,960 Speaker 9: historical precedent for that was, prior to the twenty seventeen 504 00:20:35,000 --> 00:20:37,480 Speaker 9: tax reform, a lot of that cash was trapped overseas, 505 00:20:37,640 --> 00:20:40,200 Speaker 9: So USIG companies used to allow their cash to build 506 00:20:40,200 --> 00:20:42,280 Speaker 9: overseas and then they would have to pay taxes on 507 00:20:42,359 --> 00:20:45,000 Speaker 9: if it were repatriated. Now that's a different backdrop. I 508 00:20:45,040 --> 00:20:47,440 Speaker 9: say that because there's a lot of focus on kind 509 00:20:47,440 --> 00:20:50,840 Speaker 9: of the releveraging of the tech sector. But our view 510 00:20:50,880 --> 00:20:53,119 Speaker 9: is that there is a very long way to run, 511 00:20:53,440 --> 00:20:56,679 Speaker 9: because not only is gross leverage really modest in the sector, 512 00:20:56,880 --> 00:20:59,680 Speaker 9: net leverage is actually negative because again they're still in 513 00:20:59,720 --> 00:21:02,480 Speaker 9: a net cash position. So what that means is a 514 00:21:02,520 --> 00:21:04,720 Speaker 9: lot of this capex will be funded by a combination 515 00:21:04,800 --> 00:21:09,159 Speaker 9: of public debt markets US Europe, private credit, maybe some 516 00:21:09,200 --> 00:21:12,120 Speaker 9: fiscal plans as well, but there's a lot of room 517 00:21:12,119 --> 00:21:14,760 Speaker 9: to run. I think the binding constraint will be one, 518 00:21:15,040 --> 00:21:17,960 Speaker 9: is there over the next few years a disruptive technology 519 00:21:17,960 --> 00:21:20,720 Speaker 9: that kind of derails that, or is there ongoing true 520 00:21:20,720 --> 00:21:23,640 Speaker 9: demand under the surface that kind of builds that productivity 521 00:21:23,640 --> 00:21:26,280 Speaker 9: and that economic value added, and then the binding constraint 522 00:21:26,320 --> 00:21:28,480 Speaker 9: will be the rating agencies. This actually reminds me a 523 00:21:28,480 --> 00:21:30,679 Speaker 9: lot of the pharma industry back in two thousand and nine, 524 00:21:31,040 --> 00:21:33,000 Speaker 9: there was a paradigm shift of a lot of mergers 525 00:21:33,000 --> 00:21:36,640 Speaker 9: between pharma and biotech. A lot of companies actually took 526 00:21:36,840 --> 00:21:40,119 Speaker 9: active downgrades to their debt ratings purposefully, and it actually, 527 00:21:40,240 --> 00:21:41,760 Speaker 9: on a smaller scale, reminds me a lot of that. 528 00:21:42,320 --> 00:21:45,080 Speaker 6: There's this discussion that's increasingly nuanced, which is there's not 529 00:21:45,119 --> 00:21:46,960 Speaker 6: a fear that Meta is going to go bankrupt in 530 00:21:47,000 --> 00:21:49,320 Speaker 6: the near term. There's not a fear that Amazon or 531 00:21:49,359 --> 00:21:53,159 Speaker 6: Alphabet is going to really run into financial problems. There is, however, 532 00:21:53,200 --> 00:21:57,040 Speaker 6: a feeling that they're an increasing number of related companies 533 00:21:57,359 --> 00:21:59,880 Speaker 6: that are levering up in order to build out data 534 00:22:00,040 --> 00:22:03,880 Speaker 6: centers or build out other types of infrastructure that are 535 00:22:03,880 --> 00:22:06,000 Speaker 6: going to run into problems. I mean, how much are 536 00:22:06,040 --> 00:22:08,679 Speaker 6: you worried about that leverage that is also building in 537 00:22:08,720 --> 00:22:10,240 Speaker 6: tandem with the behemoths. 538 00:22:10,480 --> 00:22:12,639 Speaker 9: Well, I think, again going back to the point, these 539 00:22:12,640 --> 00:22:15,960 Speaker 9: are companies that are generating a significant amount of cash. 540 00:22:16,040 --> 00:22:18,199 Speaker 9: They have a lot of liquidity on their balance sheet, 541 00:22:18,280 --> 00:22:20,840 Speaker 9: and I think they're making a calculus that they have 542 00:22:20,920 --> 00:22:24,000 Speaker 9: to invest in this paradigm shift, and they really don't 543 00:22:24,000 --> 00:22:26,479 Speaker 9: have an option not to. So there may be winners 544 00:22:26,480 --> 00:22:29,320 Speaker 9: and losers of this. Perhaps the folks that are investing, 545 00:22:29,359 --> 00:22:32,199 Speaker 9: they may not be the biggest beneficiaries of the technology right. 546 00:22:32,200 --> 00:22:33,879 Speaker 9: There may be other parts of the value chain that 547 00:22:33,960 --> 00:22:36,120 Speaker 9: benefit more. But I think the fact of the matter 548 00:22:36,240 --> 00:22:37,639 Speaker 9: is the market is comfortable. 549 00:22:38,080 --> 00:22:38,280 Speaker 3: Again. 550 00:22:38,320 --> 00:22:40,520 Speaker 9: It reminds me a lot of pharma and biotech. A 551 00:22:40,520 --> 00:22:43,359 Speaker 9: lot of times, management teams are making bets on drug 552 00:22:43,400 --> 00:22:45,880 Speaker 9: discoveries that haven't happened yet. They're issuing thirty or forty 553 00:22:45,960 --> 00:22:48,240 Speaker 9: year bonds after patent cliffs expire. 554 00:22:48,320 --> 00:22:48,800 Speaker 3: These are just. 555 00:22:48,760 --> 00:22:52,919 Speaker 9: Bets on management teams that they will see through the 556 00:22:53,040 --> 00:22:55,359 Speaker 9: new regime and have to navigate through it. But I 557 00:22:55,400 --> 00:22:57,640 Speaker 9: think there's a lot of financial cushion in this sector 558 00:22:58,200 --> 00:23:00,440 Speaker 9: and I don't think we're anywhere near the point where 559 00:23:00,760 --> 00:23:04,399 Speaker 9: investors are thinking of stopping funding it because you can 560 00:23:04,440 --> 00:23:05,360 Speaker 9: see the demand. 561 00:23:05,280 --> 00:23:06,040 Speaker 3: From the new issues. 562 00:23:06,080 --> 00:23:09,280 Speaker 6: Stephen Myron was just on FED Governor talking about how 563 00:23:09,320 --> 00:23:12,480 Speaker 6: financial conditions don't necessarily tell the whole story and that 564 00:23:12,560 --> 00:23:15,000 Speaker 6: they can mask a lot of pain that you're seeing elsewhere, 565 00:23:15,000 --> 00:23:16,760 Speaker 6: and he pointed to the private credit space and he 566 00:23:16,800 --> 00:23:19,239 Speaker 6: said that that has been the biggest growth area, and 567 00:23:19,240 --> 00:23:21,880 Speaker 6: that is an area where you don't see visibility into 568 00:23:21,920 --> 00:23:23,919 Speaker 6: the marks that you have currently. You could have some 569 00:23:23,920 --> 00:23:26,920 Speaker 6: potential pitfalls, and we are seeing anecdotes to that degree. 570 00:23:27,400 --> 00:23:29,560 Speaker 6: Not saying are there cockroaches that are going to undermine 571 00:23:29,560 --> 00:23:31,560 Speaker 6: the whole system, but do you think that's a valid 572 00:23:31,640 --> 00:23:33,679 Speaker 6: argument that hial bond spreads aren't going to be the 573 00:23:33,680 --> 00:23:35,760 Speaker 6: canary in the coal mine. It's in the private credit 574 00:23:35,760 --> 00:23:37,040 Speaker 6: sphere and it's not very visible. 575 00:23:37,119 --> 00:23:39,959 Speaker 9: So I agree with this point that aggregate financial conditions 576 00:23:40,000 --> 00:23:43,040 Speaker 9: are not representative of everything that is going on in 577 00:23:43,040 --> 00:23:45,520 Speaker 9: the economy. I don't think it's limited to private credit. However, 578 00:23:45,560 --> 00:23:47,720 Speaker 9: if you look at, for example, triple c's and high 579 00:23:47,800 --> 00:23:51,480 Speaker 9: yield median interest coverage is already below one times, right, 580 00:23:51,560 --> 00:23:55,040 Speaker 9: So that is a really non existent financial cushion in 581 00:23:55,119 --> 00:23:57,760 Speaker 9: aggregate for a sector to navigate a higher cost of debt. 582 00:23:57,880 --> 00:24:00,400 Speaker 9: You see it in commercial real estate. Parts of commercial 583 00:24:00,400 --> 00:24:02,920 Speaker 9: real estate Class C office haven't kept up. You see 584 00:24:02,920 --> 00:24:05,560 Speaker 9: it in consumer credit ages twenty to twenty nine cohorts 585 00:24:05,600 --> 00:24:08,000 Speaker 9: with student loans. They're not homeowners, they're not equity owners. 586 00:24:08,080 --> 00:24:10,880 Speaker 9: They're really struggling. So I think the point is is that, yes, 587 00:24:10,920 --> 00:24:14,160 Speaker 9: financial conditions in aggregate using an input of five measures, 588 00:24:14,560 --> 00:24:17,479 Speaker 9: have eased since the April peak. But under the surface, 589 00:24:17,520 --> 00:24:20,040 Speaker 9: whether you look at leverage, loan borrow, wher's, high yield, 590 00:24:20,119 --> 00:24:23,360 Speaker 9: private credit, commercial real estate, consumer credit, there are pockets 591 00:24:23,359 --> 00:24:24,160 Speaker 9: that haven't kept pace. 592 00:24:24,560 --> 00:24:25,720 Speaker 3: Again, it speaks to. 593 00:24:25,720 --> 00:24:29,000 Speaker 9: The bifurcated and dispersed economy that we have. So I 594 00:24:29,040 --> 00:24:31,760 Speaker 9: would agree that actually financial conditions in aggregate don't tell 595 00:24:31,800 --> 00:24:33,960 Speaker 9: the whole story. I don't think it's isolated however, to 596 00:24:34,000 --> 00:24:36,480 Speaker 9: private credit. I also think what he was pointing to 597 00:24:36,640 --> 00:24:39,600 Speaker 9: is that private credit has changed the transmission of monetary 598 00:24:39,640 --> 00:24:43,639 Speaker 9: policy through the economy. Private credit has stepped in historically 599 00:24:43,880 --> 00:24:46,480 Speaker 9: when other traditional parts of lending have pulled back, bank 600 00:24:46,520 --> 00:24:49,800 Speaker 9: C and I lending the debt capital markets, and our view, 601 00:24:49,800 --> 00:24:52,160 Speaker 9: that's not a bad thing, right because private credit has 602 00:24:52,160 --> 00:24:55,120 Speaker 9: filled a void. There are forty four thousand private companies 603 00:24:55,160 --> 00:24:57,480 Speaker 9: across the US, the UK, and Europe, and so it's 604 00:24:57,520 --> 00:24:59,920 Speaker 9: a significant economic opportunity to fund those companies. 605 00:25:00,080 --> 00:25:01,480 Speaker 3: The counterargument's aord of v promo. 606 00:25:01,680 --> 00:25:03,399 Speaker 2: If you really think about it, is it the boom 607 00:25:03,400 --> 00:25:05,600 Speaker 2: in private credit cam in a rising interest rate environment? 608 00:25:06,200 --> 00:25:08,560 Speaker 2: So can you really draw a link between FED policy 609 00:25:08,640 --> 00:25:11,000 Speaker 2: and the direction of private credit Because it didn't work 610 00:25:11,040 --> 00:25:12,320 Speaker 2: one way, what does it work the other? 611 00:25:12,880 --> 00:25:13,639 Speaker 3: This is the issue. 612 00:25:13,720 --> 00:25:16,120 Speaker 6: Right At a certain point, you could argue if they're 613 00:25:16,119 --> 00:25:18,640 Speaker 6: feeling weakness, that's not a bad thing because you're still 614 00:25:18,640 --> 00:25:20,919 Speaker 6: seeing it to play. I mean, Apollo in areas reported 615 00:25:20,920 --> 00:25:22,919 Speaker 6: to earnings today and the earnings are doing great, so 616 00:25:22,960 --> 00:25:25,080 Speaker 6: it's not as though they're about to struggle. You have 617 00:25:25,160 --> 00:25:27,760 Speaker 6: to wonder that counter factual that you're just talking about, 618 00:25:28,040 --> 00:25:29,879 Speaker 6: is it a positive in terms of the resilience of 619 00:25:29,880 --> 00:25:30,440 Speaker 6: the economy. 620 00:25:30,520 --> 00:25:32,280 Speaker 2: This is the point, Amanda, that Lisa has been really 621 00:25:32,320 --> 00:25:36,240 Speaker 2: hitting the drama repeatedly. The use case of luring interest rates. 622 00:25:36,400 --> 00:25:38,520 Speaker 2: What's it addressing? What's the channel? 623 00:25:38,960 --> 00:25:39,200 Speaker 1: Right? 624 00:25:39,680 --> 00:25:41,879 Speaker 9: Well, actually, I think it's a great point if you 625 00:25:41,920 --> 00:25:43,959 Speaker 9: look at saying going back to the leverage loan market, 626 00:25:44,119 --> 00:25:47,080 Speaker 9: leverage loan defaults peaked in November of twenty twenty four 627 00:25:47,200 --> 00:25:49,600 Speaker 9: at seven point seven percent. That's a really high number. 628 00:25:49,760 --> 00:25:52,399 Speaker 9: That's on pace with the pandemic, and that's issuer weighted 629 00:25:52,600 --> 00:25:56,040 Speaker 9: moodies right. But the point is is that we've already 630 00:25:56,119 --> 00:25:59,320 Speaker 9: had some incremental funding relief for floating rate barwers thanks 631 00:25:59,320 --> 00:26:00,879 Speaker 9: to the one hundred and fIF basis points that the 632 00:26:00,920 --> 00:26:03,199 Speaker 9: FED has already delivered. I do think there are pockets 633 00:26:03,200 --> 00:26:04,919 Speaker 9: of the market that would welcome that. If you're a 634 00:26:04,960 --> 00:26:07,200 Speaker 9: younger consumer, you have floating right credit cards, you have 635 00:26:07,240 --> 00:26:10,439 Speaker 9: student loans. Yes, of course every incremental cut helps. But 636 00:26:10,560 --> 00:26:13,000 Speaker 9: in general, I think we feel comfortable that we're kind 637 00:26:13,000 --> 00:26:16,320 Speaker 9: of past peak interest rate headwinds, we're probably past peak 638 00:26:16,359 --> 00:26:19,720 Speaker 9: trade policy uncertainty, and we think we're probably on scope 639 00:26:19,760 --> 00:26:21,800 Speaker 9: for a reacceleration of growth, and that leads us comfortable 640 00:26:21,800 --> 00:26:22,360 Speaker 9: with credit risk. 641 00:26:22,560 --> 00:26:23,920 Speaker 6: Do you think that if the FED were to cut 642 00:26:23,960 --> 00:26:26,199 Speaker 6: rates it would force you to take risk you're uncomfortable 643 00:26:26,200 --> 00:26:28,439 Speaker 6: taking in order to get the same kind of yields. 644 00:26:29,520 --> 00:26:31,760 Speaker 9: I do think there is a delicate trade off between 645 00:26:31,800 --> 00:26:33,919 Speaker 9: the yield on off or in a wide range of 646 00:26:33,920 --> 00:26:38,280 Speaker 9: corporate credit markets and investor demands. So, for example, USIG 647 00:26:38,400 --> 00:26:40,720 Speaker 9: yields are now below five percent, high yield yields are 648 00:26:40,800 --> 00:26:44,320 Speaker 9: now below seven percent in aggregate. I do think in 649 00:26:44,359 --> 00:26:46,760 Speaker 9: a structurally higher yield environment there is a bit more 650 00:26:46,800 --> 00:26:49,200 Speaker 9: demand for spread based product. But in terms of lenders 651 00:26:49,240 --> 00:26:51,520 Speaker 9: kind of throwing caution to the wind because rates are falling, 652 00:26:51,680 --> 00:26:53,119 Speaker 9: you have to keep in mind that, especially in the 653 00:26:53,119 --> 00:26:56,160 Speaker 9: private credit market, these loans are made and are staying 654 00:26:56,240 --> 00:26:58,560 Speaker 9: on those lenders balance sheets for the life of the loan, 655 00:26:59,119 --> 00:27:01,080 Speaker 9: very different than say in the Financial crisis when they 656 00:27:01,119 --> 00:27:01,880 Speaker 9: were syndicated out. 657 00:27:01,920 --> 00:27:03,240 Speaker 3: So the risk calculus to me. 658 00:27:03,359 --> 00:27:05,440 Speaker 9: Isn't going to be buffeted by an incremental twenty five 659 00:27:05,520 --> 00:27:06,360 Speaker 9: or fifty bass points. 660 00:27:06,680 --> 00:27:08,680 Speaker 3: Very coops stay with us. 661 00:27:09,000 --> 00:27:20,840 Speaker 2: More Bloomberg surveillance coming up after this A week full 662 00:27:20,880 --> 00:27:24,320 Speaker 2: of data. Don't get the usual suspects. No payroll stata 663 00:27:24,320 --> 00:27:26,800 Speaker 2: this week, but you will get the MS ADP and 664 00:27:26,920 --> 00:27:30,000 Speaker 2: job openings. Let's stick with the alternative data. Nancy is 665 00:27:30,040 --> 00:27:32,640 Speaker 2: out of Piper Sander, writing look past the scary AI 666 00:27:32,760 --> 00:27:36,919 Speaker 2: job destroying headlines, keep an eye on claims, n FIB, jobs, 667 00:27:37,200 --> 00:27:41,119 Speaker 2: S and PPMI employment all showing incremental improvements in the 668 00:27:41,200 --> 00:27:43,639 Speaker 2: labor market. Nancy joins us now for more. Nancy goodmrnic 669 00:27:43,720 --> 00:27:45,439 Speaker 2: good morning. He's the worst of it behind us. 670 00:27:45,440 --> 00:27:46,399 Speaker 3: Then I think so. 671 00:27:46,640 --> 00:27:48,840 Speaker 10: I think we are at a positive inflection point in 672 00:27:48,880 --> 00:27:51,480 Speaker 10: the economy. No question here in four Q with the 673 00:27:51,720 --> 00:27:53,920 Speaker 10: government shutdown, you're gonna have a little bump in the road, 674 00:27:53,960 --> 00:27:56,800 Speaker 10: but it's important to look at the trend and you're 675 00:27:56,800 --> 00:27:59,480 Speaker 10: getting plenty of green shoots from all those indicators that 676 00:27:59,520 --> 00:28:02,520 Speaker 10: you mentioned. Even on the job side, although Amazon is 677 00:28:02,600 --> 00:28:06,400 Speaker 10: laying off people, claims are incrementally low. Amazon probably over 678 00:28:06,440 --> 00:28:10,840 Speaker 10: hired during the COVID COVID crisis. They're just renormalizing. And importantly, 679 00:28:11,000 --> 00:28:12,639 Speaker 10: the big guys don't create jobs. 680 00:28:12,680 --> 00:28:13,439 Speaker 4: It really is. 681 00:28:13,520 --> 00:28:16,560 Speaker 10: Eighty percent of jobs are created in companies with less 682 00:28:16,560 --> 00:28:19,680 Speaker 10: than five hundred employees, and so that's why the increase 683 00:28:19,720 --> 00:28:22,840 Speaker 10: in the NFIB index is so important. There's also the 684 00:28:22,960 --> 00:28:25,040 Speaker 10: S and PPMI that comes out today. We already have 685 00:28:25,119 --> 00:28:30,440 Speaker 10: a preliminary October reading for that. That employment component is positive. 686 00:28:30,640 --> 00:28:33,920 Speaker 10: Conference Boards Jobs data we're a little bit more positive 687 00:28:33,960 --> 00:28:37,760 Speaker 10: regional FED employment data, and it's important we're also positive, 688 00:28:37,800 --> 00:28:41,120 Speaker 10: and it's important it's manufacturing. Manufacturing has a much bigger 689 00:28:41,200 --> 00:28:44,720 Speaker 10: multiplier than the service sector, and so I'm actually excited 690 00:28:44,760 --> 00:28:46,560 Speaker 10: that it's starting with the manufacturing space. 691 00:28:46,640 --> 00:28:47,640 Speaker 3: Can I pick up on claims? 692 00:28:47,720 --> 00:28:50,160 Speaker 2: Yeah, how instructive our jobless claims when they've been pretty 693 00:28:50,160 --> 00:28:53,280 Speaker 2: stable through the year as payrolls have decelerates it quite 694 00:28:53,280 --> 00:28:54,960 Speaker 2: aggressively since it' stand of twenty five. 695 00:28:55,040 --> 00:28:57,960 Speaker 10: So first on payrolls, it's a misleading indicator. It should 696 00:28:58,000 --> 00:29:00,760 Speaker 10: be reported mainly maybe once a coreter until they have 697 00:29:00,800 --> 00:29:03,960 Speaker 10: a better sample sample size. They're trying to capture over 698 00:29:04,040 --> 00:29:07,440 Speaker 10: twenty million companies in two hundred and fifty industry groups. 699 00:29:07,440 --> 00:29:10,520 Speaker 10: That was just revised down nine hundred thousand after being 700 00:29:10,560 --> 00:29:13,400 Speaker 10: revised down pretty consistently in each of the past four 701 00:29:13,480 --> 00:29:16,600 Speaker 10: years on a monthly on a monthly basis, So lousy data. 702 00:29:17,240 --> 00:29:18,960 Speaker 10: I would much rather look at the survey data that 703 00:29:18,960 --> 00:29:23,000 Speaker 10: we've been focusing on, and claims. Claims obviously capture firings. 704 00:29:23,440 --> 00:29:27,040 Speaker 10: What continuing claims show you our hirings, and so we've 705 00:29:27,040 --> 00:29:29,880 Speaker 10: had limited firings, which is what claims show you. But 706 00:29:30,000 --> 00:29:33,520 Speaker 10: companies are reluctant to hire as of now, given that 707 00:29:33,560 --> 00:29:36,480 Speaker 10: they're trying to protect their profits, a lot of economic uncertainty. 708 00:29:36,760 --> 00:29:38,880 Speaker 10: But we would look for as we go into twenty 709 00:29:38,960 --> 00:29:41,800 Speaker 10: twenty six for continuing claims. That's going to be the 710 00:29:41,880 --> 00:29:44,360 Speaker 10: key metric to watch as far as our company is 711 00:29:44,400 --> 00:29:46,640 Speaker 10: getting ready to start to hire as of now. No, 712 00:29:47,440 --> 00:29:49,640 Speaker 10: but with Blagg effect of the Fed easing cycle the 713 00:29:49,640 --> 00:29:52,160 Speaker 10: Feds eased over one hundred basis points one hundred and 714 00:29:52,160 --> 00:29:54,640 Speaker 10: fifty basis points over the past year, we would argue 715 00:29:54,640 --> 00:29:58,760 Speaker 10: there already are plenty accommodative and that's improving corporate profits 716 00:29:58,760 --> 00:30:00,680 Speaker 10: and that will get you re hired as we move 717 00:30:00,680 --> 00:30:01,400 Speaker 10: into twenty six. 718 00:30:01,560 --> 00:30:03,200 Speaker 6: I want to pick up on something that you noted, 719 00:30:03,240 --> 00:30:06,400 Speaker 6: which is that there's a transformation underway in the economy 720 00:30:06,640 --> 00:30:08,600 Speaker 6: where it's going from some of these white collar jobs 721 00:30:08,600 --> 00:30:11,280 Speaker 6: where you are seeing layoffs and you're expecting to see 722 00:30:11,360 --> 00:30:12,160 Speaker 6: hiring pickup in. 723 00:30:12,080 --> 00:30:13,400 Speaker 3: The manufacturing sector. 724 00:30:13,960 --> 00:30:16,840 Speaker 6: Is this a big transformation that you can really put 725 00:30:16,880 --> 00:30:18,880 Speaker 6: your finger on and say, this is what's going to happen, 726 00:30:18,880 --> 00:30:19,480 Speaker 6: this is the future. 727 00:30:19,520 --> 00:30:20,600 Speaker 4: Maybe go to tech school. 728 00:30:20,720 --> 00:30:22,120 Speaker 1: I'm thinking of my kids and. 729 00:30:22,120 --> 00:30:25,200 Speaker 6: Get yourself you know some kind of degree in more 730 00:30:25,200 --> 00:30:27,320 Speaker 6: of the manufacturing sector than anything else. 731 00:30:27,440 --> 00:30:30,160 Speaker 10: One thousand percent. Pallunteer was in the news last week. 732 00:30:30,160 --> 00:30:33,480 Speaker 10: They're hiring high school kids. Great idea, get a job, 733 00:30:33,600 --> 00:30:35,400 Speaker 10: then see if you want to go go to college 734 00:30:35,520 --> 00:30:37,440 Speaker 10: or if you need to go to if you need 735 00:30:37,480 --> 00:30:40,160 Speaker 10: to go to college. Yes, I think this is transformational. 736 00:30:40,400 --> 00:30:43,400 Speaker 10: It's actually been unfolding for about fifteen years. It started 737 00:30:43,480 --> 00:30:46,160 Speaker 10: last cycle when capital spending started to come back to 738 00:30:46,200 --> 00:30:48,720 Speaker 10: the United States. China just wasn't a hot, great place 739 00:30:48,720 --> 00:30:51,360 Speaker 10: to do business anymore like it had been, and so 740 00:30:51,440 --> 00:30:53,440 Speaker 10: we started to get on shoring. We started to get 741 00:30:53,440 --> 00:30:59,000 Speaker 10: goods producing jobs increase through twenty nineteen. That's important because 742 00:30:59,160 --> 00:31:03,360 Speaker 10: it's a huge multiplier. When you create factories, you need 743 00:31:03,360 --> 00:31:07,320 Speaker 10: a support system around it. Other smaller factories, distribution centers, 744 00:31:07,360 --> 00:31:11,239 Speaker 10: and then other services eventually eventually unfold. So I do 745 00:31:11,280 --> 00:31:13,960 Speaker 10: think this is transformational, is healthy for the economy. Not 746 00:31:14,040 --> 00:31:16,880 Speaker 10: everybody needs to go to college wants to go to college, 747 00:31:16,920 --> 00:31:19,720 Speaker 10: and there should be other job opportunities. And yes, I 748 00:31:19,720 --> 00:31:21,040 Speaker 10: think it is transformational. 749 00:31:21,120 --> 00:31:23,120 Speaker 6: This is one fear that people have if there's a 750 00:31:23,200 --> 00:31:25,800 Speaker 6: huge skills gap right now, whether it's AI and some 751 00:31:25,880 --> 00:31:28,480 Speaker 6: of the technology that's coming to the fore that's making 752 00:31:28,520 --> 00:31:31,440 Speaker 6: companies more efficient, or whether it's some of these more 753 00:31:31,440 --> 00:31:34,880 Speaker 6: technical fields where people just don't have the training or expertise. 754 00:31:35,720 --> 00:31:38,360 Speaker 6: Is there something that's going to be friction in this 755 00:31:38,480 --> 00:31:41,280 Speaker 6: transformation that you see as a problem that's needing more 756 00:31:41,280 --> 00:31:43,720 Speaker 6: easing from the FED, that's needing a little bit extra 757 00:31:44,080 --> 00:31:45,880 Speaker 6: oomph to give it that support. 758 00:31:46,160 --> 00:31:48,120 Speaker 10: No, I would say, no more oomph from the fat al. 759 00:31:48,240 --> 00:31:52,160 Speaker 10: It is creating bubbles versus creating a healthy economic backdrop 760 00:31:52,200 --> 00:31:56,479 Speaker 10: for Middle America. Those big easing cycles create great environment. 761 00:31:56,520 --> 00:31:57,880 Speaker 10: I think one of your guests said that this morning 762 00:31:57,880 --> 00:32:00,680 Speaker 10: for Wall Street, let's focus on let's focus on Main Street, 763 00:32:00,760 --> 00:32:04,960 Speaker 10: where you can have maybe slow inflation, relatively low interest rates, 764 00:32:06,200 --> 00:32:07,560 Speaker 10: and a solid job cycle. 765 00:32:08,480 --> 00:32:10,920 Speaker 3: So train them. 766 00:32:11,320 --> 00:32:14,240 Speaker 10: I visited a prison about six years ago where they 767 00:32:14,240 --> 00:32:18,400 Speaker 10: were training inmates as they got parole in skills, and 768 00:32:18,440 --> 00:32:20,600 Speaker 10: they would train them and they go out, they get 769 00:32:20,600 --> 00:32:22,920 Speaker 10: on parole and they would get a job. So you 770 00:32:22,920 --> 00:32:25,120 Speaker 10: can train people to work in factories. I grew up 771 00:32:25,160 --> 00:32:28,000 Speaker 10: in a factory town. I saw it myself, and it's 772 00:32:28,400 --> 00:32:31,240 Speaker 10: train them. That's not a big deal. Penny Pritzker was 773 00:32:31,280 --> 00:32:35,160 Speaker 10: really focused on that early early last decade, community college 774 00:32:35,200 --> 00:32:38,720 Speaker 10: system companies working with community colleges. No, I'm excited about it, 775 00:32:39,000 --> 00:32:41,440 Speaker 10: rather than people depending upon the government where they can 776 00:32:41,440 --> 00:32:43,920 Speaker 10: actually go out and get a healthy, good job. 777 00:32:44,080 --> 00:32:46,360 Speaker 7: Do you think there's been fresh impetus on this because 778 00:32:46,360 --> 00:32:49,360 Speaker 7: of the Trump administration trying to get manufacturing back into 779 00:32:49,440 --> 00:32:52,360 Speaker 7: United States by using a Karen and stick approach with tariffs. 780 00:32:52,480 --> 00:32:55,200 Speaker 10: Yeah, certainly that's reinforcing it. But I really want to 781 00:32:55,200 --> 00:32:57,920 Speaker 10: emphasize the private sector first started to do it back 782 00:32:57,960 --> 00:33:00,920 Speaker 10: in twenty ten. I listened to company and companies we're 783 00:33:00,960 --> 00:33:05,120 Speaker 10: complaining about the difficulties in doing business stealing technology AI 784 00:33:05,760 --> 00:33:08,280 Speaker 10: heavy hand from the government. And so this has been 785 00:33:08,320 --> 00:33:11,680 Speaker 10: going on for ten years. And to be sure, I 786 00:33:11,800 --> 00:33:14,400 Speaker 10: like your description the carrot and the sticks. Ap app 787 00:33:14,520 --> 00:33:16,760 Speaker 10: absolutely and the thing on the carrot. 788 00:33:16,840 --> 00:33:17,720 Speaker 3: It takes time. 789 00:33:19,080 --> 00:33:22,440 Speaker 10: Same with a stick. It takes time to build these factories. 790 00:33:22,480 --> 00:33:25,080 Speaker 10: And so we've seen a lot of announcements about forty 791 00:33:25,240 --> 00:33:29,640 Speaker 10: forty five announcements this year of major companies announcing construction 792 00:33:29,680 --> 00:33:32,320 Speaker 10: of new facilities. But to plan those facilities than to 793 00:33:32,400 --> 00:33:35,240 Speaker 10: execute it. And that's what I like about it. It's slow, 794 00:33:35,320 --> 00:33:38,080 Speaker 10: it's not fast, and it can create a sustained cycle, 795 00:33:38,720 --> 00:33:41,600 Speaker 10: potentially even another one of those long business cycles that 796 00:33:41,640 --> 00:33:44,080 Speaker 10: we saw in twenty ten through twenty nineteen if. 797 00:33:44,000 --> 00:33:45,160 Speaker 1: We do get some layoffs. 798 00:33:45,160 --> 00:33:47,320 Speaker 7: The Financial Times had a story about this, how companies 799 00:33:47,320 --> 00:33:47,840 Speaker 7: are just going. 800 00:33:47,760 --> 00:33:48,560 Speaker 3: To say it's AI. 801 00:33:48,960 --> 00:33:50,560 Speaker 4: Do you think it really is down to AI? 802 00:33:50,880 --> 00:33:54,840 Speaker 7: That is just politically easier and more beneficial than to 803 00:33:55,160 --> 00:33:57,440 Speaker 7: blame something that they're going to have to deal with 804 00:33:57,440 --> 00:33:58,760 Speaker 7: in a few years, So maybe not they're dealing with 805 00:33:58,840 --> 00:33:59,200 Speaker 7: right now. 806 00:33:59,280 --> 00:34:00,880 Speaker 3: It is probably a little bit of both. 807 00:34:01,240 --> 00:34:05,160 Speaker 10: First, every business cycle upturn is led by technology. If 808 00:34:05,200 --> 00:34:08,239 Speaker 10: you go back to ninety one, two thousand and one, 809 00:34:08,280 --> 00:34:11,400 Speaker 10: two thousand tech, if you look at GDP tech capital 810 00:34:11,440 --> 00:34:15,680 Speaker 10: spending has always led because it gives you productivity, profitability, 811 00:34:15,760 --> 00:34:18,880 Speaker 10: and then you can get jobs. Classically, these upturns, you 812 00:34:18,960 --> 00:34:21,640 Speaker 10: do have a slow job market because, yes, companies are 813 00:34:21,680 --> 00:34:23,480 Speaker 10: trying to protect their profit margins. 814 00:34:23,560 --> 00:34:25,080 Speaker 4: So maybe it's a little bit of excuse. 815 00:34:25,360 --> 00:34:30,600 Speaker 10: But the capex were seen being spent on AI is 816 00:34:30,719 --> 00:34:33,760 Speaker 10: leading the economy and it will give you old economy 817 00:34:33,800 --> 00:34:36,279 Speaker 10: capex as you go through the year, So maybe it's 818 00:34:36,280 --> 00:34:38,320 Speaker 10: an excuse. But at the end of the day, it's 819 00:34:38,400 --> 00:34:41,359 Speaker 10: not unusual to have a sluggish upturn in employment going 820 00:34:41,400 --> 00:34:42,760 Speaker 10: into a reacceleration. 821 00:34:44,200 --> 00:34:47,760 Speaker 2: This is the Bloomberg Sevendics podcast, bringing you the best 822 00:34:47,760 --> 00:34:51,080 Speaker 2: in markets, economics, antient politics. You can watch the show 823 00:34:51,160 --> 00:34:54,080 Speaker 2: live on Bloomberg TV weekday mornings from six am to 824 00:34:54,239 --> 00:34:58,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 825 00:34:58,120 --> 00:35:00,840 Speaker 2: or anywhere else. You listen a ways on the Bloomberg 826 00:35:00,920 --> 00:35:02,600 Speaker 2: Terminal and the Bloomberg Business 827 00:35:02,600 --> 00:35:07,319 Speaker 3: Out Mm hmm.