WEBVTT - Bloomberg Surveillance TV: November 3rd, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.560 Terminal and the Bloomberg Business App. Federal Reserve Governor Stephen 0:00:37.600 --> 0:00:40.360 Maron warning of a possible downturn in the economy if 0:00:40.400 --> 0:00:43.920 FED policy remains restrictive. Maron taking the most duvish side 0:00:43.920 --> 0:00:46.159 of a divided FED, casting the loan vote for a 0:00:46.200 --> 0:00:49.519 fifty basis point raycard at the Fed's October meeting. I'm 0:00:49.520 --> 0:00:52.080 pleased to say for his first interview broadcast interview since 0:00:52.120 --> 0:00:54.840 that conversation at the Federal Reserve, the Fed Governor Stephen 0:00:54.880 --> 0:00:55.800 Maron joins us now for more. 0:00:55.840 --> 0:00:56.600 Governor Maron, good. 0:00:56.520 --> 0:00:57.840 Morning, good morning, Thanks for having me. 0:00:57.920 --> 0:00:59.320 Hey, it's good to see you, as always, sir, So 0:00:59.440 --> 0:01:01.560 let's spend some time. How did you approach the committee 0:01:01.600 --> 0:01:03.959 meeting just last week and what was the argument for 0:01:04.000 --> 0:01:05.040 fifty basis points? 0:01:05.400 --> 0:01:07.319 So I approached it the same way approached the first one, 0:01:07.319 --> 0:01:09.200 which is that I think that the FED is too restrictive. 0:01:09.240 --> 0:01:11.200 I think that neutral is quite a ways below where 0:01:11.240 --> 0:01:15.560 current policy is, and given my rather more seguent outlook 0:01:15.560 --> 0:01:17.640 on inflation than some of the other members of the committee, 0:01:17.680 --> 0:01:20.000 I don't see a reason for keeping policy as restrictive 0:01:20.040 --> 0:01:21.920 for a long period of time as we are. The 0:01:22.000 --> 0:01:24.440 longer you keep policy restrictive, the more you run the 0:01:24.520 --> 0:01:27.160 risk that Montaro policy itself causes a downturn in the economy. 0:01:27.200 --> 0:01:29.160 What was interesting about last week, as you know, is 0:01:29.160 --> 0:01:31.280 that a send cup both ways. We also had this 0:01:31.440 --> 0:01:34.399 argument from President's Smith of Kansas City FED, who put 0:01:34.440 --> 0:01:37.200 out a long statement I've cherry picked a quote forgive me. 0:01:37.520 --> 0:01:40.240 I see the starts of policy as being only modestly restrictive. 0:01:40.280 --> 0:01:43.960 Financial market conditions appear to be easy across many metrics. 0:01:43.959 --> 0:01:46.000 When you heard that kind of argument, what was the 0:01:46.040 --> 0:01:48.120 counterpoint to what he's seeing in markets? 0:01:48.320 --> 0:01:49.800 Yeah, so I'd say a couple things. 0:01:49.800 --> 0:01:51.560 First of all, I'd say the financial markets are driven 0:01:51.640 --> 0:01:54.520 by a lot of things, not just montary policy. They're driven, 0:01:54.600 --> 0:01:56.360 of course in park by Montori policy, but there's a 0:01:56.400 --> 0:01:58.920 lot of things that drive financial markets. For example, I 0:01:58.920 --> 0:02:00.480 think on this program you probably spend a lot of 0:02:00.480 --> 0:02:03.000 time thinking about AI and new technologies. If you have 0:02:03.080 --> 0:02:06.080 AI or a new technology, it could push financial markets higher, 0:02:06.080 --> 0:02:08.280 which would look like an easing and financial conditions, But 0:02:08.320 --> 0:02:10.239 that doesn't necessarily tell you anything about the stance of 0:02:10.280 --> 0:02:13.440 monitary policy. Indeed, very often, in response to a supply 0:02:13.480 --> 0:02:15.360 shock or a positive supply shock, although of course it 0:02:15.400 --> 0:02:17.359 depends what kind of supply shock, you might think that 0:02:17.400 --> 0:02:20.160 the appropriate sense of monitary policy would be lower and 0:02:20.320 --> 0:02:22.359 not tighter all Lse eqal. But of course there's a 0:02:22.400 --> 0:02:24.400 lot of sort of what ifs and thinking about the 0:02:24.960 --> 0:02:27.200 type of the supply shock. But I think that it's 0:02:27.200 --> 0:02:29.200 a mistake to look at financial conditions and sort of 0:02:29.200 --> 0:02:32.080 conclude something automatically about the stance of monitary policy. 0:02:32.280 --> 0:02:33.160 And I also want to. 0:02:33.120 --> 0:02:35.160 Point out that some of the financial conditions that look 0:02:35.200 --> 0:02:38.320 the easiest, things like the stock market, things like you know, 0:02:38.360 --> 0:02:40.839 sort of various parts of credit spreads, you know, those 0:02:40.880 --> 0:02:45.080 are not necessarily the financial conditions that feed the most 0:02:45.120 --> 0:02:48.240 into economic activity. Yes, the stock marketing, credit spreads matter, 0:02:48.280 --> 0:02:50.000 they matter a lot, But then you sort of think 0:02:50.000 --> 0:02:52.399 about something like housing. I think housing matters a lot 0:02:52.440 --> 0:02:54.720 more for the cyclical position of the economy. And some 0:02:54.760 --> 0:02:56.760 of these things don't matter, But is that they're only 0:02:56.800 --> 0:02:58.320 part of the picture. And if you look at financial 0:02:58.320 --> 0:03:00.680 conditions that affect housing, I think they're quite You look 0:03:00.720 --> 0:03:02.680 at financial conditions that are affecting parts of the private 0:03:02.680 --> 0:03:06.119 credit market, that also looks tighter. And I wonder if 0:03:06.240 --> 0:03:08.440 what we're seeing now in some of the distresses that 0:03:08.480 --> 0:03:11.320 you see in private markets means that financial conditions have 0:03:11.320 --> 0:03:13.840 actually been tighter, but it's been masked by the fact 0:03:13.840 --> 0:03:15.800 that we don't get marks for those on a regular basis. 0:03:15.840 --> 0:03:17.440 So, Governor, I think I want to give you some time. 0:03:17.560 --> 0:03:19.040 I think we should give you some time on a 0:03:19.040 --> 0:03:21.880 central alignment of yours that this year you believe policy 0:03:21.919 --> 0:03:25.200 is actually passively tightened through twenty twenty five. And don't 0:03:25.240 --> 0:03:27.359 think that's an argument I've heard many people make you 0:03:27.600 --> 0:03:28.800 just spend some time fleshing that out. 0:03:28.840 --> 0:03:29.560 What do you mean by that? 0:03:29.919 --> 0:03:30.239 Sure? 0:03:30.400 --> 0:03:33.240 So my perspective is that there's been a number of 0:03:33.240 --> 0:03:36.040 shocks that have hit the economy, driven in large part 0:03:36.080 --> 0:03:39.040 by economic policy not from the FED, from outside of 0:03:39.040 --> 0:03:42.200 the FED that pushed neutral rates higher last year and 0:03:42.240 --> 0:03:44.040 lower this year. And so I think, if you look 0:03:44.080 --> 0:03:45.800 where my neutral rate is, it's not that I'm out 0:03:45.800 --> 0:03:48.120 of bounds for where the rest of the committee is unneutral. 0:03:48.320 --> 0:03:49.880 It's just that I flipped from having one of the 0:03:49.960 --> 0:03:52.040 highest neutral rates last year to now one. 0:03:51.960 --> 0:03:53.080 Of the lowest neutral rates. 0:03:53.120 --> 0:03:56.440 And that's driven by things like population growth, right, It's 0:03:56.520 --> 0:03:59.360 driven by things like fiscal deficits, and if you think 0:03:59.360 --> 0:04:01.880 about popularation growth, right, that's normally considered to be one 0:04:01.920 --> 0:04:04.800 of the biggest drivers of neutral rates, and it's part 0:04:04.840 --> 0:04:06.760 of the reason why people think that neutral usually moves 0:04:06.880 --> 0:04:10.320 very very slowly, because population growth changes only very very 0:04:10.360 --> 0:04:13.960 slowly as new technologies and cultural trends drive people to 0:04:13.960 --> 0:04:16.760 have fewer kids over time. But we experienced the last 0:04:16.800 --> 0:04:19.640 few years, thirty years worth of population growth change in 0:04:19.720 --> 0:04:20.360 only three years. 0:04:20.680 --> 0:04:20.760 Right. 0:04:20.839 --> 0:04:23.200 When you look at the rate of population growth, it 0:04:23.279 --> 0:04:24.760 changed more in the last three years than it did 0:04:24.760 --> 0:04:27.440 in the previous thirty years in both directions. It round 0:04:27.480 --> 0:04:30.359 tripped completely. And so if the drivers, if the drivers 0:04:30.360 --> 0:04:32.760 have changes, the neutral rate accelerate over time, it would 0:04:32.760 --> 0:04:34.479 only make sense to me that the neutral rate itself 0:04:34.520 --> 0:04:36.760 would change more rapidly over time as well, And so 0:04:36.839 --> 0:04:40.080 that's pushed neutral higher last year and lower this year, 0:04:40.240 --> 0:04:43.279 which means that policy is passively tightened. Because what matters 0:04:43.279 --> 0:04:45.520 for the stance of policy is where you are relative 0:04:45.520 --> 0:04:47.280 to the neutral rate, And if neutral is here and 0:04:47.320 --> 0:04:49.560 policies up here, you're very tight. If neutral's here and 0:04:49.600 --> 0:04:52.040 policies down here, you're very loose. But if you stay 0:04:52.040 --> 0:04:55.720 where you are and then neutral goes down, you've passively 0:04:55.720 --> 0:04:58.520 tightened because the neutral rate has shifted, and so policy 0:04:58.520 --> 0:05:00.640 has grown tighter over the course of the U year. Now, 0:05:00.640 --> 0:05:02.480 it's not the case that you would expect to see 0:05:02.839 --> 0:05:06.080 a significant downturn in the economy immediately as a result 0:05:06.120 --> 0:05:08.480 of that, because Montero policy works with lags. It hits 0:05:08.520 --> 0:05:10.719 the economy with long and variable lags, as we all know. 0:05:11.160 --> 0:05:13.880 But if you maintain that very restrictive stance of policy 0:05:13.880 --> 0:05:16.440 for a long period of time, you really increase the 0:05:16.520 --> 0:05:20.080 chances that those lags come to manifest In that Monterey policy, 0:05:20.160 --> 0:05:22.320 then itself induces a downturn in the economy. 0:05:22.360 --> 0:05:23.640 Why wasn't your decent bigger. 0:05:24.040 --> 0:05:26.040 You were talking about a fifty basis point cut that 0:05:26.040 --> 0:05:28.039 you would have preferred to see in the September meeting. 0:05:28.320 --> 0:05:31.760 Why didn't you go for a seventy five basis basis 0:05:31.760 --> 0:05:34.200 point cut descent last month? 0:05:34.480 --> 0:05:34.880 Of course? 0:05:35.240 --> 0:05:37.000 So look, you know, I think that we're I think 0:05:37.040 --> 0:05:38.800 that we're a fair way from neutral, and I think 0:05:38.800 --> 0:05:40.560 that we could get there a bit faster. I could 0:05:40.560 --> 0:05:43.760 imagine getting there in a series of fifty clips. I 0:05:43.800 --> 0:05:45.400 don't think it's the case that we need to get 0:05:45.400 --> 0:05:46.960 there and more than that, because I don't think that 0:05:47.120 --> 0:05:49.440 I don't think the economy is dysfunctional right now, I 0:05:49.480 --> 0:05:51.960 don't think that financial markers are dysfunctional right now. I 0:05:52.000 --> 0:05:54.000 don't think we need to move even faster than that 0:05:54.040 --> 0:05:57.640 for those for those reasons. If I did, then you know, 0:05:57.680 --> 0:06:00.559 I would have no problem voting for voting for your cuts. 0:06:00.600 --> 0:06:02.880 But I think sort of getting there in fifties instead 0:06:02.880 --> 0:06:04.680 of twenty five's is fine. 0:06:04.920 --> 0:06:06.880 So you would be open to dissenting again for a 0:06:06.920 --> 0:06:09.000 fifty basis point cut if the rest of the committee 0:06:09.080 --> 0:06:12.080 wasn't around for that next month or in December rather. 0:06:12.160 --> 0:06:14.320 Yeah, well, I don't want to commit to that because 0:06:14.360 --> 0:06:16.159 a lot can happen between now and the next meeting. 0:06:16.320 --> 0:06:18.160 We're getting a lot of data, I hope, between now 0:06:18.160 --> 0:06:20.120 and then, and only data about the near term, but 0:06:20.200 --> 0:06:22.400 data about the recent past as well that we don't have. 0:06:22.640 --> 0:06:23.680 So things could change. 0:06:23.680 --> 0:06:26.080 But if things play out according to my forecast, then 0:06:27.000 --> 0:06:28.640 yes I would Governor Do you think. 0:06:28.480 --> 0:06:33.120 Your advocacy for a fifty bait cut is hardening the 0:06:33.120 --> 0:06:35.760 opposition to cuts it all? 0:06:36.160 --> 0:06:38.240 I don't think so. I think everybody is. 0:06:38.320 --> 0:06:41.440 Everybody is doing their own analysis of the economy and 0:06:41.800 --> 0:06:45.440 inflation in the labor market and financial markets too, and 0:06:45.800 --> 0:06:48.000 coming to a conclusion. And you know, I don't think 0:06:48.000 --> 0:06:51.520 anybody is necessarily changing their mind sort of to not 0:06:51.560 --> 0:06:54.000 support a cut because I just because I want to 0:06:54.040 --> 0:06:54.520 cut more. 0:06:54.760 --> 0:06:57.719 Is there a lot of discussion at the FED about 0:06:57.760 --> 0:06:59.520 the fact that you're all doing your own analysis, but 0:06:59.800 --> 0:07:01.400 what data are you all using if we're in the 0:07:01.400 --> 0:07:03.120 miss still in the middle of a government shutdown thirty 0:07:03.120 --> 0:07:03.880 four days today. 0:07:04.320 --> 0:07:07.320 Yeah, so there's a lot of talk about that. Let 0:07:07.320 --> 0:07:09.479 me say a couple things about that. First of all, 0:07:09.600 --> 0:07:12.640 you know, it's my perspective that being excessively data dependent 0:07:12.720 --> 0:07:16.040 makes you backward looking, because the data are always backward looking, 0:07:16.080 --> 0:07:18.000 and because of collection lags, because the amount of time 0:07:18.000 --> 0:07:21.000 that you're doing comparisons over right, and given mantary policy 0:07:21.040 --> 0:07:22.840 takes lags to hit the economy, you want to be 0:07:22.840 --> 0:07:25.000 forward looking. So you want to make policy based on 0:07:25.040 --> 0:07:27.160 your forecast. Now, there are times when you might not 0:07:27.240 --> 0:07:28.840 have a lot of confidence in your forecast, and so 0:07:28.880 --> 0:07:31.000 you need to be data dependent. But you should be 0:07:31.040 --> 0:07:32.880 data dependent only to the extent that you don't have 0:07:32.920 --> 0:07:35.680 confidence in your forecast. My perspective is that we know 0:07:35.760 --> 0:07:37.400 the size of the shocks that have hit the economy 0:07:37.400 --> 0:07:40.760 this year, things like population growth. That's a known quantity. 0:07:40.880 --> 0:07:42.640 We know what it does to the economy, we know 0:07:42.720 --> 0:07:44.480 what it does to neutral we know the size of that. 0:07:45.080 --> 0:07:48.080 It's not a mystery. So therefore I have a lot 0:07:48.080 --> 0:07:52.360 of confidence in my forecast. And therefore, to the extent 0:07:52.440 --> 0:07:54.080 that we would get data that would make me change 0:07:54.080 --> 0:07:56.520 my forecast, I would then change my policy. I look, 0:07:57.120 --> 0:07:59.040 so the question is that am I missing data because 0:07:59.080 --> 0:08:01.280 of the government shutdown that would lead me to change 0:08:01.280 --> 0:08:04.120 my forecast. And given so much of my forecast for 0:08:04.160 --> 0:08:08.000 inflation depends on the housing market, and depends on the 0:08:08.000 --> 0:08:09.720 housing market, I would assume that I would see that 0:08:09.760 --> 0:08:12.320 in the reporting that Bloomberg and others do, even if 0:08:12.360 --> 0:08:14.520 I'm not getting data in the short term. Now, something 0:08:14.560 --> 0:08:17.760 like that lasts a couple of months, right, make Can 0:08:17.800 --> 0:08:19.840 I continue to sort of have this degree of confidence 0:08:19.920 --> 0:08:22.040 if we go six months with that data? 0:08:22.360 --> 0:08:23.480 Absolutely not so. 0:08:23.560 --> 0:08:25.440 I do think this is something people are attentive to. 0:08:25.760 --> 0:08:28.320 And there's also alternative data. As you guys are aware, 0:08:28.720 --> 0:08:31.240 I find the alternative data on inflation to be not 0:08:31.320 --> 0:08:33.920 super useful. I do find it to be more useful 0:08:33.960 --> 0:08:35.640 on the labor market. And when you sort of look 0:08:35.640 --> 0:08:38.120 at alternative data on the labor market, you see data 0:08:38.160 --> 0:08:41.640 that's consistent with continual ebbing of demand, which again is 0:08:41.679 --> 0:08:45.559 a signal that policy is too tight. If the decline 0:08:45.600 --> 0:08:49.240 in hiring was a result of negative supply shocks from immigration, 0:08:49.520 --> 0:08:51.360 you would see higher wages, and you would see and 0:08:51.360 --> 0:08:54.400 you would see firms and people giving answering surveys in 0:08:54.440 --> 0:08:57.000 a way that indicated that jobs were plentiful or it 0:08:57.040 --> 0:08:58.079 was difficult to find workers. 0:08:58.120 --> 0:08:59.480 From the firm perspective, you're not. 0:08:59.520 --> 0:09:02.640 Seeing developments in private credit as as well as evidence 0:09:02.679 --> 0:09:04.520 that we're restrictive. Perhaps it was the fault of our 0:09:04.559 --> 0:09:06.440 pairs that this didn't come up much of the news conference. 0:09:06.480 --> 0:09:09.240 I was somewhat surprised did it come up much in 0:09:09.320 --> 0:09:11.040 the meeting the two day meeting last week. 0:09:11.360 --> 0:09:14.920 Well, I mentioned it at the meeting as a reason 0:09:14.960 --> 0:09:19.240 why it was potentially a mistake to make to make 0:09:19.760 --> 0:09:23.320 very confident inferences from the stance of equity markets to 0:09:23.440 --> 0:09:27.559 the stance of monetary policy. But other than that, I 0:09:27.600 --> 0:09:30.360 think that sort of folks were focused on private credit 0:09:30.400 --> 0:09:33.040 as a financial stability risk and sort of thinking about 0:09:33.040 --> 0:09:35.480 how much do we care about this, what are the risks? 0:09:35.559 --> 0:09:37.360 You know, you know, what are the risks? Where could 0:09:37.360 --> 0:09:37.600 this go? 0:09:38.000 --> 0:09:40.760 Just sort of analyzing it from a financial stability perspective, 0:09:41.040 --> 0:09:43.760 Whereas I was making the point as well that there's 0:09:43.760 --> 0:09:45.600 a chance that because we don't get marks on these 0:09:45.600 --> 0:09:49.200 things very frequently, that distresses are actually greater than we 0:09:49.280 --> 0:09:51.480 thought they were, especially when you think about the share 0:09:51.520 --> 0:09:53.960 of credit that has been created in private markets in 0:09:54.000 --> 0:09:56.400 the last few years. You know, so it's slowed down recently, 0:09:56.440 --> 0:09:58.120 but over the last years it's been a greater share 0:09:58.400 --> 0:10:00.000 of credit that's been sent into the economy. 0:10:00.120 --> 0:10:01.880 So it could be that we're just not seeing it. 0:10:01.920 --> 0:10:04.040 Do you think we're missing something here because somebody guests 0:10:04.040 --> 0:10:06.920 come on the program and say it's idiosyncratic, just signs 0:10:06.920 --> 0:10:09.640 if isolated fraud, not a big deal, not systemic, not 0:10:09.679 --> 0:10:10.240 broad enough. 0:10:10.480 --> 0:10:11.240 Do you share that for. 0:10:11.160 --> 0:10:15.520 You so you know, look, I think that probably at 0:10:15.520 --> 0:10:18.800 the end of the day, that's what it is. However, 0:10:18.920 --> 0:10:20.880 I do want to make the point that when you 0:10:21.040 --> 0:10:26.839 get series of seemingly uncorrelated, non systematic problem sorry, non 0:10:26.920 --> 0:10:30.400 systematic issues like that, it can be an indication that 0:10:30.480 --> 0:10:33.760 montary policy is restrictive. We've seen this in the past, 0:10:33.840 --> 0:10:38.320 when you have a series of seemingly uncorrelated, uncorrelated credit 0:10:38.360 --> 0:10:40.160 problems that had been masked for a while and then 0:10:40.160 --> 0:10:42.760 suddenly come to light. Yeah, it tells you something about 0:10:42.800 --> 0:10:43.920 the stance of montary policy. 0:10:44.720 --> 0:10:48.240 Stay with us more Bloomberg surveillance coming up after this 0:10:56.920 --> 0:10:59.680 self senching Kaya to kick off a new month of trading. 0:11:00.000 --> 0:11:01.880 Mike Wilson of Mark and Stanley Rights in the following 0:11:01.880 --> 0:11:04.560 We expect the uptrend in earnings revision's breadth to resume 0:11:04.800 --> 0:11:07.840 into year end twenty six. Third quarter earning season provides 0:11:07.840 --> 0:11:11.160 a strong stop picking environment. Mike John Just now for more, Mike, 0:11:11.200 --> 0:11:13.200 good morning, sir Morty, John, I want to pick up 0:11:13.200 --> 0:11:15.000 on a think a core view of yours for twenty 0:11:15.040 --> 0:11:18.520 twenty five going into twenty twenty six, recessions behind us. 0:11:18.760 --> 0:11:20.760 I think that's somewhat unique to you and a team 0:11:20.760 --> 0:11:22.600 at Morgan Stanley just built that out for us. 0:11:22.960 --> 0:11:24.559 Yeah, I mean, you know, we try to work six 0:11:24.559 --> 0:11:26.280 months in the future. I think you know, a year ago, 0:11:26.320 --> 0:11:28.240 I think remember we had this conversation after the election. 0:11:28.360 --> 0:11:30.800 You were saying, make you sound more optimistic than I've 0:11:30.800 --> 0:11:32.200 heard you in a while, and it was kind of 0:11:32.200 --> 0:11:34.040 we were thinking six months in advance. We thought the 0:11:34.040 --> 0:11:36.720 first half would be tough as they transition from the 0:11:36.760 --> 0:11:39.440 kind of growth negative policies to these growth positive policies. 0:11:39.440 --> 0:11:42.200 All this campex you're talking about is right in line 0:11:42.200 --> 0:11:44.200 with the big beautiful bill. I mean, they're trying to 0:11:44.200 --> 0:11:48.239 basically reduce consumption increase investment. Okay, it's a totally different economy. 0:11:48.400 --> 0:11:51.679 And what that is, it's a higher velocity economy. For 0:11:51.760 --> 0:11:53.720 all the companies that haven't been doing well for the 0:11:53.760 --> 0:11:55.559 last I would say three years, we've been sort of 0:11:55.600 --> 0:11:58.360 in a recession. I would argue strong, We've done the 0:11:58.400 --> 0:11:59.920 work on this, and you know, we've done it now 0:12:00.400 --> 0:12:02.880 with respect to the rolling recession that has been in 0:12:02.920 --> 0:12:05.080 place for I would say three years, most of the privatey, 0:12:05.080 --> 0:12:07.800 economy kind of suffering, government kind of carrying the water, 0:12:08.240 --> 0:12:10.120 and then we basically saw all of that come to 0:12:10.640 --> 0:12:13.640 fruition at the end in April. April capitulation day as 0:12:13.679 --> 0:12:16.400 I call it, was basically the government recession that was 0:12:16.440 --> 0:12:19.000 the final piece of the rolling recession. And if you 0:12:19.040 --> 0:12:21.320 actually look at the Challenger job cuts and you look 0:12:21.320 --> 0:12:23.400 at the revision data now on the on the NFL, 0:12:23.520 --> 0:12:26.000 on the payroll data, it clearly looks to me like 0:12:26.000 --> 0:12:28.720 a rate of change low okay in payrolls and a 0:12:28.800 --> 0:12:31.920 rate of change high in Challenger job cuts came in April. 0:12:32.160 --> 0:12:34.120 So the market's figured all this out. That's why revision 0:12:34.120 --> 0:12:35.000 breath has gone straight up. 0:12:35.080 --> 0:12:38.040 So roll in recovery. Where aren't we that s So. 0:12:37.960 --> 0:12:40.920 We deemed at the rolling recovery in April, and we're 0:12:40.960 --> 0:12:43.400 now seeing that, like these areas of the marketer, not 0:12:43.440 --> 0:12:45.440 everything's going to recover at once, because it's a it's 0:12:45.440 --> 0:12:48.439 an unorthodox recession. It's not like everything flushed at once 0:12:48.480 --> 0:12:49.760 and everything recovers at once. 0:12:49.960 --> 0:12:51.880 So it is going to be staged, and we've seen 0:12:51.880 --> 0:12:52.480 it in the market. 0:12:52.480 --> 0:12:55.480 We're still narrow quite frankly, AI campex is still is 0:12:55.760 --> 0:12:58.360 kind of one of early recoveries here, semiconductors being an 0:12:58.400 --> 0:13:00.800 early cycle group. But we're not seeing the other quote 0:13:00.880 --> 0:13:04.280 unquote early cycle groups recover the way they typically do 0:13:04.440 --> 0:13:07.439 in a new economic cycle. Why because the FED is 0:13:07.480 --> 0:13:09.360 behind a curve. The FED is way behind a curve 0:13:09.400 --> 0:13:11.959 on rates. They need rates much lower if you really 0:13:12.000 --> 0:13:14.640 want to get the private economy moving, rates are too high. 0:13:14.760 --> 0:13:16.840 Much lower? How much lower do you think that really 0:13:16.880 --> 0:13:18.360 is required to get that broadening out. 0:13:18.480 --> 0:13:20.480 Let's just start with the two year treasury yield. 0:13:20.559 --> 0:13:23.360 Okay, so my barometer is always the FED is behind 0:13:23.360 --> 0:13:26.719 the curve. If they Fed funds is above two year 0:13:26.760 --> 0:13:29.600 treasure yields, and in order to stimulate the private economy, 0:13:29.600 --> 0:13:31.199 I would say they need to be well below that. 0:13:31.480 --> 0:13:33.400 So that's fifty basis points just to get the neutral 0:13:33.600 --> 0:13:35.960 and maybe another one hundred plus to get to something 0:13:35.960 --> 0:13:38.959 that's more stimulative for the average company and the average consumer. 0:13:39.120 --> 0:13:42.480 Are you right now betting on that broadening out and 0:13:42.559 --> 0:13:46.959 expecting maybe AI to underperform going forward as they invest 0:13:47.080 --> 0:13:50.760 more in some of these debt sales and the infrastructure 0:13:50.840 --> 0:13:53.679 side and the rest of the economy plays catch up. 0:13:53.720 --> 0:13:56.360 Absolutely, think about the trickle down effect of this capital spending. 0:13:56.440 --> 0:13:58.720 I mean, it's not just going to be semidunter companies. 0:13:58.720 --> 0:14:00.679 There's there's a lot of infrat rushers, a lot of 0:14:00.720 --> 0:14:03.240 job creation. There's a lot of velocity in a real economy, 0:14:03.440 --> 0:14:06.280 and the lending channel starts getting going, perhaps for small 0:14:06.320 --> 0:14:07.720 medium businesses that job creation. 0:14:07.840 --> 0:14:09.720 Deregulation is another part of that story. 0:14:09.920 --> 0:14:13.240 Okay, so absolutely that's what should happen if things play 0:14:13.240 --> 0:14:14.360 out the way they could. 0:14:14.559 --> 0:14:15.679 Now, there's risk to that. 0:14:15.960 --> 0:14:18.040 Let's say that FED continues to say, hey, you know, 0:14:18.080 --> 0:14:20.320 we still think there's inflation risk. We don't like the 0:14:20.520 --> 0:14:21.760 inflation rate of three percent. 0:14:21.800 --> 0:14:22.400 We're not going to. 0:14:22.400 --> 0:14:25.320 Raise our targets there, and then we just kind of 0:14:25.360 --> 0:14:25.960 drag their feet. 0:14:26.000 --> 0:14:26.880 It's going to stay narrow. 0:14:26.920 --> 0:14:28.840 Then it's going to stay up the quality curve, and 0:14:28.840 --> 0:14:30.640 that's where we are right now. He says that people 0:14:30.680 --> 0:14:34.000 basically are trying to choose between those two outcomes, and 0:14:34.040 --> 0:14:36.440 I would say right now, most institutional community is still 0:14:36.560 --> 0:14:39.280 huddled into the high quality stocks. They haven't really made 0:14:39.360 --> 0:14:42.520 the transition yet. Well, we have in some of our guidance. 0:14:42.600 --> 0:14:44.120 Yeah. Absolutely, in order. 0:14:43.920 --> 0:14:46.240 For that transition to work, the FED has to cut though. 0:14:46.480 --> 0:14:47.680 That's what it's contingent on. 0:14:47.920 --> 0:14:50.120 It's one of the main things now. Drag is a 0:14:50.120 --> 0:14:52.040 big part of that. Okay, the capital. 0:14:51.720 --> 0:14:52.720 Spending is a part of that. 0:14:52.720 --> 0:14:55.760 Those can happen without the FED cutting significantly, but it 0:14:55.800 --> 0:14:57.000 would really, it would really. 0:14:56.880 --> 0:14:57.640 Solidify it for me. 0:14:57.680 --> 0:14:58.880 And if you go back and look at all these 0:14:58.880 --> 0:15:03.200 different economic cycles, small caps and you know, lower quality 0:15:03.240 --> 0:15:05.760 stocks typically don't outperform until the FED gets. 0:15:05.520 --> 0:15:07.000 Below two year treasury deals. 0:15:07.000 --> 0:15:09.400 We've documented this, so, by the way, doesn't mean these 0:15:09.400 --> 0:15:11.840 stocks can't work in absolute terms, it just means that 0:15:11.920 --> 0:15:15.440 relative outperformers you typically get in that early cycle rotation 0:15:16.000 --> 0:15:17.840 needs FED funds to be much lower. 0:15:18.040 --> 0:15:19.720 If you look at the FED next year, are you 0:15:19.800 --> 0:15:23.120 just expecting a federal reserve that's markedly different than it 0:15:23.200 --> 0:15:24.640 was today than it is today. 0:15:24.560 --> 0:15:26.680 Well, I think they're just I think they're being patient here, 0:15:26.880 --> 0:15:29.000 they're doing their job. I'm not wanting to sit here 0:15:29.000 --> 0:15:31.560 and criticize the Fed left and right. What I see 0:15:31.640 --> 0:15:34.880 is just a very weird economic cycle. And I think 0:15:34.960 --> 0:15:37.280 we've kind of we've sold the puzzle a little bit 0:15:37.320 --> 0:15:39.280 on this, and that's why I feel fairly confident that 0:15:39.560 --> 0:15:41.520 our narrative we laid out this year is played out. 0:15:41.560 --> 0:15:41.720 Now. 0:15:41.760 --> 0:15:44.320 I'm getting evidence in the marketplace, and I feel more 0:15:44.320 --> 0:15:45.400 confident in that narrative. 0:15:45.720 --> 0:15:46.560 And that's sort of the difference. 0:15:46.600 --> 0:15:48.160 I just think they're not there yet, you know, they're 0:15:48.320 --> 0:15:50.080 They're not where I am in my head. I could 0:15:50.120 --> 0:15:52.080 be wrong, but I'm pretty confident about that outcome. 0:15:52.160 --> 0:15:53.200 Can we finish on big tech? 0:15:53.400 --> 0:15:53.640 Sure? 0:15:53.760 --> 0:15:56.880 These companies are changing way used to companies that weren't 0:15:56.920 --> 0:15:59.760 investing tons ultimately that we giving it back to shareholders. 0:16:00.080 --> 0:16:02.040 We're seeen a subtle twist, I think from the likes 0:16:02.040 --> 0:16:04.680 of say Meta, who was spending tons and tons and 0:16:04.720 --> 0:16:07.160 tons and then coming to the debt market to fund it. 0:16:07.440 --> 0:16:10.040 That's not what we're used to with these names typically 0:16:10.120 --> 0:16:13.600 the asset like capital return heavy. You noticeing the same change? 0:16:13.640 --> 0:16:16.120 And how should we treat those companies differently, if at all? 0:16:16.280 --> 0:16:16.880 Because of that? 0:16:17.160 --> 0:16:19.080 So let's talk about the risks for the bullmarket. 0:16:19.120 --> 0:16:21.520 We think a bull market started in April new economic 0:16:21.600 --> 0:16:22.280 earning cycle. 0:16:22.600 --> 0:16:23.600