WEBVTT - Bloomberg Surveillance TV: May 29, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 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 --> 0:00:37.720 Terminal and the Bloomberg Business app. Victoria Fernandez a crossmark 0:00:37.800 --> 0:00:39.960 rights in this we continue to see volatility in the 0:00:40.000 --> 0:00:42.839 markets as the uncertainty surrounding the rate path in the 0:00:42.960 --> 0:00:46.240 US remains high, keeping us cautious as cracks in the 0:00:46.320 --> 0:00:50.120 labor market begin to appear. Victoria's with us right now, Victoria, 0:00:50.159 --> 0:00:52.800 let's start with the sustainability of this up trend other 0:00:52.920 --> 0:00:54.280 question marks around that. 0:00:54.360 --> 0:00:55.440 Now, given that we've seen. 0:00:55.280 --> 0:00:57.200 A big move in the biggest name, the most important 0:00:57.240 --> 0:00:59.920 name of this equity market three days, twenty percent game 0:01:00.200 --> 0:01:03.280 from Vidia and this secretary market more broadly has done nothing. 0:01:04.760 --> 0:01:07.119 No, I think you're absolutely right, Jonathan, and in Vidia 0:01:07.200 --> 0:01:09.360 is kind of playing a game all by itself over 0:01:09.360 --> 0:01:12.160 there in the games that we're seeing. But you look 0:01:12.160 --> 0:01:14.640 at the rest of the market and there are some concerns. 0:01:14.720 --> 0:01:18.400 Look at the diversification and the difference between the DOW 0:01:18.520 --> 0:01:19.600 and the transports. 0:01:19.959 --> 0:01:21.080 That's worrying to us. 0:01:21.120 --> 0:01:25.200 Transports have been coming down pretty significantly. That's usually a 0:01:25.280 --> 0:01:27.440 key indicator and a leading indicator of what we're going 0:01:27.480 --> 0:01:29.240 to see in the markets. And so we're seeing that 0:01:29.319 --> 0:01:33.720 divergence come there. We're seeing cyclicals no longer being leadership. 0:01:33.880 --> 0:01:36.680 We're seeing other names start to come up now. Cyclicals 0:01:36.760 --> 0:01:40.600 are becoming leadership overseas. So we're starting to see a 0:01:40.640 --> 0:01:43.440 pickup over there, but pulling it down here. And look 0:01:43.480 --> 0:01:45.600 a couple of weeks ago, Jonathan, when we were talking, 0:01:45.880 --> 0:01:48.720 Yu said, Victoria, where's the weakness in the market, And 0:01:48.760 --> 0:01:52.080 we've started to see that now since we spoke last time. 0:01:52.120 --> 0:01:55.600 You're seeing weakness in the consumer. Look at retail sales. 0:01:55.880 --> 0:01:59.280 We are actually flat with real retail sales over the 0:01:59.320 --> 0:02:04.440 last four months. Regional pmis, regional manufacturing reports are weaker 0:02:04.600 --> 0:02:05.160 as well. 0:02:05.440 --> 0:02:07.440 There's different weaknesses that we're seeing. 0:02:07.520 --> 0:02:10.720 Housing also, we've got a five percent gain in housing 0:02:10.960 --> 0:02:14.519 prices right now, which again all of this feeding into 0:02:14.560 --> 0:02:17.359 the idea that the FED is going to be very 0:02:17.440 --> 0:02:19.799 uncertain in its path forward, and I think that's why 0:02:19.840 --> 0:02:21.600 we'll have a vo little market going forward. 0:02:21.760 --> 0:02:22.120 Lectoria. 0:02:22.240 --> 0:02:25.280 Sometimes it's difficult to draw a distinction between a single 0:02:25.360 --> 0:02:28.520 name issue and a broader sector problem. Great example of 0:02:28.560 --> 0:02:30.760 that this morning is American Airlines. The name is down 0:02:30.800 --> 0:02:33.079 by more than eight percent. If had to cut the outlook, 0:02:33.360 --> 0:02:35.800 how would you distinguish between a single name issue in 0:02:35.840 --> 0:02:37.920 that sector and a broad a sector problem. 0:02:39.040 --> 0:02:41.120 Yeah, you have to really take a step back and 0:02:41.160 --> 0:02:43.320 look at what's going on across the board. When we 0:02:43.360 --> 0:02:47.200 look at airlines and you know, we're not strongholders of 0:02:47.280 --> 0:02:50.280 airlines and our portfolios, but when you look at America 0:02:50.280 --> 0:02:53.360 and they have had some idiosyncratic issues going on there, 0:02:53.520 --> 0:02:56.480 we know that they have a key individual leaving. That 0:02:56.520 --> 0:03:00.639 person was responsible for some of the revenue generationally around 0:03:00.680 --> 0:03:03.240 the credit card issues that they were having, where they 0:03:03.240 --> 0:03:08.000 have not succeeded like United has done, like Delta has done. 0:03:08.120 --> 0:03:11.440 So there are some issues specifically for American, but you 0:03:11.600 --> 0:03:14.720 also have to wonder if that travel sector that had 0:03:14.960 --> 0:03:18.920 such a huge comeback after COVID if that's going to 0:03:18.960 --> 0:03:21.960 start to pull back as we see the lower income 0:03:22.080 --> 0:03:25.440 and the middle income consumers really struggle. I know in 0:03:26.080 --> 0:03:29.040 the little montage that y'all played, there were different voices 0:03:29.440 --> 0:03:32.200 in regards to whether consumers are doing well or not. 0:03:32.280 --> 0:03:35.839 But we are seeing those lower and middle income consumers 0:03:36.040 --> 0:03:39.560 struggle both in the balances they're carrying on their credit cards. 0:03:39.560 --> 0:03:42.920 You've got almost sixty percent of those lower middle income 0:03:42.960 --> 0:03:47.200 consumers carrying balances, and now they're turning to the buy now, 0:03:47.280 --> 0:03:49.240 pay later, which doesn't even. 0:03:49.040 --> 0:03:50.240 Show on their credit reports. 0:03:50.280 --> 0:03:53.000 That's a whole other issue where almost ten percent of 0:03:53.000 --> 0:03:56.320 those people are using it to buy necessities. So it 0:03:56.400 --> 0:03:58.520 tells me we're going to be struggling with the consumer, 0:03:58.600 --> 0:04:01.080 So that could flow through to the sector as a 0:04:01.080 --> 0:04:02.000 whole going forward. 0:04:02.120 --> 0:04:04.160 It raises a question, what does it mean to be cautious? 0:04:04.320 --> 0:04:06.640 And we hear this a lot. You know, we're cautious 0:04:06.920 --> 0:04:09.240 moving up in quality. How do you even determine what 0:04:09.280 --> 0:04:10.840 that is? Is that just to continue to buy in 0:04:10.960 --> 0:04:13.080 video because they run the world. Is it to go 0:04:13.120 --> 0:04:15.680 into utilities that are increasingly thought of as an artificial 0:04:15.680 --> 0:04:17.839 intelligence play and that have been bid up or is 0:04:17.839 --> 0:04:19.719 it to go into the oil patch, which is often 0:04:19.760 --> 0:04:22.320 thought about as actually leveraged to the consumer, but seems 0:04:22.360 --> 0:04:24.400 to be dancing to its own music. How do you 0:04:24.480 --> 0:04:26.520 view caution in a new world? 0:04:27.480 --> 0:04:28.440 So, Lisa, I don't. 0:04:28.240 --> 0:04:31.120 Think it's a specific name or sector when we say 0:04:31.120 --> 0:04:34.000 we're being cautious when we're looking for high quality names 0:04:34.279 --> 0:04:39.120 for us. That's in regards to the dependability of their earnings, 0:04:39.240 --> 0:04:41.960 the quality of their earnings, the cash. 0:04:41.640 --> 0:04:43.480 Flow on the balance sheets. 0:04:43.480 --> 0:04:45.680 I mean you look at the energy story you were 0:04:45.720 --> 0:04:49.000 just talking about with Conoco Phillips. I mean, they can 0:04:49.080 --> 0:04:52.800 do these deals because their cash flow is so high 0:04:52.880 --> 0:04:56.560 and so strong. It gives them the opportunity to make 0:04:56.600 --> 0:04:58.400 these acquisitions like marathons. 0:04:58.480 --> 0:04:59.640 So you want to have. 0:04:59.600 --> 0:05:03.480 Companies that have that cash flow, those earnings. That doesn't 0:05:03.560 --> 0:05:05.560 have to be in one sector or another. But I 0:05:05.600 --> 0:05:08.520 do think it means you have to be stock picking. 0:05:08.560 --> 0:05:11.880 You can't just pick a sector like you previously and say, oh, 0:05:11.920 --> 0:05:14.080 tech is doing great, let's go in. I mean you 0:05:14.120 --> 0:05:17.680 look at healthcare, for example, it's been down pretty significantly. 0:05:17.839 --> 0:05:20.359 But you can find a specific name like Gilead that 0:05:20.440 --> 0:05:23.800 we own, or you've got, you know, a stock trading 0:05:23.839 --> 0:05:26.640 at less than ten times priced to cash flow, you've 0:05:26.640 --> 0:05:29.680 got amost a five percent dividend, and you've got strong earnings. 0:05:29.920 --> 0:05:31.839 Those are the types of names that we think fit 0:05:31.880 --> 0:05:34.000 into that cautious scenario. 0:05:34.480 --> 0:05:36.840 It seems like a lot of cylinders in the United 0:05:36.880 --> 0:05:40.040 States are working for it in terms of the tech 0:05:40.120 --> 0:05:42.920 plays in Nvidia among some of the others. We're talking 0:05:42.960 --> 0:05:45.719 about oil, all of a sudden oil price is going up. 0:05:45.880 --> 0:05:48.920 Is actually not necessarily so negative for the United States 0:05:48.920 --> 0:05:51.440 that actually is becoming an increasing exporter and sort of 0:05:51.480 --> 0:05:54.200 more self sufficient. You're looking at even some of the 0:05:54.279 --> 0:05:59.320 drug innovations, albeit maybe the OBC drugs launching from certain 0:05:59.320 --> 0:06:01.960 European con But I'm just curious, from your vantage point, 0:06:02.080 --> 0:06:04.400 is a US still the place to be cautious in. 0:06:06.080 --> 0:06:09.440 Yeah, Look, we're we want to see some exposure in 0:06:09.480 --> 0:06:13.320 our client's portfolios to international because, like as I mentioned earlier, 0:06:13.320 --> 0:06:15.960 we're seeing some of the cyclicality in the market, some 0:06:16.040 --> 0:06:19.360 of those cyclical names, discretionary names doing. 0:06:19.240 --> 0:06:21.000 Better outside the US. 0:06:21.040 --> 0:06:23.240 So maybe you start to dip your toe in some 0:06:23.279 --> 0:06:26.200 of those international markets that are doing well. But when 0:06:26.240 --> 0:06:28.640 you look at the US, I do think you have 0:06:28.720 --> 0:06:30.760 to take that cautious approach. 0:06:30.880 --> 0:06:32.840 And it doesn't mean you're not invested in the market. 0:06:32.920 --> 0:06:34.080 We are in the market. 0:06:33.880 --> 0:06:36.480 One hundred percent, but you have to be careful as 0:06:36.520 --> 0:06:38.720 to where you're putting your money to work. Does it 0:06:38.800 --> 0:06:42.200 make sense to dump everything into those MAGS seven names. 0:06:42.000 --> 0:06:42.960 Well, probably not. 0:06:43.040 --> 0:06:45.920 We think we'll see some earning seterioration in those names 0:06:46.040 --> 0:06:49.000 over the second half of this year, and other areas 0:06:49.480 --> 0:06:52.840 like utilities, like healthcare will start to pick up. So 0:06:53.360 --> 0:06:55.960 being cautious just means be careful where you're putting your 0:06:55.960 --> 0:06:58.560 money to work. But we do think being in the 0:06:58.680 --> 0:07:01.719 US makes a lot of sense. Dipping your toe in 0:07:01.920 --> 0:07:05.600 other markets starts to make sense as we're seeing cyclicality 0:07:05.640 --> 0:07:06.000 pick up. 0:07:06.520 --> 0:07:09.320 When you look at the hedge fund exposure to big tech, 0:07:09.720 --> 0:07:12.280 the Magnificent seven that you're saying, potentially you're seeing a 0:07:12.320 --> 0:07:13.400 little bit of cracks. 0:07:13.440 --> 0:07:15.320 Cracks in twenty point. 0:07:15.080 --> 0:07:17.440 Seven percent of hedge funds total net exposure to US 0:07:17.520 --> 0:07:21.080 single stocks that's what they account for now in these 0:07:21.120 --> 0:07:24.000 Magnificent seven. Do you think that's way too much? 0:07:25.160 --> 0:07:26.920 It seems really strong, right, Henry. 0:07:27.040 --> 0:07:29.000 I mean you look top five names in the S 0:07:29.040 --> 0:07:32.280 and P hundred are almost thirty percent, and you look 0:07:32.320 --> 0:07:35.680 at Semis, that's eleven percent of the SMP. A few 0:07:35.760 --> 0:07:38.280 years ago it was only two percent. So we've had 0:07:38.320 --> 0:07:41.800 this tremendous amount of growth in those names. It is 0:07:41.840 --> 0:07:44.680 one of the reasons why we remain cautious or do 0:07:44.720 --> 0:07:46.120 we have exposure. 0:07:45.600 --> 0:07:46.240 Of those names. 0:07:46.320 --> 0:07:49.600 We do, but we're underweight versus the benchmark. So you 0:07:49.680 --> 0:07:51.680 want to be able to take advantage of some of 0:07:51.720 --> 0:07:54.920 the gains there, but also be a little underweight because 0:07:54.960 --> 0:07:56.840 we do think we'll see a pullback and it gives 0:07:56.880 --> 0:07:59.520 us a little dry powder when we trim those names 0:07:59.680 --> 0:08:01.920 to go into other areas of the market. So it 0:08:01.960 --> 0:08:05.360 does seem pretty heavily weighted. And as we all know, 0:08:05.440 --> 0:08:08.280 there is a difference between their waiting in the S 0:08:08.360 --> 0:08:10.680 and P on their market cap, and they're waiting in 0:08:10.840 --> 0:08:13.480 earnings as well, So you have to look at that 0:08:13.560 --> 0:08:16.160 difference and decide where you think it's the best. 0:08:15.920 --> 0:08:16.440 Place to be. 0:08:16.800 --> 0:08:19.160 Victoria busy morning, it's going to catch up passive White, 0:08:19.240 --> 0:08:19.840 Victoria Finande. 0:08:19.880 --> 0:08:20.920 Is there a cross smock? 0:08:31.040 --> 0:08:33.400 No, that's a remack around the table with us alongside 0:08:33.440 --> 0:08:36.680 New Veg's Tonny Rodriguez. Gens is going to see you Neil, 0:08:36.840 --> 0:08:41.560 let's talk about why you're still constructive on this economy. Why, Well, I. 0:08:41.480 --> 0:08:43.600 Definitely think the trade offs are getting a little bit 0:08:43.600 --> 0:08:47.400 trickier for the FED. So I tend to think that, 0:08:48.120 --> 0:08:49.480 you know, we're still at the end of the year 0:08:49.520 --> 0:08:51.680 going to be talking about an economy that's growing, and 0:08:51.720 --> 0:08:53.679 how much has the FED been cutting? I still think 0:08:53.720 --> 0:08:56.760 that's really the name of the game. But you know, 0:08:56.800 --> 0:08:59.920 I do think that to me, it's not as obvi 0:09:00.240 --> 0:09:02.439 is that, you know. I mean, the FED goes around 0:09:02.440 --> 0:09:04.720 saying we have time, I don't have to worry about things. 0:09:04.760 --> 0:09:06.240 I mean, you never have as much time as you 0:09:06.280 --> 0:09:09.720 think in hindsight, And we know that the risks with 0:09:09.800 --> 0:09:12.880 unemployment are always that their nonlinear in nature, right, So 0:09:12.880 --> 0:09:15.040 it's never just that unemployment goes up a little bit, 0:09:15.080 --> 0:09:16.960 It goes up a lot of bit, right, And so 0:09:17.080 --> 0:09:20.079 I think, you know, when I look at the when 0:09:20.120 --> 0:09:21.520 I look at what the FED is doing and the 0:09:21.600 --> 0:09:24.080 data as it's unfolding, I mean, all it really feels 0:09:24.120 --> 0:09:25.880 like they're doing right now is just taking the last 0:09:25.920 --> 0:09:28.320 few months of data and just extrapolating that forward. 0:09:28.360 --> 0:09:30.240 And things can change. 0:09:30.600 --> 0:09:34.200 And and I think that's especially true of the inflation data, 0:09:34.400 --> 0:09:36.880 and you know, I don't think you can really make 0:09:36.920 --> 0:09:39.679 a fundamental story for why inflation perked up. I mean, 0:09:39.720 --> 0:09:42.080 you can point to specific things here and there, right 0:09:42.160 --> 0:09:47.920 auto insurance, people talk about healthcare services, but generally speaking, 0:09:48.000 --> 0:09:50.319 it really boils down, in my mind, to what's going 0:09:50.400 --> 0:09:53.520 on with the labor markets. And the labor markets are cooling. 0:09:53.760 --> 0:09:56.319 I mean, I don't think that that's even a debatable point. 0:09:57.240 --> 0:10:00.000 If you look at average hourly earnings for all employees 0:10:00.360 --> 0:10:03.160 over the last three months, it's up less than three 0:10:03.200 --> 0:10:07.000 percent at an annual rate. So if you believe that 0:10:07.040 --> 0:10:11.920 inflation's going to remain sticky, John, you need to start 0:10:11.960 --> 0:10:14.920 worrying then about a decline in real wages. And if 0:10:14.960 --> 0:10:19.240 real wages are contracting, then consumer spending will slow, and 0:10:19.280 --> 0:10:22.360 if consumer splending will slow, corporate earnings will slow. So 0:10:24.120 --> 0:10:26.200 you know, I don't think that's strong. I mean, in 0:10:26.240 --> 0:10:29.160 the first quarter, you had this strong inflation data, and 0:10:29.440 --> 0:10:32.040 I think a lot of investors sort of said thought, Okay, 0:10:32.280 --> 0:10:36.680 this is reinforcing this inflationary boom narrative. But the labor markets, frankly, 0:10:36.720 --> 0:10:38.240 just are not in the same place as they were 0:10:38.280 --> 0:10:41.160 a year ago, and you need labor costs are basically 0:10:41.960 --> 0:10:45.559 one percent, so I just wonder where the inflation comes from. 0:10:45.600 --> 0:10:47.520 So my sense is that if you want to be 0:10:47.559 --> 0:10:50.640 optimistic on the economy, you almost have to think that 0:10:50.679 --> 0:10:53.880 inflation slows down, because if it doesn't, then you need 0:10:53.920 --> 0:10:55.800 to start raising your recession probabilities. 0:10:55.920 --> 0:10:58.000 Going into the pandemic, the Federal Reserve used to say 0:10:58.000 --> 0:11:00.079 things like we need to extend the signe cop and 0:11:00.160 --> 0:11:01.680 some of the language I remember phrase I think of 0:11:01.679 --> 0:11:03.600 his fiz check crowd at the time would say things 0:11:03.679 --> 0:11:06.160 like an ounce of protection was worth a pound of cure. 0:11:06.559 --> 0:11:08.959 Are you saying they should move preemptively and begin to 0:11:08.960 --> 0:11:11.560 reduce interest rates just on the margin surgically. 0:11:11.679 --> 0:11:13.720 Well, I think, I mean, I think that's all we 0:11:13.760 --> 0:11:15.920 should really expect. I mean, I've been saying that they 0:11:15.920 --> 0:11:19.720 should be recalibrating policy, but I think that they should 0:11:19.720 --> 0:11:22.240 be focusing on what's happening with the labor markets. And 0:11:22.360 --> 0:11:25.840 the labor markets are clearly moderating, and so you're basically saying, 0:11:27.080 --> 0:11:30.160 you know, we're waiting on what like healthcare services, inflation 0:11:30.280 --> 0:11:33.120 to moderate, and some of these idiosyncratic factors. I mean, again, 0:11:33.240 --> 0:11:35.600 you know, to me, it's you know, and in many cases, 0:11:35.600 --> 0:11:39.440 economics is basically like identity. Like an identity, things on 0:11:39.440 --> 0:11:41.520 one side of the equation have to equal things on 0:11:41.559 --> 0:11:43.920 the other side of the equation, and certain things just 0:11:43.960 --> 0:11:47.319 need to be true. And so in my from my perspective, 0:11:47.320 --> 0:11:51.000 I mean compensation growth should equal inflation plus productivity. And 0:11:51.040 --> 0:11:52.480 what do we know about those things? We know that 0:11:52.600 --> 0:11:56.000 compensation growth has been slowing, right, no matter what you 0:11:56.040 --> 0:11:58.880 look at and all you know, job labor tournovers down, 0:11:59.120 --> 0:12:01.640 the number of people that don't have haven't seen a 0:12:01.679 --> 0:12:04.040 movement in their wages over the last year, that numbers up. 0:12:04.640 --> 0:12:07.520 If you look at quits hires, those have all moderated. 0:12:07.559 --> 0:12:10.360 If you look at posted wage growth, that's moderating. So 0:12:10.440 --> 0:12:13.520 we have a pretty good indication that wage growth is slowing. 0:12:14.520 --> 0:12:17.160 If you look at across a whole number of industries, 0:12:17.200 --> 0:12:22.080 whether that's professional and business services, retail trade, leisure and hospitality, 0:12:22.360 --> 0:12:25.080 wage growth in those industries, particularly leisure and hospitality and 0:12:25.080 --> 0:12:27.600 retail trade, because you know, those are the folks with 0:12:27.600 --> 0:12:30.959 the higher propensities to spend, those industries are seeing wage 0:12:30.960 --> 0:12:32.560 growth at the lowest, at the low end of their 0:12:32.640 --> 0:12:36.240 range over the last year. So if compensation growth is 0:12:36.280 --> 0:12:39.199 moderating and productivity is normalized. 0:12:40.840 --> 0:12:42.000 You don't really get much. 0:12:41.800 --> 0:12:43.520 Of it, don't I don't think you can really make 0:12:43.559 --> 0:12:45.679 a very strong case for inflation other than. 0:12:47.320 --> 0:12:48.520 You know, it's been strong. 0:12:48.800 --> 0:12:50.760 But you know, Tony, I'd love you to weigh in 0:12:50.800 --> 0:12:54.240 on this. You believe that the disinflation story is true 0:12:54.360 --> 0:12:57.600 and you expect it to continue. But we're talking here 0:12:57.640 --> 0:12:59.679 a nuance because at a certain point, if it stays 0:12:59.679 --> 0:13:01.640 sticky at a certain rate, it can still lead to 0:13:01.679 --> 0:13:03.400 some real problems. So can you give us a sense 0:13:03.400 --> 0:13:05.640 of what the trajectory is and kind of where the 0:13:05.640 --> 0:13:08.120 margin of error is for the FED at this point? 0:13:08.480 --> 0:13:10.520 Sure? So, I mean we can kind of agree with 0:13:10.559 --> 0:13:13.120 the idea that, you know, the wage the labor market 0:13:13.160 --> 0:13:15.120 is softening, and we think that's going to kind of 0:13:15.120 --> 0:13:17.559 flow through the wage pressures declining as we go through 0:13:17.559 --> 0:13:19.840 the year. Our view is that while inflation is going 0:13:19.880 --> 0:13:22.600 to continue to decline, it's going to do it really slowly. 0:13:22.960 --> 0:13:24.920 So it really was rapid in the second half of 0:13:25.000 --> 0:13:27.319 last year. We saw this spike kind of early in 0:13:27.360 --> 0:13:29.320 the year that was really a surprise to us. I 0:13:29.320 --> 0:13:31.760 think in the man the market that inflation was so 0:13:31.880 --> 0:13:34.360 hot Our view is that we're sitting at maybe a 0:13:34.440 --> 0:13:37.199 two seven kind of PC level by the end of 0:13:37.240 --> 0:13:39.680 the year, so kind of flat to where we are now, 0:13:39.920 --> 0:13:43.240 maybe down a tenth. Next year we again move very 0:13:43.280 --> 0:13:46.559 slowly towards more like a two three, and getting back 0:13:46.600 --> 0:13:49.080 to the target is more of a twenty twenty sixth event. 0:13:49.600 --> 0:13:52.200 So in that environment allows the FED to us be 0:13:52.360 --> 0:13:56.600 basically higher for longer because the economy remains pretty resilient 0:13:56.960 --> 0:13:59.480 while we're seeing that softening in the labor market. It's 0:13:59.520 --> 0:14:02.680 not under sub one hundred thousand jobs. It's more than 0:14:02.679 --> 0:14:05.160 one hundred hundred and fifty range rather than what had 0:14:05.160 --> 0:14:07.839 been a two hundred and fifty range, So still reasonably 0:14:07.880 --> 0:14:09.400 healthy macro environment. 0:14:09.720 --> 0:14:11.800 What does hire for longer mean at a time where 0:14:11.800 --> 0:14:14.680 you've got tom Csaurus to Adam Posen saying basically, a 0:14:14.679 --> 0:14:17.480 federate cut here would be a policy error because of 0:14:17.520 --> 0:14:19.720 some of the inflation that could fuel later on. 0:14:20.240 --> 0:14:22.400 Yeah, so RBS right now we have a real rate 0:14:22.440 --> 0:14:25.280 that's well over two percent. We think that one cut, 0:14:25.640 --> 0:14:27.600 maybe two by the end of the year is the 0:14:27.640 --> 0:14:30.960 most that we'll see. That kind of recalibration to us 0:14:31.200 --> 0:14:34.040 is not going to drive a spike up again in 0:14:34.080 --> 0:14:36.920 Inflation's just going to keep the real rate at a 0:14:37.040 --> 0:14:40.240 level that is not overly restrictive and therefore putting the 0:14:40.320 --> 0:14:43.760 labor market a greater risk than is necessary given the 0:14:43.800 --> 0:14:45.080 current overall environment. 0:14:45.240 --> 0:14:47.400 Can we talk about what everyone's been talking about over 0:14:47.440 --> 0:14:50.280 the last several months, which is the supply side story, Neil, 0:14:50.280 --> 0:14:52.560 I know you've got thoughts on this. Allen Center and 0:14:52.560 --> 0:14:54.560 Morgan Stanley has made the point that this economy can 0:14:54.560 --> 0:14:57.520 get bigger without getting tighter. And what everyone's pointing to 0:14:57.760 --> 0:15:00.280 is the amount of immigration we've seen in this country. We' 0:15:00.280 --> 0:15:02.080 putting too much weight on the explanation as to what 0:15:02.160 --> 0:15:03.800 is developing in the labor market. 0:15:04.400 --> 0:15:06.320 I mean, this is a very hot button issue, John, 0:15:06.360 --> 0:15:08.800 but I do I think that. I mean, America is 0:15:08.840 --> 0:15:12.480 not the only place in the world that's seen rising 0:15:12.560 --> 0:15:15.560 population growth or I mean, just look to our friends 0:15:15.600 --> 0:15:18.920 in the north in Canada. They've had very rapid immigration 0:15:19.000 --> 0:15:21.400 growth has to stopped their economy. 0:15:20.880 --> 0:15:22.400 From not doing well. 0:15:22.400 --> 0:15:24.360 I mean, if you look at per capita GDP and 0:15:24.400 --> 0:15:27.760 candidates in the toilet, so just because you have a 0:15:27.760 --> 0:15:30.760 lot of immigration doesn't necessarily mean that your economy is strong. 0:15:31.120 --> 0:15:33.720 So I really think the immigration angle is something that 0:15:33.760 --> 0:15:35.640 people are looking at as a way to work back. 0:15:36.320 --> 0:15:39.680 Lots of places across G ten have seen very rapid 0:15:39.680 --> 0:15:43.520 growth in immigration. What's not clear across all those countries 0:15:43.600 --> 0:15:46.600 is strong growth. The US in that respect is the 0:15:46.600 --> 0:15:49.760 one that stands out, which would suggest that productivity in 0:15:49.800 --> 0:15:53.560 the US is the primary reason of why we've seen 0:15:53.560 --> 0:15:54.440 this outperformance. 0:15:54.560 --> 0:15:55.040 I just asked me. 0:15:55.080 --> 0:15:56.800 Although a lot of people are saying it's not just 0:15:57.040 --> 0:15:59.960 strong growth, it's that the growth came without the inflation 0:16:00.440 --> 0:16:02.680 as a result of wages climbing as much as people 0:16:02.720 --> 0:16:05.480 previously expected. That was the component of immigration that people 0:16:05.520 --> 0:16:06.200 were talking about. 0:16:06.280 --> 0:16:10.240 Do you buy that. I don't follow that basically. 0:16:09.960 --> 0:16:12.720 Because immigrants were coming to this country willing to work 0:16:13.160 --> 0:16:16.360 even for wages that were lower, or potentially that it 0:16:16.400 --> 0:16:18.960 actually kept down some of the wage inflation that otherwise 0:16:19.000 --> 0:16:22.120 would have been given the natural tightness in the labor market. 0:16:22.200 --> 0:16:23.920 I'm sure you could find some I mean, you have 0:16:23.960 --> 0:16:26.200 seen some slow in wages, so maybe you know you 0:16:26.240 --> 0:16:28.640 can make more of a labor market case. But generally speaking, 0:16:28.680 --> 0:16:30.720 I mean, I think there are lots of other reasons 0:16:30.760 --> 0:16:33.680 beyond immigration that you know. I mean, for example, we're 0:16:33.760 --> 0:16:35.480 less exposed to what's going on in. 0:16:35.560 --> 0:16:39.040 Ukraine and Russia than Europe. 0:16:39.120 --> 0:16:44.400 Obviously, monetary policy transmits itself differently in the US because 0:16:44.440 --> 0:16:47.280 we have so many people on thirty year fixed rate 0:16:47.320 --> 0:16:50.200 mortgage debt. That's not the case in Europe. We had 0:16:50.240 --> 0:16:54.960 a very very robust fiscal response relative to Europe. And 0:16:55.120 --> 0:16:58.760 you know, I mean generally speaking, the US does set 0:16:59.320 --> 0:17:01.960 in my mind, productivity frontier for the world, so we're 0:17:02.000 --> 0:17:03.560 sort of on the leading edge of that. So there 0:17:03.560 --> 0:17:06.520 are lots of reasons for why the. 0:17:06.520 --> 0:17:07.640 US is outperformed. 0:17:07.960 --> 0:17:10.760 I think immigration, frankly, ranks very low on the list, 0:17:13.240 --> 0:17:16.160 and you know, I think that's shown in the fact 0:17:16.160 --> 0:17:18.760 that lots of countries across G ten I have seen 0:17:18.920 --> 0:17:22.520 very strong growth in immigration. Not every country has been 0:17:22.640 --> 0:17:25.560 enjoying the kind of economic performance the US has enjoyed. 0:17:25.560 --> 0:17:28.120 The tunny Yeah, So our view is that the immigration 0:17:28.280 --> 0:17:30.600 was just very well timed. It's not a long run 0:17:30.680 --> 0:17:33.199 fundamental force. It's going to be a driver of growth 0:17:33.200 --> 0:17:35.520 and higher potential growth for the US or the next 0:17:35.520 --> 0:17:39.600 five years. Given immigration policy in this country is challenging, 0:17:39.920 --> 0:17:43.440 but the timing of it, which was above expectations, really 0:17:43.520 --> 0:17:46.960 helped ye, some of those pressures on wages, but going forward, 0:17:46.960 --> 0:17:49.359 it's going to have to be much more about labor 0:17:49.359 --> 0:17:55.080 force participation. Helped grow potential growth for productivity remaining very high, 0:17:55.359 --> 0:17:57.439 which you know is possible with AI, but it's going 0:17:57.520 --> 0:18:01.359 to be more of a traditional either product or labor 0:18:01.359 --> 0:18:05.800 force participation that's second there's probably unlikely, so it's gonna 0:18:05.800 --> 0:18:07.360 have to rely on productivity in our mind. 0:18:07.400 --> 0:18:08.200 Well, I mean that's. 0:18:08.040 --> 0:18:09.640 That's I mean, that's a great point that it's temp 0:18:09.800 --> 0:18:11.280 It could be temporary, right, I mean a lot of 0:18:11.280 --> 0:18:14.080 the immigration that we're seeing could just be pent up 0:18:14.119 --> 0:18:16.840 demand from the pandemic. I mean, the visa approvals were 0:18:16.880 --> 0:18:20.199 basically shut down and then we reopened them, so you know, 0:18:20.240 --> 0:18:22.600 and now you have a lot of you know, foreign 0:18:22.680 --> 0:18:27.280 born workers coming into the workforce. But that shouldn't sustain 0:18:27.359 --> 0:18:29.480 I mean, I do think it's interesting that you've you've 0:18:29.560 --> 0:18:32.000 you've started to see the foreign born workforce moderate a 0:18:32.000 --> 0:18:35.920 bit at a time when everyone's talking about it kind 0:18:35.920 --> 0:18:38.120 of kind of makes me think about what it means 0:18:38.160 --> 0:18:41.680 that everyone's talking about not being long duration and thinking 0:18:41.760 --> 0:18:43.359 rates are going to be five percent, Like what that 0:18:43.400 --> 0:18:44.320 means for the next. 0:18:44.119 --> 0:18:46.280 Move But that's that's I think exactly where I was 0:18:46.320 --> 0:18:48.879 going to go tony, this idea that people saying that 0:18:48.920 --> 0:18:51.520