WEBVTT - Markets Price in Nvidia as Traders Look Ahead to PCE 0:00:00.080 --> 0:00:07.400 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.119 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:41.239 or anywhere else you listen and. 0:00:41.320 --> 0:00:44.199 Always I'm Bloomberg Radio, the Bloomberg. 0:00:43.800 --> 0:00:47.040 Terminal, and the Bloomberg Business app being to get right 0:00:47.040 --> 0:00:48.560 to this right now, Dan, I have joined us in 0:00:48.640 --> 0:00:50.839 web bush share all over the media course as we. 0:00:50.920 --> 0:00:54.279 Go into the Mag eight. Frenzy Warren Buffet, he's part 0:00:54.320 --> 0:00:55.639 of the mag eight right now. 0:00:55.440 --> 0:00:58.880 Sixty five buys on Nvidia eight old snowsls that you 0:00:58.960 --> 0:00:59.959 don't follow in Vida. 0:01:00.600 --> 0:01:03.600 You got a thug at webbush that follows it, right. 0:01:03.720 --> 0:01:06.440 Yeah, So our view and Nvidio. You know, we have 0:01:06.440 --> 0:01:09.399 one hundred and thirty eight hour probably start bult cases 0:01:09.440 --> 0:01:10.480 one seventy five. 0:01:10.720 --> 0:01:12.959 Bergstein went to one fifty this morning, and. 0:01:12.959 --> 0:01:14.840 I think this is just the star. I mean, look, 0:01:14.880 --> 0:01:17.160 I think this by the end of the day or 0:01:17.200 --> 0:01:18.839 even the next twenty four hours, this is a stock 0:01:18.880 --> 0:01:21.600 that should be in the green based on everything we 0:01:21.680 --> 0:01:24.559 saw from Godfather of Ai Jensen the video, Well. 0:01:24.480 --> 0:01:26.399 Get one more in here and I will so good. 0:01:26.720 --> 0:01:28.800 So Dan, give us a sense. What did you hear 0:01:28.880 --> 0:01:33.400 from nvidiot last night? They beat numbers? Maybe the guidance 0:01:33.440 --> 0:01:35.760 wasn't where the street was expecting. But what did you 0:01:35.840 --> 0:01:37.319 really take away from Nvidia last night? 0:01:37.920 --> 0:01:38.760 So three things? 0:01:38.800 --> 0:01:42.800 One demand, because the question is is they're double ordering? 0:01:42.840 --> 0:01:46.760 What is enterprise demand demands actually accelerating. And there's no 0:01:46.840 --> 0:01:49.120 better perch in terms of everything we're seeing from AI 0:01:49.640 --> 0:01:53.560 than what Jensen sees. To Blackwell, all the fears right, 0:01:53.600 --> 0:01:57.240 the words is that Gan delayed. They essentially put those 0:01:57.320 --> 0:02:00.000 fears to rest, and that was so important. 0:02:00.560 --> 0:02:02.200 You know, I'm the only one that does Matthews. You 0:02:02.360 --> 0:02:04.120 not all this fancy Dan eyes talk. 0:02:04.560 --> 0:02:07.000 You take the ten billion share bibic of Apple, They've 0:02:07.000 --> 0:02:09.000 been doing it for years, divided by free cash flow. 0:02:09.440 --> 0:02:12.680 You take a fifty billion statistic divided by Invidia's free 0:02:12.680 --> 0:02:17.080 cash flow. To me, it was a ginormous announcement. Everybody's 0:02:17.520 --> 0:02:19.560 saying it's not a big deal. Was a share buy 0:02:19.560 --> 0:02:20.280 back a big deal? 0:02:20.360 --> 0:02:23.280 It's a monster deal. And also this also goes to 0:02:23.320 --> 0:02:26.200 a company you go back six months ago out year 0:02:26.240 --> 0:02:29.399 by twenty five two dollars and earnings. Now it's gonna 0:02:29.400 --> 0:02:30.360 be five to six hours. 0:02:30.639 --> 0:02:32.400 I'm extended time here this morning with Dan. 0:02:32.440 --> 0:02:34.840 I's we welcome you all around the world on YouTube, 0:02:34.840 --> 0:02:38.960 on Android, Android auto, Apple car play as well. Okay, 0:02:39.440 --> 0:02:42.240 I go to Apple, I go to the famed aggregation 0:02:42.360 --> 0:02:45.200 of Tom Secunda in the Bloomberg News, and I'm just 0:02:45.240 --> 0:02:49.400 going to read these Paul quickly mashable Apple music playlists 0:02:49.400 --> 0:02:54.120 now transferable to YouTube music. University of Wisconsin denied new 0:02:54.200 --> 0:02:57.560 trial as that go after somebody. Apple orders ten percent 0:02:57.639 --> 0:03:01.920 more iPhones than last year. Apple iPhone seventeen rumored to 0:03:02.080 --> 0:03:05.840 arrive at the Sweeney House before September fifteenth. And on 0:03:06.480 --> 0:03:10.799 the last headline, Dan ives on Bloomberg Right now, I mean, 0:03:10.840 --> 0:03:13.239 here's the news out of Tokyo Shock. 0:03:13.520 --> 0:03:16.280 There's more iPhone orders. How do you translate that? 0:03:16.680 --> 0:03:19.639 I mean, this is the start of an AI driven 0:03:19.720 --> 0:03:22.079 super psych with iPhone sixteen. I think it's gonna be 0:03:22.200 --> 0:03:24.880 historical period. Look, we've talked about a lot on the show. 0:03:25.360 --> 0:03:30.239 Three hundred million of one point five billion iPhones, including Sweeney, 0:03:30.639 --> 0:03:35.520 haven't upgraded in four plus years AI. Twenty five percent 0:03:35.560 --> 0:03:38.320 of the world is going to access AI through an 0:03:38.360 --> 0:03:41.400 Apple device. The consumer revolution all starts top of. 0:03:41.400 --> 0:03:42.400 A push against you. 0:03:42.480 --> 0:03:45.760 Tom Keen and Paul Sweeney don't give a damn about AI. 0:03:46.160 --> 0:03:48.920 We just want an iPhone to know where our kids are. 0:03:49.640 --> 0:03:52.320 What's a big deal about AI if Paul Sweeney's not 0:03:52.360 --> 0:03:53.000 going to use it? 0:03:53.280 --> 0:03:56.160 So that's today. If you look at the app, there's 0:03:56.160 --> 0:04:00.360 gonna be hundreds of apps built on Apple Intelligence that 0:04:00.400 --> 0:04:04.440 are gonna be AI driven as well as this open AI. 0:04:04.560 --> 0:04:06.760 It's good. It's essentially gonna be a personal assistant that 0:04:06.840 --> 0:04:10.800 really from a data perspective, understands Paul Simat understands, can 0:04:11.040 --> 0:04:14.320 understand your habits. This is gonna change. This is how 0:04:14.400 --> 0:04:18.000 most consumers are now going to interact with AI. 0:04:18.880 --> 0:04:22.080 China. What's the latest on China? My concern always in 0:04:22.120 --> 0:04:24.680 the back of my mind is that the average Chinese 0:04:24.720 --> 0:04:27.240 consumer is saying, I'm just not buying an American. Is 0:04:27.279 --> 0:04:30.040 that an issue for Apple in terms of market share? 0:04:30.240 --> 0:04:32.600 I mean, as someone that spends time in the region. 0:04:33.080 --> 0:04:36.840 The average Chinese consumer wants the best product in the world, 0:04:36.920 --> 0:04:40.080 which is an Apple DEVICEE. So I'm not saying that 0:04:40.080 --> 0:04:44.280 there aren't some geopolitical headwinds. We're actually seeing more taal 0:04:44.360 --> 0:04:47.520 wins out of China, especially with iPhones sixteen. You have 0:04:47.560 --> 0:04:49.919 one hundred million iPhones that are basically having upgrade in 0:04:49.920 --> 0:04:52.799 four years. So I think any headwinds there have started 0:04:52.880 --> 0:04:56.320 now come downents. That's why I cook ninety percent CEO, 0:04:56.480 --> 0:04:57.640 ten percent politician. 0:04:57.960 --> 0:04:59.360 Right, yeah, it's smart. 0:04:59.400 --> 0:05:00.839 How about Indian We were just I was just talking 0:05:00.839 --> 0:05:02.920 about this with somebody at the club last night, Tom 0:05:03.000 --> 0:05:05.560 at the bar. We were talking iPhones in India. How 0:05:05.640 --> 0:05:07.000 that came about? I have no idea. 0:05:07.320 --> 0:05:09.159 I want to Were you at the club last night? 0:05:10.000 --> 0:05:13.240 There's no club that would take I want to be 0:05:13.279 --> 0:05:14.120 in that club I was. 0:05:14.360 --> 0:05:16.279 Or were you at the watch party for an video? 0:05:16.760 --> 0:05:20.200 Yes, Wisan Thalt was that whatever. 0:05:21.400 --> 0:05:23.080 I thought Sweeney was going to be at that watch 0:05:23.120 --> 0:05:24.880 but I at. 0:05:24.800 --> 0:05:27.200 Least stay trading off his couch at the cottage. I 0:05:27.720 --> 0:05:30.200 can only say my club last night, I was a club. 0:05:30.279 --> 0:05:31.640 Do the dishes club. 0:05:32.920 --> 0:05:33.520 India? 0:05:33.839 --> 0:05:36.680 What's the opportunity there for Apple in India. Don't they 0:05:36.760 --> 0:05:39.520 have to have a lower price phone in that market. 0:05:39.720 --> 0:05:42.800 But in India you've actually had a rising middle class, 0:05:42.839 --> 0:05:45.080 and I think if you that's always been a tough 0:05:45.120 --> 0:05:49.480 market for Apple. Three percent iPhones we think called it. 0:05:49.600 --> 0:05:51.440 By the next two years, it's going to be ten 0:05:51.480 --> 0:05:54.640 to twelve percent overall iPhones. India is actually going to 0:05:54.680 --> 0:05:57.719 be robust for Apple, especially on different price points. 0:05:57.760 --> 0:06:02.120 How many iPhones are purchased one on a plan from 0:06:02.160 --> 0:06:05.240 a phone company and not where somebody spends eight hundred 0:06:05.279 --> 0:06:06.480 or one thousand dollars on. 0:06:06.440 --> 0:06:08.840 The toy I mean it's a huge number. I mean 0:06:09.040 --> 0:06:11.320 it's a huge number. And if you look at the 0:06:11.440 --> 0:06:14.640 carrier discounts that's gonna come and this is the big thing. 0:06:14.680 --> 0:06:16.960 Do you have information on them you'd like to break 0:06:17.120 --> 0:06:17.680 on Bloomberg. 0:06:17.800 --> 0:06:21.640 So everything we're seeing, we think it was going to 0:06:21.839 --> 0:06:29.720 essentially be unprecedented types of promotion from especially US carriers, 0:06:29.760 --> 0:06:33.080 just because this is the time. In other words, when 0:06:33.160 --> 0:06:35.960 you think about five G when that came out and 0:06:36.000 --> 0:06:38.840 now essentially AI this is really going to be the 0:06:38.880 --> 0:06:42.600 opportunity in terms of carrier discounts and what really starts 0:06:42.720 --> 0:06:46.440 to about maturity on a smartphone cycle. This is now 0:06:47.000 --> 0:06:50.520 that consumer AI revolution that actually will go through Cooper Tino, 0:06:50.760 --> 0:06:53.320 and we think that's how we have a four trillion 0:06:53.400 --> 0:06:55.280 dollar mark cap as we you know, go into early 0:06:55.320 --> 0:06:55.760 next year. 0:06:55.839 --> 0:06:57.520 Do you have some of the parts on Apple you 0:06:57.520 --> 0:06:58.039 can update? 0:06:58.240 --> 0:07:01.520 Yes, so we have one point seven trillion. Is what 0:07:01.839 --> 0:07:05.320 I view is the services value. And when you sort 0:07:05.360 --> 0:07:08.240 of some of the parts that that's something where you know, 0:07:08.240 --> 0:07:10.720 you got about one hundred billion a rev growing mid 0:07:10.760 --> 0:07:14.520 teens free cash margins will double the hardware business. You 0:07:14.640 --> 0:07:17.880 combine it, it's over four trillion. I think bull cases 0:07:18.000 --> 0:07:19.720 ultimately you know over over three. 0:07:19.640 --> 0:07:23.680 Hundred Microsoft, which I know you've been very bullish on Microsoft. 0:07:23.760 --> 0:07:25.119 What's the thought these days? 0:07:25.240 --> 0:07:28.000 You look in a videos call last night, you also 0:07:28.040 --> 0:07:31.160 buy Microsoft because Nadella and Rednu are leading. Then on 0:07:31.200 --> 0:07:34.400 the software side, you look at open Ai, they're really 0:07:34.480 --> 0:07:38.200 dominating in that amount rushmore. That's where Nadella is along 0:07:38.280 --> 0:07:39.080 with Jensen. 0:07:39.440 --> 0:07:44.360 Does Blackwell compete with Azure or do they cohabitate? 0:07:44.560 --> 0:07:49.600 They're complementary. Thing about black I don't so essentially Blackwell 0:07:49.800 --> 0:07:53.920 is almost the architecture, the foundation of a house. Microsoft 0:07:54.400 --> 0:07:58.280 is the actual house, The actual rooms will be different 0:07:58.320 --> 0:08:02.320 software players service now you know called salesforce and others. 0:08:02.360 --> 0:08:07.240 What protects the house, cybersecurity names like pale Auto and others. Look, 0:08:07.280 --> 0:08:11.200 I continue to think in Vidia today, it's Lebron in 0:08:11.280 --> 0:08:15.920 high school. That's essentially where they are. Lebron in high school, 0:08:16.280 --> 0:08:18.160 in Vidia, that's where they are. 0:08:18.840 --> 0:08:22.240 So I guess when we think about this AI spending here, 0:08:22.280 --> 0:08:24.720 the numbers are just almost numbing. 0:08:24.760 --> 0:08:25.600 That is so big. 0:08:26.040 --> 0:08:30.360 How much of the AI capital spending the is it 0:08:30.400 --> 0:08:33.440 incremental versus just taken away from other tech budgets like 0:08:33.480 --> 0:08:34.200 it or something. 0:08:34.320 --> 0:08:38.199 So I'd say about eight hundred billion of the trillion 0:08:39.000 --> 0:08:42.360 is incremental. Wow, so there's two hundred billion that. Of 0:08:42.360 --> 0:08:45.480 course there's accounibalization impact and there will be losers on that, 0:08:45.880 --> 0:08:48.040 but it really is incremental and it just speaks to 0:08:48.480 --> 0:08:50.920 strong and get stronger in tech. And then you can 0:08:50.960 --> 0:08:54.360 say about about regulatory. Regulatory is in a minivan going 0:08:54.400 --> 0:08:56.080 forty miles an hour in the right lane, and the 0:08:56.160 --> 0:08:59.480 technologies in a Ferrari key in the Ferrari left lane 0:08:59.480 --> 0:09:00.640 going one hundred miles an hour. 0:09:00.840 --> 0:09:03.600 What is the free cash flow growth of the mag 0:09:03.760 --> 0:09:07.079 seven When you aggregate them together. There's a secret Excel 0:09:07.240 --> 0:09:09.480 spreadsheet in the basement of the ives. 0:09:09.800 --> 0:09:13.400 Free cash for growth of mag seven is i'd say 0:09:13.559 --> 0:09:16.439 upper teams into potentially. 0:09:16.080 --> 0:09:17.760 Really, you're gonna give me a two zero one. 0:09:17.800 --> 0:09:21.000 I think it could start to now get that high 0:09:21.120 --> 0:09:23.760 as we go into next two three. And that's why, look, 0:09:23.800 --> 0:09:26.920 I get it. The bears continue to you know, they 0:09:26.920 --> 0:09:30.520 sit there with their spreadsheets DCF being negative on tacking. 0:09:30.840 --> 0:09:33.439 But I'm gonna stop there. This is too important. You're 0:09:33.480 --> 0:09:36.360 going to DCF. I asked this with Paul yesterday. How 0:09:36.400 --> 0:09:40.360 do you do with terminal value on these juggernuts? This 0:09:40.440 --> 0:09:42.280 does not see FA one on one, but. 0:09:42.400 --> 0:09:46.040 You have to ultimately trajectory out what the cap BAX 0:09:46.120 --> 0:09:50.680 looks like, what's the incremental dollars and what that ultimately 0:09:50.720 --> 0:09:51.560 means to the wall. 0:09:51.960 --> 0:09:53.360 How far out this dan IVES go. 0:09:53.520 --> 0:09:56.800 You basically have to go out six, eight, ten years 0:09:56.840 --> 0:09:58.720 to actually do a trajector like when you look at 0:09:58.760 --> 0:10:01.640 Microsoft the way they you get four and a half 0:10:01.720 --> 0:10:04.920 five trillion, Okay, just for you have to be it's say, 0:10:04.960 --> 0:10:08.480 how much of percentage of cappacks they're gonna get? What demonization? 0:10:08.800 --> 0:10:12.120 What does the free cash will incrementally look like and 0:10:12.160 --> 0:10:14.400 that's where all these stories change. But then there's other 0:10:14.520 --> 0:10:18.199 names like a pall Andeer, the Messi of AI. It 0:10:18.320 --> 0:10:19.280 wasn't even on the radar. 0:10:19.400 --> 0:10:23.120 Now there n their core AI play. 0:10:23.520 --> 0:10:26.000 Hey Dan, one of the key actributes of your research 0:10:26.080 --> 0:10:27.080 is that you travel the globe. 0:10:27.200 --> 0:10:29.360 You see people all over the place. What's your next trip? 0:10:29.960 --> 0:10:32.079 So we'll be going to Asia on Monday, be there 0:10:32.120 --> 0:10:35.520 for two weeks and look to me, that's where we've got. 0:10:35.600 --> 0:10:38.520 That's where we get edged because I think a lot 0:10:38.600 --> 0:10:41.480 of investors how they've missed AI revolution. They try to 0:10:41.520 --> 0:10:44.760 find it on the Metro North Jersey transit on the 0:10:44.800 --> 0:10:46.640 tenth four of their office building in New York or 0:10:46.640 --> 0:10:49.240 San France. You gotta travel to see it, and I 0:10:49.280 --> 0:10:49.679 think that. 0:10:49.840 --> 0:10:52.720 So what do you see when you go to We see. 0:10:52.480 --> 0:10:56.280 The suppliers, we see the component players. I also think 0:10:56.280 --> 0:11:00.559 by seeing global investors you get a very good ends 0:11:00.600 --> 0:11:02.640 in terms of where things are, and I think it 0:11:02.760 --> 0:11:05.000 just gives you a little more perspective. 0:11:05.040 --> 0:11:08.200 Final, can you convince John Tucker to upgrade this time around? 0:11:08.400 --> 0:11:08.480 No? 0:11:08.640 --> 0:11:12.319 I think I look, I think I think Tucker after 0:11:12.440 --> 0:11:15.400 going to the In Video Watch party last night, that 0:11:15.600 --> 0:11:19.200 he might now potentially upgrade to an iPhone. 0:11:19.920 --> 0:11:22.840 Occursonally Blackwell ship Where have I heard that name? Remember 0:11:22.920 --> 0:11:25.600 mister Blackwell, the guy who did the best and worst 0:11:25.600 --> 0:11:27.400 stress less Oh yeah? Where would. 0:11:29.320 --> 0:11:31.720 I think Kean would be at the top? Keen would 0:11:31.760 --> 0:11:33.440 be at the top, and I'd be and maybe like 0:11:33.520 --> 0:11:34.679 the like other. 0:11:34.559 --> 0:11:39.280 Category and travels hugely valuable. Will curse feature mister Ryes 0:11:39.360 --> 0:11:42.239 mister Munster together today on Bloomberg Surveillance. 0:11:42.280 --> 0:11:54.600 That's the way that we will blog. 0:11:54.920 --> 0:11:57.160 Richie joins us right now for tier price or they 0:11:57.200 --> 0:12:01.160 are wonderful academics out of Beth and l see as 0:12:01.200 --> 0:12:02.080 well Ballerina. 0:12:02.240 --> 0:12:03.679 We had HSBC in here. 0:12:03.720 --> 0:12:06.840 I think it was yesterday, day before with a brilliant 0:12:06.920 --> 0:12:14.000 separation of the consumer in America, not you know, East West, right, 0:12:14.120 --> 0:12:18.160 left politics or anything, but the haves and the have nots. 0:12:18.600 --> 0:12:21.559 How polarized is the American consumer? 0:12:24.280 --> 0:12:26.880 I think there are a couple of ways in which 0:12:26.920 --> 0:12:31.000 you can characterize this. One is the fact that the 0:12:31.160 --> 0:12:34.719 savings buffer and the bounce sheet of the consumer at 0:12:34.760 --> 0:12:39.640 the bottom twenty to forty percent is significantly weaker than 0:12:39.679 --> 0:12:42.920 the rest more well off consumers in the economy. They 0:12:43.040 --> 0:12:46.520 ran out of a pandemic savings sooner, they didn't build 0:12:46.600 --> 0:12:51.040 their cash buffers as much. And also, the other thing 0:12:51.080 --> 0:12:54.240 that has been hitting the lower end consumer more than 0:12:54.520 --> 0:12:59.480 upper income quantiles is inflation. We know that this proportion 0:12:59.559 --> 0:13:03.760 of the enemy spends more on necessities like food and 0:13:03.960 --> 0:13:06.680 energy gas at the pump station, and this is where 0:13:06.760 --> 0:13:11.839 inflation has hit the hardest. I think what has compensated 0:13:12.000 --> 0:13:15.320 a bit for this hardship in terms of inflation and 0:13:15.440 --> 0:13:18.720 cash balances has been the fact that the labor market 0:13:18.760 --> 0:13:23.280 has been so strong and so hot that income growth 0:13:23.280 --> 0:13:28.520 and wage increases have been higher for those workers at 0:13:28.559 --> 0:13:31.080 the lower end of the skill or the lower end 0:13:31.160 --> 0:13:34.560 of the income distribution. So we've seen average hourly earnings 0:13:34.600 --> 0:13:40.080 for retail hospitality increase more than other services parts of 0:13:40.120 --> 0:13:40.760 the economy. 0:13:41.920 --> 0:13:46.680 So Blarina, what did you make given that backdrop of 0:13:47.480 --> 0:13:50.920 this economy is still pretty solid position? But the FED 0:13:51.000 --> 0:13:54.080 on Friday add in Jacksonville, FED Chairman jpald seemed to 0:13:54.200 --> 0:13:57.600 really really signal that they are open to cutting ridge 0:13:57.640 --> 0:14:00.320 as soon as September. Is that seen reason to you? 0:14:02.040 --> 0:14:05.240 So? I think this has been he telegraphed pretty well 0:14:05.280 --> 0:14:07.400 that September is now a done deal, and I think 0:14:07.440 --> 0:14:11.280 for the market is the question is what will be 0:14:11.400 --> 0:14:15.280 the size of the cuts initially and the pace going forward. 0:14:15.360 --> 0:14:19.080 We still don't have much clarity about the terminal rate 0:14:19.240 --> 0:14:22.720 in this business cycle. And notable that Sir Powell again 0:14:22.840 --> 0:14:25.960 did not comment on our star and at Librium interest rates. 0:14:26.120 --> 0:14:28.520 So I think we have a bit more uncertainty about 0:14:28.520 --> 0:14:31.880 the pace of cuts and the terminal rate. But we're 0:14:31.920 --> 0:14:34.600 starting the cutting cycle. To your question, is this the 0:14:34.720 --> 0:14:37.640 right thing? Why are we starting to have interest rates 0:14:37.640 --> 0:14:40.160 at this point? We go back to the labor market. 0:14:40.200 --> 0:14:43.200 When you look at the July payroll report, we're talking 0:14:43.240 --> 0:14:45.760 about the magnificent sevens in the stock market. We have 0:14:45.800 --> 0:14:50.120 a magnificent five in the labor market, with government, education, 0:14:52.120 --> 0:14:56.240 health services, retail, hospitality driving about one hundred k of 0:14:56.280 --> 0:14:59.560 the job increase. In total, the economy produced one hundred 0:14:59.600 --> 0:15:02.600 and forty k net jobs, so you see how much 0:15:02.960 --> 0:15:06.360 of job creation is being driven by this subsector. And 0:15:06.400 --> 0:15:10.400 I think the FED is worried that tight interest rates 0:15:10.400 --> 0:15:13.520 are high interest rates are restricting growth in the other 0:15:13.600 --> 0:15:17.720 more interest rates sensitive parts of the economy, and that's 0:15:17.920 --> 0:15:20.200 why I think they don't want to be behind the curve. 0:15:20.520 --> 0:15:23.800 They want to start that easy cycle to make sure 0:15:23.800 --> 0:15:27.880 we don't have a more abrupt labor market correction. 0:15:28.120 --> 0:15:30.400 Okay, I'll go there, but give me the horse in 0:15:30.440 --> 0:15:32.240 the cart, Loreina. This is what you do when you 0:15:32.480 --> 0:15:35.440 when you have a master some lscy nail the horse 0:15:35.480 --> 0:15:38.040 in the cart, Laurina, give me the horse in the cart. 0:15:38.280 --> 0:15:42.200 The bond market's clearly signaling price up, yield down. 0:15:42.240 --> 0:15:42.960 Not like China. 0:15:43.040 --> 0:15:46.400 It's a different story. Is the bond market ahead of 0:15:46.400 --> 0:15:50.320 the Fed? Or when the Fed cuts, do we get 0:15:50.440 --> 0:15:53.160 further price up yield down in bonds. 0:15:55.520 --> 0:15:58.640 I think the market is ahead of the Fed. My 0:15:58.880 --> 0:16:03.040 view is that we do have such softening inactivity and 0:16:03.120 --> 0:16:06.080 some loosening in the labor market, but the economy is 0:16:06.120 --> 0:16:09.040 not weak, and so what we're seeing in this business 0:16:09.040 --> 0:16:11.680 cycle is that the market gets way ahead of the Fed. 0:16:11.760 --> 0:16:16.080 This happened back in December January as well. That loosens 0:16:16.160 --> 0:16:18.920 financial conditions, and in some way it provides a bit 0:16:18.920 --> 0:16:22.200 of a positive impulse, growth impulse to the economy. I 0:16:22.200 --> 0:16:25.240 think we're doing that again now. But the economy overall 0:16:25.400 --> 0:16:28.360 is not weak. I don't think we are about to 0:16:28.480 --> 0:16:31.040 enter a recession, and so the market I think has 0:16:31.040 --> 0:16:34.240 gone ahead of itself, is probably pricing in more cuts 0:16:34.280 --> 0:16:36.880 than the FED needs to deliver. Now, let's be clear. 0:16:36.960 --> 0:16:40.200 I think the FED wants to start easing monetary policy, 0:16:40.640 --> 0:16:43.520 wants to bring interest rates in a place where they 0:16:43.560 --> 0:16:46.400 are more balanced, not as restrictive as they are right now. 0:16:46.600 --> 0:16:48.480 But I don't think that they'll go all the way 0:16:48.480 --> 0:16:50.440 to where the market is in the next twelve months. 0:16:51.080 --> 0:16:54.240 Blarina, we had the you mentioned you were talking about 0:16:54.400 --> 0:16:58.000 the labor market here, we had the s rule presumably 0:16:58.040 --> 0:17:01.800 indicated that we're in a recession. Does that seem reasonable 0:17:01.840 --> 0:17:02.040 to you? 0:17:03.600 --> 0:17:07.120 I mean, this is a very interesting question. It's chir 0:17:07.280 --> 0:17:11.840 Powell characterized it as a statistical normalcy, something that has 0:17:11.920 --> 0:17:15.000 tended to happen historically, and it's very unusual that this 0:17:15.119 --> 0:17:17.520 time round we're seeing this type of increase in the 0:17:17.600 --> 0:17:22.320 unemployment rate with the economy being as strong as it is. Historically, 0:17:22.359 --> 0:17:25.000 when the unemployment rate has increased so much, we've had 0:17:25.320 --> 0:17:30.640 negative consumer spending growth, We've had weakness in industrial production, 0:17:30.800 --> 0:17:34.000 much more pronounced than where it is right now. So 0:17:34.200 --> 0:17:37.800 I think there is something here we need to take 0:17:38.119 --> 0:17:41.199 signal from the loosening in the labor market, but I 0:17:41.240 --> 0:17:43.720 don't think that the predictive power of the sum rule 0:17:43.800 --> 0:17:46.600 this time around is as powerful as it's been in 0:17:46.640 --> 0:17:47.119 the past. 0:17:47.400 --> 0:17:49.639 Blurina, thank you for the brief this morning with t 0:17:50.000 --> 0:17:51.119 Rowe Price, Baltimore. 0:17:51.960 --> 0:17:53.480 The Blurina arote you with. 0:17:53.520 --> 0:18:00.879 US joining US now does better math then Sarah House, 0:18:01.440 --> 0:18:02.280 US economist. 0:18:02.359 --> 0:18:03.520 It will's Fargo. 0:18:03.680 --> 0:18:07.600 Sarah, excuse me, am, I off the mark to take 0:18:07.720 --> 0:18:11.359 three percent real GDP, add in a GDP price index 0:18:11.400 --> 0:18:14.960 a two point five, and I've got nominal GDP above 0:18:15.000 --> 0:18:15.760 five percent. 0:18:17.119 --> 0:18:20.040 That's how you do it. You're the math twist on. 0:18:21.320 --> 0:18:24.719 Well, what's its signal? I'm sorry, that's a solid ecadomy. 0:18:24.760 --> 0:18:27.480 That's morning in America right now. 0:18:27.560 --> 0:18:29.800 It still signals that the US economy is in very 0:18:29.800 --> 0:18:33.640 good shape. I think that upward revision in consumer spending 0:18:33.720 --> 0:18:36.639 is pretty telling that even I think with some of 0:18:36.640 --> 0:18:38.720 the slow down in income growth, it doesn't seem like 0:18:38.760 --> 0:18:42.439 there's much to stop the US consumer as of now. 0:18:42.560 --> 0:18:45.480 So still looking like pretty good momentum as we head 0:18:45.520 --> 0:18:49.399 into the third quarter, and I think as we look ahead, 0:18:49.440 --> 0:18:53.760 though still expecting a moderation just given that in some ways, 0:18:53.800 --> 0:18:57.040 well despite all the strength that there, it is difficult 0:18:57.080 --> 0:19:00.400 to sustain, I think, given that that income back in here. 0:19:00.440 --> 0:19:02.320 But let me just finish the thought, let me close 0:19:02.359 --> 0:19:06.399 the loop. What is the Wells Fargo micro data of 0:19:06.440 --> 0:19:08.439 the quarter ending September thirty. 0:19:10.320 --> 0:19:13.120 Yeah, so we're looking for a step down in consumer spending, 0:19:13.160 --> 0:19:15.919 even as you did get a very strong start to 0:19:15.960 --> 0:19:18.520 the quarter. So we saw that in the July retail sales. 0:19:18.560 --> 0:19:23.080 We're expecting another pretty strong print in tomorrow's personal personal 0:19:23.119 --> 0:19:26.119 spending numbers. But I think as we move through the quarter, 0:19:26.200 --> 0:19:28.240 this down shift that we've seen in job growth, the 0:19:28.280 --> 0:19:31.919 downshift that we've seen in nominal wage growth, the fact 0:19:31.920 --> 0:19:35.440 that the excess savings from the pandemic have run dry 0:19:35.560 --> 0:19:39.080 for most households, and also credit growth is running below 0:19:39.240 --> 0:19:42.879 inflation for the consumer sector, it does mean that I 0:19:42.920 --> 0:19:46.560 think this almost three percent pace of consumer spending that 0:19:46.600 --> 0:19:50.159 we saw on the second quarter isn't going to be maintained. 0:19:50.440 --> 0:19:53.240 All right, Sarah, given that backdrop for the consumer spending, 0:19:53.240 --> 0:19:55.720 giving the backshop of the GDP print we just saw today, 0:19:56.160 --> 0:19:57.679 how do you put in context what we heard from 0:19:57.680 --> 0:20:00.879 FED Chairman j Palas Friday and Jackson Hole that the 0:20:00.960 --> 0:20:05.800 time has come for policy to adjust I think that's right. 0:20:05.920 --> 0:20:08.879 So when we look across the US economy, again, the 0:20:08.920 --> 0:20:13.800 consumer is still spending, but the fundamentals are weakening. And really, 0:20:13.800 --> 0:20:17.480 when it comes down the consumer, it's increasingly important what's 0:20:17.520 --> 0:20:20.960 happening with the jobs market. And so I think given 0:20:21.000 --> 0:20:24.680 the moderation that we've seen in hiring, so forget even 0:20:24.800 --> 0:20:27.800 the backward looking benchmarks, but even just over the past 0:20:27.840 --> 0:20:30.280 four months, where you've seen hiring at just a little 0:20:30.320 --> 0:20:32.760 over a one hundred and fifty thousand pace, what we're 0:20:32.760 --> 0:20:35.240 seeing in terms of the increase in the unemployment rate, 0:20:35.400 --> 0:20:39.240 not just the temporary layoffs but the permanent job losers. 0:20:39.359 --> 0:20:42.680 That the labor market has softened quite a bit. It's 0:20:42.760 --> 0:20:45.280 back to where it was before the pandemic, if not 0:20:45.440 --> 0:20:48.159 a little bit softer. So if we don't want to 0:20:48.200 --> 0:20:50.720 see the labor market break, it's time to dial back 0:20:50.840 --> 0:20:54.720 the degree of restrictiveness that we currently have said policy. 0:20:54.240 --> 0:20:56.879 At DoD they dial it back by twenty five basis 0:20:56.880 --> 0:20:59.520 points or fifty basis points in September, and does that 0:20:59.560 --> 0:20:59.960 even matter. 0:21:01.600 --> 0:21:05.000