1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,400 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,360 Speaker 2: Terminal and the Bloomberg Business app. We begin this hour 10 00:00:37,680 --> 00:00:40,200 Speaker 2: with Stock's inchin Kaya, following a three day to client, 11 00:00:40,280 --> 00:00:43,040 Speaker 2: Brian Leavett oven Vesco, writing the story is far from 12 00:00:43,080 --> 00:00:46,360 Speaker 2: fully written. We expect leadership to rotate as the market 13 00:00:46,400 --> 00:00:50,080 Speaker 2: differentiates actual earnings leverage from all the hype. 14 00:00:50,200 --> 00:00:51,960 Speaker 3: Brian joined us now for more. Bran, good morning, Good 15 00:00:51,960 --> 00:00:52,720 Speaker 3: to see you see. 16 00:00:53,000 --> 00:00:55,400 Speaker 2: What was the last twenty four hours about compared to 17 00:00:55,440 --> 00:00:56,720 Speaker 2: the previous two days. 18 00:00:57,120 --> 00:00:59,360 Speaker 4: I would say that this is a market that's been 19 00:00:59,560 --> 00:01:03,120 Speaker 4: letting off some steam, certainly in the hotter parts of 20 00:01:03,160 --> 00:01:06,479 Speaker 4: the market, and primarily I think you got to look 21 00:01:06,520 --> 00:01:08,880 Speaker 4: if you look at the broad index level, these markets 22 00:01:08,920 --> 00:01:10,720 Speaker 4: are not down all that much. I mean, Na's deck 23 00:01:10,840 --> 00:01:13,160 Speaker 4: down five percent over the last five days, is in 24 00:01:13,240 --> 00:01:16,319 Speaker 4: great SMP a couple of percent. It's really the carnage 25 00:01:16,319 --> 00:01:18,440 Speaker 4: being hit in the software stocks and some of the 26 00:01:18,480 --> 00:01:20,600 Speaker 4: more speculative parts of the market. You see it in 27 00:01:21,319 --> 00:01:24,319 Speaker 4: things like what happened with silver prices and bitcoin. But 28 00:01:24,600 --> 00:01:27,760 Speaker 4: the reality is, when you look at all the investment 29 00:01:27,840 --> 00:01:30,520 Speaker 4: that's likely to take place, we can parse whether the 30 00:01:30,520 --> 00:01:32,160 Speaker 4: big companies at the top of the S and P 31 00:01:32,280 --> 00:01:34,679 Speaker 4: five hundred are right to do so. But if you 32 00:01:34,720 --> 00:01:38,080 Speaker 4: look at industrials, if you look at energy, if you 33 00:01:38,160 --> 00:01:42,240 Speaker 4: look at the semiconductors, it's all held up fairly nicely. 34 00:01:42,319 --> 00:01:45,360 Speaker 4: And it's all part of that rotation story that we're 35 00:01:45,400 --> 00:01:49,320 Speaker 4: talking about. Less about who's going to win in that space, 36 00:01:49,360 --> 00:01:51,080 Speaker 4: because that's going to be a big investment to win 37 00:01:51,120 --> 00:01:53,640 Speaker 4: in that space, versus who's going to help support this 38 00:01:53,760 --> 00:01:54,320 Speaker 4: build out. 39 00:01:55,240 --> 00:01:56,480 Speaker 5: That story continues to play. 40 00:01:56,560 --> 00:01:58,920 Speaker 2: That's certainly found real up until yesterday, and then the 41 00:01:58,960 --> 00:02:01,720 Speaker 2: real economy scat kind of clicked in just a little bit. 42 00:02:01,760 --> 00:02:03,520 Speaker 3: I don't want to overdo it, just a little bit. 43 00:02:03,680 --> 00:02:05,720 Speaker 2: A couple of data points poking holes in a billcase 44 00:02:05,720 --> 00:02:07,920 Speaker 2: for the ubst economy. That's something we need to talk about. 45 00:02:07,920 --> 00:02:10,720 Speaker 2: Because people were piling into small caps that were comfortable 46 00:02:10,720 --> 00:02:13,040 Speaker 2: in the equal weight close to all time highs. Should 47 00:02:13,080 --> 00:02:14,520 Speaker 2: they still be comfortable with those traits? 48 00:02:14,600 --> 00:02:15,200 Speaker 5: Yeah? I think so. 49 00:02:15,480 --> 00:02:17,880 Speaker 4: Let's remember we started the week with one of the 50 00:02:17,880 --> 00:02:20,640 Speaker 4: great leading indicators of the economy, the Institute for Supply 51 00:02:20,800 --> 00:02:25,639 Speaker 4: Management Purchasing Managers Index, which surged and climbed to fifty two. 52 00:02:25,720 --> 00:02:28,360 Speaker 4: That's an expansion territory. We had not been there in 53 00:02:28,480 --> 00:02:33,280 Speaker 4: quite a while. The New Order's component particularly strong within it, 54 00:02:33,280 --> 00:02:36,720 Speaker 4: and prices paid relatively flat. So that's a good leading 55 00:02:36,720 --> 00:02:39,960 Speaker 4: indicator of the economy. Now, when you think about the 56 00:02:40,080 --> 00:02:44,080 Speaker 4: jobs market, yeah, jobless claims rose yesterday. Two hundred and 57 00:02:44,120 --> 00:02:49,880 Speaker 4: fifty thousand is not a blowout jobless claim number, and 58 00:02:50,240 --> 00:02:52,639 Speaker 4: it's also a little bit of a heads you win, 59 00:02:52,840 --> 00:02:55,600 Speaker 4: tails you win type of scenario because the weakness in 60 00:02:55,680 --> 00:02:59,200 Speaker 4: the economy suggests what I've always believed is lower interest 61 00:02:59,280 --> 00:03:02,240 Speaker 4: rates on the shore end of the curve, which should 62 00:03:02,320 --> 00:03:05,959 Speaker 4: continue to benefit lower capitalization stocks, more. 63 00:03:05,880 --> 00:03:06,800 Speaker 5: Value oriented stocks. 64 00:03:06,840 --> 00:03:08,600 Speaker 4: So I'm not ready to say that this is a 65 00:03:09,080 --> 00:03:12,760 Speaker 4: economy that's rolling over. Credit spreads continue to remain tight, 66 00:03:13,040 --> 00:03:17,720 Speaker 4: leading indicators are picking up, inflation expectations relatively containing. I 67 00:03:17,760 --> 00:03:19,519 Speaker 4: think the FED is going to be bringing rates down 68 00:03:19,520 --> 00:03:20,400 Speaker 4: towards three percent. 69 00:03:20,560 --> 00:03:22,359 Speaker 6: It might not be an economy that's rolling over, but 70 00:03:22,400 --> 00:03:25,120 Speaker 6: it's a really confusing economy. And Amazon exemplifies it in 71 00:03:25,120 --> 00:03:27,640 Speaker 6: a perfect way. On one hand, they were behind a 72 00:03:27,680 --> 00:03:30,400 Speaker 6: significant portion of some of those job cut announcements that 73 00:03:30,440 --> 00:03:33,000 Speaker 6: we got from Challenger Gray and Christmas yesterday. On the 74 00:03:33,040 --> 00:03:35,320 Speaker 6: same level, they're going to be spending two hundred billion 75 00:03:35,360 --> 00:03:37,720 Speaker 6: dollars so far this year. How important is it for 76 00:03:37,800 --> 00:03:40,760 Speaker 6: us to understand exactly what they are spending this money 77 00:03:40,800 --> 00:03:43,680 Speaker 6: on to be able to infer what kind of growth 78 00:03:43,880 --> 00:03:46,600 Speaker 6: and benefit to the underlying economy that actually will look like. 79 00:03:46,720 --> 00:03:49,760 Speaker 4: Yeah, it's important, But if you take each component of 80 00:03:50,000 --> 00:03:53,720 Speaker 4: economic activity, you take the consumer, we have to remember that, yeah, 81 00:03:53,760 --> 00:03:56,480 Speaker 4: things may be weakening a little bit. Household net worth 82 00:03:56,600 --> 00:04:00,120 Speaker 4: is at an all time high, unemployments relatively load, the 83 00:04:00,120 --> 00:04:02,800 Speaker 4: business investment we know is going to be big, as 84 00:04:02,840 --> 00:04:05,440 Speaker 4: you mentioned, and the government spend is going to be 85 00:04:05,480 --> 00:04:07,680 Speaker 4: reasonable this year, not only in the United States but 86 00:04:07,720 --> 00:04:11,080 Speaker 4: many parts of the world. So in aggregate, that's a 87 00:04:11,320 --> 00:04:15,120 Speaker 4: good economic backdrop. Now when you think of this investment 88 00:04:15,200 --> 00:04:17,719 Speaker 4: that's going to take place, There's a lot of parts 89 00:04:17,720 --> 00:04:21,480 Speaker 4: of the economy that should benefit from in and again, 90 00:04:21,640 --> 00:04:22,680 Speaker 4: industrials rallying. 91 00:04:22,880 --> 00:04:25,960 Speaker 5: Energy has been rallying. Semiconductors were up fifteen. 92 00:04:25,680 --> 00:04:28,000 Speaker 4: Percent year to date before this week, So I think 93 00:04:28,040 --> 00:04:32,000 Speaker 4: that that story persists. Would I be diving back into 94 00:04:32,040 --> 00:04:34,960 Speaker 4: software companies this morning after the self, No, I'd be 95 00:04:35,080 --> 00:04:39,880 Speaker 4: mindful of that, But I think the real economic story continues, and. 96 00:04:39,760 --> 00:04:42,760 Speaker 6: This is arguably the main reason for the broadening out trade. 97 00:04:43,080 --> 00:04:44,480 Speaker 6: Real question right now is do you go into the 98 00:04:44,520 --> 00:04:46,880 Speaker 6: hyperscalers given the fact that their business model seems to 99 00:04:46,880 --> 00:04:50,360 Speaker 6: be changing from asset light to basically glorified utilities and 100 00:04:50,400 --> 00:04:51,279 Speaker 6: real estate managers. 101 00:04:51,360 --> 00:04:54,280 Speaker 4: Yeah, I mean I would go case by case. 102 00:04:54,320 --> 00:04:55,560 Speaker 5: It's certainly not a monolith. 103 00:04:55,920 --> 00:04:58,440 Speaker 4: Big story last year was that only two of the 104 00:04:58,560 --> 00:05:02,479 Speaker 4: seven mag seven perform the market, and you're right, these 105 00:05:02,480 --> 00:05:04,840 Speaker 4: stories have changed significantly. I mean, the things that we 106 00:05:04,920 --> 00:05:07,400 Speaker 4: loved about some of these businesses with that they were 107 00:05:07,400 --> 00:05:11,719 Speaker 4: near monopolistic, they did not have significant investment needs, and 108 00:05:11,760 --> 00:05:14,599 Speaker 4: that all changes. So you've got to go company by company, 109 00:05:14,600 --> 00:05:16,800 Speaker 4: be far more selective and can't say I'm just going 110 00:05:16,839 --> 00:05:17,800 Speaker 4: to own the. 111 00:05:17,800 --> 00:05:20,640 Speaker 5: Whole lot of them. There will be winners, there will 112 00:05:20,680 --> 00:05:23,120 Speaker 5: be losers. Those business models have changed. 113 00:05:23,279 --> 00:05:25,120 Speaker 1: Right you say, you're not going to wake up this 114 00:05:25,200 --> 00:05:27,440 Speaker 1: morning and just go dive in and pick up some 115 00:05:27,920 --> 00:05:29,200 Speaker 1: software company stock. 116 00:05:29,640 --> 00:05:31,839 Speaker 7: Why not? Why isn't this a bibedit moment? 117 00:05:32,600 --> 00:05:34,400 Speaker 4: Because for a lot of them, we still need to 118 00:05:34,760 --> 00:05:37,760 Speaker 4: understand what does this really mean for the business model? 119 00:05:37,760 --> 00:05:39,960 Speaker 5: And we knew all along AI. 120 00:05:39,839 --> 00:05:43,120 Speaker 4: Is going to be quite disruptive for a lot of businesses. 121 00:05:43,160 --> 00:05:46,120 Speaker 4: The question that investors should ask themselves over the next 122 00:05:46,120 --> 00:05:49,960 Speaker 4: few years is it disruptive to more businesses than it 123 00:05:50,000 --> 00:05:52,880 Speaker 4: is beneficial or is it beneficial to more businesses than 124 00:05:52,920 --> 00:05:53,760 Speaker 4: it is disruptive. 125 00:05:53,760 --> 00:05:55,560 Speaker 5: And I'm still in the ladder camp. 126 00:05:55,880 --> 00:05:57,919 Speaker 4: There is a lot of companies that are going to 127 00:05:57,960 --> 00:06:02,000 Speaker 4: benefit significantly from the AI build. You're already seeing profits 128 00:06:02,080 --> 00:06:07,279 Speaker 4: high with employment, you know, profits to employment not significantly elevated. 129 00:06:07,400 --> 00:06:10,560 Speaker 4: So we're in about right now where we're looking about. 130 00:06:10,640 --> 00:06:13,320 Speaker 4: We're looking at the disruption, which always happens when there's 131 00:06:13,360 --> 00:06:17,360 Speaker 4: technological advances, but history suggests that there's always far more 132 00:06:17,400 --> 00:06:18,720 Speaker 4: beneficiaries than there are. 133 00:06:19,120 --> 00:06:20,320 Speaker 5: Businesses are different. 134 00:06:20,560 --> 00:06:23,400 Speaker 2: For you, though, A self described fomo guy who's not 135 00:06:23,440 --> 00:06:25,960 Speaker 2: willing to lean into where the pain is right now, 136 00:06:26,000 --> 00:06:27,760 Speaker 2: is it fair to say a bit of a change, 137 00:06:27,800 --> 00:06:28,839 Speaker 2: a bit of a change. 138 00:06:28,880 --> 00:06:30,880 Speaker 4: But I'm always looking for opportunities, so I have a 139 00:06:30,880 --> 00:06:34,120 Speaker 4: fear of missing out, you know, across the broad market. 140 00:06:34,240 --> 00:06:36,400 Speaker 4: And so it doesn't mean that I need to always 141 00:06:36,440 --> 00:06:40,599 Speaker 4: be buying into dips or into you know, falling knives, 142 00:06:41,040 --> 00:06:43,800 Speaker 4: just looking for where the opportunities lie. And you know 143 00:06:43,880 --> 00:06:47,800 Speaker 4: again that that fomo is good. That phomo doesn't always exist, Jonathan, 144 00:06:47,880 --> 00:06:50,600 Speaker 4: most of the time, and it exists when leading indicators 145 00:06:50,600 --> 00:06:52,680 Speaker 4: of the economy are improving and the FED wants to ease. 146 00:06:52,680 --> 00:06:54,560 Speaker 2: I'm definitely a fact at times this has found like 147 00:06:54,600 --> 00:06:57,760 Speaker 2: a falling chainsaw and not a falling knife. Stay with 148 00:06:57,880 --> 00:07:10,800 Speaker 2: us more Bloomberg Surveillance coming up after this, So can wait. 149 00:07:10,840 --> 00:07:11,440 Speaker 3: The labor market. 150 00:07:11,520 --> 00:07:13,640 Speaker 2: This is what Stephanie Rotherwolf Research has got to say 151 00:07:13,640 --> 00:07:16,280 Speaker 2: to that, Well, the data was disappointing. We wouldn't read 152 00:07:16,320 --> 00:07:18,960 Speaker 2: too much into the latest prints, nor are we changing 153 00:07:19,040 --> 00:07:21,800 Speaker 2: un view that the labor markets should improve from here. 154 00:07:21,880 --> 00:07:24,680 Speaker 2: Stephanie joins us now for more. Stephanie, good morning. Why 155 00:07:24,680 --> 00:07:29,280 Speaker 2: should we ignore challenger jobless claims and jelts okay. 156 00:07:29,040 --> 00:07:33,679 Speaker 8: For claims, they were two hundred and thirty thousand. Historically speaking, 157 00:07:33,800 --> 00:07:36,040 Speaker 8: that's not such a bad reading. There was a lot 158 00:07:36,080 --> 00:07:38,720 Speaker 8: of weather disruption that week. When we're talking about Challenger, 159 00:07:39,040 --> 00:07:40,760 Speaker 8: a lot of what was driven by UPS, which had 160 00:07:40,760 --> 00:07:44,640 Speaker 8: a similar announcement last year, and the Challenger set itself 161 00:07:44,960 --> 00:07:49,000 Speaker 8: that it's going to be driven by attrition and voluntary 162 00:07:49,000 --> 00:07:50,400 Speaker 8: separations are the big part of it. 163 00:07:50,600 --> 00:07:51,400 Speaker 9: Another reason for. 164 00:07:51,400 --> 00:07:55,040 Speaker 8: Challenger was Amazon, So the bulk of the news was 165 00:07:55,080 --> 00:07:59,000 Speaker 8: coming from either Tier three data or data that's not 166 00:07:59,000 --> 00:08:02,120 Speaker 8: necessarily indicative of market that's actually detraating from here, We'll 167 00:08:02,120 --> 00:08:04,160 Speaker 8: have to see what payroll shows, and our sense is 168 00:08:04,200 --> 00:08:06,760 Speaker 8: that next week we'll learn that payrolls for January were 169 00:08:06,760 --> 00:08:08,480 Speaker 8: fairly decent, and then of course there will be those 170 00:08:08,520 --> 00:08:09,080 Speaker 8: download visions. 171 00:08:09,120 --> 00:08:11,440 Speaker 6: Historically, I'm totally with you and I got the Challenger 172 00:08:11,520 --> 00:08:13,880 Speaker 6: jobs cuts. We are all looking at the idea that 173 00:08:13,920 --> 00:08:16,280 Speaker 6: this was really concentrated in three companies that have already 174 00:08:16,280 --> 00:08:18,520 Speaker 6: announced a lot of these job cuts. Then the jobless 175 00:08:18,520 --> 00:08:20,400 Speaker 6: claims come out, Yeah, it's a an eight week high, 176 00:08:20,440 --> 00:08:23,520 Speaker 6: but ultimately still at a pretty low level. Then Joelts 177 00:08:23,600 --> 00:08:25,800 Speaker 6: comes out and you look at it and it's saying, look, 178 00:08:25,840 --> 00:08:28,120 Speaker 6: we're looking at the lowest job opening is going back 179 00:08:28,160 --> 00:08:30,920 Speaker 6: to twenty twenty eight. How many of these can you 180 00:08:31,000 --> 00:08:33,560 Speaker 6: explain off before you start to get a little self conscious. 181 00:08:33,559 --> 00:08:36,000 Speaker 6: Wait a second, maybe something else is going on here. 182 00:08:36,360 --> 00:08:38,360 Speaker 8: I think you have to take a step back and 183 00:08:38,800 --> 00:08:42,960 Speaker 8: reassess your view. But our sense is one the consumer 184 00:08:43,000 --> 00:08:45,240 Speaker 8: path is pretty good. We're gonna also have fiscal simulus 185 00:08:45,240 --> 00:08:48,720 Speaker 8: that it's starting to hit the momentum. 186 00:08:48,920 --> 00:08:50,560 Speaker 9: It seems to be improving. 187 00:08:50,600 --> 00:08:52,520 Speaker 8: If you look rewind just a couple of days ago, 188 00:08:52,559 --> 00:08:54,599 Speaker 8: we were looking at the ism and we're starting to 189 00:08:54,600 --> 00:08:56,760 Speaker 8: get questions of is this early cycle? So how can 190 00:08:56,800 --> 00:08:58,439 Speaker 8: it be both early cycle and late cycle at the 191 00:08:58,440 --> 00:09:01,920 Speaker 8: same time. Our sense is that we are starting to 192 00:09:02,240 --> 00:09:06,120 Speaker 8: improve cyclically. There were some negative news from some of 193 00:09:06,160 --> 00:09:08,600 Speaker 8: these data sources that's probably not indicative of the trend. 194 00:09:08,640 --> 00:09:11,600 Speaker 8: This happens very frequently, especially in the month of January, 195 00:09:11,640 --> 00:09:15,600 Speaker 8: where you get some prints, especially associated with layoff news, 196 00:09:15,600 --> 00:09:16,560 Speaker 8: which tends to be. 197 00:09:16,640 --> 00:09:17,720 Speaker 9: A January phenomenon. 198 00:09:17,800 --> 00:09:20,880 Speaker 6: Well, maybe it's early cycle for fiber optic cables, but 199 00:09:20,920 --> 00:09:22,880 Speaker 6: it's late cycle for humans that are actually trying to 200 00:09:22,960 --> 00:09:25,200 Speaker 6: enter the workforce. I mean, how much do you glean 201 00:09:25,520 --> 00:09:28,800 Speaker 6: that some of this weakness truly is coming from less 202 00:09:28,880 --> 00:09:33,000 Speaker 6: human intensive jobs that really result from some of the 203 00:09:33,000 --> 00:09:36,040 Speaker 6: capital expenditures that are supporting economic growth. 204 00:09:36,480 --> 00:09:37,720 Speaker 9: There might be an element of that. 205 00:09:37,920 --> 00:09:40,079 Speaker 8: So we were in some estimates looking at the rising 206 00:09:40,160 --> 00:09:42,520 Speaker 8: unemployment rate since CHACHINGBT. 207 00:09:42,160 --> 00:09:44,360 Speaker 9: Launched, and we found out about half of the rise the. 208 00:09:44,360 --> 00:09:46,520 Speaker 8: Unemployment rate was tied to AI, and then the other 209 00:09:46,520 --> 00:09:50,200 Speaker 8: half was more cyclical in nature. So the extent to 210 00:09:50,240 --> 00:09:52,040 Speaker 8: which sure, there is half of it that is structural 211 00:09:52,040 --> 00:09:54,440 Speaker 8: that will probably continue to rise, but the portion of 212 00:09:54,480 --> 00:09:57,080 Speaker 8: it that is cyclical might actually reverse this year. If 213 00:09:57,120 --> 00:10:00,240 Speaker 8: we actually do get a cyclical improvement in the economy. 214 00:10:00,040 --> 00:10:02,080 Speaker 9: You do think that you could see about one to. 215 00:10:02,120 --> 00:10:04,160 Speaker 8: Two tenths of downward pressure and the unemployment rate this 216 00:10:04,200 --> 00:10:07,760 Speaker 8: year just because of economic uncertainty fading given last year 217 00:10:07,840 --> 00:10:11,280 Speaker 8: was true peak peak tariff uncertainty UH a modest improvement 218 00:10:11,280 --> 00:10:13,720 Speaker 8: in the consumer in which case you could see some 219 00:10:14,440 --> 00:10:16,560 Speaker 8: modest hiring across the global industries. 220 00:10:16,720 --> 00:10:19,520 Speaker 1: Chechiat is launched in twenty twenty two and they're taking 221 00:10:19,559 --> 00:10:20,760 Speaker 1: fifty percent of the jobs right now. 222 00:10:20,800 --> 00:10:22,400 Speaker 7: How does the FED deal with that? 223 00:10:23,520 --> 00:10:25,160 Speaker 9: It's I it's a tough backdrop. 224 00:10:25,200 --> 00:10:27,800 Speaker 8: I think they have to be thinking about the productivity, 225 00:10:27,800 --> 00:10:30,000 Speaker 8: and it's kind of a call about whether this is 226 00:10:30,480 --> 00:10:35,800 Speaker 8: product a productivity cycle, there's no harm in waiting at 227 00:10:35,880 --> 00:10:37,120 Speaker 8: least through the middle part of the year, which is 228 00:10:37,120 --> 00:10:39,360 Speaker 8: probably what the Fed's gonna ultimately end up doing, and 229 00:10:39,400 --> 00:10:39,760 Speaker 8: then in the. 230 00:10:39,720 --> 00:10:41,439 Speaker 9: Back part of the year they could probably caught a 231 00:10:41,440 --> 00:10:42,000 Speaker 9: couple more. 232 00:10:41,840 --> 00:10:44,760 Speaker 8: Times, and Warsh is gonna gonna guide them towards that 233 00:10:45,240 --> 00:10:47,200 Speaker 8: because that will be an environment where inflation is also 234 00:10:47,240 --> 00:10:50,079 Speaker 8: starting to fade. You when in productivity cycles you don't 235 00:10:50,120 --> 00:10:51,840 Speaker 8: have inflation problems. 236 00:10:51,840 --> 00:10:53,199 Speaker 9: At the same time the growth is strong. 237 00:10:53,400 --> 00:10:55,000 Speaker 8: So if we start to see that inflation cools down, 238 00:10:55,000 --> 00:10:56,520 Speaker 8: then it's an environment where they can still cut a 239 00:10:56,559 --> 00:10:57,240 Speaker 8: couple more times. 240 00:10:57,360 --> 00:10:59,520 Speaker 7: What will be the main driver of disinflation? 241 00:10:59,600 --> 00:11:01,800 Speaker 1: Tours out a note today and he was talking about, 242 00:11:01,840 --> 00:11:04,000 Speaker 1: actually you could see inflation creepier with things like the 243 00:11:04,040 --> 00:11:06,440 Speaker 1: one big beautiful bill coming out for you, what is 244 00:11:06,520 --> 00:11:07,560 Speaker 1: just inflationary. 245 00:11:08,520 --> 00:11:10,480 Speaker 8: So in the first part of the year, I think 246 00:11:10,520 --> 00:11:12,679 Speaker 8: that's the right We're going to probably see inflation move 247 00:11:12,720 --> 00:11:14,760 Speaker 8: a little bit higher, in which case that's why we 248 00:11:14,800 --> 00:11:16,320 Speaker 8: don't think that the FED is going to be cutting 249 00:11:16,640 --> 00:11:19,920 Speaker 8: under Powell anymore. However, in the back part of the year, 250 00:11:19,960 --> 00:11:24,480 Speaker 8: it's going to be driven by the typical disinflationary forces 251 00:11:24,480 --> 00:11:28,880 Speaker 8: that is tied to productivity, which is lower wage inflation 252 00:11:28,920 --> 00:11:30,080 Speaker 8: than would otherwise be the case. 253 00:11:30,200 --> 00:11:31,680 Speaker 9: So first part of the year, I agree, we're. 254 00:11:31,520 --> 00:11:33,960 Speaker 8: Going to likely see some pretty hot inflation prints, especially 255 00:11:33,960 --> 00:11:36,560 Speaker 8: in Q one, that will probably start to fade, and 256 00:11:36,559 --> 00:11:38,160 Speaker 8: then the narrative will shift in the back part of 257 00:11:38,160 --> 00:11:40,640 Speaker 8: the year because that's when you'll start to see inflation cooling, 258 00:11:40,800 --> 00:11:42,760 Speaker 8: and then labor costs also fairly modest. 259 00:11:42,840 --> 00:11:44,640 Speaker 2: I don't expect a precise number from you, but just 260 00:11:44,679 --> 00:11:47,320 Speaker 2: how much of GDP growth this year is going to 261 00:11:47,320 --> 00:11:50,000 Speaker 2: come from the tech capex, not just the full companies 262 00:11:50,000 --> 00:11:51,320 Speaker 2: but everybody else as well. 263 00:11:51,520 --> 00:11:55,560 Speaker 8: Yeah, I think you'll it'll probably be fifty or so 264 00:11:55,640 --> 00:11:56,760 Speaker 8: basis points on GDP. 265 00:11:57,160 --> 00:12:00,079 Speaker 2: That's pretty impressive stuff. This is why it's interesting for 266 00:12:00,120 --> 00:12:02,440 Speaker 2: the fener Reserve. They could be cunning interest rates potentially 267 00:12:02,440 --> 00:12:04,920 Speaker 2: responding to a languor market the same time GDP's close 268 00:12:04,960 --> 00:12:06,840 Speaker 2: to three you ever seen that before. 269 00:12:07,640 --> 00:12:10,600 Speaker 8: It's a very unique environment and that's why they certainly 270 00:12:10,640 --> 00:12:12,720 Speaker 8: will have a tough time cutting in the first. 271 00:12:12,600 --> 00:12:13,040 Speaker 9: Part of the year. 272 00:12:13,080 --> 00:12:15,960 Speaker 8: When you see growth actually accelerating. So the news this 273 00:12:16,000 --> 00:12:18,120 Speaker 8: week I think is perhaps a bit of a one off, 274 00:12:18,160 --> 00:12:20,000 Speaker 8: and we'll shift to data prints that are starting to 275 00:12:20,040 --> 00:12:22,720 Speaker 8: surprise to the upside. Consumer data starting to pick up, 276 00:12:22,760 --> 00:12:26,800 Speaker 8: sentiment improve, companies want to invest again because the economic 277 00:12:26,840 --> 00:12:29,400 Speaker 8: backdrop is a bit better than where it's been, in 278 00:12:29,440 --> 00:12:32,800 Speaker 8: which case, the fears about economy really decelerating a link 279 00:12:32,800 --> 00:12:33,200 Speaker 8: market craft. 280 00:12:33,320 --> 00:12:34,920 Speaker 2: It's basically what they did do at the end of 281 00:12:35,000 --> 00:12:37,800 Speaker 2: last year. They were basically cunting interest rates with GDP 282 00:12:38,240 --> 00:12:41,800 Speaker 2: three four percentage points high because of what we saw 283 00:12:42,000 --> 00:12:45,080 Speaker 2: from tech campex, even though payroas growth is totally stilled. 284 00:12:45,360 --> 00:12:46,480 Speaker 7: Look, they've been looking through this. 285 00:12:46,520 --> 00:12:49,400 Speaker 6: They've actually been acknowledging that a productivity boom could come 286 00:12:49,400 --> 00:12:52,239 Speaker 6: at the behest of an employment market that is sluggish. 287 00:12:52,480 --> 00:12:54,400 Speaker 6: The one challenge to this, and the one thing that 288 00:12:54,400 --> 00:12:57,560 Speaker 6: I've not heard people fully explore, is how do four 289 00:12:57,600 --> 00:12:59,959 Speaker 6: companies spend six hundred and fifty billion dollars in one 290 00:13:00,200 --> 00:13:03,680 Speaker 6: year without causing inflation? Because ultimately, what they're buying, yes, 291 00:13:03,760 --> 00:13:07,440 Speaker 6: it's raw materials, it's land, it's housing, it's all of 292 00:13:07,480 --> 00:13:08,640 Speaker 6: these different aspects. 293 00:13:08,760 --> 00:13:09,800 Speaker 7: It's a lot of money. 294 00:13:09,840 --> 00:13:11,920 Speaker 6: So how do we get that kind of spending without 295 00:13:11,960 --> 00:13:13,440 Speaker 6: any kind of price distortion on the other. 296 00:13:13,320 --> 00:13:13,800 Speaker 3: Side, definite. 297 00:13:13,840 --> 00:13:15,560 Speaker 2: How does it show up in GDP? Does it come 298 00:13:15,640 --> 00:13:17,679 Speaker 2: up through imports, investment? How does it show up? 299 00:13:17,720 --> 00:13:18,360 Speaker 9: So the way that. 300 00:13:18,320 --> 00:13:20,199 Speaker 8: We've been tracking it in GDP is looking at only 301 00:13:20,200 --> 00:13:22,560 Speaker 8: the domestic portion of it, because it gets funky with 302 00:13:22,559 --> 00:13:25,240 Speaker 8: the imports, because imports end up being a negative on 303 00:13:25,280 --> 00:13:27,959 Speaker 8: GDP just based on GDP math. So we look at 304 00:13:27,960 --> 00:13:33,000 Speaker 8: it based on the tech portion of capex, the construction, 305 00:13:33,360 --> 00:13:37,200 Speaker 8: and what we find is that tech related domestic portion 306 00:13:37,320 --> 00:13:40,760 Speaker 8: of AI capex is but in terms of size is 307 00:13:40,800 --> 00:13:42,760 Speaker 8: about one and a half percent of GDP. So that 308 00:13:42,760 --> 00:13:44,760 Speaker 8: compares to say, housing, which is about three and a 309 00:13:44,800 --> 00:13:45,760 Speaker 8: half percent of GDP. 310 00:13:46,000 --> 00:13:47,959 Speaker 9: So it is large. It is growing. 311 00:13:48,240 --> 00:13:50,080 Speaker 8: If Jensen's forecasts are right, it'll grow it to a 312 00:13:50,080 --> 00:13:51,920 Speaker 8: five percent of GDP by the end of the decade. 313 00:13:52,120 --> 00:13:53,840 Speaker 8: I'm not sure I would bet on it being quite 314 00:13:53,880 --> 00:13:56,960 Speaker 8: that high, but it's an important part of GDP, but 315 00:13:57,360 --> 00:14:00,200 Speaker 8: perhaps not as big as some of the other major. 316 00:14:00,520 --> 00:14:02,280 Speaker 7: Why is it not inflationary at anyway? 317 00:14:03,080 --> 00:14:06,040 Speaker 8: I mean, I think it is modestly inflationary, certainly offsetting 318 00:14:06,080 --> 00:14:08,760 Speaker 8: some of the disinflationary forces that are playing out otherwise, 319 00:14:09,000 --> 00:14:11,680 Speaker 8: And when you think about these typical productivity type of booms, 320 00:14:11,720 --> 00:14:14,360 Speaker 8: it ends up being modestly inflationary in the near term, 321 00:14:14,360 --> 00:14:16,080 Speaker 8: and then in the medium to longer term it becomes 322 00:14:16,120 --> 00:14:19,680 Speaker 8: disinflationary as you actually see the productivity gained. As a result, 323 00:14:19,960 --> 00:14:22,360 Speaker 8: we haven't really seen much of that productivity gain yet. 324 00:14:22,560 --> 00:14:23,360 Speaker 9: I think it's coming. 325 00:14:23,800 --> 00:14:25,760 Speaker 8: So for the first part of the year, you know, 326 00:14:25,800 --> 00:14:28,840 Speaker 8: you'll probably see those inflationary forces because there's a lot 327 00:14:28,920 --> 00:14:32,120 Speaker 8: of positive demand shocks in the first couple of months, 328 00:14:32,120 --> 00:14:34,200 Speaker 8: which is why I would emphasize the data that we 329 00:14:34,280 --> 00:14:37,520 Speaker 8: got this week flagging that the labor market is starting 330 00:14:37,520 --> 00:14:39,760 Speaker 8: to soft. It is probably not the right takeaway for 331 00:14:39,840 --> 00:14:40,640 Speaker 8: the next couple of months. 332 00:14:40,640 --> 00:14:43,040 Speaker 3: Watch your guests for next wait just quickly on Perils of. 333 00:14:43,000 --> 00:14:45,440 Speaker 8: Eighty five thousand with some substantial download visions to the 334 00:14:45,600 --> 00:14:46,160 Speaker 8: prior months. 335 00:14:46,640 --> 00:14:50,120 Speaker 2: Stay with US multile Impex. Savannah's coming up off to this. 336 00:14:59,320 --> 00:15:01,200 Speaker 2: Do you want to guess now? To continue the conversation 337 00:15:01,280 --> 00:15:05,080 Speaker 2: to netline Hostatigus Janet. If Republican senators, in Tyler's words, 338 00:15:05,120 --> 00:15:07,320 Speaker 2: are calling this waste of time, how much more time 339 00:15:07,480 --> 00:15:08,400 Speaker 2: are they going to waste? 340 00:15:08,920 --> 00:15:09,920 Speaker 9: Yeah, it's a great question. 341 00:15:09,960 --> 00:15:11,760 Speaker 10: I mean, I think that, as Tyler pointed out, this 342 00:15:11,800 --> 00:15:15,360 Speaker 10: is literally something that the Republican senators are now thinking, 343 00:15:15,360 --> 00:15:18,920 Speaker 10: we need to get this investigation concluded. We need to 344 00:15:19,000 --> 00:15:21,360 Speaker 10: kind of clear Powell, which is something that Tom Tillis 345 00:15:21,400 --> 00:15:23,880 Speaker 10: is looking for because they do need his vote to 346 00:15:23,960 --> 00:15:26,640 Speaker 10: move Kevin Walsh through the Senate Banking Committee and they 347 00:15:26,680 --> 00:15:29,800 Speaker 10: would like Kevin Worsh to be confirmed before Jump Powell's 348 00:15:29,840 --> 00:15:32,040 Speaker 10: term ends on May fifteenth. So I do you think 349 00:15:32,040 --> 00:15:34,880 Speaker 10: you'll probably start to see some movement there to get 350 00:15:34,880 --> 00:15:37,160 Speaker 10: this done, which I think, especially what we've seen coming 351 00:15:37,200 --> 00:15:41,120 Speaker 10: from various senators yesterday was really important to see that 352 00:15:41,160 --> 00:15:43,560 Speaker 10: they really do also want to get this moving somewhere 353 00:15:43,560 --> 00:15:46,560 Speaker 10: a little bit more quickly, because this is an important 354 00:15:47,280 --> 00:15:51,000 Speaker 10: distraction potentially for getting Kevin Warsh ultimately on the FED. 355 00:15:51,160 --> 00:15:53,360 Speaker 1: Movement from who is it the DOJ to wrap it 356 00:15:53,440 --> 00:15:57,520 Speaker 1: up or for FED to actually also comply and send 357 00:15:57,640 --> 00:15:59,800 Speaker 1: information that the DOJ is asking about in terms of 358 00:15:59,800 --> 00:16:00,560 Speaker 1: the re innovations. 359 00:16:01,120 --> 00:16:02,640 Speaker 10: Yes, I mean, I think that's a little bit to 360 00:16:02,680 --> 00:16:04,880 Speaker 10: be determined, right, So it could be that maybe the 361 00:16:04,880 --> 00:16:07,360 Speaker 10: FED it just hasn't responded to the questions yet. Maybe 362 00:16:07,400 --> 00:16:09,160 Speaker 10: they just need to respond to the questions, and then 363 00:16:09,240 --> 00:16:13,440 Speaker 10: the DOJ will kind of finalize the investigation and say 364 00:16:13,480 --> 00:16:16,960 Speaker 10: that there's no wrongdoing here. Maybe it's some other form 365 00:16:17,000 --> 00:16:20,160 Speaker 10: that that needs to take, but there probably is a 366 00:16:20,200 --> 00:16:23,360 Speaker 10: way that this could be handled relatively quickly so that 367 00:16:23,400 --> 00:16:25,840 Speaker 10: we can actually move on from this and then actually 368 00:16:25,920 --> 00:16:28,520 Speaker 10: the Senate Banking Committee can bring in Kevin Worsh and 369 00:16:28,560 --> 00:16:29,760 Speaker 10: actually have his confirmation. 370 00:16:29,840 --> 00:16:32,000 Speaker 7: Hearing you sound hopeful of a quick timeline. 371 00:16:32,040 --> 00:16:34,600 Speaker 1: If we don't do, just expect Powell to be chair 372 00:16:34,720 --> 00:16:35,520 Speaker 1: until how long? 373 00:16:36,120 --> 00:16:38,280 Speaker 10: Yeah, I mean, this is a really important question, and 374 00:16:38,360 --> 00:16:41,880 Speaker 10: obviously there is discussions about what happens if you know, 375 00:16:42,000 --> 00:16:44,720 Speaker 10: there is no one confirmed to be the FED chair 376 00:16:44,760 --> 00:16:48,040 Speaker 10: when Powell's term ends, what happens does it become the 377 00:16:48,120 --> 00:16:50,680 Speaker 10: vice chair? If there's no vice chairs, there are possibility 378 00:16:50,720 --> 00:16:52,680 Speaker 10: that the vice chair could resign, you know, those are 379 00:16:52,720 --> 00:16:55,720 Speaker 10: all things, and then ultimately the board could reappoint Powell. 380 00:16:56,080 --> 00:16:59,240 Speaker 10: The other big question obviously is does Powell stay after 381 00:16:59,280 --> 00:17:02,040 Speaker 10: his term spires. I think this is a really important 382 00:17:02,120 --> 00:17:04,200 Speaker 10: question for what Kevin Worsh would like. 383 00:17:04,119 --> 00:17:04,879 Speaker 9: To do with the FED. 384 00:17:05,520 --> 00:17:08,960 Speaker 10: Obviously, whether or not the President can get another appointee 385 00:17:09,000 --> 00:17:12,840 Speaker 10: onto the board of governors. They do want to engage 386 00:17:12,880 --> 00:17:16,080 Speaker 10: in financial deregulation. A Vice chair Bowman has a proposal 387 00:17:16,119 --> 00:17:19,199 Speaker 10: that she may announced as quickly as this month, so 388 00:17:19,240 --> 00:17:21,880 Speaker 10: they do need to actually move forward on that. That's 389 00:17:21,920 --> 00:17:24,760 Speaker 10: going to be key to Worsh's trying to reduce the 390 00:17:24,800 --> 00:17:27,120 Speaker 10: size of the FED balance sheet. But they also need 391 00:17:27,160 --> 00:17:29,639 Speaker 10: a majority of the FED board members to vote for 392 00:17:29,680 --> 00:17:31,040 Speaker 10: the most aggressive plan. 393 00:17:30,880 --> 00:17:32,440 Speaker 9: They could have right now. 394 00:17:32,480 --> 00:17:35,560 Speaker 10: If Powell remains on the FED, that could limit the 395 00:17:35,600 --> 00:17:38,000 Speaker 10: ability for them to actually get to that majority. So 396 00:17:38,080 --> 00:17:40,040 Speaker 10: his staying on or not is going to be a 397 00:17:40,119 --> 00:17:43,520 Speaker 10: key question moving forward as to how things actually proceed 398 00:17:43,960 --> 00:17:46,520 Speaker 10: and also what might happen if there is no FED 399 00:17:46,520 --> 00:17:48,639 Speaker 10: share confirmed before his term expires. 400 00:17:48,760 --> 00:17:51,680 Speaker 6: While we wait for the next edition of Bachelor and Purgatory, Jenet, 401 00:17:51,720 --> 00:17:53,879 Speaker 6: I am curious going forward. It is a midterm election 402 00:17:53,960 --> 00:17:56,480 Speaker 6: year and we are going to expect a number of 403 00:17:56,480 --> 00:17:58,840 Speaker 6: proposals to try to cater to how people feel, which 404 00:17:58,840 --> 00:18:01,560 Speaker 6: isn't great and has to do with affordability issues. We 405 00:18:01,600 --> 00:18:04,760 Speaker 6: saw yesterday President Trump coming out with Trump RX trying 406 00:18:04,800 --> 00:18:07,960 Speaker 6: to lower costs for prescription drugs. What else do you 407 00:18:08,000 --> 00:18:11,439 Speaker 6: think is in the works for this year? As the 408 00:18:11,520 --> 00:18:12,800 Speaker 6: mental elections get closer. 409 00:18:13,240 --> 00:18:14,600 Speaker 10: Yeah, So, I mean, I do think this is going 410 00:18:14,680 --> 00:18:17,000 Speaker 10: to be a key focus for the midterm elections. You 411 00:18:17,080 --> 00:18:19,600 Speaker 10: thought be a key focus for the November twenty twenty 412 00:18:19,600 --> 00:18:22,240 Speaker 10: five elections to focus on this issue of affordability, and 413 00:18:22,240 --> 00:18:24,800 Speaker 10: Trump has definitely picked up the mantle of this quite 414 00:18:24,960 --> 00:18:27,440 Speaker 10: a bit more in the past few weeks. So obviously 415 00:18:27,440 --> 00:18:30,480 Speaker 10: we had the prescription drug price proposal come out yesterday. 416 00:18:30,720 --> 00:18:32,359 Speaker 10: We do think they're going to try to do things 417 00:18:32,359 --> 00:18:35,639 Speaker 10: on housing. Some of that would be related to again 418 00:18:35,800 --> 00:18:39,480 Speaker 10: whether or not, you know, not even necessarily trying to 419 00:18:39,520 --> 00:18:42,159 Speaker 10: do legislation or anything of that nature, but maybe what 420 00:18:42,200 --> 00:18:44,200 Speaker 10: happens with the Fed and what happens with the Treasury. 421 00:18:44,400 --> 00:18:48,000 Speaker 10: Those can be important pieces for the housing market. The 422 00:18:48,119 --> 00:18:51,040 Speaker 10: other big thing, obviously is there are these large tax 423 00:18:51,119 --> 00:18:53,359 Speaker 10: refunds that are going to come out. Tax refunds just 424 00:18:53,359 --> 00:18:56,119 Speaker 10: started last week. We'll definitely start to see more of 425 00:18:56,119 --> 00:18:59,240 Speaker 10: those come out. That will be very beneficial for consumers. 426 00:18:59,520 --> 00:19:03,120 Speaker 10: Will it be enough before the election, They probably don't 427 00:19:03,160 --> 00:19:05,159 Speaker 10: think so. They'll probably try to come up with some 428 00:19:05,200 --> 00:19:08,520 Speaker 10: other ideas. Presidents tend to be more populist in the 429 00:19:08,560 --> 00:19:11,680 Speaker 10: second term of their presidency because voters are a little 430 00:19:11,720 --> 00:19:14,439 Speaker 10: bit sour on the how things are going, so we 431 00:19:14,440 --> 00:19:17,280 Speaker 10: could definitely see more announcements. We'll be looking to the 432 00:19:17,320 --> 00:19:19,760 Speaker 10: State of the Union to see if stuff comes out there, 433 00:19:20,160 --> 00:19:22,080 Speaker 10: but I don't think there's a lot more that is 434 00:19:22,119 --> 00:19:24,760 Speaker 10: actually going to get enacted. We don't think that there 435 00:19:24,760 --> 00:19:26,639 Speaker 10: are going to be tariff refunds that are going to 436 00:19:26,640 --> 00:19:28,439 Speaker 10: come out because you would need Congress to do that. 437 00:19:28,760 --> 00:19:30,720 Speaker 10: But you might see them try to move things like 438 00:19:30,800 --> 00:19:33,560 Speaker 10: permitting reform and things of that nature. But I think 439 00:19:33,560 --> 00:19:35,720 Speaker 10: the President will continue to talk about it, but we 440 00:19:35,800 --> 00:19:38,280 Speaker 10: don't see a lot of movement from more proposals to 441 00:19:38,280 --> 00:19:38,840 Speaker 10: come forward. 442 00:19:39,680 --> 00:19:43,240 Speaker 2: This is the Bloomberg Survendons podcast, bringing you the best 443 00:19:43,240 --> 00:19:46,320 Speaker 2: in markets, economics, an gio politics. You can watch the 444 00:19:46,359 --> 00:19:49,359 Speaker 2: show live on Bloomberg TV weekday mornings from six am 445 00:19:49,480 --> 00:19:52,679 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, 446 00:19:52,920 --> 00:19:55,760 Speaker 2: Spotify or anywhere else you listen, and as always, on 447 00:19:55,800 --> 00:19:58,280 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.