WEBVTT - Bloomberg Surveillance TV: June 4, 2024 0:00:00.120 --> 0:00:06.760 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 --> 0:00:31.280 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 --> 0:00:38.160 Terminal and the Bloomberg Business app. Alongside Samir, we're joined 0:00:38.159 --> 0:00:40.800 by Chrishna Mamani of Lafaette College. Gents, great to catch 0:00:40.880 --> 0:00:43.000 up with you both. Submit it first to you? Is 0:00:43.080 --> 0:00:45.360 bad news just bad news? And could you define for 0:00:45.440 --> 0:00:48.120 us this Friday when we get payrolls what bad news 0:00:48.159 --> 0:00:48.600 looks like. 0:00:49.880 --> 0:00:51.760 Yeah, John, you know, as you know, we've been cautious 0:00:51.760 --> 0:00:53.840 for some time, and a lot of that caution has 0:00:53.880 --> 0:00:55.920 been driven by the fact that the FED raised reads 0:00:55.920 --> 0:00:59.120 so precipitously over the last couple of years. And although 0:00:59.160 --> 0:01:01.280 those kind of low invariable lags might be a little 0:01:01.320 --> 0:01:03.040 bit more long and a little bit more variable this 0:01:03.160 --> 0:01:05.479 time we've thought for some time that the economy will 0:01:05.520 --> 0:01:07.920 slow as far as Friday goes. I mean, the tricky 0:01:08.000 --> 0:01:09.759 part is, you know, there's gonna be some who are 0:01:09.760 --> 0:01:11.959 hoping for rate cuts to come back to the forefront. 0:01:12.200 --> 0:01:15.480 For those folks, they'll clearly want a worse number. I 0:01:15.480 --> 0:01:17.360 think the tricky part for us, though, is we tend 0:01:17.360 --> 0:01:19.480 to be more fundamentally driven, and if you do get 0:01:19.520 --> 0:01:21.200 a worse number, you know at some point you do 0:01:21.240 --> 0:01:22.720 have to deal with the slowdown on the way to 0:01:22.760 --> 0:01:23.399 those rate cuts. 0:01:23.480 --> 0:01:25.800 Chris, Now, let's talk about what bad actually is one 0:01:25.920 --> 0:01:29.640 twenty five over a Bank of America. That's bad news, apparently, 0:01:29.680 --> 0:01:32.559 Stuart Kaiser City, who'll be catching up with Lakes this week, 0:01:32.640 --> 0:01:35.720 headline paid ros below one fifty would be worsome? What 0:01:35.880 --> 0:01:37.000 is bad this Friday? 0:01:37.319 --> 0:01:40.200 Well, so, I don't think one fifty would be such 0:01:40.200 --> 0:01:42.840 a bad number. I think if you kind of put 0:01:42.959 --> 0:01:46.759 one fifty in conjunction with GDP now coming down from 0:01:46.800 --> 0:01:50.320 three percent to one point eight, you can make that case. 0:01:50.360 --> 0:01:52.360 But I think in the sequence of things that we 0:01:52.400 --> 0:01:55.600 have seen and the variability in employment, I don't think 0:01:55.600 --> 0:01:58.760 one fifty is a really bad number. The point I 0:01:58.800 --> 0:02:02.360 would make to kind of counter what Savere was saying was, 0:02:03.200 --> 0:02:05.400 you know, there will be a slowdown, and we have 0:02:05.520 --> 0:02:09.160 been hoping for a slowdown, but there's absolutely nothing in 0:02:09.200 --> 0:02:12.080 the data that indicates that things are actually slowing down 0:02:12.320 --> 0:02:15.240 in any perceptible way. I think the FED would like 0:02:15.280 --> 0:02:17.600 to see that, but there is really no evidence of 0:02:17.639 --> 0:02:18.239 that just yet. 0:02:18.360 --> 0:02:19.880 Hold on a second question. Now, a lot of people 0:02:19.880 --> 0:02:22.200 would disagree with you. Even Neil Dudda is actually getting 0:02:22.400 --> 0:02:24.760 as constructive as he has been in the past, partly 0:02:24.800 --> 0:02:27.800 because what you are seeing under the hood is ism, 0:02:27.800 --> 0:02:32.000 manufacturing coming in lower than expected, the US Economic Surprise 0:02:32.080 --> 0:02:35.360 Index falling to its most negative going back to twenty nineteen. 0:02:35.760 --> 0:02:38.560 Why is that not enough to say that things are slowing. 0:02:38.720 --> 0:02:42.560 I mean, things are certainly slowing from a very rapid pace. 0:02:42.919 --> 0:02:45.160 But I think if you have your growth rate at 0:02:45.200 --> 0:02:47.840 two percent at this point in the cycle, after five 0:02:47.919 --> 0:02:50.760 hundred and fifty basis points of rate increases, I don't 0:02:50.760 --> 0:02:54.800 think that is really would be considered a meaningful slowdown. 0:02:54.840 --> 0:02:56.760 That's the point I'm trying to make. That is, if 0:02:56.760 --> 0:02:59.040 we stay at two percent, which is what Neil says. 0:02:59.080 --> 0:03:02.399 He at two am. 0:03:02.200 --> 0:03:05.120 Last night to kind of confirm that. The fact is, 0:03:05.200 --> 0:03:08.120 if it is at two percent, then that's really not 0:03:08.160 --> 0:03:09.919 a slowdown at this point in the cycle. 0:03:09.960 --> 0:03:11.560 All right, Samir, So what would you say to that, 0:03:11.600 --> 0:03:13.520 given the fact that we've been grappling with this for 0:03:13.560 --> 0:03:16.560 a number of months now, what is slowing but not slow? 0:03:16.880 --> 0:03:17.040 Right? 0:03:17.120 --> 0:03:20.160 What is sort of the normal cooling that is positive 0:03:20.240 --> 0:03:22.160 versus something that is nefarious. 0:03:23.400 --> 0:03:24.760 I mean, first of all, I know I'm not in 0:03:24.760 --> 0:03:27.280 this DM group at two am at night, but you know, 0:03:27.480 --> 0:03:30.000 away from that, I mean, look, I think the tricky 0:03:30.040 --> 0:03:33.000 part is, like I said, those lags have been longer 0:03:33.000 --> 0:03:35.120 and maybe a little bit more variable, but every time 0:03:35.160 --> 0:03:37.280 somebody goes to refinance, they pay a much higher interest 0:03:37.360 --> 0:03:39.440 rate than they did the last year, the last two years, 0:03:39.560 --> 0:03:42.400 last three years. Right, So again that is creeping into 0:03:42.400 --> 0:03:44.920 the economy. You have seeing it on the lower rungs. 0:03:45.680 --> 0:03:48.040 I think you know, typically it tends to go up 0:03:48.160 --> 0:03:50.040 from the lower rungs to the upper rungs, and I 0:03:50.040 --> 0:03:52.640 think you're seeing that. I think you're also seeing, you know, 0:03:52.640 --> 0:03:55.440 whether it's all in yields on long corporates and high 0:03:55.520 --> 0:03:58.120 yield also creep up. I know spreads are low, but 0:03:58.200 --> 0:04:00.840 the amount of the companies are paying has gone up. 0:04:00.880 --> 0:04:02.880 So I think from that standpoint, what we see is 0:04:02.880 --> 0:04:04.760 a little bit of a saucer in terms of things 0:04:04.800 --> 0:04:06.880 come down, they settle into kind of a new normal, 0:04:07.320 --> 0:04:09.840 and then eventually, you know, you reaccelerate once kind of 0:04:09.880 --> 0:04:11.760 savings have been rebuilt and people have kind of worked 0:04:11.760 --> 0:04:12.160 off some of the. 0:04:12.200 --> 0:04:14.960 Excesses, and you're looking for that recovery in twenty twenty five, 0:04:15.080 --> 0:04:17.320 a recovery to a slow down that Christmas says hasn't 0:04:17.320 --> 0:04:19.520 happened yet. So may can you have to understand the 0:04:19.520 --> 0:04:21.320 next twelve months and how you think this place out. 0:04:22.520 --> 0:04:24.400 So I think for markets anyways, you know, I think 0:04:24.440 --> 0:04:26.440 probably the next few months are gonna be very choppy. 0:04:26.520 --> 0:04:29.240 I don't anticipate new highs in twenty twenty four until 0:04:29.279 --> 0:04:32.520 maybe after the elections. And again I think that's depending 0:04:32.520 --> 0:04:34.960 on when we finally get kind of clarity around the elections, 0:04:34.960 --> 0:04:37.440 which you know, possibly could push into late twenty four 0:04:37.520 --> 0:04:40.080 early twenty five. I think once we get that clarity, 0:04:40.120 --> 0:04:41.640 then I think the markets can kind of figure out, 0:04:41.640 --> 0:04:43.640 all right, you know, which set of socks will do 0:04:43.720 --> 0:04:46.760 well kind of in this administration, whoever that might be. 0:04:47.360 --> 0:04:48.640 And then I think, you know, we do make new 0:04:48.680 --> 0:04:51.520 highs probably in twenty twenty five alongside that economic recovery. 0:04:51.640 --> 0:04:55.599 To share that view, well, I think the overall trend 0:04:55.760 --> 0:04:59.320 in for acid prices is probably higher. I don't think 0:04:59.600 --> 0:05:02.360 it happen in early twenty twenty five, and a lot 0:05:02.400 --> 0:05:05.600 of the policies that will be implemented after the election, 0:05:05.720 --> 0:05:07.880 I think if there's a driver on the upside, it's 0:05:07.880 --> 0:05:10.360 probably going to be driven by that far more than 0:05:11.960 --> 0:05:15.680 the election results themselves, because there'll be some amount of uncertainty. 0:05:15.520 --> 0:05:18.320 But having said that, though I think from an economic perspective, 0:05:18.360 --> 0:05:21.120 things started at a good place, the real question is 0:05:21.160 --> 0:05:25.120 how do you kind of incorporate that okay economic news 0:05:25.160 --> 0:05:29.120 in the context of valuations and likelihood that inflation remains 0:05:29.160 --> 0:05:33.800 somewhat elevated relative to what the FED would. 0:05:33.520 --> 0:05:34.040 Like it to be. 0:05:34.320 --> 0:05:35.120 I love this right. 0:05:35.160 --> 0:05:38.640 You guys have different kind of economic outlooks, perhaps, but 0:05:39.000 --> 0:05:41.920 you might have the same actual investment thesis. You're still 0:05:41.920 --> 0:05:43.000 just saying t bill's. 0:05:42.720 --> 0:05:45.440 And chill, Well, bills and chill, because I think the 0:05:45.480 --> 0:05:50.560 summer is basically lost, like the second quarter was lost. 0:05:50.600 --> 0:05:54.680 In the things started not slowing down in February. It 0:05:54.760 --> 0:05:57.120 became quite clear that we are going to be in 0:05:57.160 --> 0:05:59.720 this range bound market for quite some time, and that 0:05:59.760 --> 0:06:02.120 has how exactly it has panned out. It doesn't mean 0:06:02.320 --> 0:06:04.120 that things cannot go up. It's just that we have 0:06:04.160 --> 0:06:07.240 to catch up to evaluations. Let the economy, the economic 0:06:07.279 --> 0:06:10.080 growth run and let's see if inflation slows. 0:06:09.800 --> 0:06:22.320 Down, Samir, are you tbils and chill as well? 0:06:23.680 --> 0:06:25.320 You know, we don't mind the short end of the curve, 0:06:25.360 --> 0:06:27.400 but I think as we kind of approach the upper 0:06:27.440 --> 0:06:29.040 fours on the tenure, I think we would like to 0:06:29.120 --> 0:06:31.160 lead the duration. I mean, you know, I don't know 0:06:31.240 --> 0:06:33.120 if it takes six months or twelve months for the 0:06:33.120 --> 0:06:36.080 FED probably cuts and at that point probably you will 0:06:36.080 --> 0:06:37.760 see people start extend duration. We want to be a 0:06:37.800 --> 0:06:40.040 little bit ahead of that. I think, you know, from 0:06:40.080 --> 0:06:42.640 a from a market standpoint, from investing standpoint, I think 0:06:42.680 --> 0:06:44.760 the nice part for investors, and we've been on the 0:06:44.800 --> 0:06:47.120 right side of this is if you're in large caps, 0:06:47.120 --> 0:06:50.520 you get better profitability, better quality, better performance. That doesn't 0:06:50.520 --> 0:06:53.320 happen very often. So right now you can fade em, 0:06:53.360 --> 0:06:55.720 you can fade small caps and kind of concentrate more 0:06:55.760 --> 0:06:57.440 on the larger cap side. Be okay, and I think 0:06:57.480 --> 0:07:00.520 that's kind of the way to approach the next few months. 0:07:00.640 --> 0:07:01.279 Krishna. 0:07:01.520 --> 0:07:04.000 I think the point Samir is making is a really 0:07:04.080 --> 0:07:05.919 good one, which is, if you look at the markets 0:07:05.920 --> 0:07:08.320 and you kind of see which market has a higher 0:07:08.400 --> 0:07:11.520 potential of running away from you in a hurt, I 0:07:11.520 --> 0:07:14.280 don't think that's equity market, and I don't think that's 0:07:14.680 --> 0:07:17.360 bond markets on the negative side. I think if it is, 0:07:17.480 --> 0:07:18.600 it's bond markets on. 0:07:18.560 --> 0:07:20.920 The positive side, so yields, tropic. 0:07:20.880 --> 0:07:23.880 Yields, dropping bonds doing much better. I think if you 0:07:23.920 --> 0:07:26.800 wanted to take a punt on the risky side, that's 0:07:26.840 --> 0:07:28.720 the punt I would take rather than the other way. 0:07:29.000 --> 0:07:31.360 You mentioned the politics, samre Let's talk about that. This 0:07:31.400 --> 0:07:34.080 is what paid chairs basically said. Both candidates are troublesome 0:07:34.120 --> 0:07:36.240 for bombs and we'll get more and more clarity on 0:07:36.280 --> 0:07:37.640 that as the a C grows older. So may what 0:07:37.640 --> 0:07:39.280 would you sind back to that? For somebody's looking for 0:07:39.320 --> 0:07:41.760 that recovery in twenty five, there are others who are 0:07:41.760 --> 0:07:44.560 pointing to the bond market. It's troublesome, maybe the recipe 0:07:44.600 --> 0:07:46.440 for a problem in equities because of what may or 0:07:46.480 --> 0:07:48.160 may not happen come November. 0:07:49.760 --> 0:07:51.280 Yeah, look, I think with bonds you have to be 0:07:51.360 --> 0:07:53.560 very disciplined because again you do have kind of this 0:07:53.560 --> 0:07:56.480 fiscal proficacy in Washington. So I think again, if you 0:07:56.560 --> 0:07:59.200 push north of you know, again four to seventy five, 0:07:59.240 --> 0:08:01.320 I think there's some val you and fix comes, especially 0:08:01.360 --> 0:08:03.760 if there is some disappointment on the economic side. Right, 0:08:03.760 --> 0:08:06.840 you've got to kind of traverse this path of bad 0:08:06.880 --> 0:08:08.640 news to those fed cuts. So I think at four 0:08:08.680 --> 0:08:11.200 seventy five that probably makes some sense, But then you 0:08:11.320 --> 0:08:14.680 fall back down into the low fours, high threes. I 0:08:14.680 --> 0:08:16.680 think you have to reconsider and possibly close out some 0:08:16.720 --> 0:08:19.360 of those tactical long so I think at least for Treasury, 0:08:19.440 --> 0:08:20.960 especially on the longer end, I think you have to 0:08:20.960 --> 0:08:24.160 be very nimble. But I think there will be opportunities. 0:08:23.640 --> 0:08:25.800 Still ready ety dies, it's early June. Is it too 0:08:25.800 --> 0:08:27.080 early to talk about November? 0:08:27.160 --> 0:08:29.560 Oh, yes, very much so. I think there's a great 0:08:29.600 --> 0:08:31.080 deal of un just start to consider it. 0:08:31.520 --> 0:08:31.800 Well. 0:08:32.000 --> 0:08:35.720 I think when the picture gets slightly clearer, which is 0:08:35.760 --> 0:08:42.880 never the point is right now in terms of political developments, 0:08:42.880 --> 0:08:45.680 it's still very early and very uncertain. I think within 0:08:45.720 --> 0:08:48.480 a few months things will start crystallizing a bit more 0:08:48.520 --> 0:08:49.560 as to who's getting more. 0:08:49.480 --> 0:08:51.400 Traction that' said, what's the bigger risk right now? Because 0:08:51.400 --> 0:08:53.640 we've had numbers of guests come on and say, the 0:08:53.640 --> 0:08:56.880 bigger risk is that the Fed customer rates now, and 0:08:56.920 --> 0:08:59.960 then whoever wins in November is going to announce something 0:09:00.080 --> 0:09:05.120 fiscal package including prolonged tax cuts, including potentially tariffs, and 0:09:05.160 --> 0:09:08.640 that could send inflation higher and push shields higher. 0:09:08.640 --> 0:09:09.199 Do you buy that? 0:09:09.559 --> 0:09:11.720 I think that is certainly a risk. I don't buy 0:09:11.760 --> 0:09:13.680 that because I don't think the Fed is cutting rates 0:09:13.720 --> 0:09:16.520 anytime soon. Because I think for the Fed to cut 0:09:16.600 --> 0:09:19.679 rates anytime soon, especially ahead of the election, things have 0:09:19.760 --> 0:09:22.280 to slow down in a more pronounced way than they 0:09:22.320 --> 0:09:23.160 have done so far. 0:09:23.360 --> 0:09:26.440 Samir, this is actually an interesting debate that's percolating, and honestly, 0:09:26.440 --> 0:09:29.280 I don't get a good sense of where the majority 0:09:29.280 --> 0:09:32.079 of people stand. What is the balance of risks right 0:09:32.120 --> 0:09:34.640 now for the Federal Reserve that they're too tight or 0:09:34.679 --> 0:09:37.439 too loose. I mean, honestly, we still don't know. 0:09:38.880 --> 0:09:41.520 We don't And again, look, it's a bifurcated economy, and 0:09:41.559 --> 0:09:44.000 so you've got people who can make really good, solid, 0:09:44.040 --> 0:09:46.320 well reasoned arguments probably on both sides, which is why. 0:09:46.360 --> 0:09:48.640 I think there's you know, these opportunities that are kind 0:09:48.640 --> 0:09:51.040 of being underappreciated by markets. So I guess what we've 0:09:51.040 --> 0:09:53.560 done is maybe taken a step back and looked for 0:09:53.920 --> 0:09:56.200 you know, secular trends, right, things that will probably do 0:09:56.760 --> 0:09:59.400 regardless of whether the Fed cuts or doesn't cut, regardless 0:09:59.400 --> 0:10:01.360 of who wins them White House. So I would go 0:10:01.400 --> 0:10:05.720 back to energy industrials, materials all are involved with AI 0:10:06.080 --> 0:10:09.560 and you know, decarbonization in some ancillary ways, and then healthcare. Right, 0:10:09.600 --> 0:10:12.600 all those areas can grow earnings, they trade at reasonable valuations. 0:10:12.840 --> 0:10:15.319 Maybe you don't fully outperform, but you at least participate 0:10:15.400 --> 0:10:18.240 without having to lean into probably the most crowded trades. 0:10:18.280 --> 0:10:20.360 What about the bond offset on a long end? 0:10:21.679 --> 0:10:23.800 So again I think if we if we get you know, 0:10:23.840 --> 0:10:26.240 those markets come to us, I think that's a great offset. 0:10:26.320 --> 0:10:26.440 Right. 0:10:26.480 --> 0:10:28.440 You pair kind of some of those cyclical areas that 0:10:28.480 --> 0:10:31.080 are cheaper maybe you know, play well in an okay 0:10:31.160 --> 0:10:33.720 economy with kind of that hedge on the on the 0:10:33.760 --> 0:10:36.000 longer term fixed income side, because again, you know, if 0:10:36.080 --> 0:10:37.800 you if you do see a rough patch, those short 0:10:37.880 --> 0:10:39.360 term yields will melt very quickly. 0:10:39.600 --> 0:10:40.800 Final word, Christia yeah. 0:10:40.840 --> 0:10:43.760 I think the interesting thing about the bond market is 0:10:43.760 --> 0:10:45.840 we can worry as much as we want about fiscal 0:10:45.880 --> 0:10:48.320 profligacy and all of that stuff. But the moment you 0:10:48.440 --> 0:10:52.080 see a sign of a recession arrive, that's it. You know, 0:10:52.200 --> 0:10:53.959 we are rallying mass laws. 0:10:54.040 --> 0:10:55.760 What does that look like? The moment you see a 0:10:55.800 --> 0:10:58.079 sign of a recession arrive. And some people think we 0:10:58.160 --> 0:10:59.439 might have seen that already. 0:10:59.120 --> 0:11:01.920 Well again, it's not in the data. You might have seen. 0:11:01.920 --> 0:11:04.000 It doesn't exist. But the fact of. 0:11:03.920 --> 0:11:05.880 The matter is, I think for that a way for 0:11:05.920 --> 0:11:07.800 a group of economists to look back twelve months and 0:11:07.840 --> 0:11:08.920 say there it was well. 0:11:09.559 --> 0:11:12.559 For that to happen, I think consumption has to slow 0:11:12.600 --> 0:11:16.679 down significantly more, and employment has to The growth has 0:11:16.720 --> 0:11:19.240 to taper off, and you have to start losing jobs. 0:11:19.400 --> 0:11:20.800 There's no sign of that just yet. 0:11:20.920 --> 0:11:23.640 Krishna, Thank you big week of data. Appreciate your time. 0:11:23.720 --> 0:11:27.000 Christian Marley alongside submits amounta of wels Vaga and Laffette 0:11:27.000 --> 0:11:39.680 College respectively. Johnny us Now to look ahead to the 0:11:39.679 --> 0:11:42.280 week ahead is JP Morgan's CALSI Barrow and Bank for 0:11:42.280 --> 0:11:45.320 Americas Aditya Barve. Let's start with you CALCI first, of 0:11:45.360 --> 0:11:47.680 all on that calendar, and we can bring that calendar 0:11:47.720 --> 0:11:51.480 back up hopefully payrolls on Friday, jobless claims on Thursday, 0:11:51.520 --> 0:11:54.680 the ECB, We've got the m services read tomorrow as well. 0:11:54.920 --> 0:11:56.800 Take your pick on this calendar right now, what stands 0:11:56.800 --> 0:11:58.319 out for you? What's the big one for you and 0:11:58.360 --> 0:11:58.920 the team? 0:11:59.120 --> 0:11:59.880 So I think. 0:11:59.720 --> 0:12:03.480 The hard labor market data is really what is important 0:12:03.480 --> 0:12:06.160 to us, because when we look at the Fed's reaction function, 0:12:06.240 --> 0:12:09.480 we think it's becoming more asymmetric, meaning that the FED 0:12:09.559 --> 0:12:13.560 is going to be more sensitive to weaker economic data 0:12:13.600 --> 0:12:16.840 than they are to continued strength. Continued strength is what 0:12:16.880 --> 0:12:20.760 we all expect, right, So it's interesting when you talk 0:12:20.800 --> 0:12:23.440 about something like this is a manufacturing report which apparently 0:12:23.480 --> 0:12:25.360 drove the rally in yields yesterday. 0:12:25.840 --> 0:12:28.120 You say, apparently, well, isn't. 0:12:27.920 --> 0:12:33.200 Manufacturing has been below fifty for sixteen months in a row. 0:12:33.760 --> 0:12:36.679 It popped up above fifty in March and then fill 0:12:36.760 --> 0:12:39.320 back below fifty for the last two months. So essentially, 0:12:39.720 --> 0:12:42.160 the soft data has been telling us that the economy 0:12:42.240 --> 0:12:46.000 stinks for quite a while now, and it's the hard 0:12:46.160 --> 0:12:49.040 data that is actually going to move the needle. So 0:12:49.080 --> 0:12:51.640 you need to be looking at things like claims like 0:12:51.760 --> 0:12:55.199 jolts at ten am, and like the and the unemployment 0:12:55.280 --> 0:12:58.440 rate and job growth on Friday, because that's what's going 0:12:58.480 --> 0:13:02.960 to shift the fed's mindset from fighting inflation to protecting 0:13:03.000 --> 0:13:06.000 the labor market. We're not there yet, that's what we're watching. 0:13:06.080 --> 0:13:08.120 Let's pick up on that distinction. So it's soft Danka 0:13:08.160 --> 0:13:10.960 versus heard data, Adita. Do you think we're being misled 0:13:11.000 --> 0:13:12.920 by the survey data? 0:13:13.040 --> 0:13:15.880 I think we focus on the hard data, as Kelsey said, 0:13:16.040 --> 0:13:18.920 for the jobs report, we're pretty optimistic. We're looking for 0:13:19.000 --> 0:13:22.120 two hundred thousand in job growth, which should be just fine. 0:13:22.240 --> 0:13:26.160 That's trend like that keeps the FED very firmly on hold. 0:13:26.200 --> 0:13:28.600 Our view has been on the Fed that nothing changes 0:13:28.720 --> 0:13:32.000 until something changes. In other words, the data aren't strong 0:13:32.160 --> 0:13:34.800 enough for the FED to worry about hiking, but the 0:13:34.880 --> 0:13:38.600 data aren't weak enough to warrant rate cuts just yet. 0:13:38.920 --> 0:13:41.880 And we're very much sitting in that space very comfortably 0:13:42.000 --> 0:13:45.920 right now. As Kelsey said, focus on the hard data, 0:13:46.040 --> 0:13:49.720 focus on the jobs report. That's really where that's the 0:13:49.720 --> 0:13:50.680 start of this week's show. 0:13:50.720 --> 0:13:53.760 You see, as Kelsey said, But Kelsey also said the 0:13:53.800 --> 0:13:56.160 economy stinks has been sticking for quite a while. 0:13:56.160 --> 0:13:58.160 Do you agree, Well, she said, the soft data are 0:13:58.160 --> 0:14:03.760 telling you that the economy stinks. GDP growth was more 0:14:03.800 --> 0:14:04.520 than three. 0:14:04.320 --> 0:14:06.960 Percent last established laces plass not castles. 0:14:07.800 --> 0:14:11.640 GDP growth was more than three percent last year. In 0:14:11.720 --> 0:14:15.880 that entire period, the manufacturingism was under fifty. So if 0:14:15.880 --> 0:14:18.760 it pops about fifty very narrowly for a month and 0:14:18.800 --> 0:14:21.920 then goes back down below fifty, you know you take 0:14:21.920 --> 0:14:23.800 that with a grain of salt. The US is not 0:14:24.120 --> 0:14:28.200 a fundamentally a manufacturing economy, right, It's a service's economy. 0:14:28.200 --> 0:14:31.280 It's a consumer driven economy, and the consumer for now 0:14:31.360 --> 0:14:34.040 looks just fine. I mean, you talked about air travel 0:14:34.680 --> 0:14:39.080 over Memorial Day. For that week, we had more people 0:14:39.120 --> 0:14:41.760 flying than in any week last year. 0:14:42.200 --> 0:14:42.360 Right. 0:14:42.440 --> 0:14:45.480 We set a record above the summer peaks, above the 0:14:45.520 --> 0:14:48.520 Thanksgiving peak, the Christmas peak, So you're probably going to 0:14:48.600 --> 0:14:51.640 see even stronger summer travel this year. And personally, I'm 0:14:51.640 --> 0:14:53.000 not flying the summer for that reason. 0:14:53.120 --> 0:14:55.320 Really, well, I know that some people on this said 0:14:55.760 --> 0:14:58.840 did actually travel on a more labor moral day weekend 0:14:59.160 --> 0:15:02.520 and had fun experiences from what I can gather. I'm wondering, though, Kelsey, 0:15:02.600 --> 0:15:05.640 not to mischaracter or characterize what you're saying, but you 0:15:05.720 --> 0:15:09.680 do see enough weakness to validate the idea of FED 0:15:09.760 --> 0:15:11.120 rate cuts later this year. 0:15:11.560 --> 0:15:13.360 So I guess what gives you that. 0:15:13.400 --> 0:15:16.920 Confidence if the soft data has been thinking for quite 0:15:16.920 --> 0:15:20.640 a while, not necessarily the hard data, but you know, 0:15:20.840 --> 0:15:23.200 it's kind of left people in this level of uncertainty 0:15:23.240 --> 0:15:25.680 debating whether the FED is hot, too hot, too cold? 0:15:26.240 --> 0:15:28.400 You know basically what their biggest mistake could be. 0:15:28.560 --> 0:15:31.320 So if I think about how we've been positioned so 0:15:31.360 --> 0:15:34.360 far this year, the first five months this year, our 0:15:34.440 --> 0:15:37.560 game plan was to embrace the soft landing, to lean 0:15:37.600 --> 0:15:40.480 into credit, to lean into high yield, and to put 0:15:40.600 --> 0:15:43.680 less of our risk budget on duration. Now, there was 0:15:43.680 --> 0:15:45.720 a reason we still like duration, and that was because 0:15:45.720 --> 0:15:49.480 of valuations and the skew the skill, meaning the Fed's 0:15:49.520 --> 0:15:52.120 done hiking. We think the bar to restarting hiking is 0:15:52.200 --> 0:15:55.080 very high, and there is a ton of policy space 0:15:55.160 --> 0:15:58.400 for the FED to respond if things start to weaken. 0:15:59.080 --> 0:16:02.320 And I think there's a limit to the painless labor 0:16:02.400 --> 0:16:06.600 market rebalancing that we've experienced. So for example, job openings 0:16:06.640 --> 0:16:10.320 have come down, the unemployment rate hasn't gone up, the 0:16:10.440 --> 0:16:14.200 quicks rate has come down, the unemployment rate hasn't gone up. Now, 0:16:14.280 --> 0:16:17.280 that can persist for a period of time, but I 0:16:17.400 --> 0:16:21.560 don't think it can persist forever. So again, we're watching 0:16:21.600 --> 0:16:24.520 that labor market rebalancing. But I think the next move 0:16:24.560 --> 0:16:27.040 that the FED is going to make is ultimately going 0:16:27.080 --> 0:16:29.680 to be one that protects the strength of the labor 0:16:29.720 --> 0:16:32.680 market rather than one that in which they need to 0:16:32.680 --> 0:16:35.800 be fighting inflation. We do think that inflation generally is 0:16:35.880 --> 0:16:39.400 under control. The majority of the inflation overshoot we think 0:16:39.480 --> 0:16:43.480 is lagged, compositional, it's generally related to housing, and secondarily 0:16:43.520 --> 0:16:45.000 for CPI, it's auto insurance. 0:16:45.240 --> 0:16:48.480 Is that preemptive? Is that policy protection preemptive? Do they 0:16:48.480 --> 0:16:50.400 do that before they see weakness in the labor market 0:16:50.480 --> 0:16:52.240 or do they have to wait to actually see it. 0:16:52.600 --> 0:16:55.160 So when we look back at history, pretty much every 0:16:55.240 --> 0:17:00.240 rate cut is initially considered preemptive until it's not. So, 0:17:00.880 --> 0:17:03.200 I mean, if you look at what the market prices 0:17:04.359 --> 0:17:06.760 when the FED is doing their first cut, they always 0:17:06.800 --> 0:17:11.199 underestimate the amount of cuts that are actually delivered, And 0:17:11.280 --> 0:17:13.479 so yeah, I think it probably will be viewed as 0:17:13.520 --> 0:17:16.879 preentup initially, but then we'll have to see if it 0:17:16.920 --> 0:17:17.480 will be enough. 0:17:17.600 --> 0:17:19.240 I did cha, Do you agree? 0:17:19.760 --> 0:17:21.800 I'd say on the FED, you know, not so fast. 0:17:22.359 --> 0:17:25.280 We do have the first cut in December. But you 0:17:25.359 --> 0:17:27.760 have to recognize that over the last four months the 0:17:27.760 --> 0:17:31.240 core PC has been running at four percent annualized right 0:17:31.600 --> 0:17:34.000 March or sorry, the April data that was viewed as 0:17:34.119 --> 0:17:36.840 a big improvement, Well, guess what, we still annualize to 0:17:36.880 --> 0:17:39.399 more than three percent in April. So there's still some 0:17:39.520 --> 0:17:41.840 ways to go for inflation to come down. I agree 0:17:41.880 --> 0:17:44.400 that some of it is housing, but they can't look 0:17:44.440 --> 0:17:47.520 through that right because you just can't cherry pick in 0:17:47.800 --> 0:17:49.520 the situation that the FED is in right now. 0:17:49.600 --> 0:17:52.520 One of the backdrops to this is uncertainty around immigration. 0:17:52.600 --> 0:17:55.439 We were talking earlier to Seve Englander about that and 0:17:55.480 --> 0:17:57.879 how much that has been a supply shock in a 0:17:57.920 --> 0:18:00.520 way for the labor market. The other aspect is just 0:18:00.560 --> 0:18:03.439 fiscal stimulus in general. That aditya I know you've been 0:18:03.480 --> 0:18:06.840 pointing to as still being a tailwind to economic growth. 0:18:07.240 --> 0:18:10.640 How do you factor that in as something that is 0:18:10.840 --> 0:18:14.879 the new normal or continuable or something that isn't going 0:18:14.920 --> 0:18:16.359 to run out right, So. 0:18:16.280 --> 0:18:18.800 It actually does look like the fiscal impulse is fading 0:18:18.840 --> 0:18:21.159 If you look at the first quarter GDP data on 0:18:21.240 --> 0:18:24.439 both public and private investment, you got this very large 0:18:24.480 --> 0:18:27.680 surge in public investment as well as manufacturing structures, which 0:18:27.760 --> 0:18:30.080 was related. The public side was related to the IIJA, 0:18:30.359 --> 0:18:32.600 the private side was related to the Chips act in 0:18:32.640 --> 0:18:36.119