WEBVTT - Canada’s Railways Lock Out, Jackson Hole 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:15.000 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.480 Eastern on Affo car Playing and broyd Otto with the 0:00:17.520 --> 0:00:21.320 Bloomberg Business app. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:23.320 or watch us live on YouTube. 0:00:25.120 --> 0:00:28.720 Let's go up to Canada. Here the railroaders they're striking. 0:00:29.120 --> 0:00:30.800 I think that's a big deal. But let me ask 0:00:30.840 --> 0:00:33.360 somebody who knows about this stuff, Lee Clascow. He's a 0:00:33.400 --> 0:00:38.080 senior transportation analyst for Bloomberg Intelligence. Lee, is this Canadian National, 0:00:38.159 --> 0:00:40.600 Canadian Pacific they're striking it? 0:00:40.720 --> 0:00:42.159 Do we have that right? And what does it mean? 0:00:43.040 --> 0:00:46.120 Well, they've locked out their employees because the union threatened 0:00:46.120 --> 0:00:49.000 to strike. So berrero, do you have to kind of 0:00:50.120 --> 0:00:53.280 shut down operations safely to make sure that you know, 0:00:53.640 --> 0:00:56.360 not only your employees can be get home, but also 0:00:56.560 --> 0:00:59.880 you know the equipment is safely stored. So that's kind 0:00:59.920 --> 0:01:04.120 of what we've seen happen. That's obviously going to impact 0:01:04.200 --> 0:01:08.600 volumes of the Canadian rails, both Canadian Pacific and Canadian National. 0:01:09.120 --> 0:01:11.600 They make up around twenty five percent of originated car 0:01:11.680 --> 0:01:14.520 loads in North America and you know, the impact will 0:01:14.560 --> 0:01:17.200 be felt across the supply chain because it's not just 0:01:17.280 --> 0:01:20.240 a Canadian thing. You know, it's also going to impact 0:01:20.520 --> 0:01:24.280 the rails that they interchange with. And also both Canadian 0:01:24.280 --> 0:01:27.279 Pacific and Canadian National also go into the United States. 0:01:27.640 --> 0:01:31.880 CP also goes directly into Mexico. About a third of 0:01:32.040 --> 0:01:36.559 Canadian Nationals volumes or revenues i should say, are tied 0:01:36.640 --> 0:01:39.520 to cross border traffic, so you know, it's not just 0:01:39.680 --> 0:01:43.880 going to be impacting Canada. How we see it playing 0:01:43.959 --> 0:01:48.120 out is that, you know, these kind of work stoppages 0:01:48.560 --> 0:01:53.080 don't last that long. Typically, usually they're usually forced into 0:01:53.160 --> 0:01:56.320 some sort of arbitration, you know, when it starts really 0:01:56.400 --> 0:02:00.440 impacting the economy. The Canadian government kind of a hands 0:02:00.480 --> 0:02:04.400 off approach going into Thursday when the deadline was there. 0:02:05.240 --> 0:02:07.760 You know, they might take more of a kind of 0:02:07.800 --> 0:02:12.200 a direct approach now that freight is starting stopping to flow, 0:02:13.160 --> 0:02:15.640 you know, and for the railroads, the two railroads impacted, 0:02:15.720 --> 0:02:18.799 it's going to impact their earnings. You know, a lot 0:02:18.880 --> 0:02:21.720 of the freight is going to be just delayed, it's 0:02:21.760 --> 0:02:24.480 not necessarily going to be lost, but some of their 0:02:24.680 --> 0:02:28.160 you know, more truck competitive freight like intermodal that's a 0:02:28.200 --> 0:02:32.520 little more time sensitive could get lost to other modes, 0:02:32.600 --> 0:02:33.400 namely trucks. 0:02:34.240 --> 0:02:39.080 You've also talked about how, due to the different labor disruption, 0:02:39.320 --> 0:02:42.320 shippers have been diverting free from those Canadian ports toward 0:02:42.639 --> 0:02:45.560 the US West Coast. So what I'm wondering is who 0:02:45.720 --> 0:02:47.600 kind of wins and who loses from this, because you've 0:02:47.639 --> 0:02:50.239 also talked about how this sort of situation has helped 0:02:50.280 --> 0:02:53.880 boost Union Pacific and other sort of internal modal traffic 0:02:53.960 --> 0:02:54.720 in recent weeks. 0:02:56.200 --> 0:02:58.320 Yeah, so you know how we see this playing out 0:02:58.520 --> 0:03:01.280 is you know who's going to benefit it. Well, if 0:03:01.600 --> 0:03:04.519 if it's freight that's headed into Canada that's going to 0:03:05.200 --> 0:03:08.000 end up in the United States, it's not going to 0:03:08.080 --> 0:03:10.600 go into Canada because the steamships are going to avoid 0:03:10.680 --> 0:03:13.280 those sports due to the workstop it. So they might 0:03:13.360 --> 0:03:17.040 try to bring that freight into southern California or the 0:03:17.120 --> 0:03:19.560 Gulf Coast and the East Coast. But that being said, 0:03:19.600 --> 0:03:22.200 the Gulf Coast and East Coast are also facing those 0:03:22.320 --> 0:03:25.040 ports are also facing their own labor issues. They have 0:03:25.120 --> 0:03:29.320 a contract that comes up in September thirtieth with their unions, 0:03:29.960 --> 0:03:32.720 and right now there doesn't seem like there's an agreement 0:03:33.800 --> 0:03:35.840 at least in the near term. So you know a 0:03:35.920 --> 0:03:41.200 lot of shippers have been redirecting their freight to southern California. 0:03:41.480 --> 0:03:44.800 So then who wins. Well, big winners would be Union 0:03:44.800 --> 0:03:50.120 Pacific in Burlington Northern and also in Burlington Northern that's 0:03:50.160 --> 0:03:54.520 a fully owned subsidiary by Berkshire Hathaway. And so also 0:03:54.640 --> 0:03:57.920 some of the intermodal players might benefit too because you'll 0:03:58.000 --> 0:04:02.320 have maybe longer lengths of haul, which should drive higher 0:04:02.400 --> 0:04:05.960 revenues for the players. And also, you know, we expect 0:04:06.000 --> 0:04:08.800 to see a little bump in truck spot load rates 0:04:09.480 --> 0:04:12.720 next week, as you know, maybe more and more capacity 0:04:12.880 --> 0:04:16.800 might be needed to move that time sensitive freight that's 0:04:16.839 --> 0:04:20.080 being impacted by the Canadian labor strife. 0:04:20.760 --> 0:04:23.719 Lee, I wonder if is this time of year particularly crucial. 0:04:23.720 --> 0:04:26.200 I'm thinking about the retailers maybe stocking at their shelves 0:04:26.240 --> 0:04:29.200 getting ready for you know, the holiday season. 0:04:29.920 --> 0:04:34.039 Was this time period chosen or is this just happenstance? 0:04:34.920 --> 0:04:37.400 This has happenstance, This is just like when their contract 0:04:38.000 --> 0:04:42.040 came up, you know, and not all labor issues have 0:04:42.360 --> 0:04:46.520 been terrible this year. CSX yesterday announced that they've reached 0:04:46.520 --> 0:04:50.560 an agreement four or five months ahead of their deadline 0:04:50.680 --> 0:04:54.800 with about twenty five percent of their unionized workforce, which 0:04:54.880 --> 0:04:58.400 included a three and a half percent pay increase on 0:04:58.480 --> 0:05:02.720 an annual basis over the next five years. So it's 0:05:02.800 --> 0:05:04.840 not it's not all bad news for labor, but but 0:05:04.920 --> 0:05:07.840 it and you know, it's not all bad news when 0:05:07.880 --> 0:05:10.600 it relates to labor, I should say, uh, but you know, 0:05:11.440 --> 0:05:15.960 we hope that things in Canada come to a close 0:05:16.440 --> 0:05:18.360 uh and and the rails get back to work, not 0:05:18.480 --> 0:05:21.800 only you know, for the economies involved, but you know 0:05:21.839 --> 0:05:22.960 the people involved as well. 0:05:23.560 --> 0:05:27.400 What does this mean for commodities traffic growth from here? 0:05:27.640 --> 0:05:30.920 Because it's largely dependent on the pace of of course 0:05:31.080 --> 0:05:34.360 China's economic recovery, and since it's also a major importer 0:05:34.520 --> 0:05:36.360 of North American materials as well. 0:05:38.000 --> 0:05:41.080 Yeah, so you know, as China goes, so does a 0:05:41.160 --> 0:05:44.880 commodity demand globally. You know, in addition to covering railroads, 0:05:44.920 --> 0:05:47.360 we cover marine shipping, the dry ball and tanker market 0:05:47.440 --> 0:05:51.880 as well. They're a major player and importer of goods. 0:05:52.200 --> 0:05:55.120 You know, their economy has not been as good as 0:05:55.240 --> 0:05:59.120 many were expecting. Uh, And that is definitely going to 0:05:59.200 --> 0:06:02.120 have an impact on demand, you know, with rails. You 0:06:02.200 --> 0:06:05.360 know what we should see on the commodity side is 0:06:05.880 --> 0:06:09.520 a lot of lumpiness in the weekly volume data that 0:06:09.600 --> 0:06:14.960 we get from the trade Association, the American Rail Association, 0:06:16.040 --> 0:06:19.760 and so you know, while a lot of that freight 0:06:19.880 --> 0:06:22.240 is not going to get lost like two other modes 0:06:22.320 --> 0:06:24.920 like maybe more truck competitive stuff, it's just going to 0:06:24.960 --> 0:06:28.040 get delayed. So it's going to create probably more lumpy 0:06:28.080 --> 0:06:31.680 earnings for Canadian National, Canadian Pacific in the third and 0:06:31.800 --> 0:06:35.960 fourth quarter. You know, probably it's going to weigh on 0:06:36.040 --> 0:06:38.599 the third quarter and maybe be somewhat of a tailwin 0:06:38.680 --> 0:06:39.400 in the fourth quarter. 0:06:39.839 --> 0:06:42.040 All right, Lee, thanks so much for joining us. I 0:06:42.040 --> 0:06:45.000 always appreciate getting your views there. Lead classical senior transport 0:06:45.400 --> 0:06:48.360 logistics and shipping analysts for Bloomberg Intelligence joining us via 0:06:48.440 --> 0:06:51.560 zoom from Princeton, New Jersey. On that Canadian railways they 0:06:51.640 --> 0:06:55.520 lock out their workers as talks fail, snarling trade there, 0:06:55.600 --> 0:06:58.560 so that brings up the risk of a possible strike here. 0:06:58.640 --> 0:07:02.000 So Lee is our global leader of all that trucking 0:07:02.160 --> 0:07:04.679 and railroads and logistics and all that kind of stuff. 0:07:05.120 --> 0:07:06.520 See is our go to guy there. 0:07:08.040 --> 0:07:11.920 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:12.040 --> 0:07:14.960 weekdays at ten am Eastern on Apple car Play and 0:07:15.080 --> 0:07:17.960 Android Auto with the Bloomberg Business app. You can also 0:07:18.080 --> 0:07:21.240 listen live on Amazon Alexa from our flagship New York 0:07:21.320 --> 0:07:24.679 station Just Say Alexa playing Bloomberg eleven thirty. 0:07:26.000 --> 0:07:28.720 Let's go to out this Jackson hawayoming a little bit 0:07:28.720 --> 0:07:29.800 more west of Chicago. 0:07:30.080 --> 0:07:31.160 Michael McKee joins is there. 0:07:31.200 --> 0:07:34.360 He's Bloomberg International Economics and Policy correspondent, and he is 0:07:34.440 --> 0:07:39.720 the authentic Western dude, born and raised in Colorado, Colorado State, 0:07:39.800 --> 0:07:40.160 the whole thing. 0:07:40.240 --> 0:07:43.000 So he's at home out there. Tom Keen in the 0:07:43.120 --> 0:07:46.040 suit and the bow tie not so shure, but Michael 0:07:46.120 --> 0:07:48.240 McKee fits right in there, like the cowboy hat. I 0:07:48.320 --> 0:07:50.520 know he's sporting to camp. I was waiting for it 0:07:50.920 --> 0:07:53.880 the friends on YouTube. Michael, what's the. 0:07:54.240 --> 0:07:56.920 But everybody asked, so I need to and you. 0:07:57.040 --> 0:07:59.800 Delivered, And you delivered, no question. You're bringing the game. 0:08:00.240 --> 0:08:02.520 What's the feeling out there in Jackson Hole, Mike. What 0:08:02.920 --> 0:08:05.680 is the expectation for FED Chairman J Powell tomorrow? 0:08:08.160 --> 0:08:10.800 Expectations aren't really high that he's going to give us 0:08:10.840 --> 0:08:14.239 a whole lot new he'll say that the inflation numbers 0:08:14.280 --> 0:08:16.920 have been good, they have more confidence about reaching their 0:08:16.920 --> 0:08:20.160 two percent inflation target, and that it may soon be 0:08:20.280 --> 0:08:24.000 appropriate to change policy. He doesn't want to commit to 0:08:24.480 --> 0:08:27.440 a September eighteenth rate cut because we do have data 0:08:27.520 --> 0:08:30.360 coming in two inflation reports, that a jobs report that 0:08:30.480 --> 0:08:33.640 could change their mind. I suppose, But I think what 0:08:33.760 --> 0:08:36.280 he wants to do is leave the markets believing they're 0:08:36.360 --> 0:08:38.120 going to cut without guaranteeing it. 0:08:39.000 --> 0:08:41.480 And of course we've had a few different FED speakers 0:08:41.559 --> 0:08:44.040 this morning, as you know, so Kansas City FED President 0:08:44.120 --> 0:08:48.160 Jeffrey Smith obviously speaking on Bloomberg Television earlier. So he 0:08:48.360 --> 0:08:51.120 was talking about how, especially if you're thinking about the 0:08:51.160 --> 0:08:54.840 payroll visions don't really change how they were thinking about policy. 0:08:54.960 --> 0:08:57.520 But then something else that I thought was interesting was 0:08:57.559 --> 0:09:01.160 Patrick Harker was speaking about how he already thought markets 0:09:01.200 --> 0:09:03.640 have priced in a move for FED action, and he 0:09:03.800 --> 0:09:06.600 also said that the easing cycle may put the FED 0:09:06.640 --> 0:09:08.880 funds rate near three percent. I thought that was interesting 0:09:08.920 --> 0:09:10.800 because he was a little bit more specific than some 0:09:10.920 --> 0:09:13.360 of the other FED speakers that you've heard. What's your 0:09:13.400 --> 0:09:15.760 kind of takeaway from this as far as some gleaning 0:09:15.800 --> 0:09:18.160 some of this new information from them ahead of obviously 0:09:18.880 --> 0:09:20.360 pal tomorrow speaking. 0:09:22.040 --> 0:09:23.840 Well, it's pretty clear the markets are priced in at 0:09:23.920 --> 0:09:25.839 least one rate cut, a little bit more than one 0:09:25.920 --> 0:09:28.959 at this point. Is they keep their options open. You 0:09:29.000 --> 0:09:32.000 can see that in the futures and the overnight index swaps. 0:09:32.040 --> 0:09:34.160 But the idea of what neutral is going to be 0:09:34.240 --> 0:09:36.079 and where the Fed is going to end its rate 0:09:36.160 --> 0:09:38.000 cutting cycle is going to be a big matter of 0:09:38.080 --> 0:09:40.920 debate going forward. A lot of people from the Fed say, 0:09:41.000 --> 0:09:43.880 we don't know yet because we're not sure what's happened 0:09:44.000 --> 0:09:48.080 with the demand level, the potential growth of the economy. 0:09:48.280 --> 0:09:50.760 I don't want to get all wonky, but basically our star, 0:09:51.240 --> 0:09:54.280 as they say, and if it has, if it has 0:09:54.400 --> 0:09:57.720 gone up, then they cut less. If if it's gone 0:09:57.760 --> 0:09:59.920 back to pre pandemic levels, then we could get down 0:10:00.120 --> 0:10:01.920 around three or so. They don't want to go much 0:10:01.960 --> 0:10:04.520 further than that because they want some space to cut rates. 0:10:04.840 --> 0:10:06.240 And the one thing they will all tell you they 0:10:06.280 --> 0:10:07.959 don't have a number yet, but they say it will 0:10:08.040 --> 0:10:08.840 not be zero. 0:10:08.840 --> 0:10:12.360 Again, Michael, is the feeling out there in Jackson Hole 0:10:12.480 --> 0:10:15.800 that the FED, in terms of timing of cutting rates, 0:10:15.840 --> 0:10:18.400 that they're on the right glide path or is there 0:10:18.440 --> 0:10:20.600 concern that maybe they're a little bit late here As 0:10:20.640 --> 0:10:22.120 we look at some of this data over the last 0:10:22.480 --> 0:10:23.679 several days and weeks. 0:10:25.520 --> 0:10:28.320 FED folks don't think they're late. You get the argument 0:10:28.480 --> 0:10:30.880 from Wall Street that they might be. There are people 0:10:30.960 --> 0:10:32.720 on Wall Street who think the Fed's behind the curve. 0:10:33.240 --> 0:10:36.280 But their view is you look at the data, and 0:10:36.360 --> 0:10:38.640 the data aren't telling us the economy is falling off 0:10:38.679 --> 0:10:41.959 a cliff. Jobs claims this morning barely moving and on 0:10:42.040 --> 0:10:45.120 a non seasonally adjusted basis actually going down. There's no 0:10:45.400 --> 0:10:50.000 layoffs happening. And what they're hearing from their constituents, the 0:10:50.320 --> 0:10:53.240 CEOs and companies in their districts is that they're still 0:10:53.280 --> 0:10:56.040 demand out there. People are still spending money, not as much, 0:10:56.280 --> 0:10:59.079 not as fast, but they are still spending and so 0:10:59.320 --> 0:11:02.640 the outlook still pretty good, which means they don't feel 0:11:02.760 --> 0:11:06.400 an urgency to move that some people on Wall Street 0:11:07.040 --> 0:11:07.959 would like them to have. 0:11:08.960 --> 0:11:11.199 It's interesting looking at the moves in the bond market. 0:11:11.400 --> 0:11:14.400 So after we heard for Kansas City, a FED president 0:11:14.480 --> 0:11:17.120 at Jeffrey Smid, you're actually looking over at the tenure 0:11:17.200 --> 0:11:20.400 yield rising. It's close to about a three eighty four 0:11:20.520 --> 0:11:23.120 right now. So he was saying about how more data 0:11:23.240 --> 0:11:25.160 is needed for a rate cut. But when you're hearing 0:11:25.280 --> 0:11:28.280 that type of rhetoric, is that just basically them trying 0:11:28.320 --> 0:11:31.120 to signal, don't expect to say a fifty basis point 0:11:31.240 --> 0:11:33.679 rate cut out a September meeting something that aggressive. To 0:11:33.800 --> 0:11:36.280 be thinking more, maybe a more measured pace in line. 0:11:36.440 --> 0:11:38.440 When it comes to markets and their anticipation for. 0:11:38.520 --> 0:11:43.760 This, it depends on who is talking. Deef Schmid represents 0:11:43.800 --> 0:11:46.719 the Kansas City District, which has traditionally been one of 0:11:46.720 --> 0:11:50.480 the more hawkish on inflation, so it's understandable that he 0:11:50.720 --> 0:11:54.160 is reluctant to commit at this point. But I think 0:11:55.320 --> 0:11:57.760 they all want to leave the impression that we're about 0:11:57.800 --> 0:12:00.520 to start a cutting cycle. If it's not going to 0:12:00.559 --> 0:12:02.959 be in September, it's going to be shortly after that 0:12:03.120 --> 0:12:06.400 unless we see some sort of dramatic reversal in inflation. 0:12:06.920 --> 0:12:10.040 They just don't want to have to ratify the market's 0:12:10.080 --> 0:12:13.240 wishes and start cutting too far too fast. 0:12:14.320 --> 0:12:16.520 All right, Michael McKee, thank you so much for joining us. 0:12:16.640 --> 0:12:18.120 Thank you for the cowboy hat that I love. 0:12:18.120 --> 0:12:20.880 It makes the hit. Michael McKee, He's not just a cowboy. 0:12:20.920 --> 0:12:23.800 He covers all the economic stuff for Bloomberg News Intellivision, 0:12:23.800 --> 0:12:25.040 but he is a colunt on, a native, so he 0:12:25.120 --> 0:12:25.400 fits in. 0:12:25.640 --> 0:12:27.679 That is I'm so excited we got to see it. 0:12:27.760 --> 0:12:29.600 This is a suspense of us waiting to see if 0:12:29.600 --> 0:12:31.080 the hat was there, and he delivered. 0:12:30.920 --> 0:12:33.120 Basically for the FED chairman pal tomorrow. I mean, you 0:12:33.160 --> 0:12:34.920 know they don't. He doesn't have to do a whole 0:12:34.960 --> 0:12:35.560 lot tomorrow. 0:12:35.640 --> 0:12:38.360 So the options market, actually, the volatility that was had 0:12:38.400 --> 0:12:40.600 been priced in come down pretty dramatically. So right now 0:12:40.640 --> 0:12:43.040 the options market's pricing and eight tenths of a percent 0:12:43.160 --> 0:12:45.560 swing for the S and P five hundred in either direction, 0:12:45.679 --> 0:12:48.120 and for context, last week it actually had been over 0:12:48.240 --> 0:12:50.320 one percent, it had been around one point two percent. 0:12:50.480 --> 0:12:53.640 So really it's just based on the positioning and investors 0:12:53.720 --> 0:12:56.120 expecting volatility to fade, and a lot of it. Because 0:12:56.280 --> 0:12:58.719 we've talked about we've already had at least a half 0:12:58.800 --> 0:13:01.120 dozen FED speakers come out signal that rate cuts are 0:13:01.200 --> 0:13:03.640 expected next month. So really it's all about what traders 0:13:03.640 --> 0:13:05.199 are talking about, the tone, and if he keeps that 0:13:05.280 --> 0:13:06.920 tone going tomorrow exactly. 0:13:06.640 --> 0:13:08.160 And then I'll be interesting to see kind of the 0:13:08.280 --> 0:13:10.760 pace of rate cuts. How they cut rates going forward? 0:13:10.840 --> 0:13:12.240 Is it twenty five basis points. 0:13:12.040 --> 0:13:13.240 Each each meeting? 0:13:13.400 --> 0:13:15.480 Every other meeting that he does a front load with 0:13:15.559 --> 0:13:17.400 fifty be interesting to see how this all plays out. 0:13:18.840 --> 0:13:22.680 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:13:22.800 --> 0:13:25.480 weekdays at ten am Eastern on Apple car Playing and 0:13:25.600 --> 0:13:28.480 broud Otto with the Bloomberg Business app. Listen on demand 0:13:28.559 --> 0:13:32.200 wherever you get your podcasts, or watch us live on YouTube. 0:13:34.360 --> 0:13:36.880 Just meant sitting in for Alex Steel here on Paul Sweeney. 0:13:36.880 --> 0:13:38.840 You live here in our Bloomberg Interactive Brokers studio. We're 0:13:38.880 --> 0:13:41.400 streaming live on YouTube as well, so check us out there. 0:13:42.080 --> 0:13:44.440 Brian Jacobson joins us here. He's the chief economist at 0:13:44.520 --> 0:13:48.959 Annex Wealth Management, joining us from Brookfield, Wisconsin via that 0:13:49.280 --> 0:13:51.640 zoom thing. Hey Brian, thanks so much for joining us here. 0:13:51.679 --> 0:13:53.760 We're about to hear from FED Chairman j pal Tomorrow 0:13:54.880 --> 0:13:59.240 out in Jackson Hole. What's your view of the economy 0:14:00.080 --> 0:14:00.400 right here? 0:14:02.040 --> 0:14:02.240 Yeah? 0:14:02.280 --> 0:14:04.760 I think well, it obviously had to change based upon 0:14:04.880 --> 0:14:07.080 some of those BLS revisions that we got as far 0:14:07.080 --> 0:14:09.880 as suddenly, poof, there goes eight hundred, eighteen thousand jobs. 0:14:10.440 --> 0:14:12.160 But for the most part. 0:14:12.400 --> 0:14:14.719 My view is that we went from great growth to 0:14:14.840 --> 0:14:18.320 good growth to now sustainable growth. And obviously the trick 0:14:18.600 --> 0:14:21.320 is whether or not that sustainable growth will tip over 0:14:21.400 --> 0:14:23.960 into a recession. We don't necessarily think that it will. 0:14:24.600 --> 0:14:27.840 A lot of that does depend upon the FED beginning 0:14:28.080 --> 0:14:31.040 to really take its foot off of the break of 0:14:31.200 --> 0:14:33.840 the economy. It's been trying to slow things down. We 0:14:33.920 --> 0:14:37.120 don't necessarily think that it needs to really completely take 0:14:37.160 --> 0:14:39.600 its foot off of the break. That's just not their style. 0:14:40.120 --> 0:14:42.480 They are likely to do a twenty five basis point cut. 0:14:42.880 --> 0:14:45.800 I think Collins from Boston said it pretty well about 0:14:45.880 --> 0:14:48.440 being very slow and methodical about the rate cuts, which 0:14:48.440 --> 0:14:50.000 is very different than what they did in the past, 0:14:50.400 --> 0:14:53.200 which is they'd be slow and methodical in hiking and 0:14:53.320 --> 0:14:55.920 then have to cut aggressively. And now it's the complete 0:14:55.960 --> 0:14:59.760 opposite of that aggressive hiking, more slow, methodical cutting and 0:14:59.800 --> 0:15:00.680 st on the way. 0:15:01.440 --> 0:15:04.440 And looking at the latest Atlanta FED GDP model for 0:15:04.560 --> 0:15:07.200 the current quarter, it has growth around two percent. As 0:15:07.240 --> 0:15:09.680 you know, that can be very volile at times. Another 0:15:09.720 --> 0:15:11.320 thing I like to look at the paul in the 0:15:11.560 --> 0:15:13.720 terminal as a function ECFC, so you can look at 0:15:13.720 --> 0:15:16.880 the economic forecast annually as where's quarterly, But you're still 0:15:16.920 --> 0:15:20.400 seeing strength there. So whenever people are pointing to say, 0:15:20.480 --> 0:15:23.600 for instance, Brian, that last July payrolls report that's all 0:15:23.640 --> 0:15:25.680 slow down and hiring, that was just one report. Of course, 0:15:25.720 --> 0:15:27.840 we haven't seen a trend of that just yet. Where 0:15:27.960 --> 0:15:30.640 exactly do you see when people are trying to argue 0:15:30.680 --> 0:15:32.640 for the weakness here, Because when you're looking at consumer 0:15:32.720 --> 0:15:35.480 spending that obviously makes up the bulk of GDP more 0:15:35.520 --> 0:15:37.840 than two thirds of that that drives the economy, it 0:15:37.920 --> 0:15:40.840 still seems like people are maybe they're shifting which type 0:15:40.880 --> 0:15:43.000 of retailers they're going to, right when we see results 0:15:43.040 --> 0:15:45.960 from Walmart and Target here, kind of diverging paths, but 0:15:46.240 --> 0:15:48.080 still seems like there's a strong consumer out there. 0:15:49.160 --> 0:15:51.360 Yeah, the consumer is strong, but not as strong as 0:15:51.400 --> 0:15:52.640 they used to be, And I think that's one of 0:15:52.720 --> 0:15:54.600 the key things when people are talking about some of 0:15:54.640 --> 0:15:56.880 the weakness, a lot of that is focused more on 0:15:56.960 --> 0:15:59.560 what's been going on with small and medium sized businesses 0:15:59.600 --> 0:16:02.280 in the UNI it States, high cost of financing. They've 0:16:02.360 --> 0:16:05.320 seen really orders being canceled over the last few years. 0:16:05.400 --> 0:16:08.640 Manufacturing in particular has really been struggling. I think it's 0:16:08.680 --> 0:16:11.280 been like twenty one months in a row, with maybe 0:16:12.160 --> 0:16:14.000 one or two of those months above fifty. But for 0:16:14.040 --> 0:16:17.360 the most part in recessionary territory, the service sector activity 0:16:17.400 --> 0:16:20.280 has stayed rather buoyant. But now the fears are more 0:16:20.280 --> 0:16:23.800 about what is happening next. It's not necessarily disagreement about 0:16:23.840 --> 0:16:26.760 where are we now, but where are we headed? And 0:16:26.840 --> 0:16:29.440 I think that's where you see some of these early indicators, 0:16:29.640 --> 0:16:31.720 you know, the Walmart and Target earnings. I think we're 0:16:31.760 --> 0:16:34.320 good examples. Why is it that they've been doing well 0:16:34.560 --> 0:16:38.720 because of discounting. Customers really view it easier to buy, say, 0:16:38.880 --> 0:16:41.480 throw pillows to spruce up a room as opposed to 0:16:41.600 --> 0:16:44.720 doing a complete remodel, right, and so that benefits Target 0:16:45.000 --> 0:16:47.880 at the expense of say home depot or other companies 0:16:47.920 --> 0:16:50.480 that are more in that higher ticket price things that 0:16:50.640 --> 0:16:52.800 maybe need to be financed. And so I think the 0:16:53.040 --> 0:16:56.040 consumer is strong, but not as strong as they used 0:16:56.040 --> 0:16:56.200 to be. 0:16:57.240 --> 0:16:58.960 What's the risk here that the FED is late and 0:16:59.520 --> 0:17:02.200 this is really at risk of a recession, maybe even 0:17:02.240 --> 0:17:03.600 tho some folks say we're already in one. 0:17:04.760 --> 0:17:07.240 Well, yeah, I think that they are late, but that 0:17:07.320 --> 0:17:11.040 doesn't necessarily risk a recession because of the resiliency of 0:17:11.240 --> 0:17:14.879 the consumer and the overall economy. In fact, with the 0:17:15.119 --> 0:17:17.720 rate cuts coming in September, you know, maybe they should 0:17:17.760 --> 0:17:20.160 have done that back in July. If not sooner, maybe 0:17:20.200 --> 0:17:23.560 they should do fifty basis points. It's not necessarily about 0:17:24.200 --> 0:17:26.280 saying what I would like them to do about but 0:17:26.520 --> 0:17:28.880 what I think they will do, which is that twenty 0:17:28.920 --> 0:17:31.600 five basis points, and so if they slowly take their 0:17:31.600 --> 0:17:33.200 foot off the break, I think that's going to be 0:17:33.320 --> 0:17:37.280 good enough for the economy to avoid a recession. I 0:17:37.320 --> 0:17:39.920 don't think we need any sort of outsized move higher. 0:17:39.960 --> 0:17:42.399 I would like to see a bigger move higher, you know, 0:17:42.480 --> 0:17:45.760 basically to allow that real federal funds, right, the inflation 0:17:45.880 --> 0:17:49.119 adjusted one, to come back down to something that I 0:17:49.160 --> 0:17:52.120 think is more on target with that two percent inflation 0:17:52.560 --> 0:17:55.159 that we're headed towards. But the Fed is likely to 0:17:55.280 --> 0:17:57.639 deliver kind of weak beer here in terms of a 0:17:57.680 --> 0:18:01.119 twenty five basis point cut. Maybe the big disappointment is 0:18:01.200 --> 0:18:04.879 that even any cut is not necessarily going to accelerate 0:18:05.000 --> 0:18:09.480 economic growth immediately. The initial effect is actually to serve 0:18:09.520 --> 0:18:13.200 as an economic drag as people pull back their activity. 0:18:13.320 --> 0:18:16.600 The borrowing, waiting for something more meaningful until maybe you 0:18:16.680 --> 0:18:19.720 get four cuts under your belt. Because does it matter 0:18:19.760 --> 0:18:21.560 if it's six and a half percent on a mortgage 0:18:21.680 --> 0:18:24.480 versus six point twenty five. Probably not, But six and 0:18:24.520 --> 0:18:27.040 a half versus five and a half, that's a bigger difference. 0:18:27.440 --> 0:18:30.840 Talk to us about some of your favorite corners of 0:18:30.920 --> 0:18:33.680 the economy, especially when you're thinking about those closely tied 0:18:33.720 --> 0:18:36.760 to growth when it comes to industrials, consumer staples, energy, 0:18:36.880 --> 0:18:38.080 as well as financials. 0:18:39.160 --> 0:18:41.280 Yeah, some of those have been a little bit painful. 0:18:41.359 --> 0:18:44.200 We've been overweight energy for a while, just thinking that 0:18:44.400 --> 0:18:47.359 these companies are cash cows and they're probably going to 0:18:47.400 --> 0:18:50.440 continue to do well. The big disappointment there has really 0:18:50.480 --> 0:18:52.880 been on the demand side of the equation in terms 0:18:52.920 --> 0:18:55.560 of China's growth being very slow, helping to push down 0:18:55.680 --> 0:18:58.840 oil prices. But still from that fundamental basis the cash 0:18:58.880 --> 0:19:02.200 flow generation. We do like that area, and they could 0:19:02.280 --> 0:19:06.160 get a boost if we do see an eventual reacceleration, 0:19:06.320 --> 0:19:09.440 but we're not banking on an economic reacceleration For some 0:19:09.560 --> 0:19:12.680 of those more cyclical areas, those are more based on 0:19:12.920 --> 0:19:16.000 let's say the valuations, and that a lot of these 0:19:16.040 --> 0:19:20.240 companies have already gone through an earnings recession. If you 0:19:20.280 --> 0:19:22.040 look on the Bloomberg terminal as far as you know, 0:19:22.119 --> 0:19:24.920 the FA function for the financial analysis for these different 0:19:24.960 --> 0:19:28.040 indices for the different areas, you can see how it 0:19:28.160 --> 0:19:31.359 is that small mid sized companies they have been in 0:19:31.640 --> 0:19:35.560 and out of recession for basically the last two years, 0:19:36.000 --> 0:19:39.879 and now the expectation is for that earnings recession to 0:19:39.960 --> 0:19:43.680 continue for the next couple of quarters. That seems pretty realistic. 0:19:43.840 --> 0:19:46.679 So if that's already priced in, maybe we could actually 0:19:46.760 --> 0:19:50.399 see the valuations provide a bit of a foundation for 0:19:50.640 --> 0:19:52.200 longer term gains in those areas. 0:19:52.359 --> 0:19:55.760 I'm glad you brought that up, because, of course Bloomberg Intelligence, Paul, 0:19:55.800 --> 0:19:58.200 if you crunch Geno Martin Adams team over on the 0:19:58.240 --> 0:20:01.399 equity side, they actually had been talking about coming into 0:20:01.600 --> 0:20:03.920 this quarter, how the rest of the S and P 0:20:04.040 --> 0:20:06.159 five hundred to four ninety three were actually going to 0:20:06.240 --> 0:20:08.800 have in turn of profit growth when you're excluding those 0:20:08.920 --> 0:20:11.240 MAGS seven type companies. And so even though we're seeing 0:20:11.560 --> 0:20:13.760