WEBVTT - Surveillance: Peterson on Jobless Claims Drop 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.200 --> 0:00:31.400 We've been too long to wait. 0:00:31.240 --> 0:00:34.640 For Dana Peterson, Chief Economists at the Conference Board. With 0:00:34.720 --> 0:00:37.120 these market moves as well data, when you see a 0:00:37.200 --> 0:00:40.920 report like this with consumption that is buoyant, with the 0:00:40.960 --> 0:00:46.000 surprises in housing, do you have to shift your FED guests? 0:00:47.040 --> 0:00:49.440 Well, I would say that the Fed, well we have. 0:00:49.560 --> 0:00:51.960 Our guest was that there'd be one more interest rate hike. 0:00:52.040 --> 0:00:55.000 Maybe we're looking at two or even more, especially if 0:00:55.040 --> 0:00:58.600 inflation doesn't cool off and consumers continue to spend and 0:00:58.680 --> 0:01:02.520 the labor market remains bus So. The problem here is 0:01:02.560 --> 0:01:05.720 that you know, good news is bad news for the FED. 0:01:06.640 --> 0:01:08.679 Good news is bad news for the FED. And again 0:01:08.720 --> 0:01:11.120 you can sort of see that pricing reflected in the 0:01:11.200 --> 0:01:13.800 two year yield right now really spiking on the back 0:01:14.000 --> 0:01:16.560 of this print. Let's talk about initial jobless claims too, 0:01:16.600 --> 0:01:19.600 like Mike said, actually fell and that's been sort of 0:01:19.600 --> 0:01:23.640 the mystery of this economy is the resilience of resiliency 0:01:23.680 --> 0:01:25.840 of the labor market. When you think about the Fed's 0:01:26.280 --> 0:01:29.560 long path back to that two percent target, do we 0:01:29.800 --> 0:01:32.680 need to see weakness there or is there any scenario 0:01:33.040 --> 0:01:36.679 where okay, maybe things remain rosy on the jobs front, 0:01:36.680 --> 0:01:40.920 but we also see inflation continue to come down well. 0:01:40.880 --> 0:01:43.600 On the jobs front. When we ask CEOs, what are 0:01:43.640 --> 0:01:46.680 you doing about labor markets? At least the third are 0:01:46.760 --> 0:01:49.680 still hiring, but forty six percent are saying we're not 0:01:49.760 --> 0:01:52.240 doing anything. So that means they're hoarding labor. They're not 0:01:52.360 --> 0:01:55.480 letting people go because they think that if there is 0:01:55.520 --> 0:01:58.360 a soft spot or even a recession, it's gonna be short, 0:01:58.440 --> 0:02:00.680 it's gonna be shallow, it's not going to be that bad. 0:02:01.200 --> 0:02:03.680 And so they're just holding onto their workers because they 0:02:03.720 --> 0:02:07.279 spent so much time and effort and money attracting labor 0:02:07.320 --> 0:02:08.680 and also trying to keep them. 0:02:09.080 --> 0:02:11.919 What does that mean for wages that impulse to hoard 0:02:12.360 --> 0:02:15.840 labor here to hang on to that workforce, are employers 0:02:15.840 --> 0:02:18.040 having to raise wages even more from here. 0:02:19.160 --> 0:02:21.880 Well, in the same survey if CEOs, they said, yes, 0:02:21.960 --> 0:02:24.160 we do expect that over the next twelve months, we're 0:02:24.200 --> 0:02:26.640 going to have to continue to raise wages. Most of 0:02:26.639 --> 0:02:29.240 them said between three and five percent. That's a pretty 0:02:29.280 --> 0:02:31.720 big gap. But still in all the fact that they're 0:02:31.720 --> 0:02:36.080 even talking about raising wages is pretty critical, and certainly 0:02:36.080 --> 0:02:40.040 that spills down into consumer prices, which the FED is 0:02:40.080 --> 0:02:41.440 desperately trying to lower. 0:02:42.320 --> 0:02:44.959 Dand of the Conference Board has such a heritage with 0:02:45.120 --> 0:02:48.799 the measurement of the tone of business. What is your 0:02:48.880 --> 0:02:53.079 reporting now the granularity of the Conference Board on the 0:02:53.120 --> 0:02:54.560 mood of business America? 0:02:55.960 --> 0:02:59.840 Sure, well, we talked to CEOs and CFOs and all 0:02:59.840 --> 0:03:03.120 the seas out there, and it's really mixed. Some aer 0:03:03.200 --> 0:03:05.880 it really depends upon their industry. Some are saying things 0:03:05.880 --> 0:03:08.760 are bad, especially those in finance and tech, that you 0:03:08.840 --> 0:03:12.080 need to down right size their labor markets. And then 0:03:12.080 --> 0:03:14.880 we have others that are in consumer services and that 0:03:14.880 --> 0:03:18.280 they're saying now is awesome, It's really great. So I 0:03:18.320 --> 0:03:20.239 really think it depends upon the industry. 0:03:20.639 --> 0:03:23.240 Totally agree Dana Peterson with us. We're going to continue 0:03:23.240 --> 0:03:25.680 with her for a few more minutes as well, if 0:03:25.680 --> 0:03:28.119 you're joining us, I thought it would be a sleepy Thursday. 0:03:28.280 --> 0:03:32.040 Tom is wrong again, to say the least. A stunning 0:03:32.160 --> 0:03:35.920 reassessment of the strength of the American economy off GDP. 0:03:36.440 --> 0:03:38.720 Good morning to the optimists out there who see the 0:03:38.760 --> 0:03:42.600 glass have full. Also claims coming in, as Katie Greifeld 0:03:42.640 --> 0:03:46.200 mentioned as well. Features up twelve, they lifted earlier, still 0:03:46.280 --> 0:03:50.120 up nicely, Nastak up three tenths of a percent. But 0:03:50.240 --> 0:03:54.600 the bond market has been extraordinary with reassessment nine basis 0:03:54.640 --> 0:04:00.560 points three point seven nine percent on the ten year yield. Peterson, 0:04:00.960 --> 0:04:04.040 the first six months of the year have been wrong, wrong, wrong, 0:04:05.000 --> 0:04:08.520 for so many. It's just been extraordinarily difficult. Is that 0:04:08.560 --> 0:04:12.000 because of the pandemic. This is just is a jumble 0:04:12.160 --> 0:04:15.760 of economics and dynamics. This is, to use a cliche, 0:04:15.920 --> 0:04:17.760 this is original territory. 0:04:18.720 --> 0:04:21.680 This definitely is original territory. We have two things going 0:04:21.720 --> 0:04:25.000 on at the same time, the waterbed effect from the pandemic, 0:04:25.040 --> 0:04:28.800 where you have strong desire to spend on services after 0:04:28.920 --> 0:04:31.200 a lot of pent up demand when people were cooped up, 0:04:31.480 --> 0:04:34.960 and you also have labor shortages. Labor shortages are new 0:04:35.040 --> 0:04:37.120 in this sense, and the fact that you have so 0:04:37.200 --> 0:04:40.640 many baby boomers with experience leaving and so that's leaving 0:04:40.640 --> 0:04:44.919 a lot of employers short. So between strong demand for 0:04:45.040 --> 0:04:49.240 services and a limited desire to let people go, we're 0:04:49.279 --> 0:04:54.280 seeing the we're seeing consumer confidence and certainly consumer spending 0:04:54.360 --> 0:04:55.120 remain buoyant. 0:04:55.680 --> 0:04:59.400 Jobsday, July seven, what do you see. 0:04:59.480 --> 0:05:03.359 Well, it's possible that we'll continue to see job editions. 0:05:03.400 --> 0:05:05.680 We still have a lot of vacancies out there, which 0:05:05.720 --> 0:05:08.320 is probably disappointing the FED because they really wanted those 0:05:08.400 --> 0:05:11.680 vacancies to shrink. And the unemployment rate's probably still going 0:05:11.680 --> 0:05:12.760 to remain pretty low. 0:05:14.640 --> 0:05:16.680 He's going to remain pretty low. But come on, he's 0:05:16.720 --> 0:05:19.880 gotten nothing done here. What's a traction here for the 0:05:19.880 --> 0:05:24.360 Fed to meet the theory they are praying and hoping for. 0:05:24.760 --> 0:05:26.159 What's the path on that data? 0:05:26.480 --> 0:05:27.640 Q three, Q four. 0:05:28.760 --> 0:05:31.560 Well, what needs to happen is consumers need to feel 0:05:31.560 --> 0:05:34.159 that they might lose their jobs, right, so you have 0:05:34.200 --> 0:05:36.240 to kind of scare them into thinking they're going to 0:05:36.240 --> 0:05:40.120 become unemployed and that will cause them to pull back. Also, 0:05:40.200 --> 0:05:43.720 this excess savings that we've been talking about in aggregate, 0:05:43.760 --> 0:05:45.760 we think that's probably going to run out in the 0:05:45.800 --> 0:05:48.720 fall of this year, and so once that happens, and 0:05:48.760 --> 0:05:51.920 if consumers really believe something bad has happened is going 0:05:51.960 --> 0:05:55.200 to happen, which our indicators keep saying, then that will 0:05:55.240 --> 0:05:57.480 help slow the economy and thereby inflation. 0:05:57.800 --> 0:05:58.640 Dana, thank you so much. 0:05:58.680 --> 0:06:01.440 Dana Petersons the kind from board here off the shock 0:06:01.480 --> 0:06:05.279 of a third look at first quarter a GDP. 0:06:10.120 --> 0:06:13.799 Matthew Hornbach, global head of macro Strategy over at Morgan Stanley. 0:06:14.000 --> 0:06:16.000 Great to have you on the show. Joining on a 0:06:16.040 --> 0:06:20.599 morning where we have really a blistering column from Bill Dudley, 0:06:20.640 --> 0:06:23.400 of course, the former New York Fed President now a 0:06:23.440 --> 0:06:26.720 Bloomberg opinion columnist, writing that when you add up all 0:06:26.760 --> 0:06:29.320 the forces that he sees in the economy right now, 0:06:29.520 --> 0:06:31.600 he ends up with a four and a half percent 0:06:31.720 --> 0:06:35.280 ten year treasure yield. You wrote a few weeks ago 0:06:35.360 --> 0:06:37.400 that you expect ten your treasure yields to end the 0:06:37.520 --> 0:06:40.240 year at three and a half percent, So a lot 0:06:40.279 --> 0:06:43.600 of distance between those two numbers. Walk us through what 0:06:43.680 --> 0:06:46.080 you see that's going to push the ten year down 0:06:46.120 --> 0:06:46.719 to that level. 0:06:47.760 --> 0:06:50.080 Think thanks Katie for having me on the show. It's 0:06:50.080 --> 0:06:53.440 a pleasure to be back. Let's start with fiscal policy, 0:06:53.920 --> 0:06:57.680 for one. I mean, I think, you know, mister Dudley 0:06:57.760 --> 0:07:02.279 is correct in that fiscal policy had been playing a 0:07:02.320 --> 0:07:05.799 pretty supportive role for economic activity in the United States. 0:07:05.839 --> 0:07:08.880 In fact, just over the past twelve months, the federal 0:07:08.880 --> 0:07:13.200 government budget deficit total two trillion dollars, which was a 0:07:13.360 --> 0:07:16.520 one hundred percent increase from the twelve months before that. 0:07:17.080 --> 0:07:21.320 So over the past year or so, the economy has 0:07:21.480 --> 0:07:27.160 been supported by a fairly sizable fiscal deficit. But when 0:07:27.160 --> 0:07:29.880 we look at the projections that are coming out of 0:07:29.880 --> 0:07:34.240 the Congressional Budget Office and we incorporate that into our forecasting, 0:07:34.760 --> 0:07:38.440 we actually see that the rate of change of fiscal 0:07:39.080 --> 0:07:43.880 support is going to decelerate meaningfully over the next twelve 0:07:43.880 --> 0:07:46.120 months or so. So by the time we get to 0:07:46.160 --> 0:07:49.840 the middle of twenty twenty four, we're actually we're actually 0:07:49.880 --> 0:07:53.080 going to have a fairly large decline in the deficit, 0:07:53.760 --> 0:07:55.960 to the tune of about twenty five percent on a 0:07:56.000 --> 0:07:58.520 year of a year basis. So, you know, we do 0:07:58.560 --> 0:08:02.040 think that fiscal policy has been supportive of activity, probably 0:08:02.120 --> 0:08:06.960 keeping inflation elevated. But you know, over the next twelve months, 0:08:07.000 --> 0:08:08.840 we think that support fades pretty quickly. 0:08:09.440 --> 0:08:11.720 It's really interesting to hear you say that, because I mean, 0:08:11.760 --> 0:08:14.440 the narrative has been that, you know, the trillions of 0:08:14.480 --> 0:08:17.040 dollars that we saw on stimulus from the fiscal side 0:08:17.120 --> 0:08:20.160 during COVID really put us in the situation we're in 0:08:20.200 --> 0:08:23.000 now with that very sticky inflation we're seeing. But it 0:08:23.000 --> 0:08:25.680 sounds like you're making the argument that actually that's going 0:08:25.720 --> 0:08:27.840 to turn into a tailwind of sorts for the FED. 0:08:29.560 --> 0:08:33.160 Well, certainly with respect to bringing inflation down. I mean, 0:08:33.200 --> 0:08:38.600 our economists have core PCE inflation ending this year at 0:08:38.640 --> 0:08:42.320 three point four percent, which is fifty basis points below 0:08:43.080 --> 0:08:47.880 the fed's just released economic projections for inflation. So we 0:08:48.200 --> 0:08:51.920 do think that inflation will decelerate more meaningfully than the 0:08:51.920 --> 0:08:54.520 FED is expecting. And I think one of the key 0:08:54.600 --> 0:08:58.800 contributing factors there is the fading away of fiscal support. 0:09:00.120 --> 0:09:02.960 Armback with us with Morgan Stanley. We're gonna digress here 0:09:03.040 --> 0:09:04.920 right now, and this is Germane and we're going to 0:09:04.960 --> 0:09:08.600 begin a third quarter conversation with him. If you're a 0:09:08.640 --> 0:09:12.600 young Turk at Morgan Stanley, not the privilege, the pleasure, 0:09:13.200 --> 0:09:16.880 but the honor of being in Tokyo with Robert Allan 0:09:17.040 --> 0:09:21.920 Feldman is unmeasurable. Robbie Feldman was a huge supporter to 0:09:21.960 --> 0:09:25.320 me over the years with his true expertise on Japan 0:09:25.440 --> 0:09:29.040 culture and Jaman finance. And if you're Matt hornback to 0:09:29.120 --> 0:09:32.560 show up with doctor Feldman and Tokyo is pretty cool. 0:09:33.120 --> 0:09:33.440 Matt. 0:09:33.720 --> 0:09:37.120 You guys own Tokyo with Doctor Feldman and with your 0:09:37.160 --> 0:09:39.640 time there as well. Let us just get to the 0:09:39.679 --> 0:09:43.800 wisdom of what's it mean for Americans? If I get 0:09:43.920 --> 0:09:47.720 yen back up to one fifty, if I get week yen, 0:09:48.240 --> 0:09:51.400 what's the sowat for our listeners and viewers? 0:09:52.559 --> 0:09:54.320 Well, well, Tom, I think that the first thing I 0:09:54.320 --> 0:09:56.840 would need to do is change my necktie into a 0:09:56.880 --> 0:10:01.960 bow tie, which is of course your dress of choice 0:10:02.000 --> 0:10:05.360 as well as as well as Robbie Feldman's dress of choice. 0:10:05.559 --> 0:10:08.199 So I don't need to do that to start the conversation. 0:10:08.320 --> 0:10:10.960 But given that we don't have time, what I would 0:10:11.000 --> 0:10:15.120 say here is the takeaway for our listeners here is that, look, 0:10:15.240 --> 0:10:20.040 Japan is a wonderful holiday destination. I mean, with dollary 0:10:20.040 --> 0:10:22.840 in at one point fifty, it makes traveling to the 0:10:22.880 --> 0:10:29.000 country extraordinarily affordable. But it also does I think probably 0:10:29.200 --> 0:10:33.400 irk some policymakers in the country of Japan, and so 0:10:33.520 --> 0:10:37.560 we certainly have to be on the lookout for any 0:10:37.679 --> 0:10:43.760 kind of verbal or physical interaction, intervention into the currency 0:10:43.800 --> 0:10:44.600 markets if. 0:10:44.440 --> 0:10:47.320 We get if they're in an experiment. We saw that 0:10:47.360 --> 0:10:49.120 with Uaita yesterday at CenTra. 0:10:50.120 --> 0:10:50.959 There's going to. 0:10:50.880 --> 0:10:54.040 Be an unwinding of that experiment. Are these going to 0:10:54.080 --> 0:10:59.920 be smooth curves, continuous functions over days, weeks, months, or 0:11:00.320 --> 0:11:04.040 do you and Robbie and Morgan Stanley Japan suggest that 0:11:04.080 --> 0:11:08.400 we need to be aware that the failure of YCC 0:11:08.480 --> 0:11:10.520 could lead to real instabilities. 0:11:11.800 --> 0:11:14.840 Well, you know, so why y CC is an ongoing 0:11:15.160 --> 0:11:19.360 uh program that you know, probably lasts a bit longer. 0:11:19.880 --> 0:11:24.280 You know, from our perspective, the key detriment to y 0:11:24.320 --> 0:11:28.240 CC was when it came to the market functioning of 0:11:28.280 --> 0:11:31.960 the JGB market, the Japanese government bond market, you know. 0:11:32.320 --> 0:11:35.720 But the good news here is that functioning in that 0:11:35.800 --> 0:11:38.679 market has improved, and I think policy makers they are 0:11:38.720 --> 0:11:39.520 recognized as. 0:11:39.600 --> 0:11:42.320 I mean, this is really important, folks. There's demonstrably been 0:11:42.360 --> 0:11:45.960 an improvement there as they've tried to impute inflation into 0:11:45.960 --> 0:11:50.120 the into the into the mix. If we finally get 0:11:50.320 --> 0:11:53.280 YCC to turn and we get some form of dynamics 0:11:53.320 --> 0:11:54.239 I don't understand. 0:11:54.760 --> 0:11:57.520 And if we have the combination of Chinese. 0:11:57.400 --> 0:12:01.880 UH exported a disinflation, should we be shocked by an 0:12:01.920 --> 0:12:05.840 Asian disinflationary tendency out the next twelve months. 0:12:07.280 --> 0:12:10.320 I don't think we should be surprised at that time. 0:12:10.840 --> 0:12:12.680 I do think that at the end of the day, 0:12:13.880 --> 0:12:16.840 capitalism is going to try to find a way of 0:12:16.880 --> 0:12:20.840 reducing costs, and if that's moving some production to the 0:12:20.840 --> 0:12:24.160 country of Japan, which we've already seen in certain sectors 0:12:24.320 --> 0:12:28.440 of the global economy, then we should expect that to 0:12:28.920 --> 0:12:36.040 improve pricing power for consumers as they get alternative sources 0:12:36.080 --> 0:12:38.959 of production for goods and services. 0:12:38.640 --> 0:12:41.800 On a macro basis. Are you optimistic and equities end 0:12:41.800 --> 0:12:44.679 of the quarter? I know, you know Allen Zenner loaded 0:12:44.679 --> 0:12:47.120 the boat on equities here. 0:12:47.200 --> 0:12:48.439 You know in January you. 0:12:48.400 --> 0:12:51.000 And I didn't, Matt, But can you be optimistic about 0:12:51.000 --> 0:12:53.640 the ownership and acquisition of equities here forward? 0:12:55.080 --> 0:12:59.160 I think we can be relatively optimistic because but you know, 0:12:59.200 --> 0:13:01.280 when you're talking about Japan time, which is where we 0:13:01.320 --> 0:13:04.360 began the conversation, you know, equities in Japan look very 0:13:04.360 --> 0:13:07.120 attractive to us as well, So when you're talking about 0:13:07.120 --> 0:13:10.120 capital being exported out of Japan, let's say to the 0:13:10.200 --> 0:13:12.720 United States. I would say that's probably a bit more 0:13:12.760 --> 0:13:16.520 difficult of a move, especially with dollar yen, you know, 0:13:16.559 --> 0:13:20.199 approaching one hundred and fifty. That's something that people will 0:13:20.240 --> 0:13:23.480 have to think long and hard about because equities in 0:13:23.520 --> 0:13:24.800 Japan look attractive as well. 0:13:25.000 --> 0:13:27.840 Matt Hombach, thank you so much. A clinic there on Japan. 0:13:27.920 --> 0:13:41.240 He is with Morgan sounding at least aw someone joins 0:13:41.280 --> 0:13:44.800 us right now Investor Strategy to champion Morgan Global Wealth Management. 0:13:44.840 --> 0:13:48.240 I love, love love your note because it's for all 0:13:48.280 --> 0:13:50.640 the people out there, and you know who you are 0:13:51.200 --> 0:13:53.959 that don't own Apple. And what you're talking about in 0:13:54.040 --> 0:13:58.120 your note is you have to rebuild an equity portfolio? 0:13:58.160 --> 0:14:00.160 How do you reconstructuit? 0:14:00.200 --> 0:14:00.400 Easy? 0:14:00.440 --> 0:14:02.480 After I'm up two percent for the first half and 0:14:02.520 --> 0:14:03.360 that's not good enough? 0:14:04.040 --> 0:14:06.920 That's right. We are very focused on encouraging investors to 0:14:07.240 --> 0:14:09.839 start rebuilding the equity exposure that they want to carry 0:14:09.880 --> 0:14:12.480 with them through the next cycle. And big reason for 0:14:12.520 --> 0:14:15.360 that is that when we look at our anonymized kind 0:14:15.400 --> 0:14:18.680 of aggregate client data, it shows us that half of 0:14:18.720 --> 0:14:21.480 our clients own less equities than they did a year ago. 0:14:21.960 --> 0:14:25.520 So right now, rather than focusing on broad index valuations 0:14:25.520 --> 0:14:28.160 which are above their long term averages, we're looking for 0:14:28.200 --> 0:14:30.800 those pockets of value. And it's encouraging that if you 0:14:30.920 --> 0:14:34.120 strip out the seven biggest names, you actually find that 0:14:34.160 --> 0:14:35.960 the rest of the S and P five hundred is 0:14:36.000 --> 0:14:40.800 training below it's ten year forward looking price earnings. 0:14:40.960 --> 0:14:41.320 People. 0:14:42.360 --> 0:14:43.520 This is important, folks. 0:14:43.560 --> 0:14:45.480 I mean Marvin low In from Stay Street, which is 0:14:45.520 --> 0:14:49.160 a different remant than JP Morgan Global Wealth Management, but 0:14:49.240 --> 0:14:52.480 you've both got the same message and that people really 0:14:52.520 --> 0:14:57.120 aren't participating. They're in cash, they're cautious, they're nervous. Is 0:14:57.200 --> 0:15:00.400 buying a consumer like General Mills up no nine percent 0:15:00.480 --> 0:15:04.400 dividend increase yesterday, or proctoring gamble or name other things 0:15:04.400 --> 0:15:07.120 we never talk about on this show. You've got to 0:15:07.160 --> 0:15:09.120 hold people's hands for them to buy four hundred and 0:15:09.160 --> 0:15:12.400 twenty two shares odd lot of proctoring gamble. 0:15:12.960 --> 0:15:16.040 To some extent, right, But we are focused on different opportunities, 0:15:16.080 --> 0:15:19.200 certainly within the active management space, but also things like 0:15:19.240 --> 0:15:22.440 the overall composition of their allocation. We do think that 0:15:22.560 --> 0:15:25.400 leadership in this next cycle is going to look different 0:15:25.440 --> 0:15:27.960 than it did in the last, we're more focused on 0:15:28.000 --> 0:15:31.680 some real economy sectors, but complementing those exposures with these 0:15:31.720 --> 0:15:35.000 innovations that are kind of bubbling up, like artificial intelligence, 0:15:35.040 --> 0:15:37.560 of course, and really looking for value right now. And 0:15:37.600 --> 0:15:40.840 we're seeing that in other areas beyond just large cap equities, 0:15:41.080 --> 0:15:45.080 think US midcaps, think international equities, although our views there 0:15:45.160 --> 0:15:49.080 are shifting somewhat, and also complementing that equity risk exposure 0:15:49.320 --> 0:15:51.080 with a core bond duration position. 0:15:51.440 --> 0:15:53.960 I want to get to the leadership of the next cycle, 0:15:54.000 --> 0:15:56.640 but I want to start with that call that basically 0:15:56.640 --> 0:16:00.680 you're helping investors rebuild their equity positions. Really interesting because 0:16:00.680 --> 0:16:03.160 coming into twenty twenty three, this was built as the 0:16:03.280 --> 0:16:07.440 year of the bond, fixed income actually has income attached 0:16:07.480 --> 0:16:10.080 to Now midway through the year, it feels like it's 0:16:10.160 --> 0:16:12.280 kind of turned into a game of catchup, where those 0:16:12.280 --> 0:16:14.640 investors who had bought into the Year of the bond 0:16:14.680 --> 0:16:17.160 are now trying to catch up to that equity rally. 0:16:17.520 --> 0:16:20.360 Yeah, and for us, this call is not about trying 0:16:20.360 --> 0:16:23.480 to chase a rally. It's really about remembering what it 0:16:23.520 --> 0:16:25.840 is we hire stocks to do in a portfolio in 0:16:25.880 --> 0:16:28.120 the first place, and that's to be the engines of 0:16:28.160 --> 0:16:31.520 long term capital appreciation. If we zoom back out, I 0:16:31.520 --> 0:16:33.840 think this cool down and volatility that we have seen 0:16:34.040 --> 0:16:37.080 is giving us an opportunity to kind of reassess and 0:16:37.160 --> 0:16:40.400 move forward with cooler heads. So when I go back 0:16:40.400 --> 0:16:43.000 and think about something like our long term capital market assumptions, 0:16:43.040 --> 0:16:45.360 which suggests that over the course of the next ten 0:16:45.400 --> 0:16:47.520 to fifteen years, you're still going to be able to 0:16:47.520 --> 0:16:50.120 annualize total returns of seven and a half to ten 0:16:50.200 --> 0:16:53.800 percent inequities, It's like, why not now, especially when there 0:16:53.880 --> 0:16:55.200 is value to be found in the market. 0:16:55.320 --> 0:16:56.400 I love Lisa. 0:16:56.440 --> 0:17:00.000 In short terms, ten to fifteen years, it's a different. 0:16:59.720 --> 0:17:00.800 Out, got it. 0:17:00.800 --> 0:17:03.960 Well, let's talk about the leadership of the next ten 0:17:04.000 --> 0:17:06.920 to fifteen years of this next cycle that you mention. 0:17:07.040 --> 0:17:10.359 It's not going to be the previous leaders which is 0:17:10.400 --> 0:17:12.359 big cap tech. But when you think about some of 0:17:12.359 --> 0:17:15.639 those smaller companies, those mid sized companies, what's going to 0:17:15.680 --> 0:17:18.840 be the AI moment for those companies? You think about 0:17:18.880 --> 0:17:21.160 what's powered I just. 0:17:21.400 --> 0:17:26.040 All these kids in their aizeitis. Here's my AI, got 0:17:26.080 --> 0:17:28.520 a cut packard computer on my iPhone? 0:17:28.400 --> 0:17:29.840 Yeah, continue zeitgeist. 0:17:30.040 --> 0:17:30.280 Yeah. 0:17:30.320 --> 0:17:32.280 Well, in any case, I mean you think about You 0:17:32.280 --> 0:17:36.080 can make a lot of arguments about valuations on the fangs, 0:17:36.160 --> 0:17:38.600 et cetera, but still it feels like almost we had 0:17:38.640 --> 0:17:41.159 a reset when you think about again that AI moment. 0:17:41.400 --> 0:17:43.919 Indeed, and I think that leadership and kind of that 0:17:44.000 --> 0:17:47.080 theme will trickle down into some of those smaller cap companies. 0:17:47.320 --> 0:17:49.520 We're focused on the mid cap space rather than small 0:17:49.560 --> 0:17:52.199 caps because we do see a better valuation there, But 0:17:52.359 --> 0:17:54.760 looking forward towards the next cycle, I think we have 0:17:54.840 --> 0:17:58.760 to remember that playing AI doesn't just require picking out 0:17:58.840 --> 0:18:01.399 the enablers of it, but really thinking through some of 0:18:01.440 --> 0:18:05.480 the cross sector applications, whether that be you know, establishing 0:18:05.480 --> 0:18:08.760 factors of the future or rethinking supply chains. So you've 0:18:08.800 --> 0:18:11.520 got to kind of expand your purview and think about 0:18:11.560 --> 0:18:13.800 all of the different types of disruption that this could 0:18:13.840 --> 0:18:14.760 potentially buried. 0:18:14.800 --> 0:18:16.560 In a note, there's way too much ex this and 0:18:16.760 --> 0:18:20.040 X that, but X this and X that. Where JP 0:18:20.160 --> 0:18:22.360 Morgan coming up with is if you take this out, 0:18:22.440 --> 0:18:25.680 take that out, take stupid AI out, take Bitcoin out, 0:18:25.720 --> 0:18:28.359 and the rest the market's trading in a fourteen point 0:18:28.359 --> 0:18:29.120 eight multiple. 0:18:29.240 --> 0:18:30.200 One hundred and twelve. 0:18:30.040 --> 0:18:32.960 Percent of our audience doesn't agree with that statement. Give 0:18:32.960 --> 0:18:36.280 me an example of a sector group that's trading at 0:18:36.280 --> 0:18:38.920 a shocking multiple from twenty years. 0:18:38.760 --> 0:18:42.760 Ago, at a relative discount. You mean, yeah, I mean 0:18:42.800 --> 0:18:43.880 for us that's midcaps. 0:18:43.920 --> 0:18:47.159 That's Northwestern talk. I'm just talking cheap. She's talking a 0:18:47.200 --> 0:18:48.240 relative discount. 0:18:48.280 --> 0:18:48.879 Continue. 0:18:48.960 --> 0:18:53.359 Sure, so midcaps is a perfect example of that for us. 0:18:53.600 --> 0:18:55.240 You can play a lot of the same themes that 0:18:55.280 --> 0:18:58.399 investors are getting very excited about. But rather than fish 0:18:58.440 --> 0:19:01.159 in this overvalued pond, look at an area of the 0:19:01.160 --> 0:19:02.600 market that is more fairly so. 0:19:02.880 --> 0:19:06.320 I can retail Walmart's ridiculous. I'm sorry. I look at 0:19:06.320 --> 0:19:08.359 the single digit revenue growth the Walmart and I go 0:19:08.400 --> 0:19:11.240 to get it. You're looking at, you know, as a generalization, 0:19:11.320 --> 0:19:12.800 and given Walmart in MidCap. 0:19:13.280 --> 0:19:15.560 Sure, I'm not supposed to talk about single stocks here. 0:19:15.600 --> 0:19:18.359 I know on television trouble compliance. 0:19:18.480 --> 0:19:20.240 Yeah, yeah, you're getting at the right idea. 0:19:20.280 --> 0:19:21.760 I'm getting at the right end of this is I'm 0:19:21.760 --> 0:19:22.399 going down it. 0:19:22.480 --> 0:19:25.240 I'm going down it. Why did I get out of that? 0:19:25.760 --> 0:19:27.800 Save Metherine, give me, give me some help here. 0:19:28.000 --> 0:19:30.720 Let's talk quickly about duration, because you also write that 0:19:30.880 --> 0:19:34.440 now is the time to extend duration. Bill Dudley coming 0:19:34.480 --> 0:19:36.479 out on the other side of that trade this morning 0:19:36.520 --> 0:19:39.240 with a great column why is now the time? 0:19:39.720 --> 0:19:42.840 Look, I know Powell and other central bankers are talking 0:19:43.040 --> 0:19:46.000 very hawkishly, that was certainly the case yesterday. But our 0:19:46.000 --> 0:19:48.760 base case is still that the Fed probably only has 0:19:49.119 --> 0:19:52.240 one more interest rate hike in their pocket. So assuming 0:19:52.240 --> 0:19:54.360 that if you get a policy rate that's let's call 0:19:54.359 --> 0:19:57.080 it five point three percent, our model suggests that the 0:19:57.080 --> 0:19:59.600 fair value for the ten year yield is about three 0:19:59.600 --> 0:20:02.360 point eight not a big stretch from where we're trading today. 0:20:02.680 --> 0:20:06.120 But if the Fed should hike, you know, additionally, beyond that, 0:20:06.440 --> 0:20:09.320 for every twenty five basis point hike, that's an additional 0:20:09.320 --> 0:20:13.280 fifteen basis points of yield on the tenure. So we 0:20:13.400 --> 0:20:16.240 don't think that right now the entry point is looking 0:20:16.280 --> 0:20:19.080 too crazy. And our base case is that one year, 0:20:19.200 --> 0:20:22.160 two year, three years from now, those yields are going 0:20:22.200 --> 0:20:24.040 to be lower, and so we want to move into 0:20:24.080 --> 0:20:26.760 that not just for the opportunity to lock in those 0:20:26.760 --> 0:20:31.119 elevated yields, but also from the portfolio construction perspectives. 0:20:30.520 --> 0:20:33.119 Your chod. So this is really really valuable. This is 0:20:33.160 --> 0:20:34.480 the heart of the matter. Folks. 0:20:34.920 --> 0:20:37.840 You don't own Apple, you don't own Nvidia. What do 0:20:37.880 --> 0:20:42.280 you got to do? You got to rebuild this perfect language, rebuild, 0:20:42.560 --> 0:20:45.880 reconstruct a portfolio, and takes courage. 0:20:45.560 --> 0:20:46.040 To do that. 0:20:46.040 --> 0:20:48.200 It's very nice, at least awesome, Bon, thank you so much. 0:20:48.280 --> 0:20:55.480 Thank you that with JP Morgan Global Wealth Management, kna 0:20:55.520 --> 0:20:58.200 Haeik joins US now head of Research ednf Man, who's 0:20:58.240 --> 0:21:02.399 been wonderful about the plectic nature of commodities. 0:21:02.960 --> 0:21:03.679 I've got to go to. 0:21:03.760 --> 0:21:07.560