1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,479 --> 00:00:37,320 Speaker 3: Let's stick with tech. 11 00:00:37,560 --> 00:00:41,440 Speaker 2: McKinsey estimating that data centers will require six point seven 12 00:00:41,520 --> 00:00:44,760 Speaker 2: trillion dollars to meet demand for computing power globally by 13 00:00:44,800 --> 00:00:47,400 Speaker 2: twenty thirty. Private credit firms are allaying the groundwork to 14 00:00:47,400 --> 00:00:50,159 Speaker 2: help provide the capital. Meta is said to have selected 15 00:00:50,200 --> 00:00:53,040 Speaker 2: Pimco to help lead a twenty nine billion dollar financing 16 00:00:53,280 --> 00:00:56,000 Speaker 2: for its data center expansion. I'm happy to say the 17 00:00:56,000 --> 00:00:58,200 Speaker 2: Pimco CEO, Manay Roman, joins us now for more. 18 00:00:58,200 --> 00:01:00,520 Speaker 4: Mannic, good morning, Good morning, Johnathan, to see you. 19 00:01:00,600 --> 00:01:02,480 Speaker 2: It's good to see you, sir. How does a man 20 00:01:02,600 --> 00:01:04,480 Speaker 2: like you deal with a three am alarm? Clock on 21 00:01:04,520 --> 00:01:06,600 Speaker 2: the West coast. How does that work? You've got I make. 22 00:01:06,760 --> 00:01:09,760 Speaker 4: I make the best expresso known to mankind, you know, 23 00:01:09,800 --> 00:01:12,560 Speaker 4: and you'll be hyppy triple espresso, triple expresso, and it 24 00:01:12,600 --> 00:01:14,840 Speaker 4: feels good every day and happy to be at work. 25 00:01:14,920 --> 00:01:16,479 Speaker 2: Well, I'm happy to have you with us this morning. 26 00:01:16,560 --> 00:01:18,280 Speaker 2: Let's get into some of these deals. I know, the 27 00:01:18,319 --> 00:01:20,440 Speaker 2: certain deals you can talk about can't talk about. Want 28 00:01:20,440 --> 00:01:22,760 Speaker 2: to talk in broad terms about the appetite here for 29 00:01:22,840 --> 00:01:25,639 Speaker 2: the capital that we need to provide to this particular force, 30 00:01:25,680 --> 00:01:28,920 Speaker 2: this growing force AI data centers. Where it's going to 31 00:01:28,959 --> 00:01:31,200 Speaker 2: come from and where you and a team are going 32 00:01:31,240 --> 00:01:31,680 Speaker 2: to fit in. 33 00:01:32,000 --> 00:01:34,200 Speaker 4: So I think it's I mean it's it's a huge 34 00:01:34,240 --> 00:01:38,160 Speaker 4: super secular opportunity. There is an enormous need for funding 35 00:01:38,200 --> 00:01:42,839 Speaker 4: and equity in data center we I don't know whether 36 00:01:42,840 --> 00:01:46,560 Speaker 4: the six point seven trillion dollars from McKinsey is remotely right, 37 00:01:47,080 --> 00:01:50,040 Speaker 4: but it's very, very big, and there'll be plenty of 38 00:01:50,120 --> 00:01:53,080 Speaker 4: financing deals to be done, and there'll be plenty of 39 00:01:53,120 --> 00:01:55,920 Speaker 4: construction to be done. And it's true in the US, 40 00:01:55,920 --> 00:01:57,000 Speaker 4: but it's true in other. 41 00:01:56,840 --> 00:01:57,480 Speaker 3: Part of the world. 42 00:01:57,720 --> 00:02:02,360 Speaker 4: And the need also to have the infrastructure and the 43 00:02:02,440 --> 00:02:04,560 Speaker 4: energy will come after that. So you know, we all 44 00:02:04,560 --> 00:02:06,920 Speaker 4: talk about data center, but there's going to be a 45 00:02:06,960 --> 00:02:10,280 Speaker 4: real rush for energy in terms of providing the right 46 00:02:10,320 --> 00:02:13,560 Speaker 4: set up for this data center. And you know, that's 47 00:02:13,560 --> 00:02:16,000 Speaker 4: one of the reason to be very bullish on natural gas. 48 00:02:16,160 --> 00:02:19,079 Speaker 2: We've reflected on one particular statement from one particular tax 49 00:02:19,120 --> 00:02:21,480 Speaker 2: CEO over the last twelve months that I think was 50 00:02:21,639 --> 00:02:22,480 Speaker 2: really quite important. 51 00:02:22,480 --> 00:02:23,239 Speaker 4: It was last summer. 52 00:02:23,440 --> 00:02:26,280 Speaker 2: It was the Alphabet CEO when essentially he said that 53 00:02:26,320 --> 00:02:29,760 Speaker 2: the greatest risk here was under investing and not overinvesting. 54 00:02:29,840 --> 00:02:31,480 Speaker 2: And I wonder how you think about that from the 55 00:02:31,480 --> 00:02:33,800 Speaker 2: perspective as an asset manager. When you've got a group 56 00:02:33,800 --> 00:02:36,560 Speaker 2: of companies that are willing to run the risk of overinvesting, 57 00:02:36,960 --> 00:02:38,600 Speaker 2: how do you think about the risk around. 58 00:02:38,280 --> 00:02:41,359 Speaker 4: It in terms of I think what we will do 59 00:02:41,800 --> 00:02:43,800 Speaker 4: is we will look at every single deal and we 60 00:02:43,840 --> 00:02:45,799 Speaker 4: will say this makes sense for us, and this may 61 00:02:45,840 --> 00:02:48,400 Speaker 4: make less sense, and I think I think we I 62 00:02:48,440 --> 00:02:50,600 Speaker 4: think one of the one of the strength we have 63 00:02:50,800 --> 00:02:54,920 Speaker 4: is to be to be pretty pretty focused on relative 64 00:02:55,000 --> 00:02:58,640 Speaker 4: value and sort of think that you know, there may 65 00:02:58,680 --> 00:03:00,480 Speaker 4: be a fantastic deal to be done which would be 66 00:03:00,600 --> 00:03:03,040 Speaker 4: very very good for our investors and then we look 67 00:03:03,040 --> 00:03:05,200 Speaker 4: at the next one in the full light of day 68 00:03:05,240 --> 00:03:07,240 Speaker 4: and decide whether it fits our portfolio and whether this 69 00:03:07,320 --> 00:03:08,200 Speaker 4: is something we want to do. 70 00:03:08,320 --> 00:03:10,359 Speaker 2: I think it's important to build on this that Mark 71 00:03:10,440 --> 00:03:13,800 Speaker 2: Rowan said recently. We are what we originate. When it 72 00:03:13,800 --> 00:03:16,040 Speaker 2: comes to private markets, you are what you originate. It's 73 00:03:16,120 --> 00:03:18,000 Speaker 2: quite labor intensive. It takes a lot of work when 74 00:03:18,040 --> 00:03:21,080 Speaker 2: you think about scaling this and building this is an opportunity, 75 00:03:21,320 --> 00:03:22,919 Speaker 2: How difficult is it in practice? 76 00:03:24,160 --> 00:03:27,200 Speaker 4: I think we have built it differently from ourk We 77 00:03:27,240 --> 00:03:30,440 Speaker 4: have built it based on or experiencing fixed income or 78 00:03:30,480 --> 00:03:33,240 Speaker 4: experiencing relative value. In a history of fifty four years 79 00:03:33,280 --> 00:03:36,040 Speaker 4: in looking at all sorts of credit, we have fifty 80 00:03:36,040 --> 00:03:38,640 Speaker 4: five credit analysts who looks at every single segment of 81 00:03:38,640 --> 00:03:41,120 Speaker 4: the market. And I think we look at it from 82 00:03:41,160 --> 00:03:43,280 Speaker 4: a value standpoint. Does it make sense? Is it's something 83 00:03:43,280 --> 00:03:45,320 Speaker 4: we want to do. We shouldn't be originating for the 84 00:03:45,360 --> 00:03:48,120 Speaker 4: sake of originating. And there's a lot of money. There's 85 00:03:48,160 --> 00:03:50,080 Speaker 4: a lot of money coming to this market. You know, 86 00:03:50,200 --> 00:03:52,640 Speaker 4: some sectors would be very attractive and some will be 87 00:03:52,720 --> 00:03:55,440 Speaker 4: less so. And I think you want to be very 88 00:03:55,520 --> 00:03:57,200 Speaker 4: much on top of this and say I want to 89 00:03:57,200 --> 00:03:58,520 Speaker 4: do this, and I want to do less of this. 90 00:03:58,960 --> 00:04:02,760 Speaker 5: There's a concern actually, as CEO say it's more important 91 00:04:02,760 --> 00:04:05,600 Speaker 5: to be throwing enough money at this rather than being 92 00:04:05,680 --> 00:04:08,240 Speaker 5: under invested. And then you have people like David Heinhorn 93 00:04:08,360 --> 00:04:10,280 Speaker 5: of Green Light coming out and saying the numbers that 94 00:04:10,320 --> 00:04:13,000 Speaker 5: are being thrown around are so extreme that it's really 95 00:04:13,200 --> 00:04:16,960 Speaker 5: really hard to understand them. How difficult is it to 96 00:04:17,080 --> 00:04:20,440 Speaker 5: invest in a market where people are throwing spaghetti at 97 00:04:20,440 --> 00:04:22,799 Speaker 5: the wall to try to understand what's going to stick. 98 00:04:23,360 --> 00:04:26,800 Speaker 5: And there is a feeling of excess that continues to 99 00:04:26,800 --> 00:04:27,640 Speaker 5: bubble up around that. 100 00:04:27,760 --> 00:04:32,479 Speaker 4: So my friend, my friend, Richard Thayler, who is an 101 00:04:32,520 --> 00:04:36,120 Speaker 4: economic number price and consult for US, has this say. 102 00:04:36,120 --> 00:04:38,120 Speaker 4: He says, you know, when you make long term product prediction, 103 00:04:38,640 --> 00:04:41,200 Speaker 4: the degree of humidity and the standard deviation around the 104 00:04:41,279 --> 00:04:43,920 Speaker 4: estimate should be very, very big. So when I hear 105 00:04:43,960 --> 00:04:46,240 Speaker 4: an estimate like six months seven trillion dollars, I don't 106 00:04:46,240 --> 00:04:48,040 Speaker 4: know what to make of it. David may be very 107 00:04:48,040 --> 00:04:50,400 Speaker 4: well be right, but we'll take it one step at 108 00:04:50,400 --> 00:04:53,440 Speaker 4: the time. I think six months horizon is about all 109 00:04:53,640 --> 00:04:55,440 Speaker 4: we can do in terms of the demand. And then 110 00:04:55,680 --> 00:04:57,920 Speaker 4: you know, the environment may change dramatically you know, they 111 00:04:57,920 --> 00:05:00,960 Speaker 4: are business cycles. Sometimes things are cheap, they expensive. If 112 00:05:00,960 --> 00:05:03,520 Speaker 4: there's a recession, all of a sudden spreads world widen 113 00:05:03,640 --> 00:05:06,600 Speaker 4: company may revisit what they're trying to do, and so 114 00:05:06,680 --> 00:05:08,480 Speaker 4: on and so forth. So this is a difficulty. 115 00:05:08,640 --> 00:05:10,360 Speaker 5: How do you have a six month horizon when a 116 00:05:10,400 --> 00:05:13,120 Speaker 5: lot of these investments are ten year buildouts, when there 117 00:05:13,120 --> 00:05:16,720 Speaker 5: are ten year usage, when they are labor intensive and 118 00:05:17,040 --> 00:05:20,320 Speaker 5: infrastructure projects by nature are a lot longer than six months. 119 00:05:20,520 --> 00:05:23,520 Speaker 4: So in terms of committing capital and in terms of 120 00:05:23,560 --> 00:05:25,480 Speaker 4: finding the right opportunity with the right length of time, 121 00:05:25,520 --> 00:05:28,120 Speaker 4: we totally find to have a very long term horizon. 122 00:05:28,320 --> 00:05:31,080 Speaker 4: What I'm saying is I'm saying making long term prediction 123 00:05:31,200 --> 00:05:32,880 Speaker 4: in terms of how big the market will be, it's 124 00:05:33,000 --> 00:05:35,640 Speaker 4: very hard. I think you have some visibility over the 125 00:05:35,680 --> 00:05:37,560 Speaker 4: next six months in terms of what the demand is, 126 00:05:37,760 --> 00:05:40,560 Speaker 4: what the real demand is, and whether that slows down 127 00:05:40,600 --> 00:05:43,440 Speaker 4: or whether that accelerate. You just don't know. And I 128 00:05:43,839 --> 00:05:45,520 Speaker 4: think you've got to have I think you have to 129 00:05:45,560 --> 00:05:47,280 Speaker 4: be very humble about the six and just say, look, 130 00:05:47,320 --> 00:05:48,800 Speaker 4: we will take it one step at the time and 131 00:05:48,839 --> 00:05:51,159 Speaker 4: see what the market gives us. And by the way, 132 00:05:51,200 --> 00:05:54,120 Speaker 4: there may be other opportunity which are more attractive. You know, 133 00:05:54,360 --> 00:05:57,679 Speaker 4: you look, for example, in an asset backed finance business 134 00:05:57,960 --> 00:06:02,000 Speaker 4: aircraft leasing. Aircraft leasing is incredibly interesting and then nothing 135 00:06:02,040 --> 00:06:04,679 Speaker 4: happens for five years, and then it becomes very interesting again. 136 00:06:05,000 --> 00:06:08,359 Speaker 4: And you got to constantly set to yourself, are there 137 00:06:08,480 --> 00:06:12,560 Speaker 4: better opportunity for me to deploy money? And what do 138 00:06:12,600 --> 00:06:14,720 Speaker 4: I want to do? How do I think about the risk? 139 00:06:15,000 --> 00:06:18,000 Speaker 4: How will I get out what's the right risk return profile? 140 00:06:19,320 --> 00:06:21,680 Speaker 2: You may have headline recently wanted to ask you about it. 141 00:06:21,760 --> 00:06:24,360 Speaker 2: Private markets haven't been tested? Can you build that out 142 00:06:24,360 --> 00:06:25,600 Speaker 2: a little bit more? What did you mean when you 143 00:06:25,680 --> 00:06:27,880 Speaker 2: said that the private markets haven't been tested? 144 00:06:28,240 --> 00:06:33,480 Speaker 4: Well, my partner Dana versin and or cio of coursemit 145 00:06:33,520 --> 00:06:35,400 Speaker 4: I have the chart and we will check the number 146 00:06:35,400 --> 00:06:37,480 Speaker 4: of about twenty times because we kind of didn't believe it. 147 00:06:37,680 --> 00:06:41,800 Speaker 4: But it shows the return on week single B which 148 00:06:42,120 --> 00:06:48,200 Speaker 4: is a reasonably good proxy for direct lending. And what 149 00:06:48,279 --> 00:06:53,120 Speaker 4: you see is you make money because the yield is higher, 150 00:06:54,080 --> 00:06:58,800 Speaker 4: and then there's a recession and then you lose it all. 151 00:06:58,880 --> 00:07:02,040 Speaker 4: And so I'm old enough to to remember nineteen ninety one, 152 00:07:02,040 --> 00:07:04,440 Speaker 4: I saw that, you know, there's a recession which came 153 00:07:04,480 --> 00:07:08,240 Speaker 4: out of nowhere from you know, essentially SNL having too 154 00:07:08,279 --> 00:07:11,840 Speaker 4: much high YELD nineteen ninety seven. The world is absolutely 155 00:07:11,920 --> 00:07:13,880 Speaker 4: fine until there's an Asian crisis, and then you have 156 00:07:13,920 --> 00:07:16,120 Speaker 4: ailit to CEM. Then things become very cheap. And so 157 00:07:16,160 --> 00:07:19,240 Speaker 4: you've got to remember these things. And we have been 158 00:07:19,280 --> 00:07:22,640 Speaker 4: in a period since two thousand and nine of exceptionalism 159 00:07:22,720 --> 00:07:25,600 Speaker 4: where you have had very strong equity return and very 160 00:07:25,640 --> 00:07:28,160 Speaker 4: strong higher return. If you believe this is going to 161 00:07:28,600 --> 00:07:31,520 Speaker 4: this is going to continue for the next fifteen years, 162 00:07:31,760 --> 00:07:33,560 Speaker 4: then I think you should have the same position. But 163 00:07:33,600 --> 00:07:35,040 Speaker 4: it may not be the case. And I think I 164 00:07:35,040 --> 00:07:37,160 Speaker 4: think we bring that and say the data's a the data. 165 00:07:37,320 --> 00:07:40,000 Speaker 2: Do you see parallels between now and those periods. 166 00:07:40,480 --> 00:07:43,360 Speaker 4: Well, I think the initial condition where we are right 167 00:07:43,440 --> 00:07:47,200 Speaker 4: now as search that equity markets are expensive by any measure. 168 00:07:47,240 --> 00:07:50,080 Speaker 4: They may go higher because momentum is strong and credit 169 00:07:50,120 --> 00:07:52,160 Speaker 4: market are tight in some part of the of the 170 00:07:52,360 --> 00:07:54,960 Speaker 4: of the spectrum. And I think that's that's the reality. 171 00:07:55,160 --> 00:07:58,040 Speaker 4: And look, we've been in period where things things are 172 00:07:58,040 --> 00:08:00,200 Speaker 4: expensive for a long time two thousand and five, two 173 00:08:00,200 --> 00:08:03,480 Speaker 4: thousand and six, where such period where things remain expensive 174 00:08:03,480 --> 00:08:06,280 Speaker 4: and become more expensive, and then something breaks and then 175 00:08:07,120 --> 00:08:10,520 Speaker 4: all of a sudden you have you have a lot 176 00:08:10,520 --> 00:08:11,760 Speaker 4: of work to be done manage. 177 00:08:11,800 --> 00:08:14,600 Speaker 2: Let's continue the conversation. We were having equity markets very 178 00:08:14,600 --> 00:08:17,440 Speaker 2: close to all time highs, credit spreads near multi decade 179 00:08:17,480 --> 00:08:19,720 Speaker 2: ties on investment, great high ye spreads near the ties 180 00:08:19,760 --> 00:08:22,040 Speaker 2: of the year, and yet we've got a FED official 181 00:08:22,080 --> 00:08:25,680 Speaker 2: sign that we're excessively restrictive year across a. 182 00:08:25,760 --> 00:08:26,600 Speaker 3: Range of funds. 183 00:08:26,720 --> 00:08:28,920 Speaker 2: You look across markets all the time and the economy 184 00:08:28,920 --> 00:08:30,520 Speaker 2: with the team, do you see any signs that are 185 00:08:30,520 --> 00:08:31,640 Speaker 2: excessively restrictive? 186 00:08:31,800 --> 00:08:34,120 Speaker 4: Well, I think rates are very high across across the 187 00:08:34,200 --> 00:08:35,880 Speaker 4: globe right and I think I think you know, part 188 00:08:35,920 --> 00:08:37,599 Speaker 4: of the reason why I get up so early and 189 00:08:37,920 --> 00:08:39,880 Speaker 4: happy to go to work is because you know, the 190 00:08:39,920 --> 00:08:42,120 Speaker 4: opportunity has never been better. And you know, we talk 191 00:08:42,160 --> 00:08:44,199 Speaker 4: here about the US, but look at the UK UK 192 00:08:44,520 --> 00:08:46,320 Speaker 4: where you're from is you know, ten year rates are 193 00:08:46,320 --> 00:08:49,560 Speaker 4: four and three quarter. Australia looks really, really attractive. So 194 00:08:49,600 --> 00:08:51,920 Speaker 4: when we think about the opportunity in a way, yes, 195 00:08:51,960 --> 00:08:54,360 Speaker 4: we do expect the FED to cut. How much they're 196 00:08:54,360 --> 00:08:56,400 Speaker 4: going to cut next year, we meant to be to 197 00:08:56,480 --> 00:08:58,559 Speaker 4: be proven. No one knows what's going to happen to 198 00:08:58,600 --> 00:09:01,800 Speaker 4: the labor market. But the reality is the opportunity in 199 00:09:01,880 --> 00:09:04,000 Speaker 4: terms of global fixed income is very, very big, and 200 00:09:04,000 --> 00:09:08,439 Speaker 4: the opportunity to add alpha is quite high. I'll tell 201 00:09:08,440 --> 00:09:10,200 Speaker 4: you a funny story. We have a pontner in Tokyo 202 00:09:11,400 --> 00:09:13,800 Speaker 4: called Tomoya Messano, and you know, for the longest time, 203 00:09:13,840 --> 00:09:15,760 Speaker 4: there's not much happening in Tokyo. So you sort of 204 00:09:15,800 --> 00:09:17,440 Speaker 4: call him and you have much out with him, and 205 00:09:17,760 --> 00:09:19,440 Speaker 4: not much is happening, and then all of a sudden, 206 00:09:19,440 --> 00:09:23,120 Speaker 4: the Japanese fixed income market becomes super exciting, and then 207 00:09:23,120 --> 00:09:25,360 Speaker 4: there's a lot to do, and there's a whole generation 208 00:09:25,440 --> 00:09:27,600 Speaker 4: of people who have disappear because they don't do it anymore. 209 00:09:28,080 --> 00:09:30,280 Speaker 4: And so you have a lib market which hasn't supply 210 00:09:30,880 --> 00:09:32,960 Speaker 4: fixed income investor because there was nothing to do for 211 00:09:33,000 --> 00:09:36,280 Speaker 4: the longest time. And so what I think is interesting 212 00:09:36,400 --> 00:09:39,640 Speaker 4: is the difference of you, the difference of opinion, is 213 00:09:39,960 --> 00:09:42,800 Speaker 4: also a source of incredible alpha. And you know, if 214 00:09:42,800 --> 00:09:45,199 Speaker 4: you want to think about white performance has been quite good, 215 00:09:45,200 --> 00:09:47,440 Speaker 4: it's partially because the alpha that has been given by 216 00:09:47,440 --> 00:09:48,400 Speaker 4: the market is quite good. 217 00:09:48,559 --> 00:09:50,320 Speaker 5: I think it's interesting that John was talking about the 218 00:09:50,320 --> 00:09:52,560 Speaker 5: FED and you talk about the international sphere, and I 219 00:09:52,600 --> 00:09:56,640 Speaker 5: think that that's really telling about what people are looking 220 00:09:56,679 --> 00:10:00,920 Speaker 5: to for that alpha, for that incremental extra year. Are 221 00:10:00,920 --> 00:10:03,560 Speaker 5: those Japanese investors staying in Japan right now and not 222 00:10:03,600 --> 00:10:05,640 Speaker 5: coming to the US for treasures even if the FED 223 00:10:05,679 --> 00:10:06,200 Speaker 5: cuts No. 224 00:10:06,320 --> 00:10:09,319 Speaker 4: I think they're very big investors in US asset. And remember, 225 00:10:09,920 --> 00:10:12,760 Speaker 4: one of the opportunity everyone has is to buy foreign 226 00:10:12,800 --> 00:10:15,040 Speaker 4: assets and swap them back into dollars or swap them 227 00:10:15,080 --> 00:10:16,600 Speaker 4: back into yen and so on and so forth, and 228 00:10:16,640 --> 00:10:20,520 Speaker 4: so you can actually buy synthetic credit. You can buy 229 00:10:20,520 --> 00:10:26,000 Speaker 4: synthetic dollar exposure by for US investors buying, for example, 230 00:10:26,080 --> 00:10:30,360 Speaker 4: JGB and setting forward the yen into dollars and having 231 00:10:30,840 --> 00:10:33,280 Speaker 4: a different credit risk with JGB than you have with 232 00:10:33,400 --> 00:10:35,200 Speaker 4: US dollar. And so there's a lot to do. 233 00:10:35,520 --> 00:10:35,760 Speaker 3: Now. 234 00:10:36,080 --> 00:10:38,040 Speaker 4: We do that a lot in short term and longer 235 00:10:38,120 --> 00:10:40,320 Speaker 4: term in terms of adding alpha, But all the time, 236 00:10:40,400 --> 00:10:42,440 Speaker 4: you can do this sort of transaction and sort of 237 00:10:43,400 --> 00:10:46,199 Speaker 4: mitigate your exposure or increase your exposure, or have different 238 00:10:46,280 --> 00:10:48,400 Speaker 4: risk profile. That's a much smarter way of looking at it. 239 00:10:48,480 --> 00:10:50,520 Speaker 5: I'm looking at this sort of a blood instrument. So 240 00:10:50,679 --> 00:10:52,920 Speaker 5: dumb do you like international more than the United ct 241 00:10:54,000 --> 00:10:55,840 Speaker 5: That's really a wonderful nuance. 242 00:10:56,160 --> 00:10:58,240 Speaker 4: It has an enormous amount of money to put to work, 243 00:10:58,280 --> 00:11:02,040 Speaker 4: and has is a nation of savers, and so there's 244 00:11:02,080 --> 00:11:05,680 Speaker 4: a you know the reason. The thing that I always 245 00:11:05,679 --> 00:11:08,400 Speaker 4: say is you need to put your money somewhere, and 246 00:11:08,520 --> 00:11:10,680 Speaker 4: the reality is the US is the only place where 247 00:11:10,720 --> 00:11:14,600 Speaker 4: you can actually put scale and when you want a thing. 248 00:11:14,679 --> 00:11:17,760 Speaker 4: For example, of the Australian problem, there was a whole 249 00:11:17,800 --> 00:11:21,720 Speaker 4: delegation last week from the UN from Australia. They need 250 00:11:21,760 --> 00:11:24,080 Speaker 4: to move capital all the way from Australia because they 251 00:11:24,120 --> 00:11:26,440 Speaker 4: are a nation of savers and the Australian market is 252 00:11:26,440 --> 00:11:27,920 Speaker 4: not big enough for them, and so they need to 253 00:11:27,920 --> 00:11:28,360 Speaker 4: pivot too. 254 00:11:28,480 --> 00:11:30,120 Speaker 2: For a long time, Japan had to do the same thing. 255 00:11:30,240 --> 00:11:32,559 Speaker 2: They didn't have to yield. To your point, the stories change. 256 00:11:32,640 --> 00:11:35,239 Speaker 2: One thing we're trying to track is whether the Japanese 257 00:11:35,360 --> 00:11:38,280 Speaker 2: bring the money home, Whether we see this great repatriation 258 00:11:38,720 --> 00:11:41,280 Speaker 2: where it could leave markets vulnerable, what typically they deploy 259 00:11:41,360 --> 00:11:43,680 Speaker 2: that capital, and thinking of certain European markets the US 260 00:11:43,679 --> 00:11:46,480 Speaker 2: as well. You seeing any of that flow story start 261 00:11:46,520 --> 00:11:48,960 Speaker 2: to turn, No, not so far. Would you expect it 262 00:11:48,960 --> 00:11:51,400 Speaker 2: to change, honestly. 263 00:11:51,040 --> 00:11:54,439 Speaker 4: Not really. These things are very very slow to move 264 00:11:55,160 --> 00:11:58,760 Speaker 4: and The reality is people keep on saving in Japan, 265 00:11:58,920 --> 00:12:01,280 Speaker 4: and so it made you speed that the marginal dollar 266 00:12:01,360 --> 00:12:05,000 Speaker 4: goes into JGB. But the credit markets are very underdeveloped, 267 00:12:05,280 --> 00:12:07,720 Speaker 4: and if you want to buy, for example, cigole exposure, 268 00:12:08,480 --> 00:12:10,160 Speaker 4: you much better off going to the US. 269 00:12:10,360 --> 00:12:13,240 Speaker 2: The conversation we had back in April was maybe the 270 00:12:13,280 --> 00:12:16,280 Speaker 2: decline of US exceptionalism. The money was going to leave, 271 00:12:16,360 --> 00:12:19,120 Speaker 2: it was going to go outsewhere. I want to understand 272 00:12:19,120 --> 00:12:21,719 Speaker 2: where you are now six months later. What did you 273 00:12:21,760 --> 00:12:24,199 Speaker 2: see at the time in April? Did we start to 274 00:12:24,200 --> 00:12:27,880 Speaker 2: see that decay click into US exceptionalism? And I went 275 00:12:27,920 --> 00:12:29,400 Speaker 2: back to where we were at the start of the 276 00:12:29,480 --> 00:12:31,119 Speaker 2: year just six months later. 277 00:12:31,040 --> 00:12:35,000 Speaker 4: So I think we were dollar underweighted. We literally just 278 00:12:35,040 --> 00:12:38,760 Speaker 4: square our for position. We're still very much like emerging 279 00:12:38,840 --> 00:12:43,160 Speaker 4: market currency. We do like Australian dollars. There's plenty to do. 280 00:12:43,360 --> 00:12:46,319 Speaker 4: But you know there was there was a short dollar 281 00:12:46,360 --> 00:12:50,200 Speaker 4: position to be had, and you know it moved ten percent, 282 00:12:50,200 --> 00:12:51,840 Speaker 4: and I think we decided to square our position. 283 00:12:52,320 --> 00:12:55,680 Speaker 5: You're talking a lot about rates and the era of income. 284 00:12:55,800 --> 00:12:56,480 Speaker 4: We've been talking a. 285 00:12:56,480 --> 00:12:58,040 Speaker 5: Lot about that, just based in the fact that yield 286 00:12:58,080 --> 00:13:01,040 Speaker 5: has been higher, talking about private investiness through infrastructure. You're 287 00:13:01,040 --> 00:13:03,280 Speaker 5: not mentioning equities, and this is a time where people 288 00:13:03,320 --> 00:13:05,840 Speaker 5: are trying to fixed. I'm a fixing companion, no, I know, 289 00:13:06,200 --> 00:13:08,800 Speaker 5: and you have sympathy with us, But I'm wondering how 290 00:13:08,880 --> 00:13:13,200 Speaker 5: much a higher rate regime limits future equity returns. 291 00:13:13,200 --> 00:13:14,400 Speaker 3: We used to talk about that. 292 00:13:14,400 --> 00:13:17,240 Speaker 5: That was before our three years consecutive twenty plus percent returns. 293 00:13:17,280 --> 00:13:18,920 Speaker 6: I mean, at what point. 294 00:13:18,600 --> 00:13:22,160 Speaker 5: Will constrain the equity side of the portfolio. Even though 295 00:13:22,200 --> 00:13:24,839 Speaker 5: some people are wondering what kind of buffer. 296 00:13:24,840 --> 00:13:25,920 Speaker 6: Bonds really provide? 297 00:13:26,000 --> 00:13:28,240 Speaker 4: Well, the Pinker view is that equity return in the 298 00:13:28,320 --> 00:13:29,920 Speaker 4: US is going to be six percent for the next 299 00:13:29,920 --> 00:13:32,440 Speaker 4: three years or something like this. I mean, we you know, 300 00:13:32,480 --> 00:13:36,160 Speaker 4: we look at cape valuation. You know it's treading at 301 00:13:36,200 --> 00:13:39,480 Speaker 4: twenty eight times earnings. It looks really, really high to us. 302 00:13:39,559 --> 00:13:43,920 Speaker 4: We understand the excitement about the hyperscalo, but if you 303 00:13:43,960 --> 00:13:48,560 Speaker 4: look outside of the hyperscalo, life in industrial America isn't great. 304 00:13:48,600 --> 00:13:51,760 Speaker 4: I mean, top line is not is not growing. And 305 00:13:52,040 --> 00:13:55,000 Speaker 4: one of the question that we don't know is the 306 00:13:55,000 --> 00:13:58,440 Speaker 4: impact of tariff and what will happen in corporate America 307 00:13:58,640 --> 00:14:02,280 Speaker 4: in terms of how they're going to deal with either 308 00:14:02,720 --> 00:14:06,160 Speaker 4: passing on prices or diminishing margin and so on and 309 00:14:06,200 --> 00:14:08,520 Speaker 4: so forth, and we don't know that, and so there's 310 00:14:08,559 --> 00:14:11,040 Speaker 4: a whole leg of the of the of the equation 311 00:14:11,120 --> 00:14:12,080 Speaker 4: that we haven't really seen. 312 00:14:12,200 --> 00:14:14,880 Speaker 5: Stock investors have been trying to outpull each other this morning, 313 00:14:15,000 --> 00:14:18,040 Speaker 5: and Max Katner was on earlier of HSBC and he 314 00:14:18,200 --> 00:14:20,920 Speaker 5: was saying, look, he thinks that the FED is making 315 00:14:20,920 --> 00:14:24,120 Speaker 5: a policy error by cutting more significantly, but they're along 316 00:14:24,160 --> 00:14:26,400 Speaker 5: for the ride because it's just going to inflate the 317 00:14:26,400 --> 00:14:28,280 Speaker 5: prices of assets significantly. 318 00:14:28,400 --> 00:14:29,520 Speaker 6: They want to gain from that. 319 00:14:29,800 --> 00:14:34,200 Speaker 4: Do you agree with that assessment? Well, I haven't. I 320 00:14:34,240 --> 00:14:38,400 Speaker 4: haven't listened. I haven't listened to him, so I would not. 321 00:14:38,440 --> 00:14:40,520 Speaker 5: Be good initial punt. 322 00:14:42,040 --> 00:14:44,360 Speaker 4: I don't. I don't, I don't know. I have. We 323 00:14:44,720 --> 00:14:47,000 Speaker 4: have a lot of trust in in the FED in 324 00:14:47,080 --> 00:14:50,720 Speaker 4: terms of them doing the right thing, and I think 325 00:14:50,760 --> 00:14:53,680 Speaker 4: that the FED usually doesn't know much more than we 326 00:14:53,720 --> 00:14:56,320 Speaker 4: all do. They look at the same data, and so 327 00:14:56,560 --> 00:14:59,720 Speaker 4: the decision is a very well thought out decision where 328 00:14:59,720 --> 00:15:03,080 Speaker 4: they will decide what to do with the condition that 329 00:15:03,080 --> 00:15:06,160 Speaker 4: they are being given. And if, for example, we were 330 00:15:06,240 --> 00:15:09,040 Speaker 4: to see a very bad inflation print, it would be 331 00:15:09,120 --> 00:15:12,200 Speaker 4: very difficult for them to cut Now. They may argue 332 00:15:12,240 --> 00:15:14,920 Speaker 4: that they have to look through inflation and so and 333 00:15:14,920 --> 00:15:18,120 Speaker 4: so forth, But the FED is a very rational actor 334 00:15:18,160 --> 00:15:19,880 Speaker 4: in the market and I don't think anything is going 335 00:15:19,920 --> 00:15:23,400 Speaker 4: to change. And the same goes for the Central Bank 336 00:15:23,440 --> 00:15:25,840 Speaker 4: in the UK and the ECB and so and so forth. 337 00:15:25,880 --> 00:15:27,640 Speaker 4: And I think I think once you're in a job, 338 00:15:28,200 --> 00:15:31,360 Speaker 4: you behavior changes also in terms of how you think 339 00:15:31,360 --> 00:15:32,920 Speaker 4: about what the right thing. 340 00:15:32,840 --> 00:15:35,520 Speaker 2: To do is you are lindening to the new FET 341 00:15:35,640 --> 00:15:36,400 Speaker 2: chair next to. 342 00:15:36,280 --> 00:15:41,200 Speaker 4: No, I'm just saying, it's like being a Supreme Court justice. 343 00:15:41,240 --> 00:15:43,120 Speaker 4: You know, it's a very important job and I think 344 00:15:43,120 --> 00:15:44,560 Speaker 4: people take their job very seriously. 345 00:15:45,040 --> 00:15:45,880 Speaker 3: It's a good change. 346 00:15:46,000 --> 00:15:48,080 Speaker 2: Next year there's going to be a new FEED chair. 347 00:15:48,160 --> 00:15:50,360 Speaker 2: Do you expect to be to see any daylight between 348 00:15:50,440 --> 00:15:53,080 Speaker 2: a FED chair selected by appointed by this White House 349 00:15:53,120 --> 00:15:56,080 Speaker 2: and Chairman J Powell and this current leadership. 350 00:15:56,720 --> 00:15:57,000 Speaker 3: Do you know? 351 00:15:57,160 --> 00:16:00,000 Speaker 4: I was reflecting on this and what we're talking about is, 352 00:16:00,080 --> 00:16:03,640 Speaker 4: I mean, every single fair share has been to some 353 00:16:03,800 --> 00:16:08,440 Speaker 4: degree of political appointee. And you know, there's been a 354 00:16:08,480 --> 00:16:13,320 Speaker 4: history of very good FED chair since the Burns and 355 00:16:13,400 --> 00:16:16,920 Speaker 4: the Nixon presidency, and I see no reason why that would. 356 00:16:16,800 --> 00:16:18,920 Speaker 2: Change the list of candidates we've seen so far. We've 357 00:16:18,920 --> 00:16:22,080 Speaker 2: said repeatedly, very credible names on that list from this 358 00:16:22,120 --> 00:16:24,280 Speaker 2: White House on a treasury and it is, it is. 359 00:16:24,160 --> 00:16:24,520 Speaker 3: It is. 360 00:16:24,600 --> 00:16:28,600 Speaker 4: It is important to remember that it's in everyone's incentive 361 00:16:28,680 --> 00:16:31,920 Speaker 4: to have a very credible feed share, because the market 362 00:16:31,960 --> 00:16:34,600 Speaker 4: will not like a non credible feat share. 363 00:16:36,080 --> 00:16:39,560 Speaker 2: Stay with us more Bloomberg surveillance coming up after this 364 00:16:48,320 --> 00:16:51,160 Speaker 2: to congressional leaders on both sides. We'll be meeting with 365 00:16:51,240 --> 00:16:53,280 Speaker 2: President Donald Trump at the White House that discussed a 366 00:16:53,320 --> 00:16:55,960 Speaker 2: short term spending bill in an effort to avoid a 367 00:16:56,040 --> 00:16:58,520 Speaker 2: government shutdown. With the latest and with a special guest 368 00:16:58,520 --> 00:17:02,440 Speaker 2: that Marie joins us now for more. Hamary, Hey, hey. 369 00:17:02,320 --> 00:17:03,120 Speaker 3: John, good morning. 370 00:17:03,160 --> 00:17:06,000 Speaker 7: We are looking like we are headed towards a government shutdown, 371 00:17:06,000 --> 00:17:08,320 Speaker 7: even though the President United States will be sitting down 372 00:17:08,600 --> 00:17:11,800 Speaker 7: in a bybartisan fashion with the top leaders from the 373 00:17:11,840 --> 00:17:14,240 Speaker 7: House and the Senate. An individual who has been part 374 00:17:14,280 --> 00:17:16,520 Speaker 7: of these conversations in the past, because we have been 375 00:17:16,520 --> 00:17:20,159 Speaker 7: here before, is Patrick McHenry, former chair of the House 376 00:17:20,200 --> 00:17:23,880 Speaker 7: Financial Services Committee chairman, former chairman. Thank you so much 377 00:17:23,880 --> 00:17:26,160 Speaker 7: for joining us this morning, just going into this meeting 378 00:17:26,240 --> 00:17:29,080 Speaker 7: this afternoon at the White House. Do you think there 379 00:17:29,160 --> 00:17:31,919 Speaker 7: is a chance of a breakthrough and this Congress can 380 00:17:31,960 --> 00:17:32,800 Speaker 7: avoid a shutdown. 381 00:17:33,960 --> 00:17:35,919 Speaker 6: No, I don't have high hopes for this. 382 00:17:36,240 --> 00:17:40,680 Speaker 8: I think it's unrealistic to think that the incentives will 383 00:17:40,760 --> 00:17:43,960 Speaker 8: change by simply sitting down with the President Trump. The 384 00:17:44,000 --> 00:17:47,080 Speaker 8: incentive here right now is for congressional Democrats to find 385 00:17:47,080 --> 00:17:50,280 Speaker 8: a way to fight. That is purely this is a 386 00:17:50,320 --> 00:17:53,440 Speaker 8: mechanism for them to say that we are relevant. They're 387 00:17:53,520 --> 00:17:56,399 Speaker 8: only relevant because they have the fill of us from 388 00:17:56,480 --> 00:18:00,280 Speaker 8: the Senate and Republicans do not have a veto sorry 389 00:18:00,320 --> 00:18:02,359 Speaker 8: philibus reproof majority in the Senate. 390 00:18:03,320 --> 00:18:05,360 Speaker 6: The Continent Resolution, which. 391 00:18:05,200 --> 00:18:07,000 Speaker 8: Is merely to keep the lights on in government for 392 00:18:07,000 --> 00:18:10,840 Speaker 8: the next six weeks past the House now sits in 393 00:18:10,880 --> 00:18:14,040 Speaker 8: the Senate and the minority party in the Senate, the 394 00:18:14,119 --> 00:18:17,399 Speaker 8: Democrats have to say on whether or not the bill 395 00:18:17,440 --> 00:18:19,440 Speaker 8: could be brought up, and they have blocked it last week. 396 00:18:19,560 --> 00:18:22,040 Speaker 8: They are likely to block it this week. They need 397 00:18:22,080 --> 00:18:24,359 Speaker 8: to show their base that they're fighting and this is 398 00:18:24,680 --> 00:18:25,760 Speaker 8: their way of doing it. 399 00:18:27,359 --> 00:18:30,080 Speaker 7: Can this have any pushback when it comes to the 400 00:18:30,119 --> 00:18:33,280 Speaker 7: midterms on Republicans given recent polling shows that when it 401 00:18:33,280 --> 00:18:35,639 Speaker 7: comes to healthcare policy, which is the crux of the 402 00:18:35,680 --> 00:18:38,720 Speaker 7: Democratic issue, right now when it comes to this extension 403 00:18:38,720 --> 00:18:42,000 Speaker 7: of the government funding that they actually get favorable numbers. 404 00:18:43,080 --> 00:18:47,000 Speaker 8: They do, but the rest of the issue set favors Republicans, 405 00:18:47,240 --> 00:18:53,480 Speaker 8: from the economy to law enforcement to immigration. Look, the 406 00:18:53,760 --> 00:18:57,080 Speaker 8: field is tilted for Republicans on the policy front. The 407 00:18:57,320 --> 00:19:01,320 Speaker 8: one sold lining for Democrats is healthcare, and this is 408 00:19:01,359 --> 00:19:04,359 Speaker 8: what they want to highlight in the shutdown. The odd 409 00:19:04,440 --> 00:19:09,119 Speaker 8: thing about a shutdown, and this shutdown that we're looking 410 00:19:09,119 --> 00:19:12,159 Speaker 8: at right now has a lot of similarities to me 411 00:19:12,760 --> 00:19:17,240 Speaker 8: of the twenty thirteen shutdown where congressional Republicans I was 412 00:19:17,640 --> 00:19:20,440 Speaker 8: a part of the group. This is why it hurts 413 00:19:20,440 --> 00:19:23,560 Speaker 8: me to see what Democrats are doing right now. We 414 00:19:23,640 --> 00:19:28,600 Speaker 8: said we wanted President Obama to repeal his signature healthcare initiative, 415 00:19:28,760 --> 00:19:31,960 Speaker 8: Obamacare very popular. Our stance was very popular with the 416 00:19:31,960 --> 00:19:35,000 Speaker 8: American people, And in shutting down the government, we got 417 00:19:35,200 --> 00:19:39,399 Speaker 8: nowhere on the policy. We got nowhere on furthering the 418 00:19:39,480 --> 00:19:42,760 Speaker 8: belief that American people thought that Republicans were right. I 419 00:19:42,840 --> 00:19:45,400 Speaker 8: think this is what we're going to face with Democratic 420 00:19:46,320 --> 00:19:48,560 Speaker 8: leaders in the Senate and in the House. They're going 421 00:19:48,600 --> 00:19:51,840 Speaker 8: to recognize this fight is not worth fighting, and in fact, 422 00:19:51,920 --> 00:19:55,320 Speaker 8: a shutdown is in fact and continues to be a 423 00:19:55,680 --> 00:19:59,320 Speaker 8: very dumb political lever here in Washington. 424 00:20:00,000 --> 00:20:02,680 Speaker 7: Twenty thirteen, when they finally came to an agreement, there 425 00:20:02,760 --> 00:20:04,879 Speaker 7: was a little bit of concessions. 426 00:20:04,359 --> 00:20:05,960 Speaker 3: When it came to the Affordable Care Act. 427 00:20:06,000 --> 00:20:10,120 Speaker 7: Could we see concessions from Republicans and Democrats this time 428 00:20:10,160 --> 00:20:11,520 Speaker 7: around to keep the government open? 429 00:20:12,200 --> 00:20:14,480 Speaker 8: Well, I think it's highly unlikely on this short term 430 00:20:15,400 --> 00:20:18,680 Speaker 8: government funding. On the longer term one, which will take 431 00:20:18,720 --> 00:20:20,520 Speaker 8: time to put together, I think you can see some 432 00:20:21,080 --> 00:20:24,320 Speaker 8: modifications and there's a lot of wiggle room when you're 433 00:20:24,359 --> 00:20:28,879 Speaker 8: funding a nearly two trillion dollar government, and so I 434 00:20:28,880 --> 00:20:31,240 Speaker 8: think there is an opportunity there, but for them to 435 00:20:31,280 --> 00:20:35,440 Speaker 8: actually for Congressional Democrats to go into a shutdown strategy, 436 00:20:35,520 --> 00:20:38,920 Speaker 8: this is their first time of trying this. What they're 437 00:20:38,920 --> 00:20:42,240 Speaker 8: going to find is that this is not It does 438 00:20:42,280 --> 00:20:44,800 Speaker 8: not give them what they think it will get them. 439 00:20:45,000 --> 00:20:48,000 Speaker 6: I think they're going to have to wait for their 440 00:20:48,040 --> 00:20:49,480 Speaker 6: policy on. 441 00:20:49,400 --> 00:20:53,600 Speaker 8: A longer term spending bill and they pull this trigger 442 00:20:53,680 --> 00:20:54,679 Speaker 8: at the wrong time. 443 00:20:56,200 --> 00:20:59,080 Speaker 7: How serious do you think the OMB is about when 444 00:20:59,080 --> 00:21:01,960 Speaker 7: it comes to furloughs that usually happened during government shutdowns 445 00:21:01,960 --> 00:21:04,960 Speaker 7: to actually making those job codes permanent. 446 00:21:05,840 --> 00:21:07,840 Speaker 6: Oh, I think, I think this is a plan. 447 00:21:07,920 --> 00:21:10,960 Speaker 8: The omb director Ross Vote has been steing for for 448 00:21:11,000 --> 00:21:15,240 Speaker 8: a long long time. He has he's thought about this 449 00:21:15,320 --> 00:21:17,560 Speaker 8: and thought about this and thought about him, and the 450 00:21:17,560 --> 00:21:22,160 Speaker 8: White House strategy rests on ob OMB has enormous powers 451 00:21:22,480 --> 00:21:27,320 Speaker 8: to carry out, especially in a shutdown, enormous powers over 452 00:21:27,520 --> 00:21:30,119 Speaker 8: the executive branch and the functioning of the executive branch 453 00:21:30,200 --> 00:21:33,679 Speaker 8: and Russ Vote. The OMBA director has a plan, and 454 00:21:33,720 --> 00:21:36,280 Speaker 8: I think it's going to be a very devastating one 455 00:21:36,320 --> 00:21:38,359 Speaker 8: for Democrats. And they're going to rue the day that 456 00:21:38,400 --> 00:21:42,840 Speaker 8: they actually gave ross Vote this enhanced power. It's going 457 00:21:42,880 --> 00:21:45,840 Speaker 8: to be fascinating to see what what happens to the 458 00:21:45,880 --> 00:21:48,960 Speaker 8: next week into the shutdown and for the weeks ahead. 459 00:21:48,960 --> 00:21:53,960 Speaker 7: Frankly, a key question for financial markets as the shutdown 460 00:21:54,000 --> 00:21:56,040 Speaker 7: looms is whether or not we're actually going to get 461 00:21:56,160 --> 00:21:58,960 Speaker 7: economic data. We're supposed to get the non farm payrolls 462 00:21:58,960 --> 00:22:01,879 Speaker 7: report on Friday. If we're in a shutdown, will we 463 00:22:01,920 --> 00:22:02,680 Speaker 7: get that report? 464 00:22:03,520 --> 00:22:04,320 Speaker 6: It's unlikely. 465 00:22:04,520 --> 00:22:07,639 Speaker 8: It's unlikely we'll get that report, but different this is 466 00:22:07,720 --> 00:22:11,040 Speaker 8: also up to OMB. This is one of the things 467 00:22:11,040 --> 00:22:14,600 Speaker 8: on whether it's deemed essential the funding streams or it's 468 00:22:14,640 --> 00:22:17,640 Speaker 8: a complicated set of laws that O and B has 469 00:22:17,800 --> 00:22:21,000 Speaker 8: the wide authority to implement. That that's one that's an 470 00:22:21,000 --> 00:22:26,280 Speaker 8: open question, frankly. But also our governmental statistics are an 471 00:22:26,280 --> 00:22:29,639 Speaker 8: open question by the markets anyway. There's a lot of 472 00:22:29,720 --> 00:22:32,800 Speaker 8: questioning of these statistics in the volity of them, and 473 00:22:32,880 --> 00:22:36,199 Speaker 8: so you know, I think OMB may take the broader 474 00:22:36,200 --> 00:22:38,560 Speaker 8: authorities than in previous shutdowns. 475 00:22:39,600 --> 00:22:40,240 Speaker 3: Stay with US. 476 00:22:40,560 --> 00:22:52,920 Speaker 2: Multiple Imberg surveillance coming up after this stop's inchin Kaya. 477 00:22:53,000 --> 00:22:56,200 Speaker 2: As investors continue to navigate the AI boom nice curtain 478 00:22:56,240 --> 00:22:59,480 Speaker 2: of HSBC, same things are looking up writing the broad 479 00:22:59,480 --> 00:23:03,080 Speaker 2: based as price inflation is continuing full throttle, and we 480 00:23:03,240 --> 00:23:05,919 Speaker 2: think this mode account Max joined just now for more 481 00:23:06,000 --> 00:23:08,719 Speaker 2: Maxkimonic good. We were talking about you know you're published 482 00:23:08,720 --> 00:23:10,560 Speaker 2: earlier this morning, so I think we should probably start there. 483 00:23:10,600 --> 00:23:12,879 Speaker 2: So here's the line. We still see clear signs of 484 00:23:13,040 --> 00:23:17,200 Speaker 2: US and global growth reaccelerting in contrast to downbeat consensus 485 00:23:17,240 --> 00:23:20,760 Speaker 2: expectations least a straight away bank. What's downbeat about consensus 486 00:23:20,800 --> 00:23:22,480 Speaker 2: expectations into next year? 487 00:23:22,640 --> 00:23:25,080 Speaker 1: Look, I think when we look at both earnings actually 488 00:23:25,119 --> 00:23:29,040 Speaker 1: earnings expectations and top down GDP expectations, they are still 489 00:23:29,080 --> 00:23:32,240 Speaker 1: pretty you know, pretty down. We'd certainly not where GDP 490 00:23:32,400 --> 00:23:35,120 Speaker 1: now is where all the high frequency data are both 491 00:23:35,160 --> 00:23:38,120 Speaker 1: top down and bottom up. If you look at bottom up. Actually, 492 00:23:38,320 --> 00:23:40,879 Speaker 1: you know, when we strip out tech earnings expectations Q 493 00:23:40,920 --> 00:23:43,720 Speaker 1: three versus Q two two are pretty much flat. So 494 00:23:43,920 --> 00:23:45,960 Speaker 1: we're going into Q three earning season in a couple 495 00:23:46,000 --> 00:23:49,200 Speaker 1: of weeks where you know, for most sectors, actually contends 496 00:23:49,240 --> 00:23:51,479 Speaker 1: us saying earnings are either going to be flat or 497 00:23:51,560 --> 00:23:55,080 Speaker 1: down quarter of a quarter sequentially, you know, in a 498 00:23:55,160 --> 00:23:58,280 Speaker 1: quarter where probably growth has been really really robust. From 499 00:23:58,320 --> 00:24:00,399 Speaker 1: a top down perspective, that doesn't make sense. If you 500 00:24:00,400 --> 00:24:02,960 Speaker 1: look at Q four even GDP, what we're seeing is 501 00:24:03,000 --> 00:24:07,200 Speaker 1: it's barely one percent quarter over quarter annualized growth expected. Again, 502 00:24:07,600 --> 00:24:09,720 Speaker 1: what we are not only seeing on the headline number 503 00:24:09,760 --> 00:24:12,840 Speaker 1: that one percent, which is a quarter percent annualine and annualized, 504 00:24:13,240 --> 00:24:17,080 Speaker 1: But when we look at the contributions to that, consensers 505 00:24:17,080 --> 00:24:20,120 Speaker 1: are still saying there won't be any comeback off investment, and. 506 00:24:20,080 --> 00:24:21,119 Speaker 6: That doesn't make sense to me. 507 00:24:21,200 --> 00:24:24,720 Speaker 1: You can't say we've got a little bit less political uncertainty. 508 00:24:24,760 --> 00:24:27,080 Speaker 1: We kind of know how to deal with this environment. 509 00:24:27,080 --> 00:24:29,120 Speaker 1: Now we've got the big beautiful build coming through. We've 510 00:24:29,160 --> 00:24:31,560 Speaker 1: got wealth gains coming through. We've obviously got you know, 511 00:24:31,600 --> 00:24:34,480 Speaker 1: these Ai Kape story coming through. But at the same time, 512 00:24:34,600 --> 00:24:37,679 Speaker 1: Consensus are saying, nope, all this terrift story. It's going 513 00:24:37,760 --> 00:24:42,240 Speaker 1: to continue weighing on investment in particular, and that's really 514 00:24:42,240 --> 00:24:43,160 Speaker 1: big upside for price. 515 00:24:43,520 --> 00:24:45,640 Speaker 5: I think the reason why both John and I were 516 00:24:45,680 --> 00:24:48,280 Speaker 5: a little bit confused by this idea of consensus is 517 00:24:48,320 --> 00:24:51,560 Speaker 5: because in the past couple of days, Brian Belski saying 518 00:24:51,600 --> 00:24:54,560 Speaker 5: seven thousand for next year not necessarily high enough, Christian 519 00:24:54,560 --> 00:24:58,159 Speaker 5: Malerk Glissman over at Golme Sacks upgrading their forecast, and 520 00:24:58,200 --> 00:25:01,160 Speaker 5: gol Ma SAX keeps upgrading to the market repeatedly. John 521 00:25:01,200 --> 00:25:03,880 Speaker 5: saltus the biggest ball on Wall Street. You see others 522 00:25:03,960 --> 00:25:07,080 Speaker 5: just coming out of the woodwork talking about seventy seven. 523 00:25:06,960 --> 00:25:08,800 Speaker 6: Hundred on the SMP for next year. 524 00:25:09,040 --> 00:25:12,280 Speaker 5: How can you say that's a bearish outlook or not 525 00:25:12,400 --> 00:25:13,240 Speaker 5: bullish enough. 526 00:25:13,600 --> 00:25:16,240 Speaker 1: Yeah, Look, actually what we are seeing now, that's sort 527 00:25:16,280 --> 00:25:17,680 Speaker 1: of streak of upgrades. 528 00:25:17,720 --> 00:25:19,760 Speaker 4: That's the most bullish thing that you can imagine. 529 00:25:19,800 --> 00:25:24,199 Speaker 1: Because we run a series called Contensus GDP forecast diffusions 530 00:25:24,200 --> 00:25:26,600 Speaker 1: where we actually look at the data that you guys produce, 531 00:25:26,640 --> 00:25:30,400 Speaker 1: so all those contensus expectations around GDP once that shoots higher, 532 00:25:30,480 --> 00:25:33,919 Speaker 1: So once you really see upgrades across the board for 533 00:25:34,040 --> 00:25:36,760 Speaker 1: the major global economies, so for the you know, the 534 00:25:36,920 --> 00:25:39,359 Speaker 1: likes of the US, Canada, China, Eurozone and so on, 535 00:25:39,880 --> 00:25:44,000 Speaker 1: and that is really really bullish, right, particularly for for cyclicality, 536 00:25:44,000 --> 00:25:46,080 Speaker 1: particularly not only for adding for equity. Is it not 537 00:25:46,240 --> 00:25:48,840 Speaker 1: just okay, it's a monetary different story. It's probably tech 538 00:25:48,880 --> 00:25:51,720 Speaker 1: out performing, but really for cyclic cost to outperform. Now, 539 00:25:51,960 --> 00:25:55,040 Speaker 1: on the other hand, let's not just focus on the 540 00:25:55,119 --> 00:25:58,680 Speaker 1: expectations and on people upgrading their you know, the e're 541 00:25:58,720 --> 00:26:01,440 Speaker 1: ahead forecast, but about the market action. When we look 542 00:26:01,440 --> 00:26:03,440 Speaker 1: at the market action year today, and you look within 543 00:26:03,520 --> 00:26:06,879 Speaker 1: the SMP, cyclicals are up pretty much the same as defensives. 544 00:26:07,000 --> 00:26:09,359 Speaker 1: So it's not like cyclicals are up twenty percent and 545 00:26:09,440 --> 00:26:12,359 Speaker 1: defensives are like five, like, wow, this is all baked 546 00:26:12,359 --> 00:26:14,840 Speaker 1: into price action already. No, both are up give it 547 00:26:14,920 --> 00:26:17,720 Speaker 1: take nine percent. So it's not like, actually, price action 548 00:26:17,840 --> 00:26:21,200 Speaker 1: is telling us, wow, there's so much hope into cyclicals 549 00:26:21,240 --> 00:26:21,560 Speaker 1: baked in. 550 00:26:21,800 --> 00:26:24,480 Speaker 5: Not to be a negative nelly, but you could argue, well, 551 00:26:24,520 --> 00:26:28,320 Speaker 5: all about a second not always I'm just contrarian Courtney. 552 00:26:29,359 --> 00:26:30,240 Speaker 3: We're looking forward. 553 00:26:32,200 --> 00:26:33,440 Speaker 2: Please bear with me. 554 00:26:33,960 --> 00:26:36,320 Speaker 5: Honestly, you could say, if things were looking so good, 555 00:26:36,640 --> 00:26:37,080 Speaker 5: why is it. 556 00:26:37,119 --> 00:26:40,560 Speaker 4: That puting rates that makes it even more bullish? 557 00:26:41,040 --> 00:26:42,560 Speaker 6: If you're honest, sure. 558 00:26:42,320 --> 00:26:43,920 Speaker 3: But why should they cut rates? 559 00:26:44,000 --> 00:26:46,320 Speaker 1: They shouldn't, I mean, don't don't ask it. Don't ask 560 00:26:46,320 --> 00:26:48,200 Speaker 1: a German why they should cut rates? Right, the German 561 00:26:48,240 --> 00:26:50,760 Speaker 1: will always say they shouldn't be cutting rates. No, I mean, look, 562 00:26:50,960 --> 00:26:53,000 Speaker 1: I guess the point is to bring it back to 563 00:26:53,080 --> 00:26:56,800 Speaker 1: slightly more you know, serious topics. If we if we 564 00:26:56,840 --> 00:26:59,840 Speaker 1: look at what the Fed can do, can they cut 565 00:26:59,840 --> 00:27:02,440 Speaker 1: on the one or two times? Should fine? Should they 566 00:27:02,520 --> 00:27:06,000 Speaker 1: necessarily with uber uber loosing and easy financial conditions? 567 00:27:06,040 --> 00:27:06,679 Speaker 3: Probably not. 568 00:27:07,280 --> 00:27:09,840 Speaker 1: You know, with threeish inflation, should they really be cutting 569 00:27:09,840 --> 00:27:12,600 Speaker 1: a lot? Probably not. But at the same time, what 570 00:27:12,640 --> 00:27:16,040 Speaker 1: we undeniably have is we have weakness in the economy. 571 00:27:16,080 --> 00:27:18,600 Speaker 1: It's very different. You know, the economy is on two 572 00:27:18,680 --> 00:27:19,639 Speaker 1: very different paths. 573 00:27:19,720 --> 00:27:20,399 Speaker 4: Let's be honest. 574 00:27:20,600 --> 00:27:23,480 Speaker 1: If we weren't market people, if we were people working 575 00:27:23,480 --> 00:27:26,000 Speaker 1: in the labor department, we'd be talking about the economy 576 00:27:26,160 --> 00:27:29,119 Speaker 1: very very differently. There is you know, there is there 577 00:27:29,160 --> 00:27:32,480 Speaker 1: is absolute, absolute strains on the weaker part of the economy. 578 00:27:32,760 --> 00:27:34,600 Speaker 1: We're talking about the Russell two thousand. John, you you 579 00:27:34,640 --> 00:27:36,479 Speaker 1: were talking about the Russell two thousand. Let's go one 580 00:27:36,520 --> 00:27:39,280 Speaker 1: steep down, one step down. Let's go to the smallest 581 00:27:39,280 --> 00:27:41,879 Speaker 1: caps that are you know, that aren't actually listed. There 582 00:27:41,960 --> 00:27:45,199 Speaker 1: is very clear strain they can't get funding. You know, 583 00:27:45,280 --> 00:27:47,879 Speaker 1: you look at credit card delinquencies, or to learn delinquencies, 584 00:27:47,920 --> 00:27:51,200 Speaker 1: look at real wage growth high the highest wage growth 585 00:27:51,200 --> 00:27:54,440 Speaker 1: percentiles versus the lowest ones. The lowest ones are already 586 00:27:54,520 --> 00:27:57,399 Speaker 1: going to around zero percent real wage growth. 587 00:27:57,720 --> 00:27:58,760 Speaker 3: Tariffs, of course, are. 588 00:27:58,680 --> 00:28:01,600 Speaker 1: Eating into the lower and humor goods into you know, 589 00:28:01,640 --> 00:28:05,160 Speaker 1: things like food and beverages that already have outstripped cumulatively 590 00:28:05,200 --> 00:28:06,680 Speaker 1: inflation since COVID. 591 00:28:06,920 --> 00:28:09,720 Speaker 4: Now you add on teriffs. It's a clear strain on the. 592 00:28:09,640 --> 00:28:11,720 Speaker 1: Weaker part of the economy, and they need the rate 593 00:28:11,760 --> 00:28:14,840 Speaker 1: cuts well. That of course for US sleans it's even 594 00:28:14,920 --> 00:28:18,000 Speaker 1: better for our surprise inflation because you've got a reaccelerating 595 00:28:18,000 --> 00:28:20,760 Speaker 1: economy and now you throw on rate cuts, which normally 596 00:28:20,840 --> 00:28:21,480 Speaker 1: never happens. 597 00:28:21,560 --> 00:28:23,840 Speaker 2: That story you describe doesn't make you bearish. In fact, 598 00:28:23,840 --> 00:28:25,920 Speaker 2: it makes you incrementally more bullish because they're going to 599 00:28:25,960 --> 00:28:28,040 Speaker 2: have to respond to it. What would make you bearish 600 00:28:28,119 --> 00:28:29,240 Speaker 2: is what LEASA is trying to ask it. 601 00:28:29,400 --> 00:28:33,200 Speaker 1: Yeah, I think, look, the it is very clear. Anything 602 00:28:33,240 --> 00:28:36,320 Speaker 1: around let's say Supreme Court or government shutdown, that's like, yeah, 603 00:28:36,359 --> 00:28:38,360 Speaker 1: can we get like one or two or three percent down? 604 00:28:38,440 --> 00:28:40,680 Speaker 1: Shure right, a handful percent down. But at the end 605 00:28:40,720 --> 00:28:42,640 Speaker 1: of the day, this is just by the dip opportunities. 606 00:28:43,160 --> 00:28:45,960 Speaker 1: The reality is if we get a return to twenty 607 00:28:46,000 --> 00:28:49,640 Speaker 1: twenty two, where the FED says, oh, we are you know, 608 00:28:49,720 --> 00:28:50,560 Speaker 1: we're very wrong. 609 00:28:50,680 --> 00:28:52,040 Speaker 3: This is like twenty twenty two. 610 00:28:52,400 --> 00:28:53,320 Speaker 4: This is transitory. 611 00:28:53,320 --> 00:28:54,600 Speaker 1: If we say, oh, you know what, this is not 612 00:28:54,680 --> 00:28:57,440 Speaker 1: just three percent, this is entrenched three percent, and three 613 00:28:57,520 --> 00:28:59,560 Speaker 1: percent seems to be the loan now and now we're 614 00:28:59,600 --> 00:29:03,280 Speaker 1: reacitlerating even inflation. We're not even done cutting. We're not 615 00:29:03,320 --> 00:29:05,600 Speaker 1: even you know, we're not even stopping. We're actually the 616 00:29:05,640 --> 00:29:09,160 Speaker 1: next move is a hike. Once we get that, that 617 00:29:09,560 --> 00:29:11,720 Speaker 1: puts a stop to it. How far are we away 618 00:29:11,720 --> 00:29:14,600 Speaker 1: from that minimum two quarters? You know, I mean I 619 00:29:14,640 --> 00:29:17,040 Speaker 1: had last week, I still had conversations about, oh, they're 620 00:29:17,040 --> 00:29:20,640 Speaker 1: going to do fifty in October. You know, we're minimums 621 00:29:20,680 --> 00:29:23,280 Speaker 1: two quarters away from that. Because let's let's Remember, we 622 00:29:23,400 --> 00:29:26,560 Speaker 1: have had this reacceleration and the data that you know, 623 00:29:26,640 --> 00:29:28,280 Speaker 1: not a lot of people were talking about a month 624 00:29:28,280 --> 00:29:30,520 Speaker 1: and a half two months ago. You know, Now it's 625 00:29:30,560 --> 00:29:34,560 Speaker 1: sort of creeping into people really and saying, hey, look, yeah, 626 00:29:35,080 --> 00:29:37,360 Speaker 1: the US seems to be doing better from an aggregate 627 00:29:37,400 --> 00:29:40,400 Speaker 1: growth perspective. But what we really need for a hawkish 628 00:29:40,760 --> 00:29:43,880 Speaker 1: for a proper hawkish shift, is actually a reacceleration in 629 00:29:43,920 --> 00:29:46,440 Speaker 1: the labor market. And given that supplying story, given that 630 00:29:46,560 --> 00:29:49,560 Speaker 1: really low brake even number, it's almost impossible to get 631 00:29:49,560 --> 00:29:51,720 Speaker 1: that in the next couple of months, right, So that 632 00:29:51,720 --> 00:29:55,640 Speaker 1: that makes it It sounds intuitively completely wrong, but it's 633 00:29:55,680 --> 00:29:57,560 Speaker 1: the best of both worlds. You get a sort of 634 00:29:57,600 --> 00:30:02,000 Speaker 1: weakish labor market, but you've got rea tolerating activity data, 635 00:30:02,200 --> 00:30:06,720 Speaker 1: which means good earnings but sort of sluggish consenders expectations 636 00:30:06,800 --> 00:30:09,080 Speaker 1: low bar to beat, but at the same time rate 637 00:30:09,160 --> 00:30:12,520 Speaker 1: cuts into a reacceleration, which, Lisa, to your point, is 638 00:30:12,520 --> 00:30:15,440 Speaker 1: that a policy mistake? I think so. But of course 639 00:30:15,480 --> 00:30:17,080 Speaker 1: you know that's probably a story we're going to play 640 00:30:17,120 --> 00:30:19,240 Speaker 1: in twenty twenty six, not the next six months. 641 00:30:20,080 --> 00:30:20,720 Speaker 3: Stay with us. 642 00:30:21,040 --> 00:30:33,400 Speaker 2: More Bloomberg surveillance coming up after this trailer is looking 643 00:30:33,440 --> 00:30:36,000 Speaker 2: ahead to payrolls data you had on Friday after stronger 644 00:30:36,040 --> 00:30:39,320 Speaker 2: than expected economic data, Jim Bianco of Bianco Research, ranking 645 00:30:39,320 --> 00:30:41,880 Speaker 2: the FED should not continue to cut rates. The economy 646 00:30:41,920 --> 00:30:44,800 Speaker 2: is doing much better than the consensus. Jim joined us 647 00:30:44,840 --> 00:30:47,280 Speaker 2: now for more. Jim, Welcome to the program, sir. I 648 00:30:47,360 --> 00:30:50,320 Speaker 2: won your perspective first on the recent FED debate, the 649 00:30:50,480 --> 00:30:52,360 Speaker 2: division that we're seeing from the Fed speak of the 650 00:30:52,440 --> 00:30:53,520 Speaker 2: last week or so. 651 00:30:53,560 --> 00:30:55,760 Speaker 4: Where do you land on things, Jim? 652 00:30:56,320 --> 00:30:59,040 Speaker 9: I think some of that is political, and I think 653 00:30:59,080 --> 00:31:01,240 Speaker 9: some of the Federal Reserve officials are running. 654 00:31:01,000 --> 00:31:02,400 Speaker 3: To try and replace j Paul. 655 00:31:02,960 --> 00:31:05,280 Speaker 9: And I might respectfully say that the quote you had 656 00:31:05,320 --> 00:31:08,360 Speaker 9: from Jim Bullard is in that camp too, because it 657 00:31:08,400 --> 00:31:09,880 Speaker 9: was very inconsistent what he said. 658 00:31:10,320 --> 00:31:11,920 Speaker 3: And I think some of it is genuine. 659 00:31:12,120 --> 00:31:14,720 Speaker 9: That there is some that are looking at the economy 660 00:31:14,800 --> 00:31:17,680 Speaker 9: kind of like I do, and that is that it's 661 00:31:17,720 --> 00:31:21,080 Speaker 9: doing okay, if not better. The Atlanta Fed GDP number 662 00:31:21,120 --> 00:31:24,000 Speaker 9: is now nearly four percent. It's higher than every single 663 00:31:24,640 --> 00:31:28,480 Speaker 9: estimate on Wall Street right now, and the inflation data 664 00:31:28,720 --> 00:31:31,600 Speaker 9: is staying sticky, and the goods part of data, which 665 00:31:31,600 --> 00:31:34,520 Speaker 9: would be tariffs, is really starting to show signs that 666 00:31:34,560 --> 00:31:37,120 Speaker 9: it's moving higher. So for those that say, where's the 667 00:31:37,200 --> 00:31:41,080 Speaker 9: terrif inflation, it's right there. It's coming. It's it's underway 668 00:31:41,440 --> 00:31:43,240 Speaker 9: in the CPI goods category. 669 00:31:43,600 --> 00:31:45,520 Speaker 2: Jim, how credible do you think this pursuit of two 670 00:31:45,560 --> 00:31:48,480 Speaker 2: percent is? It's something that dominates in our conversation on 671 00:31:48,600 --> 00:31:50,320 Speaker 2: decision day. Is this credible? 672 00:31:51,560 --> 00:31:53,640 Speaker 3: It's got a problem. And the reason it's got a 673 00:31:53,640 --> 00:31:55,600 Speaker 3: problem is if you look at the inflation. 674 00:31:55,360 --> 00:31:59,240 Speaker 9: Expectations data I'm talking about, like the inflation swaps or 675 00:31:59,240 --> 00:32:02,520 Speaker 9: the CPI I break even rates or the tips excuse me, 676 00:32:02,560 --> 00:32:05,720 Speaker 9: break even rates, they're all above two and a half 677 00:32:05,800 --> 00:32:07,600 Speaker 9: percent out till twenty thirty. 678 00:32:08,120 --> 00:32:09,160 Speaker 3: Well, I know, you know. 679 00:32:09,240 --> 00:32:11,480 Speaker 9: One of the best questions I heard during the press 680 00:32:11,520 --> 00:32:13,880 Speaker 9: conference was from Mike McKee, where you pointed out that 681 00:32:13,920 --> 00:32:16,120 Speaker 9: the Fed said we'll be at our target in two years, 682 00:32:16,480 --> 00:32:18,720 Speaker 9: and you pointed out the last eleven years you've said 683 00:32:18,760 --> 00:32:20,560 Speaker 9: you'll be at your target in two years, and you've 684 00:32:20,640 --> 00:32:22,960 Speaker 9: yet to be at your target in two years for 685 00:32:23,120 --> 00:32:24,760 Speaker 9: eleven straight years, and now you're going to try for 686 00:32:24,800 --> 00:32:27,240 Speaker 9: a twelfth year, and the market is saying you're not 687 00:32:27,240 --> 00:32:29,320 Speaker 9: going to be at your target for five more years 688 00:32:29,600 --> 00:32:31,840 Speaker 9: because out to twenty thirty, it's still got, you know, 689 00:32:32,040 --> 00:32:35,600 Speaker 9: elevated inflation, not runaway, but definitely not getting anywhere. You're 690 00:32:35,600 --> 00:32:37,960 Speaker 9: two percent, and the FED needs to address that, and 691 00:32:38,000 --> 00:32:39,800 Speaker 9: they're really not at this point. 692 00:32:40,000 --> 00:32:42,640 Speaker 5: At the same time, Jim, can't you say that tacitly 693 00:32:42,640 --> 00:32:44,920 Speaker 5: if they're accepting two point four percent, which is currently 694 00:32:44,960 --> 00:32:46,880 Speaker 5: what break even rates are pointing out for the next 695 00:32:46,880 --> 00:32:49,640 Speaker 5: ten years, is the likely inflation rate? If that is 696 00:32:49,640 --> 00:32:52,360 Speaker 5: the inflation rate, isn't this market and isn't this Fed 697 00:32:52,400 --> 00:32:54,360 Speaker 5: saying that's fine as long as we don't torpedo the 698 00:32:54,440 --> 00:32:55,280 Speaker 5: labor market, as. 699 00:32:55,200 --> 00:32:58,480 Speaker 3: Long as we keep the economy chugging. Where's the problem? 700 00:32:59,040 --> 00:33:01,760 Speaker 3: The problem comes, where's the neutral rate? If you're going 701 00:33:01,800 --> 00:33:02,840 Speaker 3: to accept two and a half. 702 00:33:02,760 --> 00:33:05,800 Speaker 9: Percent or so as the inflation rate, with our star 703 00:33:06,000 --> 00:33:07,760 Speaker 9: that's three and a half percent. If you're going to 704 00:33:08,360 --> 00:33:11,000 Speaker 9: that would be a one percent premium above that. If 705 00:33:11,000 --> 00:33:13,440 Speaker 9: you're going to accept two and a half percent as inflation, 706 00:33:13,520 --> 00:33:15,400 Speaker 9: maybe our stars should be a little bit bigger. In 707 00:33:15,440 --> 00:33:19,640 Speaker 9: other words, you're no longer moderately, you're easy at the market, 708 00:33:19,760 --> 00:33:22,160 Speaker 9: You're probably at neutral, and if you cut one or 709 00:33:22,160 --> 00:33:24,720 Speaker 9: two more times this year, you're going to be too 710 00:33:24,800 --> 00:33:27,840 Speaker 9: easy in the market, and you're going to risk fostering 711 00:33:27,840 --> 00:33:30,280 Speaker 9: more inflation. So it really comes down to do you 712 00:33:30,320 --> 00:33:32,560 Speaker 9: want to cut rates two more times? If you do, 713 00:33:32,880 --> 00:33:35,360 Speaker 9: then you shouldn't be tacidly accepting two and a half 714 00:33:35,360 --> 00:33:38,240 Speaker 9: percent as the inflation rate long term inflation rate, because 715 00:33:38,240 --> 00:33:39,800 Speaker 9: you should be done cutting rates. 716 00:33:39,840 --> 00:33:40,960 Speaker 3: Then at this point, do you. 717 00:33:40,880 --> 00:33:43,080 Speaker 5: Get comfort Jim, from the fact that after the Fed 718 00:33:43,120 --> 00:33:45,760 Speaker 5: cut rates, you aren't seeing a steepening of the yield curve, 719 00:33:45,840 --> 00:33:48,560 Speaker 5: You aren't seeing a runaway at the long end of 720 00:33:48,640 --> 00:33:51,240 Speaker 5: the yield curve like what we saw last year. That 721 00:33:51,480 --> 00:33:55,280 Speaker 5: people are seeing there as justification economically for the Fed 722 00:33:55,600 --> 00:33:56,600 Speaker 5: to be more aggressive. 723 00:33:57,920 --> 00:33:59,400 Speaker 3: Yeah, at least at this point. 724 00:33:59,480 --> 00:34:01,520 Speaker 9: But I I fear that we're in a holding pattern 725 00:34:01,560 --> 00:34:03,800 Speaker 9: waiting for more data. And I also fear we're not 726 00:34:03,840 --> 00:34:05,360 Speaker 9: going to get that data because we're going to have 727 00:34:05,400 --> 00:34:08,279 Speaker 9: a government shutdown on Wednesday at midnight, and I'm talking 728 00:34:08,280 --> 00:34:11,239 Speaker 9: about like the payroll report on Friday and next week 729 00:34:11,320 --> 00:34:15,040 Speaker 9: the CPI report. Remember that they're the last government shutdown 730 00:34:15,120 --> 00:34:18,560 Speaker 9: under Trump in twenty eighteen twenty nineteen, lasted thirty five days. 731 00:34:18,960 --> 00:34:19,680 Speaker 3: And the Fed is. 732 00:34:19,680 --> 00:34:22,400 Speaker 9: Effectively going to go into the October twenty ninth meeting 733 00:34:22,600 --> 00:34:26,160 Speaker 9: with no more government data, which is what they rely on. 734 00:34:26,360 --> 00:34:29,200 Speaker 9: Jaypop called it the gold standard then they have today, 735 00:34:29,600 --> 00:34:31,960 Speaker 9: and they'll just assume that it's everything is as they 736 00:34:32,040 --> 00:34:35,160 Speaker 9: understand it today, and they'll cut rates. And what I'm 737 00:34:35,200 --> 00:34:37,600 Speaker 9: afraid of is when we get that data. Whenever we 738 00:34:37,680 --> 00:34:40,520 Speaker 9: get that data, it's going to show a meaningful uptick 739 00:34:40,600 --> 00:34:41,400 Speaker 9: in the economy. 740 00:34:41,719 --> 00:34:43,640 Speaker 2: And Jim, I want to build on that. We've been 741 00:34:43,640 --> 00:34:46,480 Speaker 2: talking about this reacceleration now for a while. Marcus price 742 00:34:46,520 --> 00:34:50,080 Speaker 2: for it into twenty six. Lisa mentioned NEIL data early 743 00:34:50,160 --> 00:34:52,440 Speaker 2: this morning. This is what he said on the jobs market. 744 00:34:52,600 --> 00:34:55,120 Speaker 2: If firms expect growth to per cup, it's curious they 745 00:34:55,120 --> 00:34:58,279 Speaker 2: haven't ramped up hiring an hour's already. Jim, what do 746 00:34:58,280 --> 00:34:59,120 Speaker 2: you sent back to that? 747 00:35:00,320 --> 00:35:03,040 Speaker 9: You know, I think the issue with the labor market 748 00:35:03,160 --> 00:35:05,560 Speaker 9: is really the break even rate right now. We need 749 00:35:05,600 --> 00:35:07,719 Speaker 9: to start to ask the other side of the question, 750 00:35:07,760 --> 00:35:10,680 Speaker 9: which nobody wants to touch. Okay, we've created twenty nine 751 00:35:10,680 --> 00:35:13,240 Speaker 9: thousand jobs over the last three months, how many should 752 00:35:13,320 --> 00:35:16,239 Speaker 9: we be creating? And j Pol answered that towards the 753 00:35:16,320 --> 00:35:19,080 Speaker 9: end of his press conference, he said maybe zero to 754 00:35:19,480 --> 00:35:22,960 Speaker 9: fifty thousand midpoint of that's twenty five thousand. We've created 755 00:35:23,000 --> 00:35:26,239 Speaker 9: twenty nine thousand. I understand this is a number that 756 00:35:26,280 --> 00:35:29,040 Speaker 9: we're not used to to say twenty nine thousand jobs 757 00:35:29,040 --> 00:35:31,200 Speaker 9: over three months is just fine, that's all we need 758 00:35:31,239 --> 00:35:34,520 Speaker 9: in this economy. But we've got the lowest population growth 759 00:35:34,560 --> 00:35:37,440 Speaker 9: in almost one hundred years because of the closing of 760 00:35:37,480 --> 00:35:41,120 Speaker 9: the border and increased deportations. And if that's the case, 761 00:35:41,120 --> 00:35:43,640 Speaker 9: you have no population growth, you don't need to create 762 00:35:43,640 --> 00:35:46,480 Speaker 9: that many jobs. So really this is the crux of 763 00:35:46,520 --> 00:35:49,000 Speaker 9: the labor market issue. It's not how many manufacturing jobs 764 00:35:49,040 --> 00:35:52,759 Speaker 9: versus service jobs, versus healthcare jobs did we create last month. 765 00:35:53,200 --> 00:35:55,759 Speaker 3: The fundamental question is how many do we need? 766 00:35:55,880 --> 00:35:58,719 Speaker 9: And the answer might be not that many given low 767 00:35:58,800 --> 00:35:59,720 Speaker 9: population growth. 768 00:36:00,880 --> 00:36:04,439 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 769 00:36:04,480 --> 00:36:07,560 Speaker 2: in markets, economics, and geo politics. You can watch the 770 00:36:07,560 --> 00:36:10,600 Speaker 2: show live on Bloomberg TV weekday mornings from six am 771 00:36:10,719 --> 00:36:13,880 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, 772 00:36:14,160 --> 00:36:17,000 Speaker 2: Spotify or anywhere else you listen, and as always on 773 00:36:17,000 --> 00:36:19,520 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.