Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 3: Let's stick with tech.
Speaker 2: McKinsey estimating that data centers will require six point seven
Speaker 2: trillion dollars to meet demand for computing power globally by
Speaker 2: twenty thirty. Private credit firms are allaying the groundwork to
Speaker 2: help provide the capital. Meta is said to have selected
Speaker 2: Pimco to help lead a twenty nine billion dollar financing
Speaker 2: for its data center expansion. I'm happy to say the
Speaker 2: Pimco CEO, Manay Roman, joins us now for more.
Speaker 4: Mannic, good morning, Good morning, Johnathan, to see you.
Speaker 2: It's good to see you, sir. How does a man
Speaker 2: like you deal with a three am alarm? Clock on
Speaker 2: the West coast. How does that work? You've got I make.
Speaker 4: I make the best expresso known to mankind, you know,
Speaker 4: and you'll be hyppy triple espresso, triple expresso, and it
Speaker 4: feels good every day and happy to be at work.
Speaker 2: Well, I'm happy to have you with us this morning.
Speaker 2: Let's get into some of these deals. I know, the
Speaker 2: certain deals you can talk about can't talk about. Want
Speaker 2: to talk in broad terms about the appetite here for
Speaker 2: the capital that we need to provide to this particular force,
Speaker 2: this growing force AI data centers. Where it's going to
Speaker 2: come from and where you and a team are going
Speaker 2: to fit in.
Speaker 4: So I think it's I mean it's it's a huge
Speaker 4: super secular opportunity. There is an enormous need for funding
Speaker 4: and equity in data center we I don't know whether
Speaker 4: the six point seven trillion dollars from McKinsey is remotely right,
Speaker 4: but it's very, very big, and there'll be plenty of
Speaker 4: financing deals to be done, and there'll be plenty of
Speaker 4: construction to be done. And it's true in the US,
Speaker 4: but it's true in other.
Speaker 3: Part of the world.
Speaker 4: And the need also to have the infrastructure and the
Speaker 4: energy will come after that. So you know, we all
Speaker 4: talk about data center, but there's going to be a
Speaker 4: real rush for energy in terms of providing the right
Speaker 4: set up for this data center. And you know, that's
Speaker 4: one of the reason to be very bullish on natural gas.
Speaker 2: We've reflected on one particular statement from one particular tax
Speaker 2: CEO over the last twelve months that I think was
Speaker 2: really quite important.
Speaker 4: It was last summer.
Speaker 2: It was the Alphabet CEO when essentially he said that
Speaker 2: the greatest risk here was under investing and not overinvesting.
Speaker 2: And I wonder how you think about that from the
Speaker 2: perspective as an asset manager. When you've got a group
Speaker 2: of companies that are willing to run the risk of overinvesting,
Speaker 2: how do you think about the risk around.
Speaker 4: It in terms of I think what we will do
Speaker 4: is we will look at every single deal and we
Speaker 4: will say this makes sense for us, and this may
Speaker 4: make less sense, and I think I think we I
Speaker 4: think one of the one of the strength we have
Speaker 4: is to be to be pretty pretty focused on relative
Speaker 4: value and sort of think that you know, there may
Speaker 4: be a fantastic deal to be done which would be
Speaker 4: very very good for our investors and then we look
Speaker 4: at the next one in the full light of day
Speaker 4: and decide whether it fits our portfolio and whether this
Speaker 4: is something we want to do.
Speaker 2: I think it's important to build on this that Mark
Speaker 2: Rowan said recently. We are what we originate. When it
Speaker 2: comes to private markets, you are what you originate. It's
Speaker 2: quite labor intensive. It takes a lot of work when
Speaker 2: you think about scaling this and building this is an opportunity,
Speaker 2: How difficult is it in practice?
Speaker 4: I think we have built it differently from ourk We
Speaker 4: have built it based on or experiencing fixed income or
Speaker 4: experiencing relative value. In a history of fifty four years
Speaker 4: in looking at all sorts of credit, we have fifty
Speaker 4: five credit analysts who looks at every single segment of
Speaker 4: the market. And I think we look at it from
Speaker 4: a value standpoint. Does it make sense? Is it's something
Speaker 4: we want to do. We shouldn't be originating for the
Speaker 4: sake of originating. And there's a lot of money. There's
Speaker 4: a lot of money coming to this market. You know,
Speaker 4: some sectors would be very attractive and some will be
Speaker 4: less so. And I think you want to be very
Speaker 4: much on top of this and say I want to
Speaker 4: do this, and I want to do less of this.
Speaker 5: There's a concern actually, as CEO say it's more important
Speaker 5: to be throwing enough money at this rather than being
Speaker 5: under invested. And then you have people like David Heinhorn
Speaker 5: of Green Light coming out and saying the numbers that
Speaker 5: are being thrown around are so extreme that it's really
Speaker 5: really hard to understand them. How difficult is it to
Speaker 5: invest in a market where people are throwing spaghetti at
Speaker 5: the wall to try to understand what's going to stick.
Speaker 5: And there is a feeling of excess that continues to
Speaker 5: bubble up around that.
Speaker 4: So my friend, my friend, Richard Thayler, who is an
Speaker 4: economic number price and consult for US, has this say.
Speaker 4: He says, you know, when you make long term product prediction,
Speaker 4: the degree of humidity and the standard deviation around the
Speaker 4: estimate should be very, very big. So when I hear
Speaker 4: an estimate like six months seven trillion dollars, I don't
Speaker 4: know what to make of it. David may be very
Speaker 4: well be right, but we'll take it one step at
Speaker 4: the time. I think six months horizon is about all
Speaker 4: we can do in terms of the demand. And then
Speaker 4: you know, the environment may change dramatically you know, they
Speaker 4: are business cycles. Sometimes things are cheap, they expensive. If
Speaker 4: there's a recession, all of a sudden spreads world widen
Speaker 4: company may revisit what they're trying to do, and so
Speaker 4: on and so forth. So this is a difficulty.
Speaker 5: How do you have a six month horizon when a
Speaker 5: lot of these investments are ten year buildouts, when there
Speaker 5: are ten year usage, when they are labor intensive and
Speaker 5: infrastructure projects by nature are a lot longer than six months.
Speaker 4: So in terms of committing capital and in terms of
Speaker 4: finding the right opportunity with the right length of time,
Speaker 4: we totally find to have a very long term horizon.
Speaker 4: What I'm saying is I'm saying making long term prediction
Speaker 4: in terms of how big the market will be, it's
Speaker 4: very hard. I think you have some visibility over the
Speaker 4: next six months in terms of what the demand is,
Speaker 4: what the real demand is, and whether that slows down
Speaker 4: or whether that accelerate. You just don't know. And I
Speaker 4: think you've got to have I think you have to
Speaker 4: be very humble about the six and just say, look,
Speaker 4: we will take it one step at the time and
Speaker 4: see what the market gives us. And by the way,
Speaker 4: there may be other opportunity which are more attractive. You know,
Speaker 4: you look, for example, in an asset backed finance business
Speaker 4: aircraft leasing. Aircraft leasing is incredibly interesting and then nothing
Speaker 4: happens for five years, and then it becomes very interesting again.
Speaker 4: And you got to constantly set to yourself, are there
Speaker 4: better opportunity for me to deploy money? And what do
Speaker 4: I want to do? How do I think about the risk?
Speaker 4: How will I get out what's the right risk return profile?
Speaker 2: You may have headline recently wanted to ask you about it.
Speaker 2: Private markets haven't been tested? Can you build that out
Speaker 2: a little bit more? What did you mean when you
Speaker 2: said that the private markets haven't been tested?
Speaker 4: Well, my partner Dana versin and or cio of coursemit
Speaker 4: I have the chart and we will check the number
Speaker 4: of about twenty times because we kind of didn't believe it.
Speaker 4: But it shows the return on week single B which
Speaker 4: is a reasonably good proxy for direct lending. And what
Speaker 4: you see is you make money because the yield is higher,
Speaker 4: and then there's a recession and then you lose it all.
Speaker 4: And so I'm old enough to to remember nineteen ninety one,
Speaker 4: I saw that, you know, there's a recession which came
Speaker 4: out of nowhere from you know, essentially SNL having too
Speaker 4: much high YELD nineteen ninety seven. The world is absolutely
Speaker 4: fine until there's an Asian crisis, and then you have
Speaker 4: ailit to CEM. Then things become very cheap. And so
Speaker 4: you've got to remember these things. And we have been
Speaker 4: in a period since two thousand and nine of exceptionalism
Speaker 4: where you have had very strong equity return and very
Speaker 4: strong higher return. If you believe this is going to
Speaker 4: this is going to continue for the next fifteen years,
Speaker 4: then I think you should have the same position. But
Speaker 4: it may not be the case. And I think I
Speaker 4: think we bring that and say the data's a the data.
Speaker 2: Do you see parallels between now and those periods.
Speaker 4: Well, I think the initial condition where we are right
Speaker 4: now as search that equity markets are expensive by any measure.
Speaker 4: They may go higher because momentum is strong and credit
Speaker 4: market are tight in some part of the of the
Speaker 4: of the spectrum. And I think that's that's the reality.
Speaker 4: And look, we've been in period where things things are
Speaker 4: expensive for a long time two thousand and five, two
Speaker 4: thousand and six, where such period where things remain expensive
Speaker 4: and become more expensive, and then something breaks and then
Speaker 4: all of a sudden you have you have a lot
Speaker 4: of work to be done manage.
Speaker 2: Let's continue the conversation. We were having equity markets very
Speaker 2: close to all time highs, credit spreads near multi decade
Speaker 2: ties on investment, great high ye spreads near the ties
Speaker 2: of the year, and yet we've got a FED official
Speaker 2: sign that we're excessively restrictive year across a.
Speaker 3: Range of funds.
Speaker 2: You look across markets all the time and the economy
Speaker 2: with the team, do you see any signs that are
Speaker 2: excessively restrictive?
Speaker 4: Well, I think rates are very high across across the
Speaker 4: globe right and I think I think you know, part
Speaker 4: of the reason why I get up so early and
Speaker 4: happy to go to work is because you know, the
Speaker 4: opportunity has never been better. And you know, we talk
Speaker 4: here about the US, but look at the UK UK
Speaker 4: where you're from is you know, ten year rates are
Speaker 4: four and three quarter. Australia looks really, really attractive. So
Speaker 4: when we think about the opportunity in a way, yes,
Speaker 4: we do expect the FED to cut. How much they're
Speaker 4: going to cut next year, we meant to be to
Speaker 4: be proven. No one knows what's going to happen to
Speaker 4: the labor market. But the reality is the opportunity in
Speaker 4: terms of global fixed income is very, very big, and
Speaker 4: the opportunity to add alpha is quite high. I'll tell
Speaker 4: you a funny story. We have a pontner in Tokyo
Speaker 4: called Tomoya Messano, and you know, for the longest time,
Speaker 4: there's not much happening in Tokyo. So you sort of
Speaker 4: call him and you have much out with him, and
Speaker 4: not much is happening, and then all of a sudden,
Speaker 4: the Japanese fixed income market becomes super exciting, and then
Speaker 4: there's a lot to do, and there's a whole generation
Speaker 4: of people who have disappear because they don't do it anymore.
Speaker 4: And so you have a lib market which hasn't supply
Speaker 4: fixed income investor because there was nothing to do for
Speaker 4: the longest time. And so what I think is interesting
Speaker 4: is the difference of you, the difference of opinion, is
Speaker 4: also a source of incredible alpha. And you know, if
Speaker 4: you want to think about white performance has been quite good,
Speaker 4: it's partially because the alpha that has been given by
Speaker 4: the market is quite good.
Speaker 5: I think it's interesting that John was talking about the
Speaker 5: FED and you talk about the international sphere, and I
Speaker 5: think that that's really telling about what people are looking
Speaker 5: to for that alpha, for that incremental extra year. Are
Speaker 5: those Japanese investors staying in Japan right now and not
Speaker 5: coming to the US for treasures even if the FED
Speaker 5: cuts No.
Speaker 4: I think they're very big investors in US asset. And remember,
Speaker 4: one of the opportunity everyone has is to buy foreign
Speaker 4: assets and swap them back into dollars or swap them
Speaker 4: back into yen and so on and so forth, and
Speaker 4: so you can actually buy synthetic credit. You can buy
Speaker 4: synthetic dollar exposure by for US investors buying, for example,
Speaker 4: JGB and setting forward the yen into dollars and having
Speaker 4: a different credit risk with JGB than you have with
Speaker 4: US dollar. And so there's a lot to do.
Speaker 3: Now.
Speaker 4: We do that a lot in short term and longer
Speaker 4: term in terms of adding alpha, But all the time,
Speaker 4: you can do this sort of transaction and sort of
Speaker 4: mitigate your exposure or increase your exposure, or have different
Speaker 4: risk profile. That's a much smarter way of looking at it.
Speaker 5: I'm looking at this sort of a blood instrument. So
Speaker 5: dumb do you like international more than the United ct
Speaker 5: That's really a wonderful nuance.
Speaker 4: It has an enormous amount of money to put to work,
Speaker 4: and has is a nation of savers, and so there's
Speaker 4: a you know the reason. The thing that I always
Speaker 4: say is you need to put your money somewhere, and
Speaker 4: the reality is the US is the only place where
Speaker 4: you can actually put scale and when you want a thing.
Speaker 4: For example, of the Australian problem, there was a whole
Speaker 4: delegation last week from the UN from Australia. They need
Speaker 4: to move capital all the way from Australia because they
Speaker 4: are a nation of savers and the Australian market is
Speaker 4: not big enough for them, and so they need to
Speaker 4: pivot too.
Speaker 2: For a long time, Japan had to do the same thing.
Speaker 2: They didn't have to yield. To your point, the stories change.
Speaker 2: One thing we're trying to track is whether the Japanese
Speaker 2: bring the money home, Whether we see this great repatriation
Speaker 2: where it could leave markets vulnerable, what typically they deploy
Speaker 2: that capital, and thinking of certain European markets the US
Speaker 2: as well. You seeing any of that flow story start
Speaker 2: to turn, No, not so far. Would you expect it
Speaker 2: to change, honestly.
Speaker 4: Not really. These things are very very slow to move
Speaker 4: and The reality is people keep on saving in Japan,
Speaker 4: and so it made you speed that the marginal dollar
Speaker 4: goes into JGB. But the credit markets are very underdeveloped,
Speaker 4: and if you want to buy, for example, cigole exposure,
Speaker 4: you much better off going to the US.
Speaker 2: The conversation we had back in April was maybe the
Speaker 2: decline of US exceptionalism. The money was going to leave,
Speaker 2: it was going to go outsewhere. I want to understand
Speaker 2: where you are now six months later. What did you
Speaker 2: see at the time in April? Did we start to
Speaker 2: see that decay click into US exceptionalism? And I went
Speaker 2: back to where we were at the start of the
Speaker 2: year just six months later.
Speaker 4: So I think we were dollar underweighted. We literally just
Speaker 4: square our for position. We're still very much like emerging
Speaker 4: market currency. We do like Australian dollars. There's plenty to do.
Speaker 4: But you know there was there was a short dollar
Speaker 4: position to be had, and you know it moved ten percent,
Speaker 4: and I think we decided to square our position.
Speaker 5: You're talking a lot about rates and the era of income.
Speaker 4: We've been talking a.
Speaker 5: Lot about that, just based in the fact that yield
Speaker 5: has been higher, talking about private investiness through infrastructure. You're
Speaker 5: not mentioning equities, and this is a time where people
Speaker 5: are trying to fixed. I'm a fixing companion, no, I know,
Speaker 5: and you have sympathy with us, But I'm wondering how
Speaker 5: much a higher rate regime limits future equity returns.
Speaker 3: We used to talk about that.
Speaker 5: That was before our three years consecutive twenty plus percent returns.
Speaker 6: I mean, at what point.
Speaker 5: Will constrain the equity side of the portfolio. Even though
Speaker 5: some people are wondering what kind of buffer.
Speaker 6: Bonds really provide?
Speaker 4: Well, the Pinker view is that equity return in the
Speaker 4: US is going to be six percent for the next
Speaker 4: three years or something like this. I mean, we you know,
Speaker 4: we look at cape valuation. You know it's treading at
Speaker 4: twenty eight times earnings. It looks really, really high to us.
Speaker 4: We understand the excitement about the hyperscalo, but if you
Speaker 4: look outside of the hyperscalo, life in industrial America isn't great.
Speaker 4: I mean, top line is not is not growing. And
Speaker 4: one of the question that we don't know is the
Speaker 4: impact of tariff and what will happen in corporate America
Speaker 4: in terms of how they're going to deal with either
Speaker 4: passing on prices or diminishing margin and so on and
Speaker 4: so forth, and we don't know that, and so there's
Speaker 4: a whole leg of the of the of the equation
Speaker 4: that we haven't really seen.
Speaker 5: Stock investors have been trying to outpull each other this morning,
Speaker 5: and Max Katner was on earlier of HSBC and he
Speaker 5: was saying, look, he thinks that the FED is making
Speaker 5: a policy error by cutting more significantly, but they're along
Speaker 5: for the ride because it's just going to inflate the
Speaker 5: prices of assets significantly.
Speaker 6: They want to gain from that.
Speaker 4: Do you agree with that assessment? Well, I haven't. I
Speaker 4: haven't listened. I haven't listened to him, so I would not.
Speaker 5: Be good initial punt.
Speaker 4: I don't. I don't, I don't know. I have. We
Speaker 4: have a lot of trust in in the FED in
Speaker 4: terms of them doing the right thing, and I think
Speaker 4: that the FED usually doesn't know much more than we
Speaker 4: all do. They look at the same data, and so
Speaker 4: the decision is a very well thought out decision where
Speaker 4: they will decide what to do with the condition that
Speaker 4: they are being given. And if, for example, we were
Speaker 4: to see a very bad inflation print, it would be
Speaker 4: very difficult for them to cut Now. They may argue
Speaker 4: that they have to look through inflation and so and
Speaker 4: so forth, But the FED is a very rational actor
Speaker 4: in the market and I don't think anything is going
Speaker 4: to change. And the same goes for the Central Bank
Speaker 4: in the UK and the ECB and so and so forth.
Speaker 4: And I think I think once you're in a job,
Speaker 4: you behavior changes also in terms of how you think
Speaker 4: about what the right thing.
Speaker 2: To do is you are lindening to the new FET
Speaker 2: chair next to.
Speaker 4: No, I'm just saying, it's like being a Supreme Court justice.
Speaker 4: You know, it's a very important job and I think
Speaker 4: people take their job very seriously.
Speaker 3: It's a good change.
Speaker 2: Next year there's going to be a new FEED chair.
Speaker 2: Do you expect to be to see any daylight between
Speaker 2: a FED chair selected by appointed by this White House
Speaker 2: and Chairman J Powell and this current leadership.
Speaker 3: Do you know?
Speaker 4: I was reflecting on this and what we're talking about is,
Speaker 4: I mean, every single fair share has been to some
Speaker 4: degree of political appointee. And you know, there's been a
Speaker 4: history of very good FED chair since the Burns and
Speaker 4: the Nixon presidency, and I see no reason why that would.
Speaker 2: Change the list of candidates we've seen so far. We've
Speaker 2: said repeatedly, very credible names on that list from this
Speaker 2: White House on a treasury and it is, it is.
Speaker 3: It is.
Speaker 4: It is important to remember that it's in everyone's incentive
Speaker 4: to have a very credible feed share, because the market
Speaker 4: will not like a non credible feat share.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this
Speaker 2: to congressional leaders on both sides. We'll be meeting with
Speaker 2: President Donald Trump at the White House that discussed a
Speaker 2: short term spending bill in an effort to avoid a
Speaker 2: government shutdown. With the latest and with a special guest
Speaker 2: that Marie joins us now for more. Hamary, Hey, hey.
Speaker 3: John, good morning.
Speaker 7: We are looking like we are headed towards a government shutdown,
Speaker 7: even though the President United States will be sitting down
Speaker 7: in a bybartisan fashion with the top leaders from the
Speaker 7: House and the Senate. An individual who has been part
Speaker 7: of these conversations in the past, because we have been
Speaker 7: here before, is Patrick McHenry, former chair of the House
Speaker 7: Financial Services Committee chairman, former chairman. Thank you so much
Speaker 7: for joining us this morning, just going into this meeting
Speaker 7: this afternoon at the White House. Do you think there
Speaker 7: is a chance of a breakthrough and this Congress can
Speaker 7: avoid a shutdown.
Speaker 6: No, I don't have high hopes for this.
Speaker 8: I think it's unrealistic to think that the incentives will
Speaker 8: change by simply sitting down with the President Trump. The
Speaker 8: incentive here right now is for congressional Democrats to find
Speaker 8: a way to fight. That is purely this is a
Speaker 8: mechanism for them to say that we are relevant. They're
Speaker 8: only relevant because they have the fill of us from
Speaker 8: the Senate and Republicans do not have a veto sorry
Speaker 8: philibus reproof majority in the Senate.
Speaker 6: The Continent Resolution, which.
Speaker 8: Is merely to keep the lights on in government for
Speaker 8: the next six weeks past the House now sits in
Speaker 8: the Senate and the minority party in the Senate, the
Speaker 8: Democrats have to say on whether or not the bill
Speaker 8: could be brought up, and they have blocked it last week.
Speaker 8: They are likely to block it this week. They need
Speaker 8: to show their base that they're fighting and this is
Speaker 8: their way of doing it.
Speaker 7: Can this have any pushback when it comes to the
Speaker 7: midterms on Republicans given recent polling shows that when it
Speaker 7: comes to healthcare policy, which is the crux of the
Speaker 7: Democratic issue, right now when it comes to this extension
Speaker 7: of the government funding that they actually get favorable numbers.
Speaker 8: They do, but the rest of the issue set favors Republicans,
Speaker 8: from the economy to law enforcement to immigration. Look, the
Speaker 8: field is tilted for Republicans on the policy front. The
Speaker 8: one sold lining for Democrats is healthcare, and this is
Speaker 8: what they want to highlight in the shutdown. The odd
Speaker 8: thing about a shutdown, and this shutdown that we're looking
Speaker 8: at right now has a lot of similarities to me
Speaker 8: of the twenty thirteen shutdown where congressional Republicans I was
Speaker 8: a part of the group. This is why it hurts
Speaker 8: me to see what Democrats are doing right now. We
Speaker 8: said we wanted President Obama to repeal his signature healthcare initiative,
Speaker 8: Obamacare very popular. Our stance was very popular with the
Speaker 8: American people, And in shutting down the government, we got
Speaker 8: nowhere on the policy. We got nowhere on furthering the
Speaker 8: belief that American people thought that Republicans were right. I
Speaker 8: think this is what we're going to face with Democratic
Speaker 8: leaders in the Senate and in the House. They're going
Speaker 8: to recognize this fight is not worth fighting, and in fact,
Speaker 8: a shutdown is in fact and continues to be a
Speaker 8: very dumb political lever here in Washington.
Speaker 7: Twenty thirteen, when they finally came to an agreement, there
Speaker 7: was a little bit of concessions.
Speaker 3: When it came to the Affordable Care Act.
Speaker 7: Could we see concessions from Republicans and Democrats this time
Speaker 7: around to keep the government open?
Speaker 8: Well, I think it's highly unlikely on this short term
Speaker 8: government funding. On the longer term one, which will take
Speaker 8: time to put together, I think you can see some
Speaker 8: modifications and there's a lot of wiggle room when you're
Speaker 8: funding a nearly two trillion dollar government, and so I
Speaker 8: think there is an opportunity there, but for them to
Speaker 8: actually for Congressional Democrats to go into a shutdown strategy,
Speaker 8: this is their first time of trying this. What they're
Speaker 8: going to find is that this is not It does
Speaker 8: not give them what they think it will get them.
Speaker 6: I think they're going to have to wait for their
Speaker 6: policy on.
Speaker 8: A longer term spending bill and they pull this trigger
Speaker 8: at the wrong time.
Speaker 7: How serious do you think the OMB is about when
Speaker 7: it comes to furloughs that usually happened during government shutdowns
Speaker 7: to actually making those job codes permanent.
Speaker 6: Oh, I think, I think this is a plan.
Speaker 8: The omb director Ross Vote has been steing for for
Speaker 8: a long long time. He has he's thought about this
Speaker 8: and thought about this and thought about him, and the
Speaker 8: White House strategy rests on ob OMB has enormous powers
Speaker 8: to carry out, especially in a shutdown, enormous powers over
Speaker 8: the executive branch and the functioning of the executive branch
Speaker 8: and Russ Vote. The OMBA director has a plan, and
Speaker 8: I think it's going to be a very devastating one
Speaker 8: for Democrats. And they're going to rue the day that
Speaker 8: they actually gave ross Vote this enhanced power. It's going
Speaker 8: to be fascinating to see what what happens to the
Speaker 8: next week into the shutdown and for the weeks ahead.
Speaker 7: Frankly, a key question for financial markets as the shutdown
Speaker 7: looms is whether or not we're actually going to get
Speaker 7: economic data. We're supposed to get the non farm payrolls
Speaker 7: report on Friday. If we're in a shutdown, will we
Speaker 7: get that report?
Speaker 6: It's unlikely.
Speaker 8: It's unlikely we'll get that report, but different this is
Speaker 8: also up to OMB. This is one of the things
Speaker 8: on whether it's deemed essential the funding streams or it's
Speaker 8: a complicated set of laws that O and B has
Speaker 8: the wide authority to implement. That that's one that's an
Speaker 8: open question, frankly. But also our governmental statistics are an
Speaker 8: open question by the markets anyway. There's a lot of
Speaker 8: questioning of these statistics in the volity of them, and
Speaker 8: so you know, I think OMB may take the broader
Speaker 8: authorities than in previous shutdowns.
Speaker 3: Stay with US.
Speaker 2: Multiple Imberg surveillance coming up after this stop's inchin Kaya.
Speaker 2: As investors continue to navigate the AI boom nice curtain
Speaker 2: of HSBC, same things are looking up writing the broad
Speaker 2: based as price inflation is continuing full throttle, and we
Speaker 2: think this mode account Max joined just now for more
Speaker 2: Maxkimonic good. We were talking about you know you're published
Speaker 2: earlier this morning, so I think we should probably start there.
Speaker 2: So here's the line. We still see clear signs of
Speaker 2: US and global growth reaccelerting in contrast to downbeat consensus
Speaker 2: expectations least a straight away bank. What's downbeat about consensus
Speaker 2: expectations into next year?
Speaker 1: Look, I think when we look at both earnings actually
Speaker 1: earnings expectations and top down GDP expectations, they are still
Speaker 1: pretty you know, pretty down. We'd certainly not where GDP
Speaker 1: now is where all the high frequency data are both
Speaker 1: top down and bottom up. If you look at bottom up. Actually,
Speaker 1: you know, when we strip out tech earnings expectations Q
Speaker 1: three versus Q two two are pretty much flat. So
Speaker 1: we're going into Q three earning season in a couple
Speaker 1: of weeks where you know, for most sectors, actually contends
Speaker 1: us saying earnings are either going to be flat or
Speaker 1: down quarter of a quarter sequentially, you know, in a
Speaker 1: quarter where probably growth has been really really robust. From
Speaker 1: a top down perspective, that doesn't make sense. If you
Speaker 1: look at Q four even GDP, what we're seeing is
Speaker 1: it's barely one percent quarter over quarter annualized growth expected. Again,
Speaker 1: what we are not only seeing on the headline number
Speaker 1: that one percent, which is a quarter percent annualine and annualized,
Speaker 1: But when we look at the contributions to that, consensers
Speaker 1: are still saying there won't be any comeback off investment, and.
Speaker 6: That doesn't make sense to me.
Speaker 1: You can't say we've got a little bit less political uncertainty.
Speaker 1: We kind of know how to deal with this environment.
Speaker 1: Now we've got the big beautiful build coming through. We've
Speaker 1: got wealth gains coming through. We've obviously got you know,
Speaker 1: these Ai Kape story coming through. But at the same time,
Speaker 1: Consensus are saying, nope, all this terrift story. It's going
Speaker 1: to continue weighing on investment in particular, and that's really
Speaker 1: big upside for price.
Speaker 5: I think the reason why both John and I were
Speaker 5: a little bit confused by this idea of consensus is
Speaker 5: because in the past couple of days, Brian Belski saying
Speaker 5: seven thousand for next year not necessarily high enough, Christian
Speaker 5: Malerk Glissman over at Golme Sacks upgrading their forecast, and
Speaker 5: gol Ma SAX keeps upgrading to the market repeatedly. John
Speaker 5: saltus the biggest ball on Wall Street. You see others
Speaker 5: just coming out of the woodwork talking about seventy seven.
Speaker 6: Hundred on the SMP for next year.
Speaker 5: How can you say that's a bearish outlook or not
Speaker 5: bullish enough.
Speaker 1: Yeah, Look, actually what we are seeing now, that's sort
Speaker 1: of streak of upgrades.
Speaker 4: That's the most bullish thing that you can imagine.
Speaker 1: Because we run a series called Contensus GDP forecast diffusions
Speaker 1: where we actually look at the data that you guys produce,
Speaker 1: so all those contensus expectations around GDP once that shoots higher,
Speaker 1: So once you really see upgrades across the board for
Speaker 1: the major global economies, so for the you know, the
Speaker 1: likes of the US, Canada, China, Eurozone and so on,
Speaker 1: and that is really really bullish, right, particularly for for cyclicality,
Speaker 1: particularly not only for adding for equity. Is it not
Speaker 1: just okay, it's a monetary different story. It's probably tech
Speaker 1: out performing, but really for cyclic cost to outperform. Now,
Speaker 1: on the other hand, let's not just focus on the
Speaker 1: expectations and on people upgrading their you know, the e're
Speaker 1: ahead forecast, but about the market action. When we look
Speaker 1: at the market action year today, and you look within
Speaker 1: the SMP, cyclicals are up pretty much the same as defensives.
Speaker 1: So it's not like cyclicals are up twenty percent and
Speaker 1: defensives are like five, like, wow, this is all baked
Speaker 1: into price action already. No, both are up give it
Speaker 1: take nine percent. So it's not like, actually, price action
Speaker 1: is telling us, wow, there's so much hope into cyclicals
Speaker 1: baked in.
Speaker 5: Not to be a negative nelly, but you could argue, well,
Speaker 5: all about a second not always I'm just contrarian Courtney.
Speaker 3: We're looking forward.
Speaker 2: Please bear with me.
Speaker 5: Honestly, you could say, if things were looking so good,
Speaker 5: why is it.
Speaker 4: That puting rates that makes it even more bullish?
Speaker 6: If you're honest, sure.
Speaker 3: But why should they cut rates?
Speaker 1: They shouldn't, I mean, don't don't ask it. Don't ask
Speaker 1: a German why they should cut rates? Right, the German
Speaker 1: will always say they shouldn't be cutting rates. No, I mean, look,
Speaker 1: I guess the point is to bring it back to
Speaker 1: slightly more you know, serious topics. If we if we
Speaker 1: look at what the Fed can do, can they cut
Speaker 1: on the one or two times? Should fine? Should they
Speaker 1: necessarily with uber uber loosing and easy financial conditions?
Speaker 3: Probably not.
Speaker 1: You know, with threeish inflation, should they really be cutting
Speaker 1: a lot? Probably not. But at the same time, what
Speaker 1: we undeniably have is we have weakness in the economy.
Speaker 1: It's very different. You know, the economy is on two
Speaker 1: very different paths.
Speaker 4: Let's be honest.
Speaker 1: If we weren't market people, if we were people working
Speaker 1: in the labor department, we'd be talking about the economy
Speaker 1: very very differently. There is you know, there is there
Speaker 1: is absolute, absolute strains on the weaker part of the economy.
Speaker 1: We're talking about the Russell two thousand. John, you you
Speaker 1: were talking about the Russell two thousand. Let's go one
Speaker 1: steep down, one step down. Let's go to the smallest
Speaker 1: caps that are you know, that aren't actually listed. There
Speaker 1: is very clear strain they can't get funding. You know,
Speaker 1: you look at credit card delinquencies, or to learn delinquencies,
Speaker 1: look at real wage growth high the highest wage growth
Speaker 1: percentiles versus the lowest ones. The lowest ones are already
Speaker 1: going to around zero percent real wage growth.
Speaker 3: Tariffs, of course, are.
Speaker 1: Eating into the lower and humor goods into you know,
Speaker 1: things like food and beverages that already have outstripped cumulatively
Speaker 1: inflation since COVID.
Speaker 4: Now you add on teriffs. It's a clear strain on the.
Speaker 1: Weaker part of the economy, and they need the rate
Speaker 1: cuts well. That of course for US sleans it's even
Speaker 1: better for our surprise inflation because you've got a reaccelerating
Speaker 1: economy and now you throw on rate cuts, which normally
Speaker 1: never happens.
Speaker 2: That story you describe doesn't make you bearish. In fact,
Speaker 2: it makes you incrementally more bullish because they're going to
Speaker 2: have to respond to it. What would make you bearish
Speaker 2: is what LEASA is trying to ask it.
Speaker 1: Yeah, I think, look, the it is very clear. Anything
Speaker 1: around let's say Supreme Court or government shutdown, that's like, yeah,
Speaker 1: can we get like one or two or three percent down?
Speaker 1: Shure right, a handful percent down. But at the end
Speaker 1: of the day, this is just by the dip opportunities.
Speaker 1: The reality is if we get a return to twenty
Speaker 1: twenty two, where the FED says, oh, we are you know,
Speaker 1: we're very wrong.
Speaker 3: This is like twenty twenty two.
Speaker 4: This is transitory.
Speaker 1: If we say, oh, you know what, this is not
Speaker 1: just three percent, this is entrenched three percent, and three
Speaker 1: percent seems to be the loan now and now we're
Speaker 1: reacitlerating even inflation. We're not even done cutting. We're not
Speaker 1: even you know, we're not even stopping. We're actually the
Speaker 1: next move is a hike. Once we get that, that
Speaker 1: puts a stop to it. How far are we away
Speaker 1: from that minimum two quarters? You know, I mean I
Speaker 1: had last week, I still had conversations about, oh, they're
Speaker 1: going to do fifty in October. You know, we're minimums
Speaker 1: two quarters away from that. Because let's let's Remember, we
Speaker 1: have had this reacceleration and the data that you know,
Speaker 1: not a lot of people were talking about a month
Speaker 1: and a half two months ago. You know, Now it's
Speaker 1: sort of creeping into people really and saying, hey, look, yeah,
Speaker 1: the US seems to be doing better from an aggregate
Speaker 1: growth perspective. But what we really need for a hawkish
Speaker 1: for a proper hawkish shift, is actually a reacceleration in
Speaker 1: the labor market. And given that supplying story, given that
Speaker 1: really low brake even number, it's almost impossible to get
Speaker 1: that in the next couple of months, right, So that
Speaker 1: that makes it It sounds intuitively completely wrong, but it's
Speaker 1: the best of both worlds. You get a sort of
Speaker 1: weakish labor market, but you've got rea tolerating activity data,
Speaker 1: which means good earnings but sort of sluggish consenders expectations
Speaker 1: low bar to beat, but at the same time rate
Speaker 1: cuts into a reacceleration, which, Lisa, to your point, is
Speaker 1: that a policy mistake? I think so. But of course
Speaker 1: you know that's probably a story we're going to play
Speaker 1: in twenty twenty six, not the next six months.
Speaker 3: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this trailer is looking
Speaker 2: ahead to payrolls data you had on Friday after stronger
Speaker 2: than expected economic data, Jim Bianco of Bianco Research, ranking
Speaker 2: the FED should not continue to cut rates. The economy
Speaker 2: is doing much better than the consensus. Jim joined us
Speaker 2: now for more. Jim, Welcome to the program, sir. I
Speaker 2: won your perspective first on the recent FED debate, the
Speaker 2: division that we're seeing from the Fed speak of the
Speaker 2: last week or so.
Speaker 4: Where do you land on things, Jim?
Speaker 9: I think some of that is political, and I think
Speaker 9: some of the Federal Reserve officials are running.
Speaker 3: To try and replace j Paul.
Speaker 9: And I might respectfully say that the quote you had
Speaker 9: from Jim Bullard is in that camp too, because it
Speaker 9: was very inconsistent what he said.
Speaker 3: And I think some of it is genuine.
Speaker 9: That there is some that are looking at the economy
Speaker 9: kind of like I do, and that is that it's
Speaker 9: doing okay, if not better. The Atlanta Fed GDP number
Speaker 9: is now nearly four percent. It's higher than every single
Speaker 9: estimate on Wall Street right now, and the inflation data
Speaker 9: is staying sticky, and the goods part of data, which
Speaker 9: would be tariffs, is really starting to show signs that
Speaker 9: it's moving higher. So for those that say, where's the
Speaker 9: terrif inflation, it's right there. It's coming. It's it's underway
Speaker 9: in the CPI goods category.
Speaker 2: Jim, how credible do you think this pursuit of two
Speaker 2: percent is? It's something that dominates in our conversation on
Speaker 2: decision day. Is this credible?
Speaker 3: It's got a problem. And the reason it's got a
Speaker 3: problem is if you look at the inflation.
Speaker 9: Expectations data I'm talking about, like the inflation swaps or
Speaker 9: the CPI I break even rates or the tips excuse me,
Speaker 9: break even rates, they're all above two and a half
Speaker 9: percent out till twenty thirty.
Speaker 3: Well, I know, you know.
Speaker 9: One of the best questions I heard during the press
Speaker 9: conference was from Mike McKee, where you pointed out that
Speaker 9: the Fed said we'll be at our target in two years,
Speaker 9: and you pointed out the last eleven years you've said
Speaker 9: you'll be at your target in two years, and you've
Speaker 9: yet to be at your target in two years for
Speaker 9: eleven straight years, and now you're going to try for
Speaker 9: a twelfth year, and the market is saying you're not
Speaker 9: going to be at your target for five more years
Speaker 9: because out to twenty thirty, it's still got, you know,
Speaker 9: elevated inflation, not runaway, but definitely not getting anywhere. You're
Speaker 9: two percent, and the FED needs to address that, and
Speaker 9: they're really not at this point.
Speaker 5: At the same time, Jim, can't you say that tacitly
Speaker 5: if they're accepting two point four percent, which is currently
Speaker 5: what break even rates are pointing out for the next
Speaker 5: ten years, is the likely inflation rate? If that is
Speaker 5: the inflation rate, isn't this market and isn't this Fed
Speaker 5: saying that's fine as long as we don't torpedo the
Speaker 5: labor market, as.
Speaker 3: Long as we keep the economy chugging. Where's the problem?
Speaker 3: The problem comes, where's the neutral rate? If you're going
Speaker 3: to accept two and a half.
Speaker 9: Percent or so as the inflation rate, with our star
Speaker 9: that's three and a half percent. If you're going to
Speaker 9: that would be a one percent premium above that. If
Speaker 9: you're going to accept two and a half percent as inflation,
Speaker 9: maybe our stars should be a little bit bigger. In
Speaker 9: other words, you're no longer moderately, you're easy at the market,
Speaker 9: You're probably at neutral, and if you cut one or
Speaker 9: two more times this year, you're going to be too
Speaker 9: easy in the market, and you're going to risk fostering
Speaker 9: more inflation. So it really comes down to do you
Speaker 9: want to cut rates two more times? If you do,
Speaker 9: then you shouldn't be tacidly accepting two and a half
Speaker 9: percent as the inflation rate long term inflation rate, because
Speaker 9: you should be done cutting rates.
Speaker 3: Then at this point, do you.
Speaker 5: Get comfort Jim, from the fact that after the Fed
Speaker 5: cut rates, you aren't seeing a steepening of the yield curve,
Speaker 5: You aren't seeing a runaway at the long end of
Speaker 5: the yield curve like what we saw last year. That
Speaker 5: people are seeing there as justification economically for the Fed
Speaker 5: to be more aggressive.
Speaker 3: Yeah, at least at this point.
Speaker 9: But I I fear that we're in a holding pattern
Speaker 9: waiting for more data. And I also fear we're not
Speaker 9: going to get that data because we're going to have
Speaker 9: a government shutdown on Wednesday at midnight, and I'm talking
Speaker 9: about like the payroll report on Friday and next week
Speaker 9: the CPI report. Remember that they're the last government shutdown
Speaker 9: under Trump in twenty eighteen twenty nineteen, lasted thirty five days.
Speaker 3: And the Fed is.
Speaker 9: Effectively going to go into the October twenty ninth meeting
Speaker 9: with no more government data, which is what they rely on.
Speaker 9: Jaypop called it the gold standard then they have today,
Speaker 9: and they'll just assume that it's everything is as they
Speaker 9: understand it today, and they'll cut rates. And what I'm
Speaker 9: afraid of is when we get that data. Whenever we
Speaker 9: get that data, it's going to show a meaningful uptick
Speaker 9: in the economy.
Speaker 2: And Jim, I want to build on that. We've been
Speaker 2: talking about this reacceleration now for a while. Marcus price
Speaker 2: for it into twenty six. Lisa mentioned NEIL data early
Speaker 2: this morning. This is what he said on the jobs market.
Speaker 2: If firms expect growth to per cup, it's curious they
Speaker 2: haven't ramped up hiring an hour's already. Jim, what do
Speaker 2: you sent back to that?
Speaker 9: You know, I think the issue with the labor market
Speaker 9: is really the break even rate right now. We need
Speaker 9: to start to ask the other side of the question,
Speaker 9: which nobody wants to touch. Okay, we've created twenty nine
Speaker 9: thousand jobs over the last three months, how many should
Speaker 9: we be creating? And j Pol answered that towards the
Speaker 9: end of his press conference, he said maybe zero to
Speaker 9: fifty thousand midpoint of that's twenty five thousand. We've created
Speaker 9: twenty nine thousand. I understand this is a number that
Speaker 9: we're not used to to say twenty nine thousand jobs
Speaker 9: over three months is just fine, that's all we need
Speaker 9: in this economy. But we've got the lowest population growth
Speaker 9: in almost one hundred years because of the closing of
Speaker 9: the border and increased deportations. And if that's the case,
Speaker 9: you have no population growth, you don't need to create
Speaker 9: that many jobs. So really this is the crux of
Speaker 9: the labor market issue. It's not how many manufacturing jobs
Speaker 9: versus service jobs, versus healthcare jobs did we create last month.
Speaker 3: The fundamental question is how many do we need?
Speaker 9: And the answer might be not that many given low
Speaker 9: population growth.
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