WEBVTT - Surveillance: Wells Fargo's S&P 500 Call 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farroll and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.160 --> 0:00:32.240 Join I guess right now around a table. Chris Harvey, 0:00:32.440 --> 0:00:34.919 head an equity strategy at wels Farco. Good morning, Chris, 0:00:35.080 --> 0:00:37.000 Good morning. Would you like to start with the old 0:00:37.040 --> 0:00:39.479 price target or the newer price target? Because the old 0:00:39.520 --> 0:00:41.720 price target is forty two hundred on the S and fee. 0:00:41.840 --> 0:00:43.440 You more comfortable with that than the forty four to 0:00:43.440 --> 0:00:44.680 twenty that you upgraded. 0:00:44.360 --> 0:00:47.760 At See No, we're okay with the forty four hundred right. 0:00:47.800 --> 0:00:49.280 So at the beginning of the year, what we said 0:00:49.360 --> 0:00:51.720 is our base case is forty two. Forty four is 0:00:51.720 --> 0:00:53.560 a soft landing. Doesn't look like we're going to have 0:00:53.560 --> 0:00:55.240 a hard landing this year, so we just bumped it 0:00:55.320 --> 0:00:58.080 up to forty four. The range that we think we're 0:00:58.080 --> 0:01:00.240 in is that forty two to forty six. We think 0:01:00.240 --> 0:01:01.880 we're going to spend more time at the top end 0:01:01.880 --> 0:01:05.360 of the range. Right now, we're just taking some froth 0:01:05.440 --> 0:01:07.959 on the market, repricing risk, and we're waiting to see 0:01:08.240 --> 0:01:10.360 when the bond buyers start to show up. All in 0:01:10.440 --> 0:01:12.560 yields are approaching that five to ninety level that we 0:01:12.600 --> 0:01:16.280 saw back in October. CPI is down two hundred basis 0:01:16.319 --> 0:01:19.160 points since then. It looks like the FED tightening cycle 0:01:19.240 --> 0:01:22.960 is over close to being over. Buyers should start to materialize. 0:01:23.000 --> 0:01:24.160 We'll see. 0:01:24.240 --> 0:01:26.800 What I find interesting here is you're the single best 0:01:26.880 --> 0:01:30.280 qualified person to ask this question too. In your ute, 0:01:30.360 --> 0:01:32.800 you were out in the romance of fifty four degree 0:01:32.840 --> 0:01:37.200 water clamming in Long Island to pay the bills. 0:01:37.319 --> 0:01:39.000 I want to know, and this really works. 0:01:39.080 --> 0:01:42.240 Where's your line in the sand with the equity markets 0:01:42.280 --> 0:01:45.320 right now? Where's the tension point? That's the Harvey line 0:01:45.319 --> 0:01:45.880 in the sand. 0:01:46.360 --> 0:01:48.960 You know, Tom, I'm going to like all good equity stritus, 0:01:48.960 --> 0:01:50.760 I'm going to shift in politicians. So I'm going to 0:01:50.800 --> 0:01:54.360 shift because yesterday was really really interesting. It brought me 0:01:54.440 --> 0:01:57.880 back to ninety nine two thousand. Because what happened interest 0:01:57.960 --> 0:02:01.600 rates went higher. Old economy stock went down, New economy 0:02:01.600 --> 0:02:05.640 stocks went up. That was so reminiscent of ninety nine 0:02:05.680 --> 0:02:07.560 two thousand. So when you ask me for a line 0:02:07.560 --> 0:02:09.720 in the sand, I can't give you a line in 0:02:09.720 --> 0:02:11.920 the sand because the markets are not reacting. 0:02:12.000 --> 0:02:14.040 There's a march distant from that where there was a 0:02:14.040 --> 0:02:16.440 line in the sand for all of us, which is oops, 0:02:16.880 --> 0:02:18.240 how close are we to Oops? 0:02:18.560 --> 0:02:21.280 I don't think we're close to oops. What I think 0:02:21.400 --> 0:02:23.680 is what we're saying is forty two hundred. That's the 0:02:23.720 --> 0:02:27.360 technical level. We think that level holds. We have to 0:02:27.400 --> 0:02:30.400 wait for We have to wait for rates to kind 0:02:30.400 --> 0:02:32.760 of wash out here. There's been a lot of talk 0:02:32.800 --> 0:02:35.239 about rates, but we think you should start to see 0:02:35.240 --> 0:02:38.400 buyers showing up, especially those all in buyers, pretty soon. 0:02:38.720 --> 0:02:40.640 The other thing we'd like to see is we'd like 0:02:40.680 --> 0:02:43.280 to see something from one of the FED members saying 0:02:43.320 --> 0:02:46.360 something about raids in the back end, because I don't know, 0:02:46.400 --> 0:02:47.240 maybe maybe John. 0:02:47.080 --> 0:02:47.760 Said this before. 0:02:48.639 --> 0:02:51.440 If you look at what's happened to the tenure right 0:02:51.840 --> 0:02:55.320 since the issue and since since jainat Yellen said hey, 0:02:55.600 --> 0:02:58.600 we're going to need a lot more paper, real rates 0:02:58.639 --> 0:03:01.600 have gone straight up and real rates are dried nomenal up. 0:03:01.680 --> 0:03:04.560 This has not been about fundamentals, and so we may 0:03:04.600 --> 0:03:07.040 have to wait until November to find out what the 0:03:07.080 --> 0:03:09.600 needs are. In the short term, we find out November 0:03:09.680 --> 0:03:12.640 that the needs aren't as bad, then we can find 0:03:13.200 --> 0:03:15.200 we can find some ground, we can find some bidders. 0:03:15.680 --> 0:03:18.320 But in the interim, maybe one of the FED members 0:03:18.320 --> 0:03:20.000 comes out and says, something we'll see is. 0:03:20.000 --> 0:03:22.360 The forty four to fifty call that you have predicated 0:03:22.360 --> 0:03:25.000 on the idea of rates going down or just staying 0:03:25.000 --> 0:03:26.720 where they are not moving as rapidly. 0:03:26.960 --> 0:03:30.080 Really, just what we need is we need stability. Rates 0:03:30.080 --> 0:03:32.360 don't need to go down from here. What we're seeing 0:03:32.520 --> 0:03:35.040 is the underlying fundamentals are still good. We just got 0:03:35.080 --> 0:03:38.840 through a period where we had a major conference season, 0:03:39.200 --> 0:03:41.560 we had pre announcements, The pre announcements were pretty been 0:03:41.680 --> 0:03:44.520 nign and so we think the underlying fundamentals are fined 0:03:44.560 --> 0:03:47.160 for now. So we just need rates to stop because 0:03:47.400 --> 0:03:49.520 if we don't know where the top and rates will be, 0:03:49.680 --> 0:03:51.560 we don't know where the bottom of the equity market 0:03:51.800 --> 0:03:52.360 is going to be. 0:03:52.560 --> 0:03:54.320 That's important, Chris. You don't need them to go down, 0:03:54.360 --> 0:03:55.880 you just need to stop going up. 0:03:55.920 --> 0:03:56.320 That's right. 0:03:56.440 --> 0:03:58.840 That's right, Are you seeing signs that take leadership is 0:03:58.840 --> 0:04:01.520 stabilizing based on what you identified in yesterday session? 0:04:01.880 --> 0:04:04.400 I think so. So Again, if we go back to yesterday, 0:04:04.400 --> 0:04:07.480 what happened. You had a lot of defenses roll over. Right, 0:04:07.600 --> 0:04:11.120 The defenses are rolling over because rates are going up, untilitates, utilities. 0:04:11.280 --> 0:04:13.080 There's a lot of leverage and utilities, a lot of 0:04:13.120 --> 0:04:16.000 leverage in staples. Where are people running to. They're running 0:04:16.040 --> 0:04:17.960 to uber caps. Uber caps are now seen as that 0:04:18.040 --> 0:04:21.320 safety trade. If uber caps go up, the market goes up. 0:04:21.600 --> 0:04:24.040 So it's not AI or just older the above everything 0:04:24.080 --> 0:04:25.160 to send the caps right now? 0:04:25.200 --> 0:04:27.520 Really everything in uber caps. What we do is we 0:04:27.520 --> 0:04:30.400 look at the RUSSOL top fifty, right, and you have AI. 0:04:30.560 --> 0:04:33.480 But really what you're buying is you're buying at a 0:04:33.520 --> 0:04:36.520 premium of ten to fifteen percent of the market, stable 0:04:36.560 --> 0:04:40.919 balance sheets, less volatility, better earnings with an AI kicker. 0:04:41.200 --> 0:04:43.719 And that's not that when you say yesterday it was 0:04:43.720 --> 0:04:46.240 buy the new economy, sell the old economy. I thought 0:04:46.240 --> 0:04:49.000 that was really interesting, which raises a question, are we 0:04:49.040 --> 0:04:50.680 going to just get more of the same in terms 0:04:50.680 --> 0:04:53.560 of the dynamic of the Magnificent seven or a basket 0:04:53.880 --> 0:04:56.040 of stocks that are leveraged to artificial intelligence and the 0:04:56.120 --> 0:04:59.760 new tech gains really outperforming well everything else, not only 0:05:00.320 --> 0:05:01.440 but loses value. 0:05:01.760 --> 0:05:02.080 I think. 0:05:02.120 --> 0:05:04.960 So that's been our call. So what we've been saying 0:05:05.040 --> 0:05:07.160 is that we thought you'd have a broadening out of 0:05:07.200 --> 0:05:10.800 the market in the summertime, in the spring, but that 0:05:10.920 --> 0:05:13.800 was partly because people thought, Hey, the economy's not going 0:05:13.800 --> 0:05:16.200 to be as bad as expected. What you need for 0:05:16.279 --> 0:05:18.359 small caps in mid caps to do better is a 0:05:18.440 --> 0:05:20.480 much stronger economy, and that's just not going to come 0:05:20.520 --> 0:05:22.640 to fruition. So we do think it's going to be narrow. 0:05:22.800 --> 0:05:24.360 We do think the uber caps are the ones that 0:05:24.480 --> 0:05:25.080 that apper form well. 0:05:25.120 --> 0:05:27.280 Lesa asked the question exactly where I was, But I 0:05:27.320 --> 0:05:30.840 would narrow it even further to say technology new economy 0:05:31.480 --> 0:05:36.360 that's profitable in displays free cash flow versus many of 0:05:36.400 --> 0:05:38.719 them that do not out in the zeitgeist today Ala 0:05:38.760 --> 0:05:42.240 Lori Kelvicina is a percent of Russell two thousand is 0:05:42.320 --> 0:05:43.240 not profitable. 0:05:43.480 --> 0:05:44.560 That's not Apple. 0:05:45.160 --> 0:05:47.280 Just real quick here, as you're talking about this, we're 0:05:47.279 --> 0:05:50.880 seeing tenure yields climb through introday high is going back 0:05:50.880 --> 0:05:54.000 to two thousand and seven. At what point with yields, Chris, 0:05:54.360 --> 0:05:55.719 do you rethink your assumption. 0:05:56.080 --> 0:06:00.440 Well, let's talk big picture on yields. Right, So if 0:06:00.440 --> 0:06:02.400 you look at real rates, and let's just say we 0:06:02.480 --> 0:06:05.000 go back two decades, real rates, the high end is 0:06:05.040 --> 0:06:08.320 about two percent. If you look at inflation expectations to 0:06:08.360 --> 0:06:10.400 break evens, the high is about two and a half. 0:06:10.480 --> 0:06:12.799 You've gotten above that, but not for a sustained period 0:06:12.800 --> 0:06:16.000 of time. I think maybe back in six oh seven, 0:06:16.400 --> 0:06:18.680 So two and a half plus two as best I knows, 0:06:18.720 --> 0:06:20.960 four and a half. We're in and around those levels. 0:06:21.200 --> 0:06:23.880 Now we get to five, well, the components start to 0:06:23.920 --> 0:06:25.480 then all of a sudden, what we've been seeing is 0:06:25.520 --> 0:06:28.040 real rates going higher. Now the back ends a lot 0:06:28.120 --> 0:06:31.600 more restrictive. That's going to weigh on the economy. Ultimately, 0:06:31.640 --> 0:06:33.640 that's going to sow the seeds of bringing it back down. 0:06:33.880 --> 0:06:36.200 We can get to these levels, but what's going to 0:06:36.240 --> 0:06:38.200 happen is it's going to slow down the economy a 0:06:38.240 --> 0:06:40.960 lot lot faster, and then things will come back down 0:06:41.120 --> 0:06:42.400 once the economy slows down. 0:06:42.440 --> 0:06:44.240 Hey, Chris, this was awesome. It's going to see you 0:06:45.120 --> 0:06:47.560 basically of West Faco on the Secretary Market. 0:06:52.000 --> 0:06:54.039 This is the interview of the day for Global Wall 0:06:54.080 --> 0:06:58.560 Street on where we are with bills, notes and bonds. 0:06:58.880 --> 0:06:59.960 Robert Tip out of Berkeley. 0:07:00.000 --> 0:07:02.240 They had a shingle out at First Boston a feusions 0:07:02.600 --> 0:07:07.800 few years ago. Definitive at PGEUM fixed Income chief investment strategist, Robert, 0:07:07.800 --> 0:07:10.400 Why is this moving bonds different than the other eighteen 0:07:10.480 --> 0:07:11.720 you witnessed. 0:07:13.360 --> 0:07:15.160 Well, there are similarities in their differences. 0:07:15.280 --> 0:07:17.560 The thing that you don't see very often that we're 0:07:17.560 --> 0:07:20.680 seeing right now is a change paradigm. We were in 0:07:20.760 --> 0:07:24.720 an environment for a decade post financial crisis posts European 0:07:24.760 --> 0:07:28.120 peripheral crisis, where the central tendency for the tenure Treasury 0:07:28.280 --> 0:07:31.840 was two and for the Bund it was around zero. 0:07:32.320 --> 0:07:35.400 And I think the Fed, you know, is looking at 0:07:35.400 --> 0:07:38.760 the data coming across the transom. They're saying, we need 0:07:38.760 --> 0:07:41.760 to be at five plus and we're comfortable up and 0:07:41.800 --> 0:07:44.000 around the zip code. And I think that's because they 0:07:44.040 --> 0:07:45.840 are looking at the data and the data is telling 0:07:45.840 --> 0:07:48.160 them that, you know, four is the center of the 0:07:48.280 --> 0:07:50.880 range and then need to have policy a little bit 0:07:50.880 --> 0:07:53.280 at the restricted end of the range until they get 0:07:53.280 --> 0:07:57.240 inflation down. And the SAME's going on in Europe where 0:07:57.240 --> 0:07:59.840 they're going to be engineering a higher interest rate environment. 0:08:00.800 --> 0:08:03.080 This is the end of the financial crisis, the end 0:08:03.120 --> 0:08:05.720 of the peripheral crisis, and return to more normal level 0:08:05.720 --> 0:08:06.720 of bond yields. 0:08:07.280 --> 0:08:11.080 I look at what PGUM does crudential, your work with 0:08:11.240 --> 0:08:13.320 all State for years, and it's about. 0:08:13.080 --> 0:08:16.000 A shift in the actuarial assumption. 0:08:16.520 --> 0:08:19.800 What is the new What does the next institutional pension 0:08:20.360 --> 0:08:24.040 actuarial assumption look like? Is it two hundred beeps higher 0:08:24.040 --> 0:08:25.040 from where we are now? 0:08:26.560 --> 0:08:29.720 Yeah, you know, I wouldn't worry about about them. 0:08:29.720 --> 0:08:32.200 I don't think they ever fully adjusted to the low 0:08:32.240 --> 0:08:35.000 interest rate environment. I don't think the equity markets adjusted. 0:08:35.040 --> 0:08:37.800 But I think the financial community will be fine with 0:08:37.880 --> 0:08:41.760 this level of interest rates, the financial institutions. I think investors, though, 0:08:41.800 --> 0:08:45.400 in policymakers are getting dragged kicking and screaming to the 0:08:45.440 --> 0:08:49.320 new environment, especially the investors. The biggest pitfall I would 0:08:49.320 --> 0:08:52.800 say in investing is adaptive expectations. There's a lot of 0:08:52.800 --> 0:08:57.440 distractions with the cyclical noise, the government shutdowns, each economic 0:08:57.480 --> 0:09:00.160 region being in its own business cycle having differences from 0:09:00.200 --> 0:09:00.720 the others. 0:09:01.320 --> 0:09:03.440 It's very hard for people to wrap their arms around that. 0:09:03.559 --> 0:09:06.280 And the FED readjusted they were one of the few 0:09:06.280 --> 0:09:10.720 institutions that started to believe a two and a half 0:09:10.760 --> 0:09:13.080 percent nominal FED funds rate was going to be the 0:09:13.120 --> 0:09:16.560 neutral forever, and now they're, you know, on the precipice 0:09:16.600 --> 0:09:17.040 is starting to. 0:09:17.080 --> 0:09:19.520 Move back up. Basically. 0:09:20.080 --> 0:09:22.640 You know, this environment was clear from early twenty twenty 0:09:22.640 --> 0:09:24.160 two that we could be back in a four or 0:09:24.160 --> 0:09:26.760 five six percent in straight environment. I think that's the 0:09:26.760 --> 0:09:28.839 thing that people need to wrap their heads around. 0:09:28.840 --> 0:09:29.040 Here. 0:09:29.240 --> 0:09:32.000 What you just said there four or five six percent 0:09:32.120 --> 0:09:34.600 interest rate. Are you saying that the sell off that 0:09:34.600 --> 0:09:37.120 we've seen in ten year treasuries isn't done and that 0:09:37.200 --> 0:09:41.520 you see enough momentum and frankly rationalization behind the move 0:09:41.880 --> 0:09:44.800 that yields could go beyond five percent to even six 0:09:44.840 --> 0:09:45.680 percent on the tenure. 0:09:47.320 --> 0:09:47.600 Yeah. 0:09:47.640 --> 0:09:51.920 Absolutely, I think that that's not a base case, right. 0:09:51.960 --> 0:09:54.800 But if you imagine that the best news on inflation 0:09:54.920 --> 0:09:57.240 might be behind us, we have energy prices going up. 0:09:57.320 --> 0:10:00.600 We have a unique situation where high interest rates our 0:10:00.640 --> 0:10:04.000 crimping housing supply around the world at a time when 0:10:04.160 --> 0:10:07.199 housing is in short supply. That's a very unusual configuration. 0:10:08.640 --> 0:10:10.760 You could get some bad inflation numbers, you could get 0:10:10.760 --> 0:10:13.120 a signal that higher rates are coming from central banks, 0:10:13.880 --> 0:10:17.240 and the curve shape is only ready for rates to 0:10:17.280 --> 0:10:19.720 come back down, it's not really ready for the higher 0:10:19.760 --> 0:10:22.719 for longer kind of idea that you could, you know 0:10:22.840 --> 0:10:25.439 as whether that's a one in six or one in three, 0:10:25.679 --> 0:10:27.680 you could definitely end up between five and six on 0:10:27.720 --> 0:10:29.839 the tenure. I think it's more likely we're going to 0:10:29.880 --> 0:10:32.200 head up towards five and then as we go through 0:10:32.200 --> 0:10:35.959 next year. Thankfully, the fundamental data is really moderating. The 0:10:36.040 --> 0:10:39.640 underlying trends in inflation moderating, growth moderating, and in the 0:10:39.760 --> 0:10:42.160 US less so than in other places, but even in 0:10:42.200 --> 0:10:46.200 the US it is. This battle on inflation is our 0:10:46.240 --> 0:10:50.400 economists Tromp Porcelli's fond of saying, is over and we 0:10:50.440 --> 0:10:52.559 should be seeing the rates coming back down next year. 0:10:52.679 --> 0:10:55.559 But definitely, I think we've seen a move in that 0:10:55.840 --> 0:10:59.240 range back up towards the central tendency round four, and 0:10:59.480 --> 0:11:01.960 right now fed's not convinced that the cycle's crested. 0:11:02.040 --> 0:11:03.360 So yeah, there's upside risk. 0:11:03.640 --> 0:11:07.079 Robert, you're talking about the inflation outlook. You're not talking 0:11:07.120 --> 0:11:09.719 about the fiscal backdrop, which a lot of people say 0:11:10.000 --> 0:11:12.280 was known right that we're going to have a real 0:11:12.360 --> 0:11:15.720 big supply of bond sales and not the FED picking 0:11:15.840 --> 0:11:18.559 up the other side. Is that one of the main drivers, 0:11:18.679 --> 0:11:20.960 or is this just fundamentally the data has been coming 0:11:20.960 --> 0:11:23.599 in better than expected and this is an economy that 0:11:23.800 --> 0:11:26.120 needs a five percent ten year yield, not a three 0:11:26.160 --> 0:11:27.040 and a half percent one. 0:11:28.640 --> 0:11:28.840 Yeah. 0:11:28.960 --> 0:11:32.600 I think up until you know the turn of the century, 0:11:32.720 --> 0:11:36.000 you know, the supply bulges weren't that big. But since 0:11:37.000 --> 0:11:42.360 the financial crisis COVID, the fiscal situation is huge. Globally, 0:11:42.440 --> 0:11:45.640 we're dealing with governments that have much bigger guest stocks, 0:11:45.800 --> 0:11:49.000 much more rollover, and we've just come into the QT 0:11:49.200 --> 0:11:52.480 period where that means the central banks are no longer 0:11:52.600 --> 0:11:55.679 coming in and scooping up big chunks of the auction. 0:11:56.600 --> 0:11:59.839 So the markets now are forced to think about think 0:12:00.080 --> 0:12:03.360 hard about where things are every day, and on a 0:12:03.480 --> 0:12:06.040 day like yesterday, there were no treasury auctions of long 0:12:06.120 --> 0:12:07.800 term notes and VODs, but I think there's over one 0:12:07.840 --> 0:12:09.840 hundred billion in bills, so. 0:12:10.760 --> 0:12:12.079 There is a relationship there. 0:12:12.200 --> 0:12:15.800 It tends to make curves steeper, it tends to make 0:12:15.880 --> 0:12:19.400 treasuries cheapen a relative to what's the true underlying riskless 0:12:19.480 --> 0:12:21.800 rate in the market, And I think that is one 0:12:21.840 --> 0:12:25.319 of the minor upward pressures contributing to the sellof We've 0:12:25.320 --> 0:12:27.920 seen that with the downgrade, we saw it with the 0:12:27.920 --> 0:12:31.000 refunding announcement and the other big drivers the FED that's 0:12:31.080 --> 0:12:34.360 dragging the markets kicking and screaming to the reality that 0:12:34.400 --> 0:12:36.000 we're going to be up in the zip cub you know, 0:12:36.080 --> 0:12:37.480 for rates for some time to come. 0:12:37.480 --> 0:12:39.360 Notice Cove, We've been in for a long long time. 0:12:39.600 --> 0:12:41.760 Robert Saff Thank you of Page and fixed. 0:12:41.520 --> 0:12:42.040 And come. 0:12:51.559 --> 0:12:55.520 On. The Conference Board is absolutely definitive on the pulse 0:12:55.760 --> 0:12:59.239 of business in America. Dana Peterson is a chief economist 0:12:59.600 --> 0:13:02.520 of the Conference Board. Dana, what's business doing right. 0:13:02.440 --> 0:13:03.880 Now with this yield move? 0:13:05.400 --> 0:13:07.640 Well, I think businesses are looking at the fact that 0:13:07.800 --> 0:13:10.760 the cost of capital is rising and they're starting to 0:13:10.840 --> 0:13:13.000 pull back on investments. And certainly, when we look at 0:13:13.000 --> 0:13:18.200 our consumer well our CEO confidence measure, many CEOs, even 0:13:18.280 --> 0:13:20.280 eighty four percent, think that there's still going to be 0:13:20.360 --> 0:13:23.079 a recession coming, and they're starting to think about what 0:13:23.120 --> 0:13:25.600 they're going to do with investments. But surely they are 0:13:25.720 --> 0:13:30.400 still holding on to workers and they're still hoarding I look. 0:13:30.280 --> 0:13:32.240 At this and to me and this goes to the 0:13:32.320 --> 0:13:36.240 Conference Board research, and that is a log convexity of 0:13:36.360 --> 0:13:39.800 this real rate. This new environment we're in, the rate 0:13:39.880 --> 0:13:42.679 of change. The speed of movement is shocking. Do you 0:13:42.840 --> 0:13:44.920 see that in the conference board research. 0:13:46.720 --> 0:13:49.240 Well, I mean, certainly, when we ask consumers what they're 0:13:49.280 --> 0:13:52.400 really concerned about, deep in the weeds, they are saying 0:13:52.440 --> 0:13:54.640 that they are concerned about higher interest rates and what 0:13:54.800 --> 0:13:58.000 that means for purchasing items, especially big ticket items that 0:13:58.080 --> 0:14:01.320 you need to finance. But the thing is that they're 0:14:01.320 --> 0:14:04.640 still mainly concerned about inflation, and certainly they're becoming more 0:14:04.720 --> 0:14:06.000 worried about the labor market. 0:14:06.480 --> 0:14:09.040 The fact that there is more concern about inflation, if 0:14:09.080 --> 0:14:12.120 there is more concern about hiring enough workers, does that 0:14:12.280 --> 0:14:14.679 just sort of solidify to you that we are not 0:14:14.800 --> 0:14:16.880 going to get a recession in the near term, that 0:14:16.960 --> 0:14:19.920 we can keep going the way we are, just simply 0:14:20.000 --> 0:14:23.240 because they keep seeing the customers, they keep seeing the sales. 0:14:24.680 --> 0:14:28.360 Well, I think we're seeing some slowing and sales. Certainly, 0:14:28.400 --> 0:14:30.760 when retail sales came out in August, they were weaker, 0:14:31.880 --> 0:14:34.000 and I think the consumer is going to be faced 0:14:34.000 --> 0:14:37.560 with a number of hurdles. Certainly, just as of this weekend, 0:14:37.680 --> 0:14:41.440 student loan payments returned, and that's roughly forty four million 0:14:41.520 --> 0:14:44.160 people impacted. Many of those people between the ages of 0:14:44.200 --> 0:14:47.160 thirty five and forty nine. Those are peak spending years. 0:14:47.200 --> 0:14:50.000 And so when you add that on to the fact 0:14:50.040 --> 0:14:53.320 that excess savings is running out many consumers who already 0:14:53.360 --> 0:14:56.400 spent that money or turning to credit card use, all 0:14:56.480 --> 0:14:58.920 these things bode poorly for the consumer, and certainly with 0:14:59.080 --> 0:15:03.920 higher interest rates still yet to impact the consumer spending, 0:15:04.320 --> 0:15:06.120 we think that we're still headed for a short and 0:15:06.160 --> 0:15:08.920 shallow recession, probably in the first half of next year. 0:15:09.320 --> 0:15:11.720 The key component that we've been looking for is the 0:15:11.800 --> 0:15:13.720 labor market. We are going to get the Jolt data 0:15:13.880 --> 0:15:16.480 coming out at ten am today. There is a question 0:15:16.720 --> 0:15:19.160 about whether some of the wage increases that people will 0:15:19.240 --> 0:15:23.640 keep seeing will offset the inflation, will actually be real 0:15:23.800 --> 0:15:26.920 positive wage growth, which we actually started to see in 0:15:27.040 --> 0:15:29.960 the past number of months. Do you foresee that being 0:15:30.040 --> 0:15:33.160 the new reality just because of the structural tightness of 0:15:33.240 --> 0:15:33.960 the labor market. 0:15:35.000 --> 0:15:38.440 Well, you have two things going on. Wage growth is slowing, 0:15:38.640 --> 0:15:41.840 especially in services, not so much in those jobs where 0:15:41.840 --> 0:15:43.520 you have to physically show up to work, and you're 0:15:43.600 --> 0:15:47.800 losing older experienced workers but inflation is coming down at 0:15:47.880 --> 0:15:51.040 least underlying inflation, and so there is an offset. And 0:15:51.200 --> 0:15:53.320 for the first time we've had several months of. 0:15:53.480 --> 0:15:54.640 Real wage gains. 0:15:55.040 --> 0:15:56.840 But still in all when we ask consumers what are 0:15:56.880 --> 0:15:59.600 you most worried about, they're still complaining about food and 0:15:59.760 --> 0:16:02.480 energy prices. And we know that energy prices are rising 0:16:02.560 --> 0:16:06.120 because OPEC is pulled back on production, and so that 0:16:06.400 --> 0:16:08.840 tends to that's a bread and butter type issue. And 0:16:08.960 --> 0:16:11.840 for many consumers it doesn't matter what's going on. If 0:16:11.880 --> 0:16:13.760 it costs more to fill up your tank and it 0:16:13.880 --> 0:16:16.480 costs more to fill up your grocery cart, then the 0:16:16.560 --> 0:16:17.800 world is not a great place. 0:16:18.080 --> 0:16:19.720 This is the reason why some people are worried about 0:16:19.720 --> 0:16:22.200 a wage price viral, because you're seeing the activity of 0:16:22.240 --> 0:16:25.400 labor unions coming out saying we're not keeping pace with 0:16:25.560 --> 0:16:27.960 those increases at the pump, with those increases at the 0:16:28.000 --> 0:16:31.160 grocery store, and they're demanding higher wages and they're getting them. 0:16:31.440 --> 0:16:34.000 How much are you watching this with interest to highlight 0:16:34.240 --> 0:16:36.680 how much we could see wages continue to go up 0:16:36.960 --> 0:16:39.920 at a significant pace just simply to offset that pain 0:16:40.000 --> 0:16:40.800 that you're talking about. 0:16:42.120 --> 0:16:44.320 Sure, I think the key thing is that the number 0:16:44.320 --> 0:16:46.600 of people who are in unions now is much lower 0:16:46.680 --> 0:16:49.800 than in the past. So I don't imagine that the 0:16:50.240 --> 0:16:53.440 actions that we're seeing and increases in wages due to 0:16:53.920 --> 0:16:57.000 union actions are necessarily going to spiral out of control 0:16:57.120 --> 0:17:00.080 and filter throughout the rest of the economy. But like 0:17:00.160 --> 0:17:03.240 I said, we are seeing wage growth slow. Last year, 0:17:03.320 --> 0:17:07.040 wage growth was really outsized more than it could be 0:17:07.160 --> 0:17:09.720 sustained by businesses. So we're going to see that slow 0:17:09.840 --> 0:17:12.160 to a more sustainable pace. 0:17:13.240 --> 0:17:15.000 Dana, what are we going to see in the jobs report? 0:17:15.040 --> 0:17:16.080 I'm asking for a friend. 0:17:18.880 --> 0:17:20.960 Well, I don't know what the numbers are, but I 0:17:21.000 --> 0:17:24.159 would not be surprised if we saw slowing, continued slowing 0:17:24.240 --> 0:17:27.440 in the number of payroll gains, certainly compared to last year. 0:17:27.960 --> 0:17:30.200 Just looking at the three parts of the labor market, 0:17:30.480 --> 0:17:32.359 you're still going to have a lot of hoarding, but 0:17:32.440 --> 0:17:35.159 we're probably going to continue to see job losses in 0:17:35.200 --> 0:17:37.639 those sectors that did very well during the pandemic and 0:17:37.720 --> 0:17:40.159 are not doing so well now. And then also some 0:17:40.359 --> 0:17:43.560 gains continued gains and healthcare and some in leisure and 0:17:43.640 --> 0:17:44.560 hospitality and. 0:17:44.720 --> 0:17:47.399 Near emails in he says, but what about the real wage? Okay, 0:17:47.480 --> 0:17:50.760 so you got the doom and gloom. Dana Peterson, wage decline, 0:17:50.800 --> 0:17:53.720 I get it, but I also got disinflation. Do I 0:17:53.800 --> 0:17:57.720 have a level or even an increasing inflation adjusted wage? 0:17:59.560 --> 0:18:02.800 Well, I think well depends on your inflation gage. If 0:18:02.800 --> 0:18:06.680 you use headline, it's probably about level or maybe even 0:18:06.760 --> 0:18:09.760 a decline a bit, because like I said, overall inflation 0:18:10.440 --> 0:18:12.879 is rising because of gasoline prices. But if you use 0:18:12.960 --> 0:18:16.520 the core, then you probably will see some easing or 0:18:16.600 --> 0:18:20.080 rather some improvement in weight real adjusted wages. 0:18:20.800 --> 0:18:21.760 Dana, thank you so much. 0:18:21.880 --> 0:18:26.000 Dana Peterson with the conference board here on the American economy. 0:18:30.160 --> 0:18:32.920 There's new weight loss drugs hit the market. Sheila Kayalu 0:18:33.280 --> 0:18:37.320 of Jeffreys crunching the numbers and writing this, United Airlines 0:18:37.680 --> 0:18:41.160 would save eighty million dollars a year if the average 0:18:41.240 --> 0:18:45.359 passenger weight falls by ten pounds. This would trim one thousand, 0:18:45.400 --> 0:18:48.960 seven hundred and ninety pounds from every United flight, implying 0:18:49.000 --> 0:18:54.000 a saving of twenty seven point six million gallons a year. 0:18:54.400 --> 0:18:56.159 TK there's some big numbers. 0:18:56.320 --> 0:18:58.159 This is important, and Johan Farre will bring in our 0:18:58.200 --> 0:19:00.280 next guest, John, I'm gonna do some research, are you. 0:19:00.800 --> 0:19:03.359 My father died and I had to take on very 0:19:03.480 --> 0:19:06.440 short notice an economy trip. I didn't have a choice 0:19:06.520 --> 0:19:08.879 get on a plane, Prima Donna, like I had to 0:19:08.920 --> 0:19:09.760