WEBVTT - Bloomberg Surveillance TV: September 9th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Ameri Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.440 Terminal and the Bloomberg Business app at Denny. Have you 0:00:37.440 --> 0:00:40.360 had any research writing this? Our concern is that lowering 0:00:40.400 --> 0:00:44.480 interest rates will lead to financial instability, solid productivity, lad 0:00:44.520 --> 0:00:48.000 growth in real GDP implies that current interest rates are 0:00:48.120 --> 0:00:51.040 just fine where they are at. Joined us now for 0:00:51.120 --> 0:00:53.920 more at good Morning, sir. Is this a prankt then 0:00:54.200 --> 0:00:55.400 that you want to lean into? 0:00:56.720 --> 0:01:00.960 Absolutely, It's a bullmarket. It's been actually a bullmark since 0:01:01.000 --> 0:01:05.000 the last recession. The last recession was a two month 0:01:05.120 --> 0:01:09.679 recession back in twenty twenty, remember with the lockdowns. We 0:01:09.760 --> 0:01:12.760 made a low on March twenty third, twenty twenty, and 0:01:12.880 --> 0:01:16.559 it's been the market's basically one hundred percent since then, 0:01:17.200 --> 0:01:21.120 and almost all of that can be accounted for by earnings. 0:01:21.200 --> 0:01:25.479 I mean, once the market recovered from the pandemic sell 0:01:25.520 --> 0:01:27.880 off and we went back to where we were in 0:01:27.959 --> 0:01:32.680 February of twenty twenty, we're up one hundred percent since then, 0:01:33.240 --> 0:01:35.960 and forward earnings are up one hundred percent since then. 0:01:36.040 --> 0:01:38.880 So it's been actually an earnings led market with a 0:01:38.959 --> 0:01:40.360 multiple of around twenty two. 0:01:40.800 --> 0:01:43.240 At your line, our concern is that a lowering interest 0:01:43.319 --> 0:01:46.600 rates will lead to financial instability. What might that instability 0:01:46.640 --> 0:01:47.000 look like? 0:01:47.040 --> 0:01:50.880 Then, well, we're just talking about a plain old vanilla Malta, 0:01:52.080 --> 0:01:55.760 you know. I mean, twenty twenty two is a very 0:01:55.880 --> 0:02:00.600 elevated evaluation multiple. It can be justified the fact that 0:02:00.640 --> 0:02:04.040 the economy is growing. It can be justified by the 0:02:04.040 --> 0:02:11.160 fact that the Magnificent seven account for thirty percent of 0:02:11.160 --> 0:02:13.440 the S and P five hundred and they have a 0:02:13.520 --> 0:02:17.760 multiple of what about thirty right now, and the rest 0:02:17.760 --> 0:02:21.200 of the market's got evaluation multiple of nineteen. Not cheap, 0:02:21.360 --> 0:02:24.000 but you know that it's the impress of four hundred 0:02:24.000 --> 0:02:27.800 and ninety three. They're doing pretty well. It's just by 0:02:27.880 --> 0:02:31.000 comparison to the Magnificent seven, they look a little punky, 0:02:31.080 --> 0:02:33.480 But all in all, I think we're still looking at 0:02:33.480 --> 0:02:37.280 a at a bull market that continues to maybe sixty 0:02:37.320 --> 0:02:39.680 six hundred and sixty eight hundred by the end of 0:02:39.720 --> 0:02:43.200 the year and seventy seven hundred or higher by the 0:02:43.280 --> 0:02:44.040 end of next year. 0:02:44.639 --> 0:02:47.200 A melta doesn't sound so scary. In fact, Max Cutner 0:02:47.200 --> 0:02:49.840 would absolutely embrace it and say, let's go. Just like 0:02:49.919 --> 0:02:53.600 you said, you actually see bigger returns. Where is the 0:02:53.639 --> 0:02:56.280 pain then? Where is the negative consequence of if it 0:02:56.320 --> 0:02:58.280 doesn't need to cut, does it come with higher long 0:02:58.360 --> 0:02:59.880 end yields that we just aren't seeing? 0:03:01.400 --> 0:03:01.680 Well? 0:03:01.720 --> 0:03:06.239 I think the as I said in the quote you 0:03:06.320 --> 0:03:09.440 picked up, we don't really need a rate cut here, 0:03:09.480 --> 0:03:12.160 and if we get a rate cut, that increases the 0:03:12.160 --> 0:03:15.839 odds of a melt up. So whatever targets I gave you, 0:03:16.480 --> 0:03:20.799 we'd surpassed them sooner rather than later. And then the 0:03:20.800 --> 0:03:25.120 evaluation multiple suddenly at twenty five twenty five is where 0:03:25.120 --> 0:03:28.920 the tech bubble bursts back in the late nineteen nineties 0:03:28.919 --> 0:03:33.320 early two thousand. We don't want to go there. And 0:03:33.720 --> 0:03:37.760 I think that what really is important to understand here 0:03:37.840 --> 0:03:41.840 is it cutting interest rates isn't necessarily all that liquidity 0:03:41.960 --> 0:03:45.360 is not necessarily going to go and create more jobs. 0:03:45.480 --> 0:03:48.400 I think, you know, we've lost one point five million 0:03:48.880 --> 0:03:53.440 people in the labor force who are foreign born since 0:03:54.680 --> 0:03:59.520 I think that since March of this year. So obviously 0:03:59.600 --> 0:04:04.240 the shutting off of the border and the elevated deportations 0:04:04.240 --> 0:04:07.680 have reduced the supply of labor and that's not going 0:04:07.720 --> 0:04:10.800 to change if the FED cuts interest rates. And by 0:04:10.840 --> 0:04:15.480 the way, the job openings have been declining in areas 0:04:15.480 --> 0:04:20.520 that benefited from the inflow of migrants, and that was 0:04:20.560 --> 0:04:24.960 state and local government. Job openings really have declined sharply 0:04:25.400 --> 0:04:27.680 because we don't need as many teachers, we don't need 0:04:27.720 --> 0:04:31.240 as much as many social workers, and that's where some 0:04:31.320 --> 0:04:33.320 of the job losses have been. And that's not going 0:04:33.360 --> 0:04:36.280 to change just because of the FED lowers interest rates. 0:04:36.440 --> 0:04:38.760 But we could get more inflation out of it in 0:04:38.880 --> 0:04:42.320 terms of consumer prices, and we could get higher asset prices, 0:04:42.320 --> 0:04:43.960 which is fine unless it's a melt up. 0:04:44.480 --> 0:04:46.599 So what do you think when you take a look 0:04:46.600 --> 0:04:49.240 at some of these consumer surveys that show that individuals 0:04:49.279 --> 0:04:52.559 in the United States think that it's the hardest time 0:04:52.640 --> 0:04:54.400 to get a new job, going back to at least 0:04:54.440 --> 0:04:57.680 twenty thirteen. This idea that you do see a real 0:04:57.720 --> 0:05:01.960 sense of deterioration in consumer confidence about the labor market. 0:05:02.279 --> 0:05:04.839 Does that raise alarm bells or are you saying that 0:05:04.880 --> 0:05:07.919 this is a structural sea change that cannot be affected 0:05:07.920 --> 0:05:09.080 by monetary policy. 0:05:09.800 --> 0:05:12.080 Well, if we kind of drill down and look at 0:05:12.080 --> 0:05:16.920 the labor market report that came out recently, what we 0:05:17.040 --> 0:05:21.320 know is that where it is very hard to getting 0:05:21.400 --> 0:05:24.400 harder and harder to get a job is for teenagers 0:05:24.640 --> 0:05:28.680 and would be workers who are twenty to twenty four, 0:05:29.200 --> 0:05:32.520 mostly people who are coming out of college, so entry 0:05:32.640 --> 0:05:36.159 level jobs have become more difficult to obtain. Some of 0:05:36.160 --> 0:05:40.200 that may be related to productivity some of those younger people, 0:05:40.240 --> 0:05:43.279 you know, you have you know a lot of people 0:05:43.320 --> 0:05:46.479 across the border, and they weren't old people. They were 0:05:46.600 --> 0:05:49.520 mostly young people and they're going back. So I think 0:05:50.520 --> 0:05:56.680 that's an issue. But for anybody above twenty five, not anybody, 0:05:56.720 --> 0:06:00.120 but for people in that category about twenty five, the 0:06:00.200 --> 0:06:03.159 unemployment rates are below four percent. They've been there for 0:06:03.160 --> 0:06:06.880 a while. That hasn't really changed. So very bifurcated labor 0:06:06.920 --> 0:06:08.000 market ed. 0:06:07.960 --> 0:06:09.920 When it comes to what's going on in the stock market, though, 0:06:09.960 --> 0:06:12.080 you have all these tech companies spending a ton on 0:06:12.160 --> 0:06:14.160 cap backs, it doesn't mean when it comes to these 0:06:14.240 --> 0:06:17.440 data centers that it's actually creating new jobs. So can 0:06:17.440 --> 0:06:20.000 we see a melt up in the stock market but 0:06:20.080 --> 0:06:21.920 a recession in the real economy. 0:06:22.920 --> 0:06:26.800 Well, I think the economy is evolving very rapidly into 0:06:27.400 --> 0:06:29.680 something different than we're used to. I think we're still 0:06:29.720 --> 0:06:33.080 kind of looking at the old fashioned business cycle model 0:06:33.120 --> 0:06:39.279 where manufacturing of goods is important. Le's the case that 0:06:39.360 --> 0:06:43.039 everybody recognizes as services have become bigger, But I think 0:06:43.080 --> 0:06:46.440 people still don't haven't wrapped their arms around the fact 0:06:46.480 --> 0:06:50.400 that we've been in a digital revolution that actually started 0:06:50.400 --> 0:06:53.919 in the mid nineteen sixties with the IBM mainframes, and 0:06:53.960 --> 0:06:57.920 here we are now with artificial intelligence. And this revolution 0:06:58.120 --> 0:07:01.680 is all about processing more more data, faster and faster, 0:07:02.520 --> 0:07:05.000 more cheaply. And that's what AI is doing, that's what 0:07:05.040 --> 0:07:09.240 the cloud is doing, and that's a whole new economy 0:07:10.000 --> 0:07:15.040 and it has tremendous implications for the future. I've called 0:07:15.040 --> 0:07:18.240 this the Roaring twenty twenties, and I think it could 0:07:18.280 --> 0:07:21.920 go into the Roaring twenty thirties because of this digital 0:07:21.960 --> 0:07:26.640 revolution that we're in. This seems to be actually accelerating. 0:07:26.880 --> 0:07:29.640 So Agie went there, I'm worried about the thirties, so 0:07:29.680 --> 0:07:32.560 you help me. This is a situation at the moment, 0:07:32.880 --> 0:07:36.280 a lot of the gains are concentrated in asset price appreciation, 0:07:36.600 --> 0:07:40.080 the labor markets. Weeknic, you've got the far left waiting 0:07:40.120 --> 0:07:42.840 in the wings making a pitch to this country that 0:07:42.880 --> 0:07:45.200 they should be running things. And if we see gain 0:07:45.240 --> 0:07:47.600 to the stock market but not gain to the real economy, 0:07:47.800 --> 0:07:49.400 I think capital gains is going to be a big 0:07:49.440 --> 0:07:52.240 story in the next ten years. And why should we 0:07:52.280 --> 0:07:55.200 be optimistic and constructive for capital market to the twenty 0:07:55.240 --> 0:07:58.520 thirties given the dynamics that are starting to build already. 0:08:00.040 --> 0:08:03.920 In a word, productivity. So, for example, today we may 0:08:04.000 --> 0:08:07.480 very well see that the beer of labor statistics slowers 0:08:08.200 --> 0:08:12.000 the level of employment over the past year or so, 0:08:12.760 --> 0:08:16.360 at least on a preliminary basis, by four hundred and 0:08:16.360 --> 0:08:19.720 fifty thousand to seven hundred and fifty thousand jobs, and 0:08:20.440 --> 0:08:22.760 everybody's going to interpret that as being a sign that 0:08:23.120 --> 0:08:27.560 labor market was actually weaker than we thought. Actually, I 0:08:27.600 --> 0:08:31.480 think it indicates that productivity is increasing. So what do 0:08:31.520 --> 0:08:36.000 we we sort of lose on the head count side, 0:08:36.240 --> 0:08:38.880 we gain on the productivity side. And if that's the case, 0:08:39.200 --> 0:08:42.680 then real wages go up. So all the workers that 0:08:42.720 --> 0:08:45.800 are out there are going to on balance, on average 0:08:46.120 --> 0:08:49.600 get an increase in their inflation adjusted wages. And that's 0:08:49.640 --> 0:08:51.920 where the growth and real incomes are going to be, 0:08:51.960 --> 0:08:54.440 and that's where the growth in consumption is going to 0:08:54.440 --> 0:08:58.359 be fueled. And then we've got capital spending, particularly in technology. 0:08:58.480 --> 0:09:01.719 It counts for over fifty per Technology account for over 0:09:01.760 --> 0:09:04.920 fifty percent of capital spending. Now is that's only going 0:09:05.000 --> 0:09:08.600 to go higher? And so again I think the economy's 0:09:08.720 --> 0:09:12.280 nature has changed pretty dramatically. I think the stock market 0:09:12.280 --> 0:09:15.280 has figured it out, and I think it's all good. 0:09:15.280 --> 0:09:17.800 If I'm writing about the productivity story. 0:09:19.080 --> 0:09:22.560 Stay with US multil imperg surveillance coming up after this, 0:09:31.600 --> 0:09:33.520 I want to bring in Henrit to trace a da 0:09:33.600 --> 0:09:35.680 Palmas Henritt. So I just want to stick on these 0:09:35.720 --> 0:09:38.920 pictures and I want your perspective on how these kind 0:09:38.960 --> 0:09:42.000 of pitches play out in places like South Korea when 0:09:42.040 --> 0:09:45.320 that government is getting together in negotiating with Washington to 0:09:45.360 --> 0:09:48.840 come up with three hundred and fifty billion dollar investment deals, 0:09:49.200 --> 0:09:52.520 what do the people these countries think well, I think. 0:09:52.400 --> 0:09:54.320 The first question that it always needs to be is 0:09:54.320 --> 0:09:57.800 one of the political ramifications of continuing to side with 0:09:57.920 --> 0:10:00.680 the United States when they're, you know, trying to forcefully 0:10:00.960 --> 0:10:02.959 kick out three hundred skilled laborers. 0:10:03.000 --> 0:10:03.719 And that's what it is. 0:10:04.000 --> 0:10:06.439 So South Korea is doing exactly what President Trump is 0:10:06.480 --> 0:10:08.840 asked for, investing three hundred and fifty billion dollars in 0:10:08.840 --> 0:10:12.319 the United States across these Hyundai plants, electric vehicle plants, 0:10:12.320 --> 0:10:12.840 et cetera. 0:10:13.120 --> 0:10:15.199 And then you're simultaneously. 0:10:14.520 --> 0:10:16.600 Kicking out the very employees that they need to run 0:10:16.720 --> 0:10:19.360 said plant. So it's a thumb in the eye across 0:10:19.360 --> 0:10:21.600 the board. I think it really gets to the heart 0:10:21.800 --> 0:10:25.040 of the matter that these trade deals the President has 0:10:25.080 --> 0:10:29.520 announced with various nations, including the EU, Japan, South Korea, 0:10:29.880 --> 0:10:32.840 none of them have legal text, none of them are finalized, 0:10:33.120 --> 0:10:37.040 and pending the Supreme Court ruling on AIPA, I anticipate 0:10:37.080 --> 0:10:38.480 that most of them are going to get up ended 0:10:38.520 --> 0:10:41.360 in the next couple of weeks anyway, So basically, we 0:10:41.400 --> 0:10:42.920 do not have a deal with South Korea, we do 0:10:42.960 --> 0:10:44.000 not have a free trade agreement. 0:10:44.080 --> 0:10:46.679 Taris are exponentially higher than they were when Trump. 0:10:46.559 --> 0:10:50.839 Took office, and we had a congressionally passed zero percent 0:10:50.920 --> 0:10:53.280 tariff rate on like ninety five percent of goods coming 0:10:53.280 --> 0:10:55.560 in from South Korea before this administration took office. 0:10:55.600 --> 0:10:58.560 So I don't see any material good news here. 0:10:58.520 --> 0:11:01.120 And local present South Korea. At the same time, the 0:11:01.240 --> 0:11:04.280 US and South Korea are holding working level talks when 0:11:04.320 --> 0:11:06.200 it comes to the trade deal. But how can what's 0:11:06.240 --> 0:11:10.439 happening at Hyundai and this plant impact those negotiations. 0:11:10.920 --> 0:11:14.319 Well, I think the issue, as we're seeing in countries 0:11:14.600 --> 0:11:18.199 across the world now, is that their political leaders cannot 0:11:18.360 --> 0:11:21.640 enter into binding agreements with the United States for their 0:11:21.679 --> 0:11:23.160 own domestic political purposes. 0:11:23.440 --> 0:11:24.800 So it really just. 0:11:24.800 --> 0:11:27.800 Is that, you know, thumb in the eye situation that 0:11:27.880 --> 0:11:32.520 creates an impossible, intractable path for the United States and 0:11:32.559 --> 0:11:34.720 these nations to come to an agreement, and their political 0:11:34.800 --> 0:11:36.680 leaders can't have it, just like Trump can't have it. 0:11:36.720 --> 0:11:38.920 Does it mean that potentially the United States won't get 0:11:38.920 --> 0:11:42.320 this two hundred and fifty billion dollars worth of investments. 0:11:41.760 --> 0:11:44.120 From Soul, Absolutely, no question. 0:11:44.760 --> 0:11:46.920 So where does this leave the trading relationship? 0:11:47.480 --> 0:11:49.640 I don't think that there is a trade deal, and 0:11:49.679 --> 0:11:52.640 we've already undermined the free trade agreement and overridden it with. 0:11:52.600 --> 0:11:53.440 The IEPA terris. 0:11:53.880 --> 0:11:58.559 So we have these tacit commitments on things like sectoral 0:11:58.600 --> 0:12:01.920 tiras for two thirty twos, on pharma on Semi's critical 0:12:01.920 --> 0:12:04.040 one for South Korea is one that hasn't emerged yet. 0:12:04.080 --> 0:12:06.600 That's the lumber and timber tires, which President Trump tweeted 0:12:06.600 --> 0:12:09.319 about being the furniture tires a few weeks back. Those 0:12:09.360 --> 0:12:12.600 are directly targeted at South Korea and Canada. So I 0:12:12.640 --> 0:12:16.200 don't see an opportunity for this trade deal that they 0:12:16.280 --> 0:12:18.920 have that allows South Korea to commit to the SAEPA 0:12:19.040 --> 0:12:22.200 rate holding water and certainly that three hundred and fifty 0:12:22.200 --> 0:12:25.199 billion dollars in investment materializing. When South Korea can't put 0:12:25.200 --> 0:12:28.000 its own skilled laborers that the United States does not 0:12:28.200 --> 0:12:32.920 have in plants in purple states like Georgia, it's unsustainable. 0:12:33.160 --> 0:12:36.440 Any Does this Georgia situation tell us anything about what 0:12:36.520 --> 0:12:39.600 a bigger priority is for Trump domestically, whether it's limiting 0:12:39.640 --> 0:12:42.080 immigration or whether it's getting these trade deals done. 0:12:43.440 --> 0:12:44.840 Yeah, I think that's fair. 0:12:45.040 --> 0:12:47.800 Immigration is one where we can say, you know, objectively, 0:12:47.840 --> 0:12:51.080 the president has succeeded beyond all of his measures, even 0:12:51.160 --> 0:12:53.320 so much to say that he did it too fast, 0:12:53.559 --> 0:12:57.400 and now they're targeting these areas where it's job creation 0:12:57.600 --> 0:13:00.160 and hitting the trade agenda and the investment that you 0:13:00.200 --> 0:13:02.640 said he wants to see in the United States. But 0:13:02.679 --> 0:13:05.120 as I mentioned at the outset, these trade deals that 0:13:05.160 --> 0:13:09.640 we have reached with the EU, with Japan, with South Korea, Vietnam, 0:13:09.679 --> 0:13:12.800 the Philippines, Indonesia, they do not exist in legal text, 0:13:13.200 --> 0:13:17.040 and the fundamental underpinning is the fifteen to sixty percent 0:13:17.280 --> 0:13:20.880 IEPA tyruffs that are in effect across these deals that 0:13:20.880 --> 0:13:23.840 the President indicates he got these nations to agree with. 0:13:24.200 --> 0:13:26.840 When the Supreme Court rules that they're unconstitutional, which is 0:13:26.840 --> 0:13:30.000 something that is entirely possible, we'll get an announcement about 0:13:30.000 --> 0:13:32.120 when they're going to take up the case as early 0:13:32.120 --> 0:13:35.079 as today or tomorrow. Then you really have the question 0:13:35.160 --> 0:13:37.679 of what matters more the immigration stuff that we've delivered 0:13:37.720 --> 0:13:39.600 on or the trade deals that don't exist. 0:13:39.720 --> 0:13:41.439 And one thing that we were talking about yesterday is 0:13:41.480 --> 0:13:44.080 it seems like these goals are in conflict, the idea 0:13:44.120 --> 0:13:48.439 of limiting immigration while also getting certain investments and getting 0:13:48.480 --> 0:13:52.079 certain trade deals across and wondering if this really speaks 0:13:52.080 --> 0:13:54.880 to how this is being perceived politically. Whether trade deals 0:13:54.880 --> 0:13:59.120 are complicated politically, but limiting immigration caters to a certain 0:13:59.160 --> 0:14:02.720 base of isident Trump that he will continue to dobble 0:14:02.760 --> 0:14:04.800 down on and will come at the behest of whatever 0:14:04.840 --> 0:14:07.120 trade deals might get through. I'm just speculating. I'm wondering 0:14:07.160 --> 0:14:09.440 if that's a message or if this is a little 0:14:09.480 --> 0:14:13.120 bit mess here, then it's then being stated. 0:14:13.480 --> 0:14:15.760 I would say, let's go straight to the numbers, because 0:14:15.920 --> 0:14:17.760 I totally agree with you. You know, where is the American 0:14:17.800 --> 0:14:19.680 public on this. The stock market is reacting in one 0:14:19.720 --> 0:14:22.640 way to all these tariffs, but the American public, and 0:14:22.680 --> 0:14:23.920 I've said this to you all for a while, and 0:14:23.960 --> 0:14:26.880 the polling continues to support it. This is a sixty 0:14:26.920 --> 0:14:29.480 to forty issue, a seventy thirty issue that the President 0:14:29.520 --> 0:14:32.320 is on the wrong side of. Seventy seven percent of 0:14:32.320 --> 0:14:35.600 Americans believe inflation is the number one problem as an 0:14:35.640 --> 0:14:40.080 overall scale of what their most important issue is. All voters, Democrats, Republicans, 0:14:40.080 --> 0:14:43.880 and independents, Predominantly independents, believe that inflation and high prices 0:14:43.920 --> 0:14:46.520 are the problem, and they think the President has gone 0:14:46.520 --> 0:14:47.040 too far. 0:14:47.240 --> 0:14:49.000 That's the exact economists you got. 0:14:49.000 --> 0:14:52.240 Wording of their polling on tariffs, and that's a fifty 0:14:52.240 --> 0:14:53.200 four percent number. 0:14:53.080 --> 0:14:54.280 As of the latest data. 0:14:54.360 --> 0:14:59.320 So American voters are incredibly aware of the fact that 0:14:59.440 --> 0:15:04.080 tariff's are taxes, prices are higher at grocery stores and 0:15:04.120 --> 0:15:07.080 at big box retailers, and they do not like it. 0:15:07.120 --> 0:15:09.200 And that's why you're seeing the president's approval readings so 0:15:09.280 --> 0:15:11.520 far underwater, so you can get distracted with some of 0:15:11.560 --> 0:15:14.440 the other components. And of course there's a healthy population 0:15:14.520 --> 0:15:17.200 of Americans who very much support the President's immigration agenda, 0:15:17.440 --> 0:15:20.880 but the economy wins all day every day, and inflation 0:15:21.440 --> 0:15:23.720 and prices continue to be their number one issue and 0:15:23.720 --> 0:15:24.920 they don't like the tariffs. 0:15:26.080 --> 0:15:29.560 Stay with us more Bloomberg surveillance coming up after this. 0:15:38.800 --> 0:15:41.320 Auxana are'n off, the head of market strategy at JP 0:15:41.440 --> 0:15:44.680 Morgan Asset Management, raising concerns writing if the Fed thinks 0:15:44.720 --> 0:15:46.880 the economy should be churning down over one hundred and 0:15:46.920 --> 0:15:49.160 fifty p a month, that's going to guide them into 0:15:49.200 --> 0:15:52.240 cumming short term rates, which is stimulatory for the higher 0:15:52.240 --> 0:15:55.400 inflation environment we're in. Auxana has made it into the 0:15:55.480 --> 0:15:58.720 studio navigating sinkholes of our own from Westchester it's going 0:15:58.760 --> 0:15:59.080 to see you. 0:15:59.040 --> 0:16:01.560 Waxana literal and figurative ones. 0:16:01.880 --> 0:16:04.200 Thank you for making it. Let's start with this Feder reserve. 0:16:04.440 --> 0:16:06.920 What are you actually expecting? So let's make a divide, 0:16:06.920 --> 0:16:09.120 a big distinction between what you think the FED will 0:16:09.120 --> 0:16:11.600 do versus what you think the FED should do good do. 0:16:12.560 --> 0:16:15.280 There's that has been a divide for over a year now. 0:16:15.400 --> 0:16:17.880 We did not believe they should have been cutting last year. 0:16:17.880 --> 0:16:20.360 When they did, we saw the long end react in 0:16:20.840 --> 0:16:23.640 a way that I don't think anyone anticipated. We anticipated 0:16:23.640 --> 0:16:25.840 it because of course, the long end was reacting to 0:16:26.480 --> 0:16:30.240 realities around technical you know, supply of treasuries and long 0:16:30.280 --> 0:16:34.000 term inflation expectations, and that is the reality. I think 0:16:34.040 --> 0:16:37.600 that the FED will continue to grapple with this time around. 0:16:37.680 --> 0:16:40.200 Nothing is likely going to stop them from this cut 0:16:40.200 --> 0:16:44.080 that's coming up this month, even a higher than expected 0:16:44.080 --> 0:16:48.600 inflation print. And that's unfortunate because I think they would 0:16:48.640 --> 0:16:53.400 probably benefit from standing still here looking at what's actually 0:16:53.440 --> 0:16:57.040 happening in the economy, looking at you know, variables like 0:16:57.160 --> 0:17:01.080 what's happening with population growth, for example, Not sure given 0:17:01.120 --> 0:17:04.680 that you know the border is tighter, there are deportations, right, 0:17:04.800 --> 0:17:09.840 population growth is a tremendous driver to jobs, and that 0:17:10.000 --> 0:17:12.600 is changing and we're not entirely sure how that's changing. 0:17:12.680 --> 0:17:15.240 And to the comments you quoted earlier, for me, you know, 0:17:15.240 --> 0:17:18.000 if the FED is still being guided by the economy 0:17:18.000 --> 0:17:19.840 needs to be churning out one hundred hundred and fifty 0:17:19.840 --> 0:17:24.080 two two hundred thousand jobs a month, then that's going 0:17:24.119 --> 0:17:25.760 to guide them in a direction that's going to be 0:17:25.760 --> 0:17:26.560 pro inflationary. 0:17:26.680 --> 0:17:28.600 It might not be one hundred and fifty thousand jobs 0:17:28.640 --> 0:17:30.800 a month, but it's not a contraction like what we 0:17:30.880 --> 0:17:34.159 saw in June for the first time since December twenty twenty. 0:17:34.359 --> 0:17:36.880 It's not these surveys indicating that people don't feel good 0:17:36.960 --> 0:17:41.280 about getting jobs. Why won't that curtail inflation on its own? 0:17:41.560 --> 0:17:44.119 Why doesn't that suggest maybe the FED has some room 0:17:44.520 --> 0:17:48.480 to normalize policy from what might be considered restrictive. 0:17:49.040 --> 0:17:51.520 Well, this is really the issue, is that the FED 0:17:51.600 --> 0:17:55.240 keeps calling this level of rate it's mildly restrictive or 0:17:55.320 --> 0:17:58.639 restrictive is continuing to be part of their rhetoric, and 0:17:58.840 --> 0:18:02.760 it's hard to see where is it restrictive because financial 0:18:02.760 --> 0:18:05.359 conditions continue to loosen, their looser now than when the 0:18:05.359 --> 0:18:09.280 Feds started, they're hiking cycle, you know, three four years ago, 0:18:09.560 --> 0:18:12.720 and so yes, the jobs backdrop is moderating, but the 0:18:12.800 --> 0:18:15.480 unemployment rate is still you know, four point three percent 0:18:15.560 --> 0:18:18.000 versus four point two percent a year ago. Is there 0:18:18.040 --> 0:18:20.840 some slowing? Without a doubt, that is a natural kind 0:18:20.840 --> 0:18:23.359 of ebb and flow off the markets and the economy. 0:18:23.720 --> 0:18:26.920 I don't think this calls for the kind of sort 0:18:26.920 --> 0:18:30.000 of fever pitch around. Cut. Let's cut, And I'm not 0:18:30.000 --> 0:18:32.560 sure what cutting is going to ultimately do because when 0:18:32.560 --> 0:18:34.280 we cut rates, what are we trying to do. We're 0:18:34.280 --> 0:18:37.320 trying to improve borrowing costs for small businesses. We're trying 0:18:37.320 --> 0:18:41.439 to improve borrowing costs for mortgage borrowers. And that's just 0:18:41.600 --> 0:18:44.320 not really been the case. I mean, mortgages are still 0:18:44.400 --> 0:18:47.200 kind of stuck in the mid six high six level, 0:18:47.240 --> 0:18:51.520 which is not really unlocking tremendous amount of activity. And frankly, 0:18:52.080 --> 0:18:54.040 even if we give the benefit of the doubt to 0:18:54.119 --> 0:18:56.080 this policy and say, you know what, it's going to 0:18:56.119 --> 0:19:00.000 improve the mortgage rate, is that really going to yield 0:19:00.320 --> 0:19:03.520 better home affordability? What is your average homeowner going to 0:19:03.560 --> 0:19:05.800 do if they know money's cheaper, They're going to raise 0:19:05.840 --> 0:19:09.160 their home price. Further, we saw some of the lowest 0:19:09.480 --> 0:19:12.520 mortgage rates over the last decade, bottom, you know, rock 0:19:12.560 --> 0:19:15.520 bottom lower mortgage rates, and all we saw was tremendous 0:19:15.520 --> 0:19:16.399 price appreciation. 0:19:16.640 --> 0:19:18.760 Are you saying that rate cuts here, even if there 0:19:18.840 --> 0:19:21.760 is some degree of weakness in the labor market, would 0:19:21.760 --> 0:19:25.159 only inflate acid prices, create long term inflation, and do 0:19:25.280 --> 0:19:27.920 nothing essentially for any of those underlying issues. 0:19:28.040 --> 0:19:31.320 Unfortunately, I think there's a very significant risk of that happening. 0:19:31.400 --> 0:19:36.280 It is going to probably stoke asset price appreciation, which 0:19:36.320 --> 0:19:39.080 is already at a very rich level. You know, we 0:19:39.160 --> 0:19:41.800 know that credit and I've talked about this before here 0:19:41.920 --> 0:19:44.920 credit has never been more expensive. If credit has been 0:19:44.960 --> 0:19:48.120 more expensive, you know, one percent of the time historically 0:19:48.240 --> 0:19:50.760 ninety nine percent of readings and credit over the last 0:19:50.840 --> 0:19:54.400 number of decades have been less expensive than where it 0:19:54.440 --> 0:19:57.840 is today. So price appreciation, although I will say if 0:19:57.880 --> 0:20:01.800 the FED is aggressive round price cuts, that may actually 0:20:01.840 --> 0:20:04.480 spook markets where markets may be like, well, what do 0:20:04.520 --> 0:20:06.680 they know that we don't know, and that can actually 0:20:06.720 --> 0:20:10.400 spark as selloff in in credit or in risk assets, 0:20:10.440 --> 0:20:13.800 which look risk assets are definitely pushing some boundaries there, 0:20:14.040 --> 0:20:17.120 and a correction is not outside the realm of reasonable 0:20:17.400 --> 0:20:20.800 reasonableness or possibility. But I just don't think the FED 0:20:21.000 --> 0:20:25.480 has enough here to really be as aggressive as everyone 0:20:25.720 --> 0:20:29.640 is asking it to be. However, the FED has done 0:20:29.680 --> 0:20:32.240 no favorites in itself right over the last eighteen months 0:20:32.359 --> 0:20:35.720 or so. They looked political, whether they wanted to or 0:20:35.800 --> 0:20:39.440 not when they for the first time ever changed policy 0:20:39.480 --> 0:20:42.400 within a couple of months of an election last year, 0:20:42.960 --> 0:20:45.280 and that made them look politicized, whether they were or 0:20:45.320 --> 0:20:48.240 were not. And so that's why I think the market 0:20:48.240 --> 0:20:52.560 is generally sanguine around this question of you know, FED independence. 0:20:53.480 --> 0:20:56.359 We're seeing markets kind of look through that. Yes, maybe 0:20:56.400 --> 0:20:59.359 it's a red flag, but until we see, you know, 0:20:59.400 --> 0:21:02.879 the White House sexually set monetary policy, I think the 0:21:02.920 --> 0:21:04.479 markets are going to continue looking through that. 0:21:04.520 --> 0:21:06.520 In the sety seconds we have left, how would you 0:21:06.560 --> 0:21:08.680 deploy capital? Why would you like to put it in 0:21:08.720 --> 0:21:09.200 fixed income? 0:21:09.200 --> 0:21:11.400 At the moment, so this is the most important question 0:21:11.440 --> 0:21:13.960 because everyone kind of sits here and talks about what's 0:21:13.960 --> 0:21:16.320 going to happen with the economy, what's going to happen 0:21:16.320 --> 0:21:18.000 with fat policy. But at the end of the day, 0:21:18.640 --> 0:21:21.159 fixed income specifically, which is the world I live in, 0:21:21.560 --> 0:21:24.040