1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,240 --> 00:00:39,839 Speaker 1: Sebastian Reidler of marilynch writing this, we remain negative on 11 00:00:39,880 --> 00:00:43,920 Speaker 1: European equities and underway France on expectations of weakening growth. 12 00:00:43,920 --> 00:00:47,400 Speaker 1: The further acceleration in Euro Area growth could easily offset 13 00:00:47,640 --> 00:00:51,400 Speaker 1: the drag from a more fraud political environment, Sebastin joins us. 14 00:00:51,440 --> 00:00:52,760 Speaker 3: Now, Sebastian, which is it? 15 00:00:52,800 --> 00:00:55,080 Speaker 1: And this is actually, frankly a confusion that we've been 16 00:00:55,120 --> 00:00:58,120 Speaker 1: having all week that some people, Sebastian are saying, yeah, 17 00:00:58,160 --> 00:01:01,360 Speaker 1: we could get that weakness if some of this political 18 00:01:01,440 --> 00:01:04,399 Speaker 1: uncertainty continues, or if it does transpire in a way 19 00:01:04,440 --> 00:01:08,039 Speaker 1: that's market unfriendly. But otherwise Europe is the place to go, 20 00:01:08,240 --> 00:01:10,920 Speaker 1: especially next to an expensive look in the US. 21 00:01:12,080 --> 00:01:14,280 Speaker 4: Absolutely, and we see that a lot in our client conversation. 22 00:01:14,360 --> 00:01:17,680 Speaker 4: People highlight the data weakness in the US we've already 23 00:01:17,680 --> 00:01:20,039 Speaker 4: seen and you discussed this earlier, But in Europe the 24 00:01:20,080 --> 00:01:22,720 Speaker 4: macrodata until today was holding up. So people are saying 25 00:01:22,760 --> 00:01:25,160 Speaker 4: this is a safe port in the storm, and we 26 00:01:25,200 --> 00:01:26,040 Speaker 4: simply disagree. 27 00:01:26,080 --> 00:01:28,039 Speaker 5: We think growth mentum will weaken in. 28 00:01:28,000 --> 00:01:31,000 Speaker 4: The US in the your area because in very simple terms, 29 00:01:31,040 --> 00:01:33,800 Speaker 4: monetary tightening works with the lack and the lacks are 30 00:01:33,800 --> 00:01:36,959 Speaker 4: now to hit both economies. So we think growth is 31 00:01:37,000 --> 00:01:39,360 Speaker 4: going to disappoint, is going to weaken, and it's going 32 00:01:39,400 --> 00:01:41,960 Speaker 4: to disappoint the expectations of Europe being a safe haven. 33 00:01:42,120 --> 00:01:45,800 Speaker 1: So when you talk about European equities possibly being at 34 00:01:45,880 --> 00:01:48,600 Speaker 1: risk of further losses, are you saying that the US 35 00:01:48,680 --> 00:01:51,840 Speaker 1: is preferable or are you saying that all regions, particularly 36 00:01:52,640 --> 00:01:55,920 Speaker 1: equity markets that have gotten a boost from recent optimism, 37 00:01:56,200 --> 00:01:58,960 Speaker 1: are subject to potential risk on that kind of weakening 38 00:01:58,960 --> 00:02:02,000 Speaker 1: growth outlook you're suggesting might be understated. 39 00:02:03,040 --> 00:02:04,320 Speaker 5: Yeah, I think that's a very good summary. 40 00:02:04,360 --> 00:02:06,120 Speaker 4: And if you give give me that option, which of 41 00:02:06,160 --> 00:02:08,720 Speaker 4: these two statements, I would make both statements. I think 42 00:02:08,840 --> 00:02:11,280 Speaker 4: all equity markets are at a risk simply because you 43 00:02:11,400 --> 00:02:13,399 Speaker 4: at the point where the unemployment rate in the US 44 00:02:13,480 --> 00:02:15,400 Speaker 4: is very low, is starting to pick up, the savings 45 00:02:15,480 --> 00:02:17,520 Speaker 4: ratio is very low, is starting to pick up. We're 46 00:02:17,520 --> 00:02:20,239 Speaker 4: starting to see the weakness in the consumer. We're seeing 47 00:02:20,280 --> 00:02:24,360 Speaker 4: consumer confidence really declining very sharply in the US, and 48 00:02:24,400 --> 00:02:26,000 Speaker 4: the US so far has held up. 49 00:02:25,960 --> 00:02:26,920 Speaker 5: The global growth story. 50 00:02:27,000 --> 00:02:28,680 Speaker 4: So if global growth weekends on the back of a 51 00:02:28,680 --> 00:02:32,720 Speaker 4: weakenings weeken Europe, that's negative for risk assets across the board. 52 00:02:32,919 --> 00:02:36,239 Speaker 4: But we think European equities are particularly vulnerable because they're 53 00:02:36,240 --> 00:02:38,840 Speaker 4: more cyclical and they have more value names, which would 54 00:02:39,160 --> 00:02:43,680 Speaker 4: underperform if the weakness in economic activity, together with fading inflation, 55 00:02:43,760 --> 00:02:45,639 Speaker 4: also leads to declining bonniards. 56 00:02:45,800 --> 00:02:48,040 Speaker 3: So Sebastian, what can I buy then? 57 00:02:49,639 --> 00:02:52,600 Speaker 4: So there are amazing opportunities in the beaten up defensive 58 00:02:52,639 --> 00:02:54,720 Speaker 4: sectors that you've got in Europe. Take a sector like 59 00:02:55,000 --> 00:02:57,760 Speaker 4: food and beverages, add a twelve year low relative to 60 00:02:57,800 --> 00:03:00,600 Speaker 4: the market, cheapest sector in the market. It's the most 61 00:03:00,600 --> 00:03:03,799 Speaker 4: defensive and it's gotten clobbled by the compression and risk 62 00:03:03,840 --> 00:03:07,040 Speaker 4: premium global risk PREMIU effectively at all time lows. If 63 00:03:07,120 --> 00:03:10,320 Speaker 4: this combination of macro factors we've just discussed leads macro 64 00:03:10,600 --> 00:03:13,440 Speaker 4: risk premier to rise, that is a fantastic catalyst for 65 00:03:13,480 --> 00:03:16,680 Speaker 4: outperformance for the defensive sectors and in particular the beaten 66 00:03:16,760 --> 00:03:18,120 Speaker 4: up food and beverage sector. 67 00:03:18,600 --> 00:03:23,240 Speaker 6: But overall, besides maybe the defensive sector. On European equities, 68 00:03:23,520 --> 00:03:25,840 Speaker 6: you remain negative at the moment for now. So what 69 00:03:25,960 --> 00:03:28,320 Speaker 6: happens after the election potential when we get some more clarity. 70 00:03:29,760 --> 00:03:32,280 Speaker 4: To be honest, you were talking about economic downside as 71 00:03:32,320 --> 00:03:34,040 Speaker 4: a function of the election. I would really think about 72 00:03:34,040 --> 00:03:37,320 Speaker 4: them as separate. So there's political risk and there's economic risk. 73 00:03:37,400 --> 00:03:40,680 Speaker 4: We think that and an investors have to decide always 74 00:03:40,760 --> 00:03:43,000 Speaker 4: which in this kind of priority list, which is the 75 00:03:43,000 --> 00:03:44,960 Speaker 4: thing really to focus on. We think the economic risk 76 00:03:45,040 --> 00:03:48,080 Speaker 4: is by far the most important point. When the labor 77 00:03:48,120 --> 00:03:52,000 Speaker 4: market starts to inflect negatively, that typically heralds bad things 78 00:03:52,000 --> 00:03:54,920 Speaker 4: happening for risk assets, bad things happening for risk premium. 79 00:03:54,920 --> 00:03:58,240 Speaker 4: We think that will be the dominant dynamic overcoming months. 80 00:03:58,760 --> 00:04:00,800 Speaker 4: So if growth we can not because of the election, 81 00:04:00,840 --> 00:04:03,520 Speaker 4: but because of the normal functioning of the macrocycle. That 82 00:04:03,640 --> 00:04:06,960 Speaker 4: means equity is lower cyclicts underperforming defensives, but then a 83 00:04:06,960 --> 00:04:10,000 Speaker 4: lot of scope for bonds to rally. And that's obviously 84 00:04:10,000 --> 00:04:12,360 Speaker 4: my colleague Michael Hartnett has the exact same view, and 85 00:04:12,480 --> 00:04:16,360 Speaker 4: for beaten up defensive sectors to outperform outside. 86 00:04:15,960 --> 00:04:17,760 Speaker 6: Of Europe and the United States, there's a lot of 87 00:04:17,800 --> 00:04:22,440 Speaker 6: also talk about expansion and getting this potential exposure to 88 00:04:22,520 --> 00:04:24,000 Speaker 6: places like Japan. 89 00:04:24,160 --> 00:04:25,640 Speaker 3: Does that still make sense? 90 00:04:27,240 --> 00:04:29,800 Speaker 4: So I'm, of course a European equity strategist, so I 91 00:04:29,800 --> 00:04:30,760 Speaker 4: don't focus. 92 00:04:30,400 --> 00:04:31,080 Speaker 5: Mainly on Japan. 93 00:04:31,240 --> 00:04:33,520 Speaker 4: That said, we run our models in the background, and Japan, 94 00:04:33,760 --> 00:04:36,120 Speaker 4: like Europe, is a value trade. So it has benefited 95 00:04:36,120 --> 00:04:37,880 Speaker 4: from the spike in boniards because it got a lot 96 00:04:37,920 --> 00:04:41,640 Speaker 4: of value sectors, and it has benefited from the weakening 97 00:04:41,640 --> 00:04:43,360 Speaker 4: in the end, now the yen is a very defensive 98 00:04:43,400 --> 00:04:45,880 Speaker 4: currency at would strengthen if you get a weakening of 99 00:04:45,880 --> 00:04:49,080 Speaker 4: global growth. Plus if Boniard's declined, then value sectors and 100 00:04:49,160 --> 00:04:52,480 Speaker 4: value assets underperformers we've just discussed. So therefore Japan had 101 00:04:52,520 --> 00:04:55,000 Speaker 4: a good run, but the macro environment I'm describing is 102 00:04:55,040 --> 00:04:57,640 Speaker 4: not one in which Japanese equities will continue to do well. 103 00:04:57,760 --> 00:05:00,560 Speaker 1: Sebastian the picture that your painting goes to question that 104 00:05:00,600 --> 00:05:03,600 Speaker 1: we've been asking pretty consistently for the past couple of months. 105 00:05:03,880 --> 00:05:05,120 Speaker 3: Weakening but not weak. 106 00:05:05,279 --> 00:05:07,760 Speaker 1: That has been the hope, the white hope for a 107 00:05:07,760 --> 00:05:10,200 Speaker 1: lot of different markets, particularly the US, this whole idea 108 00:05:10,240 --> 00:05:14,359 Speaker 1: of goldilocks. How do we know that threshold between weakening 109 00:05:14,520 --> 00:05:16,960 Speaker 1: and weak when it is a good thing and when 110 00:05:16,960 --> 00:05:19,279 Speaker 1: it is a bad thing. What data are you watching 111 00:05:19,320 --> 00:05:21,560 Speaker 1: to see when we've gotten to that tipping point. 112 00:05:22,400 --> 00:05:24,599 Speaker 5: I completely agree with you, that's the number one question. 113 00:05:25,000 --> 00:05:26,680 Speaker 4: Is a little bit of data we need is good 114 00:05:26,720 --> 00:05:29,200 Speaker 4: because it removes that overheating fear that the market has 115 00:05:29,240 --> 00:05:32,320 Speaker 4: been grappling with. And for now, bad data has been 116 00:05:32,320 --> 00:05:34,320 Speaker 4: good data. Though you could argue this morning in Europe, 117 00:05:34,360 --> 00:05:36,560 Speaker 4: on the back of this very week PMI, that is 118 00:05:36,560 --> 00:05:39,080 Speaker 4: starting to change, and in very simple terms, you will 119 00:05:39,120 --> 00:05:41,719 Speaker 4: start to see bad data being bad data. If you 120 00:05:41,760 --> 00:05:44,440 Speaker 4: get clear cracks in the labor market that means payrolls 121 00:05:44,720 --> 00:05:47,640 Speaker 4: are potentially rising by less than one hundred thousand per 122 00:05:47,640 --> 00:05:50,200 Speaker 4: months or going to zero or going negative, a more 123 00:05:50,240 --> 00:05:53,760 Speaker 4: clear cut increase in the unemployment rate, and also very importantly, 124 00:05:53,760 --> 00:05:55,840 Speaker 4: if you look at the Atlanta Fed GDP track and 125 00:05:55,920 --> 00:05:58,160 Speaker 4: the best current estimate of. 126 00:05:58,120 --> 00:05:59,960 Speaker 5: Where the run rate of growth is in the U. 127 00:06:00,440 --> 00:06:02,880 Speaker 4: If that goes close to zero below as it did 128 00:06:03,000 --> 00:06:05,560 Speaker 4: during the recession fear in twenty twenty two, then there's 129 00:06:05,600 --> 00:06:07,600 Speaker 4: a lot of scope for risk premium rise from their 130 00:06:07,600 --> 00:06:08,279 Speaker 4: current low levels. 131 00:06:08,320 --> 00:06:10,520 Speaker 7: Yeah, that landed GDP track are still something like three 132 00:06:10,560 --> 00:06:12,839 Speaker 7: percent even with the most risks of data, so still 133 00:06:12,839 --> 00:06:13,440 Speaker 7: holding up. 134 00:06:13,600 --> 00:06:15,720 Speaker 3: You talked about the weak pmis in Europe. 135 00:06:15,760 --> 00:06:17,600 Speaker 7: Can I push back on one thing, Sebastian, You can 136 00:06:17,600 --> 00:06:18,440 Speaker 7: tell me why I'm wrong. 137 00:06:18,760 --> 00:06:20,240 Speaker 3: You say investors. 138 00:06:19,720 --> 00:06:23,000 Speaker 7: Need to recognize political risk and economic risk, and the 139 00:06:23,040 --> 00:06:26,120 Speaker 7: two are separate things, would in today's data argue that 140 00:06:26,160 --> 00:06:28,560 Speaker 7: they're becoming the same thing. That if you have businesses 141 00:06:28,640 --> 00:06:31,599 Speaker 7: holding back on their spending plans and decision making, that 142 00:06:31,680 --> 00:06:34,320 Speaker 7: the political risk is turning into an economic one. 143 00:06:35,200 --> 00:06:37,360 Speaker 4: I think it's a very fair point. That clearly is 144 00:06:37,400 --> 00:06:39,919 Speaker 4: an inter section. And if you look at the country breakdown, 145 00:06:39,960 --> 00:06:42,440 Speaker 4: you've got Germany down two points, arguably very little to 146 00:06:42,440 --> 00:06:45,080 Speaker 4: do with the political situation in France, but France down 147 00:06:45,120 --> 00:06:46,719 Speaker 4: four points, and I agree with you there will be 148 00:06:46,760 --> 00:06:49,520 Speaker 4: some spillover, but of course they are well understood. The 149 00:06:49,560 --> 00:06:52,440 Speaker 4: drivers of the macrocycle that have nothing to do with politics. 150 00:06:52,520 --> 00:06:54,560 Speaker 4: That's the inventory cycle that gave a boost to Europe, 151 00:06:54,560 --> 00:06:56,680 Speaker 4: but it's now rolling over. It's the lack of impact 152 00:06:56,720 --> 00:06:59,400 Speaker 4: of monetary tightening. It's the very negative fiscal impulse that 153 00:06:59,440 --> 00:07:01,800 Speaker 4: you have in the UN and they would be sufficient 154 00:07:02,080 --> 00:07:04,760 Speaker 4: to weaken the macro picture even if nothing was going 155 00:07:04,800 --> 00:07:06,159 Speaker 4: on on the political front. 156 00:07:06,320 --> 00:07:08,640 Speaker 1: Sebastian, wonderful to hear from you. Thank you so much 157 00:07:08,640 --> 00:07:11,040 Speaker 1: for being with us. Don't be a stranger. Sebastian Radler 158 00:07:11,320 --> 00:07:22,880 Speaker 1: of Merrill Lynch Treasury is looking to erase this year's 159 00:07:22,960 --> 00:07:25,960 Speaker 1: losses as investors ramp up their rate cut bests. Katie 160 00:07:26,000 --> 00:07:30,360 Speaker 1: Kaminsky of Alpha Simplex, writing this, fixed income short signals 161 00:07:30,480 --> 00:07:33,400 Speaker 1: begin to dissipate as yields moved lower on a better 162 00:07:33,440 --> 00:07:36,920 Speaker 1: than expected CPI print and hopes for a rate cut. 163 00:07:36,800 --> 00:07:37,600 Speaker 3: Katie joins us. 164 00:07:37,640 --> 00:07:40,640 Speaker 1: Now, Katie, someone who is incredibly brave to go short. 165 00:07:40,960 --> 00:07:43,920 Speaker 1: Vond's when everybody else was going long, who talked about 166 00:07:43,920 --> 00:07:46,120 Speaker 1: the potential of ten year yields getting to six percent 167 00:07:46,200 --> 00:07:49,040 Speaker 1: just simply on trend following, you've noticed a shift of 168 00:07:49,120 --> 00:07:52,040 Speaker 1: late and treasuries hinting at more of a long position. 169 00:07:52,080 --> 00:07:53,880 Speaker 1: Can you tell us what that shift is and how 170 00:07:53,960 --> 00:07:54,840 Speaker 1: much conviction you. 171 00:07:54,720 --> 00:07:55,400 Speaker 3: Have around it. 172 00:07:56,640 --> 00:07:59,720 Speaker 8: Well, something is very different this month, Lisa, and what 173 00:07:59,760 --> 00:08:02,920 Speaker 8: we've seen, as you pointed out, weaker economic data. 174 00:08:03,240 --> 00:08:07,440 Speaker 9: Secondly, we're starting to hear some murmurs of demand destruction. 175 00:08:07,880 --> 00:08:08,600 Speaker 9: What does that mean? 176 00:08:08,640 --> 00:08:11,800 Speaker 8: From a technical perspective, it means that we've seen synchronous 177 00:08:11,880 --> 00:08:14,600 Speaker 8: cell us in the cross asset space, So that's in 178 00:08:14,640 --> 00:08:19,200 Speaker 8: the agriculturals, also in the metals, but particularly rallying in 179 00:08:19,280 --> 00:08:24,320 Speaker 8: yields I mean sorry, rallying in bond's and really really 180 00:08:24,360 --> 00:08:27,680 Speaker 8: a big adjustment in the yield space. We've seen risk 181 00:08:27,720 --> 00:08:30,880 Speaker 8: off behavior which we hadn't seen most of this year, 182 00:08:31,200 --> 00:08:32,599 Speaker 8: and so if you think about. 183 00:08:32,360 --> 00:08:34,880 Speaker 9: That, it really feels like the other. 184 00:08:34,800 --> 00:08:38,880 Speaker 8: Asset classes are telling us something about the economic picture 185 00:08:39,240 --> 00:08:42,080 Speaker 8: that we're still not seeing in the equity markets. So 186 00:08:42,200 --> 00:08:45,960 Speaker 8: for us, this means that signals and fixed income have 187 00:08:46,040 --> 00:08:48,680 Speaker 8: really started to dissipate for the first time since the 188 00:08:48,720 --> 00:08:51,640 Speaker 8: beginning of this year. To me, this looks a lot 189 00:08:51,720 --> 00:08:54,720 Speaker 8: like an inflection point and a pivot where we might 190 00:08:54,760 --> 00:08:57,679 Speaker 8: be looking at some sort of sea change for markets 191 00:08:57,720 --> 00:08:58,800 Speaker 8: that we hadn't seen before. 192 00:08:58,960 --> 00:09:00,840 Speaker 1: Katie, this is fascinating at a time where a lot 193 00:09:00,880 --> 00:09:03,840 Speaker 1: of people are wondering that difference between weakening and weak. 194 00:09:04,040 --> 00:09:06,040 Speaker 1: You're saying the signal from a lot of acid class 195 00:09:06,080 --> 00:09:09,400 Speaker 1: and he points to commodities in addition to some of 196 00:09:09,440 --> 00:09:13,080 Speaker 1: the individual corporate moves that pointing to some kind of 197 00:09:13,280 --> 00:09:16,000 Speaker 1: weakening that was unexpected or week. 198 00:09:15,880 --> 00:09:16,880 Speaker 9: Not just weakening. 199 00:09:17,600 --> 00:09:19,400 Speaker 1: What does this do in terms of your conviction to 200 00:09:19,440 --> 00:09:22,640 Speaker 1: say go long bonds pull out of a lot of 201 00:09:22,679 --> 00:09:25,320 Speaker 1: different equities, particularly those that have been the highest flyers. 202 00:09:26,440 --> 00:09:29,400 Speaker 8: Well, I think the big challenges seeing risk off type 203 00:09:29,440 --> 00:09:32,000 Speaker 8: of behavior in the market is an indication that for 204 00:09:32,040 --> 00:09:34,640 Speaker 8: the first time this year, the market is starting to 205 00:09:34,679 --> 00:09:38,720 Speaker 8: get nervous about the potential or higher probability of some 206 00:09:38,760 --> 00:09:40,040 Speaker 8: sort of harder landing. 207 00:09:40,440 --> 00:09:42,360 Speaker 9: And that wasn't in the data before. 208 00:09:42,480 --> 00:09:45,720 Speaker 8: So when we saw weaker data, it usually meant relief. 209 00:09:45,840 --> 00:09:48,320 Speaker 8: It meant that we might have cuts and that we 210 00:09:48,360 --> 00:09:50,760 Speaker 8: could get a soft type landing that we wanted. 211 00:09:51,120 --> 00:09:52,199 Speaker 9: Right now, what you're. 212 00:09:52,000 --> 00:09:55,559 Speaker 8: Seeing is this type of flea to bonds is leading 213 00:09:55,559 --> 00:09:58,560 Speaker 8: to change signals and fixed income and causing people to 214 00:09:58,600 --> 00:10:01,400 Speaker 8: be more likely to be long to kind of hedge 215 00:10:01,440 --> 00:10:04,880 Speaker 8: the potential risk that we might have a correction, particularly 216 00:10:04,880 --> 00:10:07,040 Speaker 8: if you think about the equity markets where there's such 217 00:10:07,040 --> 00:10:11,280 Speaker 8: a biifurcation in the sense that valuations are very high 218 00:10:11,760 --> 00:10:14,160 Speaker 8: even though we're starting to see stabilization of a lot 219 00:10:14,200 --> 00:10:17,400 Speaker 8: of economic data. So that's something that we haven't seen 220 00:10:17,440 --> 00:10:21,000 Speaker 8: stabilized and nobody would like to stabilize, but multiples remain 221 00:10:21,080 --> 00:10:24,560 Speaker 8: high as data starts to get back to normal. 222 00:10:25,240 --> 00:10:27,680 Speaker 7: It's also been interesting to look this flee from bonds 223 00:10:27,880 --> 00:10:30,760 Speaker 7: as you talk about of who's been fleeing to bonds. 224 00:10:30,800 --> 00:10:33,720 Speaker 7: Just looking at the ETF flows, we're on track for TLT, 225 00:10:33,840 --> 00:10:36,520 Speaker 7: that's the black Rock long bond ETF to put on 226 00:10:36,600 --> 00:10:38,920 Speaker 7: its best month in terms of flows so. 227 00:10:39,000 --> 00:10:39,760 Speaker 3: Far this year. 228 00:10:39,800 --> 00:10:42,679 Speaker 7: So you do have households buying bonds, you have hedge 229 00:10:42,679 --> 00:10:45,160 Speaker 7: funds buying bonds. So it's clear with all this discussion 230 00:10:45,160 --> 00:10:46,520 Speaker 7: of who's going to buy all the bonds out there, 231 00:10:46,559 --> 00:10:48,600 Speaker 7: people are, but the type of people who are buying 232 00:10:48,640 --> 00:10:51,720 Speaker 7: it are price sensitive buyers. What does that do to 233 00:10:51,760 --> 00:10:54,360 Speaker 7: the volatility of this bond market when those are the 234 00:10:54,360 --> 00:10:56,760 Speaker 7: types of folks who now are the majority owners of 235 00:10:56,760 --> 00:10:57,719 Speaker 7: this market. 236 00:10:58,440 --> 00:11:00,800 Speaker 8: This is a good point because we have really seen 237 00:11:00,960 --> 00:11:06,560 Speaker 8: bond volatility remain elevated since COVID or particularly once we 238 00:11:06,600 --> 00:11:09,400 Speaker 8: start to see higher rates and you see in a 239 00:11:09,440 --> 00:11:13,040 Speaker 8: slightly higher inflation environment, there's a lot more bifurcation of. 240 00:11:13,080 --> 00:11:14,080 Speaker 9: Buyers and sellers. 241 00:11:14,480 --> 00:11:17,520 Speaker 8: And before it was much more focused on rate cuts, 242 00:11:17,840 --> 00:11:21,600 Speaker 8: but now it seems that people are also embedding some 243 00:11:21,760 --> 00:11:25,760 Speaker 8: sentiment in their flows, meaning that as they get concerned 244 00:11:25,800 --> 00:11:28,400 Speaker 8: about the high evaluations and equities, you start to see 245 00:11:28,400 --> 00:11:31,560 Speaker 8: that risk off pattern where people think about bonds again 246 00:11:31,600 --> 00:11:34,480 Speaker 8: as a safety trait, something to lock in if rates 247 00:11:34,480 --> 00:11:37,120 Speaker 8: go up or if something goes wrong, and we end 248 00:11:37,200 --> 00:11:40,360 Speaker 8: up in a situation where, like Lisa said, week is 249 00:11:40,400 --> 00:11:43,920 Speaker 8: actually weak means weak economic data. 250 00:11:44,800 --> 00:11:47,280 Speaker 7: What does that do to an automated strategy like your own, 251 00:11:47,360 --> 00:11:50,199 Speaker 7: Because you can see a clear trend perhaps of people 252 00:11:50,240 --> 00:11:53,760 Speaker 7: going out buying bonds bonds rally, but it's more volatile, 253 00:11:53,880 --> 00:11:56,040 Speaker 7: it's not as state as the market once was. 254 00:11:57,280 --> 00:11:58,880 Speaker 9: This is this is definitely an issue. 255 00:11:58,880 --> 00:12:01,240 Speaker 8: When you have higher vaults, it means that you have 256 00:12:01,320 --> 00:12:03,880 Speaker 8: less conviction in general and signals, and we've seen that 257 00:12:03,960 --> 00:12:07,640 Speaker 8: in fixed income. Fixed income volatility doubled in twenty twenty 258 00:12:07,679 --> 00:12:10,880 Speaker 8: two and it's still up at elevated levels, which means 259 00:12:10,920 --> 00:12:13,839 Speaker 8: that the overall direction of fixed income has been difficult 260 00:12:13,880 --> 00:12:16,240 Speaker 8: to follow, and you can see that by looking at 261 00:12:16,240 --> 00:12:18,960 Speaker 8: the graph this year, being short was the right call 262 00:12:19,040 --> 00:12:22,520 Speaker 8: until recently, and now it looks like the trajectory of 263 00:12:22,600 --> 00:12:27,199 Speaker 8: bonds is actually lower yields, and that suggests that technical strategies, 264 00:12:27,200 --> 00:12:30,160 Speaker 8: they're just picking up on price behavior and where markets 265 00:12:30,160 --> 00:12:33,680 Speaker 8: are moving at the moment, and markets are definitely moving 266 00:12:34,040 --> 00:12:39,240 Speaker 8: somewhat towards this risk off hedging bets against equity potential weakness. 267 00:12:39,760 --> 00:12:42,560 Speaker 6: Katie, you have some research on potentially how the markets 268 00:12:42,600 --> 00:12:45,320 Speaker 6: could trade with the upcoming election. A third of CFOs 269 00:12:45,320 --> 00:12:48,480 Speaker 6: in a survey yesterday we learned see the elections impacting 270 00:12:48,600 --> 00:12:51,559 Speaker 6: investments Given the fact that we're on the edge of 271 00:12:51,600 --> 00:12:54,160 Speaker 6: waiting for potential cut from the Fed and we still 272 00:12:54,200 --> 00:12:57,120 Speaker 6: don't know the outcome of this election, how do you 273 00:12:57,160 --> 00:12:57,959 Speaker 6: position for this? 274 00:12:59,160 --> 00:13:03,240 Speaker 8: So positioning elections from a technical perspective is actually quite tricky, 275 00:13:03,600 --> 00:13:07,319 Speaker 8: but it's really about following whatever the prevailing price trends are, 276 00:13:07,760 --> 00:13:11,840 Speaker 8: and they usually tend to be pretty strong around volatile environments. 277 00:13:12,160 --> 00:13:14,640 Speaker 9: So I think this fall what's going to be interesting 278 00:13:14,760 --> 00:13:15,360 Speaker 9: is going to be. 279 00:13:15,320 --> 00:13:18,520 Speaker 8: To see how does the market, how do people react 280 00:13:18,679 --> 00:13:25,079 Speaker 8: to how the election unfolds, and what potential trends might emerge. 281 00:13:25,400 --> 00:13:28,320 Speaker 8: And it really feels right now because of the uncertainty 282 00:13:28,360 --> 00:13:30,760 Speaker 8: around this, that there's a wide range of outcomes, which 283 00:13:30,800 --> 00:13:33,920 Speaker 8: means that there could be very interesting trends in the fall. 284 00:13:34,640 --> 00:13:36,480 Speaker 9: Could it be long bonds. Maybe. 285 00:13:37,320 --> 00:13:39,720 Speaker 8: Right now it's starting to hint that that could be 286 00:13:39,800 --> 00:13:42,840 Speaker 8: the case and that there could be much lower yields. 287 00:13:43,600 --> 00:13:45,600 Speaker 9: But of course we've got to wait and see. 288 00:13:45,400 --> 00:13:49,160 Speaker 8: From the data if we actually see that pivot in 289 00:13:49,200 --> 00:13:51,760 Speaker 8: fixed income positioning completely to long and. 290 00:13:51,760 --> 00:13:53,560 Speaker 6: When it comes to the election, as Greg Valley told 291 00:13:53,640 --> 00:13:56,760 Speaker 6: us earlier, potentially this is going to be dragged out 292 00:13:56,840 --> 00:14:00,720 Speaker 6: for weeks and potentially not knowing the actual makeup of 293 00:14:00,720 --> 00:14:03,200 Speaker 6: what Washington is going to look at. Bank of America 294 00:14:03,400 --> 00:14:06,439 Speaker 6: today has a note talking about the zeitgeist, and it's 295 00:14:06,440 --> 00:14:09,520 Speaker 6: if there's a clean sweep, there's this potential concern about 296 00:14:09,520 --> 00:14:12,480 Speaker 6: a Liz Trust moment. But whether we get Trump or Biden, 297 00:14:12,960 --> 00:14:16,120 Speaker 6: how much are you starting to take into account the 298 00:14:16,200 --> 00:14:18,720 Speaker 6: concerns about the US fiscal deficit. 299 00:14:19,920 --> 00:14:22,400 Speaker 8: Well, this is a great question this week because, as 300 00:14:22,440 --> 00:14:24,680 Speaker 8: you know, sort of numbers came out this week in 301 00:14:24,720 --> 00:14:28,120 Speaker 8: the bond market and people have been watching it because 302 00:14:28,320 --> 00:14:32,640 Speaker 8: with deficits up, there's definitely concern about valuation and fixed income, 303 00:14:32,840 --> 00:14:35,960 Speaker 8: so people definitely have their eyes on fixed income markets. 304 00:14:35,960 --> 00:14:37,200 Speaker 8: So I think there's going to be a lot of 305 00:14:37,200 --> 00:14:40,080 Speaker 8: focus on auctions and there's also going to be a 306 00:14:40,120 --> 00:14:42,840 Speaker 8: lot of questions about how does that impact the overall 307 00:14:42,880 --> 00:14:43,720 Speaker 8: valuations of. 308 00:14:44,040 --> 00:14:45,000 Speaker 9: US fixed income. 309 00:14:45,360 --> 00:14:47,760 Speaker 8: So again that goes back to the point things are 310 00:14:47,880 --> 00:14:50,520 Speaker 8: very volatile for fixed income. It is not an easy 311 00:14:50,560 --> 00:14:53,520 Speaker 8: trade like it used to be a simple risk off asset. 312 00:14:53,920 --> 00:14:57,680 Speaker 8: In a world of inflation with high deficits, bonds are 313 00:14:57,800 --> 00:14:58,520 Speaker 8: just not as. 314 00:14:58,440 --> 00:14:59,600 Speaker 9: Easy to call. 315 00:15:00,040 --> 00:15:03,160 Speaker 8: I think that goes to the volatility point, plus correlations 316 00:15:03,240 --> 00:15:06,200 Speaker 8: being positive this year so far with stocks. 317 00:15:06,120 --> 00:15:08,280 Speaker 1: Katie, just to put a bow on it, Earlier this year, 318 00:15:08,320 --> 00:15:10,480 Speaker 1: you had pretty high conviction to be short bonds based 319 00:15:10,520 --> 00:15:13,760 Speaker 1: on the trend following. Now you're seeing a pivot point. 320 00:15:13,880 --> 00:15:15,480 Speaker 9: Where is your conviction level? 321 00:15:15,800 --> 00:15:18,440 Speaker 1: Can you have conviction in the near term to be 322 00:15:18,560 --> 00:15:19,200 Speaker 1: long bonds. 323 00:15:20,640 --> 00:15:23,280 Speaker 9: I think in the near term it's definitely very mixed. 324 00:15:23,320 --> 00:15:24,680 Speaker 9: But you have seen a pivot. 325 00:15:24,840 --> 00:15:28,920 Speaker 8: We have seen more long signals in the European in 326 00:15:29,000 --> 00:15:32,480 Speaker 8: European debt and international debt, so that to me is 327 00:15:32,520 --> 00:15:34,960 Speaker 8: sort of ahead of the curve in the sense you've 328 00:15:34,960 --> 00:15:38,800 Speaker 8: seen the cutting cutting in the ECB, you've seen other 329 00:15:39,480 --> 00:15:43,760 Speaker 8: central bankers cutting, which has definitely pivoted those particular markets 330 00:15:43,800 --> 00:15:46,800 Speaker 8: to long I think the US curve, especially with the 331 00:15:46,840 --> 00:15:50,520 Speaker 8: cautious FED, still remains a short view in the short term, 332 00:15:50,840 --> 00:15:53,640 Speaker 8: but if we continue to see evidence of risk off behavior, 333 00:15:53,880 --> 00:15:55,720 Speaker 8: you're going to see that pivot as well. 334 00:15:55,960 --> 00:16:07,800 Speaker 1: Katie Kaminsky of Alpha Simplex, thank you so much. Right 335 00:16:07,800 --> 00:16:11,160 Speaker 1: now joining our city groups, Veronica Clark and Daneer Peterson 336 00:16:11,320 --> 00:16:13,720 Speaker 1: of the Conference BOARDIC, I want. 337 00:16:13,520 --> 00:16:14,160 Speaker 3: To start with you. 338 00:16:14,480 --> 00:16:16,560 Speaker 1: It seems like the world is shifting your way in 339 00:16:16,680 --> 00:16:21,240 Speaker 1: terms of looking for more economic weakness and not necessarily 340 00:16:21,280 --> 00:16:24,840 Speaker 1: celebrating the resilience in the same kind of way. Do 341 00:16:24,880 --> 00:16:27,320 Speaker 1: you think that maybe there is this tipping point in 342 00:16:27,360 --> 00:16:30,040 Speaker 1: the economy that's becoming more clear or do you think 343 00:16:30,080 --> 00:16:32,320 Speaker 1: that people are just realizing that maybe they got over 344 00:16:32,360 --> 00:16:34,440 Speaker 1: their skis with betting on the soft landing. 345 00:16:34,600 --> 00:16:34,800 Speaker 9: Yeah. 346 00:16:34,880 --> 00:16:36,880 Speaker 10: Yeah, it was only a couple months ago where we were, 347 00:16:37,000 --> 00:16:39,720 Speaker 10: you know, the narrative was reacceleration even but I think 348 00:16:39,800 --> 00:16:42,680 Speaker 10: the data now have more clearly slowed and I don't 349 00:16:42,680 --> 00:16:45,400 Speaker 10: have trouble convincing people that the economy is slowing. I 350 00:16:45,440 --> 00:16:47,640 Speaker 10: get it a couple months ago, but yeah, it does 351 00:16:47,680 --> 00:16:49,680 Speaker 10: feel like us to us that this has been a 352 00:16:49,800 --> 00:16:53,440 Speaker 10: very gradual slowing house cycles usually begin, and we might 353 00:16:53,480 --> 00:16:55,440 Speaker 10: now be at that tipping point where you enter this 354 00:16:55,640 --> 00:16:58,600 Speaker 10: nonlinear weakening, where you really do get layoffs that build 355 00:16:58,640 --> 00:17:00,920 Speaker 10: on each other, and that would be obviously a much 356 00:17:00,920 --> 00:17:02,160 Speaker 10: worse economic backdrop. 357 00:17:02,560 --> 00:17:05,119 Speaker 1: Dana, do you see this tipping point from your vantage 358 00:17:05,160 --> 00:17:07,080 Speaker 1: point as well? Well? 359 00:17:07,160 --> 00:17:09,480 Speaker 11: For a long time we have been predicting a slowing 360 00:17:09,560 --> 00:17:11,600 Speaker 11: in the economy. In fact, we had a recession call 361 00:17:11,960 --> 00:17:14,639 Speaker 11: for a long time. Now we think that the second 362 00:17:14,640 --> 00:17:16,720 Speaker 11: and third quarters are going to be weak growth, probably 363 00:17:16,800 --> 00:17:21,359 Speaker 11: between zero and one percent. Consumers leading that decline. But 364 00:17:21,480 --> 00:17:24,440 Speaker 11: the thing is that consumer spending could even be wiped out, 365 00:17:24,840 --> 00:17:29,080 Speaker 11: but not really have a recession because or even a 366 00:17:29,119 --> 00:17:32,520 Speaker 11: bad recession, because most consumers are working. The labor market 367 00:17:32,560 --> 00:17:36,520 Speaker 11: is doing quite well. Wages are elevated, and businesses, according 368 00:17:36,560 --> 00:17:39,640 Speaker 11: to our CEO Confidence survey, are not looking to let 369 00:17:39,680 --> 00:17:41,760 Speaker 11: go of workers. That is a key factor that's going 370 00:17:41,800 --> 00:17:44,640 Speaker 11: to keep the unemployment rate low even if we do 371 00:17:44,720 --> 00:17:46,760 Speaker 11: see some layoffs on the margins. 372 00:17:47,080 --> 00:17:49,399 Speaker 7: Okay, well, this looks like an area that perhaps danding 373 00:17:49,400 --> 00:17:51,679 Speaker 7: you and Veronica disagree, So let me press you on this. 374 00:17:51,760 --> 00:17:53,840 Speaker 7: Dana says that you could start to see what we 375 00:17:53,960 --> 00:17:56,960 Speaker 7: typically see in a cycle, that some layoffs turn nonlinear 376 00:17:57,000 --> 00:17:58,320 Speaker 7: and it picks up with some speed. 377 00:17:58,560 --> 00:18:03,360 Speaker 3: Why would this time be different, Well. 378 00:18:03,200 --> 00:18:05,520 Speaker 11: This time is different because of labor shortages. And the 379 00:18:05,560 --> 00:18:09,159 Speaker 11: reason why we have labor shortages is because of demographics. 380 00:18:09,160 --> 00:18:11,359 Speaker 11: It's never been the case that we've had ten thousand 381 00:18:11,400 --> 00:18:14,679 Speaker 11: people retiring per day. Those are the baby boomers, and 382 00:18:14,720 --> 00:18:17,440 Speaker 11: so that's why businesses are saying, even though they expect, 383 00:18:17,680 --> 00:18:19,320 Speaker 11: even though for at least a year and a half 384 00:18:19,320 --> 00:18:22,320 Speaker 11: they're expecting a recession to happen, they were not interested 385 00:18:22,320 --> 00:18:25,359 Speaker 11: in letting go of their employees for two reasons. Yes, 386 00:18:25,440 --> 00:18:28,359 Speaker 11: of course labor shortages and people were retiring, but also 387 00:18:28,400 --> 00:18:31,639 Speaker 11: because they had the sting during the pandemic of trying 388 00:18:31,680 --> 00:18:34,920 Speaker 11: to find qualified workers and raising wages to do that. 389 00:18:35,119 --> 00:18:36,720 Speaker 11: So you don't want to repeat that even if you 390 00:18:36,720 --> 00:18:39,040 Speaker 11: think there's going to be a slowdown and this is 391 00:18:39,040 --> 00:18:41,920 Speaker 11: a structural change in the economy that we have not seen. 392 00:18:42,920 --> 00:18:45,120 Speaker 3: Not to do this to you, Veronica, but why could 393 00:18:45,240 --> 00:18:45,920 Speaker 3: data be wrong? 394 00:18:46,160 --> 00:18:46,360 Speaker 8: Yeah? 395 00:18:46,440 --> 00:18:47,919 Speaker 3: No, I mean I don't disagree that. 396 00:18:47,920 --> 00:18:50,080 Speaker 10: You know, we have experienced labor shortages over the last 397 00:18:50,080 --> 00:18:53,000 Speaker 10: couple of years that might be leading to employers holding 398 00:18:53,000 --> 00:18:54,880 Speaker 10: on to workers for longer. You don't want to lay 399 00:18:54,880 --> 00:18:56,399 Speaker 10: people off and have to hire them back at a 400 00:18:56,480 --> 00:19:00,000 Speaker 10: higher rate. But that is I think still a precarious position. 401 00:19:00,280 --> 00:19:02,359 Speaker 10: If you've been holding on for workers for too long 402 00:19:03,000 --> 00:19:04,320 Speaker 10: and then all of a sudden you do have to 403 00:19:04,400 --> 00:19:06,320 Speaker 10: let people go, that could mean you're letting even more 404 00:19:06,359 --> 00:19:09,560 Speaker 10: people go. I don't think that necessarily prevents the layoffs. 405 00:19:10,200 --> 00:19:10,480 Speaker 3: Dana. 406 00:19:10,560 --> 00:19:12,680 Speaker 6: Also, I have a question about what is going on 407 00:19:12,720 --> 00:19:14,720 Speaker 6: in a labor market because we had Barkley's command with 408 00:19:14,720 --> 00:19:18,679 Speaker 6: a report and they were talking about how pretty much 409 00:19:19,000 --> 00:19:23,080 Speaker 6: we've had this insane surge of immigration that we're seeing 410 00:19:23,119 --> 00:19:25,720 Speaker 6: so many jobs being filled by. 411 00:19:25,840 --> 00:19:28,000 Speaker 3: So where exactly is the shortage. 412 00:19:29,119 --> 00:19:31,600 Speaker 11: Well, when you think about immigration, a lot of it's 413 00:19:31,640 --> 00:19:34,800 Speaker 11: catch up. So remember during the pandemic, we had travel 414 00:19:34,840 --> 00:19:36,679 Speaker 11: bands and so that meant also if you were an 415 00:19:36,720 --> 00:19:39,480 Speaker 11: immigrant or you know, whether you're an H one B person, 416 00:19:40,280 --> 00:19:41,920 Speaker 11: you could not enter. So a lot of it was 417 00:19:41,960 --> 00:19:44,199 Speaker 11: just getting back to the levels that we saw in 418 00:19:44,280 --> 00:19:47,960 Speaker 11: terms of immigration right before the pandemic. But the shortages 419 00:19:48,040 --> 00:19:53,520 Speaker 11: are definitely happening, especially in leisure and hospitality, healthcare and 420 00:19:53,560 --> 00:19:57,919 Speaker 11: social as systemce not residential construction, and also government. And 421 00:19:57,960 --> 00:19:59,879 Speaker 11: if you notice, many of these jobs you have to 422 00:20:00,000 --> 00:20:02,600 Speaker 11: physically show up for work, and so companies that we 423 00:20:02,640 --> 00:20:06,280 Speaker 11: speak to CEOs of the Fortune five hundred firms in 424 00:20:06,320 --> 00:20:09,080 Speaker 11: the US have been saying, look, we can't find qualified 425 00:20:09,119 --> 00:20:12,800 Speaker 11: workers for these jobs that are necessarily dirty or uncomfortably 426 00:20:12,840 --> 00:20:14,439 Speaker 11: you have to deal with a public or there's no 427 00:20:14,520 --> 00:20:16,960 Speaker 11: flexibility in terms of hybrid work. 428 00:20:17,840 --> 00:20:18,199 Speaker 3: Veronica. 429 00:20:18,240 --> 00:20:22,600 Speaker 6: When it comes to immigration, how do you view it 430 00:20:22,640 --> 00:20:25,639 Speaker 6: as basically putting a cap on inflation? We've reached the 431 00:20:25,680 --> 00:20:28,760 Speaker 6: point where pretty much that story is over and starting 432 00:20:28,760 --> 00:20:29,440 Speaker 6: to normalize. 433 00:20:29,680 --> 00:20:31,560 Speaker 10: Yeah, I mean, I definitely think you know, it's been 434 00:20:31,880 --> 00:20:34,520 Speaker 10: helping to loosen the supply side of the labor market. 435 00:20:34,600 --> 00:20:37,399 Speaker 10: Of course, you know, more and more workers, so it 436 00:20:37,480 --> 00:20:41,159 Speaker 10: is helpful for inflation on that front. But immigration is 437 00:20:41,280 --> 00:20:43,360 Speaker 10: a boost to both supply and demand. I mean, those 438 00:20:43,359 --> 00:20:45,639 Speaker 10: are people who are gonna you know, buy goods and 439 00:20:45,880 --> 00:20:48,200 Speaker 10: need housing. So it's not so clear what that does 440 00:20:48,240 --> 00:20:51,840 Speaker 10: to inflation. It is probably overall a disinflationary force, but 441 00:20:51,920 --> 00:20:53,040 Speaker 10: not necessarily a big one. 442 00:20:53,160 --> 00:20:55,159 Speaker 1: Let's dig into this. And I'm glad that Emory that 443 00:20:55,200 --> 00:20:57,600 Speaker 1: you brought up the Marchiano one report from Barclays. He 444 00:20:57,680 --> 00:21:01,359 Speaker 1: was talking about how honestly it's counted accounted for about 445 00:21:01,400 --> 00:21:05,760 Speaker 1: three quarters of all job creation so far in recent years. 446 00:21:06,240 --> 00:21:10,040 Speaker 1: The immigration flows to me this sort of shocking and 447 00:21:10,080 --> 00:21:11,840 Speaker 1: I love both of your takes, ronic I want to 448 00:21:11,880 --> 00:21:15,000 Speaker 1: start with you this idea of is this the right 449 00:21:15,200 --> 00:21:17,960 Speaker 1: kind of job creation that's going to really create a 450 00:21:18,040 --> 00:21:23,440 Speaker 1: sustainably and stronger economy versus filling in gaps and doing 451 00:21:23,440 --> 00:21:26,000 Speaker 1: it on the cheap in a way that maybe makes 452 00:21:26,000 --> 00:21:28,399 Speaker 1: people understand why even though we have a good labor 453 00:21:28,440 --> 00:21:31,720 Speaker 1: market on the surface, people seem so dissatisfied. 454 00:21:32,160 --> 00:21:34,639 Speaker 10: Yeah, I mean, I don't think the immigration story is 455 00:21:34,680 --> 00:21:37,320 Speaker 10: necessarily one that's going to last with the strength that 456 00:21:37,359 --> 00:21:39,439 Speaker 10: we've experienced the last couple of years. I don't think 457 00:21:39,440 --> 00:21:41,800 Speaker 10: we're going to have such strong immigration maybe five years 458 00:21:41,800 --> 00:21:44,880 Speaker 10: from now. And it's not so clear. You know that 459 00:21:45,359 --> 00:21:47,600 Speaker 10: these workers have been hired at lower wages. We still 460 00:21:47,600 --> 00:21:50,600 Speaker 10: see avagell earning something like four percent year on ear 461 00:21:51,200 --> 00:21:54,960 Speaker 10: so there hasn't been this big disinflation in wages. But yeah, 462 00:21:55,000 --> 00:21:57,840 Speaker 10: it is probably you know partly adding tonnet well. 463 00:21:57,680 --> 00:21:59,960 Speaker 1: But this also, Dana is something we were talking about 464 00:22:00,119 --> 00:22:03,760 Speaker 1: with Marchianoni of Barclays, This idea of how much can 465 00:22:03,800 --> 00:22:07,399 Speaker 1: we really understand the numbers that we're seeing for the 466 00:22:07,480 --> 00:22:10,800 Speaker 1: labor market as being strong if they are very different 467 00:22:10,800 --> 00:22:12,600 Speaker 1: than what they've been in the past, if the jobs 468 00:22:12,640 --> 00:22:16,080 Speaker 1: being added are new people coming to the country and 469 00:22:16,520 --> 00:22:19,959 Speaker 1: don't account for job mobility, also don't account for how 470 00:22:20,040 --> 00:22:22,520 Speaker 1: much this economy has grown and how many more people 471 00:22:22,560 --> 00:22:25,400 Speaker 1: are in the labor force. When you start to talk 472 00:22:25,400 --> 00:22:28,320 Speaker 1: about just absolute numbers, how much is the view that 473 00:22:28,359 --> 00:22:32,320 Speaker 1: we have of the labor market overly rosy based on 474 00:22:33,119 --> 00:22:35,399 Speaker 1: just historical comps that are no longer valid. 475 00:22:36,760 --> 00:22:39,680 Speaker 11: Well, laborers are laborers. It doesn't matter if they're far 476 00:22:39,760 --> 00:22:42,359 Speaker 11: and born or they're domestically born. The point is that 477 00:22:42,400 --> 00:22:45,760 Speaker 11: we don't have enough people in the labor market right now. 478 00:22:45,800 --> 00:22:48,960 Speaker 11: Look at the labor force participation rate overall, it is 479 00:22:49,040 --> 00:22:52,200 Speaker 11: not returned to the pre pandemic level. Why is that, Well, 480 00:22:52,240 --> 00:22:54,760 Speaker 11: if you break it out looking at people who are 481 00:22:54,800 --> 00:22:59,960 Speaker 11: prime age sixteen to sixty four, yes that participation rate 482 00:23:00,119 --> 00:23:02,760 Speaker 11: has recovered, but people sixty five and older has not. 483 00:23:03,240 --> 00:23:06,600 Speaker 11: They're people exiting the labor market. So immigration certainly is 484 00:23:06,640 --> 00:23:09,880 Speaker 11: going to be continues to be in will be an 485 00:23:09,880 --> 00:23:13,320 Speaker 11: important solution to addressing the fact that we're losing workers 486 00:23:13,400 --> 00:23:16,440 Speaker 11: hand over foot to retirement, but it's also getting those 487 00:23:16,440 --> 00:23:19,800 Speaker 11: domestic workers out. And certainly when you look at the wages, 488 00:23:20,440 --> 00:23:23,479 Speaker 11: the wage games that we're seeing, they're in goods, so 489 00:23:23,600 --> 00:23:26,800 Speaker 11: those are the types of jobs where many people who 490 00:23:26,800 --> 00:23:29,359 Speaker 11: are immigrants might gravitate to, and those wages are still 491 00:23:29,480 --> 00:23:34,400 Speaker 11: rising very aggressively, and even among services wages growth has slowed, 492 00:23:34,760 --> 00:23:38,720 Speaker 11: but it's still particularly elevated and relative to the range 493 00:23:38,720 --> 00:23:41,440 Speaker 11: that we saw pre pandemic. So I don't see an 494 00:23:41,480 --> 00:23:44,320 Speaker 11: issue with the types of jobs that people are taking, 495 00:23:44,520 --> 00:23:47,199 Speaker 11: whether if foreign born or domestically born. The point is 496 00:23:47,200 --> 00:23:50,639 Speaker 11: that they're working, their wages are elevated, they're getting income, 497 00:23:50,680 --> 00:23:52,560 Speaker 11: and as Veronica said, these people are going to be 498 00:23:52,600 --> 00:23:56,200 Speaker 11: consuming and spending. They're desiring the same things that domestic 499 00:23:56,240 --> 00:23:56,800 Speaker 11: workers are. 500 00:23:56,960 --> 00:23:59,440 Speaker 7: And it's a structural thing you're talking about, Dana, and 501 00:23:59,440 --> 00:24:01,600 Speaker 7: you said that they're still aren't enough people to fill 502 00:24:01,680 --> 00:24:04,159 Speaker 7: all of the jobs. So when we're talking about this 503 00:24:04,320 --> 00:24:07,800 Speaker 7: world of trying to bring inflation down, waiting to see 504 00:24:08,080 --> 00:24:10,560 Speaker 7: if there are cracks in the labor market, isn't waiting 505 00:24:10,560 --> 00:24:12,359 Speaker 7: for Goodough? Do we need to get used to something 506 00:24:12,400 --> 00:24:16,040 Speaker 7: a little bit more uncomfortable because there are still persistent 507 00:24:16,119 --> 00:24:17,040 Speaker 7: supply issues. 508 00:24:18,200 --> 00:24:20,600 Speaker 11: Well, really, when I look at the drivers of inflation, 509 00:24:21,040 --> 00:24:25,040 Speaker 11: it's certainly labor supply, and that's beating up wages, and 510 00:24:25,080 --> 00:24:29,440 Speaker 11: that's flowing through to services excluding housing and certainly excluding 511 00:24:31,160 --> 00:24:34,679 Speaker 11: insurance premiums. But the thing is that that's probably not 512 00:24:34,720 --> 00:24:36,560 Speaker 11: going to weigh. That's something that the FED is going 513 00:24:36,600 --> 00:24:40,760 Speaker 11: to have very difficult time resisting because again, it's a 514 00:24:40,800 --> 00:24:44,640 Speaker 11: supply issue, and the FED is good at addressing demand issues. Now, 515 00:24:44,680 --> 00:24:46,679 Speaker 11: where we're going to get a lot of traction on 516 00:24:46,720 --> 00:24:50,760 Speaker 11: inflation coming down over the next twelve months is from housing. 517 00:24:51,080 --> 00:24:53,400 Speaker 11: And if you look at the CASHITDAL Home price index 518 00:24:53,440 --> 00:24:56,360 Speaker 11: and you lag that by about eighteen months, that'll tell 519 00:24:56,400 --> 00:25:00,600 Speaker 11: you exactly where OER is going. So the other thing 520 00:25:00,640 --> 00:25:03,800 Speaker 11: that's going to be bidding up inflation is insurance. So 521 00:25:03,960 --> 00:25:08,080 Speaker 11: certainly insurance costs for autos and also for housing very 522 00:25:08,080 --> 00:25:10,040 Speaker 11: different reasons. But the thing is that we don't know 523 00:25:10,080 --> 00:25:12,520 Speaker 11: when those rises are going to end. So the FED 524 00:25:12,600 --> 00:25:14,520 Speaker 11: is still going to be challenged in terms of getting 525 00:25:14,520 --> 00:25:17,600 Speaker 11: inflation back to the two percent targets sustainably. 526 00:25:18,080 --> 00:25:21,080 Speaker 1: Dana Peterson and Veronica Clark with us as we look 527 00:25:21,160 --> 00:25:22,920 Speaker 1: back on some of the data that we've gotten recently 528 00:25:23,680 --> 00:25:25,840 Speaker 1: coming up, and I'm glad that data you brought up 529 00:25:26,040 --> 00:25:29,719 Speaker 1: home sales and home values in terms of just the 530 00:25:29,720 --> 00:25:32,199 Speaker 1: inflation that we expect to see. We do get existing 531 00:25:32,320 --> 00:25:35,159 Speaker 1: home sales later today, next week, we do get the 532 00:25:35,240 --> 00:25:38,000 Speaker 1: latest read on core Logic home prices. 533 00:25:38,320 --> 00:25:39,720 Speaker 9: Veronica, how much do you. 534 00:25:39,680 --> 00:25:42,120 Speaker 1: Believe what we've been hearing from the likes of Jonathan 535 00:25:42,160 --> 00:25:45,119 Speaker 1: Miller and others who say, at this point, if the 536 00:25:45,160 --> 00:25:47,800 Speaker 1: FED cuts race, that's going to only reignite a housing 537 00:25:47,840 --> 00:25:51,119 Speaker 1: market that's just waiting for any catalyst for people to 538 00:25:51,480 --> 00:25:52,920 Speaker 1: have a more affordable entry point. 539 00:25:53,040 --> 00:25:56,200 Speaker 10: Yeah, it's definitely something we're watching, certainly anecdotally. It feels 540 00:25:56,240 --> 00:25:57,159 Speaker 10: like maybe you could get. 541 00:25:57,040 --> 00:25:58,120 Speaker 3: Some buyers coming back. 542 00:25:58,760 --> 00:26:01,280 Speaker 10: But we did see, you know, with mortgage rates, you know, 543 00:26:01,320 --> 00:26:04,800 Speaker 10: above seven percent last year, there was this surprising resilient 544 00:26:04,840 --> 00:26:07,240 Speaker 10: demand for housing. In twenty twenty three, there was resilient 545 00:26:07,280 --> 00:26:11,119 Speaker 10: demand for everything, but people couldn't buy homes because you know, 546 00:26:11,200 --> 00:26:11,680 Speaker 10: people were. 547 00:26:11,600 --> 00:26:12,399 Speaker 3: Not willing to sell. 548 00:26:12,920 --> 00:26:15,080 Speaker 10: But We've actually in the last six or seven months 549 00:26:15,119 --> 00:26:18,240 Speaker 10: seen listings of homes come up. They are above you know, 550 00:26:18,400 --> 00:26:21,119 Speaker 10: levels of the last two years, and there's not demand now. 551 00:26:21,720 --> 00:26:24,080 Speaker 10: So it does feel like, you know, that resilient consumer 552 00:26:24,240 --> 00:26:25,399 Speaker 10: is waning everywhere. 553 00:26:25,800 --> 00:26:28,040 Speaker 7: I also think this question of prices that Jonathan Miller 554 00:26:28,080 --> 00:26:30,560 Speaker 7: also talked about is fasting. Not just do people come back, 555 00:26:30,880 --> 00:26:33,800 Speaker 7: but what happens to pricing of homes. Could we be 556 00:26:33,880 --> 00:26:36,400 Speaker 7: in a scenario that he thinks will happen that kind 557 00:26:36,400 --> 00:26:39,520 Speaker 7: of ironically, the FED cuts, but instead housing prices go 558 00:26:39,720 --> 00:26:41,600 Speaker 7: up because demand comes back. 559 00:26:41,800 --> 00:26:43,160 Speaker 3: Yeah, it's not so clear. 560 00:26:43,200 --> 00:26:45,240 Speaker 10: I mean, we have seen softer demand in the last 561 00:26:45,240 --> 00:26:47,760 Speaker 10: six months or so, and that has been accompanied with 562 00:26:47,840 --> 00:26:50,879 Speaker 10: softer prices. We've not seen the very strong, you know, 563 00:26:50,960 --> 00:26:53,119 Speaker 10: exceptionally strong prices of the last couple of years in 564 00:26:53,160 --> 00:26:56,080 Speaker 10: the last six months. So I think in the near term, 565 00:26:56,119 --> 00:26:58,240 Speaker 10: at least, you know, this is still a soft demand 566 00:26:58,280 --> 00:27:00,959 Speaker 10: story and so there's not quite that word pressure on prices. 567 00:27:00,960 --> 00:27:04,400 Speaker 10: But longer term, you know, we are somewhat structurally short housing. 568 00:27:04,840 --> 00:27:08,600 Speaker 10: Obviously construction new construction will be pulling back. You're gonna 569 00:27:08,720 --> 00:27:11,560 Speaker 10: stay short housing. Yeah, that could put longer term pressure 570 00:27:11,560 --> 00:27:12,600 Speaker 10: on prices, Dana. 571 00:27:12,640 --> 00:27:14,480 Speaker 6: When it comes to the American consumer, you talk about 572 00:27:14,480 --> 00:27:18,359 Speaker 6: how they're also trading down in types of services they purchase. 573 00:27:19,200 --> 00:27:21,520 Speaker 6: What kind of cracks are you seeing in the US consumer? 574 00:27:22,720 --> 00:27:25,480 Speaker 11: Sure, absolutely, Well, let's just start with the fundamentals. While 575 00:27:25,520 --> 00:27:29,600 Speaker 11: most consumers are working, that excess savings from the stimulus 576 00:27:29,760 --> 00:27:33,520 Speaker 11: is gone. Also, many consumers are financing their expenditures with 577 00:27:33,680 --> 00:27:36,920 Speaker 11: debt and so all that's really coming home to roosts. 578 00:27:37,160 --> 00:27:39,399 Speaker 11: And so what consumers are doing is they are not 579 00:27:39,440 --> 00:27:42,480 Speaker 11: buying goods. We saw that good spending slowed at the 580 00:27:42,560 --> 00:27:45,399 Speaker 11: end of last year, it was negative and GDP growth. 581 00:27:45,640 --> 00:27:47,800 Speaker 11: And also when we look at retail sales so far 582 00:27:48,119 --> 00:27:51,760 Speaker 11: in the second quarter, they're signaling another downswing in terms 583 00:27:51,800 --> 00:27:54,679 Speaker 11: of good spending. When it comes to services, consumers are 584 00:27:54,680 --> 00:27:58,120 Speaker 11: still interested in going on vacation. However, they are trading 585 00:27:58,160 --> 00:28:00,520 Speaker 11: down in the types of services. So for example, instead 586 00:28:00,560 --> 00:28:02,320 Speaker 11: of going to the movies, which might cost them one 587 00:28:02,400 --> 00:28:04,600 Speaker 11: hundred dollars for a family of four, they're going to 588 00:28:04,600 --> 00:28:07,520 Speaker 11: stay home and stream. And also consumers are looking at 589 00:28:07,560 --> 00:28:11,959 Speaker 11: spending on things services that are necessities, for example healthcare 590 00:28:12,080 --> 00:28:16,160 Speaker 11: and insurance premiums for your cars. But certainly not those 591 00:28:16,240 --> 00:28:18,240 Speaker 11: highly discretionary types of services. 592 00:28:18,680 --> 00:28:21,159 Speaker 1: Dana, Just to put this all together, what are you 593 00:28:21,200 --> 00:28:23,399 Speaker 1: looking for to understand whether this is sort of a 594 00:28:23,440 --> 00:28:28,320 Speaker 1: welcome softening and disinflation versus something that does have more 595 00:28:28,320 --> 00:28:29,680 Speaker 1: pernicious legs. 596 00:28:30,800 --> 00:28:32,720 Speaker 11: Well, this is all part of the Fed's plan, right, 597 00:28:32,760 --> 00:28:37,080 Speaker 11: This is basic economic monetary economic theory. You slow demand, 598 00:28:37,119 --> 00:28:40,120 Speaker 11: which helps reduce inflation. That's what the Fed's doing. The 599 00:28:40,200 --> 00:28:42,280 Speaker 11: challenge is that the FED has all these other supply 600 00:28:42,440 --> 00:28:45,720 Speaker 11: side elements that are leaning against what they want to do. Again, 601 00:28:45,800 --> 00:28:48,920 Speaker 11: going back to labor shortages, which is a supply issue, 602 00:28:49,560 --> 00:28:51,960 Speaker 11: raising wages. But this is all part of the program 603 00:28:52,280 --> 00:28:55,240 Speaker 11: making sure that consumers pull back on spending. That also 604 00:28:55,360 --> 00:28:58,280 Speaker 11: includes home purchases, and certainly if you're not buying a house, 605 00:28:58,320 --> 00:29:00,400 Speaker 11: you're not buying all the items that would go along 606 00:29:00,440 --> 00:29:02,760 Speaker 11: with it. So this is good. And the thing is 607 00:29:02,800 --> 00:29:05,520 Speaker 11: that the FED is probably pleased with what's happening because 608 00:29:05,560 --> 00:29:07,720 Speaker 11: at the same time, most people are working, you don't 609 00:29:07,720 --> 00:29:10,600 Speaker 11: have a massive layoffs. Indeed, we do think the unemployment 610 00:29:10,680 --> 00:29:12,760 Speaker 11: rate's going to tick up, but maybe we'll land at 611 00:29:12,760 --> 00:29:15,600 Speaker 11: four point two percent. That's well below the natural rate 612 00:29:15,640 --> 00:29:18,600 Speaker 11: of unemployment and that's still a really low unemployment rate. 613 00:29:18,680 --> 00:29:23,800 Speaker 11: So if we have this perfect scenario of weaker consumer demand, 614 00:29:24,160 --> 00:29:28,160 Speaker 11: weaker demand for housing, but also most people working and 615 00:29:28,200 --> 00:29:31,400 Speaker 11: inflation slowing, that suggests that the FED can go ahead 616 00:29:31,400 --> 00:29:33,560 Speaker 11: and start cutting interest rates, probably by the end of 617 00:29:33,600 --> 00:29:34,040 Speaker 11: this year. 618 00:29:34,440 --> 00:29:37,239 Speaker 1: Dania Peterson, Roonic Clark, both of you, thank you so 619 00:29:37,320 --> 00:29:38,280 Speaker 1: much for being with us. 620 00:29:38,800 --> 00:29:42,320 Speaker 2: This is the Bloomberg Sevenmants podcast, bringing you the best 621 00:29:42,400 --> 00:29:45,960 Speaker 2: in markets, economics, angiopolitics. 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