1 00:00:00,120 --> 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 --> 00:00:18,680 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 00:00:22,400 --> 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 --> 00:00:31,280 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 --> 00:00:36,760 Speaker 2: Terminal and the Bloomberg Business app. To weigh in on 10 00:00:36,800 --> 00:00:38,599 Speaker 2: all of this, and please to say that we can 11 00:00:38,640 --> 00:00:41,080 Speaker 2: catch up with the Disney CFO Hugh Johnston. She is 12 00:00:41,080 --> 00:00:43,519 Speaker 2: wonderful to catch up with you, sir. As always, we've 13 00:00:43,560 --> 00:00:45,880 Speaker 2: got to start with the price increases. First of all, 14 00:00:45,960 --> 00:00:47,280 Speaker 2: it's on the minds of a lot of people I 15 00:00:47,320 --> 00:00:49,480 Speaker 2: can tell you around this table as well, So let's 16 00:00:49,479 --> 00:00:51,520 Speaker 2: get into it. We've heard from a lot of companies 17 00:00:51,600 --> 00:00:54,120 Speaker 2: that have talked about a lot of pricing power and 18 00:00:54,240 --> 00:00:57,440 Speaker 2: sliding sales. What have you seen in the streaming business 19 00:00:57,440 --> 00:01:00,480 Speaker 2: that gives you confidence that you can hike prices without 20 00:01:00,560 --> 00:01:02,600 Speaker 2: that delivering increase churn. 21 00:01:03,320 --> 00:01:05,320 Speaker 1: Great, well, good morning, great to be with you all. 22 00:01:05,880 --> 00:01:09,240 Speaker 3: Obviously, terrific quarter for us, and you all have mentioned 23 00:01:09,280 --> 00:01:12,680 Speaker 3: the numbers a few times. The entertainment business is doing 24 00:01:12,800 --> 00:01:14,440 Speaker 3: exceptionally well right now. 25 00:01:14,480 --> 00:01:17,360 Speaker 1: We had the top movie in May, June and July 26 00:01:17,480 --> 00:01:17,919 Speaker 1: and the. 27 00:01:17,760 --> 00:01:21,520 Speaker 3: Form of Planet of the Apes Inside Out too and 28 00:01:21,560 --> 00:01:25,600 Speaker 3: then now Deadpool. That's real value to the consumer. And 29 00:01:25,640 --> 00:01:27,920 Speaker 3: as we think forward to what's going to be appearing 30 00:01:27,959 --> 00:01:31,280 Speaker 3: on the streaming service, those three great motion pictures, the 31 00:01:31,319 --> 00:01:34,080 Speaker 3: IP that we've produced ourselves are going to be on 32 00:01:34,120 --> 00:01:36,600 Speaker 3: the streaming service, as well as an enormous number of 33 00:01:37,000 --> 00:01:40,840 Speaker 3: Emmy nominated TV shows including Avid Elementary and The Bear, 34 00:01:41,880 --> 00:01:44,440 Speaker 3: Only Murders in the Building, and of course Showgun. 35 00:01:44,240 --> 00:01:44,920 Speaker 1: The huge hit. 36 00:01:45,440 --> 00:01:48,360 Speaker 3: And when you deliver that much value to consumers, consumers 37 00:01:48,360 --> 00:01:50,880 Speaker 3: are willing to pay a little bit more because frankly, 38 00:01:50,920 --> 00:01:53,160 Speaker 3: they're getting so much back in terms of entertainment. 39 00:01:53,400 --> 00:01:55,400 Speaker 2: You have got to say, I'm with your Showgun was awesome. 40 00:01:55,440 --> 00:01:57,520 Speaker 2: I said that last time just to endorse it once again, 41 00:01:57,600 --> 00:01:59,919 Speaker 2: one of my favorites of the last twelve months. Clearly, 42 00:02:00,120 --> 00:02:02,880 Speaker 2: the streaming business is doing well, which opens the door 43 00:02:02,920 --> 00:02:05,480 Speaker 2: to high prices. You can't say the same thing about 44 00:02:05,480 --> 00:02:07,920 Speaker 2: the theme park business, just what is going on next 45 00:02:07,920 --> 00:02:08,040 Speaker 2: to you. 46 00:02:09,480 --> 00:02:11,760 Speaker 3: Yeah, So one of the things to keep in mind 47 00:02:11,880 --> 00:02:13,280 Speaker 3: is the theme park's business. 48 00:02:13,320 --> 00:02:15,160 Speaker 1: We have actually grew in the quarter. 49 00:02:15,280 --> 00:02:18,080 Speaker 3: Revenue is up two percent, so we're not talking about 50 00:02:18,080 --> 00:02:21,680 Speaker 3: a business that's going negative in terms of growth. Earnings 51 00:02:21,680 --> 00:02:24,000 Speaker 3: were down a little bit because we had inflation, and 52 00:02:24,040 --> 00:02:27,280 Speaker 3: we're making some investments back in the business. What we 53 00:02:27,320 --> 00:02:31,000 Speaker 3: see happening more than anything is the lower income consumers 54 00:02:31,040 --> 00:02:33,760 Speaker 3: are a little bit stressed and shaving a little bit 55 00:02:33,800 --> 00:02:36,760 Speaker 3: off of their time at the park, and then higher 56 00:02:36,760 --> 00:02:39,760 Speaker 3: income consumers are tending to travel overseas a little bit 57 00:02:39,760 --> 00:02:42,280 Speaker 3: more right now. But given the strength of the ip 58 00:02:42,480 --> 00:02:44,400 Speaker 3: that we have in the park, given the quality of 59 00:02:44,440 --> 00:02:47,639 Speaker 3: the experience, when the consumer is soft, it tends to 60 00:02:47,720 --> 00:02:50,080 Speaker 3: hit us late, it hits us a little bit less, 61 00:02:50,200 --> 00:02:52,360 Speaker 3: and we tend to recover. Really, so we really just 62 00:02:52,400 --> 00:02:56,520 Speaker 3: see this as a few quarters of slight perturbation in 63 00:02:56,560 --> 00:02:58,799 Speaker 3: the numbers. Frankly, I think we're going to be right 64 00:02:58,840 --> 00:03:00,480 Speaker 3: back as we get into the middle next year. 65 00:03:00,800 --> 00:03:03,480 Speaker 4: One of the other complaints commonly hear with the consumer 66 00:03:03,600 --> 00:03:05,680 Speaker 4: is about bundles, not that they're not good, but that 67 00:03:05,760 --> 00:03:08,560 Speaker 4: there's just too many of them and it's given people fatigue. 68 00:03:08,600 --> 00:03:10,840 Speaker 4: Do you think there needs to be some consolidation. Do 69 00:03:10,880 --> 00:03:13,000 Speaker 4: you agree that there's just too many options right now? 70 00:03:14,280 --> 00:03:18,760 Speaker 3: Well, consumers do seem to appreciate having a limited number 71 00:03:18,840 --> 00:03:21,160 Speaker 3: of bundles. Now, what we've tried to do with our 72 00:03:21,160 --> 00:03:24,560 Speaker 3: own offering is offer the individual pieces or if people 73 00:03:24,600 --> 00:03:26,919 Speaker 3: want to get a discount by bundling, we're. 74 00:03:26,800 --> 00:03:29,880 Speaker 1: Happy to do that. So that said, I think you 75 00:03:29,960 --> 00:03:30,560 Speaker 1: do see. 76 00:03:30,360 --> 00:03:33,480 Speaker 3: A trend where there's probably going to be a few 77 00:03:33,520 --> 00:03:36,360 Speaker 3: big competitors in the marketplace and streaming as we see 78 00:03:36,440 --> 00:03:39,680 Speaker 3: right now between Netflix, Amazon and ourselves, and then there'll 79 00:03:39,720 --> 00:03:41,840 Speaker 3: be some smaller competitors out there and they'll have to 80 00:03:41,840 --> 00:03:44,280 Speaker 3: decide how they're going to run their businesses. 81 00:03:44,400 --> 00:03:44,480 Speaker 5: Well. 82 00:03:44,520 --> 00:03:46,960 Speaker 4: Another huge draw of some of these is sports rights, 83 00:03:46,960 --> 00:03:49,440 Speaker 4: and on this year, the NBA has had this very 84 00:03:49,440 --> 00:03:51,840 Speaker 4: odd bidding war where you've come out on scathe but 85 00:03:51,880 --> 00:03:54,400 Speaker 4: Warner Broods loses out. You have Amazon dot Com a 86 00:03:54,480 --> 00:03:56,840 Speaker 4: new entrance in there. You have all these streamers coming 87 00:03:56,880 --> 00:03:59,680 Speaker 4: in trying to get their hands on live sports events. 88 00:04:00,040 --> 00:04:02,640 Speaker 4: Do you think this is a healthy or unhealthy development 89 00:04:02,640 --> 00:04:03,360 Speaker 4: for the industry? 90 00:04:05,080 --> 00:04:09,080 Speaker 3: Generally speaking, what you see is sort of the leagues 91 00:04:09,120 --> 00:04:12,000 Speaker 3: are choosing to go with the big winners in all of. 92 00:04:11,960 --> 00:04:14,160 Speaker 1: This, so they've obviously been with us. 93 00:04:14,360 --> 00:04:17,520 Speaker 3: ESPN the third quarter had forty nine percent market share 94 00:04:17,560 --> 00:04:19,360 Speaker 3: of sports viewing, which is. 95 00:04:19,279 --> 00:04:20,839 Speaker 1: Obviously a terrific number. 96 00:04:20,920 --> 00:04:23,680 Speaker 3: So we have the a package with the NBA, we'll 97 00:04:23,680 --> 00:04:27,280 Speaker 3: have the NBA Finals for the next twelve years. Beyond that, 98 00:04:27,560 --> 00:04:30,320 Speaker 3: I'd be speculating is to get into what their decision 99 00:04:30,320 --> 00:04:33,560 Speaker 3: making process was, but I think in general they're quite 100 00:04:33,600 --> 00:04:36,040 Speaker 3: pleased with what we've been able to do for them, 101 00:04:36,080 --> 00:04:38,560 Speaker 3: and obviously we're happy with what they've been able to 102 00:04:38,600 --> 00:04:41,400 Speaker 3: do for us. And you combine our NBA rights along 103 00:04:41,400 --> 00:04:44,920 Speaker 3: with college football along with the NFL, we've locked up 104 00:04:45,120 --> 00:04:48,120 Speaker 3: sort of the most important sports to us in terms 105 00:04:48,160 --> 00:04:51,760 Speaker 3: of being big and quite popular for an extended period 106 00:04:51,800 --> 00:04:52,040 Speaker 3: of time. 107 00:04:52,120 --> 00:04:53,480 Speaker 1: So we feel good about where we sat. 108 00:04:53,760 --> 00:04:55,880 Speaker 6: Hugh, I know there's a different price point whether or 109 00:04:55,880 --> 00:04:57,640 Speaker 6: not you want to be an individual that has to 110 00:04:57,680 --> 00:05:02,440 Speaker 6: sit through advertisements. Are you seeing uptick of political ads 111 00:05:02,680 --> 00:05:03,880 Speaker 6: given the season we're in. 112 00:05:04,839 --> 00:05:08,040 Speaker 3: No, we really haven't seen much in that regard, so 113 00:05:08,320 --> 00:05:12,440 Speaker 3: I can't certainly say that, So do you. 114 00:05:12,440 --> 00:05:13,400 Speaker 7: Expect that to happen? 115 00:05:13,480 --> 00:05:15,960 Speaker 6: I mean, everyone says after Labor Day, this is when 116 00:05:16,000 --> 00:05:18,159 Speaker 6: the campaigns are going to be in high gear up 117 00:05:18,200 --> 00:05:21,320 Speaker 6: until November. Are you expecting an uptick of political ads 118 00:05:21,360 --> 00:05:23,120 Speaker 6: on any of your streaming services? 119 00:05:23,520 --> 00:05:26,040 Speaker 3: Yeah, it's a great question. I couldn't tell you the 120 00:05:26,120 --> 00:05:28,720 Speaker 3: answer to that one. So what I can tell you 121 00:05:28,760 --> 00:05:32,320 Speaker 3: more broadly is the advertising market right now is incredibly healthy. 122 00:05:32,960 --> 00:05:35,679 Speaker 3: We grew advertising as a company eight percent in the quarter. 123 00:05:36,600 --> 00:05:39,799 Speaker 3: Our upfronts for next year were quite successful. The upfronts 124 00:05:39,800 --> 00:05:42,919 Speaker 3: were up five percent, and in addition to that, the 125 00:05:42,960 --> 00:05:46,400 Speaker 3: streaming service saw a twenty percent increase in advertising in 126 00:05:46,640 --> 00:05:50,120 Speaker 3: ESPN saw seventeen percent increase. So generally speaking, the ad 127 00:05:50,160 --> 00:05:53,239 Speaker 3: market is healthy. The biggest place is that it's healthy 128 00:05:53,240 --> 00:05:55,280 Speaker 3: are consumer and then technology. 129 00:05:55,680 --> 00:05:59,080 Speaker 6: Are you concerned that consumers right now potentially are going 130 00:05:59,120 --> 00:06:01,840 Speaker 6: to shrug off the price increases, because what we hear 131 00:06:01,839 --> 00:06:04,840 Speaker 6: from a lot of companies is that we do see 132 00:06:04,880 --> 00:06:07,560 Speaker 6: consumers trading down. Why do you think they're willing to 133 00:06:07,680 --> 00:06:09,559 Speaker 6: pay for a higher price point? 134 00:06:10,400 --> 00:06:13,040 Speaker 3: Well, I think the biggest reason is it's always important 135 00:06:13,040 --> 00:06:17,040 Speaker 3: to focus on this. The consumer receives value and what 136 00:06:17,080 --> 00:06:20,799 Speaker 3: they pay is price. And because we're delivering so much value, 137 00:06:20,839 --> 00:06:23,200 Speaker 3: I mean really an enormous amount of value in terms 138 00:06:23,200 --> 00:06:25,880 Speaker 3: of the hits that I just mentioned. But then in 139 00:06:25,920 --> 00:06:29,880 Speaker 3: addition to that, the combination of Disney plus Hulu and 140 00:06:29,920 --> 00:06:32,240 Speaker 3: then we're going to have an ESPN tile and ultimately 141 00:06:32,560 --> 00:06:36,200 Speaker 3: ESPN flagship on our streaming service. That's a huge amount 142 00:06:36,240 --> 00:06:39,479 Speaker 3: of value for consumers, and as they're allocating their entertainment dollars, 143 00:06:39,760 --> 00:06:41,599 Speaker 3: I think they're going to view us as as a 144 00:06:41,600 --> 00:06:42,520 Speaker 3: great place to put them. 145 00:06:42,600 --> 00:06:44,719 Speaker 2: So you mentioned hurdu just how close are we to 146 00:06:44,720 --> 00:06:45,840 Speaker 2: an agreement with comecast. 147 00:06:46,000 --> 00:06:46,479 Speaker 7: Where are we? 148 00:06:47,400 --> 00:06:49,800 Speaker 3: Yeah, we're in the middle of an arbitration right now, 149 00:06:50,120 --> 00:06:52,360 Speaker 3: and as always I'm not going to comment on that 150 00:06:52,640 --> 00:06:55,719 Speaker 3: on arbitration outcomes and all of that. My guess is 151 00:06:55,760 --> 00:06:57,880 Speaker 3: it's going to take a little while, but ultimately we'll 152 00:06:57,880 --> 00:06:59,120 Speaker 3: get to a good place for the Walt. 153 00:06:58,960 --> 00:07:01,680 Speaker 2: Disney but it takes what the timeframe is here, what 154 00:07:01,800 --> 00:07:02,560 Speaker 2: a little while is? 155 00:07:03,480 --> 00:07:06,080 Speaker 3: Yeah, probably talking a matter of a few quarters, it'd 156 00:07:06,120 --> 00:07:09,360 Speaker 3: be my guest. But that's just a guess. So take 157 00:07:09,360 --> 00:07:10,320 Speaker 3: it as that well, just. 158 00:07:10,320 --> 00:07:11,760 Speaker 2: To guess as one of the theme parks as well. 159 00:07:11,800 --> 00:07:13,080 Speaker 2: I just want to know you down on that too. 160 00:07:13,120 --> 00:07:14,960 Speaker 2: You talked about the middle of next year for the 161 00:07:14,960 --> 00:07:17,000 Speaker 2: theme park business to be sort of bouncing back to 162 00:07:17,040 --> 00:07:19,760 Speaker 2: where it was. The guidness has sort of shifted out here. 163 00:07:19,800 --> 00:07:22,120 Speaker 2: What's the firm guidance coming from the company now, Because 164 00:07:22,120 --> 00:07:24,520 Speaker 2: I remember it was going close to year end, we'd 165 00:07:24,560 --> 00:07:25,240 Speaker 2: get that bounce. 166 00:07:25,280 --> 00:07:29,440 Speaker 3: What happened, Yeah, the consumer came in a little bit softer, 167 00:07:29,520 --> 00:07:32,080 Speaker 3: and it was really the consumers that I mentioned earlier. 168 00:07:32,520 --> 00:07:35,520 Speaker 3: The lower income consumer is is choosing to spend a 169 00:07:35,520 --> 00:07:38,600 Speaker 3: little bit less, and again the higher income consumer is 170 00:07:39,240 --> 00:07:42,680 Speaker 3: doing more overseas and outside the US. But again I'll 171 00:07:42,680 --> 00:07:45,560 Speaker 3: remind you we're still growing in that business. So it's 172 00:07:45,560 --> 00:07:48,360 Speaker 3: not a question of the business has gotten way off track. 173 00:07:48,960 --> 00:07:50,920 Speaker 3: It's just a little bit softer than it was before 174 00:07:50,960 --> 00:07:53,040 Speaker 3: because we're seeing toward the end of the quarter we 175 00:07:53,080 --> 00:07:54,960 Speaker 3: saw a few consumer trans You have. 176 00:07:54,960 --> 00:07:57,080 Speaker 2: Quite a unique advantage point of course. You I used 177 00:07:57,120 --> 00:07:58,640 Speaker 2: to talk to you when you were over at Pepsi 178 00:07:58,800 --> 00:08:01,040 Speaker 2: during the pandemic. Coming out of the pandemic, you're now 179 00:08:01,040 --> 00:08:03,440 Speaker 2: with Disney, so you have a very very unique view 180 00:08:03,480 --> 00:08:05,920 Speaker 2: of where the consumer is. What gives you the confidence 181 00:08:05,960 --> 00:08:08,120 Speaker 2: just looking at your dashboard that it bounces back, that 182 00:08:08,160 --> 00:08:10,360 Speaker 2: it comes back. Where does that come from? 183 00:08:10,840 --> 00:08:14,760 Speaker 3: I am more than anything. I do believe there's resilience 184 00:08:14,800 --> 00:08:18,040 Speaker 3: in the US economy. Obviously, markets are very very sensitive 185 00:08:18,120 --> 00:08:20,560 Speaker 3: right now and very fragile of you, as you all 186 00:08:20,640 --> 00:08:23,080 Speaker 3: been talking about in terms of news. But I think 187 00:08:23,120 --> 00:08:25,160 Speaker 3: the US economy is a little bit stronger than people 188 00:08:25,160 --> 00:08:27,520 Speaker 3: are giving a credit for, and the consumer will come 189 00:08:27,560 --> 00:08:29,880 Speaker 3: back as the economy continues to strengthen. 190 00:08:30,040 --> 00:08:32,960 Speaker 2: Interesting, Hugh, appreciate your time as always, sir, Hugh Johnston. 191 00:08:33,000 --> 00:08:46,640 Speaker 2: There the Disney CFO call data of rough MKM. Isn't 192 00:08:46,640 --> 00:08:49,240 Speaker 2: waiting for that to draw conclusions, He says, bye, by 193 00:08:49,360 --> 00:08:50,080 Speaker 2: soft landing. 194 00:08:50,520 --> 00:08:51,640 Speaker 7: It was nice knowing you. 195 00:08:52,080 --> 00:08:54,120 Speaker 2: We may be finally entering a bad news is bad 196 00:08:54,160 --> 00:08:57,240 Speaker 2: news environment, with analysts double digit earnings expectations for the 197 00:08:57,240 --> 00:09:00,160 Speaker 2: next twelve months looking increasingly out of sync with the 198 00:09:00,160 --> 00:09:02,480 Speaker 2: evolution of the macro economy. 199 00:09:02,720 --> 00:09:04,240 Speaker 7: Mike Data joins us now for more. 200 00:09:04,440 --> 00:09:06,280 Speaker 2: Now, Mike, before we move on, I just want to 201 00:09:06,280 --> 00:09:10,600 Speaker 2: explain something to our audience. That quote, the timestamp on 202 00:09:10,640 --> 00:09:14,440 Speaker 2: that quote is really important. That wasn't on Friday, that 203 00:09:14,600 --> 00:09:17,760 Speaker 2: wasn't on Monday. It wasn't in the last twenty four hours. 204 00:09:17,840 --> 00:09:22,480 Speaker 2: That was last Tuesday, on July thirtieth. It pre dates, 205 00:09:22,960 --> 00:09:25,560 Speaker 2: what we heard from the FED, what we saw in payrolls. 206 00:09:25,600 --> 00:09:27,040 Speaker 2: I can see you're smart and you're feeling good, and 207 00:09:27,080 --> 00:09:29,199 Speaker 2: you should be. Mike, can you tell me what you 208 00:09:29,240 --> 00:09:31,440 Speaker 2: saw that was guiding that view of things before we 209 00:09:31,440 --> 00:09:33,360 Speaker 2: saw it for ourselves on Friday? 210 00:09:34,200 --> 00:09:36,440 Speaker 8: Yeah, thanks a lot, John, I really appreciate that. 211 00:09:37,440 --> 00:09:39,960 Speaker 9: What we were seeing when we wrote that note was 212 00:09:40,000 --> 00:09:43,360 Speaker 9: the Conference Board data for July. So this is survey 213 00:09:43,480 --> 00:09:47,280 Speaker 9: based data that essentially asks people about their labor market 214 00:09:47,440 --> 00:09:51,679 Speaker 9: perceptions and their current circumstances. In what we saw from 215 00:09:51,800 --> 00:09:54,880 Speaker 9: that data in both June and July is that the 216 00:09:54,920 --> 00:09:59,240 Speaker 9: present Situations index had tumbled about twenty index points from 217 00:09:59,280 --> 00:10:03,000 Speaker 9: where it was one year earlier. Since the data goes 218 00:10:03,080 --> 00:10:06,880 Speaker 9: back to nineteen eighty or so, we haven't seen anything 219 00:10:07,040 --> 00:10:11,440 Speaker 9: like that, a move down like that, outside of actual recessions. 220 00:10:11,920 --> 00:10:15,920 Speaker 9: And then, equally importantly, there's a spread between those saying 221 00:10:16,040 --> 00:10:18,960 Speaker 9: jobs are hard to get and jobs are plentiful. That 222 00:10:19,080 --> 00:10:22,720 Speaker 9: correlates very strongly with the unemployment rate, and that pushed 223 00:10:22,840 --> 00:10:26,439 Speaker 9: to a new high for the year in July, and 224 00:10:26,600 --> 00:10:28,720 Speaker 9: lo and behold, you know, we got another pop in 225 00:10:28,760 --> 00:10:33,480 Speaker 9: the unemployment rate, But those trends were underway even before 226 00:10:33,520 --> 00:10:36,240 Speaker 9: the July jobs data. So I think we need to 227 00:10:36,320 --> 00:10:39,480 Speaker 9: consider that given that, you know, there's a debate about 228 00:10:39,520 --> 00:10:43,559 Speaker 9: whether the data last Friday could be fluky. These trends 229 00:10:43,559 --> 00:10:47,480 Speaker 9: have been underway, they're persisting, and you know our fear 230 00:10:47,520 --> 00:10:50,320 Speaker 9: is that the soft landing could be slipping away. 231 00:10:50,760 --> 00:10:53,400 Speaker 4: Does that also imply that the FED is just too 232 00:10:53,440 --> 00:10:55,920 Speaker 4: far behind, that the data has already started to slip 233 00:10:56,040 --> 00:10:59,560 Speaker 4: and they didn't go in July, therefore going in September, 234 00:10:59,640 --> 00:11:00,880 Speaker 4: there's only so much they can do. 235 00:11:02,120 --> 00:11:03,640 Speaker 8: Yeah, I think that's exactly right. 236 00:11:03,760 --> 00:11:06,800 Speaker 9: I mean, if we've listened to fedchair Poul what he 237 00:11:06,880 --> 00:11:09,520 Speaker 9: was talking about at the last FED press conference was 238 00:11:09,559 --> 00:11:12,719 Speaker 9: this idea of a totality of the data, And if 239 00:11:12,720 --> 00:11:14,880 Speaker 9: you look at a totality of the data, it really 240 00:11:14,920 --> 00:11:15,760 Speaker 9: is a mixed picture. 241 00:11:15,880 --> 00:11:16,040 Speaker 1: Right. 242 00:11:16,120 --> 00:11:19,640 Speaker 9: GDP and jobs look okay, and some of the other 243 00:11:19,760 --> 00:11:22,000 Speaker 9: data that I spoke about, some of the survey based 244 00:11:22,040 --> 00:11:25,360 Speaker 9: measures and the move and the unemployment rate look more recessionary. 245 00:11:25,840 --> 00:11:28,760 Speaker 9: And so this is why business cycles come to an end. 246 00:11:28,760 --> 00:11:30,800 Speaker 9: When you're at an inflection point, it looks a little 247 00:11:30,840 --> 00:11:34,880 Speaker 9: bit messy. It's not totally clear cut. So if policymakers 248 00:11:34,880 --> 00:11:38,240 Speaker 9: are waiting for a completely obvious recession to slap them 249 00:11:38,320 --> 00:11:39,040 Speaker 9: upside the head. 250 00:11:39,080 --> 00:11:40,679 Speaker 8: Then they're going to be way behind the curve. 251 00:11:40,960 --> 00:11:42,520 Speaker 2: Mike, you had a couple of triades. One was long 252 00:11:42,600 --> 00:11:46,319 Speaker 2: duration inequities, it was focused on defensives. We've had a 253 00:11:46,320 --> 00:11:49,480 Speaker 2: big reset in markets since since that call. 254 00:11:49,920 --> 00:11:52,320 Speaker 7: Where are you now on where we should be in markets? 255 00:11:53,840 --> 00:11:57,240 Speaker 9: Yeah, I think probably investors should still stick with the 256 00:11:57,280 --> 00:12:01,200 Speaker 9: defensive categories for now. We've been an advocate of the 257 00:12:01,320 --> 00:12:04,920 Speaker 9: utility sector since last fall. You know, really got smashed 258 00:12:04,920 --> 00:12:09,400 Speaker 9: hard last year with long term interest rates rising so violently, 259 00:12:10,240 --> 00:12:12,440 Speaker 9: up to five percent on the ten year, and so 260 00:12:12,520 --> 00:12:16,480 Speaker 9: a substantial chunk of that has been reversed. I think 261 00:12:16,480 --> 00:12:17,920 Speaker 9: we're going to have to be a little bit more 262 00:12:17,960 --> 00:12:21,000 Speaker 9: patient for some of the cyclicals, even small caps. You know, 263 00:12:21,040 --> 00:12:23,840 Speaker 9: the valuations have come way down relative to the overall 264 00:12:23,960 --> 00:12:26,560 Speaker 9: s and P five hundred, So I do think there 265 00:12:26,600 --> 00:12:31,240 Speaker 9: are some increasingly attractive areas here that are cyclical, but 266 00:12:31,400 --> 00:12:34,040 Speaker 9: the business cycle matters a lot, and so you don't 267 00:12:34,040 --> 00:12:37,560 Speaker 9: want to be too early there. Typically those areas are 268 00:12:37,559 --> 00:12:41,160 Speaker 9: bottoming out as you move into like the middle part 269 00:12:41,160 --> 00:12:44,240 Speaker 9: of a downturn. So I think for the cyclicals more patients. 270 00:12:44,520 --> 00:12:48,720 Speaker 9: I would not be chasing large cap growth concerns here. 271 00:12:48,840 --> 00:12:52,640 Speaker 9: The valuations going into this correction were super high. We've 272 00:12:52,640 --> 00:12:56,360 Speaker 9: been using the phrase rarely seen and never sustained. So 273 00:12:56,400 --> 00:12:59,040 Speaker 9: the forward pe on the infotech S and P five 274 00:12:59,120 --> 00:13:03,360 Speaker 9: hundred infotech index was above thirty coming into this correction 275 00:13:03,480 --> 00:13:06,080 Speaker 9: in mid July. That's even above where we were in 276 00:13:06,160 --> 00:13:09,200 Speaker 9: late twenty one early twenty two before a big downdraft 277 00:13:09,200 --> 00:13:14,320 Speaker 9: in the equity market led by infotech stocks. So my 278 00:13:14,480 --> 00:13:17,880 Speaker 9: concern there is that the expectations are just way too high. 279 00:13:18,000 --> 00:13:21,640 Speaker 9: I mean, overall earnings expectations growth for the S and 280 00:13:21,679 --> 00:13:24,640 Speaker 9: P five hundred and now is thirteen percent over the 281 00:13:24,679 --> 00:13:28,320 Speaker 9: next year. That looks totally out of kilter with all 282 00:13:28,400 --> 00:13:30,560 Speaker 9: the other indicators that we look at, and certainly a 283 00:13:30,600 --> 00:13:34,400 Speaker 9: slowing economy, if not recession. So you know, I think 284 00:13:34,440 --> 00:13:35,920 Speaker 9: we're probably going to be in a bit of a 285 00:13:36,000 --> 00:13:39,960 Speaker 9: volatility storm here for a while. So defensive categories I 286 00:13:40,000 --> 00:13:43,040 Speaker 9: think makes sense to stick with for now. 287 00:13:43,200 --> 00:13:45,120 Speaker 2: Mike great Co has quite to catch up, so we've 288 00:13:45,120 --> 00:13:46,800 Speaker 2: got to talk long the next time. Michael Dado of 289 00:13:46,840 --> 00:13:58,520 Speaker 2: rough M Camp, I want to send banks they not 290 00:13:58,640 --> 00:14:01,320 Speaker 2: of stice. No, we are baby being Macro Associates making 291 00:14:01,360 --> 00:14:04,160 Speaker 2: some headlines co writing a paper saying the Treasury is 292 00:14:04,200 --> 00:14:08,319 Speaker 2: manipulating death issuance to boost the US economy. Treasury Secretary 293 00:14:08,360 --> 00:14:11,640 Speaker 2: Jennet Yellen rejecting Repeating's arguments, saying it quote suggest a 294 00:14:11,720 --> 00:14:14,960 Speaker 2: strategy that is intended to ease financial conditions, and I 295 00:14:14,960 --> 00:14:17,520 Speaker 2: can assure you one hundred percent that there is no 296 00:14:17,720 --> 00:14:21,320 Speaker 2: such strategy. Nor how jo just now for more, nor 297 00:14:21,360 --> 00:14:23,360 Speaker 2: how wonderful to hear from you, sir. Let's just take 298 00:14:23,440 --> 00:14:25,480 Speaker 2: it from the start, from the top. For the people 299 00:14:25,520 --> 00:14:27,960 Speaker 2: that missed that and haven't read that paper the U 300 00:14:27,960 --> 00:14:29,640 Speaker 2: co author and put out in the last couple of 301 00:14:29,640 --> 00:14:33,680 Speaker 2: weeks activist Treasury issuance, just take the opportunity to explain 302 00:14:33,720 --> 00:14:35,800 Speaker 2: to our audience what you're talking about. 303 00:14:37,720 --> 00:14:42,080 Speaker 10: Well. Treasury usually instead management as what they call regular 304 00:14:42,120 --> 00:14:45,880 Speaker 10: and predictable issurance, they say how many short term bills 305 00:14:46,120 --> 00:14:50,640 Speaker 10: as opposed to coupon clipping bonds they are going to issue. 306 00:14:50,960 --> 00:14:53,120 Speaker 10: In the past, the rule has been that not more 307 00:14:53,160 --> 00:14:57,040 Speaker 10: than fifteen to twenty percent of the stock of that 308 00:14:57,200 --> 00:15:00,400 Speaker 10: should be bills that are short term less with being 309 00:15:00,760 --> 00:15:03,320 Speaker 10: medied in the long term. But since last year, the 310 00:15:03,400 --> 00:15:06,680 Speaker 10: issues of short term bills has been something like the 311 00:15:06,760 --> 00:15:09,800 Speaker 10: margin the flow of it something like sixty to seventy 312 00:15:09,840 --> 00:15:12,240 Speaker 10: percent of the issues. So they have an issue much 313 00:15:12,360 --> 00:15:14,560 Speaker 10: less of the long term bonds and more of the 314 00:15:14,600 --> 00:15:18,960 Speaker 10: shorterm bonds. That like a backdoor version of quantity basing. 315 00:15:19,280 --> 00:15:22,640 Speaker 10: Because it reduces the supply of long term bonds, it 316 00:15:22,680 --> 00:15:26,080 Speaker 10: boosts the price and reduces the long term interest rates 317 00:15:26,120 --> 00:15:29,560 Speaker 10: on ten year treasuries. We estimate that the amount of 318 00:15:29,600 --> 00:15:32,640 Speaker 10: it has been such that is equivalent to a reduction 319 00:15:32,720 --> 00:15:36,040 Speaker 10: of twenty five business points in ten year treasuries four 320 00:15:36,080 --> 00:15:39,200 Speaker 10: one hundred business points reduction of the Fed funds rate 321 00:15:39,240 --> 00:15:42,280 Speaker 10: by the Fed. So the Fed is trying to tighten 322 00:15:42,360 --> 00:15:46,240 Speaker 10: financial condition to slow down the column inflation, to achieve 323 00:15:46,240 --> 00:15:49,400 Speaker 10: a soft landing, while Treasure has been trying to ease 324 00:15:49,440 --> 00:15:52,400 Speaker 10: financial conditions by trying to boost the economy. 325 00:15:52,680 --> 00:15:54,080 Speaker 8: So that's what's been happening. 326 00:15:54,320 --> 00:15:56,440 Speaker 2: No, rather say suggestion in the pace. So this is 327 00:15:56,480 --> 00:16:01,120 Speaker 2: a deliberate political project. What gives you, what tells you 328 00:16:01,120 --> 00:16:03,360 Speaker 2: that that's ultimately what they've been doing, and something of 329 00:16:03,400 --> 00:16:04,680 Speaker 2: course that they deny. 330 00:16:06,440 --> 00:16:09,000 Speaker 10: Well, first of all, they do admit that what they're 331 00:16:09,000 --> 00:16:12,560 Speaker 10: doing as an impact on financial condition. They cannot deny that, 332 00:16:13,120 --> 00:16:16,760 Speaker 10: But then the question is about the motivation. Now, Treasury 333 00:16:16,800 --> 00:16:19,440 Speaker 10: traditional issues more of the shortened bills when there is 334 00:16:19,480 --> 00:16:24,400 Speaker 10: a recession, a financial crisis, a liquidity shock, an episode 335 00:16:24,480 --> 00:16:28,200 Speaker 10: like COVID, or other types of turmoil like a severe recession. 336 00:16:28,560 --> 00:16:31,400 Speaker 10: That's normal and that happens. But believe in a time 337 00:16:31,400 --> 00:16:35,000 Speaker 10: in which there is no financial crisis, growth is about potential. 338 00:16:35,360 --> 00:16:39,160 Speaker 10: Inflation is still above target, and financial conditions are normal, 339 00:16:39,400 --> 00:16:43,320 Speaker 10: and until recently effectively acid prices like the stock market 340 00:16:43,680 --> 00:16:46,200 Speaker 10: where at all time high. So the question is why 341 00:16:46,200 --> 00:16:49,920 Speaker 10: they're doing it at this time. And my explanation was 342 00:16:49,960 --> 00:16:53,280 Speaker 10: the last summer when ten year Treasury went to five 343 00:16:53,320 --> 00:16:57,480 Speaker 10: percent because suddenly the bond vigilantes globally woke up and 344 00:16:57,520 --> 00:17:01,200 Speaker 10: realize that our deaths are large and associate enable. Treasury 345 00:17:01,280 --> 00:17:05,439 Speaker 10: got nervous about it, and they decided to effectively afford 346 00:17:05,480 --> 00:17:08,800 Speaker 10: a backdoor que by buying more of the bills and 347 00:17:09,400 --> 00:17:11,960 Speaker 10: issue more of the bills and less of the long 348 00:17:12,040 --> 00:17:15,800 Speaker 10: term months. And that is financial conditioned quite significantly. 349 00:17:16,119 --> 00:17:16,239 Speaker 1: Now. 350 00:17:16,400 --> 00:17:20,080 Speaker 6: The Treasury official that oversees debt issuance, Joshua Frost, had 351 00:17:20,080 --> 00:17:22,480 Speaker 6: this to say. He said, the autumn slow down, added 352 00:17:22,520 --> 00:17:25,639 Speaker 6: issuance of ten, twenty and thirty year securities amounted to 353 00:17:25,760 --> 00:17:30,160 Speaker 6: roughly a one percent change. So how is that basically 354 00:17:30,200 --> 00:17:33,680 Speaker 6: the Treasury knowingly trying to what it feels like, manipulate 355 00:17:33,720 --> 00:17:37,640 Speaker 6: the markets or make financial conditions easier if it's only 356 00:17:37,720 --> 00:17:39,200 Speaker 6: a one percent change. 357 00:17:41,000 --> 00:17:44,160 Speaker 10: Well, what has happened is that the range of the 358 00:17:44,200 --> 00:17:50,000 Speaker 10: stock of term bills was between fifteen and twenty. Right 359 00:17:50,000 --> 00:17:53,199 Speaker 10: now it's significant above twenty. And the flow in the 360 00:17:53,240 --> 00:17:56,280 Speaker 10: last few months has been something like sixty to seventy 361 00:17:56,359 --> 00:17:59,680 Speaker 10: percent of the new issues being bills. And on top 362 00:17:59,720 --> 00:18:02,520 Speaker 10: of it, now the Treasure is started even for our 363 00:18:02,560 --> 00:18:06,760 Speaker 10: guidance fed style. They've been saying for the next few quarters, 364 00:18:06,760 --> 00:18:09,679 Speaker 10: you can expect the disions of TA bills are going 365 00:18:09,760 --> 00:18:13,440 Speaker 10: to be significant like in the last few months or quarters. 366 00:18:13,760 --> 00:18:16,040 Speaker 10: That's a signal that this policy has gone in a 367 00:18:16,160 --> 00:18:20,440 Speaker 10: very different direction from regular and predictable, very different from 368 00:18:20,480 --> 00:18:24,280 Speaker 10: the norms that they choose themselves about fifteen to twenty percent, 369 00:18:24,560 --> 00:18:26,520 Speaker 10: and it's continued to go in the same direction. 370 00:18:27,240 --> 00:18:29,520 Speaker 4: Well, no real the way that it's the same of norms. 371 00:18:29,520 --> 00:18:31,480 Speaker 4: And you kind of hinted at this that at every 372 00:18:31,520 --> 00:18:34,280 Speaker 4: turning point. This is what the Treasury does, and not 373 00:18:34,359 --> 00:18:37,560 Speaker 4: that it's a crisis. But the contention is that interest 374 00:18:37,640 --> 00:18:40,200 Speaker 4: rates are coming down. That's why they issue more at 375 00:18:40,240 --> 00:18:43,080 Speaker 4: a turning point because essentially interest rates come down. You 376 00:18:43,080 --> 00:18:44,880 Speaker 4: don't want to lock in long term debt when it's 377 00:18:44,920 --> 00:18:48,200 Speaker 4: going to come down later. So, putting politics aside, if 378 00:18:48,240 --> 00:18:50,919 Speaker 4: you thought interest rates were coming down, isn't this the 379 00:18:51,000 --> 00:18:53,440 Speaker 4: right policy? 380 00:18:53,520 --> 00:18:57,000 Speaker 10: Well, first of all, the treasure is never trading rates, 381 00:18:57,200 --> 00:19:00,720 Speaker 10: that's not their jobs. Secondly, the year curve until recently 382 00:19:00,920 --> 00:19:04,720 Speaker 10: was significantly inverted. So by issuing bills that are boring 383 00:19:04,760 --> 00:19:08,840 Speaker 10: at much more expensive rates than you would otherwise, the 384 00:19:08,920 --> 00:19:12,359 Speaker 10: subject to refinancing risk and rollover risks. And we're seeing 385 00:19:12,400 --> 00:19:15,639 Speaker 10: that there is episodes of market turmoil and we know 386 00:19:15,760 --> 00:19:17,919 Speaker 10: that body years and not going to go back to 387 00:19:18,040 --> 00:19:23,400 Speaker 10: zero one percent. There are fundamental reasons higher inflation, lower savings, 388 00:19:23,480 --> 00:19:27,800 Speaker 10: more capects why they equalibrium long term real and nominal 389 00:19:27,880 --> 00:19:31,200 Speaker 10: rate for long term treasury is probably closer to five percent, 390 00:19:31,440 --> 00:19:34,480 Speaker 10: if not higher. So the right thing to do will 391 00:19:34,520 --> 00:19:37,760 Speaker 10: be that to issue long term debt rather than border 392 00:19:37,760 --> 00:19:40,760 Speaker 10: get much higher shorter debts. I don't believe right now 393 00:19:40,760 --> 00:19:43,359 Speaker 10: there is an episode of risk of is going to 394 00:19:43,400 --> 00:19:46,760 Speaker 10: be probably temporary years are slightly lower. But if you're 395 00:19:46,800 --> 00:19:49,120 Speaker 10: looking at the midium term, given what's going to happen 396 00:19:49,160 --> 00:19:52,280 Speaker 10: to the deficit. If Trump is elected, is going to 397 00:19:52,320 --> 00:19:55,520 Speaker 10: have tariffs weekend, the dollar is going to have permanent 398 00:19:55,560 --> 00:19:59,680 Speaker 10: tax cuts are not funded. All these things imply higher nominal. 399 00:19:59,480 --> 00:20:00,880 Speaker 8: And long term interest rates. 400 00:20:00,960 --> 00:20:03,880 Speaker 10: So this policy doesn't make sense. And fraserle is not 401 00:20:03,920 --> 00:20:06,720 Speaker 10: supposed to trade rates. They're not speculators. 402 00:20:06,920 --> 00:20:11,160 Speaker 2: Ultimately, we're exploring two things here. One is consequences outcomes. 403 00:20:11,200 --> 00:20:14,520 Speaker 2: The other is motivation. It's much much difficult, much much 404 00:20:14,560 --> 00:20:17,840 Speaker 2: more difficult to decipher motivation. Let's talk about outcomes. Give 405 00:20:17,840 --> 00:20:20,160 Speaker 2: the economic dator of the last week or so, no reale. 406 00:20:20,440 --> 00:20:21,400 Speaker 2: Is there any evidence this. 407 00:20:21,400 --> 00:20:22,240 Speaker 7: Is working. 408 00:20:24,680 --> 00:20:25,000 Speaker 1: Well? 409 00:20:25,040 --> 00:20:27,280 Speaker 10: What's happening in the last year the week is that 410 00:20:27,400 --> 00:20:30,560 Speaker 10: markets are getting nervous about a recession. But I would 411 00:20:30,600 --> 00:20:33,520 Speaker 10: say the stock market is predicted ten out of the 412 00:20:33,600 --> 00:20:36,960 Speaker 10: last three recessions. Same thing with the bond market and 413 00:20:37,000 --> 00:20:40,360 Speaker 10: the inmerted year curve. And the markets have been mistaken 414 00:20:40,400 --> 00:20:42,040 Speaker 10: even about the Fed. You know, at the beginning of 415 00:20:42,040 --> 00:20:44,640 Speaker 10: the year they expected six rate cards or the Fed 416 00:20:44,680 --> 00:20:47,560 Speaker 10: said three then when the FED went to one, the 417 00:20:47,600 --> 00:20:50,199 Speaker 10: expected three. Now they expect that the Fed is going 418 00:20:50,240 --> 00:20:52,600 Speaker 10: to do four of them twenty five business points. So 419 00:20:52,960 --> 00:20:55,520 Speaker 10: the markets are often wrong about what's going on with 420 00:20:55,640 --> 00:20:57,680 Speaker 10: the economy and what the FED is going to be doing. 421 00:20:57,960 --> 00:21:02,919 Speaker 10: There is some significant, i'd say, evidence of some slow 422 00:21:02,960 --> 00:21:05,320 Speaker 10: down of the economy, but I don't think the data 423 00:21:05,359 --> 00:21:07,920 Speaker 10: suggests that we're going to have a hard landing anytime soon. 424 00:21:08,200 --> 00:21:10,680 Speaker 10: If anything, Actually there's some elements of strength. 425 00:21:10,560 --> 00:21:13,320 Speaker 2: In the economy, elements of strength from Nuria Rabinis. So 426 00:21:13,680 --> 00:21:16,040 Speaker 2: that tees up quite an obvious question. Let's talk about 427 00:21:16,080 --> 00:21:18,359 Speaker 2: the market. You think it's a time perhaps where the 428 00:21:18,400 --> 00:21:20,520 Speaker 2: economy is stronger than people think, which might come as 429 00:21:20,560 --> 00:21:23,320 Speaker 2: surprise the people watching this program, given how BEARISHEF once 430 00:21:23,359 --> 00:21:25,680 Speaker 2: become over the last few days. I think we all 431 00:21:25,720 --> 00:21:29,440 Speaker 2: noticed now last week an application for a new ETF. 432 00:21:29,840 --> 00:21:32,080 Speaker 2: You're one of the three portfolio managers listed on the 433 00:21:32,119 --> 00:21:35,200 Speaker 2: Atlas America fund. Noel, with everything you've said in mind, 434 00:21:35,480 --> 00:21:37,040 Speaker 2: what is going to go into that fund? What are 435 00:21:37,040 --> 00:21:38,639 Speaker 2: you offering that perhaps we're missing. 436 00:21:40,320 --> 00:21:43,240 Speaker 10: Well, first of all, we're trying to hedge against scale 437 00:21:43,320 --> 00:21:48,879 Speaker 10: risk like inflation. The basement of your currency, digitalization, global 438 00:21:48,960 --> 00:21:55,680 Speaker 10: climate change, pandemic protection is the globalization, cyber warfare, social bility, instability, 439 00:21:55,800 --> 00:21:58,400 Speaker 10: and so on and so on. When those risks occur 440 00:21:58,560 --> 00:22:02,320 Speaker 10: like the recurrent the recent past, your stackflacury shock, inflation 441 00:22:02,440 --> 00:22:06,040 Speaker 10: is higher, growth is lower, and the traditional defensive act 442 00:22:06,119 --> 00:22:09,919 Speaker 10: it is long duration treasury. That's terrible. Look what happened 443 00:22:09,960 --> 00:22:13,040 Speaker 10: in twenty two when treasure did worse than SMP. Look 444 00:22:13,080 --> 00:22:15,399 Speaker 10: what happened last summer. We need one to five percent 445 00:22:15,720 --> 00:22:19,200 Speaker 10: and treasure loss ten percent. So if inflation was even 446 00:22:19,240 --> 00:22:23,120 Speaker 10: only five percent, bondies will be something like seven over 447 00:22:23,160 --> 00:22:26,400 Speaker 10: the medium term. Today they're less than four, So we'd 448 00:22:26,440 --> 00:22:29,080 Speaker 10: have another forty percent loss on what is supposed to 449 00:22:29,119 --> 00:22:32,280 Speaker 10: be the defensive aset That is twenty three dollon dollars 450 00:22:32,280 --> 00:22:35,919 Speaker 10: outstanding of long term treasury. So you need something that 451 00:22:35,960 --> 00:22:38,959 Speaker 10: does well in bad times and also helps you to 452 00:22:39,000 --> 00:22:43,040 Speaker 10: rebuild America. We need to have climate resistant real estate, 453 00:22:43,400 --> 00:22:49,480 Speaker 10: new communities, infrastructure, food security, reshot, green metals and rare 454 00:22:49,560 --> 00:22:51,760 Speaker 10: earths and so on. So what's going on in this 455 00:22:51,920 --> 00:22:54,959 Speaker 10: new fund is several things that are hedging you against 456 00:22:55,000 --> 00:22:59,280 Speaker 10: those risks. First of all, climate resistant riks. We have 457 00:22:59,359 --> 00:23:01,320 Speaker 10: looked at all the reach so we see which one 458 00:23:01,520 --> 00:23:04,600 Speaker 10: are in the parts of North America will be less 459 00:23:04,600 --> 00:23:07,879 Speaker 10: subject to climate change. Secondly, is itf allow you to 460 00:23:07,920 --> 00:23:12,040 Speaker 10: invest into fifteen percent of we liquid assets new communities? 461 00:23:12,520 --> 00:23:16,160 Speaker 10: Even Trump is talking about creating ten new freedom cities. 462 00:23:16,640 --> 00:23:20,280 Speaker 10: Brighten and Harris want to invest into new infrastructure. We 463 00:23:20,320 --> 00:23:23,679 Speaker 10: want to have food security, we want to reshore critical 464 00:23:23,800 --> 00:23:28,359 Speaker 10: things we need. Gold is the youf to edge against social, political, 465 00:23:28,440 --> 00:23:32,240 Speaker 10: geopolitical and financial risk. And if inflation's got to be higher, 466 00:23:32,520 --> 00:23:35,200 Speaker 10: you want to stay away from long term treasure into 467 00:23:35,240 --> 00:23:38,200 Speaker 10: stuff that's going to be having higher yield without having 468 00:23:38,200 --> 00:23:41,520 Speaker 10: a price effect, short term treasure and tips. So they 469 00:23:41,800 --> 00:23:45,560 Speaker 10: dynamically optimize combination of all these assets. They provide you 470 00:23:45,640 --> 00:23:49,520 Speaker 10: a new, much more resilient, defensive asset and one that 471 00:23:49,640 --> 00:23:52,919 Speaker 10: invest actually in rebuilding America at the time when we 472 00:23:52,960 --> 00:23:53,560 Speaker 10: need to do so. 473 00:23:53,880 --> 00:23:55,760 Speaker 7: That's the pitch. Fascinating stuff. Noria. 474 00:23:55,880 --> 00:23:57,720 Speaker 2: When you're back in New York, which I think is 475 00:23:57,760 --> 00:23:59,080 Speaker 2: next month, we're going to sit down and have a 476 00:23:59,080 --> 00:24:02,480 Speaker 2: longer conversation about this. Appreciate your time this morning. There 477 00:24:02,640 --> 00:24:15,800 Speaker 2: of Rabbeini Macro Associates lots of work through there beneficials 478 00:24:15,840 --> 00:24:19,480 Speaker 2: refusing to overreact to last week's payrolls data, former New 479 00:24:19,560 --> 00:24:23,640 Speaker 2: York Fed President Bill Dudley suggesting that patience might be misplaced. 480 00:24:24,000 --> 00:24:26,560 Speaker 2: Right in this the FEDS wild ride has only just begun. 481 00:24:26,840 --> 00:24:30,639 Speaker 2: A deteriorating labor market tends to be self reinforcing. The 482 00:24:30,720 --> 00:24:34,000 Speaker 2: longer the FED weights, the greater for potential for damage. 483 00:24:34,119 --> 00:24:36,760 Speaker 2: An immediate rate cut is in order, but that's very unlikely. 484 00:24:36,840 --> 00:24:40,440 Speaker 2: Prepare for more volatility in stock and bond markets. Bill 485 00:24:40,520 --> 00:24:43,160 Speaker 2: joined us. Now for more, Bill, Let's start the labor market. 486 00:24:43,240 --> 00:24:45,120 Speaker 2: Then we can get to the Fed lack of response 487 00:24:45,160 --> 00:24:48,720 Speaker 2: to it. What suggests to you that this is self reinforcing? 488 00:24:48,760 --> 00:24:51,040 Speaker 2: This is the beginning of something much worse. 489 00:24:52,320 --> 00:24:54,920 Speaker 5: Well, a couple of things. Number one, we've seen rise 490 00:24:54,960 --> 00:24:58,000 Speaker 5: in unemployment claims. We've seen a drop in the higher's rate. 491 00:24:58,040 --> 00:25:00,879 Speaker 5: We've seen a drop in the quits rate. It looks 492 00:25:00,880 --> 00:25:03,960 Speaker 5: to me like the labor market is cooling off quite significantly. 493 00:25:04,200 --> 00:25:06,359 Speaker 8: We've also triggered a so called samrle. 494 00:25:06,000 --> 00:25:08,000 Speaker 5: Where if the unemployer rate rises by more than a 495 00:25:08,000 --> 00:25:10,320 Speaker 5: half a percent ver a twelve month period. 496 00:25:10,560 --> 00:25:12,680 Speaker 8: Every time that's happened, we've ended up in recession. 497 00:25:13,000 --> 00:25:14,679 Speaker 5: So there's a lot of risk out there to the 498 00:25:14,680 --> 00:25:16,960 Speaker 5: downside in terms of the labor market. On the other 499 00:25:17,000 --> 00:25:19,520 Speaker 5: side of the mandate, the inflation news has been very, 500 00:25:19,720 --> 00:25:21,919 Speaker 5: very good recently. So it seems to me that the 501 00:25:21,920 --> 00:25:24,760 Speaker 5: FED needs to hold both sides of the mandate with 502 00:25:24,840 --> 00:25:27,879 Speaker 5: equal weight right now, and that implies that monetary policy 503 00:25:27,920 --> 00:25:32,600 Speaker 5: should be neutral, not restrictive. And we're a long way 504 00:25:32,640 --> 00:25:34,760 Speaker 5: from neutral. I mean, people don't know exactly what a 505 00:25:34,840 --> 00:25:38,080 Speaker 5: neutral monetary policy is precisely, but nobody thinks that five 506 00:25:38,119 --> 00:25:39,680 Speaker 5: and a quarter of five and a half percent FEDI 507 00:25:39,680 --> 00:25:42,560 Speaker 5: ful fund trate's consistent with neutral. Probably somewhere in the 508 00:25:42,600 --> 00:25:45,159 Speaker 5: three to four percent range is where the Fed should be. 509 00:25:46,000 --> 00:25:48,960 Speaker 11: Bill, You've had an enormous influence on how people are 510 00:25:48,960 --> 00:25:52,280 Speaker 11: thinking on Wall Street about what's ahead. So I want 511 00:25:52,280 --> 00:25:54,840 Speaker 11: to ask you, if you think an immediate weight cut 512 00:25:54,880 --> 00:25:57,480 Speaker 11: is not on the table, that they won't move into meeting, 513 00:25:58,200 --> 00:26:00,240 Speaker 11: what would you recommend they should do in the next 514 00:26:00,240 --> 00:26:00,800 Speaker 11: few weeks. 515 00:26:02,400 --> 00:26:05,080 Speaker 5: I think what they should do is change the messaging 516 00:26:05,080 --> 00:26:06,960 Speaker 5: a little bit and make it very clear that they're 517 00:26:06,960 --> 00:26:09,120 Speaker 5: now focused more on the liver side of the mandate. 518 00:26:09,720 --> 00:26:12,040 Speaker 5: Get the market tuned to the notion that if we 519 00:26:12,040 --> 00:26:15,760 Speaker 5: get weak data over the next six weeks, that fifty 520 00:26:15,800 --> 00:26:19,320 Speaker 5: basis points is highly likely. At the September meeting, you 521 00:26:19,359 --> 00:26:21,640 Speaker 5: can put fifty basis points firmly on the table if 522 00:26:21,640 --> 00:26:23,719 Speaker 5: the data kept flow continue in the same direction. 523 00:26:24,359 --> 00:26:25,840 Speaker 11: And do you think that'd be willing to do that. 524 00:26:25,880 --> 00:26:30,160 Speaker 11: This has been a very backward looking FED and now 525 00:26:30,200 --> 00:26:32,199 Speaker 11: they need to regain control of the narrative. Do you 526 00:26:32,200 --> 00:26:35,320 Speaker 11: think that that by itself at Jackson Hole, for example, 527 00:26:35,520 --> 00:26:37,320 Speaker 11: would be enough to regain control of the narrative? 528 00:26:38,320 --> 00:26:40,639 Speaker 5: Well help a lot, because if the Fed, if people 529 00:26:40,640 --> 00:26:43,880 Speaker 5: feel that the Fed's got it, financial conditions will become 530 00:26:43,920 --> 00:26:47,879 Speaker 5: more accounted, stock market recover and he'll provide support. You know, 531 00:26:47,920 --> 00:26:50,400 Speaker 5: the problem here is when the labor market starts to deteriorate, 532 00:26:50,920 --> 00:26:53,080 Speaker 5: confidence starts to decline. We saw that over the last 533 00:26:53,119 --> 00:26:56,200 Speaker 5: couple of days, you know, the big change in market sentiment. 534 00:26:56,640 --> 00:26:59,920 Speaker 5: And when market sentiment deterirates, that can be self reinforcing. 535 00:27:00,000 --> 00:27:02,360 Speaker 5: People start to pull back on hiring, people pulled back 536 00:27:02,400 --> 00:27:04,800 Speaker 5: on spending. Next thing, you know, the unemployer rate hasn't 537 00:27:04,840 --> 00:27:06,240 Speaker 5: gone up a half a percent has gone up a 538 00:27:06,680 --> 00:27:10,720 Speaker 5: full percentage point or two percentage You're in recession. Now, 539 00:27:10,720 --> 00:27:13,280 Speaker 5: the good news here is that, you know, if we 540 00:27:13,480 --> 00:27:15,040 Speaker 5: have economic weakness, the FED has. 541 00:27:14,960 --> 00:27:15,959 Speaker 8: Plenty of firepower. 542 00:27:16,640 --> 00:27:19,760 Speaker 5: They have there a long way from zero percent short 543 00:27:19,840 --> 00:27:22,080 Speaker 5: term rates, so that fifth can respond. 544 00:27:21,800 --> 00:27:23,120 Speaker 8: Pretty aggressively if needed. 545 00:27:23,160 --> 00:27:25,000 Speaker 5: And I think you know, my view is that the 546 00:27:25,200 --> 00:27:27,320 Speaker 5: risk that they're going to need to respond aggressively has 547 00:27:27,359 --> 00:27:29,400 Speaker 5: increased significantly in recent weeks. 548 00:27:29,680 --> 00:27:31,359 Speaker 4: Well, I just want to put a fine point on that, 549 00:27:31,520 --> 00:27:33,679 Speaker 4: because you did write about two weeks ago before the 550 00:27:33,720 --> 00:27:36,199 Speaker 4: FED decision, before we got the jobs data, that not 551 00:27:36,280 --> 00:27:39,120 Speaker 4: going in July would increase the risk of recession, and. 552 00:27:39,040 --> 00:27:40,080 Speaker 7: All of that happened. 553 00:27:40,240 --> 00:27:42,639 Speaker 4: So just how acute is the risk at this moment? 554 00:27:44,000 --> 00:27:46,359 Speaker 5: Well, I think that what's happened is there's quite a 555 00:27:46,359 --> 00:27:49,160 Speaker 5: bit of stress in a couple areas of the economy. 556 00:27:49,240 --> 00:27:52,720 Speaker 5: Number one, low income households are really feeling it, both 557 00:27:52,800 --> 00:27:55,360 Speaker 5: because they they're tapped out the savings that was generated 558 00:27:55,359 --> 00:27:58,360 Speaker 5: by the fiscal transfers during the pandemic. And two, they're 559 00:27:58,400 --> 00:28:00,480 Speaker 5: the ones who pay the higher short term interest rates 560 00:28:00,520 --> 00:28:01,760 Speaker 5: in terms of credit card debt. 561 00:28:01,640 --> 00:28:02,600 Speaker 8: And not a loan debt. 562 00:28:03,280 --> 00:28:06,600 Speaker 5: And number two, we're seeing softness in the housing sector, 563 00:28:06,680 --> 00:28:10,000 Speaker 5: especially in multi family construction. So you're seeing areas of 564 00:28:10,080 --> 00:28:13,920 Speaker 5: weakness that are leading to softer labor market. And that's 565 00:28:13,920 --> 00:28:16,159 Speaker 5: a softer labor market, though is the key thing. If 566 00:28:16,240 --> 00:28:19,760 Speaker 5: it frightens consumers, then you have weakness and consumption and 567 00:28:19,800 --> 00:28:21,400 Speaker 5: the thing becomes self reinforcing. 568 00:28:21,560 --> 00:28:23,520 Speaker 4: I think the confusing thing for a lot of people 569 00:28:23,520 --> 00:28:25,600 Speaker 4: bill is for every week point, there seems to be 570 00:28:25,600 --> 00:28:29,159 Speaker 4: a strong point for every issue. At Airbnb, there is 571 00:28:29,200 --> 00:28:31,639 Speaker 4: a disney that can raise prices. There is an uber 572 00:28:31,680 --> 00:28:34,280 Speaker 4: that people are willing to buy. How do you distinguish 573 00:28:34,320 --> 00:28:37,320 Speaker 4: between a lower end consumer that's dropping off a cliff 574 00:28:37,320 --> 00:28:39,600 Speaker 4: and one that has just gotten more picky with where 575 00:28:39,600 --> 00:28:40,480 Speaker 4: it spends its money. 576 00:28:41,760 --> 00:28:44,440 Speaker 5: Well, it is difficult to sort out. And high income 577 00:28:44,480 --> 00:28:46,600 Speaker 5: consumers are doing pretty well. I mean, they've locked in 578 00:28:46,680 --> 00:28:50,280 Speaker 5: low mortgage rates. They have been the beneficiaries of a 579 00:28:50,400 --> 00:28:52,760 Speaker 5: very strong stock market. Even after the recent decline in 580 00:28:52,760 --> 00:28:56,200 Speaker 5: the stock market's still up quite over ten percent this year. 581 00:28:56,520 --> 00:28:58,960 Speaker 5: So the high end consumer is feeling pretty good about things, 582 00:28:59,000 --> 00:29:01,200 Speaker 5: but the low end is not. The other thing, of course, 583 00:29:01,240 --> 00:29:03,920 Speaker 5: is also what's happening on the investment side. The Biden 584 00:29:03,920 --> 00:29:08,240 Speaker 5: administration had a number of initiatives that boosted investment, spending, infrastructure, 585 00:29:08,360 --> 00:29:12,240 Speaker 5: chipsacked climate and the question is what's the impetus from 586 00:29:12,280 --> 00:29:13,760 Speaker 5: investment from those programs. 587 00:29:13,760 --> 00:29:14,680 Speaker 8: Has that peaked or not? 588 00:29:14,800 --> 00:29:17,320 Speaker 5: And if that has peaked, that's another source of potential 589 00:29:17,320 --> 00:29:18,800 Speaker 5: restraint in coming months. 590 00:29:18,960 --> 00:29:21,000 Speaker 2: Bill, It's great to catch up with you, sir as. 591 00:29:21,040 --> 00:29:23,320 Speaker 2: Always appreciate the comments. This morning, Bill, don't be there, 592 00:29:23,360 --> 00:29:26,840 Speaker 2: the former New York Fed President. This is the Bloomberg 593 00:29:26,880 --> 00:29:31,600 Speaker 2: Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. 594 00:29:31,840 --> 00:29:34,320 Speaker 2: You can watch the show live on Bloomberg TV weekday 595 00:29:34,360 --> 00:29:37,600 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 596 00:29:37,600 --> 00:29:40,840 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 597 00:29:41,120 --> 00:29:43,720 Speaker 2: and as always, on the Bloomberg Terminal and the Bloomberg 598 00:29:43,760 --> 00:29:44,320 Speaker 2: Business app.