1 00:00:00,120 --> 00:00:06,760 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 --> 00:00:37,080 Speaker 2: Terminal and the Bloomberg Business app. Joining us now is 10 00:00:37,159 --> 00:00:40,199 Speaker 2: Danid Peterson of the Conference Board, alongside Matt Dezock of 11 00:00:40,240 --> 00:00:42,879 Speaker 2: Merrill and Bank of America Private Bank. Dana, can I 12 00:00:42,880 --> 00:00:44,760 Speaker 2: come to you first, please and just get your response 13 00:00:44,800 --> 00:00:47,440 Speaker 2: to jobless claims, the scare of a few weeks ago. 14 00:00:47,720 --> 00:00:48,200 Speaker 2: Is it over? 15 00:00:49,800 --> 00:00:51,040 Speaker 3: Well, we don't really know. 16 00:00:51,159 --> 00:00:53,920 Speaker 4: But the thing is jabas claims are still extremely low, 17 00:00:54,200 --> 00:00:57,040 Speaker 4: and as Lisa said, many companies are not letting their 18 00:00:57,080 --> 00:00:59,760 Speaker 4: people go. They're holding on to their workers, they're hoarding them, 19 00:01:00,080 --> 00:01:02,280 Speaker 4: and so we're probably not going to see much uptick in. 20 00:01:02,280 --> 00:01:03,840 Speaker 3: The unemployment rate going forward. 21 00:01:04,640 --> 00:01:07,600 Speaker 4: Jobs need companies need them, and also they're facing lots 22 00:01:07,600 --> 00:01:10,480 Speaker 4: of people retiring, so I don't really see the labor 23 00:01:10,520 --> 00:01:13,160 Speaker 4: market weakening significantly over the next year. 24 00:01:13,120 --> 00:01:14,840 Speaker 2: Matt, to bring them into the convi sanction. Do you 25 00:01:14,880 --> 00:01:17,120 Speaker 2: share those thoughts? Do you have that constructive view a 26 00:01:17,200 --> 00:01:17,679 Speaker 2: year round? 27 00:01:18,080 --> 00:01:20,920 Speaker 5: We do share those thoughts. On the employment market. 28 00:01:21,000 --> 00:01:24,000 Speaker 6: Corporate health looks very good right now and today that's 29 00:01:24,040 --> 00:01:26,639 Speaker 6: what's going to drive the employer market. How are companies feeling, 30 00:01:26,640 --> 00:01:28,240 Speaker 6: How are they doing? So we do feel very good 31 00:01:28,240 --> 00:01:30,800 Speaker 6: about that. We're not too concerned about it. But the 32 00:01:30,880 --> 00:01:33,880 Speaker 6: idea that rate hikes don't work, the idea that it 33 00:01:33,880 --> 00:01:36,920 Speaker 6: won't slow the economy somewhat, would be a little skeptical 34 00:01:36,959 --> 00:01:38,280 Speaker 6: in those kind of arguments that we're hearing. 35 00:01:38,319 --> 00:01:40,959 Speaker 7: Well, okay, just taking a step back. You are the one, 36 00:01:40,959 --> 00:01:43,840 Speaker 7: and I think I misattributed this earlier saying that the 37 00:01:43,840 --> 00:01:47,400 Speaker 7: FED pretends to be inflation sensitive but is actually employment sensitive. 38 00:01:48,120 --> 00:01:51,160 Speaker 7: You say rate hikes work, it might just take a 39 00:01:51,160 --> 00:01:54,000 Speaker 7: lot longer. Does that preclude the idea of a rate 40 00:01:54,120 --> 00:01:57,360 Speaker 7: cut if they're employment sensitive and inflation is still too high. 41 00:01:57,600 --> 00:02:00,360 Speaker 6: So we do believe our baseline forecast is will get 42 00:02:00,400 --> 00:02:04,680 Speaker 6: one rate cut this year, probably in December. But to 43 00:02:04,760 --> 00:02:07,040 Speaker 6: your point, it will take time to see these rate 44 00:02:07,080 --> 00:02:10,400 Speaker 6: hikes work their way through the economy. John MONTEI policy 45 00:02:10,560 --> 00:02:13,000 Speaker 6: likes like a year to two years tenure just peaked 46 00:02:13,040 --> 00:02:15,080 Speaker 6: at October November of last year. It's about, you know, 47 00:02:15,160 --> 00:02:18,000 Speaker 6: six months ago. FED funds rate just peaked about nine 48 00:02:18,000 --> 00:02:20,080 Speaker 6: months ago, so we're not even in that twelve to 49 00:02:20,080 --> 00:02:21,320 Speaker 6: twenty four month window. 50 00:02:21,520 --> 00:02:22,400 Speaker 5: Come back to us in. 51 00:02:22,360 --> 00:02:24,880 Speaker 6: Early mid late twenty twenty five to see these rate 52 00:02:24,919 --> 00:02:27,600 Speaker 6: hikes work. So we do think we're starting to see 53 00:02:27,600 --> 00:02:30,880 Speaker 6: some of that now, uptaking credit card delinquencies, up take 54 00:02:30,880 --> 00:02:34,880 Speaker 6: and autodelinquencies, some slow down in consumer spending, Retailers that 55 00:02:34,919 --> 00:02:37,520 Speaker 6: are reporting earning seeing a little shift and mix, and 56 00:02:37,600 --> 00:02:40,040 Speaker 6: lower income guys pulling back a little bit. So we 57 00:02:40,080 --> 00:02:41,840 Speaker 6: are starting to see those effects. We believe, we give 58 00:02:41,840 --> 00:02:42,720 Speaker 6: it time, we'll get there. 59 00:02:42,800 --> 00:02:45,000 Speaker 7: So Dana, can you weigh in on just sort of 60 00:02:45,360 --> 00:02:48,480 Speaker 7: the odd discrepancy right now between what Matt was talking about, 61 00:02:48,480 --> 00:02:51,640 Speaker 7: this slow down between the data that shows that jobless 62 00:02:51,639 --> 00:02:54,080 Speaker 7: claims are not picking up and the fact that people 63 00:02:54,120 --> 00:02:56,400 Speaker 7: feel really bad. I mean, do you have a sense 64 00:02:56,520 --> 00:02:59,280 Speaker 7: of whether it will take actually getting laid off for 65 00:02:59,320 --> 00:03:02,360 Speaker 7: them to spending entirely for that to actually crack the 66 00:03:02,400 --> 00:03:04,639 Speaker 7: market in a more material way, or do you think 67 00:03:04,680 --> 00:03:07,240 Speaker 7: that this steady softening will eventually just bring us down 68 00:03:07,440 --> 00:03:08,880 Speaker 7: to that soft landing nirvana. 69 00:03:10,160 --> 00:03:12,919 Speaker 3: Well, consumers have mixed feelings. 70 00:03:13,160 --> 00:03:15,600 Speaker 4: For the most part, they're happy that they're working right now, 71 00:03:15,840 --> 00:03:19,040 Speaker 4: but they are still very upset about inflation, and certainly 72 00:03:19,040 --> 00:03:21,120 Speaker 4: when they look out six months from now, they have 73 00:03:21,240 --> 00:03:25,639 Speaker 4: concerns about their incomes, employment prospects, and also business prospects. 74 00:03:25,919 --> 00:03:28,000 Speaker 4: And so that's why we've seen some weakening in our 75 00:03:28,040 --> 00:03:31,840 Speaker 4: consumer confidence measure. But when it comes to spending, we 76 00:03:31,880 --> 00:03:35,120 Speaker 4: are seeing consumers pull back. Certainly, they're not buying homes, 77 00:03:35,160 --> 00:03:37,960 Speaker 4: and once the FED raise interest rates and mortgage rates 78 00:03:38,000 --> 00:03:39,880 Speaker 4: shot up, the housing market. 79 00:03:39,600 --> 00:03:41,080 Speaker 3: Responded almost immediately. 80 00:03:41,320 --> 00:03:44,600 Speaker 4: We also so that businesses stopped investing because the cost 81 00:03:44,640 --> 00:03:47,320 Speaker 4: of capital was rising. And we see that consumers are 82 00:03:47,360 --> 00:03:50,360 Speaker 4: pulling back on goods, and our consumer confidence survey suggests 83 00:03:50,360 --> 00:03:52,800 Speaker 4: that they will continue to pull back on those big 84 00:03:52,840 --> 00:03:55,920 Speaker 4: ticket items. The big question now is services. Can they 85 00:03:55,960 --> 00:03:58,680 Speaker 4: continue to spend on services? And the thing is that 86 00:03:58,800 --> 00:04:01,360 Speaker 4: right now consumers are run out of that excess saving, 87 00:04:01,480 --> 00:04:03,560 Speaker 4: so a lot of the trips and things that they're 88 00:04:03,600 --> 00:04:06,080 Speaker 4: going on then services they're consuming, they're putting it on 89 00:04:06,160 --> 00:04:08,360 Speaker 4: credit cards, and we know the interest rates are very 90 00:04:08,400 --> 00:04:11,560 Speaker 4: high for credit cards and the debt services rising. So 91 00:04:11,760 --> 00:04:13,800 Speaker 4: I think that this is all part of the plan, 92 00:04:14,120 --> 00:04:16,679 Speaker 4: and that we will continue to see consumer spending slow 93 00:04:16,720 --> 00:04:18,000 Speaker 4: and that we'll probably have. 94 00:04:17,880 --> 00:04:19,440 Speaker 3: A bit of a soft patch this year. 95 00:04:19,680 --> 00:04:22,760 Speaker 4: But as long as consumers are continuing to work, I 96 00:04:22,760 --> 00:04:25,120 Speaker 4: think the FED can continue to focus on inflation. 97 00:04:25,400 --> 00:04:28,440 Speaker 2: I know how well aligned is consumer confidence with see 98 00:04:28,640 --> 00:04:29,560 Speaker 2: business confidence. 99 00:04:29,760 --> 00:04:34,839 Speaker 4: At the moment, well, businesses CEOs are I would say, 100 00:04:34,880 --> 00:04:37,840 Speaker 4: cautiously optimistic. For about a year and a half they 101 00:04:37,839 --> 00:04:40,200 Speaker 4: were very negative, and then in the last two quarters 102 00:04:40,480 --> 00:04:45,720 Speaker 4: it ticked up above our fifty threshold in terms of optimism. 103 00:04:45,720 --> 00:04:48,800 Speaker 4: But still businesses are saying, look, we're not having trouble 104 00:04:48,839 --> 00:04:51,680 Speaker 4: finding qualified workers, we're not laying people off, we're just 105 00:04:51,720 --> 00:04:52,680 Speaker 4: holding onto people. 106 00:04:52,960 --> 00:04:54,679 Speaker 3: But we're not looking to invest much. 107 00:04:54,760 --> 00:04:57,200 Speaker 4: And the thing is that we are still facing high 108 00:04:57,240 --> 00:05:00,480 Speaker 4: costs from labor because they intend to continue to raise 109 00:05:00,520 --> 00:05:01,960 Speaker 4: wages to hold. 110 00:05:01,680 --> 00:05:02,560 Speaker 3: On to their people. 111 00:05:02,880 --> 00:05:05,200 Speaker 4: But still they're very concerned about a number of risks, 112 00:05:05,279 --> 00:05:09,640 Speaker 4: especially the implications of the elections coming up, and also 113 00:05:09,839 --> 00:05:13,760 Speaker 4: a number of geopolitical issues. So I'd say CEOs are 114 00:05:14,200 --> 00:05:16,760 Speaker 4: not as gloomy as they were last year, but they're 115 00:05:16,800 --> 00:05:17,920 Speaker 4: still very cautious. 116 00:05:18,160 --> 00:05:18,360 Speaker 5: Man. 117 00:05:18,360 --> 00:05:19,800 Speaker 2: This is what we're trying to figure out. How the 118 00:05:19,839 --> 00:05:22,640 Speaker 2: dominoes fall from here. We can identify this week some 119 00:05:22,680 --> 00:05:25,200 Speaker 2: of these retailers have lost pricing power. That's clear. The 120 00:05:25,240 --> 00:05:27,320 Speaker 2: CEOs are talking about it. What we're trying to understand 121 00:05:27,320 --> 00:05:29,880 Speaker 2: is what happens next. How do they protect margins? They 122 00:05:29,880 --> 00:05:32,159 Speaker 2: pull back on costs, what can they do? Do they 123 00:05:32,200 --> 00:05:34,920 Speaker 2: lay people off? To Dana's point, do they hold give 124 00:05:34,960 --> 00:05:37,039 Speaker 2: the experience coming down of the pandemic. What do you 125 00:05:37,080 --> 00:05:38,720 Speaker 2: think the ultimate outcome will pay. 126 00:05:38,880 --> 00:05:41,720 Speaker 6: We do think labor hoarding is probably going to continue. 127 00:05:41,760 --> 00:05:44,120 Speaker 6: And again, when we think about this in a larger context, 128 00:05:44,120 --> 00:05:45,400 Speaker 6: this is not pessimistic news. 129 00:05:45,400 --> 00:05:47,719 Speaker 5: This is good news. This is what we want to see. 130 00:05:47,880 --> 00:05:50,200 Speaker 6: We need to slow the economy somewhat to continue to 131 00:05:50,200 --> 00:05:53,920 Speaker 6: bring inflation down. But the big picture inflation was nine percent. 132 00:05:53,960 --> 00:05:55,679 Speaker 6: It's now down to, you know, three and a half percent. 133 00:05:55,720 --> 00:05:58,359 Speaker 6: Core pcees already below three percent. We don't have to 134 00:05:58,400 --> 00:06:00,920 Speaker 6: worry that much about getting them out to that exact 135 00:06:01,160 --> 00:06:04,000 Speaker 6: on the screws two percent PCE number. 136 00:06:04,360 --> 00:06:05,919 Speaker 5: We're in a much better place right now. 137 00:06:05,960 --> 00:06:08,760 Speaker 6: If you look historically at equity market returns, it doesn't 138 00:06:08,760 --> 00:06:11,600 Speaker 6: matter whether you're zero two percent inflation or two to 139 00:06:11,640 --> 00:06:14,200 Speaker 6: four percent, you do just as well, and nominal just 140 00:06:14,240 --> 00:06:16,520 Speaker 6: as well. In real This is a good news. What 141 00:06:16,560 --> 00:06:18,920 Speaker 6: the Fed is doing will eventually work. They can keep 142 00:06:19,040 --> 00:06:21,400 Speaker 6: rates about this level, maybe trim a little bit end 143 00:06:21,400 --> 00:06:23,640 Speaker 6: of the year, and if they do that, we could 144 00:06:23,680 --> 00:06:26,480 Speaker 6: have that mid nineties setup where everyone thought over session 145 00:06:26,600 --> 00:06:27,080 Speaker 6: was happening. 146 00:06:27,360 --> 00:06:28,200 Speaker 5: It didn't happen. 147 00:06:28,520 --> 00:06:31,400 Speaker 6: Credit spreads stayed tight for a while, equity is absolutely 148 00:06:31,440 --> 00:06:34,000 Speaker 6: ripped for the rest of that decade. So the slowdown 149 00:06:34,040 --> 00:06:37,039 Speaker 6: we're seeing is optimistic, warranted, what we want to see, 150 00:06:37,120 --> 00:06:38,520 Speaker 6: what the Fed's trying to encourage. 151 00:06:38,600 --> 00:06:40,120 Speaker 8: So it sounds like you agree with Dana that this 152 00:06:40,240 --> 00:06:42,800 Speaker 8: is just a soft patch, not going to be softer 153 00:06:43,040 --> 00:06:46,560 Speaker 8: for longer. But to John's point, if these companies are 154 00:06:46,560 --> 00:06:49,480 Speaker 8: having to cut costs, you don't think at any point 155 00:06:49,680 --> 00:06:52,440 Speaker 8: that will mean letting off employees. 156 00:06:52,600 --> 00:06:54,440 Speaker 6: Oh No, I absolutely do believe at some point if 157 00:06:54,480 --> 00:06:56,719 Speaker 6: it continues on this trajectory, that's exactly what you see. 158 00:06:56,760 --> 00:06:59,000 Speaker 5: But that is what you expect to see. So it's 159 00:06:59,040 --> 00:07:01,720 Speaker 5: always a question of that starts to happen. What does 160 00:07:01,760 --> 00:07:02,279 Speaker 5: the FED do? 161 00:07:02,600 --> 00:07:04,200 Speaker 6: And as the show Gud said earlier, I believe it 162 00:07:04,320 --> 00:07:09,880 Speaker 6: was and we completely agree, pretends to be super inflation sensitive. 163 00:07:10,120 --> 00:07:12,400 Speaker 6: Now that eighty to nine percent of inflation fight is done, 164 00:07:12,440 --> 00:07:14,880 Speaker 6: they're not. They're employment sensive. So when they start to 165 00:07:14,920 --> 00:07:17,000 Speaker 6: see that more, which we're not yet but we will, 166 00:07:17,600 --> 00:07:20,320 Speaker 6: then they'll adjust tech. Then hopefully they cut December, then 167 00:07:20,320 --> 00:07:26,040 Speaker 6: they'll cut next year. Fine tune, keep the economic expansion going. 168 00:07:26,000 --> 00:07:27,800 Speaker 2: Dan, and let's build on that. How does that influence 169 00:07:27,840 --> 00:07:29,200 Speaker 2: your fed co for this year? 170 00:07:30,160 --> 00:07:33,280 Speaker 4: Well, we have the FED cutting twice this year, probably 171 00:07:33,320 --> 00:07:35,920 Speaker 4: at November, November, December meetings. 172 00:07:36,160 --> 00:07:37,480 Speaker 3: But I have to disagree a little bit. 173 00:07:37,560 --> 00:07:41,520 Speaker 4: I think the FED is still very inflation sensitive and 174 00:07:41,520 --> 00:07:44,080 Speaker 4: they're probably a little less labor market sensitive. 175 00:07:44,120 --> 00:07:46,679 Speaker 3: Why because you know they'll. 176 00:07:46,080 --> 00:07:48,480 Speaker 4: Be okay if the unemployment rate rises a little bit. 177 00:07:48,520 --> 00:07:50,520 Speaker 4: We have it topping out at four point two percent. 178 00:07:50,840 --> 00:07:53,880 Speaker 4: That's extremely low. Most people want to work, will work. 179 00:07:54,120 --> 00:07:57,800 Speaker 4: But the problem is that everyone experiences inflation, and they 180 00:07:57,840 --> 00:08:01,560 Speaker 4: do want to get key and inflation they gauges back 181 00:08:01,640 --> 00:08:04,080 Speaker 4: sustainably to the two percent target. 182 00:08:04,120 --> 00:08:06,560 Speaker 3: Sustainability is important. They don't want to just touch it 183 00:08:06,920 --> 00:08:08,520 Speaker 3: and then move off of it. 184 00:08:08,720 --> 00:08:10,280 Speaker 4: And the thing is that they have to do that 185 00:08:10,440 --> 00:08:14,360 Speaker 4: because of credibility purposes. They see their target is two percent, 186 00:08:14,640 --> 00:08:15,840 Speaker 4: they want to get it there. 187 00:08:17,040 --> 00:08:18,560 Speaker 7: Do you have a response, So. 188 00:08:18,760 --> 00:08:20,920 Speaker 6: As we think about the inflation numbers, and again they're 189 00:08:20,920 --> 00:08:23,240 Speaker 6: going to officially keep their target two percent, we believe that. 190 00:08:24,280 --> 00:08:25,720 Speaker 5: And you'll have to be a math major for this one. 191 00:08:25,760 --> 00:08:27,640 Speaker 6: If your inflation go to nine percent and never let 192 00:08:27,680 --> 00:08:29,640 Speaker 6: it go below two, you're probably not going to average 193 00:08:29,640 --> 00:08:31,840 Speaker 6: two percent. So they're already the facto kind of faded 194 00:08:31,840 --> 00:08:33,240 Speaker 6: in that inflation target a little bit. 195 00:08:33,480 --> 00:08:35,520 Speaker 5: Again, we don't find out to be a tremendous problem. 196 00:08:36,640 --> 00:08:39,920 Speaker 6: Eight percent inflation problem, two to three andred percent inflation 197 00:08:40,240 --> 00:08:40,720 Speaker 6: not a problem. 198 00:08:40,720 --> 00:08:42,560 Speaker 5: Phenomenal GDP not a problem. 199 00:08:42,600 --> 00:08:47,160 Speaker 6: And meanwhile, fixed income valuations are so much better now 200 00:08:47,160 --> 00:08:49,880 Speaker 6: the tenuars round three percent, when seapowers running at nine percent. 201 00:08:50,240 --> 00:08:52,520 Speaker 6: Now we've got the tenurebout four and a half and 202 00:08:52,640 --> 00:08:56,920 Speaker 6: CPI pc below it. These are good valuation fixing investors. 203 00:08:57,120 --> 00:08:58,760 Speaker 2: We'll get to the bone market in just a moment. 204 00:08:58,880 --> 00:09:01,320 Speaker 2: You say, not a problem. What did Governor Walta give 205 00:09:01,480 --> 00:09:04,040 Speaker 2: last month's reay to Saint plus If it's not a problem. 206 00:09:04,200 --> 00:09:06,400 Speaker 6: To be fair, we're trying to be optimistic here with 207 00:09:06,400 --> 00:09:10,199 Speaker 6: the bog gun, trying to be positive. There are problems 208 00:09:10,240 --> 00:09:12,760 Speaker 6: within the inflation data, particularly as we've all talked about 209 00:09:12,800 --> 00:09:15,079 Speaker 6: on the services side, and right now we're getting goods 210 00:09:15,120 --> 00:09:19,280 Speaker 6: deflation or almost no inflation about zero percent. But you 211 00:09:19,360 --> 00:09:22,320 Speaker 6: can't have an average inflation number of zero percent goods 212 00:09:22,360 --> 00:09:24,680 Speaker 6: and four percent services, and we are seeing uptick in services. 213 00:09:24,679 --> 00:09:27,480 Speaker 6: So there are definitely areas that they need to focus 214 00:09:27,480 --> 00:09:29,520 Speaker 6: on a watch, and the fight's not done, but again 215 00:09:29,679 --> 00:09:31,840 Speaker 6: they're much closer done than they have been and some 216 00:09:31,880 --> 00:09:33,440 Speaker 6: fine tuning hopefully gets them there. 217 00:09:33,559 --> 00:09:35,240 Speaker 7: Dan, I want to pick up on something that you said. 218 00:09:35,400 --> 00:09:38,160 Speaker 7: You think that this FED is particularly inflation sensitive and 219 00:09:38,240 --> 00:09:41,720 Speaker 7: less employment sensitive at a time where potentially we were 220 00:09:41,760 --> 00:09:44,960 Speaker 7: speaking with Adam Posen of the Peterson Institute yesterday. He 221 00:09:45,080 --> 00:09:49,320 Speaker 7: was talking about how a policy shift come December or 222 00:09:49,400 --> 00:09:53,240 Speaker 7: January of next year could single handedly mean an increase 223 00:09:53,240 --> 00:09:57,160 Speaker 7: in tariffs or potentially a change the immigration policy. And frankly, 224 00:09:57,559 --> 00:10:00,600 Speaker 7: the extra immigration a lot of people are arguing has 225 00:10:00,640 --> 00:10:04,480 Speaker 7: made put a downward pressure on inflation that otherwise would. 226 00:10:04,240 --> 00:10:06,160 Speaker 3: Be in the system. Do you think that. 227 00:10:06,280 --> 00:10:10,120 Speaker 7: Given potential inflationary policies that would actually put the FED 228 00:10:10,160 --> 00:10:13,200 Speaker 7: in a really awkward position with a labor market seeing 229 00:10:13,200 --> 00:10:17,120 Speaker 7: the weakness that you're expecting while also seeing inflation remains stickier, 230 00:10:17,160 --> 00:10:18,080 Speaker 7: even inflect upward. 231 00:10:19,559 --> 00:10:25,280 Speaker 4: We're already seeing inflationary pressures from policy, certainly industrial policies 232 00:10:25,840 --> 00:10:28,920 Speaker 4: and the trade wars that we experienced back in twenty 233 00:10:28,960 --> 00:10:31,640 Speaker 4: eighteen twenty nineteen that they are still going on. Those 234 00:10:31,679 --> 00:10:33,880 Speaker 4: are all placing upward pressure on inflation. 235 00:10:34,440 --> 00:10:37,000 Speaker 3: And so the FED is this is the new norm. 236 00:10:37,040 --> 00:10:39,480 Speaker 4: The FED is going to have to operate in the 237 00:10:39,480 --> 00:10:41,080 Speaker 4: world that it's in, and. 238 00:10:40,880 --> 00:10:44,000 Speaker 3: As it sees policies. 239 00:10:43,640 --> 00:10:48,160 Speaker 4: Or consumer behavior, or external events like climate events that 240 00:10:48,200 --> 00:10:51,080 Speaker 4: are pushing up insurance costs, whatever it is, the FED 241 00:10:51,160 --> 00:10:53,679 Speaker 4: is going to have to deal with that within the 242 00:10:53,720 --> 00:10:56,679 Speaker 4: bounds of its mandates, right, And so I think that 243 00:10:57,400 --> 00:11:01,160 Speaker 4: for this year, the FED probably will see that's slowing 244 00:11:01,160 --> 00:11:03,800 Speaker 4: in inflation that it wants to see. It'll feel comfortable 245 00:11:03,800 --> 00:11:06,839 Speaker 4: cutting rates one, maybe two times this year. But next 246 00:11:06,920 --> 00:11:10,240 Speaker 4: year's another story, and they're probably going to have to 247 00:11:10,320 --> 00:11:14,080 Speaker 4: take a more gradual approach to cutting interest rates next year. 248 00:11:14,400 --> 00:11:16,679 Speaker 4: And I think where rates will land will be higher 249 00:11:17,040 --> 00:11:19,600 Speaker 4: than what we saw during the period between the Great 250 00:11:19,600 --> 00:11:24,000 Speaker 4: Financial Crisis and the pandemic, both in nominal and real terms. 251 00:11:24,040 --> 00:11:27,280 Speaker 4: I think that's the new reality. Inflation pressures upward. Inflation 252 00:11:27,360 --> 00:11:29,960 Speaker 4: pressures are the new reality that the FED is going 253 00:11:30,000 --> 00:11:33,040 Speaker 4: to have to resist day in and day out, which. 254 00:11:33,040 --> 00:11:35,480 Speaker 7: Matt really points to this reason why maybe people are 255 00:11:35,480 --> 00:11:38,840 Speaker 7: so optimistic about equities right now because that environment is 256 00:11:39,080 --> 00:11:42,760 Speaker 7: supportive of equity valuations if inflation is actually allowing them 257 00:11:42,760 --> 00:11:46,760 Speaker 7: to increase profitability in some other revenues. As an investors 258 00:11:46,880 --> 00:11:49,720 Speaker 7: chief investment officer, do you say it is a safer 259 00:11:49,800 --> 00:11:52,640 Speaker 7: bet to go with equities at this point than certainly 260 00:11:52,720 --> 00:11:54,720 Speaker 7: duration given that type of backdrop. 261 00:11:55,120 --> 00:11:57,000 Speaker 6: We actually don't actually a slightly different view there. We 262 00:11:57,080 --> 00:11:58,800 Speaker 6: do like equity risk here to be fair, where you 263 00:11:58,840 --> 00:12:02,559 Speaker 6: are slightly overweight equities again two, three, four, even five 264 00:12:02,679 --> 00:12:06,040 Speaker 6: percent inflation again, if you can grow your sales at 265 00:12:06,080 --> 00:12:07,920 Speaker 6: that level thatout selling more goods or services, your earnings 266 00:12:07,920 --> 00:12:08,439 Speaker 6: will do fine. 267 00:12:08,559 --> 00:12:09,480 Speaker 5: Great for equities. 268 00:12:09,720 --> 00:12:11,040 Speaker 6: We do want to take a little more macro risk 269 00:12:11,080 --> 00:12:13,440 Speaker 6: in the portfolios who are slightly overoid equities. At the 270 00:12:13,440 --> 00:12:15,880 Speaker 6: same time, if we look at the valuation picture on 271 00:12:16,040 --> 00:12:19,440 Speaker 6: fixed income, you can easily build a diversified investi grade 272 00:12:19,480 --> 00:12:21,520 Speaker 6: portfolio today of over five percent. 273 00:12:21,559 --> 00:12:23,160 Speaker 5: You haven't seen that in twenty years. 274 00:12:23,520 --> 00:12:26,599 Speaker 6: More importantly, in real rate terms two to two and 275 00:12:26,640 --> 00:12:30,200 Speaker 6: a half percent real if we were talking January twenty 276 00:12:30,240 --> 00:12:33,080 Speaker 6: twenty one, it was negative two percent. Right, for the 277 00:12:33,080 --> 00:12:35,880 Speaker 6: privilege of giving your government one hundred dollars, you could 278 00:12:35,880 --> 00:12:37,440 Speaker 6: get eighty dollars a purchasing. 279 00:12:37,120 --> 00:12:39,600 Speaker 5: Power back in ten years. Thanks for that. 280 00:12:40,080 --> 00:12:41,160 Speaker 6: Now you can give the one hundred and you get 281 00:12:41,160 --> 00:12:43,000 Speaker 6: a hundred twenty dollars back in ten years. So again, 282 00:12:43,040 --> 00:12:45,640 Speaker 6: that actually gets a bond guy excited. I know, maybe 283 00:12:45,679 --> 00:12:48,120 Speaker 6: like you know, five percent yields. You know, if you're 284 00:12:48,120 --> 00:12:49,800 Speaker 6: holding for a whole year, you can get half the 285 00:12:49,840 --> 00:12:52,600 Speaker 6: return of a particular tech dot pre market. But for 286 00:12:52,640 --> 00:12:56,160 Speaker 6: a bondfolk, that's actually interesting. And we have to build 287 00:12:56,200 --> 00:12:58,840 Speaker 6: portfolios for right, joking around a little bit, but we 288 00:12:58,880 --> 00:13:01,320 Speaker 6: have to provide for both those for as what happens, 289 00:13:01,360 --> 00:13:05,679 Speaker 6: we don't expect, and we do expect that treasuries, investigraate 290 00:13:05,760 --> 00:13:09,120 Speaker 6: corporates easie workings back. They will provide diversification, maybe a 291 00:13:09,160 --> 00:13:10,920 Speaker 6: little bit in terms of praise for Reid to come down, 292 00:13:11,240 --> 00:13:15,600 Speaker 6: but more importantly by steady reliable, predictable income year in 293 00:13:15,640 --> 00:13:18,040 Speaker 6: a year. That's how they will diverse our portfolios. So 294 00:13:18,040 --> 00:13:19,320 Speaker 6: we're actually slowly long duration. 295 00:13:19,440 --> 00:13:20,800 Speaker 2: At the moment, it doesn't say much to make you 296 00:13:20,840 --> 00:13:23,840 Speaker 2: happy after the previous decade with ray so low and negative. 297 00:13:24,040 --> 00:13:26,280 Speaker 2: Matt's good to see you been too long. Thank you, sir, 298 00:13:26,320 --> 00:13:28,800 Speaker 2: Matt dezoch there of Meryl and Bank of America Private Bank, 299 00:13:28,840 --> 00:13:42,160 Speaker 2: alongside Dana Peterson of the Conference Board in Vidio soaring 300 00:13:42,200 --> 00:13:45,080 Speaker 2: after delivering yet another beaten race. Sarah Hunt of Vampine 301 00:13:45,160 --> 00:13:48,600 Speaker 2: Saxon words right in this margins look quite strong, although 302 00:13:48,600 --> 00:13:51,199 Speaker 2: there will be a point at which the undersupplied market 303 00:13:51,200 --> 00:13:54,160 Speaker 2: becomes less so in other industries, companies do not get 304 00:13:54,160 --> 00:13:56,720 Speaker 2: as much credit when they are over earning. But the 305 00:13:56,760 --> 00:14:00,079 Speaker 2: bloom remains on the rods for Nvidia here Sarah joins us. 306 00:14:00,120 --> 00:14:02,120 Speaker 2: Now for more, Sarah, let's just start with those stat 307 00:14:02,160 --> 00:14:04,480 Speaker 2: of numbers. Once again, the bar gets higher. They keep 308 00:14:04,520 --> 00:14:08,719 Speaker 2: beating it. How impressive was that yesterday afternoon? I think 309 00:14:08,760 --> 00:14:08,960 Speaker 2: it was. 310 00:14:08,960 --> 00:14:11,280 Speaker 1: Pretty impressive, and I think that the concern was that 311 00:14:11,320 --> 00:14:14,920 Speaker 1: there might be some slowdown in the change of you know, 312 00:14:15,400 --> 00:14:18,480 Speaker 1: it's in the rapid change. Higher has been so fast 313 00:14:18,760 --> 00:14:20,640 Speaker 1: that The question is that that slows down to people 314 00:14:20,640 --> 00:14:22,680 Speaker 1: get worried. People are not worried, and I think the 315 00:14:22,720 --> 00:14:26,080 Speaker 1: fact that they're able to absorb those when they have 316 00:14:26,280 --> 00:14:28,920 Speaker 1: something new coming also tells you that people want to 317 00:14:28,920 --> 00:14:30,640 Speaker 1: get into this game, and it doesn't matter if they 318 00:14:30,720 --> 00:14:32,760 Speaker 1: have to wait for something. They'll take what they can 319 00:14:32,760 --> 00:14:34,520 Speaker 1: get right now because they don't want to get left 320 00:14:34,520 --> 00:14:36,760 Speaker 1: behind in their own development. So I think that it 321 00:14:37,160 --> 00:14:39,280 Speaker 1: was a very strong report. It needed to be a 322 00:14:39,320 --> 00:14:42,720 Speaker 1: strong report, like all Q one. The Brocks needed to perform. 323 00:14:42,880 --> 00:14:45,120 Speaker 1: They did, and that is driving right now, which you 324 00:14:45,120 --> 00:14:47,400 Speaker 1: can see as another series of potential all timeimes. 325 00:14:47,400 --> 00:14:49,320 Speaker 2: Today you can see on the screen up seven percent 326 00:14:49,400 --> 00:14:52,520 Speaker 2: in video broad come up to ADMD, up by three 327 00:14:52,560 --> 00:14:54,760 Speaker 2: percent in the pre market as well, Sarah, When you 328 00:14:54,800 --> 00:14:57,320 Speaker 2: go through these names, there's an AI theme. What is 329 00:14:57,360 --> 00:14:59,760 Speaker 2: and what isn't driven by this theme in this equity 330 00:14:59,760 --> 00:15:01,960 Speaker 2: market right now, given you tendencies are up by seven 331 00:15:02,000 --> 00:15:03,760 Speaker 2: to white percent so far this month. 332 00:15:05,360 --> 00:15:07,880 Speaker 1: I think it's a lot of the stock market is 333 00:15:07,920 --> 00:15:10,920 Speaker 1: hanging on not just the idea of AI in and 334 00:15:10,960 --> 00:15:13,280 Speaker 1: of itself, but the productivity gains that it's going to 335 00:15:13,320 --> 00:15:15,680 Speaker 1: bring and the fact that that can help with its 336 00:15:15,720 --> 00:15:18,680 Speaker 1: economic oath, and I think that's been the biggest question 337 00:15:18,760 --> 00:15:20,600 Speaker 1: is what happens coming out of this pandemic and what 338 00:15:20,680 --> 00:15:22,640 Speaker 1: is going to fuel the next leg of growth. 339 00:15:22,480 --> 00:15:23,320 Speaker 3: In the economy. 340 00:15:23,560 --> 00:15:25,560 Speaker 1: And this is at least giving the market a story 341 00:15:25,560 --> 00:15:27,760 Speaker 1: to tell itself whether or not that's going to happen 342 00:15:27,800 --> 00:15:30,480 Speaker 1: in the time frame that people are looking for. You know, 343 00:15:30,520 --> 00:15:32,240 Speaker 1: if someone was talking about how long it takes to 344 00:15:32,280 --> 00:15:35,960 Speaker 1: permit elect company changes, it's enormous. There's a long time 345 00:15:36,000 --> 00:15:38,280 Speaker 1: frame that's going to take. But you've got an infrastructure 346 00:15:38,320 --> 00:15:40,520 Speaker 1: build that's going to go on here. And I think 347 00:15:40,640 --> 00:15:43,920 Speaker 1: right now, as we get more use cases, that seems 348 00:15:44,000 --> 00:15:46,120 Speaker 1: like something that we can continue to think about. If 349 00:15:46,160 --> 00:15:48,640 Speaker 1: it turns out that this doesn't work as well or 350 00:15:48,720 --> 00:15:51,600 Speaker 1: it's not giving that productivity, that'll be a different story. 351 00:15:51,640 --> 00:15:54,000 Speaker 1: But we're not even close to that discernment yet. 352 00:15:54,320 --> 00:15:56,640 Speaker 7: What I find fascinating Sarah and John was alluding to 353 00:15:56,640 --> 00:15:59,360 Speaker 7: this the idea that we talk about the said right 354 00:15:59,440 --> 00:16:02,280 Speaker 7: hiking site that left rates the highest levels in decades, 355 00:16:02,280 --> 00:16:05,480 Speaker 7: and why is this economy so insensitive to that? Will 356 00:16:05,520 --> 00:16:08,840 Speaker 7: you overlay a super cycle that is completely secular, that 357 00:16:08,960 --> 00:16:12,440 Speaker 7: is independent of the macrocycle with respect to Nvidia and 358 00:16:12,520 --> 00:16:15,280 Speaker 7: all of the investments from big tech, how much can that. 359 00:16:15,280 --> 00:16:16,640 Speaker 3: Keep going regardless of. 360 00:16:16,600 --> 00:16:19,840 Speaker 7: What happens in the macroeconomic backdrop, regardless of whether there 361 00:16:19,920 --> 00:16:22,080 Speaker 7: is a downturn in some of the areas that we're 362 00:16:22,080 --> 00:16:23,160 Speaker 7: already seeing softening. 363 00:16:24,440 --> 00:16:27,040 Speaker 1: Well, that's an excellent point, and that's exactly sort of 364 00:16:27,080 --> 00:16:29,960 Speaker 1: when people start talking about is the economy rates sensitive 365 00:16:30,040 --> 00:16:32,520 Speaker 1: the way it used to be in this particular sector, 366 00:16:32,600 --> 00:16:34,960 Speaker 1: It isn't. In fact, higher rates for companies that are 367 00:16:35,040 --> 00:16:37,240 Speaker 1: both cash generative and have a lot of cash sitting 368 00:16:37,240 --> 00:16:39,480 Speaker 1: on their balance sheets is helpful to them because it's 369 00:16:39,520 --> 00:16:41,880 Speaker 1: giving them some return on their cash, where for the 370 00:16:42,000 --> 00:16:44,520 Speaker 1: last decade and a half they were getting nothing. But 371 00:16:44,560 --> 00:16:48,000 Speaker 1: it's these giant cash generating juggernauts that are really fueling 372 00:16:48,000 --> 00:16:50,240 Speaker 1: the spending boom, and that's not going to be effected 373 00:16:50,560 --> 00:16:53,200 Speaker 1: by higher rates. So I think that there is you know, 374 00:16:53,280 --> 00:16:55,920 Speaker 1: how does not come about the AI cycle? I think 375 00:16:55,920 --> 00:16:58,040 Speaker 1: the market would be struggling because the question would be 376 00:16:58,280 --> 00:17:00,600 Speaker 1: what's going to happen to the economy next. This is 377 00:17:00,640 --> 00:17:02,680 Speaker 1: giving people the reason to say there's a lot of 378 00:17:02,680 --> 00:17:05,240 Speaker 1: ways that we can see efficiencies here. Unfortunately, I think 379 00:17:05,240 --> 00:17:06,960 Speaker 1: a lot of those efficiencies are going to end up 380 00:17:06,960 --> 00:17:09,600 Speaker 1: being with less people working. But that's the question as 381 00:17:09,640 --> 00:17:12,240 Speaker 1: we move forward. It's not a question right at this minute. 382 00:17:12,320 --> 00:17:14,920 Speaker 1: Right now, we're building the infrastructure. And if I think 383 00:17:14,960 --> 00:17:17,720 Speaker 1: about the build out for the Internet boom and how 384 00:17:18,320 --> 00:17:20,960 Speaker 1: dark fiber and all these things that were ancillary to 385 00:17:21,080 --> 00:17:24,439 Speaker 1: the Internet growing, You've had a lot of companies that 386 00:17:24,440 --> 00:17:26,600 Speaker 1: were generating no cash. You had a lot of customers 387 00:17:26,600 --> 00:17:29,400 Speaker 1: that needed to be financed. Right now you've got customers 388 00:17:29,440 --> 00:17:31,480 Speaker 1: that don't need any financing. They've got plenty of cash, 389 00:17:31,680 --> 00:17:33,520 Speaker 1: they're willing to spend it. And I think that that's 390 00:17:34,200 --> 00:17:37,040 Speaker 1: it of itself, a cycle that is not necessarily very sensitive. 391 00:17:37,160 --> 00:17:40,000 Speaker 7: We were talking earlier this morning with Duidi Bahugna about 392 00:17:40,400 --> 00:17:42,600 Speaker 7: whether the sixty forty is kind of dead, and I 393 00:17:42,600 --> 00:17:44,520 Speaker 7: would take that a step further and ask a question 394 00:17:44,520 --> 00:17:46,679 Speaker 7: about whether some of these big tech stocks are the 395 00:17:46,720 --> 00:17:50,119 Speaker 7: safety plays at a time where there's more uncertainty on 396 00:17:50,160 --> 00:17:52,840 Speaker 7: the fiscal side, is more uncertainty on some of the 397 00:17:52,880 --> 00:17:56,159 Speaker 7: voluntary policy than there is in just the ability for 398 00:17:56,240 --> 00:17:59,080 Speaker 7: these companies right now to make bank even with their 399 00:17:59,119 --> 00:17:59,800 Speaker 7: cash piles. 400 00:18:01,359 --> 00:18:03,480 Speaker 1: Well, I think that that becomes a question of valuation, 401 00:18:03,560 --> 00:18:05,600 Speaker 1: and there's been a lot of discussions about valuation and 402 00:18:05,600 --> 00:18:08,720 Speaker 1: how valuation in and of itself doesn't stop cycles. There 403 00:18:08,800 --> 00:18:11,040 Speaker 1: is a point at which that there is a higher 404 00:18:11,119 --> 00:18:13,119 Speaker 1: risk to the reward, and I think in some of 405 00:18:13,160 --> 00:18:15,680 Speaker 1: these names, you're starting to get there, just in terms 406 00:18:15,680 --> 00:18:18,359 Speaker 1: of another kind of economic slowdown or some sort of 407 00:18:18,520 --> 00:18:21,240 Speaker 1: hiccup in terms of some of these bottlenecks that we're 408 00:18:21,240 --> 00:18:24,320 Speaker 1: talking about solving on the utility side and elsewhere, if 409 00:18:24,320 --> 00:18:27,560 Speaker 1: you start to see companies having trouble getting data centers 410 00:18:27,600 --> 00:18:29,960 Speaker 1: and getting room and data centers and getting them built, 411 00:18:29,960 --> 00:18:32,000 Speaker 1: which I think that there's a discussion on the edges 412 00:18:32,040 --> 00:18:34,879 Speaker 1: of right now, you could see some timing delays and 413 00:18:34,920 --> 00:18:37,879 Speaker 1: that could put into question the high valuations right now. 414 00:18:38,000 --> 00:18:41,200 Speaker 1: But in terms of the longevity of this cycle right now, 415 00:18:41,240 --> 00:18:43,760 Speaker 1: just from what you're hearing from Nvidia and the discussions 416 00:18:43,760 --> 00:18:46,239 Speaker 1: about what people need and the other companies that are 417 00:18:46,240 --> 00:18:47,760 Speaker 1: trying to get into this, I think you've got a 418 00:18:47,800 --> 00:18:50,640 Speaker 1: runway on the demand side. That's difficult to say there's 419 00:18:50,680 --> 00:18:51,840 Speaker 1: going to be a problem unless. 420 00:18:51,600 --> 00:18:52,440 Speaker 3: They are bottlenecks. 421 00:18:52,720 --> 00:18:52,960 Speaker 1: Sarah. 422 00:18:53,000 --> 00:18:55,520 Speaker 8: When you talk about the potential for AI disrupting the 423 00:18:55,560 --> 00:18:58,160 Speaker 8: label market. John Authors recently wrote about this and talked 424 00:18:58,160 --> 00:19:01,840 Speaker 8: about how Navidia's place is exactly so healthy. This would 425 00:19:01,880 --> 00:19:05,439 Speaker 8: mean taking capital expenditure from other companies. This would potentially 426 00:19:05,480 --> 00:19:09,160 Speaker 8: mean taking jobs away from the American workforce. When does 427 00:19:09,240 --> 00:19:13,080 Speaker 8: that story actually start to bite well? 428 00:19:13,119 --> 00:19:16,400 Speaker 1: I think all of technology has been a continuum of 429 00:19:16,960 --> 00:19:20,160 Speaker 1: finding ways in which to make productivity better, which also 430 00:19:20,400 --> 00:19:24,439 Speaker 1: very often requires letting people go or having less people. 431 00:19:24,720 --> 00:19:26,639 Speaker 1: But I think that you know, man Thing had a 432 00:19:26,680 --> 00:19:30,600 Speaker 1: great decessment yesterday about how annoying chatbots and all the 433 00:19:30,640 --> 00:19:33,679 Speaker 1: other things that we've been looking at as AI have 434 00:19:33,840 --> 00:19:36,639 Speaker 1: been to users, and how that experience is going to 435 00:19:36,640 --> 00:19:39,000 Speaker 1: get better. So some of that's already happened. It's just 436 00:19:39,160 --> 00:19:41,800 Speaker 1: you're going to start to see a better situation in 437 00:19:41,840 --> 00:19:45,080 Speaker 1: places where you've already replaced people with technology. The question 438 00:19:45,160 --> 00:19:48,040 Speaker 1: going forward for AI really is how much more how 439 00:19:48,080 --> 00:19:50,600 Speaker 1: does that broaden out and to the extent that it does, 440 00:19:50,880 --> 00:19:53,399 Speaker 1: how damaging is that to the labor economy? And I 441 00:19:53,440 --> 00:19:55,239 Speaker 1: think that that's a question we don't really have an 442 00:19:55,240 --> 00:19:56,160 Speaker 1: answer to yet. 443 00:19:56,440 --> 00:20:00,680 Speaker 8: Is there a company now that you think could potentially 444 00:20:01,280 --> 00:20:03,480 Speaker 8: get on the AI space that is not and that 445 00:20:03,520 --> 00:20:04,520 Speaker 8: we have yet to see. 446 00:20:04,560 --> 00:20:05,400 Speaker 3: Within the tech. 447 00:20:05,160 --> 00:20:08,760 Speaker 1: World, I think everybody is trying to get into the 448 00:20:09,320 --> 00:20:11,600 Speaker 1: AI world, and the question really is how can they 449 00:20:11,720 --> 00:20:13,640 Speaker 1: use it? And this goes back to the use cases 450 00:20:13,840 --> 00:20:16,680 Speaker 1: and whether or not they generate money. I mean, you've 451 00:20:16,720 --> 00:20:19,879 Speaker 1: seen on the web hosting side, You've seen in Microsoft 452 00:20:19,920 --> 00:20:22,240 Speaker 1: and chat GPT that there's money to be generated here. 453 00:20:22,280 --> 00:20:24,879 Speaker 1: The question is are companies going to find it useful 454 00:20:24,880 --> 00:20:27,199 Speaker 1: and are they going to continue to invest in it? 455 00:20:27,280 --> 00:20:29,680 Speaker 1: And right now the answer is yes. Down the road, 456 00:20:29,720 --> 00:20:32,439 Speaker 1: where does that end, I think every single company, I mean, 457 00:20:32,520 --> 00:20:34,879 Speaker 1: we've already been using AI for the last decade or 458 00:20:34,880 --> 00:20:37,480 Speaker 1: so in different ways. This is just the large language 459 00:20:37,520 --> 00:20:40,960 Speaker 1: models make it an iteration better and makes everybody try 460 00:20:41,000 --> 00:20:43,080 Speaker 1: to get into it in places that they weren't because 461 00:20:43,080 --> 00:20:45,080 Speaker 1: they didn't like the use capers that were there before. 462 00:20:45,280 --> 00:20:47,400 Speaker 1: So I think that there is not anyone who isn't 463 00:20:47,400 --> 00:20:49,960 Speaker 1: going to be working into this space. The question will 464 00:20:50,000 --> 00:20:52,199 Speaker 1: really be who ends up using it better? And I 465 00:20:52,240 --> 00:20:53,880 Speaker 1: don't know the answer to that, and it may very 466 00:20:53,880 --> 00:20:55,800 Speaker 1: well be that some of the old economy stocks start 467 00:20:55,840 --> 00:20:57,879 Speaker 1: to get much better data and use it better. We 468 00:20:57,920 --> 00:21:00,159 Speaker 1: don't know yet, but I think that's the promise and 469 00:21:00,160 --> 00:21:00,920 Speaker 1: that's what people are. 470 00:21:00,840 --> 00:21:03,880 Speaker 2: Expecting, Sarah, just quickly. As something Lisa mentioned a few 471 00:21:03,880 --> 00:21:06,720 Speaker 2: times this week. We've talked about it before, how utilities 472 00:21:06,720 --> 00:21:08,440 Speaker 2: are going to be perform at a down market, and 473 00:21:08,480 --> 00:21:10,560 Speaker 2: we've got an experience of that yesterday that actually how 474 00:21:10,680 --> 00:21:13,040 Speaker 2: lead the losses on the S and P five hundred 475 00:21:13,280 --> 00:21:15,639 Speaker 2: given the way they've been bid up on this theme, 476 00:21:15,920 --> 00:21:18,320 Speaker 2: are they defensive still in the equity market. 477 00:21:20,200 --> 00:21:22,120 Speaker 1: I think it's hard to make the case that they're defensive. 478 00:21:22,160 --> 00:21:25,400 Speaker 1: And as I said, with the utilities especially, you've got 479 00:21:25,400 --> 00:21:27,760 Speaker 1: a lot of issues that go into permitting, you've got 480 00:21:27,800 --> 00:21:29,560 Speaker 1: a lot of issues that go into spending. There's a 481 00:21:29,560 --> 00:21:31,439 Speaker 1: lot of discussion about how we're going to have to 482 00:21:31,440 --> 00:21:33,639 Speaker 1: build out a better grid, and we are that's not 483 00:21:33,720 --> 00:21:36,399 Speaker 1: a question, but the timing is the question, and the 484 00:21:36,440 --> 00:21:39,040 Speaker 1: regulatory backdrop is going to be the question, and how 485 00:21:39,080 --> 00:21:41,359 Speaker 1: fast you can get things done, because there are awful 486 00:21:41,440 --> 00:21:43,399 Speaker 1: lot of projects that people would like to do that 487 00:21:43,520 --> 00:21:46,359 Speaker 1: get hindered with all sorts of nimby issues and everything else. 488 00:21:46,560 --> 00:21:48,760 Speaker 1: So I think that there's a timing issue for that, 489 00:21:49,080 --> 00:21:51,239 Speaker 1: and there's an extent to which those get bid up 490 00:21:51,560 --> 00:21:52,480 Speaker 1: that are also. 491 00:21:52,200 --> 00:21:53,200 Speaker 3: On the yield side. 492 00:21:53,320 --> 00:21:55,239 Speaker 1: You put those two stories together and it makes them 493 00:21:55,240 --> 00:21:56,000 Speaker 1: a bit vulnerable. 494 00:21:56,160 --> 00:21:58,280 Speaker 2: Got it got to catch up as always, So hum 495 00:21:58,320 --> 00:22:01,119 Speaker 2: there of our pint saxon words, full of those strong numbers. 496 00:22:01,160 --> 00:22:14,520 Speaker 2: Once again from that name in Vidia, Augusmaning of Berenberg, writing, 497 00:22:14,640 --> 00:22:17,199 Speaker 2: this may prefer to wait until after the election is 498 00:22:17,200 --> 00:22:19,679 Speaker 2: out of the way. If either side wins a clear victory, 499 00:22:19,760 --> 00:22:22,800 Speaker 2: US fiscal policy may become more expansionary once again, with 500 00:22:22,960 --> 00:22:26,399 Speaker 2: significant new tax cuts from Republicans or further spending increases 501 00:22:26,600 --> 00:22:28,960 Speaker 2: from Democrats. Holger joints around the table howl, good morning 502 00:22:28,960 --> 00:22:31,080 Speaker 2: to see you. Good morning twenty twenty five, said, talk 503 00:22:31,119 --> 00:22:33,120 Speaker 2: to me about the prospect of raat Heights next year. 504 00:22:33,160 --> 00:22:35,280 Speaker 2: Adam Posen making a case yesterday. 505 00:22:35,520 --> 00:22:38,240 Speaker 9: I don't quite believe it, because we rarely get in 506 00:22:38,320 --> 00:22:41,040 Speaker 9: the US of an electric result which is so clear 507 00:22:41,160 --> 00:22:43,280 Speaker 9: cut that one of the two sides could, in terms 508 00:22:43,280 --> 00:22:47,159 Speaker 9: of fiscal policy, where Congress is in control, really do 509 00:22:47,280 --> 00:22:51,080 Speaker 9: something dramatic. We had huge fiscal initiatives in the US 510 00:22:51,280 --> 00:22:54,080 Speaker 9: right after the pandemic when everybody was kind of panicking 511 00:22:54,119 --> 00:22:57,040 Speaker 9: we need to do something big. But now with that 512 00:22:57,440 --> 00:23:02,080 Speaker 9: unual situation over, we will likely be in Congress in 513 00:23:02,119 --> 00:23:05,159 Speaker 9: regardless of the election results, the precise details into the 514 00:23:05,240 --> 00:23:07,920 Speaker 9: kind of usual gridlock where not much happens at That 515 00:23:08,000 --> 00:23:11,119 Speaker 9: means the fiscal impulse, which is currently propping up the 516 00:23:11,200 --> 00:23:15,280 Speaker 9: US economy, will weaken over time, and that argues for 517 00:23:15,400 --> 00:23:17,600 Speaker 9: rate cuts next year rather than rate hikes. 518 00:23:17,640 --> 00:23:20,320 Speaker 2: What kind of budget deficits you expected? We're running deficits 519 00:23:20,359 --> 00:23:22,960 Speaker 2: of something like sixty seven percent with unemployment sound the 520 00:23:23,000 --> 00:23:23,560 Speaker 2: four percent? 521 00:23:23,760 --> 00:23:24,479 Speaker 3: What do you expecting? 522 00:23:24,520 --> 00:23:25,359 Speaker 2: What's your base case? 523 00:23:25,640 --> 00:23:27,760 Speaker 9: That's in a way a separate question. Even with the 524 00:23:27,760 --> 00:23:30,840 Speaker 9: fiscal impulse sort of petering out, the US will likely 525 00:23:30,920 --> 00:23:34,560 Speaker 9: have fiscal deficits in the range of seven six to 526 00:23:34,640 --> 00:23:37,840 Speaker 9: seven percent for quite a while. But this is sort 527 00:23:37,840 --> 00:23:40,399 Speaker 9: of no longer new Yeah, in a way, that's not 528 00:23:40,440 --> 00:23:43,879 Speaker 9: a new fiscal impact. That's just continuing the strong fiscal 529 00:23:43,920 --> 00:23:46,439 Speaker 9: strands which we've had. That's not new money giving you 530 00:23:46,560 --> 00:23:50,400 Speaker 9: new growth. It's just supporting the economy at the level 531 00:23:50,440 --> 00:23:53,560 Speaker 9: at is. So basically the case is we need to 532 00:23:53,680 --> 00:23:57,880 Speaker 9: rebalance the US policy makes over time in and that 533 00:23:58,000 --> 00:24:01,840 Speaker 9: means monetary policy less restrictive than it's now. We don't 534 00:24:01,840 --> 00:24:04,240 Speaker 9: need to do it now, but we probably will have 535 00:24:04,400 --> 00:24:06,320 Speaker 9: enough to do it in the coming years. Our call 536 00:24:06,400 --> 00:24:08,520 Speaker 9: remains as it has been for quite a while. First 537 00:24:08,520 --> 00:24:09,480 Speaker 9: cut in December. 538 00:24:09,520 --> 00:24:11,160 Speaker 7: It sounds like you didn't make much of the minutes, 539 00:24:11,200 --> 00:24:12,760 Speaker 7: that it didn't change your view, and that you think 540 00:24:12,800 --> 00:24:14,600 Speaker 7: that maybe people are over reacting when you say this 541 00:24:14,640 --> 00:24:16,199 Speaker 7: is a hawkish stilt is changing everything. 542 00:24:16,480 --> 00:24:19,200 Speaker 9: Well, it is a hawkish tilt, yes, But first of all, 543 00:24:19,280 --> 00:24:21,800 Speaker 9: we were not expecting a rate cut before December either, 544 00:24:21,880 --> 00:24:24,480 Speaker 9: So for us, that's just confirmation. Okay, they're not close 545 00:24:24,560 --> 00:24:27,919 Speaker 9: to cutting. They need a lot more evidence. And these are, 546 00:24:27,920 --> 00:24:31,679 Speaker 9: of course the minutes which came before the latest economic data, 547 00:24:31,720 --> 00:24:34,640 Speaker 9: which all sort of consistently show a bit of weakening 548 00:24:34,680 --> 00:24:38,359 Speaker 9: of economic momentum. Plus that inflation for once did not 549 00:24:38,359 --> 00:24:40,639 Speaker 9: surprise to the upside but to the downside. So in 550 00:24:40,680 --> 00:24:42,840 Speaker 9: a way this is kind of past news. 551 00:24:43,119 --> 00:24:46,840 Speaker 7: The minutes everyone was talking about us exceptionalism. I'm wondering 552 00:24:46,840 --> 00:24:48,720 Speaker 7: how long it's going to be until we're talking about 553 00:24:49,040 --> 00:24:53,199 Speaker 7: European sweet spot or European goldilocks. Considering the fact that 554 00:24:53,240 --> 00:24:56,160 Speaker 7: we got but as an expected activity data, in particular 555 00:24:56,240 --> 00:24:58,640 Speaker 7: at Germany, at a time where the ECB is basically 556 00:24:58,680 --> 00:25:02,400 Speaker 7: committed all but committed to a June rate cut. How 557 00:25:02,440 --> 00:25:05,400 Speaker 7: positive is that for the economy and the European rates. 558 00:25:05,280 --> 00:25:08,200 Speaker 9: Well, goldilocks is possibly a big word, but indeed what's 559 00:25:08,240 --> 00:25:11,399 Speaker 9: happening in Europe is the big Putine shock is over. 560 00:25:11,840 --> 00:25:14,560 Speaker 9: That is, the search and energy and food prices which 561 00:25:14,760 --> 00:25:19,560 Speaker 9: drove the economy into stagnation and drove inflation up. We 562 00:25:19,600 --> 00:25:23,600 Speaker 9: are now returning with much lower still somewhat elevated, but 563 00:25:23,760 --> 00:25:26,800 Speaker 9: much lower energy prices. We are now returning to normal, 564 00:25:26,880 --> 00:25:29,680 Speaker 9: and normal does mean growth growth of close to one 565 00:25:29,680 --> 00:25:31,919 Speaker 9: point five percent by the end of this year, and 566 00:25:32,119 --> 00:25:35,639 Speaker 9: normal means inflation settling a bit above two percent. And 567 00:25:35,840 --> 00:25:38,680 Speaker 9: as a result, the ECB no longer needs to think 568 00:25:38,720 --> 00:25:42,440 Speaker 9: about inflation getting too sticky to permanent. They can afford 569 00:25:42,520 --> 00:25:44,040 Speaker 9: to cut rates somewhat. 570 00:25:44,200 --> 00:25:46,480 Speaker 8: When you look at the ECB, though, it's pretty much 571 00:25:46,480 --> 00:25:47,880 Speaker 8: certain they're going to cut in June. 572 00:25:48,000 --> 00:25:49,240 Speaker 3: What happens after. 573 00:25:49,480 --> 00:25:51,880 Speaker 9: The ECB, in my view, will be in the slow lane. 574 00:25:51,960 --> 00:25:54,679 Speaker 9: That is, we do not look for back to back cuts. 575 00:25:54,720 --> 00:25:57,360 Speaker 9: We expect sort of quarterly moves in the next one 576 00:25:57,359 --> 00:26:03,080 Speaker 9: September than December, early next year, because inflation will now 577 00:26:03,240 --> 00:26:06,080 Speaker 9: probably hover around the current level, the economy will be 578 00:26:06,080 --> 00:26:08,880 Speaker 9: picking up. It will probably be only late this year, 579 00:26:09,160 --> 00:26:15,240 Speaker 9: when falling household prices for gas and electricity will probably 580 00:26:15,280 --> 00:26:18,760 Speaker 9: bring headline inflation to or slightly below the target rate 581 00:26:18,800 --> 00:26:21,600 Speaker 9: of two percent, and that's when probably the easy b 582 00:26:21,840 --> 00:26:24,600 Speaker 9: will then do a lot more cutting at the moment 583 00:26:24,880 --> 00:26:26,960 Speaker 9: they have pre announced the June cut, but they'll be 584 00:26:27,000 --> 00:26:28,880 Speaker 9: in the slow lane for a while thereafter. 585 00:26:29,200 --> 00:26:30,960 Speaker 8: Halger I like to circle back something you said in 586 00:26:30,960 --> 00:26:33,639 Speaker 8: the beginning about how for this huge fiscal impulse you 587 00:26:33,680 --> 00:26:36,600 Speaker 8: need to sleep of Congress, which Adam Posen also agreed with. 588 00:26:36,800 --> 00:26:39,760 Speaker 8: But there's one area that could be inflationary that you 589 00:26:39,800 --> 00:26:41,800 Speaker 8: don't need to sleep in Congress, and this is tariffs, 590 00:26:41,840 --> 00:26:44,400 Speaker 8: and that would affect central banks around the world. How 591 00:26:44,440 --> 00:26:47,320 Speaker 8: are you thinking about potentially a Trump administration putting a 592 00:26:47,359 --> 00:26:50,520 Speaker 8: ten percent tariff ring around the United States and sixty 593 00:26:50,560 --> 00:26:52,680 Speaker 8: percent tariffs on Chinese imports. 594 00:26:52,880 --> 00:26:56,320 Speaker 9: Well, teriffs are bad. Sometimes there are good reasons for 595 00:26:56,480 --> 00:27:00,280 Speaker 9: terrorists that can you ask There can be reasons if 596 00:27:00,320 --> 00:27:03,359 Speaker 9: really there is too much of subsidies going on. Yeah, 597 00:27:03,480 --> 00:27:06,880 Speaker 9: but basically tariffs are bad. Terriffs make all of us 598 00:27:06,920 --> 00:27:10,560 Speaker 9: a little poorer. But the impact however, on us inflation, 599 00:27:10,880 --> 00:27:14,160 Speaker 9: This is a huge domestic economy where imports play only 600 00:27:14,200 --> 00:27:16,840 Speaker 9: a modest role. The impact on US inflation maybe in 601 00:27:16,880 --> 00:27:19,560 Speaker 9: the zero point one zero point two percentage point range. 602 00:27:19,720 --> 00:27:23,320 Speaker 9: I don't think that would really really make the crucial difference. 603 00:27:23,640 --> 00:27:26,680 Speaker 9: It would be a bit bigger in smaller economies. If 604 00:27:26,720 --> 00:27:30,360 Speaker 9: they protect themselves in inverted commas, protect with hugeffs, their 605 00:27:30,400 --> 00:27:33,119 Speaker 9: impact on their prices would be bigger. So this is 606 00:27:33,160 --> 00:27:35,159 Speaker 9: a huge concern the tariffs, but less so for the 607 00:27:35,200 --> 00:27:36,000 Speaker 9: inflation outlook. 608 00:27:36,080 --> 00:27:38,480 Speaker 8: But when you say tariffs are bad, are they bad 609 00:27:38,600 --> 00:27:42,840 Speaker 8: if China is dumping supplies on European US markets and 610 00:27:42,880 --> 00:27:45,439 Speaker 8: absolutely obliterating their own industries. 611 00:27:45,560 --> 00:27:48,760 Speaker 9: Well, the first economists response to that is if they 612 00:27:49,440 --> 00:27:51,720 Speaker 9: give us a little gift. Yeah, if we can get 613 00:27:51,760 --> 00:27:54,760 Speaker 9: the electric vehicle, it's cheaper, the solar panels cheaper. Thank 614 00:27:54,800 --> 00:27:56,679 Speaker 9: you for doing that. We don't have to spend the 615 00:27:56,720 --> 00:27:58,760 Speaker 9: money on it. You in China spend the money on 616 00:27:58,800 --> 00:28:01,399 Speaker 9: it with subsidies. The snag is, of course, if that 617 00:28:01,600 --> 00:28:05,040 Speaker 9: core is too much of a disruption, Yeah, then of 618 00:28:05,080 --> 00:28:08,840 Speaker 9: course you might want to slow down the process or 619 00:28:08,920 --> 00:28:13,280 Speaker 9: if there are security concerns involved, and probably lesser for 620 00:28:13,359 --> 00:28:16,960 Speaker 9: solar panels, but with cars electric vehicles, who is getting 621 00:28:16,960 --> 00:28:19,520 Speaker 9: what data? Yeah, do I want China to know where 622 00:28:19,560 --> 00:28:21,960 Speaker 9: twenty five percent of the European cars are currently parked? 623 00:28:22,280 --> 00:28:26,000 Speaker 9: Probably not so. There are serious security concerns which need 624 00:28:26,040 --> 00:28:28,680 Speaker 9: to be addressed with China. Doesn't have to be teriffs 625 00:28:28,880 --> 00:28:31,520 Speaker 9: has to be, for instance, like forcing them to make 626 00:28:31,640 --> 00:28:35,000 Speaker 9: absolutely clear who gets what data, or that the key 627 00:28:35,280 --> 00:28:39,560 Speaker 9: data relevant components actually have to be produced locally in 628 00:28:39,600 --> 00:28:41,840 Speaker 9: the US or in Europe. That's, in a way, I think, 629 00:28:41,840 --> 00:28:44,800 Speaker 9: a better strategy than to have these blanket tariffs. 630 00:28:44,880 --> 00:28:47,000 Speaker 2: Okay, you've got client meetings here in the US. How 631 00:28:47,040 --> 00:28:49,480 Speaker 2: much daylight is that between the US perspective and the 632 00:28:49,520 --> 00:28:51,800 Speaker 2: European one on this issue? 633 00:28:51,960 --> 00:28:55,680 Speaker 9: Well, I think there is among clients, among economists not 634 00:28:55,840 --> 00:29:00,360 Speaker 9: all that much disagreement. There are, of course more political considerations. Well, 635 00:29:00,680 --> 00:29:03,040 Speaker 9: you have the election campaign over here which play your role. 636 00:29:03,320 --> 00:29:05,800 Speaker 9: There are to some extent political considerations in Europe we 637 00:29:05,840 --> 00:29:09,280 Speaker 9: also have this not quite as important European parliamentary election. 638 00:29:09,840 --> 00:29:12,240 Speaker 9: But among I would say the majority of investors and 639 00:29:12,320 --> 00:29:15,600 Speaker 9: economists there as a rough consensus basically tariffs are bad, 640 00:29:16,080 --> 00:29:19,200 Speaker 9: but there are exceptions when you really sometimes have to 641 00:29:19,240 --> 00:29:22,240 Speaker 9: strike back, and especially if you want the other side 642 00:29:22,360 --> 00:29:25,600 Speaker 9: to offer concessions. You have to show your weapons. But 643 00:29:25,800 --> 00:29:28,320 Speaker 9: after showing your weapons, you should sit down at the 644 00:29:28,400 --> 00:29:31,080 Speaker 9: table and talk rather than just weird the weapons. 645 00:29:31,120 --> 00:29:32,880 Speaker 2: We know the German economy better than most. What do 646 00:29:32,880 --> 00:29:34,880 Speaker 2: you think the German auto make us want right now? 647 00:29:35,760 --> 00:29:37,920 Speaker 2: The access to China. 648 00:29:38,120 --> 00:29:40,120 Speaker 9: They'd be the most unhappy with any tit for tet 649 00:29:40,120 --> 00:29:43,480 Speaker 9: trade war. Of course, no China, no doubt. Having said that, 650 00:29:44,720 --> 00:29:48,040 Speaker 9: this is not the key concern I would say for Europe, 651 00:29:48,280 --> 00:29:50,840 Speaker 9: and it's also not that much the key concern for 652 00:29:50,880 --> 00:29:53,720 Speaker 9: the German economy. We have to distinguish between two things. 653 00:29:53,760 --> 00:29:56,840 Speaker 9: The one is the profits that companies make who are 654 00:29:56,840 --> 00:29:59,920 Speaker 9: listed on the German Stock Exchange. The other is what's 655 00:30:00,040 --> 00:30:03,640 Speaker 9: actually the impact on the German economy, and that probably 656 00:30:03,720 --> 00:30:06,320 Speaker 9: would be much less the impact on the German economy 657 00:30:06,360 --> 00:30:08,840 Speaker 9: we have a shortage of skilled daybor for instance. Yeah, 658 00:30:08,920 --> 00:30:11,200 Speaker 9: that would be much less than the potential impact on 659 00:30:11,240 --> 00:30:13,720 Speaker 9: the profits of companies who do a lot of business 660 00:30:13,720 --> 00:30:15,960 Speaker 9: in China and may do less business in China in 661 00:30:16,000 --> 00:30:18,560 Speaker 9: the future, if what hopefully won't be the case, if 662 00:30:18,560 --> 00:30:19,320 Speaker 9: this escalates. 663 00:30:19,400 --> 00:30:21,920 Speaker 2: Interesting interesting perspective, Hoger, Thank you, it's going to see 664 00:30:21,920 --> 00:30:24,480 Speaker 2: you as always. How are Sweden there of Breenberg on 665 00:30:24,520 --> 00:30:26,560 Speaker 2: the latest out of Europe, the United States and least 666 00:30:26,560 --> 00:30:27,920 Speaker 2: of the trajectory for policy. 667 00:30:27,960 --> 00:30:28,120 Speaker 9: Two. 668 00:30:29,000 --> 00:30:32,560 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 669 00:30:32,600 --> 00:30:35,920 Speaker 2: in markets, economics, antient politics. You can watch the show 670 00:30:35,960 --> 00:30:38,920 Speaker 2: live on Bloomberg TV weekday mornings from six am to 671 00:30:39,040 --> 00:30:42,800 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 672 00:30:42,960 --> 00:30:45,160 Speaker 2: or anywhere else you listen, and as always, on the 673 00:30:45,160 --> 00:30:47,560 Speaker 2: Bloomberg Terminal and the Bloomberg Business App.