WEBVTT - Bloomberg Surveillance TV: May 23, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.080 Terminal and the Bloomberg Business app. Joining us now is 0:00:37.159 --> 0:00:40.199 Danid Peterson of the Conference Board, alongside Matt Dezock of 0:00:40.240 --> 0:00:42.879 Merrill and Bank of America Private Bank. Dana, can I 0:00:42.880 --> 0:00:44.760 come to you first, please and just get your response 0:00:44.800 --> 0:00:47.440 to jobless claims, the scare of a few weeks ago. 0:00:47.720 --> 0:00:48.200 Is it over? 0:00:49.800 --> 0:00:51.040 Well, we don't really know. 0:00:51.159 --> 0:00:53.920 But the thing is jabas claims are still extremely low, 0:00:54.200 --> 0:00:57.040 and as Lisa said, many companies are not letting their 0:00:57.080 --> 0:00:59.760 people go. They're holding on to their workers, they're hoarding them, 0:01:00.080 --> 0:01:02.280 and so we're probably not going to see much uptick in. 0:01:02.280 --> 0:01:03.840 The unemployment rate going forward. 0:01:04.640 --> 0:01:07.600 Jobs need companies need them, and also they're facing lots 0:01:07.600 --> 0:01:10.480 of people retiring, so I don't really see the labor 0:01:10.520 --> 0:01:13.160 market weakening significantly over the next year. 0:01:13.120 --> 0:01:14.840 Matt, to bring them into the convi sanction. Do you 0:01:14.880 --> 0:01:17.120 share those thoughts? Do you have that constructive view a 0:01:17.200 --> 0:01:17.679 year round? 0:01:18.080 --> 0:01:20.920 We do share those thoughts. On the employment market. 0:01:21.000 --> 0:01:24.000 Corporate health looks very good right now and today that's 0:01:24.040 --> 0:01:26.639 what's going to drive the employer market. How are companies feeling, 0:01:26.640 --> 0:01:28.240 How are they doing? So we do feel very good 0:01:28.240 --> 0:01:30.800 about that. We're not too concerned about it. But the 0:01:30.880 --> 0:01:33.880 idea that rate hikes don't work, the idea that it 0:01:33.880 --> 0:01:36.920 won't slow the economy somewhat, would be a little skeptical 0:01:36.959 --> 0:01:38.280 in those kind of arguments that we're hearing. 0:01:38.319 --> 0:01:40.959 Well, okay, just taking a step back. You are the one, 0:01:40.959 --> 0:01:43.840 and I think I misattributed this earlier saying that the 0:01:43.840 --> 0:01:47.400 FED pretends to be inflation sensitive but is actually employment sensitive. 0:01:48.120 --> 0:01:51.160 You say rate hikes work, it might just take a 0:01:51.160 --> 0:01:54.000 lot longer. Does that preclude the idea of a rate 0:01:54.120 --> 0:01:57.360 cut if they're employment sensitive and inflation is still too high. 0:01:57.600 --> 0:02:00.360 So we do believe our baseline forecast is will get 0:02:00.400 --> 0:02:04.680 one rate cut this year, probably in December. But to 0:02:04.760 --> 0:02:07.040 your point, it will take time to see these rate 0:02:07.080 --> 0:02:10.400 hikes work their way through the economy. John MONTEI policy 0:02:10.560 --> 0:02:13.000 likes like a year to two years tenure just peaked 0:02:13.040 --> 0:02:15.080 at October November of last year. It's about, you know, 0:02:15.160 --> 0:02:18.000 six months ago. FED funds rate just peaked about nine 0:02:18.000 --> 0:02:20.080 months ago, so we're not even in that twelve to 0:02:20.080 --> 0:02:21.320 twenty four month window. 0:02:21.520 --> 0:02:22.400 Come back to us in. 0:02:22.360 --> 0:02:24.880 Early mid late twenty twenty five to see these rate 0:02:24.919 --> 0:02:27.600 hikes work. So we do think we're starting to see 0:02:27.600 --> 0:02:30.880 some of that now, uptaking credit card delinquencies, up take 0:02:30.880 --> 0:02:34.880 and autodelinquencies, some slow down in consumer spending, Retailers that 0:02:34.919 --> 0:02:37.520 are reporting earning seeing a little shift and mix, and 0:02:37.600 --> 0:02:40.040 lower income guys pulling back a little bit. So we 0:02:40.080 --> 0:02:41.840 are starting to see those effects. We believe, we give 0:02:41.840 --> 0:02:42.720 it time, we'll get there. 0:02:42.800 --> 0:02:45.000 So Dana, can you weigh in on just sort of 0:02:45.360 --> 0:02:48.480 the odd discrepancy right now between what Matt was talking about, 0:02:48.480 --> 0:02:51.640 this slow down between the data that shows that jobless 0:02:51.639 --> 0:02:54.080 claims are not picking up and the fact that people 0:02:54.120 --> 0:02:56.400 feel really bad. I mean, do you have a sense 0:02:56.520 --> 0:02:59.280 of whether it will take actually getting laid off for 0:02:59.320 --> 0:03:02.360 them to spending entirely for that to actually crack the 0:03:02.400 --> 0:03:04.639 market in a more material way, or do you think 0:03:04.680 --> 0:03:07.240 that this steady softening will eventually just bring us down 0:03:07.440 --> 0:03:08.880 to that soft landing nirvana. 0:03:10.160 --> 0:03:12.919 Well, consumers have mixed feelings. 0:03:13.160 --> 0:03:15.600 For the most part, they're happy that they're working right now, 0:03:15.840 --> 0:03:19.040 but they are still very upset about inflation, and certainly 0:03:19.040 --> 0:03:21.120 when they look out six months from now, they have 0:03:21.240 --> 0:03:25.639 concerns about their incomes, employment prospects, and also business prospects. 0:03:25.919 --> 0:03:28.000 And so that's why we've seen some weakening in our 0:03:28.040 --> 0:03:31.840 consumer confidence measure. But when it comes to spending, we 0:03:31.880 --> 0:03:35.120 are seeing consumers pull back. Certainly, they're not buying homes, 0:03:35.160 --> 0:03:37.960 and once the FED raise interest rates and mortgage rates 0:03:38.000 --> 0:03:39.880 shot up, the housing market. 0:03:39.600 --> 0:03:41.080 Responded almost immediately. 0:03:41.320 --> 0:03:44.600 We also so that businesses stopped investing because the cost 0:03:44.640 --> 0:03:47.320 of capital was rising. And we see that consumers are 0:03:47.360 --> 0:03:50.360 pulling back on goods, and our consumer confidence survey suggests 0:03:50.360 --> 0:03:52.800 that they will continue to pull back on those big 0:03:52.840 --> 0:03:55.920 ticket items. The big question now is services. Can they 0:03:55.960 --> 0:03:58.680 continue to spend on services? And the thing is that 0:03:58.800 --> 0:04:01.360 right now consumers are run out of that excess saving, 0:04:01.480 --> 0:04:03.560 so a lot of the trips and things that they're 0:04:03.600 --> 0:04:06.080 going on then services they're consuming, they're putting it on 0:04:06.160 --> 0:04:08.360 credit cards, and we know the interest rates are very 0:04:08.400 --> 0:04:11.560 high for credit cards and the debt services rising. So 0:04:11.760 --> 0:04:13.800 I think that this is all part of the plan, 0:04:14.120 --> 0:04:16.679 and that we will continue to see consumer spending slow 0:04:16.720 --> 0:04:18.000 and that we'll probably have. 0:04:17.880 --> 0:04:19.440 A bit of a soft patch this year. 0:04:19.680 --> 0:04:22.760 But as long as consumers are continuing to work, I 0:04:22.760 --> 0:04:25.120 think the FED can continue to focus on inflation. 0:04:25.400 --> 0:04:28.440 I know how well aligned is consumer confidence with see 0:04:28.640 --> 0:04:29.560 business confidence. 0:04:29.760 --> 0:04:34.839 At the moment, well, businesses CEOs are I would say, 0:04:34.880 --> 0:04:37.840 cautiously optimistic. For about a year and a half they 0:04:37.839 --> 0:04:40.200 were very negative, and then in the last two quarters 0:04:40.480 --> 0:04:45.720 it ticked up above our fifty threshold in terms of optimism. 0:04:45.720 --> 0:04:48.800 But still businesses are saying, look, we're not having trouble 0:04:48.839 --> 0:04:51.680 finding qualified workers, we're not laying people off, we're just 0:04:51.720 --> 0:04:52.680 holding onto people. 0:04:52.960 --> 0:04:54.679 But we're not looking to invest much. 0:04:54.760 --> 0:04:57.200 And the thing is that we are still facing high 0:04:57.240 --> 0:05:00.480 costs from labor because they intend to continue to raise 0:05:00.520 --> 0:05:01.960 wages to hold. 0:05:01.680 --> 0:05:02.560 On to their people. 0:05:02.880 --> 0:05:05.200 But still they're very concerned about a number of risks, 0:05:05.279 --> 0:05:09.640 especially the implications of the elections coming up, and also 0:05:09.839 --> 0:05:13.760 a number of geopolitical issues. So I'd say CEOs are 0:05:14.200 --> 0:05:16.760 not as gloomy as they were last year, but they're 0:05:16.800 --> 0:05:17.920 still very cautious. 0:05:18.160 --> 0:05:18.360 Man. 0:05:18.360 --> 0:05:19.800 This is what we're trying to figure out. How the 0:05:19.839 --> 0:05:22.640 dominoes fall from here. We can identify this week some 0:05:22.680 --> 0:05:25.200 of these retailers have lost pricing power. That's clear. The 0:05:25.240 --> 0:05:27.320 CEOs are talking about it. What we're trying to understand 0:05:27.320 --> 0:05:29.880 is what happens next. How do they protect margins? They 0:05:29.880 --> 0:05:32.159 pull back on costs, what can they do? Do they 0:05:32.200 --> 0:05:34.920 lay people off? To Dana's point, do they hold give 0:05:34.960 --> 0:05:37.039 the experience coming down of the pandemic. What do you 0:05:37.080 --> 0:05:38.720 think the ultimate outcome will pay. 0:05:38.880 --> 0:05:41.720 We do think labor hoarding is probably going to continue. 0:05:41.760 --> 0:05:44.120 And again, when we think about this in a larger context, 0:05:44.120 --> 0:05:45.400 this is not pessimistic news. 0:05:45.400 --> 0:05:47.719 This is good news. This is what we want to see. 0:05:47.880 --> 0:05:50.200 We need to slow the economy somewhat to continue to 0:05:50.200 --> 0:05:53.920 bring inflation down. But the big picture inflation was nine percent. 0:05:53.960 --> 0:05:55.679 It's now down to, you know, three and a half percent. 0:05:55.720 --> 0:05:58.359 Core pcees already below three percent. We don't have to 0:05:58.400 --> 0:06:00.920 worry that much about getting them out to that exact 0:06:01.160 --> 0:06:04.000 on the screws two percent PCE number. 0:06:04.360 --> 0:06:05.919 We're in a much better place right now. 0:06:05.960 --> 0:06:08.760 If you look historically at equity market returns, it doesn't 0:06:08.760 --> 0:06:11.600 matter whether you're zero two percent inflation or two to 0:06:11.640 --> 0:06:14.200 four percent, you do just as well, and nominal just 0:06:14.240 --> 0:06:16.520 as well. In real This is a good news. What 0:06:16.560 --> 0:06:18.920 the Fed is doing will eventually work. They can keep 0:06:19.040 --> 0:06:21.400 rates about this level, maybe trim a little bit end 0:06:21.400 --> 0:06:23.640 of the year, and if they do that, we could 0:06:23.680 --> 0:06:26.480 have that mid nineties setup where everyone thought over session 0:06:26.600 --> 0:06:27.080 was happening. 0:06:27.360 --> 0:06:28.200 It didn't happen. 0:06:28.520 --> 0:06:31.400 Credit spreads stayed tight for a while, equity is absolutely 0:06:31.440 --> 0:06:34.000 ripped for the rest of that decade. So the slowdown 0:06:34.040 --> 0:06:37.039 we're seeing is optimistic, warranted, what we want to see, 0:06:37.120 --> 0:06:38.520 what the Fed's trying to encourage. 0:06:38.600 --> 0:06:40.120 So it sounds like you agree with Dana that this 0:06:40.240 --> 0:06:42.800 is just a soft patch, not going to be softer 0:06:43.040 --> 0:06:46.560 for longer. But to John's point, if these companies are 0:06:46.560 --> 0:06:49.480 having to cut costs, you don't think at any point 0:06:49.680 --> 0:06:52.440 that will mean letting off employees. 0:06:52.600 --> 0:06:54.440 Oh No, I absolutely do believe at some point if 0:06:54.480 --> 0:06:56.719 it continues on this trajectory, that's exactly what you see. 0:06:56.760 --> 0:06:59.000 But that is what you expect to see. So it's 0:06:59.040 --> 0:07:01.720 always a question of that starts to happen. What does 0:07:01.760 --> 0:07:02.279 the FED do? 0:07:02.600 --> 0:07:04.200 And as the show Gud said earlier, I believe it 0:07:04.320 --> 0:07:09.880 was and we completely agree, pretends to be super inflation sensitive. 0:07:10.120 --> 0:07:12.400 Now that eighty to nine percent of inflation fight is done, 0:07:12.440 --> 0:07:14.880 they're not. They're employment sensive. So when they start to 0:07:14.920 --> 0:07:17.000 see that more, which we're not yet but we will, 0:07:17.600 --> 0:07:20.320 then they'll adjust tech. Then hopefully they cut December, then 0:07:20.320 --> 0:07:26.040 they'll cut next year. Fine tune, keep the economic expansion going. 0:07:26.000 --> 0:07:27.800 Dan, and let's build on that. How does that influence 0:07:27.840 --> 0:07:29.200 your fed co for this year? 0:07:30.160 --> 0:07:33.280 Well, we have the FED cutting twice this year, probably 0:07:33.320 --> 0:07:35.920 at November, November, December meetings. 0:07:36.160 --> 0:07:37.480 But I have to disagree a little bit. 0:07:37.560 --> 0:07:41.520 I think the FED is still very inflation sensitive and 0:07:41.520 --> 0:07:44.080 they're probably a little less labor market sensitive. 0:07:44.120 --> 0:07:46.679 Why because you know they'll. 0:07:46.080 --> 0:07:48.480 Be okay if the unemployment rate rises a little bit. 0:07:48.520 --> 0:07:50.520 We have it topping out at four point two percent. 0:07:50.840 --> 0:07:53.880 That's extremely low. Most people want to work, will work. 0:07:54.120 --> 0:07:57.800 But the problem is that everyone experiences inflation, and they 0:07:57.840 --> 0:08:01.560 do want to get key and inflation they gauges back 0:08:01.640 --> 0:08:04.080 sustainably to the two percent target. 0:08:04.120 --> 0:08:06.560 Sustainability is important. They don't want to just touch it 0:08:06.920 --> 0:08:08.520 and then move off of it. 0:08:08.720 --> 0:08:10.280 And the thing is that they have to do that 0:08:10.440 --> 0:08:14.360 because of credibility purposes. They see their target is two percent, 0:08:14.640 --> 0:08:15.840 they want to get it there. 0:08:17.040 --> 0:08:18.560 Do you have a response, So. 0:08:18.760 --> 0:08:20.920 As we think about the inflation numbers, and again they're 0:08:20.920 --> 0:08:23.240 going to officially keep their target two percent, we believe that. 0:08:24.280 --> 0:08:25.720 And you'll have to be a math major for this one. 0:08:25.760 --> 0:08:27.640 If your inflation go to nine percent and never let 0:08:27.680 --> 0:08:29.640 it go below two, you're probably not going to average 0:08:29.640 --> 0:08:31.840 two percent. So they're already the facto kind of faded 0:08:31.840 --> 0:08:33.240 in that inflation target a little bit. 0:08:33.480 --> 0:08:35.520 Again, we don't find out to be a tremendous problem. 0:08:36.640 --> 0:08:39.920 Eight percent inflation problem, two to three andred percent inflation 0:08:40.240 --> 0:08:40.720 not a problem. 0:08:40.720 --> 0:08:42.560 Phenomenal GDP not a problem. 0:08:42.600 --> 0:08:47.160 And meanwhile, fixed income valuations are so much better now 0:08:47.160 --> 0:08:49.880 the tenuars round three percent, when seapowers running at nine percent. 0:08:50.240 --> 0:08:52.520 Now we've got the tenurebout four and a half and 0:08:52.640 --> 0:08:56.920 CPI pc below it. These are good valuation fixing investors. 0:08:57.120 --> 0:08:58.760 We'll get to the bone market in just a moment. 0:08:58.880 --> 0:09:01.320 You say, not a problem. What did Governor Walta give 0:09:01.480 --> 0:09:04.040 last month's reay to Saint plus If it's not a problem. 0:09:04.200 --> 0:09:06.400 To be fair, we're trying to be optimistic here with 0:09:06.400 --> 0:09:10.199 the bog gun, trying to be positive. There are problems 0:09:10.240 --> 0:09:12.760 within the inflation data, particularly as we've all talked about 0:09:12.800 --> 0:09:15.079 on the services side, and right now we're getting goods 0:09:15.120 --> 0:09:19.280 deflation or almost no inflation about zero percent. But you 0:09:19.360 --> 0:09:22.320 can't have an average inflation number of zero percent goods 0:09:22.360 --> 0:09:24.680 and four percent services, and we are seeing uptick in services. 0:09:24.679 --> 0:09:27.480 So there are definitely areas that they need to focus 0:09:27.480 --> 0:09:29.520 on a watch, and the fight's not done, but again 0:09:29.679 --> 0:09:31.840 they're much closer done than they have been and some 0:09:31.880 --> 0:09:33.440 fine tuning hopefully gets them there. 0:09:33.559 --> 0:09:35.240 Dan, I want to pick up on something that you said. 0:09:35.400 --> 0:09:38.160 You think that this FED is particularly inflation sensitive and 0:09:38.240 --> 0:09:41.720 less employment sensitive at a time where potentially we were 0:09:41.760 --> 0:09:44.960 speaking with Adam Posen of the Peterson Institute yesterday. He 0:09:45.080 --> 0:09:49.320 was talking about how a policy shift come December or 0:09:49.400 --> 0:09:53.240 January of next year could single handedly mean an increase 0:09:53.240 --> 0:09:57.160 in tariffs or potentially a change the immigration policy. And frankly, 0:09:57.559 --> 0:10:00.600 the extra immigration a lot of people are arguing has 0:10:00.640 --> 0:10:04.480 made put a downward pressure on inflation that otherwise would. 0:10:04.240 --> 0:10:06.160 Be in the system. Do you think that. 0:10:06.280 --> 0:10:10.120 Given potential inflationary policies that would actually put the FED 0:10:10.160 --> 0:10:13.200 in a really awkward position with a labor market seeing 0:10:13.200 --> 0:10:17.120 the weakness that you're expecting while also seeing inflation remains stickier, 0:10:17.160 --> 0:10:18.080 even inflect upward. 0:10:19.559 --> 0:10:25.280 We're already seeing inflationary pressures from policy, certainly industrial policies 0:10:25.840 --> 0:10:28.920 and the trade wars that we experienced back in twenty 0:10:28.960 --> 0:10:31.640 eighteen twenty nineteen that they are still going on. Those 0:10:31.679 --> 0:10:33.880 are all placing upward pressure on inflation. 0:10:34.440 --> 0:10:37.000 And so the FED is this is the new norm. 0:10:37.040 --> 0:10:39.480 The FED is going to have to operate in the 0:10:39.480 --> 0:10:41.080 world that it's in, and. 0:10:40.880 --> 0:10:44.000 As it sees policies. 0:10:43.640 --> 0:10:48.160 Or consumer behavior, or external events like climate events that 0:10:48.200 --> 0:10:51.080 are pushing up insurance costs, whatever it is, the FED 0:10:51.160 --> 0:10:53.679 is going to have to deal with that within the 0:10:53.720 --> 0:10:56.679 bounds of its mandates, right, And so I think that 0:10:57.400 --> 0:11:01.160 for this year, the FED probably will see that's slowing 0:11:01.160 --> 0:11:03.800 in inflation that it wants to see. It'll feel comfortable 0:11:03.800 --> 0:11:06.839 cutting rates one, maybe two times this year. But next 0:11:06.920 --> 0:11:10.240 year's another story, and they're probably going to have to 0:11:10.320 --> 0:11:14.080 take a more gradual approach to cutting interest rates next year. 0:11:14.400 --> 0:11:16.679 And I think where rates will land will be higher 0:11:17.040 --> 0:11:19.600 than what we saw during the period between the Great 0:11:19.600 --> 0:11:24.000 Financial Crisis and the pandemic, both in nominal and real terms. 0:11:24.040 --> 0:11:27.280 I think that's the new reality. Inflation pressures upward. Inflation 0:11:27.360 --> 0:11:29.960 pressures are the new reality that the FED is going 0:11:30.000 --> 0:11:33.040 to have to resist day in and day out, which. 0:11:33.040 --> 0:11:35.480 Matt really points to this reason why maybe people are 0:11:35.480 --> 0:11:38.840 so optimistic about equities right now because that environment is 0:11:39.080 --> 0:11:42.760 supportive of equity valuations if inflation is actually allowing them 0:11:42.760 --> 0:11:46.760 to increase profitability in some other revenues. As an investors 0:11:46.880 --> 0:11:49.720 chief investment officer, do you say it is a safer 0:11:49.800 --> 0:11:52.640 bet to go with equities at this point than certainly 0:11:52.720 --> 0:11:54.720 duration given that type of backdrop. 0:11:55.120 --> 0:11:57.000 We actually don't actually a slightly different view there. We 0:11:57.080 --> 0:11:58.800 do like equity risk here to be fair, where you 0:11:58.840 --> 0:12:02.559 are slightly overweight equities again two, three, four, even five 0:12:02.679 --> 0:12:06.040 percent inflation again, if you can grow your sales at 0:12:06.080 --> 0:12:07.920 that level thatout selling more goods or services, your earnings 0:12:07.920 --> 0:12:08.439 will do fine. 0:12:08.559 --> 0:12:09.480 Great for equities. 0:12:09.720 --> 0:12:11.040 We do want to take a little more macro risk 0:12:11.080 --> 0:12:13.440 in the portfolios who are slightly overoid equities. At the 0:12:13.440 --> 0:12:15.880 same time, if we look at the valuation picture on 0:12:16.040 --> 0:12:19.440 fixed income, you can easily build a diversified investi grade 0:12:19.480 --> 0:12:21.520 portfolio today of over five percent. 0:12:21.559 --> 0:12:23.160 You haven't seen that in twenty years. 0:12:23.520 --> 0:12:26.599 More importantly, in real rate terms two to two and 0:12:26.640 --> 0:12:30.200 a half percent real if we were talking January twenty 0:12:30.240 --> 0:12:33.080 twenty one, it was negative two percent. Right, for the 0:12:33.080 --> 0:12:35.880 privilege of giving your government one hundred dollars, you could 0:12:35.880 --> 0:12:37.440 get eighty dollars a purchasing. 0:12:37.120 --> 0:12:39.600 Power back in ten years. Thanks for that. 0:12:40.080 --> 0:12:41.160 Now you can give the one hundred and you get 0:12:41.160 --> 0:12:43.000 a hundred twenty dollars back in ten years. So again, 0:12:43.040 --> 0:12:45.640 that actually gets a bond guy excited. I know, maybe 0:12:45.679 --> 0:12:48.120 like you know, five percent yields. You know, if you're 0:12:48.120 --> 0:12:49.800 holding for a whole year, you can get half the 0:12:49.840 --> 0:12:52.600 return of a particular tech dot pre market. But for 0:12:52.640 --> 0:12:56.160 a bondfolk, that's actually interesting. And we have to build 0:12:56.200 --> 0:12:58.840 portfolios for right, joking around a little bit, but we 0:12:58.880 --> 0:13:01.320 have to provide for both those for as what happens, 0:13:01.360 --> 0:13:05.679 we don't expect, and we do expect that treasuries, investigraate 0:13:05.760 --> 0:13:09.120 corporates easie workings back. They will provide diversification, maybe a 0:13:09.160 --> 0:13:10.920 little bit in terms of praise for Reid to come down, 0:13:11.240 --> 0:13:15.600 but more importantly by steady reliable, predictable income year in 0:13:15.640 --> 0:13:18.040 a year. That's how they will diverse our portfolios. So 0:13:18.040 --> 0:13:19.320 we're actually slowly long duration. 0:13:19.440 --> 0:13:20.800 At the moment, it doesn't say much to make you 0:13:20.840 --> 0:13:23.840 happy after the previous decade with ray so low and negative. 0:13:24.040 --> 0:13:26.280 Matt's good to see you been too long. Thank you, sir, 0:13:26.320 --> 0:13:28.800 Matt dezoch there of Meryl and Bank of America Private Bank, 0:13:28.840 --> 0:13:42.160 alongside Dana Peterson of the Conference Board in Vidio soaring 0:13:42.200 --> 0:13:45.080 after delivering yet another beaten race. Sarah Hunt of Vampine 0:13:45.160 --> 0:13:48.600 Saxon words right in this margins look quite strong, although 0:13:48.600 --> 0:13:51.199 there will be a point at which the undersupplied market 0:13:51.200 --> 0:13:54.160 becomes less so in other industries, companies do not get 0:13:54.160 --> 0:13:56.720 as much credit when they are over earning. But the 0:13:56.760 --> 0:14:00.079 bloom remains on the rods for Nvidia here Sarah joins us. 0:14:00.120 --> 0:14:02.120 Now for more, Sarah, let's just start with those stat 0:14:02.160 --> 0:14:04.480 of numbers. Once again, the bar gets higher. They keep 0:14:04.520 --> 0:14:08.719 beating it. How impressive was that yesterday afternoon? I think 0:14:08.760 --> 0:14:08.960 it was. 0:14:08.960 --> 0:14:11.280 Pretty impressive, and I think that the concern was that 0:14:11.320 --> 0:14:14.920 there might be some slowdown in the change of you know, 0:14:15.400 --> 0:14:18.480 it's in the rapid change. Higher has been so fast 0:14:18.760 --> 0:14:20.640 that The question is that that slows down to people 0:14:20.640 --> 0:14:22.680 get worried. People are not worried, and I think the 0:14:22.720 --> 0:14:26.080 fact that they're able to absorb those when they have 0:14:26.280 --> 0:14:28.920 something new coming also tells you that people want to 0:14:28.920 --> 0:14:30.640 get into this game, and it doesn't matter if they 0:14:30.720 --> 0:14:32.760 have to wait for something. They'll take what they can 0:14:32.760 --> 0:14:34.520 get right now because they don't want to get left 0:14:34.520 --> 0:14:36.760 behind in their own development. So I think that it 0:14:37.160 --> 0:14:39.280 was a very strong report. It needed to be a 0:14:39.320 --> 0:14:42.720 strong report, like all Q one. The Brocks needed to perform. 0:14:42.880 --> 0:14:45.120 They did, and that is driving right now, which you 0:14:45.120 --> 0:14:47.400 can see as another series of potential all timeimes. 0:14:47.400 --> 0:14:49.320 Today you can see on the screen up seven percent 0:14:49.400 --> 0:14:52.520 in video broad come up to ADMD, up by three 0:14:52.560 --> 0:14:54.760 percent in the pre market as well, Sarah, When you 0:14:54.800 --> 0:14:57.320 go through these names, there's an AI theme. What is 0:14:57.360 --> 0:14:59.760 and what isn't driven by this theme in this equity 0:14:59.760 --> 0:15:01.960 market right now, given you tendencies are up by seven 0:15:02.000 --> 0:15:03.760 to white percent so far this month. 0:15:05.360 --> 0:15:07.880 I think it's a lot of the stock market is 0:15:07.920 --> 0:15:10.920 hanging on not just the idea of AI in and 0:15:10.960 --> 0:15:13.280 of itself, but the productivity gains that it's going to 0:15:13.320 --> 0:15:15.680 bring and the fact that that can help with its 0:15:15.720 --> 0:15:18.680 economic oath, and I think that's been the biggest question 0:15:18.760 --> 0:15:20.600 is what happens coming out of this pandemic and what 0:15:20.680 --> 0:15:22.640 is going to fuel the next leg of growth. 0:15:22.480 --> 0:15:23.320 In the economy. 0:15:23.560 --> 0:15:25.560 And this is at least giving the market a story 0:15:25.560 --> 0:15:27.760 to tell itself whether or not that's going to happen 0:15:27.800 --> 0:15:30.480 in the time frame that people are looking for. You know, 0:15:30.520 --> 0:15:32.240 if someone was talking about how long it takes to 0:15:32.280 --> 0:15:35.960 permit elect company changes, it's enormous. There's a long time 0:15:36.000 --> 0:15:38.280 frame that's going to take. But you've got an infrastructure 0:15:38.320 --> 0:15:40.520 build that's going to go on here. And I think 0:15:40.640 --> 0:15:43.920 right now, as we get more use cases, that seems 0:15:44.000 --> 0:15:46.120 like something that we can continue to think about. If 0:15:46.160 --> 0:15:48.640 it turns out that this doesn't work as well or 0:15:48.720 --> 0:15:51.600 it's not giving that productivity, that'll be a different story. 0:15:51.640 --> 0:15:54.000 But we're not even close to that discernment yet. 0:15:54.320 --> 0:15:56.640 What I find fascinating Sarah and John was alluding to 0:15:56.640 --> 0:15:59.360 this the idea that we talk about the said right 0:15:59.440 --> 0:16:02.280 hiking site that left rates the highest levels in decades, 0:16:02.280 --> 0:16:05.480 and why is this economy so insensitive to that? Will 0:16:05.520 --> 0:16:08.840 you overlay a super cycle that is completely secular, that 0:16:08.960 --> 0:16:12.440 is independent of the macrocycle with respect to Nvidia and 0:16:12.520 --> 0:16:15.280 all of the investments from big tech, how much can that. 0:16:15.280 --> 0:16:16.640 Keep going regardless of. 0:16:16.600 --> 0:16:19.840 What happens in the macroeconomic backdrop, regardless of whether there 0:16:19.920 --> 0:16:22.080 is a downturn in some of the areas that we're 0:16:22.080 --> 0:16:23.160 already seeing softening. 0:16:24.440 --> 0:16:27.040 Well, that's an excellent point, and that's exactly sort of 0:16:27.080 --> 0:16:29.960 when people start talking about is the economy rates sensitive 0:16:30.040 --> 0:16:32.520 the way it used to be in this particular sector, 0:16:32.600 --> 0:16:34.960 It isn't. In fact, higher rates for companies that are 0:16:35.040 --> 0:16:37.240 both cash generative and have a lot of cash sitting 0:16:37.240 --> 0:16:39.480 on their balance sheets is helpful to them because it's 0:16:39.520 --> 0:16:41.880 giving them some return on their cash, where for the 0:16:42.000 --> 0:16:44.520 last decade and a half they were getting nothing. But 0:16:44.560 --> 0:16:48.000 it's these giant cash generating juggernauts that are really fueling 0:16:48.000 --> 0:16:50.240 the spending boom, and that's not going to be effected 0:16:50.560 --> 0:16:53.200 by higher rates. So I think that there is you know, 0:16:53.280 --> 0:16:55.920 how does not come about the AI cycle? I think 0:16:55.920 --> 0:16:58.040 the market would be struggling because the question would be 0:16:58.280 --> 0:17:00.600 what's going to happen to the economy next. This is 0:17:00.640 --> 0:17:02.680 giving people the reason to say there's a lot of 0:17:02.680 --> 0:17:05.240 ways that we can see efficiencies here. Unfortunately, I think 0:17:05.240 --> 0:17:06.960 a lot of those efficiencies are going to end up 0:17:06.960 --> 0:17:09.600 being with less people working. But that's the question as 0:17:09.640 --> 0:17:12.240 we move forward. It's not a question right at this minute. 0:17:12.320 --> 0:17:14.920 Right now, we're building the infrastructure. And if I think 0:17:14.960 --> 0:17:17.720 about the build out for the Internet boom and how 0:17:18.320 --> 0:17:20.960 dark fiber and all these things that were ancillary to 0:17:21.080 --> 0:17:24.439 the Internet growing, You've had a lot of companies that 0:17:24.440 --> 0:17:26.600 were generating no cash. You had a lot of customers 0:17:26.600 --> 0:17:29.400 that needed to be financed. Right now you've got customers 0:17:29.440 --> 0:17:31.480 that don't need any financing. They've got plenty of cash, 0:17:31.680 --> 0:17:33.520 they're willing to spend it. And I think that that's 0:17:34.200 --> 0:17:37.040 it of itself, a cycle that is not necessarily very sensitive. 0:17:37.160 --> 0:17:40.000 We were talking earlier this morning with Duidi Bahugna about 0:17:40.400 --> 0:17:42.600 whether the sixty forty is kind of dead, and I 0:17:42.600 --> 0:17:44.520 would take that a step further and ask a question 0:17:44.520 --> 0:17:46.679 about whether some of these big tech stocks are the 0:17:46.720 --> 0:17:50.119 safety plays at a time where there's more uncertainty on 0:17:50.160 --> 0:17:52.840 the fiscal side, is more uncertainty on some of the 0:17:52.880 --> 0:17:56.159 voluntary policy than there is in just the ability for 0:17:56.240 --> 0:17:59.080 these companies right now to make bank even with their 0:17:59.119 --> 0:17:59.800 cash piles. 0:18:01.359 --> 0:18:03.480 Well, I think that that becomes a question of valuation, 0:18:03.560 --> 0:18:05.600