1 00:00:02,440 --> 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 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,840 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,159 --> 00:00:39,400 Speaker 1: Katrina Dudley of Franklin Templeton writing this, we continue to 11 00:00:39,400 --> 00:00:41,879 Speaker 1: believe in a soft landing. Today's economy is better than 12 00:00:41,920 --> 00:00:43,360 Speaker 1: it was at the beginning. 13 00:00:43,080 --> 00:00:43,440 Speaker 3: Of the year. 14 00:00:43,520 --> 00:00:46,280 Speaker 1: The one risk on the horizon is the impact of 15 00:00:46,320 --> 00:00:48,960 Speaker 1: the presidential election. Katrina, I'm so pleased to say, joins 16 00:00:49,000 --> 00:00:51,479 Speaker 1: us now, Katrina, Before we get to the presidential election, 17 00:00:51,760 --> 00:00:53,840 Speaker 1: we have to go to the fact that we began 18 00:00:53,920 --> 00:00:56,040 Speaker 1: the show saying that the runway to a soft landing 19 00:00:56,040 --> 00:00:58,279 Speaker 1: skeet of narrower and narrow and you're basically coming out 20 00:00:58,280 --> 00:01:01,520 Speaker 1: and saying, actually it's completely opposite, and people are getting 21 00:01:01,560 --> 00:01:05,120 Speaker 1: more confident and we have complete conviction. Could you just 22 00:01:05,160 --> 00:01:06,920 Speaker 1: sort of bring that together. 23 00:01:07,200 --> 00:01:09,319 Speaker 4: Okay, So if we think about a soft landing and 24 00:01:09,319 --> 00:01:12,080 Speaker 4: you're talking about that runway being narrower, that's just the 25 00:01:12,120 --> 00:01:15,200 Speaker 4: impact of data coming into the market and informing our 26 00:01:15,200 --> 00:01:17,640 Speaker 4: investment opinions. So, first of all, if we look at 27 00:01:17,680 --> 00:01:20,000 Speaker 4: the beginning of the year and look at where we are. 28 00:01:20,160 --> 00:01:22,360 Speaker 4: At the beginning of the year, the market was predicting 29 00:01:22,560 --> 00:01:25,000 Speaker 4: six rate cuts. We were actually much lower in terms 30 00:01:25,040 --> 00:01:27,000 Speaker 4: of the number of FED rate cuts, so we were 31 00:01:27,000 --> 00:01:30,600 Speaker 4: actually slightly more optimistic. The market has come towards US. 32 00:01:30,920 --> 00:01:34,039 Speaker 4: It's interesting though, because now soft landing is considered a 33 00:01:34,080 --> 00:01:37,800 Speaker 4: bullish scenario, and I think that that really it just 34 00:01:37,920 --> 00:01:41,800 Speaker 4: doesn't understand the resilience of the US economy. It doesn't 35 00:01:41,840 --> 00:01:45,160 Speaker 4: also look at the fact that there are opportunities outside 36 00:01:45,200 --> 00:01:47,680 Speaker 4: of the US market as well, so you look at 37 00:01:47,760 --> 00:01:51,120 Speaker 4: valuations and everything. So when we look at this soft 38 00:01:51,200 --> 00:01:54,480 Speaker 4: landing scenario, we're very positive. We go into the second 39 00:01:54,520 --> 00:01:58,000 Speaker 4: half of the year. I think that we've got good 40 00:01:58,040 --> 00:02:02,000 Speaker 4: earning support, we have a labor market that is not inflationary, 41 00:02:02,120 --> 00:02:04,680 Speaker 4: and we do think that if I look at you 42 00:02:04,800 --> 00:02:08,520 Speaker 4: the impact of AI and all of those things. We 43 00:02:08,600 --> 00:02:10,560 Speaker 4: think it's positive for a lot of sectors. 44 00:02:10,639 --> 00:02:12,160 Speaker 1: Do you think Mary Day is wrong of the San 45 00:02:12,160 --> 00:02:15,360 Speaker 1: Francisco FED that this could be an inflection point and 46 00:02:15,360 --> 00:02:18,080 Speaker 1: that often it's sort of nonlinear when you see some 47 00:02:18,200 --> 00:02:19,600 Speaker 1: kind of weakening and a labor market. 48 00:02:20,360 --> 00:02:22,760 Speaker 4: I think in terms of calling an inflection point is 49 00:02:22,960 --> 00:02:25,640 Speaker 4: very very difficult because you're calling a kind of point 50 00:02:25,760 --> 00:02:28,000 Speaker 4: estimate in time. And we look at the fact that 51 00:02:28,040 --> 00:02:31,600 Speaker 4: you've got a FED, which we really do congratulate for 52 00:02:31,680 --> 00:02:35,160 Speaker 4: the fact that they have been telegraphing so clearly what 53 00:02:35,200 --> 00:02:38,480 Speaker 4: they're paying attention to. They're paying attention to inflation, and 54 00:02:38,520 --> 00:02:40,760 Speaker 4: we've spent a lot of time talking about that because 55 00:02:40,800 --> 00:02:43,640 Speaker 4: it's come from such high levels. They're also watching that 56 00:02:43,840 --> 00:02:49,080 Speaker 4: unemployment number, but we're coming from historically low levels of unemployment, 57 00:02:49,280 --> 00:02:52,640 Speaker 4: and so we can normalize unemployment and we can still 58 00:02:52,680 --> 00:02:53,800 Speaker 4: have a supportive market. 59 00:02:54,280 --> 00:02:56,640 Speaker 5: I want to ask about what supports that market. The 60 00:02:56,720 --> 00:02:59,120 Speaker 5: environment is positive, but we're talking about a soft landing. 61 00:02:59,160 --> 00:03:01,640 Speaker 5: We're not talking about some huge growth engine, or maybe 62 00:03:01,639 --> 00:03:04,120 Speaker 5: correct me, maybe we are. But how do the cyclical 63 00:03:04,160 --> 00:03:07,440 Speaker 5: stocks catch up if, again, it isn't this huge bout 64 00:03:07,440 --> 00:03:09,280 Speaker 5: of growth, If it's just kind of this anemix off 65 00:03:09,400 --> 00:03:11,160 Speaker 5: landing and anemic. 66 00:03:10,680 --> 00:03:12,919 Speaker 4: Amount of growth is actually good for companies. You know, 67 00:03:13,040 --> 00:03:15,799 Speaker 4: kind of a really aggressive amount of growth where you've 68 00:03:15,800 --> 00:03:18,880 Speaker 4: got so many things happening, it's very difficult to plan 69 00:03:19,000 --> 00:03:21,799 Speaker 4: for when you're sitting in that CEOC when you've kind 70 00:03:21,800 --> 00:03:25,239 Speaker 4: of got teppered, but you've got predictable growth. I think 71 00:03:25,240 --> 00:03:28,200 Speaker 4: it's much easier to plan and to forward forecast if 72 00:03:28,240 --> 00:03:30,240 Speaker 4: I was to tell you that, you know, we know 73 00:03:30,360 --> 00:03:32,640 Speaker 4: that things are only grow two to three percent, you 74 00:03:32,639 --> 00:03:35,080 Speaker 4: can kind of get some productivity gains in order to 75 00:03:35,080 --> 00:03:37,200 Speaker 4: be able to manage that, and so you can manage 76 00:03:37,200 --> 00:03:40,480 Speaker 4: your cost in order to meet that revenue. When things 77 00:03:40,480 --> 00:03:44,120 Speaker 4: are going your gangbusters and your market's growing ten or 78 00:03:44,160 --> 00:03:47,080 Speaker 4: your revenues are growing ten fifteen percent, you're just adding 79 00:03:47,120 --> 00:03:50,119 Speaker 4: bodies and you're adding cost and then you take care 80 00:03:50,160 --> 00:03:53,240 Speaker 4: of the efficiency. So I do think that productivity is 81 00:03:53,280 --> 00:03:55,640 Speaker 4: where we're actually going to see some upward surprises in 82 00:03:55,760 --> 00:03:57,680 Speaker 4: terms of driving earnings going forward. 83 00:03:58,040 --> 00:04:00,240 Speaker 5: Does this market make sense to you right now? I mean, 84 00:04:00,240 --> 00:04:01,920 Speaker 5: maybe we want to strip out the n video to 85 00:04:01,960 --> 00:04:03,560 Speaker 5: ask does it make sense? But okay, let's say we 86 00:04:03,560 --> 00:04:05,600 Speaker 5: strip out you look at the rest of this market 87 00:04:05,600 --> 00:04:08,480 Speaker 5: and market where over the past quarter it's been utilities 88 00:04:08,480 --> 00:04:10,200 Speaker 5: and staples that have done well and the others have 89 00:04:10,280 --> 00:04:12,680 Speaker 5: lad do you look at that and say, Okay, given 90 00:04:12,720 --> 00:04:14,880 Speaker 5: we're trying to approach this landing, that all makes sense 91 00:04:14,960 --> 00:04:17,000 Speaker 5: or it is something strange happening to you. 92 00:04:17,040 --> 00:04:20,120 Speaker 4: So the concerns about the consumer are not new news 93 00:04:20,200 --> 00:04:22,640 Speaker 4: in the last couple of weeks. I mean you talk 94 00:04:22,680 --> 00:04:26,200 Speaker 4: about McDonald's for example, they were used three six months 95 00:04:26,200 --> 00:04:28,960 Speaker 4: ago talking about the fact that we're seeing a shift 96 00:04:29,640 --> 00:04:32,680 Speaker 4: in the consumer to being more cost conscious and what 97 00:04:32,720 --> 00:04:36,039 Speaker 4: does that mean. When McDonald's sees the shift, they use data, 98 00:04:36,120 --> 00:04:38,280 Speaker 4: They use a lot of technology in order to be 99 00:04:38,320 --> 00:04:40,840 Speaker 4: able to forward project and they say, we are going 100 00:04:40,920 --> 00:04:44,480 Speaker 4: to bring out more cost conscious offerings to meet the 101 00:04:44,480 --> 00:04:48,400 Speaker 4: consumer where they're at. And that's a really key aspect 102 00:04:48,520 --> 00:04:50,800 Speaker 4: of what a company needs to do. You need to 103 00:04:50,920 --> 00:04:53,920 Speaker 4: understand what's going on. So we already have known that 104 00:04:54,080 --> 00:04:57,200 Speaker 4: consumer has gotten more cost conscious. You're going over to 105 00:04:57,240 --> 00:04:59,960 Speaker 4: the oil prices and looking at what's happening at the pump. 106 00:05:00,160 --> 00:05:03,040 Speaker 4: We know that that's also starting to pressure the consumer. 107 00:05:03,400 --> 00:05:06,799 Speaker 4: Interestingly enough, you know a lot of people are using 108 00:05:06,800 --> 00:05:10,880 Speaker 4: the strong US dollar to travel internationally, so oil prices 109 00:05:10,880 --> 00:05:14,200 Speaker 4: are actually not such a big component of the cost 110 00:05:14,240 --> 00:05:17,520 Speaker 4: of travel in this you know, summer vacation series as 111 00:05:17,520 --> 00:05:20,000 Speaker 4: they've been in the past. So I think that there's 112 00:05:20,040 --> 00:05:22,600 Speaker 4: just a lot of dynamics going on in the market. 113 00:05:22,640 --> 00:05:24,640 Speaker 4: But we look at it the fact that you've got 114 00:05:24,680 --> 00:05:28,240 Speaker 4: a high end consumer supported by a strong stock market, 115 00:05:28,279 --> 00:05:31,760 Speaker 4: and they're very much a driver. The middle income consumer 116 00:05:31,839 --> 00:05:33,960 Speaker 4: has got a lot of good things going for them, 117 00:05:34,200 --> 00:05:37,200 Speaker 4: and the lower end consumer we're paying attention to, but 118 00:05:37,279 --> 00:05:40,200 Speaker 4: that strength in the job market is really positive for them. 119 00:05:40,240 --> 00:05:42,520 Speaker 6: I'm glad you've got to travel because in the consumer 120 00:05:42,600 --> 00:05:45,880 Speaker 6: confidence survey yesterday, one thing they did notice, even though 121 00:05:45,880 --> 00:05:49,560 Speaker 6: we have seen some subdued sentiment, is that most respondents 122 00:05:49,600 --> 00:05:51,520 Speaker 6: say they plan to take at least half We're saying 123 00:05:51,560 --> 00:05:54,600 Speaker 6: they plan to take some sort of vacation the second half. 124 00:05:54,360 --> 00:05:54,800 Speaker 4: Of the year. 125 00:05:55,160 --> 00:05:58,120 Speaker 6: So does that still maintain this idea that Okay, we've 126 00:05:58,120 --> 00:06:00,480 Speaker 6: seen disinflation, but services is going to be the. 127 00:06:00,360 --> 00:06:03,839 Speaker 4: Most difficult services in terms of what the number involves. 128 00:06:03,839 --> 00:06:06,320 Speaker 4: The biggest driver there is actually the housing market and 129 00:06:06,360 --> 00:06:09,040 Speaker 4: what's happening on the rent side of things, and that's 130 00:06:09,080 --> 00:06:12,880 Speaker 4: a very significant lagging indicator, and so I think that 131 00:06:12,960 --> 00:06:15,600 Speaker 4: the indication there is that that number is going to 132 00:06:15,600 --> 00:06:17,800 Speaker 4: come down. So we really need to pay attention to 133 00:06:17,839 --> 00:06:20,800 Speaker 4: that second derivative impact. So we do think that there's 134 00:06:20,880 --> 00:06:24,880 Speaker 4: less inflation there In terms of traveling abroad, it is 135 00:06:24,920 --> 00:06:28,640 Speaker 4: the strength of the dollar that's really driving that. I mean, 136 00:06:28,920 --> 00:06:32,200 Speaker 4: I'm heading over to London and to Portugal, and you 137 00:06:32,240 --> 00:06:34,360 Speaker 4: look at the prices that we're going to be paying 138 00:06:34,400 --> 00:06:37,920 Speaker 4: for accommodation, for trips and for travel, and it's significantly 139 00:06:38,120 --> 00:06:41,200 Speaker 4: lower and that's a really big driver for a lot 140 00:06:41,240 --> 00:06:42,760 Speaker 4: of these travel Before we let. 141 00:06:42,680 --> 00:06:44,159 Speaker 1: You go, you said that the biggest risk is the 142 00:06:44,279 --> 00:06:47,480 Speaker 1: election later this year. Is there are scenario in your 143 00:06:47,520 --> 00:06:51,240 Speaker 1: mind about which presidential candidate could potentially be more disruptive 144 00:06:51,240 --> 00:06:51,840 Speaker 1: to the market. 145 00:06:52,279 --> 00:06:54,560 Speaker 4: I think the reason we talk about the fact that 146 00:06:54,600 --> 00:06:57,560 Speaker 4: the presidential election is disruptive is the fact that there 147 00:06:57,640 --> 00:07:00,320 Speaker 4: is no clear contender for the White House we can 148 00:07:00,400 --> 00:07:03,720 Speaker 4: bank on, and you've had some data earlier to yesterday. 149 00:07:04,240 --> 00:07:06,520 Speaker 4: So if I take a look at what we think 150 00:07:06,640 --> 00:07:09,640 Speaker 4: is going to happen, each of them has a unique platform, 151 00:07:09,880 --> 00:07:11,920 Speaker 4: and each of them has sectors of the market that 152 00:07:11,960 --> 00:07:14,920 Speaker 4: will work if they're elected. And not work if they're not. 153 00:07:15,280 --> 00:07:18,040 Speaker 4: And that's the uncertainty that we're talking about in terms 154 00:07:18,080 --> 00:07:20,680 Speaker 4: of it's a difference in policy and the fact that 155 00:07:20,720 --> 00:07:24,280 Speaker 4: you don't have a clear person that is going into 156 00:07:24,320 --> 00:07:27,080 Speaker 4: the White House. As a result, what will happen is 157 00:07:27,080 --> 00:07:29,080 Speaker 4: that all of the stocks will price in the fact 158 00:07:29,080 --> 00:07:30,960 Speaker 4: that you're going to lose. Everyone likes to price in 159 00:07:31,000 --> 00:07:33,400 Speaker 4: their downside. So we do think that once we get 160 00:07:33,440 --> 00:07:35,880 Speaker 4: through the election, we'll have that kind of those games 161 00:07:35,880 --> 00:07:38,000 Speaker 4: come back into the market that we see the risk. 162 00:07:38,240 --> 00:07:51,280 Speaker 1: Katrina Dudley, thank you so much. Neil Dadda a macro 163 00:07:51,360 --> 00:07:54,880 Speaker 1: renaissance research, a renaissance macro writing this, the Fed needs 164 00:07:54,880 --> 00:07:57,480 Speaker 1: to get on with it. The rationale for cutting policy 165 00:07:57,560 --> 00:08:01,200 Speaker 1: rates is quite strong. In short, unemployment is up, cor 166 00:08:01,240 --> 00:08:04,440 Speaker 1: inflation is down. This is why a federal funds rate 167 00:08:04,560 --> 00:08:07,880 Speaker 1: based on simple monetary policy rules that relate changes to 168 00:08:07,960 --> 00:08:11,920 Speaker 1: unemployment and inflation to a policy rate, suggest cuts now, 169 00:08:12,080 --> 00:08:14,800 Speaker 1: Neil joins is now, Neil, I love this idea that 170 00:08:14,840 --> 00:08:17,720 Speaker 1: you're on the same page with Mike Wilson. After having 171 00:08:17,800 --> 00:08:20,080 Speaker 1: quite a bit of divergence for a number of years. 172 00:08:20,400 --> 00:08:22,200 Speaker 1: Why are you saying just get on with it, and 173 00:08:22,200 --> 00:08:24,360 Speaker 1: why are you beating the drum right now saying as 174 00:08:24,400 --> 00:08:27,240 Speaker 1: loud as you possibly can, you are making a mistake. 175 00:08:29,200 --> 00:08:31,640 Speaker 3: Well, so I would say a couple of things. I mean, 176 00:08:31,720 --> 00:08:35,360 Speaker 3: to me, it's just look at the realized data. You know, 177 00:08:35,440 --> 00:08:39,200 Speaker 3: the unemployment rate is up. It's up about sixty basis 178 00:08:39,200 --> 00:08:42,640 Speaker 3: points from it's low. It's so far it's been rising 179 00:08:42,679 --> 00:08:46,560 Speaker 3: about thirty basis points every five months, which all LSEQL 180 00:08:46,559 --> 00:08:49,480 Speaker 3: would imply that it would be around four point four 181 00:08:49,480 --> 00:08:51,480 Speaker 3: percent per year end. That's higher than where the Fed 182 00:08:51,559 --> 00:08:54,120 Speaker 3: currently thinks it's going to be. And if you look 183 00:08:54,120 --> 00:08:58,360 Speaker 3: at core inflation, after some wobbling earlier this year, which 184 00:08:58,400 --> 00:09:01,880 Speaker 3: I think the Fed is a little bit too concerned about, 185 00:09:03,200 --> 00:09:06,720 Speaker 3: generally speaking, the trend in inflation is lower. Core PC 186 00:09:06,880 --> 00:09:09,080 Speaker 3: inflation is likely to be around two and a half 187 00:09:09,120 --> 00:09:15,839 Speaker 3: percent in May. And to me, it's thinking about which 188 00:09:15,960 --> 00:09:18,840 Speaker 3: direction are both of these indicators going over the next 189 00:09:18,840 --> 00:09:22,080 Speaker 3: six months. What's the risk for unemployment? Is it higher 190 00:09:22,200 --> 00:09:24,360 Speaker 3: or lower from here? I mean, with initial job this 191 00:09:24,520 --> 00:09:28,480 Speaker 3: claims rising and the hiring rate low, I think the 192 00:09:28,600 --> 00:09:31,079 Speaker 3: risk is that the unemployment may rise a little bit, 193 00:09:31,160 --> 00:09:33,320 Speaker 3: not a lot, but a little bit from here. And 194 00:09:33,400 --> 00:09:37,880 Speaker 3: with respect to core inflation. There's still a significant amount 195 00:09:37,920 --> 00:09:40,720 Speaker 3: of disinflation in the pipeline, and Powell's going around worrying 196 00:09:40,720 --> 00:09:44,199 Speaker 3: about import prices. The dollars basically running it year today highs. 197 00:09:44,240 --> 00:09:47,200 Speaker 3: That's going to put downward pressure on imported consumer good prices. 198 00:09:48,480 --> 00:09:51,360 Speaker 3: We know that things like used car prices have more 199 00:09:51,440 --> 00:09:56,120 Speaker 3: room to deflate over the summer. New car prices are 200 00:09:56,160 --> 00:10:00,240 Speaker 3: already declining year over year, and auto adjacent service is 201 00:10:00,360 --> 00:10:04,080 Speaker 3: like maintenance, repair, motor vehicle insurance, those will continue to 202 00:10:04,160 --> 00:10:04,640 Speaker 3: come down. 203 00:10:05,000 --> 00:10:07,360 Speaker 1: Well, I just want to break in. No, I just 204 00:10:07,400 --> 00:10:09,280 Speaker 1: want to break in here because I understand all of 205 00:10:09,320 --> 00:10:10,959 Speaker 1: these points, and I think that they're valid points, and 206 00:10:10,960 --> 00:10:13,840 Speaker 1: I would love to talk extensively about each individual one, 207 00:10:13,960 --> 00:10:16,280 Speaker 1: especially in light of the fact that inflation came in 208 00:10:16,320 --> 00:10:19,000 Speaker 1: hotter than expected in Canada, came in hotter than expected 209 00:10:19,040 --> 00:10:22,240 Speaker 1: in Australia, and some people are arguing that some of 210 00:10:22,280 --> 00:10:25,079 Speaker 1: these indicators are going to reverse into next year, especially 211 00:10:25,120 --> 00:10:27,520 Speaker 1: if rates come down. I'm thinking of housing in particular. 212 00:10:27,840 --> 00:10:30,560 Speaker 1: How do you assuage those concerns, especially given the readings 213 00:10:30,559 --> 00:10:32,600 Speaker 1: we got in Australia as well as Canada. 214 00:10:33,200 --> 00:10:35,440 Speaker 3: Well, come on, Lisa, you're cherry picking some of the data. 215 00:10:35,440 --> 00:10:37,720 Speaker 3: I mean this is after I mean Canada's cutting because 216 00:10:37,760 --> 00:10:40,080 Speaker 3: the inflation numbers were coming in better than expected a 217 00:10:40,080 --> 00:10:42,319 Speaker 3: few months ago, so we're going to I mean, look, 218 00:10:42,360 --> 00:10:44,080 Speaker 3: I mean these numbers have in play. You have to 219 00:10:44,600 --> 00:10:47,520 Speaker 3: you have to have a fundamental framework for why the 220 00:10:47,640 --> 00:10:49,960 Speaker 3: data will move the way they do. You can't just 221 00:10:50,040 --> 00:10:52,480 Speaker 3: be a slave to the high frequency numbers as they 222 00:10:52,520 --> 00:10:55,480 Speaker 3: come in, because that's a recipe for making a mistake. 223 00:10:55,520 --> 00:10:58,000 Speaker 3: You have to actually have a fundamental framework for how 224 00:10:58,040 --> 00:11:01,959 Speaker 3: these things will operate. Where's the upward inflation surprise coming from. 225 00:11:02,240 --> 00:11:04,440 Speaker 3: I mean, if the Fed's cutting, you know, it's interesting 226 00:11:04,480 --> 00:11:06,880 Speaker 3: financial conditions people are making that argument, Well, if the 227 00:11:06,880 --> 00:11:10,199 Speaker 3: fedies's financial conditions will ease, growth will pop and so forth. 228 00:11:10,360 --> 00:11:13,080 Speaker 3: Look at mortgage purchase applications, Lisa, I mean, yeah, the 229 00:11:13,160 --> 00:11:16,040 Speaker 3: fact that rates have been already coming down. If you 230 00:11:16,040 --> 00:11:18,720 Speaker 3: look at ten year yeelds, they've generally been falling. What's 231 00:11:18,760 --> 00:11:21,360 Speaker 3: that done for purchase applications? Well, not much of anything, 232 00:11:21,559 --> 00:11:22,480 Speaker 3: not much of anything. 233 00:11:22,600 --> 00:11:24,080 Speaker 1: The other thing is is that when you talk about 234 00:11:24,160 --> 00:11:26,960 Speaker 1: cherry picking data, you could cherry pick data any which 235 00:11:27,000 --> 00:11:29,080 Speaker 1: way and you could tell a different story. It's not 236 00:11:29,160 --> 00:11:32,320 Speaker 1: as if there's one overarching narrative that dominates. So it 237 00:11:32,360 --> 00:11:35,400 Speaker 1: seems like you've coalesced around one set of data that 238 00:11:35,520 --> 00:11:37,760 Speaker 1: is more important to you than say, all of the 239 00:11:37,840 --> 00:11:41,480 Speaker 1: perspectives that we're getting from say carnival with travel picking up, 240 00:11:41,559 --> 00:11:45,360 Speaker 1: the idea of you know, certain, you know, retail sales 241 00:11:45,440 --> 00:11:46,080 Speaker 1: picking up. 242 00:11:46,360 --> 00:11:51,559 Speaker 3: Why only data that matters, Lisa is unemployment. You three unemployment, 243 00:11:52,280 --> 00:11:56,280 Speaker 3: which is you know, in a wide body of FED 244 00:11:56,360 --> 00:11:59,880 Speaker 3: research as these single best labor market statistics that we have. 245 00:12:00,400 --> 00:12:03,240 Speaker 3: That was a comment from Janet Yellen back in twenty thirteen. 246 00:12:04,280 --> 00:12:10,160 Speaker 3: Unemployment and core inflation, those are the indicators that are 247 00:12:10,160 --> 00:12:16,160 Speaker 3: in the FEDS SCP. You want to talk about carnival, Okay, 248 00:12:16,280 --> 00:12:19,480 Speaker 3: for every carnival there's a pool, Okay, a fewer home renovations. 249 00:12:19,480 --> 00:12:22,320 Speaker 3: For every carnival there's a home depot. Okay. You know, 250 00:12:22,440 --> 00:12:25,000 Speaker 3: So you know, it's sort of let's focus on what's 251 00:12:25,000 --> 00:12:27,840 Speaker 3: in the Summary of Economic Projections. That's ultimately how you 252 00:12:27,880 --> 00:12:32,080 Speaker 3: back out the Fed's reaction function in that In those 253 00:12:32,120 --> 00:12:36,679 Speaker 3: projections are unemployment, core inflation. You know, you want to 254 00:12:36,720 --> 00:12:39,439 Speaker 3: talk about economic growth, they look at real GDP as well. 255 00:12:39,840 --> 00:12:41,720 Speaker 3: Tell me what is the I mean, the right tail 256 00:12:41,760 --> 00:12:44,559 Speaker 3: for economic growth has basically been clipped. I don't really 257 00:12:44,559 --> 00:12:47,120 Speaker 3: see much upside right now. I think growth is running 258 00:12:47,120 --> 00:12:49,440 Speaker 3: at about two Maybe you can talk me into two 259 00:12:49,480 --> 00:12:51,520 Speaker 3: and a half percent. I wouldn't be letting my hair 260 00:12:51,520 --> 00:12:54,360 Speaker 3: on fire around recession, but there's not much upside risk. 261 00:12:54,559 --> 00:12:56,719 Speaker 5: Well, they let me up into this because I think 262 00:12:56,760 --> 00:12:59,440 Speaker 5: this discussion in itself just really hones in on the 263 00:12:59,480 --> 00:13:02,600 Speaker 5: point that people can come away with different ideas. Whether 264 00:13:02,679 --> 00:13:04,000 Speaker 5: or not you think it's the right one is a 265 00:13:04,000 --> 00:13:07,079 Speaker 5: different discussion. But the FED is doing just that. Neil, 266 00:13:07,240 --> 00:13:09,040 Speaker 5: I'm sure you would agree with Mary Daily about the 267 00:13:09,080 --> 00:13:12,960 Speaker 5: inflection point of unemployment and of the labor market. But 268 00:13:13,200 --> 00:13:16,800 Speaker 5: for every Daily there is a Bowman who says that 269 00:13:16,880 --> 00:13:20,000 Speaker 5: inflation could go higher and that they could be hiking. So, 270 00:13:20,080 --> 00:13:22,200 Speaker 5: in your view, if the FED is, for some of 271 00:13:22,200 --> 00:13:25,520 Speaker 5: them setting rhetoric to yesterday's problem, when we do get cuts, 272 00:13:25,920 --> 00:13:27,079 Speaker 5: how violent does it look? 273 00:13:28,920 --> 00:13:31,840 Speaker 3: Well, I mean right now, if all we're doing is 274 00:13:31,880 --> 00:13:34,200 Speaker 3: just waiting on a few more months of inflation data, 275 00:13:34,280 --> 00:13:36,400 Speaker 3: then it won't look that violent at all. I mean, 276 00:13:36,440 --> 00:13:39,880 Speaker 3: I think they could probably be talked into a cut 277 00:13:39,920 --> 00:13:43,440 Speaker 3: in September. Someone like Bowman if the inflation data continue 278 00:13:43,480 --> 00:13:47,120 Speaker 3: to sort of do what they did in May through 279 00:13:47,200 --> 00:13:49,959 Speaker 3: the summer, then I think it'll be very difficult for 280 00:13:50,280 --> 00:13:52,480 Speaker 3: even the hawks on the committee not to at least 281 00:13:52,960 --> 00:13:55,840 Speaker 3: make a nod to cutting over the summer. And you know, 282 00:13:55,920 --> 00:13:58,640 Speaker 3: folks like Governor Waller, I mean, all they're really doing, 283 00:13:58,760 --> 00:14:01,199 Speaker 3: I think is just following last few months of data. 284 00:14:01,240 --> 00:14:04,280 Speaker 3: That's kind of setting their tone. So if you know so, 285 00:14:04,320 --> 00:14:06,800 Speaker 3: in other words, their rhetoric is somewhat conditional. So if 286 00:14:06,840 --> 00:14:11,040 Speaker 3: the data changes and their rhetoric quickly changes, then I 287 00:14:11,080 --> 00:14:13,360 Speaker 3: think things will be okay. Now, if that doesn't happen, 288 00:14:13,400 --> 00:14:16,520 Speaker 3: it could be a problem. I will say that I 289 00:14:16,559 --> 00:14:19,760 Speaker 3: do think that, you know, we'll get another soft June 290 00:14:20,320 --> 00:14:23,440 Speaker 3: you know inflation report that'll be coming out I think 291 00:14:23,760 --> 00:14:26,880 Speaker 3: in a couple of weeks time. And as that happens, 292 00:14:28,080 --> 00:14:29,880 Speaker 3: you know, I think the doves on the committee are 293 00:14:29,920 --> 00:14:31,920 Speaker 3: going to be fighting tooth and nail to make a 294 00:14:31,960 --> 00:14:34,680 Speaker 3: more sort of meaningful signal at the July form CEA meeting. 295 00:14:34,760 --> 00:14:36,160 Speaker 3: So that's kind of what I'm looking for. 296 00:14:36,560 --> 00:14:50,640 Speaker 1: Neil Dota Vertisov's background Jason Drahe of UBS alongside Florini 297 00:14:50,800 --> 00:14:53,840 Speaker 1: Rici of t RO Price Ballerina, I want to start 298 00:14:53,840 --> 00:14:56,440 Speaker 1: with you. You had a call basically saying people are 299 00:14:56,520 --> 00:14:59,200 Speaker 1: overly sanguine about how quickly the FED could cut rates. 300 00:14:59,280 --> 00:14:59,960 Speaker 1: Why do you say that? 301 00:15:01,600 --> 00:15:03,920 Speaker 7: Well, I think when I look at the US economy, 302 00:15:04,040 --> 00:15:06,400 Speaker 7: I don't see a lot of reason for concern and 303 00:15:06,480 --> 00:15:10,360 Speaker 7: for a sharp deceleration. And then on the inflation side, 304 00:15:10,800 --> 00:15:14,560 Speaker 7: we have had some progress, but the FED chair has 305 00:15:14,640 --> 00:15:17,240 Speaker 7: made it very clear that they have a different reaction 306 00:15:17,400 --> 00:15:20,680 Speaker 7: function to say the ECB. For Powell, the first cut 307 00:15:20,760 --> 00:15:23,920 Speaker 7: is consequential. They want to have confidence by the time 308 00:15:23,960 --> 00:15:27,120 Speaker 7: they cut they will deliver a series of them rather 309 00:15:27,160 --> 00:15:30,160 Speaker 7: than one and done and see how the economy plays out. 310 00:15:30,440 --> 00:15:33,560 Speaker 7: So in this context, I don't see the rush. I 311 00:15:33,640 --> 00:15:37,800 Speaker 7: see them as playing with this patient approach, getting more 312 00:15:37,840 --> 00:15:41,280 Speaker 7: confidence on inflation and getting a clear signal that the 313 00:15:41,320 --> 00:15:44,160 Speaker 7: economy is really decelerating, which I don't see right now 314 00:15:44,200 --> 00:15:44,920 Speaker 7: in the data. 315 00:15:45,000 --> 00:15:46,080 Speaker 1: Jason, do you agree? 316 00:15:46,720 --> 00:15:48,760 Speaker 8: I would agree. I think the market's are pretty sanguine 317 00:15:48,760 --> 00:15:51,280 Speaker 8: about it because the Fed's been able to wait because 318 00:15:51,320 --> 00:15:53,200 Speaker 8: the economy is strong. You think about where we were 319 00:15:53,200 --> 00:15:55,800 Speaker 8: in mid January. The market was pricing nearly seven cuts, 320 00:15:55,800 --> 00:15:58,080 Speaker 8: including the first one in March. Now we are a 321 00:15:58,160 --> 00:16:01,120 Speaker 8: little under two cuts for this year, first one maybe September, 322 00:16:01,200 --> 00:16:03,640 Speaker 8: and the S andp's at fifteen percent, largely because growth 323 00:16:03,640 --> 00:16:06,680 Speaker 8: expectations have improved. Earnings expectations have gone up. So if 324 00:16:06,680 --> 00:16:08,720 Speaker 8: the Fed's waiting because growth is strong, that's not a 325 00:16:08,760 --> 00:16:10,640 Speaker 8: bad thing for the markets. I think the path thereafter 326 00:16:10,720 --> 00:16:12,640 Speaker 8: is kind of uncertain, But the timing I think is 327 00:16:12,680 --> 00:16:15,960 Speaker 8: less relevant for the markets. If the economy is doing fine, the. 328 00:16:15,880 --> 00:16:18,520 Speaker 5: Timing is less relevant for the markets. But what about 329 00:16:18,680 --> 00:16:21,120 Speaker 5: the magnitude. We've been having this discussion really for the 330 00:16:21,160 --> 00:16:24,240 Speaker 5: past week about a broadening out. What magnitude of cuts 331 00:16:24,240 --> 00:16:26,760 Speaker 5: do you need for things like small caps for the 332 00:16:26,760 --> 00:16:29,480 Speaker 5: more cyclical parts of the market to actually become attractive again. 333 00:16:29,720 --> 00:16:31,800 Speaker 8: So it's interesting. I think the consensus views clearly among 334 00:16:31,880 --> 00:16:33,880 Speaker 8: investors that we're going to have a soft landing. I 335 00:16:33,880 --> 00:16:36,000 Speaker 8: think there's lower conviction that the soult flane's going to 336 00:16:36,000 --> 00:16:38,720 Speaker 8: exist of solid growth, disinflation and if they can do 337 00:16:38,760 --> 00:16:42,600 Speaker 8: insurance cuts. To think about what happened last November when 338 00:16:42,880 --> 00:16:45,000 Speaker 8: inflation came lower. You had some FED officials out there 339 00:16:45,000 --> 00:16:48,120 Speaker 8: talking about maybe we can proactively cut that's when small caps, 340 00:16:48,120 --> 00:16:50,520 Speaker 8: that's when cyclicals really rally for about two months now, 341 00:16:50,520 --> 00:16:52,120 Speaker 8: it's a little bit concerned, Well, maybe the Fed's going 342 00:16:52,160 --> 00:16:53,400 Speaker 8: to come to the party a little too late and 343 00:16:53,440 --> 00:16:55,400 Speaker 8: cut their rates. So I think the market needs to 344 00:16:55,400 --> 00:16:57,760 Speaker 8: be comfortable that this whole sort of really benign macro 345 00:16:57,800 --> 00:16:59,760 Speaker 8: conditions can play out to really want to rotate away 346 00:16:59,800 --> 00:17:02,360 Speaker 8: from the quality growth tech talks that have done well 347 00:17:02,600 --> 00:17:04,320 Speaker 8: and broad note and to look to these more cyclical 348 00:17:04,359 --> 00:17:06,240 Speaker 8: parts of the market that probably will happened for a 349 00:17:06,280 --> 00:17:07,280 Speaker 8: few months at this point. 350 00:17:07,080 --> 00:17:08,760 Speaker 5: In time, Wene, I want to bring that idea to 351 00:17:08,800 --> 00:17:11,920 Speaker 5: you that Jason mentioned, this idea that is the FED 352 00:17:12,280 --> 00:17:14,359 Speaker 5: going to be late to the party, Because while for 353 00:17:14,480 --> 00:17:16,880 Speaker 5: every dove like a daily that talks about the fact 354 00:17:16,880 --> 00:17:19,240 Speaker 5: that the label market is termed, there is a bowman 355 00:17:19,280 --> 00:17:21,679 Speaker 5: who talks about the fact that inflation could rear its 356 00:17:21,720 --> 00:17:25,360 Speaker 5: head and that would mean potentially another hike. Is there 357 00:17:25,400 --> 00:17:27,520 Speaker 5: a risk of a policy error at that point when 358 00:17:27,560 --> 00:17:30,000 Speaker 5: you can still hear that type of language as there 359 00:17:30,000 --> 00:17:32,200 Speaker 5: are other metrics that start to soften. 360 00:17:33,400 --> 00:17:37,840 Speaker 7: I think this kind of language and talking about possibilities 361 00:17:37,840 --> 00:17:41,760 Speaker 7: and risk scenarios is actually quite helpful. It does prepare 362 00:17:41,840 --> 00:17:46,280 Speaker 7: investors to better understand the FED reaction function. I do 363 00:17:46,359 --> 00:17:49,760 Speaker 7: think that the bar to say hiking interest rates again 364 00:17:49,880 --> 00:17:53,800 Speaker 7: is pretty high. It doesn't it comes with accelerating inflation. 365 00:17:54,040 --> 00:17:57,880 Speaker 7: But that would only happen is if the economy itself 366 00:17:58,280 --> 00:18:02,240 Speaker 7: is resilient and growth is reactrating. We're having here persistent 367 00:18:02,280 --> 00:18:06,200 Speaker 7: in inflation in the US economy because demand is resilient. 368 00:18:06,480 --> 00:18:09,440 Speaker 7: I don't think we're seeing the kind of cost push 369 00:18:09,480 --> 00:18:13,600 Speaker 7: wage inflation spiral. So I think this is important to understand. 370 00:18:13,840 --> 00:18:17,360 Speaker 7: And then I hear a lot of talk about the 371 00:18:17,480 --> 00:18:21,040 Speaker 7: unemployment rate and the recent increase. I would say that 372 00:18:21,119 --> 00:18:24,680 Speaker 7: the unemployment rate is a very good summary statistic, it's 373 00:18:24,760 --> 00:18:28,119 Speaker 7: very important, it's the FEDS target, and so on. But 374 00:18:28,240 --> 00:18:31,239 Speaker 7: this debate, I think ignores the fact that there is 375 00:18:31,680 --> 00:18:36,520 Speaker 7: some uncertainty about how reliable our household labor market data 376 00:18:36,640 --> 00:18:42,240 Speaker 7: versus establishment data. Are we undercounting population growth and immigration 377 00:18:42,400 --> 00:18:45,040 Speaker 7: growth in the US? And I think this will all 378 00:18:45,119 --> 00:18:49,000 Speaker 7: feature into the Fed's reaction function and their decision making. 379 00:18:49,320 --> 00:18:51,600 Speaker 1: You know, I think from both of you, you're hearing 380 00:18:51,680 --> 00:18:53,480 Speaker 1: a lot of strength. You're looking at a lot of 381 00:18:53,520 --> 00:18:57,000 Speaker 1: strength in the economy, And Jason, to that point, why 382 00:18:57,000 --> 00:19:00,239 Speaker 1: aren't we seeing that conviction markets yes, we're seeing all 383 00:19:00,320 --> 00:19:03,280 Speaker 1: time highs, but we've been talking about all week. It's 384 00:19:03,320 --> 00:19:05,119 Speaker 1: really on the heels of a couple of names or 385 00:19:05,160 --> 00:19:08,840 Speaker 1: one name. It's not any kind of convicted sort of 386 00:19:09,080 --> 00:19:10,240 Speaker 1: under the hood rally. 387 00:19:10,480 --> 00:19:12,080 Speaker 8: So I think if you look at market performance over 388 00:19:12,080 --> 00:19:14,320 Speaker 8: the past say roughly six weeks, it's interesting because the 389 00:19:14,359 --> 00:19:16,760 Speaker 8: tech sector is up for a lot, NASDAK is up 390 00:19:16,840 --> 00:19:18,600 Speaker 8: as a result, S and P is up, but things 391 00:19:18,640 --> 00:19:21,200 Speaker 8: like the small cap index, the Rustle one thousand value, 392 00:19:21,200 --> 00:19:23,280 Speaker 8: they're actually flat lining a team. That's the signal that 393 00:19:23,440 --> 00:19:25,480 Speaker 8: the market is kind of skeptical about the growth story, 394 00:19:25,640 --> 00:19:27,520 Speaker 8: and as valuations go high, as the market kind of 395 00:19:27,520 --> 00:19:29,480 Speaker 8: goes higher, there's an issue where like do you actually 396 00:19:29,480 --> 00:19:32,160 Speaker 8: want to chase that performance because again, maybe the growth 397 00:19:32,200 --> 00:19:33,880 Speaker 8: is low and we don't know. We've seen the data, 398 00:19:34,040 --> 00:19:36,200 Speaker 8: especially for the past eight weeks economic data surprise to 399 00:19:36,280 --> 00:19:38,880 Speaker 8: the downside. We don't know. Is this asimp toating sort 400 00:19:38,920 --> 00:19:40,359 Speaker 8: of like kind of a self learning or is it 401 00:19:40,400 --> 00:19:42,119 Speaker 8: going the other way, kind of falling off a cliff. 402 00:19:42,119 --> 00:19:44,120 Speaker 8: We just don't know yet. I think investors a little 403 00:19:44,160 --> 00:19:46,040 Speaker 8: bit cautious and believing like if we're doing this when 404 00:19:46,080 --> 00:19:47,280 Speaker 8: in fact we could be doing that. 405 00:19:47,680 --> 00:19:50,960 Speaker 6: Chris Harvey made a point that the reason why people 406 00:19:51,000 --> 00:19:53,159 Speaker 6: are still though so bullish, is that no one has 407 00:19:53,200 --> 00:19:56,440 Speaker 6: been penalized. Earlier this year, people were talking about six 408 00:19:56,520 --> 00:19:59,160 Speaker 6: cuts that didn't happen. Yet you do see the stock 409 00:19:59,200 --> 00:20:02,000 Speaker 6: market continue to make new all time highs. Is there 410 00:20:02,040 --> 00:20:04,760 Speaker 6: something to be staid for that no one got hurt 411 00:20:05,080 --> 00:20:07,880 Speaker 6: and continues to do well just basically continuing on these 412 00:20:07,880 --> 00:20:08,720 Speaker 6: consensus traits. 413 00:20:08,760 --> 00:20:10,080 Speaker 8: So I think I would kind of break it down 414 00:20:10,119 --> 00:20:12,320 Speaker 8: to the macro fundamentals that we have an environment where 415 00:20:12,359 --> 00:20:14,760 Speaker 8: growth should still be fine. You know, it's around two percent, 416 00:20:15,080 --> 00:20:16,840 Speaker 8: inflation still looks like it's going to come down, and 417 00:20:16,920 --> 00:20:19,280 Speaker 8: you have a feather that spuys towards cutting rates. If 418 00:20:19,280 --> 00:20:20,760 Speaker 8: you give me that sort of recipe, is this is 419 00:20:20,760 --> 00:20:23,520 Speaker 8: the macro environment that's generally supportive for risk assets, and 420 00:20:23,560 --> 00:20:25,280 Speaker 8: that leaves out the whole AI story of like a 421 00:20:25,359 --> 00:20:27,600 Speaker 8: kind of driving things higher. So if you have those 422 00:20:27,640 --> 00:20:30,639 Speaker 8: conditions that you think still are generally directly supportive, it's 423 00:20:30,680 --> 00:20:32,040 Speaker 8: hard to get sort of you know, kind of cheoe 424 00:20:32,040 --> 00:20:34,200 Speaker 8: bears in the markets at this time. Now, the fact 425 00:20:34,200 --> 00:20:35,879 Speaker 8: that markets are up, I think people are probably been 426 00:20:35,960 --> 00:20:38,280 Speaker 8: underweight risk to some extent relative how well things have done. 427 00:20:38,280 --> 00:20:40,399 Speaker 8: I think we talked about this earlier. It's hard to 428 00:20:40,560 --> 00:20:42,960 Speaker 8: you know, it's just as hard to be underperformed. You know, 429 00:20:42,960 --> 00:20:44,240 Speaker 8: when the markets are going higher is and when the 430 00:20:44,240 --> 00:20:46,480 Speaker 8: markets are going lower and you have too much risk on. 431 00:20:46,920 --> 00:20:48,520 Speaker 8: So I think that's forcing people to kind of state 432 00:20:48,600 --> 00:20:50,280 Speaker 8: you just have to be invested. If you aren't, you're 433 00:20:50,280 --> 00:20:51,520 Speaker 8: going to you know, I think you're going to be 434 00:20:51,560 --> 00:20:52,360 Speaker 8: laging your performance. 435 00:20:52,400 --> 00:20:54,240 Speaker 5: And if you try to gather some sort of narrative 436 00:20:54,280 --> 00:20:56,600 Speaker 5: to drive the market on a macro level, you'll probably 437 00:20:56,680 --> 00:20:58,920 Speaker 5: drive yourself crazy. As I think we all have blurring 438 00:20:58,960 --> 00:21:01,800 Speaker 5: it to that point mentioned the craziness of the labor 439 00:21:01,840 --> 00:21:04,560 Speaker 5: market data that you can look at a household survey 440 00:21:04,600 --> 00:21:07,240 Speaker 5: that shows weakness, you can look at NFPs that still 441 00:21:07,520 --> 00:21:10,320 Speaker 5: shows some strength. It is confusing. I wonder what you 442 00:21:10,400 --> 00:21:12,720 Speaker 5: make of what you hear from corporates. Are you hearing 443 00:21:12,760 --> 00:21:15,480 Speaker 5: any more clarity When you hear someone like a carnival 444 00:21:15,520 --> 00:21:18,119 Speaker 5: say that people are still growing on cruises, or you 445 00:21:18,200 --> 00:21:20,439 Speaker 5: hear pools saying that people don't want to build pools 446 00:21:20,480 --> 00:21:23,440 Speaker 5: on their backyard in their backyard, or Target yesterday saying 447 00:21:23,480 --> 00:21:26,200 Speaker 5: that they're going to cut even more prices on their goods. 448 00:21:26,240 --> 00:21:29,200 Speaker 5: Are you getting any clear picture at this moment from 449 00:21:29,240 --> 00:21:31,280 Speaker 5: corporates in their exposure to the consumer. 450 00:21:32,680 --> 00:21:35,960 Speaker 7: So what I'm watching very closely is announcements of layoffs 451 00:21:36,000 --> 00:21:39,720 Speaker 7: and how companies are discussing the tightness in the labor market. 452 00:21:40,080 --> 00:21:42,639 Speaker 7: So what I see from the data is certainly a 453 00:21:42,760 --> 00:21:47,000 Speaker 7: loosening in the labor market. Labor is not as hard 454 00:21:47,040 --> 00:21:49,919 Speaker 7: to come by, and companies are not hiring at the 455 00:21:49,960 --> 00:21:52,200 Speaker 7: fast space that they did in twenty two and part 456 00:21:52,240 --> 00:21:55,199 Speaker 7: of twenty three. But at the same time, I'm not 457 00:21:55,280 --> 00:21:59,240 Speaker 7: seeing widesprayd layoffs in all the survey data from the 458 00:21:59,320 --> 00:22:02,359 Speaker 7: companies by also the Challenger Report and so on. So 459 00:22:02,880 --> 00:22:06,000 Speaker 7: this suggests to me that we're not at the point 460 00:22:06,119 --> 00:22:09,440 Speaker 7: where the labor market is about to sour, because if 461 00:22:09,440 --> 00:22:13,520 Speaker 7: that happens, then we should start thinking how sustainable is 462 00:22:13,560 --> 00:22:16,200 Speaker 7: this recovery. So I'm getting a good signal from that. 463 00:22:16,560 --> 00:22:20,280 Speaker 7: And then on the consumer spending story, it's going to 464 00:22:20,359 --> 00:22:24,760 Speaker 7: be complicated and complex. During this recovery, we are due 465 00:22:24,800 --> 00:22:29,080 Speaker 7: for a correction in goods consumption and that's finally materializing. 466 00:22:29,720 --> 00:22:32,360 Speaker 7: Mind you, it's happening maybe in a year or year 467 00:22:32,400 --> 00:22:36,919 Speaker 7: and a half later than consensus first expected it, but 468 00:22:37,080 --> 00:22:40,600 Speaker 7: there is still some pentap demand and resilience in services, 469 00:22:40,600 --> 00:22:45,600 Speaker 7: and that's where carnival and cruise ships and overall consumer 470 00:22:45,640 --> 00:22:50,159 Speaker 7: discretionary services spending comes in. So again it's not going 471 00:22:50,240 --> 00:22:53,640 Speaker 7: to be a very clear picture, but understanding that this 472 00:22:53,760 --> 00:22:56,760 Speaker 7: recovery is playing out in phases, and I think the 473 00:22:56,960 --> 00:23:01,120 Speaker 7: service is strength that phase of service is comeback is. 474 00:23:01,080 --> 00:23:01,840 Speaker 5: Not over yet. 475 00:23:02,160 --> 00:23:04,520 Speaker 1: So this really is an interesting point given the fact 476 00:23:04,560 --> 00:23:07,120 Speaker 1: that so much of good spending has actually derived typically 477 00:23:07,119 --> 00:23:11,119 Speaker 1: from home home building and home moving and everything that 478 00:23:11,160 --> 00:23:14,400 Speaker 1: comes around the housing industry, which has essentially been frozen 479 00:23:14,880 --> 00:23:17,600 Speaker 1: in place for quite a while. We've been talking about 480 00:23:17,600 --> 00:23:21,760 Speaker 1: this consistently for the past couple of weeks. It's very unclear, Jason, 481 00:23:21,920 --> 00:23:24,600 Speaker 1: exactly what will happen when the Fed starts cutting rates. 482 00:23:24,640 --> 00:23:27,520 Speaker 1: Does that lead to more volumes and more potential supply 483 00:23:27,600 --> 00:23:29,720 Speaker 1: that leads the prices to go down, or do you 484 00:23:29,760 --> 00:23:32,159 Speaker 1: have all of this pent up demand unleashed when mortgage 485 00:23:32,200 --> 00:23:34,040 Speaker 1: rates go down just a little bit. Where do you 486 00:23:34,040 --> 00:23:34,560 Speaker 1: stand on this? 487 00:23:35,000 --> 00:23:37,160 Speaker 8: It's a great question because ultimately comes down to look 488 00:23:37,240 --> 00:23:39,399 Speaker 8: someway how restrictive as mounet air policy, why have it 489 00:23:39,520 --> 00:23:41,520 Speaker 8: not really kind of slowed the economy. And one will 490 00:23:41,560 --> 00:23:43,320 Speaker 8: think if it hasn't really slowed the economy, then maybe 491 00:23:43,359 --> 00:23:45,960 Speaker 8: cutting rates the same time wouldn't be that stimuli. But 492 00:23:46,119 --> 00:23:48,320 Speaker 8: there's an argument to be made that the housing market 493 00:23:48,359 --> 00:23:51,159 Speaker 8: we've seen when mortgage rates came down last fall, suddenly 494 00:23:51,200 --> 00:23:53,680 Speaker 8: housing starts, home sales kind of picked up, that there's 495 00:23:53,920 --> 00:23:55,920 Speaker 8: kind of this pent up demand. I'd also think even 496 00:23:55,920 --> 00:23:57,600 Speaker 8: for a lot of small businesses that were lost on 497 00:23:57,680 --> 00:24:00,320 Speaker 8: bank lending, you know, they're boring at higher rates, and 498 00:24:00,320 --> 00:24:01,800 Speaker 8: if you can go to the public markets and issue 499 00:24:01,800 --> 00:24:03,920 Speaker 8: do at really low rates, that if those rates come down, 500 00:24:03,960 --> 00:24:05,960 Speaker 8: a lot of sort of holding off on making new 501 00:24:05,960 --> 00:24:08,080 Speaker 8: investment that could ramp up. So I think the Fed's 502 00:24:08,640 --> 00:24:10,520 Speaker 8: back of their mind, or probably front of their mind, 503 00:24:10,560 --> 00:24:12,600 Speaker 8: is if we cut rates, is it something where the 504 00:24:12,680 --> 00:24:14,960 Speaker 8: economic activity can re accelerate, you know, pretty quickly and 505 00:24:15,000 --> 00:24:17,919 Speaker 8: then sort of finding financial conditions ease. We just don't know. 506 00:24:17,960 --> 00:24:19,439 Speaker 8: I think it's kind of an open question, and the 507 00:24:19,560 --> 00:24:21,680 Speaker 8: argument that it may be not be that similar. I 508 00:24:21,720 --> 00:24:23,479 Speaker 8: think there's a risk that it actually could actually really 509 00:24:23,560 --> 00:24:26,280 Speaker 8: kind of ramp up activity enough that it just creates inflation. 510 00:24:26,359 --> 00:24:27,600 Speaker 8: Concerns again, just to. 511 00:24:27,760 --> 00:24:30,479 Speaker 5: Apply that to what you buy. Does that mean that 512 00:24:30,560 --> 00:24:34,360 Speaker 5: even if the Fed is cutting the impetus for bond yields, 513 00:24:34,600 --> 00:24:37,919 Speaker 5: then to move down isn't a straightforward Well. 514 00:24:37,760 --> 00:24:39,480 Speaker 8: If they're cutting ins and being similar, I think the 515 00:24:39,520 --> 00:24:41,280 Speaker 8: risk is that the tenure instead of kind of going lower, 516 00:24:41,320 --> 00:24:43,240 Speaker 8: which is a typical pattern, the FED cuts rates and 517 00:24:43,280 --> 00:24:45,160 Speaker 8: you see the tenure goes lower. That's kind of part 518 00:24:45,160 --> 00:24:47,159 Speaker 8: of our thesis. The risk is that actually that's not 519 00:24:47,200 --> 00:24:49,919 Speaker 8: the case, that they go lower almost reactively, and then 520 00:24:49,960 --> 00:24:51,920 Speaker 8: turns that economic acuity is and slow and then we're 521 00:24:51,920 --> 00:24:53,760 Speaker 8: six months, at twelve months on the line eu Reson, 522 00:24:54,000 --> 00:24:56,040 Speaker 8: we're still growing at two two and a half percent, 523 00:24:56,119 --> 00:24:57,920 Speaker 8: and maybe the tenure should be at four and a 524 00:24:57,920 --> 00:25:00,639 Speaker 8: half percent, not you know, below four percent. There's definitely 525 00:25:00,760 --> 00:25:01,520 Speaker 8: risk of that happening. 526 00:25:01,680 --> 00:25:04,399 Speaker 6: Welrina, you have a lot of notes regarding the housing 527 00:25:04,440 --> 00:25:06,600 Speaker 6: market right now, the inventory for the housing market. If 528 00:25:06,600 --> 00:25:09,879 Speaker 6: we could just go back to that, what do you 529 00:25:10,000 --> 00:25:13,719 Speaker 6: think will be the endgame if the Fed only I mean, 530 00:25:13,760 --> 00:25:15,840 Speaker 6: if they cut, it's only going to be what maybe 531 00:25:15,840 --> 00:25:18,560 Speaker 6: twenty five base points fifty base points the entire year? 532 00:25:19,000 --> 00:25:21,320 Speaker 6: Is that really enough for people to want to get 533 00:25:21,359 --> 00:25:23,160 Speaker 6: in that have been waiting on the sidelines because they're 534 00:25:23,160 --> 00:25:24,400 Speaker 6: so concerned about mortgage rates. 535 00:25:26,160 --> 00:25:29,000 Speaker 7: So here's how I think about it. First of all, 536 00:25:29,040 --> 00:25:31,600 Speaker 7: I agree with the point that there is pentap demand 537 00:25:31,760 --> 00:25:36,320 Speaker 7: for housing. We started this cutting this hiking cycle with 538 00:25:36,600 --> 00:25:40,240 Speaker 7: very tight inventory, and that has only gotten words because 539 00:25:40,520 --> 00:25:44,520 Speaker 7: builders are not starting new homes. We have the mortgage locks, 540 00:25:44,520 --> 00:25:47,959 Speaker 7: so people are not bringing their existing homes into the market, 541 00:25:48,240 --> 00:25:52,840 Speaker 7: so inventory has become even lower. I think the question 542 00:25:53,000 --> 00:25:56,360 Speaker 7: here is even what we know from the FAD is 543 00:25:56,640 --> 00:25:59,440 Speaker 7: they want to cut and start a series of cuts, 544 00:25:59,680 --> 00:26:02,560 Speaker 7: and I think what happens when they deliver the first 545 00:26:02,600 --> 00:26:06,280 Speaker 7: cut is that the ten year will respond This is 546 00:26:06,320 --> 00:26:09,200 Speaker 7: the risk and will price even more cuts that maybe 547 00:26:09,200 --> 00:26:11,960 Speaker 7: the FED will eventually be able to deliver. And then 548 00:26:12,040 --> 00:26:16,280 Speaker 7: this loosening in financial condition and particularly in interest rates 549 00:26:16,560 --> 00:26:20,680 Speaker 7: could give the housing market that leg up and release 550 00:26:20,720 --> 00:26:24,080 Speaker 7: that pent up demand. It's not going to be about 551 00:26:24,119 --> 00:26:26,480 Speaker 7: the just one cut or two. It's going to be 552 00:26:26,520 --> 00:26:29,560 Speaker 7: about what the ten year prices and what the market 553 00:26:29,600 --> 00:26:32,120 Speaker 7: price is for the FED. That's the real risk here, 554 00:26:32,400 --> 00:26:36,800 Speaker 7: and if that happens, we're expecting a deceleration in shelter 555 00:26:37,080 --> 00:26:40,920 Speaker 7: CPI and PC, and that's really fundamental to bringing inflation 556 00:26:41,040 --> 00:26:44,040 Speaker 7: down to two percent. And then the next leg of 557 00:26:44,080 --> 00:26:47,119 Speaker 7: that risk playing out is that the progress that we 558 00:26:47,240 --> 00:26:49,840 Speaker 7: expect on shelter inflation is undermined. 559 00:26:50,280 --> 00:26:55,160 Speaker 1: Well. Max Neil data earlier this morning basically said stop 560 00:26:55,200 --> 00:26:56,800 Speaker 1: it with all of this that basically, if you look 561 00:26:56,800 --> 00:26:58,800 Speaker 1: at the data and you stop cherry picking, as he 562 00:26:58,840 --> 00:27:01,240 Speaker 1: told me in so Many Wars, then you'll actually see 563 00:27:01,240 --> 00:27:03,679 Speaker 1: that it's important to do an adjustment because inflation is 564 00:27:03,680 --> 00:27:05,879 Speaker 1: coming down and growth is slowing, and so if the 565 00:27:05,920 --> 00:27:08,119 Speaker 1: FED doesn't cut now, they're going to risk having some 566 00:27:08,160 --> 00:27:10,360 Speaker 1: sort of FED error. Do you agree with that, Lorena? 567 00:27:12,000 --> 00:27:14,920 Speaker 7: I think it's very nuance right now. It's more nuance 568 00:27:15,000 --> 00:27:18,640 Speaker 7: than that. I do feel like it's terry picking season 569 00:27:19,160 --> 00:27:24,520 Speaker 7: at Bloomberg Surveilliance this morning. But it's important to understand 570 00:27:25,040 --> 00:27:28,440 Speaker 7: that in this complex environment, the patient approach that the 571 00:27:28,480 --> 00:27:32,880 Speaker 7: FED is delivering is the right one. We do have 572 00:27:32,960 --> 00:27:37,040 Speaker 7: a lot of firepower should the economy decelerate. But I 573 00:27:37,119 --> 00:27:40,240 Speaker 7: also am of the opinion that that first cut and 574 00:27:40,280 --> 00:27:43,960 Speaker 7: the decision to start easing, it's very consequential because of 575 00:27:44,160 --> 00:27:47,960 Speaker 7: how the market will price it. Just remember in January 576 00:27:47,960 --> 00:27:51,520 Speaker 7: we were pricing six to seven cuts, and so I 577 00:27:51,960 --> 00:27:56,280 Speaker 7: not pessimistic on the economy. If you think that the 578 00:27:56,320 --> 00:27:59,720 Speaker 7: FED will deliver two maybe three cuts, that means that 579 00:28:00,520 --> 00:28:03,400 Speaker 7: other people's baseline view is not for a sharp recession. 580 00:28:03,440 --> 00:28:08,119 Speaker 7: And then in this scenario, just having more confidence on 581 00:28:08,160 --> 00:28:12,119 Speaker 7: the progress on inflation, it is right waiting before you 582 00:28:12,240 --> 00:28:15,280 Speaker 7: deliver on that easing and monetary policy. 583 00:28:15,680 --> 00:28:17,919 Speaker 1: Jason, is it cherry picking here on surveillance or just 584 00:28:18,040 --> 00:28:20,280 Speaker 1: globally generally right now, because that's all the people are 585 00:28:20,320 --> 00:28:20,680 Speaker 1: left with. 586 00:28:21,080 --> 00:28:22,800 Speaker 8: I think it's more like roar shock tests, like you 587 00:28:22,800 --> 00:28:24,560 Speaker 8: have sort of preconceived notions and you look at the 588 00:28:24,600 --> 00:28:26,000 Speaker 8: data and you sort of interpret in the way you want. 589 00:28:26,000 --> 00:28:28,600 Speaker 8: If you are optimistic, you can you tell an optimistic story. 590 00:28:28,680 --> 00:28:30,600 Speaker 8: If you more pessimistic, you can, you know, tell that story. 591 00:28:30,600 --> 00:28:32,679 Speaker 8: I think that's that's really because I've had, you know, 592 00:28:32,880 --> 00:28:35,240 Speaker 8: smart people on both sides say what Neil would say, 593 00:28:35,400 --> 00:28:36,880 Speaker 8: that the faces can be too late. Now that people 594 00:28:36,880 --> 00:28:38,720 Speaker 8: say it's crazy for the FED you even thinking about 595 00:28:38,720 --> 00:28:41,440 Speaker 8: cutting the colomies, not slowing down, and this is kind 596 00:28:41,440 --> 00:28:44,760 Speaker 8: of the reality we're dealing with. Still data that's noisy, distorted, 597 00:28:44,840 --> 00:28:47,200 Speaker 8: kind of you know from the pandemic. I must focus 598 00:28:47,240 --> 00:28:48,720 Speaker 8: on Friday when week at the PC data, not the 599 00:28:48,760 --> 00:28:51,840 Speaker 8: inflation piece, but the consumption expenditures, because we see goods 600 00:28:51,840 --> 00:28:54,160 Speaker 8: going lower. But at the end of May we set 601 00:28:54,200 --> 00:28:55,959 Speaker 8: record travel for like kind of going to the airport, 602 00:28:56,000 --> 00:28:58,720 Speaker 8: so our people still stay on services, not strong versus goods. 603 00:28:59,000 --> 00:29:00,960 Speaker 8: So the picture is really kind of fuzzy. And then 604 00:29:01,040 --> 00:29:02,840 Speaker 8: again you can sort of draw your own conclusions and 605 00:29:02,880 --> 00:29:04,520 Speaker 8: that that's a challenge I think for the FED but 606 00:29:04,560 --> 00:29:06,200 Speaker 8: also for us. But as long as it's not related 607 00:29:06,280 --> 00:29:08,520 Speaker 8: to reading, it's sort of still I think kind of generally. 608 00:29:08,600 --> 00:29:11,560 Speaker 1: Riscond, we like Cherry's Jason Drejo of ubs Blory nor 609 00:29:11,600 --> 00:29:14,280 Speaker 1: your Urici of t rope Price. Both of you thank 610 00:29:14,320 --> 00:29:15,760 Speaker 1: you so much for being with us. 611 00:29:16,240 --> 00:29:19,800 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 612 00:29:19,840 --> 00:29:23,400 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 613 00:29:23,480 --> 00:29:26,480 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 614 00:29:26,560 --> 00:29:30,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 615 00:29:30,320 --> 00:29:32,920 Speaker 2: anywhere else you listen, and as always on the Bloomberg 616 00:29:32,960 --> 00:29:34,880 Speaker 2: Terminal and the Bloomberg Business Amp.