Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
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Speaker 1: December fifteen is a key Dad I'd also mentioned, and
Speaker 1: there John, and You've had real leadership on this, Madame
Speaker 1: le guard with some real key decisions towards the end
Speaker 1: of the week. With that and maybe to migrate away
Speaker 1: from the politics at the moment, we are thrown to
Speaker 1: Queen Victoria Street to bring Alberto Gallo. He is with
Speaker 1: Algebras UH with Lisa Bramowitz and John Farrow in UH
Speaker 1: New York. Alberto, good morning to you. Let me start
Speaker 1: with an open question given the news flow, John just
Speaker 1: spoke about, how are you positioned in the year end?
Speaker 1: Are you in full Gallo vacation mode? Are you actually
Speaker 1: trying to find elf towards the end of the year
Speaker 1: and in January? Good morning, Tom, Lisa, John, you get
Speaker 1: a closer Rundom make good morning. There you go. So
Speaker 1: the the market has moved from fears of um melt down,
Speaker 1: as Lisa was saying earlier in September and October to
Speaker 1: fear to two hopes of a meltop. The meltop has happened.
Speaker 1: Now we're in a fear of missing out mode. Investors
Speaker 1: are afraid of missing the gains. Um. There is a
Speaker 1: consensus about an extension of the tariffs on the fifteenth,
Speaker 1: there is some consensus about a soft Brexit, and there's
Speaker 1: a lot of things that can go wrong, so we're
Speaker 1: more cautious. We've taken profits on things that we owned
Speaker 1: during the year, and we are looking at We're increasingly
Speaker 1: looking at things that could go wrong and areas of
Speaker 1: the market which are overvalued. UM. I think in the
Speaker 1: UK the market underestimates the execution risk of a soft
Speaker 1: Brexit it even if the Tories win. And also the
Speaker 1: market underestimates a quick US China underestimates the difficulty of
Speaker 1: making a US China Phase one deal because also the
Speaker 1: Trump administration needs a Phase one deal to play negotiations
Speaker 1: throughout the next year to use it as a bait
Speaker 1: into election. I want to go to John with this
Speaker 1: great knowledge on the credit market versus the full faith
Speaker 1: in credit market. But alberta very simply, here are there
Speaker 1: bubble characteristics in fixed income? Is someone suggest we see
Speaker 1: in equities because the central banks have imparted that huge
Speaker 1: urgency to put cash to work, we are investors in
Speaker 1: a manipulated market. So if you think about government bonds,
Speaker 1: definitely yields are two low real yields. Look at the UK,
Speaker 1: real yields are very negative. Inflation is a two and
Speaker 1: a half three percent. You know, yields are below one
Speaker 1: percent for guilt. So there's there's hardly value in sovereigns,
Speaker 1: with a few exceptions like treasuries in the US, Canada,
Speaker 1: Australia areas where central banks can still cut um. At
Speaker 1: the other hand, at the other end of the spectrum,
Speaker 1: if you look at private debt loan funds clos, you
Speaker 1: have a similar picture. Actually, investors are trying to get
Speaker 1: away from mark to market and the size of private
Speaker 1: debt funds has doubled in the last one and a
Speaker 1: half years. So where we operate is in the five
Speaker 1: to ten percent of the bond market, which is still
Speaker 1: training a positive yields um and we think there's value there,
Speaker 1: but you have to be very careful because many of
Speaker 1: the positive yielding bonds are could be zombies companies that
Speaker 1: have survived because of of an ear of low interest
Speaker 1: rates and some of them fall down. Quee is no
Speaker 1: longer lifting or boats. This year we had a crisis
Speaker 1: in Argentina, crisis in Lebanon. You know, Thomas Cooke, very
Speaker 1: large UK retailer going into restructuring, many names in high
Speaker 1: yield in the US ending up upside down for the
Speaker 1: same Johnett destroyed my vacation to the Elgarith that I
Speaker 1: was scheduling for January. Well, let me tell you what
Speaker 1: Betta is going to have one hand of a vacation
Speaker 1: after Bonus sees and Alberta gallows Algebras macro credit fund.
Speaker 1: Is that more than Alberta. That's a massive year in
Speaker 1: fixed income and more broadly credit is really really delivered
Speaker 1: on the year in both Europe and in the United
Speaker 1: States as well. The big question I'm here and again
Speaker 1: and again and again is whether you should trim some
Speaker 1: of your winners and rotate some cash into some of
Speaker 1: the losing areas of the market. What do you do,
Speaker 1: albert So after you've had the year that you've just had.
Speaker 1: This year, a lot of the returns, especially in the
Speaker 1: first half were driven by duration in the market and
Speaker 1: by what you know, what you would call safe credit
Speaker 1: companies that are not two levered um, they're really junkie companies.
Speaker 1: The single bees and the triple sees haven't rallied until
Speaker 1: the last few weeks. Now we're seeing investors that were
Speaker 1: behind essentially reaching down the capital structure, down the rating
Speaker 1: quality to buy companies that are you know, over five
Speaker 1: times levered. They don't have equity, uh sometimes they're privately owned,
Speaker 1: They have you know, flat or negative free cash flows,
Speaker 1: and these are you know, these are potentially zombies. So
Speaker 1: we are a bit more cautious when people reached down
Speaker 1: the barrel of the rating quality. UM, we really need
Speaker 1: a growth upside for these parts of the market to perform.
Speaker 1: So we're cautious, UM, and we are trimming risk. We're
Speaker 1: still positive that we're going to potentially have you know,
Speaker 1: a year end rally, a January rally, but we are
Speaker 1: not seeing the cheapness that we saw a year ago.
Speaker 1: So we're a lot more cautious, and we have dry powder.
Speaker 1: With the political volatility of next year, we think there
Speaker 1: will be there will be better entry points. Yeah, I
Speaker 1: love the word zombies, by the way, zombie companies. It's
Speaker 1: one of my favorite terms. I will say. There was
Speaker 1: a story of the Financial Times this morning about a
Speaker 1: number of big bond firms HIMCO among them c QS
Speaker 1: uh in Hafen Capital Management, all raising special opportunity funds
Speaker 1: that have structures like private equity funds to go into companies,
Speaker 1: buy up some of this distress debt that you were
Speaker 1: just talking about and actually work with the company's to
Speaker 1: restructure them. Do you see an opportunity there too? There
Speaker 1: is an opportunity. But let's remember distressed funds are out
Speaker 1: of out of business mostly because there was no distressed
Speaker 1: in the last ten years because interest rates were very low.
Speaker 1: So we need some shocks to the market UH, and
Speaker 1: we'll probably have them next year to create these opportunities.
Speaker 1: For example, one shock could be US elections. If you
Speaker 1: see a lead by the Democrats, then some um, some
Speaker 1: sectors like energy or healthcare could be due for a
Speaker 1: big disruption. Similarly in the UK, depending on who wins
Speaker 1: elections UH this week. So there is a lot of
Speaker 1: sectors which are still you know, running an old business model.
Speaker 1: They have survived because of low interest rates and as
Speaker 1: soon as the economy shakes up, these companies need to
Speaker 1: restructure their debt, so there is there's an opportunity there
Speaker 1: over time. We need a catalyst to make this happen. Alberta,
Speaker 1: this has been wonderful and as John mention is, just
Speaker 1: just you know what we know with you, with your excellence.
Speaker 1: It's not once in a lifetime, but that's superb. Superb
Speaker 1: performance is sure far outdistancing so much what we see
Speaker 1: in fixed income and certainly in the hedge fun world.
Speaker 1: Mr Gallo is with Algebras too many people. The outlook
Speaker 1: at the moment is still finally balanced. The US consumers
Speaker 1: still very resilient see paint rolls last Friday. The global
Speaker 1: outlooks still just a little bit soft. You can see
Speaker 1: the Chinese export data. That storyteld pretty clearly over the weekend. Overall,
Speaker 1: we haven't totally shaken off these trade jitters. Tuesday's bond
Speaker 1: market action a real reminder of that. To weighing on
Speaker 1: the look on the remainder of the year. Into police
Speaker 1: to say that joining us from New York on the
Speaker 1: phone is Cathy Judge, Child Swap, Chief Fixed incomes strategist.
Speaker 1: Good morning to Kathy. Good morning, John. What are your
Speaker 1: talent clients going into year end as the happy talk
Speaker 1: about is already in full swing. Yeah. Our outlook is
Speaker 1: that there's some room for raiths to move up as
Speaker 1: we get into and that's assuming we do get some
Speaker 1: sort of a trade deal, even if it's just to
Speaker 1: kick the can down the road kind of thing where
Speaker 1: we don't impose increase in in tariffs as a next
Speaker 1: week or this week, I guess with the decision would
Speaker 1: have to be made um and then you know, we're
Speaker 1: setting a pretty resilient economy. Maybe a little bit of
Speaker 1: an uptick in inflation expectation, so we could see the
Speaker 1: ten year yield getting up to about two and a
Speaker 1: quarter next year. Why how I mean, in other words,
Speaker 1: is it going to be inflation? Is it going to
Speaker 1: be really yields? What's this going to be driving the increase? Um?
Speaker 1: We think it would be a little bit of inflation
Speaker 1: expectation picking up that the strength and the labor market
Speaker 1: is exceeding expectations. We have very very low inflation expectations
Speaker 1: now if you look at the five year five year
Speaker 1: forward rate, it's well below two percent. Just a little
Speaker 1: bit of a pop there could get us up to
Speaker 1: two percent plus in the tenure. Again, we're not looking
Speaker 1: for a huge rising yields. We're just looking for a
Speaker 1: return to a recapture of some of the decline in
Speaker 1: yields that we saw last year. So what did you
Speaker 1: make a Friday's price sanction? We had to blow out
Speaker 1: payrolls report in America, Cathy, and yield it's on a
Speaker 1: ten year ended the end of the day higher by
Speaker 1: a couple of basis points at that to me is
Speaker 1: not a market that's thinking about a better or comedy
Speaker 1: translating into high yields. You know, that's absolutely true. Um.
Speaker 1: I think it's muted by the fact that we still
Speaker 1: have the ongoing trade conflict going on and nobody really
Speaker 1: wants to take a position ahead of that. Um. And
Speaker 1: we also have even though you know, the job's report
Speaker 1: was strong, the wage gains were still pretty moderate. So
Speaker 1: there's not this inflation expectation building up from a tight
Speaker 1: labor market, and there's no prospect that the Fed's going
Speaker 1: to change policy anytime soon. Kathy, can you give a
Speaker 1: narrative to is what we saw in the bond market.
Speaker 1: The incredible rally and duration really due to decreasing expectations
Speaker 1: of growth and inflation, or is this all due to
Speaker 1: increasing stimulus from central banks? And I'm wondering. You see
Speaker 1: the FED expanding its balance sheet by more than three
Speaker 1: billion dollars, in the ECB continuing to buy bonds. Yeah,
Speaker 1: you know, I think that certainly both factors worked on
Speaker 1: the market, but I think the ample liquidity and the
Speaker 1: easing from central banks was the major driver. I mean,
Speaker 1: we had huge cuts from the FED, We've had huge
Speaker 1: cuts from other central banks. We've had increased liquidity, and
Speaker 1: then on top of that, you have the narrative that
Speaker 1: the economy was, the global economy was really much softer
Speaker 1: than people believe coming into the year. I think when
Speaker 1: you look back at where we started last year, where
Speaker 1: we were a year ago in the fourth quarter, things
Speaker 1: are very much different today than they were then. So
Speaker 1: we have a lot of room for raids to come down.
Speaker 1: So let's look forward to this week, and we have
Speaker 1: the FED, We've got the e c B. We've got
Speaker 1: perhaps a little bit more foresight into what their plans
Speaker 1: are for if they just stay put. I'm talking about
Speaker 1: the FED mainly here. Is that going to be enough
Speaker 1: to keep driving the fixed income rally without let's say,
Speaker 1: some positive upside surprise due to trade agreements, I think
Speaker 1: you're not going to see the kind of duration rally
Speaker 1: that we saw this here. I mean, it's almost impossible
Speaker 1: to get a peaked a trough move of a hundred
Speaker 1: basis points or so unless we're going into a global recession.
Speaker 1: And I don't think we're going into recession. So I
Speaker 1: think that being on hold allows, you know, returns to
Speaker 1: be positive, but more in line with coupon income than
Speaker 1: with some big gains and duration or a lot more
Speaker 1: spread tightening from here. So we have a positive outlook
Speaker 1: for next year in terms of total return, but mostly
Speaker 1: driven by coupon income, not the factors that drove the
Speaker 1: market in. Kathy want to wrap up with a question
Speaker 1: that note out. We'll be asking all of our guests
Speaker 1: through this week as we count you down to December
Speaker 1: fift in that trade deadline, big line in the sand,
Speaker 1: what are your Talan clients about it? Yeah, um, well,
Speaker 1: you know, we think the most likely outcome is either
Speaker 1: a delay of additional tariffs and more talk or some
Speaker 1: sort of you know, phase one light agreement. Um, simply
Speaker 1: because it's in everybody's best interest for that to happen.
Speaker 1: But you know this is this is probably the most
Speaker 1: unpredictable policy factor right now in the US. Cathy Jones
Speaker 1: going to catch up your charge to our Chief Fixed Incomes.
Speaker 1: Trying to just one of the best guests we could
Speaker 1: possibly get on this program to break down the all market.
Speaker 1: Jeff Curry joining us in New York, Goldman sax International,
Speaker 1: Global Head of Commodities Research. Good morning to Jeff. Before
Speaker 1: we get into the commodity market, I just want to
Speaker 1: get my hands around this December fifteen trade deadline and
Speaker 1: what you guys are sounding clients at the moment about it.
Speaker 1: How are you characterizing gays a line of the sand,
Speaker 1: Is it a firm deadline? Just how much risk is
Speaker 1: around that date? Well, in terms of thinking about our space,
Speaker 1: you know that the impact is relatively limited. It really
Speaker 1: impacts the agriculture markets to the most extensive extent. You know,
Speaker 1: there's a lot of noise right now whether or not
Speaker 1: this is going to lead to improvement in soy demand.
Speaker 1: But I think the key point there is that you
Speaker 1: have structural issues going on in the trade war is
Speaker 1: exacerbating these structural issues. It's not so much the cause.
Speaker 1: Let's take, for example, let's say if they were to
Speaker 1: increase the demand for soybeans, Asian swine flu has taken
Speaker 1: out the demand because there's no more hogs who actually
Speaker 1: consume the soybeans. That's more of a structural problem. Um.
Speaker 1: You look across the commodity space, it's much more structural
Speaker 1: issues that are plaguing in which and and sort of
Speaker 1: embedded in that question is a supplied demand dynamic, right,
Speaker 1: And that's a demand on side a question where in
Speaker 1: other words, if you get it amping up of the
Speaker 1: of the trade wars that potentially lowers demand, is that
Speaker 1: the right side of the equation to be looking at
Speaker 1: in terms of oil prices or should we be looking
Speaker 1: more at the supply side? Much more at the supply side.
Speaker 1: And what we're seeing is a substantial drop off in
Speaker 1: cap X. And again I'm gonna argue that that's much
Speaker 1: more structural than being driven by the trade boards. Sail
Speaker 1: prayers are biggest sail players in particular, you look at
Speaker 1: the rig counts in the US, they've been in a
Speaker 1: steady decline since December of last year. UM, and that
Speaker 1: reflects one is that these companies still have structural problems,
Speaker 1: poor returns, too much debt. But also you think about
Speaker 1: the trade boards ascerbated, and the other big factor that's
Speaker 1: coming into play is E s G investing. UM. You know,
Speaker 1: we estimate that in trillion dollars of assets under management
Speaker 1: will integrate E s G strategies into the portfolio. What's
Speaker 1: the two lowest hanging fruit fossil fuels and medals in mining?
Speaker 1: How can foss of fuels be within E s G.
Speaker 1: They've tried to manage the social message. How do they
Speaker 1: actually manage a strategic plan to be E s G
Speaker 1: sensitive five or ten years from now. Well, you look
Speaker 1: at the UM, the big oils and Europe, they've basically
Speaker 1: reinvented themselves as big energy, incorporating renewables, power and other
Speaker 1: more sustainable energy sources. Bio Fuels are added into that
Speaker 1: mix UM. So they're doing that in a way to
Speaker 1: be able to attract that capital back into the sector.
Speaker 1: But when you look at the shale players in particular, UM,
Speaker 1: they don't have that kind of optionality. I'm not gonna
Speaker 1: blame it all on E s G shale players. You know,
Speaker 1: too much leverage, bad returns, and you know, not a
Speaker 1: great future. Jeff. You know you taught micro economics in Chicago,
Speaker 1: which is an a mental hunter and also really rigorous
Speaker 1: as well. Give us the rigorous single point microeconomics of
Speaker 1: the oil price that Saudia Arabia needs. What's their best
Speaker 1: oil price right now? Well, in terms of thinking about
Speaker 1: what they can control and what they can't control, they
Speaker 1: can control the shape of the forward curve, they cannot
Speaker 1: control the price level. And the agreement they came to
Speaker 1: on Friday really exemplified that understanding, because what they did
Speaker 1: is they did a much deeper but um sharper um
Speaker 1: shorter term cut, which is telling you that they're going
Speaker 1: to deal with that near term surplus. They even went
Speaker 1: as far as to create a threat to any cheater,
Speaker 1: so it's best successful. But the third and most important
Speaker 1: aspect of that cut is they didn't offer an extension
Speaker 1: and they didn't talk about the future. Oil is a
Speaker 1: spot asset. It's not an anticipatory asset like financial markets,
Speaker 1: so having a focus on forward guidance is really not necessary.
Speaker 1: Focusing on cleaning up the front end is really important,
Speaker 1: and that's what they did, which increases the backwardation, and
Speaker 1: we raised our price target to sixty three dollars a
Speaker 1: barrel on Brent from UM sixty really driven by that
Speaker 1: backwarda let's talk about that threat from the Sound East.
Speaker 1: Woke us through that threat, Jeff, And what do you
Speaker 1: think that threat is credible? Well, when you look at
Speaker 1: who was cheating, it was Iraq, Russia, UM, Nigeria and Kurdistan.
Speaker 1: And what we've seen so far for the month of November,
Speaker 1: both Iraq and Russia have got their numbers back down
Speaker 1: in line with with with their quotas. But I think
Speaker 1: it's also a broader threat to the rest of the
Speaker 1: peripheral of OPEC that hey, they do have the capacity
Speaker 1: and they're willing to do it UM as we go forward,
Speaker 1: and that their ability UM to manage the front end
Speaker 1: because they've actually been the leaders in terms of cutting
Speaker 1: back on the front end. You know, they're running four
Speaker 1: hundred thousand barrels a day below their quota UM. So
Speaker 1: I think, you know, in terms of the outlook going forward,
Speaker 1: because it's not a long term commitment here, it's like, hey,
Speaker 1: let's balance these near term surpluses, it becomes much more
Speaker 1: easy to create a credible threat. You live and breathe
Speaker 1: this market. I don't so just naively, I'll say, from
Speaker 1: my perspective from the outside looking again, I was surprised
Speaker 1: paced about the absence of a conversation around Saudi a
Speaker 1: Ramco in Vienna, Austria at the OPEQ matsing. Can you
Speaker 1: really draw a distinction between a Saudi Arabia that joins
Speaker 1: opex plus to manage an oil price and a Saudi
Speaker 1: Arabia that needs to manage the price of its crown
Speaker 1: jewels listed in react? Yes, look at what oil equities
Speaker 1: have done since two thousand and fifteen. Do you actually
Speaker 1: do you realize oil equities on a level basis are
Speaker 1: lower today than what they were in the troughs of
Speaker 1: fifteen and sixteen oil prices you know, sixty three the
Speaker 1: oil prices twenty six then UM and you know I
Speaker 1: tell this to our equity analyst. Does the oil price
Speaker 1: really matter? Yeah? It does in a long term sense.
Speaker 1: And I think this goes back to my point. What
Speaker 1: did the OPEC plus members do UM this last on Friday?
Speaker 1: They separated that long term view from the short term view. UM.
Speaker 1: Oil price is a spot asset. Equities are an anticipatory asset.
Speaker 1: What they did on Friday. Was not going to change
Speaker 1: those expectations on forward oil prices. However, it could rebalance
Speaker 1: the market and help near term cash flows go. I
Speaker 1: absolutely agree you need to disconnected to and if the
Speaker 1: markets aren't a testament to the fact that oil price
Speaker 1: can do what it wants and the and you know,
Speaker 1: the equities can do. Another thing I can point out
Speaker 1: equities do not have an arbitrage condition oil prices do.
Speaker 1: There are arbitrage to the real supply and demand today,
Speaker 1: equities can do whatever they want based upon expectations. That's
Speaker 1: a whole different discussion. So Jeff, you were just saying
Speaker 1: that Brent, uh, you're expecting it to go to sixty
Speaker 1: three dollars. It's currently fifty six dollars and fifty seven cents.
Speaker 1: Where do you see w T I go And it's
Speaker 1: fifty eight dollars and cents right now. I'm almost right
Speaker 1: on where it's trading right now, basically. But that's not
Speaker 1: the story in oil. The story in oil is the
Speaker 1: shape of the forward curve. It's the returns where you um,
Speaker 1: you know, we expect to see returns and being long
Speaker 1: oil with this thing trading flat over the rest of
Speaker 1: the year. One thing, one thing that I want to
Speaker 1: follow up on. When you say that you're expecting CAPEX
Speaker 1: to decline over in the shale patch, I'm wondering, do
Speaker 1: you expect the fate of those companies to improve. We've
Speaker 1: seen the bankruptcies really increas east. Do you think that
Speaker 1: would just continue or do you think that we're starting
Speaker 1: to see a bottom. Well, I think when you look
Speaker 1: at what has to happen in that sector, you need
Speaker 1: to see consolidation. UM. I like to point out the
Speaker 1: top five oil companies in the US UM they represent
Speaker 1: the market cap, but only a third of the production.
Speaker 1: The other fifty companies that represent the other um of
Speaker 1: the market cap is where all the growth is and
Speaker 1: it's uneconomic. UM. So what likely has to happen is
Speaker 1: you have to consolidate those companies. I like to point
Speaker 1: out when people make the point about the CEO confidence
Speaker 1: numbers me and down, it's because there's too many old
Speaker 1: company ceo s versus the very few new company CEOs,
Speaker 1: and a lot of consolidation needs to happen on the
Speaker 1: old cop It's my birthday and Jeff Curry goes to
Speaker 1: the old CEOs of the old companies as well. Jeff
Speaker 1: very quickly here on gold Golden Sex talking about a lift.
Speaker 1: When do we see a lift on gold Well, we
Speaker 1: argue it's going to be real steady across the course
Speaker 1: of I think one of the biggest factors driving our
Speaker 1: bullish few you is the D dollarization. We're seeing that
Speaker 1: across the central banks, particularly the emerging market central banks.
Speaker 1: They're physically buying goal. We expect seven fifty tons of
Speaker 1: physical goal buying in UM and that's going to be
Speaker 1: driven by D dollarization. Jeff, super smart, always great to
Speaker 1: get your insight. Jeff carry their Goldman SAX International, Global
Speaker 1: head of Commodities Research. A FETE decision this Wednesday, and
Speaker 1: ECB decision coming up on Thursday, and a big trade
Speaker 1: deadline coming up on Sunday as well. On in between
Speaker 1: all of that, sprinkled in between, we get some decent
Speaker 1: amount and he canot be data in America, including US
Speaker 1: retail sales Lisa coming up in this Friday. Yeah, with
Speaker 1: a lot of data. The question is how should traders
Speaker 1: position ahead of that. Constance Hunter joining us now KEPMG
Speaker 1: chief economist and NAB President Constance I'm wondering right now
Speaker 1: the market's really ratcheting back expectations of even a rate cut,
Speaker 1: which has been pretty basically a given before we got
Speaker 1: better jobs data, as well as a slew of other things.
Speaker 1: What do you think the Fed's really going to be
Speaker 1: signaling as far as the rate expectations this Wednesday? I mean,
Speaker 1: I think it's going to be more of the same.
Speaker 1: And I think one of the things that they have
Speaker 1: stuck to throughout UM the entire period where they have
Speaker 1: been hiking rates and certainly since J. Powell became president,
Speaker 1: is this idea of symmetry. And I think this means
Speaker 1: that it is possible the feds reaction function UM and
Speaker 1: their tolerance for UM growth where we have inflation above
Speaker 1: the two percent target is higher than probably market participants expect.
Speaker 1: And so when we see a job's data like this, UH,
Speaker 1: people tend to anchor to that and say, well, now
Speaker 1: they're not going to cut in. I'm not so sure
Speaker 1: that that's the case. One month's job data does not
Speaker 1: a trend me and so while that was extremely encouraging UM,
Speaker 1: I think we need to wait and see what happens
Speaker 1: over the next several months. But you know, it's it's
Speaker 1: really UM I think people anchored to the most recent
Speaker 1: data and that's what we're seeing in the market. Okay,
Speaker 1: So if if that means that you do expect another
Speaker 1: rate cut in what's the threshold? What's the tipping point
Speaker 1: for the FED to have an additional cut here after
Speaker 1: a series of strong data. It's not just the retail sales,
Speaker 1: it's home sales, it's a number of other things too well.
Speaker 1: So I think one of the main reasons that they
Speaker 1: cut was weakness abroad seeping into the U. S. Economy.
Speaker 1: Of course, the US dollar and dollar funding is the
Speaker 1: primary engine for for liquidity globally, and so by cutting rates,
Speaker 1: the FED not only improved liquidity conditions at home, they
Speaker 1: improve liquidity conditions globally, and of course that had a
Speaker 1: feed through will So I think it depends not just
Speaker 1: what's happening here, but how the feed through of the
Speaker 1: global economy is going to impact the U S economy.
Speaker 1: What drives a path from one point seven one point
Speaker 1: eight subpart negative two percent below two percent g D
Speaker 1: p out to something decent call it two point five?
Speaker 1: What's the thing that gets us there? Is an investment?
Speaker 1: Is it n X? Is it consumption? So I don't
Speaker 1: think that anybody is forecasting negative two percent. So if
Speaker 1: we look at this most recent survey, the very weakest
Speaker 1: forecast we have is zero point one percent for the
Speaker 1: whole of And when we work with our models and
Speaker 1: shock them, it's very hard to get it to have
Speaker 1: two quarters of negative growth. And it's really we're talking
Speaker 1: about point nine or point five. So again it's really
Speaker 1: important people not anchor to the global financial crisis and
Speaker 1: and think about where we are now. And you brought
Speaker 1: up then humor. The consumer is extremely healthy, especially compared
Speaker 1: to the previous recession. And I think that the pain
Speaker 1: points are around um corporate investment and productivity because the
Speaker 1: consumer has been the backbone of the expansion and what
Speaker 1: what is lacking and what we need to maintain future
Speaker 1: growth is to increase product Well, this is important in folks,
Speaker 1: I Misspokes, didn't mean negative to perciment below two small difference,
Speaker 1: because it's this is really important. Does productivity lead growth
Speaker 1: or does better growth lead to better productivity? Ah, you
Speaker 1: have asked the most important questions yet well, and it's
Speaker 1: and both are correct, right. So when we have better growth,
Speaker 1: we see more investment. More investment tends to lead to
Speaker 1: future productivity. But if there were some nice, neat formula
Speaker 1: that we could all just plug into our policy toolbox
Speaker 1: and voila, we bake a productivity cake, then Japan would
Speaker 1: have already done this right. Um, But but it's not
Speaker 1: so straightforward, and it is an existential question in a way. Um.
Speaker 1: But they do feedback onto each other, so obviously, more
Speaker 1: productivity allows us to get more growth, and more growth
Speaker 1: encourages firms to make more investment, which usually leads to
Speaker 1: more productivity down the road. Constance, I've got to wrap
Speaker 1: things up by asking you the tedious, boring question that
Speaker 1: will be asked of you through the week December fift
Speaker 1: trick deadline. What on earth are you telling your clients?
Speaker 1: I just have never thought that they're going to make
Speaker 1: a breakthrough, and it's very possible they have this so
Speaker 1: called Phase one deal which papers over a lot of
Speaker 1: the issues, but I think the chances are pretty slim. Constance,
Speaker 1: ANSA always got a cash over your KPMG chief economists
Speaker 1: there joining us on the latest in the US economy.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: Radio