Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie hortert join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Julian and Manuel, i've
Speaker 2: ever call writing the increased probability of a bubble scenario
Speaker 2: gives the S and P five hundred and thirty percent
Speaker 2: chance to rise to nine K by year end twenty
Speaker 2: twenty six. Judian joins us now for more. Julian, good morning,
Speaker 2: Good morning. It's going to see you, sir. Let's put
Speaker 2: some meat on those bones. Thirty percent chance of nine
Speaker 2: K next year on the SMP.
Speaker 3: So if you think about it, actually going back to
Speaker 3: y two K right where all this sort of talk
Speaker 3: of bubbles originated. Over the course of this last twenty
Speaker 3: five years, you have had numerous bubbles, housing, global bond markets,
Speaker 3: Chinese equities in twenty fifteen, meme stocks, this, that, and
Speaker 3: the other, and frankly, when.
Speaker 4: You add all that up.
Speaker 3: First of all, academia would tell you that those many
Speaker 3: bubbles in twenty five years is absolutely impossible. But when
Speaker 3: you think about it, it really does speak to the
Speaker 3: fact that number one, each bubble was larger than the last.
Speaker 3: And from our point of view, when you think about
Speaker 3: Y twok a twenty eight times earnings peak, it's very
Speaker 3: reasonable to think about thirty times a three hundred dollars
Speaker 3: number getting you to nine thousand the s and P
Speaker 3: five hundred, But it's bigger, more grander every time.
Speaker 2: Well, let's speak to this moment. They're our whists of
Speaker 2: vendor financing. We see a video investing in some of
Speaker 2: that companies and in some of that customers, and we
Speaker 2: know that money is going to come back.
Speaker 4: To that company.
Speaker 2: What's different about this moment It seems to be the
Speaker 2: strength of the balance sheets compared to where we were
Speaker 2: in the late nineties and the absence of leverage on
Speaker 2: those balance sheets are some of the major tech players.
Speaker 2: Does that give this more legs?
Speaker 4: Is that?
Speaker 2: How do you think about things.
Speaker 3: Well, again, when you think about the late nineties, you
Speaker 3: were having companies that didn't have earnings, that had barely
Speaker 3: had revenues. That we're doing all the spending on capex.
Speaker 3: You don't have it this time. Most of the companies,
Speaker 3: to your point, have incredibly strong balance sheets. But when
Speaker 3: you think about what we've heard in the last couple
Speaker 3: of weeks, the memory for us is this Japanese phrase
Speaker 3: koretsu cross shareholdings. You saw it in the nineteen eighties
Speaker 3: and the early nineteen nineties, which inflated valuations into the
Speaker 3: Japanese equity market bubble. And look, if you're not concerned
Speaker 3: about the potential knock on effects of all this kind
Speaker 3: of cross shareholder relationships, you're probably not paying sufficient attention.
Speaker 1: So it is this bullish or bearish you're talking nine thousand,
Speaker 1: which sounds great, let's get in. And then you're talking
Speaker 1: about a bubble that's bigger than anything we've ever seen before.
Speaker 3: So and you have to think about it in terms
Speaker 3: of cycles. Okay, what we have been very plain about
Speaker 3: in getting ourselves around the idea that you invest in
Speaker 3: a higher valuation environment is this notion that what end
Speaker 3: structural bull markets. And to be very clear of what
Speaker 3: we had in February to April was a cyclical bear
Speaker 3: market in a structural bull market. What end structural bull
Speaker 3: markets is a FED that's going to be hostile. If anything,
Speaker 3: the FED is going to be perhaps too friendly to
Speaker 3: the point about stalking inflation. Higher yields on the long end.
Speaker 3: Amazing how quiescent the tenure yield has been. And then
Speaker 3: you know recession that doesn't seem to be in the cars.
Speaker 3: But the last thing, the fact that every one of
Speaker 3: these capital market cycles has ended with an incredibly robust
Speaker 3: corporate action pipeline and we're just starting to see that
Speaker 3: form tells you that there's further to run. And as
Speaker 3: difficult as it is, and it is difficult to invest
Speaker 3: in these valuations, and we think that you need to stay.
Speaker 1: Invested, You need to stay investor in the big tech players.
Speaker 1: Does it say anything about the rest of the market
Speaker 1: or is that just a completely different story in terms
Speaker 1: of the economic drivers the areas outside of AI.
Speaker 3: Well, look and again when you think about the demographics
Speaker 3: and know that over the course of the coming decades,
Speaker 3: demographics are going to be ahead when and they already
Speaker 3: are in places like China. That's part of why AI
Speaker 3: has had the impact that it's had. And this year
Speaker 3: we're seeing other companies, the adopters and the adapters really
Speaker 3: start to talk about how they're essentially driving revenue. We
Speaker 3: always knew the cost saving story, but that is very,
Speaker 3: very vital and for us. When you look at the
Speaker 3: internals of the market, what's different between now in the
Speaker 3: late nineteen nineties is that day to day the advancers
Speaker 3: are beating the decliners. The troops, the people in the field,
Speaker 3: the stocks that nobody talks about are going up day
Speaker 3: in and day out, Whereas in the late nineties it
Speaker 3: was all tech all.
Speaker 5: The time, seeing billions of dollars being put towards AI,
Speaker 5: but we're not seeing billions of dollars being put towards
Speaker 5: electricity demand. What happens if the grid can't handle.
Speaker 3: All of this, well, that's absolutely a concern, no question.
Speaker 5: Nine thousand next year, if you can't even develop data.
Speaker 3: Centers, that's a good question. And from our point of view, again,
Speaker 3: it's less about the synchronization of the build out then
Speaker 3: the fact that there is sufficient liquidity to you know,
Speaker 3: really expect the build out to occur over over a time,
Speaker 3: and again I go back to this idea, and frankly,
Speaker 3: we're seeing it. This week was different. Not only did
Speaker 3: you have the largest LBO in history, but I took
Speaker 3: taxi cab rise and they started talking about the stock
Speaker 3: market and they started talking about AI And that's different.
Speaker 3: But that's part of every cycle, and that is how
Speaker 3: you get to valuations that go from rational exuberance where
Speaker 3: we are now to something more extreme.
Speaker 2: I'm not thrown shade at all, but I think the
Speaker 2: camp driver over the past five years has been more
Speaker 2: dependable than the strategist on wolf straight in some ways.
Speaker 2: Is that fair?
Speaker 3: We got cautious, like everyone. We got bullish in April,
Speaker 3: to be clear, but.
Speaker 2: I don't know if that's been the country into kunda
Speaker 2: in quite the same way that they were in the
Speaker 2: nineteen twenties nineteen thirties.
Speaker 3: Well, what's fascinating again is you go back to February
Speaker 3: through April, and the public got this right. Literally for
Speaker 3: the first time in the cycle. The public was the
Speaker 3: buyer the whole way down. And the reason that the
Speaker 3: market has been so unrelenting on the upside is because
Speaker 3: professionals have found themselves under invested.
Speaker 2: It was a shoeshine boy in the twenties, remember all
Speaker 2: that stuff. The story is really different. The performance chase
Speaker 2: gun into year end is coming from Wolf Street. Wouldn't
Speaker 2: you agree I'm taking to clients that missed out in
Speaker 2: the move in April in the last.
Speaker 3: Six months, I would, But I would also say this
Speaker 3: is that the dynamics of trading. They used to call
Speaker 3: it day trading in the nineteen nineties. Now you're looking
Speaker 3: at high frequency trading. But these zero dazed expiration options,
Speaker 3: the gamma effect that causes hedgers to have to hedge
Speaker 3: upside intra day is really unlike anything I've seen.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Let's turn to the Federal Reserve traders looking ahead to
Speaker 2: the FMC minutes due out at two pm Eastern time
Speaker 2: in Lincoln of BIMO writing twenty five basis point cuts
Speaker 2: in October and December are already a foregun conclusion as
Speaker 2: long as there isn't a more dramatic down to in
Speaker 2: risk assets in joints now for more income mornits.
Speaker 4: So it's good to see you.
Speaker 2: Happy to be here when a Federal reserve is in
Speaker 2: risk management mode. If they don't have the data, are
Speaker 2: they cutting or are they holding?
Speaker 6: I think that they're going to continue to cut, simply
Speaker 6: because the data shift that we saw over the course
Speaker 6: of the summer, including the bitchmark revisions on the jobs front,
Speaker 6: suggests that we are cooling as an economy and getting
Speaker 6: back to normal policy rates. Seems to make sense in
Speaker 6: that With that background.
Speaker 1: I just wonder what you think of this dissonance between
Speaker 1: a labor market that seems to be cooling, in GDP
Speaker 1: that seems to be going strong well.
Speaker 6: As you've been discussing the AI investment capex, everything associated
Speaker 6: with that has not only been driving business spending so
Speaker 6: keeping up the momentum of the real economy, but we
Speaker 6: all faces we are also seeing upside inequities and that
Speaker 6: is fueling consumption because we know the top ten percent
Speaker 6: account for fifty percent consumption in the US, and I
Speaker 6: think that that has been a key driver. And when
Speaker 6: I make the observation about a potential downturn in risk assets,
Speaker 6: if we are going to slip into a recession at
Speaker 6: some point, it's probably going to come from a repricing
Speaker 6: of risk assets. But that certainly is not onknow one's
Speaker 6: radar At this point.
Speaker 1: I guess I'm trying to understand whether it makes sense
Speaker 1: for the FED to cut rights to protect jobs given
Speaker 1: the fact that there is clearly a sluggishness to the
Speaker 1: labor market. You're seeing peripheral spending data showing a slow
Speaker 1: down in September as while I was looking at Citigroup
Speaker 1: data this morning, I just wonder if it makes sense
Speaker 1: to do that if you potentially pose the risk of turbocharging.
Speaker 1: What some people are saying is bubblishest types of behavior
Speaker 1: in other sectors, AI be one of them.
Speaker 6: Well, I think that that's what the FED needs to
Speaker 6: decide over the course of the rest of the year,
Speaker 6: whether they're going to get back to three percent or
Speaker 6: three point five, depending on what estimates you look at,
Speaker 6: or is there a risk that there's still more to
Speaker 6: be seen on the tariff side, Even setting aside the
Speaker 6: bubble issue, I still think that there's tariff passed through
Speaker 6: to inflation that has yet to be realized, and so
Speaker 6: we could see some sticky CPI prints when we finally
Speaker 6: get them. And that's the big unknown is when does
Speaker 6: a government start publishing data again?
Speaker 2: So what are you tracking right now?
Speaker 1: Given the fact that we're not really getting anything official
Speaker 1: from a lot of the sources.
Speaker 6: So I think that we do have ADP, and we
Speaker 6: have ISM, and we have some of the private data.
Speaker 6: But at the end of the day, we're really just
Speaker 6: looking at the day count of the shutdown because the
Speaker 6: longer it goes, the more uncertainty there'll be. And when
Speaker 6: the FED meets later this month, the one piece of
Speaker 6: information that they will really have is whether or not
Speaker 6: the government has been reopened or if we're going to
Speaker 6: push that record long thirty four day shutdown window.
Speaker 5: Do you guys have a base case of how long
Speaker 5: you think the governershupdown will last.
Speaker 6: I think that it will get through the end of
Speaker 6: next week and at the earliest before we start to
Speaker 6: see any movement, because at that point people will stop
Speaker 6: getting paychecks. I assume that there'll be more rhetoric and
Speaker 6: more headlines out of Washington. But it's also a question
Speaker 6: of how the Democrats are going to be polling as
Speaker 6: a result of this, going into what will be the
Speaker 6: run up to the midterm and the politics around that,
Speaker 6: and that's always difficult testamy.
Speaker 5: So the FED will be walking in potentially with that
Speaker 5: base case, with a job report, but not inflation data.
Speaker 5: How concerning is that when the likes of Neil Koshkari
Speaker 5: are sounding alarms on two fastive interest rate cuts might
Speaker 5: be a problem, and there's stiflationary fears.
Speaker 6: I do think that if they happen to have the
Speaker 6: jobs data in hand, that that will be part of
Speaker 6: the story that they can justify cutting because a weaker
Speaker 6: job market is disinflationary on a forward basis.
Speaker 4: And that is again information.
Speaker 6: I do think it would be ideal if they had
Speaker 6: a full set of information, but at the end of
Speaker 6: the day, they're going to adjust to the reality as
Speaker 6: it comes out.
Speaker 2: And since the Fed last night mid September, two year
Speaker 2: bon yields are slightly higher, ten year bon yields a higher,
Speaker 2: The whole curve is shifted higher. What it think that
Speaker 2: speaks to.
Speaker 6: I think we're just in an arrange consolidation mode for
Speaker 6: the market. I think that we now know the direction
Speaker 6: of travel of rates. We have some uncertainty associated with
Speaker 6: the shutdown and what that means more than likely for
Speaker 6: the beginning next year as opposed to the balance of
Speaker 6: this year, and we don't have enough convincing evidence to
Speaker 6: get back to three ninety five ten year yields, but
Speaker 6: also not to get back to four fifty. We're just
Speaker 6: in a range as we see how things play out.
Speaker 2: Don't you think also that the rate story has stabilized,
Speaker 2: because subsequently after the FED meeting, we found out this
Speaker 2: FED is far more divided than was actually revealed in
Speaker 2: that news conference with Chairman Powell. That maybe for a
Speaker 2: lot of people they thought this was the start of
Speaker 2: a bigger rate cutting cycle, something down towards three and quickly.
Speaker 2: And what I've heard subsequently since there's a bunch of
Speaker 2: FED speakers with very different views about the future mentioned
Speaker 2: Neil Kashgawi, there are some individuals that aren't ready to
Speaker 2: go again, never mind go another one hundred. Isn't that
Speaker 2: part of this story as well? How big a feature
Speaker 2: is that?
Speaker 4: Well?
Speaker 6: I think that what the future's market is telling us
Speaker 6: is we're comfortable with a glide path back to three
Speaker 6: percent sometime in the middle of next year. But as
Speaker 6: you point out, there are competing voices on the committee,
Speaker 6: and there do tend to be competing voices when we're
Speaker 6: at an inflection point, and we were at an inflection point.
Speaker 6: I think that Powell's comments in particular, were an effort
Speaker 6: to ensure that there was as much flexibility as possible,
Speaker 6: and he didn't want to pre commit to an October
Speaker 6: or a December move. So I think it's more of
Speaker 6: a business as usual than it is something particularly frightening.
Speaker 1: This is sort of a perverse question, but it looks
Speaker 1: like right now in polymarket it's only a twenty five
Speaker 1: percent chance that the shutdown ends before October fifteenth. You
Speaker 1: said that this is the one piece of data that the.
Speaker 4: FED is going to have.
Speaker 1: It's new which just how long the shutdown's going on.
Speaker 4: Is that bond positive at the end of the day.
Speaker 6: I think it is because it's more uncertain and we've
Speaker 6: spent a lot of the the last four or five
Speaker 6: months with a TREBUTI will related on uncertainty as well
Speaker 6: as now shut down related uncertainty, and that has led
Speaker 6: to a stalling out on the labor front, and until
Speaker 6: we have more clarity, I think people are going to
Speaker 6: be a lot more reluctant to hire, more reluctant to spend,
Speaker 6: and I think it's going to eventually be gone positive.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: The analyst David Deck Obama, TD Cow and covers some
Speaker 2: of the companies that Trump administration has invested in, and
Speaker 2: has this to say, Investors have to ask who's next.
Speaker 2: Stocks are moving fantastically on this news, no matter what
Speaker 2: the actual details are. David joins US Now for more.
Speaker 2: David Gomardick, morning, Thanks for having me. Your job has changed,
Speaker 2: It has changed. Indeed, sure the White House is now
Speaker 2: picking the winners. How does that change your approach?
Speaker 7: You know, similar to my comments before, it was interesting
Speaker 7: in their prior conversation here talking about, you know, what's
Speaker 7: the process behind all of this and what's the intention?
Speaker 7: And I think real really it's true for the administration
Speaker 7: one to some extent to make an investment on behalf
Speaker 7: of taxpayers, but also I think to raise the profile
Speaker 7: for the general investing public that these companies are a
Speaker 7: priority and that these industries are a priority. And now
Speaker 7: everyone obviously has their hands out and you've seen companies
Speaker 7: openly talking about and disclosing. We're having conversations with the
Speaker 7: USDO Department of War, We're having conversations with the Pentagon,
Speaker 7: and I think it just sets the stage for what
Speaker 7: should be triggering a multi year investment process in the
Speaker 7: broader material sector.
Speaker 1: Theoretically, a lot of people could get behind this, and
Speaker 1: it seems like it does make sense at least according
Speaker 1: to both sides of the aisle. And what they've put
Speaker 1: out there is the administration picking the right names.
Speaker 7: So I would say, with their first investment, and I'm
Speaker 7: not going to speak on Intel, so let's look at
Speaker 7: them P Materials. They're the largest rare earth miner in
Speaker 7: the Western Hemisphere. I think that was a very logical
Speaker 7: chosen champion for this administration to get behind because it
Speaker 7: unlocks multiple parts of the supply chain for rare earth
Speaker 7: and ultimately magnets. You also saw a follow up deal
Speaker 7: with Apple right on the heels of that, So I
Speaker 7: think all of these things were connected. In the context
Speaker 7: with lithium Americas, the government was already involved with a
Speaker 7: substantial loan that the DOE had approved under the Biden
Speaker 7: administration under the ATVM loan program, which sought to really
Speaker 7: propel the lithium supply chain in North America, largely around
Speaker 7: the proliferation of electric vehicles.
Speaker 4: We've walked back.
Speaker 7: A lot of the EV tax credits and incentives there,
Speaker 7: but I think there was still partly a recognition on
Speaker 7: the part of the government that were already in bed
Speaker 7: with this company from a loan process. Let's sort of
Speaker 7: rework some of the terms. Did it actually improve the
Speaker 7: outlook for Lithium America's I would argue perhaps, no, it
Speaker 7: really just diluted there, really deluted the equity holder at
Speaker 7: that point. But it does obviously raise the profile and
Speaker 7: the stock moved up well over one hundred percent, you know,
Speaker 7: without really caring what the details were.
Speaker 1: So can you just basically look at whoever the US
Speaker 1: is given a loan to and say that probably will
Speaker 1: be equitized.
Speaker 7: Sure, you could certainly build. I mean, you've seen a
Speaker 7: lot of names already moving in anticipation that they're going
Speaker 7: to receive funding in some form, and logically you would
Speaker 7: anticipate that every single company in the material space that
Speaker 7: has a project at least on the whiteboard at this
Speaker 7: moment is having active conversations. So I think you can
Speaker 7: probably still make money that way, because at some point
Speaker 7: you have to ask how does this all end? You know,
Speaker 7: is the government going to be trading out of these
Speaker 7: equity positions. It's not as though there's always a contribution
Speaker 7: that's coming with this, and at this point, I think
Speaker 7: it's safe to say that there.
Speaker 4: Is no end in sight for this.
Speaker 5: Well, some people think that this is just the beginning
Speaker 5: of potentially US sovereign wealth fund.
Speaker 4: How you do it?
Speaker 7: I mean, I think in some cases that's already very
Speaker 7: much the case, except you know, in theory, I suppose
Speaker 7: this is being done with tax payer money. And you've
Speaker 7: seen some funds reallocated from areas like the Chips Act
Speaker 7: and some other funding, and I think it's really just
Speaker 7: going to try to accelerate a lot of these investment opportunities.
Speaker 5: One official was talking about, there's hundreds of deals that
Speaker 5: right now are being proposed. Could you see by the
Speaker 5: end of Trump's first term, hundreds of companies the US
Speaker 5: government has a stake.
Speaker 7: In, And theory short, look look at all these stakes.
Speaker 7: And what's interesting about a five to ten percent stake
Speaker 7: because some of these are coming with board membership, right,
Speaker 7: so the government is becoming an active member of management oversight.
Speaker 7: They're not necessarily helping with execution, but they can help
Speaker 7: on the contracting side. And if you think about, you know,
Speaker 7: hundreds of companies out there, taking a five percent equity
Speaker 7: interest in some of these companies that's coming costless to
Speaker 7: the government. Sure in theory, right and if you're an
Speaker 7: executive right now and you see the potential to re
Speaker 7: rate your equity by hundreds of percent and then on
Speaker 7: the back of that perhaps raise additional capital in the
Speaker 7: markets just by giving the company, you know, the government
Speaker 7: five percent of your company. That's a very difficult deal
Speaker 7: not to side long term. What does this do for
Speaker 7: competition in this space, Well, I think that it does welcome,
Speaker 7: at least in the United States, that everyone can get
Speaker 7: involved in the supply chain. Look at rare Earth's for
Speaker 7: instance right now. Yes, they've championed MP they've given them
Speaker 7: a floor price, and you've seen actually the the NDPR
Speaker 7: market for rare earths, you've seen pricing move substantially higher
Speaker 7: up to ninety dollars a kilo. In August they gave
Speaker 7: them one hundred and ten dollars a heilo price floor.
Speaker 7: I think that it provides opportunity for everyone within the
Speaker 7: within the United States and really allied nations to come
Speaker 7: forward with projects to try to re short of the supply.
Speaker 4: Chain as quickly as possible.
Speaker 2: Stay with US multiple IMPEX savidance coming up off to
Speaker 2: this right to that kind of ay Right and his
Speaker 2: right camp bat now expecting the Feds and low interests
Speaker 2: right back to back Masinx right rights in the following this,
Speaker 2: it's increasingly fragile backdrop, compounded by data vacuum and policy uncertainty.
Speaker 2: It's likely to tell the balance of FED policy makers
Speaker 2: correct joint just now for more. Greg and Mornik, Good morning,
Speaker 2: No data, no problem.
Speaker 8: No data means more caution when it comes to how
Speaker 8: business leaders, how economists, how FED policy makers are going
Speaker 8: to react. I've been talking with a lot of business
Speaker 8: executives that are concerned about the fact that we're not
Speaker 8: getting a pulse on the economy, and as we were
Speaker 8: getting before this government shut down, a lot of mixed signals.
Speaker 8: There's growing uncertainty as to the underlying pace of the economy.
Speaker 8: I think one thing that's key to remember is that
Speaker 8: there are three fragile pillars to the economy that all
Speaker 8: start with an A. You have essentially affluent workers that
Speaker 8: are supporting consumer spending. You have the AI investment boom
Speaker 8: and potentially a bubble there, and then you have the
Speaker 8: asset price increases. They're all correlated and they're all fragile.
Speaker 8: If you get any type of disruption to one of
Speaker 8: those three that could portend to a slower economic outlook and.
Speaker 4: Then the need for morpheed easing. As we navigate into
Speaker 4: twenty twenty.
Speaker 1: Six, when you talk about caution, it seems to be
Speaker 1: a deceleration in growth or euphoria in market. It's not
Speaker 1: necessarily the acceleration in inflation.
Speaker 4: Why well, I think.
Speaker 8: When you're thinking about the economy right now, what you're
Speaker 8: seeing is essentially the acceleration in inflation that is induced
Speaker 8: by terriffs. And the key question is whether this is
Speaker 8: an embedded acceleration in inflation or something that's likely to
Speaker 8: be transitory.
Speaker 4: And you and I have talked about this in the past.
Speaker 8: We are in an environment where labor market demand is softening.
Speaker 8: It's not because we're seeing slower payroll growth only. It's
Speaker 8: because we're seeing a hiring rate that's at a twelve
Speaker 8: year low. It's because we are seeing continuing claims for
Speaker 8: unemployment that have been gradually rising. It's because job cut
Speaker 8: announcements are up fifty five percent relative to last year.
Speaker 8: So all these indicators indicate softening labor market demand, notwithstanding
Speaker 8: the massive negative shock that we've seen in terms of
Speaker 8: net migration, there is underlying weakness and softness in the
Speaker 8: labor market, which means there's unlikely to be this desire
Speaker 8: to raise wages, and so what we're seeing is essentially
Speaker 8: this increase in prices, which is eroding consumer spending power,
Speaker 8: and in turn, businesses that have to contend with these
Speaker 8: higher cost pressures are not going to be hiring more freely.
Speaker 8: They're not going to be allowing for higher wages, and
Speaker 8: therefore that's going to continue to weigh on income and
Speaker 8: on consumer spending activey.
Speaker 4: There's a lot to unpack there.
Speaker 1: I just would ask, can I sound like a broken
Speaker 1: record should ask this a lot? Would really cutting rates
Speaker 1: help that picture in any way? Would it get people jobs?
Speaker 1: Given the fact that ultimately a lot of companies are
Speaker 1: turning to AI and they have every capital market opening
Speaker 1: that they possibly could imagine.
Speaker 8: I think that's the broader question as to how the
Speaker 8: FED reacts to supply shocks. We are in this environment
Speaker 8: where what we're seeing is massive supply shocks to the economy,
Speaker 8: whether it's on the side of AI or on the
Speaker 8: side of net migration in the labor market. The FED
Speaker 8: has a limited number of tools to address any type
Speaker 8: of imbalance in the economy, and in this instance, it's
Speaker 8: a supply shockading to inflationary pressures and.
Speaker 4: Reduce growth volumes.
Speaker 8: Now, your question is very interesting because what we're seeing
Speaker 8: is essentially a growing spread between short term rates and
Speaker 8: long term rates. Short term rates are pricing more fed
Speaker 8: easing over the course.
Speaker 4: Of the next twelve months.
Speaker 8: Long term rates have to contend with higher inflation expectations,
Speaker 8: a fiscal situation that is concerning, even more so in
Speaker 8: the midst of a government shutdown, and then fed pressures
Speaker 8: from the administration. The three f's there are very important
Speaker 8: to contend with when it comes to the trajectory of
Speaker 8: where the economy is going to head.
Speaker 5: When you look at tariff induced inflation, though we haven't
Speaker 5: really seen it yet.
Speaker 4: Not broad base, not broad based.
Speaker 8: But if you lift the hood and you look at
Speaker 8: the underlying drivers of inflation, if you look at grocery prices,
Speaker 8: if you look at apparel prices, if you look at
Speaker 8: car prices, if you look at furniture prices, all of
Speaker 8: these elements have been rising and lifting inflation by about
Speaker 8: a third, essentially a third of the inflation increase over
Speaker 8: the course of the past four months has been driven
Speaker 8: by these categories. What I would also note is that
Speaker 8: you're also seeing that pass through to services. A lot
Speaker 8: of services that we consume are actually using goods and equipment.
Speaker 8: You think of medical care, you think of car or
Speaker 8: repair shops. There are services that use a lot of
Speaker 8: equipment that have an imported component into them, and that
Speaker 8: essentially see these upward pressures in terms of prices. We're
Speaker 8: not going to see the same type of increase that
Speaker 8: we saw back in twenty one and twenty two. We're
Speaker 8: not going back to nine percent inflation, but we are
Speaker 8: going away from two percent inflation towards three three and
Speaker 8: a half percent inflation, which is hurting families across the country.
Speaker 5: Will this haunt the FED next year because they seemed
Speaker 5: to be ignoring it completely in the bias is to
Speaker 5: labor market.
Speaker 8: I think you may see the hints of this hurting
Speaker 8: the FED next year because the rotation of voters is
Speaker 8: going to be more hawkish. So if there is more
Speaker 8: easing this year, you're going to see more hawkish members
Speaker 8: next year that may be on the dockets saying, actually,
Speaker 8: we ease too much and we now need to either
Speaker 8: hold for longer or.
Speaker 4: Tighten monetary policy.
Speaker 8: That's going to be the twenty twenty six debate because
Speaker 8: the rotation of Fed palsy makers is going to become
Speaker 8: more hockey.
Speaker 2: It's super hard to protect what the Fed's going to
Speaker 2: do a year out. The Federal Reserve has difficulty protecting
Speaker 2: what the Federal Reserve's going to do a year out.
Speaker 2: Given what you just said, you're going to have this mix,
Speaker 2: this collision between a hawkish rotation and that maybe a
Speaker 2: very douvish rotation at the very top of the Central Bank.
Speaker 2: How difficult will this committee be to lead beyond my
Speaker 2: next year?
Speaker 8: Extreme polarization is going to be the situation when it.
Speaker 4: Comes to the Fed. We're already seeing hints of that.
Speaker 8: There's one hundred and fifty basis points spread between the
Speaker 8: most hawkish dot in the and famous dot plot of
Speaker 8: the Fed and the most douvish policy maker. So that
Speaker 8: polarization is going to remain firmly in place, and we're
Speaker 8: going to get a cacophany of speeches that go in
Speaker 8: different directions when it comes to interpreting the direction of
Speaker 8: the US economy next year, and that's going to be
Speaker 8: very hard to read from a policymakers standpoint, but also
Speaker 8: also from a business leader standpoint.
Speaker 4: Let's not forget what we really are.
Speaker 8: Concerned about is the direction of investment, the direction of employment,
Speaker 8: and the direction of consumer spending. If you have a
Speaker 8: lack of clarity as to what the Fed is going
Speaker 8: to be doing because it interprets conditions as EI either
Speaker 8: being extremely loose on the financial front, or because it
Speaker 8: sees that there's more of a drag from the labor
Speaker 8: demand side or labor supply side, whether there are different views,
Speaker 8: diverging views, very divergent views. Potentially, that's going to confuse
Speaker 8: policy makers, it's going to confuse investors, and it's going
Speaker 8: to confuse business executives as to what decisions they should make.
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