Speaker 1: Thank you so much for joining us for this special
Speaker 1: edition of Bloomberg Daybreak. US markets are closed for the
Speaker 1: Labor Day holiday. I'm Nathan Hager coming up this hour.
Speaker 1: As we enter the final few months of the trading year,
Speaker 1: stocks are trading near all time highs. Will it be
Speaker 1: a bullish close out to twenty twenty four and what
Speaker 1: about next year? We'll speak with Cameron Dawson, chief investment
Speaker 1: officer at New Edge Wealth Plus. It has certainly been
Speaker 1: a volatile year for bitcoin, so what's in store for crypto?
Speaker 1: Bloomberg Intelligence Senior commodity strategist Mike mcgloon will join us,
Speaker 1: but we begin with the economy and the Federal Reserve.
Speaker 1: Another key data point is on tap this week ahead
Speaker 1: of the next rate decision later this month. August. Non
Speaker 1: farm payrolls are due out on Friday. Ahead of it,
Speaker 1: we're pleased to welcome Michael McKee, international economics and Policy
Speaker 1: correspondent for Bloomberg News, and Anna Wong, chief US economist
Speaker 1: at Bloomberg Economics. It's great to have both of you
Speaker 1: here with us on this Labor Day. I want to
Speaker 1: start with you, Mike, because of course you were there
Speaker 1: in Jackson Hall for Chairman Palace famous time is Now speech,
Speaker 1: and then you followed it up with a conversation with
Speaker 1: the president of the San Francisco Fed, Mary Daily. Let's
Speaker 1: see what she had to tell you.
Speaker 2: Well, to my mind, we've been on this path of
Speaker 2: ready to adjust policy rates for several months. We just
Speaker 2: needed to get a little more confidence and inflation was
Speaker 2: truly on its path to two percent, and I wanted
Speaker 2: to see the labor market come into balance. But I
Speaker 2: think that's completely happened, and the risk to our goals
Speaker 2: are now balanced in the time to adjust policy is
Speaker 2: upon us.
Speaker 3: Is there anything that could derail a cut in September?
Speaker 2: To my mind, that would be hard to imagine. At
Speaker 2: this point, I do see that adjusting policy is appropriate.
Speaker 2: We don't want to get ourselves into a situation where
Speaker 2: we're keeping policy highly restrictive into a slowing economy.
Speaker 1: Puts the focus right back on the jobs market, doesn't
Speaker 1: it this idea that the labor market is coming into balance? So, Mike,
Speaker 1: is it?
Speaker 3: Well, it depends on who you talk to, because well,
Speaker 3: Mary Daily thinks they're in balance, and several other members
Speaker 3: of the Open Market Committee agree. The Chairman seems to
Speaker 3: think that they're a little bit tilted towards the downside
Speaker 3: for the labor market, and that it added to his
Speaker 3: emphasis on the idea that rate cuts are coming. So
Speaker 3: I mean, it definitely is going to be a very
Speaker 3: important report on Friday because it will drive the discussion
Speaker 3: about whether the Fed should cut by twenty five basis
Speaker 3: points or fifty basis points.
Speaker 1: Of course, Anna Loong, you've been on top of this
Speaker 1: conversation about whether we are going to see a twenty
Speaker 1: five basis point or a fifty basis point cut. How
Speaker 1: do you view things when it comes to labor market
Speaker 1: dynamics right now?
Speaker 4: Yeah, I think we are already in the non linear
Speaker 4: part of the climb of the unemployment rate. And I
Speaker 4: think the reason why Powell seems to be more devish
Speaker 4: than the median FMC partic bit is that Powell is
Speaker 4: actually not a trained economist. He is a lawyer, and
Speaker 4: he's more skeptical about economist models. And when you look
Speaker 4: at how the other FOMC members view the labor markets,
Speaker 4: for example, Mary Daily is a trained labor economist. Chris Waller,
Speaker 4: who's an intellectual figure on the FOMC, is you know,
Speaker 4: depending on the beverage curve. They have this excessively precise
Speaker 4: way of looking at labor market.
Speaker 5: But whereas Powell has this.
Speaker 4: Very total and a holistic view of looking at things,
Speaker 4: and the holistic views of looking at things is that
Speaker 4: the labor market is cooling really rapidly recently, as we
Speaker 4: could see from a lot of the regional vet surveys
Speaker 4: that employment sub index is plunging. So I think my
Speaker 4: view is very similar to Powell, which is that the
Speaker 4: risks facing the economy is definitely tipped toward the downside
Speaker 4: on unemployment.
Speaker 1: And we certainly saw that downside risk to the unemployment
Speaker 1: picture when preliminary benchmarker visions came out last month, that
Speaker 1: big drop of eight hundred eighteen thousand jobs wiped out
Speaker 1: from the labor picture. So how does that cloud things
Speaker 1: when it comes to the labor market right now?
Speaker 3: It's maybe a slight cloud on the horizon. The problem
Speaker 3: with these revisions is that they get revised again, and
Speaker 3: there's a good chance that it will be revised lower
Speaker 3: the level of job creation. Even if you subtract. Right now,
Speaker 3: the eight hundred and eighteen thousand goes down from two
Speaker 3: hundred and forty two thousand average a month to one
Speaker 3: hundred and seventy four thousand, and that's still a very
Speaker 3: strong job creation number each month. So I don't know
Speaker 3: that it is any kind of push for the FED
Speaker 3: one way or the other. They're going to be looking
Speaker 3: at what's happening now, because remember this eight hundred and
Speaker 3: eighteen thousand that's through March of this year. Now you
Speaker 3: can extrapolate forward, but you don't really know if that's
Speaker 3: going to be accurate or not. And so do we
Speaker 3: get a repeat eat of the low job creation number
Speaker 3: last month in July when we saw only one hundred
Speaker 3: and fourteen thousand jobs created, or do we see a
Speaker 3: bounce back? That's going to be the real question. If
Speaker 3: we get a bounce back, it doesn't have to go
Speaker 3: above two hundred thousand, it doesn't even have to go
Speaker 3: to one hundred and seventy five thousand. But you get
Speaker 3: something one fifty or more, you're going to see people
Speaker 3: thinking that the job market has slowed, but it's not
Speaker 3: falling off a cliff.
Speaker 1: I want to ask you about this as well, Anna,
Speaker 1: Not only did we see that much lower than expected
Speaker 1: top line number of one hundred and fourteen thousand, jobs added.
Speaker 1: Last month, we saw a pretty big pickup in the
Speaker 1: unemployment rate as well. Is that a one off or
Speaker 1: could it be a sign of a trend of things
Speaker 1: to come in the labor market.
Speaker 4: That is the trillion dollar question, Nathan, whether the increase
Speaker 4: in unemployment rate is do you to temporary factors or
Speaker 4: transitory factors? Do you want to be a transit transitory
Speaker 4: or is the im permanent factor. So into the micro
Speaker 4: data behind the household survey that produces the unemployment rate,
Speaker 4: really drill into the details right and what we found
Speaker 4: is that the two most benign explanation for the increased
Speaker 4: unemployment is not valid. The two most benign explanation is one,
Speaker 4: it's due to layoffs related to Hurricane Barrel. Well, it
Speaker 4: turns out that most of the temporary layoffs are not
Speaker 4: in Texas or any of the hurricane impacted states. On
Speaker 4: the other hand, they are concentrated in places like California, Michigan,
Speaker 4: New Jersey, and Nevada. You know states that you know
Speaker 4: the labor market is weakening. The second most benign is that, oh,
Speaker 4: it's due to the Michigan auto re tooling. So every
Speaker 4: July the car auto plants will rest to get ready
Speaker 4: for the next season, and usually that leads to temporary
Speaker 4: layoffs in the auto markets way. But what we found
Speaker 4: is that that accounts for very very minute part of
Speaker 4: the temporary layoffs, and historically they don't show up at all.
Speaker 4: So in fact, the layoffs related to auto manufacturing is there.
Speaker 4: In fact, it's more severe and normally, and just looking
Speaker 4: at Bloomberg stories on Stillentis and what's going on Ford
Speaker 4: and GM, a lot of these temporary layoffs are becoming
Speaker 4: permanent layoffs due to lack of demand.
Speaker 5: What we actually.
Speaker 4: Uncovered in the driver as a driver of the rise
Speaker 4: in unemployment rate is actually education sector and people. This
Speaker 4: is one issue that's not on people's radar is that
Speaker 4: one pandemic federal stimulus is expiring in September, and that
Speaker 4: stimulus measure has been providing funding for a lot of
Speaker 4: schools all over the country and because of its expiration,
Speaker 4: a lot of the local schools are laying off teachers.
Speaker 4: And so we're seeing clear signs in the August payrolls
Speaker 4: and July perils that those layoffs are not temperate, going
Speaker 4: to be permanent.
Speaker 1: We're speaking with Anna Wong, chief US economist at Bloomberg
Speaker 1: Economics and our Bloomberg Economics and Policy correspondent Michael McKee
Speaker 1: with us as well, and Mike, let's pick up on
Speaker 1: what Anna was talking about. There are a lot of
Speaker 1: the seasonality baked into the last payrolls report, and what
Speaker 1: could that mean for the Fed's planning when it comes
Speaker 1: to whether to actually go ahead and make it clear
Speaker 1: that the time really has come to kick off a
Speaker 1: rate cut cycle.
Speaker 3: Well, I think it would take it awful lot for
Speaker 3: the FED to change its mind about kicking off the
Speaker 3: rate cut cycle. You'd have to have a very strong
Speaker 3: jobs report, which people are not expecting at this point.
Speaker 3: But we are going to get more seasonal issues. A
Speaker 3: lot of schools start around the country, so you add
Speaker 3: a lot of teachers and also education workers, people in
Speaker 3: the cafeteria, janitors, et cetera. And so the numbers account
Speaker 3: for that as well.
Speaker 1: One other question, Anna, as we think about whether the
Speaker 1: FED is kicking off a rate cut cycle of a
Speaker 1: lot of expectation that it is going to happen later
Speaker 1: on this month, is the Fed behind the curve and
Speaker 1: what can the FED do to get investors thinking that
Speaker 1: it is on top of what's going on in a
Speaker 1: slowing economy.
Speaker 5: So, given the.
Speaker 4: Fed's dual mandate, it is behind the curve. We estimate
Speaker 4: that they are about seventy basis point behind the curve.
Speaker 4: I think the question is how fast and how deep
Speaker 4: are they going to cut. If they decide to go
Speaker 4: for a twenty five basis point cut, it means that
Speaker 4: they're still behind the curve, and I think given our
Speaker 4: concern about the rapidly cooling of the labor market, it
Speaker 4: would suggest that the FED well risk having to cut
Speaker 4: more sharply down the line.
Speaker 1: What say you, Mike, what can the FED do to
Speaker 1: show that it's not behind the curve?
Speaker 3: Well, it would help a lot for the FED if
Speaker 3: we get a reasonably strong job report that will make
Speaker 3: one difference, and also we get another CPI report before
Speaker 3: the FED meeting on September eighteenth. But I think it's
Speaker 3: going to come down to this statement. They've told us
Speaker 3: they're going to cut. They generally don't want to do
Speaker 3: fifty basis points. So given the feeling of some economists
Speaker 3: on Wall Street, like Anawong, they're going to have to
Speaker 3: explain themselves. And I think they'll probably note that we
Speaker 3: have had some strength in the numbers that was kind
Speaker 3: of not seen in July that came back in August.
Speaker 3: If we get a rebound, and they'll point to the
Speaker 3: fact that the economy overall is growing at a basically
Speaker 3: a trend or above trend pace, and they're not particularly
Speaker 3: concerned because about the labor market because jobless claims have
Speaker 3: remained low. So they will defend themselves sort of on
Speaker 3: that way. Of course, this all depends on eighteen days
Speaker 3: from now, the conditions being the same.
Speaker 1: In our last minute and long since Mike mentioned the
Speaker 1: CPI report coming out just before the Fed decision, let's
Speaker 1: dig into that. Can inflation get the Fed off the
Speaker 1: rails when it comes to the time has come.
Speaker 4: I think generally we are going to see more disinflation
Speaker 4: in the fall, particularly from goods sectors, because it turns
Speaker 4: out that a lot of retailers has been front running
Speaker 4: the holiday season, and given our consumer demand is that
Speaker 4: it's going to slow in the fall, they might find
Speaker 4: themselves to having all these excess inventory, which means more
Speaker 4: discounts for the consumer come holiday season. But I think
Speaker 4: the Fed does have a base effect problem when it
Speaker 4: comes to inflation. If inflation data just comes in pretty
Speaker 4: good the year over year twelve month change and inflation
Speaker 4: will actually climb throughout to December. We are expecting it
Speaker 4: to climb to two point eight percent from the current
Speaker 4: two point six percent.
Speaker 1: Long Chief US economist at Bloomberg Economics, thank you for this.
Speaker 1: Along with Michael McKee, our international economics and policy correspondent
Speaker 1: for Bloomberg News and straight Ahead, on this special holiday
Speaker 1: edition of Bloomberg Daybreak, we're going to talk with Mike mcglohane,
Speaker 1: Senior commodity strategist for Bloomberg Intelligence, as we look at
Speaker 1: the volatility that is bitcoin. That's straight Ahead. I'm Nathan Hager,
Speaker 1: and this is Bloomberg Welcome back. Thanks for joining us
Speaker 1: on the special edition of Bloomberg Daybreak. US markets are
Speaker 1: closed for the Labor Day holiday. I'm Nathan Hager. Well,
Speaker 1: it's certainly been a volatile but profitable year if you're
Speaker 1: an investor in bitcoin, the world's most valuable cryptocurrency, started
Speaker 1: the year above forty thousand per token. Then in March
Speaker 1: it's soared to it all time high above seventy three thousand.
Speaker 1: Since then, coin's been in kind of a bouncing ball mode.
Speaker 1: If you look at a chart on the Bloomberg terminal.
Speaker 1: So what's in store for the rest of the year.
Speaker 1: For some answers, let's bring in Mike mcglowan and senior
Speaker 1: commodity strategist our guy on all Things Crypto at Bloomberg Intelligence.
Speaker 1: Thanks for joining us on the holiday Mike. So what's
Speaker 1: been driving all this bitcoin volatility since the spring?
Speaker 6: It had the launch of us ETFs. We've been waiting
Speaker 6: for that for about a decade. It had to have
Speaker 6: in where there's a cut and supply, and it had
Speaker 6: bay to the stock market making record highs. Now it's
Speaker 6: in and then hangover, and I think it might be enduring.
Speaker 6: Bitcoin was the next best trade for a long time.
Speaker 6: Now I think it's kind of transitioning to the last
Speaker 6: best trade. And part of that is because it just
Speaker 6: went so far so fast. And key thing you remember,
Speaker 6: aout Bitcoin is basically trades about three times a volatile
Speaker 6: the stock market, and it's been showing pretty significant divergent
Speaker 6: weakness since that peak. So I like to use this
Speaker 6: number around. It's dropped to about bitcoin s and P
Speaker 6: five hundreds, dropped about eleven SMB five hundreds versus the
Speaker 6: bitcoin I like to use as the ratio. The peak
Speaker 6: in twenty twenty one was fifteen, so it's heading lower.
Speaker 6: And if beta drops, the stock market drops, I think
Speaker 6: Bitcoin's going to have more of a problem. I think
Speaker 6: maybe he ill end with this. So I think the
Speaker 6: key thing about some people have called it the fastest
Speaker 6: horse in the race. It may be indicating the race
Speaker 6: is over.
Speaker 1: If Bitcoin is the last best thing, let's make that
Speaker 1: the case here. Does that make the next best last
Speaker 1: best thing something like ethereum, something like the doge coins?
Speaker 6: Probably not. If Bitcoin goes down, it's beta for the
Speaker 6: whole space, and it probably means all the other highly
Speaker 6: much more highly speculative digital acids. It's hard to argue
Speaker 6: Bitcoin is not a highly speculative digital acid. It's the
Speaker 6: one that trades twenty four to seven. It's the benchmark.
Speaker 6: If it goes down, the whole space goes down, and
Speaker 6: to me, that's the risk is partly because it just
Speaker 6: went up too much. But the bottom line to me
Speaker 6: is this whole space started with bitcoin in around two
Speaker 6: thousand and nine, was coordinated with them pretty significant rally
Speaker 6: in US stock market, and if we're entering to recessions,
Speaker 6: stock market's a really expensive we start rolling over a little.
Speaker 6: Bitcoin may be leading that way, and I think that's
Speaker 6: what's happening now. One thing that's significant is the Vix
Speaker 6: Valtili index. It's say, the one hundred week or two
Speaker 6: hundred week movement average is bottoming from about a six
Speaker 6: year low. And then of course we have things like
Speaker 6: the dis inversion of the yield curb and utrising unemployment.
Speaker 6: To me, those are all kind of signaling that the
Speaker 6: fastest horse and rice might be tilting lower. And the
Speaker 6: key thing is it's been showing divergent weakness versus gold
Speaker 6: and the stock market for quite a while.
Speaker 1: What about if we are getting into a rate cut
Speaker 1: cycle from the Federal Reserve. If rates do start to
Speaker 1: come down, does that change the outlook for digital currencies?
Speaker 6: We are we're starting, certainly from a if you look
Speaker 6: at the curb the long bond around four percent and
Speaker 6: Fed funds well about five percent, we're certainly indicating yields
Speaker 6: are going lower. It does, But I think the problem
Speaker 6: is now it's the cat and mouse game between the
Speaker 6: stock market, which is market capitalization about two times GDP.
Speaker 6: That's the highest since the twenties and thirties, so it's
Speaker 6: rather expensive and the FED easing, and this, Nathan, is
Speaker 6: the most widely anticipated FED easing I've ever seen in
Speaker 6: my entire career, and I started in the trading pitching chericognnites,
Speaker 6: I've just never seen it. So I think it's so
Speaker 6: priced in that the market's so priced for the enthusiasm
Speaker 6: of a Federal Reserve easing cycle. And we know the
Speaker 6: Fed gets that they do not want to risk refueling
Speaker 6: some of the inflation that really forced them to do
Speaker 6: a lot of the aggressive hiking to the top in
Speaker 6: twenty twenty three.
Speaker 1: I mean, there's, as you say, there's been so much
Speaker 1: anticipation that we are going to see a rate cut
Speaker 1: later this month, that the cycle is going to begin.
Speaker 1: And ahead of that, we've been seeing a lot of speculation,
Speaker 1: a lot of thought that gold, you know, the original gold,
Speaker 1: could get as high as three thousand dollars an ounce.
Speaker 1: We're not seeing that same kind of thinking, or at
Speaker 1: least as far as I can tell, when it comes
Speaker 1: to bitcoin. Why is that.
Speaker 6: I think it's a transition, And I'm glad you we
Speaker 6: went to gold because to me, the old analoge digital gold,
Speaker 6: it's just a matter of time it gets through three thousand.
Speaker 6: It's in a bull market. Maybe it's a little bit overdone,
Speaker 6: and the short term it's fine. But the new and
Speaker 6: the new digital version. I like to say, it's kind
Speaker 6: of risky to have old analog gold without some of
Speaker 6: that digital version in space, but re memory, it's new.
Speaker 6: And the key thing that I like to say about
Speaker 6: bitcoins all the things I look forward to the last
Speaker 6: five years, the having the you know, there's pretty significant
Speaker 6: discounts in some of the ETFs like Greyscale, Bitcoin Trust,
Speaker 6: the ETFs, and it's going to the mainstream. It's in
Speaker 6: the mainstream. I mean even we have presidential candidates knocking
Speaker 6: around how great it is because they want to get elected.
Speaker 6: It's already so and it's it's so well armed out now.
Speaker 6: So to me, the best of the days of bitcoin
Speaker 6: appreciation are over. Yet what we're seeing now is is
Speaker 6: pretty significant global tilt towards recession. Now, remember I'm a
Speaker 6: commodities guy, and the tilt from commodities is severe recession.
Speaker 6: We were seeing declines in almost all commodities, particularly things
Speaker 6: like corn and natural gas and crude. All's just starting
Speaker 6: till lower. And only one that's really going up is gold.
Speaker 6: And a lot of that's because of what's happening in China,
Speaker 6: just like at bond yields and trying to their declining.
Speaker 6: So to me, that's what gold's picking up on the
Speaker 6: deepest pockets on the planet. Central banks are buying gold,
Speaker 6: and that's typically will probably accelerate. I think gold will
Speaker 6: be more attractive if we see a little bit of
Speaker 6: back and fill in US stock market, US rates going down.
Speaker 6: And the problem is digital gold. Bitcoin is trades typically
Speaker 6: about three times a voltui of analog gold and the
Speaker 6: stock market. So if we have a little bit of
Speaker 6: normal recessionary back and fill in the stock market, digital gold,
Speaker 6: bitcoin will probably suffer a lot more than the analog version.
Speaker 6: It's just such a voltal speculative asset.
Speaker 1: Speaking with Mike mcglohon', senior commodity strategist at Bloomberg Intelligence,
Speaker 1: and you know you talk about bitcoin as digital gold.
Speaker 1: There's been this debate for years about whether it is
Speaker 1: going to be the sort of hedge against inflation in
Speaker 1: the years to come. What's it going to take for
Speaker 1: bitcoin to get to that level. It sounds like you're
Speaker 1: thinking that it might be a ways off before it
Speaker 1: gets there.
Speaker 6: In terms of some other melting currencies. I'm based in
Speaker 6: Miami's so we hear a lot of people come from
Speaker 6: South America and they're used to melting currencies. It has
Speaker 6: provided some of that. But the thing is it's a
Speaker 6: very volatile speculative digital ass and it's gone so far
Speaker 6: so fast. I think it needs to back and filth
Speaker 6: little well. So typically what bitcoin does when it makes
Speaker 6: new highs like it is now, it has a fifty
Speaker 6: percent correction, so that means it could get down the
Speaker 6: thirty five and that's normal. But I think to be
Speaker 6: more of a digital version of goal and an alternative,
Speaker 6: valatility has to come way down, which means it has
Speaker 6: to have a very boring period. Right now, it's just
Speaker 6: a very volatile speculative digitalist. And now, in the big picture,
Speaker 6: I'm very favorable to the price of bitcoin going higher.
Speaker 6: It has definable diminishing supply and increasing demand and adoption,
Speaker 6: so rozec economics means it should go up over time.
Speaker 6: But to me, right now, the risk is it's a
Speaker 6: little bit too extended and it's showing the virgin weakness,
Speaker 6: and I think that's going to continue. The bottom line,
Speaker 6: to me, the big test for bitcoin will be is
Speaker 6: when we get that next say ten percent correction in
Speaker 6: the stock market and see how it performs. Typically when
Speaker 6: it trades, you know about three times a volte of beta.
Speaker 6: It typical is down about thirty percent if the stock
Speaker 6: market goes down around ten percent. Now that's not set
Speaker 6: in stone, but we have to see how we can
Speaker 6: get through that period. If bitcoin can sustain upward momentum
Speaker 6: with stock market going down, the problem is it's showing
Speaker 6: downward momentum Bitcoin is with the stock market still going up.
Speaker 1: What about copper? When we think about whether we are
Speaker 1: getting into a global economic slow down, whether the Fed
Speaker 1: can provide some support in some way with rate cuts,
Speaker 1: where does copper go down?
Speaker 6: The risks for copper are down. Unfortunately, the copper did
Speaker 6: make a new high this year at about five dollars
Speaker 6: and twenty cents a pound. It's around four dollars and
Speaker 6: twenty cents upon now and it has a it's highly autocorrelated.
Speaker 6: Copper is number one. Is highly correlated to what's happening
Speaker 6: in China. We all know China somewhat in decline. Just
Speaker 6: look at their bond yields. The ten you notte yield
Speaker 6: in China right now is about two point two percent.
Speaker 6: That's well below the US ten note yield, which is
Speaker 6: just below a four percent. So it's a sign of
Speaker 6: deflationary recessionary force in China. So that's bad for copper.
Speaker 6: But it's what put in that peak that we got
Speaker 6: earlier in May was pretty significant speculative accesses in managed
Speaker 6: running at futures positions ie hedge funds. They got way
Speaker 6: long the commodity, up to about thirty percent of total
Speaker 6: futures open interests and they are still somewhat long around
Speaker 6: twenty percent of futures open interests. Typically has to drop
Speaker 6: a lot more in terms of positions down to around
Speaker 6: five percent of total open interests for copper to bottom.
Speaker 6: So I think copper is going to do what it
Speaker 6: normally does. It trades more like silver. Now Silver's nickname
Speaker 6: kind of the devil's medal, and that is I think
Speaker 6: it needs to get down to nearer three to put
Speaker 6: in a good bottom. Otherwise, here's one key prerequisite for
Speaker 6: copper to continue going higher. The US stock market has
Speaker 6: to come to go and continue going up, and China
Speaker 6: has to come out of this meleise. And I think
Speaker 6: the risks are copper just was it normally does. When
Speaker 6: it gets too high, it just goes back to around
Speaker 6: three hours a pound.
Speaker 1: Those are some pretty significant dynamics when it comes to
Speaker 1: the outlook, whether the US stock market rises, whether the
Speaker 1: Chinese economy starts to see a turnaround. Can the US
Speaker 1: sort of outweigh what we're seeing in the world's second
Speaker 1: biggest economy.
Speaker 6: Well, that's the problem I think is. I think a
Speaker 6: lot of investors are underestimating these deflationary forces, starting with China.
Speaker 6: I mentioned their bond yields. You see it clearly happy
Speaker 6: in commodities. Gold is up above thirty percent since commodities
Speaker 6: peaked in twenty twenty two. The Bloomberg Commodity Index is
Speaker 6: down about thirty percent, and I see the whole tilt
Speaker 6: going lower unless something can change out of China. And
Speaker 6: the thing is you have to remember, is it all
Speaker 6: happened for a good, solid paradigm shifting reason. It said
Speaker 6: unlimited friendship between President Zee and President Putin really shifted
Speaker 6: the world. And then we had Russians invasion of Ukraine
Speaker 6: that shifted all the sentiment toward kind of against China,
Speaker 6: which is bad for commodities. So gold is good for gold.
Speaker 6: So that's why I see crude oil around seventy five
Speaker 6: dollars a bail has risks of going much lower. It
Speaker 6: always has bottom they're forty for the last twenty years
Speaker 6: or so. And one good leader is food. Look at corn.
Speaker 6: Corn right now is about three dollars and ninety cents
Speaker 6: a bushel that trade. That was first traded in nineteen
Speaker 6: seventy three. That's down more than fifty percent from the
Speaker 6: peak around eight in twenty twenty two. And a lot
Speaker 6: of that's just on the back of the number one
Speaker 6: force in all commodities. It's the high price queue. Prices
Speaker 6: got too way too high and created a lot of
Speaker 6: incentive to bring on more supply and reduce demand. And
Speaker 6: that's what's happening. Same things happened in natural gas US.
Speaker 6: Natural gas at about one point nine million BPUS was
Speaker 6: first traded in futures in nineteen ninety. The high in
Speaker 6: twenty twenty two was ten and it's dropped more than
Speaker 6: eighty percent. That is on the back again, the high
Speaker 6: priced cure. And that's the key thing that we remember
Speaker 6: about all commodities. They're all probing for low price cures.
Speaker 6: Cone corn is probably close, natural gas is probably close,
Speaker 6: and the number one that still probably has a lot
Speaker 6: more lower to go I'm afraid of is crude oil,
Speaker 6: which is actually really good for consumers.
Speaker 1: I wanted to ask about crude oil as well because
Speaker 1: so much of that plays into what happens in geopolitics
Speaker 1: as well. I mean, how difficult is it to frame
Speaker 1: out an outlook for crude oil when we have so
Speaker 1: much volatility in the rest.
Speaker 6: Of the world. Well, that's the key thing is some
Speaker 6: people find it difficult. I find it quite clear. There
Speaker 6: is no sense at all of a sustainable shutdown supply
Speaker 6: from the geopolitics in the world that's happening to crudell.
Speaker 6: In fact, the lessons of all these type of political events,
Speaker 6: certainly that ran Araq war and Iras invasion Kuwait is
Speaker 6: typically the events create spikes and then massive supply in
Speaker 6: much lower loads. The last two significant lows after those
Speaker 6: two wars I mentioned was around ten in crude oil,
Speaker 6: So to me, I'm looking at forty as a normal
Speaker 6: low price cure. The bottom line is the key things
Speaker 6: that really was pressuring crude oil before Russia's invasion in
Speaker 6: Ukraine are accelerating. That's excess to supplying the man out
Speaker 6: of the US and Canada. That surplus now is around
Speaker 6: six million barrels a day before the invasion was closer
Speaker 6: to two million barrels a day.
Speaker 1: Really appreciate this, Mike, this broad out look on the
Speaker 1: commodity space. Mike mcgloan with us there, senior commodity strategistic
Speaker 1: Bloomberg Intelligence, and coming up next we'll move from commodities
Speaker 1: to stocks. The equity outlook from Cameron Dawson of New
Speaker 1: Edge Wealth. That says, this special Labor Day edition of
Speaker 1: Bloomberg day Break continues. I'm Nathan Hager, and this is Bloomberg.
Speaker 1: Thank you so much for joining us for this special
Speaker 1: edition of Bloomberg Daybreak. I'm Nathan Hager. US markets are
Speaker 1: closed for the Labor Day holiday, and we're going to
Speaker 1: wrap up this hour with a closer look at the
Speaker 1: stock market. With earning season pretty much behind us and
Speaker 1: a rate cut pretty much coming a few weeks from now,
Speaker 1: where is the best place to put your money? Let's
Speaker 1: ask Cameron Dawson, the chief investment officer at New Edge Wealth.
Speaker 1: Camerdon still great to speak with you on this holiday.
Speaker 1: First off, what is your read on earning season and
Speaker 1: the outlook heading into the rest of the year.
Speaker 7: Well, earning season certainly has come in better than expected.
Speaker 7: We've seen companies be able to beat and raise guidance.
Speaker 7: There have been pockets of weakness, and that weakness has
Speaker 7: really been focused on the consumer, and that's where we
Speaker 7: started to see some jetters within markets, concerned about the
Speaker 7: growth outlook. We're hearing from a lot of companies talking
Speaker 7: about how pricing power is fading, how effectively they raise
Speaker 7: prices as much as they could have hit a wall,
Speaker 7: and now it's likely that you're going to start to
Speaker 7: see even more discounting. That's a great story for the FED,
Speaker 7: that's a great story for bond markets expecting rate cuts,
Speaker 7: meaning that it reduces the risk of inflation. But it
Speaker 7: does raise the question about twenty twenty five earnings, which
Speaker 7: do have a big acceleration in top line growth and
Speaker 7: margin expansion priced in. So for now it's still a
Speaker 7: good story, but as we go into twenty twenty five,
Speaker 7: I think we have it, we have to watch it closely.
Speaker 1: Is it a good enough story to keep the rally going,
Speaker 1: particularly after what we heard from Nvidio last week?
Speaker 7: It is interesting that after Invidia reported, it didn't take
Speaker 7: down the rest of the tech sector. You would have
Speaker 7: normally expected when the biggest name in the index reports
Speaker 7: a number that's slightly less extraordinary than expected, that you
Speaker 7: would have seen kind of normal weakness within the rest
Speaker 7: of the sector. But it was resilient. The thing that
Speaker 7: we're watching within the tech sectors that if you look
Speaker 7: into twenty twenty five, what you see is an acceleration
Speaker 7: in twenty twenty five earnings as well. Earnings are expected
Speaker 7: to go to twenty five percent, up from about mid
Speaker 7: teens this year, all the while in Vidia, being that
Speaker 7: biggest name of the sector, is expected to see its
Speaker 7: earnings decelerate from one hundred and forty percent to forty percent.
Speaker 5: So it gets us back.
Speaker 7: To this notion that for now it's good, but we
Speaker 7: really have to watch twenty twenty five.
Speaker 1: So what are you going to be watching for most
Speaker 1: closely when it comes to twenty twenty five. Is it
Speaker 1: all about the economy? Is it all about earnings?
Speaker 7: It is both, because we do think that the economy
Speaker 7: will feed into earnings. So if we think about the consumer,
Speaker 7: one thing that's really been jumping out to us is
Speaker 7: that you've seen this deterioration in the consumer's assessment of
Speaker 7: the labor market. So looking at things like that labor
Speaker 7: market differential where consumers are starting to say that jobs
Speaker 7: aren't as plentiful and they're getting harder to get, that
Speaker 7: tends to lead things like retail sales and overall consumption
Speaker 7: within the economy.
Speaker 5: So if that continues.
Speaker 7: To deteriorate, it really would raise the question of current
Speaker 7: consensus for the S and P five hundred, which has
Speaker 7: an acceleration in top line growth that's baked in.
Speaker 5: So we think this all fits.
Speaker 7: Together with the real big risk for twenty twenty five
Speaker 7: being that earnings kind of start to level out, and
Speaker 7: if that's the case, it would imply a shoppier kind
Speaker 7: of market for the overall S and P five hundred
Speaker 7: into next year.
Speaker 1: I'm glad you mentioned the outlook for the labor market,
Speaker 1: because of course, we do have an other jobs report
Speaker 1: coming up later this week. It's going to be very
Speaker 1: much in focus for the FED as it considers whether
Speaker 1: the time really is now to start cutting rates. How
Speaker 1: much does the stock rally depend on the FED beginning
Speaker 1: the rate cycle this month.
Speaker 7: Well, the surprising thing about rate cut cycles is that
Speaker 7: they typically aren't good for markets in the very short term,
Speaker 7: meaning that markets have tended to sell off post the
Speaker 7: first cut, with the question mark of as to why
Speaker 7: the FED is cutting, And this is really the big
Speaker 7: question as we go into next year, which is that
Speaker 7: is the FED cutting because they can just because inflation
Speaker 7: has come down, or is the FED cutting because they should?
Speaker 7: The latter implies a much deeper rate cutting cycle, which
Speaker 7: in some ways is already being priced in by the
Speaker 7: bond market. The bond market has almost three hundred basis
Speaker 7: points priced in over the course of the next two
Speaker 7: years of cuts, which does imply a much weaker her
Speaker 7: growth environment. So it's a story of be careful what
Speaker 7: you wish for. If we just get a couple of cuts,
Speaker 7: that typically has been good for markets. On the other side,
Speaker 7: a deeper cutting cycle has typically been consistent with weaker markets.
Speaker 1: Well, what is your view? Is the FED cutting because
Speaker 1: it can or because it should?
Speaker 7: We think that the FED is cutting because it can
Speaker 7: for now, But it's the question of the direction of travel,
Speaker 7: meaning that if you listen to Palace comments from Jackson Hole,
Speaker 7: he talked about how the deterioration in things like the
Speaker 7: unemployment rate weren't because of your more nefarious drivers, things
Speaker 7: like a big uptick and layoffs.
Speaker 5: Instead, it was new entrance.
Speaker 7: To the labor force as well as a slow down
Speaker 7: in hiring. But what we've typically seen is that a
Speaker 7: slow down in hiring leads an increase in overall firing.
Speaker 7: So as we go through the next few months and
Speaker 7: into twenty twenty five, it's not as much as where
Speaker 7: we are today, which is still a relatively healthy labor market,
Speaker 7: falling inflation, which gives the FED room to ease rate some.
Speaker 7: It's really the question of the direction of travel and
Speaker 7: do we get further deterioration, which again implies deeper rate
Speaker 7: cuts from the FED.
Speaker 1: So if we are heading into a FED rate cut cycle,
Speaker 1: should we be looking for new leadership when it comes
Speaker 1: to what's going to be driving the stock market? Can
Speaker 1: tech continue to lead the way or could we see
Speaker 1: more rotation out of tech.
Speaker 7: This is so interesting because we have started to see
Speaker 7: this shifting sands of leadership under the surface. Over the
Speaker 7: last few weeks. What we've seen is Tech really start
Speaker 7: to lag. It's traded heavy, it hasn't been able to
Speaker 7: make a new all time high, unlike the equal way
Speaker 7: S and P five hundred, which made a new all
Speaker 7: time high before Tech and before the cap weighted index
Speaker 7: did so it does signal that you're starting to see
Speaker 7: a bit of a shift in leadership and what's coming
Speaker 7: out as leadership.
Speaker 5: On the other side of things are two key areas.
Speaker 7: One, it's rate sensitive areas like reets in real estate
Speaker 7: that typically do well in a falling rate environment, as
Speaker 7: well as defensives. You've seen some signs of life and
Speaker 7: things like utilities and staples, and for an overall market outlook,
Speaker 7: you typically don't like to see utilities in staples lead.
Speaker 7: It signals that there are growth concerns and that there's
Speaker 7: an underlying risk off tone to the market. So we
Speaker 7: do have to watch this very closely. Our view on
Speaker 7: Tech is one where we think that Tech can be
Speaker 7: neutral or flat with the market, but it cannot lag
Speaker 7: in a meaningful way because it's just such a big
Speaker 7: part of the index. It's about thirty percent of the
Speaker 7: S and P five hundred, so Tech has to play
Speaker 7: ball for the overall S and P five hundred to
Speaker 7: continue to make new highs.
Speaker 1: Speaking with Cameron Dosa and Chief Investment officer at New
Speaker 1: Edge Wealth. As we think about how stocks could end
Speaker 1: this year, Cameron, what are you looking at? What are
Speaker 1: some of the major catalysts for you?
Speaker 7: Well, the election is of course very top of mind,
Speaker 7: and we have seen stocks typically trade weaker going into
Speaker 7: the election and then a rally after that, and of
Speaker 7: course with a little sprinkling of a Santa Claus rally
Speaker 7: on top that. Of course all investors hope for going
Speaker 7: into the end of the year. We're hoping to get
Speaker 7: more indication about the policy priorities of both parties which
Speaker 7: can help us make a better assessment about what we
Speaker 7: think will lead coming out of the election, So things
Speaker 7: like taxes and immigration and tariffs all being very important
Speaker 7: things to get a sense of what can leadership be
Speaker 7: post the election once we get the results.
Speaker 1: Yeah, it's been interesting to see this sort of debate
Speaker 1: about what a Trump trade looks like versus a Harris trade.
Speaker 1: From what we've heard so far, do you see major
Speaker 1: differences between these two candidates, who, at least as far
Speaker 1: as the polling goes, are very different people.
Speaker 7: Yes, and the polling is tight at this point, so
Speaker 7: it's really hard for the market, i think to price
Speaker 7: in the winning of one versus the other very different
Speaker 7: than where we were in the middle of the summer
Speaker 7: where Trump had a twenty point plus lead over the
Speaker 7: Democratic ticket.
Speaker 5: So then the question is how.
Speaker 7: Will the policy priorities, of course play out, and what
Speaker 7: does it mean for corporate earnings If we look at
Speaker 7: the corporate tax rate and how it's being paid for,
Speaker 7: that is a key area of difference between the two
Speaker 7: parties about where they would raise taxes in order to
Speaker 7: pay for the extension of the existing tax rates. We
Speaker 7: do know that there's a lot of air between immigration policy,
Speaker 7: which could have important implications on things like the labor
Speaker 7: market going into twenty twenty five. And then the last
Speaker 7: area of difference would be on tariffs and how impactful
Speaker 7: tariffs would be potentially under a Trump presidency if he
Speaker 7: does enact a more sweeping set of tariffs, of course,
Speaker 7: much more sweeping than what the Harris ticket is talking about.
Speaker 1: Wonder what you're thinking as well about certain investment themes.
Speaker 1: Of course, this year there's been so much focus on
Speaker 1: the AI story. There's been a lot of talk as
Speaker 1: well about weight loss drugs, that sort of thing. What
Speaker 1: kind of themes are you thinking about that could be
Speaker 1: more lucrative as we think about the end of this
Speaker 1: year and into twenty twenty five, we.
Speaker 5: Think it'll be the application of AI.
Speaker 7: Right now, the AI rally has been one that has
Speaker 7: been very beneficial to the arms dealers of AI, so
Speaker 7: the picks and shovels kind of providers of the chips
Speaker 7: that are needed in order to apply these technologies. Where
Speaker 7: we have seen a lot less impact is on the
Speaker 7: users of AI and how it will actually show up
Speaker 7: in things like margins and productivity. And so that is
Speaker 7: the real test for this AI narrative as we go
Speaker 7: into twenty twenty five, which is that is there a
Speaker 7: return on investment for all of this investment spending for
Speaker 7: those that are actually applying the AI. If that's the case,
Speaker 7: then it does raise the likelihood that you can meet
Speaker 7: what are already very lofty margin targets that are priced
Speaker 7: into the S and P five hundred. But if AI
Speaker 7: doesn't deliver, or it's just a longer time to deliver,
Speaker 7: as we heard from some of the tech names this year,
Speaker 7: it could set up for a little bit of disappointment.
Speaker 7: So we see AI still remaining top of mind, but
Speaker 7: that the story is likely to evolve as we go
Speaker 7: into next year, and.
Speaker 1: If we are heading into a rate cut cycle, could
Speaker 1: we start to see more of a correlation between bond
Speaker 1: yields and stock prices. What could that mean when it
Speaker 1: comes to portfolio diversification.
Speaker 7: Well, we do think that bonds are back in the
Speaker 7: sense of being able to provide that diversification of the
Speaker 7: classic sixty forty portfolio. That's been our expectation throughout this year,
Speaker 7: which is that this scenario that led to bonds breaking
Speaker 7: down as a diversifier in twenty twenty two was of
Speaker 7: course a big rise in inflation and that concomitant right
Speaker 7: in yields. Given the fact that we continue to see
Speaker 7: greater downside to inflate, or greater risk that there is
Speaker 7: downside to growth than there is upside to inflation, it
Speaker 7: implies that bonds can be that ballast if.
Speaker 5: You do go into a growth scare. So it leads
Speaker 5: us to see.
Speaker 7: Eptiics in yields, meaning when bonds sell off and yields
Speaker 7: move higher, to use that as opportunities to extend duration
Speaker 7: and lock in lower yield lock in those higher yields
Speaker 7: with the expectation that it can be a great diversifier
Speaker 7: if growth fears really do start to pick up.
Speaker 1: Cameron Dawson, their new Edge Wealth Chief Investment Officer. Also
Speaker 1: want to give our thanks as well to Bloomberg Intelligence
Speaker 1: see your Commodities Analyst Mike mcgloane, Bloomberg International Economics and
Speaker 1: Policy Correspondent Michael McKee, and Anna Wong, chief US economist
Speaker 1: at Bloomberg Economics. Our thanks to you as well for
Speaker 1: joining us on this Labor Day holiday. And if you're
Speaker 1: listening to us in Boston, our new home starting September
Speaker 1: third will be ninety two FM. That's tomorrow at noon,
Speaker 1: Bloomberg Radio moving to ninety two nine FM in Boston.
Speaker 1: I'm Nathan Hager. Wherever you're listening to us, stick around.
Speaker 1: Today's top stories and global business headlines are coming up
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