WEBVTT - Powell Pivot, Inflation, and CRE 0:00:00.120 --> 0:00:04.360 Bloomberg is now on your dashboard with Apple CarPlay and 0:00:04.360 --> 0:00:08.160 Android Auto. It gives you access to every Bloomberg podcast, 0:00:08.280 --> 0:00:11.560 live audio feeds from Bloomberg Radio, print stories from Bloomberg 0:00:11.640 --> 0:00:14.920 News in audio form, and the latest headlines of the 0:00:14.920 --> 0:00:18.600 click of a button with Bloomberg News. Now it's free 0:00:18.680 --> 0:00:21.439 with the latest version of the Bloomberg Business App. That's 0:00:21.680 --> 0:00:24.400 the Bloomberg Business App. Get it on your phone in 0:00:24.440 --> 0:00:27.760 the Apple App Store or on Google Play. Just download 0:00:27.800 --> 0:00:30.560 the app, connect your phone to your car and get started. 0:00:30.960 --> 0:00:34.400 And it's all presented by our sponsor, Interactive Brokers. 0:00:35.400 --> 0:00:38.600 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:38.640 --> 0:00:39.800 my co host Matt Miller. 0:00:40.200 --> 0:00:44.279 Every business day we bring you interviews from CEOs, market pros, 0:00:44.320 --> 0:00:48.160 and Bloomberg experts, along with essential market moven News. 0:00:48.720 --> 0:00:51.839 I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:51.960 --> 0:00:55.080 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:55.760 --> 0:00:57.720 Let's check in with Ed Harrison. He's the senior editor 0:00:57.760 --> 0:01:00.279 of Bloomberg News. Get his thoughts on these markets. Thanks 0:01:00.280 --> 0:01:02.760 so much for joining us via zoom here. What do 0:01:02.800 --> 0:01:06.000 you make of what we heard from fed chairman Pal 0:01:06.160 --> 0:01:08.640 yesterday and then maybe the market's reaction to it. 0:01:09.840 --> 0:01:10.080 Yeah. 0:01:10.120 --> 0:01:13.280 I think there are two things there, Matt. One is 0:01:13.319 --> 0:01:15.520 that there was no pushback from the FED, and I 0:01:15.520 --> 0:01:18.479 think that's the most significant of the two things. The second, 0:01:18.560 --> 0:01:21.600 obviously is the dot plot, which was relatively dubbished. But 0:01:21.640 --> 0:01:24.760 when you add those two together, particularly the one with 0:01:24.840 --> 0:01:28.200 the lack of pushback, it says that markets have room 0:01:28.240 --> 0:01:30.640 to rip from here. And this is exactly the opposite 0:01:30.680 --> 0:01:32.640 of what I was thinking ahead of the meeting. I 0:01:32.720 --> 0:01:35.000 was writing that the FED would at least do a 0:01:35.080 --> 0:01:38.800 perfunctory pushback. But that's not what we got. When you 0:01:38.800 --> 0:01:41.880 look at the transcript of what Powell when he was 0:01:41.920 --> 0:01:44.640 asked questions Nick Timmeros or the Wall Street Journal, he 0:01:44.720 --> 0:01:48.480 asked him, look, you know, we've gotten a lot of 0:01:49.640 --> 0:01:53.080 easing and policy on your behalf. I anticipating a funds 0:01:53.120 --> 0:01:56.040 rate next year that's a full percentage point lower in 0:01:56.080 --> 0:02:00.640 September and missed, and Jerome Powell said and respond he said, look, 0:02:00.680 --> 0:02:02.240 you know, we're just going to do what we have 0:02:02.320 --> 0:02:04.880 to do. We're not going to think about the market. 0:02:05.240 --> 0:02:07.320 They're going to do what they need to do, and 0:02:07.360 --> 0:02:10.600 we'll meet somewhere in the future in some place, and 0:02:10.880 --> 0:02:13.120 that was enough for the market to say, Okay, look, 0:02:13.400 --> 0:02:15.720 we have no pushback here. We're definitely just. 0:02:15.639 --> 0:02:16.359 Gonna let it go. 0:02:16.720 --> 0:02:18.800 And it's interesting, ed because when you think back to 0:02:18.880 --> 0:02:22.520 the November meeting, that was really when Powell had pushed 0:02:22.520 --> 0:02:25.520 back on all of the uh you know, or really 0:02:25.520 --> 0:02:28.160 more that paid more attention, i should say, to financial conditions, 0:02:28.160 --> 0:02:30.720 and that was a time when treasury yields were really 0:02:31.400 --> 0:02:33.800 going higher and you always like, oh, well, this is 0:02:33.960 --> 0:02:35.360 maybe kind of nice, you know, they're doing a bit 0:02:35.400 --> 0:02:37.840 of the work for us, Like, we'll take that. And 0:02:37.880 --> 0:02:41.240 now there's been so much easing just built in in 0:02:41.240 --> 0:02:44.880 the treasury market for people thinking that this pivot was coming. 0:02:45.280 --> 0:02:48.240 Of course, on the now the decision has come, stocks 0:02:48.240 --> 0:02:52.079 and treasuries just ripping further. So is there really does 0:02:52.120 --> 0:02:55.160 Powell still care about the you know, financial conditions at 0:02:55.160 --> 0:02:57.520 this point or he's kind of just willing to let 0:02:57.600 --> 0:02:58.919 them go as they please. 0:03:00.080 --> 0:03:02.800 Yeah, I think that he's given up. Looking at it, it 0:03:02.800 --> 0:03:05.080 makes a lot of sense in terms of thinking about 0:03:05.080 --> 0:03:07.080 where we are in terms of the easing cycle or 0:03:07.120 --> 0:03:11.520 the tightening cycle. We're basically by giving up on trying 0:03:11.560 --> 0:03:14.320 to get financial conditions in order. He's moving to a 0:03:14.440 --> 0:03:18.520 full on, you know, data dependent mode. That means that 0:03:18.560 --> 0:03:20.519 we're not giving you any guidance except for what you 0:03:20.520 --> 0:03:23.480 get in the SCP and as the data come in, 0:03:24.400 --> 0:03:25.960 we're going to do what we need to do, and 0:03:26.000 --> 0:03:28.320 you guys do what you do. So in terms of 0:03:28.560 --> 0:03:31.240 going until the end of the year, you know, we 0:03:31.360 --> 0:03:34.040 got the retail sales that you guys were just talking about, 0:03:34.240 --> 0:03:38.880 which were bullish, as well as the initial and continuing claims, 0:03:39.120 --> 0:03:41.760 and the market's just completely disregarded that. You know, you 0:03:41.880 --> 0:03:45.840 look at the treasury markets at a minimum and they 0:03:46.280 --> 0:03:50.720 continue to go be below four percent on the ten year, 0:03:51.000 --> 0:03:52.960 and so what that says is that you you know, 0:03:53.080 --> 0:03:55.600 the path of lest resistance until the end of the 0:03:55.720 --> 0:03:59.080 year is towards lower yields. And then we'll have to 0:03:59.160 --> 0:04:02.240 see what the day to show. And when the data 0:04:02.320 --> 0:04:05.480 come out, we're gonna see some volatility because there's no 0:04:05.640 --> 0:04:08.839 guidance as to what the Fed's reaction function will be. 0:04:09.120 --> 0:04:12.080 Everyone's now thinking March for the first cuts. But if 0:04:12.360 --> 0:04:15.080 if we see those retail sales numbers again and again 0:04:15.120 --> 0:04:19.520 and again like that we saw today, then people are 0:04:19.560 --> 0:04:22.240 gonna have to push back those those expectations. 0:04:22.720 --> 0:04:22.919 You know. 0:04:22.960 --> 0:04:25.240 It's I think one of the risks here, as I 0:04:25.320 --> 0:04:27.320 just kind of look at the market reaction yesterday and today, 0:04:27.400 --> 0:04:30.279 is that, you know, FED Chairman Powell may have lost 0:04:30.279 --> 0:04:33.279 the ability to rain in this market if the data 0:04:33.360 --> 0:04:34.280 does in fact go. 0:04:34.320 --> 0:04:34.839 The other way. 0:04:34.880 --> 0:04:37.320 I mean, it's just he seems to have, you know, 0:04:37.360 --> 0:04:40.720 kind of unleashed the wild spirits, if you will, of 0:04:40.760 --> 0:04:42.800 this market. I'm not sure how he ever gets back 0:04:42.839 --> 0:04:46.360 to any kind of cautious narrative here. I'm wondering if 0:04:46.360 --> 0:04:49.560 he's I'm gonna say, misplayed yesterday, but maybe it was 0:04:49.680 --> 0:04:52.239 misinterpreted by the market, or it just seems like it's 0:04:52.240 --> 0:04:54.040 tough to close the barn door now. 0:04:55.120 --> 0:04:58.599 Yeah, you know, I think that that is a worry. 0:04:58.800 --> 0:05:02.120 My My worry is, and I've said this before, is 0:05:02.279 --> 0:05:04.240 nineteen ninety nine. You know, when I talked to you 0:05:04.839 --> 0:05:07.080 two times ago, I think we were talking about partying 0:05:07.120 --> 0:05:09.880 like it's nineteen ninety nine. He's allowing that to happen, 0:05:09.960 --> 0:05:14.200 And obviously if that happens, then what you see is 0:05:14.240 --> 0:05:18.560 a harder landing down the line. It's very difficult to 0:05:18.680 --> 0:05:23.680 see a scenario in which you have unemployment at three 0:05:23.720 --> 0:05:27.120 point seven percent for an extended period of time without 0:05:27.160 --> 0:05:32.240 the Fed having to continually be at the ready to 0:05:32.520 --> 0:05:36.680 tighten financial conditions. And that's where we're headed into twenty 0:05:36.800 --> 0:05:41.760 twenty four. And with markets increasing the price earnings ratios, 0:05:42.040 --> 0:05:47.120 increasing their bets on cuts of interest rates, it sets 0:05:47.200 --> 0:05:51.160 up a very nasty headache down the line potentially. 0:05:51.320 --> 0:05:53.120 Yeah, I mean, let's just roll it back just a 0:05:53.160 --> 0:05:55.839 little bit here for some perspectives. So we had that 0:05:55.960 --> 0:05:58.960 awesome jobs report on Friday of last week, you know, 0:05:59.040 --> 0:06:02.800 great payrolls number, unemployment rate down, and wages were up. 0:06:03.240 --> 0:06:06.960 Fast forward to this week the CPI report. You know, 0:06:07.440 --> 0:06:09.920 obviously you know a bit of concerning. I would think 0:06:09.960 --> 0:06:12.640 for Fed officials there that that service sector inflation is 0:06:12.680 --> 0:06:15.520 still very much powering ahead, so not much of a 0:06:15.600 --> 0:06:18.240 dent there. And then of course they didn't get to 0:06:18.279 --> 0:06:21.040 see today before they met the retail sales and jobs 0:06:21.080 --> 0:06:23.640 claims data, but you would think all of that would 0:06:23.680 --> 0:06:26.640 be supporting higher rates at this point and not be 0:06:26.720 --> 0:06:27.680 talking about cuts. 0:06:28.800 --> 0:06:31.080 Well, you know, I'd be interested to see what Michelle 0:06:31.080 --> 0:06:33.400 Bowman has to say, because I know that pale he 0:06:34.080 --> 0:06:36.320 flicked at her a little bit so as to not 0:06:37.040 --> 0:06:38.880 leave her dangling in the wind. She's one of the 0:06:38.920 --> 0:06:41.719 few people who thinks that rates should be higher. 0:06:42.200 --> 0:06:43.279 He said that we could. 0:06:43.080 --> 0:06:45.640 Go either way, but really it was a very perfunctory, 0:06:45.760 --> 0:06:49.279 very lip service type of comment on his part. I 0:06:49.320 --> 0:06:52.600 think that you know, the wind is blowing towards easing, 0:06:52.920 --> 0:06:56.159 and to the degree that we see those numbers that 0:06:56.200 --> 0:06:59.000 you were talking about, Jess go down, then we are 0:06:59.040 --> 0:07:01.479 going to get the easy that people expect. Perhaps not 0:07:01.520 --> 0:07:04.279 as quickly as they expect, but you know, the FED 0:07:04.360 --> 0:07:07.559 is primed in that direction, and I think that that's 0:07:07.640 --> 0:07:10.520 the path of least resistance at this point in time. 0:07:11.280 --> 0:07:15.760 So, Ed, I mean, what's your view of inflation here? 0:07:15.840 --> 0:07:19.480 I mean, I guess the FED feels like it's on 0:07:19.560 --> 0:07:21.720 the right path, which it arguably is, but I guess 0:07:21.760 --> 0:07:24.920 it's just a question of timing to when we get 0:07:25.000 --> 0:07:27.239 to the inflation level that the FED really looks at. 0:07:27.400 --> 0:07:28.120 What's your view? 0:07:29.600 --> 0:07:34.800 My view is that we're in an interesting paradigm that 0:07:34.840 --> 0:07:37.320 we haven't seen over the say, the last twenty years. 0:07:37.400 --> 0:07:41.320 You know, where you have the deglobalization, you also have 0:07:41.440 --> 0:07:44.200 a dearth of workers as the baby boomers leave the 0:07:45.080 --> 0:07:49.040 working population so there are some structural changes that create 0:07:49.160 --> 0:07:52.560 upward pressure on inflation in the US in particular. And 0:07:52.640 --> 0:07:56.840 so you know, with core PCEE inflation at three point 0:07:56.880 --> 0:08:02.440 five percent, that's almost double the FED mandate. Really, you 0:08:02.480 --> 0:08:04.960 could get down to something in the two say like 0:08:04.960 --> 0:08:06.880 two to nine in the FED could start to ease, 0:08:07.160 --> 0:08:11.000 but beyond that it's going to be very difficult. And 0:08:11.040 --> 0:08:12.920 so I think that there's gonna be a lot of 0:08:12.960 --> 0:08:17.480 pressure on the FED going forward to continually be at 0:08:17.480 --> 0:08:23.440 the ready to tighten financial conditions because inflation is likely 0:08:23.560 --> 0:08:28.080 to continually be sticky given those headwinds. 0:08:28.560 --> 0:08:31.240 Twenty seconds here, Ed, when's that first cut coming? 0:08:32.559 --> 0:08:35.920 I would say the first cut is going to come June. 0:08:36.320 --> 0:08:41.320 That's that's what I would say. Okay, and so we're 0:08:41.320 --> 0:08:45.080 going to see some some steepening as a result of that, 0:08:45.360 --> 0:08:48.040 and then it's going to be a rapid cut because 0:08:48.640 --> 0:08:50.920 by that time it will be clear that the economy 0:08:51.080 --> 0:08:52.559 has deteriorated. 0:08:53.080 --> 0:08:54.880 And thanks so much for joining us. Really appreciate it. 0:08:55.000 --> 0:08:58.840 Ed Harrison, Senior editor for Bloomberg News. We certainly recommend 0:08:59.440 --> 0:09:02.920 as every thing risk a column, good stuff, goodreads all 0:09:02.960 --> 0:09:05.080 the time, and we appreciate in a few minutes of 0:09:05.080 --> 0:09:05.560 his time. 0:09:06.600 --> 0:09:10.000 You're listening to the team. Can's are live program Bloomberg 0:09:10.080 --> 0:09:13.480 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:09:13.520 --> 0:09:16.640 the iHeartRadio app and the Bloomberg Business app, or listen 0:09:16.720 --> 0:09:18.840 on demand wherever you get your podcasts. 0:09:20.600 --> 0:09:23.040 People certainly liked what they heard from the FED yesterday. 0:09:23.160 --> 0:09:26.000 Let's bring in Jay Haffield. He's a CEO, founder and 0:09:26.080 --> 0:09:29.280 portfolio manager at Infrastructure Capital Advisors. He joins us live 0:09:29.320 --> 0:09:32.160 here in the Bloomberg Interactor Broker studio like he always does, 0:09:32.280 --> 0:09:34.520 never mails it in, never phones it in. The kids 0:09:34.520 --> 0:09:37.880 could learn something from that, Jay. I don't know what 0:09:37.880 --> 0:09:41.240 did you take yesterday. It's certainly surprised. I think the 0:09:41.280 --> 0:09:46.240 market with FED Chairman j Pals I guess tone of comments, 0:09:46.320 --> 0:09:47.960 maybe even the dot pots as well. What did you 0:09:47.960 --> 0:09:48.600 take away from it? 0:09:49.320 --> 0:09:53.600 Thanks, Paul and Mollie, Well, we were surprised, like the market, 0:09:53.640 --> 0:09:55.640 we had thought that the FED was only going to 0:09:55.679 --> 0:10:00.960 have two cuts priced into the dot plot. It's a 0:10:00.960 --> 0:10:06.400 welcome relief. But I think that you've had some new participants. 0:10:06.720 --> 0:10:09.680 They've come on to the FED, like Austin Goldsby, and 0:10:09.720 --> 0:10:12.280 they're looking at what they should look at which is 0:10:12.280 --> 0:10:16.040 more mosaic of data instead of myopically focusing on this 0:10:16.160 --> 0:10:18.800 PC core. We think that's a disaster and makes the 0:10:18.840 --> 0:10:27.880 FED fundamental disaster, really total disaster. Yeah, the problem is 0:10:27.960 --> 0:10:30.400 you have to look. If you watch core PC, then 0:10:30.440 --> 0:10:34.360 you'll end up being incompetent Federal Reserve and you'll call 0:10:35.040 --> 0:10:39.800 inflation transitory when it's skyrocketing. So what you should do 0:10:40.360 --> 0:10:43.360 is look at PPI, look at CPI dash R that's 0:10:43.480 --> 0:10:46.960 R index or in other words, adjust the horrible shelter 0:10:47.080 --> 0:10:51.600 component of BLS and then use something called judgment instead 0:10:51.640 --> 0:10:54.880 of a rule that Greenspan used to use. Who was 0:10:54.920 --> 0:10:57.760 the real star of monetary policy? And so it seems 0:10:57.880 --> 0:11:00.840 like they've taken the leap, and are you using judgment 0:11:01.080 --> 0:11:05.040 instead of just focusing on this one measure that's massively flawed? 0:11:05.440 --> 0:11:06.199 So which ones are? 0:11:06.320 --> 0:11:06.559 I mean? 0:11:06.600 --> 0:11:08.520 Will you just rattle off a couple of metrics there? 0:11:09.240 --> 0:11:10.839 I mean, which one do you think right now has 0:11:10.880 --> 0:11:14.080 the most of a signal right now for inflation that 0:11:14.160 --> 0:11:15.520 you're really paying attention to. 0:11:16.520 --> 0:11:18.680 Well, the reason that we've kind of nailed this cycle 0:11:18.840 --> 0:11:22.000 since the pandemic is that, unlike the FED, we look 0:11:22.040 --> 0:11:26.959 at monetary policy which drives housing market. And then we're 0:11:27.040 --> 0:11:29.640 lucky because they're energy investors. We have a pipeline fund. 0:11:29.960 --> 0:11:32.920 I founded a pipeline company, So if I would argue, 0:11:32.920 --> 0:11:35.240 if you have those two inputs, you can ignore monetary policy. 0:11:35.320 --> 0:11:38.920 Just look at the housing sector and energy prices and 0:11:38.960 --> 0:11:43.480 you will be a good forecaster. So right now, you know, 0:11:43.520 --> 0:11:45.920 housing prices did come way down. They have ticked up 0:11:45.960 --> 0:11:47.440 we talked about the last time, so that's a little 0:11:47.480 --> 0:11:49.640 bit of risk. But rents are low, so we might 0:11:49.679 --> 0:11:52.120 have to have yet another index that has just rents. 0:11:52.240 --> 0:11:54.000 Yeah, like you said, you would not know that looking 0:11:54.040 --> 0:11:55.719 at the CPI index. 0:11:55.600 --> 0:11:58.320 Shelter or even our CPI dosh Our is ticked up 0:11:58.320 --> 0:12:01.080 because case Shiller went up. Rents are down again. This 0:12:01.120 --> 0:12:04.240 is the mosaic you have to look at. So we 0:12:04.280 --> 0:12:09.080 do think that inflation is contained, and we are pleasantly 0:12:09.120 --> 0:12:12.679 surprised that the Fed agree seems to agree with us. 0:12:12.720 --> 0:12:13.720 Right now, All. 0:12:13.679 --> 0:12:17.240 Right, Jay, and make sure our headline writers are ready here. 0:12:17.679 --> 0:12:19.280 What have you done to your s and P five 0:12:19.320 --> 0:12:20.120 hundred price target? 0:12:20.160 --> 0:12:24.520 And why so we raised it this morning And the 0:12:24.880 --> 0:12:30.319 best way to summarize why is a terminal command MI IPR, 0:12:31.080 --> 0:12:34.360 which I would recommend everybody boots up. We sort of 0:12:34.559 --> 0:12:37.000 sadly only figured this out about two weeks ago. 0:12:37.200 --> 0:12:40.400 That's market implied policy rates for everyone tuning in yees. 0:12:40.520 --> 0:12:43.320 So if you look at one of the columns, it's 0:12:43.320 --> 0:12:46.920 a sea of red, but that's good red. So those 0:12:47.000 --> 0:12:49.199 are all the rate cuts that are priced in to 0:12:49.320 --> 0:12:52.439 all the major bond markets in the world. And so 0:12:52.480 --> 0:12:55.480 it's kind of obvious this data should exist because we 0:12:55.520 --> 0:12:57.280 have it in the US right because there's always theres 0:12:57.320 --> 0:13:00.960 a futures market in every country. And so what's wildly 0:13:01.000 --> 0:13:03.679 bullish about this is that we were on two or 0:13:03.720 --> 0:13:05.760 three months ago and we had this non consensus call 0:13:06.400 --> 0:13:10.760 that the euro economy was terrible and that the Eurozone 0:13:10.760 --> 0:13:12.720 would be forced to cut or ECB would be forced 0:13:12.760 --> 0:13:14.800 to cut. But the good news is you don't even 0:13:14.800 --> 0:13:17.000 need to listen to our rationale because that's what market 0:13:17.040 --> 0:13:20.040 participants believe now. So I guess they're avid listeners of 0:13:20.080 --> 0:13:25.319 Bloomberg Radio. And also, if you hover over the Eurozone chart, 0:13:25.440 --> 0:13:28.560 you can chick you can put up a GPO chart 0:13:28.679 --> 0:13:31.080 and you can see that it did plummet over the 0:13:31.160 --> 0:13:33.760 last two or three months. So this is the heart 0:13:33.760 --> 0:13:36.680 of the Bowld case. But it's even better because the 0:13:36.679 --> 0:13:40.800 ECB was very recalcitrant today and has what we think 0:13:40.880 --> 0:13:44.080 is kind of a crazy forecast of plus point eight 0:13:44.120 --> 0:13:48.120 percent for GDP next year to strongly disagree with. But 0:13:48.240 --> 0:13:49.880 the good news is you don't we need to agree 0:13:49.920 --> 0:13:54.760 with our variant view on their economy because market participants 0:13:54.800 --> 0:13:59.160 in the Eurozone who trade Eurozone futures agree with us. 0:13:59.440 --> 0:14:01.320 That number tick down a little bit. It was one 0:14:01.440 --> 0:14:03.920 forty four as the negative the cuts price ten next year. 0:14:04.320 --> 0:14:06.959 After the Guard's speech, that ticked down six bases points. 0:14:07.000 --> 0:14:08.680 So that was a pretty hot as speech. 0:14:08.920 --> 0:14:11.200 All right, So let me just summarize what the good 0:14:11.200 --> 0:14:14.440 folks at your firm, Infrastructural Capital Visors did this morning. 0:14:14.520 --> 0:14:16.360 They raised your price targraphy the S and P five 0:14:16.440 --> 0:14:20.560 hundred to fifty five hundred from fifty one to fifty. 0:14:20.600 --> 0:14:22.360 That's based on a twenty one and a half multiple 0:14:22.400 --> 0:14:25.200 on S and P consensus earnings for two seventy So 0:14:25.200 --> 0:14:28.040 that's your twenty twenty four year in target. 0:14:27.840 --> 0:14:30.680 Correct and perspective. We're right now at forty seven to 0:14:30.720 --> 0:14:32.200 twenty five correct. 0:14:31.880 --> 0:14:32.480 So that's great. 0:14:32.640 --> 0:14:36.120 Yeah, what's the risk to your outlook here, is it 0:14:36.160 --> 0:14:38.680 earnings risk, is it macro risk? What are some of the. 0:14:39.040 --> 0:14:42.280 Well, that's what a lot of people don't appreciate is 0:14:42.360 --> 0:14:45.920 the multip on the market is ninety percent driven by 0:14:46.360 --> 0:14:49.600 long term interest rates. So the reason we upgraded it 0:14:49.640 --> 0:14:52.600 is that we have this non consensus call that rates 0:14:52.600 --> 0:14:54.880 are going to drop from five but that looked a 0:14:54.920 --> 0:14:58.440 little bit problematic, so we're pretty conservative conservative about tenure. 0:14:58.880 --> 0:15:01.520 So but at a three fifty that implies a twenty 0:15:01.560 --> 0:15:07.560 one times multiple on EPs on smpeps and the consensus 0:15:07.600 --> 0:15:09.520 is two seventy. And by the way, we did this 0:15:09.600 --> 0:15:12.440 methodology last year and came up at our forty five 0:15:12.520 --> 0:15:15.960 hundred target. So it's just a very straightforward. If you 0:15:16.000 --> 0:15:17.760 don't like, as you're pointing out, don't like one of 0:15:17.760 --> 0:15:20.040 our metrics, you can just plug in your own. We're 0:15:20.120 --> 0:15:23.240 using three point five percent, which implies twenty one and 0:15:23.280 --> 0:15:26.600 a half actually, and to seventy on earnings. And we 0:15:26.640 --> 0:15:29.520 are bullish about earnings, and we think most people miss 0:15:29.640 --> 0:15:32.840 the dynamic that earnings normally go up by ten percent. 0:15:33.200 --> 0:15:35.680 You don't need margin expansion, you don't need a very 0:15:35.680 --> 0:15:39.560 strong economy because companies are retaining earnings about seventy percent 0:15:39.880 --> 0:15:43.240 invest about at fifteen percent after tax. That implies ten 0:15:43.280 --> 0:15:46.720 and a half percent growth. So the earnings estimates are normal, 0:15:46.960 --> 0:15:49.680 not crazy. And we don't think you need to debate 0:15:49.720 --> 0:15:51.440 that and wring your hands about it, because it's the 0:15:51.480 --> 0:15:55.480 companies reinvesting their cash flow primarily driving earnings. 0:15:56.120 --> 0:15:58.200 So you had a start off by telling us that 0:15:59.080 --> 0:16:02.360 the FED and the APPOT yesterday indicated three rate cuts. 0:16:02.480 --> 0:16:04.560 You think that there's only going to be two. The 0:16:04.680 --> 0:16:07.240 dot plot though there was a pretty wide range in there. 0:16:07.280 --> 0:16:09.880 You know, that's just the median with three cuts, but 0:16:09.920 --> 0:16:13.640 there are eight participants who saw fewer reductions, five expect 0:16:13.640 --> 0:16:16.000 deeper cuts. Who do you I mean, we obviously don't 0:16:16.040 --> 0:16:18.560 know whose dot really belongs to you, but you could 0:16:18.560 --> 0:16:21.440 take a reasonably educated guess who do you think is 0:16:21.480 --> 0:16:24.080 really the voice that you're following the most right now? 0:16:24.680 --> 0:16:28.520 Well, we think that the thought leader initially was really Goolsby, 0:16:29.040 --> 0:16:30.960 that he came in and sort of said, the emperor 0:16:30.960 --> 0:16:34.240 has no clothes, that the labor market is not the 0:16:34.320 --> 0:16:38.000 key driver of inflation, and so and there are I 0:16:38.040 --> 0:16:39.600 think that you got to the heart of the matter 0:16:39.960 --> 0:16:42.600 is that pal was probably forced to come off his 0:16:42.720 --> 0:16:46.680 tone because he had a number of participants saying that 0:16:46.720 --> 0:16:50.720 inflation is actually plummeting that the economy is at risk. 0:16:50.800 --> 0:16:53.200 We think it's fine, but it is at risk if 0:16:53.200 --> 0:16:56.720 they keep rates because keep in mind, if inflation really 0:16:56.760 --> 0:16:59.600 is going down, then real rates or skyrocketing if you 0:16:59.680 --> 0:17:03.720 keep them flat. So it is encouraging that there apparently 0:17:03.800 --> 0:17:06.639 has been a little bit of a palace coup and 0:17:06.720 --> 0:17:09.399 the hawks have been moved more to the center or 0:17:09.440 --> 0:17:10.400 even dubbish. 0:17:11.160 --> 0:17:14.440 Off top of question. You see, Davis is where you 0:17:14.520 --> 0:17:17.960 graduated from. I'm a huge fan of the University California system. 0:17:19.680 --> 0:17:22.960 It's just amazing what they've done over generations, haven't they. 0:17:23.080 --> 0:17:23.320 Yeah. 0:17:23.359 --> 0:17:27.840 So the advantage too, that particularly those northern California schools have, 0:17:27.960 --> 0:17:30.360 like UC Davis, is that if you look at a map, 0:17:30.400 --> 0:17:33.840 if not from California, it's extraordinarily close to Silicon Valley. 0:17:33.800 --> 0:17:34.000 Yep. 0:17:34.200 --> 0:17:36.840 So those are great training schools. You don't learn like 0:17:36.920 --> 0:17:40.399 my kids Latin and all these other things, but you 0:17:40.520 --> 0:17:45.639 learn I was trained in business, economics, medical, so just 0:17:45.680 --> 0:17:48.960 the real professional school. It's practical, it's meant for public 0:17:49.280 --> 0:17:53.479 you know, kids as top ten percent students. So probably 0:17:53.520 --> 0:17:55.760 the model of the future. Although these are great schools 0:17:55.800 --> 0:17:56.640 we have in the Northeast. 0:17:56.800 --> 0:17:59.440 Yeah, but it's just I mean Professor Galloway from NYUS. 0:17:59.640 --> 0:18:01.920 I'm a big fan of his. He's a huge proponent 0:18:01.960 --> 0:18:04.400 of the UC system and what it did for him 0:18:04.400 --> 0:18:07.600 and what it does for generations of kids in California 0:18:07.640 --> 0:18:10.159 to bring them to the next level. And that's powered 0:18:10.160 --> 0:18:12.840 a lot of the economy in the great economy for California. 0:18:12.920 --> 0:18:14.960 The lext one hundred plus year so Ja Halfield and 0:18:15.080 --> 0:18:16.960 then you got your MBA from some place in Philadelphia. 0:18:16.960 --> 0:18:19.359 I don't know Jay Haffield. He's the CEO, founder and 0:18:19.400 --> 0:18:23.439 portfolio manager at Infrastructure Capital Advisors, raising the price target 0:18:23.680 --> 0:18:24.160 big time. 0:18:24.400 --> 0:18:27.480 You're listening to the tape Kent's are live program Bloomberg 0:18:27.600 --> 0:18:31.199 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:31.240 --> 0:18:34.480 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:34.520 --> 0:18:37.320 You can also listen live on Amazon Alexa from our 0:18:37.359 --> 0:18:43.360 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:18:44.200 --> 0:18:46.840 Again. Movements in the markets here, we had a fed 0:18:46.880 --> 0:18:49.679 that I think, I mean, you look at the market 0:18:50.119 --> 0:18:51.880 reaction took the market by surprise. 0:18:51.960 --> 0:18:55.040 With its cheerleaders everywhere. It is a good day. 0:18:55.520 --> 0:18:58.040 Just ripping here Neil Grossman. He doesn't strike me as 0:18:58.040 --> 0:19:03.000 a cheerleader, but Neil Grossman's here, CEO TNKG Capital Joints 0:19:03.080 --> 0:19:06.200 here on our Bloomberg Interactive Broker studio. Neil, what did 0:19:06.200 --> 0:19:09.919 you make of yesterday and the reaction to the marketplace stuff? 0:19:09.920 --> 0:19:13.640 Good morning and happy holidays? I think that was Christmas 0:19:16.880 --> 0:19:20.240 A couple of things. I guess. Number one I think 0:19:20.280 --> 0:19:23.800 I well, I took away. Number one is under the hood. 0:19:23.920 --> 0:19:27.240 Mister Powell may have just told everybody he's changing the 0:19:27.280 --> 0:19:32.000 definition of what inflation measures they're looking for, raising the target, 0:19:32.480 --> 0:19:35.680 because I was amazed. The thing that really was most 0:19:35.680 --> 0:19:38.560 amazing to me was the fact that he said, we 0:19:38.680 --> 0:19:42.240 can't wait till we get to two percent to start 0:19:42.320 --> 0:19:46.000 removing or providing more liquidity, because that would be too restrictive. 0:19:46.240 --> 0:19:47.600 So is that a different message there? 0:19:47.640 --> 0:19:50.360 Well, that means you're two percent no longer really your target. 0:19:50.440 --> 0:19:53.359 And not only that. I know we've talked about the 0:19:53.359 --> 0:19:55.440 fact that we're now going to have close to five 0:19:55.680 --> 0:19:59.760 four years or so of high inflation on an average basis, 0:20:00.160 --> 0:20:04.000 But he's now I think, what's happened is raised the 0:20:04.000 --> 0:20:08.240 probability that getting to two percent is dropping, and the 0:20:08.280 --> 0:20:12.920 potential for reacceleration is a problem. Look, this whole rally started, 0:20:14.600 --> 0:20:17.080 I guess five six weeks ago when he made the 0:20:17.119 --> 0:20:20.159 comment that the market's doing the work for them. Ten 0:20:20.240 --> 0:20:23.280 year notes were about five percent, give or take, and 0:20:24.640 --> 0:20:27.480 interest rates have dropped a full hundred basis points. Basically, 0:20:28.600 --> 0:20:31.440 the stock market's up something like twenty percent as of 0:20:31.480 --> 0:20:34.400 at least as of yesterday. The dollar had been weakening, 0:20:35.000 --> 0:20:38.639 you had a drop in commodity prices, so everything was 0:20:39.080 --> 0:20:42.280 since then has functionally said we were providing a lot 0:20:42.359 --> 0:20:46.760 more liquidity in the market. Unemployment or the employment structure 0:20:47.119 --> 0:20:50.840 has although yes it's weakened, this is a very interesting thing. 0:20:50.880 --> 0:20:54.439 In a minute, it's still remarkably strong. So here's an 0:20:54.440 --> 0:20:57.520 interesting question. After the last employment number, the twelve month 0:20:57.560 --> 0:21:01.920