Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find a Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. So, Curtty, we had
Speaker 1: pretty I think, pretty consistent, you know comments from FED
Speaker 1: Chairman Powell. He's going higher for longer, he has going
Speaker 1: high for longer, you know, as expected. He kind of
Speaker 1: had the burden of proof going in the idea that
Speaker 1: he needed to make that case. He made it pretty
Speaker 1: well and I thought it was interesting. I think my
Speaker 1: favorite part of the testimony had to be the Elizabeth Warren.
Speaker 1: Oh yeah, back, that was brutal. We knew, we knew,
Speaker 1: we knew that was going to happen. We knew. There's
Speaker 1: many a conversation about recession and jobs, but Chairman Powell
Speaker 1: handled it beautifully. He said, look, would it be better
Speaker 1: to not have a recession but then have a lot
Speaker 1: of these working income families deal with extremely high inflation?
Speaker 1: And yeah, no bias here, but that's a pretty fair point. Yeah, absolutely.
Speaker 1: I mean, the FED is clearly sticking with its we
Speaker 1: are fighting inflation montra. All right, let's bring in somebody
Speaker 1: here who does this whole FED thing, this interest rate thing.
Speaker 1: He does it for a living. Bloomberg Intelligence US interest
Speaker 1: rate strategist Jersey joined us from Petetown, New Jersey, IRA.
Speaker 1: What'd you take away from FED chairman pal here yet
Speaker 1: about it? You know, almost a couple hours there. Yeah,
Speaker 1: he was somewhat more hawkish, which I guess isn't a
Speaker 1: shock given the path of the recent data and just
Speaker 1: how strong it's been. You know, he didn't I agree
Speaker 1: with you, Paul. He didn't say anything completely foreign to
Speaker 1: what we've heard out of FED speakers in recent weeks.
Speaker 1: But but I think importantly is that he didn't make
Speaker 1: that many dovish statements. You know. One of the big
Speaker 1: things that has come out of a lot of the
Speaker 1: FED statements and even some of the speeches, particularly from
Speaker 1: the chair, is that starting about last October November that
Speaker 1: they started to have more dovish statements. Still the same hawkishness,
Speaker 1: but more dovish statements kind of you know, with risk management.
Speaker 1: You didn't hear that today, So our models suggest that
Speaker 1: his sentiment today was somewhat more hawkish than they have
Speaker 1: been the last couple of months. Well, during those headlines,
Speaker 1: you saw some pretty interesting market moves, an inversion now
Speaker 1: in the two tents of a negative one hundred, as
Speaker 1: well as fifty bases points now being priced in for March.
Speaker 1: Is that an overreaction? So, you know, I don't think
Speaker 1: that the curve in version is a particularly big reaction
Speaker 1: because I do think with the with the path of
Speaker 1: the data, and you know, quite frankly, the data surprised
Speaker 1: us so much that we were changing where we thought
Speaker 1: the terminal rate would be. And so it makes sense
Speaker 1: that if the Fed's going to be going to five
Speaker 1: and a half five and three quarter percent on the
Speaker 1: terminal rate, that the yield curve would probably just invert
Speaker 1: that much more, in part because eventually we're going to
Speaker 1: see a very dramatic slowdown probably in inflation and growth,
Speaker 1: and the FED will have to respond to that by
Speaker 1: cutting interest rates. So the longer term interest rates, you know,
Speaker 1: kind of like we've been saying, well, will be more
Speaker 1: or less hover where they are, But it's the front
Speaker 1: end that keeps on repricing, and you may have to
Speaker 1: reprice even more if the FED goes to say six percent,
Speaker 1: because the data doesn't slow down the way that that,
Speaker 1: you know, kind of we all hope, all right, So
Speaker 1: I guess fifty basis points is not only on the
Speaker 1: table but front and center. Is that your takeaway? Yeah,
Speaker 1: so I think fifty fifty odds. I don't think that
Speaker 1: they want to that that the FED really wants to
Speaker 1: increase rates fifty basis points. But if you know, if
Speaker 1: we get data that's kind of in line with what
Speaker 1: we saw in February, I don't think I think that
Speaker 1: they'll have the ammunition and the cover in order to
Speaker 1: do that, because they can just say, like, hey, we
Speaker 1: need to get in front of this data that's been
Speaker 1: significantly stronger. So so it wouldn't be a surprise. I
Speaker 1: think that the market at least until we get the
Speaker 1: payrolls data on Friday and then the CPI data next week,
Speaker 1: that will that the market will probably be fifty fifty,
Speaker 1: and then you'll see pretty big shifts in there based
Speaker 1: on how this data comes out. You know, we get
Speaker 1: a you know, we get one hundred and fifty thousand
Speaker 1: payroll print, we probably go back to pricing at twenty five.
Speaker 1: We get some somewhat significantly higher than that, know, another
Speaker 1: five hundred print, we're certainly going to be pricing for
Speaker 1: a fifty. Well, the repricing for a fifty is I
Speaker 1: think what scares kind of me the most if you're
Speaker 1: looking at it from a market point of view, simply
Speaker 1: because the idea of a step up era when I
Speaker 1: feel like such a big deal was made it from
Speaker 1: a step down that we were end we were getting
Speaker 1: closer to the end of this kind of tightening cycle
Speaker 1: instead of this reacceleration of one. Why are we not
Speaker 1: seeing a more dramatic equity reaction and or actually a
Speaker 1: bond reaction, since you are a bond strategist, a ten
Speaker 1: year year old. Still it's at three ninety four, Why
Speaker 1: are we not seeing it spike sustainably above four? Well,
Speaker 1: I think, well for two reasons. One is because the
Speaker 1: idea that the equity market and risk assets aren't going
Speaker 1: to do well, I think is one of the reasons
Speaker 1: why you wind up having the long end that you
Speaker 1: know kind of winds up being relatively stable because it
Speaker 1: is a flight to quality asset, and if risk assets
Speaker 1: are selling off, if people are getting out of corporate bond,
Speaker 1: as people are selling equities to buy fixed income, all
Speaker 1: of those things benefit um longer duration treasuries, whereas the
Speaker 1: front end is much more influenced by the Fed's policy actions.
Speaker 1: So that's where that deep inversion, and you know, very
Speaker 1: very significant inversion comes in. Now, keep in mind, the market,
Speaker 1: like a hundred basis point inversion would be where I
Speaker 1: would expect us to be. But keep in mind back
Speaker 1: in the nineteen eighties, you actually we did actually hit
Speaker 1: negative two hundred basis points at one point, So so
Speaker 1: there was a time when the two's tense curve inverted
Speaker 1: significantly more than we did. Now, now, will will that
Speaker 1: happen again? Um? It really depends on the path of
Speaker 1: the data. And you know, the you know, forecasting the
Speaker 1: data at this point I think has been has been
Speaker 1: incredibly difficult, not only for myself but for the street
Speaker 1: at large, in part because you know, the dynamics have
Speaker 1: shifted so much in terms of spending and the like.
Speaker 1: So so if if we if we do get additional hikes,
Speaker 1: and we do get some equity weakness therefore, then yeah,
Speaker 1: you can wind up seeing you know, ten year yields
Speaker 1: going to stay where they are, and you know, two
Speaker 1: year yields can go up significantly more another fifty sixty
Speaker 1: basis points. And if that happens, you know, again, risk
Speaker 1: assets are probably not going to have a good time
Speaker 1: of it, at least for a little while. How would
Speaker 1: you characterize it? Or maybe when you when you talk
Speaker 1: to investors out there, traders out there in the marketplace,
Speaker 1: how did they view the the feder reserve here is
Speaker 1: is this a FED that's still kind of playing catch up?
Speaker 1: Is it still on its heels or has it gotten
Speaker 1: ahead of the kind of the whole policy debate issue. Yeah,
Speaker 1: so it's it's interesting because a year ago, when I
Speaker 1: was talking about the FED hiking to four and a
Speaker 1: half percent, you had a lot of people saying, like,
Speaker 1: if the FED hikes to four and a half percent,
Speaker 1: we're definitely going in recess rights. It's going to be
Speaker 1: really bad. Yeah, you know, and and you know now
Speaker 1: that we're definitely going to be hiking above that, right,
Speaker 1: they've already hiked above where we thought that they would
Speaker 1: at the time. The you now have people who are like,
Speaker 1: you know, they're they're definitely behind the curve. They're so
Speaker 1: far behind the curve, and then you have others who
Speaker 1: are like, you know, probably more in our camp, which
Speaker 1: is they're getting close to the end, but you know,
Speaker 1: will the end be five and a half percent or
Speaker 1: will it be five and three quarters? Will it be six?
Speaker 1: Like like we're kind of tweaking and calibrating where the
Speaker 1: Fed's going to get to. Now, the one thing I
Speaker 1: will note is that when we get the CPI print,
Speaker 1: we're going to have to consider how is that going
Speaker 1: to affect the Fed's preferred inflation measure, which is the
Speaker 1: personal consumption expenditure deflator, the pc deflator that came in
Speaker 1: at five point four percent year on year when we
Speaker 1: got the data for January. So if that remains the same,
Speaker 1: let's just assume that remains the same, then that means
Speaker 1: the Feder reserved. If it hikes to five and three quarters,
Speaker 1: that means that the FED funds rate, the real FED
Speaker 1: funds rate, will be positive. The FED has always hiked
Speaker 1: in the post war period. The FED has always hiked
Speaker 1: until that measure was positive. So they're not going to
Speaker 1: stop until we get at least a five and a
Speaker 1: half probably five and three quarters, And so that's why
Speaker 1: this next inflation print and the next few inflation prints
Speaker 1: are going to be really imperative for us to analyze,
Speaker 1: and those will drive where the Fed's going to go,
Speaker 1: And therefore what the shapes the curve is probably what
Speaker 1: risk assets do as well. Well, you talked about the
Speaker 1: CBI print, of course, and it feels like the trend
Speaker 1: thus far has kind of been a one way disinflation.
Speaker 1: But I were what happens when we get if we
Speaker 1: get I have no insight, but if we get a
Speaker 1: super hot jobs report on Friday, is that the bigger
Speaker 1: news event out of the two? Um? Well, well, so
Speaker 1: the distribution of those jobs will be important. But yeah,
Speaker 1: if we get a hot jobs print, not only the
Speaker 1: number of jobs, but you look at the wage data
Speaker 1: and the distribution of that wage data, Um, that'll be
Speaker 1: very important. So so J Powell even as open opening
Speaker 1: remarks that they reiterated the idea that they're looking at
Speaker 1: what they call core services X housing. So it's basically
Speaker 1: the service sector excluding energy services, food services, and UH
Speaker 1: and housing, which which still equates to a very large
Speaker 1: port like forty percent of of the PC to Flater.
Speaker 1: So so the and services are driven in very large
Speaker 1: part by wages. So wages are growing very quickly because
Speaker 1: there's not enough work people in the workforce. Then yeah,
Speaker 1: that that number could wind up being you know, crucial
Speaker 1: to how the market prices for the next FED move.
Speaker 1: And I think, again, if that's hot, we're going to
Speaker 1: price for a fifty No, almost no doubt in my mind.
Speaker 1: All right, great stuff, Ire Jersey, chief US interest rate
Speaker 1: strategists for Bloomberg Intelligence giving us a kind of a
Speaker 1: review of what we heard from Senator I'm sorry, Jay
Speaker 1: Palfam the Federal Reserve this morning. Meta formerly known as
Speaker 1: Hey Facebook, thank you very much, layoff some more people.
Speaker 1: I find it fascinating as these tech companies we see
Speaker 1: layoff after layoff after layoff a couple of things. One,
Speaker 1: the stock usually goes up on the house these layoffs,
Speaker 1: and two you really need context here. So to get
Speaker 1: some context, we asked an expert to join his Man
Speaker 1: Deep sing. He covers all things technology for Bloomberg Intelligence.
Speaker 1: Man Deep, what's going on at Meta and some of
Speaker 1: these other tech companies. Is this simply kind of I
Speaker 1: don't know, pairing some fat that they incurred during the
Speaker 1: pandemic when they continue to hire aggressively or is this
Speaker 1: a reflection of real headwinds in their business. I would
Speaker 1: say it's more the latter, simply because if we know
Speaker 1: that the ad businesses are cyclical, and if they saw,
Speaker 1: you know, this downturn was over in the next three
Speaker 1: to six months, they wouldn't be announcing a second round
Speaker 1: of layoff, specially since they've done you know, pretty big
Speaker 1: lya off almost four months back. So in my mind,
Speaker 1: this is signaling. Look, top line, it's gonna take a while.
Speaker 1: Probably it's a twenty twenty fourth thing. And with Meta,
Speaker 1: we know they are going aggressively in terms of spending
Speaker 1: on the Meta Worse and still I mean, look, Mark
Speaker 1: Zuckerberg fields very strongly about his Meta Worse investment, so
Speaker 1: they're not carrying back on that. They're really trying to
Speaker 1: drive efficiencies out of the core business. And that's why
Speaker 1: you see you know, another round of cuts in terms
Speaker 1: of how they can improve the free cash flow from
Speaker 1: the core business. Oh man, theory for our name there
Speaker 1: for a second, Oh my god, complete mind. Like before
Speaker 1: I ask the Meta, I have a question for you.
Speaker 1: Do you actually you cover so much social media out there? Pinterest,
Speaker 1: snap for our listeners Facebook of course, or Meta obviously,
Speaker 1: do actually have an account with all of these social
Speaker 1: media companies, just out of curiosity, say that again, do
Speaker 1: I have a do you? Do you have accounts? Do
Speaker 1: you have like a Pinchest account, a Snapchat account? I do, yes,
Speaker 1: But I mean obviously I use you know, Meta a
Speaker 1: lot more than I use Pinterest or snaps, and I
Speaker 1: do try to play around with the tabs in each
Speaker 1: of the apps. To me, that just goes to show
Speaker 1: you know, what is it. I mean, every tab is different,
Speaker 1: and you have to equate it to a super app,
Speaker 1: you know in China where what these companies are trying
Speaker 1: to do is to really pack everything inside that app.
Speaker 1: And I think in the case of Instagram and core
Speaker 1: Blue app, even though the engagement is declining, they do
Speaker 1: have a lot of functionality, which is why when you
Speaker 1: look at the time spent on these apps average time spent,
Speaker 1: it's still north of thirty forty minutes per daily active user,
Speaker 1: and for a user like me, it's probably on the
Speaker 1: lower side, so the average gets you know, it's it's
Speaker 1: much higher. But I do spend time on these apps.
Speaker 1: And look, that's why social media is so powerful, right
Speaker 1: because we all spend time on these apps totally. So
Speaker 1: men deep talk to us about kind of the bigger
Speaker 1: picture there from a revenue perspective, is, you know, the
Speaker 1: digital advertising space. Talk to us about a the secular
Speaker 1: story has that changed, ie taking share from traditional media growth, growth, growth,
Speaker 1: and then maybe even the shorter term story here over
Speaker 1: the next several quarters as we face maybe you know,
Speaker 1: recessionary headwinds. I mean, there's no doubt in my mind
Speaker 1: that digital advertising is still more targeted, higher ROI and
Speaker 1: you compare it to traditional ad spend and the power
Speaker 1: of AI. Whether you know you believe in what chat
Speaker 1: bots or a large language models could do, but essentially
Speaker 1: it's aimed at leveraging more data to show things that
Speaker 1: are more relevant for you. And and so I do
Speaker 1: think the trend is still intact. Now what is keith
Speaker 1: for me is who has the most engagement. So right now,
Speaker 1: think of you know, the mobile operating systems as the gatekeepers,
Speaker 1: you know, the walled gardens, Apple and Google Android operating
Speaker 1: system they control the apps. And and so even though
Speaker 1: Facebook and TikTok, all these apps have engagement, any change
Speaker 1: that Apple makes has a bearing on you know, their
Speaker 1: entire business models, which is what we saw last year.
Speaker 1: And that's why as long as Facebook Instagram can keep
Speaker 1: that engagement, I think advertising revenues will rebound. Ad pricing
Speaker 1: will come back. Although what Apple has done is really
Speaker 1: something structural in terms of, you know, giving less signal
Speaker 1: to these companies. So that's why we've seen that ad
Speaker 1: pricing headman. But really it's an engagement game at the
Speaker 1: end of the day. As long as you maintain that engagement,
Speaker 1: the ad pricing will come back and the ad revenues
Speaker 1: will follow, because that is a secular theme. So Mandy,
Speaker 1: let's come full circle done to the meta story when
Speaker 1: it comes to these thousands of jobs are being cut,
Speaker 1: which by the way, are on the heels of the
Speaker 1: thirteen percent workforce reduction in November. I believe Mark Zuckerberg
Speaker 1: is a twenty twenty three was going to be the
Speaker 1: year of efficiency. How much more efficient do they have
Speaker 1: to get? Well, they can cut a lot on the
Speaker 1: reality lab side. Remember they talked about, you know, the
Speaker 1: loss is getting worse in reality labs, which loss about
Speaker 1: ten billion dollars last year. This year they were talking
Speaker 1: about you know, thirteen fourteen billion dollars loss on the
Speaker 1: reality lab side, So really they curt Kurt Hill expenses,
Speaker 1: and I'm talking about Opex here. They could also curtail Capex,
Speaker 1: which no one wants to cut right now given all
Speaker 1: the interest and you four year around large language models
Speaker 1: and Meta is a big player when it comes to,
Speaker 1: you know, just investments in that area. So I would
Speaker 1: say there is room to lord Opex on the reality
Speaker 1: lab side, and if if things get worse, that is
Speaker 1: where you're going to see some more cuts. I don't know, Mandeve.
Speaker 1: If I were an investor here, I'd be like, you're
Speaker 1: spending what how much money on? What is it? Again?
Speaker 1: And you know that's kind of the problem here, I
Speaker 1: think for a lot of investors. So yeah, well, I
Speaker 1: mean I was at the Mobible Congress and oh you
Speaker 1: with the Barcelona Yes, yes, And look, Meta worse was
Speaker 1: still a big team over there, a lot of demos
Speaker 1: so but everyone kind of agreed on one thing that
Speaker 1: you're not going to be able to monetize it until
Speaker 1: the end of the decade, so it's still investment time.
Speaker 1: And yeah, good stuff. I can't believe I authorized your
Speaker 1: trip to Barcelona. What was I thinking? Man deep sing,
Speaker 1: Thanks so much. We appreciated. Man Deep Singh is a
Speaker 1: senior technology analyst for Bloomberg Intelligence, covering all stuff there.
Speaker 1: We appreciate getting his comments on meta. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews of Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen
Speaker 1: seventy three and on Fall Sweeney I'm on Twitter at
Speaker 1: pt Sweeney Before the podcast. You can always catch us
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