Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business App. Let's talk about one
Speaker 2: of the issues that's band to come up next week,
Speaker 2: two key data points ahead of the Fed September decision,
Speaker 2: kicking off with payrolls tomorrow and CPI next Wednesday. Housing
Speaker 2: costs remaining a top concern for many, including the former
Speaker 2: Secretary of Housing and Urban Development, Sewan Donovan. Shawn is
Speaker 2: the current president and CEO of Enterprise Community Partners and
Speaker 2: joins us now. Shann co Montor Joe agreed to be
Speaker 2: with you. Thank you very much for coming on the program.
Speaker 2: Let's just talk about the scale of the affordability crisis
Speaker 2: that you've been talking about for Want and we've been
Speaker 2: living through. We finally coming out the other side of this, I.
Speaker 3: Don't think so, And in fact, it's getting worse in places.
Speaker 3: I've been doing this work a long time, about thirty years,
Speaker 3: and I think what is different is really two big things. First,
Speaker 3: it is a problem that is deeper than it's ever been.
Speaker 3: We have the biggest rent increases we've ever seen. We
Speaker 3: have a doubling in what it costs to buy a
Speaker 3: home in the country in the last few years. But
Speaker 3: the problem is also everywhere now. It used to be
Speaker 3: on the coasts, it used to be in our bigger cities.
Speaker 3: I was in Boise, Idaho last week, and they have
Speaker 3: a housing crisis there, and so it really is everywhere.
Speaker 3: It's also driving our economic challenges in a way that
Speaker 3: I've never seen nationally. Our inflation problem is a housing problem.
Speaker 3: Now you have companies who can't attract workers, and it's
Speaker 3: driving down economic growth. Half of all our renters in
Speaker 3: the country are paying more than thirty percent of their income,
Speaker 3: which is unaffordable. That's eight thousand dollars a year they
Speaker 3: can be putting toward groceries, consumer demand, and so it
Speaker 3: really is at a different scale and it's in our
Speaker 3: presidential campaign right now. Thirty three governors across the country
Speaker 3: talked about housing affordability in their State of the State address.
Speaker 3: So it really is a different crisis than I've ever seen,
Speaker 3: and it is moderating from COVID, but at a level
Speaker 3: that is unlike anything we've ever seen.
Speaker 2: I'll ask a dumb question. You can give me a
Speaker 2: complex oce we two hundred banks. This points away from
Speaker 2: solving this crisis a few rant cuts.
Speaker 3: Absolutely not, because we are seven million housing units short
Speaker 3: of what we need. This is a supply problem, not
Speaker 3: just a rapes problem, and that means we've got to
Speaker 3: take action in many, many different ways, both on demand
Speaker 3: and on supply.
Speaker 4: When you listen to the campaign trails, both of these
Speaker 4: individuals sound populist in nature when they talk about the
Speaker 4: housing market. Kamala Harris saying first time buyers can get
Speaker 4: twenty five thousand dollars a benefit to help them. Don't
Speaker 4: you think that would exacerbate the problem we're seeing right now?
Speaker 3: Let's be clear, Harris's plan does both. It focuses on supply,
Speaker 3: it looks at over regulation, it looks at the need
Speaker 3: to encourage states and locals even require them to build more.
Speaker 3: But we also have to recognize that for a family,
Speaker 3: the real struggles are for families who can't even put
Speaker 3: food on the tab. We have a record homelessness crisis,
Speaker 3: and so we do need to figure out how to
Speaker 3: help people afford housing more. We're never going to bring
Speaker 3: that cost of housing down enough that most people can
Speaker 3: afford a decent place to live, right So, and that's
Speaker 3: really you have to have a balanced program.
Speaker 4: It also doesn't matter what Trump or Harris say, because
Speaker 4: this will be done in Congress. How could you see
Speaker 4: potentially a divided Congress get to any resolution on something
Speaker 4: like housing.
Speaker 3: Well, this is what's so interesting about the way the
Speaker 3: politics have changed on housing. I said earlier thirty three
Speaker 3: different governors. I've been in Boise, Idaho, and Montana the
Speaker 3: last few months. Red states, Blue states. Give you another example.
Speaker 3: We had a tax bill that made it through the
Speaker 3: House of Representatives overwhelmingly the most bipartisan thing I think seen.
Speaker 3: There was a significant increase in the Low income housing
Speaker 3: tax credit, the best public private investment vehicle. We have
Speaker 3: to build more affordable housing in the country. And so
Speaker 3: I think this really is a moment different from what
Speaker 3: we've seen in the past where there is bipartisan support
Speaker 3: around housing, and I think in the tax negotiations next year,
Speaker 3: you're going to see a big increase in the loan
Speaker 3: income housing tax credits.
Speaker 1: As policy discussions continue, and presumably we'll take some time
Speaker 1: join back to John's point, if the Fetter reserve cuts
Speaker 1: by two hundred basis points in the next twelve months,
Speaker 1: will that make the home affordability crisis worse or better?
Speaker 3: It will definitely help. It will make Obviously, rates are
Speaker 3: a critical thing, not just for home buyers but for
Speaker 3: builders out there, and so that will be important. But
Speaker 3: I want to go back to the fund mental problem.
Speaker 3: For many, many years, we've been lagging on building housing,
Speaker 3: and the supply problem has got to be focused on
Speaker 3: if we're really going.
Speaker 5: To get to the solution.
Speaker 1: You talked about how this is a problem that's widespread,
Speaker 1: and you talked about US cities, but it's widespread globally,
Speaker 1: and actually cities across the world are dealing with this
Speaker 1: affordability crisis. And a lot of people are saying it's
Speaker 1: because of how low rates got and because a lot
Speaker 1: of people could leverage up their home home purchases and
Speaker 1: thus lead to higher prices.
Speaker 5: Why won't lower rates just do that?
Speaker 1: Again, we've already seen home builders building as fast as
Speaker 1: they have in a very long time, during the pandemic,
Speaker 1: during high rate time, So what's to say that they're
Speaker 1: going to keep.
Speaker 3: Up Because we have to recognize that housing is a
Speaker 3: financial instrument, but you can't build it if you don't
Speaker 3: allow zoning to build that. So in a neighborhood where
Speaker 3: a community is saying, not in my backyard, I don't
Speaker 3: want any more housing, there are different measures of it.
Speaker 3: Harris's plan says she would add three million units. Our
Speaker 3: numbers are for real affordability. We have seven million units shortage.
Speaker 3: So rates are just a piece of the issue. But fundamentally,
Speaker 3: what we allow to be built and how we for
Speaker 3: the lowest income people, how we support them to do
Speaker 3: that is critically important.
Speaker 2: You're an expert in this with a lot of experience,
Speaker 2: a lot more than anyone around this type of that's
Speaker 2: for sure. Harris is offering two things. Wants to incentivize
Speaker 2: building but also support buying. And I think we all
Speaker 2: understand there is a mismatch in the time arizon for
Speaker 2: those two policies to bear fruit. You can support buying
Speaker 2: that works immediately. The supply issue is going to take
Speaker 2: years to play out in the near term. Don't you
Speaker 2: risk higher prices with these kind of policies.
Speaker 3: You have some risk, but understand, for a family that
Speaker 3: is right now spending half of their income towards rent
Speaker 3: or to own something, that increased support might mean they
Speaker 3: put more food on the table, it might mean that
Speaker 3: they do other things to support their family. So it
Speaker 3: has some effect, and there is some risk to what
Speaker 3: you're talking about. But at the end of the day,
Speaker 3: we know we have to do both. We have to
Speaker 3: support supply and demand. And I do think what's exciting
Speaker 3: right now is you have a consensus around the country
Speaker 3: on Democrat for Democrats and Republicans that we have to
Speaker 3: build more. Here in New York, we have a city
Speaker 3: of Yes proposal. In Montana, they just passed the legislation
Speaker 3: that says cities can't restrict housing development in certain ways.
Speaker 3: So that is a growing moment, and you're right, it
Speaker 3: will take time, so we better get started.
Speaker 2: How long has this problem been building for? Maybe we
Speaker 2: can finish here and just give you a big picture opportunity.
Speaker 2: You were part of the government coming down at the
Speaker 2: financial crisis the housing crisis A nine were the problems
Speaker 2: now where the states plants it back then? The lack
Speaker 2: of supply how connected to these two issues.
Speaker 5: So what I.
Speaker 3: Would say is this has been a chronic problem over decades.
Speaker 3: Housing affordability has been getting worse for probably fifty years
Speaker 3: in this country, but it's really become an acute crisis
Speaker 3: through COVID. COVID gave it a jolt of adrenaline in
Speaker 3: terms of making the problem worse. I want to go
Speaker 3: back even before the Obama administration, given that we're on
Speaker 3: Bloomberg TV. I was Mike Bloomberg's Housing commissioner here in
Speaker 3: New York City and this was a huge focus for us.
Speaker 3: It's taking old industrial areas rezoning them. Right now, we
Speaker 3: have a billion square feet of empty office space around
Speaker 3: the country. That's an opportunity to really think about. So absolutely,
Speaker 3: this is a problem that's been building, but it is
Speaker 3: different now in terms of what we saw during COVID.
Speaker 3: People are demanding those people who used to work in
Speaker 3: an office, they're now working at home. They're demanding more
Speaker 3: space at home, and so we have a demand that's
Speaker 3: grown enormously during COVID that we have to meet.
Speaker 2: This was SAFSMA and we look forward to doing again
Speaker 2: with you. Thank you, place are appreciate it. Shown town
Speaker 2: of in the eventiprise community. Kate Alhillo of Russell Investments
Speaker 2: saying the inflation problem is largely solved at this stage.
Speaker 2: Expect we'll hit the two percent inflation target in early
Speaker 2: twenty five. The Fed has the space to be aggressive
Speaker 2: if needed on rates. We still expect a self landing,
Speaker 2: but we can't rule out the possibility of a recession.
Speaker 2: Kate joins surround the table. Kate, good monitor. You great
Speaker 2: to be here, Thanks for joining us. Let's start with
Speaker 2: payrolls tomorrow morning and the data through the next hour
Speaker 2: or so. What even the team looking for.
Speaker 6: Well, we're looking for a beat on what we saw
Speaker 6: certainly in July, and something close to the one sixty
Speaker 6: five range. And if we get something, you're close out.
Speaker 6: We think the market is pretty powersitive. Continue to see
Speaker 6: some of this brightening out. Any chance that we are
Speaker 6: below one twenty, below one hundred, that's where you start
Speaker 6: to see some material volatility.
Speaker 2: So good news is good news, and band news is
Speaker 2: definitely really bad. Band news. Talk to me about that
Speaker 2: would leaves the bone market.
Speaker 6: So yeah, so I think again, I don't think the
Speaker 6: bond market's moving tremendously unless you see the labor market
Speaker 6: really start to show more signals of a weakening versus
Speaker 6: a normalization, and then you know, potentially you start the
Speaker 6: recession discussion to be more prominent. We're not there yet,
Speaker 6: but if you start to see some challenging prints in
Speaker 6: terms of labor, that's where you start to see some movement.
Speaker 5: This is really interesting to me.
Speaker 1: You think it's an asymmetric response that essentially people are
Speaker 1: not going to unwind what we've seen in terms of
Speaker 1: the rally and the bond market.
Speaker 5: What gives you that conviction? Yeah, well, I'd say a
Speaker 5: couple things.
Speaker 6: First, I think the first hundred basis points of cuts,
Speaker 6: whether it happens this year it kind of drips into
Speaker 6: next year, is kind of easy to get to the
Speaker 6: two hundred or so that's being priced in through the
Speaker 6: end of next year. That's where you might see some
Speaker 6: movement still, but you still end up having the terminal rate.
Speaker 6: You still a while to go to get there. So again,
Speaker 6: I think if you get some good news the labor
Speaker 6: market is more normalizing July was maybe a little bit
Speaker 6: of a misshoot, but the FED is still moving to
Speaker 6: focus on the labor market and not inflation that you
Speaker 6: don't end up seeing a big shift back up in
Speaker 6: rates because we know that the direction is pretty clear.
Speaker 1: We were talking about the incredible volatility of markets at
Speaker 1: a time where there are so many unknowns and they're
Speaker 1: just as this feeling that one data point could really
Speaker 1: tip the scales in a pretty significant way. Do you
Speaker 1: basically view bad news as being a buying opportunity? I mean,
Speaker 1: if you end up seeing a negative, some really problematic print,
Speaker 1: can you say, look, you look at the fundamentals, you
Speaker 1: look at these companies that are performing pretty well.
Speaker 5: Oh, right, time to buy. Yeah. I mean, I'd say
Speaker 5: a couple of things.
Speaker 6: It's great to actually see volatility back in the market
Speaker 6: and the market reacting. I think the challenge is it's
Speaker 6: overreacting to single points or news, and so we're staying
Speaker 6: pretty close to home in terms of our strategic allocations.
Speaker 6: If we see those overreactions, we are leaning into them.
Speaker 6: It tends to be more as trimming our winners. Even
Speaker 6: when rates have moved up over the moved down over
Speaker 6: the past period, we've been trimming. If we see a
Speaker 6: big self, we'll be leaning in. But I think it's
Speaker 6: more because the over reaction that we're seeing from the markets,
Speaker 6: because of the volatility and the uncertainty. The market is
Speaker 6: still trying to find kind of the narrative.
Speaker 1: Would you say, trimming in the bond space and then
Speaker 1: we'll go to the sock space.
Speaker 5: Yeah.
Speaker 1: Are you basically saying that the market is posted in
Speaker 1: too many rate cuts?
Speaker 6: Yeah, So we think that the magnitude right now is
Speaker 6: at the point where it's probably as much as it's
Speaker 6: going to go unless we start to see a recession
Speaker 6: theme start to pick up. So we have started to
Speaker 6: trim some of our duration positioning.
Speaker 5: You know.
Speaker 2: Connoscent Bloomberg Opinion. Love Connoscent.
Speaker 5: It's great.
Speaker 2: Check out this tweet. If the FED was unburdened by
Speaker 2: what has been get it fantastic, And if the FED
Speaker 2: had a blank sheet of paper to begin with, they'd
Speaker 2: probably set FED funds around four percent instead of where
Speaker 2: we are right now. Instead of this performative channel from
Speaker 2: various people about the signal that AT's send if they
Speaker 2: cut by twenty five or fifty in the anchoring to
Speaker 2: five twenty five to five fifty. Can we play that game?
Speaker 2: Just some scenario analysis. If we were to have a
Speaker 2: blank sheet of paper the Federal Reserve, what would the
Speaker 2: rate be today?
Speaker 5: Four twenty five four fifty.
Speaker 2: Yeah, so we're about one hundred basis points off side
Speaker 2: of the.
Speaker 6: Fat, Yeah, which is why I say the first hundred
Speaker 6: basis points is easy to get to, so you don't
Speaker 6: see as much movement. It's the stuff further out that
Speaker 6: we're still trying to figure out in the magnitude of
Speaker 6: how far they get.
Speaker 2: We've heard that number a few times, haven't we That
Speaker 2: maybe there are one hundred basis points off side. So
Speaker 2: it's to Conn's point, what is this performative chatter about
Speaker 2: the signaling from twenty five versus fifty? If you're off side,
Speaker 2: get a move on and just say you're off side.
Speaker 1: Isn't the FED and this isn't meant as a pejorative,
Speaker 1: but isn't the FED essentially a performative instrument. Isn't it
Speaker 1: sort of the signal that that they give.
Speaker 2: To markets they behave that way?
Speaker 6: Yeah?
Speaker 1: Well, and so at a certain point, and that really
Speaker 1: goes to this question of how do you trim positioning?
Speaker 1: How do you understand whether they're on a trajectory that's
Speaker 1: much steeper kin to what Adol Husaini was talking about,
Speaker 1: where they could go back to zero versus between three
Speaker 1: and four percent.
Speaker 6: Yeah, and I think that that's where you don't make
Speaker 6: any kind of severe moves because there is a lot
Speaker 6: of uncertainty and try to take advantage of the volatility.
Speaker 2: Okay, this is awesome, busy twenty four eyes I had
Speaker 2: for you in the thing. Thanks for dropping by, Thank you,
Speaker 2: thank you, Katy Ahila there of Russell invests at al Husaini.
Speaker 2: If Columbia thread needle writing, the FED put is back.
Speaker 2: One of the key unknowns is how the economy will
Speaker 2: respond to the FED executing rate cuts. If the past
Speaker 2: through of cuts into the rear economy is slow, the
Speaker 2: FED may find it south behind the curve once again,
Speaker 2: as with the surround the table for more ED. Good
Speaker 2: morning and welcome back.
Speaker 5: Hey fantastic.
Speaker 2: You said in your recent note the market pricing masks
Speaker 2: a broad distribution of outcomes. How wide are the range
Speaker 2: of outcomes right now?
Speaker 7: Yeah, I mean it's striking if you look ahead, you know,
Speaker 7: we're starting to praise well in access of one hundred
Speaker 7: basis points this year, and if you look into the
Speaker 7: end of next year, the probability that that funds managers
Speaker 7: to stay around four percent is closed to zero. So
Speaker 7: it's a fantastically broad distribution at the moment and getting
Speaker 7: brighter every week.
Speaker 2: And as a feeling, it wouldn't take much weak economic
Speaker 2: data to really amplify some of those bets that if
Speaker 2: we drop to one hundred k tomorrow morning, at unemployment
Speaker 2: stays at four point three percent, we start pricing in
Speaker 2: a series of fifty pases point cuts. So if you're
Speaker 2: facing these kind of outcomes and the range is like
Speaker 2: one you can drive a truck through it, do you
Speaker 2: chase this bull market rabby, what do you do with this?
Speaker 7: Or I think we've had a really strong valuy so
Speaker 7: far this year. I think what we want to do
Speaker 7: is take stock that the starting level of yields is
Speaker 7: still quite attractive, that the curve is likely to continue
Speaker 7: to steep in versus wood markets expect and so that
Speaker 7: gives us a little bit of juice. At the same time,
Speaker 7: I don't think you want to be maxed out. I
Speaker 7: think you want to leave a little bit of dry
Speaker 7: powder for an environment where the data manages to surprise
Speaker 7: us to the upside.
Speaker 1: I was struck by the fact that you hear the
Speaker 1: likes of Howard Mark saying that the neutral rate in
Speaker 1: this new environment is something like three to four percent.
Speaker 1: But if you look at this wide spectrum of potential outcomes,
Speaker 1: you actually see an average rate below three percent by
Speaker 1: twenty twenty six. Do you think that that's maybe overestimating
Speaker 1: the chance the FED really does get down to close
Speaker 1: to zero again.
Speaker 7: Well, I think there's a there's really strong probability that
Speaker 7: that happens in the coming years. Right that the data
Speaker 7: deteriorates to the point where unemployment starts to feed on itself,
Speaker 7: you get those recessionary dynamics in that environment. The odds
Speaker 7: that the FED funds rate goes to zero, I think
Speaker 7: is exceptionally high, and FED research does continue to point
Speaker 7: to that probability being high in the coming decades. Will
Speaker 7: it happen in the course of the next twelve to
Speaker 7: twenty four months? Is anybody you's bet we have a
Speaker 7: significant amount of fiscal uncertainty on the flip side of
Speaker 7: the selection that that may forestall a recession. But if
Speaker 7: the dynamics are there, FED funds going back to zero,
Speaker 7: I think is very a very reasonable assumption.
Speaker 1: There's a pretty profound sort of extrapolation that I'm feeling
Speaker 1: from you, which is said, essentially, this is not a
Speaker 1: different environment than pre pandemic. That essentially, this is not
Speaker 1: a more inflationary time than we were in twenty nineteen
Speaker 1: in twenty eighteen. And this flies in the face of
Speaker 1: what a lot of investors are saying, including some pretty
Speaker 1: big ones. Can you explain why you think so?
Speaker 5: Yeah.
Speaker 7: Look, I think the large part of the inflation story
Speaker 7: again just goes back all the way to the mid nineties,
Speaker 7: is driven by anchored inflation expectations. We've run this massive
Speaker 7: experiment on the course of the past three years, the
Speaker 7: extent to which those inflation expectations form a center of
Speaker 7: gravity that pulls inflation towards two percent, and I think
Speaker 7: it's played out really well. It's underscored the Fed's credibility
Speaker 7: in maintaining that level. I don't see any reason why
Speaker 7: inflation should be different going forward unless the FED strategy changes. Inflation,
Speaker 7: at the end of the day, is a financial variable
Speaker 7: determined by the FED.
Speaker 1: If the FED cuts by fifty basis points, and then
Speaker 1: fifty basis points again at a time where the economy
Speaker 1: is not falling off a cliff, isn't that the variable
Speaker 1: that could cause a higher inflationary environment.
Speaker 7: We're going to find out, right, if in fact that
Speaker 7: neutral rate is closer to four percent, that means the
Speaker 7: economy is going to be very sensitive to rate cuts
Speaker 7: straight out of the gate. Right, one hundred basic points
Speaker 7: of cuts could significantly accelerate growth, could put upside pressure
Speaker 7: on inflation, and then we're not going to get you know,
Speaker 7: FED funds below three three and a half percent in
Speaker 7: the coming twenty four months.
Speaker 5: This is a key unknown.
Speaker 7: We just don't know at the stage, given how much
Speaker 7: flux we've had in the course of the past through three years.
Speaker 2: And please to add a settle this because you have
Speaker 2: to realize how finely balanced things aren't going against tomorrow morning.
Speaker 2: We're one bad jobs print away from pricing at a
Speaker 2: series of fifty basis point cuts and one good one
Speaker 2: away from reversing a lot of what we've priced in
Speaker 2: over the last few weeks.
Speaker 1: And essentially, what we don't know is what the responsive
Speaker 1: markets will do to the underlying economy. We keep talking
Speaker 1: about how this isn't a very interst rate sensitive economy,
Speaker 1: as many people expected on the way up. What's to
Speaker 1: say it will be on the way down?
Speaker 2: Should I fear the disinversion? Can we finish there? When
Speaker 2: the curve starts to normalize and you get this bull statner,
Speaker 2: typically that means bad things are about to or are
Speaker 2: happening in the US economy. The rate cycle is just
Speaker 2: about to start or is happening. What is it this time?
Speaker 2: Could it be different this time?
Speaker 5: Not as much?
Speaker 7: I look at the curve and I see in the
Speaker 7: course of the past, you know, again twelve to twenty
Speaker 7: four months, the curve is deeply inverted, signaling that the
Speaker 7: FED has taken us to a very restrictive place. They're
Speaker 7: taking the foot off that brake pedal right now, and
Speaker 7: the curve is disinverting. The pass through into the real economy,
Speaker 7: I think is an open question. Right You had your
Speaker 7: previous guests talk about the sensitivity of the housing market,
Speaker 7: housing cappacs to those interest rate cuts. It's a key
Speaker 7: unknote to this day. If in fact, we see that
Speaker 7: housing demand come back, housing capecs come back on the
Speaker 7: flip side of the election, potentially corporate capex reaccelerate the
Speaker 7: Fed's going to have a really high floor in terms
Speaker 7: of other cuts relative to what's price today.
Speaker 2: Ed small as always, Thank you, sir. I was signing
Speaker 2: that a Columbia threat nade to jobbas claims came out
Speaker 2: at two twenty seven. The meeting estimate was two thirty.
Speaker 2: I said earlier, if you walked into a room of economists,
Speaker 2: you'd walk back out confused. If you look at the
Speaker 2: States this morning, you're not getting clear direction either. Jay
Speaker 2: Bryceon of Welst Fago is challenged with solving some of
Speaker 2: these issues. Jay, what is going on in the labor
Speaker 2: market in America?
Speaker 8: Well, John, I mean, I think you kind of talked
Speaker 8: about it before. I mean, you know, what we're seeing
Speaker 8: is we're just not getting as much hiring as we
Speaker 8: had before, and I think that's consistent with the ADP
Speaker 8: number we got this morning. But we're also not seeing
Speaker 8: businesses laying people off, and that's we're consistent with the
Speaker 8: initial job less claims number. So you know, the labor
Speaker 8: market is moving has moved back into better balance, which
Speaker 8: is a good thing. Things are slowing down at their
Speaker 8: labor market. But you know, you and I think Lisa
Speaker 8: used this word earlier. You know, you're kind of on
Speaker 8: a knife edge right now, and you know you don't
Speaker 8: want things to deteriorate further from here.
Speaker 2: Jay, What gives you confidence it won't. Is there any
Speaker 2: reason to be confident that things stabilize, that this isn't
Speaker 2: just a moment in time, it's an end state for
Speaker 2: the rest of this year.
Speaker 8: So I think there's two things, John, that I think
Speaker 8: things kind of stabilize here. And you know, recession is
Speaker 8: not the base case call. One would be if you
Speaker 8: look at the financial position of households in general, it's
Speaker 8: pretty good. Yes, we have seen delinquencies go up on
Speaker 8: credit cards, on autos, we've seen you know, we're hearing
Speaker 8: antidotes of low income consumers feeling some stress. But if
Speaker 8: you step back and you look at the debt situation,
Speaker 8: if you look at the debt service ratio of the
Speaker 8: business of consumers, it all remains pretty good. And the
Speaker 8: same thing applies to the business sector in general. Businesses
Speaker 8: large don't really have to lay people off, you know,
Speaker 8: in aggregate right now. And so those I think are
Speaker 8: two good things. To take a deep breath. Things aren't
Speaker 8: falling apart out there. And you know, a continued expansion
Speaker 8: is probably still the base case.
Speaker 1: Jay, Let's say the base rate right now is one
Speaker 1: hundred basis points slower and companies had an easier time
Speaker 1: borrowing at a more reasonable price. I guess would you
Speaker 1: start to see a pickup in hiring based in the
Speaker 1: fact that companies are still hopeful and or frankly, the
Speaker 1: reason why they haven't been more aggressively hiring is in
Speaker 1: part because of uncertainty around the economy as well as
Speaker 1: the election.
Speaker 8: You know, at least I think that's part of it.
Speaker 8: But you know, we're also seeing when you look at
Speaker 8: the overall economy, you are seeing signs of softness. Right
Speaker 8: We all know that, you know, the housing market has
Speaker 8: been kind of soft for a while. We all know
Speaker 8: that manufacturing is also soft right now. The only real
Speaker 8: thing that's really holding up the economy right now is
Speaker 8: the service sector. And so you know, when we get
Speaker 8: the ISM number at ten o'clock, that will be important
Speaker 8: to tell us what's what's going on in there. And
Speaker 8: so you know, as rates come down, you know, the
Speaker 8: point here is that should help to stimulate sort of things.
Speaker 8: I think there's some uncertainty whether whether it's towards the election,
Speaker 8: whether it's towards the economic outlook in general, but you know,
Speaker 8: in general, what we are seeing is monetary policy is
Speaker 8: in a restrictive dance right now. Rates do need to
Speaker 8: come down to help stimulate spending.
Speaker 1: Jay, Is this normal to have this level of uncertainty
Speaker 1: the knife edge? It's almost talking about this idea that
Speaker 1: things could tip the scales one way or another. Is
Speaker 1: this always how it feels at tipping points that seem
Speaker 1: to last forever with such model data.
Speaker 8: Yeah, you know, so there's always uncertainty out there, right
Speaker 8: And if you go back, you look at the pandemic, right,
Speaker 8: that was a very fast moving sort of situation. You
Speaker 8: look at the financial crisis, lots of uncertainty around there,
Speaker 8: absent a major shock. And you know, the last major
Speaker 8: shock was the pandemic a few years ago, and the
Speaker 8: unwinding from that apps in a major shock. I'm kind
Speaker 8: of hard pressed to think of a time in the
Speaker 8: last you know, few business cycles when things have felt
Speaker 8: a little bit uncertain as they do right now. So
Speaker 8: I do think it's it's not normal right now given
Speaker 8: where we are. But you know, unfortunately, just the nature
Speaker 8: of the way the economy works and the way the
Speaker 8: overall geopolitical situation works, there's always a base level of uncertainty.
Speaker 4: You said earlier, not much hiring, not much firing sounds
Speaker 4: very goldilocks, but we've heard from Mike McKee was just
Speaker 4: talking about hours worked will be important. What kind of
Speaker 4: number of hours worked would you need to see to
Speaker 4: then get concern that potentially the next point of call
Speaker 4: is going to be layoffs.
Speaker 8: Yeah, So if we're seeing, you know, if we're seeing
Speaker 8: aggregate our hours work tomorrow going down let's call it
Speaker 8: zero point three percent or something like that, then I'm
Speaker 8: starting to get a little bit concerned, you know, at
Speaker 8: that point. And so I think Mike had a really
Speaker 8: good point there in terms of the hours worked. And
Speaker 8: you know, the first things that you do see is
Speaker 8: you see temporary workers start to go down. You know,
Speaker 8: it's like twenty four out of the last twenty six months,
Speaker 8: we've seen the number of temporary workers going down. So
Speaker 8: we're already seeing that. And if we do start to
Speaker 8: see hours worked going down by that magnitude zero point
Speaker 8: three percent, zero point four percent, then I'm really starting
Speaker 8: to get a little bit concerned.
Speaker 2: Thanks for the updates, sir, JAKEE briceon there of Wells Fargo.
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