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Speaker 2: Joining us.
Speaker 3: Nancyl is our chief global economist, Hyper Sandler. You killed
Speaker 3: it in July about we can't get private enterprise to
Speaker 3: employ people. Has the song changed in the last six months?
Speaker 4: Near term?
Speaker 5: No, employment's going to be on the week side. Companies
Speaker 5: are still really focused on their profit margins, but employments
Speaker 5: a lagging indicator quite quite frankly, the government did crowd
Speaker 5: out employment earlier over the past couple of years, the
Speaker 5: healthcare industry crowded out the private center education, so we're
Speaker 5: kind of.
Speaker 4: Unwhining that right now.
Speaker 5: So that's also a headwind along with the private sector
Speaker 5: still a little bit focused on protecting their profit margins.
Speaker 2: When do we get.
Speaker 3: Back to job formation that doesn't involve healthcare workers and bartenders.
Speaker 5: Probably in mid twenty mid twenty twenty six. You're seeing
Speaker 5: green shoots for the labor markets. You have profits improving
Speaker 5: across the board, both s and p. Five hundred s
Speaker 5: and P. Six hundred Russell two thousand, So you're getting
Speaker 5: the breadth of now profits companies are willing to spend.
Speaker 5: They always first spend on technology to further improve their
Speaker 5: productivity and their profitability. And then you get employment. Employment
Speaker 5: is a lagging indicator, so you're setting the stage for
Speaker 5: employment as you move into the second third quarter of
Speaker 5: twenty twenty six, and you are getting some indications that
Speaker 5: it is incrementally improving. Small businesses have stopped firing, which
Speaker 5: is again the first step in getting job job hiring.
Speaker 5: As we go through twenty twenty six.
Speaker 6: We've had a little bit of hindsight here, Nancy with tears.
Speaker 4: What happened with tears?
Speaker 6: How did they kind of impact the economy?
Speaker 7: How are they?
Speaker 6: How are they impacting the economy?
Speaker 5: So first they are attacks. Tariffs are attacks. How much
Speaker 5: as a share of a share of GDP you're about
Speaker 5: over ten percent as a hit, up from two percent
Speaker 5: at the beginning of the year, And it's really a
Speaker 5: regressive tax on that lower end consumer, on smaller on
Speaker 5: smaller businesses. There have been some offsets where some durable
Speaker 5: good prices have gone up, other service prices have gone down.
Speaker 5: Some food prices have gone down, but net they have
Speaker 5: kept inflation. They have kept inflation sticky, sticky, sticky this.
Speaker 6: Year going forward here, I mean, I'm looking at some
Speaker 6: of the early retail sales we got from Black Friday,
Speaker 6: Cyber Monday, whatever it's called, and so on. Seems like
Speaker 6: the consumer is still okay out there.
Speaker 2: How do you view the consumer?
Speaker 5: So a consumer out of a slump, consumer spending always
Speaker 5: turns up. I went back and looked at all cycles
Speaker 5: since nineteen sixty. Consumer spending always turns up before jobs
Speaker 5: turn up. Why they're highly sticklical. Interests are down, banks
Speaker 5: are willing to make loans, they're refinancing their credit card debt,
Speaker 5: they're using helock, going from something over twenty percent to
Speaker 5: something less than less than ten percent. So it's not
Speaker 5: jobs that actually drive consumer spending. It's it's the FED.
Speaker 5: And then as you go into twenty twenty six, we're
Speaker 5: going to get a big booster shot to disposable income
Speaker 5: from these tax from these tax refunds.
Speaker 3: Nancy Lazar, where this folks across the nation, We welcome
Speaker 3: all of you finishing out the year. Are we drowning
Speaker 3: in outlooks? Sam row has like forty seven outlooks to read.
Speaker 3: Just today he's in charge of reading outlooks. We listen
Speaker 3: to Sam row Ro look for him on substack as well.
Speaker 3: But when Nancy Lazar, we have someone steeped in the
Speaker 3: linkage here of a nation's history into our economy. I
Speaker 3: look at ken Burns's magisterial American Revolution. There's a little
Speaker 3: bit of grievance there which they highlight versus just simply
Speaker 3: you know, Philadelphia against the King is a little more
Speaker 3: complicated than that. The Element Trust Barometer this year the
Speaker 3: high level of grievance towards government, business and the rich.
Speaker 3: And it's his daily carrievance in agony within the news media.
Speaker 3: You fought that for decades. Yeah, is it morning in
Speaker 3: America and we just don't know it. Oh.
Speaker 5: I think that's been unfolding for fifteen years. We've called
Speaker 5: it the US manufacturing Renaissance started back in twenty ten
Speaker 5: Middle America as our favorite emerging market.
Speaker 4: You're seeing it certainly.
Speaker 5: Within unemployment rates around individual states that are more business
Speaker 5: are more business friendly. So in current policies certainly are
Speaker 5: going to reinforce bringing back blue collar jobs to the
Speaker 5: United States. And so we're quite excited.
Speaker 4: At first.
Speaker 5: The private sector started back in twenty ten, the corporate
Speaker 5: tax cut in seventeen reinforced it, and now full capex
Speaker 5: appreciation is going as another major booster shot for the
Speaker 5: kind of reindustrialization of the of the United States, which
Speaker 5: is a necessary backbone for every economy. I worry about
Speaker 5: Germany Europe in general by allowing I need to come
Speaker 5: in and dump cars. You need a diverse source of
Speaker 5: jobs because we have a diverse labor force and we
Speaker 5: need a big, big consumers need to have a choice
Speaker 5: of what kind of job. Not every wants to go
Speaker 5: to college. Nothing wrong with blue collar jobs, nothing wrong
Speaker 5: with getting.
Speaker 3: Out of nothing wrong with blue collar jobs. Paul missus
Speaker 3: Keenan sists, we're hanging wallpaper. Have you priced out wallpaper hangers?
Speaker 2: Oh?
Speaker 7: Yeah, absolutely, I mean.
Speaker 2: I mean, yeah, there's physicians. It mounts cinide.
Speaker 4: Don't make that Sis's up.
Speaker 6: So, I mean, is the give us a sense of
Speaker 6: kind of the labor market here, because we it seems solid.
Speaker 6: The unemployment rate, the headline number that we all look
Speaker 6: at seems fine, seems kind of full employment ish.
Speaker 4: Is it as strong as it looks?
Speaker 3: Well?
Speaker 4: Under the hood.
Speaker 5: You have had some significant layof announcements here in the
Speaker 5: fourth quarter, and so there is a chance that the
Speaker 5: unemployment rate does grind higher as we go into the
Speaker 5: first part of twenty twenty. Twenty twenty six, maybe around
Speaker 5: five sent some of the leading indicator's point to about
Speaker 5: five percent, But that's historically, as you just said, still
Speaker 5: not high, and the labor market is a lagging indicator,
Speaker 5: and as we go through twenty six, I think it
Speaker 5: is incremently going to start to heal.
Speaker 2: Tell me about it. I'm looking.
Speaker 3: Paul taught me this screen to Wi screens, s and
Speaker 3: P up sixteen percent year to date, nasdak full nastack
Speaker 3: up twenty one percent year to date. I'm going to suggest, Nancy,
Speaker 3: that's on the back of a sprightly nominal GDP.
Speaker 2: I see all sorts of opinions our government shutdown.
Speaker 3: I get that, But do you just assume we can
Speaker 3: sustain four percent plus nominal GDP and at least okay
Speaker 3: real GDP.
Speaker 5: Oh I think to be sure, policy is very supportive
Speaker 5: of growth, and our corporate backbone is very very healthy
Speaker 5: from a productivity perspective. So combination of the FED cutting
Speaker 5: rates one hundred and fifty basis points over the past
Speaker 5: over a year now, banks easing lending standards, very productive
Speaker 5: fiscal policy, not government spending, but tax and centers for
Speaker 5: the private sector to invest, tax refunds for the consumer.
Speaker 5: I think four percent is actually probably on the low side,
Speaker 5: could be stronger than that.
Speaker 6: Corporate earnings they seem to be pretty good. I mean
Speaker 6: the third quarter numbers, the low double digits. Second quarter
Speaker 6: was strong, and.
Speaker 2: Now it's off for cliffs. Yes, terrible, exactly. I have
Speaker 2: no idea where we'll be in January exactly.
Speaker 5: No, no, no, what's happened with the corporate profit backdrop.
Speaker 5: It's definitely broadening out, which is what we needed. It
Speaker 5: was led by you know, the mag seven or eight
Speaker 5: or nine or whatever. And now it's into the smaller
Speaker 5: cap space, which is crucial because that's where the jobs
Speaker 5: are created. And so again with that healing. In with
Speaker 5: with that healing in small cap earnings, you are setting
Speaker 5: the stage for a healthier labor market as you go
Speaker 5: into twenty three.
Speaker 3: The way we rolled this morning at the nine o'clock hour,
Speaker 3: Michael Green will be with us. His sub stack on
Speaker 3: the poverty line created a firestorm across the nation.
Speaker 2: Michael Green will join.
Speaker 3: Us for first extended comments on this, and we start
Speaker 3: here with Nancy Lazar of a Piper Sandler as well.
Speaker 3: Michael Green says, a poverty line, you know, it's constructed,
Speaker 3: it's a formula and all that. But there's a lot
Speaker 3: of Americans struggling at a higher income level than the
Speaker 3: poverty line.
Speaker 2: Do you buy it.
Speaker 5: I'm not that school on his analysis. I think that's
Speaker 5: probably a little bit of an exaggeration. I grew up
Speaker 5: in Middle America. The cost of living there is a
Speaker 5: lot lower than it is in the East Coast.
Speaker 2: He based it on cool Paul helped me Caudwell, New Jersey.
Speaker 5: Yeah sure, yeah, yeah, I would agree that the low
Speaker 5: end consumer has been squeezed. I think that's going to
Speaker 5: change as we go into how is it going to
Speaker 5: change that you are going to see a broader and
Speaker 5: broader footprint of industries hiring, making it possible for people
Speaker 5: with many different skills actually to get a job.
Speaker 2: She's too optimistic to be in the show, Paul, do
Speaker 2: something exactly given that back job, Nancy.
Speaker 6: I guess we're going to hear from our fed next
Speaker 6: week a week from today and presumably the market's discounting
Speaker 6: a rate cut. How aggressive does a FED need to
Speaker 6: be in cutting race?
Speaker 4: Do you think?
Speaker 5: I don't think they need to be aggressive. They probably
Speaker 5: will continue to to cut given the sluggishness in the
Speaker 5: labor market. They classically even when the economy picks up again.
Speaker 5: I went back and looked at all cycles. Even when
Speaker 5: the economy picks up, the FED tends to continue to
Speaker 5: cut rates because they are focused on the labor market,
Speaker 5: and the labor market is a lagging is a lagging indicator.
Speaker 5: I'd be careful in cutting too aggressively, because you do.
Speaker 5: They've already cut one hundred and fifty basis points, and
Speaker 5: you have this fiscal sport.
Speaker 3: Years ago it was Hymen Lazarre. Everybody thought Hymen could
Speaker 3: be chairman. Everybody thought Lazarre could be chairman. Let's take
Speaker 3: that perspective. If you look at Nancy Lazar, now.
Speaker 2: Are you threat? Is there a threat to FED independence?
Speaker 4: I don't think so.
Speaker 5: I think the bond vigilani is going to make sure
Speaker 5: of that. We saw the bond chairman.
Speaker 2: Hasse it's going to be told what to do by
Speaker 2: the bond market.
Speaker 5: I think so. I think last year we It's something
Speaker 5: that happened often in the sixties and seventies. It happened
Speaker 5: last fall when the FED cut too aggressively when inflation
Speaker 5: was still too was still too still too sticky. So yes,
Speaker 5: I think the bond market will be that vigilanti.
Speaker 6: So what's the opportunity here for We're talking about a
Speaker 6: lot of this reshoring and the growth of manufacturing in
Speaker 6: the US. Is that going to fundamentally change our economy
Speaker 6: in any way shape for big time?
Speaker 4: I mean, how is it?
Speaker 5: It's again, you need labor force participation to continue to increase,
Speaker 5: and the only way you do that is through offering
Speaker 5: a broader footprint of industries hiring. With this on shoing,
Speaker 5: you also have a huge job multiplier. It's not just
Speaker 5: people complain to me, well, not many people work in
Speaker 5: factories today. It's like I know that I grew up
Speaker 5: in that environment. It's changed dramatically over the decades. At
Speaker 5: the end of the day, though, it's the multiplier supporting
Speaker 5: these these these these factories, smaller businesses, restaurants, grocery stores.
Speaker 3: Right, the industry we're guilty of this, Lisa is the
Speaker 3: only one who's not. We're based on the three zip
Speaker 3: codes in Manhattan. Lisa has a much broader perspective than that.
Speaker 3: Piper will always in forever be the right northwest. It
Speaker 3: will be Minneapolis as well. What are the fancy people
Speaker 3: in New York City and Washington not get about business
Speaker 3: formation north of the Mayo Clinic.
Speaker 4: That you do need.
Speaker 5: I'm being very redundant here, and I and I and
Speaker 5: I apologize.
Speaker 2: We like that it's so retired.
Speaker 5: It's it's it's that you you do need a diverse
Speaker 5: set of jobs. You don't need to go to college.
Speaker 5: I was tickled Pallunteer announced that they are hired a
Speaker 5: bunch of high school kids to to to to you know,
Speaker 5: check out the work, the work of the work ethic
Speaker 5: and do you want to go to college or do
Speaker 5: you want to stay dose?
Speaker 2: AI help the kids that go. I just don't want
Speaker 2: to take Shakespeare in one O two. AI help those kids.
Speaker 5: Technological innovation has always made education better, from you know,
Speaker 5: using my Bomar brain to eventually going to to Excel,
Speaker 5: et cetera. So absolutely, technological innovation is great for kids
Speaker 5: as long as it's properly used.
Speaker 2: Yep.
Speaker 6: So going forward here, I'm thinking about kind of where
Speaker 6: we need to go here. I mean, it seems like
Speaker 6: this economy is in pretty good shape. Is that your consensus?
Speaker 6: I mean, I know there's some crosswinds and headwinds out there,
Speaker 6: but I mean I'm seeing growth out there. I'm seeing
Speaker 6: and instrates coming down. I'm seeing corporate profits pretty darn steady.
Speaker 6: It seems like it's a pretty solid position.
Speaker 5: I've been listening to people talk about the dollar and
Speaker 5: how the dollar is going to go down, and I
Speaker 5: just tend to disagree with that. I mean, I think
Speaker 5: your growth will be okay in twenty twenty in twenty
Speaker 5: twenty six because of the stimulus that they've put in place,
Speaker 5: both monetary and physical. But if we can get to
Speaker 5: one and a half percent, that's good news.
Speaker 2: We got you here. We've got a breaking headline.
Speaker 3: This was made for Nancy Lazar Automatic data Processing.
Speaker 2: Nobody knows that's like Minnesota May mining and manufacturing. Thanks right,
Speaker 2: Automatic Data Processing. US.
Speaker 3: November private employment falls thirty two thousand.
Speaker 2: The estimate was plus ten thousand.
Speaker 3: What happens emotionally when we go over four point five
Speaker 3: percent unemployment rate?
Speaker 2: Is that critical? Or do I need to get to
Speaker 2: five point zero?
Speaker 5: I think five percent is worth. I think I give
Speaker 5: you earlier that you know something with a fore handle
Speaker 5: is still pretty on the tame side. But we do
Speaker 5: think you could move above above five as you go
Speaker 5: into early twenty early twenty twenty six. But again that
Speaker 5: is a lagging indicator. It's not going to change our
Speaker 5: outlook where we think growth is going to reaccelerate. We're
Speaker 5: two percent GDP growth this year with all the headmans
Speaker 5: that we had, the shutdown the tariffs. Next year it's
Speaker 5: going to be stronger than that given all the stimulus.
Speaker 3: Is I said in my intro, like I don't remember
Speaker 3: who was on the show two hours ago. Lisa has
Speaker 3: to remind me. I certainly don't remember who was on
Speaker 3: the show three days ago. I remember Crystal Clear with
Speaker 3: the Sun coming through in July when Nancy Lazaar talked
Speaker 3: to us about the American labor Absolute true, truly Nancy
Speaker 3: one of the great insights of Bloomberg Surveillance this year.
Speaker 2: She is a Piper Sandler.
Speaker 3: Stay with us more from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 2: Joining us now, Michael Green, pinata a c management. How
Speaker 2: the hell are you?
Speaker 7: I definitely have taken a few waks with the baseball
Speaker 7: at this.
Speaker 2: Point, I'm going to defend you.
Speaker 3: Okay, I get it. There's people Michael Green's an idiot.
Speaker 3: How dare you think one hundred and forty thousand is
Speaker 3: a poverty line? You say, up front, it's where you live.
Speaker 3: And you go and Paul, you know this better than me.
Speaker 3: You go to Caldwell, New Jersey, near Cedar Grove, just
Speaker 3: south of Little Falls Township and say, I'm sorry, the
Speaker 3: poverty line in Cardwell, New Jersey is not the way
Speaker 3: it is eighty miles south of Louisville.
Speaker 8: Discuss Yeah, this really is the underlying story. First, there
Speaker 8: are multiple poverty lines right across the country. In a
Speaker 8: high cost region, you're going to have a very different
Speaker 8: experience than if you live in a low cost region.
Speaker 8: But the overall point was when you start thinking about
Speaker 8: what we define as the poverty line currently at about
Speaker 8: thirty one two hundred dollars for a family for two
Speaker 8: earners two children. That doesn't come anywhere close to meeting
Speaker 8: the needs of a family that is living in a
Speaker 8: place like called Well, New Jersey, where the calculation works
Speaker 8: out to about one hundred and thirty six thousand, five
Speaker 8: hundred dollars needs to be made before you can even
Speaker 8: start saving a dime. Wow, that's an extraordinary feeling of
Speaker 8: percarity when we talk about the dynamic that most American
Speaker 8: households can't afford something to break, can't afford an emergency expense,
Speaker 8: et cetera.
Speaker 7: That's why.
Speaker 6: So who sets the poverty line? Again, it's around thirty
Speaker 6: two thousand nationally in the US. Who sets up poverty line?
Speaker 6: And how does that impact policies and support group levels
Speaker 6: and policies?
Speaker 8: Yeah, I think this is one of the really critical
Speaker 8: things that keeps coming out. Right, many people will point
Speaker 8: out that poverty lines are arbitrary. Right, we can define
Speaker 8: twenty percent of the population as or its, et cetera.
Speaker 8: It really doesn't matter where it is unless it affects policy.
Speaker 8: And that number, which is maintained by the Department of
Speaker 8: Health and Human Services, is updated by the CPI from
Speaker 8: the BLS is used to define the point at which
Speaker 8: we begin withdrawing benefits for many types of activities, things
Speaker 8: like housing, things like healthcare, things.
Speaker 7: Like food support.
Speaker 8: That creates a value that I call the value of death,
Speaker 8: but more accurately is described as the benefit cliff. Once
Speaker 8: you start passing those thresholds of earnings, the government starts
Speaker 8: taking away the benefits and it actually leaves you in
Speaker 8: a position where between about forty thousand and one hundred
Speaker 8: thousand dollars, largely on a nationwide basis, you find yourself
Speaker 8: with marginal tax rates that can exceed one hundred percent
Speaker 8: in some situations.
Speaker 6: So what are some of the areas where maybe the
Speaker 6: government numbers aren't correctly calculating the true cost of what
Speaker 6: it means to live in? It is it housing? It
Speaker 6: is it childcare?
Speaker 8: It's a healthcare No, It's the crazy part is it's
Speaker 8: all of those things.
Speaker 7: Right.
Speaker 8: So, the simple reality is that the CPI is devised
Speaker 8: by the BLS. You are not going to find me
Speaker 8: in here arguing conspiracy in an attempt to suppress it,
Speaker 8: et cetera. But it's used to define certain types of
Speaker 8: price changes. The CPI that we quote for policy purposes
Speaker 8: is the CPI Urban wage journers. This is what you
Speaker 8: would expect to experience if you are buying a representative
Speaker 8: basket across all of the workers in the United States,
Speaker 8: high mm, low income, et cetera. People who are at
Speaker 8: the poverty line or near the poverty line don't have
Speaker 8: the same choices that you and I have when they
Speaker 8: make purchases. They don't get to decide, hey, I'm going
Speaker 8: to wait until tires go on sale. Nor are they
Speaker 8: benefiting from gosh, the air conditioner that I had thirty
Speaker 8: years ago suddenly costs a lot less or works much
Speaker 8: more efficiently.
Speaker 7: In most situations, they.
Speaker 8: Aren't even evaluating do I buy an air conditioner? And
Speaker 8: so a really simple example of this is in housing,
Speaker 8: we incorporate features like air conditioning through a quality metric,
Speaker 8: a hedonic adjustment that basically says, look, I understand that
Speaker 8: the apartment went from one thousand dollars to eleven hundred dollars,
Speaker 8: but because they installed air conditioning for you, right, it's
Speaker 8: really only one thousand dollars you actually had under.
Speaker 3: Granite slabs in the kitchen as well. Part one, My
Speaker 3: life is a lie. How I've broken benchmark quietly broke
Speaker 3: America a sub stack which lit on fire across thinking
Speaker 3: America Michael Green where this was simplify asset. We'll get
Speaker 3: to his view on the view four to twenty six,
Speaker 3: but this is too important discussion. My basic take off
Speaker 3: your good work, the critics of your work, the supporters
Speaker 3: of your work, is the poor get to a point,
Speaker 3: as you stated moments ago, where things are taken away
Speaker 3: from them and they have almost a discentive to work.
Speaker 3: We talked to Hugh von steinis this sounds like United Kingdom?
Speaker 3: One oh one? What does a mayor mam Dami do?
Speaker 3: What does the next president, Republican or Democrat do to
Speaker 3: incentifize people besides taking government programs away?
Speaker 8: Well, in the most most extreme version of this right,
Speaker 8: they are actually solving for what people are saying, which
Speaker 8: is I'm not being listened to. So when Domi addresses
Speaker 8: affordability and says people are struggling, they recognize that he's
Speaker 8: telling the truth. His solutions would not be my solutions.
Speaker 8: And that's part of my frustration with the rights perspective,
Speaker 8: or the conservative component of this. If we're putting people
Speaker 8: in a position which they're forced to turn to somebody
Speaker 8: who is listening to them and offering bad solutions. We
Speaker 8: can sit there, you know, and be uptight and basically say, well,
Speaker 8: they're choosing socialism, we'll show them right, they're going to
Speaker 8: have the worst possible outcome. Or we can recognize that
Speaker 8: we're facing conditions that look an awful lot like the
Speaker 8: French Revolution, in which we're basically saying, well, they can
Speaker 8: always eat cake. Right, that's absurd, That's not what we
Speaker 8: want to do. We need to actually engage the national
Speaker 8: discussion before we hit rock bottom so we can make
Speaker 8: the relatively easy and painless choices to reform the system,
Speaker 8: improve the outcomes, improve the incentives, and I'm sorry to
Speaker 8: reverse those, improve the incentives, and then improve the outcomes
Speaker 8: so that people are able to make the choices that
Speaker 8: allow them to pursue happiness.
Speaker 6: Where I mean, like the poverty I'm learning so much
Speaker 6: about this and it didn't even think about it quite frankly,
Speaker 6: but the poverty line was created by the Social Security
Speaker 6: Administration in nineteen sixty three, adopted in the next year
Speaker 6: by the White House, and the person who created it
Speaker 6: set the threshold at three times the minimum adequate food budget. Yeah,
Speaker 6: that makes sense, it seems simple, but it kind of
Speaker 6: makes sense. But the world's changed since then, and so
Speaker 6: that is not a good predictor anymore.
Speaker 7: Yeah, it's radically changed.
Speaker 8: So, I mean the reason that the three times was
Speaker 8: chosen was not because of the thirty two percent of
Speaker 8: the thirty three percent, but because that was a way
Speaker 8: of scaling up and capturing the entire budget. Okay, Right,
Speaker 8: So they were basically saying, look, if you're spending a
Speaker 8: third on food, you're likely spending a third on housing,
Speaker 8: and you're likely spending a third on the other necessities
Speaker 8: of life telephone, transportation, et cetera. Unfortunately, what has happened
Speaker 8: is we froze that, and as I described before, sei
Speaker 8: doesn't meaningfully capture the underlying cash increase that's actually happening.
Speaker 8: So really, what that line is moved to the point
Speaker 8: of which it is just basically describing starvation, right, It's
Speaker 8: not doesn't actually mean anything anymore.
Speaker 2: Michael Green.
Speaker 3: With this year, we do have breaking news, and the
Speaker 3: markets have moved on it. This is a small startup
Speaker 3: company named Microsoft. Microsoft lowers AI software sales quotas stock
Speaker 3: down two percent, the market was up, futures up twenty
Speaker 3: and markets were up twenty and SMP down minus nineteen
Speaker 3: as well.
Speaker 2: That sources the information. We thank them for that. Microsoft
Speaker 2: lowers AI software sales quotas and it moves the market.
Speaker 3: Let's say a little bit more on this micro green
Speaker 3: and then we've got to look to simplify usset management.
Speaker 3: In the View for twenty twenty six, do you parse
Speaker 3: a distinction between Republican and Democrats solutions to half of
Speaker 3: America flat on their back?
Speaker 7: You know the challenges.
Speaker 8: I don't think either party is actually coming up with
Speaker 8: good solutions. Instead, they both appear to be in pursuit
Speaker 8: of power to basically prosecute their individual agendas. I would
Speaker 8: really love to say that there is a meaningful distinguishing
Speaker 8: characteristic largely on the right as we should cut benefits further,
Speaker 8: and on the left as we should expand them willingly. Right,
Speaker 8: that's part of the reason for the vitriol is is
Speaker 8: that both sides effectively see this is either stealing ammunition
Speaker 8: from a focus on the poor or on the right
Speaker 8: basically creating the ammunition that could be used to meaningfully
Speaker 8: expand benefits. In a culture of dependency, we.
Speaker 2: Go to surveillance.
Speaker 3: Childcare correspondent Lisa Matteo the last echo I heard through
Speaker 3: the kitchen was empty the dishwasher as well, Lisa. The
Speaker 3: heart of this within the list of Michael Green, within
Speaker 3: his sub stack, what I hear from people, I don't
Speaker 3: care what they're making childcare out of COVID.
Speaker 2: There's no other.
Speaker 9: Issue, Oh definitely. I mean a lot of people, I know,
Speaker 9: because because they can't afford, they think it's better for
Speaker 9: them to be able to just stay home and take
Speaker 9: care of the kids and that.
Speaker 2: And I'm surprised.
Speaker 6: I'm surprised of all the benefit packages out there that
Speaker 6: companies Corporate America offer their employees, whether it's healthcare or
Speaker 6: wellness or all this other there isn't a childcare offering.
Speaker 6: I'm just you know, I don't see that talked about enough. Yes, well,
Speaker 6: Matt Miller came back from Germany to come back here
Speaker 6: to Bloomberg and New York. That was the first thing
Speaker 6: that jumped out.
Speaker 3: Now, the first thing did was by bitcoin five thousand
Speaker 3: dollars lost his tope. Michael Green with us here and
Speaker 3: we're gonna move on. But are you going to write
Speaker 3: a sequel to this substance? I mean, we're publishing today.
Speaker 8: Can we make it enough the movie, right, I'm trying
Speaker 8: to write this as a weekly series. The third part,
Speaker 8: with some superposed solutions, comes out this week, and at
Speaker 8: that point I'm sure I will kiss everybody off to
Speaker 8: the except my name again, Michael Green.
Speaker 2: My life is a live part. No one there. It
Speaker 2: is a sub sketch.
Speaker 3: It's only eight hundred dollars a year for I'm kidding,
Speaker 3: it's extremely reasonable accessibilities. Some of the best minds out there.
Speaker 3: Paul Krugman's out there, Adam Toos, Michael Green is well,
Speaker 3: what is the simplify asset view to twenty twenty six.
Speaker 8: Look, we are always somewhat cautious. Most of our portfolio
Speaker 8: is focused around fixed income. We recognize that the growing
Speaker 8: need for most households is income and that tends to
Speaker 8: represent the focus in our portfolio. I'm very concerned about
Speaker 8: the rising risks in the credit space. In particular, you
Speaker 8: highlighted a downgrade in Microsoft's AI expenditures. An incredible amount
Speaker 8: of capital investment is being driven off of the AI
Speaker 8: framework that's bleeding into the credit markets. We're seeing this
Speaker 8: with things like the deteriorating loan credit for companies like
Speaker 8: Blue Owl, et cetera. You know I'm concerned, and I've
Speaker 8: written about this. Unfortunately, in a world that's dominated by
Speaker 8: passive investing, the market is largely responding to flows that
Speaker 8: are coming in from people who are employees. That means
Speaker 8: that the market is increasingly associated with a lagging indicator.
Speaker 8: And if employment continues to weaken, as we saw with
Speaker 8: today's ADP, I would expect that ultimately begins to put
Speaker 8: pressure on the market.
Speaker 6: And the FED cutting rates. How impactful is that? Do
Speaker 6: you think?
Speaker 3: Well?
Speaker 8: I think it can actually be somewhat impactful. And the
Speaker 8: reason why, though, is a bit confusing. If you think
Speaker 8: about portfolios like target date funds or systematically rebalancing portfolios,
Speaker 8: if the FED cuts rates, that causes bonds to rise
Speaker 8: in price. The way we're supposed to think about it
Speaker 8: is the lower interest rate is run on a discounted
Speaker 8: cash flow analysis and gives a marginally higher value for equities.
Speaker 8: But if I have a systematically rebalanced portfolio and my
Speaker 8: fifty percent weight in bonds goes up two percent, well,
Speaker 8: now I'm underweight equities and I have to buy equities
Speaker 8: sell some bonds. I think that defines the behavior that
Speaker 8: we've seen far more than anyone doing fundamental analysis at
Speaker 8: this point.
Speaker 2: That was beautifully described.
Speaker 3: Summarize again this the bond market, folks, the marginal equity
Speaker 3: purchasers sale.
Speaker 7: And the reverse.
Speaker 8: Yeah, that's the three by five, right, The two assets
Speaker 8: in a systematically rebalanced portfolio are tied by their price behavior.
Speaker 2: I think I get that, Yeah, Michael Green one on one, Yeah, exactly.
Speaker 3: How are the hedge funds doing. I mean, everybody's trying
Speaker 3: to bet the market. Everybody's trying to arbitrage and get
Speaker 3: an edge. Did Financial Wall Street get an edge this year?
Speaker 7: Well?
Speaker 8: I think it depends on how you define it, right.
Speaker 8: So many hedge funds are doing extraordinarily well, particularly those
Speaker 8: that are focused in areas that are components of arbitrage.
Speaker 8: We've seen an incredible growth of things like the treasury
Speaker 8: basis trade, which is very very similar in its underlying
Speaker 8: construction to equity index arbitrage, where you're speculating on what's
Speaker 8: going to be in the index, what's not in the index,
Speaker 8: et cetera. Those have been very fruitful areas for investment.
Speaker 8: I think the macro calls have been a lot harder
Speaker 8: this year, right, People have struggled with the direction of
Speaker 8: interest rates. At the start of the year, we were
Speaker 8: losing control. I was skeptical of that. It ended up
Speaker 8: being right. But the simple reality is we've had lots
Speaker 8: of movement in both directions with no real clear outcome yet.
Speaker 3: I've got to get your substant going. Are you gonna
Speaker 3: write on bitcoin?
Speaker 8: I have written on bitcoin. I actually want to emphasize
Speaker 8: the substack is both cheap. It is subsidized for those
Speaker 8: who buy Simplify products, and candidly, if you call me,
Speaker 8: if you send me a message over Subsack or Twitter
Speaker 8: and say I simply can't afford it, I'm more than
Speaker 8: happy to grant you.
Speaker 7: You are fully subscribed.
Speaker 2: You think that's funny over there, Miss Potato, that's good stuff.
Speaker 8: But you know that ultimately puts us into a situation
Speaker 8: where there's lots of stuff that's out there on the substack.
Speaker 8: I encourage people to read it, and I also encourage
Speaker 8: you to spend find better ways to spend your time.
Speaker 3: I'm thinking about you know who did he upset the most?
Speaker 2: Bernie Sanders or I don't know, you could go either way.
Speaker 7: If I got them both mad, then I probably.
Speaker 6: Then you're do a new job, right, You changed the.
Speaker 3: Debate, cover The Washington Post Michael Green's Simplify Asset Management.
Speaker 2: To stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business App. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: You've seen It's a magical moment.
Speaker 3: A couple of weeks ago, Dan Tannebaum with Oliver Wyman,
Speaker 3: mister von Steina says all sorts of perspective. I'm banking,
Speaker 3: but also on his United Kingdom. He has served the
Speaker 3: nation at Treasury and also with mister Carne at Bank
Speaker 3: of England, and Hugh joins us this morning. He ended
Speaker 3: the year here. I want to take a step back,
Speaker 3: and I think everyone listening in America and this morning goes,
Speaker 3: what's it going to take for Britain to recover? The
Speaker 3: Prime minister are going after Brexit? I believe yesterday and such,
Speaker 3: what is this von steinas pixie dust to get Britain
Speaker 3: to turn it around?
Speaker 10: Well, Tom thanks for having me back on. Look, I
Speaker 10: think it's a great question. I mean, I think one
Speaker 10: thing we've debated before is that since Brexit, the UK
Speaker 10: has become ever more European. In fact, as of last
Speaker 10: week we have the same tax rates as France, but
Speaker 10: with none of the benefits of being in the EU
Speaker 10: from a trading block. And maybe you know, some of
Speaker 10: the animal spirits that we so loved about the UK
Speaker 10: being a bit dampened. So look that the thesis for
Speaker 10: me would be how we can get back to be
Speaker 10: more mid atlantic.
Speaker 6: Now.
Speaker 4: I think there are some positives here.
Speaker 10: I think about it that we've got amazing entrepreneurs, amazing companies.
Speaker 10: In fact, we've got three of the top universities in
Speaker 10: the world and the clusters of development around them are
Speaker 10: really exciting. But we need to be mid atlantic. And
Speaker 10: so if you want to have one positive, this week
Speaker 10: the Bank of England announced it's moving in the direction
Speaker 10: of the FED and the Trump's policy, which is bank
Speaker 10: regulation is going to be refined. And actually this is
Speaker 10: probably the first mid atlantic step we've taken in the
Speaker 10: last decade. So amidst the doom and gloom about the taxes,
Speaker 10: there are some positives at least financial regulations heading in
Speaker 10: the right direction, and it.
Speaker 3: Appears McLaren rains have sent it Nabu Dhabi this week,
Speaker 3: and Lando and piastre getting it done.
Speaker 2: Maybe against Vince. It's just like the sixteenth century or something.
Speaker 3: Sure, I mean it's not what's the city look like,
Speaker 3: Paul and I want and if we visit, like, what's
Speaker 3: the vibrancy of the city versus the boom in New York.
Speaker 4: Well, please come over and visit.
Speaker 10: Look, your offices in London are still in a fantastic place.
Speaker 10: In London is busy, but no Look, as I'm in
Speaker 10: New York, you know every six weeks's New York's booming.
Speaker 10: London's rolling over and there's clearly some amazing entrepreneurs, but
Speaker 10: it's just not got the same bars as New York,
Speaker 10: where there's excitement. But that said, you know, as I
Speaker 10: meet with the private market firms, they're very excited about
Speaker 10: the outlook for M and A in the UK next year.
Speaker 10: We've seen two US private market firms acquire insurers this
Speaker 10: year because they're excited by the financial deregulation allowing them
Speaker 10: to invest. So you know, around the edges there's still
Speaker 10: an awful lot of excitement, but the streets don't have
Speaker 10: the buzz of New York.
Speaker 6: Of course, talk to us about private credit here, Hugh.
Speaker 6: This is obviously a significant new market. Over the last
Speaker 6: ten to fifteen years, there's been some concerns about credit
Speaker 6: quality creeping into this part of the market. How do
Speaker 6: you see it, because you've got so much experience looking
Speaker 6: at the financial markets.
Speaker 10: Look, Paul, I think I think the thing which is
Speaker 10: misunderstood is that we've now got an asset class or
Speaker 10: a range of assets which are almost three trillin a size,
Speaker 10: and they're going to be the good, the bad, and
Speaker 10: the ugly in that area. And so if I sort
Speaker 10: of break it into let's say, you know, there's mid
Speaker 10: market finance, there's acquisition finance, and there's obviously all this
Speaker 10: investment grade private and I think it's very different rhythms
Speaker 10: in the market. So in leverage finance, of course, there
Speaker 10: are companies who borrowed before interest rates went up, probably
Speaker 10: have the wrong capital structure and maybe if they haven't
Speaker 10: had the cash flow to work through the debt, we'll
Speaker 10: need to restructure. And that's the area of real focus
Speaker 10: and tension where you're seeing, you know, the percentage of
Speaker 10: pick being paid, you know, payment in kind instead of cash.
Speaker 10: Interest has been picking up, and there's clearly going to
Speaker 10: be some restructurings or highly like to be some restrucures
Speaker 10: in that area.
Speaker 4: We flip to the other side.
Speaker 10: The biggest boomers we've discussed before has been insurers giving
Speaker 10: money to private credit to get about a one to
Speaker 10: one and a half percent pick up on what they
Speaker 10: could in the public markets. Those loans are much more
Speaker 10: around infrastructure, data centers, utilities. Now I'm not saying that
Speaker 10: there couldn't be some credit events there, but that's a
Speaker 10: very different part of economy which is booming, has huge
Speaker 10: capital needs because as you see with the data center issuance,
Speaker 10: they're having to tap the private markets as well as
Speaker 10: public markets because the need for capex is so overwhelming.
Speaker 4: So I think we've got different rhythms.
Speaker 10: I think we there are going to be some credit events,
Speaker 10: but I think in a way where we need to
Speaker 10: think about this is credit overall. This isn't This is
Speaker 10: a very diversified marketplace, and there's going to be fit.
Speaker 10: Somethings are hot and some things which quite frankly, will
Speaker 10: go it will fail.
Speaker 6: So, Hugh, we're in for twenty twenty six. What are
Speaker 6: the key themes you're looking at here? Because I mean
Speaker 6: you could step back and say, boy, generally the economies
Speaker 6: are generally pretty strong inflations there, but it's not too
Speaker 6: much of a risk. We've got most central banks cutting
Speaker 6: rates for a lot of folks, and corporate earning seem
Speaker 6: pretty solid from a lot of folks.
Speaker 4: That seems pretty constructive for risk assets.
Speaker 6: Is that your view or you're a little bit different.
Speaker 4: No, Look, I think no.
Speaker 10: I can the aeras of the market that I know well,
Speaker 10: I mean, let's say take European banks, I'm pretty constructive. Still,
Speaker 10: I don't see a big pickup in bad debts. I
Speaker 10: see the interest rate environment being conducive, but there's not
Speaker 10: much growth here. But I think the themes. Look, I've
Speaker 10: got three big themes the next year. So one is mercantilism.
Speaker 10: How will the tariff policies that invest domestically. How will
Speaker 10: mercantism not just play out in the US and China?
Speaker 10: But what happens to Europe being the piggy in the middle,
Speaker 10: do they really invest and take advantage someone like Norway
Speaker 10: with all its rare arts or will they get panicked
Speaker 10: and make some poor deals. So I think mercantilism and
Speaker 10: how that plays out, I think is really key. I
Speaker 10: think second is the whole AI data boom, the whole Capex.
Speaker 10: Does that continue to have real force because in which
Speaker 10: case that's very positive backdrop for at least banks and
Speaker 10: financial markets because that's a huge need for credit. And
Speaker 10: then the third is like kind of you know we've
Speaker 10: had is then the debate about the cycle in Europe
Speaker 10: and really will we take advantage? Is this late cycle
Speaker 10: and we're going to go into a slight slowdown or
Speaker 10: will Europe start to get it sort of mojo back together?
Speaker 4: So they're for me the three big theme for twenty
Speaker 4: twenty six.
Speaker 3: The claim started with European banking and penetrating analysis of
Speaker 3: income statements here von steinas with that background, your thoughts
Speaker 3: and how private credit will clear given lower valuations than expected?
Speaker 3: How is that process going to play out?
Speaker 10: So Tom, I think this goes back to this multi speed.
Speaker 10: So I think that you know, in the Capex rich
Speaker 10: insurance supported you know quite frankly boom around Capex. I
Speaker 10: think that the demand for capital is so high it's
Speaker 10: actually providing a bit of a risk premium, and that's
Speaker 10: why you're still still seeing this this extra So I
Speaker 10: think that piece of the market absent at a major
Speaker 10: shock is in really good shape. But I think around
Speaker 10: acquisition finance, those deals which were written you know, five
Speaker 10: six years ago probably over leven in terms of companies.
Speaker 10: If they haven't had that cash flow work through, then
Speaker 10: I suspect there will be some you know, they're clearly
Speaker 10: going to be some restructurings and credit events. I think
Speaker 10: what you've seen, Tom is that if you like the
Speaker 10: continuation funds, the secondary funds, the pick that the innovations
Speaker 10: that the credit markets have had have been trying to
Speaker 10: help private equity owners through a cycle where they haven't
Speaker 10: been able to sell. And so the pause, the ball
Speaker 10: case is that the pick up an M and A
Speaker 10: that you've had on the show, whether it's Morgan Stanley, JP,
Speaker 10: Morgan Goldman's are expecting if that M and A and
Speaker 10: IPO Boom picks up, that's a release alve. But if
Speaker 10: that doesn't play out, then I still think we're going
Speaker 10: to get you know, a couple of percent restructurings next
Speaker 10: year of that cohort which you know are under a
Speaker 10: lot of pressure.
Speaker 3: Hugh, take that phone called Tot, Maam. They're looking for
Speaker 3: a new coach. I know they are.
Speaker 7: You.
Speaker 3: Von Steina is the next coach of the Tots where us.
Speaker 3: He is with Oliver Wyman there on his disunited that kingdom.
Speaker 3: Stay with us. More from Bloomberg Survey on coming up
Speaker 3: after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Just
Speaker 1: say Alexa play Bloomberg eleven thirty the newspaper.
Speaker 2: She's been working at it diligently since for twenty two.
Speaker 2: This morning, Lisa Mato, you got it.
Speaker 4: Let's start with this.
Speaker 9: San Francisco drivers are saying that waymos self's driving cars. Yes,
Speaker 9: are behaving like New York City taxi drivers. Oh boy,
Speaker 9: they're getting aggressive, okay, Wall Street jurn I spoke to
Speaker 9: some of them.
Speaker 4: She's seen it. Okay.
Speaker 9: So they're saying they're in the tunnel and they're changing lanes,
Speaker 9: you know. By the San Francisco yer they're making illegal
Speaker 9: U turns and then the minute the light turns green,
Speaker 9: theyy florid.
Speaker 2: I saw that. I saw that.
Speaker 3: One went by me. I'm fit the avenue. I don't
Speaker 3: get it. I get it, Austin, I get this.
Speaker 2: Help me. Lisa Loblaw won't speak to me.
Speaker 9: Well there's a reason, okay. So the Wall Street Journal
Speaker 9: spoke with their senior director of product management and they
Speaker 9: told them about this. Right, So what he said is
Speaker 9: that they're trying to make their cars confidently assertive.
Speaker 4: That's how they put it, Yes, because they used to
Speaker 4: be a little bit passive.
Speaker 9: And then when you're passive, that can, you know, become
Speaker 9: a little disruptive, you know, because if you have a
Speaker 9: car who's being nicey nice, and sometimes it can disrupt things.
Speaker 9: So they say they want them to be a little
Speaker 9: bit more confident. I used to be confright, and then yeah,
Speaker 9: and once you get used to drive, Yeah.
Speaker 2: And I was confidently assertive and drove the VW Bug
Speaker 2: into a ditch. Oh gosh.
Speaker 3: No.
Speaker 9: But you know, with the regular drivers, like my daughter,
Speaker 9: she just started learning. She was two hands on the wheel.
Speaker 9: Now she's got like a Starbucks one hand. She's like
Speaker 9: like no, you can't get confident like that.
Speaker 2: And here we go.
Speaker 9: Okay, there's a new in demand job skill. Are you
Speaker 9: ready for it? It's being an influencer on social media?
Speaker 2: Okay.
Speaker 9: So companies like Starbucks, Delta Airlines, they're hiring people to
Speaker 9: be these specific positions to show how fun the company
Speaker 9: is to work for, to give different details, all with
Speaker 9: the approval of the company. However, so they're saying it's
Speaker 9: a win win for the company. So it allows the
Speaker 9: companies to show place, you know, to showcase, hey, this
Speaker 9: is a great place to work. And then it allows
Speaker 9: the workers a chance to bring their skills to a
Speaker 9: bigger audience. They get, you know, work trips, professional development training,
Speaker 9: they get to update their resume, their LinkedIn profiles, rich.
Speaker 2: Technical director.
Speaker 3: Can you see kind of fellow on TikTok No, I'm
Speaker 3: not sure, as you kill it every day.
Speaker 4: It's a big thing.
Speaker 2: It's a big thing.
Speaker 9: I'm not walking around my phone trying to detail.
Speaker 4: We'll see if that comes to it. Okay.
Speaker 9: So there's a new exclusive club okay, soho house better
Speaker 9: look out.
Speaker 2: Okay.
Speaker 9: It's in New York City. It's called Moss. It recently opened.
Speaker 9: It's five stories at five twenty fifth Avenue, right by
Speaker 9: forty third Street, so right in midtown. It was founded
Speaker 9: by these two sisters, and the New York Post took
Speaker 9: a tour of it.
Speaker 2: Right.
Speaker 9: So you have five fancy restaurants, all this lounge space,
Speaker 9: twenty thousand square feet of dining and social space. Here's
Speaker 9: a good thing, twenty thousand feet of wellness space.
Speaker 4: There's two floors cigar, yes if that's different word.
Speaker 6: Hally and Colleen Brooks called Moss a mix of quoting
Speaker 6: intelligent leisure and physical culture.
Speaker 4: You have it there, you have it now. The cost
Speaker 4: of it costs.
Speaker 9: The costs here it is okay, monthly dues anywhere from
Speaker 9: two eighty to seven hundred and forty five dollars, and
Speaker 9: that's on top of the initiation fee, which can run
Speaker 9: you from fifteen hundred to nearly four thousand dollars. So
Speaker 9: that's just to be a member and then to get
Speaker 9: there and to you know, pay for all your food
Speaker 9: and drink.
Speaker 4: Some knowledge.
Speaker 6: That sounds like it's just.
Speaker 9: I've been to show house and I'm like, whoom, Maybe
Speaker 9: I have to find a friend who comes over to here.
Speaker 9: But it's just another place that that people can spend
Speaker 9: their money here in New York City, all right.
Speaker 6: I mean there's the clubs everywhere. I mean the old clubs,
Speaker 6: vintage clubs that have been around for hundreds of years,
Speaker 6: and then some of the new clubs.
Speaker 2: We're coming up the concept next to your folks.
Speaker 3: Club Surveillance Lisa's living room, Lisa Mateo, thank you so
Speaker 3: much the newspapers.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
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Speaker 5: Hi