Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 2: with Paul Sweeney. Join us each day for insight from
Speaker 2: the best in economics, finance, investment, and international relations. You
Speaker 2: can also watch the show live on YouTube. Visit the
Speaker 2: Bloomberg Podcast channel on YouTube to see the show weekday
Speaker 2: mornings from seven to ten am Eastern from our global
Speaker 2: headquarters in New York City. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen, and always I'm Bloomberg Radio,
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App.
Speaker 3: A good amount of.
Speaker 2: Time here commercial free with William Lee. He's at the
Speaker 2: Milkin Institute, of course, definitive at the International Monetary Fund,
Speaker 2: particularly an international and Pacific rim economics and Bill, I'm
Speaker 2: thrilled to have you out after Jersey with a domestic
Speaker 2: feel to the rescue. Can it be international disinflation and deflation?
Speaker 2: Will they export price decline and we will import that
Speaker 2: price decline to assist America?
Speaker 4: Well, China is the story of disinflation in this world,
Speaker 4: and what we saw the latest Chinese data is just
Speaker 4: the opposite of what we're seeing here in the US
Speaker 4: the consumer is not strong enough to keep prices up,
Speaker 4: and the certain the factory prices are coming down like crazy.
Speaker 4: And the issue is how many goods from China are
Speaker 4: we going to be importing to offset some of the
Speaker 4: hotter domestic services. And I think Trip Paul's going to
Speaker 4: tell you not enough. China will be some help on
Speaker 4: the good side, but we already see that downward trend.
Speaker 4: And the thing that worries Chair Powell, however, is the
Speaker 4: domestic services. And unfortunately that the disinflation from the rest
Speaker 4: of the world just isn't going to do much to
Speaker 4: the price of auto mechanics and the price of auto insurance,
Speaker 4: the price of healthcare, which are the elements of core
Speaker 4: inflation that the FED is worried about.
Speaker 5: So talk to us about some of the spin out
Speaker 5: of China here, Bill. I mean, for me, you know,
Speaker 5: when I look at China deflation, and certainly that CPI
Speaker 5: print came in a little bit hotter than expected, I
Speaker 5: just disregard that, right. I mean, it's still about PPI
Speaker 5: in China. It's still about you know the fact that
Speaker 5: it's really I mean, prices are really coming under pressure.
Speaker 5: There on the property sector. Talk to us about some
Speaker 5: of the spin we're hearing about local government finance vehicles
Speaker 5: and the fact that it seems like Beijing may finally
Speaker 5: be willing to let some of them actually default.
Speaker 4: If I'm hearing that correctly, Damen, you've hit the real
Speaker 4: issue of China run in the head. Right now, China's
Speaker 4: economy is tottering because the shelter market, the property market
Speaker 4: is in disarray. And right now, so much of wealth
Speaker 4: in China is tied up in the property market. It's
Speaker 4: seventy percent of household wealth that the government is going
Speaker 4: to have to try to do something to support it.
Speaker 4: But now with suddenly what we're finding is that the
Speaker 4: government's telling us, you know, it may well be that
Speaker 4: some property developers may have to default and have to
Speaker 4: go out of business. That I think is a shocker
Speaker 4: because right now, I think that the reform that's needed
Speaker 4: in China is the reform property market that disperse well
Speaker 4: so that it just doesn't stay in the property market.
Speaker 4: But more importantly, the housing market in China requires some
Speaker 4: kind of government stops to give a affordable housing.
Speaker 6: That's well known.
Speaker 4: But do we have enough of a rental market so
Speaker 4: that the young urban professionals can actually rent rather than buy.
Speaker 4: And unfortunately, the way financing is done in China is
Speaker 4: that local governments depend on selling property to property developers
Speaker 4: to build new houses in order to survive, and that
Speaker 4: process is something that government seems to be wanted to perform.
Speaker 2: Build league with us with the Milken Institute Commercial Free
Speaker 2: in this hour, William Lee with us and then Jane
Speaker 2: Foley will join us from Rabobank. A nice lift out
Speaker 2: of the market, as we said with Ira Jersey, a
Speaker 2: churn there out of the news. But clearly there's a
Speaker 2: feeling your buoyancy and equities. The VICS comes into fourteen
Speaker 2: point five six, the fixed incomes space.
Speaker 3: This is very deceptive.
Speaker 2: You've got pretty much unch, ten year, unch, two year,
Speaker 2: I got a little bit of thirty bound love higher yield,
Speaker 2: But where you really see it's.
Speaker 3: The inflation is just to yield.
Speaker 2: Damien sis back to one point eighty two percent, and
Speaker 2: I'm sorry, we've basically gone round trip yep, back to
Speaker 2: inflation and real economy buoyancy. I guess this is how
Speaker 2: I would put it off that ten year real yield.
Speaker 5: Tom, and I'd like to highlight what Bill said, I mean,
Speaker 5: and it's not really about China. It's about the inflation
Speaker 5: dynamic and how it grips the globe, not just the US.
Speaker 5: Here and today, underneath the CPI print we saw here
Speaker 5: in the US, we got some inflation data out of India, Germany,
Speaker 5: and Brazil, and outside of Germany, which was flat Indian, Brazil.
Speaker 5: I mean, you're seeing price pressures rise. So you know,
Speaker 5: you know, when Bill talks about you know, PPI intflation
Speaker 5: in China and how that's being exported to the rest
Speaker 5: of the world. You know, Bill, take us through that calculus.
Speaker 5: How are we seeing inflation actually accelerate in some of
Speaker 5: these markets outside of the US.
Speaker 4: Well, the man of supply as you know, Damien, and
Speaker 4: on supply side, we don't see a lot of commodity
Speaker 4: prices going up because the rest of the world is economy,
Speaker 4: especially when we include China, just isn't strong enough to
Speaker 4: push up commodity prices to offset a lot of the
Speaker 4: deflationary trend on the industrial side. And for countries like
Speaker 4: the United States where the domestic service component is such
Speaker 4: an important part of overall inflation, we're somewhat insulated. We're
Speaker 4: really relatively closed economy when it comes to inflation. Other
Speaker 4: countries that are much more dependent on goods and their
Speaker 4: baskets are much more heavily dependent on goods rather than services.
Speaker 4: That's where the deflationary impact is the greatest.
Speaker 3: Got a great team here at Bloomberg. This is the
Speaker 3: secret of the terminal.
Speaker 2: We've got terrific top live market coverage riding the herd
Speaker 2: on inflation. Jis obviously quoted worldwide end occurring. Chris Ancy
Speaker 2: out there today in Sebastian Void some of the insights
Speaker 2: Damian Sasaur. The food index was unchanged except for Paul
Speaker 2: Sweeney's eighty six dollars steak out in the rockies somewhere.
Speaker 2: The core measure was boosted by shelter. You think in
Speaker 2: New York City airfares, You think motor vehicle insurance, what's
Speaker 2: a cost to ensure a car? Used to be like
Speaker 2: an afterthought? Forget about that. It's like it's like actually
Speaker 2: tangible apparel. That's you know, I mean, that's Lisa, She's
Speaker 2: going nuts on that. And what in God's name is recreation?
Speaker 3: I mean, I don't know what that.
Speaker 5: Definitely I can define recreation for you, but I prefer
Speaker 5: not to do it on airtime.
Speaker 3: Okay, why don't you go to Billy here?
Speaker 5: I mean Bill, Bill, you hit on I mean for something.
Speaker 5: I mean like this is just a clinic. I mean commodities,
Speaker 5: terms of trade, the importance of goods pricing and how
Speaker 5: that impacts markets, not just you know outside of the
Speaker 5: US who aren't so relying on it. Taught to us
Speaker 5: a little bit about that, talked to us about El Nino.
Speaker 5: I mean, we've had bad coffee harvest in Vietnam, poor
Speaker 5: cocoa yields in Africa, weeks soybing crops in Brazil. How
Speaker 5: is commodity prices or how are commodity prices, sorry, impacting
Speaker 5: inflation in other areas upon it.
Speaker 4: I think one thing we forgotten is that we have
Speaker 4: a war in Ukraine. Ukraine is a bread basket for
Speaker 4: the world in terms of wheat and cooking oil exports,
Speaker 4: and so what we actually have is a shortage in
Speaker 4: many many areas. Now it is offset by a lot
Speaker 4: of bumper harvests elsewhere. But I think that that uncertainty
Speaker 4: on the on the commodity supply side is something that
Speaker 4: the markets really haven't priced in.
Speaker 6: For the rest of the world.
Speaker 4: But the US trade is someone who's really focused on
Speaker 4: what impact this had on the consumer of the United States,
Speaker 4: and that really has very little because the other other
Speaker 4: countries have offset that uncertainty. But certainly a lot of
Speaker 4: the emergent markets depended on the Ukraine is really getting hurt.
Speaker 2: Standard in poor futures five to two, one seven up
Speaker 2: six tens of a percent now thirty nine thousand and
Speaker 2: three hundred. I'm not in the forty thousand watch yet.
Speaker 2: John Faraoh asked me that this morning. Is it not
Speaker 2: in the forty thousand watch yet? Nasak up as eight
Speaker 2: tens of present? Billy I had a couple more questions
Speaker 2: for you, and this goes off your heritage at the IMF.
Speaker 2: Grgavin Companies stopped me cold pushing on a year ago
Speaker 2: with a five year view that was remarkably tepid on
Speaker 2: global growth, including America. Is that five year gloom being
Speaker 2: tested right now? Does a new productivity at some point?
Speaker 2: Is it going to make for a more optimistic IMF
Speaker 2: five year view?
Speaker 4: The IMF right now is continuing to bring down its
Speaker 4: longer term forecast because population growth in the developed countries
Speaker 4: is slowing down tremendously. But as you know, technological progress
Speaker 4: is something that could offset.
Speaker 3: Some of Right.
Speaker 4: We both live through the computer PC revolution of the nineties,
Speaker 4: and the data show that we got a huge productivity
Speaker 4: boost with the introduction of the computer and PC during
Speaker 4: the nineties, and unfortunately it was transitory. It did, but
Speaker 4: the translatory it was over a decade, and it doubled
Speaker 4: the profits per unit of output during that period. We
Speaker 4: we're seeing the beginning of a similar revolution AI, and
Speaker 4: I'm very confident that would they be seeing that kind
Speaker 4: of productivity boost and that will offset some of the
Speaker 4: price pressure that we're seeing, but it won't do it
Speaker 4: for another two three years, and that's what the FED
Speaker 4: is looking forward to. And markets have not price dated
Speaker 4: properly because the neutral rate is going to be much
Speaker 4: higher over the next three to five years than markets
Speaker 4: are anticipating.
Speaker 2: Robert from a goalie camp up near Hamilton. It's up
Speaker 2: near Lake Marine. I don't know if it's called Gator.
Speaker 2: Hamilton Auto Insurance up twenty one percent year over year, Robert, thank.
Speaker 3: You for that. Billy.
Speaker 2: I want to dovetail in your wisdom in your experience
Speaker 2: with my book of the Summer. Chris Miller's Chip War.
Speaker 2: Whither Taiwan? How fragile does a giant like Bill Lee
Speaker 2: see Taiwan in their integrated circuit system?
Speaker 4: Right now, you have to remember that Taiwan is going
Speaker 4: to be your source of the productivity revolution and ai revolution.
Speaker 4: If China really decides to make use of the of
Speaker 4: the disruptions in the world and the joke little giplical
Speaker 4: uncertainty by doing something to Taiwan to threaten its independence,
Speaker 4: you're going to start seeing that supplies shortages of the
Speaker 4: sort thing you never saw before. COVID's gonna look like
Speaker 4: a little drop in the bucket compared to what a
Speaker 4: shortage of chips will do. And I think that's the market.
Speaker 4: That's something the markets have completely underestimated. So I think
Speaker 4: the risk of a sustained huge productivity shock and a
Speaker 4: supply supply shortage of chips is very, very real if
Speaker 4: China starts to divert attention from its uh withering economy
Speaker 4: by focusing on a little bit more aggressive posture to
Speaker 4: try to race nationalism.
Speaker 2: And this goes to Erinal Stravitaz's new book twenty fifty four. Today,
Speaker 2: thank you James Travenas for being with us before Billy, Damian.
Speaker 5: Bill, bond's a rallying here. I mean, we've got the
Speaker 5: two europe to down two BIPs, we've got the tenure
Speaker 5: down two BIPs of four eight percent, and the dollar
Speaker 5: is rallying. Bill, talk to us about that. I'm sorry,
Speaker 5: falling taught to us about the runway for the dollar
Speaker 5: to weaken in this environment. I mean, you know, most
Speaker 5: people would think, you know, structurally speaking, real yields or
Speaker 5: you know, yield differentials here in the US are going
Speaker 5: to remain wide. You know, you've got the US exceptionalism
Speaker 5: story taught to us about the runway for dollar weakness.
Speaker 4: Here, Damian, I think the story of that you were
Speaker 4: just talking about that we got a little bit harder
Speaker 4: print on inflation. And yet the fixed income markets are
Speaker 4: pretty confirmed with the fact that we are in a
Speaker 4: declining rate environment. So they're very confident that Suir Pal
Speaker 4: will be lowering rates. The issue is how much, how soon,
Speaker 4: and how fast. And it seems like the burst of
Speaker 4: inflation that we saw today isn't enough to convince markets
Speaker 4: that the FED will be deterred from its downward path.
Speaker 5: You know, and Bill I touched on yield differentials, and
Speaker 5: there's no wider yield differential than you look at, you know,
Speaker 5: any currency and China, right, I mean you look at
Speaker 5: yields in China the ten years at what two thirty
Speaker 5: four now, I mean just off an all time low.
Speaker 5: Talk to us about this funding currency dynamic with the
Speaker 5: BOJ now potentially tightening rates and you know, basically the
Speaker 5: the you know, you know, Japan no longer being a
Speaker 5: funding investors paradise. How you've seen some switching into the
Speaker 5: China yuan, into a currency that seems weak and might
Speaker 5: even weaken further.
Speaker 4: Yeah, absolutely, And in fact, I think the markets have
Speaker 4: really misplaced its its its attention on the Japanese yen. Yes,
Speaker 4: it is the funding currency, but the Japanese yen is
Speaker 4: also something that that has traditionally been a domestic currency
Speaker 4: and domestic uh bond market because most of the holders
Speaker 4: of jgb's are Japanese. And I think the fact that
Speaker 4: China has really pushing its way into becoming a reserve
Speaker 4: currency and digitizing it's its economy, digitizing its currency, trying
Speaker 4: to get more and more emerging markets to use it
Speaker 4: as a transactions currency, that the prominence of the run
Speaker 4: and be in the future is going to be much
Speaker 4: greater than I think that people realize, and that may
Speaker 4: be that that next competitor for the US dollar prominence.
Speaker 2: Billy, thank you so much with the Milkin Institute. What
Speaker 2: a what a smart idea for your team. Greg Daka
Speaker 2: joins us right now with Ernst and Young. I'm sorry,
Speaker 2: I'm old school.
Speaker 3: It's not e y. Yeah, I know you got eight
Speaker 3: consultants saying it's e y, it's Ernst and Winnie.
Speaker 2: Okay, my grandfather's accounting firm was Ernstan Winnie.
Speaker 3: So I'm always there.
Speaker 2: E y E I E y parthenon. Greg dot Co
Speaker 2: is with us right now. I want you to talk
Speaker 2: about the disconnect of fancy people like you and our
Speaker 2: listeners and viewers are going these people are nuts. There's
Speaker 2: no disinflation. I get that more than any other comment
Speaker 2: from the fans out there. There's a massive disconnect between
Speaker 2: society and people like you.
Speaker 7: Right There is a massive disconnect, and that's because most
Speaker 7: people don't necessarily think about inflation the same way as
Speaker 7: economists and academics think about inflation. When we think about inflation,
Speaker 7: it's essentially the pace of growth of prices of costs
Speaker 7: of wages. Most people think in nominal terms. Most people
Speaker 7: think in terms of levels, right. They think about cost
Speaker 7: levels when they go buy their groceries, when they're by
Speaker 7: gas or even business leaders think about wage levels in
Speaker 7: terms of the aggregate wage bill or company. Tom is
Speaker 7: the disconnect?
Speaker 3: Tom?
Speaker 5: Did you see Greg Daka when he came in, he
Speaker 5: brought his laptop. He was ready for this inflation print.
Speaker 5: He had a lot with him, a lot of equipment,
Speaker 5: a lot of hardware. Greg, what was your big takeaway?
Speaker 2: And I take you point He walked in and plugged
Speaker 2: it in stack isle of dimmed.
Speaker 1: You know, I don't know if you caught this. Yesterday.
Speaker 5: Gary Cohene, former CEO of Goldman Sachs, was on the
Speaker 5: tape talking about exactly where we're talking about the additive
Speaker 5: nature of inflation. Right, we think of it as a
Speaker 5: rate of change, but your average you know, consumers thinking
Speaker 5: of levels of price levels. You know, talk to us
Speaker 5: about your big takeaway? What should the US concus be
Speaker 5: taking away from this print?
Speaker 7: Well, I think generally we're still moving in the right direction,
Speaker 7: so there's still that disinflationary impulse. It's going to be bumpy.
Speaker 7: It was bumpy on the way up, it's going to
Speaker 7: be bumpy on the way down. But the thing is
Speaker 7: that if you look back at price levels relative to
Speaker 7: twenty nineteen, we're about twenty twenty one percent higher in
Speaker 7: terms of price levels on average relative to pre COVID.
Speaker 7: That is what most people are thinking about when they
Speaker 7: think about inflation.
Speaker 3: Pro tip I measured in dog food exactly.
Speaker 2: It's way above the number you just everybody, everybody's got
Speaker 2: a different thing. I'm sorry, what Vet Bill, No, it's
Speaker 2: Gainsburger's What Vet Bill and Canal Fee are charge of
Speaker 2: me is is ridiculous.
Speaker 3: We're on Apple CarPlay.
Speaker 2: We are commercial free across this inflation report.
Speaker 3: What a great.
Speaker 2: Lineup, Ira Jersey to Bill Lee, Greg Dakl joining as
Speaker 2: some Uy parthenon right now on YouTube.
Speaker 3: It's just real simple, folks. Go to YouTube. You're in
Speaker 3: your bedroom, you're in your living room, you're in your whatever.
Speaker 2: Go to YouTube, search Bloomberg Podcasts and we are there
Speaker 2: with a wonderful live chat as well.
Speaker 5: Damien, Yeah, talk to us about shelter. We talked to
Speaker 5: us about some of the components within the print we
Speaker 5: just saw. Greg, I don't know if you had a
Speaker 5: chance to take a look, I mean, talk to us
Speaker 5: about the supercore, anything there that we should be taking away.
Speaker 7: Well, I think, generally speaking, housing inflation is still the
Speaker 7: area of concern. When it comes to overall inflation. We
Speaker 7: still have shelter cost inflation in the six percent vicinity.
Speaker 7: It needs to come down to around four percent to
Speaker 7: bring headline inflation and core inflation back down towards that
Speaker 7: two two and a half percent range. We're not there yet.
Speaker 7: We know there was a lot of noisiness in the
Speaker 7: January data. The BLS had a commodity price webinar to
Speaker 7: explain where some of the volatility came from, especially on
Speaker 7: the owner's equivalent side of the picture. But we are
Speaker 7: seeing this inflation continue to filter through. It's just taking
Speaker 7: a little bit longer from a FED perspective, from an
Speaker 7: economist perspective, from an investor's perspective. Inflation is still moving
Speaker 7: towards that two percent target, and that will allow the
Speaker 7: FED to gradually ease monetary policy. Not in March, not
Speaker 7: in May, probably in June.
Speaker 5: Well, I mean that's interesting, So June we're looking for it.
Speaker 5: But you know, the question I have is, Okay, we
Speaker 5: can get that cut in June, but then are we
Speaker 5: expecting successive cuts the way the market's pricing, and I
Speaker 5: mean what's interesting is if you look at Ois and
Speaker 5: you look at Decembergreg, and you know this as well
Speaker 5: as anyone. You know, we're pricing in three four cuts
Speaker 5: through the end of this year. But my goodness, the
Speaker 5: probability distribution around what might actually happen by the end
Speaker 5: of this year. I think you've got options markets telling
Speaker 5: you it could be a hike or you can have
Speaker 5: five cuts. I mean, talk to us a little bit
Speaker 5: about what the market has right and what it has
Speaker 5: wrong here on a forward basis.
Speaker 7: I think the key differential here in terms of participants
Speaker 7: FED participants view of where monetary policy is going to head,
Speaker 7: where investors think policy is going to head is largely
Speaker 7: a function of the fact that the FED is heavily
Speaker 7: data dependent, and that heavy data dependence in a volatile
Speaker 7: environment is a very risky proposition because anytime you get
Speaker 7: a reading that's not in line with inflation expectations, with
Speaker 7: employment expectations, markets start to rapidly reprice expectations.
Speaker 3: You have an.
Speaker 2: EI different cents you people through and then consulting really
Speaker 2: have a different handle across the fabric of America from
Speaker 2: market economists and Wallstreet ORNs. What is Ey seeing in
Speaker 2: terms of GDP spirit out there.
Speaker 7: Well, I think there are two things that we're hearing
Speaker 7: from our clients that have differentiated our perspective in terms
Speaker 7: of the economy. Number one, the fact that the labor
Speaker 7: market is very different today than it was before the pandemic.
Speaker 7: The value of talent remains much higher. We had been
Speaker 7: telling a lot of our clients that because that value
Speaker 7: is higher, we weren't going to see the way of
Speaker 7: a layoffs that we've seen in prior pre recessionary environments.
Speaker 7: That's what's held up the economy. Number Two, there's much
Speaker 7: less pricing power. That is why I'm confident that the
Speaker 7: last disinflation mile will not be the most difficult. More
Speaker 7: price in sensitivities, reduce markups. Those are the types of
Speaker 7: dynamics that in the end really drive inflation. It's not
Speaker 7: about the month over month change in some idiosyncratic factors.
Speaker 2: Thank you, Greg Docom, I greatly appreciate it. Ey parts
Speaker 2: then women from Michigan thrilled to have with us this
Speaker 2: morning for this entire half our Michael Wilson. He is
Speaker 2: at Morgan Stanley, coach Effequity Strategies CIO, and among other things,
Speaker 2: author and driving force behind Really Smart thirty six page
Speaker 2: research pieces.
Speaker 3: On what matters at the moment. Mike Wilson, good morning.
Speaker 1: You.
Speaker 2: People have done a tour to force on AI and
Speaker 2: on what's to come. Does Mike Wilson believe in the
Speaker 2: stock market and believe in AI?
Speaker 6: Well, good morning, Tom, Yeah, thanks for having me. We
Speaker 6: do believe in AI.
Speaker 8: We've been probably more front footed on this theme as
Speaker 8: a firm over the last year year and a half.
Speaker 8: And the way I would characterize it is is that
Speaker 8: this is the next big probably the next big productivity driver,
Speaker 8: but it's not going to happen immediately, and we're seeing
Speaker 8: that manifest itself in the stock market right so so far,
Speaker 8: what's really worked from AI has been what we call
Speaker 8: the enablers, the companies that are allowing this new.
Speaker 6: Platform to be developed and built out.
Speaker 8: And we've seen obviously some of the stocks go somewhat stratospheric.
Speaker 8: And the real opportunity though, is going to be when
Speaker 8: this technology diffuses across the economy.
Speaker 6: And that would be the adopters and that's very very
Speaker 6: early days.
Speaker 8: Now there's been some winners in that already, but boy,
Speaker 8: it's kind of hard to find them so far. The
Speaker 8: other theme that we've been really espousing for the last
Speaker 8: year and a half when we were early on this
Speaker 8: is this idea of operational efficiency. In fact, many companies
Speaker 8: adopted that phrase for their own taking because that's what
Speaker 8: they needed to do over the last year. As you know,
Speaker 8: it's been a very unbalanced economy where you have a
Speaker 8: very heavy handed government influence which is kind of keeping
Speaker 8: the aggregate statistics strong, and then.
Speaker 6: You have companies that have unique.
Speaker 8: Growth opportunity of these, but then the sort of average
Speaker 8: company is really struggling still with cost inflation, you know,
Speaker 8: labor tightness, cost of capital, et cetera. And so efficiency
Speaker 8: is one way to get around that, right, keeping your
Speaker 8: cost down.
Speaker 2: And having it mar and I'll dovetail it to Alan
Speaker 2: Zendner's new productivity, and we're hearing a lot about that
Speaker 2: on the show.
Speaker 3: Micha Wilson, I'm not going to mince words.
Speaker 2: You've been to Pinata for people that are like I
Speaker 2: want to participate in the market, but I just don't
Speaker 2: get the exuberance out there. What's the Wilson meter look
Speaker 2: like right now? On market exuberance. It don't narrow it
Speaker 2: down to the silliness of Nvidia, but how effervescent, how
Speaker 2: exuberant is a market I want to be in, but
Speaker 2: I'm scared stiff.
Speaker 8: Yeah, I mean, look, there's there's been some some big
Speaker 8: winners and some big losers. It's been a stock picking
Speaker 8: environment quite frankly really for the last year year and
Speaker 8: a half. And look, we had that major low that
Speaker 8: was made in October twenty two one that we identified
Speaker 8: as a good opportunity, the one last all we felt
Speaker 8: was close but didn't quite get there. But of course
Speaker 8: we had a huge rally. And what's happened Tom and
Speaker 8: I think this is a differentiating feature of our view
Speaker 8: versus others, is we view the.
Speaker 6: Last four to five month rally as.
Speaker 8: Being driven more by very loose financial conditions, extreme liquidity,
Speaker 8: which is finding its way into the right parts of
Speaker 8: the market, and that and the parts of the market
Speaker 8: that are working are what we call high quality growth stocks,
Speaker 8: and some of those you've mentioned, and some of.
Speaker 6: Those are but it's also it's not just tech stocks.
Speaker 8: Some of the industrial space which are benefiting from some
Speaker 8: of those heavy handed government programs, for example, some of
Speaker 8: the consumer spaces having a bounce back at particularly consumer services.
Speaker 8: And then of course these companies that are being efficient,
Speaker 8: and that's really what's been working, and it's been so
Speaker 8: in other words, the market's.
Speaker 6: Been very good at identifying the winners. It's also been
Speaker 6: very good at identifying the losers.
Speaker 5: Well, I mean, you mentioned efficiency, and you mentioned operational efficiency,
Speaker 5: and for me, I need you to drill down a
Speaker 5: little bit more. You know what you know, what indicators
Speaker 5: are you looking for?
Speaker 6: It?
Speaker 5: We strictly talking operating margins here. I mean, how do
Speaker 5: you evaluate you know, those sectors you're referring to, like
Speaker 5: which sectors.
Speaker 1: Are prime to perform?
Speaker 5: Well, given you know that focus on high quality growth,
Speaker 5: on operational efficiency, on the narrowing of that big divide
Speaker 5: between the haves and have nots.
Speaker 8: Yeah, it's not really it's not really by sector, dam man.
Speaker 8: It's more by a company. It's really company specific and
Speaker 8: we and we've talked about that, meaning within sectors, there
Speaker 8: are companies that are being more efficient than they're say,
Speaker 8: they're competitors, and we're seeing it so that once again,
Speaker 8: it is as you say, the haves and have nots.
Speaker 8: So I don't think I don't think it's a sector call.
Speaker 8: It's a company call. It's a very stock specific call.
Speaker 8: So that's that's actually a really good environment for active
Speaker 8: managers who can take advantage of that.
Speaker 6: So we're seeing we're seeing it across multiple industries. It's
Speaker 6: not just one or two.
Speaker 5: So the MIC is the key identifying those companies that
Speaker 5: are going to improve their operational efficiency or selecting those
Speaker 5: companies that have an advantage over their peers.
Speaker 8: It's both and one of the advantages it's just sheer size,
Speaker 8: having scale, having the ability to kind of manage your
Speaker 8: cost structure, being efficient with your labor and hiring, and
Speaker 8: that's a that's a pure scale argument. Then, of course,
Speaker 8: there are companies who are using various technologies, not just
Speaker 8: AI to make their existing businesses more efficient.
Speaker 6: There are some you.
Speaker 8: Know, what we've discovered is within AI, ironically, the companies
Speaker 8: that are actually being the most efficient are tech companies.
Speaker 8: They're the ones who are actually able to reduce labor
Speaker 8: and headcamp, particularly encoding. That's one area where it's been
Speaker 8: extremely efficient, back office, et cetera. So in many ways
Speaker 8: AI is helping to keep the labor market a little bit.
Speaker 5: Soft, mister Wilson. Sarah, Well, let's talk about your note
Speaker 5: from yesterday. Multiple expansion kind of accounting for most of
Speaker 5: the move we've seen here inequities. But then you cite
Speaker 5: your colleague Andrew Sheets, and this is where what I love.
Speaker 5: I want to talk about M and A volumes. I
Speaker 5: want to talk about thirty five billion of IG issue
Speaker 5: is expected this week after three weeks straight of fifty billion.
Speaker 5: Talk to about which sectors are witnessing M and A
Speaker 5: activity and why.
Speaker 6: Yeah, I mean, the conditions are there for M and A.
Speaker 8: I would say the headwinds are that the cost of
Speaker 8: capital is still pretty high. We haven't seen any rate
Speaker 8: cuts yet. And then even though we're seeing issue events
Speaker 8: at the IG level, that's that's pretty robust. A lot
Speaker 8: of that's for refinancing and also for you know, for
Speaker 8: existing deals that are in the market. The other constraint,
Speaker 8: of course, is that we just had a big increase
Speaker 8: in valuations. I would say, you know, last fall was
Speaker 8: getting closer to a point where the buyers and sellers
Speaker 8: were getting to a point where maybe the price was right,
Speaker 8: and now, of course those prices have elevated again.
Speaker 6: And we have stars in the eyes of some of
Speaker 6: the sellers.
Speaker 8: So I think this is going to be once again
Speaker 8: the story for twenty twenty five twenty six as we
Speaker 8: kind of settle into whatever that, you know, the new
Speaker 8: new administration, where the existing administration stays in power. I
Speaker 8: think those are also wild cards for M and A.
Speaker 8: So the conditions are there. We're not seeing a ton
Speaker 8: of activity right now. We're hopeful that will pick up
Speaker 8: later this year into twenty twenty five.
Speaker 5: So I just want to recap here. Valuations are relatively rich,
Speaker 5: interest rates are relatively high, and yet volumes and activity
Speaker 5: you're picking up. Go figure, I wonder what's going on
Speaker 5: in the corporates week. But let's go back to a
Speaker 5: little bit of what you mentioned before operational efficiency. So
Speaker 5: in this environment, you know, in an environment where yeah, okay,
Speaker 5: you know, cost the capital is relatively high and valuations
Speaker 5: are rich, what should companies be doing to improve their
Speaker 5: operating and their profit margins here?
Speaker 6: Well, obviously if you have some top line, that solves
Speaker 6: a lot of problems.
Speaker 8: So I think a lot of you know, companies are
Speaker 8: trying to figure out what the next product cycle is,
Speaker 8: you know, how can they be different than their than
Speaker 8: their competitors and drive top line growth.
Speaker 6: I mean, that solves all of your That solves many
Speaker 6: of your problems.
Speaker 8: Look, I think what corporate America is very good at,
Speaker 8: it has been very good effort for decades is cost cutting. Okay,
Speaker 8: we're world class in cost cutting. And I think they've
Speaker 8: done that. I mean, most companies have cut costs. They
Speaker 8: have kind of whittled things down to the bone. And
Speaker 8: what's interesting is in the last six months if you
Speaker 8: go back to the fall of last year, right so October,
Speaker 8: and this is something that doesn't get discussed, and at
Speaker 8: the end of October, it looked like we were sort
Speaker 8: of careening towards the wall, right, I mean, stocks were
Speaker 8: basically making new lows. Companies were starting to talk about
Speaker 8: maybe a layoff cycle they were going to have to
Speaker 8: do that. And then of course came in this big
Speaker 8: short squeeze at the back end of the treasury market.
Speaker 6: And then the fan aquiesced and said, hey, we may
Speaker 6: be cutting race next year.
Speaker 8: And that provided the hope that raids are going to
Speaker 8: come down, and so we bought time.
Speaker 6: And what we're seeing now.
Speaker 8: Is this big hockey stick and expectations for the second
Speaker 8: half of this year. Okay, there's a big if you
Speaker 8: talk to most companies and listen to most companies what
Speaker 8: they're saying. Yeah, first quarter still things are kind of
Speaker 8: squishy maybe the first half, but the second half things
Speaker 8: are going to.
Speaker 6: Really pick up. And that may happen. But I'll say
Speaker 6: right now, if it doesn't happen, then we're going to
Speaker 6: see more cost punning in the summer. And that's probably why.
Speaker 6: You know, the risk of a hard.
Speaker 8: Landing is still up exterminated, right, you still have a
Speaker 8: thirty percent chance that there's going to be a laugh
Speaker 8: cycle if business doesn't pick up in the second half.
Speaker 3: Of the year.
Speaker 2: What I want to talk about now, folks, Daman helped
Speaker 2: me out here, Mike Wilson, the Vogue Now and Margan Stanley.
Speaker 2: I assume it's not doing this is the two x
Speaker 2: Mike Wilson fun, the three X Mike Wilson fun, the
Speaker 2: four x Mike Wilson fun. Mike Wilson on the benefit
Speaker 2: but the tragedy of leverage. We're at that giddy season.
Speaker 2: How does this work out, Mike Wilson, how does it
Speaker 2: play out?
Speaker 6: Well, I mean, you're talking about the benefit of leverage
Speaker 6: and investing or in the.
Speaker 2: Econmy I would say in investing right now, we're seeing
Speaker 2: we're inundated here at Bloomberg, surveillans every day with the
Speaker 2: two x, this ETF, three x, even four x.
Speaker 3: All my raidars up.
Speaker 8: Mike Wilson, Well, that's just the greed versus fear dynamic.
Speaker 8: I mean, I think you know, obviously last fall we
Speaker 8: hit a lot of fear priced in, and now we
Speaker 8: have a lot of greed priced in, so we are
Speaker 8: seeing speculative activity pick up in a meaningful way. I
Speaker 8: would say the daily expiration options market is probably your
Speaker 8: single best example of that. We have a lot of
Speaker 8: people sort of you know, in the stock market is
Speaker 8: like prop bets almost like draftings and things like that.
Speaker 8: That that to me is you know, signs that exuberances
Speaker 8: is pretty high.
Speaker 6: Now that doesn't have to end in tiers.
Speaker 8: Okay, leverage isn't always bad, but you know, we have
Speaker 8: a situation where people are reaching for risk because you know,
Speaker 8: there's poem, Yeah, and you know that's that's where the
Speaker 8: pendulum is right now, Tom and and that's why we're
Speaker 8: probably a little bit more cautious in some of our peers.
Speaker 6: You know, I think a lot of folks all they've done.
Speaker 8: Is raise their price targets based on higher multiples, and
Speaker 8: we're not willing to do that because we don't see
Speaker 8: the condition.
Speaker 6: We don't see the justification for higher multiples.
Speaker 8: Given that we have basically no earnings growth across the
Speaker 8: broader economy, a situation is still kind of a difficult
Speaker 8: operating environment, and so we're going to be very selective.
Speaker 8: And that's why we think it's you know, you got
Speaker 8: to be got to be a stock picker here. You
Speaker 8: can't just buy the index.
Speaker 5: Well, I mean, Michael, you're hitting right on the point here.
Speaker 5: I mean, look, volatility has come off a bit here,
Speaker 5: but it just doesn't feel that way, right, And I
Speaker 5: think that goes down to the type of investor you are.
Speaker 5: You know, I wonder if you could talk to our
Speaker 5: audience a little bit about you know, those traders who
Speaker 5: are in the market who look at volatility on a
Speaker 5: day over day basis, right delta hedgers for example, guys
Speaker 5: who have to deal with real volatility, and those who
Speaker 5: are more longer term, let's call it carry investors.
Speaker 1: I'm a fixed income guy, by the way, so.
Speaker 5: They're looking at volatility on a month over month basis,
Speaker 5: and from that metric, vall looks, yes, relatively low. Right,
Speaker 5: So talk to us a little bit about those divergent investments.
Speaker 5: I guess theses, those those those those investors who have
Speaker 5: to look at you know, option markets involve and leverage
Speaker 5: and assess it for what it is.
Speaker 1: It means different things to different people.
Speaker 8: Well, I think I characterize it maybe a little bit
Speaker 8: differently and just say that index level ball is very low,
Speaker 8: but single stock ball is still quite high.
Speaker 4: Right.
Speaker 6: We have a high dispersion within the.
Speaker 8: Equity market, right, single stocks volatility, sector volatility, even RBS.
Speaker 8: But then that the index level has been very compressed,
Speaker 8: and one of the factors, one of the reasons for
Speaker 8: that is that there are a lot of new products
Speaker 8: out there that are fall selling strategies. Okay, and over time,
Speaker 8: I would agree that selling ball is always better than
Speaker 8: buying ball, Okay, Like that's just a better strategy, and
Speaker 8: you know, these products are kind of keying off of that.
Speaker 8: So there's there's been a tremendous amount of downward pressure
Speaker 8: on volatility because of these ball selling strategies. And I think,
Speaker 8: you know, that's a bit of an illusion.
Speaker 6: Okay, right, there is plenty. There's plenty of opportunity within
Speaker 6: the market from a volatility.
Speaker 8: Standpoint, but once again, it's at the single stock level,
Speaker 8: not the index level.
Speaker 2: Mike Wilson's generously you to be with us for a
Speaker 2: half hour. You will be out on single best idea
Speaker 2: our new podcast here.
Speaker 3: We'll do that.
Speaker 2: You'll see that later this afternoon in the digital mix
Speaker 2: and Processing here at Bloomberg Podcast.
Speaker 3: Mike Wilson is with Morgan.
Speaker 9: Stanley, your daily roundup in English the front pages around
Speaker 9: the world, brought to you by Lisa Manteo.
Speaker 10: All right, well, starting with Walmart, they want to teach
Speaker 10: their store managers about compassions. This was in the New
Speaker 10: York Times.
Speaker 1: Okay.
Speaker 10: Every year they bring together their store managers at the
Speaker 10: headquarters to talk about how to relate to workers. The
Speaker 10: problems that the workers say the company's business practices have
Speaker 10: not been the best. They complain about physical, mental, emotional health.
Speaker 10: So Walmart wants to change that. So they bring all
Speaker 10: these managers down. So the New York Times got inside
Speaker 10: to this this meeting. But I mean you've heard about it.
Speaker 10: Walmart like sweetening the deal right, increasing, Yes, they're increasing rates,
Speaker 10: but it's the.
Speaker 5: Feeling, team building feelings. Yes, I like team building exercises.
Speaker 5: When I started in this business, Leaman Brothers, I was
Speaker 5: an associate there. They had a team building exercise. We
Speaker 5: went away to some junket. It was amazing. They took
Speaker 5: me to carried me. They put me through a hoop.
Speaker 5: It was unbeateable.
Speaker 1: You had to see. It's about solving problems.
Speaker 10: We need a team building.
Speaker 3: You know, it's called okay.
Speaker 2: You got twenty five people at Walmart who are the
Speaker 2: top three performers.
Speaker 3: Lift the compensation.
Speaker 1: Next there you go, h okay.
Speaker 10: More couples are embracing dink dual income, no kids, so
Speaker 10: they're start craze about the social media TikTok, Instagram. They're
Speaker 10: posting all about it, and it's morphed beyond just dink.
Speaker 7: D I n K.
Speaker 10: It's gone to dink wads, which is dinks with a dog, sinks,
Speaker 10: single income no kids dinks.
Speaker 6: Uh.
Speaker 10: They also called dino dual income no offspring. There's all
Speaker 10: these like acronyms. But here's the thing. It's generating some
Speaker 10: backlash from parents who are saying, you know, I understand
Speaker 10: what you're saying. How you know, you you have a
Speaker 10: lot of freedom, time and money, but you know we
Speaker 10: have the families and we have all the love behind it.
Speaker 1: So it's back and forth.
Speaker 2: The thing is in the studio here, the interactive broker
Speaker 2: studio folks is got signal income, three tuitions, two dogs.
Speaker 5: I was a big fan of childless couples back in
Speaker 5: two thousand and one when I was married. My wife,
Speaker 5: on the other hand, had a different idea, and so
Speaker 5: here I am. And I guess I've missed my window
Speaker 5: to be a dink.
Speaker 10: I have to say I was kind of long.
Speaker 3: The same time, I will say.
Speaker 2: That out of COVID, within this whole social debate, and
Speaker 2: I don't want to fire. I mean, we just lost
Speaker 2: four hundred people on YouTube live chat. But I just
Speaker 2: would suggest out of COVID, we've learned that we need
Speaker 2: some form of childcare revolution in America. Oh yes, and
Speaker 2: we need some form of policy where well meaning twenty
Speaker 2: year olds of thirty year old's going. I could never
Speaker 2: afford the life of Damien Sasa that's happening daily. His
Speaker 2: textbook bill in Miami. How much was the text bills?
Speaker 5: We're not going to talk about We're not going to
Speaker 5: talk about my son got a scholarship to University of
Speaker 5: Miami's great students, so kind of you know.
Speaker 3: How much were that books? The first semester online?
Speaker 1: Tom, It's online, okay, but still just textbooks.
Speaker 5: I'm worried about ubers. I'm worried about you know, I
Speaker 5: mean God in Miami, which kills you.
Speaker 2: And the other thing is that go the year abroad
Speaker 2: and they go Can I go to Florence this weekend?
Speaker 3: You know, I mean there's that next Can.
Speaker 2: You adopt me?
Speaker 3: Okay?
Speaker 10: We're going to the Financial Times right now. They're talking
Speaker 10: about the UK Competition Watchdog. They're launching an inquiry into
Speaker 10: veterinary markets. They're saying that pet owners could be overpaying
Speaker 10: for medicines and prescriptions. I mean you've said that a
Speaker 10: number of times here, Tom, about how the high cost
Speaker 10: of pet you know, taking care of your pet.
Speaker 3: Weather on the phone the other day. Yeah, I mean,
Speaker 3: I've got it.
Speaker 2: I'm going away and you know, kennel feet will only
Speaker 2: stay at the best That's why there is to it.
Speaker 2: The vet bill coming back from a five day soiree
Speaker 2: is more than the hotel in parents. It's great And
Speaker 2: what's great about my vet is you make It's called
Speaker 2: the Horaceman School of Vet Dairy Medicine. I just make
Speaker 2: the check right out the horace man.
Speaker 5: My wife to wait, take're I have my snoop, my
Speaker 5: mini Golden Dude, and my wife doesn't let me take
Speaker 5: them to the vet anymore, her to the vet anymore
Speaker 5: because the last time I did that it cost us
Speaker 5: a lot of money because the veterinarian told us she
Speaker 5: may have a little heart murmur. You know, it's like, oh,
Speaker 5: let's get that taken care of and tested some thousands
Speaker 5: of dollars later.
Speaker 1: I mean, you go, figures it's something. It's really something.
Speaker 1: I don't it's you know, the dogs, just like I
Speaker 1: love no dog, No dogs for me, all right.
Speaker 10: Finally, Airbnb, have you ever been to one? I know
Speaker 10: I've been to one where they have the security cameras
Speaker 10: in there and there's instructions for you as to how
Speaker 10: to turn it off and then how to turn it
Speaker 10: back on when you leave. Well, Airbnb, they're just saying
Speaker 10: that's enough. They're banning the use of all those security cameras.
Speaker 10: It starts April thirtieth, So this change on their on
Speaker 10: their policy and account holds. They could be removed if
Speaker 10: they don't comply with it, so they can be taken off.
Speaker 7: But there are a.
Speaker 10: Few things that still are allowed. Hosts they're still able
Speaker 10: to use, like the doorbell cameras, they can still use those,
Speaker 10: and they can use noise decipel monitors, which I've actually encountered.
Speaker 3: Is the airbnbs, Yeah.
Speaker 1: But I believe it is.
Speaker 7: Yes.
Speaker 5: My question for you, Lisa's how are they going to
Speaker 5: enforce this? You know, I mean, who's going to snop
Speaker 5: somebody in their own home from putting a camera in
Speaker 5: the bathroom?
Speaker 1: You know, Well, so let's do it.
Speaker 10: So people who visit, they'll complain, they'll write into AIRBNBA
Speaker 10: cameras so.
Speaker 1: They didn't see the camera in my bathroom. I'm sorry,
Speaker 1: no bathrooms.
Speaker 3: Thank you.
Speaker 2: Yes, the newspapers with Lisa Matteos, Thank you, Lisa anytime.
Speaker 2: This is the Bloomberg Saveillance Podcast, bringing you the best
Speaker 2: in economics, finance, investment, and international relations. You can also
Speaker 2: watch the show live on YouTube. Visit the Bloomberg Podcast
Speaker 2: channel on YouTube to see the show weekday mornings from
Speaker 2: seven to ten am Eastern from our global headquarters in
Speaker 2: New York, City, Subscribe to the podcast on Apple, Spotify
Speaker 2: or anywhere else you listen, and always on Bloomberg Radio,
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business app.