Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
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Speaker 2: We begin the program with Lori Cavasina, head of US
Speaker 2: ecority Strategy at RBC Capital Markets. Lori, good morning. We
Speaker 2: hope you all had a wonderful Thanksgiving. I want to
Speaker 2: kick off with your call fifty one hundred for five
Speaker 2: thousand rather year rent on the s and P five
Speaker 2: hundred for next year Deutsche Bank going one further, a
Speaker 2: fifty one hundred, Lurie talk to us about the path
Speaker 2: to five k.
Speaker 3: Well, thanks for having me as always, and look, you
Speaker 3: know we purposefully did not put out you know, we
Speaker 3: see a near term pullback and a resurgence. I think
Speaker 3: a lot of people got caught in that trap in
Speaker 3: twenty twenty three calling for a near term pullback in
Speaker 3: the first quarter that didn't end up happening. I do
Speaker 3: think we'll be watching our sentiment indicator very closely. It's
Speaker 3: been the best star in the sky to navigate the
Speaker 3: equity market this year, but it's also round tripped a
Speaker 3: couple of times. It started out giving you a screaming
Speaker 3: by signal because of deep pessimism.
Speaker 4: Return to that post.
Speaker 3: SBB gave a sales signal in August and then gave
Speaker 3: a by signal again in November.
Speaker 4: So I think we're going to have to just be
Speaker 4: very tactical in that.
Speaker 3: You know, I have been telling people November is very
Speaker 3: consistently a strong month, but December is a little bit
Speaker 3: more hit or miss. So we'll see if we end
Speaker 3: up getting the Santa or Grinch in December. But I
Speaker 3: do think the path for equities is higher next year,
Speaker 3: and if we do have a bit of a short
Speaker 3: term pullback either in December to start the year, I
Speaker 3: expect it to be temporary.
Speaker 1: Llurie Goldman Sachs had a note thanks zero Edge for
Speaker 1: this on sales girls looking out two years twenty three,
Speaker 1: twenty four to twenty five and the difference between them
Speaker 1: magnificent seven with eleven percent sales grows versus the SPX
Speaker 1: four ninety three of three percent sales growth. Why would
Speaker 1: anybody sell the magnificent seven right now?
Speaker 4: I think it's a great question, Tom.
Speaker 3: When we look at our indicators and we look at
Speaker 3: the megacap growth trade broadly, it looks crowded. If you
Speaker 3: look at the weekly CFTC data on Nasdaq one hundred
Speaker 3: futures positioning, we're basically close to peak valuation and growth
Speaker 3: relative to value. If you look at the rustle one
Speaker 3: thousand on a weighted PE multiple, which is going to
Speaker 3: be very heavily influenced by that magnificent seven. And if
Speaker 3: you look at earning's momentum, we're still seeing better earnings
Speaker 3: revision trends and growth and value, but value is starting
Speaker 3: to catch up a little bit, so we are seeing
Speaker 3: that leadership on the earning side fade a little bit.
Speaker 4: All of that.
Speaker 3: Tells me that there should be a pause in growth
Speaker 3: leadership at some point.
Speaker 4: But I think one of the reasons people.
Speaker 3: Can't really permanently quit these growth stocks is kind of
Speaker 3: hitting on exactly what you said, the idea that there
Speaker 3: will be superior growth there over the intermediate term. And
Speaker 3: if you look at GDP forecasts for next year one
Speaker 3: percent in real terms anticipated by the street one point
Speaker 3: eighty percent in twenty twenty five. When we're in a
Speaker 3: sub two percent GDP environment, growth stocks usually do outperform
Speaker 3: because economic growth is perceived to be scarce.
Speaker 4: So I do think there is a real tension.
Speaker 3: You know, we still like the tech sector even though
Speaker 3: we have these shorter term tactical concerns on growth, had
Speaker 3: those tactical concerns on growth frankly for a while, and
Speaker 3: they've yet to really materialize in a big way. And
Speaker 3: I do feel like you may need to see a
Speaker 3: real ratcheting up of GDP expectations before you can really
Speaker 3: see growth loose some of that leadership dominance.
Speaker 5: When you talk about sentiment and how really that's been
Speaker 5: the loadstone for you, it's figuring out where is investor
Speaker 5: sentiment em betting against it?
Speaker 6: Am I correct?
Speaker 4: Basically?
Speaker 3: You know, one of the things I've learned over my career, Lisa,
Speaker 3: is that when everybody is really really pessimistic, that's usually
Speaker 3: a fantastic time to buy. If you look at when
Speaker 3: the AAII net bullishness indicator is, you know, sort of
Speaker 3: one standard deviation or two standard deviations below the long
Speaker 3: term average. I forget the exact stat, but it's in
Speaker 3: the eighties in terms of the percent of time that
Speaker 3: you're up twelve months later. And you see similar stats
Speaker 3: if you look on the flip side when people are
Speaker 3: overly enthusiastic. Now, if you're above one standard deviation on
Speaker 3: extreme optimism, you still tend to see like a five
Speaker 3: percent gain over the next twelve months. So it's not
Speaker 3: necessarily a washout, but it does tell you that you
Speaker 3: tend to see consolidation.
Speaker 4: You do tend to see some.
Speaker 3: Choppier markets, And I think that's why it's so important,
Speaker 3: Lisa to really prioritize data over narratives. I know a
Speaker 3: lot of strategists like to tell a great story and
Speaker 3: then they go out and put together their charts to
Speaker 3: try to fit whatever narrative they're pushing out there. But
Speaker 3: I really think that you have to stick to the data,
Speaker 3: and things like that centiment indicator will keep you into
Speaker 3: falling into consensus traps. Again, everybody just sort of gloms
Speaker 3: onto the same narrative and things get too extreme.
Speaker 5: Well, the narrative that we've been hearing again and again
Speaker 5: is five thousand on the SMP going into next year
Speaker 5: at least, if not more, And there has been a
Speaker 5: sort of boom and optimism that we've seen. Does that
Speaker 5: mean it's time to start taking some chips off the
Speaker 5: table and to be a little bit less optimistic or
Speaker 5: does this mean that finally you might see some of
Speaker 5: that cash at record levels going into the equity market.
Speaker 3: Well, it's interestingly so you know, everybody wants to sort
Speaker 3: of talk about this idea, and this is maybe on
Speaker 3: the more barish side of the table that bonds look
Speaker 3: more attractive than stocks and the earning shield has collapsed
Speaker 3: relative to the bond yield, and all that is true,
Speaker 3: But if you actually go back, there have been periods
Speaker 3: in history when equity investors or investors in general have
Speaker 3: taken up both their equity allocations and their bond allocations
Speaker 3: at the same time.
Speaker 4: So I don't think it's unheard of for both to do.
Speaker 3: Well, you know, five thousand, it's starting to be a
Speaker 3: number we're hearing a lot. I think we were maybe
Speaker 3: the second person on the cell side that had it
Speaker 3: when we put ours out, but you are starting to
Speaker 3: hear about it.
Speaker 4: And I think ten percent is usually a reasonable place.
Speaker 3: That a lot of strategists start, we do have one
Speaker 3: model that can take us up to fifty three hundred,
Speaker 3: and that's looking at our valuation work and earning's work.
Speaker 3: And I will tell you, Lisa, like and as I
Speaker 3: was putting the report together, you always think about kind
Speaker 3: of where did you go wrong in the past year.
Speaker 7: I was more.
Speaker 4: Optimistic than most, but not optimistic in the end. And
Speaker 4: that valuation model.
Speaker 3: Was the one thing that was telling me all year
Speaker 3: to look for forty seven hundred, forty eight hundred on
Speaker 3: the S and P it's pointing to forty seven hundred on.
Speaker 4: The end of the year.
Speaker 3: Now twenty twenty three one point it was saying forty
Speaker 3: eight forty nine. So I do think you have to
Speaker 3: have a little bit of humility when you look at
Speaker 3: these forecasts.
Speaker 4: We look at a bunch of different models. We take
Speaker 4: the median.
Speaker 3: Some are more constructive, some are less. But I do
Speaker 3: think we do have to pay attention to that bowl
Speaker 3: case setting into next year, because so it's really.
Speaker 4: What works this year?
Speaker 7: Does that mean a banner?
Speaker 6: Kelvistin says fifty three hundred.
Speaker 2: I'd like we could go there quite I think we
Speaker 2: stick with five K. I just wanted to jump in
Speaker 2: when you were putting this together. Surely five K was
Speaker 2: something like twenty percent upside of the time.
Speaker 3: So you know, John, I started back in October pricing
Speaker 3: the models, and we actually published a report in October
Speaker 3: where we said we're not going to do our target yet,
Speaker 3: but here's what all the models are showing. And back
Speaker 3: then we were getting, you know, more a little bit
Speaker 3: of a more subdued number because we had a lower
Speaker 3: starting point, so we did price everything. As of mid November,
Speaker 3: I think a lot of our models we froze as
Speaker 3: November fifteenth, November.
Speaker 4: Sixteenth, so we really are.
Speaker 3: Kind of getting sort of a true ten percent from
Speaker 3: current conditions as of mid November. Basically, when I do this, John,
Speaker 3: I go into a black hole for a few days,
Speaker 3: don't answer my phone, don't answer email, and don't talk
Speaker 3: to anybody, and update all at once.
Speaker 2: So well, welcome Bocasta the black hole, Laurie. We're happy
Speaker 2: to see you, Lori Cavasena. Obviously, Capital Markets, there's no one.
Speaker 7: Better to speak to on this.
Speaker 1: As if you stand at the four corners of fifty
Speaker 1: seventh Street and Fifth Avenue, the Dana Telsea is a
Speaker 1: child gazing upon Berg Dorth Goodman and across the street
Speaker 1: to Tiffany's and where Louis Vuton is now when there's
Speaker 1: some other unpronounceable I can't afford store on the other corner.
Speaker 1: Telsea joins us now CEO, chief Research officer of her
Speaker 1: Telsey Advisory Group. You got this right. A lot of
Speaker 1: people got this wrong. How did you expect this optimism
Speaker 1: that we come out of the season.
Speaker 8: Well, thank you very much for having me, and hope
Speaker 8: you guys had a great holiday. Here's I think overall,
Speaker 8: keep in mind we did have a barrage of earnings
Speaker 8: reports all talking about the cautious consumer inventory levels are lean.
Speaker 8: Promotions were in place thirty to forty That isn't outstanding,
Speaker 8: that isn't going off the rails. In terms of level
Speaker 8: of promotions, they were definitely clean. What you saw in
Speaker 8: terms of traffic, look at the Lululemons, the bathroom, body works.
Speaker 8: Macy's had more traffic than what you had at Nordstrom,
Speaker 8: and off prices like TJX had a ton of traffic.
Speaker 8: And the teen retailers picked up the reason why, value
Speaker 8: and innovation. If you add value and you had innovation,
Speaker 8: the consumer was coming So look at Uggs and Hoka
Speaker 8: where there was innovation. You look at the value on
Speaker 8: the pricing. It meant something. But we have a long
Speaker 8: season coming up now. Christmas is on a Monday. Watch
Speaker 8: that weekend before Christmas. Because procrastinators, it's their choice of
Speaker 8: when they want to spend.
Speaker 5: Just let's build them that this idea of watch what
Speaker 5: happens later in the season. Are you saying that you
Speaker 5: suspect people brought forward their shopping much more than they
Speaker 5: had in the past because they are being cautious. So
Speaker 5: the numbers are inflated to represent that more than just
Speaker 5: excessive spending altogether.
Speaker 9: Yes, I think.
Speaker 8: You look at the savings rate which has come down,
Speaker 8: You take a look at delinquencies which have gone up,
Speaker 8: and you look at what's happened with the pattern of promotions.
Speaker 8: It began in October, So with Amazon Prime Day in
Speaker 8: October their second Prime Day, you had a pull forward
Speaker 8: of what the promos were, and of course online is
Speaker 8: going to be strong. Stores are no longer open on
Speaker 8: Thanksgiving Day? So what did people do? They shop with
Speaker 8: their phone? Mobile mattered?
Speaker 5: Well, this really raises this question. Is it the modality
Speaker 5: of shopping that matters? Right now or is it the
Speaker 5: type of product mix that matters right now? And I'm curious,
Speaker 5: can you parse that up? Is it just online shopping
Speaker 5: or is it the products that people are getting online.
Speaker 8: It's the products that people are getting, and don't throw
Speaker 8: out the stores. The stores matter, the engagement that people have,
Speaker 8: the social interaction. So many companies in twenty twenty three
Speaker 8: came out with new store formats. You look at on
Speaker 8: mall and off mall, they both won and even outlets
Speaker 8: are strong.
Speaker 9: And that measure for value.
Speaker 1: Where's the best total return of twelve months? You and
Speaker 1: Joe Feldman they're not on speaking terms on this, but
Speaker 1: the basic idea of which kind of retail and which
Speaker 1: individual stock is the.
Speaker 8: Best possibility off price I think is going to win
Speaker 8: over the next twelve months.
Speaker 9: TJ Max, would you off price?
Speaker 6: Off price?
Speaker 8: Not luxury, different world, it's off price. It's the TJ
Speaker 8: max Is of the world, the Burlington's and the Ross stores.
Speaker 8: Why they're getting the benefit of a trade down. Look
Speaker 8: at what you just saw in their results last week
Speaker 8: when they each delivered same store sales of at least
Speaker 8: five percent, when you typically these are three percent same
Speaker 8: store sales increases. They're getting the benefit of the trade down.
Speaker 1: There's been a heritage of Tjmax executing what's the secret
Speaker 1: sauce that makes.
Speaker 7: Them do that?
Speaker 8: The experience of their buyers. They know how to buy,
Speaker 8: They have their relationships with brands. Brands like being in
Speaker 8: their stores and they sell through and don't forget their locations.
Speaker 5: The description that you're painting of the American consumer is
Speaker 5: not that positive. It's one that is trading down. As
Speaker 5: you said, it's one that has caution that might not
Speaker 5: show up in force before that Monday Christmas. So where
Speaker 5: are we in this cycle, right? I mean, is this
Speaker 5: a matter of people running out of money or is
Speaker 5: it just them saying, well, we've been spending a lot recently.
Speaker 5: We probably should be a little more prudent.
Speaker 8: They had more money two years ago with the stimulus
Speaker 8: package during the pandemic. The load to middle income consumer
Speaker 8: is battered right now by higher interest rates. Even though
Speaker 8: inflation's moderating, it's still a higher price than it was
Speaker 8: in the past. And even you take a look at
Speaker 8: the luxury consumer, you need the feel good factor. With
Speaker 8: the geopolitical issues going on, the macro headwinds out there
Speaker 8: and the volatility the stock market, it makes it more challenging.
Speaker 9: So that's why experience.
Speaker 8: Look at the tailor swift concerts over the summer, what
Speaker 8: people are willing to spend on.
Speaker 9: Give them something innovative, they'll be there.
Speaker 5: So what does it say about the trajectory of the
Speaker 5: consumer and how people are going to be spending. Is
Speaker 5: it the beginning of more pain or is this basically
Speaker 5: the bulk of it.
Speaker 8: I think this is in the middle of the pain
Speaker 8: that we're I think the focus on essentials is right there.
Speaker 8: I think you need newness in order to drive demand.
Speaker 8: And even though the labor market continues to remain very good,
Speaker 8: the watchwords are out there and saying what's it going
Speaker 8: to look like? And inventory is cleaner, so you don't
Speaker 8: need to promote as deeply as you had in the past.
Speaker 9: Look at what's.
Speaker 8: Happening with the department stores. They're ordering more cautiously, and
Speaker 8: why are they ordering cautiously if they don't feel the
Speaker 8: demand is going to be there. They'd rather sell at
Speaker 8: full price than markdowns. And your most profitable markdown is
Speaker 8: your lowest markdown, not your greatest markdown.
Speaker 1: Toughest job in retail this year is a guy named
Speaker 1: Sabata Dico at Gucci absolute toughest, toughest job. Dana Telsey
Speaker 1: on what Gucci's going to do right off that corner
Speaker 1: of Fifth Avenue and fifty seventh.
Speaker 8: I think they're going more basic than they've ever been before.
Speaker 1: Absolutely, they're going away from what the idiocy was for
Speaker 1: three years.
Speaker 8: Yeah, the mismatching of the three years is all about
Speaker 8: matching now and it's about safe. They're going back back
Speaker 8: to their archives and seeing what can they reinvent and updated.
Speaker 1: Proof that we want that. Is there a proof that
Speaker 1: will sell to the Chinese?
Speaker 8: I think there's some proof it will sell to the Chinese,
Speaker 8: But we're not seeing the Chinese travel yet. We need
Speaker 8: them traveling to really drive demand. And don't forget you're
Speaker 8: seeing the local Europeans slow down.
Speaker 5: Also, what do you make of the buy now, Pay
Speaker 5: Later and we were hearing that it's actually picking up.
Speaker 9: Do you buy that?
Speaker 5: Do you think that this is a positive sign for
Speaker 5: the retail world or is it a negative sign that
Speaker 5: people are just basically turning to leverage.
Speaker 9: People are turning towards leverage.
Speaker 8: When buy Now, Pay Later first came out, it was
Speaker 8: a huge event. A huge development because it got younger
Speaker 8: people and frankly the millennials to spend. I think now
Speaker 8: that it's been around for a few years, if they
Speaker 8: can't pay on time, they're willing to delay and frankly
Speaker 8: be able to extend what their payment terms are.
Speaker 1: Is it changing charge cards? I mean, is buy now,
Speaker 1: pay later changing the charge card business?
Speaker 8: Not what we've seen. It didn't take off tremendously. It
Speaker 8: took off with a certain graphic and those are the millennials.
Speaker 7: Single best buke go.
Speaker 9: I think that it's going to be TJX.
Speaker 8: I think TJX is going to be the winner for
Speaker 8: Holiday in twenty twenty four.
Speaker 1: Dana, thank you for the brief. Dana Telsey with Telsey
Speaker 1: Advisory Group. Here we have seen far too much of him.
Speaker 1: He is an expert on turmoil, war and terrorism. Aaron
Speaker 1: David Miller with a continued brief, Senior Fellow Carnegie Endowment
Speaker 1: for International Piece. Aaron, just let me just cut to
Speaker 1: the chase. If we get out to a point of negotiation.
Speaker 6: From where you sit, is there a hamas to negotiate with?
Speaker 10: Now there is, and the cutteries and the Americans are
Speaker 10: validating Hamas's effectiveness. The three of you are better analysts
Speaker 10: than I am, because you've i think, identified the core questions.
Speaker 7: There's growing daylight.
Speaker 10: The world is mad at Joe Biden, even though I
Speaker 10: think frank his own.
Speaker 7: Party's mad at him.
Speaker 10: There's a degree twenty five years at Department of State,
Speaker 10: I've never seen, never the degree of dissension and vocal
Speaker 10: opposition to an administration's policy from inside the foreign policy
Speaker 10: and national security space. On one resignation, but an extraordinary
Speaker 10: amount of noise. I think the President Frankly handled this
Speaker 10: pretty effectively. The Israeli Lebanese border is relatively quiet. The
Speaker 10: fears of escalation into a regional war which could produce
Speaker 10: plunging financial markets and rising up prices. So far that's
Speaker 10: been avoided, And you're right to focus on ostages, but
Speaker 10: I think the deal is very clear. I'd be stunned, frankly,
Speaker 10: if this humanitarian past collapsed. Hamas is trading hostages for time.
Speaker 10: They're hoping that the hostage families inside of Israel will
Speaker 10: continue to pressure the government in order to redeem all
Speaker 10: of the hostages that have not been The Arabs are angry,
Speaker 10: and THEWS earliers are going to face probably in the
Speaker 10: next week. If the ten hostages for a day of quiet,
Speaker 10: which is the offer on the table, If Amas accepts
Speaker 10: that doesn't add requests for more Palestinian prisoners, you could
Speaker 10: get another week.
Speaker 7: Out of this.
Speaker 10: But at some point the Israelis are going to want
Speaker 10: to resume in their ground campaign, and at that point,
Speaker 10: I think you're going to see growing awkwardness and uncomfortableness,
Speaker 10: maybe even tension in the US Israeli relationship.
Speaker 5: There's daylight between President Biden and some of his own
Speaker 5: members within his party, within his team that he has
Speaker 5: surrounding him. But he also reportedly has expressed concern about
Speaker 5: the collateral damage, about the civilians who have gotten killed,
Speaker 5: the incredible number, more than people had originally expected. How
Speaker 5: much is that going to lead to pressure in a
Speaker 5: new way that Benjamin not to Yahoo, who is not
Speaker 5: exactly popular at home, we'll have to listen to.
Speaker 7: I think that's the core question.
Speaker 10: President persona alone among modern presidents, he considers himself part
Speaker 10: of the Israeli story and is preternaturally his emotional support
Speaker 10: for Israel literally is impressed on his DNA.
Speaker 7: The politics.
Speaker 10: As you point out, he has to be concerned about
Speaker 10: rising the rising type opposition the Democratic Party, but the Republicans,
Speaker 10: who have emerged as the sort of Israel right or
Speaker 10: wrong party, are also waiting for him to pressure the
Speaker 10: Israelis so that they can pressure Joe Biden. And finally,
Speaker 10: there's I think the president's realization that he doesn't have
Speaker 10: many good answers to the two or three critical questions
Speaker 10: that the Israelis are facing with. How do you prosecute
Speaker 10: a ward to eradicate Hamas without an exponential rise in
Speaker 10: Palestinian desks? How do you surge humanitarian assistance into a
Speaker 10: war zone? And finally, what do you do about the
Speaker 10: proverbial day after its weeks and months after? So I
Speaker 10: think part of the reason he's reluctant to press the
Speaker 10: Israeli's hard so far is because he doesn't have better
Speaker 10: answers for them these core questions.
Speaker 1: Aaron David Miller a student of this, with your books
Speaker 1: back thirty years, don't go out thirty years for but
Speaker 1: I'm going to give you five years or ten years forward.
Speaker 1: Is our relationship with Israel irrevocably changed?
Speaker 7: A fascinating question.
Speaker 10: The headline would suggest that generational changes in voter constituency
Speaker 10: in Congress. The growing divergence between United States and the
Speaker 10: values proposition that Israel is a liberal democracy more or
Speaker 10: less seeking the same things that we do, and growing
Speaker 10: policy differences suggest that, yeah, there is a lot of
Speaker 10: fraud tension in this relationship. Whether it's a headline or
Speaker 10: a trend line, that's the key issue. I suspect that
Speaker 10: the operating system that has kept the US's a Reeli
Speaker 10: relationship pretty much very close together is going to continue
Speaker 10: for quite some time. But again, we support Israel because
Speaker 10: it's an American interest to do so, and because it
Speaker 10: reflects American values to do so. When those things change
Speaker 10: in the face of our right wing Israeli government that's
Speaker 10: pursuing opposite policies both at home and with respect to
Speaker 10: diplomacy on the Israeli Polish Ennian issue, then I think
Speaker 10: the US is really relationship will begin to change.
Speaker 2: That tension is continuing to build. And thank you so
Speaker 2: fantastic to hear from you, Aaron David Miller. There of
Speaker 2: the kind of endowment for international pain.
Speaker 1: Torsten Sluck He's chief economist at Appalled Global Management and
Speaker 1: writes a piercing short note each morning and here he
Speaker 1: hearkens back to the skeletons in the closet.
Speaker 6: The worries that those older have about.
Speaker 1: Is this time like well, try nineteen seventy two, Is
Speaker 1: this time like a nifty to fifty or the point
Speaker 1: where Polaroid and Xerox were one of the five Magnificent
Speaker 1: five that we're out there, Doctor Slock joins us this morning.
Speaker 6: I loved the equal multiples.
Speaker 1: Now with nineteen seventy two, I believe that ended ugly.
Speaker 1: Do you take that over to an analog that this
Speaker 1: will end ugly?
Speaker 11: Well, we still, of course have to wait and see
Speaker 11: exactly how AI will be used, and no one really
Speaker 11: knows how it'll be implemented, and how much productivity we'll
Speaker 11: get out of it, how much more consumption or welfare overall.
Speaker 11: But the bottom line really is what we can track
Speaker 11: is the valuations, And what I did right in the
Speaker 11: note today is exactly that the valuations and the trajectory
Speaker 11: is beginning to look quite similar, including the levels we're
Speaker 11: at with the pe for AI stocks or the Magnificent seven.
Speaker 11: Now at above fifty on a trailing basis, it does
Speaker 11: make you wonder a little bit whether this is indeed
Speaker 11: going to have a different story compared to what we've
Speaker 11: seen before, or whether this is actually going to be similard.
Speaker 1: Some I mentioned Tom Galvin years ago at Donald sim
Speaker 1: Lufkin Generator was very top line sales specific. Are we
Speaker 1: going to have the nominal GDP to support the magnificent
Speaker 1: seven even if they level out, or to bring the
Speaker 1: breadth up in a good market.
Speaker 11: Well, the problem is that the SMP four ninety three
Speaker 11: has basically been flat for the last year. So the
Speaker 11: conclusion is that so far all the market gains have
Speaker 11: been driven by this handful of stocks. So that of
Speaker 11: course also should bring us all to the discussion, Okay,
Speaker 11: is this sustainable?
Speaker 7: To what degree?
Speaker 11: Is this something that is a good representation of the
Speaker 11: oral index? If you really end up just buying into
Speaker 11: one simple story, namely AI.
Speaker 5: Which is the reason why a lot of people are
Speaker 5: focused on the consumer to understand exactly where we are
Speaker 5: in this spending picture. And I want to go back
Speaker 5: to what we really began with this idea of are
Speaker 5: we seeing sustained sales and a sustained strong consumer or
Speaker 5: are we just seeing these shifts underway regardless of who
Speaker 5: ends up benefiting the most.
Speaker 9: But shifts underway.
Speaker 5: That represents strength in pockets in the overall picture.
Speaker 11: Yeah, and absolutely, I do think that it's clear that
Speaker 11: the shifts have been towards services. So that's why goods
Speaker 11: have generally been slowing down. Another strength point, as you're
Speaker 11: pointing out, is that we've also seen strengthen online. But
Speaker 11: if you really back up and look at the data
Speaker 11: for how is the consumer doing. Well, we just heard
Speaker 11: your previous guests talk about trading down. If you look
Speaker 11: at the language rates for all the loans have been
Speaker 11: going up, the language rates for credit cards have been
Speaker 11: going up. We're seeing across the board the level of
Speaker 11: interest rates are beginning to bite harder and harder and
Speaker 11: harder on consumers. So the conclusion, of course, is that
Speaker 11: the FED is actually achieving exactly what the textbook would
Speaker 11: have predicted. Namely, the slowdown might not have been as
Speaker 11: fast as we all thought just a few quarters ago,
Speaker 11: but it is still playing out. The slowdown is here
Speaker 11: and it will continue. We still have the worst ahead
Speaker 11: of us. It is the case that monetary policy is
Speaker 11: biting continuously also going forward, what's.
Speaker 5: The distance between goldilocks and a full blown recession.
Speaker 11: Well, the runway that we are on here for slowing
Speaker 11: the economy down. From a FED perspective, certainly is that
Speaker 11: inflation is coming down. The labor market is also gradually
Speaker 11: coming down, and we got to get a soft landing
Speaker 11: not only in invasion but also the labor market. But
Speaker 11: we begin to see that on a plant rate has
Speaker 11: gone up from three point falls now at three point nine.
Speaker 11: That's create a lot of discussion about the PSAM rule
Speaker 11: and to what degree that's an indicator of a recession
Speaker 11: or not. But the conclusion to your question, Lisa is
Speaker 11: I do think that we should view this in the
Speaker 11: broader context of what is it the FIT is trying
Speaker 11: to do? And the FIT is trying to slow the
Speaker 11: economy down. That's why they raise interest rates, they raise
Speaker 11: interust rates because they want us to buy fewer costs
Speaker 11: fuel wash us fuel refrigerators, let's furniture, let fewer iPhones,
Speaker 11: and because of that we should over time continue to
Speaker 11: see that process play out.
Speaker 5: There is a real tension right now, and I see
Speaker 5: this under the notes underpinning the notes calling for five
Speaker 5: thousand or fifty one hundred on the S and P
Speaker 5: by the end of next year, which is how the
Speaker 5: federal respond to the slowdown that they wrought that they
Speaker 5: wanted to see. Will they cut rates aggressively just simply
Speaker 5: because they're tightening the screws at a faster pace as
Speaker 5: growth slows. Do you buy that they will do that
Speaker 5: even if it keeps perhaps the economy flow and prolongs
Speaker 5: this period of disinflation.
Speaker 11: This is a really important discussion in teams. In M language,
Speaker 11: we are looking at the tailor rule. How much weight
Speaker 11: do they put on inflation? How much weight do they
Speaker 11: put on the labor market. So far, all the weight
Speaker 11: has almost entirely been on inflation. And the question is
Speaker 11: next year, once inflation does get closer to two, will
Speaker 11: they begin to shift their attention over towards the label market?
Speaker 11: In other words, are the coefficients changing so that we
Speaker 11: put more weight on the label market. Now that the
Speaker 11: labor market is beginning to show some signs of weakening,
Speaker 11: I appreciate that jobless claims are not slowing, but the
Speaker 11: work week is coming down. If you look at job
Speaker 11: openings is coming down. A number of indicators are suggesting
Speaker 11: that label demand is weakening. So I do think that
Speaker 11: they will begin to shift away from focusing purely on
Speaker 11: inflation to begin to focus. Also more on the label.
Speaker 7: A slock rule.
Speaker 6: It's like the tailor.
Speaker 7: I'm inventing it right now.
Speaker 6: Focus the slock rule.
Speaker 7: Look for this.
Speaker 1: The slock rules is three months moving average and non
Speaker 1: farm payrolls. What statistic do we need on a three
Speaker 1: months moving average of non farm payrolls? Where we make
Speaker 1: the great tailor to slock shift.
Speaker 11: See if you look at your latest number for a
Speaker 11: non found it was one hundred and fifty thousand. If
Speaker 11: idays one eighty eight two, and if I type Ecoco
Speaker 11: on Bloomberg, I will see that by second quarter of
Speaker 11: next year, non found paybrows will on average fall April,
Speaker 11: May and June be thirty five thousand. So now goes
Speaker 11: not wondering, thirty five thousand, So that is not wondering.
Speaker 11: That's the average, So that can have some fluctuation. I
Speaker 11: was not wondering. I always say this and p going
Speaker 11: to trade. If we get thirty five thousand and non
Speaker 11: fund payrose, what if it even goes below zero? The
Speaker 11: risk is here that we may have a runway and
Speaker 11: the lack of effects of Martins hear pology essentially beginning
Speaker 11: to be a big a trag on growth.
Speaker 1: Adobe just out Amy, Thank you so much for this.
Speaker 1: This is Bramo spending this weekend. Adobe a twelve billion
Speaker 1: to twelve point four billion Cyber Monday spend last year
Speaker 1: was eleven point three billion. But to your distinction, that's
Speaker 1: cyber that's just we're parsing out how all of us
Speaker 1: are glued to Amazon.
Speaker 5: And it's cyber Monday today, let alone all the other
Speaker 5: spending that we've seen over this period of time. Really,
Speaker 5: I mean, honestly, the distortions have been incredibly difficult to
Speaker 5: really pick up on, which is the reason why I'm
Speaker 5: listening to what you're saying toward Sten, this idea of
Speaker 5: the labor market weakening and the FED maybe responding to that,
Speaker 5: and I'm thinking about, well, people still have money to spend,
Speaker 5: Their real wages are actually going up, and oh yeah,
Speaker 5: this is a job full recession.
Speaker 9: That people are accepting.
Speaker 5: This is what they say, right, that people are hoarding labor,
Speaker 5: this is a new world. Do you push back against that?
Speaker 11: Well, there is in your weekend reading from the Fed
Speaker 11: the working papers that write about this. There is some
Speaker 11: debate between the Boston Fed, the San Francisco Fed, the
Speaker 11: New York Fed, has also written about this. The Board
Speaker 11: of Prominence has also written about this. The key issue
Speaker 11: still is it's very clear that we are ultimately running
Speaker 11: out of savings, excess savings in the household sex. So
Speaker 11: the question is some people view that has already happened,
Speaker 11: other view that's about now, other view that may only
Speaker 11: happen in the next few quarters. But the trend is
Speaker 11: very clear. The fit is getting what they want. They
Speaker 11: want a slowdown, and that's why you will also madly
Speaker 11: get excess savings running out. And let's not forget student
Speaker 11: dont payment started on the first of Octoba. That's why
Speaker 11: retail sales for Octoba was readtivy week. If we put
Speaker 11: all these things together, I still think that the slowdown continues.
Speaker 5: Deutsche Bank put out a forecast for one hundred and
Speaker 5: seventy five basis points of FED rate cuts next year.
Speaker 5: Is that feasible with the recipe that you just put
Speaker 5: out there.
Speaker 11: Well, that does require, of course quite a hot slowdown
Speaker 11: in the economy. That certainly requires a recession and a
Speaker 11: hot landing. The question is that's not what the contentious
Speaker 11: is expecting at the moment. But it's clear that if
Speaker 11: we do get a shop all slow down, and that
Speaker 11: is also what the contentious is expecting. It's just above
Speaker 11: ceral DP is expecting it below zero. Both scenarios make
Speaker 11: sense on their own, but the conclusion still is we
Speaker 11: still have more downside risk from where we are at
Speaker 11: the moment.
Speaker 1: I got to go back to your day job a
Speaker 1: couple of years ago before you got this easy slog
Speaker 1: with Apollo, and that was a Deutsche Bank Rischie Senak,
Speaker 1: the Prime Minister told our Francine Lacroix adamantly he is
Speaker 1: not prescribing austerity. You and folk arts Landau live this
Speaker 1: at Deutsche Bank, of the continent of Europe and of
Speaker 1: the United Kingdom. Is there a risk they slip into
Speaker 1: an incorrect austere policy.
Speaker 11: Well, the problem is that both the UK and EU
Speaker 11: have some same list of problems at the US broadly speaking,
Speaker 11: and then have some addition.
Speaker 1: We stimulus. We did a lock in New world stimulus.
Speaker 1: They're stuck in the old world. Isn't that simple?
Speaker 11: Well, in some sense, fiscal policy is certainly very different.
Speaker 7: In the US.
Speaker 11: It was much more aggressive than what it was in
Speaker 11: the UK and Europe, and in that sense, all the
Speaker 11: rules that in particular the growth constability plaque in Europe
Speaker 11: but also in the UK have certainly played a very
Speaker 11: critical role in why fiscal policy has been very different
Speaker 11: in the UK relative to the US.
Speaker 5: The fiscal policy will be more expensive than perhaps some
Speaker 5: people would say given where rates are. That's what we
Speaker 5: saw from Germany and the recent prognostications over there. Do
Speaker 5: you think auctions matter?
Speaker 11: I do think auctions matter a lot. And as you know,
Speaker 11: as you just talked about two year, three year, a
Speaker 11: five years and seven year this week is very important.
Speaker 11: And if you go also and look at the auction
Speaker 11: sizes over the last several months, they have gone up
Speaker 11: and as they continue to go up. The risk really
Speaker 11: here is that short rates may eventually come down, but
Speaker 11: we may have a steepener because long rates may potentially
Speaker 11: not come down as much because now we are dealing
Speaker 11: with this supply issue that potentially to put up what
Speaker 11: pressure and limit how much of a time we can
Speaker 11: get in loong rates.
Speaker 1: Let's revisit a banner from two hours ago. Outnumbered again,
Speaker 1: Pharaoh gone slock here. Auctions matter two, No one cares one.
Speaker 5: I think we were at two before. Now I think
Speaker 5: we're at three.
Speaker 6: Yeah, you know, it's just so it's like three to
Speaker 6: one is how we're going to take that matter.
Speaker 5: It depends if you care.
Speaker 11: I care auction a few weeks ago with a matter
Speaker 11: quite alone.
Speaker 9: Yes, exactly.
Speaker 1: Thank you doctor, Please of the tursen go away at
Speaker 1: least till next week.
Speaker 12: By Steve Schwartzman of course Blackstone. Steve, thank you. You
Speaker 12: were just on stage with the Prime Ministeryunak. How much
Speaker 12: are you putting in the UK? What are you most
Speaker 12: excited about when it comes to the UK growth.
Speaker 7: Well, we've been putting a lot of money into the UK.
Speaker 13: First of all, we're doing our headquarters building here, which
Speaker 13: is very significant size building.
Speaker 7: It will be the largest built.
Speaker 13: In the Mayfair area in the last several decades. We
Speaker 13: bought two companies in the last two weeks in the
Speaker 13: United States in the UK, and you know we have
Speaker 13: a total of seventy billion pounds that's close to ninety
Speaker 13: billion dollars of investments in the UK with thirty seven
Speaker 13: thousand people working in these companies in real estate.
Speaker 12: See what stands out as the biggest strength actually for
Speaker 12: the UK. So there are many questions. There was an
Speaker 12: autumn statement we're not sure how they're going to fund
Speaker 12: some of the tax cuts if they continue down the road,
Speaker 12: and we don't know if the Conservatives are in power
Speaker 12: in twelve months.
Speaker 13: Well, the big advantages of the UK are the English language,
Speaker 13: the rule of law. They have a terrific university system,
Speaker 13: they have a great life science areas. They're the number
Speaker 13: one tourist area in Europe, which actually I found surprising,
Speaker 13: and so they have a lot of pockets of strength.
Speaker 13: They've been through a complex time politically, but if you
Speaker 13: look longer.
Speaker 7: Term, the rule of law in the UK is very strong.
Speaker 13: Their regulatory posture has been quite consistent over time. But
Speaker 13: we forget that these are good things and not all
Speaker 13: places in the world have them, and so I think
Speaker 13: I'm not an expert on the UK, you know, sort
Speaker 13: of laws in the sense of what they're doing politically.
Speaker 13: I think their autumn statement on balance, which was stimulative,
Speaker 13: is and necessary thing for their economy.
Speaker 7: And they have.
Speaker 13: A much more open approach to immigration at the top
Speaker 13: levels of education, which is good for helping to power
Speaker 13: an economy. So I think there's some interesting things going
Speaker 13: on here.
Speaker 12: Steve, what can you tell us about private market valuations
Speaker 12: at Pe firms? So in general. Do you see LPs
Speaker 12: actually demanding more information on marks and more reporting requirements
Speaker 12: and evaluation. Is that something that's shifting.
Speaker 13: I don't see a big set of enormous concerns on that.
Speaker 13: What always happens at this stage and the cycle, you know,
Speaker 13: when you go to very high interest rates and the
Speaker 13: world sort of starts slowing down, is that deals slow down.
Speaker 13: So for l P is their biggest concern is they're
Speaker 13: not getting capital flows back that.
Speaker 7: They normally were depending on. Just people aren't selling assets.
Speaker 13: These types of cycles always end and things returns to normal.
Speaker 13: It's quite interesting that, you know, we just did two
Speaker 13: deals in the UK in the last two weeks, one
Speaker 13: in the affordable in what they call social housing area,
Speaker 13: one in computer software. Both are million billion dollar, two
Speaker 13: billion dollar type deals. We're doing a number of things
Speaker 13: in the US now, some of which have been announced,
Speaker 13: some of which haven't. We just were involved with a
Speaker 13: situation in Norway that's twelve billion dollars.
Speaker 7: So the deal.
Speaker 13: Business is not totally in mothballs, and these things start again,
Speaker 13: and I think we're more on that side of the cycle.
Speaker 13: Although it has been you know, somewhat dreary for a year.
Speaker 12: In terms, for example of real estate, I think you're
Speaker 12: raising an opportunity to stake funds ten billion.
Speaker 13: How's that going, Well, we're raising money for a European fund. Actually,
Speaker 13: we're always raising money for a lot of funds for
Speaker 13: ran scene, and you know, we're gone through a big
Speaker 13: fund raising cycle.
Speaker 7: So we have over two hundred billion dollars.
Speaker 13: It's one of the biggest pools of uninvested capital in
Speaker 13: the world and that will be.
Speaker 7: Deployed in due course.
Speaker 13: Interestingly, in real estate, which you just asked about, we're
Speaker 13: seeing a good deal of volume of buying things in
Speaker 13: Europe because European real estate is under pressure in large
Speaker 13: parts because interest rates were so low here for so long.
Speaker 13: Sometimes in countries they were negative, so the barring costs
Speaker 13: to own real estate were next to nothing, and.
Speaker 7: Now it's closer to six percent. So if you have to.
Speaker 13: Carry a whole portfolio that used to cost you next
Speaker 13: to nothing at six percent, they need to sell things,
Speaker 13: you know, it's necessary to just hold their other properties.
Speaker 13: And so we're seeing some very very good buys in
Speaker 13: that kind of environment because unlike most people, we have
Speaker 13: enormous capital and can buy the types of real estate
Speaker 13: that we like, whether they're data centers, whether they're warehouses,
Speaker 13: whether they're student housing, where those sectors have done very well.
Speaker 12: See what can you tell us about great? So, have
Speaker 12: you seen any redemptions in that? How's that going? It
Speaker 12: breaks greats? How do you say b r e it
Speaker 12: t you say.
Speaker 13: B reat Yeah, Well, those those redemptions have gone down.
Speaker 13: You know, they're I think forty or something like that
Speaker 13: of what they were a year ago. And so that
Speaker 13: that pool of capital is actually doing quite well compared
Speaker 13: to almost all of the real estate, and so you know,
Speaker 13: we look forward to that sort of ultimately going back
Speaker 13: to a very normal kind of world.
Speaker 9: Overall.
Speaker 12: Does UK politics seem benign compared to the US, but
Speaker 12: also what we saw in the Netherlands.
Speaker 13: Well, you know, commenting on politics of other countries, let
Speaker 13: alone our own, which has a sense of drama and
Speaker 13: you know sort of incredulity is outside of my remit.
Speaker 12: Fair Steve Schwartz with a thank you so much. As always,
Speaker 12: Steve also has to get to another meeting right here,
Speaker 12: because people are coming and going in all the corridors
Speaker 12: of course of Hampton Court Palace.
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