This is the Bloomberg Surveillance Podcast. I'm Carol Masser, along with Manis Crowning and Katie Greifeld join us each day for insight from the best in economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand at Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot com, the Bloomberg Terminal, and of course, on the Bloomberg Business App. All right, well, let's see what our next guest has to say, because she knows everything about the US consumer. Dana Telsey is back with our CEO and chief Research officer at Tells the Advisory Group. Dana, thank you so much, so appreciate you coming on with us again. The US to consumer, they do like to go out and shop me included, how are we doing? What are we hearing about the day after Christmas shopping? Are you getting any early reads?

This is the Bloomberg Surveillance Podcast. I'm Carol Masser, along with Manis Crowning and Katie Greifeld join us each day for insight from the best in economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand at Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot com, the Bloomberg Terminal, and of course, on the Bloomberg Business App. All right, well, let's see what our next guest has to say, because she knows everything about the US consumer. Dana Telsey is back with our CEO and chief Research officer at Tells the Advisory Group. Dana, thank you so much, so appreciate you coming on with us again. The US to consumer, they do like to go out and shop me included, how are we doing? What are we hearing about the day after Christmas shopping? Are you getting any early reads?

Yes, we just got an early read within the past hour. MasterCards Spending Pulse came out with their data from November one through December twenty fourth holiday season sales up three point one percent, slightly below their forecast of three point seven percent. And keep in mind it goes through December twenty fourth. Many of the other forecasters out there either go through December or through January. That's coming in at the lower end of the three to five percent range. But as you mentioned earlier, it's still up. Consumers are still spending, We've got gift cards that need to be redeemed. And overall, some of the interesting data that came out of it is the fact that apparel was up, online was stronger than in store sales, jewelry was down, and restaurants that focus on experience. You saw restaurants and grocery being up.

Yes, we just got an early read within the past hour. MasterCards Spending Pulse came out with their data from November one through December twenty fourth holiday season sales up three point one percent, slightly below their forecast of three point seven percent. And keep in mind it goes through December twenty fourth. Many of the other forecasters out there either go through December or through January. That's coming in at the lower end of the three to five percent range. But as you mentioned earlier, it's still up. Consumers are still spending, We've got gift cards that need to be redeemed. And overall, some of the interesting data that came out of it is the fact that apparel was up, online was stronger than in store sales, jewelry was down, and restaurants that focus on experience. You saw restaurants and grocery being up.

Yeah, I'm just coming back from an overseas trip and that's what I did. I ate out a lot and enjoyed it rather than shopping. But having said this, Dana, you're the expert. You've seen the cycles, you know, coming off the pandemic. What do those numbers tell you about the health of the US consumer.

Yeah, I'm just coming back from an overseas trip and that's what I did. I ate out a lot and enjoyed it rather than shopping. But having said this, Dana, you're the expert. You've seen the cycles, you know, coming off the pandemic. What do those numbers tell you about the health of the US consumer.

I think the.

I think the.

US consumer is healthy. I think they're being very cautious in their spending and change that I've seen even in the past year, we've seen a moderation in spending across all income levels, from high end to low end. That spending is moderated with much more cautious and discerning consumer. You think about some of the things that have changed. The luxury goods spend is lower than what it has been. You're seeing apparel being spend very discerning. Jewelry has been weak. It's expected that in twenty twenty four jewelry will have more of an uplift given we'll get back to more normalization and engagements post COVID. But for the most part, it's very discerning spend and the retailers planned appropriately. Discounts and promotions weren't as severe as they had been pre pandemic.

US consumer is healthy. I think they're being very cautious in their spending and change that I've seen even in the past year, we've seen a moderation in spending across all income levels, from high end to low end. That spending is moderated with much more cautious and discerning consumer. You think about some of the things that have changed. The luxury goods spend is lower than what it has been. You're seeing apparel being spend very discerning. Jewelry has been weak. It's expected that in twenty twenty four jewelry will have more of an uplift given we'll get back to more normalization and engagements post COVID. But for the most part, it's very discerning spend and the retailers planned appropriately. Discounts and promotions weren't as severe as they had been pre pandemic.

Danni, good to see you this Morning's interesting that the fresh data that you have is just a little bit lighter than perhaps the estimates. Give us your take in terms off hedonism as ubs of coled it never go short the hedonism of the US consumer. When you see credit card balances at over a trillion dollars on a great proportional by Nie pay later, is that hedonistic behavior that can cause us a problem in the near term or do you just look through it and go, actually, they're fully employed. We've got full employment. Things are good. Stop worrying about the credit card balances and the pine n I pay later.

Danni, good to see you this Morning's interesting that the fresh data that you have is just a little bit lighter than perhaps the estimates. Give us your take in terms off hedonism as ubs of coled it never go short the hedonism of the US consumer. When you see credit card balances at over a trillion dollars on a great proportional by Nie pay later, is that hedonistic behavior that can cause us a problem in the near term or do you just look through it and go, actually, they're fully employed. We've got full employment. Things are good. Stop worrying about the credit card balances and the pine n I pay later.

I think overall, one of the things about the US consumer they continue to exhibit strength. I would have thought that as we went through this year you would have had a greater moderation and spend from the lower and middle income. But exactly what you just mentioned is the strength of employment inflation coming down are giving them the ability to spend. They may not be spending as much as they did two years ago given the stimulus that they everyone benefited from, but they're still spending more than you may have thought. And now the lower rate, it's the stronger job market that if you want a job, you can get a job, and that your wages are going up, and frankly, wage growth is pretty substantial with the flation easing. I think just the US consumer is an optimistic consumer, even though the rate of spend is not as great as it was in twenty one and even in twenty two.

I think overall, one of the things about the US consumer they continue to exhibit strength. I would have thought that as we went through this year you would have had a greater moderation and spend from the lower and middle income. But exactly what you just mentioned is the strength of employment inflation coming down are giving them the ability to spend. They may not be spending as much as they did two years ago given the stimulus that they everyone benefited from, but they're still spending more than you may have thought. And now the lower rate, it's the stronger job market that if you want a job, you can get a job, and that your wages are going up, and frankly, wage growth is pretty substantial with the flation easing. I think just the US consumer is an optimistic consumer, even though the rate of spend is not as great as it was in twenty one and even in twenty two.

In many instances, Dan, it's really interesting to hear you say that, because, of course, one of the big questions has been how do you have the FED hiking rates by five hundred basis points without too much pain? And it sounds like when it's coming to that consumer spend that that can actually continue here, that actually maybe we did get through this tightening cycle without that sort of associated pain that was widely expected.

In many instances, Dan, it's really interesting to hear you say that, because, of course, one of the big questions has been how do you have the FED hiking rates by five hundred basis points without too much pain? And it sounds like when it's coming to that consumer spend that that can actually continue here, that actually maybe we did get through this tightening cycle without that sort of associated pain that was widely expected.

It does feel that way. I mean, you certainly have had categories that have been weak. You take a look at housing and things related to the home that's been weak. You look at luxury goods, which has gotten weaker. But one of the data points to watch is while year over year it could be weak, when you look back twenty nineteen to today, even luxury goods sales are up fifty percent plus, so that consumer, if they want a job, can get a job. But I think also one of the toughest things for retailers, we're seeing more confidence in their ability to project profits than sales. I think you're going to continue to see retailers being very cautious on sales growth. I think we don't have the tourism that we've had in the past, and that the orders that many of the wholesale accounts or department stores are placing continue to be cautious with vendors. I think that no one's expecting a rip roaring retail environment go forward.

It does feel that way. I mean, you certainly have had categories that have been weak. You take a look at housing and things related to the home that's been weak. You look at luxury goods, which has gotten weaker. But one of the data points to watch is while year over year it could be weak, when you look back twenty nineteen to today, even luxury goods sales are up fifty percent plus, so that consumer, if they want a job, can get a job. But I think also one of the toughest things for retailers, we're seeing more confidence in their ability to project profits than sales. I think you're going to continue to see retailers being very cautious on sales growth. I think we don't have the tourism that we've had in the past, and that the orders that many of the wholesale accounts or department stores are placing continue to be cautious with vendors. I think that no one's expecting a rip roaring retail environment go forward.

And I'm taking a look at the Telsea Advisory groups twenty twenty four top pick. So I always appreciate a year ahead list. I want to talk about the consumer technology category. Your top pick there, you only have one, and it's Amazon. Who can stand up to Amazon at this point?

And I'm taking a look at the Telsea Advisory groups twenty twenty four top pick. So I always appreciate a year ahead list. I want to talk about the consumer technology category. Your top pick there, you only have one, and it's Amazon. Who can stand up to Amazon at this point?

I mean, certainly what you're going to get from Amazon, Amazon is your online choice. But when you're thinking about discounters, whether it's Target, whether it's five below, you take a look at Dollar try look at off Price where many of the off pricers overall have had same store sales of five to six percent plus. They're getting the benefit of the trade down customer. So I'm watching in store sales very carefully. Don't belie the fact that in store sales continue to remain very important.

I mean, certainly what you're going to get from Amazon, Amazon is your online choice. But when you're thinking about discounters, whether it's Target, whether it's five below, you take a look at Dollar try look at off Price where many of the off pricers overall have had same store sales of five to six percent plus. They're getting the benefit of the trade down customer. So I'm watching in store sales very carefully. Don't belie the fact that in store sales continue to remain very important.

That's what I was going to ask you, because it's funny. I'm looking at dollartree. They're down about three percent. I feel like there's been some struggling when you you know, not all retail is the same. Who do you think is most vulnerable in this environment data.

That's what I was going to ask you, because it's funny. I'm looking at dollartree. They're down about three percent. I feel like there's been some struggling when you you know, not all retail is the same. Who do you think is most vulnerable in this environment data.

I think when you're watching where the vulnerabilities are, it's some of the retailers overall who are too overloaded on inventory and who haven't innovated or don't have value. When you think about what we did for our twenty twenty four outlook, who had the hallmarks of product newness, innovation and value and apparel on foot Where it's Birkenstock and Ralph Lauren an off price, you're gonna get all the off prices winning, including Burlington and tj X. When I think about special TV tail out there, I think it's companies like Bath and Bodyworks in European Wax. And when you think about the discounts like we mentioned five below, Dollar Tree and Target with their margin recovery story. But don't leave Walmart out. Walmart continues to be a share gainer, both with grocery and with goods.

I think when you're watching where the vulnerabilities are, it's some of the retailers overall who are too overloaded on inventory and who haven't innovated or don't have value. When you think about what we did for our twenty twenty four outlook, who had the hallmarks of product newness, innovation and value and apparel on foot Where it's Birkenstock and Ralph Lauren an off price, you're gonna get all the off prices winning, including Burlington and tj X. When I think about special TV tail out there, I think it's companies like Bath and Bodyworks in European Wax. And when you think about the discounts like we mentioned five below, Dollar Tree and Target with their margin recovery story. But don't leave Walmart out. Walmart continues to be a share gainer, both with grocery and with goods.

Did you want to see something about Birkinstock.

Did you want to see something about Birkinstock.

I'm just gonna say they're not the most aesthentically pleasing shoes.

I'm just gonna say they're not the most aesthentically pleasing shoes.

I'll just leave it at that.

I'll just leave it at that.

Hey, listen, Barbie Worm, that's true. Just gonna say, Katie Grefeld, that was after she left Barbie World. Okay, so even better, that's true.

Hey, listen, Barbie Worm, that's true. Just gonna say, Katie Grefeld, that was after she left Barbie World. Okay, so even better, that's true.

We've gone Barbie World.

We've gone Barbie World.

Okay, Dana Telsea, I agree. Listen the runways, right, they end up putting Birkenstock's crocs like they go everywhere. Dana Telsea. You're a gem of Telsey Advisor Group. Thank you so much. Happy holidays and happy New Year to you. The International Trade Commission found Apple infringed on patents from Massimo. The USTR A now saying two patents were infringe including the one from that company. So great setup to see what Dan ives, who definitely likes Apple, see what he has to say. He's senior equity analyst at Wedbust, joining Katie Manis and myself here in studio. Great to have you.

Okay, Dana Telsea, I agree. Listen the runways, right, they end up putting Birkenstock's crocs like they go everywhere. Dana Telsea. You're a gem of Telsey Advisor Group. Thank you so much. Happy holidays and happy New Year to you. The International Trade Commission found Apple infringed on patents from Massimo. The USTR A now saying two patents were infringe including the one from that company. So great setup to see what Dan ives, who definitely likes Apple, see what he has to say. He's senior equity analyst at Wedbust, joining Katie Manis and myself here in studio. Great to have you.

Great you to be here.

Great you to be here.

Happy holidays, you too, creepy here is it going to be a happy year for Apple? It feels like it's going to get off to a rough start.

Happy holidays, you too, creepy here is it going to be a happy year for Apple? It feels like it's going to get off to a rough start.

I think it's time to get out the popcorn because, in my opinion, this is the next stage of I think the growth phase in Cooper Tino and I think we'll give you a quick time.

I think it's time to get out the popcorn because, in my opinion, this is the next stage of I think the growth phase in Cooper Tino and I think we'll give you a quick time.

How do you like factor in this kind of stuff. I can't buy a watch. I need a new watch, and I can't buy it right now.

How do you like factor in this kind of stuff. I can't buy a watch. I need a new watch, and I can't buy it right now.

Look, we're talking less than one percent of disruption from Apple watch, you know, in terms of in the actual quarter, and I think, look, it just speaks to they're going to have patent issues like this on healthcare. But there's a renaissance of growth on iPhone units services double digits, and that's why I think a lot of the Bears right now they're deep in those cay is in hibernation mode. I think a year from now we have a four trillion dollar markap on Apple.

Look, we're talking less than one percent of disruption from Apple watch, you know, in terms of in the actual quarter, and I think, look, it just speaks to they're going to have patent issues like this on healthcare. But there's a renaissance of growth on iPhone units services double digits, and that's why I think a lot of the Bears right now they're deep in those cay is in hibernation mode. I think a year from now we have a four trillion dollar markap on Apple.

You say the Burrs had a great fictional story, okay, and Netflix fictional fixation story.

You say the Burrs had a great fictional story, okay, and Netflix fictional fixation story.

We all want to be in Apple.

We all want to be in Apple.

I got a hand to tea. This shirt just screams, you know, full full of confidence, full of vigor. But you look at the China story, so it makes sense of this for us. How do you get to four trillion dollars when you still got the government pushing back against opper products. It was a headline just in December. I mean, is that myth or is that a headwind?

I got a hand to tea. This shirt just screams, you know, full full of confidence, full of vigor. But you look at the China story, so it makes sense of this for us. How do you get to four trillion dollars when you still got the government pushing back against opper products. It was a headline just in December. I mean, is that myth or is that a headwind?

I think it's a headwind.

I think it's a headwind.

And ultimately my view in terms of China is that I'm not saying it's Roses and Champagne in Beijing with Apple, but we are seeing growth and that's something we've seen come out of Asia. Checks even over the last week, because you have one hundred million iPhones in China in the window of an upgrade opportunity as those upgrade and look for Huawei, it's a good phone, but realistic it's an iPhone twelve. I'm seeing from an actual function perspective, So I do think that it's a head when they have to contend with. But it is the hearts and lungs of the Apple story. And that's why a lot of the bears at five hundred billion, a trillion, trillion and a half two, it's all about the China trillion. Now it's all three trillion, I think, going to Fortunoly, it's always about that big bad wolf, the China story and the actuality China has actually been fuel in the engine.

And ultimately my view in terms of China is that I'm not saying it's Roses and Champagne in Beijing with Apple, but we are seeing growth and that's something we've seen come out of Asia. Checks even over the last week, because you have one hundred million iPhones in China in the window of an upgrade opportunity as those upgrade and look for Huawei, it's a good phone, but realistic it's an iPhone twelve. I'm seeing from an actual function perspective, So I do think that it's a head when they have to contend with. But it is the hearts and lungs of the Apple story. And that's why a lot of the bears at five hundred billion, a trillion, trillion and a half two, it's all about the China trillion. Now it's all three trillion, I think, going to Fortunoly, it's always about that big bad wolf, the China story and the actuality China has actually been fuel in the engine.

Well, let's talk about what the Bears are saying right now, because they're saying you think about in terms of the product lineup that Apple really hasn't had a hit since the AirPods, and that was all the way back in twenty sixteen. So you talk about this new growth, but from the product lineup, where is it going to come from?

Well, let's talk about what the Bears are saying right now, because they're saying you think about in terms of the product lineup that Apple really hasn't had a hit since the AirPods, and that was all the way back in twenty sixteen. So you talk about this new growth, but from the product lineup, where is it going to come from?

Well, first off, the install base. It's on powerl It's the best install based in the world. So just from an install based perspective, you have two hundred and fifteen million iPhones in a window of an upgrade opportunity. I think that's why iPhone fifteen so far Christmas came earlier strong holiday season, but for twenty twenty four. German's talked about this as well. I believe you're going to have not just new phones that come out from an iPhone sixteen, but we believe you're going to have the Apple the iPhone app store, which is gonna be an AI app store focused on AI apps. That's gonna be something that's gonna be incremental for services, and I think that's very important. You combined with Vision Pro, and we believe more and more products coming out that they flex the muscles.

Well, first off, the install base. It's on powerl It's the best install based in the world. So just from an install based perspective, you have two hundred and fifteen million iPhones in a window of an upgrade opportunity. I think that's why iPhone fifteen so far Christmas came earlier strong holiday season, but for twenty twenty four. German's talked about this as well. I believe you're going to have not just new phones that come out from an iPhone sixteen, but we believe you're going to have the Apple the iPhone app store, which is gonna be an AI app store focused on AI apps. That's gonna be something that's gonna be incremental for services, and I think that's very important. You combined with Vision Pro, and we believe more and more products coming out that they flex the muscles.

Dan.

Dan.

Is there a bear story though on Apple? I mean, I think if Tom Kean was here, and I know this is how we fail. We are an Apple family, and when somebody goes to buy something like no, so you can't do that, it's going to be an Apple product because that's been our infrastructure, that's our network. No green text bubbles, there are none, exactly, although there's an app that I think, Y sure people, but I just that installed base. I'm looking at what twenty twenty four revenue estimate of three hundred and ninety seven billion dollars. Every time the Apple numbers cross, they're off the charts. Even if the growth isn't significant, there's still that installed basis enough to keep a lot of momentum.

Is there a bear story though on Apple? I mean, I think if Tom Kean was here, and I know this is how we fail. We are an Apple family, and when somebody goes to buy something like no, so you can't do that, it's going to be an Apple product because that's been our infrastructure, that's our network. No green text bubbles, there are none, exactly, although there's an app that I think, Y sure people, but I just that installed base. I'm looking at what twenty twenty four revenue estimate of three hundred and ninety seven billion dollars. Every time the Apple numbers cross, they're off the charts. Even if the growth isn't significant, there's still that installed basis enough to keep a lot of momentum.

And if Keene was here, would he be focused on.

And if Keene was here, would he be focused on.

Any kind of is we don't have money means here?

Any kind of is we don't have money means here?

Just like I'm.

Just like I'm.

Kidding, it's an AI, it's AI generator. But look, realistically, it's about valuation. Look, if you look at valuation, you look at the cash flow generation of Apple. There we're gonna see over the coming years the e but the margins are expanding. Now think the Bear story, it's look a lot of the Bears they just look at their spreadsheets on Park Ave and and there you know, in their tower saying this is.

Kidding, it's an AI, it's AI generator. But look, realistically, it's about valuation. Look, if you look at valuation, you look at the cash flow generation of Apple. There we're gonna see over the coming years the e but the margins are expanding. Now think the Bear story, it's look a lot of the Bears they just look at their spreadsheets on Park Ave and and there you know, in their tower saying this is.

An expensive far story for Apple at all.

An expensive far story for Apple at all.

Because to me, the Bear story, it's valuation. It's China, and I think at that point it's it's a headwind, but it's more fictional Netflix story than reality. That's going to hurt them. And then it's just more competition. But it also it comes down to valuation. And that's why this year I think the Bears they focus so much on valuation. Instead of the actual underlying growth story that's happening, not just rapp, but we believe it's the star of a new tech, fullmarket for tech.

Because to me, the Bear story, it's valuation. It's China, and I think at that point it's it's a headwind, but it's more fictional Netflix story than reality. That's going to hurt them. And then it's just more competition. But it also it comes down to valuation. And that's why this year I think the Bears they focus so much on valuation. Instead of the actual underlying growth story that's happening, not just rapp, but we believe it's the star of a new tech, fullmarket for tech.

I mean, and this is this is your thesis for next year, which is about I mean, twenty twenty three was a year in which every time we saw an AI story evolved Microsoft. Wait, we were.

I mean, and this is this is your thesis for next year, which is about I mean, twenty twenty three was a year in which every time we saw an AI story evolved Microsoft. Wait, we were.

Talking about AI this year.

Talking about AI this year.

Wow, AI, you didn't have a Yeah, I know. Yeah, so tempt to buy a zampick rather than the treadmill. But on a side more serious note, Clyde and AI have been the dominant forces as well as balance sheets in tech. I put those three together and let's let's just put Apple aside for a moment. Clyde and AI. How do I disaggregate who's going to perform well in this what's going to make a cloud a grade and an AI a grade stock?

Wow, AI, you didn't have a Yeah, I know. Yeah, so tempt to buy a zampick rather than the treadmill. But on a side more serious note, Clyde and AI have been the dominant forces as well as balance sheets in tech. I put those three together and let's let's just put Apple aside for a moment. Clyde and AI. How do I disaggregate who's going to perform well in this what's going to make a cloud a grade and an AI a grade stock?

Yeah?

Yeah?

And I think you hit on. And what's really a key point if you look at what's happened when the delan redman at the top of that mountain. From a cloud perspective, now, this is more monization for the hyperscale players from Microsoft, for Amazon, for Google. We believe for every one hundred dollars of cloud spend the last four five years, or is thirty five to forty incremental AI spent. That's why I'd say when you can Microsoft, you look at Google, this is going to be just a new frontier of growth. And then of course you have the godfather of AI, Gents and Nvidia. This is really just starting what we've used in nineteen ninety five moment.

And I think you hit on. And what's really a key point if you look at what's happened when the delan redman at the top of that mountain. From a cloud perspective, now, this is more monization for the hyperscale players from Microsoft, for Amazon, for Google. We believe for every one hundred dollars of cloud spend the last four five years, or is thirty five to forty incremental AI spent. That's why I'd say when you can Microsoft, you look at Google, this is going to be just a new frontier of growth. And then of course you have the godfather of AI, Gents and Nvidia. This is really just starting what we've used in nineteen ninety five moment.

It's called father of AI.

It's called father of AI.

You look to them stock in the S and P five.

You look to them stock in the S and P five.

Well, it's the biggest tech transformation thirty years, haven't seen since nineteen ninety five start of the Internet, and we believe this is actually the beginning of the next phase of this bull We.

Well, it's the biggest tech transformation thirty years, haven't seen since nineteen ninety five start of the Internet, and we believe this is actually the beginning of the next phase of this bull We.

Just want to know, are there a million AI ets that have all sudden come on? You know exactly?

Just want to know, are there a million AI ets that have all sudden come on? You know exactly?

There's a few dozen that were launched way before we started talking about AI around this time last year.

There's a few dozen that were launched way before we started talking about AI around this time last year.

But I do want to switch gears here.

But I do want to switch gears here.

And talk about EV demand because this has been one of the stories that's really emerged. It just feels like all of these automakers really miscalculated how much demand there would be for evs and now you're seeing those production targets get cut. How does that factor into how you're thinking about Tesla. Is that a bear case for Tesla or does Tesla just command more of maybe a shrinking pie.

And talk about EV demand because this has been one of the stories that's really emerged. It just feels like all of these automakers really miscalculated how much demand there would be for evs and now you're seeing those production targets get cut. How does that factor into how you're thinking about Tesla. Is that a bear case for Tesla or does Tesla just command more of maybe a shrinking pie.

Yeah?

Yeah?

Kay, I think that's a great point. Look, right now it's Tesla's world. Everyone else pan rent when it comes to electric vehicles, and I think they're doubling down. What's happening Detroit, GM Ford actually peeling back a little from electric vehicles. Some of the foreign automakers look demands definitely soften. Price wars have come through, but a lot of those storms have now passed. I think for Tesla specifically, unit volume looks strong. In China. I think there's gonna be a record quarter for China in terms of Q four. You go into next year, I think demand actually starts to accelerate a bit relative to where people thought. I think for the overall industry, it's still a massive transformation, but now you're starting to maybe peel back a bit in terms of Okay, this is not going to forty percent penetration, Maybe it's twenty five thirty dan thirty seconds.

Kay, I think that's a great point. Look, right now it's Tesla's world. Everyone else pan rent when it comes to electric vehicles, and I think they're doubling down. What's happening Detroit, GM Ford actually peeling back a little from electric vehicles. Some of the foreign automakers look demands definitely soften. Price wars have come through, but a lot of those storms have now passed. I think for Tesla specifically, unit volume looks strong. In China. I think there's gonna be a record quarter for China in terms of Q four. You go into next year, I think demand actually starts to accelerate a bit relative to where people thought. I think for the overall industry, it's still a massive transformation, but now you're starting to maybe peel back a bit in terms of Okay, this is not going to forty percent penetration, Maybe it's twenty five thirty dan thirty seconds.

China is the all and cry of the Bears when it comes to Apple, so too when it comes to Tesla. You think about all those Chinese ev makers. How does Tesla compete overseas.

China is the all and cry of the Bears when it comes to Apple, so too when it comes to Tesla. You think about all those Chinese ev makers. How does Tesla compete overseas.

They've done it. I mean, I think a lot of the price war it was. Look, this was a pooker move for the ages by must cup prices focus on units, and that's why right now this has been flex the muscles in Beijing four, not just Tesla, but of course for Apple despite bare noise.

They've done it. I mean, I think a lot of the price war it was. Look, this was a pooker move for the ages by must cup prices focus on units, and that's why right now this has been flex the muscles in Beijing four, not just Tesla, but of course for Apple despite bare noise.

You know, before we started, we showed a piece on drones just real quickly twenty five seconds. Is there a drone plane for drone play for you? I mean all of the company Amazon's in at Walmarts, everybody's in it, and there's individual startups.

You know, before we started, we showed a piece on drones just real quickly twenty five seconds. Is there a drone plane for drone play for you? I mean all of the company Amazon's in at Walmarts, everybody's in it, and there's individual startups.

Hey, look, I think that's past. I remember being a CS years ago in fun. Yeah, I think that's Look, that's why you have to separate mat is like, yes, yes, you separate type from the reality. There's there's parts that market that are growth. Yeah, but you look at AI. This is the super Bowl in terms of tech market.

Hey, look, I think that's past. I remember being a CS years ago in fun. Yeah, I think that's Look, that's why you have to separate mat is like, yes, yes, you separate type from the reality. There's there's parts that market that are growth. Yeah, but you look at AI. This is the super Bowl in terms of tech market.

We're gonna have a bull to market in twenty twenty five two.

We're gonna have a bull to market in twenty twenty five two.

I think this bold tech market goes we lead for another two years. That's why right now it's getting the popcorn out.

I think this bold tech market goes we lead for another two years. That's why right now it's getting the popcorn out.

That's a lot of popcorn, all right, always fun.

That's a lot of popcorn, all right, always fun.

To talk with you.

To talk with you.

Great, thanks for having so, I appreciate it, Thanks for coming in this happy new year.

Great, thanks for having so, I appreciate it, Thanks for coming in this happy new year.

Dan.

Dan.

I's of course of web Bush. Check out his research and of course his calls on things like Apple and just really the tech market overall. All right, let's see what Matt Miskin has to say about all of this. K chief investment strategist John Hancock Investment Management joining us just outside of Boston. Matt, great to have you here on this Tuesday. There's a lot that could come at us at twenty twenty four, but as you look back at twenty twenty three, are there I don't know, trends, narratives that you think will no doubt about it carry it over into twenty twenty four.

I's of course of web Bush. Check out his research and of course his calls on things like Apple and just really the tech market overall. All right, let's see what Matt Miskin has to say about all of this. K chief investment strategist John Hancock Investment Management joining us just outside of Boston. Matt, great to have you here on this Tuesday. There's a lot that could come at us at twenty twenty four, but as you look back at twenty twenty three, are there I don't know, trends, narratives that you think will no doubt about it carry it over into twenty twenty four.

Yeah, thanks Carol. And really the last two months to find twenty twenty three markets, and it was all really around Powell's pivot. So in September they were forecasting another rate hike in December and then actually no rate cuts into twenty twenty four. That really changed significantly. So now, of course in November he went to no hike in December, and then in December really pivoted. I think about the pivot foot I mean, it almost looked like a travel here where that pivot foot moved, because they they did a one.

Yeah, thanks Carol. And really the last two months to find twenty twenty three markets, and it was all really around Powell's pivot. So in September they were forecasting another rate hike in December and then actually no rate cuts into twenty twenty four. That really changed significantly. So now, of course in November he went to no hike in December, and then in December really pivoted. I think about the pivot foot I mean, it almost looked like a travel here where that pivot foot moved, because they they did a one.

Powell did a.

Powell did a.

One to eighty from his tone in September two November. And I look at small cap stocks in particular as the biggest beneficiary, down five percent on a year to year to date basis the four November first and then ending right now, they're of seventeen percent year to date. Again in the futures market, even though this is a quiet week, small caps looking up the highest in this morning time talking.

One to eighty from his tone in September two November. And I look at small cap stocks in particular as the biggest beneficiary, down five percent on a year to year to date basis the four November first and then ending right now, they're of seventeen percent year to date. Again in the futures market, even though this is a quiet week, small caps looking up the highest in this morning time talking.

About a one eighty right exactly?

About a one eighty right exactly?

Do you think that that's where we go next? And I mean if you look at some of the perform you look at some of the performance on the US equity markets, just just top lines, S and P five three percent on the year. There it is over the past two months. So more than fifty percent of the move was done in the last two months. You said, the optimism is already very much baked into stocks, both in earnings and estimates and valuations. The math, the math for you is not compelling. So if it's not compelling, there's the Russell, by the way up over the past two months, up twenty two percent. The math not being compelling. What does that do? Do I stall? Do I draw down? What happens? Do we shudder in January because the bond market is convinced we're on a slice and dice from the Fed?

Do you think that that's where we go next? And I mean if you look at some of the perform you look at some of the performance on the US equity markets, just just top lines, S and P five three percent on the year. There it is over the past two months. So more than fifty percent of the move was done in the last two months. You said, the optimism is already very much baked into stocks, both in earnings and estimates and valuations. The math, the math for you is not compelling. So if it's not compelling, there's the Russell, by the way up over the past two months, up twenty two percent. The math not being compelling. What does that do? Do I stall? Do I draw down? What happens? Do we shudder in January because the bond market is convinced we're on a slice and dice from the Fed?

Right, Yeah, I mean Russell two thousand. Earnings are down seventeen percent this year, prices up seventeen I mean it was one of the ones I love the most is technology, And Karen was talking about earnings and loving earnings. I love earnings too. Technology earnings are up about five percent this year. That's not bad. S and P five hundred Tech five percent. Actually, that beats most of the world. And earnings the companies are up price wise fifty five percent. So that just shows you how much this has been multiple expansion versus earnings. It's all about Powell this year. It really all came down to the last two months in this pivot. I don't think that next year is going to be that meaningful as it relates to everything relied to the FED. I think fundamental is going to matter more. Economic data is going to matter more, and I think the FED isn't a tough position because the soft data has led you blind this year.

Right, Yeah, I mean Russell two thousand. Earnings are down seventeen percent this year, prices up seventeen I mean it was one of the ones I love the most is technology, And Karen was talking about earnings and loving earnings. I love earnings too. Technology earnings are up about five percent this year. That's not bad. S and P five hundred Tech five percent. Actually, that beats most of the world. And earnings the companies are up price wise fifty five percent. So that just shows you how much this has been multiple expansion versus earnings. It's all about Powell this year. It really all came down to the last two months in this pivot. I don't think that next year is going to be that meaningful as it relates to everything relied to the FED. I think fundamental is going to matter more. Economic data is going to matter more, and I think the FED isn't a tough position because the soft data has led you blind this year.

It's all and you've.

It's all and you've.

Had to really focus on the hard data. The thing is the hard data lags the soft data, and so they just have to wait. They have to be data depend and Mannas just like you said, so way now they're going to wait on that, and I think they're gonna have to wait right to the last minute to cut, and I think that may be too late and they're gonna have to cut more aggressively than actually the market.

Had to really focus on the hard data. The thing is the hard data lags the soft data, and so they just have to wait. They have to be data depend and Mannas just like you said, so way now they're going to wait on that, and I think they're gonna have to wait right to the last minute to cut, and I think that may be too late and they're gonna have to cut more aggressively than actually the market.

Thanks well man, I don't really like earnings. I really like talking about the macro, and it's been convenient for me because to your point, you've seen equities really be driven by the macro, even at the single stock level. But I want to talk about the different psychology between the equity market and the bond market because I love this line in your note that stocks are stories, bonds or math.

Thanks well man, I don't really like earnings. I really like talking about the macro, and it's been convenient for me because to your point, you've seen equities really be driven by the macro, even at the single stock level. But I want to talk about the different psychology between the equity market and the bond market because I love this line in your note that stocks are stories, bonds or math.

Talk us through that a little bit.

Talk us through that a little bit.

What you mean there.

What you mean there.

Yeah, So with the bond market, you know, it's going to be your income and income right now, even though it's changed a lot in the last two months. I mean when we were writing that, you know, a month ago, and we were like five six percent in high quality bonds. This is amazing. We've been looking for high quality income at these levels for years and finally we're getting it. It's still about four to five percent. We think, actually four to five percent is an income stream where you can depend on that on high quality bonds will be an attractive return stream into next year. And we've been talking about cash, right six trillion dollars in money markets on the sidelines. What is that yield going to be like next year? If it's five now, that could be down to four to three percent depending on how much the FED cuts, and then subsequent year could be even longer. We don't want to have variable interest streams. We want to fix in streams. And that's about the math math. We like that the factual parts of that. Right now, stocks look like your high multiple, high ears estimates, and sentiment is all about soft landing. That can change quickly into twenty twenty four.

Yeah, So with the bond market, you know, it's going to be your income and income right now, even though it's changed a lot in the last two months. I mean when we were writing that, you know, a month ago, and we were like five six percent in high quality bonds. This is amazing. We've been looking for high quality income at these levels for years and finally we're getting it. It's still about four to five percent. We think, actually four to five percent is an income stream where you can depend on that on high quality bonds will be an attractive return stream into next year. And we've been talking about cash, right six trillion dollars in money markets on the sidelines. What is that yield going to be like next year? If it's five now, that could be down to four to three percent depending on how much the FED cuts, and then subsequent year could be even longer. We don't want to have variable interest streams. We want to fix in streams. And that's about the math math. We like that the factual parts of that. Right now, stocks look like your high multiple, high ears estimates, and sentiment is all about soft landing. That can change quickly into twenty twenty four.

Man I just want to follow up quickly on that money market point that you rate, because Manison and I have been boutting this around all morning. Where does that money belong to? That cash that's come into money market funds when it comes out, does that belong to risk assets? Or is this maybe stickier than usual When you think about the banking story.

Man I just want to follow up quickly on that money market point that you rate, because Manison and I have been boutting this around all morning. Where does that money belong to? That cash that's come into money market funds when it comes out, does that belong to risk assets? Or is this maybe stickier than usual When you think about the banking story.

Yeah, Katie, what we looked at when we've seen money market assets like this before, we trend it over time, and what we've seen is money market assets usually rise going into a recession, they actually accelerate and everybody sells right at the low of the market. And that's actually the peak and money market assets is the trough in the s and P five hundred happen in two thousand and eight, happen in March and twenty twenty, and now we're building, building building, and then so what happens on the flip side of that, I think it actually finds a home in a balanced portfolio, stocks and bonds usually get the biggest beneficiary. Do you have some inflows this year about one hundred billion taxable fixed income that's the highest outside of money markets, but it's still a fraction a ten percent of what money markets took in fix taxible fixed income put in. And that's why I struggle with the bond sentiment. We're not seeing that overly aggressive bond sentiment or bullish bond sentiment. We actually hear investors that are still pretty cautious and they're saying, we're going to wait till next year.

Yeah, Katie, what we looked at when we've seen money market assets like this before, we trend it over time, and what we've seen is money market assets usually rise going into a recession, they actually accelerate and everybody sells right at the low of the market. And that's actually the peak and money market assets is the trough in the s and P five hundred happen in two thousand and eight, happen in March and twenty twenty, and now we're building, building building, and then so what happens on the flip side of that, I think it actually finds a home in a balanced portfolio, stocks and bonds usually get the biggest beneficiary. Do you have some inflows this year about one hundred billion taxable fixed income that's the highest outside of money markets, but it's still a fraction a ten percent of what money markets took in fix taxible fixed income put in. And that's why I struggle with the bond sentiment. We're not seeing that overly aggressive bond sentiment or bullish bond sentiment. We actually hear investors that are still pretty cautious and they're saying, we're going to wait till next year.

To buy bonds.

To buy bonds.

And the thing is, bond yields have moved really fast, a lot faster than usual. We don't want to have those yields go away before you actually get the opportunity and take advantage.

And the thing is, bond yields have moved really fast, a lot faster than usual. We don't want to have those yields go away before you actually get the opportunity and take advantage.

Well, that's what I was thinking, you know, for such a big period. I feel like we were saying, listen, look what the bond marketing can give you at this point, So why not lock it in? Less volatility, less you know, concerns over you know, risk your askets such as stocks or elsewhere. But having said that, you know you're looking at your four oh one K for those who are lucky enough to have one and saying, wow, sound up for one. Well, good for you, But you look at those equity returns, and mind you, a lot of it was, you know, towards the second half of the year and just in the last month or two. Having said that, how do you justify the bond story when you can many times over if you'll just easily throw it into an index fund? Again?

Well, that's what I was thinking, you know, for such a big period. I feel like we were saying, listen, look what the bond marketing can give you at this point, So why not lock it in? Less volatility, less you know, concerns over you know, risk your askets such as stocks or elsewhere. But having said that, you know you're looking at your four oh one K for those who are lucky enough to have one and saying, wow, sound up for one. Well, good for you, But you look at those equity returns, and mind you, a lot of it was, you know, towards the second half of the year and just in the last month or two. Having said that, how do you justify the bond story when you can many times over if you'll just easily throw it into an index fund? Again?

Yeah?

Yeah?

And I mean, you know, I have conversations with friends and family and they're all saying, how do I own these bonds? I'm going to go all in on AI or you know whatever, the thing that's up the most, I'm going to get more of that. And it's just it goes back to a behavioral finance principles that we learn about, where you know, you always want to have the thing that's performing the best. You want to sell the thing that's that's down the most in your forward k or portfolios. And it's it's to us about rebalancing in times like this where you have such a huge run up in stocks versus bonds or whatever other asset classes, more discipline approach. So we're looking to rebalance, trimp some risk into next year. We think again, a lot of the run up has been built in to the equity sides of portfolios. Rebalance that into higher quality parts of portfolios, like high quality fixed income, and get that income stream into next year. Yeah, so that that's how we would.

And I mean, you know, I have conversations with friends and family and they're all saying, how do I own these bonds? I'm going to go all in on AI or you know whatever, the thing that's up the most, I'm going to get more of that. And it's just it goes back to a behavioral finance principles that we learn about, where you know, you always want to have the thing that's performing the best. You want to sell the thing that's that's down the most in your forward k or portfolios. And it's it's to us about rebalancing in times like this where you have such a huge run up in stocks versus bonds or whatever other asset classes, more discipline approach. So we're looking to rebalance, trimp some risk into next year. We think again, a lot of the run up has been built in to the equity sides of portfolios. Rebalance that into higher quality parts of portfolios, like high quality fixed income, and get that income stream into next year. Yeah, so that that's how we would.

Look at it.

Look at it.

Yeah, something's never changed, right in terms of either balanced portfolio and the importance of bond market in your strategy. All right, listen, we got to leave it there, Matt. Thank you so much. Happy new year. Matt Miskin of John Hancock Investment Management. We appreciate your time on this.

Yeah, something's never changed, right in terms of either balanced portfolio and the importance of bond market in your strategy. All right, listen, we got to leave it there, Matt. Thank you so much. Happy new year. Matt Miskin of John Hancock Investment Management. We appreciate your time on this.

Let's bring in Tom Tazarius. He is the head of fixed income research at Strategus, a Baird company. Good morning, good to see, happy holidays.

Let's bring in Tom Tazarius. He is the head of fixed income research at Strategus, a Baird company. Good morning, good to see, happy holidays.

Happy holidays.

Happy holidays.

So the US bond market pulled it back from the jaws of defeat, delivered at three percent return. So does that set me up for a more magnificent twenty twenty four or three eighty eight. I'm my old priced inn for one hundred and sixty basis points and cuts my run is done. Good morning.

So the US bond market pulled it back from the jaws of defeat, delivered at three percent return. So does that set me up for a more magnificent twenty twenty four or three eighty eight. I'm my old priced inn for one hundred and sixty basis points and cuts my run is done. Good morning.

Well, it's going to depend whether we have a recession next year, and to tell you the truth, that is very hard to predict at this point in time because Washington, DC has decided that they're going to run this US economy at full employment at all costs, which means it's going to be very difficult to get the consumer to pull back, particularly in the second half of the year. So we have a seasonal week spot coming in the next few months, we'll say, late January to April, where the US could dip into a recession, albeit very shallow.

Well, it's going to depend whether we have a recession next year, and to tell you the truth, that is very hard to predict at this point in time because Washington, DC has decided that they're going to run this US economy at full employment at all costs, which means it's going to be very difficult to get the consumer to pull back, particularly in the second half of the year. So we have a seasonal week spot coming in the next few months, we'll say, late January to April, where the US could dip into a recession, albeit very shallow.

If that's the case, then.

If that's the case, then.

Expect those rate cuts to materialize and the bond market to push yields lower.

Expect those rate cuts to materialize and the bond market to push yields lower.

If that does not happen, that is you do not.

If that does not happen, that is you do not.

Have that seasonal week spot transition into a rise in unemployment.

Have that seasonal week spot transition into a rise in unemployment.

It's gonna be hard for the bond market to rally further from here.

It's gonna be hard for the bond market to rally further from here.

Okay, I like what you say. They're going to run this economy at full speed as much as they can. What does that mean? I mean, what are the additional risks. One of the big debates that we were having before Christmas was about issuance on about indigestion in the bond market. So let's just square that away. We didn't get indigestion really on these bond auctions at the back end of the year. What's my risk in twenty twenty four of indigestion.

Okay, I like what you say. They're going to run this economy at full speed as much as they can. What does that mean? I mean, what are the additional risks. One of the big debates that we were having before Christmas was about issuance on about indigestion in the bond market. So let's just square that away. We didn't get indigestion really on these bond auctions at the back end of the year. What's my risk in twenty twenty four of indigestion.

Very high, but it's going to depend on what the Fed does. And because of that, I do believe twenty twenty four is going to be the year that we have a very serious discussion in the financial market's about the Federal reserves credibility as an independent entity. Because if you look at the economy coming into twenty twenty four, it's still in a really decent spot. The unemployment rate is very low. It's hard to justify rate cuts at this point in time, certainly by March. Now, with that said, the market's pricing in one hundred and fifty bases points of rate cuts here.

Very high, but it's going to depend on what the Fed does. And because of that, I do believe twenty twenty four is going to be the year that we have a very serious discussion in the financial market's about the Federal reserves credibility as an independent entity. Because if you look at the economy coming into twenty twenty four, it's still in a really decent spot. The unemployment rate is very low. It's hard to justify rate cuts at this point in time, certainly by March. Now, with that said, the market's pricing in one hundred and fifty bases points of rate cuts here.

So it's too aggressive to you.

So it's too aggressive to you.

Too aggressive at full employment?

Too aggressive at full employment?

Absolutely, yeah, maybe fifty, maybe seventy five at full employment just to kind of fine tune monetary policy. But one hundred and fifty that's a very steep amount of cuts from something that is otherwise as of right now, not a recession.

Absolutely, yeah, maybe fifty, maybe seventy five at full employment just to kind of fine tune monetary policy. But one hundred and fifty that's a very steep amount of cuts from something that is otherwise as of right now, not a recession.

Tom.

Tom.

I feel like one of our favorite drinking games of the year was data dependent, Like how many times we heard the FED remind us, no matter what the narrative was, we're watching the data points, even with what the market's expecting, a pretty aggressive FED moving to cut rates. Do we need to watch those data points very closely?

I feel like one of our favorite drinking games of the year was data dependent, Like how many times we heard the FED remind us, no matter what the narrative was, we're watching the data points, even with what the market's expecting, a pretty aggressive FED moving to cut rates. Do we need to watch those data points very closely?

We do, And I would continue to watch wages because this is the one I've always said, average hourly earnings or employed cost index, those the most important ones. Obviously CPI and PC are going to tell us whether the FED has room to cut, but wages are going to tell us whether CPI or inflation are going to reaccelerate once those cuts hit.

We do, And I would continue to watch wages because this is the one I've always said, average hourly earnings or employed cost index, those the most important ones. Obviously CPI and PC are going to tell us whether the FED has room to cut, but wages are going to tell us whether CPI or inflation are going to reaccelerate once those cuts hit.

And here's the important point.

And here's the important point.

Wages are growing at four percent if the fed's target is two percent, how are you going to stay there if rate cuts begin to culminate, how are you going to stay at two percent? If wages are pulling inflation higher, productivity has to be rough algebra two percent.

Wages are growing at four percent if the fed's target is two percent, how are you going to stay there if rate cuts begin to culminate, how are you going to stay at two percent? If wages are pulling inflation higher, productivity has to be rough algebra two percent.

I don't see that right now.

I don't see that right now.

It's really it's interesting. So then what worries you in terms of the economics story, Is it that we are all just expecting a much more aggressive FED?

It's really it's interesting. So then what worries you in terms of the economics story, Is it that we are all just expecting a much more aggressive FED?

What is it?

What is it?

Is it the expectation or what?

Is it the expectation or what?

So I've got two worries going into twenty twenty four. One is the consumer is running at exhaustion, building up enormous amounts of credit card debt, and we're seeing bigger and bigger seasonal pullbacks oddly enough, in January, February, March, and again we'll see them in September or October. So the consumer's binging from May to August, and then binging again from holloween until New Year's and then every six months the pullback gets bigger and bigger. So patching that over with band aid stimulus is require more and more stimulus. But the problem with that is you're keeping the economy at full employment artificially, and that means structurally inflation is going to continue to be elevated.

So I've got two worries going into twenty twenty four. One is the consumer is running at exhaustion, building up enormous amounts of credit card debt, and we're seeing bigger and bigger seasonal pullbacks oddly enough, in January, February, March, and again we'll see them in September or October. So the consumer's binging from May to August, and then binging again from holloween until New Year's and then every six months the pullback gets bigger and bigger. So patching that over with band aid stimulus is require more and more stimulus. But the problem with that is you're keeping the economy at full employment artificially, and that means structurally inflation is going to continue to be elevated.

I want to actually go back to the politics of the FED and this discussion that could be coming when it comes to the independence of the FED, because you think about the FED cutting by March. In your view, that's not justified.

I want to actually go back to the politics of the FED and this discussion that could be coming when it comes to the independence of the FED, because you think about the FED cutting by March. In your view, that's not justified.

Is the FED really political or is it just a case it's got to do something.

Is the FED really political or is it just a case it's got to do something.

Well, I mean, you think about the argument that they're making that they basically want to get out of restricted territory, that this isn't cutting to ease necessarily, it's just to make things a little bit less restrictive, get closer to neutral.

Well, I mean, you think about the argument that they're making that they basically want to get out of restricted territory, that this isn't cutting to ease necessarily, it's just to make things a little bit less restrictive, get closer to neutral.

Do you not buy that argument?

Do you not buy that argument?

Well, neutral might be five percent. FED funds rate might be four seventy five, it's not three point fifty.

Well, neutral might be five percent. FED funds rate might be four seventy five, it's not three point fifty.

That's the problem.

That's the problem.

Why is the bond market or the futures market pricing in such an extreme amount of rate cuts starting no later than March, when the economy and the equity markets example, or all projecting to.

Why is the bond market or the futures market pricing in such an extreme amount of rate cuts starting no later than March, when the economy and the equity markets example, or all projecting to.

Be a little variable lag eventually ran.

Be a little variable lag eventually ran.

So something doesn't add up there.

So something doesn't add up there.

And I think the futures markets are starting to question the credibility of the FED, and they're seeing in particularly the Treasury is going to have a huge liquidity hiccup in the middle portion of the year if the FED has not cut and has not stopped balance sheet reduction. So if you look out to June, you say, right, cuts need to commence before then to help the treasury.

And I think the futures markets are starting to question the credibility of the FED, and they're seeing in particularly the Treasury is going to have a huge liquidity hiccup in the middle portion of the year if the FED has not cut and has not stopped balance sheet reduction. So if you look out to June, you say, right, cuts need to commence before then to help the treasury.

I'm glad you brought up the balance sheet because I feel like I don't know, we don't talk about it enough. And if we enter into a situation where the FED is cutting rates that their justification is that we're just getting out of ultra restrictive territory here we can continue to run off the balance sheet. What does that mean for the bond market? How does the FED message that and how is that actually received by the market, because I mean, at first glimance, that would appear to be the FED acting at opposite ends.

I'm glad you brought up the balance sheet because I feel like I don't know, we don't talk about it enough. And if we enter into a situation where the FED is cutting rates that their justification is that we're just getting out of ultra restrictive territory here we can continue to run off the balance sheet. What does that mean for the bond market? How does the FED message that and how is that actually received by the market, because I mean, at first glimance, that would appear to be the FED acting at opposite ends.

Well, this is going to be very difficult for the FED to deliver on this politically, optically, it's going to look like they are being accommodative to the administration no matter what they do if they stop balance sheet reduction and they begin great cuts. So they're gonna have to communicate this, and the way they're probably going to communicate this is through the concept of ample reserves in the banking system stopping balance sheet reduction, because they're getting close to the point where there's going to be liquidity issues in the repo market. That will probably be how it's communicated, but that's going to be a questionable argument in my opinion.

Well, this is going to be very difficult for the FED to deliver on this politically, optically, it's going to look like they are being accommodative to the administration no matter what they do if they stop balance sheet reduction and they begin great cuts. So they're gonna have to communicate this, and the way they're probably going to communicate this is through the concept of ample reserves in the banking system stopping balance sheet reduction, because they're getting close to the point where there's going to be liquidity issues in the repo market. That will probably be how it's communicated, but that's going to be a questionable argument in my opinion.

I was sort of mulling this over last night before before we came in this morning. We became a bit obsessed about the basis trade in the last couple of months. Indeed, the Bank of England didn't become obsessed by it. They very much noted it. What is the risk of some kind of an eruption or reversal of that basis trade. It's been around forever, we're just talking about it an awful lot more so told me through the risk from the basis trade, the risk from slightly faster faster.

I was sort of mulling this over last night before before we came in this morning. We became a bit obsessed about the basis trade in the last couple of months. Indeed, the Bank of England didn't become obsessed by it. They very much noted it. What is the risk of some kind of an eruption or reversal of that basis trade. It's been around forever, we're just talking about it an awful lot more so told me through the risk from the basis trade, the risk from slightly faster faster.

Positions, Well, the risk is obviously that you're having the liquidity providers become someone who is very large and dependent, and we're dependent on that one or two liquidity providers, just like in the past in the profinancial crisis, when we're dependent upon dealers, primary dealers as liquidity providers. Now we're dependent in the treasury market on basis traders and to some extent primary dealers as well. So whenever you become overly reliant on one type of liquidity provider another, you're always at risk, and the odds are eventually that liquidity provider is going to have a pullback, which will cascade into a full market liquidity hiccup.

Positions, Well, the risk is obviously that you're having the liquidity providers become someone who is very large and dependent, and we're dependent on that one or two liquidity providers, just like in the past in the profinancial crisis, when we're dependent upon dealers, primary dealers as liquidity providers. Now we're dependent in the treasury market on basis traders and to some extent primary dealers as well. So whenever you become overly reliant on one type of liquidity provider another, you're always at risk, and the odds are eventually that liquidity provider is going to have a pullback, which will cascade into a full market liquidity hiccup.

But by the way, that's what's a market is supposed to do. Markets are supposed to seize up from time to time.

But by the way, that's what's a market is supposed to do. Markets are supposed to seize up from time to time.

Tom Left's question, we've been so US focused. Understandably so, but I do wonder the global bond story. It's not just a US bond store, but we're seeing this play out globally. How do you kind of factor all of that in?

Tom Left's question, we've been so US focused. Understandably so, but I do wonder the global bond story. It's not just a US bond store, but we're seeing this play out globally. How do you kind of factor all of that in?

Well, I think the economic weakness is greater outside of the US, and so as a consequence, you should see other central banks beginning to pivot themselves and eventually move towards rate cuts.

Well, I think the economic weakness is greater outside of the US, and so as a consequence, you should see other central banks beginning to pivot themselves and eventually move towards rate cuts.

You should also begin to.

You should also begin to.

See other central banks pulling back from balance sheet reduction, as the FED is eventually going to do. So there should be global support for the bond markets because you simply have a weakening global economy.

See other central banks pulling back from balance sheet reduction, as the FED is eventually going to do. So there should be global support for the bond markets because you simply have a weakening global economy.

Five seconds. You have a favorite global bond market.

Five seconds. You have a favorite global bond market.

Right now, the US.

Right now, the US.

All right, all things hell, the US splendid position. Tom, Thank you very much for being with us this holiday. Tom Tazarius stradigis on All Things Markets.

All right, all things hell, the US splendid position. Tom, Thank you very much for being with us this holiday. Tom Tazarius stradigis on All Things Markets.

Certainly watching what's going on in the Middle East. Having said that, We've got a great guest. Norman Rule is former senior US Intelligence official and senior advisor of the Transnational Threats Project at the Center for Strategic and International Studies, joining us on this Tuesday. What do we need to be thinking about as we continue to watch these headlines and what seems to be escalation of the Middle East conflict?

Certainly watching what's going on in the Middle East. Having said that, We've got a great guest. Norman Rule is former senior US Intelligence official and senior advisor of the Transnational Threats Project at the Center for Strategic and International Studies, joining us on this Tuesday. What do we need to be thinking about as we continue to watch these headlines and what seems to be escalation of the Middle East conflict?

Norman, Good morning. Over the last several days, we've seen a multifront escalation violence through the region. We have the Israelis moving from a holding pattern North Gaza to Rafa and Khan Yunis, which is going to be the most difficult and challenging aspect of the war. But it's the location of the Hamas leadership hostages and a vast array of connels, perhaps twice as many israel anticipated. We've seen the attacks by Ketab Hasblo on US forces and the US response against three sites in Iraq that is demonstrating a capacity for retaliation but not necessarily determs. We've also seen the Israeli believed killing of the most senior Iranian Kods force officials since Akassam Solomani. He was responsible reportedly for the shipment of Iranian weapons to proxies in Syria and Lebanon, and his death will require some sort of Iranian retaliation. And last, we've seen some modest continued action by the Hufis against shipping in the Red Sea. However that's been offset by a growing number of ships from a variety of and MRSK has resumed its shipping through the Red Sea Arabian Sea area.

Norman, Good morning. Over the last several days, we've seen a multifront escalation violence through the region. We have the Israelis moving from a holding pattern North Gaza to Rafa and Khan Yunis, which is going to be the most difficult and challenging aspect of the war. But it's the location of the Hamas leadership hostages and a vast array of connels, perhaps twice as many israel anticipated. We've seen the attacks by Ketab Hasblo on US forces and the US response against three sites in Iraq that is demonstrating a capacity for retaliation but not necessarily determs. We've also seen the Israeli believed killing of the most senior Iranian Kods force officials since Akassam Solomani. He was responsible reportedly for the shipment of Iranian weapons to proxies in Syria and Lebanon, and his death will require some sort of Iranian retaliation. And last, we've seen some modest continued action by the Hufis against shipping in the Red Sea. However that's been offset by a growing number of ships from a variety of and MRSK has resumed its shipping through the Red Sea Arabian Sea area.

They have, indeed, Norman they've resumed that, and that is the coalition of up to twenty countries that are now affording protection. So I think that is quite progressive. I want to join your experience. You were the principal intelligence officer overseeing national intelligence policy on Iran and Iran related issues. I sat down with the Iranian Foreign Minister when he was here at the UN. I specifically asked him about where you scaling up in terms of troops, in terms of ships, et cetera. Of course, he prevaricated and accused me of perhaps interrogating him rather than interviewing him. The essence of it is this, when you look at where Iran are escalating via their proxies. Where are the weakest links, as it were, for the Coalition of the West. Is it in Lebanon? Is that the highest flashpoint that you can see, or is it this one off reprisal from the US into Iraq? Where is the weakest link for the coalition At the.

They have, indeed, Norman they've resumed that, and that is the coalition of up to twenty countries that are now affording protection. So I think that is quite progressive. I want to join your experience. You were the principal intelligence officer overseeing national intelligence policy on Iran and Iran related issues. I sat down with the Iranian Foreign Minister when he was here at the UN. I specifically asked him about where you scaling up in terms of troops, in terms of ships, et cetera. Of course, he prevaricated and accused me of perhaps interrogating him rather than interviewing him. The essence of it is this, when you look at where Iran are escalating via their proxies. Where are the weakest links, as it were, for the Coalition of the West. Is it in Lebanon? Is that the highest flashpoint that you can see, or is it this one off reprisal from the US into Iraq? Where is the weakest link for the coalition At the.

Moment, The most important area for focus, I continue to believe would be the Red Sea. We have to watch for the possibility of the Hui's using explosive drone boats, perhaps mining, and perhaps believing that the retaliatory capacity of the coalition is weak because it is untested and the US is now pretty much advised it's not interested in escalation of regional conflicts, so I would look there as a result a response from the proxies. We do have the Lebanese challenge, and Israeli soldier has died today from wounds he incurred from an anti tank rocket a few days ago. But the Lebanese has block peers to be constrained by its own perception that it doesn't want to be involved in a conflict that could bring strategic damage to its own equities.