Bloomberg Surveillance hosted by Tom Keene and Paul Sweeney
August 21st, 2024
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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always i Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. The annual payrolls benchmark revision. Sarah Hunt is in equities and she's focused on this economics. Why are you focused on this payroll revisions? If you're running stocks?
What's been going on for the last year. One of the big things that people have been excited about is the labor market has stayed strong, and this is given the FED room to not cut rates because the economy has stayed strong. And if this turns out, and there have been a lot of discussions about which of the various labor mass ways you should look at, this are correct. If there's a big downward revision. Then that labor story starts to take a little bit off, and people really start to worry again about the consumer because if if you have a job, you're willing to spend it, if you don't, you're not. So I think that there's a big question about how that plays out Atlanta.
GDP is coming down. It was two point x boom economy, solid economy. Maybe it's down to two percent. Is there a point where in the equity space we become more like Macy's and not Target, where GDP and consumer pulse gives way to moldy earnings.
I think that's the big concern, right because what you've seen out of the sort of discount retailers, if you will, is good numbers. And Target had a lot of problems coming out of the pandemic with an inventory shoe and it took them some time to work through that and now they're back on track. But with Macy's, it's hard to tell if it's just Macy's, but if that middle consumer is really starting to feel the pinch on both sides, I think you start to worry about earnings, and that becomes a question with equity levels where they are.
We have some I think the earnings come out of the second quarter were pretty solid. How do you What did you take away from the second quarter earnings and maybe some of the I guess the forecast going forward?
Well, I'm going to give a big plug to Tom Keane's corporations will adapt.
Yes, and they.
Did Sparta listening. She's probably up at ninety two nine. Yes, in Boston working on that, working on the painting, getting the curtains and all that, because after Labor Day we're on a big news single.
I know Boston, I know it's huge.
Basically, she said that that's great.
Yeah, So I mean earnings, I mean, what's your takeaway?
Well, I think that the big concern, and it was concern that we shared quite honestly, was that margins were going to have a problem as inflation came down, because if margins were accelerating because of inflation and corporations were capturing, than they were going to see a bit of a margin squeeze. So far, that has yet to materialize, and in fact, the expectation for margins going into twenty twenty five and the backup of twenty twenty four are pretty decent. So that's where your earnings have been able to be okay. The question is if the top line starts to get affected even more, that could be an issue.
Is your analysis narrow and sector specific and even within sectors, or is it more holistic about the market.
Well, the numbers that I was just talking about are more holistic about the market, but if you look at certain sectors, I mean, that's where also technology has really carried healthcare in a lot of places. Healthcare has been a little bit problematic coming out of the pandemic, but it's starting to work better and it's starting to do okay. I think the insurers had great numbers coming out because nobody was utilizing healthcare for a while. So the question is what's going to happen to them as utilization starts to pick up. But I think in general, the question about margins has been a lot less. It has been more benign than people expect.
I said, Lisa, is my botox? Is that utilizing healthcare that doesn't care that we'll save me?
All right, Sarah, where do we go here? Coming out here this earnings? We've got a fed that presumably me cutting rates. We've got decent earnings. Do we just stick with the magnificent seven. Do we try to get a little bit more creative out there, Do we look for value and sectors outside the mag seven?
Well, some of the catch up in the last week has actually been on the S and P equal weight, So that tells you that that market has broadened out a bit, So it's not just the Magnificent seven. I think that downdrafting technology was bought pretty quickly. It was the balance of the market that took a couple more days. But you really have seen I mean, it's almost like the beginning of August never happened, right, So there's a very there's a very quick snapback there. And I think that as long as you can see, you know, corporations are still spending money, there's plenty of cash out there, it does look pretty good. But if you start to see things really slow down on the margin, the question is where the valuations are now? Can they stay there or can they go further? What's your next leg up?
At the heart of this, and I'm going to cite glob and sex, but you know, I'm not sure that, folks, I don't have it in front of me. There seems to be a model from six percent revenue growth down to four percent revenue growth. David Coston, like me taking this off of nominal GDP. Can your world work successfully with nominal GDP giving you four percent revenue growth?
Oh? I think it absolutely can. And in the people younger.
Sarah don't agree with this. I mean, you were nineteen when we were doing this. But the answer is there was a time where nominal was there.
Yes, and I think that there was also. Again, it is such an unusual situation to have gone through a global pandemic that this fits and starts, and the actual numbers and how fast things are increasing are harder to put into a historical context when you have such a giant downdraft. I mean, I think that's part of the problem with the labor market. And one of the reasons that people are concerned about the revisions is because we're working off a lot of models that are hypothetical, that show a birth death model for businesses and everything else. And I think that that's really difficult to parse when you go through such a big historic change.
Fixed income to your treasuries four percent, that's fine for me, but try to take some more credit risk.
Well, I think The difficult thing is now is that you know that the FED is going to start cutting rates. They pretty much telegraph that that's going to happen, and whether or not they do it in a big, chunky fashion, which I don't expect them to do. We know that those short term rates are coming down, so sure you can take four percent out of two year, which you're not. It's going out further, that's the question. And compressed credit spreads are still very compressed, so that means that taking that credit risk, you're not getting paid as much as you would have in any kind of an with a little bit more uncertainty. So it's a little difficult, but I think that having some fixed income now finally is part of the portfolio.
All Right, we're sending Tom Keen and Lisa browm w's out to Jackson Hole today, so they're going to get ready for this whole thing. What are they going to hear when they go out there? Do you think?
Well?
I think a lot is going to depend on what happens today and with those revisions, because whether or not they have to talk about that or not talk about that is going to be a big issue. But I also think that it's been telegraphed, like I said, pretty well that unless the data goes in the opposite direction and or you see a spy and inflation, we can start to expect to see rates come down. And I think that's going to be if we don't do much else except deal with that. I think that's probably going to be what they're targeting.
So, I mean, I think the issue here for a lot of investors, Sarah is I mean, I've had a pretty good year so far. I mean, do I just can I just take my money and just put it under the mattress for the rest of the year. What do I do here?
Well, you could unless you did it for a living, which case it wouldn't really appreciate.
That we're paying you to do this. I forgot we're paying you to do this.
I think. I mean, we've been really we've been pretty happy with our positioning thus far this year. That downdraft was so fast, nobody really changed very much because it was such a quick, quick up and down. I think that what people are looking for is what's going to happen into twenty twenty five, what's going to happen as we go through the end of this year. This year looks pretty good. What's going to happen next year? We've got an election. There's some uncertainty there.
As a general statement, I don't see exuberants within broader society for stocks. I can't believe I'm saying this. It futures forty one twenty five on the doubt, I don't sense. Am I wrong?
No? I think that there is a real question of, like, okay, we bounce back for all this, all these things happen, Where are we right now? And how much money do I want to put to work immediately? If I was starting a brand new portfolio, I would probably do that in stages, because I'm not sure given some of the uncertainties that we're seeing, why you would put one hundred percent on day one. Given that the equity markets are where they are, which doesn't mean that they're completely overvalued, it just means that we are not. We're not in the middle of a downdraft.
We didn't.
We had a correction, We turned around and came right back to close to all time highs.
Yes, sir, thank you so.
Much, Sarah, thank you for being this Olping was kepling and reporting from Chicago, reporting and she always does wonderfully on the politics of the nation in this case of a democratic flavor. Open question and where he to start. How's the energy in Chicago different from any other convention you've attended.
Well, look, I think there's a ton of energy at the RNC as well, especially that evening that Trump came out to give his performance. I was on the convention floor and it was really it was electric to the people in the room. The man had just literally dodged a bullet, there was an attempt on his life. And then he comes out and explains all of that in depth to his supporters and almost gave a sermon. But since then, a month later, this election has changed drastically and there is fresh energy and momentum in this Democratic Party. Kamala Harris is drawing crowd that Joe Biden was unable to do for the past year.
In fifteen minutes scheduled, there's going to be the Hispanic Caucus meeting. Does Vice President Harris want out of the Hispanic Caucus meeting?
Well, she wants them to be energized to get voters out in places like Arizona and Nevada, which now are in play for this Democratic Party, and these are states that she is going to be visiting, and she needs to do that because one issue that's close to a lot of these people in these states is the border, and President Donald Trump will be in Arizona at the border on Thursday, wanting to counter program the rhetoric and the policies we're hearing out of the DNC. He really wants to try, or his campaign wants him to try to focus on the issues, and that's one of them. So when she speaks to people like the Latino or LATINX Coalition, it's about this making sure they can run up these numbers in these states.
An Marie, what is the expectation about the Democrats positioning for down ballot races. I've seen some reporting over the last couple days that the momentum that Kamala Harris has generated so far since entering the race as the top candidates will maybe impact down ballot's. What's the thinking on floor there in Chicago.
Well, this is one of the reasons why when President Biden recently sat down with CBS this morning, he talked about that's one of the reasons why he decided to leave the race. He saw that the data he saw. The information he was given was that it was affecting his colleagues in Congress. There's been a lot of anecdotes about this. You have someone like Alissa Slotkin of Michigan trying to claim that seat, trying to move from the lower Chamber to the upper chamber. In a leaked report to The New York Times about a phone call she had with donors, she was talking about the fact that the issue she was facing was that with Trump on top of the ticket, with Biden on top of the ticket versus Trump, it was hurting her chances. Now there's renewed momentum down ballot that Kamala Harris can help pick some of the these people up in very very tough a very tough map in terms of Democrats trying to hold the Senate and also trying to win back the House.
Amory, the script is you do the polarity at the conventions, and then you run to the center. When does the run to the center, Oh, mister Trump, I guess it's sort of unique because he's going to do what he wants to do. But for the Democrats, it's an example when do they shift to a center tendency?
I think they're trying to do that now. Really they are balancing who is speaking. Yeah, they're balancing who is speaking at this convention. When you heard from Michelle and Barack Obama yesterday, it is this message about how this could be a ticket for every Americans. They are trying to lean into this idea and Libby Cantrell was on surveillance this morning talking about this idea of vibes and personality. They're trying to reenact what happened in two thousand and eight. The issue is they have a very short runway. Potentially they can do this because they have a very short runway and don't need to go into detail and some of their policy proposals that maybe some in the middle would not be would not be excited to vote for.
Right. One final question, can you get out to Cubbs Tigers at eight pm tonight? Can you sort of, you know, do the Ammory Horden Act and then slide out to Wrigley Field to take in three innings now.
On a mission.
I think it'll be a little bit difficult tonight, given the fact that Governor Walls will be giving his speech accepting his VP nomination and also Speaker Pelosi, which Tom I got to say. The line that struck me last night at the DNC was when Governor Newsom said He's coming from the great state of Nancy Pelosi. That's how he introduced California, when he helped when he was calling up.
The end of the role call.
And in many way this feels like this is her convention, a totally different convention we're having now than we were planning a month ago.
Okay, I'm gonna go see Dansby Swanson. You can deal with the politics. Emory Orton, thank you so much. They're really great following and in reporting. I mean, she's tough. William Lee, Billy's chief economist the Milican Institute, Bill I don't know if you're up to speed on this, but basically for it came out and said today they're EV strategies not working, billions of losses. China completely dominates as a foreign affairs article this month. It's literally in my suitcase, folks on the way to Jackson Hole, Bill Lee, the Chinese EV strategy. How does America compete against that?
It's got to be a really tough Tom. The Chinese have so dominated in their production of EV's the state subsidies have made them so good cevs. Their efficiencies are just better than anybody else right now. In fact, that's why you see Elon Musk over there, because he really has taken advantage of not only the state subsidies, but also he's brought his own technology there. So the way you compete, I think is to sort of join them. But that is truly, that's true for a lot of these new energy industries, electric photos, electric solar cells, and batter and electric vehicles.
So you know, Bill, a lot of investors, Western investors got exposure to China through some of the big tech companies like an Ali Bober for example, and a lot of those folks who financed a lot of the growth for China technology. I think they feel like China's uninvestable now given what the government has done too, not only technology but other parts of the economy. What's your view to those or how do you respond to those types of folks.
That's the rare point, Paul. If you're already in China, like a city bank, JP Morgan, even a tesla, you can put more in because you know exactly what you're getting into. You know the deals that you're getting into, you know the kind of market that you're going into, and you have a niche product if you're a new investor, and a lot of a lot of our sponsors that at Milkin I have talked about, how do you get into China now if you're not able to do the due diligence to find out exactly what it is that you're getting into, especially a dynamic market like China where the domestic market itself is not growing as rapidly as you thought it would have been would have just a few years ago. Not only is the demographics situation dismal, but their near term situation is really a problem because they aren't able to bring the amount of stimulus to aggregate demand that they really need to seem like the economy and get growth going. And part of that problem is because they're so heavily indebted there. The size of the fiscal signals they need to bring is limited by the huge amount of debt that they have, not only not only at the general government level, but more importantly at the provincial level. Because it's tom as you know, when you go into a deal with China, a lot of the deals are made with provincial governments, But now those guys are so heavily indebted they can't make the kind of deals they used to make.
Billy, I look at the currency movement here, and folks, I can't emphasize enough the persistency of trend. For example, singapore dollars strength literally over twenty years. Now we have finally a legitimate dollar weakness for Bill Lee of the IMF and of Milken. Is it a legit weakness or is it just a wobble along the way of selected Pacific rim strength.
It reflects the shifting positions of these two economies, and in some ways it represents the success of these currencies, both in Asia and the shift in the United States, where so much of our manufacturing prowess has really moved out of the United States. And that's what all of these chip acts and all these US subsidies are about to try to bring back some of these jobs and be sure or at least a friends shore some of these supply chains. But again we have to talk about the apparent's historical success versus the prospective success going forward. Will China continue to be the super growth market, Will Asia continue to be the super growth market for the latter. Yes, it's very clear that during the demographics in Asion, and and and India, there's a huge advantage and growth potential there. For China not so clear. And as I said, the debt problem is really a huge problem for them, especially at the local level, and it's the off balance sheet dead the local government financing vehicles they call them.
What do the em Central bankers or for that matter, the managing director Gargava the i m F. What do they want from Chairman Powell at Jackson Hole.
I think the one thing they want from the United States is a stability of policy and consistency of policy. You can't have the kind of database strategy that is so data dependent that you can't say how we're targeting inflation, whether we're going to be continuing to subsidize certain industries to try to attract them back on board. I think the foreign companies as well as foreign governments and our own government, our own domestic companies. I'm looking for our government to be much more consistent in our policies.
Billy, thank you so much. With Milkin in the front pages, of course, A Lisa Mateo, our Lisa Matteo.
All right, So the US open begins next week, right, the feeders already started, but the Wall Street Journal is saying that Americans they're going to have more to cheer about because five US men, five US women. They're ranked in that top twenty for the first time since nineteen ninety seven. So for the women, you have Cocoa Goff right and a number three she wants to defend her US Open Women's singles title. You have Jessica Pagoula is another one there, Danielle Collins and the Navarro Madison keys.
And then on the men's side, you have Ben.
Shelton, he's thirteenth in the world, Taylor fitz Fritz, Tommy Paul Sebastian Corda, Francis Tiaffo, he's a semi finalist in the US Open in twenty twenty two. But the last time this is what I thought was interesting that they had at least five men and women ranked in the top twenty was October nineteen ninety six. Pete Sampras was the number one men's player, so that's when it was go and Monica Sellis was a top ranked female player.
So that's how long it's been.
I feel fortunate to have seen Forest Hills and really lived in Yep. It was it was magical. I went out to the Open a couple of years ago, seem a right of Kanu and and I just it's just too many people. It was just they could like take a thousand or two thousand people away.
And to me, I'm going, I'm going next Tuesday. Almost i won't be here case because I'm gonna be the first Tuesday of the tournament. Every year. It's the best day to go out there. And they process all these people. I think, very very they do fair. And I think the US Open is a quintessential New York City event. It's just it is the one of the greatest things in New York City. I think. So I'll be at their next Tuesday.
You know what it's going to be there to Carol Master, Tim Senovik. They're reporting live there Thursday Friday.
Of of course they are their thirsday, their stars. They get the good stuff they get, they get to go there. You know, Alex Steele and I would go to like what are we Memphis? You know they get the US Open. I get it. It's it's you and I are at the Dunkin Donuts exactly.
And they're at the open with Coco next.
I'm not sure if you've been to an ATM late that's not in your network.
If you notice how much they're charging you now for those please thank you.
Okay, so bank Rate did this study, can be those fees are at the highest rate. Four dollars and seventy three per cents is the average, but some people have paid more. Atlanta actually gets the highest fees. So when you go out of network. The good news that bank rate did find is that overdraft fees are the lowest and nearly two gig decades so. But the thing is is that about ninety one percent of the banks that they surveyed still charge the over draft fees.
No, you're still kind of basing that part.
I mean you have to have I mean, here we go, folks. This is how you roll. You get a big water of cash. That's how you do it. The kids don't do that anymore? Did they don't do it? They don't have cash.
No, I have to admit I don't really carry cash down. I know you Venmo people.
Yes, I think if you're Bernie Sanders lest I'm talking to the Democratic National Convention, I don't I mean, I totally get the overdraft charge.
You know, like you know that, you know you have no money business, right, But the.
Bank thing from a marketing standpoint, to go up to another bank where I may someday do business and they're taking three dollars from me, yeap is insane. I don't get it. No, I just there's no there's no reason, there's no.
Like, and I'll drive farther just to find my bixactly.
Does cost do ATM is a costco for you?
They do? Actually, they do have next to the hot.
Place they charge your two dollars for the ATM fee, where they get you fifty for the hot dog.
This one I find interesting. This is in the Wall Street Journal.
A lot more people now are getting hip and knee replacements.
Younger, so younger and younger.
Because they don't want to give up skiing, hiking, pickleball. They're more active in their fifties sixties. Obesity on the rise. That extra weight puts more pressure on your joints. So they found that patients ages forty five to sixty four, a two hundred and eleven percent increase in hip replace meants two hundred and forty percent increase in knee replacements. That's between two thousand and seven and twenty seventeen, so more people are getting these surgeries.
The technology is of course better.
But yeah, they want to stay that used to sideline.
They don't want to be in the side.
Now now you can get right back up on that stuff.
So all right, it's like my mom, she's going for the surgery. She wants to keep playing tennis.
Is that right? Good for seventy three?
I didn't know. I have a friend Carl, who wanted to extend his NHL career. You know, he's looking at Chris Chellio. So when he played for the Red Wings, Carl, you know, and he got both hips done, both knees, both this, both.
This, and he's great and he feels good.
You should see him. He back checks like nobody. I know, he comes back down the ice. He's up somewhere in happy Land in New Hampshire, and you know he backchecks like a twenty five year old. I don't know how he does. He's got fake hips, fake knees, fake this, fake that works, and you know he's he literally back checks like a twenty five year old.
What do you Maybe that's the key then, speaking of which you know people living longer. The world's oldest person has passed away one hundred and seventeen years old. Can you have sev one hundred and seventeen. Her name is Maria Branyas Moden. Now she's an American born Spanish woman, and she has this huge.
Following on social media. Of course she does.
She's called the super Catalan Grandma, so that's her handle. Everybody like loves her. But she says, you know, she was aston Pattis interviews what's a secret, Like, what's the secret to living longer?
And she says she doesn't really do anything special. She didn't smoke. She likes to eat yogurt, ding ding ding. There you go. She does moderate exercise.
But she had like a note story here indication.
Of cancer anything never shows. China's dementia.
Born March fourth, nineteen oh seven, in San Francisco. Facing dire straits, the family returned to Spain when mister Bronias, when Miss Bronias was a child on the boat to Spain, her father died of tuberculosis. I mean, these stories back from this story unbelievable.
Yeah.
Yeah, she went on and got married, three kids, more than a dozen grandkids.
So there she lived through the country civil war and the brutal Franco regime. She had clear memories of the D Day invasion at Normandy, she told the Spanish newspaper, I mean unbelievable.
Unbelievable. Now this is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.