Hotter CPI Unlikely to Deter Rate Cuts – For Now | Bloomberg Surveillance
Summary
Market Outlook: The podcast discusses a generally positive market trend, driven by expectations of the Federal Reserve easing monetary policy, which supports cyclicality over defensive sectors.
Economic Concerns: Despite lower interest rates, housing demand remains weak, signaling potential issues in the labor market and a possible increase in unemployment, which could challenge consumer spending.
Federal Reserve Strategy: There is criticism of the Fed's meeting-by-meeting approach, with suggestions that a more aggressive, front-loaded rate cut strategy might be necessary.
Global Market Dynamics: The discussion highlights a global bull market, with frontier markets performing well, and notes that geopolitical and domestic issues like tariffs are not significantly impacting market sentiment.
Investment Themes: The podcast emphasizes the importance of productivity improvements, particularly through AI, as a key factor in sustaining economic growth and justifying current market valuations.
Sector Analysis: Healthcare is identified as a potential opportunity due to historically low alpha generation, suggesting a contrarian investment opportunity as momentum builds.
Market Risks: The potential for a market bubble is discussed, particularly in relation to assets that have doubled in value over two years, with gold being highlighted as an area of concern.
Labor Market Insights: The impact of immigration policy on the labor market is considered a minor factor, with more emphasis placed on the disconnect between GDP and employment data.
Transcript
[Music] Bloomberg Audio Studios, podcasts, radio, news. [Music] This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. RenMac or Renaissance Macro does as good a job as anybody worldwide at blending the two in the back and forth daily grind of following markets and executing market economics. Jeffrey Degraph is chairman Neil Duda head of economic research and to have both of them in our studio is a real treat. How was Renaissance macro invented? That famous picture of Lehman falling apart was RenMac invented right there. It was not, Tom. I was uh I had actually left Lehman Brothers about a year prior to the demise of Lehman and uh I went over to Neil Edman's shop, sorry, uh at ISI because he was creating this kind of macro juggernaut and I said, I want to be a part of that. And so I was there for 4 years. He started building it out into more fundamental research and just wasn't something that really appealed to me. So we pulled the rip cord and started Redback and had the good fortune of picking up my friend over here, Neil Duta. I mean, Neil Dada with all of his work as well. Full disclosure, a couple years ago, my economist of the year, we're not going to do like what's a Fed going to do here. I want to talk for Global Wall Street about the synthesis of research. Jeeoff, let me start with you cuz Dut is putting out three charts an hour. You and I are technical animals. I mean, it goes back to John Maggie and Aw Cohen and that. What is the trend of the market right now that overlays on Neil Dada economics? >> Well, I'd say the the trend of the market's clearly positive and I think a lot of that has to do with Neil's call on the Fed, right, which is expecting that the Fed's going to come to the rescue and certainly start to ease and I think the market's seeing that and you're seeing that in cyclicality versus say defensive still, which I think is important. The real call for us is going to be in the in this fourth quarter is do we lose that cyclicality for defensives? If that's the case, then I think the Fed is behind, way behind. And I think that's the that's the issue. So far, that's not happening. And and and we're keeping a bullish posture, but that's certainly on the top of the radar. >> Dud's entourage just sent me a note. Ask Neil a question. Put a cork in the graph's mouth. Okay, let's go there right now. You were Mr. Optimist and about 12 months ago, 18 months ago, you said, "Wait a minute. I'm looking at the tea leaves and I'm cautious into Q4 into 2026. In which way do you tilt with optimism or caution? >> Uh caution. I mean for me I think uh right now we have sort of a uh a housing centered view of the world out. And I think what's interesting is you know interest rates have been coming down. Uh but you haven't really seen housing demand um improve in any meaningful way. And to me that's that's sort of a yellow flag on the outlook. Um you know builders seem to have sort of hit their pivot point on margins. Um, and I think that's going to mean less construction activity. Uh, and I think that's going to bleed into employment. I do. And if, um, if you start seeing construction workers let go in an environment where you're not really creating much jobs growth to begin with, um, I think that's sort of another potential source of upward pressure on the unemployment rate. So, I would I do think the Fed is a little bit behind here. Um, you know, the fact that they're kind of taking a meeting by meeting approach as a as opposed to just giving guidance into the first half of next year, I think is a little um, you know, it's a bit of a mistake. Um, but yeah, I would just say that the housing market is softening. Uh, that's going to bleed into the labor markets. Um, that's going to mean weaker real income growth, which kind of challenges consumer spending. >> So, should the Fed be more aggressive than maybe the market's pricing in right now? Should they maybe be a little bit more front-end loaded? >> I think so. I mean, I think they I mean, they will go more than the markets expect, I believe. I mean, that's ultimately the whole point, right? Is like what do you think's what what is the market pricing in? That's what our business is, right? What is the market pricing in and what do you think the likely outcome is going to be, right? And, you know, the market I think is probably on sides for what's going to happen this year. But if you look at 2026, um it looks like the markets are barely priced for two cuts. All onsides is the word that data uses year-to date. NASDAQ comp not the 100 up 18%. It's going to be a tough year. We're single digit. Degraph's pulling his hair out saying no, get on board. I mean, that's what we saw continue. >> So, Jeeoff, again, as Tom says, there's a lot of crosswinds out there. Let's call them crosswinds, geopolitical issues. We've got uh domestic issues with uh tariff policies and just on and on and on. >> Yeah. >> Yet the markets are ripping other than the dollar which is still kind of cautious. What do you make of just as you step back and look at the markets? >> Well, you hit a really important point which gets underappreciated which is there's a global bull market happening, right? So all the concern about tariffs and I get it. I mean we you know we all know it. um that just is not is is not resonating with markets which are saying there's something else here that's happening right and this isn't this isn't just the G7 or even the G20 look at the frontier markets they look fabulous right um so I think you know to to put the narrative on it we try not to do we're we're trying to be purist in what in how we look at things in the world um now I'm a little concerned about gold we entered bubble territory but the rest of it looks pretty good to us so uh look I'm I'm in the camp that we get a consolidation But uh if if Neil's world ends up developing, I think that's extraordinarily bullish for equities because we have not seen um you know the the markets fall apart when we've got yields coming in. And I think that's one thing when people are talking about bubbles, they miss the idea that yeah, look, housing bubble, yields were going up for a year. Do yields were going up for nine months. Uh 2021 yields were going up, right? Here we're we're actually on the cusp of the potential of yields coming down in what is, I'd say, a bit of a speculative market, but not nearly anything what we've seen before. >> Special treat for Bloomberg surveillance across the nation around the world on YouTube. Subscribe to Bloomberg podcast, Jeffrey Degraph, Neil Duta of Renaissance Macro together in our studios with our remits of economics and following uh the markets. So I'm interviewing Chris Waller in in a speech at Council on Foreign Relations. Neil, uh, I want to switch this here. I want to go to you on economics, Jeff. Okay. >> To create some wonderful tension, there's a single sentence, which is Marty's wide 101. Don't fight the Fed. I mean, we're really right back to that with a modeled four or five rate cuts from Governor Waller. Yep, I 100% agree. And I think you can distill that down to how does discretionary act on a relative basis. And right now, while it's not a lock, discretionary is still in an uptrend on a relative basis. And I think that's good news. >> Yeah, continue. >> I say it just says to us that the the Fed is is still playing this game that they're not behind yet to the point that it's affecting those consumer names. >> We go to financial analyst Neil Dutter right now and and the markets here. Come on. Nominal GDP pops right over to it. Somebody had a bar chart in the zeitgeist in the last two days of the complete misjudge on what GDP and nominal GDP have done. Does that continue to spur revenues and down the income statement? >> Well, well, I don't think nominal GDP is really growing as rapidly as the GDP tracking numbers are are kind of telling us. I mean, I think one rule in business economics is, you know, when there's a big disconnect between GDP and employment, you tend to go with the employment data. Obviously, the fact that, you know, total hours worked are barely positive over the last 3 months, I mean, they may in fact be negative. um that would suggest that you know GDP growth is is probably overstated. Um and so you know I tend to put more weight on employment. So, but I do think that's an important question for the market, right? I mean, obviously the bond market is pricing in a much different nominal growth outlook than than equities. And you know, how that reconciles um I think will be an important question for next year. And you know, I mean, basically what squares the circle I think is a productivity boom. uh that that's really what what what um you know what kind of resolves all these tensions I think in the market because um you know if if let's say the 10ear yield is whatever below 4%. If that's the nominal growth outlook, how do you justify the earnings expectations that are embedded in current market pricing? Only productivity makes that happen. And if productivity doesn't show up, then you know there maybe there's some risk to equities. >> Maybe it's all AI. Maybe that's doing it for us. Jeff, what do you make of the dollar here? We've had it stabilized, but equities have bounced back to all-time highs. Yields are coming in. Uh but the dollar is just kind of hanging down here. What does that tell you? >> Yeah, it doesn't tell us a lot, honestly. Um, you know, I think there's there's flow data with tariffs and and the leverage points that as we still negotiate our ways through this. Um, I think it's important to realize that gold got into a parabolic state, you know, over the last call 6 weeks as the dollar actually strengthened and certainly firmed, right? So, um, you know, there's more to the gold story than it's just the weak dollar story. And and frankly, one of the things that I like about gold, I do think that that it's going to take a pretty significant pause here, but I think one of the things that that's interesting is that there hasn't been a single narrative. Usually when you get into these bubbles, it's everybody knows what the single narrative is, right? And you you can ask the question and I think there's three or four probably correct answers, but it's not the market hasn't decided on one and that's where you get into trouble usually. So I'm actually still optimistic about that. >> Okay. Can we go narrow Neil? Is it okay if I go like nuts to graph right now? >> You're talking I mean the micro analysis of his note. Get his note from Renaissance macro folks. And you mentioned Gilead silent science. I mean the healthc care I mean healthc care has been an absolute train wreck sector. Yes. How does someone like you combining fundamentals and particularly technical dynamics know when to pull the trigger and go long healthcare? How do you do that? >> Well it's a it's a process. And so the first thing that we start with Tom is we look at at what we call our serum standardized excess return. And that's really just a fancy way to say a longer term alpha generation model. Right? In other words, we're looking at how much alpha has been generated for the sector, in this case, healthcare, over the last 3 to 5 years. And if we compare that uh to the sector since the 1960s, we've got singularly the worst alpha generation we've ever seen, right? And that's I mean that's capital markets. It's going to it's going to result in bankruptcies. It's going to result in M&A everything else. Okay? So that's the contrarian that that that unless you believe that these things are going to zero as a sector, which doesn't happen. That's not going to happen. Then we wait for momentum. We wait for we wait for trends. We wait for momentum to confirm that. And that's where we lean into it. We did it with China about a year ago. We're doing it with healthcare now. >> I mean, I look, this is so important, folks. This goes back to Ed Heyman. This goes back to John Murphy. The melding of this of Neil Dud is economics, Jeff Degraph's, I'm going to call it technical bias and then over to fundamental analysis is the religion here. Okay. So, you're there, but value investing is basically cratered and only does well given down markets. So we haven't had a down market. Are you are is your tone at the shop growthiness or is it a value search? >> No. No. It it is we will take what the market gives us. I mean we will go with the market giving you right now. >> The market is giving you growth. It's giving you um it's not giving you it's not giving you value. It's giving you beta. But we think beta is actually stretched. And we we actually believe that the market is going to transition from beta at any price and transition that into momentum. And that'll be an interesting play because that's usually what happens and that's where you get into the final stages of a bull market and we're not there yet. >> Neil, you've been talking a lot this morning about labor. How does the change in immigration policy affect kind of the the analysis of the labor market here because that was a lot of folks coming into this country taking a lot of jobs and they're not coming in anymore. >> Um I mean I personally think that's more of a red herring honestly. I mean to me it's interesting because we're talking about how break even rates on employment have come down. Meaning what do you need to keep the unemployment rate flat precisely at the time where the unemployment rate's been actually rising a little bit more rapidly than it has in the you know over the last uh year or so it's it's up basically you know had the September data been released it probably would have been up three months in a row by a tenth. Um so yeah I mean the break even rate has come down but it hasn't come down enough to keep the unemployment rate from going up in the first place and uh you know that to me is what's important and if you look at you know these areas of the uh economy that are sensitive to immigration you don't really see upward wage pressure uh in construction employment in sort of uh you know sanitation the these sort of sectors where there's a lot of lowskilled work um so I don't know I mean I think it's to me It's a bit of a red herring. And of course, um, look at what people are saying about like job finding rates. >> They're telling you it's getting more difficult to find work. And when when consumers tell you labor markets are getting worse, I think it pays to believe them. >> I'm hearing this from listeners and viewers as well. So Neil Dud, I asked this at Waller, let me ask it of of you. Are we so polarized in our John Edwards two Americas that we literally have to operate with a study of two our stars, the halves and the have nots? Are we that separate now where aggregation of data doesn't work? >> Well, I I I don't believe so. I mean, I think ultimately um you know, all of these things will kind of net out over time. Um you know, I mean, what you're talking about basically is this sort of K-shaped economy, right? Like this idea that the upper in I mean, and that's and that's a that's a huge source of push back that I get in our own client meetings, right? >> Throw a tape dispenser at him when he says cliche. We we usually mud wrestle for the uh >> K-shaped I remember V-shaped. We got a real treat and it's too short to visit Jeff Degraphth with this and Neil Dota of Ren. I'm going to go to you Jeff quickly. Neil, you quickly because Paul wants to get one in before the market opening. Jeff Degraph, what's the biggest mistake people make in particularly the young kids day trading with technical analysis? I think they they have an illusion of control. uh selling high, buying low, selling high, buying low versus uh writing the trends. >> What's a technical writing the trends? What's a technical stochastic failure of all this computer garbage today? >> Well, again, it's that illusion of control that you think that you can predict what's going to happen versus just riding the wave of of earnings and everything else. >> What's the biggest mistake in our nation's economic analysis right now >> is that you assume that uh relationships are stable from one cycle to the next. one cycle to the next. >> Boom. I like that a lot. That's true, too. >> Jeff, a lot of people have been talking about AI and it's created a bubble in the market. And I don't even know what a bubble is anymore. How do you define a bubble? How do you try to identify a a bubble in whatever market you're looking at? >> Yeah, it's it's a great question. It's a very hard thing to quantify. One of the things that that we've come up with, it's very simple and it's been very very effective. Uh and I'll I'll leave it uh for you and you can put it in your back pocket. Uh, if an asset doubles in two years, you're in bubble territory. That doesn't mean it's done, but it means that you have to start talking about it as a bubble. Look, >> they're getting they're getting you YouTube love here. Tom Keane, please do a little more often like this with Degraph and Da. They're loving it. I I got tears to my eyes. They're loving it. >> A question to Neil Dut. >> Exactly. So, Neil, one of the things I think that our Federal Reserve is looking at is inflation. Obviously, we haven't really seen it. Are we missing something here or are corporations bearing the brunt of whatever inflationary pressure? >> The hawks are missing it. The hawks are missing it. I mean ultimately um I think what's you know we're talking about big budget deficits, tariffs, uh policy risk premium, and yet the 10ear yield is below 4%. So I think that that to me it it just basically demonstrates that um you know a lot of that bad stuff was in the price. what's not and I mean what the what the uh what the bond market probably has yet to h you know meaningfully contend with is some kind of material slowdown in the economy because remember uh the consensus has been revising up their GDP estimates for the last like five or 6 months. So uh you know to me that's what's interesting. Uh I'm I'm not concerned about inflation. I mean ultimately I think nominal growth is sluggish and if you put tariffs on it'll just you know I mean force people to go pay more for one thing and then they'll have to cut back on something else >> to get in before the market open and with Jeff Degraph it's a great privilege to have him in the studio uh today retail right fear of missing out to shut up and buy and institutions with all their sophistication may be falling behind. How big is that gap right now between retail success and CTA and hedge funds? OMG, we're not getting it done. >> Well, I I think you you hear the you hear the the the successes of the retail crowd, right? You don't hear the numerous failures. So, I think that's really important. Uh look, we we we are now um and with the help of AI, we are now distinguishing between retail sentiment um and the Reddit crowd and the X crowd and what the institutions are saying, right? So that is a part of our analysis now that we are using is what's happening to the crowdsourcing uh versus what's happening to the institutions and that's that's important because that's got that Reddit army is uh you know is is is real. They've got bayonets and pitchforks and uh I think it's important to >> I got 20 seconds. It's too important a question. A listener emails in Jeff Degraph can AI replace Neil Dada. >> No no his a serving winder win is unreplaceable. I think I I like a tweet that was out there today that said AI will replace bad science and it'll probably replace bad economics. Neil D, you know, I'm being snarky there, but AI, is it a productivity plus? And are we underestimating America's productivity as we fold it into business efficiency? >> Um, I don't think so. I mean, I I think uh right now AI is probably a productivity suck because because you're spending so much time trying to figure out how to actually integrate it properly into your workflow and that process is timeconuming and keeps you maybe from doing more productive things. Uh you know at least right here right now. So you know typically in a productivity boom you don't tend to see productivity rising alongside the adoption of said technology. It usually happens after. So, if you think about like the desktop computer that was probably making its way in corporate America sometime in the early '90s. It wasn't really until the late '9s that productivity really took off. Um, so, >> you know, I think it's it's not um, you know, it's I I don't think it's actually driving productivity right now. >> My first earnings models of Pain Weber 1986 were on >> pencil and paper. >> Did you use a slide roll? >> No, but I pencil and paper. If you wanted to change your estimates, you had to do it. Think long and hard. >> I have my father's Kufal and Esser slide rule on my desk at home. 1947. >> That's That's when men were men. >> That's where men were men. >> Do you still have your original HP12C? >> I have an HP12C >> with an AMR CFA Institute sticker on it. I do too. >> I have the original one from back tonight. I'll be with the CFA Institute in It's such a nerd patrol here. Everyone in here uses an HP12C. I'm sorry, Sai. This is never gonna happen again. This level. Get one more in here with Jeff. >> From a technical perspective, is anything jumping out at you right now as a screaming buy or maybe a screaming short? >> Well, we we we talked a little bit about healthcare. So, I think that's making a turn, right? So, you still have to be selective and and looking at that um without question. And and uh look, we talked about doubling in two years. Gold has done that, right? So, I think you have to be very very careful with gold. Um, you know, the reason that that's important is you have to you have to start selling into strength. That's not something we tend to do. Um, so we sell into strength when we're in a quote unquote gold environment or bubble environment and that's where we are. >> Dennis Gar made a note to me two days ago on his gold and yen call. He is sliding out of gold. He made real clear that enough is enough. >> Final question to Mr. Dada, Neil Dada. Who's the next Fed chairman? >> This is a loaded one. Um, well, I frankly don't think it's any of the people that are being discussed right now. >> And and the reason is is because if it was going to be one of those people, they would have already named them by now. Um, so, you know, I mean, I think the longer it goes on, um, the more likely it is, frankly, that Secretary Bessant I mean, what what do we know about um, Treasury Secretary Besson? We know that number one, which is the most important, he has the confidence of the president of the United States. And number two, he has the confidence of the financial markets. And those are two pretty good um and number three, he probably is interviewing all these people and is thinking to himself like I'm better than all these guys. So um you know I I think uh I I mean to me that's sort of my dark horse pick. >> Has this been okay? Have you guys had fun? >> It's great >> doing this. Absolutely. >> Can we do it again? >> Yeah. >> You tell us when >> 2027 I think you can. Neil Dada, Jeff Degraphth. They are Renaissance macro again. And we protect the copyright of all of our guests. You got to go to Ren Mack to get the pixie dust to Jeff Degraph and the detail of Neil Da. Stay with us. More from Bloomberg Surveillance coming up after this. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Paul and Tom King. Time now to get out to um a view from 60,000 ft. David Leitz joins us. Uh he is with JP Morgan and just does some wonderful work summarizing what the team does uh on equities, on alternatives, on fixed income, but also almost what the zeitgeist is right now. And what I love about your note, this goes this goes back to Williams College. I mean, you know, undergraduate there, they they handle productivity. >> Williams Ammerst is a great rivalry either. >> It is, I mean, three ratios there of capital dynamics, labor dynamics, and this strange thing, total factor productivity, which is the innovation that's out there right now. I look at your note and it's basically trying to figure out where the productivity matrix is right now. When you summarize Casmin, Folley, Lieovitz, David Kelly, Gabriela Santos, all the JP Morgan people together, what's a consensus on where productivity is? >> So, when we look at what's going on, we we recognize that there are some headwinds to growth from the labor side of the equation, but we do think that the response of corporations will be to invest more and boost that productivity. And so one of the things that we've done over the past couple of years in our long-term capital market assumptions is increase that TFP, that total factor productivity estimate to reflect that investment in technology, that adoption in technology. That number's up 30 basis points over the past. >> This is really critical, folks. That's what I wanted to get out of it without being rude and asking point blank. But this is a huge overlay of what we're all going Lisa Mateo's going, "What is going on?" Tom Keen is going, "What is going on?" And the answer is technology almost in a 19th century sense away from AI. Do you see productivity driving investment? >> Exactly. And so, you know, there are a couple of things that I would focus on. One, it's not just about the AI itself. It's about how you apply the AI. And I think that's where some of the headwinds are. I think a lot of industries are still figuring out how to use this technology. But it is going to change the game. It is going to support growth over the longer term. And importantly, it opens up this channel for more investment. And it allows investors to benefit not only in the big tech names that are doing a lot of the creation of this technology, but also over time, this should broaden out. It should support financials, it should support materials, it should support utilities. This is going to be a rising tide that lifts all ships. So, does this improved productivity outweigh any kind of economic drag or inflationary pressures that might come from in uh tariffs and just a tighter or lack of a geopolitical uh smoothness out there? >> So, I think that there there are two kind of counteracting forces. One being economic nationalism, so focusing more on your own backyard. The other being fiscal activism, so having more active government spending. The government spending bit may support inflation, but if you direct that spending in the right way, it could subsequently boost productivity and actually help inflation come down over time. For us, the big risk is what's going on with respect to migration and the potential growth in the labor force. That's where we think we'll see some inflationary pressure come from. That's where we think we'll see some drag on growth, but hopefully we get enough productivity to effectively offset that. >> All right, so let's get right to it. where as a global market strategist at the biggest global financial services company in the world, where do you guys see the best opportunity these days? >> So, we continue to like the US tech story. We think that although the pace of earnings growth is decelerating, we're still looking at absolute numbers that are very attractive, particularly compared to what you can get in the rest of the market. We're also thinking more about the rest of the world. You know, something that happened during the pandemic was we went from this environment of of almost global austerity in the aftermath of the GFC to an environment where governments are spending much more aggressively, much more proactively. That's going to help places like Europe. That's going to help the emerging markets. And so we see opportunity in EM today, particularly given the strength of the US consumer and the prospect for the Fed to ease going forward. >> David Le global market strategist JP Morgan. Now, we're sort of taking a high road here on some of the theory wrapped around a many year a multi-year bull market uh as well. Okay. I I love what you say about all this, but the bottom line is some of us older remember late '9495 this thing called the internet showed up and everybody figured out network effect in the investment that JP Morgan sees in technology and in America is the network effect still in place for technology companies versus con conventional scale economics and the answer I think people are way underplaying the network benefits of AI. >> I I I would I would very much agree. I mean, when when I think about the power of this tool, and you know, I've been in this industry for 15 years, and so when I started, I used to go to the Bureau of Economic Analysis website, download the spreadsheet, type the numbers in, update the charts, update the models, so on so forth. You can now sit down with a large language model and say, "Build me something to model distance to default in in in Excel." It'll spit it back in 45 seconds. That's something that could take hours and so it frees up time. >> You didn't trip over a value line laying on the floor 8 in thick and you would wait for Thursday when the next chapter a value line came out. >> Yeah, that's >> they had they had a logarithmic chart. That's pretty. >> So David, you say in your notes, diversification isn't optional. It's essential. What's diversification for you guys? So for us, diversification comes in a lot of different ways. I think the biggest thing we've tried to impress upon investors going forward is that diversification doesn't just mean balancing your portfolio between stocks and bonds. It means looking more broadly at things like real assets, things like infrastructure, things like private credit, which can provide uncorrelated income streams relative to what the 60/40 portfolio has historically provided. And I think if we go back to 2022, which I know nobody likes to talk about, it's a terrible year for both stocks and bonds. The reason why is that inflation was a problem in our long-term capital market assumptions. We're looking for higher inflation volatility. You need assets in your portfolio that can diversify that positive stock bond correlation. And that's going to be >> I go back to Orzac on this Brookings then and always and now at Lazard and Peter and his team said, "Look, the supply lines are fractured within the pandemic. Don't you put a big asterisk around 2021 and say 22 and just say we can't analyze it because it was a health event. Well, I mean I think that yes, pandemics are are in theory very unique and idiosyncratic events, but the the followrough from the pandemic, right? Those things I talked about earlier of economic nationalism and fiscal activism that is going to drive more inflation volatility over time. And so even if CPI doesn't go to nine, if CPI is gyrating between two and four, that's still going to be more challenging than the world we were in in the aftermath of the GFC. >> That's not why you're here. I mean, David Kelly thinks you're here because of JP Morgan blah blah blah. Did you study with James McGregor Burns at Williams College? >> Leadership. >> I I studied with uh Professor Mallister who was one of his disciples. >> His disciples. >> Yeah. Well, I had a great relationship with Burns up at Williams and I've actually had the honor of attending his grave site, but tell us about the leadership structure of of uh politics and philosophy at Williams. It's absolutely best-in-class this side of the Atlantic. So when when I think about what's going on in a from a philosophical and and a political science angle and try to overlay leadership, you know, we we always talked about kind of transformational leaders, people who rose to the occasion. They they stepped up to the plate and dealt with with what they were being presented rather than trying to shape the future based on their own agenda. And I think what we need to see, frankly, is going back to the former rather than the latter. I think politics regardless of where you look around the world is all about very narrow agendas that people are trying to push forward. We need to take a look around at the world look at the investment look at the potential for productivity growth and say how do we maximize this because if we can have the rising tide lift all boats at the end of the day that makes everybody better off and that's the whole point of leadership when all is said and done. >> I can't do better than that. David Le with us Williams College and of course JP Morgan Investment uh management. >> He's in the new building. He's in the new building. >> Yes, he is. >> My word. Is the food as good as they say? >> It's a pretty awesome. It's It's kind of like Hotel California, you know? You can >> Do you go home? >> No, you don't have to. It's great. You can just >> You bring your kids kids to work? >> Uh they're coming for Halloween next year. >> They'll get to see >> Are they all dressed as James Diamond? >> Exactly. I We're not Not this year. My older one's going to be Freda Callo and my younger one is going to be Ursula. So that >> would work. Freda Kell that is so Williams college. Are you please who are the girls going as in the Lisa Matteo house? Alvir from Kors. >> This is that that teen years they get those like little too skimpy little costume gives my husband a heart attack. Yes. >> That's how they roll. >> Get a life Taylor Swift. That's his wedding. David Leovitz with JP Morgan. Stay with us. More from Bloomberg Surveillance coming up after this. >> You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Joining us now, Cameron Dawson of New Edge here. has been brilliant on participating in the equity market. You say earnings, the season we're into now and into next week's tech extravaganza, is the catalyst to break out of a range. So many disagree with that. >> Yeah. Well, earnings have been the key reason why this market has been so very resilient. If you're revising up earnings estimates, it does something really powerful because not only are you increasing your estimates for profits, but you're also providing the environment to be able to expand multiples. Multiples go up when you're revising estimates higher. They tend to go down when you're cutting estimates, which just means that as long as we're in a world where people still need to ratchet up their numbers, it means that you can be in this world where valuations can levitate at high levels. >> Paul Walmart, it's gone from 40 to 42. It's a multiple expansion. >> Multiple expansion. Exactly. 42. >> So Cameron, what do you make of this earning season so far? It seems like the numbers once again, just like the second quarter, they're coming in well above expectations. >> Yeah, we've seen 86% of companies uh beat earnings expectations. That's pretty much in line with average. That's very normal. You have a lowered bar going into earnings season and then you jump over that lowered bar. uh but we see you know very strong results across the board and that's not something that surprises us. What is very interesting is some of the reactions to strong results which just means that you're not necessarily seeing big big upside moves even though you're seeing beats and raises which just suggests that maybe some of those multiples did did get to a point where they can't push much higher. >> Uh very good. I mean I I'm looking at the bond market here. We've got 10-year Treasury yields below 4% here. What is the bond market telling us here? This is very peculiar because given all of the strong narratives that we have about US economic growth, look at Fed GDP now being at 3.9%. You have talk about all this AI capex and great earnings and yet and yet the tenure is below 4%. So the big question we have is the tenure sending us a signal that we should be more concerned about equity and credit the tenure pricing and maybe a more dire economic scenario or is the tenure falling because of things that could actually be beneficial to equity and credit such as expectations for quantitative easing or expectations of inflation remaining contained. Big question. >> You this is really brilliant. This is the word I use folks ambiguity where it can cut this way or that way. John writing is brilliant about this over at Breen in terms of the economics. Explain the 10-year yield ambiguity or almost mystery and what it means for someone looking at their 401k saying should I go further Cameron Dawson long. >> Well, I believe it is a Bloomberg tagline that says context changes everything. >> Nice. >> Never back. >> I I think that the context of why the tenure is falling is so very important. If you have a 10-year falling because you're pricing in a bad economic scenario, that implies lower earnings, lower valuations within risk assets, which implies a riskoff move. But if the tenure is falling because you have a very aggressive Fed that's going to be buying up a lot of bonds on the long end, or you have this ability where the Treasury is not having to issue as much, then that can actually be an environment where lower yields is still good for risk assets. Torstston Slack moments ago. It's like he wrote it for Thank you listen for listening to Cameron Dawson uh Torstston over at Apollo. The US is truly unique. 30% of the global stock market almost 50% now Paul. >> Yep. I know it's just amazing. And that kind of goes to where I want to go. Concentration risk. It's been something we've been talking about for I more than a year now it seems like. But it doesn't seem to be a problem for the market per se. But I we've been all raised and all educated that we need to have a broadening breath of the market. >> Look, if we if we go back in history, the two past peaks of concentration were during the nifty50 time at the end of the '60s as well as at the peak of the of the tech bubble in the in the late '9s. And what happened after both of those periods were effectively lost decades of returns for equities. And lost decades do happen. However, the challenge you have is it's the timing. Because if you try to bet against concentration, being early is the equivalent of being wrong. So what we think we need to have is a catalyst as to why that concentration unwinds. And for us, that catalyst is earnings growth of the MAG 7. >> I'm going to go back middle of pandemic use of cash. I've seen two two surprises for me because I'm not informed. I was shocked at the GM General Motors share buyback and I saw a chart of the American Express AXP share buyback. Are we underplaying now with all our worries in the geopolitical cacophony? Are we underplaying just simple dividend growth and share buyback? >> Share buybacks are at a record this year in 2025 despite all of the uncertainty. I believe they're up about 16% on a year-over-year basis. Companies are still having plenty of capital to put to work. I think the one incremental change is that what happened with these tech names is that they used to just buy back their stock. Now they're investing a lot in very heavy infrastructure. >> One quick more question here. You're all over the country uh talking to investors, retail and institutional. What's the mood out there? Is there a Dawson exuberance? I mean, are people out of control? >> I just got back from Boston at a academic/institutional investor conference. And the takeaway from that is that everybody seems to agree that the world is changing, but nobody knows what to do about it. >> Put me in that camp. I mean, the the answer is they're going to adjust. I'm sorry. >> You've been consistent about that time. You've been right on that one. >> The smart guys at MIT and Harvard, >> companies adjust. >> Companies adjust. >> Consumers adjust. You know, we have to work from home. Okay. >> Does have a job January 1st. >> He's got a big payday no matter what happens. >> That's the bottom line. That's the smartest thing I've heard this morning is we'll talk about media uh here in a bit. Cam Dawson, thank you so much. Greatly appreciate it. New Edge uh this morning. Stay with us. More from Bloomberg Surveillance coming up after this. >> You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Let's get right to it. Every second counts, the newspapers with Lisa Mattail. >> All right, let's start with this one. This was in uh the Bloomberg terminal. Uh Wall Street bonuses expected to hit a high this year. Okay, we all know, right? Big banks, they've been pulling in the profits, storing stocks, more deal making. How much are we talking? Well, you had this annual report from New York State controller Thomas Dapoli, and it showed that profits at 130 firms that belong to the New York Stock Exchange. Well, they reached $30.4 $4 billion in the first half of the year. Um it's going to hit the highest level on record if that same pace continues which means higher bonuses. So you have compensation expenses they increase by almost 10% in the first half of 2025 from the prior year. >> And the tax take Paul is extraordinary. >> Oh yeah. I mean >> I mean it really changes the fiscal >> of the city of the entire city. I mean, global and the Wall Street in particular here in New York City is such a big contributor to the tax base of the city. So, good news there. >> All right, what else we got here? >> Okay, so this is up your alley here. We got Warner Brothers Discovery, right? All right, they already nixed off three offers from uh Paramount Sky Dance, including one that its chief executive, David Zazzle, had a role in running the combined company. So, this is in the Wall Street Journal. They say they actually gave him the opportunity to serve with David Ellison as co-chairman, co-CEO of the combined companies. They turned it down again. So that they turned it down three times already. They tried to keep increasing the price. Um has not worked yet. Warner Brothers Discovery said they've gotten multiple offers. I think in my Tom I think you're right. In my opinion, I think it's simply about share price. I don't think David Zazoff really cares for whether he has a role or not in the new company. Um, but this is to value these assets. It's it's not going to start with a two. Let's put it that way. >> Well, okay. But is the value the cop like I think they have I Love Lucy. Is the value the rights to I Love Lucy or is the value to make the next Warner Brothers movie which they've been on a tear on. >> It's all the above plus its cost synergies. The cost synergies are going to be real. >> There go with the sword. >> Yes. It's going to be real. Unfortunately, it's going to be jobs in Hollywood. But um that's the one of the big reasons why um Paramount could pay a higher price arguably. >> You say Zazov is going to get paid no matter what. >> He's going to get paid. >> Just the romance that they want the studios. I mean, you know, you >> No, this is survival mode. This is survival mode. Tom, if you're if you're Paramount, you probably cannot survive, much less thrive in this new world if you don't get bigger. They have to do a deal. >> I remember the day Warner I remember the day Warner Brothers was taken out. I mean, this is this assets changed hands starting with me back in 2000 when we advised AOL to buy Time Warner. Um, that assets changed hands, you know, half a dozen times in the last 25 years. >> Next. >> Okay. Uh, this next one, I don't know if you've ever seen those scams. Sometimes you might get them on your text, sometimes you get them on your email, and they seem to come more and more, right? Yeah. My mom called the other day. She's like, I got a text that just says hello. I'm like, don't respond. Like, I get those all the time. Like I said, my children know >> you don't know the number. So, it's really become a thing. Americans have lost billions of dollars to these scams. So, the New York Times really has a good look into how this all happens. They say they're led by groups in Southeast Asia. Um, they really dove into it. They say a lot of the scam centers rely on forced labor and they do a couple things. So, they target v victims. They basically win their trust over on social media on places like let's say Facebook, WhatsApp, Telegram. So they start kind of winning them over. Sometimes they pose as a financial advisor and then they ask people to invest in this fake crypto, you know, fund or they use romance scams and they target divorcees and widows or maybe they um they call people on the phone and saying that they're bank representatives and they ask for their, you know, account or pin number, social security number. It's crazy. >> I am shocked whenever I'm out in public and I hear somebody answer their cell phone by saying hello. Have you ever answered your cell phone unless you don't know who's calling you? >> I mean, I don't even acknowledge anybody at that time. I don't know. >> I I miss a lot of calls. And to be perfectly honest, when they need me at Bloomberg, they have to call Mrs. Keane. >> Yeah. That's >> why God made voicemail. You know, >> I don't pick up my phone. >> So, you're not just ignoring me? >> No. But this is making jokes about it, but be aware out there. I >> I Well, we we'll come back to this. This is not going away. Lisa Matteo, the newspapers. >> This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10:00 a.m. Eastern on Bloomberg.com, the iHeart Radio app, TuneIn, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal. [Music]
Hotter CPI Unlikely to Deter Rate Cuts – For Now | Bloomberg Surveillance
Summary
Transcript
[Music] Bloomberg Audio Studios, podcasts, radio, news. [Music] This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. RenMac or Renaissance Macro does as good a job as anybody worldwide at blending the two in the back and forth daily grind of following markets and executing market economics. Jeffrey Degraph is chairman Neil Duda head of economic research and to have both of them in our studio is a real treat. How was Renaissance macro invented? That famous picture of Lehman falling apart was RenMac invented right there. It was not, Tom. I was uh I had actually left Lehman Brothers about a year prior to the demise of Lehman and uh I went over to Neil Edman's shop, sorry, uh at ISI because he was creating this kind of macro juggernaut and I said, I want to be a part of that. And so I was there for 4 years. He started building it out into more fundamental research and just wasn't something that really appealed to me. So we pulled the rip cord and started Redback and had the good fortune of picking up my friend over here, Neil Duta. I mean, Neil Dada with all of his work as well. Full disclosure, a couple years ago, my economist of the year, we're not going to do like what's a Fed going to do here. I want to talk for Global Wall Street about the synthesis of research. Jeeoff, let me start with you cuz Dut is putting out three charts an hour. You and I are technical animals. I mean, it goes back to John Maggie and Aw Cohen and that. What is the trend of the market right now that overlays on Neil Dada economics? >> Well, I'd say the the trend of the market's clearly positive and I think a lot of that has to do with Neil's call on the Fed, right, which is expecting that the Fed's going to come to the rescue and certainly start to ease and I think the market's seeing that and you're seeing that in cyclicality versus say defensive still, which I think is important. The real call for us is going to be in the in this fourth quarter is do we lose that cyclicality for defensives? If that's the case, then I think the Fed is behind, way behind. And I think that's the that's the issue. So far, that's not happening. And and and we're keeping a bullish posture, but that's certainly on the top of the radar. >> Dud's entourage just sent me a note. Ask Neil a question. Put a cork in the graph's mouth. Okay, let's go there right now. You were Mr. Optimist and about 12 months ago, 18 months ago, you said, "Wait a minute. I'm looking at the tea leaves and I'm cautious into Q4 into 2026. In which way do you tilt with optimism or caution? >> Uh caution. I mean for me I think uh right now we have sort of a uh a housing centered view of the world out. And I think what's interesting is you know interest rates have been coming down. Uh but you haven't really seen housing demand um improve in any meaningful way. And to me that's that's sort of a yellow flag on the outlook. Um you know builders seem to have sort of hit their pivot point on margins. Um, and I think that's going to mean less construction activity. Uh, and I think that's going to bleed into employment. I do. And if, um, if you start seeing construction workers let go in an environment where you're not really creating much jobs growth to begin with, um, I think that's sort of another potential source of upward pressure on the unemployment rate. So, I would I do think the Fed is a little bit behind here. Um, you know, the fact that they're kind of taking a meeting by meeting approach as a as opposed to just giving guidance into the first half of next year, I think is a little um, you know, it's a bit of a mistake. Um, but yeah, I would just say that the housing market is softening. Uh, that's going to bleed into the labor markets. Um, that's going to mean weaker real income growth, which kind of challenges consumer spending. >> So, should the Fed be more aggressive than maybe the market's pricing in right now? Should they maybe be a little bit more front-end loaded? >> I think so. I mean, I think they I mean, they will go more than the markets expect, I believe. I mean, that's ultimately the whole point, right? Is like what do you think's what what is the market pricing in? That's what our business is, right? What is the market pricing in and what do you think the likely outcome is going to be, right? And, you know, the market I think is probably on sides for what's going to happen this year. But if you look at 2026, um it looks like the markets are barely priced for two cuts. All onsides is the word that data uses year-to date. NASDAQ comp not the 100 up 18%. It's going to be a tough year. We're single digit. Degraph's pulling his hair out saying no, get on board. I mean, that's what we saw continue. >> So, Jeeoff, again, as Tom says, there's a lot of crosswinds out there. Let's call them crosswinds, geopolitical issues. We've got uh domestic issues with uh tariff policies and just on and on and on. >> Yeah. >> Yet the markets are ripping other than the dollar which is still kind of cautious. What do you make of just as you step back and look at the markets? >> Well, you hit a really important point which gets underappreciated which is there's a global bull market happening, right? So all the concern about tariffs and I get it. I mean we you know we all know it. um that just is not is is not resonating with markets which are saying there's something else here that's happening right and this isn't this isn't just the G7 or even the G20 look at the frontier markets they look fabulous right um so I think you know to to put the narrative on it we try not to do we're we're trying to be purist in what in how we look at things in the world um now I'm a little concerned about gold we entered bubble territory but the rest of it looks pretty good to us so uh look I'm I'm in the camp that we get a consolidation But uh if if Neil's world ends up developing, I think that's extraordinarily bullish for equities because we have not seen um you know the the markets fall apart when we've got yields coming in. And I think that's one thing when people are talking about bubbles, they miss the idea that yeah, look, housing bubble, yields were going up for a year. Do yields were going up for nine months. Uh 2021 yields were going up, right? Here we're we're actually on the cusp of the potential of yields coming down in what is, I'd say, a bit of a speculative market, but not nearly anything what we've seen before. >> Special treat for Bloomberg surveillance across the nation around the world on YouTube. Subscribe to Bloomberg podcast, Jeffrey Degraph, Neil Duta of Renaissance Macro together in our studios with our remits of economics and following uh the markets. So I'm interviewing Chris Waller in in a speech at Council on Foreign Relations. Neil, uh, I want to switch this here. I want to go to you on economics, Jeff. Okay. >> To create some wonderful tension, there's a single sentence, which is Marty's wide 101. Don't fight the Fed. I mean, we're really right back to that with a modeled four or five rate cuts from Governor Waller. Yep, I 100% agree. And I think you can distill that down to how does discretionary act on a relative basis. And right now, while it's not a lock, discretionary is still in an uptrend on a relative basis. And I think that's good news. >> Yeah, continue. >> I say it just says to us that the the Fed is is still playing this game that they're not behind yet to the point that it's affecting those consumer names. >> We go to financial analyst Neil Dutter right now and and the markets here. Come on. Nominal GDP pops right over to it. Somebody had a bar chart in the zeitgeist in the last two days of the complete misjudge on what GDP and nominal GDP have done. Does that continue to spur revenues and down the income statement? >> Well, well, I don't think nominal GDP is really growing as rapidly as the GDP tracking numbers are are kind of telling us. I mean, I think one rule in business economics is, you know, when there's a big disconnect between GDP and employment, you tend to go with the employment data. Obviously, the fact that, you know, total hours worked are barely positive over the last 3 months, I mean, they may in fact be negative. um that would suggest that you know GDP growth is is probably overstated. Um and so you know I tend to put more weight on employment. So, but I do think that's an important question for the market, right? I mean, obviously the bond market is pricing in a much different nominal growth outlook than than equities. And you know, how that reconciles um I think will be an important question for next year. And you know, I mean, basically what squares the circle I think is a productivity boom. uh that that's really what what what um you know what kind of resolves all these tensions I think in the market because um you know if if let's say the 10ear yield is whatever below 4%. If that's the nominal growth outlook, how do you justify the earnings expectations that are embedded in current market pricing? Only productivity makes that happen. And if productivity doesn't show up, then you know there maybe there's some risk to equities. >> Maybe it's all AI. Maybe that's doing it for us. Jeff, what do you make of the dollar here? We've had it stabilized, but equities have bounced back to all-time highs. Yields are coming in. Uh but the dollar is just kind of hanging down here. What does that tell you? >> Yeah, it doesn't tell us a lot, honestly. Um, you know, I think there's there's flow data with tariffs and and the leverage points that as we still negotiate our ways through this. Um, I think it's important to realize that gold got into a parabolic state, you know, over the last call 6 weeks as the dollar actually strengthened and certainly firmed, right? So, um, you know, there's more to the gold story than it's just the weak dollar story. And and frankly, one of the things that I like about gold, I do think that that it's going to take a pretty significant pause here, but I think one of the things that that's interesting is that there hasn't been a single narrative. Usually when you get into these bubbles, it's everybody knows what the single narrative is, right? And you you can ask the question and I think there's three or four probably correct answers, but it's not the market hasn't decided on one and that's where you get into trouble usually. So I'm actually still optimistic about that. >> Okay. Can we go narrow Neil? Is it okay if I go like nuts to graph right now? >> You're talking I mean the micro analysis of his note. Get his note from Renaissance macro folks. And you mentioned Gilead silent science. I mean the healthc care I mean healthc care has been an absolute train wreck sector. Yes. How does someone like you combining fundamentals and particularly technical dynamics know when to pull the trigger and go long healthcare? How do you do that? >> Well it's a it's a process. And so the first thing that we start with Tom is we look at at what we call our serum standardized excess return. And that's really just a fancy way to say a longer term alpha generation model. Right? In other words, we're looking at how much alpha has been generated for the sector, in this case, healthcare, over the last 3 to 5 years. And if we compare that uh to the sector since the 1960s, we've got singularly the worst alpha generation we've ever seen, right? And that's I mean that's capital markets. It's going to it's going to result in bankruptcies. It's going to result in M&A everything else. Okay? So that's the contrarian that that that unless you believe that these things are going to zero as a sector, which doesn't happen. That's not going to happen. Then we wait for momentum. We wait for we wait for trends. We wait for momentum to confirm that. And that's where we lean into it. We did it with China about a year ago. We're doing it with healthcare now. >> I mean, I look, this is so important, folks. This goes back to Ed Heyman. This goes back to John Murphy. The melding of this of Neil Dud is economics, Jeff Degraph's, I'm going to call it technical bias and then over to fundamental analysis is the religion here. Okay. So, you're there, but value investing is basically cratered and only does well given down markets. So we haven't had a down market. Are you are is your tone at the shop growthiness or is it a value search? >> No. No. It it is we will take what the market gives us. I mean we will go with the market giving you right now. >> The market is giving you growth. It's giving you um it's not giving you it's not giving you value. It's giving you beta. But we think beta is actually stretched. And we we actually believe that the market is going to transition from beta at any price and transition that into momentum. And that'll be an interesting play because that's usually what happens and that's where you get into the final stages of a bull market and we're not there yet. >> Neil, you've been talking a lot this morning about labor. How does the change in immigration policy affect kind of the the analysis of the labor market here because that was a lot of folks coming into this country taking a lot of jobs and they're not coming in anymore. >> Um I mean I personally think that's more of a red herring honestly. I mean to me it's interesting because we're talking about how break even rates on employment have come down. Meaning what do you need to keep the unemployment rate flat precisely at the time where the unemployment rate's been actually rising a little bit more rapidly than it has in the you know over the last uh year or so it's it's up basically you know had the September data been released it probably would have been up three months in a row by a tenth. Um so yeah I mean the break even rate has come down but it hasn't come down enough to keep the unemployment rate from going up in the first place and uh you know that to me is what's important and if you look at you know these areas of the uh economy that are sensitive to immigration you don't really see upward wage pressure uh in construction employment in sort of uh you know sanitation the these sort of sectors where there's a lot of lowskilled work um so I don't know I mean I think it's to me It's a bit of a red herring. And of course, um, look at what people are saying about like job finding rates. >> They're telling you it's getting more difficult to find work. And when when consumers tell you labor markets are getting worse, I think it pays to believe them. >> I'm hearing this from listeners and viewers as well. So Neil Dud, I asked this at Waller, let me ask it of of you. Are we so polarized in our John Edwards two Americas that we literally have to operate with a study of two our stars, the halves and the have nots? Are we that separate now where aggregation of data doesn't work? >> Well, I I I don't believe so. I mean, I think ultimately um you know, all of these things will kind of net out over time. Um you know, I mean, what you're talking about basically is this sort of K-shaped economy, right? Like this idea that the upper in I mean, and that's and that's a that's a huge source of push back that I get in our own client meetings, right? >> Throw a tape dispenser at him when he says cliche. We we usually mud wrestle for the uh >> K-shaped I remember V-shaped. We got a real treat and it's too short to visit Jeff Degraphth with this and Neil Dota of Ren. I'm going to go to you Jeff quickly. Neil, you quickly because Paul wants to get one in before the market opening. Jeff Degraph, what's the biggest mistake people make in particularly the young kids day trading with technical analysis? I think they they have an illusion of control. uh selling high, buying low, selling high, buying low versus uh writing the trends. >> What's a technical writing the trends? What's a technical stochastic failure of all this computer garbage today? >> Well, again, it's that illusion of control that you think that you can predict what's going to happen versus just riding the wave of of earnings and everything else. >> What's the biggest mistake in our nation's economic analysis right now >> is that you assume that uh relationships are stable from one cycle to the next. one cycle to the next. >> Boom. I like that a lot. That's true, too. >> Jeff, a lot of people have been talking about AI and it's created a bubble in the market. And I don't even know what a bubble is anymore. How do you define a bubble? How do you try to identify a a bubble in whatever market you're looking at? >> Yeah, it's it's a great question. It's a very hard thing to quantify. One of the things that that we've come up with, it's very simple and it's been very very effective. Uh and I'll I'll leave it uh for you and you can put it in your back pocket. Uh, if an asset doubles in two years, you're in bubble territory. That doesn't mean it's done, but it means that you have to start talking about it as a bubble. Look, >> they're getting they're getting you YouTube love here. Tom Keane, please do a little more often like this with Degraph and Da. They're loving it. I I got tears to my eyes. They're loving it. >> A question to Neil Dut. >> Exactly. So, Neil, one of the things I think that our Federal Reserve is looking at is inflation. Obviously, we haven't really seen it. Are we missing something here or are corporations bearing the brunt of whatever inflationary pressure? >> The hawks are missing it. The hawks are missing it. I mean ultimately um I think what's you know we're talking about big budget deficits, tariffs, uh policy risk premium, and yet the 10ear yield is below 4%. So I think that that to me it it just basically demonstrates that um you know a lot of that bad stuff was in the price. what's not and I mean what the what the uh what the bond market probably has yet to h you know meaningfully contend with is some kind of material slowdown in the economy because remember uh the consensus has been revising up their GDP estimates for the last like five or 6 months. So uh you know to me that's what's interesting. Uh I'm I'm not concerned about inflation. I mean ultimately I think nominal growth is sluggish and if you put tariffs on it'll just you know I mean force people to go pay more for one thing and then they'll have to cut back on something else >> to get in before the market open and with Jeff Degraph it's a great privilege to have him in the studio uh today retail right fear of missing out to shut up and buy and institutions with all their sophistication may be falling behind. How big is that gap right now between retail success and CTA and hedge funds? OMG, we're not getting it done. >> Well, I I think you you hear the you hear the the the successes of the retail crowd, right? You don't hear the numerous failures. So, I think that's really important. Uh look, we we we are now um and with the help of AI, we are now distinguishing between retail sentiment um and the Reddit crowd and the X crowd and what the institutions are saying, right? So that is a part of our analysis now that we are using is what's happening to the crowdsourcing uh versus what's happening to the institutions and that's that's important because that's got that Reddit army is uh you know is is is real. They've got bayonets and pitchforks and uh I think it's important to >> I got 20 seconds. It's too important a question. A listener emails in Jeff Degraph can AI replace Neil Dada. >> No no his a serving winder win is unreplaceable. I think I I like a tweet that was out there today that said AI will replace bad science and it'll probably replace bad economics. Neil D, you know, I'm being snarky there, but AI, is it a productivity plus? And are we underestimating America's productivity as we fold it into business efficiency? >> Um, I don't think so. I mean, I I think uh right now AI is probably a productivity suck because because you're spending so much time trying to figure out how to actually integrate it properly into your workflow and that process is timeconuming and keeps you maybe from doing more productive things. Uh you know at least right here right now. So you know typically in a productivity boom you don't tend to see productivity rising alongside the adoption of said technology. It usually happens after. So, if you think about like the desktop computer that was probably making its way in corporate America sometime in the early '90s. It wasn't really until the late '9s that productivity really took off. Um, so, >> you know, I think it's it's not um, you know, it's I I don't think it's actually driving productivity right now. >> My first earnings models of Pain Weber 1986 were on >> pencil and paper. >> Did you use a slide roll? >> No, but I pencil and paper. If you wanted to change your estimates, you had to do it. Think long and hard. >> I have my father's Kufal and Esser slide rule on my desk at home. 1947. >> That's That's when men were men. >> That's where men were men. >> Do you still have your original HP12C? >> I have an HP12C >> with an AMR CFA Institute sticker on it. I do too. >> I have the original one from back tonight. I'll be with the CFA Institute in It's such a nerd patrol here. Everyone in here uses an HP12C. I'm sorry, Sai. This is never gonna happen again. This level. Get one more in here with Jeff. >> From a technical perspective, is anything jumping out at you right now as a screaming buy or maybe a screaming short? >> Well, we we we talked a little bit about healthcare. So, I think that's making a turn, right? So, you still have to be selective and and looking at that um without question. And and uh look, we talked about doubling in two years. Gold has done that, right? So, I think you have to be very very careful with gold. Um, you know, the reason that that's important is you have to you have to start selling into strength. That's not something we tend to do. Um, so we sell into strength when we're in a quote unquote gold environment or bubble environment and that's where we are. >> Dennis Gar made a note to me two days ago on his gold and yen call. He is sliding out of gold. He made real clear that enough is enough. >> Final question to Mr. Dada, Neil Dada. Who's the next Fed chairman? >> This is a loaded one. Um, well, I frankly don't think it's any of the people that are being discussed right now. >> And and the reason is is because if it was going to be one of those people, they would have already named them by now. Um, so, you know, I mean, I think the longer it goes on, um, the more likely it is, frankly, that Secretary Bessant I mean, what what do we know about um, Treasury Secretary Besson? We know that number one, which is the most important, he has the confidence of the president of the United States. And number two, he has the confidence of the financial markets. And those are two pretty good um and number three, he probably is interviewing all these people and is thinking to himself like I'm better than all these guys. So um you know I I think uh I I mean to me that's sort of my dark horse pick. >> Has this been okay? Have you guys had fun? >> It's great >> doing this. Absolutely. >> Can we do it again? >> Yeah. >> You tell us when >> 2027 I think you can. Neil Dada, Jeff Degraphth. They are Renaissance macro again. And we protect the copyright of all of our guests. You got to go to Ren Mack to get the pixie dust to Jeff Degraph and the detail of Neil Da. Stay with us. More from Bloomberg Surveillance coming up after this. You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Paul and Tom King. Time now to get out to um a view from 60,000 ft. David Leitz joins us. Uh he is with JP Morgan and just does some wonderful work summarizing what the team does uh on equities, on alternatives, on fixed income, but also almost what the zeitgeist is right now. And what I love about your note, this goes this goes back to Williams College. I mean, you know, undergraduate there, they they handle productivity. >> Williams Ammerst is a great rivalry either. >> It is, I mean, three ratios there of capital dynamics, labor dynamics, and this strange thing, total factor productivity, which is the innovation that's out there right now. I look at your note and it's basically trying to figure out where the productivity matrix is right now. When you summarize Casmin, Folley, Lieovitz, David Kelly, Gabriela Santos, all the JP Morgan people together, what's a consensus on where productivity is? >> So, when we look at what's going on, we we recognize that there are some headwinds to growth from the labor side of the equation, but we do think that the response of corporations will be to invest more and boost that productivity. And so one of the things that we've done over the past couple of years in our long-term capital market assumptions is increase that TFP, that total factor productivity estimate to reflect that investment in technology, that adoption in technology. That number's up 30 basis points over the past. >> This is really critical, folks. That's what I wanted to get out of it without being rude and asking point blank. But this is a huge overlay of what we're all going Lisa Mateo's going, "What is going on?" Tom Keen is going, "What is going on?" And the answer is technology almost in a 19th century sense away from AI. Do you see productivity driving investment? >> Exactly. And so, you know, there are a couple of things that I would focus on. One, it's not just about the AI itself. It's about how you apply the AI. And I think that's where some of the headwinds are. I think a lot of industries are still figuring out how to use this technology. But it is going to change the game. It is going to support growth over the longer term. And importantly, it opens up this channel for more investment. And it allows investors to benefit not only in the big tech names that are doing a lot of the creation of this technology, but also over time, this should broaden out. It should support financials, it should support materials, it should support utilities. This is going to be a rising tide that lifts all ships. So, does this improved productivity outweigh any kind of economic drag or inflationary pressures that might come from in uh tariffs and just a tighter or lack of a geopolitical uh smoothness out there? >> So, I think that there there are two kind of counteracting forces. One being economic nationalism, so focusing more on your own backyard. The other being fiscal activism, so having more active government spending. The government spending bit may support inflation, but if you direct that spending in the right way, it could subsequently boost productivity and actually help inflation come down over time. For us, the big risk is what's going on with respect to migration and the potential growth in the labor force. That's where we think we'll see some inflationary pressure come from. That's where we think we'll see some drag on growth, but hopefully we get enough productivity to effectively offset that. >> All right, so let's get right to it. where as a global market strategist at the biggest global financial services company in the world, where do you guys see the best opportunity these days? >> So, we continue to like the US tech story. We think that although the pace of earnings growth is decelerating, we're still looking at absolute numbers that are very attractive, particularly compared to what you can get in the rest of the market. We're also thinking more about the rest of the world. You know, something that happened during the pandemic was we went from this environment of of almost global austerity in the aftermath of the GFC to an environment where governments are spending much more aggressively, much more proactively. That's going to help places like Europe. That's going to help the emerging markets. And so we see opportunity in EM today, particularly given the strength of the US consumer and the prospect for the Fed to ease going forward. >> David Le global market strategist JP Morgan. Now, we're sort of taking a high road here on some of the theory wrapped around a many year a multi-year bull market uh as well. Okay. I I love what you say about all this, but the bottom line is some of us older remember late '9495 this thing called the internet showed up and everybody figured out network effect in the investment that JP Morgan sees in technology and in America is the network effect still in place for technology companies versus con conventional scale economics and the answer I think people are way underplaying the network benefits of AI. >> I I I would I would very much agree. I mean, when when I think about the power of this tool, and you know, I've been in this industry for 15 years, and so when I started, I used to go to the Bureau of Economic Analysis website, download the spreadsheet, type the numbers in, update the charts, update the models, so on so forth. You can now sit down with a large language model and say, "Build me something to model distance to default in in in Excel." It'll spit it back in 45 seconds. That's something that could take hours and so it frees up time. >> You didn't trip over a value line laying on the floor 8 in thick and you would wait for Thursday when the next chapter a value line came out. >> Yeah, that's >> they had they had a logarithmic chart. That's pretty. >> So David, you say in your notes, diversification isn't optional. It's essential. What's diversification for you guys? So for us, diversification comes in a lot of different ways. I think the biggest thing we've tried to impress upon investors going forward is that diversification doesn't just mean balancing your portfolio between stocks and bonds. It means looking more broadly at things like real assets, things like infrastructure, things like private credit, which can provide uncorrelated income streams relative to what the 60/40 portfolio has historically provided. And I think if we go back to 2022, which I know nobody likes to talk about, it's a terrible year for both stocks and bonds. The reason why is that inflation was a problem in our long-term capital market assumptions. We're looking for higher inflation volatility. You need assets in your portfolio that can diversify that positive stock bond correlation. And that's going to be >> I go back to Orzac on this Brookings then and always and now at Lazard and Peter and his team said, "Look, the supply lines are fractured within the pandemic. Don't you put a big asterisk around 2021 and say 22 and just say we can't analyze it because it was a health event. Well, I mean I think that yes, pandemics are are in theory very unique and idiosyncratic events, but the the followrough from the pandemic, right? Those things I talked about earlier of economic nationalism and fiscal activism that is going to drive more inflation volatility over time. And so even if CPI doesn't go to nine, if CPI is gyrating between two and four, that's still going to be more challenging than the world we were in in the aftermath of the GFC. >> That's not why you're here. I mean, David Kelly thinks you're here because of JP Morgan blah blah blah. Did you study with James McGregor Burns at Williams College? >> Leadership. >> I I studied with uh Professor Mallister who was one of his disciples. >> His disciples. >> Yeah. Well, I had a great relationship with Burns up at Williams and I've actually had the honor of attending his grave site, but tell us about the leadership structure of of uh politics and philosophy at Williams. It's absolutely best-in-class this side of the Atlantic. So when when I think about what's going on in a from a philosophical and and a political science angle and try to overlay leadership, you know, we we always talked about kind of transformational leaders, people who rose to the occasion. They they stepped up to the plate and dealt with with what they were being presented rather than trying to shape the future based on their own agenda. And I think what we need to see, frankly, is going back to the former rather than the latter. I think politics regardless of where you look around the world is all about very narrow agendas that people are trying to push forward. We need to take a look around at the world look at the investment look at the potential for productivity growth and say how do we maximize this because if we can have the rising tide lift all boats at the end of the day that makes everybody better off and that's the whole point of leadership when all is said and done. >> I can't do better than that. David Le with us Williams College and of course JP Morgan Investment uh management. >> He's in the new building. He's in the new building. >> Yes, he is. >> My word. Is the food as good as they say? >> It's a pretty awesome. It's It's kind of like Hotel California, you know? You can >> Do you go home? >> No, you don't have to. It's great. You can just >> You bring your kids kids to work? >> Uh they're coming for Halloween next year. >> They'll get to see >> Are they all dressed as James Diamond? >> Exactly. I We're not Not this year. My older one's going to be Freda Callo and my younger one is going to be Ursula. So that >> would work. Freda Kell that is so Williams college. Are you please who are the girls going as in the Lisa Matteo house? Alvir from Kors. >> This is that that teen years they get those like little too skimpy little costume gives my husband a heart attack. Yes. >> That's how they roll. >> Get a life Taylor Swift. That's his wedding. David Leovitz with JP Morgan. Stay with us. More from Bloomberg Surveillance coming up after this. >> You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Joining us now, Cameron Dawson of New Edge here. has been brilliant on participating in the equity market. You say earnings, the season we're into now and into next week's tech extravaganza, is the catalyst to break out of a range. So many disagree with that. >> Yeah. Well, earnings have been the key reason why this market has been so very resilient. If you're revising up earnings estimates, it does something really powerful because not only are you increasing your estimates for profits, but you're also providing the environment to be able to expand multiples. Multiples go up when you're revising estimates higher. They tend to go down when you're cutting estimates, which just means that as long as we're in a world where people still need to ratchet up their numbers, it means that you can be in this world where valuations can levitate at high levels. >> Paul Walmart, it's gone from 40 to 42. It's a multiple expansion. >> Multiple expansion. Exactly. 42. >> So Cameron, what do you make of this earning season so far? It seems like the numbers once again, just like the second quarter, they're coming in well above expectations. >> Yeah, we've seen 86% of companies uh beat earnings expectations. That's pretty much in line with average. That's very normal. You have a lowered bar going into earnings season and then you jump over that lowered bar. uh but we see you know very strong results across the board and that's not something that surprises us. What is very interesting is some of the reactions to strong results which just means that you're not necessarily seeing big big upside moves even though you're seeing beats and raises which just suggests that maybe some of those multiples did did get to a point where they can't push much higher. >> Uh very good. I mean I I'm looking at the bond market here. We've got 10-year Treasury yields below 4% here. What is the bond market telling us here? This is very peculiar because given all of the strong narratives that we have about US economic growth, look at Fed GDP now being at 3.9%. You have talk about all this AI capex and great earnings and yet and yet the tenure is below 4%. So the big question we have is the tenure sending us a signal that we should be more concerned about equity and credit the tenure pricing and maybe a more dire economic scenario or is the tenure falling because of things that could actually be beneficial to equity and credit such as expectations for quantitative easing or expectations of inflation remaining contained. Big question. >> You this is really brilliant. This is the word I use folks ambiguity where it can cut this way or that way. John writing is brilliant about this over at Breen in terms of the economics. Explain the 10-year yield ambiguity or almost mystery and what it means for someone looking at their 401k saying should I go further Cameron Dawson long. >> Well, I believe it is a Bloomberg tagline that says context changes everything. >> Nice. >> Never back. >> I I think that the context of why the tenure is falling is so very important. If you have a 10-year falling because you're pricing in a bad economic scenario, that implies lower earnings, lower valuations within risk assets, which implies a riskoff move. But if the tenure is falling because you have a very aggressive Fed that's going to be buying up a lot of bonds on the long end, or you have this ability where the Treasury is not having to issue as much, then that can actually be an environment where lower yields is still good for risk assets. Torstston Slack moments ago. It's like he wrote it for Thank you listen for listening to Cameron Dawson uh Torstston over at Apollo. The US is truly unique. 30% of the global stock market almost 50% now Paul. >> Yep. I know it's just amazing. And that kind of goes to where I want to go. Concentration risk. It's been something we've been talking about for I more than a year now it seems like. But it doesn't seem to be a problem for the market per se. But I we've been all raised and all educated that we need to have a broadening breath of the market. >> Look, if we if we go back in history, the two past peaks of concentration were during the nifty50 time at the end of the '60s as well as at the peak of the of the tech bubble in the in the late '9s. And what happened after both of those periods were effectively lost decades of returns for equities. And lost decades do happen. However, the challenge you have is it's the timing. Because if you try to bet against concentration, being early is the equivalent of being wrong. So what we think we need to have is a catalyst as to why that concentration unwinds. And for us, that catalyst is earnings growth of the MAG 7. >> I'm going to go back middle of pandemic use of cash. I've seen two two surprises for me because I'm not informed. I was shocked at the GM General Motors share buyback and I saw a chart of the American Express AXP share buyback. Are we underplaying now with all our worries in the geopolitical cacophony? Are we underplaying just simple dividend growth and share buyback? >> Share buybacks are at a record this year in 2025 despite all of the uncertainty. I believe they're up about 16% on a year-over-year basis. Companies are still having plenty of capital to put to work. I think the one incremental change is that what happened with these tech names is that they used to just buy back their stock. Now they're investing a lot in very heavy infrastructure. >> One quick more question here. You're all over the country uh talking to investors, retail and institutional. What's the mood out there? Is there a Dawson exuberance? I mean, are people out of control? >> I just got back from Boston at a academic/institutional investor conference. And the takeaway from that is that everybody seems to agree that the world is changing, but nobody knows what to do about it. >> Put me in that camp. I mean, the the answer is they're going to adjust. I'm sorry. >> You've been consistent about that time. You've been right on that one. >> The smart guys at MIT and Harvard, >> companies adjust. >> Companies adjust. >> Consumers adjust. You know, we have to work from home. Okay. >> Does have a job January 1st. >> He's got a big payday no matter what happens. >> That's the bottom line. That's the smartest thing I've heard this morning is we'll talk about media uh here in a bit. Cam Dawson, thank you so much. Greatly appreciate it. New Edge uh this morning. Stay with us. More from Bloomberg Surveillance coming up after this. >> You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10:00 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. >> Let's get right to it. Every second counts, the newspapers with Lisa Mattail. >> All right, let's start with this one. This was in uh the Bloomberg terminal. Uh Wall Street bonuses expected to hit a high this year. Okay, we all know, right? Big banks, they've been pulling in the profits, storing stocks, more deal making. How much are we talking? Well, you had this annual report from New York State controller Thomas Dapoli, and it showed that profits at 130 firms that belong to the New York Stock Exchange. Well, they reached $30.4 $4 billion in the first half of the year. Um it's going to hit the highest level on record if that same pace continues which means higher bonuses. So you have compensation expenses they increase by almost 10% in the first half of 2025 from the prior year. >> And the tax take Paul is extraordinary. >> Oh yeah. I mean >> I mean it really changes the fiscal >> of the city of the entire city. I mean, global and the Wall Street in particular here in New York City is such a big contributor to the tax base of the city. So, good news there. >> All right, what else we got here? >> Okay, so this is up your alley here. We got Warner Brothers Discovery, right? All right, they already nixed off three offers from uh Paramount Sky Dance, including one that its chief executive, David Zazzle, had a role in running the combined company. So, this is in the Wall Street Journal. They say they actually gave him the opportunity to serve with David Ellison as co-chairman, co-CEO of the combined companies. They turned it down again. So that they turned it down three times already. They tried to keep increasing the price. Um has not worked yet. Warner Brothers Discovery said they've gotten multiple offers. I think in my Tom I think you're right. In my opinion, I think it's simply about share price. I don't think David Zazoff really cares for whether he has a role or not in the new company. Um, but this is to value these assets. It's it's not going to start with a two. Let's put it that way. >> Well, okay. But is the value the cop like I think they have I Love Lucy. Is the value the rights to I Love Lucy or is the value to make the next Warner Brothers movie which they've been on a tear on. >> It's all the above plus its cost synergies. The cost synergies are going to be real. >> There go with the sword. >> Yes. It's going to be real. Unfortunately, it's going to be jobs in Hollywood. But um that's the one of the big reasons why um Paramount could pay a higher price arguably. >> You say Zazov is going to get paid no matter what. >> He's going to get paid. >> Just the romance that they want the studios. I mean, you know, you >> No, this is survival mode. This is survival mode. Tom, if you're if you're Paramount, you probably cannot survive, much less thrive in this new world if you don't get bigger. They have to do a deal. >> I remember the day Warner I remember the day Warner Brothers was taken out. I mean, this is this assets changed hands starting with me back in 2000 when we advised AOL to buy Time Warner. Um, that assets changed hands, you know, half a dozen times in the last 25 years. >> Next. >> Okay. Uh, this next one, I don't know if you've ever seen those scams. Sometimes you might get them on your text, sometimes you get them on your email, and they seem to come more and more, right? Yeah. My mom called the other day. She's like, I got a text that just says hello. I'm like, don't respond. Like, I get those all the time. Like I said, my children know >> you don't know the number. So, it's really become a thing. Americans have lost billions of dollars to these scams. So, the New York Times really has a good look into how this all happens. They say they're led by groups in Southeast Asia. Um, they really dove into it. They say a lot of the scam centers rely on forced labor and they do a couple things. So, they target v victims. They basically win their trust over on social media on places like let's say Facebook, WhatsApp, Telegram. So they start kind of winning them over. Sometimes they pose as a financial advisor and then they ask people to invest in this fake crypto, you know, fund or they use romance scams and they target divorcees and widows or maybe they um they call people on the phone and saying that they're bank representatives and they ask for their, you know, account or pin number, social security number. It's crazy. >> I am shocked whenever I'm out in public and I hear somebody answer their cell phone by saying hello. Have you ever answered your cell phone unless you don't know who's calling you? >> I mean, I don't even acknowledge anybody at that time. I don't know. >> I I miss a lot of calls. And to be perfectly honest, when they need me at Bloomberg, they have to call Mrs. Keane. >> Yeah. That's >> why God made voicemail. You know, >> I don't pick up my phone. >> So, you're not just ignoring me? >> No. But this is making jokes about it, but be aware out there. I >> I Well, we we'll come back to this. This is not going away. Lisa Matteo, the newspapers. >> This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10:00 a.m. Eastern on Bloomberg.com, the iHeart Radio app, TuneIn, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal. [Music]