Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Well.
Our most ret story on the Bloomberg this Friday is about last night's debate. President Joe Biden bet that a debate with Republican and former President Donald Trump would boost his moribund reelection campaign. Tim his gamble, though many would say, has failed.
Yeah.
We continue Bloomberg's coverage of last night's debate here with us as Bloomberg Radio and TV Political news director Jody Schneider in our Washington DC bureau. Also with US Bloomberg Opinion West Coast Politics and Policy course columnist Erica D. Smith in Los Angeles. Jody, Let's start with you. Carol did a really scientific or not so science at the pull on the website formerly known as X asking people if they were voting today. Carol, what were the results of that?
Yeah, I'm just pulling it up. So I asked if you were voting today Biden got fifty percent, Trump got thirty one percent, and undecided got nineteen percent. People might be surprised by that. No standard deviations yet, I like we said, not very scientific.
Yeah, exactly.
Listen, we all watched the debate last night, and we're gonna dig a little bit deeper into President Biden's performance in a moment. I know everybody's focusing on that simply though, and maybe this is naive in our question is there a winner? Is there a loser from last night? A clear winner, clear loser?
Well, I think if you're looking at performance, Joe Biden clearly lost. He seemed lost at times. He had First of all, his voice was odd. They told us that he had a cold, but they didn't kind of tell us that beforehand. So when your your first impression of Joe Biden, a question or so in was what's going on here? His voice was bad, he seemed to be faltering. He was really put on the ropes early on by Donald Trump and stayed there. Frankly, so, in terms of performance,
Donald Trump was clearly the winner. Now in terms of policy issues, first of all, there wasn't a lot of policy debate. They were each going on kind of in their own way. But Donald Trump, you know, continued a lot of misstatements, lies, attacks, the sort of ungrounded attacks. So from that standpoint you're watching it, you know, you don't exactly feel good about the grasp of the issues there.
But he did have a much stronger performance than President Biden, and interestingly, President Biden today on a campaign event seemed robust, so very very odd performance last night.
Okay, go ahead, Carole, No, well that's let's just go there for a moment because we were just watching too where he was in Raleigh, North Carolina, and it seemed much more like the President Biden of the state to the Union.
What gives?
What?
How do we reconcile that?
Yeah?
I don't know.
I mean that's the question of the day. I think one thing is he didn't have a teleprompter in Raleigh at that campaign event. He didn't last night, which is interesting. There was no audience last night, which everyone seemed to think was going to benefit the president rather than the former President Trump because Trump loves the crowd, right, but it really seemed to hurt President Biden.
Okay, so let's look at a couple key aspects from last night's debate, Jody. Here's CNN's Dana Bash and Donald Trump at last night's CNN Presidential debate on Trump whether or not he'd accept the next election outcome in November.
Check it out.
The question was, will you accept the results of the election, regardless of who wins?
Yes or no? Please?
If it's a fair and legal and good election, absolutely, I would have much rather accepted these But the fraud and everything else was ridiculous. That if you want, we'll have a new conference ordered in a week.
Okay, Jody, Not exactly a yes or a no answer there. I'm curious if Trump's reticence is going to alienate people, or perhaps alienate swing voters. I mean, they can think of January sixth, just four years ago, and the way the president at the time responded to the twenty twenty election.
Yeah, I think if something was going to hurt him with swing state voters, it would be that timp He not only did he not answer yes or no, he made up things, you know, saying it was not a free and fair election. Every single court seemed to, you know, said that right. He would not be Joe Biden wouldn't be standing there. If this was something that was litigated.
It wasn't so not accepting the legal outcome of an election, I think is something that does disturb swing state voters and it's that kind of answer that gives them possible.
All right, and let's get to something that you certainly talked about before, Jody, and was disturbing to a lot of folks who were watching, and what many would say was a key concerned Democrats, and that is President Biden's performance last night.
Here he is at the CNN presidential debate.
Making sure that we continue to suppend strength in our healthcare system, making sure that we're able to make every single solitary person eligible for what I've been able to do with with the COVID, I should be with dealing with everything we have to do with Look if we finally beat Medicare.
All right, That, of course was President Biden at the debate last night. I want to bring in Erica D. Smith West Coast Politics and policy columnists at Bloomberg Opinion, because Erica, you write that of the many prominent Democrats with aspirations for higher office, California, Gavin Newsom is arguably the best equipped to pick up the baton from President Biden. We wouldn't have had this conversation necessarily twenty four hours ago, but because of the performance last night, we are having
this conversation. How is Governor some the right person to maybe pick up that baton?
Yeah?
I agree, we wouldn't be having this conversation, and I actually don't think that Governor Newsom actually wants to have this conversation either right now. But you know, he has been you know a lot of people have thought that he's been kind of running the shadow campaign for several months now, particularly people in California who were voters of his. You know, he's been traveling the country, traveling the world,
building his national profile. He has you know, socked a lot of his campaign cash into helping Democrats in other states and networking.
Obviously, he's a top surrogate for for.
Joe Biden and has been on the campaign trail almost no stop for several months. He's emerged as probably one of his best surrogates because he's really nimble in debates and he goes on Fox News and on the right wing media without hesitation. He we all remember the debate
that he did last year with Florida. Florida Governor Ron DeSantis when DeSantis was still a presidential candidate for Republicans, and you know, he got a lot of applause for that though it was you know, I don't know much as he came out of that debate either, but he has really served as as somebody who's kind of ready to kind of take into that next step as a backup.
And so now we're having this discussion.
Why Gavin Newsome over Vice President Kamala Harris, also from California, and also another California petition politician, Erica.
Yeah.
I mean I think that those are the two, you know, candidates I think most people are going to be talking about, obviously Kamala Harris because she's the vice president and as I write my column, I mean, vice President Harris is more than capable I think of taking over this job if necessary and running at the top of the TI ticket if that's what voters want.
I think her biggest problem is for polling.
You know, you can argue about why people don't like her as much as you know, the various different reasons what it you know, has to do it sexism or racism or what, but you know, her polling numbers have never been that great, and I think that you know, Gavin Newsom probably is going to do better with voters right now than than Vice President Harris Well.
Jody, give us the view from from Washington, DC on this. I'm curious if Gavin Newso, in your opinion and you and given in the circles that you report from, has what it takes nationally to have that national appeal. Certainly well known in California. But is he known well enough nationally?
Yeah, I think he's well known, Tim. I think the question is a California you know, is that is that who's going to kind of be able to take on Donald Trump if Joe Biden were to step out a step away. Uh, there's a lot of you know, Monday morning, I guess, Friday morning quarterbacking here today and a lot of people are talking.
You know.
You hear Gretchen Whitmer, Whitmere's name out there from Michigan. You hear Wes Moore from Maryland, who's only been in office, you know, a couple of years. We're hearing a lot of names, and of course Kevin Newsimp's name comes up. He has been you know, out there on the national stage. But I think at this point, it's still just kind
of a parlor game. But we are hearing some prominent Democrats and some people who had worked with uh, you know, certainly for Obama's campaign, uh some even honor ly Biden campaigns, who are questioning whether the president should step aside for someone. But there really has to be a conversation that Joe Biden accepts, and that seems to be certainly from his campaign performance today for his at that rally, he does
not want to step aside. So until that happens, kind of the parlor game is just a parlor game.
Erica.
For those who are listening and watching right now on Bloomberg Radio and TV and across our platforms, I mean, you understand California politics, you understand Governor Newsom for our national and really global audiences, because Bloomberg has put out some reports about around the world, how people watched political leaders. Global leaders watch that debate very closely and are nervous.
What do they need to know and.
Understand about Gavin Newsom because he's been playing too on the international stage.
Oh yeah, he has. I mean, he is a big thinker. I mean, I know he kind of comes across as kind of this. You know, he has this Hollywood kind of stereotype, but he's really a policy wonk and he knows this stuff. He is very cares I think is pretty clear from all the interviews that he's done. But I do think he has a really.
Good mind for policy and for politics.
He's managed to get himself out of jams that I think would have you know, taken other politicians out here in California. And but you know, to the broader point about California, right, I mean, California is so far left on the political spectrum that it's hard for I think a lot of Americans to understand California at all, much less California politics. And I think that's going to be his challenge. He's a very likable person. He can move
around in different crowds and different groups of people. The question is whether or not that will I guess fly if it even comes to that. Again, if if Biden actually decides to set aside, which there's a lot of ifs that get to to get through before we get to whether I Knewsom is gonna potentially run for.
Presidents well Erica.
Again, it is a parlor game, but we are we are playing it today, and you do have a column that he's among the most read all about it. I do so potentially potentially step again. So we're gonna I'm going to continue with my line of questioning to you about this because I am wondering about the California element, whether it helps or hurts Gavin Newsom. You mentioned it's a liberal state. However, it does have an incredibly huge economy,
among the biggest economies in the entire world. But the view of California, and I can say this is a Californian. What is outside of California is I think for a lot of people very confusing. Perhaps they see problems with crime in Los Angeles and San Francisco, they see reports of people moving to less expensive states like Arizona and Texas. They hear about the high cost of living in the state. Does it help or hurt a potential presidential candidate from the state.
I think on the most basic level, I think it hurts because people see those headlines and they think, you know, California is a mess. I think there's a story to be told about how California grapples with those issues and about how oftentimes those issues don't say, contained California, but
the California is the first one to experience them. And I think when we think about homosis in particular, I mean, California has had a homosis problem for quite some time, but we've seen seeing that as a problem spread to cities all over the country, you know, big and small, and people are now looking into California about how do you actually deal with this problem? Which should we do?
And so I think there's a story to be told about, you know, the mess that is California, but I think there's also a story to be told about how we deal with it. And then there's just the broader story
of innovation, right. You know, Gavin Newsom gave his State of the State address much later than usually planned, but he did it online and it was very kind of national Suite kind of putting California as this, you know, the face of liberalism is the model of liberalism and democracy in the face of you know, mega republicanism and how we embrace equity and all of these things that
you know, he's gone and stumped about. And so I think there are a lot of things that democrats in this country want our country to be and to be more accepting and to be more open and inclusive. And I think California does represent that, but there is there's some mess to get through before you understand what.
That actually looks like.
And I gotta say, when it comes to governor knew some I just go back to COVID. I mean, that was one of the big voices that you know, it wasn't just a California governor, but on a national scale. I feel like the nation was watching what he was doing and what he was saying in a big way. Having covered that day in day out, Jody, come on
back in. I want to know what you are hearing those specifically from the Democratic power brokers, from the big fundraisers that have been backing President Biden, what they need to would they want to happen next?
Are they pushing for change? Are they pushing for him to step down?
Well, I think there's a lot of conversations going on at different levels, and one of them is to where to put your money. And one thing I think hasn't gotten so much attention yet, and certainly something we're hearing a lot today is the so called down ballot candidates Democrats in the House, in the Senate where you know, the Democrats could very well win the House this year, and how Keem Jefferies could become, you know, the Speaker of the House and very much wants to be the
Speaker of the House. So I think there's a lot of concern there they not be dragged down that if the ticket, you know that if Biden at the top of the ticket is not as you know, is going to have issues and going to have increasing issues, that they don't want that to reflect on them. Same thing
with Senate candidates. So I think there is a fair amount of concern there, and frankly, we may see some donors if they decide they don't really want to back Biden, they could go instead go to back house and Senate candidates instead. I think that's something we're going to have to see with the money where the money flows in coming weeks. Both campaigns, both Trump's and Biden's campaigns, have said they had very good fundraising calls last night with the debate.
Okay, So, so, Jody, what's the next vocal point for you if we think about the roadmap to November. We see President Biden in North Carolina today, President Trump, I saw a video of him hitting the links and making some comments after making a drive. What's your focal point?
And great if you could do it in thirty because we'd love to get Erica's view on that as well.
Go ahead, Jody.
Well, first of all, in two weeks we have a sentencing on the eleventh of former President Trump in New York on the thirty four cants of which she was found guilty, and then we have the R and C convention in Milwaukee just days later, So those will be big moments for the former president. And of course we have the Democratic Convention in August for President Biden.
All right, save thirty seconds for you, Eric as well. What's the next thing on your focal point or on your radar?
Yeah, I'm looking at.
The down ballot race is obviously Arizona, Nevada, a big swing states. You know there's a primary, not presidential primary, but there's a primary coming up in Arizona at the end of July.
Obviously looking at the rn C and what happens.
In court for Donald Trump, but also you know there's a Supreme Court ruling hanging out there about community which hasn't landed yet, which I guess will land on Monday. So there's a lot of different ways that could go, so just kind of cred to keep up.
And we're only halfway through twenty twenty four. All right, guys, thank you so much. Bloomberg Radio and TV Political News director Jody Schneider and our DC bureau and on the West Coast Bloomberg Opinion West Coast Politics and policy columnist Erica D.
Smith.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brought auto with a Bloomberg Business app or want us Live on YouTube.
One of the focal points.
Certainly, we've been talking about it all week. How's to do with the feds preferred inflation gauge, the measure of underlying use inflation decelerating in the month of May, bolstering the case for lower interest rates later on this year.
At the same time, household spending rebounded after a pullback in April, and income showed solid growth, offering some hope that price pressures can be tamed without lasting damage to consumers.
All right, so let's get to it.
Our Economics and Rates round table back with us Molly Smith, Bloomberg News Economics editor, and Bloomberg News rates reporter Michael mackenzie, both here in our studio. All right, Molly, first up the data, the inflation print. The data confirms essentially what.
That it's easing. Correct. Yes, good stuff, good news.
We're not surprised, right. We knew a lot of the components that go into this correct.
Yeah, So we knew.
We had a strong feeling that that point one monthly increase in the core was coming. So that came in as expected, and then you know, for all of our fantasy like to look at it out to two decimal places, it was actually a point zero eight increase, So looking at it on the unrounded basis, that's the smallest rise since late twenty twenty, so that's definitely a great sign as well. And also looking at the spending data, this was encouraging in the sense that services spending really.
Slowed down in the month.
This has been the part of spending has kept inflation so elevated that if we are going to hopefully see some more slowing in services spending, that's hopefully going to translate into the stickiest part of inflation ebbing as well.
Any surprises whatsoever. Everything was pretty much.
I was surprised to see the savings rate go up.
Yeah, I mean that's just because you hear about excess savings.
Being right and that people are.
You know, you're stretching more for like where you're going to find money to support spending. So to see the savings rate go up, I was surprised by that. And also to see inflation adjusted disposable income rise by the most since early last year, that was certainly surprising. I feel like I struggle with this a lot to know, and we talked about a lot on this show too.
What is the truest measure of the labor market right now?
There's so many mixed signals wages especially, I really struggle with that one. There's so many different metrics of what is going on with earnings growth and this one, I feel like, you know whether you're going to take signal from this report. Within the PCE, we get average hourly earnings next week, you have also the Employment Cost Index that's quarterly. There's so many different measures out there to describe the state of wage growth, and they can be conflicting at times.
This is why it makes it tricky speaking of maybe a little bit of a conflict.
I don't know.
It feels like rates have moved around a little bit today, Michael, so walk us through in terms of the reaction off of the inflation print.
Well, Carol, the inflation data was as expected and that's a relief, and we saw a bit of a bump up here in treasury prices, so yuels dropped and then we've just gradually down wound that. And I think what's interesting now is we've got higher yields led by the thirty year and ten year, and that's called what we
call the bear steepener. And the bear steeper I think has probably more to do with what happened last night in the debate, because you saw Trump doing very well and the market now thinking, okay, this has put the election on the radar here firmly. And what we're hearing from Trump and is like tax cuts, wants to keep spending. So you start to think about down the road, you
want to be in a curve steepener. You want to be selling the back end those longer dated rates because the deficit situation is still going to be a problem coming down the road.
Interesting so that it's.
Also month end and quarter ener day, So I do feel the market kind of bored enough trochies. Earlier this week we had three auctions for example, So it's just really about day. It's the last day of the month, last day of the quarter. So but the reaction, if you look at it straight line, after what happened last night, you can go people want to put a sleeper on.
But not a big reaction.
Though not a big reaction. We're still very much within the recent ranges.
We're still reset.
It's not a change of health.
No.
And in fact, if you look at the odds for a September rate cut, there's still around about sixty five sixty eight percent. We're still pricing in a little less than fifty bases once a half percentage point of cuts for this year, So the mark is still very much in line with the Fed. September's in play. And as Molly you know, mentioned earlier, we got the big employment
report coming out a week today. That's going to reach that's going to be the next big piece of of sort of data that we the market will be looking.
But of course that's coming out coincidentally July fifth. I mean, I personally actually won't be here so nice for me, But like Tim, you will be here'll be here.
Of course, there's no it's got to be here for the news.
And I found that day off without even realizing the jobs report was coming out, So who knows me if that's again poor on my fault. But I mean, look, I'm sure there are going to be a lot of people away from their desks, and who knows what kind of tropic trading activity you might get on some lighter volume, presumably that day.
Hey, Michael, I do you want to go back to an election question here, because you talk to bond traders every day, yep, And I'm wondering how they're thinking about the FED if the former president wins election in November, and he's talked openly about his desire for lower interest rates even when he was president. And also we saw that Wall Street Journal report a few months ago about the idea of being more involved in policymaking with the Federal Reserve during a Trump administration.
It's certainly a topic, certainly a topic that myself and my colleague Lizabeth Cormack had been asking a lot of investors recently, and the general view has been, you can't rule out something different happening here, but everyone we've spoken to make the point the FED is an independent institution.
He has a lot of backing across party device in Congress, and you have to see some the recent term appearances of power in front of the Senate Banking Committee and how Financial Services Committee people on both sides of the aisle have made it very clear to how you do you know, we thank you for being independent focusing on the economy. I think there's a lot of credibility with the FED, and I think ultimately it's very hard to see how a president can really bully this FED.
You want a royal global markets right, start making a FED and making it not independent.
And actually some people said to me, you can see a scenario where the FED actually ends up having to be the voice of reason and makes a big stand. And I think actually, in the end of the day, you're getting inflation down, you are going to ease policy if unemployment starts to rise. That's the Fed's job. They know that it's a I mean, I'm sure Molly's got some good views on this as well, but that's the feedback we've got from bond riisters.
Yeah, Mary Daly was speaking about that today as well, that like, you know, take a look at the PC this morning. She was speaking after it came out, that this is a great example that policy is working. I mean, I think the counterpoint to that though, when she was saying that, you know, inflation is coming down, that the jobs markets cooling, spending is cooling, and that's all evident of policy working.
I think a lot of that.
You could also just say that we're coming from extremely high levels of all of these measures and inevitably they had to come down, whether interest rates were high or not. Just the sheer fact that inflation has persisted has also lead led to a lot of these indicators starting to weaken. So I don't know, just a little counterpoint there that, you know, I don't know that necessarily this is all the work of monetary policy.
I also do wonder Ella Ariyan, Muhammad Ali Airy and Michael in your story, you know, continues to be concerned about a.
FED policy mistake.
I mean does the data First, let me let me ask you, Molly, like, based on the data that you continue to see, does.
It feel like the FED is behind No?
I don't think so.
I mean I think that look, look I'm going to sound like a broken record. Have said it here so many times, but like the first three months of the year certainly did.
Not support the FED to start cutting rates any sooner.
That was like you know, when you look for like you know, what's it like one's a print, two's a party, three as a trend or whatever we said, like you know, that was certainly like they said, we have to take signal from this, and they did, and now we're finally starting to see like maybe some more prints come in line to show that inflation has resumed its downward path.
Jobs remarket has very very gradually slowed.
Still hard to really say that it's really cracking in any meaningful way.
So no, I don't think that they're behind. But then of course you have people who say that policy acts with long invariable lags, so that the worst may be to come.
So over to you, Michael Well, I think the FED is looking pretty good here because this week we saw an Australia in Canada inflation kicking back up in Canada recently cut rates, so it puts the spotlight on central banks out of John Turley, including ECB, whereas the FED is said, Nina, we want to be sure. Now with PCE running at an annual rate of two six percent, we're getting into that zone that Rich Clarenda talked about last last year when he said is when is this
FED going to feel comfortable? What level of PC do we need to see?
And the one ship there's still lags right in the policy and so they're debatable how long and variable they are.
It is Yes, So the question we've yet to hear from this FED, or you know, from Powell, what is the sort of playbook here? At what point do you start to look at easy? I guess they're waiting to see how how long employment can stay in shape here, and that what I think shape the second half of this year. Now, the thing about the FED being behind the curve, you could argue basically pretty much central banks
are always behind the curve. And this is a central bank that has raised rates to five and a quarter five and a half. They can definitely take the elevator down and cut rates if they have to. And that's a good insurance policy to have, is your central it can.
Be more aggressive if they need to. Right, They've got a lot of room to player exactly.
But to your point, they certainly have to be feeling better than like you said, in Canada in Australia right now that they're looking at oh God, like do we need to go? The teams like to see it happen over the the ECP probably breathing aside of relief today that French and Spanish inflation came down a bit and it's like, okay, maybe like it's going to be okay, just keep cutting.
All right, guys, thank you so much. Great set up as we head into the weekend.
Molly Smith, Bloomberg News Economics editor and Bloomberg News Rates reporter Michael mackenzie.
Guys, thank you so much, really appreciate it.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
All right, we are.
As you know, we keep saying it.
Wrapping up the month of June, incredible second quarter wise, and the first half of trading in twenty twenty four.
Yeah, okay, so we get ready to do that Wall Street traders sent stocks toward fresh all time highs as signs of cool down in inflation reinforce bets at the Fed, we'll be able to start cutting interest this year. We talked about that a little earlier.
Yeah, we did with Molly and Michael mackenzie. Hey equities extended. Though this year's rally, we did see the S and P five hundred.
Hitting fifty five hundred, we're back below that.
And we did see the Nasdaq one hundred briefly surpass the historic twenty thousand mark. We're back below that as well. So we've been passing around here, Tim.
Okay, So we got with us someone from our M Live team who can tell us about stocks rising until they dropped like a rock. It is a recent story. Christina Quino is Bloomberg News Managing editor for Bloomberg's Markets Live block. She's here in our studio. We're going to get to that story in a minute. But we've spent a good portion of our program talking about the sort of hangover I think that people have from last night's
CNN presidential debate. What kind of commentary and comments are coming in after that?
Well, Tim, I think there's a little bit more concerns that we say in markets, because I think prior to this there really was the sense that, oh, you know what, we can probably ignore the election until we're much closer to November. But I think yesterday's debate heightens the uncertainty surrounding Biden and whether he is going to be able to contest Trump sufficiently when it comes to November, and so I think there is a little bit of concern
now among analysts. We are see, for instance, strategists as Barclays recommending some strategies that will protect you against inflation, especially because we know that tariffs are one thing that Trump is particularly keen on.
Sol Waits, are you saying that the analysts of Barklays are saying, if a Trump victory comes, we could see higher inflation as a result of tariffs.
That's exactly that too. I mean, they are focusing on the potential for higher prices just because we know that Trump during his previous presidency had hammered home a lot of the points about tariffs.
He did say last night he repeated again the claim that tariffs, we bring in so much money from tariffs, again representing I think that many economists would argue a disconnect with who actually pays for tariffs, which oftentimes is the end consumer who pays higher prices that are passed on.
You're so much.
Calmer than I am, because I think I was yelling at the screen like no, we consumers will pay for that. But our Michael mackenzie was saying that we could see it in the US rates curve if you look at the tens the thirties, like this expectation that if there is a win by Donald Trump and things like tariffs, you know, just talking about more debt if you will, being issued and so you're going to see that play out in the market.
All right, So should we talk about what we're wrapping up tonight? Are you ready? Okay?
So we said we're wrapping up the month, the quarter, and the first half of the year. First up, the first half bit.
Of a wild one.
Absolutely, that's probably the tamest way you can describe it, Carrol. But yeah, there's been a lot of twists and turns, for sure. But really what kind of prevailed over all the nervousness, over all the worry about stock markets is that we're still here and we're still near record highs.
But there's still a lot of kind of nervousness. I would say that the first half of the year was very much characterized by unhappiness despite the fact that we're hitting record after record and equity markets and you know, there's just a lot of questions over how long can
this go for? And you can really sense that investors are kind of caught between fomo but also the sense that it really can't be going on this good for this long, right, and so they're starting to think, what are they going to do once that inevitable shoe drops, once that inevitable pull back comes?
What is the shoe though? That's what we're trying to figure out, and that's what we've been asking our own market observers over at the m Life blog. What are people talking about when it comes to that proverbial shoe to drop?
Yeah, well, I think tim the focus is really on the labor market, and that's kind of the main shoe
that we're watching out for. My colleague Tatiana Dairy argues that, you know, when it comes to the labor market, there are just like certain unemployment thresholds that would trigger the Palm rule, for instance, which has been a very reliable recession indicator, and so we're very close to that four percent unemployment level that would take us to that level in the so M rule that would pretend a recession potentially.
And that's the forecast for.
Next Fridays exact employment rate would be four percent. That's the expectation for the month of June. So we'll see, well, no, a week from now, but so anyway, please.
Continue, Yeah, exactly that.
But yeah, it really is the labor market that's going to be the backbone and the mayk or break kind of factor in this equity markets, right, And it makes a lot of sense, right because you know, if people are gainfully employed, they're very much happy to spend. What they spend on is up for debate, because you know, we do have the sense that maybe they're foregoing goods and instead spending money and services, but they're still spending.
But if their resources dry up and you know, we start seeing kind of mass layoffs, I mean not that we're going to get there immediately. This is going to be you know, over a few months, if not a year sort of story. But if you do get there, then that's definitely.
Going to be nues for stock market.
Yeah, because we did see personal income numbers coming in a little bit stronger today. Spending was a little bit lighter, But I know Molly was talking a little bit about I thought with a consumption or something that was going on that was savings forgive me, that was a little surprise that we saw bump up when it comes to savings rates.
What I'm wondering about breadth right now, because one criticism of the rally that we've seen this year is that it's been very concentrated in the top tech stocks, and we're talking about Microsoft and Video, Amazon meta platforms so far this year just dominating in terms of US equities. What does that tell you the lack of breadth about further upside potential.
Well, I mean, it definitely is one of the reasons why there is such nervousness about this right the fact that your stock rally is built on just a really small number of stocks that yes, they seem to have a lot of momentum right now, but again, it only takes one or two external factors to kind of unseat a lot of that optimism. And again, if we're bringing this back to the potential, for instance, in the presidential
election outcome, in November. If one of the potential outcomes is inflation, that's not necessarily going to be good for the tech sector, right. They're very inflation sensitive sectors, and so if your rally is built primarily on that sector, then that's only reason to worry.
Well, I guess my always question is, Okay, then do investors, as long as the economy continues to grow here in the United States, do investors maybe start to think, Okay, there are some numbers that haven't enjoyed not some numbers, some companies and their share prices that haven't run up like we've seen in that small group of like megacap tech names.
So does the rally broad now potentially could it?
I mean there's definitely a question or a merit to diversification, right, I mean, every investment strategy is worth their soul is going to tell you that look like there is a potential for kind of danger if if you concentrate too
much in one sector. The problem, I think is that for a lot of investors, if they look beyond that that tech sector rather meg cap tech sector, there there really isn't a lot of kind of companies that promise a similar rate of return and you know, for for a lot of investors, especially people saving up for retirement and whatnot. It really the return of a money over time is really a crucial factor here, and this is why I think what has contributed to dot tech blowout.
But we will see what will happen in the second half. Michael mackenzie was talking about the importance of the labor market certainly in the second half. Remember, the Fed has a dual mandate, it's inflation and the labor market. So if that starts to come undone and crosses a certain threshold, that could be problematic.
Yeah.
Also keep an eye certainly on the bond market and the bond market reaction to all this, given that we didn't hear last night a big idea of not spending as much.
No, exactly no.
And you know if people have said that in an election year, are you know that everybody's like, we're going to spend because everybody.
Wants to get some money, you know, when somebody wants everybody wants to get the voters.
Right.
So you said you're going to be.
So there's a word pander, but there's not a better word, like you have to pander to different groups.
Yeah, exactly, so that's why you tend to see it. Christine, thank you so much, really appreciate it. Are Christina Quino, Bloomberg News Managing editor for the Bloomberg's Market Live blog.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brout Auto with a Bloomberg Business app or want us Live on YouTube.
Well, we are all talking about that debate last night. There to say, there wasn't much discussion of policy in the debate, though each candidate did try to make their case that the economic policies that they have are better for the country. The former president made the case without offering any evidence, Carol, that immigrants are coming into the country and taking jobs from Americans. You heard him say this a couple times.
He did several times.
And what's true is that the unemployment rate is right now hovering around historic lows, and even though things are cooling a bit, the labor market remains tight. We get another read on jobs next Friday when the June payrolls numbers come out. The day after the fourth of July holiday. We've had so many conversations though the importance of immigration exactly.
And that's one thing that was driving crazy during the debate last night is there was no discussion about how important immigrants are to the US. And well, no, I mean if without immigration in the US, we would not have enough workers to fill jobs. I mean, we've talked about this so much, right.
Right, it would put more kind of inflationary pressures out there.
Okay, So to that end, our next guest argues that a tight labor market in advanced economies like we see here in the US is a long term trend that could continue as workers get older, and that has some serious economic implications and they're not pretty. Olivia White is senior partner at McKinsey and Company. She's also the director
of the McKenzie Global Institute. She joins US from London. Olivia, what did you find in this most recent report and start up with the idea that the tight labor market it's not just a post COVID blit, but it's actually a long term trend.
It is not Yeah, that's totally right, and thanks, it's a real pleasure to be here. It's the cumulation of a long term trend that started roughly in twenty ten, after the protracted end of the global financial crist and that was a time where we had far too many workers.
Not enough jobs.
And we've been steadily moving to a place where all of a sudden we have too many jobs not enough workers. And of course COVID threw us quite a bit for a couple of years. But where we're softening back too right now is that more tight place. And you can draw a line from twenty ten to where we are today.
All right, So why should we be having this conversation? Why should we be talking about this right now?
Well, look, if what we want to maintain over the next call it, ten years is an out economic output GDP growth of what we've had even over the past ten so about two percent. If we maintain our current levels of labor force participation, and if we maintain our current levels of productivity growth, we're going to be roughly
a percentage point short. And that's problem. And so we have to think about of what we need to be able to do in terms of labor supply and what we need to do in terms of boosting productivity.
Okay, so where does immigration come into this? Because it's something that we wanted to understand, not just in the US, but as we're seeing migration patterns all around the world right now as a result of many, many reasons. It's not just an issue here politically in the US, it's a huge issue in Western Europe. How does immigration play into this?
Immigration is one element, and thinking about how you can boost your labor supply, particularly is your population populations age, So yeah, of course foreign born workers important elements. Other important elements to consider is both the female female labor force participation ratio, but also how much everybody at every age and particularly older people, say, people above about fifty
five are working. So all of those things create an important mix that frankly, as you said, every country across the developing world has to think about.
Why, Sorry, Carol, I want to jump in here. Why are you seeing a tight labor market in other areas of the world too, Like, it's not unique to the US, but it's unique to advanced economies. You just laid out the US version of it, but while other advanced economies, why are you seeing it too?
Well? So, first, if you look at a set of economies that seemed developed economies that seem to have nothing much in common except these tight labor markets.
That you talked about.
You see places like Germany, places like Japan, Norway, Singapore, the Czech Republic, and all of those places were actually at a fairly similar juncture where actually populations are aging and folks in general have eaten up the labor supply that they had in access at the end of the global financial crisis. So it's a pretty similar explanation, quite frankly.
And you know, something I've talked to you guys about before is productivity growth or the lack of it, and a bunch of developed economies we've been living through these call it ten years up until about twenty nineteen when COVID hit, where we hit the luxury of being able to throw more people, more labor at the economy at output, and we weren't grow productivity growth. We weren't growing productivity enough.
And then we've eaten to bone and we're at a place where we have to figure out both how to get more labor supply but also how to continue going productivity.
Hey, one thing I want to ask you is we talk about productivity. As you know, I'm sure you have these conversations we talk a lot about artificial intelligence, and now that's going to take over a lot of tasks, right, Generative AI, large language models, you know, advanced AI, right, that that's going to do a lot of tasks going forward, and maybe there'll be some worker adjacent you know, with AI.
Have you said that?
But my question is, you know, if we need to I feel like we're arguing to bring in more immigrants, right or immigration because we're going to need it maybe going forward to fill some of the jobs.
But at the same time, like when I think about that, when I think about.
Reskilling, do we really know what we need to be reskilling for if we don't really.
Know exactly all the jobs AI is going to ultimately take over.
Well, you know, and even you and I have had this conversation about AI, Carol, So near term, yeah, for sure, you know near term. We're already in nearbone. So we can look quite specifically at the jobs where vacancies are the highest, and then we can start to extrapolate that into the future. And sure, if you take a telescope and you look, you know, even ten fifteen years out,
it's harder. But next year, the year after, yeah, we know, and the sorts of reskilling that we need to have in the pipeline are, for example, vacancies are very high in healthcare.
How do we make sure people so.
Sorry, how do you address that? I mean, immigrants make up a huge portion of healthcare workers, at least in large cities.
We know that, sure, but you could also for example we're just talking about, you can increase productivity of healthcare. You can help educate younger people so that makes them makes it easier for them to shift into other healthcare related jobs. So you know, this is not a one bullet solution type thing. You got to do productivity, and youve got to think about boosting the labor supply along multiple axes. Foreign born folks absolutely, but also in increased participation of everybody else.
Do we need to also have policies to encourage people to have babies? As Elon Musk suggests.
Well, if our babies are going to start working at one or two.
You know what I mean.
But you know, the birth rates and so on and so forth. Although there's some debate about whether really birth rates.
Are going two year old, they are not productive. They do not add to productivity.
Wait live is it?
Like?
You know? Look, I will absolutely embrace this demographics conversation. I think it's super important. I'm actually working on it too, but it's not a fix for what we're talking about right now.
Hey, when do we start to see We had an interesting conversation with Gina Martin Adams, or chief Eaculty Strategies here at Bloomberg Intelligence earlier this week about the way that AI has really benefited a few of the very large companies in Video and Microsoft, and we're still not seeing it play into the bottom lines of other companies
that are not necessarily in pure play AI categories. I'm wondering lyvia what what sort of you can tell us about, you know, when we're start to see that productivity end up in the bottom line of these other companies.
Yeah.
Look, my take on this is you see this sort of life scale of this going up.
Go.
If you first get some experimentation, you then get some pilot, you then start to be able to wire it through your company. I would start to think three years, four years, and it's going to depend on the company, right, So the companies that start to see it coming in most quickly, we'll think about it on that time scale. But look, remember in all of this half of our economy is
powered by small businesses. So it's one thing to talk about large companies starting to adopt things like AI, but it's just going to take longer to work its way through the full economy.
So if there is one policy you could change, or one thing that you are piece of advice that you would give to either governments and or companies, what would it be?
Companies, focus on broader talent pools and make sure you really give a good talent proposition to the people you hire.
All right, good to know, Hey, listen. Always fun to check in with you, Olivia. Have a good week in Olivia White, partner at mackenzie and Company, Director of the McKenzie Global Institute. Joining us there in London, Marc.
A journal.
Now about you?
Let me drive?
Oh no, no, no, no, all right please, I'll travel ease, wait, I want to drive.
It's a good question.
This is the drive to the globe. Pick we'll buy around each other down on Bloomberg Radio.
All right, TikTok everyone, it is that time, less than twenty minutes to go till the close of trading on this last trading day of June.
Nice job of the month of the month.
Of the quarter, of the half, of the first half of the year. Not happy, not of the year earlier.
Although it feels like we've been through a year.
It does feel like we've been through a year. Let's get to it with Alan Zaffern. He's founding a partner in co CEO at i EQ Capital, joining us once again from Foster City, California.
Allen, how are you doing great?
Tim?
And Carroll? How you doing?
Hey, We're doing pretty well. We spent a lot of time on our program today talking about the debate, and we've got to ask by start by asking you about last night's debate. You manage around twenty five billion dollars. Did last night's debate change the way you're thinking about what happens in November and therefore change the way you're thinking about asset allocation moving forward?
Uh?
No, the debate result or the end of the debate didn't really change much. I think Trump has been the considered favorite going into the election. If you're taking a long term perspective, you want to focus on economic issues, not near term issues. I suppose if you're a trader, you could jump into health insurance companies and private prison stocks and credit card company stocks and they're going up today, and avoid cannabis stocks and energy stocks. You know EV
stocks today they're going down a bit. But other than short term trades, I don't think anything's really changed. The market in essence is betting that for the most part, things aren't going to change. And again just remind people.
For us here, Biggs issues really Congress and tax laws and are the best guesses we're getting up with a divided Congress, and therefore there's going to be a limitation to some degree able what happens to changes in the taxes for corporations and for individuals that's really striving probably future investing thoughts.
Well, so let's go there a little bit.
Let's throw in tariffs into that, because President former President Donald Trump has certainly said that that's a route he would go, putting more tariffs on foreign companies he believes it seems from conversations that he believes that it's the foreign companies or that ultimately pay it. We know that it ultimately ends up in higher prices of goods and
more inflationary pressures. If he pursues that course of a policy, what's the impact then, potentially on the US economy and the US financial climate.
You're right, Carol, under a Ricardian necnomics, if we're not going to optimize where things are going to be built and then transferred, we're going to up in an environment of moderately higher prices than the cost of your bronze shaver, and your other imported autos or goods, particularly in China, are going to go up. That's not a great world to live in. It's going to also impair returns. All things equal, of non US equities will continue to on
shoring theme that we've seen quite some time. But I'm going to tell you a lot of that is already built into the markets. If you look year to date, what's going on is the SMP is dominated by the Mega eight stocks, is up fifteen percent. Small cap stocks are up only one percent for the year. So you're already seeing this dichotomy. And if you really want to get into the nuances of the difference between a Trump administration and a Biden administration, all things equal, the issues
I think are a fewfold. One, as I think you're going to end up with more fiscal stimulus from tax cut extensions and new spending. I think what they're going to do is they're going to take that Tax Cuts and Jobs Act, where the tax provisions are supposed to end at the end of twenty twenty five, and they're likely going to extend them other than possibly for household incomes above four hundred thousand dollars. And I think the other issue is I think you have less predictable central
bank policy. I think there's a chance if we have a Trump administration, there's a greater likelihood Jerome Powell gets replaced as the FED chair. So I think you're going to be in a world of slightly higher, all things equal, elevated prices, slightly more inflation a little. I think you have less certainty about who's running the FED in the short run. I think under both administrations you're going to see fiscal stimulus either way. I don't think you're going
to see changes in the Affordable Care Act. I don't think you're see changes in Medicaid cuts. You're probably just going to see moderately higher China tariffs. But again, Congress could get involved and mitigate what a otherwise Republican administration might want to do.
Alan when does the bond market start to care.
It already does care. The bond market is fighting the fact we have slowing the economy, pushing wields down with the recognition that you're in a perpetual fiscal stimulus process where we can't balance our budget. So what's what's really driving the market crazy is the following, tim, here's the problem. If you came to me right now, said Alan your bank, I Tim, I'm thirty four million dollars in debt, and I also spend two million dollars more every year than I earn. We lend me money.
Of course I wouldn't.
But if you're the US government, you're thirty four trillion in debt, you spend two trillion more every year you than you earn, and you get away of borrowing ten years fixed at four and a quarter percent. It's not sustainable. So the market is trying to discern at what point does somebody say, hey, the US government can't pay its debt back anymore, which would put insane pressure on guilds to go higher. But as in right now, the dollar
is our currency of choice across the globe. There isn't a better alternative right now, and in a world of slowing economic growth, all things equal lower inflation as measured by today's PCE figures, and in a world where there isn't a better currency, yields are going to come down a bit.
They're going to come down a bit.
Interesting, interesting, Interesting. Do you think the outcome of the election is given at this point?
No, it's never It's never a given. I mean, even though I think it's a foregunk conclusion that Biden will be the pick, there's some modest and I mean relatively modest possibility they'll choose a different candidate. But I think yesterday's debate lessened Biden's chances of winning the election, But
it's far from over. A lot can happen between now and then, but whatever was already built into expectations has increased the possibility that we'll see Trump as President's way too early to reach that conclusion.
How much do you think too potentially?
I'm just thinking if some of the conversations we've had today, and you mentioned Jay Powell, and you know the risk of him being replaced, But I also do wonder about the dual mandate. Just generally the Fed, right, it's inflation, it's also the labor market. One week from now, we're going to be all over. The latest read on the
US employment situation. Having said that, is there a concern that the labor market we're getting mixed conflicted data, that that is starting to come undone, and that's going to be a major risk potentially to the US economy when it comes to spending. When it comes to you know the cycle and you know how it plays out.
Right, And so whereas large cap tech stocks are trading the megate are trading at thirty one times forward earnings, the S and P itself, even including them, is only twenty one times forward earnings, and you look at midcaps and small caps, they're fifteen and four time time.
For that places into what you're seeing in the small cap in MidCap place space.
Exactly, the market is already snuffed out that other than if you're not an AI stock or a weight loss stock, you're not really doing soil right now. So the market's already sniffing out kind of that labor market weakness. And interestingly enough, if you look back about twenty four months after the first rate hikes, where you really typically see the detriment of labor markets, So we're actually seeing now the effects of the first rate hikes that happened almost twenty four months ago.
We've talked about that's what's long and.
The t shirts, particularly particularly Tim and Carroll an environment. We threw massive amounts of fiscal stimulus to offs at COVID. What we did is longated and delayed the.
Impact, so even longer invariable impact and lag effect. Allen Zafford, thank you so much. Have a good weekend, happy fourth of July.
That's just around the corner.
Founding partner and co CEO at IEQ Capital joining us from Foster City, California.
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