BiUS Jobs Top Forecasts Creating Mixed Picture for Fed

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube. Search Bloomberg glovel News with us right now in the Bloomberg Interactive Brooker Studio. We got Credy Gupta, anchor and markets correspondent for Bloomberg also joining us. We got read Picker. She's US economy reporter for Bloomberg News. She's joining us via zoom from Washington, d C. So if you are watching us right now on YouTube or on Bloomberg dot com,

you can see all of us this afternoon. Credy, I want to start with you because kind of a pustling trade going on at first stuck for higher and now they have moved lower. You know, it's interesting they I feel like the narrative shifted midday. Um, and you would have thought it would have shifted about eight thirty am this morning with the jobs report of course coming in hotter to sixty one thousand relative to I believe in

exactly flat. Sorry, I just wanted to. I know, it's like why even why even bother showing up to work, But this is like there was a narrative shift. Could just let me. Uh. We started off with this idea of what kind of pricing in a higher terminal rate. Remember we have had that narrative going in post Powell on Wednesdays Thursday as well. But we actually look at some of the pricing here, nothing has really changed that much.

We're talking about a five percent terminal rate. The highest that you saw on FED swaps pricing was five point one or five and a quarter percent. That's not a massive change enough to change the dynamic that's in the stock market. And one of the bull cases for the stock market is that the terminal rate is going to stall out and that is as high as if FED is going to go. Once that's priced in, there's no reason for the stock market to continue selling off because

once again it's been priced in. Then you have this dollar move, which I think is the real catalyst of the turnaround that you saw. I want to say out around eleven a m where you had the SMP five and make a complete flip, because the Bloomberg Dollar Index, if you look, is actually having its weakest day going all the way back to March. And it's something that's been powering the commodities market from the beginning of the trading session overnight. What it wasn't doing is uh necessarily

showing up in the dollar. Now you're seeing the SMP five hundred, it feels like getting more of its que from the Fed swaps pricing, whereas the dollar still moving the commodity market. That's a lot of information to say the market doesn't quite have one single narrative. There's so many factors that play right now. Um, but I would say the biggest move to be conscious of is this dollar move. Okay, let's rewind though we're looking at the SMP five hundred that's exactly flat. But let's go back

to eight thirty am this morning. Read when I look at the Bloomberg news story describing the numbers we got for October payrolls. Uh, the lead sentences that tiny cracks are beginning to emerge in the US labor markets resilience read. I thought this was a super hot print. It is that when we think about the jobs report, you have to remember that there's two surveys beneath it, and today was a good reminder that sometimes those surveys don't point

in the same direction. So on one side, you had the Survey of Businesses, which what is what informs that payroll's print, and you saw that really stronger, strong, you know, two hundred and sixty thousand print come in on that side, and that was broad faced. It was stronger than books were expecting. Um. And then on the flip side you had the household survey, which is what informs things such as the unemployment rate, the participation rate, and those wage numbers.

And from that survey you saw a bit more weakness in terms of seeing the unemployment rate rise more than folks were expecting, and then seeing wages continue to keep rising. And like a lot of things, the truth is probably somewhere in the middle. But I think when you put the whole thing together, it paints this picture of an economy in a labor market, well, a labor market that's

just proven to be resilient. It's still really strong, and though it's showing some hints of softening um, it certainly has a long way to go before the type of you know, coming into balance that federals or officials are hoping to see. If you're J. Powell read picker and you see a print like this, what are you thinking. I think they're still thinking that the labor market is

is too hot. I mean when you see a wage number come in so on a year or year basis, wages decelerated a little bit, but on a month over month basis, that wage print came in strong yet again. And that adds to several other prints that we've gotten in recent weeks where it shows that wage wage growth, while showing some signs of deceleration in some pockets, is still really strong. And you know, from the Fed's perspective, that means that you still have you know, something like

that putting upward pressure on lation. I love the question to like, if you were JR. Own pal, what would you do? If I was your own pal? I would retire, you know, seen off to the sunset. But I'm already thinking about next week. There is a lot going on this week, there's somehow arguably as much happening next week. What is the biggest catalyst when you boil it all down? Well, you're just gonna make me say that next economic table point. Him has already shamed me for Well, let's come on

like as the CPI report. No surprise there, But I think it's more of going to be a question of do we continue to see the marginal deceleration we need to the problem with the last couple of CPI reports is that they've actually missed the economist estimates, which we're getting lower and lower to begin with, So the bar kept getting lower, and even then the data was missing the bar, and I think that's something that certainly hurt

the markets quite a bit. There's also already some commentaries and FED speak and here I'm just looking at some comments made earlier this morning. I could perhaps be responsible for the equity turnaround coming from Boston FED presidents Susan Collins saying that it might just make a lot of sense to shift to smaller rate hikes. I wonder how many of people in that camp kind of eat their words if they see a CPI number that just isn't coming down fast enough. All right, well that's the question.

I mean, we're going to get that inflation data and the Fed has its work cut out a mid terms, oh those things. Yeah. I'm going to Arizona, not for mid terms, but it would be a good place if I were not going on vacation and going at some rocks or something that's I'm going to touch some grass and yeah, yeah, I do some hiking. Big thank you to read Picker U s. Economy reporter for Bloomberg News, joining U S. V A Zum from Washington. Also Creedy Gupta,

anchor and markets correspondent for Bloomberg. She's with us in the Bloomberg Interactive at Broker's Studio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, we've been talking about it all day. Payrolls increasing by higher than expected two sixty one thousand last month. That beat almost every estimate in the Bloomberg survey of economists. The figure compares with an upwardly revised

two hundreds of teen thousand, four September. So it turns out the FED still has quite a bit of work to do. Let's not turn to Amy Glazer, senior vice president at the staffing firm A Deco. It's one of the biggest staffing firms in the entire world. So Amy and the crew at A Deco have a great idea of what's happening, not just here in the US, but globally too. She joins us this afternoon on the on via zoom from Florida. So if you are watching us on YouTube or streaming us on Bloomberg dot com, you

can see the interview there. Amy, good to have you with us this afternoon. This number surprised a lot of people on the upside. Did it surprise you, Hi, great to be here to him, Thanks so much. Frankly, it didn't surprise me, and mirrors what we're seeing on the field and on the ground. Demand is still hot, it's still a candidate driven market, and there's still almost two

jobs for every job seeker. And so Amy, it's interesting to hear you say that and to square that with sort of the corporate news that we've gotten this week. When you think about Amazon, for example, news that they're going to pause at new corporate workers. We heard some similar things from Apple. Twitter is its own special story, but laying off half of its workforce. I believe Twitter

laying off half exactly. So when do we start to see that come into these big headline figures and when have you seen any indication of that in your work at a deco. Yeah, that's a really good question. Right now, although there are a lot of announcements with a lot of big names, we're really not seeing that demand ship. Whether it's being picked up by some small and medium sized companies from some different sectors. Um, we're seeing puts and takes right now in the market. So I think

we'll continue to watch. I don't have a crystal ball, but frankly, I don't anticipate a great deal of change

throughout the remainder of the year. This is really remarkable, Amy, because and I want to follow up on Katie's great question about about Twitter, because I've actually before the jobs report came out, I was had this like really nerdy group of friends and we we text about this type of stuff, and we were talking about the layoffs of Twitter, and he was saying that he feels bad for all the people who've been laid off from Twitter because it's

a really tough job market right now. And I pushed back, and I said, look, everybody we talked to say says that for tech workers specifically, because every company is pretty much a tech company right now, it is not that difficult for people with those engineering backgrounds to go out

and find another job. Is that true. That's absolutely the case right now, Tim, we're seeing the opportunities still exist and and really it's actually creating a cool opportunity where folks in the driver's seat can really drive their own destiny and decide what their future work looks like, whether it be the company, the flexibility of hours they're looking for. So I still continue to see those candidates, you know, driving what's going to happen in the future. Let me

just say that my group chats don't look like Tim's. Uh, we were not discussing, sorry, the labor market. But that's really cool, Tim. But Amy, a narrative that I hear specifically when we talk about these tech sector layoffs is that, oh, well, these companies way overstaffed over the past two and a half years during the pandemic. Is that a theory that holds water with you. Yeah, I think that's part of it.

I think, you know, it's really more of a right sizing and a market that has been so white hot over the last two years. Interesting. Okay, So here's the thing, and I kind of pose this question to read Picker it a little earlier about J. Powell. This just means the FED has so much more work to do because for the months the FED share has been talking about an overheated labor market and we're still continuing to see that. So I know you're don't You're not focused on the FED.

You're focused on employment. But does it show you that the FED has a long way to go in order to, I don't know, try to attempt this soft landing to bring inflation under control, because if people can get jobs so easily at this point, then could lead to higher wages and that could lead to higher inflation. Right. You know, it's interesting. We just released our Global Workforce of the

Future report. We surveyed US workers global workers, and we found that wages, although they're increasing, are still concerned to candidates. And in fact, our data showed us the two thirds of the U S workers don't feel like any wage gains have been enough to heat and eat this winner. So as a result of us, workers right now are actually saying they're open to a second job. So I think we'll continue to see some interesting trends and and some folks looking to pick up additional work to kind

of offset it. So I think we do our ways to go there looking to pick up additional work. I think that leads nicely into a question about what could we expect to see this holiday season. You know, when a lot of especially retailers, try to staff up for some temporary roles, do you expect the same sort of seasonal swing there? Absolutely, and we're in the throes of it right now. In fact, we've got a national road show with a lot of job mobiles out on the

streets in these communities. They're hiring seasonally, really going to where the candidates reside to make it easy for them to apply. We're still seeing considerable demand. On one unique aspect we're seeing a little bit is the shift in retail from the e commerce world to the brick and mortar stores and pop up shops. So seasonal hiring, although

still strong, looks a little bit different this year. It may not be quite as heavy in the warehouse sector as it is in some of those in person shopping experiences. I mean that comes as no surprise, Amy, given what Amazon said about the holiday quarter being its slowest growth, uh that it's ever that it's ever seen at this point. So yeah, Hey, Amy, it's always good to check in with you. Really appreciate you taking the time and joining us on a Bloomberg Business Week, especially on Job's Day.

Amy Glazier, senior vice president at the staffing firm A Deco. It's a worldwide staffing from among the biggest in the world. She joined us this afternoon via zoom from ponte Vedra Beach, Florida. Check him out at a Deco USA. On Twitter, you're listening to Bloomberg Business Week Tim Stanovik and Katie Graeifeld and we're just getting started. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic

on Bloomberg Radio. Well in the new issue of Bloomberg Business Week. It's the new Economy issue of Business Week magazine. It's available now on news stands, on the Bloomberg Terminal and at Bloomberg Dot com there's a piece by Tom Orlick, He's chief economists for Bloomberg Economics. It's all about how national security hawks are muscling aside economists when it comes to set policy direction. We got Tom with us on the line right now. He joins us from Washington, d C.

Also joining us as Joel Weber. He is the editor of Bloomberg Business Week. He joins us this afternoon on the access line. Joel, I want to start with you because, as Tom writes in this piece, there are two different types of policymakers in the world. That's what we have to imagine. Essentially, those who are looking to increase the size of the pie and then those who are looking for their own share of it. How are we now in this world where it's sort of a zero sum

game rather than a rising tide lifting all boats. At the risk of mixing metaphors, here a few things going on there. But UM, I like the pie part um, So so what we um what we kind of talked about with Tom here was something that um we wanted to be on the other side of China's recent Communist Party congress and talk about because ultimately the story is a US China one here, UM, and those being sort of the global superpowers that are vying for superior superiority.

And obviously that dynamic is changing and has changed dramatically over the past UM, even within the past decade. UM. And what Tom Um I thought, did a really interesting job pointing out here was the new leadership in China looks dramatically different and whereas the prevailing UM you know, for decades, the prevailing UH kind of priority on both sides was to expand that pie and that is just no longer the case. So so Tom is a great

China watcher, had been UM. When I first met him, he was actually in Beijing, UM, and so I'm really I was really curious to get his perspective on on what the recent moves within China look like. And of course he didn't even bigger step backstory connecting all those doubts. So Tom talked to us about what what stuck out to you Um in this leadership change in China? Thanks

Joel UM. So if we focus on the China piece of it for a moment, the focus has been on Hijin Ping securing a third term as the General Secretary of the Communist Party, and so also China's great leader, China, China's top leader. Um lost in the sort of lost in the kind of headlines, there was something else really important which was going on, which is the retirement of

a whole generation of pro reform economic policy officials. Leka Chang, the Premier, E Gang and gorse Hu Ching at the Central Bank, leoher Shi Jimping's top economic advisor, all heading for retirement and no one really with the same pro reform credentials to replace them. So within China you've got this transition where policy is being set by economists focus on development, to policy being set by really communist party

appara chicks without that pro market vision. Now at the same time, and this is where the kind of step back US China perspective that Joel was mentioning comes in. We've seen a changing of the guard in the United States. Back in the ES, it was the economists at the Treasury who were calling the shots on US China policy, saying, yeah, let's be friends, let's expand global markets, let's grow the pie together. Now Here in Washington, d C. There's a strong sense that that was a mistake, that the US

was kind of hoodwinked. They were tricked by the Chinese. And so it's no longer the economists who are calling the shots here, it's the national security hawks. And that means within China and on US China policy, the focus has really shifted away from growing the pie and sharing the pie and towards securing whatever is ours. And that's a very different world. Well, tom, if we are further that metaphor about pies and now we're fighting over slices, or the U S and China are if you take

score right now, who do you think is winning. So look, this is a very very challenging moment for China. They continue to wrestle with COVID zero. Some hopeful signs um on social media and in the press in the last few days that maybe the exit from COVID zero might come a little bit ler than expected, but still a huge challenge for China there, and of course they've got all of the problems that come from the massive slump in their real estate sector, once the biggest driver of growth,

now a huge drag. So China right now this is a very stressed position, and that makes the US look relatively strong. But I think if we throw the calendar forward a few years, or maybe even just a few months. I think the I think the relative position might look very different. China that's exited from COVID zero, a China that's found a bit more stability after its property slump. I think that's going to be a China which looks

more formidable again. And we're going to be looking in another assessment of the sort of relative balance of power between Beijing and d c Um Tom, So, what about the new leadership that's surrounding g What what can we expect from from them in regards to policy? So I think there's been a change on a couple of dimensions, right, um. So the first dimension, which we already discussed, is the kind of the exit of the pro reform economists from

the leadership. I think that's important. We'll have to see what impact that has. The second is the sort of shift away from a leadership based on collective responsibility and different factions having a voice in the standing committee, to a leadership where she Jim Paying is very much the paramount leader and he's surrounded by well, if we're unkind, we'd say his cronies. If we're being kind, we'd say

his friends, his allies, and his supporters. M Now, the hope there is, well, if you've got someone in charge who's surrounded by people they trust and who makes good decisions, you can get a lot of good stuff done. The risk, of course, is that if there's no one there who can say no to the top leader, if there's no one they're offering a divergent point of view, then the risk of significant policy missteps increases. Hey, Tom, before we let you go, Um, we just have about forty seconds

left here. What does all of this mean for US companies that are trying to do business in China? I mean Starbucks, Nike, Disney, an organization like the NBA. The list goes on. So I was actually hoping if we're going to conclude by identifying our favorite types of pie minus minus cherry, I'll go with Apple. But for US businesses, UM, I think the challenge remains. Right. Um, You've got COVID zero, which just makes it very hard to operate, tough to

get executives in and out of the country. You've got mounting hostility between China and the United States, which means the risk of embargoes, the risk of tariffs, other kind of political risks which could upset the kind of corporate dynamic. Um So hopefully there's better times for China ahead. Hopefully they exit COVID zero, Hopefully get they get through their

property slump. Operating them, Tom Morelick, we unfortunately have to leave it there, Tom Moorelick, Chief economist for Bloomberg Economics. Joel Webber also joining us, the editor of Bloomberg Business Week. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Let's talk about crypto right now. You know it's been about in our and twenty minutes of the show. We haven't talked about crypto once. I did say Crypto I r l

our new episode. That's true, it's on tonight. So we got to mention we didn't get a discussion. We're going to do that now with Mike Bell. She He is chief executive officer of Bickgo. He joins us on Zoom from Palo Alto Mike, it's great to have you with us for our audience who might not be familiar with Biko. Tell us what you do and also how that's changed. Over the past few months that we've had in the crypto industry. Sure, thanks for having me here. So Bicko

is one of the veterans of the crypto space. We build the walls as a service platform and a custodian. We serve as institutions and uh, you know, generally delivering towards more trust in the digital space. Well, let's talk about custodians because I know you saw the recent news Mike about b n Y Melon getting in on holding clients crypto, which was a really big story just in

the last few weeks. Talk to us about competition here, like why would somebody choose bit go over you know, one of the oldest banks in the country like b and Y Melon. Well, if it were apples to apples, of course you would would take BNY Like first, um I and I think everyone in the digital asset and crypto space is excited that bing and Y is here. UM, so be and Y along with Fidelity, you know, both

participating heavily and crypto on a go forward basis. UM is a fantastic validator for everything we've been working on for the last ten years. So UM I feel very grateful that they're here. Now, if you want to talk about custodians, you know, custodians in the traditional world are a bit of a commodity. Um. You know, their their viewed is very similar in State Street and Being Y and JP Morgan is the three are just custodians of

the world are often fairly interchangeable. We live in the world's most dynamic, most innovative software industry ever, and so

there's a lot to be done. And while you know, the traditional guys are starting to figure out how to handle Bitcoin a little bit and then ethereum, there's a tremendous amount of work to be done with the hundreds of block chains and tokens and staking services and liquidity and building market structure on top of it, which is where Bigo continue to have great business, you know, And we're really welcoming BE and Y to be part of

the part of the force. Well, when we talk about the traditional guys, the institutional players that you would be working with, I mean, have you seen a similar draw down to activity among that subset that we've seen in the broader crypto market? I mean, has that impacted demanded all Well, all markets are down, so there's not a

crypto winter this time. We've had crypto winters in the past, but we have right now is a macro winter where all asset types are struggling in different ways in terms of institutional demand, you know, investor, And actually it hasn't

it hasn't deteriorated at all. Um. There's definitely a lot of speculation around what's happening in the markets, but the the folks that have been participating in bitcoin and digital assets are just as big a believers now as they were, you know last year, Um, And you know, you saw the coin based report today, So sure they saw a big downturn on their on their business overall, but retail

was much much more down than the institutional side. What do you see institutions doing in the crypto space moving forward? If if some of the froth has been wiped out of the industry with the downturn that we've seen this year, what's what's institutions role. Well, institutions for the most part aren't participating yet in in digital assets. I mean now

at at the retail level. You know, we've had significant penetration both in the US and globally where people have started to hold bitcoin in particular, but other assets as well as the institutions come in. It's pretty much all green field um and they are responding to their clients that want better products, they want better service, they want to tap into better yields, they want the transparency that

comes with bitcoin. And frankly, I believe the world is still convinced that there is a decoupling that will happen from bitcoin and the rest of the market, and we haven't seen it yet because you know, the bitcoin market is very small, but if that decoupling occurs, you know, we're going to see a tremendous boon for you know, digital assence and really proving the thesis behind it. But Mike, what could potentially cause that decoupling? I think it's just

amount of time. So what causes it is when we get to a level of volume where you know, we're no longer just kind of a risk asset among among many Why did crypto have such a good year, you know last year on the backdrop of COVID and monetary policies across the globe that are questionable at best, It's clear that, you know, like the stock market is is headed for more rocky times last year the bond market

was at zero to negative. If you're in Europe now, obviously the bondmari is a a little bit different right now because of what's going on with the rapid change of monterary policy to to uh deflect inflation. But you know, bitcoin is really the one asset that's they're that's like, look, it's a deflationary currency, it's not an inflation currency, and

you want to correct against bad monetary policy. You know, having bitcoin in your portfolio, even if it's only three to five percent, can have a dramatic uh impact on what your returns are going to be just a few years down the road. Hey, Mike, you guys were acquired a little over Wow, it's spent almost two years uh by Galaxy Digital back in May of UM. We did find earlier this week that Galaxy Digital is exploring eliminating as much as of its workforce against the backdrop of

this digital asset market downturn. What are you seeing inside bit go though, when it comes to how you're thinking about the economy and three and changes that you've had to make a CEO. Sure, just a slight correction. We weren't acquired by Galaxy there had been in an effort to do that, but we called that off this year. Thank you. Apologies for the air. Yeah, but anyway, just correct. So Becose completely independent, were the most regulated and compliant,

you know, custodian in the space. Um, the wall as a platform service, you know, still powers of all the Bitcoin transactions, and and the business is very healthy. Um in terms of the layoffs, and you're not not talking about Galaxy specifically, but look, you're seeing layoffs across America, across corporate America, right, So we saw it from Stripe and you know there's been literally every day another announcement of of who's laying off. So it's not surprising at

all to see this inside of crypto as well. Um. And when you've got your asset and so your revenue is tied to asset prices, and asset prices are are declining, it makes a challenging business environment. No, Biko was profitable last year. So um, you know we've we've managed I think pretty well. We've been through three of the crypto winters. This one's a macro winter, but we'll continue to manage it. And look, every business you know has to figure out how to make both the top line and the bottom

line come together well. Zooming out and looking at an industry wide level. As to mention, I mean there's been layoffs at crypto companies. We've seen a lot of turnover at the c suite level at crypto companies. Would you expect to see broadly a wave of consolidation coming to the crypto industry next I think it's quite likely, um So, Like especially on the smaller companies that are out there, UM that are trying to get first you know, product

market fit and then some scale. It's a rough time to do so if you especially if you've got limited financing. Um I would expect that, you know, early next year we could see some some real consolidation that COO could be participating in. That there's a number of adjacent businesses around what we do that we can add into the into the mix. You talk a little bit about that,

like what kind of businesses. Well, so today, if you look at custody in crypto, uh, the custodians are all different Unlike traditional custodians where I mentioned earlier that they're a bit commoditized. In the digital assets space, everybody's got a different product offering. So first off at the base layer of which coins are you supporting? Which layer two's are you supporting? Do you have staking capabilities, cold storage capabilities,

can you trade straight out of cold storage? Things like that. These are all vary across the different custodians. So I think right now there's an opportunity to consolidate in the space, kind of fill those gaps and really come out of this recessionary period as a very very strong custodian. Well, Mike, let's zoom back in and talk about Bickco. Are you

thinking about acquiring or looking to be acquired at this point? Well, uh, not, not really looking to be acquired right now, and spent a lot of time on that in the past, and I think right now we just want to go build, and so I just literally we're looking around and we've had a number of companies that have been close to us, and yes, we we will be inquisitive when the opportunities present themselves over the next six to nine months. Hey, Mike, um, what kind of cash do you guys have to make

acquisitions right now? We don't publicly state our balance sheet, but you know, like I said, we've been profitable since last year. We might have put a fair amount of our treasury and the bitcoin so number of years ago, and that's put us in good stead for the go forward basis. Um So we we put our money where our mouth is, I guess you could say, and we're in good shape. You know, we're not we're not as big as a coin base, but what we've got we've

got our own our own benefits. Well, coin bases getting smaller. But like you said, that it's time to build. You know, I've heard that a few different times on crypto Twitter specifically. What does that mean in because uh context, Well, like I mentioned earlier, you know, this industry change is super fast. And when we started, it was about what's the technology to secure the asset? And we spent the first three years of our existence really solving that problem. You know,

we've we've got multi say, we've got MPC capabilities. Um so we've got a tremens amount of technology that solves the security problem. Then we grew into compliance and regulatory We built out trust companies now in four different regions. We've got them here in the US, we've got Germany, we've got them Switzerland with more coming. And then on

the go forward, basis the technology continuous evolve. You know a lot of our clients are now becoming are now coming from the like the Fortune One corporates and corporates have not really embraced cryptocurrency per se, but all of a sudden, with n f T s and digital property ownership, they're coming and they're saying, hey, can you help us. It's very much the same conversation that we had in where they were companies financial institutions that wanted to participate

in cryptocurrencies with private keys. Now we've got corporates coming and saying, hey, can can you help us with our digital property which has got a private key ease and overlaps with money. So anyway, the time to build. You know, there's a DeFi out there, there's Web three out there. Um, we now have the ability to build amazing smart contracts to take on amazing functionality. It's going to continue to shift and change, and BIKO builds a ton of infrastructure

that helps companies that are building. Mike Bellshi really appreciate you taking the time and joining us this afternoon on Bloomberg Business Week. Mike is CEO of Bitco joining us this afternoon via zoom from Palo Alto, California, ROC Journal. Yeah, but you let me drive? Oh no, no, no, no, who's going home? Please? I'll do the ride gravels. I want to drive. It's good question drive. This is the drive to the clothes commun effect well briar up on

Bloomberg Radio. It is already time pretty drive to the close. Wow, Katie. Yeah, time plus when you're having Hey very pleased right now to be joined once again by Alan Zaffron. He's founding partner in co CEO of i Q Capital. He joins us once again, at this time via zoom from Foster City, California. So if you're watching us on YouTube or at Bloomberg dot Com slash qt, you can see Allen's interview in addition to hearing it. Allen, good, have you back with us?

How are you doing? Great? Tim? And Katie? Thanks for having me on again. Yeah, thanks so much for joining us. Hey, I wanted to start with what we heard from the fed chair on Wednesday. He was asked about the possibility of still pulling off a soft landing, and he answered that he thought it was still possible to The path has since narrowed over the last few months. Is it possible to avoid a recession at this point, it is possible,

but it's getting harder and harder avoid that recession. In effect, we've kind of had a rolling recession which started at the beginnings of this year, rolling through different sectors of the economy. And so what's happening is you still have an incredibly strong labor market, and it's inevitable that these rate hikes are going to take six to twelve months to work their way through the economy. It's gonna be

difficult to see how it's all gonna work out. However, to the extent that investors, individuals, and businesses had strong balance sheets and refinanced themselves long before the rate hikes started, a couple of the fact to degree that some of these jobs are going to hold, we might might make our way through this despite all the pessimism that's out there. N we can just leave it there. Not such a pipe dream after all. But I make one Can I make another comment? I would love for you went back,

if you went back to that FED meeting. Okay, if you read the statement, it was pretty debbish. If you hiss it, listen to the press conference. Powell is hawkish and so you saw a reversal in the market intra day sharply, I believe Katie, you called it. What did you call it? A bait and switch? Baby, I'm gonna give you a different answer. That was the FED depending defending its independence and it's um unwillingness to bend to

political pressures. So, if you go back to if you go back to two thousand eighteen, President Trump at the time is trying to push the FED to be more accommodative, and an upset the FED, and so they pushed back in the press conference, were um more more demanding this

time around. I think perception from the FED is that they're being encouraged by certain politicians to show some semblance of being accommodative, and they want to ensure their mandate is to keep inflation at a moderate, hopeful and eventually two percent annualized level, as well as keeping full employment. And I feel like they were put in a box

and Powell how to get to defend the credibility. And in fact, I think the FED has been put in a difficult position, has done quite a good job to maintain the sense it's got independence and credibility and that alone is enough to calm the markets and prevent a much worse financial outcomes. So you get short term pain, you get the stock market correction, potentially a modest recession, but you avoid the cataclysm of an inflation rate that's out of control, which would cause much greater and much

longer term harm. And that's what I think happened on Wednesday. And I mean, at the end of the day, what does a central bank have other than its inflation fighting credibility. We know that the FED definitely that's a priority for them. But I'd love to hear your thoughts on when we do eventually get a pivot. And the market has made a run at this trade over and over again, keeps getting their heartbroken. But when there is a pivot, do you think that's a bigger bullish catalyst for stocks or

for bonds. No, it's a bigger bullish catalyst, I think for stocks because I think it's a signal that they're going to ease up conditions and stocks are just a

higher beta asset class. But I will also make the argument that it's becoming evident the FED is signally despite the hawkish press conference, we're getting closer to the end game of the tightening, and you're seeing that because the bond markets already inverted, and it's telling you it's time to start thinking about extending durations or buying longer term bonds, because long term bonds are nothing more than the summation

of short term rates over long time frame. If you buy a ten year treasury bond, it's like buying forty three month treasury bills if the three month treasury bills tied to a Fed funds rate. If the Feds are actually gonna pivot and lower that rate down, the average over next ten years is the Fed funds rates gonna average a lot less than four and a quarter percent. So you have to start thinking the bond market is pretty attractive and that can happen before the Fed actually

does the pivot itself. Okay, you said the p word pivot a couple of times there, Alan, so I gotta ask you to you know exactly when that's gonna happen. You said the Fed's gonna pivot eventually. When is that eventually? And also and also what is that pivot? Is that just stopping to raise rates or does that mean that it actually starts to lower rates or a pause just to put in another, but you have it. You have

a nuanced pivot. In the real pivot, the one that people care about most is probably the first one where they said, well, they're more or less done with rate hikes subject to data, and that's probably happening when inflation data is showing three consecutive months of decelerating. What we

are fearful of. And if your barish is that the FED is only going to pivot when the p m I is the Purchasing Manager Index, which is a broad measure of economic activity, if it were to really plummet, the FED would have no choice but to do so, and that probably only happens coincidentally with the labor markets

starting to get out of control. If that were to happen, that's gonna probably not happen until the middle of next year, because in this strong labor market, it's going to take time for job to meaningfully drive the unemployment rate higher. We're hearing snippets of firings, but we're not nearly at the level yet where the FED is going to fill that it needs to pivot to equal to mandate on employment. Katie, look at this morning's numbers that we can look at

this morning's number. Yeah, not not much to uh to argue with. But Alan, before we get to the pivot um, maybe we get mild recession. What do you do in the meantime, What is your highest conviction right now in your portfolio? Well, let me give it to answer. What you do is you stay well diversified. When uncertainty comes,

you have to be more diversified. And you also have to elongate the time frame into which to invest, because although you and I on this call even want to find the pivot and the bottom, we can't time it perfectly. So as an example, if you want to be a buyer of high quality stocks, it's a great time to begin to all use the word nibble, but you slowly dollar cost average over a much longer time frame because

you don't know where that bottom is. It might be next week, but it could be three, six, or twelve months from now. Highest conviction ideas are twofold. One is short drate. It looks like we lost Alan's he froze for just a second, but we do, unfortunately have to wrap up there. And so because I think you're just going to say short duration and that's like catinet for me. Yeah, I'm sorry, Alan, are you still there? We just lost

you for a second. H So you short term bonds not a bad place in Shorn However, I also think for those that can do so buying secondary investments, those handfuls of people that can buy other people's illiquid positions who are over leveraged and need to sell, I think it's a fantastic opportunity. Alan Zaffron, founding partner and co CEO i e Q Capital on zoom from Foster City, California. Allen, always great to chat with you. Thanks so much for

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