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All right, nobody does it? I gotta say, just listening to our Mike McKee, he's got to be the hardest working man in economics. Is cowboy hat and all love it? I do too, but just interview after interview, really trying to get to the heart of what's going on in the economy and what it means for US monetary policy. He has spoken with several members of the FED and FED Central Banks, if you will, or FED Regional I should say, in today alone. So let's get right to him.
Because Bloomberg News International Economics and Policy correspondent Michael McKee sans hat what happened there at the Jackson Hall Economic Policy Symposium. Mike, good to have you here. I am in awe. I usually am anyway, but man, you've just been having one conversation after another. But let's start with Jay Powell. What sounded very familiar to you? What sounded that like, maybe it's some new news.
I didn't think anything really sounded new. What he did was sort of restructure it what he has said before in an effort to sort of give it a hawkish tilt. It's sort of a message to the bond market, don't get carried away. We still have more work to do, and we're.
Going to do it.
And if we needed to raise rates again, and if we needed to risk a recession, we would do that. But right now it doesn't look like that. Things look pretty good.
Was there anything he didn't say or leave out that you think is notable?
No, But what I did think was interesting was when he said that we don't know what the neutral rate is and he said we are going to keep two percent as our target.
That's not going to change.
Those are two of the things that had been talked about on Wall Street Global Wall Street really as things that he might talk about or that the FED might change. And he was at pains to basically say I heard you, and you're wrong.
And those were direct.
Messages to people who think that the FED might be adjusting its policy.
So no, two percent is it and we're going to get there. That's basically his point.
That's basically his point, and they're going to keep the pressure on. Now what does that mean. Does it mean they have to raise rates again? They don't know, but he said they're prepared to if necessary. It could also just mean that they keep rates where they are for a very long time into twenty twenty four in order to ensure they're getting back down to two percent.
Mike, what I.
Wonder is at an event like this where there is obviously J. Powell and he's one of the stars, if you will, for lack of a better word, you've got Christine Lagard another one, and then of course you've got you know, the FED presidents that you've been speaking to and others. What are the kind of conversations that they have that you are aware of, Like, what is it that they are trying to learn from one another in an environment like today.
Well, there's a lot of discussion about the unusual situation we find ourselves in the global economy, the idea that we are seeing inflation that went so high so fast because of supply disruptions. Now those supply disruptions are starting to normalize, but we are still seeing elevated inflation and
no impact on unemployment. Labor markets are strong everywhere. I've been talking to a lot of the European central bankers and that's one of the first things they say is labor markets remain very tight, and that's not how it's supposed to work when central banks raise interest rates that high. So there's a lot of talk about what's going on in labor markets and why we're seeing what we're seeing. There's a kind of a gentle feeling that the pandemic reset.
Expectations for workers.
Some of them retired more early than they otherwise would. Some don't have the social safety net to enable them to get back to work, which means there are openings out there still, and that gives them hope that we're going to still see strong labor markets. But we're going to see and that'll mean strong growth, but we're not going to see it be inflationary.
There's been so much chatter too about the debate within the Federal Reserve about where do we go from here. Based on your conversations with Federal Reserve officials, how divergent do their opinions seem to you?
Well, I have to say that after Pile's speech, nobody changed their minds. We did speak with Patrick Harker, who thinks that things should be on hold, and Lorettamester, who thinks that things should they should have to raise rates again. Basically, it's a question of tactics. Do you raise rates a little bit more or do you just sit and wait and see what the impact of the lagged effects of what you've already done is. And that's what the debate
is for them. But even those like Mester who think that probably another rate increase is justified, she said she's willing to change her mind if the data come in and show that inflation is still going down and they have these two inflation reports before we get to the next FED meeting.
Hey, Mike, it was hard to pick a SoundBite from all the interviews incredible interviews you're doing, but we did do just that. Here's just a little snippet of Mike's conversation with Philadelphia Fed President Pat Harker, who definitely had a point of view when it comes to monetary policy.
At this point, we really need to see inflation moving down, and we're seeing early signs of that, but I want to keep rates where they are right now, and then we'll decide later what we do all right.
So that's Pat Harker obviously president of the Philadelphia Fed, so he wants to keep rates here. It's interesting, Matt, Mike Brother, how do you think about last year, the conversations, the themes that trends versus this year.
It's kind of interesting because I've talked to a couple of central bankers who said the same thing. We're in a difficult situation for them because last year they could come here and say we're going to raise rates, no question about it. Markets don't price in any kind of easing. We've got a long way to go with inflation. Now you've got this ambiguous situation. Do we have to raise rates more or do we just sit where we are? And the economy is giving us mixed messages on that.
So there is a big change in tone and emphasis here from last year. But there's also been a big change in the data. Inflation's come way down, unemployment hasn't moved, and growth, as the chairman said, is stronger than expected.
You mentioned how much inflation has come down the past year. What about in Jackson Hall? Are things expensive? Are they cheaper than last year?
What are you noticing.
They are more expensive than last year. Somebody noticed that the Pioneered Grill, Tom Keane's favorite to stop here has raised its prices somewhat. Jackson is also kind of a more expensive place. It's become very much a tourist destination in the summer, so you do see that impact. But I think you're seeing here what you have seen everywhere. Prices went up. Now the question is do they keep going up or have they recouped costs and now they
can keep things steady. I guess we'll just have to come back next year and find out.
Managers, are you listening?
And we do have obviously a batch of inflation coming up, as you know with the pc next week we have CPI on the thirteenth, But what do you think is is that enough? Depending on what that data tells us to make a divergent decision. Once we get that rate decision on September twentieth.
We'll forget what we're expecting.
It probably means the Fed pauses again, and those who think we need higher rates are probably.
Willing to go along with that. They'll put their sites.
On November we should see a slight rise in the CPI and the PCE because of base effects and energy prices going up. The interesting thing to look at is going to be the core pce X housing the J Powell Indicator, which he talked about today as still being too high. So do we see further progress in that coming down or does that level out or does that actually go up? That would be maybe a warning signal
for November. But I think if we see very little change, even if it's up a little bit, we're not going to see much happen in the September meeting.
Hey, Mike was a little funky when in conclusion in Jay Powell's prepared remarks, he said, as is often the case, we are navigating by the stars under cloudy skies. It just felt like a little woo wooed to me. Mohammed el Aian on Blomberg TV kind of brought you know, brought that out, but it was kind of pointing out there's a lot of things going on globally that are beyond our control.
Yeah, this is one of those things like the Grateful Dead.
If you have been a fan for a long time, yes, that line.
That line came from his twenty eighteen speech here at Jackson Hole. His first speech here as chairman when he talked about the various star measures our star and U star, and he was making the point at that time that since we really don't have a way of knowing what those numbers are, it's kind of hard to set your
policy by an our star. And so he's referring back to the same thing he said some time ago, six years ago now, I think, and for those of us who've been here for a long time, it was kind of.
Funny, all right, hey, also kind of funny. I'm going through my social media on Twitter, x whatever you want to call it, you chatting with the fed chare hot and all. Did he like the hat? We we're putting it up on everybody on YouTube and Bloomberg originals. Did he like the hat?
He liked the hat.
And I offered him the hat for his speech today because I told him people were worried that if I'm wearing the hat on TV, they're looking at the hat instead of listening to what I'm saying.
And I said that could work for you.
Everybody talk about the hat Joy Powell was wearing, and they won't be worried about what you had to say.
He declined, Well, listen, great stuff as always, You men have earned it this week in a big way. And for anybody who's missed any of Mike's conversations, all you have to do is head to Bloomberg Talks our podcast feed, download it wherever you get your podcast. Michael McKee, you're a jem hat no hat Bloomberg News International Economics and Policy correspondent, Michael McKee, safe travels joining us from Jackson, Whole, Wyoming.
You are listening and watching Bloomberg Business Week on this Friday, Carol Master, Looad, just Mettin and for Tim Staneveck, this is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or want us live on YouTube.
On the Bloomberg. Just came across a story today about how JP Morgan Chase basically weighing in on the crypto world today saying the recent sell off in crypto markets is likely near an end, with long position liquidations quote largely behind us. This was a research report by JP Morgan Chase, and yet they are making note that while regulatory and legal issues seem to be waning at least for now, still to come quote a new round of
legal uncertainty for crypto markets. And so you know more on jpm's call, you can find it on the Bloomberg. But it's been a very interesting we know the carnage right that we saw certainly earlier in the year, certainly over the last year, and a real rethink on crypto. And one of the things that many would argue and point to is that we've got to figure out the regulatory side of everything.
And that's always been the big question mark about what's ahead and how it does impact for twoicular companies that are in that industry and especially investors on where do you go from here when you're trying to invest in something so vulnerable.
Well, yeah, you want transparency and you're right sure you understand the rules. So let's get into a little bit more of the regulatory side of crypto. Back with us is Mike Belshe, entrepreneur, scientist, one of the first ten engineers on the Google Chrome team, so really is a forward thinker, if you will, when it comes to our evolving tech space and just how tech is kind of invading everything we do early on in the more it developed crypto space as well. He's co founder and CEO Bitco.
They provide security and operational support to global institution clients, so he's a good worldwide perspective. Joining us as we do every week at this time our weekly look at crypto. He is on Zoom in San Francisco. Mike, Hey, nice to have you back with us. How are you.
Doing great? Thank you, Carol, Thanks triving me back. I appreciate it. Always good to talk to you.
Well, we appreciate it as well. First of all, I just want to get an idea of remind everybody what you do, a kind of your vantage point. I always like to kind of set the stage for everybody, and I feel like those who are in it can describe it best. And then just kind of the level of activity and demand that you're seeing for your services in today's environment, and maybe how it compares to the peak of let's say bitcoin sixty eight thousand back in November
of twenty twenty one. How has the perspective changed.
Sure, Well, you introduced me as a technologist, which is true. That's my thirty year background all the way back to Netscape a long time ago, but these days actually technically, I guess I'm more of a banker. So Bitco is a digital asset custodian kind of the first of its kind that was built I think seven or eight years ago. We actually run four different trust companies across the globe today. We've got in New York DFS, We've got South Dakota in the US, We've got Switzerland. We've got a often
regulated Nstey in Germany as well. So we run a lot of custody. And it started with a high tech wallet platform. We pioneered how to do secure storage digital assets long ago, eliminating single points of failure. And the reality is you can't build a reliable banking system if you don't have a great foundation. So that's what we aimed out to do in the In the beginning, we start up with technology, we moved into custody. This is where we take all the keys in are regulated qualified
custodian bankruptcy remote way. And then these days we're actually moving on to the next level, which is really how do we build the market structure? And of course you hear about a lot of lawsuits going on in the industry from regulators against certain players that are already in play. You hear new proposals about how to regulate or how to structure the markets for crypto should be under the CFTC or the SEC. Bicco's trying to push on that too.
Even despite some of the crypto regulatory concerns that are out there, you were still able to raise one hundred million dollars in seriess funding. How tough is it right now to try to raise funding.
Well, I don't like to sound like a brag or anything, but it's brutal out there is probably the right answer.
So why wasn't it brutal for you?
Well, I hope to say that. You know, bicco's achieved a level of success and excitement kind of on the go forward basis. So look, our existing products have been working well. There's been a big flight to safety just given all the concerns of the last year. You know, there are a lot of failures on other parties in the ecosystem, so people are looking for somebody that's doing it right. BICKA has always taken a tried and true approach. We operate custody is the core of what we do.
Custody is a different element than trading. You know, we tend to not have any issues like with what's going on with with other folks with with their entanglements with the SEC because what we're doing is holding assets on behalf of clients and then on the go forward basis. You know, people are excited about the market structure we're building.
We announced this thing called the Go Network, which is basically introducing the first time where we can start to have a settlement distinct from trading, distinct from custody, so that you can start to have safe landing of assets, keep everything in cold Star origin, yet still have access to full equting.
Well, then let me go back to how I started MIC.
So what's what's the level of activity and demand? I get it, it's like the regular, you know, traditional financial system, right, you have your custodians that are out there for financial acids, if you will, And so I'm just curious what's the level of activity and demand for your services, specifically in the crypto world, and how it compares to I guess I'm using November of twenty twenty one as a peak because that's when bigcoin was so high, and maybe that's
just a random point, but I'm just curious what you've seen. Where are we How would you kind of quantify it or describe it?
Well, I mean the markets are a little bit down, right, So as a financial institution, I mean, you know, the market prices are down. So our assets under custody, you know, they were up. I think we advertised up over sixty four billion in a UC. I think it was at the end of twenty twenty one. Our assets are down today because their marks to a lower value against the US dollar. But we haven't lost the coins. The coins are all still in custody, so.
It's just a value decline, not the actual coin itself.
Right. As soon as you know Americans start measuring their wealth in BTC instead of a USD, we'll all be on the same page.
Talk to us about who your customers are, because I was surprised also to see Nike on that list.
Sure, I mean, we're a business to business and institutional players, so we don't hit retail a lot. There's some high network individuals, but you know, funds use US, exchanges use US, payment processors use US. And then when you mentioned Nike, you know corporates are using US now Nike in particular, they happen to be integrating with the NFT in some of the DeFi space. So soon as you start talking about digital assets, we're unlocking not just you know, cryptocurrency,
not just token is securities, not just stable coins. But actually there's this other world as well of you know, non fungible tokens, which is basically digital property. And if you think about how technology has emerged, like with protecting you know, digital property rights over the last you know, twenty f five years, there's been a lot of different approaches, but I think NFTs are actually the first true digital
acid property that they can be used. So anyway, Nike's big on that space that we're helping them with a number of number of efforts.
Are more companies doing that? That's where I kind of get the blockchain and kind of digital world in terms of when you think about digital property and whether it's intellectual property or things that you really want to kind of have if you will, almost an address you know that goes with them constantly. And so there's no question, So are we seeing more companies like Nike tap into you specifically?
There are, yes, there are a bunch of major brands that are all interested in figuring out how do they really show that the assets that they create are are bona fide and real. So you see this from top designer brands. There's been a number of initiatives where they are looking to use NFTs as wells say this is a true designer product as opposed to a knockoff. And then you've got you know, loyalty programs that are being built, You've got gaming programs that are being built. So there's
been a lot of growth in the NFT space. So for Bicco, you know, as a custodian and a wallet provider, you know, a lot of times these early industries, like the value of the things that they're trading are relatively small, but as they grow those businesses and they grow their demand, it grows a lot. And you know, what does what does a bank do? What does a custodian do? Well, we're here to make sure that you give us the assets and we're going to give them back to you
when you want them. And as the value goes up, you use higher and higher levels of security to protect it. So Bicco's building a full stack everywhere, from the bottom layer of pure technology security to the next layer of how do you cuss they in a regulated, safe way, and then above that building liquiditysources, you know, having insurance backups and things like that.
So, Mike, when it comes to a regulatory environment, what is it that you are looking for. Is it a decision on spot bitcoin ETF? Is it the ripple decision? What is it for you that you think is significant?
Well, what matters to all of us actually is safe understanding of the risks that will be being taken by the intermediaries, the banks you know that are in process, as well as basically the fundamental right that we always have access to money. And blockchain technology provides transparency to
everything that's going on. You can't hide, you can't you can't be asking others to sell while you're buying when we use it properly, So we can use blockchain technology to increase transparency and reduce risk and frankly, instead of having to have these complicated, heavyweight, overbearing regulatory mechanisms, we can use technology to do those roles much more efficiently in a way that's then going to give the rest
of us freedom of money, more reliable money. You put your money in the bank and you'll always get it back without having a concern about did that bank happen to put it into long term te bills when interest rates are rising and unexpected fashion. So we believe blockchain technology fundamentally changes the way we would build the financial system. It also connects us globally. Our job at Bicko, we think, is to make it so that everybody can ubiquitously access
digital assets. That means businesses can access it. There's a lot of other companies to focus more on the retail side, but we want retail to be able to access it, and then once that's fully plumbed, we will see a better financial system.
We only have about twenty seconds left, But what do you plan on using the funding money from in the latest round that you had.
Look, we're building business globally, so we have some growth outside of the US that's going on. Other parts of it are just growing conservatively. We have been in the space for ten years at this point. We've managed our money very well. Even though one hundred million sounds like a lot, we've raised less money than almost anybody else, and that's because we've got a pretty good business that runs fairly solid. But we always want to have a balance sheet that our customers can count on.
What's harder? Building Chrome are doing this real quickly.
Oh?
Absolutely, Digital acids are much harder.
I kind of feel like I feel like I kind of knew the answer. Hey, Mike be Well, I have a great, great WEEKND Mike Belshie, as you know, co founder and CEO of Bidgo.
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So, as we said, a very very timely story because a day when we were all were focused on fitzcher J. Powell's speech this morning from Jackson Hole. If we got the takeaway, we know, you know that they're ready to raise interest rates if needed until inflation is on that
convincing path toward the FEDS two percent target. And we just talk with David Weston just about the concerns that certainly the former US Treasury Secretary of Larry Summers has when it comes to those rising deficits in government spending. But you know, add it all up, Jess, it's another component that as this Bloomberg Big take, this most read story and this story in the new issue of Bloomberg Business Week gets to could put more pressure on higher rates essentially and.
Especially looking at this, especially seeing investors see a high spending new normal, keeping interest rates and inflation elevated. So this is really going to be really crucial, especially how that FED decision on September twentieth.
All right, so let's get to it, because there's a trifecta or four No. One, two three, four people who wrote the story live Kavil McCormick, Eric Wawson, Chris Condon, and Alex Stansey. Liz of course, as you know, Bloomberg News chief correspondent for Global Macro Markets in studio with us along with the editor of Bloomberg Business Week, Jill Webber, talk about a timely story, mister Weber.
No, it's almost like we've almost like we've planned.
It, well done, well done.
So this was one that I I was really interested in because it's that world where DC and.
Markets and the cost of.
Money everything kind of comes together. And what was surprising to me is how there is a bipartisan spirit in DC. Everybody likes to spend money, right.
Liz Exactly.
I was on earlier talking on TV saying, listen, it's both sides of the aisle.
So we're not talking politics.
Because neither of them are doing anything to kind of work on the deficit. And I was even saying in the Republican debate there was a lot of focus on the debt and the deficit, but not like that party. And even Nikki Haley said our side is raised debt too, you know, so it's a common problem.
So what's different now though, because how much debt is too much? Debt, as we write, is a tale old as time, right, So what's different now?
Yeah, And that's something Ben Holland one of our editors on this, and him and I were talking about and he's so smart and that he was saying, and I totally agree that what's different now is usually you have this wave of deficit spending when there's a recession, because we're trying to of course help everyone in the economy to you know, get back on their feet or a big financial crisis. And but what's happening now is this worsening.
Deficit is happening even when we have growth, right, I mean, you know, I know there's been a lot of tightening, but growth, like you've guys talked, is resilient. So it seems like it's it's the juice that you know, our policy makers want to always use. And CBO's projections are that, you know, we're going to get to just about six percent a deficit of GDP and that's going to stay there for like ten years, you know, So it's not like, oh,
then we're going to get our house in order. And I think that is what you know, Ben was saying, and I agree that's the real change that because I remember in grad school my class to twin deficits. And I won't tell you how long ago that was.
So it's been around for a while.
It was just yesterday, right, No, But it doesn't blow my mind that I think about how often every market conversation we used to have years ago dealt with the budget deficit and how much spending was going on, and then it went away, and so here we are, so how much debt and you asked this early on, or you know, how much debt is too much?
Right?
And I think honestly, no one knows the exact number. There's been a lot of different theories, but I think it's you know, some of the pieces of what's going on now, the fact that a lot of our revenue from taxes is going just to pay the interest on our debt, and it's an increasing number. Some of the folks in the story were saying it's you know, at like about fourteen percent. That's usually the number when you know, the red flags go up.
And they're not.
You know, so, you know, we we thought debt was a problem maybe a while ago. Now we've gone to thirty trillion, right, So I don't think it's hard to know the exact number. But the problem is it's not changing. And you know, again this is our you know, school theory, but it's true, and we have it in the story
that it gets to be. What you worry about crowding out is if the government has to keep borrowing, those rates are going up, people are plowing money into there, then people you know, companies, et cetera, borrowing then they have to kind of pay up as well. So it's kind of a ripple effect through the economy. And like you said, Carol, I think that's the key, and I feel like we tried really hard to show it clearly
in this story that this is a problem. But you're adding to that that it's a backdrop of uber high rates from the FED tightening so much, inflation being sticky, still a lot of uncertainty, and then you add to that this fiscal backdrop which isn't good and Fitch you know, of course just one thing, but Fitch downgraded us. That's not good. So it kind of all comes together as this amalgam of problems.
Right.
You also wrote about how typically when we see this kind of move, especially over the past ten months with the budget deficit, that's usually when the government is more in a recession fighting mode. But then how do you square it away with a lot of the strength that we've still seen in the economy.
Exactly that recession which I guess is gonna eventually.
Come, but it's not now.
And of course we had and there were some arguments the last package of the pandemic spending, right, you know, everyone didn't agree on that, but it went through, so all those trillions, but yeah, it hasn't like changed. We had this huge battle over the debt limit, which came down to the wire. Now, like Eric Watson, who's on the story so smartly put in about we have a battle coming up in September where we might have a government shutdown because they can't agree on what they have
to work out with this deal. So it's just not going away. Yeah, even though the economy is hugging along pretty good. Usually like when I'm doing better, making better money or whatever, I try to pay off some bills and stuff, listening to e.
Lizabeth Carmit math government.
Are you listening, Yeah, Okay, So let's let's bring it back to the bund market because bund market they're creaky. They're always crinky, you know, they're and sky is always going to fall. But like, what loo for the vigilantes.
We've written.
Like where where does this? How does this end for them? What do they specifically the most concerned about?
Well, I think they're concerned that, Like I think the guests speaking to David Weston or maybe he himself was saying that. I mean, we're already seeing the Treasury Department this quarter announced notes and bonds, so the long term debt is rising for the first time in a couple of years. Dealers are saying they're going to do that next quarter and the next quarter, and who knows after that. So the investors are saying, you have this barrage of
debt coming from all along the coupon curve. We know that the foreign accounts have not been buying, they're more selling their treasuries. So they're worried that what they call it like the wonky bond math, you need more.
Of a term premium.
You have to incentivize me to buy this long term debt. And that's why we've had what some people call like a unicorn, this what they call a bearish steepener when the long rates are going up more but all rates are going up, so it's like a bad thing. And that's what the bond market is kind of worried about more happening.
But it's also bigger that, right, because as one of those we're says in the story, no asset class is really going to escape this entirely potentially, right. That's yeah, that's the quote.
That quote.
Yeah, I thought that was a very smart woman in the story, not that all the people aren't smart.
Again, smart woman, and but yeah, that.
She said, Liz, it's going to bleed into everything you know. I know, socks have so far been really doing well, yes, your world this year, but eventually if rates keep going on, it's kind of when you have debt rolling over like a lot of those they call it the maturity wall. Right, hasn't quite happened for corporations. They locked in rates for a while, but eventually it's going to bleed into everything.
Can I ask you something that is there smart fiscal spend, smart government spending that leads to more productivity and better growth.
Yes, yes, exactly, and that's you know many of course, we want to spend on things to my son's a civil engineer. We want to build roads and bridges and you know, better trains and all that that does help the economy grow. So, yeah, there is good spending. So that's why people are pointing out when more and more of the spending, you would not call it so good just to be paying the interest on your debt, right, that's not productive spending.
Remember when a fiscal hawk was a thing anymore anymore?
Just wait.
When it suits.
When it suits, It's an incredible story and it really is so timely considering all the conversations we had today. And yeah, governments keeping spending. It's just you know, you can just add that to your worry list exactly. And higher rates, higher rates, all right, Yeah, that's the story.
Not fixing my deck yet.
I'm fixing my deck right.
This is McCormick.
We love you, Jem as always, chief correspondent for global macro markets in our interactive Broker Studio along with the editor of Bloomberg Business Week, Joe Weber. Check out the new issue. This is in it on newsstand, on the Bloomberg and at Bloomberg dot com slash BusinessWeek. Don't go anywhere.
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Marc a journal. How about you let me drive?
No no drug, honey, please, how do the driving gravels?
Excuse mate?
I want to try it.
It's a good question.
This is the drive to the Globe dot com thing.
Well by around each other.
Down on Bloomberg Radio, We're still still thinking about our star and all the stars Sony stars of J. Powell and Company. Hey, everybody, Carol Master Law had just met and on this Friday, just of course in for Tim Stanovik, and we've just got under about seventeen and a half minutes left, getting ready to wrap up the Friday trade and the week over all, we've got stocks just coming off, as you heard from Charlie, their best levels of the session. And Jess, we did see us definitely a spike in
rates earlier on. We've moved off of it, but nonetheless you get a two year that's above five percent right at it.
Right and especially we've seen the move in the ten year as well, and a lot of my conversation go into how fast and the speed of that and what that can translate into moves in the broader stock market. I want to get straight to our next guest. Who better to chat with us about this than Nancy Tangler, chief investment officer at Laugher Tangler Investments. It's always really great speaking with you, Nancy, and I first want to start off because we did hear, as you know from
fed shared Jerome Pale earlier this morning. What's sort of your takeaway from what he said and how do you think this could impact the stock market heading into what's typically the worst month of the year in September.
Yeah, well, thanks for having me Jess on a Friday afternoon listen.
I didn't hear anything new.
I thought it was kind of yesterday's news and then there was this sort of hokey reference to navigating this, you know, this with the stars on a cloudy night.
I mean, I think what we know.
Is that the FED is closer to being done or is done, and that real rates if you go back and look historically, you know, we saw a spike in the in the five year tip after his comments, we got to like two point twenty six or something like that. But if you go back and look in the nineties, real rates kind of vacillated between two to four and a half percent, and yet we still had an environment
where stocks did extraordinarily well. So I think that hopefully the FED is fading into the background as we focus on fundamentals. And that's really the question, you know, is, for example, the GDP now Atlanta FED number of almost six percent GDP growth for the third quarter.
Is that real? Is that correct?
Do you think it's real?
Nancy?
I'm so glad you went there and ur Mike mckea said these aren't reliable numbers, or you know, they move around a lot, but a lot of people keep pointing to it and saying, look, look what's happening.
Yeah, well, I don't think so. Carol I don't think it's sustainable. Nonetheless, I mean, I think we know from earnings this last quarter that companies did a much better job than Wall Street expected in not only delivering earnings and revenue beats, but expanding margins, and so I think that that is important to keep in mind. But we actually think you're going to see a little bit of
a spike in inflation and probably the PPI. We got the Ulta numbers today and they you know, their margins were lower than expected because of higher supply chain costs. And so I think we're going to start to see the higher oil prices, higher prices of copper, other commodities trickle back through and we're working off of low base effects as we move forward. So I don't think it's it's an end to the decline in inflation, but I do think I don't think.
The market's prepared for it.
Let's just go there, and so I think we'll get some sort of a reaction.
I un months points this summer you were overweight technology, but you did take some profits to some high flying names like BROADCLM, Palo Alto, Amazon. What are you buying? What are you selling?
So we've been adding to some of those short cycle cyclicals, so a name like Carrier, for example, but also just stick into our theme. Just I mean our theme has been old economy companies that are embracing the digital revolution and then the suppliers of the arms and the picks and shovels. So like if you look at a company like PepsiCo, which we swapped out Coke into Pepsi this summer, this is a company that says it's a technology company
that just happens to sell snacks and beverages. And now you've seen their involvement in the Instacart deal, so that's.
Something that we like very much.
McDonald's for example, had more downloads four times as many downloads that they're digital app than Starbucks did last year, and that allows the company to expand margins in increased growth. So those are the kinds of names that we're adding to and looking at. But we still like technology and on weakness we will continue to add to names like Oracle or Broadcom or NXPI. We like the semispace of course very much.
Our Nvidio.
So waiting for my chance, we missed it.
It was a bye for in our valuation work. Not so very long ago. But yeah, of course it's a once in a lifetime opportunity to own a big growth driver. This is analogous to Amazon early days.
So do you think it's kind of crazy, like all of a sudden, is it? Mike Wilson and among others an envy?
Yeah?
Oh, you know, the rally is over, you know, like kind of throwing in the towel. Is that a little bit of an overreaction because look at how far in Vidia has come this year?
Oh yeah, listen, the bears rarely get to be in charge, and so once they get on stage, it's their love to get off. It is not a flash in the pan. AI is not a bubble, and there's a lot of ways to play it, in video being the premiere way, of course. But you can own a name like Microsoft. You can own a name like Broadcom and or Oracle. These are names that are playing around the edges, but
are critical and important players in the AI space. And eventually there will be other names that will come, you know, to the four IPOs. But right now we want to own the largest, cap most secure and reliable names in the space and also enjoy the convergence between cloud computing AI and digitization, that the secular tail wind behind this UH phenomenon or Fourth Industrial Revolution is is big and long lasting, and so you use dips to add to your holdings.
What's the top question that you hear from your clients.
I mean, I think people are still scared that at a client call me and say we're in a new we're in a bear market, and I was like, no, actually, we're in a bull market.
But they're really focused.
On volatility and the headlines, and they're spend a lot I think. So, I mean, we spend a lot of time educating our clients, staying in front of them during periods of negative stock performance. But this is just a correction in our view, and so we again, as I said, are using it to round out our holdings.
I'll just say one more thing.
Going into twenty twenty, we couldn't find any cheap, high quality companies, and so we put a hedge on our clients' portfolios.
Because of the lack of breadth.
In this rally, We're still finding really attractive names at attractive valuations, and so that to me tells us this thing has legs well.
Fascinating and listency don't tell anybody, but we save our favorite market guests for Friday because we get.
To tell you about the week overall.
So thank you so much. Don't tell anybody. Don't tell anybody, Nancy Tangler, all right, right, we really appreciate it. Have a wonderful weekend. She's chief investment officer at Love Our Tangler Investments, author of The Women's Guide to Investing, Joining Us from Nevada. That book, by the way, already on Amazon's best selling pre order list. It will come out on September twenty ninth, but we're going to have her come back to and we'll talk a little bit more
about it, especially when it is officially released. But yeah, I think that's kind of interesting because women sometimes get pushed to the wayside. Yes, it's like guys like, all right, what are you doing for your family? Right, It's important to think about women.
And that's something she's really about too, that she really cares about in her spectrum. So I've known Nancy a long time. It's always a really great getting all of her insight in all things markets.
Yeah, great perspective too, right, because she's seen a lot of cycles and understands euphoria and when to be a little bit nervous or when maybe it's on the money. Speaking of all the money folks, we get a rally underway on Wall Street and on track to see some gains overall for the week and some of those major equity averages. I think all of them in fact, stick around. This is Bloomberg.
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