Consumer Price Index Continues To Climb

co founded as well. Um, David, I wonder what you think about the inflation number. Obviously that's probably our top headline today. Six point eight percent year over year is a big, hefty number. But as I can't remember his Critty or Chinale, one of them was telling us earlier the month over month number was a little softer than maybe we expected. And also bad news. Looks like it's pretty good news for this market. Well, right now, all the news is good for this market. It's looking through

a lot of things. You know, today's action a little bit surprising in terms of yields going lower, in stocks going higher on the worst inflation numbers since nine two. Um, we think what's happening is the market is looking through the current higher inflation. It was not worse than expectations, so people don't think it's going to cause the FED

to change course. And from our perspective, while we do worry a lot about inflation, we think that it is going to calm down by next spring or summer under the three and a half percent level, so we don't think it derails the economy. Uh and interest rates will still say relatively low, so that's an okay environment for stocks. It's interesting that you say that any news is good news because I'm wondering if you could speak to the

fear and the caution that still underpins this market. Well, you know, the market has been more volatile since September. You've had to five percent corrections, and that's more normal, and we think that's going to continue for some time. But at the moment, the market is looking through the negatives and focusing on the positives, and and the positives

are pretty good. The economy is in very good shape, businesses are doing very well, Corporate earnings are coming in very nicely, and we think a significant driver of the stock market is there's just this enormous liquidity out there. There's just so much cash floating around, and as people throw that into stocks, that's just driving prices higher. So the key here from an investment perspective is not to

chase the rallies. You know, we suggest putting money to work when you have these sell offs like you had in September or in the last month, rather than trying to throw money in after things have risen. Is do valuations not concern you here? Because we seem to be at a level where any little thing. For example, um, I think it was last Monday, we got a headline saying that an omicron case have been found in California, after we all knew that, oh Macron was out in

the US. It wasn't a surprised and yet the market sold off. Right. The market is going to be pretty volatile. It's taking its cuse whether it's COVID news or FED news or government news. Either the market loves things or it hates things. So the key to being investor is just look beyond the day to day fluctuations. In terms of valuation, we think the overall market is modestly overvalued. We think many growth stocks are very significantly overvalued, and

that's the area that we worry a lot about. The flip side is we think there are a lot of places that you can buy now and you should do well over the next twelve months, or a lot of areas like media, telecom, healthcare that have not done a lot. The businesses are doing well. Stocks are twelve thirteen times earnings. We think that's going to be the next place to make good money and do it in a lower risk way.

You know, it's interesting. I was with Scott Minor yesterday who is the CEO of Guggenheim big bond investor, and he was saying that I need to brag about it. We know who Scott Minor. It is. Well, you know one interesting thing he said to me, and we'll hear more about this next week, is that he thinks that the market is telling us that there are afraid of a policy mistake when it comes to the Federal Reserve. What do you think that really means, David? And do

you agree with that? Well, I think the market, while it might be afraid, it's truly not acting that way in terms of bonds or stock. So I think the fet has actually done a very good job inflation is much hotter than they had originally anticipated. We think a lot of that is coming from the labor market and from the logistics problems caused by COVID, and we think both of those are going to come under better control

in the next six months or so. So you know, we're in the camp where we really like what the FET is doing. Yes, they probably are a little bit late to starting to taper um, but we don't think it's going to derail the economy, and we think they should be given a lot of credit for navigating a really difficult economic environment over the last two years. Almost

seemed like they had to be right. Pal was super devish until he was reconfirmed and and then he and then he was like, actually, you know what, I don't think it's going to be transits all right, Um, all right, So what do you like here, David? I mean, if when you wake up in the morning, what do you get pumped about? Or if you're if your best friend asked you at the bar, um you know where he should be investing? What do you tell him? So we like,

as I'd mentioned, the media, telecom, healthcare financials. Probably our favorite two stocks right now would be Comcast, which was off this week on what we think was a misunderstanding of the company communications. Uh, it's gonna have very nice earnings in the next year. It sells a thirteen and a half times earnings, great long term business, so we like that here Viacom is doing all of the right things. They are going to become a streaming force of stock

sales at under nine times earnings. The CEO and the chairwoman just bought a great deal of stock, yet it sells at year lows at a great price, three percent yield, So things like that are pretty interesting. On the banking side, we like MMT Bank in US Bank Corps. In the healthcare side, we like Amgen and zimmer which makes knee and him replacements, has done pretty poorly of late. We think as COVID normalizes, as the world gets back to normal,

that stock easily is sixty company. You're buying it at a hundred twenty five today. All those companies that I mentioned are selling well below market multiple, so you're not paying twenty and twenty five times earnings for these good businesses. All right, David Um, great to get some time with you. Really appreciate your insight. Thanks very much. David Kax As the President and chief investment officer at Matrix Asset Advisers talking to us about the markets, the Fed, and inflation.

Jeffrey Cleveland coming up now. We promised that we would talk about inflation again and he is the director and chief economist for Peyton and Right, Gal, Jeffrey, thank you so much for joining us. What is your expectation for next week given this elevated inflation number we have, I know it is in line with estimates, but it is still high. Yeah, it's the tricky it's a very tricky situation for the fom C. I think very high inflation,

higher than you know, policy makers they expected for the year. Also, I have to issue a medical book much higher than I had anticipated for the year. So we were also wrong in our forecast. Um, But in recent months looks like the market you know, expected higher inflation, was set up for that. So perhaps that's why you see the rally today. The taff for the Fed though, which is

your question? They you know, they've delivered very explicit guidance on when they might lift off, right they say maximum employment, so um, with inflation very very high. Question is are they going to relax or somehow alter how they define maximum employment to say that, you know, we are much closer to it with you know, quit rates very high, with job opening is very high, with the unemployment rate at four? Is that close enough to open the door

for liftoff? Um. That's that's the thing that they have to wrestle with. It's the key thing in my mind. Um. I I still think we're not at full employment or close to maximum employment in my view, what given where inflation is, maybe they adjust that their their take. I mean, if we're not at maximum employment, how is it that we saw fewer jobless claims UM this week than any

time since Richard Nixon was president? Yeah? I think it all depends on how you define maximum right, which they did not give us an explicit, uh no numerical definition. But for me, you know, I look at I look at that, and it's great. We have very few layoffs, so that's good news. We have a labor force participation, right though, Matt, that's sixty one eight. We were on labor force participation over sixty three UM pre COVID. So yeah, some of those people probably retired early, but not all

of those folks. You know, when you look at that chart of labor force. What is your view, Jeffrey of the great resignation? Um, I've We've written a story about it. Every major media outlet has has tried to figure out what's going on here. So many people are telling me, you know what, the kids are just uh fed up. They're just not getting paid enough to keep up with rising prices and they just are quitting. Is that how you see it? Too? Well? Where do you see a

lot of the quicks in the data? Okay, it's it tends to be in some of the lower wage industries, so things like food service, bars and restaurants. So that could be just a situation where there are some better wage options that um, you know different employers and people are making the jump, like to be something like that. We looked yesterday, you know at the job openings data. Where are all the job openings available that that people can jump to the biggest increase in job openings since

COVID began. You've got you know the reason on hospitality, which is of course where we saw the most job losses. So if we are coming out of this pandemic, it's not that unusual to see those job openings rise, but then also matt, manufacturing, trade, warehouse, all those areas that are tied in very closely to meeting the demand for goods that we've seen. We've seen this huge surge from consumers in the last eighteen months in demand for goods, and there's there's been a lot of job openings and

hiring in that area. To me, though, that's really pandemic, unique to the pandemic. Once consumer spending normalizes, people go back to spending more on services less on goods. I mean, how many how many home jims do you need? Matt, The spending patterns will change, and then maybe demanding those industries will change, job openings will come down, So it could be some noise in the quits data and also

in the job opening to right. I'm really curious here about labor as well, because we did see that news coming out of Starbucks and the union vote, and I'm wondering if we're going to see more like this. Are we going to see more unionization, more strikes, more people that are asking for more um as this labor market changes. Yeah. I mean, one thing we've learned over the years is when when the labor market gets hotter, Right, when you get the unemployment rate falls below five down to four.

We think the unemployment rate will get to three point five next year. That's great for labor. That is usually great for the broad swath labor market. Um, so it does tip the scales if you will more in in favor of labor over over capital, which which as an employee I won't complain about. It just dawned on me that, I mean, mindset matters, right, You're the kind of person,

Jeffrey who doesn't quit. You don't ever give up, as is obvious by the fact that you swam across the English Channel, the Catalina Channel, and around the island of Manhattan. But I wonder if there's a generation of kids now that has just said I can't I have had enough, I can't keep up. Yeah, or know there's there are other options available. So I think one interesting data series worth taking a look at, you know, of late is

new business applications. So one of the predictions I think pre COVID was that capital wouldn't be available and then businesses, you know, would really suffer. But we've seen sort of a flourishing in new business applications through the COVID period. And even after here, So it could be that the entrepreneurial spirit in the US is alive and well and instead of working for the firm, you know, people can branch out and start their own operations, So that that

could be a positive spin on this whole development. It's not necessarily a bad thing. Also a great point, Jeffrey, I love having you on. Thanks so much for joining us. Jeff Cleveland there is the director and chief economist over at Paydon and Regal. Next up, we have Marianne Miller. She's the vice president of Client Experience, vice president over Approve and she has the latest on cyber secure already amid this holiday shopping season, as we know that a

lot of it is being done online. Marianne, thank you so much for joining us. What are some of the issues that you're most concerned about the season, Yes, a great UM, thank you, and it's great to be here with you and your audience today. UM. This holiday season is proving to be challenging for retailers, and I predict that I'm going to go on record here on your show, it's going to be the toughest here in history for retail loss prevention. UM. The pandemic really moved consumers to

online retailers. We see continued other factors that are kind of continuing this trend this year. As this year closes and we're moving into um many of the factors that contributed to fraud during the pandemic. Importantly, the challenge of digital identity proofing are affecting re killers as well. But we also have some top headline fraud issues as well. And I'll yeah, I actually just got an email. I'm trying to sell a car here, and it's got an email from a captain in the U. S. Military. He's

serving in Syria right now. He and his buddies just found six point two million dollars that they decided to keep instead, and now they're going to put it in a red cross box and send it to me. In return, I get fifteen percent, and all I need to do is send them a copy of my I D and my bank account details. It seems like a great deal. I don't want to miss out on it. Is there anything I should be concerned about? Yes, there's definitely things

you should be concerned about. And that definitely sounds like a scam, and we know I gotta tell you Marian, I've had two two people saying that they found millions of dollars in boxes and wanted to send it to me by a Red Cross. This isn't the new like African Prince scam. I think, right, well, you know, when it's too good to be true, it's too good to

be true. And and you know, if you look at some of the challenges that you see out there for consumers as well as retailers UM and you know a couple of things that we really want to focus on is UM. You know, the supply chain shortages are going to make fraud more prevalent. So fraudsters like to take advantage of you know, panicked online buying and setting up bake fishing sites to collect customers personal information and credit

and debit card information. So just like you're experiencing Matt, there's just these you know, constant fishing attacks and these attacks of scamming are are are bringing consumers into the into the mix. And second, UM, the retailers have always had an element of shoplifting increased during the holiday, but recently, you know, the highly publicized sharp spikes and organized retail

depth is putting stress on businesses. So this is increasing the cost of physical security insurance and and moves more shopping online and as retailers UM, you know, move more things off the shelves and in certain locations and move things online. And that's when we start to see the scams, Like you're starting to see an experience so and some so these UM law Enforcement task force have been set up,

just a set up and retaining these activities. You know, Mary, unless look a couple of years into the future here real quick, because I'm wondering, if crypto continues to take off, does that make cybercrime easier or harder? Because in theory, yeah, I mean you know, how does that really end up playing out? Well, you know, any time that there's something and you know, in the fraud community, we always look at any time there's something new UM and and fraudsters

love that. Actors love a new product or something new, and they're definitely taking advantage of the crypto environment and you know, the the crypto exchanges and we know that UM there's a lot of focus on getting new signals in those environments to make them safer. UM like device intelligence and phone identity signals, biometrics, machine learning, all of that's really important, you know, to make you known environment where it's better lost controls. Marianne, thank you so much

for joining us on this. It's going to be a scary holiday season in some regards. This is the Big Take, the best of Bloomberg's in depth, original reporting from around the globe. We're running on a financial system that's running on old technology. We're seeing prices reach fresh recordized. What unfolds in mid terms, we will no doubt see again in the next presidential election. The Big Take on Bloomberg Radio. All right, let's get to our Big Take story of

the day. Paul and I love these stories, but I'm sure Sheinali does as well. They are deeply reported long reads that we have for you on the Bloomberg terminal, but are also available often in Bloomberg Business Week. Today. Cam Simpson joins us. He wrote a story about well, the title is the E. S. G Mirage, and it's about M S C. I can you say it's a bland Wall Street company, But I have always uh loved MSDU because they helped me um so easily sort through

a number of different verticals in the market. Of course, I've been reporting on markets for twenty years. I've been using it for a long time. What's the link between this company and E s G. Yeah, that's that's right. Thanks, it's you know, but this is kind of like a back office function on Wall Street that nobody it's not like a really terribly sexy stock That's what we've and then the CEO of the company rebranded it around their

E s G business. They aren't by far the dominant ratings provided for E s G investing, which as you know, has become a multi trillion dollar excuse me business and the and the fastest growing segment of the global financial services industry in just the past few years. And these guys in terms of retail funds that people are able to invest in their ratings probably or underneath at least and the money and retail funds. I mean, it's not even close between them and their next competitor. They just

completely dominate the space. So he rebranded the company in two thousand nineteen, at the beginning of two nineteen when he saw this taking off under you know, a new motto, which was either better investments for a better world are better portfolios for a better world? Really trying to hammer on this idea that investing in the SG funds is

going to help save the planet from climate change. And you know, this really took off when you know, it was marketed around the social justice movement and that was happening in America on the streets and also the pandemic and dire warnings about the climate crisis, and so uh, they're they're really MSCI is at the foundation of this whole boom in in in sustainable funds in America through and globally through through their ratings. Yeam, it's so interesting.

And you know one fact, m sc I used to be a part of Morgan Stanley back in the day. They have gotten a lot of heat from fund managers for not doing more. What is the issue at play here between M s c I and it's E s G push or you know the lack thereof in summers regards. Well, I think I think you know the issue is that that E s G is pretty much exactly the opposite of what Wall Street marketing has led people to believe

that it is right. So E s G ratings, M s c I, G s G ratings are particular, They're all different, they're all different brands of magic and they're not regulated, and they all every s g rader produces completely different results on like a credit rating. You know, m SCI uses the credit rating standards of triple A, a a trouble bb junk, the stuff that Wall Street knows and recognizes the only ones to keep that and they get in order of credibility from that um that that

nobody else gets. But instead they're looking at is not like what it's going to make a better world. The lens that they're looking at specifically is what matters to the bottom line. It's not the impact of the company on the world, it's the impact of the world on

the company. So when you look at climate change, you could be a massive producer of greenhouse gases, and unless you're in a business that's going to be regulated for greenhouse gases, which is pretty much just the utility industry, these won't even really impact your your bottom line in any in any near kind of way, and so they're

not even considered your rating. McDonald's had greenhouse gas emissions equal to Portugal or Hungary and its supply chain, which is where most of that comes from, because it's one of the biggest beef purchasers in the world, and it weighs zero percent in in M s c I E s G rating of them, they got into s G rating. They're going in the s G upgrade when there are emissions going up significantly and and M s c I

recalculated its environment scored to remove emissions completely. So what we did was we went through like all the upgrades in the S and P during this heery period of record growth for sustainable industy, and we looked at what was actually underneathy upgrades. We both bespoke database to really get under the hood of these ratings and see what they were. And we were pretty surprised. I mean, we didn't know this was a pure exercise like where is

it actually coming from, what does it actually mean? So to discover that it was kind of the opposite of what was being what investors are being pitched on, what the world is being pitched on, it was really, really, really surprising to us, and hopefully we were able to show that in a way that is meaningful for people.

And the interesting thing cam is when we talked to E s G investors, they say, you can't separate E s G from the bottom line because things like, um, you know, the diversity that you have in terms of management effect how well you do financially. If you have a more diverse board, you're likely to sell your stuff to a more diverse and a bigger group of people. I guess what you're saying is that it's not always the case that E s G leads to a better

bottom line. No. I think that the problem is the problem is the way that E s G is marketed, especially to ordinary retail investors, the idea that you're doing something to make the world better, right like climate change. I think especially for millennials who have really been driving this boom, you know, that's what matters to them the most, and the biggest chasm between the marketing of E s

G and what the ratings actually represent change. We have to leave it there, but we'll Devin be following this more. Thank you so much. That's Camp Simpson, who's part of the big take of the day regarding the E s G mirage. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three pt on fal Sweeney.

I'm on Twitter at pt sweeney before the podcast. You can always catch us worldwide at Bloomberg Gradient