Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Pretty group to Paul Sweeney here in the Bloomberg Interactive Brooker's Studio, Gretty just feels like with the debt ceiling issue essentially put to bed, we still got a couple more moves to go. Seems like focus is back on some of the macroeconomic issues out there and some of the economic data points, starting with nonfarm payrolls tomorrow.
Yeah, payrolls, and you got the labor numbers in terms of kind of wages. Then you have the Chinese growth numbers that are weighing on the markets a lot. Not to mention an additional FED hike.
Where did that.
Relief rally go that we were supposed to get? That seems to be exactly how this is playing out.
All right, Let's check in with someone who kind of follows this stuff as well. Doctor Lori to Murray, President of the Committee on Economic Development from the Conference Board. Laurie, thanks so much for joining us here. What are you focusing on here, because a lot of folks are really trying to put all the crosswinds together and get a sense of maybe where this fet is going, where this economy is going. What are the data points that you're looking at?
Okay, well, the first and foremost, Paul, the most important data point is the one we just crossed last night, which was the House passage of this bill. So it's important to recognize that that we have just avoided a major economic catastrophe. So data point one, we avoided an economic catastrophe. So we can go back and reset and look at the economy. And we're still expecting at the Conference Board a short, short and shallow recession that will
likely end by the end of the year. But there's a luxury to be able to say that, because again, as they said, last night's vote was really significant and historic for the economy this year and going forward.
So doctor, just to build on that the nitty gritty of this bill, as we talked about fiscal spending caps for the next two years, I think so January first, twenty twenty five, which, by the way, Paul, the new president, is going to have a real, really horrible first day in the office or first day of the year. I have to say, but doctor, talk to us about kind of the nitty gritty of the bill in the context of staring down a recession in terms of the budget.
Did we do good here? Oh, it is definitely a victory. It is a victory for America, and it's a victory consequently for the world, given the role that the American economy plays in the world. The accomplishments are we have held spending at the twenty twenty three levels. We're looking at the next two years of only one percent increase. The CBO the Congressional Budget Office says over ten years
will actually saved one point five trillion dollars. This is really significant progress, but I want to underscore that it's really only affecting fifteen percent of the budget. We're at thirty one point four trillion dollars in debt and going up. It suspends the debt limit for those two years, doesn't set another cap, and fortunately it also puts a cap
on spending for the next two years. But what we have to look at is that this is only on the non discretionary, on the discretionary non defense spending, so that's fifteen percent of the budget. We have a lot more to do here. Congress and the administration have a lot of work ahead of them if we're going to move towards fiscal health. But this is a very very important first step.
So, I mean, it all kind of ties in, you know, to the national debt here and that larger discussion here. What's your view of that and maybe how should our government view this our growing national debt, you know, to what degree does it really need to be addressed aggressively?
So the bottom line here is debt really matters, and it's become an even more important issue with inflation because as we are dealing with inflation, and the Conference Board doesn't expect inflation to go away anytime soon. In terms of these rates that we have now, we're hoping to see them hold and possibly come down, but inflation is
not going to go away right now. In terms of the budget, the servicing the debt now is costing as much as defense, which is about eight hundred plus billion dollars. That's just debt servicing so that's having a major impact on how we are spending or can spend their national dollars to meet both their defense and non defense NEETs
as a nation. So that in and of itself makes it absolutely extremely important that we deal with this overwhelming explosion of debt in terms of particularly the debt ratio to GDP, which is now our debt ratio is equal to GDP instead one hundred percent.
In terms of kind of the work requirements with some of those social programs, Medicaid, Medicare, et cetera, any read through on kind of fiscal spending from that perspective, we know that was one of the sticking points in the deal.
So I just want to want to point out that Medicare and Medicaid were not included in the work requirements. Work requirements are really the Food program and the Temporary Assistance for Needy Families program. And while the requirements have expanded, particularly in terms of the age that has covered, the age has been raised to fifty five years old for the SNAP program, there have been exemptions, and so it's going to take veterans homeless have been exempted from these
work requirements. So it's going to take a little bit of budget maneuvering and analysis to figure route whether it's a save or it's actually going to cost more. Right now quick analysis, most analysts are seeing it as a wash.
We're speaking with doctor Lorii Esposito Murray, President the Committee for Economic Development for the Conference Board. So doctor Murray, I mean, I guess the political reality is this debt ceiling limit in some of the spending issues, the budget kind of kicked down the road, kicked the can down the road for a couple of years. But I guess from markets perspective, that's probably the best we could have hoped for.
You know, it is the best we could have hoped for. But it also is a pretty good start. Is it is a bipartisan vote three fourteen to one seventeen. You had one hundred and forty nine Republicans in the House voting for this bill. It's an incredible accomplishment for Speaker McCarthy, who just a couple of months ago we saw go through a fifteen vote series before it could become speaker.
He's really destrating leadership in the House and also demonstrating with his Republican colleagues that Republicans can actually govern, which I think is really significant in terms of the Republican Party, in terms of the Speaker's leadership.
So doctor, let's step away from from the debt story for a moment to talk about these recessionary calls. The consensus seems to be that by the end of this year we will have a recession on our hands in the US shallow deep consensus of shallow right now, what would change that point of view?
Well, according to the conference board where we're looking at it is that it will be short in a shallow recession by the end of the year, likely by the end of the year. The main drivers of the recession or inflation and high interest rates. So dealing with inflation is absolutely critical in terms of tempering that recession and coming out of it.
On to that end, I mean, I guess a reasonable call could be made that, you know, with the variable lag long and variable lag, that the Fed should in fact pause here for a while. That five hundred and twenty five basis points is enough to kind of cool inflation. Are you in that camp that they should pause and see how things shake out? O.
Well, we're expecting them to pause in terms of the hike in either probably in June, but then expecting one or more twenty five basis point hikes later on the summer.
Should we be get all worried about treasury issuance now that seem to be one of the concerns in the lead up to as this deal was getting figured out. How do we view the treasury?
So, you know, one of event is really important here in terms of this agreement and the whole death ceiling debate in general, is you know, given the significant and dominant role that the US economy plays in the global economy, and the importance of treasury securities being a safe haven
which also underpins our economy. You know, again coming back to this deal, coming back to the fact that it looks like that if this this is going to get through the Senate and on the President's desk in time for the X date of June fifth, it's it's so important in terms of our credibility and Treasury's credibility globally that we maintain that role and Treasury securities maintained that role in the global economy.
All right, Our thanks to doctor Lori Esposito Murray, President Committee for Economic Development for the Conference Board talking about getting this debt deal done and getting it, as doctor Esposita Murray said, getting it through the Senate presumably in the next day or two, and then on the President's desk and you know by Saturday, right, yeah, I mean
it's you know, it's cutting it close here. But again that's where it seems to be now, and the expectation is it should get through the Senate fairly quickly without much drama, and then of course the President has indicated that he will sign it. So that's kind of kind of where we are. And again up to that June fifth or sixth, kind of New X date, if you will, then when the US will run out of money presumably, so good news there.
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It seems like since China's reopened, Curtty, a lot of US CEO's have been making a way to China to kind of check in on things. Tim Cook from Apple and just this week you had Jamie Diamond, JP Morgan Chase elon Musk was there trying to get a sense of where that economy is, where that market is in terms of opportunity. So we want to get some insight. We go to Brendan Ahearn, CIO of Crane Shares, does a lot of work in China with the markets there. Brenda,
this accelerated China reopening is I don't know it. It's good. It's We've got a lot of CEOs making their way back over to China to kind of reignite some discussions here. How do you view China right now as a economic player and as a potential partner trading partner with the US.
Yeah, yeah, I'm point out of NA Video's Jensen Huang mentioned that he'll be visiting China next month. We don't have the exact dates, but joined Jamie Diamond, Elon Musk, Franklin Templeton, a whole host of executives. But yeah, I think we're you're seeing a reopening economy that is growing incrementally incrementally slowly. Some of the historical drivers of China's economy, export driven manufacturing, has been barely lacklustered due to the
global economy slowing. You also have their property market has been very lackluster that historically see a lot of infrastructure stimulus, are not seeing it, which really leads the domestic consumption story, which really requires consumer confidence to build. And we are seeing those green shoots. It just it's happening slower, and investors want to see policy makers step on that stimulus gas pedal.
Well, Brendan, speaking of that stimulus gas pedal, where does the PBOC stand in all this? I feel like one of the highlights of the last couple of years has been this divergence between most of the world's central banks and then the PBOC going in the opposite direction. Do we see some sort of whatever the opposite of a divergences, convergence, convergence.
Do we see a convergence? You know, you know unlikely that that China's your central banks, your great great observation, just you know, you see central banks globally following the FED higher the pbocs going the opposite direction, you know, and that's led you know c n H right now, China's offshore Ambia seven eleven so off versus the dollar, and and I think that's where you see them incrementally easing.
You know, we're very likely we'll see a bank reserve requirement ratio cut, potentially the loan prime rate or the intra bank lending rate cut next month. It's just more of you know, investors are kind of in a you know, show me now, you know, you know, I kind of
called it the where's the beef? You know, you know, they're getting anxious, and capital is flowing within Asia, within em in the short run to areas like Japan to India, just because they're you know, gotten very impatient on policy support from the PBOC and the central government.
So Brendan on the consumer side of the economy, talk to us about the unemployment in China, particularly team unemployment. We know that we've heard that continues to be stubbornly high. And what does that tell you?
Yeah, you know, if you think about young, younger people, you know, I have to describe it that way as as as I get older, but recent college graduates, you know a lot of these folks end up working in the service sector that you know, could be hotels, could be restaurants, airlines, and you know, et cetera. So so you know, you had with the removal of zero COVID COVID run rampant in China in the latter part of Q four of last year the beginning of Q one of this year, so that that really weighed on a
lot of this service sector jobs. And as domestic travel has picked up, you're seeing you know, you had Air China. You know they're hiring one thousand new flight attendants. You know, as people start traveling more domestically, your hotels going to need more people. So so that the US unemployment I think will slowly come down. It's just it's it's just in the short run it is quite high because of the knock on effect of COVID running rampant, the effect on the consumer.
Brandy. We started this discussion noting how so many high profile US CEO's ranking the way to China over the last several weeks. Reality is China investible? I mean what I if I can I go to my board and say we need to build a plant in China or make big investments, multi year investments in China. I just don't know what the government is going to do.
Well is that the US government or the Chinese government. I think that's that's probably little boat a little bit of both. And and I think I think, you know, uh, these flurry of executives and and and and you've seen it from European executives as well. You know, a whole host of Europeans actually been in China year to date. You know, business people are getting on airplanes and meeting,
having meals with one another. The politicians aren't. And I think you know, during COVID, you know, you had COVID babies, but you also had COVID divorces. And the US China political relationship has very much frayed due to a lack of travel diplomatically if you think about. You know, China's Commerce secretary just met with Gina Romando and US Trade rep side just last week. He's the first senior Chinese
official to visit the United States in four years. At the same time, no senior US official has been in China in four years. So I think hopefully the politicians can take a lead from what we're seeing from the corporate world, which is these two economies are very very entwined with one another.
Well, Brendan and our in our last minute or so here, let's take step back. We have a listener question asking about when the market views views a pause or potentially a cut state side in the US as a negative. Given you your financial expertise, talk to us about your view on that.
For US, I mean, I think the you know, the the viewing increasingly as you do you have this June hike or not or certainly July. You know, I you know, Larry Fink of Blackrock obviously has a tremendous insights. You know, he thought that you had June July and we're done. So I think I think that could be for non
US investors, EM investors, China investors. The dollar strength has been such a headwind and if we get you know, one or two done, get a bit of a pause, I think it brings brings a lot of potential for the dollar to maybe weaken a little bit, which would be a great tail wind for our investments in emerging markets in China.
All right, Brendan, thank you so much for joining us Brendan to hearn see io of Crane Shares, giving us a little overview of what's happening in China here as they continue to reopen from a very severe COVID lockdown, and now a lot of the US and other and European CEOs making the way to China to see you kind of get a first hand look at the business environment in China these days as it relates to their businesses and potentially future investment. So Elon Musk was there
this week. Jamie Diamond, JPMorgan Chase was there. They had a big, big investor conference there, so perhaps a little falling there.
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I want to get right to our next guest, David Diets. He's managing principal and senior portfolio manager at Peepack Private Wealth Management. David, thanks so much for joining us here. Looks like we're going to get this debt ceiling done, so I guess that removes one worry for the market here. What do you think the market should be focusing on and going forward.
I think one thing that the market is focusing on now is not just that we're getting agreement on suspending the debt gap ceiling, but the implications of how that agreement was reached, not only where there's no new spending, but basically the current administration's promise of raising taxes and d in corporations from twenty one percent to twenty eight percent the wealthy is from thirty seven to thirty nine and six seems to have gone completely off the board
and seems to be iced until after the next presidential election. I don't think investors at first Blush were focusing on that. Increasingly, I think that is a very important issue that people are now starting to take note.
What does that look like then? In terms of the trade, One thing that I've been thinking about a lot is downside to the dollar.
What else should I.
Be thinking about, Well, you know, the other thing is probably you know, lower interest rates and so forth, because if there's no new spending, that's a bit deflationary. And the other risk, of course for investors going forward is if we do, as many indicators seem to suggest, go into a recession mild or otherwise, we cannot expect any
fiscal stimulus to help get us out of that. And so as a result, I think that coupled with some lower inflation readings I'm starting to detect here, plus less fiscal firepower, interest rates could start to roll over at TAD.
So we're going to have the Fed on June fourteenth kind of let us know where they are with their rates. Are you looking for them to pause? Pivot? What are you looking for?
So what I think has really juiced its rally today is just this week there's been a complete flip between expectations for a hike to now expectations for a pause or a skip or whatever you want to call it. And I think what's really important here is, although the labor market is staying wrong, when you start looking at
more leading indicators. So for example, we saw the seventh month in a row down on the manufacturing index, important index of course of producer prices encompassed in that also down, and of course unit labor growth costs coming down. You know your labor numbers are your most lagging indicator, but the more forward looking indicators suggests less and less price pressure. Now, mind you, all eyes will be on tomorrow's May jobless numbers.
That could change all the betting. But increasingly it seems like the Fed is starting to get the job done, and we really should look for a pause or skip or whatever you want to call.
It, and just to go even more micro than that. In your note you mentioned advanced auto parts. What does the advanced autopart story tell you about how the FEDS impact with ray hikes has been going.
So certainly, to look at it a little bit more broadly, we're seeing a number of retailers, where that be Target, whether that be Macy's, whether that be some of the dollar stores, that seem to have really reduced their forecast in coming in overall with results that are less than expected. Of course, you know the disaster the jury yesterday was
Advanced Autoparts. It's hard to tell down nearly forty percent from where it was at the start of the week, whether that is company specific or has bigger implications for the whole economy. We saw some of its competitors, for example, genuine Parts also declined too, so it's hard to know. I guess one thing that one takeaway, of course, is don't believe every analyst out there, because they all had it wrong. And now they're rushing this morning to mark
down their forecasts and so forth. And I guess they saw something with a thirty five percent decline, seventy percent slash in profits and seventy percent plus slash and dividends that they didn't like.
So, David, you know, it just seemed like just a couple of weeks ago, we're all concerned about the banking situation in this country, the banking system. I guess they were certainly past any panic kind of phase. Are there any banks out there that maybe got thrown out with the bath water?
So I think there's more risk forward the banks going forward. Obviously, when you have these super high short term interest rates, it does give an incentive to move out of your traditional deposits and into a money marketer or treasury. Having said that, I do believe that there are a number of banks that we've looked at which have been going around for almost two centuries and is sticking to their
knitting and they're just too cheap. When we will suggested in financial Group is starting in eighteen twenty eight, had a nice footprint in the Northeast. You're trading at about half a book value, is off by nearly fifty percent since early February six and a half percent dividend, four times free cash flow. It seems like they've been through these ups and downs over nearly two hundred years. They'll
get through this. In the meantime, I think that that low market price doesn't send you to diversify and take a look at something like citizens First.
I want to talk to you about the AI rally as well. I'm talking to the CEO of C three AI later today, so I'm being a little bit selfish and using my time with you to ask about that. Talk to me about what your big question is about the hype around AI. Is it warranted?
Certainly, AI has the potential to revolutionize everything we do. You know, it is kind of like Google Search on steroids, So I love that. Here's the thing, though, one is a lot of companies have been doing similar stuff for the last decade. Only now are they starting to highlight it because they're getting so many questions about it in
a pop in their stock price. And the other thing from an investing point of view is you always want to be cautious about paying up to ridiculous levels for the hype, because of course AI is going to be more expensive than traditional search. Everyone in the world is going to be jumping into the space and of course we haven't seen the government regulation. The government's still trying to figure out what is this mean and to the extent invade privacy or has the tendency to mislead people,
They're going to come down hard. I think Italy has already banned it, so that's another thing investors have to watch where. I think one nice thing about today's rally is we saw C three AI. It was down big time early. This morn has come back a little bit. I still slowly, just down double digits, suggesting that people are now looking beyond the hype and looking at other areas of the market. They have some value now after kind of a mute in May for most of the rank and file in the market.
All right, David, thanks so much again for joining us. Always appreciate getting some of your thoughts. That's David Deets. He's a managing principle and senior portfolio manager at Pepeck Private Wealth Management. Always with some nice, clear and concise messaging.
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Well, we're talking about you know, Macy's and some of the other retail as we're seeing over the last at several days and kind of getting to the strength of the consumer out there, and that is a big, big issue for obviously the markets and for the federal reservers. I think about what to do with this economy with these interest rates. So to get a sense of kind of where we are with the consumer, maybe focusing on gen z and the millennials, we talked to Christina Roman.
She's a consumer education and advisory manager at Experience. Christina, thanks so much for joining us here. When we think about some of the younger folks out there, the gen Z, the millennials, how are they financially right now coming out of the pandemic? Where are they right now?
Absolutely thank you for having me. Well, what we found We recently did a survey of how millennials and gen Zers are faring in the current economy because we know that they're going to be the biggest drivers of spending and we wanted to get a better understanding of their personal finance and credit knowledge. And what we found is that seventy percent of consumers as though the current environment
is hurting their ability to be financially independent. But as a result of that, we're seeing this trend where consumers are becoming more focused on their personal financial health and seeking out trusted resources for personal finance information. So they're really looking inward because there are so many factors that they can't control and they want to better understand how to manage their personal finance.
So a big part of what you do, Christina, if I'm correct, is reach young people where they are on social media with that finance education. Is that right? Yes, So talk to me about what that strategy for you has looked like. I'm a big finance TikToker. I make a lot of those TikTok videos about personal finance advice. What do you see that works and what do you see that you think is not helpful for young people looking to beef up their financial futures?
Yeah, you know, I think also it's important to know that we're at a point where information can be consumed anywhere, right. So we've been working We've had a credit chat program that we've managed on Twitter for more than ten years, and you know, we've branched out into live conversations as well,
and consumers want you to be human. They want to know that you're there for them, and so one one tactic that we deployed was at taking their questions and just answering them very honestly, and I think this is really important. What is highlighted for us is that consumers they don't know everything that we think that they know
about credit and knowledge is power. You know, not everyone grew up in a household where money and personal finance topics were freely discussed and financial literacy courses were not often you know, required in school. I know that was my experience growing up. We didn't often talk about money in the household, and oftentimes navigating finances kind of felt
like trial by fire. But this focus on financial literacy and financial education really helps consumers to navigate their financial lives and make decisions that can set them up for success. Which is you know why we believe in financial power for all and we make ourselves available on Instagram, Twitter, Facebook, you know, just LinkedIn. All of these sources are a great opportunity for us to share the incredible resources that we have available to help consumers learn how to manage
their credit. We have our Asked Experience blog, which answers just about every question a consumer could possibly have about credit and personal finance, and we share these resources via our chats and our social media initiatives.
Hey, Christina, I have about particularly for some of the younger folks out there, the millennials, the Gen Z student debt. It's such a big part of their financial life, more so than maybe my generation. What are the biggest issues that you year about from your clients and kind of what is your general advice.
Regarding student debt. I think it's just it's really important for consumers to make sure that they know the terms of the loans that they're taking on, not taking on more than they actually need, because I think it's that some consumers when they are applying for student loans, they actually take on more than they actually need and they don't realize that all of that's going to have to
be paid at the end. So it's important to do your research when you're taking on your debt, and then when it comes time to pay your student loan debt, contact your lenders, get an understanding of what the payment options are, how you can best manage that you know, do you have a grace period, because some students when they graduate from college, they may have a bit of a grace period before they have to start paying that off, and that just gives them the opportunity to look for
a job or to cure a job that they can then use to help to pay that loan off. So it's really important to know the terms of any loan that you're taking on. To contact your lenders, and if you're having trouble paying your student loan debt back now, right now we are in a pause, but once that starts back up, if you don't feel like you're in a position where you can immediately start to pay it back, contact your lenders as student as possible, because that can help.
That can help them to help maybe create a plan for you so that you can feel more confident when you start to resume your payment.
Yeah, Golden had a note this morning, by the way, that Paul I thought you'd like this that the unpausing of student loan debt is going to add to add to consumer spending and inflation. So that's a bad news bearers for the FED moment. But going back to the personal finance advice that you provide move a little later in life for me. The people you speak with who have paid off their student loans, they have a little bit of savings and they're not sure what to do
with it. What questions are they asking you about where to put their money right now? Are they concerned about keeping all of their savings at a bank given some of the issues that we've seen in the banking sector.
I can't honestly speak to that. I haven't seen that personally. We haven't received questions about that. Most of the questions that we receive typically are focused on credit and how consumers can best set themselves up for success when managing their credit. In personal finance, how.
About residential real estate. That's a big part of people's net worth historically in this country, but again a lot of folks you're finding a challenging now, particularly that interest rates have gone up. How do you kind of think about real estate when you need to talk to your customers.
When we talk to customers, you really focus more so on achieving the best possible interest rate to get I mean, I'm sorry, achieving the best possible credit score to qualify for the best interest rate. Because we know that your credit score is going to directly impact your loan terms, and achieving the best possible interest rate will help to reduce, you know, the amount that you're going to have to
pay over the lifetime of that loan. So we really advise consumers to begin to look at your credit report about three to six months ahead of making any real estate or planning to make any real estate purchase. And you can do that, you know, via our free credit monitoring app. We offer the Experience Credit Report and the FICO Score where consumers can begin to monitor their credit to get a understanding of what's in their credit history.
And also not to make any major purchases before you plan to enter in the real estate market because that could affect your credit, which could then impact your interest rate, and this is not the time where you want to impact your interest rate negatively.
Final thirty seconds here, what would you say is the biggest mistake that you see the folks you work with make.
I think the biggest mistake that we see is as far as it's like just not informing consumers enough that they have the power to check their credit reports and their credit scores. I think there's so many misconceptions about credit and we get asked this Austen, and so it's really important to check your credit report as often as you can. This is not going to impact your credit score negatively, and it will catch you up for success, you know, when you're ready to make a milestone purchase.
Christina, thanks so much for joining us. Really appreciate getting the benefit of some of your thoughts and analysis there. Christina Roeman, consumer education and advocacy manager at Experience. I'm working with folks, particularly some of the younger folks out there, to kind of manage their financial situation.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and on.
Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us World at Bloomberg Radio.