Earnings, Stocks, And Inflation (Podcast)

talk about. One is technology. Uh so we do that with an a rock Rana. He's a senior anost covering all things technology for Bloomberg Intelligence. He joins us here on a Bloomberg Interactive broker studio and Debi Aikin. She covers luxury, which is right down Matt's ali, but she covers the luxury. She's based in London for Bloomberg Intelligence.

Deb let's start with you here. Can you give us just an overview of how luxury spending performed during the pandemic and now today in what looks like is going to be from much of the world a recession. So um. During the pandemic so um. We saw a big shift to online. So initially we saw stores closed, we saw sales overall down around six UM. Beyond that we then saw full recovery UM and into two. If we head into recession, we don't see it yet in luxury and

both the mid and the very top end. We are fearful for some of the entry points, but we're not seeing the pressure there yet for fashion items yet, but for luxury bottom men, no, and the comments that we're receiving so far with l um H haven't reported UM and also for we could also say for consumer staples brands overall as well. If you've got number one tier one positions, they're still holding up and prices have been

passed through. Yeah. I notice you cover luxury like air Mares or LVMH, but also Practice and Gamble and Unilever. So I didn't know if debbikon was just stepping down. What do you call it when consumers um, you know,

normally shop at Waitrose and then they go to Walmart. Yeah, exactly, it's not you know, for one like A P and G who reported this afternoon, UM, what you see there is that they have such a wide range of price points across KEYTI categories and big brands that they're able to capture the consumers they move around, whether it be that they look for ten dollar small pack or a forty dollar multi pack to feel that they're getting value

for money. All right, let's spring in round to talk a little technology, another part of the economy that seems in pretty good stead much like you know, luxury, I mean, but I mean, but but the same. The worry is the same, right for investors that a downturn is going

to affect um the outlook. Right. They reported the results that were in line with estimates, but we're more worried about the outlook, right one in the case of Adobe, Adobe, and we headed the analyst day last night, so they gave guidance for three and you know, in our view they talked about softness and some of their business. But the stock reaction tells me that the by side probably

was expecting a lot worse than what they said. Um And I think, you know, this is a stock that's just got beaten up so badly over the last year. It's down from its peak ever since they announced the Figma deal. It's down over so I think this is a bit of a relief rally for them that you know, next year it is not going to be maybe as bad as what people were thinking. But they don't they haven't had the supply chain issues, they haven't had so

much the chip problems. These are software creators, right, um, but they I guess have to pay much more for workers that aren't coming to the office anymore. So the wage inflations is an issue. But at the same time, these are products that have immense pricing power, so you know, margins really don't get hurt in the software world as much as it does in the consumer area. But the big deal for a company like Adobe would be what's

the top line growth? Megin, These guys have done a phenomenal job over the last I would say seven eight years growing in plus organically. I think that's the number that's not going to happen over the next couple of years. But I think it seems like the byside is already you know, brought into that. All right. I want to talk China because it affects both onoragamous technology sector and deb and luxury and deb When I think of some of the drivers for luxury spending in Paris, in you know, Milan,

in New York City. I think of the Chinese tourist that has to be totally decimated because we have China still effectively shut down. We do, But what's happened is that the if we think about the whole luxury market pre COVID, we would say that Chinese consumer was taken towards a third of the market overall, but that they would do a quote if they're spent in in China, and it's more source were opened in China and the other three quarters when he was spending. That's transition to China.

It's you know, the other problem. You do have a supply chain issue. I assume I tried to buy UM and Arrow Leathers a jacket from Arrow Leathers the Highwaymen, which is their iconic horse leather chrome x L jacket. They created it forty years ago and it goes for a real premium. Can you do have any idea? What are you talking about? I have no idea. Well, well, they can't get them. They can't get the horse leather in the door, they can't get those deliveries from Chrome

x L or horween. And I'm assuming that UM, you know, LVMH and air Mas had the same problems with a lot of their materials. So the thing is that they work on such long dated because of how exclusive they are, they work on such long dated, long term agreements. They don't have that issue. The issue they have is maintained in volume from demand. So for MS, we know that their model is unlimited supply and their issue, their bottleneck is that they have to open one new store, sorry,

a new production plant. UM it would be there twenty three to twenty six over the next three to four years for their leather goods division, and everything has always produced out of Italy, out of UM, out of France, so they've always had a very flexible supply chain, which became even more flexible over the last couple of years.

So for them, the China situation recently has been about closed stores and also close supply chain because of zero you know, the lockdown policy that has started to reopen. And even the data we just got this afternoon kind of ties in from B and G that the market is down about mid single digit overall year to date in China, but that you're getting double digit growth from June only Son On the tech side, China, both as a buyer of technology and a supplier of technology. What's

kind of the the tech car. The biggest company that's exposed without is Apple. So we're gonna find out next week of how that's going to shape up, because we think that China numbers are going to be weak because of the luck outs. And the second part is China. You know, j generate over the revenue from the Greater China region, but a hundred percent of the iPhones are close to hundred percent of the iPhones are assembled in

that region. So if, for example, we do get into an area, we don't envision that happening in the next six months, but let's say over the next twelve months, if there is an increase in demand for the phones, then they could be some supply chain problems. Right now, we don't see that. And is the supply chain for technology where is it? I guess are we back to normal ish or close to it? We are back to normalists because of demand reasons, but if the demand picks up,

we could have some problems down the road. And you know the biggest issue is that you can't really diversify from China that easily. It's taken twenty years to build this supply chain. It's gonna take another decade of plus two even entangle it even slightly, or bringing chips back to the state of Ohio. So I mean, that's a

good thing. The great exactly that they can thank you so much for joining us that they can follow retail for Bloomberg Intelligence, including a luxury from our not narrow leathers apparently but apparently not but howe or great producer of tanned leather hides sure, who doesn't know that? And on a rock Ronnie he covers all things technology for Bloomberg Intelligence, joining us here in our Bloomberg Interactive Broker

studio round taping. A little uh, technology, a little luxury, a couple of areas that we like to talk about. And again both kind of dependent to varying degrees as both a supplier and a source of demand on China, and that's kind of continues to be an issue. Markets kind of mixed here. We had two ripping days on the upside, uh, and now kind of markets kind of digesting. So let's talk market. So let's do this round table

thing again. We're sitting literally at a round table here in our Bloomberg for those of you listeners who haven't seen it. You should come in. Yeah, come on in and see the studio. It's awesome. Mike built us a nice studio. We appreciate it. We've got Gina Martin Adams, chief equity market strategist with Bloomberg Intelligence. She joins us in our blue Brick Interactive broker studio. And then we

have Vince Signarella, a global macro strategist with Bloomberg Intelligent. No, he's not global macro strategist with Bloomberg News, And I don't know what the heck he does. But he's been trading stocks and bonds and currencies and all that kind of stuff for decades. And he is firmly ensconced in Westchester, and they will get him out of there. Uh. I don't think ever. Vince. Let's start with you here. Um, we had a couple of ripping days here in the market.

What did you make of it? Well? I think what we're seeing, Um, a lot of traders are are sort of putting their finger on some of the weaker data that we've been seeing, especially in the housing market. Uh. And they now have fully priced in the November and December hikes and hoping coping that we will continue to see this weaker data, if you will, that shows inflation moderating and perhaps we get a pause from the said

in the first quarter. We've also come a very, very long ways, as I'm sure Gina will be able to articulate far better than I in terms of hitting technical levels. But that had some thing to do with it. Um. We hit a fifty retracement I believe it was from the June numbers, and that triggered some machine buying and a lot to stop lost buying as well, and that's

put us put a little base under us. We're right now we're following believe it or not, UK ten year guilts as the guilds fall in UH in Europe, US treasury yields dropping a touch from this morning's highs, and that's lifted the equity market initially. And as you mentioned, we're now more of a mixed place. Do you know how much do the algorithms make a difference? Everyone talks about the algorithms as it helgoes. You know, they're the you know, the evil terminators from the future coming back

to kill us. Um, Is it true? Did the algories drive that crazy rally that we saw last Thursday. Are they behind what we saw um Monday and Tuesday. Look, I think anybody that pretends like they can answer that question is simply pretending nobody knows, and it's all speculation. It's all speculation, it's all assumption. We know that there is a higher degree of algorithmic trading and quantitatively driven trading in the market, so most likely it had some status,

some role to play. But was this particular bottom any different than the one in June, any different than the one at the end of eighteen, any different than the one at the beginning of Nobody knows that answer. They've all been bottoms that have formed in sort of a close correlation with a rise in algorithmic trading. As as an influencer on the market, I think what matters is what is the market now valuing? How is the market trading on the outlook? What does sentiment really look like?

Because these are things that will drive ultimate a sort of activity and flows in the market longer term. The algois can certainly make turning points look more vicious and surprise the consensus outlook more, but ultimately there still is our long long term underlying fundamental drivers. Two stocks that I think we want to kind of focus, but was that it was that a bottom? I mean, when we look back, are we gonna say, um, you know, uh, October what was it? October twelfth at thirty seventy seven

was the bottom in the SMP. I would say that from a fundamental perspective, our model that we updated at the beginning of the year said that we would trade to thirty six hundred to price in some form of very mild recession. That is very close to the level where we bottomed in October. Our model now says there's downside to closer to thirty one to price in a more vicious normal recession. But we're still questioning whether a

vicious normal recession is likely to emerge. Um. We have seen a significant loadown in economic growth, so we have very clearly and very adequately now priced the slowdown that we're experiencing in but we're still working through what looks like. I think that the market has adequately priced roughly five

percent downside to earnings expectations. If we can get a turn from the FED, the market may have priced up to a fifteen percent down fifteen percent downside an EPs, but there's still a lot of outstanding question marks in the outlook, and I think that is likely to create some persistent volatility. Maybe this was the bottom. Again, from a sentiment perspective, it looks like a bottom. Our market

pulse index reached very serious extremes. Most of the sentiment surveys that we're getting out of some of the cell side shops are confirming sentiment is awful, and that is usually first precondition for a bottom. But is it the only condition? Not necessarily, Vince. What's it feel like out in the trenches when you talk to the traders, they are they trading like where we are at or near or forming a bottom? Or are they like Dennis Gartman who had onto the last hour we said we got

a lot more pain to go. Well, they're not trading like we have a lot more pain to go. A lot of guys are now like Gina Man, And from the sentiment standpoint, a little bit of a shift from a cellar ally to look to buy the dip. And

that's mostly among the day traders. They're looking for opportunities to get in the market today, especially with the following that interest rate move and just recently um I just literally a few moments ago, had a trader tell me that he's turning his lungs into shorts, and he looks very right at the moment because the VIX was holding up and would not uh and would not go down.

So uh, they are trading off these technical levels here and there, but the sentiment looks like traders want to believe that we're at least putting in a temporary low and and some of the technical support it. Um And look at the inforce correlation between the dollar and the

S and P five. The dollar looks like it's putting in a technical top, but it could easily be a very temporary one and we could step, you know, a couple of months from now, step back into a major sell off if we get some kind of black Swan moment. So just quick on earnings. I know we've only had sixty two SP five companies report, but my question is its earnings is as it relates to how much lower do you think earnings will go? Should go, need to go? That kind of thing. Yeah, So in this very short

term earnings expectations are actually too low. The consensus got too bearish on on third quarter, and the content census continues to get more bearish in the very short term, despite the fact that companies are actually beating third quarter expectations for the year two dollars in the most recent survey that I saw from Lou Way. So, but if you look out forward twelve months, analysts are anticipating eight

percent growth still, and that number is too high. It seems very unlikely that given the macro economic conditions, we're going to get a percent growth over the next twelve months,

and analysts need to bring those numbers in. I think the problem with the earning seasons right now is analysts and companies alike have very limited visibility into the quarter ahead, let alone the year ahead, and so what we're seeing is this really strong concentration of revisions in just the weeks leading into any individual earning season, with very little change to the longer term outlook. Given the degree of uncertainty. It's interesting if you look at you know, Lou Wang

puts together this table of strategists. They're not completely comprehensive, but you know, we've got twenty two twenty three replies and we're looking at two or twenty two uh an estimate for EPs at the end of two and the same for an estimate at an EPs at the end of three. All right, good stuff. Gena Martin Adams, Chief equity strategist Bloomberg Intelligence. Vince Signarella, global macro strategist with Bloomberg News. You know Gene is a Florida Gator. I

didn't just remember that good stuff. We had a couple of days just ripping it. Uh, kind of some indecision out there, a lot of folks, So we were just talking. Gena Martin Adams has been Signarella talking about bottoms. I don't know, um long for a long period of time. I think that's the only way to play the same. But let's talk to somebody actually does this for a living. Robert Teter. He's the head of investment policy and the strategy group at Silver Crest Asset Management, based here in

New York City. Robert's in our studio because he comes into the office everyday match just like us. So, uh, it definitely gets the gold star. Robert, what are you dealing with this market here? I mean, we've got a FED raising rates. I probably have some earnings risk out there, but man, the markets off. What do I do from here? Yeah, that's a great question. It is a very confusing and complex market right here. Interesting to sort of look beyond

the headlines, if you ask me so. One of the things that I've been doing is spending a lot of time looking at the message we're getting from earnings. Unless far, the message from earnings has been consumer is pretty strong, not too many problems on the consumer side. Earnings have been a little bit better than feared, and I think that sets a fairly constructive tone. Now we're still in the danger zone for inflation, but thus far the message

on the economy has been reasonably sound from earnings. I mean, the problem though, is that inflation. If inflation continues, the consumer strength isn't going to hang on because wages haven't kept up with inflation, and we're starting to see more credit card usage UM still elevated accounts, according to Brian moynihan at Bank America UM, which is good news, but you have to expect, you know, as long as I pay five ten a gallon for gas, but I'm not

gonna last much longer. Yeah, that's right. That's really the timeline question that I think is in focus here, and it's a matter of do we get inflation under control, do we get the Fed pausing before you start to see some of that pass through, whether it's lagged effects or otherwise, onto the consumer and onto earnings. And so that's really the race that's in place right now, is you know which which happens first, to break in inflation

or a break in the economy. I think if we hold off the break in the economy and breaking earnings for another quarter or two, will be in a much better spot inflation wise and give the Fed a little more flexibility. So I mean, looking at it again, we've been talking about the two year yield here four point five. This is not a bad place to be. I mean, how do you think about that visa v equities here? That's right, it is a pretty compelling option, a lot

better than it used to be. I think that's one of the big reasons that we've seen some of the outflows from equities. It's not been too painful to hide out in cash or near cash, at least in the immediate future. And I think if you take a little longer term view, with an expectation that towards the end of next year we won't have as much inflation problem,

you might see rates coming down a bit. The reverse relationship reverses back to where it's been a little more upside and equities a little less upside, and fixed income everybody wants uh income, it seems right, um, And I wonder what your thought is about dividend stocks Are they safe? And also about private investments it seems like it's a bigger option even for retail. Yeah, so on both those things.

On on dividends, I think generally speaking they are reasonably safe unless we go into a major recession, which I'm not looking for, and so most company balance sheets are pretty sound. It looks like dividends are pretty stable. We haven't heard the term the stretch for yield in a long time, because there is some yield. But I do think dividends are valuable here. It's a known quantity and you know what you're getting and is valuable. UM. On the private side, I think it's interesting. You know a

lot of investors have been newly into privates. Is probably an awakening for them here as to how things transpire in that marketplace. I think if you have the ability to handle the time horizon, handle illiquidity, there are some great opportunities there, but important to be very, very selective it's not a not a one size fits all type of thing. A lot of noise beneath the surface in terms of how those investments play out, and so important

to be selective. But good opportunities if you're careful. All right, If if we are approaching peak inflation, if we are approaching you know, maybe some type of pivot late this year early next year in rates. Are there some sectors that you're willing to kind of put some get some approaching a pivot? Maybe maybe that's been telling us for months there's no pivot coming. I'm reading between the tea leaves. I'm paid to think ahead. So early in twenty three,

is there any place you want to start dipping your toe. Well, one of the things that I think looks pretty attractive here is small cap on a couple of bases. One is on evaluation basis, which has been the case for a long time. We haven't broken that trend of small cap being cheaper and and for arguably good reasons. There are benefits to scale in this massive global economy. But I do think that the trends that we talked about at the beginning and the middle of the pandemic of

re on shoring and the Erican manufacturing renaissance. Um, we're still in place, they're just not playing out as fast as many had hoped for. And so I do think that sets a tail wind behind the small cap space. So I do think that looks pretty compelling. And then the consumer areas held up reasonably well also, And so until we start to see any kind of cracks on the consumer, I think consumer stocks are being sort of underappreciated here in terms of their ability to pass through

price increases and generate strong earnings. So that's one trend that you think is still ongoing. What about the reopening trade? Does that continue? What about a shift from goods to services? Is that an important trend? I mean, what are the other key threads that you're pulling out of this? Uh tip, what's the site guist right now? Yeah, that's super important. I think that is a trend that's come through from

what we've seen in earning. So you've seen you know, commentary around the consumer, particularly out of travel and leisure, restaurant space, airlines, all pointing to consumer being very strong. And I think that that continues until you get to a point where you see a slowdown in jobs or you see a real slowdown in terms of wage gains. Um So, I think that's a durable and trend here that that can continue for some time. On the good side,

you're absolutely right that has slowed down. You know, people are back in offices and back here in the studio and not not at home and buying things in ordering things, and so some of these trends have been fairly predictable and they seem to be playing out this quarter from what we're hearing on earnings valuation, do you feel like the market is fairly valued, is offered some opportunities here or with the earnings risk maybe still not there for you.

I think it's pretty fairly valued. Um. I do think that that the key to it all really is going to be when we get that pause from the FED. And I think you could see valuation improved quite a bit whenever that moment happens. As to exactly the day when it happens, hard to tell. But I think stocks are fairly valued here. They're certainly at or below long term averages. And I think if you get some improvement on the rates side, we'll see some recovery invaluation. But

that's not buying it. Well, I pause. I could see happening, you know, after they get to find a pivot. But I don't think a pivot. So I mean, it's not about what I think. This messages pounded into me, pounded into me by the Federal Reserve, right, and I think pounded into investors. We have seen the SMP fall down to and um, that's because the Fed keeps telling people there is no pivot coming. Yeah, and the Russell. You're just mentioning the Russell, I mean the small caps that's down.

So maybe some some opportunity there. Robert Teter, thanks so much for joining us. Robert Teter, his head of Investment Policy and Strategy Group at Silver Crest Asset Management UH in New York City, comes to us live in our Bloomberg interactor, not phoning it in like so many people we know even within this building, uphone and we're just putting our foot down on that going forward. Robert Teter,

thanks so much for joining us. We've got the more round table because we want to talk a little macroeconomics. You want to do that, I would like to, And we brought in one of our favorite guests and we have a former UH economists apparently, But yeah, he's got a little problem with being on time. But we've got Ben Emmon's managing director of Global acro Strategy UH from

Medley Global Advisors. He has this in studio studio and Carl Ricka Donna BNP Parrybot used to be a Bloomberg intelligence but he's back saying hi to all his old friends, probably rating the pantry upstairs, and we'll see him at some point taking hands, taking selfies, exactly, handing on business cards. Now, so Ben, talk to us about kind of your recession call.

Has it changed or how has it changed, if at all over the last weeks maybe months here, because that's kind of been the center of attention for a lot of folks. If you assume that the PET is the FET is going to continue to raise rates. Yeah, it hasn't changed. But I think that what I found interesting is that in the production data you can now really see that the supply chain problem is being resolved. And that's why we have a bit of an upturn in

the data coming through. You're not GDP now data, it's been stronger, and that's really in net trade impact and that's supply chain, right, that's really clearing. So that's that's I think, I guess some sort of a catch up from earlier this year, which means that we're I think not in this recession just yet. Well, if we have stronger GDP data and it looks like the supply chain inflation problems are abating, does that mean we could see

lower inflation and higher growth than maybe previously expected. So no recession or even a light recession as compared to something longer and deeper. I think from that Saturday economy, yes, you know, the durable goods deflation is coming through, that's clear, and the supply chain easy. But the real issue that we have in the United States is a food inflation problem, and that's really sticky inflation that's difficult to get on the control for. You know, I think a period of time,

will that push the economy and tied into recession. No, But as we all know, a bigger catalysis overhanging the economies how the housing market starts to really adjust and you see how the home sales really collapsing in big cities like l A. So AT think that is a that's a surface impact. So if I take that together, I say we got one side of the economy clearing the supply chain. More downward pressure comes through in prices.

But there's the surface side of the economy that's not only hop as food in fleshing's too sticky with housing contracting. So it puts the economy still at risk of this recession. I see Carl here, but I don't think it's a deep recession you have until you get two rates of over five six percent for the fat and that's you know, that may be the case next year, you know, if we can't get in flesh under control. But we're not there at this stage, all right, Carl Ka Donna has

darkened the door. Chief's Economists for BNP Parry bab formally of Bloomberg Intelligence Chief Economists here. So BNP Parry Bob, do you speak French? Okay, great, good for you, all right, So what's it? That's it? That's it? What is the house view of BNP PARRYA. What are you telling your

clients these days? Because you now have clients. Yes, well, we just updated our house few this morning actually, and and so you know, looking back at the kind of slew of negative inflation numbers we've seen, which which my partner in crime here across the studio that was so eloquently laying out the problem is the supply chain healing, which is happening to some degree, is happening too slowly and too late, and it's being overwhelmed by what we're

seeing in the service sector right the surging rent pressures h and also in fact, in the last CPI report, increasing evidence of wage price spiral dynamics. So our view is while at the September meeting maybe nine out of ten FETE officials favored a more aggressive tapering UH, in fact, eighteen out of nineteen we're favoring some sort of downshift UH in terms of tightening later this year, presumably at the December meeting, down meeting from fifty exact exactly. We

no longer think that's going to be viable. That less bad report was pretty ugly. The wage price spiral dynamics look pretty nasty, UH. And so the icing on the cake is the fact that inflation expectations are low at the moment, but the question is are they stable? And as we looked at last week's data, the New York Fed survey showed three and five year inflation expectations starting to notch higher. Uh. The University of Michigan survey showed

the same thing for longer run inflation expectations. Even Matt Miller's complaining about the price he's paying at the gas pump now that the prices have started moving higher again. And so the concern is that, Uh, just as we saw back in May and June when the FED panicked on the news that inflation expectations were starting to drift higher, we think this is closing the window on them being able to kind of execute a whether it's soft landing

or non recessionary outcome. It's seventy in December more in Q one, and that puts puts US in recession seventy five November seventy five December more in Q one. Why are are expectations so important? I mean, in terms of um predicting inflation. I've recently looked back and found that the bond market is horrible at that There's there's no no one who's good at estimating what inflation is um,

you know, further out than a couple of quarters. But expectations are really key to the Fed, right, They are really critical to inflation dynamics in the economy. If households and businesses have the assumption that inflation is low and stable, uh, then they act accordingly. And if they have the perception that inflation is higher on a longer run basis, then they act differently. And so this is very critical to

all of the price dynamics in the economy. So households may not accurately be able to assess for inflation is heading into your head, but just their sentiment matters to how inflation dynamics pan out. And so the kind of worst nightmare for the FED or or one are the worst nightmares for the FED is that the expectations genie gets out of the bottle. And that's the difference between

where we are right now compared to the nineteen seventies. Right, Everyone says, well, it's you know, it's the nineteen seventies all over again. Not true, because inflation expectations were becoming disanchored for a fifteen year period in the nineteen seventies. That meant Pulp Bulker needed a nine pound sledge hammer. I'll explain to you what that is after the show. Paul, Yes,

in the never held a nine hammer. I have people that do expects have not disanchored, right, So they haven't been disanchored for a decade, which means that, you know, Jerome Powell doesn't need the same sledge hammer that Paul Bolker used. But if they start to creep higher the fed nose, it's very expensive to get those pressures back in the bottle, and so that's why they will act very aggressively if that starts. Student to quickly add to

Carl's points, is really good. You know the market is so bad, Matt, because you're really talking about nominal rates. How these break evens are determined nominal rates, real rates are dynamic. It's really dead so too as being people out as shaying, look at these break evens, they've fallen so much that predicts a collapse in CPI. No, sorry,

this isn't it's just nominal rate moves. And that's just the dynamic of the tips or the treasury market specific which the FAT by the way, has put out papers on They found that out like yeah, we do do with liquidly respremum in tips. That makes them just not as accurate as maybe some of the surveys that Karl's mentioning.

So back to the FAT, those expectation markets matter. But I think what we're seeing in those household service is the ultimately determinant, and that was their reaction back in I believe it was July that that Michigan, particularly miche and Economic came out as the preliminary estimate that's booked them and immediately shifted them to the seventy five base point hike. I think that really was the start of the Okay, we're no longer in one seventy five base

point hike pace. This is becoming deep base right until these expectations are moderating. I think this is we cannot really go away from seventy five. If you look at Cascario overnight with what he was talking, he's just admitting that, saying, yeah, we have to reach higher credit card usage has gone up, right, So, um, and if inflation continues at a higher pace than wage increases, how much longer can we count on this consumer to support the U. S economy? Ben not that long, I think,

you know, because the inflation is eroting. If real incomes continue to be this negative, Um, it's just spending power continues to be eroded. So I do think that what we're seeing is maybe the last gasp of credit card spending before you do hit a break. Now, again to the earlier discussion, the economy is still not at that procession or in recession. I think, so this is why

it was maintain this consumer spending. So it's it's it's I think at this tipping point, you have too many, you have too negative real income plus get the tip of potentially in the recession. So I think they will

change consumer spending. Matt back in the summer when there was recession concerned, um, you know, might team was banking on the fact pun intended banking on the fact that the households had accumulated about two point five trillion dollars of excess savings during the pandemic that insulate we're a twenty trillion dollar economy. So two and a half trillion is a lot of extra money, a lot of dry

powder for consumers to confront inflation. That's you know, outpacing a lot of their wage gains for instance, that's more money than private equity has. Yeah, well, we burned through a trillion last quarter, right, so now we're down to about one point four trillion of excess savings. So for burning through savings at the pace we did last quarter, Then that tells you kind of Q one of next year will be the moment of reckoning, where a lot of the dry powder has been spent. And this means

a few things. That means number one, consumers will pull back right or or spend more in line with what they're earning in the labor market. So so non farm payrolls in wage games become a lot more relevant to kind of consumer dynamics. That's number one. But issue number two is consumer has become more price sensitive when they don't have those success savings telling you know that that

enable them to kind of ignore price increases. And so the elasticity in a lot of discretionary spending categories could start to change. But that means that until that happens, there's not a lot of elasticity, and so it's kind of premature to expect much improvement on the inflation front. Ben, what do you think about the labor market here? A lot of folks are saying and we're not going to go into a recession because we're everybody's got a job,

wages are going up. Um, how concernary that this labor market may start to show some cracks. So I think the last not this report, but the report before, and I think this is on a one hand, this is

labor force movements. But I found it notable that previous reports showed a major uptake in Hispanic employments African American employments, and as we studies out, that showed like if we are moving towards this recessionary environment, given the access hiring, this happens that those groups have been particularly vulnerable, and that's would change a lot of the labor dynamic. Now I don't have the old statis exact in mind, but

we know there's access hiring. I think to the earlier discussion before Paul, if you have companies really start to set that group of people, then it will it will change and you could see labor force expansion. But really it's unemployment right that starts to right for real, so which is not exactly there yet. You know, we had we had a surprising strong payover report with people coming back in the labor force, so there must be got like two job openings for every job or something like that.

We also have sidelined people to write it's like over two million people from the COVID or out of reasons sidelines, so to speak. So this is why it keeps the market sur tight. I'm not on the sideline. Did we just heard We just heard Nathan Hagar report that half more than half of Americans are either looking for a second job or already have one. Really, that seems a little well, I guess the priory that inflation has gone on. If you're not keeping up, you need that had hustle

Paul exactly, as I look at the labor market. Right, We've seen some very dramatic swings during the pandemic. Right, the economy covered very quickly when the worst of the COVID crisis had passed, but the labor market only returned to February levels in the middle of this summer, right, So we had a big expansion in g d P. Payrolls didn't keep up. So that tells you there was a productivity surge, and productivity was about four times as

pre pandemic level growth rate during that period. But productivity is mean reverting. It has mean reverted because we know in the first half of the year the economy didn't grow, in fact, it contracted mildly, but we created about three point five million jobs. So productivity collapsed, right, it is now mean reverted, and what that means is, uh, no

longer can we live in a suspended animation world? And now development in the labor market are going to be much more tightly tied to economic growth, which means that if we're heading towards a growth rate of zero point three percent at your end, the tone in the labor

data is going to deteriorate. Appreciate. We've seen a you know, a slow down from where we were at midyear four hundred or five hundred thousand per month to two d and fifty thousand per month ish in the last report, and I think we're going to see that erosion continue

over the next several months, mediumto longer term. If we get through this um the global economy put on hold and then refueled with trillions and trillions of dollars of fiscal stimulus, you know, if we get through that without a major recession, somebody deserves a gold star, right, I mean, what an insane experiment more than gold start. But yeah, you know, looking the IMF meetings last week, China the worst Christina Alina georgie Eva. That was the lead quote

coming out of the meetings. And from my colleague Marcello Carvallo, who was at those meetings, uh, you know, he said that the tone of the meetings was just so some or and downbeat. No silver lining. That is a dismal science after all. But if we look at Europe, which is most likely in recession, UK definitely struggling, China growth prospects dimming, and now the US probably moving into recession in the first part the next year, it's hard to earn the gold star mats. This trust is not going

to get a gold star. No, she lost all the confidence, right, So it's about like, I mean, this is the story that that makes Now we're going into this discussion. Yes she, I mean, is she out? What a legacy? That's that's rough. Yeah, and look that policy just announcing it. It's just put the economy right in the recession. And I think it's literally what happened to the turmoil the collapse. That's called an own goal. Yes, so so the Bank of England

brief fild nats. You know that no choice but to do super size hikes or you spiral out of completely out of control. All right, good stuff. I don't know whose bright idea was to get too economists in the

studio at the same time. But I enjoyed it, you did, okay, But on the fourth hand, yes, exactly, alright, alright and Emmons Managing director and global macro strategist at Medley Global Advisors, and Carver Kadna, Chief US economist at BNP Parry Bah which, by the way, on your bio page, list say Paris address. I know you don't You're not working at the Paris address. How do you know address that? So we'll have more company takes the company jet. Yeah. Maybe. Thanks for listening

to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On Fall Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.