Jerome Powell’s Second Term And The Latest On Markets

there's still some other openings there at the FED. Let's get a lay of the land there on all things FED. We can do that with the Caleb Nyeguard, Senior Research associated at the Yale Program on Financial Stability, previously worked in Statistics division at the Federal Reserve Bank of Chicago, Sonosa thing or two about the FED. Caleb, thanks so much for joining us here. Um, President Biden did not announce a full slate of FED nominees yesterday. Why do

you think we don't have everything filled here? Yeah, it's it's great to be with you. Um, it's President Biden kind of operates on this definition of FED independence. That uh, that's basically that he doesn't comment on specific actions that the Central Bank takes. So he really has one big shot to send a message to the FED, to Congress, to financial markets, and to the broader publican general about

what he thinks about the FED. And you know, I think he missed his opportunity yesterday by only filling two of the seats um two of the positions. He could have billed three others. Uh, there's the open seat from that Trump tried to fill with Judy Shelton Quarrels has gone and that seat's gonna need to be filled, and Clara does is leaving, so that seat needs to be filled.

I mean, just imagine how powerful it would have been for Biden to account walk up to that Mike yesterday flanks not just by the feds number one and number two, but the fed's top five, and kind of the message that would have sense about what Biden thinks. Who the sen is, what their job is, what their priorities are, and you know who they represent and not just skin

color and gender, but also economic background. I think he missed that opportunity because there are three those three seats he says he's going to fill them in early December, but between the debt feeling and the holidays, I just don't think that message is going to get through this same degree that it would have. And why not, I mean, why not come out and make these decisions sooner rather

than later. We've had plenty of time to debate, to have an open conversation about especially with the vice here of supervision that all important seed, why leave it open for so long? Yeah, that's right, And I don't think that, you know, I think this is a messaging issue. I'm not one of those that believe that a month or two of one of these seats for the job itself is going to make a huge difference in the medium and especially not in the long term. Of what it doesn't.

It shows what it has kind of showed for the FED chair race, which is the President Biden is just not considers just doesn't consider the said to be a priority. And maybe it's political concerns about distracting the different wings of the of the Democrats Democratic senators, but I but I think the concern is real that this is just showing that Biden just doesn't U as a priority. So Caleb, a lot of the progressives, particularly UH Elizabeth Warren where

came out against reappointing FED Chairman J Pale. What do you think that the political calculus was for the president in the announcement he did make. Yeah, So, you know, I think this was a big loss by the progressive movement. You know, over the last couple of years, they've proven themselves quite a dept at picking battles that they think they're probably gonna lose, but in the process they can shift the window, expand the potential, you know, kind of

win this war of ideas. Uh, And this time the progressive just didn't really bring their their A game to this. They have never named an alternative. You know, Warren's dangerous man kind of comment was appeared to be off the cuff and didn't have a big follow up. The squads and how their letter to that was released over the summer. You know, they had some shallow issue things concerns that they were bringing up, but they didn't name any names.

They didn't even have a short list, and they didn't really collect around what it exactly is that they wanted, uh from the FED. What do you want to see then, particularly when it comes to the vice chair for supervision, as you mentioned before. Biden has talked a lot about gender and race diversity and inclusion as well. What are some of the qualifications of the people that you've seen

floated around. Yeah, so that that diversity in in both both gender, race, and then and then background is really important. And I'll throw up at the top that in the law, the Federal Reserve Act itself says that that these the leadership should include various sectors of the economy, and it explicitly includes labor. And then you know, we've never had a member of the Federal Open Market Committee, so either from a Reserve Bank president or one of the governors

that came from a background of of organized labor. We've had labor economists, we've not had someone from the actual movement. And so that would be something for one of the three seats UH that I would I would be interested in seeing. And then there are others on the on

the actual supervision stuff. We want to see somebody that has experience in that matter, that has a track record of of of having having views um and there are there are a few people on the list that just don't really have much supervisory experience or public messages about that. And so that's what That's one of the things I want to see. All right, Caleb, thank you so much for joining us. We really appreciate you taking the time. Caleb Nyeguard, Senior Research Associate for the Yale Program on

Financial Stability, part of the Yale School of Management. I want to bring on Jim Shariko. He's a president CEO of a Via Holdings uh symbol a v y A. But we're gonna get to that in just a moment. But first let's check in with Kritty Gupta. Get some small cap stocks that's coming up right now. Paul the Russell two thousand down one percent, underperforming the broader market. The move that looks a lot like tech, but under the hood you're seeing a little bit of a mixed picture.

Jack in the Box shares down six percent tigger J A c K after the fast food chain reported same store sales that missed expectations and restaurant margin declines driven by higher costs and higher wages, kind of thing we've been hearing lately. Abercrombie and Fish is another one. Tigger A n F. Those shares down sixteen percent, the most intra day since March of once again hitting those supply chain issues. You also have Urban Outfitters down fourteen percent.

Those third quarter results mixed. Uh, they did beat those expectations. The outlook was encouraging, but once again supply chain disruptions and pressure from higher costs weighing on that stock. To the upside though, because we've gotta have some good is in their American Eagle shares up five percent, took your a EO, also reporting better than expected earnings, this time

on strong in store sales ahead of the holidays. And lastly, die Coum Industries took her d Y shares that fifteen percent after the infrastructure company whose sales turned positive for the first time in a year and even in margins also stabilized thanks to a client or some improvement when the client that Bloomberg Intelligence expects is Verizon. Interesting. Interesting, all right, Gretty goop that thank you so much. We

appreciate getting that small cap report. Look at one of these small caps via holdings of the stock was up had a nice movie actually from eighteen to twenty two, pulling back at six point six percent today. Jim Shariko, president and CEO of A Villa, joins us here. Jim, thanks so much for joining us here via Again, a technology communications company that offers collaboration and kee communication tools

for businesses. Talk to us about your business, Jim. We're seeing Zoom Technologies trade off a lot today and a lot of the companies that had benefited from some of the work from home issues getting a little bit under pressure here. Talked to us about your company, what you're seeing in your business. Yeah, Hi, good morning, Thanks for having me on UM. Yeah, for a viot look. We had our fourth quarter of fifthical year results yesterday. Was

a strong year on many fronts. We exceeded the street expectations across the board UM, and we've really been focusing on delivering a three pillar value creation strategy. FIRSTUS growth. We've had six consecutive quarters a year on year growth. We reversed more than a decade of revenue declines by being up roughly a hundred million dollars to very close to three billion of revenue for the year UM. We

have moved to a cloud uh cloud first company. Our annually recurring revenues finished up roughly a hundred and seventy seven percent year on year, so we're seeing strength across the board. We operate in a hundred and ninety countries. We have more than a hundred thousand UH customers, and we've been investing significantly and really focusing on reshaping a bye to a cloud company and a real leader in

large enterprise communication and collaboration. You know, it's interesting we heard from Zoom as well yesterday and they really in their press release we're highlighting how they have to be wherever some of these large enterprise companies are. So if it's a hybrid work environment, if it's fully work from home, if it's all returned to office, they're having to you know,

sort of sort of tackle all of that. How are you thinking about finding a customer where they are, even if it's at work from home, even if it's a percent in office. Yeah, if you take a look at our overall solutions, in fact, we're purpose built for exactly that. We are a portfolio company, in fact for the only portfolio company that offers solutions that cover both the unified

communications space as well as the contact center space. And we provide solution whether it's hybrid, whether it's private and

or public. Um. Many of our competitors really offer basically one or maybe two of those solutions, but we're a complete portfolio company and in fact really focusing on from our point of view, how people communicate and collaborate, whether it's uh, you know, work at home or from from the office, because we view that work has been significantly disrupted, it won't go back to where it once was, and these disruptions provide us an opportunity to grow really predicated

on the fact that our line platform enables enables business to really have that customer as well as employee experience, and that's a real differentiator in today's market. So, Jimmy, you know, you guys have just a fantastic advantage point talking you know, working with your clients. How do you think the future of work will be? Will it be hybrid? Is that kind of the new norm now for corporations?

You know it really is. You know we did I said, we deal with you know, the largest of large enterprises down to the SMB marketplace, and no matter what vertical you look across, be at healthcare or banking or government, um, we're seeing that the workforce will be um really more of a hybrid environment as as we see it out through you know, the foreseeable future and what that means is that businesses today need more flexibility and how they

use technology, how they can create this purposeful and consistent experience. And that's UM. You know, that's a huge opportunity for us because we UM. We provide that platform, We provide the end to end solutions. You know, we've been running mission critical applications for our number of customers for for for many many years. And the challenge is pretty clear, and that's to eliminate these departmental silos, UH and really eliminate friction on how businesses conduct commerce and and we're

excited about the opportunity for the company. Hey, Jim, thanks so much, sure for taking some time here. We really appreciate getting your thoughts here. It's really the future of business and working and as Jim was just mentioning, it kind of feels like a hybrid is here to stay.

Jim Shariko, president and CEO of a Vaya symbol A the y A. They stalk us up about eight percent year to day, had a big big move up yesterday on the earnings eighteen to twenty two, pulling back about six percent today, but a big move there, and we appreciate Jim taking the time Taylor, you're looking at the NASTAC here today it's off one percent. We've kind of got the SMP flatish, but the nasdak off, you know,

a little more than one percent. We've got the you know, looking at the rates rising a little bit here, it could be a little bit of a challenge. Well, and I think we're gonna pull in pretty coopta back in here because you had a big sort of you know, it was so interesting, Paul. Yesterday we stood here and

early in the morning we got the Fed announcement. Sort of it seemed to be this clarity rally, big relief for then you had a decline of one point three percent on the NASTACK by the end of the session, and then you wake up today and you're off again another one percent. And one key metric I'm looking at is the number of stocks in the NASTAC that are making fifty two week lows. It's go up to five hundred and news stocks it was four three days ago.

So that's sort of giving you an indication when you think about breadth and the magnitude. And again, a one percent sell off is nothing in the scheme of things, but underneath the surface there seems to be something going on, and that is the highest now since March of when you think about the number of stocks that are making fresh fifty two week lows. So just some really interesting dynamics.

And you know, again with yields rising, you do, as you know better than anyone, talk about that discount rate and cash flows. And then you've had a lot of push pool with this COVID narrative though as you and

I've been talking about hard to talk about cases. It's better to be talking about death and hospitalizations when you think about, uh, sort of the stay at home home trades all over again, Yeah, exactly, And you think about the nastac and some of these tech names that kind of goes to that you know, push and pull we've had in this market really since the beginning of the pandemic.

Where do you want to be in some of those traditional growth stories that have worked so well for really since a financial crisis back in two thousand eight, or do you really make that cyclical play, that reopening play on you know, whether it's you know, some of the energy names, or the financials or even some of the small cap names. It's that push and pull there that we see in this market, um, and we see kind of waves where tech does well and then again some

of the more cyclical names do well. Yeah, let's do all of this and more with Critty Gupta who we've swooped in here and pretty you know. Again, we don't want to make too much of a one percent here, one percent there, But it was the price action at the end of the day yesterday and sort of this continued, uh, small slight cell off today that catches our attention. Is

this a rewriting or is this a yield reaction story? Well, you know this is going to see I would say neither actually, because I think this is where and you're guys are gonna hate me for saying this, but it's a little technical brace yourselves. Let me explain why. Because you do start to see these tiny pullbacks. One of the main themes of has been that there's been this

major rally and no major corrections. Instead, you see these very shallow pullback to three percent drops, usually lead by big tech, And I think that's what you're seeing right now because in the past I'm looking at to chart here two months, you do start to see that tech without performing with this ev boom, with this a semis boom, so tech was kind of a big part of that trade in the last two months, and now it's taking

a breather because for two reasons. One, it's found that big kind of jumping yields that we talked about about yesterday at ten basis point move in today, which so we do see that yield tensitivity coming back. But you also have us going into the holiday period where you are going to see a little less volume, a little less cash on the table. And I think that's really what markets are preparing for here, and they're just doing that through tech in a very normal reaction that you've

seen this year, which is those shallow pullback. And it's interesting. We've seen earnings come through, you know, generally very very well across the SMP five hundred, but particularly in tech. But again it just seems I think, as you mentioned, pretty investors are trying to get a sense of boy, the next six to twelve months. You know, how positive

can I be about earnings about top line growth? Yeah, Well, this is a conversation that we had in right this idea that it's going to see all about the recovery trade and how you really compare yourself year over year to the depths of every all the numbers were going to be good because your comparisons or two in the next essentially year, the next six to twelve months is going to be a completely different story because now those comparisons aren't going to be you don't have that kind

of extra leeway, that extra slack there. In stead, they're going to be compared to how much progress have these companies made relative we're talking about oil prices for example. Today we're talking about energy stocks, so we're talking about their capacity, and still when you look at the production levels or you look at their revenue stream, they're not

anywhere near what they were in twenty nineteen. They're also in terms of what values they're trading at, they're still note and there's all those kind of questions that you're going to start to see, whether it's tech, whether it's semis, whether it's your industrial companies, whether or not they're actually making that progress that we really wan them sing. Hey, Crety, thanks so much for joining us to really appreciate as

always getting your thoughts on these markets. You know, tell, I'm looking at a chart of the two year treasury back in June the two years trading about fifteen basis points. Here, we are today at sixty one basis points. It seems like the market, because the markets are already doing its job, let's see kind of how the FED should react. Managing director and global head of rate strategy at TV Securities pre is the Fed kind of falling behind the market

at all here. So we think that the FED threshold to either accelerate, taper or hike as soon as priced in that I think the threshold is much higher than what the markets pricing in. But to your question, I think the market is pricing in an economic outlook and

a Fed response to that outlook. And I think the economic outlook that the market is pricing in is that inflation remains a problem and that the labor market shows signs of being tight, much more tight than we think it is, which will sort of force the Fed's hand. And that's why we've moved the timing of the first hike now, which just a month ago you were talking

about where the two year was. We're pricing in end of twenty two to now June two first hike, and more than three hikes in the first year of the hiking cycle. So it's a normal start to the hiking cycle. It's the timing that I struggled with. And I also struggled with the endpoint because the market saying, well, they'll start really early, but after the first few hikes, the hiking cycle will sort of abort because it's impact in a long term growth is lower. And so I struggled

with the start in the end. But the market I think is pricing in that the FED will be forced in sooner than what they're indicating right now. And is that um perhaps maybe confusion or uncertainty about the start the pace in the end. Is that what a yield curve on the two stands it just around a hundred basis points is telling you right, yes, I think so it's not as steep as you normally would expect that two stands curve because the endpoint is much lower than

historically heading into a hiking cycle. In fact, what we noticed in the last two cycles was as we were getting closer to the endpoint the market, or to the start of the hiking cycle, the market was moving the endpoint higher. And that's just not happening this time. Because there are pretty big questions I think among investors minders to the structural impact of COVID, as COVID slowed down productivity or is it impacting long term growth? And so

the FED. The assumption is that the FED might be forced to start hiking because of inflation, but they won't be able to hike too much. So the we're estimating the endpoint of the hiking cycle that the market is pricing in it less than one in three quarters. So that's a very short hiking cycle if the market is right.

But ultimately, yes, that's what's impacting that curve where those long end rates are not able to rise, because if the endpoint of the hiking cycle is only one and a half, then there's a limit to how high that two year can go. But I disagree with that. I think the FED is going to try and let the economy run hot to get all the people back into a large number of people who have left the labor force back in and so if they start a little

bit late, I think they can go much more. And so we think that the endpoint Priceton should be closer to two and a half, which is where it was in the last If the labor force and labor participation is one of the variables that the FED is looking at. What do you make of the argument that people a sizeable portion of the people that have left they're not coming back. How do you think about the labor market?

So I think that's the big question, right, are they not coming back forever or are they being picky about the type of job or what we call the reservation wage? At what wage level do they come back? I think the savings high level of savings, partly because we had the fiscal transfer, partly because spending on services was just even if you wanted to spend, you couldn't spend it last year, and that's provided. I think a lot of people in the labor market a cushion to wait for

a better job or or higher wages. But how long does that qushion last? We know the fiscal transfers are running out or they've already run out, So in the next six months we think a lot of people might be forced back in into the labor force, and that will indicate to the FED that there is hidden slack in the labor market. Now if they're actually not coming back because COVID was such a big change that you know they will sort of not come back or they'll retire.

I think then that has implications for how tight the labor market is, and that has implications for wage inflation. And I think inflation is not a big problem price inflation. If you have wage inflation, what we think is likely to happen as the price inflation remains high. But wage inflation starts to decline, that's when it starts to impact growth, and the FED will want to be very careful not to add to the problem by raising rates. So yeah, I think that you've hit the key question, which is

how quickly do these people come back? And do they come back? And our views that over time, as savings come off, that they will come back to the labor market. How are you thinking about very negative real yields? You're still at negative on the tenure, negative one sixty seven on the thirty years. That speaking into some of these loose financial condition ends, And and why aren't we seeing bigger movement in real yells? Absolutely, I think in the

long end that is what is puzzling. When I look at our forecasts, we are projecting a decent rise in those ten year real rates um you know, by the end of next year. And absolutely I think The fact that real rates are that negative is why the repricing in the rates market has not had an impact really even to the dollar to the dollar or broader financial conditions. Is because real rates ultimately impact financial conditions and the economy. Now,

why are they here? You are? I would think a lot of that has to do with the FED que program. They're still by mean, they've started to taper, but it's a slow taper um. The FED has been taking out a lot of duration from the market, and we know that savings is high, so there's just a lot of

demand for duration. But that is set to change next year where the FED stops buying by the middle of next year, the FED is not buying any treasuries and globally rates arising, and so I think some of that demand for treasuries, for long data treasuries that have kept these real rates at low, that starts to ebb away

and that's going to take I don't think positive. But we do have a fifty basis point rise in tenia real rates by the end of next year, and that's what then starts to impact financial conditions and actually become self limiting for how high Tenia nominal rates can go as well, because those real rates then really start to bite. Premisra, thank you so much for joining us. We always always always appreciate getting your thoughts and opinion and opinions on rates.

Premisrab Managing Director, Global head of Rates Strategy at t D Securities. 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 V three on Boswheney, I'm on Twitter at pt Sweeney before the podcast you and always catch us worldwide at Bloomberg Radio. M