Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
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I'm David Weston.
I'm delighted to be joined right now by the Federal the president of the Chicago Fed.
He is Austin Goolsby.
Austin, thanks for being here. We've so we're out here for the Aspen Economic Strategy Group meetings. A lot of talk about fiscal issues, monetary issues, but we all I have now the key jobs figures a little bit lighter than expected, one hundred and eighty seven thousand, set of two hundred thousand, little heavier than expected. On the wages, what did you take them?
It was pretty much what we expected.
I mean, let's remember the job's number is whatever it is, plus or minus one hundred and twenty thousand a month, so there's no point quibbling over over numbers.
The job mark.
Mart is cooling a little too kind of a balanced level, but it's still extremely strong. That's the strongest part of the economy by far is how low the unemployment rate is and people can get a job if they want a job.
To that point of being tight one hundred and seven thousand plus or minus, it's still way more than you need just to catch up to keep even with the new people coming into the workforce. So it is tightening in that sense, is it not. I think that's right.
You know, let's say one hundred thousand just from population and what's coming into the workforce, so it's stronger than that. It's been the surprise of the year, of the six months that all of the people that folks thought were gone from the labor force never to return, a lot of them are coming back.
You know. When it's when the job market is as strong.
As that, you've seen labor force participation rise back to levels that we hadn't seen for several years at least.
So that's been great. I mean, that's strongest part of the economy.
Yeah, none of us wants anybody be out of a job, so it's a good thing. It's just many p other jobs. But what about the wages where now these numbers were four point four percent year over year.
I believe it was.
That doesn't sound like something consistent with getting to two percent inflation overall.
The way I view it is two things.
One can't say anything about wages until you actually know what's happening with productivity. We got some productivity numbers. They were strong for the quarter. That's very noisy. But if you have strong productivity growth, you can have wage growth and it doesn't generate inflation.
And the other thing about wages is.
They're not a leading indicator of price inflation.
They're backward looking. They move. Wages move more slowly.
When things happen, we get shocks, the prices move first and then the wages. So when we see what's happening to wages today, this is kind of an amalgam of.
A bunch of stuff that already occurred.
I think if you want to know if you're beat inflation, go watch the inflation. You know, the price series, and especially the new months of inflation in the core.
That's really what you want to be Why.
What are those numbers telling you right now? Particularly goods inflation? Is it a bit stickier than you.
Thought it has been?
But the last couple of readings have been pretty positive. It's important that you raise this goods loosely. If you look at core inflation, you got goods, you got housing, you got services not including housing. And we've much remarked on the skinness and persistence of services inflation.
But we knew.
That that that's not where we went wrong over at the end of last year beginning of this year, with inflation lasting a little longer than we thought, it has been that goods prices, while down, have not gone all the way down to where.
They were before the pandemic.
I feel like that's kind of started and that's put the FED on this line. I mean, it's a thin line to walk, but getting the prices down without having a big recession, we're gonna Johnny cash this thing and walk that line. And that that's for sure the goal. And goods price has got to come down. And then the next one's got to be housing.
As you know, it's.
The the housing that's in the CPI is based on a bunch of market rents and it takes.
A while to flow through.
So hopefully as we go into the fall, that's that's gonna be the next one.
So also gonna stick with the Johnny Cash. Yeah, walk in that line. How long is the line? And we know that the target is two percent. It doesn't feel like you're going to come up that two percent goal? But how long until you get there? How patient can you be?
We got to be some of patient. You know.
Take as just a microcosmic example, this thing with housing. We've seen the market rents coming down, but it takes a while for that to flow through into the let's call it the average housing prices that are in the CPI.
It's got to be patient.
I know everybody wants to say, ah, fine, vove, we're done.
That's not how it works.
If you walk the golden path and you walk that line, it's going to take a while. And rather than arguing about the peak rate of how many more rate increases do there need to be, what we should probably start thinking about is that, well, how long does this last that you're going to.
Be at these elevated rates.
It's been a five hundred plus basis point increase over a relatively short period. If you hold at five and a quarter, five and a half, five and whatever while inflation goes down, that is a restrictive environment.
Holding is increasing restrictiveness in that sense.
Austin, let me ask you one of the questions it came up this week, which is the Fitch rating on the US sovereign debt that took out surprised a lot of people. I think, is it important? And I'm not saying was the rating important in itself? But is what they're pointing toward important.
In a vague sense? Yes, but everybody knows that. I mean, we went through the debt ceiling. Every day we're talking about this. This is dysfunctional.
We've got to get out of this dynamic.
I was around in Washington the last time we went through this downgrade thing. There's a couple of things I don't understand about it. Ultimately, I don't think it's gonna make that much difference. This isn't like a some obscure stock or bond that nobody knows and it's ah the rating agency went and looked at it, so you don't have to. I mean, this is US Treasury is the most observed market with the most information in the entire world.
So h I don't know what their motivation was. I'm not gonna I'm not gonna guess at that, but I guess I don't see how something else is gonna be rated triple A. If they were defaulting on US treasuries, it seems like that would be.
A pad hey for the market. But lets say ask you a different question.
We've heard various FED presidents j Powell but also Jenn you don't talk about the fiscal sustainability of the path of the United States is and especially some concern of the long term that it's not sustainable. If that's right, what are the consequences of that, and what if anything can be done about it.
That's a whole separate topic from the you know, what should the ratings of treasuries be.
For right now?
But fiction invoked that right in there is an announcement.
But then the proper question is did something happen in the last two weeks that made you think that was different? As you know, the FED doesn't weigh in on fiscal policy. Congress and the administrations they had to sort that out. I think my read of the evidence is exactly what you say that the long run there's a fiscal gap in the United States. That long run gap smaller in the United States than in most of the advanced if not all of the advanced economies of the world because
our demographics are better. It's rooted in the aging of the population and social security and medicare and things like that. And the US has got some choices that it has to make, but gets to make in a way that some other countries don't get to make them. They already have income tax rates higher than our raids. They already have twenty five percent vats, They have worse demographics, their spending.
Levels already higher.
To start with those fiscal questions, will they will be with us for decades because the baby boomers are going to all retire I think, you know, over the next couple of decades. That's different from what we're trying to do with the FED. You know, our job is we accept the economy as it is. We go watch the data, and we maximize employment and stabilize prices.
That's what we're going to do.
One other development this week, a lot of people took noted is Bank of America changed their call and recession. They had been predicting recession in the fourth quarter this year or the first of the and that sort of trails where we heard actually from the FED chair last week week that the FED staff now has taken recession designs off.
Take We're going to walk that line.
That's what I'm telling you, is that golden path, that's what we got to stay on.
Is that where you are is.
I don't know if it's just what I want or if that's where I am, but I feel like we've been getting promising numbers on inflation the new months of inflation, in core inflation, especially goods and especially housing over the next several months. That's what let's keep an eye on. That will tell us are we on this golden path or not. If we are able to pull us off, that will be a triumph. There are many smart people, and you've talked to them on the air, who say
it's impossible. The FED kids, the FED has never been able to reduce inflation as much as we're reducing it, and we need to now without generating a big increase in the unemployment rate and a big recession. And while that has history been true, this was a weird business cycle, it can be a weird recovery. And I am hopeful that we can pull it off, and so far we've been doing it. You know, if you look back a year, the unemployment rate is not up, and inflation has come way down.
In fact, it came down a little bit. I think this month, if anything, can you gotta tell you right from what was expected.
But I'm absolutely clear on this.
You think that we can get inflation under control with unemployment rate in the mid.
Threes, I don't know if it's exactly the mid threes.
What my goal and I think that we can pull off, and it's what we should try, is to stay on a path where you get inflation down and you don't have a major recession. And there are a lot of people who if you have in your mind this stable relationship trade off between unemployment and inflation, that's that the
golden path is impossible. But if you believe that the data have just not been backing that up, we've forgotten inflation down a fair amount without increasing the unemployment rate, and the job market does need to get into balance. We have been in spots where it's been out of balance so hot that it's that it's it's not stable.
But we're we're doing that over these past couple of months.
You see the quit rate, you see the vacancy rate relative to how many unemployed there are and you see the jobs numbers pulling more into balance.
Walk that line, Walk that line. Okay, Austin goes with thank you so much. He is the president, of course, of the Chicago Fed.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Let's get back to the jobs number. You know, we had a little bit lighter than expect in terms of the total number of jobs built, stronger on the wage side. So let's break it down a little bit. We'd like to do that on Jobs Day with Tom Gimble. He's the CEO at LaSalle Network. Tom, what was your takeaway from what we heard this morning from the federal government on the jobs?
Well, first, I've got a bone to pick that I was in the office last month or in the studio last month, and you weren't.
There, aid yes, So.
Just for the record, good, you know what I'm gonna say, we have one hundred and eighty seven thousand jobs added. I mean, we're kidding ourselves that we say it's not a good jobs market. It is a really really strong market. I think it sends the right message to both Wall Street and Main Street is that the market is still very, very healthy. And at the same time, it sends a message to the Fed that it's down a little bit
from where it was. So we'll probably see a little bit of a hold at the next rates meeting and they won't raise.
Yeah.
Interesting. I mean when you look through where the jobs are being created, what stood out to you?
I mean, listen, it's always going to be bigger when you're doing when we're in this type of market with low unemployment in the services sector, in the hospitality sector, and I think we're looking for bad news instead of appreciating what's going on. We've got record low unemployment again, We've got increase in wages a four tenths of a point again, right. We continue to see these really positive signs throughout the report, and we're trying to find the
one thing that might be reason for alarm. We know that eventually we're going to hit it a bumpy cycle, but we should really enjoy things while they're good.
So, I mean, what's really good in this one if you're a worker, is four point four percent gain and wages from the prior year, and that's the second strength month we've seen that and it was above all economists forecasts who called for a slowdown. So good for the workers out there. What's driving that?
Do you think?
I think it's inflation, you know, I mean, I think this is the problem that we have is that main Street does and understand that when wages go up for everybody across the board, that the cost of goods are going to go up equally, if not exponentially, to cover that. And so, you know, I'm not sure if everybody's realized that making more money and having things cost more money
is sometimes a neutral situation. And so there's some lack of education that exists with the common person, and I'm including myself in that, with all of us that we need to understand how the markets work. And what we're seeing though, is that companies are still hiring, They're not
hiring in mass. That's the biggest challenge that we're seeing is that in twenty twenty one, in twenty twenty two, it was such a rebound from COVID that companies were hiring hundreds, if not thousands of people in order to take advantage of this recovery from the three month recession that existed in twenty twenty because of the pandemic. Now we're in a very similar situation to twenty eighteen and two thousand nineteen, which is a really good, strong economy.
But the difference is then we were scrambling for people. Now we're not. We've seen people re enter the workforce, We've seen a lot of the gig workers transition back, and businesses really seems to be healthy.
What do you make of the fact that every single payroll release in the first half of the year has been revised lower. Apparently this is the longest streak of downward revisions since the global financial crisis. What do you think of that?
I think that it shows that predictions and economists are not always right. I think it shows that we have to be careful of relying too heavily on what we process of information versus the eye test and the smell test of what we see on the street, and that the revisions are real and legitimate. But at the same time, it's not like we're seeing negative jobs reports every month.
We're still seeing so you know, I think again we're looking for for negativity and as I say every month, you know, let's stop being chicken little and let's let's enjoy the rain and not think the whole sky's falling.
Yeah all right, Tom, good jobs number, no question about it, continues to be. This job mark is just so resilient. It's just amazing. Tom Gimble, CEO at LaSalle Network. We like talking to Tom every month when we get those jobs numbers.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
We also love talking to anaag Rana when we've got two big tech companies reporting earnings. Ana rog Rana, senior tech analysts for Bloomberg Intelligence, joins us here. So, honurrog you know we've got Amalon, Amazon, We've got Apple. Let's start with Apple. The services was the story here? Is that where I should focus or should I focus on the fact that you know they're not selling the growth rate for you know, iPhones and all that kind of stuff, not what it was where should we put the focus.
So the focus really is for iPhone. As we said even in the preview, it's going to be a boring quarter because the next one is going to be launched in September, which you know should start selling let's say sometime in October or November, and that's really what the next push for the cycle is going to come from. Services growth is actually a good thing because it's a much more higher margin business and a much more recurring
business that we always understand. And it's also once you you know, get on iCloud, you're not going to get back and try to get your data somewhere else. So that's really encouraging that it's still growing in constant currency in double digits. Margins are over seventy percent in terms of gross margins. So I like it both the product has to come back. The product growth has to come back,
and I think that's just a function of time. It's not a question that it's never going to be back, just a matter of a quart or two that we should see a bounce back in iPhones.
I feel like we have this consternation every time Apple reports that Hey, they haven't introduced a massive amount of new exceptional products. They haven't recreated the iPhone enthusiasm. I mean, should we just generally get away from that? Should we expect them to become much more of a services oriented business. I hate to say that, because you know of what the iPhone is.
Yeah, as a financial analyst, that's a very the right way to do it. But you know, if I really want to get and talk about you know, new zy things, then you know, it's always fun to talk about new products. But I don't think any new product is going to be anywhere close to what the iPhone is to Apple. And largely the reason for that is the size of the install based the reach of what it does. Even if you think about a car, I mean, how many units can they sell mixed reality headsets? How many can
they sell? And the iPhone they sell over two hundred million the units a year of five phones. Irrespective of the economy, they sell a lot of iPhones and that really should and is the most important part of that.
All right, let's switch gears to our friends in Seattle. Amazon really strong quarter, the street really likes what they heard last night. What was your takeaway.
Yeah, I've been smiling since yesterday evening because this is really I think, but with the bottom to the cloud story that you know, we have been trying to defend for almost a year.
Now that you know, please do not worry.
It will come back. It will come back. And I think they said that maybe the next quarter you will see similar growth rates to this year, which is this quarter, which is somewhere around twelve percent, and then you know, we are really expecting an acceleration going into next year. We just put a note out we think next year AWS growth is going to be north of twenty percent. You know, market consensus still is about fourteen fifteen percent.
We think we should see as a good rebound not just in growth rate, but margins also.
I'm not sure exactly how many times Amazon mentioned artificial intelligence. What do you make of how their mentions of AI and generative AI and where that plays out in their business. I mean, are you positive on that or do you think they're hitting the right tone?
Yeah, I think I'm goose in the minority because I was not there. It was probably the only not the only one was saying that, oh no AWS to throw behind it, Like I don't believe any of that stuff because at the end of the day, AWS controls the biggest portion of cloud infrastructure, which is the nuts and bolts of what people need to put this particular piece together. They may not have a relationship with open EI, but
that is not everything. If a company needs to develop generate AAI product in house where they're going to take their own data, not worry about exposing it to any other outside large language model or any AI model, They're going to build it using cloud infrastructure tools, AWS being the leader among them. Now, it's going to take some time for this thing to really impact growth, probably two to three years, but I really think Amazon is one of the biggest beneficiaries of the strength.
All Right, honurrog Great Stuff has always really appreciate getting a few minutes of your time on rog Rana. He's a senior tech analyst for Bloomberg Intelligence. Two big heavyweights last night, Amazon and Apple a little bit of tail of two tapes there. Apple trading off about three percent here and Amazon up ten percent. Big big move for Amazon. So get skinny on what's happening in the world of big tech.
With the honorrog Rana, you're listening to the team. Ken's a our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Quincy Crosby, chief Global strategist for LPL Financial. Quincy, thanks so much for joining us again again. We had a jobs print today. We've got some a lot of inflation data points we've seen over the past several weeks. You put it all together, what do you expect our Federal Reserve to do in the coming months.
Well, you know, I always like to say that the Fed is data dependent, but I think the market is more ferociously data dependent than even the Fed. And you know, next week we do get the CPI report. They've got over forty five days before they have to make a decision. But the fact is, I don't think that they are going to back down if they feel that inflation remains sticky and is not untangling fast enough. I think the market makes a mistake that the Fed will somehow say, well,
let's just pause and wait and see. They're not going to wait and see that much. And besides which you know, they don't want to get involved in the election season. That's something the FED has always try to keep away from. But more than that, you know, they're focused on making sure that inflation moves in the right direction and doesn't have a chance to create another bout of inflation. And you mentioned gasoline prices. Granted it's headline, but let's just
face it. Consumers are very much affected by gasoline prices in terms of how they see future inflation, and that's something the FED does not want to see.
Yeah, but isn't that sort of I guess the whole idea that the FED can push against Saudi Arabia making decisions to extend its you know, production cuts. Isn't it just kind of a fallacy that the FED has the true ability to control exactly what's happening with oil prices And shouldn't companies have been factoring this in, just understanding that most of the commentary from energy analysts was that oil is probably going to be tight by the end of the year.
Well, yeah, I know, the FED.
The FED can't. I mean the fact, look, the administration couldn't pressure your mind. Went to uh Saudia Radio to try to come back with a good deal and you know, just the opposite. So they have their own vested in US.
We know it is.
It is to get all prices up as much as possible. Their budget is huge. They're building cities, they're trying to create a landscape post crew to oil, and that requires higher all prices. So they you know, the market had expected that before today's panel discussion that they're having online, that the Satties would come in and say, hey, we're going to extend those quote unquote voluntary cuts through September, which they did. But what's interesting about this is that
it didn't work. I mean, when the market was fixated and obsessed by recession, it actually made no difference about the production cuts, absolutely no difference. So now all of a sudden, when you have sort of a light at the end of the tunnel in terms of the GDP growth in the country, suddenly the question is what about those prices? You know what's going to happen. Look, without some misogynous shock, it's hard to see that they're going to get all prices up to ninety bucks a barrel
on WTI. But you see that it's already moving up above eighty. Little bit, little bit companies do well, American all companies do well forty five dollars a barrel. But
the fact remains for the average American. We know this statistically, they may not even drive, they may drive electric vehicles, but when they see those prices inching higher the one year and especially the three year projections or inflation move higher, and here's the other statistic that goes right along with it, then they blame the administration, regardless of power, regardless of party.
All right, Quincy, we've had about eighty percent of the S and P five hundred companies report here. Do you feel like we're at earnings trough?
Here?
How do you think about earnings going forward based upon what you've seen so far in this second quarter?
Well, you know, it's been a just market. It is in the market. It has not been a market that has you know, given a pass to companies that are missing, even missing slightly. They've been punished. But the fact of the matter is there's resiliency in the companies, obviously X energy. But the fact of the matter is we also see that twenty twenty four, we'll see, you know, a nice climb higher with the companies. The thing to look for, though,
to push those prices higher, the share prices higher. Is that we also expect to see a pullback in the amount of share buybacks, and you know that has been a tremendous catalyst for the stock market.
Quincy talk us through a little bit more on the jobs report today. You know, was there was there a surprising detail for you to come out of this in terms of where we're headed.
Well, it was interesting to see the unemployment rate come down, right, and then to see the wage growth remain quote unquote sticky. The Fed doesn't want to see that, And why that's so important is there is a political tug of war about it. You can see it in the part of the political parties, but you also see it on Wall Street. Why does that bother the Fed? Why does that bother Chairman Powell specifically? Why can't he be happy about the
higher wages because they're going to low wage earners. And the fact is the concern from completely a political perspective is companies want to pass along those costs once the wages are higher. It is an input cost and it is one of the most important input costs for companies. So it hasn't leveled off. Everyone was expecting three tenths of a percent. It's stay at four tenths of percent. That is what was so surprising, the expectations and the
hopes or let that come down. And boy will we celebrate because that I think the market felt that'll clinch it.
The Fed is finished, all right, Quincy, given that backdob as it relates to interest rates, that backdob as it relates to some of the economic conditions out there. And we had mister Goolsby from the FED talk to David Weston today from Bloomberg saying that they're trying to walk that fine line of keeping inflation in check while not push his economy into recession. Given all that background, I've
got a market that's doing great this year. The S and P five hundreds up about eighteen percent, the nastacs up about thirty four percent. How much more do we have to go here? Should I be jumping in here? What's your call?
Well, you know, in.
Terms of seasonality, unless there's a surprise and this turns out to be a good good season as opposed to shopping and dicey, how many catalysts are there right now? Maybe next week the CPI report could be a tremendous catalyst to push this market up despite the negative seasonality. So if we start to see that core come down, I think it could be again a catalyst to keep the market moving higher. But earnings are an important catalyst. And obviously we're going to get the a retail picture
about the US consumer with the consumer consumer names. But remember it has been led by the big tech. That's what started all of this, the big tech megateech led. So maybe you have to wait until August twenty third for the video to come out. That was the one that was the one performance. It was a triple play right, revenue growth, bottom line, the guidance was stupendous, and what it did was it confirmed that high move in the
meg tech anything associated with artificial intelligence. They're coming out on August twenty third. The market may have to wait for that. But overall, if we could see that core super core inflation coming down at a quicker pace that tangled the stickiness, that'll be a tremendous catalyst for the market, regardless of season reality.
All right, appreciate that. Quincy Crosby, Chief Global Strategist lp L Financial always appreciate Gett Quincy's perspective.
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Looking at the risk on a take in the market today. I'm going to describe some of the moves today, some of it potentially to the comments from Austin Goldsby, President of the Federal Reserve Bank of Chicago. Hughes was interviewed by Bloomberg's David Weston earlier at in Aspen, Colorado, which
is a scam in and of itself. I'll get to it later, but Ike said he feels that the Federal Reserve is making some headway, having some success of walking that fine line between fighting inflation without pushing the me into a recession. So maybe that's how anything's apple. Let's check in with somebody who does this stuff for a living.
Jonathan Hurdle. He's executive chairman. Hurdle, Callahan and Company founded that company back in eighty eight was a Goldman Sachs before there was an officer in the US Marine Corps from nineteen seventy five to nineteen eighty two. So we certainly thank him for service there. But for me, the highlight is the NBA from Penn State. Good stuff there. Hey, John, you're out in Wyoming. Why I don't know, but you're out in Wyoming. Yeah, you're wearing a guard but like
you'd wear on Wall Street. Dude, you got this nice shirt this tie. Is that a little formal for Wyoming?
It is a little formal for Wyoming. But we're managing twenty billion dollars and we need to pay attention wherever we are.
That's what I like to hear. Very good. So Jonathan morning, Good morning, sir. How do you feel about this market? Cause we're looking at the S and P up seventeen eighteen percent, we've got the NASDAC up thirty four to thirty five, and boy if that's been a heck of a run off of a terrible twenty twenty two. What are you telling your clients these days?
Well, it's pretty much a stady as she goes kind of a market here. We have negotiated as that Austin Goldsby has said, you know, we're sort of on a golden path. You just mentioned his name. So we've been able to avoid a recession. Inflation is coming down, wage growth is increasing, but not so much to be a problem. So it is, you know, amazingly positive all the things that are coming together here. And you know, the United States is doing better than the rest of the world.
This free enterprise thing seems to be working. And you know, we've got terrific managers in this country. See, we just heard on the newsburg on the Bloomberg Business Flash that eighty percent of reported earnings have surprised, either met or surprised on a positive side. So good things are happening. The excesses that we worried about don't seem to be coming through. So it's it's just everything's working right now.
Well, we're seeing, you know, continue added jobs every time we get a job's report number. We're seeing that those bright spots for corporate earnings are things too good. I mean, is this going to push the Federal Reserve to continue to raise interest rates maybe more than we had and then the market even is anticipating.
Well, good morning, simone. My sense is you know, you see the tenure coming down ten basis points today and that the jobs report has taken a touch of pressure off the Feds need to raise rates. But even if they do raise rates, I think it doesn't matter at this point. We've got a picture in place. What we need to worry about. I mean, what we're worrying about is the things we always worry about, like exogynous risks. But the actual fundamentals of the market are sound and positive.
You know that we do have a high price earnings multiple on the market relative to averages. But my sense is this is another another signal from the market that we think we're going to have long term interest rates coming down. So you know, the tenure treasury we still have an inverted yield curve, but the real return on the tenure treasury is not particularly high, and so that tells us over the long run, and also another the
thing is this inverted yield curve. One of the things that tells us is that the long term rates we still think are low, but short term we have policy things going on that might raise rates. So this notion that we've got we're sort of in this sweet spot continues. So you know, it is true that it's like we're all neurotic. So if things are good, we were there too good, and things are bad we hate that. So but we're we're in sort of a sweet spot here
where everything seems to be working. We're walking that line. And we have to give credit to corporate managers because our way of thinking is that, you know, it's always about buying future cash flows and that comes from earnings. Another thing that's really a positive impact over the last relative of the last ten years is you know, for the first thirty years of my career, we had real bond yields to.
Work with you.
Bonds were an important part of the portfolio. For the last ten years that has generally not been true. But right now we're starting to get real yields again in the bonds, in bonds and even money market funds. So that's a terrific tool to have back in our toolbox.
So John, you know, if I sit in to your treasury, I can get four point eight one percent. That seems pretty good. But I feel like it might be the time to maybe go out on the curve a little bit, maybe get some more duration. Should I do that or should I just sit comfortably with my two year.
Little of each In other words, you know, one of the things we really believe is you can't predict, you can only prepare. So when you have a two year treasury yielding almost five percent, why not. And on the other hand, if you are if you have a full duration. We're a little bit under duration on our bond portfolios today, but we've been adding duration as interest rates go higher. If you do have a pullback, this is what it means.
We can't predict this, No one can predict it. But if you did have a pullback, then having that and interest rates fell, then those having longer duration would give you some protection against a pullback in the market, in the stock market. And you know, meanwhile you're picking up that coupon. So it's a little bit of each you know, find the most compelling things you can do, find and then believe each one a little bit.
Yeah, what's the top acid class in what you're adding your marginal dollar at this point, Well.
We're overweight US, and we're overweight things like healthcare equipment and the you know, technology stocks is a consumer facing technology stocks and software. So you know, we're really continuing to focus on these companies that have strong market share, strong balance sheets and moats around them to keep them protect them from protecting competition. So that's still we know our portfolio is overweight US and overweight that sector marginal
dollar comes in. We're still doing that, John, also are looking for that's the core portfolio. And then on top of that, of course, we're always looking for opportunistic things, for example like private credit, which is a whole nother discussion, and it really matters what segment you're in, which managers are.
Using, and so forth.
John, it looks like a beautiful day out there in Wyoming. How are our friends out there in Wyoming having good summer?
Everything's good. It's you know, my friends in the East are worried about hot and humid, and it's not hot and humid here. And you know, we've got the Jackson Hole fed meeting them enough. But I think it's going to be a relatively sort of a non event compared to recent years, which where it's been so dramatically important.
Right, Hey, John, thanks for taking a few minutes. We always appreciate getting your thoughts and your perspective. Jonathan Hurdle, he's the executive chairman of hurdle Callahan and Company coming to us from beautiful Wyoming out there, so good for them.
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Again. Payroll Day, Jobs Day today. I think it was a solid number all around. The thing that jumped out of me was average hourly earnings. It's pretty darn healthy of four point four percent, kind of consistent with last month. I'll take that. I wonder if our next guest is with me here, Jeffrey Cleveland, director and chief economis at
Payden Andrigo. Jeffrey, I love to get your takeaway from what we saw on the labor front, and maybe more importantly, how our federal Reserve is going to view this number well.
I think this is a very soft landing, like soft landing ish. I don't know if we can use that term type report. Yep, you had solid payroll growth. Of course, payrolls have been slowing over the last year. Everyone knows that, but the three month average is still two eighteen, which at any other era we would say is is stellar job growth. So that's that's very good. The one drag or one sector that's been problematic is also one that everyone knows information to the technology type sector, so that's
well known. Everything else, we're seeing pretty broad based gains in unemployment. The unemployment rate is still low. I think we're just above the cycle low at three and a half percent. So this is the part I find most amusing, where the Fed has been hiking. It's an historic hiking cycle, the most rapid hiking cycle since in forty years, and the unemployment rate is below where it was when the hiking cycle began.
So I like you point out that job leavers as a percentage of total unemployed in July's employment report rose to fourteen point six percent. You sent us some notes across earlier. That's like a high.
You know that.
I mean that that is even a stronger data point for this report than the overall headline number, which I guess missed analysts estimates generally. Why is this, I guess just not a bullish Let's go get them kind of sign it seems, you know, if we're seeing this soft landing picture, then it suggests that at least the FED is gonna kind of stay back on the sidelines.
Well, I think that's the important of the soft landing, you know, story, it's it's not just semantics. It is a indication if the soft line is playing out, then then maybe the FED doesn't have a lot more to do. And I think you see that today. The equity market loves that. The bond market will love that as well. I talked to bond traders every day. They would they would love it if the FED is done. So if we are on the soft landing, then yeah, then arguably the FED is done.
Yeah, but I just think, yeah, sorry, go on, No, I mean you you bring up the.
Kind of an important issue is that maybe this job market is even stronger than this report suggests. When you dig into the internals of the report, still some great signs that could be that will have continued growth, the unemployment rate will go even further, wage growth will remain four to five percent, And I think in that environment the FED might not be as pleased as the markets
are today with the report. That could be a situation where you have a no landing type scenario where the economy is still above trend, low unemployment, solid wage growth, and inflation is too high it's above two percent. The FED probably has more to do in that case. In that environment, So I think that's still a real risk that scenario. But right now everyone seems to be golming on to the soft landing.
So are we taking recession off the table?
Yeah, we took it off the table a while ago. You know, we thought after SVB that there was the risk that credit was going to contract more significantly. That hasn't played out. I was just looking at the lending data in the weekly FED data. I mean, lending growth has slowed, but it is still up five percent roughly year over year. So we have not seen a collapsing credit borrowing A discount window has completely evaporator gone down,
so the stress in the banking system has gone. So the hard landing recession is imminent type stories that we're out there. I think those are gone for the time being, so you have to push out your timing for a recession. We have the US economy growing more than two percent this year in our forecast now quartered on a Q four to Q four basis. So I know that's a little bit more bullish than the Bloomberg terminals suggests the consensus.
But that's where we see things here, and today's jobs report I think doesn't change that view at all.
Wow, that's so interesting two percent growth here on your I mean, if the two options here are no landing or soft landing, what's the kind of timeline that we see them play out?
Well, when I think about this, I'm always talking about the next six months, the next six to twelve months, so that that will carry us into middle of next year. I realize for some investors, some viewers, you don't want that. You want to know the next three to five years, but nobody could provide that. So just trying to be real,
be realistic. It's you know, I was talking to one of my colleagues yesterday, it's it's quite interesting you if you have for the next six months or so the no landing scenario, then it's possible the FED has to do more. They hike even more, and then there are some ramifications for that down the road that could mean a more significant slowdown in growth, maybe some other financial
market casualties. So when you think about these scenarios, you know they can evolve over time, but I think for the next six six to twelve months, we don't have a recession. The FED is you know, on hold or maybe hiking another another time where I don't think we're going to see things evolve as a recession and rate cuts, and I think that's really important to take in because that has big financial market implications. We kind of were seeing that play out earlier in this week with the
flattening of the treasury yield curve. The way I think about it, if the FED is on hold just where they are, then the longer end of the treasury curve can drift up just for that reason. You know, the earlier this year where there's the expectation that the FED would be cutting, and I think that underlied. You know a lot of the inversion in the curve, but if that's coming out, then a flatter curve makes sense.
It kind of hurts something along those lines. This morning, Austin Goldsby, the president of the Federal Reserve Bank of Chicago, was interviewed by Bloomberg's David Wesson, and he kind of said the same thing. I guess the implication was they feel like they're making some good headway walking that fine line with holding inflation down while not pushing the economy into recession, suggesting that that is consistent with kind of keeping rates where they are for a while. Does that seem reasonable?
Yeah, I think this is again great news for the Fed. The core inflation has come down, so on course CPI we were six to six at the peak year on year, now we're four point eight. But the unemployment rate is at three point five, as we saw this morning, below where it was when the Fed started hiking. That's the best case scenario for the policymakers improvement on inflation without having a downturn. But that said, doesn't mean that the Fed is going to be cutting rates anytime soon, not
with the unemployment rate at three point five. And then, even though we've seen an improvement inflation, inflation is still above well above the Fed's target. So stasis holding here might might be how things play out. But I think that has implication for two year treasury yields, but also ten year treasury yields.
We're looking at some important data on CPI on PPI producer price in next and next week. Talk me through your expectations there. What kind of number are you looking to see?
Well, the big thing for me is last month so June core CPI was softer, softer than expected and I think very soft. So looking for that to pick back up month to month, maybe one point three percent month to month percent change, So it could it could pour some cold water on the on the soft landing scenario if that does play out. But again it ties back to our suspicion that the FED is probably not done, and I think that would be the conclusion if you do see a pick back up in the core CPI reading.
So that's really the critical report for me.
All right, Jeff, appreciate it as always getting your thoughts Jeffrey Cleveland. He's a director and chief economist at Payden and Regal.
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We got movement higher yet again in energy WTI crude oil up one point two percent. I've been calling this out for the last several weeks. This wdacrud's had a nice little run here. I don't know what the heck's going on. So let me bring in a couple of people that we pay to know what's going on here. Mike mcglohon' senior macro strategist with Bloomberg Intelligence. He's located in the self proclaimed crypto capital of the world, Miami Beach.
Good luck with that. And Fernando Voley, senior analyst for Bloomberg Intelligence. His whole career is kind of doing this energy thing. So let's start off with Mike. Mike, just from a technical perspective, why this scene was sixty seven dollars or barrel WTI crude oil like a month five weeks ago, here we are at eighty two. What's going on?
Were saying, we're seeing a decent bounce of a market that we got very over so managed money net positions were very short.
The market bounced from its sixty month moving average.
But the key thing to remember about crudeill juxtaposed the stock market, which has that mantra if it goes out, it will go up, and Crudel's the opposite, opposite. Remember and the point you see the price you see in the screen was first trade in about two thousand and seven.
It's when it goes up, it usually makes it go back down.
And right now it's going it's rallying on the back of not only that positions coming back, but the stock market's going up and yields are popping. But I view this as a bear market rally, and I have good bias from that. The highest put in two thousand and eight, We had that bounce up till last year that was lower than that high around one thirty recently, and now we have situation with OPEC cutting supply and Russian saying they're cutting supply.
But that's typically what happens in bear markets.
From a cartel, they see this yield curve, they see the global bent towards recession, they see the declining economic growth out of China, they see the US rapidly raising interest rates, and they see the risks of Crudell going lower. And this what it normally does, is it mean reverts. The question is whereas it peak and where's it go? So I look at these levels eighty three has kind of been the high since looks like a November of last year. So I see we're near the upper end the range.
Now, all right, Fernando Joints is here in a Bloomberg Interactive broker studio paying three dollars and eighty three cents a gallon to fill up the beamer at the Jersey Shore. That's much higher than I want to pay. Why can't And people are telling me there's a refinery issue, which I'm not buying, by the way, but that's an exact an excuse. Talk to me about the refining situation this country. Do we have a refinery down or out or.
What's going on?
Not buying a refinery or no I want to buy it.
I'll tell you what I want to do. I want to go down to Corpus Christi or golf Port or wherever they put those things and build a refinery. Can I do that?
You can just revamp some of it recently shuttered refineries, including in Louisiana and in Philadelphia. Well, that one's going to take a lot of work. But yeah, we do have some refinery shortages. And when you look, it's not just crude prices that are driving gasoline prices higher, crackspreads are forty dollars a barrow for both gasoline and diesels.
Crackspread is the difference between what I pay for barrel boy and.
What I yes the stuff for the diesel and the gasoline to produce it out of it.
So I want to if I'm an produce it, I want a bigger crackspread.
Exactly, And they were getting me. It's over three times what they usually get, so they're pretty healthy. And that just goes to show you that we are really short on the refining capacity, and I'll make matters worse. It actually looks worse in Europe, especially on the diesel side, because they don't have Russian crude. They've lost a lot of refinery capacity over the past five years, and electricity
prices there are significantly higher. So we're going to need a lot more diesel and it's not gonna get cheaper anytime soon.
Yeah, but we also see you know, US producers boosting production. The shale producers that stayed on the sidelines preserved their you know, fiscal picture as even the Biden administration was telling them to get back out there to get pumping. I mean, does that kind of offset. Sure, we have this maybe bottleneck in refining, but then does that sort of all set what we're hearing from Saudi Arabia around continuing those cuts. Does that kind of put an upside ceiling to where we go with oil prices?
Well, the limit is really on the demand side. As Mike was alluding to, the shale producers can only grow so much. There are variety of limitations. I think the biggest and most importance to geological limitation. You just can't grow as fast as you as you hope because the productivity isn't there. And then outside of the permium, you just don't have any investments. Even when you look at
the rig count, it's still relatively low. Frack spreads, they're not back to their peaks before twenty twenty, and so we're not going to see that sort of growth. And ultimately, when it comes to gasoline and diesel prices, you have an added issue, which is what we produce in the US is not really set up for what we refine in the US, and we need a lot more heavy crude.
And when OPEC cuts barrows, they cut the stuff that we need, which is the medium and heavier grades and that makes especially diesel more expensive.
I don't know that all works.
Mike mcgloan talk to us about kind of just the trading here of WTI crewed or just the you know, the other energy components here. How much of it is really technical versus the fundamentals that Fernando's talking about.
Price is the number one factor in crude oil and what drives price futures traders. I just love pointing it out because I actually I am an ex futures trader and I've spent a good portion of my career running money and deal with clients doing that. And that's the bottom line is it's really price that drives it. And now why do you see opek worried about cutting because
they see what's happening, see prices going down. But the bottom line is we're still well above the average cost of production the world's largest producer and net export of the US. And one thing I do point out and like to point out is how things have changed.
Now.
This is just a little bit of where Fernando and I disagree, is rig accounts declining is actually a variable of bearish sign for crude oil because if you look at what's there's been a very high correlation with Ricoins councilor lasts almost twenty years, partly because when you drill down one drill, you can go horizontal who knows how
many ways. But it's just the fact of what I show in prices, and I love pointing this out a year ago is the fantasies of Crudel where people still focus on those kind of things, and then people talk about lack of investment. I you know, I'll be going down to the farmland again next week. And you know, in this country we get almost fifteen percent of our total and leaded gas now from ethanol, and that demand
from leading gas in this country is actually declining. It's down five percent then when it was before COVID so and well, this major bent towards EV. So I look at it is this is an enduring bear market that's just catching up. If you want to look for a good bullmarket commodities, look for gold. The price today this year is the average highest. The average price for gold this year is the highest ever at nineteen one hundred and thirty six dollars announce. Crude oil is just the
average price. There is seventy five that's met it's just a normal price. It's just fluctuating around that average.
So I'm going to quote are just I think I can summarize Mike Gloan's commodities call buy gold, short everything else exactly.
That's the trend, and he makes.
A living on this.
I don't believe he gets fanded into stuff.
No.
I mean, his commentary here is pretty that he writes for Bloomber Contelatis is pretty harsh. Either we are reversing our trajectory since two thousand and nine and an upward trend, or we're in the early stages of a severe economic contraction, and he, by the way, believes the latter. I mean, for Nando, what's your take, do you disagree? I mean, I know you're specialize in the energy space, but.
Yeah, absolutely, I think I agree with that the demand socide of the equation is the biggest driver in the short term, and Mike and I view on the short term is very aligned. We think that's probably the lower price than what you've seen on the screen right now. But then on the long term, where I'll disagree with Mike is because my homeland is poor and doesn't have a lot of energy, and that whole land for people
is Brazil and we're not buying evs. We went through blackouts throughout my childhood and OECD the developed countries are now less than half of energy demand globally and the only area that grows is emergent markets, so they are
the biggest drivers. And when you look at China having to buy more coal because they don't have enough energy, India and Pakistan and their challenges with electricity, believing that the whole world's going to be driving a tesla in ten years is just completely nonsense to me.
All right, so are your companies, your global energy companies, are they investing enough in the fossil fuel infrastructure?
I mean excellent and Chevron plan to grow two to three percent a year, and while BP and Shell are thinking they're going to declient. So no, in the long term, we're not. And then there's a question on whether Saudi can actually grow much more than they do. They always talk about a big game about growing production and then for the past fifteen years they've been pretty much flat.
So there's a lot of questions there. We don't think we have enough energy long term, and solar and wind won't cut it in the next ten to fifteen years.
All right, there you go, folks. I think that's some of the smartest conversation you get on energy. You got to coming from a commodity perspective as well as a fundamental analyst who talks to these companies every day. That's Mike mcgloone and Fernando Vali. They're both from Bloomberg Intelligence. I wonder who hired them. Anyway, there's a good view on the energy space there.
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It's stuff diversity in inclusion. This is Jobs Day, and it's put in the context of diversity and inclusion that remains obviously a challenge, seemingly an ongoing challenge for most of corporate America, and that certainly includes the financial services industry, the big investment banks. To help us kind of get a sense of where we are right now, Sondra Quince joins us. She's the CEO for Paradigm for Parody. She joins us via zoom, Sandra, talk to us about Paradigm for Parody.
Just start us off.
What is it?
What are you guys trying to accomplish?
Yeah, thank you so much for having me today.
So, Paradigm for Parody is quite simply a coalition organization that's focused on closing the gender parity gap and elevating women at every level of leadership in corporate America.
We do this with a lens on racial equity.
We provide our companies with a clear strategy, and then we provide them with the key tactics, the programs, and the resources that they need in order to close the parody gap.
One of the interesting lines from this earnings report Sondra is that the participation rate for ages twenty five to fifty for actually fell for the first time since late last year, mainly because women were leaving the workforce. I thought, you know, there's been this run up in family information, but you know, do you where do you see this coming from? And you don't necessarily have all the nittigritty of the data, but what are the trends that you're seeing with the companies you work with.
Yeah, so certainly there are women that are making decisions to leave the workforce.
The companies that we're working with are really focused.
On how do we keep women in the workforce or become a company that women can really see themselves thriving. And some of the things that companies are doing, quite frankly, is is they are looking for opportunities to ensure that they're hiring women, but more importantly that they're providing developmental opportunities to support women up and through the c suite.
So where there it's sponsorship programs or whether it's programs like our Paradigm for Parity, Profit and Loss Leadership Accelerator program whereby your exposing women to other opportunities within Core
America is critically important. And then, last but not least, I think it's important that leaders create the right type of inclusive people leaders so that you know whoever you're working for, that they understand some of the challenges and the issues and can really provide a workplace where all of their talent can thrive.
And then companies that we're.
Talking with are also looking at their benefits to ensure that they're meeting the needs of not only women, but they're broader workforce.
Sandra, what are the companies that you deal with? What are they saying or what are they asking you? In let of the Supreme Court decision on affirmative action.
Yeah, so a part of you know, what they're saying is number one, they want to stay the course and ensure that they don't, you know, reverse any of the progress that they've made over time. Some of the conversations that we're having is really stems around, you know, what do we do about our language.
How do we ensure that we can continue to be a.
Diverse and inclusive workforce, but ensure that we're bringing everyone along in this journey. So I think many of our companies are just taking a step back and looking at their language to be sure that that.
Language is inclusive.
They're also taking a look at their programs to be sure that while they have opportunities around women and those that are ethnically underrepresented, that they're creating the right processes in place to ensure that they are inclusive in that approach, that they are promoting all people within their organizations. So for many of our organizations, it's really around staying the course, but just taking a review of our processes and the language that we're using.
Well, I mean staying the course though has kind of amounted, at least in recent months, to just not talking about diversity policies. I mean that was certainly the case when you look through earnings reports around Pride month after some dustktops over particularly LGBTQ strategy, but particularly around the t
element of that. And is that the right way forward is to just kind of focus internally and not speak as much about diversity policies or is this kind of a temporary moment and you think we'll hear more going forward.
Yeah.
So I think on some levels, right, for some organizations, the right thing for them to do maybe to again just not sort of address some of the broader issues.
But the companies that are really on the.
That are really making progress and have made progress over time, those companies are still speaking publicly about the fact that they are going to continue around their diversity and inclusion efforts, that they are going to continue to make progress because they want to reflect the clients and communities that they serve,
which is certainly the right thing to do. We've even heard the same conversation coming from some universities as well, that while affirmative action may have been impacted, they can still make impact in the universities and create inclusive environments where they reflect the communities and in which.
They're they're located.
So I really think that staying the course for companies can mean a couple of things. Whether it means we're remain silent, but for others, it means we're going to continue to speak out and speak out publicly around the work that we're doing and leading.
Childcare. What's the most common reason that employers cite for not providing childcare for their employees.
Yeah, so that's an interesting question.
Many of the companies that I, you know, we have that are part of our coalition that we mainly interact with, all of them have childcare. So there are very few that come across that that are that are not providing some level of opportunity for families to care for their children.
So I do think for some though that are not offering it, it could be the.
Fact of affordability for their employee base, But there are tons of ways that you can provide childcare for your employees without companies.
Having to pay tons of money for it and provide.
Opportunities flexible work, for example, offering for assistance around for companies to be able to connect people to childcare opportunities or connect employees to opportunities or places to take their children so that they can come to work and know that their children are in a safe environment. So I think there on some level there's something that companies can be doing that can be precostpective.
All right, Santra, really appreciate you taking the time to speak with this here on important topic. Sandra Quint's CEO for Paradigm for Parody P for P.
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