Still a Long Way to Maximum Employment

over to Jeffrey Cleveland right now. He's a principal and chief economist at Payden and Rival, and he's got um some real intelligence for us on the U S JAS market and how it relates to the FED. First, I want to talk about the Triple Crown of open water swimming. Jeffrey, you have completed a swim across the English Channel, the Catalina Channel, and you've swum the entire distance around the island of Manhattan. What compels you to join this elite club.

I think only forty people have done it well. I think it's one of those things if you're a swimmer in college and you're not quite as fast as you know, say Caleb Drestle or or Michael Phelps you, you look for stuff to do after college, and I took up ocean swimming, did a bunch of swims in the San Francisco Bay actually, and then you know, in the ocean swimming community, it's really you know, it's like climbing Everest, uh,

you know, swimming across the English Channel. So that's that's kind of something that you want to check off your bucket list. So I once I did that, I realized that there was any more exclusive club, which was the Triple Crown. People have done all three of those. So I felt like I had to swim from Catalina back to l A and then and then around the Great Island of Manhattan. Only forty people in the world have done it. We're talking in the history of the world

have done this. So it's a pretty exclusive club and very impressive. I just wanted to hit on that so our listeners know. I mean, obviously you've done a lot of other stuff, but that's huge. Um, all right, let's get to the Jobs Report and the FED, because in your view, we're still a long way from maximum unemployment. We know this FED is focused on that and they have an outcomes outcome based frame in place. So does that mean, um, you don't think we're gonna see what

tapering so soon? Um, and certainly not rate hikes either. Yeah, here's the context I would give you. This morning, we got eight d fifty thou jobs added for June that beat the consensus. Yet, as you know to ten, your treasury yield are a little bit lower in fact yield across the curve or lower today. So um, it's a

bit of a head scratcher. But I think the context that matters is that even if we add eight hundred and fifty thousand jobs per month going forward, we're still a long way to anything that I would describe this maximum employment. Probably takes another year or so to get back to pre COVID levels on total employment. So we'll get there. We're moving in the right direction. It's very good news, but it's still gonna I think, fall short

in a year's time from from maximum employment. And you know a little hints of that today, right you had the the unemployment rate take up a little bit to five point nine percent, so that's um, it's a bit disappointing. And then there's no progress on labor force participation, so it's it's possibly to get a year from now, we're still not at maximum employment. So I think, you know, calls for rate hike are are really really premature. That's

the biggest consideration tapering. You know, the FED is trying very hard to separate tapering from hiking. I think they've done a pretty good job of doing that. There's two different decisions. We do think they will start to tapor beginning in Q one of two, but it's it's for me, the big question for the markets, whether it's the Bob market or whether it's equities, is you know, when did that first rate hike arrive a couple weeks ago? There

is some concerning it. We might arrive in two. I think the data today tells you now that's uh at the earliest. Well, that last f O MC meeting, Jeffrey, there's some focus on the dot plots. Is that where the focus should be? I don't think so. I think the dots are distraction. You know, I've been a long time critic of these dots. I've been saying, drop the dot plot. It's it's you know, those figures are interesting,

but they're submitted before the meeting. They're not the topic of conversation at the meeting, and they're not a policy outcome. Of the meeting, and I think it provides a lot of fodder, you know, a permanent employment clause for for FED watchers such as myself of course, so and a great screen on a Bloomberg terminal, which is good, exactly great, great screen, But I don't think it tells you a

whole lot. I think if you're an investor, you shouldn't look too much at what policymakers have in terms of their dots for for a rate hike. Say, you should say, when are we going to reach maximum employment? And then you should ask, okay, at that time we read when we reach maximum employment, are we gonna do we have

sustainable two percent inflation? Those are the two things that will determine whether the rate hike occurs, and so our conclusion is we won't have maximum employment before you know, maybe the end of two or after, so that kind of rules out a rate hike before that. Great to get your views, Jeffrey, thanks to much for joining us. Jeffrey Cleveland is chief economist and a principle at Payden and Regal. Talking to us about the Job's report and the FED. I want to bring in now Leonid Burjitsky.

He writes, for Bloomberg Opinion, and his latest story, Dark Markets Can Be a geopolitical force, talks about um cyber hacking and the blame game that we've all seen kind of carefully played between Presidents Biden and Putin at their last summit. Most recently, um, uh, there was a German banking system hack that has been blamed, at least by German the German press on Russian hackers, state Russian hackers. They even say in the Builds Tongue, which is the

most widely read paper here, Leonid. I've actually been wondering about this for a long time. Is it really fair for us to say, um, definitively that these hack attacks are from eight backed Russian criminals just because they are in Russia. I mean, if we blamed every US criminal on the US government, um, you you have a lot of problems in Washington, d C. As well. Yeah. Well,

there's this major difference between Russia and the US. Russia is increasingly a police state, and not many things happened there without the government's explicit or implicit consent, especially if they're um, you know, big projects. Uh. For example, the column that you mentioned UM talks about Guibro hydra uh dark marketplace for mostly drugs, but also fake papers and stuff like that. It's a silk road. Yeah. Well again

there's a difference silk road uh to the west. As a law hyper has been around since two thousands fifteen. Uh and it's got an annual turnover of more than a billion dollars in cryptocurrency, So it's a it's a pretty noticeable project. Uh. And uh you know, it is the place where if you want to buy drugs in Moscow, that is where you go. Uh. So it's it's kind of impossible to ignore. It's sort of the elephant in

the room. Uh. And the you know, things like that cannot really operates in Russia without some sort of protection from above. Uh. And you know that is the difference with the US, where you can you know, build a larger wizard project and not uh have corrupt officials protecting

or supporting it in some way. So it and I guess that's one of the questions I think a lot of people have is when they think about the Russian I guess influence or role of the government in these hacking Is it support per se or is it just simply turning a blind eye well, turning a blind eye

is a form of support, right it is. But I don't know if there's anything more overt Uh Well, uh, for one thing, whoever is protecting these uh, these businesses and the entire infrastructure, the entire ecosystem that has uh grown up around them for money woundering, for uh, providing worked engineers and to other you know, lots of other people.

It's a huge ecosystem. And uh, if the you know, if somebody in the government is turning a blind eye, that person or or those persons are highly personally interested and probably you know, getting part of the parts of the profits in exchange. So that is one, uh sort of one thing that you can't really ignore. The other

one is the geopolitical angle. H If the hackers and if these illicit operations hit the West and not Russian targets, then basically this at least coincides with the direction of official policy, and there's less of a reason for the government, the Kremlin, you know, the authorities to go after them. They're actually seen as doing something useful for the motherland. Well, and also I don't think they could expect due process

necessarily if they were to hit Russia. Just like, Um, you know, Chinese criminals probably shy away from hitting out against the party. Do they have the same you know, is there is there the same tacit support of crime like this in China? Oh? I, Um, I wouldn't really know about China Russians, you know where I'm from. Uh, that's uh, that's how it kind of works there. If the targets that are hit by criminals are also targets that are hostile to the government, the government shouldn't really

be expected to come down hard on these criminals. So Lena, give us a sense of what the policy of the United States has been to this to this point and maybe how it needs to change. Well, the US government, UM, it's kind of it has to walk a fine line. It can't say you know, you can't tell putting directly. Uh, you know, someone in your entourage or you personally are on the take and and like protecting. Uh, these are

wiggled businesses for payment. Uh you know what. The the only thing that they can say, and they've been actually doing it quite correctly under Biden. They've been saying, you know, these people operate from your territory. They seem to enjoy some kind of protection. And you know that's not a good thing. I doubt that the US government can do

more than that in the sort of in the public space. Uh. The other thing it can do is um, uh you know, is fight back and step up the defenses of important infrastructure. I wanted to ask you about something. I was going to say completely different, Leonard, But I don't know how far off George Orwell is from what we're seeing here. And I ask you because you recently authored a Russian translation of UM, the British author's masterpiece. Uh, what are

you seeing? I mean he Orwell famously UM modeled his novel after Stalinist Russia. What are the differences between what we see there and Putinist Russia well like or doesn't exactly model uh Oceania UM on Stalin's Russie was sort of your UM, you know, a combination of different autalitarian regimes.

There were elements of Nazi Germany UM and actually elements of UM, you know, wartime influence in in the in those descriptions UM, but U and and because it is that way and there's no like specific model there, you can obviously, you know, find lots of similarities with other authoritarian governments, including the current Russian one. Obviously, the you know, the sort of the um, the hostility towards the outside

world is very similar to what we're all described. Uh. And the sort of siege mentality UM and the lack of basically a lack of written rules is one other. Um sort of certainly brother right well yeah, yeah, the well big brother is uh sort of a guy with many faces and uh yeah, one face. Leonardst Sky, thank you so much for joining us. Lena is colmunist for Bloomberg Opinion based in Berlin. Right now, I want to talk more about work. Tom Gimble joins us. He's a

founder and CEO of the LaSalle Network. It's one of the leading staffing and recruiting firms in the country. And good morning to you. Thanks for joining us. Tom. Let me first ask you about your reaction to the numbers. UM, what do you think, eighty thou Are we gonna keep seeing numbers like this? Yeah? I think it's great. I think well, you know, we saw today was numbers of recent college graduates from May entering the workforce in June

and getting hired. We still saw pandemic recovery in the service and hospitality industry, meaning with warmer weather and restaurants opening. But even though there's a huge shortage of labor, there's still a lot of people finding jobs. And so you've got those two things coming together for the numbers. And so, you know, my feeling is even if it would have been below estimates at six fifty or five hundred thousands,

it's still a win. Estimates are just that estimates. But anytime we're we're adding over a half million new jobs, it's a good thing, all right. Tom. When you talk to your clients and they're talking about their hiring processes, we've heard lots of stories about how a lot of companies are unable to find workers. What do you think are the primary reasons that that's the case. So our

firm works with venture capital BAK firms. We work with private equity owned companies and publicly traded companies, and what we see in the marketplace is companies are in high demand of people, and we do all white collar positions, even though some of our clients may also hire for blue collar rolls and on the lower level positions. The increased unemployment company station from the federal government is for

sure a hindrance the companies finding people. On the flip side, we've got people that have relocated, uh due to remote work due to the pandemic, and have left where jobs are and have gone to other areas in warmer states, southern areas, and it's left a lot of vacancies in the northern part of the country. And I think once we see the economy kind of settled down post pandemic. I don't mean settled down like in a bad way, but settled down that people aren't worried about the pandemic anymore,

We're going to start seeing those positions get built. Where are you seeing um less growth than you anticipated? One of the interesting things, Tom, which is why I ask that we've noticed, is that a lot of industries, for example, airlines have been able to boost production UM closer to pre pandemic levels without boosting hiring. And I guess that's because they have a lot of automation in place that they brought forward. Are you seeing that in other industries

as well? Well? I don't know and not you know, I know what the data says to an extent, but I'm not sure if I agree with that on the airline when the numbers aren't where they were pre feel you, Yeah, I feel you, because they could they could just at the higher occupancy level. Ye ye, right, so they weren't running efficiently before, or they haven't fired as many people and so they don't need to rehire. I know data. I agree with Mark Twain, you know, um, I can't

remember the exact quote, but something about lies. In any case, we do see though, technology, you know, being brought forward to automate a lot of positions that you know used to require humans. Yes and no, we're we're doing it. You know, like you go to a baseball game now and instead of having as many vendors they're having, you can order it on your phone and food will be

delivered to you. Right, it's a technology innovation. The difference is you're waiting three or four innings to get the food and there still aren't as many people doing the job, and you're not it in your food when you're one it and you're unhappy. So we're what companies are doing is they're using technology to compensate, but in some ways it's not giving you the same level of service as you get from having full unemployment full employment, So it's

a it's a band aid, it's not a cure. And we're years away from being at the point where people are going to accept technological advances in lieu of having people to actually do the job. So to kind of follow up on that, there's still i think the number seven or eight million folks that are still out of work relative to prior to the pandemic. What's the elok for those folks. Do you think we're gonna get all them back into the workforce and perhaps you know over

what time period? Well, those real questions there and number one, do they want to be in the workforce? Number two did they overvalue their worth when they got out of the workforce? And number three are they ready to take the jobs that are available versus what they want? You know,

I'm the CEO of a hundred million dollar company. If I lost my job tomorrow and I only wanted to be the CEO of a hundred million dollar company, there might not be a job available for man might take a job at a startup or at a five million dollar company, and that might be an extreme, But if you look at somebody who was an accountant and they lost their job and they can't find a job as an accountant, maybe they weren't a very good one and

they've got to go look at it. The infrastructure bill is gonna get passed, hopefully in the third quarter, and when that happens, there's gonna be tens of thousands, hundreds of thousands of jobs working on infrastructure, and people are gonna have to pivot and adjust. But the jobs are out there for anybody who wants one. Where are you seeing the biggest gains in terms of UH pay? I've noticed lately that all the banks are boosting their pay

for junior analysts. Of course, not everybody can slide into those positions that easily. But are you seeing other industries where you know, just everyone's competing by by raising wages quickly. Yeah. The reason you're seeing it in banks is because the so much dry powder on the sidelines that deals are being done, So banks need to hire as many people as they can and to make sure that they're getting

the market while it's hot. And you know, historically they don't have a hard time of downstizing when they need to either. Where we're seeing growth continually needs to be less in industry and more in skill sets. So we're seeing a ton of back office accounting and finance professionals at all types of companies, manufacturing technology, distribution service firms.

We're seeing a ton of sales people, which is a great sign because that means companies are planning for longer term growth and they want more sales people to be

able to do that for the foreseeable future. And then, as always, we're seeing technology that the biggest and most interesting role is human resources never took a hit during the recession, which is a huge surprise based on the most two recent recessions, and HR continues to be an area that companies are hiring for and one that terrifies me. Terrified of HR. If I see that HR on on my office phone, I'm I'm not picking up. Tom, thanks so much for joining us. Pleasure having you eight to

get your insight. As always, Tom Gimball, founder and CEO of the Sound Network. Checking with Chad Obiad. He's a director of investment management and hunting in private bank seven billion dollars under management. Chad, when you see a disclosure part, do I need to do any disclosure here? I don't know, do you? It's my bank, it's your bank? There you go, it's the Bank of Matt Millard. There should get dat of Ohio. There should be a tagline the Bank of

Matt Miller Bloomberg Television and makes them to change it. Chad. Let's ask them to change it, Chad. What what what do you make of that job's number we saw this morning? What does it mean for your economic outlook? Yeah? So certainly seeing that many people get back to work is good news, right, eight fifty thousand, well ahead of expectations, really good, But there's still some mixed messaging in the data.

You saw the unemployment numbers tick up a bit. So as we continue to look through this data, is it enough to move the Fed? I think the general takeaway here is probably not. But from our general thesis, we still think the Fed starts to taper on the MBS side, that the bond purchases part of their asset purchases later this year. So, um, how much tapering do you think?

I mean, I don't know how out of consensus that is at this point, Chad, it looks like, um, the economy is certainly humming along, and lord knows mortgage backed securities doesn't need any more support. So how much how much tapering do you expect, well, so we think the lion's share of the tapering would come from that NBS side for the rest of look for the Treasury side

to start picking up early in two. We even saw the I m F this this morning coming out and saying that they're expecting some degree of tapering from US FED early in that first half of two. So to your point, I think we're in with consensus. We'll see if any of the additional data points change our perspective on that, and of course July as well as the symposium in Jackson holl will definitely be on our radar

to see if the FED has any additional commentary. You know, we did get a bit of a hawkish stance, or at least interpretation of a hawkish stance at this last meeting. We'll see if their commentary changes that as well. Chat I'm looking at the again, the ten year one point four or four percent. Where do you go? Where is

hunting in private bank going for yield these days? Yeah, that's a challenge, particularly for our Huntington's clients that are looking for income, and as we think about where to generate income, the bond market is really challenging and In fact, we've been overweight equities in the majority of our portfolios and looking for sources of yield in the equity markets. We've also been using things like preferreds and reads to

gain some additional yield out of our portfolios. So, uh, well to yield are we talking about as someone as someone to act as your portfolios right? So, so the yield is going to be dependent on a number of variables, timeframe, targeted allocations, those types of things. So it is client dependent. We work very closely with our clients. We have portfolio managers and advisors throughout our footprint looking for those specific

needs of our clients. But generally speaking, our positioning and this is playing into some of that income theme has been a post recessionary stance for our clients. Came into the year with this idea of a post recessionary stance. Lately, we've been adding to some of our inflation hedges though, so think precious metals again, those real estate ideas. We've been doing that on a global scale, and we've also been adding some tips. So again post recessionary positioning, inflation

hedges starting to present themselves in our portfolio. The other thing that we're doing, and we think it's a good idea for investors to think about this, and you could see this value to growth growth of value rotation going

on as well. As part of this theme, it's prudent to think about trimming and adding to parts of your portfolio that are performing well, maybe underperforming in this keep that balance, keep that acknowledgment of what your overall target is, and and think about trimming and adding throughout the rest of this year. All right, So you know that that brings up two questions for me, and I've got literally

hundreds of dollars with you there, so thank you. First of all, how many other people are in my situation who have moved to cash here? How many people are holding dry powder? Because we hear so much about the cash on the sidelines, there is a lot of cash

on the sidelines. And this is one of those areas that we focus on with our clients to really talk about what your long term goals are and it becomes less about today's market prices to farrows market prices, but what are you truly saving and investing four and if it's five, ten years out, whatever the time frame might be for your situation, we're recommending dollar cost averaging here. We recognize that we have some things on the horizon

that may influence markets. We have an earning season with high expectations coming, we still have fiscal policy decisions yet to be made, we have monetary policy decisions yet to be made, and we still have an ongoing pandemic. So we're fans of dollar cost averaging into markets and staying broadly diversified here. I also want to ask for a little bit more specificity in terms of inflation hedges, because this is something Paul and I talked about with people

a lot. Um. Are you still looking at the traditional inflation hedges golden tips or do you see people doing uh new and exciting things anything more complex or I mean, I know bitcoin is too volatile to think about in that way, but are there other uh moves that people are making these days. So generally for our public mark, it's we're looking at those traditional hedges, right, um, so tips, gold real estate. We think those still have as they

historically have, have some benefit some hedge to inflation. In the private markets, there's some things going on there where people are maybe getting a little more exotic. But for us at our core. We're a fiduciary manager. We're a bank here in the Midwest, and so our approach has been to use some of the traditional asset classes, use the idea of asset allocation again, trimming and adding the

newer potential stores of value or hedging against inflation. Things like cryptocurrency still not in our portfolios, although we are

continuing to evaluate those alright, Chad. Looking over on the equity side of the ledger, there's been a little bit of a push pull between the the folks that have favored, you know, those growth names that have worked so well for so many investors, the Amazons, the Apples of the world, and those that have really, you know, embraced this I guess uh kind of rotation trade into some of the more cyclical sectors. How do you guys view the the

equity side, yep. So for our equity portfolios, we really do focus a lot on staying balanced between those two disciplines. We we don't typically make aggressive calls to overweight growth or value. Naturally, coming in with a post recessionary trade, we're favoring a little bit of that value space. We're still looking at quality companies, those that are having good

quality earnings growth. So the earning season this time around will be very important to us as well as thinking about the comparing comparables for the rest of this year. So growth versus value for US is a little bit of the conversation, but it's more about the individual companies, their ability to perform, their ability to meet expectations. And with that said, what what we have done is we've broadened out our equity exposures. So it's not just large

cap domestic equity that we're using. We've been using mid and small steps as well, and more recently we saw some value in international developed so that's an area on the equity side that we actually have been adding to. We think that theme of particularly Europe being a couple of months behind the US in their response and their reopening, we think that provides an opportunity for our clients. What do you got going on for the fourth of July? Chad is Ohio? Is Ohio all back and opened up?

Are you guys ready to rock and roll? There? You know? We we are pretty much open. I think folks are feeling really exuberant about being back to some level of normalcy here in Ohio, and I have to tell you. We're a baseball family. So my high school aged boys are playing baseball all weekend and I'm looking forward to being in a baseball field. Reds of the Tribe. We're a tribe family. Oh God, I miss Ohio. I tell you, paul is got to be one of the greatest states

in the nation. I'm gonna say, I'm gonna take yeah. I mean, I feel like at least eight presidents are from Ohio. I've had this argument before with um Brian Sullivan at CNBC, who's from Virginia. I think Ohio has the most presidents of any state because there's one I can't remember who moved from Virginia to Ohio. But I feel like if you chose Ohio as your place to die, that's almost as good as your place of birth. Chad, great talking to you. Thanks so much for joining us.

Chat Aviat there. He is the director of investment management over at Huntington's Private Bank. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three on fal Sweeney. I'm on Twitter at pt Sweeney Before the podcast, you can always catch us worldwide at Bloomberg Radio