Stocks at Records; Labor Chief Acosta to Quit

at Bloomberg dot com. So let's get to the headlines that crossed just moments agost Labor Secretary Alex Acosta resigning within the week after coming under severe criticism over his handling of the Jeffrey Epstein case. Uh he appleaded guilty in two thousand and eight and got thirteen months in jail. Now he is being prosecuted again. Jeffrey Epstein, the financier by the Southern District of New York joining us now.

Craig Gordon Bloomberg washed. Bloomberg's Washington bureau chief, Craig, what do we know so far about why Secretary Acosta is resigning now? I mean, look, we have Bloomberg News had reported a few days ago that several people around Donald

Trump did not think a Costa would survive the week. Um. Obviously he's caught up very heavily in this Jeffrey Epstein case because it was the U. S. Attorney down there in Miami when they kind of pretty a pretty generous plea deal with Jeffrey Epstein on very similar charges related to underage girls and that sort of thing. So I think our feeling here in the Bluebird Washington Bureau was

that a Costa was always on borrow time. People know, he went out yesterday and tried to give a kind of a defense of his um, of his handling of that case, saying, you know, he didn't have available to him all the evidence that the New York prosecutors had available to them. I think there's some question of whether that's true or not, honestly, but um, but there was also were also some reports of Trump had asked him to go out and kind of make a last stand. Um.

I don't think he. He you know, did a lot to help his case yesterday, and then you know the ax fell this morning. Do we know who's going to replace him? Uh, there's an acting Labor Secretary that will step in, um now, and I'm sure Trump will look to to fill the job, you know, for Republican administration. It's actually a pretty important job. It involves a lot of regulatory issues in terms of businesses, and we all know Trump as a fairly pro business, antiregulation sort of president.

So obviously there will be a move to put someone in there with with that um, with those sort of bona fides. The thing that apparently angered Trump along the way, even before the Jeffrey Epstein case rey surface, was that some of the state ag s attorney attorneys general had been thought a Costa was kind of slow walking, uh an antiregulation you know, Bill that was kind of sitting on his desk. So we think, you know, again, our reporting shows that alex A. Costa was already a little

bit in Trump's dog house. Trump today said some nice things about him are reporting suggested to the contrary, And then when the Epstein thing came along, it was hard to imagine he could survive that. Again, it's easy and with hindsight to look back at his handling of the case, I don't think the Costa was able to answer some pretty key questions about why a guy who did all the things the accused of doing essentially got a thirteen month sentence and got to basically leave jail every day

and go work at his house. So for most people, even if you don't, you don't have to have a lot of gree to kind of question that. And I think a Coasta it would have been really hard for him to keep dig out from under this. Washington were Chief Craig Gordon, thank you so much for the update. The US equities climbing to new highs, leaving many fund managers but a rather sick feeling in their stomachs. On

one hand, uh, you know, valuations are incredibly high. On the other hand, however, there doesn't seem to be any pressure to push them down. Joining me now, Bruce Biddle's chief investment strategist, Bared Bruce, thank you for being with me. I'm trying to figure out what could potentially stop this rally that has left the SMP, the NASDAC, and the Dow all at new records. Well at least so you're exact.

You're right. The market continues to press higher, and there's the pervasive lack of selling is really really amazing, and I think a lot of that has to do with the fact that, um the US economy continues to do well even though it is slowing UM. And then you have the fellow Reserve Board UM indicating that they'll cut interest rate twenty five basis points perhaps at the end of July as an insurance policy to keep it going

so UM. And there's been a lot of discussion about shortfall and earnings, of course, but you have to suspect that a lot of that's really built into the market. And i'd say, furthermore, the markets not based on on second quarter earnings and markets looking for third and fourth quarter and maybe even into so UM. I think what's happening here is you've got a decent economy, and you've got our friendly Federal Reserve Board, and you've got the best economy in the world, and so it's it's being

reflected in the stock market. Yeah, I can't see why you couldn't suspect the market can continue to go higher. Now, with that said, we're already up over for the year in the big averages. UM. My suspicion is that we're a touch over board here of course as a result of that, and the third quarter typically is a difficult quarter seasonally for the market, and I wouldn't be surprised if we had some sort of consolidation, even a pullback

in the third quarter. Now, if that should occur, I think that would set us up for what we've for a mirror image this year what we saw last year, in other words, a good rally in November and December to finish out the year. So how much is the rally and equities dependent on the federals or of cutting

rates at least two times before your end? Well, I suspect a lot, because I mean the markets turned around in January of this year based on the feeders, are board moving a hundred and eight degrees away from you know, tightening policy. So um, and I think that's continuing into this year, and perhaps we'll go into as well. But UM, a lot of the market this year and and and the reason for that is, Um, it's not the rate cuts so much that drives the market. It's the psychology

of the rate cut. It builds confidence among investors and in terms of the economy, it builds confidence in terms of the consumer. So UM. The rate cuts by themselves are not the magic ointment, but I think it's a confidence that they they instill in the investor that causes these markets that do much better so so, given those comments, do you favor consumer stocks more than others just because this potentially the rate cuts give a boost disproportionately to

the consumer. Well, for most of this year, we favored defensive sectors simply because we felt the economy was slowing and that's where the earnings visibility would be and that's where a larger dividend pay us are and that that's been true so far. They continue to be very strong in this environment. But if the economy is going to improve later this year, it should certainly show up in two areas. One would be consumer discretionary sector. UM, that

should do much better. And if you look at some of these retail stocks on the big box retailers, they're making new highs here this week. So the consumer discretionary certainty is a place to go. And I would think the industrials would also be another area that has lagged but UM, but I think it will do much better as the year progresses. On the flip side, are you cashing out of utilities and reads and other haven beds

that have been bit up tremendously now? Not really, because we think that the best portfolio configuration right now is is a diversified one. And the reason we say that is there are still certain unknowns out there. Um the fate is concerned about the global economy, and we think rightfully so if that would continue to deteriorate, it could cause our economy to slowly and further, So we don't want to put too much emphasis on economic growth yet.

And and and also the unknowns however, the trade war with China and perhaps even Europe. So I think there's a real reason to have a diversified portfolio. You might even consider having a small portion of your principle and gold stocks which they're broken out, and perhaps that's reflecting the instability in the global economy as well. I suspected

you were going to mention gold. And I actually wonder when you say diversified, whether investors are as diversified as they have been traditionally by holding a sixty forties sixty stocks forty bonds type of allocation. Given the fact that bond yields have dropped as stock prices have risen, that could reverse. The stock prices could drop as bond yields arise, and then you have no diversification. Is that a concern

of yours? Yes, it is a concern of mine, and particularly since passive investing now has become so popular and a low lot of that means that a lot of investors are concentrated in the same issues, the ones that have been out performing, the ones that are in most of the e t f s that have outperformed. So UM, I think it's UM would be prudent here to So we look over a portfolio and looked at diversified more than you think you might be. And when you talk

about diversifying, you talk about gold. A lot of other people have talked about alternative assets, things like real estate UH sort of tangibles and private debt, private equity, UH, infrastructure funds. These are the types of areas people have gone. Do you think that that is advisable for people to just even consider, well, for the average investor, I've saying

no because of the liquidity factor. I think at this juncture, when you look at valuations in the US and you look at valuations overseas, the overseas valuations are much more attractive. And so we talked about diversification, we also talk about moving outside the US in terms of equity. So you think that that's the way to diversify is international. Is there any particular region that you think is the best bet. Well, you know, Europe is so um so out of favor

here and evaluations are are particularly attractive there. And I'd say also emerging markets. I mean, they haven't done really much despite a lot of um support from analysts, and yet they haven't done a whole lot yet. But I think there's a possibility that the US continues to do well, that our weaken some and interest rates remain low, that emerging markets could be another place to go as well. Briss Biddles, thank you so much for being with me today.

Bruce Biddles, chef investment strategist at Bird, talking about the conundrum right now do you buy or to not to buy US equities at all time highs and given the fact that the Federal Reserve m President Trump seemed uh to want to support valuations even at a time when the credit cycle feels long in the tooth. Is it that's another uh, that's another point of debate right now, Let's turn our focus to US economic data. This morning, we got another measure of US inflation that came in

better than expected. Carra Kadanna, our chief US economist, here at Bloomberg Economics, joins me here in New York. So this is the Producer Price Index. It came in, uh faster than expected in June. How much can we say from this and what we heard with this or what we saw with the cp I coming in also higher

than expected? Are we seeing more inflation that people realize? Well, I think we're giving vindication that the soft patch on the inflation front earlier this year was indeed temporary, transitory epick youre upward choice. Powell would say transitory. Yes, Je Palan Jenna Yellen like that were transitory. Uh. They initially characterized it that way, and then the soft patch went on for longer than they anticipated, and so they started to get a cold feet on that notion and head

backed away from that rhetoric. And finally, just as they were ready to throw in the towel on this and j Pal even in his testimony Wednesday and Thursday, highlighted that maybe this transitory patch was uh not so transitory. Uh, then suddenly we get the CPI report when we do

see things bouncing back. Although again we shouldn't have panicked when we saw the soft patch earlier this year, because there were some one off items, things like the classification of apparel prices, so the way they collected the data changed, and maybe it was part of the story. There Also some of the strength we saw yesterday UH seemed to be yet one off categories. And this was something that

Tom Barkin from the Richmond Fed illustrated. UH. Inflation will look more convincing to the Fed that it has rebounded if you see it in service categories driven by labor costs and wage pressures. That's not what we saw yesterday. We saw service CPI kind of continuing to trend sideways. So then where are we seeing the games? Well, what we saw in yesterday's cp I was really a bounce back in goods prices, and goods prices had been really taking it on the chin do in large part to

global over capacity and also the strength of the dollar. Right, a strong dollar pushes down import prices. Import prices have been in decline. That's weighing on goods in the CPI basket UH, and we saw a little bit of respite

on that front yesterday. Now, if the dollar continues to come off as the Fed is moving towards easier policy, which that's a big if at this point, but that certainly has been the trend over the last couple of weeks, right, uh, And so what if the dollar does weaken moderately as a FED is easing at the end of this month, and then my team thinks one more time at the end of this year at the December FOMC meeting, then that will put a little bit of upward pressure under

input prices goods, and it will push core inflation closer to the FED subjective. Okay, how much is what we're seeing in terms of producer prices increasing just simply due to the tariffs. Well, there's a tariff impact there to some degree, but we have to be very cautious in blaming all price increases everywhere due to tariff and not not to say blaming, but the fact that you're seeing the increase in stuff in the goods of stuff rather than the prices that people are willing to pay for

a service. It seems like perhaps that asymmetry is tied directly to some of the trade tensions and the resulting levies. You know, with with the changes to trade policy earlier this year, you are still seeing that those price pressures kind of coming down the pipeline. So you know, for instance, in the c p I, we could see UH furniture and household furnishings is one category which really seems to

be accelerating. That obviously would be very clearly tied into UH tariff policy and whatnot, but that doesn't entirely explain what's happening here. We have an economy that was operating well above its potential growth rate last year, continues to be above that potential growth rate in n and that in and of itself generates inflation. I guess that without

wage pressure, this is not good inflation. Right, I'm going to stop you without wage pressure, because if we look at the Employment cost Index, average general yearnings, many of the metrics of wage inflation UH that we watch for the economy, they're all very close to post recession highs. So yes, they've been a little bit cool in recent months and kind of migrating sideways rather than accelerating to new record highs, but nonetheless they are still close to

record highs. So we're seeing the hottest labor cost pressures in twenty nineteen that we have in any year of this cycle. So that mitigates some of the prices on goods that have been increasing. People are getting higher paychecks, they're just not accelerating perhaps as fast, and that's why some of these price increases can be sustained. If forekers are getting higher paychecks, they have more buying power and they're more likely to tolerate those price increases that come

down the pipeline. Carra Kadonna, Are you willing to tolerate higher prices for diapers? And I consider those essentials absolutely for your child? Caaka Donna Chief you as economist for Bloomberg Economics, always of pleasure. We love having you. Thank you for being here. Amazon calls it a holiday. The rest of us call it a big sale. Amazon Prime Day coming up on Monday and Tuesday. Joining us now to talk about what we can expect. What Amazon is

going to try to push the most for people to buy. Answer, Soaper joins us now Bloomberg Technology Reporters. So, Spenser, just give us a sense of how Amazon is viewing this Prime Day. Is this Prime Day different from all other Prime Days? No? And that's really what's new about it this year. Um, so that we're now in its fifth year. Uh. They started it, uh, you know as a way to kind of entice um new Prime members to join, encourage

existing Prime members to renew their memberships. That's really what this is all about, is getting people to join Prime because you know, if you're a Prime member, it converts you from a you know, an occasional Amazon shopper into a devoted shopper. And Prime members spend you know, between two and three times as much on the site as non Prime members. So forget how much they're selling, what the deals are today, all of that's not really important.

The biggest thing for Amazon is how many new members sign up. That's what the days always about and what it's what it's still about. This year. Has Amazon reached saturation point where the new potential subscribers is kind of kind of live did Yeah, that's the problem is in the US and it's core, you know, it's primary market of the US. It's definitely showing signs of reaching saturation

that Prime member growth is slowing. Um. One interesting thing that we saw as they're offering uh, millennials in India, which is a big international focus for them, half price on Prime memberships, so they're really you know, there's definitely a you know, we're focused on kind of all the US marketing and the deals and that sort of thing.

But really, for Amazon to keep growing Prime memberships, it has to it has to look globally, and that's what it's doing with this half priced membership option in India. You know, it's interesting this Amazon Prime Day comes at an increasing politicized environment for Amazon. In particular, Amazon warehouse

workers have been protesting in Minnesota. Amazon I would suppose that it is a response to that, coming out with this big retraining plan saying, look, we are going to take people who are at low wage earning jobs and try to retrain them into higher paying ones. How is Amazon trying to position itself ahead of the elections right now in light of some of these pressures. Well, I mean, I don't know if they're positioning themselves in front of anything.

They seem to be reacting to everything, like the the fifteen dollar an hour pledge that came last year followed a lot of criticism from presidential hopeful uh Bernie Sanders and Elizabeth Warren, and there were you know, states were reporting that uh, you know, they're that Amazon employees were among their biggest groups of food stamp recipients and people needing assistance for basic needs like healthcare and stuff. So they really had to kind of react to to those

negative headlines. Um and now with the training, one of my colleagues are a newcomer did something today just looking at the train. You know, it's really not that much that Amazon is spending when when you break down the numbers, it's a big figure seven hundred million because Amazon so big, but when you look at the per employee and spending, it's actually less than lot of companies pay per year

to train their people. So um. Even that it's Amazon just kind of dressing up, uh, some numbers around its size as opposed to actually doing anything differently. You know, Spencer is one thing for people to pick it, uh pick it against Amazon. It's another thing for them to stop buying things on the platform. Is there any evidence that Amazon has lost business as a result of some of these political issues, Uh, not not that I can see. I mean, if anything, it's it's just that they're a

victim of their success. They've gotten so big that growth is slowing. You know, e commerce is it's primary business, it's its oldest business, and it's most mature business, and that's where the revenue growth is slowing down, you know, whether whether the these political protests and things are moving the needle much on that, I you know, I'm really not sure. But Amazon is also generally reactive to customer feedback.

So if there's a you know, flood of emails to Jeff Bezos about like, hey, I hear your workers are getting food stamps and I don't get that's the kind of thing that's going to trigger the fifteen dollar an hour wage pledge and and that sort of thing. So I'm sure it's influencing their decision making, but whether it's denting there you know, actual um revenue, I just don't know, Spencer.

I'm just curious. Lastly, whether Amazon is going to push its own products more than other products on Amazon Prime Day, in other words, sort of rank them higher in its algorithms so that people buy Amazon sourced products that will be interesting to watch. I mean, they always put an emphasis on their gadgets, right in the past couple of years, they've really pushed the you know, the the echo speakers, you know that operate on the Alexive voice activated platform.

That's something that Amazon is really pushing, and they've made that a focus of Prime Day. The past couple of years, so that's not that's not new. And I think what you're asking is more like their private label products, like you know, you're you're looking for a you know, oh, can I get a deal on Johnson and Johnson baby shampoo? Am I going to see some Amazon alternative? And uh?

And you very likely see that and you may not even know that it's an Amazon brand because it could have some funky name like Solimo or something that you're just you know, they've they've they've launched hundreds of the of these things. So um, yeah, I think there's a you know, there's definitely a good chance you're you're seeing those things in your search results or just be be mindful.

And I think Amazon is just hoping that people aren't so brand beholding and if they can save, you know, save a couple of bucks, they might give a give something else a chance, and then if then then maybe they end up being loyal to to a new Amazon brand. Spencer Sober, thank you so much for being with us.

Spencer Sober is blue Bloomberg Technology reporter. Amazon shares up about a half a percentage point today for the year, up thirty four per cent a real boom for this big tech company in a year when tech has continued to drive US equity gains higher. Thanks for listening to the Bloomberg Penl podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney at Lisa

bram Woid's I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.