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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg
Terminal and the Bloomberg Business App. We begin with our top story, the S and P five hundred Snapping and eight day winnistry. As traders await payrolls, revisions and fed minutes, seem as Shaff Prince Balassa management seeing stocks grinding higher, writing this this backdrop is still constructive for risk and a six trillion dollar mountain of cash is ready to fuel risk assets. Seeman joins us now for more, so, Seama, let's go to the punchline. A six trillion dollar mountain cash?
What is that match in a cash and why do you think it's going to be unlocked anytime soon?
Hey? John, Well, look I think there's a couple of reasons we've seen for the last couple of years, and investor has become cautious. We know the reasons why there's been COVID, there's a regional banking crosis. But also potentially the most important is that people have been able to actually make some kind of really interest on those savings. We are on the verge of FED cuts likely to move in a slightly faster pac certainly than what people are anticipating just a few months ago. So sitting in
cash is no longer going to be attractive. And I do think investors, of course, you need to take into account the entire backdrop. What are we expecting for risk assets? But we do still think there's opportunities and there's a lot of reinvestment risk Satman.
This is the important question. What is the backdrop? Because you can have a situation where people pile into cash even more even as rates come down, because they're looking to de risk away from risk assets. What makes you think they're going to go in the other direction as rate cuts start to come in. What is it about the growth backdrop that tells you things are going to remain pretty strong? Yeah, and I.
Would say that. I think in the last couple of weeks there, of course, there's been a lot of revisions and I think it's FED, so there's increasing uncertainty at the moment. We're still in that soft landing camp like everyone else. We've spent the last two weeks pouring over all the data, the Magro data, the consumer the labor balance sheets, et cetera, and we're not really seeing any clear signs of weakness. We know that there's an economic
slowdown that should be of no surprise to anyone. It's been underway, I think since the beginning of Q two of this year, but a slowdown doesn't necessarily need to transition to recession. We think that the FED has got a lot of room to cut rates. So actually, for us, the risk of recession is fairly low, and against that backdrop,
equities can still perform fairly well. We're not looking at bumper games like you saw in twenty twenty three or sethy in Q one of this year, but that's still some positive gains to be made.
Sima. I love that you go here because Trason McMillian yesterday was saying of Wes Fargo that she sees the six trillion dollars in money market assets heading into equities, maybe a bit more than longer term bonds, Bob Michael of JP Morgan Asset Management saying it will flood into all sorts of core bond funds, leading ten year treasure yields at three percent are potentially lower. Do you agree with that type of assessment.
So, I think there's a lot of opportunities across the equity set. You know, you just look outside the US as well, and I think there's a lot of opportunities on the bond side. You know, I don't know if we're going to see ten years quite that low. I think there's so many other factors that play at the moment, particularly in an election year, that at least for the time being, that downder pressure is probably somewhat limited. But certainly I do think there's a lot to go into
those core bond funds. There are question marks around high yield, around an economic slowdown, which is why there's still so much interest in that investment grade market. So actually, we think there's an opportunity set across not just equities and not just fixed income, but even across real assets. And
I so that's the reason why. You know, yes, the economic backdrop is a little bit more uncertain than it was two or three weeks ago, but it's still really important that investors do start to think they look one fed cut start cash is no longer attractive, and actually staying in cash is probably going to be your biggest risk.
Going back to where we started, John talking about a good kind of ray cut and a bad kind of ray cut in terms of what the backdrop is in terms of a good economy or a bad economy. Today we do get those payrolls revisions, the initial payrolls revisions in the year ended in March. Expectation is fuzzy, it's all over the place. But if we see a revision of say a million fewer jobs as reported initially in that period of time, does that change review.
It doesn't change the view, but of course it's going to add to the impression that the third is behind the cut, and the third is going to have to accelerate its movement somewhat more. It's really tough, though, you know, you were just saying that there's a lot of difficulty, a lot of risk in focusing on one just one data point. We know that payrolls are all over the place.
Even if you think back just at April of this year, where you had a revision down to I think it was a one sixteen mark, and then the next month it was back to above two hundred. So it's really that you look across a broad set of data across the consumer space, also really focusing on what is the balancie strength of households and companies, and I think that's probably going to be very important for building up that's
the overall picture of the underlying strength of the economy. Bertainly, I think it will impact FED pricing.
Same, let's turn to gold. Some big moves so far this year, gold up by something like twenty percent around about that. The move this morning we down about a quarter of one percent, pulling back from all time highs. CBS came out with a note recently and they're looking form a move to twenty seven hundred by the middle of twenty twenty five, the middle of next year, and they give a long list of reasons for this move,
the FED shift, central bank buying, portfolio hedges. What do you think the strongest tail winds behind this move actually are?
So look, I think the goal the goal movement has been it's probably been one of the more interesting areas we've had. We've actually maintained a long term exposure to that gold in expectation. Then, as you said, the number of the factors all the play You've got the FED carts, You've got the Central Bank buying, You've got a lot of bit the risk, the risky environment at the moment as well playing in for us at the moment. I think the concerns around the slowdown, they're probably not going
to go away. They're not going to be cleared up in the near term. So I think that upward movement for gold is probably here to stay a little bit longer.
What do you think is should substitute in a portfolio at the moment? Are you thinking about that? Where it fits in? What are you telling people the gold? Yeah?
Yeah, I mean I look, I think I think having that exposure to real asss is really important. Something around the inflation mitigation. To me, that is where gold also fits in. So I think it takes a lot of different boxes somewhere along, you know, having some kind of downward protection but also focusing on what happens if inflation
does turn out to be sticky. I know we talk a lot about recession risk, but to ask, one of the key concerns that we're thinking about over the next two years or so is what if actually inflation does start to take off again once you've got a number of FED cards, and then that that becomes more of a wire. So I think having that real asset exposure, commodities, anything which is a bit of inflation mitigation, still deserves to be a core part of any portfolio.
Just to put a line under that seam. Are you saying on the margins real asses should replace long duration bonds?
I don't think that they should replace. I think that there is an area which they are taking a box for long duration bonds are important if you know you want to have that downward or su I should say that protection against downward economic risk. Gold is a slightly
different element. But I do think that across equities, across the fixed income and the alternative space, that does need to be exposure across all three because you are ticking all your boxes in terms of the risk environment in front of us.
Interesting same as shaff of principle as a management stinger, thank yous and slack of apollo shaking off the weakness and focusing on the strength. Daily and weekly data shows that retail sales are strong, jobless claims are falling, restaurant bookings are strong, and their travel is strong. The bottom line is that there are no signs of a recession in the incoming data. Torson joins us now for more so. I think, good morning to here.
Sir, Monday morning.
Let's start with these revisions that come in a few hours time, and I'll share the estimates that come from Goldman. And the range is this wide. Okay, it's anywhere from something like three hundred thousand, six hundred thousand or a million, anywhere from fifty to eighty five thousand per month. What do you make of these numbers?
JP?
Morgan three hundred and some think Goldman six hundred to a million revised a little bit later this morning.
I think this is important for the economist, and this is important also for the fad, but it really is not important for markets. This is looking back in history and trying to figure out how much did employment grow, and if employment grew a little bit less, then yes, of course overall that does send a little bit different signal about where we are in the business cycle. But broadly speaking, I don't think this will get much weight in financial markets.
What do you think is normal? What's the normal run right now for jobs growth? Is it the one fourteen of the previous month?
Well, so, there was a very important paper by Tara Watson and Wendy Eelberg from brook Or the Institute that produced some estimates that says that we will probably have employment growth for the new term at around two hundred thousand,
a little bit low. So if that's the case, because of immigration playing such a big role, we should also see a boost to non fun pay rules, but that's probably going to overtime fate, so we'll probably get down to the long run estimate, which we would to be around one hundred thousand.
That's the question why we took last month so seriously. If you don't think we should take the revisions, that seriously well.
But that's also why jobless claims for the last few weeks have been signaling that everything is just fine. If you also look at a broad range of other indicators, as we just ran through both with travel, with the restaurant bookings hotel bookings. Also look broadly speaking at how many companies going to default as Wiki data also for that. We also have a general picture that the economy is
just not slowing down. This whole narrative as you just spoke about, we'll target Walmart, TJ Max, this whole narrative that we are slowing down is just not evident in the data. So that's why I think that we should in markets think about the outdoor for the FED.
With that background, you've said in the past, over the past few months that you didn't think that any rate cuts were necessary. This comes at a time, at least not this year. This comes at a time we've got one hundred basis points of ray cuts being baked into the market. You're saying that it's likely most likely that
the FED is going to go next month. What do you think the consequence will be of a FED that starts cutting next month at a time when you still sounds like don't think it's necessary.
Well, that's why, as Neil Dadna was just saying, there is this whole concept that we are way way too restrictive. But that is only if you have our star or whether the FIT is going at a much lower level, maybe say two and a half or two point eight, as the long run Dot says, then it's true that we are restrictive, then you need to see the FED cutting rates quickly. But what if our star what where we're going is more close to four four and a half,
then we're not in a hurry. So the main test of the answer to your question is what is the incoming data telling us the FED last height rates in July of twenty twenty three, and still now twelve thirteen months later, we're still waiting for the data to slow down, and it's not having in any meaningful way. So if Godeau didn't arrive, here were the last that really eighteen twenty four months, why should Godo arrive in August of twenty twenty four.
Some people say Goodo is leaving his sort of remnants in different places and giving us a sense that maybe he's more present than we previously thought, and more pointing to potentially some of the retail sales or some of the negative readings into the non firm payrolls that we
got a couple of weeks ago. At what point do you say we still do not need rate cuts, that you have conviction based on all the strength you were just talking about that Goodou is not around, Goodou is not coming, and actually this is a very different environmental environment for the economy.
Well, I think we see that reflected in speeches by different Airform C members. Some Airfirm C members, including Niga Boeman, have been saying, well, hold on, I need more evidence that we should cut interest rates. Others are more convinced. So getting the committee together for JPAL and making sure that the committee is moving gradually in the direction of interest rates moving Loah, that does take some time. So I think they have agreed now that they will cut
interest rates twenty five basis points in September. But after that, I think everything is open because the data it's not slowing down. And again the retailers reporting earnings directly, the Walmart CEO said, we're not seeing broad based slow down for the consumer. We need to take that seriously when that's seventy percent of GDP. So yes, I do understand that in markets, we quote unquote want the economies to slow down, and we're so hooked on the narrative from
the FIT that interest rates need to normalize. But we have plenty of time for normalizing interest rates. So that's why let's get that rate cut here on the September the eighteenth, and that's what JAPO will see here at Jackson Hall. But after that, I still think that they are open to well, let's wait and see exactly how the data plays out.
It's also it just seems to me and to most people, the focus has shifted to the other side of the jill mandate. There's a focus now on the labor market. And even if you're confident constructive about the future for risk mitigation, risk management purposes, you want to achieve interest rates a little bit from here. Maybe you go twenty five and you go twenty five again. But it's the other side of the mandate that has been completely neglected over the last two months. I would say inflation. You
mentioned Governor Bowmen. Governor Bowman talked about upside risk to inflation, reiterating her concerns, went through a long list of things, increasing geopolitical tensions, additional fiscal stimulus, and increased demand for housing due to integration. Do you think we should be a little bit more focused on the thing We've been ignorant for the last couple of months.
So let's be of course clear that inflation did peak at nine point one. Now we're two point nine, so we are a lot closer to their two percent target. But last time we look, two point nine is not two.
So that's why I think she's highlighting, and several other INFORMC members are bringing up the same points and saying, well, let's wait a little bit and just make one hundred percent sure that we're still moving down towards two percent, because the risk is, of course, that if inflation does start to move either sideways or on the worst case, move higher, then they will need to go back and revise their strong just like they did in the beginning of the year they said we have three cuts. Now
it was just one cut. So now the market is really getting ahead of its other imboso. During the Viks episode and the carry trade on wine from Japan, the market was prising up moday that the FED were cut six times. So that's why the roller coaster ride here. In terms of what the market is pricing, it's important to anchor your expectations around what's the incoming data actually showing.
So we talked to you a couple of months ago. You were saying that you could see the strength of the market certainly continuing through the end of the year on the heels of data that continue to be more resilient and stronger than people expect, but that next year it could be a problem that you could see that fall off a cliff. Have you changed your view as you see a greater likelihood of a FED rate cut and the potential for maybe some of the pressure to be eased before.
Next year, because I do think that the main reason why the economy is holding up so well at the moment is that there's a significant tailwind from broadly speaking, a higher stock market, tieder credit spreads and easy financial conditions across the board, supporting the economy in a very
broad way. And because of that, that does mean that now we have had some correction in the Magnificent seven, now that stock markets are beginning to show some signs of wabbling a little bit more rallied of course here
after the carricter right online. But if there is any reversal in the strong till wind from the stock market, then it would begin to have simplifications in particular for middle income and high income consumers, both those who own bas in p. Five hundred and own their home, but also those who own credit private credit included where the cash flows have been basically the best levels in decades.
Anyone who owns FicT income are seeing cash flows on the consumer side that are very, very strong, and that continues to be a very important till wind to the economic outlook.
Tostin, it's been far too long. Let's do this again soon. It's going to see a Torson slock there of apolloed here's the view from Ender's person over at New Vein. He writes the following, We expect the FED to cut by twenty five basis points at each meeting through mid twenty five. Larger cuts, including a fifty basis point move in September, are possible if incoming labor market data continues to deteriorate at the same pace as the July jobs report.
And this joint is now for more. And it's good morning to you.
Good morning.
We talked a lot about the job's revisions. We get a little bit later this morning. Talston Slot came on the program from Apollo and basically cause poor threes in cold water all over the conversation, at least from I've been having all morning. I said, it won't matter to market. Do you think this is going to matter to markets at ten am.
I'm actually more in tours this camp that I don't think it's going to matter a whole lot is that I think it's it's a backward looking number. Of course, it's a year today through March, so it's slightly outdated at this point. I think it's a number of economists will definitely digest and kind of take a harder look at.
But from a market perspective, I think we're really more focused on what's happening here going forward, and obviously the most recent data was more interesting, and we're more focused on what's coming here going forward. So I would say historically this has not been a number has been all our market driven. I don't anticipate it to be today.
Don't you think what we've been in films where we're going? And the reason I asked that question. If Goldman's right and we get revision low of anywhere between fifty to eighty five thousand jobs per month, wouldn't we have traded on that data a little bit differently over the last twelve months.
Yeah?
I mean I think today this year, given the job marks, this very much front and center in terms of focus and I think the markets shifted from an inflation focus to more of a job market is focused right now, So I do think this year, at this time around, it's more of a more interesting data point. But at the same time, I think the numbers, if you look from like three hundred thousand and two million, that the estimates are very very wide, So economists can't even kind
of agree on what the numbers should be here. So yeah, it's a data point. I think we have to digest it. But you know, quite frankly, I think the mark is going to be looking more forward and to certainly the NFP number coming in September.
Part of the problem is that we've talked about the importance of data dependency, and then person after person comes on and says, but does the data actually matter? And we're left scratching our heads with our wibside next and looking at all the data between Macy's and TJ max
and TJ max and wondering what matters to anyone. You're talking about the idea of ten year yields being in fair value around four percent, Bob michael is talking about three percent, and you both don't see the economy falling off a Cliff, So why are you not in the three percent camp?
Right? Well, I think Bob is referring to three percent some time out right, like I think you mentioned twelve to eighteen months out. I think that that's much more realistic. Right now. We're talking fair value around four percent as we're sitting here today. From our perspective, we think the tenure has run a little bit too quickly here. It
is sort of a slower kind of top month. I think there's some investors out there probably using that as a cheap option versus equity sort of say so if we have a hearted landing, they can use that part of the market to kind of hedge their bet a bit. So we are expecting the tenure to start moving lower in twenty twenty five. We're not expecting as low as that, but you know, three and a quarter is possible by
year in twenty twenty five. But that's a long timeout, and the volatility has been quite severe, so to say, to day, as we're sitting here, it feels like we've gone a little bit too far too quickly. So that's that four percent that we think is more closely to fair value.
That said, if you truly believe that the FED was entering into a rate cutting cycle. And if you truly believe that the newtral rate wasn't that different than it has been historically, that really we just saw distortions from the pandemic. Why wouldn't je hoover up as much ten year bonds you possibly could right now ahead of twenty twenty five? Wait, why be cute about it?
Well, I mean, I think the trend is lower for sure, So that that is, you know, the backdrop that we've been saying for some time their rates should start moving lower. I think the two year is going to be a lot more quicker to move, and we're expecting the two year to start moving lower, and you know we're expecting
a flat yield curve by year end. We're actually seeing also an upward sloping yield curve going into next year, so you know, probably more comfort around the two year moving lower, and that's going to be more correlated to FED cuts as we move into next year the ten year again, yeah, I think the backdrop will be lower for next year. But moving pieces here is we've seen
a lot of volatility. We have actually found more opportunity in the spread markets in general, and I felt more comfortable putting bets on that side, less so on the treasure market at this went around.
You want credit spreads right now because they're certainly tightened to come in over the last week. What are you waiting for?
Yeah, credit spreads we think are you know, probably fair value to a bit rich now. We have been waiting for spreads to start widening out as the economy starts slowing. It had a very quick move you know, two weeks ago or so on Uttle Bass points exactly, so very quick movement, came back very quickly at this point where you know, we're expecting that to start widening out a
little bit, so high yelled around three twenty. We could see that going out to maybe three point fifty again, as you know, economies starts slowing down, and we're more focused on that.
So you walk us through your process just a little bit, because I hear this a lot in stocks. We both hear this when it comes to stock markets. People come on the program and say they want to buy the dip. Then the dip happens and they keep running away because things get scary. You start to wander where the next five percent is coming from. And you start to worry that it's lower. The same thing happens with credit spread. You get a hundred basis points of widening, people start
to freak out. There's another hundred basis point around the corner. How do you know when to buy? What's the process for you and the team?
Yeah? No, I mean we debate that all the time. And I will say the credit widening we saw a couple of weeks ago was really quite tricky, given that you have the job stayed on Friday, you had the carrier trade unwined, and some of the geopolitical uncertainties going on all at the same time. So dissecting exactly what was driving what and how much was technical versus fundamental
was quite tricky from that perspective. I think if it was job s date are driven only, we would have had more comfort stepping in and saying, listen, this looks cheap and this is an interesting opportunity we did step in for, you know, basically buying credit and bonds that we particularly like take advantage of that way. But you know, generally, I think it's it's an assessment that gets you know, quite convoluted. You have to basically take it in totality.
So from that perspective, at times we've seen in the past, if you have a big, big move like we did two weeks ago, it can be more coming behind it, and that is the tricky part at this point. So we're trying to be dollar cost average, so to say a bit here with the assumption that we're going to see spreads moving a bit higher in the rest of the year.
Just real quick. The six point two trillion dollars in money markets, which asset do you think will benefit the most if people start to move it out?
Clearly I'm a bit biased here, but I do think fixed income is going to be the natural next step here, taxable fixed income and Muni's overall, I do think it's a pretty big step step for someone who is concerned about what their views are and economy and the markets to jump all the way into equity, so all the
way into real estate or even private credit. So it does feel like the natural next step would be muni's and fixed income, and we're starting to see and hear that more and more, and quite frankly, I think a FED cut would probably be a nice psychological kind of step towards that, where it's reinforcing tosts. It's time to make a shift here and that's where we're anticipating.
At least you're honest about where the bus comes from and us thank you, sir, good to see it and as person there of Neuven. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiot politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app