Bloomberg Surveillance TV: December 23, 2024

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie 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 this hour with stocks rising as traders boost fed rate cut bet after cooler inflation data. Michael o'rouric of Jones trading is cautious, writing not only are stocks expensive in their own right, but they are also at the most expensive levels versus treasuries in twenty two years. Michael joins us. Now, Michael, good morning, and thank you so much for joining us on this holiday week. Merry

I think you just have to be more selective.

The S and P five hundred equal weight is trades at a significant discount to the S and P five hundred, so of course that expensive nature within the S and P five.

Hundred, it's all off the top end in the megan cap stocks.

And I think obviously we've had a tremendous two year run here, we have a new presidential administration coming in. You can expect a lot of volatility. So they're definitely a pocket. A lot of numerous value stocks out there in the market in places you can invest.

You just have to be a lot more.

Selective, and I'd be cautious about chasing the S and P five hundred itself.

You talked about Trump in your note, and you said, in the midst of the post election euphoria, the equity market forgot that Trump is volatility bullish. Not only is Trump willing to break a few eggs to make an omelet, he will break a few extra simply because he again, was the market reminded of that scarlet mention at the top of the show we almost had a government chuck out. Was the market reminded of that last week?

I think it was, and I think people are starting to realize, while you know, a lot of The rally pins the election has been this, we're going to cut spending, we're gonna cut regulations, we're going to keep our tax cuts, and we're going to grow GDP and you know, you go through this government shutdown or potentially you know, you know, we risk the government shut down here, and you're like, you have to just remember, there's there's a lot it's it's not an easy path to achieve those goals. Those

And and you know what you're seeing in the bond market here.

Is it's not fully believing everything that the equity market is excited about. And that's why you see a ten year yield up above four and a half percent.

Well, speaking of the market pricing in a lot of positivity, I look at Tesla shares up about sixty seven percent since election date. Elon Musk has really been a tailwind for the overall market through Tesla mainly, at what point does he become a headwind for the market.

Well, that's the interesting aspect.

You know, One thing I find interesting is Elon Musk has numerous companies, most of them private. He can benefit from a relationship with President Trump through any of those ventures as well. So for everyone to just bet on Tesla, which you know, you were just talking about the automotive industry, there's a lot of challenges out there, it seems like a really aggressive, myopic bet. So you know, going forward, I think people again they need to be a little more pragmatic out there and realized.

Elon Musk is an influential guy. He's a powerful guy.

But it does you know, Tesla is not necessarily gonna be the biggest beneficiary of Trump's really you know, musk relationship with Trump and as we know, sometimes you know these relationships President Trump had, they go through rut periods, and so again it's really risky you just bet on one stock to expect this, you know, this this bromance that can give.

You well you mentioned Tesla, of course, it is a low hanging fruit here when you're looking at who would benefit from the Trump trade. When it comes to pragmatic approaches to challenges, I think about what's going on with Honda and Nissan, and Hemery brought this up earlier. This as an example of the M and A that we can expect from where the markets is, From where you sit, is this a pragmatic deal that has positive ramifications for US automakers?

You know, I'm not an automotive industry expert, but I do agree with everything you both said about this is a deal coming out of weakness. And we know all the weakness that's going on in Germany, and of course their auto industry is he there. So you're looking at a situation where there are a lot of challenges out there in this world. And again, you don't want to see companies making deals out of weakness, but it's clearly

When you look at the biggest risks heading into next year, obviously the auto industry is one of them. What else is on the horizon.

I just think it's the overall enthusiasm for everything we've had such a specuative market.

Bloomberg has this great article about the wildest.

Trades of twenty twenty four, and you see that, whether it's the leverage ETFs, you know, some of these other specutive trades you're seeing out there, paying these significant premiums to net asks of value to some of these you know, stocks and ETFs out there. There's a lot of optimism built into this market right now. And it's not to

And the market right now is pricing in good policy from the income the administration, this Trump trade. Yet we haven't seen any of that policy yet. His term will begin January twentieth. Michael, how are you thinking about the sequencing of next year when it comes to things like immigration, tax cut, and tariffs.

Well, I mean that's exactly you know, that's exactly what I'm talking about. It's you know, translating this this this policy goes to actual policy takes a lot longer than the markets obviously pricing at this point in time anyone remembers the first Trump administration. He you know, he loves to negotiate, he loves to drive a hard bargain, he loves to push.

You know, his opponents to the other end of the table.

So it's not going to be pretty and you know, trying to achieve these goals. So I think I think that's a key thing that the market's risking. So when you think of the sequence of policies you talk about, it's going to take time for all that to play out, and again the markets tried to price it all in here in the span of two months.

Mike, I'm thinking about what's going on in the treasury market, and on the long end, we've really seen yield steadily rise over the last two weeks, and there was some relief on Friday, but it does look like yields are inching higher once again today and that yield curve continues to steepen. How does that set us up for twenty twenty five or do you kind of dismiss what we're seeing in the final week here.

I don't dismiss what we're seeing in the final week here.

I do think the ten year yield is so important because so many instruments price off that the market prices off that. I mean, right now, the S and P five hundred earnings yield is about fifty or sixty basis points below the treasury yields, as we mentioned earlier, and so you're talking about stocks and more expensive relative to your quote unquote safe, risk free acid treasuries than they've

Reverse course last week.

Uh, there's also a little comment, you know, obviously concerns about inflation up to again and concerns about President Trump having inflationary policies. So if we see this ten year yield continue rage, you're going to feel that reverberate throughout all financial markets. So it's something we want to see stabilize here.

Yeah, what would be the catalyst that would send that tenure yield to five percent.

I think it's everything we've seen, Like you had, the FED last week, you know, you know, conclude one hundred you know basis point easing cycle while increasing their inflation forecast for the next two years. You know, basically, according to the forecast they released Wednesday, we're not we'll run for above target, you know, above its inflation target for six years, which seems kind of ridiculous to be cutting rates when.

You're doing that. So that's one issue.

Obviously, depending on how all these Trump policies play out, Everyone's concerned that they're going to drive inflation, and that's that's a lingering fear. So treasuries have really been weak send or you know, acted poorly sent just before the election. This was just the latest round of the selloff, and like I said, we need to see them stabilize. If they do push up to five percent, the S and P five hundred is going to have a you know, significant pressure on it.

Michael, what's your base case for next year in terms of SED cuts.

I think, you know, I'm gonna go with the forecast at fifty basis points at this point, you know, and seeing although the Fed seems to change in every quarter. But I think we have a very strong economy. I'm surprised they cut rates as they did. You know, GDP for this quarter is tracking three percent. GDP last quarter was three percent. When you think about the you know, the higher rate environment in the past two years, it has not slowed the economy. So when the Fed keep

So it's it's.

Really hard to predict what the Fed's going to do because they keep moving their policy goals around and it doesn't seem to be tied to the movements within the economy.

So hire for longer.

In twenty twenty five, Michael Ourk and Jones Trading, thank you so much for joining us. Happy holidays and New Year to you.

Joining us now is Clint Henderson of The Point Sky. Clint, it is good to speak with you. Ann, Marie and I are in the office because it is a Monday and we still have two days ago before Christmas. Talk a little bit about the calendar effect because with the holidays on Wednesday this year, it means there isn't a natural long weekend for people to take, and maybe that spreads the travel out a little bit here.

Yeah, that's certainly helping.

Interestingly, though, the Sunday after Thanksgiving we saw the highest single day ever, so that didn't really impact Thanksgiving travel, and we're expecting record breaking crowds. I will say the airlines got through the busiest part of the lead up to Christmas fairly well, despite a few storms, so that's good news. And I do think the airlines in general

Yeah, so far, no major storm at the moment, and also good news, no shutdown either, so everyone can get through airport security the way that you would expect them to during a busy holiday season. People are obviously traveling to visit family or go home, but they're also going away on vacation. Where are they going to Clint?

So it's really interesting.

We've seen the usual suspects are obviously very popular. Los Angeles, New York has been going through some incredible record breaking crowds the big cities in the US and also places like Florida and Cancoon. But we're now seeing really interesting data that suggests Americans are going much further. They seem to be being inspired by TikTok and Instagram to really get out there and have a.

Little bit more exotic travel.

Tokyo is actually one of the top cities according to Chase this year for international travel, which is really interesting.

The strong US dollar is certainly helping.

I think that's going to really push up numbers in Europe as well, since the euro has been falling lately. So look for some international bargains. I just booked myself a trip in January to Portugal. Incredible what you can get because the US dollar is so strong right now. And then, don't sleep on shoulder season travel. A lot of people are traveling now well into winter and then of course for the shoulder season which we love, which is spring and fall, and people are spending longer away.

Why are they spending longer? Is that they feel that is it? The strong us do feel like their money can stretch them that much longer on a trip.

I do think that's part of it.

I also think people are really into experiences now, as you're sound bite alluded to. And I think the other interesting thing is people can work from home now, so they're tacking on a day or two two business trips that they might not have in the past because they have to be in the office. So you know, you're in the office today, but I'm able to work from home, and I think more and more people have been able to do that, So you're seeing the amount of time they're spending away stretched a bit.

Clint, any viewers that are preparing to travel this week, what's your number one tip?

Have the airline app installed on your phone.

Not only is that how you're going to get Wi Fi and entertainment on the plane. You can track your flights, see if it's on time, see where your plane is coming from. And finally that's where they're going to offer you cheap upgrades, so you beat out e lead travelers like me, so you can get a cheap upgrade to first class.

So who doesn't want that as a Christmas gift?

I love that.

What about luggage, That's a big issue here, And I know that this might sound kind of trivial, but you know, we're all trying to get by bringing it on as a carry on, and yet when you get to the airport and you're at the gate, they make you check it in anyway at the gate they say, oh, well wave the fees, but that's you know, everyone's trying to avoid that scenario. Any advice on that front.

Yeah, you know, I'm team carry on, so I hate checking baggage. But during Christmas when I come from New York to California, I bring presents with me, so I do check bags. And you know what, I got an Apple air tag for the first time in my life. You know, we've been writing about this and talking about it for years. My team loves it, but it's the first time I've used it, and that is really cool.

You can be among the first to board that plane.

Talking your book, Clint Henderson of The Points Guy, thank you so much for joining us.

Really appreciate it.

Jonathan Miller of Miller Samuel is staying optimistic. He says, while we don't expect sales to rise to normal levels, they will be hired than last year. Those who can afford to buy at higher rates will probably do so. Mortgage rates will probably end up lower than they start in a year, but not low. Jonathan joins us. Now, so, Jonathan, you have actually noticed an uptic in existing home sales, in particular in high end markets in places like New York.

Yes, that's actually been the story if you think about it.

Many potential home buyers have been waiting for about three years since the initial FED moves, and I think time is sort of running out for people as life moves on. We're already seeing in contract activity and some of the markets that we cover really begin rising it back in the summer, not just after the election, but of course

So you mentioned the sun Belt and this idea that it is the inventory that's available. People point to that and say that they want to go move to somewhere where perhaps housing is more affordable. But it's misleading though when you look at supply increases as well, because we're

Yeah.

I think post pandemic, there's still an expectation by consumers when they go from say the Northeast or California to the sun Belt, that they're going to get a very low price and the affordability is going to be dramatically improved. However, that's been where a lot of the price appreciation has been concentrated. You know, as people with work from home,

That the the.

Higher end threshold, meaning pricing north of say a million dollars. Not to be cavalier, but the numbers is we're seeing a tremendous uptick in activity. Perhaps that has more to do with elevated financial markets than it does to more you know, the factor of higher mortgage rates.

Jonathan, Given the fact that there are higher mortgage rates, are there deals to be had on the price when going out and buying home.

I think the I think the simple answer to that is no.

But and that's because even in markets where inventory is rising or there's parody with pre pandemic conditions, the demand is still pretty strong that people have been kept on hold for several years. So we're still seeing bidding wars. We're still seeing a fairly tight market. We're just not seeing a lot of discounting going on. And I think I think that's what consumers, you know, we're hoping for.

And you expect an uptick in twenty twenty five. Where exactly do you think we can see an uptick in some of.

This, Well, you know, the basic math is where the inventory is the tightest, that's where you're going to see the.

Most uptick in price.

You know, I would say that the biggest uptick in price is not going to be in the sun Belt. It's going to be to the north of that because that's where not as much new product has.

Been built to come into the market.

That's one of the challenges in markets in the sun Belt is that there's been more new construction as developers are anticipating the boom coming off the pandemic, and.

It's a little it's been a little bit overdone.

Jonathan, we talked about single family homes, what about multi family homes with the idea that mortgage rates will be lower at the end of the year than where they start, but not low by anyone's measure of what tends to count as low. How does that affect the decision to rent versus buy, and what does that mean for those who do own or looking to buy multi family properties.

Well, one of the problems that we've had in the multifamily, particularly in the condo market, is that housing prices, you know, have risen just like single family quite a bit, and affordability is being challenged. The problem is in the multifamily there's more supply or excess supply, which means, you know, potential softening or more potential softening. So from a single family perspective, I think it's a little tougher to get a deal in the condo maybe a little bit more,

As many consumers were thinking.

Okay and moving away from residential property into commercial property. There's been a lot of discussion about an incoming Trump administration being good news for real estate overall, but in particular commercial real estate, especially with transactions picking up pace, or at least conversations about transactions picking up pace. Are there numbers that bear this out.

So the way to think about commercial, and the part that I still am amazed is the narrative about commercial is, hey, it's coming back. It's you know, work from home maybe is going away because we are seeing you know, you know, various firms talking you know, ending work from home or

In fact, we're we're seeing a little bit more on the B and C.

We're seeing more residential office to residential conversion activity, which is difficult in high interest rate environments, but we're still seeing it beginning to occur. So I think that's where the upside is in the class B and C. It's not going to be sort of leasing up at normalized prices.

One other point about that is a lot of.

The B and C the problem with vacancy high vacancy in those markets is that the landlord can't reduce their prices to market level. Yes, and that is a condition that has stayed since the pandemic era, and I don't anticipate that changing in the near term.

All right, Jonathan Miller of Miller Samuel, Thank you very much and happy holidays to you.

This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angiopolitics. 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 Amp.