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Terminal and the Bloomberg Business app. Be in a cheer of academy securities, wonders if the happy talk is overblown writing this, I like my exceptionalism to be exceptional, and I also like my data not to be dwarfed by plug numbers. I cannot help but wonder if, even on the jobs front, which has been close to exceptional, we are exposed to some sort of gap in perception and we might wind up finding out the Goldenlocks met the wrong group of bears. This story doesn't end so well.
Owins this now from all Peyt, thank you for jumping on in front of a camera. We were very excited about talking about this topic with you. Can we talk about just how exceptional things truly are and whether you see this narrative gaping from being too hot to being too cold and happening very quickly.
You know, I've generally been buried on the US dock market NASDAQ in particular for a little while, and people look at you with this level of sympathy. And if you look at it since mid January, it's heavily underperformed Europe. It's underperformed China massively, right, China's up twenty five to thirty percent since it's January lows. So this whole perception that there's this exceptionalism and it's showing through the markets, I think is an old story that we're clinging on to.
And then you start looking at the data, right Chicago, PMI, and I understand Chicago's not what it once was in terms of a center of economic hub, but we are at a level that has previously only been associated with being in a crisis.
So I think the data is there.
Your previous guests, Morononica, I like the city Economic Surprise Index that's turned negative again, right, So I think there's all these things that are going on behind the scenes. And maybe we've just been so fixated on inflation and the FED that we're missing this real turn. And I think that's why we could see this gap to back to hard landing.
Talk, Pete.
Nowdad, we've been very focused on the central bank divergence, the prospect of the ECP cunning interest rates in June, and the Federal Reserve maybe not doing the same thing until much later this year. And to your point, we've missed the fact that the economic data has turned, that that surprise index is now negative, that the price section, the performance has been elsewhere. So Pete, the question to you is does it continue? Do you see more people
getting on board? And how would you play this theme now? Would it be through equities, through foreign exchange?
What would you do?
You know? For me, I like rates right now.
I started liking yields once they got above four sixty. I thought we'd be in a ten year range for forty four to sixty. I think we might go back to four thirty four to twenty five if the economic data continues weak. And to be honest, I think there's already been enough weak economic data that we've ignored, so I think we can see yields do better, So I think that's going to be the first way to play it.
Then the question is how do equities respond. Right Friday, we clearly had a Goldilocks type situation where bonds do well and stocks do well. I think that could fade, and I think that could fade rather quickly as people start saying, hey, this has only been a subset of the economy that's been exceptional, and there has been a subset that's been exceptional. If the rest of the economy starts fading, these cannot do that well. So I think
you get a bit of a retrenchment. I think in the mere term, I kind of like banks, I like some of those other sectors maybe to benefit from this.
Goldilocks type thing.
But I'm now very worried that we're not going to see a smooth transition from no landing to maybe softish landing to hard landing. I think we might gap because the data already supports some of that fear.
There's a question about time horizon here, and whether this is a tactical a trade or a tactical view, or whether it's something that's strategic over the long term, or you start to see a greater chance of some sort of downturn that could more fundamentally challenge certain equity valuations. Which is it Is it just tactical, or is it something that has longer legs?
For me, I think this is more fundamental, And we've been talking off and on for the past six months to a year that I view china resurgence as China trying to sell their own brands and compete more directly with us, which I think is going to put margin pressure on US companies and what I don't like. And my theory has always been China will work domestically first then sell into emerging markets, which they're doing. But I've
always viewed kind of Europe as a potential weak link. Right, we have the ability to confront China, to draw lines in the sand and fight with China, and our brands are super successful. Europe to me always strikes me as they're a little bit more dependent on China than we are.
Geez over there meeting with the French leader, I think you could see more go to that, And unlike in the past twenty years, where when China does well, we get a big slice of that, here, I think we are going to get less and less of a slice of that and more and more competition, and so I think this is strategic about valuations, not just a technical or tactical trade.
And you've had this idea and it's been a brilliant one really that we've discussed at length. Why do you think now is the time the market is going to kind of come to to it given the fact that earnings have been coming in pretty well, we've seen them retain their earnings power, even if it's not pricing power. And there are a lot of things, including the jobs report, that weren't exactly terrible.
Pete well, you know on the jobs report too, it's I think we mentioned in the first part the birth death model, which why they can't come up with a better name for that plug where they're trying to estimate how much jobs are created a new businesses. Right, that was three hundred and ninety three thousand out of one hundred ninety thousand, So we would have had job losses had that plug number not been so high. Maybe it's valid I question that because that's kind of the last
outlier in the whole thing. And then I think in terms of why people who notice this China story much more You're starting to see reaction to Timu.
You're starting to see parts of Europe react.
To Shine and for the first time, right as Chinese stocks are doing better, there's signs that Chinese economy is bottom.
I think people will be watching.
Very closely for a few names to see how their sales into China go and if their sales disappoint what Chinese brands sales, you know, surge this whole view that oh, we're sales there are only week because China's week disappears. And that's when I think we really confront these valuation issues and multiple issues.
Confusion around that with Apple the last week, Pete will save that for another day. I want to talk about the geopolitics with you. This from Axios just moments ago. Biden lettin Yahoo to speak about RAFA later on today they're reporting, Pete. If we get the same thing here at Bloomberg, we'll be sure to share it. Pete, your view the conversations with the general as you have in an academy, what does it look like?
You know, I think we're still dubious that we will get any form of ceasefire until Israel is done, you know, eliminating hamas as a fighting force as much as they can.
So they are likely to go into RAFA.
You know, I think when you look at the data, as awful as it is, they have been very conservative. They've taken some losses. It's a very tricky situation. We would like, probably as you know, entire community to see some.
Sort of ceasefire.
It seems unlikely and there is concern about what state the hostages would be in after being there for so long, so that's another kind of worrisome thing. So we don't see an immediate ceasefire unfortunately, and we see as we all really want to progress into RAFA to eliminate more of aromas as a threat.
If that is the case, is they're still upside risk for crude because we're not in the nineties, We're not in the eighties on WCI, we're in the seventies. Pete on Brent, we're eighty three fifty seven. Is there still that upside risk off the back of this or do you think this market is insulted from it?
Yeah, and we took off some of this.
A few weeks ago we were saying we were less fullishcrewed. We're now getting back to fully bullish, and I think as we head towards the election, I would not be surprised to see spots of activity and around Russian and Ukraine other things that kind of pushed crude prices higher.
Right.
You know, one theory would certainly be that if Houdin wants Trump to be elected, higher crude prices would suit put them very well. So I'd be watch out on that front. So right now, back at these levels, I think you kind of get crewed as a hedge almost for free, because we do have demand growing for data centers, et cet Right, they're going to need energy.
That energy is gonna be powered by.
Something, So I like energy a lot again, so I put that a high on my list of things I want to own, both as a geopolitical hedge and outright.
Got it, Pete, this was awesome. It's going to hear from your pitachure and academy securities. Citi's Veronica Clik joins us around the table here in New York City. Veronica, I mentioned a city quote a little bit earlier summer doven happened so fast. I think we should say upfront that was Andrew Hollenhorst. That was not Veronica, but you
do not want to take responsibility for that. Let's talk about how quickly this conversation could switch to rake cuts this summer, which has been the base case for you and the team for quite a while.
Yeah, yeah, I mean, I think we saw the early signs of that last week. We heard from Power of course on on Wednesday, and I think it was important to us that, you know, he really didn't endorse this hawkish repricing that you know, the market had experience over.
The last couple of weeks.
And I think this is a fad that is still just waiting for a little bit more confidence on the inflation data, just a couple more months of a softer pace of inflation after that very strong key one, and then of course on Friday we had softer employment data and that is something that certainly could get the Fed to get.
More of it.
Let's talk about Friday. I see what below consensus going into the number, you were talking about downside risk as well. We got that downside risk. It materialized. Why do you not see that as a one off? Why don'd you see that as a sign of more to country?
Yeah?
Yeah, I mean, also, you know one hundred and seventy five thousand jobs is by no means a weak pace of job growth on the surfaces, could still be a pretty strong employment report. I think the issue for us, though, is that you, for for some time, you know, four or five six months now, we have seen a lot of other labor market data that have been deteriorating. The hiring rate in the Jolts numbers last week that's been
coming down. We saw that in the employment sub components of these isms pmis a lot of signs that point to hiring really slowing. And this is the time of year when you would normally be hiring a lot of people. And I think this is finally where we're starting to see, you know, the very consistently strong payrolls, which is almost an outlier that's starting to crack. Now.
You sent out a note as we introduced to you while we're on air, and you talk about how FED President New York FED President John Williams is likely to affirm Powell's concern about the labor market an increase focus on the employment mandem.
He's going to speak today at one pm. Why do you think.
He's going to lean into that at a time where a lot of people take j. Powell as uniquely dubvish and frankly pointing to a rate cut a lot sooner than previously.
Yeah, yeah, I mean, I think Williams is generally one of the more dubbish officials that we hear from. And I think, you know, Powell does speak for a lot of the center of that committee, and Williams is part of that. It is important to hear that confirmed in the other speakers. But it was a pretty interesting shift that we heard from Powell. I think on Wednesday. You know, back in March he was saying that there are no cracks,
you know, in the labor market data. And on Wednesday, you know, the first question, one of the first questions about you know, how do we know that rates are restrictive? He answered that with, you know, we'll look at all the signs that we see that the labor markets coming into better balance. You pointed out that following hiring rate some of the surveys that are weaker. So I do think this is a Powell and the center of the Committee that are getting worried about the employment side.
John's been really good on this and just saying how much has the balance of risks or balance of waitings changed since Fed Charity Powell spoke in other words, how bad does the next print, the next two prints have to be?
How weak does the CPI.
Report that we get next week have to be to reintroduce the idea of a July rate cut.
Yeah, I think the more slowing in the labor market data that we see, maybe the bar gets higher for what is bad inflation data for the Fed. So I don't think, you know, they're going to be too reactive to the data that we saw on Friday. Again, one hundred and seventy five thousand jobs, a low unemployment rate three point nine.
That's still a pretty healthy print.
But I think as you're getting to you know, four percent unemployment a bit above that, that would definitely.
Get more and more worrying.
And on the inflation side of things, I think you just need, you know, a couple months where PC inflation is running, you know, point two zero point two five softer than February March that we saw, but not dramatically softer.
I think that's enough to do it.
Jpellll laughed at the idea of stagflation or just basically dismissed it. Instead, it doesn't believe in the stag or the flation the nineteen seventies. Do you think that there is something that rhymes uncomfortably with that in the services read we got Friday.
I wouldn't say yet.
I mean I do kind of agree with Paul. I don't think we are in that environment now. We could see some stickiness to inflation, absolutely.
But something that's more stuck.
Get around two and a half to three percent inflation, not not a big reacceleration, And typically you would expect to see you activity data weakening first and then with some lag you would see that show up in softer inflation. So we might have a period that even looks more stagflationary where activity data is weak and inflation hasn't slowed yet. But I think if that officials would think that that inflation is slowness.
Which on to work out Veronica the whether these are the early signs of companies word about inflation but ultimately losing price power protecting marchin bind lank off workers. Are we starting to see that.
Develop I think we are seeing signs that businesses are looking to cut labor costs. That's why we see the hiring rate falling. You know, we had some anecdotes in the THESMS last week about not replacing workers if they happened to leave. We've seen hours worked coming down, your more part time employment. All those early signs that businesses are looking to cut labor costs and in layoffs haven't really happened yet, But that would be the last step.
Would you just imagine the FED will see that as inflation comes next? Is that the leaning indicator for inflation? Because I think a big feature of your research, and if our audience at home are too familiar with it, you believe this FED can cut with inflation closer to three Yeah, that too, I.
Think, Yeah, it's a matter of priorities.
They're going to be more focused on that employment side of the mandate and they will be thinking that. You know, if you start to see the weakening in the labor market, weakening demand, that should mean that wages are slowing, and that should mean that inflation is also slowing.
Eventually, can we.
Get the economists perspective on an argument we've had all morning? Not an argument eight debate, wed you here, different channel debate, untelctual stuff. You know. Anyway, I've gone off on one PMO whether this is a feature or a bug of FED communication? The wild swings and understand you haven't changed your base case at all more recently anyway, but we've seen massive swings in market price and to go from seven cuts to want to want to some in just
a couple of data points, it's amazing. Is that a feature or a bug of communication?
I don't know if it.
I mean so certainly we haven't gotten the clearest communication from the FED. You know, we know that they want more confidence, but what is more confidence? What does that look like? So it is a bit of a communication issue. But I think it's also just a data issue. There's not a good clear signal in the data right now, and in markets are very sensitive to every little data appointment.
Another argument we were having, and it was an argument, was about the long and variable lags in the mortgage market, in particular in the housing market. Do you buy into this argument that if the FED cuts rates that will unleash a lot of sales, it will then drive prices down.
It's yeah, I mean that's tricky.
We actual we have seen in the last six months or so that new listings of homes have been coming up some and we have seen some softness in prices. Maybe that is related to you know, earlier this year we had mortgage rates much lower than they are now, So maybe there's there is some of that. But I think in a in an environment where the feed is is cutting and it's because of economic backdrop, like we see a weakening labor market that is weaker demand even for for housing.
I mean it links to this question of basative future bug. Does all the volativity matter if it doesn't have an effect?
Yeah, yeah, good question. I mean maybe at some point it is going to have an effect, and I think we are we are in that hard part now.
You know.
We we went from the soft landing narrative to the no landing narrative and the you know Q one of this year, and that stickiness of inflation is where you get them to the hard landing.
Ronica enjoyed this as always. Veronica, clock the city. You've breaking things down on the Fetter reserve with tons of fed space coming up. Ken joined us now for more on this conversation. Ken, let's talk about the overhang first before we talk about the reasons to be positive this the OJ overhang. What do you think the end result is going to be.
I think there's going to be some tweaking in terms of best practices for a ticket master, and John, I really want to set the stage here. There's eighteen or twenty one analysts with a buy. We went to a hold. There's still euphoria of consumers moving from product to experiences and liberty media John Malone on twenty three percent of this company and all the media analysts are just have fatigued with video streaming.
So why not Live Nation?
We beg too different because the businesses are kind of different. Concerts is almost like the supermarket, a loss leader. It's eighty percent over eighty percent of revenue but doesn't really make money, but that feeds into advertising and sponsorship.
Ticket Master the tickets.
Is only thirteen percent of last year's revenues, but it's the majority of the earnings. So that's the area to focus. And that's why your question John on the DOJ on what will they do to maybe constrain this business as a concern.
There's lots of overhangs more broadly elsewhere, not just in this sector, but also for big tech. Can this came from Tavid costing of Goldman wristling to lawsuits found by US authorities against big tech companies may also be underpriced. Ken. My question to you would be, how are you meant to price this?
They have a dominant position in terms of ticketing and fairness to management.
At Live Nation.
They have put proposals even to Congress to make sure that scalping of tickets some way there's more transparencies and better control of that, and I think for consumers that's what they want, where they're exasperated when they can't get a fair price for a tailor, swipt.
Or any major artists.
Will you But I want to point out again for Live Nation as an investment, they're very concentrated to the ticket master business and we don't see this large exponential growth for the company, which is why we have one hundred and five dollars target, not one eighteen, which is where the street is Ken.
Aside from Life Nature Nation, there's a larger question about Department of Justice hangovers with a whole host of different industries and companies. I'm thinking, for example, of some of the bids to buy Paramount. We were talking about that earlier. A question of is it a problem not necessarily Apollo, but Sony with national security considering the fact that it's not a US company and there's going to be broadcast material.
At what point are there certain industries that are immune from antitrust oversight and certain industries that are going to be that much more subject and you you have to price in a very high risk premium.
It's a great question.
I think corporates have to be very smart about what they do on acquisitions, either vertical or horizontal. Well, in the case of Apollo and Sony, you also have issues related to FCC licenses.
But I think deals can get done.
Where it becomes a big problem Lisa is of course concentration, and given that the world has changed in this case for entertainment with the likes of Meta, Google, Amazon, Apple coming in, you know, whether.
You put two studios together and we have a buy on Paramount at CPRA.
I also, as you know, Lisa covered financials, I cover Apollo.
I think that's the right deal.
And it's interesting Paramot's former independent director, who left along with three other directors because there wasn't fairness for public shareholders, was the former president of Sony USA.
I guess heading toward the election, this has been something that a lot of companies have been talking about, including Brian moynihan of Bank of America, that a lot of companies and corporate executives are not willing to pull the trigger on certain deals because of this concern about what
could happen with the Department of Justice. Are you hearing or seeing that soften that there is a sense that maybe on a case by case basis, things are going to start getting done in a way that they haven't over the past few years.
I think corporates at large are going to have measured risk, and I think what's factoring now is that rates are not.
Going to zero.
So the views in terms of buyers or sellers across industries is that, well, rates are going to be kind of where they are now. So when you look at cost, the capital return on investment, how you want to fund a deal with equity and debt, those calibrations are already happening. So we're very optimistic for a very improved mergers and acquisition and equity underwriting market for the rest of this.
Year, even in banks at a time where a number of them have said we need to see mergers and acquisitions. But unless your name has first and Republican and it probably isn't going to happen.
That's right, And I go back to last week to jpout because one of the questions most important for the banking industry, particularly the largest banks, who would be the acquires is the basel.
Three end game. Put that all in English.
The worry for investors is whether the regulators would require a higher capital entries. There's been pushback not only from the banking industry but also Congress and its effects on the US economy. So I think with the banking industry, deals acquisitions will be done when the large banks are comfortable with regulation.
And then again.
When we look at the smaller banks, which have less impact for investing, but they're really important for the US economy.
Ken just how tight our lending standards At the moment one year ago, we were meant to be going into recession following a regional bank crisis, if we can even call it one now. And the idea was that ultimately these banks would need to pull back and the biggest data point every single quarter would be the Senior Loan Opinion Officer survey. Because Ken, that was what was going to strangle this economy. How tie our lending standards?
I think it's conservative around the table, but there is availability of credit. There's also different alternatives that you have, not only from bank loans, public credit, but also private credit from the large firms as we mentioned before, like Apollo. So I think at this point there's opportunity, but it's nowhere where we're in a risk on environment and they're letting borrowers have high leverage ratios.
Ken wonder for to hear from you, sir Ken, They on their of CFRA. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, and geopolitics. 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.