Bloomberg Surveillance TV: November 20, 2024

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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

So we think there's a lot of parallels in the way the market has digested the election and moving beyond to not President Trump's first year in the first term, but the second year of the first term. Think about that twenty eighteen, the year of tax cuts, the year of tariff and trade wars, and the year of gently rising interest rates until they rose a bit too far at the.

End of the year.

That's what really makes sense to us. And then, of course the other part of it is a FED that would like not to be at loggerheads with the president, but the data and the policy where inflation and growth may be going may cause them to have to sort of ease up on the rate cutting as opposed to the counterpoint where they were hiking in twenty eighteen in.

The days after the election in the media after mouth you speculated on the prospect of inequities, the running is instilled somewhat. What's your view on that now.

I think there's a digestion phase going on processing all the change. Look, the American people voted for change. We are getting change fast and furious, and there's clearly a bit of it. I think the other aspect of it is is that going into the vote, the very clear preference among our clients.

Was to see a divided government.

So but you have the unified government. The mandate is to move fast and that means more volatility, and again there's a lot of uncertainty about how policy.

Is going to be implemented.

We talked about those dynamics and there's a recognition that the bond market is going to call the tune for the next year.

At least that's what.

I wanted to pick up on. That was the expectation that essentially you can say whatever you want, try to find whatever loopholes, but ultimately the big check is going to be the ten year yield going to come in and rule the roost. We haven't seen it rule the roost. In fact, the rise that we've seen in Healds has not impeded at all the rally that we saw posts election. At what point does it actually start to exert its pressure.

So if you look the last week or two, the bond market has been a bit better behave as we're trying to digest this soul, and we've stalled out a below four and a half on the ten year yield for now we think if you start moving towards four and three quarters and then of course the cycle high

Is this a paradox somebody who is going to be a Treasury Secretary that gets some of these policies across that also is sensitive to the bond market.

There's a lot of constituencies to please, and the main constituency is going to be the occupant of the White House starting January twentieth. It's a very difficult dance, made even more challenging by the fact that as good as this bull market is, we have to acknowledge that at twenty five times earnings, stocks are expensive, which is why we see in the volatility of late because any news that sort of disrupts the narrative can cause volatility.

Well Juliana and John mentioned it my reporting overnight with Slea Moo'sen. Nancy Cook is at Kevin Walsh and Mark Rowan will be done in Palm Beach today for interviews. Scott Bessen is also still in the running, and then Center Hankrity is kind of in the mix, maybe a dark horse canon those four men. Will they be sympathetic to what you're talking about? Will they understand the market dynamics?

I think the market interprets the answer to that to be yes at this point, and I think the reason that this has taken longer than expected is to fully appreciate the difficulty of the dynamic and the importance of making sure the bond market doesn't run away, so the policy initiatives aren't limited and we get the change that the country voted for.

When you're talking about though the sixty three sixty six hundred end of June twenty twenty five for the s and P five hundred, at some point are teriffs going to bite into that.

It depends how it unfolds. If you think about twenty eighteen and look the numbers that have been put out there, I think most people would acknowledge our sort of bid offer type spreads, and what you're likely to get is not necessarily those extreme numbers. And it was much that way in twenty eighteen. At a certain point, again, I go back to the bond market. The president likes to keep score with the stock market, for sure, but the bond market will call the tune for the stock market

Let's talk about this market in video, which ultimately is the market on the S and P five hundred. It makes up about nine percent of the SMP, about nine percent of the that's that one hundred, rather than about seven percent of the S and P five hundred. Should I be comfortable with that or uncomfortable with that? That does want to bring you comfidence or anxiety.

Both, okay, because you can't get away from the fact that the mag seven has been the driver of this bull market in the last.

Couple of years.

And you can't get away from the fact that the concentration of the top five or the top seven stocks is, you know, so far surpassed the bubble two thousand peaks that it's almost not even a benchmark anymore. It's just the way the index and investing have.

Evolved really really mixed few months for Semis. You can see that the index it's pretty messy, to be honest with you, and hideousic cly a winner at the Yes so far does the town of Story compromise.

That it could? Okay?

But I think what's going to happen is you're going to figure out as part of the negotiation a way to work around that. And if you think about that company in particular, any of the friction that we've had that's essentially been building for the last several years with China hasn't really been a major impediment to the progress and the AI revolution itself, which we think has a lot more to go.

There's a larger question here. Is Donald Trump going to celebrate the biggest company sort of the American champions, and have carve outs for them and enable their growth and expansion, or will there be an effort to break up some of the big tech cater some of the more populous aspects the JD. Van's kind of approach to a lot of these industries that have been the main drivers of profitability and stock returns.

I think again it's going to see, let's see how it evolves. I would say our baseline view is that you are going to get deregulation, which is actually going to spur capital markets and m and A. But in fact, what you might see is smaller cap companies, particularly those that don't have international exposure, that don't need to worry about regulatory regimes in either Europe or China, you know, blocking any type of transaction. That's probably where which informs

Jadian, You're hopeful that we get a trust repick before the end of the week.

It would be nice.

Yeah, we don't have to talk about this anymore without the col jongus around the tablest David Malpass, the former president of the World Bank. David, Good morning to you, sir. Question got to address it. Have you been down Tomaro Langa to interview?

I was down there last week and met with people. You know, Trump has the opportunity to put in really good people across the government, and I think that's the process and it's happening quickly, much faster than in twenty sixteen, so I.

Think that's great.

Well, you down there for anything specific? You were part of the Trump administration. The first iteration started at Treasury, ended at the World Bank. What potentially could you see your role in Trump two point zero that.

I want to be helpful and doing that as I can. As I say, there's huge problems that need to be solved. If you think about where the US has been left here at the end of the Biden administration, it's weak on foreign policy, it's got the economy still suffering from the inflation, the persistent inflation, the bank regulatory policy is really mixed up. Energy is not doing what it could be. So there's all these problems to fix, and I think there needs to be lots of people to do it.

So you're in the mix.

When it comes to the direction of policy. Can you talk to us about how do you see the direction of policy in Trump two point zero when it comes to things like tariffs. Given the fact that if personnel's policy, he put what we've envisioned over the course of the campaign, a tariff hawk in charge of Commerce, that individual did not get the nod for Treasury that he wanted, Howard Lutnik, But with this Commerce appointment, the statements that he'll have more of a role in USTR as well.

We have to look to how the President phrases it and what he wants done as far as who's pushing forward the agendas. This idea of Commerce and USTR being attached is a long standing one. I worked for Senator Roth in nineteen ninety when there were the actual proposals to merge them because of their overlapping roles on tariffs, and so that's not new.

But there's so much to the whole agenda.

Think of what has to be built out in terms of downsizing the overreach of Washington, all these people that are employed to write regulations that slow the economy. There are better ways to do that, and that's one of the major initiatives. Another one is on energy. Think of the strength of the team that's been put in place with Chris Wright, with Burnham, Governor Burnham, and with even Lee Zelden. EPA is going to be an important part

Okay, maybe the core, but the nucleus of this team we are missing. As a Treasury Secretary and right now there's four names. Maybe we would even say it's coalescing around three Scott Bess and Kevin Walsh, Mark Rowan. Two of them will be in Palm Beach today for interviews. Do you have an idea of what the President is looking for when it comes to his Treasury secretary.

No, I don't have insight on that.

He wants really good people that are going to get the job done and get it done fast, and that's pretty reasonable.

Do you think of these three individuals we're showing right there are.

Good people that can get the job done, get it done fast. You know, the tax bill is going to be needed right off the bat, so you as you look into twenty twenty five, I did that Wall Street Journal article on the fiscal train wreck or the you know, it's really a perfect storm coming together. You've got to get the tax bill done, You've.

Got to get a budget out really fast.

You've got the debt limit coming at you, and it's a very difficult one because you've got to get your party to vote for increase in the national debt. That's always a sticky one, has been for thirty years. The reconciliation bills will be challenging, and all of that has to come together with the clock ticking in.

Terms of market confidence.

You want to build the confidence in markets as you go forward.

So this is the reason why a lot of people are saying that in the first administration for Donald Trump, the stock market was the ultimate check. In this administration, it's going to be the bond market. How do you create both the growth that the stock market is expecting and the fiscal discipline or at least lack of complete irresponsibility that the bond market is looking for with that kind of sequencing deadline and the different internacy politics in DC.

I think it can be done. But that goes to this core of the models.

You know, if you use a Keynesian model, you say, well, if you shrink the fiscal deficit, it will slow the growth rate of the economy. You've got to really break out of that and say no, if we're shrinking the size of government spending, that frees up the money for the private sector, so you get faster growth. And so it's almost the opposite of a Kinesian model. And it's the same way the Phillips curve. You know, the FED is so dependent on this idea of the offset between employment and inflation.

But it doesn't work that way.

If you've got if you've got confidence in the dollar as the reserve currency, you can get low inflation and that price stability. That's your mandate, and then you get full employment out of that. So the various tools or levers work together, not against each other.

What's fascinating to me is to hear your perspective on this at a time when you used to be the President of the World Bank, and so you had a very clear sense of the international perspective. And back in the APEX, in the G twenty in South America, there was this feeling of who cares what's going to happen here?

I hope.

So the US has gone way too far into globalism, and you saw that on display over this last week where you were in South America. You see these giant conferences going on where there's no useful outcome and where the US is embarrassed by its position.

Within the world.

China is dominating in those international conferences. So I think there has to be you're real rethinking by the new administration of how do you want to interact with the world, that applies to trade, that applies to how how do you work with the IMF when the programs aren't working. You know, look at the Argentina debacle and on down the list, and that means the US looking for its

Do you think it can change?

Yes, certainly.

Again, the US is, you know, the dominant world economy. People forget that twenty five percent of world GDP totally powerful. It's just been absent, you know. So there's the vacuum in the world. Look at it in Africa with the weapons flowing down from the North. Russia is putting weapons not only into North Africa, but into Gaza, into everywhere. You can look into Syria and China then is building the infrastructure in the pipelines and putting on the debt.

That's the base.

Closings in Niger, the loss of Sudan, and on the Whodi's not being able to be controlled. So the weakness of the US is on full display to the world. That was particularly apparent in Lima with the with the.

Conference there, David, We've got to go to see you, so thank you. David Moultpass, the former World Bank president, with some very important points tents A shaz of target plunging this morning. The company kind of gets earnings out look for the year as Sharpers spent less on non essential items. That stock is down eighteen percent in early training. Chuck Grom of Gordon Hasker, you on just now for more, Chuck, this was a shell cower. What went wrong over a target?

Yeah, I mean it is a shocker, but it's more below the top line. That was a surprise. The top line comps up zero point three percent. That was pretty much with the by side and ourselves we were modeling zero point five percent.

Of an increase came in.

Traffic was strong, digital volume was strong. It's really on a gross margin line for them. And it appears to be inventory related, supply chain related. In other words, it seems more company specific than industry related. And we'll find out over the next couple of days.

We're going to get a lot of reports. We just got TGX that that just hit.

What numbers were actually very strong, more in line with what we heard from Walmart. But don't get me wrong, I mean company guiding down nine percent, stock indicated down sixteen seventeen percent. My gut, that looks like a little bit of an overreaction.

Don't get me wrong.

Stock needs to be down today, But we'll find out on the eight o'clock call what's really going on here and zooming out like it's important to keep in mind that that targets had issues that are very company specific in the past. They tend to have issues with inventory management, supply chain. My initial reaction is it looks like something like that that we've seen in the past from them.

Chuckie took me back to May twenty twenty two. I'm sure you remember that. Wow the stuff prices on that earnings report as well. Chuck, what's the difference between the challenges they face now and the problems they have back then? Coming out of the pandemic.

Well, first of all, you have a great memory. Second of all, I think what's going on here with Target is you think about Target, it's about expect More, Hey less. I don't think they're focusing enough on the expect more side of the equation. And I think they're focused too much on price. It's hard to battle with Walmart and Amazon and Costco on price. They're known for their fun merchandise to differentiate in apparel and in home, and I don't think they're doing a really good.

Job with that right now.

And that's evidence of a zero point three percent increase in their comp relative to Walmart, who just printed a a five point three percent yesterday.

So expect More is doing a lot of heavy lifting here. Are you talking about a product mix that they need to have higher end goods? Are they talking about what areas they're trying to target, because that's what it's sort of is screaming to me when you say maybe less on the price.

Yeah, I just think that they're known for their exciting product and whether it be private brands.

Or whether it be national brands.

They've got great partnerships with Disney, with Alta on black Friday, They're going to have a big tailor swift offering. They just I just don't think they're doing enough of that. And that's where you know, if you look at their comp their their general merchandise business has been soft, and that's the area that tends to be margin to create it for them.

At this point, Chuck, I just to wonder how much we can extrapolate a larger story here of Walmart gaining share or pressuring all other retailers that are the same kind of bucket due to their multifaceted business strategy, the fact that they have the offsets of advertising, of their media, of their marketplace, of their online unit that can allow them to win on price, and then it forces everybody else to scramble. Are we going to be seeing that in all the results from all the retailers.

I think I think that's going to be the case when you look at the results at the low end for Dollar General and Dollar Tree, I think in particularly, they're under a lot of stress from Walmart's second P and L, which is, to your point, is funding a ton of price investments. And if you think about it in a baseball game analogy, we're like in the first inning of that, so that's not going to get easy.

So it's just a comp number for Walmart.

But the market share when the pie is not growing, it's just simply simply magnificent what.

They're doing right now. And we're birated on them. We like them.

We've had a buy rating on Target. Obviously, today hurts. It's a cheap stock. Again, I think the issues are more company specific than they are sector.

Specific, Chuck.

When it comes to this sector. Though, we have the workers union suspending that strike until January fifteenth, then of course we have this lingering potential for tariffs. How are the retailers going to be preparing for those two events? Considering the fact that Target potentially overshot here when I looked at their stockpiling, and given the fact that that port strike was relatively short.

Yeah, I mean, most of the companies we talked to you back in October, we're thankful that it only lasted a couple of days, and I think the rule of thumb was every day of a strike was about a week of backlog and inventory.

So we'll see what happens on that front.

And with regards to tariffs, I mean, most of the companies are better prepared today than they were six or seven years ago.

That's not to say if it's a.

Meaningful increase in tariff prices, you know how they're going to deal with that.

Will be interesting.

It just seemed very inflationary to me, and President Trump elect wants to be mindful of that and raising.

Tariff prices across the board. There has to be an offset.

So more to come and we'll obviously learn more over than over the next week.

With a lot of earnings here in retail.

But do you see those retailers preparing now for things like tariffs down the road.

Well, I think the one area you will see companies prepare for potentially is accelerating inventory receipts in quicker and earlier, and so I think that's something.

That retailers will prepare for, and as a.

Result, working capital will be deprived here in the fourth quarter because inventory balances will be higher at the end of the year.

We've asked a few guests about this. I'd love your recollection of what happened maybe eight years ago, seven years ago, when we had that first trade war between China and the United States led by Donald Trump. What changed for many of these retailers if they changed where they source, where they get products from. How much has changed?

Oh, A lot's changed. I mean a lot of companies we cover. You know, floor in the Core just comes to mind. Who you know eight years ago they were resourcing fifty percent of their inventory from China. Last year it was twenty five percent. This year is probably closer to fifteen percent. So companies are moving everywhere they can, and I would anticipate that we'll.

Accelerate next year.

Battle hardened, Chuck, appreciate it, sir. Thanks for joining us this morning. Chuck Graum, There, Gordon Hasker. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, angio 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 out