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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 this hour with stocks at all time highs following seven straight days of games. John Stolfus of Oppenheimer remaining positive on equities and saying, quote, the broad rotation which began in the rally from last year's s and P five hundred low on October twenty seven, twenty twenty three, has repeatedly deflective volatility.
John joined us now for more. John, Good morning, Laury once again yesterday deflecting volatility with that just another day support for you.
Well, it was another data point, but in a series of data points that reflect the change in where we are. In essence, what it is is people are beginning to realize that this bull.
Market has legs.
There is a broadening that is undeniable in terms of the way investors have responded to their appetite for equities. I'd also say, you know, I think from a historical perspective, a lot of times the market is perceived as a place as a hotbed of fear and greed, but it also represents need.
And the need is extraordinary.
These days in terms of people's planning, whether it's for a kid's education, one's retirement in a world in which social security may not be any much the part of where it has been before.
These are big themes the next several years, and maybe even the next several decades, forever our lifetime. I want to deal with the last twenty four aspects and then we can get to the bigger themes. Do you not think the threat from Donald Trump president like is credible? Does this market not belyve it's credible? Or is there really something to take away from this to sit here and say, actually, this equity market can handle it. It's resilient enough.
A combination of the two in terms of the equity market being able to handle it. But the important thing is the market really cares ultimately about revenues and earnings, So areas that will be damaged by an aggressive trade policy with tariffs that.
Are extreme would be problematic.
That said, I think the market is recognizing that President Trump is essentially known for a pretty wild negotiation procedures. I mean, I always like to say when I speak with investors that I can just imagine if you had a property and this would be a small amount of money in New York, but you knew was worth about one hundred million, and you wanted to sell it to Donald Trump. My guesstimate is he'd start up with I think it's worth twenty million.
You know, he's a hard negotiator.
And I think the issues here that I think you mentioned at the beginning, where you're talking about as they put this the cabinet together, is that this is what we're dealing with here are genuinely unfair trade situations for the American worker essentially and for American businesses. And the problem is how do you get to right size that with so many countries really providing support to their businesses very different than ours, where we have high regulation, we have all.
Kinds of.
Our labor is much more expensive because we provide better for our workers.
So it's fair to say that what you're basically indicating is that this is a market that isn't taking it seriously, that Trump is actually going to put through any of this, and that's not what's getting priced into markets at all.
Well, I wouldn't say it's not being priced into markets at all. The traders certainly reflected just as you mentioned, one of the automakers yesterday got slammed. You know, when you get to that kind of a thing, without a doubt,
there's volatility inherent in this procedure. But it's likely the whole thing that the Trump ran on was essentially to be beneficial for the US, and I think this is these are four years that he's got and he's not got four years after this in terms of running again, So I think they're going to be very sensitive to it.
It should look there's going to be volatility. There always is.
There's always uncertainty, but if you've got to keep your eye on the ball, and it looks like through innovation, the process of where we are today and that the US is the consumer of choice for every vendor in the world, puts us into a fairly good position that the negotiations may originally start out pretty painful to look at, and then things actually work out remarkably better.
Some people are saying this is the fifth year of his administration. Essentially it's a continuation of policies that had been in place. There are a number of people who begged to differ with that, saying this is a very different circumstance economically than it was in twenty sixteen. Inflation is more of a real risk, there's more momentum.
Companies are already in a good spot.
The deficit is a lot steeper, and people are worried about bond heields. How much does that temper the ability to really implement some of these policies. How much are you watching the bond space to understand how bullish to get in equity land?
Oh, we definitely watch the bond space because everything works on credit, right, I mean, you know, it doesn't matter if it's related to the consumer's credit card or what businesses are doing in terms of their borrowing needs and refinancings and m and a what have you. But what we'd have to say is, I think, realistically, you know, it's the end of free money, and it's a good thing, and that bond issuers once again have to pay for
the privilege of borrowing money. Our projection on the ten year yield is because of the stickiness that's inherent in inflation. When you're coming out of a period like this, you're probably.
The range being priced to range.
It's yield somewhere between three point four percent to as high as five. At five, everybody gets freaked out. Then you get come down back to about four point two where we are now. But historically, you know, it's go back hundreds of years when it comes to ten year borrowing, four percent tends to be about it, whether you're you're borrowing for frankinsense and murr your you know, pepper corn or whatever venice with you.
In the Nativity scene. Thanksgiving First, chant let's get some price targets the next year or so. Morgus Stanley sixty five hundred, BBC sixty six hundred, BEMOS sixty seven, Deutsche Banks Binkie chat A seven K. Then know why you think about that? I was talking about you yesterday. The average forecast on the S and P for this year was forty eight hundred. You were at the high fifty
two hundred, and he won't bullish enough. What's the lesson a twenty twenty four men, before we get into twenty twenty five, it's the lesson been for you, A real good question.
It's the second second time you've asked me that question. What's the lesson been in the year? And it's a great question.
Last ye.
And we'd have we'd have to stay.
With this is you know, we started last year last December we had fifty two hundred. By March we raised it to fifty five. By July we went to fifty nine, and most recently we went to sixty two hundred for this year. The thing that concerns me the most at this point is that that's what was The people that you.
Mentioned were a mix of bears and bulls who have these high targets.
So everybody's on the same side of the boat, which makes the market vulnerable to volatility that can come about from any piece of economic data, corporate guidance, or anything. The traders will jump on anything and they'll take it, and they'll throw a perfectly good stock down like a hot potato. Okay, meantime, it creates an opportunity for those need investors who are investing intermediate to longer term or for their goals and objectives to pick up babies that
get thrown out with the bathwater. So you have to measure that our target won't come out.
Until mid December.
As usual, we wait until people have gotten pretty crazy and take a look what happens. But we do have to say it's rather disconcerting when you hear people throwing around targets, you know, seven thousand. It sounds dramatic, but when you actually put it to the calculator, the percentage upside based on the innovation that exists, the ability for companies to navigate tougher waters as a result of the experience that.
Managers have learned from the Great.
Financial Crisis, the pandemic, the supply chain disruptions, and then the balance sheets of the consumer. You know, it looks like stocks could genuinely go quite a bit.
Seventy people think we can get double digitate cents next year. We've talked about this is well. As human beings we unconditioned to overweight downside risk. We can spend the whole morning talking about downside risk. At LEASTA we'll no doubt want to do that. What could go right in twenty twenty five? What do you think could go right?
Well, I think among the things that you could go right would be continued resilience in revenue and earnings growth on a broad basis.
I mean, if you look at the EA page.
On a Bloomberg right now, you've got four sectors with double digit returns. I think it's eight sectors with I'm sorry, four sectors with double digit earnings growth. You have eight with positive earnings growth, and you have three with negative earnings growth. So the dispersion that you see in that
tells you that you know, it's real. There's things that are really working, things that are somewhat working, and some things that are and in that kind of an environment, based on what we've seen, the big surprises could be that resilience continues as an operative word in the markets, and that perhaps apps that we see that when the actual negotiations work out, that the countries involved will actually come to terms more readily because of the importance of
the American consumer and American business.
You put that together with something that you said that when there is a bad headline, the company has just get dropped like a hot potato. I'm thinking of Target, Best Buy, Dell, at HP yesterday when they came out with weakers and expected earnings. What's your lens for knowing when it's a good opportunity when you should actually.
Pick that up. Well, you know, when we look at companies.
One of the reason why I can't mention individual companies, Oppenheimer doesn't like me to pitch my own stocks, right, But when we look at the companies, what we're always looking for it's the traditional It sounds a very easy out to say this, but essentially is good balance sheets, management that cares about their shareholders and their customers and their employees, and good ideas that they're managing through and hopefully.
Some kind of an upgrade cycle. In technology.
The thing is, we're all on the upgrade cycle, whether we like it or not.
Ultimately, I will have to upgrade both.
My fourteen my iPhone fourteen neither a recommendation to buy or cell applestock, and I will also have to update my success which.
I still can't.
I know, I know, which is is like an old model tea.
It's like an advertisement.
John, We're thankful for your optimism. Thank you, sir, I have a happy Thanksgiving with the family. Appreciate it same. Do you good to see Thank you John stufforstre of Oppenheim, a former New York Fed President Bill Dudley, wishing him luck right in the following. Market's exuberant response to his
nomination certainly suggests this is what investors expects. Yeah, their optimism contrasts sharply with the difficulties he'll encounter in managing the treasury market, the country's fiscal trajectory, and the broader economy. Bill joined just now for more. But welcome to the program, sir. Let's get to those three points you make, managing the treasury market, the fiscal trajectory, and the broader economy. Of those three, Bill, what do you think is the biggest task?
Haally managing the fiscal deficits?
Since the Treasury Secretary doesn't have responsibility for text the spending policy, you can opine on it, but can he actually get it through Congress and get the administration to support it?
So I think you know, we're on a trajectory.
Right now where it's six percent of GDP deficits as far as the eye can see. And President let Trump has proposed things that will expand the deficit as opposed to contract the deficit.
So I think that the.
Fiscal OUTLOK longer term is probably the most challenging thing that he faces.
But he gets some say on the maturity profile of US treasuries. What's your take of what's developed under Secretary Yeller at the Treasury and what changes would you anticipate in the is to come under Beston?
Well, things didn't move a lot under Yell, and I think the maturity structure shortened a little bit.
To Treasury typically doesn't want to.
Move around the Treasury issuance calendar a lot because it basically unnerves market participants.
They regular and predictable is sort of the watchword of the Treasury.
So I would be surprised if Best at todaything that significantly changed the maturity structure of the Treasury debt. I think the biggest problem the problem he faces is to convince his colleagues in the administration that we need more tax revenue, we need to control spending, and that requires, you know, make some tip difficult choices.
Bill, if you were still on the Fed, how would you think about some of the policies and the personnel that have been implemented are now so far and factor that into.
Your outlook for next year.
You have to come out with a forecast.
You've got to make a dot next month.
How do you even begin to do that?
Yeah, so far, the FED has been very silent about President elect Trump. There is nothing, for example, in the minutes about the election in the new policy mix. I think, you know, to the extent that things get priced into financial market is sort of hard for the FED to then ignore them, because if you have prices bodying a certain expectation, how do you not include those prices in
your forecast. Back in December twenty sixteen, the FED staff put a big fiscal stimulus in their forecast for twenty seventeen. So when Paula says, we don't assume, we don't speculate, we don't guess. The reality is if the markets start to judge that something is highly likely, then the FED has to sort of take that.
On board in terms of their own thinking.
I think the biggest issue in the very short term is what's going to happen to territs, because if tarofts are raised to any close to the degree that the President elect Trump is talking about it's going to be inflationary, it's going to be bad for growth, it's going to be bad for proactivity. And PRESIDENTLEC. Trump's talking about putting on tarifts on China, Canada, Mexico, you know, on day one, So that's probably the thing that's going to happen most quickly.
The fiscal stuff is going to take longer because the tax cuts don't expire to the end of twenty twenty five, so that's probably more of a twenty twenty sixth story.
You know, you said that tariffs are going to be inflationary. We've heard some disagreement about that around this table. Some people say that maybe in the very short term there's a one time price increase, but longer term in tariffs have been shown to be disinflationary time and again, why do you think that that's not going to be the case.
Well, they're disinflationary to the extent that the people who are buying these now more expensive goods don't have as much real income and so they can't buy as much and that hurts the growth rate of the economy.
So there is an effect on growth.
The key question of terrorists is when prices go up to they get into wages. You know, the first Trump term increase in terrorists was well advertised, but the magnitude is actually quite small, went from about one a half percent of imports to three percent of imports.
The magnitudes he's talking about this.
Time are much much larger, So the price effect will be much greater. And I would expect that's at least some of that will get into wages, and if it gets into wages, then it keeps going.
It's not a one time effect.
Bill.
Do you think that because of the uncertainty around policy and the potential for some of these policies to be inflationary, do you think on the margins that can push more members to really want to go even slower when it comes to rate cuts.
Eventually.
I think right now the Fed still on a you know, Madre policies restrictive, the dual mandate objectives of employment inflation are roughly imbalanced. We need to head towards neutral, and so I think there's still a trajectory to go towards neutral. But I think, you know, as they said more and more recently carefully, so December is not a done deal.
I think it's probably more likely than not. At this point.
It basically depends on the economic data, and you know the FED is basically data depended at this point.
This is the one reason why Bessett's.
Idea of putting in a shadow governor that Fed to basically make pronouncements as Powell's air apparent, makes a little sense, because what the FED.
Does over the next year is really going to be driven by Defense Bill.
How messy would that be if we had a shadow chair in the middle of next year.
I think it's a absolutely terrible idea. I think one, I don't think it would do much. Number two just annoy all the other members of the Federal Reserve. So you have this shadowed person coming in to be chair after he's probably annoyed everybody else within the Federal Reserve system by undercutting the current chairman.
That doesn't sound like a good recipe for success.
When you think about the chairman's power comes from its ability to move the committee in a chief consensus. So I think the share chairman the chaff chairman, if he did what best at the implies that he would do would alienate most of his colleagues on the FED.
Bill Dudley. Thank you, sir, the former New York Fed President of the Federal Reserve through the next year. Thankful this morning because we get these second chance of speaking to Situ rich candoundly for us to research to reach it. We'll try again. Thanks for being able to understand. You heard the question, but you didn't get to answer it. So we'll start there again. Department stores, it's been a struggle for a long long time. What aren't they doing right?
What do they need to fix? Its fixable?
Well, I don't know that it's really fixable.
It's really a sector issue, which is really it's widespread. It's because consumers just haven't been shopping as much, particularly in the B and C tier malls where a lot of these department stores have heavy concentration. We're talking about Mac's, We're talking about Coals, of.
Course, JAYC. Penny.
These are the anchor stores that really thrived in like the nineteen eighties and even before, but essentially since two thousand they have been on a downturn. A ton of competition certainly from e commerce, certainly from higher ends stores and brands really that have decided to all go direct to consumer. So that's been some of their biggest challenge. And I don't know that it's necessarily fixable. It's really a shift in the retail landscape altogether.
Streida, What does this mean in terms of just how much this land could shift going forward?
Because if the.
Whole model of a strip mall is outdated, well there's a lot more carnage to come.
Well.
We've talked about the transformation of these retail venues for a long time, and a lot of it is about switching out the real estate with other anchor tenants, or breaking up the anchor tenants into smaller plots where you have perhaps smaller tenants that are in them. We've seen these anchor tenants switch to everything from grocery stores which
are growing, to gyms and fitness facilities. In some cases, it could just be a mixed use facility where you're transforming it into some sort of an office space and really really distressed areas. We've seen some of these anchor tenants become churches or schools or things completely unrelated to retail.
All I can say is I provide some research at home, some research regarding retail with some of the family members, and I hear a lot about drops of different types of products and different influencers that are doing said drops. Is the entire mo model of retail fundamentally changing in a way that some retailers like Gap are really aware of, others are kind of struggling to really get on board with.
Well, there is no question that the Internet has absolutely changed it. And you were talking a lot about Amazon earlier. That's certainly the biggest player, but definitely the social media is.
The social media players are also impacting how people discover goods, where they actually shop for goods, and what we're seeing even within e commerce is a lot of fragmentation, particularly with smaller, lesser known players that are able to gain some traction because they are able to get some influencer credibility for a short period of time. Now, if they're lucky, some of them will end up getting purchased by larger players.
At some of the beauty companies have been purchased by Laureal or State Lauder, but that's usually the dream exit strategy for a lot of these companies. In many cases they simply may go away and other influencers come and take.
So to read the two key dates now January fifteenth, Poor discussions. Twentieth President Donald Trump comes in with a big promise to hi c up tariffs. What do these companies do now with inventory? How much do they need to stalk ahead of time? And what did they learn? Are they conditioned by the mistake the target made?
Well, the truth is that it is probably if you are if you're looking for what is going to happen in January, it may be a little too late already.
These are issues that.
The retail industry has been grappling with since the first Trump administration, and what we started to see was diversification away from some of these tariff markets like China over time, and I expect that that will continue to happen there will.
The good thing.
Is is that Q one tends to be a soft quorterer in retail anyway, so it doesn't seem like it makes a ton of sense to be stalking up inventory for them, especially becaus you don't know what the demand is going to be like in twenty twenty five without better signals, because it is such an uncertain economy at this moment in time. So I think that what we will continue to see is diversification, will continue to see
changes to supply chain. There will be questions around whether or not Latin America and Mexico are in fact good places to be near shoring, versus if they too will have tariffs, particularly on some of those soft goods.
So a lot I think is still TBD, and.
If you get it wrong, you get targeted quite literally suchar Into Kadali. As far as the research. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, antiopolitics. 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