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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 out with US stocks posting four consecutive quarters of games, the longest streak since twenty twenty one. Seema Sharp of Principal Aid Management, writing this, the attractiveness of cash has declined. There is some six point four trillion dollars currently in money market funds, potentially representing an important tailwind for risk assets. Seema joins us. Now for more, Seema, you sound bullish.
Walk me through why and where that cash is going to go?
Sure, so, yes, we are bullish.
I don't want to say overly bullish. We're very cognizant of the number of risks out there, but I think what we're really basing it on is you have a global montri stimular cycle in play. You have a Federal Reserve which yes, very very cloud and very difficult to navigate its way with all the uncertainties that you've been talking about with regards to their data, but they are
very much committed to soft landing. So that's the one thing that we are hang our hats on is you're very unlikely to see a recession materializing over the next eighteen months. So that is a good backdrop. It doesn't necessarily mean that you're going to see enormous security gains. I actually doubt that you're going to see the same kind of pace of gains that we've already seen in the first first three quarters of the year extending through to twenty twenty five. But you have a growth backdrop.
You have a FED munthre easing program in play. That should be positive for stocks, it should be positive for credit as well. So from our perspective, why being cash when you know that rates are coming down and there's so many other games to be had on risk assets.
The story you describe is precisely why we've had this massive US overweight and it's been building over the last few years relative to the rest of the world, because the relative story around the world has not been great. Seeming with that in mind, is it time to rejig some of that story, cut some of that overweight, redeploy some capital abroad, look internationally and a question I think a lot of people are asking themselves this morning is well, I've seen this movie a few times. This has been
head fake after headfake. I know how this ends. Is it different this time?
So I don't want to use those words.
I'll get told off by or by colleagues for saying that, But I do think that this is a time to be thinking about global diversification.
It's not necessarily pulling away from the US.
So you know, with all those all that casually there, you need to deploy it somewhere.
It's about whatever you're going to add.
Try and think about where the global diversification is because valuations around the world in some pockets, not everywhere, but they are quite attractive.
And as I said, it's not just a fur.
That it's easying, but you're seeing other central banks around the world moving.
I think China is an interesting story.
We have a lot of I think skepticisn't about how much it's going to be sustained, how significant STEMAS.
Is going to be, how it's going to be implemented. But we do think that there will.
Be positive benefits from a risk sentiment perspective for other parts of ages. So I think that there are places outside of the US that we can think about, but also within the US, you know, we will become very accustomed to having that exposure to the MAC seven. We are maintaining that, but I think there is also some space for some tactical opportunities within the small gap space.
I want to understand the bullish case and what's been priced in already, especially when it comes to the relationship of Starks and Bards, Stacks and the Federal Reserve. How much of the rally and your bullish sentiment really hinges on this recutting cycle that will pick up steam even if we don't necessarily get really negative employment data.
So I think some of it is hinged on it.
But as I said, we're not expecting the gains to continue at the same kind of pace we've had. I actually think that it's quite difficult in this market with these kind of valuations unless you're to have some kind of clean out at this point to have another twenty twenty five percent high. So we're thinking more about in the single digits for returns. There is a lot of uncertainty about how much the FED is going to come
within the next few months. Are they going to front load or are we going to be looking at a more extended cycle.
But as I said.
Before, the thing that we're thinking about is, look, the FED we know is committed to that soft landing. They started to cut rates against the backdrop of still positive growth where there is no financial crisis Simmery. That is a very very pastive, positive backdrop which shoul assure soft landing, and against that perspective then you should have continued earnings
growth and equities moving higher. But we do think that instead of just focusing on the MAC seven, it's really time to think about other parts of the US market and the global complex.
I feel a bit whipside Seema because we've been talking about all of these catastrophic situations around the world and how it could potentially affect employment, how it could affect inflation, how it could affect growth over the short and potentially longer terms, how could disrupt supply chains, and yet Marcus have shrugged it off, don't seem to be pricing it in at all, which I guess makes because in the past it hasn't come to fruition as a tangible risk.
Of the potential issues that we see on the four whether it's the storm, or whether it's the strike we're talking about the US, whether it's what's going on in the Middle East, what do you have your eye on potentially as the most disruptive event.
I should think that the disruptive event is the Of course, this is from market perspective. The most disruptive event is really what it does to the data. We know that this is effect which is very date to depend. This is the market, which is also very data dependent. So as much as the data becomes more and more muddied, I think that you're going to see a lot of whips. And we've already seen abol atilty pick up that there's a risk that continues or even exacerbates over the coming months.
And of course there's always the chance that you take the wrong turn because you're so clarded and blinded.
When it comes to China. I know you mentioned that earlier, but you talked about that this week was a pivotal moment for it, and it all comes down to the details. So far, do you like the details that are coming out of Beijing.
Yeah, we do.
We are quite encouraged by what we're hearing. We really need to see clear numbers. We need to see a little more information about the consumption drive. Are we seeing kind of direct injections to consumers or is it done through subsidies? So there are different ways which is going to make it a little bit more impactful or less so. But overall, I think the positive thing that we're hearing from the government is that they recognize that something needs to be done, and it needs to be done in
conjunction with Mounty Stimmus. It's not enough just for the Montreal Mountreal policy cuts. That has to be some kind of spending coming in play. I think that is positive. It should have a good impact and risk sentiment in terms of how much further we think about China GDP growth going, Does it hit the five percent level or not?
That really comes down to those specific details.
But at least from this point in time, we're hearing all the right things from the government and that should have some positive externalities across outside from China as well.
Can we talk about the limits of that positive fallout. Let's talk about that right now.
Pitter Cheer of Academy was on the program about an hour ago, and he made the point that Orienta China is a story for China, Chinese brands, Chinese companies, and the spillover, the positive spillover, is limited to the rest of the world, particularly to European companies.
Sima, what do you make of that argument.
I wouldn't necessarily agree.
You know, when we've done the charting, that's actually a pretty clear correlation. You have China credit steamulus or whatever comes stembus measure that you want to use. There is a clear impact on the USICM Manufacturing.
Survey, for example.
So we do think that there is a positive impact, and in fact for European companies you could actually actually see some beluxury companies benefiting.
So China's consumption has.
Been limited within China up to now, we could see that's streaming outs other parts, particularly in Europe. Now I don't exaggerate this because we're actually quite negative on Europe as a whole, but in terms of what the impact could be outside of China. I don't think it's huge, but I think it certainly could be quite positive, particularly the time for the rest of the world when expectations have been quite low outside of the US.
Rock bottom over the last few years.
Samoth, thank you as always, Semushan There of principle, Plis and Golfer. The only vice presidential debate of the election. We're going to get nine pm Eastern Time without a studio audience. The candidates will have two minutes to answer questions and two minutes to react. Both Walts and Vans will have hot Mike's Republican Congresswoman Lisa McLain from the Swiss state of Michigan joined us now for more congresswomen.
It's going to see you. It's good to be here. Thank yousome to New York. Yeah, thanks, welcome. What are you hoping to get from the save, Nick Well.
I hope to get a contrast, right, And what I think I'm really hoping for is what exactly the American people are hoping for, and that's answers to the questions of the issues that everybody's worried about, the economic issues. What are we doing about the hurricane, what are we doing to bring inflation down? What are we doing about the ev mandates? What are we doing about crime? They want answers to the issues, and I can share with you.
In Michigan, there are three issues that matter economy, economy, and economy. That's the bottom line.
When's your economy right now in the set of Michigan. And what couldn't the federal government do to have these automakas.
Our economy in Michigan. We're struggling. Families are struggling. We're struggling to put food on the table, put you know, uh, put put our gas in our cars and whatnot. What the government can do is stay out of the way. I mean, seriously, just have some faith in the people. We don't need more regulation. We don't need the government to tell us what to do, when to do it, how to do it, what cars to buy. Have a little faith in the American people.
Even very critical of this administration when it comes to the transition to electric vehicles. At the same time, you're also very critical of China. But China is absolutely dominating the entire world when it comes to electric vehicles as well as the processing to make the batteries to get to that electric vehicle. So how do you suggest the US compete given this is so critical to your district.
The biggest thing that we can do to compete is stop the mandates. Let the consumer buy the product they want to buy. Listen with the seventy percent EV mandates by twenty thirty, we don't have the infrastructure. I mean, I'm not telling you guys everything anything you don't already know. We don't have the infrastructure, and people don't want to buy the cars. Not to mention, where are we getting
all the batteries from? Oh, our biggest adversary, China? And for those of us who really care about the Green New Deal, right, Okay, that was a little bit of sarcasm there. But for those of us who care, where are we getting the batteries from China? What does it take to produce those batteries coal and coal plants? It's counterproductive and counterintuitive on what we're doing with these EV mandates.
When you say mandate, there's not an explicit mandate. It's just the pollution controls. So just the question I have is the Inflation Reduction Act, which I know you're critical of.
You called the Three New Deals.
You clearly are critical of it, but a lot of that money actually went to Michigan for clean tech. So, say there is a change in the composition of Congress or change in the White House, are you going to be one of those individuals that wants to repeal some of those provisions that are in the Inflation Reduction Act.
Yes?
And I say that because I have faith in people and in the Inflation Reduction Act. With these mandates, right, I think everyone wants a cleaner planet, right, But who's going to give us that cleaner planet. I'm going to share with you it's going to be business, and it's going to be industry, the people that do it for a living every day. The government's not going to be able to legislate that because of all the unintended consequences.
Let's leave it to the business owners and industry that actually know what they're doing and how to do it.
So let's talk about what's going on in Michigan. I'm sure you saw the report about slock In, who's going for the Senate seat. She's telling her donors, according to scoop from Axios, that she is underwater because Kamala Harris isn't polling well in Michigan. Are you expecting a red wave in your state.
I don't want to predict a red wave. Last time we did that, it didn't turn out exactly like a red wave. I want to predict a win, right, And I think I'm cautiously optimistic that we are going to get a win in Michigan. And I think we're going to get a win for three reasons and I said them earlier. The economy. The economy, the economy. People in Michigan are hurting. We're a manufacturing state, right, We're an auto state. We need to be able to do business.
And with the inflation and the layoffs and the mandates, people in Michigan are hurting in it's because of the policies that this administration and the Democrats are cramming down our throats.
You said the best thing the government can do is to stay out of your way. You talk about how business really needs to just be left to their own devices, and yet Donald Trump is talking about tariffs, extensive tariffs that could potentially increase inflation and potentially put up gates to the concept of free trade and businesses making those decisions.
Why is that a good option?
Well, I think if you look at the tariffs that Donald Trump is proposing. He's proposing tariffs as a reaction to unfair trade practices. What Donald Trump wants and why he's using tariffs as a tool that he has in his tool belt, is to make sure that we are playing on a level playing field. Right now, we're not playing on a level playing field, and he wants to make sure that we have a level playing field for
our businesses and for American companies. If our adversaries like China would like to plan a level playing field, I don't think there's a need for tariffs, but if they're not going to play fairly, your dog on right, He's going to put tariffs in place, and I agree with them.
I'm curious just more in the immediate aftermath of the strike, just to sort of go to the next couple of weeks, not just the longer term. We are talking about the biggest strike of dock workers going back to nineteen seventy seven. There are a lot of auto parts it could potentially be coming through. How are you preparing your manufacturers in Michigan for the potential of production being stopped.
Or delayed because of this.
Listen, we're very concerned, and they've been preparing up to this point because they had an inkling that this would happen. Right, This isn't something that's just happened yesterday. Right, We've been able to prepare a little bit.
But make no.
Mistake, this will be devastating for Michigan manufacturing, for trucking industries, for grocery stores. But the biggest people who will be affected by this will be the consumer. Right on top of record inflations, the people of Michigan are going to be hurt drastically.
Do you think that why has should get involved?
You know, I think you should have never gotten to this point, right. The White House touts itself as you know, mister Joe Union, Right, why did it get to this point? There's no reason it would it should have gotten to this point. But again, like many other issues, here we are today and now we're in a crisis situation. We've got to do better and be more proactive so that we don't get to this position.
This is why we are the congresswoman, So I'm wondering there is an act that he can activate that would initiate an eighty day code and off perage.
You think you should do.
So, Yeah, I think you should take a long hard look at it. Right, we have to bring both parties back to the table. It couldn't be a worse timing, right, you have inflation, record high inflation, but also let's not forget about the devastating hurricane we had.
High inflation, it's come down a little bit, price, it still elevates it.
Well, places are still elevated. But it's the bottom line that counts, provided you know how to count. Right, if inflation's at one point four percent, it goes up to nine and it comes down to four four, still higher than one point.
People are still struggling.
People are still struggling, but also on the backs of the hurricane that we're just we've got to be able to get supplies in the necessary aid. This dock strike is not going to help that at all. So I think we should take a long hard look at it. Well, you know, and to your point, here we are, Yes, we should have never gotten here, but here we are. So we have to take a look at all the options to protect the American people.
Well, we appreciate your time, thanks for being able to star in New York City. Thank you, Thank you, come back again.
Soon.
Republican Congresswoman Lisa McLain of Michigan.
Marcus digesting fed Shad Jay Poal's message that he's in no hurry to move ahead with more rate cuts, but Noil Duatta of renomass one hundred more basis points off Easy before year end, citing the fact that unemployment is likely to continue rising and inflation continues to slow. Neil joins us now for more, Neil, welcome to the program. As always, I've written a note yesterday, just one very short line. I think captured everything. Why take the chance
with inflation resolved? Neil, can you ask your own question?
Well, I think when I look ahead, I do think there's additional awkward pressure here on the unemployment rate. I mean, if you look at what consumers are telling you about the jobs market, it's not like they're telling you that things are getting better. It's not even like they're telling you that things are stabilizing. So the distribution of risks with respect to the labor market are clearly skewed to the downside. Still, even after this fifty basis point move.
I mean, there is some inertia in the labor market data, and so the fact that things have been weak is probably a good reason why they'll stay that way. But if you look at the Conference Board labor differential example, for example, it's clearly telling you that there might be that the unemployment rate probably keeps going up. How much of I think remain to be seen, but I do think it's probably still higher. And at the same time, core inflation has been running below two percent since May,
and that's happened despite very little help from housing rental inflation. Now, I think that there's probably still additional downside with respect to rents, you know, based on what we see with things like new leases and new tenant rents, for example. But if rents begin to cooperate, then you can see
continued downward pressure on inflation. So you know, my sense is that, you know, the Fed's forecasts are conditional, and you know, it's interesting to see Powell kind of toe the party line after basically exerting his will in September, you know, But my sense is, if you get a clunker on the employment report between now and the November meeting, you know, I think he'll have the ammunition that he needs to push through another fifty basis point grade.
Cut and nails you said, the Chairman yesterday sounded somewhat confident of the back of recent data, as you indicated in your note earlier on today reiterating the Fed's baseline, and as you've alluded to, where you think that baseline is vulnerable is when it comes to unemployment and the labor market.
Can we just push your head to Friday?
What kind of numbers do you think we need to see to enable chair and pal to really assert some authority again on the committee and get them to go another fifty.
Well, let's be clear. I mean, if you look at the three month trend in private peril employment, it's already running below one hundred thousand. So you know, I think it's possible with those kinds of numbers, particularly with you know, we've seen state local governments kind of slow down a
little bit. I do think it's possible you get additional upward pressure on the unemployment rate, and then when you look forward to the October jobs number, I mean there's just a lot of just potential kits that that report's going to take. I mean, you have the Boeing strike, you have obviously the port strike, and then you have this natural disaster Hurricane Heleen, that's you know, displacing a lot of workers at a very sensitive time for that area.
I mean, if you know Ashville, I mean their tourism industry revolves around the fall season, right, so you know, I think it's you can't rule out a really really bad number going into that. And again, yeah, does Powell want to get up there after a really weak number at the November press conference and look at the cameras and explain away the job's number based on special factors at a time when they may well be revising down their expectations of inflation.
Neil Key question here, a lot of people pushing back pretty aggressively against the fact that the economy is slowing down really substantially. Torchon slock. Where is the slowdown? A lot of people pointing to Atlanta Fed's GDP now, which points to three point one percent growth in the third quarter.
How does that cohere with what you're seeing, especially at a time where we're not seeing an increase in jobless claims and a lot of the other potential ancillary kinds of information are not pointing to that real negative downdraft.
I mean, if things are so strong, why is the unemployment rate. Of it's a pretty simple I mean, I thought it was very interesting that Powell talked about, you know, GDP and GDI revisions, and admittedly they've been they've been positive, but one thing that's not really revised is the unemployment rate,
and the unemployment rate's been climbing. And I would just point out that the unemployment rate has been rising despite this seemingly strong economy, and consumer attitudes about the labor market have been getting worse despite strong headlines on GDP. So you know, if you take that all at face value, it basically means that the economy is not growing below potential, is growing below potential, and Powell admitted that you know, look, I mean growth may not be strong enough to keep
the unemployment rate from rising. If that's the case, that means that the labor markets are exerting downward pressure on the wages of those that are already working, which is disinflationary. So that's another reason for the FED to be easy.
You know, Neil, I'm not disagreeing or agreeing, because ultimately we cannot know.
What I find really.
Interesting, and I mean this sincerely is the conviction and the idea to have the conviction to say to cut by one hundred bass points at a time where there is a huge debate over whether we could see a reacceleration of the impact of say, some of these strikes on data, making it really messy at the same time that it's potentially inflationary, at the same time that we're on the cost of potentially inflationary policies that could get implemented in the United States early next year. How easy
for it is? How easy is it for you to have conviction at a time where there seems to be really bifurcated tail risks.
Well, I mean, I think that every outlook is fraught with uncertainty, but I certainly don't believe the FED should be front running potential fiscal outcomes based on you know, and applying that to today's reaction function. I mean, this is about the data as it's been coming in, so
you know, look, I mean conviction. I mean, I guess this is sort of tongue in cheek, but I'm I'm paid to have an opinion, and i'm and i'm you know, I'm paid to kind of give people a coherent view of the world that I think ultimately will pay dividends for them, and so you know, I think that that's that's part of where the conviction comes from. But you know, for me, it's really about what are the markets pricing in and what do I think where do I think
the distribution of risks are. And to me right now, I think the idea that the Fed's just going to deliver two twenty five basis point grade cuts I think is a problem because that is conditional on a forecast that assumes you know, the unemployment rates what at four point four percent by year end, and that you see two point six percent core inflation your every year. If you get inflation prints like you did over the last few months, they'll be revising down those estimates for core PCE.
And we're at four point two percent unemployment, and the things that I see, whether that be job openings coming down, whether that be hiring rates remaining weak, whether that be the conference board labor differential, all of those things kind of nudge me in the direction to say that we may be at four point four percent before you're in And like the Fed's forecasts are conditional, so to me,
it's not an especially big lead. So if I'm looking at the way the markets are priced, I think it makes sense to bet that they'll end up doing a little bit more than what's priced into the full.
One thing we can all agree on November seventh, Box Office, No datta.
Of run mac neil, Thank you.
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 app.