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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. 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. Francis Donald of RBC has this to say, The timing of the government shutdown is not ideal for the Federal Reserve. Limited visibility into the September data increases the probability of an October pause. Francis joins us now from More Francis, good morning.
It's good morning.
So this is a slightly different say because we've had a guests come on the program and say they're not going to deviate from the dot plot. Ultimately they're expecting a raid cut still in our Why wou'd this lead to a pause.
Well, let's remember chir Powell has talked a lot in the past, when you're walking in a room and it goes dark, you go more slowly, you don't necessarily speed up. And at the end of the day, we have to remember this shutdown is compounding an existing problem, which is that our data is being substantially distorted by tariff developments
front loading inventories. We know that companies, clients that we talk to and others are finding ways to navigate around that using things like bonded warehouses for example, or changing the timing of their purchases. And then on top of that, now we're going to miss probably a month of solid evidence as to what actually happened in there. So from our point of view, just like a company or a consumer at the end of the day is maybe going
to say, let's be a little bit more cautious. To us, this is going to raise more questions than it is make it very clear what the definitive path ahead should be.
So A Marie was talking about this earlier on this morning. The data itself has been a problem. How dependable is the data anyway for this federal Well, this is.
The thing for economists right now is there is already a giant question mark around what data should we be using, are there biases within the data? Were there will there be on a go forward basis. We've already for years been dealing with low response rates, and we know that the economy is operating in a way that changes the way we need to use data. Confidence data, for example, in our view, is still very valuable. It explains how
consumers are feeling. But if the top ten percent of consumers are spending fifty percent of all of the consumption, then confidence data is not the same valuable tool it was in the past. Layer on top of that tariffs and we've been really in a dark place with respect to how we can read visibly. And that's why, in a way, John, I'm not that upset that we're going to miss a month of data because I think there's so much obsession over this month to month, in part
driven by the FED, that's highly data dependent. We need to focus on some of the bigger trends, and the bigger trends are clear. This is a labor market that is structurally very different. We don't need the same amount of job growth as we did before. We only believe that this needs This economy needs to create forty thousand jobs a month the unemployment rate to stay stable. We know growth is slowing off the back of tariffs and some price pressures that are coming through, and we know
inflation is likely to reaccelerate into year end. And I could for a month go dark on data and tell you that I'm still fairly confident that will be the story thirty days from now. But when, of course we're hypersensitive and we're in an environment where policy makers are really trying to move months to month, of course the market is going to feel a little more uncomfortable with that lack of visibility.
Are you saying the FED is too data dependent?
Well, no, What we're saying is that the month to month variability in data, this has always been true, sometimes leads us in the wrong directions. And I think what's really challenging right now is that that tariff distortion is very much still in play. We hear all the time, oh, tariffs are not inflationary. That may turn out to be true, it's not our view, but we won't know that till
the middle of twenty twenty six. So the issue with data dependence right now isn't data dependence in and of itself. It's data dependence in an environment where we don't have good reads and our month to month data is not telling us the true story of the amare economy or the American consumer.
So what do you look at in daylight today? You're not getting the job support. What's your north star in terms of directing you towards these trends?
Well, today's not actually the problem. So any economists would have released their estimate for where jobs would be last week and everybody's week ahead. Our estimate was fifty two thousand. The problem will be next month when we don't have the aggregate amount of data that helps us forecast what happens next. At the end of the day, we tail clients focus on the trend. We think the unemployment rate will rise gradually to four and a half four point
six percent. But we've been through a few cycles, all of us at this table, if I may say that, we know that four point six percent unemployment is still very low, very tight labor market underneath the surface. So we are doing what we've been doing for the last year, much more bottom up work, much more sector focus. Look at your actual end consumer, which one are you servicing,
which one are you investing in? And look at their individual stories, and then of course we have a table of all the indicators that we look at, from warn notices to LinkedIn postings that help us get a little bit more of a month to month gauge. But the message here is actually one of leef focus on the big picture that's probably going to guide you towards better investment decisions and better operating decisions if you're running a business.
You'll forgive me for bringing out the shutdown then, but we do have to talk about it just a little bit, the government shut down in Washington. It can't have implications for the economy. Typically we know how the movie goes. Economy has a bit of a blit, then we accelerate, we pick up again, and we look through the whole thing. And that's ult to me. How markets play this story too?
Do you see it's delayed deferred activity? Or are we at this point where things are a little bit more frenchiolet than where things could be somewhat derailed.
Well, I watch your show in the mornings, and I'll repeat what just about every economist has told you. Our traditional rule of thumb is the shutdown is worth aboute point one percentage points of GDP each week that it goes on, and then it becomes nonlinear, likely around the middle of the month. The longer it's out, the more it bleeds. For the economy. We're focused on some of the things related to contract workers as well, so all the economy that circulates around the government that may see
a pause at the end of the day. You know, I talk about the shutdown being emblematic of larger trends, and there's two that sort of worry us. This economy was already slowing down, so these additional bumps, they exacerbate the problem. They exacerbate the uncertainty component.
But under the.
Surface, we've also in the past year again we're thinking about how this relates to the bigger trends, been much more focused on the fiscal side of the picture, the policy side of the picture, than the monetary policy side of the picture. And that's largely because this economy is becoming less sensitive to the Fed's next move and much more sensitive to what's happening in Washington.
We see this in the yield curve.
We see this at the long end of the curve, but many Americans are leveraged to the belly and the long end of the yield curve with the FED is not successfully being able to influence at this point of view, So acrimonious Washington, to me, is not necessarily about the
GDP impact for September or October. It's about this transformation where we move away from monetary policy being the core driver of the business cycle and realize that if we really want to know where are we, we have to watch fiscal spending, the deficit and the path for that ahead.
Is this shut down different though? If Trump decides to make these furloughs permanent.
Absolutely, And so when we look at the numbers, for example, if we were to see and this is the extreme example, this wouldn't happen. But if by October seventeenth, that'll be the reference week for next month's job number, if we haven't seen folks come back, you could see the unemployment rate jump to four point eight percent. Now, our estimate is that it would then come back down. But these are the types of numbers that begin to skew the story we're certain down.
I'm saying, if he decides to say, I actually want to move more people into the private sector, and I'm getting rid of these offices, these jobs. Isn't that more of a permanent effect.
Absolutely, that would be more permanent, but that number is ultimately probably going to be quite small. But the most extreme thing, let's say every person would be laid off, which is not going to happen, you would see that number jump to four point eight. Again, this is emplematic of the bigger picture, which is job growth is slowing. We are going to see less job creation on a go forward basis, with the exception of healthcare. Healthcare is going to continue to be fairly robust there. So this
is the trend continuing. Slower job growth, slower overall growth, less confidence in the economy, and reduced data visibility. It is, as we say, stagflation.
Light stay with us.
More Bloomberg surveillance coming up after this. Let's get to Tesla. I promise you an update. Shares recovering this morning high by a little more than one percent of following yesterday's slide, which followed the company reporting record third quarter deliveries. Dan ives of Webbush maintaining is outperform rating and writing the following with must now driving Tesla into its next stage
of growth. As Wartime CEO, we estimate the AI and autonomous opportunity is worth at least one trillion dollars alone, Dan joins us. Now for more, Dan welcome, Let's just start with yesterday's move. Then we'll get to the future and all that great stuff. How much of that story with the deliveries, which is a massive pull forward in demand.
I think probably about thirty percent of it was maybe a pull forward your relative to incremental b But look, the demands story is stabilizing, and now I think you're starting to see that turnaround happen.
But as we've talked about, that's just the appetizer.
The main event is the AI revolution coming to Tesla with the autonomous and then the robotics piece. I mean, I think there's gonna be a three trillion dollar mark cav. That's why I think six hundred dollars is almost a be's keys for where we see it.
So Dan, you understand the tension well. I feel like we've covered this together a million times, But it's the tension between the near term fundamentals and the long term hope and dreams. The fundamentals at the moment when you say the demand story stabilizing, stabilizing demand, it's not the kind of story we'd associate with a multiple like the one on Tesla right now, Now, Dan, how are we going to.
Resolve those issues?
Do we just keep the faith in the multiple and the stock and the hopes and dreams, or at some times do we have to reconcile these issues.
Yeah, it's a great point. Look, you're gonna have ten.
Million Teslas on the root and when you think about since the beginningonomous value, as you start to see robotaxis to point thirty thirty five cities, you see full self driving, get the forty fifty percent of the actual Tesla's out there, that's the game changer because ultimately I think they're going to own eighty ninety percent of the autonomous world over the coming years as we get the true what I've used level for Look, I.
Think that's the reality. I think investors are looking.
Autonomous is truly what I view is really you know, the Goldilock scenario for Tesla because AI physical AI. There's two great physical phenomenal AI plays out there.
It's in Nvidia and it's Tesla. When it comes to physical AI.
When it comes to EVS. For Tesla, one of the biggest competitors is BID, which is absolutely crushing them in Europe. When it comes to autonomous, who is going to be their biggest competitor? Is it coming from China?
Look, I think it comes from China ultimately, you know, when you think about all the technology, you know insis that we've seen there, But globally, no one has a scaling the scope of Tesla not you know, Look, I think dy D is obviously going to be the main competition. But when I think about scale and scope globally, especially not just in the US, but what we see around the world, I think Tesla continues to win that battle.
But we don't.
Also, we don't view this as one where there's just one winner. And I think when you think about autonomous and you think about this next wave of AI, you know, from the chips to the software to the ripple e fact, it speaks to our view like this AI revolution, we're still in the second inning of a nine inning game and ultimately Yankees end up winning that game.
Don't encourage it to. We'll get to that later. Then let's say you're right, let's find some common ground. The autonomous opportunity is massive drivelist vehicles, all of that stuff I think a lot of people can get on board with that. But I want to understand why you think the Tesla path that road is the road's success. So they're using cameras, Weymous using landa. What kind of technology do you ultimately think wins out look?
I think it's ultimate Tesla from a data perspective.
When you look at the AI engineers and you look.
At all the improvements that they're going to make on these next you know sometime.
Let's just give me a second. What dates are you looking at?
Because I can go off the weekly trips that Weymous do in at the moment and that kind of dates, it looks pretty decent.
What are you stacking that up against?
I look at as Weimo, there're two hundred thousand dollar cars and essentially five cities.
The scaling scope that Tesla has.
Given, the millions and millions of miles driven and the ten million vehicles in the road, and everything that they're doing in Moscow is being wartime CEO. That's where I think we see there six months from now, the breakthroughs will happen, and ultimately when it comes to scale, especially when you look at robotax and cybercaps.
No one's going to be able to match, Tessa.
I view that as just basically what was fact as it plays out.
So Dan, when it comes to deliveries, they don't even matter Anymoreks, everyone's so focused on what's going to happen in the future.
Look, they matter in terms of just we'll call it. I guess a signal from a stabilization respective, especially after what we've seen over the last six nine months. But I think from an investor perspective, it's all about to a PHARAOHSTO might just like give me marks on autonomous show me the technology innovations, on the AI story, show me that we're going to get the full scale, and optimists show me in November to shareolder me that they're going to have a big piece of XAI. I mean,
that's why you see Musk. It's a different mood now. It's that wartime CEO that we're seeing. Those are the marks, and that's how we're going to be looking at six hundred, seven hundred and ultimately you know a stock I think three trillion.
That's the lots of play for the road ahead.
Dan.
Before we leave here, the baseball you want to finish there Yankees when getting it done? Who do you think it's this all done world series like of this year?
Look, I mean I think Yankees obviously have a great each to go. I think they're going to surprise many out there. I think this could be their year. And look, Emory there obviously is a good walk charm.
So we got to see how the players out Have.
We given up on Penn State?
Dan?
Are we done with that?
Now?
Look?
I'm here, Ombassady at u c A the bounds back starts. That's another one Penn State Yankees.
At the at the end, they'll be whole troupe.
Stay with us.
Mulblinpax surveillance coming up after this. Janet Loo Shatikas joins us now for more Janet. As you know, as is often the case, this is one or lost in the court of public opinion.
Who's winning to lose in right now?
Yeah?
I mean right now? I think if you look at the poll, do you do see that Republicans are getting a little bit more blame than Democrats are currently, But both parties are getting a hit from this, and in general we do see that both per generally do get some backlash for a government shutdown. The same thing happened in twenty thirteen, with President Obama getting some of the blame. Even the Republicans kind of put the government into a shutdown.
So both parties may ultimately suffer from this, and that's how they kind of have to figure out who's suffering more. Is where their the pain point may be to actually get the government to reopen.
Jennett, what do you say is the off ramp?
So this is going to be kind of a difficult situation. So the parties are kind of far apart right now.
The Republicans do agree that probably something does need to be done to extend the ACA subsidies, probably a short term extension, maybe a year, maybe a year, with some amendments of reforms to the process, and so the Democrats are pushing for that, but the Republicans are also saying that they can't do anything until the government is reopened, while the Democrats are nervous that the Republicans will not
hold their word on this. So what we're thinking is that probably what you're going to have to see is either a major political pressure coming in, which would mean we're seeing missed paychecks in the middle of the month for our military members for Congressional staff, which will also put pressure. But then also do the moderate members come together to figure out how they can figure out some sort of agreement to get us out of this shutdown. It probably will have to be in some form around
the AC subsidies. The longer this goes on, this could last two to three weeks, just depending if we don't see any momentum towards a deal. As we get later into the month, you have the miss paychecks that as pressure. You start to maybe get some of these premium increase announces that will add pressure and that could be where we see the ultimate solution.
Well, the Republicans already picked up three votes in terms of Democrats willing to vote for the clean stopgap funding measure. Who else should we be looking at?
Yeah, I think you look at retiring members, So members like Senator Shaheen from New Hampshire, Senator Peters from Michigan also watching the Virginia senators since they have a significant portion of the workforce in their constituencies. Those will also be key members to watch, so we would want to see if there are they have a vote today. Do more Democratic senators join on to the clean CR or do we go into the weekend and have no movement
at all. If we do see more Democratic centers join, then obviously that would be showing a sign that there is more pressure to get to a deal at some point. But if we don't, this could definitely start to linger a lot longer into next week and potentially even the following week.
And how are you thinking about the president's meeting with russ Vote yesterday and whether or not he was going to be making layoffs that usually historically are just furloughs and those individuals come back to their job permanent.
Yeah, I mean, this is obviously at least a threat. So this is something that they think the administration would like to do, and they see this as an opportunity. This is one of the reasons that Democrats were actually worried about having a government shut down the first place, because they thought that this could be a tactic that
the administration would use. But then at the same time, you're also seeing demo prats getting some support among the federal worker unions saying it's okay that you're doing the shutdown because we know we're under attack anyways from this administration. So there's a little bit of We could probably definitely see some layoffs, some permanent layoffs, but then they also may be challenged by the courts and that also could
play into public opinion as well. So that also could be something that depending on how these play out, that could be key to which side actually gets more blane and where the pressure ends up being longer.
Term stay with us.
More Bloomberg surveillance coming up after this. Let's turn back to market. So the S and P five hundred is looking for a sixth consecutive day of gains. It's on a five day winning run, the longest street gone back to late July. Jeff Rosenberg of black Rock has this to say. We believe the current market backdrop masks the high level of dispersion within the economy today. Jeff, John just now for more. Jeff, welcome to the program, sir, No payrolls.
We're gonna have to get me deep and all the other stuff. Jeff.
I think that what you just said in that quote kind of builds on what we were discussing with regards to the airlines. How much dispersion are you seeing?
Yeah, this is really about the difference between what you're seeing on the on the top.
Line and the headline and what's going on underneath.
And we've talked about it a lot, you know, when we do have payrolls or when we do have FMC meetings, when Tom's with us, we talk a lot about the K shaped recovery, about the differences between something you were just talking about the top end and the bottom end.
And you see that.
Both for consumers but also within businesses. You have the winners and you have the bottom end that is struggling, and that is the recipe for dispersion.
And so when you take away kind of.
The big headline that we might have been talking about today, which is good for the economy, bad for the economy, of stocks going up, stocks going down, you go underneath the surface and there's a tremendous amount of churn.
Going on underneath.
And that when you take away kind of beta investing and you focus on alpha investing, has created a tremendous amount of opportunity. And you see that in some of the returns that look at, say factor returns, stripping out kind of directionality in the markets.
When you've joined us in July, you were talking about a tricky environment ahead for the FED. How tricky, is it now that they might miss an entire month of data.
Yeah, So if we shift back to kind of the data problem it is, it's tricky for the FED, it's tricky for us in investors. You know, I was going to suggest that, you know, if we wanted to look at and maybe your producers can do this quickly. The one area that might be benefiting from this lack of data is interest rate uncertainty. So maybe put up a chart of the move index, which is collapsed here.
But you look at kind of.
What we've been talking about this morning around the lack of data, and you have a lot of agreement. The good news is you've got a lot of alternative data, but kind of the bad news is none of us can agree as to what that alternative data means. Good example is, and I saw this morning two different estimates from alternative data, one using state filings, the other looking at extrapolating initial claims forecasts off a challenger layoffs. They
came up with completely different conclusions. Another example, on the earlier segment, you were talking to Manpower talking about switchers and the lack of switching, but you look at the Atlanta FED wage data and you know, switching wages actually went up a little bit, so in the cacaphony, I think the benefit might accrue to uncertainty, although that doesn't make the FEDS job any easier.
Well, if you had to decide what your top three data points were, what would they be?
You know, when we're talking about the payroll data and the lack of payroll data, you know, I turned to the wage data and looking at inferences from that.
We have the Atlanta Fed wage data.
We have a lot of private sources in terms of what you can scrape.
I'd like that alternative data.
We've used that a lot in terms of both frequency and turning points. That would be you know, kind of data point number one. I think, And Jonathan, you made reference to this earlier about the inflation data, and you know, whether we're going to start to lose some of that. I think the good news there is that with the webscrape data, we have a lot of uh, you know, kind of consistency around where what people are looking at.
In terms of alternative forms of data, people talk about the price stats data.
I think that's a that's a good form.
And then I think the pivot to the private data that you mentioned where we hope will continue to get that the survey data, the PMIS, they take on a heightened you know, importance in this environment of the lack of the government data. We have to caveat that with the notion that the kind of accuracy that we've seen from the survey data the PMI data in terms of its importance for this kind of economy, that's that's really
kind of gone down. And we've seen a decrease in the correlation between the PMI data and say, the industrial production data in this cycle, so that that's sort of a caveat to that third data point.
And Jeff, we've talked about five six, seven minutes about economic data. If I'd given you the payrolls dates or the start of the year for the next nine months, I think you would have tried it this market and completely the wrong way. So I just wanted to Jeff, what is the relevant data point right now, because clearly some dates is more important than others.
Yeah, that's that's absolutely you know, it's absolutely the case.
And it's you know, the classical sort of break between kind of growth and inflation and the pivot as to which one has the focus of the market, and you know, going into before we had the shutdown, you know, the other conversation would have been that this is the pivot away from the inflation concerns towards the growth concerns, and that the kind of you know, top tier data point on payrolls is giving us that read on the growth and the Fed's pivot towards a focus more on the
growth and less on the inflation.
And I think that's kind of the read here.
In contrast to the beginning of the year, where the focus was on inflation the impact on tariffs and tariff passed through, we really shifted that focus and I think that's really the driver behind the directionality here and interest rates really the fear and the concerns to your earlier conversation with Seth Carpenter around you know, is there this lagged slow down, the lagged effect.
Remember, the tariff.
Impact that Seth's talking about is not about the inflation piece, but it's on the real wage piece. That the temporary, even if it is temporary impact in terms of the inflation from tariffs, its impact.
Is on real wage growth.
And that's really about the growth side, and that's what's driving the rates markets right now.
This is the Bloomberg Survendments Podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribed to AU podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app MHM