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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Ameri Hordernt. 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 at Denny. Have you
had any research writing this? Our concern is that lowering interest rates will lead to financial instability, solid productivity, lad growth in real GDP implies that current interest rates are just fine where they are at. Joined us now for more at good Morning, sir. Is this a prankt then that you want to lean into?
Absolutely, It's a bullmarket. It's been actually a bullmark since the last recession. The last recession was a two month recession back in twenty twenty, remember with the lockdowns. We made a low on March twenty third, twenty twenty, and it's been the market's basically one hundred percent since then, and almost all of that can be accounted for by earnings.
I mean, once the market recovered from the pandemic sell off and we went back to where we were in February of twenty twenty, we're up one hundred percent since then, and forward earnings are up one hundred percent since then. So it's been actually an earnings led market with a multiple of around twenty two.
At your line, our concern is that a lowering interest rates will lead to financial instability. What might that instability look like?
Then, well, we're just talking about a plain old vanilla Malta, you know. I mean, twenty twenty two is a very elevated evaluation multiple. It can be justified the fact that the economy is growing. It can be justified by the fact that the Magnificent seven account for thirty percent of the S and P five hundred and they have a multiple of what about thirty right now, and the rest of the market's got evaluation multiple of nineteen. Not cheap, but you know that it's the impress of four hundred
and ninety three. They're doing pretty well. It's just by comparison to the Magnificent seven, they look a little punky, But all in all, I think we're still looking at a at a bull market that continues to maybe sixty six hundred and sixty eight hundred by the end of the year and seventy seven hundred or higher by the end of next year.
A melta doesn't sound so scary. In fact, Max Cutner would absolutely embrace it and say, let's go. Just like you said, you actually see bigger returns. Where is the pain then? Where is the negative consequence of if it doesn't need to cut, does it come with higher long end yields that we just aren't seeing?
Well?
I think the as I said in the quote you picked up, we don't really need a rate cut here, and if we get a rate cut, that increases the odds of a melt up. So whatever targets I gave you, we'd surpassed them sooner rather than later. And then the evaluation multiple suddenly at twenty five twenty five is where the tech bubble bursts back in the late nineteen nineties
early two thousand. We don't want to go there. And I think that what really is important to understand here is it cutting interest rates isn't necessarily all that liquidity is not necessarily going to go and create more jobs. I think, you know, we've lost one point five million people in the labor force who are foreign born since I think that since March of this year. So obviously the shutting off of the border and the elevated deportations have reduced the supply of labor and that's not going
to change if the FED cuts interest rates. And by the way, the job openings have been declining in areas that benefited from the inflow of migrants, and that was state and local government. Job openings really have declined sharply because we don't need as many teachers, we don't need as much as many social workers, and that's where some of the job losses have been. And that's not going to change just because of the FED lowers interest rates.
But we could get more inflation out of it in terms of consumer prices, and we could get higher asset prices, which is fine unless it's a melt up.
So what do you think when you take a look at some of these consumer surveys that show that individuals in the United States think that it's the hardest time to get a new job, going back to at least twenty thirteen. This idea that you do see a real sense of deterioration in consumer confidence about the labor market. Does that raise alarm bells or are you saying that this is a structural sea change that cannot be affected by monetary policy.
Well, if we kind of drill down and look at the labor market report that came out recently, what we know is that where it is very hard to getting harder and harder to get a job is for teenagers and would be workers who are twenty to twenty four, mostly people who are coming out of college, so entry level jobs have become more difficult to obtain. Some of that may be related to productivity some of those younger people, you know, you have you know a lot of people
across the border, and they weren't old people. They were mostly young people and they're going back. So I think that's an issue. But for anybody above twenty five, not anybody, but for people in that category about twenty five, the unemployment rates are below four percent. They've been there for a while. That hasn't really changed. So very bifurcated labor market ed.
When it comes to what's going on in the stock market, though, you have all these tech companies spending a ton on cap backs, it doesn't mean when it comes to these data centers that it's actually creating new jobs. So can we see a melt up in the stock market but a recession in the real economy.
Well, I think the economy is evolving very rapidly into something different than we're used to. I think we're still kind of looking at the old fashioned business cycle model where manufacturing of goods is important. Le's the case that everybody recognizes as services have become bigger, But I think people still don't haven't wrapped their arms around the fact that we've been in a digital revolution that actually started in the mid nineteen sixties with the IBM mainframes, and
here we are now with artificial intelligence. And this revolution is all about processing more more data, faster and faster, more cheaply. And that's what AI is doing, that's what the cloud is doing, and that's a whole new economy and it has tremendous implications for the future. I've called this the Roaring twenty twenties, and I think it could go into the Roaring twenty thirties because of this digital revolution that we're in. This seems to be actually accelerating.
So Agie went there, I'm worried about the thirties, so you help me. This is a situation at the moment, a lot of the gains are concentrated in asset price appreciation, the labor markets. Weeknic, you've got the far left waiting in the wings making a pitch to this country that they should be running things. And if we see gain to the stock market but not gain to the real economy, I think capital gains is going to be a big
story in the next ten years. And why should we be optimistic and constructive for capital market to the twenty thirties given the dynamics that are starting to build already.
In a word, productivity. So, for example, today we may very well see that the beer of labor statistics slowers the level of employment over the past year or so, at least on a preliminary basis, by four hundred and fifty thousand to seven hundred and fifty thousand jobs, and everybody's going to interpret that as being a sign that labor market was actually weaker than we thought. Actually, I think it indicates that productivity is increasing. So what do we we sort of lose on the head count side,
we gain on the productivity side. And if that's the case, then real wages go up. So all the workers that are out there are going to on balance, on average get an increase in their inflation adjusted wages. And that's where the growth and real incomes are going to be, and that's where the growth in consumption is going to be fueled. And then we've got capital spending, particularly in technology. It counts for over fifty per Technology account for over
fifty percent of capital spending. Now is that's only going to go higher? And so again I think the economy's nature has changed pretty dramatically. I think the stock market has figured it out, and I think it's all good. If I'm writing about the productivity story.
Stay with US multil imperg surveillance coming up after this, I want to bring in Henrit to trace a da Palmas Henritt. So I just want to stick on these pictures and I want your perspective on how these kind of pitches play out in places like South Korea when that government is getting together in negotiating with Washington to come up with three hundred and fifty billion dollar investment deals, what do the people these countries think well, I think.
The first question that it always needs to be is one of the political ramifications of continuing to side with the United States when they're, you know, trying to forcefully kick out three hundred skilled laborers.
And that's what it is.
So South Korea is doing exactly what President Trump is asked for, investing three hundred and fifty billion dollars in the United States across these Hyundai plants, electric vehicle plants, et cetera.
And then you're simultaneously.
Kicking out the very employees that they need to run said plant. So it's a thumb in the eye across
the board. I think it really gets to the heart of the matter that these trade deals the President has announced with various nations, including the EU, Japan, South Korea, none of them have legal text, none of them are finalized, and pending the Supreme Court ruling on AIPA, I anticipate that most of them are going to get up ended in the next couple of weeks anyway, So basically, we do not have a deal with South Korea, we do not have a free trade agreement.
Taris are exponentially higher than they were when Trump.
Took office, and we had a congressionally passed zero percent tariff rate on like ninety five percent of goods coming in from South Korea before this administration took office.
So I don't see any material good news here.
And local present South Korea. At the same time, the US and South Korea are holding working level talks when it comes to the trade deal. But how can what's happening at Hyundai and this plant impact those negotiations.
Well, I think the issue, as we're seeing in countries across the world now, is that their political leaders cannot enter into binding agreements with the United States for their own domestic political purposes.
So it really just.
Is that, you know, thumb in the eye situation that creates an impossible, intractable path for the United States and these nations to come to an agreement, and their political leaders can't have it, just like Trump can't have it.
Does it mean that potentially the United States won't get this two hundred and fifty billion dollars worth of investments.
From Soul, Absolutely, no question.
So where does this leave the trading relationship?
I don't think that there is a trade deal, and we've already undermined the free trade agreement and overridden it with.
The IEPA terris.
So we have these tacit commitments on things like sectoral tiras for two thirty twos, on pharma on Semi's critical one for South Korea is one that hasn't emerged yet. That's the lumber and timber tires, which President Trump tweeted about being the furniture tires a few weeks back. Those
are directly targeted at South Korea and Canada. So I don't see an opportunity for this trade deal that they have that allows South Korea to commit to the SAEPA rate holding water and certainly that three hundred and fifty billion dollars in investment materializing. When South Korea can't put its own skilled laborers that the United States does not have in plants in purple states like Georgia, it's unsustainable.
Any Does this Georgia situation tell us anything about what a bigger priority is for Trump domestically, whether it's limiting immigration or whether it's getting these trade deals done.
Yeah, I think that's fair.
Immigration is one where we can say, you know, objectively, the president has succeeded beyond all of his measures, even so much to say that he did it too fast, and now they're targeting these areas where it's job creation and hitting the trade agenda and the investment that you
said he wants to see in the United States. But as I mentioned at the outset, these trade deals that we have reached with the EU, with Japan, with South Korea, Vietnam, the Philippines, Indonesia, they do not exist in legal text, and the fundamental underpinning is the fifteen to sixty percent IEPA tyruffs that are in effect across these deals that the President indicates he got these nations to agree with.
When the Supreme Court rules that they're unconstitutional, which is something that is entirely possible, we'll get an announcement about when they're going to take up the case as early as today or tomorrow. Then you really have the question of what matters more the immigration stuff that we've delivered on or the trade deals that don't exist.
And one thing that we were talking about yesterday is it seems like these goals are in conflict, the idea of limiting immigration while also getting certain investments and getting certain trade deals across and wondering if this really speaks to how this is being perceived politically. Whether trade deals are complicated politically, but limiting immigration caters to a certain base of isident Trump that he will continue to dobble down on and will come at the behest of whatever
trade deals might get through. I'm just speculating. I'm wondering if that's a message or if this is a little bit mess here, then it's then being stated.
I would say, let's go straight to the numbers, because I totally agree with you. You know, where is the American public on this. The stock market is reacting in one way to all these tariffs, but the American public, and I've said this to you all for a while, and the polling continues to support it. This is a sixty to forty issue, a seventy thirty issue that the President is on the wrong side of. Seventy seven percent of Americans believe inflation is the number one problem as an
overall scale of what their most important issue is. All voters, Democrats, Republicans, and independents, Predominantly independents, believe that inflation and high prices are the problem, and they think the President has gone too far.
That's the exact economists you got.
Wording of their polling on tariffs, and that's a fifty four percent number.
As of the latest data.
So American voters are incredibly aware of the fact that tariff's are taxes, prices are higher at grocery stores and at big box retailers, and they do not like it. And that's why you're seeing the president's approval readings so far underwater, so you can get distracted with some of
the other components. And of course there's a healthy population of Americans who very much support the President's immigration agenda, but the economy wins all day every day, and inflation and prices continue to be their number one issue and they don't like the tariffs.
Stay with us more Bloomberg surveillance coming up after this. Auxana are'n off, the head of market strategy at JP Morgan Asset Management, raising concerns writing if the Fed thinks the economy should be churning down over one hundred and fifty p a month, that's going to guide them into cumming short term rates, which is stimulatory for the higher inflation environment we're in. Auxana has made it into the studio navigating sinkholes of our own from Westchester it's going to see you.
Waxana literal and figurative ones.
Thank you for making it. Let's start with this Feder reserve. What are you actually expecting? So let's make a divide, a big distinction between what you think the FED will do versus what you think the FED should do good do.
There's that has been a divide for over a year now. We did not believe they should have been cutting last year. When they did, we saw the long end react in a way that I don't think anyone anticipated. We anticipated it because of course, the long end was reacting to realities around technical you know, supply of treasuries and long term inflation expectations, and that is the reality. I think that the FED will continue to grapple with this time around.
Nothing is likely going to stop them from this cut that's coming up this month, even a higher than expected
inflation print. And that's unfortunate because I think they would probably benefit from standing still here looking at what's actually happening in the economy, looking at you know, variables like what's happening with population growth, for example, Not sure given that you know the border is tighter, there are deportations, right, population growth is a tremendous driver to jobs, and that is changing and we're not entirely sure how that's changing.
And to the comments you quoted earlier, for me, you know, if the FED is still being guided by the economy needs to be churning out one hundred hundred and fifty two two hundred thousand jobs a month, then that's going to guide them in a direction that's going to be pro inflationary.
It might not be one hundred and fifty thousand jobs a month, but it's not a contraction like what we saw in June for the first time since December twenty twenty. It's not these surveys indicating that people don't feel good about getting jobs. Why won't that curtail inflation on its own? Why doesn't that suggest maybe the FED has some room to normalize policy from what might be considered restrictive.
Well, this is really the issue, is that the FED keeps calling this level of rate it's mildly restrictive or restrictive is continuing to be part of their rhetoric, and it's hard to see where is it restrictive because financial conditions continue to loosen, their looser now than when the Feds started, they're hiking cycle, you know, three four years ago, and so yes, the jobs backdrop is moderating, but the unemployment rate is still you know, four point three percent
versus four point two percent a year ago. Is there some slowing? Without a doubt, that is a natural kind of ebb and flow off the markets and the economy. I don't think this calls for the kind of sort of fever pitch around. Cut. Let's cut, And I'm not sure what cutting is going to ultimately do because when we cut rates, what are we trying to do. We're trying to improve borrowing costs for small businesses. We're trying to improve borrowing costs for mortgage borrowers. And that's just
not really been the case. I mean, mortgages are still kind of stuck in the mid six high six level, which is not really unlocking tremendous amount of activity. And frankly, even if we give the benefit of the doubt to this policy and say, you know what, it's going to improve the mortgage rate, is that really going to yield better home affordability? What is your average homeowner going to do if they know money's cheaper, They're going to raise
their home price. Further, we saw some of the lowest mortgage rates over the last decade, bottom, you know, rock bottom lower mortgage rates, and all we saw was tremendous price appreciation.
Are you saying that rate cuts here, even if there is some degree of weakness in the labor market, would only inflate acid prices, create long term inflation, and do nothing essentially for any of those underlying issues.
Unfortunately, I think there's a very significant risk of that happening. It is going to probably stoke asset price appreciation, which is already at a very rich level. You know, we know that credit and I've talked about this before here credit has never been more expensive. If credit has been more expensive, you know, one percent of the time historically ninety nine percent of readings and credit over the last number of decades have been less expensive than where it
is today. So price appreciation, although I will say if the FED is aggressive round price cuts, that may actually spook markets where markets may be like, well, what do they know that we don't know, and that can actually spark as selloff in in credit or in risk assets, which look risk assets are definitely pushing some boundaries there, and a correction is not outside the realm of reasonable
reasonableness or possibility. But I just don't think the FED has enough here to really be as aggressive as everyone is asking it to be. However, the FED has done no favorites in itself right over the last eighteen months or so. They looked political, whether they wanted to or not when they for the first time ever changed policy within a couple of months of an election last year, and that made them look politicized, whether they were or
were not. And so that's why I think the market is generally sanguine around this question of you know, FED independence. We're seeing markets kind of look through that. Yes, maybe it's a red flag, but until we see, you know, the White House sexually set monetary policy, I think the markets are going to continue looking through that.
In the sety seconds we have left, how would you deploy capital? Why would you like to put it in fixed income?
At the moment, so this is the most important question because everyone kind of sits here and talks about what's going to happen with the economy, what's going to happen with fat policy. But at the end of the day, fixed income specifically, which is the world I live in, is meant to be a balanced in your portfolio. And the problem that investors continue to have, whether they realize it or not, is that bonds and stocks have become
highly positively correlated. And so what I think investors need to do is look at their fixed income portfolio and think about, Okay, well, rates foul. Maybe I did well, but when raised road arose, did I do just as well?
Just as well?
Or was my portfolio positive? And I think they need to really think about that kind of diversification with investors that can generate returns regardless of whether the environment is a good one for bonds or not.
Stay with us more Bloomberg Surveillance coming up after this, telling us out for the big unveil later on this afternoon, Joining us now to discuss this world PI sick of lightshed partners, Well, welcome to the program, sir. In the bottom market, for a long long time, they used to call a certain trade the widow maker. It was shorting jgb's and ultimately at some point things do change. Well, it was the same story for technology for a long
long time. People betting against Apple were wrong. Are they right to bet against this company? Now?
I mean I also heard in your earlier segment talking about these top ten stocks being dominant, and I remember people telling me that, like, you can't bet against Apple because the money flows into the top ten stocks are always going to keep it up, And that obviously didn't work. And to your point, you know, there are leaders, historical leaders like Ge that for a variety of reasons, are no longer leaders. Obviously not putting Apple in the scene
camp there. But the bottom line is they're trading in an above market multiple thirty times, not the highest they've ever traded at, but above market, and growth has slowed down, and there has been obviously a lack of innovation. You know, you were just talking about thinner phones and longer batteries. Is that really innovation in twenty twenty five, when when Google obviously is pushing forward with AI and agentic AI and a lot of their products.
Yeah, so Heroin, she phone does have phones. Don't get it done for you. I just wonder going forward, what could get it done for you for them to announce.
I mean, this is not really an event that matters as much for Apple anymore, as crazy as that sounds. And frankly, if you look at the stock performance around product announcements the day after the month. It's the day of day after month after. It doesn't really move when it moves is WWDC. Remember the last time the stock really moved was when they promised all these AI features
a year or two ago. Obviously, none of those AI features actually materialize, But that's what people care about the services side of the business and what the progress is on AI, because in the meantime, unless they announce an autonomous car or some new product category they can give them ten twenty thirty billion dollars of revenue opportunity. Giving us a thinner phone or something with longer battery probably is not enough to have an impact in the market in the near term.
Well, you've come on the show before and said you think that there needs to be a change in leadership, something that is significant to really show some sort of different pathway ahead.
What's your outlook? How do you see this developing?
Since they are losing some of their AI personnel to the likes of Meta, they have been lagging behind the likes of Google when it comes to some of these agentic features. What do you think the evolution is going to be for the likes of Apple.
I mean and this is, by the way, this is not a new topic, and this is certainly not I've covered the stock for a long time, and it's not something that I've been harping on from the beginning. I've been a Tim Cook fan over the years. I think there's a Wall Street General reporter that wrote a book about the pressure that the come but he even felt internally about the lack of excuse me, innovation, you know.
So what they the problem is now is you have this massive transition to AI, so the ability for others to disrupt, whether it's in this product category of phones or a product category that disrupts phones altogether, in terms of how we interact with our data. There's obviously real risk. And at the same time, there is not just innovation coming out of the company in terms of new products,
and there's no no one can suggest evidence otherwise. In recent years the last great products obviously Watch and even the car project, where with Johnny Eyes, who's ironically now working on what possibly could be a competing product with open AI.
So what do you think they need to do Weld?
I mean, if they're in a tough spot, probably not allowing or enabling their AI engineers to be poached by Facebook and others would be a good start.
You know.
Positions can obviously be a way to jumpstart your you know, yourself in the area. But again, you started this segment
or this portion asking about management change. Sometimes you just need a senior leader that is more product focused, that can drive you to new products that might be less focused on you know, maximizing taxes right keeping cash in hireland, or maximizing gross margin by you know, all the manufacturing stuff that they've done in China, and someone that can take those chances and push forward and invest the money to get yourself into new products. This is a mega company.
I mentioned autonomous cars as an opportunity. There's plenty of other product categories out there that a company with Apple's brand, you know, staff of expertise, right, great people within the company of Apple, and the balance sheet that they can I think, you know, get into some new markets.
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