Breaking Down Big Tech and the US Jobs Report

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Yeah, I mean it is a minor tech pull back, but that's sometimes a healthy thing because if you look at it, over the last one and a half two years, we have seen a massive rally in all these technology stocks because of AI and right now we are a face of consolidation where the companies are spending a lot of money to expand capacity with the hope that they get more AI workloads down the road. So I think

I went to the inner Agrana FA screen today on Apple and I noticed that Apple in the last ten years has retired thirty seven percent of their diluted shares. I think historically, I can say anarag it's never happened before. Are we going to see this trend of massive free cash flow from these companies where all the noise of AI and all really doesn't matter. Yeah.

When you see you know, all the tech companies, I think Apple really stands out because their AI policy or strategy is different than the other tech firms. Last night, they actually brought back about twenty six billion and shares that quarter. This is the highest we have seen. And this is a company that's not going to be spending billions in terms of expanding their data centers because they're

Going to be for Microsoft and Amazon.

And you're only a five and a half percent pullback in the S and P I T index over the last week, So you're right, not so strong. But you know, talk to me about you know what we're seeing here? I mean, is this is this the beginning of I mean, should we be doubling down on growth? Should we shifting into quality here? I mean, what are your thoughts, so.

Daman, when you look at it, there are two things that are played right now. Right now, we are at a phase when these companies are spending so much money and they cannot show a lot of the air revenue, so to investors are questioning whether that's going to happen. The second thing that you just mentioned is the rotation

I got to leave it there. Anerog I'm so sorry to short you this morning. The news flow just exceptional. He is a definitive on the cloud. Look for aniog Rana at Bloomberg Intelligence writing up Cloud Forward a couple of years ago. Here's the abstract. This chapter proposes a direct payment to individuals that would automatically be paid out early in a recession and then continue annually when the

It's it's a tool. It was part of a policy proposal and an idea to do more fiscal policy. Put it up, put it together ahead of time, design it well tied economic conditions, take some of the politics out in the crisis, and hit go right. This it was a tool to solve a problem. In the past, we haven't fought receptions as vigorously. It was developed before COVID and and so that's that's the idea of it. It's not and it's a tool. It needed to be simp well.

Let us look now at the jobs report of America coming out now, and it is a whoa huge depression. It is a woe statistic as well. I'm going to go through this for a bit before we go to Claudia Sam, and we're going to see major major market moves here. S ANDP down seventy five points right now, Nastack down one, three eighty two. The tenure yield off of the numbers, which I'll give you in a moment, folks, the ten years in seventeen basis points for Global Wall Street,

Moment get triggered?

Yeah?

Wow, Yeah, So that puts it up over it's half a percentage point threshold. Noting that comes off of historical experience. That doesn't necessarily tell us where you know, we are right at this moment saying a recession. This has seen way too much momentum in the unemployment rate in recent months, I mean four point three percent. Right, this is not so whether we are at that moment of a recession or not. This is your build into substantial weakening in

Claudius big One, an economist of Merit Claudia Sam by the name of Stanley Fisher once lectured me and otherworthies that the percentage move is important. The fact is we've gone up zero point nine percent from a three point four percent unemployment to a four point three percent, and that percentage change is ginormous. I'm going to give that to you folks in a moment. This is something you can do on the Bloomberg. It's actually way way cool, to say the least. We've had a twenty six percent

We have had a lot of disruptions in the labor force, so the supply of workers even go back to beginning of the pandemic, millions of people dropping out, and then we had labor shortages, and then we had larger immigration coming in. Like this has just been a lot and we all know personally, and then also in the economy, adjustments can be hard if they are big and sunny, and we've had a lot of that, and so this

Does you mean get one more question in here? She has to speak to President Biden.

Or no, Claudia.

You know, I'm a huge Guns and Roses fan, and I love the song Patients, But I mean, waiting for waiting sake is no way to conduct policy. That's not me, that's Neil Dudda. Talk to us about what happens in September. Now, is this enough for the FED to move.

That should have moved, should have moved already.

Yeah, this was a discussion. It's a discussion I have been in. The FED needs to start the rest of the economy was normalizing, the rest of the economy was cooling off. The FED needed to do the same thing.

Okay, but Claudia, Okay, I'm gonna go Claudia.

But they can.

It's not lost and they have a lot of life.

Claudia got Neil Dudda coming up. Okay, Damien nailed it. Okay, let's just forget process. We're out of a pandemic. Everybody. Krugman's going now now, now, dud is going now now, now, Sim's going now now now. Do they have to save face and wait till something Chember twenty one, or can they come out and go you know, when the facts change, we change, like Bill Dudley and I'm sorry, make the adjustment at four point thirty pm this afternoon. Why not, doctor Somem.

They have an ability to do whatever they think is appropriate. In no way, shape or form. Do I think panic should be the theme for today or for any day of the Federal Reserve? Frankly, and they will need to assess the situation. And this was not this was not good data in the let's wait. But again, this is again not overreacting. Not you can't go back and redo

Thank you so much, honored you could attend this morning. Doctor Somem without question the most influential economist in America right now. With New Century Advisors. We turned to Neil Dudda who's lost patient. He has an optimism on the American economy, and he's really pulled back and said, let's go, how where is the dota optimism this morning? NEI help me out here. I need to be optimistic. Where are you optimistic on the American economy?

Well, if you wanted me to say something optimistic, guy, that go what Paul Claudia said, So thankful to be on after her. Quite an act to follow, Thanks Tom. But you know I would just I would just say that we don't need a troubled asset relief program, we don't need a resolution Trust Corporation. I mean, the problem with the economy is that monetary policy is too tight, and that means the looser monetary policy can help resolve

Let me get it, let me know, let me get a data check in here. And Damien wants to crush you. The VICS folks at twenty level up to a twenty one point twenty six Anileti's aged off that two point sixty seven full points here on the VICS were now negative ninety seven on the Standard Ports five hundred eight percent down, Nasdaq down two point five seven up percent. Damien says, I don't care about the equity market.

I'm looking at that's right, that's right, ten year yield.

For three point I'm looking at the thirty year bond thinking it's a ten yere.

You're missing the big one here, You're missing the big one here. Dollar yen down two and a half, big figures to one forty, a stronger yen, dollar.

Weaker because they think the Fed's gonna cut.

So, Neil, I have to ask you this traditional seave havens. No one likes bonds, no one likes gold, no one likes the end. But look at what's happening here in this market. But some of these moves are pretty pretty big, and it is obviously an illiquid summer.

Are some of these moves over done or is then more to go?

I mean, I think it's probably overdone for now. But I wouldn't be like selling a fixed income here just because we had a sharp move. I mean, I think you know, you probably take opportunities with yields going up to kind of build on your on your position. I do think that, like I said, I think the data is going to dictate a lot of these sort of you know, high frequency lows. And like I said, I think that data is going to look worse before it

Yeah, we heard that from Claudia Sama as well and Sam and Dudda with us is great. Let me tell you, folks, we are commercial free across the nation to the end of the hour. Ira Jersey will join us now he's

Dutter, I'd like to ask you about that dearth of growthiness, Neil. I mean, that's a great way of putting at the ten year real yield down to one point six nine percent, off another seven basis points on this news. Talk to us a little bit about I mean, it's sticky here in New York, right, it's hot outside, but sticky inflation seems like it's the thing of the past.

Now.

If I never hear sticky again, that might be too soon. Talk to us about inflation. Is that something we have just no interest in anymore? Is it all about growth in this market?

Well, I don't have any interest in inflation anymore. I think that was that was last year's story. It's a bit ridiculous again, Damien. It has to do with what's the mechanism, right, unit labor costs have been below one percent for the last.

Couple of quarters.

I mean, for crying out loud, where the where's the inflationary impulse? The inflationary impulse from the labor market has been non existence, in my opinion, for at least three quarters two to three quarters. Okay, the Fed is just now saying that, So you know, I think this is really a function of number one. They were spooked by the first quarter data, even though data, they didn't understand why it rose. It rose, and they kind of they sort of took more signal from that than they should have.

That's the key. That's that's you know, I gotta interrupt because that's the absolute key insight right now. I don't know which war they're reliving, but they're reliving a new war because we have new productivity. We talked to Clarida. It's pretty good. You have Richard Clarida, Bill Dudley, Claudius, Sam and Neil Dudda. I mean that's a group of well anymous give one more to Duddy here before he goes and works. Well.

No, it's a new beta regime for sure, but you know, the old playbook seems to be kind of working here. Investment Grade credit just crushing on this move in US treasury yields. And if you're right and there's you know, not that much wrong with the corporate sector here in the US, is that is that a fixed in comassa class that you want to own right now?

Yeah? I mean, look like I said, I think just to take it back, it's we have a period of pain I think ahead of us. I mean, the next few weeks could get bumpy unless there's some kind of surprise FED meeting. I don't think they'll do that because I think that might invite more panic than than it's worth. But the FED is going to get eventually on the

That's the prude twenty seconds, Neil data because the Mledi's going to walk out of the studio if I don't get to her. When you say fifty, you're the first person to say this. Do they signal fifty, Neil Datta or do they keep it a surprise and shock us? September twenty one.

I say they signal, I mean they should signal it, and but I think more importantly is the guidance they said, say that they're willing to do what it takes to stabilize the count right provide that inflation continues to slow.

Neil, thank you so much. It's great to have Claudius sim and Neil Dudda with us with this report and again, futures at negative ninety three down, futures negative four sixty six. Mletti with us here. She wanted to go. You know, she's in Milwaukee. Did you survive the convention in Milwaukee?

I did.

I stayed kind of far away from it, so far for.

Like you couldn't even get to your offices right.

Well, luckily we are still in the suburbs in monomoally calls, so I didn't have to, but we're moving downtown.

How do you I'm so honored you're here today because we're doing traditional long only byside, we're trying to do a short term, three year view. And you can hear the cacophony here from doctor s and mister Dutta. How do you use what you're hearing right now?

Yeah, well, you've had you know, some of the smartest people on the show already this morning, and it's really interesting to hear what they had to say. And certainly we pay attention to the macro to the top down, but what's been maybe more interesting to me as an investor is the signals that we've been seeing from the bottom up right looking at companies, listening to what they've

Yeah, well, consumer spending and whatnot. You but you know, I'm looking at other data points. It depends which data points you look at. Tom, you know this credit card delinquencies look fine. I mean, I know, can the consumers ur you know, kind of taking it on the chin and bit here, but you know, fundamentally things seem to be fine here in the US. You know, is there room for people to buy the dip here?

You know?

One, I think people tend to panic when they see moves like these. I think it's actually healthy because you had something priced into the market that likely was not sustainable. And the more we take out here, the better chance we have of not having a big disaster when things change. And so there are opportunities. Volatility brings opportuntunity. We're going to see more volatility.

Well, okay, we see more volatility. We've got to VIX up twenty one point four to one right now, folks back to almost an August normal given the sweat of August over three decades, anim letty, Intel's adjusting. Okay, let's call it a train wreck to be polite. But within the securities analysis at all Spring and the legacy of Milwaukee strong, how do you adapt to the revenue shortfall?

You know, I mean tem I think one of the things that you talk about a lot, which I think is really important. It's more than just earnings, right, It's been top line growth. Top line growth has been tep it, to say the least for the majority of the market, except for we're kind of those concentrated names that we've seen, and you know, so when you see decceleration of growth, it's a sign. That's what I meant from those bottom

Let me do a reset here, folks, if you're just joining us a difficult and challenging jobs report you heard on Bloomberg Surveillance. Claudia Sam, formerly with the FED the Brookings Institution, Claudia Sam's saying her sum rule is in effect. She said that the moment after this job's report with Reek revisions as well, futures not as bad as they

It was a lot easier on to get long the ten year when it was at four and a quarter just a few weeks back. Now we're at what three eighty on the ten year. I mean, talk to us about duration, talk to us about the demand frame incrementally yield in the fixed income market. Does that make sense right now?

I think it does. I mean one of the things that we put out in our outlook piece going back at the end of last year was this was going to be a year for fixed income. We also kind of warned about some softening of the economy. Now, look, we're midsummer or of late summer, and we're starting to see these turns. But we do think that there's been an opportunity. Our fixed income teams have been increasing duration and you know, kind of believe that this would be

One final question, I got twenty seconds. What is the quality of a first place Milwaukee Brewers?

I mean, you know, Tom, I'll take it, but as you know, it's still early in this season, and so we'll just hold our breath and cross our fingers, hold our breath.

How about that contract for Jordan Love though, huh, he's got a Green Bay.

You know, if we could actually get three all Start Hall of Fame quarterbacks in a row, I mean, it would be a miracle.

But okay, there we go. What matters Amlodi of Wisconsin, thank you so much. In Milwaukee legendary strong and of course with Allspring investments coming up, the Secretary of Labor Julie Sue will join us at nine oh two as our scheduling. There Katherine Greifeld and Amory Horden leading that conversation with the government on this difficult labor challenge joining us now, and Damien, I want you to lead off here with Ira Jersey of that, and I want to

Ira, the FED has been in a deferred asset position for the last twenty two months. That means it receives less coupon income than it pays out on its bond holdings. Talk to us about this quarterly funding announcement. Talk to us about the FED potentially issuing more or the Treasure issuing more tea bows than coupone. Talk to us about the reserve rep But facility talked to us about what's going on the front end here.

Wow, Damian, I thought we were going to talk about the three seventy eight target that we just hit on our on one of our charts.

That we've thank you for highlighting that, Ira.

What of our cmts And we bounced right off of that and it's right for right now.

Bolding I'll do that in a moment. But Damien's asking the pro question into the week and iral what's liquidity look like.

Yeah, so liquidity in the treasury market has is not terrible, right that treasuries are still one of the most liquid assets, but relative to where it was. You know, when Dominic and I were were on the trading desk at Credit Sueese a decade or so ago, it was definitely it's definitely weekend since then. And there's a couple of reasons for that, right. One is, yes, the Federal Reserve is

Over the weekend. For our listeners and viewers, they're going to look at their CD and say, why didn't I lock in with this move in the tenure? Will we see cash in America? Look for a new spot come Nday. Yeah.

I suspect that people are turning out some of their shorter term assets and they will do that, you know, particularly I don't want to say the smart money, but away from retail investors. And that's one of the reasons something like two year notes are going to catch probably even a bigger bit than you've already seen, because you're going to have people saying, Okay, look I'll walk in three and a half percent now because because in the future I might not be able to get that in

So you mean to get one more quick one in here, Ira two ten's nine point four basis points negative nine point four. We are almost to positive territory. I mean, talk to us about the curve. What should we be looking for there?

Yeah, so continued bull steepening in the curve. It won't be a straight line, right, We'll wind up getting a okay data report at some point, will probably bounce back and people take off those treets, but we'll continue to see that that that curve slowly uninvert.

Again.

This is like a leverage issue because right now, with since the FED hasn't actually cut interest rates yet, right now, those those curve trades are very negative carry. So you have to have high conviction to stay in the bull steepener right now. But I think you can have more and more conviction, and that will occur, particularly after the FED finally you know, makes its first cut and it looks like now in September's almost a shoe in Iira.

Thank you so much, Ira Jersey, who will publish this afternoon and look at Bloomberg Intelligence for that a required read for a weekend Global Wall Street. We're thrilled to doctor Harris could join us this morning. Ethan, I slotted this in is a three hour conversation, and that got mixed by the hair household is well, how does a FED get out of this position? Do they wait for September twenty one? Do they job on it in speeches?

Well, I mean the FED has been very lucky for the last couple of years, and suddenly their luck has turned dramatically against them. They were ready to cut, and then inflation comes in in the high side and they go, oh wait a minute. Then they have a July FMC meeting before they see the jobs report, and jobs report comes in very weak, and so now in hindsight they probably wish they had cut at the July meeting, But going into that meeting, given beforecasts or payrolls, Nope, not

I got to get one question in here because Damian Sassar you should see it, folks. I'm sitting in our radio studio here for those of you on radio, and sas hours literally writing his must read em economic and financial note here off of this jobs before, which is actually it's not a sausage gets made of Bloomberg Ethan Harris. I brought this up with Richard Clarta, Columbia Economics, and you know it's it's simple here. I see massive regret a version. We got comment of Taversky one oh one.

I think I Mike had said this earlier in response to the question that they certainly at this stage they think they're behind the curve, but given the infra at hand, no, I mean, you had we let's kind of forget the first four months of this year. You had terrible inflation data. It wasn't just a little high, it was running at double the rate they wanted to see, and so it put a big you know, it really put a whole halt on the whole idea of rate cuts. Now they've

Ethan Harris, with his folks of course, Leman in the Bank of America for years, actively out on LinkedIn, can't say enough about that. Damien to doctor.

Harris, Doctor Harris, I was reading your note from earlier this week titled slow and Steady wins the Race, and I mentioned earlier I'm a big guns and rosens fan. I love the song Patients. But yeah, Neil dudda talking about fifty basis points in September, and you're saying the Fed's behind the curve here, is there a chance that the market start pricing that in more confidently.

Well they have, you know, by the way, Neil and I worked together for quite a while. He's a good friend of mine, and I think this is a good, healthy debate. I think I was wrong. I think with this job's number to me was a bit of a kind of hit me pretty hard looking. It's looking on like things are weakening fast and you'd like to see and it's the payroll number that I'm most worried about it.

Cut it.

It's just a it's you know, the buond market overreacts, and today I think is an overreaction.

Tom.

You noticed how doctor Harris remembers working with Neil Doab. He doesn't remember working with me at Lehman Brothers back in the early two thousands.

Thanks about that. Thanks for that, doctor Harris. You know, I mean trying to forget but.

His bonus in February one year and a half.

I mean, come on, did that doctor Harris talked with? I mean, there's a lot of ambiguity here about where US treasure yields are headed next, obviously, but when the consensus seems to be that we're gonna have a steeper curve certainly two tens. What are your thoughts here? Curve is now at what negative nine basis points? I mean, are we going to get there sooner rather than later?

I think over time the curve house is steeping. I mean the the the risk premium priced into the bomb market is crazy low. The bomb market's pricing again, no risk of inflation going forward, no term premium. You know, it's just it's just a matter of when.

Now.

Of course the Fed. When the Fed starts cutting, it helps steep in the curve. But there's a more long run story here, which is just that the curve doesn't make any sense.

I meanthan they're coming out of the woodwork. Not only is Neil Duddy email again, Robert Sink is emailing and he's even more retired than Ethan Harris.

Bob sin should be more required than me.

Bob Cinch really makes the important observation Anawong that we got birth death issues and let me let me quote exactly Robert Sinch. There is a residual seasonal adjustment problem. Ethan Harris, Are we going to have all this data amendous down as Anawong says, thirty thousand non farm payroll?

Yeah, I think that the estimates of modest kind of continued revisions where they go back and look at whether they're counting workers right and taking into account pers and deaths of companies, there'll probably be some downward revisions but the question is are they going to justify a recession call, and that's that's a long way. I mean, we've been

Ethan Harris, my people will be in touch with your people. We're pulling you out of retirement. We're looking for a weekly slot. Ethan Harris, author of Bernanke's Fed. We're waiting for Jeromes Fed, Probel's Fed as well. But Ethan Harris there of course with the Bank of America years ago. This is a Bloomberg Surveillance podcast bringing you the best in economics, finance, investment, and international relations. You can also