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A treat on this special edition of Bloomberg Surveillance. Ed Yard Denny for an extended conversation, ed I read your note carefully yesterday, folks. I can't say enough about the value of subscribing to Yar Denny's Quick Takes. You assessed the bond market. Should people that own shares be afraid of higher yields?
I think they should be concerned, But all in all, I think bond yields of normalized. I think that's important
to keep that in mind. They were abnormally low between the Great Financial Crisis in the Great Virus Crisis because the Fed was manipulating rates, it was rigging the bond market with the short term rate, the Federal funds rate being down to zero, and then of course quantitative easing, and now the bond market has been sort of liberated, free to tell us what the supply and demand and the credit markets really is, and I think we're back to where we were before the Great Financial Crisis, when
bond yields range between four and five percent. So I don't think we should freak out about that. I think we should actually welcome it because it's a sign that the economy is doing just quite well.
You think, Pa, there's four people on the planet the degree with doc.
Regard so Ed. I mean, given that backdrop, I mean, how do you think this Federal Reserve is going to proceed for the remainder of twenty twenty five.
Well, it's interesting, you know, the FATS, they just won't listen to me. I don't understand. I understand why I've been Back in August of last year, we were saying, my collige, Eric Wallstein, and I were saying that the economy is resilient, it's strong, it's demonstrated that it could
withstand a tightening of monetary policy. And again, I think the Fed not only tightened the monetary policy when they took the Fed Funds rate zero to five and a half percent between twenty twenty two and twenty twenty three, I think they also normalized interest rates, both the Federal Funds rate and the bond deal. They're kind of back to normal. But so in August, we thought there was no need for the FED to act, but they didn't listen.
So they did not just twenty five basis points. They did fifty basis points in September eighteenth, and we argued that that would probably lead to higher bond yields. And that's exactly what's happened. We've had the FED funds rate down one hundred basis points.
This is brilliant. Paul I can't say enough about this. Overnight on LinkedIn, Paul done a of ubs and he'll be with us folks in the coming days. Like doctor Yardnni was collegially scathing by to FED in the recent decisions.
Exactly, so, Ed, I mean, how you let me just answer your question.
The bottom line is I think they're definitely on pause. That's the message we're getting from the FED. And I think it maybe none and done, or maybe one or two and done. But I think the Fed is doesn't have to lower interest rates anymore.
As we just complete two years twenty twenty three, twenty twenty four of north of twenty percent returns in s and P five hundred indext And how do you think about twenty twenty five, stocks, bonds, all that kind of stuff. How are you talking to your clients this year?
Well, I go terms Roaring twenty twenties. Baby yeah, I mean so far, so good. Back in twenty nineteen, we suggested that the decade ahead, the twenty twenties, could be
the Roaring twenty twenties. That we've noticed that there's a shortage of labor, skilled labor especially, and that there was a tremendous plethora of technological innovations that were actually useful, that actually work, and are relatively inexpensive to implement, and that these technologies would lead to a productivity growth boom we've had before. This one seems to be much more sustainable and potentially much more significant.
Edgyard Denny with us folks a special edition of Bloomberg Savannance. We're with you till nine o'clock, where am Marie Horden and David Gura will join from Washington with the services at the National Cathedral for James Earl Carter. Thrilled to dann Marie Horden and David Gurrow will give us their perspective on that. We are thrilled as well to give you ed Yard Denny this morning. I can't say enough
about in October. I think it was two years ago ed Yard Denny and Ed I'm going to give credit to the great technician Ralph Enco Poor as well said climb on board equities, my friend, you maintain your enthusiasm, doctor your Denny. I looked at the lineup of hedge fund performance, and everybody hedged last year. Very few people were full Yard Denny. Describe full Yard Denny well fully. Our Denny right now is stay invested. It's hard for me to tell people who've been in cash to jump
in here because the market isn't cheap. But if you've been fully invested, particularly in technology, communication services, industrials, financials, which is the sectors we favored, we would actually stay with them. I know they're not cheap, but on the other hand, their earnings outlook is really quite quite good for the year.
For the current year, we have two hundred and eighty five dollars a share for the S and P five hundred. That beats all the other strategists on the street. And that's consistent with the Roaring twenty twenties idea of a product that he led economic boom.
And it seems like for twenty twenty five, you know, given where the FED is ie, probably a little bit, you know, maybe a couple of cuts at most. For twenty twenty five, it sounds like it's a year where earnings really have to push this market higher. Earnings have to come through it. Do you have concerns about some of the earnings estments out there for this market?
Well, look, not only does the Fed not listen to me, but the market doesn't listen to me. I would love to have a nice, civilized, gradual bull market from here that's driven just by earnings and not valuations. Valuations are not cheap. The buffet ratio is at an all time record high. The forward pe is around twenty two. Back right before the tech wreck of two thousand, it was
twenty five, so we're not far from that. I mean, information technology and communication services account for a hopping forty of the S and P five hundred, and we know the thirty percent of the S and P five hundred is the magnificent seven. Look, I don't think these stocks are going to Magnificent seven are going to go away. I think they're here to stay. I think they're going to continue to account for a high valuation multiple. I
think they're going to continue to perform. But I'm also accounting on a SMP four hundred and ninety three to do well. So year in target is seven thousand on the s and P five hundred, which I think can be driven mostly up by earnings.
Tell us about the linkashire of nominal GDP into revenue, which supports your earnings, call the margin called the development of free cash flow. Do we have a buoyancy of five percent nominal GDP sustained?
I think so. I think again, consistent with the roaring twenty twenties scenario, I think the productivity, which is currently quadrupled from zero point five percent at an annual rate on a five year trailing basis. It was zero point five percent back at the end of twenty fifteen, and now we're at two percent, so we've already seen a significant productivity growth boom. But two percent is kind of
average for the historical average. So what we're counting on is productivity to do a bit better than that, maybe three, three and a half even four percent, which to some people might sound delusional, but if you look at previous productivity growth booms, that's what we get to and we think we're going to get to that handily by the end of the decade because of the technologies that are available out there. So yeah, I think three percent growth is kind of what we're at right now, maybe a
little less than that. On a year over your basis, three and a half to four percent real GDP is possible. Add two percent inflation and you get five to six percent.
I can't emphasize enough. Paul how alone, Yard Denny is on this. There's some bulls out there. John Stolfis, I'm alone, but I don't feel lonely. Don't feel lonely. But the idea that we're going to sustain three percent real GDP, how many guests.
Are telling it's pretty loan call exactly. Hey, Ed, what are you suggesting folks doing a fixed and can market Because a lot of folks feel pretty comfortable at four point twenty five percent into your treasury. Do they need to take credit risk?
They don't really need to take credit risk, and I welcome that. I think that's again normalization. We should have an economy where if investors don't want to take risk, they shouldn't be punished with zero to two percent yields
on their money market funds. I think they should be getting a reasonable return, and four four and a half percent is certainly a reasonable return on a two year On the other hand, people who want to lock it in can certainly go for the four and a half and higher percents that are available in the capital markets, so you don't have to take risk, but there's greater reward obviously if you're willing to go extend into the bond market, going to the corporates, maybe even into the high yields.
Edgar Denny, thank you so much, greatly, greatly appreciate it. This morning, Edward Jardanney there with a call of seven thousand XPX.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
This was the first name I asked for on James Earl Carter. If you come out of Oberlin, you get parchment from Oxford is a Rhodes scholar.
The first thing you do is sit in the mailroom in the bottom of the Pentagon right and open mail. Richard Os did this for Jimmy Carter in nineteen seventy nine. What was it like, Ambassador has to be a young buck at the Department of Defense? Is Jimmy Carter turned Washington upside down?
Like? On one hand, Tom, it was an unbelievable opportunity. I had just finished working on my doctorate where I was writing about what was called East of Suez, what we would call the Persian Gulf and the like, And in seventy nine the two biggest crises happened to be in Iran and Afghanistan. So there I was in my late twenties and suddenly I was getting invited to meetings with the Secretary of Defense and others. It was crazy,
but I also learned the limits of my role. At one point, I was pressing on the tenant colonel to allow me and some other civilians in on the details of the contingency planning for what we might do in that part of the world. And he sat me down and he said, son, you're here for what another year or two. I'm here for my whole career. You're what we call Christmas health. No way let you see these plans.
Was the president Carter her Christmas help? EJ. Dione in the Post this morning with an essay on a one term president. When was it the hostage crisis, which you lived directly it ended the presidency? Or was it more than that to that landslide Reagan victory.
I think it was more than that. The Carter himself thought if he had maybe ordered one more helicopter to Desert one and we had rescued the hostages, he might well have been re elected. Well, it's one of the many things will we'll never know, But I think it was more than that. Carter was not a good communicator. There was a little bit of an eat your vegetables quality to his presidency. He was telling us, maybe at
times Tom what we needed to hear. But we met, but we certainly didn't want it here, whether it was about the energy crisis and over. But the actual accomplishments of the administration were many. But also though probably did him in was high double digit inflation. You really can had survived that, you know, politically, but that's said. He accomplished more in one term than most presidents doing too.
Richard, given the hindsight that we do now have the perspective that we do now have. From your perspective, what do you think the Carter legacy is.
I think it's pretty impressive. I mean, if you think about it. And I'll focus on foreign policy. It was an interesting mixture of idealism and realism. He put human rights squarely on the foreign policy agenda, something that Reagan obviously continued. But he also negotiated arts controlled agreements with Soviet Union. He normalized relations with communist China. He was a realist about what the United States had accept in
terms of the nationalism and rights of others. So he returned the Panama Canal, by the way, on terms that have allowed us to use it ever ever since. He wasn't the pacifist, but he was a great believer in peace. He negotiated these David Agreements, the Egypt Egyptian Peace Treaty. So I think I'll be seen as a president an awful lot done in four years.
Ambassadors, when you were at the Council on Foreign Relations, let me make clear with Centerview partners now, and I'm going to say emeritis at Council in Foreign Relations is he built the modern institution. You had the advantage of Shannon O'Neill and others with terrific Latin coverage. Does President Trump want to move us back to hey Buno Vanilla Treaty of nineteen oh three with Panama? I mean, I get Greenlands joke. Panama is not a joke after September seventh,
nineteen seventy seven. Does he simply want to move us back to a treaty of nineteen oh three?
Tom, I don't take this as a joke. And I'm not sure what his motives are who spoke to him, because these issues were not raised during the campaign. But I think it's unfortunate in terms of the hemisphere. I also think it communicat it's the larger point that major powers have the right to do what they want in their own neighborhoods, which is music to the years of Russia in Ukraine and China dealing with the South China
Sea and Taiwan. So again, if we have serious concerns about Mexico or Canada or the Canal, there's something called diplomacy, and use your diplomats and raise these issues. But don't walk around the region as though you're entitled, because again that set and not only puts everybody in the region and alienates them, but it also sends a terrible message again to Russia and China others that this is now an acceptable way of doing business.
Richard, In terms of foreign relations, what do you expect the first one hundred days of this incoming Trump administration? Where do you think the focus will be.
I think it's got to be on Ukraine as much as anything. And then secondly, what I'm hoping it is, and I just wrote a long piece on it, is Iran. And in terms of Ukraine, it's got to be coming to a real meeting of the minds with mister Zelenski and then presenting essentially an approach to Putin, putting pressure on Putin to accept the peace fire, the cease fire, and then with Iran, we inherit a situation where Iron's
on its heels. And what I've been advocating for is the United States should offer a grand bargain to Iran. Get out of the business of military support for proxies, get out of the nuclear weapons business, and we'll ease sanctioned so this regime of yours can survive. And that's a big approach. But I hope we take it.
Investator US, thank you so much for perspective on Jimmy Carter. Richard has of course a cent of your partners and always associated with the Council on Foreign Relations.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Coarplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
In my ute. Sat. Gabriel Mountains north of La were basically invisible in the pollution like Mexico City of La. And one of the miracles of this nation, including the work of President Carter, was crystal clear St. Gabriel Mountains. This is up buttressed with Elta Dina and this has been one of the two major fires that we've seen the last couple days. And if you migrate from Elta Dina southwest across Lake Avenue beneath Lincoln Avenue, you're run
into Pasadena and Paul. This is where Ohio State wins every year in the Rose Bowl. Seems like they win, you know, I mean, that's the way it is. It's four and a half miles a short distance to the Rose Bowl from this horrific fire. We would speak to James Glassman of JP Morgan, now retired in his glory, about this job economy. He is definitive with his work at North at Western, but we must speak to him
about what he's witnessed the last couple of days. Jim Glassman, where you are a distance from the Altadena fires, do you have smoke damage?
Yeah, you don't want to look at the air quality index, which is normally good is thirty to fifty. It was three hundred and twenty five yesterday. They call it unhealthy, and it's very it's very thick. It reminds me, actually, what you were saying reminds me I lived here when I was in first grade long ago, and it looks just like I remember. You couldn't see them.
Out, Yeah, yeah, absolutely couldn't see that, Jim Glassman. Just one more question on this. Do you have a sense within the Glassman zeitgeist of Los Angeles that it's all clear this morning or are people still stealed for more winds and fire.
I think the winds seem to have settled down, but the fire is going to take some time to get a grip. When I looked at the review of all the different fires, they said that none of it was under control. Really, we've been kind of looking to see when that's going to happen. But it's pretty it's going to take a while. It's pretty devastating, and you know, normally these stories are kind of remote to all of us.
We look, we know there's an issue going on somewhere, and we calculate what is this going to do to the economy. This is a real personal thing for me because people had this. It's a I've got people living in my house because they had to vacate from Brentwood and Palisades. Uh, you know, they know half the you know, big large community been disrupted, no home, nothing, nothing to live in.
Doctors a little while to turn to the economy, and with your brilliant work, particularly on teenage unemployment years ago, are we a fully employed America?
I think we could be more fully employed. I think we were prior to the pandemic, and then we kind of got back there. It's it's loosening up a little bit. But I think the problem really the labor market. It's not so much we are by the standard metrics, we're fully employed. But the problem really in America is that the share of income that goes to the various things that we use to produce GDB workers have been getting a smaller share. And this has been going on since
the late nineteen nineties. And I think if you keep I think if you keep an eye on the evolution of what's going on in the labor market, the politics makes a little more sense. The disruption that's going on in the labor market has been really stunning. And you know, that's kind of to me what this shrinking share of income going to workers has meant. And it's got massive implications for all kinds of thing news. And by the way,
you know, we grew up in school. I grew up learning that, oh, keep your eye on are we fully employed or not? And that's going to tell you whether it's inflation danger. What we're learning in this millennium, the last point five years, we're learning that that story doesn't really make sense. A tight labor market is not really the danger for inflation. And I think the FED people have been slowly abandoning that view, as you hear from J.
Powell, and that's kind of where I want to go. Jim just kind of the concern about inflation here is this, are we in a new normal here where maybe that two percent number that the Fed once isn't really where we need to be.
Well, you know, I've heard Janet Yellen once say, you know what if we if we could do it all over again, maybe we would have picked a different target. Because but I think I think the problem is once you decide all the central banks around the world started with Bank in New Zealand, when once I embrace the idea that they should have as explicit target two percent, the market bought it, and it's reflected in inflation expectations, and it's really been anchory. It's an important anchor for
the bond market. I think I don't hear anymore people worrying about what's the long run strategy of the central bank. That we used to think about that all the time, the politics of the central bank, of the monetary policy. And I think the I think the advantage of picking some number, whatever it is, you you could we can quarrel about whether too is too low. But I think once you do it, it's it's unwise to changing the.
Rules of Jim Glastan, thank you so much for joining us. Too short an interview on the economy at hand. Thank you for the perspective on your rose bowl in Southern California and Los Angeles as well.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Good daily look at the front of pages around the world that Lisa Matteo hour. Lisa, you start with something many Americans are living right now.
Yeah, we've been talking about the wildfires. Now Airbnb they're saying that they're going to be offering free temporary housing to those affected. So yeah, we've heard about it before. They do it through a group two one one LA. It's a nonprofit in Los Angeles. But airbnb dot org they've been providing these free temporary housing. They did it for the Spain floods back in October twenty twenty four, Southern California wildfire in September of last year, and also
those affected by the hurricanes. So a lot of hosts open up their home for a discount, and then this this website is a place where people can donate, so then that covers the rest of the costs. So that offers these people, yeah, some housing.
It so huge deal in La now and many people moving south to San Diego. Their reach is huge here even with the Rob Carolyn saying the storm moves to the south.
What else does you have at sure this was a Bloomberg survey. We've been talking so much about how AI could take away jobs, so now this survey from Bloomberg Intelligence, it kind of puts it into a perspective. It says global banks they could cut as many as two hundred thousand jobs the next three to five years. That's about three percent of the industry's global workforce. Back office, middle
office operations. Those are the ones most at risk. But he could also mean improved earnings, which they also point out because banks could add as much as one hundred and eighty billion dollars to their combined by twenty twenty seven.
Right from the get go, they've talked about margin expansion. I'm in the camp, Paul, I'm going to wait until I see it right.
But this was a nice survey Bloomberg Intelligence senior bank's analyst Thomas Netzel over in London. He did the survey of a lot of big financial institutions over there, got some good feedback, so again putting some numbers on the.
Dish, and they like City Group already letting staffers use jen Ai to like scan through documents. At Klarna, they have aissystems doing the work of seven hundred full time customer service.
Was a lowly bank investment banker. One of my jobs. We spent many nights at the printer, literally at the printer in Lower Manhattan, proofreading prospectuses, sitting there till like four in the morning. Proofreading perspectuses. Yea, God, you gotta automate that somehow, yea.
No, serf the recess when Paul was calling up doing some you know, trades out front of the transition and actually that was an issue, yeah, you know, on the insider trading. Yeah, way back this next one, Lisa, I'm sorry, this got a huge splash by Bloomberg.
It did, Okay, So this is when you kind of tie it in. So what do Wall Street workers do when they're out of work, because they've been showing there's a thirty percent reduction in equity analysts at major banks. So what some of them are doing who can't find work, They're turning to social media and content creation, so they're becoming basically, I guess influencers are giving out advice on
the finance industry. So one analyst sells Bloomberg, you know, it's not easy, Like he's been out of work since about two of that's twenty twenty two. He's thirty seven, and this is all he's been able to find. So he's kind of growing it. His his five figure income in about a third of what he used to earn. But he says he's trying. But it really gets into how equity research is being squeezed down.
To the heart of it quickly here because they want to get to the other story here on Apple, there are fifty six and four there are sixty analysts on the an R screen. Do I need sixty opinions?
I'm guessing.
I'm guessing eight to ten are getting paid for their Apple research. That's it. That's why we create a Bloomberg intelligence fifteen years ago, because the Street was downsizing its research commitment and so we just are Bloomberg decided let's fill that void.
Well, thanks to Krid Moffatt for being with us. Is so on Apple yesterday. One more, Lisa, have you.
Ever been to Vail, Colorado? They do Okay, have you seen the homes, because this is about okay, pricey, pricey homes. Wall Street Journal says more than fifteen thousand square foot home could set a price record. It's going to go on the market for seventy eight million dollars. Eleven bedrooms, indoor pool, two heated outdoor pools, two hot dubs, two kitchens, two elevators, a movie theater, and a gym that looks fantastic.
Do they pay taxes to support the kids driving three hours?
Yeah?
To flip stakes, Yeah exactly.
It's again the real estate out there. Like most resort areas in the world, it's pricing out their employees. So what Vail Resorts is doing is that they have to build like dorms for their employees. Anyway, it's crazy out.
There, Lisa, thank you so much to subdued newspapers. Today here on this day of the funeral of James Earl Carter, this is.
The Bloomberg Surveillance podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Easter and on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal