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Monica Descenzo joins US snub had a global investment strategy GP Morgan Private Bank. What are fancy people doing with their cash?
I don't know about fancy people. What I can tell you what my clients are doing with their cash. Balances are actually still pretty high. If you look like a cross our entire platform, something around twenty percent of assets is actually still sitting in cash. Some of my larger clients so that it's even greater than that, And I think that just reflects the desire for many people to add to risk assets on some kind of pullback. We just haven't had a prolonged pullback. We've had volatile but
it hasn't been very long lasting. So I expect as we move through the summer, maybe if we get a few more bumps, you'll see some of that move into the market. And then I think as we move towards the back half of the year. I think people are just hoping that we get through all this turmoil in the Middle East and some of these headlines. The problem is, you know, when it feels good, that's generally not the best time to invest, So you probably should be sticking a toe in now.
How concerned are your clients about inflation? I know it's you know, this inflation that we're seeing out there. It impacts the lower end of the case shaped economy, perhaps a little bit more than the higher end. But I'm guessing you're getting some phone calls.
It is by far the biggest risk that people think about. I think when you think about the client base, I work with many of them, remember the seventies, and they say, Okay, we look at this market. It just keeps grinding higher, grinding higher, and yet you have higher rates, higher inflation that feels like it's going to be more persistent, and so that they're very concerned that this could somehow be the seventies all over again, where we get caught, you know,
off kilter. That said, when I look at portfolios, I don't see portfolios that are built for a higher inflationary environment. And so when you look at this market, hi single digits here date. That's where we're having most of our conversations. Think about rebalancing, think about adding more to your portfolio that's going to carry better in an inflationary environment. So you got to look at real assets, infrastructure, even hedge funds again, which many of my clients have not used
as a tool in a very long time. I know, just saying it, I kind of chuckle like you because they were out of favor.
For a long time.
And I think now people are starting to appreciate what uncorrelated strategies could do in an inflationary environment.
Even in a fixed income market up well, you could sit in to your treasure and get north to four percent now, and I mean that's got to be attractive for.
A lot of it is, especially in a world where we look out twelve months, we're looking for five six seven percent returns in equities, So if you can get close to that with fixed income with much less volatility,
then that feels attractive. And so I think the big question that you mentioned at the beginning of the cash with inflation, where it is cash is not real you should be So do need to dip a toe in and into risk assets in some form, even if it's just you know, going out a little bit in the risk.
So what do you do with duration? First of all, let's get this stereotype out of the way. Fancy people as I call them. Are they sixty forty Are they loaded the book on Apple and Nvidia? Are they eighty five percent bonds? What's the actual makeup of those portfolios?
When you start to go to like the higher end of the well spectrum, you do see more assets in longer duration investments that could be alternatives other areas like that, because they don't need a liquidity right and so that they can take a lot more risk. So that's gonna be different from like a standard you know, mom and pop investor. And so that's where I see more investments
going that they're playing for the long term. They want to ride this out, they don't want to worry about Okay, So you've.
Got a family of forty five people deciding which f one grand prix to go to next? Great, and there's one person who's responsible is they look at the monthly statement. If we see yield up, price down, how many months out do they have to see price down before they get upset?
You know, it's funny, I that'sn't a way. While alternatives can be a better asset class, some of these marked you know, not donate as regular basis. So it helps people hang in there. You know, clients do panic. That's why I have a job right to try to keep them steady. And where we spend a lot of time beside hogwe inflation, is what is your plan, what is
your goal? What is this money for? And if it's for five, ten, fifteen years from now, your kids or your grandkids, you should not panic on a monthly statement. I try to caution people to not let that cause these reactions. And even I mentioned market up nine percent year to date, people look at that and they say, oh, I can't add here. I shouldn't add at highs. All the data we look at, we look at it over time. Maybe not in a two or three month period, but
four or five months are longer. Adding it an all time high almost no different than adding on a dep And so I try to caution people on the behavioral side to not let your emotions dictate how you invest, and rather stick to the plan that we've articulated.
Easier said than done that exactly.
How about gold gold Wait we hit a you know, hit five thousand. We've now pulled back to forty five hundred. But still I know gold is in the conversation off with your clients.
Absolutely, I you know, most of my clients in spite of the rally what over one hundred percent of the last few years, so golds had an amazing rally. And yet on this re in volatility, I think people assumed the Middle East crisis would cause a rally and that's not what happened. And there's a lot of reasons for that. But you look at where gold is now and you say, okay, I still most of my clients still want to diversify a bit outside of their dollar exposure, so gold helps there.
And then you look at Central Bank of buying, which we think is still going to be a tailwind over the next six to eighteen months. And so that we have those two together, still feels like there's a place for golden portfolios. The question is how you add it. And so they actually have some volatility, so you can sell puts, you can do strategies like that to leg in at a lower level, which has been house in my larger families have been doing it.
Madican. Thank you so much, Medica. This sends over JP Moore in Private Bank. Stay with us. More from Bloomberg Surveillance coming up after this.
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David Oil right now with us on economics and the America's at Macquarie as well. David, I don't feel like I've had a traditional economics discussion, like Paul, what when the Red Sox had penet hopes? Fact, David, if you're writing an eight page memo today, do you have any understanding of where the American economy is, say September November of this year.
Yeah, Well, look, Tom, we are actually fairly optimistic in terms of where things are heading. We think that the consumer is proving resilient, and credit growth remains strong. The AI capex cycle continues to run strong. So we suspect that you're in a good place, and I think that that will remain the play the case when you get to the fall and you'll be talking about how strong the economy is and the need for rate hikes down the line from the Fed.
David, how concerned are you about the inflation in this economy? Is it a short term war driven energy inflation or is it something more?
I think there's something more. I think that you you know, certainly the oil spike is probably passing through and you're likely to see that come through in core inflation and coming months. But I think on top of that you have a tech boom. And I think this is one of the undertold stories of twenty twenty five and even twenty twenty six now is how much tech is driving
and inflation impulse. If you look at at things like computer software and accessories in the Consumer Price Index that has historically been about minus five percent year on year. In the latest release for April that was up fourteen percent year over year, So you've seen a real inflection in that PPI. Semiconductor similar story, that's up twenty five twenty six percent year on year.
With the inflation we have of a central tendency three point eight percent. I notice Canada coming out today with a much lower inflation regime. Is Macquarie modeling out a potential four percent statistic or or do you just see migrating not to two percent forget about that's silliness, but just nudging down if you will.
I think in the US, of course you have a much tighter labor market, and then what's the case in Canada. Canada built up some labor slacks. I think that helps to explain why you're seeing some divergence in the inflation data out over over the last couple of months in those two economies. But I'd say that four percent on a headline number is probably likely to occur later this year in the US, So it's not something that we think will be sustained, but certainly with the oil price increase,
that's four percent is obtainable. I think probably longer term, you're looking at inflation settling in around two and a half to three percent. We've had, I mean, inflation has been above target for over five years now.
We turned a surveillance experts here with David Alexis Christophers and Paul Sweeney. Guys, if we get four or four point one percent inflation, mentally, we're not ready for that, I would suggest I don't.
And this is a US consumer, like a lot of consumers around the world, have been beat over the head with inflation for a long time now.
And it'll be the first time a whole generation has seen inflation be that high.
So they don't do what.
David, That's a really important point from Alexis. I mean, this is a whole new new for a lot of people, isn't Well.
I think the lived experience for a lot of people that entered their working lives or their adulthood and you know around twenty twenty has been you know, elevated inflation. And so I think that the luxury that we had in twenty twenty two and in twenty twenty three when you had that first wave of inflation posts the COVID reopening was that you had had low inflation for you know, thirty or forty years, So people weren't I didn't have
their backup as much about it. And I think that you know, if we have a second inflation wave here and it looks like one maybe underway, you know, people will be much more sensitive. I think that's that's astute point, David.
Given that backdrop, what's your view of the US consumer these days?
Well, look, consumer I think has proven more resilient than a lot of people had anticipated at the outset of this oil price spike, same store sales growth I was looking at it the other day is up close to ten percent year over year. We've had solid retail sales growth through April, so it looks like the spending has continued, which I think the sum has been a bit of a puzzle given the higher gasoline prices some had anticipated would be more of a drag. Tax re elevated tax
refund checks I think are part of the story. And then I think another undertold part of the story is credit growth. Right, credit loosening is taking place, and consumers are making up for the higher gasoline prices through taking out credit.
So one final question, my summary of all this, David Doyle is I got to start modeling out of FED rate increase.
I think that's right. Look, we've been calling for a Federate the next move for an increase since the start of the year. You know, right now we're in early twenty twenty seven, but it's possible if the data continue to evolve then in the way that it has been that they have to start moving in twenty twenty six. So I do think that we'll be talking about that more than the months to.
Come, David do Thank you so much Macquari this morning. That was a great summary of where we are. We're not doing that enough now given all the distractions, stay with us. More from Bloomberg Surveillance coming up after this.
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Now, this is a tree his public service to America at the White House for President Trump. Joseph Flifornia. Jones joins us. But what you don't know, and probably President Trump didn't know, he was at Deutsche Bank years ago in the combine that melded economics into fixed income. We're thrilled he could be with us today with parchment from Vassar and some work at New York University as well. Okay, I got to get this out of the way right now. I saw Gold and Sach's treatment and they look at
four point six zero ten years a pivot point. Okay, we're there, and we're there quickly. Do you have in your head a ten year yield where the system unravels.
No, but I do think rates are going higher Tom for a whole host of factors, a higher inflation risk premium they need at some point for treasure to raise more supply, and the fact that the market has really only priced about one tightening, and I could see potentially a series of tightening, So yields go higher.
Okay, Paul's got eight questions. I'm going to get this one in quickly here.
If yields go higher, price down, it can be ambiguous, good or bad or zag and posen say you're going to see a higher wage, a higher real wage.
Do you buy that optimism or is it going to be stress?
It's possible, I mean the AI the productivity story could translate into much higher wages. The corporate share of income is high, so hopefully at some point that does flow to workers. I was very bullish on the economy, and we was talking in my prior role of a disinflationary boom, which seems very reasonable until the Middle East warst started,
because I think that completely changed the dynamics. So yes, I'm bullish on I was bullish on growth in terms of being lower and non inflationary and rates coming down in the FED easing, All that's kind of thrown by the wayside. In terms of what level of yields crack the system, we don't really know. It's really a liquidity and confidence story. Could be four seventy five on tens, it could be five percent on tens, and there's so many other dynamics up playing. As you're well aware the
narrowness of the market. The equity market has been a handful of companies, and at some point you know that exuberance may itself be stretched. So if if it's tightening, financial conditions suddenly tighten, risk appetite changes, then it could unravel quickly.
Joe and your notes, you say inflation is a problem. I think most of our viewers and listeners would agree with you. How long is it going to be a problem?
Do you think that's a great question? I mean, when's the war going to end? And how quickly can these bottlenecks stop. I mean the way to think of it is too many COVID, and I think that's what most investors don't understand, which makes me think yield to go higher. When I say many COVID, there's major supply chain disruptions. It's not just energy, it's nitrogenior relates to fertilizer, different material that going with the plastics are the sensitive commodities.
And what we learned during COVID is just can't turn wells off. You just can't shut this on a much much smaller scale. But you can't just turn the system off and like a light switch, automatically goes back and the market is I don't think the bond market isn't fully appreciative of that.
Joe Varona SMBC and Eco securities threatenly could be with us at today and we continue here, I guess with the arch idea and you live this at the White House. This is a president who likes joint stimuli all the time. We've got a nominal GDP pop in five percent plus persistently there, We've got you know, inflation well above the FED target and all that are we just living in a new stimulus driven miliu and it goes until it goes.
We might tom but it's that's the case. Then you know inflation expectations need to be reset and you need a higher term structure rates to reflect the environment you just described. So to either one or the other. Either the economy is going to produce non inflationary growth and eventually the FED can get rates to neutral.
Or right that work.
We're in a regime where you've got rising debt to GDP, higher inflation relative to where the fence cart is, and that would be in the Fed's not cutting and that's a higher rate regime.
Do you perceive that model is one hundred basis points shift sorry folks, jargon, a one percentage point shift up in the curve? Or could it be more sixties like can be a real shift into Provoker?
Well, in the sixties is very as you know, Tom's very gradual, yet cyclical. The floor on inflation higher cyclical floors as you move through the sixties into the seventies. Best guess it's the latter that it would be like maybe let's say one hundred basis points repricing. It's a nice round number, but you know, could it be something longer? It's possible. I mean, in the last couple of years inflation is running about seventy five bases point above the
Fed's target. We're going to go higher than that in the next few months. When could it end? Maybe by the fall we'll see. I mean, how I guess question is how disinflationary is AI in the short term may actually be contributing to the problems we have for the data center build out and energy usage. Longer term is probably disinflationary.
We've got a new FED chairman, presumably he feels a little pressure to get rates down.
A boy, the data doesn't seem great question, Paul, we're going to make some news here. Are you interviewing for a position at the FED?
No, I'm not interviewing for the position at the FED. No, by the way, And I've gotten to know them. I think they're a bunch of FED people. That was one cool thing about the job. There's a lot of super talented people there. Kevin worsh will do a great job. I'm very confident of that. However, I don't see how Kevin's going to make a plausible case for Raycots.
Yeah, it just is just not there.
And if the market continues to price tightening, maybe he just pushes back against the committee that's certainly becoming, at least on from the President's more hawkish. Maybe he pushes back a bit, gets it more center, and then kind of hope for the best things may be unfold in a positive way in the back half of the year, but right now, look at like the Price is Paid series in the isms. The New York Fed's got this
global Pressure Supply Index. Not sure exactly how they put it together, but the picture certainly shows these supply chain disruptions that's all pro inflation in the system.
So again, is this a inflation?
I don't know.
It just feels stickier to me than just.
A bit sticky.
Well, well, you could see if you look at like the San Francisco Fed, they've got the acyclical and cyclical price trends. You look at the Atlanta fit sticky price index. Yeah, you're seeing it absolutely sticky. And by the way, it's been above trend, so you know, we've been well above two and a lot of these components, the supercre that the former chair Jay Powell likes looking at and running about three and a half percent, definitely sticky.
So I mean there's nothing the FED can do, right, I mean.
There's nothing the Fed can do other than at some point potentially raise rates try to slow demand. And the problem with raising rates to slow demand to bring inflation back to target, which right now is probably going to be at least a point, if not a point and a half above target is generally a recession. The question is does if FED want to do that. If it doesn't want to do that, they implicitly change their target.
You're going to be in a world then where rates are higher, You're gonna have a steeper urb and higher yields.
Real true for you across this nation and worldwide. Joseph Livornia with us today with this SMBC Nico here with his service to the nation in the first Trump administration. Lots of good work, including serious fixed income chaps. Stay with us. More from Bloomberg Surveillance coming up after this.
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Mishelle Meyer darkens the door. She's chief economist, head of economics master Card, and all I can say is she owns consumer analysis. Let's get this out of the way. The state of the American consumer. I know it's case shaped. Don't give me that. How fragile is it?
So I would use a different word. I would use the word nimble for consumers. Consumers have been hit with a number of shocks of the last few years, and they have managed to navigate those shocks remarkably well.
And I think it's because the shocks have not.
Been uniform in terms of the basket of spend, so they've had some flexibility in terms of how to figure out where the prices are rising, where they're seeing more discounts, and they're gravitating to where they find the most amount of value.
It's pretty remarkable to see.
I love your marketing at MasterCard. She used to write normal reports for banks in America. Now she's at MasterCard AI Enabled Traveler.
I mean, it's fine.
How it's fine now, I love talking about the Federal Reserve, but it's.
Fabulous to also talk.
About these broader themes in the economy and what we can see in our own incredible data sets. So we did so. It's called the travel equation. It's around three forces that are driving travel in this economy. Macro, particularly geopolitics, machines which would be AI, and then motivations, which is where you want to go. The personal motivations that drive travel.
And one of the things that was really remarkable that we were able to clean from our data is to be able to understand how consumers that are utilizing AIS. We separate into two cohorts, the consumers that have AI subscriptions and a matching set of cohortive consumers that don't,
and you can see how they're traveling differently. First of all, those that are using AI subscriptions spend more of their budget towards travel, and then they go to places that are off the beaten path, like things you would never have known, or cities that you're not necessarily aware of. You're seeing a very high share of tourists spending in
those cities from that AI subscriber bucket. So it's fascinating to see how consumers are embracing AI to find new places to travel that have more value, especially in the world with high inflation.
Paul Sweet is the only one.
With a real life I do the kids are going to the kids give me five days in Ireland. Boom two seconds later, full itinary hotels, restaurants, everything.
Funny you say Ireland.
We actually found forward looking bookings that from the North America the most, like the highest increase in bookings for the summer is Dublin.
Yep, you prove it out the kids. A couple of years ago was Barcelona. Now, yeah, I don't know where everybody's going, But how about there's a lot of tension in the world here in the Middle East, and of course are people adjusting to travel to reflect that?
Of course, of course, and that's that's critical when you think about the overwhelming force that's out there in terms of travel, it is very much geopolitics, and it's the cost of travel, and that's what consumers have to manage in terms of where do they go from a safety perspective, where do they go from a cost perspective, how do they think about.
The availability of flights?
All of those are critical parts of the equation in North America, I the U asked. But even more so, of course, if you're staying in the Middle East or throughout.
Asia, Canadians not coming down to Florida, are going to Arizona when it gets cold, Is that still an issue?
I think that you know, you're seeing Canadians flock to warmer weather, whether it's not some lard in Arizona or Mexico.
But no, you're still seeing a lot of a lot of movement.
All right, so we've got I'm going to go back to your old well here. Yeah, we've got a new Federal Reserve chairman here, what is he going to do with his Federal Reserve because he's presumably he's got a little bit of pressure from the administration to bring rights down. But the data just isn't there, is it?
So we'll see.
I mean, I think that's the reality is that we are in Wade and C mode and that's probably the right place to be because we have to determine how the increase and energy prices will feed through the economy. So there's both growth dynamics and inflation dynamics. So I think for the FED to sit and monitor the data and try to understand the transmission of the shock into the economy is absolutely the right approach.
And the Committee has made that very clear.
They've been very vocal in terms of where they see those risks. We had multiple descents in the last meeting, very active commentary coming out of Federal Reserve talking about those that are leaning more towards potentially a hip being the next move those still in the cut camp, but most that are just saying we have to see how things play out.
I don't know the chart in front of me, but I saw a chart yesterday from the Federzer Bank of San Francisco that showed the flow of people in a way losing their job, moving in transition from employment to unemployment, and for the younger cohort it was shocking the decline in jobs, the flow out of into unemployment. What is master Card seeing on the stresses on the labor front.
I mean, for us, of course, just looking at the public labor market statistics, just like you are in terms of the BLS data, the flow data, the jolt status, jobless claims, so specifically to the stat that you reference in terms of the flow of labor in and out of unemployed cohorts. Earlier in the year and really actually last year, we did see the younger cohort, higher educated seeing a higher duration of unemployment. The last few months
that's actually come down. So I think given what we're seeing in terms of very low unemployment rate four point three percent unemployment rate, the ratio of job openings, the number of unemployed is remaining pretty low, pretty stable. It feels to me that we're in a labor market that is pretty frankly stable, and you're seeing the right amount
of movement in the workforce. Now obviously it's not even it never is, but on aggregate it about private sector job creation running at sixty eight thousand a month the last six months, the unemployment rate again holding low wage growth pre serving to be pretty steady.
Feels like a stay will leave a market.
At master Card, you get some unique data there's we see how the consumers are really spending the money. Is anything jumping out at youde that might be a little different than maybe we would have thought here because we do have this case shaped economy. I'm not sure if you see that in your data.
So I mean I have a lot of views around the case shaped narrative, which we don't need to go and do right now. But in terms of what we're seeing for the total picture, in terms of overall spend, of course, we saw a big increase in spending at the pump. So if you look at spending on fuel and convenience running about twenty percent positive on a year of a year basis, and that showed up very quickly once gas prices rose.
So that's the pass through of higher gas prices to the pump, to the consumer.
And then if you look at the broader basket of spend, consumers are still spending at a pretty decent clip. In other categories, you're not really seeing a cut back, particularly in areas that you would think like discretionary spending for restaurants that's holding.
Okay, we got this is important, And folks who got to run around of time with Michelle, this is important. Are we more aware of the k shaped agony because of our new social media, our new discourse, our new communication versus fifty years ago or one hundred and fifty years ago. Because you're optimistic and I hear this some people it's just not that bad out there, and yet we're here. It it's bad out there every tick of the day.
Well, of course, there's the headlines that are coming in fast and fears across the board, and then there's the data. And when you actually look at the numbers and you see how people are spending and how businesses are investing, you see an economy that is still moving forward. And that's why for us having this purview in looking at the data, it makes all the difference.
I can't say enough how bottle. You just heard from Michelle Meyer. You look at the market, you say, where is the optimism given the agony, And the answer is she does what she does at MasterCards. She looks at the data at San Francisco. Nicholas Petrowski, Na Doot I just reput that out on LinkedIn, and if you want to learn about Michelle Meyer's work, I can't say enough about some of our guests and their commitment to the
new LinkedIn. Dan Roth driving that for LinkedIn, What Urine Timmor's doing at Fidelity, Michelle Meyer when she's doing at MasterCard. You've got economists out there like a doctor Petrowski and Nadau. These are incredible charts, incredible visuals. Just join on LinkedIn and build out your following each and every day, huge huge value as well.
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