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Carol Masser along with Barry Redholts, we are in for Tom and Paul here on Bloomberg Surveillance on this Wednesday edition. We want to get into it and talk about some of the big trends that are out there. We've got a great guest to do that, Ifan Devitt. She is chief Global strategist over at Minetta. It is a one hundred percent partner owned registered investment advisor, and she joins us on this Wednesday if in good to have you here with Barry and myself. There's a lot to kind
of tackle that is coming out investors right now. Some would say between the elections, geopolitics, concerns, maybe about earnings. It's early on the season that meet. We just kind of park a bunch of stuff in cash at this point and kind of write it out.
What do you say?
Probably not what we're going to advise though, Whereas having stuff and cash worked well when interest rates were high. Unfortunately, our clients aren't really in a position to tactically move things around. So what we're really trying to get them to do is stay the course, not be too reactive, and wait and see and have a bit of a strong stomach at this point, because we do think that the next twenty plus days are going to be a
bit of a wild ride. We can see some expectations exceeded, some dashed, and a political backdrop, as you just noted, that is really unprecedented.
So so I'm glad you mentioned not trying to be tactical. But at the same time, lots of investors have been thrilled getting five percent in money market funds at least for the past year or so. What are you guys doing with just spare cash that's looking for yield now that we're starting to see money market yield kind of slide below five.
That's a great question. I mean, it's sliding slowly below five. So we're still in a much better place than we were when cash used to be a drag on portfolios, but we are starting to look at the margin back into the fifth income complex, see where opportunities.
Are interesting there.
Spreads are pretty tight, but still you're still getting a yield that's higher than you would have got a few years ago. And we've always had a pretty core exposure to equities, and that wasn't particularly thematic, so it wasn't writing with the volatility of tech stock.
So that's looking quite good.
And we've always been open at least to some of the alternatives and some of the areas like private credit that have really stayed the course have been a very steady source of income, and we haven't been as open to some more speculative asset classes. But we've always been in education mode around that.
Huh.
Really interesting. In your most recent note, you mentioned oil is down about four percent, and that kind of implies the market is not really worried about geopolitics. Kind of shocking considered how much stuff is going on not just Russian and Ukraine, but the Middle East, and not just Gaza but now spreading out to other parts of that conflict and the threat of a broader war. How are you looking at what's taking place geopolitically.
It remains a modern wonder of our age that markets are continuing to be so resilient despite the political mails from on the domestic front, and despite what Ian Bremer describes as a geopolitical recession. We never had our actual economic recession, but we have had geopolitical recession in terms of just this coincidence of massive numbers of shocks and
surprises on the geopolitical front. These do have the potential to disrupt supply chains and disrupt the price of these raw goods, but it's not happening, and we can see that perhaps there has been a lot more near shoring. The pandemic certainly really tested these supply chain networks, and you can see that they've come out the other side more resilient, that they've perhaps been stronger where the cracks were. And now we can see that markets are so sailing
through breezely without paying much attention to it. So it remains a wonder. I don't quite understand it, because I think there is some more concern, but you know, it's a nice problem to have in that the portfolio remains resilient.
Portfolios of our clients remain resilient.
Well.
I do wonder even in terms of the commodity market, specifically when you talk about oil, energy that there's a lot of supply out there, and I feel like the metrics have changed dramatically, So I do wonder about that as an indicator. Having said that, I also do wonder about the last twenty years or so, certainly the last decade of just money being so cheap and things distorted, and are we yet through that cycle here today?
I would say, no, we're not through the cycle of cheap money and searching for yield. We can see that immediately there's a dip in the market, there's a flood of money in out of money market funds into equity funds.
So there's still a sense that you are not going to make money investing in cash or investing in bonds, especially if you have FOMO when you look at those double digit record number and equity markets, so there is still that sense that we would need to get risk on on of a very strong drive to do that.
I'd say overall, we can see that.
And when it comes to the geopolitics and the focus on energy, yes, we are in a place now where energy security is clearly of prime importance, but we've done much better job around supply. The exception to that is Europe coming into the winter. Now there's going to be a question mark around what Europe potentially will have when it comes to their energy supply. Inflation's very low here, it won't upset the apple cart, but that is a bit of a question mark around energy here.
You mentioned inflation low. UK inflation coming in at one point seven percent.
I feel I'm pretty happy this morning, right, And.
You know, I'm still perplexed by people who are fighting the last war and are arguing about sticking inflation. It's clearly not happening in Europe or in Asia at two two and a half percent. Can we declare the inflation battle one? Now here in the US we.
Can the people who are not celebrating a course, as anybody who has their assets in Sterling, which has taken another dive against the dollar today based on the expectation that the next rate cup is a whopper one, a fifty basis point jumbo cut here in London the Bank of England. So clearly the there is are rough and the smooth with those inflation numbers. But yes, your point, I think we have now moved on. I've seen the language used around a hinge economy. Has the economy now
kind of turned a page. Inflation is not a concern. We're back to worrying about growth where we get it from employment. We're not worried about overheating, and in the nice position that the central banks have a significant amount of arsenal with which to stimulate the economy when they
need to. So is it over Well, certainly we don't know whether all supply chain problems are fixed, but certainly it's not over as an election issue though, as you well know, because this is still front of the center of the voters' minds.
Yea, and I would say that stronger inflation reading for September in the US made everybody kind of reset in terms of their expectations for the fed efan we got to run Ifan Devitt, chief Global market strategist over at Manetta, joining us on this Wednesday.
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Let's see what Anna Moletti has to say. She's head of equity over at Allspring Global Investments, joining us on this Wednesday. Hey, and great to be checking in with you again. Let's start with the election. You guys, you looked into it, wrote a paper on it. How are you thinking about what investors should or shouldn't be doing when it comes to the US presidential election.
Well, I think you summarized it really well, Carol. You know, look, investors, we're all human means, and we get fearful of change, and especially when it's in our face every day. I live in a swing state in Wisconsin. There's polarization happening around what each of the policies for you know, the Republican candidate or the Republican candidate, the Democrat or the
Republican candidate could could produce. But the reality is history does suggest equities can continue to do well through either administration. And likely it's also because it's not just the president who determines right these things. It's also because the Senate in the House. Do you make a big difference.
Right, And we keep talking about that what happens in those down ballot races, particularly what happens in Congress, is important to what a president get done. Having said that, we are spending so much time and talking about John Micklethwaite, editor in chief of Bloomberg News, sitting down with Donald Trump.
Donald Trump talked a lot about tariffs. We've done some of the research about now what tariffs across the board, whether it's China or even other some of our allies, as Trump has talked about what it would mean in terms of the impact on the US economy. If that happens and we have a second term by a Trump White House, would that change your thinking about what that might mean for some companies here in the US and how some equities trade.
Look, you know, either administration could have an impact on individual companies, but we know that they will adjust. I think this tariff issue is an interesting one because two things could be true. Tariffs could increase inflation and make and have increased some challenges for some companies, but you know, maybe if you do get growth alongside of it, you
don't feel that. And I think that's one of the most important things that I've learned in my career in the equity markets is that you can't look at things in isolation. And even when we're looking at economic data, there's no one set of data that really will kind of rule the forward path it's a collective sets of data, and so we tend to look at these things in silos, like what would happen with the tariffs? I think it's what would happen with tariffs? What would happen with the
growth rate? What would happen with all of these things?
And what is the.
Impact ultimately on companies that are trying to manage through it? And I think the reality is that companies typically do adjust and find ways of adjusting to a new set of rules. Sometimes it takes a little bit of time, but they typically do adjust, which again leads to the performance that Barry also talked about at the initial outset.
So, Anne, I want to throw out a contrarian idea and get your response to it. People have been talking about this election like it's a big change election, but can't we say either we're going to get a second Trump term which isn't going to look very different than the first Trump term, or a first Harris term where there isn't going to be a whole lot of daylight between her and Biden. I know she's trying to cut her own course, but isn't this just choosing between one
former incumbent or the other? How big of a change election can this be?
You know, I actually think that's a really interesting point. A couple of months ago, when I was on the show, I had talked about this to Berry. I think these are kind of two known entities in terms of what is what the potential outcome could be. It is very likely that Trump two point zero will be similar with his policies and what we saw with his first term.
It also is very likely that although Harris would like to cut her own path, you will see some of the same policies that we've seen over the last four years. So despite all of the drama out there and uncertainty, these are known entities, and we haven't had an election where both sides are so well known.
So let's stay with this theme and look forward if we kind of get a sense of what we're going to get with either candidate. I want to focus your discussion on quality and moving down the market cap size into mid and small cap. Does that matter who gets elected or is that just broad allocation regardless of the twenty twenty four presidential election outcome.
I actually think it's regardless of the election outcome. Again, I don't want to look at anything in a vacuum.
So there's always some.
Relation to bigger picture issues. But one of the things that we've seen over the past several years is this increased concentration into the large cap space. Now, as you know, fundamentals have driven that earning's growth. Revenue growth has been higher,
substantially higher in some of those large cap companies. But now index investors, passive index investors in particular, are taking very concentrated bets when they're investing in a straight SMP five hundred index, for example, and it becomes not only more difficult for those large cap companies to grow, but
there's also more scrutiny for those large cap companies. I mean, today we see forty three percent of the SMP five hundred is under anti trust investigation, which is interesting and may not be the whole hunt.
I'm sure they feel that there's a different word rather than interesting.
Right, there's on the.
Radar, that's right, and it may not mean a lot in your term. We all know these things get caught up in court and other things. But it also likely hampers the management's ability to be as flexible as they'd like to be.
And I will say Donald Trump was asked about Google, and the cases are the government case against Google, so something that we know will continue into probably whatever administration, or maybe not, maybe it'll calm down a little bit and great stuff. As always, Am Maletti be while head of Equity over at all Spring Global Investments.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play 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 playing Bloomberg eleven thirty.
Let's see what Lachman Achuthon's has to say. A founder of, of course, the Economic Cycle Research Institute based here in New York City. Ecri Key is right now though in our Bloomberg Interactive Broker Studio, and his.
Leading economic indicators is one of my favorite economic data.
Well, that's what I was going to say. He knows data really well, lots of data, and it's accurate in terms of you think of where you were of the summer and what's played out, how are you.
Well, It's so good to see you guys, and I think that I think the points that you're making are spot on.
Right.
It's surprising I think people when they saw that that employment report, and Barry, your point is exactly spot on, as it often is.
I learned, all right, we're good, we're done.
We're done.
So the whole thing we're doing is monitoring cycles, economic cycles, cycles and growth cycles and employment cycles and inflation, and no one data point is good. They're all they're all really faulty. So we use indexes. We we spent a lot of time, decades, dare I say, three generations, putting together groups of indicators that give us a little bit
of a heads up if there's a directional change. And so, Barry, I remember you and I were talking last April, we were doing your master's in business, and I was saying, Hey, the window of vulnerability, the cyclical window of vulnerability is closing. There's a whole bunch of reasons. We can tell the story in the data, but the risk of a hard landing isn't really there. And you know, in the summer,
people got really excited, Hey is there a recession? All this stuff, and lo and behold, we're hanging in there. We're slowing down, but we're not crashing. And you know, It's kind of a little goldilocks at the moment. Not too hot, not too cold.
Do we have to have a landing of some sort at some point? They are cycles, they have highs.
They have close You do, you absolutely do. The question is is it hard or soft? And right now it looks decidedly soft as far as we can see. We can't see that far. I don't want to say we know what's going to happen down the line, but for everything that we're monitoring and managing cycle risk, now is not the time to play super duper defense.
Right.
You said something that has stayed with.
Me for a long time.
I want to say twenty thirteen, twenty fourteen, we were talking about we were still suffering a little PTSD post crisis, and a lot of people then were forecasting recessions. And one of the things that has always stayed with me is the economy. Think of someone walking down the street and you get bumped or jostled. A steady, healthy person a running back is going to keep their feet for one of these surprises, one of these shocks to cause recession.
You need a weekened economy that's very vulnerable. Talk a little bit about how strong a weak the overall state of the economy is right.
So that's your cyclical vulnerability. I've said over the years people who have listened to us, we talk about a window of vulnerability a week in immune system in a free market oriented economy, and we've studied them all over the place for a very long time. There are cycles, ebbs and flows. There's times when your immune system is strong and times when it's weaker, when you're off kilter. When you're off kilter, almost any shock can be a
recessionary shock. When you're standing firm, you can take a hit and keep on going. Remember Katrina, we're talking. We're in a hurricane season. And when Katrina hit, a lot of people say, oh, that's recessionary. A quarter of the economy shut down for a minute, and lo and behold, there was no sicklical vulnerability, and we walked through it. Here we've got some hurricanes. What's going on. We're going to get jumpiness in the data. I guarantee you it's
going to happen. Maybe someone will run with it and say it means this, and it means that when you look at the composite indexes, that tells you a little bit clearer picture. And right now, even though we're likely to get some ups and downs here, it's steady as she goes and all the activity that gets hit during the hurricanes. On the other side, you're going to have rebuilding. And I got to tell you one of the sectors that's been a bulwark here has been the construction sector,
non residential can struction. Now I bet residential construction comes back.
In So so the one question I keep asking people and not getting a satisfactory answer, is why do you now press that? But you're the right person to answer ask this, Given that window of vulnerability, why did so many economists so expect a recession that never showed up?
Remember how many interest rate cuts they were thinking at the end of.
Last year, last year, the year before.
Yeah, okasion they've been talking about forever a couple less, all right.
I think that I think the fundamental reason is labor hoarding. Now we're talking post COVID stuff, right, right, So we're coming off we got rate hikes going like crazy, and we've got a big slow down, and everything cyclical, anything discretionary was slowing down. Even employment was coming down. The growth in the cyclical discretionary parts of the economy was slowing really, really hard. However, the non discretionary think teachers,
I think doctors and nurses. Okay, that employment component, which is a lot of people, was running near three decade highs, and it's growth rate it was solid, and it was it was so structurally difficult to get recessionary declines and employment even with the big cyclical slow down. I think that labor hoarding continues today. The only reason we're having some slow down in jobs growth right now is because that non discretionary component of the jobs market is slowing.
It's coming off of crazy three decade highs, and the cyclical component, the discretionary component, I think it's actually tropic.
So lax, Do you get upset or nervous if we stop to see we don't see that labor hoarding anymore. If we start to see layoffs we haven't seen.
If we start to see that.
Sure layoffs, I think layoffs I would take as seriously as someone who got layoff. Okay, those are serious things. We don't see them here. Jobless claims are a great thing to look at.
We have a so the Boeing or the of us that we talked about this morning, that's want to see.
These are companies specific I don't see. There's so you use ps PTSD before. There's so much PTSD about that, that difficulty in hiring post COVID, and there's no hard I'm still stung.
Companies are still stung from that.
Look, it's very expensive to let someone go and then hire them back again.
And there's a shortage of workers out there.
And so we have a whole you know, there's there's demographic things going on. We can get into that, but the long and short of it is to your point, Carol, I don't see the recessionary level job losses in front of us. Look that could change. I don't know what's happening in a couple of quarters. I do want to make one last point quick. Going into twenty sixteen election and twenty twenty election, leading indicators were firming as they are now.
Really cool stuff, so much fun to reconnect lachmon achthon of course of ECRI.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
We're also keeping the election and the race on our radar as well. On that, Donald Trump defending his plans to overhaul the US economy through dramatic tariff increases and more direct consultation with the Fed. He caught up with John Mickelthade, our Bloomberg News editor in chief, in an interview at the Economic Club of Chicago. Talked about something so important to the Bloomberger audience. We're talking about tariffs.
Because we're about growth. She's got no growth whatsoever, and we're all about growth. We're going to bring companies back to our country. You look at even today as I was driving over, I see these empty, old, beautiful like steel mills and factories that are empty and falling down. Some have been converted to senior centers and homes. But that's not going to do the trick. And we're going
to bring the companies back. We're going to lower taxes still further for companies that are going to make their product in the USA. We're going to protect those companies with strong tariffs. Because I'm a believer in tariffs, I'm not sure that you are. I don't think you are, But I congratulate you in your career. But to me, the most beautiful word in the dictionary is tariff, and it's my favorite word. It needs a public relations firm to help it, but it's.
To miss the most beautiful word in the tariff, tariffs. Do you think that will bring in the revenues to use another bipartisan group, Yeah, Peace and Institute. They said, I only bring in two hundred billion dollars that is only that's barely the cost of two of your promises.
Yeah, but that's like for what company you're talking about. Okay, look, I've I've brought in with tariffs, and I was just getting started. Then COVID came and we had a which you know, because I tell you what, I did a very good job in COVID. Nobody knew what the hell it was. I call it the China virus because I like being a little more accurate. But when that came, but we got hundreds of billions of dollars just from China alone, and I hadn't even started yet. But tariff's
are two two things if you look at it. Number one is for protection of the companies that we have here and the new companies that we'll move in because we're going to have thousands of companies coming into this country. We're going to grow it like it's never grown before, and we're going to protect them when they come in, because we're not going to have somebody undercut them.
All right, of course, that is Donald Trump form president Donald Trump Trump, Republican presidential candidate, as you all know, speaking with our Bloomberg News editor in chief John mickl Thraite. That was yesterday at an interview in the Economic Club of Chicago. They talked Terrris, but they covered a lot of ground. Let's get to it with Kelly Lines. She's host co host of Bloomberg's Balance of Power on Bloomberg Radio and Bloomberg Television. Kelly, I'm not quite sure where
to begin. It was a long conversation. It took while for it to begin. What stood out for you the same that we've gotten from mister Trump on the campaign trail or anything different.
There wasn't much new news in this interview, Carol. We have heard a lot of this language and these policy proposals already from Donald Trump over the course of his campaign, including his proclivity toward tariffs, his favorite word in the dictionary. As he said, he really pushed back against any idea that his tax policy would add to the deficit or that tariffs could add to inflation, which is what most economists would tell you will happen if these policies become reality.
But he essentially said, we can grow our way out of tax cuts. Tariff income can help offset some of the lost revenue from lower taxes, and again most economists do push back on that. But it raises the question of the audience Donald Trump was really speaking to yesterday. There was obviously many people gathered in that room in Chicago, many of whom were clapping at his ideas. Who like
what he is saying. While some on Wall Street and financial markets may not like the idea of blink, get tariffs put on China and what that could do to the US China trade relationship. For an American worker, a manufacturing worker in the rust belt states like Michigan, Wisconsin, and Pennsylvania, which could help decide the election, it may be a message that is a bit more well received in those areas.
So, Kaylie, you hit on exactly the question I was going to ask. Given the near universal consensus that tariffs are a tax hike on consumers and are inflationary. Who is in that audience applauding tariffs. I can imagine it's the usual members of the economic club of Chicago, or am I completely misunderstanding their economic outlook.
Well, there were members of Chicago's business community that were there. There were also many people that are part of Trump's staff and campaign who were there. While we didn't get to see, you know, an aerial shot of the room every single time the applause was going on to see how many people in the room were clapping. Clearly there
were people in there who are supportive of these ideas. Chicago, of course, is midwestern state manufacturing, and bringing back American manufacturing specifically maybe a more popular idea in some of these areas. And I would point out that is really what we heard Donald Trump say quite a few times, is that this is about bringing manufacturing back to the US that he would like to put into place what he described as tariff so obnoxious that they'll all come
rushing in. Obviously, supply chains take much longer than immediately immediacy to actually reroute themselves. Factories can take a long time to build, but that's kind of the premise here making more in the US, and that is something that at least to blue collar voters might sound pretty good.
So I know Chicago is in the Midwest, but when he presented his case to the Economic Club of New York, you heard very similar applause to lines that you typically think as very counter to economic consensus. So I'm just kind of fascinated. Who's in the room, who's in the audience is this I know that he did a town hall recently and was a very friendly audience. Who's in the Economic Club audience?
Well, they can bring people into the room so that are more friendly to Donald Trump, are well known or affiliated with his campaign. As you reference his appearance at the New York Economic Club, there were people who actually were able to ask him questions on that stage, who have been very supportive of his economic ideas. And so I think there is the question of the kind of people Donald Trump is asking to be in that room.
Who is getting credentialed for these places, knowing that he does like to play to an audience that is in his favor. You saw a lot of that in that interview yesterday where he was talking to the audience and kind of you know, making jokes, trying to create these these laugh lines, a lot of personality around it as he went through all of these various topics.
Yeah, well, certainly interesting everything that we're seeing on the campaign trail on both sides. Kelly Lines, thank you so much, host of Bloomberg's Balance of Power, of course on the twenty twenty four presidential race.
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