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Matt Hornback joins Global ahead of macro Strategy at Morgan Stanley. Matt, good luck with the macro strategy. September twenty twenty five. When you sit at the table in a wonderfully collegially argumentative Morgan Stanley, how divisive is the debate? Hi?
Hi, Tom, Thanks for having me on. It's a pleasure to be back. Well, we don't have divisive debates. We have collegial debates, and you know, I think in the end, we all try to come to an understanding of all of the very perspectives that are informing investments taking place in the markets every day. You know, it's it's obviously not just one perspective that ends up dominating the investment landscape.
It's a collection of a multitude of perspectives, and so we we like having those debates internally, but.
The debates here center around an absolutely original fed meeting. I mean it's I remember years ago talking to Richard Berner at a dinner former Morgan Stanley Giant about the dots. I mean, this is not a normal meeting of dots, is it, Matt.
Hornback, It certainly is not, and it's it's perhaps a meeting of dots and dissents.
If I can, if I can play on words.
You know in the end that the dots are a device that the FED doesn't like to use as a guidance device, but unfortunately investors have become a customed to using the dot plot as just that, as forward guidance, and so this will be an important set of dots. As you know, we add an additional year to the dot plot in September, and we also focus very much on what the dot for twenty twenty five implies for
the final two meetings of the year. You know, the consensus is that we will have a median dot somewhere between two or three cuts in total for twenty twenty five, including of course the cut that everyone expects at this meeting.
But there's always surprises, and.
When the dots move, they tend to move a lot, so that's will really be the main question I'll be trying to answer going into the meeting.
Matt So as global head of macro Strategy, where's the waiting for you guys these days, US versus rest of the world, Because there was similarly a little bit of a c change there in the beginning of this year around the liberation today. Where are you guys right now?
Yeah, you know, the dominance of the US and macro markets is something that has been around for quite some time.
Of course, I think one of.
The main reasons for that is because the central bank that most people in the world pay attention to more than any other is the FED, of course, and so when you have all of these eyes around the world focusing on the same event, it can dominate investment perspectives and actions. So we are certainly focused on the US at the moment. You know, the US economy is one where the labor market appears to be showing the most
signs of strain. I don't want to use the word stress, but I think strain is an appropriate description of what we're seeing happen in the US labor market. And of course, if the strain turns into stress, then we can expect the central bank to act much more expeditiously, to use
a word that Pal has used in the past. So I think right now we are focused on the US, but we'll see, We'll see what happens in the economy into the end of the year, and maybe it will then be appropriate to focus on other parts of other parts of the investment world.
Matt, we got you on YouTube video. I see outside your office. I'm bet guessing some traders out there, and they're probably thinking about what they should be doing, how they should be positioned around two o'clock. How are you guys thinking about two o'clock in the two thirty conference.
So our baseline view is that the FED will lower rates by twenty five basis points. We are expecting one dissent from a board governor, in this case the newly appointed Steven Myron, and so that's what we're expecting for kind of the main bits of the meeting. What, of course, people will be focused on quite a bit is number one the dot plot. As I mentioned earlier, does that
median dot settle in at two three? How many if any dots are circling around four rate cuts for in total for the year, that would be one hundred basis points. I think very few people are expecting there to be a collection of dots showing one hundred basis points of rate cuts, but there certainly could be, and that will be a point of focus. And then, naturally, the press conference is an important part of the.
F MC meeting now every six to eight.
Matt, with all your heritage of decades in Japan, two o'clock today in the press conference today, is your own palse central banker to the world.
Is he, frankly central banker to Tokyo.
Well, he might be central banker to himself.
In the sense that you know, we are now in the twilight period of his time as FED chair He has, you know, just a handful of important meetings left in his tenure. I imagine the closer that he gets to May, the more he will start to reflect on his own time as chairman of the Fed, and perhaps he will start to think about the books that may or may not be written about him after he bids farewell to
the Federal Reserve. In that case, you know, he could be focused on doing what is certainly right for the economy, but also in doing what is right for the economy, he ultimately is going to be helping his own reputation moving forward.
Matt thank you for your time. Matthew hornbackus with Morgan Stanley. We thank him here on a FED day. Stay with us. More from Bloomberg Survey on coming up after this.
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Kaylie Cox joined chief market strategists Riddultswell's management. Kaylee, get us into earnings, but more importantly, get us beyond earnings into November and December.
Is there going to be like a frenzy melt up?
Well, I think before earnings we need to talk the FED and the government shutdown because those are the two most prominent Yeah, risk kind of risk catalysts that are coming over the next few weeks. But one quick thing about earnings. Q three earnings obviously Q two was a low bar. Companies hurdled that bar pretty easily, although I guess there are a few caveats because I think you need to be looking at earnings on a sector sector basis.
The bar will be higher. I think analysts are still having trouble processing what tariffs could mean, especially with the new change that came at the beginning of August. But I'm really focusing on what the Fed will do as a precursor to what we'll see through the end of the year, and really the pushes and pulls and the government shut down, especially as we head into October.
Yeah, but if we get past those, Paul, yep, I'm sorry, I got solid GDP. I understand the tensions out there, particularly in the labor market. But Paul, where are we October twenty fifth or something?
I know it's time you talk about the resiliency, the courage to be in the market's CALLI I know you folks over Aberdhalt's Wealth Management are really long term. You try not to get tripped up by by the noise here. How is your kind of outlook kind of changed, if at all, during the course of twenty twenty five.
Well, it's funny. Our clients are long term, but we don't pretend that the noise isn't there. Our clients are
also hearing the noise. They have legitimate questions about the headlines that they see come across the tape where we sit, and you know, our outlook has been around leaning toward value for most of the year, especially because toward the beginning of the year, you know, we had Liberation Day, we had these tariff pressures that we had to think about, and labor markets weren't looking the strongest heading into the year. And you know, we believe that the consumer drives the economy.
Consumers aren't making money then, you know, Americans aren't spending like they usually are, So you know, we've been encouraging value. We've been encouraging you know, rebalancing your book, understanding what you own. We still think that this is prudent heading into the end of the year, and honestly, we think it's prudent for most of the time for our investors
who are prioritizing stability and consistency. But it is a tricky moment, especially with you know, economic projections pulling in one direction and then the labor market pulling in the other. It's tough to know where to prioritize.
What are people actually doing.
Forget about the theory of ridd Holt's, the theory of Kelly, the theory of Josh. Are they still scared stiff.
There's some healthy skepticism out there. It's funny. You know, the fears were high heading into April, or excuse me, you know fears were to start the beginning of the year. I'll say confidence was high, and then it's slowly tailored off in the first few months of the year. Now investors have those scars. They're heading into the fourth quarter. They know that the ground is shifting underneath them. We're getting a lot of questions on how to capitalize on this.
I mean, mortgage refis, for example, are one of the big questions that we're getting, you know, constantly, with the thirty year mortgage down near a three year low. And quite honestly, it's a hard question to answer because you know, the long term end of the long end of the curve is one of the hardest things to talk about at the moment.
There are a lot of catalysts whipping Kelly.
Cox staying with us here, when do you get the market open? Right now? The vics sixteen point one for it, here's Lisa Mateo.
You got it, and we'll start with the S and P five hundred right now. As we get the markets open, it's little change, little movements still up about a point at six thousand, six hundred and eight. You have to point out the levels that now two ten percent, one hundred and nine points at forty five thousand, eight hundred and seventy seven. We get to the NASAC right now. Not much movement there as well, up about two points at twenty two thousand, three hundred and thirty seven.
We go to the yield space.
We have the two year at three point five one percent, that's little changed. The yield on the tenure four point zero two percent, and that is little changed as well. We have the Bloomberg Dollar Spot Index, not much movement there. We have bitcoined down about half percent at just above one hundred and sixteen thousand. That is your Bloomberg opening bell report all in time.
Thanks so much, Liza, greatly appreciate it. Kelly Cox with us with Rufotes Wealth Management. I'm sure it's been a point of discussion there in debate, and I'm certain with Barry, and we've talked about it for years. Kelly Cox on John Deere, which is the great CFA company to study in the brutal level one accounting treatment of the CFA Institute, Kelly Cox should John Dear Should John Dee report four times a year or like sensible YEurope two times a year.
It's funny so Trump brought this up a few days ago. I think this is the second time that he brought up the possibility of cutting earnings reports down to semi annual, or at least less frequent than quarterly. I'm a big believer in transparency. I think markets are more efficient with greater transparency.
But you have to look at this on both sides of the equation.
It's lower compliance costs for companies, it's lower it's lower operating costs in general, though I don't think it would make much of a mark. Investors are on the losing end though, and as we you know, for where we sit in the business, we're always on the side of the investor. The hardest person to ask is me because I love rifling through data, so I have a natural bias there.
She's on the conference call.
Great quarter, No, hey, Kelly, talk to us about it.
No.
I wish the courage.
To be in the market right now. What's it take to get in the market today, That's the heart of the matter.
I think it takes a strong stomach, but look, you have to do it. You can't predict where the bullmarket is, especially a bull market that's been driven by momentum and sentiment for most of this year. You know, we keep reminding people that things feel uncomfortable. Obviously, there are a lot of catalysts to consider at this moment. But as rake cuts come, you're going to be you're you will be paid less and less on cash. So cash management is key as we head into the end of the year.
And look, nobody ultimately knows where this bull market heads. And you know, we could still be missing a lot of You could still be missing a lot of upside here, especially from those unloved sectors of the market that are more value oriented that we've seen shine over the past month or so with this rake cut rotation.
Kelly, Thank you so much, Kelly Cosh for the west to management. Stay with us.
More from Bloomberg Surveillance coming up after this.
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This is well timed, to say the least. Randy Schummer's with us, who's been doing this a while, Vice chairch Churchill Asset Management and also chief investment strategists. Oh, chief investment strategists. Should my grandmother have private credit in our four oh one k?
Look?
Look at the rest of our investors. We have five million teachers through the TIAA retirement program, including my brother and sister in law, who every Thanksgiving ask about private credit, how how their portfolio is doing?
Right?
So you're in good company. Look what's interesting now, particularly my new role, is we're focused on one of the fastest growing channels out there, which is private wealth. What is private wealth?
Right?
Private wealth is pretty much everyone we all have of private wealth. We all are looking for yield and we're looking for income. You know, I'm at a softball game with my daughter watching your play. Somebody comes up and he says, Hey, I think I heard you on Bloomberg last time. With those guys, you seem pretty smart. How
do I get into this assay class? That is what a lot of people are thinking about, particularly when you look at the sixty forty model, which you guys are experts on, But what's happening is the alternative model, which is including ten twenty thirty percent of non correlated assets that have longer yield less correlation, is getting a lot
more action right now. And I haven't talked to you about this during most of our programming, but half of our committed capital is going to private equity and junior capital. Think about that. So we have probably our fastest growing products right now in private equity because the yields are better. And in the current environment when gps are trying to get more liquidity because the exits are slower, they're looking for more products that can help them get liquided, not
just for them but for their LPs as well. So exits are a little slow, but for the best private equity firms, actually fundraising is pretty good. So you know, I like to come every morning with you with a fun fact. Fun fact for us, Our gps that have been raising money this year in new funds have all hit their hard caps. What does that mean? You have a target cap of funds you want to raise five hundred million billion, whatever it is, and then you have a hard cap above which you're not going to go
because you don't want to dilute your existing investors. They've all hit their hard caps. That's different than the news you're hearing generally outside of Bloomberg about fundraising because people say, oh, fundraising is slow, not for the best.
All right, So I'm on your distributional list. I get notes from you guys. You're all over the world. What are you doing when you go to Asia, when you go to the Middle East, when you go to the Europe? Are you looking for capital? Are you looking for deals?
So doing these days in my new role, but even you know, when you can think of think of me as.
Likeocus on the private wealth site, private wealthments, and.
You know, we obviously have institutional clients. But the key to my friend Jess larsenal give him a tip of the hat, you know, over at Briarcliffe says that beta for private capital is performance. Alpha is education, because you need to explain to investors what this private credit, private capital opportunity really is. You guys have been helping me. Are so so grateful for that over the last several years, getting the message out, getting the gospel of private capital out.
But what it means is that how do I get value out of an ill liquid asset class? What is the benefit to me if I can't sell?
What do you think benefits.
Correct? And the answer is less correlation when markets trade down, and more consistency and premium income when when rates go down, for example. So we're going to see some interesting turns over the next few months and next year as rates start to come down.
You know, I got to get this question, and we're going to have to run here on an incredible FED day. But Randy, to me, what's a pard of the matter here is the big boys are going to come in. Churchill can manage its story, fine, I get it, I love it. But the big boys are going to show up in private equity and particularly conservative private credit where you can make a coupon blah blah blah. What's going to happen when Blackrock and the others send a wall of money right into this environment?
So you know that are the way we do deals is that we're an investor in the GPS. We're an LP actually in four hundred roughly GP funds. So we're getting the best assets from those investors that we've already pre credentialed. We've already pre qualified. Portfolio quality is destiny in asset management. If your portfolio put if your portfolio is hied to high quality, then you are going to
be able to satisfy the needs of your investors. In order for it to be high quality, you have to be super selected.
How is our listeners and viewers going to do a credit analysis and quality analysis of the ginormous huge bank either Park Avenue or Downtown West Street ETF fund in their retirement.
The beauty of retail investing is, if you're investing in our funds, you're investing in the same funds that the ginormous sovereign wealth funds, including our parent company, Trillion Dollar, TA and Euveen are investing in same deals.
Are you?
Are you in triple leverage?
I got to take a Chase Man, hadn't bank credit training and going into private credit.
You do that again?
What was it like buying your first fancy white shirt and blue suit to do the folks? This is what Sweeney did. Was like gospel back then. It was like going to State department. You did private.
We all came out of we all came out of NBA programs and they said, get what you've learned.
Now we're going to tea. Now we're going to.
Teach you how to do it.
Was very good, by the way, he was very good.
Well, Sir Randy Schummer, thank you so much.
With Paul Sweeney looking down a whole new environment with private credit and private equity.
Stay with us.
More from Bloomberg Surveillance coming up after this.
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Were sitting where this is, Andrew Lloyd allenhursts that was City Bank, here.
Circumstances at the table.
I was trying to go back to the nineteen eighties and Wayne Angel and some of the fiery debates of monetorism.
We've never seen this, have we end.
It's going to be a big debate today.
I think about not just what they should do at this meeting, although at this meeting we could have a couple of descents, but also where policies should be going, where the neutral rate is, with the balance of risks is, so every everything is on the table at this meeting.
Paul Donovan at UBS, a student of the British process, said, we're becoming like the Bank of England, are we?
It feels a little bit that way, where you have just this big divergence between some FED officials who didn't want to cut rates at all this year, other FED official those who wanted to cut more aggressively and dissented. Back in July, we had Waller and Bowman with those twenty five basis point cut VIEWA.
But should we notice Paul that Andrew Hollenhorz absolutely nailed the higher rate environment we're talking two years ago.
Yep, I mean just absolutely nailed.
That, Andrew.
I mean, we had some strong retail sales yesterday. I mean you could argue this FED could be as cautious as it wants to be when you're thinking about twenty five versus fifty.
Well, if you look at the retail sales report, I think that's telling you this is an economy that's not going into recession. We have had a slow down in growth, We've had to slow down in consumer spending. Retail sales doesn't change that. And what retail sales really doesn't change is what's going on in the job market, and ultimately that's the Fed's mandate.
You look at those payrolls numbers. We had negative job growth in June.
I know, it was in a revision, so we don't really feel that way. But this is a FED that would have cut already if we had those jobs numbers in real time.
So how do you think that cadence will go here for this better reserve? Starting this sea?
So I think Powell, to Tom's point, has to bring together this committee, and I think he can bring them more or less together around a twenty five basis point rate cut today. But you do have people like Waller who are dissenting, wanting to cut back in July. How do you keep Waller on board with just twenty five basis points today? I think you have to be a
little bit dubvish in the press conference. I think we're gonna hear Powell be a little bit dubish to kind of indicate that this is a FED that could be cutting at each meeting this year. I think we see that in the dot plot, and then continuing to cut next year.
Okay, but that's where I wanted to go to cut this year. Some people are saying three this year. I don't want to do the parlor game, Andrew, you know, I hate it. But here's the reality. I've got nominal GDPQ three off Atlanta fed of at least four and a half five percent. Dare I say six percent? I don't think I can say that. But with the consumption
and retail sales there there we are. Does that strengthen the one and done feel of today's meeting or is he really going to anticipate out a set of rate cuts.
I think it's a set of ray cuts, and I think that's where cher Paul was starting to go at Jackson Hall. Remember back in late August we had policing. This balance of risks is starting to move more imbalance between downside risk to employment, upside risk to inflation. Now we have even more downside risk on the job side.
You're right down.
We've run very strong nominal growth through twenty twenty four. The first half of this year was slower nominal growth. What's your nominal growth twelve months forward? Twelve months forward from here will probably be four to five percent nominal growth, So not that six to seven percent.
That's terrible color graz to me. I'm sorry, I'm lost on this, boss saying.
Exactly, so, talk to us about this labor market. Let's dig a little little bit deeper in there. For the first time I saw recently, number of job openings versus the number of people kind of looking for jobs kind of a little bit more in balance now and it used to be poy. There's so many more job openings out there, and that gave you a sense of olders. This economy, the labor conmry is a lot stronger than me we think. Is that not the case anymore?
It doesn't seem to be the case.
We obviously have big differences between which labor market series, which job series you look at. But the payroll numbers look very concerning now after those revisions, that probably looks the most concerning of any series. But if you look at some of the survey data, if you look at in the consumer surveys, when you ask people are jobs hard to get? That number is going up. People are finding this to be a more difficult market to get
a job. We're also seeing if you switch your jobs, how much is your pay going up when you switch your jobs. That's really not normalized. You used to get a big premium for switching your job. That would indicate it's a labor market more imbalanced. No, that was my game plan for twenty years of work.
Just fine.
So Andrew.
If I'm the FED here, I mean, I'm looking at the labor market. Maybe why wouldn't I be a little bit more aggressive here with that signal? Oh there's something else under the hood the FED season. Maybe the market doesn't seem I think.
There's nothing pushing them to be super aggressive at this meeting, when when you really have a big push to be aggressible, it's like what happened a year ago, where you had data that was coming in softer than expected, and you had the equity market selling off. You had risk assets that were performing poorly, and that that's part of what pushed the FED to deliver that fifty basis point rate
cut back in September of last year. This year, as the FED is getting priced to cut, we're seeing equities rally. We're seeing very high prices for risk assets and looser financial conditions. So the FED isn't working against tightening financial conditions here. We actually have loosening financial conditions. BET cuts are going to feed into that. I think there's no pressure for fifty basis points today.
The press conference today, what would be the question you would ask, I think the key question that I would want to know from share Powell is really what you were asking, Tom, which is should we be thinking about this as a adjustment.
Are we just calibrating rate slightly lower?
Or is this a real rate cut cycles at a rate cut cycle that started a year ago pause because we had care of uncertainty, inflation uncertainty, and now we're picking it up again.
Lord Hollanders, thank you so much. I'm giving everyone a title.
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