Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global
headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.
Let's get forward guidance from Scott Croner with City Group US Equity Strategy. Scott, Right, now, Atlanta GDP is a stupid four point two percent. You know that number is going to come down. Governor Bailey's raising the growth forecast fractionally in the United Kingdom. Are we just flat out miss underestimating or just flat out underestimating growth?
Well, it's a really good question.
So let's see.
So let's differentiate Wall Street from Main Street. Right, So we're watching the Fed, We're watching what's happening with central banks in Europe. I will say Tom that right now, you know, in our global equity market views, we've been more constructive on Europe than we have the US going into Q two.
Why the setup there is a little.
Bit easier to your point, you have improving macro trends, you have a central bank closer to pivoting, and analyst expectations tend to be quite low still, so the.
Setup there from an equity market traditional perspective is actually pretty good, whereas here in the US we're still wrestling with FED timing, valuation.
And so forth.
So it doesn't change our view that we think the equity fundamentals are quite strong right now, but we're still looking for that macro kick in terms of a FED policy, and then how that translates into some of the fraying around the edges we're seeing, I think with the consumer to give.
Us a little bit more of a.
Falling rate tailwind that I think is still on the com but not quite there yet.
Scott, can you talk to me a little bit about your approach to European equities. I know you're long US and Asia x China equities, but certainly with Asia x China you're doing it on a currency hedge basis. Talk to us about how you recommend US investors approach European equity should be outright or on a currency edge basis.
You know, look at I tend to prefer it up outright.
I think when we look at it, we try to take the currency discussion to a certain degree off the table.
It's a little bit different when we talk about Japan.
But I think as far as Europe goes right now, I know we're going to be paying attention to currency effects and interest rate differentials. But what we really want to hone on here, hone in on, is this nuance that the setup in Europe is a little bit closer to early cycle than we are in the US.
So growth then, but you know, I just have to take you back here to the US. God, I mean, let's take a look at, Wow, what a pop by utilities of the last six weeks. Talk to me about these rate sensitive sectors. Financials of pop sensitive A guy like you looking at you till I'm a little sensitive.
Are Indonesian repea and dominion.
It's good, I like, But seriously, in all seriousness, got I mean, utilities have had some move here and it is the rate sensitive move here after what we've seen by the FED. Talk to us a little bit about real estate and the property sector. They definitely lagged. I think real estate's off seven plus percent this year. It's the only sector that's down on the air. Talk to us about US real estate.
Okay.
So what we did headed into Q two, we've we've made a couple of important calls. The first was that we were expecting a broader market pullback. We lowered tech from a long standing.
Overweight to a market way. But what we did at the margin was begin to shift our industry group and sector focus to bias in favor of the those parts of the market that should benefit eventually from a change in FED direction.
Okay, And essentially where that takes you is if the if the megacap growth tech part of US equities is more sensitive to ten year yields, which we believe is the case, the shorter duration part of equities, which is going to be utilities, it's going to be real estate, banks, most aspects of the consumer. That's where we want to begin to push our positioning in anticipation of this eventual peaking in FED direction.
Scott, what do you see on debt issuance by corporations. I looked at some of the debt construction of some of our glorious generational tech companies. It is it's just stunning how few bonds, bills and notes they own. Are they going to start issuing?
Yeah, look at sots of lots of discussion points here, Tom. The way we've been talking about this is that we have many unintended consequences of the hawkish.
Feder of the past couple of years.
And one of those unintended consequences is this meccacap growth cohort runs very low debt, very high free cash generation, and as many in many cases as running very high cash balances, they end up being a net beneficiary of higher FED rates.
Okay.
At the other extreme, you do have these sectors which are led by utilities and real estate where their debt maturity cliffs or walls if you will begin to hit this year, next year, into twenty twenty six.
Okay.
So the higher for longer FED narrative is going to be contrary to positioning there. But I do think that under the surface, in our view anyway, there are some reasons for the FED to begin to pivot among those is to avoid the risk of something else breaking that would probably be a function of higher rates for longer, particularly in that real estate cohort of the market.
Skytt Kroner, thanks for getting us started this morning. He is with City Group. It's Sarah on our tour of Spain. She's like, what did I parachute into Sarah house with Wells Fargo here? And you know we're having fun this morning. But let's get serious here. One of the great screw ups post pandemic, and I don't blame anybody because it was a medical crisis, is growth has been better than anybody expected. Governor Bailey just mentioned that in the Bank
of England Atlanta. GDP now is a four point two it's going to come down. I get that. Why is growth doing better than the consensus?
Yeah, I think there's a lot of reasons. Is I think we underappreciated just how massive the fiscal support was, where if you combine the main seven packages, it was twenty five percent of GDP effectively, and so just has a much longer take than what we anticipated. And then I think also just how stimulative monetary policy was. I think it's actually provided a lot of insulation to the rate hikes that we've seen.
On a partial derivative basis, the halves, as somebody said yesterday, those with assets on a partial derivative basis is the growth and success of the halves totally outweighed half of America flat on their back.
Yeah, I think it has obscured that you do have a segment of the US that is struggling a lot more that we see it. In terms of first couple of years. The bottom part of the consumers actually did pretty well in terms of not only the physical support we previously mentioned, but also the tight jobs market really
benefited those lower paying jobs used on the fastest wage growth. Well, now we're still adding a lot of low and paying jobs, but the wage growth in that sector has slowed markedly, and so you're not seeing the wage numbers keep up with inflation as much. And these are the consumers that aren't able to trade down. They can't skip the vac if you never took them in the first place. And so it's really been a squeeze on this, but it's been offset by the fact your big spends we're still doing well.
We live vicariously through Damien. So it takes the vacations.
For US well, Sarah, I find it interesting your response to Tom just there on why his growth stronger than we expect. It has to do with the money to spy, with the monetary base, with all the stimulus that the FED injected into the economy over the past few years since the pandemic. And you know, when I look at that and I think about that, I think about yesterday's QRARA, the quarterly refunding, and I think about, you know, the long end of the curve and the taper and all
of the things that might well be suppressing yields. Do you see a possibility as the taper continues that the long end of the US curve could derail, could bear steepen.
So we're still looking for long end rates to I think, move lower as we move through the year, and think that the yield curve will uninvert, but it's going to be more from seeing the short end rates go down faster. And so I think when ultimately, if we're getting a little bit better handle on inflation, not all the way back to two not all the way back to two percent, but at least some improvement there, I think just the prospect of FED using will help in terms.
Of well, Damien just said there that Sarah pushed against folks. I'm sorry. It's part of the zeitgeist right now. Yeah, there's a whole school of thought outs there. Oops, what if yields pop out a little longer duration?
Well, it seems like, you know, the FED to some extent is managing you know, the long end of the curve. I mean, we're not going to say there's yogur.
Going on here in the US A true Is there any evidence that they are able to manage the long end of the curve?
Absolutely not, And there's no evidence that they can do it today. I mean that's the real gist of it. But you know, nevertheless, we've seen some things in the market that are just tough to explain, like growth, I mean like again, you know, and inflation for that matter, not coming off as quickly as we otherwise expect. It's sort of two sides of the same coin. So it talkt to us a little bit about inflation. We got the CPI print coming next week. What's your focus on that.
Yeah, so looking very hard at court at the core, just given that you have had three months in a row of upside surprises, and we really need to see the core begin to downshift if you are going to keep even the potential of even a September.
Cut the owner's equivalent rant.
I think we'll see some moderation there. It's been stickier and it's been I think slower to see that downward trend. But we've already come off the highs. But I do think that there's further further to go as we move through the year. It's just a matter of the magnitude and timing I think has been tricky to pin down. But the direction I think pretty confident lower.
Well, I think that's the real one, right, I mean, that's what the Fed's waiting for. And I think you know, if you just look at Steve England or at stand chart this morning, you know he's talking about the potential for oeer to fall in the second quarter this year, and that might be what Chair Powell is indeed hanging his hat on. I mean, what else could Shairpalell be
hanging his hat on. In last week's you know meeting, he gave three scenarios about where the Fed's going to push rates, and all of them were either on hold or lower. So no one seems to be talking about hikes, but then when pressed in the presser, he didn't necessarily deny that people aren't talking about hikes on the committee. Talk to us a little bit about your takeaways from last week.
Yeah, so I think in ter obviously Powell put a dampener on the possibility of hikes. I mean, I think you can't ever completely rule them out, but it does seem like there's a very high bar in terms of whether the Fed would actually step back in. I think the more likely scenario is you just see the cuts keep getting pushed out. So I think if you do
see inflation stick, your jobs market remain resilient. I think that's the more likely play, where they're not sure exactly how restrictive they are, but they can sit and wait longer to feel the effectsancy if there are longer legs.
For business America listening across the nation right now, what's the animal spirit judge, where's nominal GDP twelve months forward?
Yeah, so I think it's it's still going to be pretty strong. So I'd say probably closer to four and a half. Four four and a half, you still have two and a half. If you still have two and a half or and a half inflation.
Why are we so miserable with four and a half percent nominal GDP? The Knicks are winning and we've got four and a half percent nominal Explain.
Knicks are winning, but the Hurricanes are downs to the Rangers. So that's why we're a little depressed in Carolina right now.
The wonder Scarlett didn't show up today.
And you know why we're depressed because the Knicks are winning and you can't afford a ticket.
No swing is the only one. But continue what I think that Why does a nation feel so there's a weight upon them?
I think it still is the inflation environment, where yes we've seen improvement in terms of the rate of growth, but prices are still roughly twenty percent higher than they were just four years ago, and it's still difficult to digest.
Businesses and consumers are still having to think about their pricing decisions a lot more than they were accustomed to only a few years back, and so in some ways, it doesn't matter that real wages have kept up if it doesn't feel like you're growing in terms of your wealth.
Fabulous, terrific brief. Thank you so much. Sarahaus with Wells, Fargo this morning, joining us now from Providence, Rhode Island. Professor Schiller is at Brown University. She's one of our most popular controversial guests. The right heights of the left hats are That's exactly how we want it at right now, Professor Schiller. I've got to look at the trial of the former president and something we've avoided, like the plague. Does it help or harm him to have these events going on right now?
Well, it's all about getting out on the campaign trail and also raising money for the presidential campaign. And every day that he's in court and that the news media covers it, but still that he's actually not out on the campaign trail. And of course donors do they want to be associated with him. I'm talking about the really big money donors. They haven't really gone full in for Trump yet, and I think these trials are a distraction for them and for him.
So okay, they haven't gone in full in, but the campaigns are coming up. I keep telling people that are removed from this. They said, don't be removed from it. It's a second week of May. It's coming quickly, isn't it.
It should? But the RNC and the Trump campaigns still have a very serious money problem, Tom. You know, they're spending a lot of money on Trump's legal bills, and that's not stopping anytime soon. Even if these trials get delayed.
The lawyers are still on the clock. And Trump has been brilliant in getting both fundraising from his donors but also the RNC to pay a lot of his bills, and that means they can't fund things like organize and get out the vote, help their county chairs, and help Senate candidates in swing states, and those two kinds of campaigns, the Senate campaigns, the presidential campaigns, are going to be crucial to either side's victory in November.
Professor Schuller, I just curious to get your thoughts on sentiments. And when I say sentiments, I mean, you know, the resigning kind of belief is if you vote Democrat, you're voting against Israel. And I'm curious to hear your thoughts on that. I mean, is a vote for Biden a vote against Israel?
Well, I mean, I think President Biden's record is actually quite supportive of Israel. But there is a limit for Biden, and he set that limit not only this week, but last week in limiting the actual shipment of particular kinds of ammunition and guns and bombs to Israel, saying listen, we can't sanction going into a civilian enclave and kill another fifteen twenty thousand people. I mean, that's not possible. But you know it's may. As Tom points out, Damien,
you point out, it's May. The American voter is going to turn their attention truly to this choice in September, and by then we all hope that there are things are calmer between Israel and Palace on Gaza, and if that's true, then the attention will return to the things that are more conventional, like you know, the economy, but
also Trump's prior record in office. And that's what you should expect to Stephen the Biden campaign in the late part of this campaign is to go after Trump and remind voters what it was like the first time.
Professor Schuler just have to rephrase that question. Is a vote for the Republicans for Trump a vote for Israel?
Well, if you look at the rhetoric of some of the most armed supporters today of Israel and the Republican Party in the House on you know, anti Semitism on combating anti Semitism just a couple of months ago. It's not consistent. So the Jewish community and the Jewish voters in America have to decide who they trust more over the long haul to be both pro Israel but also fight anti Semitism, not just abroad but at home. And I think the Republicans still have a little bit of work to do on that.
And last question, I think you just hit the nail on the head here with what's going on in our university campuses. And you know, there's some talk about the tax exemption being repealed in the Republican administration for some of these higher Harvard mit I mean, you know, if they can't keep our students safe, should they indeed get the exemption? What are your thoughts there?
I always think geographically and in terms of party locations, there are also wealthy schools with big endowments in southern Republican controlled states, so I think there might be an increase in the amount of tax. But you can see places like Duke for example, Rice, WashU and Missouri. These are all Republican states, and those presidents of those universities are going to be lobbing against any kind of increase
in taxes on their endowment. So I don't think it will be as sweeping as people think will be, just because of geography and partisans.
Wendy Shower, I don't want to go into the protests right now. We don't have time really to treat it fairly with your wonderful perspective, but just to simply compare and contrast, is there any analog to nineteen sixty eight within what we're seeing right now?
Yes, Tom, if most people could remember in nineteen sixty eight, which most people can't now, I mean that's the issue is that we just don't know our history well enough.
But certainly the fact that the Democrat Party's convention is in Chicago, there will be protests and there will be a police response, no doubt, really gives people of a certain age a lot of shutters to think that this will give just as it gave Richard Nixon the election in sixty eight, that this will give Donald Trump the election. And I don't discount that possibility. So they're trying to
prepare for that as best they can. Remember. You and I both know people over the age of fifty five sixty they vote the biggest numbers proportionally, so they remember sixty eight. So this is a real challenge for the Democrat party coming this summer.
You're the second person to bring us up in three days. And Wendy, let's go then to the media change. We don't have Dan ratheran black and white TV and Walter Cronkite having a conniption as Hunting and Brinkley lean back and taking the scene. Now it's instantaneous. How will that play out then in a beleaguered Chicago.
Well, I mean when you think about the you know, Bull Connor and the canons on civil rights protesters, that was pretty immediate and that really swung the national sentiment. You can certainly see you already see them on independent voters. They don't like chaos, and the Democrats have been saying, don't elect Trump, it's chaos. Now the Democrats have to explain their own chaos to the key independent voters in swing states that'll give them or deny them the election.
It's that group of voters, not the young people, that I think are the biggest threat to the Democrats in terms of vote losses.
There'll be a quiz at the end. Professor Schulder thank you so much. I'll study for the quiz. Front pages Lisa Matella with a great list of.
Stories we do.
I'll start with the New York Times. This was a good one. It's a program that helps Harlem students build their wealth. So it's from the Harlem Children's Zone and they say they want to address the racial wealth grap So they're giving students, thousands of students that has charter schools in Harlem ten thousand dollars each to invest. They eventually want to take this program nationwide. So here here's that work. So money is going to be controlled by
professional money managers. Students will only be able to get that full amount when they're twenty five years old. That's after they graduate high school. College also takes some financial literacy courses. The students who don't reach all those milestones, they'll still be able to get a part of the money, not all of it. But it can be used for wealth building purposes only things like a down payment on a home, continuing education, or a business investment.
And what's great about this, Damian, and I can't say enough about how wrong I was about this. Boy does it work. We had a program at Bloomberg to bring Bloomberg terminals to colleges. Good morning, Sarah Yango on the West Coast. And after the third time where she laughed in my face and said, time this works, it was unbelievable how using the Bloomberg terminal and like the Harlem program engages these kids well at least.
So what I find most interesting about that story is that professional money managers are going to be doing the managing. I mean, who's that going to be. It's going to be PTJ or you know somebody else. He's a little close. No, I'm just kidding. I'm just speculating. But now, that's a great program, and they do work work.
Would you agree with me? The best part of it is they learn how to lose money.
The best part of that, yeah, well you're learning how to lose money as an important lesson.
I can let's buy her B and B. That worked out this morning. Next.
Gosh, just just speaking of losing money, seriously, underwater home mortgages, they are starting to grow nationwider. Does that mean this is from Adam? So seriously underwater close to three percent of homes carry loan balances. At least twenty five percent more than their market value in the first few months of the year. So that's seriously So that's up to more than two and a half percent from the previous quarter. Places like Kentucky, West Virginia, Oklahoma, Arkansas. That is leading
up the Southern states. One in every thirty seven homes in the US. What about the try stay the Tri state area not as bad, but it's more like the Southern states that are starting to find it find themselves in that situation.
How does how does it clear your guess is as good as mind? Hopefully the regional banks down there don't have the same problems we had up here with CRA.
I mean a lot of people are saying with commercial real estate, Okay, it's it's separate, it's distinct and all that. We had some good guests on that, but I don't.
Well, they moved a lot of that risk away from the regional banks, you know, and into the hands of consumers and homeowners. Whether or not the banks have to get involved if things get bad remains to be seen.
Next yep.
And then you talked about the record breaking heat, so I want to kind of play off of that vacation ers. This from the Wall Street Journal they're actually changing up their summer vacation plans because of that record breaking heat. So they're moving away from places like you know, Paris, Pacific Northwest, and they're going to cooler places. So Damien, you have to change her. You have to change your vacation. You have to go to Norway and Austria's in Salzburg.
I love.
That's where more people are going, less intense summer, cooler temperature.
You can thank my mother.
So Norway, have you been?
Have you?
I've never been to Norway?
Okay, So Norway, Sweden, Finland, Southampton, England. Those are some popular fair Banks, Alaska. How about Alaska.
I've never been to Alaska. I'd love to do a fire and ice trap.
I went to alb Wants. Norway is great. Helsinki.
I can't say enough about see.
I got to change up my routine, got to get there the park and go. Okay, if you're scared to quit your job, this is interesting. There's a company who you can hire to do it for you, to handle that awkward situation if you're ready to quit. Okay, this is actually happening in Japan. There's a company named Momori. It actually translates roughly to I've had it up to here.
You can let me know if I'm writing, Damien. But clients are paying them seventy to one hundred and seventy five dollars to like avoid the confrontation that strain, like emotional strain, social awkwardness when you want to quit in person. And these resignation agencies where they're starting to grow, so there's more of them coming around. The larger ones say they process more than fifteen hundred cases each in April alone. That's so many people are quitting. The smaller ones about hundreds.
But they're saying that they're running three times higher than last year, so it's happening more. And the people were quitting more, actually not the veterans, but they are the new grads that are quitting more.
Tom, have you ever had a lay someone off? Well, you know, I don't think I have, you know, I mean, I don't think I have the stomach to do it. I mean, I may I may be a client.
You may be.
And my father changed in the week when he had to let people go. It was I remember, he just flat out changed. It's Damien's this question is really really important.
If You've been out there before and unemployed. You know how it is. You know, it's a real tough thing to do.
Yeah, Lisa Matero, thank you so much, greatly, greatly appreciate this.
This is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.