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We are thrilled to get you started. In the seven o'clock Wall Street Time Hour with David Rosenberg of Rosenberger Research, absolutely definitive at Merrill. Let me explain why David Rosenberg was definitive years ago. He would put out a report Paul, and it wasn't patre on it. It was like the you know, like build in Germany with half dressed women on page three is where you got the real Rosenberg, not half
t us women. You got his inflation's dissection. Okay. He would have every single line item of inflation lined up that became famous at Rosenberg and joins us this morning on the quality of our new inflation. David, what is the character of this inflation in twenty twenty five.
Well, it's a real dichotomy, Tom, and a bit of a head scratcher, especially from the numbers that we got in July from the CPI and the PPI because you know, we're all expecting that the tariff impact is going to hit the good sector. But was really puzzling in both reports was the fact that service sector inflation isn't going away. And I think that's a bit of a problem for the Fed. I still think that, you know, the trend,
the trend in inflation, we'll be heading lower. I wrote a report talking about something very nebulous otherwise known as the quantity theory of money in my daily yesterday, going through money supply growth which is starting to cool off, and money velocity which is flattening and in relation to where the real economy is, and then solving for inflation, and we're going to be getting towards the target are probably below, but not for another.
Six to twelve months.
So it's a trend, but it's not a present big reality, but it's out there.
As we had stimulus in three Olivia Blanchard calls it the Biden stimulus, the back stimulus of COVID. I mean, is it just simply, David, as you say, you delay a disinflationarycall out eighteen months? Ay? Is it because of the stimulus of mister Trump's new legislation just passed.
Well, you know what everybody calls stimulus from the big beautiful bill really isn't stimulus from the status quo. The biggest chunk of that was just maintaining the tax cuts from twenty seventeen in the personal sector. And then you could argue that the bells and whistles mostly from the depreciation allowance benefit insofar as that improves the capital spending picture, that is supply side growth that you would hope with generally productivity, which is antithetical.
To an inflation view.
So I don't really look at the fiscal side as being a source of inflation. Of course, the greater supply that we're seeing benchmarked against expectations is what's caused the back end of the yield curve to remain so elevated. But the inflation that we're seeing primarily is coming from the tariffs. For anybody that thinks that tariffs will not be at least near term inflationary seem to ignore the fact that it's the importer on record in the United States that actually pays the duty.
Then the question is how's it going to get distributed through the supply chain.
But I said the head scratcher, and it's just you know, one month's worth the data. But I was really surprised in July to see how stubborn the service sector was, because that's a part of the economy that I've been cooling off. But those inflation numbers across most of the services, not just shelter. We're a big upside surprise last month. I'm just hoping that it's not going to be sustained.
David.
Economic growth remainder this year going into next year. I think most folks are expecting it to continue to soften but still be some reasonable growth.
How do you think about GDP, Well.
You know, everybody is, I guess, redefined what reasonable is or what J. Powell describes as solid when we're barely running the economy so far this year, barely over a one percent annual rate. I mean, when I started the business in the mid eighties, you got down to a one handle on real GDP growth and people were talking about reasonable. People were talking about stall speed and then asking what the recession going to start. So the economy,
I think, is sputtering. It's not even you know, without the proliferation of AI data centers and all the technology spending related to general AI, the economy would actually be in recession right now. That's been really the only underpinning, the only impetus to growth so far this year. So I'm thinking that the economy is going I don't see
what the catalyst is going to be. Even with the big beautiful bill, it's not going to be adding a whole lot to growth a little bit, and I think that the tariff uncertainty is still going to be a big element that's going to provide an overhang on the economy going forward. And the Fat's going to be deliberately slow to cut interest rates, so that's going to have an impact negatively on the credit sensitive sectors of the economy.
And it's not as if the rest of the world is actually operating at a very high level of economic activity that's going to come back and bite the export set. So I think the economy is going to remain very weak through the balance of this year and the next year.
The only question is for the FED is is demand weakening and relation to what's happening on the supply side, because the supply side is also weakening alongside the demand side, and you know from an inflation standpoint, it's how those two curves demand a supply and the broad economy, how they're interacting, that's going to determine what the inflation outlook is going to be.
David Rosenberg with us, we continue with mister Rosenberg. We welcome all of you across Canada and David's Toronto. Thank you for joining us and the way you listen to us and Serious XM and other outlets as well, Apple CarPlay, Android Auto, Good Morning on YouTube. It's building each and every day, Paul and I just sort of blown away by the whole Google YouTube experience. Subscribe to Bloomberg podcasts is the quickest way to get us and get us
often as well. What he said there about ages ago, Paul, where one percent one point x percent economy was stall speed. Why has that talk gone away?
I don't hear that.
To me. It's a divide between the halves and they have nuts. Yeah, exactly, But I think David's dead on about how the recession language has changed.
David, given that backdrop of slower growth percolating inflation, what are we going to hear from FAT chairman j Powell on Friday?
From Jackson hol do you think.
Well, you know, it's a it's a great question. You know, if this was September the tenth, say, a week before the FMC meeting, given that there's eighty five percent market based odds priced in for a twenty five basis point cut, he would probably acquiesce. But there's still a lot of time, and I don't think that Jay Powell in his mind thinks that we really have an eighty five percent chance of seeing a ray cut. So this is really more
of a trade. I think over time, the Fed will cut rates at the right time, probably cut them aggressively in the next year, but again at the right time. I have a tough time believing that he's going to be talking dubvishly, at least relative to what's priced in. I would expect to see on Friday morning those eighty five percent market based odds of a September rate cut.
I think they will be dial back. And I say that because, you know, everybody seems to believe that, because the thesis of the Jackson Olsymposium is about the labor market. Everybody seems to think, well, you know, we had a pukey July non form perial number downward revisions to the previous two months, so it's got to be duvish.
But I think what's going to come out of it.
Mostly is a sign that, yes, labor demand is on the decline, but guess what, and this is what I mentioned before, labor supply is also on the decline. How those two wash out is going to depend on what the Fed's reaction function is going to be.
So I think that there's going to be a lot of surprises.
I think that he's not going to sound uber hawkish, but I think that benchmark.
Against US priced in.
I think there will be disappointment, and I think there's actually a good chance despite all the political pressure, because you've got to FED chairman, he'll be gone after May. He is going to be determined to preserve his legacy and I think he's going to block out the noise from the White House. So my sense is that and this is from a Bond bull, but I think over
the near term the outlook is clouded. I think that although you have some descents, and remember that Vulcar, you know, back in the mid eighties would sometimes face a meeting with at least three descents, so that could happen, but the chairman is usually in control, and I have a tough time believing that he's going to sound as dumpish as what the markets have priced in right now.
David, are you surprised that the equity market have rebounded the way that they have coming off thus one of those terarf concerns.
Earlier in this year, and if so, does what does that tell you?
It tells me that there is a ton of speculation in the marketplace, especially as it relates to the productivity and return on investment assumptions coming from the technology boom. So you know, we're reliving to some extent, not fully, to some extent, what happened late nineteen nineties. This usually happens after a major shift in the technology curve. The markets get way ahead of themselves, and I think that
that's been a big part of it. Of course, you've also seen the market broadened out, even in this very weak economic environment. I mean, it's not a recession but one percent plus growth, But you've seen the market broaden out.
I think a lot of that has come.
Most recently from this view that the Fed is going to ride the cavalry and start cutting interest rates next month. I think that's where the folly might be but you know, I'm taking a look at this market, you know, and look at where real rates are, you know, roughly two hundred basis points benchmarked against what like a pe multiple forward of round twenty three. You know, if this says not a bubble in the equity market, and I know that people view that as a very emotional word. If
it's not a bubble, it's a giant sud. Okay, So we're just back into a psychology of a bubble mentalities that pertains to the broad equity market.
David, thank you so much for a morning briefing. And Alicia Levine coming up. Mister Rosenberg with Rosenberg Research. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto The Bloomberg Business Up, or watch us live on YouTube.
Michael Greer with US now headed US Policy, Morgan Stanley. She walked in and she's got a sentence in her note Paul in English. I couldn't understand it. Let's go to French, where I really can't understand it. Note to plugand preoccupacion a leo xuel a lie a capacity to release reverse repo. Enough, Okay, let's go a week at short term your study. And this is percolating out there in the IRA Jersey world. We're doing T bills for
a new fiscal deficit. How does that fold over into what I call the short term trust market, the repo market.
Now, what's been interesting about this is if you think about the rebuilt market being drained as well as the Treasury General account is coming down when they refill the Treasury General Account, which they have to do post Ovva, you're going to actually be pulling liquidity out of the financial system. So what that What does that mean? Means get more volatility on the short end. And we've had a fed that Cince Yellen has been doubling down right on short end issuance, right on T bills. You had
Trump be initially critical of that essence. Now all in and then we have sort of this move with this pro crypto policy, right, So try to pull it all together here where if you do have more stable coin, or if you do have more digital assets that are linked right or anchored to the dollar, you have to have more T bil issuance. So this is going to be a continued trend in rbs.
So there's an explosion of T bills three months, three.
Month t bills, yeah, three months and under three.
Months and under Paul help me here, there's an explosion of T bills and you're saying money comes out of the system. In the old commercial paper days, that was not good, right, right? Is this something or listen, you know people like me who don't understand this. Is this something we should start thinking about it.
So there's two things you have to think about if we're if we're gonna just let's keep it to a two month window right now. If you're thinking about September, if and a October potential government shutdown, right, and you have you have more T bill issuance pulling liquidity out potential government shutdown. They can't issue conditions stay tight, Okay. Once they start spending that OBBBA money, then the liquidity issues start to loosen up. I don't think the twenty
five basis point. If there's a twenty five basis point cut in September is going to really offset that tightness. And then in the next two months, So I do think we should be ready for more volatile market in this you know, two month window.
I say, Paul, this is why Bessett wants us to go through four or five six rake cups. Yeah, I mean it's the real reason.
Do you think a government shutdown is likely possible?
How do you guys thinking about that? Hey handicapping nun?
Yeah, I mean I think it's likely. And when we're thinking about the uh, you know know over under on it, I would say, you know, this is probably the most tenuous point for the Democratic Party in recent history, right as far as having a message, a vision, a direction
from a cohesive lens. One thing that did not work out for them was when they kept the government open under Schumer earlier this year, right when they when they voted for that continuing resolution, And so it could be potentially politically expedient for them right to hold a hard line is there?
I mean, but I don't even know who's the voice of or actually running the Democratic Party in this country right now, no idea. I haven't heard from them since January one.
I think that's the feeling from most folks. And so when you see someone like a.
Politician, i'd be jumping into that void, wouldn't I.
Well, you see someone like Gavin Newsom, you know, taking some punches and people seem on their end, right, we're thinking about the spectrum of politics on that end of the of the spectrum our responding positive. So I see that as a green light for playing hardball in a way that Democrats don't typically do around budget. So this could be one of those outlier moments.
If we do get a government shut down in October, is it a couple of days, is it something longer?
And how should we think about that?
I think the longest we've ever gone is about thirty days, about a month. Eight days is the average eight days? Eight days is the average shutdown? Thirty days. Once you get over that past thirty days, then you start compromising government workers, rent payments, ability to within a paycheck to paycheck type scenario, and Democrats do tend to try to avoid that. So you could see them come back and reopen the government in that window.
Link the stock market into your world of US policy or are they de linked?
I would say right now they are de linked. I think there's this lookthrough on TEARFF policy than the main driver, right, But for us we want to, you know, dig a little bit deeper and see you know which sectors in industry could be impacted beyond just tariffs. And that's where government shutdown has become important. When you're thinking about the longer term. That's your heavy government contract industries, Defense and healthcare?
Are the are the top?
Are the top sectors.
We just took a poll of one hundred people out on YouTube, and one hundred and two of them did not understand our repo discussion. Yeah, it's amazing. How that? What's it like lecturing people interns at Morgan Stanley on repo market.
I try not to, so next time I won't.
Okay, this has been Greg. Monica Guerra, thank you for confusing me evermore. She is with Morgan Stanley. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am. E's durn Listen on Apple, Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
We're in Talk Equities with Alisha Levine, head of Investment Strategy Equities B and Why But unfortunately that's not why she was a book. She and I are sharing the youngest Cherub off to college. Paul, do you remember when the youngest cherub went off stuck? That starts junior. The difference here is Alicia Laviv's offspring is taking like real manly courses.
Ye, mechanical engineering. I'm frightened.
I'm chemistry, physics.
Calculus, and thank god, a freshman writing class.
Thought is somewhere north of the River sen taking introduction to Catherine Deneuve and the path to Bridget Bardow. There's a difference.
That's more fun. That's more fun.
We're surviving, aren't we.
It's hard. It's the last one is brutal, brutal.
It's just like it's like terrible. Well, plus, we're broke because we've paid umpteen million.
Dollars, will be working till we're ninety.
We're gonna we're never gonna retire. With that said, if I'm in a four to oh one K, I'm hearing lots of go to cash. I don't buy it.
You can't buy it. You can't go to cash. We've had this conversation now for several years. The cash trade is very specific when the FED is hiking rates and either the market is experiencing a true selloff. We think what's happening now is your typical air pocket. In the summer, we had this mess rent run up. I mean, at one point NASIK was up fifty six percent from the April eighth lows, the S and P up thirty four percent. That is a hit, that is those are historic runs
and so you're hitting the typical air pocket. Well, well, you know what will J. Powell deliver on Friday? Will he be hawkisht of You know, it's not going to be fifty I think this is just noise. You know, earnings number are going up. Corporate America has been much more resilient than feared, and some numbers are going higher for twenty twenty five and twenty twenty six. Ultimately, like other times, this will be a buying opportunity.
What did you make of the earning season that we just completed. Kind of came in better than expected, although maybe the bar was lowered for.
The street, but the numbers came in pretty solid.
The numbers came in very solid, about twelve percent when about four percent was expected. As part of the reason you had that tour and run in the market because the earnings were just solid and coming in as a result of that, you know, the first half of the year came in much better than expected. Lowered expectations for sure, but lowered to a point where it matched why the market dropped so much, you know, in March and April, and so you're having numbers also moving higher for the
rest of the year. I think it's not talked about, actually what's going on in financial sector. The numbers are going higher there, that's not reflected in Nasdaq, and that's part of what the run has been about has been financials as well. We spent a lot of time talking about tech, bright shiny object everybody owns them, you know, so therefore vulnerable. But financials have been terrific also as well as industrials.
Mentioned I see in just kind of your sectors, utilities and industrials.
Is that kind of the.
I don't know, bringing stuff back to America and manufacturing and just kind of all that.
It's the data center build out, data, it's the data center build out. Of course, if the FED is cutting utilities will do well.
Also simply on the interest rate play.
But we're really looking at a structural change in the US economy where capital is flowing. I think what hasn't been talked about is the One Big Beautiful Bill. We talk about tariffs night and day, but we haven't talked about the incentives buried in the One Big Beautiful Bill for data center build up, for capex, and investment in structures.
In the most recent earning season, two hundred and seventy five companies mentioned that the tax provisions within the bill are going to be positive for their earnings and for their businesses, and that has really been under the radar, and it's sort of a shocking way. It's part of the part of the reason numbers are moving higher.
Alicia Levina this Bank of New York be and wife, thrilled that she could be with us today. The problem I have with the gloom over the build on obviously it's an unknown unknown we really don't know about it is essentially with the profit generation of these companies a portion, if not all, of their capex. It's not it's a rounding error, but it's not that big a deal. We don't understand the scale of their profit.
So there is so much cash flow and profit in these companies.
The scale of.
The capex this year, it's about three hundred and seventy billion dollars. Very interestingly, that's also the tax the tax benefit from the one Big Beautiful Bill in twenty twenty six about four hundred billion dollars. It also equates to the tariff hit, which is a tax of three hundred and seventy billion dollars. So they're upsetting each other, right, the tariff hit, which is a tax, and the spending
that these companies are doing. So there was a reduction and free cash flow margin for the Magnificent seven because of that, But ultimately these companies can handle it and their margins remain high. So in a sense, you're getting paid to wait to see if this works.
Paul, this is not nineteen ninety nine. You and I keep saying.
That, Yeah, having been there in nineteen ninety nine pumping out those companies.
Back in the day.
Alicia, you know, what do you think the FED should do for the remainder this year going into next.
So I think, well, I think they will cut.
I think they'll cut twenty five basis points in September, because ultimately what's happening in the labor market will outweigh what's happening on the inflation front. The bump in inflation, for the most part we've heard from the FED is going to be They don't say it's transitory, but they're saying it's transitory. One time hit is the same missk translatory. You know, a slow down in the economy is not
something that the Feds can be able to stomach. And the labor market is now at a lower equilibrium rate.
Harder to play with that, right.
If your equally room rate on hiring is one hundreds of hundred, twenty thousand jobs and now you're down to something like fifty to seventy thousand, you just don't have as much margin for error. So they're going to cut. And they've taken hikes off the table. So the Fed is cutting. The market's near all time highs. The economy is getting this bolus of investments into the AI infrastructure and in industrials, so we think you have a cyclical upswing.
The pmis have not caught up yet, we think they will.
I got to get two things in you. The first one is the basic idea of investment for our viewers and our listeners is simple. I'm in it for the long haul, how do you look over the horizon to twenty six or twenty seven right now?
Look, we always have a twelve to eighteen month horizon, and even the scare of let's call it early April is something that our clients in BNY Wealth are well used to. If you think about the last ten years, we've had five twenty percent drawdowns or more, and every single one of those times have been an epic buying opportunity. So the long haul is you add when you can, when you have liquidity or cash, and you don't sell because you always sell it the low, always for on YouTube.
I've got my cell phone, a man, Alicia, let's cut to the chase. Are you following your children on your iPhone at school?
I will never answer that question.
I went to the fifth When I went to school, my parents didn't know I was at the sink or at t Loggis in Boulder, right, I mean, they didn't know what we were doing. I just sent a text, no TV, We're not are do you allow a TV in the dorm room?
It wasn't my choice. We have roommates, you have you have a.
TV in the dorm room at Cornell.
It's not a wave thing. It's an I thing. I don't, my child doesn't.
It's just Paul. It's just different.
Gotta let them go in.
I went with a slide rule.
We did not major in mechanical engineering.
Yeah, we'll see Alisha. My deepest sympathies. I hope, I hope the marriage survives. And also good good, good day to year after thought in Cordell stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
You're right too at the newspapers and Lisa Matteo. She's in a three a M locked and loaded Lisa Audio.
Yeah, I gotta catch up for not doing it the few days.
Okay, so we've been talking about the struggles of the luxury sector, right Well, Louis Vauton is betting on cosmetics. They're hoping that it's going to help out. At select stores worldwide this month, you can buy It's lat but a b EA ut is that right, Louis Vautan line close enough? Eight eyeshadow palettes, ten lip bombs, fifty five lipsticks.
Are you ready for the prices?
Sure?
Okay, here we go. The scented lipstick one hundred and sixty dollars. Okay, that's double that of a similar offering from Airmez, three times a price of Chanel the ipalt two hundred fifty. I go to CVS, pay ten fifteen bucks. I don't know, fifteen bucks. This is a premium product. It is, And if you want, like the high end, you can spend three thousand dollars and get a monogrammed canvas mini trunk.
To keep all your lips working.
Right now? Is your sense?
You know?
Isn't a quiet luxury thing? Yeah, it's supposed it's quiet.
No, it's definitely not.
But yes, if you have the money to spare, then that's what I guess for you exactly. But I mean they've been trying different things, you know, the cafes, the chocolates, So this is just another kind of sector to boost some interest in luxury. Okay, this news out. This is from the Washington Post, a month before it was set to be banned. The White House has launched an account on TikTok. Yes, the ban was course due to national concert security concerns, set to go on effect September seventeenth
unless it sold to a US fire. But yesterday the White House became its latest user.
Take a listen.
Every day I wake up determined to deliver a better life for the people all across this nation.
I am your voice.
And that was the first post White House tiktak account launched.
The video montage images of him, UFC head Dana White, law enforcement officers, American workers. So yes, that launched just as a band is getting secked to go certain effect.
Sort of ominous music.
Yes, very very very ominous, very honest.
Okay, this is for you know, the moms and dad's getting ready to ship the kids off to college.
You know, the dorm room. It's all about the dorm room, right kill.
Chipotle knows it, and they know college kids because college kids love Chipotle. Okay, so they're targeting them. They have a pro a promo like a what do you call collab with Urban Outfitters, a product line that has a nearly one hundred dollars blanket.
You can get a lamp, a Chipotle themed water bottle, pillow.
Bean bag chairs that are just under three hundred dollars each, all for your kids to decorate their dorm room with Chipotle. There's even a doormat that says, leave my Chipotle here.
Everybody bought a beanbag shirt and no one said in it it's just like you mus it.
Looks it, does it does? They even have a new loyalty program for these college students. It called Chipotle You. So you can earn points so you can get free food, or you can even get enough points to wave the guacamole fee, which is key. You have to because there's an extra fee if you want them. There's a fee, so you get the point.
You get that. Do you know what the highlight is across some Afterthoughts dorm place where she's in Europe. Yes, there's a bubble Tea place for stores away and Missus Kingston's. All that matters is bubble Tea is close.
Okay, I know it's all about the Chipotle.
I've never heard of bubble Tea. First thing that Lisa Matteo in the newspapers.
Here This is the Bloomberg Surveillance podcast available on Apple Spotify, and anywhere else you get your podcasts. Listen live each week day, seven to ten am Eastern on Bloomberg, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal