Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We are advantaged with us.
Claudia Som We're thrilled that she could join us here on each and every jobs a chief economist at News Century Advisors, Claudia, I guess a question to let you discuss. Maybe it's not an Nber recession, but if I've got a ginormous negative revision in an under one hundred thousand this month jobs report.
What portion of America is now in recession? So we need we need to.
Be really careful with these payroll numbers in that you know, it's telling us something about labor demand is slowing, right, and that that piece that contraction, that what it's a recession that's about demand falling short. We also are in a period it's very hard to measure, but we are in a period where it is likely that the labor.
Supply is also slowing.
You know, we've had dramatic retroductions in immigration. We also have an aging workforce, right, so we so those two things can come together and get you lower numbers in terms of payrolls. The bad piece, the thing that like the FED might want to react to, would be the weaker labor demand, that structural piece, that supply piece. That
is not something the FED reacts to. So while these payroll numbers are pretty eye popping, you know, you know some attention, these are weaker than we thought in the revisions. Look at that unemployment rate, right, it ticked up, but that is still a good that looks like balance still to your.
Yield was a negative ten basis points, it's now a negative fourteen basis point. To translate, folks, yields our lower bond prices higher the thirty year bond even as higher. Here modeling out that September meeting, Claudia sum, if I look at the data, my amateur answer is I want to smooth out to a three months unemployment rate. That statistic is thirty five thousand. I mean the President's going to go to Jerome Powell and say we're well under
one hundred thousand on a ninety day jobs report. Can you say, okay, it's time to adjust.
Could we have.
An intermediate inter meeting rate cut.
I mean I think that is highly unlikely. Again, the unemployment rate is four point two percent. Fair the Fed, there's there's movements, Like the FED can't change the labor supply. They can't think if they're structural changes, that's not their remit, that's not their tools, right, and so they're going to be watching very carefully the unemployment. It did move up, if it continues to move up, if it picks up pace as it moves up, Like these are real science,
you know, the payrolls they're telling us something. And there certainly is a risk that there's more labor demand. But this is not this is not I mean, no one data release would tend to, you know, bring the FED into intermeding action. But this is not you know, just the broadbrush the top line numbers. This doesn't look like that.
Paul in August in Michigan and Ann Arbor. Yeah, there's a junior, Claudia Sam's in graduate school who's going to look at the immigration overlay on.
Yes, I know that's really what I like to see that Claudia, Tom and I try to, you know, kind of look at things on a rolling basis here, not get too caught up in one month here, one month there. The non farm payroll three month average change that's also notable here. It was one hundred and fifty thousand, kind of poking along, one hundred and fifty thousand last month, that gets revised down to sixty four thousand, and then this month comes in an even lower thirty five thousand.
I don't know that.
That seems like something's going on out there. How do we think about that?
Right there?
Yes, like in smoothing through the numbers, but again that these payrolls to put to piece apart, what is you know,
supply and demand, and it's very hard. Like the immigration was we don't have good numbers in real time, but we see border crossings have basically stopped for unauthorized immigration, and the immigration you know whatever, you know, you think about the policies like it wasn't an important driver of labor force growth and these job gains that we needed to be making, you know, in years past to get that unemployment rate low. Well it's reversed, and it's it's
done so very suddenly. So I don't want to write this all often. And the defense certainly wouldn't write this off. There is a sign that we've got some weakening of demand. We see that also in you know, in the GDP numbers, the consumer spending, we've seen some softening. So like it's this question of how do you pull the two pieces apart?
And I mean one rough way to kind of see where you stand is to look at how unemployment rate is balancing out the people looking for work or are they still at about the same rate finding.
That work clute, So yeah, it's going to be I can't wait to see what you're published there. Thank you so much, Claudia. Some new century advisors here on this job report. Really just the market's moving of the two year yield hasn't found about him here we're in fifteen basis points.
That's a huge, a huge move joining.
Us now, and I can't think of a better time to speak to Michael Darta, thrilled that he could join us here after doctor some Michael Darte is with Roth Capital as well. Michael Darta, I want you to synthesize this back to classic data, which is the animal spirit of the country. Can we have enough inflation to keep nominal GDP okay or all of a sudden is our stagflation going to become stag staggy?
Thanks for having me on, Tom. Look, I think if you look at the first half, because we're obviously getting some distortions and volatility in the GDP statistics, but if you average the first and second quarter nominal GDP ran at about four percent, just to touch above four, you know, that's perfect. That's basically a non inflation area setting. Once these supply side shocks dissipate, we are seeing weakness and
real growth. You know, if you look at real final sales to the private sector, just above one percent in Q two, barely two percent in Q one, and then we had a long streak of pretty close to three percent growth, you know, in the two years before that, and so we're definitely slowing here, but most of it looks like it's on the real side, and that's exactly
what you'd expect from an adverse supply shock. So the challenge for the FED is just to you know, keep policy neutral, and that's the debate that's going on right now on the FOMC. But Claudia made the point that the unemployment rate is not lifting off. So those revisions minus two point fifty eight K for the last two
months for payrolls or the prior two months. That looks very scary and recessionary, But the reality is you will not find one nb R recession in history without the unemployment rate shooting up meaningfully, meaning at least several hundred basis points from the cyclical trough. We're basically flat from year ago level, same with U six And so this is an economy where the supply side has taken a hit from tariffs and the demand side has moderated. But you know appropriately so.
So, Michael, is it again. There's a lot of numbers to parts through here from today, a lot of negative revisions. But as you mentioned, as Claudia mentioned, that unemployment rate is staying right at four point two percent, and that's is that where you think the FED will keep its focus that number?
I think so.
I mean, that's essentially what poll FED chair Powell discussed this week in terms of the economy being in balance, supply and demand being in balance. I mean, look at the margin. I think these numbers definitely lead the FED to lower policy rates. The question is what is the timing and the magnitude futures markets are priced for about ninety basis points of cuts over the next twelve months.
You know, but markets have anticipated sooner in deeper cuts than what the FED has been willing to deliver over the course of the last few years, So that's not new. I mean, the question here is do things really fall off from here unless the Fed gets moving and you risk markets, despite today's action, are pretty optimistic that we'll hang in there.
Michael Darta.
When you look at those jobs and if we're under one hundred thousand as a glide path, we get the emotion of a negative statistic. We don't well, we don't have that. What will the nominal tenuere you'll do?
Well, you know, we're right in a range show here, tom right. I mean, you know, we came into the year pushing four point eight percent, and we obviously slumped below four for like a day when we had the risk off event when Trump first announced the reciprocal tariffs, and now we're kind of, you know, right in that range.
I mean, it's interesting because reflectively, people start talking about fiscal deficits every time rates move up, but then when they come down, no one attributes that to an improving fiscal outlook. So perhaps something else is driving the rate structure here, and I think what's driving it is simply risk on and risk off. You know the contours of the business cycle in FED policy, rate expectations moving around,
which is obviously hitched to both of those. And so you know the tenure yield here to me, I mean, you know, we're kind of neutral on box here for four ther to five percent, bullish you know, sub four percent, then I think you want to be more cautious.
So, Michael, I'm starting to see in my inbox in social kind of a narrative that history may be repeating itself. Last year, the FED aired by not cutting in July, so they did catch up cut at their next meeting. Is that something that might be brewing again this year?
I mean, Paul, it's possible, but I think you'd need ongoing data deterioration and perhaps some kind of a risk off event. You know, the FED did get going with a fifty basis point cut, you know last year, second half of the year they cut basis points, but then what happened They stopped the labor market stabilized, So I kind of think all in, you know, they're they're going to start restart in a more gradual manner September. Very well is still in play here. If you look at
the labor market diffusion index. I just brought it up on my Bloomberg screen, Yes you go. We're at forty six point eight as of this July. So that's actually a little bit below where we were last summer, you know, which, along with the rising unemployment rate which we don't have this time, really kicked off alarm bells that the Fed
was falling behind the curve. You also had lower bond market inflation expectations going into the early fall last year and what we have today, and that could be a consequence of this hectoring from the White House, which is backfiring in my opinion.
So let's talk about that, Michael.
And this is the history of Michael Dart and all that he has Wisconsin to me and and what a privilege yesterday Michael Darta to talk to Richard Clare to allow brainer.
Back to back about the modern trend that if we cut rates or raise rates, we're establishing a new vector.
Why can't the chairman come out and say, you know, back to Vulcar, back to Burns, we're going to do a one off twenty five be cut and reassess.
To me, that's common sense.
But it pushes against all of a modern academic theory, doesn't it.
Yeah, I mean, I think tomic comes down to, you know, what are the markets priced in here? So the markets have priced in ninety one basis points over the next twelve months. So does the FMC guide markets for more than that or less than that?
You know?
Right now? I mean, I think you've got quite a bit of division on the committee. We did get two descents. That's the first time too. Fed Governor's descent. It looks like geniuses this morning since nineteen ninety three, right, But I think the focus has to be on price stability. I mean, obviously the FED wants to preserve the business site,
but inflation is still above target. And if the FED is going to be harangued and cajoled into cutting rates when it's perhaps inappropriately inappropriate to do so, if inflation expectations go up, then long term interest rates go up, not down. So if the president's concerned about debt financing costs, let the FED do its job, you know, let's return inflation two target and price stability is the number one way that you're going to have moderate market interest rates.
The other way is get the fiscal House and Order in Washington. D C has good luck for that face planted in that regard.
Michael, Thank you so much, Michael darn Roth Capital, and they're really looking forward to his research, you know, published into the weekend.
Christina Catmeny waiting for her first gray hair. She may get it.
By the way, the two year yields are moving today with Invesco Christina cat Many here before.
I believe Steph Ross gonna join us.
What does it mean for adults in the bond business when you see this is CFA level four, you see a ginormous two year yield move.
Look, I mean we're getting a big steepening of the curve today, and I think the market has vacillated this year between is the Fed more concerned with growth?
Are they more concerned with inflation? Which is it? And a lot of the.
Economic weakness we've seen all year has really been soft data, and today is really the first signs that you're seeing some real hard data that's weakening. And it's not the seventy three number, it's that negative revision number, which is meaningful.
We nailed that. Yeah, we nailed fucker nailed.
So Christina, do you how do you think the Fed's going to view this data? It's almost like, boy, if they had known this data yesterday, would they have done something different? How do you think they are going to view this data? Here is a lip or is this something different?
Was that right? Would they have done something different?
I don't know that they would have done something different.
And I think we've said really even coming into the summer that they they have the calendar on their side in terms of the gap to the September meeting, with two payroll reports, two CPI reports, you're really supposed to see a lot of these inflationary numbers come through from the terrorist shocks, which has all been delayed, and a lot of participants in the market have said, well, they haven't come through yet, So we just don't have to be worried about inflation.
That's not our camp. I think that there are still risks.
The Fed and Powell statements in the presser I think very clearly tells you he's concerned about not even just first order effects that haven't shown up, but second order. So there's a lot of time it certainly gives nods to the descents that we had this week that are talking for preemptive cuts or Tom what you were talking about earlier, of like, why don't we just ease because we know we're restrictive and give ourselves some wiggle room.
But that hasn't been where the Fed's been anchored, even though a lot of us think maybe that's what they should be doing.
Paul, continue the conversation. We've got a beautiful three months moving average chart. In October of twenty.
Twenty three, when the market lifted, it was a two hundred thousand every month three months moving average. We're down to thirty five thousand.
In defense of the President and Secretary Besson, that's a.
Vector, Yeah, it is.
It's certainly something to pay attention to. And again we're seeing in the short end of the curve the two year yield is now off seventeen basis points. We have a fifty fifty basis point steepening in the yield curve. What does that tell you?
Look, in a lot of ways, the curve we think should be steeper. Still, even with this.
Move today and coming into this week, really in the last month, you've seen kind of this retest of what has been the thesis this year, you've seen a big flattening in the last week. You've seen a big correction in foreign exchange with the dollars stronger, and now we're kind of turning these back on our heels. But with where we are in a cycle, the curve shouldn't be flat, and we've gotten in cash space almost down to back two tents close to a flat level, so we need
to re steepen that out. And it tells you that even if the FED is not easy to yesterday or tomorrow in the pipeline that's in the trajectory and the long end should still be at where it is anchored or at higher levels because the inflationary risks remain out there.
Have you ever been called a bond vigilante?
No?
No, are the bond vigilantes out today tell said what to do.
I don't know if they are.
I don't know if the bond vigilantes of old kind of remain in the same sense we're not.
We don't have these.
I think there's a lot of fear of like the Liz Trust moments, in these like dramatic selloups.
Really today's move is a front end correction.
And I think on that, But is that a narrative in the market about what are fiscal pressures? What are we doing big picture of like controlling inflation and supply and all be shot, We're bringing.
Three hundred billion tariff revenue to pay for a big bill for a tax cut. I'll be political and say it's spread out across the death siles, and some people would say it's skewed for the fancy people like Paul Sweeney. Okay, fine, I'm looking at the screen and I got a ninety day moving average of non farm payrolls that Paul not that long ago, would have been.
Is the economist Bart Simpson would say, a total cow. That's the bottom line.
This is what people have been waiting for for really at least the last we're nine months, if not two years, right since twenty two when we were looking for this rolling recession is imminem.
So credit, what do you do with credit here? I mean it sounds like maybe I'm not I don't want to take too much credit risk here.
Yeah, So we have been a little bit more cautious on credit, and that's been a kind of a harder call because credit remains exceptionally tight, keeps grinding. You're in a slow supply period over the summer, so we kind of have bits and pieces of credit, but where we're probably most comfortable owning credit is higher quality front end paper. And then there are some things kind of globally that look interesting too, in Europe some credit.
It's Friday, we're at the beach. Does a five year CD look good right now?
I still think it looks looks pretty decent.
Yeah, yeah, to your to your treasuries now that I mean, that's a big song in the two year?
Okay, what are you going to do? What are you going to do when you get back to the office. I mean, are you gonna buy or you're selling? You know, but you get price up, yeled down in the two year?
Yeah?
Do you lighten up on that? Is it like a stock? Were you?
So we've kind of shifted into more steepeners with this and kind of say like what are the tactical So it's it's again, what what's your big picture of thesis? I don't think that those have changed, right, Like we believe in a week or dollar, we believe that the curves should be steeper, but we keep vacillating of what the FEDS pricing, and I think coming into this the front end looks like it was stretched.
Christina.
Thank if someone's Christina Catmanni are in a huge day for Invesco in her bonds as well.
You're listening to the Bloomberg Surveillance po podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Curious what you need to focus on?
Clarida and BRAINERD they don't listen to us. They listened to Ernie Tedesky.
Joining us now from the the Budget Lab at Yale.
I should say Ernie Tedesky, who drives a lot of their mathematics. Ernie, I don't want to give away the publication of your report, but you're kind enough to say you've done an all night or trying to get out in front of a new tariff calculation from the President. Can you state that you're eighteen percent maybe adjusted for consumption substitution, seventeen percent tariff is going to go up.
So actually, when you look at the list that came out last night, some of the tariffs went up, some of them went down from what was threatened before, So like Bangladesh, for example, went from thirty five percent to twenty percent, Thailand went from thirty six percent to nineteen percent. So it was kind of a mix when you add everything together. We had been at eighteen point two percent. Now we're at eighteen point three percent for the average
effective terrafory. And the other big one is that Mexico got a ninety day stay. Yeah, they were supposed to go up to thirty percent there now at twenty That's another big factor in this too. So really, like versus forty eight hours ago, this list didn't make a giant difference.
It's folks, I can't say enough about the importance of what they're doing in terms of the graphical representation.
Ernie. I'll get to Mexico in a moment. Paul's got a bunch of questions too.
You have an I take great offense to our analysis that we're back to Smoot Hawley thirty three and thirty four. If you look at the Tadesky horizontal line, we're back to nineteen eighteen, we're back to eighteen six two. Indeed, we are back to seventeen ninety eighty nine. What does that history mean for twenty twenty six in America.
I mean, look like those were very different times back then. I think Number one, it means, you know, I agree with the administration, we're going to raise a substantial amount of revenue from these terracts and.
Brainers said that yesterday. Lyle was all over that yesterday.
Look, and one should not understate how important that is. We have an unsustainable fiscal trajectory. Well, you know, we project three trillion dollars over the next ten years. But look, we're also seeing evidence of this already in consumer pass through durble PCE that was part of the PCE report that came out yesterday accelerated the most over six months that it has since nineteen eighty seven, other than the
depths of the pandemic. So, you know, the idea that we're going to somehow dodge a bullet and get through the Scott free I think is already empirically real.
So, Ernie, that's a key point that the three trillion dollars over ten years that the US government's going to raise, that's not being paid by China, by Mexico, by the EU, that's being paid by the American economy, and I don't know where it comes from, the consumer, the importer of the retailer. Talk to us about it on a household basis, How much do you think consumers are going to pay on per household base?
Yeah, no, this is a very very important question. So first of all, on your first point, you know, if foreigners were paying this tariff, we would expect import prices to decline. Import prices have not declined. If anything, they've picked up a little, so they're probably so on average,
they're probably not shouldering much of all of this. You know, we think that right now consumers are paying about seventy percent of the tariff, you know, so that's the pass through right now, and we think that that's sticking up
over time. It's still early ultimately these you know, so if these tariffs today stayed in effect and perpetuity, that would be twenty four hundred dollars per household per year after you know, say two years of days and pitching families at the bottom much more than that, And that's after.
Text, right, that's after that, right, So you're talking yet.
You know, somebody popping sixty seventy thousand a year, figure out the rent. Forget about the idiocy of New York City. I mean Ernie's living large up in New Haven. But the answer is twenty four hundred dollars after text that hammers the bottom of three deaths house, Folks, I can say this again, Ernie Tedesky with us before we go to trade minister a career here with John Farrell.
The Budget labbit Yell. It's free, you go out, It's a website.
It's spectacular, whatever your politics, and with all sorts of charts.
Ernie Tedesky.
Mexico Avocados, tomatoes, broccoli, The Budget labb at Yell. Food prices rice three point four percent in stay two point nine percent higher.
Forever. Fresh produce from.
Mexico I'm at living is initially seven percent up and then stabilizes it three point six percent higher. Is that why we delayed from Mexico? Is they explain to President Trump the price of tomatoes.
So here's the good news about these tariffs is that they exempt products that are US MCA complying from Canada and Mexico. It's complicated, but like basically you can think of it that if your product is actually made substantially in Mexico and Canada, then it is exempt from the tariffs. Fresh produce is you know, eighty percent of the fresh produce that we get ninety percent of the fresh produce
from Mexico right now, is US MCA complying. So it's not Mexican imports that are driving the food price increases from these tariffs. It's the non Canada and Mexico countries, so from Brazil, you know, bananas from Central America, that's what's getting hit by these interests right now.
Are you surprised, Ernie that how it's played out, with Canada being such a big trading partner of the US that the boy the discussions with Canada Mexico seem to be quite different.
It does surprise me. On the other hand, the their reactions have been quite different. You see no retaliation from Mexico to our tariffs so far, whereas Canada is the only country other than China that has levy counter tariffs and to their detriment, I might, I mean, the politics of doing that are completely understandable, but that just heightens the economic damage to Canada and to the United States
from these tariffs. So it doesn't surprise me that our you know, counter counter reaction is different.
So mister Greer is going to be on are at a moment If you were sitting in a room this morning with mister Greer and the Secretary of Commerce the Secretary Treasury, they pop in to see doctor Tedesky, what what's a single thing you would say to the Secretary of Treasury now is he tries to advise a president who didn't take micro One on one.
I would say, I would say two things. One is a question, one is a comment. The question would be what is the strategic goal here? You know, why are we tariffing things like nas and coffee?
Again?
Do you agree with Vice Chair Brainerd that the strategic goal is to raise revenue to pay for the other piece of budget lab analysis, that big big bill.
I think that's a secondary goal. I think that this administration is true believers in tariffs. They think manufacturing and jobs will come back. But I would say two things. One, why then are we tariffing things that will never come back like bananas and coffee? And then the second thing I would say is is there a you know, can we work together to find a better way to raise the same amount of revenue that doesn't hit either lower income households or investment as much as tariffs do.
So typically, Ernie, how should tariffs be used? How have they been used in the past successfully? And is that policy being you know, followed today.
Look, there are this is another area where I agree with the administration. There are unfair trade practices out there against the United States, and tariffs are ammunition in resolving those disputes. That has absolutely been the case in the past. They have not since at least the nineteen thirties, been used for substantial revenue. And similar to that, we haven't
you know, levied them broadly. If we've used them, it's been on very specific items, not because we you know, not because we don't like those items or those countries, but literally to try to get those countries to the table to resolve trade disputes. So this is very different than the way we've used tariffs in the past.
Number fifth, nineteen oh one. I know you read this in Doug Erwin's Against the Tides September.
Five, nineteen oh one.
McKinley does a recant of his trade certitude. He does this the day before his assassination. Do you frame out here that if the president is whatever your politics was, I don't care if you frame out he's overcome by events like inflation. Could we have a Trump recant where he gets us back to Uruguay, where he gets us back to get.
It's really hard for me to see that, you know, Number one, they are true believers. Number Two, now we're stuck with this three trillion dollars in revenue, which again I would emphasize like that part of it is a
good thing and helpful. I think that that's going to hinder any future administration, Republican or Democratic, whether you know, if they don't like the tariffs, it's going to be hard for them to replace them, right because you're going to have status quo biased And you know, we can I consider a spreadsheeting, come up with all sorts of great theoretical alternatives all day long, but most of those alternatives require Congress to take a vote, which is which
is going to make it hard to replace the revenue that's already in place very quickly.
Or Ernie, we have judiciary action over the last two days in an Appleit court listening to the legality of the president's action. Could that be a bombshell where they say to President Trump, you can't do this.
I would emercize I am not nearly as useful as a lawyer. We know that if we did, yeah, but if we did get a decision like that, yeah, I think it would. I think it would be a bombshell. It would not be the end, though. There are other legal authorities that, at least temporarily they could use to re raise tariffs.
The website of the year for Bloomberg Surveillance, without question, the Budget Lab at Yale with the leadership of Earning Tedesk, has just been absolutely spectacular.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seventy eight on Apple Coarclay, 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 Play Bloomberg eleven thirty.
Anna rog Rana joins us senior technology analyst for Bloomberg Intelligence.
Let me go to where Mark German is this morning, Anna rag There.
Seems to be a haste to just do something in artificial intelligence after what we saw from Apple yesterday.
Is em and a part of mister Cook's future.
I mean, he talked about it last night on the call, and frankly speaking, he said, you know, they will look at deals, but I'm, to be honest, not so keen on them buying a very large company for a very large amount, because I would rather than partner with multiple vendors to use different models, because we are still in very early stages of figuring out which models will eventually be used for what functions. So I'm more in the partnership camp rather than buying camp.
So would you see them doing partnerships with Google and Gemini and I perplexity.
Yeah, I Tom, I really hope so, because there's a lot of money involved in that search deal. So if they were to do a revised deal including Gemini models and some kind of search agreement and then get paid for it, I think that's in the best interest of Apple, you know, both shareholders and employees.
Honurk I saw China. They called out China as a source of growth there. That's been a big, big headwind or big question mark. I think for a lot of investors how Apple would perform in China given all the crosswinds there. What did you learn last night? About Apple in China.
So two things happened in China, and that's something we discussed yesterday morning. One is the pull forward of demand across the world because of tariff related you know, you could see people are feared that the prices are going to go up, so they bought it. The second thing that happened specifically in China is some of Apple products, some of their phones were eligible for discus through the carriers. This is something that doesn't happen, you know, just hasn't
happened before. So those were the two factors that helped them at least, you know, get over the positive territory after some time.
Anrak probably the I would say on the average investor, I guess my biggest question about Apple is to what extent will they play and how will they play in the world of AI. Did we learn anything more last night? Did Tim Cook have anything else to really share?
I think he repeated a lot what he repeated back in June in the Worldwide Developer Conference about Apple intelligence and embedding more throughout the ecosystem and the operating system. But you know, at the end of the day, series most important because that's the that's the voice command where you ask for things and they are a bit behind
on that. And you know that's where the partnerships may come in and help them accelerate with that particular you know, function and then get it improved quite a bit.
Andrak, you published an energy your ride this morning. He thinks I doesn't read I don't read his research read it.
I do.
Rag. After I was done looking at the Chicago Cubs non trading deadline, I looked at your piece on Jenai to lift Microsoft over twenty twenty six consensus.
We talked about this yesterday.
But now that we've got Microsoft, Meta, Amazon, Apple in AWE.
Do you have a better clarity.
About late twenty six into twenty twenty seven.
Yeah.
I think from a growth rate point of view, Microsoft will still do better than all the others, largely because of their relationship with open Aiye. So remember one thing. Every time you and I spend more time on CHACKGPT, a lot of that processing is done by Microsoft. That's really their biggest advantage right now. And that's where you know, Amazon shareholders are unhappy about it because they didn't see that lift in revenue growth as what Microsoft saw or what Google saw.
So how do the upstart stay in the game.
I'm going to pick on Perplexity just because Joe Wisenhal told me to. But how does someone like Perplexity con heat with these giants?
See see Perplexity is fine in that case because it's competing directly with Mode, with OpenAI and other applications that are AI based applications. So it is trying to basically tell, you know, users like myself that don't go to chat GPT, start using my application.
It's better.
It's really in that realm they fight, you know, whether it comes to somebody like an Amazon or Microsoft or Google, the question is who is hosting that app on their cloud platform, and you know whichever. If you let's say, for the sake of discussion, if Perplexity is hosted on one of these platforms and their user count goes up, they make more money on the back end, not so much on the front end.
Amazon also reported last night on a rag after the close. It looks like they're the stocks trading down about seven eight percent here, weaker than expected operating income and maybe trailing the sales growth ahead of its cloud rivals. Here help us think about Amazon right here?
Yeah again, this is there are two factors of it. They do not have a chat gptal like app that runs on their platform, which is why they don't get that you know, consumer lift that Microsoft is getting. The second thing is their round rate is very high. According to last night's number, they're running at somewhere aroun one hundred and twenty billion dollars in revenue compared to Microsoft's seventy five and Google's fifty. So there is a difference
in growth rates. I mean, it's just pretty logical. But you know that's what I said. If you were to strip out Microsoft's AI contribution, you know, they would be running in their twenties also, so I think the most people do not, you know, I think the bigger disappointment is both the other cloud vendors beat by a big amount and these guys just met and that the reason
for that is the lack of a consumer app. Now, I think over time Amazon will come back and showcase that they will also get AI workloads, but they will come more from the enterprise side, not so much from the consumer.
So very quickly, and I think this could really help the dummies, like a rag. How are each of their audiences or potential audiences.
Of AI different.
Who's Amazon going after, Who's Microsoft going after, Who's Google and others going after?
Yeah, all of them are pretty much going after the same kind of customer. But Amazon is pretty much dedicated to large enterprises. So let's say if JP Morgan is experimenting right now to creating an app internally or a chat about internally that has AI, over time, the usage of that will grow and that would help AWS. As I said, the case with Microsoft is because of their
relationship with open Ai. You know, chat GPD has gone from you know, arguably somewhere around you know, seven hundred million users daily and the number of time, the amount of time you're using on the app is quite big every day. So Microsoft is making more money off of it. It's more a timing issue than so much that one is better than the other.
ANDROK, thank you so much, Inerragrano, which is real expertise there with Bloomber Intelligence.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Sebastian Page joins us some tiro Price his book on leadership out. I'll get that out on Twitter and I'm LinkedIn here and it's Sebastian, thanks for joining us today.
The heritage of tiro Price, back to my ute is you guys were out front on technology and growth.
Tiro Price on the reaffirmation of this technology juggernaut in MEG seven.
We absolutely love to research technology, understand technology, capture the trends.
Tom.
I hear the same words from different analysts and portfolio managers on our platform these days about AI, same expression. They're all saying, it's real. And if you look at the projections for spending on AI for the next twelve months, it's not decelerating, it's accelerating. It's expected to go up by eighty percent globally. So here we are it's not just about spending, it's also about productivity games.
So Sebastian, does that say we continue to just focus on the MAG seven or just some of the big tech names, or are you trying to find value outside of that group that's worked so well.
That's such an important question because everything I just said is basically the consensus. Stocks are up thirty percent in three and a half months, the price earnings ratios at twenty two, and the market is more concentrated than pretty much any time and history, so you're going into earning season. It's interesting listening to Bloomberg Surveillance. Everybody was saying, we're going to get positive surprises, We're going to get positive surprises.
And I get a little bit philosophical here and I ask, is it still surprise if everybody expects a surprise? Yep, probably not, and you're seeing that now. So long way of saying, we're long diversification in our portfolios, you should own the growth stocks, but from an asset allocation top down perspective, we're long diversification, and we're getting most of it right now from international value, small and midcaps.
Really.
So we saw earlier in the year when there was some of this volatility around Liberation Day and the shock of tariffs, investors were taking money out of the US, out of the dollar, out of US stocks, out of bonds, and putting in elsewhere the rest of the world, including European equities in a big way, who've been out performing. Is that still the call there or is that just a short term trade.
You know, from a macro perspective, it's counterintuitive. But some of this is jolting Europe in particular into spending fiscal infrastructure. We expect the debt to GDP in Germany to go up by twenty percent over the next ten years.
So that could be.
I still believe long in the exceptionalism and the dynamicism of the US economy, but right now you have macro momentum semester Patrid.
There's suppose a VIX blows out to nineteen point one zero over two big figures out with the tensions of the morning. Okay, I get Windsor Ontario and the stereotype of an auto industry in Canada flat on its back.
You've lived, I mean, did you see Jean Bellavoue at the forum? I did not?
Yeah, I mean you know you lived Quebec. Fine, What do does tariffs mean for the rest of Canada? Not Windsor, but for resource Canada? What christiph Friedland used to talk about plywood and sexy things like that.
What's it mean?
It matters a lot. It probably matters more than counterrentatively, Again for the US. In the US, goods subject to tariffs represent only nine percent of GDP. So I gotta say, Tom, I'm both a Canadian citizen and a US citizen, so I have a view that's I would say neutral here, But generally speaking, it looks like Canada just wants to get a better deal and that's why they're holding out.
Should others hold out? I mean, is that what TiAl Price would say is it is a new terriff for as your budget lab says, we're back.
To nineteen thirty three. Should that all the country's push?
Look, you know, on days like today, it sounds like it feels like tariffs are driving the entire US economy. Again, goods subject to tariffs represent nine percent of GDP. There are knock on and implied to facts, but you have many other factors that in my mind matter more fiscal spending, the strength of the consumer, the corporate earnings. These all look pretty good.
Well, one more question your book. Beyond diversification, it's absolutely phenomenal. Let's go there right now.
How should our listeners and viewers diversify given the global trauma that we're in right now?
Yeah, you know, Tom, I don't know if you'd noticed. When I go to the dentist, my dentist always wants investment advice. I think I guess they have a little bit of money on the dentists are well paid, and oh, you're in the investment business. What should you do? But you have two seconds to say something. I always say the most trite thing to say, which is stay invested, stay diversified. And I have in my notes for you
all today the headline is be boring. We actually have a lot of our tactical positions, not all that are neutral. We are long diversification. Sometimes it's painful when markets become more and more concentrated, but I think that's the right thing to do, right.
Sebastian Page, thank you so much for getting its started this morning.
He's a t ro price.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay 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 Play Bloomberg eleven thirty.
We finished strong, Strong, Strong with Anna Wong who saw this coming, Doctor Wong. Before we get the market open, Kayleie Cox over at Ridtholtz identifies that the labor force has declined for the third straight month. It's the first time that's happened since twenty eleven. You nailed this with your historic discussion on birth death models in that is the vector in place to get to a negative non farm payrolls.
I think I think today's very weak payrolls report and the massive Doward revision suggests that the negative payroll is probably with us right now. So with today's reading and our read that the overstatement per month is roughly between eighty thousand to one hundred thousand, that means today's print means slightly negative payrolls. So I think today's print will bring back the recession narrative because it is very very weak.
Claudia Sum didn't want to go there, you know. No, that's so that's where she wus.
And how do you think that the FED is going to view this data point? Again, it's just one data point. We heard that from President Hammock of the Cleveland FED. How do you guys think the FED will view this?
Yeah, so President's Beth Hammock is basically the most hawkish individual in THEMC committee.
According to our spectrometer yes, and in terms of this peril, however, it really vindicated Chris Waller's position, and in fact, Chris Waller issued at dissent note today and it basically confirmed his read of the labor market. As you have to read beneath the headlines and go into details and think about the revisions, because even today's revisions are larger than what I would have expected, and I'm more ready on
the high side in the market. So it so I think Chris Waller will gain a lot of plout within the FOLC and will be we will likely.
Be seeing an earlier rate cut this year.
Doctor one. I understand people like you.
You were at Chicago and you're trained to be measured, get on a trend. We don't want to cut rates until we really have a trend in place. Isn't it a perfect time to just do a twenty five beep cut and reassess.
I think the policy role would say say, yes, they should be cutting now.
But at the same time, I think I think.
Today's very weak payrolls report and the massive downward revision suggests that the negative payroll is probably with us right now. So with today's reading and our read that the overstatement per month is roughly between eighty thousand to one hundred thousand. That means today's print means slightly negative payrolls. So I think today's print will bring back the recession narrative because it is very, very weak.
Claudia sum didn't want to go there, you know, No, that's so, it's whatso rules do you think that the FED is going to view this data point?
Again, it's just one data point. We heard that from President Hammock of the Cleveland Fed. How do you guys think the FED will view this?
Yeah, so President's Beth Hammick is basically the most hawkish
individual in THEMC committee according to our spectrometer. Yes, and in terms of this peril however, it really vindicated Chris Waller's position, and in fact, Chris Waller issued at dissent note today and it basically confirmed his read of the labor market as you have to read beneath the headlines and go into details and think about the revisions, because even today's revisions are larger than what I would have expected, and I'm already on the high side in the market.
So it so I think Chris Waller will gain a lot of plout within the FOOC and will be we will likely be seeing an earlier rate cut this year and.
A stay with this, please please please stay with us, with us Bloomberg Economics.
We're going to get the markets opening. Come back to doctor Wong what you need.
To know futures deteriity that came back actually off the report. They're now negative sixty four on SPX, vix out two point two zero points for Global Wall Street, and we welcome you worldwide. Good morning in the Friday Pacific evening. It's real simple. You have a two year US yield now a full twenty basis points yield down, price up on the two year yield as you get the markets open, are John Tucker all right?
And the opening bill report being brought to you by Oppenheimer. Oppenheimer focuses the power of their thinking on you, creating customized plans to help achieve your goals. Put the power of Oppenheimer thinking into your investing, wealth management, capital markets, investment banking.
Right out of the.
Gate, we are lower has and P five hundred down one percent, sixty two points lower sixty two seventy eight on the index. The down Jones and Lavage down three hundred seventy eight points. The NASDK one hundred right now two hundred and seventy five points lower, That is down one point two percent. Shares of Amazon helping lead the declines right now seven percent lower, and shares of Apple up in the early going. They are up right now
one and a half percent. That is your opening bell report, poland Tom.
Thanks so much, John, so much. Good we're coming out.
Ernie Tdesky, thank you so much for joining us from the budget lab at Yale in the last two hours. Here's Tedesky reporting in as we go to anamwog here again, down in negative four hundred on a market opening. Tedesky, The two hundred and fifty three thousand negative two month downward revision is the largest since at least nineteen seventy nine, other than the COVID noise. Doctor Wang, I understand people like you. You were at Chicago and you train to
be measured, get on a trend. We don't want to cut rates until we really have a trend in place. Isn't it a perfect time to just do a twenty five beep cut and reassess.
I think the policy rule would say say yes, they should be cutting now, But at the same time, I think what the FED is thinking about is that inflation might be surging in the next couple of months. And so in my team, we are scraping online prices to get a real time look at what how prices are doing.
And what we're seeing is actually a mixture.
We see some goods that has raised prices a lot in the past three months, already feeling like maybe they could not pass through all the taraf to the consumer
because they're seeing a drop in demand. So those things are things like sporting equipments because you know, we really have seen an audio equipment because those two categories have seen well, the firms in those sectors thought they would raise the price by over ten percent and consumers would just take it, but turns out people are just not as happy about that. But on the other hand, we're starting to see toys prices going up, men's furnishings, apparels and suits, sewing suits going up.
It's bow ties and they're killing it's killing the bow ties, I think, and.
Let me do this.
I want to get this. Yeah, this is Neil Dutta here.
The prime age employment age prime age employment rate has declined point.
Five percent over the last year.
This is not good and it's a reminder that unemployment being low is not necessarily a fair representation of what's going on in the job market. Dutta really pushing against it. He's looking at non farm payrolls. Others are looking at the comfort of four point two.
Percent, and along Calie Cox red Holts Wealth Management is out on social saying the labor force declined for the third straight month, the first time that's happened since twenty eleven. What's going on there with the workforce?
Yeah, so the decline in the last two months, and I think we haven't looked at the details for this month, but I think the trend in the last three months is that it's the youth, the people who are graduating out of college, the people who are in their early twenties that are driving this decline and labor force. And I think, you know, I know, the narrative of there is that it's immigration, it's undocumented, but actually I think the dominant thing is the youth, and we need to
figure out what's the story there. There's some signs that it's related to AI and that with firms trying to I mean, replacing a lot of entry jobs, white collar entry jobs with AI. There's just less need for you know, interns or younger. It's just harder out there for people graduating out of college.
We're calling interns this year junior analysts. I don't know why, but that's what HR told me.
Anamong thank you, thank you, thank you. Really leading the nation on.
Careful analysis of her labor economy. She's the Bloomberg Economics.
This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, 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.