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The Luckiest Guy on the Street, Georgetown, John Hopkins Academics is Axel pell or pale.
I don't know how to pronounce this.
Last time he gets to work with Stever Shudo over at Miszoo each and every day. Stever Shudo joins us right now as he provides wisdom to Alex and also to us on the American economy. Steve, just for inflation is all of our listeners and viewers have to Are we growing adjusted for inflation?
I think we are growing adjusted for inflation.
I think we've You've got a fairly healthy growth rate outside of the inflation environment. But I do think it's a little bit too hot for the inflation environment. Even the Chairman indicate that in his post meeting policy statement. He talks about the you know, the the FEDS mandate
dual mandate being intentioned. Basically, the inflation numbers are running hotter, but they have the weaker labor market numbers, and I think you're getting a bit more productivity helping out the overall real side of the economy.
So Steve going to the labor side of the economy here. I mean, if you just look at the headline, you know, on unemployment rate, it seems pretty darn solid, if not close to full employment.
Here, how do you characterize this US labor market?
Well, I mean, like everything else, everything is a bit of a tale of two stories. You know, you've got in the economy. You've got certain sectors of the economy that are doing extremely well, and you've got certain sectors of the economy that are not doing very well. I think when you look at the labor market as well, you're seeing certain components of the labor market, like the unemployment rate, because there's a scarcity of workers that's holding
the unemployment rate down. But by the same token, there's a greater uncertainty out there in the business community about where we're going, how sustainable things are, and therefore there's a bit of a reluctance to hire workers. So you wind up with the employment numbers coming off a little bit, but you wind up with a tight unemployment rate remaining an important component of the overall market environment.
So I guess with that background, Steve, the FED has begun cutting rates with that twenty five basis point cut. How do you think the cadence will kind of play out over the coming meetings?
Well, I think you're probably going to definitely get an October meeting. We put in three after the last payroll employment number. I do think the December meeting will be more data dependent than the October meeting, and I think any meeting thereafter will also be more data dependent. You know, it's interesting the chairman is able to pull off an insurance rate cut against the dot plot telling you four rate cuts were coming in fairly rapid order by talking not just about the fact that the dual.
Mandate is in opposite directions.
But also getting into saying, what we're really looking at is the risks underlying those dual mandates and making determination based on those risks, and therefore it is an insurance rate cut, and they've given themselves that out.
We welcome all of you across the nation this morning. The way you listen to us, Good Morning ninety nine one FM in Washington ninety two nine FM and Boston.
Little bit of serious baseball.
Starting today for the dreaded Toronto Blue Jays, we'll have to see the Good Morning, Bloomberg Eleven's three O and Miles Miller's New York. We continue with Steve Rshudo on YouTube. Steve, you've sement you three rate cuts, but in your research note you say the markets price are six rate cuts If we don't get market pricing on FED easing in all your experience with dominic constant, what does that do to the stock market?
Well, I think the thing is the Fed's not going to change the long term target for the FED funds rate quickly. So therefore you know the concept of whether we get to six rate cuts or not is going to depend on the data, and the data will determine it.
But I don't think they're going to change.
The idea that their view on neutral is to get back down to three percent. So then in that environment, I think you avoid a lot of the worst case scenarios that you would get if there was a sudden reprisal. In terms of monetary policy, the dots are very very important in terms of grounding the market to certain levels. And unless those unless that grounding changes which we don't
see happening quickly. We're not going to have the end result volatility that people would be concerned about normally.
Paul's too early to go, Nerd.
Can we go?
Nerd? Okay, let's get permission from Pall you go, Nerd? Okay?
Steve, what's roaring here after the Myron speech is a tailor rule. The Bloomberg has a beautiful function TYL, so
you can do your own tailor role. I got so upset about it, the certitude, the lack of humility, and the speech Steve shutout that I looked up Robert Hetzel, a paper I remembered from the Richmond fed like twenty five years ago, maybe twenty eight years ago, and he quotes the giant Orphanedes as well, that a little humilities in order in guessing the output gap guessing nahru have we lost our academic humility when we try to gain this odd economy?
Well?
I think what happened is in that period post financial crisis and post immediately post COVID, all the normal algorithms got distorted, and therefore there is a data set that supports things like Stephen Meron was talking about yesterday, which is basically a zero R start environment. Again, I don't think we're in that environment any where. We don't have the balance sheet related issues that existed then, but that
kind of distortion is still out there. But again, I think he's to a certain extent, he's pushed himself to an extreme, and I think that will minimize his vote to a certain extent.
Thank you, That's just what I wanted to hear.
With that said, do we have the institutional courage Stavershudo to push against a zero R start or the eight other flavors of that expansion, that lack of restrictiveness.
Yeah.
No.
I think the committee in general tries to do a good job. I think the committee members are focused on doing good job. I think the research staff tries to do a very good job and a good thorough job, and I think they do a good job of informing the board and the members of the committee. And I think in that environment, it's the institutional portion of it that becomes more important than the one or two voices that are leaning to one aggressive side.
Steve Hel's the US consumer doing well.
It's a pretty solid retail sales a week or so ago, and boy, we hear about some of the challenges out there, but the consumer seems to be hanging in there.
What do you think, Well, again, even though we're not hiring a lot of workers, we're working people longer, we're paying the more, and the net result is you have consumer spending building on top of that. And again that's a little bit of this tale of two different economies. There are aspects that are doing well in their aspects that are not doing well.
You've got an.
Economy that has very, very accommodated financial markets. It's an economy that's benefiting from excess liquidity. It's an economy that's benefiting from strong balance sheets. You put all that together, you've got a healthy economic environment. If you're not generating employment, you're generating hours. If you're generating hours, you're still generating income. If you're generating income, you're generating spending.
Steve Shudel, thank you so much, greatly appreciate it.
With from the Zoo, 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 Applecarplay and Android Otto with the Bloomberg Business app, or watch us live.
On YouTube, joining us Liz Sanders.
People don't I mean, Lizzy and you're so ubiquitous and you know, definitive since lewer Kaiser and people don't actually read your note and the end of the Lizanne Sanders note today is absolute gold. Let's start with this. Only seventy percent of S and P five hundred are outperforming the index of past three months and pasted one year.
Does everybody own that? I mean, the xuberance out there is everybody owns a.
Video, right, Yeah, even though within the mag seven you're seeing dispersion. So four out of the seven are underperforming the S and P five hundred. But you also have to think about the difference between the performance of some of those top names and the contribute. So Nvidia is the best performer year to date among the Magnificent seven, but it's the forty seventh best performing stock in.
The eighteenth until the last couple of days are standing.
We just had a little bit of a lift. Actually in terms of contribution rank, in Vidia is still number one, but as of a couple of days ago, Apple was number five. Hundred and three. Within the S and P five hundred.
There's only five. It's the most because.
To classes of service by alphabet and merge your pathway.
Only Kevin Gordon owns that. Okay, I got to ask this right now. What are Schwab clients.
Doing depends on the Schwab client, so we a lot of the inflow of new client assets for us are actually younger investors. I almost said that with air quotes, but of course we're on We're on radio, although on YouTube as well, So I think there's a big differentiation these days between what retail traders are doing and thinking
and what individual investors are doing and thinking. I will say that I have a little bit of a sour feeling given some of the anecdotal conversations I've had with even some of our let's call it more seasoned, ostensibly disciplined investors. I had two investors at an event I did a couple of weeks ago, a great event at
Churchill Downs I've never been before, super cool venue. One said that she her last two stocks that she had bought she got from a from a TikTok influencer, and she didn't even know the name of the person didn't quite know what she had bought, and another said that she had she had bought two stocks because the tickers were her initials and her husband's initials. Okay, so those anecdotes are a little bit unsettling, but I still believe that that's the exception, not the rule.
How should we.
Think about this concentration risk that we hear about so much? It's been expressed to mean so many different ways in terms of move in the market cap, But it's they're the biggest earnings contributors that don't worry about it.
How do you guys think about it?
Well, they are the biggest earnings contributors that said it's accelerating pace of earnings growth. It depends on what cohort you're talking about, if you're talking about the MAG seven or the ten largest names or AIAI adjacent. Yes, the earnings profile has been significantly higher than for the rest of the S and P five hundred, but at a decelerating pace. I think that was part and parcel to
the pullback. We not only got in the major averages in that mid February to early April period of time, but the further drag on performance was many of those leadership names. Memories are short though, so a lot of the players in those names don't remember as early as recently as just earlier this year.
Across America, Lizzie Saunders with us this morning and the way you listened to us Bloomberg Radio Good Morning, ninety to nine FM in Boston, ninety ninety one, Nathan Hager Radio in Washington as well on YouTube, subscribe to Bloomberg podcasts. That's what the hipsters do. Like Kevin Gordon as well. We're on YouTube and thank you for that, Paul.
So Liziane talked to usbout earnings because it's some point, you know, earnings really have to come through, and arguably that they did here so far this year earning second quarter earnings very strong.
How do you think about it in the back half of the year going into next year. Yeah, you're right.
When all was said and done in the aftermath of first quarter and second quarter reporting season, actual earnings were about double what the estimate was heading in. And what was interesting about that first half is there was limited extrapolation on the part of analysts into the second half of this year and into twenty twenty six. Maybe justifiably because of uncertainty with regard to policy that you could argue sets the bar sufficiently low as we approach third
quarter earning season. But I also think that there's a risk factor in if either you know, one or two high profile names misses on earnings or you just get an aggregate reporting season that is not quite as robust as it was in the first half of the year. So when I think about you know, I'm paid to assess risks, not just opportunities, and I think either some very specific Gurning's missus, I don't think that's a big case, but I think that's a risk fact.
A wonderful tweet out today I highlighted in the last hour of Paul Tutor Jones talking about the challenge of investing in the back third of a bull market or the back third of a bear market. Let's first identify, does liz Ane Saunders think we're in the seventh, eighth, ninth inning.
Of a bull market?
Yes, I would say, what we don't as a character, well, what we don't know is whether it's an extra innings bullmarket, like in the late nineteen nineteen to.
Put a video on second base, Okay, great, we're at the back end of a bull market. How do you behave what's the best practice.
So, notwithstanding baskets like the meme stocks and heavily shorted stocks and nonprofitable tech which are dominating performance at the sub cap weighted index level since the April eighth closing low, I think you want to fade the low quality part of the rally and lean into higher quality. In fact, I'll use an acronym that was more popular twenty years ago, and I've been doing this almost forty years. I think the way to think about factor investing in this environment
is less about traditional quality factors but almost garb. I think you don't want to sacrifice growth, but you want to have that value eye on valuation.
I think it's the growth for those that have never heard the.
Phrase growth at a reasonable price, okay, foreign con I.
Mean, and you don't do individual names Walmart or the pe of forty. I don't think that's Garby, is it?
Maybe not? And that's why I think you want that blend.
You want reactor. It gives you the best blend.
I think monolithic sector based investing doesn't make sense in this environment. So even the leadership sectors like tech and communication services have a lot of losers embedded within them. So I think factor based investing.
What is say I know the answer to her questions, Brockton, it's not that hard with Lizan on a factor basis, what is the most attractive factor nature of the meg seven.
Well, they have often been the momentum players. Now that said, when momentum is discussed as a factor, it's more of a concept. It's not a fundamental factor. So when momentum is a factor at work is working, it just means that the stocks that have been working continue to work. You can have momentum in utility stocks. I think people when they hear momentum, they automatically think high beta tech,
tech adjacent kind of names. But I think outside of that, I think you still want to look for strength and balance sheet, strong free cash flow, high interest coverage, reasonable valuations on a pe, and a price to book. But you want to also keep an eye on the growth side of things, so positive forward earnings estimate trends and positive earnings announcements.
Ll Zenne Saunders, thank you so much for being the most real commitment to surveillance over the years.
Is with Charles Schwab Stay with us.
More from Bloomberg Surveillance coming up after this.
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And an equity bullmarket. One thing you do is you watch bonds. That's a cardinal world. Bonds are out front. Sinje Bowen with a snow hiield bonds, senior bank loan portfolio manager at Beach Point Capital Management. Love your note, and my basic idea is bond c the agony First? Is there any agony in bonds right now? Or is it the same madness as an equity bull market?
Well, first of all, good morning, thanks for having me.
I would say it's both.
I mean, similar to other risk assets, leverage, credit shows fairly rich valuations at this point. In high yield, for example, there are a lot of double B rated bonds that trade inside of two hundred basis points over treasuries. In senior loans, over two thirds of the senior loan bank market trades above par.
So you don't see stupidity yet inbounds, well, we do see discharge like an equity guy or I wouldn't know convexity if you hit me over the head. Is there stupidity in the bond world that I need to be worried about.
Probably not to the same extent as in other risk asset classes. Credit fundamentals continue to hold in very well in this macroeconomic backdrop. You know, credit tends to perform well, and so there's not a lot of excess in terms of just you know, irresponsible credit creation that's taken place
over the past few years. And so to the extent that we do get problems within credit, they're usually idiosyncratic, either related to the specific issuer or to the sector, and that's usually an impact from one of the surprise policies that we've had over the past year, you know, potential geopolitical risk or or something that crops up that poses surprise. And again, you know, similar to other asset classes, just given where things trade, you know, it is an asymmetric payoff.
If you do get something wrong.
The new issue market is just ripping. The desk can't get this stuff off their books and fast enough. Is it too much supply coming in the marketplace?
Are you guys buying?
What are you seeing when the desk call you up and say, hey, we've got another deal.
Yeah, Well, there are two sides to the coin.
On the one hand, the market's open, so a lot of companies across a lot of different sectors, and you know, up and down the credit quality spectrum are able to access the market refinance near term obligations, and so that maturity wall that was a problem during the right hiking cycle isn't really one anymore. And so you know, access to capital is an important component that staves off the
faults and therefore credit losses. But at the same time, you know, there are periods of time when the market becomes technically imbalanced, where the amount of supply sort of you know, it's too much for the market to absorb.
We are not really in that right now in.
Both high yield n loans, you know, especially in loans given the amount of net new COLO creation, which is the major buyer for senior bank loans, that's that's very much in favor of issuers at this point.
Back early in my career, cut my teeth at the chasement and bank making leverage loans to the TMT space.
We made a.
Small fortune doing that. How's that leverage loan business today? And how much is going to private credit?
Well, the market share shift between private and public, and we at beach point we do both private and public, and so we sit back and we can see, you know, what are the trade offs between the markets and how these companies choose to finance themselves and what levers they want to pull on in order to you know, get the capital that they want or need. And so that share shift changes depending on the technical inflows and outflows
between the two asset classes. And so for a while private credit was taking share from the broadly syndicated market. That's now, you know, turning around a little bit.
And so it comes and goes.
Yeah, but I mean there's a little private equity angst out there in the zeitgeist this morning. Do you sense angst within private credit? I mean, you know, we get all sorts of cross messaging here. I'm hearing things I heard thirty years ago, the same phrases in all that. I mean, you've got the radar up on this, particularly with loans. I mean what's your take on private credit? Are there shadows out there we need to study?
Yeah, well, I mean commonly through market cycles. A rule of thumb is, if you want to know where problem areas are going to be, look at where the most credit has been created recently. And private credit does fit that profile. And so you do see right now, for example, a higher backward looking default rate within private credit than you do in public credit. But at the same time, those vehicles are equipped with different mechanisms to be relatively defensive.
There's still a lot of capital that's waiting to be deployed within that market, and so you know the ability to navigate these different situations of higher default, you know you may stave off credit loss.
Sinjya, thank you so much for joining Sidjon Barron Ruthers from the Left Coast with Beach Point Capital Management.
Greatly appreciate that. 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 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 joining.
So Margaret Franklin the CFA Institute. Full disclosure, I'm a member of the CFA Institute. It's where you take three exams and you try to pass them and they're very British and that they throw a wall of stuff at you and you flunk and then you pass. It's a rite of passage in the on Wall Street and it's gone worldwide. So Margaret Franklin's in Toronto, cushy job, the whole thing, and in September twenty nineteen she gets this
piece of cake job to run the CFA Institute. How about that COVID it showed up four months Efty dropped in how did the CFA Institute survive COVID?
Well, Tom, actually, testing times give you the opportunity to really change the directory.
So you talked about the.
Exam being that wall of material and testing we actually took the time to wait to go from paper based tests, which you would remember, to computer based tests, and that was really reimagining how we can make it more learner centric. So modular mobiles, it's way very else, the same way, way better it is and it's the same rigger, it's the same quality. But at the end of the day, the idea is not to fail people. It's to demonstrate
that you have the knowledge, skills, and ability. And I think the program really does that.
My life would be different when I was twenty with perplexity or when I was doing CFA.
Thank you Fidelity for telling me just shut up and go get it.
Show the difference between the three ratio or five ratio DuPont analysis. It's laid out perfectly like CFA level two. How is perplexity and AI? Can it change the capture of knowledge?
So we think that AI, that stack on top of the intelligence stack is really important. So if I look back two years ago, certainly subject matter experts were really anxious about their role within within almost everything. And what we find is that the subject matter experts, those who know, become really valuable. They know the questions to ask and they know how to evaluate the output on the way out.
So the CFA program, and actually the broader portfolio that we offer becomes I think more important because you need people who actually know what they're doing to be able to capitalize on really extraordinary things that AI can offer us.
Yeah, but like.
White Freed, Sandy with you know, Paul, it's like six hundred pages. It's got a John de York, I never got equipment leasing. I flanked it three times, Margaret, Is AI going to replace the torture of readings V body up at bu or White, Freed, Sandy accounting?
Well, the program actually is looking at the modality with which we teach it. So I think the core content, obviously modernized for what's important now is still the foundation of it all. But how we teach it is increasingly more accessible and more effective.
Paul, surveillance, correction, White, Sandy and Free.
Oh very good, Margaret, what is Global Wall Street asking of the CFA institute?
These says what skills do they want? What context?
So what we've heard from employers loud and clear is the knowledge is great from the CFA program. It differentiates. It says something about your commitment, discipline, and ability to master a really complex body of knowledge. But what they are really focused on is making sure that candidates are
much more job ready when they arrive. So we introduced our practical skills modules in this current curriculum, but we have a strategic initiative to really advance our skills learning and so that'll be a feature of the next duration, and of course AI allows us to do that so much better.
It is United Nation Week. Here in New York, it's Climate Week. Sustainability ESG. It seemed to be really important in the financial marketplace for a while. In the US it seems to have faded pretty significantly. But I know outside of the US that whole concept is sustainability and incorporating that into your financial analysis.
How do you guys approach that?
So what I would say about sustainability is it's matured over let's call it ten years ago when the tragedy the horizon speech was and certainly the last five years. It is not going away. It's just not being talked about as much. And why is that? Because climate risk is financial risk. It's financially material act owners. When we look at pension plans, sovereign wealth funds, they are not
walking away from it at all. The skills required for it, though, are being incorporated much more into mainstream portfolio management, risk analysis, and investment research. What I will say is that the opportunity set is different than it was five years ago. It's investable, it's scalable. You know, the cost curve coming down on for instance, renewable energy makes that much more attractive from both a risk and return perspective. So I don't think it's going away at all, and in fact,
our numbers bear that out. We have over fifty thousand people who have taken our stack on our Sustainability Certificate and that broader stack, so we don't.
See it going theay I haven't done that. There's still time and h.
One b okay I remember the desperation of well meaning Indians. Why need to take CFA one two three and like they had to fly to Dubaia can't remember during COVID, I mean a men's commitment on.
The part of these kids. You're away from the H one v remit.
But nevertheless, the CFA Institute of Impact in India is extraordinary.
Color that for us, so I think there are India is a great example of the globalization and the interconnectedness of global markets and that CFA provides. That CFA provide provides ethical training, very high quality education, but also a common language. And we see that everywhere in international markets that they want people talking the same language as they export capital and import capital. India is our number one market, really yeah, it's our under one number one candidate market
and that reflects two things. One is, you know, the diaspora is everywhere, but importantly India as a capital market and as a service provider to the financial markets is in increasingly becoming more sophisticated. And so again that CFA program and charter becomes a distinction for that market.
Is there going to be CFA Level four I've been asking for. I'm sitting there with some panel with Michael Mobison and we might go and we got to reach out. Hare's got to be more. Is it going to be CFA level four expanded? I need to I need the agony of six months gone.
Well, Tom, what we have on offer for you is an expanded portfolio with increasing specialization. So we have our sustainability stack. Private markets are increasingly important in a permanent feature in in portfolios, so we have a p Private markets stack. There are specialized learning for people who are changing careers. Uh, I want more specialized as they advance into crews, and that hasn't been available prior, so it's very important.
John Tucker, what do you think CFA radio blather it.
It's fun, Jo, that's fun.
How much okay, how much time am I going to have to invest in studying to pass all levels?
To pass all levels? It still remains three hundred hours per level.
You can do it.
You can do it nine hundred hours.
It's engaging.
Forty two kids. For the CFA the right passage for me?
Would you take the exam and you're certain you flunk every time you take it? And we would go down Newberry Street in Boston to some sushi bar I can't remember. And one night I'm there, are getting completely plastered. Yeah for CFA level whatever, and cam Neely's sitting next to me, like, you know, six feet feet away, and we end up. He goes, why are you you know, you know, blah
blah blah, and and you know, giant of the Boston Bruins. Oh, I took an examined finance, and I had another beverage in my choice.
Gets what's the latest pass rate for gas?
Are back up?
So they're back up, they're back up, so the back up to historical norms. Level ones are at around forty five percent. But interesting you ask that we have all deferrals, so if you can't take it, you can you can pay to get a deferral. And actually the deferred candidates are performing really significantly below the average. And so for all of you candidates who are out there, don't defer.
Yeah, tough yeah, tough it out. It's a guy.
At standish are years ago, Toby in Boston. It's a rite of passage. Margaret Franklin, thank you so much for joining us her leadership at the CFA Institute.
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