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We're thrilled did Is Taylor drops here? Our surveillance Swift correspondent Amy was Silverman joining us today. But the timing you're so important, I'm not going to give you any Taylor chat much today. Amy, She's had a derriv of strategy RBC. What did do the cross moment say about this moment for America?
Well, look, the last time I came, Tom, we talked a little bit about the left tail and the right tail, and you know, part of our conversation was that I still felt like investors were more worried about that right tail.
Here we are with over.
With markets at all time highs SKEW is relatively low. You know, all the hedges that had been placed were not monetized because the markets kept going up. And when I talked to investors, they say, this just feels like the most reluctant rally.
Roman Friedman, NYU I think he's very controversial. In economics, he would say the rehedge will kill you. Inside baseball, we've had this bull market, the hedges weren't monetized. They got to go out and rehedge. Can they rehedge opportunistically here?
They certainly can. And of course, because everything's come in from a volatility perspective, it's not that expensive. But the reality is nobody's going to because markets are very short.
Very I love it, yeah.
Because because you know, when you're burned once twice, then shame on you. And so you know, you see it in some aspects of the market. You do see it in goal, but you don't see it as much in VIX and you don't see it as much in s and p hedges because that concentration risk keeps pushing the right tail to be more the fear than.
The left hand.
Can I editorialize from one Sweeney and Keene, we are so lucky, we're not running.
Money running out.
So are your clients looking to buy protection or is it or not? Because again I look at a VIX. That's the only thing I kind of look at because I'm simple and I don't see a lot of fear out there, So what are you seeing on your desk?
So I will tell you post Liberation Day, we did have that big rally, and investors did hedge, and a lot of it was longer term, so a lot of it was for that September FOMC and then when that came and went not in the direction they had hoped from a hedging perspective, none of that premium was rolled. What investors tell me right now is they're looking at alternate venues, so that could be you know, call options on gold. Even though that's run too, they at least
feel like it's a little bit less correlated. And then what they're waiting for is and I'm interested in what consensus is here, but I think if we get any sort of five to ten percent draw down, investors are actually going to buy that dip still. It's actually that's why I think you get this market that feels nosebleed, and yet we're still doing that retail chase.
So in the Greek letter, someone that I look at, folks, this is from aerospace engineering, is THETA, which is time guessing the time function, measuring the time function on the X axis. Can you do of theta study now or with a shutdown, no jobs report, all the other distractions tailors drop. You can't measure out on the X axis right now? Is that what this is really about?
Yes?
And no? And you know what I would say, Tom, in terms of THETA it's good from the perspective of if you were selling that Volatiley premium low as it is because everything's been can kicked. It's good for someone who's just writing it out right because all the event risk has now been pushed out. The question and options is always a timing question. Right now, the options market is pricing that we will get a resolution before the October.
I'm going to get one more nerd question in here with Amy with Silverman RBC, Good morning across the nation, Good morning Global and American Wall Street. We're thrilled you whether where they work at Princeton and all that she's done for the Royal Bank of Canada. Amy, was Silverman really treasured here as well? What tal Love would say, fooled by randomness is forget about all this pro Wall Street thing. Look at the hedge fund report from Catherine
Burton yesterday, the non performance of hedge funds. Tala would say, you can't figure it out, you take little bits of money and go way out, THEATA way out and buy the bet you want to bet.
Is that efficacious?
Now?
Look, and there are tail funds that do that. And it's a function of why do we go so far up because we don't know exactly when the timing is, but we do feel like that reckoning could occur, and of course it's not that expensive. But again, markets are very short term. We just got burned on the September FMC not going your way, and you place those hedges and now you're dragging a little on something that's ripped. It's very hard to talk people into stuff like that, nerd.
Folks, But I just tell you you're getting a window here into the real world. Jordan Rochester over at Namura, you can't miszoo. Excuse me, miszoo. You can't even understand his report. It's just Greek to.
Make too much Greek there.
Yeah, Amy, who who your typical clients on your desk? Are they hedge funds? Are they long only funds? Who's a typical client of yours that really wants to talk about options and hedging and that type of thing.
Yeah, I would say it's a good mix So there's long only as asset managers, there's pensions, and then there's hedge funds. I'll tell you know, hedge funds can be a little bit more nimble and what they do, and what we've seen a lot of them do is rent the small cap rally, so you know, they don't want to go all in. So you're seeing a lot of these IWM call spreads, which on an absolute level have actually done fine because they're saying, we don't want to wait,
we don't want to sit on this concentration risk. When we do see some sort of spread whining. In that case, it was a volatility spread between IWM and q's let's take advantage of that. So you are seeing nimbleness from the community that can do it. I think it's a little bit of a struggle, you know, for the long only. However, if they've been in the right handful of names, uh, they've done okay. And if they haven't, that that drag is quite painful.
Dumb question of the day.
Do your clients want to hedge their fixed income portfolios as well? And if so, how do they do that?
They certainly do, That just wouldn't be my Alley and the sense that we only focus on equities. Okay, but I will tell you there's been a lot of translation because there's so many liquid fixed income proxies, So an HyG or a TLT, you're seeing fixed income focused hedge funds and asset managers actually traffic more in equity derivatives because there is a decent amount of liquidity in these proxy ETFs.
On the equity side, do they hedge with ETFs?
And so how do they? How are ETFs? How's that change your world?
I mean for us, it's changed for the better because I just feel like there's more tools in our toolbox. You know, twenty years ago, I couldn't say, hey, go out and buy an HyG so the high yield proxy ETF foot spread you wouldn't get that liquidity nowadays, especially because I think the end of the day, everything is rates focused, no matter if you're a tourist or you're
specializing in it. Thank you use these as something that you would do instead of CDX, and it's relatively liquid and it gives you timing.
So with that brilliant phrase which I totally agree with from Painful Losses, can I suggest that part of the rates focus is what's driving MEG seven higher, which is a recalculation of their cash flows in terminal.
Value one hundred percent.
And you know, the one thing I'll say, the big change to me post COVID is you can't rely on these traditional correlations, right, you can't rely on your heads just being a sixty to forty portfolio. I think MAG seven changed a lot of that. And then you look at the intercorrelation between MAG seven which has then relatively low, and people are scratching their heads and they say, how is it that you're all integrated into each other's supply
chains that yet this correlation isn't that high. And so I do think that's why you're seeing these different expressions of hedges Tom that weren't necessarily the case five years ago.
I mean it was silver an RBC with this extended conversation, a treat on it. On Jobs Day Friday at a thirty Claudia sum will be with us. We're honored to have doctor Sam with us today. So within the MAG seven and all that, there's a recalculation here. How do you take the fundamental story and how does that look like when you look at it? Can you look at the cross moments of Microsoft. I mean, what do they look like?
Absolutely?
So.
One thing I'll tell you is when we were looking, you know, basically four or five years ago, at this point when the AI news was slowly starting to become part of the conversation. The first time you really saw that bullish element was in Nvidia calls. So they started to skew invert. All that means is the call option bid became so vast relative to the put option bid. Before that happened, the only time we saw that level
of exuberance was in the meme stocks. And when people saw it on the meme stocks, they said, this is a tempest and a teapot. This isn't going to happen on bigger names. And then guess what it happened on all the Mag seven names. And so now the market has really start to pay attention to the Mag seven cross moments because they determine the cross moments of the entire index. You know, this is twenty five to fifty percent depending on your index, and you have to watch it.
The cross moments.
Folks are starting with variants, the different dynamics of the moment. For example, kretosis is the fungus Lisa Matteo's daughter.
Has between her toes.
It's also I think it's the third cross moment or mesocrtatic, leptokritatic, something like that. Paul Amy did.
Better on this than me, exactly.
A talk to us about liquidity in your marketplace. If you come up with a nice strategy for your client and that actually get executed efficiently in the markets today, how has it liquidity changed in the future As an options market it you.
Know, it's been incredible. So first, liquidity depending on what you're trading, your standard suite of indices or mag seven, what have you highly liquid from an options perspective. The second thing I would say is we've had a lot of duration shrinkage, so the folks.
That creation shrink.
Yes, duration, so the tenors of the options that are traded. And this is a huge theme for us. It used to be that one month was your short duration, and then it used to be one week, and then Cibo came out with a lot of zero day to x rate and that's been the duration. So things happened very
rapidly in our markets. But at the same time, guys, we also get less of a signal, so you know that GPS that used to give you maybe one thousand feet to make that left turn, we're getting like a day now because you don't see people place those bets until one day before. So I as a strategist can't on the one day paper that I.
Don't understand if you get a jump condition one way or the other, how does that affect mere mortals out there with a long term horizon of one week or one month?
You know, That's why if you look back to what I would consider crises, so where the market kind of gives you these one two standard divation moves, the velocity tom is much faster. So think back to April twenty twenty four, think back to Liberation Day this year. The velocity of those moves up and down, that's a really sharp V.
Can I go full NERD to end? So it's slew rates. That's what you do.
You take electrical engineering folks and bring You're sitting in a classroom with Princeton and you're going, why am I in an engineering course? If I'm looking at finance, it's about slur rates? Are the slur rates for our four to oh one k the same as they used to be?
I think in the sense that if you're if you have a four oh one K, you're supposed to kind of close your eyes and not worry about it. So in that sense, if you're a long term investor, I
don't think it really changes anything. However, if you're us and you live and breathe this day day at, day in and day out, and then you know you're someone on the other side who's got a quarter end to worry about or month in Mars, it does become a little bit problematic because you do have these potholes, you know, I like driving Analoga's even though I don't drive, and like, there's a lot more potholes that could happen than when the Tenors were a lot longer.
Rockton's daughter has Taylor coming in new from Target today. Target's promise they'll deliver it today. How will the.
Silverman House consume the new Tailor.
Tom I have sixteen tickets to the Tailor Swafe release party tonight, Wow for for my seven year old and my eleven year old and their friends. So I'm you're welcome to go. You're old, go get a movie theater where they I don't even know at this point, but everyonce. There's a lot of glitter involved in nail art and tattoos. So I'm getting ready. I might need a drink before then.
Your offspring address appropriately.
They've been planning this outfit, you know, it's part of this is part of the arc.
So what are you smiling about over there?
He's right.
The girl's plan for this were very like, very cool.
That is, so they all go to a movie theater and there's a video of something.
I believe she's got some you know, behind the scenes. I don't know, but that's my guest Beatles.
I think it's a same you were.
I mean, I haven't seen anything like.
This that's brilliant, and that the only equivalent was Beatlestone's nineteen sixty four.
Yeah, I will say this, folks.
And I listened on the headphones. I previewed all those songs to give you the songs. Amy called up and said, I'm not coming on unless you do all Taylor, and it's all out of Virginia Beach. There are these miracle people in Virginia Peach, John Haynes, a giant named Serban Ganeo who's very private, and Taylor's albums are manufactured essentially by three geniuses in Virginia Beach and the sound when you put it on, She's nobody sparing a penny here. It's world class. It's world class fidelity.
Amy was sober. Thank you so much. 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 Auto with the Bloomberg Business app, or watch us live on YouTube.
Our conversation of the Day on the American economy, Claudia sam joins us chief economists at New Century Advisors.
Normally jobs day. What do you think, Dad, No, we're not going to do that.
She's out of Michigan with all of her front rate Federal Reserve academics, doctor somem not in a recession, but on the spirit.
Of the American economy.
Claudia got a great line which alludes to my book years Ago, which is a steal from Ken Rogoff. Are we flying on one engine? You say we're not. You say we have impaired vision. Define America's impaired vision? Right?
Well, I mean this is the time where we come together every month and wait to find out the latest, the best reading that we have on what's happened in the labor market, and we don't have it today, Like we're not going to have that discussion. So that's to me, we're not flying blind. There's a lot of information about the economy that we're getting, you know, even as the federal government has shut down, but we're missing a really
important piece of information. So our vision is impaired. And what's really frustrating is the September employment report exists right like, these numbers are sitting there. It's just because the workers who would normally put that up weren't deemed essential. You know, we're just speculating connection, and that's really unfortunate.
On a news basis, Doctor some does a president of the United States get briefed on the numbers that exist that we don't see.
Given the timing of the shutdown, it should not have made its way all the way to the president. Typically the president also the FED chair would see this employment report the night before, so Thursday night and the government shutdown on Wednesday. But again, but it is the choice of the White House at the end of the day. Who are the essential federal workers. So it is a choice of the White House as to whether or not we have these data this morning or not.
All right, Claudia.
In the absence of the government data, maybe a little bit more attention is focused on the ADP employment number. A decline of thirty two thousand in September and a downwardly revised decline of three thousand in August. I think that caught some people by surprise. How did you look at that number?
Right?
So absolutely we should be looking at the private sector numbers. ADP often gets a lot of interest and attention. One thing that ADP does is in September, it's a time where they update their model to help them take you know, the what they're looking at are the clients of ADP. They're a large payroll processor, but they don't process every payroll in the country, and so they need to use data from the pure of labor statistics to take their client data and make it more representative all you know,
all payrolls, all businesses. And unfortunately that happens in September. So and they told us in the press release that updating their model that actually shaved a good bit off of their September and also their their August numbers, So I think it's important. In the release they stress that, you know, even after they did the benchmark revision pulled in their new data, the trend was unchanged, right, So
they are seeing a slowing in job creation. But I think if you look at the headline numbers that ADP printed, you might be like, oh, wow, the slowing is really picking up, right, that sign of detrioration that we're all so worried about and watching for, and even ADP in their release that was not the way they interpret their data. So it was just another market like, you know, job creation is really slow, and that feeds this narrative of the downside risk.
Claudia sim with this. So we're getting briefed here, and of course we do better with Claudia some Governor Myron will be with us at nine point thirty two this morning, that is scheduled.
Claudia, back in your ute.
I'm sure at Michigan you were doing the University of Michigan's research seminar and quantitative economics the Michigan State output gap. Can we measure the output gap that Myron of Harvard is so fired up.
About well output gaps are any measure of slack. Slack frankly is going to be an estimate, right, You're going to need a model, You're going to need to make a lot of assumptions. So we can certainly have differences of opinion about how those are put together, but you know the ingredients of because at the end of the day, the thing that we don't observe we get measures of, say GDP growth, These are estimates, they get revised, but
we can go out and measure that. The thing that's important for the gap is you have to get an estimate of what's potential, like what's the best we could be doing. And that's the piece that you know, you can have discussions and changes. Big changes in immigration like that can affect what potential output is, big changes in technology and productivity that can affect what potential output is. So you know, I think it's it's an art more like science to get at those but you know that
these measures of slacker are really important. And I will mention bringing it back to today and the data we're missing. The big thing that we don't have from the private sectors. We don't have a measure of slack in the labor market. The unemployment rate is one of those you know, fits in that measure of like workers looking for work that don't have it versus workers who do have work.
Claudia, what do we know now with a little bit of experience here about the closing of the southern border and that's impact on the US labor force? Uh?
The the immigration statistics, you know, we what we need are the information from the federal government on the you know, unauthorized immigration in the country, the deportations. I mean, there are there are data that are published. I think some of those have been more lagged than in the past, but it really is our population estimates, which the immigration is just one piece into it. They tend to come
with very long lags. So I think this because policy has changed so much and so rapidly that there's both you know, reporting, the reporting lags, and then just putting all the pieces together. So I think this we know the direction, Like we can sign this in terms of like immigration has slowed down dramatically, but to get really precise and particularly in these decompositions of like oh well, job creation is down to twenty thousand, you know, is this high or is it low? What's the break even?
Right?
Those very precise calculations. We just don't have the input data to make you know those fine points, and we probably won't for some time.
And Claudia, just away from the labor discussion for a moment. The other side of the FED discussion is inflation. What's your view of inflation right now in this economy?
Right Well, inflation is elevated. It's it's and it has been elevated for some time. I think it's in the space of it's still a problem. Three percent inflation is still higher than what people have been used to, particularly before the pandemic, and the longer it last, it does add up, right, and so it's a problem. I wouldn't put wouldn't assign it being an acute problem, and I think there are reasons to expect it to come to come down.
Now.
On inflation, I think this is a place where we really are much more flying blind. If the federal government stays closed, we do not have as much data to here watching this, Claude, You've.
Got to run. I can't wait to have you on for a real jobs Day again.
Doctor Sam has been one of our foundation supporters here her academics at New Century Advisor, of course iconic on measuring slowdowns in America.
Stay with us.
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Priam is isery here on a jobs day? Folks? It's a non jobs day.
But as pri as you and I were talking, the dynamics of full faith and credit is price up and yield down?
What's the x axislo like? When is the when of lower?
Yields have been declining in the last few months. You know, if you compare it to say where we were at the start of the year or even after Liberation Day, when the concern was inflation may skyrocket, the Fed may not be able to cut at all. They may be the Cell America trade. What happens to the deficit? So that's how the tenure got above four and a half?
Why has it come down?
Well, inflation has not picked up as much, So I think that's allowing the FED to at least reduce the level of restriction, and the deficit is marginally better because we are statif as we've heard this, the tariff revenues are improving the deficit, not the long run entitlement issue, but at least near terms, So you know, I think three seventy five to four and a quarter is our range for now, so it is below where we are right now.
We like owning duration. One of the things.
The reason we like it is even though you're in that range, there's asymmetry, meaning there's more of a case of rates to fall if you get either permanent lay offs due to the shutdown or a slowing in you know, the job market continues. There's a nonlinearity. I know, Tom, you like to talk about nonlinearities in the job market. Typically in the uneployment rate starts to go up and goes up much faster. So for that asymmetry, we like going in too.
So silent controller and put me in the time out here. I didn't introduce ms Messer correctly. Premium miser folks, corplus fund at G. People are going to asset management.
Very good the markets seem to be ignoring a shutdown, it seems like, and is that something that is reasonable from your perspective, given what's what could happen? I guess so.
Historically shutdowns have been a bit of political theater, so the market ignores it. President trum signed something in law saying that they will be in twenty nineteen, saying.
That people will get back paid.
So you don't get paid whether you're working or four load, but you will get paid at some point. If it's a short shutdown, I think it's fine for the market to ignore it. Why it could be a little bit different this time is we've not historically heard during a shutdown that the administration may actually have permanent layoffs. Now maybe it's a negotiating stance, but if it actually results in permanent layoffs, I think the market's not going to ignore it.
And the other one is how long does it last.
You know, if it's a short shut down, you don't really miss a paycheck, it's okay. You start to miss one or two paychecks, the military starts to not get paid. They're putting their lives on the line. I think then the market's going to say, okay, Congress has to get their act together. I think then the market will start to increase risk premiums and you'll see an impact in rates, and you'll see an impact in the agree market.
All right, So we're not getting the nonfarm payroll data today, but neither is the FED. I'm assuming unless they get some little somebody's passes them a note under the desk. So they're kind of flying blind a little bit too. So how does that if we go a week or two and they're not getting the data that they need because they are data dependent, how do you think.
The FED has How does that impact the FED?
Either? Right?
Great point, because this FED has set time and time again that they are data dependent. They don't want to rely on a model, they want to base it on data. But you know, payrolls is a very important data release, so is claim, so is CPI. But if we don't have that, we look at what we call second tier data releases. And on the labor market, I actually think
there's been a remarkable amount of consistency. We're not seeing the layoffs, but we are seeing low hiring, whether it's surveys, whether it's you know, actual hiring trends in the last few months. So I think the FED looks at the totality of the data and says there's some risks to the labor market building. This is why they cut in September. The risk management argument. I think you can make that
case for an October cut as well. I think given that BLS is not collecting data, we shouldn't really expect a very reliable, you know, October payroll report as well. So I think this might be for the next few months. They're going to have to look at a lot of other data. I think given the starting point, we're at four and a quarter on FED ones, they can cut a few more times before it starts to get difficult for them because now you're in the vicinity of neutral.
Now you need a much better credible sense of data.
How do you respond? And I believe Governor Myron sy help me here. We got Governor Myron in.
The nine o'clock hour. I think, how do There's a rangy debate, fabulous to moralic article in Bloomberg yesterday on the neutral rate. The plug ins of the tailor rule in that it's tangential to what you do, but when you synthesize Ferulean chasm in and prea misra. Is there anything we can believe it in the neutral rate or is it just the fog out there?
You just see the fog, the fog on Park Avenue.
Yeah, comes down, sure, and you know it avoids the JP market building special fog removerent is.
A very nice fog in our neutral rate analysis.
So there is always large amounts of uncertainty around the neutral rate.
It does move with structural reasons.
So there's been this argument for the last few years of the neutral rate is higher because corporate and business balance, it's are better that there's more fiscal expansion, and then Governor Myron is making the point that actually it's going down because of tariffs and lower immigration. I think we're not going to know, But what I am taking away from that is whether it's three or two and a
half at funds, is it four and a quarter? You're not hearing much from people saying actually, policy is not restrictive. I think this will be the key question next day of the fact that's three four times they get into the vicinity of neutral, which I would say is two and a half to three and a half. That's how we're thinking about it, and so they can still cut for now and then watch to see how do different
parts of the economy respond to interest rates. That's going to be the best metric of how neutral how restrictive are rates, And it's going to vary. If you're in AI investment and may not be that restrictive. Housing it's very restrictive.
Also.
Three stooges monetary policy step by steps exactly.
If I'm a credit analyst in the Core plus bond fund, so I haven't even bothered to get from my cubicle, go to your corner office and it's you ideas, are you open to taking credit risk?
Oh?
Absolutely, so we do like credit risk. We think we're in a subtrend growth environment one to two percent. So you know, the overall macro pictures positive for risk. Company fundamentals look fabulous. I mean a few months ago I was nervous that do company margins come down because they absorb tariffs. We haven't seen that they've absorbed tariffs and they've managed to keep margins high. So company fundamentals are strong. But here's why I need to talk to the analysts
all the time. Dispersion is increasing, whether it's securitized credit, whether it's investment grade credit with the LBO risk, whether it's high yield. You are seeing some defaults. So we need the analysts, We need the research to do the work, not just at the broad sector level, but at the company level, and then tell us this is what you overweight, and importantly, this is what you underweight.
Can I beg We'll give you three segments, will blow out an hour. I want you to come here, the guy that's wor guy of the woman walking into your office, as Paul brilliantly describes who's looking at private credit. The shadows there, the new CMBs tranches and all that. Bring that mathematical beast with you. The two of you together would be a real surveillance street. That would be really great.
I like that.
Yeah, I think I like that you bring up CMBs because there you don't just have to look at the collateral. If you look at the collateral, the servicer, the structure, and see which tranch you're buying.
So it requires a lot of work.
We're going to make that happen. I think Eric still he lost so much money last night in the game. I'm not sure he's listening.
Priam Israel had a non jobs they thank you so much. She is with JP Morgan Asset Management. Stay with us.
More from Bloomberg Surveillance coming up after this.
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The last time Tiffany Wilding was on, Folks, she was riveting. I cannot it's a blur, folks like Paul and I staggered from guests to guests, But I had the clearest memory that she just absolutely nailed the tension out there. Yeah, is witnessed by price and yield in.
The American and absolutely.
Tiffany Wilding joins us. She's an econmress for North America for Pimco. Tiffany, were not getting the economic data that we're used to getting that the market kind of feeds off of. So let me ask you to step back and just kind of give us your thirty thousand foot view that you share with your clients these days about this US economy.
Yeah, well, so, yeah, I think taking a step back what we've noticed is that the economy is behaving, you know, somewhat differently than I think most people expected, just given the veryious policy pivots that the Trump administration is implemented. So obviously we've gotten really large tariff increases, we have immigration policy, U turns, we have various other things, And I think the surprising thing for many is that, you know, the manifestation of those policy changes in the economy would
be through price level adjustments. And I think what we're seeing as we go through the year and we're gaining more information, is that companies aren't necessarily increasing prices by as much as people expected. They are doing it on the margin, but they're also trying to reduce costs. And part of the way that they're reducing costs is they're just maintaining their labor costs, so they're even trying to actually reduce labor costs. So we've seen a pretty material
deceleration in labor market activity this year. We think that part of the reason why they're choosing to do this is that you have clashing forces. You have this immigration you turn, there's less labor supply, less people coming into the labor market, but you also have this technology boom, that's also that's happening in the background, and so they're trying to figure out how can we save money through implementation of technology, and we think that's also having an
effect here. So I think that's why you're seeing more concern at a federal Reserve officials more recently. We think it's why they, you know, lowered took the first step to start lowering interest rates again in September, and ultimately we think that will be a reason for them to cut a couple more times this year as that labor
market stays weak. But you know, twenty twenty six I think does look a lot better as you get some more of the one big beautiful bill stimulus that's you know, that's hitting the economy to offset all of this.
Yeah, that's kind of where I wanted to go, Tiffany about twenty twenty six and the tax cuts, the credits, those things that were in fact included in that tax bill. Are you putting that into your model in twenty twenty six as a driver of this economy.
Yeah, I mean so if you look at you know, the tax cuts were retroactive, which is which means means that you know, both businesses and households will get a one time larger check. You're seeing that in the business tax data already that the Treasury publishes, but you're also going to see it when consumers, when households file for refunds early next year. The refund checks are going to be large, especially those households that work jobs that where
they work overtime. Any tax is paid in twenty twenty five on overtime is basically going to be rebated back to them at the beginning of twenty twenty six. So that's going to be a pretty large refund check. In addition to the enhanced child tax credits, et cetera. So
we think that will help. It's a one time thing for sure, you know, in terms of the retroactiveness of it, but it will help to sort of bridge the economy through this period of weakness we think, you know, as you know, as you have the tariffs that are also starting to bite.
Our global technical director wants to know if he can you know the rebate he's going to get for overtime.
Yeah, I mean, you know, is that incoming boom boom.
I think that's going to be a brilliant Tiffany Wilding with us with Pimco. Tiffany I just brought up Atlanta GDP now three point eight four to two percent. I did a regression back to the end of twenty twenty two the Yardnni and Campora low and the answer is where plus a solid one point two standard deviations. We've been there. This is a third time. I mean, is
that a one off kind of boom? Do you think it just pulls back or do we just completely misjudge this sustained real GDP is Tarsan slock of Apollo mentioned earlier this week.
Yeah, well, I think we've gotten we got really good news with the recent revisions to second quarter GDP, which also included you know what the BEA calls annual benchmark revisions, and they kind of knew data that's more complete that is included in that. And one of the big things that was revised higher was the savings rate over the last several years. So it just suggests that, you know,
consumers have a bigger buffer here. We've been talking about this sort of K shaped economy now for a couple of years where you have you know, higher end consumers that have you know, higher wealth as a result of increasing housing prices and equity markets since the pandemic, et cetera. And so you have consumers that have a bigger buffer coming into this period, and that argues for them just to be more resilient. We think that the resilience and
the consumer that you're seeing is related to that. You know, ultimately, we think you still will see some slow down in the fourth quarter, but yeah, the consumer looks better, Tiffany.
I'm sorry, it wasn't focused there.
Amory Horning just came up to our gorgeous studio and placed your New York Yankees jacket like the one Lisa has on the glass. Wow, Tiffany said, I was a rattle. Tiffany, I got an average line and that regression of Atlanta GDP. Now the average line back to the Denny and Compori stock market low October twenty twenty two, Ready, Paul, two point six percent?
Yeah is average? Yeah?
Have we just misjudged, Tiffany the boom that we're in because of technology.
Yeah?
Well, so, I think that you're absolutely right. Growth has been since the pandemic closer to two and a half to three percent. But we think one of the reasons why that's happening is because you've all over that period, you also had an immigration boom that was happening, and that people come into the country, they consume, They not only work, but they consume, and so you had those
inflows that were also resulting in higher growth performance. So we do think that part of the reason why growth was so elevated in that period that is coming off now as you have a U turn in that policy. So we think the underlying level of growth in the US economy has stepped down from that two and a half to three percent pace, you know, to something closer to two percent where we were pre pandemic, you know.
And then I think that broader question is how much is you know, the technology related investment trends that we're seeing associated with AI. How much room does that have to run? And how much of a boost could we have from that? And we think that there is some room for that to run. It does look like we're in the early stages of that. Even though the equity markets have have been trading that theme for quite some time.
The actual investment that we're getting in terms of data centers, you know, and the hard investments, we think that is actually just kind of more in the early days here, so that has some more room to run.
Tiffany well, and thank you so much.
Love when you come on, I kind of thank you North America, pim Co, just absolutely brilliant.
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