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the Bloomberg Terminal, and the Bloomberg Business App. Russ Coaster Rich a global head of app investment Strategy at black Rock Scientific Active Equities. Hey, Russ, we've heard, I guess you know for a while now about the economic exceptionalism of the US economy visa the other parts of the world. Does that carry over for you in terms of where you look for active equity opportunities US versus rest of the world. How do you guys break that down?
Thanks? Paul, You know it does, and it actually has an influence both bottom up and top down. Just to clarify, actually, I think bio might belittle data. I actually co manage the Global Allocation Fund Brick readers, so we have a global mandate and it does make a difference. And the reason is there are two ways to look at this. First of all, as you say, you know, the US exceptionalism, the strength of the economy, the fact that our labor
market's been remarkably resilient, the consumer has been resilient. You think about the difference we're seen right now between the US consumer and the Chinese consumer. There are lots of
reasons to focus on the US. But you know, there's another one that's not really captured just by the economic data, and that is when you look for companies that have the type of characteristics I think you want in this environment, revenue growth, profitability, stable margins, you just find more of them in the United States, where they're talking about technology, communication, healthcare,
than anywhere else in the world. So I do think that the US exceptionalism, particularly in terms of the types of companies we find here, has given us a reason to stay overweight the United States.
Hey Russ, it's been a while. It's really good to chat with you. So based on that, what do you think is happening with the dollar like the carry trade online from dollar yen that we saw, But then the dollar has been hit. I appreciate it's up today, but it doesn't feel like the downside to the dollar is over summer talking that you can do sort of a short term short how does that play into your allocation thesis.
You know, we don't have a huge dollar position right now. I think we have seen weakness in the dollar. That probably says more about the fact that there's been a little bit well not a little bit, but a fair amount of data in the last few months that signals that the FED is finally going to start to be able to cut rates and alex as you know. You know, we started the year expecting not weep, but the market expecting seven race cuts and now we're going to get
our first one in September. So this is giving a little bit an excuse for investors to sell the dollar. That said, I think one of the things that's happened that also is affecting the dollar is one thing the dollars did a good job of in twenty twenty two. In twenty twenty three, it was hedging your equity risk. In other words, when the market was going down, the dollar was going up, and in that way, it was
serving a role that bonds used to play. Is the dollar's been weaker lately, you know, we're not seeing as much of a role for the dollar as a head, so we've really been keeping our currency exposure pretty close to home. Russ.
I'm just looking at the vics here, we're you know, sixteen right here. But boy, two weeks ago Monday, this thing exploded out to north of sixty. Well what do you make over the last two two and a half weeks of this market volatility?
Yeah, Paul, that that was incredible. And really, you know, if someone sent me a great chart on that, it looked at the previous spikes in the vics, you know, two thousand and eight during the financial crisis, twenty twenty during the pandemic. I mean, these were world change, gene events that had significant downside to them, and then you had this spike in the vicks. All of what we're
looking back in hindsight two somewhat weak economic prints. So I think the short answer is it was way overdone and it said much more about the position of the market, a crowding and a number of trades or alliance on the end carry trade for a number of investors then set about that the macro environment. I think the reality is, yes, the economy is slowing. We had some evidence of that yesterday we had a revision to the non farm payroll numbers.
But the economy is not collapsing. We still have decent retail sales. And I think that movement into vics a few weeks ago it was just way overdone.
Right, And it's a whole idea that we're slowing. We're not slumping, we're normalizing. We're not falling off a cliff, and like squaring that is going to be It seems to be tricky for the markets talking about bonds. What's the best allocation here?
So we've been bringing up our bond allocation. We've been underweight by for a very long time, mostly based on inflation, also based on supply. We're still a little bit underweight at the long end, which really reflects more supply concerns than concerns about inflation. But we have been buying back bonds mostly in the belly of the curve. So talking about that five year range, we also have a lot of bonds on our portfolio that we bought back in
twenty one and twenty two. On the corporate side, high yield investment grade when spreads were wider. We're not really changing that much, but we're happy to keep clipping those coupons because in an environment, as you say, where the economy is slowly not collapsing, we're not very worried about the default rate, and for the first time in years, you can build a bond portfolio that's going to give you a six to seven percent yield without taking too much duration risk.
Russ, how about this earning season We've just kind of wrapped up. Ernie's got a couple more retailers coming up here. What's your takeaway here, anything that kind of changed your outlook for these markets?
It's funny. I think the earning season was actually pretty decent, and we came into expecting about nine percent year over year growth. We're probably going to do closer to thirteen percent,
so earnings are solid. I think one of the things you did see, though, and this explains a lot of the weakness we saw in tech, at least the relative weakness back in late July and early August, was that the crossbar for many of these companies has been raised and just given the exceptional run we've had in software, semiconductors, many parts of technology during the first half of the year, what it took to satisfy investors, the level of beat
you had to generate. There's certainly some evidence that that became higher. I think that's one of the reasons that you tech wobbled a little bit in early August and late July.
What about money market funds? So you talk about like clipping a coupon, Like, why not? Okay, we have like six point two two trillion dollars in money market funds still sitting in a record. That thesis was that was going to go somewhere? Is it actually going to go somewhere? And I guess the question is how many rate cuts do we have to see for it to actually go somewhere.
Well, I think it already is. You know, again, we were down about ten percent belows back on August fifth. We're now one and a half percent from the hive. So I do think you've seen that money provide a cushion to the market. And I do believe that as we start to get into this rate cutting cycle and people are looking at their statements and seeing that five and a quarter has gone down to four and a
half or maybe closer to four next year. That's one of the factors that we think still allows the equity market to go higher into the back half of the year.
Hey, Russ, thanks so much for joining us. Really appreciate getting a few minutes of your time. Is Russ Coaster Rich he's over there at Black Rocket. Julia Pollock joins us. She's a chief economist as ZIP recruiter. And if anybody has their finger on the pulse of this labor market, fucking folks at ZIP Recruiter, Julie, what's your view here of this US labor market.
Well, the momentum is the issue. You know, in twenty eighteen twenty nineteen, when unemployment was around this level, it was coming down, and of course right before the pandemic it was just three point seven percent. So in a very short time it has broken that level and continued to rise. And the problem with unemployment is when it rises a little bit, or at least sufficiently, it tends
to rise more in the coming months. It sets off a little bit of a cycle, and that is what we don't want to see right.
So, clearly monitory policy is too tight.
Right, So it's like a little bit can eventually go a long way in essence when the U three rate starts to rise. So what kind of labor do companies want? So they call you and they're like, hey, I need help finding these workers. What are those workers?
So when love of employers is saying right now is we have lots of openings, we have lots of things we want to do, we have lots of growth plans, but we think will hire more on the back half of the year. And that's go for when interest rates come down, Like we're looking at the things we want to do and they don't pencil out right now with such prohibitively high credit costs. And that's what company has been saying for quite a while. I think many of
them hoped that interest rates would start normalizing sooner. And so this is sort of a lost opportunity economy right now. So wait and see economy in healthcare, in government. Instead of industries that are completely kind of impervious to high interest rates that are insuated from them.
It's still you.
Know, hiring season, and employers are competing for talent like mad you know, healthcare demand for physicians, nurses, nurses, assistants, physicians assistants is off.
The charts and really remains very very high.
But you know, the economy outside of healthcare and the private sector outside of healthcare.
Has been adding for very very few jobs. It's our employment has been growing.
Unusually slowly there, and that's because everyone's kind of waiting to see what the that's going to do.
So yesterday, Julia, we had the economic data about the the BLS data being revised down by I guess about eight hundred thousand or so. Right on my thirty five years on Wall Street, I never thought that was even an issue, but yesterday we made a big deal about it. What do you make about it?
So I think doing statistics is hard.
You know, we can't survey every employee and every employer every month, So we survey a little sample of them, and we have models and assumptions, and then once a year, when we get more comprehensive data, we test those assumptions.
And adjust them. This is a normal process.
I think people are confusing these annual benchmark revisions with the monthly revisions that take place that are usually in the tens of thousands. So people are thinking, wait, a say they usually revise the numbers by five or ten thousand.
What do you mean eight hundred thousand? This is a conspiracy, you know, this is terrible. This is unbelievable. There's no your crazy business here, no conspiracy.
This is something that happens. That's pretty normal in obviously in raw numbers. This is the biggest provision ever in percentage terms. It's actually, you know, lots so much bigger than normal. Under Trunk we had a revision like this of over four hundred thousand. So this is a normal part of the process. And doing statistics is especially hard when the underlying conditions changing right out. The lay market is slowing, and it's slowing pretty rapidly.
Is what I tell my daughter when I'm helping her with her math. I was like, numbers are hard. Let's just because hards are hard. Yeah, So when you talked about the areas of the business cycle that are interested in hiring, et cetera, do you get a sense that there's a delay also because of election uncertainty, either delaying capex, delaying hiring just to see what's going to happen in terms of say taxes in the next six months.
So look, you know, in some industries, if I were to tell you, hey, why don't you go in on with me on an investment in an oil well, you might say, hey, let's just see here, where's this election first?
Maybe we'd rather want to.
Put our money in a solar field, right, Like, there are some industries where it makes sense to pause investments now and see who gets into power, But in most industries it's not really going to make much of a difference. Frankly, Okay, you know, some policies that Democrats like will raise labor costs incrementally, and some policies that Republicans like, well, like we cut taxes. But overall it's not going to make a huge difference to the company's growth plans and strategy.
So no, I think it causes a small delay in certain industries, but not much for.
Than impact of the Hey, Julie, we're going to hear from fitzchairman Jpel tomorrow from Jackson Hole. What do you expect to hear?
I think he's probably going to spend most of his time talking about what we now think the terminal interest rate, a long term interest rate should be. And you know, for a long time the fence projections have at it around two point five percent.
It's been creeping up lately.
Two point six percent, two point eight percent, and there are many economists to think that because the United States is just spending, spending like a drunken sailor, that rate has.
Actually gone up. No one wants to hold our debt.
A lot of these treasury auctions have been pretty lackluster, and we're probably going to have to offer a higher interest rate for being.
Able to hold this stuff going forward because.
There's just no discipline in DC and no restraint on either side, and one side wants to raise spending and one side.
Wants to cut taxes, and there's.
No one who wants to be a bring our fiscal house in order. So cutting Medicare, Medicaid and making adjustments is almost sort of off the table these days on both sides of the aisle. So the long term rate might be higher, probably some economy six three, three, four, five percent.
Yeah, I don't think it's ever been truly on the table in a meaningful way. Circling back to the areas where you mentioned you still see growth like nursing care, elder care, right, are wages coming up to that? Are we seeing an increase in wages with the amount of job openings that we have, we are.
And so the pandemic force was an unusual period where those wages shot up and there were lots of benefits to be had. But there are still many many hospitals that are trying to find ways to offer more training, assistance, to offer more help with living costs. So I mean that's that's the place where yes, we can expect to see wages continue to rise to incentivize the investments that people need to make in their human capital in order to get those jobs.
And the training is not easy.
You need to go to a nursing school or get licensed to stay out to date.
So I do definitely need to show people.
The money as a hard job. Yep, Juey, thank you so much for joining us. Really appreciate getting your thoughts your Joli Apollo, chief economist at ZIP Recruiter. Jonathan Tomorrow joins us. He's a Bloomberg reporter for Bloomberg Government. He is in Chicago. Jonathan, what do you expect to hear from Vice President Kamala Harris tonight and hear really big, big speech.
Yeah, I think she's going to be talking about turning
the page. And it's an interesting kind of situation in this campaign because she is effectively an incumbent, she's part of the administration, the number two, but she is presenting herself as the change candidate here, a change from both Joe Biden and from Donald Trump, even though he's out of office, he's kind of dominated the political conversation for a long time, and honestly, like a change in in the face of America as somebody who is part black,
part Asian American, a woman, a change from you know, two older white men who had been on the ticket and who many voters did not like for a long time.
Now, when we take a look at what's happening outside, there was a lot of worries about the protesters and there would be any violence, etc. Was this like a nineteen sixty eight situation? How has that played out? Like what's the mood outside on the ground.
It's been a lot more tame, I think than people expected, certainly far far short of nineteen sixty eight. There are certainly people who are protesting, people who are making their voices heard, but it has really not filtered into the events inside the arena or even really near the arena. They're about a half a mile away and walked around in kind of where all the main events are. You're not really aware of.
Them, Jonathan, Between now and election day? Is it just all about the swing states? Is that where we've come to pretty much?
Pretty much, these elections are gonna come down to six or seven states, you know, ten twenty thousand, you know, tens of thousands of votes in those seven states or so. And so if you live in those states, you know, expect a mirage of visits and television ads, and if you don't, you know, maybe they'll come through for a fundraiser, but you're not going to see a lot of the candidates directly.
Now, you're a Congress supporter, right, So I guess my question also becomes regardless of who wins the White House, what are we looking at in terms of the makeup of Congress.
So it's going to be closely divided either way. There's almost no scenario where one party's going to have like a major supermajority in either chamber. The Senate is a really tough climb for Democrats. The map just favors Republicans. Democrats would be we have to win every tough race in order to keep control there. But they say they're optimistic, but it's a tough clot in the House is a
little bit different. Democrats more optimistic there. A lot of the key races are in New York and California, which obviously are blue states. On a presidential level, they're hoping that a big presidential win in those states will get them the seats they need to take the majority, but like Republicans, they'll probably end up with a pretty small majority if they do.
Vice presidential nominee Tim Walls, how did he do last night? Do you think?
Well?
I think he was an interesting contrast, not necessarily in policy to Kamala Harris, but in personality type where she's the kind of hard driving lawyer from the coast, kind of a type a personality I think we could all agree. Walls, is that more kind of Midwestern dad guy talking about coaching football, having his former players and students coming up
on stage with him. I think he gives more of a different And I talked to a delegate here from Iowa and she said, yeah, like he just represents the middle of the country much more than Harris or even some of the other Democratic contenders for vice president.
Would have when do you think we get more policy?
Right?
So today's going to be the end of the theatrical event. It's going to be about inspiration, etc. Future change two point zero. I guess if you could put it like that, when do we get actual policy?
I don't know how much we're going to get, To be honest with you, I think that candidates have realized that elections are much more decided on feeling and gut and vibes and kind of who do you relate to on a personal level more than voters looking at, you know, writing down all their policies and checking boxes about who fits which policy for them. I think voters tend to pick the candidate they like and then suit their policies
to fit with that candidate is offering. So I don't think either party sees a huge upside and going deep on policy. It brings a tax, and I don't think it actually attracts that any voters, which I think is unfortunate. We should know what these folks are planning to do, but I think politically they're not going to offer a whole lot.
Jonathan. When you talk to folks in Chicago, how do they expect former President Trump will conduct the campaign between now and election day.
Well, it depends who you talk to. Republicans want him to focus on policy. They want him to say, look at all the liberal positions Kamala Harris took, especially when she ran for president in twenty twenty, and some of the things she said about Medicare and the Green New Deal in policing that they think are very unpopular. Still, Trump himself has focused more on personal attacks, questioning her racial identity, raising false insinuations about that, questioning her intelligence,
and Republican consultants don't think that's a winning message. The issue is Trump is Trump. He has always kind of focused on the personal, and so I think that's where the expectation is, unless he maybe sees himself slipping in the polls and changes course. But he has not really shown a lot of inclination to do that in his time on the national stage.
Yeah, last question here, RFK Junior. Any thoughts on that? Okay, Well, you know the producer said it. I'm a sub I feel like I need to represent any chatter about who he's going to endorse. Anyone care about that.
I mean, people think he's going to endorse Trump. I don't have any personal insight information on that. I don't think there's a ton of chatter. I think it's more kind of like a sideshow here. Although look, if he brings one two percentage points, that could be enough. Pennsylvania has been decided by less than one and a half percentage points each of the last two elections, So if he's able to bring that along, maybe, But he hasn't
seemed to have a lot of traction. My suspicion is that he already probably gets a lot of folks who may be vote for Trump anyway, Just.
Real quick, Jonathan. In terms of speakers, anybody kind of surprised to say, oh boy, this person could be the future, Well.
There's a bunch of folks who are kind of auditioning to be that person. One person I think who made an impression well, I think obviously Pete Boudah Jedge, He's not a surprise person. But some of the younger folks, people like Jasmine Crockett, congress woman from Texas, you know, kind of made her mark on a viral kind of insult fest with Marjorie Taylor Green that got a big state moment out here. Congressman Andy came from New Jersey also is going to be the next likely the next
senator from New Jersey. Has a really interesting personal story, and with the first Asian American senator from New Jersey, it was interesting to see him get a big time speaking slot last night as well.
All right, very good, Jonathan Tomorrow, Thanks so much for joining us. Jonathan Tomorrow, he's a reporter for Bloomberg Government. He is in Chicago. Well, we now want to head out to Jackson Hole for a discussion with the Kansas City FED President Jeffrey Schmid, who's he wants to see more data before supporting any decision to reduce rates. He spoke with our own Michael McKee in Wyoming. Let's go to part of that discussion.
Now, I think it made sense, or it makes sense for me to really look at some of the data that comes in the next few weeks, and and I think this mandate on the inflation side's really important. I think we seem to be getting some really good movement that direction. But before we act, at least before I act or recommend acting, I think we need to see a little bit more.
Well, we essentially on the path to it In other words, if we get as predicted inflation numbers, jobs numbers in the next month, would you agree it's time?
You know, I like the word path and I also believe that there we've seen some cooling in the labor market that also kind of works in tandem a little bit. With that, not exactly sure I would go there just yet. I think it kind of is an nature of what happened with the inflation numbers, and how much of those inflation numbers were kind of supply driven they got cured, And then how much is the policy restrictive? And I think while it's restrictive, I don't know if it's overly restrictive.
So you know, for me, policy implies patients, and I would say, let's be patient.
Well, what are you worried about? What would be the scenario that would drive inflation back up again?
So if we get any kind of spark and demand, I mean, I go around the tenth district quite a bit. We still have employment numbers, unemployment numbers in the two and a half three and a half percent range. I think a lot of people are looking at how do we hire skilled labor over the next twelve months. So I still think we could see a little bit of demand pick up if we're not careful with the decisioning, at least from the tenth district standpoint. I'm a big
fan of the Beige Book. I try to understand what's happening in tenth district and then try to see what's happening regionally with the other eleven banks, and I think there's from a trend standpoint, things look pretty good. But I still think we have some time.
I'll let you tell me what you thought of the report that the Bureau of Labor Statistics put out at eight hundred and eighteen thousand fewer jobs over the twelve months to the first quarter of this year.
Yeah.
So the first thing that comes to mind is why are we getting the data wrong in that regard. The second is, if you look at it seems like a large number until you put it in perspective of the twelve months, and so you know, while it's a big number, it doesn't really change the path of the way I think of things. When I think about monetary policy and the effect of the labor force and what's going on. I'm actually really interested in the dynamics of the labor force,
really coming out of the pandemic. You know, the behaviors, the compensation structures, the demographics. I think studying those relative to the future perforce, maybe thinking a little bit about what AI generated AI does to things like productivity. I think those are important things to look at. Now we have to look at some of the data relative to what we do with policy in the labor force. But the recent print here isn't a big concern for me.
So you wouldn't agree with the argument that some make on Wall Street that the FED is behind the curve.
No, I don't really agree with that. I mean here here again. I think we've got to get as a FED better at the data sets that we're using. I'm a new central banker. I'd like to see us move toward a more real time data set versus there still seems to be some lags, some serious lags in some of the data that we get. So using new technologies, maybe some of the AI technologies, maybe we get better
data as we move forward. But we've got to focus on that with our economists and our analysts about you know, where's the data coming from and can we rely on it?
That was Kansas City FED President Jeffrey Schmid joining Michael McKee in Wyoming at Jackson Hole, and Mike McKee joins us. Now, Okay, Michael, I have a couple of really pressing questions for you. One did you bring your cowboy hat? And what color is it? Two? Did you go to the million dollar Cowboy bar?
Yet?
Yes to both questions, and I can tell you that the hat is is white this year. That doesn't mean we've just elected a pope. It's just the color I chose this year to go with it. But we did stop buy the Cowboy.
I gotta go there. I love that, Like the seeds.
Yep.
Has Tom Kean been there yet? We were wondering if he was going to ride on the mechanical Bowl, But we don't need.
To see that.
He's only just arrived.
Okay, so there is time. There is time. Okay, back to the seriousness. So it does seem though that Jeffrey was more worried about the inflation part than the labor part and the economy part. Is that a fair interpretation?
Yeah, So this is a district that historically has focused on inflation more than growth and jobs. Jeff Smith's predecessor, Esther George and before her Tom Honig. They were known as the hawks on the Fed because they felt inflation was a bigger danger and they always warned about inflation when other people weren't seeing it. And that may be the case right now, but Schmid is taking it very carefully.
The interesting thing in our discussion was his talk about what he's hearing from his district that people in the tenth district are still seeing growing demand even though in interest rates are higher, and so that gives him pause about whether or not inflation the inflation dragon has been slayed, and he'd like to see a little more data. I think he'll vote with them to lower rates in September, but he wants to be convinced.
Michael, is there any scott about out there in Jackson Hole about how aggressive the Fed may be in September as it relates to twenty five bases points versus perhaps fifty points.
No, A lot of people are looking to see what Chairman Powell has to say about that tomorrow morning and whether he would even get into that. The feeling is the Fed would much rather do twenty five basis points and see how that works, and you'd have to have some really bad data in September to get them to go fifty. But there is an argument to be made for it if you think the economy is slowing faster than anticipated, and that argument got a little bit of
a boost with yesterday's jobs revisions. So we'll see if the Chairman wants to take that on in his speech.
Yeah, and also through the minutes too. I know that some are pointing out that the quote the vast majority observed that if the data continue to come in about as expected, it would likely be appropriate to ease policy at the next meeting, and then also talking more about the job's data and how they're worried about a faster deterioration. How do you think that Powell will leave the optionality.
I think he'll basically stick to the formulation that he's used that we are making progress, we have more confidence now after the data that we've seen, and it will soon be appropriate to lower interest rates. I don't think he will say we're going to do it. He doesn't want to lock himself in, especially with the jobs and CPI report between now and the time they meet on September eighteenth, So he'll use the kind of FED language FED speak to get around that all right.
Michael McKee, thank you so much. We appreciate that. Michael McKee, He's economics editor from Bloomberg TV and Radio. This is the Bloomberg Surveillance Podcast, bringing you the best in economics, geopolitics, finance, and investment. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten Eastern from our
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