Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. 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 am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. DOTTA was in the tantrum, going to hang up if I didn't ask about the real wage.
Let's go there with a guy who predicted this.
He was just outstanding of saying the negative gloom of negative real wages would flip to a positive real wage Neil Dota Renaissance Macro. Can you model positive real wages into the end of the year.
You know, I think that's probable, but I think that's largely because inflation is going to be slowing, not because not because you know, nominal wage growth is going to accelerate, so you know, I think it's uh. I think that compositional story is important. You know, my optimism around real wage is improving is largely because I'm more confident, I think, relative to consensus, that inflation is cooling throughout the remainder of the year. If you look at what we've seen
over the first quarter. Obviously it was a very strong quarter for inflation, as we all know and believe it or not, real wages didn't actually go up all that much, if at all, in Q one. So I think we have to be careful here about kind of tying the firm inflament because right now, Tom, it feels like to me that people look at the or the consensus looks at the strong and inflation numbers in the first quarter as reinforcing kind of like this inflationary boom like dynamic
in the US economy. But I think when you take a step back with you know, we do know that wage growth has been moderating. Most of the forward looking indicators that we look at, you know, things like the quits rate posted wages suggests further cooling in in nominal compensation growth. If you have this sort of inflation continuing, you do need to start worrying a little bit about what that means for real wages and in turn what
that means for consumer spending and corporate earnings. So you know, I mean, fortunately, I tend to think that inflation will slow, but I don't necessarily look at, you know, the inflation data in the first quarter as kind of reinforcing the stronger growth outlet. I actually think it presents a risk if it continues.
All right, So you know, we've had a busy economic release schedule over the last twenty four hours with Q one GDP and then today's inflation. Can you wrap it all up for us in And how do you think the Fed is going to look at the last twenty four hours worth of data.
I think they'll look at it and say, we have nothing to do right now. This sort of reinforces their belief that they have the benefit of time at the end of the day. I mean, you know, we have strong jobs growth and firm inflation. That's not a reason for them to cut rates at the moment.
So all right, so let's kind of look ahead a little bit here. I mean, what is the inflation I mean, you think inflation is going to kind of moderate here in the back half of the year.
If so, where will it moderate? Where will we see it?
Well, I mean, ultimately I think it starts from the labor market on out. Okay, right, And you know, I think this sort of bottoms up approach is interesting, and certainly that's how people kind of nail the first quarter inflation data. But ultimately I think you have to stick to first principles. And what I rely on is basically a standard triangle model of inflation. You have embedded inflation
or sort of an inflation expectations. You have a proxy for aggregate demand like the unemployment gap, and then you have some kind of cost push measure, right like exchange rates, import prices, something like that. So that's the standard triangle model of inflation that my former boss, Ethan Harris taught me about many many years.
Ago in my mid Okay, here's let me lay out the next twenty minutes. Cam Dawson's waiting, she's having a tantrum. She's not on yet. I mean, we'll get cam Dawson out on the market's futures of forty two. It's a cam Dawson market, but we're doing Neil Dotta. Yes, we'll get to the New York Giants. But first Neil Dotta. Right where I wanted to go was Ethan Harris.
Neil Dotta.
Doctor Harris wrote a blistering LinkedIn article yesterday saying, would everybody wake up, calm down, and look at trim mean inflation statistics? Which is your favorite? Ethan Harris? A gusted inflation, Dallas Fed Cleveland this whichever? Which is Neil Dutta's favorite inflation statistic?
Well, I mean, Ethan has been harping a lot on the trim mean inflation. I mean my pushback to that is that there's historically been a much higher I mean, there's an upward bias and a lot of these trim mean measures, trim mean median PC, they tend to run
a lot higher than traditional core measures of inflation. If you go back to two thousand and eight as an example, trim mean inflation was running a lot hotter than traditional core and we I mean, could you imagine what would have happened if the FED was paying more attention to trim mean back then? You know, at any rate, I mean, what I meant to say with the triangle model is that if you go through these components, I mean inflation expectations.
After coming down last year, they've kind of stabilized this year. Unit labor costs are slowing, right, I mean, and the dollar is stronger. So when you talk about slowing unit labor cost growth and firming dollar, where should we be about an upside inflation scenario? So I think you have
to kind of stick with first principles. And you know, that's why I think we should the consensus should at least be open to the prospect of downside inflation surprises over the coming months on a magnitude of the upside surprises we got in Q one.
Noah one question, the Giants go with a twenty year old kid from LSU. I think he walks into camp twenty one years old? Are these kids too young when they come to the NFL?
Now?
I mean, who am I to say that? I mean, I mean, they're great athletes. I don't know. I just hope that. Yeah, he helps the Giants offense spread out a little.
Bit neighbors LSU. Yeah, it's fun.
They went with the fun. Malik, excuse me, they went with the fun. You know, they didn't go to the boring for or you know, defensive guard or whatever. They went with something that's going to create some massive energy Malik neighbors.
There were the New York giants.
Cameron Dausin joins Now Chief investment Officer, New Edge Wealth Management, Cameron. The tech earnings have come in, I guess we've seen a good hunk. How is revenue growth doing? Are we seeing better than good revenue growth in this earning season?
It's still healthy. There has been a moderation, mostly in some of the consumer names, just because inflation has moderated, meaning that you don't have as much pricing power as you've had over the last couple of years. But I think the real story is not just on the revenue line, but it's on the margin line. And how much operating leverage these tech companies are getting is absolutely incredible. A
little bit of cost control and profits absolutely boom. I think you then add on top of that that all of these large cap names are sitting on massive cash piles. That the longer that the FED keeps rates high, the more that they get to keep earning big yield on those cash piles, which just allows them to do things like start dividends and increase buybacks. So clearly for the large cap names, there's a very virtuous cycle.
Sounds like Kim Dawson's sake in the Paul sweety kool aid here.
Yeah, I mean the dividends.
It's not the worst thing the world to put out a dividend there for your investors. So, Cam, what any takeaways just from earning so far this season? I mean, again, we're seeing some pretty strong numbers out of the tech names, and a lot of folks will say tech has to leave this market, so maybe we're in good shape.
What do you seeing?
It is encouraging that tech has held up well. We think the real tech test for tech will really come in the later part of the year and into twenty twenty five, because that's when forecasts are for tech earnings growth to accelerate rather meaningfully and then for the rest of the market to kind of take up the earnings growth and really be the key driver. So if that happens, and it will be something that is very a very high bar for the rest of the market to jump over.
For now, tech is very strong and at thirty percent of the index for the S and P five hundred, that remains ultimately the most important sector.
So I mean then that kind of goes to the issue Kim, that a lot of investors I think wrestle with which is do I overweight Do I stay overweight some of these tech names, or do I try to find some value in other parts of the market, whether that's financials or healthcare or energy.
How do you think about that at this stage?
Yeah, I mean that's the real push pull because tech has the earnings growth and the stock momentum, but it's extraordinarily crowded. If you look at sector flows, tech is the only sector that has had meaningful influence at seventy billion dollars using the Deutsche Bank data. And it's also really expensive. But on the other hand, if you look at the value sectors, they're underloved, under owned, very cheap
in some areas. However, they don't have that earnings momentum. Yeah, they have seeing their stock prices pick up, which is encouraging.
Okay, I have a toothpaste. Come, I'm going to name which one it is. With Kim, you go to the heart of the matter, which is ill look at the FA screen of a traditional, boring, wonderful, all American value company. They don't have the revenue pop. Can you predict the next twenty four months, Alawood Zuckerberg wrought that we're going to see a new rationalization of Jack Welch like cost cutting across all sectors.
I used to cover gees. So I'm not necessarily going to laud the era of the Welch time and kind of the aftermath of that, because cost cutting, you can't cut your way to growth. I think the reality is and this is how we always focus our investments, which is once on high return on invested capital. So we want to focus on companies that for every dollar that they put into their business, they get more dollars out
than the average bear. And so what that leads to is that you do find a lot of that within tech names, but there are also places within the industrials within even some give.
Me an example, Come on, give me, it's not an average bar, it's an average Ninja turtle. Give give me an example, Cam Dawson of a value company doing our return on ROIC, doing ROIC in a nice way.
Yeah. So some of the names within the industrials that we do like are in the services side of things. I can't give you any specific names, I'm sorry, and I don't even have any turtles with me today. But if you look at some of the services names that mask as industrials, they do a lot of things like
insurance data and that type thing. They're really good in defensive or copy markets and don't have that same kind of sensitivity to underlying GDP where you have to see an absolutely booming economy just for them to make a little bit of money.
So I guess let's just take a look at this economic data we saw in the last twenty four hours. Cam, what's your takeaway here as it relates to maybe how the Federal Reserve will kind of act over the next several months, And you learned anything over the last twenty four hours as it relates to our GDP our inflation picture.
Yeah, I think it's ditto to what data said, which is that this data doesn't necessarily mean that the Fed has to do anything at this time. We think that the bar for rate hikes from here is much much higher than the bar for rate cuts. It just means that it won't take a lot of eating and economic data for the Fed to start putting that cut talk back on the table where you'd have to see a significant acceleration and inflation for the FED to start raising
rates further. But we do think that the FED is going to keep rates as they are for some time because today simply doesn't support any urgency for them to start cutting.
One quick question that we got to go to another area with you, Kim Dawson, what's your SPX call twelve months forward?
We think that the returns are going to be closer to average given this starting point and what averages high single digits, And this starting point is one where you have allocations to equities that are not at peak levels but are extended, valuations that aren't at peak levels but are extended, which just supports that that kind of double digit better than average returns that we've had in different years is going to be quite hard to achieve.
Like most people, that really kill its strategy. It started out with the individual security analysis. Kim Dawson, we got a I still don't get ge Aerospace out of Cincinnati, that's on American. But Kim Dawson, Lawrence Culp shows up and he's.
He he's a Danaer and all that he's popped. Are you ready? Cam?
Nineteen point three percent per year since he walked in the door. What the what Lawrence called the pieces he picked up.
It's really something.
What he's done Lean manufacturing is a beautiful thing. It's fantastic. The ability to be able to take costs out of a business without cutting to the bone and really focus sing on the kinds of businesses that can generate a great deal of upside. We've seen that with some companies like an idex or an ITW that use the eighty twenty approach. And the thing about those kinds of names is that it's again it gets you back to those
high return on investing capital. Find companies that for every dollar that they put into their business, they get a greater farm.
Kim Dawson, thank you so much for the New Edge. Really love it. That was really, really excellent.
I got like a three hour conversation here right now with Mande singing Paul's.
Got to do a victory lap here on the dividend.
Mandy, Finally, I mean, I don't even know what with the puny dividend they're doing with the dividend payout ratio is, But are finally the tech boys going to grow up and give us a dividend and critically give us a dividend growth that somewhat correlates with their revenue growth.
Yeah.
And look, I think Google and Amazon wards at two out of the mag sakes that didn't do the two children. Yes, so it puts pressure on Amazon now to good point.
H And they're like, let means off a cliff, Paul, You've been through this. I mean, Apple's got a one up them and you know, do a one hundred billion share buyback.
Right, So I mean I'm looking at good at Google slash Facebook, you know, eighty billion dollars in free cash flow seventy billion they announced.
This, this buyback, So that's huge.
Yeah, talk to us about the quarter that What did you see in the operations the quarter?
What stood out for you? Because the market really likes what it saw.
Yeah.
I mean, look, everyone thought their search business is getting disrupted. They will, you know, slow down in terms of growth rates. They come out and really blow it out of the park on the search profitability. I mean that was the driver of why the operating margin was thirty two percent all time high.
Wow.
And that just goes to show how much pricing power this company has. They can raise the ad auction prices without telling advertisers and everyone will pay for it because that's how their ROI is on AdSpend. So clearly, you know they're flexing their muscle when it comes to ad pricing and YouTube and cloud being one hundred billion dollars underd business combined growing at over twenty five percent.
That's the same. That's Tom. That's Tom.
He's been calling out YouTube for a while here, I'm not sure the street.
Do you think the street fully appreciates it?
Oh, they do not iorialize you.
I mean, can can I spin that out?
There was a dislocation in the valuation that Google had versus relative to Microsoft, Microsoft trading at thirty three times pee versus Google at twenty three y okay.
The basic idea here is Apple peels off services. Dan I says, no, they'll never do it. I don't know what that's worth.
But Google could peel off or be forced to peel off YouTube.
And it's ginormous. Is that the right you know, CFA term? Yeah?
I mean their YouTube ad revenue grew twenty one percent. The subscription revenue is also north of twenty percent.
So that's because of.
Bloomberg surveillance out on YouTube search, Bloomberg podcast continue.
And engagement is off the roof So I agree. I think YouTube itself could be a trillion dollar in market cap given its growth rate.
So that puts Google you'd model out at what three trillion with.
I think so, based on the numbers you saw last night.
Are they listening to roofs? Come on for New York City. There's a whole history here, folks.
I believe the Morgan Stanley the brain freezes on a Friday. Ruthport's a CFO out there. They finally the owners the CEO. Are they finally listening to Ruth?
I think so.
I mean she has additional responsibility now, you know, in terms, and they are looking for a new CFO given she has additional responsibility.
But I'm going to give Paul Sweeney a massive victory lap on this one. So I'm going to put it up again. I just put it out on.
Social This is the new world, This is the Sweeney world. Daniel Parris, pay a dividend. You don't have to be like Totel Europe or BNP Paridius.
I pay something, so Mandy.
But I still view AI as a threat to the core search business of Google.
Is that a valid concern? Do you think?
I mean, look, I could say the same about the cloud business for Microsoft. Yes, there is more competition, but in search they are the incumbent player. And what they're showing right now is they can integrate their generative AI stuff with their cloud, with their search and that actually is helping the business the pricing power of the business.
Take what you learned here, I mean, from Texas Instruments over to Meta, Facebook, over to the two yesterday, bring it over to Apple.
I believe it's on Tuesday.
Well, so Apple, I think has a different problem when it comes to the China side of the business. The twenty percent revenue exposure, you can't do anything about that. Handseid revenue exposure they have, and the services side of the business is not going to look as good as you know.
Microsoft and Google does a threat in their margins.
It does. I mean, look, they have been in the antitrust crosshairs, even though you know not much will happen in the near term, but the fact that they can't you know, keep their take rates at thirty percent they used to have in the app store, that's gonna hurt the business. And they can't roll out new genei services because they don't have the infrastructure. I mean, all these
companies are raising capex thirty forty fifty percent. Apple doesn't spend as much on their data centers and and that's where I think they will be sort of there behind and and it will be very hard for them to catch up in terms of, you know, the generative AI stuff, which is what the growth part of the.
Business, the generative AI, Well, that's it. Don't get well, that's my question.
I think they kind of do. So I was looking forward to this May seventh. I guess their their pig event coming up.
Yeah, what are we going to do? Are they going to have a I guess transformative announcement?
Do you think they will innovate with their chips? The biggest advantage that Apple has is it controls it's chips in their devices, and that's where the on device generative AI play is still there. No one else can take the distribution away from them. They control the distribution, and if they're able to show something like that, that will drive a heavy refreshed cycle. But in the end, this company is still driven by iPhone refreshes and iMac refreshes and all those Yeah.
I had of fans stop me in the street. And they said, is it true that Mandeep and interrog can't be in the same building at the same time?
Is that true? Like, can you ever ever.
Talked to each You can get along very but you have you can't be in the same building at the same time.
No, it's kind of like key Man risk. You can't do it for technology, you tell you.
Look at the front pages, Lisa, what do you have?
All Right?
College students, this is in the times, are becoming reservation scalpers.
It's a new side hustle that they're the thought of.
Because you know, in New York City people are always wanting to get reservations to these high end restaurants you can't get in. So what these students are doing is they're making reservations. They're posting them on this platform, card Appointment Trader, that's a platform while people bid on reservations.
So they're booking these reservations.
There's one college student in Rhode Island who booked who booked a reservation for a French restaurant in Soho. He made eight hundred and fifty five dollars just from someone who wanted to get in there. He made one thousand dollars from a reservation.
At Carbone because someone wanted to get in there. He said he made seventy thousand dollars. You're on this side, hustle. New Yorkers don't like it.
They say it's ruining the restaurant industry because you know, we're New Yorkers. We want to get into different, you know places, and we can't because these kids are buying up all the reservations.
They're not even going, they're just making money off to the day's meekings.
Walk in and slide the person at the counter at twenty bucks and say, you know, just come on exactly.
Yeah, you know. They go, oh my god, it's you. You know, I'm flattered. And you go up the stairs to the back bar in the bag and you sit on a little chair and your children are like, this is so cool. And there's the bar right there with the mirror.
Okay, and you don't, you know, you give them fifty bucks or whatever, and now it's eight hundred dollars.
Sometimes a thousand. Justin Bieber I didn't even get into Carbone.
It's just ridiculous.
So yeah, and the restaurants don't like it because if those reservations aren't sold. Then they're stuck with empty tables, and that's when it just is out that way.
Yeah, I've not been there, so I'll defer to time restaurant Scalpers Smith last night, Oh, strip top.
Oh we're sitting over on Third Avenue.
Fantastic pack.
You are so old school.
We had This is my investment banking team from nineteen eighty six where we still get together.
My god, they let you bring in the drips in the cath.
Exactly did you have to pay for that reservation?
Or we know some peoplets after thought, I had a birthday.
Where do you want to go? She goes to Mermaid. So there's a new Mermaid down in Soho. It's the first time I've been below fifty ninth.
Stround Like, why would gets?
You know?
Nice?
I texted Pharaoh, I said, come on over, I'm at the Mermaid.
He was in Capri or something, of course exactly, but.
What are you have pressed your off?
Another thing in New Yorkers that they always talk about, you know, it's congestion pricing. This one is the illegal weed shops. That's another issue in New York City. I've heard this this out, Yeah, that one of the this is from the New York Times. An illegal shopping queens that's called Badega just received a permit. And this is kind of a backtrack because New York said they were cracking down on these illegal weed shops and not going to give them permits because they weren't going about it
the legal way. But now the New York Times is saying, hey, this shop is starting to do it. The State Office of Cannibismanagement there is such a thing. It said that it's investigating weather the owners because they applied for it under a different name, so that might be an issue and that's why they may have gotten up there.
But it's still under review.
But this is just a big issue of us. This up terribly.
Every single block has the legal wee chap. People are and where's the tax revenue. I mean, you talk to people in the cannabis industry and they say, New York City is the absolute worst execution of this law you've seen anywhere.
My basic take is it's Boulder, Colorado, spring of nineteen seventy one, and the music isn't as good, and you know it's out of control. I mean that's what I hear from particularly downtown here.
That's not a millitary and he's my go to guy.
Oh yeah, this is a problem. When he's in one of the suburbs north of the city. It's a big problem.
Exactly.
Yeah.
So anyway, all right.
Well next, all right, what's also out of control? Tipping? Tip flation? Ok there's a study. It's from Talker Research. This is within the New York Post, your favorite Paul.
Americans spend nearly five hundred a year tipping more than they'd like to because they're saying they feel a lot of pressure.
You know, you're at the Starbucks or whatever, the Barisa.
Turns a little you know, tablet around and they're staring at you as you pick ten percent.
Or nothing.
You know, it's dying now.
This is one of my New Year's resolutions, just starting today. Okay, if I didn't do it five years ago, I'm not doing it today. That's one of the points. Yeah, because I'm a good tipper. You ask any of the folks down the Jersey Shore saloons. They know I'm a good tipper, but I'm no tucker on the other helm.
Yeah, exactly exactly. But that's the problem.
People are saying, they're tipping now for things that they never tipped before.
Yeah, there's a good I thought so good stairs. Look a good thing on social media saw yesterday was somebody was going through TSA.
They were going through the the person was going through their TSA take and then afterwards they put their phone next to them the tip.
You know, so are you done or you have one more jewel?
No?
Okay, your coffee, your latte could be getting more expensive. Here's the reason why there's a crowd in Vietnam. Yes, hurting coffee being production. We're talking about robust.
The reachers hit a sixteen year high on Wednesday.
Here's the is that I thought was interesting. Hoarding Vietnamese farmers. They're holding onto the beans. They're holding onto as much as thirteen percent of this year's harvest. They're hoping to sell them for higher prices. So that's becoming the issue there. So experts saying, you know, it could take a while before it reaches consumers.
So your mocha is safe for now, but it could start to tick up.
Tom, we have a ticker on that on the Bloomberg Terminal CC and four space commodity COCO futures. Again, it's just been this chart has gone up into the right like crazy spike in cocoa prices.
Go figure. I mean, that's commodity inflation that hits your pocket book.
Lisa, thank you so much, greatly, greatly, greatly appreciate it. This morning tipping thing is a huge deal because you know, in Paris it's totally different where.
They get a huge wage and here they don't.
Right right in London is really messed up where there's no tipping. London's the worst.
So you don't tip in London.
You don't call London, you cannot if you don't leave cash. They don't get tipped.
Terrible. It's a complete scam in London, very.
Part of the culture.
I mean, you know, but they get paid more than.
They do, get paid more, but you can't add a tip off your card.
You don't need to get that option.
I sat down with the reto keeper of the MX and you know, we spent an hour on this. That's a joke, Lisa, that was brilliant, very valuable. Actually, this is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. 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 am
Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.