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Twenty five at North Cachet Street, Jackson, Wyoming is home to the million Dollar Cowboy Bar. And I'm here and it's quite the hop and spot. Like that's where the economists go to say, you know, marginal revenue equals marginal cost and all that kind of stuff and have those debates.
I actually met Lil Wayne at the million Dollar Cowboy Bar.
Yeah, about ten years ago.
Yeah, he was in Jackson Hole doing a concert for the snowboarders.
Very cool. See Lisa, you hang with Matt Miller and the stuff. You'll look. Did you get a picture? I did. I did a new.
Picture of me, Lil Wayne and my dad doing the ski shot exactly.
All right, Let's go to from Lil Wayne to Tom Keene.
Host of Bloomberg Survellance on radio and YouTube. Tom talk to us about Jackson Hole. Here, give us the vibe of Jackson Hole this week.
The Vibe is really different. When I walked in yesterday, Paul Sweeney and doing this for some eighteen years, I was really thunderstruck, how quiet, how subdued everything is. I think there's a huge number of distractions into the speech this morning at ten am Wall Street time, and all devolved down to a line by line read of this final speech of your own, Powell. I would assume it'll be a little more active today, a lot more international media coming in as well as the Bloomberg world turning
to the attention of Powell's speech. All in all, what I would say is it's an international community here. But yes, it is about what the FED will do up to the September meeting.
You know, Tom the Wall Street Journal says the Fed's going to make change to its framework. They had decided in twenty nineteen, twenty twenty to let inflation run hot, and they sure as hell did that. But I guess to me, it seems like the important change is no more averaging, right, because if they really want to average two percent, they would have to keep inflation low, and lord knows they want to keep it high so we can work off this debt.
Well, I'm not going to go with that, Matt, But I am going to say that Nick's article in the Wall Street Journal was really prescient. At the back end of the article Nick featured Jonathan Farrow's interview was Secretary Bessant. And the backstory here is when the Treasury Secretary makes what most people would consider outrageous calls for a dramatically lower interest rate, how does that upset the American equilibrium
and the global equilibrium. I think some of the nuances here will be to stabilize the dialogue and try to get this central bank back on track, to look at inflation, to look jobs, and get to the next meeting.
I'm going to say, you know, I was listening to that interview on Survey Vance with John Keene and Scott Bessen and when he said rates should be one hundred and fifty two hundred and seventy files would support that, Well, he's at any model would support it, and I know every economist is shot back with no model. But I just typed WIRP on my Bloomberg terminal and noticed what he was saying was exactly, literally to the basis point, what the market was predicting anyway, So it wasn't that crazy.
Now we've come back from that a little bit. Are the odds now is the risk I should say, Tom, that there's no cut in September, rather than the risk of a fifty basis point cut that we may have seen two weeks ago.
You make a really good point for people that are not sophisticates of this. The story changes literally now. Data point by data point. There's been an unbalanced set of inflation data, but the fact is there are selective inflation data that's shown new prices up. I love Paul Krugman's new sub stack where he talks about the surge and electricity prices, including Sweeney's bill out in a Jersey, which
is out. I think it's four or five figures. But inflation is back is part of the debate here, along with a tepid I should say the weak claims number that we saw yesterday.
So, Tom, is the expectation here that FED Chairman j Pala Is he gonna try to frame his legacy in the speech in any way?
Tom?
Or do you think it's going to be focusing on the task at hand?
The answer is nobody knows. I've heard so many It's like looking at red Sox Yankees, where I note the Red Sox took the game last night. There's a bunch of pundits. Okay, everybody's got an angle of what this speech is. Nobody has a clue. I do think he will touch on the legacy. But rather than guess what the speech is, I think more productive is to tune in at ten am, Bram and I'll be giving you coverage on that. And literally we're gonna go lining by line through the speech.
I've gone line through line through your bio, Tom Keane.
We got your bio for this interview in our notes, and I note that you survived an interview at Davos, a joint interview of Ken Rogoff and Joseph Stieglitz.
Yeah, if those.
Guys were at Jackson Hole, and honestly they probably they probably are, which view would you take?
This is absolutely a brilliant question. That was really quite an historic interview. They had a massive, massive argument in economics twenty years ago. They're on different sides of the fence. Joe Stiglitz is going to say half of America's flat on their back and they need some easing of pain by redkuts Ken Rogoff in my book of the summer, our dollar year problem. Whether you disagree or agree with
Professor Rogoff, he is looking at rates nudging up. There's a backstory here, and Paul, I know you've been watching this carefully. Twenty year and thirty year Japanese bonds are breaking out to new higher yields. Literally as we speak. The international community here is focused on this.
Tom nine E. M.
Wall Street Time you, Lisa Bromwich, Michael McKee will have a program from jacksonvill tell us about kind of where you're gonna be covering.
Well, we're going to be covering with some wonderful guests with our question. The interview of the day for me here at Jackson Hall is James Buller, the former president of the Saint Louis fed now at Purdue at University. He is on the trump list to become a chairman. Jim Buller likes low rates, always has. His dot was always down at the bottom of the dot plot. We've got a number of other good because Kate Moore will
be with City Group as well. But Matt, the really important thing quickly is after the show, I'm getting on my Harley Road Glide and I'm going right up Wyoming one ninety one to Jellystone.
That is a dream. That would be a dream come true for me. What a place to be.
I love the Teton Village to ski, but in the summer I think I'd have even more fun in Wyoming.
So the question is Tom, are we going to get a sighting of Lisa A. Bramwit's on a horse?
Is that possible?
I don't know. We may do a horse shoot here later with Joe and Tracycy. I don't know if Bramo's involve There is a rumor Tracy Alloway survived the Wyoming horseback ride across the Teetons are all They're not getting me on a horse.
Hey, Tom, Well, what are you hearing about this? This pressure on Lisa Cook and this administration has used mortgage fraud well in its business, in Donald Trump's business, but also to try and attack political opponents.
Oh, I think it's out there. It's percolating. Every news organization has picked it up. Our John Elmarte really advanced the story yesterday. What I would emphasize, as there's not been enough discussion about doctor Cook's credentials. She's out of Michigan State. She studied directly under Berry Keen Green at Berkeley. She's a world class economist, and you know, we'll have to see how the back and forth goes within this. There's a lot of allegations in very few charges.
Tom, thanks so much, appreciate it, getting a few mentions of your time out there.
Ian Jackson Hall Tom Keen.
He's the host of Bloomberg Sevan, so we all know him, love him, Bloomberg Radio and on TV and YouTube and all that kind of stuff.
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Christina Hooper, chief market strategist at Man Group, Christina at the thanks so much for joining us here today. You've been doing this a long time, Christina. You've seen lots of discussions around the FED for through many cycles. What do you expect to hear What do you think you might hear from FED Chairman J Powell today?
So, Paul, I think we may very well hear that there's at least some kind of change in focus on the part of the FED, some kind of tweaking to the framework. But I think at the end of the day, what we're likely to get is very little in terms of substantive direction for September, and that is by design. I think Chair Powell does not want to reveal his cards, but I do believe the pressure is building, and I do think we'll actually see a ray cut of twenty
five basis points. I know that sounds like it flies in the face of that altered framework and more of an emphasis on inflation, But as we've heard from a number of FED officials in recent weeks, the labor market can deteriorate quickly, and once it starts, it can fall sharply, and so I think there really is a lot of concern about that, regardless of what we hear from Chair Powell.
Another point I would make is that Chair Powell has to be thinking about history and how history views his time as the FED Chair, and so I think he'll be focused on or at least try to make the case for the importance of FED independence. That's not what investors want to hear or really care about.
I think right now.
But I think he's going to focus or at least try to give a nod to that.
So a couple of the different I think subjects there to talk about FED independence. Let's put aside for a second and talk about what the FED is going to do in September. Why in a rising inflation environment, we saw three point one percent on the core CPI, three point seven percent on the core PPI, it's going the wrong way, more than sixty percent away from their goal.
Why in that situation, especially with.
Unemployment at four point two percent and earning's growth at ten percent, would the FED cut rates?
Because I think the FED will make the determination that this is likely to be something of a one off price shock, that tariffs can be at least somewhat dismissed because it's not going to create continued sustained inflation. Now, that could very well be wrong, but I think that
that is the Fed's perspective at this point. Certainly that's what we've heard from Chair Powell and a few other members of the FMC in recent months, as they've talked about and you know, hypothesized about the impact of tariff driven inflation. Now, having said that, I think what we could get as a FED that after a few months says, you know, we think we may be wrong about that. We think inflation is going to be sustained and we're
going to have to make some alterations. This really underscores the difficulty of having a dual mandate.
So Christina, following up on Matt's comments about inflation, torched and Slock from Apollos out with a note this morning and just saying, hey, you know what, inflation's moving higher, folks. It's goods inflation, it's services inflation started to move a little bit higher.
Again.
That creates a challenge for the FED here. So Christina, given that backdrop here, have you guys kind of changed the way you're viewing just markets in general, whether it's asset allocation US versus rest of the world, as your view changed over the last several months.
It hasn't. I mean, I've expected higher inflation, and I think it's not just going to be goods inflation. I think it's also going to be services inflation caused by policy changes, like, for example, the new approach to immigration. I think that's going to create a shrinking labor pool in certain industries. That's going to exert upward pressure on costs. So so I don't think, certainly for me, nothing has
changed in terms of my outlook. I think it is coming to fruition, but I think it will take longer for the FED to get there, and I think it's going to be a scenario where the FED is looking at inflation today and is very focused on tariffs and can certainly try to make the argument that this is a one time price shock.
Christine, let's talk about how much it matters what the FED does at the very front end of the curve, the ten year to the thirty year. You've said in your note something I've been waiting for so long to hear from a professional, which is that we need not believe in the fairy tale that the FED cuts equal lower long term yields. And this is something that the President, the treasure Secretary of the administration has been pushing. They want the FED to cut so that ten year yields come down.
That makes it easier to pay off the massive amount of debt there trying to rack up. Here, you're saying it doesn't always work that way, and you've got historic examples.
Yeah.
Absolutely, there have been a number of cases really in the last twenty five years where we have not seen the ten year the rates on the long end behave as would be expected when rates are cut. There have been times where expectations about growth have caused yields to go up. There have been times when expectations about inflation going higher have caused yields to go up. And of course there have been times where concerns about an out of control or growing fiscal deficit have caused yields on
the long end to go up. So it could very well happen. I think we're seeing it happen, and it could be a longer period phenomenon this time around. Keep in mind we've never really seen bond vigilantes come out in full force for an extended period of time. We might be getting to that point soon.
Christina, thank you so much. We appreciate that.
Christina Hooper, chief market strategists at The Man Group.
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All right, let's talk about the bond market. All I know about bonds is when interest rates go up, bond prices go down to mean, what else do you need to know?
Karen Mann?
But some people make a career out of this fix income stuff. I'm shocked when I meet these people. Karen Mann is one of them, investment director Fixed and come at Federator Hermes. Karen, thanks so much for joining us here. What do you think you're going to hear? What should you hear? What should we all expect to hear from the FED chairman here out in Jackson Hole today?
Well, good morning, and thank you for having me, despite me being a person that made my career out of fixing, so similar to your first guest, I think that we may initially be disappointed. I don't think that share Powell is going to give us clear direction as to what the FED is going to do in mid September. And I had to go back and remind myself that somewhat out of character he did last August at Jackson Hole.
But I don't expect that this year.
And I think that the Wall Street Journal article that came out late last night really gave us an indication that this is going to be about the FED going forward, that five year review, that revision of the framework, that adjusting the average out of how the view inflation in overall, perhaps a little bit more of an academic approach. I also think that the schedule or agenda for the remainder of the meeting is rather interesting and gives us perhaps a tell or a signal as to which of the
feds dual mandate elements will be the priority. Because the rest of today is about labor. It's about technology and labor, It's about shifts in labor supply, and I think the acknowledgment there is labor has been exceptionally difficult to forecast, always is, but particularly coming out of this post pandemic environment, extraordinarily difficult, and they're going to put.
Some time to that topic.
At what point, Karen, does labor start to become a problem. I mean, four point two percent unemployment, at least in my lifetime.
Is extraordinarily low.
In fact, I think I've never seen unemployment really this low.
Agreed, we have a robust economic environment led by labor. The old adages, if you have a job, you'll spend right, and you don't stop spending until you see a job lost closer to your circle of friends or family, and then you might close the wallet. But the wallets have by and large been open. So I think if we saw that unemployment rate really start to tick up approach four point five percent, that's the number that the FED
has told us. But we're all very much in the weeds seeking out the nuances, attempting to find the clues as to you know, what will break this strong and resilient economy. And I think it's going to take a crisis of confidence. And what prompts that. Who knows. However, we've known that companies have been on hold. They aren't firing, but they aren't hiring either. But what shifts that and what is really the change going for We're difficult to see.
Hey, Karen, So in the fixed income space here, I mean, I could sit in my two year treasury get three point eight percent. That is a solid living right there. I need to take credit risk above and beyond that.
We're not advocates for taking credit risk right now. Spreads that's the way we measure risk. The difference in the yield on a spread instrument relative to its underlying treasury rate. That's how we measure things. Those are razor thin rate. Now in high yield, give you a ballpark number. We're about three hundred basis points on the average. If I go down to median, which is more important, that average includes those companies that no one thinks are going to
pay on their bonds. They're priced a something like thirty cents on the daughter dollar.
You know that median is one eighty. That's far too low.
The spread between the lowest investment grade bucket and the highest high yield bucket is something in the magnitude of forty to fifty basis points. That's not adequate compensation. Now in investment grade bonds, that's an area where I like the credit quality. I like the fundamentals. They're much akin to the S and P five hundred names. We've been through a solid earning season, but here too, spreads are striking near record lows. We are inside of levels that
we haven't seen over the past twenty five years. Can we grind along here?
Sure?
But I think that we are in a realm where folks are buying yield, and if something should happen that disturbs the equilibrium that we're living through right now, spreads could shoot wider pretty dramatically.
Yeah.
I mean, when people talk about the weakening US economy, the one thing that they point to bankruptcy filings among private companies arising to the highest level since March of twenty twenty, or since really the pandemic, I guess, and that started then. Also, personal bankruptcy filings are rising. So why, then, Karen, do you think spreads are so tight? Is it just that the kind of companies that can issue bonds, even
high yield bonds, aren't yet filing for bankruptcy? Is that yet the most important word there?
Likely yet, But I think that we've also seen favorable technicals as we would call them, where supply has been somewhat lower, particularly in the high yield market. And again at Federated Hermes, we are value oriented investors, so we're looking at that spread and attempting to ensure that the
characteristics of the underlying entity match with that valuation. It seems that many in the market are looking at the overall yields, which are extraordinarily attractive, particularly to most of us that have lived through that zero interest rate REALM zero rates lasted for a very long time, and folks became accustomed to not earning much coupon income from their
fixed income investments. Now that you can clip the coupon, it's just proven to be pretty attractive, and folks are just waving in those yields at times.
Karen, thanks so much for joining us. Really appreciate it.
Karen Mena investment director fixing gum for Federator at herme's.
Stay with us. More from Bloomberg Surveillance coming up after this.
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All right, our next guest, She went to two schools that I should have gone to. I don't know why I didn't apply to undergraduate at Vanderbilt phenomenal spandy, great, absolute love Nashville. And then she gets her NBA at University of Miami. Again, why did I not apply there? M big pull literally in the middle of the campus. You go from your get out of your psyche class, you go take a dip and then you go to like bio or something or ap you know whatever. That's
how they roll down there. So anyway, ryand Mittrion, she joins his here. She's a partner Talent Family Office.
Ran. What are the.
Conversations with your ultra high net worth clients these days. There's been a lot of volatility in the market this year, but boy, everybody's in the green so far this year.
Good morning.
It has been a lot of volatility, a bit of a roller coaster, but we've ended up so far in a good spot for the year. So I think everyone is feeling a lot better now than they were.
Maybe in the middle of April.
And so, I mean, our clients are feeling pretty good about things. I mean, we have diversified portfolios across a number of asset classes, both public and private market exposure, and so the question really is focused on how are we positioned today and what are we seeing going forward?
And you know, a lot of that.
We're pretty constructive on the markets going forward. We do expect to see some more volatility, especially over the next few months around you know, labor market reports and inflation reports and what that might mean for rate cuts. But we do we are fairly constructive on the markets going forward.
We do seem to be pricing in a rate cut. I know we've had down days this week. Every day looks like we could be up today. Futures a little higher here, but I've watched the interest rate probability function on the Bloomberg terminal WRP GO for the last week. It just has come down, down, down. We were over one hundred percent until that PPI number came out. Then we were down to ninety five eighty five, seventy, and now we're below that. Does this market need to have a rate cut in September?
I think the market needs to know that the rate cuts not entirely off the table. If it doesn't happen in September, maybe we see it in October. But I do think that the market would react negatively if we don't get it in September. I mean to your point. You know, when the jobs report came out a few weeks ago, it was all essentially entirely priced in, and
now we've seen it come down. With some of the inflation figures and some of the commentary by Fed officials, I don't expect we'll get any clarity today from Chairman Palas speech, But as long as he doesn't take it entirely off the table, I think we'll just be very data dependent on what we see between now in that September meeting, we have another jobs report and more inflation data, and I think that will largely drive what the actual decision will be in September.
Ryan, We're pretty much done the second quarter earnings period, and boy, it came in a lot better than expecting. Maybe eleven to twelve percent growth in earnings for shares, that enough to support a move higher in this market.
How do you think about earnings evaluation that kind of thing. It's incredibly important. I mean what company?
I mean, earnings are really what on the day to day earnings don't necessarily drive the market, but that is what drives the market over the long term. And company's
balance sheets are very strong. Earnings expectations coming into the quarter where sub five percent and to your point, have come in between eleven and twelve percent, and we've seen if you look at it over the last five quarters, this has been the strongest beat rates that we've seen for the SMP the Nasdaq, and then even looking at MidCap and small cap in SMP those have been very strong as well. So the earning strength has really been broad based, and it's been broad based on a sector basis too.
It's not been just technology.
We've seen it in industrials and financials and consumer staples and utilities.
So all of that.
Like the fact that we're seeing it across the board, that's that's a huge positive and should be supportive going forward.
Yeah, it sounds like a fantastic economy actually, So I'm just not seeing, aside from Paul's mortgage refinancing needs, I don't understand how these rates are restrictive when we see, you know, ten percent earning growth. Ninety five percent of the companies that reported so far have beaten expectation. And if you look at EEG on the terminal earnings revisions keep going to the upside. So where's the weakness. Why does the FED need to bring things down?
I think that's just concerns around how the tariff impact will play out. I mean, we're there's still a question on really who's absorbing the costs right now? A lot of it seems to be getting absorbed by companies. Some of it hasn't really been passed on I mean, so there is maybe some concern about how all of this will play out, or if there's still holdover inventory, so the effects could pick up a little, But we're not seeing that there's any expectation, any reason to expect that
there will be a significant negative impact going forward. So I would agree with you. I think we're in a pretty good spot. Both consumer and corporate balance sheets look pretty healthy right now.
Ray, and thank you so much for joining us. Really appreciate getting a few minutes of your time. Mittrium, she's a partner at Callan Family Office.
This is the Bloomberg Surveillance Podcast, available on apples, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.