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Brief nowt by one of the great optimists, Jeffrey Cleveland is Director, chief economist paidon ragel Out and Los Angeles.
Surely good briefst this morning. We get perspective.
He's had time to digest some of the data. Jeffrey Cleveland with us with Peydon and Regal. Jeffrey, I'm looking at the market and it sort of says rate cut.
Tilt in place? Do I have that right?
I think the biggest thing I noticed here is August was slightly negative after revisions, so you had some downward revisions. The three month average is still pretty meager, sixty two thousand or so, and the direction of travel on the unemployment rate it appears to be going higher. So we're now four point four I think, headed to four point five four point six, So I think this does keep the possibility of a rate cut definitely on the table.
You see that reaction initially in the bond market, particularly in the front end.
But that's the initial read.
And Paul, the single statistic here, which Cleveland of course alludes to, is a survey on changing non firm payrolls for August just twenty two thousand.
The reality rather and it's a negative statistic.
It's a negative four thousand on a revision on the August report.
That's emotional. That negative number is emotional.
Absolutely.
How about on the looking at the wage market here, Jeffrey, you know, on an annualized the basis average annually earnings up about three point eight percent. That holds pretty steady. So if you've got a job, you're getting paid for it. It seems like, yeah, I think that's the positive take here.
You still have some.
Modest payroll growth on the three month average, you still have wage growth, so overall aggregate income, the consumer still has some spending wear withal.
So this is not a doom and gloom type scenario. Sorry for the bears out there.
It's going to create a little more uncertainty over the next few months as we continue to digest this, but it's not a you know.
Slam dunk data of report that points to a recession.
Yeah, so what do you think, what are some of the real time data telling you about kind of kind of where we are today with the labor market. Is this number reflective or is it just a little bit No.
I think we do think that all the signs that we've seen through October November data would point to a higher unemployment rate than four point four, So you know, something like four point five four point six would make sense. So that's that's a bit of a concern. I think also the layoff announcements that we've seen that's caught, that's you know, definitely captured our attention. So it's very bond
bullish environment. You know, government bond yields probably on a twelve month horizon or or quite a bit lower if we're right.
I let Jeffrey Cleveland at this, and I've alluded to this with a couple of conversations this morning.
And you know, I'm sorry, folks, this goes back to what you study at Claremont in school, you know what I mean.
Wow, But it's a.
History, Jeffrey, how fed ignore a fragile labor economy. I get the inflation, this inflation that fancy mathematics and all that, But the fact is the labor.
Economies a bit fragile. That's got to be top of top of list, I think so.
But you know what, what does history tell us about the FED?
Usually they're reactive, not proactive, right, So there is a you know, an inertia factor if you will, or a lag between when we think we see something in the data and policy makers take action. We definitely saw that in twenty one. In twenty two, I think the FED was behind the curve there, So it wouldn't surprise me if they were a little little sluggish.
They're also different.
Opinions, Tom, I mean when I talk to clients all year, it's been employedation. If you if you are able to push back on one of the inflation theories, they'll quickly come up with another.
You know, it's been like that all year. So you know that's just the focus.
And with the sorry, with inflation still a little bit above target, uh, you know.
People have still have that mindset.
So you need a clear indication to the contrary to really get people over onto your view that maybe labor market is the bigger, bigger issue, all.
Right, Jeffrey, So we got a view here on the labor market today. How about inflation, the other part of the Fed's mandate. What's your view there?
Not worried about it when you exclude the terror pressure. You know, inflation on our view is two point four right now year over year on core PCE, I mean more or less, we're if you round that down, it
rounds to two percent. I think, Uh, so, you know we're at target if you exclude the tariffs, and we don't think tariffs are an enduring inflation feature, so it's a one time pop to price level, so we're not worried, and then we see more scope for disinflates in Paul next year, I think you can see it on non housing services and importantly on the housing component of inflation, so we'll see lower inflation.
We can we could get back to two.
Percent inflation sometime next year, maybe even below two percent.
Guys, it'd be interesting.
I want to I want you to do a nail ferguson if we get a quarter point rate cut, what actually happens.
Well, you know this is a common thing people say to me.
Thomas say, ah, you know, quarter point won't do anything for the labor market. And my response to that is, well, why don't we just try anyway you'll get a dance.
I mean, it does.
It does have an impact. If if the bond market senses out that the direction of travel for the overnight rate is you know, another one hundred basis points lower and more over the next year, that will feed through into ten year yields, That will affect corporate borrowing cap That will also feed through into mortgage rates.
You know, I think dall.
Earlier, Paul Sweeny says, yeah, exactly, yeah, exactly.
So it will have an impact. It's not just the twenty five basis points I'll fine tuning. It's more than that.
Jeffrey, thank you so much. This has been great. Just thank you for this job's report coverage.
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. So here's the real.
World, folks.
I'm in a speech or whatever, and there's some young cherub who says, when did life change? Life changed with David Melpass. I can tell you exactly when it did. Something called libor ois went out for standard deviations. I'm in the show. The place is chaos, top to bottom of Thursday in August of two thousand and seven, and I just screwed. I didn't screen Paul my usual check good, you know, like HR approved. Yet Alan Meltzer get David
Malpass and it was a magical show. One of the iconic moments with then all that we're doing here at Bloomberg, mister Melpass, when I'm from bear Stearns, where he was definitive in writing essays on the American experiment, to his public service at the World Bank, can I just say, you look tanned and rested after the grind. What's the biggest grind of public office that we don't see?
It's good to see your town and Paul. The grind is the travel. These conferences are constant, and I said no, no, no to each of the conferences I didn't go to.
Davos said yes, yes.
People say, but this is your responsibility, and so you travel and nothing happens at the conferences. So I was happy to see President Trump on this latest the G twenty going on in South Africa say we're just not sending people because they don't do anything that's useful.
I want to cut to the.
Arch mail pass issue, which is the physics of two Americas. We have an America that's booming, Paul and I do it every single day. We have an America being left behind on an historical basis. How separate are we right now?
I think they call it inequality or that underperformance by the bottom is massive, whether from a data standpoint it's the worst. But what we need is job growth at the bottom and median income growth.
That is the whole.
Concept of a good economic policy. I did that around the world that the way we evaluate whether an economic program is going forward is the median income, the income of people in the middle after inflation going up. And so what we need or what I think lots of policy changes can help with affordability right now that I've written about is what the Federal Reserve could do to stop stop causing this income inequality. We need a lot more energy production. We need permitting reform, which is really
important in Congress. I think a capital gains tax cut would actually enable a lot more capital mobility or Paul.
Accelerated depreciation YEP list of tours and slocks.
Is that puts a point on GDP.
And very importantly it points a point or and that growth comes from small businesses that invest in new machines, which then enable workers in productivity. So it's a virtuous circle that you create from. Then we desperately need that now. I think Trump is going totally in the right direction. The problem is implementation of it. In my worry right now is that the federal choke it off.
So that's kind of where you were two weeks ago with your opinion piece in a Wall Street Journal talking about affordability, and it was certainly an issue in the elections in New Jersey and Virginia. Is the Fed too slow here in cutting rates to address its influence on affordability?
Yes, So I did a Wall Street Journal article in June that they should cut, should have cut in that June meeting, And wouldn't the world be better if they had cut in June because you would have had the growth that came out.
Of that, and the inflation wasn't occurring.
You know, people were kept saying there was inflation and it didn't show up, so they would have been able to cut and cause allowed growth. That would have helped the supply chains, and maybe whether or not they could keep going now anyway you would have had the benefit of it and not. I put in this latest article
the cost to the fiscal deficit from them waiting. So the government has been paying way too much interest in The FED, of course itself pays interest to banks for three months where the rate was too high, so they can change that. But I'm worried that where we've already seen the bottom of the ten year yield, unless the Fed changes its models, they're right now looking backward at inflation and they're going to have excuses why they don't want to cut anymore.
As a former president of the World Bank, you have a unique view of global trade. What's your view of the tariff policy of this administration and its impact on global trade.
I've emphasized that the trading system was really broken. We were in it thinking that everybody was playing by the same rules. In China wasn't. And you can look back and say, well, when did people figure it out? That doesn't matter. You're stuck in a world wto the World Trade Organization system that doesn't work at all. When you have the second biggest economy with very aggressive industrial policy.
They're using economy of scale. That means if you invest in your the first mover in a sector, then you wipe out all your competition.
To send David mailpass. You don't see this on radio, Lucky you. For those of you on YouTube, Mailpass has a gold tie on today that looks like the plated gold in the President's oval office as well.
You are one of the few people that come in here that have been in the.
Trenches of working out of a van running for public office, in your case, the Grand Old Party. How does the GOP move forward with a centrist tendency? How do the Democrats, the evil Democrats, David move forward with a central tendency? Where is the center tendency that you've written about for forty years?
I ran for Senate in New York State in twenty ten, so it was the Tea Party days. That was the idea that you could create growth with lower tax rates, with different policies, and basically with a giant upheaval in Washington. So that means each department changing so that they stop blocking growth.
Yeah, but look at the president's rating. I mean the giant up people ain't too popular right now. Where how do we get back to the centrist politics you and John Writing.
And all wrote about years ago.
So I think you have to implement the upheaval that is going on now, and that means in each area you need more work on the tax code. You need more, of course, more work on restraining government spending because Washington just wants to spend all the money in the world. And very importantly, these federal reforms would allow capital to flow to small businesses. So that's the core of it.
It's the same message, and I think it is Trump's basic message, but you have to implement each part of it in each department.
No, maybe that's not happening. David Monpus, thank you so much, Paul. I'm just going to mention this now. The interview of the year.
Maybe the moment was Nancy Lazarre talking much like David about it at the micro level. We have to create jobs. You do it through incentives at all.
I don't know, We'll see, We'll have to see. We've got a lot of economics.
You're enjoying not being in public service community.
Yeah, yeah, that's fine. For one, I exercised more and have have been don't travel as which you know wasn't isn't I've done it for so many years.
It's uh, do you get World Cup tickets?
Special tickets? Very important?
I signed the FIFA ball so at the G twenty in Indonesia in twenty twenty two. It was amazing the world that Ukraine had already been invaded. There was this big round table and so Biden was there in Macron and everybody and all they and the FIFA guy was there and that he was the center of attention.
And I got signed.
Bass with the FIFA guy. Greatly appreciate it.
Mister Malpass course, former President of the World Bank.
Stay with us.
More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
It is a joy to talk to Martin Norton. She's with the Canadians Empower Full Disclosure. They handle the Bloomberg four oh and K do a great job on that.
Get the little app.
Yeah, I get the app. Triple leverage all cash check it out every once in a.
While, four point two percent, yeah, but leverage up seven point three the more the usual empower drop my phone the empower fee. Martin Norton with this year with perspective on the markets. Are people participating in this mental tech rally? Like in the canvas of the billions you people handle? Are people participating in Nvidia and tech?
We have such a great AI story going on right now, but when I think about the questions that I get from clients, there is still a lot of consternation out there. I think there's fear. I mean the tariff moment was a moment of great fear I think broadly for a lot of clients. And then there's still a lot of enthusiasm around alternatives like gold and crypto and people concerned
about the US future. So I think people are in financially, but mentally and emotionally there's still some hesitation and reservation there.
I mean, it's proven once again today this is an AI marketplace. That's for sure that the AI narrative, as it were, is still alive. And well, yeah, how about diversification into fixed income? How do you try to weave that discussion to your conversation.
Yeah, you know, I would say that after twenty twenty two, there was real hesitation on the part of financial advisors, on the part of retail investors, real concern about whether fixed income was ahead. But what we're seeing this year from fixed income is pretty strong returns. I think for a lot of folks, yields are a lot better. I think, you know, there's a lot of I would say commentary around is sixty forty dead, but I think it's it
certainly has delivered in twenty twenty five. And so with all the doubts you know that continue to persist around that type of basic strategy, I don't know if people can throw the towel on it at this point in time.
What do you what's the discussion you guys have with your clients about rebalancing, you know, in terms of you've got some real big winners, let's take a little money off the table.
And he asked those questions just to.
Cure balance.
Interesting, So here's my view on rebouncing at this particular moment. I think when we're in a AI moment like this, an innovation cycle like this one where there is just massive enthusiasm and maybe rightly so, around what the technology is able to do for the economy, and then those gains a crew to the AI winners. At the moment, we have the potential for prices to soar past with enthusiasm what the fundamentals say, and then we get these
bouts of volatility. And so in my mind, you know, we should talk about rebalancing on a permanent basis, but in a moment like this one, I think it can help save some of the fits and starts for a portfolio.
But I know it's not an empowered opinion. But with all your work, particularly at morning Star Martin Norton, the bottom line is the key plug in to the rebalancing theory is the how oftenness of it. And respectfully would say the street has an addiction to this because as as an.
Excuse to get in front of clients.
In the academic study Paul Across cycles bear markets, the wheneness of it is a huge deal.
Do you find it in that's a great way that people are doing it too much. They're moving in there trading there for one key.
I mean We've been playing around with some different studies on rebalancing and if you're taking a look at like a monthly balance scheme and you look at what that would generate. If you're just something tracking the S and P five hundred, you could see a turnover of less than ten percent on a monthly basis, but that generates overall turnover about of one hundred percent on an annual basis.
And that really talking on a couch over robin hood.
So we're just confirmed once again today this is an AI driven marketplace. Outside of that, yeah, are you guys looking for value in other sectors or yeah? I mean if you do that too much, you kind of missed out on the performance.
Well, that's true.
I mean, it's interesting that if you were, if you're a real skeptic on the AI theory and you move out of it completely, you're missing the bulk of the US market gains. Right, the US no longer looks so
exceptional relative to other markets. I think one thing that I listened to Jeffrey Gunlock's podcast on odd Lots recently, and one of the things he said is, you know, the market is expensive everywhere, and it's hard from the research that we've done, at least within equities to disagree, because when we look at valuations, we look at it on this deathcile basis. We want to make sure that we're only looking at the extremes because valuations, when they're
just modestly high, they're really not predictive of returns. So we want to make sure we're really capturing those extreme moments. And when we do that, sector by sector, most of them look to be at extremes.
I let me do a data check here, Martin Norton, with us within powers, we look to the shattered retirement economy of America. Futures up one o five, up eighty three hours ago. They've just really advanced. Often vidia the tech A jobs report that came up near four point five percent round up unemployment. Thank you Michael McKee for that. Futures up one o three, NASEK up two percent right now, vis coming in with a vengeance nineteen point seven three.
The sweety yield right now three point six to zero, the handles a three point five six. That really gets my attention. There maybe on a bet of what we'll see in December. I'm sure you know this. The three decimal points and you probably can't tell me, but give me a tendency here. How many people it empower over whatever age? Yeah, are properly funded for retirement? Is it single digit or is it too.
Gloomy with that?
Yeah?
You know, it's interesting. I think people are the narrative around inative retirement. A lot of people use the word crisis, and I don't know if that's the appropriate word to use. I mean, I think we've seen a really good impact of for one k's on the average person's life.
But when you take a look at.
Kind of where the need is, a lot of what you see is just a lack of access. And that really relates more to the small business market than it does to the larger companies. So there's been some really good developments having a kind of automated default into a retirement plan that's been really helpful for a lot of folks so they don't even have to an active choice. But not having access to this kind of capability, I think that's problematic.
Maarda, we don't care.
The only reason you're here is Michael McKee bleeds Denver Broncos.
For you people sponsor Denver Broncos.
Can you get McKeith, tickets, tickets.
We'll see what we can do.
Martin, thank you so much.
Out of Denver and of course all of Canada with empower is stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa Play Bloomberg eleven thirty.
We are lifted by the new papers. Here's Lisa Mintaylor.
You got it.
It's a big day. Okay.
First round of bids for Warner Brothers, Discovery expected today.
Competition.
They're putting all their final touches on their offers. Okay, So you have Paramount Guidance, Comcast, Netflix, all in the running, Comcast, Netflix most interested in film and TV. Paramount wants to buy the whole company.
They put in.
Three offers already running. His high is about twenty three fifty a share. The new thing for this story is that Bloomberg's reporting that Netflix is changing the tune a little.
They told Warner.
Brothers they're going to they will keep releasing their films in theaters if they win the bid, and that's something they did not want to do.
So you're starting to see they.
Wanted to change in the company, right Yeah, Netflix.
Netflix would prefer just the studio in HBO Max, you know, the content side. They don't necessarily want the cable network business. That's not the business run. But that's okay.
That that structure's fine too.
I think with One Brother's Discovery, they just have to figure out what's going to maximize total value for the company.
Price at the end of the days.
I think it is not just price, Yeah, because you have a seller here, that's a willing seller. Warner Brothers Discovery, their board and their CEO is committed to sell the company.
Now it's just about price.
Can I editorialize further? Paul? Is this just about John Malone? Is he the one driving the bus? No?
No, No, this is really about I would say mister Ellison and his father.
I think that's the real variable here.
How much equity do they want to put in and how much equity can they attract the fund their bid? Because Warner Brothers Discovery three times they did land Man that's exactly exactly.
Next Okay, this one's in the Wall Street journals. When is it time to retire? That's the question. And a bit's out there and it gives ten reasons, like ten signs to lease.
Take close to home, dude, I know, I know. Okay. The first one they say is if.
You arrive at work and you feel a little bit numb, more than like once or twice a week, which means that you're unhappy and you're unfulfilled. Okay, okay, here's another one for you. If you lose your desire to keep up with a new tech tool.
That's one hit, had one hit. Here, learn this new software thing. Okay.
Wait, next week we're going to learn this one. And next month we're going to learn this one.
Okay.
If that kind of bothers you a little bit, okay, that's a sign.
Sorry, would you get out?
Oh we're not done yet. Okay.
If you get the Sunday scaries, this is like if Sunday night when you're getting dinner ready and you're already starting to feel the jitters, like, oh, Monday's coming, Monday's coming, Monday's coming.
Okay.
If you notice and you look around the room and you say, where are all my peers? They're gone, and you're.
The oldest person in the room. What then that's another sign. Okay, especially here Bloomberg Control.
It's the first time I've ever seen the control room.
Forward.
Yeah, you guys are loving this. Huh. I got one more?
Okay, okay, ready, if you notice that you're walking around the halls and your your your body aches right, your knees or ache, and all of a sudden, your joints and your walk.
That started right at fifteen.
Ah okay, okay.
Did mister bloom Yeah, well say journal ized swear. Check it out. It's pretty interesting.
Okay, here's here's here's a hint for you.
Believe it or not.
We know who purchased that gold toilet bowl at jeez, there's your hint.
Yes, replice, believe it or not?
Did?
Yes? It was the twelve.
They talked about it as one of the wildest acquisitions in its history. Now the company hasn't decided where they're going to use the toilet. Their intention is to display it. But here's a zinger. It's even considering whether visitors may someday be allowed to use it, so you might be able to go, give a little flush and and have at it. But that's what they're saying. So it price
the toilet based on the equivalent value of gold. Replice paid that another two million of premiums to souther B's on top of it, so it was it was a big, big purchase.
But now we know who bolright. See this story that keeps giving.
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.