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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 right now. And we have all sorts of side agreements with our guests. I mean, you know, there's like sensitive issues between UNC and Duke guests and all that. With Paul, one of the things we have is David Rosenberg will not come on unless the Toronto Maple Leafs lose joining us now.
David Rosenberg of course Montreal Canadians fan. He is based in Toronto in the Foreign Lands, and he joins us.
From Rosenberg Research. David, is disinflation still in place?
Well, I do believe that the trend towards lower inflation is intact, notwithstanding what happened in January, which seems to be to be quite a bit of early year noise, you know, related to some specific idiosyncratic factors, you know,
auto insurance premiums, health insurance premiums. I'd say that, you know, Tom, we talked about this last time, and we've talked about it like almost forever, about how flawed a statistic the CPI is when twenty seven percent of the index is one question to a sample of homeowners, which is how
much do you think your home price? How much you think you can brant your home your unicord for and so you know that's the the owner's equivalent rant in particular is an ongoing source of frustration for people like me. But I do think that the overall trend okay, is going to be intact.
David, you own the high ground on this to review this quickly with a lack of time because Paul wants to get in. There's a guy named Ferrell at merri Lynch a few years ago, and he had this young Turke named Rosenberg who owned the slicing and Dicing of inflation. If you don't like CPI, what inflation series? David Rosenberg should we pay attention.
To Well, you know what's interesting is that, you know, in December, I think it was Governor Waller had said that the FED was increasingly shifting its focus from you know, the government data towards what business contacts we're telling them, And you know, we're going to get the base book tomorrow, and the last couple of base books have said decisively that the corporate sector is seeing diminished power. The ability to pass on cost increases has gone down materially. So
I think you have to. I mean, so much of the CPI, even the PC deflator are imputed guesswork, They're imputed pricing in the service sector. So I'd say turn your attention to the things you can see, touch and feel in the product sector. And when people say to me, well, but you know all the disinflation's been in the good sector, well, those are the prices you can actually have reliability on
as opposed to imputed services. My big concern is that it's the service sector that the FED is most focused on, and that is the most unreliable components you have within the CPI and PC deflator. So I say, look at the prices of the things you can see, touch and feel, and they're actually in a deflationary momentum, and I expect that that will persist over the next year.
So, David, this is a good week to be an economist. Lots of economic data coming out this week, including we're going to hear from FED Chairman Jpowe. Do you expect the chairman into, I don't know, try to walk back a little bit some of the December commentary. It seems like the economic data is supporting just kind of waiting here on rate cuts.
Well, firstly, it's always a great time to be an economist. This makes no exception. We just have to fasten our seatbelt and stay at our desks twenty four to seven. Look, the Fed has already walked back that dubbishness in December, and you know, the market's leapt on some you know comment that I think Mary Daily made about that maybe March would be the date, and of course then the futures price in you know, six rate cuts, not three. The Fed has successfully calibrated the market back to where
it was in December. I expect that I think he's going to be pretty hawkish, and everybody is lined up hawkish relative to where they were in December, and the question is going to be will he sound more or less hawkish than what's priced in right now? My big concern actually, and this is coming from a on bull and who would be ordinarily a dove on the FED, I think he's going to sound pretty hawkish tomorrow.
How about the I mean, we're gonna get some data here. I mean again a big data week here. You got the payrolls on Friday. I mean, that's kind of one of the issues for this market is the labor market's been very strong here.
Well, look, if you bow down to the holy grail of non farm payrolls, that's what you would believe. And of course that's all the FED focus on as non farm payrolls. And I've almost given up trying to forecast the number because last year, last year, half of the growth of non farm pay rolls didn't even come from the survey. It came from the birth death model, where
we used to call the plug factor. But frankly, if you look at the household survey and especially the contraction and full time jobs over the past six months, yeah, I mean, we're replacing part of full time jobs with part time jobs. There's been practically no growth in the household of survey over the course of the past half year. If those survey you'll be thinking, this recession is probably staring us in the face. The other thing I would just mention is this, look at the divergence between the
non farm payroll headlines and the work week. The work week is already back at recession levels. So I know, I hear this all the time. The employment numbers, they're robust economy. But actually you know, when you dig beneath the veneer, even of the beloved payroll survey, and you look at the hours worked, it's telling you something a little more insidious that what was happening in the labor market than what the current consensus narrative is.
David, you got to leave it there, David Rosenberg. I don't want to go longer. We can't.
David Rosenberg at Rosenberg Research in Toronto, we got a huge response when he's done. Thank you for the response on it.
This is a joy. Right now.
I'm constant under with a senior advisor at Macro Policy Perspectives, Paul wants to griller here on the domestic economy, which is what we do with Diane swank.
But we ran into each other last night at the council and four in relations.
You know, I sort of thought I should go by and get some of the quality horse divorce that they have at the CFR.
And that wine.
They'd be like, they'd be.
Like, yeah, well they serve at least yes, CFR served boons.
Fire last night.
But instead I got a pecked room with a riveting Secretary of Commerce, the former governor of Rhode Island, Jeter Romando. Her intensity surprised me on our new Pacific rim efforts. I guess that's how I put it. What did you take away from the comments of a Secretary of Commerce last night?
Well, one that you know, this is an important region for the US. There are you know, you look at the demographics of India, Indonesia, the Philippines, Thailand, these are all countries with highly favorable demographics. And then you look at the the opportunities for workforce development. You know, India is producing a huge number of engineers every year, right, and you think about the future of where everything's going
with technology. The other thing that I felt was very interesting is this is a public private partnership where the governments to government relations give cover to make sure that you don't have what do we call it an excessive stroke of the pen risk? Right, So you have if you're going to go in and invest in these countries, that you have a little more durability and visibility. And this public private partnership aspect means it's going to be very difficult to dismantle this.
Yeah, it's really important.
Constant Hunter, thank you so much for that, paul I. You know, I love when I have mild my radar down. I'm really like, you know, it's okay, it's going to be an event. Great Constant Hunters there, That alone is worth it. Elizabeth Economy was there with their public service, working with the Secretary at Connors and instead I got a riviting Raymondo on the new approach to the Pacific RIM.
I don't know what it means the next three years out.
It was tangible concerts. And then that kind of brings to the question that a lot of folks have, which is what's going on with China and how do I deal with China. It's almost like you talk to an emerging market first and they're like, it's a big part of my MSCI index, but a lot of folks say it's uninvestable. How do you think about China when you think about that part of the world.
Yeah, so it's interesting. I mean, so I'll just start with this. When you look at the US when we had our when the global financial crisis hit, so before that, real estate was six percent of our GDP and the recovery from that took over a decade. Okay, Now, if we benchmark that six percent, real estate is twenty five residents, really twenty five to thirty percent of China's GDP and we're now, by the way, at three percent in the US. Right,
so let's say you cut that in half. It's going to take at least a decade or two for them to recover. You're looking at Japan is the preview movie, right, it is the preview movie. And look how many years took back to get back to the right level and there, you know, to get back to previous highs in their equity market. It's going to be very difficult for them to make progress here. And I will just say this about their GDP numbers. You know how they get those
GDP numbers. They revise the previous years. So the way you can see what's going on is you can look at China GDP as a percent of US GDP, and you can look at that ratio and that continues to go down, and so they are growing at a slower pace than they say they are.
Yeah, it's just extraordinary.
I don't know.
Yeah, again, that gives you a great framework comparing it to the US and great financial crisis. Let's bring it back to here. I mean, we think about the US economy and Tom and I We've talked about it with various guests on this program. But seemingly the exceptionalism of the US economy here relative to China, for example, relative to European economies in the UK, maybe is that something that can continue the US almost kind of exceptional versus other parts of the world.
Well, and the reason that people are so uncertain about this is because we don't fully understand productivity.
Right.
If we understood productivity, you would have governments adding a cup of capital investment and a third of a cup of R and D investment, and sprinkle on some education and upskilling, and then voil, you'd have this productivity growth. Right, So we're in this productivity surge. The question is how long will it last and what is underpinning it? And we see a number of things underpinning it. So just the healing of supply chains helped reduce sand in the gears.
Then you have people resorting all through the pandemic into jobs that were better fits for them. That improves productivity. And on the flip side, now you have people staying at jobs longer.
You and I tell you, she gave me a dissertation last time. I learned more from her than I learned from the Secretary of Commerce.
Cut to the chase.
You and Diane Swank have a fabulous holistic view of the economy. If we get a productivity growth to steal from the former president, is.
It morning in America?
Yes?
Why does so many of our listeners say no?
You know, it's it's hard to see it when you're in the middle of it, I think, And you know, there's also a great deal of uncertainty right now, right people don't People don't know. Am I going to lose my job because of AI? We You know, you look at the deep fakes that are out there. It's becoming harder to know what to trust, right And was it Warren Buffett who said that trust is a really powerful I'm probably misquoting him.
But you know, it's okay, You're allowed to do that.
It was either Munger or Buffett who said that trust is the most powerful force in the universe. Right, and so we're in a low trust environment and that to me is the biggest risk to the economy.
How about this labor economy. We're going to get a big print here on Friday. For a lot of folks, including myself, I'm just kind of surprised that the resilience of the US labor market isn't real.
Is it as strong as it appears to be.
Yeah, that's a great question. So one of the things we do at micro policy perspectives is we do earning scraping and look at what companies are saying about hiring and firing intentions. So what we see is the companies while they're hiring less and intention to lay people off has gone up slightly. You do see companies continue to laborhoard and the way that they're doing this is they
are reducing hours work, right. So in reality, what that does is it reduces total income, which reduces spending power. So it softens the economy. But people don't lose their jobs, and that's an important factor.
Are you working less time? I'm not working any less.
No, I we talked about this last you can see you see she put, I had a Martine or two. So you know we're talking to constants about this last night. We're all working harder than we've ever worked before. And I think part of is a digital thing. Like you know, I'm working all weekend because boom, it's right there on your screen or you know, I'm on the after I'm trying to pretend I'm you know, being good and I'm on my phone worried about you know, stochastic movements in
the market or whatever. Conston, thank you so much, Thank you, thank you for that perspective off what you and I saw at the console and Foreign Relations.
Meghan Robson Joints is US credit strategy at BNP Pariba. Megan, you know, in terms of credit here, you know I'm not buying a recession, so I think I can take some credit risk here. Where do you send me so well?
First of all, thank you for having me so I you know, we completely agree with what you just said. Downside risks look a lot lower and continue to diminish especially in the high old space where you've seen issuers chip away at refinancing walls, and since October borrowing yields have come down, so it means the penalty to refi has come down. So within the leverage finance space, we do like taking some credit risks, so single bees we
think look attractive. We're more selective on triple c's, but there definitely are some sectors and names where we like to add there. And then also you know, with fewer rate cuts, you can look to the double B loan space to offer a pickup and carry where you have a yield advantage of about one hundred basis points relative to fixed rate high yield at the moment.
So I mean, I have to admit, Megan, I was surprised that in last year twenty twenty three, that US high yield was the place to really make your money in the fixed income space. Last year, with all the talk of a recession around everybody's corner, high yield was the place to be. So is that I can still go on that that far out on the risk curve.
So we do think you're The argument for owning high yield and credit right now is really more of a carry argument, So we don't see a lot of We don't see a lot of spread upside from here. In fact, our target spread target for the end of the year is a bit wider from these levels. But we do think spreads widen. It's a good opportunity for investors to add to risk, sort of by the dip, if you will.
And the argument for carry here for credit here is definitely more of a carry one rather than spreads tightening.
Well, let's talk about that because Bramo one on one, Lisa Bramo, it's would say spreads are in I mean, that's all there is definance, folks. If you've got corporate bonds and they have a yield of say six in Megan Robson's full faith and Credit world is four, and then the yield comes from six into five, the spread goes from two percent to one percent, and from two hundred basis points to one hundred basis points. Where are spreads right now, Megan? Are they absurdly tight?
So we think they're you know, historically on a percentile basis, spreads are absolutely trading tight. So look at the investment grade market. Over the last month or so, we've been trading at ninety to ninety five basis points, so you know, higher quality companies giving you some spread pick up relative to treasuries high yield. We're trading at about three hundred to three ten over. That's been the range over the last over the last month or so.
I had this discussion last night Megan sas hours in here.
Elboy, you know Paul.
Smart, he's out of control, he is, Meghan, should our audience be buying triple C paper Isn't that like telling somebody to buy, you know, some silver mine off the Vancouver Index.
So we're not recommending. We're not recommending triple c's at this point. And I think that it's more prudent if you do want to add into hygeld risk single bees. It's a place where you can still get a bit of a pickup and carry, but without really taking a lot of that risk. And Tom to your point, Triple C's have already tightened a lot to start the year, so I think the trade to add to triple c's has already played out, and at these levels trading pretty tight.
I mean, you're at a wicked conservative French bank knowing me a B rated single B rated bond is a speculation or an investment.
So I think in the in the high yield market where it is fixed rate and issuers have chipped away and brought down their maturities for this year, I think it's I think it's a prudent investment, lower volatility. But in the in the loan space, I would agree with you, where you have floating rate coupons. Continued debate about whether or not we actually get the rate cuts that consensus expects.
I think their single bees are are much riskier. Where you have interest coverage is hovering around just one time, so given floating rates are higher, the fundamentals, I think much more vulnerable on the single bee long side.
Well, did you see the banner Ari put out on YouTube Tom Keane recommends triple C bonds.
You're getting me into trouble in there. In trouble, you know, I have another tang mimosa.
Okay, hey Megan, what are the sectors that you guys like here in in the credit space.
So in an investment grade, we're recommending sectors that we see as de leveraging this year. So there is this this theme we think will be important over the next year or two where companies are incentivized to pay down debt, and you saw that last quarter, particularly in investment grade healthcare, investment grade telecom sectors where more defensive, they have a lot of free cash flow and are actively paying down debt.
So that's a positive grand story. And then and then in the highield space, we're recommending in overweight to media.
So nice.
This is based on the election, you know, so we we're forecasting. We are forecasting a pickup in election advertising spend relative to the last election cycle. So you've already seen a lot of fundraising from both political parties and likely that will be put to work.
We're going to end the interview, but Megan, we can't seen you don't have a tantrument if we don't do this, are you on?
Paul Sweeney?
You can buy the debt sixty three percent of Warner Brothers Discovery.
For total return.
So we're of course with the media not not a wholesale buy on every sector. But look in the highield space, there's a lot of a lot of credits that have bottomed fundamentals last year and are absolutely improving in terms of their free cash flow. They have locked in more ad spend and you can see the leverages is definitely manageable relative to history, and so we stand by the high yeld media pick.
Yeah, I mean that's kind of what we've heard in the past time high yield credit, I mean a media credit a lot better than media equity. So that's kind of what we hear. Megan Robson, thanks so much for joining us, Megan Robson, US Credit Strategy BNP Parry Bowbi, thank you forgetting your thoughts there, and.
Let us look at the front pages as we do that around the world. She's never seen a Seltzer.
She didn't like what I knew.
That's my favorite. All Right, we're starting with uh Fox's chief executive Okay, So Lachlan Murdock is saying that the sports streaming service could take a little bit longer to get some subscribers, five years to reach five million subscribers. That's what he's saying. He was talking at a conference.
So uhline fifty dollars.
Well, here's the thing.
He said that Australia is Cayo Sports, which is what he's kind of basing it off. That's where he's saying he got the idea for this from because it's from Fox Tell, which is part of his news corps, so he's familiar with it. They charge for their sports streaming service sixteen dollars a month, but he's saying, yeah, it's going to cost more in the US because the right sports Rice right costs a lot.
More than he had five million. I thought that was a typeou yeah, I do, so, I mean it's fine. I mean, what kind of businesses that I have no idea. They're saying they're targeting the people that don't subscribe to a pay TV and so maybe they will in fact pay that. I don't know. But it is just getting so fragmented with all these streaming offerings. I just think it's it's just a disaster right now.
Disaster waiting to happen. Still no name for it either.
No, All right, interesting what else we got?
So yesterday we talked about how Whole Foods was shrinking its stores. Well now we've been talking about this. Actually this morning, the big box retailers are doing that same thing. So you have Best Buy, Macy's. They said that they're planning to had those smaller format stores. It's going to help cut costs, help with convenience as well, but here's the thing. Consumers are using the stores differently. So the consumer is shopping differently. They're not going in and looking
for things. They're more going on social media and scrolling and then going to the store maybe and picking up what they noticed. So they don't need the big stores anymore. So that's the kind of the trend that they're seeing.
I'm seeing everywhere. I believe I saw yesterday. I do not have this in front of me, folks, and I'm ill brief. But grocery stores the internet buy it, you know, order your groceries off. The internet is so successful. They're talking about shrinking all that square footage.
Yeah, like the INSTACRT. I know a lot of my family members use instacar because they don't want to go to the store. But it's they're shrinking the stores because.
Yes, I mean, I think what we learned in the pandemic is, you know, you still like to have this whole omni channel thing. Maybe you shop online, pick it up at the store, or maybe you want to browse it's the store, then buy it online. So yes, you need the physical retail, but maybe not in the same way. I eat all the square footage that that you did before. So I think that's the new retail.
Model exactly exactly. Handbags are getting pricier. Okay, so luxury brands here we go, missus Keane. Pay attention to the Basic taking the birkenhead bag.
The Basic one.
Has jumped one thousand dollars. I thought this was a typo, but no, this is data from perse Bop which is on the on the terminal right now. The Basic Burken. It's a nine inch nine inch handbag and US stores increase by ten percent to eleven thousand, four hundred dollars before sales tax.
Wow, that is such a thing easier. Even if you set it down, you lose it. You can't do anything.
You can't put on the floor.
You can't put it.
I mean even the restaurants have chair hand handbags, chairs for your handbag.
Andrews, thank you so much for listening this morning. These fancy bags from these stores, including Armez, you can't get them. You have to spend ginormous amounts of money. Before Andrew comes up to you on Madison Avenue and says, mister Keene coming in ninety days, we possibly have We're not sure what color it is.
It's like that exclusive.
Trust me, folks, I'm not spending that much money doing when you're into a Kelly or a Birket.
But okay, you can do a Prada Galleria bag. We'll set shoppers back a cool forty six hundred dollars eighty five percent more than in twenty nineteen. And it's not because their costs are going up, per se. This is just they're putting the price in crusers through because they can't.
Because they can they have this, you know, exclusivity.
That's what they're going to.
Put I was in movie for it.
I was in a luxury store this weekend, per chance, and I won't say what name it was, it doesn't matter. It looked like December twenty third, right, I mean I was shocked how packed it was. Now what really shocks me here is I can't tell Ariel, thank you so much for the brief on this. Do I want to go with a tequila selser fies to eight pack or do I want to look at the vodka and soda pineapple?
I mean, the biggest response we get all day, Paul, we don't exist Teo is high noon is the biggest response.
What in God's name is high now.
High Noon because there's zero sugar. That's like it. I'm always watching my sugar and take so High New doesn't have this?
What is it a vodka? It's a vodka.
Okay.
But now, back in high school, you were drinking wine coolers.
Back in high school, righter the thing that it was the Boonze Farm, it was the College Tree, the Cisco mad Dog.
Twenty twenty, we went back taking his way back. All right, so so far, all right, so rich, where do you fit? He's drinking Budweiser.
Let's be honest, like.
Yeah, I look at this. Can I ask a dumb question? Can you buy the High Noon variety twelve back? Can you buy that in like a grocery store or like a Walgreens or Duane Read or that?
Not in Jersey?
I know, not in Jersey.
You have to go to the Gulcestre store.
Yeah, that's a Clucker store thing, So you.
Have to go to the liquor store to get it.
Yeah, I mean, you know, I'm up with the fancy people at K and D.
They barely talk to me, right if the order is under five hundred dollars, they don't look at you. I'm about kay. I don't think K and d up on Madison Avenues. I don't think.
Or the white cloth that's that's that's another popular one.
That's the one Riley from Saint Louis.
I had to sip One's and weird at a bar and she said, here, I have some white claw and I thought it was, you.
Know, like a white Russian or something. So much fit Lisa Matteo. I learned so much from our newspaper.
Yeah, yes, huge, you know news you can use you look at this.
Here's you know, met us out there. What is this? Missus Sweeney? Paul Sweeney is so dope. It's like unbelievable. Nobody ever says that about me exactly. I mean it's like, you know, it's like use, let's hear Lisa Mateo, thank you so much.
This is a 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 a m. East 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.