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When you look at what the revisions were to Q two, core PC was unrevised, so didn't really tell you a different story about the New York term inflation trend. I think that's that's really important. A big downward vision to consumer spending, which is surprising at this point in time. We know that there was a big pick up during the summer months, but I've been highlighting if you look at the ba's credit card spending data, it slowed materially
throughout September. So I think you know, as you look at what's been happening in Marcus, as you've seen consumer discretionary stocks coming off a bit, where we've been concerned about the head winds facing the consumer, I think we're seeing it in the high frequency data coming through. But you're still in this fuzzy period of time here where it's unclear if it's just to give back from the strong summer months that we had, or whether it's a new trend on the consumer of weakening.
Is there a stronger signal that you're getting from the job as claims to just keep coming in at incredibly low rates.
Yeah.
I think when you look at the labor market, the consistent story is one in which labor demand is coming down materially and that is leading to a labor market that is no longer extraordinarily tight. It's no longer very tight, but it just looks historically tight. But at the same time, there's not much evidence of layoffs taking place. That's true in the jolts data, it's true in how people are perceiving their job opportunities, it's true in the unemployment claims data.
So far, the key question will be if the consumer does slow as we continue to anticipate as these headwinds hit, can that story remain true? Can you continue to have a slowing labor market that is only demand driven.
When you talk about a fuzzy period of time, and this is important because we've been talking about how we don't know that we're not a soft landing until it no longer is. Is there a historical corollary that you look to where there is a period of slow in consumer spending but a very robust labor market. Is that something that can be a persistent feature of an economy for a prolonged period of time.
Yeah, you know, I think we were coming out of this very unusual period, and so we're kind of prone to say that everything is very unusual at what we're seeing with the labor market. It is typically nonlinear. So it is often the case that things look generally okay until you have a shock and layoffs pickup. You know, that's the Sam rule where if the unemployment rate rises by fifty basis points, you have a recession, and it always rises by more. So from that perspective, I don't
know that there's all that much that's unusual here. You know, certainly from the lag of defects of monetary policy, people are pointing towards it not hitting as much. The key question is did it not tighten or hit as much because we had a lot of latent physical stimulus in the system and it's now beginning to bite. That's our view, but there's a lot of uncertaint about whether that's the correct.
You right now, the data check folks, let's do that.
We get the green on the screen. We're up three tenths of a percent on the SPX. The VIX comes in nicely, sprightly from an eighteen level into seventeen zero point ninety four tenure, yielding three basis points off the announcement of claims really quite good to zero four with a constructive leveling revision of to zero two. And we've got the GDP numbers here. Let's stagger over to Michael
McKee for an insight. He's got the bramocam. I caught in a bramocam McKeegan, let me in, let me in, what do you got?
Well, we do have the revisions here, and it does solve one of the mysteries or at least brings us closer to an answer of why gross domestic income has been lower than gross domestic product. It's because gross domestic product was over measured. That right now, the government says that the GDP from the fourth quarter of twenty nineteen to the second quarter of twenty twenty was down seventeen and a half percent. That is up seven tenths of
a percent point. But when the expansion started again from twenty twenty the fourth quarter of twenty twenty through the first quarter of twenty twenty three, GDP was up five point six percent. That's two tenths lower than had been originally estimated. So it brings those numbers into a little bit more agreement.
There's the heart of the matter to both of you, Matt was Eddie and Mike McKee. Does this allow the Fed to change course? Does it give them cover to change tone?
I don't think so. I mean, when you're looking at Q three trackers, we're at three point eight percent. You know if the Atlanta FED closer to five percent, do you see the job as claims data here today? You know, the real time evidence that we have in terms of what happens with the labor market and the growth data so far for Q three, I think all fits with them maintaining this hawkish bias, that the thread of another
rate hike that's out there. We don't think they deliver on it, but I think that it fits with them sticking with that story.
When you talk about you don't know whether that we're seeing the lag in variable effects coming into play now. We don't understand why they didn't happen earlier. We don't understand a lot about this economy. What is your compass right, especially at a time where we might not be getting data from the government because of a government shutdown. What is the most important data that you're tracking? Is it credit card spending? Is it jobless claims? Is it something else?
The sort of intangibles that some of the FED officials have said in the conversations with small business owners are the most important.
Yeah, I think it appeared where you're not getting the key backer data, you have to rely on some of these other alternative data sets, the anecdotes that we might get, the surveys from the isms and those types of services will be incredibly important, I think for distilling what's happening with the economy. But I think it's all about the consumer and it's all about the labor market. We've done some research in the past which suggests that continuing jobless
claims are the best real time indicator of recession. Right now, they're clearly not telling you that we are in a recession. They don't lead significantly, but they tell you when we are in a recession, and so I think that remains the key data point from a consumer perspective. I think it is this card spending data. It gives you kind of a weekly view on how things are evolving. It's volatile, it has thesal adjustment issues, so there's a lot of
trickiness in it. But if you smooth through what we look at over a four week basis, it slowed materially over the back half of August and then into September.
Is it coherent with this idea that you could see a sharp spike upward in the unemployment rate or is that still very unclear in your view?
No.
I think if we have a slow down where growth goes into negative territory and the consumer actually begins to contract with where how much labor demand has come down, I would not be surprised at all to see the unemployment route begin to move higher. It's kind of part of our baseline forecast. Timing that exactly when that happens is very different.
Matt, was that e chief us a columns of Deutsche Bank?
We need sunglasses from next guest standouts of Wetbush remain in bullish send this quote our view of tech stocks that the transformation or growth around AI will continued, cloud cybersecurity, a rebound of digital Antdellas will create a bringing board of growth into twenty twenty four that is currently being underappreciated by the street. Dani's TK of wet Bush out.
On the web quote the iPhone is getting really hot when using it, even for a short while. Date July fourth, two thousand and seven. This has happened before the uproar. This morning, the man with titanium closed, Dan Ives joins us this morning here on the latest stuff where OMG, it's hot. First thing I said is, yeah, whenever they bring out a new phone, the software is screwed up, it's hot.
It's like not news, is it.
But this is not a surprised Apple. I mean the Apple knew from a titanium that this was going to happen. There will be some software updates fixed that come out of the next week, and it's typical Cooper Tino. They're going to fix it. And if you look ultimately at the demand for this iPhone, it continues to be adding much better.
Thanks BacT for seriously, we got to do this.
Is there any danger to the public with this, like exploding around an airplane lithium.
But you know the gloom that's out there, something like danger.
Not all.
If you look at any even some of the ones that have tested this in terms of stress tested it, there's nothing like that. It's really just more it overheats in some instances. But I believe this, this bug, that the fix that they'll come out with it is going to resild.
So if John's a Covent Garden buying a new iPhone, he can go in safe.
He can go in safe, and he's gonna be able to watch Premier League and do all of everything. He loves descriptions.
When I just go back, it seems to you just said something. You said demand will be better than expected. In fact, you implied that it is better than expected. Can you tell me about a what was expected and be how you're engaging current demand?
What are you looking at?
If you look at lead times in terms of iPhone deliveries, we are still ahead of iPhone fourteen and it's actually extending. And if you look last year, you basically had a shortage of iPhones. So when you actually combine what i'll call about ten million incremental units that we actually have now from an inventory perspective, we're tracking so far based on our estimate about ten to twelve percent ahead expectations.
How do you make a distinction between scarcity that is, let's say, massaged by the company that produces this particular handset, and scarcity that's driven by real demand. Just doesn't Apple play this game. It's difficult to get our products. There's a big lead time, there's a delay. No, it's not getting some AirPods, it takes two months. Everybody wants them. Isn't that the whole marketing strategy?
Look?
And I think that it's a Rubik's cube to figure out, and that's why we spend so much time in Easia trying to understand what incremental units have actually been produced, what the demand looks like relative to the supply chain. And I think right now we're running probably about three to four million units ahead, you know, if you look
relative to where iPhones are going to shape out. Also, asps, even in China continue to go up because of the pro And I think that's really the story here, is that the ASP talents there and despite doomsdays sort of you out there. I mean, you're basically seeing an iPhone demand story going into how itdays that's going to be ahead of expectation.
How much is Apple eating the lunch of everybody else in terms of a market that is actually shrinking or at least in stasis. When it comes to the smartphone market.
It's great. I mean, we've seen it in China. They've gained about three hundred BIPs in market share the last eighteen months, and I think even despite Huawei, I think will continue to gain share because Huawei, if you buy that phone, it's like buying an iPhone twelve and it comes down to the chips and what they've done. From a silicon perspective, it's the best smartphone in the world, I think by by miles at this point.
Which raises a question in my mind, which is maybe Apple is the cleaner shirt in a dirty hamper or whatever the expression is. Yet the overall macro backdrop is souring in a way that is more meaningful. We saw that from Micron yesterday as some of the expectations coming out seem to be more negative than people previously expected. Where do interest rates have to stay to keep your both thesis afloat without the macro gloom getting in the way.
Yeah, any look, and we've talked about it before. I mean, obviously it's a macro backdrop that's really causing white knuckles across tech bowls, and I think I see from investadors in their daily basis. Look, look, I mean my view is that going into this next year, I believe, you know, Fed's gonna cut at least from a backdrop perspective.
But I focus.
I'm more macro aware, micro obsessed in terms of how we've done it, and if I look at growth in tech, I believe it's going to be the biggest growth we've seen in the last thirty years. And that's why a lot of the bears that have called ten of the last two downturns, I get it. I get their thesis. I just think we sit here six nine months from now and Apples an all time.
High calendar item October is upon us, and institutions are behind. With our question, they're under owned on Apple insiders share ownership off the Bloomberg Apple sixty six percent, Sacha Nadella and Microsoft seventy five percent, they're under owned end of the year. Do you get a massive short squeeze to get you from one seventy out to your two forty targets.
I mean our view is this is a stock that's ultimately going to have a two in front of it over the next three to four months. I think earning season for Tech is going to cause I think a major what does a.
Big institution do JP Morgan Asset Management name the company worldwide?
They're under owned in this dog. They have to buy it in the year end.
Right, it is a gift what I view Apple here a golden buying opportunity, and institutions that I talk to continue it's a groundhog Day situation. New York City cab drivers barish on Tech and Apple into earning season, and I think we sit here end of the year and we look back and this was an opportunity going into what I view as a mini supercycle, especially as everyone's position right now in big tech.
It's China a groundhouk Day situation, Isn't that new?
Well? I think when you look at China, I mean even if you go back the worries about government ban and everything we've seen, but yet you see the lines. You see Chinese consumers that are actually lining up to buy iPhone. So I think when I look at China, Cook ten percent politician ninety percent CEO. That continues me the hearts and lungs of the story. So I just view that as one where it's the big bad wolf. It's always the fear out there, but at least the
bark is going to be worse than bite. So far in this cycle, I want to.
Just end broadening out to where the macro fears are. Right now, this idea that we are seeing more strength that is going to cause more profit margin compression, that's going to lead to a lack of investment by a lot of companies. How much does that delay or would that delay your thesis of growing profits to new record highs as a lot of companies invest in artificial intelligence if they don't have the extra capital on hand to do so.
Yeah, it would, And that's what we spend all of our time. I'm not here in New York City, but around the world trying to understand where the demand trends are. I believe we're gonna sit here with cloud numbers from Microsoft, Amazon, Google that beat expectation. We actually see the opposite that's playing out, and I think that's really going to be the surprise earning season. Of course, that's the biggest fear.
But at least what we see fundamentally speaking is actually the opposite playing out despite some of the macro field.
And we comparing some businesses that are still delivering double digit revenue growth and one business Apple the core of it, that's not really delivering any growth at all. Two very different stories, aren't they.
No doubt when you look at Cloud and what's happened in AI. But I think we sit here a year from now and that's a re accelerated growth story, not just on iPhone but also services that's going toward double digital growth. And I think Apple's one where the bears for years have gotten it wrong, saying the best days in the rearview mirror. They continue to underestimate the golden story of Cooking Crest.
To be unfair down because they've been right because it was a flat lined that isn't the company gone ex growth when it comes to the iPhone.
Yeah, but I'd say they've been maybe right conceptually, but wrong in the stock and I think wrong in the valuation because I just view it right now. This is just a pause from a growth perspective in what has really been a multi year upgrade cycle that's gone on an iPhone, and I think it's just I don't.
Mean to interrupt. It's just been a failure of stock. Ten year annualized return twenty nine percent.
Yeah, Tom, it was backed up by tons of growth. The point isn't the thing the question is, and it's a valid one, is that growth isn't there anymore. They're operating and I'm not here to make a judgment about the future.
That's they're operating leverage.
To make an observation about the last twelve.
They're operating leverage down the income statement from single digit revenue growth is historic. It's like back the Graham, Dot and Coddle.
We've never seen it.
And it's just the Apple silicon chip story. Now they're being intel their own game. They control the ecosystem.
Oh way, is the nanotechnology, the three millimeters nano technology?
Is that the cause of them being hot?
I believe that it's really more titanium in terms of I'm serious, in terms of than it's just.
Busted your do you have the new iPhone? That's all we want.
It's coming this week. It's coming delight, But it's on delay because it's on delay because of demand, because Pharaoh king and everyone's ordering it.
Then I was a kidding me. Then I was a white fish. It's got to say it as a white.
Right now, without question.
For Global Wall Street our interview of the Day on bonds, notes and bills, Alanonim has parchments in the usual accounting economics from Villanova Macro Credit research at Blackrock with a tour duty of gold and sacks and other places along the winding at road. She joins us, what's the level of sweat at black Rock? I mean, like, you know, are you all the windows locked and you know you're you're policing costs and the rest of them to be sure they're okay.
No, I think we're all chat. We're navigating and good morning and thank you for having me. I think we're all navigating what is a very dynamic market that is keeping us on our toes for sure. I think for corporate credit investors, what we've really been focused on is this higher cost of capital environment and we're seeing it day by day kind of flow through the corporate credit market. And really for corporate credit fixed rate investors, the headwood
has been on the risk free rate. We haven't seen much repricing in credit spreads, and I think that's been a really notable feature of the third quarter, and that's probably something that will continue into the fourth quarter.
It's still happening just a little bit, just incrementally, we get in that spread widening when you look within high yield at the moment, where do you see the greater pain being inflicted.
So we're seeing a really surprising dynamic actually where high quality is lagging and the lower quality really parts of the market are leading. And so if you just take the three broad buckets of leverage loans, high yield bonds, and investment grade bonds, arguably leverage loans are in the weakest vulnerable fundamental position because they've been contending with this higher borrowing costs for the past several quarters, really since
early twenty twenty two. But they've had the best performance year to date. We don't think that that is sustainable over the long term. As you know, we don't view fixed rate corporate credit as immune from these headwinds either.
So I do think that there will be some words differentiation, but I think going forward, what we've characterized it in our fourth quarter outlook is it's going to be about dispersion as opposed to widespread market disruption, and so when we're dealing with potential headwinds to margins, wages, commodity costs, potentially slowing economic growth, higher borrowing costs, we think that that will really result in differentiation across the spectrum as
opposed to kind of this rising tide lifts all boats macro.
I want to go to the question that John asked Ian Shepherdson, at what point will we feel the rates that the FED has inflicted on the market and that we're seeing priced into the risk free rate. When do we see that wave of refinancing where companies actually starting nine percent rates as opposed to the three percent rates they locked in a couple of years ago.
So we're seeing it in the leverage loan market already. For the fixed rate borrowers, we're starting to see that come through. But frankly, I've been pleasantly surprised about the high old market's ability to absorb the wave of September issuance that we've had come through the high old market already. So we do think that that will continue. That maturity wall twenty twenty five through twenty twenty nine will need to be addressed but we think that that will continue.
Just I really I'm curious though about where this money is coming from, right, is this coming from another pool like treasuries or is this coming from stalk investors.
Yeah, So we've done some surveys as a firm across institutional investors, and there is a growing interest to deploy capital into fixed income, largely due to the repricing and all in yields that we've seen over the past few quarters. I would say we're also seeing increased interest in areas like private credit as well. So I do think there was a decent amount of cash on the sidelines for investors to kind of play in the new issue market.
In many instances, these are credits that these investors know well, and so if they're seeing them come through the primary market at a discounter on sale, that can be an attractive opportunity to deploy capital. If it's a credit that you know well, you're comfortable with the risk, and more importantly, I think you're comfortable with the forward and that company's ability to navigate through this higher cost of capital environment. But as we've discussed previously, there will be winners and
losers in this, and we're already seeing that. In terms of defaults, I think the issue is if you have a capital structure that is over leveraged and perhaps formed in a low rate environment of twenty twenty one even early twenty twenty two, those need to be right sized and so there will be some real differentiation there.
I think your note is dead on about cost to capital and my monitor that is the ten year real yield. There can be forty seven other tea leaves to look at as well. So if I look at an elevated shocking real rate where we are, I intuitively understand tangible assets like real estate are affected immediately. How does this new sustain real rate affect fungible assets like bonds, notes, and bills.
I think one of the key takeaways that we're expecting is that the bar for transactions is probably going to
be higher. So if you're a corporate and you are thinking of doing an M and a transaction, the higher real weight may make you say this is not as an attractive opportunity given when my financing was much cheaper going forward for real estate and even I think for private equity and sponsor related transactions, we need increased clarity on the macro, we don't necessarily need a good macro, and so for corporates that are thinking of transacting, I think if we can get comfortable that we're at the
end of the policy cycle, that will give them some clarity to move forward. To your point, though, Tom, the higher cost of capital in general will probably skew those transactions towards the acquirers that don't need to rely on the aggressive funding to get them done. These are cash rich pharma, cash rich tech, highly rated investment grade companies with strong financing. I think you are going to see a mix shift in terms of the of the skewing of the financing activity that we see going forward.
If we can get comfortable, I feel and comfortable.
I mean, I do think we were bracing for a higher for longer environment with a higher cost of capital, but the repricing that we've seen has been so swift that it's hard to really feel comfortable that we're at the end of it. And so it's a really challenging dynamic backdrop to navigate.
For sure.
Amounta every time I wrap up a conversation with you, it's a clinic, A clinic with a mandolina, a black Rock commanda thank you as a wife, Thank you very much.
Brian Steals in the uh well the right the lower right corner of Wisconsin to bring it out. He is the Republican from Wisconsin and we joined us today. Brian, we're talking here about civics one oh one. How do you respond, as a grizzled pro oh to a debate like that, a debate that just seems so juvenile.
I think we have to ask ourselves the question at the end of the day, did viewers walk away informed about the most important policy issues of the day. I don't know that that format's leading to that. We have so many serious challenges from the fiscal standpoint to foreign policy, and this seems to be a conversation that's built for Twitter clicks.
We've had a president and a former president enjoy the climbs of Detroit, Wisconsin is sort of northwest Detroit or maybe Detroit southeast Wisconsin will let you decide that your thoughts on the political input of these two presidents into the UAW process.
I was born and raised in James, Wisconsin, where we had an UAW General Motors plant that would ultimately leave around twenty ten, and so I understand what these workers are feeling right now who are on the picket lines. Ultimately, workers across the country are feeling that they're wages have
not kept up with inflation, so they're fighting for more money. Politically, I think this is the right move to go and actually have the conversation with the men and women who are working day in in, day out, and I think at the end of the day, the bread and butter issue, the fact that wages are well below inflation. The average family is spending over seven hundred dollars a month more today than they work two and a half years ago for the same things, ultimately will punish Democrats.
As we talk about wages, there's a question about whether eight hundred thousand government workers will get paid come Monday. Given the fact that there is likely to be a shutdown. Do you think it's appropriate for them to not get paid in order to have some of the political rankling worked out.
There's absolutely nothing positive that comes out of a shutdown. It hurts the American people and the credibility of our government. We're working to hopefully avoid that. That's going to be a challenge, but hopefully cooler heads prevail here. By Saturday night, there is nothing right with people Americans who are working, who are not getting paid for that work.
What people are saying is that it's very likely that there will be a shutdown, that there seems to be an impasse, and that Kevin McCarthy is sort of not doing his job very well as the leader of a very fractured group. Do you think do you get the sense that he is frustrated, that he regrets taking this job.
I think we're all frustrated. I think he's done a pretty darn good job trying to wrangle everyone together to move us forward. The Senate also is in dire straits. They haven't moved their funding bills either. The entire system of spending in Washington is completely broken and it needs a complete rewrite. We're also here forty eight hours away.
What do we do? I think we really need to come together to pass a clean stopgap measure keep funding in government moving forward while we work out the details of these important spending bills.
But you know, I want to just push back a little bit because a congressman style you said that Senate has their own problems. Mitch McConnell actually is working together with the Democrats to try to come up with something. They are passing through certain measures. An just about this being both sides of the aisle? Is this a fundamentally problematic issue with the House and really has nothing to
do with the Senate? It really is a House issue led by some of the factors fic the fractures in the Republican Party.
I'd offer it to you that there's a few members on the Republican side in the House that probably get a lot more media attention. But I would note that as we actually look at the appropriations bills moving forward, the Senate is maybe further behind than the House. Neither are doing a good job. The underlying system here in which we're working on spending in DC completely broken.
Congressman, would Ronald Reagan recognize your party? It seemed like the nation we know this well has moved conservative over the last twenty thirty dare I say forty years as well? Where would Ronald Reagan fit into your modern GOP?
I think we're still a center right country, and I think Ronald Reagan would be able to lead this well. I think the big distinction is many of our most our loudest policymakers are no longer speaking in the aspirational tones that Ronald Reagan did. If we returned as conservatives and talked about how we're going to produce opportunity, addressed the big.
You do it. I don't mean to interrupt, but because of time, concressmen, you nailed it, You absolutely nailed it.
Why can't your.
GOP leadership insist on that aspirational tone.
The broader media environment, Twitter and others seem to like the confrontation. As we saw on the debate stage last night. There aren't enough programs like yours that have substantive and serious conversations about the policy issues of the day.
Okay, but you.
Got a guy in New York City, mister Trump, who invented a GOP of grievance. It's a grievance party, which is anathema to Jamesville, Wisconsin. How do you go from a grievance GOP, not back to but towards something new that is that aspiration of the GOP back to eighteen sixty?
Well, I can tell you when I'm at home in Wisconsin, which founded the Republican Party and rippin Wisconsin, people are still optimistic, believe our best days are ahead, recognize we have serious and substantive challenges and what I think we need as a leader of the party that talks about how we are going to move forward in a difficult period of time.
Congressman thank you. We got to clip some of that and put it in primose. Congressman Brian Stylebe, thank you very much, Seph for joining us on the Nightis as a clock is ticket to Wall, It's take potential Shutdown.
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