Surveillance: The Transitory Debate

statement and report for Jerome Powell. I think this is another report for a second month in a row that does give a lot of credence to that transitory debate. So I think we still see some quite a bit of pressure coming through the pipeline if you look at what's happening, both in terms of supply change on the

good side, what's happening with labor and wages. But I think what we're seeing is at most eye popping rate of inflation we saw this spring is coming off the boil, and I do think that gives the Fed a little bit more time to wait some progress in the labor market. I look, Sarah at the labor market and ties and how does this inflation report tie into wage inflation? Are

they linked well? I think where you're seeing some of the some of the give back in things like used cars prices, I think that is somewhat divorced from what we're actually seeing in the labor market. So even as we did see a little bit of soft mean in the rate of food inflation, we're still seeing quite a bit of pressure in the restaurant sector, even in in grocery stores. And I think if you look at the run rate there and in terms of the monthly print,

you're you're still seeing strong numbers. And so I think, um, we are seeing some of that wage pressure begin to filter through, and I think in many areas it's it's just beginning to start, particularly in the service side, where it does take longer to show up in the inflation numbers. What kind of number do you think would make the FED comfortable at the town of the year, Sarah, What do you think they need to see? Does a three handle get it down? Do they give them the comfort

to say, yes, it's transitree, let's stick with this. I think it's more about the numbers you're seeing in an inflation expectation. So Yes, we had a very hot consumer inflation expectations number coming from the New York Siety yesterday. But if you look at the FEDS preferred measure, that Common Inflation Index, it's still well within its historic range.

So that's taking into account what's happening in tips markets, what's happening with the Michigan numbers, and well, you've seen inflation expectations pick up, there's still at levels that are overall consistent with the FEDS, with the FEDS target, and so I think that buys them time no matter what you're seeing in terms of the CORPC tof later even

or headline inflation at the end of the year. So if you're just chanting to get on READYO on CVS downside, surprise time on the inflation print team transit treat getting a win hit scoring a girl future is positive full tenth of one percent on the SMP advancing, there's seventeen points on a SMP yields not doing much off the back of this number. Later this comes down to oneing now reachs house sales print, then SA to the Fed

next week. Yeah, I mean, there's a couple of ways to read this, and one hand it could be transitory the Fed's getting what they want. In the other hand, this could be that perhaps the economy is softening more than expected at a time when we have a prolonged pandemic. Sarah, can you weigh in on what this means? If the FED is not getting what they want, if you don't see necessarily material labor market improvement like we didn't necessarily

with a disappointing previous report, what do they do? Do they just keep printing money? I mean, do they just keep buying bonds? Or they have to change their guidance in an additional way. I think they you continue to see the status quo, so I think you just get taper. The taper gets pushed off further. Um. So I think this print suggests that maybe tips the scales a little bit more in favor of December rather than a November announcement. But I think they keep the current policy in place

for a little bit longer. You know, I think it's important to remember that while yes, we did get a disappointing employment report in August, we're still adding jobs. We're still seeing the unemployment rate decline. You shall seeing at least some movement in terms of labor force participation and and the supply, even if it is slow, but accumulatively, accumulatively, you're still seeing things move in the right direction. You are getting closer to to the feds um to the

Fed's goals. It's just maybe taken a little bit longer, and so that's gonna have them keep policy in place longer. Will we look forward to that retail sales figure later in the week, Sarah, what is the consumer able to do at this point given the roll off of some of the stimulus checks and the fact that people still are not necessarily getting back into a labor market still hobbled in parts by COVID, Right, So I think we're

going to see a pretty weak number. And when it comes to the retail sales, part of that has to do with the fact of what we're seeing in terms of autos, just where how much we saw sales plummet. But I think if you look at the overall position of consumers, so we are seeing it weaken a little bit. So balance sheets are still good, you shtill have access savings, but given the run rate of inflation of late, even with today's softer number, it's woodling a way of ethose savings.

So when you factor in also the unemployment benefits rolling off, that that buying power of consumers is weakening. And so that does suggest that you are at least getting somewhat closer to the supplying demand uh imbalance coming coming better aligned. But it's going to take some time, Sarah. Let me talk the unspeakable here, which I believe I haven't heard come up. What if this is a FED. I'm looking here, folks at the wonderful f O m C function on

the Bloomberg. What if this is a FED that's not September, not December, but has to stagger to the decision tree of January of next year. What is its signal if they have to wait, wait, wait, Well, I think it suggests that to some extent the virus is still very much in control. So I don't think it's completely out of out of the room possibility that even as we're seeing delta cases level off, you get another way of

calm from the winter. And so I think it suggests that this is not the necessarily the rapid immediate rebound a lot of folks were looking for earlier earlier this spring. But there's still a lot to work through both in terms of the virus. There's still a lot of frictions in the economy, whether it's to the labor market or supply chains, and those are going to take some time to work out, and so the FED might might have to to hold hold course for for someone longer. Sarah,

thank you. Always go to hit from you Santa House West founda security senior economists also associated with US as Barry Dholtz, Bloomerg opinion columnists D Holts Wealth Management. Barry, thank you so much for joining. I love your essay this weekend Housing. We need a new dishwasher. The some pump has been used in Hurricane Ida. I love home ownership.

Is it worth it? You've got to live somewhere a right, And as someone who's lived in rentals and owned conda and my own house, it's nice not to live in a off white no change to any of the living circumstances. The old joke is no one washes a rented car, nobody improves a rented apartment. So if you want an updated kitchen, if you want to paint your house a different color or put in new carpet of stuff, ownership

is how you manage to do that. A lot of the metrics that show that real estate is a bad investment kind of ignore the fact that as an owner occupier, you gotta live somewhere, and that's where homeowners came well. But you know, I mean the home renovation A Brando said, a renovation it was a quarter of a million dollars. But you know, Barry, when you when you look at home ownership, what's the actual phenominal or real return of home ownership versus owning the standard? In real terms, it's

probably flat to negative. Once you work in, you gotta pay taxes, there's a ton of maintenance and upkeep um net relative to inflation. You're lucky if it's a break even if not worse, but it keeps coming back to what you pay is a key issue. And the thing to remember is if you're putting ten percent down and you're not buying the property out right, um, it's a there's a lot of leverage in that, and so those return characteristics are different than let's say black Stone running

around and buying up multifamily units and farmland and everything else. Um. Just to be very clear, the quarter a million dollar right and renovation really accounts for basically putting in a new divider for my silverware. So it's not exactly the same scale. I will just say that just to set the scale straight. Very just sort of follow on though

with this idea we started talking about banks. We moved the real estate market a pivotal moment for urban areas as we try to get back to the office at a time where the variant is really delaying a lot of those plans to get back to the office. How significant is it the longer that some of these two lays go on for property values in urban centers. So so it's that's a really complex question. And I'll give

you like a thirty thousand foot view. When you look around places like San Francisco, in Manhattan, there's a ton of new office space that has gone up to meet the pre pandemic demand. Suddenly, the pandemic has taught us, hey, we've really been inefficient in how we use our time,

both going to the office, commuting, etcetera. And so it appears that there's now an excess of office space and a shortage of I don't even want to say affordable house and just reasonably priced housing in major cities and if you remember, we we just went through the twenty year anniversary of No. Eleven Post No eleven Lower Manhattan converted to a very residential area, lots and lots of

office buildings converted. I wouldn't be surprised to see something like that take place over the next couple of years in major urban centers to adjust that that imbalance between supply and demand for both too much office space and too little residential space. So going forward, are you going back to the office And we talked a lot about this back in the day, and I'm wondering, given your read on the breath of Wall Street in terms of what they're doing, where they are working for, what's the

zeitgeist right now on that front. So a handful of companies originally had September fifteenth as their target. A bunch has been pushed pushed back to October fift I've been trying to get into the city at least once a week, um, and as has all my colleagues in the office. UM. Now, the there's a chicken and egg issue in that a lot of mass transit has been running on weekend schedules, not normal peak commute schedules. I think a bunch of

that along railroad Metro North. I think that return earns back to its normal schedule, or it was scheduled to September fift so once you can. I was at a conference yesterday at the Javit Center, at the SALT Conference, and on the way home yesterday at to thirty, it was bumped upumper traffic in a car, and I think that's because people are uncomfortable either riding the trains or

they're just running to and frequently. Once things get back to normal on the commuter rails and other forms of mass transit, you're gonna start to see people move back into the office a little more regularly. Very thank you. How is the SALT conference? It was interesting. I sat down with Steve Cohen of Points seventy two and Dmitri Blisanis, Mike Rockefeller of um Woodbine and Alana um Gold. Seemed fascinating, fascinating conversation. Nobody cares. What did say about the Mets.

He's having a lot of fun with the team, he's excited about upcoming changes, and he thinks they are going to be a contender sooner rather than later. It was really interesting discussion. What was fascinating about walking around the event with him, is people stopping him to talk about the Mets. No one wants to talk about exactly. That's why they want to talk about. I mean, Barry, when you buy the Knicks, it will be the same way, Barry Redhold. Thank you so much, Opinion dot com. This

is a really really important conversation. Is my head your had? Everybody else has had swirls on the pandemic. Amish Adalgia has been extremely competent in engaging the debate worldwide over a perfect solution to pandemic to virology. He is with Johns Hopkins Center for Health Security and joins US right now. Dr Delja I was thunderstruck that Auckland looks for perfection. They have thirty three new cases one point seven million people. And you know, I'm gonna dazzle you. Now, Amish two

times ten to the minor six scientific notation. We got to go to folks. It's a tenC weed see amount that's ill. How do you respond to their attempt to be perfect? I don't think it's the right approach. I think that this is something that's popular in New Zealand, but it doesn't really justify what they do. Their level three and level four lockdowns are really borrowing from the

Chinese playbook. And I don't think that they're the way that they're so blanket they they pick up so many activities that aren't leading to spread, that don't allow people to do things and a safer manner, for example, go outside or not have to wear a mask when they're outside, or even be able to get take out dining when they're under level for lockdown. So I don't necessarily think what they've done is correct, but they are vociferous defenders of it, as I found out when you criticize them.

But it is something that I think really needs to be examined because it's not sustainable. And they have about thirty percent of their population fully vaccinated. That's that's not a lot, and that their rates are going up, but they don't think we need to do this in the

in the post vaccine era. And also we've got rapid tests, we've got so much technology to allow people to do things safely that this absinence only approach, even if it's popular, shouldn't be what's done and definitely shouldn't be enforced with with police the way they do in New Zealand. I don't sense it in America, but maybe I'm uninformed. Do we have elements of New Zealand from sea to Shining Sea.

We don't. We've had some aspects of it, For example, when you look at California, which had a very strict restriction on indoor dining or an outdoor dining as well, and you still saw cases really going up in California because what that was doing, that absence only approach in California was driving behavior underground where it was more risky. And I think the lesson from this pandemic is that harm reduction something that we do with HIV was sexually

transmitted infections. That's the way we want to approach public health with voluntary means, trying to give people tools to make better risk calculations. No one we're never going to get cases to ze or that there's going to be a baseline number of cases hospitalizations invest but just trying to keep our hospitals from going into crisis. And I think we should have of doing that back from January. And I don't think that the US is a good

example here. I think they're both false alternatives New Zealand And in the United States and there is a better way away like countries like Taiwan, followed Dr ADLTA. In the meantime, the debate over booster shots continues to heat up, and just on a Arrival Network, Dr Fauci has been speaking and he's saying that he does expect the FDA to decide to give boosters. Meanwhile, several FDA members have resigned,

saying that it's unnecessary or perhaps scientifically unpacked. Where do you fit into this in terms of the need or lack there of of boosters? To meet the threshold for needing a booster would have be someone that's fully vaccinated getting a breakthrough infection that lands them in the hospital. That's just not happening. There's definitely probably going to be some need for boosters down the road, but I don't think it's going to be on September twenty or six

months or eight months post to your second does. It's something we need to be proactive about, but I don't think we're ready to pull the trigger for healthy people.

There may be an argument to be made for the elderly people in nursing homes, but that also needs to be driven by clinical data, not just looking at antibody levels coming down, but actually seeing do people get severe infections this this many months out from their vaccination, and does a third dose not only boost their antibodies but doesn't actually protect them against that. So we want clinical data.

We want this to be driven by the usual process of the CDC, the f d A and all that data being published so that people can actually look through it and sift through it. Not something that's get that's primarily being announced by the White House. That's that's triggering people at the FDA to announce their retirement into writing medical journals opposing it. Dr Adlgia. What's the potential concern

here about giving boosters? Is there any scientific evidence of harm or that it doesn't really affect things at all, or is it simply a matter of distribution of vaccine and trying to get unvaccinated vaccinated throughout the world as quickly as possible. There's probably not a major harm signal.

But again, if you read what the FDA, the departing FDA members wrote, they're worried about side effects that might occur if that third dose is too close to the second dose, or or what that might do to the reacting genicity of the vaccine. But again, this is something that can be solved and answered with clinical data, just to look and see what happens to people who get

a third dose. And that's what's really missing, or at least hasn't been presented publicly, and and that's why I think you've seen such a backlash against this plan from the infectious disease community. With a few few notable exceptions, but in general, most of us don't think, for healthy people that we're ready to recommend boosters in the absence of data. And it's important to remember what's happening in the United States with with the number of hospitalizations and

worries about crisis and places like Idaho and Kentucky. That's not going to be solved by third doses. It's first and second doses that solved that. And I think that's where the focus needs to be. And I think that we can prepare for boosters, get ready, but make sure that we do this right so that people have confidence that the process actually was scientifically driven and not driven

by any other considerations. Don't to thank you for it's on this small and I guess O wise, don't hamish it down to that of Jones Hopkin's sense of house security. They seen the Escala on the equity market. Christopher Gercanti joins us right now with m Ai Capital a droid. US usually start with a general phrase, Chris, but I know you're gonna be hanging on every word at one pm on Apple? Can you own Apple here? You've been a long term affiliate of Apple. Can you go long

Apple right now? Sure? Tom, I think if you're a long term investor, you know there's there's hardly a better run company, hardly better company with market position. Having said that, we don't currently own Apple. We prefer some of the other fang stocks, mostly because it's, uh, it's a combination evaluation. Plus they've almost outdone themselves. I mean, the iPhone is so good that we're not expecting much from today's launch.

I think a few incremental changes, a better camera. So you know, I'm a little afraid that at this lofty valuation of thirty times, that's gonna that's gonna disappoint. Can we get to the story over Amazon, Chris, it's not a stokey hold it is. Can you tell me why in a world where they might have to pay up a lot more for light. But this is a big employer in America. Now, sure, well, Jonathan, there are so many ways to win. I mean, clearly this is old news.

But but just point to a WS a Amazon Web Services where they created, you know, a multi billion dollar company out of nothing, and that that we estimate is now worth about four hundred billion dollars. So there's that, there's prime um, there's the international growth. So sure, just like every other corporation in America, they're going to have to pay more for labor. That doesn't uh mess up our investment thesis. Maybe it cuts the margin of per cent or two, but I think long term, I'm pleased

to be a holder of Amazon. Chris, So, you've been a bull, and you've been an unapologetic bull, and you're saying that all of the pessimists right now want to sound smart. However, that has not been a good way to make money. When you talk about making money, why do you like Boeing? Why do you like some of the outliers that frankly continued to be souring in many people's fears are well, as Tom always teases me, you know,

I'm a contrarian. So it's very hard. Buying stocks today is like going to the produce department in the market at six o'clock at night. Everything is picked over. It's really hard to find something good. So Bowing has a lot of hair on it. But believe me, okay, it's

sasquatch basically. But if you look three to five years out from now, when COVID is a grim memory, where the middle class all over the world is looking for more airline seats and there's only two companies that can satisfy them, I think Bowing, which is selling for half the price it was two years ago, is one of the few attractive things in the market today. Well, let's talk about Bowing. Is it a cyclical? You know, it

didn't used to be. Tom. It's funny if you do a regression analysis, and you'll love this, your stat guy, If you do a regression analysis against Bowing in the last two years, it correlates very closely with the airlines, But for the five or six years before that it does not. And in other words, in good times when we don't have a worldwide pandemic, Bowing is not a cyclical. It's a worldwide It's a world leading manufacturing company that has terrific margins and terrific returns on equity. So it

is it. I think it's a chance to buy a great company that's being labeled today as a cycle. Take me step back, Chris, when you talk about being a bull in this environment, it really does come down to relative valuations in addition to a fundamental story. But how comparable is the relative value story at a time when people think that bond deals are going to go up, at a time when frankly, there is so much economic uncertainty and such varying views on the path of inflation

going forward. Well, you know, at least I think it's somewhat ironic that people seem more scared now than they were nine months ago, even though the market nine months ago was selling it twenty seven times forward earnings and now is it twenty one times. I'm not making an argument that that's cheap, but I am making an argument that it's cheaper now than it was nine months ago because of strong earnings growth. And I think that trend

over the next six to twelve months will continue. There's a lot of cross currents, inflation being the number on one that I'm afraid of the more next year than this um you know, in the delta variant and the crummy August jobs report, But you know those are the things that create opportunities. So some faith that we really multiples, Chris school, As you indicate earnings have grown really quickly.

Do you think it could be a threat to multiples though in a world where the Federal Reserve might be forced to pull back a little bit earlier than anticipated. In that world, yes, but I don't think we're living in that world, Jonathan. I I think we The Fed again and again and again has said, um, you know, damn the torpedo full speed ahead. They don't care about five percent inflation, at least not right now. Their sole goal is to get us out of the COVID pandemic.

And look, next year is a different world. And I don't I don't doubt that we're you and I are gonna be sitting here talking about wage inflation and other things. But the backdrop right now is a FED that has the pedal to the metal. And and you know, inflations is down the list of words. Chris gotta leave you that smart as always gonna catch up with the Chris Kers Suncy, that m Ai Capital equity strategist in sitia port folio manager. This is the Bloomberg Surveillance Podcast. Thanks

for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg