Surveillance: U.S. Economic Data With Loh

off with Mr? Lowe? Well, Marvin obviously is Lisa was saying that the market is looking for confirmation in this data of a more hawkish, more quickly moving federal reserve. Do you think the repricing of those expectations has been overblown given the numbers that we're seeing. You know what, today's data just confirms that we're moving in the right direction. Activity is accelerating to the fourth quarter. UM, that's no new news. There. There are hints that the job market

is UM is pretty good in today's numbers. So it really does become that interplay between inflation and jobs. We know inflation is more than what they want. UM, if there are signs that if there are signs that the job market is going to heal itself faster than let's say, the second half of next year. Um, you know, rate hikes are gonna be live. But having said that, we're already pricing amid two and starting to think about May of two. So I don't see how much more we

can get from an aggressive side of things. And because I'd probably like that it's getting the market to do the tightening for them before they actually have to get into the souper nuts there. When can we actually count on this data not being noisy? I mean, I'm looking right now at initial job with claims and form my data, and what it looks like is that this is the lowest claims figure going back in decades. This is what

seems to be a hot market. And yet, as Michael McKee was saying, it could be noisy, it is holiday time. At what point can we say, no, this actually reflects reality? You know what I think about how this year has evolved. Where we started in the beginning of the year, and we said by the middle of the year we're gonna get clean data. Um, and then it was gonna be and then it was going to be in the fall and that hour at the fall, going into the winter.

I think it's gonna take until the middle of next year before we get a real solid picture of what jobs looks like, what prices look like, how these supply shocks are are going to make their way out if it's gonna have to make some heart decisions based on data that's not perfect however, UM, but we've got a lot of moving parts, and that pricing data is really

gonna be in flux. Remember that's beautifully said. In around all the different opinions we have on Blueberg surveillance, what we can say is consensus is ephemeral, to say the least, except we still have to invest. What is your investment stands given your ambivalence or your wait and see until fourth of July two thousand twenty two, We we we we do have to invest in, and we've got to look at what we think the world is gonna like, in which you know, ultimately companies and economies are going

to uh to benefit from that. UM. I do think that the long end the curve is sending messages the fact that you know, whether it's a um A Greenspan type conundrum or a view that growth becomes dear against once we get to the other side of things is telling from me. So you know I continue to like um like the growth aspects of the U S economy. UM, I do think yields have remained contained and will remain contain.

That means that growth is dear, income is dear um and globally you look for those environments that can benefit from that type of environment. Marvin Little, thank you so much. Too short to visit here with all this economic data with State Street today, greatly greatly appreciate that what we do is speak to experts, and Mike Wilson is uniquely

qualified at Morgan Stanley to lead their equity coverage. He does so with some terrific securities analysis is at his back in economics of ellen Zner is well, Mike Wilson, I want to go to the wonderful Katie Huberty, who's looking at hardware in tech. And what Katie Huberty says to your cautious call on markets, would everybody calm down. Supply is gonna come back and we're gonna get back to some normal Why will stocks be quite essent if we get back to Katie Huberty is normal? Well, thanks

time and happy Thanksgiving to everyone. Look, I think, well, Katie is actually very much in kind of our page. Frankly, she's very focused on you know, the you know, the supply channels are not going to rectify themselves quickly, and there's a chance that we've actually seen some overordering along the supply chain, particularly in tech hardware, which is her

area of coverage, and and and so we're aligned. In fact, I would say Katie and I are more lined than I am with some of the other analysts at the Home Company, and that around this idea that we could have a paymack. As supply comes on, we might see some double orderings canceled and that may take a little time to digest. So we have I think the supply issue now that's pretty obvious. Inflation is the you know, the talk of the day in FETs reacting to that,

and I think that's appropriate. However, there is a possibility that you know, we get into next year and a supply kind of picks up and we actually see demand curtailed, right because we did over consume a lot of things, and tech Harbard was one of those areas, and that's gonna take a little time to work through time, and that's one of the reasons why we think next year it's you know, at the index level, we've we've priced a lot of good news and it's probably gonna be

more of a flatish year. Mike Wilson, David will David Wilson, no relation retiring from Bloomberg here in a bed. Just put up a spectacular Christopher on chart which shows Russell one thousand versus two thousand. And you know, the lack of breadth in this market is part of the Mike Wilson call that big tech will be crushed. Well the crush is a strong word, but I mean, look, our our big out of consensus call for next year is valuations.

Then that was you know, someone of our call this year too, which didn't fully play out because the rates market backed up again. But now it's moving in the in the direction that we expected, meaning you know, the as the Fed moves towards actually tapering, which they're doing now and have to address these higher prices. I think we got kind of a you know, an interesting meeting this week when the when you know, Paul was renominated and and of course, uh, you know, BRAINERD was announced

as the vice chair. You know, this FED is going to take probably a harder stance on what's going on inflation. They're gonna they want to show that they're they're not you know, falling asleep at the switch, and they're doing their job. And I think that's what the rates market is reacting to here. And that's in other words, our rates call is gonna end up being you know, rates higher, and that's a head wind for evaluations. And that's what's

happened in the last three or four days. Is that the end of the world, as at the end of the bowl market. Of course not because the Arty story is still quite good. But you know, to have peak multiples on sort of you know, peak rate of change is unusual, and we just think it's taking a little bit longer than normal. We think it will happen in the first half next year. Multiples come down and then

we move on our marry way. It's not like I said, it's not the end of the world, but we have to we have to deal with higher rates, tighter financial conditions, and that means lower multiples overall, and we'll to a large cap tech feel that of course, they will just like every other stock will what's so interesting about the range of forecasts for next year is the disagreement on the both the pace of the economic momentum as well

as the read through into the market. The idea here that you do think that we're going to see a deceleration, but that the FED will still hike rates, and that that's still be viewed as a tightening cycle that will reduce valuations. How do you push back against TV securities call that that deceleration in growth will actually keep the FED on the sidelines and allow markets to continue to grind higher as they prepare for both very easy monetary

conditions as well as a still robust economy. Well, like I mean our health call as well, we assume that the FED is going to move more slowly than the market on rate hikes. Okay, but the removal of asset purchases to you know, basically to zero over the next eight months, I think it's pretty naives it suggested that won't have some dampening effect on valuations. More importantly, Lisa, I mean, this is right in line with our mid

cycle transition call. This is what it always works. So we've we've written about this for a while, I mean eight months talking about how this is very similar to two thousand four andleven. As the economy recovers, the FED is supposed to react to that. That's their job, and they're going to do their job, and that's the normal progression. You get the accelerative part of the recovery. That's great. Multiples actually expand at the same time. That's what we've had.

And then as the FED removes policy accommodation, multiples come down. So you know, the think that that's not going to play out this cycle. I mean, we're going with the odds and that's and and I think that process has begun. It was somewhat interrupted in October. We saw evaluations actually expand again as rates came down. And also I think as you know, we saw the seasonal trade, and then once that seasonal trade is over, I think back on the path of just multiples coming down, and it could

be a it could be a modest process. Isn't that to all happen at once? You know, we're talking about multiples coming down over the next twelve months, So if it's gradual, you know, the market will deal and it will be so it will be just be sort of a chop. I don't think it's gonna be a crash or anything like that. That's not what we're calling for work and and really the opportunity is going to be finding the right things to own within the equity market, something that we we spend a lot of time on.

All Right, so what is it? What do you want to own? So right now we're very focused on earning, stability and valuation, not surprisingly, and one of the sectors that we think has those qualities you know right now is health care. Health Care is delivering delivering on the earnings quite nicely, and it's actually extremely cheap relative to its history. Uh, and that looks pretty attractive. Real estate blye or not reads look attractive in this kind of

an environment. And we also think financials look good because you know, they should do better as race smooth higher and they're cheap. So those are three sectors who are recommending right now. Mike Wilson, thank you so much for joining us, particularly on this whole day Wednesday, Mike Wilson and Morgan Stanley. What is known is at the Royal Bank of Canada with a terrific research team including Thomas Porcelli, rights in Kings English. The only one who does not

is Amy Wu Silverman. It's Greek to you, It's Greek to me and trusted, it's in the Greek letters of the derivative space as well. We're thrilled to Amy, we'll could join us uh this morning. Amy I, I look at where you are and I want you to dovetail it right into Lori Calvacina's constructive call on the market. When you look at skew, crtosis and the rest of the options dynamics, what does it mean for Lorie Calvacina,

our listeners and viewers. Yeah, it's a great question. And you know, Lori and I talk a lot about you know what her O marching equities views look like in terms of the derivatives market, and I will tell you the I W M in flying volatility and skew. You know your favorite term. Tom has been dovetailing with what Laurie has been saying, which is that we will see a second leg up in that smid slash value section.

And you see that in the derivatives market with a skew much more flat or bullish than you do in something like the large cap tech growth area. Amy I don't speak Greek, but I am looking at what could be potentially some froth being pushed out of the market in select areas. I'm thinking particular particularly of the software and internet stocks that were the Darling's. In the wake of the pandemic, we saw hedge funds really pile into

those trades even as they climbed higher and higher. And now we're seeing the likes of Zoom and others really get punctured by reality, by the slowdown in their growth. How much is this indicative of broader froth that's being punched out of the market as people sort of realize that we're in a new territory with a FED perhaps as accommodative. Yeah, luckily soa you know, when you want froth,

you've definitely come to the options market. You know, it's just been the home of momentum, of this kind of crazy retail call buying. Uh. You know, yesterday the options market woke up. In my opinion, we've been talking a long time about how that's kew in the queues was really not that expensive. People were really not focused on downside, despite you know what we know about rates ahead and that changed yesterday. We saw a pretty dramatic shift in hedging.

We saw a lot of the conques both through year end and through next year, and that skew indicators starting to move. It's becoming more bearished, which really makes sense in the context of you know what we know Pal has to do in the coming year. Well, Amy, in a world where everything seems to be getting more expensive, is it going to keep getting more expensive to hedge? I think so, you know, and we've been kind of banging the drum for a while saying, look, it's been

so cheap to hedge. Does anyone want to hedge? And you know, the answer has been no. And I always feel like, you know, people need to see a shoe to drop before they think about it. And of course, when that happens, your hedging is going to become more expensive. Your vix as prob we're going to cross that twenty psychological barrier. But that is when people are going to start looking at it. Yeah, okay, Well, if I'm looking to hedge while it's still more cheap, where do I

do it? Amy? Yeah? You know one, uh, I I guess I call it like the dirty little secret of finances. People love to use I w M. QES and spy right, because that's what everyone else uses. That's what you benchmark two. But if you look to xcel C, the SMP Communications et F, it has about a nine percent correlation on a five year realized basis to NASSAC to the cues,

and it has a lot of the same names. It has your Netflix, it has your Facebook, has your Twitter, and you know it could be an interesting one because that implied volatility level is very inexpensive on a relative basis compared to cues. But it's just as good as a tailhage if you see those growth head winds common any very quickly here. Unfortunately, what do the bears get wrong? I think there's, especially for derivatives people, there's this case

to be made of what a tail looks cheap. You just feel like you have to own it, not necessarily because you think the probability is higher, Tom, but just because you know you're in a world when you think about things from the bang for the buck of that tail. I think that's what bears get wrong. When they see tales that cheap, they ask why is it that cheap? Um? And sometimes it's that cheap because things are good Amy,

thank you so much. Jamie was Silverman there equity drew of his RBC, a capital market doctor and Say Joins, associate professor of emergency medicine at Johns Hopkins back to the chief executive officer of a major pharmaceutical company just stated that this is trending towards endemic, which basically to amateurs like me, says all clear. Are we all clear on COVID? Absolutely not all Claire, absolutely not an endemic. Okay,

well that's a it's radio and TV back. You've got to give a longer answer, because I don't have two good questions. If it's not endemic, what is it? The leader of New Zealand came out overnight and said, you know, we still have a challenge here and a problem. We all know each and every story. How far are we from what the CEO of Astra Zeneca was talking about. So we're still in the midst of a pandemic, which means we still don't quite know how to overcome the

current virgin or disease from the from the virus. UM. There's still daily deaths, still daily resource limitations. UM. We have some strategies that we know to be effective, such as social distancing, fascinating, but that has proven to be not enough. Also, the virus will continue to evolve UM. We don't know when that's going to happen. We've been very fortunate so far. It's been a couple of months since Delta much UM, but that's something to look out for.

We am. I'm a little bit concerned as I looked the numbers dr An Sati. It looks like even in areas where there's high vaccination rates, you're seeing surges in the number of cases. I'm thinking of South Korea in particular, with seventy of the adult population with both shots of vaccine, and yet you're seeing the highest number of cases diagnosed going back since the start of the pandemic. Does this indicate that the vaccines are less effective than we thought

they were? So? I don't think it indicates that the vaccines are less effective. Remember, testing is also going up. We're more likely to test routinely prior to big events UM, prior to going to work. In many situations, UM mortality hasn't gone up. Hospitalizations are lagging behind. The vaccines are

definitely effective. I think human behavior plays a big part in this virus and what we're seeing in the North and the Midwest is that it is getting colder, people are going indoors, people are feeling more confident because they're vaccinating, Their behavior has changed, and all of that together is

leading to these surges. How concerning is that for a place like Detroit, Michigan, where you can see that the percent of cases it's down about six hundred per a hundred thousand individuals getting diagnosed with COVID, you're seeing the people in the I c used about of them have not been vaccinated. How concerning is this that we're seeing the surge right ahead of the winter months, right ahead of Thanksgiving, right ahead of what everyone gets into a

small room and breeze on each other. Absolutely, So the concern is that the number of cases is perhaps the tip of the iceberg, and which means that a large number of patients will still have asymptomatic infection with vaccinated individuals. That iceberg has gone from this to this, which means there's a higher proportion of asymptomatic individuals because people are not use a vaccine, you're not mounting the symptoms or

getting us sick um. The challenges is that say, if you were to travel to Michigan for the holidays, then the airports, um staying at a hotel. There is all of these opportunities for getting sick. Dr Hernsanti, I feel like I've asked this question many times throughout the pandemic, and each time it's proven that in fact, there aren't enough people with natural immunity, or not an enough people who are vaccinated in order for the case curve to

be prohibited from climbing dramatically upward. Are we getting closer though to that point, yes, I think Hostler just would have been much higher, given the fact that children are in schools, workers resumed as normal for many individuals, and people are traveling again, taking vacations again. I think if the vaccines some inherent immunity UM, we would have had much higher searches UM and would have been right where we were six months ago. Bacty, thank you so much,

Blacky and Son. He greatly appreciate it. With Johns Hopkins, it's an annual visit and always pointed because no one has changed American travel in the last decade than Brian Kelly long agoing far away, Young James Gorman and Morgan Stanley would call up even younger Kelly and say, Brian fixed my computer and he went off and left Morgan Stanley and completely changed the travel business in this nation with the points guy. You all know the website, the

forty seven charge cards. Just I'm pleased to tell you up in advance, Brian's going to Ecuador for forty seven cents here in a weekend. Well, his year world change, Brian because of the pitch battle and the credit card world between the traditional guys Clarina a firm and the rest. Is it business as usual for you this Thanksgiving holiday? Yeah? You know the Karna and A firm, those payment firms, they're not really impacting the customer that we're talking to,

the high end travel consumer. You know what has impacted that. It used to just be Amex, and it was Amex and Chase. Now we're seeing Capital One just launched a venture X card to kind of combat that Sapphire reserve. So there's so much happening in that premium credit card space, and it's good for consumers because the bonuses are out of control and your free time. I want you to bring a seven forty seven back to British Air. But what I see Brian as we changed in the pandemic.

Is the airlines are really going after the loyal customers. Will that sustain when this horrific pandemic is over? You know, I think you know, they extended loyalty, They've certainly been very friendly, you know, not expiring miles. But what they really need to change is the in flight product. I flew Barcelona to to Newark the other day, and there's yeah, I mean, I guess I couldn't shouldn't complain too much, but I can pay for tickets from time to time.

But I do think that the airlines need those premium business travelers and they need to reinvest in their product. They can't just keep saying because of COVID, we can't give you anything but slop for a meal on a plane. So I do think they need to reinvest in service. Well, because of COVID is you know something you add to a lot of different sentences these days. Obviously, this holiday season of COVID times looks a lot different than last holiday season. Does. How is that playing out in terms

of people's desire to travel? You know, I think the system is fragile, to say the least. We've seen meltdowns from Southwest in American air lines. But luckily, so far this week things are good, you know, no major storm issues. People are traveling in record numbers, more than twice as many that as last year. People are excited to travel again. And you know, we just heard this morning New Zealand is going to open up in April after nearly two

years or more than two years, actually being blocked. So I think travel is going to continue increasing. We're gonna see these surges, you know that we're seeing now. But you know, I think for the vaccinated traveler there's gonna be more options than ever. And I think consumers are ready to get back on the road. Brian, we talked a lot about the high consumer savings rate because people, you know, got a lot of stimulus because of the pandemic.

They saved a lot of money, they just weren't spending it. Do people just have like a vast trove of points ready to deploy or have they already started deploying it? No, absolutely, there are so many points. It's it's hard to tell because the banks don't report how many outstanding points they have exactly, but there's a huge amount, and you know, the banks are actually now allowing you to use those

points for non travel use apple products. Yeah. Yeah, this this day, you can get away luggage using your Chase points. So they're trying more and more ways for people to use them since they're not traveling as much as they were in the past. Um. But I think what we're seeing too is that people are traveling longer and they're spending more on travel, especially because they can work from abroad now, so a lot of people are spending a

couple of weeks working and traveling abroad. So that's the key trend that I think it's going to be a boon for the travel industry. They're gonna see longer and more expensive stays and flights, you know, as travel continues to recover. Brian Mr Capiano, Marriott and Marriott bo Envoy Dark in the Door recently enjoying the show. And you know, the hotel people have been through an absolute nightmare. What is the distinction between airline the points guy cards in

a hotel the points Guys cards? You know, the hotel cards have gotten really good and that you get so many perks. You know, for a card, you get a free night at a hotel. It's very easy to get value back on those hotel branding cards. I think where consumers are frustrating with hotels in general is that because of COVID, we can't offer you all of these services we're going to charge you. Some hotels charge a hundred

fifty dollars just on a resort fee. You know, we on some of the luxury hotels, which is blowney considering you don't get half of those services. So I think what the hotels industry is gonna have to reconcile is with the staffing issues they're having. You know, rates are up there, making money, but consumers are getting more and more agitated with paying for bowl service and not getting it. And that's why Airbnb has seen huge increases over the

pandemic well in terms of agitation for paying more. Brian, I have the Chase Sapphire Reserve card and I get a lot out of it, don't get me wrong, but I also have to pay more for it. It seems every year it gets more expensive to have that credit card.

Is that the trend that as you see more of these card companies competing with each other in those types of cards, it's just going to get more and more expensive to have it absolutely, But you know, American Express Platinum raised its rates, but they reported amazing success with it. You know, consumers do want to feel like they're part of something that they get a lot of value out of um. So you know, emium credit cards aren't going away anytime soon. Even that new Capital one card, the

venture xcept launch that has a pretty hepthy feed. But it's so easy. I urge people don't get a no fee card just because there's no fee. As my dad said, cheap as expensive. There's no fee cards. You're a good consumer, You're not mean. You can easily get way more value back by getting a card with the annual fee. You just got to do the math. Brian, I'm not going

to mince words. You change my life. Until you came along, I was looking at you know, fancy pants business class travel and you know, frankly, folks, if you just do what Kelly says, it actually works for the new year for our listeners and viewers. What's the number one way to affect cheaper travel? Well, the number one thing is, you know, collect your points and and understand how many

points you have. You know, we just long points guy app where you can track all of your loyalty points in one place will even give you your net worth in points. And I think people don't realize how much value they have sitting around in these loyalty points. And my number one tip is use them. Uh you know, the airlines let you change your if you use it freaking fire miles, you can. You have more flexibility than if you buy a paid ticket. So use your miles

and point. Did you once fly from New York, New York JFK to Heathrow and they paid you to take the trip? Did you actually do that? No? I mean so I will always you know, even when I use miles, uh, you know there, I always have to pay taxes and fees and at the points guy, we don't take free you from the airlines. We we we pay, but you know we don't definitely get a good deal when I travel.

I'm shocked. Bryan Kelly, thank you so much with the points guys, truly, all the Internet and dot com people, He's changed our lives more than any This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern. I'm Bloomberg Radio and on Bloomberg television each day from six to nine am for insight from the best in economics, finance, investment, and

Internet national relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom keene In. This is Bloomberg.