This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. Joining us right now is Thomas Purcelli, Chief US economist at PGUM
Fixed Income. He's definitive with work on the open market desk at the Fed and also truly great work on wage dynamics in America. Congratulations on a new shingle across the Hudson.
Thank you.
As simple as I can. I want to go to your wheelhouse right away. You're talking to Greg Peters, which is really difficult. You've got to prepare medica.
He's the best, loving the pieces.
You're talking to Greg here, and he's going to turn to you just like I am, and say, okay, but what about wage dynamics. That's what you on the high ground on. How are wages in America into twenty twenty four?
Yeah, look, I think here's here's the problem for the backdrop with regard to wages, which look in real terms, I think we'll appreciate or sort of you know, performing decently. That The challenge though, is if you have real revenue that's moving sideways, right which it is, and you have which obviously is a function of the consumer that is sort of sort of slowing down to some extent, how
do companies respond to that? How do companies respond to real revenue moving sideways, wage pressures firming up a bit
in real terms. I think that to me, that's a perfect recipe for companies to go after labor, particularly if it means you're going to get a margin compression, which is something that you know, we've been talking about for a while and I think Lisa, you and I talked about that last time I was on That to me is challenge as it relates to sort of the labor dynamic in the United States to.
Translate this, yeah, they're going to be layoffs. That's basically what you're seeing is that if you see this incredible margin compression, if you see costs going up and you see consumers pushing back on prices, the next step is people are going to lose their jobs. How much pushback is there actually to pricing if we're still seeing robust service as side inflation as this report just suggested.
Yeah so, and what we know is that wage pressures again remaining firm in real terms, but it's coming in the context of inflationary pressure that's now slowing down. I mean, this was just two tenths that we got I get it, you know, firmer than expectations, but that still doesn't change the trend. The trend of inflation is actually moving slower. So that means that the pass through is becoming much more difficult for companies.
Well, but this is.
We're seeing this. You know, we saw this with American Airlines and Spirit earlier this morning. So the pass through is getting more difficult.
And sorry, no no, I was just going to say, Lisa, I think it's such an important idea. Not only do you have that idea this dynamic where the pastor is becoming much much more complicated, but you know, just just look at what some of the retailers are have been talking about. I mean, the consumers is now trading down, right, I mean, just in the context of these wage pressure, these inflationary pressures that are out there. I think it's such an important idea.
The problem with it is, and this is what I'm struggling with, and I think a lot of other people are as well. We were saying this six months ago. We were saying that consumers were going to push back and that savings were going to be beaten down. And suddenly, you know, we were going to see, you know, a recession. It didn't happen, and the data totally keep surprising to the upside with this yet another surprise, the upside and core how can you explain that?
Yes, so I think there's a really easy way to explain it. So, in fact, there's a couple of ways to explain it. So one, the idea of excess saving is real, right, I mean, the consumers still working that down.
So let's just be clear.
The consumer has had a massive pool with which to sort of dive into.
Excess saving was one of those ideas. The other was credit.
I mean, credit usage has been you know, sort of off the charts. I mean you're looking at revolving debt that's now running out a trillion dollars, and so the consumer has been able to sort of perpetuate the sort of the consumer backdrop as a result of these two ideas. But just to be clear that now is sort of drying up a little bit, right. Excess saving continues to fade. It's not gone, it continues to fade. Banks are now actually getting pretty stingy as it relates to how much
credit they're willing to sort of lend out. And we could see that in obviously bank's willingness to make these kind of loans. And so I think the whole that this this, this this backdrop.
Is drying up, right. The ammunition is drying up for the consumer to some extent.
What I think is so important here is, with Robert tipp coming on in the next hour, John, you've got to turn to a bunch of bond animals with the ambiguities between your economics in their portfolio management. Can you assume a disinflationary tendency means price up, yield down in bond portfolios? Is that just a given?
Yeah?
So I think this is a really important idea. One of the things that we've been talking about at PGM is this idea that rates can stay high. Rate rates can stay pretty elevated. And I think that you can have rates remain pretty elevated. I mean when I think about sort of the fed's reaction function toll of this, you know, and again I get it on CPI DA,
we're talking about inflation. But the thing that I keep on coming back to, and I'm trying to bring it back to this today here now is the labor backdrop. Because I think when push comes to shove, I think the Fed's can be very responsive to the labor backdrop. So I can easily make the case for the FED to engage in an easing cycle. Now, I think when people say easing cycle, I think they immediately think of, Hey, this big aggressive easing cycle. It's not going to be that.
I think it's a dynamic where the FED cuts back.
Their easiest path within a symmetry is to go longer. Yes, stay elevated and go longer.
I agree, And so to me, that's sort of the big challenge here for the FED. It's I think it doesn't have to be a big aggressive cycle. If it's not going to be a big aggressive slowing and economic twenty five or.
Fifty beefs and just sit on it through twenty four.
I think that's exactly right. So Our call has been you can easily see a dynamic where the FED cuts you'll call it, fifty to seventy five basis points over the coming year. And I think that's how you sort of get to this dynamic where rates still remain pretty elevated, which is.
The reason why I wonder if boldilocks and soft landing is the best case scenario for risk assets or if it's actually the worst case scenario for risk assets over the longer term, particularly corporate credit. When you face off with this idea of refinancing, what's your view? Is that potentially problematic?
So it can be right.
I mean, I think the rollover risk idea will become a challenge, but that's not a challenge for necessarily right now, right. I mean, a lot of companies have done a great job of turning out their debt. One of the things that we've been talking about at PGM and delete. My boss, I think he's been absolutely fantastic about highlighting this really important structural idea that's out there, which is something I've been talking about since, you know, my prior life.
I think that the pieces are in.
Place for productivity to really kill it. I think that's going to take time to develop. And I think that leases is basically that that's another really important idea too uncerta into your your your question.
We got to go when you go across the Hudson River, as Peters, let you use the Hinckley picnic Bode. He's got a little Hinckley thing that takes you over to Pega.
I'm just happy to be around him.
Okay, Tom Purcella, thank you so much. Say Robert Tip as well. He'll be here later. Mister Purcelli is with p Jim Fixed Income. We are doing the best we can on this. And when you have Mark German and Ed Ludlow leading to charge, it is best in world analysis of this. And what Bloomberg Surveillance has done is get away from the blah blah blah and actually talk about what it means for the company, what it means for the stock, and frankly, what it means for America.
Mister forty joins US now senior research channelist D. A. Davison. He is a neutral on Apple. Let me cut to the chase. I thought some of it was fascinating and the rest of it was sort of but time to me, the key thing is What does it mean for the broader Apple ecosystem? I mean, I think there's when you have storage, everybody's complaining about two terabytes of storage and iCloud they pop that sucker out the six to twelve terabytes.
Little things like that below the headline. What's yesterday mean for the Apple ecosystem?
Sure?
So, I think that what I thought was most interesting is that they're taking at facto price increase on the promax are They're not offering one hundred and twenty eight megabt megabyte model anymore, So it's one hundred dollars more to.
Get an ipro Max. And then the dongle.
You teased it before, But the fact we're talking about accessories not the phone is good and bad news. The good news is that it should be a creative to margins. The margins on a twenty nine dollars dongle ought to be fantastic for the ecosystem. I think that you may not see the incremental new buyer this year, but as you pointed out earlier, the wireless carriers seem to want to subsidize their five G networks, which is also good news for Apple.
I got it so good and bad I got eight ways to go here, Tom and John and Lisa have more intelligent questions. They got a three nanimeter a seventeen chip. Is it enough for someone to upgrade in China? Is it enough for someone to upgrade? Sitting to my right here in New York, where he's adamant, he's not gonna fall for the fanboy baloney? Is that new chip enough to upgrade?
I do not believe that it is. So when I was thinking about all the buzzwords and all the new things in the iPhone fifteen, I was chuckling at titanium and how there have been titanium golf cubs for some time now, or how they're essentially no one's pointed out that they're offering on Star. And so I'm concerned that there's a lo a lot of small incremental adjustments, but there's no one item that I think is going to get you to wait in line, you know, like we used to do for an iPhone.
So, Tom, you know the bullish thesis. The bullish thesis sounds like this, there are tons of people who haven't upgraded. The iPhone fifteen is going to get them to upgrade? Now, Tom, you clearly don't buy into that. So let's go through your rating neutral one eighty price target in the pre market.
Right now, we're at one seventy six. Given the multiple that this stock has and the fact that you don't believe in the bullish thesis, Tom, I've got to ask the question why this isn't a cell and why that one eighty isn't a whole lot lower.
Yeah, so I do think, I mean, you still have an amazing balance sheet, so they have the potential to buy back billions of dollars of shares to support the stock. I don't think they would ever raise their dividend yield to say three percent, to attract that pure dividend investor. But the foundation is still there, and I don't think that the stock is so overheated they would warn accelerating at this point.
There is this question though, if there isn't anything to really touch everybody's eye except for a twenty nine dollars dongle, there is an issue of the increasing geopolitical concerns, especially as right after this launch, China came out and so that they flagged a number of unspecified security incidents with the iPhone. How do you factor that into a price target.
So the way that I factor it in is about ten percent of the revenue comes from China. They're clearly still heavily dependent on China from a supply chain standpoint. And when you think about what I'm thinking of is protectionist behavior by the Chinese government. We have protectionist behavior in the US as well when you think about banning TikTok and things of that nature. But to quantify it, ten percent of their sales are at some level of risk, and that's bad news for Apple.
So if you're looking at right now a product that isn't necessarily going to encourage a real refresh kind of cycle, where is the bulk of the revenue going to come from. Is it going to increasingly come from services or can it continue to come from just the fact that at some point this is going to break and even John is going to have to upgrade, all right.
So there is some element of the slowed upgrade consumer. But I think that this is why there was a lot of enthusiasm for the Vision Pro. But we still think that the Vision Pro, which looks to be on track for launch next calendar year, they're not going to achieve mass adoption with their augmented reality, virtual reality headset. So if you don't have the next new thing and you have kind of the iPhone aging on the vine, it's a challenging.
Period for Apple.
It's somewhat remarkable how well the stock's done again that they already tipped off to the hand that they're going to report their fourth consecutive order of.
Declining revenue in the September quarter.
So new products and I guess still a foundation on iPhone and buybacks might be the things that pulled up the stock on a near term basis.
It's worth thirty times forward earnings.
No it's not, but yeah, so it is not.
The services element is what enabled them to get the premium multiple versus where they were trading before services. It's still a good story, but at some point, either the iPhone's going to have to exceed all of our expectations or the vision pro is going to have to do much better than I think for the stock to continue to go higher over the next twelve months.
And Tom, let's just finish on this line that Lisa mentioned from China. I wonder what the response will be from Apple to this, because it's not something you typically hear this is from the Chinese Foreign Ministry spokeswoman. We notice that there have been many media reports about security incidents concerning Apple phones. Tom, what do you think they're alluding to?
Yeah, so, I think they're alluding to the reports that government workers in China are not able to use Apple devices. I think it's interesting, I mean, trying to figure out the appropriate chess piece for our ball in the increasing tension between the US government and the Chinese government.
They're clearly not upon They're not the king, they're not the queen.
Maybe they're a knight, but they have tremendous way in China, I think so to their relationship with Fox Con. But I think they're getting kind of cott in the middle here and this increasing tension between the two countries.
Without a doubt to forth. I thank you, Sir of D. A. Davidson. Following the release the Unfailing the Big Reveal if the iPhone fifteen.
Regina Mayor is global head of Client's Markets and Petroleum and KPMG with Military service to the Nation. Regina, thank you so much for joining us today. Your research note is demand, demand Demand. Are the Saudis aware of the resiliency and demand the KPMGS.
Projects absolutely so part of the supply challenge. It's against the backdrop of a stubbornly robust economy, but it is also a big supply part of the equation. Right we are anticipating supply drawdowns through the rest of the calendar year Q three, Q four, and we're in probably the tightest supply situation that we've been in ten years. Ten month through highs that you've emphasized, but what I'm looking
at are some underlying indicators. US production is almost at its record high twelve point eight four million barrels per day against a record high thirteen million barrels per day, with seventeen percent of the rigs off the market. That's one hundred and twenty seven fewer rigs with the Saudi's
intentionally keeping barrels off the market. Right now, we're saying there's roughly a three million barrel per day supply versus demand gap because demand continues to go up, and we think OPEC's purposely keeping about one point eight million barrels per day off the market, and there's no global relief valve in this environment. We can't rely on the spr There's no other worse where we can. We can turn on a tap and oil will flood back into the market.
Given the fact the production is so high in the United States, is that an indication that, yes, inventories are the titus as you said, going back ten years. But this isn't as much about supply as it is ongoing continued demand and that people are underestimating the strength on the other side. That's also fueling some of these price increases.
Yeah, so we've been talking about peak demand. Potentially it happened pre COVID. I think we definitely have put that in the rear view mirror. Right now. The EIA is saying average demand for twenty twenty three is going to be over one hundred and one million barrels per day. That's average. So last month we just came off one of the hottest summers in a lot of years, and we're anticipating that's one hundred and three million barrels per day.
That's the three million barrel per day gap, and then the EI is projecting it goes up to one hundred and two million barrels per day in twenty twenty four. When is peak demand going to take place? Some are predicting it's this decade. Some are predicting its next day. Regardless of which decade, you anticipate that it's coming. We
know it's coming. So if you're a major oil company or a major resource holder, you're trying to figure out when's the last marginal dollar of additional investment that I'm going to pit in to grow supply against the backdrop of ultimately that supply is going to be in excessive demand.
Given that backdrop, if there is a recession or some sort of downturn of softening in the economy, could that offset the tightness in the oil market? In other words, could oil prices come down sharply in a surprise even with all of these technical backdrops, simply because you do get a weakening of the consumer.
Absolutely.
I think if we start to see more signs that the economy is slowing down, you will start to see oil prices come back down. We are seeing the potential for supply rebuild in twenty twenty four, So it's really just this six month period. I know there are some that'll say its triple digit for longer that's coming. I think there are bare signs in the market right now. Rankly, it's all upside very little downside.
Regina, Just for final question here, with great respect for your bringing in international relations into the KPMG oil debate, does the United States of America have an energy policy?
I think we have different aspects of energy policies. I think some of the things that we've just recently seen on anwar as more politics versus substance. It would have taken billions of dollars in investment to get drilling production and then moving that material to market. We would be best served to focus on where are great sources of resources Golf of Mexico, onshore and conventionals, other dry gas plays. There are lots of different factors that slowed down the
ability for our industry to exploit those resources. I do think there's room for a more coherent, more effective energy policy overall.
The policies love a prices tak I think that's the policy we want to crisis. That's kind of it dead on. Regina's just quickly, when does the mond destruction start to kick in? Aren't we already thinking about that in the nineties.
For sure? I mean, I think if gas prices go substantially over four dollars, where right now we're at the end of summer driving season, and US gas prices are twelve cents per gallon on average higher than they were this time last year. That's probably not enough to drive
demand destruction. But some of the things that you are all talking about relative to airline airfares, the pinch that people are starting to feel, relative to how confident they feel about the future, how confident they feel about their savings, pushs. I do see some of those pressures that could dampen demand as we move into the fall.
In the winner, Regina met of KPMG on the old market, Regina, thank you.
Joining us right now. The gentleman from Arkansas, French kill Republican French. I got like fourteen ways to go, ending with Arkansas football, but forget about that. Kevin McCartney. Kevin McCarthy, he has a football he's playing right now. I read Cass Sunstein's magisterial book Impeachment cover to cover. It seems like we're almost downgrading. Impeachment is a concept of our civics. Lesson have we ruined the phrase impeachment? Have we bestardized it?
Well?
You bring up such a good point, Tom, And that's how I felt during the Nancy Pelosi impeachment for President Trump one and two. I felt like it was rushed. I don't think people collected the evidence. I don't think they even looked for the facts during those years. And that's why I was pleased to see McCarthy this year.
Really encouraged Jim Jordan the Judiciary Committee, and Jamie Comer, who chairs the Oversight Committee, and the same for Ways and Means with Jason Smith, do your homework, don't rush this, And so for the last few months they've asked simply basic questions about Joe Biden says he didn't know anything about Hunter Biden's business dealing, He wasn't involved, he didn't have any business relationship. And what they've uncovered is that
those assertions from President Biden weren't true. And so that's what's led I think Speaker McCarthy with Jordan and Comber to take the next step to give them an extra clout and asking the banking and legal records they need to answer those questions definitively.
Do you have.
Any sense as an adult in the room, Congressman Banker from Arkansas, do you have any sense that there are high crimes and misdemeanors involved.
Well, one of the constitutional lists of impeachment items in the Constitution of courses bribery and actually in the whistleblower testimony from the IRS agents and other people that have come forward, there is that suggestion that potentially there was a bribe involved here or a cover up of illegal activity when Vice President Biden was in office and Hunter Biden was taking action here, and then it leads to the question, well, what's happened since President Biden's been president.
The only way to get to those facts is simply have both sides present those assertions and look for the evidence and follow it where it goes.
I look, French I on Liston wants to jump in here. These are really important questions. Where is this going to be into the Republican primary season? I mean, I understand there's theater here. There are partitions of GOP. You're in a certain partition. Where does your type of Republican want this to be in February?
Well, I think for all Republicans, all Democrats, and all Independents to get to the bottom of this quickly and promptly is important and see where the facts lay out. Perhaps President Biden and Hunter Biden, their attorneys, their lawyers can present evidence that those sus suspicious activity reports, the LLC formations, the twenty one million dollars in payments to those LLCs, et cetera, all are completely logical and don't have anything to do with President Biden today or as
vice president, and that'll clear up the whole matter. So I hope it's over just as soon as possible. But we want to make sure that the work gets done in an effective way, and that's what I really do. Contrast it with how the Trump investigations were carried on by the House Democrats.
Congressman, and you're Bentonville, there probably is less concern about the impeachment proceedings and much more concern about the UAW strike discussions. What this means going forward for worker earnings, what this means for negotiating power. What do you hope happens tomorrow at eleven fifty nine.
Well, again, this administration has been very pro union, and they have taken the side of the union in every legislative battle. So I think that question is better left for the administration. Obviously, the United States doesn't need to strike right now, but this administration has had such a pro union policy in every way, stretch and form. I'm sure the unions are feeling quite empowered to take action. And that's concerning to me because I think the economies that are a very fragile moment.
That said, I was looking at a number of reports calculating what the earnings of some of these union workers were and strappling out to a forty hour work week, it's about thirty five thousand to sixty seven thousand dollars
a year. This at a time where inflation is continuing to rise, and when we saw the biggest drop in household real income last year going back a decade, What do you propose to actually increase wages at a time where on a real basis households are basically being taxed by inflation.
Well, first of all, stop inflation. And we could have on that if we'd taken our foot off the gas at the federal reserve in the fourth quarter of twenty twenty instead of doubling down and buying another trillion dollars of bonds and keeping interest rate zero, and if we had an unleashed and avalanche of spending to where we're now spending on an annualized basis over six trillion dollars a year when we were spending an f y nineteen four point five trillion, So inflation, beating inflation is the
number one way to help okay working families.
Well, but Congressman, I guess that, and I apologize for interrupting. I guess that I'm wondering what the cohesive plan is at this point, other than saying, you know, the FED, the Fed, the Fed, what is the cohesive plan? Yes, spending cuts, although it's been on both sides of the aisle that you've seen spending expansion. What is the plan in the near term to bring down inflation? From your side, well.
I think they are linked and you can't separate them. I mean, the Fed's job's been made much harder, much harder because of the incredible fiscal stimulus and regulatory burdens put on by the two years of the Biden administration.
And that's why i'm the debt sealing deal. We propose get more workers available for the workforce by encouraging work in the assistance programs, cut down regulatory burden, make it easier to get a project permitted, and cut spending and try to get spending back to pre pandemic levels and stop having these huge budget deficits that Joe Biden is forecast cover.
Has been hill a very serious question. We are so focused on three zip codes here, the doings of Financial America and the global reach of Bloomberg. In all, what are you hearing from small business people in Arkansas? The unemployment rate is low, life is great, Arkansas is stealing for a game against LSU in two in two weeks. I get it, But what are you actually hearing from small business in your state?
Well, I spent a lot of time in August talking to businesses all over the eight counties of Central Arkansas, and I have to tell you that labor is still an issue for both white collar and manufacturing where they're trying to find the right people for the right seats with the right training. And so Governor Sanders has really put an emphasis on workforce development. That's something I've worked on for the past fifteen years as a bank president,
as a chamber chairman, and now is a congressman. And so the technical skill attainment and then just the bodies tom it continues to be an issue. We have low unemployment in Arkansas, and despite inflation and despite all the economic challenges. That's what I hear about, both with community bankers and with individual business owners when I'm at home.
Raise it backs Tiger Stadium, tkod pest you are you proud of me?
French?
I know all this now, Yeah.
That's describe this is I see engagement. We're taking a baby step forward and the next step is to visit Razorback Stadium in Faytteville.
That's up to you.
We're going to make it happen. Congressman, thank you, Congressman French. Shill their plates an impeachment inqui in the cost of living in America.
Joining us now, and we're gonna get to Apple in the markets in a moment? Is Douglas cast of Sea Breeze, who understands the bat boy for the Los Angeles Dodgers makes more than that. I have never seen a seasoned doug where payroll matters less. In baseball, the Yankees and the Red Sox. The seats one section away from me at Fenway are forty one dollars tonight for the toilet Bowl in the American League East. Have you ever seen money spent to ill effect like we have this year?
Never in my life.
It's just as simple as that.
I think I'll move on, and the Mets as well.
The Padres are a disgrace what they've done. Let's move on, Doug care I got to talk about the Apple sare yesterday and the idea, and you, as the Pinata say, I'm short Apple, and I'm convicted short. But here's the pro question. How do you short an iconic company like Apple? How do you actually do it?
I borrow the stock, I put in an order.
Do you load the boat on it or do you you dip into it? How do you do it?
Frankly, the key to our success at Seabreeze this year, in most years in our showbook is that we tend not to short stocks like Apple. We tend to short no drama stocks. That's what I call them. Stocks like Starbucks, Nike, fmc Winnebago, uncomplicated companies that sell widgets where we see the future more negative, leland the consensus. So Apple is an outlier. But Apple, for you know my position on the stock, it's one of my largest shorts. It's been
a capital allocation story, it's been a buyback story. And as I have noted in the last decade, cash a percent as a percent of market cap has declined from thirty four percent to less than two percent. So the margin will impact because of higher interest rates and a higher stock price. On the buyback in terms of recreating EPs is greatly diminished.
Hey, Doug, So, I mean people a gonna be rushing out buying the iPhone fifteen. But it kind of raises a question, how is the consumer out there? I guess the consumer has a job, but other than that, how is the consumer doing well?
There's been a bunch of distortions that have held up the consumer, but that is changing, and I see the consumer who's widely considered to be resilient. I know Lisa in the last segment was frustrated by the strength retail For example, they will not be in the time ahead. And I'll give you some data points. Just look at
Dollar General's poor results and guidance they delivered last week. Secondly, on Friday, Restoration Hardware, which is a high end retailer, announced that July sales were down nineteen percent year of a year and things aren't getting better. Thirdly, auto delinquency rates came out for the second quarter on Tuesday yesterday, they were at seven point three percent, up from six point nine percent, and Morning Stars predicting ten percent for the next year. In terms of your two vet bills,
Tom and Ali and Daisy my two doctions. The three leading pet companies, Fresh Pet, Petco in Alanco reported in their quarterly releases that consumers are reducing their discretionary expenditures for their bets, less bones and less treats. Let's choose fifthly, excess savings, as you have noted and also in the last segment, has been taken down. Consumer debt is rising markedly. Seventh, we saw American airlines repull weaker traffic this morning. Same
for spirit. The rise and gasoline prices has begun to be felt. Remember, inflation on a two year stack basis is dramatic in terms of increase. And finally, three months ago you couldn't find a Ford Bronco to buy. Now it's being discounted.
Oh I didn't know that.
Okay, So all that in the background there we've got, let's call it just mixed signals on the consumer. Are you buying stocks or selling stocks today?
Don The question to me is not whether to be short, but how short? I should be quite frankly bull markets like John McLean and the movie Die Hard. But my warning to your listeners, and that wouldn't be an interview with you and Tom without a sports metaphor, is that risk happens fast, much like the optimism associated with Aaron Rodgers joining the New York Yeah, thank you, Bru. The passage in Ernest Hemingwheny's novel The Sun Also Rises, in
which I think the character's name is Mike. He's asked how he went bankrupt, and he answers two ways gradually, then suddenly suddenly. The same applies to the inflection points in the market and the global economy and the corporate profits, especially when the distortions are so pervasive. You know, it was Friedman who said in nineteen fifty nine in a joint session of Congress that monetary policies operate with a long lag, and with a lag that varies widely from
time to time. So because of a number of the distortions, investors have grown complacent, and that lag between tightening and the downturn has become longer than usual. But we're moving ever closer, as I mentioned in my Consumer Observations, to seeing the impact of tightening policies.
Well, I opened the Laguard interview in Jackson Hole. Would that quote from Hemingway because she used it and April and this is really really important the suddenly, which is the understanding of experience and gray hair right exactly.
Well, I've got plenty of that, Doug. If you're short, is this a short term trade or is this something you're going to play out over time.
I think we have real problems with regard to the distortions of the last let's say, the COVID post COVID period. Nietzsche wrote that reality is captured in the categorical nets of language only at the expense of fatal distortion. And I think that the outgrowth of years of excessive monetary largess and zero interest rate policy, when followed by the need to raise rates so quickly and sizably, combined with some evolving and some revolutionary market structure changes, have led
to worrisome distortions in the economy in our market. I wrote a lengthy piece on TheStreet dot com about distortions yesterday and Rosie Dave Rosenberg came back with an email to me saying that he agreed and that investors are not cognizant of the tail risks that have been delivered
by the distortions. And just to summarize them, some of the economic distortions have been increased banking industry vulnerability from the standpoint of both profits and capital made it possible for investors and lawmakers to ignore bulging deficits and over thirty trillion dollar national debt load, it's produced a threatening public and private sector loan reset cliff, which was also discussed in the last segment. As of cost, the capital
has abruptly risen. Has led to fiscal and monetary policy that has artificially goose consumer savings and pulled forward consumer spending. And it's disrupted the labor market. And finally, it's temporarily frozen the for sale existing home market, which has artificially inflated real estate prices. And you know what the structural concerns I have are the proliferation of zero days to
expiration options. I mean, someone told you five years ago that sixty percent of the daily options traded would have a maturity of twenty four hours unless you would have been laughed off out of the room. And then, of course we have quand strategies which distort and exaggerate the markets move. I think basically zero interest rates have lowered the intelligence of both borrows and lenders.
A lot of people would agree with that, particularly again with Gray here Douglas cast. Thank you so much. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always on the Bloomberg Terminal. Thanks for listening. I'm Tom Kane, and this is Blumber Hm.