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. Neil Dutta is an optimist. He's oeud of US Economic Research at
Renaissance Macro at Research. He's absolutely nailed the better than good American economy. Neil, I got to go to GDP first and then Lisa and I want to dive into this inflation report. And the basic idea Neil is Atlanta GDP sees a sprightly initial start to the quarter. Are you at a three percent run rate on a real GDP or are you at a lesser run rate?
Well, I mean, I remember that's still very early in the quarter, and the Atlanta Fed tends to get that estimate tends to get better over time as more data comes in. But even if you assume you know a typical kind of you know, error term and like, let's say it's all going down, you'd still be talking about above trend growth. So it would be really hard for me to see, you know, GDP coming in something below you know, two and a half percent when the quarter's
all said and done. There's just a lot of momentum behind behind the economy, right So when you hold things like the level of consumer spending flat to where it was in June, you're still talking about a build in for the third quarter from consumption of over one percent at an annual rate. So I think that's primarily what's driving the GDP now estimate. But yeah, look, I mean the economy is growing above trent. Your own Bloomberg consensus sees GDP, I think barely half a percent in the
third quarter, negative in the fourth quarter. I think that that is highly unlikely, and that revisions will you know, be skewed to the upside.
So right now, what we're seeing is a broad side of relief in markets, with some cheering in the bonds, where you're seeing basically people writing off the Fed raising rates again and saying you are seeing the soft landing, you are seeing the disinflation. You can call it immaculate or at whatever else that a lot of people were waiting for. What in this data can you point to to say they're wrong.
Well, it's not much. You know, you could make the argument, I think that the downward movement in used cars will probably only build over the rest of the summer. You know, we do know that wholesale auction prices continue to come down, and thus far we've only seen a very modest decline in use car prisis, so there may be some more pass through there. So I do think that there's probably
a little bit more disinflation in the pipeline. But again, you know, I think the reacceleration story for inflation, it's really about, in my view, is the economy growing above trend or not. And I think the economy is growing above trend. I don't think the FED has done enough, and I think the FED is kind of enamored with this soft landing view. They're almost wish casting this outlook.
And I do think that there is a risk that the FED is kind of patting itself on the back by the end of the year, only to watch inflation potentially turn back up, you know, sometime next year. We do know that home prices are rising, while the relationship between home prices and rents is very tenuous in the short run, I mean, ultimately, the asset market effect is
what drives rents. I mean, landlords don't charge they want to extract more from tenants when the underlying value of the asset that they're putting on the market is going up in price and commodity prices.
You know.
Look, I mean oil is at year to date highs more or less. With everyone concerned about China and Europe, you know, I suspect these economies probably won't get much worse than they are now. I mean, that would be my baseline expectation. And there's probably, in other words, there's more room for oil to go up, and that's going to have very mechanical impacts on not just headline inflation, but parts of core inflation as well.
I've been looking at the pricing and market. It's a fed policy and where people are settling out and they're now pricing and cuts at the first couple of months of next year. And I'm wondering, from your vantage point, Neil, how disruptive it would be if suddenly that market complacency is challenged by the idea of stickier inflation, reaccelerating inflation that wouldn't even cause another FED rate hike, but just wouldn't necessarily lead to those cuts.
Yeah, I mean it depends, right, because if it's a stronger economy and stronger growth expectations, that's making the market prices the price out those cuts. I mean that could be in an environment where equity markets could potentially work. Right, So you see higher interest rates and that hurts, but you know, you'd expect earnings and expected earnings expectations to go up, so that could be be okay. But I do think you know, to me, it's it comes down
to something very very basic, right. You know that the FED began hiking in March of last year, and since then, what do they have to show for it?
Really?
You know, Powell talked about pain being necessary or likely. We've seen the unemployment rate actually ticked down since then. GDP's growing above trend, broader. Financial market conditions are as easy now as they were then, and maybe if not easier, you know, all difference to the Fed's new financial conditions framework. That that number when it was published, you know, showed financial markets being aheadwinds. Now that that has basically gone to zero, So what have they actually done? So I
think it comes down to something very basic. Either you think the labor markets are a conduit for inflation or you don't. And I think what we're seeing now is basically tight labor markets, a lift to real wages, as you know. And I think ultimately people will go out and spend more money, blueing household demand, and I think that'll keep prices in the aggregate stickier for longer in the area.
No, Donna, thank you so much with the renaissance macrel, we get clarity now.
On an August.
Thursday with David Kelly, Chief Global Strategist JP Morgan Asset Management, he has been definitive over the decades of the holistic picture. David, I do want to get to your stunning call on jobs, but let's leave out aside right now. Do we have disinflation in America?
Yes, we've sort of got gathering disinflation in America. We've got the numbers this morning. We're close to what we told. But it's nice to see the sort of the core services part of inflation come down. But what I think I'm most interested in is actually it's not actually the numbers.
It's forecasting the numbers because when you run, when you're trying to forecast these numbers, you realize, Okay, new car prices have basically been flat or down since the start of the year, and we're still seeing these huge increases in auto insurance and auto repair costs. But that's gult to break. And same thing with shelter costs. Shelter is about ninety percent of the increase in CPI at this stage. But we know the rents have stopped rising, we know
that rising vacancy rate for apartments. So what we can see is the promise of future disinflation in these numbers and really trying to forecast these numbers. And that's why I'm so convinced that inflation is going to get down to two percent on its own, with or without any help from the FAV.
In your summed statement. And you and I've talked about this over many years, including with Bob Goodman years ago. There's an underestimation of the X axis. Are we underplaying in our what's going to happen next quarter, what's going to happen in de k Jackson Hall, what's going to happen to the meeting do we need to extend out our study a year or dare I say two years out to get to a successful disinflation.
Well, for investing, you always should, because I mean equity investing in you know, most of your viewers are interested in the stock market. It shouldn't be about the next year anyway, But yes, I think it particularly this time around. I think that's the case because what we know with inflation is it's very symmetric. It actually looks like the Eiffel Tower goes up and comes down in exactly that pattern we saw in the nineteen seventies. We're seeing it
again now forty years later. But it takes a little while to come down, and it's because of lags and things like transportation services and particularly owners equivalent rent, and so as we track this thing out, it's going to hit two on CPI and on core CPI by late next year, and that's the track gets on. So I think you have to wait for that to play out, and then you realize that, Okay, where does that leave us? That leaves us in a loan inflation, low inflation, slow
growth economy. I think the Federal Reserve will be cutting interest rates of see faster we end up in recession. But I think you have to sort of look out beyond the volatility inflation that we've seen in the last two years to realize that we're headed for a place of slow growth, which looks quite like a decade ago. I think that's wheally where it's sort of a return to where we were ten years ago.
If that's the case, why wouldn't you take a look at where markets are positioned and just load the vote thirty year treasuries and say everyone's wrong. They think that inflation could get unmoored if the Fed is less aggressive.
I don't.
I wouldn't back up the truck because I think they're better opportunities in markets than thirty your treasuries. I mean, I do think that that the bond market overall is better priced it's been for many, many years. I think there is a one time capital gain there as rates come down, as people realize the Federal Reserve is going
to have to cut rates sooner. Related to this, Columny will stumble and a four percent ten year treasure yield will turn to a three percent treasure yield or a two percent treasure yield, and people make a capital gain, but I think there are better long term capital gains we made still in the equity market. But I wouldn't be underweighted fixed income right now, and within fixed income, I would be definitely long duration and short credit. I
don't think you're paid for taking credit risks. You are getting paid for taking duration risks.
Doctor Kelly, I've got to do this, It's too important. Jason Furman of Harvard just comes out with the mathematics on the annualized view twelve month annualized four point seven percent core six months.
The view is four point one.
Percent, a lesser disinflation three months, which is what I look at three point one percent, David Kelly. The one month annualized core CPI is one point nine percent. Can you go short termism and look at those one in three month statistics? Are they a valid tool to gauge disinflation?
I don't think so looking at the CPI index, because what's really going on is you've got these these weird categories in owner's equivalent brand, actual rents and transportation services, and I think you just have to track with that's doing. I agree with the general proposition the core services inflation and inflation in general is fading here. I do not think it's getting pushed up by wages. I do think it's getting pulled down by competition and by increased inventories.
So I agree with that the result, but I think that the short term view is really being affected by the way the government measures these things.
David, Thank you so much, David Kell. This is a joy.
After Michael Nathans and yesterday and talking to Rich Greenfield from time to time, to speak to Jessica reef Ralic, Senior Media Entertainment analyst at Bank of America is an honor on this important day for Disney. Jessica, I don't want to talk numbers today. I don't want to talk ratios. Iger wakes up. I believe he puts.
On his pants one leg at a time.
He goes into the office and takes breakfast at some place with avocado this or glessa pure water. Who does he speak to within Disney about the urgency of a true restructure. Who's he actually talking to?
I think that is a great question, because there does seem to be a lack of confidant in the company, given the exodus of executives over the years, and so bringing back reportedly bringing back Kevin Mayer and even Tom Stabbs should give gives Bob big Er somebody with experience to kind of bounce things off of.
But the issue, Jessica, and you've lived this. I mean you used to go in and Gordon Crawford would shake a Capitol guardian trust because Jessica was showing up to give him wisdom on this.
There was a business model.
You made a movie, You made four movies for one hundred million, and one of them hit big and everybody was happy. That model has been destroyed. What's the Jessica reef aerlic streaming model that will provide cash flow and profit.
Look, I think they're taking the right steps. I've heard you guys speak about the price increase, which is have dy. There's a twenty seven percent price increase for the subscription only tier at Disney Plus and a twenty percent price increase for Hulu.
Again, subscription only.
Advertising is not the advertising tier is not being touched because the r POO is higher with a combination of subscription and advertising. So they're kind of forcing consumers into the law price advertising supported tier.
So that should help the bottom line.
They did say that costs are a head of expectations, so they'll have more than five point five billion dollars in total costs being taken out of the company. A lot of that is streaming, so it's content, it's marketing, overhead, etc.
SG and a et cetera. So they're focusing on that. On the content side, they do need to improve, no question about it. And Bob bygers last night, this is his primary focus.
Well primary focus in order to grow the platform or in order to prepare it for some sort of spin off or sale to someone else.
In either case, whether it's it's keeping it internally or selling or spinning, they need to improve the content. And it's you know, the content on the platform has to be improved, he said. He said in the past that it's been getting tired. They have too many you.
Know, there's just everyone's getting distracted.
And obviously the one place where they've really missed is in film over the last you know, a couple of years and they hit and this is his primary focus.
They have to fix that film division.
So this sounded like a Bob Eiger and retreat, defensive, not really aggressive and offensive, not planning out some sort of expansion kind of plan, but rather really not pushing back against the suggestion of a sale to Apple there in some of the parts or in a large sum, and you're looking at a situation where people are questioning what the value of the company is beyond the parks. Do you think that it is valid to really characterize this as Disney in defense.
Well, look, they are clearly challenged from multiple areas. They have secular challenges with the PATV universe in decline, as do all traditional media companies. There are also cyclical challenges which all of the all companies are facing. But they have incredible assets, they have incredible branded, unique IP and so this is they're dealing from a position of a challenge position on one hand and a position of strength
on the other. And it does feel like, yes, there's some defensiveness because they have to fix what's wrong and there's a lot that's wrong.
But he's also dealing with each piece of it.
So whether it's leveraging the ESPN they know with a deal with pen or you know, focusing on different parts of the business.
They're quick. Costs are growing, the subs on sub.
Numbers, I know you guys have mentioned that they lost subs, but a lot of the subs are fifty cent subs in India that don't financially contribute.
Right, Jessica, just do you give me a three year vision on who's going to win it streaming on a biold cell basis, who's your winner out three years on the streaming wars?
Well, obviously, Deflix is doing incredibly well and in.
A great position. We also think Warner Brothers.
Discovery with Max, which is really just at the very very beginning stages, is in a phenomenal position. Given their extensive they don't just have the biggest library, they have probably the best library in the industry. And I think you guys have been a little tough on Disney this morning because if you add Disney Plus with Hulu with ESPN Plus, they are well over two hundred million subs, so they have a lot going on.
But look, there's a lot effects.
And I absolutely agree with that, and it does seem like they're taking many of the steps that are necessary to fix this platform.
And Jessica would be tough because our subsound fifty cents that by Adi Dallas Adie something dulls a month, Jessica. Thank you, Jessica ried Bank for America appreciate it.
Henrietta Trade, he's economic policy director research with Vida Partners, joins us right now.
We talked to Kim Wallace.
Earlier, which is great because you've got legit international economics there with Henrietta Trades, you've got piercing domestic policy analysis. Excuse me, Henrietta, what do the Democrats do on Capitol Hill to advance bidynomics?
Well, first of all, I'll be to say I wish I'd dress better for this segment, because I am just beyond Hermes. I think we're calling you now. So what are the Democrats doing to advance bydenomics? I mean, I think right now what you're seeing is them canvassing across the country and really watching to see, most importantly, who is coming out in the Republican Party on the Senate candidate side, and how they can run an economic agenda
against them. So far, it's turning out to be pretty easy, and they don't even really have to focus on economics yet, as the votes in Ohio earlier this week showed, they can talk about abortion issues and get them turn out to be through the roof.
They can run against Kerry Lake.
It looks like in Arizona, which is going to be sort of a Trump versus Biden and sort of mainstream politics. So the Bidenomics message is something they're trying to get out there, but they haven't had to really yet.
When you're wearing your ames and all the bars of Capital City and you're getting pulsed up here for the debates, the primaries, the election, Henrietta, Trey's the phrase, it's the economy stupid, I've never agreed with. Is it the culture war stupid? Is that really where we're heading?
You know what it is? It's abortion stupid. Do not come from abortion. I mean Roe v.
Wade and the jobs decision was the worst thing Republicans could ever have done.
They woke up a beast.
It is all age brackets, It is a turnout machine, and they're losing hand over foot. And I don't see anyway that that's going to change, especially since Republicans keep poking the bear. So I think that's really the message. It's not the economy, it's abortion.
That message on the national stage isn't going down.
Well.
What about in the primaries, Henritta, what do you expect to hear in the debates later this month?
Well, the debates this month are obviously all going to be on the Republican side, and I think rond De Santis is the one that every candidate is going to try to beat because Trump may or may not show up. If Trump is not on the the deis for those debates, you're going to see Rhonda Santis just get slammed by every single candidate, from Nicky Haley to Tim Scott on down to make Pen's and Chris Christy. They will bring up Trump occasionally, but the person to beat will be
Rhonda Santis. He's already tanking in the full He was at thirty percent in the beginning of this year. Now he's below fifteen. That is a death spiral campaign, shakeups, et cetera. I have a friend to ask if we're going to have a watch party for the November eighth
DeSantis Newsome debate. And the question is more, is he's still going to be one of the front runners in the race after these campaigns and after the debates At the primary side, I mean, their position on abortion is just as far to the right as you can get, and they just drive each other further, which alienates the entire general election base.
So if it isn't Ron, decentis who is the front runner? Is it going to be Tim Scott? Is it going to be someone who's not even thrown their hat in the ring yet, like Glenn Youngkin?
I think so, Lisa.
I mean, there is a deadline of November sixteenth to get on the ballot in Nevada, and I think that that's a key deadline to look for. I think the money that has gone to Ron DeSantis could easily start flowing to another candidate.
I do agree that.
Tim Scott is the next most likely, but he pulls at three percent, so really Young Can or any of the other governors could step in?
Son?
You know, I know you is a frequent guest on your show, and I'd be interested to see whether or not he decides to change his mind in the wake of the four indictments or three now, but before becoming against Trump and DeSantis maybe not being the second runner up.
There's been a belief construct Henrietta, which you have studied for years, going way way back, that the United States of America will always grow itself out of its debt troubles.
Is that shaken right now? Is that fundation foundational belief? Shaken.
I don't think so, because the appetite globally for debt just keeps expanding, and I don't think that's a US specific problem. And perhaps to be more honest about my answer, Tom, I don't see any lawmakers sincerely putting in the effort to reduce the deficit. So I don't think that debt is something that they are really going to look in the mirror and say, hey, maybe we shouldn't extend the twenty seventeen tax cuts for individuals beyond twenty twenty six.
They're going to, they always do. We saw that movie in twenty ten, and to get in twenty twelve, it's going to wrap up the deficits substantially two trillion just for those tax provisions. And I don't see any real conversation until we get into a maybe untenable place with social security, Henriser.
I want to finish on China if we can. The Biden administration, as you know, have put out their outbound Investment Order. The President is signed that. Here's the question for me, it's super narrow. China says, we're disappointed. I'm trying to work out if it's just to say, ay, we're doing something and be we're disappointed, but actually nothing really changes here. Is this just for public consumption or is this meaningful?
You know, it's such an interesting question, and I was actually thinking about this before it came on the air last week. Lisa and y'all we were talking about the pitch down Green and one of the questions you asked was is the business community responding to what Congress is doing, what the administration is doing on the debt. To bring in Tom's question, what's interesting about this Investment Executive Order is that the business community is already ahead of it.
If y'all had a great chart yesterday, I guess on venture capital in China and how it's declined since.
The COVID era.
It is a precipitous rise after twenty nineteen and an immediate fall. And that's on the venture capital side, obviously with Sequoia, but you probably get in the same kind of thing in the data on business side as well,
where you have the Russia sanctions, export control restrictions. To sort of get to that question, the business community might not be afraid of Congress and what it's legislating, and maybe not this executive order, but for damn sure they're focused on the Bureau of Industry and Security and the Treasury and the IRS, and the efforts that they're going through to put sanctions, export control restrictions, investments restrictions, the entity list is going to be updated.
Those are real tangible meat.
And potatoes things that businesses have to respond to, and I think they are working, maybe just better than the timing.
On an el Henridda, Thank you, Henrita trice A Fight Upon.
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