Bloomberg Surveillance

Jeff Gennette, Macy's CEO says department stores are still relevant and his company is ready for the holiday shopping season. Joe Feldman, Telsey Advisory Group Sr. Research Analyst says retailers are starting to embrace AI. Justin Wolfers, University of Michigan, University of Michigan Professor of Public Policy & Economics discusses the surprise drop in prices of Thanksgiving dinner. Brian Kelly, The Points Guy Founder says use your credit card points before they lose value. 

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Jack Caffrey, JP Morgan Asset Management Equity Portfolio Manager, says the holiday rally in the equity market is in full force. Aaron David Miller, Carnegie Endowment for International Peace Senior Fellow, discusses the latest in the Israel-Hamas war and its impact on domestic politics. Helane Becker, TD Cowen Senior Research Analyst, walks through what's expected to be the busiest holiday travel season in years amid uncertainty in the airline industry. Earl Davis, BMO Global Asset Management Head of Fixed Income & Money Markets, doesn't expect the Fed to cut rates until after the US presidential election. Mandeep Singh, Bloomberg Intelligence Sr. Technology Analyst, recaps a chaotic week for OpenAI founder Sam Altman and Nvidia's lukewarm earnings report.
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Rishi Jaluria, RBC Capital Markets Managing Director, says Microsoft has leapt ahead of its competitors in the monetization of AI. Victoria Fernandez, Crossmark Global Investments Chief Market Strategist, says diversification is key for portfolios and expects more volatility to come. Michael Collins, PGIM Fixed Income Senior Portfolio Manager & Multi-Sector Fixed Income Strategies, says there's a chance inflation could get stuck over 2%. Robert Hormats, Tiedmann Advisors Managing Director & Former Under Secretary of State for Economic Growth, discusses the potential deal between Israel & Hamas to release hostages in Gaza and previews his upcoming trip to Beijing in the wake of the Biden-Xi meeting.
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Mandeep Singh, Bloomberg Intelligence Sr. Technology Analyst, breaks down the shifting AI landscape amid Sam Altman's move to Microsoft. Andrew Hollenhorst, Citi US Chief Economist, says there is no urgency for the Fed to cut rates. Terry Haines, Pangaea Policy Founder, discusses troubling new poll numbers for President Biden. Jane Foley, Rabobank Head of FX Strategy, says 2024 could see major changes in the foreign exchange market. Mike Froman, Council on Foreign Relations President, says that bipartisan consensus on foreign policy and national security still remains despite the US never being more politically polarized.
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Mohamed El-Erian, Bloomberg Opinion Columnist, guests hosts the show and says the 'enormous volatility' in the bond market needs to be corrected in order to restore the Fed's credibility. Stephanie Kelton, Stony Brook University Professor of Public Policy & Economics, says the Fed has effectively put fiscal policy on autopilot. Steve Chiavarone, Federated Hermes Head of Multi-Asset Solutions, describes the Fed's policy trajectory as headed for a "rocky landing." Stephen Schork, The Schork Group Principal, says traders have become skeptical about supply levels of oil and jet fuel heading into a major travel season. Jeannette Lowe, Strategas Managing Director of Policy Research, says the meeting between President Biden and Xi Jinping won't change the dynamic between the two countries in a major way.

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Full transcript: 

This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best an 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. Why don't we move on to what doctor Olrium cares Mohammed, We've got to sit on crude, the idea that crude has essentially collapsed into a bear market, down more than twenty percent from the September highs. We spent this week talking about soft lending, hopes and dreams. Do we have to start thinking about an economic downturn in the not too distant future, well some of them. Some people are talking about this. I mean to see oil prices down more than twenty percent from the highs at the time that there's a conflict going on in the Middle East. It's quite quite and that's feeding into the soft landing. And we're going to talk a lot about this. But the market has now fully embraced not just that the fat has finished this hiking cycle, which I think is correct, but that we're going to see deeper and deeper cuts next year without a recession, and that's the critical assumption that's now built in across markets. I want to get the money question out of the way right away. As CEO of a major two million employee company in America called Walmart, yesterday brought up a d word deflation seared into the fabric of Cambridge, Oxford in the London School of Economics as a study a British deflation of the thirties and forties. America has never faced that have they They haven't, and we've had Japan recently. And the problem with deflation is it discourages people from buying today. However, I want to stress the US is deflation in certain products, food being the primary example, and that's why Walmart we decited it. We don't have general deflation, and I doubt we're going to have general deflation. I mean, I look at the an inflation question and it is a vector of disinflation in place. Clearly we see that. What is your optimism of getting back to John Williams two point zero percent? Richard claired is two point x percent. I think Richard is more likely to be right than John. I think we're going to get stuck in the high twos, and the FED is going to have to make a very difficult decision. Does it live with inflation higher than target because the target itself is too low, or alternatively, does it acknowledge that two percent is the right target and then crushes the economy. I think that's the choice the FED is going to have to make. What's your best guess right now? I think it's going to go for the format. I think the FED will understand that pressing two percent inflation in a world where there's insufficient structural supply is not the right thing to do. So where do you think it leaves this bond market? Let's go through this course right now. We've got a two year at the moment at about four eighty, a ten year at about four forty. Think about where we've been in the last month of Summerhammet had a two year pushing five twenty five high set of cycle, ten year through five percent high set of cycle. How are you thinking about what we come back down to, bearing in mind what we're pricing for right cuts next year. I think we've come down too far to tell your truth. I understand why some people think that we're going further, but if you look at the inflation dynamics, that's harder to get unless we go into recession. If we go into a recession, then the stock market is mispriced, so you can't have both at the same time. Has something changed? I think this is what it goes back to. Has something changed post pandemic? That means we don't go back to the pre pandemic world. That debate, I think is still on going. Mohammed, where'd you come down on it? I think the pre pandemic world was exceptional. It was a world of qui. It was a world of insufficient aggregate demand. And when you have insufficient aggregate demand, you can push into the economy as much liquidity as you want because you won't get inflation. That world is gone. We're in a world now of efficient, inflexible supply, and that's a very different world. Sometimes talk about over the two hours with doctor Olian is growth economics. I've been telling a lot of people to remind themselves of a guy named Solo at MIT in nineteen fifty six and the near religious experience of trusting and growth. Can you state that we have a new American growth economics of what some people are indicating is improved productivity, improved efficiency. So you know, I listened carefully to our friend Mike Spence, the Nobel Prize winner, because he spent so much of his career studying studying with John Hicks, I mean correct majesty of that alone, and he is incredible and his insights are really valuable. And his bottom line is that most countries have to evolve to a new growth model. The US is the most advanced in that evolution. I think the three important piece of legislation that the administration passed last year were critical in that perspective. So if you look around the world, whether it is the US, Europe, or China, all three have the challenge of evolving the growth model, and only the US is doing it seriosly right now, too gloomy? We no, Lisa isn't here, so we're not too blooming. No. I think we recognize that the world is evolving. This is a different global economy, this is a different domestic economy, and policies have to evolve accordingly. What worries me and I think the concern of a lot of people listening to this conversation on going at home is you just have to go about forty eight hours and we're talking about disinflation, soft landing, hopes and dreams, and then twenty four hours, forty eight hours later, you look to Burberry a collapse in luxury. You look to Walmart a warning about the US consumer. You look to Crew entering a bear market, and all of a sudden, we're talking about a slowdown and maybe even recession. Mohammed. The bond market is stuck between all of this. We're seeing double digit moves day after day in either direction. You've written about this extensively in the last few months, about a bond market that's lost its anchors. Is an economic slowdown sufficient to regain some stability in fixed incoming treasury specifically? No, I mean I was really struck yesterday. I was watching you when you said, guess what, we had the same level of the tenure as we were a week ago, and my reaction is, how could that be? So I looked it up and you were right. Now. Most people feel that this week is very different from last week because of the inflation print that we've had. We still lack one of the three anchors. You either need an economic anchor, or a policy anchor, or a technical anchor to the bond market, and we've lost all three. So these moves are going to continue. The thing that has really impressed me is that nothing has broken. If you had told me a year ago we're going to see this incredible volatility and the most important market in the world is the benchmark for so much else, and yet nothing will break, I would have said that's impossible. So the resilience of the functioning of the market has really impressed me. The financial system, and of course we had the shock and the United Kingdom off a derivative structure in the pension plans, but to lead to this and measured in standard deviations, which is how fancy people like Alarian think. We had a six seven eighth standard deviation and thereat moderation. There's a hope in prayer we get back to that trend line that's in years. How many years are do you think we heal this great bond tobacco. I think it's going to take time. Remember we've had ten exceptional years where the bond market was distorted, so I must say back to vulgar We've had, you know, thirty exceptional years. But the shift to an artificially low interest rate and ample and predictable injections of liquidity fundamentally changed the bond market and that is going to take time to recover from. Did you and Bill Gross get a free ride because you were within the Great Moderation? Was that such a structural like a free life? But the PIMCO when you build it, you invented it with Bill? Was it? Was it easier because you had the Great Moderation? Or just just think of investor. Investors care about three things, returns, volatility, and correlations. And we went through a period that because liquidity was being injected into the economy over and over again, we got high returns, we got virtually no volatility, and the correlations broke down. But in your favor, you made money on your risky assets and you made money on your risk free acids. At the same time, there was a great time. We took it to be normal, but it was truly exceptional. And we're going back to a world that I think is more like what we had before the Global financial crisis. It's going to be so hard to shake this, Mohammed, because we've got a whole generation, in fact, a couple of generations conditioned by two major shocks, the financial crisis and the pandemic. And we know how the FED response to major shocks. What we've all forgotten is how it responds to just normal economic downturns and upside pressure on inflation. How do we start to get into that all over again? Yeah, And this is where FED credibility and better communication is better. John, It's really striking that the market is willing to take on the FED on a price that the FED controls. The FED totally controls the policy rate, and yet the market does not believe what the FED is is telling us. And it is really striking because we have got to restore FED credibility otherwise we're going to continue with this enormous volatility. Your thoughts on what's percolating into the end of the year in the Q one twenty twenty four. Are there shadows in private equity? Are there shadows in the new non traditional finance? Yeah? So, one thing that I don't think is pricing enough is that when you move from the banking system to the non banks, you change the lags in the system. So you see this with commercial real estate. Everybody recognizes that the re financing of a trillion plus of assets is going to be tricky, but because it's over time, we don't worry about it. Everybody recognizes it as a maturity wall in the corporates out there, but because it's over time, we don't worry about it. If it were all within the banking system, we would have worried about it really quickly. So the move from the banks to the non banks has extended this Michael Spencer's shore. The regulatory lag here is tangible. This is the uncomfortable calm note as well, just to borrow that phrase from a long time ago from the Bank of International Settlements, This maturity wall is out there in twenty twenty five, and it's just this feeling mohammed that we don't have to think about it. But at some point we have to start thinking about it, don't we, right? But you know what, you enjoyed the journey before you get to a destination. Oh, here we go, and you want to give us some good news bad news, bradmos out here, No, no, I totally understand, you know, because momentum is really important, and you want to be exposed to this market. And I think most people have much more of a tactical mindset than they do of a strategic or structural mindset, and investment has become very tactical. Mohammed's set in the Town's great to have you with us, by the way, it is without questions, through the pandemic and literally over the last five years she has had a greater influence on the debate of our American economics and anyone out there. Out of Sacramento, Cambridge and a tour of duty at the very liberal New School of Social Research, Stephanie Kelton joins us now from Stonybrook University. The book is a deficit myth. In the three letters, are MMT professor honored to have you on Bloomberg's surveillance? Are we unraveled? Stephanie? The worry here of the annual interest expense the return of a real interest rate? Are we unraveling as we roll into twenty twenty four? No, I mean we are. The Fed is effectively in a sense, putting fiscal policy, a big part of the federal government's budget on autopilot. And it's really tantamount to running, you know, a pretty regressive fiscal stimulus. That's what the rate hikes are actually doing. If we don't like it, Tom, there's a pretty easy way out of it, which is to say, if the rate high are pushing up the amount of money the federal government is spending to service the debt, interest expenditure up by hundreds of billions and trillions of dollars over time, remittances from the Fed to the treasury have collapsed. All of this is adding to the deficit, which triggers more issuance of treasuries, which puts you in what is essentially just a cycle now of higher rates, higher deficits, higher debt, and it will continue for as long as the Federal Reserve holds in this position with a deficit. The debt and the deficit is from the new school Heilbrunner and Bernstein classically talked about years ago. But the arch MMT criticism is, you're handing monetary decision making from the acuity and date driven data dependency of a FED over to the legislative branch. Can we trust the legislative branch to prosecute MMT given where we are right now? Well, okay, I'm glad you mentioned hal Brunner. He was a professor of mine when I was there in a really terrifically bright person Tom. MMT is a description of the monetary system that we have today. It is a floating exchange rate fiat currency. Love it or hate it, it's what we have. MMT describes the monetary system that we have and the mechanics of government finance. It's not a policy proposal. It doesn't propose changing anything. It's describing how things already work. So think about what Congress did with the onset of the pandemic, drafting first the Cares Act that two point two trillion and then the big Omnibus Bill, a nine hundred billion dollar package, and then the Democrats came in and did their one point nine trillion dollar American Rescue Plan Act. All of that was deficit spending. We didn't give Congress any new permission to do anything. We just described how it all works. And it helps to unders stand why Congress was able to muster that kind of fiscal firepower when so many economists had previously said that when the next crisis came, we would be unable to act. People like Larry Summers said because of the Republican tax cuts in twenty seventeen, that we would be living on a shoe string for decades to come. Those were his words. That we wouldn't have the ability to spend money because of the deficits, because of the debt. That was wrong. Congress has the power of the purse. MMT recognizes that, and MMT says, listen, this is an extraordinary power they have. They need to use it responsibly, and that means thinking before you move forward with bold spending programs about the inflation risk that's associated with those spending proposals. And that's the piece that was missing. The one thing you didn't mention in you know, my tour of going through my education and so forth, was the time I spent in the US Senate as the chief economist for the Demomocrats. And I'll just say very quickly and i'll stop that. When I was in the Senate, my great frustration was being surrounded by members of the Senate on both the Republican and the Democratic side, who were drafting bills trillion dollars of infrastructure, talking about medicare for all and all these other things without ever mentioning inflation risk, I couldn't believe it. So MMT would have us do things very differently when it comes to the way we approach the federal budgeting process. It's inflation that you have to watch for, Stephanie, it's Mike McKee. If wishes were horses, then beggars would ride. The idea that Congress is going to think about anything before these start passing bills is probably not going to happen. So I'm wondering, after all this is there a limit in the sense that at some point we aren't going to be able to respond fiscally, for one reason or another, to some sort of crisis because all the money is going into debt payment instead of instead of going into additional spending, and the way we're set up now, we got to pay those bills. Okay, So two things I'll say. One, I've been hearing this my entire life. You'll remember that Chairman Volker had into straights up pretty high. And meanwhile, you know Ronald Reagan did two massive tax cuts and massively built up the military. So again, if Congress has the will to pass legislation, the votes are there, the money is there, and I'll just say I don't think it's right to say, actually that we can't trust Congress to rein it in. Remember, the so called Inflation Reduction Act was Congress's effort to say, listen, we don't want to continue passing legislation given the inflationary environment. So we want to get revenues up, we want to control costs. We're going to negotiate prescription drug prices. That was all Congress taking, you know, careful steps. I think are you would you suggest, Stephanie, whether it's a Republican or Democratic, to houses that we can have budget responsibility. Do you see displayed budget responsibility in the modern Congress and Senate? Well, Tom, what I'm saying is that if we were doing things the way I'd like to see them done, instead of handing proposed spending bills to let's say, the Congressional Budget Office and saying, give me feedback on this legislation I have drafted. Tell me if it's going to increase the deficit, tell me whether it adds to the debt. I don't think that is the most important feedback. I think it would be much better to have CBO and or other agencies evaluate proposed legislation on the basis of inflation risk. But we don't do it that way, right, So I think that that would put us much closer to having a Congress that operates with fiscal responsibility, i e. Inflation risk at the heart of what it is. Okay, can you and say a critic of yours, John Cochrane, the great conservative economists, Can you and John Cochrane get on the same page and say we need a Simpson Bulls reducts where in the initiation of that panel we actually demand that we get something done. No? Uh, sorry, sorry, but no is the answer to the question. You would have to first convince me that there is some sort of looming crisis that necessitates the formulation of a fiscal commission. And I don't believe that we are facing that kind of crisis. Inflation is coming down. So if you approach things the way I do, which is to say, you know, are we at risk? Is the budget posing and inflation problem, then let's get at it and let's figure out what adjustments need to be made to ensure that we aren't putting ourselves at risk of trenched inflation well above the Fed's target. I don't think that's the future facing fascinating and controversial Professor Calton. Thank you so much, Stephanie Calton. I can't say enough about how refreshing to any and all her book. The deficit myth is she is at Stonybrook and you know her from the phrase MMT right now with us and Mohammedalarian with us is a great thrill today. He is at Queen's College in Cambridge and he's interested in the asset allocation of their endowment. That's the campus that Steve chiveron had a multi Asset Solutions that federated him as Steve. This is a lonely bull market. How do you reallocate into the end of the year. Well, you had to get ahead of it a little bit. We were adding over the course of the summer when it was uncomfortable on the idea that markets like FED pauses and they price in soft landings even if a soft landing doesn't materialize, because when the FED pauses, invariably it's on suspicion they've gone too far, not on confirmation. And so the data that's available to you is a FED that's no longer hiking and an unemployment rate that's still low, and that's been the case throughout history and it's the case today. And so finally, with the bond market having broken, we're getting that FED pause rally and that can be powerful, Tom. You know, historically those are nine month events, and you can see the equity market up fifteen twenty percent. And interestingly enough, and this is something that's been on our mind, the equity market has hit an all time high each of the last five times that the FED has paused. Now four of those ended in tiers, but it still happened either way, and we think this rally has legs. I think the jury on whether or not, you know, how soft this landing is next year, is still very much out or for the time being, we think this rally continues. Steve, what are you looking at to determine this whole macro question of has the FED not just paused, but it's going to stop cutting and kind to do so within a soft What are the key variables you look at. We're calling them the five Games of Chicken, and it's that corporate refinancing wall. You're going to have about sixty percent of corporate debt come due between twenty four and twenty eight, So what percentage of that is going to face materially higher rates, and what does that do to company earnings? That's number one. Number two for small businesses, they've already seen their debt repriced because it's variable rate bank debt. So how many quarters of high rates can they survive? On the consumer negative or I'm sorry, real income growth is finally turned positive, But how positive does it get? And does it allow a consumer to de lever again, rebuild savings and continue to spend eight hundred and seventy seven billion dollars of bank deposit outflow? What does that do to restrict lending? And then what percentage of the federal debt, a third of which becomes due this year reprices to a significantly higher rate. Those five things we think, if they were to all go perfectly, you'd get this immaculate soft landing. I think that's unlike we think what's more likely is a kind of rocky landing where inflation stays stuck at three rates, stay hi, there's some slow down, and it's a kind of malaise. It's a single digit equity environment with a real risk that something breaks and you get into a classic recession. So it's really between that rocky landing and then a kind of a classic recession break that we think is most likely to happen. We're in the rocky landing camp at least for now. And what do you say to those who say, of your five factors, it's one in five. It's all about supply. It's all about who's going to buy all the supply. I think that's big. But where I would focus more acutely is on the nexus between banks and small businesses. The banks. Again, if there's eight hundred and seventy billion dollars less of deposits, that's eight hundred and seventy seven billion less of loans that can be made. And small businesses are reliant on that, and they're not facing a maturity wall. They've already seen it, and so if something's going to break, we would look there. So we're spending a lot of time focused there. It also has a bias towards larger cap companies within our asset allocation. Steve, let's get to the quote that shook up this market in the last twenty four hours. TK talked about it at the start of the program. It came from the Walmart CEO. We may be managing through a period of deflation in the months to come. Steve, when you heard those words yesterday, what was your response. I think the word deflation is probably a little strong, But I do think that there could be a lot more disinflation than what we've what we're expecting. If you look at the areas of the economy where you've seen disinflation so far, it's goods prices, it's food prices, its energy prices, It's a lot of stuff that quite frankly, can be explained by COVID normalization. Big interest rate sensitive purchases have not really seen the big deflation that you'd expect r. I mean, home prices are still relatively buoyant. Go and try to buy a car. It's not exactly a value exercise these days. And so I think as the rate heights filter through the economy, there is more disinflation in the pipeline, and I think you could see a at some point in twenty four go very quickly from worrying primarily about inflation to worrying very much about growth and the employment markets. And that could switch on a dime. And it's something that keeps us in a kind of humble position. Well states is the same true for investors just to jump in. You mentioned that as a federal reserve can make that switch. I just wonder how quickly investor start to make that switch, and whether we can get some divergence between what's happening with bonds and what's happening with stocks. I think what you do is you pull up some charts and you look at them. Historically, you know, unemployment takes stares down and elevators up. The equity market takes stairs up and elevators down. Particularly if you are headed towards a recession. You don't gradually shift your view in the late part of a cycle. It happens very, very swiftly, and that's why as an investor you have to prepare for that. You start to lengthen duration, you start to upgrade the quality of your equities. We like companies right now that have strong balance sheets, strong cash flow generation, low external financing, and you move in that direction so that if it does move on a dime, which historically it does, you know you're you're not left out in the coal stave. What if I get you thoughts, it's going to catch up. Have a good weekend, my stave Chevron the Federated terms, Stephen Schory, So principle of the short group saves us. Now, oil disinflation, Stephen, how does New York Harbor adjust to oil deflation? All the little idy busy things jet fuel, diesel, distillate, how do they adjust as collapse in oil. Yeah, it's a really interesting question, Tom. We're trying to figure it out as we speak right now. When you look at the spread action between gasoline on the flub with curb and inventories, seemingly there is enough oil power, enough gasoline in your harbor. The neok Carver just want to point out is important because that is the delivery hub for the mercantiles, diesel and gasoline contracts. Now, when we look at overall supplies relative to demand, we're looking at about twenty four days worth of supply of gasoline. Now. That is normal, That is spot on to the five year average, and it's slightly above a year ago. The problem now is that traders are skeptical. They are pricing in a premium on the front end of the curve, which is a clear signal that someone out there is concerned about these supplies, regardless of the fact that we do have all of this space worth to supply? The other big issue here is jet fuel. Right now, we don't have enough jet fuel stocks are extremely low and as we look forward to next week, we expect this or I should say Triple A expects us to be one of the busiest travel seasons for Thanksgiving of the past twenty odd years. So when we look at the rising demand, when we look at the spread action, something here is afoot. It doesn't line up that the spreads are saying one thing, ie, there's not enough supply, regardless of what we're actually seeing in a weekly inventory reports from the EIA. So Stephen, the SANDI is a frustrated with the price section, as you can imagine. I just wonder if they're frustrated enough to change policy again, do you think they are? It's really interesting and it is really conundrum that, to be honest, I am perplexed that the market never really priced in any sort of risk premium with regard to what is happening now in the Middle East. And let's be clear on this. This is a war not between Israel and Hamas, but it is effectively a war between Israel and Iran. Given that we're fighting that is to say, Israel's fighting Amas has Blah and the Huti's all backed by Iran. Now that is a pretty scary proposition with Iran's ability to halt the flow of oil coming out of the Persian go free straight her moves. So yes, there clearly is a head scratcher here that we have this huge risk on supply, but the market refuses the price that in regardless, we're focusing now on the demand picture. And yes, if you're Sali Radio, if hey, if you're a Texas and you are trying to produce and you're looking at this price action, yeah you are frustrated at this point. But I want to say here, based on our modeling, we're likely at the bottom of the market right now, given this situation around the globe and the inbalance now between supply and demand. So, Stephen, do you think that the Saudis will weight this out or do you think the Saudis will be on the phone to the Russians and any other ORPAC plus member that's willing to participate in another cut in production. Yeah, I do think that there is a concern that we'll see further cuts Already the Saudis, Russia, have extended their cuts of volunteer cuts to the end of the year. We've seen now in oil prices, unlike the product prices, we've seen an absolute collapse in the front end of the curve. So we've now actually on the noomics. We've moved into a situation called contango, meaning that prices for nearer term delivery are now below that of prices for longer term delivery. So this is a clear takeaway that right now from an oil standpoint, fundamentals are extremely weak, and I would suspect that we'll see the chances are going into the quarter OPEC plus either extending the cuts or increasing those cuts into the new year. Steven Shark over the arc of Bloomberg surveillance twenty years. One of the great shocks has been America's success with hydrocarbons into the new year. Are we energy independent? No, not at this point. Now. I want to point out that we were energy independent a few years ago. In keeping in mind, energy independence does not mean we do not have to import a BTU from anywhere around the world. We wore a fluid trader in the world. We wore the dominant krudeoil producer in the world, and we wore the swing producer. That is so for all intents and purposes, we wore an energy independent when it comes to hydrocarbons, and that is just a shout out to how well how efficient the industry has grown over the past fifteen to twenty years. But given current policy right now, no, we're not energy independent and going into the new year, big risk is that we are playing a zero sum game. That is to say that we are taking off dispatchable BTUs natural gas, nukes, coal faster than we can replace them renewables. That's not opinion, that is fact. The regulators are telling the government this is so, and yet the government is still going ahead enforcing these retirements where we don't have enough power. So everyone out there get used to this and get ready. There's going to be a huge jump in volatility over the next two years, a huge jump in pricing for electricity and for other alternative BTUs because we're quite not ready for the transition that the government is forced in upon the industry. Stephen with a big one is Stephen Schork at the Short Group. A lot of happy talk this week. Jeanette low Strtigas wrang in on this meeting between Biden and Jain, saying this the meeting does not change the trajectory of US Chinese relations. Tom the US will continue to push for de risking or decoupling with China in order to protect this national security interest, and China will continue to push to develop a multi polar world against US interest. Janet Low there join us now from strtigis MS Lord, Jeannette. I look at where we are, and of course the major question is what's the next step. What is the next step. Should we look for President Biden to visit China. Yeah, that's probably, to somewhat extent unlikely. I think maybe if we look back at last year, we had a meeting between Biden and She in November of twenty twenty two, and you know, not much occurred out of that. After that, a couple months later, we had that spy balloon flying over Montana, which then ruptured relations again. So I don't necessarily think that there's going to be a lot more steps moving forward. It was also very interesting to have the Defense Secretary at the exact same time in the Philippines talking about continued coordination while this APEC and the Biden She summit was happening in San Francisco. So I think this is going to be about trying to lower the temperature, trying to make sure we have continued communications. As you guys have mentioned, having she he wanted to he's having some domestic issues. This is also a good opportunity for him to kind of have a reset. But ultimately, I think that the two sides are going to continue on their trajectories and this is not going to change the overall path. What it is going to do is just make things a little bit easier in the short term. We have an election coming up in the US. We don't want to continue tensions with the China. But at the same time, if Biden was to be too conciliatory towards China, we have a whole lot of hawks in Congress who would then pounce him on that. So Janetta, I very much agree with your analysis. Can you take it one step further? How easy is it to de risk without decoupling? Right? And I think that this is part of the issue too. I mean, you have the US has been trying to make strides to de risk from China, but it's going to take quite a bit of time. Obviously, We're quite reliant on China for supply chains, for critical minerals, for a whole host of things, and so it's going to be very difficult to actually move those pieces away. And so I think that trend is in place and you're going to see it continue over the next couple of years. But that also means that to some extent, you almost need a daytunt at the highest level so that you can build these pieces out from the bottom and ultimately get to that de risking. I don't think decoupling is probably where the ultimate goal is, but it is really about trying to protect US national security interests and making sure there is reduced dependency on China. And I do think that you are seeing that you regardless of the fact that you have to make choices between how you align with US and China, there is an effort or there is a realization across the globe that having too much dependency on China is not a good thing either. And from Chrona's perspective, de risking involves building little pipes around the US at the core of the system. How far can they go into building basically an alternative global system. So this is obviously something that they have been working on, and they would like to continue to accelerate that. I think the one thing that is important is I think the fact that the US is not doing this alone is important that they will actually be more successful and actually trying to at least move supply chains. China is still going to be involved, China is still going to try to work with their partners in Asia to get around some of those pieces. But the other thing is that is if you look at China trying to build this multipolar world, they have been doing that over the course of a couple of years. They're trying to obviously move away from the US dollar, They're trying to get other countries to do the same. But if you are looking at China also being in a place of having economic weakness, that also is not necessarily conducive to them actually being the leader of that movement. So there's a lot of things that have to be worked out on both sides to actually reach their ultimately ultimate goal. And I think that's why we're going to kind of see a I don't want us to use the term muddle through, but kind of a muddle through scenario where they continue down their path but there is obviously some need to be conciliatory in the interim quickly, here Jin ed and I've been guilty of this all week. I have failed and taken my eye off Ukraine, Ukraine in this cold December. What will that debate, that study look like. Right, So this is the US does not have a lot of military aid left to provide to Ukraine at the moment unless Congress appropriates more funding. And so the spring offensive has not necessarily produced the results that the both sides were looking for. We're going into the winter, which makes it more difficult for there to be progress on the battlefield. Think that you will see an effort in Congress to try to come back from a Thanksgiving holiday and pass Biden's National Security Supplemental, which would provide aid for Ukraine as well as Israel and Taiwan and the border. But that is something that they still are trying to find a solution on. They need to figure out whether or not they can add border policy changes in order to get Republican support for that bill. But if we don't get aid to Ukraine over the next couple of weeks, there is probably going to be a strong hole put into Ukraine's defenses because they really do need more money. You obviously have Europe also supporting them, but Europe has been struggling to get some aid packages passed, some munitions given to them as well, so it's it's been put on the back burner. But I think you might start to see more discussion over over the next month in Congress. At least this is a fine We're going to seek out it to the new year. Jeanette low A shatigas Jeanette, thank you. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Easter. I'm Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

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Ellen Zentner, Morgan Stanley Chief US Economist, says the nearly two-year high in US continuing jobless claims represents a needed softening in the labor market. Bill Dudley, former New York Fed President & Bloomberg Opinion columnist, says there needs to be significant changes to the treasury market in order to restore strength. Chuck Grom, Gordon Haskett Senior Retail Analyst, says Walmart, Target and Burberry's earnings indicate pressure on the entire retail sector. Michael Hirson, 22V Head of China Research, analyzes President Biden's meeting with Xi Jinping and its implications for both countries.

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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 an 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 now, we're thrilled to every usually for big events, So today's a big event. It's always a big event. When Ellen Zenner joins his chief US economist, Morgan Stanley Ellen on claims, I go to the four week moving average. How do you interpret claims with this two hundred thirty one thousand statistic? And can you say there's finally a vector in place of higher claims more pain. So I hope that there's a higher vector in place. I disagree that higher claims will be more pain. We're coming off of extraordinarily low levels. As you said, we look at the four week moving average to smooth through volatility, and it has been lifting, but it is still very low. And so what does that tell me? Something that Mike and Lisa alluded to as well, normalization slowing in normalization, good god man, that's what we've been needing, and I don't see this accelerating at an extreme pace. I've been on the road the last few days in several states meeting with corporate clients. They are finally seeing some relief in terms of how tight the labor market has been in terms of the availability of the kinds of employees that they need. We're seeing not just claims rising a bit here, but I focus on continuing claims. People that have been losing their jobs are staying unemployed for a bit longer, and that's been rising since October, so it's getting more difficult to just get re employed right away. This is the kind of softness in the labor market that we have needed, and of course it takes pressure off the FED to raise rates again. Right going on extended hold, what is the distance between normalization and an outright downturn? So well, the difference is jobs stay positive, So normalization is you've got more supply coming back into the labor market, so you see participation rates rising, which we have. That is what puts upward pressure on the unemployment rate. And we've been seeing that, and if people are having taken longer to be able to get re employed, then that should produce further upward pressure on the unemployment rate. But that just takes pressure off the labor market, pressure off of businesses, off of margins. You see wages grow more slowly, and you'll see confidence build among FED policy makers that they have done enough here. I don't think we're anywhere near getting to negative job gains. I think negative jobs would mean that companies have stopped hiring. What I hear is that they're doing selective hiring, that they stop hiring, and that they start firing, and I mean firing up broadly. And that's just not what we're seeing. But I'm ever watchful, especially reading earnings transcripts, to see if that's something that's around the around the corner. I'm glad you mentioned earnings because we were talking about Walmart, and I understand their idiosyncrasies here, but they talked about potentially seeing outright deflation over the next year with consumers clearly pushing back. You do see margin pressure, you do see a market deterioration and consumer appetite over the past ninety days. How concerning is that to you about the nonlinearity of where things could be. So, Lisa, we put out a consumer survey that goes out into the field every two weeks, and one of the biggest areas of trade down that households have been doing is within stores themselves, say, going from a high priced branded good to the generic good within the store. And that means that those retailers are going to see some deflation. And we've been hearing from businesses that input costs are falling, but prices that they're charged or falling faster. And that's important because we all started to think we the economics community at large, not myself though an exception, started to think that households just have unlimited price tolerance, and that is not the case. Finances start to slow, we run through that excess savings, and you will start to trade down. The lower income groups that Walmart serves are the groups that have been standing the greatest pressure. Look at delinquency rates for the lowest income groups on credit cards on auto loans, that points to stress. Ellen Molly Smith and Alice Atkins for Bloomberg made a big splash the other day using your research, the Morgan Stanley View and the key distinction is a four point three percent unemployment rate. I hereby dubb at the Zentner four point three percent statistic. How do we get to a four point three percent unemployment rate that radically shifts Fed policy? I'm not expecting right close them from the Fed. The unemployment rate at four point three percent, we think is a soft landing unemployment rate in that it is driven by slower job gains and higher labor force participation. Now I understand that is a beautiful scenario for the FED. And we have them cutting next year by one hundred basis points because of normalization. That's very different than cutting because the FED thinks there's a recession. If the FED thinks that there's recession, they're starting big and they're doing a lot, and that's very different than the normalization scenario. And then overlay with that, what we're hearing Julia Coronatto leading the way on this, doctor Coronado suggesting productivity is underestimated. Do you believe that we have an underestimation of the efficiency of the American economy and that gets you to a benevolent four point three percent unemployment rate? Yees, So I do think that productivity is being underestimated. I would add, though, that productivity has not been well estimated, and so you'd have to say, well, it's being estimated you worse than before. And I'm not sure we can say that, but I think there are a lot of new ways that productivity exhibits itself in the economy that we're just not able to capture. Government data is not able to capture. But absolutely, if productivity is higher, then you can withstand higher wage growth without it being inflationary. It gives the FED more runway because it keeps it lid on inflation. And so it's really it lifts all boats. It's productivity and infrastructure or what economists go to sleep at night dreaming about, Tom, which is the reason why I think people are sort of hopeful that we're going to get that and we're going to create this soft landing and avoid something more challenging. I guess to wrap it all up, we've been talking all morning about the potential for deflation. Tom was talking about how difficult that is for any economy to handle. This was the word that Walmart used. But you're talking about normallyation. How concerned would you be to see some sort of material deflation, not disinflation. Deflation, and certain good sectors that we have been seeing on the margins over the past couple of months. Yeah, so, Lisa, good sectors. I'm not worried about it at all. We've goods prices in the US have been in deflation for a decade leading up to COVID. That's normal, right, we were importing a lot of deflation, but that's externally determined. I would be very, very concerned about a deflation scenario in the US for services, for domestically determined prices. For US to get to that broadly, you're talking about an extraordinary downturn on the magnitude of the financial crisis in two thousand and eight that would get that kind of price declines, declines in the level of prices instead. I think deceleration is in train. I think it's going to be faster than the FED is expecting. And I think I've been really pleased, and I think they should be pleased too with the progress that we see. The Newtonian mechanics of Ellen Zentner, of Morgan Stanley there and the dynamics of price change. Ellen, thank you so much for the brief. William Dudley joins us now former New York Fed president of Bloomberg opinion columnist Bill Ewan, I'm going to suggest Professor williams now holding Court in the former Dudley chair, have a unique perspective on our flows, our liquidity, our trust Sitting at the New York Fed. What is the confidence or trust deterioration you've observed. I think there is a complete trust in the New York Fed because that the Fed basically understands the plumbing of the financial system and understands what needs to be done to make sure that plumbing works always, even under times is pressed. One area of vulnerability where the Fed and the treasure you're looking at right now is the treasure market itself, because the buying of treasury borrowing has gone up dramatically and the capacity of the primary dealers to take on that uh that burden has diminished because of all the regulation on capital and leverage. So there do need to be some significant changes, I think, to the treasury market to make it more strong and resilient. And what I propose is a couple of things. One central characteringum of treasuries, so they all go through a central current party, so your risk is just to the central current party. Allows you to net out a lot of bilateral risk to a single risk to one uh end person. Second, increase the leverage the haircuts a bit so that they don't need to be increased during time to stress. Right now, you have low haircuts, and then there's there's stress, and the haircuts go up, which force people to sell. And the last thing which Mike was talking about is opening up the fens repo facility more broadly, making it so that people can take treasures and turn them into cash at any time. And if they know that, then they don't actually have to sell the treasures, you know, in anticipation of a problem. They can wait to see if they actually need the care bill if none of that gets done. Do you think the action we've seen and what you expect compromises the QT program coming out of the FED. No, I don't think so. I mean, I think the QT program basically is on autopilot as long as there isn't a lot of market disruptions. So if the market performs reasonably well, then QT keeps going. Only if we have the kind of events like we had in September twenty nineteen or market twenty twenty, we can see QT is suspended because if the market isn't working right, the last thing the Fed wants to do is done more securities in the marketplace. What's as take here, Bill, If there isn't this sort of fix that you propose or this three pronged proposal, how much are we seeing what sort of the new normal looks like with bouncing around twenty basis points on a ten year yield from day to day versus something more significant that creates a real crisis in the world's deepest and most liquid market. I think the volatility we've seen this year is not a treasure market function problem. I think the volatility we've seen this year is people trying to figure out what what's the trajectory of short term rates over the next six to twelve months, and there's been lots of changes in view as the economic data has come out. I think the problem is more when all sudden people want it dump treasuries and there's not enough capacity on their side to absorb that. That has happened a few times, and obviously it needs it needs a catalyst, and it's hard to predict what that catalyst could be, But what I want is a treasury market that can handle those kind of shocks if and when they occur. Are you saying that right now there is an inability. What do you expect will happen if there is some sort of catalyst, Well, if there's sometimes are cast One of the problems we allowed the treasury trading is handled by algorithmic traders who basically don't really provide long term liquity to the market. They just provide liquidity for a microsecond and then they move it security off to someone else, and when things get scary, they completely withdraw from the market, and then the market is really now then has to go to the primary dealer community. But the primary dealer commun has an allocated capital to this business because most of the time they're actually not doing it, so there's no one there sort of an extremist provide balance sheet capacity to sort of come the market. And that's one reason why you'd like to have the ability to take your treasury security to the FED and turn them into cash without actually having to sell them. So the Treasury is only one the FED is the only one that has a balance sheet that is actually elastic, So why not make it clear that that elastic balance sheet available on an ex anti basis as opposed to only exposts after the vice she had the problem? Bill, how does our data dependency look next year? I think we've had a celebration of disinflation in place. Is the nature or character of the Fed's data dependency different now and forward? Well, I think they're more confident that they've moved monetary policy to a restrictive level and it's actually working to bring down inflation. But we still don't know a lot of things. We don't really know if how tight monetary policy is. We don't know how long it's going to take to get inflation down to two percent. So I think the degree of uncertainty risk is a lot less less today than it was, say, eighteen months ago, when the Fed started the tightening process. But there's still a lot of uncertainty about how strong the economics can being, whether the Fed is done. What a roller coaster write this bond market has been on over the last few months, Bell, what if for? To catch up with you? SA always is former New York Fed President Bill Dutley. There an interesting thought provoking piece from Bill on the future of this treasury market. We talked to a lot of experts on this, and this is what you get if you get a double degree at the you claimed holy Cross, the College of the Holy Cross, and economics in accounting, the hyper detail, mathematics, ratios, the financial analysis of retail that Chuck Rahm has acclaimed for. He's a Gordon Haskett. I'm not going to mince words. We protect the copyright of all of our guests. Get his brilliance from Gordon A Hausket. How do you go and outperform on Walmart with a thirty pe? Explain why Walmart has a pe like a luxury goods pervader. And Walmart's been executing lawlessly for several quarters and even maybe the past couple of years, and the business mixshift and the gross market visibility. I mean, there's never been a time in the twenty years I've covered Walmart where I've been this bullish on the long term outlook. Clearly today it's interesting. It's a little bit about positioning. You guys talked in your remarks about valuation. That's a factor if you really dig it underneath the covers here, it's really less about the top line. And I think less about the back half of October commentary that the CFO recently made. I think it's more about the margin flow through that was disappointing. The US margins were disappointing. So when you have a stock at an all time high, at very rich valuations and you get a little bit but disconnect, you get this negative reaction. I think the stock will come back throughout the day and over the next couple of weeks, but today could be difficult for the stock. Can they compete with Amazon or Darra I never said this before, Chuck Grum, But can they beat Amazon? I don't know if they can beat Amazon, but they can definitely compete. And I think the physical assets of their four thousand plus stores in the country really provide them with being really close and being able to connect with their customers. So Walmart plus there's a lot of opportunity there. So can they beat Probably not, but can they compete one hundred percent? Chuck, you said that margins disappointed, and that's really interesting At a time where people are wondering when are consumers is going to start pushing back on price increases? Is this an indication that Walmart is seeing that that time is now and then order for them to compete, they've got to take a hit on the margins. Well, I think almost uniformly, you know, consumers are pushing back on price and that's why prices are coming down almost across the board. And can we cover Home Depot, we cover TJ, we cover you know Hard, you know, Macy's, Walmart, They're all talking about prices starting to flatten out and retreat. I think the US margins were softer because of the GLP influence on the on the margins because of the drug. It's a lower margin product. It was a higher sales in here in the quarter. And when you have discretionary sales be softer, those are higher margin categories for Walmart. So it's really a mixed factor. It looks like obviously the calls at eight o'clock and the callbacks are later in the day, so we'll get more clarity later in the day. But looking at what it looks like now, I think it's more of a mixed factor. You know, we were talking earlier about what's good news or bad news for the broader economy. When Walmart does headly or well in terms of which consumers are shopping, there is there any read through based on the earnings that we've gotten from retailers about whether we're seeing a division between haves and have nots, about whether we are seeing any broader trends in terms of how the consumer is evolving, Which areas are going to be bright spots and which won't. That's a great question. I think it's really too early to tell. I mean, you look at Walmart's numbers, they're up, you know, comp up five, Target yesterday down five. You know, you look at Macy's down six or seven. Here, it looks pretty uniform. I think there's pressures across the board. It's not really like the high end doing well. You guys talked about Berbery earlier. We'll get more color from Nordstrom next week. I think it's pretty uniform across the board. And you know, we've been talking about our consumer surveys being weak, traffic being weak. Today's numbers and the reactions here over the past forty eight hours have really nothing to do with the top line. The top line and the sales are pretty much in line with where people thought. It's a positioning and it's the margin flow throughs for certain companies. What's the future of Nordstrom's the family dynamic and also the attempt to be luxury. I guess what I is an amateur, I'd say is accessible luxury. Is nord Strum a sleeper for five years out? I think it's a great concept. I think the rack has really been their achilles heel over the past several years. So if they could get the rack fix. I think the fact that they all have a huge presence of full line stores across the country is actually a tremendous asset piece of v Coals or Macy's, which have got hundreds of stores. So I think it's I think it's a viable concept. They need to get the rack fixed, and that's what people and investors have been waiting for. Chuck, what's the rack? It's a ro off price division. And what do you mean by fixed? What's wrong with it? Well, when you look at you know, you look at TJ and Ross comping up, you know, load of mid single digits, and you see the rack comping down. It's just it's been broken. I mean it's their business hasn't been good. It seems like there's been some cannibalization across the store base. We're not exactly. Sure, there's been some merchandise issues. They've tried to price up when when the consumer wanted to be priced down. But yeah, the North From viable for sure. But the rack division, the off price division, I'm sorry, we're not clarifying earlier. Is really the No, It's okay now, I know, I'm just just for people who are trying to follow. Have you noticed, Chuck that the off rack the rack is actually close to the Nord from stores. Have you noticed that, which is kind of odd. Yeah, I mean I could tell you my wife, We'll tend to go to the rack now a lot more than a bowl line. So that's what I'm talking about. The cannibalization factor of that is probably maybe the issue here, and maybe they need to close more rack stores, but you know, ironically, they're trying to grow more right now. So we're old rated, we're kind of we're kind of perplexed on some of the strategies there. For the time being, it's trying to be TJX and knowst them at the same time with the same grand it's hot to do, Chuck, Thank you, Chuck Goldenske, thank you mate. Right now and these important meets we're making jokes about it. Come on, this is important. Michael Hurston joins and I had a China research a twenty two v AT research. Michael, thank you so much for briefing us this morning. What did you What was the unexpected that you saw last night? Besides a dictator faux pap by the president late? What was the unexpected of the meeting? Nothing too unexpected, frank, which I think is good. Maybe the Chinese readout perhaps was a bit more positive than I was expecting, and that really reflects what has been a bit of a excuse me, a recalibration in China's official tone towards the US over the last few weeks. But other than that, I would say, no big surprises, Okay, no big surprise is great. What's next? When's the next meeting? Is the President travel to China to make it too well? I think that's actually a really important point, Tom, because this is basically the last high profile meeting that the two leaders are going to have before the next US presidential election. So this kind of sets the parameters for the next year, and those parameters really are trying to find stability, not allowing a crisis to take place over something like Timewan and then just making incremental progress on some of the key issues in the relationship. But if you think about it, the closer we got to the US presidential election, the harder it will be for Biden to do anything that's seen as being soft on China. And of course, why would chi Jinpang make concessions to the US when he doesn't know who the next president will be. So I think that's where we are. That's why this was kind of an important window for the two leaders to meet. Did the dictator comment mean anything to you? Not really. I don't want to dismiss it entirely. I think it probably was perhaps not the positive tone to go out on, But I think in the grand scheme, given how much work both sides did to try to make this meeting happen, I don't think it's going to color too much on the Chinese side. What did you make of the meetings that Xijimpang had with US executives apples, Tim Cook for example, a whole host of others, and then a private meeting with Elon Musk. What's your takeaway of how different the business view on China is from the US government's view on that country. I think there are a few very prominent US firms that have this special position in China where and that would put Apple and Tesla very much as the two bell Weathers in that category. They have managed this straddle between the US and China. It's not an easy straddle on either side, but they're kind of a special category. If you look at the broader set of US firms in China, it's really a mix between those who feel like they have a decent market in China and those who are really upset about China's policies. And so I would put Tesla and Apple in this kind of special category, and so it's no surprise that they got some special attention from CHICHIPI do you have a sense of who needs who more? Of whether Tesla and Apple need China more than China needs them and the jobs that they provide. It's an interesting question. I would say for the companies they need app they need China more. But if we're talking about Apple and Tesla, they are very important bell Weathers for how the business community looks at the playing field in China, and not just the US business community, that's Europeans, Japanese, you know, global companies in China, which is why I think Beijing actually has to tread very carefully with things like, for example, potential retaliation against Apple. So yeah, the companies need China work, but these are quite important that Chi Jinping looks to try to revive confidence in China's economy and China's investment environment. Michael, A question we haven't brought up yet. I've been remiss on this is Hong Kong. Is Hong Kong going to evolve into something that we don't see right now? Is there a Hearson Hong Kong out there that's going to be different. I think Hong Kong, really, and I was just there last week, is in this somewhat gradual transition from a global hub to really more of a pure capital gateway to China and is increasing becoming more of a Chinese city. That is still an interesting position for it to play. And a number of China watchers that I've had discussions with recently have made the point that they think Hong Kong is going to remain an interesting city as the political environment in China states very tight and in some cases even titans further so, Hong Kong losing its status as a global financial center, but still quite an important city in the context of in particular context of China. So what's the alternative for those people whining and dining with mister g last night. What city do they go to? I think if we're talking about the financial sector, you know, it's a number of places. Singapore obviously has has gained a step, even Tokyo has become more important as a regional financial center. If we're talking about the multinationals there, you know, it's wherever they can get capacity and wherever they can get the logistics right. So in many cases is you know, you mentioned Vietnam earlier, Vietnam, Fishary, but it's also Mexico. It's a lot of countries. Michael, we got to leave you that. Thanks for Aminus, Michael Hesson that have twenty two vave research. Thank you very 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 Easter. I'm Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

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Chief Financial Officers now play a critical role in shaping corporate strategy and positioning organizations to meet future challenges. Bloomberg's monthly program, Chief Future Officer, profiles these leaders and explores the impact they're making on their companies and industries. This episode, hosted by Ed Ludlow, focuses on Archer CFO Mark Mesler. He's steering the aviation company's finances through the pre-revenue phase as it prepares to bring an eVTOL -- electric Vertical Takeoff and Landing aircraft -- to market in 2025, when the FAA has said it will begin to allow operation of these vehicles as air taxis. 

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Michelle Meyer, Mastercard Economics Institute North America Chief Economist, says October's slight drop in US retail sales doesn't take away from overall robust consumer spending. Diane Swonk, KPMG Chief Economist, details how the Fed will look to navigate a potential successful soft landing. Anastasia Amoroso, iCapital Chief Investment Strategist, says corporations could look to cut costs in 2024 if the Fed doesn't cut rates. Henrietta Treyz, Veda Partners Economic Policy Director, discusses an increasingly dysfunctional environment on Capitol Hill despite the passage of a stopgap funding bill. Jennifer Bartashus, Bloomberg Intelligence Senior Analyst, breaks down Target's better-than-expected 3Q earnings.   

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This is the Bloomberg Surveillance Podcast. I'm Tom Keene, 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. This is a joy what happens with young economists as you read their research and you go, oh, they're quite competent. Not long ago and far away, but a few years ago. That was Michelle Meyer absolutely owning the parsing of the American consumer. She worked for a small bank in Manhattan and is now Chief Economists North America from MasterCard Economics. You own the analysis I put you and Allen Zetner together. You own the analysis of the American consumer. Have we stopped spending? We clearly have not stop spending. Far from it, and think about the data this morning. It was an incredible combination of continued strength and retail spend, of rebound in Empire State manufacturing, which shows that there's still a need for more goods production, which is because consumers are still spending, and on top of that, you're getting some relief on the pricing side. So it's a really nice combination. I hate asking this question, and I'm stunned. It's my first time I've asked it. On November fifteenth, what's back to what's a holiday season look like? What's Black Friday? And then Black Monday and this and that? What does this retail madness did January look like? Well, it is a longer holiday season. We've learned that over the last few years, and it's a heavily promotional based holiday season, and part of that is because of the fact that there's so much demand out there to buy online. I mean, think about the numbers we just saw this morning. Our spending post numbers saw just over eight percent year of your growth in e commerce sales. So you know, you're seeing a consumer that is certainly exploring many different channels of spending, including online, and that creates a lot more opportunities for them to get products, and it also creates a lot more need for retailers to compete with these big moments in time where they offer promotions, and I think that's what's going to be indicative. So we'll learn a lot from the Black Friday period, and it's approaching very quickly. How sustainable is this combination of both robust retail sales and disinflation or even outright goods deflation. So I think you have to consider the different categories. I mean, when you looked at CPI yesterday, you certainly saw some categories like these big durable goods like your refrigerators back seeing some price declines. But for many other things, like many services, for example, you are still seeing some price increases. So part of the drop in prices for some of these goods simply reflects the fact that prices increased too much out of a pandemic because of supply chain issues, because of higher costs, and now it's reverting a bit more to something more normal, right, So that means in real terms you will see some support in terms of some of these items moving through. In nominal terms, you could see some move down in terms of overall spend. So it really depends on why inflation is moving, and that is a function of the type of product and how things evolved coming out of the pandemic. When you put it together, does this seem like a recipe for this goldilocks soft landing, or does this seem to paint the picture of a federal reserve that needs to do more and of an economy that has way too much momentum to really achieve the disinflation that a lot of people are baking into market evaluations. I think the data is shaping up in a way that's really favorable at the moment because you continue to have economic growth. Look at the third quarter GDP numbers, that was fairly broad based economic activity, not just consumers but also businesses investing inventories getting much more manageable and in stock So you know, things have been evolving remarkably well in terms of the real economy, taking out some of the excesses, labor market coasting into a litt bit of a slower trajectory for job growth, but still expansionary, while you get this relief on the inflation front. So how much of that is because of monetary policy, how much of that is because of the nature of the shock that we had initially, We'll see it's probably a bit of both. But it's evolving really quite quite nicely, and obviously exceeding many people's expectations. Out there. We talked about the interest expense and the debt and the deficit earlier with Mia mcguinnis. Let's talk about the average charge card is twenty five twenty six percent interest, migrating up now to twenty eight twenty nine percent interest. I find thirty percent to be almost criminal. But you people look at this daily, is that interest rate goes up, do we spend less? So what we're looking at overall is how monetary policy is transmitting into the economy broadly. So when you think about who's borrowing out there, there's companies that are borrowing in terms of the expansionary needs. There's consumers that are borrowing in terms of whether or not they want to buy a home or a big ticket item that might require some leverage. So higher interest rates are certainly transmitting into the economy. You can see it today with the retail sales number that's Mike just my friends. Around housing related items, furniture, some of these bigger ticket items that require debt. You are seeing some hit to those types suspending. So I think the high level of interest rates goes back to Lisa's point around how the FED is trying to calibrate this economy with some easing of real growth but still allowing inflation to come down. Okay, you're out of the game, but I'm going to ask you the game question here, which is what is your twelve months for to real GDP? Like, what's your twenty twenty You're talking to fancy people at MasterCard, and you know they don't want to charge cards. They want to know what Michelle Meyer thinks about the economy. What's your twenty twenty four real GDP call? So the good news is that we are I'm still in the game, and that we are still running at still absolutely that is who I am as a person, as an economist. When I look ahead, I mean this year we had an economy that ran above its underlying trend. So we're trending right now, given where GDP is for real growth somewhere between two point four percent right now in twenty twenty three. As we look ahead to twenty twenty four, we're probably going to see some moderation closer to the underlying trend growth rate of the economy closer to trend. Didn't answer, Ye's still in the game. I'm still I got to total go away. Michelle Meyer's MasterCard. There somewhere in the blur of the last four or five days through my small little brain, would somebody get Diane SWUNKA You know, I just said she has such a perspective different from three zip codes in New York, And I guess all of this is her academic work at the University of Michigan Longo. She's putting a penalty box there. At one point she was stealing signs from the Federal Reserve. Is I think it's a football joke there, Yeah, dian Swank understands Michigan's I guess in the penalty box, Diane Swank, is it free and clear? Is your own Powell not in the penalty box. I've asked this question four times, but with immense respect to your work and your holistic look at business data. Is it mission accomplished? Finally, for the FED, it's not mission accomplished because if that is still going to hold rates higher for longer. But we're done with right hikes and that's what we've been saying, and that's what we believe. That's the good news out there is that it does look like the soft landing is not only possible but probable. But the journey is not yet over, and the endurance part comes next, and that's what the FED is watching closely. They still expect to see growth below potential in order to have that soft landing occur. That's one of those technical things that consumers don't really like, because growth below potential is a rise in unemployment, which in fact we've already seen. Most of that rise we saw over the summer was because more people were looking for jobs, not because of mass layoffs than in October when we saw unemployment move up to three point nine percent, it was because we also saw the spillover effects of strikes as well. When I look at this economy and all the different narratives that are out there right now, the heart of the matter for me is fully employed America. Butter stop with what Austin Goolsby brilliantly said yesterday. Is a believer in a new productivity, a new regime of productivity that's going to make the job for everybody out there easier. Do you buy it? Well, we are seeing a major increase in productivity, and I think during the frenzy, the hiring frenzy that we saw, we know from ADP data that's locked at this more closely, many firms stopped hiring people. Then add on top of it the loss and hiring an educational attainment due to the pivot online itself. And now we're unwinding that and people are actually learning the jobs they have. Overlay that with innovation and technology and leveraging the technologies we were forced to use as we moved online, and you do get higher productivity growth, and that is helping to bring down inflation as well. The problem for most consumers, of course, is that the level of prices are still very high. And let's face it, you know, consumer sentiment hit its record high for University of Michigan Centiment Index in Chau two thousand. Yeah, I threw that in. Although I did go to Chicago too. They won the first Heisman Trophy right now with a lack of scandals, which a little better. Did you go to the Goldsby speech? I mean, you're such a hitter out there in Chicago? Did you darken the door for the Golsby speech? I wasn't at this one. I've been at many of them, and I'll be at one on December first with them. What about Hey, Dana speaking as well, what do you feel how do you kind of view the consumer here? We got some retail sales data today that came in a little bit better than expected, yet target, you know, still seeing some some challenges out there with the reported numbers, and of course we'll hear from Walmart tomorrow. What's what's your sense of the consumer out there? This is a consumer that shown remarkable endurance. Remember October is when the first student loans for about twenty three million student borrowers were due. Of course, they started paying those loans already in August while ahead of time, front running the interest accruing on those loans. But we know that student loan, your payments are going to crimp consumer spending. And I think what's also important is we're seeing the biggest trade offs everything within grocery stores. They're spending more at grocery stores than at restaurants during the month, and after adjusting for inflation, they're still spending more at grocery stores because it's really expensive after adjusting for inflation to go out to restaurants. That said, there's a lot of trade offs within that as well. Beef prices hit a record high during the month of October in that's due to the fact that we had all these droughts. That's in the herds, and I think, you know, the effects of those kinds of shocks are what really matter to consumers. And even as the FED is combating inflation the pace at which prices increase, many consumers who finally saw their wages level up only got to spend a moment in the sun before they were burned by inflation, and they're still playing catchup from those earlier increases exactly. So, you know, in terms of the consumer here we have the unemployment rate officially at three point nine percent. What do you think the FED would like to see that rate? Do they feel like it needs to drift a little bit higher before they get a sense that this economy really is cooling? Well, I hate to use the word like, because I think that's a little pejorative in this context. I think they think it needs to go a little above four percent in order to get the full derailing of inflation and to be able to really cut rates as we move into twenty twenty five. I think we're going to see rate cuts by the middle of twenty twenty four, but the descent on rates is going to be much less graduate much slower than the acent on rates, and I think that's very important to remember as well. The Center Reserve is really pretty pleased with the fact that so far until we had that October blip, which was by an external shock the strikes, that we were able to really see more people looking for jobs rather than layoffs contributing to unemployment, more data checks and all this turmoil, the vix goes to constructively bullish. We are higher above fourteen and now at fourteen point eight, a better VIX number off of yesterday. Dow up one hundred, SPX up sixteen points, doing better than call it nine o'clock, futures up four tenths of a percent, NASDAK up half a percent as well. We're with Diane's swank this morning of KPMG. Diane, my great theory is corporations are going to adapt and adjust. How do they adapt and adjust? Is it just going to be one expense reduction? You know, that's going to be a series of I think we're already seeing the adaption occur, and it's evolution more of a revolution than an evolution, and that is that after more than a decade of ulter low rates and some business models that were built entirely on ultra low rates still adapt to a more normal economy that has higher rates to it, and they have to deal with the higher wage levels that they leveled up to, and that means they got to make their workers more productive to be able to continue paying those wages without mass layoffs. And that's where I think we're going. I think we are going to see productivity growth continue to be elevated. That's the good news. I think also it's important to remember the tire meets the road on productivity growth when you combine innovation and technology with our human capital, and how valuable it is. When you really level the boats together two together, that's when you get the big benefits. Sure theory there is how the Cubs stole the Milwaukee Brewer's managers. I mean you get that. She's like consulting the Chicago Cubs. How do we jump started Creid Council bring them down to Chicago? Paul slip in one more? All right, So, Diane, I mean we have our President Biden in San Francisco meeting with President she. How do you figure China into your economic outlook here? What do you what do you what would you like to see. What do you think we're going to see. I think it's important that you know we can't deglobalization is a bit of a myth. We're seeing trading blocks that have moved, and more training within blocks rather than across blocks, which is actually boosting global trade. That's more friction in the global economy and ultimately more risk of supply chocks and more fragile supply chains. So I think the concept of de risking is something that is a relative concept. I understand there's geopolitical and strategic issues we need to deal with with China, but these are the two largest economies in the world. We're talking about China and the US, and it's better to have better relations than intense relations and intensifying geopol tensions between the two. Dane swanp KPMG. They're chief economists, thank you. The grace of Bloomberg's surveillance is we don't throw up films of people being wrong or people being right. This is a tough, tough business gaming out equities, bonds, currencies, commodities. If we tossed up a video John and Lisa Anastasia Amroso on the market a number of months ago. She held Lisa's hand and said, Lisa, It'll be okay. A chief investor strategist and what and correct bull joins us. Now, is this the second Is this the second bull market off the October lows thirteen months ago? Are we clicking in with a new bullmarket lift? I mean, I think this is giving investors a lot of faith and hope into the year end. You know, Tom, It's amazing how quickly things shift, And just in the last couple of weeks we went from really bad technicals to really a great technical setup. And I think what's likely to happen now is the chase into your end is on and it's going to involve a lot of stakeholders, whether it's this systematic traders, whether hedge funds that were called too short, whether it's all the cash eight trillion of it on the sideline. So I do think that we well, I was initially going to say drift higher into your end based on yesterday. We might rip higher into your end, but I do think we'll finish higher. Let's discuss what worked yesterday. Small caps, discretionary real a state. Is that what you think works going into your end? Well, I think tech is going to continue to work into your end because if you look at unprofitable tech, for example, it also rallied pretty massively yesterday as well. You know the reason I hesitate when it comes to consumer discretionary. You know, I love the target beat this morning, but it does feel like a bit of a one off. And you know, if we look at some of the surveys of consumer spending consumer spending intentions, consumers are likely to be slower and likely to be more discerning and the I want to look for promotions. So you know, maybe this everything rally does take consumer dis questioningly higher with it, but from a quality perspective, and where I have the most convictions on margins, on growth, on secular opportunity, John, I think it's still tech. Okay, So how much is this baking in both the ongoing profits and also yields going lower given that valuations are already pretty high considering how high the alternative is. Yeah, I mean everything is working in the right direction right now. Clearly this is a huge yield story. But when it comes to big tech, for example, you know, yes, yields help from the valuation perspective, But what I also like about big tech for example, is that earnings growth is there over and above the S and P. For example, for the next year or two, the average earnings growth is about sixteen percent. So and by the way, valuations, I know people say big tech or tech generally is expensive, but when you adjust for that earnings growth, it's actually not that expensive. And when you start looking at individual stocks, maybe forty times forward earnings on Nvidia, maybe that seems expensive, but when you expand the chart, it's not actually off the chart, so to speak. So everything is relative. What's the balance of risks? We've been talking about that throughout the morning for next year, as people get enthusiastic into year end, is it a better than an expected economic picture or is it some sort of recession that really feeds into a profit recession as well. Yeah, so we have to decouple the view into your end versus what might happen in twenty twenty four. And I think the reason for this optimist for twenty twenty three has been this is a soft landing year. This has proven to be a soft landing year. Now I think something harder may have to happen in twenty twenty four. And here's really the big question. Which is going to determine the direction of the markets in twenty twenty four is how quickly does the FED cut or do they cut? If they cut, then I think we're off to the races, and this is they go in all on risk moment. But if they don't cut, if they stay persistent, then I think some of the bold may be disappointed. Do we underestimate the ability of corporations to adjust? Twenty four months ago of screaming about that we saw Target. Today they've had a real, real post pandemic challenge. I guess, John, what's it up right now? Forty two? It's twenty five? Okay, who's keeping count? But the answer is I still think it's underestimated in FED centric, rate centric New York City that I'm sorry, each and every corporation out there is going to adapt and adjust. What are they going to do next year? Yes, corporations are adjusting, and the case of Target, it took them a while, but those inventories were eventually paired back. I think what corporations may struggle with next year until and unless the FED pivots is the refinancing bill of some of their corporate debt. And by the way, This goes across the spectrum. It's the US government which has to refinance about thirty five percent of the debt between now and the end of next year, is the commercial real estate operators that have to refile a lot of the debt, and then it's corporate. So you know, the reason, Tom, why I think we haven't seen more of an adverse impact is because the percentage of floating rate has been low and companies have not had a lot of fixed rate maturities that needed to be refinanced. That does start to change next year. So if the FED doesn't cut, I think it does become harder for corporates and how do they adjust well, if margins get squeezed, I think cost cutting is the next measure. Does that make life difficult for certain parts of the equity market given the nature of high yield issuers, Yeah, it does. The parts of the market that I worry about, or leverage loans for example, which have already had a full year of rates around five percent. And if you look at the net interst coverage ratios, there were about three and a half times going into the year for a lot of those issues. There are one times today, maybe one point three, So how does that picture change next year, especially if you have some slow down in the top line for high yield. I'm a little bit less worried because you do have generally higher quality and better fundamentals, and there's a small portion of high yield that needs to be rolled over next year. But from a broader economic perspective, and especially when I think about the banking sector, if you start to have more charge offs, incrementally more delinquencies, some default and by the way, venture capital bankruptcies have been on the rise, so all of that does start to impact some sector of the economy, which I think is the bank. Can we finish on the banks kind of left for dead at times this year and for good reason earlier in spring. What's your view on them into twenty four? A very mixed view on them into twenty twenty four, because in earlier on the show, I did say that, you know, I was kind of warming up to the bank sector because we were expecting the capital market activity to pick up. That really didn't pan out so far in the fall of this year, and I'm not sure that it does in twenty twenty four. So if you have lackluster capital market activity, in twenty twenty four, and then on top of that you do have those higher delinquencies, defaults, and charge offs. That comes back to roots for the banking sector. So I appreciate the rally that they're participating in, but that would not be my top pic today. You sound actually less optimistic than you did a bunch of months ago, quite a bit less optimistic. Can you frame that out just how much you think some of the gains have already been paked in. Yeah, I definitely sound less optimistic your end rally nowithstanding. And the reason for that is because a lot of investors coming into the year expected this to be maybe even a recession a year, or at least very lackluster economic growth, and instead we got close to five percent GDP in the third quarter. So a lot of people are now in the soft landing camp and are not even talking about recession. But if you think about this, you know, the longer rates stayed at the current levels, and by the way, if inflation falls and real rates start to pick up the relationship we also talked about previously, then we are going to get in restrictive territory relative to the neutral rate, and that's when you start to worry about the FED stays therefore too long, then that's what caused historically a recession. Well, I do worry about that, and I don't think it's in people's consensus numbers right now. Is my takeaway here that Amoroso is on the edge of bramo ye and it gets maybe less constructive gone into twenty five to be a long year of twenty four. So we can't just you know, prepare for the whole thing. That's the joy that I hurt six months ago. Oh, the joy is here. The joy is into your end and you know, you know, I do think that. Look, the FED for now seems to be behind us until mid December. You know, I think some of the worst Fed Treasury auctions are behind us. Okay, So that's the joy. The conversation. The joy was on the screen over the last twenty four and made away and I say, you're constructive so many times right to be and stay camo. So if I capital it the Henrietta Trace joins US now economic policy research director at Vada Partners. Henrietta, with all your years of experience in Washington, and how polarized is the polarity right now? I mean, they are just at each other's throats, almost literally. Certainly, the stories out of DC yesterday were just shocking. Frankly, they have to go on recess. I am so thankful that they have agreed to this kick the can approach. As you mentioned before, I think we're just going to be doing this again, and I'm not optimistic that it's going to stop in January or in February when the two current deadlines exist. We're going to be doing this every couple of months for the rest of twenty twenty four. So we should get used to this kind of acrimony government shutdown risks. Those headlines should just be permanently emblazoned every couple of months in the newsreel. We've got those headlines ready to go hendriady through the whole at twenty twenty four. Can you just frame how big this fight over spending might be just next year. You know, it's just loud. It's not a big fight. It's just a loud fight. They are not getting any reductions in federal spending. This is a clean cr There will be a minimum of about one hundred billion dollars an additional aid that goes out across domestic and international priorities. We are not fighting about spending cuts. We are fighting about the process. The Freedom Caucus came up with the idea of doing this laddered approach. It was rejected, resuscitated, and then finally included in part in this deal. But it contains no spending cuts, and there's no scenario where the second tranche, which includes defense and foreign operations spending, is going to expire after they reach a deal on the first couple of appropriations bills. So this is a lot of sound, This is a lot of bark very little bite. Given the fact that there was not Israel or Ukraine funding in this current bill, how likely do you think that will get done by January? By February? Does it even matter considering the spending that's coming out of different pockets. That's a really important question. And I think a lot of this is tied up with Minoriti leader maccaddeal and how much cloud he continues to have with the party. I think we can't underestimate the impact of the loss in Kentucky for the governor's race that materially acted his standing with his own conference in the Senate Republican Caucus. And I think that's a big problem for Ukraine AID. I was surprised in my last round of meetings in DC how little support there is for Ukraine versus what there has been from the United States for the last year and eight months. It is really a iffy question on whether Ukraine aid gets provided at all. I do think that keeping Israel aid off of the cr that they're passing now creates at least a pathway. But when you tie Ukraine to the border and recognize that we haven't had border security legislation pass in a decade or more, you really have a problem. So I think that it is good news that we don't have a bill yet. It keeps soap alive. But I would dim my expectations for robust aid to Ukraine and Israel. Obviously is another problem that is splitting the Democratic Party just in half, just ripping it apart. So those packages are going to be really hard to come by, and I wouldn't be surprised that they didn't get it till January. You know, it's getting harder and harder to parse through the signal from the noise in Washington, d C. We have all these real, tangible, important issues and yet we are focusing on scuffles both in the Senate that Bernie Sanders had to and with a wooden gavel, and then this the accusation that Kevin McCarthy elbowed fellow Republican Congress member Tim Burchett during some of the contentious negotiations. Are any of these important to you on a policy or just functional level? There is no policy, So I think Tom, you actually just made a statement about how if you don't have your fiscal house in order, you can enact policy. That's exactly what's happening. There is no policy, so we're only talking about fiscal austerity. There's no discussion about passing a year in tax build that's of any kind of merit. They're running around punching each other in the back because they have gripes and qualms with who's a liar, who has trustworthiness. There is no policy, there's no uniting policy that drives the House of publican conference, which is in control, and that means that the Senate can't get their act together or get their work done. And it's really been a darth of leadership that I think is exacerbated by Mitch McConnell being on the way out, and a speaker that is untested with no real leadership mandate to work with on the Republican side. So I think there is no policy. I don't think we will be voting on any meaningful legislation next year. They cannot move forward on impeachment. They can't move forward on you know, impeaching even the Homeland Security secretary. They don't have a plan for the border that is comprehensive or can pass with the Republican conference. When you have these type majorities and a lack of leadership, this is where you land. So we just have these short term fights about federal spending. Thankfully we don't have to deal with the debt ceiling next year. That would have been a real problem. Well, Henry Ti, given everything you've just said, doesn't that make it all the more amazing that we managed to find an agreement in the House yesterday. I mean, you know, yes, and I don't want to be just contrarian, but they're up. The scenario where we shut down is even worse because there's no path to reopen. So if you shut down the government, we will be shut down for quite some time. People talk about, oh, we couldn't possibly go past two weeks because you'd missed a pay cycle. The last time we did this, for no good reason, with no end in sight, we shut down for thirty five days, right over the Christmas holidays. I think the one thing that's kept my optimism alive contrary to a lot of popular opinion, with you know, twenty percent or less odds that we'd shut down all year, is basically that the alternative is worse. Shutting down means we stay shut down for quite some time. Everybody looks incompetent, and you can't have these fights about fiscal austerity and spending. If you're shut down, it starts to have a material negative impact. So I mean they're both bad options, but shutting down is the worst one, with lots of them looking competent when it's open. Henritta, trace their evade partners, Henritta, thank you. I don't talk to Jim Bartak ahead. Let us get briefs here to say the marriage Jennifer Bartash's marriage counselor joins us with Bloomberg Intelligence. Jen thank you so much for joining. I want you to explain what falls to the bottom line. Home depot has a net income margin of nine is tennis cents. Target I was shocked is three or a moldy four cents on the dollar. Is anybody making money in this business? Good morning, Tom. It's a good question, and it's definitely one of the challenges that we always see in this retail sector. But I have to say, Targets results today we're very encouraging, you know, and it does give a little bit of optimism for the fourth quarter. So when they beat across the board with revenue same store sales, you know, we did see a great increase in margin. That's all really because some of the productivity initiatives that they put in place are starting to really help take cost out of the business. Willmont anst on this news as well. It's up in a free market, buying more than one point two percent. Jen, will hear from that company tomorrow. What is the read across from that company to the other. Well, I think that Target having better than expected results really only means good things for Walmart. Walmart does tend to outperform in environments where people are pulling back or being very careful with their spending, and so I think that a better than expected result today may lead to a very good outlook for tomorrow as well. But Jen, how do you parse through just the management side of things versus the macro call on a management side of saying Target seemed to work down fourteen percent of some of its excess inventory, leading to some of this boost. Does that really cross over to some sort of read through in the broader consumer. Well, I think that what we've seen is across a lot of retailers, they've had to figure out their inventory in kind of this post pandemic world. We went through a phase where everybody was stockpiling inventory so that they've had stuff available, then they had too much and they had to clear it out, and now they're trying to find the right equal librium. And being down versus last year where there were still concerns about supply chain constraints just shows that we're really getting back to that equilibrium and we're seeing it across multiple retailers, and so I think what's important is that inventory is down that much, but they are already stock for holiday, So to us, that also means that they should be able to sell through a good portion of their inventory over the holiday season and not end up in the same position they were in where they had to have a lot of Markdown's post holiday jen Yesterday we were talking about drug stores in certain cities that are putting pictures of toilet paper behind the shelves and then having people ask request for it to be delivered to them from the back of this store. Target did talk about theft to our shrink as they call it, and saying it's still weighing on their margins in a material way. What do you make of this? How long are we going to hear about this in earnings and is this just simply an excuse for margin pressure or is this something that is going to become increasingly concerning for both investors as well as the corporate executives. What we usually see in longer term cycles is that theft escalates whenever the consumer is under pressure, and as inflation is coming down, that actually should be a little bit of a release on that pressure. With regards to theft and the losses that retailers are having. You know, people generally want to do the right thing, and Target in particular has been very vocal about theft levels. We've saw some store closures where they said it was just not profitable to operate, but We do think that as inflation comes down, that should easy get a little bit easier going forward. John, you don't you bihold cell, but I want you to note a four percent dividend, an eleven percent five year dividend growth. I got a multiple of fifteen, which is what one third of the high flyers one fifth of Nvidia. In that can Brian Cornell and his team say we're back on plan the pandemics beyond us and we will have the glide pass of the TAJE we knew years ago. I think we might be at a turning point. It might be a little early to say that we're already there, but I think that today's results definitely indicate that a lot of the strategies that they're retrenching, that they're putting back into place, do put target back on that right trajectory. Jennifer, thanks for the update. Let's cat cheup against tomorrow when we get numbers from Wolmont. Jennifer Pontanshestan of Bloomberg Intetogen's 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 I'm Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business App. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

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Jay Bryson, Wells Fargo Chief Economist, and David Kelly, JPMorgan Asset Management Chief Global Strategist, break down October's US CPI report that shows a steady easing in inflation. Liz Suzuki, Bank of America Securities Analyst, says consumers are relying on excess savings amid the discomfort of higher rates. Greg Valliere, AGF Investments Chief US Policy Strategist, expects Congress to pass a government funding bill and avert a shutdown.

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Full transcript:
I'm Tom Keene, 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, Well, Spotify and anywhere you get your podcasts, and always on Bloomberg dot com, the Bloomberg Terminal and the Bloomberg Business App. Is the Fed Done? Is this basically what we're looking at right now? The all clear sign for the Federal Reserve to have to do more. Jay Brison, Chief Economist, it W Wells Fargo joining US. Now I ask that to you, Jay, does this sound the all clear for the FED? It does for right now, Lisa. I mean, you know, these numbers are going to bounce around on a month by month basis. You know, I wouldn't. Our view is that the FED probably is done. But I don't expect FED officials to be coming out just because of this one report saying oh it's all clear, everything's great out there. I mean, I think they're still going to continue to be biased to potentially tightening. We don't think that will happen, but you know, in the next few months, these numbers kind of reverse and they kind of pop up, and the economy expands at a stronger unexpected rate, you could potentially see them going But again, I think that's a that's a high bar at this point. This adds to signs that there is some sort of cool and this is the reason why so many people are talking about a soft landings. You haven't seen the real cracks you'd expect ahead of a massive recession. Jay, do you think that is an accurate categorization of exactly what we're seeing with prices not going up as much as people had expected. Yeah, I think that's right, you know. I mean, if we were still clipping along at a year over year rate on the core of a five percent, we'd be talking about the Fed hiking even more. And when you start to hike even more, that's when you have the problems. So, you know, so the potential for a soft landing is still there. I guess what I'm a little bit still watching and concerned about is that the real FED funds, right, you know, the nominal rate minus some sort of inflation rate continues to drift higher, and that's what matters for the real economy. And so I think the Fed is going to delay easing at this point, and so we may or may not have a downturn early next year, but I think the next few quarters because monetary policy is going to remain restrictive. I think you're looking at headwinds on xanomic growth. Is it mission accomplished? There's a comedy to that, a painful comedy for our geopolitics, our history, Doctor Bryson. What are we getting to a transitory point where this Federal Reserve can say mission accomplished? Well, again, Tom, I don't think they're going to come out and say that right at this point. But you know what I would say is the bar for further rate hikes is getting higher and higher at this point. Many of the members on the FOMC think they have done enough at this point, and you know, today's rally and the tenure notwithstanding, you know, we still have seen you know, relatively high long term rates and so there's a fair amount of headwinds on the economy right now. Again, they're not going to come out and say mission accomplished right now. They need to see a few more months of this before I think they feel confident in that this is certainly a good start in that journey. But I still think, you see, you need to see a few more months of point two's before they say accomplished. Lisa, the mission accomplished December twelfth a CPI report before a December thirteenth FED meeting, and or just to really echo what Jay was talking about that the bar is getting higher and higher for them to go again, evidently the bar is getting a bit lower for them to cut rates. FED dated swaps are now pricing in the first twenty five basis point cut for June versus July. Before we got this print, Jay, there is this issue of what we're going back to. Are we seeing a fast enough pace of disinflation to believe that two percent is very much in the horizon. You and your team have been excellent about the last mile of getting inflation down from three percent to two percent? How far along that process are we? So, you know, I don't have the numbers here in front of me, Lisa, but you know, I think if you look at the three month annualized change in the core, we're probably at three and a half percent right now. So if you want to get back down to two, I mean, what you need is you need a few months of point twos and even point one to kind of get you there. And I'd think we're still looking at a number of months for that. We don't think we're going to be looking at that sort of number until the second half of twenty twenty four. But I don't know if you necessarily need to be two percent annualized for a few months before the FED cuts. I mean, they're going to be looking forward, right and if they are confident that things are really going to slow down, then they could start to cut rates, you know, maybe summer or so of next year, Doctor Bryson, thank you so much. The chief economist of Will's Frogo Ja Brison, David Kelly, will adjust. He's chief Global Strategists at JP Morgan Asset Management. With his years at Putnam knows when the facts change, he will change. David Kelly, how does your analysis change with this shock report? Yeah, so this this report is actually very close to who we're looking for here. As we're tracing as inflation, we can see right down to below two percent on the consumption deflator by the fourth court of next year. I think what's really important about this report is there's a large camp of people who say that the last mile is sticky, getting from three to two is sticky, and we don't see that at all. We're going to step down inflation all the way through the fourth court of next year. And what I think this report is showing is across the board, there's disinflation in the US economy and we're heading back to two percent. So I think that is gradually changing in the minds of the markets. I think that's why you've seen this move here, although it's not necessarily coming with paying David, and this goes to the soft landing Nirvana that Neil Dotta was talking about, that real average hourly earnings increased by zero point eight percent, up from zero point five percent. People's earnings are exceeding at the pace of inflation and in a material way for the first time in a long time. How much does that lead to a stickiness because people have the means to keep paying the prices. I don't think so, because I mean, we've had periods of positive real wage growth before. But what I'm saying looking at the earnings reports from the last quarter is companies are very focused on holding earnings in check. Now, yes, you can say that today's earnings are higher than inflation, but from a worker's perspective, they're not even getting catch up from all the inflation they saw over the last two years. So what you're seeing is partial compensation for previous inflation. But I don't see a lot of evidence that companies are being able to push higher prices the workers being able to push higher wages. So overall, I think what we're seeing we're not seeing a price wage spiral. We're seeing a price wage slinky. They're both gradually coming down the stairs slowly. I think this is just going to continue all the wage two percent, and there's a question mark around Yes, this is definitely good for bonds and you're seeing that rally in a massive way today. Is this necessarily good for stocks over the longer term if it is accompanied with a cooling in the economy. Yeah, I think it is. Now. There are things that could go wrong, and there's certainly parts of the stock market that are overpriced, but I think what's happening is work turning to where we were ten years ago. We're turning to an economy with two percent inflation, very slow growth. That low inflation can allow for lower long term interest rates, which supports all asci prises, bonds and stocks alike. And of course stocks are the ultimate long duration asset, so they will benefit from this lower rate environment. So, you know, soft landings never last forever. They'll eventually the rote and we'll fall into recession. But for right now, this does really show that inflation is steadily coming down, and we've just got to we've got to recognize that's going on. Regardless of Fed officials who occasionally say that we're not there yet or tour into declare victory. Look, I'm willing to say we're going to win this thing. It looks very very likely they're going to win this. In Invation down to two percent by the end of next year, Small Stacks Russell up four percent, NASDAK up one point eight percent, though Nasdaq one hundred, I should say Dow lags up one point one percent, Standard Impores five hundred, up fifty, up fifty five, up sixty, and now up sixty three points one point five percent. Doctor Kelly, I want to sum this up to the angst that Lisa Brambo Bramo Wit says on our nation's debt. If we get inflation down, if we have a successful FED, does that give you confidence that we can have in long term our minus G relationship, our minus G equation, that will mean our debt and deficit is of less fear a little bit. I mean, it's still what you're basically saying is we can service this debt at cheaper prices no matter how large it is. Yes, we can to an extent, But I think the amount of debt we've piled up in recent years is going to mean permanently higher loge of interest rates experienced ten years ago, so that that problem is going to be around for a while unfortunately, I see no evidence that there's any consensus in Washington about doing anything about it about it, so I'm still worried about poppulism. Left of the right just pushing these depths its higher and higher in the years ahead. Doctor Kelly, thank us so much, David Kelly, JP Morgan joining US unapplied mathematics of big box retail. Elizabeth Suzuki joins US at Bank of America Securities. When you were going through polynomials and you know, doing ferrisproof and all that and applied manth, you think you'd be an aisle four at home depot. I did not. I never thought that my work was going to include channel check at stores that I just go to anyway. In fact, now you know, as a homeowner for the last you know, six years, I'm in home depot pretty much every weekend, maybe every other weekend. But I mean it just never stopped. Wonderful. I've never been to the one downstairs Ferrell's down there once a week picking up something. Let me cut to the chase, which is the new post pandemic home depot world and for other big box as well. Can they fix the problem on the income statement? Can they take out expenses like Disney or you name the bank. Sure, you know, I wouldn't really categorize it as a problem on the income statement. When we think about what Home Depot is going to do this year in terms of sales, they're probably going to end up about fifty percent higher than they were in twenty nineteen. And just putting that in context of the broader industry, which is tracking up about like twenty percent versus twenty nineteen levels, that's an amazing amount of market share that Home Depot has been able to take. I mean, we're coming down off of these very very high levels of spend. During the pandemic. Homeowners had you know, easy rates to be able to borrow against. They also had you know, stimulus money to spend. They were moving at much higher frequency. A lot of people moved out to the suburbs during the pandemic. I mean, we've seen a slowdown in that, and you know, I think what's been surprising this year to the downside and just where we've seen that pressure on the top line is really mostly from housing turnover basically coming to a standstill, you know, so as as we expect. Yeah, so I think, you know, as as rates start to moderate or potentially even come down, maybe towards the second half of next year, I think that's going to help spur that housing turnover again and we're going to see more of a return to normalization in terms of that top line salesca Given what mortgage rates are, do you really think we can normalize the fact that some people just locked in their homes with the two three percent mortgage you just aren't moving anytime soon. Yeah, you know. I think it's like once rates really stabilize, maybe come down a tick, you know, a couple of rate cuts, potentially in the second half of next year, then you know the homeowner is saying, okay, like rates are probably not continuing to go up, I can potentially refinance. If I were to move today, I'm locking in a rate that's higher than what I wanted. But I feel like there's some potential for that to come down over time, and maybe it means that people buy a house that's a little bit smaller than what they wanted, or it means that you know, some people who are moving and you know, are going to have to absorb a higher rate. But because households have such high levels of savings they actually can absorb that. It's just it is uncomfortable, right So right now we're feeling that discomfort in terms of existing home sales, which are the lowest they've been in thirteen years. How much does home tapot rely on the housing market versus the fact that people aren't moving they are buying new refrigerators I'm just saying, or they're buying new stoves or new microwaves or other items in the house that might break. I mean at a certain point, does that actually help these companies? Yeah, I mean the sector is not as sensitive to housing turnover as one might think. I mean, when you're seeing these negative data points on housing every day, and if you already have sort of a negative bias, each one of those data points just kind of confirms your bias and you're going to say, of course, things are terrible right now. So what we've done is we tried to look at basically every macro factor you possibly could. And this is really where that applied mathematics comes into play. As we built a proprietary indicator of home improvement demand and we narrowed it down to fourteen different factors that are reported monthly that we can correlate to Home Depot and Low same store sales growth. At the end of the day, that's pretty much what drives these stocks is same store sales growth. So we narrowed it down to these fourteen factors, we built an indicator off of it, and then that indicator helps inform our views where we don't have to be dependent on the company's guidance, we don't have to be dependent on third party forecasts. Like we're able to actually look at the factors that matter, and then months to month we can track each of those factors and not get distracted by the noise that we hear in a lot of these other data correlated as Home Depot to some of the other retailers that are not related to the housing or home improvement sector. Yeah, I mean, that's that's a really interesting question. And I think, you know, when we boil it down and look to look at the broader sector and look at Bank of America's credit card data for the home improvement retailers, which is you know, just very broad category, Home Depot has outperformed that group pretty consistently, like actually very consistently over time, and Low's has as well. By at least two hundred basis points. So you know, the market share gains here are pretty material, and that's something that I want to just continue to kind of hone in on. In this result is even though their sales are down three percent, we've seen the category down you know, mid to high single digits year over year for most of this year. But in terms of correlation to you know, to other retailers, it's it's pretty independent. I mean, it's it's some factor of the broader consumer and the health there, and so obviously there's correlation to like a Walmart and a Target. But because it is related to housing and really home prices are one of the most important factors driving home improvement demand, that's really where it kind of differentiates. We've all been surprised by the strength that is economy this year. There's a bunch of companies that fall under your coverage. We're trying to work out whether we are at the precipice just around a corner from a severe weakning of the economy. Do you see any of that emerging whatsoever going into year end? Yeah, I mean I think that there are categories that we follow that are struggling more than others. You know, appliances, We talked about refrigerators. I mean, appliance sales are down. You know, the volumes have been under pressure. Margins are coming under pressure as well. We saw promotions that started in October for appliances. So if you're you should get on it, if you're you're in the market for a fridge, because I think those promotions are going to be, you know, pretty pretty attractive this year with the cameras. Some impressed. Yeah, I just kind ofd you get no, I just want to hear what you have to say. Carry on. But you know, consumer electronics is another one, right, I mean, as as Home Depot said in their press release or seeing pressure on big ticket consumer discretionary product. So consumer electronics definitely one of those. Appliance is kind of fit in that bucket from New York University just emailed in. So you're sitting here with Ken Langohn, He's gonna go. This is all a lot of great chat. But the bottom line after a three years pandemic and lays let's call it is, can they get back on track to the total return that we were weaned on? Can they get back to sixteen eighteen to twenty percent per year share return. Yes, I think, you know, in this current macro environment, that's tough, you know, because the consumer is pulling back on spending and we are coming off of this you know, sugar high from the last couple of years. But you know, we as we look to twenty twenty four and twenty twenty five, we see no reason why there shouldn't still be growth in the home improvement sector beyond the broader economy list. This was great, Thank yous. Going to see in person as well. Greg Fadia joint is right now, the chief US policy strategistic AHF Investments, Greg, in your mind, from your perspective, in your opinion, do you think this pass can pass, can get through Congress this week? I think they can. It's been so humiliating for them for the last few weeks. I think they know they've got to do something. The credit rating downgrade is serious. So yeah, I'm at sixty forty one minutes possible that a handful, once again, a handful of far right radical Republicans could kill this, but I think they want to give at least on this first bill. They want to give Mike Johnson a victory. This is what I was going to ask Greg, who does this particular offer upset more? Is it Republicans within his own party or elsewhere? What's a good point, John, There's so much in the bill to hate. For the Conservative Republicans, there are no spending cuts and they're quite upset over that. For the White House and the Democrats, the fact that there's nothing for Israel or Ukraine is very troubling. And we can say, oh, we'll get them some money in February. Well, they need money now, and I think to not send our allies this money sends a very bad signal. Greg. It's that time of year. Our Greg Durou owns a high ground and keeping track of who's leaving, who's coming, who's going in the House, in the Senate. Juan Williams in the Hill today or yesterday, I should say, really writes it up of the Republicans leaving the House. I think this is underreported. You've got Buck, You've got Granger, You've got LESCo, You've got Sparks, on and on. Is this going to be even a more Trump Republican party? Not in a year, but in a matter of weeks it could be. Yes, and a lot of the names you mentioned are people who are disgusted. They can't take it anymore. I also think there's a growing chance, a very good chance, that the next Senate will elect a year from now, will be controlled by the Republicans. They have, I think, an easy chance to take the Senate. Now, I look at this as wildly underport. You know, we'll focus on mansion and that in Spenberg or Virginia. Have you seen it like this before? Is this normal changing of the chairs to musical chairs or is there something unique here? Well? I tell you, Tom, I think what is unusual is to have Democrats talking now openly about a need to get a different nominee. That's really unprecedented. You probably have to go back to LBJ who lost support in his own party. That makes the Democrats nervous, the fact that they could lose the Senate and lose it convincingly. We'll get back to that in one second, because I do want to get your view on that. But just to build on what you're talking about, the fact that Democrats are joining with Republicans, some of them, to back Mike Johnson's plan. Isn't this what got Kevin McCarthy ousted his House speakers Bingo, that's right, And I got to think that we could have a repeat. You only need like three or four at the most five no votes and this whole thing could fall apart. So I think that Johnson has to worry that he could suffer the exact same fate as Kevin McCarthy. And there's still are nine, at least nine ultra conservatives in his party who are going to vote against this, at least as for now. What's worse though? On an international stage, you were talking about no funding for Ukraine and Israel. Is that worse than a government shutdown in the US. I think a government shutdown has become so ordinary. A brief shutdown wouldn't be as serious as sending a signal to our allies that we can't support them. I mean, this, I think is really very, very unnerving. And one other point I'd make quickly. I do think the final outcome is Johnson having to kind of deal with Democrats. I think that's the only way we're going to get a deal in the next week or two is to have the two parties unite on this. What will be the ramifications of that. I call that doing a John Bayner for an international audience. We've seen this before. But then what is the outcome if he does that? The outcome is going to be an effort to Ouston. I still think it's less than fifty to fifty. I think they want to give him a victory. Tom, but you could see a lot of Republicans say this is totally unacceptable. Great, let's talk about the race for the presidency next year. The field is narrowing on the Republican sign and it looks like Nicki Hade starts to attract some money. What do you make of the moves we've seen in the past week, Greg Well, Tim Scott didn't surprise me in the least. I think that they're the strongest other than Trump, of course, has been Nicki Haley over the last few weeks. She's got real momentum. DeSantis does not. He didn't even mention his endorsement in Iowa from the govern I can't figure it out. That was so Weirch can't just jump in, What was that about? Why didn't that come up in the debate. I don't get it. She endorsed him, I'd be bragging about it, but he didn't even bring it up in the debate. That was mystifying, but it's still trunks to lose. Trump has said some extraordinary things in the last few days about how his opponents are vermin using, really even by his standards, exceptionally harsh language, but his numbers hold up. He still has the base, and that means we need to narrow the field potentially even more for the Republicans. Who's next to drop out? Greig maybe Ramaswami. He's got money, but I could see him drop out. He's got no traction. His numbers don't look good. I think DeSantis and Nicky Haley stay in, and probably Chris Christy stays in, and that's good theater. Well, at this point, maybe the field is narrowing on the Republican side, but in some ways it's actually widening on the Democratic side. You said that there's real fear and there are real calls within the Democratic Party to have some other options than President Biden. How realistic is that? Who is everyone coalescing around? Well, that's the problem, nobody. And I think one of the strongest things that Biden has is the lack of any clear successor, and I think because of that, he will be the nominee. Apparently In the last twenty four hours, he's been very angry, profane, criticizing people like David Axelrod. I think he feels that he should be the nominee. I think he will be the nominee. What do you think he's so upset about, Greg oh mocking him for his age. Probably more than anything else. You can't do much. Can't do much about that, That's true, Greg Valier of Jeff Investments, that any of us can do anything about that. Greg, appreciate you up desa. 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, in in the Bloomberg Business app. You can watch us live on Bloomberg Television and always. I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is Bloomberg

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