July 24, 2025 • 32 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyJuly 24th, 2025
Featuring:
1) Stuart Kaiser, Head: US Equity Trading Strategy at Citi, joins for an extended discussion about the equity rally and fundamentals driving markets higher. Global equities continued their rally as bulls drew fresh conviction from signs the US may strike more trade deals soon after clinching a pact with Japan.
2) Brian Belski, Chief Investment Strategist at BMO Capital Markets, brings us into the market open and talks about why he's remained bullish amid so much policy uncertainty. A gauge of the world’s stocks hit a new record high, and Europe’s Stoxx 600 index advanced after a clutch of strong earnings and reports the US is closing in on an agreement with the European Union.
3) Michael Feroli, Chief U.S. Economist at JPMorgan, talks about the labor market, inflation, and Fed independence. President Trump will visit the Federal Reserve to tour a construction site he has criticized for cost overruns. Trump has been attacking Fed Chair Jerome Powell for not cutting rates and has criticized the Fed's $2.5 billion renovation project.
4) Natasha Sarin, President and co-founder at Yale Budget Lab, talks about their most recent findings from the YBL on the state of US tariffs. President Trump suggested that he would not go below 15% as he sets reciprocal tariff rates ahead of an Aug. 1 deadline. The president has left the door open for countries to make agreements that could lower the tariff rates, and some countries are aiming to bring down their tariff rates to the 15% level.
5) Lisa Mateo joins with the latest headlines in newspapers across the US, including a WSJ report on NBCUniversal reportedly discussing launching a sports cable network and USA Today's report on how hotter summers have travelers ditching the beach for "coolcations."
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
Right now, we're gonna look at like the pro view
of this odd bullmarket. I love what Stuart Kaiser and
City Group says here is this is very you know, folks,
This is like you know, geek talk, remain long US
equity beta with tactical IWM upside and consider Vic's roll
(00:47):
down trades.
Speaker 3 (00:49):
I translate a wise one.
Speaker 4 (00:51):
Well as much as I like to referred to as
a geek. Good morning everybody. Look, I think the.
Speaker 5 (00:56):
Story here, if I were to summarize that is, we
still like being long US equities.
Speaker 4 (00:59):
There's a lot of risk premium still in the VIX
curve right now.
Speaker 5 (01:02):
I implied volatility is probably too high relative to how well
the equity markets are raviot.
Speaker 3 (01:06):
It's out there.
Speaker 5 (01:07):
Exactly, and as that sort of compresses, it just gives
another boost.
Speaker 4 (01:11):
To the upside. So as much as people are.
Speaker 5 (01:13):
Worried about valuation and positioning, there's still actually a fair
amount of fear price in your market that needs to
come out.
Speaker 3 (01:18):
Shout out to zero head. You makes a big deedle
about this.
Speaker 2 (01:20):
When you hear the phrase short covering, translate that on
the City group desk, it looks like the TV show
industry translate what short covering means?
Speaker 5 (01:30):
Well, I think right now you have to think of
what is what stocks are short and those have typically
been like the lower quality stocks that people didn't want
to kind of touch. So when you get short covering,
what that's doing is it's putting pressure on the stocks
that hedge funds sort of don't like, and that can
be you know, really really painful for them at least
short term in terms of their P and L. So
what you're kind of doing is seeing a rotation into
(01:51):
the stocks that hedge funds don't own, and again that
could be un fund for them at least over a
short term period.
Speaker 6 (01:57):
Is the market still overly concentrated in some of the
X number of big tech names. Is that still a
thing for this market?
Speaker 5 (02:06):
I think it definitely is. You know, I was in
Europe a few weeks back, and I was surprised at
how underweight the AI trade and underweight US.
Speaker 4 (02:13):
Tech they felt.
Speaker 5 (02:14):
So I think the international investor, particularly early this year,
was trying to do the US exceptionalism as dead trade yep.
And then you got you know, better news on tariffs
and good news out of one Q earnings, and it
just kind of forced them back into the market.
Speaker 3 (02:26):
See.
Speaker 5 (02:27):
I mean, I think there is a fair amount of
call it concentration risk top ten s and p stocks
or more of a third of market cap that's not
going away, So it is. It is a kind of
a key aspect driving returns right.
Speaker 6 (02:37):
Now, Espaishly, I don't see anything that's going to change that.
I don't see anybody going out there and saying I
want to go out.
Speaker 4 (02:42):
And buy value.
Speaker 6 (02:46):
What has to happen for that to broaden out, if
you will, Yeah, I think.
Speaker 5 (02:50):
The broadening at this point has to come from economic
growth and earnings. So if during earning season you are
seeing a broadening out of that Ernie's growth, that can
get people maybe a little bit downcap structured into that
value trade. But to your point, I mean, the AI
trade is just so powerful, even Google overnight yep. A
lot of moving parts there, but a key of it
is they increase their cap X by another ten billion dollars,
(03:11):
and to the extent that that is still happening, it
makes it hard for people not to be in that space.
So I think that's kind of like we mentioned, being
long quality, like that mag seven trade is still the
core position for the most portfolios.
Speaker 4 (03:23):
And then why we.
Speaker 5 (03:24):
Like small cap is just you know, making sure we're
not ignoring, you know, the rest of the market during
earning season.
Speaker 4 (03:29):
So the quick answer would be, we need to see
broader earnings.
Speaker 5 (03:31):
Growth and recession risks continue to get squeezed out of
the market for that smaller cap, lower quality stock to work.
Speaker 2 (03:38):
There's a headline out there is sort of in the
zeitgeist that I don't have the authority or data that
the quants are really having a.
Speaker 3 (03:46):
Tough goal of it. What is a quant and why
are they having a tough goal of it?
Speaker 5 (03:50):
Well, I mean on the QUANDT side, you know, these
are folks that you know are really investing very systematically
in box. Some I mean they wouldn't tell you they
understand the box, you know from a distance. Why are they,
you know, having some trouble? I would say that the
S and P five hundred realized volatility is below ten
percent right now, So the S ANDP is not moving
very much. The factors that a quant my trade style stocks,
(04:12):
value stocks, growth stocks, those have been incredibly volatile, much
more violatile than the S and P five hundred itself.
So if quants are under pressure, it's because the market
isn't moving very much, but the tools they use are
and that sort of dislocation can be really tricky for them.
Speaker 6 (04:28):
I'll just speak for myself, I'm very surprised, given all
that's going on out there in the world, that the
VIX is a fifteen Is that?
Speaker 4 (04:35):
What does that tell you?
Speaker 6 (04:36):
That there's just people are just owning a certain number
of stocks, And I mean, I'm'm mat sure what that's
telling me.
Speaker 4 (04:41):
Well, what part of it is the VIX itself.
Speaker 5 (04:43):
The number one fundamental determinant of the level of the
VIX is S and P realized volatility. Okay, so if
you were to take let's say ten or twenty day
realize volatility on the SMP, you'd add about four and
a half points to that. That's going to give you
a quick and dirty on the VIX. The notable issue
with the VIX, now to your point, the spot VIX
is very low.
Speaker 4 (05:02):
But the VIX has a term structure, so you can
trade the outlook for volatility for the next six to.
Speaker 2 (05:07):
Nine months, betting that that outlook will come to a
lower VIX a greater optimism.
Speaker 5 (05:12):
Yes, we do believe that that additional volatility priced into
the three to six months ahead outlook needs to come
in as tariff news improves and the economic data.
Speaker 3 (05:23):
You can find out question lovelods.
Speaker 2 (05:25):
People just email me and said, it's get impatient, Stuart Kaiser,
as simple as I can, how do you measure the
exuberance or effervescence in the market now?
Speaker 3 (05:35):
Is it leverage? I mean, what's the oomph right now?
Speaker 4 (05:38):
I think what people are focusing on is number one, valuation.
We've seen significant pe expansion for the S and P.
Speaker 5 (05:44):
I think you all touched on it earlier. Retail participation.
These retail meme stocks are really starting to move a
lot again and that's like a bull market trade, so
we'll pay attention to that as well. But I think
number one thing is evaluation, B.
Speaker 4 (05:56):
Level of the VIX. Three retail participation.
Speaker 2 (05:59):
Stuart Kaiser thinking so much greatly appreciated.
Speaker 1 (06:06):
You're listening to the Bloomberg surveillance podcast. Catch us live
weekday afternoons from seven to ten am Eastern Listen on
Applecarplay and Android Otto with the Bloomberg Business app, or
watch us live on YouTube.
Speaker 2 (06:19):
Joining us right now, Brian Belski. We're talking to people
that you know got it wrong. I learned from people
that got it wrong. And I also got to talk
to a wise guy who is a research note. Same
as it ever was. Belski from Bemo Capital Markets joins us.
And you hate him, folks, because he's got a long
paragraph that Rockenhove.
Speaker 3 (06:36):
Brian can't write that long. Roucan over writes it.
Speaker 2 (06:39):
Then he's got two smaller paragraphs, and then he's got
like you know, bookcase, Bearcase, and it takes you.
Speaker 3 (06:44):
An hour and a half to read it.
Speaker 2 (06:46):
It's so rich with data, facts over feelings.
Speaker 7 (06:51):
Again discuss by the way, it was Burlington Northern as
I was making it, as I grew up in Wilmer, Minnesota,
which was a train.
Speaker 3 (07:00):
And believe that you always want the rear roads.
Speaker 2 (07:02):
Of course, why would short lined and ready to get
exactly facts?
Speaker 4 (07:06):
Here's the facts.
Speaker 7 (07:08):
You know, Nick Rockanov and I have worked together now
for eighteen years and given what was going on in
the market. Tom He's like, we have this saying in
our in our group, we need an Uncle Brian comment.
And the Uncle Brian comment was Brian write a one pager.
So I took out the took out the template, wrote
that old pager. And the reason why I did that is,
you know, we have a process and a discipline that
(07:29):
we've had for managing money now for over twenty years
and doing this strategy gig for now. It's my thirty
sixth year and we've been blessed and fortunate to work
at a bunch of amazing firms and we were really
blessed to run eleven billion dollars at BEMO now for
thirteen years. And what we said in April when we
moved our target from sixty seven hundred and sixty one hundred,
we said.
Speaker 4 (07:46):
Discretion is the better part of valor.
Speaker 7 (07:48):
We can't have a target that's out there thirty five
percent willy nilly Pollyanna based on exogenous events that made
us worried about at sixty one hundred. Now, those events
we believe in terms of the signposts that we look
for changed, so we went back to our original original
target of sixty seven hundred.
Speaker 4 (08:03):
We think the bull market is very much alive.
Speaker 7 (08:05):
We also caution investors in the note in June saying
market targets are an academic situation. It has nothing to
do with running money. If you are basing your strategies
on a strategist market target, get out of the business.
You should be running money in terms of your process
and discipline. And what we said in April is said
we're not changing anything. We're not changing anything in terms
(08:28):
of our sectors in the stocks we own. That resulted,
and I'm very humble to say that that resultant in
the best quarterly performance I've ever had running money. Now,
you don't judge by just a quarter, you judge by
longer term. So we look at the last twelve months
of our the returns on our portfolios out ten of
our benchmarks, we crushed them. And the reason is is
that we stuck with these great stocks. If we like
(08:50):
them at ten, we like them even more at eight
and that actually paid off again. So we think the
bull market is very much alive. Doesn't mean that we're
not going to have days and weeks like looks like
we're going to be little squad she here, let's call it,
but that's all about investing financials.
Speaker 6 (09:04):
That's one of the groups that people have been talking
about it for a while. How do you guys think
about financials. We have some really good numbers out of
the big banks.
Speaker 7 (09:11):
Really good numbers, and we've been very resolute in terms
of our thinking and feeling on financials. We think it's
the really big and they're really small. At the end
of the day, no matter how much financial services tends
to screw up this business as alation, it's a relationship
business and that's where the small banks with beautiful balance
sheets and great cash flow and great relationships with their
customers are going to win. Paul, But I think where
(09:32):
people missed it is that they were too to fixate
on the negativity surrounding the big banks. I think the
big banks can We'll continue to benefit from these multi
lines of business. We've said this for three or four
years now. So whether or not it's Morgan, Stanley, Goldman, Sachs,
Bank of America, former Employer City Group, JP Morgan, you're
(09:52):
gonna have quarters that training is gonna do well, and
you have quarters that wealth management doing well.
Speaker 2 (09:56):
Riyan Milski with US I was thunderstruck Brian by Google's
number just today.
Speaker 3 (10:00):
The double digit nature of it, the across the board confidence.
Speaker 2 (10:04):
Talk to people that just say, if it's too good
to be true, it's going to end. The tech thing,
the Mag ten, the Mag forty, the sixty stocks in
the Belski universe, someday it's going to end. How do
you handle that emotion?
Speaker 7 (10:20):
Well, because it is emotion. It's not based on the facts.
You want to buy these companies that are masterful in
their craft, that have amazing management teams, that have great
cash flow, and have I would say binary decisions made
about them that everybody agrees on, I e. We're never
going to use search again, which is which is ridiculous.
And oh, by the way, searches up in the quarter.
Speaker 4 (10:40):
We actually double.
Speaker 7 (10:41):
Down on Google and we added it to our value
portfolio because we love to buy broken growth. Oh yeah,
but when the stock was down in April, we put
it in our value portfolio.
Speaker 4 (10:50):
Why because it's a broken growth?
Speaker 3 (10:52):
Is Apple a broken growth story?
Speaker 5 (10:53):
No?
Speaker 7 (10:54):
I think Apple is a cash machine. You never want
to ever bet against the US consumer. And let's put
a semi colon space and you never want that against Apple.
Speaker 2 (11:02):
Well, One of the best things to come to the
crew David Tamborelli invented over at Bloomberg is a quick
use of cash at a giving company. I reviewed the
cash generation YEP of Apple yesterday.
Speaker 3 (11:14):
I've said this before.
Speaker 2 (11:15):
Folks, to me, it's like a nineteenth or even eighteenth
century Hong Kong trading company.
Speaker 3 (11:21):
Yep. They just meant profit and they don't want to
talk about it.
Speaker 6 (11:24):
So, Brian, how do we think about broad One of
the themes today we discussed with several of our guests is
just that concentration risk that's still in the broader market
here and so just kind of coming to mind because
we had such good numbers out of Google here.
Speaker 4 (11:38):
How do you guys think about that?
Speaker 8 (11:39):
Is it risk?
Speaker 4 (11:40):
Is it just the new.
Speaker 3 (11:42):
World we're in.
Speaker 7 (11:42):
It's partially in the new world in but it's it's
going back to the talking head theme that we said,
same as that ever was if you go back to
nineteen ninety five ninety six, it was a concentrated market
in terms of the nifty fifty, and those nifty fifty
stocks where the big liquidity stocks like Procter and Gambill, Gillette,
Coca Cola, Pepsi. People bought those stocks because of liquidity.
(12:03):
They're worried about coming out of the commercial banking crisis
that you were worried about at Rauscher, and I was
worried about it, Dane back in ninety fourth. Anyway, I
do believe that this notion of broadening out was proved
by decent performance in Europe and emerging markets, and I
think that's going to follow through with finally with value
in small gap again. I think ten years from now
we're going to be kicking ourselves if we didn't known
more small cap.
Speaker 3 (12:24):
When will you know to go long healthcare?
Speaker 7 (12:27):
Oh, it's a great way, is a great question.
Speaker 2 (12:30):
That's the Belski Recanova mechanism to say, finally get on healthcare.
Speaker 4 (12:36):
We're underweight.
Speaker 7 (12:36):
We've been underweighted all year, and then when people started
buying in being the year to be defensive. From a
fundamental perspective, we saw problems with the pipelines, we saw
problems with the cash flow, we saw problems with the
rhetoric in terms of the vaccines, and so we've been
focused more on Gilead, the biotechs, even Unite Healthcare.
Speaker 4 (12:53):
We bought more Unite.
Speaker 7 (12:54):
Healthcare because I think people made too much negative rhetoric
on that as well. So Tom, I think once we
see a broader direction and a more more signs of
broadening out, healthcare and financials are the cheapest sector. Financials
have the fundamentals. Healthcare right now could be a value trap.
We need to see more earnings come in through and
then we'll feel better about that.
Speaker 2 (13:13):
You need to see quarterly sequential earnings that you're looking
at free cash flow.
Speaker 3 (13:17):
We're in the income statement. You're looking in healthcare to say.
Speaker 7 (13:20):
Let's go religan at earnings first, and then we're seeing
on the earnings revision side. I want to see earnings
revisions again being contrariant. I want to see earnings revisions
completely blow out and be negative. Then I'll feel better
about healthcare.
Speaker 3 (13:31):
Brian Goski, thank you so much for joining the BMO
Capital Marcus too sure to visit.
Speaker 1 (13:35):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay, and Android
Auto with the Bloomberg Business App. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (13:53):
Someone that does critical research at JP Morgan, working with
Bruce Keas and Michael Feroli, is out of the Booth School, Chicago,
driving all their academic work here in New York City.
We're thrilled that he could join.
Speaker 3 (14:05):
Us this morning.
Speaker 2 (14:05):
Michael, I got to go back X number of years
where you stopped American economics.
Speaker 3 (14:11):
With the potential GDP estimate of our economy. Given the turmoil,
can JP Morgan calculate what our potential GDP is now
or with all the trade upset? And that is it
impossible to calculate?
Speaker 8 (14:28):
I would say impossible.
Speaker 9 (14:29):
I mean it's always going to be an estimate of
a latent variable, so you're never going to know for sure.
But right now, certainly it seems like you know, as
you know, Tom, economists like to divide their estimate of
separate theirs and to trend growth and the trend labor
supply and trend labor productivity. Labor supply is certainly downshifting
pretty notably here over the past year, just given trends
(14:53):
in immigration policy in the foreign born labor force.
Speaker 8 (14:57):
Probably more in question is.
Speaker 9 (15:01):
Productivity growth, which has shown a little bit of life
after being pretty moribun than the last expansion. You know, however,
I think maybe the case for a productivity renaissance is
perhaps a bit premature. We're seeing productivity growth since the
end of the last expansion something like one point seven
versus one point five or six prior to that.
Speaker 2 (15:24):
The productivity miracle that AI promises, do you sense that
it's distributable across all of America or do the productivity
gains of AI just go to the fancy people that
has that have a fancy computer at home, like Lisa Mateo.
Speaker 3 (15:41):
Yeah.
Speaker 8 (15:41):
So, first of all, one thing I would say is,
so far.
Speaker 9 (15:44):
We don't think we've really seen the productivity gains in
the aggregate data right when we look across industries that
you don't really see much of a correlation between industry
productivity performance in this expansion so far and industry AI
usage intensity. So I think we're really talking about something
that's more speculative than what we see in the data.
(16:04):
I think, certainly, when we think speculatively, almost all the
models economic models of AI would suggest that it's going
to lead to a lower labor share of income, more
national income going to capital, and the people who own
own basically own the data centers and owned the code.
Speaker 6 (16:24):
So, Michael, we had just earlier this morning time when
I were speaking with someone from the Yale Budget Lab
kind of highlighting maybe some of the economic impacts of
a tariff regime, which is going to look a lot
different than it did before President Trump took office. How
do you guys factor that into your GDP forecast, your
inflation forecasts.
Speaker 9 (16:42):
Yeah, so the you know, in the near term being
the next like one to four quarters, we're really thinking
about tariffs for what they are, which is a tax,
you know, attacks of perhaps around four hundred billion dollars
that it's going to be distributed somehow between businesses and households,
and to the extent is to street more to households.
That's going to show up in higher prices. The higher
(17:03):
it's going to be an indirect tax via higher prices.
So we're kind of thinking right now that that four
hundred billion dollars, you know, most of it probably ends
up in higher prices rather than the lower margins. I
guess also for the near term, one thing we and
others have been watching is whether, you know, uncertainty over
trade policy is headwind to capital spending.
Speaker 8 (17:25):
And that's been more of a again.
Speaker 9 (17:26):
More of a forecast and anything we're seeing in the data. Perhaps,
you know, if you want to be an optimist, you
can make the case here that you know, if we
get past August one, the uncertainty may head down, and
that headwind to capex may may may turn lower as well,
you know, in the in the I guess more medium term, we,
(17:47):
like almost all neoclassically trained economists, tend to think that
tariffs will reduce you know, aggurate welfare because you are
going to be shifting if your may have full employment,
yes you're going to have manufacturing job grow, but you're
going to have all other jobs decline and you're going
to have higher priced manufacturing goods here in the US.
(18:07):
But that's something probably you have to look out maybe
at least one or two years to think about.
Speaker 6 (18:14):
Given that background, Michael, how does our does that impact
the way our Federal Reserve looks at its rate policy?
Speaker 9 (18:20):
Do you think, well, it's it's one of many things
that they're thinking about there. You know, as Powell and
others have said, you face a difficult trade off if
it's lower growth and higher inflation. You know, right now
we and the market are thinking that it tilts the
FED toward easier policy. Once we get past the hump
(18:44):
in tear off pass through, which could be you know,
in a few months, then I think you can turn
your attention to growth. But look, I would also say
that in an environment in which inflation expectations on the
household side remain high on the market side, you know
our higher, you can't be two uh you know, itchy finger,
(19:06):
itchy you know trigger finger here to cut rage?
Speaker 2 (19:09):
Can we show a little I'm in audible here with
Michael Feroli and JP Morgan, we can do.
Speaker 3 (19:13):
This, folks.
Speaker 5 (19:13):
Sure.
Speaker 3 (19:13):
All weekend people go, my god, Tom, you're so smart.
Just how do you keep up on economics?
Speaker 2 (19:19):
I know it? Eight oh five on Friday, Farole drops
the Weekly Prospects of JP Morgan, which is invented by
Melman and Kasmin years ago, and I read it cover
to cover, so I'm smarter on the weekend, So everybody thinks,
time King, it's brilliant. It's Thursday, Michael Faroli, do you
put Weekly Prospects together today to get it ready for tomorrow.
Speaker 9 (19:43):
We're working on it all week, certainly thinking about the
forecast for the week ahead.
Speaker 8 (19:47):
That's a week you know, that's.
Speaker 9 (19:49):
A process that starts a long time ago, and then
you know, as the data come in, we can.
Speaker 8 (19:57):
When perils are on Friday, we have to hold off
longer than then.
Speaker 2 (20:01):
You have to stay up and put it out at
nine pm and ruin my Friday. Michael Faroli, your chart
last week, which was just stunning, folks, is inflation adjusted
consumer spending and inflation adjusted good spending. What does it symbolize,
Michael Faroli, that we flatlined December of last year.
Speaker 8 (20:22):
Yeah, so that's a bit of a it's a bit
of a mystery, right.
Speaker 10 (20:26):
Because most of the metrics of household financial performance look,
you know, looks still pretty healthy.
Speaker 9 (20:37):
Credit performance looks good. So I think it's a few
things maybe you're seeing. You have had a down shift,
as you mentioned in real disposable income, some of that
just the slowing and overall labor market growth. You did
see a bit of a drift up also in the
saving right, so there may be a little bit of
caution here earlier in the year, perhaps you know, some
(20:58):
of the policy uncertainties affect in businesses, but households as well.
Speaker 2 (21:02):
Michael, when you're putting this out on Friday night. You
and Michael Hanson like your work from home. I mean,
you're so gone. Is Murat Tashi? Is Murat in the
office like putting this thing out Friday night eating pizza.
Speaker 8 (21:15):
We're mostly in the office most of the week.
Speaker 3 (21:18):
I would say he got that done. Okay.
Speaker 2 (21:21):
I'm sure mister Diamond's buying quality pizza for you there
on Friday night.
Speaker 3 (21:25):
Michael Feroli, thank you as so much, folks. I can't
say enough.
Speaker 2 (21:29):
About what Robert Melman invented at JP Morgan, and I'm
sure Michael Feroli and Bruce Kasman could go literally back
before Melman.
Speaker 1 (21:43):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg Terminal.
Speaker 2 (21:58):
In every crisis, in every political moment, there's an institution
that just gets the win behind them and takes off.
Speaker 3 (22:06):
It is the Budget Lab at Yale.
Speaker 2 (22:10):
All sorts of good people there and Natasha Sarah driving
the ship and we're thrilled that she could join us today. Natasha,
how did you put the Budget Lab at Yale together.
Speaker 3 (22:21):
Well, you know, you came out of working for Laurence
Summer as you did this, you were a treasury in that.
How did you piece together the Budget Lab at Yale?
Speaker 11 (22:30):
Well, you know, thanks so much for having me and
for asking what a fun way to start the morning.
I worked in government alongside some of my co founders
and colleagues the Budget Lab Martha Gimbal and Danny Yagan
and folks you know, well like Ernie Tadeshi. And when
we got out of government, what we realized was there
(22:52):
was really this whole with respect to the ability to
do the kind of really rapid response policy analysis that
the Budget Lab has started to do, and also to
analyze some of these like longer term economic impacts from
doing things like investing in children or doing tax reform,
(23:12):
and so knowing that, we decided to try and take
a pass at it ourselves.
Speaker 3 (23:17):
And I think it's been.
Speaker 11 (23:19):
Really, really rewarding the last year since we launched.
Speaker 2 (23:21):
Your daily summary. Folks go to the Budget Lab at Yale.
Their Daily Summary is at first on a first order condition,
it's heartbreaking. But forget about that, Natasha, of all the
statistics of the public losing two three hundred dollars per
household of bombing our trade back to nineteen thirty three,
which is the statistic from Ernie that gets your most attention.
Speaker 4 (23:45):
You know, what I.
Speaker 11 (23:46):
Find incredibly compelling is something that's a little further down.
All those statistics are fascinating, and I think we're now
up to effective terror freight based on our latest analysis
that includes Japan of around twenty so that's like the
highest since nineteen eleven. But what I find super interesting
is that we have seen in since January, the effective
(24:10):
terif rate change on some thirty five days in this administration.
So we are basically seeing this movement up down in
this uncertainty that I think is impacting the economy in
real ways that you're actually starting to see. So I
just find looking at that graph and kind of watching
these movements incredibly interesting.
Speaker 6 (24:33):
So, given that we may see an effective teriff rate
of around a twenty percent ish, what does that mean
for economic growth? What does that mean for inflation?
Speaker 11 (24:43):
Yeah, Well, based on our estimates, what we're expecting to
see in the short run is a two percentage point
increase across the board, which translates to what you were
describing about a two thousand plus dollar impact on higher
prices for households or lower nominal incomes depending on what
the Federal Reserve decides to do in response to this
(25:05):
new trade environment. And what you're also going to see
as a result of the fact that you are going
to be pushing up effect of tariff rate so substantially
is you're actually going to see the economy be smaller
in the future than it would be in the absence
of these tariffs. And so our estimates are that we're
seeing about a point eight percentage point decrease in GDP
(25:28):
over the long run as a result of some of
the policies that this administration is pursuing.
Speaker 6 (25:34):
The administration will say, Okay, there may be some short
term economic headwinds, but on the flip side, they're generating
a lot of tariff revenue.
Speaker 4 (25:42):
Can you explain that math?
Speaker 11 (25:45):
Yeah, So it's true. For what it's worth, the tariffs
are going to raise, based on their current rate, about
two point five trillion dollars over the course of the
next decade. And you know, given our fiscal position, which
we've been able to talk about in the past, like
raising revenue is actually something we need to do. It's important.
It is more important frankly today than it was a
(26:06):
few weeks ago, given the deficit busting tax and spending
bill that Congress just passed. But importantly, tariffs are an
incredibly inefficient way to raise revenue right precisely because what
they're doing is shrinking the economy and creating a ton
of distortions. And they're also being born disproportionately by people
(26:26):
who consume significantly, So this is like the bottom forty
percent sees an impact on their incomes that's like three
times as high as the very top. So they're regressive
and inefficient.
Speaker 2 (26:38):
Natasha, thank you so much, Satasha, Sarah too short a visit.
Speaker 1 (26:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa play Bloomberg eleven thirty.
Speaker 2 (26:58):
The newspapers today really quite something. She was making edits
and amendments to it.
Speaker 3 (27:02):
I know it was a changeable. Curiously to say, what
was the macha you mentioned.
Speaker 12 (27:07):
With dirty with a dirty Macha A dirty Yes, I
will make one and I will put it out on
Twitter so that everybody knows. Okay, yes, I will make
it in the pantry.
Speaker 3 (27:16):
It's a thing, is it? Like Senka.
Speaker 4 (27:20):
Knows what the kids are doing.
Speaker 12 (27:21):
It takes kind of the edge off of macha because
you put the espresso in with it, so it tastes
a little bit better, I feel.
Speaker 6 (27:27):
But yes, because Macha by itself tastes terrible.
Speaker 3 (27:30):
Yes, save me. This is like chasing Sandborn.
Speaker 12 (27:37):
We need to we need to up your drink game.
Speaker 9 (27:38):
Tom.
Speaker 3 (27:39):
Okay.
Speaker 12 (27:40):
This is for sports fans because they might have another
option to get their fixed. So listen up. The Wall
Street Journal saying NBC Universal reportedly considering launching a sports
cable network could debut as early as the fall, and
Sorcerers saying, so the channel is going to primarily carry
sports at are also streamed on Peacock, and they could
also be offered to cable and satellite distributors. It's part
(28:02):
of the specialty packages of similar channels. But this is
a surprise for them because you know, usually they're struggling
with viewers cutting the cord, you know, and they're turning
to streaming. So it's also in the process of spinning
off its cable networks into that new company. That's what
NBC Universal is going through now. But I mean, live
sports is a huge business and you see it.
Speaker 3 (28:21):
All the time.
Speaker 6 (28:22):
I think what's happening here is they this is the
first year of a huge NBA contract, and they can't
make money solely on the peacock streaming. They have to
have some type of cable offering despite the fact that
people are cutting the cord, so they have to have
this NBA product on this many platforms money.
Speaker 3 (28:40):
Can come in.
Speaker 2 (28:40):
I mean, it's a rumor speculation New York Post three
pm yesterday, mister Bezos is possibly as a passing interest
in the Death Stars CNBC. Okay, fine, but Paul, is
this the future where these ginormous month like Bezos could
to sell a boat and buy CNBC?
Speaker 3 (28:58):
Is this what we're talking about where megabucks people go
out and buy.
Speaker 6 (29:02):
These properties that potentially and that would be a little
problematic because you have to talk about the editorial independence
of some of these things.
Speaker 4 (29:08):
So that's a concern for a lot of people.
Speaker 2 (29:10):
And the great Catherine Rample leaving the Washington Post yesterday.
Speaker 3 (29:14):
That was a bombshell. Excuse me, Lisa, I interrupt.
Speaker 12 (29:18):
That's okay, it's okay, Okay. The next one, I got
an email this morning from a regular guest here on
the show. I cannot reveal my sources, okay, but said it.
Speaker 3 (29:27):
Was a great morning.
Speaker 11 (29:28):
This is.
Speaker 12 (29:30):
This is a good one because I can relate. Okay,
if people don't see when I first come in here
to the show in the morning, I'm carrying my water,
I've got my phone, I've got my yoga okay, and
I've got my lipstick, and I have my headphones, and
I walk in here like a mad woman.
Speaker 4 (29:45):
Okay.
Speaker 12 (29:46):
But this is actually a trend. Okay. So the New
York Times has this article. You got to check it out.
It's called the claw Grip. Okay. Women are posting on
social media how many items they can carry at once.
The record is fifteen. I believe this. This is despite
you know, bigger bags or the trend.
Speaker 7 (30:02):
Right.
Speaker 12 (30:02):
So the theory behind it, there is one is that
it's a reaction because you know, women feel that they
don't have the functional pockets like men do, so they're
kind of sounding off against this. But now you have
these products that are coming out like a phone case
by road that includes a lipstick holder.
Speaker 3 (30:20):
Genius genius is cleared, Yeah, weightless. Don't you just get
a bigger bag? I can see you with the traders,
Joe Toad.
Speaker 12 (30:30):
I mean, but then I have to like haul this
thing around and search through it to try and find
what I want. That's things get lost in the bag.
So I just carry You should see.
Speaker 4 (30:40):
Me when I tick?
Speaker 3 (30:42):
Can we brock it up?
Speaker 2 (30:44):
Can we get one of the interns to help miss
Matteo in the morning so that she's lined up with
a gluten free lipstick and all the rest of it
before the show starts.
Speaker 3 (30:54):
Get twenty seconds? Twenty seconds?
Speaker 12 (30:56):
Okay, forget about the hot summer beach travel. The new
thing is cool locations. So this is what USA Today
is saying. They're saying people are tired of the crowded,
hot places and they want to go to cooler places.
Speaker 4 (31:09):
That are less cracky.
Speaker 3 (31:10):
You're a huge deal.
Speaker 12 (31:11):
Yes, yes, yes, And even here they're talking about western
North Carolina. Right head to the Appalachian Mountains Mount Mitchell. Okay,
you gotta go to hiking smoking New England, not Cape Cod,
but New Hampshire's Mount Washington Valley. Beautiful. You gotta check
it out. Jersey Bretton Woods Now Northern Michigan.
Speaker 4 (31:30):
Yes, I've heard about that r City, Michigan.
Speaker 12 (31:32):
You gotta go over there to get the nice cool
breeze off the cooler water.
Speaker 2 (31:36):
So thank you, Lisa, greatly appreciate. It's the Newspapers with
Lisa Matteo.
Speaker 1 (31:41):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am Easter and on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live I have every weekday
on YouTube and always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
Right now, we're gonna look at like the pro view
of this odd bullmarket. I love what Stuart Kaiser and
City Group says here is this is very you know, folks,
This is like you know, geek talk, remain long US
equity beta with tactical IWM upside and consider Vic's roll
(00:47):
down trades.
Speaker 3 (00:49):
I translate a wise one.
Speaker 4 (00:51):
Well as much as I like to referred to as
a geek. Good morning everybody. Look, I think the.
Speaker 5 (00:56):
Story here, if I were to summarize that is, we
still like being long US equities.
Speaker 4 (00:59):
There's a lot of risk premium still in the VIX
curve right now.
Speaker 5 (01:02):
I implied volatility is probably too high relative to how well
the equity markets are raviot.
Speaker 3 (01:06):
It's out there.
Speaker 5 (01:07):
Exactly, and as that sort of compresses, it just gives
another boost.
Speaker 4 (01:11):
To the upside. So as much as people are.
Speaker 5 (01:13):
Worried about valuation and positioning, there's still actually a fair
amount of fear price in your market that needs to
come out.
Speaker 3 (01:18):
Shout out to zero head. You makes a big deedle
about this.
Speaker 2 (01:20):
When you hear the phrase short covering, translate that on
the City group desk, it looks like the TV show
industry translate what short covering means?
Speaker 5 (01:30):
Well, I think right now you have to think of
what is what stocks are short and those have typically
been like the lower quality stocks that people didn't want
to kind of touch. So when you get short covering,
what that's doing is it's putting pressure on the stocks
that hedge funds sort of don't like, and that can
be you know, really really painful for them at least
short term in terms of their P and L. So
what you're kind of doing is seeing a rotation into
(01:51):
the stocks that hedge funds don't own, and again that
could be un fund for them at least over a
short term period.
Speaker 6 (01:57):
Is the market still overly concentrated in some of the
X number of big tech names. Is that still a
thing for this market?
Speaker 5 (02:06):
I think it definitely is. You know, I was in
Europe a few weeks back, and I was surprised at
how underweight the AI trade and underweight US.
Speaker 4 (02:13):
Tech they felt.
Speaker 5 (02:14):
So I think the international investor, particularly early this year,
was trying to do the US exceptionalism as dead trade yep.
And then you got you know, better news on tariffs
and good news out of one Q earnings, and it
just kind of forced them back into the market.
Speaker 3 (02:26):
See.
Speaker 5 (02:27):
I mean, I think there is a fair amount of
call it concentration risk top ten s and p stocks
or more of a third of market cap that's not
going away, So it is. It is a kind of
a key aspect driving returns right.
Speaker 6 (02:37):
Now, Espaishly, I don't see anything that's going to change that.
I don't see anybody going out there and saying I
want to go out.
Speaker 4 (02:42):
And buy value.
Speaker 6 (02:46):
What has to happen for that to broaden out, if
you will, Yeah, I think.
Speaker 5 (02:50):
The broadening at this point has to come from economic
growth and earnings. So if during earning season you are
seeing a broadening out of that Ernie's growth, that can
get people maybe a little bit downcap structured into that
value trade. But to your point, I mean, the AI
trade is just so powerful, even Google overnight yep. A
lot of moving parts there, but a key of it
is they increase their cap X by another ten billion dollars,
(03:11):
and to the extent that that is still happening, it
makes it hard for people not to be in that space.
So I think that's kind of like we mentioned, being
long quality, like that mag seven trade is still the
core position for the most portfolios.
Speaker 4 (03:23):
And then why we.
Speaker 5 (03:24):
Like small cap is just you know, making sure we're
not ignoring, you know, the rest of the market during
earning season.
Speaker 4 (03:29):
So the quick answer would be, we need to see
broader earnings.
Speaker 5 (03:31):
Growth and recession risks continue to get squeezed out of
the market for that smaller cap, lower quality stock to work.
Speaker 2 (03:38):
There's a headline out there is sort of in the
zeitgeist that I don't have the authority or data that
the quants are really having a.
Speaker 3 (03:46):
Tough goal of it. What is a quant and why
are they having a tough goal of it?
Speaker 5 (03:50):
Well, I mean on the QUANDT side, you know, these
are folks that you know are really investing very systematically
in box. Some I mean they wouldn't tell you they
understand the box, you know from a distance. Why are they,
you know, having some trouble? I would say that the
S and P five hundred realized volatility is below ten
percent right now, So the S ANDP is not moving
very much. The factors that a quant my trade style stocks,
(04:12):
value stocks, growth stocks, those have been incredibly volatile, much
more violatile than the S and P five hundred itself.
So if quants are under pressure, it's because the market
isn't moving very much, but the tools they use are
and that sort of dislocation can be really tricky for them.
Speaker 6 (04:28):
I'll just speak for myself, I'm very surprised, given all
that's going on out there in the world, that the
VIX is a fifteen Is that?
Speaker 4 (04:35):
What does that tell you?
Speaker 6 (04:36):
That there's just people are just owning a certain number
of stocks, And I mean, I'm'm mat sure what that's
telling me.
Speaker 4 (04:41):
Well, what part of it is the VIX itself.
Speaker 5 (04:43):
The number one fundamental determinant of the level of the
VIX is S and P realized volatility. Okay, so if
you were to take let's say ten or twenty day
realize volatility on the SMP, you'd add about four and
a half points to that. That's going to give you
a quick and dirty on the VIX. The notable issue
with the VIX, now to your point, the spot VIX
is very low.
Speaker 4 (05:02):
But the VIX has a term structure, so you can
trade the outlook for volatility for the next six to.
Speaker 2 (05:07):
Nine months, betting that that outlook will come to a
lower VIX a greater optimism.
Speaker 5 (05:12):
Yes, we do believe that that additional volatility priced into
the three to six months ahead outlook needs to come
in as tariff news improves and the economic data.
Speaker 3 (05:23):
You can find out question lovelods.
Speaker 2 (05:25):
People just email me and said, it's get impatient, Stuart Kaiser,
as simple as I can, how do you measure the
exuberance or effervescence in the market now?
Speaker 3 (05:35):
Is it leverage? I mean, what's the oomph right now?
Speaker 4 (05:38):
I think what people are focusing on is number one, valuation.
We've seen significant pe expansion for the S and P.
Speaker 5 (05:44):
I think you all touched on it earlier. Retail participation.
These retail meme stocks are really starting to move a
lot again and that's like a bull market trade, so
we'll pay attention to that as well. But I think
number one thing is evaluation, B.
Speaker 4 (05:56):
Level of the VIX. Three retail participation.
Speaker 2 (05:59):
Stuart Kaiser thinking so much greatly appreciated.
Speaker 1 (06:06):
You're listening to the Bloomberg surveillance podcast. Catch us live
weekday afternoons from seven to ten am Eastern Listen on
Applecarplay and Android Otto with the Bloomberg Business app, or
watch us live on YouTube.
Speaker 2 (06:19):
Joining us right now, Brian Belski. We're talking to people
that you know got it wrong. I learned from people
that got it wrong. And I also got to talk
to a wise guy who is a research note. Same
as it ever was. Belski from Bemo Capital Markets joins us.
And you hate him, folks, because he's got a long
paragraph that Rockenhove.
Speaker 3 (06:36):
Brian can't write that long. Roucan over writes it.
Speaker 2 (06:39):
Then he's got two smaller paragraphs, and then he's got
like you know, bookcase, Bearcase, and it takes you.
Speaker 3 (06:44):
An hour and a half to read it.
Speaker 2 (06:46):
It's so rich with data, facts over feelings.
Speaker 7 (06:51):
Again discuss by the way, it was Burlington Northern as
I was making it, as I grew up in Wilmer, Minnesota,
which was a train.
Speaker 3 (07:00):
And believe that you always want the rear roads.
Speaker 2 (07:02):
Of course, why would short lined and ready to get
exactly facts?
Speaker 4 (07:06):
Here's the facts.
Speaker 7 (07:08):
You know, Nick Rockanov and I have worked together now
for eighteen years and given what was going on in
the market. Tom He's like, we have this saying in
our in our group, we need an Uncle Brian comment.
And the Uncle Brian comment was Brian write a one pager.
So I took out the took out the template, wrote
that old pager. And the reason why I did that is,
you know, we have a process and a discipline that
(07:29):
we've had for managing money now for over twenty years
and doing this strategy gig for now. It's my thirty
sixth year and we've been blessed and fortunate to work
at a bunch of amazing firms and we were really
blessed to run eleven billion dollars at BEMO now for
thirteen years. And what we said in April when we
moved our target from sixty seven hundred and sixty one hundred,
we said.
Speaker 4 (07:46):
Discretion is the better part of valor.
Speaker 7 (07:48):
We can't have a target that's out there thirty five
percent willy nilly Pollyanna based on exogenous events that made
us worried about at sixty one hundred. Now, those events
we believe in terms of the signposts that we look
for changed, so we went back to our original original
target of sixty seven hundred.
Speaker 4 (08:03):
We think the bull market is very much alive.
Speaker 7 (08:05):
We also caution investors in the note in June saying
market targets are an academic situation. It has nothing to
do with running money. If you are basing your strategies
on a strategist market target, get out of the business.
You should be running money in terms of your process
and discipline. And what we said in April is said
we're not changing anything. We're not changing anything in terms
(08:28):
of our sectors in the stocks we own. That resulted,
and I'm very humble to say that that resultant in
the best quarterly performance I've ever had running money. Now,
you don't judge by just a quarter, you judge by
longer term. So we look at the last twelve months
of our the returns on our portfolios out ten of
our benchmarks, we crushed them. And the reason is is
that we stuck with these great stocks. If we like
(08:50):
them at ten, we like them even more at eight
and that actually paid off again. So we think the
bull market is very much alive. Doesn't mean that we're
not going to have days and weeks like looks like
we're going to be little squad she here, let's call it,
but that's all about investing financials.
Speaker 6 (09:04):
That's one of the groups that people have been talking
about it for a while. How do you guys think
about financials. We have some really good numbers out of
the big banks.
Speaker 7 (09:11):
Really good numbers, and we've been very resolute in terms
of our thinking and feeling on financials. We think it's
the really big and they're really small. At the end
of the day, no matter how much financial services tends
to screw up this business as alation, it's a relationship
business and that's where the small banks with beautiful balance
sheets and great cash flow and great relationships with their
customers are going to win. Paul, But I think where
(09:32):
people missed it is that they were too to fixate
on the negativity surrounding the big banks. I think the
big banks can We'll continue to benefit from these multi
lines of business. We've said this for three or four
years now. So whether or not it's Morgan, Stanley, Goldman, Sachs,
Bank of America, former Employer City Group, JP Morgan, you're
(09:52):
gonna have quarters that training is gonna do well, and
you have quarters that wealth management doing well.
Speaker 2 (09:56):
Riyan Milski with US I was thunderstruck Brian by Google's
number just today.
Speaker 3 (10:00):
The double digit nature of it, the across the board confidence.
Speaker 2 (10:04):
Talk to people that just say, if it's too good
to be true, it's going to end. The tech thing,
the Mag ten, the Mag forty, the sixty stocks in
the Belski universe, someday it's going to end. How do
you handle that emotion?
Speaker 7 (10:20):
Well, because it is emotion. It's not based on the facts.
You want to buy these companies that are masterful in
their craft, that have amazing management teams, that have great
cash flow, and have I would say binary decisions made
about them that everybody agrees on, I e. We're never
going to use search again, which is which is ridiculous.
And oh, by the way, searches up in the quarter.
Speaker 4 (10:40):
We actually double.
Speaker 7 (10:41):
Down on Google and we added it to our value
portfolio because we love to buy broken growth. Oh yeah,
but when the stock was down in April, we put
it in our value portfolio.
Speaker 4 (10:50):
Why because it's a broken growth?
Speaker 3 (10:52):
Is Apple a broken growth story?
Speaker 5 (10:53):
No?
Speaker 7 (10:54):
I think Apple is a cash machine. You never want
to ever bet against the US consumer. And let's put
a semi colon space and you never want that against Apple.
Speaker 2 (11:02):
Well, One of the best things to come to the
crew David Tamborelli invented over at Bloomberg is a quick
use of cash at a giving company. I reviewed the
cash generation YEP of Apple yesterday.
Speaker 3 (11:14):
I've said this before.
Speaker 2 (11:15):
Folks, to me, it's like a nineteenth or even eighteenth
century Hong Kong trading company.
Speaker 3 (11:21):
Yep. They just meant profit and they don't want to
talk about it.
Speaker 6 (11:24):
So, Brian, how do we think about broad One of
the themes today we discussed with several of our guests is
just that concentration risk that's still in the broader market
here and so just kind of coming to mind because
we had such good numbers out of Google here.
Speaker 4 (11:38):
How do you guys think about that?
Speaker 8 (11:39):
Is it risk?
Speaker 4 (11:40):
Is it just the new.
Speaker 3 (11:42):
World we're in.
Speaker 7 (11:42):
It's partially in the new world in but it's it's
going back to the talking head theme that we said,
same as that ever was if you go back to
nineteen ninety five ninety six, it was a concentrated market
in terms of the nifty fifty, and those nifty fifty
stocks where the big liquidity stocks like Procter and Gambill, Gillette,
Coca Cola, Pepsi. People bought those stocks because of liquidity.
(12:03):
They're worried about coming out of the commercial banking crisis
that you were worried about at Rauscher, and I was
worried about it, Dane back in ninety fourth. Anyway, I
do believe that this notion of broadening out was proved
by decent performance in Europe and emerging markets, and I
think that's going to follow through with finally with value
in small gap again. I think ten years from now
we're going to be kicking ourselves if we didn't known
more small cap.
Speaker 3 (12:24):
When will you know to go long healthcare?
Speaker 7 (12:27):
Oh, it's a great way, is a great question.
Speaker 2 (12:30):
That's the Belski Recanova mechanism to say, finally get on healthcare.
Speaker 4 (12:36):
We're underweight.
Speaker 7 (12:36):
We've been underweighted all year, and then when people started
buying in being the year to be defensive. From a
fundamental perspective, we saw problems with the pipelines, we saw
problems with the cash flow, we saw problems with the
rhetoric in terms of the vaccines, and so we've been
focused more on Gilead, the biotechs, even Unite Healthcare.
Speaker 4 (12:53):
We bought more Unite.
Speaker 7 (12:54):
Healthcare because I think people made too much negative rhetoric
on that as well. So Tom, I think once we
see a broader direction and a more more signs of
broadening out, healthcare and financials are the cheapest sector. Financials
have the fundamentals. Healthcare right now could be a value trap.
We need to see more earnings come in through and
then we'll feel better about that.
Speaker 2 (13:13):
You need to see quarterly sequential earnings that you're looking
at free cash flow.
Speaker 3 (13:17):
We're in the income statement. You're looking in healthcare to say.
Speaker 7 (13:20):
Let's go religan at earnings first, and then we're seeing
on the earnings revision side. I want to see earnings
revisions again being contrariant. I want to see earnings revisions
completely blow out and be negative. Then I'll feel better
about healthcare.
Speaker 3 (13:31):
Brian Goski, thank you so much for joining the BMO
Capital Marcus too sure to visit.
Speaker 1 (13:35):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay, and Android
Auto with the Bloomberg Business App. You can also listen
live on Amazon Alexa from our flagship New York station.
Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (13:53):
Someone that does critical research at JP Morgan, working with
Bruce Keas and Michael Feroli, is out of the Booth School, Chicago,
driving all their academic work here in New York City.
We're thrilled that he could join.
Speaker 3 (14:05):
Us this morning.
Speaker 2 (14:05):
Michael, I got to go back X number of years
where you stopped American economics.
Speaker 3 (14:11):
With the potential GDP estimate of our economy. Given the turmoil,
can JP Morgan calculate what our potential GDP is now
or with all the trade upset? And that is it
impossible to calculate?
Speaker 8 (14:28):
I would say impossible.
Speaker 9 (14:29):
I mean it's always going to be an estimate of
a latent variable, so you're never going to know for sure.
But right now, certainly it seems like you know, as
you know, Tom, economists like to divide their estimate of
separate theirs and to trend growth and the trend labor
supply and trend labor productivity. Labor supply is certainly downshifting
pretty notably here over the past year, just given trends
(14:53):
in immigration policy in the foreign born labor force.
Speaker 8 (14:57):
Probably more in question is.
Speaker 9 (15:01):
Productivity growth, which has shown a little bit of life
after being pretty moribun than the last expansion. You know, however,
I think maybe the case for a productivity renaissance is
perhaps a bit premature. We're seeing productivity growth since the
end of the last expansion something like one point seven
versus one point five or six prior to that.
Speaker 2 (15:24):
The productivity miracle that AI promises, do you sense that
it's distributable across all of America or do the productivity
gains of AI just go to the fancy people that
has that have a fancy computer at home, like Lisa Mateo.
Speaker 3 (15:41):
Yeah.
Speaker 8 (15:41):
So, first of all, one thing I would say is,
so far.
Speaker 9 (15:44):
We don't think we've really seen the productivity gains in
the aggregate data right when we look across industries that
you don't really see much of a correlation between industry
productivity performance in this expansion so far and industry AI
usage intensity. So I think we're really talking about something
that's more speculative than what we see in the data.
(16:04):
I think, certainly, when we think speculatively, almost all the
models economic models of AI would suggest that it's going
to lead to a lower labor share of income, more
national income going to capital, and the people who own
own basically own the data centers and owned the code.
Speaker 6 (16:24):
So, Michael, we had just earlier this morning time when
I were speaking with someone from the Yale Budget Lab
kind of highlighting maybe some of the economic impacts of
a tariff regime, which is going to look a lot
different than it did before President Trump took office. How
do you guys factor that into your GDP forecast, your
inflation forecasts.
Speaker 9 (16:42):
Yeah, so the you know, in the near term being
the next like one to four quarters, we're really thinking
about tariffs for what they are, which is a tax,
you know, attacks of perhaps around four hundred billion dollars
that it's going to be distributed somehow between businesses and households,
and to the extent is to street more to households.
That's going to show up in higher prices. The higher
(17:03):
it's going to be an indirect tax via higher prices.
So we're kind of thinking right now that that four
hundred billion dollars, you know, most of it probably ends
up in higher prices rather than the lower margins. I
guess also for the near term, one thing we and
others have been watching is whether, you know, uncertainty over
trade policy is headwind to capital spending.
Speaker 8 (17:25):
And that's been more of a again.
Speaker 9 (17:26):
More of a forecast and anything we're seeing in the data. Perhaps,
you know, if you want to be an optimist, you
can make the case here that you know, if we
get past August one, the uncertainty may head down, and
that headwind to capex may may may turn lower as well,
you know, in the in the I guess more medium term, we,
(17:47):
like almost all neoclassically trained economists, tend to think that
tariffs will reduce you know, aggurate welfare because you are
going to be shifting if your may have full employment,
yes you're going to have manufacturing job grow, but you're
going to have all other jobs decline and you're going
to have higher priced manufacturing goods here in the US.
(18:07):
But that's something probably you have to look out maybe
at least one or two years to think about.
Speaker 6 (18:14):
Given that background, Michael, how does our does that impact
the way our Federal Reserve looks at its rate policy?
Speaker 9 (18:20):
Do you think, well, it's it's one of many things
that they're thinking about there. You know, as Powell and
others have said, you face a difficult trade off if
it's lower growth and higher inflation. You know, right now
we and the market are thinking that it tilts the
FED toward easier policy. Once we get past the hump
(18:44):
in tear off pass through, which could be you know,
in a few months, then I think you can turn
your attention to growth. But look, I would also say
that in an environment in which inflation expectations on the
household side remain high on the market side, you know
our higher, you can't be two uh you know, itchy finger,
(19:06):
itchy you know trigger finger here to cut rage?
Speaker 2 (19:09):
Can we show a little I'm in audible here with
Michael Feroli and JP Morgan, we can do.
Speaker 3 (19:13):
This, folks.
Speaker 5 (19:13):
Sure.
Speaker 3 (19:13):
All weekend people go, my god, Tom, you're so smart.
Just how do you keep up on economics?
Speaker 2 (19:19):
I know it? Eight oh five on Friday, Farole drops
the Weekly Prospects of JP Morgan, which is invented by
Melman and Kasmin years ago, and I read it cover
to cover, so I'm smarter on the weekend, So everybody thinks,
time King, it's brilliant. It's Thursday, Michael Faroli, do you
put Weekly Prospects together today to get it ready for tomorrow.
Speaker 9 (19:43):
We're working on it all week, certainly thinking about the
forecast for the week ahead.
Speaker 8 (19:47):
That's a week you know, that's.
Speaker 9 (19:49):
A process that starts a long time ago, and then
you know, as the data come in, we can.
Speaker 8 (19:57):
When perils are on Friday, we have to hold off
longer than then.
Speaker 2 (20:01):
You have to stay up and put it out at
nine pm and ruin my Friday. Michael Faroli, your chart
last week, which was just stunning, folks, is inflation adjusted
consumer spending and inflation adjusted good spending. What does it symbolize,
Michael Faroli, that we flatlined December of last year.
Speaker 8 (20:22):
Yeah, so that's a bit of a it's a bit
of a mystery, right.
Speaker 10 (20:26):
Because most of the metrics of household financial performance look,
you know, looks still pretty healthy.
Speaker 9 (20:37):
Credit performance looks good. So I think it's a few
things maybe you're seeing. You have had a down shift,
as you mentioned in real disposable income, some of that
just the slowing and overall labor market growth. You did
see a bit of a drift up also in the
saving right, so there may be a little bit of
caution here earlier in the year, perhaps you know, some
(20:58):
of the policy uncertainties affect in businesses, but households as well.
Speaker 2 (21:02):
Michael, when you're putting this out on Friday night. You
and Michael Hanson like your work from home. I mean,
you're so gone. Is Murat Tashi? Is Murat in the
office like putting this thing out Friday night eating pizza.
Speaker 8 (21:15):
We're mostly in the office most of the week.
Speaker 3 (21:18):
I would say he got that done. Okay.
Speaker 2 (21:21):
I'm sure mister Diamond's buying quality pizza for you there
on Friday night.
Speaker 3 (21:25):
Michael Feroli, thank you as so much, folks. I can't
say enough.
Speaker 2 (21:29):
About what Robert Melman invented at JP Morgan, and I'm
sure Michael Feroli and Bruce Kasman could go literally back
before Melman.
Speaker 1 (21:43):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg Terminal.
Speaker 2 (21:58):
In every crisis, in every political moment, there's an institution
that just gets the win behind them and takes off.
Speaker 3 (22:06):
It is the Budget Lab at Yale.
Speaker 2 (22:10):
All sorts of good people there and Natasha Sarah driving
the ship and we're thrilled that she could join us today. Natasha,
how did you put the Budget Lab at Yale together.
Speaker 3 (22:21):
Well, you know, you came out of working for Laurence
Summer as you did this, you were a treasury in that.
How did you piece together the Budget Lab at Yale?
Speaker 11 (22:30):
Well, you know, thanks so much for having me and
for asking what a fun way to start the morning.
I worked in government alongside some of my co founders
and colleagues the Budget Lab Martha Gimbal and Danny Yagan
and folks you know, well like Ernie Tadeshi. And when
we got out of government, what we realized was there
(22:52):
was really this whole with respect to the ability to
do the kind of really rapid response policy analysis that
the Budget Lab has started to do, and also to
analyze some of these like longer term economic impacts from
doing things like investing in children or doing tax reform,
(23:12):
and so knowing that, we decided to try and take
a pass at it ourselves.
Speaker 3 (23:17):
And I think it's been.
Speaker 11 (23:19):
Really, really rewarding the last year since we launched.
Speaker 2 (23:21):
Your daily summary. Folks go to the Budget Lab at Yale.
Their Daily Summary is at first on a first order condition,
it's heartbreaking. But forget about that, Natasha, of all the
statistics of the public losing two three hundred dollars per
household of bombing our trade back to nineteen thirty three,
which is the statistic from Ernie that gets your most attention.
Speaker 4 (23:45):
You know, what I.
Speaker 11 (23:46):
Find incredibly compelling is something that's a little further down.
All those statistics are fascinating, and I think we're now
up to effective terror freight based on our latest analysis
that includes Japan of around twenty so that's like the
highest since nineteen eleven. But what I find super interesting
is that we have seen in since January, the effective
(24:10):
terif rate change on some thirty five days in this administration.
So we are basically seeing this movement up down in
this uncertainty that I think is impacting the economy in
real ways that you're actually starting to see. So I
just find looking at that graph and kind of watching
these movements incredibly interesting.
Speaker 6 (24:33):
So, given that we may see an effective teriff rate
of around a twenty percent ish, what does that mean
for economic growth? What does that mean for inflation?
Speaker 11 (24:43):
Yeah, Well, based on our estimates, what we're expecting to
see in the short run is a two percentage point
increase across the board, which translates to what you were
describing about a two thousand plus dollar impact on higher
prices for households or lower nominal incomes depending on what
the Federal Reserve decides to do in response to this
(25:05):
new trade environment. And what you're also going to see
as a result of the fact that you are going
to be pushing up effect of tariff rate so substantially
is you're actually going to see the economy be smaller
in the future than it would be in the absence
of these tariffs. And so our estimates are that we're
seeing about a point eight percentage point decrease in GDP
(25:28):
over the long run as a result of some of
the policies that this administration is pursuing.
Speaker 6 (25:34):
The administration will say, Okay, there may be some short
term economic headwinds, but on the flip side, they're generating
a lot of tariff revenue.
Speaker 4 (25:42):
Can you explain that math?
Speaker 11 (25:45):
Yeah, So it's true. For what it's worth, the tariffs
are going to raise, based on their current rate, about
two point five trillion dollars over the course of the
next decade. And you know, given our fiscal position, which
we've been able to talk about in the past, like
raising revenue is actually something we need to do. It's important.
It is more important frankly today than it was a
(26:06):
few weeks ago, given the deficit busting tax and spending
bill that Congress just passed. But importantly, tariffs are an
incredibly inefficient way to raise revenue right precisely because what
they're doing is shrinking the economy and creating a ton
of distortions. And they're also being born disproportionately by people
(26:26):
who consume significantly, So this is like the bottom forty
percent sees an impact on their incomes that's like three
times as high as the very top. So they're regressive
and inefficient.
Speaker 2 (26:38):
Natasha, thank you so much, Satasha, Sarah too short a visit.
Speaker 1 (26:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa play Bloomberg eleven thirty.
Speaker 2 (26:58):
The newspapers today really quite something. She was making edits
and amendments to it.
Speaker 3 (27:02):
I know it was a changeable. Curiously to say, what
was the macha you mentioned.
Speaker 12 (27:07):
With dirty with a dirty Macha A dirty Yes, I
will make one and I will put it out on
Twitter so that everybody knows. Okay, yes, I will make
it in the pantry.
Speaker 3 (27:16):
It's a thing, is it? Like Senka.
Speaker 4 (27:20):
Knows what the kids are doing.
Speaker 12 (27:21):
It takes kind of the edge off of macha because
you put the espresso in with it, so it tastes
a little bit better, I feel.
Speaker 6 (27:27):
But yes, because Macha by itself tastes terrible.
Speaker 3 (27:30):
Yes, save me. This is like chasing Sandborn.
Speaker 12 (27:37):
We need to we need to up your drink game.
Speaker 9 (27:38):
Tom.
Speaker 3 (27:39):
Okay.
Speaker 12 (27:40):
This is for sports fans because they might have another
option to get their fixed. So listen up. The Wall
Street Journal saying NBC Universal reportedly considering launching a sports
cable network could debut as early as the fall, and
Sorcerers saying, so the channel is going to primarily carry
sports at are also streamed on Peacock, and they could
also be offered to cable and satellite distributors. It's part
(28:02):
of the specialty packages of similar channels. But this is
a surprise for them because you know, usually they're struggling
with viewers cutting the cord, you know, and they're turning
to streaming. So it's also in the process of spinning
off its cable networks into that new company. That's what
NBC Universal is going through now. But I mean, live
sports is a huge business and you see it.
Speaker 3 (28:21):
All the time.
Speaker 6 (28:22):
I think what's happening here is they this is the
first year of a huge NBA contract, and they can't
make money solely on the peacock streaming. They have to
have some type of cable offering despite the fact that
people are cutting the cord, so they have to have
this NBA product on this many platforms money.
Speaker 3 (28:40):
Can come in.
Speaker 2 (28:40):
I mean, it's a rumor speculation New York Post three
pm yesterday, mister Bezos is possibly as a passing interest
in the Death Stars CNBC. Okay, fine, but Paul, is
this the future where these ginormous month like Bezos could
to sell a boat and buy CNBC?
Speaker 3 (28:58):
Is this what we're talking about where megabucks people go
out and buy.
Speaker 6 (29:02):
These properties that potentially and that would be a little
problematic because you have to talk about the editorial independence
of some of these things.
Speaker 4 (29:08):
So that's a concern for a lot of people.
Speaker 2 (29:10):
And the great Catherine Rample leaving the Washington Post yesterday.
Speaker 3 (29:14):
That was a bombshell. Excuse me, Lisa, I interrupt.
Speaker 12 (29:18):
That's okay, it's okay, Okay. The next one, I got
an email this morning from a regular guest here on
the show. I cannot reveal my sources, okay, but said it.
Speaker 3 (29:27):
Was a great morning.
Speaker 11 (29:28):
This is.
Speaker 12 (29:30):
This is a good one because I can relate. Okay,
if people don't see when I first come in here
to the show in the morning, I'm carrying my water,
I've got my phone, I've got my yoga okay, and
I've got my lipstick, and I have my headphones, and
I walk in here like a mad woman.
Speaker 4 (29:45):
Okay.
Speaker 12 (29:46):
But this is actually a trend. Okay. So the New
York Times has this article. You got to check it out.
It's called the claw Grip. Okay. Women are posting on
social media how many items they can carry at once.
The record is fifteen. I believe this. This is despite
you know, bigger bags or the trend.
Speaker 7 (30:02):
Right.
Speaker 12 (30:02):
So the theory behind it, there is one is that
it's a reaction because you know, women feel that they
don't have the functional pockets like men do, so they're
kind of sounding off against this. But now you have
these products that are coming out like a phone case
by road that includes a lipstick holder.
Speaker 3 (30:20):
Genius genius is cleared, Yeah, weightless. Don't you just get
a bigger bag? I can see you with the traders,
Joe Toad.
Speaker 12 (30:30):
I mean, but then I have to like haul this
thing around and search through it to try and find
what I want. That's things get lost in the bag.
So I just carry You should see.
Speaker 4 (30:40):
Me when I tick?
Speaker 3 (30:42):
Can we brock it up?
Speaker 2 (30:44):
Can we get one of the interns to help miss
Matteo in the morning so that she's lined up with
a gluten free lipstick and all the rest of it
before the show starts.
Speaker 3 (30:54):
Get twenty seconds? Twenty seconds?
Speaker 12 (30:56):
Okay, forget about the hot summer beach travel. The new
thing is cool locations. So this is what USA Today
is saying. They're saying people are tired of the crowded,
hot places and they want to go to cooler places.
Speaker 4 (31:09):
That are less cracky.
Speaker 3 (31:10):
You're a huge deal.
Speaker 12 (31:11):
Yes, yes, yes, And even here they're talking about western
North Carolina. Right head to the Appalachian Mountains Mount Mitchell. Okay,
you gotta go to hiking smoking New England, not Cape Cod,
but New Hampshire's Mount Washington Valley. Beautiful. You gotta check
it out. Jersey Bretton Woods Now Northern Michigan.
Speaker 4 (31:30):
Yes, I've heard about that r City, Michigan.
Speaker 12 (31:32):
You gotta go over there to get the nice cool
breeze off the cooler water.
Speaker 2 (31:36):
So thank you, Lisa, greatly appreciate. It's the Newspapers with
Lisa Matteo.
Speaker 1 (31:41):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am Easter and on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live I have every weekday
on YouTube and always on the Bloomberg terminal
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.