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Core PCE Rises at Mild Pace · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: The real data was the June number for PCE. This
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Speaker 3: is what the FED looks at, personal income up two
0:30
Speaker 3: tenths of one percent, spending up three tenths of one percent,
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Speaker 3: holding up. You also had a core PCE on a
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Speaker 3: month on month coming in just two tenths of one
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Speaker 3: percent and two point six percent year on year.
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Speaker 4: So they say this is status quo.
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Speaker 1: John Tucker, how goldly lockxy?
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Speaker 4: Is this I mean?
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Speaker 3: Or is it just a case of confirmation bias? Like
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Speaker 3: you see what you want to see? Yeah, let's have
0:53
Speaker 3: someone who might have an opinion on that one. Lauren
0:55
Speaker 3: Saylor Baker is economists and senior consulting speaker at ITR
0:58
Speaker 3: Economics on the data. Is this data like a see
1:02
Speaker 3: what you want to see? Or is this a goldilocks
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Speaker 3: for real.
1:07
Speaker 4: Result to be?
1:08
Speaker 5: This is not confirmation bias, as we got the GDP
1:11
Speaker 5: numbers yesterday. The economy is still holding up, very resilient,
1:15
Speaker 5: inflation finally coming down. It was a little more persistent,
1:18
Speaker 5: a little stickier than the FED wanted to see at
1:20
Speaker 5: the start of the year. But all of the most
1:22
Speaker 5: recent months of data giving them what they need to start.
1:25
Speaker 5: Cuts in September.
1:26
Speaker 1: All right, cuts in September. What about July thirty? First
1:30
Speaker 1: we heard from Bill Dudley, even Mohammad al Arian Bloomberg
1:34
Speaker 1: columnists saying that they should get it done with and
1:38
Speaker 1: get it done soon.
1:40
Speaker 5: I think that's the wishful thinking in the room. I
1:42
Speaker 5: do not expect the FED to be moving in their
1:45
Speaker 5: meeting next week. If we could accuse the FED of
1:47
Speaker 5: one thing, it would probably not be cutting rights too
1:50
Speaker 5: soon in this cycle.
1:52
Speaker 3: What do you think that the well, what are we
1:54
Speaker 3: gonna learn? Though, Like, Okay, they don't want to cut
1:56
Speaker 3: too soon. But to John Tucker's point, I get next
1:58
Speaker 3: week might be pushing a little bit. What else are
2:00
Speaker 3: we going to learn from next week until September that
2:04
Speaker 3: will really cement anything. It's just going to be the
2:06
Speaker 3: same trajectory, right.
2:08
Speaker 4: Well, that's their hope.
2:09
Speaker 5: So the FED really does want The word they're using
2:12
Speaker 5: is confidence, and to them that just means more months
2:15
Speaker 5: of data, additional data points coming in, so they don't
2:18
Speaker 5: want to move too quickly. I mentioned very strong GDP
2:21
Speaker 5: numbers that came out yesterday that will very likely be
2:25
Speaker 5: revised in future releases. So they just want to see
2:28
Speaker 5: that the inflation, as I mentioned, has been more persistent,
2:31
Speaker 5: has been stick here, that it isn't starting to creep
2:34
Speaker 5: back up by the end of the summer. Again, I
2:37
Speaker 5: think it's moving in the right direction finally, But because
2:40
Speaker 5: it took so long for us to get here. We
2:41
Speaker 5: had been on a nice smooth disinflationary track and then
2:45
Speaker 5: we hit that three three and a half percent range
2:47
Speaker 5: and things went much more sideways. So the Fed just
2:50
Speaker 5: wants to be sure this isn't a blip. We've had
2:51
Speaker 5: a couple of months of good data. They want to
2:53
Speaker 5: see a couple more.
2:55
Speaker 1: Well, there's another sign to their policy mandate. Isn't there
2:58
Speaker 1: and what's happening on that it has been there?
3:01
Speaker 6: There is?
3:02
Speaker 5: Yeah, Yes, the labor market is actually something they had
3:05
Speaker 5: wanted to see. Wage inflation cool. If we separate goods
3:08
Speaker 5: inflation out from service inflation, that good side of things
3:11
Speaker 5: is well under control. It has been for some time.
3:14
Speaker 5: Now it's the service side that's been held up by
3:16
Speaker 5: a very very tight labor market, so they're watching again.
3:19
Speaker 5: Cooling labor has really been expected. Our labor market was
3:24
Speaker 5: just on fire for the past couple of years. I
3:27
Speaker 5: expect long term we have a floor under labor market activity.
3:30
Speaker 5: We're starting to see the tide shift back in flavor of,
3:35
Speaker 5: you know, a slightly looser market at the moment. I
3:37
Speaker 5: don't think we're going to go too far that way though.
3:39
Speaker 5: It's just a demographic issue. We have baby boomers, that
3:42
Speaker 5: huge generation finally retiring. We don't have a huge glot
3:45
Speaker 5: of workers waiting on the sidelines or aging into the
3:48
Speaker 5: workforce at this point, so the numbers aren't going to
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Speaker 5: materially rebalance this little bit of loosening in twenty twenty four.
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Speaker 5: But I think that's a temporary trend.
3:56
Speaker 1: Well what happens, What's what happens more quickly, when labor
4:00
Speaker 1: starts to cool. Does that really really start to cool?
4:03
Speaker 1: Because it also affects personal spending as well.
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Speaker 5: Sure, again, I don't think it really really starts to cool.
4:12
Speaker 5: Labor has been supporting that personal spending component, which again
4:15
Speaker 5: about two thirds of GDP driven by consumer spending, so
4:18
Speaker 5: that is the floor under economic activity this time around.
4:21
Speaker 5: We do see some echo effects from the pandemic still
4:24
Speaker 5: playing out in the labor market. Because things got so
4:27
Speaker 5: tight in that twenty one twenty two time frame, it
4:30
Speaker 5: drew a lot of folks into the labor market. So
4:32
Speaker 5: as we look at things like labor force participation rates
4:35
Speaker 5: for primeage workers, those are at twenty plus year highs
4:37
Speaker 5: right now. Again, we've brought more of those workers back
4:41
Speaker 5: to the workforce. The risk now is if we start
4:44
Speaker 5: to see layoffs or even if we just see more
4:46
Speaker 5: folks entering again. I don't think there are too many
4:49
Speaker 5: of them left on the sidelines, but that could pull
4:51
Speaker 5: down some of that, say unemployment rate. I don't think
4:55
Speaker 5: the fundamental drivers are there, and I think the ones
4:58
Speaker 5: that we're seeing are again a very temporary shoe focused
5:01
Speaker 5: on twenty twenty four, twenty five and beyond. Looks like
5:04
Speaker 5: that tightness will just be grinding tighter.
5:06
Speaker 3: Still, going back to the inflation point for a moment,
5:09
Speaker 3: we have seen freight rates kind of start to move
5:12
Speaker 3: a lot higher. We heard from Chipotle that their costs
5:15
Speaker 3: are really starting to increase, Like they singled out the
5:18
Speaker 3: price of avocado. And I can appreciate that some of
5:21
Speaker 3: these are idiosyncratic, but is there a danger that certain
5:24
Speaker 3: type of inflation that we felt was done will start
5:27
Speaker 3: coming back.
5:29
Speaker 5: We will always see pockets of inflation, I mean avocado specifically.
5:32
Speaker 5: If you look at those trade routes, we get these
5:36
Speaker 5: odd kind of one off events. So weather events. There's
5:38
Speaker 5: been a drought in the Panama Canal that is keeping
5:41
Speaker 5: ships from getting through. That's really increasing the time and
5:43
Speaker 5: the cost of that journey. So I from an economic
5:47
Speaker 5: fundamental point of view, I wouldn't say that's the trend,
5:50
Speaker 5: but yes, weather events, these kind of black swan events. Obviously,
5:54
Speaker 5: geopolitics that is the big one right now. I would
5:57
Speaker 5: not want to make any predictions on that front. That's
5:59
Speaker 5: not my ex for tease. But generally, if we look
6:02
Speaker 5: at major industrial commodity prices right raw material cost most
6:06
Speaker 5: of those are still below the year ago level. They're
6:08
Speaker 5: trending much more sideways than outright rise or decline. So
6:12
Speaker 5: I hope that's a breath of relief after a few
6:14
Speaker 5: years of very strong volatility. But we'll always be able
6:17
Speaker 5: to cherry pick those examples.
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Speaker 1: You know what, I haven't looked at a long time
6:21
Speaker 1: and just look at the yield curve, the inversion between
6:25
Speaker 1: twos and tens. It's less invertity. What yeah, what does
6:31
Speaker 1: that tell you?
6:34
Speaker 5: So the yield curve, it's a great rule of thumb
6:36
Speaker 5: that yield curb inversions tend to precede a recession. This
6:41
Speaker 5: time around, clearly that has not been the case. We've
6:44
Speaker 5: been inverted for what two years now, are going on
6:47
Speaker 5: two years now, it's.
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Speaker 1: Just eighteen basis points separation.
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Speaker 5: Well, we like to see that come under control. Looks
6:55
Speaker 5: like it might normalize sooner than later, but that was
6:59
Speaker 5: never a guarantee. We've had several historical cases, so a
7:03
Speaker 5: lot of precedent for an inverted yield curve with no
7:06
Speaker 5: following recession.
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Speaker 2: So I think.
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Speaker 5: That's a funroll of thumb. It certainly gives us a
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Speaker 5: great look into, you know, where the market is expecting
7:14
Speaker 5: things to trend, but not an iron cloud guarantee. And again,
7:17
Speaker 5: I think the outlier this time around, what really kept
7:20
Speaker 5: us out of that GDP recession was the labor side
7:23
Speaker 5: of things. That tight labor market supporting the consumer.
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Speaker 4: All right, Lauren, thanks a lot, We really appreciate it.
7:27
Speaker 3: Lauren Zadelbaker is economists and senior consulting speaker at ITR Economics.
7:32
Speaker 4: Thank you very much.
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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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7:53
Speaker 3: There was another story that is starting that was reading
7:56
Speaker 3: high that was a surprise to many, and that is
7:59
Speaker 3: the se SEE suing Andrew Left of committing fraud through
8:04
Speaker 3: stock trades, social media posts, and research reports. This is
8:08
Speaker 3: SEC's biggest move yet in a year's long crackdown against
8:11
Speaker 3: traders who tout these bearish bets. Joining us now is
8:15
Speaker 3: Tom Schoenberg, a Bloomberg senior reporter.
8:18
Speaker 4: Tom. Can you walk us through what we know about
8:21
Speaker 4: the suit?
8:22
Speaker 1: Well, first of who is mister Left?
8:25
Speaker 4: Oh, sorry, who's mister Left?
8:28
Speaker 6: Andrew Left is a famed short seller. He has a
8:32
Speaker 6: you know, website, Citron Research, and he's been making sort
8:36
Speaker 6: of bearish bets for years of kind of a real, real,
8:40
Speaker 6: sort of well known voice in stock trade.
8:45
Speaker 3: So what was the problem because I mean short sellers,
8:48
Speaker 3: long long guys come on, they.
8:49
Speaker 4: Talk about the stocks they like.
8:51
Speaker 3: Short sellers come on, they talk about what they don't
8:52
Speaker 3: like about the stock, and they have positions on that
8:55
Speaker 3: benefit if the stock goes down. But we know all
8:58
Speaker 3: of this, So what was the specific problem with an
9:00
Speaker 3: your Left?
9:01
Speaker 6: So so what's happening here is both we've had both
9:04
Speaker 6: the SEC and the d o J. Now the criminal
9:06
Speaker 6: case alleging that Andrew Left was essentially not trading on
9:15
Speaker 6: the way he was telling the public he was going
9:17
Speaker 6: to be traded, he would essentially profit from going out
9:22
Speaker 6: either releasing a report or tweets or other social media
9:25
Speaker 6: interviews saying company stock, what should be valued at x
9:30
Speaker 6: and as everyone as as the market moved to that,
9:34
Speaker 6: he was immediately getting out and sort of making a
9:38
Speaker 6: profit on those sort of you know, short term stock movements.
9:42
Speaker 1: So saying one thing and doing another, basically.
9:45
Speaker 6: That's correct, that's according to the government.
9:47
Speaker 1: Yet this is something that's been kind of plaguing this
9:51
Speaker 1: industry for a while, isn't it.
9:54
Speaker 6: Well, this is obviously you know, uh, you know, the
9:57
Speaker 6: mean stock frenzy from the about three years ago, you know,
10:02
Speaker 6: caused sort of a longer, deeper look into this, both
10:06
Speaker 6: by you know, Congress and that as we're seeing here
10:09
Speaker 6: the Justice Department in the SEC, and you know, it
10:13
Speaker 6: looks like they're looking at conduct, you know, conduct in
10:16
Speaker 6: both of these cases go as far back as twenty eighteen,
10:20
Speaker 6: and with the Justice Department saying as recent is October
10:22
Speaker 6: twenty twenty three.
10:24
Speaker 4: So this, this conversation happens at home like every six months.
10:28
Speaker 4: My husband says, I don't understand short selling. Why do
10:30
Speaker 4: we allow it?
10:31
Speaker 3: And my response is like, oh, because it helps keep
10:33
Speaker 3: markets in our CEOs in check because they have someone
10:37
Speaker 3: being more critical the short I'm just explaining. But you
10:41
Speaker 3: know what if we look at it, like why do
10:43
Speaker 3: we allow short selling?
10:46
Speaker 6: Right? Well, what you see with you know, Andrew Left
10:48
Speaker 6: essentially became sort of a well known short seller in
10:52
Speaker 6: part because of a number of the reports that he released,
10:55
Speaker 6: you know, we wound up leading to actual charges against
10:59
Speaker 6: the company or you know, SEC violations and so on.
11:03
Speaker 6: So he established a you know, having a good reputation
11:06
Speaker 6: in the space. And what the government is saying here
11:08
Speaker 6: is that you know, once he had that reputation, had
11:11
Speaker 6: that audience, he sort of misused that to sort of
11:15
Speaker 6: you know, essentially fool people into moving to a certain
11:19
Speaker 6: position that he himself wasn't maintaining, even though he gave
11:23
Speaker 6: the illusion that that's where he was.
11:26
Speaker 1: What what are the companies involved?
11:27
Speaker 2: Do?
11:28
Speaker 7: What?
11:28
Speaker 1: Do we know? The names?
11:30
Speaker 6: Well, we got everything from Tesla, Roku, Navidia, there's you
11:36
Speaker 6: know about you know, I think two dozen or more
11:39
Speaker 6: in here.
11:40
Speaker 1: And how much did he how much did he make
11:42
Speaker 1: as a result of this? Do we know what? The SEC?
11:46
Speaker 6: Yeah, SEC is saying that he profited as.
11:49
Speaker 2: Just twenty million dollars.
11:52
Speaker 6: Which also involved you know, one of the one of
11:54
Speaker 6: the criminal charges against Andrew is for lying to federal
12:00
Speaker 6: agents claiming that he also wasn't didn't receive a conversational
12:04
Speaker 6: hedge funds. They're saying, you see more than a million
12:08
Speaker 6: dollars from two edge funds.
12:09
Speaker 1: Real quick? Have we heard from mister Left.
12:13
Speaker 6: At the moment, he has, he's not commenting. You know,
12:17
Speaker 6: if that changes, obviously we will we will report that.
12:21
Speaker 4: All right, We appreciate it, Thank you very much.
12:22
Speaker 3: Tom. Tom Schomberg, Bloomberg senior reporter, joining us on that game.
12:27
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
12:31
Speaker 2: weekdays at ten am Eastern on Apple car Play and
12:34
Speaker 2: Android Auto with the Bloomberg Business App. Listen on demand
12:37
Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
12:42
Speaker 3: Let's get back to the market. Lisa was talking about
12:44
Speaker 3: what's happening in the bond market. You're seen buying pretty
12:45
Speaker 3: much all across the curve. It's been quite a week
12:48
Speaker 3: and we've seen a steepener of the last few days.
12:50
Speaker 4: That has been quite a week.
12:52
Speaker 3: So we want to get some great insight here with
12:54
Speaker 3: Steve Major. He's a global head of fixed income research
12:56
Speaker 3: at HSBC. I keep saying he lives in Asia. It
12:59
Speaker 3: was Hong Kong and now he's in Dubai.
13:01
Speaker 1: But the point is Shanghai Bank of Commerce, right, so.
13:05
Speaker 3: Banking corporation, Okay, But the point is he's never here,
13:09
Speaker 3: so you have to be on the early, early, early show,
13:11
Speaker 3: or he has to stay up late late late for
13:13
Speaker 3: you in order to get him on TV and radio.
13:15
Speaker 3: But he's here in studio and this is very exciting.
13:17
Speaker 3: He's a prolific voice when it comes to the fixed
13:20
Speaker 3: income market.
13:21
Speaker 4: Steve, thanks for being here. It's great to see you.
13:24
Speaker 8: Thank you for having me.
13:25
Speaker 4: So just broad Stokes, What are your calls right now
13:27
Speaker 4: on the US bond market.
13:29
Speaker 8: Well, it's lower yields. We've tended to have a lower
13:33
Speaker 8: as you know. And it's not just for the sake
13:36
Speaker 8: of it. We're not just doing it. We're not doing
13:38
Speaker 8: it to attract attention. It's because we incorporate a more
13:40
Speaker 8: structural and secular approach to the to the forecasting. If
13:45
Speaker 8: you just do it based on the cyclicuse, you'd always
13:48
Speaker 8: have a higher yield. And that might explain why other
13:51
Speaker 8: people think yields should be five. And so to me,
13:54
Speaker 8: if yields are bearing down on four for the ten
13:57
Speaker 8: year right now, and you ask me where we're being
14:00
Speaker 8: a year or so, it's time, I would say nearer
14:02
Speaker 8: to three than five.
14:04
Speaker 1: So you're looking at the stuff that's not necessarily short termy,
14:07
Speaker 1: but the more long term.
14:08
Speaker 8: Stand exactly structural and secular. Structural tends to be more
14:12
Speaker 8: things like regulation. Perhaps secular would be more demographic, so
14:18
Speaker 8: the impact of aging populations, things.
14:20
Speaker 1: That's really long term.
14:22
Speaker 8: Yeah, well yes, but then you need to because you
14:25
Speaker 8: have to have a view on the equilibrium to have
14:27
Speaker 8: a view on the tenure. Now, this is where many
14:29
Speaker 8: people switch off they'll say, well, I can't observe this
14:33
Speaker 8: our star or this equilibrium rate, so I'm not going
14:36
Speaker 8: to use it. Well, everyone who buys or sells a
14:39
Speaker 8: ten year security is implicitly taking a view on that number,
14:45
Speaker 8: because the tenure yield is not defined by today's policy rate,
14:49
Speaker 8: is defined by the path of that policy rate and
14:51
Speaker 8: where it ends up in the longer run. So if
14:54
Speaker 8: you think that the longer un equilibrium policy rate is four,
14:58
Speaker 8: for example, and then you think that the yield probably
15:03
Speaker 8: won't go down much more from here, and you would
15:06
Speaker 8: also think that the FED isn't particularly restrictive. Okay, that's
15:10
Speaker 8: an interesting point.
15:12
Speaker 1: Yeah, it's the FED restrictive because I can't figure out
15:15
Speaker 1: and then also when you answer that question for me,
15:18
Speaker 1: what goes into making that determination whether or not they
15:21
Speaker 1: are restrictive.
15:23
Speaker 8: Yeah, so you know, our assumption is that the fed's
15:25
Speaker 8: longer run equilibrium is about where the FED thinks it is,
15:29
Speaker 8: which is two and a half percent, and it's two
15:32
Speaker 8: point seven to be precise, and it's pretty much unchanged
15:35
Speaker 8: from before the pandemic. Now, I would look at this
15:39
Speaker 8: as scientifically as possible. It's difficult to be a scientist
15:43
Speaker 8: in bonds really, but the point is what has changed?
15:46
Speaker 8: And it's very easy to say the market indicates something
15:50
Speaker 8: has changed, therefore the world has changed. That's not good enough.
15:53
Speaker 8: All there is is a risk premium around the possibility
15:57
Speaker 8: that the world has changed. It is very different. So
16:00
Speaker 8: I think that the policy is restrictive because today's rate
16:04
Speaker 8: is more than double what the longer run equilibrium is.
16:07
Speaker 3: How do you look at something like fiscal stimulus And
16:10
Speaker 3: I appreciate that you're going to say that that's cyclical,
16:12
Speaker 3: but when we're looking at something globally from the energy
16:15
Speaker 3: transition where companies, private equity, and governments are going to
16:19
Speaker 3: be spending boltloads of money in the next thirty years, Yeah,
16:23
Speaker 3: how does that fit into your model?
16:25
Speaker 8: Yeah, so there's a debt, there's a debt and a deficit,
16:28
Speaker 8: there's a stock and a flow effect. I think that
16:32
Speaker 8: when you're talking about deficits that are going up and
16:36
Speaker 8: therefore more bonds, you can see how that can feed
16:38
Speaker 8: into the risk premium. But then the debt stock is
16:41
Speaker 8: a drag on longer run growth because it has to
16:44
Speaker 8: be rolled over and finance, and it takes cash flow
16:46
Speaker 8: away from investment and consumption. My point is that it's
16:51
Speaker 8: just it can be a little bit too easy and
16:55
Speaker 8: somewhat lazy to say there's a lot of supply, therefore
16:58
Speaker 8: the yield has to go up because you really do
17:00
Speaker 8: need to know what's on the other side. Now, when
17:03
Speaker 8: it comes to bonds, the substitution effect, if you like,
17:07
Speaker 8: it depends on the value. What a bonds look like
17:09
Speaker 8: compared to stocks, what a bonds look like compared to money,
17:13
Speaker 8: what do government bonds look like compared to credit, etc. Etc.
17:17
Speaker 8: It strikes me that the valuation argument for bonds is
17:21
Speaker 8: looking pretty good.
17:22
Speaker 1: All right, So what am I supposed to buy right now?
17:25
Speaker 8: Well, most real money investors that's different to a hedge
17:30
Speaker 8: fund or a trader, are sitting in what we call
17:33
Speaker 8: the belly in the middle majorities in credit. That way,
17:36
Speaker 8: they mitigate the negative carry because the market's implying the cuts.
17:40
Speaker 8: So your good quality You can buy indices of good
17:43
Speaker 8: quality credit and you're going to get a yield more
17:47
Speaker 8: than on the S and P five hundred forward earnings.
17:50
Speaker 8: And to me, you could have said that at any
17:54
Speaker 8: point in the last year. But ultimately it's a safe
17:57
Speaker 8: investment to be buying good quality US corporates.
18:02
Speaker 3: What about in the treasury curve. Where do you think
18:04
Speaker 3: we're going to see the most action, Alex.
18:06
Speaker 8: You mentioned the steepener that's been playing out. Do you
18:08
Speaker 8: know that the movement in let's look at twos tens right,
18:11
Speaker 8: the two tens has moved about as much as it
18:15
Speaker 8: did in the one month after the twenty sixteen election,
18:19
Speaker 8: which says that if there is a trade around this,
18:22
Speaker 8: it just played out. It just happened. Now it's all
18:24
Speaker 8: about the probabilities around the election result, and we've just
18:27
Speaker 8: seen a huge swing in that in the last few weeks.
18:30
Speaker 8: So the idea that it was all one way traffic
18:33
Speaker 8: and there was only gonna be one winner and one
18:35
Speaker 8: outcome with one set of policies, that's no longer clear today.
18:39
Speaker 8: So if the steepener was predicated on that, then I
18:42
Speaker 8: think people will start to think again. So it's, you know,
18:46
Speaker 8: to put a steepener on at this point today, given
18:49
Speaker 8: how much it just moved, I think would be dangerous.
18:51
Speaker 3: But what if it wasn't about the election? What if
18:53
Speaker 3: it was about pricing in the cuts?
18:55
Speaker 8: And that's I think you're spot on, because in fact
18:59
Speaker 8: it's been the it's been the recent inflation prints and
19:02
Speaker 8: the calling real economy that has dominated the scenario analysis
19:07
Speaker 8: and the fiscal views and the election views, and so
19:12
Speaker 8: that's explained the steepening. That's explained why two's are pushing
19:16
Speaker 8: to the low yield for the last year. But the
19:19
Speaker 8: problem is, if you enter today, you buy a two
19:21
Speaker 8: year that is so far through the money market rate
19:25
Speaker 8: that if the Fed isn't cutting and cutting by more
19:28
Speaker 8: than is priced in on the WRP screen, you're not
19:31
Speaker 8: going to make any money. And so that's why I
19:34
Speaker 8: think that the steepener may have played out.
19:38
Speaker 1: Okay, so the obligatory question we'll finish up with this September,
19:42
Speaker 1: how and what's the path forward beyond September.
19:45
Speaker 8: The baseline is they do twenty five. The interesting thing
19:48
Speaker 8: is that the scenarios around that, whether it could be
19:51
Speaker 8: more to me to value a bond today, you need
19:56
Speaker 8: to think about not just the next couple of meetings,
19:58
Speaker 8: it's the it's through next year as well. They're in
20:00
Speaker 8: anmazing path and I think that they will deliver at
20:04
Speaker 8: least what's in the in the forwards, which makes it
20:08
Speaker 8: difficult to buy the front end, but makes you want
20:11
Speaker 8: to be a bit higher up.
20:12
Speaker 1: On the curve.
20:14
Speaker 4: Steve, It's so good to see you.
20:15
Speaker 3: Steven Major, Global head of Fixed Income Research at HSBC.
20:18
Speaker 3: So helpful to understand all those different dynamics. I was
20:20
Speaker 3: taking notes.
20:21
Speaker 1: Did you see me here from his underground layer?
20:24
Speaker 4: It doesn't look oh, he was just somewhere else.
20:26
Speaker 3: It just means all right, come back next time. Okay,
20:29
Speaker 3: Well we'll just go with it.
20:30
Speaker 4: Steve Major, the man of mystery, Thank you very much
20:33
Speaker 4: for joining us.
20:35
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
20:39
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
20:42
Speaker 2: Otto with the Bloomberg Business. You can also listen live
20:46
Speaker 2: on Amazon Alexa from our flagship New York station. Just
20:49
Speaker 2: say Alexa play Bloomberg eleven thirty.
20:53
Speaker 4: All right, two politics we go.
20:56
Speaker 3: So the latest was that former President Barack Obama and
20:58
Speaker 3: Michelle Obama has a have a officially endorsed vice president
21:02
Speaker 3: now presidential candidate.
21:03
Speaker 4: Can I say that now?
21:04
Speaker 1: Kamala Harrish presumptive.
21:06
Speaker 3: Presumptive presumptive nominee Kamala Harris. Nathan Dean Bloomberg Intelligence and
21:11
Speaker 3: your Policy analyst, joins us. Now, Nathan, the last sort
21:14
Speaker 3: of you know, lever falls into place for Kamala Harris.
21:18
Speaker 4: What can we expect over the weekend.
21:21
Speaker 9: So I'm actually hoping that we don't expect all that much.
21:23
Speaker 10: I mean, after two weekends you know of having really
21:26
Speaker 10: big news. But you know the next thing for us
21:29
Speaker 10: really is to try and figure out who Kamala Harris
21:31
Speaker 10: is going to pick as their vice presidential candidate. You know,
21:34
Speaker 10: the the betting markets, which you can find in the
21:36
Speaker 10: terminal at WSL election are really suggesting it's coming down
21:39
Speaker 10: to Senator Mark Kelly of Arizona and Senator Josh Shapiro
21:42
Speaker 10: out of Pennsylvania, you know, Senator Cooper and Senator Bashara
21:46
Speaker 10: out of North Carolina and Kentucky being the others. But
21:48
Speaker 10: you know, just remember that Kamala Harris has a lot
21:50
Speaker 10: of time. The Chicago election isn't until August twenty second,
21:54
Speaker 10: and that's when she actually has to pick that vice
21:56
Speaker 10: president nominee.
21:57
Speaker 9: So you know, I'm thinking that they may take some time.
22:00
Speaker 9: I'm on this.
22:00
Speaker 10: The news cycle is worth them right now. You know,
22:02
Speaker 10: maybe they're going to play that up again. So I'm
22:04
Speaker 10: thinking for the next week or so, it could be
22:06
Speaker 10: just more back to originally what we originally thought.
22:09
Speaker 9: Just a campaign for the presidency.
22:11
Speaker 1: What it's a history teaches. I mean, Pennsylvania, Shapiro, what
22:15
Speaker 1: is it nineteen delegates there?
22:19
Speaker 10: Yeah, so I don't remember the number off the top
22:21
Speaker 10: of my heads. But you know, for the Democrats, you know,
22:23
Speaker 10: the really it's this idea of the Russbelt, Pennsylvania, Michigan,
22:27
Speaker 10: in Wisconsin, you know, the other tuples.
22:29
Speaker 1: Let me just I just want to might I should
22:31
Speaker 1: have follow up with my actual question picking a vice
22:34
Speaker 1: presidential candidate, does that really move the needle for the
22:38
Speaker 1: person who's on the top of the ticket.
22:40
Speaker 9: Does it matter?
22:40
Speaker 10: You know, yeah, you know, I think it would matter
22:44
Speaker 10: at a specific state level. So if you go with
22:46
Speaker 10: Josh Shapiro, you know, obviously I think you're gonna get
22:48
Speaker 10: a boost because he's really popular in the state of Pennsylvania.
22:51
Speaker 10: But just to remember that we're also talking about the
22:54
Speaker 10: vice presidential picks here when it comes to policy and
22:56
Speaker 10: the one debate that's between the vice president. You know,
22:59
Speaker 10: historic it's usually people don't go to the polls to
23:01
Speaker 10: vote for the vice president. They go to the polls
23:04
Speaker 10: and they go to the ballots to vote for the president.
23:06
Speaker 10: So you know, there's a lot of focus on the
23:08
Speaker 10: VP candidates, and then certainly we cover at BI in
23:10
Speaker 10: terms of how they can ultimately influence policy and so
23:14
Speaker 10: forth like that. But you know, at the end of
23:16
Speaker 10: the day, when people go to November, they're going to
23:17
Speaker 10: be voting for either President Trump or Vice President Kamala Harris.
23:21
Speaker 4: When do we think.
23:21
Speaker 3: We're going to get real policy initiatives from Kamala Harris?
23:25
Speaker 3: I appreciate that in her first sort of campaign speech,
23:27
Speaker 3: she's not going to do that, Like her goal is
23:29
Speaker 3: to get everyone jazzed up and excited. When do you
23:31
Speaker 3: think we're going to start to hear more specifics?
23:34
Speaker 9: I actually don't think it's going to come all that
23:36
Speaker 9: too soon.
23:37
Speaker 10: I mean, when we went back to look at some
23:39
Speaker 10: of their policy statements, we had to go all the
23:41
Speaker 10: way back to our time as attorney general as California,
23:44
Speaker 10: and I think August they're just going to focus more
23:46
Speaker 10: so on this idea of you know, the vice presidential pick,
23:49
Speaker 10: and I think you'll see a little bit more on
23:51
Speaker 10: border and a little bit more on immigration. But when
23:53
Speaker 10: it comes to like her economic policy, you know, foreign
23:56
Speaker 10: relations and so forth like that, I think we aren't
23:58
Speaker 10: going to see the specifics until we get to September,
24:01
Speaker 10: which is the debate season, and so after Labor Day,
24:04
Speaker 10: after the August recess, I think Americans will really be
24:06
Speaker 10: paying attention to the race then, and at that point,
24:09
Speaker 10: Kamala Harris is going to have to explain those policy positions.
24:12
Speaker 10: I think the next two weeks or so, they're just
24:13
Speaker 10: going to try and figure it out, just because remember
24:16
Speaker 10: that her campaign is only what four days old, five
24:18
Speaker 10: days old at this point, so I think there's still
24:20
Speaker 10: a lot of baby steps that campaign has to do,
24:23
Speaker 10: and then we'll see more and more of the policy statements,
24:25
Speaker 10: I think towards Labor Day and maybe even to September.
24:28
Speaker 1: At that point, do you know how long we have
24:29
Speaker 1: to wait before we get really good polling data?
24:34
Speaker 9: You know?
24:35
Speaker 10: I think it's the first We've already started to see
24:37
Speaker 10: the first polls that have come out post the Biden decision,
24:40
Speaker 10: but it's early, and it's at a national level. I
24:42
Speaker 10: think some more of the state polling data that was
24:45
Speaker 10: more important to us in terms of like Pennsylvania, Arizona
24:47
Speaker 10: and so forth like that, that's being conducted this week,
24:50
Speaker 10: and so I think, you know, and please don't hold
24:52
Speaker 10: me to this, it'll probably be the tail end of
24:54
Speaker 10: next week when we start to see that do.
24:56
Speaker 4: We trust polls now, John Tucker? Is that something that
24:59
Speaker 4: we do.
25:00
Speaker 1: A Dewey defeated Truman, didn't he?
25:03
Speaker 4: Oh, okay, it was a little bit ago though. So
25:07
Speaker 4: when it comes to the campaign, is the campaign and
25:09
Speaker 4: infrastructure for President Biden, is that infrastructure set up for
25:14
Speaker 4: Kamala Harris right now to do what she needs to
25:16
Speaker 4: do and travel a lot and do a lot of
25:18
Speaker 4: rallies and get her name out there.
25:20
Speaker 10: According to them, yes, but I would say just you know,
25:22
Speaker 10: it's also you know, you have the ground staff, but
25:25
Speaker 10: you also have the leadership staff, and I think the
25:27
Speaker 10: lead leadership staff is going to obviously change, if not
25:30
Speaker 10: in direct positions, but in terms of influence.
25:33
Speaker 9: I mean, look, you know.
25:34
Speaker 10: Vice President Harris had a campaign back in twenty twenty
25:37
Speaker 10: didn't go so well for us. She was one of
25:38
Speaker 10: the first people to drop out of the Democratic nomination process. However,
25:42
Speaker 10: you know, the Democratic Party is fairly aligned at this point,
25:45
Speaker 10: and so I think that there are other people out
25:46
Speaker 10: there who are certainly interested, if not serving in the campaign,
25:49
Speaker 10: but at least be able to whisper into that campaign.
25:52
Speaker 9: So I think what's.
25:53
Speaker 10: Happening right now is that you know, obviously they're going
25:56
Speaker 10: through this growth. They didn't really have much of a
25:58
Speaker 10: plan up until Sunday or maybe a few days beforehand.
26:01
Speaker 9: So I think they'll have another week or two.
26:02
Speaker 10: But then, you know, come August, early August, mid August,
26:06
Speaker 10: I think they'll be fine.
26:07
Speaker 9: In terms of moving forward.
26:09
Speaker 1: Is there going to be a debate? Is that a
26:11
Speaker 1: sure thing?
26:12
Speaker 9: Well, you know, I certainly think so.
26:14
Speaker 10: I mean, look, if President Trump, you know it would
26:17
Speaker 10: were to back out with one of the dates, the
26:19
Speaker 10: September tenth date, if I recall correctly, is still moving forward.
26:22
Speaker 10: And I think they've invited both candidates for a September
26:25
Speaker 10: seventeenth debate.
26:26
Speaker 9: And look, if one of the one of the.
26:28
Speaker 10: Candidates at this point decides to drop out, I think
26:30
Speaker 10: that's a serious, uh mistake on their part.
26:33
Speaker 9: But you know, it's Washington politics. Anything can happen.
26:36
Speaker 10: But I think at this point, certainly they'll entertain and
26:38
Speaker 10: I think ultimately they'll have one, if not two debates
26:41
Speaker 10: going forward.
26:42
Speaker 4: Oh boy, we're definitely watching that.
26:45
Speaker 2: Well.
26:45
Speaker 1: I'm worrieds just like the forum, that it's going to take.
26:48
Speaker 3: Yeah, all right, Nathan, we thank you. We really do
26:52
Speaker 3: hope you have a weekend for the first time in
26:54
Speaker 3: quite a while. Nathan Dean, Bloomberg Intelligence Senior policy analyst,
26:58
Speaker 3: don't scare the guy.
27:01
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
27:05
Speaker 2: weekdays at ten am Eastern on Apple car Play and
27:08
Speaker 2: Android Auto with the Bloomberg Business app. You can also
27:11
Speaker 2: listen live on Amazon Alexa from our flagship New York
27:14
Speaker 2: station Just Say Alexa playing Bloomberg eleven thirty.
27:19
Speaker 3: Focus on Unis is brought to you by Build America
27:21
Speaker 3: Mutual ensures of US municipal bond that finance essential American
27:25
Speaker 3: infrastructure and provides guaranteed income to improve any portfolio. Be
27:29
Speaker 3: part of Building America. Invest in BAM insured bonds.
27:33
Speaker 4: How'd I do?
27:35
Speaker 1: Amanda come out? You can chime in there, go bam bam.
27:39
Speaker 2: Oh.
27:39
Speaker 4: She sounded like me and I first started doing the show.
27:41
Speaker 3: Yeah, sure, where we're going to get you just gotta
27:44
Speaker 3: really own it and like jump in there. Amanda Albright
27:46
Speaker 3: is a municipal finance reporter and she joins us from
27:49
Speaker 3: Bloomberg News.
27:51
Speaker 4: Okay, a man the.
27:51
Speaker 1: Mantle, I should say from Joe Mysek, you have some
27:54
Speaker 1: pretty big shoes to fill there, Amanda.
27:57
Speaker 7: Yes, very big shoes to Bill Pressure.
28:00
Speaker 4: We support you, We miss him, and we support you.
28:03
Speaker 3: There are a couple of stories that caught my eye
28:05
Speaker 3: this week because I'm I'm very I have lack of
28:08
Speaker 3: confidence when it comes to my ability to discuss muni's,
28:10
Speaker 3: so I want to make sure that I can handle
28:12
Speaker 3: this segment.
28:13
Speaker 4: Goldman Sachs makes a bet.
28:15
Speaker 3: On a muni et F market one hundred and nine
28:18
Speaker 3: billion dollar meuni ETF market.
28:20
Speaker 4: What have they done this week?
28:23
Speaker 7: Yeah, so Goldman has joined the rush of firms that
28:27
Speaker 7: we've seen that have started offering muni bond ETF's. Goldman
28:32
Speaker 7: sax Asset Management already had immuniti ETF, but they are
28:35
Speaker 7: kind of getting deeper involved in the space with four
28:38
Speaker 7: new funds. So one of the funds appeals to folks
28:41
Speaker 7: in New York that are worried about their taxes that
28:44
Speaker 7: it's been a common theme lately. There's another fund that
28:48
Speaker 7: kind of mimics like a cash like fund, except it's
28:52
Speaker 7: tax exempt. So I'm like money market funds that are
28:55
Speaker 7: paying you know, upwards of five percent. You can kind
28:58
Speaker 7: of shield your tax is if you invest in their
29:02
Speaker 7: ultra short MUNI fund. So we've seen a bunch of
29:05
Speaker 7: companies get further involved in the ETF space just because
29:09
Speaker 7: it seems like that's kind of that and separately managed
29:12
Speaker 7: accounts are becoming a little bit more popular compared to
29:15
Speaker 7: traditional mutual funds.
29:17
Speaker 1: And these are actively managed funds, right, and you said
29:21
Speaker 1: ultra short, so that sort of sets them apart from others.
29:25
Speaker 7: Yeah, And interestingly enough, it seems like actively managed is
29:30
Speaker 7: where other companies kind of see more of an opportunity
29:34
Speaker 7: to make an impact. The passive space within muny ETFs
29:38
Speaker 7: is very dominated by Vanguard and black Rock. They have
29:41
Speaker 7: two extremely large funds that are both passive passively managed,
29:46
Speaker 7: and so I think it's a little bit harder for
29:49
Speaker 7: other companies to kind of gain market share in that segment.
29:53
Speaker 7: So we're seeing most of the launches within actively managed.
29:58
Speaker 1: And are they popular.
30:00
Speaker 4: I was going to ask that, Oh he stole it.
30:01
Speaker 1: See it's a mind she held between the two of us.
30:05
Speaker 4: Actively managed.
30:06
Speaker 7: It is definitely making it's growing, but I still think
30:10
Speaker 7: it's really hard to compete with to passively managed funds
30:14
Speaker 7: that are I think when I ran the numbers, it
30:16
Speaker 7: was close to seventy billion between the two of them.
30:20
Speaker 7: So I still think passively managed, being you know, so
30:24
Speaker 7: cheap and so easy for investors to get involved in,
30:28
Speaker 7: is still like we shouldn't we shouldn't write that off.
30:31
Speaker 7: But I think a lot of the money managers are
30:33
Speaker 7: betting that active will eventually gain more adoption.
30:37
Speaker 1: And I'm guessing that these are for people who live
30:39
Speaker 1: in high tech states.
30:41
Speaker 4: Right exactly.
30:42
Speaker 1: So it's just offered where like New York, California, New Jersey.
30:46
Speaker 7: So there's a California fund and then a New York fund.
30:50
Speaker 7: So when we spoke to the folks at Goldman, you know,
30:54
Speaker 7: they just mentioned that they're still hearing concerns about perennially
30:59
Speaker 7: perannial concern about high taxes in both of those states,
31:03
Speaker 7: and that's you know, kind of been We're seeing a
31:06
Speaker 7: lot of demand for unis generally this year, and definitely
31:10
Speaker 7: taxes are part of that, especially given folks not knowing
31:14
Speaker 7: what's going to happen next year with tax rates. Taxes
31:17
Speaker 7: are front and center.
31:18
Speaker 4: Let's move to another great story.
31:20
Speaker 3: It was a big take this week you and a
31:22
Speaker 3: couple of your colleagues wrote about it, and the title
31:24
Speaker 3: is Harvard's four hundred and sixty five million dollars in
31:27
Speaker 3: tax benefits draw some new scrutiny. Can you tell us
31:30
Speaker 3: about this big take What was your takeaway and would
31:33
Speaker 3: you learn?
31:35
Speaker 7: Yeah, so we have a story just kind of examining
31:39
Speaker 7: different tax benefits that Harvard has just given the very
31:43
Speaker 7: intense focus on Harvard for the past I guess year
31:48
Speaker 7: they we focused a lot on the property side because
31:52
Speaker 7: there's a very rich and kind of long standing debate
31:55
Speaker 7: over tax exempt property in college towns across the US,
32:00
Speaker 7: not just in Boston and Cambridge, but we found that
32:04
Speaker 7: within Boston and Cambridge there is kind of a growing
32:08
Speaker 7: push to have Harvard pay more in what's known as
32:12
Speaker 7: payments in lieu of taxes or pilots, and that's basically
32:16
Speaker 7: an annual payment that Harvard makes every year to account
32:19
Speaker 7: for the fact that it's property is tax exempt. Which
32:22
Speaker 7: this is a debate that could be could be had
32:25
Speaker 7: at any college town with any university pretty much because
32:29
Speaker 7: city leaders are always going to want more from their universities.
32:33
Speaker 7: But I think just the growing wealth at Harvard and
32:37
Speaker 7: you know, sky high tuition has just kind of reinvigorated
32:41
Speaker 7: this debate and it's a really interesting topic and also
32:46
Speaker 7: very relevant to many elite institutions, the debate that's taking
32:51
Speaker 7: place both in city halls but also in Congress because
32:55
Speaker 7: the Ivy League has become a major target lately.
32:59
Speaker 1: Okay, apolitic the intersection of politics and munichs Hey in
33:03
Speaker 1: the MEUNI space, if we can back up for what
33:06
Speaker 1: is issuance like and what are some of the more
33:09
Speaker 1: interesting issues that you see out there.
33:13
Speaker 7: Yeah, issuance has been pretty surprising this year. I think
33:17
Speaker 7: it's up thirty eight percent, a record first half of
33:21
Speaker 7: the year. That was something that Joe loved covering when
33:25
Speaker 7: he was with US.
33:27
Speaker 1: Oh, he retired. We sound like he's died. He's retired, retired,
33:31
Speaker 1: he's on a beach somewhere.
33:33
Speaker 7: He's Yes, he's still rooting us on and reading our coverage.
33:37
Speaker 7: But there's just been so many for just kind of
33:40
Speaker 7: a preview for terminal readers. In a little bit, we
33:44
Speaker 7: should have a story about how a lot of these
33:46
Speaker 7: deals are getting totally gobbled up. There's like kind of
33:51
Speaker 7: you know, the food fight for for MUNI deals. Some
33:54
Speaker 7: investors are kind of frustrated by this because they can't
33:57
Speaker 7: get enough bonds that they put in order for and
34:01
Speaker 7: we're really seeing this across the board for you know,
34:05
Speaker 7: even very vanilla bond structures.
34:07
Speaker 4: And then you know, it's actually surprised me.
34:11
Speaker 7: There's not been a ton of deals that I've been
34:12
Speaker 7: really like, oh, this is so interesting that they're doing this.
34:16
Speaker 7: It's just kind of a typical infrastructure that we're seeing
34:19
Speaker 7: getting funded, and not a ton of like you know,
34:22
Speaker 7: high yield issuances, but just kind of across the board
34:26
Speaker 7: general obligation bonds, triple A, double A, and but yet there's.
34:30
Speaker 4: So much demand for them.
34:31
Speaker 7: And I think part of that is people are worried
34:34
Speaker 7: that this is a rush before the election, trying to
34:37
Speaker 7: get ahead of any volatility, and people are worried that,
34:39
Speaker 7: you know, after November, these sales are going to go away,
34:43
Speaker 7: so you kind of have to get in the market
34:45
Speaker 7: now while you while you can.
34:46
Speaker 1: So this is exciting. Is anybody on shaky ground?
34:51
Speaker 7: No, I'm so surprised that everything is just anytime. The
34:56
Speaker 7: US economy is doing well, COMMUNI issuers are they do well?
35:00
Speaker 7: States do well. I just saw Virginia. I think they
35:03
Speaker 7: had a billion more in tax revenue than anticipated for
35:06
Speaker 7: the most recent fiscal year. Like it's really surprising just
35:10
Speaker 7: how well state and local finances have been holding up.
35:15
Speaker 7: It's pretty remarkable, but that just speaks to the broader economy.
35:19
Speaker 3: Yeah, I was going to say, like it is really surprising,
35:22
Speaker 3: particularly as the whole narrative of the COVID funding it
35:24
Speaker 3: is running out. They're going to have huge budgets shortfalls,
35:28
Speaker 3: and I feel like I have yet to hear that.
35:31
Speaker 7: Yeah, we definitely haven't. Where I see stress is more
35:39
Speaker 7: higher ed private colleges. Those aren't kind of typical classic
35:43
Speaker 7: munique credits or you know, they're not funded necessarily by
35:46
Speaker 7: tax revenues. But where we're seeing stress is not necessarily
35:50
Speaker 7: states and cities. It's more like a private college that's
35:53
Speaker 7: sold muny bonds. And I was talking with a colleague
35:56
Speaker 7: today about how schools that have been relying on pandemic
36:00
Speaker 7: really funding. Those are the areas that, now that the
36:03
Speaker 7: funding is running out, schools are kind of where the
36:06
Speaker 7: stress is being seen rather than like the city, though
36:10
Speaker 7: of course there's probably exceptions out there.
36:12
Speaker 4: All right, Amanda, thank you so much.
36:14
Speaker 3: We really appreciate Amanda Albright Municipal Bonds report. Does Joe
36:17
Speaker 3: Myisick like really email you about your stories of course.
36:21
Speaker 4: Oh my god.
36:21
Speaker 3: I love that he's retired, but he's not he's reading,
36:25
Speaker 3: he's listening. Yes, please tell him that we say hi,
36:29
Speaker 3: I learned la a lot.
36:30
Speaker 1: That was really interesting and you are so like.
36:33
Speaker 4: Not so scared. Every Friday, nieds, I definitely get nervous.
36:38
Speaker 2: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
36:42
Speaker 2: and anywhere else you will get your podcasts. Listen live
36:45
Speaker 2: each weekday ten am to noon Eastern on Bloomberg dot com,
36:49
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business app.
36:53
Speaker 2: You can also watch us live every weekday on YouTube
36:56
Speaker 2: and always on the Bloomberg terminal