Bloomberg Surveillance 11/29/2023
At this period in time on the timeline isn't such a great time for investors in equities. I would definitely still be long treasuries between now and the end of next year, but with a nod to the fact that it will be a choppy ride. What I find the most concerning about the last month is there's been a massive risk on rally. On weaker economic data, we are now starting to see lots of different things trickle into the economy, which will make the economy likely fall over next year. I think it's incredibly important to remain invested even in times of uncertainty. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro, and Lisa Abramowicz. Let's get straight to it.
Live from New York City this morning. Good morning. Good morning. For our audience worldwide, this is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro your equity market on the S&P 500 positive by a third of 1%. A major move again in the bond market,
T.J.. Treasuries advance yields are lower. We're ignoring Governor Beaumont. We're focusing on something. I mean, it was really important to see that the differentials here of governors and presidents and which ones matter to the market in all.
But it was a real jump condition. I spent the first thing I looked at this morning, John, was the different technical construction of the market. I didn't realize how much we'd surged higher.
I completely have missed the idea that we really haven't broken sort. Katie Kaminski yesterday nailed it. We could still go higher in yield because technically we really haven't rolled over yet. You look at Kaminski yield in this fancy phrase, technical support, we're coming down, we're getting right near that tip point where we decide lower yield or it's a 70 basis point move in about a month.
Yeah, let's go through the numbers. We went through 5%. We're down to about 429, but down another three basis points in the Treasury market. This is a change for Governor Wallace, super hawkish. Now he's basically suggested to the market he's done and some something appears to be giving Paramo his words and it's the pace of the economy. Yeah, he said if we just see disinflation continue for several more months, I don't know how long that might be. You could then start lowering the policy rate just because inflation's lower. He's saying the unspoken words that the
Fed didn't want to entertain, which is entertaining and discussing rate cuts at a time you're still seeing a robust U.S. economy. And Bill Ackman with his David Rubenstein interview. A lot more on that in the coming days and weeks. John, he went to the real yield moments ago. I got a206 handle, 2.07 right now on the ten year real.
Can you imagine a 199 real yield and what that means for the likes of Professor Waller. Attention turns now to Chairman Powell this Friday. Let's see if he echoes, endorses some of the language that Governor Wallace use yesterday. Intriguingly, sir, to your point, that we ignored Governor Beaumont, who's saying something totally different and focused on Governor Wallace tells you something about the bias of this market the moment, doesn't it? It tells that people are focused on disinflation. They're focused on figuring out just how soon they can declare victory for the Federal Reserve, that they've achieved their soft landing.
And it fuels this feeling that everyone got it wrong, that they actually were able to achieve a soft landing this year. Maybe if we did so, maybe lean into that for next year. Again, though, does that tell you more about sentiment than the actuality on the ground running counter to this slowdown story in the economy? Retail spending in America, record shop in Black Friday into Cyber Monday, just gone into the holiday season. What matters more?
How much the consumer in America is spending or how they are spending. Buy now, pay later. Some of the stories out there in the last 24 hours. This from the Journal. A 43% surge from last year according to Adobe laser in buy now pay later options. I was thinking so much about this this week because I saw the 14% surge just year over year in terms of Cyber Monday in the buy now pay later. Number one, how much is it younger
individuals who feel disenfranchised or don't want to participate in credit cards? Right. That is one factor of this. The other aspect of this is you see something, you like it, you buy it. You don't think about how you're going to pay for it over the longer term and how much it sort of kills the ability to keep spending even beyond someone's. Yeah. I mean, if you look at a refrigerator, John, I mean, are you going to do buy now, pay later on a refrigerator? Well, ask the question on there. A 28% didn't you buy now pay later. Do we pay cash?
We pay cash. We paid cash or pay cash. It has a Brahma Kelvin, Kelvin. This theory with Lisa Abramowitz. There it is. Lots of people did know, lots of people did not. They reached for buy now pay later options payments company blog this again from the journal saying that sellers using it square in after pay platforms registered a record 70 million transactions over the Black Friday and Cyber Monday weekend.
A 14% from the previous year reported a 19% increase over there in buy now pay later purchases made through Afterpay. So, Tom, you've got data from Adobe and data from BLOCK. They're backing up the same story. I look there's a lot of reach in government. I did a weekend on a digital space. In the digital future of banking,
they're having meetings today about what do we do not I don't want to be dramatic. The death of credit cards. No, but people are revolting against 26 and 28%. We'll come back to this story in just a moment here. The scores equity markets look like this on the S&P 500 positive here by 0.3%. It's a little bit lower on a ten year again for 2936. Lisa, the two year down three basis points.
It's a break before 70 on a two year, the middle of October. For what it's worth, we were looking at 525 526. We're back down to two for six days on a two year to see the benchmark bond yield in the United States fall by a percentage point in just the space of weeks is really quite shocking. And this perhaps is why the story of
disinflation or rather than. Mystery of disinflation, how far we are in that process. At 8 a.m., we'll get the latest read over in Europe. Germans headline CPI headline price
inflation is going to come out and this is going to feed into tomorrow's read on the rest of the euro region. How much are we seeing this in a way that's sustainable? Earlier today, we got Spain CPI and it came in lower than expected, but still 3.2% above the expectation. At 1:45 p.m., you know, yesterday it was kind of dismissive about Fed speak and how much they could actually move the market. You went along. So was I, and I was completely wrong. And I wanted to say that because Chris Waller absolutely moved the market.
Do people pay attention to Cleveland Fed President Loretta mester when she's speaking about financial stability? If she says anything other than leaning into the idea of rate cuts next year, kind of the point that we saw yesterday, apparently. Well, listen, Lisa, if they say what we want to hear, that seems to be the takeaway from yesterday for me, which maybe is the reason why at 2 p.m. when we get the Beige Book from the Federal Reserve, how much are people going to look at anecdotes highlighting that slowdown that we heard from Wal-Mart's CEO, really, which really has been the reason maybe that we have seen the U.S. economic surprise index thoughts, the lowest level victory last April of this year. I'm going to keep talking victory lap. I turned out to be seven year auction. John Victory lap Brembo again, seven year auction next year did it again. I mean there was it was but it actually
wasn't that good cared it was like why is that It's spiked up world's coming to an end and it came right back down to where it was before. Why? Because a failed auction didn't fit the narrative of the day. Okay, I'm with Prime. Okay. I'm totally with Lisa on this. Governor Berman says one thing open to more hikes, thinks that might be base case. We need them. And Governor Wallace basically saying we're done and we're putting more weight on one voice than the other. And I get it's a shift from governor.
Well, I understand that's a shift from where we were maybe 12 months ago. But there are still some voices out there, some pushing for something different. People in the back story here and this is with great respect to Miss Bowman, people have immense respect for Mr. Waller, academic respect. They really he walks in a room, people take notes. Tell us what you really think. Yeah, right. We'll have this conversation a little
bit later. Joining us now, Christine Martin, global chief investment strategist over at Deutsche Bank Private Bank. Christine, I want to start with the retail sales through the weekend, holiday spending here in America. What matters to you more, how much consumers are spending or how they're spending? I think timing wise, of course, short term, how much, which is positive. But then I think you have to pay the bill.
Right. And you're talking about pay now, pay later. I think as we are seeing higher for longer, the bill is higher probably for the consumer than some people might think. So from that perspective, something to
be watched, Christine, in your note, your view forward note, you have a magnificent phrase which really sums up the angst of the moment. You are in search of 10% growth. How do we find 10% growth next year? Well, I would say in general, we are in search for growth because we do expect economies to grow at, let's say, slightly below 1%. That's true for Europe. That's true for the U.S. You would only see higher growth rates in China, India, where you have sectors where there is more than 10% growth even on and I mean on single companies, they should do very well in this environment. And you have seen some sectors where
this is continue to be the case. And I think in the environment we see for next year, that should still give us some quite decent performance. Your outlook calls for 175 basis points of Fed rate cuts next year. It talks about how it looks like something a bit harder than a soft landing. And yet there is this optimism around
equities. This is confusing. How do you put these things together? So I think the the outlook comes to 175 some rate cuts in case of a severe recession. I think that you have to also look at the other side. If there's no severe recession, any would say it's rather mild recession, then we probably get three cuts from the Fed and also from the ECB from our point of view. And so it could be a more volatile beginning into the year and then it should come down. And if you think of volatility and Tom, we talked about this last time, bond volatility is still higher than equity volatility.
I think equity volatility is priced for a soft landing. So everything which gives us concerns on growth would probably also increase equity volatility. That could happen maybe at the beginning of the year, but should calm down in the second half. Who's right, Christian? This idea that we're seeing this massive deceleration in the consumer, the fact that we heard from Wal-Mart, the fact that we heard from Target, the fact that you see the economic surprise index rolling over to such a degree versus the perennial spending that just keeps on happening that John was just talking about versus consumer sentiment that we saw yesterday tick up higher than people previously expected. How do you put these ideas together? I think, again, it's a bit of timing effect, but you're still some consumers that want to spend really, as you rightly said, I think. But if you. Here's more that the economy is slowing down.
And so far we have not heard so much about this, to be very honest. I think then the consumer will also lower expectations and react to this. And that's exactly the picture we have for the beginning of next year. So lower growth in the US, not only there, by the way, and that should also somehow impact the consumer. Christian, from across the pond, is there a pressure to own America? And if there is, how do you do it? How do you affect a policy to buy America? I think if you look at performance in the recent years, if you look at potential growth rates, I think there's no way not to own America.
Right. If you look here in Europe, its potential growth rates, it's, I would say, substantially lower than in the U.S. So I would be surprised if you see a decoupling of Europe from the US especially.
There's a lot of discussion about valuations here in Europe, which should look very, very cheap compared to the US. But I think it needs to find a trigger that people look into Europe. So for the time being is really about owning the U.S. and I have not seen the trigger to move to Europe at this point in time.
Christine, that just seems to be a radical difference in the transmission of monetary policy, the channel to do so in the United States versus Europe. Obviously, looking at the bank lending data, credit data in Europe. Just how challenging, Christine, are things in the European economy right now? If you just look at the growth perspective, right, we are literally in the same number for Europe. Then the US are just saying the potential growth rate is is is stronger in the US. And if you look at the composition of
indices, S&P versus for example Euro Stoxx 50, much more on the growth side towards the S&P, much more probably on the value side, more export oriented. So I think it's a different composition of growth in terms of China better getting stronger. That would be positive for Europe in terms of lower yields that rather positive for growth and that's probably more positive for the U.S. interest. Christine, thank you, sir. Christine Nolting there of Deutsche Bank, Private Bank on the outlook there for the United States versus Europe, us exceptionally some of the equity markets.
But a major theme, Lisa, for all the hopes and dreams of international outperforming luxury in Europe faded pretty quickly. We were talking about the miners and China reopening and that story faded pretty quickly. Here we are talking about the Magnificent Seven at the end of the year on the US equity market. I guess that the one real takeaway from 2023 is a story of artificial intelligence dominated and grew through the year with people building on it in terms of its application and potential productivity gains. So if that's the case, people kind of lost interest in the luxury story.
People kind of lost interest in the mining story because China underperformed and waiting for people to lose interest in the US epic story because a lot of people have said it's gotten overplayed. I refuse to believe that. Steve, we love this story. I love that story. I just think that a pillar of this
economy in America is built on obesity, that when you're looking at a country that's made up of a third, maybe pushing 40%, 40% of the population is obese, think about the changes you could have off the back of that drug. I think it's that big number one killer in this country, I think is is heart disease. Right. And actually, we start to change that. People start to be where the money starts to get spent. If it can do more for things like
addictions, like beyond obesity to gambling, all kinds of things, all kinds of disagree. And again and again and again, I don't know. I think it could be huge scope of it. But the question is, I believe it's rather expensive. Who's going to pay for $900 a month? My question is just side effects, number one. Sure.
Number two, who's going to pay for it? And number three, the sustainability over a longer period of time. Exactly right. I think it's transformative potentially for many, many sectors. Many sectors. I'm not You're looking at me.
I'm not I mean, it's not personal. It's not just ten or 15 miles. So no equities on the S&P positive from New York harmonic. The force. We will be talking about the crisis in Gaza and the broader Middle East. I'm very pleased to see hostages returning home, coming back to be with their loved ones. We're determined to continue that for as long as possible, to bring as many people as we possibly can. That was US Secretary of State Antony
Blinken speaking earlier today in Brussels. As he attends a two day NATO's meeting. Blinken is set to make stops in Israel, the West Bank and the UAE in the coming days. Live from New York City this morning. Good morning to you. The SCOTUS looks like this on the S&P 500. We are positive 5/3 of 1% yields lower again.
It's a break for three guys. The ten year four 2859 we're down three basis points. Lisa only a month or so ago through 5% on a ten year and a conversation about six, maybe even seven.
The never ending bond market sell off. And here we are. I think she landed. I think that even we heard 8% out there thrown us a theoretical number that was not unreasonable. We're looking at a situation here where people have whipsawed back down to disinflation and buying in. So the question is, is this the final move or is this just the latest episode in a very dramatic whipsawing year? Right. And honestly, it's a serious question,
especially given the fact that you have the likes of Andrew Hall and Horse talking about underpinning inflation that's going to resurge early next year and the derivatives guys, all the year end views of various clients. He's told me that they're looking at collared trades, they're looking at this way or that way. Nobody's really calling a direction. They're saying, here's the set up to go to lower yields, here's the set up to go to higher yields. That was really stark yesterday between Katy Kaminsky looking for higher yields versus many, many others looking for a trend here below 430. What is the bet for next year now?
What is it? Below trend growth, the bet is the best will be here. We get rate cuts and we don't see much damage to the labor market. Is that it? I, I think I don't know what the consensus bet is. The bet is to stay in hang on every data point. We're going to do that. Today was a second look at Q3. The bet is it doesn't matter what your economic outlook stocks will do well in the US. Seems to be that way, right?
Exactly. I mean, that's basically some of the calls seems to be it takes a while to form consensus. We were talking to Laurie canvassing of RBC around about that earlier this week. It just feels like consensus has quickly coalesced around this view that below trend growth but no recession. Rate cuts are coming and ultimately it
doesn't matter if you do get that recession. Stocks are okay. Yeah. Mean what's a consensus view 100%. Yeah, it's like 4705 K 51 something like our range. I'm less focused on recession and more
on what nominal GDP is going to do. And that's got two moving parts inflation part and the real GDP part. And I take the point it's wildly open to review and that's this data dependency that we've got. We've also got data dependency and looking at the politics of the nation. Joining us now, Greg Valliere, chief U.S.
policy strategist, EGF Investments. Greg, I got a ways to go here with the different narratives that are out there. Let me just start as we just saw the secretary of state doing what Henry Kissinger used to do.
Do the Republicans have a foreign policy? They are divided, very divided on foreign policy, as Nikki Haley and others have shown, between hawks and people who were more isolationist. The good news is that we have established lines of communication between Israel and some Persian Gulf countries with the U.S. and others being intermediaries. The bad news is, and this is getting worse by the day, I'm not sure about aid to Israel or Ukraine. That's starting to slow down in Congress.
Nikki Haley has a lot of effort here. She is the 29th United States ambassador to the United Nations. How foreign is Nikki Haley to Republicans? Well, to many Republicans, she's viewed as not a preferable candidate. The thing, John, that strikes me is that young conservative Republicans are indifferent to aid to Israel or Ukraine. I think it's a great mistake. I worry a lot about Iran.
I worry in terms of Ukraine that Putin could start thinking about Lithuania, Estonia, Latvia, other places to invade. This is a real threat, but I sense isolationism is growing in popularity in the U.S.. Greg, to that point, there was a poll by the Harvard Harris Organization that came out. It was written in a Wall Street Journal
article yesterday showing that roughly half of Americans age 18 to 24 years old think that Hamas is October attack was justified by grievances of the Palestinians. And they talk about how they are looking for not only a cease fire, but feel like there's a real tit for tat. Just 9% of people age 65 or older feel the same. Greg, how much is the divide of the generations wider than it has been in the past? It's a really big deal, Lisa.
And I think it's not just on this issue, it's on student loan relief, it's on guns, It's on a lot. Immigration is on a wide range of issues. And I think for the White House, it's astonishing now to see that among that young group you cited, Biden trails slightly. He won that group by 20 points in the last election. If it's tied, he loses. How much, Greg, is it something that he wants to cater to versus just shrug and say, well, they're not going to show up anyway? I mean, at what point are these voting individuals in the country versus people who are being active on college campuses and social media but feel kind of marginalized, frankly, in the political sphere? Yeah, it's the marginalized people is a puzzle the White House can't solve.
The marginalized people think the economy is terrible. I would disagree. And again, it poses a real threat to Biden's re-election. I got to go to the news over the weekend, Greg, in the thundering silence of the GOP in the Senate over their candidate going after something 13 years old.
That's the Affordable Care Act, Obamacare. I was really just the divide there between what president Trump desires second time around versus his team, i believe. I've never seen that. Greg it was a remarkable development.
In sports, we talk about unforced errors and this was an unforced error. I think that Trump is a loose cannon on a lot of issues. A lot of veteran members of Congress were like, what? He wants to reopen Obamacare. It's settled and the public likes it. And polls well, there is no alternative yet.
Trump wants to raise the issue, and I think that would be Naspers code. Totally unfair. Greg, what's the first hundred days of a Trump administration look like? Vengeance, That vengeance more than anything else? Tom, I'm not even sure what his agenda is. Oh, God, Greg. Greg's for everything. He wants to get back at people who have slighted him. I think he wants a Trump.
I think that is that is going to be the biggest concern. I got to leave it there. Apologies about the technical problems towards the end of the conversation there. Greg Valliere of ETF Investments. I was slightly distracted here. Sometimes the title of Southside research really catches your eye and yeah. Oh, you want to get this from the team
Over at Wells Fargo, Goldilocks and the Five Bears. Do you want the five best, please? Okay, so base cases, weaker dollar into next year. I'll give you some of the parts. Okay. We caution against extrapolating out the dollar's near-term weakness too far into 2020 for a realization of a broader global slowdown could take place in the first half of next year. The prospect of significant rate cuts lingering China weakness given structural issues, rising global geopolitical risks, and drum roll for a fifth one for you. A heavy 2024 election calendar next year is a big year ready? Is it is it the election calendar? John's talking about global elections, the many elections worldwide, and we sort of stagger from one to the other to the next.
But it does speak to you know, you take the IMF gloom out there and where global GDP is going up 3%. All sorts of bad things happen with sub 3% global GDP, which means what do you do? You buy the dollar. So maybe it's maybe it's that strong dollar, but maybe it's dollar resiliency pushing against the consensus, maybe the five bears, the reason why there's very little conviction other than buy stocks, because tech is still going to take over the world.
I mean, essentially, is that the reason why we're seeing people come out with varying prognostications about the economic outlook? But the same one when it comes to Amazon and Apple and Google and Openai and Microsoft. Sam Altman There we go. Wait a moment for 5 minutes. I just wanted to sound, you know, that's open. I well, I mean, obviously this is sort
of the story that, you know, where Mike Mayo yesterday talk about it, about how this is going to really fuel bank earnings with some of the efficiencies there. I think Charlie Munger was right on air. There's clearly going to be some winners. But can you imagine the number of losers who go into a concept of a without the intellectual authority that we're seeing out of, you know, Microsoft and others? John, I think what we can establish here as a trend for next year is if you got five beers at Wells Fargo, we know where the six bear is. It's just no question, no question. I spent my pencil.
Trammell was a six bear consultant for a while, my CEO. So up at the holiday parties, I'll tell you my you know, my scenario, I'll show you that think they're going to have a nice drinks, warm moments of canapés maybe for the holidays. Talk about Christmas and the six bear shows your plans and Grammer shows up. Let me tell you about your call for next year. 5100. I don't think so. Tucker, You mentioned Charlie Munger,
the late great investor partner in Berkshire Hathaway's Warren Buffett. We're going to spend a bit of time. Yeah, with a tribute to the man himself. I'm so honored that Doug Kass has found time for us today.
Doug Kass knows this tandem like nobody. Doug Kass coming up later this morning, Howard Marks of Oaktree as well. The conversations on Bloomberg Surveillance. At your Brammer commercial break. I'll be happy of this segment. Actual quote, verbatim the context. The context You can share the context of
equities on the S&P 500 positive test your return big little by 0.3%. You're going to see this on the break life cam of Bravo. In the commercial break with audio, she ignores us. Just so you know, equities on the S&P down a third of 1% or other, up a third of 1% this morning on the Nasdaq, 100 up 0.4% yesterday. The stock market pushing out a small day of gains. The rally in November stalling out. I have to say recently, Lisa, over the
last week or so. Yeah, really, I think that there's a little bit more recognition that bad news is not necessarily unmitigated good news. And I think that there is a feeling, a concern about what some sort of slowdown can percolate into is still on course for the best month of the year on the Nasdaq, quite phenomenal off the back of this move in the bond market to year. Let's just sit on a two year front end of the curve. This yield mid-October mid to late
October five, 26. Wow. For 6971, down another four basis points. And this bond market yesterday choosing to listen to Governor Waller much more than choosing to listen to Governor Bowman. Look at different levels are technically 4.14, even a 4.04. But John, to the addiction of equity markets, up, up, up and all of that since Halloween is a basic idea that we've really at Stacy's, who we rolled over, I don't see any violation of moving averages here.
We're just noodling along waiting for the next news is the psychology. More seven stocks. I think about it right now. You've been telling clients for a while consensus view on Wall Street.
Lock it in. Lock it in. That worked out. They're worried about the reinvestment risk a year from now. If you are sat in T-bills and you maybe sit here 12 months later, will you be happy you have dry powder to allocate to the equity market or disappointed that you didn't go further along the curve and lock in this yield? So when you get this move from 5%, it's a 430 on a ten year later, all of a sudden the attitude starts to change only 30 basis points from having a conversation about the threes.
Then people really start to feel like they've missed out on locking in five for a whole lot longer. And this just feeds on itself in either direction. By the way, every time you have a 50 basis point, move in one direction to the other. Which raises this question are we going to see next stop sub 4% or is this going to be the trade? The caller that Peter Shear was talking about 425 to 475 and bouncing around from one to the other as people's moods shift depending on the data and the wind and the bears.
Well, to your point, this the conversation just changes radically from 150 basis point move to the next. Yeah, pretty much. And if you ask people in fixed income, where do you believe the next 50 basis points is lower or higher? Kind of struggle to answer the question. Lisa, going into the start of next year, if you give them a 12 month view, where do we land necessary lower yields, lower yields, But tell me where the next 50 years tell me where the next 5% in the equity markets. Give me a tactical top tactical call on this market. Technical call I can say is the momentum is there in seven stocks and you got 493 others, including General Motors, that maybe aren't there.
What Mr. Munger would say and Mr. Buffett this morning is use of cash matters. Maybe that's how you get Christian Holdings 10% growth.
Let's get to your top stories this morning. Under surveillance, Charlie Munger, the man who built Berkshire Hathaway alongside Warren Buffett, has died. Buffett paid tribute to Munger, saying the company, quote, could not have been built to its present status without Charles's inspiration, wisdom and participation. Munger served as Berkshire's vice chairman and was one of its biggest shareholders. Charlie Munger Tom was 99, 99 along in Wonderful Life. And to me and I said this to Nathan
Hager in radio here in the last hour, the singular feature and I was a young kid, was the shock of 73, 74. He was formed by big double digit negative losses and what I call the Pittsburgh recession. That's when Pittsburgh evaporated. But 73, 74, he lost a lot of money and that framed his humility forward. He also had great wit. And one of those. Oh, yes, that I love that I was reading
yesterday and some of the tributes to him around 2016, an acquaintance asked which person in a long life he felt most grateful to. My second wife's first husband. Husband Munger said instantly, I had the grudging love of this magnificent woman for 60 years, simply by being a somewhat less awful husband than he was. I'd not heard that quote.
I'm not going absolutely to comedy. I love that is can you give us your official view? Oh, I'm not going there. I love that quote. I just you know, to me, the love stories behind some of these figures of 60, 70, 80 years that we talk about really is notable to me. What is it, the zip code? It's Omaha. I remember I was stuck in a Omaha bus station a million years ago.
John Omaha is not Manhattan. And that's a hit to me. That's a huge advantage to you know, you put your pants on one leg at a time. A lot of people. Don't do that. Let's not go there. There'll be a tribute to Charlie Munger throughout this morning. We'll catch up Howard Marks and how it
marks Howard Marks joining us at about 8 a.m. Eastern Time. Look out for that. Is second story. Talks underway to extend the truce
between Israel and Hamas as the deal enters its final 24 hours amid accusations from both sides that the truce was violated yesterday. Hamas releasing 12 more hostages. U.S. Secretary of State Antony Blinken scheduled to arrive in Israel tomorrow. These are accusations about a violation of this framework for a truce in the last 24 hours from both sides. And yet still it's a truce that holds.
What do you take away from that? There are reasons on both sides that people want this cease fire to take place, temporary cease fire. But there is no reason why either side wants to see the conflict end in its entirety. And I think that's the takeaway, that right now Israel's under an incredible amount of pressure to bring the hostages home. Hamas needs to reboot, wants to regroup.
A cease fire, in James Stavridis words, is actually going to benefit arguably Hamas more than Israel at this point, barring just getting the hostages home after that. The goals have not changed. The animosity, if anything, even larger. How are we going to resolve this? No, we're not going to resolve it. We have resolved it since I'll go back to 67 and other experts go back to 1948 or before. But to your point, Lisa, I thought you were quite good on this in the last couple of days. The day by day cease fire, even with
certain violations here and there, has to have a cumulative benefit to all. But then it ends. And I have no idea how close we are to that phrase. Let's see when it ends and whether it gets extended. That's going to be a big part of the conversations today and into tomorrow. Turning to the big story, the last 24
hours in this market, the Fed rate cut debate, the conversation. Fed rate cuts could come as soon as the first quarter of next year, according to billionaire investor Bill Ackman. But I think there's a risk of a hard landing if the Fed doesn't start cutting rates, you know, pretty soon. So, you know, I think the market expects sometime middle of next year. I think it's more likely probably as early as Q1 as Bill Ackman that the full conversation with Bill Ackman on peer to peer conversations with David Rubenstein on December 6th on Bloomberg TV. I kind of understand what bill is sanket
Lisa. If you are worried about the cumulative tightening, if you want to time this perfectly, which I think is near impossible, but ultimately you can understand the reasoning as to why you'd have to start easing earlier than the past. The Federal Reserve is willing to engage on this particular conversation. Agreed, which is, I think, what the market is kind of feeding into as well. What I find interesting is just that Bill Ackman got a ton of kudos after calling the market perfectly, saying he was shorting bonds in September, closing the short in October and then writing this. So how much is he basically just trying to perfectly calibrate the emotional mood swings of the market right now. We need to go out and find someone who
could perfectly calibrate. That's Erik Nelson joining us now, macro strategist Wells Fargo, and particularly on foreign exchange here. Good luck with that, Erik. Perfectly calibrate dollar trajectory
for next year. Do you have a clue? Well, Tom, the key here is, you know, we're coming into the year and there's a lot of, I think, hope and consensus for continued dollar weakness throughout the balance of 2024. I think we're happy to sort of play for that in the next 1 to 2 months. We are seeing a positioning adjust the still quite long dollars. The Fed clearly becoming more comfortable with rates where they are, maybe even sort of shifting toward an eventual pivot. Question for us is if we're going to end
up in a broad based global slowdown by, say, Q1, Q2, including the US, is that really an environment where you want to be short dollars? History says probably not. So I think you have to be very careful and I think relative value opportunities, you know, shying away from the dollar over the balance of 2024 may actually be the best course of action. Eric, I'm going to give you a softball. It was your outlook that was put out about 10 minutes ago.
I shared it on our air on Bloomberg TV and Radio Goldilocks in a five Bears. Eric, can you tell us what the five bears are? Yeah, it's a couple of things to to sort of keep in mind here, John. I mean, one of the big ones is is the global growth story. And I just you know, as I just mentioned, there's a couple other things to sort of keep in mind. I mean, the big things here are, you
know, election calendar is certainly a big one. Broad based rate cuts across the, you know, this for the G10 and GM and carry compression. And so I think those are the really big ones to focus on as we get into 2024. Question for me is, you know, at what point do these bears kind of rear their head? You know, I'm really looking at next week's US jobs report. That is the big one. And it's sort of going to tell us, are
we going to see an earlier turn to rate cuts and earlier turn to global slowdown risks, or are we going to get another 180,000, 200,000 number? And we're going to continue to push out this rate cut outlook. And that's sort of where I think the near-term risk is for all these, you know, outlooks, including our own. Eric, how on earth is it that binary going into year end? Well. I think we've seen a big move in positioning, John. So you look at, you know, the move and rates are going to move in. Yes, there's probably more room to go if you have a situation where it becomes clear. You look at look at Waller speech
yesterday as a great example. He acknowledged the pace of job growth is still okay. And so, yes, we've seen unemployment rise, but initial jobless claims haven't moved that much higher. And these extreme moves we've seen both up and down in rates and facts would suggest that there is room in a low liquidity market to see some pretty wild swings into year end. So how much are you calling with
conviction to buy the dollar versus just simply don't write it off that it's just not going to be a clean trade no matter what you do? Yeah, I think. But and to clarify, I think we're not a point where you want to be, you know, long dollars. I think for the next 1 to 2 months, our base case is still a continued slowdown. A labor market side in the US, inflation stays low enough to give the Fed comfort to keep rates where they are, maybe start to hint at eventual easing.
But yeah, as you get into crystallization of some of these growth risks, especially versus some of the higher risk currencies, I think that's where you can start to look at actual tactically outright buying the dollar versus some of these more risk sensitive pairs. Is there a sense that some of the strength in the U.S. can continue and that even if there is a rate cutting cycle next year, even if it starts in the first quarter, as we just heard, Bill Ackman predict that at least the U.S. will be cutting rates less in 2024 than, say, Europe. Yeah.
Well, I'm glad you brought this up, Lisa, because I think there is in most normal times, non recessionary times. SARS is all about rate differentials. Right. That's really the key. What what becomes a little more complicated is in these global recession scenarios, that relationship can break down, look no further than March 2020 when you saw rate spreads and the dollar move in completely opposite directions.
So I think even though the Fed is probably going to end up cutting rates more than the ECB, given starting points, real rates, etc., it's not necessarily going to be euro dollar positive. At the end of the day, I think we're going to see more consolidation in euro dollar once these recession risks are crystallized. Eric, great to get your view. Congratulations on finally getting the outlook published this morning. I know that's difficult sometimes right now in there of wells fargo, difficult to get everyone to agree for one of the same pages to what some houses to them and some houses want that but other houses like Morgan Stanley's very fractious you know they really division.
Yeah. Need to turn to GM. Yes GM What a troubled show The stock is basically what it was ten years ago. Yes. The multiple is at about four times,
less than four times forward earnings. It's took the name. The market cap is less than 40 billion and they're trying to do something about it. This morning. The stock is up by 5.4%. So we've got a hike to the dividend,
buying back $10 billion of stock, spending less on the robo taxi unit as well. So Russia, a lot of pressure on Mary Barra. To me, it's a lot of pressure in Mary Barra and way, way more than that. This is a bombshell for every CFO in the Standard Poor's 500. There are 493 CFO as they will go over this with a fine tooth comb. Just to give you a perspective, Amy, give me this banner. It's so important on TV.
I'll tell it on radio. If you look at the debt of the Magnificent Seven, GM, where they're leasing and all that is 72% debt, Apple is 4%. And yet this is a use of cash announcement like you'd see from the Magnificent Seven. So we seem to be trading time on, I would say the cut to investment and things like rubber taxis seem to be moving higher off the back of the capital return program, reinstating guidance. And just to get your hands around the new guidance, Lisa, net income will now be between 9.1 billion and 9.7 billion. The previous guidance going into these strikes, a range of 9.3 to 10.7. Of course, during the strike, Lisa, they
had to withdraw that guidance. So Newgen is just a touch lower. What do you make of this, this Mike, to me, $2 billion in fixed cost reductions? To me, the question is the cuts and how much this paves the way forward for others who are facing similar income constraints and maybe four more cuts at the same company further down the road. Much more on that still to come. Coming up shortly, Clare Lombardi, Ali, of the eight from New York City this morning. Good morning.
We are now starting to see lots of different things trickle into the economy, which will make the economy likely fall over next year, a story that things will be very interesting for next year. Next is North America is the center of the slowdown. Asia is the center of the recovery. And Europe sits somewhere in the middle.
And this is southern port. And that was Mark McCormick, the global head of strategy at TD Securities. We caught up with him a little bit earlier this week. Coming into this year, the call was the slowdown was in the U.S. The outperformance would be in Asia,
delivered by what was happening in China, reopening consumers, reengaging with the economy. And then what eventually transpired, materialized, if you will, was the US outperformed it. China massively underperformed the call. Again, Lisa, going into next year is now
for Asia to be the center of the recovery and America is the center of the slowdown, which is kind of like the T3 outlook on repeat. Pretty much everything about this has been the 23 outlook on repeat. It was basically slowed down, delayed, deferred, the disinflation, accelerating the sort of trends the the just, you know, transitional kinds of inflation that it's just transitory reinstated essentially. And people are saying it's going to be a weak first half, but then the second half is going to be good, fueled by rate cuts and fueled by the sense that we've entered the new era. What would you do if the Fed turns around in early next year and says it was transitory, just turns around, it was all transitory, was all transitory and basically tries to give them a not give themselves in no to what they set two years ago. They're not going to do that. I'm not going to wait with victory.
They're not going to do that. I mean, the transitory was my tarred and feathered. It's not going to be them and they're not going to declare victory. They're going to try to be quiet about it. But you are going to hear we achieved a soft landing. It seems like that we're going to hear
other words, but they're not going to use the T-word. Come on. That's the hope and a dream into next year. Futures at the moment positive by 0.3% on the S&P discourse. Looks like this cross asset yields down
again by three or four basis points, a ten year at four 2840. An update on a single name General Motors GM in the pre-market up nicely. The stock is high by 5% $30 in about $0.35 in the pre-market will be catching up with Mary Barra, the GM CEO. A little bit later this morning. I'll be interviewing her at about 930 Eastern time.
So on the news this morning, hiking the dividend, $10 billion buyback. Lisa mentioned the cuts to reducing investment in the ROBOTAXI unit. There's been some question as yet reinstating guidance just slightly lower than the previous guidance. But the capital return program may be getting some shares, the cuts to spending by some upon the real economy. And let's see if it last and the real economy.
John, I'm going to say this is the first big announcement of 2024. How many other companies are going to come out with attitude adjustments like this? This is this is the summation of this, as you mentioned, 1 to 3 different ideas. And it's the basic idea here is this was pounded through to be a new GM, whether you know, right or wrong, start my pay. I'm not qualified to have a view on it. But how many other companies like Lemmings off a cliff are going to go? We got to ask, starting with what Lisa mentioned, the barbershop. Let's put it this way. The bar was low, hugely. The multiple on this was low. BTK, you've been covering this way
longer than I have to see GM trading at less than four times forward earnings. Yeah, full disclosure, it was ten years ago. I have and maybe I was colored, but I was sort of an Eastern Detroit and it's called Rochester, New York, Rochester Carburetor.
I've never owned the auto stocks and maybe that's my childhood, but it's been such a train wreck for so long, like it's McCallie it's Citigroup nailed the ascendancy of GM, But you haven't seen it, John, in the stock price. And given the labor costs that developed in the last couple of months, how investible are they now even with that capital return program? These are the conversations we'll have. But I think a lot of this is just skipping over a very low bar. And you see that with Foot Locker this morning. Third quarter comp sales, -8%. The estimate, negative nine point I could get Footlocker up in the pre-market. They set skyrocketing, skyrocketed by
11%. Just kind of beating a very low bar. Yeah there basically is the bar to not file for bankruptcy at this point. This is about inventory unwind in this idea of at least not performing as badly and not losing as much market share. How long can that last in terms of comps
for next year? Go out into the open about a few hours away, $26 on that stock up by about 9%. Let me give you the outlook for next year. According to the OECD warning of a deepening slowdown in the world's advanced economies, predicting Fed rate cuts won't start until the second half of next year. This is the quote in their outlook. Unemployment will continue to catch up
through the first half of 2024. Inflation will decline, allowing for monetary policy easing in the second half of next year. It's on the outlook could worsen if the effects of tighter policy rates are stronger than assumed or lead to financial stress. I can't say enough, John, how cautious this view is from the OECD. I would suggest they've been a little more optimistic than some of the shops. Joining us right now, their chief economist, Claire Lombardo, who with her work at London School of. Economics, Oxford, and of course, with
the government of the United Kingdom. Claire, thank you so much for joining us. What I'm thunderstruck by is the duration of the slowdown. You have a 36 month average, 2.87% real GDP for this world. Have you seen this before? Is there precedent for the duration of your slowdown? We haven't seen global growth at this low level, you know, for for a period. Obviously, the global economy has
previously grown a much higher historic levels than than we're projecting here. But actually, what we've got we've put our projections today for for a fairly soft landing, actually in a smooth landing. That's our central projection for for economies as they go through. You know, as inflation comes down and they get through the monetary tightening that we're now seeing, how long is a buoyant United States of America, how alone is America in your global analysis? Well, we've revised up our projections for the US because obviously we're seeing stronger data there and the economy is proving more resilient to the tightening that we've seen so far. I mean, they're not alone. Other economies are also doing doing reasonably well.
Japan would be another example of it. Another country I would point to. And of course, across emerging markets, the picture is very mixed with some emerging economies performing, performing relatively well. Claire, you don't expect the U.S. to start rate cuts until the second half of next year, which goes kind of counter to a growing consensus among investors. That's going to happen in the first half of the year. What do you think is going to take so long? Is it that the economy is going to be better than expected or that the Fed's going to proactively be late to the game of cutting rates? With. I mean, we've seen more strength in the
U.S. economy than than people had previously expected, which is part of what's going on here. I mean, there's a lot of strength in the in American consumers in particular.
And so what we're expecting really is to take a bit more time for inflation to come back to a DNA, to show a persistent downward trend and come back to targets. And that's why we were projecting a longer period of monetary tightening is going to be needed. You know, monetary policy is going to need to remain restrictive for a period. You also don't think that the ECB is going to loosen policy until the beginning of 2025, even as we see inflation come down quite significantly. We're going to get pretty soon the German inflation read and we got earlier today lower than expected Spanish inflation. Why do you think the ECB will be able to
hold on to early next year, given that people are talking about stagflation, slowing growth, recession in the region? I mean, we are seeing slowing growth in the EU and again, we've revised down our projections there. We are expecting inflation to come down. But to come down sort of slowly thinking about core and headline inflation. And so again, what we need to see is
inflation persistently returning to targets. And that's why we're expecting and advising for a period of time of restrictive monetary policy while that inflation is squeezed out of the system. You know, we've seen record rates of inflation in response to the shocks that the economy's been through. And so it will take some time for that to come back to Target. Okay. We've got to leave it there. Appreciate the update.
Thank you. Claire Lombard, Dalida of the CD. I think Governor Wallace speaking to a lot of this, some comfort, at least for Governor Walla. He alluded to this. I think it's highly suggestive in what he said some some comfort the policy sufficiently restrictive to get monetary policy to get inflation back down towards target. And I can share the full quote with you. I'm increasingly confident that the policy is currently well positioned to slow the economy and get inflation back to 2%. I'm encouraged by what we have learned in the past few weeks.
I'd love more on this topic. I'd like to know what he's looking at specifically, what some think appears to be giving. And it's the pace of the economy. His esteem is earned out of the research
house. It's widely understood among the 12 Fed banks that St Louis invented moderate research. I won't bore you with the details now that Waller is a distillate of 3040 years of Federal Reserve Bank of St Louis excellence, and when he opens his mouth, people listen. What I didn't hear there, Lisa, was a
job economy and to me I still go back to their dual mandate. Well, this is the reason why I think immaculate disinflation is still very much on the table. One thing Chris Waller said, and I quote, There's just no reason to say you would keep rates really high and inflation is back at target. For example, if inflation gets back down, maybe not even to 2%, but close to it.
Can I then call the all clear sign and start cutting? Keep going back to that threshold question. Standard Chartered Eric Robertson. They say something like four and a half percent on unemployment, 3% core PC. Let's go.
This Fed cuts rates. Don't think the Fed wants to be that specific, that precise about pretty close conversation we're having. Sam Stovall, CFR right. Joining us.
Surely GM up in a free market with a big capital return program and some cuts to spending as well. Does Sam Stovall like the auto auto stocks? That conversation. Up next.
If this period in time on the timeline isn't such a great time for investors in equities? I would definitely still be long treasuries between now and the end of next year, but with a nod to the fact that it will be a choppy ride. What I find the most concerning about the last month is there's been a massive risk on rally. On weaker economic data, we are now starting to see lots of different things trickle into the economy, which will make the economy likely fall over next year. I think it's incredibly important to remain invested even in times of uncertainty. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro, and Lisa Abramowicz. A Typically I would, but I can't even share the conversation. The commercial break.
It's just of just keep it together Promote aging. From New York City this morning. Always. Good morning. Good morning.
For our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro your equity market is positive by 0.4%. I want to talk about GM General Motors. In the pre-market, the stock was up by about 5%. Last time I looked, he came out with an
update to the guidance, reinstating guidance a little bit lower than previous guidance. The stock now up by almost 7%. We've got a big capital return program, so I'm hiking the dividend, $10 billion stock buyback program. And then you've got some cuts to spending in certain areas as well that Sam Stovall is in review of the day, canceled that the interview. The day is you and Mary Barra here in the 9:00 hour. This isn't one announcement.
This is a multifaceted, primal scream from an underperformer. Is this a change in strategy or a change in execution on a financial side is definitely a strange change in strategy, no question about it. Financially and the making of automobiles, which is a lousy business, you know, I'm not so sure I'm not the other guy. Well, you know, two things. There's a really important transition here with EVs and who's going to win that, especially given the preeminence of Asia. Is anyone winning now besides Tesla? Certain Asian producers? Yes, I would argue they've actually come out with lower cost models and they have bigger pools of lithium and other types of of resources. Then there's a question of the cost of
labor in the U.S. and what that is doing to margins and how much that's actually pressuring the need to cut costs. In other words, was the UAW negotiations, as you mentioned, John. Yeah, the last sort of gasp of labor preeminence in an industry that's increasingly looking to transition into something else. So you've got new developments, you've got labor negotiations.
We're talking about a 25% pay increase, cost of living adjustment, all of that. That's no doubt hung over the stock over the last 12 months in a material way, particularly the last few months. But Tom, it's not just about the last few months. It's about the last ten years. This stock is almost exactly where it was a decade ago, despite some record numbers when it comes to selling automobiles in this country today.
How do you turn that around? Oh, you're 17, 18 million. You got the pandemic in the way will be their excuse. But again, I think it's a primal financial scream. And Lisa nailed it among 40, 50 headlines, a key one here. I don't have it in front of me, but it's a $2 billion cost reduction, which I'm sure is on top of a previous cost reduction.
And if every CFO in the Standard and Poor's 493 has to review this release and not just about EVs, also robo taxis, these bets on the future, he said, Sometimes they're much, much harder to deliver on. Sometimes you have to find out the hard way that it's going to cost you more. It's going to take longer to realize gains from it. And I think we're finding that out on this particular issue. Yeah, What happens when a robotaxi just decides to stop right in front of an ambulance and not move? I mean, these are the types of things that they were dealing with and then they had to have someone come and try to take it away and the ambulances think, Are you kidding me? And these are some of the things that are transpiring. You know, again, 72% dead. A lot of that is the equipment leasing,
the financing of automobiles. I get that. But but this is something that every sell side analyst outside of autos has to review this transaction and look at analogs over to where their coverage is. The stock is up by five, six, 7% in a pre-market. Right now, we're up by about 6.27% currently. Let's get to the scores more broadly. Equity futures positive by third of 1%
on the S&P 500. This rally in the bond market continues. Selective hearing for Treasury investors yields down by three basis points. Your yield right now for 2917. We listen