Show notes
Randy Kroszner, University of Chicago Booth School Professor of Economics, and Jeff Rosenberg, BlackRock Portfolio Manager of the Systematic Multi-Strategy Fund, discuss the softer-than-expected October US jobs report. Gene Munster, Deepwater Asset Management Managing Partner and Anurag Rana, Bloomberg Technology Senior Analyst, recap Apple's sluggish 3Q earnings report. Terry Haines, Pangaea Policy Founder, discusses the rift in Washington over government spending and aid to Israel.Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance FULL TRANSCRIPT: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. What you need on Jobs Day more Newtonian calculus. We'll do that with Randall Krosner of the Bus School, Chicago, of course, the former Fed governor, one of our great and giant financial economists in America. What's the second derivative of the jobs market look like? Randy? When it moves? Does it move? Ah? And that's the key question exactly what you were talking about. What does this pretend for the trajectory going forward? Certainly we're seeing a slowing pace over the last few months downward revisions. And then the question is will this be nice and smooth or will this pretend something that is going to be As at LISTA mentioned before, nonlinear, very difficult to predict any nonlinear moves and things. But I do think it's consistent with a somewhat softening labor market. I think the FED will certainly be heartened by the wage growth coming down a bit over time. I think this takes the wind of the sales of those who wanted to go further. I think it makes it much more likely that we will just hold where we are for a while. But so far, there's nothing in this to suggest that the FED is going to be eager to cut or be even talking about cutting anytime soon. Do you think, Randy is some people are pointing to manufacturing as a point of weakness, that that is a leading indicator in the way it has been in previous times, just because of how many people were hired during the peak of the pandemic. It is certainly one area that there was a lot of bounce back, because of course people want to things, but now people want services, and so the services part is still extremely important. I wouldn't put too much emphasis on any one particular sector. I think you have to look over overall, and as Mike had said, you know, we're seeing a little bit of slow down broadly, but not enormous amount of slow down. But I do think that is consistent with in somestance where the FED wants to go. They want to see the uneployment rate go up a little bit, not too much. They want to see wage growth come down a little bit, but not too much. And I think it's just going to be tougher to be hiring people going forward. Until just a few months ago, real wages were not growing, they were actually negative. Real wage growth was negative. Now real wage growth is positive, so it gives less of an incentive for firms to hire. Real interest rates are now positive. They had been negative for a very long time. That combination is probably going to lead firms to be less eager to hire, less eager to invest, and I think that's going to be leading to what I think is potentially a hard ish but not hard landing. This is an important jobs report. This November report of the October data just absolutely extraordinary. Randy Krasner, thank you so much, Professor Krasner with the Boost School the University of Chicago. If you're not part of the global Wall Street gang, you've got to understand it's hard to look at the Bloomberg screen and frame it out from where we were two weeks ago, which gets us to canes and when the facts change, I change. Jeffrey Rosenberg studied as Maynard Keynes at Carnegie Mellon. He's a black Rock portfolio manager systematic multi strategy fund for all of us. Jeff Rosenberg, are the facts changing? Great question, Tom. You know, the narrative is changing and the facts are driving that. And so Lisa asked the kind of the key question, You know, how do you rally in front of a slowing labor picture? And that's because it's where we are. Equity markets were weaker while the economy was strengthening, and that was really about the rise in the denominator, in the discount rate and the interest rates. So as you ease off the pressure in terms of the interest rates, there's a little window here where the narrative changes and there's relief because the discount raid is expected to be a bit lower, and you see it in the bond market. But that's about horizon and so the near term horizon narrative will shift, but the longer term horizon about that hardish landing that Randy just mentioned. That'll be for future conversations. Right now, the market's pretty excited about lower discount way, Jeff Rosenberg, people would say, Blackrock is part of that wall of money that's out there. Okay, we got a short cover here, a short cover there, I got futures up eighteen. Rosenberg knows the numbers better than me. Are we underestimating Jeff Rosenberg? How many people here are off sides and need to get in and play? Now? Yeah, you know we talked about this after the FMC. You know, the near term volatility is all about technicals and positioning, and so you're going to have that and you're going to see you're going to see those moves. The longer term positioning is going to be about trajectory and fundamentals. But certainly, you know, after a report that you know pretty much convincingly across the board, as you highlighted earlier, you know, this is a report that helps to support the narrative of slowing in the labor markets, slowing in wage inflation, even though that's a mixed shift probably in the AH number, but across the board, especially with the revisions, you know, it just looks like this is coming in slower, and so that helps to feed the near term narrative that you get to the soft landing. You know, as Randy said, whether it's soft landing or hardish landing or hard landing will remain to be seen. When do you go with groupthink and when do you push back? Right? I mean, when do you go with the crowd if sentiment is shifting and you're seeing people go into risk, if you believe that essentially bad news will be bad news for risk acts. Yeah, you know, it's a lot about kind of what's in the looking at what's in the price, and how much cushion you have against the consensus move and where the asymmetries lie. So I think right now the momentum and the sentiment around soft landing is going to be pretty hard to push back against. But you know, as we see successive waves of data, we got a couple more here in terms of before we get to the December FOMC, there's going to be a little bit of momentum here around the easing off of financial conditions, the easing off of tightening from the FED, and I think that's going to provide a little bit of a tailwind for a short horizon trap. And definitely the momentum tends to overshoot, and there is this feeling that this does set the market up for more fragility heading into a print that could be a big surprise on the downside. Jeff, how much is that sort of the play right now is to lean into the momentum, go at the flow, soft landing. Sure you can celebrate, but the music will stop eventually, and each one of these economics prints are going to have that much more heft and importance in markets. Yeah, and you know, the main issue here is really about long and variable lags. And Tom, I know you hate when every time I say that, but it is where do you see that pressure coming in? Randy talked about the pressure in terms of easing off of hiring because real wages are no longer negative, it's more expensive. You talked about funding costs, and maybe there's a little bit of an opening up in terms of the bond market, but I think you got to remember here, these are much more expensive funding costs. And so if you don't have to issue that debt because you've termed it out, you don't want to issue that debt. And so even though the market may be open, it's at a much higher cost. And that lagged effect of tightening in terms of interest expenses something you know, the market is still going to have to figure out where are the vulnerabilities, and there are vulnerabilities to that impact on Bloomberg Television and radio. Jeffrey Rosenberg with us is Blackrack really timely, and of course we thank him forst fed work as well well. He's going to stay with us at right now, I can't do it to complete data check because Jeff Rosenberg is too important. But Lisa, there's some real nuances here. Futures up nineteen continue to advance down, futures up one thirty nine. Can I get to a VIXA fourteen, I'm not there yet fifteen point two six. As Bramba mentioned, folks a two year yield in thirteen basis points, we continue to see lower yields and a higher prices ten year in his stunning eleven basis points. And just you know, outside the box here, I got weaker dollar, I got euros through one oh seven. I've got yen dynamics, but euro yen. What does the Japanese institutions do this weekend? Off what Jeff Rosenberg says? Because I got euro yin one sixty point zero one. If they're not going to act now, Lisa, when are they going to act. That does raise a good question and Jeff to that point, does the move that we're seeing in the US a sigh of relief open up possible monetary disruption elsewhere hint hind Bank of Japan that could be disruptive on the other side. Yeah, I mean that's a big global story and one we've been talking about for a while waiting for. We got a little bit of it in terms of changing the definition of yield curve control, and there's an expectation that there's going to be more. And there's an incredible amount of fiscal stimulus coming out of Japan that is really going to push the BOJ even further. And so that's been a global impact. It's dampening term premium It's part of the term premium steepening story. You know, the refunding you know, certainly is pushed back on that and positioning you know, a bit off sides for that surprise somewhat surprise refunding. But really the big story there is going to be global term premium steepening and that's I think long term going to come back to the US. But near term this is going to be about softish landing and slowing of the Fed, and the market is going to run with that. We're looking right now at two year yields just tanking. I mean, honestly, this is quite a move fifteen bas points nearly from top to bottom in this trading session as people parse through this, Jeff just want to finish up with the Fed's reaction function, this concept of what it takes for the Federal Reserve to cut rates. Right now, there is base into the markets in real time, a sense that they will be cutting rates in much sooner than they're saying. Do you think that's accurate that the bar to cut rates has somehow come in as a result of just the general feeling and the public and the lack of willingness to tolerate much higher on employment rates. Well, it's tricky, Lisa. I mean, I think the reaction you're getting right now pricing out the kind of probabilities, the limited probabilities of the last hike. Right. So, you know, you go back to Wednesday, and you know you remember the question, and you know you talked about we're not even you know, talking about cutting rate now. Obviously the market is because the market is looking forward here. I think you got to see a lot more development on the inflation side before you get there. And then the other the problem we're going to talk about, I think is the reflexivity. I think you mentioned it is that you know, well, we the FED could do less because the market's doing more. But the more the market does more in terms of using financial conditions, the more then the Fed has to do. So you kind of get yourself chasing your own tail around that story in terms of whether they can cut. So it will come back to does the inflation really fall fast enough to that two percent level that gets real interest rates high enough that gets them concerned that they're too tight where they really need to deliver those cuts, and that I think is still way out into the future. And Lisa, where do you get to show where jeff Rosenberg channels George Soros on reflexivity. I mean, there's nowhere else in the world you can have this much fun. Jeffrey Rosenberg, thank you so much for joining us. That's the way it works, folks. The street only focuses on revenue dynamics, and if they're brave, they go down the income statement and they'll find that and then it's what I call concept concept concept China, worry, worry, worry, yep iPhone worry where iPads omg and thank god. Gen Monster, with all of his work on Apple and technology, says, you know, maybe they're rock solid. Maybe they're running this thing for profit. Gene. I saw a record third quarter gross margin. I saw the persistency of services maintained, and critically, I saw cash generation in the gloom of Apple this morning. The second guessing, is there free cash flow growth going to EBB. No, Tom, I think it's just going to flow and flow higher. And ultimately they showed, as you said, some of the most impressive margins, most impressive gross margins that they've ever printed a mikeed environment where component costs are rising, of labor costs, shipping costs, all of that, and they've been maintaining price that shows operation efficiency. That's what drives free cash flow. And you said it right. One big X factor around free cash flow that we've observed with big tech over the last nine months is they all say we're going to be investing more into AI. Tim Cook talks about that but says he wants to do it responsibly, which means he wants to protect margins and do that that is a unique perspective. John from his house, looking down on the Helix and New Jersey emails in and says, is it a time to buy Apple? If there's all this worry about legitimate things like China, is gene monster saying load the boat. So this is not investment advice, but I do think that this is a time to own Apple. And ultimately is you have to play this picture forward for one, two and five years. And what we've seen in the near term is that the importance of their devices in our lives are central and that shows up and effectively. The guidance I think it's misunderstood is for seven percent growth, up from one percent last quarter. So that's the baseline. The second is just the opportunity that they have to continue to sell that engage base more products. And third is that they have opportunities to go into new markets, whether it be spatial computing or what potentially could come out of automotive. And so I think when you put all this together, this is a unique dynamic and I think that this will power shares higher in the years to come. Paul, you know this. I mean you've lived this where you're like, is it a twelve week quarter, thirteen week quarter of fourteen week quarter. I mean it's like death exactly. Hey, Gene, you know, going into the quarter, the pundits were saying, you know, the primary focus is going to be China. So let's approach that from the perspective of competition. Talk to us about…
Full show notes at the publisher 
Our TOPPODCAST Picks 
Stay Connected
