00:00Bloomberg opinion editors out with a column today about how Fed chair Kevin Warsh had ground to make up on
00:06Wednesday and for the most part did what was necessary.
00:09What was your view there? Yeah, I think the Fed has a battle against inflation that they've they've got to
00:15do.
00:15And the market has come around to that to that idea.
00:17So they have I think we have to take him at his word that he has accommodation to hand back.
00:23Right. And we've taken away some of the accommodation rather than tighten the market yet.
00:27So was it a day for I mean, we thought we were we were out of Future Proof and in
00:31Huntington Beach and really a theme there seemed to be that this was a Fed that asserted its independence and
00:37showed its credibility.
00:40Do you agree? Yeah. No, I think the unanimity amongst the committee was really important.
00:46And I think we got a glimpse of Chair Warsh's reaction function, too.
00:49Right. I thought it was very telling that he was very worried about the dispersion of inflation around the economy.
00:54Right. With so many of the large proportion of CPI components trailing at above three percent annualized growth.
01:00Right. So so I think this is a committee that has established its view that it's going to be emphatic
01:07against inflation.
01:08And we're seeing that show up in bond prices. Right.
01:10It's interesting. I was looking through some of our data just this morning and we're not seeing a move on
01:15inflation expectations at the 10 year level where we've seen the move is in real yields.
01:19Right. The market is taking them at their word that they're going to do enough to battle inflation.
01:23That doesn't get us over the hump just yet. But but it does tell me the market has conviction that
01:27we're doing the right thing.
01:28What's that battle by the Fed look like for you? Is it another hike? Is it a couple of more
01:32hikes?
01:33I think we can take the market at its word that it's it's two or three by the time we
01:36get to mid next year.
01:37I you know, I know odds are 50 percent for for October.
01:41Yeah. You know, 90 percent that we get another by year end.
01:44You know, I think we can take the market at its word.
01:47I think the good news for us is as we look across all those components of CPI, a large majority
01:52of them are trending the right direction.
01:54Right. The challenge right now, as you highlighted earlier, diesel costs up.
01:58Right. That's and that's a problem across the goods industry as well as agricultural prices are up.
02:04Right. So we've got to pay attention to those things. We need to see those start to stabilize.
02:08Is there any trouble? I mean, we look at the labor market so far, so good.
02:12But I mean, if that starts to come undone, the Fed's going to be in a tricky place.
02:15A very clear worry for us that we have to watch.
02:18And that's why yesterday's jobless claims number was so important.
02:21And one hundred and ninety six thousand. It tells us we need we need labor.
02:25We need laborers. Right. And we're not letting go of who we have.
02:28So I think this is a solid labor market.
02:31Not spectacular, but solid, maybe enough to hold that base of the pyramid and get us into that A.I.
02:37investment cycle that continues.
02:38Just throw one more economic statistic at you.
02:41Retail sales coming in very strong.
02:43Does it fit with the rest of the economic picture in your view?
02:48It. Yes, it does.
02:50OK. Right. And it does because if you if you write part of the challenge with retail sales is inflation
02:55is included in that number.
02:56Correct. You start backing out inflation and it still looks good.
03:00I mean, that's kind of the good news we take from it is is you back that out and consumers
03:04are able to maintain their spending baskets.
03:06Rob, I want to go back to energy because I was struck in our editorial call this morning.
03:11Our producers bringing up the talking points that you sent and it was really energy focused.
03:14I'm getting some feedback right now from one of our loyal audience members who says that so much of the
03:19sentiment around gas price rise is media led.
03:22I said, OK, I'll bite. I'll bite on this.
03:25Why do you always blame us but love you?
03:28But I will I will take I will take the criticism.
03:31Are we are we as media doing too much on this or are you do you think you think this
03:35could be something that erodes consumer sentiment?
03:38Yeah, I know. I think it's a challenge. Right.
03:40I mean, we go back to oil prices. Oil prices are set every day by what we need and what
03:44we use.
03:44Supply demand. Right. Right.
03:46And I mean, that is how they are set every day. And so I have a hard time blaming those
03:50of us talking about it when, you know, we have.
03:54But by the way, we go back to the employment data. Very solid employment.
03:57What do we have to do? We have to travel using oil, natural gas, gasoline, diesel prices. Right.
04:03I mean, we have to use it. And that's what's driving it. And supplies are dwindling. Right.
04:07I mean, we look at Strategic Petroleum Reserve. That's the lowest since 1983.
04:11You're seeing commercial inventories right below the five year average.
04:15So we're being told we don't have quite enough.
04:17Let's talk earnings for a moment, because when it comes to earnings, they have been on fire.
04:21According to Goldman Sachs strategists, profit growth is likely to slow rather than collapse as AI driven productivity provides support.
04:28Where are you on earnings?
04:29Yeah, it's been it's been great. And we think things continue through 2027.
04:33It's hard to see all the way through 2027.
04:36It's hard. Right. I mean, I mean, well, we've got 30 percent earnings expectations on the S&P 500 for
04:412026.
04:42It's 14 percent, I think, is where consensus is for 2027.
04:45You know, slower. Yes.
04:47It's still bad. No.
04:49Right. Not enough to do real.
04:50Is it all AI driven? Like what what drives it?
04:52I mean, tech is tech is at the top of the heap, certainly.
04:55But you look at earnings so far this year.
04:57Energy has been a great place to be, both from an earnings and a performance perspective.
05:02And you're seeing that story broaden out. Right.
05:04You're seeing health care earnings start to tick higher.
05:06You're seeing small cap earnings start to get better.
05:08And earnings expectations start to get to us.
05:10That's the good news is this is not a one sector story anymore.
05:14Right. You are seeing some breadth.
05:15And so that gives some durability to this market.
05:18Doesn't mean there won't be volatility.
05:19Right. With the Fed hiking rates, there's going to be volatility.
05:23But there's durability to this.
05:25And I think about this year alone. Right.
05:26If you think about the last nine months of this year, it you look at performance for the S&P
05:30500 and international stocks.
05:32And you wake up today. It was great.
05:34But those of us who have lived it, it has been a rough year and hard to believe we're still
05:39making double digits in our equity portfolios this year.
05:42So on the AI side of things, wondering about the widening of the beneficiaries of AI, the idea that companies
05:50that are not necessarily the picks and shovels or the direct participants are actually going to see productivity gains.
05:55What do you see there?
05:56It's early.
05:57And I think that's a hard way.
05:59It's still, you know, we're hoping we get more news.
06:01There's a lot of money being spent on this stuff.
06:03It's a lot of money.
06:03And I think in third quarter earnings, we need to start to see some more data.
06:07But I think, you know, some of the statistics and surveys we've seen is there's a lot of use and
06:11not a lot of quantification yet of the benefits.
06:14But the sense is it's going to be there.
06:17Right.
06:17And I think we have to give room for this growth story to happen because it's going to be built.
06:23It's a massive global competition and it's going to be used.
06:26Right.
06:26We're all seeing benefits every day.
06:29I've not asked you if you're using it a lot personally.
06:31I'm starting to use it more personally and in business.
06:33Right.
06:34Both.
06:34I used it a bunch today for some different things.
06:38Right.
06:38And so I think from a business perspective, we're seeing that.
06:41But it's going to take time to get to quantification.
06:43I think, you know, health care is a good example of an industry that's early.
06:47Right.
06:47They're early.
06:48We're seeing some good benefits there.
06:50I think everyone else has some room to run to quantify it.
06:53And I think we'll see some news in third quarter earnings that starts to give us confidence.
06:57I'm ready to get the flu shot from the robot.
06:59Are you?
07:00Yeah.
07:01I'm okay with that robot and it's how to give a shot, like, nicely.
07:04Yeah.
07:04That would be nice.
07:05I've had some humans not give it such a great job.
07:07I've had some humans not give it up.
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