The countdown is on. Everything you need
to get the edge at the end of the market
day. This is the close.
Inflation pressure builds and so too
does the pressure on the Fed. Live from
Studio 2 here at Bloomberg headquarters
in New York. I'm Roma Boston
and I'm Scarlett Fu. We're kicking off
to the closing bell here in the US on
the eve of J Palace Beach.
Yeah, big one.
All right, let's take a look at what's
going on here. We have the S&P 500
declining for a fifth straight day here
after a report showed a rebound in
manufacturing which could darken the
outlook for rate cuts. Uh you also have
interestingly small caps outperforming
2000 gaining 310en of 1% with healthc
care leading the way. So is this part of
that rotation narrative that we've been
hearing about? Yield yield uh yields are
higher across the curve. You can see the
10-year now at 4.33%
and the Bloomberg dollar index adding to
its gain after the the release of that
manufacturing data. interesting moves in
the market. Five days of losses in the
S&P, three days of losses for the NASDAQ
100. A trifecta of losses, the first
trifecta of losses for the NASDAQ 100
since March. It's a 3-day almost 3%
slide that to be fair was actually
foreshadowed by a pickup in options
activity. A pickup that is now picking
up well even further. But I had a chance
to catch up with Brent Th yesterday and
well, he's not shook just yet, saying
that the market pullback is still modest
and not cause for alarm.
I think it's orderly. It's not been
violent. Uh our trading desk has seen,
you know, seven straight down days. Very
consistent. No one freaking
the view from the trading desk at
Jeffre. Meanwhile, at the trading desk
over at Goldman, they say the recent
losses in high momentum stocks may
actually be a dip buying opportunity,
particularly given the bullish signal
that more than 60% of S&P 500 members
are actually above their 200 day moving
averages. But of course, seizing that
opportunity isn't just about technicals.
It's also about fundamentals, economic
fundamentals that are pointing to
inflation pressure. Exhibit A, the S&P's
latest factory purchasing managers index
today showing services companies
affected by tariffs, they're passing
along those higher costs to consumers at
the second fastest rate in two years and
price hikes from manufacturers. Those
right now are among the second steepest
increase in about 3 years.
Yeah. Which of course renews the concern
about inflation. So when we look at the
market as mega cap tech names extend
their losing streak, one consistent
narrative is that there's a rotation
taking place within equities. Investors
shifting away from super expensive MAG7
names and adjacent companies to
something offering better value like
small caps. So what this line does is
track the performance of the Russell
2000 relative to the S&P 500 over the
past 5 years. So when the line goes down
like it basically has been since early
2021, that means small caps are trailing
big caps. So the rotation into small
caps that we've seen the last few weeks
right over here highlighted in white on
the idea that they would benefit more
from an interest rate cut is still minor
in the big picture as to almost remain
not even count.
Amy W Silverman joins us right now to
kick us off to the close. Equity
derivative strategist at RBC Capital
Markets. And Amy, I don't know if you
had a chance to actually see that chart
Scarlet had up, but it gets to the idea
of the market moves over the past few
days and really the past few weeks. Does
that actually dovetail with what you
view as appropriate positioning?
So, it's interesting because you know
when it when we specifically talk about
the small cap versus large cap trade and
growth versus momentum, I'm a little bit
still in the camp of Boy Who Cried Small
Cap in just that I've seen this movie so
many times. You know, it always kind of
precedes this potentiality of having a
rate cut. We never see it come to
fruition. One of the main reasons and I
continue to harp on this as it relates
to positioning is when you talk about
small cap or value it does not have this
aspect of benchmark FOMO. So essentially
when a few names like the MAG7 uh
contribute so much to the concentration
of the index that investors feel like
they must be in them to participate in
upside you just don't get that yet with
small cap. It doesn't mean the trade
couldn't work. I think I would just need
to see a few more data points. I
I am curious there. I saw in some of
your notes here, you're actually
advocating that maybe if you do want
exposure in that area, the idea to use
call spreads, the idea of basically
going long uh on I guess a price that's
closer to where we are today and then
shorting the prices that are a little
higher out and that's on the Russell
2000 ETF that tracks the Russell 2000.
Is that a fair characterization?
Totally fair. So IWM essentially your
proxy for Russell 2000 uh as an ETF.
Extremely liquid from an options
perspective. I would say this is a
popular trade for those who do want to
express that idea that you know small
caps could have their day in the sun. Um
and but they don't want to outlay a lot
of premiums. So that payout that you get
on those call spreads are very high
essentially because we do see investors
come in and say hey you know maybe this
time around the movie will play out in
their favor but again they don't want to
put all their funds in that trade and
just move that rotation out because
again that benchmark FOMO doesn't exist.
So options becomes a good strategy to
kind of lever to that idea.
Amy, I wonder if small caps have just
become kind of a a trade, a knee-jerk
reaction to uh talk about a rate cut
rather than anything else because I'm
not sure that I really see anything that
sparks long-term interest in this group
beyond hopes of a rate cut. It's not
like or extreme value. It's not like
earnings gets people going.
Yeah, that's exactly right. Especially
when you kind of think about the Russell
2000 and you know having to throw out
the negative earners stuff like that
that that you have to do to make the
kind of the math work. I I think it is
it has become a trade for folks who look
at these nosebleleed valuations on some
of the mag seven and look at the
overconentration in the market and just
say hey you know is that healthy scarlet
like do do we think this is a healthy
way for the market to be? Do we think
going to an equal weight trend when that
spread gets really wide is actually
healthier? And this is a tactical way of
essentially expressing that obviously
along with the idea that at some point
we do get that rate cut. Certainly
something that uh President Trump does
want.
Absolutely. He's made that very clear.
Let's talk a little bit about
volatility. And one way to measure that
a popular way of course is just looking
at the VIX which is at about 16 and a
half. Um a two week high but still well
below the year-to- date average of just
under 20. You've talked a lot about a
volatility pothole that we saw last
August. Are we setting ourselves up for
something like that this time around?
Yeah, you know, it's interesting because
I know the clip you played just prior to
me is about how orderly things have
been. And I think what investors are
doing is they kind of realize that
August is a little bit of a liquidity
vacuum. And you know, a lot of people
are out of the office. You you get these
August 5th potholes that happened last
year. Obviously, we have not had one
yet, but seasonally, August and
September are poor months for the market
and high months uh for returns on
volatility. So, I think what people are
doing is they're just getting kind of
risk off. I think that's why it's a
little bit orderly, but people are
saying, "Hey, you know, Jackson Hole
could be quite important considering the
crossurrens that we're getting from data
and manufacturing versus labor." And I
think we're just going to take a little
bit of risk off the table. That's why
it's been orderly. But when you look at
a VIX at 16, yes, I agree that's very
low, but realize volatility has been
even lower and that's often a
transmission mechanism for volatility.
We've seen this kind of play out before
with regards to some of those seasonal
aspects where you kind of get these
moves that are uh maybe exacerbated by
the fact that a lot of folks are away on
vacation and then of course after Labor
Day, everyone comes back to their desk
and those moves uh have a way of either
snapping back or maybe worsening. But I
am curious, Amy, as to what you actually
think is driving this market right now.
Is this really about the economic
fundamentals and tariffs and the Fed or
is this more about uh corporate
fundamentals or is this really more of a
technically driven uh market right now?
You know, I can tell you from just if I
took all the conversations I've had with
institutional clients since liberation
day, I would say the bulk of them have
have felt like, you know, they didn't
kind of catch up with the rip that we
got post liberation day. That's that's
one. And two, they've been waiting for
GDAU in some ways because they've been
waiting for this inflection point
between the soft data and the hard data.
So essentially like when do we see
tariffs in the numbers? I think that was
a lot later than people expected. But
people never stopped believing that it
was going to happen. And so you know,
you talk about people coming back to
their desks in September. I think
they're going to be in kind of bad
moods. And I think the data is going to
continue to confirm what they thought
was going to happen way back in April
and it just took longer uh for you to
see that narrative play out both in the
labor market and with consumers.
Okay. Before even September, let's just
talk about the rest of this week. Um
given the positioning that's out there
right now, are we more likely to see no
reaction, little reaction or a big
reaction tomorrow?
So given that we've essentially a lot of
investors have started to kind of take
money off the table. I think that what's
going to happen is if things come out
more dovishly so you you sort of get a
PAL pressor that you know maybe suggests
that September is on the table that the
market could react quite positively to
that. I think the opposite in terms of
positioning has been priced in to some
degree. Amy, always great to have you.
Amy Woo Silverman, equity derivative
strategist at RBC Capital Markets,
kicking us off to the close here on this
Thursday afternoon with all the focus
right now on the economic symposium in
Jackson Hole. All of the Fed governors,
all of the Fed members set to meet, but
right now all the attention is on one
Federal Reserve Governor Lisa Cook and
the battle with Bill Py, the director of
the Federal Housing Finance Agency, who
has lobbed some very serious allegations
against Cook. We talk to Bill Py when we
come back after the break.
And of course, staying with the Fed, a
discussion on what to expect from JP
Pal's speech at Jackson Hole with two
men formerly ingrained in the Fed.
Goldman Sachs Vice Chairman Robert
Kaplan and BNY Investments chief
economist Vincent Reinhardt.
And with the uh market selloff
continuing for just another day here,
we're going to talk about the tech
selloff and talk about valuation. Sarah
Kun of Cleo Capital going to be joining
us later in the program. Stick around.
This is the close on Bloomberg.
[Music]
We have talked about the uh Kansas City
Feds economic symposium in Jackson Hole,
Wyoming that officially officially kicks
off about 5 hours from now. But right
now, everyone is talking about what has
actually been the leadup coming into
this. A big bomb thrown into the mix by
Bill Py, the head of the nation's
leading finance agency, asking the US
Justice Department to investigate
Federal Reserve Governor Lisa Cook.
Allegations made by Bill Py, citing
documents that his agency received
involving mortgage fraud. The Justice
Department has weighed in and said that
they are considering looking deeper into
the matter. Lisa Cook herself has
already responded saying that she is
willing to provide any additional
information that the investigators are
looking for, but that she won't be
bullied into stepping down. I'm pleased
to say that Bill Py joins us right now.
He is the director of course of the
Federal Housing Finance Agency. And
Bill, I do want to start off
particularly with the investigation of
course that you brought to light, that
Bloomberg Report brought to light prior
to that and the documents that are at
the center of that and where exactly
those mortgage documents originated from
and how they got to your desk.
Well, those are public documents.
Anybody who uh frankly can do some
research with Google and get to county
websites can easily find these
documents. you know, the media,
including yourself, it sounds like, are
going to try to make this into some kind
of witch hunt or something like that.
Quite the contrary. Uh, this is
self-evident. This is black and white
stuff. And frankly, the fact that the
media and so many people are asking
questions in the elite class about this
goes to show that people think that
there are rules for some people and
rules for other people. Mortgage fraud
is prosecuted every day in this country.
And I'm sorry to say, not really though,
that a politician uh or a public
official in this case is now the subject
of mortgage fraud. Normal people have to
deal with this nearly every day in this
country. This is nothing new. Defrauding
people is nothing new. And now all of a
sudden that you have somebody very
powerful. Now people have to question
it. It doesn't make any sense to me. Uh
and I believe that I believe that she
committed mortgage fraud. When you look
at the documents uh that you have, the
publicly available documents, I am
curious if whether anyone whether you or
anyone at your agency uh had a chance to
actually speak to Lisa Cook, her lawyers
or any representatives about what you
found in those documents.
Obviously, while I respect the question,
uh anything that has to do with the
federal investigation I am not going to
comment on. Uh however, I would say what
is within the confines of the of the
referral letter of which I'm willing to
speak about. What is your involvement in
the investigation, Bill?
Well, as you know, I'm the regulator of
Fanny and Freddy as well as the
conservator of Fanny and Freddy. And so,
this is right in the bullseye of what my
job is. I promised before the Senate
before I was confirmed by the Senate
that I would investigate mortgage fraud.
And I'm not going to be intimidated by
anyone. I'm not going to be intimidated
by the media, the politicians. They can
say whatever they want. If it's a
Republican who's committing mortgage
fraud, we're going to look at it. If
it's a Democrat, we're going to look at
it. if it's a wealthy politician or a
lawyer, um, we're going to look at it.
So, we're not just looking at everyday
people. And I'd say the one thing, Roma,
which is that we refer every we refer
people almost every day. I refer people
every week on a minimum uh, to the
Department of Justice for mortgage
fraud. This is literally what I am
required to do underneath the Housing
and Economic Recovery Act of 2008, which
is to ensure the safety and soundness of
the mortgage market. When you say you're
referring, you're talking about just
rank and file people going through your
own docu agency documents. Is that a
routine process or is this something uh
that has been very specifically started
over the last uh you know few weeks or
months?
We look at fraud generally. We say look
if everybody and anybody who knows about
mortgage fraud, they can go to fraud
tips at fhfa.gov.
We will take in all of the requests and
all of the submissions that people have.
We've poured through many of these tips.
We have seen just an insane amount of
tips on mortgage fraud. Mortgage fraud
is a huge issue in this country. So, we
get it from fraud tips at fhfa.gov. We
get it through traditional other means,
whether it be by mail or what have you.
Uh, and also there's stuff there's stuff
in the media all the time as it relates
to mortgage fraud. So, we will take it
from anywhere and everywhere. And again,
our main focus is on the safety and
soundness of the mortgage market.
Okay, that makes sense. So, I guess my
question to you, Bill, is was there some
kind of tip off uh to look into Lisa
Cook's documentation specifically?
As I have said publicly, there was a tip
that we received. I do not comment on
the source identity or any other means
that we use during a federal
investigation as it pertains to things
that are outside of the referral letter.
Uh you can imagine that uh if we start
exposing whether it be on this
investigation or other investigations,
where we receive tips from, where we get
whistleblowers from, this is a very
serious thing. And so when people are
trying to, in my view, intimidate
whistleblowers, intimidate tipsters. Uh
I strongly condemn that. And if people
have mortgage fraud, I encourage them to
go to fraud tips at fhfa.gov and send us
those mortgage tips. Bill, have you been
looking into any other Fed officials or
any other government officials on
something like this? Have there been any
tips um to look into those?
Again, I'm not going to comment on any
specific uh investigations other than
the ones that uh either have been made
public by other people or that we feel
comfortable uh speaking to and that
pertains to things within the confines
of the referral letter. when we talk
about that referral letter and you know,
Bill, you you've seen the push back on
this and we should kind of point out
here that part of the concern right now
isn't so much whether she or anyone else
out there committed fraud, but I think a
lot of people would like to know whether
there is more of a coordinated
that is the issue cuz we've spent that
is the issue because you've been
interviewing me now for two minutes and
you keep asking me about all of these
tangential issues instead of asking
about, you know, did she sign these
documents? I believe she did sign these
documents. Okay.
Is it is it mortgage fraud to say that
you live in one area and not another
area? Yes, it is mortgage fraud. So,
you're not focusing on the fraud. You're
focusing on the investigators for
purposes of trying to undermine what it
is that she did allegedly and what it is
that mortgage fraud and the risk that
mortgage fraud poses to the system. And
we're not going to be intimidated. I
mean, we we swore an oath and we are
going to continue to prosecute mortgage
fraud. It doesn't matter whether it's a
Republican, a Democrat, a public
official or Joe Blow on the street.
Absolutely. We are in agreement for
that. But what we are doing here is we
are actually focusing on both issues,
both the potential for fraud, and we are
digging deeper into that. And we should
point out that Bloomberg has made
concerted efforts to reach out to Lisa
Cook and her representatives, to the
Fed, as well as to folks in the White
House and administration beyond you. At
the same time, Bill, we also have raised
concern about whether this might be a
weaponization of your office, a
weaponization of the White House. And I
am curious if there has been direct
I don't know guidance from the White
House to pursue this.
We discovered this within the confines
of our uh charter that Congress has
given us. We continue to receive tips
within the confines that Congress has
given us. Uh, as I said, people can go
and email us. They can send us tips. We
encourage that to happen. Uh, and that's
how this was sourced and it's going to
continue to be sourced. And, you know,
we're just because now, you know,
somebody said to me, uh, earlier today,
they said, you know, this is mortgage
fraud is, uh, being controversial by
some people in the media because you've
really hit on power. And that struck me
because I'm like, you know, shouldn't
power be against mortgage fraud? It just
doesn't make sense to me now that you
have somebody who's in this type of
position and now it's controversial and
maybe now mortgage fraud isn't mortgage
fraud. I mean, you saw the Federal uh
reserve president from Kansas City. That
was quite an odd exchange that he had
about, you know, uh blaming the forms
and stuff like that. Let's call it what
it is. People have a responsibility and
people in power especially have a
responsibility to read legal documents
before they sign them. Uh well I mean to
that point here I mean we we there's
been a lot of talk about a report that
the Philadelphia Fed put out uh I think
back in 2023 specifically on this issue
uh of owner occupancy fraud. Basically
the idea of putting on a mortgage
application that you're going to use
something at your primary residence and
get to get a lower mortgage rate whether
that which is seems to be at the heart
of the documents that you uh posted with
regards to Lisa Cook. um it was a pretty
high number, something like a third. And
in that report, they specifically used
the phrase that this type of practice is
quote broad-based across the US. Now,
that's back in 2023. I am curious as to
what measures uh the authorities,
whether your agency or other agencies
can take to actually reduce that trend
of owner occupancy discrepancies.
We are working very actively on it. I
appreciate the question. And if you look
at my Twitter feed, uh if you look at my
testimony, uh we have made mortgage
fraud a huge priority since the
beginning. I didn't know any of these
people were committing mortgage fraud
when I, you know, came on the job. I
mean, I had heard about, you know,
different public reports and stuff like
that, but I, you know, the amount of
referrals I am shocked now that I'm in
office with how much mortgage fraud has
gone on. So, uh, we have taken I saw
today on another network. Hold on, let
me finish. Hold on, let me finish. We we
we I heard on another network they said,
"Well, can't you use AI to do this?"
That's exactly what we did. Okay. We did
months ago. We went and we we partnered
with Palanteer at Fanny May. We held a
massive press event and we said, "Look,
everybody beware. We are looking for
mortgage fraud. We brought in Palunteer.
We have made tremendous efforts globally
across the population, across the data
set, across the data set of loans from
Fanny May."
Yeah. And it's startling to me that
because you have one Fed governor, you
know, you try to make an excuse for it
instead of saying this is wrong and this
is prosecuted every day of the week for
other people.
How many referrals have you made for
some sort of criminal investigation?
A lot. A lot. I I do sometimes I do
multiple per day and certainly multiple
per week. And my agency along with the
inspector general in my agency works
hand inand with the department of
justice has done it under the Biden
administration did it under the Obama
administration. Uh did it under the
first Trump administration mortgage
fraud is prosecuted every day in this
country and as long as I'm in this seat
we're going to continue to eradicate
fraudsters wherever we find them.
So it sounds like mortgage fraud is I
don't want to say uh common but it's not
uncommon either. Do you think there's a
plausible reason for your findings?
people do move and they don't always
have a chance to update paperwork and so
paperwork gets left behind or is out of
date. Do you think that that's a
possibility here?
Uh I'm not sure I totally understand the
question. I mean as a general matter
matter I believe that occupancy fraud is
wrong. I believe that when people sign a
piece of paper and they go to a bank and
they say that they represent to a bank
uh that they're going to do something
and then they do something different. I
believe that that is bank fraud. I
believe that that potentially is wire
fraud and I believe that that is in the
case of mortgages often mortgage fraud.
So, uh, you know, we have rules in this
country and I just say this, you know,
what is the point of laws if they're not
going to be followed in this country?
And if people don't like the laws that
are on the books, well then go and
change the law. But if we have laws and
if I promised, which I did promise the
Senate to uphold the laws and follow the
law and the statute, we have to follow
the law and the statute always. Bill, I
want to transition now to uh Fanny May
and Freddy Mack and the possibility of
an IPO of these uh government sponsored
entities. Um what assurances? Well,
first of all, can you give us an update
on where things stand with this
potential IPO?
Well, the president uh decided many
years ago to not sell this asset. It was
one of the best decisions that's ever
been done in my opinion from the
presidency as it relates to assets that
the US government has had. Why? because
people wanted to sell it to investors
for 100 billion 150 billion. I think
that number is north of 500 billion now
that these assets are worth since taking
office not just focusing on mortgage
fraud and other systemic issues like
safety and soundness mandates like we
just spent the last 10 minutes on. Um
but is also focused on driving value and
treating Fanny May and Freddy Mack as if
they're businesses taking cost out of
these businesses that is redundant and
unnecessary. uh and also making sure
that we are uh always thinking about how
do we within the confines of the law and
in the best interest of the American
people run these things as businesses.
So if people aren't performing, we get
rid of them. We don't keep them around
for years and years and years and
decades just because they're politically
connected. And so I think that this has
enabled the Fanny May and Freddy Mack
story to really uh with President
Trump's help unlock a lot of value for
the American people. And it'll be very
interesting to see what the president
decides to do in this regard.
With regards though, I mean I mean I was
looking at the video that you guys put
out. I think it was came through the
White House's account uh about the great
American mortgage company. So basically
the combination of these two also what
does appear to be a b rebranding of your
agency uh and this US uh financial
technology segment which I guess would
sort of help with regards to the
securization. now is would is the idea
all of that bill would be under the same
umbrella and I assume that you would be
uh at the helm.
Well, we'll see. I mean, you know, these
these companies are in conservatorship
as you know, which basically means that
the president uh is in charge of these
companies. Uh and there was a Supreme
Court ruling which made that very clear.
Uh I would say that any and all options
are on the table. One of the things that
I've been focused on, Roma, has been
since getting in the seat is on creating
value. Now what the president ultimately
decides to do with that value is
entirely up to him. But we had a thing
called common securization solutions.
Nobody understood what this thing was
you know generally out there. And so we
decided to rebrand it as US fintech and
really focus on what it is which is
financial technology. I believe this
business is worth billions and billions
of dollars. Uh it was previously
neglected in my view. Fanny May and
Freddy Mack have put almost a billion
dollars into this platform and so we're
unlocking value there. And then with
Fanny and Freddy, we'll see. We'll see
if the name has changed. We'll see if
these things are there. But we're trying
to aspire to a new tomorrow. You know,
Fanny May and Freddy Mack were these
once nearly bankrupt assets or bankrupt
assets, many people would say. Uh and
we're trying to revitalize those. These
should be great American icons. We are
the greatest economy in the world and we
have a great president and we are going
to use these assets to benefit the
American people and get the most value
out of these assets that we can. Do do
you have any sense of a timetable of
maybe when we'll uh that will either get
done or at least we'll get a little bit
more guidance. The public will get more
guidance on when that will be done.
That'll entirely be up to the president.
The only one who knows that it is in his
brain and so I'll let him decide on
timing of course. Uh but I would say
that uh you know the president's very
interested in this issue and it's very
nice to have a president who cares about
Fanny May and Freddy Mack.
All right. We thank you. Federal Housing
Finance Agency Director Bill Py joining
us and reminder that we are once again
out to Fed Governor Lisa Cook for
comment and so far she has declined our
requests for an interview. We'll keep
you posted on further developments. All
right, let's keep our focus here on
Washington and get some reaction now to
that conversation we just had with Mario
Parker. He is managing editor of economy
and government with Bloomberg News. And
Mario joins us now from Washington.
Mario, your thoughts on what Bill Py was
just telling us with regards to uh Fed
Governor Lisa Cook?
No, I mean, uh, to your point, uh, uh,
it was a a very, um, uh, PY obviously
late outlined, uh, the the the rationale
that FHFA has had for, uh, submitting
the criminal, uh, excuse me, the the
referral over to to DOJ. To be clear, a
couple of things as you all have noted.
Uh Lisa Cook has um uh come out and and
in some ways push back against the
assertion. Again, to be fair, and I know
you also said that we're out to her uh
as well. Um but also uh there's also the
the the the the part and parcel of Adam
Schiff uh Tis James and others uh also
having uh this type of investigation uh
by FHFA uh as well which does which who
are uh political either opponents of the
president or have been perceived as
impediments for the president as well.
In the case of Fed Governor uh uh Lisa
Cook, yeah, obviously the backdrop of
all of this is whether or not this would
her removal would give the president
another seat on the P on the the Federal
Reserve.
And that seems to be the undercurrent
here. Before we get to that though,
Mario, I I do just want to just clarify
a couple of things and we couldn't
really get it out of Kaplan here, but
when we talk about the documents that
Bloomberg actually obtained and that
later Bill Py himself made public uh on
his own uh social media feed, we were
talking about two mortgages effectively
at least they closed basically about a
month apart in 2021. One was for uh uh
some sort of property in Ann Arbor,
Michigan where she was a professor. Uh
the other was for some property in
Georgia where uh she had a residence for
some time. Based on what we know, both
of those documents, she listed both of
those properties as her primary
residence. Is that true?
From what we understand, that's uh based
off of what's outlined in the letter.
That's true. Again, Lisa Cook's um her
her her rebuttal to all of this didn't
outright deny that this had taken place.
I want to be as clear as possible here.
Uh it didn't outright deny it. It also
it just said that uh essentially she
wasn't going to respond to something
that she found out about on Twitter. Uh
she, you know, she's going to look into
it these questions, etc., etc. Now, and
you all brought this up, Roma, during
the interview, some of this this
practice, again, if this was something
that take took place, the Federal
Reserve of Philadelphia itself ran in a
a research report a few years ago in
2023 to be exact, which found this to be
relatively broadbased across the
mortgage space. Now whether or not this
has legs, whether or not this goes to
criminal prosecution, whether or not
something does blossom out of all of
this, one of the things that the normal
course or the more frequent or routine
course uh here is uh in terms of
mortgage fraud when you think of that
that subject isn't necessarily the the
the dual occupancy uh that that chair uh
director PTE outlined. A lot of times
when you think about this issue, it's
inflating your own uh someone's personal
wealth, inflating the value of the
property, those type of things that
really uh add to losses for banks.
All right, Mario Parker, he is the
managing editor for our economic and
government coverage down there in
Washington. Obviously, a big developing
story there with a lot of undertones,
particularly given the start of the
Jackson Hole Symposium uh in Wyoming
where we are expected to hear from
several Fed officials. We heard from the
Kansas City Fed chair earlier today and
we're going to hear from Jay Pow, the
chair of the Federal Reserve tomorrow.
Our next guest used to be on the Fed. He
used to head the Dallas Fed and he says
that investors should actually be
watching for two things out of this
meeting. Any potential foreshadowing for
the FOMC's pivotal September meeting and
any commentary around the Fed's
framework, particularly as it relates to
central banks independence. pleased to
say joining us right now is Robert
Kaplan, former Dallas Fed president and
now vice chairman over at Goldman Sachs.
Uh thanks for uh joining us here today,
uh Robert, and of course before I ask
you specifically about J. pal and what
we're going to learn out of Jackson
Hole. I do have to ask you uh about some
of the allegations surrounding Lisa
Cook, the political undertones uh that
some people think that there is a
concerted effort to try to reshape the
Fed board and of course the general idea
here of what Fed independence even means
in this current environment.
Yeah. So, I've obviously read the
reports. I don't have anything to
comment on there. Uh I do think the main
thing is it's critical for uh members of
the Fed to uh do their work without
regard to political considerations or
political influence and come to the best
judgments they can. And I'm hopeful that
will continue to be the case. I
I I am curious about just the general
process here because I mean there are a
lot of allegations and we know so little
publicly. uh there has to be an
investigation both by the Fed internally
and it looks like at this point maybe
potentially by the DOJ, but you were the
subject of allegations several years ago
when it came to trading. You decided to
step down in your words to avoid that
distraction only, you know, what was it
maybe about 3 years later to have the
Fed come out and say after doing an
investigation they found you actually
did nothing wrong. Do you regret
stepping down when you did? No, I made I
made the best decision that I thought
was the best interest of the
institution. Uh but but I think I'm I'm
sympathetic. The situation that you're
currently talking about has its own set
of facts and um and and I don't want to
comment or say anything uh about it. Uh
I think the people involved will uh will
do the best they can to deal with it.
And I think I'll leave it at that.
Thank you for sharing that, Robert. If
you believe that President Trump is
trying to secure a majority of the
Federal Reserve Board, the seven member
board, what would that really
accomplish? And I asked that, Robert,
because we know that the FOMC is more
than just the board itself, right? You
have uh Fed presidents who also vote on
the FOMC.
There are 12 votes in every meeting. Um
and uh they're the governors as well as
five of the presidents. And uh no one
person makes the decision. The chair
doesn't make the decision. He or she has
to form a consensus around the table.
And I think you've got an ethic at the
Fed which is very strong of looking at
all the available analysis, talking to
businesses, understanding all the
structural drivers in the economy and
trying to come to the very best judgment
uh that you can and then bring that to
the meeting and debate it out. And uh I
think it's very it's a it's a healthy
process and I'm very hopeful that that's
the process that will continue. And of
course, one of the things everyone will
be debating about is what the economic
data show about the state of the economy
and what's in store for the economy. As
a former Fed official, as a former
voting member of the FOMC, how would you
interpret the data that we've seen the
last two weeks? Uh, which includes
consumer and wholesale inflation
seemingly at odds. Uh, you have rising
jobless claims. You now have a rebound
in manufacturing, at least according to
surveys.
Yeah. So, here's the challenge for the
Fed. Um, on the one hand, we have a
relatively sluggish uh jobs market and
relatively sluggish GDP growth. We're at
full employment, but the reason we're at
full employment is because labor supply
has been decelerating. Hiring has been
very sluggish. And so, uh, I think the
Fed probably would like not to see a
further weakening in the labor market.
That's on the one hand. On the other
hand, we're running inflation above
target. We've been running inflation
above target for the last three or four
years. It's been primarily services. Uh
this is before we even talk about
tariffs. Goods, ironically, have been
disinflating. We'll have to understand
how the tariffs flow through goods. And
what the Fed is trying to balance uh is
I think if if the job market were
stronger, I think it would be clear to
be more be patient and wait to see how
uh the inflation is going to unfold and
be more patient to see it trend further
down toward target. But I think with
this weakening the labor market, it's
it's going to push the Fed, I think, to
be more forwardleading and maybe do an
adjustment in September. But the caution
I would give if they do move in
September, uh I don't think that's the
start of a cycle. I think it's an
individual decision. Then they'll wipe
the slate clean and take the next six
weeks try to understand these
crosscurrens again. And so I think
they'll shorten up the time frame and
take it one meeting at a time.
I am curious as to what you think that
debate's going to be like. We got the
FOMC minutes from the last meeting and
there was clear uh clear division there
as to what the Fed should do and when
they should start doing it, if at all.
And I assume that's going to intensify
by the time we get to midepptember uh
once we have now that we've had some
additional economic data. Uh having been
in that room and knowing how those
debates go out. Does that debate is that
going to center around in your view much
more on the inflation side or do you
think it's going to lean a little bit
more on the labor market side of the
mandate?
So, while there's a lot of focus on
JPAL's speech tomorrow, uh the the
reality is we're going to get at least
one more inflation print and we're going
to get the jobs mark. We're going to get
the jobs numbers for August. And so,
that actually that jobs number for
August is going to be very telling and
will shape the debate. But, uh you're
either going to see a a jobs number that
shows a further weakening or continued
sluggishness. I think that would tilt
toward taking some action in the
September meeting or you may see
something stronger. But the debate is
going to be about the fact that we we
are at risk of not meeting either side
of our dual mandate. We're already above
target on inflation and and how how
serious is the threat that the job
market is going to weaken further.
That's what they're going to debate. And
the reason there's a disagreement is for
good reason. It's not clear. And I think
the fact that there's debate and
disagreement I think is a good thing. I
think there ought to be where there's
these type of crossurrens. So I think
that's a good thing that they'll be
disagreeing and debating.
When it comes to where the inflation
rate or where the inflation target
should be, there's been a lot of talk
about 2% or I guess now it's 2%ish. But
the idea that the economy has been
running relatively okay with at least
headline inflation in the 3% range, core
inflation in the high twos, is there an
argument to be made, Rob, that longer
term maybe we can live with a higher
target rate, a higher neutral rate?
Yeah, I don't I would argue against
that. And here's why. Um there are
approximately 80 million workers in this
country that make 50 or $55,000 a year
or less. Uh they've lost 25% plus
purchasing power over the last three or
four years. They are struggling to make
ends meet. If headline inflation is
three, headline inflation for them based
on share of wallet might be five or six
or seven. And so I actually think it's
very critical, particularly for low
moderate income workers, that the Fed
continue to work on getting the headline
inflation rate down to two and not be
satisfied with three.
Rob, I got to get your sense as well
about what we've learned from companies
this earning season, particularly of
late with the retailers reporting
results. We already know Nike, Sonos,
PNG have been mulling raising prices.
Walmart said as much as well that it
would have to at some point start
raising prices in the second half of the
year. Ditto for Home Depot as well. So
how do you fold that into the thinking
of inflation as uh we anticipate higher
prices due to higher costs from
presumably the tariffs.
So there there are four areas that are
going to impact on the tariffs. One is
can you we've got a world of
manufacturing over capacity which tells
you that uh companies here that are
buying from overseas may have more
leverage over suppliers. The dollar
although it's weakened this year the
dollar could strengthen that'll take a
bite out of the tariffs. They companies
may take some of it out of margin and
yes they may put some in prices but you
got to remember the consumer uh h has
the ability to substitute. They can be
very price sensitive. Uh about 24 25% of
the US economy is goods. 75% is
services. Consumers can decide not to
buy a good and they can decide to go out
to dinner or do something else instead.
And so to the extent companies can pass
on tariffs to consumers is going to
depend a lot on their pricing power, how
strong demand is. And so there's a lot
of these things that companies I talked
to still are uncertain about. they're
feeling their way. They'll figure it out
and they'll make it work. Where I'm more
concerned is small businesses I talk to
who don't have these levers to pull. And
I think for them uh for many they're
they're they're actively debating
whether they can make it through the end
of the year because they don't have the
flexibility to manage tariffs the way
big companies do.
Yeah. They don't have as many options.
And I really appreciate you bringing
that up. I mean, all of that adds up to
a very complicated economic picture
where the economic indicators that we
rely on and debate over don't always
capture the crosscurrens and the nuances
that are taking place underneath. Um,
all this anecdotal insight from
companies, particularly small companies,
as you put it, around the country is
incredibly valuable. So, and all of that
is encapsulated in something called the
Beige Book. Do you feel like the Beige
Book should be more valuable to the FOMC
than it has been up to this point? I
mean, I know that as a reporter, we
sometimes get the Beige Book and we kind
of look at it and say, "Oh, that's
backwards looking. It didn't really tell
us anything."
Yeah. The Beige book for me is a
critical part of the process. There's a
whole there's a whole mosaic of things
you look at. You talk to businesses. You
look at data that is published. You look
at the Beige book. You try to understand
structural drivers and macro factors.
But the Beige Book is very valuable.
Well, it's one of the unique things that
the Fed is set up to do because it is
distributed all over the United States
and has relationships locally and we get
these survey results. It's very
informative, but it's a it's a piece of
the puzzle that's very helpful in
periods like this where you have a big
number of structural changes going on. I
think being closer to business that
includes the Beige Book, it it can be
talking to businesses. I think that
becomes more important because the data
again is backward-looking. It's
aggregated. It may be lagging. It gets
revised. And so I think you have to look
at the whole picture.
And that's a good point. And I think a
lot of people in the market have been
trying to do that even prior uh to some
of the recent developments. And it gets
to this idea as to whether you see any
opportunity to actually improve the
government, the official uh government
data, the collection of that data, the
timeliness of that data, and more
importantly, the accuracy of that data.
I mean, what can we do to actually
update that?
Well, so so there's been a lot of
discussion. Uh uh I I got a I think I've
mentioned you before I I remember I
learned when I first got to the Fed, the
first piece of advice I got is don't
over rely on anyone data print tends to
be backward looking. It's aggregated.
It's going to get revised. And so uh I
think we also are aware of postcoid the
survey response rates have declined. So
I think in this world of AI high
frequency data a lot of private sources
as well as public sources use of
technology I I think the BLS will be
well served and and I'm confident they
will do this to look at how to upgrade
uh the accuracy of their data. Even with
that, I would say the data is never
going to be perfect. And I think you're
always better off looking at the 3 to
six month trend, not overreacting to any
one data print. And I think that ethic
is always worth a reminder when you're
at the Fed.
I am curious. I mean, you sit in a very
unique position having of course worked
uh in the government at the Fed and
obviously a long career on Wall Street
and now back there uh as vice chairman
of Goldman Sachs. There is the idea that
we have to be as a market. And I say the
Wii, Royal Wii, uh not necessarily
relying on that data, but at least have
some faith in it, in the data, faith in
the independence of the Fed, faith in
the faith in the reliability of US
government economic data. That faith is
being tested right now, and I'm curious
if that worries you at all.
Uh it it it's always a concern. It
should be a concern. However,
uh this is where I used to teach
leadership, as you may know, at Harvard
Business School for 10 years. This is
where people matter.
It's up to the people involved to adhere
to an ethic uh that they're going to
make decisions based on their best
available information without regard to
political influence or political
consideration. That ethic is very strong
today at the Fed and I am very hopeful
that that ethic will continue and it'll
be up to the leaders of the Fed to make
sure of that.
All right. Thank you so much. Rob Kaplan
is the former Dallas Fed president and
of course current vice chair of Goldman
Sachs. And of course coming up later on
on Bloomberg television, Balance of
Power. We'll be sitting down with the
current Chicago Fed president, Austin
Goulsby. All right, coming up we are
counting you down to the closing bell.
Next up we have the CIO of Global Asset
Allocation with Northern Trust Asset
Management talking to us on the eve of
JPAL's big speech. Roma, there's some
talk about inflation, labor market.
We're all taking bets on what he's going
to say.
Uh maybe he'll say nothing. unlikely.
When we specifically talk about the
small cap versus large cap trade and
perceives this potentiality of having a
ray cut. We never see it come to
fruition.
Taking a look at the markets, we're
talking about a NASDAQ 100 down for what
is this? I believe now the sixth uh day
or well Tim Cenovic of course is a
truther because you know it was
basically unchanged on Monday. So
yeah. So you got to take that into
account.
Five of the past six days. But I do want
to point out this is really the only day
that they've actually spent any time
really in the green. Not much time uh
but now back in the red down 4/10en of
1%.
Yeah. And for the S&P 500 it's a pretty
clear fifth straight lower as well. And
what's notable I suppose is that the VIX
has been edging higher. It's now at a
two week high. Still pretty low, but you
know, keeping an eye on that, especially
before this high stakes speech tomorrow.
Yeah, I've been trying to figure out too
like I mean we talked a lot yesterday
about that this is more of a technical
driven selloff. It really wasn't about
fundamentals and there was a lot of
seasonality uh that is uh you know
playing into some of the outsiz moves.
But it also gets to the idea that this
is a market that at least for right now
does not appear to be even trying to
push stocks to the upside. We're not
necessarily getting a big sell-off, but
there's no one really coming in. you're
not seeing that aggressive dip that has
led to these big snapbacks like we had
in the past.
It's absent for sure and you know again
it all depends on how the J pal speech
goes tomorrow. So for more analysis
let's welcome now Anwidi Baana. She is
CIO of global asset allocation with
Northern Trust Asset Management and
Widi. How do you read what we're seeing
in the equity market? Is this just board
traders um in late August positioning
before a high stake speech or is there
something more to this? Something more
to this 5-day retreat in the S&P 500
with you know a sky-high valuations in
some of the biggest cap stocks.
Hi Scarlet, thank you for having me. I
think summer is a factor. It is the last
two weeks of summer and liquidity does
slow down a little bit but we do have an
important event tomorrow at Jackson
Pole. So, that's keeping folks a little
cautious this week about their
positioning. Um, I'll also point out
stepping back from just the last two
weeks or so, if you look at it from
Liberation Day month, the month of
April, stocks have been on a one-way
street up nearly 25% or more um since
the end of April or so. So, this has
been a very strong run. And to your
point, valuations look stretched. People
are concerned about what the Fed might
say tomorrow. And that may be the reason
for the nearterm volatility that you're
seeing in stocks.
If we don't get a binary outcome from
the speech tomorrow where JPAL either
hints that there is a rate cut coming in
September or not, what's what happens
next? What's the path of lease
resistance right now?
So it's quite unlikely that chop pow
will be that clear to us on whether
there is a rate cut in September or not.
Most likely they will uh repeat their
assessment of the current economic
environment which in their mind Scarlet
it had been fairly straightforward that
they were worried about inflation risks
and incidentally we're worried about
inflation risk but they were not all
that concerned about their second
mandate which is the labor market. the
labor market was actually quite healthy
until the last labor market report where
we saw the weakness starting to creep
up. So at this time markets really
interested in knowing what is their
environment. Are they going to focus on
um the fact that we still haven't fully
seen the impact of trade and tariffs on
inflation or are they going to talk a
little bit more about what's happening
in the labor market and that might lead
to some clues about what may September
hold? But there's still a lot of data to
come in between now and September. So, I
suspect they're not going to very openly
talk about what September might hold for
us.
I am curious when you think about that
what you just said with regards to the
Fed and the economic backdrop, all the
politics, all the tariffs, and of course
the earning season that we just got
through, do you still look at US
equities as being something that you
would overweight to a global portfolio?
That's a very good question, Roma. And
actually we have not overweight US
equities in the uh in a g global policy
portfolio. We are neutral global uh US
equities. Part of is the concern around
actually what's happening in the economy
with the economy slowing down and
inflation still very high. In our
assessment this is not a great time to
take a lot of risk in the US equity
portion of your portfolios. Instead, we
actually like develop xUS right now and
we actually also like TIPS a lot. Um,
Northern Trust just launched four TIPS
portfolios of different duration to
handle TIPS exposure in our client
portfolios. And on the equity side,
we're focusing on more defensive
equities because it's not clear to me um
that we can maintain this valuation
level with the economic risks we see
forthcoming.
I'm sorry on on the tip thing that that
kind of threw me. So I mean I would
assume you would not have that type of
stance on tips unless you expected some
sort of sustained increase in inflation
or at least some maintaining of where we
are with current inflation levels.
So inflation is a worry for us. We have
not seen evidence yet that we are out in
the clear on the inflation front. Um you
saw inflation being high in the PPI
report two weeks ago. CPI report broadly
was below consensus. But when you parse
through the details of the CPI report,
you saw that inflation's beginning to
creep up in the one p one portion of CPI
where inflation had been actually quite
benign and which is the services
component. So we're seeing services
inflation gets stickier. We expect good
inflations to ramp up with the trade u
with the tariffs and so this is not an
environment where we think all's clear
on the inflation front.
What would you need to see to be more
comfortable taking on extra risk
additional risk at this point?
So I think that's a great question. I
think what we would like to see really
is the labor market picture stabilize
and some clarity on where monetary
policy might be. Is the Fed going to
look through this inflation episode
which is still to fully manifest itself
or are they going to start cutting the
rate cycle because the labor market is
worrying them more. So clarity on the
Fed stance would be very important to
us. We're continuing to see good
earnings Scarlet actually on the S&P
500. So I want to make sure that I
convey the message that we're not
underweight US equities. Also the AI
story is still very much front and
center and we're participating in it.
All right. And Woody and Woody Bugana,
CIO of Global Asset Allocation over at
Northern Trust Asset Management. And of
course on that AI front, we are going to
hear of course from the granddaddy of AI
trade, Nvidia in about one week's time.
Yeah. So speaking of catalyst for the
market, right? And then after that,
we've got the non-farm payrolls in early
September. It's never too early to look
ahead. Right now the consensus is for
83,000 jobs added after 73,000 the
previous month which was a huge
disappointment uh given what people were
anticipating.
And of course the other big trade has
been involving a retail at least the
consumer sector. Those earnings out of
Walmart today. The profitability not
great but believe it or not the revenue
side was actually decent. We're going to
get a report after the bell from the
off-pric retailer Ross Stores. The full
breakdown of all of today's market
action and a push to all of those
earnings starts right now.
The closing bell, Bloomberg's
comprehensive cross-platform coverage of
the US market close starts right now.
And right now we are two minutes away
from the end of the trading day. Roma
Bostic here with Scarlet Fu taking you
through to that closing bell with the
global simocast. Tim Cic joins us from
the radio booth. Nora Melinda in for
Carol Masser today. Welcome to our
audiences across all of our Bloomberg
platforms, including our partnership
with YouTube as you all of the big moves
going on across all of the markets from
stocks to bonds to currencies, even to
tungsten.
Tungsten, I'm glad you were listening to
that interview. It's not necessarily
considered a rare earth,
but it's certainly one that's important
to the supply chain. Thanks for
listening and watching.
Tim and I were trying earlier on this
network.
We were trying to count how many times
the word tungsten was used in that
interview. Uh, lots to talk about today.
How are we even not talking about the
Fed chair's speech tomorrow? Because
once he's done with that, we're going to
be talking about Nvidia earnings next
Wednesday.
We could go back to tungsten.
Yeah, we could.
We could.
Well, I mean, it gets the idea though
with that speech. I mean, you do have a
market that has pretty much convinced
himself that not only are we getting a
rate cut in September, but this is going
to be the start of a dovish cycle. Well,
we spoke with the former Dallas Fed
president, Robert Kaplan, now vice chair
at Goldman Sachs, who basically said is
he thinks that we're going to get a cut
in September, but he said that's not
going to be the start of a rate cutting
cycle, primarily because the data is
just not going to support it.
Which data specifically?
Well, he talked a lot about labor market
conditions, but also the idea that we're
starting to see inflation bubble back
up. You saw the PMI data today, Tim and
Nora. I mean, what do you think of that?
I mean, the price pressures are still
there.
Yeah, I think that's fair to say. And we
got the minutes yesterday and I think
it's fair to say, okay, how would the
conversation at the Federal Reserve at
its most recent meeting shifted had we
gotten the hotter than expected PPI, the
hotter than expected wage numbers. So
yeah, I guess it's fair to say. Thank
you. I appreciate the compliment. And we
get the closing bells here in New York
on this Thursday afternoon. Red across
the screen for most of the major indices
here in the United States, but we should
point out all of them are well off their
lows of the day. The Dow Jones
Industrial Average down more than 100
points or 310en of 1%. The S&P down
about 26 points or 4/10en of 1%. The
Nasdaq Composite is going to close out
the day down about three quart uh 3/10en
of 1%. Similar story for the Nasdaq 100
which is down about a half percent. And
we should point out that's now a sixth
straight day of declines. And that yes,
that includes Monday, Tim Sten, and then
Russell 2000. That's the outlier on the
day. It spent a lot of time oscillating
between gains and losses, but managed
now to finish out the day in the green
up two ten of 1%.
All right, we do have some earnings.
It's still earning season after all and
this is not from the retail sector. It's
from the software sector. This is INT
which of course does own uh tax
preparation software companies. Uh in it
reporting fourth quarter adjusted EPS of
$2.75 beating the consensus estimate of
$266.
Net revenue was also higher than
anticipated $3.83 billion. When it comes
to the outlook uh inc's revenue for this
full year 2026 revenue I should say 21
billion to 21.19 billion. Analysts were
looking for 21.08 08 billion. Uh
adjusted operating income anywhere from
8.61 billion to 8.69 billion. Analysts
were looking for 8.67 billion. And you
could see the stock moving lower in
after hours trading as its adjusted EPS
also comes in uh at 2298 to 2318.
Analysts were looking for 22.99. So it
does appear that adjusted operating
income and perhaps that revenue is the
number that is concerning uh some
investors.
All right, you see the shares there
unchanged. Meanwhile, more activity
right now in Ross Stores. Uh that
company just now reporting earnings. The
comp sales in the most recent quarter
did come in at about 2%. Now that's
relatively in line with what the street
was looking for. Though we should point
out that growth rate is about half of
what it was from the year ago period.
Now on the EPS side, it came in at
$1.56. The street was looking for a
$153. So that is also a beat as well.
And merchandise inventories though did
rise to about 4.7% relatively in line
with estimates. Here's the forecast. The
company says that for the full year, it
sees EPS in the range of $68
a share to $6.21 a share. The top end of
that range is below the average of
analyst estimates. Analysts were looking
for about 624. That might be why you're
seeing the knee-jerk reaction with the
shares moving to the downside.
Okay, Ross down 3% in the after hours,
up 3%. Workday, the HR cloud management
software firm. The company out with some
news in addition to numbers. Second
quarter adjusted earnings per share
coming in above estimates. Second
quarter revenue coming in ever so
slightly above estimates. We'll go ahead
go ahead and say that actually just
matches estimates. The news here though
is that the company has says it signed a
definitive agreement to acquire Paradox
which it calls the AI company redefining
the front light candidate experience.
I'm reading from the statement right
here.
What does that mean in English?
It's a definitive agreement to acquire
Paradox. They do a it's an agent that
uses conversational AI to simplify every
step of the job application journey,
particularly for high volume frontline
industries which employ nearly three
billion workers globally. Workday says
the addition of Paradox will give it an
AI powered talent acquisition suite to
help customers more efficiently find,
hire, and onboard every type of worker.
So, I guess the idea is that it makes
the onboarding experience easier for
those folks who use Workday software.
But I'm going to have to dig into this
acquisition a little more later.
That sounds about right and makes it
more efficient for the company as well
after they spend the money to buy this
uh company. All right, let's just take a
look at what happened in trading when it
comes to the sector performances because
a down day overall here. Uh unlike
previous days where there were more
advancing sectors than declining sectors
even even as the S&P 500 declined, this
was an overwhelmingly negative day here
among the sectors. only energy and
materials and these are some of the
smaller sectors as you can see by the
thin slices of the pie gained.
Everything else declined led by consumer
staples and that of course was being
dragged down by Walmart.
Okay. Well, let's go to some of the
gainers. Uh tough to to find them, but
the best performer in the S&P 500 up
more than 14 and a half% was Paramount
Sky Dance. Remember the new takery?
uh higher all day even after some news
that two House Democrats Jamie Raskin
and Frank Palone will examine whether
Paramount Global and Sky Dance Media
accepted quote illegitimate demands from
President Trump to secure approval of
their merger last month. Paramount
Skyance did not immediately respond to
requests for comment. The White House
and the FCC also did not immediately
respond to requests for comments. Uh
Select quote surged today. This was
among the most actively traded stocks up
more than 41%. And it's the insurance
company. This jumping the most intraday
since February after the company
reported positive adjusted EBA in the
first quarter. Wall Street expected a
loss. Those numbers coming ahead of the
bell.
And the most actively traded stock in
the entire index or in the entire market
today by far, Open Technologies.
Oh
yeah. Surging again another 11% higher
today.
I know.
Did they report earnings or something?
No, nothing happened except we are
speaking with Eric Jackson of EMJ
Capital a little later in our program.
He's the uh well, it's a small hedge
fund that he has. He's the only employee
and he's been all over social media with
this company and he's been able to um I
think it's fair to say get the
conversation started with retail
investors about um where he thinks this
company's going and they've been
responsive.
Sweet.
Um let me just jump in here because Zoom
just reported results. Uh Zoom's second
quarter adjusted EPS of $153 does top
the consensus estimate of $138. Uh
second quarter revenue 1.22 billion a
slight beat on the expected 1.2 billion.
In terms of the outlook, it sees fully
year revenue of anywhere from 4.83 to
4.84 billion. Previously it saw 4.8 to
4.81 billion. So that is an upgrade in
its outlook for the full year. Uh in
terms of the fullear operating income,
1.91 billion to 1.92 billion. also an
upgrade from what it had previously
anticipated. Fully year free cash flow
will be at least 1.74 billion whereas
previously it saw at most $1.72 billion.
That stock moving higher in the after
hours trade by 4.4%.
Well, let's look at some of the stocks
that are in the red today. Of course, we
know the market was lower at the close
here, but let's take a look at Walmart
shares. This is the second biggest
decliner in the S&P 500 and this is
after the retailer reported a profit
that missed expectations for the first
time in 3 years. This did overshadow the
higher sales that it did report and of
course we know we've gotten so much from
a lot of these consumer oriented
companies and it does seem to be a bit
more of a dismal story right now. I mean
Morgan Stanley analysts are saying that
there's a lot of noise and profitability
specifically here for Walmart and they
expect the underwhelming earnings won't
be a long-term risk to the stock. So,
that is something of course to note. Uh,
we see shares that are up about 8% year
to date here. But I do also want to take
a look at Cody and of course this is the
owner of a lot of the brands that we
know from Gucci to CoverGirl to Adidas.
Calvin Klein shares are down 22% at the
close today. That is the worst daily
performance that we've seen since COVID
March 2020 here. And this is after the
company uh reported essentially
forecasting steep sales for uh sales
declines. their forecast was not clearly
accepted well by the market here. Uh
they're talking about innovation fatigue
specifically with this cosmetics unit
here. So lots to really parse as we look
at the earnings here. But I mean if you
look on a broader scope, it's a pretty
brutal year here for the company. Shares
are down 45% year to date. But let's end
things with Cracker Barrel. Of course we
know this is a company that's been
I'm really into Explain it to me because
I'm very concerned.
So much chatter online, right? I mean,
everyone's talking about this company
right now.
We saw a slide in shares today, and
that's after the company decided to
change its logo. So, if you're familiar
with the company, uh, their logo has
always featured a man sitting on a a one
of those little what do they call them?
A barrel.
Yeah. A rocking chair.
Yeah. A little rocking chair moment.
Shoulder. We're removing that now. Elbow
perched on. And that sent the stock
down.
Yeah. So, we're moving on. People were
really attached to this.
I don't get it. I don't get it. I I I'm
I'm not to be pedantic, but I mean this
is somehow become a political culture
war issue and I honestly do not
understand it. So explain it to me.
Have you Have you guys been to Cracker
Barrel?
Yes.
Okay. So you're familiar when you walk
in, you know?
I mean, look, if you want to reminisce
about the Antabellum South, it's a great
place to go.
We have a bunch of them uh back in
Virginia, so I'm definitely very
familiar with the restaurant, but seems
as though people are not really happy
about this shift that they're seeing
Part of it is because the CEO who made
the decision here is a woman. So that is
fanning some outrage in some circles.
I'm sure online was an online.
In all seriousness though, it does get
to this idea of just and I mean you were
pointing out Open Door and of course a
stock that has seemingly rallied for no
real particular reason. It gets to the
idea of why certain things are getting
bought and sold not for any real
fundamental reason but because they've
either become political footballs either
in a good way or in this case with
Cracker Barrel on a bad way. and just
kind of who actually is driving this
trade, right?
Yeah. Well, Michael Halen over at our
Bloomberg intelligence team, he has a
note out that really says don't read
into this one this stock decline too
much and the idea that this will affect
the brand in a way that let's say an
Annheiser Bush was affected with what
happened in the last couple of years in
politics there with the ad campaign a
few years ago. It's not going to be like
that.
Yeah, but the volume in today's trade
was four and a half times the
three-month average. So, I know that we
don't want to read too much into it, but
there's a lot of people trading it.
It reminds me all that we were seeing
with the retail trading meme stock mania
the most recent weeks.
I guess we got to go, but we could talk
about Cracker Barrel all day.
Let's find some people barrels and get
coverage
of the market
in the barrel.
Same time, same place. It's It'll be
Friday and we'll have heard from Jay
Powell.
And our coverage continues here on
Bloomberg television with a closer look
at rates and JPAL. A closer look at the
health of the consumer with those
earnings by Ross Stores that just
crossed the wire a little while ago.
Welcome back to the close. The more than
weekl long selloff that we've been
seeing in markets continued on the day.
It was a relatively modest pullback on
the day, but when you add it all up, the
trend line has been certainly to the
downside, 4/10en of a percent lower in
the S&P 500. But pay attention to the
NASDAQ 100. It's basically been weak now
for the last six sessions, and you're
starting to see it test not only that
20-day moving average, but now putting
the 50-day moving average in play as
well. Now, some people are taking a look
at this and saying that the pullback is
not fundamental. It's much more of a
technical-driven rally, one that could
actually shift as we get out of August
and into September after Labor Day. You
see the VIX did perk up on the day and
some of the more uh riskier assets uh
riskier corners of the market like
Bitcoin pulling back as well. As far as
idiosyncratic stories, one of the bright
spots on the day was Packaging Corp.,
second biggest mover in the S&P 500. And
this had to do with international paper,
the biggest player in that space, saying
it was going to reduce its US container
board capacity. Based on some
calculations Bloomberg did, they are
anticipating the capacity in the United
States could be down about 9% this year.
That puts upward pressure on the prices
that companies like Packaging Corp can
actually uh provide. Walmart, that was
one of the biggest decliners that we saw
in the S&P today. And that is a big part
of the story all week long. the idea of
the health of the consumer. Hvidian
Enterprises, a big home builder, said
they're seeing a stagnant housing
market. Just not a lot of buyers out
there. And of course, we were talking a
little bit earlier about the political
football that Cracker Barrel has become.
And that brings us to our top story of
the day. And quite frankly, what's been
our top story of the week, and that's
the check on the health of the consumer.
We got that big check with Walmart this
morning, the world's largest retailer,
posting an almost 5% jump in second
quarter sales and raising its guidance
for how the rest of the year will shake
out. Now, those results on the sales
side really do reinforce recent economic
data, which shows that retail sales have
held up this summer, supported by what
is still a relatively stable job market.
However, there is evidence that many
shoppers are starting to curtail big
ticket purchases and even some of the
smaller ticket discretionary buys like
clothing and home products. Now, for
Walmart, that might actually be a good
thing because despite inflation rates of
more than 3%, Walmart actually nudged up
its prices by only 1% on average in the
most recent quarter and has been
employing promotional campaigns such as
that week-long deal event they had back
in July. Other retailers with
valueoriented business models are also
seeing benefit. TJX it reported
yesterday. And compared to Target, well,
it was really indicative of that trend.
And just a few moments ago, we got
results from the off-pric retailer Ross
Stores, which grew sales last quarter on
the back of what were lower than normal
discounts of higherend brands like
Calvin Klein, Kate Spade, and Carl
Loggerfeld, reinforcing the idea that
well, if you are looking to maybe save a
little bit money and still be stylish,
there are options out there for you as a
consumer and maybe Ross Stores might be
one of them. Laura Champine joins us
right now, director of research and
consumer sector head over at Tabore
Asset Management. And I know you had a
chance to kind of look at these numbers.
I mean, they were decent. I mean, for
all of the uh hand ringing I think
people have had about the health of the
consumer, we continue to see certain
pockets of the retail space,
particularly off-pric space doing well,
right? And and we like everything that's
valueoriented. What struck us about
these results inline sales for this
quarter, but the guide for the back half
was actually pretty strong. Ross got rid
of its guidance last quarter came back
to it and the earnings guidance is
pretty much the same. Sales guidance is
much better. That plus the good sales
results out of Walmart tells us that the
themes that we're playing which is that
companies with scale will win. Companies
that provide value to the consumer will
win. That seems to be playing out.
And just for our viewers, those that
comp sales estimate they gave the
previous one was like in the two to 3%
uh excuse me two to 3% is what they're
guiding to. And their prior was
something like two and a quarter. Their
prior guide for the full year was down
one to up two. So up two to three is a
little bit better.
So that is a significant improvement
because when we kind of read those
numbers, it looked like they were kind
of trailing anal estimates, but this
does look like a little bit of a reset
higher in their view of where things are
going. What do you think gives them that
confidence? Is it about economic
conditions overall being beneficial or
is it about the idea that if economic
conditions weaken that it drives more
traffic to them?
There's a little bit of both going on.
So there is a trade down but also we
think customers across the board when we
do think they'll be more inflation as we
go through the year we think they'll
migrate to valueoriented retailers and
you can see that. So there's a there's
an uptick in sales momentum in July and
early in August and a lot of our
companies have been saying that. So I
think so far the price increases from
the tariffs haven't been that extreme
and there are places like a Ross, like a
TJX, like a Walmart where you can find a
deal. Is there a concern though as we
get deeper into the year that these
retailers will see a bigger impact from
tariffs and for some of them, at least
the ones that aren't named, Walmart,
might not have any choice but to raise
their prices for consumers?
Absolutely. Which is going to be good
for the big guys like Walmart. So, we
would stay away from small retailers. We
think there might be some store closures
coming out of this. We've already heard
of them with mom and pops. really it's a
good time to be big and it's a good time
to have sharp prices
when it comes to what consumers want
themselves. I mean I know obviously we
all look for value and things but
there's also this idea of selection. I
know everyone loss TJ Maxx because the
idea is not only is it relatively cheap
but you find really high-end uh brands
there not just in clothing but in
housewares as well. Is that the formula?
Or do you think maybe a specialty
apparel retailer that maybe just has one
singular focus but manages to keep its
prices low can also compete?
You know, we like some retailers where
their prices aren't low but they have
pricing power. So if if fashion is
right, we like Aritzia, which has been
growing like a weed. We like um Urban
Outfitters mostly because of Newly
that's growing. Anthropology that's
growing. There are still some retailers
that have pricing power. Ralph Lauren,
we like Coach is still doing a good job
keeping price points high. They're going
to be fewer and fewer promotions. So,
you either have to be really fashionable
and have a hot brand or you have to
provide value. Those are your two
choices this year
with regards to how you reach the
consumer. I mean, Walmart obviously has
one of the the bigger and more uh better
uh sort of omni channel uh uh uh
business models. But then when I look at
raw stores, which seems much more
heavily weighted towards its brick and
mortar stores, even similar for TJ Maxx
as well, why are they kind of defying
that this idea that you have to have a
big uh internet e-commerce presence?
You know, the um the apparel retailers
like a a Ross and TJX, most of their
customers are buying at need. So, when
the weather changes, they'll see people
come in, buy right away. You need to try
it on. Walmart, I mean, Walmart said
they're gaining market share mostly with
the high-end customer. I think that
customer is shopping online. Their
online growth was twice what Amazon's
was this quarter. So I think that's a
customer who doesn't want to come into
the store. Whereas in apparel, you do
have that kind of fashion hunt. People
want to try it on. Makes a little more
sense to get their personal.
And just real quickly, any concerns
about inventory issues going forward.
Not at these few retailers. I mean,
that's something we watch. I'm a little
bit more worried about that in home
related where we're still seeing demand
very weak. You know, hopefully we get a
rebound, but it may not be this year. In
apparel, it seems like most of them have
been pretty tight on their buys.
All right, Laura Champine there, one of
the best in the business, director of
research and consumer sector head at
Tabore Asset Management. A quick
breakdown of those results we got out of
Ros Stores this afternoon. Walmart
earlier this morning and of course we
head into next week with more retail
earnings, including from some of the
department stores. When we come back,
we're going to shift to the tech sector.
Of course, there's been a big reality
check this week when it comes to market
valuations there. Sarah Kun over at Cleo
Capital. She's going to give us her take
when we come back here on the close on
Bloomberg.
All right, keeping our eye on the NASDAQ
100. It's been soft for a sixth straight
day here. Now down about 3% since it hit
that last record high back on August
13th. All but one mag seven name
finishing the day today in the red. A
lot of questions right now about market
valuations in that space. Sarah Kun
joins us right now, managing director of
Cleo Capital. And Sarah, there's been uh
this sort of look at these multiples
that we've seen on some of these tech
stocks. And I don't know if that was the
reason for the down uh for the pullback,
but it certainly has caused a lot of
people to take a second look at those
valuations and question whether they
were justified. What do you think?
I think that, you know, we're in an
interesting position where a lot of
these names um have done incredibly well
over the last few years. And so I do
think there's a bit of locking in gains.
There's a bit of asking how much more
can you expect to get out of your 2018
Nvidia bets, right? It has done a lot
for you. And so I think some of it is
locking in gains. I think some of it is
looking around at the broader macro,
seeing that you're in the only bets that
tend to be sort of regularly turning out
uh a great return and asking, you know,
should should we kind of call it a day
and and think about where else to go
from here? And so I don't think that
there's been a huge shift in in sort of
the underlying businesses or even orders
that we're expecting, but I do think
that there's a shift.
Well, let's talk about some of the
individual movers because when I was
looking at valuations of multiples,
there's this idea that it's fine to pay
a high multiple if you think the growth
rate is there. But you're seeing at
least prior to the last few weeks,
people buying stocks that were actually
having almost decelerating growth rates
at least based on analyst expectations
like a Palanteer and a few others. Then
you have other tech stocks out there
that I guess have a more meaningful
growth rate but for whatever reason
weren't being ascribed the same
multiples as the others. Why do you
think there was that sort of divergence?
It
it does feel like there's sort of a tale
of two cities here. You know, you have
the Palunteers, you have, you know, the
Teslas over the last few years. When you
look at those valuations compared to
revenue, um it's really hard to justify.
certainly the latest crop of IPOs with
tech IPOs, you tend to see that there
are very high valuations against
relatively low revenue, but certainly
there's a growth story theoretically to
be had. Um, and then on the other hand,
you have some of these sort of blue chip
tech names, a lot of the mag seven, the
metas, the the alphabets of the world
that are doing incredibly well, and then
you look at their revenue versus
valuation and you say, "Wait, this
almost feels undervalued." Um, and and I
don't exactly understand that. I think
that that Alphabet in particular is is
people do not understand how good they
are at AI. Um and while that drives a
lot of the the sort of growth in some
names, it doesn't seem to extend to
them. Um so I think there's a disconnect
there that that the street sort of needs
to catch up on.
Well, it's interesting you say that. I
mean, we talk about um you know, Nvidia
is obviously, you know, the main stock,
a tech stock at least, uh that everyone
is focused on, but we've seen Meta uh
that stock actually keep pace in terms
of its market gains. Google of course a
bigger lagard in that space. Would you
at these current market levels be more
interested in a company like Nvidia or
more in a company like Meta?
You know they're very very very
different companies. Um Meta it it's
wild that you can run around giving
individual engineers, individual uh you
know maybe managers at best um billion
dollar paychecks and you still look
great on the numbers. And so, you know,
when Mark kind of goes off on these side
quests, we saw it with with the
metaverse a few years ago, you have to
remember that he has the ability to do
that because these are rock solid
underlying businesses. Um, you know,
WhatsApp, Instagram, um, obviously
Facebook, these are all doing
incredibly, you know, well still. And
so, I would never count that out until
we see a market shift in user growth or
or a competitor that really meaningfully
eats up that market share. And then
Nvidia, very different company, but also
just really solid. I don't think Nvidia
will be in the lead forever on their
chips. I do think they still have a
couple years head start. Um, and in
trading time, that is a lot of time. And
so I like both of those names even
though they are somewhat differently
priced.
All right, Sarah, we have to leave it
there. Always great talking to you.
Sarah Con is the managing director over
at Cleo Capital on a day here where
everyone seems to be focused right now
on the continued slide that we're seeing
in tech stocks. Just a reminder, Nvidia
does report earnings after the bell on
August 27th. So, less than a week from
now. And of course, we might get a
better sense here, at least on the chip
side of this AI trade of how that's
holding up and how everything else feeds
into it. Of course, also feeding into it
is going to be the macroeconomic
situation and of course the direction of
interest rates. When we come back after
the break, we're going to arm you with a
definitive checklist for J. Pal speech
at Jackson Hole. We're going to talk to
Vincent Reinhardt, BNY Investments chief
economist. This is the close on
I think that's where you're seeing a lot
of the debate now is, you know, where
where's your lean? Is it where do you
believe things are too restrictive on
the policy rate side or not? I think
they're modestly restrictive. I'm still
trying to find ways what's what's being
inhibited in the economy from where our
policy rate is today. Uh, and but I I
think we're on a good path.
Kenzie City Fed's economic symposium in
Jackson Hole, Wyoming, officially kicks
off in about three and a half hours. But
our very own Michael McKe had a chance
to catch up with the president of the
Kansas City Fed, Jeffrey Smith, and to
ask him about rates and the idea of them
maybe potentially being modestly
restrictive and still appropriate for
the current economic environment. This,
of course, as investors gear up for the
marquee speech and that will be from the
Fed chair J Pal tomorrow. Michael McKe
joins us on the ground there in Jackson
Hole, Wyoming. And I do curious uh I am
curious, Mike, about the direction of
debate right now amongst Fed members
with regards to what they think is most
important to focus on the labor market
or inflation.
Well, when you talk to them, most of
them are focused on inflation. and
they're more concerned with that uh
breaking out because they don't really
know what the effects of tariffs are
going to be on prices other than they'll
go up. How much and how fast is going to
be one of the key questions. The labor
market uh in most of their districts is
still relatively strong. They say uh
they don't see unemployment rising
significantly. Companies are not hiring,
but they're not firing either yet uh
because they're waiting to see what the
impacts are. So, in the short run, it's
probably going to be more about what
happens with the inflation numbers that
we get before the September 17th meeting
than the jobs report, unless the jobs
report is really bad.
Uh, of course, Mike, before uh the
official meetings get started, uh
there's already been a lot of talk about
one particular uh Fed member, and that
of course is Lisa Cook, the Fed governor
there. Uh I am curious as to whether
there is any chatter on the ground, not
so much just about the investigation
into her, but about some of the
political pressures overall uh on the
Fed.
Well, what they generally say in private
is that it's no fun. But they all fall
back on the same language uh that Fed
officials have always used, saying uh we
don't let politics enter the boardroom
door. uh we are totally focused on what
the economy is doing and what needs to
be done for the economy. Uh of course
Jay Pal feels it the most and now Lisa
Cook probably has joined him in that uh
whichever no circle of uh hell it is
that Dante picked for Fed officials and
they they're having to put up with a lot
more than the others but the others say
they they do they do hear it they just
don't let it get to them. So, don't let
it get to them. And I understand that's
the public face they have to put on. One
other topic of conversation, Mike, of
course, is it going to be about the
Fed's framework? Of course, the last
time uh well, it was 2020 5 years ago
when J. Pal uh sort of laid out or at
least sort of laid the foundation for
what would become that framework. Are we
expecting to hear anything about that
tomorrow out of him?
We are expecting to hear something about
the framework. We don't know how uh
in-depth he'll go on that considering
all the things he has to talk about, but
they've been working on this for a year
now. And they said by the fall they
would be presenting it. The uh idea is
pretty much they go back to what they
were doing before the new framework
which was adjusting to the economy as it
developed. Uh you might want to call
that discretion. That's the what Alan
Greenspan called it. They may adopt some
uh some guid guidelines for how they
think about it, but they're going to get
rid of the idea that you should focus on
employment because inflation's under
control. Obviously, very shortly after
they approved the last one, that turned
out to be not the case.
Michael McKe out there in Jackson Hole,
Wyoming for the Kansas City Fed's annual
economic symposium. A little bit
earlier, I had a chance to catch up with
former Dallas Fed President Robert
Kaplan, now the vice chair over at
Goldman Sachs. And here's what he had to
say about what he expects for the Fed
and the path forward.
I think with this weakening the labor
market, it's it's going to push the Fed,
I think, to be more forwardleading and
maybe do an adjustment in September. But
the caution I would give, if they do
move in September, uh I don't think
that's the start of a cycle. I think
it's an individual decision. Then
they'll wipe the slate clean and take
the next six weeks, try to understand
these crosscurrens again. And so I think
Former Dallas Fed President Robert
Kaplan speaking here on Bloomberg
television earlier today. Joining us
right now is the chief economist over at
BNY Investments, Vincent Reinhardt. And
Vince, uh we right we have a market that
pretty much uh thinks that no matter
what we are going to get a rate cut in
September. I guess the big question
though is does that actually if we
assuming we do get that is that the
start of a rate cutting cycle or is this
going to maybe potentially be a one-off
based on the economic data we're aware
of now?
If they're cutting rates because they're
following their plan to to lower the
nominal policy rate as inflation falls,
then it's going to look like a one-off
because they don't have to cut the funds
rate all that often. I.e. Every once in
a while when inflation has fallen enough
for to accumulate to a point where they
don't want the funds rate to rise in
real or inflation adjusted terms, they
cut the funds rate. Uh if it's the plan,
it's going to look gradual. It treated
as a one-off. It might mean they go in
September, then the next time would be
December or March. If it is response to
weakening economic data, that's the one
that's the ones that come in a hurry. Uh
because the Fed isn't dictating
according to a plan. It's reacting to
events. Right now, they don't need to go
into that emergency mo mode of reactive.
So, one not quite done, but it'll be a
while before the next one. There's been
a lot of talk about sort of the dual
mandate and the idea that the data uh
that feeds into each one of those
mandates individually are kind of
diverging or at least not not
necessarily in sync. The idea that
inflation is still persistent but you
also have a labor market that at least
for right now still appears to be
holding up. What does that dynamic mean
for the debate on September 16th 17th
when the FOMC next meets? just about
everything. And it's not just that the
data are diverging, it's the weights
they place to both of their mandate ma
mandates are changing because
inflation's fallen. Three years ago, it
was easy. Chair Pal woke up and said,
"We got to get inflation lower.
Everything mattered
in terms of inflation." And they didn't
put much relative weight therefore on
the unemployment rate. Now that they're
much closer to their goal, the relative
weight they put on the unemployment rate
or the maximum employment part of their
mandate has gone up. So it's not that
necessarily their view of the economy
has changed all that much. It's how they
weigh that view of the economy is
changing as they get closer to goal. You
are right though uh the data are
diverging. Inflation seems to have
stalled out and employment growth has
slowed a lot. The issue about employment
growth is is it just because labor
supply growth has slowed given our
policies toward immigration or is it
about underlying weaker aggregate
demand? It's one thing that I thought
that uh the Fed president uh Fed
President Schmidt uh talked about in his
interview was this idea that once they
start meeting uh at Jackson Hole that
there will be a lot of discussion about
the neutral rate, there will be a lot of
discussion about the tailor rule. These
are his words here and really just an
overall conversation about whether the
way we model inflation that normal 2%
target that has been or two two-ish I
guess now uh that we've been so focused
on whether there needs to be a
meaningful rethink of that.
Well, some of it should come in the
framework review because it's about how
you explain your setting of monetary
policy. And as for the venue of Jackson
Hall, you got the pictures of big wide
open spaces behind Mike, but actually
the participants spend the their time
mostly cloistered in one meeting room
and they spend a lot of time together
outside the conference itself. So
they're definitely going to have those
opportunities to talk. Uh as for what
the chair says tomorrow,
um it's up to him. Uh, it's not what he
needs to do, it's what he wants to say.
It's probably his last appearance at
Jackson Hole, his last appearance as
chair, and he's got a long menu of
things to choose from, including the
framework review, including to tell us
how they're going to steer the ship in
terms of setting a policy in both the
short and medium term, or just talk
about the importance of independent
central banking. So don't be surprised
that the chair could uh provide be
disappointing with regard to direct
direction of monetary policy because
he's got a lot of stuff to talk about
on the independent side. I mean you have
a market that is starting to question uh
that independence largely because of the
pressure coming from the white house
obviously on J. Pal and at least as over
the last 24 hours or so the pressure on
Fed Governor Cook. uh do you see the
potential that we could see a
significant reshaping of the Fed board
sooner uh than what uh the current terms
would suggest?
Uh there's always a chance of that. Uh
and the administration has thrown us a b
number of curve balls uh not with regard
to just the Fed but but uh some some
state institutions uh elsewhere in
Washington DC. So that that's a risk.
There's also a risk of why do you want
to stay around in that job if you're
going to get nothing but criticized? Uh
the reality is we create independent
central banks because politicians want
somebody to blame the independent
central bankers. They can say it's not
their fault. Uh and so part of the job
is to accept criticism. The criticism
however when it gets to um issues of the
composition of the board and uh then
then it becomes more threatening to what
they do. So yes, the uh the threat
meteor is is is on the high side
when we when they're they're in that
room uh over this next few days uh and
discussing and obviously this ends up
being a prelude to them of course the
FOMC gathering uh in midepptember. I I
am curious as to given the precarious
situation of some folks on that board
with some terms expiring under other
people under pressure. I know public
there are going to say that's not going
to affect us, but do you think it has
the potential to affect us? I mean, we
got a surprise at the last meeting when
Adriana Cougler decided that she could
not attend for personal reasons and then
of course we learned uh a few days later
that she was actually not going to be on
the board at all. So absolutely and for
two distinct reasons. The first one is
about power. The chair of the Federal
Reserve doesn't have a lot of explicit
power. They execute soft power. their
ability to control the budgets to to be
the public's first spokesperson of the
Federal Reserve, to send invitations to
their colleagues as as they see fit, to
trade off current description of
monetary policy for the future
description of monetary policy. And the
chairs that have been successful over
the years are the ones who know how to
use that soft power. However, Chair Pal
has been very successful using that soft
power. The clock's ticking down. He
can't promise future benefits to uh
another governor or a bank president or
being soft on their budget or
encouraging in the public about them uh
very effectively because his term is
drops dead in in May of next year. So,
his soft power is eroding. his ability
to to influence this committee is
probably weakening. Second part of it
is, hey, they're all human.
Um uh and there's questions of uh of
personal ambition.
It must be nice to be on the short list
for potential Federal Reserve chairs.
Yeah.
Uh there's the pre the pressure of of
just being criticized all all the time
the way you opened it. uh they do their
level best when they walk through the
door of the boardroom to conduct
monetary policy the way they're supposed
to neutrally.
But what have they been thinking about?
How much of their time, who they've been
talking to, that's all that that that's
all different in in an environment where
Washington DC is is in turmoil.
Who should I I understand the issue of
the influence. Obviously the Fed kind of
operates on two sort of the Fed share
influence levels. is obviously the
influence over the other members, but of
course also over the market. And I am
curious as to whether the market should
be paying as much attention to what J.
Pal says with regards to inflation and
trying to keep those inflation
expectations where he wants them, or
should the market actually just be
paying more attention right now, quite
frankly, to the White House, which at
least publicly seems to be driving the
conversation much more than J. Pal. I I
think unfortunately if you're setting
you're holding an asset that that
matures beyond May of next year, the
White House has some influence on on its
pricing. Uh because JPAL's influence
ends when he's the chair.
So I I think in some sense why has the
Fed been why has President Trump been
criticizing the Fed? Because it works.
It signals the kind of chair he wants
after J Pal. He it signals the kind of
board members he'll appoint uh when
those opportunities pick uh uh come up.
So yes uh we got to look past JP pal and
the truth is the overnight interest rate
doesn't matter real very much.
What matters is its whole path and its
whole path is determined by the
collection of Federal Reserve officials.
All that said, where J Pal still
matters, he reflects
how the Federal Reserve works by
consensus, by group, uh, uh, spread out
beyond Washington DC. So, uh, yes, the
White House really does matter for some
of the voters, but Chair Pal represents
the institution, and the institution is
longived. The institution has a memory
and the institution has inertia built in
to protect itself.
Yeah, well said uh Vince, of course,
this is an institution that's been
tested in the past several times before
from the politics and of course an
institution that continues to survive.
BNY Investments chief economist Vincent
Reinhardt who of course spent quite a
bit of time at the FOMC as an economist
and adviser. Let's take a look at the
after hours trade here. Futures overall
still in a holding pattern as we see the
individual stories here in the after
hours trade including a bump up in Ross
stores up about 2% here maybe a
ratification of the idea that the
consumer at least when it comes to some
of these off-pric retailers is holding
up pretty well meanwhile in the software
space we are seeing a little bit of
softness there into it down about 6%
workday down about the same amount as
well both reporting earnings both
providing relatively decent guidance but
some concerns about the backlog and
there you have at bottom of the screen.
Zoom. A big beat there on the bottom and
the top line. A pop in the shares of
about 6% in the after hours trade. This
is Bloomberg.
Fears about inflation here in the US
intensifying. This after the S&P global
flash PMIs for August did show those
tariff pressures persisting particularly
when it comes to manufacturers and as
well as when it comes to the services
sector. and the idea that well a lot of
those price pressures are being passed
on to the consumer. In fact, the
Cleveland Fed President Beth Hammock
saying just a little while ago that
inflation is too high. So all eyes on
Jackson Hole, all eyes on the next Fed
meeting and all eyes on the PC report
that comes in between. Omair Sharief
joins us right now, the founder and
president at Inflation Insights. And
Omare, the big question right now when
we talk about inflation, is this a
problem right now for companies or is
this a problem that's going to be for
the consumer?
Oh, I think it's a problem for
companies. It has been a problem for
companies now for several months. Um,
it's already becoming a problem for the
consumer. We've seen it really, I would
say, in the last two months of uh CPI
data both June and July, we've seen this
the price of core goods outside of
autos. So, things like appliances,
electronics really start to ramp up. Um,
but I think the troubling thing from the
PPI report, which you know, obviously
covers way more stuff than the CPI does,
but the input costs that producers are
facing have been rising pretty steadily
uh since the tariffs were were put on
earlier this year. And they've started
to ramp up even in areas where they were
not u that obvious where stuff like
apparel was actually not really showing
a lot of input cost uh pressure, but now
it that's starting to to ramp up as
well. So, it's starting to become more
broad-based in terms of the input cost
pressures they're facing. We can see
from the PPI they're getting more for
the stuff that they're producing. Um,
and it's just a matter of time before
more of that gets passed on to consumers
in the coming months.
Well, that's what I'm curious about.
There's been a lot of hay made about
sort of the gap that we're seeing right
now between wholesale price inflation
and consumer price inflation. The idea
that the wholesale prices are going up
uh much faster uh than what we're seeing
with CPI with the consumer side of it.
And I do wonder historically do those
things normally converge at some point
and if so what does that convergence
look like? Does PPI come down or is CPI
go up?
Yeah. So I think it's important. So I
would say there's there is a tepid
relationship between the PPI and the
CPI. For some things the relationship is
a little bit stronger. So for example at
the producer level when you see
producers raking in more uh for selling
you know consumer food items that starts
to translate into CPI. Um, you know, for
example, we just saw a very big jump
this past month in the price of
vegetables uh and fruits. That'll likely
get passed on to consumer prices
relatively quickly. Um, you know, you
see that very similar relationship with
egg prices that everyone sort of talked
about the last year. You see that at the
wholesale level first, then you see it
at the consumer level. So for food
items, it it's, you know, I would say
there's there's a better relationship,
but you have to remember that the PPI
measures a completely different universe
than just consumer prices, right? It's
measuring um also you know what what
companies are are getting for producing
machinery and capital equipment uh which
are not you know aircraft engines and
agricultural machinery and things like
that that don't necessarily are not you
know these are not things that you go
out and buy at Home Depot on the weekend
right so it's not really going to
translate into the CPI so some items
also are covered in the PPI that just
don't exist in the CPI at all. So part
of what drove the PPI for example this
month was um investment services. So,
you know, stock market went up a lot in
Q2. That showed up in the PPI services
data. That does not exist in CPI. So,
you have to be very careful kind of
thinking about the pass through from
wholesale into retail. For some items,
it is robust. Other items, uh, there's
just not going to be any pass through
because they're measuring different
things.
All right, Omar, I got to leave it
there. Omar Sharif is the founder and
president at Inflation Insights. Of
course, with the market, zeroed in on
inflation readings, including that S&P
global PMI data that we got this
morning. And of course the Fed at least
based on the FOMC me minutes from the
last FOMC meeting. We got those minutes
yesterday that also showed that the
majority of Fed members also seem to be
tilting to a much greater focus on some
of those inflation numbers. We should
point out that the next big reads on
inflation. We're going to have to wait a
little bit longer. we get the PCE
numbers, the monthly numbers coming on
August 29th, but after that, we're going
to have to wait till after Labor Day
before we get the next read on CPI, PPI,
as well as some of the import prices
that feed into both of those measures.
We'll be back in a moment. This is the
close on Bloomberg.
There aren't a lot of catalysts out
there to drive the market. Here's what
to keep an eye on over the next 24
hours. No major earnings here in the US
and no economic data in the US either.
We are going to get a couple data points
overseas including GDP numbers for
Germany as well as retail sales in
Canada. The lack of catalyst, the lack
of data points, well that means that all
eyes are going to be on Jerome Pow, the
Fed chair set to provide his keynote
address to the Jackson Hole Economic
Policy Symposium and that will
potentially be the big market catalyst.
full coverage of that on Bloomberg
surveillance right here on Bloomberg
tomorrow starting at 9:00 a.m. Eastern
time. And kind of fitting for a market
that has hung on everything everything
coming out of Washington. So stick
around as we wrap up the close balance
of power team takes over and they
continue that drum beat to the Fed
symposium. A conversation with the
former vice president of the US and the
current Chicago Fed president Austin
Goulby.