Bloomberg Money: 'Fed Needs Clear Inflation Target and Messaging'

23:26Sure, you'll give them below market rent, of course, you know, which but it may increase over time, you know, so they have sort of incentive to not make this arrangement last forever. Yeah. So setting expectations about rent and about privacy and just how things are going to work is just really important. Can I ask a question? Please. I'm asking for a friend. How do you get them out the door once they move back in? Well, Tom, you must have made it a little too comfortable for them. That's the major thing is to make it too comfortable. Yeah. I mean, you definitely don't want to be raiding your retirement account or drawing down on your savings and perhaps not retiring because they've come home to live.

24:04Exactly. I mean, that's the key. If it's coming at the expense of your retirement security, you really have to think twice because your kids will have a long runway for earnings. Your runway, if you're close to retiring, is not... Stop. I'm going to get upset now. I remember sitting on the bed with my father. I came home from school and all that, and he said, you got four weeks to move out. That was the runway. The runway was four weeks. Are you giving your kids four weeks? No, they've been very good about it, actually. But I admit, just like you say, we're all writing checks. Yeah, you're writing checks.

24:37And I mean, and sometimes it's great to have your kid move back, you know. For a while, at least initially. For a while. And if they're contributing rent and maybe doing chores. Oh, chores? Emptying the dishwasher? Walking the dog, all of that. Suzanne, thank you so much. Suzanne Woolley is a member of our Bloomberg Money team. Lori Calvacino is over here taking notes. She's got young cherubs. She says, this is what I had with Calvacina money. We are thrilled to bring you now, Lori Calvacina, head of U.S. equity strategy at RBC Capital Markets. Scary PowerPoints in the view of the equity market.

25:11There's a lot of people to be invested given their fears. Let's do this. Let's bring it up right now as we can. Our Money Must Read here from Calvacina. It's from front of her 80-page PowerPoints. It's like Mary Meeker on steroids. Lori Calvacina, our main sentiment model points to a gain of 10.8 % over the next 12 months. You look here at the drawdown, 50%, great financial crisis, World War II, 40%. And then you've got to get out front and still be optimistic. Do you fear the big drawdown? So our base case has been we're going to be higher over the next 12 months, but it's not going to be in a linear fashion.

25:51and we assume that we're going to have at least one, maybe more drawdowns of 5 % to 10%. We call that tier one on our tiers of fear framework. What we do, you know, as sort of things come up in the market, right? We'll look at what we call tier two, tier three, tier four, and sort of evaluate, is there a risk of falling into one of those? Not because we're telling everybody, you know, especially sort of in retail investor land to sell, but to be prepared for what might happen. Your job is to go out and talk to people and say to them, let the fear go. Let it go. Let it go. Let it go. They're frozen because they're worried about that big drawdown.

26:25What percentage of us are worried about a negative 35 percent bear market? So if you look at the conference board survey that just came out, they actually have a question that gets very, very little attention. But I like it a lot. And it's on stock market optimism going forward. I forget the exact number, but it's still extremely elevated and actually ticked up just a little bit. It hit a new high in late 2024, and it's been kind of hovering around that level ever since. So when we look at that as a gauge of retail investors, we think that they're not too worried. Now, if I talk about institutional investors, you know, we might look at something, say, the CFTC futures positioning data, which is easing.

27:02You had seen sort of one standard deviation above the long-term average. Basically, that's, you know, complicated speak for saying people were feeling good and well-positioned but not crazy, not euphoric. And that's easing down. It doesn't look under-owned. And I would say there's some nervousness creeping into the institutional community, but I don't think there's panic there either. So you serve institutional investors, but I know that one thing that comes up a lot in those conversations is the role of the retail investor and how they influence the market overall. Retail stock ownership, I think, is at a 20-year high.

27:30How do you think that's changed the stock market over your time covering it? You know, it's interesting because when I started, I started back in 2000 at a different firm. And I remember being taught by a very seasoned, extremely bright strategist that you would look at the retail funds flow data and do whatever the opposite was. So if they were all buying, you'd sell. And if they were all selling, you'd buy. And I don't think it quite works that way anymore. I do think retail investors have gotten much more sophisticated in their understanding of financial markets. There's a lot of innovation in the industry that's helping people out.

28:02You know, and I, you know, we were talking earlier about how I travel. I run into people in airports. I run into, you know, people who are driving me places and, you know, and, you know, talk to people on airplanes. And people sometimes, you know, will start talking about the stock market and they know a lot. And I think that's very different from early on in my career when sort of the purview of all the intricacies of our industry were really just limited to the institutional community. Okay, so it's changed a lot in your 20 plus years, but is it going to look like Korea? You look at the Korean stock market, and it had a banana's week, right?

28:33It was down 10 % on Tuesday. It surged 16 % overnight. Year-to-date, it's up massively. Retail investors are a huge presence there. They love the AI trade. They love these leveraged single-stock ETFs. Is that what the U.S. stock market is headed towards? You know, it's hard to say. I don't see that right now. I feel like we have more guardrails in place. But the reality is that if you look at sort of this theme of democratization of the equity market, I mean, we got a lot of color on that from financial companies in this reporting season, talking about new instruments and why they might be doing one thing or another thing.

29:05Did retail want it? Did institutions want it? Was it something they should be doing? You know, sports, right, for example, in prediction markets was something we saw a few companies say we're not going to do, even though there might be appetite for it. But I do think this trend of getting typical Americans engaged in the stock market, I don't think that's changing. What would you do as a retiree now? The old rule was take 4%, be happy, move on, maybe buy an annuity, whatever. What's the RBC advice for someone with an equity pot and how to manage it given that retirees never die? Well, I think the first thing you always do is, and this is always my first advice for people, is work with a financial advisor.

29:46And I think even in my purview as sort of an equity person, I would want sort of that advice on diversification. Why, the distance? I think that I know a certain corner of the market very well, and there's a certain corner of the market I don't know very well. So I would want some advice, frankly, to come in and sort of balance me out. But I do think staying diversified is something that just makes sense. And not trying to play the short term, not trying to play every little twist and turn. How do you not play the short term if you're watching Bloomberg Surrealance or Five of Scar's media properties religiously, but you're supposed to be long term?

30:20How do you do that with modern media? This goes back to our tiers of fear, right? And so typical drawdowns are 5 % to 10%. Be prepared for those. And there's always a big test once you kind of get to 9%, 10%. Are you going to go lower? And what we tell the institutions, and I tell this to FAs I talk to as well, is if you don't think that there's a serious chance of a recession, or these days we're also talking about interest rate shocks, then you're probably going to bottom out at 10%. But if there is something that's unknown that happens in the market, right? If you looked back at 2018, We had tariffs for the first time.

30:51We had some concerns about the Fed. We had a 20 % drawdown. We have these growth scares that can go to like the 15 % to 20 % range. But just kind of know what's coming. Be educated ahead of time. Be prepared. And don't overreact in the moment. If you don't think that there's sort of a serious chance of a recession, and we talked a lot to hedge funds about this last year around tariffs, then you're probably not going to have like a 25 % or 33 % type drawdown, which is what you see in recessions. Kind of 20 % might be the worst. And so it's really just being educated and knowing that markets can be volatile.

31:21And what do these different levels signify? And just, again, not overreacting in the moment. Individual investors seem to have mastered the art of buying the dip. They come in, they are kind of, you know, they don't get rattled by stock market declines. They come in, they're like, I'm buying, I'm buying. Have institutional investors looked at that and kind of adjusted their behavior as a result? One thing we've noticed is that there are certain valuation gauges. You know, we can look at PEs and where they typically bottom out at. And on certain charts, they make higher and higher lows. And I think that's because of these dip buyers coming in.

31:49So you do have to have it in the back of your mind. What you just said, I disagree with. Not you, but I disagree with the zeitgeist that we've learned something new. We haven't woken up on a Monday being down 22 % or being down 35%. Is the government going to let that happen? Well, that may be. That's an Eric Belchunas question. But, Laurie, I think we don't have a collective memory of a massive drawdown anymore. And our behavior will change if we get that. Well, you know, I take your point. We have a lot of conversations, you know, I would just say in the financial community about when did you start?

32:22So I started in 2000. I didn't see the tech bubble melt up, but I certainly saw the other side of it. You enjoyed 2008-9. Yeah, I lived through it, right? She didn't enjoy it. She lived through it. I lived through it. I remember being in conference rooms, I want to say like in 2006, with mice running across the floor and home building companies talked to packed rooms, you know, and you couldn't, you were violating some fire code, right, because there were too many people. And so I remember the height of that bubble, you know, very clearly. And I do think there's a lot of people in the institutional community who weren't around for the GFC, right, who weren't around for the tech bubble.

32:54So I take Tom's point. But remember, we did have a massive drawdown around COVID, which was a typical recession-type drawdown. And it was interesting. I mean, we've done a lot of work around that, especially, you know, as kind of the Middle East situation has flared back up. And I reminded people, I said, you know, we did a recession's worth of decline in about a month. Good point. And, you know, and I think people have kind of forgotten about that one. But you can see how fast and steep and, you know, difficult, frankly, you know, those kind of declines can be. 2022 wasn't pretty either. No, no.

33:28That was a weird one. We've had trouble classifying that one, you know, in sort of our tiers. We think what essentially happened was the misery index spiked because of inflation. It felt like a recession. It wasn't. You got a recessionary type drawdown in the market, and you also had a massive interest rate shock. Just expectations of Fed hikes piled in. And you threw a war on top of that, right? It was a little bit worse than a growth scare. Not quite as bad as a recession, but pretty darn close. Laurie, thank you so much. Really appreciate you coming in on a Friday. Really, really appreciate it.

33:57RBC Capital Markets. Get your PowerPoints exquisite. Get it from RBC Capital Markets. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM. Everyone's talking about how AI is transforming work, especially in sales.

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36:09All right, we're looking at shares of Apple down as much as 11 percent right now after component shortages weighed on the company's sales forecast. Elena Poppina of Bloomberg News joins us now to discuss. When we're talking about shortages, it's really the memory chips, and we've seen prices for those things spike up, and a company like Apple needs to contend with it. Yeah, and CEO Tim Cook said that memory chip shortage is similar to 100-year flat. The demand is so high and the shortage is so widespread that, you know, in the coming quarter, there will be more shortages and some wait times for some of the key products, like including MacBook Mini.

36:45So that may weigh on the revenue outlook. Now, we're talking about the outlook for the quarter ending in September. This is the quarter when the key iPhones usually go out. This is the quarter when, you know, mom and pop investors buy apples and, you know, iPhones for their kids. They go back to school. So that supply shortage is going to weigh on sentiment. And this is what is driving shares lower today. Okay. Apple also came out with this new innovative way of funding your iPhone purchases, or maybe purchase is the wrong word. You're now going to be able to lease your iPhone the way that you can lease a car.

37:18Yeah, that's pretty much the case. And not just your Apple. You can lease your iPad, you can lease your MacBook Mini, MacBook Pro for up to three years. And then after that point, you can decide if you want to keep it, if you want to return it, if you want to just, you know, upgrade to a new cycle. So that's pretty much, you know, Apple's way of saying, listen, just keep staying with us forever and keep upgrading. But from a consumption standpoint, somebody had this out on Twitter this week where everybody's all, gee, they don't have the chips of this, supply this. The reason they don't have the supply is they have massive demand.

37:49Do we see within our reporting, Mark Gurman and you and everybody else, do we see any way on a unit basis that they're stumbling? They're not. They're not really stumbling. I mean, China remains a weak spot, but it's always been a weak spot. So we cannot demand any strong numbers out of China. But, you know, when you look at the sales of the wearables, they were in line with expectations. I mean, Scarlett needs a blush Neo, right? I mean, that's really what this is about. If you look at the sales for MacBooks, they smashed expectations by a landslide, you know. So the iPhone expectations also were above estimates.

38:25So across the board, people kept buying. So consumers, your retail traders, they had nothing to do with that weak forecast. It's more of a supply-constrained issue rather than a demand issue. Apple has had to raise prices as well, and you wonder how much these new foldable iPhones that they're going to release are going to end up costing. Why do I need a foldable iPhone? So you can fit it into your pocket and it won't fall out. It's the next whole thing. Your pockets are bigger than mine. But the NEO came out as a joke, and it's the hottest thing going, right? Yeah, it's the hottest thing. When we talk about Bloomberg Money, everybody watching this show on personal finance is getting a kid.

38:57I guess I like my air, but I really need a NEO to go back to school. Well, the parents want to pay for the NEO, not the air. Also, the NEO is a low-cost model, so that's part of the appeal. That's a selling point. Thank you so much, Elena Poppina of Bloomberg News. All right. It's Friday. It's Bloomberg Money, so we always talk about books. I know that I've got a huge reading list on my phone that I've got to get to. Do you read the physical books, or do you like use the Kindle? No, no, I tried the Kindle and I've tried other things and now I'm very much back to just reading hardcover books. Only hardcover though.

39:31Old, well, yeah, sometimes I can't, but you know, old school books. How about the must read books that we've got right now? What's yours? Mine is a foundation read if you care about Elena Poppina's technology. Chip War was my book of the year. Two years ago, Chris Miller's out of Tufts up in Boston And this is absolutely, absolutely the seminal read on the history of semiconductors. And he just captures beautifully the turf wars, whether it's obviously Silicon Valley or Charles River in Boston or even over to the Netherlands at ASML. Or Taiwan, for that matter. Or Taiwan, excuse me. The Taiwan story is actually, the invention of Taiwan semiconductors may be the most emotional story in the book.

40:18Yeah, I can't wait to get to that point. I'm really excited about it. My book kind of ties into that. It's How to Rule the World and Education and Power at Stanford University by Theo Baker. This book is a lot of things. But what I enjoy the most is the picture that it paints of Stanford. For super bright and ambitious kids, Stanford's a place where the coding or hacking clubs they join have access to slush funds provided by tech companies so they can party on yachts and socialize with billionaires. VCs hang out there on campus at the cafe. I think it's called the Kupa Cafe, to scout future talent, which leads to offers of funding their startups later on for billions of dollars with the non-dominant social agreement.

40:55I take issue with the romance of this and that. Mostly what the kids do is work. They're particularly undergraduate. They're working on first principle, heavyweight mathematics. They're operational research. I mean, so much of this is Michael Spence, the laureate's invention. But I think it's underplayed how much the bright kids at these bright schools on the West Coast, Harry Mudd, Caltech, Stanford. I'd mentioned Cornell on the East Coast, frankly. The kids work. I mean, Scarlett slid through just in case, you know. There is that. But the ones that get farther are the ones who are hobnobbing with the billionaires and the VCs.

41:31Absolutely. You know, they're getting the, like, early look deals with those guys. I like hobnobbing better than networking. Sounds a little bit, like, you know, friendlier, right? All right. For the latest reviews and recommendations from Bloomberg, be sure to subscribe to the On Books newsletter.

41:50Bloomberg money from New York City on a Friday, a summer Friday. The streets are just it's a summer Friday. It's easier to get to work and get home. Yeah, there's no traffic whatsoever. It's no question about it. So I guess we're going to look ahead here. Can we look back? Yeah, let's do that to this hour, right? Yeah, this hour. Richard Clarit was with us, the vice chairman. and we ripped it up and did a much, you know, Federal Reserve conversation. And the excitement of that was Anna Wong's work of Bloomberg Economics. She was on fire. Here is Richard Clarida. He left open the possibility that the task forces could recommend other measures.

42:26They could go to an average. Instead of picking one index, they could look at CPI, PPI. There are a lot of things they could do. But I think Anna, as usual, raises an important point, is that an inflation-targeting central bank needs to be clear about what it is it's targeting. It can and may evolve. And so I think that will be important. And I published this morning as well. Look for that at Bloomberg Economics across the weekend. And we'll get our videos. It'll be out as well. All right. Well, it was great to have Richard Clarida here with us. But it is Friday, so we need to look ahead to the weekend and next week as well.

42:58This Saturday and Sunday, BTS will be holding their first headline performance concert in New York since they completed military service. Mental sold out? I was checking on StubHub. You can still get stage right tickets for$1 ,800 for a pair each. And then the nosebleed is at$176, so that's a huge spread. But I thought maybe you would be more interested in Rush. Got that right. Yeah, they have a reunion tour. They're now halfway through their four-night residency at MSG. The OG band members, Geddy Lee and Alex Leifson, will be there, minus drummer Neil Peart, who passed away sadly in 2020. They did a bang-up job on this.

43:33They went out and they just really looked for a new drummer. which is incredibly hard for any bands. They will all say that. Annika Nas is from Germany, and she's like legit classical rock train. Jeff Beccaro was her huge hero from Toto. And the answer is she's the real deal and literally ran an academic department at a university. I don't know that. A woman of many talents. I would suggest, as a non-Rush fanatic, it's been hugely successful. All right, well, they are playing at MSG, again, this four-night concert. residency that they're calling it. Also, of course, next week, we've got the jobs report for the month of July.

44:10And the consensus estimate right now is for 88 ,000 jobs added in the month of July versus 57 ,000 in June. I'm still not used to the new jobs number with immigration being under 100 ,000. To me, 88 ,000 is terrible. And yet, Anna Wong would tell you that's actually pretty good. Well, you look at the unemployment rate, it's going to stay unchanged at 4.2%. And average hourly earnings pretty much staying in line. And that's brilliant that you do that through August through September for Bloomberg Money, the inflation-adjusted wage, got to be front and center as well. And don't forget, earnings.

44:42SpaceX reports its first set of results as a listed company. That's worked out so far. This is the Bloomberg Money Podcast, bringing you a smart look at the forces shaping your financial life. I'm Tom Keen with Scarlet Fu. You can watch the show live on Bloomberg TV every Friday at noon Wall Street time. Subscribe to the podcast on Apple, Spotify, or wherever you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business app.

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45:56The thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. This episode is brought to you by Bobcat. They started the compact equipment industry. through grit, determination, and a whole lot of, think we can't do that?

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