Lots More on the Growing Risks to the US Labor Market

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Joe Weisenthal (0:07)

Tracy, did you read our newsletter contrips this week from Neil Dutta and Skanda?

Tracy Alloway (0:13)

It would be terrible if I didn't. Not only did I read them, I lightly edited them.

Joe Weisenthal (0:18)

That's right, you did, you did, you did. I think I uploaded the text of them, and then you edited them. I did a deadlift.

Tracy Alloway (0:27)

I am both the most popular trader and most successful trader at Citadel.

Joe Weisenthal (0:32)

Fed is going viral.

Tracy Alloway (0:33)

Barges.

Joe Weisenthal (0:34)

This is an after school special, except.

Tracy Alloway (0:36)

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal (0:42)

Black gold.

Tracy Alloway (0:43)

These are the important questions. Is it robots taking over the world?

Joe Weisenthal (0:46)

No, I think that in a couple of years, the AI will do a really good job of making the Odd Lots podcast. One day, that person will have the mandate of heaven.

Tracy Alloway (0:55)

How do I get more popular and successful?

Joe Weisenthal (0:58)

We do have the perfect guest. Welcome to Lots More, where we catch up with friends about what's going on right now.

Tracy Alloway (1:05)

Because even when Odd Lots is over, there's always lots more.

Joe Weisenthal (1:10)

We really do have the perfect guest.

Tracy Alloway (1:15)

I have to say though, they were both great and I'm not just plugging our newsletter. Those were outstanding contributions and they build on something that Scanda pointed out earlier in the newsletter about how embedded or how important AI is becoming to the US economy.

Joe Weisenthal (1:32)

Yeah, and this idea like there are signs of slowing.

Tracy Alloway (1:36)

Oh, yeah.

Joe Weisenthal (1:36)

I feel like we're in a moment where actually there just aren't really many people talking about the economy because we're either so transfixed by the goings on in Washington or certain big tech stories like AI, that we're in a period where there's this lull of just the meat and potatoes of like, what's happening with initial claims? What's happening with housing starts? What's happening with the jobs report? There's actually signs of a slowdown.

Tracy Alloway (2:03)

Yeah, and there's also signs of inflation picking back up, and so that kind of raises the question about what's the Fed's reaction function here. We thought it was skewed towards preventing a recession a little while ago, but now maybe they start caring about inflation again. I don't know.

Joe Weisenthal (2:22)

But the other thing that's happened over the last week is that we have had this pretty substantial drop in 10-year yields. As of the time we were recording this, which is March 27th, we touched 4.25 yesterday. We had been at 4.65 on February 12th.

Tracy Alloway (2:40)

I think the curve inverted again as well.

Joe Weisenthal (2:42)

The curve, it's a weird time. Jon Turek, what do you think? What happened that we were at 4.65% on the 10-year February 12th, and right now we're at 4.2886?

Jon Turek (2:54)

Yeah, I think it's an interesting one. I mean, as you guys kind of noted, I think we came into this year with a lot of excitement in terms of what the policy impulse would mean for the economy. It seemed that the animal spirits were going to lead to a more meaningful real growth impulse. I mean, I think the famous Dan Druckenmiller said in a note or on a TV interview that he hadn't seen the business community this excited in like his 40 years in the business. And I think that we've had a little bit of a transition in what that policy impulse means. And the fact that it seemingly is two-sided, as we're seeing today, tariffs are also a big part of that policy impulse. And as we've seen over the last few weeks, it has a very unevenness into either both the implementation and the scope. So I think the market has had to adjust to a policy impulse that seemed to be unambiguously positive to one that's more mixed. And I think the 10-year is just a reflection of that. I would also note, as Tracy pointed out about inflation pricing, a lot of the moves, especially since the middle of January, is been in real yields lower, as in 10-year break evens have actually stayed pretty firm. So I think that the market is having to deal with an economy that's a little more confusing. And the policy impulse is more muddled this time around, where you have the potential for tax cuts, deregulation on one side, and just a lot of tariff uncertainty that is potential in scope much more drastic than we saw in Trump 1.0. So I think that that is sort of at the nexus of what's going on here. And just to add one more thing, you guys kind of made it up like the meat and potatoes of the economy. I think that for the last two years, you've been in a very stable nominal GDP regime. It's kind of oscillated between high fours and high fives. And the economy seems to be running on a few less cylinders than it has been in the last couple of years.