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Four minutes away from the inflation report. Right now, Eric Winograd with Damian Sassauer and me as we begin our coverage. We are commercial free to the nine o'clock hour. Winograd, David Rosenberg and Rob Sacken. That's the way that we roll. Eric, what do you expect to see? What will this inflation report state to America?

So I think what we expect, roughly in line with consensus, sort of a mid-point two month-on-month print for the core CPI figure. I think the message that that sends is inflation is still higher than we would like, but it's not running away. It is maybe not coming down as fast as we would like. But it's not accelerating either.

And I think that that gives everyone a little bit more time to see how things play out.

At Alliance Bernstein, do we get used to a 2%-ish plus near 3% inflation? Can America survive with that elevated rate?

So in our forecasts for a long time now, we've argued that inflation is going to be between two and two and a half percent. Remember, pre-pandemic, it was running between one and a half and two percent. So we have always or for a long time expected it to be somewhat higher.

I think three percent is too high.

But I think that between two and two and a half is something that people can live with over time.

And that that to me is not disruptive.

Eric, our last guest was talking about the underlying driver's inflation and that they are primarily supply shocks. You believe the same thing. Are those supply shocks going to be resilient? Are they durable or are they likely to fade in the coming months?

So we expect that they will fade in the coming months. But, you know, again, the.

Supply shocks are often driven by non-economic variables. And so if the war in Iran persists or accelerates or, you know, that there have been discussions in the market that perhaps after the midterms that we might see an escalation, who knows? The problem with supply shocks is you can't really forecast them because they come from exogenous events. The one thing that would give me pause if I were a member of the FOMC today, you know, we're accustomed to looking at inflation expectations over the long term and five and ten year inflation expectations look just fine. There has been, though, over the past few months, a march up in short term inflation expectations. The New York Fed survey of one

year inflation expectations is marching higher. The University of Michigan survey of one year inflation expectations has risen. That suggests that economic actors, businesses and households are starting to extend.

How long temporary lasts.

Right.

We originally thought this would be a matter of months.

It now looks like maybe people are thinking this might be well, maybe it might be more than a year.

That starts to stretch the definition of temporary.

And if that is something that continues, it might give the Fed pause.

Eric, have you been surprised about the resiliency of the U.S. consumer, the sustainability, the durability of demand strength here in the U.S.

Yes and no. At an aggregate level, yes. But if you break it down, no.

The investor class, people who are invested in markets, look, higher prices are an inconvenience, but they aren't really a problem because the market has been so strong. If you are paycheck to paycheck, however, the situation is very different. And alongside the CPI release this morning, we'll get the real average hourly earnings print, which is negative, which means that if you are relying on your paycheck for your income, you have lost ground over the last year. So we're seeing two different economies, and the investor class has been strong enough to pull the aggregates up. Mark Zandi at Moody's has done work that says that the top 10% of income earners are responsible for more than 50% of the consumption in the economy. So that pay shape, that bifurcation,

gives you a stronger aggregate than I think many people feel.

A terrific sum into this report. Eric Winograd working off the work of Dr. Zandi at Moody's. You know I've talked about it, folks, to the point with Chris Waller of saying there should be two R-stars in America. Back to John Edwards years ago politically of talking about two Americas out there right now. We're going to look at one inflation report. coming up here. And of course, the ramifications into the midterm elections with Eric Winograd and David Rosenberg.

Hear the report.

The Consumer Price Index for September is out, and it shows consumer prices rising 0.6% for the month. That is up from 0.4% in August. Year over year, consumer prices rising 3.7%. That is more than the 3.6% expected. and hotter than the 3.4% the prior month. When you exclude volatile food and energy prices, taking a look at core CPI month over month, rising to three-tenths of a percent.

That is right in line with the prior month and hotter than estimates for 0.2%. Core CPI year over year also coming in hotter than expected, up 2.6% versus the 2.4% the prior month. Analysts were expecting a rise of 2.5%. Of course, this inflation reading coming less than a day after New York Fed President John Williams told Bloomberg News he sees one more Fed interest rate hike this year as appropriate, with no need for further tightening next year.

So once again, headline CPI accelerating in September, led by prices for energy, airfares, and consumer electronics.

Core inflation.

Core, which is also, we know, closely watched, coming in hotter than expected. Tom and Damian.

Alexis, thank you so much. Our economic report, and of course, this important economic report, brought to you by IBKR. For the past three years, interactive brokers, their individual clients averaged 24.3% annually, beating the S & P 500 lower costs and access to 170-plus global markets. It matters. Visit IBKR.com. slash performance.

And the elasticity of equities, bonds, currencies, commodities, a two-year yield was out five basis points. Higher yield now, seven basis points, 4.86% as well. 10-year up five basis points. Even the 30-year bond lifts three basis points over the quiet point. Earlier, but in the foreign exchange market, Damien, I look at Euro crushed, 111.60.

Well, I mean, look, the 10-year at 526 now. I mean, that's not up five bips. Yes, it's five bips on the day, but it was down two, two and a half bips coming into the number. So that's a seven-bip U-turn, so to speak. And my God, look at.

The two-year, 486, 4.86%.

Eric Winograd, Time and Alliance Bernstein to assess. Eric is like, we're halfway to OMG. Is it an in-betweeny report for the Fed?

Yeah, I think it is.

It's enough to keep October in play. But as you mentioned, John Williams said that one more hike is appropriate, but that he thinks they need more time to assess it. Vice Chair Bowman said the same thing. Vice Chair Jefferson said the same thing. You know, it's funny for a Fed that Chair Wurst doesn't want to give forward guidance.

They've given us a lot of forward guidance. And most of it seems to point toward December rather than October. That's still our base case. I don't think this print is hot enough to push them to move in October. But you can't rule it out either. And so it is, as you say, Tom, sort of an in-betweeny number.

Got to press the blue button, the Detroit Lions blue button here in the studio. Eric, thank you this morning. Eric Wernigrad leading our coverage on inflation. Lindsay Piegs in this hour. Eric Wernigrad, Alliance Bernstein scheduled coming up. Rob Sock and P.

Jim.

James Bianco will join us on short notice from Chicago, joining us in studio. But now on the inflation report, Damien Sessar and Tom Keene. And also, I should mention as well, in celebration of 170 some pages, a new book by David Rosenberg on top of his true expertise on America's inflation. bear in the bullring rosenberg the movie rights have been sold hollywood for those of you listening uh this morning it is the first i think it's the first book from david rosenberg you.

Know it's funny i was looking for it but i had the name wrong i had beer in the bullring not bear oh sorry i apologize david it is.

Good morning um you know i look at this uh david i want to talk about the book first before the end the inflation report. It is a wonderful study and arc. Thank you so much for mentioning Richard Yamarone in the acknowledgements who we all miss each and every day. Let our data coverage as well. Let's start there. When did you learn the study of a granular study of inflation?

Well, probably as my first day as a street economist back in 1987, because inflation is one of the key determinants of interest rates. And interest rates determine all asset classes that you have to estimate where future cash flow streams are coming from. So day one, October 1987, although that day was probably focused more on deflation and the stock market.

Was this with Merrill?

No, that was at the Bank of Nova Scotia.

Okay. But then you went to Merrill. How intimidated were you working with Bill Farrell as a young buck?

Well, he was like an uncle to me and still is. So he was actually the antithesis of stress. There was a lot of stress being the chief economist of Merrill Lynch, but he helped alleviate it quite a bit. And so did Rich Bernstein, by the way. They did call me the skunk at the picnic, but I did have a few friends there. I've heard that reputation. It's in the book.

It's in the book.

In the celebration of bear in the bullring, Damien Sassar with David Rosenberg.

Well, David, any inflation watcher knows it's all about protecting your downside. It's also all about capital preservation. I've read a lot of your work over the years about diversifying into real assets, into infrastructure. Is now a time to be doing that with yields at these levels? Because don't cap rates rise? Doesn't it become more and more challenging to hold some of these infrastructure assets, property, commercial real estate, et cetera?

Well, over and beyond that, when I talk about hard assets, I'm also thinking about commodities, principally base metals. pipelines, so a lot of energy infrastructure. That's not really an interest rate story. That is just purely based on future expected supply and demand curves and how they're going to look.

I should throw gold in there as well. It's over and beyond just, say, property. And in fact, I think residential property is not a good place to be in right now. But we just raised, actually, our allocation to bonds to 30%. So we like these yields, both normal and real, where they are right now, notwithstanding today's CPI number.

So when you look at the market, are you really looking at it through the lens of an inflation-adjusted, a real investor looking at where inflation expectations are going, where they're going to be? And do you trust them? Do you trust what break-evens are telling you today?

Well, I have no reason to think that they're not to be trusted. It's just a residual from the nominals. So why would you? I mean, I hear that. I don't trust the break evens. You know, you had your previous guest talking about one year inflation expectations. But when you're talking about long duration assets like equities and like fixed income and like real estate, why would you be looking at one year expectations?

Well, isn't the 10-year nominal just a collection of one-year forward rates? I mean, if you look at it that way, I mean, it's certainly.

Yeah, but it's exactly one-year forward rate. So it's not just a one-year rate. It's a one-year that's rolled over over 10 years.

Exactly.

So the thing is that, look, there's a consistent story here because it's not just in the tips break-evens that have been really range-bound for the past five years. Where are, for example, collective bargaining agreements going right now? What are wage expectations doing? They were double where they are today, back in that 2021-2022 non-transitory inflation period. Today, collective bargaining agreements are containing annualized wage increases of around 3.5%. That is not inflationary. And so when I look at the situation, again, going beyond inflation, I mean, energy still affects the core.

Core came in a bit above expected. But you've got airlines in there. You've got travel. You've got other things that are first cousins to what energy is doing. But I'm looking at the dollar. Is the dollar telling us we have a big inflation problem? Is it telling us that the Fed's got a big credibility problem? The answer is no. Is gold reaching new highs? Is that an inflationary signal? No. Money supply growth over 5%. It was running double this time back in 2021, 2022.

No.

Wages?

Wages are decelerating. Nominal wages are decelerating, which is telling you that slack is building up in the labour market. No, and what about home prices? What about home prices? We got existing home sales yesterday. Average prices were down 2.8% sequentially down each of the past three months.

David Rosenberg with us here. Jim Bianco and Rob Sockin coming up. Across America, we're commercial-free this half hour as we look at America's inflation. Futures deteriorate, negative 25. VIX not out to 16. VIX actually pretty good, 15.76. Two-year yield now up a solid 10%. 12 basis points. For Paul Sweeney, we may get a 5%. I don't think Paul's coming home until we get a 5% two-year yield.

The 10-year yield right now, up nine, make it eight basis points, 5.29%. David Rosenberg with us. The big, big difference this time, David, and you are definitive in parsing inflation, is the technology boom. Witness this odd nominal GDP. Witness this morning's massive Chinese exports. How do you treat all that AI boom with the rest of America flat on its back?

Well, I mean, you mentioned China, which is now setting their PPI number today. They're battling excess capacity and deflationary, disinflationary situation domestically. The extent to which that's being exported to the rest of the world, of course, is being offset by what's happening on the energy side. So you have to disentangle all these forces. You know, I'll just say this. You know, we're freaking out over core inflation of, what, 2.6%.

When Paul Volcker left office in August of 1987, core inflation was running at 4.2%, and he was viewed as a hero. He was viewed as a hero. Today, you have a two-handle on core inflation, and everybody is just going hog-wild. I mean, there's monuments and plaques and trophies built for Paul Volcker, the inflation dragon slayer. But when he left office, core inflation had a forehandle. So I think this comes down to, you know, I guess this sentiment that's emerged, I think actually more on Wall Street and more on the commentators that come on to shows like yours. Because like I said, you're taking a look at a bird's eye view of inflation. Right now, when you're taking a look at the situations, We've had four

huge shocks within six years. We had the COVID shock then coupled with the big fiscal shock, $ 2 trillion. Fiscal stimulus checks just as the economy was reopening. Then we had Russia-Ukraine shock. Then we had the tariff shock.

Right.

Now we have this shock. And that's why I was encouraged, you know, when Kevin Morse was applying for the job.

Right.

He was telling us, doesn't talk about it anymore, about the Dallas Fed, the Dallas PC trim mean, right? It's what's it running at right now, 2.2%.

Okay.

I got to squeeze this in before we do the interview of the year for us here. David Rosenberg with us, Jim Bianco just walking into the studio. David, what do the Montreal Canadiens need? I mean, they need Dylan Larkin from the Detroit Red Wings, right?

Well, I totally agree. But, you know, what's the cost of that? Like, we're going to give up Hayes, Bolduc.

A lot of Molson Beer.

Two first-round picks. I mean, I would love Larkin. I would love Larkin. I would fly to Montreal and take him out to Mois' steakhouse for like three weeks in a row.

I'd take him to the cigar bar where you overlook the Leonard Cohen wall, which is just huge as well. This is a joy. Let me frame this for you. One day at Davos, I'm sitting there with a laureate, Joe Stiglitz, and Ken Rogoff shows up. And I interviewed... Ken Rogoff and Joe Stiglitz at the same time with two massively different views about international economics. We have in the studio now, for those of you worldwide, including Chicago, James Bianco with a view on inflation and David Rosenberg from Toronto. with a view on inflation. And I would say on a Venn diagram, we can find a common ground.

Jim Bianco, you're going to reaffirm that inflation here is there. What's the Fed need to do off this report? Are they behind the eight ball and need to raise rates six times?

Well, I think if you put it into perspective, from 2024 to 2026, the Fed cut rates 175 basis points in six meetings, and the 10-year yield went up 130 basis points.

It's the first time.

In 50 years that we've seen an extended rate-cutting cycle produce higher long-term rates. The message was that the market was saying, you're too easy. And I think that that message is continuing right now. I think we're stuck in a three-ish percent inflation world.

We're not going up.

But I think the reason we're going to have a hard time disinflating is from when China joined the WTO in 2001 to 2020, goods inflation stuff was deflationary. It's minus half a percent. Now it's nearly 2% inflation on goods. And I think that that's because we've got deglobalization, we've got tariffs, we've got wars. We've got chronic supply chain problems.

We're not going to get goods deflation again. And that's a choice. David Rosenberg, I want to discuss it. This goes back to David Malpass at Bear Stearns. The gimme is that we have a vector of disinflation in goods. Do you see that out there at some point?

Well, the answer is that we are seeing disinflation in core goods. I didn't see what the year-over-year trend was today. I haven't gone through the important detail. But let's just say that through August, the year-over-year trend in core goods, CPI, was running at 0.7%. And this doesn't have hedonics or imputations.

It's basically what you can see, touch, or feel. A year ago, it was 1.5%. So this is what I'm going to ask. I'll ask Jim and I, our good friends, opposite sides of the trade. But where did the big inflation come from from tariffs? Because the experts were saying that after Liberation Day and the U.S. tariff rate went from 2% to 15%, that core goods inflation was going to go to 4% to 4.5%. We barely got above 2%.

And now we're at 0.7%. What happened to the tariff inflation? Well, I'll tell you, it's because the labor market is weaker now. than commonly perceived. That's why nominal wages are decelerating. So this cost push inflation is hitting a wall in the labor market. And you're not going to get sustainable inflation, with all due respect to today's report, unless the labor market plays ball, which it did in 2021 and 2022.

So the question becomes, who ate that inflation? from the tariffs? Because we know the tariffs went up. Was it the exporter not wanting to sacrifice market share in the U.S.

Market?

Was it the importer? Of origin? Was it suppliers along the chain? Jim, are you surprised by this? I'll just make this point. Only 25% of that tariff shock, okay, made its way through to final inflation, and that was not expected at the beginning.

But does that get us from a 2.5% run rate, Jim Bianco, to a 3% run rate on inflation? Just the tariffs in place.

Well, it's more than just the tariffs.

It's also the chronic supply chain problems and the choice of deglobalization. When the San Francisco Fed came out with their study last week and said that tariffs accounted for most of the goods inflation, the implication in that was, see, if you just stop the tariffs, then the inflation goes away. No, we don't want to stop the tariffs. That's our policy choice.

And because it's our policy choice, Dave, you're right. We're at 7 tenths on CPI core. We're at about 1.8 on PCE core.

But we're not negative.

And that's been the big push up that's been keeping inflation for 66 months.

Above 2%.

And I think it's going to continue to keep it above 2%.

Damian Sassauer with David Rosenberg and Jim Bianco. What a special treat.

Well, Jim, David, I'm hearing everything you're saying, but let's look at the market here for just one second. I mean, you've got the 10-year up to 5.3% now. It's a nine and change, nine and change bips this morning. Only 11 of the economists in Bloomberg survey of 73 thought we were going to see a 0.3 month over month on the core. So clearly the market is looking at this data and trading off of it.

Are they right, David?

I mean, is the market just trying to, you know, basically throw anything up on the wall and it's just basically, you know, I mean, what do you think?

Where's the market?

For today, for today, the market is right. As you just said, you got a point three. Mark was looking for a point two on core. I am not a big inflationist and I thought point two was actually sitting in the bar pretty low. I think it's an outsized reaction. I don't think this puts the Fed back in play for the next meeting, but it probably raises the odds for December. However, it doesn't alter my fundamental view because I take, it comes down to what Tom Keene asked at the beginning about my inflation approach. I take a top-down view towards inflation. Today's reaction is natural in the bond market. Do I think that it's a little extreme?

Right.

Because you missed by 0.1. Is that worth nine basis points?

Well, not really.

But it just shows you how the market was positioned. We were down like two beeps before the number.

Let's do this. This is such a treat. Jim Bianco and David Rosenberg from Chicago and Toronto in studio with us. In New York. Jim, are you okay on your airplane? You got a catch? Yeah, I'm good. Is the Gulf Stream going out of Teterboro or Middletown? I wish it was. It's going out of Terminal B. Bramall has the Gulf Stream in Bangkok. In Bangkok, Mr. Warsh is going to speak.

So let's bring this back to the Fed. Jim Bianco, let me start with you. There's a new Fed in town. There's a new messaging. How does he message this core creeping up? And as Damian mentioned, the two-year yield, 4.92%. Sweeney's coming home when it's 5%.

So I want to build off of what David said in that he doesn't message. Warsh doesn't message. He doesn't want to give forward guidance. So in that vacuum, we look to people like Williams or Philip Jefferson, the vice chairman, and we assume that they're the new spokesman.

When did Philip Jefferson ever move markets before?

Is Waller the spokesman?

Well, that's the question. Is Waller the spokesman? No, we don't know.

And that's why he wants us, us being the collective of the market, not to overreact to one number. We're overreacting to one number right now is what we're doing.

David, your thoughts on the new Fed?

Well, I'll get to that in a sec. But just let's keep in mind that they focus on the PC deflator, right? Like his new metric, the percentage of items going above or below 3% is not the CPI. It's the PC deflator. Like right now, my team is going and slicing and dicing the data to see what the components mean for the PC deflator and the core. And then we'll have to get the PPI, especially the healthcare components to get a view on that. So this is a hyper reaction, but not the first time that we've seen it. My, my view on this fed is, um, uh, you know, I, I roll my eyes a lot at the stuff that Morse talks about the economy, uh, He basically, at Jackson Hole, talked about how the economy is resilient and strong and solid,

and then goes on to mention AI eight times. Mentions housing once. Does anybody talk about housing? Do we actually live and watch TV in a data center? I mean, home prices are deflated. You knew home prices are down 7.5% year over year. Home prices are cracking. It's a $ 50 trillion asset class. And here's the thing that we're not talking about is how the BLS calculates shelter, OER, rent.

All the deflation that we're seeing in rents and in home prices are not filtering just yet. They will with the lag into the CPI data. Let me just give you an example. All you're talking about today is core, core goods. But let's take a look at ex-shelter core CPI. OK, it's running two percent on the nose year over year.

So I don't know. Like, basically, Powell, when we had the tariff shock, appropriately said, when you're in a dark room, you stand still so you don't trip. Did he raise rates because of tariffs?

No.

And he was right not to, in my opinion. But what really unnerves me is here we had Warsh. When he was applying for the job and cozying up to the president, the Dallas Fed's trim mean core PC deflator, which excludes the idiosyncratic noise in both directions in the data, is running at 2.2%. And he never talks about it anymore.

And to be fair, Powell was very big on the trimming. Damien Sasse with Jim Bianco.

Yeah, Jim, you know, I mean, we have midterms coming up in less than a month here. And I'm just looking at real average hourly earnings falling 0.7%.

Year over year.

And then you see the CPI data coming in hot. I mean, how do you sell that through ahead of the midterms?

You have a very difficult time selling that through the end of the midterms. And I'll just feed off of what David said. You know, when you were talking about what Warsh was saying in Jackson Hole, my question to you is, was he speaking to an audience of one, the president, or was he speaking to everybody? Because mentioning the economy is great and mentioning AI eight times sounds like he's speaking to the president during that speech more than he was speaking to the larger audience.

And this lights into your.

Question, right?

Right.

Why do a lot of people think the Fed's not going to raise rates in October but raise rates in December?

I've read a lot of street research, and their argument is it's a week before the midterms.

So they're openly saying, we're going to make a political decision. And so the Fed seems to be more politicized than we've seen in a long time because of this.

Well, we have retail sales coming up at the end of the week. I mean, does this take a little bit of pressure off of that data? I mean, like, again, you know, It's.

A boom economy. Can you stay? I'm really worried about your plane flight. You okay? I can stay. Okay. We're going to do this, folks. I'm making it up as I go. Jim Bianco, David Rosenberg now, Rob Socken's people, steam coming out of their ears at PGM right now. We're going to have Rob Socken top of the 9 o'clock hour as well. So we're going to continue with Jim Bianco and David Rosenberg and go from there. I want you two to answer my ARCH question. None of us have seen a nominal GDP like this that we all know must come down. Let me start with you, Jim Bianco, so then you can stand up and leave to get the Gulf Stream. How will our nominal GDP come down to something normal for David Rosenberg?

I think it is normal, for starters.

Six and a half percent.

Oh, well, the latest quarterly number. It's the old normal.

But yeah, the latest quarterly number is a little bit hot. I was thinking more of like a longer run average of around five-ish or so, which is three-ish something inflation, two-ish something.

What's the damage to the stock market if we pull it down to five-ish or 4.8%?

Nothing.

And the reason I would argue it's nothing is we are anchoring ourselves to 2010 to 2020. We had zero interest rates for all those years. And somehow we think it's normal. And now we look at five and we freak out that this is crushing the economy.

It's not.

This is normal.

Zero was abnormal. How do I know that everybody's anchoring themselves? The president is demanding zero on the funds rate, zero to one. The Treasury Secretary is talking about financial repression by being in the House.

To bring rates down. Your driver in the Bentley just called. You've got to go. Jim Bianco, thank you so much. He's got an airplane to catch here. Bianco Research can't say enough about it. David Rosenberg to wrap up. David, we've never seen a nominal GDP like this. Bob Farrell's never seen it. Richard Bernstein's never seen it. Can we move down from this nominal GDP to something normal without damage?

Yes.

We've seen it many times in the past. And let me just say one thing here. This is not a boom economy, okay? We have 2% real and the rest is nominal. But just keep in mind when you're talking about nominal GDP and you're talking about inflation, inflation, somebody's pricing power is somebody else's cost squeeze. So let's not talk about nominal GDP being some great thing when basically 70% of the nominal GDP is coming from prices and costs and 30% is coming from real economic activity. Because historically, what was normal was that the inflation component was half and the real component was half. This is a lopsided economy.

It ain't no boom. 2% real growth, I'm sorry, no growth in employment in the past year and real wages contracting, that ain't no boom. What's it going to take? We ran the analysis last And we found that absent the four shocks we've had in the past six years, core and headline inflation today would be south of 2%. So what we have to see is the end of these shocks.

And who knows what's going to happen? Is this war with Iran going to continue? What are the Houthis going to be doing with Saudi Arabia? What about Russia, Ukraine? So we are vulnerable to these shocks. But this is not some... ingrained inflation in the system, okay? This is basically one shock after another shock. So if these shocks ever subside, we saw when the tariff shock subsided, right?

The tariff shock subsided. Everybody knows that is now in the rearview mirror, okay? We saw, I said before, the part that it affected the most, which is core goods inflation, has been cut in half in the past year. So we ended one shock and saw in real time in the laboratory what does happen to underlying goods inflation. So if these shocks cross our fingers, ever fade away like the tariff shock did, then we will see headline and core gravitate down towards 2%, which, by the way, is exactly what that Dallas Fed's trim mean PC deflator is telling us. And when you talk to me about Warsh, I don't know why nobody ever asked him, what happened to that indicator that you said forever was your favorite

inflation indicator? It no longer exists.

The changes that go along. Damien Sessar, one more question for David Rosenberg.

So inflation prints this week are not just about the US. They've been happening all over the world. I mean, we've seen China, we've seen Japan with inflation coming in lower than expected. We've seen inline inflation coming out of places like Germany and India. So these inflationary pressures, are they to what we're seeing here in the U.S.? Or is this being felt globally?

Well, don't forget that each individual country has their statistical agency measuring inflation differently.

Tomatoes.

Okay, so basically, the way we measure shelter is completely out of line with what shelter costs are doing. That's the one area where we're not seeing inflation. We're not seeing inflation in house prices, and we're not seeing inflation in rents. The way that it's treated by the BLS makes the inflation numbers in the United States look higher than it does in many other countries in the world.

That's interesting. I didn't realize that. So basically, shelter, which is such a large component, is actually almost biased to the upside here in the U.S.

If you stuck in residential rents, which are still deflating year over year, and you stuck in home prices, depending on the measure you want to use, underlying inflation and headline would be at or below 2% right now.

I've got to finish strong here with David Rosenberg. The book is Bear in the Bull Room for Global Wall Street. It is a fabulous vignette. into the career of Mr. Rosenberg. And I look at this and I just simply say with your idea, we always regress to the mean. David Rosenberg on this uncommon bull market.

Bob Farrell's rule number one. Look, I think that, and I said this at the grants conference yesterday, that I won't call it a bubble, okay? That just gets people really upset. But I am going to say that in my 40 years in the business, I have not seen such widespread imbalances, divergences, and extremes, by the way, not just in the market, where 10 companies comprise more than 40% of the market cap. We already knew about concentration risk back in the late 1990s when that was less than 30% share.

But the bifurcation in the economy, bifurcation in the economy, You know, when you talked about the consumer before, we have hardly any real disposable income growth in the past year. We have almost no employment growth. And so I think that the mean reversion has to be that people actually start to see the economy for what it is, because the gap between personal income and corporate income is unprecedented.

And the gap between what's happening in the rest of the economy and AI.

Okay, I got to leave it there. David, you and Jim Bianco, thank you so much for that moment. That was just magical to have someone looking at embedded inflation and Mr. Rosenberg collegially disagreeing with his good friend, Jim Bianco. Lindsay Piegs are with us. We had Eric Winograd, David Rosenberg, Jim Bianco. That was gold. And now we finish this inflation coverage strong with Rob Socken, who's been more than patient.

Thank you so much. Do you adjust your Fed call here? You've been aggressive about a call. I mean, this tilts towards the Socken view, right?

Yeah, absolutely.

I mean, we've had three rate hikes this year, September, October, December, since the beginning of June. I mean, even before Kevin Walsh started. And it was based on this view that that fundamentally inflation is going to stay high, growth's above trend, the labor market's stable. inflation is broad-based. And we saw that in today's data. This was in line with our forecast 0.3 on core CPI. I think this fuels, it doesn't seal the deal that October is going to happen, but we like our call here. And if anything, it could be more hikes than what we have in the base case.

Rosenberg just in is more benign. He says the greater economy is in disinflation where AI is nuts. What Pichum's saying is you got to aggregate the whole thing, right?

Yes.

Yeah, I think AI is part of the story. But if you look at just the number of items that are running with elevated inflation rates, it's not just an AI story. It's high energy. It's maybe some still tariff pass-through that's happening through the data. And it's still very sticky, non-shelter services inflation. That is not AI related. It's shown no signs of cooling.

Bill Hartman just publishing at BMO Capital Markets. Lincoln's off today. We're from home or something. Quote, it was a troubling round of inflation data. That from Lincoln and Bill Hartman.

Rob, we have the Fed meeting on October 28th. I mean, that's only two weeks away and not a lot of data between now and then. We have retail sales on Friday. How much pressure does this put on some of these data points between now and the 28th?

I think for retail sales, I don't think there's a lot of pressure there because we're coming off a very strong run rate for the consumer. All of the data are very volatile. That's something we've been highlighting. So you could easily get a bit of payback in that data, but you look at the trends and It's a strong growth, strong consumer backdrop. I think the PPI data is important tomorrow.

But you're right.

It's really going to come down to does the Fed want to hike with the type of data universe we see up to this point? We think they will. We think Warsh is going to be able to get the votes to do it. Are you kidding me?

The midterms? Marsh is going to say to them at the Eccles building, guys, you got to protect my back with the president.

Do you like your job?

Exactly. Thank you. Are you kidding me? You think there could be an October rate increase?

I think for the midterms are there. I don't think they would have started a rate hiking cycle going into right before the midterms. But the fact that they started in September and the fact that Warsh has been signaling this hawkish path since the middle of the summer, I actually think it looks more political to skip October, given they're telling us we have a big inflation problem, but there's no urgency. We think there's a lot of urgency here to raise rates.

That's the credibility question again, right? I mean, I thought we were past this with Fed credibility being called into question, but I guess not, right? I mean, like, you know, if you're gaming the market, if you're a Fed watcher, you really got to be thinking midterms here, no?

Yeah, I mean, the challenge here is now they're in even a tighter spot because before you had some data that could argue for a pause. You had downward revisions to inflation. You had a softer than expected jobs report. We think that those weren't the right signal. We think if you look at the trends, it's still a stable labor market. It's still hot inflation. But now going into the meeting. With how hot the inflation numbers are coming in, if they don't hike, they're going to have a real challenge.

And you might get a pretty big response.

On the long end of the yield curve if they don't hike at this meeting, that markets are going to get more concerned that they're not going to get inflation under control.

My first study today, Rob Salkin, was Chinese exports were absolutely jaw-dropping. The Bloomberg essay out of Hong Kong was just... Folks, I can't say enough paragraph to paragraph about how America doesn't understand the China boom. Does that continue?

Yeah.

I mean, on the China side, what you've seen, if you go back to last year, a lot of expectations that when high tariffs came on China from the U.S., it would slow down the economy. And what we've seen is an incredibly resilient, adaptable export machine from China. And they've been able to find export markets even beyond the U.S.

and grow their market share Eventually, I think that their economic model, they have to broaden out the consumer spending element. But over this year and the next few years, I think this export machine can keep going.

Rob, thank you so much. You're a trooper. Can we make a note, Cy? Can we be sure Rob gets in in the next 10 days? I need to get an update from him. He takes the Hinkley. They have a Pigeon, folks. You don't know this. Across the Hudson River, they have a Hinkley picnic boat.

Is that right?

Yeah, they take the boat. They don't use transportation. They have a Hinkley picnic boat that comes right across the Hudson River.

Well, I thought they were in Newark. I thought they go to Teterboro, grab the chopper. You know, they fly in. They land on the top of the Bloomberg building.

It's great. Rob Sockin, thank you so much. Greatly appreciate it. We'll get you back in here real soon. Stay with us. More from Bloomberg Surveillance coming up after this.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m.

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Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. or watch us live on YouTube.

Ted Mortensen is definitive. David George, by the way, yesterday was brilliant, was just brilliant. But on technology, we are going to stop. calm down and listen to Ted Mortensen with his years of expertise on technology. What's the biggest thing we're getting wrong in the zeitgeist about AI? The demand is historic.

I mean, you look at ASML's report, look at Samsung's report, look at Micron's report. Now they're booking into 29 and 30. So we've never seen this kind of demand versus supply metric ever.

When I look at this Ted Mortensen, it comes down to the unit dynamics, huge demand is a general statement, but also the price disinflation. We have people going, we're disinflating tokens, usage goes up, et cetera. Do we underestimate the profit challenges forward?

In the near term, probably. In the long term, not.

This infrastructure build is very positive and, quite frankly, Tom, very inflationary. I'm on so many conference calls, and every single conference call's GPUs or raw semis are up 15% to 20%. Memory is up triple digits. So in this inflation report, we do have at least a near-term inflation infrastructure issue.

In the last three weeks, you rightly point out, Ted, that over $ 250 billion in funding has been raised or proposed from Anthropic and SpaceX and OpenAI, on and on. You know, Is this going to crowd out investors in other fixed income asset classes?

I think it already is. And I think you have to look at these two components. One is the debt market. And I think from IPMs, they took notice of $ 250 billion coming to market on the debt market. So it is stretched. But more importantly, the equity capital markets to fuel this growth have to stay open. And that window has to be wide open for the names like OpenAI and Anthropic and others Unfortunately, in the last three weeks, we've seen three major tech companies postpone IPOs. So that window has closed a bit, and it has to stay open.

Ted, what are your thoughts on a secondary market for GPUs and compute systems? I mean, is this a good thing? Does this allow investors to really underwrite.

Their residual value? Or do you buy a computer this weekend?

No, I'm just talking trade here, Tom. Come on.

No, but seriously, I mean, imagine a secondary market where you can actually get forward pricing on what compute costs. I mean, wouldn't that make your job a little bit easier?

I think it's indicative of the early cycle of the infrastructure build.

We can't meet demand.

So an old GPU is going up on price almost 20% if it's not being utilized.

I think that's a near-term issue.

Long-term, I think that mitigates.

Distinguish Ted Mortensen with his folks with Barrett with decades. I will get to his comments on the United States Navy, of which he has a great commitment coming out of the academy years ago. What's the thing about the Mag 7 that provides a distinctive feature? I mean, Oracle, CDS, or the Moon, parse the Mag 7 for us.

It's all about free cash flow, Tom, right now.

And Microsoft is doing better than the others. You bet.

$ 19 billion. I don't think they can spend on infrastructure like they would. So you're going to see them have an unbelievably good report on Azure and Copilot, as well as their free cash flowing around $ 25 billion a quarter. Same thing with Apple. The reason why Apple is up every single day.

Is $ 30.

Billion of free cash flow. My clients are going to balance sheet some free cash flow.

So, Ted, the million-dollar question, as you say, is whether or not investors are going to get defensive into your end. If they do indeed get defensive, obviously that's not good for tech.

What sectors is it good for?

I think one of the, where I'm seeing a little bit of sector rotation right now is in the semiconductor index. It's been weak for the last couple of days, pretty brutally. Uh, an attribution is key with all my portfolio managers. If you look at the socks, it was up 87% from the peak. That's a good decade return in a year. Um, Where I'm seeing some interest in rotation is going from infrastructure into software.

Take Microsoft, ServiceNow, CRM.

Those are the names that, if you really look long-term on the enterprise adoption of AI, those are three companies that are going to fuel the AI revolution.

And for all of us listening across the nation, frankly around the world, in continental Europe, in the Middle East with Ted Mortensen combining your engineering and technology with your public service to the nation. Give us a technology update of the drones to come. We all have this uninformed fear of drones. How legitimate is that fear?

The genie is out of the bottle.

And if we would ever restrict AI development, we're putting our defense industry complex at a huge disadvantage versus China. The amount of AI that's going into new defense budgets is immense.

This has been wonderful. Too short a visit. Thank you so much for being with us today. Ted Mortensen is with Barrett and Definitive. We know with many others, including Wayne Sanders, the public service to the nation, which is a good perspective. Stay with us. More from Bloomberg surveillance coming up after this.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m.

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Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

We are so privileged now with the turmoil, turmoil in Brazil, in Mexico to have with us someone genuinely expert. who has lived in, he is from Mexico with his public service to the people of Mexico. Ernesto Ravilla is chief economist, Latin America. It's Citigroup. I need to explain this first because my family was in Mexico City ages ago for a small bank there called Citibank. It goes back to 1929, the original domestic American experiment to go south. I mean, Citigroup, has a huge historic exposure to South America and Latin America. Completely, Tom.

Argentina was actually the first global branch of Citi. So the presence of Citi in Latin America, South America, has been there for a long time, more than 100 years in many countries. And right now we turn very constructive on the region, seeing it from the street level.

Translate the politics. We'll get to Mexico. And good morning to the Mexican government. I'm told all sorts of people across Mexico City listen to us each morning within the Scheinbaum administration. We thank you so much for your attention south of our border. But go further down. There seems to be a political seismic change. from El Paso on down to Argentina. Do you buy it that there's a permanent change in the politics? Definitely.

The political pendulum, Tom, has changed from left to right in most of the region. We have had a super cycle of elections in Latin America since the fourth quarter of 2025. And most of those elections have turned to the right. There's a discussion where this is cyclical. Is it an establishment sentiment? Or is it something more structural?

We think it's the latter.

We will see.

But this has had meaningful impact on investor sentiment and the business-friendly approach that these governments.

Are going to have. Hold on, Ernesto.

Are we really talking about elections being good in Latin America, being business-friendly for Latin America?

For a change, right?

It's unbelievable.

Remember the pink tide in the early 2000s, the moving to the left, more populism, less market-friendly policies?

Now we're going to the other side.

So now that takes me to my next question.

Bolsonaro, let's say Flavio gets elected.

How on earth is he going to cut $ 40 billion out of Brazil's budget? What comes next? I mean, that's one of the few central banks in the world that's actually cutting rates here. So talk to us about what that means for investors in Brazil.

So Brazil has a great opportunity in front. I mean, there are many tailwinds. Commodity prices are high. But there's the fiscal challenge that you just highlighted. Bolsonaro is coming in strong with support. He's the big favorite to win the election. He has Congress on his side. At least there is more on the right side of Congress. But he will have to do a big fiscal reform and deregulation.

So far, it seems that it's in his plans, that his economic team is going to be very strong.

And asset prices have reflected that.

They have moved quite a lot.

So when you and Dirk Willer are around your war, you're in the war room, you're thinking about how to tell investors how to invest in Latin America. You know, I'm looking at the equity markets. I'm looking at the Brazilian Ibovespa. I mean, yeah, OK, it's up 28% in local terms, up over 40% in dollar terms, and the same for Colombia and some of these other. So, I mean, equities, I mean, a lot of it might already be priced in, no?

That's right.

There's a lot priced in. Now it will depend on execution and implementation. That's the next leg. The global tailwinds are still there. First, Latin America is far away from conflict. So it's a good place to hide and to diversify. Then you have strong commodities, a weak dollar, the political cycle. But now it's up to Latin Americans. and we have to weather the current shocks. Locally, you have El Nino. Globally, you have higher long-term rates.

I have to ask, and I'm going to be put in the Jane Frazier compliance chair, major timeout chair. Jane is tough as nails. She has Kate Moore watch over me while I sit there. I have to ask with your public service to Mexico. I think from sea to shining sea, Americans in our stereotype tend to look north to Canada and all the tariff stuff in that. Guess what?

Mexico is as large, if not larger, away from autos, maybe some of the natural resources, as well. How do you perceive the tariff dynamic between the Scheinbaum administration in Mexico and the administration after President Trump?

Well, it's definitely noisy. Remember, Mexico is the main trading partner of the U.S.

I think most of our listeners and viewers, including Tom King, don't know that.

It is amazing how Mexico has surpassed China and Canada to be the main trading partner of the U.S. And even in the last 10 years, that trade has only increased despite the noise and the renegotiation of NAFTA into USMCA and so on. So Mexico is ideally positioned to benefit despite the noise.

And we see that in the data. One more delicate question before Damien saves the interview. The stereotype here is the violence of Mexico, the societal... angst of the cartels wrapped around the business spirit and entrepreneurism of Mexico. What's the biggest myth people watching Netflix or, you know, whatever TV show, what's the biggest myth we get about the violence? What's, what do we get wrong about the violence in your Mexico?

So let me start by acknowledging that it's, it's, it's a problem. It's a big concern, not only in Mexico, but it has spread through Latin America. Big organized crime has diversified out of criminal activities into the real economic activity. So it's a concern.

But I would say the.

Myth is that there's huge swaths of economic activity and regions in Mexico that are doing very well. You have high productive sectors, especially the export-oriented sectors. You have very safe cities, for example, in Mexico City. So it's definitely a concern that the government needs to take head on.

But the economy continues trading with the U.S. and hopefully growing more going into the future.

Ernesto, you referenced the geographic distance between Latin American economies and the war in the Middle East, what's going on with Russia and Ukraine. And you mentioned that as more of a defensive approach. I look at some of these returns. There's one country, one of the big six in Latin America that's really lagged, and that's Chile. What's going on in Chile?

Chile, I think it's a fascinating tale, and I hope it's not a cautionary one for the rest. Chile, as you know, has strong macro fundamentals. It's an investment-grade country, very strong fiscal. And they already did the political transition towards more market-friendly and business-friendly. But now, President Kast is having trouble enacting his reform agenda. And that's the implementation risk that I was alluding to before. Chile is growing very little this year, but we expect a recovery the next year.

Thank you so much for joining us today. Really, really appreciate it.

Great.

Thank you. Thank you. Ernest Ruvillo with us. He is with Citigroup, driving all of their study of the economy, the political economy of Latin America. and South America. Thank you so much for that.

This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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