00:00Yeah, I mean, again, as you guys know, I love to look at real final domestic demand because it takes
00:04out that sort of import noise.
00:07Really?
00:07Yeah, because it's just basically what people are spending domestically versus import noise from the CapEx boom.
00:13Remember, we had a low GDP print because we imported a lot.
00:15And also the inventory cycle was doing what it did, which was a boost.
00:18So what's domestic final sales?
00:20Strong.
00:20And this is what the upgrades are.
00:22And they're sticking apparently in Q2, which is good because now we're starting to see the finalization of that.
00:26So we had good momentum coming into the third quarter.
00:30The worry here, again, is that we're going to be losing some of this momentum.
00:33So this personal spending number is catching my eye a little.
00:35And we also recently had a big note out from Goldman basically saying that their July and August data is
00:40showing that there is a slowing in consumer, despite all the boom we're seeing at the U.S. Open in
00:45the World Cup and all that.
00:46So there is a little bit of a divergence here with the momentum coming out of Q2, going to Q3,
00:51where we're going to still have this fixed investment boom from CapEx and from the reshoring and from the defense
00:56spending.
00:56But the consumer itself now is looking more wavery.
00:59Can I just say, Michael Ball starts talking in the 10-year move, two basis points.
01:03I know.
01:03Higher yields here right now.
01:05So you go out there.
01:07What is the – if you were at the Fed here, what would be your big concern?
01:11What would you want to get a little bit smarter at maybe at Jackson Hole here?
01:14So, again, this probably isn't going to be a great platform for speaking about policy in its core function because,
01:22again, this is about the future payment systems.
01:24And this might have to do with why crypto, again, is having a couple of good weeks here.
01:27It kind of falls into some of that.
01:29But to your point, guys, we need to talk about what the actual structural inflation story is versus what the
01:34cyclical story is and what the Fed can affect.
01:36So parse the distinction there.
01:38So that's a great question that I think they need to clarify, and I myself am not clear on because
01:42what do we want to do?
01:43Do we want to step on AI CapEx inflation?
01:45No, probably not, right?
01:46Do we want to actually look at wage inflation?
01:49Well, that's not actually going anywhere.
01:51So then you have a case to hold.
01:53So there are plenty of things to cut and parse through as far as the inflation picture, which is exactly
01:58why we hear from War said he wants to take a different look at it.
02:00The second quarter GDP price index, 6.2, which is ginormous, and it came in even bigger than that, 6
02:10.4%.
02:11That's not a normal economy, is it?
02:14No, again, and it's a tale of two stories here.
02:17We have a real drive not only from AI build out but also from our own government to kind of
02:22reshore.
02:23And then, obviously, we have a lot of defense spending coming through now.
02:25So the fiscal pulse is being quite strong.
02:28That's expected to fade into year-end, but that's clearly reflected in Q2 data.
02:32And, again, the momentum right now is pretty strong.
02:35So we are looking at an economy that is above trend.
02:38And that is a problem for the Fed, given that inflation remains stickier and that kind of backdrop.
02:44WIRP, the World Interest Trade Fund probability, blah, blah, blah, blah.
02:48Markets pricing in one rate hike by the end of the year.
02:52I don't know.
02:53How do you think that looks these days?
02:54Yeah, after July, when we had sort of the lack of communication from the press conference, that's exactly where it
03:01went to.
03:02And, actually, we crept into January and out of December.
03:05Now the idea being if they don't go, you know, in September, which, again, it's not looking too good as
03:10far as what probability is.
03:11Now let's keep in mind, when we went until July, I think we were somewhere around between 30% and
03:1540% chance anyway.
03:16And that was one of the lowest probabilities going into a meeting, which goes to show this new era where
03:21the chairman doesn't want to guide markets into a meeting.
03:24So we need to get accustomed to this new reality.
03:25Okay, I just found this statistic I was looking for.
03:28Thank you, Google Gemini, for this.
03:31Nominal GDP ending second quarter, first look, an annualized rate of 7.9%.
03:40I have never perceived that in my academic life.
03:44I've never witnessed it.
03:46But that's something I get out of Southeast Asia, you know, given a war going on.
03:51You know, I mean, me and you have talked about this for a couple months now, about this reacceleration sort
03:55of, and it's broadening as we get the consumer was active in Q2.
03:59This is why the market is doing quite well, the stock market.
04:02I mean, this is why it's not about AI anymore and momentum and higher beta trading.
04:05It's about a broadening and a rotation and some more cyclical parts of it.
04:08And I understand Druckenmiller.
04:10I'm going to say, look, I took this off AI and a long smarter than me.
04:13She's going to figure this statistic out.
04:15But, Paul, 7.9% run rate, a nominal GDP, tells me in no way, shape, or form is this
04:23a normal Jackson Hole.
04:24No.
04:25It'd be interesting to see kind of how people factor in today's data into the discussion.
04:30AI, Michael, how much of economic growth of that number Tom just quoted, how much of all this is AI
04:37spending?
04:38A good chunk of it.
04:39And, again, that's sort of where we get this kind of tale of two cities.
04:42And, again, going back to this real personal spending being zero, it's good that income was up.
04:47When we adjust that, though, for inflation, that's obviously going to be a little lower.
04:50But what we need to see is it's not just a fixed investment boom in a certain pocket that now
04:55has become highly political and very uncertain and also very expensive, meaning that every kind of buck they're spending in
05:01CapEx now gets less marginal compute because everyone's kind of rushing into, you know, one door at the same time.
05:07I didn't think about that.
05:08So we want to see the broadening out and we want to see the consumer play its role.
05:12And, again, the worry is that we are going to become more tapped out as people are going into savings,
05:17you know, going up in credit spending.
05:18But this, you know, this has been a story I've been told from quarters now and that the resilience of
05:24the consumer has kind of baffled everyone and it continues.
05:26So I'm not calling for an immediate end.
05:28I'm just saying this is where all eyes are.
05:29How urgent is it to get the run rate of our economy down to begin to get inflation back to
05:38forget about mandates, forget about Taylor and the rest of it?
05:43What's the urgency to get the vector on inflation lower?
05:49I mean, one would argue not urgent or they would have gone in July.
05:52There's been no material change since that.
05:54Why is it not urgent with a banana republic nominal GDP?
05:57I mean, a lot of theories on that.
06:00We don't want to step on sort of the overall consumer by raising, you know, rates and tightening Main Street
06:06while trying to pop maybe a financial bubble or some frost scene in real assets.
06:11So in Jackson Hole, it's a political Fed.
06:13Could be.
06:13They can't step on half of America flat on their back because somebody's paying Paul Sweeney ticket prices at the
06:20U.S. Open.
06:21Yeah, but this is a divergence.
06:22Like when you heard from Hammock and Logan, they're talking about what their business are telling them.
06:26The cost increases there, the problems they're having with managing that.
06:29And when you talk to some of the other guys, the more dovish guys, they're talking about Main Street and
06:32they're talking about the consumer.
06:33Paul wants to get one more in here quickly.
06:34Beth Hammock, I believe, leading our coverage on Friday.
06:38Very good.
06:40NVIDIA, after the close tonight, what's a macro guy take away from NVIDIA?
06:44What are you going to be looking for?
06:45Yeah, so I've been looking sort of for NVIDIA to reassert this kind of AI CapEx winter momentum, which is
06:51cool, then actually kind of split open, right?
06:53So there's certain parts of AI still doing well, like optics and memory, where you've seen some of the core
06:58chip guys and others lose momentum.
07:00And it's been more of a divergent trade versus this just higher beta, all ships rising, anything to do with
07:05AI.
07:05So what we need from NVIDIA is maybe to settle some of that, just the passage of that event being
07:09in line would help cool that.
07:11And then you get, you know, the volatility picture sort of settles.
07:14And again, more participation, because that really has been a laggard sort of, you know, semis have been one of
07:19the bigger laggers and they're right on top of momentum.
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