1 00:00:05,160 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,840 Speaker 1: for insight from the best an economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:31,400 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Stephen Rashuder, 7 00:00:31,480 --> 00:00:35,240 Speaker 1: the US Chief Economists, what's the common ground I'm talking 8 00:00:35,280 --> 00:00:38,080 Speaker 1: about common ground of four central bankers right now? What's 9 00:00:38,120 --> 00:00:43,120 Speaker 1: the common ground of the brilliant Rashoodo constem research at MISSOUI. 10 00:00:43,240 --> 00:00:44,279 Speaker 1: What do you both agree on? 11 00:00:44,440 --> 00:00:46,440 Speaker 2: Well, I mean, I think the answer is very very simple. 12 00:00:46,520 --> 00:00:49,320 Speaker 2: Is that you know, there is a dynamic trade off 13 00:00:49,360 --> 00:00:52,839 Speaker 2: going on between the global political forces and the global 14 00:00:53,120 --> 00:00:58,720 Speaker 2: deflation or disinflationary forces versus the cyclical local inflationary forces 15 00:00:58,720 --> 00:01:01,880 Speaker 2: at several of the Indie visual countries are experiencing. And 16 00:01:01,920 --> 00:01:04,520 Speaker 2: it's this battle that's being reflected in the Yeeld curve. 17 00:01:04,760 --> 00:01:06,960 Speaker 2: You know, the reason why long term rates can't mount 18 00:01:06,959 --> 00:01:10,679 Speaker 2: a sustained upward movement is everyone looks at it and says, Okay, eventually, 19 00:01:10,720 --> 00:01:12,680 Speaker 2: the FED is going to be successful at holding down inflation, 20 00:01:13,000 --> 00:01:14,640 Speaker 2: So how far do we need to push By the 21 00:01:14,640 --> 00:01:17,720 Speaker 2: same token, there's global deflationary forces out there that's pulling 22 00:01:17,720 --> 00:01:19,479 Speaker 2: down long term rates. At the front end of the curve. 23 00:01:19,680 --> 00:01:22,679 Speaker 2: It's all about domestic cyclical inflation stories, and that's pushing 24 00:01:22,720 --> 00:01:25,120 Speaker 2: the curve. So the curve is in this inverted standpoint. 25 00:01:25,120 --> 00:01:27,479 Speaker 2: It's been here for over a year, and people keep 26 00:01:27,520 --> 00:01:30,800 Speaker 2: on expecting the curve to shift back to a more 27 00:01:30,840 --> 00:01:33,200 Speaker 2: normal position, and the reality is it's probably just not 28 00:01:33,200 --> 00:01:33,640 Speaker 2: going to happen. 29 00:01:33,720 --> 00:01:36,240 Speaker 1: I'm talking on camera with smart people, like I say, 30 00:01:36,240 --> 00:01:39,280 Speaker 1: I'm posing the Peterson Institute. I'm talking off camera with 31 00:01:39,360 --> 00:01:41,120 Speaker 1: all the officials that don't want to talk to me 32 00:01:41,200 --> 00:01:44,160 Speaker 1: on camera. Are they working out of the textbooks you 33 00:01:44,280 --> 00:01:46,520 Speaker 1: used in school or are they making it up at 34 00:01:46,600 --> 00:01:48,600 Speaker 1: Jackson Hall internationally. 35 00:01:48,160 --> 00:01:50,840 Speaker 2: Well, they should be working out of the textbooks. They 36 00:01:50,840 --> 00:01:53,600 Speaker 2: should be actually going back to the older textbooks, the 37 00:01:53,640 --> 00:01:56,880 Speaker 2: Canesy and textbooks. Because the reality is, we learned from 38 00:01:56,920 --> 00:02:00,880 Speaker 2: COVID that Knesy and Economics was the right brand of economics, 39 00:02:00,920 --> 00:02:03,920 Speaker 2: and we've gotten the response we expected from a Cainsy 40 00:02:03,960 --> 00:02:07,720 Speaker 2: and stimulus, and therefore a lot of the neuvel discussion 41 00:02:07,800 --> 00:02:10,160 Speaker 2: is kind of should be put to the wayside. In fact, 42 00:02:10,200 --> 00:02:11,760 Speaker 2: one of the things that worries the most that I 43 00:02:11,800 --> 00:02:14,040 Speaker 2: hear from the Federal Reserve officials is this idea of 44 00:02:14,320 --> 00:02:17,680 Speaker 2: as inflation comes down, real rates go up, and therefore 45 00:02:17,720 --> 00:02:21,480 Speaker 2: the tightening gets greater. The reality is, corporate CEOs do 46 00:02:21,560 --> 00:02:24,360 Speaker 2: not make decisions on after the fact, real interest rates. 47 00:02:24,680 --> 00:02:28,880 Speaker 2: They make decisions based on what they expect nominal interest 48 00:02:28,919 --> 00:02:32,160 Speaker 2: rates to be, and that nominal interest rate assumes an 49 00:02:32,160 --> 00:02:35,760 Speaker 2: assumption for real returns and an inflation expectation. And if 50 00:02:35,800 --> 00:02:39,079 Speaker 2: those nominal interest rates are rising, that's a bigger problem 51 00:02:39,200 --> 00:02:41,280 Speaker 2: than them looking back and saying, oh, well, real rates 52 00:02:41,280 --> 00:02:41,720 Speaker 2: will hire. 53 00:02:41,800 --> 00:02:44,320 Speaker 3: All right, let's put this all together and raise a 54 00:02:44,400 --> 00:02:47,120 Speaker 3: question about the soft landing narrative that seems to now 55 00:02:47,160 --> 00:02:49,320 Speaker 3: be the consensus on Wall straight. It seems as though 56 00:02:49,560 --> 00:02:51,880 Speaker 3: this has become a commonplace idea, even though it's been 57 00:02:51,880 --> 00:02:55,400 Speaker 3: elusive historically. I see you laughing. Are you seeing material 58 00:02:55,480 --> 00:02:58,359 Speaker 3: cracks that challenge the idea of this that people are ignoring? 59 00:02:58,760 --> 00:03:00,800 Speaker 2: No, I don't see the material right now, but I 60 00:03:00,800 --> 00:03:03,640 Speaker 2: think the reality you have to understand is that any 61 00:03:03,760 --> 00:03:07,120 Speaker 2: recessionary tendency will wind up being a hard landing. You know, 62 00:03:07,160 --> 00:03:10,480 Speaker 2: there are differences between crashes, credit crunches, and there are 63 00:03:10,520 --> 00:03:13,640 Speaker 2: differences between recessions. And this is going to have to 64 00:03:13,639 --> 00:03:17,160 Speaker 2: be an inflation recession and that's the result, and that's 65 00:03:17,240 --> 00:03:20,320 Speaker 2: not necessarily a soft landing. A soft landing is this 66 00:03:20,400 --> 00:03:22,640 Speaker 2: vague constant when you bring the economy back to trained 67 00:03:22,720 --> 00:03:25,640 Speaker 2: growth and inflation comes back in that direction as well. 68 00:03:25,840 --> 00:03:27,640 Speaker 2: That's not going to happen with a labor market as 69 00:03:27,680 --> 00:03:30,040 Speaker 2: tied as we have today, and it's going to be 70 00:03:30,040 --> 00:03:32,760 Speaker 2: hard to get inflation to go from four percent to 71 00:03:32,800 --> 00:03:34,640 Speaker 2: two percent, a lot harder than it was to go 72 00:03:34,680 --> 00:03:35,920 Speaker 2: from nine to four. 73 00:03:36,320 --> 00:03:39,760 Speaker 3: So we're talking this morning about foot Locker, about Dick's 74 00:03:39,760 --> 00:03:42,440 Speaker 3: boarding goods, about some of the results and retailers that 75 00:03:42,520 --> 00:03:45,880 Speaker 3: have struggled in the past and that are now seeing 76 00:03:45,880 --> 00:03:48,360 Speaker 3: that kind of come to a four. And we're raising 77 00:03:48,360 --> 00:03:51,640 Speaker 3: a question, is this idiosyncratic stories of management structures and 78 00:03:51,680 --> 00:03:54,880 Speaker 3: business models that have become less relevant or is this 79 00:03:54,960 --> 00:03:59,200 Speaker 3: something broader about consumer spending? From your view, not to 80 00:03:59,240 --> 00:04:01,200 Speaker 3: go into the company themselves, but what do you think 81 00:04:01,240 --> 00:04:01,480 Speaker 3: it is. 82 00:04:01,760 --> 00:04:03,800 Speaker 2: No, there's a lot of videosyncratic risk. I mean, keep 83 00:04:03,840 --> 00:04:06,440 Speaker 2: in mind how long the expansion was prior to the 84 00:04:06,440 --> 00:04:09,920 Speaker 2: COVID meltdown, and then the nature of the COVID restructuring 85 00:04:09,960 --> 00:04:13,480 Speaker 2: and the rebalancing or the reacceleration really is papered over 86 00:04:13,560 --> 00:04:15,680 Speaker 2: a lot of problems for a very long period of time, 87 00:04:15,960 --> 00:04:17,960 Speaker 2: and they all have to come home to roost. And 88 00:04:18,000 --> 00:04:20,880 Speaker 2: this is the idea that a recession is somewhat therapeutic 89 00:04:21,200 --> 00:04:24,200 Speaker 2: if it's not a credit crunch, and we kind of 90 00:04:24,279 --> 00:04:25,640 Speaker 2: need that in this environment. 91 00:04:25,800 --> 00:04:28,560 Speaker 1: You are acclaimed and I'm gonna go to Olivia Blanchard's 92 00:04:28,839 --> 00:04:31,480 Speaker 1: study of our start and where we are in the 93 00:04:31,520 --> 00:04:34,960 Speaker 1: one phrase, it permeates. And this is the humility of 94 00:04:35,040 --> 00:04:39,680 Speaker 1: Blanchard's work is other factors. He says, there's things out 95 00:04:39,720 --> 00:04:42,200 Speaker 1: there we don't know. You own the high ground on this. 96 00:04:42,560 --> 00:04:46,680 Speaker 1: What are the other factors? Make this our starred certitude 97 00:04:46,680 --> 00:04:47,279 Speaker 1: a mystery? 98 00:04:47,760 --> 00:04:49,960 Speaker 2: The real issue is when you look at balance sheets, 99 00:04:49,960 --> 00:04:52,800 Speaker 2: which we don't do a lot of. We don't look 100 00:04:52,800 --> 00:04:55,160 Speaker 2: at balance sheets and try to assess where we are. 101 00:04:55,360 --> 00:04:57,600 Speaker 2: We look at things like financial stress measures, which, to 102 00:04:57,640 --> 00:04:59,760 Speaker 2: be honest with you, we play games with because there's 103 00:04:59,760 --> 00:05:03,000 Speaker 2: just tistically created out of indices that we see published 104 00:05:03,000 --> 00:05:04,960 Speaker 2: in markets. The reality is when you get to look 105 00:05:05,000 --> 00:05:07,680 Speaker 2: at the underlying balance sheets of companies and you look 106 00:05:07,720 --> 00:05:10,719 Speaker 2: at them at a macro level, balance sheets are extraordinarily healthy. 107 00:05:11,160 --> 00:05:13,159 Speaker 2: And this is why when you look at Silicon Valley 108 00:05:13,160 --> 00:05:15,440 Speaker 2: and so far, you could actually back away from that 109 00:05:15,520 --> 00:05:17,720 Speaker 2: having bit of credit crunch because the underlying balance sheet 110 00:05:17,720 --> 00:05:19,120 Speaker 2: of the banking industry is very healthy. 111 00:05:19,480 --> 00:05:22,200 Speaker 3: Just to scrippulse all together. What is an inflationary recession? 112 00:05:22,279 --> 00:05:23,560 Speaker 3: What is an inflation recession? 113 00:05:24,080 --> 00:05:26,239 Speaker 2: Well, the difference between an inflation recession is a credit 114 00:05:26,279 --> 00:05:29,440 Speaker 2: recession is basically, the interest rate increases in the inversion 115 00:05:29,480 --> 00:05:31,960 Speaker 2: of the curve slow the economy to bring down inflation 116 00:05:32,720 --> 00:05:35,560 Speaker 2: in a credit crunch. What happens is the inverted curve 117 00:05:35,720 --> 00:05:39,480 Speaker 2: causes a credit crunch that then causes a recession. So 118 00:05:39,720 --> 00:05:43,159 Speaker 2: the Federal Reserve has to slow the economy. You can't 119 00:05:43,240 --> 00:05:45,800 Speaker 2: get the economy to slow and get inflation to come 120 00:05:45,880 --> 00:05:49,360 Speaker 2: down to target unless you're going to create an access 121 00:05:49,680 --> 00:05:52,119 Speaker 2: in the labor market or some access in the labor market. 122 00:05:52,440 --> 00:05:54,400 Speaker 2: That's what they have to accomplish. You can only do 123 00:05:54,480 --> 00:05:58,400 Speaker 2: that by having GDP contract. That's a recession. The reality 124 00:05:58,440 --> 00:06:01,520 Speaker 2: from a credit crunch standpoint, is the credit crunch causes 125 00:06:01,680 --> 00:06:04,760 Speaker 2: the recession, and that's what nineteen ninety was, that was 126 00:06:04,760 --> 00:06:07,320 Speaker 2: what two thousand was, that was two thousand and seven was. 127 00:06:07,520 --> 00:06:10,080 Speaker 2: And the reality is that's what COVID was, because COVID 128 00:06:10,120 --> 00:06:13,040 Speaker 2: was a massive corporate balance sheet problem and household balance 129 00:06:13,040 --> 00:06:16,279 Speaker 2: sheet problem, and that's why they required subsidy levels of 130 00:06:16,279 --> 00:06:16,720 Speaker 2: interest rate. 131 00:06:16,760 --> 00:06:18,760 Speaker 1: The sever short of thank you so much with Missoul 132 00:06:23,360 --> 00:06:26,800 Speaker 1: Lizzayne Saunders right now to save the show Chief Investment 133 00:06:26,800 --> 00:06:30,440 Speaker 1: Stratus to Charles Schwab, this is an important conversation given 134 00:06:30,480 --> 00:06:34,440 Speaker 1: the gloom out there. What's the Saunder's gloom measurement right now, 135 00:06:34,520 --> 00:06:37,560 Speaker 1: liz In how gloomy is it in the land of equities? 136 00:06:38,800 --> 00:06:41,520 Speaker 4: So we really started to face problems at the beginning 137 00:06:41,520 --> 00:06:45,560 Speaker 4: of June. Lots of conversation, obviously about the concentration problem, 138 00:06:45,640 --> 00:06:48,960 Speaker 4: the Magnificent seven dominating pretty much all performance. At the 139 00:06:49,000 --> 00:06:51,800 Speaker 4: same time, he only had fifteen percent of the S 140 00:06:51,880 --> 00:06:56,080 Speaker 4: and P constituents outperforming the index over the prior sixty days, 141 00:06:56,080 --> 00:06:58,200 Speaker 4: So it was sort of this double whammy of concentration 142 00:06:58,279 --> 00:07:03,919 Speaker 4: which often happens and cap waited indexes, but such significant underperformance. Initially, 143 00:07:04,120 --> 00:07:07,280 Speaker 4: we started to see some breath improvement at the beginning 144 00:07:07,520 --> 00:07:10,480 Speaker 4: of the pullback that we saw up the cap spectrum 145 00:07:10,560 --> 00:07:15,040 Speaker 4: into those megacap names. Now, unfortunately, we've seen this deterioration 146 00:07:15,960 --> 00:07:17,960 Speaker 4: in breadth and it's sort of across the board, and 147 00:07:18,000 --> 00:07:20,320 Speaker 4: I think more has to be worked out there. Even 148 00:07:20,360 --> 00:07:24,040 Speaker 4: on a day like yesterday, under the surface, it didn't 149 00:07:24,040 --> 00:07:26,640 Speaker 4: look great. And these pullbacks tend to have three steps, 150 00:07:26,720 --> 00:07:28,840 Speaker 4: you know. The first step is you start the down 151 00:07:28,920 --> 00:07:30,960 Speaker 4: moving a little bit of a relief rally, and then 152 00:07:31,000 --> 00:07:33,120 Speaker 4: you continue. I don't know if it's going to be 153 00:07:33,240 --> 00:07:35,840 Speaker 4: in correction territory, but I think there's probably a bit 154 00:07:35,880 --> 00:07:37,440 Speaker 4: more that has to to come out. 155 00:07:37,520 --> 00:07:39,680 Speaker 1: You right right where I want to go to review, folks. 156 00:07:39,680 --> 00:07:42,840 Speaker 1: From twenty twenty one, the peak of the markets SPX 157 00:07:42,960 --> 00:07:46,320 Speaker 1: is down nine percent, eight percent whatever, and late the 158 00:07:46,360 --> 00:07:50,040 Speaker 1: recent pullback has just been a crater down four percent. Listen, 159 00:07:50,080 --> 00:07:51,520 Speaker 1: and you got to be kidding me. You and I 160 00:07:51,600 --> 00:07:55,239 Speaker 1: remember when a correction was a correction? Is the mathematics 161 00:07:55,240 --> 00:07:58,560 Speaker 1: of correction? Bear market or dare I say, down thirty 162 00:07:58,560 --> 00:08:01,760 Speaker 1: five percent? Still in play? Are we in a new world? 163 00:08:03,320 --> 00:08:08,040 Speaker 4: Well, so we've gone now almost six hundred days without 164 00:08:08,160 --> 00:08:11,600 Speaker 4: hitting a new cycle high. That's a pretty extended period 165 00:08:11,640 --> 00:08:15,400 Speaker 4: of time, and that suggests that this is more likely 166 00:08:15,680 --> 00:08:19,880 Speaker 4: a rally, you know, in a in a bear market. 167 00:08:20,400 --> 00:08:23,200 Speaker 4: But we've all been surprised so many times with the 168 00:08:23,280 --> 00:08:26,320 Speaker 4: unique nature of this cycle, and we still have the 169 00:08:26,680 --> 00:08:30,320 Speaker 4: dip buyers that come in. And what's interesting is those 170 00:08:30,560 --> 00:08:33,320 Speaker 4: mini phases that happen of the dip buyers stepping in. 171 00:08:33,400 --> 00:08:36,560 Speaker 4: It's also when you see a lot of attention go 172 00:08:36,720 --> 00:08:39,400 Speaker 4: down the quality spectrum. You know, you get lips in 173 00:08:39,440 --> 00:08:43,679 Speaker 4: the meme stocks and the nonprofitable areas. That's the segment 174 00:08:43,720 --> 00:08:45,520 Speaker 4: of the market that I think you wanted to use 175 00:08:45,559 --> 00:08:47,959 Speaker 4: trade or lingu fade. I think you want to continue 176 00:08:47,960 --> 00:08:52,760 Speaker 4: to lean into called the quality trade and just be 177 00:08:52,920 --> 00:08:58,240 Speaker 4: mindful of fomo down the quality spectrum, especially in nonprofitable areas. 178 00:08:58,880 --> 00:09:01,480 Speaker 3: One area that has seen a large amount of interest, 179 00:09:01,559 --> 00:09:04,200 Speaker 3: especially in light of this question around where we are 180 00:09:04,200 --> 00:09:06,600 Speaker 3: in the cycle as being consumer discretionary, and I'm wondering 181 00:09:06,920 --> 00:09:08,920 Speaker 3: if you think people have gotten over their skis and 182 00:09:08,920 --> 00:09:12,960 Speaker 3: the optimism that the savings won't run out for individuals, 183 00:09:13,160 --> 00:09:15,240 Speaker 3: and I'm among those people that question, maybe it's never 184 00:09:15,240 --> 00:09:17,640 Speaker 3: going to run out. But then the Macy's CEO got 185 00:09:17,679 --> 00:09:19,520 Speaker 3: on the call and said that credit card delinquency is 186 00:09:19,559 --> 00:09:24,040 Speaker 3: taking up pretty significantly and really seeing consumers much more 187 00:09:24,480 --> 00:09:27,720 Speaker 3: restrained with how much they're spending. Do you buy that story? 188 00:09:27,720 --> 00:09:29,240 Speaker 3: Do you think that's going to come to the fore more? 189 00:09:30,200 --> 00:09:30,480 Speaker 5: I do? 190 00:09:30,559 --> 00:09:34,079 Speaker 4: And if you have to peel a layer to back 191 00:09:34,160 --> 00:09:37,080 Speaker 4: from the onion when looking at things like broader retail 192 00:09:37,200 --> 00:09:42,520 Speaker 4: sales or even individual retailers reports, to look at unit sales, 193 00:09:42,640 --> 00:09:47,480 Speaker 4: the biases in terms of consumers moving more toward you know, 194 00:09:47,600 --> 00:09:51,200 Speaker 4: generic type brands as opposed to higher end brands. We 195 00:09:51,280 --> 00:09:55,880 Speaker 4: also have to be really mindful of differentiating between nominal data, 196 00:09:55,880 --> 00:09:58,360 Speaker 4: and a lot of retail data is expressed in nominal 197 00:09:58,440 --> 00:10:02,080 Speaker 4: terms and in real terms. And you're right, I think 198 00:10:02,120 --> 00:10:06,280 Speaker 4: pointing out delinquency is important. It's mostly been concentrated down 199 00:10:06,320 --> 00:10:09,760 Speaker 4: in the higher risk segments, lower income, subprime, but you're 200 00:10:09,840 --> 00:10:14,840 Speaker 4: starting to creep into more of the quality segments on 201 00:10:14,880 --> 00:10:18,280 Speaker 4: the delinquency side. I still think though, that it's the 202 00:10:18,440 --> 00:10:24,079 Speaker 4: labor market that is most important to ongoing consumption remaining 203 00:10:24,280 --> 00:10:29,880 Speaker 4: somewhat healthy, even more so probably than the saving story, 204 00:10:29,920 --> 00:10:33,040 Speaker 4: the excess savings. I think it's the labor market. If 205 00:10:33,040 --> 00:10:35,160 Speaker 4: we start to see more cracks in the labor market, 206 00:10:35,360 --> 00:10:38,679 Speaker 4: I think the consumer could maybe shut down the spigots 207 00:10:39,360 --> 00:10:40,120 Speaker 4: fairly quickly. 208 00:10:40,360 --> 00:10:42,120 Speaker 5: Liz, And what kind of cracks do we see now 209 00:10:42,240 --> 00:10:43,120 Speaker 5: in the labor market. 210 00:10:44,520 --> 00:10:46,679 Speaker 4: Yeah, ours works have come down quite a bit in 211 00:10:46,679 --> 00:10:50,000 Speaker 4: this environment where there might still be labor hoarding. You're 212 00:10:50,040 --> 00:10:55,400 Speaker 4: certainly seeing that. You've seen weakness in temporary employment, multiple 213 00:10:55,480 --> 00:10:59,520 Speaker 4: job holders having gone up. You've had some bouts of 214 00:10:59,559 --> 00:11:06,480 Speaker 4: an in unemployment claims. We've seen some of the commentary 215 00:11:06,559 --> 00:11:09,559 Speaker 4: from some of the recruiting companies that are withdrawing guidance. 216 00:11:09,640 --> 00:11:11,880 Speaker 4: So I think you're going to start to see it 217 00:11:12,000 --> 00:11:16,400 Speaker 4: on the job openings, layoff announcement side of things. So 218 00:11:17,520 --> 00:11:19,480 Speaker 4: they're still cracks, but they're wider than they were a 219 00:11:19,480 --> 00:11:20,079 Speaker 4: few months ago. 220 00:11:20,080 --> 00:11:22,280 Speaker 5: It just happened him really really slowly. Isn't it just 221 00:11:22,360 --> 00:11:24,120 Speaker 5: much slower than we thought it would? Listen, thank you 222 00:11:24,160 --> 00:11:27,160 Speaker 5: for the update as Alwise, listener sunders at Shashchuap. 223 00:11:37,640 --> 00:11:40,080 Speaker 1: What is important here at the surveillance is we like 224 00:11:40,120 --> 00:11:43,319 Speaker 1: to focus for thirty minutes on a theme. Damien Sassawur 225 00:11:43,440 --> 00:11:46,720 Speaker 1: scheduled to darken the door on em and the market 226 00:11:46,760 --> 00:11:50,400 Speaker 1: dynamics and far more. John is to speak to someone 227 00:11:50,760 --> 00:11:54,760 Speaker 1: including the frontier economy Europe, and that would be doctor Weisman. 228 00:11:55,080 --> 00:11:57,040 Speaker 1: All of his work at bear Stearns and now. 229 00:11:56,960 --> 00:11:59,880 Speaker 5: At Macquarie, Harry got to say you fantastic has always 230 00:12:00,120 --> 00:12:02,720 Speaker 5: to change over in Europey. We thought this year would 231 00:12:02,720 --> 00:12:05,599 Speaker 5: be good, driven by China reopening. How important do you 232 00:12:05,640 --> 00:12:08,000 Speaker 5: think the global slowdown is going to be in Jackson 233 00:12:08,040 --> 00:12:08,800 Speaker 5: holl this Friday? 234 00:12:09,679 --> 00:12:12,600 Speaker 6: Not too important because I think that the theme of 235 00:12:12,640 --> 00:12:15,120 Speaker 6: the symposium or the conference, if you will, is not 236 00:12:15,240 --> 00:12:18,000 Speaker 6: the short term. It's not the cyclical themes. The theme 237 00:12:18,040 --> 00:12:21,000 Speaker 6: they've laid out is the structural changes in the global economy. 238 00:12:21,000 --> 00:12:22,760 Speaker 6: And when you hear something like that, you think that 239 00:12:22,800 --> 00:12:24,880 Speaker 6: the speakers are going to be directed towards talking about 240 00:12:24,880 --> 00:12:27,440 Speaker 6: things that happen a year from now, two years from now, 241 00:12:27,480 --> 00:12:30,679 Speaker 6: three years from now. As far as Powell's speech goes, look, 242 00:12:30,840 --> 00:12:33,200 Speaker 6: the FED could if it wanted to pat itself on 243 00:12:33,240 --> 00:12:36,160 Speaker 6: the back. Inflation is low in the US, the economy 244 00:12:36,160 --> 00:12:38,880 Speaker 6: looks a bit robust at in certain quarters. But I 245 00:12:38,880 --> 00:12:41,280 Speaker 6: don't think it's time for him to do that. There 246 00:12:41,280 --> 00:12:44,360 Speaker 6: are still too many hawks on the FOROMC panel that 247 00:12:44,400 --> 00:12:47,800 Speaker 6: are nudging him towards at least sounding as if he 248 00:12:47,840 --> 00:12:50,839 Speaker 6: should be hawkish from a medium term and long term perspective. 249 00:12:51,040 --> 00:12:54,400 Speaker 6: When you think about those narratives about the global economy 250 00:12:54,720 --> 00:12:58,640 Speaker 6: that are structural and longer term in perspective, they are 251 00:12:58,800 --> 00:13:04,400 Speaker 6: things like climate change, deglobalization, demographic change, high debt in 252 00:13:04,480 --> 00:13:08,480 Speaker 6: the emerging markets. Those are all things that sound inflationary. 253 00:13:08,640 --> 00:13:11,760 Speaker 6: At least two of them feel like negative supply shocks. 254 00:13:12,200 --> 00:13:15,640 Speaker 6: So I don't think he'll be inclined to say much 255 00:13:15,840 --> 00:13:18,120 Speaker 6: about the short term and the outlook for the FED 256 00:13:18,160 --> 00:13:20,199 Speaker 6: funds rate. I think he will focus, if he sticks 257 00:13:20,200 --> 00:13:22,920 Speaker 6: to the narrative of the symposium, on those longer term considerations, 258 00:13:23,240 --> 00:13:25,800 Speaker 6: and that will mean that he's going to stress that 259 00:13:25,880 --> 00:13:28,000 Speaker 6: it's going to be difficult to get to that last 260 00:13:28,080 --> 00:13:31,280 Speaker 6: mile of inflation decline from three percent to two percent, 261 00:13:31,679 --> 00:13:34,160 Speaker 6: and therefore don't expect rates to be cut. 262 00:13:34,720 --> 00:13:37,199 Speaker 1: I look at Europe and what we're going to hear 263 00:13:37,200 --> 00:13:39,800 Speaker 1: from Powell and from the Guard and other worthies are 264 00:13:39,800 --> 00:13:42,280 Speaker 1: going to be there is well. And I look at 265 00:13:42,280 --> 00:13:44,880 Speaker 1: our start as a debate here. It's an academic debate 266 00:13:44,920 --> 00:13:48,880 Speaker 1: of a full and running economy in Europe, whether it's 267 00:13:48,920 --> 00:13:54,080 Speaker 1: Eurosclerosis or something new. Can there be a European our start. 268 00:13:54,400 --> 00:13:58,800 Speaker 1: Can you do legit economic analysis of the European experiment? 269 00:13:59,200 --> 00:14:01,600 Speaker 6: You can, and I think you can do a legitimate 270 00:14:02,080 --> 00:14:04,720 Speaker 6: analysis of the current cycle in Europe. This weakness that 271 00:14:04,760 --> 00:14:07,719 Speaker 6: we're seeing both in manufacturing and now in the services, 272 00:14:08,000 --> 00:14:10,720 Speaker 6: I think to a large extent, the manufacturing slowed down 273 00:14:10,760 --> 00:14:13,319 Speaker 6: in Europe is coincident with the Chinese manufacturing slowed down. 274 00:14:13,320 --> 00:14:15,160 Speaker 6: I don't think you can separate the two. Look China 275 00:14:15,240 --> 00:14:18,839 Speaker 6: had this massive slow down in manufacturing in the second quarter, 276 00:14:19,200 --> 00:14:21,120 Speaker 6: Well look at that. Europe had a massive slow down 277 00:14:21,120 --> 00:14:23,000 Speaker 6: in manufacturing in the second quarter too. We know those 278 00:14:23,040 --> 00:14:26,480 Speaker 6: economies are connected through the German industrial complex and the 279 00:14:26,480 --> 00:14:28,440 Speaker 6: export economy in Europe, so I don't think that's too 280 00:14:28,520 --> 00:14:31,880 Speaker 6: much of a mystery. China and Europe are coincident. I 281 00:14:31,960 --> 00:14:34,800 Speaker 6: do think, however, that this service is slowed down we're 282 00:14:34,840 --> 00:14:37,920 Speaker 6: seeing is also analyzable. But I think the focus has 283 00:14:37,920 --> 00:14:40,360 Speaker 6: been too much on what the ECB has done with rates. 284 00:14:40,680 --> 00:14:43,120 Speaker 6: It hasn't been enough on what the ECP has done 285 00:14:43,120 --> 00:14:46,120 Speaker 6: with liquidity that it issues to the banks. The Teltrope 286 00:14:46,120 --> 00:14:49,000 Speaker 6: program has been winding down out of the ECB for 287 00:14:49,520 --> 00:14:51,560 Speaker 6: a few months now, and if you look at credit 288 00:14:51,600 --> 00:14:54,920 Speaker 6: creation coming out of Europe, the extent to which banks 289 00:14:54,920 --> 00:14:58,040 Speaker 6: have issued credit to the private economy, it has flatlined. 290 00:14:58,280 --> 00:15:00,760 Speaker 6: And that's the reason why Europe is now seeing this 291 00:15:00,840 --> 00:15:01,600 Speaker 6: slump in service. 292 00:15:01,800 --> 00:15:03,760 Speaker 3: Just to underscore this, in other words, the slow down 293 00:15:03,800 --> 00:15:07,160 Speaker 3: in services is directly related to the transmission mechanism of 294 00:15:07,240 --> 00:15:10,960 Speaker 3: ECB policy, not necessarily what's going on with China. Correct, 295 00:15:10,960 --> 00:15:11,920 Speaker 3: is that basically what you're saying. 296 00:15:11,960 --> 00:15:13,800 Speaker 6: That's right, But what I'm also saying is don't look 297 00:15:13,800 --> 00:15:15,640 Speaker 6: at rates. Don't look at the deposit rate being at 298 00:15:15,640 --> 00:15:17,720 Speaker 6: three and three quarters percent. That doesn't really tell you 299 00:15:17,960 --> 00:15:20,320 Speaker 6: much about what's going to happen to the European economy. 300 00:15:20,360 --> 00:15:23,480 Speaker 6: Look at bank credit, look at broader monetary agrates. They 301 00:15:23,480 --> 00:15:26,720 Speaker 6: have flatlined, and nominal terms they're actually down year on year. 302 00:15:26,920 --> 00:15:30,200 Speaker 6: In real terms, it's the credit economy that people don't 303 00:15:30,240 --> 00:15:32,240 Speaker 6: focus enough on, And if they had been focusing on 304 00:15:32,280 --> 00:15:34,480 Speaker 6: that flatlining, they would have predicted to slow down an 305 00:15:34,480 --> 00:15:35,400 Speaker 6: agurd demand in Europe. 306 00:15:35,560 --> 00:15:38,560 Speaker 3: Is the European economy so different from the US economy 307 00:15:38,560 --> 00:15:41,520 Speaker 3: in terms of the rate structure and the lending structure, 308 00:15:42,160 --> 00:15:45,080 Speaker 3: that there is no analog to be drawn in terms 309 00:15:45,120 --> 00:15:48,160 Speaker 3: of how higher rates in Europe are affecting the economy 310 00:15:48,200 --> 00:15:51,000 Speaker 3: and how they will eventually trickle out in the US 311 00:15:51,040 --> 00:15:52,680 Speaker 3: economy and affect the economy there. 312 00:15:52,760 --> 00:15:54,760 Speaker 6: They should affect the US economy the same way. But 313 00:15:54,800 --> 00:15:57,360 Speaker 6: there is an important difference between the Europepean economy and 314 00:15:57,360 --> 00:16:00,239 Speaker 6: the US economy. And that's as follows. The European economy 315 00:16:00,320 --> 00:16:02,800 Speaker 6: is overly dependent on its banking system for the extension 316 00:16:02,840 --> 00:16:05,560 Speaker 6: of credit. They really don't have non bank lenders, they 317 00:16:05,560 --> 00:16:09,040 Speaker 6: don't really have direct lending. In Europe, everyone who wants 318 00:16:09,040 --> 00:16:11,200 Speaker 6: a loan ultimately has to find his way to his 319 00:16:11,280 --> 00:16:13,760 Speaker 6: or her way to a bank. In the US, it's 320 00:16:13,800 --> 00:16:14,480 Speaker 6: completely different. 321 00:16:14,520 --> 00:16:14,640 Speaker 4: Now. 322 00:16:14,640 --> 00:16:16,560 Speaker 6: If you were just to analyze the banking systems in 323 00:16:16,600 --> 00:16:19,359 Speaker 6: Europe versus the US, you'd find a lot of similarities 324 00:16:19,440 --> 00:16:22,560 Speaker 6: right now. You'd find that credit is contracting. You'd find 325 00:16:22,600 --> 00:16:24,560 Speaker 6: that loan officers in the US just says in Europe 326 00:16:24,600 --> 00:16:28,040 Speaker 6: are much less willing to extend loans. Maybe the reasons 327 00:16:28,160 --> 00:16:29,920 Speaker 6: are mildly different. Maybe in the US has to do 328 00:16:29,920 --> 00:16:31,760 Speaker 6: it regulatory overhanging. Maybe in Europe it has to do 329 00:16:31,760 --> 00:16:35,200 Speaker 6: with what the ECP has done. That's the similarity. The difference though, 330 00:16:35,440 --> 00:16:37,280 Speaker 6: is that the US doesn't have to depend just on 331 00:16:37,320 --> 00:16:39,800 Speaker 6: its banks. There are other sources of lending to support 332 00:16:39,800 --> 00:16:42,520 Speaker 6: the startup economy, the legacy economy. We don't have that 333 00:16:42,560 --> 00:16:46,800 Speaker 6: in Europe, and therefore when banking bank credit contracts in Europe, 334 00:16:46,880 --> 00:16:49,640 Speaker 6: you feel the effect on agurate demand much more than 335 00:16:49,640 --> 00:16:50,960 Speaker 6: you do in the US. And I think that's what 336 00:16:50,960 --> 00:16:52,760 Speaker 6: we're seeing now. The US will catch up. 337 00:16:52,760 --> 00:16:56,560 Speaker 1: Though there is a time for a surveillance audible. We 338 00:16:56,680 --> 00:16:59,600 Speaker 1: will do it right now. It's your weisman as well. 339 00:17:00,040 --> 00:17:03,400 Speaker 1: Years ago you would publish with m David Malpas and 340 00:17:03,440 --> 00:17:06,600 Speaker 1: the rest of the Klan it bears Stearns on Latin America, 341 00:17:06,720 --> 00:17:11,280 Speaker 1: and the world would stop. Argentina. Do we care or 342 00:17:11,320 --> 00:17:13,919 Speaker 1: is it just the problem child of our lifetimes? 343 00:17:14,160 --> 00:17:16,600 Speaker 6: I don't care. I think it's the problem child if 344 00:17:16,600 --> 00:17:20,480 Speaker 6: our lifetimes. You know, it's not that well integrated into 345 00:17:20,480 --> 00:17:23,920 Speaker 6: the global economy. Yes it has, it has some commodity exports. 346 00:17:23,920 --> 00:17:27,119 Speaker 6: But I lose the hysteria, Yeah, lose the hysteria on Argentina. 347 00:17:27,600 --> 00:17:29,399 Speaker 6: It's not terrible by the way that they may have 348 00:17:29,440 --> 00:17:32,360 Speaker 6: a present that's going to adopt some radical market policies. 349 00:17:32,359 --> 00:17:34,639 Speaker 6: In the final analysis, when you have a situation like 350 00:17:34,720 --> 00:17:38,000 Speaker 6: this that hasn't been working for you know, more than 351 00:17:38,080 --> 00:17:42,359 Speaker 6: more than four decades, why why be scared of something new? Exactly? 352 00:17:42,600 --> 00:17:45,639 Speaker 6: I would be much more scared of something old, you know. 353 00:17:45,760 --> 00:17:48,040 Speaker 1: So okay, So what should the IMF too? They've been 354 00:17:48,040 --> 00:17:50,280 Speaker 1: handing them out gazillions gazillion. They're right, they're going to 355 00:17:50,280 --> 00:17:51,240 Speaker 1: write a chuck of Morocco. 356 00:17:51,280 --> 00:17:53,400 Speaker 6: I assume, I am after Just wait, you cannot make 357 00:17:53,440 --> 00:17:55,680 Speaker 6: a decision with regard to the extension of credit until 358 00:17:55,680 --> 00:17:58,080 Speaker 6: you see what the political economy is. Let let things 359 00:17:58,680 --> 00:18:01,280 Speaker 6: let things simmer for a while in Argentina, Let's see 360 00:18:01,320 --> 00:18:03,560 Speaker 6: what the policy agenda would be under a new president 361 00:18:03,640 --> 00:18:06,680 Speaker 6: or a legacy administration, and then make a decision. 362 00:18:07,040 --> 00:18:10,159 Speaker 5: Terry, thank you, it's going to say Terry Weisman at 363 00:18:10,240 --> 00:18:17,080 Speaker 5: Macquarie on the Club of Economy. 364 00:18:16,280 --> 00:18:19,960 Speaker 1: Creig Value joins as chiefs Policy Strategist AGF. Greg I'm 365 00:18:19,960 --> 00:18:22,840 Speaker 1: going to cut to the chase. The stereotype is a 366 00:18:22,880 --> 00:18:25,760 Speaker 1: polarity of the nation and maybe even the polarity of 367 00:18:25,800 --> 00:18:30,359 Speaker 1: the party. Let's cut to the Wisconsin chase. Wisconsin was 368 00:18:30,400 --> 00:18:34,120 Speaker 1: won by Biden, by under one percentage point zero point 369 00:18:34,200 --> 00:18:38,280 Speaker 1: sixty three percent. Trump won it four years earlier by 370 00:18:38,400 --> 00:18:42,560 Speaker 1: zero point seven seven percent. How does this debate fold 371 00:18:42,560 --> 00:18:46,880 Speaker 1: into those x number, those ten key states that make 372 00:18:46,960 --> 00:18:48,880 Speaker 1: the difference in November of next year. 373 00:18:50,160 --> 00:18:53,399 Speaker 7: Well, this is the opening night. Obviously, I'll get my 374 00:18:53,920 --> 00:18:56,520 Speaker 7: espresho machine out. It's going to be a late night. 375 00:18:57,280 --> 00:19:00,560 Speaker 7: I think it's time for some new faces. And I 376 00:19:00,600 --> 00:19:03,760 Speaker 7: think maybe one of the stories tomorrow morning will be 377 00:19:04,160 --> 00:19:07,400 Speaker 7: the emergence of Tim Scott, the African American Senator from 378 00:19:07,400 --> 00:19:11,320 Speaker 7: South Carolina. Maybe this guy Ramaswami. There's a couple of 379 00:19:11,359 --> 00:19:15,159 Speaker 7: other people who might do well. It's the beginnings of 380 00:19:15,240 --> 00:19:18,359 Speaker 7: a sign that the country will look at fresh faces. 381 00:19:18,520 --> 00:19:21,760 Speaker 1: Where is the debris of George Bush Senior? Somebody who 382 00:19:21,800 --> 00:19:26,440 Speaker 1: worked in office for decades and decades Centrist Republican? Is 383 00:19:26,480 --> 00:19:28,520 Speaker 1: that Chris Christy? Or am I confused? 384 00:19:29,600 --> 00:19:32,879 Speaker 7: Well, Chris Christy is a Centrist, but he's also very pugnacious. 385 00:19:33,680 --> 00:19:36,400 Speaker 7: He can brawl, and I think he will be the 386 00:19:36,520 --> 00:19:39,760 Speaker 7: hit man to go after Donald Trump. I don't blame 387 00:19:39,760 --> 00:19:41,960 Speaker 7: Trump for not showing up. I mean, he's ahead by 388 00:19:42,160 --> 00:19:45,119 Speaker 7: forty points in a lot of states, so he'd have 389 00:19:45,200 --> 00:19:48,400 Speaker 7: nothing to gain and everything to lose by showing up, 390 00:19:48,400 --> 00:19:52,480 Speaker 7: but he will be a subject. I would focus Tom 391 00:19:52,840 --> 00:19:56,440 Speaker 7: on other issues that will be interesting tonight. Aid to Ukraine, 392 00:19:56,800 --> 00:19:58,919 Speaker 7: what do we do about the budget deficit? There are 393 00:19:59,040 --> 00:20:00,960 Speaker 7: issues where the party divide. 394 00:20:00,920 --> 00:20:03,440 Speaker 3: And that's one reason why people actually want to hear 395 00:20:03,560 --> 00:20:05,960 Speaker 3: the issues which have gotten drowned out by some of 396 00:20:06,000 --> 00:20:08,320 Speaker 3: the larger concepts that you want to dig into that. 397 00:20:08,359 --> 00:20:10,560 Speaker 3: But before we do, you said you want to see 398 00:20:10,600 --> 00:20:13,600 Speaker 3: fresh faces and a lot of people are looking for 399 00:20:13,640 --> 00:20:16,240 Speaker 3: that at a time or run to Santis is having 400 00:20:16,280 --> 00:20:18,800 Speaker 3: to prove himself in a new way. What does he 401 00:20:18,920 --> 00:20:22,320 Speaker 3: have to do to reclaim his spot is number two 402 00:20:22,440 --> 00:20:25,440 Speaker 3: and get some growth in his campaign? 403 00:20:25,560 --> 00:20:29,600 Speaker 7: Promise well no ghafs Lisa. I think he can't afford 404 00:20:29,640 --> 00:20:32,959 Speaker 7: another misstep. But to a certain extent he has an 405 00:20:33,000 --> 00:20:36,440 Speaker 7: advantage and that his expectations are low. I think people 406 00:20:36,520 --> 00:20:38,919 Speaker 7: aren't expecting him to show much, so we might exceed 407 00:20:39,000 --> 00:20:40,920 Speaker 7: those low expectations. 408 00:20:41,200 --> 00:20:42,919 Speaker 3: I when you talk about some of the divisive issues 409 00:20:42,960 --> 00:20:45,960 Speaker 3: you mentioned ad to Ukraine, where is sort of the 410 00:20:46,000 --> 00:20:49,960 Speaker 3: popular feeling within the Republican Party is their consensus that 411 00:20:50,000 --> 00:20:51,960 Speaker 3: some of these candidates are going to try to reflect 412 00:20:51,960 --> 00:20:55,480 Speaker 3: and is it different from the more general population consensus. 413 00:20:56,520 --> 00:20:58,679 Speaker 7: Good, good question. I think for the base and the 414 00:20:58,680 --> 00:21:01,440 Speaker 7: party and some of these candidates, the feeling is we 415 00:21:01,560 --> 00:21:05,320 Speaker 7: spent enough on Ukraine for a war that hasn't been won. 416 00:21:06,119 --> 00:21:09,159 Speaker 7: I think there's also a real division on social security 417 00:21:09,400 --> 00:21:11,679 Speaker 7: and how you deal with a budget deficit. Chris Christie 418 00:21:11,960 --> 00:21:15,200 Speaker 7: has been very outspoken saying we need social security reform. 419 00:21:15,880 --> 00:21:18,879 Speaker 7: Dessantas said that a few years ago, will you embrace 420 00:21:18,920 --> 00:21:21,280 Speaker 7: that tonight that I'm not so sure of. 421 00:21:21,640 --> 00:21:24,639 Speaker 1: Greg very international audience, and frankly I'm not up to 422 00:21:24,640 --> 00:21:28,280 Speaker 1: speed on this as well. What's the primary process look like? 423 00:21:28,520 --> 00:21:31,320 Speaker 1: Is it radically different than what we grew up with? 424 00:21:31,840 --> 00:21:34,840 Speaker 1: Is there something new this year as we staggered through February? 425 00:21:36,200 --> 00:21:39,760 Speaker 7: No, I don't think so. I mean, the signing deadlines 426 00:21:39,800 --> 00:21:43,080 Speaker 7: come late fall, by Thanksgiving. A lot of states will 427 00:21:43,080 --> 00:21:47,359 Speaker 7: have their deadlines, which will focus, I think on the 428 00:21:47,400 --> 00:21:50,800 Speaker 7: governor of Virginia. I think there's a chance to Glenn 429 00:21:50,880 --> 00:21:54,560 Speaker 7: Youngkin late in the sign up period will decide, you know, 430 00:21:54,600 --> 00:21:57,560 Speaker 7: if it's just Trump and nobody else looking strong. You know, 431 00:21:57,720 --> 00:22:00,959 Speaker 7: Glenn Younkin's worth about half a billion, and I wouldn't 432 00:22:00,960 --> 00:22:03,159 Speaker 7: put it out of the question him running at the 433 00:22:03,240 --> 00:22:03,919 Speaker 7: last minute. 434 00:22:04,040 --> 00:22:06,960 Speaker 1: Who else has money? I mean, obviously President Trump, even 435 00:22:06,960 --> 00:22:11,159 Speaker 1: with illegal challenges, has money. Mister Pence, I believe is struggling. 436 00:22:11,160 --> 00:22:14,400 Speaker 1: Which of the candidates tonight on the on the stage 437 00:22:14,600 --> 00:22:15,240 Speaker 1: has money? 438 00:22:17,000 --> 00:22:21,960 Speaker 7: Not a lot of them have. Glenn Younkin money. Earlier 439 00:22:21,960 --> 00:22:24,840 Speaker 7: in the year, Desantas raised a decent amount of money, 440 00:22:25,080 --> 00:22:28,560 Speaker 7: but the surprise fundraiser in the last few months has 441 00:22:28,600 --> 00:22:31,520 Speaker 7: been Tim Scott. And again I think Tim Scott is 442 00:22:31,560 --> 00:22:33,000 Speaker 7: going to be the surprise of the night. 443 00:22:33,160 --> 00:22:35,000 Speaker 5: Greag five. Thank you, gret As. 444 00:22:35,040 --> 00:22:39,719 Speaker 1: Always subscribe to the Bloomberg Surveillance podcast on Apple, Spotify 445 00:22:39,840 --> 00:22:43,720 Speaker 1: and anywhere else you get your podcasts. Listen live every 446 00:22:43,720 --> 00:22:47,879 Speaker 1: weekday starting at seven am Eastern on Bloomberg dot Com, 447 00:22:47,920 --> 00:22:52,119 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 448 00:22:52,560 --> 00:22:56,240 Speaker 1: You can watch us live on Bloomberg Television and always 449 00:22:56,600 --> 00:23:00,440 Speaker 1: on the Bloomberg terminal. Thanks for listening. I'm I'm Keen, 450 00:23:00,640 --> 00:23:13,239 Speaker 1: and this is blumber Hm.