WEBVTT - Surveillance: Ricchiuto on Idiosyncratic Risk 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.400 the Bloomberg Terminal, and the Bloomberg Business App. Stephen Rashuder, 0:00:31.480 --> 0:00:35.240 the US Chief Economists, what's the common ground I'm talking 0:00:35.280 --> 0:00:38.080 about common ground of four central bankers right now? What's 0:00:38.120 --> 0:00:43.120 the common ground of the brilliant Rashoodo constem research at MISSOUI. 0:00:43.240 --> 0:00:44.279 What do you both agree on? 0:00:44.440 --> 0:00:46.440 Well, I mean, I think the answer is very very simple. 0:00:46.520 --> 0:00:49.320 Is that you know, there is a dynamic trade off 0:00:49.360 --> 0:00:52.839 going on between the global political forces and the global 0:00:53.120 --> 0:00:58.720 deflation or disinflationary forces versus the cyclical local inflationary forces 0:00:58.720 --> 0:01:01.880 at several of the Indie visual countries are experiencing. And 0:01:01.920 --> 0:01:04.520 it's this battle that's being reflected in the Yeeld curve. 0:01:04.760 --> 0:01:06.960 You know, the reason why long term rates can't mount 0:01:06.959 --> 0:01:10.679 a sustained upward movement is everyone looks at it and says, Okay, eventually, 0:01:10.720 --> 0:01:12.680 the FED is going to be successful at holding down inflation, 0:01:13.000 --> 0:01:14.640 So how far do we need to push By the 0:01:14.640 --> 0:01:17.720 same token, there's global deflationary forces out there that's pulling 0:01:17.720 --> 0:01:19.479 down long term rates. At the front end of the curve. 0:01:19.680 --> 0:01:22.679 It's all about domestic cyclical inflation stories, and that's pushing 0:01:22.720 --> 0:01:25.120 the curve. So the curve is in this inverted standpoint. 0:01:25.120 --> 0:01:27.479 It's been here for over a year, and people keep 0:01:27.520 --> 0:01:30.800 on expecting the curve to shift back to a more 0:01:30.840 --> 0:01:33.200 normal position, and the reality is it's probably just not 0:01:33.200 --> 0:01:33.640 going to happen. 0:01:33.720 --> 0:01:36.240 I'm talking on camera with smart people, like I say, 0:01:36.240 --> 0:01:39.280 I'm posing the Peterson Institute. I'm talking off camera with 0:01:39.360 --> 0:01:41.120 all the officials that don't want to talk to me 0:01:41.200 --> 0:01:44.160 on camera. Are they working out of the textbooks you 0:01:44.280 --> 0:01:46.520 used in school or are they making it up at 0:01:46.600 --> 0:01:48.600 Jackson Hall internationally. 0:01:48.160 --> 0:01:50.840 Well, they should be working out of the textbooks. They 0:01:50.840 --> 0:01:53.600 should be actually going back to the older textbooks, the 0:01:53.640 --> 0:01:56.880 Canesy and textbooks. Because the reality is, we learned from 0:01:56.920 --> 0:02:00.880 COVID that Knesy and Economics was the right brand of economics, 0:02:00.920 --> 0:02:03.920 and we've gotten the response we expected from a Cainsy 0:02:03.960 --> 0:02:07.720 and stimulus, and therefore a lot of the neuvel discussion 0:02:07.800 --> 0:02:10.160 is kind of should be put to the wayside. In fact, 0:02:10.200 --> 0:02:11.760 one of the things that worries the most that I 0:02:11.800 --> 0:02:14.040 hear from the Federal Reserve officials is this idea of 0:02:14.320 --> 0:02:17.680 as inflation comes down, real rates go up, and therefore 0:02:17.720 --> 0:02:21.480 the tightening gets greater. The reality is, corporate CEOs do 0:02:21.560 --> 0:02:24.360 not make decisions on after the fact, real interest rates. 0:02:24.680 --> 0:02:28.880 They make decisions based on what they expect nominal interest 0:02:28.919 --> 0:02:32.160 rates to be, and that nominal interest rate assumes an 0:02:32.160 --> 0:02:35.760 assumption for real returns and an inflation expectation. And if 0:02:35.800 --> 0:02:39.079 those nominal interest rates are rising, that's a bigger problem 0:02:39.200 --> 0:02:41.280 than them looking back and saying, oh, well, real rates 0:02:41.280 --> 0:02:41.720 will hire. 0:02:41.800 --> 0:02:44.320 All right, let's put this all together and raise a 0:02:44.400 --> 0:02:47.120 question about the soft landing narrative that seems to now 0:02:47.160 --> 0:02:49.320 be the consensus on Wall straight. It seems as though 0:02:49.560 --> 0:02:51.880 this has become a commonplace idea, even though it's been 0:02:51.880 --> 0:02:55.400 elusive historically. I see you laughing. Are you seeing material 0:02:55.480 --> 0:02:58.359 cracks that challenge the idea of this that people are ignoring? 0:02:58.760 --> 0:03:00.800 No, I don't see the material right now, but I 0:03:00.800 --> 0:03:03.640 think the reality you have to understand is that any 0:03:03.760 --> 0:03:07.120 recessionary tendency will wind up being a hard landing. You know, 0:03:07.160 --> 0:03:10.480 there are differences between crashes, credit crunches, and there are 0:03:10.520 --> 0:03:13.640 differences between recessions. And this is going to have to 0:03:13.639 --> 0:03:17.160 be an inflation recession and that's the result, and that's 0:03:17.240 --> 0:03:20.320 not necessarily a soft landing. A soft landing is this 0:03:20.400 --> 0:03:22.640 vague constant when you bring the economy back to trained 0:03:22.720 --> 0:03:25.640 growth and inflation comes back in that direction as well. 0:03:25.840 --> 0:03:27.640 That's not going to happen with a labor market as 0:03:27.680 --> 0:03:30.040 tied as we have today, and it's going to be 0:03:30.040 --> 0:03:32.760 hard to get inflation to go from four percent to 0:03:32.800 --> 0:03:34.640 two percent, a lot harder than it was to go 0:03:34.680 --> 0:03:35.920 from nine to four. 0:03:36.320 --> 0:03:39.760 So we're talking this morning about foot Locker, about Dick's 0:03:39.760 --> 0:03:42.440 boarding goods, about some of the results and retailers that 0:03:42.520 --> 0:03:45.880 have struggled in the past and that are now seeing 0:03:45.880 --> 0:03:48.360 that kind of come to a four. And we're raising 0:03:48.360 --> 0:03:51.640 a question, is this idiosyncratic stories of management structures and 0:03:51.680 --> 0:03:54.880 business models that have become less relevant or is this 0:03:54.960 --> 0:03:59.200 something broader about consumer spending? From your view, not to 0:03:59.240 --> 0:04:01.200 go into the company themselves, but what do you think 0:04:01.240 --> 0:04:01.480 it is. 0:04:01.760 --> 0:04:03.800 No, there's a lot of videosyncratic risk. I mean, keep 0:04:03.840 --> 0:04:06.440 in mind how long the expansion was prior to the 0:04:06.440 --> 0:04:09.920 COVID meltdown, and then the nature of the COVID restructuring 0:04:09.960 --> 0:04:13.480 and the rebalancing or the reacceleration really is papered over 0:04:13.560 --> 0:04:15.680 a lot of problems for a very long period of time, 0:04:15.960 --> 0:04:17.960 and they all have to come home to roost. And 0:04:18.000 --> 0:04:20.880 this is the idea that a recession is somewhat therapeutic 0:04:21.200 --> 0:04:24.200 if it's not a credit crunch, and we kind of 0:04:24.279 --> 0:04:25.640 need that in this environment. 0:04:25.800 --> 0:04:28.560 You are acclaimed and I'm gonna go to Olivia Blanchard's 0:04:28.839 --> 0:04:31.480 study of our start and where we are in the 0:04:31.520 --> 0:04:34.960 one phrase, it permeates. And this is the humility of 0:04:35.040 --> 0:04:39.680 Blanchard's work is other factors. He says, there's things out 0:04:39.720 --> 0:04:42.200 there we don't know. You own the high ground on this. 0:04:42.560 --> 0:04:46.680 What are the other factors? Make this our starred certitude 0:04:46.680 --> 0:04:47.279 a mystery? 0:04:47.760 --> 0:04:49.960 The real issue is when you look at balance sheets, 0:04:49.960 --> 0:04:52.800 which we don't do a lot of. We don't look 0:04:52.800 --> 0:04:55.160 at balance sheets and try to assess where we are. 0:04:55.360 --> 0:04:57.600 We look at things like financial stress measures, which, to 0:04:57.640 --> 0:04:59.760 be honest with you, we play games with because there's 0:04:59.760 --> 0:05:03.000 just tistically created out of indices that we see published 0:05:03.000 --> 0:05:04.960 in markets. The reality is when you get to look 0:05:05.000 --> 0:05:07.680 at the underlying balance sheets of companies and you look 0:05:07.720 --> 0:05:10.719 at them at a macro level, balance sheets are extraordinarily healthy. 0:05:11.160 --> 0:05:13.159 And this is why when you look at Silicon Valley 0:05:13.160 --> 0:05:15.440 and so far, you could actually back away from that 0:05:15.520 --> 0:05:17.720 having bit of credit crunch because the underlying balance sheet 0:05:17.720 --> 0:05:19.120 of the banking industry is very healthy. 0:05:19.480 --> 0:05:22.200 Just to scrippulse all together. What is an inflationary recession? 0:05:22.279 --> 0:05:23.560 What is an inflation recession? 0:05:24.080 --> 0:05:26.239 Well, the difference between an inflation recession is a credit 0:05:26.279 --> 0:05:29.440 recession is basically, the interest rate increases in the inversion 0:05:29.480 --> 0:05:31.960 of the curve slow the economy to bring down inflation 0:05:32.720 --> 0:05:35.560 in a credit crunch. What happens is the inverted curve 0:05:35.720 --> 0:05:39.480 causes a credit crunch that then causes a recession. So 0:05:39.720 --> 0:05:43.159 the Federal Reserve has to slow the economy. You can't 0:05:43.240 --> 0:05:45.800 get the economy to slow and get inflation to come 0:05:45.880 --> 0:05:49.360 down to target unless you're going to create an access 0:05:49.680 --> 0:05:52.119 in the labor market or some access in the labor market. 0:05:52.440 --> 0:05:54.400 That's what they have to accomplish. You can only do 0:05:54.480 --> 0:05:58.400 that by having GDP contract. That's a recession. The reality 0:05:58.440 --> 0:06:01.520 from a credit crunch standpoint, is the credit crunch causes 0:06:01.680 --> 0:06:04.760 the recession, and that's what nineteen ninety was, that was 0:06:04.760 --> 0:06:07.320 what two thousand was, that was two thousand and seven was. 0:06:07.520 --> 0:06:10.080 And the reality is that's what COVID was, because COVID 0:06:10.120 --> 0:06:13.040 was a massive corporate balance sheet problem and household balance 0:06:13.040 --> 0:06:16.279 sheet problem, and that's why they required subsidy levels of 0:06:16.279 --> 0:06:16.720 interest rate. 0:06:16.760 --> 0:06:18.760 The sever short of thank you so much with Missoul 0:06:23.360 --> 0:06:26.800 Lizzayne Saunders right now to save the show Chief Investment 0:06:26.800 --> 0:06:30.440 Stratus to Charles Schwab, this is an important conversation given 0:06:30.480 --> 0:06:34.440 the gloom out there. What's the Saunder's gloom measurement right now, 0:06:34.520 --> 0:06:37.560 liz In how gloomy is it in the land of equities? 0:06:38.800 --> 0:06:41.520 So we really started to face problems at the beginning 0:06:41.520 --> 0:06:45.560 of June. Lots of conversation, obviously about the concentration problem, 0:06:45.640 --> 0:06:48.960 the Magnificent seven dominating pretty much all performance. At the 0:06:49.000 --> 0:06:51.800 same time, he only had fifteen percent of the S 0:06:51.880 --> 0:06:56.080 and P constituents outperforming the index over the prior sixty days, 0:06:56.080 --> 0:06:58.200 So it was sort of this double whammy of concentration 0:06:58.279 --> 0:07:03.919 which often happens and cap waited indexes, but such significant underperformance. Initially, 0:07:04.120 --> 0:07:07.280 we started to see some breath improvement at the beginning 0:07:07.520 --> 0:07:10.480 of the pullback that we saw up the cap spectrum 0:07:10.560 --> 0:07:15.040 into those megacap names. Now, unfortunately, we've seen this deterioration 0:07:15.960 --> 0:07:17.960 in breadth and it's sort of across the board, and 0:07:18.000 --> 0:07:20.320 I think more has to be worked out there. Even 0:07:20.360 --> 0:07:24.040 on a day like yesterday, under the surface, it didn't 0:07:24.040 --> 0:07:26.640 look great. And these pullbacks tend to have three steps, 0:07:26.720 --> 0:07:28.840 you know. The first step is you start the down 0:07:28.920 --> 0:07:30.960 moving a little bit of a relief rally, and then 0:07:31.000 --> 0:07:33.120 you continue. I don't know if it's going to be 0:07:33.240 --> 0:07:35.840 in correction territory, but I think there's probably a bit 0:07:35.880 --> 0:07:37.440 more that has to to come out. 0:07:37.520 --> 0:07:39.680 You right right where I want to go to review, folks. 0:07:39.680 --> 0:07:42.840 From twenty twenty one, the peak of the markets SPX 0:07:42.960 --> 0:07:46.320 is down nine percent, eight percent whatever, and late the 0:07:46.360 --> 0:07:50.040 recent pullback has just been a crater down four percent. Listen, 0:07:50.080 --> 0:07:51.520 and you got to be kidding me. You and I 0:07:51.600 --> 0:07:55.239 remember when a correction was a correction? Is the mathematics 0:07:55.240 --> 0:07:58.560 of correction? Bear market or dare I say, down thirty 0:07:58.560 --> 0:08:01.760 five percent? Still in play? Are we in a new world? 0:08:03.320 --> 0:08:08.040 Well, so we've gone now almost six hundred days without 0:08:08.160 --> 0:08:11.600 hitting a new cycle high. That's a pretty extended period 0:08:11.640 --> 0:08:15.400 of time, and that suggests that this is more likely 0:08:15.680 --> 0:08:19.880 a rally, you know, in a in a bear market. 0:08:20.400 --> 0:08:23.200 But we've all been surprised so many times with the 0:08:23.280 --> 0:08:26.320 unique nature of this cycle, and we still have the 0:08:26.680 --> 0:08:30.320 dip buyers that come in. And what's interesting is those 0:08:30.560 --> 0:08:33.320 mini phases that happen of the dip buyers stepping in. 0:08:33.400 --> 0:08:36.560 It's also when you see a lot of attention go 0:08:36.720 --> 0:08:39.400 down the quality spectrum. You know, you get lips in 0:08:39.440 --> 0:08:43.679 the meme stocks and the nonprofitable areas. That's the segment 0:08:43.720 --> 0:08:45.520 of the market that I think you wanted to use 0:08:45.559 --> 0:08:47.959 trade or lingu fade. I think you want to continue 0:08:47.960 --> 0:08:52.760 to lean into called the quality trade and just be 0:08:52.920 --> 0:08:58.240 mindful of fomo down the quality spectrum, especially in nonprofitable areas. 0:08:58.880 --> 0:09:01.480 One area that has seen a large amount of interest, 0:09:01.559 --> 0:09:04.200 especially in light of this question around where we are 0:09:04.200 --> 0:09:06.600 in the cycle as being consumer discretionary, and I'm wondering 0:09:06.920 --> 0:09:08.920 if you think people have gotten over their skis and 0:09:08.920 --> 0:09:12.960 the optimism that the savings won't run out for individuals, 0:09:13.160 --> 0:09:15.240 and I'm among those people that question, maybe it's never 0:09:15.240 --> 0:09:17.640 going to run out. But then the Macy's CEO got 0:09:17.679 --> 0:09:19.520 on the call and said that credit card delinquency is 0:09:19.559 --> 0:09:24.040 taking up pretty significantly and really seeing consumers much more 0:09:24.480 --> 0:09:27.720 restrained with how much they're spending. Do you buy that story? 0:09:27.720 --> 0:09:29.240 Do you think that's going to come to the fore more? 0:09:30.200 --> 0:09:30.480 I do? 0:09:30.559 --> 0:09:34.079 And if you have to peel a layer to back 0:09:34.160 --> 0:09:37.080 from the onion when looking at things like broader retail 0:09:37.200 --> 0:09:42.520 sales or even individual retailers reports, to look at unit sales, 0:09:42.640 --> 0:09:47.480 the biases in terms of consumers moving more toward you know, 0:09:47.600 --> 0:09:51.200 generic type brands as opposed to higher end brands. We 0:09:51.280 --> 0:09:55.880 also have to be really mindful of differentiating between nominal data, 0:09:55.880 --> 0:09:58.360 and a lot of retail data is expressed in nominal 0:09:58.440 --> 0:10:02.080 terms and in real terms. And you're right, I think 0:10:02.120 --> 0:10:06.280 pointing out delinquency is important. It's mostly been concentrated down 0:10:06.320 --> 0:10:09.760 in the higher risk segments, lower income, subprime, but you're 0:10:09.840 --> 0:10:14.840 starting to creep into more of the quality segments on 0:10:14.880 --> 0:10:18.280 the delinquency side. I still think though, that it's the 0:10:18.440 --> 0:10:24.079 labor market that is most important to ongoing consumption remaining 0:10:24.280 --> 0:10:29.880 somewhat healthy, even more so probably than the saving story, 0:10:29.920 --> 0:10:33.040 the excess savings. I think it's the labor market. If 0:10:33.040 --> 0:10:35.160 we start to see more cracks in the labor market, 0:10:35.360 --> 0:10:38.679 I think the consumer could maybe shut down the spigots 0:10:39.360 --> 0:10:40.120 fairly quickly. 0:10:40.360 --> 0:10:42.120 Liz, And what kind of cracks do we see now 0:10:42.240 --> 0:10:43.120 in the labor market. 0:10:44.520 --> 0:10:46.679 Yeah, ours works have come down quite a bit in 0:10:46.679 --> 0:10:50.000 this environment where there might still be labor hoarding. You're 0:10:50.040 --> 0:10:55.400 certainly seeing that. You've seen weakness in temporary employment, multiple 0:10:55.480 --> 0:10:59.520 job holders having gone up. You've had some bouts of 0:10:59.559 --> 0:11:06.480 an in unemployment claims. We've seen some of the commentary 0:11:06.559 --> 0:11:09.559 from some of the recruiting companies that are withdrawing guidance. 0:11:09.640 --> 0:11:11.880 So I think you're going to start to see it 0:11:12.000 --> 0:11:16.400 on the job openings, layoff announcement side of things. So 0:11:17.520 --> 0:11:19.480 they're still cracks, but they're wider than they were a 0:11:19.480 --> 0:11:20.079 few months ago. 0:11:20.080 --> 0:11:22.280 It just happened him really really slowly. Isn't it just 0:11:22.360 --> 0:11:24.120 much slower than we thought it would? Listen, thank you 0:11:24.160 --> 0:11:27.160 for the update as Alwise, listener sunders at Shashchuap. 0:11:37.640 --> 0:11:40.080 What is important here at the surveillance is we like 0:11:40.120 --> 0:11:43.319 to focus for thirty minutes on a theme. Damien Sassawur 0:11:43.440 --> 0:11:46.720 scheduled to darken the door on em and the market 0:11:46.760 --> 0:11:50.400 dynamics and far more. John is to speak to someone 0:11:50.760 --> 0:11:54.760 including the frontier economy Europe, and that would be doctor Weisman. 0:11:55.080 --> 0:11:57.040 All of his work at bear Stearns and now. 0:11:56.960 --> 0:11:59.880 At Macquarie, Harry got to say you fantastic has always 0:12:00.120 --> 0:12:02.720 to change over in Europey. We thought this year would 0:12:02.720 --> 0:12:05.599 be good, driven by China reopening. How important do you 0:12:05.640 --> 0:12:08.000 think the global slowdown is going to be in Jackson 0:12:08.040 --> 0:12:08.800 holl this Friday? 0:12:09.679 --> 0:12:12.600 Not too important because I think that the theme of 0:12:12.640 --> 0:12:15.120 the symposium or the conference, if you will, is not 0:12:15.240 --> 0:12:18.000 the short term. It's not the cyclical themes. The theme 0:12:18.040 --> 0:12:21.000 they've laid out is the structural changes in the global economy. 0:12:21.000 --> 0:12:22.760 And when you hear something like that, you think that 0:12:22.800 --> 0:12:24.880 the speakers are going to be directed towards talking about 0:12:24.880 --> 0:12:27.440 things that happen a year from now, two years from now, 0:12:27.480 --> 0:12:30.679 three years from now. As far as Powell's speech goes, look, 0:12:30.840 --> 0:12:33.200 the FED could if it wanted to pat itself on 0:12:33.240 --> 0:12:36.160 the back. Inflation is low in the US, the economy 0:12:36.160 --> 0:12:38.880 looks a bit robust at in certain quarters. But I 0:12:38.880 --> 0:12:41.280 don't think it's time for him to do that. There 0:12:41.280 --> 0:12:44.360 are still too many hawks on the FOROMC panel that 0:12:44.400 --> 0:12:47.800 are nudging him towards at least sounding as if he 0:12:47.840 --> 0:12:50.839 should be hawkish from a medium term and long term perspective. 0:12:51.040 --> 0:12:54.400 When you think about those narratives about the global economy 0:12:54.720 --> 0:12:58.640 that are structural and longer term in perspective, they are 0:12:58.800 --> 0:13:04.400 things like climate change, deglobalization, demographic change, high debt in 0:13:04.480 --> 0:13:08.480 the emerging markets. Those are all things that sound inflationary. 0:13:08.640 --> 0:13:11.760 At least two of them feel like negative supply shocks. 0:13:12.200 --> 0:13:15.640 So I don't think he'll be inclined to say much 0:13:15.840 --> 0:13:18.120 about the short term and the outlook for the FED 0:13:18.160 --> 0:13:20.199 funds rate. I think he will focus, if he sticks 0:13:20.200 --> 0:13:22.920 to the narrative of the symposium, on those longer term considerations, 0:13:23.240 --> 0:13:25.800 and that will mean that he's going to stress that 0:13:25.880 --> 0:13:28.000 it's going to be difficult to get to that last 0:13:28.080 --> 0:13:31.280 mile of inflation decline from three percent to two percent, 0:13:31.679 --> 0:13:34.160 and therefore don't expect rates to be cut. 0:13:34.720 --> 0:13:37.199 I look at Europe and what we're going to hear 0:13:37.200 --> 0:13:39.800 from Powell and from the Guard and other worthies are 0:13:39.800 --> 0:13:42.280 going to be there is well. And I look at 0:13:42.280 --> 0:13:44.880 our start as a debate here. It's an academic debate 0:13:44.920 --> 0:13:48.880 of a full and running economy in Europe, whether it's 0:13:48.920 --> 0:13:54.080 Eurosclerosis or something new. Can there be a European our start. 0:13:54.400 --> 0:13:58.800 Can you do legit economic analysis of the European experiment? 0:13:59.200 --> 0:14:01.600 You can, and I think you can do a legitimate 0:14:02.080 --> 0:14:04.720 analysis of the current cycle in Europe. This weakness that 0:14:04.760 --> 0:14:07.719 we're seeing both in manufacturing and now in the services, 0:14:08.000 --> 0:14:10.720 I think to a large extent, the manufacturing slowed down 0:14:10.760 --> 0:14:13.319 in Europe is coincident with the Chinese manufacturing slowed down. 0:14:13.320 --> 0:14:15.160 I don't think you can separate the two. Look China 0:14:15.240 --> 0:14:18.839 had this massive slow down in manufacturing in the second quarter, 0:14:19.200 --> 0:14:21.120 Well look at that. Europe had a massive slow down 0:14:21.120 --> 0:14:23.000 in manufacturing in the second quarter too. We know those 0:14:23.040 --> 0:14:26.480 economies are connected through the German industrial complex and the 0:14:26.480 --> 0:14:28.440 export economy in Europe, so I don't think that's too 0:14:28.520 --> 0:14:31.880 much of a mystery. China and Europe are coincident. I 0:14:31.960 --> 0:14:34.800 do think, however, that this service is slowed down we're 0:14:34.840 --> 0:14:37.920 seeing is also analyzable. But I think the focus has 0:14:37.920 --> 0:14:40.360 been too much on what the ECB has done with rates. 0:14:40.680 --> 0:14:43.120 It hasn't been enough on what the ECP has done 0:14:43.120 --> 0:14:46.120 with liquidity that it issues to the banks. The Teltrope 0:14:46.120 --> 0:14:49.000 program has been winding down out of the ECB for 0:14:49.520 --> 0:14:51.560 a few months now, and if you look at credit 0:14:51.600 --> 0:14:54.920 creation coming out of Europe, the extent to which banks 0:14:54.920 --> 0:14:58.040 have issued credit to the private economy, it has flatlined. 0:14:58.280 --> 0:15:00.760 And that's the reason why Europe is now seeing this 0:15:00.840 --> 0:15:01.600 slump in service. 0:15:01.800 --> 0:15:03.760 Just to underscore this, in other words, the slow down 0:15:03.800 --> 0:15:07.160 in services is directly related to the transmission mechanism of 0:15:07.240 --> 0:15:10.960 ECB policy, not necessarily what's going on with China. Correct, 0:15:10.960 --> 0:15:11.920 is that basically what you're saying. 0:15:11.960 --> 0:15:13.800 That's right, But what I'm also saying is don't look 0:15:13.800 --> 0:15:15.640 at rates. Don't look at the deposit rate being at 0:15:15.640 --> 0:15:17.720 three and three quarters percent. That doesn't really tell you 0:15:17.960 --> 0:15:20.320 much about what's going to happen to the European economy. 0:15:20.360 --> 0:15:23.480 Look at bank credit, look at broader monetary agrates. They 0:15:23.480 --> 0:15:26.720 have flatlined, and nominal terms they're actually down year on year. 0:15:26.920 --> 0:15:30.200 In real terms, it's the credit economy that people don't 0:15:30.240 --> 0:15:32.240 focus enough on, And if they had been focusing on 0:15:32.280 --> 0:15:34.480 that flatlining, they would have predicted to slow down an 0:15:34.480 --> 0:15:35.400 agurd demand in Europe. 0:15:35.560 --> 0:15:38.560 Is the European economy so different from the US economy 0:15:38.560 --> 0:15:41.520 in terms of the rate structure and the lending structure, 0:15:42.160 --> 0:15:45.080 that there is no analog to be drawn in terms 0:15:45.120 --> 0:15:48.160 of how higher rates in Europe are affecting the economy 0:15:48.200 --> 0:15:51.000 and how they will eventually trickle out in the US 0:15:51.040 --> 0:15:52.680 economy and affect the economy there. 0:15:52.760 --> 0:15:54.760 They should affect the US economy the same way. But 0:15:54.800 --> 0:15:57.360 there is an important difference between the Europepean economy and 0:15:57.360 --> 0:16:00.239 the US economy. And that's as follows. The European economy 0:16:00.320 --> 0:16:02.800 is overly dependent on its banking system for the extension 0:16:02.840 --> 0:16:05.560 of credit. They really don't have non bank lenders, they 0:16:05.560 --> 0:16:09.040 don't really have direct lending. In Europe, everyone who wants 0:16:09.040 --> 0:16:11.200 a loan ultimately has to find his way to his 0:16:11.280 --> 0:16:13.760 or her way to a bank. In the US, it's 0:16:13.800 --> 0:16:14.480 completely different. 0:16:14.520 --> 0:16:14.640 Now. 0:16:14.640 --> 0:16:16.560 If you were just to analyze the banking systems in 0:16:16.600 --> 0:16:19.359 Europe versus the US, you'd find a lot of similarities 0:16:19.440 --> 0:16:22.560 right now. You'd find that credit is contracting. You'd find 0:16:22.600 --> 0:16:24.560 that loan officers in the US just says in Europe 0:16:24.600 --> 0:16:28.040 are much less willing to extend loans. Maybe the reasons 0:16:28.160 --> 0:16:29.920 are mildly different. Maybe in the US has to do 0:16:29.920 --> 0:16:31.760 it regulatory overhanging. Maybe in Europe it has to do 0:16:31.760 --> 0:16:35.200 with what the ECP has done. That's the similarity. The difference though, 0:16:35.440 --> 0:16:37.280 is that the US doesn't have to depend just on 0:16:37.320 --> 0:16:39.800 its banks. There are other sources of lending to support 0:16:39.800 --> 0:16:42.520 the startup economy, the legacy economy. We don't have that 0:16:42.560 --> 0:16:46.800 in Europe, and therefore when banking bank credit contracts in Europe, 0:16:46.880 --> 0:16:49.640 you feel the effect on agurate demand much more than 0:16:49.640 --> 0:16:50.960 you do in the US. And I think that's what 0:16:50.960 --> 0:16:52.760 we're seeing now. The US will catch up. 0:16:52.760 --> 0:16:56.560 Though there is a time for a surveillance audible. We 0:16:56.680 --> 0:16:59.600 will do it right now. It's your weisman as well. 0:17:00.040 --> 0:17:03.400 Years ago you would publish with m David Malpas and 0:17:03.440 --> 0:17:06.600 the rest of the Klan it bears Stearns on Latin America, 0:17:06.720 --> 0:17:11.280 and the world would stop. Argentina. Do we care or 0:17:11.320 --> 0:17:13.919 is it just the problem child of our lifetimes? 0:17:14.160 --> 0:17:16.600 I don't care. I think it's the problem child if 0:17:16.600 --> 0:17:20.480 our lifetimes. You know, it's not that well integrated into 0:17:20.480 --> 0:17:23.920 the global economy. Yes it has, it has some commodity exports. 0:17:23.920 --> 0:17:27.119 But I lose the hysteria, Yeah, lose the hysteria on Argentina. 0:17:27.600 --> 0:17:29.399 It's not terrible by the way that they may have 0:17:29.440 --> 0:17:32.360 a present that's going to adopt some radical market policies. 0:17:32.359 --> 0:17:34.639 In the final analysis, when you have a situation like 0:17:34.720 --> 0:17:38.000 this that hasn't been working for you know, more than 0:17:38.080 --> 0:17:42.359 more than four decades, why why be scared of something new? Exactly? 0:17:42.600 --> 0:17:45.639 I would be much more scared of something old, you know. 0:17:45.760 --> 0:17:48.040 So okay, So what should the IMF too? They've been 0:17:48.040 --> 0:17:50.280 handing them out gazillions gazillion. They're right, they're going to 0:17:50.280 --> 0:17:51.240 write a chuck of Morocco. 0:17:51.280 --> 0:17:53.400 I assume, I am after Just wait, you cannot make 0:17:53.440 --> 0:17:55.680 a decision with regard to the extension of credit until 0:17:55.680 --> 0:17:58.080 you see what the political economy is. Let let things 0:17:58.680 --> 0:18:01.280 let things simmer for a while in Argentina, Let's see 0:18:01.320 --> 0:18:03.560 what the policy agenda would be under a new president 0:18:03.640 --> 0:18:06.680 or a legacy administration, and then make a decision. 0:18:07.040 --> 0:18:10.159 Terry, thank you, it's going to say Terry Weisman at 0:18:10.240 --> 0:18:17.080 Macquarie on the Club of Economy. 0:18:16.280 --> 0:18:19.960 Creig Value joins as chiefs Policy Strategist AGF. Greg I'm 0:18:19.960 --> 0:18:22.840 going to cut to the chase. The stereotype is a 0:18:22.880 --> 0:18:25.760 polarity of the nation and maybe even the polarity of 0:18:25.800 --> 0:18:30.359 the party. Let's cut to the Wisconsin chase. Wisconsin was 0:18:30.400 --> 0:18:34.120 won by Biden, by under one percentage point zero point 0:18:34.200 --> 0:18:38.280 sixty three percent. Trump won it four years earlier by 0:18:38.400 --> 0:18:42.560 zero point seven seven percent. How does this debate fold 0:18:42.560 --> 0:18:46.880 into those x number, those ten key states that make 0:18:46.960 --> 0:18:48.880 the difference in November of next year. 0:18:50.160 --> 0:18:53.399 Well, this is the opening night. Obviously, I'll get my 0:18:53.920 --> 0:18:56.520 espresho machine out. It's going to be a late night. 0:18:57.280 --> 0:19:00.560 I think it's time for some new faces. And I 0:19:00.600 --> 0:19:03.760 think maybe one of the stories tomorrow morning will be 0:19:04.160 --> 0:19:07.400 the emergence of Tim Scott, the African American Senator from 0:19:07.400 --> 0:19:11.320 South Carolina. Maybe this guy Ramaswami. There's a couple of 0:19:11.359 --> 0:19:15.159 other people who might do well. It's the beginnings of 0:19:15.240 --> 0:19:18.359 a sign that the country will look at fresh faces. 0:19:18.520 --> 0:19:21.760 Where is the debris of George Bush Senior? Somebody who 0:19:21.800 --> 0:19:26.440 worked in office for decades and decades Centrist Republican? Is 0:19:26.480 --> 0:19:28.520 that Chris Christy? Or am I confused? 0:19:29.600 --> 0:19:32.879 Well, Chris Christy is a Centrist, but he's also very pugnacious. 0:19:33.680 --> 0:19:36.400 He can brawl, and I think he will be the 0:19:36.520 --> 0:19:39.760 hit man to go after Donald Trump. I don't blame 0:19:39.760 --> 0:19:41.960 Trump for not showing up. I mean, he's ahead by 0:19:42.160 --> 0:19:45.119 forty points in a lot of states, so he'd have 0:19:45.200 --> 0:19:48.400 nothing to gain and everything to lose by showing up, 0:19:48.400 --> 0:19:52.480 but he will be a subject. I would focus Tom 0:19:52.840 --> 0:19:56.440 on other issues that will be interesting tonight. Aid to Ukraine, 0:19:56.800 --> 0:19:58.919 what do we do about the budget deficit? There are 0:19:59.040 --> 0:20:00.960 issues where the party divide. 0:20:00.920 --> 0:20:03.440 And that's one reason why people actually want to hear 0:20:03.560 --> 0:20:05.960 the issues which have gotten drowned out by some of 0:20:06.000 --> 0:20:08.320 the larger concepts that you want to dig into that. 0:20:08.359 --> 0:20:10.560 But before we do, you said you want to see 0:20:10.600 --> 0:20:13.600 fresh faces and a lot of people are looking for 0:20:13.640 --> 0:20:16.240 that at a time or run to Santis is having 0:20:16.280 --> 0:20:18.800 to prove himself in a new way. What does he 0:20:18.920 --> 0:20:22.320