WEBVTT - Carrots and sticks 0:00:03.880 --> 0:00:07.200 Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. You know, 0:00:07.280 --> 0:00:10.119 it's always easy to tell what the bottom looks like 0:00:10.200 --> 0:00:13.400 after the fact, and it always feels like there's something 0:00:13.400 --> 0:00:15.880 waning in the wings. Barry riddles on the last eleven 0:00:15.880 --> 0:00:19.120 months in markets and what we may not know maybe coming. 0:00:19.600 --> 0:00:21.840 We will also review the year in FED decisions and 0:00:21.920 --> 0:00:26.120 preview three Central Bank choices. But first to China were 0:00:26.200 --> 0:00:29.520 visible maths. Anti COVID lockdown protests broke out this week 0:00:29.560 --> 0:00:32.960 in major cities and universities after nearly three years of 0:00:33.120 --> 0:00:36.680 rolling lockdowns. I spoke with Bloomberg Opinions at Clara Ferra Marquez. 0:00:37.159 --> 0:00:40.040 Klara will obviously be seeing references to Tianamen Square in 0:00:40.080 --> 0:00:43.680 nine for the foreseeable future as this continues. Are those 0:00:43.680 --> 0:00:47.080 comparisons warranted? So I think it's important to understand the 0:00:47.200 --> 0:00:51.160 context of protesting and authoritarians to Surman and protests in China. 0:00:51.240 --> 0:00:55.000 So protests and China is actually less unusual than people think. 0:00:55.040 --> 0:00:57.320 So it does happen, It is tolerated, but in very 0:00:57.360 --> 0:01:01.360 specific circumstances. So it tends to be around livelihood issues, 0:01:01.600 --> 0:01:03.760 the bread and butter issues, where the government does allow 0:01:03.800 --> 0:01:05.880 people a bit of space. It also tends to happen 0:01:06.360 --> 0:01:12.440 within particular groups, so students, workers, ethnic minorities. What's particular 0:01:12.480 --> 0:01:14.920 about the last few days is really that all of 0:01:14.959 --> 0:01:18.040 this is happening simultaneously. All of these groups are protesting 0:01:18.040 --> 0:01:21.520 at the same time, united by the COVID factor. And 0:01:21.600 --> 0:01:24.600 also importantly and dangerously for the government, you have the 0:01:24.640 --> 0:01:28.080 livelihood issues overlapping with political issues that very quickly the 0:01:28.120 --> 0:01:30.839 slogans you hear on the streets are not a stop 0:01:30.920 --> 0:01:34.800 mask testing, it's become a shooting. Things stepped down very quickly, 0:01:34.959 --> 0:01:38.240 and I think that is what creates a combustible situation. 0:01:38.360 --> 0:01:40.960 I really think this comparisons of nine nine are very 0:01:41.080 --> 0:01:44.520 premature and a little bit hyperbolic, very easy, especially from 0:01:44.520 --> 0:01:47.160 the western um point of view, to see these images 0:01:47.160 --> 0:01:50.360 on Twitter and where on social media and really jumped 0:01:50.360 --> 0:01:52.360 to that. And while I wouldn't take anything away from 0:01:52.400 --> 0:01:55.400 the incredible bravery of people who are standing outside even 0:01:55.400 --> 0:01:58.240 with blank sheets of paper, um, you know, that's that's 0:01:58.240 --> 0:02:00.440 a very very difficult thing to do. And I would 0:02:00.440 --> 0:02:04.160 also highlight that small numbers are still significant in authoritarian 0:02:04.240 --> 0:02:06.080 systems in a way that you know, a hundred people 0:02:06.160 --> 0:02:08.440 might not be much of a protest in Washington, d C. 0:02:08.600 --> 0:02:11.440 Or in em Paris, but it's certainly and I think 0:02:11.440 --> 0:02:15.920 it's really too soon to get to that stage. But 0:02:16.000 --> 0:02:19.280 it is particularly striking that they are actually targeting season 0:02:19.280 --> 0:02:22.600 Ping himself right after his consolidated power and has never 0:02:22.680 --> 0:02:26.440 been in a more powerful position in China. In some ways, Um, well, 0:02:26.480 --> 0:02:28.400 it's striking in this note. I mean, if you're a 0:02:28.480 --> 0:02:33.480 highly personal system, highly centralized, you're ultimately the person responsible, 0:02:33.960 --> 0:02:36.119 right and I think you're the target. And I think 0:02:36.160 --> 0:02:38.400 that's is both the strength and the weakness here. And 0:02:38.840 --> 0:02:41.600 it's obviously where people go in terms of attributing blame, 0:02:41.639 --> 0:02:44.200 which makes the situation dangerous. It's also what's made the 0:02:44.280 --> 0:02:48.400 COVID situation very difficult to handle because it's quite hard 0:02:48.480 --> 0:02:51.000 to be responsive. And remember China was famous for its 0:02:51.160 --> 0:02:54.760 responsive authoritarian system. It's very hard to be responsive when 0:02:54.760 --> 0:02:57.880 you're taking all the decisions invaging very distance from a 0:02:57.960 --> 0:03:02.440 lot of your billion people. So um, and it's also 0:03:02.560 --> 0:03:05.560 very hard to modulate. So if you look at countries 0:03:05.600 --> 0:03:08.200 have done well then their COVID responses and done well 0:03:08.240 --> 0:03:13.040 and emerging from recently draconian regime to manage COVID. They've 0:03:13.040 --> 0:03:15.639 done well because they have been responsive. They have done 0:03:15.639 --> 0:03:19.560 it quatually, but surely they've managed education. There is absolutely 0:03:19.560 --> 0:03:23.080 no way that China can do that without empowering local government, 0:03:23.200 --> 0:03:26.760 local officials, neighborhood committees to some extent, and that isn't happening. 0:03:26.760 --> 0:03:29.640 The incentives of the people have not changed. It is 0:03:29.680 --> 0:03:33.720 still COVID zero. How will the Communist Party and presidency 0:03:33.760 --> 0:03:35.880 deal with this? How long will they let it go 0:03:35.920 --> 0:03:39.520 on for and build? Because I'm sure if something isn't done, 0:03:39.520 --> 0:03:43.520 then it will continue to build. And obviously media coverage, 0:03:43.560 --> 0:03:45.600 ole and so on will build, and that's not good 0:03:45.640 --> 0:03:49.320 for she's reputation. Um. I mean remember that people in 0:03:49.400 --> 0:03:52.000 China not seeing exactly what we are seeing. I suspect 0:03:52.000 --> 0:03:54.320 the government would very much like dis tocive about I 0:03:54.360 --> 0:03:57.400 think it is unlikely to do so without some sort 0:03:57.400 --> 0:04:00.520 of COVID response. I think they have a number of 0:04:00.560 --> 0:04:03.000 leavers at their disposal. Obviously, exactly how they respond is 0:04:03.040 --> 0:04:04.920 the million dollar questions. We do not know the answer 0:04:04.960 --> 0:04:07.000 to that. I would just point out that they have 0:04:07.040 --> 0:04:09.600 a lot of levers still at their disposal, including the 0:04:09.720 --> 0:04:13.920 response was force a response using either COVID or just 0:04:14.000 --> 0:04:17.200 police forces they used in Hong Kong in but the 0:04:17.200 --> 0:04:20.360 precedents are not good here, and all of that remains 0:04:20.480 --> 0:04:23.160 in Shijing ping arsenal as it were. I mean, all 0:04:23.160 --> 0:04:25.840 of that remains at his disposals. He has not used 0:04:25.880 --> 0:04:28.719 those responses yet. I mean, they're really hoping that with 0:04:28.839 --> 0:04:31.200 a few tweaks here and there, they can get it through. 0:04:31.279 --> 0:04:34.000 But I think that's quite hard to quite hard to see. 0:04:34.360 --> 0:04:36.400 It's very hard to get inside his head, obviously, But 0:04:36.680 --> 0:04:39.160 I mean, what do you imagine his instinct would be. 0:04:39.200 --> 0:04:40.880 Would it be to be harsh and to crack down 0:04:40.920 --> 0:04:43.400 on this in a harsh way immediately, or to respond 0:04:43.440 --> 0:04:45.599 with some kind of as you say, COVID response, in 0:04:45.600 --> 0:04:48.960 other words, more easing, giving people what they want, what 0:04:49.080 --> 0:04:52.120 they saw desire, even if it means additional deaths. No, 0:04:52.440 --> 0:04:54.240 I think it is very unlikely that he will give 0:04:54.279 --> 0:04:55.920 people what they want. I mean that there's a very 0:04:55.960 --> 0:04:58.880 There's two things that I would frame you're thinking around that, 0:04:59.040 --> 0:05:01.240 and one is because she's thinking there are very few 0:05:01.279 --> 0:05:03.799 events more important than the collapse of the Soviet Union, 0:05:03.800 --> 0:05:06.120 and the way he always lookeded that, and he gave 0:05:06.160 --> 0:05:08.400 a famous speech not long after he came to power 0:05:08.440 --> 0:05:11.720 that he where he basically said it collapsed because the 0:05:11.720 --> 0:05:14.920 party didn't control the military and because and I think 0:05:14.960 --> 0:05:17.320 his effect words are something like no one was mad 0:05:17.440 --> 0:05:20.240 enough to stand up. So I think given mass and 0:05:20.400 --> 0:05:23.560 given what we've seen elsewhere, his instincts are absolutely to 0:05:23.800 --> 0:05:25.599 deal with this in a repressive way. And when I 0:05:25.600 --> 0:05:28.240 say a COVID response, I actually mean exactly that. So 0:05:28.800 --> 0:05:32.840 extra lockdown, extra testing, you know, other ways of repressing 0:05:32.839 --> 0:05:34.920 people that are not police force. I mean, you can 0:05:35.000 --> 0:05:37.080 still do that with the stretches that are in place 0:05:37.360 --> 0:05:40.000 in China today. I think it would be very dangerous 0:05:40.040 --> 0:05:43.200 for somebody in his position to very quickly yield to protest, 0:05:43.240 --> 0:05:45.240 because if you do that, then you know the message 0:05:45.240 --> 0:05:47.280 that it's sending to people is not one that I 0:05:47.360 --> 0:05:49.240 think the government will be very happy to the stand, 0:05:49.240 --> 0:05:52.880 which basically, you protest and we give you what you want. Exactly. So, 0:05:53.040 --> 0:05:55.479 is there an appetite if he does crack down in 0:05:55.520 --> 0:05:58.080 a harsher way? Is there an appetite for a continued 0:05:58.120 --> 0:06:01.320 protest and for he just say it, but for people 0:06:01.400 --> 0:06:04.400 to defy his orders no matter what that might entail. 0:06:05.520 --> 0:06:07.839 I think that really will depend on how they respond. 0:06:07.920 --> 0:06:11.920 So if you have an excessively harsh which protect can trigger, 0:06:12.000 --> 0:06:13.520 you know, as it did in Iran and as it 0:06:13.600 --> 0:06:16.520 has in other places, it can trigger more protest. But 0:06:16.600 --> 0:06:18.800 you could also have a Hong Kong situation where it 0:06:18.839 --> 0:06:21.719 actually does bother to count down at least silence, you know, 0:06:21.800 --> 0:06:24.440 don't deal with the discontent by any means you stop 0:06:24.440 --> 0:06:27.760 people coming out into the street. So the answer, I 0:06:27.800 --> 0:06:30.080 don't really know how he will rundlebod, but I would 0:06:30.080 --> 0:06:33.920 certainly play. Both of those are possible. Noomerg opinions at 0:06:33.920 --> 0:06:37.720 Clara Ferro Marquez. Stay tuned Barry Riddles of Riddle's Wealth 0:06:37.760 --> 0:06:41.560 Management and Bloomberg Radio's Masters in Business next on Bloomberg Opinion. 0:06:42.000 --> 0:06:45.640 You're listening to Bloomberg Opinion. I'm Vannie Quinn. Hard to believe, 0:06:45.839 --> 0:06:48.400 but there's just one month left in twenty twenty two, 0:06:48.520 --> 0:06:51.160 so it seems fitting to chat with Barry Riddles of 0:06:51.240 --> 0:06:54.719 Riddles Wealth Management and Bloomberg Radio's Masters in Business for 0:06:54.720 --> 0:06:57.120 a look back at the year. That was, how markets 0:06:57.160 --> 0:07:01.640 responded and what we should anticipate for the rest two. Okay, Barry, 0:07:01.680 --> 0:07:04.800 we've had this period of huge volatility that seems to 0:07:04.880 --> 0:07:07.279 have died down. What are we supposed to do between 0:07:07.279 --> 0:07:10.760 now and the end of the year. Nothing. I mean, 0:07:10.840 --> 0:07:12.440 I was half expecting you to say that, But it's 0:07:12.720 --> 0:07:15.920 really the case that there's nothing to be done now 0:07:15.960 --> 0:07:18.320 that we're post all the catalysts. So so let's put 0:07:18.320 --> 0:07:23.880 this into a little broader context. Right twenty huge market 0:07:23.920 --> 0:07:27.600 returns thirteen fourteen percent a year on average, far above 0:07:27.720 --> 0:07:30.320 the eight percent we typically see in any given year 0:07:30.320 --> 0:07:34.200 over long periods of time, and then hits and the 0:07:34.280 --> 0:07:38.560 market drops, recovers sixty eight percent by the end of 0:07:38.600 --> 0:07:43.040 the year to finish the year up almost one plus 0:07:43.160 --> 0:07:47.360 twenty eight percent. We have been spoiled by twelve years 0:07:47.400 --> 0:07:51.440 of amazing returns. Hey, you know, if that means we 0:07:51.560 --> 0:07:55.720 have to one out of thirteen years down on the 0:07:55.720 --> 0:07:59.760 equity market down in the bond market, that's a trade off. 0:08:00.120 --> 0:08:03.320 Take every decade for the rest of eternity, a little 0:08:03.360 --> 0:08:06.680 bit of mean reversion is to be expected, especially if 0:08:06.680 --> 0:08:09.120 we're expecting some kind of an earnings recession or a 0:08:09.160 --> 0:08:12.320 worse period for earnings, which we are, And yet we 0:08:12.360 --> 0:08:15.600 really haven't seen earnings numbers that bad. Every now and 0:08:15.640 --> 0:08:18.600 then there's a mess, and those companies get punished, but 0:08:18.840 --> 0:08:22.280 for the most part, earnings have been holding up pretty well. 0:08:22.840 --> 0:08:26.360 It seems like a companies are able of passing through 0:08:26.880 --> 0:08:31.160 input cost increases to their end customers and be even 0:08:31.200 --> 0:08:36.480 companies without input costs increases have been passing price increases along. 0:08:36.960 --> 0:08:40.320 And so there was a recent study done by e 0:08:40.440 --> 0:08:45.120 p I that found that typically something like fifty percent 0:08:45.160 --> 0:08:51.360 of inflation is wage related and eight is corporate margin related. 0:08:51.840 --> 0:08:54.320 The past two years, it's been the opposite. You've had, 0:08:54.480 --> 0:08:57.080 you know, ten percent has been wage related, but over 0:08:57.160 --> 0:09:01.199 fifty has been due to corporate profit ability. When we 0:09:01.400 --> 0:09:06.120 look at inflation, a surprising amount of it is what's 0:09:06.160 --> 0:09:10.040 holding up corporate earnings. Companies are raising their their fees, 0:09:10.040 --> 0:09:14.440 they're raising their prices, and consumers are paying it, and 0:09:14.600 --> 0:09:17.480 inventories are pretty high. Now it feels like there's something 0:09:17.480 --> 0:09:19.280 waiting in the wings. Have we seen the worst of 0:09:19.280 --> 0:09:22.000 it or are we in for another huge downturn? I mean, 0:09:22.040 --> 0:09:24.840 we are down still in the NASTAC and six so 0:09:24.920 --> 0:09:27.400 in the SNP. But might that not be the end 0:09:27.400 --> 0:09:29.960 of it? You know, it's always easy to tell what 0:09:30.080 --> 0:09:33.000 the bottom looks like after the fact, and it always 0:09:33.040 --> 0:09:36.679 feels like there's something waiting in the wings, isn't there always? 0:09:36.720 --> 0:09:38.680 So you don't know what's going to happen with the 0:09:38.720 --> 0:09:41.839 whole crypto blow up. We have no idea when the 0:09:41.920 --> 0:09:44.880 Russian invasion of Ukraine is going to end. No one 0:09:44.920 --> 0:09:47.480 knows what's going on in China and the zero COVID 0:09:47.520 --> 0:09:50.720 policy and how aggressive they're going to be towards Taiwan. 0:09:51.240 --> 0:09:53.560 And the funny thing is, whenever you see the year 0:09:53.600 --> 0:09:57.400 in advance forecasts, there's always a list of horribles that 0:09:57.440 --> 0:10:00.400 could happen, and then when you look backwards, it's always 0:10:00.480 --> 0:10:04.480 this unexpected horrible thing. I don't remember anybody at the 0:10:04.679 --> 0:10:10.280 December year ahead saying, hey, global pandemic shut the economy, 0:10:10.360 --> 0:10:13.920 markets drop. So if you have been watching China really 0:10:13.960 --> 0:10:17.040 really closely, you might have anticipated something like that. You 0:10:17.120 --> 0:10:18.880 have to be looking in the right place at the 0:10:19.000 --> 0:10:23.440 right time and receptive to maybe a global pandemic is 0:10:23.480 --> 0:10:26.640 coming out of this. Now. I think we're, you know, 0:10:26.720 --> 0:10:29.640 every general fights the last war. Now we're definitely more 0:10:29.640 --> 0:10:36.640 receptive to a global pandemic. But in other than Bill Gates, 0:10:37.080 --> 0:10:39.520 how many people were really talking about the risk of 0:10:39.559 --> 0:10:43.320 a global pandemic? Not a lot of people outside of 0:10:43.800 --> 0:10:47.960 you know, world of epidemiology. So we've stopped seeing plus 0:10:48.040 --> 0:10:50.000 one percent moves. Do we try and pick up a 0:10:50.040 --> 0:10:51.760 few basis points before the end of the year. Is 0:10:51.760 --> 0:10:54.720 the arizonta Cal's rally coming? So forget the one percent 0:10:54.800 --> 0:10:58.600 moves and think back when we had this giant seven 0:10:58.640 --> 0:11:01.680 percent gain in NASDAC five or six percent on the 0:11:01.760 --> 0:11:04.720 SMP in the TAO. Not only was it a giant 0:11:04.760 --> 0:11:07.880 move up, but it was on massive volume and very 0:11:07.960 --> 0:11:11.440 very strong breath, meaning many, many more stocks were going 0:11:11.559 --> 0:11:14.840 up than going down. So we looked at the history 0:11:14.840 --> 0:11:16.720 of those sort of moves, and when you look at 0:11:16.760 --> 0:11:20.400 the past, going back to seventy one, you look at 0:11:20.400 --> 0:11:24.000 the twenty largest moves on the NASDAC and as it 0:11:24.040 --> 0:11:27.320 turns out, about twenty five percent of them and take 0:11:27.360 --> 0:11:31.480 place as markets are bottoming. So that's not enough to say, hey, 0:11:31.520 --> 0:11:34.120 bet the house, it's over. The worst is behind us, 0:11:34.160 --> 0:11:35.640 but it should be enough to get you to pay 0:11:35.679 --> 0:11:38.439 attention and say, and by the way, the other s 0:11:39.480 --> 0:11:42.560 all took place during bear markets. You don't get those 0:11:42.600 --> 0:11:46.600 giant moves up ard down in a normal healthy bull market. 0:11:47.080 --> 0:11:50.120 It's during a bear market where the market gets deeply oversold. 0:11:50.200 --> 0:11:52.760 The rubber van is stretched too far in one direction 0:11:52.760 --> 0:11:55.000 and then it snaps back in the other direction. So 0:11:55.160 --> 0:11:59.960 you know, almost of of these big moves taking play 0:12:00.160 --> 0:12:04.160 nearer market bottom should be enough to make people think, well, 0:12:04.200 --> 0:12:08.560 I don't know if this cyclical downturn is over, but 0:12:08.880 --> 0:12:11.480 perhaps the Fed is getting closer to the end than 0:12:11.520 --> 0:12:14.480 the beginning of their rate hiking regime. There are all 0:12:14.559 --> 0:12:18.480 sorts of indicators that peak inflation was six months ago. 0:12:19.080 --> 0:12:22.160 Maybe the FED will figure that out. And the economy 0:12:22.280 --> 0:12:27.520 continues to be surprisingly robust. Consumers continue to spend. GDP 0:12:27.760 --> 0:12:31.439 is two pc plus. It's hard to be too negative 0:12:31.480 --> 0:12:36.280 about three. Hopefully we don't have another asteroid from out 0:12:36.320 --> 0:12:38.880 of space like we had with You know, the pandemic 0:12:38.960 --> 0:12:42.839 to me was not a market internal It wasn't an 0:12:42.840 --> 0:12:46.280 economic thing. It was the asteroid that killed the dinosaurs. 0:12:46.320 --> 0:12:49.840 When it's from outside of the market or the economy, 0:12:49.880 --> 0:12:54.040 that's sort of almost random event tends to cause markets 0:12:54.080 --> 0:12:56.360 to wobble and then they go about back to what 0:12:56.400 --> 0:12:59.800 they were doing. You add five trillion dollars in stimulus, 0:12:59.800 --> 0:13:02.160 and and that's how we got way ahead of ourselves. 0:13:02.640 --> 0:13:06.080 Lots of fiscal stimulus, lots of monetary stimulus, and as 0:13:06.240 --> 0:13:09.720 often is the case, investors got a little carried away. Barry, 0:13:09.720 --> 0:13:13.400 You've seen the implosion of FTX and that whole farrago, 0:13:13.800 --> 0:13:16.800 like really just a terrible story, particularly for retail investors 0:13:16.840 --> 0:13:19.200 that would have gotten involved in this is this sort 0:13:19.200 --> 0:13:21.160 of the unveiling of the emperor with no clothes when 0:13:21.160 --> 0:13:23.520 it comes to at least crypto, not defy, but crypto. 0:13:24.360 --> 0:13:28.040 So when you look at some of the exchanges that 0:13:28.080 --> 0:13:34.400 have been offering ten fifteen guaranteed in air quotes, guaranteed 0:13:34.480 --> 0:13:38.640 yields um you know, you would have thought we learned 0:13:38.640 --> 0:13:42.880 the lesson in the financial crisis when people were promising, hey, 0:13:42.880 --> 0:13:45.480 the ten years yielding two percent, we'll give you four percent, 0:13:45.920 --> 0:13:49.440 every bit as safe as h as treasuries and you 0:13:49.520 --> 0:13:53.120 just have to buy this securitized subprime mortgage debt. And 0:13:53.400 --> 0:13:56.760 that turned out that two hundred basis points was a fantasy. 0:13:57.720 --> 0:14:04.640 How is fifteen hundred asis points not a fantasy? It's 0:14:05.120 --> 0:14:09.600 you know, finance and investing is unique, not just because 0:14:09.880 --> 0:14:13.839 the lessons come along every generation, but nobody ever wants 0:14:13.880 --> 0:14:17.960 to learn from them. If you learned anything from the 0:14:18.000 --> 0:14:22.120 Financial crisis, is that risk and reward or two sides 0:14:22.160 --> 0:14:25.240 of the same coin. There is no free lunch. And 0:14:25.280 --> 0:14:28.480 if you're gonna go chasing yields, you're taking on a 0:14:28.480 --> 0:14:31.080 whole lot more risk. And that's going from two hundred 0:14:31.120 --> 0:14:33.360 based points to four hundred, from two percent to four 0:14:33.440 --> 0:14:38.800 per someone's guaranteeing you fift in a zero percent environment, 0:14:38.840 --> 0:14:42.640 which is when that began. Either there's a Nobel prize 0:14:42.640 --> 0:14:45.680 there or someone's going to jail. There's nothing in between. 0:14:46.760 --> 0:14:49.280 More fallout, though it does appear to be slightly contained. 0:14:50.400 --> 0:14:54.280 You know, the thing about crypto is it's relatively small 0:14:54.480 --> 0:14:58.640 compared to fixed income real estate equities. At its peak, 0:14:58.680 --> 0:15:01.920 what was bitcoin two and a have three trillion dollars, 0:15:01.960 --> 0:15:07.920 So it's an apple and a half, it's two amazons. 0:15:08.000 --> 0:15:11.880 And so I think of crypto as a specific company 0:15:11.920 --> 0:15:17.080 as opposed to one giant um asset class. And so 0:15:17.200 --> 0:15:20.680 if you think about that, hey, any given company can 0:15:20.720 --> 0:15:22.920 blow up and it doesn't mean the world is coming 0:15:22.920 --> 0:15:26.080 to an end. So contained is still a dirty word 0:15:26.240 --> 0:15:31.000 post financial crisis. Remember subprime is contained. Yeah, it was 0:15:31.040 --> 0:15:34.080 contained to planet Earth. Other than that that one place, 0:15:34.200 --> 0:15:37.240 the rest of the Solar System wasn't infected with it. 0:15:37.680 --> 0:15:41.840 Crypto really seems to be much First of all, nobody 0:15:41.880 --> 0:15:44.600 has to buy bitcoin, but you have to live somewhere, 0:15:44.880 --> 0:15:47.000 whether it's a house or an apartment. So that's a 0:15:47.080 --> 0:15:49.680 huge difference. And and the other thing is, you know, 0:15:49.720 --> 0:15:55.920 the whole crypto defied sector, it's a speculative trade. It 0:15:56.240 --> 0:15:59.640 attracts people who are I'm gonna gamble and hope to 0:15:59.680 --> 0:16:02.160 see ten x or a hundred x or whatever it was. 0:16:02.680 --> 0:16:05.840 That's very different than people who are historically fixed income 0:16:05.840 --> 0:16:09.400 buyers or even equity buyers. And so yeah, I a 0:16:09.440 --> 0:16:13.320 group of people who are speculating in a specific space 0:16:13.920 --> 0:16:17.160 end up getting run over because the space is down 0:16:17.200 --> 0:16:22.120 six that that's the nature of speculation, you know, you 0:16:22.120 --> 0:16:24.960 you buy a ticket and you take the good with 0:16:25.080 --> 0:16:29.440 the bad. That said, it doesn't mean that DeFi is dead. 0:16:29.480 --> 0:16:32.440 It doesn't mean that crypto has no future, and it 0:16:32.480 --> 0:16:35.960 doesn't mean that the blockchain isn't a really interesting technology. 0:16:36.320 --> 0:16:38.840 But you have to be specific tokens and coins right 0:16:38.880 --> 0:16:42.000 there and n f t s and you know, I 0:16:42.120 --> 0:16:45.440 kind of came up on a trading desk right into 0:16:45.480 --> 0:16:48.720 the teeth of the dot com implosion and when all 0:16:48.800 --> 0:16:53.120 the dot COM's dropped and people forget the NASDAC from 0:16:53.160 --> 0:16:56.000 from its peak to the bottom in in March two 0:16:56.040 --> 0:17:00.640 thousand and three fell. It doesn't mean that that's the 0:17:00.720 --> 0:17:03.280 end of technology. There's no more Internet, there's no more 0:17:03.320 --> 0:17:07.879 software companies. It means we got wildly speculative and how 0:17:07.920 --> 0:17:10.480 to be taken out to the woodshed and punished. I 0:17:10.600 --> 0:17:13.160 kind of get the sense that crypto is going through 0:17:13.200 --> 0:17:16.200 its own dot com implosion. It doesn't mean the space 0:17:16.280 --> 0:17:20.880 is invalid. It means the speculation got a little crazy, 0:17:20.960 --> 0:17:23.159 and now that things need to come back down to 0:17:23.280 --> 0:17:27.760 earth right, stay tuned. Barry Riddles continues with us. Next 0:17:28.040 --> 0:17:30.800 you kind of have to say to yourself, is the 0:17:30.840 --> 0:17:33.880 stock market saying, hey, the Fed doesn't have a clue 0:17:33.920 --> 0:17:37.920 about inflation, and we think that the market will force 0:17:37.960 --> 0:17:42.440 them to recognize that inflation has passed, and that's why 0:17:42.520 --> 0:17:45.080 we think the tonal rate is not five and a half. 0:17:45.800 --> 0:17:48.919 Don't listen to what they're saying. Look at what they're doing. 0:17:49.160 --> 0:17:52.600 We discussed the federal reserves performance in two and how 0:17:52.640 --> 0:17:56.639 the Fed will proceed through three. This is Bloomberg opinion. 0:17:57.000 --> 0:17:59.560 You're listening to Bloomberg opinion. I'm Vonnie Quinn the time 0:17:59.560 --> 0:18:01.880 for modern rating. The pace of rate increases may come 0:18:01.920 --> 0:18:05.200 as soon as the December meeting. Given our our progress 0:18:05.359 --> 0:18:08.120 in tightening policy, the timing of that moderation is far 0:18:08.200 --> 0:18:10.679 less significant. The Fed ered your own Powell there, and 0:18:10.720 --> 0:18:13.439 we're back with Barry Riddles of Riddles, wealth Management and 0:18:13.520 --> 0:18:16.600 Boomberg Radio's Masters and Business. Well, with just one more 0:18:16.640 --> 0:18:20.000 f OMC meeting on deck for two. I asked Barry 0:18:20.040 --> 0:18:22.480 about the Central Bank's reaction function and how the bank 0:18:22.600 --> 0:18:25.679 will continue to react to higher than desired inflation and 0:18:25.760 --> 0:18:29.159 markets digesting higher rates for the first time in fifteen years. 0:18:29.800 --> 0:18:31.520 Let's talk a little bit about the federal reserves. So 0:18:31.600 --> 0:18:34.119 the terminal rate the market is pricing in five percent now, 0:18:34.200 --> 0:18:37.920 which seems a little optimistic in the sense that maybe 0:18:37.960 --> 0:18:42.040 it should be a little higher. So let me um, 0:18:42.119 --> 0:18:45.600 let me channel my inner FED critic voice. And you 0:18:45.640 --> 0:18:48.760 know I'm fond of telling people my job isn't criticize 0:18:48.800 --> 0:18:50.600 the Fed. I don't work in a think tank. I 0:18:50.680 --> 0:18:54.320 manage assets for clients. But still you can't help but 0:18:54.440 --> 0:18:56.360 look at the FED and say, let me make sure 0:18:56.400 --> 0:19:00.840 I understand the history here. So the pandemic happens. You 0:19:00.920 --> 0:19:04.080 take rates to zero, and as the market begins to 0:19:04.119 --> 0:19:08.000 recover and from the lows in March, just for the 0:19:08.000 --> 0:19:12.040 rest of that year, the same sixty eight percent to 0:19:12.160 --> 0:19:16.320 finish the year plus eighteen percent. That's a giant market 0:19:16.359 --> 0:19:21.119 signal that the Federal Reserve completely ignored. They stay at zero. 0:19:21.600 --> 0:19:26.280 Despite on apparent recovery. Inflation ticks up that year, it 0:19:26.359 --> 0:19:29.680 goes through two percent, which is their target. They're still 0:19:29.720 --> 0:19:34.600 at zero. They stay at zero through all of one 0:19:35.280 --> 0:19:39.680 into this year. And the question is, how did you miss, 0:19:40.160 --> 0:19:43.440 at the very least the fact that inflation was elevated. 0:19:43.480 --> 0:19:46.480 Forget the spike. We know a lot of this is 0:19:46.560 --> 0:19:49.520 pandemic related and reopening and supply chains and all those 0:19:49.560 --> 0:19:54.040 fun things. But so they miss inflation. They stay on 0:19:54.080 --> 0:19:58.520 emergency footing too long. They're just way late to begin 0:19:58.680 --> 0:20:02.280 raising rates. And then once they begin raising rates at 0:20:02.320 --> 0:20:05.640 a very belated period, a ton of indicators come out 0:20:05.720 --> 0:20:10.280 that show inflation is peaked and falling. Houses, use cars, 0:20:10.440 --> 0:20:14.560 new cars, copper, lumber, food, oil go down the list. 0:20:15.040 --> 0:20:18.600 Just item after item shows us that inflation peaked May 0:20:18.680 --> 0:20:24.040 June and has been falling and the biggest contributor to CPI, 0:20:24.160 --> 0:20:29.320 inflation is owners equivalent rent. It's about the total and 0:20:29.400 --> 0:20:32.960 it's being driven higher by the Federal Reserve, who are 0:20:33.000 --> 0:20:35.760 pricing people out of the housing market and sending them 0:20:35.760 --> 0:20:38.479 into the rental market. And so you kind of have 0:20:38.640 --> 0:20:42.359 to say to yourself, is the stock market saying, hey, 0:20:42.400 --> 0:20:45.680 the Fed doesn't have a clue about inflation, and we 0:20:45.800 --> 0:20:50.040 think that the market will force them to recognize that 0:20:50.080 --> 0:20:53.239 inflation is has passed. And that's why we think the 0:20:53.359 --> 0:20:55.840 terminal rate is four and a half, four and three quarters, 0:20:56.280 --> 0:20:59.840 not five and a half. Don't listen to what they're saying. 0:21:00.040 --> 0:21:03.240 Look at what they're doing. So you're a market believer, 0:21:03.320 --> 0:21:05.800 then you think that inflation definitely has peaked. We are 0:21:05.840 --> 0:21:08.040 not going to see spikes up again in CPI or 0:21:08.080 --> 0:21:09.840 pp I or prices paid or any of that kind 0:21:09.840 --> 0:21:12.760 of thing, even after inventories. They'll get sort of worn 0:21:12.840 --> 0:21:17.000 down and that the Fed won't have to be more hawkish. 0:21:17.240 --> 0:21:21.560 So it's yeah, I'm I'm a market believer up into 0:21:21.640 --> 0:21:24.600 a point. Markets occasionally get things wrong. But when we 0:21:24.640 --> 0:21:28.639 look at prices wherever I look in the good side 0:21:28.640 --> 0:21:32.280 of the equation, the peak was six months ago. It's 0:21:32.320 --> 0:21:36.320 hard to find something that is as elevated today as 0:21:36.320 --> 0:21:40.399 it was six months ago. Forget prices increasing, we're starting 0:21:40.400 --> 0:21:44.240 to see disinflation and outright deflation and certain things lumber 0:21:44.680 --> 0:21:48.080 is now back to pre pandemic levels. When you look 0:21:48.200 --> 0:21:53.160 at shipping containers, the cost of moving goods, they've dropped 0:21:53.160 --> 0:21:58.200 fifty six. That was a giant cost push through pretty 0:21:58.280 --> 0:22:05.119 much wherever we look. The spike in in prices and wages. 0:22:05.680 --> 0:22:08.679 You know, good good luck negotiating a big wage increase 0:22:08.760 --> 0:22:11.800 these days. It's not what it was six months ago. 0:22:12.119 --> 0:22:14.840 And let me remind people we've had thirty to forty 0:22:14.960 --> 0:22:19.960 years of wages as a deflationary impact. The fact that 0:22:20.000 --> 0:22:23.320 you've had two years of wages going up after decades 0:22:23.400 --> 0:22:26.680 of them lagging inflation. I can't get too bent out 0:22:26.720 --> 0:22:29.160 of shape over that reset. What do you have confidence 0:22:29.160 --> 0:22:31.520 the Fed won't overdo it? Then? Has the Fed got 0:22:31.520 --> 0:22:34.639 its finger on the pulse? Uh? No, I don't have 0:22:34.720 --> 0:22:39.160 confidence that they won't overdo it. In fact, the probabilistic 0:22:39.440 --> 0:22:43.200 bet that markets are making is the bulls are saying 0:22:43.240 --> 0:22:46.480 the FED will find religion. They'll realize they've raised enough. 0:22:47.000 --> 0:22:49.639 Listen to what Lele brainer, a vice chairperson of the 0:22:49.680 --> 0:22:53.360