WEBVTT - Surveillance: Stock Breakdown with Wilson 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.720 Bloomberg dot com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:29.840 --> 0:00:31.360 Mike Wilson, Morgan Stanley. 0:00:31.560 --> 0:00:33.720 He's been making a lot of warnings recently, the latest 0:00:33.920 --> 0:00:37.080 saying that risks are building for US consumer stocks, writing quote, 0:00:37.080 --> 0:00:40.839 this price action is picking up on slowing consumer spend, 0:00:41.000 --> 0:00:45.479 student loan repayments resuming, rising delinquencies to certain household cohorts, 0:00:45.680 --> 0:00:49.240 higher gas prices, and weakening data in the housing sector, 0:00:49.280 --> 0:00:52.400 the quinfecta of threats or however money you want to 0:00:52.440 --> 0:00:55.560 say that. Mike Wilson of Morgan Stanley joining us now, Mike, 0:00:55.880 --> 0:00:59.480 how much pushback we talked about this before. Do you 0:00:59.520 --> 0:01:01.960 still get the same degree of pushback that you did 0:01:02.200 --> 0:01:05.320 a month ago? Or are more people listening and saying 0:01:05.319 --> 0:01:07.880 wait a second. In the anecdotal data, this is starting 0:01:07.920 --> 0:01:08.520 to make sense. 0:01:09.120 --> 0:01:11.800 Yeah, look, I mean, I think the question for investors 0:01:11.880 --> 0:01:15.199 is always price. I mean, we're in a late cycle environment. 0:01:15.280 --> 0:01:16.640 Let me just set the table a little bit, right, 0:01:16.640 --> 0:01:18.920 So we're in a late cycle environment for the last year, 0:01:19.280 --> 0:01:21.319 and when you're in a late cycle environment, there's a 0:01:21.319 --> 0:01:24.319 lot of uncertainty, right, I mean, people erroneously called for 0:01:24.400 --> 0:01:26.360 recession in the first half of this year, it didn't happen, 0:01:26.640 --> 0:01:29.080 and now they may be erroneously believing in like this 0:01:29.120 --> 0:01:32.000 beautiful soft landing with some reacceleration next year. 0:01:32.120 --> 0:01:33.520 They probably overpriced that. 0:01:33.480 --> 0:01:36.119 In the summer. So what happens is investors get whipped 0:01:36.120 --> 0:01:38.360 around by price action. And I would say what's happened 0:01:38.360 --> 0:01:40.800 in the last two months is we are seeing a 0:01:40.840 --> 0:01:42.319 breakdown again in a. 0:01:42.880 --> 0:01:43.759 Lot of the stock market. 0:01:43.840 --> 0:01:45.960 Okay, yeah, the overall averages are down four five percent, 0:01:46.080 --> 0:01:48.400 not a big deal, but some of these consumer stocks 0:01:48.400 --> 0:01:51.120 are really really struggling. And I think that reflects kind 0:01:51.120 --> 0:01:52.720 of what we were talking about a minute ago before 0:01:52.720 --> 0:01:54.320 we get on the air, which is that the middle 0:01:54.680 --> 0:01:57.800 lower end consumer definitely is out of excess savings. That's 0:01:57.800 --> 0:01:59.520 starting to bleed a little bit into the higher end 0:01:59.520 --> 0:02:02.240 now as well. We have the student loan moratorium, and 0:02:02.320 --> 0:02:04.320 I just think it's that's the wildcard, that is the 0:02:04.520 --> 0:02:06.960 risk for the fourth quarter is can the consumer continue 0:02:06.960 --> 0:02:08.080 to surprise on the upside? 0:02:08.120 --> 0:02:11.760 Can you see some of these retail and consumer facing stocks, 0:02:11.760 --> 0:02:15.840 these small cap stocks get blown out, have their valuations 0:02:15.919 --> 0:02:18.880 completely decimated, and the rest of the markets hug along 0:02:19.040 --> 0:02:22.480 and no one noticed because the Magnificent seven keep heralding 0:02:22.639 --> 0:02:25.720 all of the cautious votes of confidence from a lot 0:02:25.720 --> 0:02:28.119 of the consumers that see them as cash cows in perpetuity. 0:02:28.440 --> 0:02:31.160 Well, it can continue if you don't have that heart landing. Okay, 0:02:31.200 --> 0:02:33.320 if you have a heart landing, then even the big 0:02:33.360 --> 0:02:35.560 winners will feel that, right, And I think that's what 0:02:35.760 --> 0:02:38.399 the market's betting on. The market's betting there is no recession. 0:02:38.639 --> 0:02:40.560 And we taught you know, the bomb market. Is that signaling, 0:02:40.600 --> 0:02:42.520 you know, greater strength or is that signaling that maybe 0:02:42.560 --> 0:02:44.680 the bond market's pushing back on the fiscal you know, 0:02:44.760 --> 0:02:45.360 kind of spending. 0:02:45.400 --> 0:02:46.400 I think it's a little bit of both. 0:02:46.800 --> 0:02:48.680 And if we don't have a hard landing, then the 0:02:48.720 --> 0:02:50.840 big names are probably going to continue to lead because 0:02:50.840 --> 0:02:52.440 they have scale and they have better bantle treets. 0:02:52.600 --> 0:02:54.880 Let's go back to Graham dud cottle one oh one. 0:02:55.000 --> 0:02:57.880 Mike Wilson, how can you be as cautious as you've 0:02:57.919 --> 0:03:01.840 been and not have a massive cash position? What is 0:03:01.880 --> 0:03:05.280 your cash position? How invested are you within your caution? 0:03:05.800 --> 0:03:09.200 Yeah, I mean we're we're basically ninety five percent invested. 0:03:09.280 --> 0:03:11.960 You know, we're like five percent underweight equities. And we've 0:03:11.960 --> 0:03:14.000 talked about this before. We never go one hundred percent cab. 0:03:14.080 --> 0:03:16.560 Yeah. What the financial media does, of course, great theater 0:03:16.760 --> 0:03:17.120 of course. 0:03:17.160 --> 0:03:19.040 Now what we can do, Tom is we can be 0:03:19.160 --> 0:03:22.239 positioned more defensively within our equity exposure, which is what 0:03:22.280 --> 0:03:24.760 we've done, right, So we're skewed more towards kind of 0:03:24.800 --> 0:03:27.680 defensive growth. You know, late cycle cycle calls as the 0:03:27.760 --> 0:03:29.639 post to that. We're not grabbing for beta, we're not 0:03:29.680 --> 0:03:31.800 grabbed for small caps. We're not grabbing for the stuff 0:03:31.800 --> 0:03:34.200 that's really kind of vulnerable if things go sideways. 0:03:34.240 --> 0:03:36.600 Okay, you're with James Gorman. He's saying, Mike, I don't 0:03:36.600 --> 0:03:38.520 care about it in this blather. Just tell me about 0:03:38.520 --> 0:03:42.520 the damn banks. I've been remiss on this Keith Friett Index. 0:03:42.600 --> 0:03:44.600 You and I know it, we love it, And the 0:03:44.680 --> 0:03:47.960 answer is it's a grim chart. You go back to 0:03:48.040 --> 0:03:51.360 pre California, pre idiocy out there with one. 0:03:51.440 --> 0:03:53.480 You know, you know the game that they went through. 0:03:54.160 --> 0:03:57.200 It's one of the barest charts I've seen in years. 0:03:57.480 --> 0:04:00.000 When do you know to load the boat on banks? 0:04:00.240 --> 0:04:02.240 Well, look, it's the same story as the broader market time, 0:04:02.320 --> 0:04:06.560 the bigger getting bigger. There's concentration, you know, in the winners. Again, 0:04:06.640 --> 0:04:09.000 it's it's like the higher quality banks are performing. So 0:04:09.160 --> 0:04:12.240 you long Apple, Well, I mean we are in many 0:04:12.280 --> 0:04:14.560 portfolio was obviously because it's such a big part of 0:04:14.600 --> 0:04:18.200 the index. But Apple's another category of stock where people 0:04:18.200 --> 0:04:20.040 are paying up for the quality of the barel sheet, 0:04:20.080 --> 0:04:21.440 the lack of need for financing. 0:04:21.720 --> 0:04:23.760 But the banks are representative of the broader market. 0:04:23.800 --> 0:04:26.720 Okay, the higher quality banks are outperforming the lower quality banks. 0:04:26.760 --> 0:04:28.320 That's just that's just where we are for everything. 0:04:28.520 --> 0:04:31.640 Lisa Shallon emails in and she says, ask Mike Wilson 0:04:31.680 --> 0:04:34.000 with his easy day job, she's got the real job 0:04:34.080 --> 0:04:37.120 managing money. Do you buy an R squared tyke to 0:04:37.200 --> 0:04:39.640 the S and P five hundred or if I'm active. 0:04:39.360 --> 0:04:41.960 Managed, do I want to be idios? Who did we 0:04:42.040 --> 0:04:43.400 talk to in London? Kathy? 0:04:44.200 --> 0:04:46.840 Kathy said, who Kathy would arc? 0:04:47.080 --> 0:04:48.680 Oh, Kathy would Kathy would arc? 0:04:48.680 --> 0:04:50.080 I mean, do I want to buy an R squared 0:04:50.080 --> 0:04:52.000 tyke to S and P five hundred or do I 0:04:52.040 --> 0:04:54.000 want to get more idiosyncratic? 0:04:54.120 --> 0:04:56.520 You want to be more idiosyncratic? For sure? This whole year, right, 0:04:56.520 --> 0:04:57.360 I mean, even though the. 0:04:57.360 --> 0:04:59.880 SMP is outperformed, it's been ten stocks that's idios And 0:05:00.320 --> 0:05:01.840 I mean, if you pick those ten stocks, you did 0:05:01.839 --> 0:05:03.720 really really well. If you pick the you know, if 0:05:03.720 --> 0:05:05.400 you pick the other four hundred and ninety three, you 0:05:05.480 --> 0:05:08.359 didn't do very well. So it's been the dispersion is 0:05:08.360 --> 0:05:10.599 really really high. And it makes sense right now. The 0:05:10.600 --> 0:05:13.039 market's paying up for what I would call operational efficiency 0:05:13.080 --> 0:05:15.520 cost leaders. It's paying up for good balance sheets, paying 0:05:15.560 --> 0:05:18.640 up for scale. Okay, will that change? Can we broaden 0:05:18.680 --> 0:05:21.160 out to the lower end of the market. If the 0:05:21.160 --> 0:05:23.559 market starts to believe that not only do we avoid 0:05:23.600 --> 0:05:26.000 a recession, but there's a reacceleration, that's what we need 0:05:26.040 --> 0:05:27.760 to see. That's what the market's trying to figure out. 0:05:28.040 --> 0:05:31.919 Hard landing reacceleration. This purgatory land is we're just going 0:05:31.960 --> 0:05:33.880 to kind of slot back and forth and the markets 0:05:34.040 --> 0:05:35.680 to continue to gravitate to the lifeboats. 0:05:35.960 --> 0:05:37.800 What does it mean to be defensive? And I keep 0:05:37.839 --> 0:05:40.960 asking this because some people say it's tech stocks, some 0:05:41.000 --> 0:05:43.520 people say it's consumer staples. 0:05:43.680 --> 0:05:45.200 What do you say, Well, I think it's both. 0:05:45.240 --> 0:05:47.800 I think I mean obviously, the market this year has 0:05:47.880 --> 0:05:50.760 voted with its feet saying they want to buy large 0:05:50.760 --> 0:05:53.440 cap growth stocks, not just tech, but growth stocks with 0:05:53.520 --> 0:05:54.960 good balance sheets that have scale. 0:05:55.120 --> 0:05:56.719 And I will just want to I want to point. 0:05:56.520 --> 0:05:59.000 Something out that's really important for these seven or eight 0:05:59.040 --> 0:06:03.039 stocks this year now X one or two. Most of 0:06:03.080 --> 0:06:06.080 the earnings recovery for these stocks has been a result 0:06:06.120 --> 0:06:06.960 of cost cutting. 0:06:07.200 --> 0:06:07.320 Right. 0:06:07.360 --> 0:06:09.800 They all got over their skis on too much spending 0:06:09.880 --> 0:06:12.080 last year. They rained that in and so they've kind 0:06:12.120 --> 0:06:15.520 of manufactured and earnings recovery if they don't see top 0:06:15.560 --> 0:06:17.520 line reacceleration. This is where we're starting to see a 0:06:17.520 --> 0:06:20.680 separation now, even in those seven and I think that's 0:06:20.720 --> 0:06:23.040 going to be another story for the fourth quarter and 0:06:23.440 --> 0:06:27.039 next year's. The market wants revenue growth, not just cost 0:06:27.040 --> 0:06:27.640 cutting stories. 0:06:27.680 --> 0:06:29.839 What we're talking about right now is the bottom line. 0:06:29.880 --> 0:06:32.040 We're not talking about the rates picture and what that 0:06:32.080 --> 0:06:35.120 does overall to some sort of macro call on equities. 0:06:35.320 --> 0:06:37.400 Bank of America Strategies came out today and said, do 0:06:37.520 --> 0:06:40.239 rates matter for stocks? And if so, it's not priced. 0:06:40.600 --> 0:06:41.359 Do you agree? 0:06:41.560 --> 0:06:44.760 Well, for once again, for some stocks it's mattered a ton, right. 0:06:44.760 --> 0:06:46.760 I mean, I just think, look, we said this at 0:06:46.760 --> 0:06:48.640 the end of the year. This is the most difficult 0:06:48.640 --> 0:06:51.960 part of the economic cycle when you are late We 0:06:52.000 --> 0:06:53.880 know we're late cycle for one reason, because we got 0:06:53.920 --> 0:06:56.560 full employment. So you can't argue we're mid cycle or 0:06:56.600 --> 0:06:57.200 early cycle. 0:06:57.240 --> 0:06:57.719 That's silly. 0:06:57.880 --> 0:07:00.000 What you can argue is that the late cycle period 0:07:00.160 --> 0:07:03.320 can persist for a lot longer than people expected. And 0:07:03.320 --> 0:07:06.240 that's what's going on. Rates are the one while because 0:07:06.279 --> 0:07:10.080 the rates have really surprised everybody, vond investors and stock investors. Normally, 0:07:10.080 --> 0:07:12.960 in the late cycle environment, rates come down. Why because 0:07:12.960 --> 0:07:15.680 the Fed's done As you not well know, this cycle 0:07:15.760 --> 0:07:17.920 is unique. That's the tricky part of the cycle because 0:07:17.960 --> 0:07:20.360 the FED can't be proactive in. 0:07:20.320 --> 0:07:22.160 Cutting rates ahead of the recession. 0:07:22.360 --> 0:07:25.040 So we're just gonna ride this until basically you run 0:07:25.080 --> 0:07:26.680 out of gas, and that could be another year. 0:07:27.400 --> 0:07:28.559 You don't know the answer to that yet. 0:07:28.760 --> 0:07:31.680 I mean, I find it absolutely fascinating here. Let me, 0:07:31.720 --> 0:07:33.840 I want to touch on this through the next number 0:07:33.880 --> 0:07:36.160 of minutes, Mike Wills, So, Mike Wilson and Morgan Stanley 0:07:36.200 --> 0:07:42.240 with US folks, dovetail your revenue line, your animal spirit 0:07:42.320 --> 0:07:46.640 in the equity market with Zetner's Ellen Zenner's nominal GDP 0:07:47.200 --> 0:07:50.040 bringing in a real GDP. Who knows what disinflation is 0:07:50.160 --> 0:07:52.960 even Jim Karen doesn't. He Karen doesn't have a clue. 0:07:53.160 --> 0:07:56.040 But the answer is model out nominal GDP and how 0:07:56.040 --> 0:07:57.400 it affects your revenue line. 0:07:57.440 --> 0:07:59.120 So this is really interesting. This is where Ellen and 0:07:59.200 --> 0:08:01.120 I are kind of aligned. I mean, I think we're 0:08:01.160 --> 0:08:03.920 the only bank industry where we called for soft landing 0:08:04.400 --> 0:08:07.000 and an earnings recession both turned out to be true. 0:08:07.240 --> 0:08:10.320 So why is that, Well, because revenue growth and pricing 0:08:10.360 --> 0:08:13.760 has been actually not as good as the the sort 0:08:13.800 --> 0:08:17.520 of pricing and the inflation numbers in the government statistics. Now, 0:08:17.560 --> 0:08:21.640 Ellen is, I would say, far from excited about economic growth. 0:08:21.640 --> 0:08:23.640 I mean, she's not calling for recession, right, but she's 0:08:23.640 --> 0:08:26.640 looking for basically one percent GDP growth, real GDP. 0:08:26.520 --> 0:08:28.080 Growth three point eighty four percent. 0:08:27.840 --> 0:08:30.840 Nominal exactly, And so you know, three to four percent 0:08:30.880 --> 0:08:33.600 nominal GDP growth. I mean, could that lead to three 0:08:33.679 --> 0:08:37.400 to five percent revenue growth. Maybe here's the risk the 0:08:37.480 --> 0:08:39.720 economy is not the is not company with companies. See 0:08:39.720 --> 0:08:42.120 what companies are seeing in pricing is very very different 0:08:42.120 --> 0:08:45.360 than what the economic statistics will tell you. Very similar 0:08:45.360 --> 0:08:48.240 in twenty twenty one when companies were getting twenty percent 0:08:48.280 --> 0:08:51.679 price when CPI and Core CPI were saying six seven eight. 0:08:52.040 --> 0:08:54.800 So now if you have CPI three four, you actually 0:08:54.840 --> 0:08:56.080 have companies seeing deflation. 0:08:56.679 --> 0:08:58.360 Mike Wilson with this. Here at. 0:09:02.360 --> 0:09:06.560 Jonathan Faraoh staying in London in conversation with the former 0:09:06.600 --> 0:09:10.439 Prime Minister of the United Kingdom, Gordon Brown, Mohammed Alarian 0:09:10.559 --> 0:09:13.559 of the University of Cambridge, and the Nobel Prize winning 0:09:13.640 --> 0:09:16.880 economist Michael Spence of New York University. 0:09:17.240 --> 0:09:18.000 The book is. 0:09:18.080 --> 0:09:21.920 Perma Crisis, A Plan to Fix a fractured World, Brown, 0:09:22.000 --> 0:09:26.720 Alarian and Spence an AI and crisis to manage in 0:09:26.760 --> 0:09:29.480 the future. Here is Professor Spence. 0:09:30.760 --> 0:09:33.800 When jen AI came along, then I saw it sort 0:09:33.840 --> 0:09:37.040 of multi domain capability, the fact that you can use 0:09:37.080 --> 0:09:39.280 it with no technical training, just a little bit of 0:09:39.320 --> 0:09:43.240 a you know practice, you know, creating prompts, and its 0:09:43.280 --> 0:09:46.360 applicability pretty much everywhere. I thought. You know, even though 0:09:46.400 --> 0:09:49.599 it's early days and we're in a period of exploration 0:09:49.679 --> 0:09:54.480 and experimentation, I think it's a reasonable forecast that this 0:09:55.559 --> 0:09:59.440 tool is an important part of a future productivity surge, 0:09:59.440 --> 0:10:03.240 and if it comes, it'll make it a lot easier 0:10:03.280 --> 0:10:07.360 to do inclusive growth patterns because it won't be a 0:10:07.440 --> 0:10:11.280 zero sum game. It'll be easier to invest multi trillions 0:10:11.320 --> 0:10:14.200 of dollars in the energy transition. It's going to be 0:10:14.320 --> 0:10:18.720 terribly difficult to get that done with fiscal's space declining, 0:10:18.760 --> 0:10:22.200 the rising debt levels and rising interest rates. So that's 0:10:22.280 --> 0:10:24.719 why we spend a fair amount of time. It's not 0:10:24.760 --> 0:10:28.960 that the growth by itself is the only thing, it's 0:10:29.040 --> 0:10:31.600 that it enables an awful lot of what we want 0:10:31.640 --> 0:10:32.160 to accomplish. 0:10:32.200 --> 0:10:32.240 It. 0:10:32.280 --> 0:10:34.600 Yeah, I think we're heading for a low growth decade 0:10:34.679 --> 0:10:37.440 if we don't have the productivity surge that AI can 0:10:37.480 --> 0:10:39.959 give us. And I think what Mike is pointing out 0:10:40.160 --> 0:10:43.360 is it can transform a whole range of industries. You'll 0:10:43.400 --> 0:10:47.160 never see the accountancy or legal or even medical professions 0:10:47.240 --> 0:10:50.800 or teaching profession be the same. Again, if EI has 0:10:50.840 --> 0:10:53.520 the impact that I think and Mike thinks it will have, 0:10:54.120 --> 0:10:57.120 but equally We've got to have that productivity search because 0:10:57.120 --> 0:11:01.040 without that, the inflation, the fiscal space being narrow, the 0:11:01.080 --> 0:11:04.920 debt that we're running, and of course the supply side 0:11:04.960 --> 0:11:08.520 shocks and constraints that are in existence mean that as 0:11:08.520 --> 0:11:10.800 things stand, we're heading for a low growth decayed AI 0:11:11.040 --> 0:11:13.360 is the way forward to take us out of growth, 0:11:13.360 --> 0:11:15.439 and I think Muhammad agrees with that totally. 0:11:15.480 --> 0:11:19.080 And it's critical because we have a debt issue that 0:11:19.160 --> 0:11:21.680 has to be resolved with an inequality issue. We need 0:11:21.720 --> 0:11:27.000 resources for critical transitions. So you know the notion, as 0:11:27.080 --> 0:11:30.920 Mike and Gordon correctly said, that higher, more inclusive growth 0:11:31.080 --> 0:11:33.800 and most sustainable growth is a massive enabler to deal 0:11:33.840 --> 0:11:34.840 with all these other problems. 0:11:34.880 --> 0:11:36.520 All three of you understand the risks involved. 0:11:36.520 --> 0:11:36.720 Though. 0:11:37.360 --> 0:11:41.920 If globalization hollowed down manufacturing bases domestically in places like America, 0:11:42.080 --> 0:11:44.240 in the United Kingdom to some extent as well, and 0:11:44.280 --> 0:11:46.440 I'm asking the question, why wouldn't AI do the same 0:11:46.480 --> 0:11:50.880 thing to services? My question, if I'm a member, a citizen, 0:11:51.200 --> 0:11:53.160 someone who's got to vote, is why would I trust 0:11:53.160 --> 0:11:56.640 the same people? Loll over again, who should I trust 0:11:56.840 --> 0:12:00.280 to manage that transition, that integration of those technologies. 0:12:00.000 --> 0:12:04.480 That's what my children say, My young teenagers say, you 0:12:04.559 --> 0:12:07.760 guys have messed it up. And it is true that 0:12:07.800 --> 0:12:12.439 we tried to create a more inclusive system. We tried 0:12:12.480 --> 0:12:14.600 to deal with the problems of environment, but we couldn't 0:12:14.600 --> 0:12:16.960 get the agreement that we needed, and we tried to 0:12:17.000 --> 0:12:20.520 have more equity and better jobs. But I do think 0:12:20.679 --> 0:12:23.200 when I talk to young people, they want to see 0:12:23.200 --> 0:12:25.880 this change. You know, the issue is not whether you 0:12:25.960 --> 0:12:29.080 have change or not now the issue the issue, the 0:12:29.160 --> 0:12:31.360 issue is what kind of change, And we've got to 0:12:31.360 --> 0:12:32.440 make that change inclusive. 0:12:32.880 --> 0:12:38.000 Mike agree. I mean, you know, Eric Brynolfsen talked about 0:12:38.040 --> 0:12:41.320 the touring crap. You know, the touring test basically pushes 0:12:41.360 --> 0:12:44.000 you in the direction of automation. We want to push 0:12:44.640 --> 0:12:47.559 in policy should be pushing in the direction of augmentation, 0:12:47.720 --> 0:12:51.160 of giving people powerful tools that make them more productive. 0:12:51.640 --> 0:12:53.960 So this is the journey we're setting on. But it's 0:12:54.000 --> 0:12:58.439 not it's not I don't think right to just capitulate 0:12:58.480 --> 0:13:02.920 and say productivity produces employment problems. It's at least more 0:13:02.920 --> 0:13:04.040 complicate than that, Jonathan. 0:13:04.160 --> 0:13:06.680 But our global institutions have got a reform to be 0:13:06.720 --> 0:13:09.000 capable of dealing with this. They're not for purpose at 0:13:09.000 --> 0:13:10.880 the moment, and the IMF has got to be a 0:13:10.920 --> 0:13:14.880 crisis prevention mechanism to proper surveillance of the world economy. 0:13:15.160 --> 0:13:17.800 It can't just be there for a crisis resolution. The 0:13:17.840 --> 0:13:20.079 World Bank has got to become a global public goods 0:13:20.080 --> 0:13:23.040 bank and deal with the energy transition as well as 0:13:23.720 --> 0:13:26.720 human capital. The World Trade Organization's got to find a 0:13:26.720 --> 0:13:31.559 way of diplomacy and negotiation and arbitration working better than 0:13:31.600 --> 0:13:33.760 it has in the past. And we need a better 0:13:33.800 --> 0:13:36.839 concept of burden sharing. I mean, I cannot understand why 0:13:37.080 --> 0:13:39.400 when you have a humanitarian crisis, and we have many 0:13:39.400 --> 0:13:41.559 around the world at the moment, all we seem to 0:13:41.600 --> 0:13:43.520 be able to do is pass the begging ball around 0:13:43.559 --> 0:13:46.040 and hope that someone's going to produce some money. We've 0:13:46.040 --> 0:13:48.680 got a system of burden sharing, whether it's for the environment, 0:13:48.960 --> 0:13:51.160 or whether it's for public health, or whether it's for 0:13:51.320 --> 0:13:53.640 some of the other global public goods we want to do. Now, 0:13:53.960 --> 0:13:55.599 if you talk to people around the world. I've just 0:13:55.640 --> 0:13:57.440 come back from the United Nations, they all want this 0:13:57.520 --> 0:13:59.800 to happen. So what we need to do is show 0:14:00.240 --> 0:14:02.640 that this can yield the best results and then create 0:14:02.679 --> 0:14:04.120 the political will for this to happen. 0:14:04.200 --> 0:14:06.440 As I'm listening to I'm getting the same feeling that 0:14:06.440 --> 0:14:08.160 I got when I read the book. This makes a 0:14:08.160 --> 0:14:10.079 lot of sense, and then I end up in the 0:14:10.120 --> 0:14:12.520 same place. Is there any evidence that people are willing 0:14:12.559 --> 0:14:13.120 to vote for it? 0:14:13.320 --> 0:14:13.480 Now? 0:14:13.520 --> 0:14:15.760 You say it's incredibly popular, you go around, you speak 0:14:15.800 --> 0:14:18.679 to people, and they're convinced by it. I don't see 0:14:18.679 --> 0:14:21.840 any evidence from recent general elections that anyone wants this 0:14:21.960 --> 0:14:23.240 vision that the three of you have. 0:14:23.560 --> 0:14:26.520 I think people want hope. I think the lesson of 0:14:26.680 --> 0:14:30.720 COVID and of the energy and food crisis and people's 0:14:30.760 --> 0:14:33.120 reaction to the war in Ukraine is that things have 0:14:33.160 --> 0:14:35.680 got to be better than this, and I think those 0:14:35.800 --> 0:14:39.640 leaders that can show that there's a hopeful future. Now 0:14:39.680 --> 0:14:43.640 you see me and Motley in the Caribbean producing her 0:14:43.920 --> 0:14:47.320 plan for global growth. You see now politicians in Africa 0:14:47.560 --> 0:14:51.200 talking about green growth. I do think that there's a 0:14:51.320 --> 0:14:55.720 movement now that says, look, we cannot have politics just 0:14:55.760 --> 0:14:58.360 as a negative sport where people are just attacking each 0:14:58.360 --> 0:15:01.720 other and it's all so of about sound bites. I 0:15:01.760 --> 0:15:04.480 think people want politicians that can give them hope, and 0:15:04.520 --> 0:15:06.120 that's the next generation Mahmot. 0:15:06.960 --> 0:15:09.440 I think he's absolutely right. I mean, there's a people 0:15:09.480 --> 0:15:13.240 want hope. I think there's a world recognition that the 0:15:13.280 --> 0:15:17.120 world we're on is unsustainable and it's getting more and 0:15:17.240 --> 0:15:21.400 more bumpy. And third, we're dealing with a loss of trust, 0:15:21.640 --> 0:15:25.640 and if we don't directly re establish trust in our 0:15:25.640 --> 0:15:29.280 institutions and our policy making in global cooperation, things. 0:15:29.040 --> 0:15:30.000 Are going to go and get worse. 0:15:30.080 --> 0:15:32.400 I think the reason why we wanted to put this 0:15:32.520 --> 0:15:36.800 down is hoping to start a conversation on a set 0:15:36.840 --> 0:15:38.880 of steps, and we keep on saying there is no 0:15:38.920 --> 0:15:41.280 silver bullet. This is not a big bang, you do 0:15:41.360 --> 0:15:43.640 something tomorrow and then everything's fine. This is building a 0:15:43.680 --> 0:15:46.840 foundation that turns vicious cycles into virtuous ones. 0:15:47.440 --> 0:15:50.760 Well, let's take the Feederal Reserve as one example. You've 0:15:50.760 --> 0:15:53.960 written about this extensively over the last eighteen months. I 0:15:54.000 --> 0:15:56.080 still remember a conference we did together in the summer 0:15:56.120 --> 0:15:58.680 of twenty twenty one when you warned about what could 0:15:58.680 --> 0:16:02.360 possibly becoming. How ill prepared the institution that is the 0:16:02.360 --> 0:16:05.960 Federal Reserve was for this moment. How do they recover 0:16:06.440 --> 0:16:08.880 from the mistakes they've made in the last eighteen months 0:16:09.080 --> 0:16:11.400 to help contributes the vision the three of you have. 0:16:11.880 --> 0:16:14.080 So the recovery is starting. I think there's much broader 0:16:14.120 --> 0:16:18.400 recognition now that has been five failures, analysis, transit or 0:16:18.480 --> 0:16:26.960 inflation forecasts consistently too optimistic, action too late, communication modeled, 0:16:27.240 --> 0:16:30.400 and regulation had We almost had a big banking crisis 0:16:31.040 --> 0:16:33.600 just six months ago. So I think that's now there's 0:16:33.680 --> 0:16:37.520 more understanding, and what we propose is a few steps 0:16:37.600 --> 0:16:42.560 that reduce the chances of that happening, things that minimize groupthink, 0:16:42.800 --> 0:16:47.600 things that increase accountability. And without accountability, the independence of 0:16:47.640 --> 0:16:50.040 the FED is going to be challenged going forward. So 0:16:50.400 --> 0:16:54.320 the FED has huge interest in embracing the few things 0:16:54.320 --> 0:16:58.280 we propose in order to restore trust in an institution 0:16:58.400 --> 0:17:01.040 that's absolutely critical and that must have political autonomy. 0:17:01.920 --> 0:17:06.160 Elarian, Elaron Brown, and Spence Prima Crisis is the book, 0:17:06.200 --> 0:17:19.600 John Farewell, just a wonderful effort there joining us now 0:17:19.720 --> 0:17:22.760 Kathy Jones, chief fixed income strategists. 0:17:22.000 --> 0:17:24.399 Here on a higher yields, on the real yield. 0:17:24.400 --> 0:17:27.800 I'm sorry even to schwab Lisa, it's been an adjustment. 0:17:28.280 --> 0:17:30.560 Yeah, I mean, honestly, right now people are looking at 0:17:30.560 --> 0:17:32.479 these yields and saying can they last? And you are 0:17:32.520 --> 0:17:36.440 even saying yesterday, as you looked at them, why so why. 0:17:37.160 --> 0:17:39.560 Yeah, you know, I do think that we are adjusting 0:17:39.600 --> 0:17:41.880 to this new world where we have a positive term 0:17:41.920 --> 0:17:45.480 premium and we have a stronger growth outlook and certainly 0:17:46.000 --> 0:17:49.199 you know, higher for longer yields. The question is, you know, 0:17:49.320 --> 0:17:52.200 what is the endpoint of all that, and so when 0:17:52.200 --> 0:17:54.320 we look at it, what we say as well, the 0:17:54.400 --> 0:17:56.640 FED might hold here for a while, but it's very 0:17:56.640 --> 0:17:58.880 difficult to see why they want to go a lot 0:17:58.960 --> 0:18:03.119 higher from here. So inflation is falling. Get a couple 0:18:03.200 --> 0:18:07.000 more zero point two percent month over month prints in 0:18:07.080 --> 0:18:09.639 PCE and will be at two to and a quarter 0:18:09.800 --> 0:18:13.399 on core PCE, so we're almost there on inflation. The 0:18:13.440 --> 0:18:17.480 economy is slowing down, the housing market is basically frozen. 0:18:17.640 --> 0:18:20.959 You've got risks in the commercial real estate market that 0:18:21.000 --> 0:18:23.760 could spread back into banking. I mean, there's a lot 0:18:23.800 --> 0:18:27.960 of indicators here to suggest that they've done enough. So 0:18:28.119 --> 0:18:32.760 I'm curious to understand why some of the FED members 0:18:32.800 --> 0:18:35.240 are still talking about raising rates even further. 0:18:35.320 --> 0:18:38.720 Partly because the economic data keeps surprising to the upside. 0:18:38.880 --> 0:18:40.760 It's part of the reason why we keep hearing from 0:18:41.040 --> 0:18:45.679 different CEOs Jamie Diamond, David Solomon talking about resilience, and 0:18:45.720 --> 0:18:47.639 they're seeing it. They would see it first if they 0:18:47.640 --> 0:18:49.840 were seeing it really start to crack. Consumers are still 0:18:49.880 --> 0:18:52.440 able to spend, albeit not at the levels they previously were. 0:18:52.760 --> 0:18:56.120 So what point do you lean into that and say, no, Actually, 0:18:56.600 --> 0:18:58.359 maybe it's a screaming buy if you take a ten 0:18:58.400 --> 0:18:59.760 year yield at four and a half percent and you 0:18:59.800 --> 0:19:01.959 will to clip the coupon for the next ten years. 0:19:02.440 --> 0:19:04.879 But are you really going to see that appreciation with 0:19:05.000 --> 0:19:08.399 some sort of massive decline in yield increase in price 0:19:08.520 --> 0:19:10.000