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Speaker 1: Let's get to our guest, Carol Schlife, Deputy c I

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Speaker 1: O at BIMO Family Office. Carol, when I first saw

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Speaker 1: the calibrate comment in the minutes, I thought my first

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Speaker 1: question to you would be the calibrate comment is nothing.

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Speaker 1: The CPI print tomorrow is everything true or false. But

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Speaker 1: I'd like to calibrate my question a little bit and

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Speaker 1: put it this way. The calibrate comment is not nothing,

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Speaker 1: but it is completely overshadowed by the CPI print. If

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Speaker 1: it's hot, well look out below for risk assets. But

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Speaker 1: given that, what if it's neutral, that's that's a good

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Speaker 1: calibration question. I think you know, the market is pretty

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Speaker 1: hyper focused on every piece of economic data, and the

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Speaker 1: hard part is is what gets lost is the fact

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Speaker 1: that even if we could call precisely what all the

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Speaker 1: economic data looks like and whether or not we're going

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Speaker 1: to hit recession, it doesn't necessarily have intermediate or long

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Speaker 1: term predictive value for the stock market. It's want the

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Speaker 1: stock markets part of the leading economic indicators, not coincidence,

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Speaker 1: and the CPI report is going to be basically looking

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Speaker 1: in the rear view mirrors. So while it's important, because

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Speaker 1: we've all said it's important, and everyone's looking to that

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Speaker 1: CPI number to foreshadow what the FED will do. The

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Speaker 1: fact of the matter is the Fed's going to need

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Speaker 1: a lot more data, a lot more than just the CPI.

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Speaker 1: They're going to need a couple more employment reports, are

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Speaker 1: going to need a couple more pp I reports, They're

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Speaker 1: going to need the CPE numbers. That they have a

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Speaker 1: long way to go as they try to calibrate what

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Speaker 1: their response to this post pandemic environment is. Well, tell me, hey, Carol,

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Speaker 1: is if we look at the nature of inflation here

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Speaker 1: as well? You know, when do you expect base effects

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Speaker 1: also to bring the number down? Yeah? I actually started

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Speaker 1: asking that question recently because I was trying to recall

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Speaker 1: it's been such a long tunnel of the last few

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Speaker 1: quarters with economic numbers. But we should get to the

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Speaker 1: point where at least the year over year comparisons start

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Speaker 1: to ease some because we started to escalate inflation last ball.

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Speaker 1: But the FED will be focused most tomorrow, we suspect

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Speaker 1: in looking at that month on month number, which they're

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Speaker 1: not necessarily short term by nature, but they're gonna want

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Speaker 1: to see some leveling. And the other thing the FED

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Speaker 1: I think has to its advantage is the Beige Book

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Speaker 1: and being able to talk to all the company companies

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Speaker 1: in their regions. I mean I spent a lot of time.

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Speaker 1: I was in her home office in Chicago last week,

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Speaker 1: and UM had the opportunity to talk to a lot

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Speaker 1: of commercial bankers and some middle market bankers. And you

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Speaker 1: talk to bankers and companies are in pretty good shape,

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Speaker 1: and there's a lot of cash on balance sheets, a

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Speaker 1: lot of companies that are doing things pretty conservatively, so

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Speaker 1: they're positioning for intermediate long term. And that's the threat

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Speaker 1: of a story that you haven't necessarily heard much, Carol.

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Speaker 1: We have run into the earning season and we're gonna

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Speaker 1: be looking at companies and their ability to I suppose

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Speaker 1: have pricing power one aspect of it, and how much

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Speaker 1: they are looking forward to the future or not correct.

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Speaker 1: And I think we'll be listening and looking for a

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Speaker 1: lot of things in the earnings announcements, not the numbers themselves.

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Speaker 1: The last few quarters in particular, people have discounted a

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Speaker 1: lot of the numbers but really leaned hard on the

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Speaker 1: guidance and what managements are saying about, what are their

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Speaker 1: employment costs, what are their employment plans? Have supply chains

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Speaker 1: straightened out what their pricing power do they have the

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Speaker 1: ability to pass it on. I mean PEPSI can pass

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Speaker 1: it on because in these kinds of the markets, we

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Speaker 1: all need mountain dew and diet mountain do but um,

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Speaker 1: you know it's it can be tougher for some of

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Speaker 1: these others. They'll also be looking, especially by the time

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Speaker 1: we get to the retailers, will be looking for inventory

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Speaker 1: levels and what it costs to store that inventory. I

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Speaker 1: think it's one of the reasons why you're seeing a

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Speaker 1: lot of Christmas goods on the floor already, because it's

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Speaker 1: cheaper to put them on the floor than in a warehouse.

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Speaker 1: So there's in the forecast. Nobody's going to be a

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Speaker 1: hero and talk about how great things will be in

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Speaker 1: this sort of uncertain environment. So I think it's baked

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Speaker 1: in the cake. There's going to be some disappointment. I

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Speaker 1: was actually very surprised by Lauretta Mester saying yesterday that

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Speaker 1: the Fed has seen no improvement in inflation. And you

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Speaker 1: you hinted at this earlier that you know, shipping prices, commodities,

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Speaker 1: used cars they're down, inventories are are piling up. That's

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Speaker 1: hardly nothing. It almost makes us think that the FED

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Speaker 1: looks is wrong now as they were last year when

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Speaker 1: they said inflation was transitory. Well, I do think they

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Speaker 1: have to take a tougher tone, and there there's probably

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Speaker 1: a bit of licking wounds for having missed how non

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Speaker 1: transitory some of this wasn't how endemic in the system

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Speaker 1: it was. And so they've stated pretty unequivocally in a

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Speaker 1: number of different venues about the fact that they're going

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Speaker 1: to stay the course here. And I don't think you

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Speaker 1: in both the ghost of Paul Volker repeatedly very lately,

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Speaker 1: if you're not intent on fighting inflation and not sure,

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Speaker 1: but you can't not be truthful, right, I mean, you

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Speaker 1: can at least acknowledge that and say it hasn't had

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Speaker 1: a huge impact on the overall CPI number. But yes,

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Speaker 1: we see those we see those prices moderating, but they

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Speaker 1: don't say that, Yeah, I am, I don't. I wouldn't

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Speaker 1: check it up that they're not being truthful. I just

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Speaker 1: think there's human nature to gravitate towards the echo chamber

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Speaker 1: that supports the view year on and so lest year,

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Speaker 1: you know, the view was all things should ease and

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Speaker 1: we should see some some pull back in inflation, and

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Speaker 1: that didn't happen. And so now for them, I mean,

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Speaker 1: the human nature would be to focus on the points

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Speaker 1: that support the viewpoint that inflations high. We've got to

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Speaker 1: get it on or control or we're going to go

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Speaker 1: down in the history books as having failed at both ends.

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Speaker 1: Tell me something here, Carol. You when you look at markets,

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Speaker 1: and as you are, you seeing certain parts of the

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Speaker 1: bond market, and I was screaming by or looking at

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Speaker 1: it perhaps as being cheap for a reason. Um, we're

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Speaker 1: hard pressed to say anything screaming by these days because

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Speaker 1: there is so much uncertainty in the in the data.

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Speaker 1: The shorter end of the treasury curve is pretty interesting

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Speaker 1: right now, as you know. And you're actually getting paid

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Speaker 1: to sit in cash right now, which we haven't had

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Speaker 1: that scenario since the meltdown in O one oh two

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Speaker 1: where you could actually get paid to sit in cash.

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Speaker 1: But so, and I think that in decisiveness and indecision

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Speaker 1: in the market, we suspect that we're stuck here for

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Speaker 1: a while because a the Fed needs more data before

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Speaker 1: they move and be mark it are trying to adjust

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Speaker 1: to a new economic reality. Does short duration look a

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Speaker 1: lot better than long duration. Yeah, well because I don't,

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Speaker 1: we don't necessarily want to take the time risk of

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Speaker 1: being long duration, and you get paid a lot more

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Speaker 1: in the short duration stuff right now, and and interestingly

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Speaker 1: over the next couple of years, this will sort itself

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Speaker 1: out one way or another. We'll get past the mid terms,

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Speaker 1: we'll get past another election, and all sort itself out,

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Speaker 1: so I might as well get paid the way. Carol,

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Speaker 1: always a pleasure. Thank you so much for joining us

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Speaker 1: A Carol Schife, the deputy chief Investment Officer at BMO

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Speaker 1: Family Office.