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Speaker 3: Bob Michael joints is here. He's always focused.
Speaker 2: Bob Michael, He's the CIO and head of Global Fixed Income,
Speaker 2: Currency and Commodities Group at JP Morgan Asset Management.
Speaker 3: He joins us here in our studio.
Speaker 2: We appreciate that, Bob. Thanks for coming in from then.
Speaker 2: You're like forty eighth Street down there, kind of where
Speaker 2: the JP Morgan folks are the building, that new building,
Speaker 2: which is.
Speaker 3: Going to be awesome. I can't wait to check that out.
Speaker 4: Bob.
Speaker 2: What are you thinking about your Federal Reserve today? I'm
Speaker 2: calling to get your Federal Reserve, two o'clock. What are
Speaker 2: we gonna hear from your chairman.
Speaker 5: Well, there's the top down in the micro From the
Speaker 5: top down, I want them to get in and out
Speaker 5: in two hours and do as little to disrupt the markets.
Speaker 5: It should be a simple, easy meeting. Make it that way.
Speaker 5: Go in and say, you know what, we're still looking
Speaker 5: at stuff. Things are going pretty much in our direction.
Speaker 5: Couple mixed signals. Maybe unemployment popped up a little bit,
Speaker 5: maybe inflation's a little stickier. Nothing's ever a smooth past.
Speaker 5: You're gonna get some bumps, but we're confident where we are.
Speaker 5: See you in a few months. That would be ideal.
Speaker 5: I think Jennifer is right. Welcome Jennifer. How nice these
Speaker 5: two they're looking right at you.
Speaker 3: I am not Tom.
Speaker 5: I can see that it's in the dots, right, it's
Speaker 5: in the dots. They probably have to move the dots
Speaker 5: down to two easings this year from three because inflation
Speaker 5: is looking a bit stickier. What we're interested in is
Speaker 5: that long term median neutral dot. Is it really going
Speaker 5: to stay at two and a half percent or is
Speaker 5: that going to drift up a little bit?
Speaker 4: I mean, okay, yes, I can see your ideal world
Speaker 4: that we get in and we get out and nobody
Speaker 4: gets hurt out of the conference after the meeting, But
Speaker 4: we're going to have to get some sort of signaling
Speaker 4: out of this man after you're through speaking, and you know,
Speaker 4: how are we going to be fixed? If he does
Speaker 4: a Bank of Japan and has no change but is
Speaker 4: still a little bit hawkish because of all the upside
Speaker 4: surprises we've had in inflation.
Speaker 5: Well, I think he got burned on the pivot in
Speaker 5: December because the data that's come out since December has
Speaker 5: shown both an economic resilience and a little flare up
Speaker 5: in inflationary pressures. So I think he's going to be
Speaker 5: careful not to pivot again. And I think there is
Speaker 5: an opportunity to just back up and say, hey, the
Speaker 5: data will be mixed, we're confident of our policy. We're
Speaker 5: going to watch things. Nothing's carved in stone.
Speaker 2: So I guess that kind of goes to the issue
Speaker 2: a lot of folks are having, which is with the inflation.
Speaker 3: This lasts maybe three percent to.
Speaker 2: Two percent inflation, that's gonna be a little bit harder
Speaker 2: than coming from eight or nine percent down to three percent.
Speaker 2: Does he frame that is like, we're okay with that.
Speaker 2: We understand that we're still on our path. We're okay
Speaker 2: with some of the recent data we've seen.
Speaker 5: I think he can There was some expectation that the
Speaker 5: start of the year you get slightly hotter inflation prints.
Speaker 5: It happened last year and then tailed off. I think
Speaker 5: the bigger thing for them to address are the significant
Speaker 5: loosening in financial conditions indicators. The market has pretty much
Speaker 5: done a couple easings for them, and that's percolating through
Speaker 5: the system and it's doing a lot of things. It's
Speaker 5: elevated equity prices. I know you commented that bonds were boring.
Speaker 3: They're not.
Speaker 5: They're roaring ahead. When we look at credit spreads, they've
Speaker 5: narrowed a lot. Those are things that I'd like to
Speaker 5: see him comment on at the press.
Speaker 4: But I guess where are the balance of risks now
Speaker 4: for the FED and either moving too slowly or moving too.
Speaker 5: Quickly exactly, those are the balance.
Speaker 2: Great, thank you.
Speaker 5: I think it's a really tough one because you could
Speaker 5: sit here and pretty much make any case that we're
Speaker 5: in a soft landing right now that should continue for
Speaker 5: the year. Yet we are seeing some tightness in the
Speaker 5: labor market. We were looking at travel and leisure yesterday
Speaker 5: it was the first day of spring at JPM Morgan.
Speaker 5: We brought the travel and leisure analyst in from the
Speaker 5: equity and credit research teams. They were all talking about
Speaker 5: the tightness in airlines. It's not just so much the planes,
Speaker 5: but it's the shortage of pilots, of crew, of airport's
Speaker 5: maintenance staff. You look at hotels, they're starting to pick
Speaker 5: up again. There's a lot of resiliency in consumer services.
Speaker 5: I think that's got to be some of their concern
Speaker 5: is that things start to accelerate again.
Speaker 2: Yeah, we follow at Lisa in this studio, we follow
Speaker 2: the cruise industry a lot because that's just a great
Speaker 2: barometer of what the consumers are and all the cruise
Speaker 2: CEOs of the C suite folks that we talked to.
Speaker 2: Business is booming the consumers and it seems to be
Speaker 2: continue spending. What do you make of the US consumer here?
Speaker 5: Yeah, I heard that the Icon of the Seas has
Speaker 5: like a triplex that rents out for one hundred thousand
Speaker 5: a week on a cruise and that was book solid
Speaker 5: for the next two years. So there's money out there.
Speaker 5: I think you have to go back to now, what
Speaker 5: is it four years ago March twenty twenty when the
Speaker 5: Cares Act came through, And I think when we look
Speaker 5: back on it ten years from now, we're going to
Speaker 5: realize the amount of liquidity that was unleashed into the system.
Speaker 5: And it feels like it's all slashing around, because how
Speaker 5: can you have things like money market funds continue to
Speaker 5: go up? Your over six trillion, so there's a lot
Speaker 5: of money going into money market funds. The entire treasury
Speaker 5: curve is trading below the FED funds rate, so clearly
Speaker 5: money is going into the bond market. You look at
Speaker 5: equity prices, they continue to set new highs. You look
Speaker 5: at prices out in the consumer area, whether it's groceries
Speaker 5: or houses, those are still high and staying there. Where
Speaker 5: is all this money coming into elevate the price of
Speaker 5: everything that is creating a resilience on the part of
Speaker 5: the consumer. They continue to spend all.
Speaker 2: Right, Bob, So we're gonna have a FED I guess
Speaker 2: we're not going to do a whole lot today. They're
Speaker 2: going to try it, as you mentioned, kind of just
Speaker 2: case a steady is she goes as a fixed income
Speaker 2: guy What.
Speaker 3: Are you doing here?
Speaker 2: You just buying the two year and getting four point
Speaker 2: sixty seven percent of you're going out on some credit risk.
Speaker 3: How much farther out?
Speaker 2: Because last year and in the fixing the space, high
Speaker 2: yield was the place to be.
Speaker 3: What are you doing this year?
Speaker 5: Yeah, it's a good question because like many fixed income investors,
Speaker 5: we want yields to go down, but we want them
Speaker 5: to back up a bit so we can buy a
Speaker 5: bit more. We're looking to buy every backup. We do
Speaker 5: think that ultimately the Fed will be cutting rates this year.
Speaker 5: We still think that regardless of whether they dial it
Speaker 5: back and the dots to two, expect it cuts this year.
Speaker 5: We think they'll do at least three in Inflation is
Speaker 5: still closer to two to three percent than it was
Speaker 5: to seven, and we're nowhere near what they've told us
Speaker 5: they're two and a half percent neutral rate for the
Speaker 5: Fed funds rate is, so we expect ray cuts. That
Speaker 5: gets us to buy duration. Credit's the interesting one because
Speaker 5: you are at the narrower end of their historic range.
Speaker 5: When we look at something like high yield, which you
Speaker 5: mentioned about three hundred and twenty five basis points over treasuries,
Speaker 5: we go back to previous periods. You can stay here
Speaker 5: for a long period of time. You look at the
Speaker 5: period two thousand and four to two thousand and seven,
Speaker 5: you traded either side of three hundred basis points for
Speaker 5: most of that period. You actually got down to two
Speaker 5: hundred and forty one basis points over treasuries. So there's
Speaker 5: still a lot of room for credit to run, particularly
Speaker 5: in a soft landing. You see the same thing in
Speaker 5: investment grade corporates. They traded between eighty and one hundred
Speaker 5: basis points over from two thousand and four to two
Speaker 5: thousand and seven. By the way, that was when we
Speaker 5: were heading barreling into the Great Financial Crisis, So there
Speaker 5: were some stresses in the system. But it just tells
Speaker 5: you when there's money out there and things look stable,
Speaker 5: it will go into credit.
Speaker 4: You know, with things getting so frothy, especially at the
Speaker 4: lower end of the credit spectrum, are you sort of
Speaker 4: starting to have a thought that we might be witnessing
Speaker 4: the seeds of the next crisis. You have things like
Speaker 4: the absence of credit or protections in high yield borrowing,
Speaker 4: for example, or very risky credit, very risky mortgage securities
Speaker 4: getting packaged into clos is that actually going to end
Speaker 4: well for us.
Speaker 5: Well, it's surprising that it's lasted this long. Because we
Speaker 5: have had a five hundred and twenty five basis point
Speaker 5: ray shot and we broke the regional banking system. We
Speaker 5: thought there would have been more of a knock on
Speaker 5: effect across credit. But when you look at the public
Speaker 5: credit markets, they actually look pretty clean. When you talk
Speaker 5: to our credit teams, the kind of issuance that they
Speaker 5: would have historically seen at this part of the cycle
Speaker 5: they haven't seen. And we think it's because the private
Speaker 5: credit markets have grown to be so large they're effectively
Speaker 5: absorbing the marginal buyer borrower that would be in the
Speaker 5: public markets. If we go back to two thousand and seven,
Speaker 5: the private credit markets didn't exist. It was all about
Speaker 5: hedge funds leverage. Today the private credit market is about
Speaker 5: one point seven trillion. It's actually just slightly larger than
Speaker 5: the one point six trillion value of the public high
Speaker 5: yield market. It's in a way acting as a form
Speaker 5: of reinsurance to the public credit markets.
Speaker 2: Do you get so, does JP Morgan play in that
Speaker 2: private credit business at all? I mean, that's that's silly, separate.
Speaker 5: From your world it's within our asset and wealth management businesses,
Speaker 5: so we do have teams that look through it. They
Speaker 5: see a lot of opportunity. They're looking at core opportunities
Speaker 5: that are between nine and eleven percent, so first five
Speaker 5: and three eighths, and credit spreads are four to five percent.
Speaker 5: You're getting it largely from the increase in the Fed
Speaker 5: funds rate, and then for the more marginal story borrowers,
Speaker 5: you're looking at twelve to fifteen percent. You can escape it.
Speaker 5: You have to realize that a new source of non
Speaker 5: bank lending has been created since the start of the pandemic.
Speaker 3: I tay you in that part.
Speaker 2: Like when I was at the chaseman Aden Bank in
Speaker 2: the media group, we lean against cashlow no asset values.
Speaker 2: So to go to our credit committee and say we're
Speaker 2: lending against airwaves, say for a cellular company, was crazy,
Speaker 2: But that's leverage lending to me, and that was hugely profitable.
Speaker 2: I'm surprised the banks have allowed that business to kind
Speaker 2: of kind of go away from them in this private well.
Speaker 5: I'm sure the regulators have had a hand in that.
Speaker 5: But your conversation about Chase Manhattan about making loans, you
Speaker 5: go back to the way the Fed traditionally operate it
Speaker 5: was to lower rates, create some stimulus in the system,
Speaker 5: create more lending into the system. This sort of extension
Speaker 5: of credit, the credit multiplier. Well, that's what you see
Speaker 5: in private credit now. It's an extension of credit into
Speaker 5: the system. That one point seven trillion that's out there.
Speaker 5: Regardless of how much of that's actually and tapped and lent,
Speaker 5: it's still going to businesses who are using it. They're
Speaker 5: hiring people, they're contracting for facilities, for goods and services.
Speaker 5: That's going into the economy. It's real.
Speaker 2: When is the new JP Morgan Chase building on Park
Speaker 2: Avene going to be open? Because I've been watching that
Speaker 2: since day one? And folks, next time you come to
Speaker 2: the city Park Avenue like forty eighth Street, forty whatever,
Speaker 2: it is, awesome building.
Speaker 3: Once's it gonna be ready.
Speaker 5: You're an alum, you should come back. I have a
Speaker 5: look August twenty twenty five. Put it on your calendar
Speaker 5: just paying me or Diamond Comma Jay and say you
Speaker 5: were an alum.
Speaker 3: Now this is what we get in. This is what
Speaker 3: we're gonna do. We're gonna do Rich Meg.
Speaker 2: Put this in the calendar for August twenty twenty five,
Speaker 2: Bloomberg Surveillance remote broadcast for the opening day of the
Speaker 2: JP Marsham Let's chase, are think gonna bring everybody back
Speaker 2: together again, hopefully in this building, because you guys are
Speaker 2: all over the place now.
Speaker 5: Yeah, we're across three buildings. We refer to it as
Speaker 5: our Midtown campus. Oh okay, some are better buildings than others.
Speaker 5: Some were in buildings that their glory years were about
Speaker 5: fifty years ago. Yeah, so there's a lot of anxiousness
Speaker 5: to just move around and get to the right place
Speaker 5: sooner than that.
Speaker 2: All right, I'm sure Jamie Diamond is driving a bus
Speaker 2: on that one as usual. Bob Michael, thanks so much
Speaker 2: for joining us. Bob Michael, he's the CIO. He's a
Speaker 2: head of Global fixed income, Currency and Commodities Grow. We
Speaker 2: call that thick here in the biz, JP Morgan, as imagine.
Speaker 2: All right, let's check in with somebody who's also gonna
Speaker 2: be paying attention to the FED today.
Speaker 3: That's Dennis Lockhart.
Speaker 2: He's a former president of the Federal Reserve Bank of Atlanta. Dennis,
Speaker 2: thanks so much for joining us here. What do you
Speaker 2: expect your former colleagues at the Fed to do today.
Speaker 2: What's going to be a good day for the Fed today.
Speaker 6: Good day would probably be not to make too much news.
Speaker 6: I think they will certainly will be no policy action today.
Speaker 6: I think the attention will be on the summary of
Speaker 6: economic projections that's so called dot plot, and that could
Speaker 6: move from the December dot plot in such a way
Speaker 6: that the markets will react and the public will take
Speaker 6: notice of. Probably fewer rate cuts would be the signal,
Speaker 6: but I'm not one hundred percent sure that's going to
Speaker 6: happen in in Powell's press conference, I think he will
Speaker 6: stay very close to what he said in the recent testimony,
Speaker 6: and therefore he's going to be noncommittal about June and
Speaker 6: probably just repeat some of the themes that they still
Speaker 6: expect to cut rates this year, but you know they're
Speaker 6: not giving any indication of when that would start.
Speaker 4: Let's go back to your comment on the dot plot,
Speaker 4: because what I think a lot investors are going to
Speaker 4: want to know is are we going to get two
Speaker 4: cuts or three cuts? So what's going to be the
Speaker 4: key factors do you think that policymakers are going to
Speaker 4: have in mind when they consider either sticking with their
Speaker 4: current dots or perhaps some people changing their tune and
Speaker 4: shifting to two cuts this year.
Speaker 6: I think what's on the mind of those who might
Speaker 6: consider moving their dot to perhaps to lower that that
Speaker 6: would be four to three and three to two. Is
Speaker 6: the recent inflation picture, with disappointing inflation reports recently, and
Speaker 6: the producer price index really actually jumped, it was quite hot,
Speaker 6: and I think that just raises doubts in their minds
Speaker 6: as to whether the relentless disinflation is going to continue,
Speaker 6: or whether we're seeing a stall out of some kind,
Speaker 6: possibly even the indications of some resurgence and inflation. All
Speaker 6: of those are open questions, but they are questions on
Speaker 6: the mind of committee members, and they're going to have
Speaker 6: to think about whether they have effectively reset the clock
Speaker 6: in order to get confident that disinflation will continue.
Speaker 2: I've heard a couple of different camps out there. One is, oh,
Speaker 2: it's just kind of seasonal beginning of the year, a
Speaker 2: little pop up in inflation, don't worry about it. The
Speaker 2: trend is still down, where some others are saying, hey,
Speaker 2: it kind of feels like inflation's kind of reasserting itself
Speaker 2: a little bit here.
Speaker 3: How do you interpret the data.
Speaker 6: Well, I'm very attuned to the quirkiness of the first quarter.
Speaker 6: I was on the FMC for ten years. Half of
Speaker 6: that time five years. I think we had unusual first
Speaker 6: quarters that didn't allow you to extrapolate from the behavior
Speaker 6: of the economy in the first quarter to the rest
Speaker 6: of the year. So I think there's a reasonable chance
Speaker 6: that these recent inflation numbers are anomalies or they are
Speaker 6: just bumps in the road. They're not necessarily indicating any
Speaker 6: change in the overall trend, and so I would, you know, cautiously,
Speaker 6: remain hopeful that the disinflation should continue as the year
Speaker 6: goes on. Also, there is some indication of the slowing
Speaker 6: of growth, which is part of the pressure that's put
Speaker 6: on prices. The Atlanta Feds GDP now, which is measuring
Speaker 6: the first quarter, is just above two percent or around
Speaker 6: two percent. That's down from from over three percent in
Speaker 6: the fourth quarter and over five percent in the third quarter.
Speaker 6: So there does seem to be a slowing trend, and
Speaker 6: I think that will help on the inflation front as well.
Speaker 4: How do you think Fed officials read the bigger risks
Speaker 4: now for either moving too soon or moving not quickly enough.
Speaker 6: I think they probably at this moment, are more concerned
Speaker 6: with moving too soon than not quickly enough. Having said that,
Speaker 6: they're certainly aware, and there has been some who have
Speaker 6: commented on recession risk. They're certainly aware that if they
Speaker 6: stay too long at these elevated levels of the policy rate,
Speaker 6: they could precipitate a slow down. Whether it would amount
Speaker 6: to a recession, but it could be an unnecessary slow down.
Speaker 6: So they're trying to thread the needle here. They're really
Speaker 6: trying to preserve the soft landing that we're in and
Speaker 6: the employment levels that we're enjoying, without you know, pushing
Speaker 6: the economy into recession. I think at the moment they're
Speaker 6: probably more concerned that they could go too early.
Speaker 2: Dennis, do you think the FED has taken the recession
Speaker 2: risk off the table or do you still think that's
Speaker 2: something they're really actively trying to guard against.
Speaker 6: I think they probably view it as a contingency with
Speaker 6: lower than fifty percent probability, so it's not necessarily something
Speaker 6: that they can see developing in the data. But it's
Speaker 6: always possible that they make a policy error, they stay
Speaker 6: too long, and then they have to play catch up
Speaker 6: and the economy ends up in a cycle that's trending
Speaker 6: more weekly than they really intended. There's always a possibility that.
Speaker 2: All right, Dennis, thank you so much for joining us.
Speaker 2: We really appreciate getting some of your time this morning.
Speaker 2: Dennis Lockhart, he's a former president of the Federal Reserve
Speaker 2: Bank of Atlanta. We appreciate getting some of this time.
Speaker 2: Francis Donald, Chief Economists and Manual Life Investment Management. She
Speaker 2: joins us here in our Bloomberg Interactive Brokers studio. Francis,
Speaker 2: you know, it's FED Day today, so let's just start
Speaker 2: right there. What do you expect to hear from the
Speaker 2: US Federal Reserve today?
Speaker 7: I don't know. And I think that's the most interesting
Speaker 7: part of this is that we're going into this and
Speaker 7: I think many FED watchers are trying to figure out
Speaker 7: what is the FED going to care about? And one
Speaker 7: of the big problems that we're having is there is
Speaker 7: a whole bunch of data pointing towards softness of inflation
Speaker 7: resilient economy, and then there's other data that says, actually,
Speaker 7: you know, there's weakness in the labor market and inflation
Speaker 7: is too sticky, so you can actually construct whatever narrative
Speaker 7: you want. What's really important from the FED today is
Speaker 7: to find out which data points they are watching. Do
Speaker 7: they care about financial conditions? Again they used to, then
Speaker 7: they didn't. Do they care about core CPI? Do they
Speaker 7: care about PCE shelter? Give us the data points that
Speaker 7: you're watching so that we have an idea of what
Speaker 7: your decision making function is. Right now it's not.
Speaker 4: Clear, but I've been a reporter many a central bank
Speaker 4: press conference, and then what we whenever we ask what
Speaker 4: indicator you're watching? We always get told we watch everything,
Speaker 4: which is not helpful. So what would you like to
Speaker 4: hear from them? What would you want them to be
Speaker 4: their pick? Because you know we always hear them focused
Speaker 4: on core supercore inflation, but what else?
Speaker 7: Well, that's why FED watchers get paid what we do,
Speaker 7: which is that we're supposed to parse the details and
Speaker 7: not necessarily list directly. Now, one of the clues that
Speaker 7: we can use without them actually saying here are the
Speaker 7: three data points we're looking at, is what does that
Speaker 7: dot plot do? Because if we move from three cuts
Speaker 7: this year to two, that's going to signal to us
Speaker 7: that they are putting a little bit more weight on
Speaker 7: some of that sticky inflation. And yet I'm going to
Speaker 7: be watching a lot of the conversation around twenty twenty
Speaker 7: five and twenty twenty six, because we're spending an awful
Speaker 7: lot of time talking about are they going to cut
Speaker 7: in June? Are they going to cut in September? That
Speaker 7: for most of my clients, for our funds is far
Speaker 7: less relevant than what the next eighteen months of cuts
Speaker 7: looks like. Are we in a nineteen ninety five soft
Speaker 7: landing with three or four cuts or are we going
Speaker 7: to be in something that resembles much more of a
Speaker 7: traditional easing cycle, which is hundreds of basis points. That
Speaker 7: story is the core for most investors, not whether they
Speaker 7: start in June to September, not if it's two or
Speaker 7: three cuts.
Speaker 2: Do you think the US feder Reserve is afraid of
Speaker 2: a recession or they'd kind of taken that off the table?
Speaker 3: Do you think?
Speaker 6: Yeah?
Speaker 7: That in my preview that I wrote for our internal
Speaker 7: clients is oh right now. The genesis of the question
Speaker 7: is exactly that, which is, are they still trying to
Speaker 7: land the soft landing story or are they afraid of
Speaker 7: a recession? And this is really core because you might
Speaker 7: remember at Jackson Hole in twenty twenty two, we were
Speaker 7: told we are not afraid of a recession, we may
Speaker 7: need a recession to bring inflation back down, and then
Speaker 7: we started to hear a different story, which is we're
Speaker 7: going to try to prevent a recession with that December
Speaker 7: FED pivot party. So I want to know from them,
Speaker 7: and they're not going to tell us directly, but we're
Speaker 7: going to parse the words. I want to know from them.
Speaker 7: Are they still trying to engineer that soft landing or
Speaker 7: are they okay if they enter recession territory.
Speaker 3: One of the.
Speaker 7: Challenges here is that it's very difficult, just like it's
Speaker 7: hard to have a soft landing, to have a small
Speaker 7: and kind of baby recession. And what we need to
Speaker 7: be aware of, and this is I think what would
Speaker 7: keep me up at night if I were a FED official,
Speaker 7: is that things don't tend to break calmly when they break.
Speaker 7: Recessions don't occur in straight lines. They are nonlinear. Take
Speaker 7: a look at the unemployment rates or jobless claims. When
Speaker 7: they break, they break hard and fast. That's what I'm
Speaker 7: most concerned about, and I'll be looking for signs from
Speaker 7: the FED. Are they also worried about that risk?
Speaker 4: You know, if I could let's move a little bit
Speaker 4: more internationally, because we've got a lot of central bank
Speaker 4: decisions this week, and one thing that we've been noticing
Speaker 4: in Bloomberg News is how synchronized central banks have started
Speaker 4: to become.
Speaker 3: What do you make of.
Speaker 4: That in terms of what that should mean for the
Speaker 4: outlook for a US policy.
Speaker 7: To me, it suggests that while a lot of the
Speaker 7: factors that we're driving inflation, we're global in nature, so
Speaker 7: inflation globally is pretty much coming down, especially for developed markets,
Speaker 7: about the same amount of time. So we have June
Speaker 7: circled for every major central bank, the ECB, the Bank
Speaker 7: of England's pretty close, the FED, the Bank of Canada,
Speaker 7: They're all pretty much going to be ready to go
Speaker 7: in June, and that's when we will know definitively that
Speaker 7: the worst of inflation is behind us. But to me,
Speaker 7: it calls into question how much of the decline we've
Speaker 7: seen in inflation so far has been due to FED
Speaker 7: or central bank hiking, and how much of it really
Speaker 7: was the supply side factors from COVID. And I know
Speaker 7: it's still not popular to say it, but to me,
Speaker 7: what you're really getting at is that this inflation. A
Speaker 7: huge part of it was transitory. It was made not
Speaker 7: worse by hiking, certainly globally, and now those transitory factors
Speaker 7: are coming undone and central banks can ease off. And
Speaker 7: the best example is, yes, the Bank of Japan just hiked,
Speaker 7: but their inflation came down with just about everyone else
Speaker 7: with no hikes at all. So there's much more of
Speaker 7: a global narrative around inflation than I think many of
Speaker 7: these individual countries, when you're looking just domestically, have admitted
Speaker 7: so far. I think when we look back in history,
Speaker 7: we're going to see this was a global story. We
Speaker 7: are still in a post COVID economy, and that is
Speaker 7: really much more important than these individual meetings that are
Speaker 7: happening with each central bank.
Speaker 2: How about the US labor market, It's been a tremendously resilient,
Speaker 2: although we did see the unemployment right kick up to
Speaker 2: I guess three point nine. So why do you think
Speaker 2: the Fed views the labor market in their calculus?
Speaker 7: Well, it depends what bias they want to have. So
Speaker 7: we made a list of all the job market indicators
Speaker 7: that we're saying there was weakening happening, and then others
Speaker 7: that said jobs were doing just fine, and they were
Speaker 7: about equal and a page long at the same time.
Speaker 7: So for every data point that said things are just fine,
Speaker 7: in fact the labor market's still strong. Like jobless claims,
Speaker 7: we have other data like rehiring activity or job cuts
Speaker 7: that suggests the opposite. So this is why I say
Speaker 7: it's going to be really important to get a sense
Speaker 7: from the FED as to what they're watching, because this
Speaker 7: really is a situation where you can make up an
Speaker 7: argument for either side of the narrative. My personal take
Speaker 7: is that when you start to see some indicators fail,
Speaker 7: the other ones are likely behind it, and as I
Speaker 7: said before, they don't tend to move smoothly. So I
Speaker 7: still believe that recession risks are underpriced in this market,
Speaker 7: and we need to be really cognizant of the risk
Speaker 7: that if a recession order materialize, it's about two years
Speaker 7: after the first rate hike. That's today, that's today.
Speaker 4: That's That's such an interesting idea because you know, I'm
Speaker 4: looking at the FED calendar. If you type FOMC, you
Speaker 4: can see the upcoming meetings, So if they were to
Speaker 4: go in June, and you know, that's not at all
Speaker 4: a foregone conclusion. You're looking at July and September. Those
Speaker 4: are the only meetings left before the US presidential election.
Speaker 4: So what I start to think about then is what
Speaker 4: kinds of political pressure the FED might come under and
Speaker 4: something that might push them into either staying their hand
Speaker 4: or moving more quickly, because if, as you say, recessionary
Speaker 4: pressures are going to start picking up, they're going to
Speaker 4: have to start kicking it up with the rate cuts.
Speaker 4: So how do you read the political environment in terms
Speaker 4: of how that's going to dictate what the FED does?
Speaker 1: Well.
Speaker 7: The FED will tell us this is a nonsense thing.
Speaker 7: We're completely independent. It's unrelated. But here's the challenge with
Speaker 7: the FED and central banks, and being a central bank watcher.
Speaker 7: They are people and humans too, so we have to
Speaker 7: assume that perhaps they have some sort of even subconscious
Speaker 7: bias that's coming into play. But at the end of
Speaker 7: the day, recessions are economies are giant ships, and if
Speaker 7: the election is coming up in just a few short meetings,
Speaker 7: whether the FED cuts in June or July or September
Speaker 7: is probably not going to save this economy from a recession.
Speaker 7: If there's a recession happening this year, it is a
Speaker 7: foregone conclusion. If it's not happening, then this time truly
Speaker 7: was different.
Speaker 3: All right, Fancis, thank you so much for joining us.
Speaker 2: Really appreciate if Francis Donald, she's a chief economist at
Speaker 2: Manual Life Investment Management, joining us live here in a
Speaker 2: Bloomberg interactive work for studio, your daily look at the
Speaker 2: front pages around the world at least ta lots of
Speaker 2: cool stuff to talk about. Where do you want to
Speaker 2: start here with some of the newspapers?
Speaker 1: All right, we'll starting with Bloomberg. They're saying that women's
Speaker 1: household work it could be added to US CPI Consumption Survey.
Speaker 3: Here's not reason why it's no exactly.
Speaker 1: So this is a report contracted by the Bureau of
Speaker 1: Labor Statistics. It found that eighty percent of household services
Speaker 1: that are crucial to spending living standards. We're talking about childcare,
Speaker 1: even do it yourself home repairs, they are provided by women. Okay,
Speaker 1: So the agency wants a consumer price index to reflect
Speaker 1: that work, and then it relies on this Consumer Expenditure
Speaker 1: survey to get that. So, yes, it could be added
Speaker 1: into that.
Speaker 4: I mean, I guess the Labor Statistics got there. In
Speaker 4: the end. This is decades that we've known exactly.
Speaker 2: So I mean, I would think this would have a
Speaker 2: big dollar amount impact on this you know index.
Speaker 1: For sure, Yes, definitely, So we'll see it could happen.
Speaker 3: All right, all right, we're not very happy in the US.
Speaker 1: Is that the thing we're not and it's very sad. Okay,
Speaker 1: there's a poll out there. It's a gallop whorl pole
Speaker 1: for the World Happiness Report twenty twenty four. There is
Speaker 1: such a thing.
Speaker 3: Okay.
Speaker 1: The reason that the US has dropped down is because
Speaker 1: of younger Americans thirty years and younger. They're reporting that
Speaker 1: decline in their living standards, so they're not happy. So
Speaker 1: that's pulling it down. So Americans, we fell to twenty
Speaker 1: third place, really fifteenth a year ago. It's the first
Speaker 1: time we fell out of the top twenty since about
Speaker 1: twenty twelve when this poll started coming out. So that's
Speaker 1: what they're saying. It's the younger generation. They're not happy.
Speaker 1: The living standards are tough. They did give a couple
Speaker 1: of points about how you can become.
Speaker 3: Happier if you're interested.
Speaker 1: You can strengthen your relationships, you can volunteer, get outside
Speaker 1: more exercise.
Speaker 3: Yeah, I don't.
Speaker 1: But it's the younger general.
Speaker 4: What about Netflix binging? Is that something that's gonna make
Speaker 4: me happier.
Speaker 1: If that's what makes you happy, then go for it
Speaker 1: because you can help us pull up this poll.
Speaker 4: But so it's the younger for I can see it though,
Speaker 4: because mortgage rates are so high, it's so hard to
Speaker 4: save up for your deposit. The inflation pressure is disqueezing you.
Speaker 4: And then student debt. But then also just insecurity in
Speaker 4: the job market. Lots of gig economy work part time contracts.
Speaker 3: But I mean we're full employment.
Speaker 2: I'm like, all the sweety offspring are employed, you know
Speaker 2: that are employable?
Speaker 7: Rare.
Speaker 3: I figure like I got my job is done there. Yeah,
Speaker 3: I don't know.
Speaker 1: Well, you know they're saying to the younger generation, they
Speaker 1: say they're disconnected to from in person. They're more in
Speaker 1: social media, they're more in their phones than the older
Speaker 1: generation who's around talk where you're used to talking with
Speaker 1: people and that's how we grew up. So that's a
Speaker 1: big difference there. All right, Bloomberg, big take story we're
Speaker 1: talking about show. Hey o Tani, Okay, he's playing right now.
Speaker 1: The Dodgers open the season the padres. They're in South Korea,
Speaker 1: and this Bloomberg big take really looks into can he
Speaker 1: become you know, global, a global sensation, which I mean
Speaker 1: most likely the answer is yes. But I mean new sponsors,
Speaker 1: a lot of them coming from Asia. This of course,
Speaker 1: game helping out the crowds of Dodgers Spring training facility
Speaker 1: three or four times.
Speaker 3: And I saw that. Wow, it's crazy. It's crazy.
Speaker 1: Resale ticket prices for Dodgers' home games risen more than
Speaker 1: ten percent. I mean, this guy is huge, and you
Speaker 1: know why. I mean, he dominates as a hitter and
Speaker 1: a pitcher, which is a rare thing since what Babe.
Speaker 3: Ruth, Yeah, exactly, exactly.
Speaker 2: And I guess you know, there's when he was a
Speaker 2: free agent, there's talking maybe coming to an East Coast team,
Speaker 2: whether it's the Yankees or you know, the Red Sox
Speaker 2: or some something like that, which would have been big
Speaker 2: because we don't see him as much here on the
Speaker 2: East Coast as obviously he's been on the West Coast.
Speaker 2: But boy, it makes a ton of sense for the
Speaker 2: Major League Baseball and trying to grow the game in
Speaker 2: Asia and starting the season in South Korea.
Speaker 3: What a great move by Major League Bass.
Speaker 1: And what's interesting you mentioned South Korea too. The New
Speaker 1: York Times had something similar, they said, how Otani, he's
Speaker 1: from Japan, and then you have South Korean baseball fans.
Speaker 1: So it's kind of putting that.
Speaker 3: Piece because there's between a lot of free in Japan,
Speaker 3: a lot.
Speaker 2: Of I guess between Japan and Korea's you know, dating
Speaker 2: back long time, a long time, including World War two
Speaker 2: some of the treatment there. So, but it seems like
Speaker 2: the Koreans are embracing Japanese shohill tiny, which is great
Speaker 2: for both countries, great for the game.
Speaker 3: So you know, more power to him.
Speaker 2: And you know you're in the number two market in
Speaker 2: the US in LA and boy that's a good thing.
Speaker 3: No kidding, no kidding.
Speaker 1: All right, our last story, this is business inside.
Speaker 3: This was the thing. This is the thing.
Speaker 1: So you know, billionaires they have their thing like Steve
Speaker 1: Jobs it was you know the black turtleness, right, you
Speaker 1: had Mark Zuckerberg always had that casual t shirt like
Speaker 1: they all had their look and their thing and video
Speaker 1: CEO Jensen Wang. You notice it's the black leather jacket.
Speaker 1: So Business Insider they did the research and they looked
Speaker 1: into this and they said, he's warned at least six
Speaker 1: different jackets of black leather jackets in recent years.
Speaker 3: So apparently this is his thing.
Speaker 1: His wife and his daughter dress him, That's what he said.
Speaker 1: So that's why he has the cool look. Of course,
Speaker 1: the women behind him pushing him into the fashion sense.
Speaker 1: His latest look came from Tom Ford's spring collection. Did
Speaker 1: you in retail that jacket for eight nine and ninety dollars?
Speaker 2: That's a Matt Miller jacket. Okay, so let's speak of
Speaker 2: Matt Miller. He has more jackets than Jensen Wong. And
Speaker 2: Matt Miller has his like custom made like from all
Speaker 2: over the world. They pick out the horse or the
Speaker 2: cow or whatever it is. It's just crazy. So people
Speaker 2: are into these jackets. It's not just Jensen Wong.
Speaker 1: No, it's Jensen Wong, but it's also that whole concept
Speaker 1: behind it of it gives them less to worry about. Yeah,
Speaker 1: they just know they're going to PLoP on a leather
Speaker 1: jacket and call it a day.
Speaker 4: Do you know what that reminds you of? There was
Speaker 4: an interview that Vanity Fair did with Obama and he's like,
Speaker 4: I got the blue suits, and I got the gray
Speaker 4: suits and that is what I am wearing.
Speaker 1: Right right, And that's what Steve Jobs always said, he said,
Speaker 1: it takes the thinking out. I have other things to
Speaker 1: think about. Wardrobe is the last thing I need to
Speaker 1: think of.
Speaker 3: I'm looking at rich Go.
Speaker 2: One of my favorite functions on the Bloomber terminal, Jensen Wong.
Speaker 2: He is ranked a twentieth in terms of the world's
Speaker 2: richest people, with a net worth of seventy eight point
Speaker 2: eight billion. So that number in and of itself is impressive.
Speaker 2: What I like is the change year to date. So
Speaker 2: he's gained thirty four point eight billion dollars just this year,
Speaker 2: so that's pretty solid.
Speaker 4: That's pretty solid, I mean, and with Nvidia just being
Speaker 4: so hot hot hot, well, we're going to see more
Speaker 4: fluctuation there.
Speaker 3: Yeah, so interesting there. So all right, Lisa Miteya, thank
Speaker 3: you so much.
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