1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,880 Speaker 1: for insight from the best an economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,119 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot com, 6 00:00:26,640 --> 00:00:30,440 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app Gogie. 7 00:00:30,480 --> 00:00:32,880 Speaker 2: Chadberg, how if I share his investment strategy at Black 8 00:00:32,960 --> 00:00:35,360 Speaker 2: Rock Gagy in the morning? Good to see you. Let's 9 00:00:35,400 --> 00:00:37,239 Speaker 2: just start with this simple question. A colleague of mine 10 00:00:37,280 --> 00:00:39,120 Speaker 2: asked it this morning, and then we've all asked it 11 00:00:39,120 --> 00:00:41,519 Speaker 2: a few times over the last week. What takes your 12 00:00:41,560 --> 00:00:44,000 Speaker 2: fancy this week? Central bank decisions or the tech earnings? 13 00:00:44,000 --> 00:00:45,199 Speaker 2: What's your focus all of it? 14 00:00:45,479 --> 00:00:49,800 Speaker 3: Central Barker warnings actually, ECI, I think that's going to 15 00:00:49,840 --> 00:00:51,360 Speaker 3: be a big one at the end of the week, 16 00:00:51,520 --> 00:00:55,280 Speaker 3: and PC so lots from the micro and the macro front. 17 00:00:55,400 --> 00:00:59,000 Speaker 3: But I think probably what Tom was saying this earlier, 18 00:00:59,000 --> 00:01:01,360 Speaker 3: if you're not in the market, it's probably what impacts 19 00:01:01,360 --> 00:01:03,800 Speaker 3: you most, and what you should focus on is not 20 00:01:03,960 --> 00:01:09,880 Speaker 3: the twenty five decisions but actually how they signal what's 21 00:01:09,959 --> 00:01:12,880 Speaker 3: coming after so how much they can, how much the 22 00:01:12,880 --> 00:01:17,240 Speaker 3: FED can keep their optionality open, and that's what really 23 00:01:17,280 --> 00:01:20,240 Speaker 3: determines the outcome of FED from here on. 24 00:01:20,280 --> 00:01:23,080 Speaker 2: I'm assuming you'd guess that this Wednesday and the news conference, 25 00:01:23,080 --> 00:01:25,479 Speaker 2: the Chairman will try and retain that optionality the threat 26 00:01:25,480 --> 00:01:28,039 Speaker 2: of an additional rate hike. From here they should. 27 00:01:28,240 --> 00:01:31,160 Speaker 3: I think they're going to try very hard not to 28 00:01:31,319 --> 00:01:35,600 Speaker 3: lock themselves in into another September hike. Hopefully, what they'll 29 00:01:35,680 --> 00:01:39,120 Speaker 3: do is acknowledge that there has been some softening in 30 00:01:39,200 --> 00:01:42,400 Speaker 3: the path of inflation, because that is factually correct. But 31 00:01:42,520 --> 00:01:45,080 Speaker 3: at the same time, it's too early to call victory 32 00:01:45,319 --> 00:01:48,960 Speaker 3: on the inflation fighting battle. And after that, what I 33 00:01:49,040 --> 00:01:52,080 Speaker 3: think they should do is just leave all doors open 34 00:01:52,160 --> 00:01:54,880 Speaker 3: so they can go again in November. Or this can 35 00:01:55,040 --> 00:01:57,680 Speaker 3: be the end if this is truly the beginning of 36 00:01:57,880 --> 00:02:01,320 Speaker 3: what I think is a deceleration path of inflation, not 37 00:02:01,520 --> 00:02:03,800 Speaker 3: back to two percent, but back to a much more 38 00:02:03,880 --> 00:02:06,800 Speaker 3: palatable three or three and a half. On course CPI, 39 00:02:07,000 --> 00:02:09,480 Speaker 3: this could be the last one, last hike, and I 40 00:02:09,520 --> 00:02:10,920 Speaker 3: think they should leave that door open. 41 00:02:11,120 --> 00:02:13,040 Speaker 1: Summer races on. I had to buy the books this 42 00:02:13,200 --> 00:02:16,160 Speaker 1: weekend for after thoughts school reading. It was like, you know, 43 00:02:16,560 --> 00:02:19,040 Speaker 1: three big figures. It was amazing, She's like seven books 44 00:02:19,080 --> 00:02:22,400 Speaker 1: to read? What's that about? But what the answer? Summer's 45 00:02:22,480 --> 00:02:25,000 Speaker 1: moving on and there is sell and May and go 46 00:02:25,120 --> 00:02:28,359 Speaker 1: away and you write about by at the end of May. 47 00:02:29,000 --> 00:02:32,120 Speaker 1: Something happened March twenty four, twenty five, twenty excuse me, 48 00:02:32,240 --> 00:02:35,600 Speaker 1: May twenty four, twenty five, twenty six. What happened the 49 00:02:35,760 --> 00:02:36,160 Speaker 1: end of May. 50 00:02:36,639 --> 00:02:40,240 Speaker 3: What happened was we saw the equity market started broadening out. 51 00:02:40,880 --> 00:02:43,280 Speaker 3: We all know and talk a lot about the Big 52 00:02:43,440 --> 00:02:47,399 Speaker 3: seven that has driven much of the performance UTTEL date, 53 00:02:47,720 --> 00:02:49,519 Speaker 3: and what we've seen over the course of June and 54 00:02:49,639 --> 00:02:51,920 Speaker 3: July is that it has broadened out. If you look 55 00:02:51,960 --> 00:02:56,040 Speaker 3: at something like the MSCIIHAW has equal weighted index EUSA 56 00:02:56,280 --> 00:03:00,200 Speaker 3: that has started keeping in pace with the broader And 57 00:03:01,000 --> 00:03:04,600 Speaker 3: why what happened in the macro? I think Number one, 58 00:03:05,200 --> 00:03:08,920 Speaker 3: the growth data started not disappointing so much. The growth 59 00:03:08,960 --> 00:03:11,960 Speaker 3: data started getting better. If you think about housing, if 60 00:03:12,040 --> 00:03:14,519 Speaker 3: you look at retail sales, if you look at durable goods, 61 00:03:14,800 --> 00:03:17,359 Speaker 3: if you look at initial jobless claims, all of that 62 00:03:17,560 --> 00:03:20,480 Speaker 3: started sort of remaining resilient. I think resilient is the 63 00:03:20,560 --> 00:03:24,000 Speaker 3: word of the summer. And then second most important, and 64 00:03:24,160 --> 00:03:27,280 Speaker 3: perhaps even the most important, is that inflation finally took 65 00:03:27,280 --> 00:03:29,000 Speaker 3: a little bit of a breather. And that was of 66 00:03:29,080 --> 00:03:30,440 Speaker 3: course more of a July story. 67 00:03:31,080 --> 00:03:34,760 Speaker 1: Okay, more of a July story. But the bottom line 68 00:03:34,960 --> 00:03:37,480 Speaker 1: is people in cash now, people that have missed this, 69 00:03:37,600 --> 00:03:41,680 Speaker 1: including a huge part of institutional Wall Street. What's the 70 00:03:41,800 --> 00:03:45,680 Speaker 1: to do list? Buy now. So at the margin, I 71 00:03:45,880 --> 00:03:47,880 Speaker 1: catch you up into November and December. 72 00:03:48,200 --> 00:03:51,280 Speaker 3: You know, I think very tactically, if you think that 73 00:03:51,600 --> 00:03:54,360 Speaker 3: this is about of good data that we're getting is 74 00:03:54,440 --> 00:03:56,120 Speaker 3: going to be with us for some time, and if 75 00:03:56,160 --> 00:03:58,520 Speaker 3: the FED is closer to being done, so call it 76 00:03:58,840 --> 00:04:02,840 Speaker 3: one more ratetike at most after this week, I think 77 00:04:02,880 --> 00:04:05,440 Speaker 3: you can play for that quick catch up trade with 78 00:04:05,600 --> 00:04:07,960 Speaker 3: something like an equal weighted basket. I think that does 79 00:04:08,080 --> 00:04:11,000 Speaker 3: make sense, and we've seen flows into that from in 80 00:04:11,080 --> 00:04:13,920 Speaker 3: the ETF space where investors are playing for that catch 81 00:04:13,960 --> 00:04:17,279 Speaker 3: up trade. Number two, I think still focusing on quality. 82 00:04:17,360 --> 00:04:20,200 Speaker 3: I think still looking at companies that obviously we'll find 83 00:04:20,240 --> 00:04:22,600 Speaker 3: out more about this and earnings this week, but looking 84 00:04:22,640 --> 00:04:26,359 Speaker 3: at the profitability. We actually saw how much the companies 85 00:04:26,440 --> 00:04:29,800 Speaker 3: that missed on their profit margins got punished. So I 86 00:04:29,839 --> 00:04:31,680 Speaker 3: think that's something else to focus on. 87 00:04:31,960 --> 00:04:37,200 Speaker 1: Institutionally. What's interesting here is the is the discontinuous trends 88 00:04:37,279 --> 00:04:39,640 Speaker 1: here that I see in one is big cap small cap. 89 00:04:40,160 --> 00:04:42,480 Speaker 1: Somebody who's out there over the weekend, saying back to 90 00:04:42,680 --> 00:04:45,680 Speaker 1: nineteen seventy nine. I'm going to give Lizae Saunders credit. 91 00:04:45,920 --> 00:04:49,000 Speaker 1: I was Gena Martin Adamscuse me, Gina Martin Adams. Large 92 00:04:49,040 --> 00:04:53,640 Speaker 1: and small caps partition goes back to nineteen seventy nine. 93 00:04:54,120 --> 00:04:57,800 Speaker 1: Do you load the boat at Blackrock on small caps? 94 00:04:58,080 --> 00:04:58,480 Speaker 4: Not yet? 95 00:04:58,880 --> 00:05:01,560 Speaker 3: I think that. I mean maybe for a week or so, 96 00:05:01,760 --> 00:05:03,400 Speaker 3: But I think broadly the. 97 00:05:06,360 --> 00:05:09,920 Speaker 1: Which is the last gardy's day trading today? 98 00:05:10,200 --> 00:05:12,520 Speaker 3: Well, no, listen, this is the environment where you have 99 00:05:12,760 --> 00:05:15,560 Speaker 3: to be more nimble. I don't think it's about day trading. 100 00:05:15,839 --> 00:05:19,360 Speaker 3: It's about recognizing that the data can change and we 101 00:05:19,560 --> 00:05:21,800 Speaker 3: have to be nimble enough to change our minds if 102 00:05:21,920 --> 00:05:24,040 Speaker 3: every four or six weeks the data is telling us 103 00:05:24,040 --> 00:05:26,760 Speaker 3: a new story. And right now, I don't think it's 104 00:05:26,960 --> 00:05:28,800 Speaker 3: time to load the boat with small caps. 105 00:05:28,880 --> 00:05:28,920 Speaker 4: No. 106 00:05:29,480 --> 00:05:32,239 Speaker 3: Can we have a quick small cap catch up trade 107 00:05:32,320 --> 00:05:32,960 Speaker 3: for ten days? 108 00:05:33,080 --> 00:05:33,279 Speaker 1: Sure? 109 00:05:33,560 --> 00:05:35,760 Speaker 3: But do you load the boat the answer still remains no. 110 00:05:36,080 --> 00:05:38,760 Speaker 2: You say, maybe time to get defensive. Everyone's got their 111 00:05:38,760 --> 00:05:41,120 Speaker 2: own opinion on what defensive is. What's defensive to you. 112 00:05:41,360 --> 00:05:44,680 Speaker 3: Defensive to us is quality companies. Defensive to us is 113 00:05:44,839 --> 00:05:49,000 Speaker 3: dividend companies. Defensive to us is actually may maybe a 114 00:05:49,040 --> 00:05:51,600 Speaker 3: little bit of minimum volatility so that if you do 115 00:05:51,880 --> 00:05:55,080 Speaker 3: have that downturn, you're still remaining invested with you know, 116 00:05:55,160 --> 00:05:57,640 Speaker 3: with a little bit less votility. But defensive does not 117 00:05:57,920 --> 00:06:01,680 Speaker 3: mean leave the markets and go to cash. Defensive means 118 00:06:01,720 --> 00:06:03,920 Speaker 3: staying in the parts of the market that are likely 119 00:06:04,040 --> 00:06:07,240 Speaker 3: to outperform, like the large gaps, like the quality companies, 120 00:06:07,440 --> 00:06:11,960 Speaker 3: in that in a slightly higher volatility environment. 121 00:06:12,000 --> 00:06:14,680 Speaker 2: Where does AI fit into this? Because I know you 122 00:06:14,760 --> 00:06:17,359 Speaker 2: personally are actually quite constructive on the theme. Most people are, 123 00:06:17,480 --> 00:06:19,400 Speaker 2: but given a run we've seen in some of these names, 124 00:06:19,680 --> 00:06:21,960 Speaker 2: there's some doubt now on how you should play it. 125 00:06:22,120 --> 00:06:25,640 Speaker 3: I know, I definitely think that this earning a season. 126 00:06:25,720 --> 00:06:28,000 Speaker 3: One of the things that we will probably see is 127 00:06:28,080 --> 00:06:30,760 Speaker 3: every company trying to make them out to make themselves 128 00:06:30,800 --> 00:06:33,040 Speaker 3: out to be an AI company. So I think it's 129 00:06:33,160 --> 00:06:37,279 Speaker 3: choosing between which companies are actually using AI to gain efficiencies, 130 00:06:37,320 --> 00:06:40,680 Speaker 3: to gain productivity versus not. And I think the theme 131 00:06:40,720 --> 00:06:43,040 Speaker 3: of AI and we're talking about this as we call 132 00:06:43,080 --> 00:06:46,080 Speaker 3: it mega forces, Mega soon in our midiar outlook. The 133 00:06:46,200 --> 00:06:48,400 Speaker 3: reason we put it that way is that this is 134 00:06:48,480 --> 00:06:51,080 Speaker 3: going to be with us for a long time, but 135 00:06:51,120 --> 00:06:54,560 Speaker 3: it's already obviously impacted performance this year, and you can 136 00:06:54,640 --> 00:06:58,320 Speaker 3: play this through equity, through fixed income, but remembering that 137 00:06:58,480 --> 00:07:00,840 Speaker 3: this is not tomorrow straight, but this can stay with 138 00:07:00,960 --> 00:07:03,640 Speaker 3: us for the medium time, so AI remains with us. 139 00:07:03,760 --> 00:07:07,480 Speaker 3: Thinking about how AI can impact inflation and productivity I 140 00:07:07,520 --> 00:07:11,680 Speaker 3: think is important and looking at AI enablers and developers 141 00:07:12,120 --> 00:07:14,000 Speaker 3: is going to be the next leg of the trade. 142 00:07:14,080 --> 00:07:20,000 Speaker 1: John, is AI just a branded technological progress from another 143 00:07:20,160 --> 00:07:23,480 Speaker 1: time and place. I mean that that was a brilliant answer, Gargey, 144 00:07:23,600 --> 00:07:26,920 Speaker 1: But she says it's out there farther. 145 00:07:27,080 --> 00:07:27,440 Speaker 4: I get it. 146 00:07:27,520 --> 00:07:31,160 Speaker 1: But is AI what we used to call technological progress? 147 00:07:31,440 --> 00:07:33,120 Speaker 2: I think it's part of technological progress. 148 00:07:33,200 --> 00:07:33,400 Speaker 3: Sure. 149 00:07:34,040 --> 00:07:35,960 Speaker 2: The problem that we've got right now, and I think 150 00:07:36,040 --> 00:07:38,840 Speaker 2: Gudly identified it perfectly, is that everyone's going to go 151 00:07:38,920 --> 00:07:42,200 Speaker 2: on the call disc earning season and say we're doing 152 00:07:42,280 --> 00:07:45,600 Speaker 2: AI exactly. It's going to mean twenty different things, twenty 153 00:07:45,640 --> 00:07:46,320 Speaker 2: different people. 154 00:07:46,440 --> 00:07:48,200 Speaker 1: I want to go back to a simpler world like 155 00:07:48,520 --> 00:07:51,040 Speaker 1: beach Ken beach Ken. 156 00:07:51,120 --> 00:07:52,520 Speaker 2: I just want to go back to where you can 157 00:07:52,560 --> 00:07:53,280 Speaker 2: with this this morning. 158 00:07:53,880 --> 00:07:55,920 Speaker 1: Well, I've seen I saw Barbie three times. 159 00:07:55,960 --> 00:07:56,840 Speaker 2: You watched this movie? 160 00:07:57,000 --> 00:07:58,560 Speaker 1: I saw three times? It went back. I had to 161 00:07:58,600 --> 00:07:59,240 Speaker 1: go with each kid. 162 00:07:59,520 --> 00:08:01,440 Speaker 2: You know, have you actually watched this movie? 163 00:08:01,520 --> 00:08:01,720 Speaker 4: Yeah? 164 00:08:01,880 --> 00:08:04,480 Speaker 1: You know, I thought Beachking beach Ken was you know 165 00:08:04,560 --> 00:08:05,200 Speaker 1: where we should be. 166 00:08:05,320 --> 00:08:08,560 Speaker 2: I don't believe you. Khaki, thank you, Khaki, Chatter and 167 00:08:08,600 --> 00:08:09,080 Speaker 2: black Rock. 168 00:08:09,280 --> 00:08:10,080 Speaker 3: Did you see the movie? 169 00:08:10,120 --> 00:08:10,320 Speaker 1: I did? 170 00:08:10,680 --> 00:08:13,360 Speaker 2: Oh good, there's a nerdfest here. 171 00:08:15,560 --> 00:08:16,640 Speaker 3: I'm camp Oppenheimer. 172 00:08:16,920 --> 00:08:17,680 Speaker 2: Are you if you've seen that? 173 00:08:18,160 --> 00:08:19,440 Speaker 3: I am going to today? 174 00:08:19,640 --> 00:08:23,440 Speaker 2: Okay, great, there we go. Great people go to the 175 00:08:23,520 --> 00:08:25,440 Speaker 2: movies on a Sunday night at ten thirty that was 176 00:08:25,480 --> 00:08:27,080 Speaker 2: sold out last night? How did they do that? 177 00:08:28,320 --> 00:08:29,800 Speaker 3: So I had to be here this morning. 178 00:08:29,920 --> 00:08:33,160 Speaker 2: Goes off for like three hours and amazing, they've got lives. 179 00:08:33,200 --> 00:08:47,439 Speaker 1: Gocky Kathleen bus Johnsik joins us right now of course 180 00:08:47,760 --> 00:08:52,079 Speaker 1: with Nationwide with a very clear view on the American economy, Kathleen, 181 00:08:52,120 --> 00:08:53,880 Speaker 1: as Mike always does, he goes to the heart of 182 00:08:53,920 --> 00:08:57,760 Speaker 1: the matter, which is the disaggregation of the American economy. 183 00:08:58,120 --> 00:09:00,760 Speaker 1: Do you sum it? Together into one economy or do 184 00:09:00,800 --> 00:09:03,440 Speaker 1: you have to look at America as separate sets. 185 00:09:04,720 --> 00:09:06,600 Speaker 5: Well, good morning time. I'm happy to be with Mike 186 00:09:06,640 --> 00:09:11,839 Speaker 5: as well, So certainly you do both, right, you look 187 00:09:11,920 --> 00:09:14,800 Speaker 5: at the top down, but then you have to disaggregate. 188 00:09:15,679 --> 00:09:19,439 Speaker 5: I really look at it across the sectors of the economy. 189 00:09:19,640 --> 00:09:23,800 Speaker 5: And it's been a very interesting, uh post COVID. You know, 190 00:09:24,040 --> 00:09:27,040 Speaker 5: first it was a recovery, and now the expansion completely unique, 191 00:09:27,960 --> 00:09:30,959 Speaker 5: and we've seen these rolling recessions and the question is 192 00:09:31,040 --> 00:09:34,280 Speaker 5: does this culminate into you know, a broad based and 193 00:09:34,400 --> 00:09:38,000 Speaker 5: a real recession that the National Bureau of Economic Research 194 00:09:38,080 --> 00:09:41,360 Speaker 5: would claim, yes, we we have recession. 195 00:09:41,360 --> 00:09:44,840 Speaker 1: To the dual mandate. Are we a fully employed America? 196 00:09:46,600 --> 00:09:50,760 Speaker 5: Oh yeah, we're We're over employed, which you know sounds 197 00:09:51,000 --> 00:09:55,079 Speaker 5: great right if you're an employee, but but problematic for 198 00:09:55,160 --> 00:09:57,760 Speaker 5: the Federal Reserve right as they try to balance that 199 00:09:57,880 --> 00:10:02,360 Speaker 5: against inflation pressures, and also for corporations had trouble still 200 00:10:02,440 --> 00:10:07,000 Speaker 5: fighting qualified worker and feeling that wage pressure all during 201 00:10:07,080 --> 00:10:07,680 Speaker 5: this period. 202 00:10:08,800 --> 00:10:10,880 Speaker 6: Kathy, let me go back to what you said about 203 00:10:11,440 --> 00:10:14,800 Speaker 6: rolling recessions, because that was a theme of kind of 204 00:10:14,840 --> 00:10:18,560 Speaker 6: what happened in twenty fifteen sixteen with manufacturing, and now 205 00:10:18,640 --> 00:10:21,360 Speaker 6: we seem to be seeing it again. And we saw 206 00:10:21,559 --> 00:10:25,360 Speaker 6: housing slow down, it's picked up, certainly for new home construction. 207 00:10:25,600 --> 00:10:30,000 Speaker 6: We saw slow down in autos sales, now they've come back. 208 00:10:30,400 --> 00:10:31,839 Speaker 6: Is this what we're going to go through for the 209 00:10:31,920 --> 00:10:34,880 Speaker 6: next year or so, or do we get an overall 210 00:10:34,960 --> 00:10:38,080 Speaker 6: as kind of forecast by a lot of people, decline 211 00:10:38,160 --> 00:10:40,200 Speaker 6: in economic activity for the whole economy. 212 00:10:41,480 --> 00:10:45,640 Speaker 5: Well, that's the key question. It's been quite difficult right 213 00:10:46,320 --> 00:10:49,199 Speaker 5: to gauge that and the timing. So we're still in 214 00:10:49,280 --> 00:10:52,160 Speaker 5: the camp that we're cautious and think that the conditions 215 00:10:52,200 --> 00:10:54,800 Speaker 5: are there for a full blown recession, but we have 216 00:10:54,880 --> 00:10:58,560 Speaker 5: always argued that it would be moderate on the moderate side. 217 00:10:59,360 --> 00:11:02,440 Speaker 5: But you're right, you know, housing was the first sector, 218 00:11:02,760 --> 00:11:04,920 Speaker 5: as it usually is, to feel the pinch of higher 219 00:11:05,000 --> 00:11:08,400 Speaker 5: interest rates, right, it's very interest rates sensitive. But now 220 00:11:08,440 --> 00:11:12,040 Speaker 5: we're coming back at least for construction and new home 221 00:11:12,120 --> 00:11:15,559 Speaker 5: sales because you basically can't find enough supply in the 222 00:11:15,640 --> 00:11:20,280 Speaker 5: existing market and builders, you know, anegoally, we're hearing reports 223 00:11:20,320 --> 00:11:23,560 Speaker 5: that are offering subsidized mortgage rates. You know, five percent, 224 00:11:23,760 --> 00:11:26,400 Speaker 5: you know is a lot better than seven percent. So 225 00:11:26,559 --> 00:11:30,000 Speaker 5: that's what's helping on the housing market. Autos is dancing 226 00:11:30,080 --> 00:11:31,800 Speaker 5: to its own tune. That should be a very interest 227 00:11:31,880 --> 00:11:34,720 Speaker 5: rate sensitive sector, but it's not. Because of that long 228 00:11:34,800 --> 00:11:38,599 Speaker 5: shadow of COVID, there's been a restraint of supply and 229 00:11:38,679 --> 00:11:41,360 Speaker 5: there's still pent up demand. Now maybe auto dealers also 230 00:11:41,600 --> 00:11:44,360 Speaker 5: like the fact that they have pricing power and they're 231 00:11:44,679 --> 00:11:49,439 Speaker 5: kind of continuing that shortage of supply and purpose manufacturing 232 00:11:49,800 --> 00:11:52,960 Speaker 5: like as you said, globally, we're seeing a manufacturing recession 233 00:11:53,000 --> 00:11:55,800 Speaker 5: and it seems to be getting worse right in Europe, 234 00:11:56,360 --> 00:11:59,319 Speaker 5: and China has been a disappoint with its reopening. In 235 00:11:59,360 --> 00:12:01,720 Speaker 5: the US, is is still you know, we've had eleven 236 00:12:01,800 --> 00:12:06,280 Speaker 5: months straight fully FED showing contraction, so you know, time 237 00:12:06,320 --> 00:12:09,120 Speaker 5: will tell. Certainly the labor market a consumer has been 238 00:12:09,160 --> 00:12:12,319 Speaker 5: resilient enough to offset those other factors. But we think 239 00:12:12,440 --> 00:12:15,520 Speaker 5: even the Fed's done tightening, which we expect on Wednesday, 240 00:12:15,559 --> 00:12:18,720 Speaker 5: the last rate height to this cycle, we think restrictive rates, 241 00:12:18,960 --> 00:12:21,440 Speaker 5: you know, eventually going to pinch this economy and we're 242 00:12:21,440 --> 00:12:21,920 Speaker 5: going to see a. 243 00:12:21,960 --> 00:12:25,120 Speaker 6: Slow down, a slow down, But do we actually go negative? 244 00:12:25,200 --> 00:12:27,360 Speaker 6: Is that based on the idea that Americans are just 245 00:12:27,800 --> 00:12:31,240 Speaker 6: going to stop spending because now we've got real wages 246 00:12:31,559 --> 00:12:33,079 Speaker 6: rising faster than inflation. 247 00:12:35,280 --> 00:12:35,640 Speaker 7: That's right. 248 00:12:35,800 --> 00:12:40,319 Speaker 5: I mean, right now the consumers finally getting overall some 249 00:12:40,559 --> 00:12:41,720 Speaker 5: real income gains. 250 00:12:42,520 --> 00:12:44,240 Speaker 1: But I think the key here. 251 00:12:44,160 --> 00:12:47,679 Speaker 5: Is what happens with the corporate profits and balance. Yout 252 00:12:48,040 --> 00:12:50,480 Speaker 5: If inflation continues to trend lower, which is what we 253 00:12:50,600 --> 00:12:54,559 Speaker 5: expect gradually, corporations lose pricing power at the same time 254 00:12:54,600 --> 00:12:57,840 Speaker 5: we're seeing upward wage pressures remain. In fact, there's going 255 00:12:57,920 --> 00:13:01,160 Speaker 5: to be a number of strikers comeing on, probably with 256 00:13:01,320 --> 00:13:03,320 Speaker 5: ups and maybe in the auto sector. 257 00:13:04,240 --> 00:13:05,240 Speaker 7: So that means you've got. 258 00:13:05,160 --> 00:13:09,120 Speaker 5: Sticky wages that that's a profit printer, and usually that 259 00:13:09,320 --> 00:13:12,480 Speaker 5: leads to less employment. So I think ultimately that's where 260 00:13:13,120 --> 00:13:16,480 Speaker 5: the consumer feels. The negative hit is just from less employment. 261 00:13:16,920 --> 00:13:20,240 Speaker 1: Kathy ben Laidler, market strategist, was on earlier and said 262 00:13:20,280 --> 00:13:25,000 Speaker 1: he's riveted on a constructive economy that loses steam on 263 00:13:25,559 --> 00:13:32,160 Speaker 1: inventory dynamics. Lecture us on marginal inventories. I think that's 264 00:13:32,200 --> 00:13:35,920 Speaker 1: off the radars for so many listeners and viewers. Do 265 00:13:36,000 --> 00:13:41,280 Speaker 1: you see where marginal inventories won't assist real GDP forward? 266 00:13:43,640 --> 00:13:47,760 Speaker 5: That is a great point in inventories many times seem 267 00:13:47,760 --> 00:13:50,480 Speaker 5: to be working in the background, but when they swing 268 00:13:51,120 --> 00:13:55,400 Speaker 5: can be a powerful force in the business cycle dynamics. 269 00:13:56,000 --> 00:13:58,320 Speaker 5: It can be a very large dreg or maybe an 270 00:13:58,360 --> 00:14:02,319 Speaker 5: ad to GDP. Say right now that companies have gotten 271 00:14:02,360 --> 00:14:05,120 Speaker 5: their inventories to sell ratio in better shape, but I 272 00:14:05,160 --> 00:14:08,920 Speaker 5: would still say there's elevated inventories, and it doesn't mean 273 00:14:08,960 --> 00:14:11,600 Speaker 5: we're going to see a lot of ad going forward. 274 00:14:11,640 --> 00:14:15,000 Speaker 5: So that's a headwind for GDP growth. Just like you 275 00:14:15,080 --> 00:14:18,360 Speaker 5: know student loan debt repayments coming online. You know that's 276 00:14:18,400 --> 00:14:20,760 Speaker 5: a headwind if we have a strike, So that's going 277 00:14:20,840 --> 00:14:22,560 Speaker 5: to be headwind. So one of the things I would 278 00:14:22,560 --> 00:14:25,520 Speaker 5: say is that you know, certainly the data has been 279 00:14:25,560 --> 00:14:28,080 Speaker 5: stronger and it does give some support to a soft 280 00:14:28,200 --> 00:14:30,840 Speaker 5: landing camp, but the economy still be soft. You have 281 00:14:30,880 --> 00:14:34,080 Speaker 5: a couple hits and shocks, it's not hard to get 282 00:14:34,160 --> 00:14:37,400 Speaker 5: us into recession. And that's where we remain still cautious. 283 00:14:37,640 --> 00:14:40,640 Speaker 1: Well the stock market adapt to this or is the 284 00:14:40,720 --> 00:14:44,680 Speaker 1: stock market removed from American economic slowdown? 285 00:14:46,880 --> 00:14:52,800 Speaker 5: Well, historically the equity market is not immune to recessions 286 00:14:53,320 --> 00:14:57,000 Speaker 5: or a downturn. The question is do we get that already? 287 00:14:57,080 --> 00:15:01,160 Speaker 5: That correction and now you know is you know the 288 00:15:01,440 --> 00:15:04,200 Speaker 5: equity market in better shape. I would argue that valuations 289 00:15:04,200 --> 00:15:07,120 Speaker 5: are quite high. Certainly I understand the tech sector and 290 00:15:07,400 --> 00:15:09,760 Speaker 5: the AI story, but you know, if we have a 291 00:15:09,880 --> 00:15:13,240 Speaker 5: recession profits go down, then that you know, it looks 292 00:15:13,280 --> 00:15:15,280 Speaker 5: a bit rich right now for us, So we would 293 00:15:15,320 --> 00:15:18,000 Speaker 5: be cautious and we don't think it is immune to 294 00:15:18,560 --> 00:15:20,360 Speaker 5: a recession in that case. 295 00:15:21,120 --> 00:15:25,520 Speaker 6: Wednesday, the general feeling is the Fed could just sort 296 00:15:25,560 --> 00:15:28,960 Speaker 6: of stipulate what it's going to do, but what they 297 00:15:29,040 --> 00:15:30,760 Speaker 6: tell us about the future is what's going to matter 298 00:15:30,840 --> 00:15:32,400 Speaker 6: to the market. So what do you think they tell 299 00:15:32,480 --> 00:15:36,080 Speaker 6: us about the future. Do they keep going after one more? 300 00:15:37,840 --> 00:15:42,640 Speaker 5: Yeah, it is what the FMC provides and forward guidance 301 00:15:42,800 --> 00:15:45,760 Speaker 5: at what Sherman Pal you know, tells us or guides 302 00:15:45,840 --> 00:15:47,520 Speaker 5: us in the press conference is going to matter. I mean, 303 00:15:47,560 --> 00:15:50,280 Speaker 5: the twenty five basis point seems to be a sure 304 00:15:50,360 --> 00:15:53,840 Speaker 5: bet at this point. I think there's a lot of uncertainty. 305 00:15:53,960 --> 00:15:57,000 Speaker 5: Last time they added, you know, two dots right to 306 00:15:57,080 --> 00:15:59,400 Speaker 5: the interest rate doc blot saying two more rate hikes, 307 00:15:59,640 --> 00:16:02,800 Speaker 5: but the data's coming better than expected. I think Chairman 308 00:16:02,840 --> 00:16:04,600 Speaker 5: Pal is going to back off that a little bit 309 00:16:04,840 --> 00:16:08,200 Speaker 5: less aukish, but I think still be said fast and still, 310 00:16:09,200 --> 00:16:12,120 Speaker 5: you know, be cautious because they don't want inflation, which 311 00:16:12,200 --> 00:16:14,880 Speaker 5: is starting to go in the right direction, to reverse gears. 312 00:16:14,880 --> 00:16:17,040 Speaker 5: They remember, well that base effect, right, and so inflation 313 00:16:17,160 --> 00:16:19,160 Speaker 5: is going to pick up because the base effect is 314 00:16:19,200 --> 00:16:21,000 Speaker 5: going to be less favorable going forward. 315 00:16:21,280 --> 00:16:25,040 Speaker 1: What's your statistic real GDP statistic for this second quarter? 316 00:16:26,280 --> 00:16:27,920 Speaker 1: You know we're going to get data out here. We're 317 00:16:27,960 --> 00:16:31,080 Speaker 1: into the third quarter now, but for ending June thirty, 318 00:16:31,160 --> 00:16:32,880 Speaker 1: what's the best JON six statistic? 319 00:16:34,040 --> 00:16:37,360 Speaker 5: So we have slightly about two percent two point two percent. 320 00:16:38,440 --> 00:16:43,120 Speaker 5: We start strength resilience in the consumer. Also, I think 321 00:16:43,480 --> 00:16:49,360 Speaker 5: non residential investment of is going to be additive and 322 00:16:49,480 --> 00:16:52,120 Speaker 5: quite strong, and we're going to have less There's the 323 00:16:52,120 --> 00:16:54,240 Speaker 5: first time in a quarters two years we're not going 324 00:16:54,320 --> 00:16:59,520 Speaker 5: to have a drag from residential investment because housing has stabilized. 325 00:17:00,360 --> 00:17:02,040 Speaker 7: So we look, that's going to be above the Fed. 326 00:17:02,160 --> 00:17:05,280 Speaker 5: Remember the Fed wants growth to be below the potential, 327 00:17:05,320 --> 00:17:07,600 Speaker 5: which is one point eight percent of the potential estimate. 328 00:17:07,840 --> 00:17:10,280 Speaker 5: They want to see several quarters of growth has to 329 00:17:10,359 --> 00:17:12,520 Speaker 5: be well below two percent. They're not going to get 330 00:17:12,560 --> 00:17:13,560 Speaker 5: that for the second quarter. 331 00:17:13,920 --> 00:17:16,680 Speaker 1: Kathleen, But Johnsick, thank you so much. She's chief economists 332 00:17:16,760 --> 00:17:24,920 Speaker 1: nationwide with some wonderful perspective there. Let's save ourselves right 333 00:17:24,960 --> 00:17:27,160 Speaker 1: now from X with Matt Burrow, we do this head 334 00:17:27,200 --> 00:17:31,040 Speaker 1: of North America Investment, Great Credit and Investgo as well. 335 00:17:31,520 --> 00:17:31,720 Speaker 4: Matt. 336 00:17:31,840 --> 00:17:34,120 Speaker 1: It's sort of in a no man's land between high yield. 337 00:17:34,160 --> 00:17:37,200 Speaker 1: Everybody's all over high yield spreads and all that, and 338 00:17:37,320 --> 00:17:40,600 Speaker 1: full faith and credit. What do you learn in quality 339 00:17:40,800 --> 00:17:44,320 Speaker 1: US corporate credits right now? How do you see them 340 00:17:44,480 --> 00:17:48,040 Speaker 1: out on yield or total return six months a year? 341 00:17:49,920 --> 00:17:52,240 Speaker 4: Hey goo more and Tom, Yeah, we've been looking at 342 00:17:52,320 --> 00:17:55,440 Speaker 4: total returns for Investment, Great Credit and everybody's comparing cash 343 00:17:55,600 --> 00:17:58,680 Speaker 4: versus actual fixed rate bonds and they're up about three 344 00:17:58,680 --> 00:18:00,800 Speaker 4: and a half percent year to day, which is kind 345 00:18:00,840 --> 00:18:02,720 Speaker 4: of coupon plus, so maybe a little bit ahead of 346 00:18:02,760 --> 00:18:05,520 Speaker 4: where cash and T bills are. But going forward, we 347 00:18:05,560 --> 00:18:07,280 Speaker 4: continue to think there's a pretty good path for them. 348 00:18:07,720 --> 00:18:10,440 Speaker 4: The inflows have been there. We've seen about seventeen straight 349 00:18:10,480 --> 00:18:13,400 Speaker 4: weeks of inflows and that's all yield driven. So spreads 350 00:18:13,400 --> 00:18:16,080 Speaker 4: are kind of neutral over the range, but yields are 351 00:18:16,280 --> 00:18:19,119 Speaker 4: extremely attractive in the low fives, and that's continuing to 352 00:18:19,200 --> 00:18:22,440 Speaker 4: draw money in out of cash little by little people 353 00:18:22,480 --> 00:18:24,760 Speaker 4: are still really hanging onto those T bills, but little 354 00:18:24,760 --> 00:18:27,080 Speaker 4: by little they're continuing to step out the curve, which 355 00:18:27,160 --> 00:18:29,000 Speaker 4: is creating a pretty good technical and I think we're 356 00:18:29,000 --> 00:18:30,760 Speaker 4: setting up for a good six months of total return. 357 00:18:30,840 --> 00:18:34,119 Speaker 1: Here is investco. Do you see corporate issue ince? I 358 00:18:34,200 --> 00:18:36,160 Speaker 1: have no idea what they can do. I notice Apple's 359 00:18:36,240 --> 00:18:38,879 Speaker 1: like ten, you know, way underdebted. But are you going 360 00:18:38,920 --> 00:18:41,440 Speaker 1: to see a lot of corporate issuance here or do 361 00:18:41,520 --> 00:18:46,280 Speaker 1: the CFOs actually clamp down and pull it back. Yeah. 362 00:18:46,400 --> 00:18:49,480 Speaker 4: So for the most part you're seeing the typical corporation 363 00:18:49,600 --> 00:18:51,720 Speaker 4: is saying this is fairly expensive. I don't really want 364 00:18:51,760 --> 00:18:53,240 Speaker 4: to borrow at five and a quarter five and a 365 00:18:53,280 --> 00:18:56,400 Speaker 4: half percent, so they're not levering up. There's been less 366 00:18:56,520 --> 00:18:59,639 Speaker 4: m and A over the near term. You know, we'll 367 00:18:59,680 --> 00:19:01,600 Speaker 4: see if if people kind of adjust to this new 368 00:19:01,720 --> 00:19:04,400 Speaker 4: rate environment. There has not been a lot of debt 369 00:19:04,440 --> 00:19:06,480 Speaker 4: coming doe. So for most corporations, you know, they have 370 00:19:06,600 --> 00:19:09,640 Speaker 4: two three percent bonds little by little or rolling off, 371 00:19:10,160 --> 00:19:11,879 Speaker 4: but they haven't really felt the full shock of the 372 00:19:12,000 --> 00:19:13,800 Speaker 4: rate curve going higher yet. 373 00:19:14,600 --> 00:19:15,480 Speaker 1: So we'll see. 374 00:19:15,520 --> 00:19:18,680 Speaker 4: For the typical industrial within the bank space, banks have 375 00:19:18,840 --> 00:19:20,640 Speaker 4: been borrowing more. Just in the last week we saw 376 00:19:20,720 --> 00:19:23,960 Speaker 4: Morgan Stanley bar about seven billion, Wells Fargo did about 377 00:19:23,960 --> 00:19:27,199 Speaker 4: eight and a half. So you're getting the big banks borrowing, 378 00:19:27,280 --> 00:19:29,040 Speaker 4: but the regional banks are on the sidelines kind of 379 00:19:29,080 --> 00:19:31,320 Speaker 4: looking at this way saying, Wow, this is just too expensive. 380 00:19:31,320 --> 00:19:32,480 Speaker 4: I'm not ready to issue yet. 381 00:19:32,720 --> 00:19:35,440 Speaker 2: So Matt, I'm interested in when they have to borrow, 382 00:19:35,720 --> 00:19:37,800 Speaker 2: not when they want to borrow, Matt, when do they 383 00:19:37,920 --> 00:19:40,760 Speaker 2: need to I remember a great quote from Jeff Gundlack 384 00:19:40,800 --> 00:19:42,720 Speaker 2: a double line, and he asked this question. He said, 385 00:19:43,119 --> 00:19:45,720 Speaker 2: has a high yield bond ever really matured? Because they 386 00:19:45,840 --> 00:19:47,440 Speaker 2: just come out and issue a new one, Matt, and 387 00:19:47,480 --> 00:19:50,440 Speaker 2: I just wonder, where's that window, that horizon, that maturity 388 00:19:50,520 --> 00:19:52,200 Speaker 2: will the technical speed where is it? 389 00:19:53,720 --> 00:19:56,159 Speaker 4: Yeah, so for the IG market, that really is no 390 00:19:56,359 --> 00:19:59,320 Speaker 4: maturity wall. They kind of that's not really an issue there. 391 00:19:59,320 --> 00:20:01,720 Speaker 4: But the iel of market get about three percent coming 392 00:20:01,840 --> 00:20:04,159 Speaker 4: do the rest of this year. You got nine percent 393 00:20:04,760 --> 00:20:07,440 Speaker 4: due in twenty twenty four, but then his spike's a 394 00:20:07,440 --> 00:20:10,080 Speaker 4: little bit to something like fifteen percent twenty twenty five, 395 00:20:10,200 --> 00:20:12,400 Speaker 4: so they'll probably work to address that to make sure. 396 00:20:12,800 --> 00:20:15,200 Speaker 4: You know, to Goodlock's point that that doesn't come around 397 00:20:15,240 --> 00:20:19,119 Speaker 4: to maturity, they'll they'll pre refinance that. But yes, the 398 00:20:19,440 --> 00:20:22,399 Speaker 4: wall is very very controlled or very low for the 399 00:20:22,440 --> 00:20:24,080 Speaker 4: next two years, and then it comes a little higher 400 00:20:24,119 --> 00:20:25,800 Speaker 4: from them, but then it goes back to that point. 401 00:20:25,840 --> 00:20:27,240 Speaker 4: I was making this a little bit ago that no 402 00:20:27,320 --> 00:20:30,240 Speaker 4: one's really felt the full effect of this higher yields 403 00:20:30,320 --> 00:20:32,400 Speaker 4: yet because they have not had a lot of debt 404 00:20:32,520 --> 00:20:35,760 Speaker 4: roll off. If and when that comes, the larger percentage 405 00:20:35,800 --> 00:20:37,959 Speaker 4: of their debt will be at eight nine percent than 406 00:20:38,000 --> 00:20:40,119 Speaker 4: where it is today. I do think this is very 407 00:20:40,160 --> 00:20:41,960 Speaker 4: good for fixed rate borrowers though, that they've been able 408 00:20:42,000 --> 00:20:44,640 Speaker 4: to lock in yields for longer term. Is you feel 409 00:20:44,640 --> 00:20:46,119 Speaker 4: the pain right away if you're in the floating rate 410 00:20:46,160 --> 00:20:47,040 Speaker 4: type of borrower, though. 411 00:20:47,119 --> 00:20:49,679 Speaker 2: Matt, has it ever been this wide the difference between 412 00:20:50,200 --> 00:20:53,639 Speaker 2: a coupon payment for a company, pick any company and 413 00:20:53,760 --> 00:20:56,080 Speaker 2: what it would cost them to borrow in a secondary 414 00:20:56,440 --> 00:20:59,440 Speaker 2: market right now? Has there ever been a big difference 415 00:21:00,359 --> 00:21:00,560 Speaker 2: like this? 416 00:21:01,440 --> 00:21:05,000 Speaker 4: Yeah, not since you know, the the eighties, or you 417 00:21:05,040 --> 00:21:07,520 Speaker 4: know even the early eighties, late seventies, really since you've 418 00:21:07,520 --> 00:21:11,119 Speaker 4: seen this. So they're normally the bond rolls off at 419 00:21:11,119 --> 00:21:13,000 Speaker 4: four percent, you replace it anywhere between three and a 420 00:21:13,040 --> 00:21:14,280 Speaker 4: half and four and a half. But that's just not 421 00:21:14,400 --> 00:21:16,200 Speaker 4: the case right now. But you know, I will point 422 00:21:16,200 --> 00:21:18,760 Speaker 4: out Tom mentioned something like Apple. Apple was boring at 423 00:21:18,800 --> 00:21:20,480 Speaker 4: one one and a half percent for a long time, 424 00:21:20,640 --> 00:21:23,000 Speaker 4: just simply because they could. You know, I think they'll 425 00:21:23,040 --> 00:21:24,879 Speaker 4: keep that in their capital structure. But a lot of 426 00:21:24,920 --> 00:21:26,720 Speaker 4: these tech companies, you know, they may just choose to 427 00:21:26,760 --> 00:21:27,960 Speaker 4: pay it off. They may just say, you know what, 428 00:21:28,119 --> 00:21:29,800 Speaker 4: that five and a half six percent, it doesn't make 429 00:21:29,800 --> 00:21:32,840 Speaker 4: any more any sense anymore. We'll have to see, you know, clearly, 430 00:21:32,840 --> 00:21:35,000 Speaker 4: when they're growing at the speed they are, that's still 431 00:21:35,320 --> 00:21:38,400 Speaker 4: a creative to earnings. But it does change the dynamics 432 00:21:38,560 --> 00:21:39,360 Speaker 4: at these higher rates. 433 00:21:39,520 --> 00:21:41,800 Speaker 1: Met brio, delicate question. I don't want you to get 434 00:21:41,840 --> 00:21:43,879 Speaker 1: in trouble with your general counsel, but it's a bit 435 00:21:43,920 --> 00:21:46,720 Speaker 1: off your remat, but I've got to go there. Splashed 436 00:21:46,760 --> 00:21:49,920 Speaker 1: across the Monday's guys, thanks to the FTV on this 437 00:21:50,800 --> 00:21:55,960 Speaker 1: is challenges in the leveraged loan market. How bad is it? 438 00:21:58,000 --> 00:22:01,840 Speaker 4: Well, it hasn't been bad yet, simply because the economy 439 00:22:01,920 --> 00:22:04,040 Speaker 4: is going so strong. As I was stating earlier. If 440 00:22:04,080 --> 00:22:07,440 Speaker 4: a floating rate borrower does steal the effects immediately rather 441 00:22:07,520 --> 00:22:09,440 Speaker 4: than a fixed rate borrower. So in the loan market, 442 00:22:09,720 --> 00:22:11,159 Speaker 4: you know they're going to get hit right away when 443 00:22:11,240 --> 00:22:12,960 Speaker 4: rates go up. And now you've got some companies borrowing 444 00:22:12,960 --> 00:22:16,280 Speaker 4: at eleven, twelve, thirteen percent. That can be very attractive 445 00:22:16,280 --> 00:22:18,280 Speaker 4: to the to the lender, but it can also be 446 00:22:18,359 --> 00:22:21,600 Speaker 4: very punitive to the borrower. As long as the economy 447 00:22:21,600 --> 00:22:23,320 Speaker 4: stays as strong as it is, they're going to be fine. 448 00:22:23,359 --> 00:22:25,480 Speaker 4: But if you start to see a hard landing, you 449 00:22:25,520 --> 00:22:28,080 Speaker 4: know you could be in more trouble in that particular 450 00:22:28,160 --> 00:22:30,840 Speaker 4: area of the of the fix of the debt markets. 451 00:22:30,960 --> 00:22:33,000 Speaker 2: I Matt, thank you Mike for the update on credit 452 00:22:33,080 --> 00:22:34,960 Speaker 2: mapro there of Investco. 453 00:22:45,080 --> 00:22:48,240 Speaker 1: Our clinic. Now on wheat in the news with Conor Haik, 454 00:22:48,680 --> 00:22:51,840 Speaker 1: head of research at ED and f Man ConA to 455 00:22:51,920 --> 00:22:56,399 Speaker 1: began first principles. Is there a global price to wheat 456 00:22:57,119 --> 00:22:59,679 Speaker 1: like there's a global price to Brent crude? 457 00:23:01,359 --> 00:23:05,440 Speaker 7: Yeah, the CBOT wheat futures is probably the best benchmark. 458 00:23:05,840 --> 00:23:09,080 Speaker 7: That's probably the global Berench mark, but you also have 459 00:23:09,119 --> 00:23:13,199 Speaker 7: a MATIF futures in Europe for Paris two I think 460 00:23:13,240 --> 00:23:13,680 Speaker 7: are the best? 461 00:23:14,040 --> 00:23:17,960 Speaker 1: Is wheat? A singular news item on Ukraine, the Black 462 00:23:18,040 --> 00:23:21,280 Speaker 1: Sea and such, or does it link in the other 463 00:23:21,520 --> 00:23:23,359 Speaker 1: soft commodities. 464 00:23:24,240 --> 00:23:27,600 Speaker 7: Both. To be honest, right now I think we should 465 00:23:27,600 --> 00:23:30,200 Speaker 7: all be talking about wheat. We have one of the 466 00:23:30,200 --> 00:23:33,680 Speaker 7: world's largest wheat suppliers who's just been choked off its 467 00:23:33,800 --> 00:23:36,440 Speaker 7: main archery in terms of experts of the world, just 468 00:23:36,520 --> 00:23:39,240 Speaker 7: as it's about to reap a pretty decent harvest. They 469 00:23:39,359 --> 00:23:40,879 Speaker 7: just don't know how to get out of the country. 470 00:23:41,840 --> 00:23:45,800 Speaker 7: Russia is strategically now blocking you'll obviously they've come out 471 00:23:45,840 --> 00:23:49,600 Speaker 7: of the grains corridor Black Sea, Green Steel, But on 472 00:23:49,720 --> 00:23:52,240 Speaker 7: top of that, the escalation of fighting there, the fact 473 00:23:52,240 --> 00:23:55,520 Speaker 7: that any ship's coming into that port is deemed as 474 00:23:55,520 --> 00:23:58,320 Speaker 7: a military threat, all of this makes it very very 475 00:23:58,400 --> 00:24:00,840 Speaker 7: hard for any shipments to come out of that region. 476 00:24:01,920 --> 00:24:05,240 Speaker 7: And alternative routes are not going to be anywhere near 477 00:24:05,320 --> 00:24:08,280 Speaker 7: as effective. They're going to be higher in terms of 478 00:24:08,359 --> 00:24:11,720 Speaker 7: transportation costs and slower in terms of coming out. And 479 00:24:11,840 --> 00:24:14,320 Speaker 7: this is at a time when globally food prices are 480 00:24:14,359 --> 00:24:15,600 Speaker 7: still pretty elevated. 481 00:24:15,880 --> 00:24:17,680 Speaker 2: You kind of help us work through this then in 482 00:24:17,840 --> 00:24:19,399 Speaker 2: very simple terms, and you did a bit of it 483 00:24:19,560 --> 00:24:22,600 Speaker 2: just then. So Russia has killed the grain deal. They've 484 00:24:22,680 --> 00:24:25,600 Speaker 2: been attacking a desk so we've seen highlights of that, 485 00:24:25,760 --> 00:24:29,440 Speaker 2: headlines of that overnight once again, which is really compromising 486 00:24:29,800 --> 00:24:33,160 Speaker 2: these transport routes through the Black Sea. You mentioned alternative routes. 487 00:24:33,520 --> 00:24:36,879 Speaker 2: Can you describe what those alternative routes actually are and 488 00:24:37,000 --> 00:24:39,200 Speaker 2: why they're more expensive than say, just going through the 489 00:24:39,200 --> 00:24:40,880 Speaker 2: Black Sea like they typically would. 490 00:24:42,320 --> 00:24:45,639 Speaker 7: Yeah, so the alternative wood would be via the rivers, 491 00:24:45,720 --> 00:24:49,080 Speaker 7: So the port of Danube, for example, the River Danube 492 00:24:49,359 --> 00:24:51,280 Speaker 7: has various ports and by the way, those are also 493 00:24:51,320 --> 00:24:56,600 Speaker 7: being attacked overnight, but those require smaller barges, so it's 494 00:24:56,600 --> 00:25:00,600 Speaker 7: smaller tonnage that can go through. They're probably more costly, 495 00:25:01,960 --> 00:25:05,879 Speaker 7: you know, compared to loading a massive Panamax or a 496 00:25:06,000 --> 00:25:10,080 Speaker 7: handy sized built dry block vessel. We're talking small amounts 497 00:25:10,119 --> 00:25:14,440 Speaker 7: of quantities at each time, and it's going through different routs, 498 00:25:14,480 --> 00:25:17,399 Speaker 7: which is again not as effective. The fact of the 499 00:25:17,520 --> 00:25:19,320 Speaker 7: matter is, you know, no one's going to ensure a 500 00:25:19,359 --> 00:25:24,560 Speaker 7: ship coming into the Black Sea region. It's just too 501 00:25:24,720 --> 00:25:28,800 Speaker 7: risky for them. And also it also helps Russia because 502 00:25:28,840 --> 00:25:30,600 Speaker 7: what they can do. Russia also is sitting on a 503 00:25:30,720 --> 00:25:34,720 Speaker 7: massive wheat harvest. They're going to now try and grab 504 00:25:34,960 --> 00:25:37,360 Speaker 7: the market share that Ukraine is not able to get there. 505 00:25:37,440 --> 00:25:40,560 Speaker 7: So Russia will now take advantage of this and try 506 00:25:40,600 --> 00:25:45,840 Speaker 7: and get to the big importing nations like Africa, South Asia, Egypt. 507 00:25:46,200 --> 00:25:49,160 Speaker 7: These are the countries that we're relying on Ukrainian wheat 508 00:25:49,240 --> 00:25:52,240 Speaker 7: and grains. Now they might have to just revert. 509 00:25:51,920 --> 00:25:55,600 Speaker 2: To Russia meet now, Kono. How are other exporting nations, 510 00:25:55,760 --> 00:26:00,680 Speaker 2: exporting nations specifically responding to this, So they're becoming protective 511 00:26:01,040 --> 00:26:04,359 Speaker 2: going through the route with more protectionism around, maybe some 512 00:26:04,480 --> 00:26:06,080 Speaker 2: of their goods to stock up things at home. What 513 00:26:06,119 --> 00:26:06,800 Speaker 2: are they doing. 514 00:26:08,520 --> 00:26:08,880 Speaker 1: So far? 515 00:26:08,920 --> 00:26:12,680 Speaker 7: We haven't seen too much of that, only because in 516 00:26:12,800 --> 00:26:16,800 Speaker 7: the years since Ukraine was last attacked, we're first attacked 517 00:26:17,080 --> 00:26:20,680 Speaker 7: by Russia back in February twenty twenty two. The high 518 00:26:20,840 --> 00:26:23,160 Speaker 7: spike in prices did lead it to a lot of planting, 519 00:26:23,320 --> 00:26:26,119 Speaker 7: so we have seen stocks build up to a certain extent, 520 00:26:26,800 --> 00:26:29,080 Speaker 7: so the panic is not quite there. But if this 521 00:26:30,400 --> 00:26:33,240 Speaker 7: the black seat is cut off for too long, you 522 00:26:33,320 --> 00:26:35,159 Speaker 7: will start seeing a little bit of panic set in. 523 00:26:35,720 --> 00:26:38,040 Speaker 7: One thing we are noticing is well, although it's not 524 00:26:38,240 --> 00:26:43,080 Speaker 7: typically wheat and grains. Rice in India has just been 525 00:26:43,800 --> 00:26:46,600 Speaker 7: given a ban on exports, and India is the world's 526 00:26:46,680 --> 00:26:50,200 Speaker 7: largest rice exports. So I think that's one thing which 527 00:26:50,240 --> 00:26:51,760 Speaker 7: I'm seeing. You're seeing a bit of a reaction by 528 00:26:51,840 --> 00:26:55,720 Speaker 7: different governments. Although it's not necessarily grains, it is potentially 529 00:26:55,720 --> 00:26:58,560 Speaker 7: a substitute because it's a massive, massive staple. Probably for 530 00:26:58,640 --> 00:27:01,320 Speaker 7: the half of the world's population rely on rice, the 531 00:27:01,440 --> 00:27:03,399 Speaker 7: other half would rely on greed grants. 532 00:27:04,680 --> 00:27:07,320 Speaker 1: This is so important. I'm as guilty of this as anybody. 533 00:27:07,400 --> 00:27:09,800 Speaker 1: I'm the ugly American and I look at wheat, I go, 534 00:27:09,960 --> 00:27:11,600 Speaker 1: what's it mean for a loaf of bread at the 535 00:27:11,720 --> 00:27:15,480 Speaker 1: fancy grocery store in New York City has completely removed 536 00:27:15,520 --> 00:27:21,080 Speaker 1: from reality. Explain what wheat price dynamics mean to the 537 00:27:21,240 --> 00:27:25,760 Speaker 1: people of Tunisia across the Mediterranean, to the people of Egypt. 538 00:27:25,880 --> 00:27:28,800 Speaker 1: Give us the scope and scale that we in the 539 00:27:28,920 --> 00:27:30,560 Speaker 1: fancy West don't understand. 540 00:27:32,680 --> 00:27:35,200 Speaker 7: Yeah, so it's just the fact that they are emerging markets. 541 00:27:35,280 --> 00:27:38,639 Speaker 7: By that we mean economically, they're not as advanced as 542 00:27:38,800 --> 00:27:41,680 Speaker 7: us in the West, which therefore means that most of 543 00:27:41,760 --> 00:27:45,600 Speaker 7: their disposable income gets spent on food items and staples. 544 00:27:46,200 --> 00:27:50,359 Speaker 7: So in their typical basket of consumption on a daily basis, 545 00:27:50,520 --> 00:27:53,920 Speaker 7: food ranks very highly, and within food the staple is 546 00:27:54,040 --> 00:27:57,680 Speaker 7: bread or rice, but in Tunisian EGI, it would be bread. 547 00:27:58,000 --> 00:28:00,879 Speaker 7: So yeah, we are facing situation and suddenly most of 548 00:28:00,920 --> 00:28:03,320 Speaker 7: the disposable income is now spent on one or two 549 00:28:03,440 --> 00:28:07,119 Speaker 7: items and that's really affecting their cost of living. And 550 00:28:07,280 --> 00:28:11,359 Speaker 7: there you know, it does impact them economically. And if 551 00:28:11,440 --> 00:28:13,560 Speaker 7: you remember back in the mid two thousands or late 552 00:28:13,600 --> 00:28:16,720 Speaker 7: two thousands, two thousand and eight, shall I say we 553 00:28:16,880 --> 00:28:21,399 Speaker 7: did see food riots in North Africa. It's politically quite 554 00:28:21,520 --> 00:28:24,240 Speaker 7: a hot topic which I think in most governments will 555 00:28:24,280 --> 00:28:27,359 Speaker 7: want to avoid. You could argue the Arab Spring happened 556 00:28:27,400 --> 00:28:30,840 Speaker 7: because of Tunisian food riots, you know. So I think 557 00:28:30,920 --> 00:28:33,400 Speaker 7: this is something which governments will be watching carefully. Food 558 00:28:33,440 --> 00:28:36,600 Speaker 7: inflation is something that most governments would avoid, like a 559 00:28:36,640 --> 00:28:37,320 Speaker 7: plague colone. 560 00:28:37,320 --> 00:28:39,160 Speaker 2: I wouldn't expect you to comment on the politics, but 561 00:28:39,360 --> 00:28:42,200 Speaker 2: just the final one from US. Russia has very few 562 00:28:42,240 --> 00:28:45,360 Speaker 2: friends on the international stage at the moment. Perhaps you 563 00:28:45,400 --> 00:28:48,720 Speaker 2: could describe Turkey as an intermediary between Russia and the 564 00:28:48,800 --> 00:28:51,640 Speaker 2: rest of Europe. China has been a friend on the 565 00:28:51,680 --> 00:28:54,480 Speaker 2: international stage relatively speaking, over the last couple of years. 566 00:28:54,800 --> 00:28:58,480 Speaker 2: Where would this leave China's grain imports and Chinese food 567 00:28:58,560 --> 00:29:03,960 Speaker 2: prices given what's the I think at the moment tame question. 568 00:29:04,120 --> 00:29:07,400 Speaker 7: So China actually has a disinflation problem. They're actually not 569 00:29:07,680 --> 00:29:10,600 Speaker 7: suffering from inflation at all. They were very clever and 570 00:29:10,760 --> 00:29:13,680 Speaker 7: good in terms of an organized in terms of buying 571 00:29:13,920 --> 00:29:16,560 Speaker 7: just when grain prices were quite low, so they've stocked 572 00:29:16,600 --> 00:29:19,560 Speaker 7: up to a certain level. I think they're fairly comfortable 573 00:29:20,080 --> 00:29:22,880 Speaker 7: at any rate. China and Russia are on friendly terms, 574 00:29:22,960 --> 00:29:25,200 Speaker 7: so they will be able to get everything they need 575 00:29:25,760 --> 00:29:27,960 Speaker 7: from Russia very easily, So that's not going to be 576 00:29:28,040 --> 00:29:30,640 Speaker 7: a problem. But in terms of rice, which is by 577 00:29:30,640 --> 00:29:32,440 Speaker 7: the way, there's not a futures commodity in the market 578 00:29:32,520 --> 00:29:35,680 Speaker 7: for that. Rice is done on the spot market. Rice 579 00:29:35,800 --> 00:29:38,160 Speaker 7: is something that China's got a problem with because their 580 00:29:38,200 --> 00:29:40,760 Speaker 7: yields have been affected by the heat wave, and their 581 00:29:40,800 --> 00:29:45,120 Speaker 7: neighboring countries India and Thailand have also seen the rice 582 00:29:45,200 --> 00:29:47,560 Speaker 7: heals fall. So I think that's something that they may 583 00:29:47,640 --> 00:29:49,560 Speaker 7: need to look at a little bit more carefully. 584 00:29:49,880 --> 00:29:51,800 Speaker 2: Kind of this was a clinic thank you kind of 585 00:29:51,840 --> 00:29:55,400 Speaker 2: hacking of ed and f men on the latest in 586 00:29:55,560 --> 00:29:56,360 Speaker 2: self commodities. 587 00:29:56,520 --> 00:30:00,280 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 588 00:30:00,440 --> 00:30:04,600 Speaker 1: anywhere else you get your podcasts. Listen live every weekday, 589 00:30:04,920 --> 00:30:08,360 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 590 00:30:08,520 --> 00:30:13,000 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 591 00:30:13,120 --> 00:30:17,120 Speaker 1: can watch us live on Bloomberg Television and always I'm 592 00:30:17,120 --> 00:30:21,120 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and 593 00:30:21,280 --> 00:30:22,800 Speaker 1: this is Bloomberg