WEBVTT - Surveillance: Inflation Fight with Chaudhuri 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot com, 0:00:26.640 --> 0:00:30.440 the Bloomberg Terminal, and the Bloomberg Business app Gogie. 0:00:30.480 --> 0:00:32.880 Chadberg, how if I share his investment strategy at Black 0:00:32.960 --> 0:00:35.360 Rock Gagy in the morning? Good to see you. Let's 0:00:35.400 --> 0:00:37.239 just start with this simple question. A colleague of mine 0:00:37.280 --> 0:00:39.120 asked it this morning, and then we've all asked it 0:00:39.120 --> 0:00:41.519 a few times over the last week. What takes your 0:00:41.560 --> 0:00:44.000 fancy this week? Central bank decisions or the tech earnings? 0:00:44.000 --> 0:00:45.199 What's your focus all of it? 0:00:45.479 --> 0:00:49.800 Central Barker warnings actually, ECI, I think that's going to 0:00:49.840 --> 0:00:51.360 be a big one at the end of the week, 0:00:51.520 --> 0:00:55.280 and PC so lots from the micro and the macro front. 0:00:55.400 --> 0:00:59.000 But I think probably what Tom was saying this earlier, 0:00:59.000 --> 0:01:01.360 if you're not in the market, it's probably what impacts 0:01:01.360 --> 0:01:03.800 you most, and what you should focus on is not 0:01:03.960 --> 0:01:09.880 the twenty five decisions but actually how they signal what's 0:01:09.959 --> 0:01:12.880 coming after so how much they can, how much the 0:01:12.880 --> 0:01:17.240 FED can keep their optionality open, and that's what really 0:01:17.280 --> 0:01:20.240 determines the outcome of FED from here on. 0:01:20.280 --> 0:01:23.080 I'm assuming you'd guess that this Wednesday and the news conference, 0:01:23.080 --> 0:01:25.479 the Chairman will try and retain that optionality the threat 0:01:25.480 --> 0:01:28.039 of an additional rate hike. From here they should. 0:01:28.240 --> 0:01:31.160 I think they're going to try very hard not to 0:01:31.319 --> 0:01:35.600 lock themselves in into another September hike. Hopefully, what they'll 0:01:35.680 --> 0:01:39.120 do is acknowledge that there has been some softening in 0:01:39.200 --> 0:01:42.400 the path of inflation, because that is factually correct. But 0:01:42.520 --> 0:01:45.080 at the same time, it's too early to call victory 0:01:45.319 --> 0:01:48.960 on the inflation fighting battle. And after that, what I 0:01:49.040 --> 0:01:52.080 think they should do is just leave all doors open 0:01:52.160 --> 0:01:54.880 so they can go again in November. Or this can 0:01:55.040 --> 0:01:57.680 be the end if this is truly the beginning of 0:01:57.880 --> 0:02:01.320 what I think is a deceleration path of inflation, not 0:02:01.520 --> 0:02:03.800 back to two percent, but back to a much more 0:02:03.880 --> 0:02:06.800 palatable three or three and a half. On course CPI, 0:02:07.000 --> 0:02:09.480 this could be the last one, last hike, and I 0:02:09.520 --> 0:02:10.920 think they should leave that door open. 0:02:11.120 --> 0:02:13.040 Summer races on. I had to buy the books this 0:02:13.200 --> 0:02:16.160 weekend for after thoughts school reading. It was like, you know, 0:02:16.560 --> 0:02:19.040 three big figures. It was amazing, She's like seven books 0:02:19.080 --> 0:02:22.400 to read? What's that about? But what the answer? Summer's 0:02:22.480 --> 0:02:25.000 moving on and there is sell and May and go 0:02:25.120 --> 0:02:28.359 away and you write about by at the end of May. 0:02:29.000 --> 0:02:32.120 Something happened March twenty four, twenty five, twenty excuse me, 0:02:32.240 --> 0:02:35.600 May twenty four, twenty five, twenty six. What happened the 0:02:35.760 --> 0:02:36.160 end of May. 0:02:36.639 --> 0:02:40.240 What happened was we saw the equity market started broadening out. 0:02:40.880 --> 0:02:43.280 We all know and talk a lot about the Big 0:02:43.440 --> 0:02:47.399 seven that has driven much of the performance UTTEL date, 0:02:47.720 --> 0:02:49.519 and what we've seen over the course of June and 0:02:49.639 --> 0:02:51.920 July is that it has broadened out. If you look 0:02:51.960 --> 0:02:56.040 at something like the MSCIIHAW has equal weighted index EUSA 0:02:56.280 --> 0:03:00.200 that has started keeping in pace with the broader And 0:03:01.000 --> 0:03:04.600 why what happened in the macro? I think Number one, 0:03:05.200 --> 0:03:08.920 the growth data started not disappointing so much. The growth 0:03:08.960 --> 0:03:11.960 data started getting better. If you think about housing, if 0:03:12.040 --> 0:03:14.519 you look at retail sales, if you look at durable goods, 0:03:14.800 --> 0:03:17.359 if you look at initial jobless claims, all of that 0:03:17.560 --> 0:03:20.480 started sort of remaining resilient. I think resilient is the 0:03:20.560 --> 0:03:24.000 word of the summer. And then second most important, and 0:03:24.160 --> 0:03:27.280 perhaps even the most important, is that inflation finally took 0:03:27.280 --> 0:03:29.000 a little bit of a breather. And that was of 0:03:29.080 --> 0:03:30.440 course more of a July story. 0:03:31.080 --> 0:03:34.760 Okay, more of a July story. But the bottom line 0:03:34.960 --> 0:03:37.480 is people in cash now, people that have missed this, 0:03:37.600 --> 0:03:41.680 including a huge part of institutional Wall Street. What's the 0:03:41.800 --> 0:03:45.680 to do list? Buy now. So at the margin, I 0:03:45.880 --> 0:03:47.880 catch you up into November and December. 0:03:48.200 --> 0:03:51.280 You know, I think very tactically, if you think that 0:03:51.600 --> 0:03:54.360 this is about of good data that we're getting is 0:03:54.440 --> 0:03:56.120 going to be with us for some time, and if 0:03:56.160 --> 0:03:58.520 the FED is closer to being done, so call it 0:03:58.840 --> 0:04:02.840 one more ratetike at most after this week, I think 0:04:02.880 --> 0:04:05.440 you can play for that quick catch up trade with 0:04:05.600 --> 0:04:07.960 something like an equal weighted basket. I think that does 0:04:08.080 --> 0:04:11.000 make sense, and we've seen flows into that from in 0:04:11.080 --> 0:04:13.920 the ETF space where investors are playing for that catch 0:04:13.960 --> 0:04:17.279 up trade. Number two, I think still focusing on quality. 0:04:17.360 --> 0:04:20.200 I think still looking at companies that obviously we'll find 0:04:20.240 --> 0:04:22.600 out more about this and earnings this week, but looking 0:04:22.640 --> 0:04:26.359 at the profitability. We actually saw how much the companies 0:04:26.440 --> 0:04:29.800 that missed on their profit margins got punished. So I 0:04:29.839 --> 0:04:31.680 think that's something else to focus on. 0:04:31.960 --> 0:04:37.200 Institutionally. What's interesting here is the is the discontinuous trends 0:04:37.279 --> 0:04:39.640 here that I see in one is big cap small cap. 0:04:40.160 --> 0:04:42.480 Somebody who's out there over the weekend, saying back to 0:04:42.680 --> 0:04:45.680 nineteen seventy nine. I'm going to give Lizae Saunders credit. 0:04:45.920 --> 0:04:49.000 I was Gena Martin Adamscuse me, Gina Martin Adams. Large 0:04:49.040 --> 0:04:53.640 and small caps partition goes back to nineteen seventy nine. 0:04:54.120 --> 0:04:57.800 Do you load the boat at Blackrock on small caps? 0:04:58.080 --> 0:04:58.480 Not yet? 0:04:58.880 --> 0:05:01.560 I think that. I mean maybe for a week or so, 0:05:01.760 --> 0:05:03.400 But I think broadly the. 0:05:06.360 --> 0:05:09.920 Which is the last gardy's day trading today? 0:05:10.200 --> 0:05:12.520 Well, no, listen, this is the environment where you have 0:05:12.760 --> 0:05:15.560 to be more nimble. I don't think it's about day trading. 0:05:15.839 --> 0:05:19.360 It's about recognizing that the data can change and we 0:05:19.560 --> 0:05:21.800 have to be nimble enough to change our minds if 0:05:21.920 --> 0:05:24.040 every four or six weeks the data is telling us 0:05:24.040 --> 0:05:26.760 a new story. And right now, I don't think it's 0:05:26.960 --> 0:05:28.800 time to load the boat with small caps. 0:05:28.880 --> 0:05:28.920 No. 0:05:29.480 --> 0:05:32.239 Can we have a quick small cap catch up trade 0:05:32.320 --> 0:05:32.960 for ten days? 0:05:33.080 --> 0:05:33.279 Sure? 0:05:33.560 --> 0:05:35.760 But do you load the boat the answer still remains no. 0:05:36.080 --> 0:05:38.760 You say, maybe time to get defensive. Everyone's got their 0:05:38.760 --> 0:05:41.120 own opinion on what defensive is. What's defensive to you. 0:05:41.360 --> 0:05:44.680 Defensive to us is quality companies. Defensive to us is 0:05:44.839 --> 0:05:49.000 dividend companies. Defensive to us is actually may maybe a 0:05:49.040 --> 0:05:51.600 little bit of minimum volatility so that if you do 0:05:51.880 --> 0:05:55.080 have that downturn, you're still remaining invested with you know, 0:05:55.160 --> 0:05:57.640 with a little bit less votility. But defensive does not 0:05:57.920 --> 0:06:01.680 mean leave the markets and go to cash. Defensive means 0:06:01.720 --> 0:06:03.920 staying in the parts of the market that are likely 0:06:04.040 --> 0:06:07.240 to outperform, like the large gaps, like the quality companies, 0:06:07.440 --> 0:06:11.960 in that in a slightly higher volatility environment. 0:06:12.000 --> 0:06:14.680 Where does AI fit into this? Because I know you 0:06:14.760 --> 0:06:17.359 personally are actually quite constructive on the theme. Most people are, 0:06:17.480 --> 0:06:19.400 but given a run we've seen in some of these names, 0:06:19.680 --> 0:06:21.960 there's some doubt now on how you should play it. 0:06:22.120 --> 0:06:25.640 I know, I definitely think that this earning a season. 0:06:25.720 --> 0:06:28.000 One of the things that we will probably see is 0:06:28.080 --> 0:06:30.760 every company trying to make them out to make themselves 0:06:30.800 --> 0:06:33.040 out to be an AI company. So I think it's 0:06:33.160 --> 0:06:37.279 choosing between which companies are actually using AI to gain efficiencies, 0:06:37.320 --> 0:06:40.680 to gain productivity versus not. And I think the theme 0:06:40.720 --> 0:06:43.040 of AI and we're talking about this as we call 0:06:43.080 --> 0:06:46.080 it mega forces, Mega soon in our midiar outlook. The 0:06:46.200 --> 0:06:48.400 reason we put it that way is that this is 0:06:48.480 --> 0:06:51.080 going to be with us for a long time, but 0:06:51.120 --> 0:06:54.560 it's already obviously impacted performance this year, and you can 0:06:54.640 --> 0:06:58.320 play this through equity, through fixed income, but remembering that 0:06:58.480 --> 0:07:00.840 this is not tomorrow straight, but this can stay with 0:07:00.960 --> 0:07:03.640 us for the medium time, so AI remains with us. 0:07:03.760 --> 0:07:07.480 Thinking about how AI can impact inflation and productivity I 0:07:07.520 --> 0:07:11.680 think is important and looking at AI enablers and developers 0:07:12.120 --> 0:07:14.000 is going to be the next leg of the trade. 0:07:14.080 --> 0:07:20.000 John, is AI just a branded technological progress from another 0:07:20.160 --> 0:07:23.480 time and place. I mean that that was a brilliant answer, Gargey, 0:07:23.600 --> 0:07:26.920 But she says it's out there farther. 0:07:27.080 --> 0:07:27.440 I get it. 0:07:27.520 --> 0:07:31.160 But is AI what we used to call technological progress? 0:07:31.440 --> 0:07:33.120 I think it's part of technological progress. 0:07:33.200 --> 0:07:33.400 Sure. 0:07:34.040 --> 0:07:35.960 The problem that we've got right now, and I think 0:07:36.040 --> 0:07:38.840 Gudly identified it perfectly, is that everyone's going to go 0:07:38.920 --> 0:07:42.200 on the call disc earning season and say we're doing 0:07:42.280 --> 0:07:45.600 AI exactly. It's going to mean twenty different things, twenty 0:07:45.640 --> 0:07:46.320 different people. 0:07:46.440 --> 0:07:48.200 I want to go back to a simpler world like 0:07:48.520 --> 0:07:51.040 beach Ken beach Ken. 0:07:51.120 --> 0:07:52.520 I just want to go back to where you can 0:07:52.560 --> 0:07:53.280 with this this morning. 0:07:53.880 --> 0:07:55.920 Well, I've seen I saw Barbie three times. 0:07:55.960 --> 0:07:56.840 You watched this movie? 0:07:57.000 --> 0:07:58.560 I saw three times? It went back. I had to 0:07:58.600 --> 0:07:59.240 go with each kid. 0:07:59.520 --> 0:08:01.440 You know, have you actually watched this movie? 0:08:01.520 --> 0:08:01.720 Yeah? 0:08:01.880 --> 0:08:04.480 You know, I thought Beachking beach Ken was you know 0:08:04.560 --> 0:08:05.200 where we should be. 0:08:05.320 --> 0:08:08.560 I don't believe you. Khaki, thank you, Khaki, Chatter and 0:08:08.600 --> 0:08:09.080 black Rock. 0:08:09.280 --> 0:08:10.080 Did you see the movie? 0:08:10.120 --> 0:08:10.320 I did? 0:08:10.680 --> 0:08:13.360 Oh good, there's a nerdfest here. 0:08:15.560 --> 0:08:16.640 I'm camp Oppenheimer. 0:08:16.920 --> 0:08:17.680 Are you if you've seen that? 0:08:18.160 --> 0:08:19.440 I am going to today? 0:08:19.640 --> 0:08:23.440 Okay, great, there we go. Great people go to the 0:08:23.520 --> 0:08:25.440 movies on a Sunday night at ten thirty that was 0:08:25.480 --> 0:08:27.080 sold out last night? How did they do that? 0:08:28.320 --> 0:08:29.800 So I had to be here this morning. 0:08:29.920 --> 0:08:33.160 Goes off for like three hours and amazing, they've got lives. 0:08:33.200 --> 0:08:47.439 Gocky Kathleen bus Johnsik joins us right now of course 0:08:47.760 --> 0:08:52.079 with Nationwide with a very clear view on the American economy, Kathleen, 0:08:52.120 --> 0:08:53.880 as Mike always does, he goes to the heart of 0:08:53.920 --> 0:08:57.760 the matter, which is the disaggregation of the American economy. 0:08:58.120 --> 0:09:00.760 Do you sum it? Together into one economy or do 0:09:00.800 --> 0:09:03.440 you have to look at America as separate sets. 0:09:04.720 --> 0:09:06.600 Well, good morning time. I'm happy to be with Mike 0:09:06.640 --> 0:09:11.839 as well, So certainly you do both, right, you look 0:09:11.920 --> 0:09:14.800 at the top down, but then you have to disaggregate. 0:09:15.679 --> 0:09:19.439 I really look at it across the sectors of the economy. 0:09:19.640 --> 0:09:23.800 And it's been a very interesting, uh post COVID. You know, 0:09:24.040 --> 0:09:27.040 first it was a recovery, and now the expansion completely unique, 0:09:27.960 --> 0:09:30.959 and we've seen these rolling recessions and the question is 0:09:31.040 --> 0:09:34.280 does this culminate into you know, a broad based and 0:09:34.400 --> 0:09:38.000 a real recession that the National Bureau of Economic Research 0:09:38.080 --> 0:09:41.360 would claim, yes, we we have recession. 0:09:41.360 --> 0:09:44.840 To the dual mandate. Are we a fully employed America? 0:09:46.600 --> 0:09:50.760 Oh yeah, we're We're over employed, which you know sounds 0:09:51.000 --> 0:09:55.079 great right if you're an employee, but but problematic for 0:09:55.160 --> 0:09:57.760 the Federal Reserve right as they try to balance that 0:09:57.880 --> 0:10:02.360 against inflation pressures, and also for corporations had trouble still 0:10:02.440 --> 0:10:07.000 fighting qualified worker and feeling that wage pressure all during 0:10:07.080 --> 0:10:07.680 this period. 0:10:08.800 --> 0:10:10.880 Kathy, let me go back to what you said about 0:10:11.440 --> 0:10:14.800 rolling recessions, because that was a theme of kind of 0:10:14.840 --> 0:10:18.560 what happened in twenty fifteen sixteen with manufacturing, and now 0:10:18.640 --> 0:10:21.360 we seem to be seeing it again. And we saw 0:10:21.559 --> 0:10:25.360 housing slow down, it's picked up, certainly for new home construction. 0:10:25.600 --> 0:10:30.000 We saw slow down in autos sales, now they've come back. 0:10:30.400 --> 0:10:31.839 Is this what we're going to go through for the 0:10:31.920 --> 0:10:34.880 next year or so, or do we get an overall 0:10:34.960 --> 0:10:38.080 as kind of forecast by a lot of people, decline 0:10:38.160 --> 0:10:40.200 in economic activity for the whole economy. 0:10:41.480 --> 0:10:45.640 Well, that's the key question. It's been quite difficult right 0:10:46.320 --> 0:10:49.199 to gauge that and the timing. So we're still in 0:10:49.280 --> 0:10:52.160 the camp that we're cautious and think that the conditions 0:10:52.200 --> 0:10:54.800 are there for a full blown recession, but we have 0:10:54.880 --> 0:10:58.560 always argued that it would be moderate on the moderate side. 0:10:59.360 --> 0:11:02.440 But you're right, you know, housing was the first sector, 0:11:02.760 --> 0:11:04.920 as it usually is, to feel the pinch of higher 0:11:05.000 --> 0:11:08.400 interest rates, right, it's very interest rates sensitive. But now 0:11:08.440 --> 0:11:12.040 we're coming back at least for construction and new home 0:11:12.120 --> 0:11:15.559 sales because you basically can't find enough supply in the 0:11:15.640 --> 0:11:20.280 existing market and builders, you know, anegoally, we're hearing reports 0:11:20.320 --> 0:11:23.560 that are offering subsidized mortgage rates. You know, five percent, 0:11:23.760 --> 0:11:26.400 you know is a lot better than seven percent. So 0:11:26.559 --> 0:11:30.000 that's what's helping on the housing market. Autos is dancing 0:11:30.080 --> 0:11:31.800 to its own tune. That should be a very interest 0:11:31.880 --> 0:11:34.720 rate sensitive sector, but it's not. Because of that long 0:11:34.800 --> 0:11:38.599 shadow of COVID, there's been a restraint of supply and 0:11:38.679 --> 0:11:41.360 there's still pent up demand. Now maybe auto dealers also 0:11:41.600 --> 0:11:44.360 like the fact that they have pricing power and they're 0:11:44.679 --> 0:11:49.439 kind of continuing that shortage of supply and purpose manufacturing 0:11:49.800 --> 0:11:52.960 like as you said, globally, we're seeing a manufacturing recession 0:11:53.000 --> 0:11:55.800 and it seems to be getting worse right in Europe, 0:11:56.360 --> 0:11:59.319 and China has been a disappoint with its reopening. In 0:11:59.360 --> 0:12:01.720 the US, is is still you know, we've had eleven 0:12:01.800 --> 0:12:06.280 months straight fully FED showing contraction, so you know, time 0:12:06.320 --> 0:12:09.120 will tell. Certainly the labor market a consumer has been 0:12:09.160 --> 0:12:12.319 resilient enough to offset those other factors. But we think 0:12:12.440 --> 0:12:15.520 even the Fed's done tightening, which we expect on Wednesday, 0:12:15.559 --> 0:12:18.720 the last rate height to this cycle, we think restrictive rates, 0:12:18.960 --> 0:12:21.440 you know, eventually going to pinch this economy and we're 0:12:21.440 --> 0:12:21.920 going to see a. 0:12:21.960 --> 0:12:25.120 Slow down, a slow down, But do we actually go negative? 0:12:25.200 --> 0:12:27.360 Is that based on the idea that Americans are just 0:12:27.800 --> 0:12:31.240 going to stop spending because now we've got real wages 0:12:31.559 --> 0:12:33.079 rising faster than inflation. 0:12:35.280 --> 0:12:35.640 That's right. 0:12:35.800 --> 0:12:40.319 I mean, right now the consumers finally getting overall some 0:12:40.559 --> 0:12:41.720 real income gains. 0:12:42.520 --> 0:12:44.240 But I think the key here. 0:12:44.160 --> 0:12:47.679 Is what happens with the corporate profits and balance. Yout 0:12:48.040 --> 0:12:50.480 If inflation continues to trend lower, which is what we 0:12:50.600 --> 0:12:54.559 expect gradually, corporations lose pricing power at the same time 0:12:54.600 --> 0:12:57.840 we're seeing upward wage pressures remain. In fact, there's going 0:12:57.920 --> 0:13:01.160 to be a number of strikers comeing on, probably with 0:13:01.320 --> 0:13:03.320 ups and maybe in the auto sector. 0:13:04.240 --> 0:13:05.240 So that means you've got. 0:13:05.160 --> 0:13:09.120 Sticky wages that that's a profit printer, and usually that 0:13:09.320 --> 0:13:12.480 leads to less employment. So I think ultimately that's where 0:13:13.120 --> 0:13:16.480 the consumer feels. The negative hit is just from less employment. 0:13:16.920 --> 0:13:20.240 Kathy ben Laidler, market strategist, was on earlier and said 0:13:20.280 --> 0:13:25.000 he's riveted on a constructive economy that loses steam on 0:13:25.559 --> 0:13:32.160 inventory dynamics. Lecture us on marginal inventories. I think that's 0:13:32.200 --> 0:13:35.920 off the radars for so many listeners and viewers. Do 0:13:36.000 --> 0:13:41.280 you see where marginal inventories won't assist real GDP forward? 0:13:43.640 --> 0:13:47.760 That is a great point in inventories many times seem 0:13:47.760 --> 0:13:50.480 to be working in the background, but when they swing 0:13:51.120 --> 0:13:55.400 can be a powerful force in the business cycle dynamics. 0:13:56.000 --> 0:13:58.320 It can be a very large dreg or maybe an 0:13:58.360 --> 0:14:02.319 ad to GDP. Say right now that companies have gotten 0:14:02.360 --> 0:14:05.120 their inventories to sell ratio in better shape, but I 0:14:05.160 --> 0:14:08.920 would still say there's elevated inventories, and it doesn't mean 0:14:08.960 --> 0:14:11.600 we're going to see a lot of ad going forward. 0:14:11.640 --> 0:14:15.000 So that's a headwind for GDP growth. Just like you 0:14:15.080 --> 0:14:18.360 know student loan debt repayments coming online. You know that's 0:14:18.400 --> 0:14:20.760 a headwind if we have a strike, So that's going 0:14:20.840 --> 0:14:22.560 to be headwind. So one of the things I would 0:14:22.560 --> 0:14:25.520 say is that you know, certainly the data has been 0:14:25.560 --> 0:14:28.080 stronger and it does give some support to a soft 0:14:28.200 --> 0:14:30.840 landing camp, but the economy still be soft. You have 0:14:30.880 --> 0:14:34.080 a couple hits and shocks, it's not hard to get 0:14:34.160 --> 0:14:37.400 us into recession. And that's where we remain still cautious. 0:14:37.640 --> 0:14:40.640 Well the stock market adapt to this or is the 0:14:40.720 --> 0:14:44.680 stock market removed from American economic slowdown? 0:14:46.880 --> 0:14:52.800 Well, historically the equity market is not immune to recessions 0:14:53.320 --> 0:14:57.000 or a downturn. The question is do we get that already? 0:14:57.080 --> 0:15:01.160 That correction and now you know is you know the 0:15:01.440 --> 0:15:04.200 equity market in better shape. I would argue that valuations 0:15:04.200 --> 0:15:07.120 are quite high. Certainly I understand the tech sector and 0:15:07.400 --> 0:15:09.760 the AI story, but you know, if we have a 0:15:09.880 --> 0:15:13.240 recession profits go down, then that you know, it looks 0:15:13.280 --> 0:15:15.280 a bit rich right now for us, So we would 0:15:15.320 --> 0:15:18.000 be cautious and we don't think it is immune to 0:15:18.560 --> 0:15:20.360 a recession in that case. 0:15:21.120 --> 0:15:25.520 Wednesday, the general feeling is the Fed could just sort 0:15:25.560 --> 0:15:28.960 of stipulate what it's going to do, but what they 0:15:29.040 --> 0:15:30.760 tell us about the future is what's going to matter 0:15:30.840 --> 0:15:32.400 to the market. So what do you think they tell 0:15:32.480 --> 0:15:36.080 us about the future. Do they keep going after one more? 0:15:37.840 --> 0:15:42.640 Yeah, it is what the FMC provides and forward guidance 0:15:42.800 --> 0:15:45.760 at what Sherman Pal you know, tells us or guides 0:15:45.840 --> 0:15:47.520 us in the press conference is going to matter. I mean, 0:15:47.560 --> 0:15:50.280 the twenty five basis point seems to be a sure 0:15:50.360 --> 0:15:53.840 bet at this point. I think there's a lot of uncertainty. 0:15:53.960 --> 0:15:57.000 Last time they added, you know, two dots right to 0:15:57.080 --> 0:15:59.400 the interest rate doc blot saying two more rate hikes, 0:15:59.640 --> 0:16:02.800 but the data's coming better than expected. I think Chairman 0:16:02.840 --> 0:16:04.600 Pal is going to back off that a little bit 0:16:04.840 --> 0:16:08.200 less aukish, but I think still be said fast and still, 0:16:09.200 --> 0:16:12.120 you know, be cautious because they don't want inflation, which 0:16:12.200 --> 0:16:14.880 is starting to go in the right direction, to reverse gears. 0:16:14.880 --> 0:16:17.040 They remember, well that base effect, right, and so inflation 0:16:17.160 --> 0:16:19.160 is going to pick up because the base effect is 0:16:19.200 --> 0:16:21.000 going to be less favorable going forward. 0:16:21.280 --> 0:16:25.040 What's your statistic real GDP statistic for this second quarter? 0:16:26.280 --> 0:16:27.920 You know we're going to get data out here. We're 0:16:27.960 --> 0:16:31.080 into the third quarter now, but for ending June thirty, 0:16:31.160 --> 0:16:32.880 what's the best JON six statistic? 0:16:34.040 --> 0:16:37.360 So we have slightly about two percent two point two percent. 0:16:38.440 --> 0:16:43.120 We start strength resilience in the consumer. Also, I think 0:16:43.480 --> 0:16:49.360 non residential investment of is going to be additive and 0:16:49.480 --> 0:16:52.120 quite strong, and we're going to have less There's the 0:16:52.120 --> 0:16:54.240 first time in a quarters two years we're not going 0:16:54.320 --> 0:16:59.520 to have a drag from residential investment because housing has stabilized. 0:17:00.360 --> 0:17:02.040 So we look, that's going to be above the Fed. 0:17:02.160 --> 0:17:05.280 Remember the Fed wants growth to be below the potential, 0:17:05.320 --> 0:17:07.600 which is one point eight percent of the potential estimate. 0:17:07.840 --> 0:17:10.280 They want to see several quarters of growth has to 0:17:10.359 --> 0:17:12.520 be well below two percent. They're not going to get 0:17:12.560 --> 0:17:13.560 that for the second quarter. 0:17:13.920 --> 0:17:16.680 Kathleen, But Johnsick, thank you so much. She's chief economists 0:17:16.760 --> 0:17:24.920 nationwide with some wonderful perspective there. Let's save ourselves right 0:17:24.960 --> 0:17:27.160 now from X with Matt Burrow, we do this head 0:17:27.200 --> 0:17:31.040 of North America Investment, Great Credit and Investgo as well. 0:17:31.520 --> 0:17:31.720 Matt. 0:17:31.840 --> 0:17:34.120 It's sort of in a no man's land between high yield. 0:17:34.160 --> 0:17:37.200 Everybody's all over high yield spreads and all that, and 0:17:37.320 --> 0:17:40.600 full faith and credit. What do you learn in quality 0:17:40.800 --> 0:17:44.320 US corporate credits right now? How do you see them 0:17:44.480 --> 0:17:48.040 out on yield or total return six months a year? 0:17:49.920 --> 0:17:52.240 Hey goo more and Tom, Yeah, we've been looking at 0:17:52.320 --> 0:17:55.440 total returns for Investment, Great Credit and everybody's comparing cash 0:17:55.600 --> 0:17:58.680 versus actual fixed rate bonds and they're up about three 0:17:58.680 --> 0:18:00.800 and a half percent year to day, which is kind 0:18:00.840 --> 0:18:02.720 of coupon plus, so maybe a little bit ahead of 0:18:02.760 --> 0:18:05.520 where cash and T bills are. But going forward, we 0:18:05.560 --> 0:18:07.280 continue to think there's a pretty good path for them. 0:18:07.720 --> 0:18:10.440 The inflows have been there. We've seen about seventeen straight 0:18:10.480 --> 0:18:13.400 weeks of inflows and that's all yield driven. So spreads 0:18:13.400 --> 0:18:16.080 are kind of neutral over the range, but yields are 0:18:16.280 --> 0:18:19.119 extremely attractive in the low fives, and that's continuing to 0:18:19.200 --> 0:18:22.440 draw money in out of cash little by little people 0:18:22.480 --> 0:18:24.760 are still really hanging onto those T bills, but little 0:18:24.760 --> 0:18:27.080 by little they're continuing to step out the curve, which 0:18:27.160 --> 0:18:29.000 is creating a pretty good technical and I think we're 0:18:29.000 --> 0:18:30.760 setting up for a good six months of total return. 0:18:30.840 --> 0:18:34.119 Here is investco. Do you see corporate issue ince? I 0:18:34.200 --> 0:18:36.160 have no idea what they can do. I notice Apple's 0:18:36.240 --> 0:18:38.879 like ten, you know, way underdebted. But are you going 0:18:38.920 --> 0:18:41.440 to see a lot of corporate issuance here or do 0:18:41.520 --> 0:18:46.280 the CFOs actually clamp down and pull it back. Yeah. 0:18:46.400 --> 0:18:49.480 So for the most part you're seeing the typical corporation 0:18:49.600 --> 0:18:51.720 is saying this is fairly expensive. I don't really want 0:18:51.760 --> 0:18:53.240 to borrow at five and a quarter five and a 0:18:53.280 --> 0:18:56.400 half percent, so they're not levering up. There's been less 0:18:56.520 --> 0:18:59.639 m and A over the near term. You know, we'll 0:18:59.680 --> 0:19:01.600 see if if people kind of adjust to this new 0:19:01.720 --> 0:19:04.400 rate environment. There has not been a lot of debt 0:19:04.440 --> 0:19:06.480 coming doe. So for most corporations, you know, they have 0:19:06.600 --> 0:19:09.640 two three percent bonds little by little or rolling off, 0:19:10.160 --> 0:19:11.879 but they haven't really felt the full shock of the 0:19:12.000 --> 0:19:13.800 rate curve going higher yet. 0:19:14.600 --> 0:19:15.480 So we'll see. 0:19:15.520 --> 0:19:18.680 For the typical industrial within the bank space, banks have 0:19:18.840 --> 0:19:20.640 been borrowing more. Just in the last week we saw 0:19:20.720 --> 0:19:23.960 Morgan Stanley bar about seven billion, Wells Fargo did about 0:19:23.960 --> 0:19:27.199 eight and a half. So you're getting the big banks borrowing, 0:19:27.280 --> 0:19:29.040 but the regional banks are on the sidelines kind of 0:19:29.080 --> 0:19:31.320 looking at this way saying, Wow, this is just too expensive. 0:19:31.320 --> 0:19:32.480 I'm not ready to issue yet. 0:19:32.720 --> 0:19:35.440 So Matt, I'm interested in when they have to borrow, 0:19:35.720 --> 0:19:37.800 not when they want to borrow, Matt, when do they 0:19:37.920 --> 0:19:40.760 need to I remember a great quote from Jeff Gundlack 0:19:40.800 --> 0:19:42.720 a double line, and he asked this question. He said, 0:19:43.119 --> 0:19:45.720 has a high yield bond ever really matured? Because they 0:19:45.840 --> 0:19:47.440 just come out and issue a new one, Matt, and 0:19:47.480 --> 0:19:50.440 I just wonder, where's that window, that horizon, that maturity 0:19:50.520 --> 0:19:52.200 will the technical speed where is it? 0:19:53.720 --> 0:19:56.159 Yeah, so for the IG market, that really is no 0:19:56.359 --> 0:19:59.320 maturity wall. They kind of that's not really an issue there. 0:19:59.320 --> 0:20:01.720 But the iel of market get about three percent coming 0:20:01.840 --> 0:20:04.159 do the rest of this year. You got nine percent 0:20:04.760 --> 0:20:07.440 due in twenty twenty four, but then his spike's a 0:20:07.440 --> 0:20:10.080 little bit to something like fifteen percent twenty twenty five, 0:20:10.200 --> 0:20:12.400 so they'll probably work to address that to make sure. 0:20:12.800 --> 0:20:15.200 You know, to Goodlock's point that that doesn't come around 0:20:15.240 --> 0:20:19.119 to maturity, they'll they'll pre refinance that. But yes, the 0:20:19.440 --> 0:20:22.399 wall is very very controlled or very low for the 0:20:22.440 --> 0:20:24.080 next two years, and then it comes a little higher 0:20:24.119 --> 0:20:25.800 from them, but then it goes back to that point. 0:20:25.840 --> 0:20:27.240