1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,320 Speaker 2: Terminal and the Bloomberg Business app. Haamma dal Arian of 10 00:00:37,400 --> 00:00:39,640 Speaker 2: Queen's College, Cambridge joins us around the table here in 11 00:00:39,680 --> 00:00:40,800 Speaker 2: New York. Hammo, Good morning to you. 12 00:00:40,920 --> 00:00:41,600 Speaker 3: Good morning John. 13 00:00:41,680 --> 00:00:43,919 Speaker 2: Let's get into that line from mister Bullard. He's left 14 00:00:43,920 --> 00:00:46,479 Speaker 2: the FMC. You can speak a little bit more openly 15 00:00:46,720 --> 00:00:49,160 Speaker 2: as you can as well. Your base case is still too. 16 00:00:49,680 --> 00:00:51,720 Speaker 2: When do we start to see another bump in the 17 00:00:51,800 --> 00:00:53,720 Speaker 2: road together with all the other bumps in the road 18 00:00:53,840 --> 00:00:56,360 Speaker 2: no longer be called bumps in the road on the FMC. 19 00:00:57,120 --> 00:00:58,240 Speaker 3: I think it's going to tag time. 20 00:00:58,360 --> 00:01:01,400 Speaker 4: I think Chair Parlers media rig clear that he's willing 21 00:01:01,480 --> 00:01:04,760 Speaker 4: to look through these bumps to use his phrase, the 22 00:01:04,760 --> 00:01:09,360 Speaker 4: inflation story hasn't changed, so they will need overwhelming evidence 23 00:01:10,000 --> 00:01:12,560 Speaker 4: that it is more than a bump in order for 24 00:01:12,600 --> 00:01:13,560 Speaker 4: them to change their views. 25 00:01:13,760 --> 00:01:16,319 Speaker 2: You think that's too sensitive to recent data and maybe 26 00:01:16,360 --> 00:01:17,360 Speaker 2: not being strategic enough. 27 00:01:17,360 --> 00:01:19,200 Speaker 4: What do you mean by that? So I think if 28 00:01:19,200 --> 00:01:21,679 Speaker 4: you look forward, and you talked about in the last 29 00:01:21,720 --> 00:01:25,399 Speaker 4: hour about business confidence, if you look forward, there's reasons 30 00:01:25,400 --> 00:01:28,520 Speaker 4: to believe this economy may slow. So if you're setting 31 00:01:28,520 --> 00:01:32,039 Speaker 4: policy not according to what has happened, but according to 32 00:01:32,080 --> 00:01:35,640 Speaker 4: the lags with which the policy operate, you would be 33 00:01:35,920 --> 00:01:39,600 Speaker 4: more doubvish than you would be otherwise. If, however, you 34 00:01:39,720 --> 00:01:43,480 Speaker 4: focus exclusively on the data, you'll end up being too hawkish. 35 00:01:43,520 --> 00:01:46,240 Speaker 1: You talk about small business optimism, let's go there. It 36 00:01:46,280 --> 00:01:49,040 Speaker 1: came in at the lowest levels since December of twenty twelve. 37 00:01:49,360 --> 00:01:51,200 Speaker 1: Sometimes it's hard to know how to read some of 38 00:01:51,240 --> 00:01:53,560 Speaker 1: these gauges, especially because we get people on all the 39 00:01:53,600 --> 00:01:56,760 Speaker 1: time saying they're all broken. How important is this in 40 00:01:56,800 --> 00:01:59,240 Speaker 1: contrast with all of the bollishness and the momo and 41 00:01:59,280 --> 00:02:01,360 Speaker 1: the fomo and the world that we keep hearing, this 42 00:02:01,640 --> 00:02:02,320 Speaker 1: is really important. 43 00:02:02,360 --> 00:02:04,320 Speaker 4: The big mistake that was made in twenty twenty one 44 00:02:04,840 --> 00:02:09,239 Speaker 4: when people embrace the transitory narrative was they didn't listen 45 00:02:09,320 --> 00:02:12,320 Speaker 4: to the companies, and the companies were clearly saying, we 46 00:02:12,400 --> 00:02:16,359 Speaker 4: have inflationary pressures in the pipeline, we have pricing power, 47 00:02:16,560 --> 00:02:19,680 Speaker 4: We're going to pass on that important inflation. 48 00:02:19,720 --> 00:02:20,880 Speaker 3: I feel like that was coming. 49 00:02:20,639 --> 00:02:23,840 Speaker 4: In this time around. Listen to the earnings call, and 50 00:02:23,880 --> 00:02:26,320 Speaker 4: they are worried about the outlook for the rest of 51 00:02:26,360 --> 00:02:28,600 Speaker 4: the year. So I do think you need to listen 52 00:02:28,639 --> 00:02:32,799 Speaker 4: to them because often the aggregate data doesn't capture what 53 00:02:32,840 --> 00:02:34,760 Speaker 4: businesses are feeling on the ground. 54 00:02:34,800 --> 00:02:36,520 Speaker 1: When you say businesses, though, we're going to hear from 55 00:02:36,600 --> 00:02:39,000 Speaker 1: JP Morgan, and my guess is that Jamie Diamond was 56 00:02:39,280 --> 00:02:42,160 Speaker 1: raising some concerns more generally in sort of a broad 57 00:02:42,160 --> 00:02:44,000 Speaker 1: macro level when he talks about his own bank. My 58 00:02:44,080 --> 00:02:47,000 Speaker 1: suspicion is that he's doing quite well and that the 59 00:02:47,000 --> 00:02:50,200 Speaker 1: bank is probably issuing another record quarter in one way 60 00:02:50,280 --> 00:02:53,120 Speaker 1: or another. How much does it matter that the pain 61 00:02:53,240 --> 00:02:56,480 Speaker 1: is being felt in a small sub section of companies 62 00:02:56,480 --> 00:02:59,880 Speaker 1: that are smaller, more leverage to high rates, and frankly, 63 00:03:00,520 --> 00:03:04,040 Speaker 1: more leverage to a consumer that would likely be price sensitive. 64 00:03:04,600 --> 00:03:08,520 Speaker 4: It matters because they're also employees. Everybody should read Jamie's letter. 65 00:03:09,240 --> 00:03:10,639 Speaker 3: Okay, I've read it. 66 00:03:10,680 --> 00:03:12,880 Speaker 4: I've gone through the sixty one pages. There's so much 67 00:03:12,919 --> 00:03:15,680 Speaker 4: content there. You should read it. And he has this 68 00:03:15,760 --> 00:03:19,919 Speaker 4: situation whereby he's worried about the world. He says, looking forward, 69 00:03:19,960 --> 00:03:23,279 Speaker 4: all the things I'm worried about, sticky inflation, slowing economy, 70 00:03:23,600 --> 00:03:27,160 Speaker 4: a completely change in global economy. But his bank is 71 00:03:27,240 --> 00:03:32,080 Speaker 4: extremely well positioned to take advantage of this world. Why 72 00:03:32,280 --> 00:03:34,720 Speaker 4: because they've got a very solid balance sheet and they 73 00:03:34,760 --> 00:03:36,800 Speaker 4: dominate in so many different areas. So I do think 74 00:03:36,840 --> 00:03:40,360 Speaker 4: this duality can exist at JP Morgan, but it cannot 75 00:03:40,400 --> 00:03:42,000 Speaker 4: exist economy wide. 76 00:03:42,040 --> 00:03:44,440 Speaker 1: You believe that the third should cut rates even if 77 00:03:44,440 --> 00:03:47,480 Speaker 1: you're not seeing necessarily a commensurates slow down. Do you 78 00:03:47,520 --> 00:03:51,640 Speaker 1: think that the risk of a reacceleration inflation is overstated by. 79 00:03:51,520 --> 00:03:53,640 Speaker 4: Some So I don't know how often I've said it 80 00:03:53,840 --> 00:03:58,080 Speaker 4: here and elsewhere. Inflation will be sticky. Inflation will be 81 00:03:58,120 --> 00:04:00,840 Speaker 4: absolutely sticky. We're going to get stuck around two and 82 00:04:00,880 --> 00:04:03,600 Speaker 4: a half to three percent, And I do think that 83 00:04:03,600 --> 00:04:07,400 Speaker 4: that actually warrants over the long term. The FED rethinking 84 00:04:07,520 --> 00:04:09,840 Speaker 4: is inflation target. It won't do it now, but it 85 00:04:09,880 --> 00:04:13,360 Speaker 4: may well tolerate it. And you've heard what's going on. 86 00:04:13,480 --> 00:04:16,640 Speaker 4: Service inflation hasn't come down quickly enough, and guess what 87 00:04:16,839 --> 00:04:18,640 Speaker 4: good deflation is going to stop. 88 00:04:19,160 --> 00:04:20,640 Speaker 3: So, yes, inflation will be. 89 00:04:20,640 --> 00:04:23,159 Speaker 4: Sticky, but that shouldn't stop the FED because the two 90 00:04:23,160 --> 00:04:27,240 Speaker 4: percent inflation target is too tight for any global economy 91 00:04:27,240 --> 00:04:31,920 Speaker 4: going through major rewiring, and that again is well discussed 92 00:04:32,040 --> 00:04:35,679 Speaker 4: in Jamie Diamond's letter about this rewiring that's going happening 93 00:04:35,720 --> 00:04:36,680 Speaker 4: in this global economy. 94 00:04:36,720 --> 00:04:39,080 Speaker 2: We're at risk of this conversation becoming very circular. But 95 00:04:39,320 --> 00:04:41,960 Speaker 2: let's run with it. If they begin to show signs 96 00:04:42,000 --> 00:04:45,320 Speaker 2: of tolerating higher inflation, and you've basically told us that 97 00:04:45,360 --> 00:04:47,320 Speaker 2: you believe that maybe we're starting to see that shift 98 00:04:47,320 --> 00:04:49,039 Speaker 2: based on the news conference we had with Sham and 99 00:04:49,080 --> 00:04:51,960 Speaker 2: Powell only a few weeks ago. If we believe to 100 00:04:52,000 --> 00:04:54,120 Speaker 2: see signs of that higher tolerance, doesn't that make it 101 00:04:54,160 --> 00:04:58,400 Speaker 2: even harder to get inflation down? Doesn't inflation become even stickier? 102 00:04:58,800 --> 00:05:01,880 Speaker 2: Does an inflation expect tations become that worth they like 103 00:05:01,960 --> 00:05:04,440 Speaker 2: to use de anchored? Isn't that the risk here? 104 00:05:04,520 --> 00:05:07,960 Speaker 4: So there's a difference between inflation expectations adjusting to two 105 00:05:07,960 --> 00:05:10,360 Speaker 4: and a half to three percent and already if you 106 00:05:10,360 --> 00:05:12,520 Speaker 4: look at the ten year break even, we're two point four, 107 00:05:13,000 --> 00:05:17,479 Speaker 4: so we're not that far already, and inflation expectation being denchored. 108 00:05:17,640 --> 00:05:20,799 Speaker 4: There's a fundamental defence between the two. I do believe 109 00:05:21,120 --> 00:05:24,120 Speaker 4: that you can do it with that de anchoring inflation expectations. 110 00:05:24,360 --> 00:05:26,920 Speaker 2: Whatever happens, this equity market's rallying. That seems to be 111 00:05:26,920 --> 00:05:28,880 Speaker 2: the case at the moment. So we've had bank failures, 112 00:05:28,960 --> 00:05:32,039 Speaker 2: high rates, geopological problems that we've had two hot wars, 113 00:05:32,320 --> 00:05:36,120 Speaker 2: you've got sticky inflation, got people talking about changing inflation targets, 114 00:05:36,200 --> 00:05:38,839 Speaker 2: and your equity markets are still absolutely ripid. Why do 115 00:05:38,920 --> 00:05:42,080 Speaker 2: you think and what do you think underpins our ability 116 00:05:42,480 --> 00:05:45,880 Speaker 2: to brush aside issue after issue in this stock market. 117 00:05:46,160 --> 00:05:48,960 Speaker 4: I think it boils down to three things, one top down, 118 00:05:49,080 --> 00:05:52,240 Speaker 4: one bottom up, and one behavioral. Top down is that 119 00:05:52,920 --> 00:05:56,680 Speaker 4: economic activity has surprised around the world, has been better, 120 00:05:57,240 --> 00:05:59,720 Speaker 4: including in Europe. Europe didn't fall into a deep recession. 121 00:05:59,760 --> 00:06:05,120 Speaker 4: Do you economic exceptionalism continues day after day. Two on 122 00:06:05,480 --> 00:06:08,680 Speaker 4: the top down is policy people truly believe. And you 123 00:06:08,680 --> 00:06:10,240 Speaker 4: heard it again this morning on your show, in the 124 00:06:10,320 --> 00:06:13,280 Speaker 4: first hour. You heard it on your show, not the second, 125 00:06:13,279 --> 00:06:15,080 Speaker 4: not the second, this is the second. Okay, it is 126 00:06:15,080 --> 00:06:17,240 Speaker 4: a snoozey week, as you said in the beginning, but 127 00:06:18,080 --> 00:06:20,440 Speaker 4: you've heard it. People believe the fact PUT is there. 128 00:06:21,360 --> 00:06:24,880 Speaker 4: And then you have a bottom up, very strong disruptive 129 00:06:24,920 --> 00:06:28,320 Speaker 4: technology coming along that can fundamentally increase productivity. I believe 130 00:06:28,360 --> 00:06:32,479 Speaker 4: that generitive AI, but life sciences, and you have more 131 00:06:33,240 --> 00:06:36,160 Speaker 4: spending coming on healthcare, on defense. And then finally you 132 00:06:36,160 --> 00:06:39,240 Speaker 4: have the behavioral aspect. I don't know what MOMO standboard, 133 00:06:39,279 --> 00:06:43,000 Speaker 4: but certainly FORMO and that is why you don't get 134 00:06:43,120 --> 00:06:46,400 Speaker 4: these people react really quickly. Put these three things together. 135 00:06:46,560 --> 00:06:49,799 Speaker 4: It will power this market for much longer than people expect. 136 00:06:49,839 --> 00:06:52,240 Speaker 2: I won't ask you to translate world work either. I 137 00:06:52,240 --> 00:06:54,400 Speaker 2: will ask you to respond to this quote from Chris 138 00:06:54,400 --> 00:06:56,640 Speaker 2: Harvey as well as FARG you touched on this issue 139 00:06:56,760 --> 00:06:58,359 Speaker 2: that we're discussing right now, and your piece in the 140 00:06:58,400 --> 00:07:01,400 Speaker 2: FT early this week. Very is Harvey's put out this quote. 141 00:07:01,560 --> 00:07:05,160 Speaker 2: The bill market, AI secular growth story and index concentration 142 00:07:05,279 --> 00:07:09,160 Speaker 2: of shifted investors' attention away from traditional valuation measures. Are 143 00:07:09,160 --> 00:07:12,160 Speaker 2: we saying that valuation metrics don't matter in a market 144 00:07:12,240 --> 00:07:13,760 Speaker 2: driven by themes like this one? 145 00:07:13,960 --> 00:07:16,120 Speaker 4: Yeah, I think they've been suspended for a while, and 146 00:07:16,160 --> 00:07:18,440 Speaker 4: we've seen it before. It happened in tech, it happened 147 00:07:18,480 --> 00:07:23,640 Speaker 4: for Amazon, where people basically suspend their conventional wisdom about this. 148 00:07:24,240 --> 00:07:25,840 Speaker 4: I think what's what I was trying to say in 149 00:07:25,840 --> 00:07:28,760 Speaker 4: my piece is look longer term, and you've got a 150 00:07:28,800 --> 00:07:31,640 Speaker 4: factor in that the world is changing in a way 151 00:07:32,160 --> 00:07:34,600 Speaker 4: that the markets right now not even looking at You know, 152 00:07:34,680 --> 00:07:38,400 Speaker 4: we used to have three really important tenants. One at 153 00:07:38,400 --> 00:07:40,920 Speaker 4: the domestic level, this is these are economies that will 154 00:07:40,960 --> 00:07:44,920 Speaker 4: deregulate and liberalize and they will maintain fiscal discipline. Now 155 00:07:44,960 --> 00:07:47,960 Speaker 4: we are in economies that have industrial policy and deficits 156 00:07:47,960 --> 00:07:50,440 Speaker 4: that are out of control. On the global side, was 157 00:07:50,520 --> 00:07:55,280 Speaker 4: ever closer globalization, ever close integration of trade and investment. 158 00:07:55,320 --> 00:07:58,680 Speaker 4: Now we have weagonization of trade and investment and we're fragmentation. 159 00:07:59,480 --> 00:08:01,840 Speaker 4: And then on the market side, it was the meturation 160 00:08:01,920 --> 00:08:05,640 Speaker 4: of markets, the metuation of instruments. Okay, now we're having 161 00:08:05,640 --> 00:08:09,640 Speaker 4: something completely different. We're having FOMO, we're having liquid instruments 162 00:08:09,680 --> 00:08:11,320 Speaker 4: being created for I liquid. 163 00:08:13,280 --> 00:08:13,800 Speaker 3: Tools. 164 00:08:14,080 --> 00:08:16,960 Speaker 4: So fundamentally, if you'd look at three to five years, 165 00:08:17,040 --> 00:08:20,880 Speaker 4: this is changing. But right now, the short term factors 166 00:08:20,920 --> 00:08:23,960 Speaker 4: are so strong that people should maintain this. And you 167 00:08:24,080 --> 00:08:28,880 Speaker 4: had earlier on the show someone releasing a momentum vehicle, 168 00:08:29,080 --> 00:08:31,240 Speaker 4: and what does that do? We overshoot on the way up, 169 00:08:31,280 --> 00:08:32,360 Speaker 4: and we overshoot on the way down. 170 00:08:33,000 --> 00:08:36,760 Speaker 1: MOMO stands for more momentum. Just briefly, just before before 171 00:08:36,960 --> 00:08:38,679 Speaker 1: we move on. I do want to get a sense. 172 00:08:38,920 --> 00:08:40,880 Speaker 1: Are you concerned about the auctions at all? Do you 173 00:08:40,880 --> 00:08:41,760 Speaker 1: watch the auctions? 174 00:08:41,880 --> 00:08:43,560 Speaker 3: Do you care about them? Do you think that they. 175 00:08:43,480 --> 00:08:45,240 Speaker 1: Actually could potentially influence markets? 176 00:08:45,280 --> 00:08:47,040 Speaker 4: I do, and I do, and I do because your 177 00:08:47,080 --> 00:08:51,400 Speaker 4: discussion about gold earlier is not just about inflation. It's 178 00:08:51,440 --> 00:08:54,800 Speaker 4: also about central banks around the world looking for alternatives 179 00:08:54,800 --> 00:08:57,439 Speaker 4: to the dollar. So yes, we are going to have 180 00:08:57,520 --> 00:09:00,280 Speaker 4: in October. The discussion was who was going to buy 181 00:09:00,440 --> 00:09:03,679 Speaker 4: this massive issuance that's happening. And I think you've got 182 00:09:03,720 --> 00:09:06,319 Speaker 4: to keep an eye on all three auctions this week. 183 00:09:06,520 --> 00:09:08,400 Speaker 2: Of course we got time we can talk about this. 184 00:09:08,679 --> 00:09:11,560 Speaker 2: You went there gold. You believe that underpinning of the 185 00:09:11,559 --> 00:09:14,120 Speaker 2: old time highs is maybe central bank's trying to diversify 186 00:09:14,440 --> 00:09:16,800 Speaker 2: away from dollar denominative assets. Is that what you think 187 00:09:16,880 --> 00:09:17,280 Speaker 2: is going on? 188 00:09:17,400 --> 00:09:19,720 Speaker 4: You have the data's out central bank buying is very 189 00:09:19,720 --> 00:09:23,199 Speaker 4: active China in particular, has been adding month after month 190 00:09:23,240 --> 00:09:26,120 Speaker 4: after month. Look, if you are outside the US and 191 00:09:26,160 --> 00:09:29,600 Speaker 4: you've witnessed the weaponization of the dollar, you will ask 192 00:09:29,640 --> 00:09:31,960 Speaker 4: yourself what can I do at the margin. You can't 193 00:09:31,960 --> 00:09:34,600 Speaker 4: do anything major, but you can start doing things at 194 00:09:34,600 --> 00:09:37,480 Speaker 4: the margin. And I think central bank's buying of gold 195 00:09:37,640 --> 00:09:39,040 Speaker 4: is indicativele okay. 196 00:09:39,240 --> 00:09:41,120 Speaker 2: Is that because of the State Department or the treasury? 197 00:09:41,280 --> 00:09:44,480 Speaker 2: Is that because of issuance or sanctions? Which one is it? 198 00:09:44,480 --> 00:09:47,559 Speaker 4: It's mainly because of sanctions, but also issuance plays a role. 199 00:09:48,200 --> 00:09:50,000 Speaker 5: Do you think that now that almost this cat is 200 00:09:50,000 --> 00:09:51,959 Speaker 5: out of the bag, what the United is willing to do? 201 00:09:52,320 --> 00:09:54,599 Speaker 5: This means long term de dollarisation. 202 00:09:55,280 --> 00:09:58,079 Speaker 4: So digitization is a very strong term because you cannot 203 00:09:58,120 --> 00:10:00,920 Speaker 4: replace the dollar with something else. But the image should 204 00:10:00,920 --> 00:10:04,160 Speaker 4: have is people building little pipes around the dollar. And 205 00:10:04,200 --> 00:10:08,720 Speaker 4: we've seen it not only in how they hold their reserves, 206 00:10:08,720 --> 00:10:12,080 Speaker 4: but also in trade. People have been shocked how Russia 207 00:10:12,160 --> 00:10:14,920 Speaker 4: has been able to trade as much as it has 208 00:10:15,520 --> 00:10:18,079 Speaker 4: while being out of swift. How has it done that? 209 00:10:18,160 --> 00:10:21,760 Speaker 4: It has built a very clunky, inefficient system, but that 210 00:10:21,880 --> 00:10:25,920 Speaker 4: it works that involves four currencies and never anywhere near 211 00:10:25,960 --> 00:10:28,640 Speaker 4: the dollar. So what you're seeing are little pipes being 212 00:10:28,640 --> 00:10:31,400 Speaker 4: built around the system. They're not going to fundamentally change 213 00:10:31,400 --> 00:10:33,120 Speaker 4: the role of the dollar, but they're going to make 214 00:10:33,200 --> 00:10:35,000 Speaker 4: the dollar less dominant going forward. 215 00:10:35,120 --> 00:10:37,320 Speaker 2: Is this next week's f take on them? 216 00:10:37,360 --> 00:10:38,160 Speaker 6: Just figuring that. 217 00:10:38,280 --> 00:10:40,400 Speaker 4: No, now you have to ask how to find it. 218 00:10:49,960 --> 00:10:50,040 Speaker 1: All. 219 00:10:50,120 --> 00:10:52,120 Speaker 2: The standing set company joins us now to talk about 220 00:10:52,120 --> 00:10:53,839 Speaker 2: a few of these things, and Seth, it's going to 221 00:10:53,880 --> 00:10:56,280 Speaker 2: say you, sir, I want to begin with immigration into 222 00:10:56,280 --> 00:10:58,800 Speaker 2: the United States because the numbers are absolutely stunning. Could 223 00:10:58,840 --> 00:11:01,360 Speaker 2: you frame how big those biz and the kind of 224 00:11:01,360 --> 00:11:03,400 Speaker 2: forces there having on the US economy? 225 00:11:04,160 --> 00:11:05,160 Speaker 3: Yeah? Thanks, Jonathan. 226 00:11:05,200 --> 00:11:06,800 Speaker 7: I think even before we get there, I will say 227 00:11:06,840 --> 00:11:10,440 Speaker 7: I'm I'm a window seat guy, so if you still 228 00:11:10,480 --> 00:11:13,080 Speaker 7: think about swifting themes, stay with me in the window seat. 229 00:11:13,120 --> 00:11:17,600 Speaker 7: That's sort of where I fight you for, Seth, sleep first, 230 00:11:17,600 --> 00:11:19,040 Speaker 7: sleep primarily exactly. 231 00:11:20,120 --> 00:11:20,280 Speaker 3: No. 232 00:11:20,360 --> 00:11:23,040 Speaker 7: But on immigration, the numbers, the numbers are really big, 233 00:11:23,160 --> 00:11:26,840 Speaker 7: and here big shout out to our US economics team 234 00:11:26,920 --> 00:11:29,120 Speaker 7: led by Ellen Setner. We spent a lot of time 235 00:11:29,120 --> 00:11:32,520 Speaker 7: with folks in Washington at the government agencies looking at 236 00:11:32,520 --> 00:11:35,439 Speaker 7: these numbers, coming up with our own take on the 237 00:11:35,880 --> 00:11:39,040 Speaker 7: new information that's available, and I think the takeaway really 238 00:11:39,160 --> 00:11:41,080 Speaker 7: is huge increase. 239 00:11:40,760 --> 00:11:42,520 Speaker 3: In the number of workers in the economy. 240 00:11:42,600 --> 00:11:46,280 Speaker 7: If you thought that the break even level of job 241 00:11:46,360 --> 00:11:50,680 Speaker 7: creation each month had been about one hundred thousand per month, 242 00:11:51,040 --> 00:11:53,720 Speaker 7: it's at least twice that, And I really do mean 243 00:11:53,800 --> 00:11:55,920 Speaker 7: that's a big change. And so as a result, you 244 00:11:55,960 --> 00:11:59,760 Speaker 7: hear comments like char Powell saying it's a bigger economy, 245 00:11:59,760 --> 00:12:02,439 Speaker 7: it's bigger labor market, not a tighter labor market. 246 00:12:03,160 --> 00:12:04,840 Speaker 3: We're very much in line with that view. 247 00:12:05,240 --> 00:12:07,599 Speaker 2: So it's non inflationary in the labor market. Is it 248 00:12:07,679 --> 00:12:11,360 Speaker 2: inflationary more broadly in the economy. Set the additional demand, 249 00:12:11,679 --> 00:12:14,559 Speaker 2: the additional competition for housing, how does that play out 250 00:12:14,559 --> 00:12:15,920 Speaker 2: beyond just the labor market. 251 00:12:17,160 --> 00:12:20,160 Speaker 7: I think there's no doubt that there's both an demand 252 00:12:20,160 --> 00:12:23,200 Speaker 7: component to this and a supply component to it. But 253 00:12:23,400 --> 00:12:25,840 Speaker 7: what we have to remember is on the inflationary side 254 00:12:25,840 --> 00:12:28,439 Speaker 7: of things. This is all playing out against a backdrop 255 00:12:28,520 --> 00:12:32,560 Speaker 7: where consumer goods inflation and level terms have been boosted 256 00:12:32,600 --> 00:12:36,240 Speaker 7: so much because of supply chains and the ships we 257 00:12:36,280 --> 00:12:39,400 Speaker 7: saw during COVID, and those levels are coming back into place. 258 00:12:39,440 --> 00:12:41,920 Speaker 7: And then we saw rent inflation that had jumped up 259 00:12:41,960 --> 00:12:45,800 Speaker 7: because people's housing demand had changed with COVID. So the 260 00:12:45,840 --> 00:12:49,480 Speaker 7: normalization that we're seeing there I think is actually more 261 00:12:49,559 --> 00:12:52,600 Speaker 7: important than the additional aggregate demand that we're getting from 262 00:12:52,600 --> 00:12:55,680 Speaker 7: the extra labor supply, And so we're still looking for 263 00:12:56,000 --> 00:13:01,000 Speaker 7: disinflation to continue tomorrow morning's print the rest of this year. 264 00:13:01,320 --> 00:13:03,560 Speaker 1: So that I'm struck by how much fiscal policy, just 265 00:13:03,600 --> 00:13:07,360 Speaker 1: more broadly and frankly, federal policy has driven so much 266 00:13:07,400 --> 00:13:09,559 Speaker 1: of the story. It will continue to in a way 267 00:13:09,559 --> 00:13:11,680 Speaker 1: that makes it very difficult to predict. I think about 268 00:13:11,760 --> 00:13:14,640 Speaker 1: not just the immigration story, but also the fiscal deficits 269 00:13:14,679 --> 00:13:17,280 Speaker 1: that have been incurred as the government has given all 270 00:13:17,320 --> 00:13:20,960 Speaker 1: of these fiscal stimulus payments across the nation. You had 271 00:13:21,000 --> 00:13:24,040 Speaker 1: a projection looking out about how much the deficits would 272 00:13:24,080 --> 00:13:27,760 Speaker 1: increase under either the Democrats or the Republicans, and that 273 00:13:27,800 --> 00:13:30,520 Speaker 1: the Republican deficit would actually be twice as big of 274 00:13:30,559 --> 00:13:35,200 Speaker 1: in current terms of the increase versus Democrats. How concerned 275 00:13:35,280 --> 00:13:37,360 Speaker 1: are you about this? How much is this playing into 276 00:13:37,559 --> 00:13:38,480 Speaker 1: the overall story? 277 00:13:40,000 --> 00:13:41,439 Speaker 3: I think it's impossible to ignore. 278 00:13:41,520 --> 00:13:44,640 Speaker 7: It's clearly going to be a critical question that everyone's 279 00:13:44,679 --> 00:13:47,880 Speaker 7: going to see what happens in November. Who wins the 280 00:13:47,880 --> 00:13:50,400 Speaker 7: White House, who wins the Senate, who wins the House 281 00:13:50,440 --> 00:13:54,640 Speaker 7: of Representatives, and what policies are being pushed the House 282 00:13:54,760 --> 00:13:57,760 Speaker 7: you now and Morgan Stanley from our public policy team 283 00:13:57,880 --> 00:14:00,960 Speaker 7: is Democrats' biggest priority of time has been. 284 00:14:00,880 --> 00:14:02,480 Speaker 3: Infrastructure and green energy. 285 00:14:02,760 --> 00:14:06,000 Speaker 7: The IRA is in place and so a big extra 286 00:14:06,040 --> 00:14:09,160 Speaker 7: boost for spend probably isn't there. And for the Republicans, 287 00:14:09,200 --> 00:14:12,840 Speaker 7: the Tax Cutting Jobs Act biggest priority that was already 288 00:14:12,840 --> 00:14:15,720 Speaker 7: put in place, so probably not another huge change there. 289 00:14:16,040 --> 00:14:18,560 Speaker 7: And so we are thinking the Democrats, you get a 290 00:14:18,559 --> 00:14:21,280 Speaker 7: bit more in terms of spending, you get a bit 291 00:14:21,320 --> 00:14:24,360 Speaker 7: more though in terms of tax increases under Democrats, whereas 292 00:14:24,360 --> 00:14:27,400 Speaker 7: for Republicans, if it's a sweep, you get some tax 293 00:14:27,480 --> 00:14:30,640 Speaker 7: cuts and you get some extra spending. Hence the difference 294 00:14:30,640 --> 00:14:33,800 Speaker 7: in our house view in terms of what happens under 295 00:14:33,840 --> 00:14:34,720 Speaker 7: the two scenarios. 296 00:14:34,760 --> 00:14:37,440 Speaker 3: But we cannot cannot rule. 297 00:14:37,240 --> 00:14:40,280 Speaker 7: Out the very likely possibility that we get the White 298 00:14:40,280 --> 00:14:43,480 Speaker 7: House controlled by one party and Congress either split or 299 00:14:43,520 --> 00:14:45,720 Speaker 7: controlled by the other party, which just adds another layer 300 00:14:45,760 --> 00:14:46,480 Speaker 7: of complexity. 301 00:14:46,720 --> 00:14:48,600 Speaker 5: But even if the white House is controlled, say by 302 00:14:48,640 --> 00:14:51,400 Speaker 5: a Republican, and there's a split within Congress, potentially we're 303 00:14:51,440 --> 00:14:54,200 Speaker 5: going to get higher tariffs. Trump two point zero can 304 00:14:54,240 --> 00:14:57,440 Speaker 5: do that pretty much in a latterly and restrictive immigration. 305 00:14:57,960 --> 00:15:00,000 Speaker 5: What does that mean for inflation? 306 00:15:02,040 --> 00:15:04,240 Speaker 7: Great question, and I think it is exactly the sort 307 00:15:04,240 --> 00:15:07,200 Speaker 7: of scenario everyone, every investor has to be thinking about 308 00:15:07,280 --> 00:15:11,080 Speaker 7: right now. I think tariff's no question on the table. 309 00:15:11,680 --> 00:15:15,280 Speaker 7: Former President Trump has referred to it explicitly, and there 310 00:15:15,360 --> 00:15:17,920 Speaker 7: I think we have to balance what we know has 311 00:15:17,960 --> 00:15:19,760 Speaker 7: happened in the past, which is to say, a bit 312 00:15:19,880 --> 00:15:24,840 Speaker 7: extra cost for importers, some of which gets translated. 313 00:15:24,280 --> 00:15:26,119 Speaker 3: To final prices. 314 00:15:26,400 --> 00:15:28,440 Speaker 7: However, we also know that last time it was a 315 00:15:28,480 --> 00:15:31,400 Speaker 7: massive hit to the US manufacturing sector, and so as 316 00:15:31,400 --> 00:15:33,920 Speaker 7: a result you'll get an adverse hit to growth, and 317 00:15:33,960 --> 00:15:37,120 Speaker 7: so that goes in the opposite direction for inflation. When 318 00:15:37,120 --> 00:15:40,280 Speaker 7: it comes to immigration, that's the tricky part. If we 319 00:15:40,320 --> 00:15:42,320 Speaker 7: look at some of the projections, we look at the 320 00:15:42,320 --> 00:15:47,800 Speaker 7: CBO's projection, already some reversion back to pre COVID rates 321 00:15:47,840 --> 00:15:50,400 Speaker 7: of immigration, and so I think the real question is 322 00:15:50,440 --> 00:15:54,480 Speaker 7: what's the marginal effect of any more restrictive policy. I 323 00:15:54,520 --> 00:15:58,200 Speaker 7: think directionally it has to be less of the beneficial 324 00:15:58,240 --> 00:15:59,800 Speaker 7: supply boost, but also a little bit. 325 00:15:59,800 --> 00:16:01,760 Speaker 3: Less of that aggregate demand. 326 00:16:02,440 --> 00:16:05,400 Speaker 7: But it's coming at a time, say in late twenty 327 00:16:05,440 --> 00:16:08,880 Speaker 7: twenty five, early twenty twenty six, after a new administrations 328 00:16:08,920 --> 00:16:11,800 Speaker 7: in place and policies have time to take effect, where 329 00:16:11,800 --> 00:16:14,440 Speaker 7: we already have most of the inflation rung out of 330 00:16:14,440 --> 00:16:16,960 Speaker 7: the system by the Federal Reserve under our forecast and 331 00:16:17,120 --> 00:16:18,640 Speaker 7: under the Federal reserves forecasts. 332 00:16:18,960 --> 00:16:21,480 Speaker 1: So seth that's sort of the longer term view that 333 00:16:21,600 --> 00:16:25,920 Speaker 1: any of these policies wouldn't necessarily filter into true economic 334 00:16:26,000 --> 00:16:28,720 Speaker 1: data for a while. But do you see some of 335 00:16:28,760 --> 00:16:32,479 Speaker 1: these proposals as spurring a market reaction that could materially 336 00:16:32,600 --> 00:16:36,080 Speaker 1: shift the economic projection? For example, if you did get 337 00:16:36,120 --> 00:16:40,280 Speaker 1: the scenario that Amrie was talking about with higher tariffs, 338 00:16:40,400 --> 00:16:43,600 Speaker 1: lower immigration, could yield spike to a level that could 339 00:16:43,600 --> 00:16:45,040 Speaker 1: be really problematic. 340 00:16:44,520 --> 00:16:48,760 Speaker 7: For the economy unquestionably, And I will say one of 341 00:16:48,800 --> 00:16:51,040 Speaker 7: the most common sets of questions that we have from 342 00:16:51,040 --> 00:16:55,760 Speaker 7: clients are exactly along these lines. Would that scenario, the 343 00:16:55,760 --> 00:16:59,600 Speaker 7: Republican scenario, be very inflationary? Would it cause a further 344 00:16:59,640 --> 00:17:02,640 Speaker 7: sell off and rates? Lots of people are angling now 345 00:17:02,720 --> 00:17:04,760 Speaker 7: and trying to see if they need to position for that. 346 00:17:05,240 --> 00:17:07,480 Speaker 7: I will hasten to add, though, if we go back 347 00:17:07,520 --> 00:17:11,240 Speaker 7: to last June July August September October when we did 348 00:17:11,240 --> 00:17:13,359 Speaker 7: see a big sell off in rates, there were lots 349 00:17:13,359 --> 00:17:16,080 Speaker 7: of narratives people were looking for, and then we saw 350 00:17:16,080 --> 00:17:17,960 Speaker 7: a reversal, And so I think this is going to 351 00:17:17,960 --> 00:17:20,600 Speaker 7: be one of those tricky periods in time where very 352 00:17:20,720 --> 00:17:25,879 Speaker 7: legitimate concern over one scenario that is very very plausible 353 00:17:26,119 --> 00:17:28,520 Speaker 7: people could easily run with for a while, but then 354 00:17:28,560 --> 00:17:30,520 Speaker 7: we really do have to wait and see how the 355 00:17:30,520 --> 00:17:33,520 Speaker 7: election turns out, to see if those policies go into place. 356 00:17:33,880 --> 00:17:35,560 Speaker 5: How do you then plan for what the FED is 357 00:17:35,560 --> 00:17:36,880 Speaker 5: going to do in twenty twenty five. 358 00:17:39,400 --> 00:17:42,119 Speaker 7: I think the FED right now is at a place 359 00:17:42,160 --> 00:17:44,400 Speaker 7: where they are taking it one meeting at a time 360 00:17:44,440 --> 00:17:47,959 Speaker 7: and one data print at a time. You reference at 361 00:17:47,960 --> 00:17:51,960 Speaker 7: the beginning Jim Bullard's comments about taking the Fed's baseline 362 00:17:51,960 --> 00:17:54,920 Speaker 7: path at face value. We actually have in our base 363 00:17:55,000 --> 00:17:58,760 Speaker 7: case for rate cuts from the FED this year because 364 00:17:58,800 --> 00:18:01,800 Speaker 7: we're looking for inflation to keep coming down, so we're 365 00:18:01,840 --> 00:18:04,560 Speaker 7: a little bit below consensus for tomorrow's number. We see 366 00:18:04,680 --> 00:18:08,280 Speaker 7: disinflation continuing all year and picking up speed in Q 367 00:18:08,320 --> 00:18:10,640 Speaker 7: three and Q four, and as a result, we think 368 00:18:10,640 --> 00:18:12,840 Speaker 7: they'll be able to cut rates a bit more so 369 00:18:12,840 --> 00:18:14,840 Speaker 7: by the time we get to twenty twenty five, there'll 370 00:18:14,880 --> 00:18:17,840 Speaker 7: be so much more information about where inflation is, so 371 00:18:17,960 --> 00:18:21,399 Speaker 7: much more information about how sustainable this increase. 372 00:18:21,440 --> 00:18:22,880 Speaker 3: In immigration has been. 373 00:18:23,600 --> 00:18:27,160 Speaker 7: That I think the Fed themselves don't really put much 374 00:18:27,160 --> 00:18:30,760 Speaker 7: stock whatsoever in they're own forecast for policy for next year. 375 00:18:31,119 --> 00:18:34,840 Speaker 2: Seth, Are you still sticking with that mid ninety story? 376 00:18:34,960 --> 00:18:37,399 Speaker 7: The nineties were great, right, So that was when I 377 00:18:37,440 --> 00:18:40,040 Speaker 7: became a real economists. Graduated from college in ninety two, 378 00:18:40,160 --> 00:18:43,800 Speaker 7: got my PhD in ninety seven, so that's where I 379 00:18:43,840 --> 00:18:47,240 Speaker 7: became an economist. Look, I don't think any two cycles 380 00:18:47,240 --> 00:18:49,600 Speaker 7: are exactly alike, and you can't take one cycle and 381 00:18:49,680 --> 00:18:53,480 Speaker 7: use it as the template for the next. However, lots 382 00:18:53,520 --> 00:18:55,439 Speaker 7: went on in the nineties. We were still seeing the 383 00:18:55,560 --> 00:18:58,879 Speaker 7: rise in labor force participation, so there's a bit of 384 00:18:58,920 --> 00:19:02,639 Speaker 7: that apply side to the story. There was an overall 385 00:19:02,680 --> 00:19:06,280 Speaker 7: aggregate supply side to the story. The FED pulled off 386 00:19:07,160 --> 00:19:09,560 Speaker 7: a soft landing, which most people at the time and 387 00:19:09,600 --> 00:19:12,000 Speaker 7: even now think can't be done. So I think there 388 00:19:12,000 --> 00:19:13,880 Speaker 7: are a lot of lessons to be learned from the nineties, 389 00:19:13,880 --> 00:19:17,240 Speaker 7: but we would be misguided to try to take it literally. 390 00:19:17,240 --> 00:19:19,960 Speaker 2: A chase value A president for the unprecedented. Enjoyed the 391 00:19:20,000 --> 00:19:22,160 Speaker 2: note over the weekend. Seth, thank you, sir, Seth Carpenter 392 00:19:22,200 --> 00:19:34,639 Speaker 2: there of Morgan Stanley Silly Stuart Kuys have writ in 393 00:19:34,640 --> 00:19:37,919 Speaker 2: this CPI should prolong a solid macro setup that allowed 394 00:19:37,960 --> 00:19:41,360 Speaker 2: a low volatility six month equity rally. We remained positive 395 00:19:41,400 --> 00:19:44,520 Speaker 2: on US equity risk reward after very strong labor data, 396 00:19:44,840 --> 00:19:48,919 Speaker 2: and we're encouraged by markets rallying from early quarter wobbles. Stuart, 397 00:19:48,960 --> 00:19:50,520 Speaker 2: I'm pleased to say it's with a surround the table, 398 00:19:50,520 --> 00:19:54,439 Speaker 2: stupid monitor. You all stat love it. Bramo mentioned it yesterday. 399 00:19:54,520 --> 00:19:57,399 Speaker 2: Let's just begin there. Two hundred and eighty two days imagined, 400 00:19:57,400 --> 00:19:59,480 Speaker 2: it's two hundred and eighty three now, since the last 401 00:19:59,480 --> 00:20:02,399 Speaker 2: two percent pulled back the twelfth longest street since nineteen 402 00:20:02,480 --> 00:20:05,040 Speaker 2: twenty eight. What can you learn from a LOVO rally 403 00:20:05,160 --> 00:20:06,679 Speaker 2: like this one over the last few months. 404 00:20:06,880 --> 00:20:08,440 Speaker 6: I mean, I think what you've learned is just when 405 00:20:08,480 --> 00:20:10,480 Speaker 6: the economic data is doing what is doing, the markets 406 00:20:10,480 --> 00:20:12,000 Speaker 6: are going to sort of behave accordingly. 407 00:20:12,040 --> 00:20:12,159 Speaker 3: You know. 408 00:20:12,200 --> 00:20:14,400 Speaker 6: I know there's a lot of concern out there valuations high, 409 00:20:14,480 --> 00:20:17,000 Speaker 6: volatilities low, and that means we need to sell off. 410 00:20:17,040 --> 00:20:19,720 Speaker 6: But I think the fact is you've had very strong growth, 411 00:20:19,760 --> 00:20:22,600 Speaker 6: inflation's easy, not as fast as you might like, and 412 00:20:22,720 --> 00:20:26,040 Speaker 6: equity markets are responding by low realized volatility, and that's 413 00:20:26,119 --> 00:20:27,280 Speaker 6: kind of the situation we're in right now. 414 00:20:27,320 --> 00:20:28,959 Speaker 2: Can Smorrows like to change that story? 415 00:20:29,359 --> 00:20:29,720 Speaker 3: It could. 416 00:20:29,720 --> 00:20:31,880 Speaker 6: I think you would need a pretty significantly high print. 417 00:20:31,920 --> 00:20:33,280 Speaker 6: I mean, it's going to have to round a point 418 00:20:33,280 --> 00:20:35,399 Speaker 6: four at least, or you're going to have to have 419 00:20:35,480 --> 00:20:38,439 Speaker 6: internals to the inflation data that are particularly kind of 420 00:20:38,440 --> 00:20:41,000 Speaker 6: troublesome if you print down a consensus number. I think 421 00:20:41,000 --> 00:20:43,359 Speaker 6: a census is twenty nine basis points. City us econ 422 00:20:43,640 --> 00:20:45,400 Speaker 6: is thirty three basis points. I think if you print 423 00:20:45,400 --> 00:20:48,160 Speaker 6: a number like that, equities are going to respond modestly positive. 424 00:20:48,600 --> 00:20:51,080 Speaker 6: It's honestly not as big an event this month. It 425 00:20:51,080 --> 00:20:53,919 Speaker 6: doesn't feel like in terms of client conversations, which is really. 426 00:20:53,840 --> 00:20:56,000 Speaker 1: Compelling, given the fact that this seems like could be 427 00:20:56,000 --> 00:20:58,159 Speaker 1: another bump in the road that leads to this question 428 00:20:58,240 --> 00:21:00,840 Speaker 1: of whether we're not getting it right. How far could 429 00:21:00,880 --> 00:21:03,560 Speaker 1: momentum go if this is an inline print. We're just 430 00:21:03,560 --> 00:21:06,760 Speaker 1: talking about Chris Harvey upgrading his forecast to fifty five 431 00:21:06,840 --> 00:21:09,920 Speaker 1: hundred plus. We were talking earlier about the ideal with 432 00:21:10,000 --> 00:21:12,520 Speaker 1: Chris Faron of sixty one hundred. Are you getting on 433 00:21:12,560 --> 00:21:12,960 Speaker 1: that train? 434 00:21:13,600 --> 00:21:15,040 Speaker 6: I don't know if I'm on the sixty one hundred 435 00:21:15,040 --> 00:21:17,240 Speaker 6: traink way yet. But look, I think coming into the year, 436 00:21:17,280 --> 00:21:19,320 Speaker 6: we basically said, if you avoid a recession and the 437 00:21:19,320 --> 00:21:22,280 Speaker 6: FED starts doing insurance cuts, you know, the top end 438 00:21:22,320 --> 00:21:24,440 Speaker 6: of your outlook has to be quite high. And I 439 00:21:24,520 --> 00:21:26,639 Speaker 6: think if in that type of situation, yeah you're talking 440 00:21:27,320 --> 00:21:30,280 Speaker 6: high five thousands to low six thousands, must say we're 441 00:21:30,280 --> 00:21:32,520 Speaker 6: going to get there. But that is where the sort 442 00:21:32,520 --> 00:21:34,520 Speaker 6: of bogie is going to be. If they're doing insurance 443 00:21:34,520 --> 00:21:36,840 Speaker 6: cuts into a strong economy, I'm surprised that they did it, 444 00:21:36,880 --> 00:21:39,280 Speaker 6: But if they do, they're going to support equity risk, 445 00:21:39,359 --> 00:21:40,080 Speaker 6: which raises. 446 00:21:39,880 --> 00:21:41,639 Speaker 1: This question that Mohammed was talking about, which is that 447 00:21:41,720 --> 00:21:44,359 Speaker 1: momentum feeds on itself. We talk about new vehicles being 448 00:21:44,400 --> 00:21:47,639 Speaker 1: created to funnel more money into momentum trades, and that 449 00:21:47,960 --> 00:21:50,560 Speaker 1: things that overshoot on the way up overshoot on the 450 00:21:50,560 --> 00:21:52,879 Speaker 1: way down. Do we have a sense of where we 451 00:21:52,920 --> 00:21:54,840 Speaker 1: are in that is that sort of are we halfway 452 00:21:54,840 --> 00:21:57,040 Speaker 1: through the overshoot? Are we just beginning it? 453 00:21:57,520 --> 00:21:58,879 Speaker 6: I mean, I don't know if we're ever shoot at me. 454 00:21:58,920 --> 00:22:01,280 Speaker 6: I think in my view the stuff that is momentum 455 00:22:01,359 --> 00:22:04,320 Speaker 6: leadership should be momentum leadership. These were the stocks last 456 00:22:04,359 --> 00:22:06,480 Speaker 6: year that were the small group of companies that were 457 00:22:06,520 --> 00:22:09,679 Speaker 6: generating ernies growth, so they outperformed and that kind of 458 00:22:09,680 --> 00:22:12,440 Speaker 6: becomes momentum. The momentum trade right now is a little 459 00:22:12,480 --> 00:22:14,359 Speaker 6: bit tricky just because the long end of it is 460 00:22:14,480 --> 00:22:17,359 Speaker 6: very tech heavy. The short end of momentum most people 461 00:22:17,400 --> 00:22:19,800 Speaker 6: trade that long short is utilities in real estate and 462 00:22:19,840 --> 00:22:22,240 Speaker 6: more kind of defensive parts of the market. So it's 463 00:22:22,320 --> 00:22:25,159 Speaker 6: hard to get momentum to have a negative return in 464 00:22:25,200 --> 00:22:27,640 Speaker 6: a rising market because you have very low beta kind 465 00:22:27,680 --> 00:22:29,760 Speaker 6: of living in the short leg. You really need small 466 00:22:29,840 --> 00:22:31,960 Speaker 6: cap to pick it up because small cap is something 467 00:22:32,000 --> 00:22:34,480 Speaker 6: that people are short and underweight. So small cap for 468 00:22:34,600 --> 00:22:37,040 Speaker 6: us has been incredibly kind of important risk metric for 469 00:22:37,119 --> 00:22:39,040 Speaker 6: the markets as well as the momentum trade. 470 00:22:39,240 --> 00:22:41,720 Speaker 4: So staying on momentum, there's suddenly a lot more interest 471 00:22:41,800 --> 00:22:44,679 Speaker 4: on commodities and the sort of price increases we're seeing 472 00:22:45,200 --> 00:22:48,359 Speaker 4: significant and broadening. How does that feed into inflation storing, 473 00:22:48,440 --> 00:22:51,160 Speaker 4: particularly both the first round and second round effects. 474 00:22:51,560 --> 00:22:53,199 Speaker 6: Look, it's very important, Mohammed, I would say, you know, 475 00:22:53,400 --> 00:22:55,560 Speaker 6: we would like kind of categorize in three spots. You 476 00:22:55,600 --> 00:22:57,960 Speaker 6: have the copper part. You know, copper is very growth sensitive. 477 00:22:57,960 --> 00:22:59,960 Speaker 6: As you know, I think equity markets would read high 478 00:23:00,119 --> 00:23:03,520 Speaker 6: copper prices probably isn't positive because it suggests a growth impulse. 479 00:23:04,280 --> 00:23:06,160 Speaker 3: Gold. I'm not going to get too much into gold. 480 00:23:06,160 --> 00:23:07,560 Speaker 3: Bugs have a lot of reason that they want to 481 00:23:07,560 --> 00:23:07,960 Speaker 3: own gold. 482 00:23:07,960 --> 00:23:09,720 Speaker 6: There's a big central bank story there, so it's a 483 00:23:09,720 --> 00:23:11,760 Speaker 6: little hard to dissect what's exactly going on in the 484 00:23:11,760 --> 00:23:13,959 Speaker 6: gold market. And then you've got oil, and oil is 485 00:23:14,000 --> 00:23:15,880 Speaker 6: I think the one that if it continues to rally, 486 00:23:15,880 --> 00:23:19,000 Speaker 6: it's the most troublesome from an equity perspective. There's obviously 487 00:23:19,040 --> 00:23:21,800 Speaker 6: a big geopolitical aspect to that as well. I think 488 00:23:21,800 --> 00:23:24,440 Speaker 6: most investors in the US said, unless oil starts to move, 489 00:23:24,760 --> 00:23:26,320 Speaker 6: I'm going to kind of ignore what's going on in 490 00:23:26,320 --> 00:23:28,679 Speaker 6: the Middle East or at least compartmentalize it. So the 491 00:23:28,720 --> 00:23:30,480 Speaker 6: move we got in oil, I think was very telling 492 00:23:30,520 --> 00:23:33,080 Speaker 6: from an inflation perspective as well as as from a 493 00:23:33,119 --> 00:23:35,720 Speaker 6: geopolitical perspective. So, yeah, we are worried about the surge 494 00:23:35,720 --> 00:23:37,600 Speaker 6: of commodity prices, but I think from equity is it's 495 00:23:37,600 --> 00:23:39,000 Speaker 6: the oil part that would concern us. 496 00:23:39,040 --> 00:23:40,600 Speaker 2: Can we just sit on there for a bit longer? 497 00:23:40,920 --> 00:23:43,520 Speaker 2: Does the crude move just sort of address itself, hits 498 00:23:43,560 --> 00:23:45,600 Speaker 2: growth crude rolls over? Is that the way you would 499 00:23:45,680 --> 00:23:47,520 Speaker 2: view things as a policy maker, just from the outside 500 00:23:47,520 --> 00:23:47,879 Speaker 2: looking in. 501 00:23:49,200 --> 00:23:51,680 Speaker 6: Oil's been a tricky trade the last twelve or eighteen months. 502 00:23:51,720 --> 00:23:53,040 Speaker 6: I mean, if you told me you were going to have, 503 00:23:53,080 --> 00:23:55,040 Speaker 6: you know, Russia Ukraine war, You're gonna have war in 504 00:23:55,080 --> 00:23:57,439 Speaker 6: the Middle East, You're gonna have OPEC cutting production. I 505 00:23:57,440 --> 00:23:59,520 Speaker 6: think most folks would have expected oil to be able 506 00:23:59,600 --> 00:24:02,119 Speaker 6: to maintain in a higher price for a more significant 507 00:24:02,320 --> 00:24:04,320 Speaker 6: period of time. The fact is the US is producing 508 00:24:04,359 --> 00:24:06,600 Speaker 6: a ton of oil. There's probably a lot of discounted 509 00:24:06,640 --> 00:24:09,159 Speaker 6: oil being bled out of Russia to other markets, so 510 00:24:09,160 --> 00:24:10,760 Speaker 6: it's a little harder to read that. But I mean, 511 00:24:11,480 --> 00:24:13,360 Speaker 6: the Fed is obviously not going to ignore the price 512 00:24:13,359 --> 00:24:14,920 Speaker 6: of oil. But yeah, the reason they look at core 513 00:24:14,960 --> 00:24:17,399 Speaker 6: inflation is because they assume, you know, that type of 514 00:24:17,400 --> 00:24:19,520 Speaker 6: self is, that type of stuff is sort of traditory 515 00:24:19,560 --> 00:24:21,560 Speaker 6: and self correcting, So I think I think they will 516 00:24:21,600 --> 00:24:24,400 Speaker 6: try to ignore it. The fact is, other than immediately 517 00:24:24,480 --> 00:24:27,880 Speaker 6: after Russia invading Ukraine, you haven't sustained a ninety dollars 518 00:24:28,000 --> 00:24:31,119 Speaker 6: dollars oil price since about twenty fourteen, so you know, 519 00:24:31,200 --> 00:24:32,919 Speaker 6: it's a little bit of a proved story for us 520 00:24:32,920 --> 00:24:35,080 Speaker 6: as well, Like oil needs to show us that it 521 00:24:35,080 --> 00:24:36,919 Speaker 6: could stay at those levels before we're going to kind 522 00:24:36,960 --> 00:24:38,720 Speaker 6: of really feel change policy based on it. 523 00:24:38,760 --> 00:24:42,520 Speaker 2: I think this is the Bloomberg Sevenants podcast, bringing you 524 00:24:42,800 --> 00:24:46,200 Speaker 2: the best in markets, economics, antient politics. You can watch 525 00:24:46,200 --> 00:24:48,960 Speaker 2: the show live on Bloomberg TV weekday mornings from six 526 00:24:49,000 --> 00:24:53,400 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 527 00:24:53,560 --> 00:24:55,760 Speaker 2: or anywhere else you listen, and as always, on the 528 00:24:55,800 --> 00:24:58,160 Speaker 2: Bloomberg Terminal and the Bloomberg Business Amp.