WEBVTT - Bloomberg Surveillance TV: April 9, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.320 Terminal and the Bloomberg Business app. Haamma dal Arian of 0:00:37.400 --> 0:00:39.640 Queen's College, Cambridge joins us around the table here in 0:00:39.680 --> 0:00:40.800 New York. Hammo, Good morning to you. 0:00:40.920 --> 0:00:41.600 Good morning John. 0:00:41.680 --> 0:00:43.919 Let's get into that line from mister Bullard. He's left 0:00:43.920 --> 0:00:46.479 the FMC. You can speak a little bit more openly 0:00:46.720 --> 0:00:49.160 as you can as well. Your base case is still too. 0:00:49.680 --> 0:00:51.720 When do we start to see another bump in the 0:00:51.800 --> 0:00:53.720 road together with all the other bumps in the road 0:00:53.840 --> 0:00:56.360 no longer be called bumps in the road on the FMC. 0:00:57.120 --> 0:00:58.240 I think it's going to tag time. 0:00:58.360 --> 0:01:01.400 I think Chair Parlers media rig clear that he's willing 0:01:01.480 --> 0:01:04.760 to look through these bumps to use his phrase, the 0:01:04.760 --> 0:01:09.360 inflation story hasn't changed, so they will need overwhelming evidence 0:01:10.000 --> 0:01:12.560 that it is more than a bump in order for 0:01:12.600 --> 0:01:13.560 them to change their views. 0:01:13.760 --> 0:01:16.319 You think that's too sensitive to recent data and maybe 0:01:16.360 --> 0:01:17.360 not being strategic enough. 0:01:17.360 --> 0:01:19.200 What do you mean by that? So I think if 0:01:19.200 --> 0:01:21.679 you look forward, and you talked about in the last 0:01:21.720 --> 0:01:25.399 hour about business confidence, if you look forward, there's reasons 0:01:25.400 --> 0:01:28.520 to believe this economy may slow. So if you're setting 0:01:28.520 --> 0:01:32.039 policy not according to what has happened, but according to 0:01:32.080 --> 0:01:35.640 the lags with which the policy operate, you would be 0:01:35.920 --> 0:01:39.600 more doubvish than you would be otherwise. If, however, you 0:01:39.720 --> 0:01:43.480 focus exclusively on the data, you'll end up being too hawkish. 0:01:43.520 --> 0:01:46.240 You talk about small business optimism, let's go there. It 0:01:46.280 --> 0:01:49.040 came in at the lowest levels since December of twenty twelve. 0:01:49.360 --> 0:01:51.200 Sometimes it's hard to know how to read some of 0:01:51.240 --> 0:01:53.560 these gauges, especially because we get people on all the 0:01:53.600 --> 0:01:56.760 time saying they're all broken. How important is this in 0:01:56.800 --> 0:01:59.240 contrast with all of the bollishness and the momo and 0:01:59.280 --> 0:02:01.360 the fomo and the world that we keep hearing, this 0:02:01.640 --> 0:02:02.320 is really important. 0:02:02.360 --> 0:02:04.320 The big mistake that was made in twenty twenty one 0:02:04.840 --> 0:02:09.239 when people embrace the transitory narrative was they didn't listen 0:02:09.320 --> 0:02:12.320 to the companies, and the companies were clearly saying, we 0:02:12.400 --> 0:02:16.359 have inflationary pressures in the pipeline, we have pricing power, 0:02:16.560 --> 0:02:19.680 We're going to pass on that important inflation. 0:02:19.720 --> 0:02:20.880 I feel like that was coming. 0:02:20.639 --> 0:02:23.840 In this time around. Listen to the earnings call, and 0:02:23.880 --> 0:02:26.320 they are worried about the outlook for the rest of 0:02:26.360 --> 0:02:28.600 the year. So I do think you need to listen 0:02:28.639 --> 0:02:32.799 to them because often the aggregate data doesn't capture what 0:02:32.840 --> 0:02:34.760 businesses are feeling on the ground. 0:02:34.800 --> 0:02:36.520 When you say businesses, though, we're going to hear from 0:02:36.600 --> 0:02:39.000 JP Morgan, and my guess is that Jamie Diamond was 0:02:39.280 --> 0:02:42.160 raising some concerns more generally in sort of a broad 0:02:42.160 --> 0:02:44.000 macro level when he talks about his own bank. My 0:02:44.080 --> 0:02:47.000 suspicion is that he's doing quite well and that the 0:02:47.000 --> 0:02:50.200 bank is probably issuing another record quarter in one way 0:02:50.280 --> 0:02:53.120 or another. How much does it matter that the pain 0:02:53.240 --> 0:02:56.480 is being felt in a small sub section of companies 0:02:56.480 --> 0:02:59.880 that are smaller, more leverage to high rates, and frankly, 0:03:00.520 --> 0:03:04.040 more leverage to a consumer that would likely be price sensitive. 0:03:04.600 --> 0:03:08.520 It matters because they're also employees. Everybody should read Jamie's letter. 0:03:09.240 --> 0:03:10.639 Okay, I've read it. 0:03:10.680 --> 0:03:12.880 I've gone through the sixty one pages. There's so much 0:03:12.919 --> 0:03:15.680 content there. You should read it. And he has this 0:03:15.760 --> 0:03:19.919 situation whereby he's worried about the world. He says, looking forward, 0:03:19.960 --> 0:03:23.279 all the things I'm worried about, sticky inflation, slowing economy, 0:03:23.600 --> 0:03:27.160 a completely change in global economy. But his bank is 0:03:27.240 --> 0:03:32.080 extremely well positioned to take advantage of this world. Why 0:03:32.280 --> 0:03:34.720 because they've got a very solid balance sheet and they 0:03:34.760 --> 0:03:36.800 dominate in so many different areas. So I do think 0:03:36.840 --> 0:03:40.360 this duality can exist at JP Morgan, but it cannot 0:03:40.400 --> 0:03:42.000 exist economy wide. 0:03:42.040 --> 0:03:44.440 You believe that the third should cut rates even if 0:03:44.440 --> 0:03:47.480 you're not seeing necessarily a commensurates slow down. Do you 0:03:47.520 --> 0:03:51.640 think that the risk of a reacceleration inflation is overstated by. 0:03:51.520 --> 0:03:53.640 Some So I don't know how often I've said it 0:03:53.840 --> 0:03:58.080 here and elsewhere. Inflation will be sticky. Inflation will be 0:03:58.120 --> 0:04:00.840 absolutely sticky. We're going to get stuck around two and 0:04:00.880 --> 0:04:03.600 a half to three percent, And I do think that 0:04:03.600 --> 0:04:07.400 that actually warrants over the long term. The FED rethinking 0:04:07.520 --> 0:04:09.840 is inflation target. It won't do it now, but it 0:04:09.880 --> 0:04:13.360 may well tolerate it. And you've heard what's going on. 0:04:13.480 --> 0:04:16.640 Service inflation hasn't come down quickly enough, and guess what 0:04:16.839 --> 0:04:18.640 good deflation is going to stop. 0:04:19.160 --> 0:04:20.640 So, yes, inflation will be. 0:04:20.640 --> 0:04:23.159 Sticky, but that shouldn't stop the FED because the two 0:04:23.160 --> 0:04:27.240 percent inflation target is too tight for any global economy 0:04:27.240 --> 0:04:31.920 going through major rewiring, and that again is well discussed 0:04:32.040 --> 0:04:35.679 in Jamie Diamond's letter about this rewiring that's going happening 0:04:35.720 --> 0:04:36.680 in this global economy. 0:04:36.720 --> 0:04:39.080 We're at risk of this conversation becoming very circular. But 0:04:39.320 --> 0:04:41.960 let's run with it. If they begin to show signs 0:04:42.000 --> 0:04:45.320 of tolerating higher inflation, and you've basically told us that 0:04:45.360 --> 0:04:47.320 you believe that maybe we're starting to see that shift 0:04:47.320 --> 0:04:49.039 based on the news conference we had with Sham and 0:04:49.080 --> 0:04:51.960 Powell only a few weeks ago. If we believe to 0:04:52.000 --> 0:04:54.120 see signs of that higher tolerance, doesn't that make it 0:04:54.160 --> 0:04:58.400 even harder to get inflation down? Doesn't inflation become even stickier? 0:04:58.800 --> 0:05:01.880 Does an inflation expect tations become that worth they like 0:05:01.960 --> 0:05:04.440 to use de anchored? Isn't that the risk here? 0:05:04.520 --> 0:05:07.960 So there's a difference between inflation expectations adjusting to two 0:05:07.960 --> 0:05:10.360 and a half to three percent and already if you 0:05:10.360 --> 0:05:12.520 look at the ten year break even, we're two point four, 0:05:13.000 --> 0:05:17.479 so we're not that far already, and inflation expectation being denchored. 0:05:17.640 --> 0:05:20.799 There's a fundamental defence between the two. I do believe 0:05:21.120 --> 0:05:24.120 that you can do it with that de anchoring inflation expectations. 0:05:24.360 --> 0:05:26.920 Whatever happens, this equity market's rallying. That seems to be 0:05:26.920 --> 0:05:28.880 the case at the moment. So we've had bank failures, 0:05:28.960 --> 0:05:32.039 high rates, geopological problems that we've had two hot wars, 0:05:32.320 --> 0:05:36.120 you've got sticky inflation, got people talking about changing inflation targets, 0:05:36.200 --> 0:05:38.839 and your equity markets are still absolutely ripid. Why do 0:05:38.920 --> 0:05:42.080 you think and what do you think underpins our ability 0:05:42.480 --> 0:05:45.880 to brush aside issue after issue in this stock market. 0:05:46.160 --> 0:05:48.960 I think it boils down to three things, one top down, 0:05:49.080 --> 0:05:52.240 one bottom up, and one behavioral. Top down is that 0:05:52.920 --> 0:05:56.680 economic activity has surprised around the world, has been better, 0:05:57.240 --> 0:05:59.720 including in Europe. Europe didn't fall into a deep recession. 0:05:59.760 --> 0:06:05.120 Do you economic exceptionalism continues day after day. Two on 0:06:05.480 --> 0:06:08.680 the top down is policy people truly believe. And you 0:06:08.680 --> 0:06:10.240 heard it again this morning on your show, in the 0:06:10.320 --> 0:06:13.280 first hour. You heard it on your show, not the second, 0:06:13.279 --> 0:06:15.080 not the second, this is the second. Okay, it is 0:06:15.080 --> 0:06:17.240 a snoozey week, as you said in the beginning, but 0:06:18.080 --> 0:06:20.440 you've heard it. People believe the fact PUT is there. 0:06:21.360 --> 0:06:24.880 And then you have a bottom up, very strong disruptive 0:06:24.920 --> 0:06:28.320 technology coming along that can fundamentally increase productivity. I believe 0:06:28.360 --> 0:06:32.479 that generitive AI, but life sciences, and you have more 0:06:33.240 --> 0:06:36.160 spending coming on healthcare, on defense. And then finally you 0:06:36.160 --> 0:06:39.240 have the behavioral aspect. I don't know what MOMO standboard, 0:06:39.279 --> 0:06:43.000 but certainly FORMO and that is why you don't get 0:06:43.120 --> 0:06:46.400 these people react really quickly. Put these three things together. 0:06:46.560 --> 0:06:49.799 It will power this market for much longer than people expect. 0:06:49.839 --> 0:06:52.240 I won't ask you to translate world work either. I 0:06:52.240 --> 0:06:54.400 will ask you to respond to this quote from Chris 0:06:54.400 --> 0:06:56.640 Harvey as well as FARG you touched on this issue 0:06:56.760 --> 0:06:58.359 that we're discussing right now, and your piece in the 0:06:58.400 --> 0:07:01.400 FT early this week. Very is Harvey's put out this quote. 0:07:01.560 --> 0:07:05.160 The bill market, AI secular growth story and index concentration 0:07:05.279 --> 0:07:09.160 of shifted investors' attention away from traditional valuation measures. Are 0:07:09.160 --> 0:07:12.160 we saying that valuation metrics don't matter in a market 0:07:12.240 --> 0:07:13.760 driven by themes like this one? 0:07:13.960 --> 0:07:16.120 Yeah, I think they've been suspended for a while, and 0:07:16.160 --> 0:07:18.440 we've seen it before. It happened in tech, it happened 0:07:18.480 --> 0:07:23.640 for Amazon, where people basically suspend their conventional wisdom about this. 0:07:24.240 --> 0:07:25.840 I think what's what I was trying to say in 0:07:25.840 --> 0:07:28.760 my piece is look longer term, and you've got a 0:07:28.800 --> 0:07:31.640 factor in that the world is changing in a way 0:07:32.160 --> 0:07:34.600 that the markets right now not even looking at You know, 0:07:34.680 --> 0:07:38.400 we used to have three really important tenants. One at 0:07:38.400 --> 0:07:40.920 the domestic level, this is these are economies that will 0:07:40.960 --> 0:07:44.920 deregulate and liberalize and they will maintain fiscal discipline. Now 0:07:44.960 --> 0:07:47.960 we are in economies that have industrial policy and deficits 0:07:47.960 --> 0:07:50.440 that are out of control. On the global side, was 0:07:50.520 --> 0:07:55.280 ever closer globalization, ever close integration of trade and investment. 0:07:55.320 --> 0:07:58.680 Now we have weagonization of trade and investment and we're fragmentation. 0:07:59.480 --> 0:08:01.840 And then on the market side, it was the meturation 0:08:01.920 --> 0:08:05.640 of markets, the metuation of instruments. Okay, now we're having 0:08:05.640 --> 0:08:09.640 something completely different. We're having FOMO, we're having liquid instruments 0:08:09.680 --> 0:08:11.320 being created for I liquid. 0:08:13.280 --> 0:08:13.800 Tools. 0:08:14.080 --> 0:08:16.960 So fundamentally, if you'd look at three to five years, 0:08:17.040 --> 0:08:20.880 this is changing. But right now, the short term factors 0:08:20.920 --> 0:08:23.960 are so strong that people should maintain this. And you 0:08:24.080 --> 0:08:28.880 had earlier on the show someone releasing a momentum vehicle, 0:08:29.080 --> 0:08:31.240 and what does that do? We overshoot on the way up, 0:08:31.280 --> 0:08:32.360 and we overshoot on the way down. 0:08:33.000 --> 0:08:36.760 MOMO stands for more momentum. Just briefly, just before before 0:08:36.960 --> 0:08:38.679 we move on. I do want to get a sense. 0:08:38.920 --> 0:08:40.880 Are you concerned about the auctions at all? Do you 0:08:40.880 --> 0:08:41.760 watch the auctions? 0:08:41.880 --> 0:08:43.560 Do you care about them? Do you think that they. 0:08:43.480 --> 0:08:45.240 Actually could potentially influence markets? 0:08:45.280 --> 0:08:47.040 I do, and I do, and I do because your 0:08:47.080 --> 0:08:51.400 discussion about gold earlier is not just about inflation. It's 0:08:51.440 --> 0:08:54.800 also about central banks around the world looking for alternatives 0:08:54.800 --> 0:08:57.439 to the dollar. So yes, we are going to have 0:08:57.520 --> 0:09:00.280 in October. The discussion was who was going to buy 0:09:00.440 --> 0:09:03.679 this massive issuance that's happening. And I think you've got 0:09:03.720 --> 0:09:06.319 to keep an eye on all three auctions this week. 0:09:06.520 --> 0:09:08.400 Of course we got time we can talk about this. 0:09:08.679 --> 0:09:11.560 You went there gold. You believe that underpinning of the 0:09:11.559 --> 0:09:14.120 old time highs is maybe central bank's trying to diversify 0:09:14.440 --> 0:09:16.800 away from dollar denominative assets. Is that what you think 0:09:16.880 --> 0:09:17.280 is going on? 0:09:17.400 --> 0:09:19.720 You have the data's out central bank buying is very 0:09:19.720 --> 0:09:23.199 active China in particular, has been adding month after month 0:09:23.240 --> 0:09:26.120 after month. Look, if you are outside the US and 0:09:26.160 --> 0:09:29.600 you've witnessed the weaponization of the dollar, you will ask 0:09:29.640 --> 0:09:31.960 yourself what can I do at the margin. You can't 0:09:31.960 --> 0:09:34.600 do anything major, but you can start doing things at 0:09:34.600 --> 0:09:37.480 the margin. And I think central bank's buying of gold 0:09:37.640 --> 0:09:39.040 is indicativele okay. 0:09:39.240 --> 0:09:41.120 Is that because of the State Department or the treasury? 0:09:41.280 --> 0:09:44.480 Is that because of issuance or sanctions? Which one is it? 0:09:44.480 --> 0:09:47.559 It's mainly because of sanctions, but also issuance plays a role. 0:09:48.200 --> 0:09:50.000 Do you think that now that almost this cat is 0:09:50.000 --> 0:09:51.959 out of the bag, what the United is willing to do? 0:09:52.320 --> 0:09:54.599 This means long term de dollarisation. 0:09:55.280 --> 0:09:58.079 So digitization is a very strong term because you cannot 0:09:58.120 --> 0:10:00.920 replace the dollar with something else. But the image should 0:10:00.920 --> 0:10:04.160 have is people building little pipes around the dollar. And 0:10:04.200 --> 0:10:08.720 we've seen it not only in how they hold their reserves, 0:10:08.720 --> 0:10:12.080 but also in trade. People have been shocked how Russia 0:10:12.160 --> 0:10:14.920 has been able to trade as much as it has 0:10:15.520 --> 0:10:18.079 while being out of swift. How has it done that? 0:10:18.160 --> 0:10:21.760 It has built a very clunky, inefficient system, but that 0:10:21.880 --> 0:10:25.920 it works that involves four currencies and never anywhere near 0:10:25.960 --> 0:10:28.640 the dollar. So what you're seeing are little pipes being 0:10:28.640 --> 0:10:31.400 built around the system. They're not going to fundamentally change 0:10:31.400 --> 0:10:33.120 the role of the dollar, but they're going to make 0:10:33.200 --> 0:10:35.000 the dollar less dominant going forward. 0:10:35.120 --> 0:10:37.320 Is this next week's f take on them? 0:10:37.360 --> 0:10:38.160 Just figuring that. 0:10:38.280 --> 0:10:40.400 No, now you have to ask how to find it. 0:10:49.960 --> 0:10:50.040 All. 0:10:50.120 --> 0:10:52.120 The standing set company joins us now to talk about 0:10:52.120 --> 0:10:53.839 a few of these things, and Seth, it's going to 0:10:53.880 --> 0:10:56.280 say you, sir, I want to begin with immigration into 0:10:56.280 --> 0:10:58.800 the United States because the numbers are absolutely stunning. Could 0:10:58.840 --> 0:11:01.360 you frame how big those biz and the kind of 0:11:01.360 --> 0:11:03.400 forces there having on the US economy? 0:11:04.160 --> 0:11:05.160 Yeah? Thanks, Jonathan. 0:11:05.200 --> 0:11:06.800 I think even before we get there, I will say 0:11:06.840 --> 0:11:10.440 I'm I'm a window seat guy, so if you still 0:11:10.480 --> 0:11:13.080 think about swifting themes, stay with me in the window seat. 0:11:13.120 --> 0:11:17.600 That's sort of where I fight you for, Seth, sleep first, 0:11:17.600 --> 0:11:19.040 sleep primarily exactly. 0:11:20.120 --> 0:11:20.280 No. 0:11:20.360 --> 0:11:23.040 But on immigration, the numbers, the numbers are really big, 0:11:23.160 --> 0:11:26.840 and here big shout out to our US economics team 0:11:26.920 --> 0:11:29.120 led by Ellen Setner. We spent a lot of time 0:11:29.120 --> 0:11:32.520 with folks in Washington at the government agencies looking at 0:11:32.520 --> 0:11:35.439 these numbers, coming up with our own take on the 0:11:35.880 --> 0:11:39.040 new information that's available, and I think the takeaway really 0:11:39.160 --> 0:11:41.080 is huge increase. 0:11:40.760 --> 0:11:42.520 In the number of workers in the economy. 0:11:42.600 --> 0:11:46.280 If you thought that the break even level of job 0:11:46.360 --> 0:11:50.680 creation each month had been about one hundred thousand per month, 0:11:51.040 --> 0:11:53.720 it's at least twice that, And I really do mean 0:11:53.800 --> 0:11:55.920 that's a big change. And so as a result, you 0:11:55.960 --> 0:11:59.760 hear comments like char Powell saying it's a bigger economy, 0:11:59.760 --> 0:12:02.439 it's bigger labor market, not a tighter labor market. 0:12:03.160 --> 0:12:04.840 We're very much in line with that view. 0:12:05.240 --> 0:12:07.599 So it's non inflationary in the labor market. Is it 0:12:07.679 --> 0:12:11.360 inflationary more broadly in the economy. Set the additional demand, 0:12:11.679 --> 0:12:14.559 the additional competition for housing, how does that play out 0:12:14.559 --> 0:12:15.920 beyond just the labor market. 0:12:17.160 --> 0:12:20.160 I think there's no doubt that there's both an demand 0:12:20.160 --> 0:12:23.200 component to this and a supply component to it. But 0:12:23.400 --> 0:12:25.840 what we have to remember is on the inflationary side 0:12:25.840 --> 0:12:28.439 of things. This is all playing out against a backdrop 0:12:28.520 --> 0:12:32.560 where consumer goods inflation and level terms have been boosted 0:12:32.600 --> 0:12:36.240 so much because of supply chains and the ships we 0:12:36.280 --> 0:12:39.400 saw during COVID, and those levels are coming back into place. 0:12:39.440 --> 0:12:41.920 And then we saw rent inflation that had jumped up 0:12:41.960 --> 0:12:45.800 because people's housing demand had changed with COVID. So the 0:12:45.840 --> 0:12:49.480 normalization that we're seeing there I think is actually more 0:12:49.559 --> 0:12:52.600 important than the additional aggregate demand that we're getting from 0:12:52.600 --> 0:12:55.680 the extra labor supply, And so we're still looking for 0:12:56.000 --> 0:13:01.000 disinflation to continue tomorrow morning's print the rest of this year. 0:13:01.320 --> 0:13:03.560 So that I'm struck by how much fiscal policy, just 0:13:03.600 --> 0:13:07.360 more broadly and frankly, federal policy has driven so much 0:13:07.400 --> 0:13:09.559 of the story. It will continue to in a way 0:13:09.559 --> 0:13:11.680 that makes it very difficult to predict. I think about 0:13:11.760 --> 0:13:14.640 not just the immigration story, but also the fiscal deficits 0:13:14.679 --> 0:13:17.280 that have been incurred as the government has given all 0:13:17.320 --> 0:13:20.960 of these fiscal stimulus payments across the nation. You had 0:13:21.000 --> 0:13:24.040 a projection looking out about how much the deficits would 0:13:24.080 --> 0:13:27.760 increase under either the Democrats or the Republicans, and that 0:13:27.800 --> 0:13:30.520 the Republican deficit would actually be twice as big of 0:13:30.559 --> 0:13:35.200 in current terms of the increase versus Democrats. How concerned 0:13:35.280 --> 0:13:37.360 are you about this? How much is this playing into 0:13:37.559 --> 0:13:38.480 the overall story? 0:13:40.000 --> 0:13:41.439 I think it's impossible to ignore. 0:13:41.520 --> 0:13:44.640 It's clearly going to be a critical question that everyone's 0:13:44.679 --> 0:13:47.880 going to see what happens in November. Who wins the 0:13:47.880 --> 0:13:50.400 White House, who wins the Senate, who wins the House 0:13:50.440 --> 0:13:54.640 of Representatives, and what policies are being pushed the House 0:13:54.760 --> 0:13:57.760 you now and Morgan Stanley from our public policy team 0:13:57.880 --> 0:14:00.960 is Democrats' biggest priority of time has been. 0:14:00.880 --> 0:14:02.480 Infrastructure and green energy. 0:14:02.760 --> 0:14:06.000 The IRA is in place and so a big extra 0:14:06.040 --> 0:14:09.160 boost for spend probably isn't there. And for the Republicans, 0:14:09.200 --> 0:14:12.840 the Tax Cutting Jobs Act biggest priority that was already 0:14:12.840 --> 0:14:15.720 put in place, so probably not another huge change there. 0:14:16.040 --> 0:14:18.560 And so we are thinking the Democrats, you get a 0:14:18.559 --> 0:14:21.280 bit more in terms of spending, you get a bit 0:14:21.320 --> 0:14:24.360 more though in terms of tax increases under Democrats, whereas 0:14:24.360 --> 0:14:27.400 for Republicans, if it's a sweep, you get some tax 0:14:27.480 --> 0:14:30.640 cuts and you get some extra spending. Hence the difference 0:14:30.640 --> 0:14:33.800 in our house view in terms of what happens under 0:14:33.840 --> 0:14:34.720 the two scenarios. 0:14:34.760 --> 0:14:37.440 But we cannot cannot rule. 0:14:37.240 --> 0:14:40.280 Out the very likely possibility that we get the White 0:14:40.280 --> 0:14:43.480 House controlled by one party and Congress either split or 0:14:43.520 --> 0:14:45.720 controlled by the other party, which just adds another layer 0:14:45.760 --> 0:14:46.480 of complexity. 0:14:46.720 --> 0:14:48.600 But even if the white House is controlled, say by 0:14:48.640 --> 0:14:51.400 a Republican, and there's a split within Congress, potentially we're 0:14:51.440 --> 0:14:54.200 going to get higher tariffs. Trump two point zero can 0:14:54.240 --> 0:14:57.440 do that pretty much in a latterly and restrictive immigration. 0:14:57.960 --> 0:15:00.000 What does that mean for inflation? 0:15:02.040 --> 0:15:04.240 Great question, and I think it is exactly the sort 0:15:04.240 --> 0:15:07.200 of scenario everyone, every investor has to be thinking about 0:15:07.280 --> 0:15:11.080 right now. I think tariff's no question on the table. 0:15:11.680 --> 0:15:15.280 Former President Trump has referred to it explicitly, and there 0:15:15.360 --> 0:15:17.920 I think we have to balance what we know has 0:15:17.960 --> 0:15:19.760 happened in the past, which is to say, a bit 0:15:19.880 --> 0:15:24.840 extra cost for importers, some of which gets translated. 0:15:24.280 --> 0:15:26.119 To final prices. 0:15:26.400 --> 0:15:28.440 However, we also know that last time it was a 0:15:28.480 --> 0:15:31.400 massive hit to the US manufacturing sector, and so as 0:15:31.400 --> 0:15:33.920 a result you'll get an adverse hit to growth, and 0:15:33.960 --> 0:15:37.120 so that goes in the opposite direction for inflation. When 0:15:37.120 --> 0:15:40.280 it comes to immigration, that's the tricky part. If we 0:15:40.320 --> 0:15:42.320 look at some of the projections, we look at the 0:15:42.320 --> 0:15:47.800 CBO's projection, already some reversion back to pre COVID rates 0:15:47.840 --> 0:15:50.400 of immigration, and so I think the real question is 0:15:50.440 --> 0:15:54.480 what's the marginal effect of any more restrictive policy. I 0:15:54.520 --> 0:15:58.200 think directionally it has to be less of the beneficial 0:15:58.240 --> 0:15:59.800 supply boost, but also a little bit. 0:15:59.800 --> 0:16:01.760 Less of that aggregate demand. 0:16:02.440 --> 0:16:05.400 But it's coming at a time, say in late twenty 0:16:05.440 --> 0:16:08.880 twenty five, early twenty twenty six, after a new administrations 0:16:08.920 --> 0:16:11.800 in place and policies have time to take effect, where 0:16:11.800 --> 0:16:14.440 we already have most of the inflation rung out of 0:16:14.440 --> 0:16:16.960 the system by the Federal Reserve under our forecast and 0:16:17.120 --> 0:16:18.640 under the Federal reserves forecasts. 0:16:18.960 --> 0:16:21.480 So seth that's sort of the longer term view that 0:16:21.600 --> 0:16:25.920 any of these policies wouldn't necessarily filter into true economic 0:16:26.000 --> 0:16:28.720 data for a while. But do you see some of 0:16:28.760 --> 0:16:32.479 these proposals as spurring a market reaction that could materially 0:16:32.600 --> 0:16:36.080 shift the economic projection? For example, if you did get 0:16:36.120 --> 0:16:40.280 the scenario that Amrie was talking about with higher tariffs, 0:16:40.400 --> 0:16:43.600 lower immigration, could yield spike to a level that could 0:16:43.600 --> 0:16:45.040 be really problematic. 0:16:44.520 --> 0:16:48.760 For the economy unquestionably, And I will say one of 0:16:48.800 --> 0:16:51.040 the most common sets of questions that we have from 0:16:51.040 --> 0:16:55.760 clients are exactly along these lines. Would that scenario, the 0:16:55.760 --> 0:16:59.600 Republican scenario, be very inflationary? Would it cause a further 0:16:59.640 --> 0:17:02.640 sell off and rates? Lots of people are angling now 0:17:02.720 --> 0:17:04.760 and trying to see if they need to position for that. 0:17:05.240 --> 0:17:07.480 I will hasten to add, though, if we go back 0:17:07.520 --> 0:17:11.240 to last June July August September October when we did 0:17:11.240 --> 0:17:13.359 see a big sell off in rates, there were lots 0:17:13.359 --> 0:17:16.080 of narratives people were looking for, and then we saw 0:17:16.080 --> 0:17:17.960 a reversal, And so I think this is going to 0:17:17.960 --> 0:17:20.600 be one of those tricky periods in time where very 0:17:20.720 --> 0:17:25.879 legitimate concern over one scenario that is very very plausible 0:17:26.119 --> 0:17:28.520 people could easily run with for a while, but then 0:17:28.560 --> 0:17:30.520 we really do have to wait and see how the 0:17:30.520 --> 0:17:33.520 election turns out, to see if those policies go into place. 0:17:33.880 --> 0:17:35.560 How do you then plan for what the FED is 0:17:35.560 --> 0:17:36.880 going to do in twenty twenty five. 0:17:39.400 --> 0:17:42.119 I think the FED right now is at a place 0:17:42.160 --> 0:17:44.400 where they are taking it one meeting at a time 0:17:44.440 --> 0:17:47.959 and one data print at a time. You reference at 0:17:47.960 --> 0:17:51.960 the beginning Jim Bullard's comments about taking the Fed's baseline 0:17:51.960 --> 0:17:54.920 path at face value. We actually have in our base 0:17:55.000 --> 0:17:58.760 case for rate cuts from the FED this year because 0:17:58.800 --> 0:18:01.800 we're looking for inflation to keep coming down, so we're 0:18:01.840 --> 0:18:04.560 a little bit below consensus for tomorrow's number. We see 0:18:04.680 --> 0:18:08.280 disinflation continuing all year and picking up speed in Q 0:18:08.320 --> 0:18:10.640 three and Q four, and as a result, we think 0:18:10.640 --> 0:18:12.840 they'll be able to cut rates a bit more so 0:18:12.840 --> 0:18:14.840 by the time we get to twenty twenty five, there'll 0:18:14.880 --> 0:18:17.840 be so much more information about where inflation is, so 0:18:17.960 --> 0:18:21.399 much more information about how sustainable this increase. 0:18:21.440 --> 0:18:22.880 In immigration has been. 0:18:23.600 --> 0:18:27.160 That I think the Fed themselves don't really put much 0:18:27.160 --> 0:18:30.760 stock whatsoever in they're own forecast for policy for next year. 0:18:31.119 --> 0:18:34.840 Seth, Are you still sticking with that mid ninety story? 0:18:34.960 --> 0:18:37.399 The nineties were great, right, So that was when I 0:18:37.440 --> 0:18:40.040 became a real economists. Graduated from college in ninety two, 0:18:40.160 --> 0:18:43.800 got my PhD in ninety seven, so that's where I 0:18:43.840 --> 0:18:47.240 became an economist. Look, I don't think any two cycles 0:18:47.240 --> 0:18:49.600 are exactly alike, and you can't take one cycle and 0:18:49.680 --> 0:18:53.480 use it as the template for the next. However, lots 0:18:53.520 --> 0:18:55.439 went on in the nineties. We were still seeing the 0:18:55.560 --> 0:18:58.879 rise in labor force participation, so there's a bit of 0:18:58.920 --> 0:19:02.639 that apply side to the story. There was an overall 0:19:02.680 --> 0:19:06.280 aggregate supply side to the story. The FED pulled off 0:19:07.160 --> 0:19:09.560 a soft landing, which most people at the time and 0:19:09.600 --> 0:19:12.000 even now think can't be done. So I think there 0:19:12.000 --> 0:19:13.880 are a lot of lessons to be learned from the nineties, 0:19:13.880 --> 0:19:17.240 but we would be misguided to try to take it literally. 0:19:17.240 --> 0:19:19.960 A chase value A president for the unprecedented. Enjoyed the 0:19:20.000 --> 0:19:22.160 note over the weekend. Seth, thank you, sir, Seth Carpenter 0:19:22.200 --> 0:19:34.639 there of Morgan Stanley Silly Stuart Kuys have writ in 0:19:34.640 --> 0:19:37.919 this CPI should prolong a solid macro setup that allowed 0:19:37.960 --> 0:19:41.360 a low volatility six month equity rally. We remained positive 0:19:41.400 --> 0:19:44.520 on US equity risk reward after very strong labor data, 0:19:44.840 --> 0:19:48.919 and we're encouraged by markets rallying from early quarter wobbles. Stuart, 0:19:48.960 --> 0:19:50.520 I'm pleased to say it's with a surround the table, 0:19:50.520 --> 0:19:54.439 stupid monitor. You all stat love it. Bramo mentioned it yesterday. 0:19:54.520 --> 0:19:57.399 Let's just begin there. Two hundred and eighty two days imagined, 0:19:57.400 --> 0:19:59.480 it's two hundred and eighty three now, since the last 0:19:59.480 --> 0:20:02.399