Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Haamma dal Arian of
Speaker 2: Queen's College, Cambridge joins us around the table here in
Speaker 2: New York. Hammo, Good morning to you.
Speaker 3: Good morning John.
Speaker 2: Let's get into that line from mister Bullard. He's left
Speaker 2: the FMC. You can speak a little bit more openly
Speaker 2: as you can as well. Your base case is still too.
Speaker 2: When do we start to see another bump in the
Speaker 2: road together with all the other bumps in the road
Speaker 2: no longer be called bumps in the road on the FMC.
Speaker 3: I think it's going to tag time.
Speaker 4: I think Chair Parlers media rig clear that he's willing
Speaker 4: to look through these bumps to use his phrase, the
Speaker 4: inflation story hasn't changed, so they will need overwhelming evidence
Speaker 4: that it is more than a bump in order for
Speaker 4: them to change their views.
Speaker 2: You think that's too sensitive to recent data and maybe
Speaker 2: not being strategic enough.
Speaker 4: What do you mean by that? So I think if
Speaker 4: you look forward, and you talked about in the last
Speaker 4: hour about business confidence, if you look forward, there's reasons
Speaker 4: to believe this economy may slow. So if you're setting
Speaker 4: policy not according to what has happened, but according to
Speaker 4: the lags with which the policy operate, you would be
Speaker 4: more doubvish than you would be otherwise. If, however, you
Speaker 4: focus exclusively on the data, you'll end up being too hawkish.
Speaker 1: You talk about small business optimism, let's go there. It
Speaker 1: came in at the lowest levels since December of twenty twelve.
Speaker 1: Sometimes it's hard to know how to read some of
Speaker 1: these gauges, especially because we get people on all the
Speaker 1: time saying they're all broken. How important is this in
Speaker 1: contrast with all of the bollishness and the momo and
Speaker 1: the fomo and the world that we keep hearing, this
Speaker 1: is really important.
Speaker 4: The big mistake that was made in twenty twenty one
Speaker 4: when people embrace the transitory narrative was they didn't listen
Speaker 4: to the companies, and the companies were clearly saying, we
Speaker 4: have inflationary pressures in the pipeline, we have pricing power,
Speaker 4: We're going to pass on that important inflation.
Speaker 3: I feel like that was coming.
Speaker 4: In this time around. Listen to the earnings call, and
Speaker 4: they are worried about the outlook for the rest of
Speaker 4: the year. So I do think you need to listen
Speaker 4: to them because often the aggregate data doesn't capture what
Speaker 4: businesses are feeling on the ground.
Speaker 1: When you say businesses, though, we're going to hear from
Speaker 1: JP Morgan, and my guess is that Jamie Diamond was
Speaker 1: raising some concerns more generally in sort of a broad
Speaker 1: macro level when he talks about his own bank. My
Speaker 1: suspicion is that he's doing quite well and that the
Speaker 1: bank is probably issuing another record quarter in one way
Speaker 1: or another. How much does it matter that the pain
Speaker 1: is being felt in a small sub section of companies
Speaker 1: that are smaller, more leverage to high rates, and frankly,
Speaker 1: more leverage to a consumer that would likely be price sensitive.
Speaker 4: It matters because they're also employees. Everybody should read Jamie's letter.
Speaker 3: Okay, I've read it.
Speaker 4: I've gone through the sixty one pages. There's so much
Speaker 4: content there. You should read it. And he has this
Speaker 4: situation whereby he's worried about the world. He says, looking forward,
Speaker 4: all the things I'm worried about, sticky inflation, slowing economy,
Speaker 4: a completely change in global economy. But his bank is
Speaker 4: extremely well positioned to take advantage of this world. Why
Speaker 4: because they've got a very solid balance sheet and they
Speaker 4: dominate in so many different areas. So I do think
Speaker 4: this duality can exist at JP Morgan, but it cannot
Speaker 4: exist economy wide.
Speaker 1: You believe that the third should cut rates even if
Speaker 1: you're not seeing necessarily a commensurates slow down. Do you
Speaker 1: think that the risk of a reacceleration inflation is overstated by.
Speaker 4: Some So I don't know how often I've said it
Speaker 4: here and elsewhere. Inflation will be sticky. Inflation will be
Speaker 4: absolutely sticky. We're going to get stuck around two and
Speaker 4: a half to three percent, And I do think that
Speaker 4: that actually warrants over the long term. The FED rethinking
Speaker 4: is inflation target. It won't do it now, but it
Speaker 4: may well tolerate it. And you've heard what's going on.
Speaker 4: Service inflation hasn't come down quickly enough, and guess what
Speaker 4: good deflation is going to stop.
Speaker 3: So, yes, inflation will be.
Speaker 4: Sticky, but that shouldn't stop the FED because the two
Speaker 4: percent inflation target is too tight for any global economy
Speaker 4: going through major rewiring, and that again is well discussed
Speaker 4: in Jamie Diamond's letter about this rewiring that's going happening
Speaker 4: in this global economy.
Speaker 2: We're at risk of this conversation becoming very circular. But
Speaker 2: let's run with it. If they begin to show signs
Speaker 2: of tolerating higher inflation, and you've basically told us that
Speaker 2: you believe that maybe we're starting to see that shift
Speaker 2: based on the news conference we had with Sham and
Speaker 2: Powell only a few weeks ago. If we believe to
Speaker 2: see signs of that higher tolerance, doesn't that make it
Speaker 2: even harder to get inflation down? Doesn't inflation become even stickier?
Speaker 2: Does an inflation expect tations become that worth they like
Speaker 2: to use de anchored? Isn't that the risk here?
Speaker 4: So there's a difference between inflation expectations adjusting to two
Speaker 4: and a half to three percent and already if you
Speaker 4: look at the ten year break even, we're two point four,
Speaker 4: so we're not that far already, and inflation expectation being denchored.
Speaker 4: There's a fundamental defence between the two. I do believe
Speaker 4: that you can do it with that de anchoring inflation expectations.
Speaker 2: Whatever happens, this equity market's rallying. That seems to be
Speaker 2: the case at the moment. So we've had bank failures,
Speaker 2: high rates, geopological problems that we've had two hot wars,
Speaker 2: you've got sticky inflation, got people talking about changing inflation targets,
Speaker 2: and your equity markets are still absolutely ripid. Why do
Speaker 2: you think and what do you think underpins our ability
Speaker 2: to brush aside issue after issue in this stock market.
Speaker 4: I think it boils down to three things, one top down,
Speaker 4: one bottom up, and one behavioral. Top down is that
Speaker 4: economic activity has surprised around the world, has been better,
Speaker 4: including in Europe. Europe didn't fall into a deep recession.
Speaker 4: Do you economic exceptionalism continues day after day. Two on
Speaker 4: the top down is policy people truly believe. And you
Speaker 4: heard it again this morning on your show, in the
Speaker 4: first hour. You heard it on your show, not the second,
Speaker 4: not the second, this is the second. Okay, it is
Speaker 4: a snoozey week, as you said in the beginning, but
Speaker 4: you've heard it. People believe the fact PUT is there.
Speaker 4: And then you have a bottom up, very strong disruptive
Speaker 4: technology coming along that can fundamentally increase productivity. I believe
Speaker 4: that generitive AI, but life sciences, and you have more
Speaker 4: spending coming on healthcare, on defense. And then finally you
Speaker 4: have the behavioral aspect. I don't know what MOMO standboard,
Speaker 4: but certainly FORMO and that is why you don't get
Speaker 4: these people react really quickly. Put these three things together.
Speaker 4: It will power this market for much longer than people expect.
Speaker 2: I won't ask you to translate world work either. I
Speaker 2: will ask you to respond to this quote from Chris
Speaker 2: Harvey as well as FARG you touched on this issue
Speaker 2: that we're discussing right now, and your piece in the
Speaker 2: FT early this week. Very is Harvey's put out this quote.
Speaker 2: The bill market, AI secular growth story and index concentration
Speaker 2: of shifted investors' attention away from traditional valuation measures. Are
Speaker 2: we saying that valuation metrics don't matter in a market
Speaker 2: driven by themes like this one?
Speaker 4: Yeah, I think they've been suspended for a while, and
Speaker 4: we've seen it before. It happened in tech, it happened
Speaker 4: for Amazon, where people basically suspend their conventional wisdom about this.
Speaker 4: I think what's what I was trying to say in
Speaker 4: my piece is look longer term, and you've got a
Speaker 4: factor in that the world is changing in a way
Speaker 4: that the markets right now not even looking at You know,
Speaker 4: we used to have three really important tenants. One at
Speaker 4: the domestic level, this is these are economies that will
Speaker 4: deregulate and liberalize and they will maintain fiscal discipline. Now
Speaker 4: we are in economies that have industrial policy and deficits
Speaker 4: that are out of control. On the global side, was
Speaker 4: ever closer globalization, ever close integration of trade and investment.
Speaker 4: Now we have weagonization of trade and investment and we're fragmentation.
Speaker 4: And then on the market side, it was the meturation
Speaker 4: of markets, the metuation of instruments. Okay, now we're having
Speaker 4: something completely different. We're having FOMO, we're having liquid instruments
Speaker 4: being created for I liquid.
Speaker 3: Tools.
Speaker 4: So fundamentally, if you'd look at three to five years,
Speaker 4: this is changing. But right now, the short term factors
Speaker 4: are so strong that people should maintain this. And you
Speaker 4: had earlier on the show someone releasing a momentum vehicle,
Speaker 4: and what does that do? We overshoot on the way up,
Speaker 4: and we overshoot on the way down.
Speaker 1: MOMO stands for more momentum. Just briefly, just before before
Speaker 1: we move on. I do want to get a sense.
Speaker 1: Are you concerned about the auctions at all? Do you
Speaker 1: watch the auctions?
Speaker 3: Do you care about them? Do you think that they.
Speaker 1: Actually could potentially influence markets?
Speaker 4: I do, and I do, and I do because your
Speaker 4: discussion about gold earlier is not just about inflation. It's
Speaker 4: also about central banks around the world looking for alternatives
Speaker 4: to the dollar. So yes, we are going to have
Speaker 4: in October. The discussion was who was going to buy
Speaker 4: this massive issuance that's happening. And I think you've got
Speaker 4: to keep an eye on all three auctions this week.
Speaker 2: Of course we got time we can talk about this.
Speaker 2: You went there gold. You believe that underpinning of the
Speaker 2: old time highs is maybe central bank's trying to diversify
Speaker 2: away from dollar denominative assets. Is that what you think
Speaker 2: is going on?
Speaker 4: You have the data's out central bank buying is very
Speaker 4: active China in particular, has been adding month after month
Speaker 4: after month. Look, if you are outside the US and
Speaker 4: you've witnessed the weaponization of the dollar, you will ask
Speaker 4: yourself what can I do at the margin. You can't
Speaker 4: do anything major, but you can start doing things at
Speaker 4: the margin. And I think central bank's buying of gold
Speaker 4: is indicativele okay.
Speaker 2: Is that because of the State Department or the treasury?
Speaker 2: Is that because of issuance or sanctions? Which one is it?
Speaker 4: It's mainly because of sanctions, but also issuance plays a role.
Speaker 5: Do you think that now that almost this cat is
Speaker 5: out of the bag, what the United is willing to do?
Speaker 5: This means long term de dollarisation.
Speaker 4: So digitization is a very strong term because you cannot
Speaker 4: replace the dollar with something else. But the image should
Speaker 4: have is people building little pipes around the dollar. And
Speaker 4: we've seen it not only in how they hold their reserves,
Speaker 4: but also in trade. People have been shocked how Russia
Speaker 4: has been able to trade as much as it has
Speaker 4: while being out of swift. How has it done that?
Speaker 4: It has built a very clunky, inefficient system, but that
Speaker 4: it works that involves four currencies and never anywhere near
Speaker 4: the dollar. So what you're seeing are little pipes being
Speaker 4: built around the system. They're not going to fundamentally change
Speaker 4: the role of the dollar, but they're going to make
Speaker 4: the dollar less dominant going forward.
Speaker 2: Is this next week's f take on them?
Speaker 6: Just figuring that.
Speaker 4: No, now you have to ask how to find it.
Speaker 1: All.
Speaker 2: The standing set company joins us now to talk about
Speaker 2: a few of these things, and Seth, it's going to
Speaker 2: say you, sir, I want to begin with immigration into
Speaker 2: the United States because the numbers are absolutely stunning. Could
Speaker 2: you frame how big those biz and the kind of
Speaker 2: forces there having on the US economy?
Speaker 3: Yeah? Thanks, Jonathan.
Speaker 7: I think even before we get there, I will say
Speaker 7: I'm I'm a window seat guy, so if you still
Speaker 7: think about swifting themes, stay with me in the window seat.
Speaker 7: That's sort of where I fight you for, Seth, sleep first,
Speaker 7: sleep primarily exactly.
Speaker 3: No.
Speaker 7: But on immigration, the numbers, the numbers are really big,
Speaker 7: and here big shout out to our US economics team
Speaker 7: led by Ellen Setner. We spent a lot of time
Speaker 7: with folks in Washington at the government agencies looking at
Speaker 7: these numbers, coming up with our own take on the
Speaker 7: new information that's available, and I think the takeaway really
Speaker 7: is huge increase.
Speaker 3: In the number of workers in the economy.
Speaker 7: If you thought that the break even level of job
Speaker 7: creation each month had been about one hundred thousand per month,
Speaker 7: it's at least twice that, And I really do mean
Speaker 7: that's a big change. And so as a result, you
Speaker 7: hear comments like char Powell saying it's a bigger economy,
Speaker 7: it's bigger labor market, not a tighter labor market.
Speaker 3: We're very much in line with that view.
Speaker 2: So it's non inflationary in the labor market. Is it
Speaker 2: inflationary more broadly in the economy. Set the additional demand,
Speaker 2: the additional competition for housing, how does that play out
Speaker 2: beyond just the labor market.
Speaker 7: I think there's no doubt that there's both an demand
Speaker 7: component to this and a supply component to it. But
Speaker 7: what we have to remember is on the inflationary side
Speaker 7: of things. This is all playing out against a backdrop
Speaker 7: where consumer goods inflation and level terms have been boosted
Speaker 7: so much because of supply chains and the ships we
Speaker 7: saw during COVID, and those levels are coming back into place.
Speaker 7: And then we saw rent inflation that had jumped up
Speaker 7: because people's housing demand had changed with COVID. So the
Speaker 7: normalization that we're seeing there I think is actually more
Speaker 7: important than the additional aggregate demand that we're getting from
Speaker 7: the extra labor supply, And so we're still looking for
Speaker 7: disinflation to continue tomorrow morning's print the rest of this year.
Speaker 1: So that I'm struck by how much fiscal policy, just
Speaker 1: more broadly and frankly, federal policy has driven so much
Speaker 1: of the story. It will continue to in a way
Speaker 1: that makes it very difficult to predict. I think about
Speaker 1: not just the immigration story, but also the fiscal deficits
Speaker 1: that have been incurred as the government has given all
Speaker 1: of these fiscal stimulus payments across the nation. You had
Speaker 1: a projection looking out about how much the deficits would
Speaker 1: increase under either the Democrats or the Republicans, and that
Speaker 1: the Republican deficit would actually be twice as big of
Speaker 1: in current terms of the increase versus Democrats. How concerned
Speaker 1: are you about this? How much is this playing into
Speaker 1: the overall story?
Speaker 3: I think it's impossible to ignore.
Speaker 7: It's clearly going to be a critical question that everyone's
Speaker 7: going to see what happens in November. Who wins the
Speaker 7: White House, who wins the Senate, who wins the House
Speaker 7: of Representatives, and what policies are being pushed the House
Speaker 7: you now and Morgan Stanley from our public policy team
Speaker 7: is Democrats' biggest priority of time has been.
Speaker 3: Infrastructure and green energy.
Speaker 7: The IRA is in place and so a big extra
Speaker 7: boost for spend probably isn't there. And for the Republicans,
Speaker 7: the Tax Cutting Jobs Act biggest priority that was already
Speaker 7: put in place, so probably not another huge change there.
Speaker 7: And so we are thinking the Democrats, you get a
Speaker 7: bit more in terms of spending, you get a bit
Speaker 7: more though in terms of tax increases under Democrats, whereas
Speaker 7: for Republicans, if it's a sweep, you get some tax
Speaker 7: cuts and you get some extra spending. Hence the difference
Speaker 7: in our house view in terms of what happens under
Speaker 7: the two scenarios.
Speaker 3: But we cannot cannot rule.
Speaker 7: Out the very likely possibility that we get the White
Speaker 7: House controlled by one party and Congress either split or
Speaker 7: controlled by the other party, which just adds another layer
Speaker 7: of complexity.
Speaker 5: But even if the white House is controlled, say by
Speaker 5: a Republican, and there's a split within Congress, potentially we're
Speaker 5: going to get higher tariffs. Trump two point zero can
Speaker 5: do that pretty much in a latterly and restrictive immigration.
Speaker 5: What does that mean for inflation?
Speaker 7: Great question, and I think it is exactly the sort
Speaker 7: of scenario everyone, every investor has to be thinking about
Speaker 7: right now. I think tariff's no question on the table.
Speaker 7: Former President Trump has referred to it explicitly, and there
Speaker 7: I think we have to balance what we know has
Speaker 7: happened in the past, which is to say, a bit
Speaker 7: extra cost for importers, some of which gets translated.
Speaker 3: To final prices.
Speaker 7: However, we also know that last time it was a
Speaker 7: massive hit to the US manufacturing sector, and so as
Speaker 7: a result you'll get an adverse hit to growth, and
Speaker 7: so that goes in the opposite direction for inflation. When
Speaker 7: it comes to immigration, that's the tricky part. If we
Speaker 7: look at some of the projections, we look at the
Speaker 7: CBO's projection, already some reversion back to pre COVID rates
Speaker 7: of immigration, and so I think the real question is
Speaker 7: what's the marginal effect of any more restrictive policy. I
Speaker 7: think directionally it has to be less of the beneficial
Speaker 7: supply boost, but also a little bit.
Speaker 3: Less of that aggregate demand.
Speaker 7: But it's coming at a time, say in late twenty
Speaker 7: twenty five, early twenty twenty six, after a new administrations
Speaker 7: in place and policies have time to take effect, where
Speaker 7: we already have most of the inflation rung out of
Speaker 7: the system by the Federal Reserve under our forecast and
Speaker 7: under the Federal reserves forecasts.
Speaker 1: So seth that's sort of the longer term view that
Speaker 1: any of these policies wouldn't necessarily filter into true economic
Speaker 1: data for a while. But do you see some of
Speaker 1: these proposals as spurring a market reaction that could materially
Speaker 1: shift the economic projection? For example, if you did get
Speaker 1: the scenario that Amrie was talking about with higher tariffs,
Speaker 1: lower immigration, could yield spike to a level that could
Speaker 1: be really problematic.
Speaker 7: For the economy unquestionably, And I will say one of
Speaker 7: the most common sets of questions that we have from
Speaker 7: clients are exactly along these lines. Would that scenario, the
Speaker 7: Republican scenario, be very inflationary? Would it cause a further
Speaker 7: sell off and rates? Lots of people are angling now
Speaker 7: and trying to see if they need to position for that.
Speaker 7: I will hasten to add, though, if we go back
Speaker 7: to last June July August September October when we did
Speaker 7: see a big sell off in rates, there were lots
Speaker 7: of narratives people were looking for, and then we saw
Speaker 7: a reversal, And so I think this is going to
Speaker 7: be one of those tricky periods in time where very
Speaker 7: legitimate concern over one scenario that is very very plausible
Speaker 7: people could easily run with for a while, but then
Speaker 7: we really do have to wait and see how the
Speaker 7: election turns out, to see if those policies go into place.
Speaker 5: How do you then plan for what the FED is
Speaker 5: going to do in twenty twenty five.
Speaker 7: I think the FED right now is at a place
Speaker 7: where they are taking it one meeting at a time
Speaker 7: and one data print at a time. You reference at
Speaker 7: the beginning Jim Bullard's comments about taking the Fed's baseline
Speaker 7: path at face value. We actually have in our base
Speaker 7: case for rate cuts from the FED this year because
Speaker 7: we're looking for inflation to keep coming down, so we're
Speaker 7: a little bit below consensus for tomorrow's number. We see
Speaker 7: disinflation continuing all year and picking up speed in Q
Speaker 7: three and Q four, and as a result, we think
Speaker 7: they'll be able to cut rates a bit more so
Speaker 7: by the time we get to twenty twenty five, there'll
Speaker 7: be so much more information about where inflation is, so
Speaker 7: much more information about how sustainable this increase.
Speaker 3: In immigration has been.
Speaker 7: That I think the Fed themselves don't really put much
Speaker 7: stock whatsoever in they're own forecast for policy for next year.
Speaker 2: Seth, Are you still sticking with that mid ninety story?
Speaker 7: The nineties were great, right, So that was when I
Speaker 7: became a real economists. Graduated from college in ninety two,
Speaker 7: got my PhD in ninety seven, so that's where I
Speaker 7: became an economist. Look, I don't think any two cycles
Speaker 7: are exactly alike, and you can't take one cycle and
Speaker 7: use it as the template for the next. However, lots
Speaker 7: went on in the nineties. We were still seeing the
Speaker 7: rise in labor force participation, so there's a bit of
Speaker 7: that apply side to the story. There was an overall
Speaker 7: aggregate supply side to the story. The FED pulled off
Speaker 7: a soft landing, which most people at the time and
Speaker 7: even now think can't be done. So I think there
Speaker 7: are a lot of lessons to be learned from the nineties,
Speaker 7: but we would be misguided to try to take it literally.
Speaker 2: A chase value A president for the unprecedented. Enjoyed the
Speaker 2: note over the weekend. Seth, thank you, sir, Seth Carpenter
Speaker 2: there of Morgan Stanley Silly Stuart Kuys have writ in
Speaker 2: this CPI should prolong a solid macro setup that allowed
Speaker 2: a low volatility six month equity rally. We remained positive
Speaker 2: on US equity risk reward after very strong labor data,
Speaker 2: and we're encouraged by markets rallying from early quarter wobbles. Stuart,
Speaker 2: I'm pleased to say it's with a surround the table,
Speaker 2: stupid monitor. You all stat love it. Bramo mentioned it yesterday.
Speaker 2: Let's just begin there. Two hundred and eighty two days imagined,
Speaker 2: it's two hundred and eighty three now, since the last
Speaker 2: two percent pulled back the twelfth longest street since nineteen
Speaker 2: twenty eight. What can you learn from a LOVO rally
Speaker 2: like this one over the last few months.
Speaker 6: I mean, I think what you've learned is just when
Speaker 6: the economic data is doing what is doing, the markets
Speaker 6: are going to sort of behave accordingly.
Speaker 3: You know.
Speaker 6: I know there's a lot of concern out there valuations high,
Speaker 6: volatilities low, and that means we need to sell off.
Speaker 6: But I think the fact is you've had very strong growth,
Speaker 6: inflation's easy, not as fast as you might like, and
Speaker 6: equity markets are responding by low realized volatility, and that's
Speaker 6: kind of the situation we're in right now.
Speaker 2: Can Smorrows like to change that story?
Speaker 3: It could.
Speaker 6: I think you would need a pretty significantly high print.
Speaker 6: I mean, it's going to have to round a point
Speaker 6: four at least, or you're going to have to have
Speaker 6: internals to the inflation data that are particularly kind of
Speaker 6: troublesome if you print down a consensus number. I think
Speaker 6: a census is twenty nine basis points. City us econ
Speaker 6: is thirty three basis points. I think if you print
Speaker 6: a number like that, equities are going to respond modestly positive.
Speaker 6: It's honestly not as big an event this month. It
Speaker 6: doesn't feel like in terms of client conversations, which is really.
Speaker 1: Compelling, given the fact that this seems like could be
Speaker 1: another bump in the road that leads to this question
Speaker 1: of whether we're not getting it right. How far could
Speaker 1: momentum go if this is an inline print. We're just
Speaker 1: talking about Chris Harvey upgrading his forecast to fifty five
Speaker 1: hundred plus. We were talking earlier about the ideal with
Speaker 1: Chris Faron of sixty one hundred. Are you getting on
Speaker 1: that train?
Speaker 6: I don't know if I'm on the sixty one hundred
Speaker 6: traink way yet. But look, I think coming into the year,
Speaker 6: we basically said, if you avoid a recession and the
Speaker 6: FED starts doing insurance cuts, you know, the top end
Speaker 6: of your outlook has to be quite high. And I
Speaker 6: think if in that type of situation, yeah you're talking
Speaker 6: high five thousands to low six thousands, must say we're
Speaker 6: going to get there. But that is where the sort
Speaker 6: of bogie is going to be. If they're doing insurance
Speaker 6: cuts into a strong economy, I'm surprised that they did it,
Speaker 6: But if they do, they're going to support equity risk,
Speaker 6: which raises.
Speaker 1: This question that Mohammed was talking about, which is that
Speaker 1: momentum feeds on itself. We talk about new vehicles being
Speaker 1: created to funnel more money into momentum trades, and that
Speaker 1: things that overshoot on the way up overshoot on the
Speaker 1: way down. Do we have a sense of where we
Speaker 1: are in that is that sort of are we halfway
Speaker 1: through the overshoot? Are we just beginning it?
Speaker 6: I mean, I don't know if we're ever shoot at me.
Speaker 6: I think in my view the stuff that is momentum
Speaker 6: leadership should be momentum leadership. These were the stocks last
Speaker 6: year that were the small group of companies that were
Speaker 6: generating ernies growth, so they outperformed and that kind of
Speaker 6: becomes momentum. The momentum trade right now is a little
Speaker 6: bit tricky just because the long end of it is
Speaker 6: very tech heavy. The short end of momentum most people
Speaker 6: trade that long short is utilities in real estate and
Speaker 6: more kind of defensive parts of the market. So it's
Speaker 6: hard to get momentum to have a negative return in
Speaker 6: a rising market because you have very low beta kind
Speaker 6: of living in the short leg. You really need small
Speaker 6: cap to pick it up because small cap is something
Speaker 6: that people are short and underweight. So small cap for
Speaker 6: us has been incredibly kind of important risk metric for
Speaker 6: the markets as well as the momentum trade.
Speaker 4: So staying on momentum, there's suddenly a lot more interest
Speaker 4: on commodities and the sort of price increases we're seeing
Speaker 4: significant and broadening. How does that feed into inflation storing,
Speaker 4: particularly both the first round and second round effects.
Speaker 6: Look, it's very important, Mohammed, I would say, you know,
Speaker 6: we would like kind of categorize in three spots. You
Speaker 6: have the copper part. You know, copper is very growth sensitive.
Speaker 6: As you know, I think equity markets would read high
Speaker 6: copper prices probably isn't positive because it suggests a growth impulse.
Speaker 3: Gold. I'm not going to get too much into gold.
Speaker 3: Bugs have a lot of reason that they want to
Speaker 3: own gold.
Speaker 6: There's a big central bank story there, so it's a
Speaker 6: little hard to dissect what's exactly going on in the
Speaker 6: gold market. And then you've got oil, and oil is
Speaker 6: I think the one that if it continues to rally,
Speaker 6: it's the most troublesome from an equity perspective. There's obviously
Speaker 6: a big geopolitical aspect to that as well. I think
Speaker 6: most investors in the US said, unless oil starts to move,
Speaker 6: I'm going to kind of ignore what's going on in
Speaker 6: the Middle East or at least compartmentalize it. So the
Speaker 6: move we got in oil, I think was very telling
Speaker 6: from an inflation perspective as well as as from a
Speaker 6: geopolitical perspective. So, yeah, we are worried about the surge
Speaker 6: of commodity prices, but I think from equity is it's
Speaker 6: the oil part that would concern us.
Speaker 2: Can we just sit on there for a bit longer?
Speaker 2: Does the crude move just sort of address itself, hits
Speaker 2: growth crude rolls over? Is that the way you would
Speaker 2: view things as a policy maker, just from the outside
Speaker 2: looking in.
Speaker 6: Oil's been a tricky trade the last twelve or eighteen months.
Speaker 6: I mean, if you told me you were going to have,
Speaker 6: you know, Russia Ukraine war, You're gonna have war in
Speaker 6: the Middle East, You're gonna have OPEC cutting production. I
Speaker 6: think most folks would have expected oil to be able
Speaker 6: to maintain in a higher price for a more significant
Speaker 6: period of time. The fact is the US is producing
Speaker 6: a ton of oil. There's probably a lot of discounted
Speaker 6: oil being bled out of Russia to other markets, so
Speaker 6: it's a little harder to read that. But I mean,
Speaker 6: the Fed is obviously not going to ignore the price
Speaker 6: of oil. But yeah, the reason they look at core
Speaker 6: inflation is because they assume, you know, that type of
Speaker 6: self is, that type of stuff is sort of traditory
Speaker 6: and self correcting, So I think I think they will
Speaker 6: try to ignore it. The fact is, other than immediately
Speaker 6: after Russia invading Ukraine, you haven't sustained a ninety dollars
Speaker 6: dollars oil price since about twenty fourteen, so you know,
Speaker 6: it's a little bit of a proved story for us
Speaker 6: as well, Like oil needs to show us that it
Speaker 6: could stay at those levels before we're going to kind
Speaker 6: of really feel change policy based on it.
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