WEBVTT - Surveillance: Fed Tightening with Luzzetti 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Farrell and Lisa Brownwitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.639 dot com, and of course on the Bloomberg terminal. The 0:00:29.720 --> 0:00:33.479 hallmark of David Fulkert's Landau's work at Deutsche Bank is 0:00:33.520 --> 0:00:36.839 to have a group of economists, people that battled the 0:00:37.000 --> 0:00:41.720 side and then do acute published research. John Farrell, no 0:00:41.880 --> 0:00:44.559 exception here in the last couple of weeks is Mr 0:00:44.600 --> 0:00:47.760 Hooper and Mr Lozettie have looked at the movement that 0:00:47.880 --> 0:00:50.960 we will see and particularly the rate and rates of 0:00:51.120 --> 0:00:53.319 change that we will see. John arery happy to say 0:00:53.320 --> 0:00:55.639 that Matt joins us NATSA on Matt Loozettie at Deutsche Bank. 0:00:55.680 --> 0:00:58.360 Mantless start that the workout going into the weekend with 0:00:58.440 --> 0:01:01.760 Peter Hooper, the race that the Fed needs to do more, 0:01:01.840 --> 0:01:04.720 this argument that we still experience longer variable lengths with policy. 0:01:05.480 --> 0:01:07.040 They already behind the curve and how much more do 0:01:07.120 --> 0:01:10.440 they need to do? Sure? First, thanks so much for 0:01:10.520 --> 0:01:13.200 having me. Certainly we did argue that that is behind 0:01:13.200 --> 0:01:17.080 the curve now, and I think that's mostly a byproduct 0:01:17.160 --> 0:01:19.840 of the rapid improvement we've seen, most importantly on the 0:01:19.920 --> 0:01:22.560 labor market front. I think it's important to remember that 0:01:22.640 --> 0:01:24.400 as of June of last year, we were at five 0:01:24.440 --> 0:01:27.399 point nine percent unemployment, So the unemployment rate has formed 0:01:27.400 --> 0:01:29.919 by two percentage points basically over the past six months, 0:01:30.360 --> 0:01:32.480 but then very much so on on inflation and in 0:01:32.560 --> 0:01:34.640 terms of the wage data that we've seen. So I 0:01:34.640 --> 0:01:37.400 think given the very rapid developments, the very rapid improvements 0:01:37.400 --> 0:01:39.920 that we've seen both on the labor market front and 0:01:40.200 --> 0:01:43.000 high inflation, uh, the idea that the Fed should be 0:01:43.040 --> 0:01:45.160 at their current policy setting, which is zero interest rate 0:01:45.200 --> 0:01:47.200 still adding to the balance sheet at this point, with 0:01:47.280 --> 0:01:50.360 an economy that has satisfied their dual mandate goals and 0:01:50.520 --> 0:01:53.280 very strong growth, there's there's definitely a disconnect between those 0:01:53.280 --> 0:01:55.120 two things at the moment. You've put some numbers on 0:01:55.120 --> 0:01:58.120 the balance sheet reduction five hundred and sixty billion this year, 0:01:58.160 --> 0:02:01.880 a strong tilt towards bills once TRILLI and more in three. 0:02:02.280 --> 0:02:04.920 You also equite balance sheet reduction to interest right hikes. 0:02:04.960 --> 0:02:06.520 The total draw down of the balance sheet through the 0:02:06.600 --> 0:02:09.160 end of twenty three amounts the somewhere between two and 0:02:09.200 --> 0:02:11.280 a half and three and a half twenty five basis 0:02:11.320 --> 0:02:14.560 point increases. Matt, Can you help us understand whether that 0:02:14.600 --> 0:02:18.200 balance sheet reduction complements the right hikes you were already 0:02:18.200 --> 0:02:22.520 calling for or replaces them. Sure? So, I think the 0:02:22.520 --> 0:02:24.919 interesting thing from our own forecast is we we've brought 0:02:25.520 --> 0:02:28.040 rate hikes forward at the same time that we were 0:02:28.040 --> 0:02:30.040 building in a faster drawn under the balance sheet. So 0:02:30.440 --> 0:02:32.360 at this point, our our baseline is that they had 0:02:32.360 --> 0:02:35.120 grades four times this year March. You know, given all 0:02:35.160 --> 0:02:37.800 the FED communications, given the data, seems very very likely 0:02:37.840 --> 0:02:40.680 in terms of liftoff at this point. Uh and we've 0:02:40.800 --> 0:02:43.160 we've had four hikes in addition to that balance sheet 0:02:43.400 --> 0:02:46.079 wind down that we've seen. I think there's been different 0:02:46.160 --> 0:02:48.400 views within the committee on this. We've heard from people 0:02:48.960 --> 0:02:52.959 such as Mary Daily, Governor Waller, Jim Bullard, all those 0:02:52.960 --> 0:02:55.919 officials who actually want to I think actively substitute doing 0:02:55.919 --> 0:02:57.400 more on the balance sheet and doing less on the 0:02:57.440 --> 0:02:59.560 on the front end. We haven't heard as much from 0:02:59.720 --> 0:03:03.400 FED leadership share pal John Williams on this uh Leo brainer. 0:03:03.560 --> 0:03:05.400 But but I anticipate that the rest of the can 0:03:05.440 --> 0:03:08.120 Make Committee will want to set the balance sheet, allow 0:03:08.200 --> 0:03:10.639 that financial condition tightening to happen as a result of that, 0:03:11.080 --> 0:03:12.560 and do what they need to on the front end, 0:03:12.600 --> 0:03:15.120 so not really actively substitute between the two, but at 0:03:15.160 --> 0:03:17.959 least realize that both of them will be tightening financial conditions. Matt, 0:03:17.960 --> 0:03:19.760 why do you disagree with Peter Sheer who says this 0:03:19.800 --> 0:03:24.320 could just be the FED job owning. So I think, 0:03:24.680 --> 0:03:27.040 you know, perhaps there is some part to that, but 0:03:27.040 --> 0:03:29.240 but I think the the economic reality is we have 0:03:29.560 --> 0:03:33.160 very easy financial conditions. UH. The unemployment rate is below 0:03:33.200 --> 0:03:36.640 the Fed's view of nay room, inflation is well above 0:03:36.680 --> 0:03:40.120 target and they expected to remain well above target UH, 0:03:40.160 --> 0:03:43.560 and wage growth inflation expectations. The broadening of inflation pressures 0:03:43.560 --> 0:03:46.400 suggest that the risk starts the upside on inflation, and 0:03:46.480 --> 0:03:50.240 so in that environment, UM, I think it'd be surprising 0:03:50.280 --> 0:03:52.440 simply for a central bank to to jaw bone their 0:03:52.440 --> 0:03:55.960 way towards tightening monetary policy. I think that actual tightening 0:03:55.960 --> 0:03:59.280 needs to take place both via the front end via 0:03:59.320 --> 0:04:02.120 policy rates UH and also via the balance sheets, and 0:04:02.160 --> 0:04:03.840 I expect the FED will deliver on that this year 0:04:04.040 --> 0:04:06.640 and one reason why your research has been so original, 0:04:06.640 --> 0:04:08.960 Matt is you try to game out the effect of 0:04:09.040 --> 0:04:11.840 quantitative tightening on markets, which has been a moving target 0:04:12.080 --> 0:04:14.960 and frankly has a lot of people questioning what the 0:04:15.040 --> 0:04:18.360 ramifications will be. How difficult was it when you came 0:04:18.480 --> 0:04:20.240 up with this call of two and a half to 0:04:20.279 --> 0:04:21.960 three and a half rate hikes by the end of 0:04:22.800 --> 0:04:25.839 that would be the equivalent of what quantitative tightening would 0:04:25.880 --> 0:04:30.760 exact onto the markets. Sure, I think it's very clearly 0:04:30.760 --> 0:04:32.640 an uncertain one and it's one that the FED still 0:04:32.640 --> 0:04:35.159 grapples with. We here in the minutes, I'm still discussioning 0:04:35.400 --> 0:04:39.039 discussing the effects both of QUEI and qt UM, and 0:04:39.080 --> 0:04:41.080 so I would highlight first, I think that there are 0:04:41.200 --> 0:04:43.560 lots of uncertainty around this, but we do have a 0:04:43.560 --> 0:04:45.880 lot of research. We have the FED owned staff, research 0:04:45.920 --> 0:04:48.080 from the Board and some of the regional feds. We've 0:04:48.120 --> 0:04:50.240 done a lot of our own work, UH, And it 0:04:50.560 --> 0:04:53.520 kind of interestingly and and thankfully I think, clusters around 0:04:53.920 --> 0:04:57.640 a certain range of estimates which suggests that call it 0:04:57.720 --> 0:05:02.320 six fifty billion, give or take UH of qt we 0:05:02.480 --> 0:05:04.720 tend to equate to one rate increase, and so the 0:05:04.800 --> 0:05:06.560 draw down that we expect at the end of next year, 0:05:07.000 --> 0:05:09.479 we think is material in terms of the tending that 0:05:09.600 --> 0:05:10.960 has two and a half to three and a half 0:05:11.040 --> 0:05:13.960 rate hikes. As you mentioned, Matt focused Landau and Peter 0:05:14.040 --> 0:05:17.520 Hooper have beaten into you a respect for history. Let's 0:05:17.560 --> 0:05:21.239 go back to Paul Vocer seventy nine, where fifty basis 0:05:21.279 --> 0:05:24.960 points wasn't under debate. It was a major emergency, including 0:05:25.000 --> 0:05:28.640 an emergency October move, and they moved rates in four 0:05:28.720 --> 0:05:31.080 or five months from ten and a half percent out 0:05:31.080 --> 0:05:33.880 to fifteen and a half percent to break inflation. Now 0:05:33.920 --> 0:05:37.159 that's not happening right now, But what is the price 0:05:37.600 --> 0:05:42.480 to the Greenspan credibility that's been earned over decades if 0:05:42.520 --> 0:05:46.640 we jump fifty beeps? Now what do we lose? Sure? 0:05:46.640 --> 0:05:48.160 And if you go back to that episode, and then 0:05:48.240 --> 0:05:50.080 then even later, we had a change in the monetary 0:05:50.080 --> 0:05:53.359 regime looking at money supply rather than then focusing on 0:05:53.440 --> 0:05:55.520 interest rates, and so there was a sense in which 0:05:55.520 --> 0:05:57.880 you needed to shock the system at that point to 0:05:57.920 --> 0:06:00.799 get it inflation expectations back down into break the inflation 0:06:00.880 --> 0:06:04.760 psychology here, Uh, you know, we do think that fifty 0:06:04.760 --> 0:06:08.119 basis points move is possible at some point. At this point, 0:06:08.120 --> 0:06:10.000 it does not seem the most likely case for March 0:06:10.440 --> 0:06:13.640 from my perspective, at least for two reasons. One from 0:06:13.640 --> 0:06:15.640 FED officials. We were hearing from them, even the more 0:06:15.640 --> 0:06:19.320 hawkish members like like Waller not supporting Governor Waller not 0:06:19.360 --> 0:06:21.919 supporting a fifty basis point hike at this point. But 0:06:22.040 --> 0:06:24.440 also if you hear you know, certainly Chair Pal talk 0:06:24.480 --> 0:06:28.159 about tending policy at this point, that is testimony last week. 0:06:28.720 --> 0:06:30.920 He basically said we want to move from extremely accommodated 0:06:31.000 --> 0:06:33.800 to somewhatless accommodative UH and officials are saying they want 0:06:33.800 --> 0:06:34.839 to do it in a way that really does not 0:06:34.920 --> 0:06:36.920 disrupt the labor market. And so I don't think you've 0:06:36.920 --> 0:06:40.279 seen a shift in communications or a shift in thinking 0:06:40.400 --> 0:06:42.760 or public thinking from the Fed which suggests that they 0:06:42.800 --> 0:06:45.159 need to really actively tighten the monetary policy to reign 0:06:45.200 --> 0:06:48.800 and demand. I think possibly that that may change at 0:06:48.800 --> 0:06:50.680 some point, and that would change. I think if we 0:06:50.720 --> 0:06:54.200 get clearer evidence that inflation is not coming back down 0:06:54.240 --> 0:06:56.640 this year, clear evidence that the labor market continues to 0:06:56.680 --> 0:06:59.840 tighten UH and perhaps you know, I think inflation expectations 0:07:00.040 --> 0:07:02.240 they will continue to rise, could be a big part 0:07:02.240 --> 0:07:04.040 of that. I was going back and forth with Dr 0:07:04.200 --> 0:07:06.719 Lary and at the University of Cambridge this morning. Matt 0:07:06.920 --> 0:07:10.400 and we were talking about the extrapolation of all these 0:07:10.480 --> 0:07:14.000 markets w I r P function and all that. Nobody 0:07:14.000 --> 0:07:16.520 in history cares about that. It didn't happen really until 0:07:16.520 --> 0:07:20.400 the Bloomberg game began, the parlor game began. So this 0:07:20.480 --> 0:07:22.520 is a FED that's going to get on a path. 0:07:23.200 --> 0:07:26.640 Why can't they say we're gonna raise fifty beeps and 0:07:26.680 --> 0:07:29.160 then we're going to sit on it. That's what they 0:07:29.280 --> 0:07:33.760 used to do. Why can't they do that again? Sure, 0:07:33.800 --> 0:07:36.560 so I think the idea of raising fifty basis points 0:07:36.560 --> 0:07:38.880 and then sitting on it is a difficult one. I 0:07:38.960 --> 0:07:42.320 think one to communicate the market reaction to going fifty 0:07:42.360 --> 0:07:44.840 basis points and going fifty basis points in March, I 0:07:44.840 --> 0:07:47.840 think we'll simply pull forward the entire tightening cycle and 0:07:48.080 --> 0:07:50.760 may actually reduce the flexibility and scope of what they 0:07:50.760 --> 0:07:53.840 could do moving forward. And so I think from that perspective, 0:07:53.880 --> 0:07:56.440 you know, a forward looking market will not take the 0:07:56.440 --> 0:07:59.120 FED um as saying we're gonna pause from here and 0:07:59.280 --> 0:08:01.800 wait and see how how things happen. We will see 0:08:01.840 --> 0:08:04.000 I think more significant tightening As a result of that, 0:08:04.480 --> 0:08:05.800 I think to your point, though, we are in a 0:08:05.840 --> 0:08:10.000 world where forward guidance is curtailed and I think it's 0:08:10.080 --> 0:08:13.960 limited in its effectiveness. UM. And you know, looking back 0:08:14.000 --> 0:08:16.280 the past two tightening cycles, we had one where we 0:08:16.320 --> 0:08:19.120 had both where uh, the end point was pretty well known, 0:08:19.200 --> 0:08:21.720 the pace of rate hikes was well known, the starting 0:08:21.720 --> 0:08:24.440 point was very well known, and that damp and volatility 0:08:24.680 --> 0:08:27.240 markets were able to I think very clearly anticipated predict 0:08:27.280 --> 0:08:30.160 where the Fed was going. I think the most important 0:08:30.160 --> 0:08:33.480 point from my perspective about this cycle, uh, is that 0:08:33.480 --> 0:08:35.360 that it's gonna be far less predictable. You know, we 0:08:35.400 --> 0:08:37.840 are talking about fifty basis point rate hikes. We are 0:08:38.120 --> 0:08:40.560 thinking of real scope for the FED moving at every meeting, 0:08:40.920 --> 0:08:43.120 they're drawing down the balance sheet more aggressively. So this 0:08:43.200 --> 0:08:45.240 is something that we haven't seen in markets, you know, 0:08:45.280 --> 0:08:47.640 for several decades in terms of the pace and the 0:08:47.640 --> 0:08:50.800 extent of tightening of our relatively short period. That final point, 0:08:50.800 --> 0:08:53.840 that is the importent one. Mattlazetie a Deutsche Bank. Matt, 0:08:53.880 --> 0:08:56.360 great work over the last few weeks, right work walwise, 0:08:56.400 --> 0:08:58.520 but particularly the last week the research has been outstanding. 0:08:58.559 --> 0:09:07.360 Matt Lazetie a Deutsche Bank. Andrew Sheets is at a 0:09:07.400 --> 0:09:10.920 Brown University, staggered into Morgan Stanley one day and everybody 0:09:11.000 --> 0:09:13.319 leaned forward. He's the kind of guy who writes a 0:09:13.400 --> 0:09:17.440 fourteen page research report and has fourteen people writing with it. 0:09:17.679 --> 0:09:21.720 He coalesces in all of the Morgan Stanley view worldwide, 0:09:21.720 --> 0:09:25.079 from Mike Wilson over to economics and Ellen Zettner, Mingui 0:09:25.320 --> 0:09:27.480 and the rest of them. John, what's great here is 0:09:27.520 --> 0:09:31.880 his mathiness gives you a really interesting opinion. Andrew shakes 0:09:31.920 --> 0:09:33.680 his with us right now. Andrew, great to catch up 0:09:33.720 --> 0:09:36.720 with you, said, why is this the where the index 0:09:36.720 --> 0:09:41.000 stars to struggle? Yeah, great, it's great to be with you. 0:09:41.400 --> 0:09:43.199 I think you have a couple of factors that are 0:09:43.200 --> 0:09:47.040 coming together that that we think will drive us index underperformance. 0:09:47.080 --> 0:09:48.839 And and a lot of that goes back to the 0:09:48.840 --> 0:09:51.480 point that Lisa made about real yields, that that real 0:09:51.600 --> 0:09:54.479 yields did not rise last year. That was a surprise 0:09:54.559 --> 0:09:58.240 given how strong the recovery was the rise of inflation. 0:09:58.440 --> 0:10:00.679 We think the really yields start to rise is this year, 0:10:00.720 --> 0:10:04.200 and that really yield rises both more pronounced in the 0:10:04.280 --> 0:10:06.920 US and the US market is more sensitive to it. 0:10:07.040 --> 0:10:10.040 So we do think US earnings will be relatively strong. 0:10:10.080 --> 0:10:11.720 We think the U S economy this year will be 0:10:11.800 --> 0:10:15.920 relatively solid, but the valuations need to come down like 0:10:16.040 --> 0:10:17.760 they've come down in a lot of other markets, and 0:10:17.800 --> 0:10:20.960 we think that leads the US down to perform. Andrew, 0:10:21.080 --> 0:10:24.760 this is an important distinction. Is the underperformance driven by 0:10:24.760 --> 0:10:28.559 FED policy or is it driven by margin compression from 0:10:28.559 --> 0:10:33.920 the inflation that we're seeing from wages and other input costs. Yeah. Thanks, 0:10:33.920 --> 0:10:36.800 We think it's more by FED policy, or more specifically 0:10:36.800 --> 0:10:40.840 by the market pricing in a more realistic real interest 0:10:40.920 --> 0:10:43.480 rate and more realistic discount rate over time. On the 0:10:43.480 --> 0:10:46.760 margin front, it will definitely impact a lot of individual 0:10:46.800 --> 0:10:50.240 companies that it will definitely drive idiosyncratic risk for companies 0:10:50.240 --> 0:10:53.520 that do not have pricing power. But for overall earnings 0:10:53.520 --> 0:10:55.360 this year, you know, our estimates are are kind of 0:10:55.400 --> 0:10:59.360 near consensus, a little bit above consensus. So from that basis, 0:10:59.440 --> 0:11:02.360 it's hard for us to argue that that margin disappointment 0:11:02.640 --> 0:11:06.760 at an overall index level is the big problem. Instead, 0:11:06.840 --> 0:11:09.040 it's it's more the valuation in the discount rate and 0:11:09.040 --> 0:11:12.280 the Jenna Martin Adams at Bloomberg Intelligence Equities just publishes 0:11:12.320 --> 0:11:14.840 on this and she says margin scrutiny in the United 0:11:14.880 --> 0:11:18.400 States is front and center. Your lead sentence is you're 0:11:18.440 --> 0:11:22.080 away from American stocks and you're towards Europe. I believe 0:11:22.080 --> 0:11:25.000 in japan stocks as well. Won't they have the same 0:11:25.040 --> 0:11:29.440 margin scrutiny, the same margin pressure. Well, so it's it's 0:11:29.480 --> 0:11:31.360 fair that I think some of the issues are our 0:11:31.440 --> 0:11:35.840 universal rising commodity prices, tighter labor markets. But I think 0:11:35.840 --> 0:11:39.160 two factors are at work. First, in aggregate, we are 0:11:39.520 --> 0:11:42.839 you know, less worried about that margin compression overall, that 0:11:42.920 --> 0:11:47.280 we still have a very strong nominal GDP growth globally 0:11:47.360 --> 0:11:50.200 next year. We think nominal GDP in in both the 0:11:50.280 --> 0:11:52.960 US and Europe is six seven percent. That's a that's 0:11:53.000 --> 0:11:56.599 a pretty strong revenue backdrop that should be somewhat supportive 0:11:56.720 --> 0:11:59.880 of margins. And then also I think especially for your 0:12:00.040 --> 0:12:02.360 up you know, my Colligram Sector, who who's our European 0:12:02.360 --> 0:12:07.160 equity strategists, notes that consensus expectations they're just look very low. 0:12:07.320 --> 0:12:09.320 That that the market is not expecting much out of 0:12:09.320 --> 0:12:13.560 European companies, which is under understandable. European earnings have disappointed 0:12:13.559 --> 0:12:15.520 for a long period of time. But we think that 0:12:15.559 --> 0:12:17.960 bar is so low that it's just gonna be very 0:12:18.040 --> 0:12:21.120 easy to clear, even if our growth expectations are a 0:12:21.120 --> 0:12:23.240 little short of what we think. And I could take 0:12:23.360 --> 0:12:26.400 that comment, those few comments and just look back maybe 0:12:26.440 --> 0:12:28.079 five ten years, and they just sound like the same 0:12:28.080 --> 0:12:29.839 comments I've heard over the last decade when it comes 0:12:29.880 --> 0:12:35.240 to Europe, Andrew, you know that what's new about this? Sure? 0:12:35.280 --> 0:12:38.080 So you're absolutely right. You know Europe is underperformed for 0:12:38.120 --> 0:12:40.160 a long period of time. I think it's supported for 0:12:40.240 --> 0:12:43.559 us to step back and think about why it has underperformed. 0:12:43.760 --> 0:12:47.280 It's it's not that the US is outperformed because the 0:12:47.280 --> 0:12:49.120 FED has been active. I mean the c B has 0:12:49.160 --> 0:12:51.560 been buying bonds, that the Bank of Japan has been 0:12:51.600 --> 0:12:54.560 active in the market. The reason the US market has 0:12:54.600 --> 0:12:57.839 outperformed has been because it's had superior earnings growth, or 0:12:57.880 --> 0:12:59.600 at least that's been a big part of the story. 0:13:00.320 --> 0:13:02.560 I think something that we think is is different this 0:13:02.600 --> 0:13:04.760 time in Europe as we think the earnings can actually 0:13:04.840 --> 0:13:07.880 come through that. We think we have a much stronger 0:13:07.920 --> 0:13:10.360 commodity environment, which helps Europe. We think we have a 0:13:10.400 --> 0:13:14.520 stronger economic recovery in Europe with a very strong consumer 0:13:14.840 --> 0:13:17.280 I think you have a better political backdrop in Europe 0:13:17.280 --> 0:13:20.079 than you've had at many points over the last five years. 0:13:20.360 --> 0:13:23.800 And you have a much better relative valuation argument of 0:13:23.840 --> 0:13:26.960 Europe relative to other regions, especially in the US, than 0:13:27.000 --> 0:13:28.719 you've had over a lot of the last decades. So 0:13:28.800 --> 0:13:31.480 kind of putting all those factors together, that's why we 0:13:31.520 --> 0:13:34.000 think it can ultimately do it what it hasn't really 0:13:34.040 --> 0:13:37.280 done much over the last twenty years and outperform. If 0:13:37.280 --> 0:13:39.880 there is a devish surprise from the Federal Reserve, if 0:13:39.920 --> 0:13:42.320 they see the move in real rates, if they see 0:13:42.360 --> 0:13:44.800 the repricing and they say, wait a second, we're perhaps 0:13:44.800 --> 0:13:46.840 getting a little ahead of ourselves, and they push back 0:13:46.880 --> 0:13:49.400 next week, and they push back in the months to come, 0:13:49.920 --> 0:13:52.040 is that a risks case to your scenario? Do you 0:13:52.080 --> 0:13:55.680 see that reversing this trade and actually making US equities 0:13:55.760 --> 0:13:59.720 more attractive? Yeah? Thanks, I think that's fair. I think 0:13:59.720 --> 0:14:03.400 if if the Fed does blink as uh maybe maybe 0:14:03.400 --> 0:14:06.520 as you describe, I think that would make investors, you know, 0:14:06.600 --> 0:14:10.440 more constructive towards towards US assets. UM, it would probably 0:14:10.440 --> 0:14:13.319 weaken the dollar, and we have moved to a neutral 0:14:13.400 --> 0:14:15.920 dollar stands. But look, I mean the part about that 0:14:15.920 --> 0:14:19.440 that's interesting is can the FED do that credibly right? 0:14:19.440 --> 0:14:21.880 Because we still we're still in a window where inflation 0:14:21.920 --> 0:14:24.160 hasn't come down yet, where inflation is still quite high. 0:14:24.640 --> 0:14:27.400 And so you know, if if the FED is more debbish, 0:14:27.600 --> 0:14:30.240 but the market thinks that it's too soon for the 0:14:30.280 --> 0:14:33.520 FED to make that pivot, and that causes longer and 0:14:33.680 --> 0:14:35.800 yields to rise. The market thinks that that the FED 0:14:35.880 --> 0:14:37.160 is just going to have to catch up and do 0:14:37.280 --> 0:14:40.880 more later. That might not necessarily be be good either. 0:14:41.040 --> 0:14:42.840 So you know, I do think that the FED is 0:14:42.840 --> 0:14:45.520 probably a tougher policy predicament than the E s c 0:14:45.640 --> 0:14:47.360 B or the Bank of Japan, and that's one of 0:14:47.400 --> 0:14:50.200 the reasons why we think equities and those markets can 0:14:50.280 --> 0:14:54.200 ultimately outperformance. You interesting, that's the kill andrew S. Thank 0:14:54.280 --> 0:14:56.760 you said of more. Can Stanley enjoyed the rate over 0:14:56.760 --> 0:14:58.880 the last few weeks coming from the TAB and all 0:14:58.960 --> 0:15:05.520 of that reset. Yeah, right now, Leslie Falconio has to 0:15:05.560 --> 0:15:09.479 deal with this. Senior fixed income strategists for the Americas 0:15:09.560 --> 0:15:12.960 at UBS, We're thrilled you could join us this morning, Leslie. 0:15:12.960 --> 0:15:15.320 We go from Morgan Stanley and as Lisa mentioned the 0:15:15.400 --> 0:15:18.800 resurrection and maybe it Shinnali mentioned the resurrection and fixed 0:15:18.800 --> 0:15:22.680 income as well. Right now, I think it's priced down 0:15:23.160 --> 0:15:28.960 yield up. That's my analysis. Where are you on duration? Well, 0:15:29.000 --> 0:15:31.240 I mean we've embarished for quite some time, and I 0:15:31.240 --> 0:15:33.360 think what we're seeing right now in terms of indistrates, 0:15:33.400 --> 0:15:35.760 we thought we would see in the fourth quarter of 0:15:35.800 --> 0:15:37.600 twenty one. And I think the key is that this 0:15:37.640 --> 0:15:39.920 is being driven by a rising real rates. I mean, 0:15:39.920 --> 0:15:42.440 the setender yield was at one seventy back on November 0:15:44.320 --> 0:15:46.440 and I think it's important to remember that also, you know, 0:15:46.640 --> 0:15:49.240 we we do think interest rates are going to rise, 0:15:49.360 --> 0:15:51.680 but you know now that we get towards that two percent, 0:15:51.840 --> 0:15:54.280 and given the bearish indicators at the market has already 0:15:54.280 --> 0:15:58.000 priced in whether it's qt the FED tapering, you know, 0:15:58.120 --> 0:16:00.240 and you know, new risk into the marketplace. As we 0:16:00.360 --> 0:16:03.080 enter a new year, you've gotta pause for a bit, 0:16:03.120 --> 0:16:05.600 and we don't think over the longer term, it's necessarily 0:16:05.600 --> 0:16:08.560 a bad thing to start aft costing here. So this 0:16:08.600 --> 0:16:11.120 is the concern that some people have, including Peter Sheer, 0:16:11.200 --> 0:16:13.760 that perhaps the FED is just job owning, trying to 0:16:13.760 --> 0:16:15.680 get people to move and then they won't actually have 0:16:15.760 --> 0:16:18.720 to make the moves that would then potentially break the market. 0:16:18.760 --> 0:16:21.120 So they get to a certain point. According to Jim Bianco, 0:16:21.440 --> 0:16:23.240 where do you stand on this point? I mean, do 0:16:23.280 --> 0:16:25.560 you think the Fed cannot come through with the rate 0:16:25.640 --> 0:16:28.640 hicks currently priced into the market. Well, the market is 0:16:28.680 --> 0:16:30.680 pricing in, you know, about four rate hikes and we're 0:16:30.720 --> 0:16:32.800 probably about three to four as well. We also think 0:16:32.840 --> 0:16:35.360 that they're going to start q T as sort of 0:16:35.360 --> 0:16:38.720 a process to continuously tighten financial conditions. I mean, but 0:16:38.760 --> 0:16:43.160 we definitely leaned towards the longer type of you know, uh, 0:16:43.280 --> 0:16:46.120 financial conditions tightening. We think the trauma rate goes higher. 0:16:46.280 --> 0:16:47.960 We don't think it's gonna be a fast and done. 0:16:48.280 --> 0:16:50.360 You know, the market going forward is only pricing in 0:16:50.440 --> 0:16:52.840 you know, a few rate hikes in three. We think 0:16:52.880 --> 0:16:54.920 it extends out more. And you know, we do think 0:16:54.960 --> 0:16:57.920 that they're probably four rate hikes this year, but you know, 0:16:58.040 --> 0:16:59.960 going forward, I think it's gonna be a little bit long, 0:17:00.040 --> 0:17:01.800 get them more people participating. Do you think that the 0:17:01.840 --> 0:17:06.280 market is underprising the impact of QT? You know, I 0:17:06.280 --> 0:17:08.680 think I think that the risk of QT is it 0:17:08.760 --> 0:17:12.359 goes quicker and faster, right, or more or more faster, 0:17:12.440 --> 0:17:14.399 hiring faster, But what do you think about what the 0:17:14.400 --> 0:17:17.000 primary markets were actually showing in terms of what they 0:17:17.040 --> 0:17:19.399 expected for QT Most of them really didn't even thin 0:17:19.400 --> 0:17:21.720 would happen until three. So I think the market is 0:17:21.760 --> 0:17:24.359 actually reacting quite well given that they pushed it for 0:17:25.040 --> 0:17:27.840 you know, known to know exactly where that sort of 0:17:27.880 --> 0:17:30.359 normalization will be in balalty to reserves. But I do 0:17:30.400 --> 0:17:33.400 think the market is fairly prepared for it. Leslie, thank 0:17:33.440 --> 0:17:36.800 you as a white Lets con a UBS Global Weath Management. 0:17:43.040 --> 0:17:46.800 David Rubinstein Peer to peer conversation tonight at nine pm 0:17:46.840 --> 0:17:51.159 and Mr Rubinstein joins us right now. Darren Walker really 0:17:51.240 --> 0:17:54.800 interesting character here in a changing philanthropy, David, What did 0:17:54.800 --> 0:17:59.480 you learn from him? On the new philanthropy? While Darren Walker, 0:17:59.520 --> 0:18:01.639 as somebody who has the head of the Ford Foundation, 0:18:01.720 --> 0:18:04.720 has has as much impact on the philanthropic world as 0:18:04.800 --> 0:18:07.399 people who are worth billions of dollars giving away their 0:18:07.400 --> 0:18:10.840 own money, because he's really transformed a lot of philanthropy 0:18:10.840 --> 0:18:12.840 and what he's done at the Ford Foundation and also 0:18:12.880 --> 0:18:16.879 by influencing a lot of other wealth well known philanthropists. David, 0:18:16.920 --> 0:18:20.080 what's important here as you do these peer to peer conversations, 0:18:20.440 --> 0:18:22.840 and they never dovetail as nicely with the news as 0:18:22.880 --> 0:18:26.359 they do today. Darren Walker was at UBS, That's where 0:18:26.359 --> 0:18:28.879 he did some of his banking and maybe raised his 0:18:28.960 --> 0:18:33.320 first actual tangible wealth. And we see ubs today move 0:18:33.640 --> 0:18:37.199 x on out of their climate funds. The Ford Foundation 0:18:37.280 --> 0:18:40.400 and others many that you are directly related to are 0:18:40.440 --> 0:18:43.400 having the same discussions as well. What did you learn 0:18:43.920 --> 0:18:47.200 from Darren Walker about how to manage E s G 0:18:47.600 --> 0:18:51.080 in the new philanthropy? Well, for those who don't know 0:18:51.200 --> 0:18:53.679 Darren Walker, what he did is when he became the 0:18:53.680 --> 0:18:55.840 head of the Ford Foundation, he said, I'm going to 0:18:55.960 --> 0:19:00.680 basically focus the Ford Foundation on one principal thing, inequality 0:19:00.720 --> 0:19:03.000 in our society. And so he got rid of a 0:19:03.080 --> 0:19:05.120 lot of the other things that the Ford Foundation did, 0:19:05.359 --> 0:19:08.000 but he also influenced other things like E s G 0:19:08.160 --> 0:19:11.800 and other areas of inequality. So he's a transformative figure. 0:19:12.040 --> 0:19:15.520 Came from poverty, raised by single mother in Texas, went 0:19:15.560 --> 0:19:18.639 to public schools, came to New York to be a 0:19:18.720 --> 0:19:22.280 lawyer and then a banker, but ultimately he society life 0:19:22.359 --> 0:19:24.640 was more important if he would spend time giving back 0:19:24.680 --> 0:19:27.840 to society. Rose up as you mentioned, to be at 0:19:27.880 --> 0:19:30.920 the Rockefeller Foundation now the Ford Foundation, and he really 0:19:31.000 --> 0:19:34.920 is a charismatic figure who I think influences almost everybody 0:19:34.920 --> 0:19:37.600 he comes in touch with because he's so passionate about 0:19:37.640 --> 0:19:40.400 the things he believes in. So I wouldn't be surprised 0:19:40.440 --> 0:19:42.600 if somebody would say that he had an impact on 0:19:42.640 --> 0:19:45.080 the UBS decision, because he has an impact on so 0:19:45.119 --> 0:19:48.080 many things in the philanthropic world. David, I see a 0:19:48.119 --> 0:19:51.600 connective link between Darren Walker and your Priority week's guest 0:19:51.680 --> 0:19:55.800 Melody Hobson, basically in that career trajectory in coming from 0:19:55.840 --> 0:19:59.919 poverty and actually coming to a place of incredible respect, power, 0:20:00.160 --> 0:20:05.359 and frankly monetary largess. I'm curious whether their perspective on 0:20:05.440 --> 0:20:08.280 the modern American dream has changed in our new moment, 0:20:08.280 --> 0:20:11.239 whether it's more difficult for people to come from that 0:20:11.320 --> 0:20:13.919