1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,200 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

3
00:00:13,280 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,800 --> 00:00:23,799
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,

5
00:00:23,920 --> 00:00:29,760
Speaker 1: and of course on the Bloomberg terminal. A perfect time

6
00:00:29,760 --> 00:00:32,959
Speaker 1: to speak to Laura Roum. She's chief US economist at

7
00:00:33,080 --> 00:00:38,000
Speaker 1: FS Investments. Today's phrase, Laura is crisis tool. Europe is

8
00:00:38,040 --> 00:00:41,480
Speaker 1: in search of a crisis tool. What is the acclaimed

9
00:00:41,760 --> 00:00:47,559
Speaker 1: rom inflation crisis tool looked like. I think that the

10
00:00:47,600 --> 00:00:52,519
Speaker 1: crisis tool is clearly just trying to reclaim some credibility.

11
00:00:53,159 --> 00:00:55,120
Speaker 1: And you know, we've talked about being behind the curve.

12
00:00:55,200 --> 00:00:59,360
Speaker 1: These central banks just have to try to, uh, you know,

13
00:00:59,440 --> 00:01:04,880
Speaker 1: assert control and just calm markets. It's I don't think

14
00:01:04,920 --> 00:01:08,600
Speaker 1: it's even frustration with some of the air getting let

15
00:01:08,640 --> 00:01:12,600
Speaker 1: out of financial conditions, but they want to try to

16
00:01:12,720 --> 00:01:16,640
Speaker 1: calm markets that they are on top of managing inflation

17
00:01:17,080 --> 00:01:19,320
Speaker 1: and managing policy. And I think that is what has

18
00:01:19,360 --> 00:01:23,400
Speaker 1: been so difficult, and that's why we're seeing subtle banks

19
00:01:23,400 --> 00:01:26,959
Speaker 1: around the globe. Really, that's what they struggle with Laura's

20
00:01:27,000 --> 00:01:29,200
Speaker 1: seventy five basis points enough to get the job done.

21
00:01:30,640 --> 00:01:33,360
Speaker 1: I think that the FED, I think it's a step

22
00:01:33,400 --> 00:01:36,040
Speaker 1: in the right direction, because for the FED, it's just

23
00:01:36,560 --> 00:01:40,160
Speaker 1: you know, I think giving that impression that they are

24
00:01:40,200 --> 00:01:43,200
Speaker 1: on it their depend their data dependent. I think that

25
00:01:43,319 --> 00:01:46,080
Speaker 1: they have suffered from this idea that they're gonna wait

26
00:01:46,240 --> 00:01:49,880
Speaker 1: several meetings to see how things flush out. That is gone.

27
00:01:50,440 --> 00:01:53,760
Speaker 1: Um So there's a proactivity there, but I do think

28
00:01:53,800 --> 00:01:56,360
Speaker 1: that we are as we get data that is already

29
00:01:56,360 --> 00:02:00,360
Speaker 1: starting to roll over in several categories, the possible ability

30
00:02:00,480 --> 00:02:03,560
Speaker 1: that they are going to have to, um, you know,

31
00:02:03,640 --> 00:02:06,560
Speaker 1: really tighten into the face of weakening demand, and that

32
00:02:06,640 --> 00:02:09,440
Speaker 1: I think is going to not help them at all. Well,

33
00:02:09,680 --> 00:02:11,519
Speaker 1: this is interesting because it's sort of the opposite of

34
00:02:11,800 --> 00:02:14,000
Speaker 1: Mike McKee and other people have been saying, which is

35
00:02:14,360 --> 00:02:16,760
Speaker 1: it may help the FED to see a cooling in

36
00:02:16,760 --> 00:02:19,640
Speaker 1: the economic data because it indicates that perhaps that at

37
00:02:19,639 --> 00:02:21,360
Speaker 1: this meeting or next meeting, but at the end of

38
00:02:21,360 --> 00:02:24,120
Speaker 1: this year, they'll be looking at inflation trends that are

39
00:02:24,120 --> 00:02:28,040
Speaker 1: more in their favor. What's your pushback to that narrative? So,

40
00:02:28,200 --> 00:02:31,040
Speaker 1: you know, the issue is that federate. Heikes just take

41
00:02:31,040 --> 00:02:34,640
Speaker 1: a really long time to impact the economy. And I

42
00:02:34,680 --> 00:02:37,320
Speaker 1: think the when you think about demand instruction and where

43
00:02:37,360 --> 00:02:41,000
Speaker 1: inflation is really coming from, it's shifted to now coming

44
00:02:41,160 --> 00:02:45,040
Speaker 1: not from uh, you know, auto prices, but really coming

45
00:02:45,120 --> 00:02:50,840
Speaker 1: from rents areas in the economy which are much more sticky.

46
00:02:51,320 --> 00:02:53,560
Speaker 1: And for that reason, you know, you really need to

47
00:02:53,560 --> 00:02:56,799
Speaker 1: get and you know, housing to not only roll over,

48
00:02:56,840 --> 00:03:00,880
Speaker 1: but house prices to moderate more significantly. These are changes

49
00:03:00,919 --> 00:03:03,680
Speaker 1: that don't happen overnight, and there are changes that really

50
00:03:03,880 --> 00:03:07,800
Speaker 1: come with um, you know, a wider implication for growth.

51
00:03:07,960 --> 00:03:11,760
Speaker 1: So we've already got household sentiment under pressure. We've already

52
00:03:12,360 --> 00:03:16,120
Speaker 1: seen households be impacted by inflation very negatively. The demand

53
00:03:16,120 --> 00:03:19,519
Speaker 1: instruction is already here. Well, what's the math here, Laura.

54
00:03:19,600 --> 00:03:23,400
Speaker 1: If we get a beat movies three quarters of a

55
00:03:23,480 --> 00:03:27,400
Speaker 1: percentage point move, does a thirty year mortgage go up

56
00:03:27,600 --> 00:03:31,560
Speaker 1: three quarters of a percentage point? It's actually mortgage rates

57
00:03:31,560 --> 00:03:35,520
Speaker 1: have gone up more than the long end has risen.

58
00:03:35,720 --> 00:03:38,480
Speaker 1: So you know, yeah, I think we continue to see

59
00:03:39,120 --> 00:03:42,440
Speaker 1: UM mortgage rates go higher. We've already seen Mark, you know,

60
00:03:42,520 --> 00:03:45,560
Speaker 1: the housing market cool down. I think what we really

61
00:03:45,720 --> 00:03:49,720
Speaker 1: are talking about is you know, the labor the connection

62
00:03:49,760 --> 00:03:52,240
Speaker 1: between the economy to the labor market, and the fact

63
00:03:52,280 --> 00:03:56,560
Speaker 1: that there's a reason the FED has trouble micro managing demand.

64
00:03:56,680 --> 00:03:59,760
Speaker 1: You know, they are a broadsword, they're not a scalpel.

65
00:03:59,800 --> 00:04:03,080
Speaker 1: So for that reason, I think there's just more. This

66
00:04:03,120 --> 00:04:05,000
Speaker 1: is the tip of the iceberg. When you look at

67
00:04:05,600 --> 00:04:08,480
Speaker 1: UM demand cooling, and I think you could argue that

68
00:04:08,560 --> 00:04:11,120
Speaker 1: demand right now isn't even really cooling because of FED

69
00:04:11,160 --> 00:04:14,119
Speaker 1: rate hikes, it's cooling because of inflation. So you look

70
00:04:14,120 --> 00:04:16,320
Speaker 1: at the right grate heights they're making right now, that's

71
00:04:16,320 --> 00:04:19,880
Speaker 1: going to impact the economy in several quarters. So they're

72
00:04:19,920 --> 00:04:24,640
Speaker 1: they're really tightening aggressively into an economy that's already slowing.

73
00:04:24,800 --> 00:04:28,360
Speaker 1: So what if the confused rhetoric b of this central bank?

74
00:04:29,040 --> 00:04:33,520
Speaker 1: After the press conference today, we've covered confusion and ECB

75
00:04:33,760 --> 00:04:36,680
Speaker 1: today like truly we've never seen. Are we going to

76
00:04:36,760 --> 00:04:41,000
Speaker 1: be as confused? I don't think so, because I don't

77
00:04:41,000 --> 00:04:45,680
Speaker 1: think they're going to change their UM statement very much.

78
00:04:46,160 --> 00:04:49,320
Speaker 1: I do think that in the press conference, pal is

79
00:04:49,360 --> 00:04:51,960
Speaker 1: going to continue to sound very optimistic about the fat's

80
00:04:52,000 --> 00:04:55,599
Speaker 1: ability to create a soft landing UM. But I think

81
00:04:55,640 --> 00:04:58,279
Speaker 1: he wants to really strike a very serious tone on

82
00:04:58,360 --> 00:05:02,440
Speaker 1: the inflation front. I think it be interesting to see, how,

83
00:05:02,800 --> 00:05:05,560
Speaker 1: you know, if we get another month of an upside

84
00:05:05,600 --> 00:05:08,440
Speaker 1: surprise of inflation, what this means for the July meeting.

85
00:05:08,880 --> 00:05:10,840
Speaker 1: You know, these are things that I think, you know

86
00:05:11,040 --> 00:05:13,280
Speaker 1: just how sensitive to month to month data they're going

87
00:05:13,320 --> 00:05:16,720
Speaker 1: to be, because you know, the real I think now

88
00:05:16,880 --> 00:05:19,000
Speaker 1: piece that we're waiting for is to see how the

89
00:05:19,040 --> 00:05:22,480
Speaker 1: employment market responds. That to me, is really going to

90
00:05:22,560 --> 00:05:25,839
Speaker 1: make or break how aggressive the Fed can be in markets.

91
00:05:25,839 --> 00:05:27,720
Speaker 1: Have you know, priced up the whole curve. They're now

92
00:05:27,760 --> 00:05:30,360
Speaker 1: expecting the FED to raise rates up to four percent

93
00:05:30,680 --> 00:05:33,160
Speaker 1: by the beginning of twenty three. Lauren Ryan, thank you

94
00:05:33,320 --> 00:05:40,000
Speaker 1: of FS Investments. Looking ahead to the Federal Reserve. I

95
00:05:40,040 --> 00:05:43,080
Speaker 1: haven't seen many people downrade their earnings estimates. Here's one

96
00:05:43,200 --> 00:05:45,920
Speaker 1: right now. Banky Chatter, the chief global strategist and head

97
00:05:45,920 --> 00:05:48,520
Speaker 1: of asset Allocation at Deutsche Bank. Bank you cray to

98
00:05:48,560 --> 00:05:50,560
Speaker 1: catch up the team at Deutsche Bank first out the

99
00:05:50,560 --> 00:05:52,839
Speaker 1: gate to say recession at the end of next year.

100
00:05:53,080 --> 00:05:55,120
Speaker 1: Talk to me about why you're down grading your earning

101
00:05:55,160 --> 00:05:58,440
Speaker 1: story and why you haven't cut your outlook for the

102
00:05:58,520 --> 00:06:02,040
Speaker 1: smpgs yet in a big white uh So, a couple

103
00:06:02,040 --> 00:06:05,520
Speaker 1: of things. What I would say first is that, you know,

104
00:06:05,640 --> 00:06:07,320
Speaker 1: I think it's important to keep in mind the house

105
00:06:07,360 --> 00:06:09,680
Speaker 1: called remains for a recession, you know, at the end

106
00:06:09,680 --> 00:06:13,240
Speaker 1: of next year, but not near term. Uh. You know,

107
00:06:13,640 --> 00:06:17,320
Speaker 1: I think the word that everybody is talking about is fluid,

108
00:06:17,400 --> 00:06:20,800
Speaker 1: So things remain pretty fluid. Uh. And and most of

109
00:06:20,800 --> 00:06:23,880
Speaker 1: our downgrade to earnings is about next year, building in

110
00:06:23,920 --> 00:06:27,839
Speaker 1: that slowing in growth and recession later next year. I

111
00:06:27,839 --> 00:06:30,560
Speaker 1: think the bigger issue for the equity market on earnings,

112
00:06:30,720 --> 00:06:33,640
Speaker 1: of course, is, uh, you know, what the bottom up

113
00:06:33,680 --> 00:06:37,600
Speaker 1: consensus is doing and what basically it is building in.

114
00:06:37,720 --> 00:06:40,440
Speaker 1: And what I would argue is that basically, you know,

115
00:06:40,480 --> 00:06:43,039
Speaker 1: the bottom up consensus has ten percent earnings growth for

116
00:06:43,080 --> 00:06:46,039
Speaker 1: this year ten percent earnings growth for next year. On

117
00:06:46,080 --> 00:06:48,760
Speaker 1: the face of it, you know, there's nothing wrong with that.

118
00:06:48,880 --> 00:06:51,960
Speaker 1: Ten per cent earnings growth is actually the average earnings

119
00:06:52,000 --> 00:06:55,320
Speaker 1: growth outside of recession. Some of this and the focus

120
00:06:55,400 --> 00:06:58,000
Speaker 1: land down on your team, Lozetti, whether Social Afternoon folks

121
00:06:58,000 --> 00:07:01,520
Speaker 1: has just been you guys have been just absolutely lights

122
00:07:01,520 --> 00:07:06,520
Speaker 1: out on engaging the conversation. Engage this does profit matter?

123
00:07:06,880 --> 00:07:09,840
Speaker 1: And when you look at earning shortfalls, can you partition

124
00:07:10,120 --> 00:07:13,040
Speaker 1: companies that will still make the bacon from those that

125
00:07:13,040 --> 00:07:16,120
Speaker 1: are really challenged? Yeah, but with the market you know,

126
00:07:16,600 --> 00:07:20,480
Speaker 1: really reacts to. So if you just overlay upgrades, downgrades

127
00:07:20,720 --> 00:07:23,560
Speaker 1: or the change in forward estimates and the SMP five hundred,

128
00:07:23,560 --> 00:07:25,680
Speaker 1: and you'll see these pretty tight fit. Not over the

129
00:07:25,720 --> 00:07:28,119
Speaker 1: last couple of months where the markets you know, way

130
00:07:28,400 --> 00:07:32,280
Speaker 1: lower and and and so earnings estimates do matter. Keep

131
00:07:32,320 --> 00:07:35,119
Speaker 1: in mind that you know, every learning season the SMP

132
00:07:35,240 --> 00:07:38,960
Speaker 1: five hundred, you know, beats on earnings by about five percent.

133
00:07:39,160 --> 00:07:41,720
Speaker 1: So it's you know, not something that the market reacts

134
00:07:41,760 --> 00:07:44,400
Speaker 1: to in a big way, but you know, persistent period

135
00:07:44,600 --> 00:07:48,160
Speaker 1: of sort of downgrades is going to be an overhang

136
00:07:48,240 --> 00:07:49,840
Speaker 1: for the market. And what I would say about the

137
00:07:49,840 --> 00:07:52,720
Speaker 1: bottom up consensus is while the headline numbers you know

138
00:07:52,800 --> 00:07:57,640
Speaker 1: local kay for mid cycle or early cycle, uh, they

139
00:07:57,680 --> 00:08:01,040
Speaker 1: do not look right for late cycle. Our house view,

140
00:08:01,160 --> 00:08:04,160
Speaker 1: the consensus of economists is for growth to slow, and

141
00:08:04,200 --> 00:08:08,720
Speaker 1: as growth slows next year, you know, earnings will come down. Um.

142
00:08:08,920 --> 00:08:11,480
Speaker 1: And in addition, we have you know, sort of the

143
00:08:12,240 --> 00:08:15,960
Speaker 1: pandemic hangover as I would call it, built into consensus

144
00:08:16,080 --> 00:08:18,920
Speaker 1: estimates for megacap growth and tech, you know, which got

145
00:08:18,960 --> 00:08:22,360
Speaker 1: boosted by the pandemic, and the consensus has them rising

146
00:08:22,400 --> 00:08:25,880
Speaker 1: with trend even though they are currently above trend levels

147
00:08:26,600 --> 00:08:29,480
Speaker 1: and staying there would be hard. I'm struggling here with

148
00:08:29,520 --> 00:08:31,640
Speaker 1: this idea that we're going to get earnings down grades.

149
00:08:31,800 --> 00:08:34,120
Speaker 1: We're seeing the end of free money. We're seeing real

150
00:08:34,240 --> 00:08:37,120
Speaker 1: yields on the tenure go up to point eight percent

151
00:08:37,240 --> 00:08:40,320
Speaker 1: after having been deeply negative just three months ago. And

152
00:08:40,360 --> 00:08:42,480
Speaker 1: all of this is going to somehow end the SMP

153
00:08:42,920 --> 00:08:44,920
Speaker 1: at forty seven fifty at the end of the year.

154
00:08:44,920 --> 00:08:48,240
Speaker 1: What gets us there? Yeah, So I think the key

155
00:08:48,320 --> 00:08:51,559
Speaker 1: question is basically, are we going to go into a recession?

156
00:08:51,600 --> 00:08:55,120
Speaker 1: You know, we've been arguing for some time that the

157
00:08:55,160 --> 00:08:58,199
Speaker 1: outlook looks pretty binary. We would get down to about

158
00:08:58,240 --> 00:09:00,960
Speaker 1: thirty six fifty. We are kind of all there already,

159
00:09:01,280 --> 00:09:03,320
Speaker 1: and then it looks pretty binary whether we go into

160
00:09:03,360 --> 00:09:06,800
Speaker 1: a recession or we don't. Recessions are pretty nonlinear events,

161
00:09:06,960 --> 00:09:08,400
Speaker 1: is the way I would talk about I would think

162
00:09:08,400 --> 00:09:12,360
Speaker 1: about them. It is not about temporarily negative growth. It's

163
00:09:12,360 --> 00:09:16,520
Speaker 1: really about corporates becoming risk averse. Not great, you know

164
00:09:16,760 --> 00:09:21,160
Speaker 1: signs yet, But to take a look at CEO confidence. Um,

165
00:09:21,200 --> 00:09:25,800
Speaker 1: it's down. I think the consumer conference numbers get more,

166
00:09:25,840 --> 00:09:29,600
Speaker 1: you know, sort of attention, but corporate CEO conference down

167
00:09:29,679 --> 00:09:31,959
Speaker 1: to just real quick here, Then what's your beer case?

168
00:09:32,760 --> 00:09:35,520
Speaker 1: My bear case is if we go into a recession,

169
00:09:35,640 --> 00:09:38,760
Speaker 1: we have a target of three thousand, which would basically

170
00:09:38,800 --> 00:09:44,160
Speaker 1: be in the upper range of typical recession drawbacks, uh

171
00:09:44,280 --> 00:09:50,440
Speaker 1: or pullbacks. You know, a recession declines in hindsight were

172
00:09:50,720 --> 00:09:56,119
Speaker 1: extremely well explained basically by initial valuations and the severity

173
00:09:56,120 --> 00:09:58,320
Speaker 1: of the recession. So if you use you know, a

174
00:09:58,400 --> 00:10:03,000
Speaker 1: typical recession, you know, a year and year quarterly decline

175
00:10:03,000 --> 00:10:09,240
Speaker 1: in earnings of and where we were valued initially before

176
00:10:09,920 --> 00:10:13,800
Speaker 1: the pullback began, you know, you're talking about thirty, which

177
00:10:13,800 --> 00:10:16,800
Speaker 1: would take us to basically three thousand from the peace.

178
00:10:16,880 --> 00:10:18,199
Speaker 1: So I think it just to be clear, if Matt

179
00:10:18,240 --> 00:10:21,440
Speaker 1: Lasetti is right, it's three k on the SMP. You know,

180
00:10:21,520 --> 00:10:25,359
Speaker 1: if Matt Lsti is right that there is no recession

181
00:10:25,880 --> 00:10:31,280
Speaker 1: right now and that issue gets resolved in the markets

182
00:10:31,400 --> 00:10:33,960
Speaker 1: and the market starts to price that out, then we

183
00:10:34,040 --> 00:10:38,760
Speaker 1: get forty seven fifty by year end. Um, if we

184
00:10:38,840 --> 00:10:42,720
Speaker 1: do slide into a recession, we're talking about three thousand

185
00:10:42,720 --> 00:10:46,640
Speaker 1: on the SMP typical recession, assuming it starts now, is

186
00:10:46,679 --> 00:10:49,080
Speaker 1: about eleven months, so you would get a bottom three

187
00:10:49,080 --> 00:10:52,439
Speaker 1: thousand around November, and you know you would get to

188
00:10:52,840 --> 00:10:55,440
Speaker 1: seven fifty by May of next year, since the market

189
00:10:55,520 --> 00:11:00,600
Speaker 1: typically starts to you know, uh, bottoms basically halfway through. Okay,

190
00:11:00,720 --> 00:11:02,480
Speaker 1: good to clear that up. Thank you, Thank you, Thank

191
00:11:02,520 --> 00:11:05,480
Speaker 1: your chanting with Deutsche Banks. The very very constructive on

192
00:11:05,480 --> 00:11:13,439
Speaker 1: the security market, Peter Cheers joins us right now ahead

193
00:11:13,440 --> 00:11:16,000
Speaker 1: of macro strategy and making it up as you go.

194
00:11:16,080 --> 00:11:20,800
Speaker 1: An academy securities as well. Peter, not a snarky question,

195
00:11:20,880 --> 00:11:24,560
Speaker 1: but a serious one. Is the bond market right now?

196
00:11:25,240 --> 00:11:29,480
Speaker 1: The Central Banker of the United States of America? Yeah,

197
00:11:29,480 --> 00:11:31,800
Speaker 1: I think the bond markets really in control of things,

198
00:11:31,880 --> 00:11:34,560
Speaker 1: and I'm increasingly nervous that the lack of liquidity in

199
00:11:34,559 --> 00:11:37,720
Speaker 1: the bond market is letting us move too far too quickly,

200
00:11:38,200 --> 00:11:40,520
Speaker 1: and unless we kind of tame inflation get some of

201
00:11:40,520 --> 00:11:42,520
Speaker 1: this under control, I think we're at a real risk

202
00:11:42,559 --> 00:11:44,720
Speaker 1: of much higher yields, especially with what's going on in

203
00:11:44,720 --> 00:11:47,560
Speaker 1: Europe right The Italian and Spanish yields are leading the

204
00:11:47,559 --> 00:11:50,480
Speaker 1: way there, but that's dragging global yields around too. Does

205
00:11:50,520 --> 00:11:53,640
Speaker 1: it happen quickly or does it happen all at once? Right?

206
00:11:53,679 --> 00:11:55,760
Speaker 1: I mean that we've seen a real quick repricing, But

207
00:11:55,840 --> 00:11:58,440
Speaker 1: do we see something that is a gap higher that

208
00:11:58,480 --> 00:12:01,360
Speaker 1: gets the Feds attention? That driven by low liquidity in

209
00:12:01,400 --> 00:12:04,080
Speaker 1: a sense of uncertainty around both FED policy and how

210
00:12:04,160 --> 00:12:07,199
Speaker 1: high yields could go. Yeah, I would not be surprised

211
00:12:07,200 --> 00:12:08,679
Speaker 1: if you get one of those crazy days where you

212
00:12:08,720 --> 00:12:10,760
Speaker 1: get our two or three point move in the long bond,

213
00:12:11,360 --> 00:12:13,280
Speaker 1: largely due to a lack of liquidity and position, not

214
00:12:13,280 --> 00:12:15,679
Speaker 1: sure which direction it would go. I would have thought

215
00:12:15,720 --> 00:12:17,559
Speaker 1: a month ago was going to be a gap to

216
00:12:17,760 --> 00:12:20,480
Speaker 1: lower yields. Now it feels like if we get a gap,

217
00:12:20,520 --> 00:12:22,800
Speaker 1: it's going to be a dislocation and a know air

218
00:12:22,840 --> 00:12:25,760
Speaker 1: pocket moved to a much higher yield will probably temporary,

219
00:12:25,840 --> 00:12:28,520
Speaker 1: but it will disrupt markets. We haven't talked about bitcoin

220
00:12:28,640 --> 00:12:30,640
Speaker 1: very much in this show, Peter, and that's by design.

221
00:12:30,720 --> 00:12:33,800
Speaker 1: It's something that we don't normally cover. Yet the losses

222
00:12:33,840 --> 00:12:36,680
Speaker 1: have been shocking, and you made a point yesterday Peter

223
00:12:36,760 --> 00:12:39,280
Speaker 1: that really struck me that there is a systemic import

224
00:12:39,640 --> 00:12:43,640
Speaker 1: to the losses in the cryptocurrency complex that it feeds

225
00:12:43,679 --> 00:12:46,200
Speaker 1: into the larger market in a way that perhaps some

226
00:12:46,280 --> 00:12:49,200
Speaker 1: people are not expecting. Do you still think that that's

227
00:12:49,240 --> 00:12:51,360
Speaker 1: the case, that it could be a systemic risk, both

228
00:12:51,360 --> 00:12:55,120
Speaker 1: economically and on a market basis. Yeah, And I've been

229
00:12:55,160 --> 00:12:56,720
Speaker 1: thinking about this a lot, and I think there's kind

230
00:12:56,760 --> 00:12:59,040
Speaker 1: of two main groups of crypto investors. They're a relatively

231
00:12:59,080 --> 00:13:01,440
Speaker 1: small aggressive people who I think may get wiped out.

232
00:13:01,440 --> 00:13:03,160
Speaker 1: I think they were using a lot of margin that

233
00:13:03,200 --> 00:13:05,120
Speaker 1: will have some impacked on the economy, but I don't

234
00:13:05,120 --> 00:13:07,600
Speaker 1: think a huge one. The other part is very wealthy

235
00:13:07,640 --> 00:13:10,880
Speaker 1: people who tended to I think you cryptocurrencies is a

236
00:13:10,920 --> 00:13:13,800
Speaker 1: core part of their asset classes or their asset allocation.

237
00:13:14,120 --> 00:13:17,960
Speaker 1: They also tended to invest heavily and disruptive stocks, and

238
00:13:18,000 --> 00:13:19,640
Speaker 1: then they use some of the big tech almost as

239
00:13:19,720 --> 00:13:21,880
Speaker 1: very equivalent of a bank account. So I think they

240
00:13:21,920 --> 00:13:24,920
Speaker 1: were very aggressively positioned, and that's getting unwound right now.

241
00:13:24,920 --> 00:13:26,199
Speaker 1: So I think there's gonna be a potential for a

242
00:13:26,280 --> 00:13:28,640
Speaker 1: huge wealth effect. And as you start looking at the

243
00:13:28,679 --> 00:13:31,520
Speaker 1: amount of spending that was going on in advertising for crypto,

244
00:13:31,640 --> 00:13:34,320
Speaker 1: the number of conferences, the number of jobs that were created,

245
00:13:34,760 --> 00:13:37,319
Speaker 1: the number of semiconductors that were bought to support crypto.

246
00:13:37,520 --> 00:13:38,959
Speaker 1: If the slowdown is real, and I think it is,

247
00:13:39,000 --> 00:13:41,280
Speaker 1: I think we're gonna hit maybe even ten thousand on bitcoin.

248
00:13:41,720 --> 00:13:44,520
Speaker 1: You could see a knock on effect in the economy

249
00:13:44,559 --> 00:13:46,560
Speaker 1: that we would not have thought about two or three years. Right.

250
00:13:46,559 --> 00:13:48,360
Speaker 1: Why am I going to see a knock on effect

251
00:13:48,559 --> 00:13:52,440
Speaker 1: in the economy, Peter, Because I think this wealth creation

252
00:13:52,520 --> 00:13:56,520
Speaker 1: has hit stocks, disruptive stocks, in particular big tech. There's

253
00:13:56,600 --> 00:13:59,160
Speaker 1: less money these people were spending money. You're gonna see

254
00:13:59,160 --> 00:14:01,440
Speaker 1: a cutdown on princes. You're gonna see less spending on

255
00:14:01,480 --> 00:14:03,760
Speaker 1: the rigs that are required to make, you know, do

256
00:14:03,840 --> 00:14:06,240
Speaker 1: the mining. The one option of this that might be

257
00:14:06,280 --> 00:14:09,439
Speaker 1: good for us is lower energy costs as crypto stuff,

258
00:14:09,559 --> 00:14:11,760
Speaker 1: you know, becomes less of a drain on energy. But

259
00:14:11,920 --> 00:14:14,480
Speaker 1: I think we're gonna be surprised how impactful crypto is,

260
00:14:14,559 --> 00:14:16,720
Speaker 1: especially to the New York area and the California area.

261
00:14:17,160 --> 00:14:20,800
Speaker 1: But the amount of money loss is painful. I mean

262
00:14:20,920 --> 00:14:24,160
Speaker 1: the accounting of this, Peter, I find extraordinary. If we

263
00:14:24,280 --> 00:14:28,840
Speaker 1: go from one thousand down to a Peter Cheer ten thousand,

264
00:14:29,400 --> 00:14:33,080
Speaker 1: or from sixty whatever thousand down to ten thousand, I

265
00:14:33,080 --> 00:14:36,960
Speaker 1: mean that signals the collapse of the scheme. Doesn't it.

266
00:14:37,920 --> 00:14:39,360
Speaker 1: I think to a large degree yes. And you know,

267
00:14:39,400 --> 00:14:42,160
Speaker 1: I think the prior guest you mentioned had um highlighted, oh,

268
00:14:42,160 --> 00:14:44,000
Speaker 1: we're only down a couple of weeks. The reality is

269
00:14:44,280 --> 00:14:46,000
Speaker 1: no one who has bought crypto in the last two

270
00:14:46,120 --> 00:14:48,880
Speaker 1: years and held onto it is now up money. And

271
00:14:48,920 --> 00:14:51,760
Speaker 1: this is almost Yeah. I don't mean to interrupt the folks,

272
00:14:51,880 --> 00:14:53,920
Speaker 1: This is important because I got a lot of shade

273
00:14:54,040 --> 00:14:58,200
Speaker 1: yesterday on David Rubinstein's comments. Lisa, jump in here because

274
00:14:58,720 --> 00:15:01,840
Speaker 1: you you were part of that. To Rubinstein made clear

275
00:15:02,000 --> 00:15:06,280
Speaker 1: original founders of bitcoin still in a profit point and

276
00:15:06,400 --> 00:15:09,600
Speaker 1: Mr cheers saying, yeah, but in the last number of years,

277
00:15:10,080 --> 00:15:13,400
Speaker 1: that's not true. People, you're of huge losses. Well, bitcoin

278
00:15:13,480 --> 00:15:16,160
Speaker 1: is emblematic of the withdrawal of free money, and we

279
00:15:16,200 --> 00:15:18,080
Speaker 1: are seeing the end of a regime, Peter, and it

280
00:15:18,120 --> 00:15:20,920
Speaker 1: will be exemplified by what we here today at two

281
00:15:20,960 --> 00:15:24,000
Speaker 1: thirty pm from FED chair J Powell. What do you

282
00:15:24,040 --> 00:15:26,920
Speaker 1: think that he could do to create some calm, a

283
00:15:27,000 --> 00:15:30,400
Speaker 1: greater backdrop of certainty to a market that has had anything.

284
00:15:30,440 --> 00:15:33,720
Speaker 1: But I think he's going to try and shock the system.

285
00:15:33,760 --> 00:15:35,840
Speaker 1: I now think he's gonna give us seventy bis. I

286
00:15:35,840 --> 00:15:38,200
Speaker 1: think the market will probably react well to that, initially

287
00:15:38,280 --> 00:15:40,280
Speaker 1: on the view that Okay, they're going to try and

288
00:15:40,320 --> 00:15:42,480
Speaker 1: get ahead of this inflation, and then I think over

289
00:15:42,480 --> 00:15:43,960
Speaker 1: the course of the next couple of days, the sad

290
00:15:43,960 --> 00:15:45,720
Speaker 1: reality was thinking is we are going to deal with

291
00:15:45,840 --> 00:15:48,200
Speaker 1: much higher short term rates. That's gonna, you know, slow

292
00:15:48,240 --> 00:15:51,080
Speaker 1: down the economy. And just briefly back to bitcoin. I

293
00:15:51,080 --> 00:15:53,280
Speaker 1: think one thing that's also important is we're starting to

294
00:15:53,320 --> 00:15:55,880
Speaker 1: see the system come up. Right. You had Celsius kind

295
00:15:55,880 --> 00:15:58,760
Speaker 1: of block withdrawals, you have Luna Tera had these problems,

296
00:15:58,880 --> 00:16:00,880
Speaker 1: so you've had this kind of action of networks that

297
00:16:00,960 --> 00:16:02,960
Speaker 1: all kind of work together. I think people are really

298
00:16:03,000 --> 00:16:04,440
Speaker 1: going to question that. And if you go back to

299
00:16:04,480 --> 00:16:06,800
Speaker 1: when Lehman collapse, right, we talked about the Lehman moment,

300
00:16:07,000 --> 00:16:08,520
Speaker 1: it was never a moment, it was just part of

301
00:16:08,520 --> 00:16:10,600
Speaker 1: a process. And I think the coming up of the

302
00:16:10,640 --> 00:16:12,440
Speaker 1: system is going to create a lack of trust and

303
00:16:12,440 --> 00:16:14,680
Speaker 1: a lot of people are sitting out there twenty thousand. Yeah, made,

304
00:16:14,680 --> 00:16:16,760
Speaker 1: they bought up five thousand, but better to get out

305
00:16:16,760 --> 00:16:19,320
Speaker 1: at twenty than ten. So I think that's the problem there.

306
00:16:19,400 --> 00:16:21,600
Speaker 1: And I do think the FEDS message of fighting inflation

307
00:16:21,640 --> 00:16:24,320
Speaker 1: today will push crypto lower as well. Pay one of

308
00:16:24,360 --> 00:16:26,480
Speaker 1: the best. I love hearing from you. Just wonderful to

309
00:16:26,520 --> 00:16:28,840
Speaker 1: catch up Pittchure there of academy. But I can things

310
00:16:28,880 --> 00:16:35,320
Speaker 1: down for us. Let's get to dominic constant show and

311
00:16:35,360 --> 00:16:37,720
Speaker 1: we the had a macro strategy of Missou America's dominic

312
00:16:37,760 --> 00:16:39,760
Speaker 1: straight to you, and let's start with a federal reserve.

313
00:16:39,880 --> 00:16:42,960
Speaker 1: What are you looking for a little bit later, Well,

314
00:16:43,120 --> 00:16:46,240
Speaker 1: we're looking for the fetically very hawkish, which means they'll

315
00:16:46,240 --> 00:16:49,360
Speaker 1: probably do the seventi five and then basically guarantee a

316
00:16:49,440 --> 00:16:51,640
Speaker 1: very quick moved to neutral. They could do more than

317
00:16:51,680 --> 00:16:54,080
Speaker 1: seventy five. I mean that would postibly make more sense

318
00:16:54,360 --> 00:16:56,920
Speaker 1: they do do fifty, which seems unlikely. Now they don't

319
00:16:56,960 --> 00:16:58,840
Speaker 1: have to go out of their way to convince the

320
00:16:58,920 --> 00:17:02,920
Speaker 1: market that they were accelerating rate hikes, and it gets

321
00:17:03,000 --> 00:17:08,200
Speaker 1: that neutral rate. Dominic give pars a distinction between unlikely

322
00:17:08,440 --> 00:17:15,520
Speaker 1: and unnecessary. Is a seventy five beep move unlikely or unnecessary? No?

323
00:17:15,640 --> 00:17:17,840
Speaker 1: I think I think at this stage now, given the

324
00:17:17,840 --> 00:17:21,200
Speaker 1: market reaction, particularly for the long end, it's absolutely necessary

325
00:17:21,680 --> 00:17:24,440
Speaker 1: to to to move to semi five. The problem they've

326
00:17:24,440 --> 00:17:27,320
Speaker 1: got is that even if their forecast is correct that

327
00:17:27,359 --> 00:17:29,359
Speaker 1: there's some kind of soft landing out there and that

328
00:17:29,480 --> 00:17:32,520
Speaker 1: inflation can come down without too much damage to growth.

329
00:17:32,680 --> 00:17:36,400
Speaker 1: The market is tightening financial conditions for them too aggressively,

330
00:17:36,720 --> 00:17:38,960
Speaker 1: both in Europe and and in the US, and that's

331
00:17:38,960 --> 00:17:42,119
Speaker 1: the problem. They have to stabilize long end, so unfortunately

332
00:17:42,119 --> 00:17:44,600
Speaker 1: it's a different game plan for what they had in visage.

333
00:17:45,040 --> 00:17:48,520
Speaker 1: Stabilizing the long end will help them perhaps avoid a

334
00:17:48,560 --> 00:17:51,440
Speaker 1: hard landing. Otherwise we've got bigger problems ahead of us.

335
00:17:51,640 --> 00:17:55,000
Speaker 1: Don what's the bigger risk scenario for markets right now

336
00:17:55,040 --> 00:17:58,080
Speaker 1: that the FED is overly harkish or overly devish in

337
00:17:58,080 --> 00:18:02,159
Speaker 1: this meeting versus market expectation. No, I would say the

338
00:18:02,160 --> 00:18:04,320
Speaker 1: biggest risk is if they try and push back. I mean,

339
00:18:04,480 --> 00:18:06,680
Speaker 1: the poal kind of took Semi five off the table

340
00:18:06,800 --> 00:18:10,080
Speaker 1: last time. If they're trying to stick their guns and

341
00:18:10,320 --> 00:18:11,800
Speaker 1: if you like to a do a b o J

342
00:18:12,359 --> 00:18:14,040
Speaker 1: trying to sort of draw a line in the sand

343
00:18:14,040 --> 00:18:16,080
Speaker 1: and saying we're not going to get pushed around, they're

344
00:18:16,080 --> 00:18:18,199
Speaker 1: going to get into very sticky situation because they're not

345
00:18:18,240 --> 00:18:19,800
Speaker 1: like the b o J that they obviously don't have

346
00:18:19,840 --> 00:18:22,680
Speaker 1: that kind of commitment and on that basis, I would

347
00:18:22,680 --> 00:18:25,040
Speaker 1: think both the bonds and ectaries will sell off hard

348
00:18:25,560 --> 00:18:28,320
Speaker 1: if the FED is too dublish, if they do do

349
00:18:28,400 --> 00:18:30,600
Speaker 1: fifty and they don't convince us that they're going to

350
00:18:30,960 --> 00:18:34,159
Speaker 1: have a super acceleration to neutral. There's another problem that

351
00:18:34,200 --> 00:18:36,760
Speaker 1: people are also beginning to focus on is that their

352
00:18:36,800 --> 00:18:39,040
Speaker 1: measure of neutral may just be too low. No one

353
00:18:39,080 --> 00:18:42,200
Speaker 1: really knows who neutral is. And it's not a question

354
00:18:42,359 --> 00:18:44,400
Speaker 1: that of them going to neutral and then question mark

355
00:18:44,520 --> 00:18:47,280
Speaker 1: how restrictive they might then have to become. The people

356
00:18:47,320 --> 00:18:50,040
Speaker 1: will start to ask the question, maybe inflation is too

357
00:18:50,080 --> 00:18:52,720
Speaker 1: sicky for too long and neutrals up three or three

358
00:18:52,720 --> 00:18:54,800
Speaker 1: and a half that it gives you know, the mother

359
00:18:54,880 --> 00:18:57,440
Speaker 1: of all textbooks and the United Kingdom is the Beg

360
00:18:57,560 --> 00:19:02,720
Speaker 1: John Beg, and as a magisterial one volume first economics textbook,

361
00:19:03,400 --> 00:19:05,840
Speaker 1: all of us is not in bed were an original

362
00:19:06,000 --> 00:19:09,280
Speaker 1: territory and we're all starving for levels. What is the

363
00:19:09,400 --> 00:19:14,000
Speaker 1: level of yen where this unfolds, When dala yen gets

364
00:19:14,040 --> 00:19:17,560
Speaker 1: to such and such weakness, where do the pieces begin

365
00:19:17,680 --> 00:19:20,800
Speaker 1: to fall apart? Well, I think it's specifically for Japan.

366
00:19:20,960 --> 00:19:24,960
Speaker 1: The issue is wage inflation that drives price inflation, and

367
00:19:24,960 --> 00:19:28,000
Speaker 1: in a funny way, it's a similar issue across the

368
00:19:28,080 --> 00:19:31,360
Speaker 1: main economies. The inflation we've got is a very bad inflation.

369
00:19:31,440 --> 00:19:34,119
Speaker 1: Wages they may be going up, but they're barely keeping

370
00:19:34,119 --> 00:19:38,000
Speaker 1: pace with inflation, and so therefore the japan is insane situation.

371
00:19:38,359 --> 00:19:41,679
Speaker 1: They're not going to react to important inflation unless wages

372
00:19:41,720 --> 00:19:44,920
Speaker 1: are going up. So dolly en need so if you like,

373
00:19:45,480 --> 00:19:48,320
Speaker 1: can keep on going down and it may not actually

374
00:19:48,840 --> 00:19:51,680
Speaker 1: affect at least corrodeous view on what should they should

375
00:19:51,680 --> 00:19:53,440
Speaker 1: do for y CC sure they're going to try and

376
00:19:53,520 --> 00:19:55,920
Speaker 1: push back on it. We don't think intervention is really

377
00:19:55,920 --> 00:19:59,320
Speaker 1: necessarily going to work. It's more about stabilizing the global

378
00:19:59,359 --> 00:20:01,800
Speaker 1: bond deals, and that will make the bo j's life

379
00:20:01,840 --> 00:20:04,240
Speaker 1: a lot easier. If you can say by his tenure, yeels,

380
00:20:04,359 --> 00:20:07,080
Speaker 1: there's a limit to how far dolly in will will

381
00:20:07,200 --> 00:20:09,600
Speaker 1: attain your us yells, there's limits and how far dolly

382
00:20:09,680 --> 00:20:12,679
Speaker 1: and will go down, and that will for them at

383
00:20:12,720 --> 00:20:15,359
Speaker 1: least maybe cap some of this important in patient. But

384
00:20:15,880 --> 00:20:19,399
Speaker 1: unless you can get two wages, I don't think the

385
00:20:19,680 --> 00:20:22,240
Speaker 1: Japanese are going to really start to ditch y c

386
00:20:22,440 --> 00:20:25,679
Speaker 1: C or or obviously try and have any kind of

387
00:20:25,680 --> 00:20:27,879
Speaker 1: normalizational policy. And I just want to finish here on

388
00:20:27,920 --> 00:20:30,800
Speaker 1: the federal Reserve. And it's a market's question. A lot

389
00:20:30,800 --> 00:20:33,080
Speaker 1: of people and you've heard this conversation to wondering if

390
00:20:33,119 --> 00:20:34,879
Speaker 1: they should just come out today and go bigger than

391
00:20:34,920 --> 00:20:37,600
Speaker 1: seventy five, get it done, get better neutral, go big.

392
00:20:37,760 --> 00:20:40,480
Speaker 1: Would that restore confidence in this market or would to

393
00:20:40,520 --> 00:20:42,600
Speaker 1: scare this market. I'm trying to understand the tipping point

394
00:20:42,640 --> 00:20:46,800
Speaker 1: between hawkish enough and too hawkish. I think it will

395
00:20:46,800 --> 00:20:48,960
Speaker 1: restore confidence in the back end. To be honest, I

396
00:20:48,960 --> 00:20:51,119
Speaker 1: think you will rally the long end if you go

397
00:20:51,200 --> 00:20:54,200
Speaker 1: big and just get to neutral. I don't think the

398
00:20:54,200 --> 00:20:57,880
Speaker 1: extra market will initially react very well. But I think

399
00:20:57,880 --> 00:21:00,480
Speaker 1: at the end of the day there is a requirement

400
00:21:00,480 --> 00:21:02,960
Speaker 1: for a massive reallocation out of executis into debt and

401
00:21:03,000 --> 00:21:06,000
Speaker 1: the level and that normally happens when debt yields are stabilizing,

402
00:21:06,040 --> 00:21:07,800
Speaker 1: if not rallying. So we have to get to that.

403
00:21:08,040 --> 00:21:09,680
Speaker 1: And it's sort of light at the end of the tunnel.

404
00:21:09,960 --> 00:21:11,920
Speaker 1: We see no lights at the end of tunnel until

405
00:21:11,920 --> 00:21:14,480
Speaker 1: the back end of the bond market stabilizes. When you

406
00:21:14,520 --> 00:21:17,240
Speaker 1: see that light, then you can begin to see away

407
00:21:17,240 --> 00:21:20,040
Speaker 1: in which risk assets can also stabilize. That will come later,

408
00:21:20,240 --> 00:21:22,840
Speaker 1: but right now you're in this void. You don't know

409
00:21:22,840 --> 00:21:25,080
Speaker 1: where this tunnel ends. There's no light, and that's why

410
00:21:25,080 --> 00:21:28,119
Speaker 1: they're going big. Wouldn't be a bad idea, but you know,

411
00:21:28,119 --> 00:21:30,480
Speaker 1: getting semi five and committing to another semi five or

412
00:21:30,680 --> 00:21:32,879
Speaker 1: will will sort of almost get you there. I'm just

413
00:21:32,920 --> 00:21:35,600
Speaker 1: saying thank you, thank you very much down custom that

414
00:21:35,840 --> 00:21:39,399
Speaker 1: of Missouri of America's This is the Bloomberg Surveillance Podcast.

415
00:21:39,680 --> 00:21:43,040
Speaker 1: Thanks for listening. Join us live weekdays from seven to

416
00:21:43,119 --> 00:21:47,840
Speaker 1: ten AMI Eastern and Bloomberg Radio and Bloomberg Television each

417
00:21:47,920 --> 00:21:51,639
Speaker 1: day from six to nine am for insight from the

418
00:21:51,680 --> 00:21:56,880
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

419
00:21:56,920 --> 00:22:01,880
Speaker 1: to the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg dot com,

420
00:22:01,960 --> 00:22:05,200
Speaker 1: and of course, on the terminal. I'm Tom keene In.

421
00:22:05,320 --> 00:22:09,600
Speaker 1: This is Bloomberg m