WEBVTT - Surveillance: Central Bank Credibility (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.760 and of course on the Bloomberg terminal. A perfect time 0:00:29.760 --> 0:00:32.959 to speak to Laura Roum. She's chief US economist at 0:00:33.080 --> 0:00:38.000 FS Investments. Today's phrase, Laura is crisis tool. Europe is 0:00:38.040 --> 0:00:41.480 in search of a crisis tool. What is the acclaimed 0:00:41.760 --> 0:00:47.559 rom inflation crisis tool looked like. I think that the 0:00:47.600 --> 0:00:52.519 crisis tool is clearly just trying to reclaim some credibility. 0:00:53.159 --> 0:00:55.120 And you know, we've talked about being behind the curve. 0:00:55.200 --> 0:00:59.360 These central banks just have to try to, uh, you know, 0:00:59.440 --> 0:01:04.880 assert control and just calm markets. It's I don't think 0:01:04.920 --> 0:01:08.600 it's even frustration with some of the air getting let 0:01:08.640 --> 0:01:12.600 out of financial conditions, but they want to try to 0:01:12.720 --> 0:01:16.640 calm markets that they are on top of managing inflation 0:01:17.080 --> 0:01:19.320 and managing policy. And I think that is what has 0:01:19.360 --> 0:01:23.400 been so difficult, and that's why we're seeing subtle banks 0:01:23.400 --> 0:01:26.959 around the globe. Really, that's what they struggle with Laura's 0:01:27.000 --> 0:01:29.200 seventy five basis points enough to get the job done. 0:01:30.640 --> 0:01:33.360 I think that the FED, I think it's a step 0:01:33.400 --> 0:01:36.040 in the right direction, because for the FED, it's just 0:01:36.560 --> 0:01:40.160 you know, I think giving that impression that they are 0:01:40.200 --> 0:01:43.200 on it their depend their data dependent. I think that 0:01:43.319 --> 0:01:46.080 they have suffered from this idea that they're gonna wait 0:01:46.240 --> 0:01:49.880 several meetings to see how things flush out. That is gone. 0:01:50.440 --> 0:01:53.760 Um So there's a proactivity there, but I do think 0:01:53.800 --> 0:01:56.360 that we are as we get data that is already 0:01:56.360 --> 0:02:00.360 starting to roll over in several categories, the possible ability 0:02:00.480 --> 0:02:03.560 that they are going to have to, um, you know, 0:02:03.640 --> 0:02:06.560 really tighten into the face of weakening demand, and that 0:02:06.640 --> 0:02:09.440 I think is going to not help them at all. Well, 0:02:09.680 --> 0:02:11.519 this is interesting because it's sort of the opposite of 0:02:11.800 --> 0:02:14.000 Mike McKee and other people have been saying, which is 0:02:14.360 --> 0:02:16.760 it may help the FED to see a cooling in 0:02:16.760 --> 0:02:19.640 the economic data because it indicates that perhaps that at 0:02:19.639 --> 0:02:21.360 this meeting or next meeting, but at the end of 0:02:21.360 --> 0:02:24.120 this year, they'll be looking at inflation trends that are 0:02:24.120 --> 0:02:28.040 more in their favor. What's your pushback to that narrative? So, 0:02:28.200 --> 0:02:31.040 you know, the issue is that federate. Heikes just take 0:02:31.040 --> 0:02:34.640 a really long time to impact the economy. And I 0:02:34.680 --> 0:02:37.320 think the when you think about demand instruction and where 0:02:37.360 --> 0:02:41.000 inflation is really coming from, it's shifted to now coming 0:02:41.160 --> 0:02:45.040 not from uh, you know, auto prices, but really coming 0:02:45.120 --> 0:02:50.840 from rents areas in the economy which are much more sticky. 0:02:51.320 --> 0:02:53.560 And for that reason, you know, you really need to 0:02:53.560 --> 0:02:56.799 get and you know, housing to not only roll over, 0:02:56.840 --> 0:03:00.880 but house prices to moderate more significantly. These are changes 0:03:00.919 --> 0:03:03.680 that don't happen overnight, and there are changes that really 0:03:03.880 --> 0:03:07.800 come with um, you know, a wider implication for growth. 0:03:07.960 --> 0:03:11.760 So we've already got household sentiment under pressure. We've already 0:03:12.360 --> 0:03:16.120 seen households be impacted by inflation very negatively. The demand 0:03:16.120 --> 0:03:19.519 instruction is already here. Well, what's the math here, Laura. 0:03:19.600 --> 0:03:23.400 If we get a beat movies three quarters of a 0:03:23.480 --> 0:03:27.400 percentage point move, does a thirty year mortgage go up 0:03:27.600 --> 0:03:31.560 three quarters of a percentage point? It's actually mortgage rates 0:03:31.560 --> 0:03:35.520 have gone up more than the long end has risen. 0:03:35.720 --> 0:03:38.480 So you know, yeah, I think we continue to see 0:03:39.120 --> 0:03:42.440 UM mortgage rates go higher. We've already seen Mark, you know, 0:03:42.520 --> 0:03:45.560 the housing market cool down. I think what we really 0:03:45.720 --> 0:03:49.720 are talking about is you know, the labor the connection 0:03:49.760 --> 0:03:52.240 between the economy to the labor market, and the fact 0:03:52.280 --> 0:03:56.560 that there's a reason the FED has trouble micro managing demand. 0:03:56.680 --> 0:03:59.760 You know, they are a broadsword, they're not a scalpel. 0:03:59.800 --> 0:04:03.080 So for that reason, I think there's just more. This 0:04:03.120 --> 0:04:05.000 is the tip of the iceberg. When you look at 0:04:05.600 --> 0:04:08.480 UM demand cooling, and I think you could argue that 0:04:08.560 --> 0:04:11.120 demand right now isn't even really cooling because of FED 0:04:11.160 --> 0:04:14.119 rate hikes, it's cooling because of inflation. So you look 0:04:14.120 --> 0:04:16.320 at the right grate heights they're making right now, that's 0:04:16.320 --> 0:04:19.880 going to impact the economy in several quarters. So they're 0:04:19.920 --> 0:04:24.640 they're really tightening aggressively into an economy that's already slowing. 0:04:24.800 --> 0:04:28.360 So what if the confused rhetoric b of this central bank? 0:04:29.040 --> 0:04:33.520 After the press conference today, we've covered confusion and ECB 0:04:33.760 --> 0:04:36.680 today like truly we've never seen. Are we going to 0:04:36.760 --> 0:04:41.000 be as confused? I don't think so, because I don't 0:04:41.000 --> 0:04:45.680 think they're going to change their UM statement very much. 0:04:46.160 --> 0:04:49.320 I do think that in the press conference, pal is 0:04:49.360 --> 0:04:51.960 going to continue to sound very optimistic about the fat's 0:04:52.000 --> 0:04:55.599 ability to create a soft landing UM. But I think 0:04:55.640 --> 0:04:58.279 he wants to really strike a very serious tone on 0:04:58.360 --> 0:05:02.440 the inflation front. I think it be interesting to see, how, 0:05:02.800 --> 0:05:05.560 you know, if we get another month of an upside 0:05:05.600 --> 0:05:08.440 surprise of inflation, what this means for the July meeting. 0:05:08.880 --> 0:05:10.840 You know, these are things that I think, you know 0:05:11.040 --> 0:05:13.280 just how sensitive to month to month data they're going 0:05:13.320 --> 0:05:16.720 to be, because you know, the real I think now 0:05:16.880 --> 0:05:19.000 piece that we're waiting for is to see how the 0:05:19.040 --> 0:05:22.480 employment market responds. That to me, is really going to 0:05:22.560 --> 0:05:25.839 make or break how aggressive the Fed can be in markets. 0:05:25.839 --> 0:05:27.720 Have you know, priced up the whole curve. They're now 0:05:27.760 --> 0:05:30.360 expecting the FED to raise rates up to four percent 0:05:30.680 --> 0:05:33.160 by the beginning of twenty three. Lauren Ryan, thank you 0:05:33.320 --> 0:05:40.000 of FS Investments. Looking ahead to the Federal Reserve. I 0:05:40.040 --> 0:05:43.080 haven't seen many people downrade their earnings estimates. Here's one 0:05:43.200 --> 0:05:45.920 right now. Banky Chatter, the chief global strategist and head 0:05:45.920 --> 0:05:48.520 of asset Allocation at Deutsche Bank. Bank you cray to 0:05:48.560 --> 0:05:50.560 catch up the team at Deutsche Bank first out the 0:05:50.560 --> 0:05:52.839 gate to say recession at the end of next year. 0:05:53.080 --> 0:05:55.120 Talk to me about why you're down grading your earning 0:05:55.160 --> 0:05:58.440 story and why you haven't cut your outlook for the 0:05:58.520 --> 0:06:02.040 smpgs yet in a big white uh So, a couple 0:06:02.040 --> 0:06:05.520 of things. What I would say first is that, you know, 0:06:05.640 --> 0:06:07.320 I think it's important to keep in mind the house 0:06:07.360 --> 0:06:09.680 called remains for a recession, you know, at the end 0:06:09.680 --> 0:06:13.240 of next year, but not near term. Uh. You know, 0:06:13.640 --> 0:06:17.320 I think the word that everybody is talking about is fluid, 0:06:17.400 --> 0:06:20.800 So things remain pretty fluid. Uh. And and most of 0:06:20.800 --> 0:06:23.880 our downgrade to earnings is about next year, building in 0:06:23.920 --> 0:06:27.839 that slowing in growth and recession later next year. I 0:06:27.839 --> 0:06:30.560 think the bigger issue for the equity market on earnings, 0:06:30.720 --> 0:06:33.640 of course, is, uh, you know, what the bottom up 0:06:33.680 --> 0:06:37.600 consensus is doing and what basically it is building in. 0:06:37.720 --> 0:06:40.440 And what I would argue is that basically, you know, 0:06:40.480 --> 0:06:43.039 the bottom up consensus has ten percent earnings growth for 0:06:43.080 --> 0:06:46.039 this year ten percent earnings growth for next year. On 0:06:46.080 --> 0:06:48.760 the face of it, you know, there's nothing wrong with that. 0:06:48.880 --> 0:06:51.960 Ten per cent earnings growth is actually the average earnings 0:06:52.000 --> 0:06:55.320 growth outside of recession. Some of this and the focus 0:06:55.400 --> 0:06:58.000 land down on your team, Lozetti, whether Social Afternoon folks 0:06:58.000 --> 0:07:01.520 has just been you guys have been just absolutely lights 0:07:01.520 --> 0:07:06.520 out on engaging the conversation. Engage this does profit matter? 0:07:06.880 --> 0:07:09.840 And when you look at earning shortfalls, can you partition 0:07:10.120 --> 0:07:13.040 companies that will still make the bacon from those that 0:07:13.040 --> 0:07:16.120 are really challenged? Yeah, but with the market you know, 0:07:16.600 --> 0:07:20.480 really reacts to. So if you just overlay upgrades, downgrades 0:07:20.720 --> 0:07:23.560 or the change in forward estimates and the SMP five hundred, 0:07:23.560 --> 0:07:25.680 and you'll see these pretty tight fit. Not over the 0:07:25.720 --> 0:07:28.119 last couple of months where the markets you know, way 0:07:28.400 --> 0:07:32.280 lower and and and so earnings estimates do matter. Keep 0:07:32.320 --> 0:07:35.119 in mind that you know, every learning season the SMP 0:07:35.240 --> 0:07:38.960 five hundred, you know, beats on earnings by about five percent. 0:07:39.160 --> 0:07:41.720 So it's you know, not something that the market reacts 0:07:41.760 --> 0:07:44.400 to in a big way, but you know, persistent period 0:07:44.600 --> 0:07:48.160 of sort of downgrades is going to be an overhang 0:07:48.240 --> 0:07:49.840 for the market. And what I would say about the 0:07:49.840 --> 0:07:52.720 bottom up consensus is while the headline numbers you know 0:07:52.800 --> 0:07:57.640 local kay for mid cycle or early cycle, uh, they 0:07:57.680 --> 0:08:01.040 do not look right for late cycle. Our house view, 0:08:01.160 --> 0:08:04.160 the consensus of economists is for growth to slow, and 0:08:04.200 --> 0:08:08.720 as growth slows next year, you know, earnings will come down. Um. 0:08:08.920 --> 0:08:11.480 And in addition, we have you know, sort of the 0:08:12.240 --> 0:08:15.960 pandemic hangover as I would call it, built into consensus 0:08:16.080 --> 0:08:18.920 estimates for megacap growth and tech, you know, which got 0:08:18.960 --> 0:08:22.360 boosted by the pandemic, and the consensus has them rising 0:08:22.400 --> 0:08:25.880 with trend even though they are currently above trend levels 0:08:26.600 --> 0:08:29.480 and staying there would be hard. I'm struggling here with 0:08:29.520 --> 0:08:31.640 this idea that we're going to get earnings down grades. 0:08:31.800 --> 0:08:34.120 We're seeing the end of free money. We're seeing real 0:08:34.240 --> 0:08:37.120 yields on the tenure go up to point eight percent 0:08:37.240 --> 0:08:40.320 after having been deeply negative just three months ago. And 0:08:40.360 --> 0:08:42.480 all of this is going to somehow end the SMP 0:08:42.920 --> 0:08:44.920 at forty seven fifty at the end of the year. 0:08:44.920 --> 0:08:48.240 What gets us there? Yeah, So I think the key 0:08:48.320 --> 0:08:51.559 question is basically, are we going to go into a recession? 0:08:51.600 --> 0:08:55.120 You know, we've been arguing for some time that the 0:08:55.160 --> 0:08:58.199 outlook looks pretty binary. We would get down to about 0:08:58.240 --> 0:09:00.960 thirty six fifty. We are kind of all there already, 0:09:01.280 --> 0:09:03.320 and then it looks pretty binary whether we go into 0:09:03.360 --> 0:09:06.800 a recession or we don't. Recessions are pretty nonlinear events, 0:09:06.960 --> 0:09:08.400 is the way I would talk about I would think 0:09:08.400 --> 0:09:12.360 about them. It is not about temporarily negative growth. It's 0:09:12.360 --> 0:09:16.520 really about corporates becoming risk averse. Not great, you know 0:09:16.760 --> 0:09:21.160 signs yet, But to take a look at CEO confidence. Um, 0:09:21.200 --> 0:09:25.800 it's down. I think the consumer conference numbers get more, 0:09:25.840 --> 0:09:29.600 you know, sort of attention, but corporate CEO conference down 0:09:29.679 --> 0:09:31.959 to just real quick here, Then what's your beer case? 0:09:32.760 --> 0:09:35.520 My bear case is if we go into a recession, 0:09:35.640 --> 0:09:38.760 we have a target of three thousand, which would basically 0:09:38.800 --> 0:09:44.160 be in the upper range of typical recession drawbacks, uh 0:09:44.280 --> 0:09:50.440 or pullbacks. You know, a recession declines in hindsight were 0:09:50.720 --> 0:09:56.119 extremely well explained basically by initial valuations and the severity 0:09:56.120 --> 0:09:58.320 of the recession. So if you use you know, a 0:09:58.400 --> 0:10:03.000 typical recession, you know, a year and year quarterly decline 0:10:03.000 --> 0:10:09.240 in earnings of and where we were valued initially before 0:10:09.920 --> 0:10:13.800 the pullback began, you know, you're talking about thirty, which 0:10:13.800 --> 0:10:16.800 would take us to basically three thousand from the peace. 0:10:16.880 --> 0:10:18.199 So I think it just to be clear, if Matt 0:10:18.240 --> 0:10:21.440 Lasetti is right, it's three k on the SMP. You know, 0:10:21.520 --> 0:10:25.359 if Matt Lsti is right that there is no recession 0:10:25.880 --> 0:10:31.280 right now and that issue gets resolved in the markets 0:10:31.400 --> 0:10:33.960 and the market starts to price that out, then we 0:10:34.040 --> 0:10:38.760 get forty seven fifty by year end. Um, if we 0:10:38.840 --> 0:10:42.720 do slide into a recession, we're talking about three thousand 0:10:42.720 --> 0:10:46.640 on the SMP typical recession, assuming it starts now, is 0:10:46.679 --> 0:10:49.080 about eleven months, so you would get a bottom three 0:10:49.080 --> 0:10:52.439 thousand around November, and you know you would get to 0:10:52.840 --> 0:10:55.440 seven fifty by May of next year, since the market 0:10:55.520 --> 0:11:00.600 typically starts to you know, uh, bottoms basically halfway through. Okay, 0:11:00.720 --> 0:11:02.480 good to clear that up. Thank you, Thank you, Thank 0:11:02.520 --> 0:11:05.480 your chanting with Deutsche Banks. The very very constructive on 0:11:05.480 --> 0:11:13.439 the security market, Peter Cheers joins us right now ahead 0:11:13.440 --> 0:11:16.000 of macro strategy and making it up as you go. 0:11:16.080 --> 0:11:20.800 An academy securities as well. Peter, not a snarky question, 0:11:20.880 --> 0:11:24.560 but a serious one. Is the bond market right now? 0:11:25.240 --> 0:11:29.480 The Central Banker of the United States of America? Yeah, 0:11:29.480 --> 0:11:31.800 I think the bond markets really in control of things, 0:11:31.880 --> 0:11:34.560 and I'm increasingly nervous that the lack of liquidity in 0:11:34.559 --> 0:11:37.720 the bond market is letting us move too far too quickly, 0:11:38.200 --> 0:11:40.520 and unless we kind of tame inflation get some of 0:11:40.520 --> 0:11:42.520 this under control, I think we're at a real risk 0:11:42.559 --> 0:11:44.720 of much higher yields, especially with what's going on in 0:11:44.720 --> 0:11:47.560 Europe right The Italian and Spanish yields are leading the 0:11:47.559 --> 0:11:50.480 way there, but that's dragging global yields around too. Does 0:11:50.520 --> 0:11:53.640 it happen quickly or does it happen all at once? Right? 0:11:53.679 --> 0:11:55.760 I mean that we've seen a real quick repricing, But 0:11:55.840 --> 0:11:58.440 do we see something that is a gap higher that 0:11:58.480 --> 0:12:01.360 gets the Feds attention? That driven by low liquidity in 0:12:01.400 --> 0:12:04.080 a sense of uncertainty around both FED policy and how 0:12:04.160 --> 0:12:07.199 high yields could go. Yeah, I would not be surprised 0:12:07.200 --> 0:12:08.679 if you get one of those crazy days where you 0:12:08.720 --> 0:12:10.760 get our two or three point move in the long bond, 0:12:11.360 --> 0:12:13.280 largely due to a lack of liquidity and position, not 0:12:13.280 --> 0:12:15.679 sure which direction it would go. I would have thought 0:12:15.720 --> 0:12:17.559 a month ago was going to be a gap to 0:12:17.760 --> 0:12:20.480 lower yields. Now it feels like if we get a gap, 0:12:20.520 --> 0:12:22.800 it's going to be a dislocation and a know air 0:12:22.840 --> 0:12:25.760 pocket moved to a much higher yield will probably temporary, 0:12:25.840 --> 0:12:28.520 but it will disrupt markets. We haven't talked about bitcoin 0:12:28.640 --> 0:12:30.640 very much in this show, Peter, and that's by design. 0:12:30.720 --> 0:12:33.800 It's something that we don't normally cover. Yet the losses 0:12:33.840 --> 0:12:36.680 have been shocking, and you made a point yesterday Peter 0:12:36.760 --> 0:12:39.280 that really struck me that there is a systemic import 0:12:39.640 --> 0:12:43.640 to the losses in the cryptocurrency complex that it feeds 0:12:43.679 --> 0:12:46.200 into the larger market in a way that perhaps some 0:12:46.280 --> 0:12:49.200 people are not expecting. Do you still think that that's 0:12:49.240 --> 0:12:51.360 the case, that it could be a systemic risk, both 0:12:51.360 --> 0:12:55.120 economically and on a market basis. Yeah, And I've been 0:12:55.160 --> 0:12:56.720 thinking about this a lot, and I think there's kind 0:12:56.760 --> 0:12:59.040 of two main groups of crypto investors. They're a relatively 0:12:59.080 --> 0:13:01.440 small aggressive people who I think may get wiped out. 0:13:01.440 --> 0:13:03.160 I think they were using a lot of margin that 0:13:03.200 --> 0:13:05.120 will have some impacked on the economy, but I don't 0:13:05.120 --> 0:13:07.600 think a huge one. The other part is very wealthy 0:13:07.640 --> 0:13:10.880 people who tended to I think you cryptocurrencies is a 0:13:10.920 --> 0:13:13.800 core part of their asset classes or their asset allocation. 0:13:14.120 --> 0:13:17.960 They also tended to invest heavily and disruptive stocks, and 0:13:18.000 --> 0:13:19.640 then they use some of the big tech almost as 0:13:19.720 --> 0:13:21.880 very equivalent of a bank account. So I think they 0:13:21.920 --> 0:13:24.920 were very aggressively positioned, and that's getting unwound right now. 0:13:24.920 --> 0:13:26.199 So I think there's gonna be a potential for a 0:13:26.280 --> 0:13:28.640 huge wealth effect. And as you start looking at the 0:13:28.679 --> 0:13:31.520 amount of spending that was going on in advertising for crypto, 0:13:31.640 --> 0:13:34.320 the number of conferences, the number of jobs that were created, 0:13:34.760 --> 0:13:37.319 the number of semiconductors that were bought to support crypto. 0:13:37.520 --> 0:13:38.959 If the slowdown is real, and I think it is, 0:13:39.000 --> 0:13:41.280 I think we're gonna hit maybe even ten thousand on bitcoin. 0:13:41.720 --> 0:13:44.520 You could see a knock on effect in the economy 0:13:44.559 --> 0:13:46.560 that we would not have thought about two or three years. Right. 0:13:46.559 --> 0:13:48.360 Why am I going to see a knock on effect 0:13:48.559 --> 0:13:52.440 in the economy, Peter, Because I think this wealth creation 0:13:52.520 --> 0:13:56.520 has hit stocks, disruptive stocks, in particular big tech. There's 0:13:56.600 --> 0:13:59.160 less money these people were spending money. You're gonna see 0:13:59.160 --> 0:14:01.440 a cutdown on princes. You're gonna see less spending on 0:14:01.480 --> 0:14:03.760 the rigs that are required to make, you know, do 0:14:03.840 --> 0:14:06.240 the mining. The one option of this that might be 0:14:06.280 --> 0:14:09.439 good for us is lower energy costs as crypto stuff, 0:14:09.559 --> 0:14:11.760 you know, becomes less of a drain on energy. But 0:14:11.920 --> 0:14:14.480 I think we're gonna be surprised how impactful crypto is, 0:14:14.559 --> 0:14:16.720 especially to the New York area and the California area. 0:14:17.160 --> 0:14:20.800 But the amount of money loss is painful. I mean 0:14:20.920 --> 0:14:24.160 the accounting of this, Peter, I find extraordinary. If we 0:14:24.280 --> 0:14:28.840 go from one thousand down to a Peter Cheer ten thousand, 0:14:29.400 --> 0:14:33.080 or from sixty whatever thousand down to ten thousand, I 0:14:33.080 --> 0:14:36.960 mean that signals the collapse of the scheme. Doesn't it. 0:14:37.920 --> 0:14:39.360 I think to a large degree yes. And you know, 0:14:39.400 --> 0:14:42.160 I think the prior guest you mentioned had um highlighted, oh, 0:14:42.160 --> 0:14:44.000 we're only down a couple of weeks. The reality is 0:14:44.280 --> 0:14:46.000 no one who has bought crypto in the last two 0:14:46.120 --> 0:14:48.880 years and held onto it is now up money. And 0:14:48.920 --> 0:14:51.760 this is almost Yeah. I don't mean to interrupt the folks, 0:14:51.880 --> 0:14:53.920 This is important because I got a lot of shade 0:14:54.040 --> 0:14:58.200 yesterday on David Rubinstein's comments. Lisa, jump in here because 0:14:58.720 --> 0:15:01.840 you you were part of that. To Rubinstein made clear 0:15:02.000 --> 0:15:06.280 original founders of bitcoin still in a profit point and 0:15:06.400 --> 0:15:09.600 Mr cheers saying, yeah, but in the last number of years, 0:15:10.080 --> 0:15:13.400 that's not true. People, you're of huge losses. Well, bitcoin 0:15:13.480 --> 0:15:16.160 is emblematic of the withdrawal of free money, and we 0:15:16.200 --> 0:15:18.080 are seeing the end of a regime, Peter, and it 0:15:18.120 --> 0:15:20.920 will be exemplified by what we here today at two 0:15:20.960 --> 0:15:24.000 thirty pm from FED chair J Powell. What do you 0:15:24.040 --> 0:15:26.920 think that he could do to create some calm, a 0:15:27.000 --> 0:15:30.400 greater backdrop of certainty to a market that has had anything. 0:15:30.440 --> 0:15:33.720 But I think he's going to try and shock the system. 0:15:33.760 --> 0:15:35.840 I now think he's gonna give us seventy bis. I 0:15:35.840 --> 0:15:38.200 think the market will probably react well to that, initially 0:15:38.280 --> 0:15:40.280 on the view that Okay, they're going to try and 0:15:40.320 --> 0:15:42.480 get ahead of this inflation, and then I think over 0:15:42.480 --> 0:15:43.960 the course of the next couple of days, the sad 0:15:43.960 --> 0:15:45.720 reality was thinking is we are going to deal with 0:15:45.840 --> 0:15:48.200 much higher short term rates. That's gonna, you know, slow 0:15:48.240 --> 0:15:51.080 down the economy. And just briefly back to bitcoin. I 0:15:51.080 --> 0:15:53.280 think one thing that's also important is we're starting to 0:15:53.320 --> 0:15:55.880 see the system come up. Right. You had Celsius kind 0:15:55.880 --> 0:15:58.760 of block withdrawals, you have Luna Tera had these problems, 0:15:58.880 --> 0:16:00.880 so you've had this kind of action of networks that 0:16:00.960 --> 0:16:02.960 all kind of work together. I think people are really 0:16:03.000 --> 0:16:04.440 going to question that. And if you go back to 0:16:04.480 --> 0:16:06.800 when Lehman collapse, right, we talked about the Lehman moment, 0:16:07.000 --> 0:16:08.520 it was never a moment, it was just part of 0:16:08.520 --> 0:16:10.600 a process. And I think the coming up of the 0:16:10.640 --> 0:16:12.440 system is going to create a lack of trust and 0:16:12.440 --> 0:16:14.680 a lot of people are sitting out there twenty thousand. Yeah, made, 0:16:14.680 --> 0:16:16.760 they bought up five thousand, but better to get out 0:16:16.760 --> 0:16:19.320 at twenty than ten. So I think that's the problem there. 0:16:19.400 --> 0:16:21.600 And I do think the FEDS message of fighting inflation 0:16:21.640 --> 0:16:24.320 today will push crypto lower as well. Pay one of 0:16:24.360 --> 0:16:26.480 the best. I love hearing from you. Just wonderful to 0:16:26.520 --> 0:16:28.840 catch up Pittchure there of academy. But I can things 0:16:28.880 --> 0:16:35.320 down for us. Let's get to dominic constant show and 0:16:35.360 --> 0:16:37.720 we the had a macro strategy of Missou America's dominic 0:16:37.760 --> 0:16:39.760 straight to you, and let's start with a federal reserve. 0:16:39.880 --> 0:16:42.960 What are you looking for a little bit later, Well, 0:16:43.120 --> 0:16:46.240 we're looking for the fetically very hawkish, which means they'll 0:16:46.240 --> 0:16:49.360 probably do the seventi five and then basically guarantee a 0:16:49.440 --> 0:16:51.640 very quick moved to neutral. They could do more than 0:16:51.680 --> 0:16:54.080 seventy five. I mean that would postibly make more sense 0:16:54.360 --> 0:16:56.920 they do do fifty, which seems unlikely. Now they don't 0:16:56.960 --> 0:16:58.840 have to go out of their way to convince the 0:16:58.920 --> 0:17:02.920 market that they were accelerating rate hikes, and it gets 0:17:03.000 --> 0:17:08.200 that neutral rate. Dominic give pars a distinction between unlikely 0:17:08.440 --> 0:17:15.520 and unnecessary. Is a seventy five beep move unlikely or unnecessary? No? 0:17:15.640 --> 0:17:17.840 I think I think at this stage now, given the 0:17:17.840 --> 0:17:21.200 market reaction, particularly for the long end, it's absolutely necessary 0:17:21.680 --> 0:17:24.440 to to to move to semi five. The problem they've 0:17:24.440 --> 0:17:27.320 got is that even if their forecast is correct that 0:17:27.359 --> 0:17:29.359 there's some kind of soft landing out there and that 0:17:29.480 --> 0:17:32.520 inflation can come down without too much damage to growth. 0:17:32.680 --> 0:17:36.400 The market is tightening financial conditions for them too aggressively, 0:17:36.720 --> 0:17:38.960 both in Europe and and in the US, and that's 0:17:38.960 --> 0:17:42.119 the problem. They have to stabilize long end, so unfortunately 0:17:42.119 --> 0:17:44.600 it's a different game plan for what they had in visage. 0:17:45.040 --> 0:17:48.520 Stabilizing the long end will help them perhaps avoid a 0:17:48.560 --> 0:17:51.440 hard landing. Otherwise we've got bigger problems ahead of us. 0:17:51.640 --> 0:17:55.000 Don what's the bigger risk scenario for markets right now 0:17:55.040 --> 0:17:58.080 that the FED is overly harkish or overly devish in 0:17:58.080 --> 0:18:02.159 this meeting versus market expectation. No, I would say the 0:18:02.160 --> 0:18:04.320 biggest risk is if they try and push back. I mean, 0:18:04.480 --> 0:18:06.680 the poal kind of took Semi five off the table 0:18:06.800 --> 0:18:10.080 last time. If they're trying to stick their guns and 0:18:10.320 --> 0:18:11.800 if you like to a do a b o J 0:18:12.359 --> 0:18:14.040 trying to sort of draw a line in the sand 0:18:14.040 --> 0:18:16.080 and saying we're not going to get pushed around, they're 0:18:16.080 --> 0:18:18.199 going to get into very sticky situation because they're not 0:18:18.240 --> 0:18:19.800 like the b o J that they obviously don't have 0:18:19.840 --> 0:18:22.680 that kind of commitment and on that basis, I would 0:18:22.680 --> 0:18:25.040 think both the bonds and ectaries will sell off hard 0:18:25.560 --> 0:18:28.320 if the FED is too dublish, if they do do 0:18:28.400 --> 0:18:30.600 fifty and they don't convince us that they're going to 0:18:30.960 --> 0:18:34.159 have a super acceleration to neutral. There's another problem that 0:18:34.200 --> 0:18:36.760 people are also beginning to focus on is that their 0:18:36.800 --> 0:18:39.040 measure of neutral may just be too low. No one 0:18:39.080 --> 0:18:42.200 really knows who neutral is. And it's not a question 0:18:42.359 --> 0:18:44.400 that of them going to neutral and then question mark 0:18:44.520 --> 0:18:47.280 how restrictive they might then have to become. The people 0:18:47.320 --> 0:18:50.040 will start to ask the question, maybe inflation is too 0:18:50.080 --> 0:18:52.720 sicky for too long and neutrals up three or three 0:18:52.720 --> 0:18:54.800 and a half that it gives you know, the mother 0:18:54.880 --> 0:18:57.440 of all textbooks and the United Kingdom is the Beg 0:18:57.560 --> 0:19:02.720 John Beg, and as a magisterial one volume first economics textbook, 0:19:03.400 --> 0:19:05.840 all of us is not in bed were an original 0:19:06.000 --> 0:19:09.280 territory and we're all starving for levels. What is the 0:19:09.400 --> 0:19:14.000 level of yen where this unfolds, When dala yen gets 0:19:14.040 --> 0:19:17.560 to such and such weakness, where do the pieces begin 0:19:17.680 --> 0:19:20.800 to fall apart? Well, I think it's specifically for Japan. 0:19:20.960 --> 0:19:24.960 The issue is wage inflation that drives price inflation, and 0:19:24.960 --> 0:19:28.000 in a funny way, it's a similar issue across the 0:19:28.080 --> 0:19:31.360 main economies. The inflation we've got is a very bad inflation. 0:19:31.440 --> 0:19:34.119 Wages they may be going up, but they're barely keeping 0:19:34.119 --> 0:19:38.000 pace with inflation, and so therefore the japan is insane situation. 0:19:38.359 --> 0:19:41.679 They're not going to react to important inflation unless wages 0:19:41.720 --> 0:19:44.920 are going up. So dolly en need so if you like, 0:19:45.480 --> 0:19:48.320 can keep on going down and it may not actually 0:19:48.840 --> 0:19:51.680 affect at least corrodeous view on what should they should 0:19:51.680 --> 0:19:53.440 do for y CC sure they're going to try and 0:19:53.520 --> 0:19:55.920 push back on it. We don't think intervention is really 0:19:55.920 --> 0:19:59.320 necessarily going to work. It's more about stabilizing the global 0:19:59.359 --> 0:20:01.800 bond deals, and that will make the bo j's life 0:20:01.840 --> 0:20:04.240 a lot easier. If you can say by his tenure, yeels, 0:20:04.359 --> 0:20:07.080 there's a limit to how far dolly in will will 0:20:07.200 --> 0:20:09.600 attain your us yells, there's limits and how far dolly 0:20:09.680 --> 0:20:12.679 and will go down, and that will for them at 0:20:12.720 --> 0:20:15.359 least maybe cap some of this important in patient. But 0:20:15.880 --> 0:20:19.399 unless you can get two wages, I don't think the 0:20:19.680 --> 0:20:22.240 Japanese are going to really start to ditch y c 0:20:22.440 --> 0:20:25.679 C or or obviously try and have any kind of 0:20:25.680 --> 0:20:27.879 normalizational policy. And I just want to finish here on 0:20:27.920 --> 0:20:30.800 the federal Reserve. And it's a market's question. A lot 0:20:30.800 --> 0:20:33.080 of people and you've heard this conversation to wondering if 0:20:33.119 --> 0:20:34.879 they should just come out today and go bigger than 0:20:34.920 --> 0:20:37.600 seventy five, get it done, get better neutral, go big. 0:20:37.760 --> 0:20:40.480 Would that restore confidence in this market or would to 0:20:40.520 --> 0:20:42.600 scare this market. I'm trying to understand the tipping point 0:20:42.640 --> 0:20:46.800 between hawkish enough and too hawkish. I think it will 0:20:46.800 --> 0:20:48.960 restore confidence in the back end. To be honest, I 0:20:48.960 --> 0:20:51.119 think you will rally the long end if you go 0:20:51.200 --> 0:20:54.200 big and just get to neutral. I don't think the 0:20:54.200 --> 0:20:57.880 extra market will initially react very well. But I think 0:20:57.880 --> 0:21:00.480 at the end of the day there is a requirement 0:21:00.480 --> 0:21:02.960 for a massive reallocation out of executis into debt and 0:21:03.000 --> 0:21:06.000