WEBVTT - Surveillance: Time to Buy with Emanuel 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Ferreroll and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.840 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.080 --> 0:00:33.559 Jending and Manuel, chief equity and contsative strategist over at 0:00:33.600 --> 0:00:35.920 ever Court, Jennian fantastic, catch up with you, sir. Good morning. 0:00:36.080 --> 0:00:37.080 Oh it's great to be here. 0:00:37.120 --> 0:00:39.199 Let's talk about that pullback in this secuity market. Is 0:00:39.200 --> 0:00:39.840 it time to buy? 0:00:40.240 --> 0:00:40.599 It is? 0:00:41.159 --> 0:00:44.640 So you hit on two very important themes just now. 0:00:44.920 --> 0:00:47.440 The first the concept of a bit of tension. Okay, 0:00:47.800 --> 0:00:51.599 the wall of worry that was almost non existent in 0:00:51.680 --> 0:00:55.480 July as Ai was leading us to the new world 0:00:56.200 --> 0:00:59.760 and then suddenly started getting rebuilt at the top is 0:00:59.800 --> 0:01:03.840 now fully rebuilt. And how do we know that because basically, 0:01:03.920 --> 0:01:06.360 if you look at the market yesterday, there was a 0:01:06.480 --> 0:01:11.039 very very noticeable change when the UAW came out and 0:01:11.280 --> 0:01:15.480 lowered their offer, making the bid offer spread twenty one 0:01:15.520 --> 0:01:19.039 to thirty as opposed to that original forty. And that's 0:01:19.080 --> 0:01:22.479 when bond yields turned lower, and that's when stocks turn higher, 0:01:22.600 --> 0:01:24.360 and we think there's a lot more to go of 0:01:24.400 --> 0:01:25.920 that type of action in the force. 0:01:25.959 --> 0:01:27.600 So they say, equity col you'll make it is essentially 0:01:27.600 --> 0:01:28.800 a bond market coll correct. 0:01:29.880 --> 0:01:31.920 How can it be otherwise When you look at the 0:01:31.959 --> 0:01:33.880 action in the last year and a half, the two 0:01:34.319 --> 0:01:36.800 are positively correlated. It's a new world. 0:01:37.640 --> 0:01:40.080 I want to talk and I'm fired up this morning 0:01:40.080 --> 0:01:42.040 because I got great and worthies running around the world 0:01:42.160 --> 0:01:45.640 spout in economics and it just drives me absolutely nuts. 0:01:45.920 --> 0:01:48.640 Let's get back to common sense. You work for the 0:01:48.640 --> 0:01:52.600 most famous market economist in the world, Edward S. Hymen 0:01:52.800 --> 0:01:56.000 invented the game. I want to get from Ed Hyman 0:01:56.360 --> 0:02:00.000 to Julian Emmanuel. What is that linkage across the high 0:02:00.120 --> 0:02:01.840 and predicted disinflation? 0:02:02.160 --> 0:02:07.320 So Ed's call again disinflation. It has been very consistent. 0:02:07.560 --> 0:02:10.880 And what's interesting about the current environment is it's very 0:02:11.040 --> 0:02:14.880 rare that you see oil prices ratcheting higher the way 0:02:14.880 --> 0:02:19.079 they have, whereas copper prices have been going lower. That 0:02:19.160 --> 0:02:22.359 tells you that what's going on is more geopolitical than 0:02:22.400 --> 0:02:26.720 an entrenched inflation psychology that's going to continue to unwind, 0:02:27.760 --> 0:02:30.920 likely a slowdown. But the commonality here is when you 0:02:30.960 --> 0:02:34.840 look long term, the reason the market is likely on 0:02:34.960 --> 0:02:38.359 better footing in the fourth quarter is because earnings are 0:02:38.480 --> 0:02:40.799 going to continue to grow next year. 0:02:40.919 --> 0:02:44.320 Tell me about the character of nominal GDP the animal 0:02:44.360 --> 0:02:47.360 spirit hymen. He's looking at freight cars, he's looking at 0:02:47.400 --> 0:02:50.040 pickup trucks. He knows what Taylor Swifts going to drink 0:02:50.040 --> 0:02:54.040 at the football game this weekend. AD's omniscient. Okay, take 0:02:54.240 --> 0:02:57.959 his research and bring it over to nominal GDP into 0:02:58.000 --> 0:03:01.359 the top lying revenue growth the general enthusiastic. 0:03:01.360 --> 0:03:03.079 Well, the first thing you got to say is it's 0:03:03.120 --> 0:03:05.639 interesting because now there's a reason to watch the Jets 0:03:05.639 --> 0:03:08.600 game live for maybe the first time in years, because 0:03:08.600 --> 0:03:11.400 Taylor Swift may or may not be there. Look, the 0:03:12.080 --> 0:03:15.720 fact is is that again, part of why this environment 0:03:15.760 --> 0:03:19.200 has been so difficult is because the economy is so 0:03:19.360 --> 0:03:22.520 incredibly diverse. And actually, when you look at at AD 0:03:22.600 --> 0:03:26.680 and OSCAR surveys, what we've seen was the trucking survey 0:03:26.960 --> 0:03:29.000 telling us that we should have been in a recession 0:03:29.240 --> 0:03:32.760 for the last nine months. But because the manufacturing side 0:03:33.080 --> 0:03:35.880 is so much smaller than the services side, and the 0:03:36.000 --> 0:03:40.160 airline survey has been on fire literally for years. We 0:03:40.200 --> 0:03:43.240 all know how difficult going through airports are, and we 0:03:43.280 --> 0:03:48.800 all know how much prices have gone up. Is that 0:03:48.920 --> 0:03:52.720 the economy again, this diversity is likely going to get 0:03:52.800 --> 0:03:55.280 us through so that even if we get a downturn, 0:03:55.480 --> 0:03:56.120 it's mild. 0:03:56.240 --> 0:03:57.720 I never took you for a swift, ye, I just 0:03:57.760 --> 0:04:00.360 am throwing that out. There wasn't really on my radar. 0:04:00.840 --> 0:04:02.760 What are you buying then? Because if there is this 0:04:02.880 --> 0:04:05.920 bifurcation in the markets between different industries that are going 0:04:05.920 --> 0:04:08.640 through recessions at different times, what's going to lead the 0:04:08.720 --> 0:04:10.760 drive back to forty four to fifty by year end? 0:04:10.880 --> 0:04:13.360 So we think you need to be really thematic and 0:04:13.440 --> 0:04:18.000 really focused here. The energy story is absolutely going to 0:04:18.000 --> 0:04:21.920 continue to play out again, this is geopolitics more than anything. 0:04:22.160 --> 0:04:26.040 But geopolitics is going to keep the oil price elevated 0:04:26.200 --> 0:04:31.200 we think certainly until next November. So it again the 0:04:31.240 --> 0:04:36.080 only sector that basically is pricing in a recession healthcare, 0:04:36.400 --> 0:04:41.040 which is actually immune to geopolitics and interest rate girations. 0:04:41.520 --> 0:04:46.320 Very good secular story and what we like again, the 0:04:46.440 --> 0:04:50.280 generative AI. It's not just the arms merchants, know, the 0:04:50.279 --> 0:04:53.560 stocks that we thought that armed the Internet in the nineties, 0:04:53.560 --> 0:04:56.000 It's not just those, but it's the companies that have 0:04:56.040 --> 0:05:00.760 been front foot forward in terms of implementingative AI. And 0:05:00.800 --> 0:05:03.480 we're going to be paying very close attention to Earning's 0:05:03.520 --> 0:05:06.400 conference calls in the month of October to see who's 0:05:06.440 --> 0:05:09.200 doing what and to see what kind of ideas they 0:05:09.240 --> 0:05:13.960 have in terms of implementation. Those stocks will outperform long term. 0:05:14.200 --> 0:05:16.600 Right now, as you take a look at the idea 0:05:16.640 --> 0:05:20.640 of more volatility heading into a really potentially fraud election cycle, 0:05:21.400 --> 0:05:23.679 how much does that actually make you favor bonds because 0:05:23.720 --> 0:05:26.680 typically you have to adjust for a higher risk premium 0:05:27.000 --> 0:05:31.120 in the more volatile instruments. Are bonds less volatile than 0:05:31.279 --> 0:05:33.159 stocks in this kind of environment. 0:05:32.839 --> 0:05:36.280 Well, they certainly haven't been for most of the last 0:05:36.360 --> 0:05:40.880 year and a half. But again, look, we know the 0:05:40.920 --> 0:05:44.279 FED is likely about the pause. Maybe there's one more 0:05:44.320 --> 0:05:47.599 high left and that QT will continue to run in 0:05:47.640 --> 0:05:50.520 the background, so we don't really have to worry about 0:05:50.520 --> 0:05:54.159 what the messaging is there. But it comes back to 0:05:54.240 --> 0:05:57.520 this whole idea that when you look at the energy complex. 0:05:57.640 --> 0:06:01.680 It is sort of off by itself, and so therefore 0:06:02.040 --> 0:06:05.360 the case for bonds becomes a little bit more interesting 0:06:05.400 --> 0:06:05.680 to us. 0:06:05.839 --> 0:06:07.640 Two of the most powerful quotes in the past week 0:06:07.880 --> 0:06:10.560 come out of Bank of America. The CEO, the CFO 0:06:11.000 --> 0:06:12.720 needs to be talked about way more, Brian more and 0:06:12.760 --> 0:06:15.919 hat we won't have a recession. The CFO, it's difficult 0:06:15.920 --> 0:06:18.200 to see a recession when the consumers spending four percent 0:06:18.279 --> 0:06:22.400 more year of a year. Can you identify any evidence 0:06:22.800 --> 0:06:24.440 of a slowdown that's going to lead to a recession 0:06:24.440 --> 0:06:25.080 anytime soon. 0:06:25.200 --> 0:06:28.640 Well, you actually did see the consumption number ease a 0:06:28.720 --> 0:06:33.560 little bit yesterday. But frankly, when we look at again, 0:06:34.200 --> 0:06:37.560 the weekly jobless claims number is the thing that we're 0:06:37.600 --> 0:06:41.680 focused on, and it is very strong. But here's the 0:06:41.720 --> 0:06:44.800 thing we know there are some of these things building 0:06:44.839 --> 0:06:49.640 in the background that have traditionally seventy years been pretty 0:06:49.680 --> 0:06:54.719 good indicators of recession. L EI's loan officers survey, the 0:06:54.800 --> 0:06:58.919 yield curve, etc. It doesn't mean that the recession is 0:06:58.960 --> 0:07:01.760 eliminated in our you, this is a case of the 0:07:01.800 --> 0:07:04.080 economic cycle because of all the money we threw out 0:07:04.279 --> 0:07:06.160 being elongated. 0:07:05.560 --> 0:07:09.640 The value to growth ratio is there a record, essentially 0:07:09.680 --> 0:07:13.120 a record low values never underperform growth like it has recently. 0:07:13.520 --> 0:07:15.640 Do you just stay with growth or do you buy 0:07:15.640 --> 0:07:16.440 the value trip? 0:07:16.920 --> 0:07:17.120 Now? 0:07:17.560 --> 0:07:20.480 I think you have to again be very very targeted 0:07:20.960 --> 0:07:22.560 because if you think about it. 0:07:22.480 --> 0:07:25.120 Well targeted, what freak help me out here? Free? 0:07:25.360 --> 0:07:30.600 Well, it's a different story right now. There's evaluation edge 0:07:30.640 --> 0:07:34.440 in areas like energy, which you're throwing off ridiculous amounts, 0:07:34.480 --> 0:07:38.840 I mean insane amounts of free cash low and healthcare, 0:07:38.880 --> 0:07:43.640 which you know, despite regulation, continues to be a one 0:07:43.640 --> 0:07:50.400 way ticket because of the demographic tailwinds. And again, anything 0:07:50.720 --> 0:07:54.440 that is associated with generative AI is likely to be 0:07:54.480 --> 0:07:57.880 a company that's also throwing off good free cash flow. 0:07:57.920 --> 0:07:59.560 How you got into the jet sky this weekend? 0:08:00.720 --> 0:08:04.240 No, my Minnesota vikings have made a misery of professional Have. 0:08:04.240 --> 0:08:06.320 We confound whether the Titus Swift is attending set game? 0:08:06.360 --> 0:08:09.400 Take a clerk to Scarlett Fool last night, Celerity loads, 0:08:09.480 --> 0:08:13.600 let's need surveillance and Foo was working the phones all 0:08:13.680 --> 0:08:26.600 day with Taylor's people. They have led the way to 0:08:26.720 --> 0:08:29.880 this higher rate regime that we are living. Veronica Clark 0:08:30.280 --> 0:08:33.480 with Andrew hollend Horse leads from City Group, what are 0:08:33.520 --> 0:08:36.120 you writing this week in Verona, cut to the chase. 0:08:36.440 --> 0:08:39.480 We need a surveillance out front. Look, what are you 0:08:39.480 --> 0:08:40.760 going to publish for Monday? 0:08:41.520 --> 0:08:43.280 Yeah, I mean we've had a lot of data. Of 0:08:43.280 --> 0:08:43.840 course this week. 0:08:43.840 --> 0:08:46.880 We had GDP revisions yesterday, all the spending and inflation 0:08:46.960 --> 0:08:51.040 data today. Overall, it doesn't really change the picture that much. 0:08:51.080 --> 0:08:53.880 I mean, growth seems pretty resilient. Yeah, we've had some 0:08:54.040 --> 0:08:57.040 slowing and inflation, but we did get revisions higher, We're 0:08:57.080 --> 0:08:58.400 coming from a higher rate. 0:08:58.920 --> 0:09:00.840 There's really not that much to change. 0:09:00.760 --> 0:09:04.240 A pretty solid growth backdrop, inflation that's still high, you know, 0:09:04.280 --> 0:09:06.440 really not much to change. The message from the Fed, 0:09:06.480 --> 0:09:09.160 which we heard last Wednesday is higher for longer, and 0:09:09.200 --> 0:09:11.400 so I think that's that's the outlook, Veronica. 0:09:11.440 --> 0:09:13.160 When you take a look at credit card spending, a 0:09:13.240 --> 0:09:15.760 number of people are saying anecdotally you are seeing a 0:09:15.840 --> 0:09:20.920 significant decrease in activity, that people are being a little 0:09:20.920 --> 0:09:23.960 bit more frugal and a little bit more discretionary with 0:09:24.000 --> 0:09:27.040 their income. How much do you reject that in your 0:09:27.080 --> 0:09:30.360 thesis that you're seeing almost a reacceleration in certain areas 0:09:30.400 --> 0:09:31.360 that could fuel inflation. 0:09:32.120 --> 0:09:34.440 Yeah, we've absolutely seen that in goods spending. 0:09:34.480 --> 0:09:36.040 You know, a lot of the story of the last 0:09:36.120 --> 0:09:39.200 couple of years has been people were shifting spending away 0:09:39.240 --> 0:09:41.600 from goods and back towards services, you know, as things 0:09:41.640 --> 0:09:43.880 were reopening. But the last couple of months, you know, 0:09:43.880 --> 0:09:46.880 we've absolutely seen retail sales spending you know that's on 0:09:47.240 --> 0:09:48.000 goods tick up. 0:09:48.000 --> 0:09:50.160 We've seen strong durable goods orders. 0:09:50.720 --> 0:09:52.920 So it's not you know, entirely that the people are 0:09:53.280 --> 0:09:57.000 shifting their slowing spending. It's maybe that things are shifting 0:09:57.160 --> 0:09:59.160 relative to the patterns of the last year. You know, 0:09:59.360 --> 0:10:03.080 growth is not just supported by services consumption anymore. It's 0:10:03.080 --> 0:10:05.959 really much more broad than that. You know, it's good spending, 0:10:05.960 --> 0:10:08.079 its investment and those types of components. 0:10:08.160 --> 0:10:10.560 So if you take a step back, you listen to 0:10:10.600 --> 0:10:13.400 all these people saying that consumers are slowing but not 0:10:13.480 --> 0:10:16.960 that much, and that you are seeing the economy slow 0:10:17.040 --> 0:10:19.120 but not that much, and you're going to get this disinflation. 0:10:19.160 --> 0:10:21.840 It's going to lead to a perfect soft landing. What's 0:10:21.880 --> 0:10:25.120 your main pushback about why inflation is going to remain 0:10:25.200 --> 0:10:27.600 sticky and why this is going to become a persistent 0:10:27.679 --> 0:10:30.000 problem that the Fed's going to have to address more aggressively. 0:10:30.679 --> 0:10:31.480 Yeah, absolutely. 0:10:31.520 --> 0:10:33.079 I mean it really does come down to you know, 0:10:33.120 --> 0:10:36.079 when we're doing inflation forecast, we're looking at the different 0:10:36.120 --> 0:10:38.600 components and the drivers of it, and a lot of 0:10:38.640 --> 0:10:41.280 different components like what I mentioned in goods. 0:10:41.320 --> 0:10:44.120 You know, those prices are kind of tacking up again. 0:10:44.160 --> 0:10:46.240 You know, we've that's been a lot of the disinflation 0:10:46.320 --> 0:10:48.679 of the last year, you know, from supply chains correcting 0:10:48.679 --> 0:10:51.560 and commodity prices falling. Well, those stories have kind of 0:10:51.600 --> 0:10:54.560 reached an end, and commodity prices are rising again. And 0:10:54.640 --> 0:10:57.200 you know, if we look at the current disinflation, you 0:10:57.200 --> 0:10:59.120 know what we expect to see in the next couple 0:10:59.080 --> 0:11:01.359 of months. A lot of that will come from components 0:11:01.400 --> 0:11:04.840 like shelter inflation, and that's just reflecting that home prices 0:11:04.840 --> 0:11:08.160 fell in twenty twenty two. Rents have slowed, but the 0:11:08.240 --> 0:11:10.480 last four months of home price data, you know, we've 0:11:10.520 --> 0:11:13.240 seen those prices rising again. So there's a lot of 0:11:13.280 --> 0:11:15.800 reasons to believe that, you know, we're not slowing enough. 0:11:15.840 --> 0:11:18.720 If we're not, you know, in a scenario that looks 0:11:18.760 --> 0:11:20.760 like a recession, well then you just get some inflation 0:11:20.880 --> 0:11:23.439 coming right back and you're just stably at something like 0:11:23.480 --> 0:11:24.400 three to four percent. 0:11:24.920 --> 0:11:27.400 When you talk about market action and at what point 0:11:27.440 --> 0:11:30.240 the FED is actually transmitting their policy through the long 0:11:30.360 --> 0:11:33.440 end of the yield curve? Veronica, how much has the 0:11:33.520 --> 0:11:36.600 yield move higher that we've seen the highest levels going 0:11:36.600 --> 0:11:39.480 back to two thousand and seven created a greater pressure 0:11:39.520 --> 0:11:43.800 that could actually knock inflation down more versus actually being 0:11:43.840 --> 0:11:46.120 sustainable and something that we see over a longer period 0:11:46.160 --> 0:11:46.560 of time. 0:11:47.160 --> 0:11:49.720 Yeah, I mean the moves of course and longer ideals 0:11:49.760 --> 0:11:51.240 that we've had in the last couple of weeks are 0:11:51.360 --> 0:11:54.720 tightening financial conditions, you know, that will help slow things down. 0:11:54.840 --> 0:11:57.080 You know, we do still have a recession in our 0:11:57.400 --> 0:12:00.439 base case for next year because of this tightening of 0:12:00.520 --> 0:12:04.160 financial conditions. And yeah, the transmission of higher rates really 0:12:04.160 --> 0:12:07.040 didn't you flow through with the normal four to six 0:12:07.200 --> 0:12:10.280 quarter lag that we were expecting. And maybe that's because 0:12:10.559 --> 0:12:12.880 you know, you know, corporations have turned out their debts. 0:12:12.960 --> 0:12:15.400 You know, people are just not as sensitive to high rates. 0:12:16.280 --> 0:12:18.640 But that doesn't mean that they won't be as those 0:12:18.720 --> 0:12:21.840 kinds of factors fade. So I think you can still 0:12:21.880 --> 0:12:23.439 expect some some slowing at some. 0:12:23.480 --> 0:12:24.880 Point from from higher rates. 0:12:25.679 --> 0:12:28.559 But the FED Zone forecast, you know kind of incorporated 0:12:28.600 --> 0:12:31.440 that higher for longer narrative, but you really didn't see 0:12:31.440 --> 0:12:33.439 it in their growth forecast. You know, the FED is 0:12:33.480 --> 0:12:35.960 still very much on this, you know, ideal soft landing 0:12:36.040 --> 0:12:36.720 kind of path. 0:12:37.640 --> 0:12:42.160 To be clear, veron a cut which measurement of disinflation 0:12:42.320 --> 0:12:45.040 do you and Andrew use? Are you wedded like I 0:12:45.080 --> 0:12:48.440 am to three months annualized because it was beaten into 0:12:48.440 --> 0:12:51.600 me as a young child, or do you use another 0:12:51.760 --> 0:12:55.400 measurement here of the gradient of disinflation? 0:12:56.280 --> 0:12:58.520 Yeah, I think something like a three month, three month 0:12:58.559 --> 0:13:00.920 annualized is a good way to look at the current trend. 0:13:01.440 --> 0:13:03.480 You know, obviously there's been a lot of focus the 0:13:03.600 --> 0:13:07.199 last year or so on on the core non shelter services. 0:13:07.240 --> 0:13:10.559 You know, those are the services like recreation or transportation, 0:13:10.679 --> 0:13:13.199 you that are tied really to tight labor markets and 0:13:13.240 --> 0:13:14.040 strong wage growth. 0:13:14.080 --> 0:13:16.360 So we look at all of those measures. 0:13:16.440 --> 0:13:18.080 But in the end, you know, the you know, the 0:13:18.120 --> 0:13:20.120 most important measure is the one that the FED will 0:13:20.120 --> 0:13:23.439 be targeting, and that's total PC inflation. And of course 0:13:23.480 --> 0:13:26.559 they'll look at core inflation and all of those components 0:13:26.600 --> 0:13:29.120 do matter, you know, the path for goods, prices or 0:13:29.160 --> 0:13:30.319 shelter it all does matter. 0:13:30.600 --> 0:13:32.760 It all is measuring you know what people are spending. 0:13:33.760 --> 0:13:37.120 Veronica, thank you so much. Veronica Clark with City Group 0:13:41.040 --> 0:13:43.680 joining us now to save the show. Alan Ruskin, Chief 0:13:43.720 --> 0:13:47.840 International Strategists, do you bank, joint your bank? And we're 0:13:47.880 --> 0:13:49.760 thrilled he could join us this morning because he has 0:13:49.760 --> 0:13:54.880 an incredible note out on American exceptionalism. Ala. I just 0:13:55.080 --> 0:13:57.760 love what you say about the good and the bad 0:13:57.800 --> 0:14:01.520 of where we are within this market oil. There's a 0:14:01.640 --> 0:14:05.480 whole feeling on a Friday. Wait, we're American, will persevere, 0:14:05.640 --> 0:14:10.800 will get through this? Describe how America is different given 0:14:10.840 --> 0:14:15.520 the bond instability we see. 0:14:15.600 --> 0:14:18.800 Tom, Look, I think there's plenty of good. A lot 0:14:18.800 --> 0:14:22.160 of it relates to longer term growth factors. The US 0:14:22.280 --> 0:14:26.280 is very competitive in an array of different industries, new 0:14:26.480 --> 0:14:30.320 and old. The geopolitics, I think is very helpful as 0:14:30.360 --> 0:14:36.440 well in the defense industry, in semiconductors as just two industries. 0:14:36.960 --> 0:14:40.800 But on the negative side and perhaps not focused on 0:14:40.840 --> 0:14:44.000 all that much until very recently, has been what's been 0:14:44.000 --> 0:14:48.000 going on the public sector deficit and a cyclically adjusted 0:14:48.160 --> 0:14:52.080 general government deficit of minus six percent of minus seven percent, 0:14:52.400 --> 0:14:55.600 as far as the eye can see, would not be 0:14:55.720 --> 0:14:59.560 seen as sustainable for any country. 0:14:58.920 --> 0:15:01.240 Other than perhaps the the United States. 0:15:01.440 --> 0:15:06.600 With a Putin invasion. David Falkartzlando was out front on this. Now, 0:15:06.600 --> 0:15:10.960 we had in America what Olivier Blanchard calls the Biden stimulus, 0:15:11.360 --> 0:15:14.040 a series of stimuli, and folks, we know we got 0:15:14.040 --> 0:15:16.320 to the last one and the way we went, we 0:15:16.360 --> 0:15:18.840 don't have that crutch anymore on Roscin. How are we 0:15:18.880 --> 0:15:21.920 going to get the fiscal support that your colleague David 0:15:21.960 --> 0:15:23.680 Falkartzlando talks about. 0:15:25.120 --> 0:15:28.120 Well, hopefully we won't need the fiscal support to the 0:15:28.160 --> 0:15:32.440 extent that what you're seeing on the public sector side 0:15:32.520 --> 0:15:35.920 does have a mirror image on the private sector side. 0:15:35.960 --> 0:15:39.400 So the deficit on the public sector side is offset 0:15:39.440 --> 0:15:42.640 to a large extent by the surplus on the private 0:15:42.680 --> 0:15:43.520 sector side. 0:15:43.640 --> 0:15:45.040 And that's why the current. 0:15:44.800 --> 0:15:47.640 Account, which usually is the sort of thing that's flashing red, 0:15:47.880 --> 0:15:51.680 particularly for foreign exchange guys, that has not been flashing 0:15:51.720 --> 0:15:54.280 red at this point in time. To me, the problem 0:15:54.320 --> 0:15:57.440 that you're seeing right now is more about the financing 0:15:57.480 --> 0:16:00.640 of the public sector deficit. And you're seeing that, you know, 0:16:00.720 --> 0:16:05.160 sort of disconcerted movement in the bond market, I think 0:16:05.240 --> 0:16:08.120 is reflective of that. The fact that the Fed's doing 0:16:08.200 --> 0:16:11.560 qt the fact that China and Japan are not necessary 0:16:11.600 --> 0:16:14.520 buying all the onus and burden is falling on the 0:16:14.560 --> 0:16:18.400 household sector, which normally, you know, in directly only holds 0:16:18.400 --> 0:16:21.560 about ten percent of outstanding treasuries. That is a unique 0:16:21.560 --> 0:16:25.040 set of circumstances, and I think it's draining liquidity from 0:16:25.080 --> 0:16:28.720 the banking sector as the household sector shifts from deposits 0:16:28.760 --> 0:16:32.200 into treasuries, and it's exacerbating the banking sector problem. 0:16:32.280 --> 0:16:35.040 And I wanted to bring up something Steve Major mentioned 0:16:35.040 --> 0:16:38.400 over HSBC that I think contributes to this conversation, and 0:16:38.440 --> 0:16:40.480 he made the point that what's important here is not 0:16:40.560 --> 0:16:43.520 just the deficit. It's the deficit at a time where 0:16:43.560 --> 0:16:46.240 we have an expansion and not a contraction in the 0:16:46.320 --> 0:16:47.880 US economy. How vital is that point? 0:16:47.960 --> 0:16:51.320 Allan, Yeah, And I think that's exactly why we sort 0:16:51.320 --> 0:16:53.680 of cyclically adjust these things, so we kind of like, 0:16:53.760 --> 0:16:56.440 you know, you know, you might have somewhat better public 0:16:56.520 --> 0:17:00.160 sector data right now, but when you cyclically adjust that, 0:17:00.520 --> 0:17:04.320 you allow for measures like output gaps, et cetera, you 0:17:04.359 --> 0:17:06.359 get a better sense of the trend. And the trend 0:17:06.480 --> 0:17:07.200 is very poor. 0:17:07.280 --> 0:17:07.520 Really. 0:17:07.560 --> 0:17:09.640 I think that's you know, that's that's the key point. 0:17:10.240 --> 0:17:13.240 You know, I think most estimates suggests the general government 0:17:13.280 --> 0:17:16.240 deficit of sixty seven percent, but those numbers that I 0:17:16.320 --> 0:17:18.040 just mentioned are reasonable. 0:17:18.400 --> 0:17:20.800 Is there any chance, Allen, then you could see some 0:17:20.840 --> 0:17:24.040 sort of weakening cycle in the dollar following the incredible 0:17:24.080 --> 0:17:26.439 strength that we've seen over the past few months, simply 0:17:26.480 --> 0:17:29.440 because the backdrop is deteriorating and some data is coming 0:17:29.440 --> 0:17:31.800 out better than expected from the likes of Europe and 0:17:31.800 --> 0:17:33.440 even China on the peripheries. 0:17:34.760 --> 0:17:36.760 Yeah, I think you know, what you're seeing on this side, 0:17:37.000 --> 0:17:39.760 at least from the financing side, is initially whilst fine 0:17:39.840 --> 0:17:42.960 hills are backing up, it's actually you know, quite positive 0:17:42.960 --> 0:17:45.240 for the dollar. It can be very positive for the 0:17:45.280 --> 0:17:48.879 dollar versus em and commodity currencies. I think, you know, 0:17:48.920 --> 0:17:50.919 when you get too much of a good sort of 0:17:51.040 --> 0:17:54.359 good thing, at least in foreign exchange terms, and you know, 0:17:54.440 --> 0:17:56.920 bond hills back up more than the Fed would wind, 0:17:57.600 --> 0:17:59.800 you could get into a situation where the Feds are 0:17:59.800 --> 0:18:02.320 sent actually lost ConTroll of the back end of the curve, 0:18:02.920 --> 0:18:04.919 and the economy is slowing, and then they have to 0:18:04.960 --> 0:18:08.159 cut rates much more aggressively at the front end, and 0:18:08.240 --> 0:18:10.679 when you reach any of that sort of points where 0:18:11.119 --> 0:18:14.760 the yield curve is starting to steepen sharply, you know, 0:18:14.800 --> 0:18:17.119 and it's a front end that's leading the steepening, that 0:18:17.160 --> 0:18:19.520 would be a major dollar negative. I think that's a 0:18:19.560 --> 0:18:21.840 story that could be around for the second half of 0:18:21.840 --> 0:18:24.240 twenty twenty four. It's not a story for the end 0:18:24.280 --> 0:18:25.280 of twenty twenty three. 0:18:25.600 --> 0:18:27.840 Alan just to sort of build on that, are you 0:18:27.920 --> 0:18:30.399 saying that right now it seems like the FED is 0:18:30.440 --> 0:18:32.760 losing control over the long end of the yield curve, 0:18:32.800 --> 0:18:36.399 that what we're seeing seems a little unmoored and not 0:18:36.640 --> 0:18:38.639 good for the FED officials that are watching it. 0:18:40.119 --> 0:18:42.639 Not yet, I would say, and you're seeing this in 0:18:42.720 --> 0:18:45.480 terms of FED officials are not really talking about excessive 0:18:45.520 --> 0:18:48.639 financial conditions tightening. I think at this point in time 0:18:48.960 --> 0:18:53.800 they recognize that perhaps it wasn't sufficient tightening from financial 0:18:53.840 --> 0:18:57.360 conditions led not least by a very well behaved bond market. 0:18:57.480 --> 0:19:00.000 But I think we're seeing the beginnings of an unraveler, 0:19:00.560 --> 0:19:02.720 and we watched we have to watch this very very 0:19:02.720 --> 0:19:06.200 closely because the financing element is truly in a unique 0:19:06.200 --> 0:19:08.760 phase in terms of this dependence on the household sector. 0:19:08.840 --> 0:19:10.399 And I'm really wanted a word on the BOJ and 0:19:10.440 --> 0:19:13.080 what's happened in the JGB market the BOJ stepping in. 0:19:13.320 --> 0:19:15.639 Do you get the impression that the Japanese authorities are 0:19:15.680 --> 0:19:18.160 more concerned about the bond market move than maybe they 0:19:18.160 --> 0:19:19.400 are the feign exchange move. 0:19:20.359 --> 0:19:22.920 I think they're sort of straddling a fine line here. 0:19:23.000 --> 0:19:26.320 I don't think they want, you know, Dolly yen much 0:19:26.480 --> 0:19:31.280 above one fifty or above one fifty at all. There's 0:19:31.480 --> 0:19:33.320 I don't think it's a firm line in the sand. 0:19:33.520 --> 0:19:37.560 I think they've used the bond market. They've effectively allowed 0:19:37.600 --> 0:19:40.440 the JGB heels in the tenure sector to drift up 0:19:40.720 --> 0:19:44.840 to protect the one fifty level of late. So it 0:19:44.920 --> 0:19:47.119 might look like a contradiction right now in terms of 0:19:47.160 --> 0:19:49.760 intervening of the bond market, but I think the tendency 0:19:49.840 --> 0:19:52.640 over time will be for that tenure heel to drift up. 0:19:52.760 --> 0:19:55.080 It's just going to have to drift up slowly, I think, 0:19:55.160 --> 0:19:57.320 in terms of you know what the BOJ is signaling. 0:19:57.480 --> 0:19:59.560 And thank you sir for the update this morning, and 0:19:59.600 --> 0:20:02.640 great on the BLCHI yesterday as well. Enjoyed that rate 0:20:02.720 --> 0:20:04.200 And I'm Ruskin at deoutsche Bank. 0:20:14.080 --> 0:20:19.520 I'm joining us now Patrick Anderson of Michigan, Founder, chief 0:20:19.560 --> 0:20:22.640 executive officer Anderson Economic Group. But far more than that, 0:20:23.200 --> 0:20:28.080 arguably the greatest student of how Detroit became Detroit, what 0:20:28.119 --> 0:20:31.639 Detroit is now, and maybe the hope in prayer of 0:20:31.680 --> 0:20:35.639 what Detroit will become. Patrick, thanks so much for joining. Again, 0:20:35.720 --> 0:20:39.560 we're talking before the segment here on the chaos of 0:20:39.600 --> 0:20:43.480 the industry, Like GM can't build a muscle car, so 0:20:43.520 --> 0:20:46.440 they had to go to Holden of Australia to build 0:20:46.440 --> 0:20:49.480 the Pontiac GA because they didn't have the knowledge to 0:20:49.560 --> 0:20:54.040