WEBVTT - Surveillance: Soft Landing with Oppenheimer 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.000 with Jonathan Farrell and Lisa A. Bramowitz. Join us each 0:00:12.080 --> 0:00:16.160 day for insight from the best and economics, geopolitics, financing 0:00:16.160 --> 0:00:20.680 and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.920 --> 0:00:25.480 Spotify and anywhere you get your podcasts, and always I'm 0:00:25.480 --> 0:00:29.800 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.840 --> 0:00:34.640 Joining us now from our offices in London, John Ferrell, John, 0:00:34.720 --> 0:00:37.760 your accent has changed this week. It's worse than normal. 0:00:38.560 --> 0:00:40.720 Just to be Claire. I am funded in dollars Tom 0:00:40.800 --> 0:00:42.480 for the tenth time, and that's where I pay taxes 0:00:42.479 --> 0:00:43.800 as well. I want to clear that up. And for 0:00:43.840 --> 0:00:46.120 the second point, I'll mate Tom the chancel. I was 0:00:46.120 --> 0:00:48.240 only here to warm up the seat for Peter Roppenheimer, 0:00:48.440 --> 0:00:52.760 a common Sacks, the chief Glove Electritly strategist. Peter knows 0:00:52.840 --> 0:00:55.240 that anyway, Petty, you're a popular man this year. And 0:00:55.280 --> 0:00:58.560 good afternoon to year slash, good morning. I guess European equities, 0:00:58.600 --> 0:01:01.160 that's what it's all about. It's front season. When you 0:01:01.200 --> 0:01:04.360 go around doing these conferences, do they buy the hype 0:01:04.560 --> 0:01:06.319 in Europe after hearing it for the tenth time in 0:01:06.319 --> 0:01:10.080 the last ten years. Very slowly, people are warming up 0:01:10.080 --> 0:01:12.080 to it and it's been a long time coming. I 0:01:12.120 --> 0:01:18.240 know that. But performance attracts investors, and we've seen, you know, 0:01:18.360 --> 0:01:22.240 thirty percent rebound in the European market since October, at 0:01:22.280 --> 0:01:25.959 least in dollar terms, and that is starting to energize 0:01:25.959 --> 0:01:28.840 a bit of interest in the region, and it reflects 0:01:28.840 --> 0:01:32.399 the big shift we've seen towards value again, something we 0:01:32.400 --> 0:01:34.920 haven't seen now for more than a decade. So clearly 0:01:34.959 --> 0:01:38.399 we've priced that recession. We've priced in stagnation stagnation, and 0:01:38.440 --> 0:01:40.720 investors are focused on the difference between the two. I 0:01:40.800 --> 0:01:42.280 get all that, but now we need to talk about 0:01:42.280 --> 0:01:45.399 the difference between stagnation and real recovery and expansion. And 0:01:45.400 --> 0:01:47.360 that's been a theme for us this week. When do 0:01:47.440 --> 0:01:49.080 we start to focus on the fact that there is 0:01:49.120 --> 0:01:51.200 no growth in Europe is just an absence of a 0:01:51.200 --> 0:01:53.480 recession and what we've seen so far is a bit 0:01:53.480 --> 0:01:56.360 of a squeeze and relief rally and perhaps nothing else. Well, 0:01:56.400 --> 0:01:58.320 I think we need to put it in context here. 0:01:58.360 --> 0:02:01.800 We think that the loloibal economy is in a relatively 0:02:01.880 --> 0:02:05.320 good shape, and we expect to see a soft landing 0:02:05.360 --> 0:02:07.280 in the US, but we also now expect to see 0:02:07.280 --> 0:02:10.240 a relatively soft landing in Europe. The falls and gas 0:02:10.280 --> 0:02:12.720 prices have helped to pick up in China as well. 0:02:13.280 --> 0:02:15.799 But the absence of recession, as you say, doesn't mean 0:02:15.800 --> 0:02:18.640 we're yet into a strong recovery cycle. And I think 0:02:19.240 --> 0:02:22.080 the rebound that we've seen in risk assets in the 0:02:22.120 --> 0:02:26.280 last couple of months is overstating the potential from here. 0:02:26.400 --> 0:02:29.079 At the index level, We've got flat returns in the 0:02:29.200 --> 0:02:32.280 US this year, slightly positive returns in Europe, so we 0:02:32.360 --> 0:02:34.640 prefer Europe. We think most of the action is going 0:02:34.639 --> 0:02:37.440 to be below the surface of the index. Let's talk 0:02:37.440 --> 0:02:40.680 about those opportunities banks have ripped in Europe. They're up 0:02:40.680 --> 0:02:43.280 about fifty from the July lows. I picked out a 0:02:43.280 --> 0:02:44.880 minor because I know you like some of those names 0:02:44.880 --> 0:02:48.400 as well, Rio since October's up something like these are 0:02:48.600 --> 0:02:51.120 huge monster moves. And credit to you, guys, because you've 0:02:51.120 --> 0:02:53.000 got on board this bank's trade in Europe at a 0:02:53.000 --> 0:02:54.799 time where I was sitting there thinking, you've got to 0:02:54.800 --> 0:02:56.519 be kidding me. We're gonna get great hikes from the 0:02:56.560 --> 0:02:58.120 E c B. It's going to crush the economy and 0:02:58.120 --> 0:03:00.519 peripheral spreads are gonna blow out all over again. Why 0:03:00.560 --> 0:03:02.880 has that trade worked and why do you think it 0:03:02.880 --> 0:03:05.960 will continue to work? Well? I think there are three things. 0:03:06.200 --> 0:03:09.200 First of all, the recession that people feared six months 0:03:09.240 --> 0:03:12.639 ago is not happening. There was a point where the 0:03:12.680 --> 0:03:14.800 market was pricing in quite a big downturn in the 0:03:14.800 --> 0:03:20.400 European economy. The expectations there are adjusting pretty quickly. We 0:03:20.440 --> 0:03:24.080 actually have points six percent GDP growth across the Eurozone 0:03:24.160 --> 0:03:26.959 this this year, so the economy is growing, not shrinking. 0:03:27.040 --> 0:03:29.800 That helps a lot. Second, of all, the rise and 0:03:29.840 --> 0:03:33.600 interest rates we're seeing is material given where we've been 0:03:33.800 --> 0:03:36.880 where they came from. Remember, you know, just a year 0:03:36.920 --> 0:03:40.600 and a half ago, all government debt in the world 0:03:40.640 --> 0:03:44.680 had a negative yield. Now that doesn't exist. European rates 0:03:44.680 --> 0:03:47.920 were negative, now they're positive. The leverage to that in 0:03:48.000 --> 0:03:50.880 terms of net interest margins is the real game changer. 0:03:51.520 --> 0:03:55.280 And bear in mind that corporate balance sheets are reasonably healthy, 0:03:55.360 --> 0:03:59.040 so low losses and the risk of the big downturn 0:03:59.200 --> 0:04:02.880 hitting bang is just evaporating. And the third, factories they 0:04:02.880 --> 0:04:05.680 were just really cheap and they remain pretty cheap. They're 0:04:05.720 --> 0:04:09.000 cheaper now when you look at the multiple relative to 0:04:09.040 --> 0:04:11.640 the market than they were even during the sovereign debt 0:04:11.640 --> 0:04:14.240 crist We started this conversation by you talking about how 0:04:14.320 --> 0:04:17.120 challenge the index level is. We've talked about that a 0:04:17.120 --> 0:04:19.960 lot in Europe. The absence of tech in Europe as 0:04:20.000 --> 0:04:21.960 a big waiting in the overall index was seen as 0:04:21.960 --> 0:04:24.400 a weakness for a long long time. Is that a 0:04:24.440 --> 0:04:26.520 strength this year? Because I'm looking at the year to 0:04:26.560 --> 0:04:28.560 day performance of some of these tech names, Leasa, We're 0:04:28.600 --> 0:04:30.520 just going through them, those tech names in the US, 0:04:30.839 --> 0:04:34.000 despite everyone's saying it's game over, they're flying here today. 0:04:34.160 --> 0:04:36.520 Is the absence of big tech in the index in 0:04:36.600 --> 0:04:40.760 Europe a weakness or strength? Structurally, it's a weakness because 0:04:40.920 --> 0:04:43.400 there is going to be more growth in the tech sector. 0:04:43.440 --> 0:04:47.120 It's going to remain the most important driver of growth 0:04:47.160 --> 0:04:51.920 I think for the next decade. The constituents are likely 0:04:52.000 --> 0:04:55.720 to change over time. That's always been true of technology 0:04:55.760 --> 0:04:59.000 in the past. You'll get new innovations which will generate 0:04:59.160 --> 0:05:02.159 higher return and so I think it is a problem 0:05:02.200 --> 0:05:05.240 in a way that Europe doesn't have many big tech names. 0:05:05.880 --> 0:05:09.400 But of course the recent rally we've seen in tech 0:05:09.560 --> 0:05:13.280 is partly because of this rally again in bond yields, 0:05:13.320 --> 0:05:17.880 interest rates coming down because of fears of inflation moderating, 0:05:18.360 --> 0:05:21.280 and that's helped the longer duration parts of the market. 0:05:21.839 --> 0:05:25.000 I think really the whole concept of being in growth 0:05:25.080 --> 0:05:29.479 or value, which is really driving the markets over last decade, 0:05:29.600 --> 0:05:32.440 is not really the story anymore. I think you need 0:05:32.480 --> 0:05:36.239 to have a much more eclectic mix, including deep value 0:05:36.279 --> 0:05:39.920 areas like commodities and banks, but also companies that can 0:05:39.960 --> 0:05:42.680 sustain stable margins and earnings, and some of that will 0:05:42.720 --> 0:05:45.520 be in the tech sector as well. Europe does have 0:05:45.640 --> 0:05:49.000 many of these, maybe not specifically in technology, but our 0:05:49.080 --> 0:05:51.480 group of what we call the Granolas, the ten really, 0:05:51.520 --> 0:05:54.839 which you've talked about before, super size companies in Europe, 0:05:54.839 --> 0:06:01.600 which mainly in areas like consumer staples, luxury, healthcare, and 0:06:01.680 --> 0:06:06.240 some technology. These companies are about a quarter of the index, 0:06:06.279 --> 0:06:09.800 and they're still growing because they're generating stable margins and 0:06:09.920 --> 0:06:11.840 very strong cash flews, and I think they will continue 0:06:11.839 --> 0:06:13.960 to do well. I've got time for one more. It's 0:06:14.000 --> 0:06:17.120 interesting to me that the market always seems to dictate 0:06:17.160 --> 0:06:20.839 the stories we talk about. Price shapes sentiment. You know that, 0:06:21.200 --> 0:06:23.680 and the headlines often come about from where the market 0:06:23.760 --> 0:06:26.200 is on any given week. And clearly we've rallied year 0:06:26.240 --> 0:06:28.400 today in Europe, and clearly we've rallied over the last 0:06:28.400 --> 0:06:30.400 couple of months, and clearly we've priced out of recession. 0:06:30.400 --> 0:06:32.680 And clearly off the back of that, the conversation and 0:06:32.720 --> 0:06:35.560 the tone of the conversation has changed. Being here in 0:06:35.600 --> 0:06:38.400 London this week, you can't escape the fact there is 0:06:38.400 --> 0:06:41.839 still a war in Europe, and for many reasons, based 0:06:41.839 --> 0:06:44.040 on what's happened over the last month or so, there 0:06:44.040 --> 0:06:45.880 are reasons to sit here and say that war has 0:06:45.920 --> 0:06:49.520 the real potential of escalating again. I understand we've escaped 0:06:49.560 --> 0:06:51.560 what could have been a much much more brutal winter 0:06:51.960 --> 0:06:54.720 on the continent. I'm just wandering this down and I'm 0:06:54.720 --> 0:06:56.599 going to have this conversation with and read a center 0:06:56.600 --> 0:06:59.359 of Energy Aspects in about forty minutes. How long before 0:06:59.360 --> 0:07:01.440 we start worry think about next winter in Europe and 0:07:01.480 --> 0:07:04.120 what is actually happening in Ukraine. I think you make 0:07:04.160 --> 0:07:07.520 a very good point. Part of the optimism that we've 0:07:07.560 --> 0:07:10.080 been seeing priced in is based on the collapse and 0:07:10.120 --> 0:07:13.920 gas prices. That reflects really two things a very mild winter, 0:07:14.200 --> 0:07:17.040 which we can't assume we'll be repeated next year, and 0:07:17.080 --> 0:07:21.680 also a very weak Chinese economy that allowed and enabled 0:07:21.720 --> 0:07:26.480 European governments to to to find other sources of gas supplies. 0:07:26.560 --> 0:07:30.840 And as China recovers and Europe needs to re stock 0:07:31.240 --> 0:07:34.760 its gas supplies are probably higher prices, that issue will 0:07:34.800 --> 0:07:37.240 come back. And that's a game where we're slightly more 0:07:37.280 --> 0:07:41.080 tempered in our optimism about the pace of the recovery 0:07:41.080 --> 0:07:42.920 at the index level over the course of this year, 0:07:43.080 --> 0:07:45.680 not just in Europe but across extras overall. Peter, this 0:07:45.800 --> 0:07:47.720 was great. We're gonna make it up to Manchester this 0:07:47.800 --> 0:07:51.200 evening to watch Arsenal mad cities that happening, But you're 0:07:51.240 --> 0:07:53.400 going to t t Case trying to make it happen 0:07:53.440 --> 0:08:06.280 for us. When she speaks the fixed thing come world 0:08:06.360 --> 0:08:09.800 just simply stops. It is the heritage of society general. 0:08:10.200 --> 0:08:13.480 They own the high ground of French math and derivative science. 0:08:13.800 --> 0:08:17.600 Sobrato ra Jappa joins us this morning. Sobrata help me. 0:08:17.680 --> 0:08:21.120 Let's go sack gen derivatives right now, which is calculus, 0:08:21.160 --> 0:08:24.640 which is rates of change. What's the rate of change? 0:08:24.720 --> 0:08:29.120 Story in the bonds space this January as we see 0:08:29.120 --> 0:08:33.680 a bull equity market, so the biggest rate of change 0:08:33.800 --> 0:08:35.520 was at the end of the year. Coming into this year, 0:08:36.040 --> 0:08:39.680 we haven't really seen bonds move meaningfully higher or lower 0:08:40.240 --> 0:08:43.040 from around the three and a half percent level in 0:08:43.120 --> 0:08:45.800 tenure yields. So for the most part, we seem to 0:08:45.800 --> 0:08:48.760 be kind of stuck here. Um. You know, part of 0:08:48.800 --> 0:08:53.800 the reason is because fundamentally bonds look rich relative to fundamentals, 0:08:54.160 --> 0:08:57.080 and then you have a story where there's just a 0:08:57.200 --> 0:09:00.960 tremendous amount of demand for bonds. You get the auction 0:09:01.120 --> 0:09:04.840 stats for this week, we saw a very very strong demand, uh, 0:09:04.880 --> 0:09:07.640 you know, from bonds from a variety of investors. So 0:09:07.679 --> 0:09:10.440 the cash that's in the sidelines is being put to 0:09:10.480 --> 0:09:13.640 work in the bond market. I totally agree, and we've 0:09:13.640 --> 0:09:17.280 spent a lot of time this week folks on issuance ideas. 0:09:17.960 --> 0:09:20.520 If there's a shortage of bonds, that's what Sir John 0:09:20.520 --> 0:09:24.240 Templeton would have said years ago, what happens to yield 0:09:24.280 --> 0:09:28.360 over the space of this year. I don't think that 0:09:28.400 --> 0:09:30.240 there's a shortage of bonds. There's going to be a 0:09:30.280 --> 0:09:33.800 decent amount of issuance coming from you know, corporate, corporate 0:09:33.840 --> 0:09:37.160 bond world. We're seeing a lot of issuance in treasuries. 0:09:37.520 --> 0:09:42.320 If anything, our called going into the spring time frame 0:09:42.800 --> 0:09:45.880 was that the treasury will increase it's it's coopon issuance 0:09:45.920 --> 0:09:49.240 sizes because deficits are continuing stress. I mean that, of course, 0:09:49.280 --> 0:09:51.200 we'll have to wait and see because of the of 0:09:51.280 --> 0:09:54.160 the dead ceiling, but broadly speaking, I think that's a 0:09:54.240 --> 0:09:57.280 there's a there's a decent amount of supply coming into bonds, 0:09:57.640 --> 0:09:59.840 not just in the in the US and the corporate bond, 0:10:00.120 --> 0:10:03.280 but also in Europe in the first first quarter. So 0:10:03.320 --> 0:10:07.480 there's a lot of bonds that out there to be bought. Uh. 0:10:07.520 --> 0:10:10.040 And that's why we were expecting perhaps a modest you know, 0:10:10.160 --> 0:10:12.920 modestly higher yields for the market to be able to 0:10:12.960 --> 0:10:15.600 take down the additional supply. But that's not the case. 0:10:15.679 --> 0:10:17.680 It's just tremendous amount of demand and people are willing 0:10:17.679 --> 0:10:20.240 to lop up bonds tenny years around three and a 0:10:20.280 --> 0:10:23.360 half percent about her how long all this last? This rally, 0:10:23.400 --> 0:10:28.240 this optimism that you see preventing every asset class. You know, 0:10:28.360 --> 0:10:32.080 the data for the most part has been mixed, but 0:10:32.080 --> 0:10:34.679 but on the positive side, you look at the data 0:10:34.720 --> 0:10:38.240 from from yesterday that we got for the fourth quarter GDP, 0:10:38.720 --> 0:10:41.440 there's a decent amount of momentum going into into the 0:10:41.480 --> 0:10:44.720 fourth quarter, um, you know, and you're looking at an 0:10:44.720 --> 0:10:48.360 employment picture that's still extraordinarily strong, even though you're getting 0:10:48.360 --> 0:10:52.120 a lot of news about layoffs in the tech sector. Uh. 0:10:52.160 --> 0:10:54.559 You know, look at initial jobless claims yesterday, it was 0:10:54.720 --> 0:10:57.000 very very low. That it tends to be very good 0:10:57.360 --> 0:11:01.079 leading indicator of the jobs market. So this sort of environment, 0:11:01.240 --> 0:11:04.840 the market is actually, in my view, underpricing the risk 0:11:04.840 --> 0:11:07.320 of heights for this year. We're looking at perhaps two 0:11:07.360 --> 0:11:09.920 heights being priced in for the first half of the year, 0:11:10.240 --> 0:11:12.199 and then it cut being priced in as early as 0:11:12.280 --> 0:11:15.880 July or September of this year, which you know, that 0:11:15.960 --> 0:11:18.400 sort of trajectory doesn't make any sense in an environment 0:11:18.640 --> 0:11:21.880 where inflation is expected to remain high and sticky. I mean, 0:11:21.920 --> 0:11:24.360 look at what happened in Japan. I mean, we saw 0:11:24.600 --> 0:11:27.120 you know, an outside sprint, uh, you know, relative to 0:11:27.160 --> 0:11:31.280 consensus on on on inflation. So there's always a possibility that, 0:11:31.320 --> 0:11:34.680 you know, we do get those sort of volatile inflation prints, 0:11:34.679 --> 0:11:36.800 and the market has to respond and the Fed has 0:11:36.800 --> 0:11:39.160 to respond in like as well, So what's the read 0:11:39.200 --> 0:11:41.480 through to market? So what kind of disruption and will 0:11:41.520 --> 0:11:44.000 there be if the Fed surprises to the upside, perhaps 0:11:44.000 --> 0:11:46.680 on a fifty basis point rate hike next week, but 0:11:46.800 --> 0:11:48.920 does indicate that they're going to go further than a 0:11:48.960 --> 0:11:53.080 lot of people are currently pricing in. How disruptive is it? 0:11:53.080 --> 0:11:55.520 It will be destructive. That's why I think that they are. 0:11:55.720 --> 0:12:00.120 The Fed typically tends to stick with the market pricing. 0:12:00.480 --> 0:12:03.040 If the market is not fully priced, they'll find ways 0:12:03.120 --> 0:12:05.800 to communicate the fact that they're going to be delivering 0:12:05.800 --> 0:12:07.599 more than what the markets pricing in and then the 0:12:07.640 --> 0:12:11.600 market will adjust. Um. But broadly speaking, I think that 0:12:11.960 --> 0:12:14.360 you know, twenty five basis point a hike, uh and 0:12:14.559 --> 0:12:16.960 at next week's meeting makes sense, and then you know 0:12:17.200 --> 0:12:21.560 another twenty five basis points in subsequent meetings. But I 0:12:21.600 --> 0:12:25.600 just don't see them stopping or pausing anytime. So, like 0:12:25.600 --> 0:12:29.520 the Bank of Canada suggested they will at this week's meeting. 0:12:30.000 --> 0:12:32.040 So then how does the dollar play into this because 0:12:32.040 --> 0:12:34.320 that might be actually a very different story than what 0:12:34.360 --> 0:12:37.160 people are pricing in there. Yeah, I mean I think 0:12:37.200 --> 0:12:40.840 the dollars come off. It's it's very lofty levels. Um. 0:12:40.880 --> 0:12:44.920 Broadly speaking, you're looking at the dollar versus say, the euro. 0:12:45.600 --> 0:12:48.000 H you look at the ECB. The CBS poised to 0:12:48.559 --> 0:12:51.720 high rates for the remainder of the year. Our economists 0:12:51.720 --> 0:12:55.720 are expecting that the ECB will raise its its deposit 0:12:55.840 --> 0:12:59.720 rates up to three point seven five. The markets underpricing 0:12:59.720 --> 0:13:02.720 that level as well. So broadly speaking, at least versus 0:13:02.840 --> 0:13:05.080 the the Euro, I think that the dollar could come 0:13:05.120 --> 0:13:08.120 under a little bit of pressure. The Bank of Japan 0:13:08.160 --> 0:13:10.520 as well is starting to adjust. It's it's it's y 0:13:10.559 --> 0:13:14.680 c C. So I think that you know, dollars definitely pete. 0:13:15.080 --> 0:13:17.679 I don't see a precipitous decline, but but a gradual 0:13:17.760 --> 0:13:21.160 decline as other central banks catch up on the policy front. 0:13:21.360 --> 0:13:23.800 So Brata, thank you so much, Sobrata Rajapa with us, 0:13:23.840 --> 0:13:31.400 with society in general. This is a joy because it 0:13:31.480 --> 0:13:33.200 is the heritage of what Neil saw Us did at 0:13:33.240 --> 0:13:36.800 Credit Sweeze. He is Ray Ferris, their chief economists joining us, 0:13:36.840 --> 0:13:38.760 and he and I are on the same page that 0:13:38.920 --> 0:13:44.160 everybody inflation adjusts. And Mr Harrison, I go, maybe not 0:13:44.920 --> 0:13:50.240 nominal GDP matters. What does the global credit suits outlook 0:13:50.679 --> 0:13:56.360 on the dynamic of nominal GDP with disinflation in place. Well, 0:13:56.360 --> 0:14:00.240 that's absolutely right. The key thing I think for corporate profitabity, 0:14:00.240 --> 0:14:05.200 the outlook for earnings is really nominal money and nominal 0:14:05.280 --> 0:14:09.319 GDP growth. After a boom in two thousand and late 0:14:09.320 --> 0:14:12.760 two thousand, early two THOWO is now slowing a lot. 0:14:12.800 --> 0:14:16.720 That's the disinflation process. So what that means is that 0:14:17.160 --> 0:14:19.800 at the top line, revenue growth is going to come down. 0:14:19.960 --> 0:14:23.880 We're already seeing that there's a good link between nominal 0:14:23.920 --> 0:14:27.760 GDP growth, swings and margins. Margins are going to come 0:14:27.760 --> 0:14:33.000 down and we're seeing that. And although we think that 0:14:33.040 --> 0:14:37.040 there will be consumption growth in two thousand three, that 0:14:37.080 --> 0:14:40.560 consumption growth, especially in the good sector, is going to 0:14:40.640 --> 0:14:46.440 be very very weak. So slowing revenues, squeezed margins, and 0:14:46.560 --> 0:14:48.840 not a whole lot of volume growth. Sitting in that 0:14:49.000 --> 0:14:51.520 chair this week have been a number of people modeling 0:14:51.560 --> 0:14:54.920 out some form of reaction function, trajectory, whatever you wanna 0:14:55.000 --> 0:14:58.200 call it, down to a level of disinflation that I 0:14:58.240 --> 0:15:04.080 think with shocker listeners, shocker viewers, some even modeling under 0:15:04.160 --> 0:15:07.200 three percent is an inflation picture for the United States. 0:15:07.680 --> 0:15:12.280 Are central bankers prepared to have their minds change when 0:15:12.280 --> 0:15:15.280 the facts change. Oh, the Fed's already moving. I mean 0:15:15.280 --> 0:15:18.520 you can see that the FED that this shift from 0:15:18.600 --> 0:15:22.960 fifties to five. And I suppose recently the comments out 0:15:23.000 --> 0:15:28.960 of UM Leo branderd suggests that the FED is beginning 0:15:28.960 --> 0:15:31.000 to kind of adjust to the fact that the economy 0:15:31.080 --> 0:15:33.920 is weakened and that it views itself as being in 0:15:33.960 --> 0:15:37.600 restrictive territory and at some point it's gonna pause. That's 0:15:37.600 --> 0:15:40.880 the right thing to do. UM. What they're not ready 0:15:40.920 --> 0:15:44.080 to do because of the level of inflation. It might 0:15:44.160 --> 0:15:47.120 just identify this, I think nicely. There's the month on 0:15:47.160 --> 0:15:49.800 month stuff, which looks pretty good, but then there's the 0:15:49.840 --> 0:15:51.840 fact that what the public cares about is the year 0:15:51.880 --> 0:15:54.160 on year numbers, and those things are still high. So 0:15:54.200 --> 0:15:56.720 the FED is going to have something of an asymmetric 0:15:57.400 --> 0:16:00.880 biased toward hawkishness until it can get those year on 0:16:00.960 --> 0:16:03.280 year numbers down safe territory and I think that's below 0:16:03.320 --> 0:16:05.440 three percent. So you mentioned Leo Brainard. Let's go there. 0:16:05.920 --> 0:16:08.920 Some people, including city groups Andrew hollin Horst, saying that 0:16:09.000 --> 0:16:11.720 if she does take the job with the White House, 0:16:11.960 --> 0:16:14.400 this could actually increase the hawkish tilt of the Federal 0:16:14.400 --> 0:16:17.720 Reserve that she was actually more of a moderating voice, saying, 0:16:17.840 --> 0:16:19.680 maybe the risks are a little bit more balanced. Do 0:16:19.680 --> 0:16:25.400 you agree, Well, maybe, or you know, I think there's 0:16:25.400 --> 0:16:29.320 probably some extent to which she's also been a trial balloon, 0:16:30.120 --> 0:16:33.360 you know. And this FED seems to me, in their 0:16:33.400 --> 0:16:37.880 communication strategy, to have been much more coordinated, um and 0:16:37.880 --> 0:16:42.800 and sort of game planned than say Feds of three 0:16:42.840 --> 0:16:44.440 or four or five years ago, when it was really 0:16:44.480 --> 0:16:46.440 just a talking shop in public. When it comes to 0:16:46.440 --> 0:16:50.360 the actual economic data. How much of people overlooking the 0:16:50.440 --> 0:16:54.520 Chinese coming online, the fact that China ended zero COVID 0:16:54.680 --> 0:16:56.200 and we're going to get some sort of boost with 0:16:56.240 --> 0:17:00.440 the consumer spending that perhaps could also juice and for 0:17:00.640 --> 0:17:03.720 commodities and for other goods exactly. We just wrote about this, 0:17:04.000 --> 0:17:06.160 and we think that at the global level, the impact 0:17:06.200 --> 0:17:08.160 this year is going to be pretty modest, at about 0:17:08.240 --> 0:17:11.239 zero point two percent of global GDP. Most of that 0:17:11.359 --> 0:17:14.520 is going to be focused outside of China. Most of 0:17:14.560 --> 0:17:18.080 that's going to be focused in Asia countries like Thailand 0:17:18.200 --> 0:17:20.760 and Singapore. The Philippines are gonna benefit as the Chinese 0:17:20.800 --> 0:17:25.000 begin to travel abroad again. UM. In Europe, maybe a 0:17:25.040 --> 0:17:28.440 small boost one and a half, sorry, zero point one 0:17:28.520 --> 0:17:32.080 to zero the United States, very small. The key thing 0:17:32.200 --> 0:17:35.080 is going to be the impact on energy prices, and 0:17:35.359 --> 0:17:37.800 this is one of the reasons why the FED at 0:17:37.840 --> 0:17:40.600 this stage, even with a succession a pretty good month 0:17:40.640 --> 0:17:45.600 on months, can't take for granted victory. If for whatever reason, 0:17:46.080 --> 0:17:48.199 the Chinese managed to drive up boil price as well 0:17:48.200 --> 0:17:50.560 above a hundred dollars a barrowable headline, inflation is going 0:17:50.600 --> 0:17:52.639 to return to being something of a problem. But you're not. 0:17:52.680 --> 0:17:54.879 You're under playing your knowledge base here. You own the 0:17:54.920 --> 0:17:57.640 Pacific room for credits suites for years and years and years. 0:17:57.640 --> 0:18:00.720 Nobody's hit raffles barre like you about on line is 0:18:00.880 --> 0:18:05.359 the bottom line is you're suggesting Brent crude with Pacific 0:18:05.480 --> 0:18:09.160 rim oil demand coming back, are you suggesting it could 0:18:09.200 --> 0:18:12.560 pop above a hundred and find new levels up at one? 0:18:12.680 --> 0:18:15.040 That's not our forecast set. Our forecast set is, you know, 0:18:15.160 --> 0:18:17.600 kind of around ninety where about where we are right now. 0:18:17.800 --> 0:18:20.640 What I'm saying is that it's been very, very difficult 0:18:20.680 --> 0:18:23.880 to predict. We have to recognize that the energy markets 0:18:23.960 --> 0:18:26.719 are very tight. You know, we're not getting as much 0:18:26.760 --> 0:18:29.000 of a response out of the United States in the 0:18:29.000 --> 0:18:32.600 shale patch, OPEC is sort of back in control. So 0:18:32.800 --> 0:18:34.680 you know is if I were the Fed, I'm sitting 0:18:34.720 --> 0:18:38.720 there is there a chance that for despite all my forecasting, 0:18:38.960 --> 0:18:41.480 that oil surprises to the top side and that really 0:18:41.600 --> 0:18:44.639 damages my inflation outlook, Yeah, there's a chance. So I 0:18:44.640 --> 0:18:46.959 can't take that risk. Again with your history of the 0:18:46.960 --> 0:18:50.200 Pacific RIM, do you just model out yield curve control 0:18:50.280 --> 0:18:52.800 goes away and we get yen stronger, back to where 0:18:52.840 --> 0:18:55.720 we knew it. I think that's right, but only after 0:18:56.119 --> 0:18:57.919 the new governor comes in. It was going to till 0:18:57.920 --> 0:19:00.399 the So we need to get the new governor in 0:19:00.440 --> 0:19:03.200 April and then we need a policy review, and then 0:19:03.280 --> 0:19:06.199 probably in June will take away your curve control. But 0:19:06.720 --> 0:19:08.639 note that JAB the b o J has a new 0:19:08.680 --> 0:19:13.600 facility that allows it to lend banks against j g 0:19:13.760 --> 0:19:18.040 B s at sub market yields. So it's created a 0:19:18.040 --> 0:19:21.840 facility that will allow it to manage the process of TENUA. 0:19:22.080 --> 0:19:24.960 It's almost like sterile it's almost like sterilized currency moves. 0:19:24.960 --> 0:19:27.399 They set up a sidecar move correct, almost like a 0:19:27.440 --> 0:19:30.639 sterilized yield curt control. So they it's the one place 0:19:30.680 --> 0:19:34.480 that wants inflation. You know, so externally the I M 0:19:34.560 --> 0:19:38.360 F may be excited about Japanese inflation, wells with the Japanese, 0:19:38.359 --> 0:19:41.800 except in the opposite direction they want it. Great, Farris, 0:19:41.800 --> 0:19:54.720 thank you so much. With Curtis Sez, we are going 0:19:54.760 --> 0:19:57.960 to stop right now. We can do this. With Richard Hass, 0:19:58.359 --> 0:20:00.200 it was my book of the summer, book of the year. 0:20:00.240 --> 0:20:03.520 I can't remember right now, but his book on how 0:20:03.640 --> 0:20:07.200 to figure out the New Western Civilization one oh one 0:20:07.600 --> 0:20:10.879 the world was so important. And he comes back with 0:20:10.960 --> 0:20:16.399 the jewel. It is the Bill of Obligations, but far more, Lisa, 0:20:16.560 --> 0:20:21.480 this goes back and this is corny but unbelievably tangible. 0:20:21.600 --> 0:20:28.320 Right now, a Scout is trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful. 0:20:28.359 --> 0:20:32.960 I memorize this once, thrifty, brave, clean, and Reverend Richard 0:20:33.000 --> 0:20:38.000 Hass takes us back to another time and primarily screams 0:20:38.080 --> 0:20:43.600 for some civility within our fractured American society. Congratulation on 0:20:43.680 --> 0:20:46.600 the ten habits of good citizens. Thank you, sir, it's 0:20:46.640 --> 0:20:49.800 so interesting you quote the Scouts oath. The Scouts are 0:20:49.840 --> 0:20:52.560 one of the very few organizations in America. Girl, Scouts 0:20:52.560 --> 0:20:55.359 and boy Scouts that actually teach civics, they actually are 0:20:55.400 --> 0:20:58.359 invested in the fabric of the society. It changed me. 0:20:58.520 --> 0:21:00.720 It is that the whole legal scout thing long time 0:21:00.760 --> 0:21:04.520 ago and and all that. How did we get here? 0:21:04.640 --> 0:21:07.840 How did our society get to where you had to 0:21:07.840 --> 0:21:12.919 write a piercing a hundred and fifty pages on America? 0:21:13.000 --> 0:21:16.080 Get your act together? A couple of reasons. One is 0:21:16.119 --> 0:21:18.960 we don't teach our story. The fact that we don't 0:21:19.040 --> 0:21:22.320 uh teach Civics in many schools. If we do teach it, 0:21:22.320 --> 0:21:24.840 it's an adequate. You can graduate from virtually any college 0:21:24.920 --> 0:21:28.080 or university nowt toime. And if you navigate your course 0:21:28.119 --> 0:21:31.960 distribution right, you'll never study physics civics. You won't understand 0:21:32.000 --> 0:21:35.080 the fact the basis physics for that. I sorry about that. 0:21:35.480 --> 0:21:38.159 Uh So there's that. I think media and social media 0:21:38.520 --> 0:21:41.320 has contributed to it. Increasingly people go into their own 0:21:41.320 --> 0:21:44.160 ecosystem or ecosystem, whichever you want to call it. They 0:21:44.160 --> 0:21:47.080 go for things to confirm their biases. Social media is 0:21:47.160 --> 0:21:49.360 much more about social than news, but this is increasing 0:21:49.440 --> 0:21:53.040 where people get not their information but their misinformation. I 0:21:53.080 --> 0:21:56.520 think there's I think people have also become more skeptical 0:21:56.560 --> 0:21:59.320 of government. You know, things you talk about on this show, 0:21:59.359 --> 0:22:01.560 the failure to manage the economy, well, things like the 0:22:01.600 --> 0:22:04.879 wars in Iraq and Afghanistan. It's created a sense of 0:22:05.040 --> 0:22:07.520