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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. We had some Peco

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Speaker 1: data today. Of the story of the day is the

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Speaker 1: inflation came in really much hotter than expected, pretty much

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Speaker 1: across the board, and we're seeing reflected here in the markets. Today.

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Speaker 1: Let's bring in our expert in all things on interest rates,

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Speaker 1: in the curve and all that kind of good stuff.

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Speaker 1: Iro Jersey, chief US interest rate strategist and chief soccer

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Speaker 1: strategist for Bloomberg Intelligence. I are a big print here today.

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Speaker 1: What's your takeaway as as to how we'll see the

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Speaker 1: Federal Reserve react next week? Yea, So, our our focus

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Speaker 1: really has been on the core services numbers UM, and

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Speaker 1: those continue to accelerate across the board. Like you said, Matt, uh,

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Speaker 1: you know that the the issue is if core inflation

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Speaker 1: really takes hold UM, it tends to trend for a

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Speaker 1: very long period of time. So, um so, given that

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Speaker 1: you have wages continuing to go up, you still have

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Speaker 1: very significant um, you know or very tight labor markets

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Speaker 1: in general that should help, you know, cause wages to

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Speaker 1: continue to climb. Um. You know that those two things

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Speaker 1: wanted to increase costs and therefore um therefore prices for

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Speaker 1: for goods and services. But but too, and I think

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Speaker 1: this is important. Um, those higher wages allow the consumer

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Speaker 1: to be able to absorb at least a portion of

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Speaker 1: those higher higher prices. So um so that that's how

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Speaker 1: this becomes sustainable and why inflation being you know, going

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Speaker 1: up is a real worry for the Fed, it is,

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Speaker 1: and they've been very clear, iras as you've been explaining

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Speaker 1: to us over the last several weeks and months about

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Speaker 1: their focus on inflation. Here when we do here from

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Speaker 1: the Fed next week, given this print we just had,

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Speaker 1: will we get any body language, any inkling of what

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Speaker 1: they may want to do going forward, Because you could

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Speaker 1: look at these numbers today and say, hey, maybe they

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Speaker 1: don't pause here in September. What do you think? Yeah, so,

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Speaker 1: so I think you know, seventy five is a given

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Speaker 1: we were actually pricing some uh, you know, modest chance

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Speaker 1: of even a hundred basis point increased. Although I don't

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Speaker 1: think that they they'll take go that route and increase

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Speaker 1: a hundred. I think they're more likely to do seventy

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Speaker 1: five followed by another seventy five if the September number

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Speaker 1: is uh is you know, as bad as this one

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Speaker 1: was in terms of inflation going up um so so

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Speaker 1: so I don't think that they'll do a hundred. But

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Speaker 1: but but I think importantly, you know, we do get

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Speaker 1: the top plot. I know that some people don't like

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Speaker 1: the top plot, but I think it is in terms of,

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Speaker 1: you know, what a lot of the members are thinking

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Speaker 1: is how far will they go into three? So we've

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Speaker 1: we've been pretty consistent in our view that there would

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Speaker 1: be a couple of hikes into three, um, you know,

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Speaker 1: after a number like this, which was even higher than

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Speaker 1: what we thought quite frankly, and we were above consensus

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Speaker 1: in terms of of how how what the number would

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Speaker 1: be UM. But the the idea that that the Fed is,

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Speaker 1: you know, basically firstly going to high ease interest rates

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Speaker 1: anytime in has I think has to be taken off

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Speaker 1: the table. Although the markets still pricing for a cut

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Speaker 1: late in the year. Um, so it's number one and

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Speaker 1: the number two we still have to find what is

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Speaker 1: the terminal rate? Right? Do do they go to Bloomberg

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Speaker 1: Economics five percent? They go higher than that even and

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Speaker 1: with a number like this, if you get another another

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Speaker 1: number two like this, I think two things happened. I

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Speaker 1: think one, the Fed is going to go higher than

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Speaker 1: to inflation. Expectations in the market are gonna wind up

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Speaker 1: shooting significantly higher, which is what you're seeing today with

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Speaker 1: two year yields up fifteen basis for that's where I

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Speaker 1: wanted to go next, Ira, kind of just looking at

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Speaker 1: the yield curve as people like you and Lisa Bramwins

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Speaker 1: has been schooling me over the years to focus on

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Speaker 1: this yield curve. I've got a thirty basis point in

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Speaker 1: version between a two year and tenure, not quite the

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Speaker 1: fifty basis points we had recently, but still notably inverted. Here.

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Speaker 1: What's your takeaway what we're seeing the price action today? Yeah,

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Speaker 1: so I do think that we'll continue what we'll retest.

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Speaker 1: I think that negative fifty basis point level on the

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Speaker 1: two's tense curve and driven primarily by two year yields

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Speaker 1: going up significantly faster than than ten year yields. You know,

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Speaker 1: ten year yields are going to take into account, you know,

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Speaker 1: the coming recession. We will have a recession, right, it's

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Speaker 1: a matter of of how deep and how long it lasts, right,

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Speaker 1: So those are the kind of the two factors in it.

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Speaker 1: And when it starts. Obviously um so so so the

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Speaker 1: ten year yield. I think, well, ultimately what we'll retest

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Speaker 1: the three and a half percent level, but but might

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Speaker 1: actually hover somewhere in that range where you can see

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Speaker 1: two year yields um. Even though our forecast is for

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Speaker 1: for three ninety as the peak and two year yields,

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Speaker 1: there's the possibility that it could go significantly higher, and

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Speaker 1: particularly with UM, with with data like we had today,

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Speaker 1: if if we continue to get another one or two

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Speaker 1: UM inflation prints that are as strong as today is,

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Speaker 1: and then we definitely have to rethink, uh, you know

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Speaker 1: where we think two year yields can go. I want

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Speaker 1: to ask you about the timeline here. If we're talking

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Speaker 1: about inflation that we think has peaked and it's in

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Speaker 1: the rare view mirror, the deceleration seems to be taking

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Speaker 1: way longer than expected, what does that mean for break

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Speaker 1: events and for inflation expectations. Uh yeah, so so the

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Speaker 1: uh so firstly, it's it's things are actually playing out

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Speaker 1: the way that we thought because the market we we

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Speaker 1: had always thought, had um expected the inflation to decelerate

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Speaker 1: too quickly. And and you know again I I point

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Speaker 1: to the core inflation measures that we look at, which

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Speaker 1: are of the of the uh C, p I and

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Speaker 1: the PC and and those data continue to climb right

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Speaker 1: And and even though oil and gasoline prices have come

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Speaker 1: down quite significantly, um, even if they come down further,

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Speaker 1: it'll still be more elevated than than the Fed wants.

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Speaker 1: In fact, we put out a piece yesterday that's available

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Speaker 1: on the on the terminal UM noting that if you

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Speaker 1: just exclude energy prices from inflation of two year inflation

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Speaker 1: brake even you'll see that that UM that x energy.

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Speaker 1: We're still talking about cornflation being at over four percent

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Speaker 1: in a year. And you know that's way higher than

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Speaker 1: than what the Fed really wants. All right, I read

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Speaker 1: great stuff as always, always appreciate getting your perspective. Here.

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Speaker 1: I our Jersey chief US interest rate strategist for Bloomberg Intelligence.

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Speaker 1: He's based down in Princeton, New Jersey. The rough rough

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Speaker 1: day in the markets, no doubt. Let's check in with

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Speaker 1: Shaun Cruz, Senior Manager, Trade Services and Client Advocacy for

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Speaker 1: td A Merrit Trade. The good folks at td A

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Speaker 1: Merrit Trade. They have their investor Movement Index and we

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Speaker 1: always like to check in with them to get a

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Speaker 1: sense of kind of what the TD and Merrit Trade

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Speaker 1: customers out there, the individual traders and investors out there,

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Speaker 1: what are they saying about these markets? Sean, thanks so

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Speaker 1: much for joining us here. What's your i MX index

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Speaker 1: really kind of showing us these days? So you know what,

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Speaker 1: Actually it was interesting was the iMX index, which is

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Speaker 1: sort of gives us the relative sentiment of how investors

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Speaker 1: are are putting their money to work work whenever they

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Speaker 1: make a trading decision, had been trending down pretty much

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Speaker 1: since the last November. This past month in August was

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Speaker 1: the first time we actually saw it tick up and

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Speaker 1: move higher. So I think that to me shows that,

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Speaker 1: you know, the negative sentiment or just some of that

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Speaker 1: cautious behavior as markets sort of mark lower and lower

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Speaker 1: throughout the year, UM finally started to reverse itself and

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Speaker 1: we saw some some inflows in some pretty interesting areas

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Speaker 1: of the market. Are people worried? Are they taking their cash,

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Speaker 1: stuffing it on their mattress, running towards buying more dollars?

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Speaker 1: Are people worried right now? Where do you think there's

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Speaker 1: a little bit of a change in sentiment UM. I

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Speaker 1: think there's there's still some some cautiousness, but I think

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Speaker 1: that sentiment is starting to shift. So although it did

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Speaker 1: kick higher, I would say just where the index reading

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Speaker 1: came out was still a little bit at the lower

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Speaker 1: end of where we had seen it compared to previous

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Speaker 1: periods where they were very bullish and very optimistic. So

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Speaker 1: I think they're I don't think they're they're necessarily stuffing

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Speaker 1: cash in their matches. They're finding opportunities. But I would

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Speaker 1: say the the other interesting data point that's out there,

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Speaker 1: and this is put out by Center for the Industry

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Speaker 1: at Large, is that you're still seeing the use of

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Speaker 1: leverage UM fairly low. So they're not necessarily stuffing cash

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Speaker 1: and their mattresses, but they're also not levering up to

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Speaker 1: get market exposure. Sean, you guys at t D and

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Speaker 1: Merritrade have a great, great vantage point to see what

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Speaker 1: you know retail investors they're buying, they're selling. What are

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Speaker 1: some of the names that they were buying during this period,

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Speaker 1: Because a lot of folks are aren't sure that boy,

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Speaker 1: if this is kind of the bottom and I want

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Speaker 1: to mix some some stock purchase, I'm not sure whether

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Speaker 1: good to might tried and true tech names or maybe

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Speaker 1: go more cyclical. What did you guys see? So there

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Speaker 1: was you know, if you look, there was consumer discretionary.

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Speaker 1: Was had a pretty strong um influence into that actor,

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Speaker 1: and I think a lot of that was primarily driven

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Speaker 1: by interest in Amazon, um Shopify. I think some of

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Speaker 1: the electric vehicle makers UM Amazon in particular, I think

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Speaker 1: they're had a little bit of a breakout above you know,

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Speaker 1: what had been a pretty significant residence level, and it

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Speaker 1: had some pretty strong upward momentum out of that. But

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Speaker 1: that's one thing where Amazon is technically a consumer discretionary company,

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Speaker 1: but people looking to get some sort of a tech

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Speaker 1: allocation because of the Amazon web servers in their portfolio

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Speaker 1: could also be going into Amazon for that reason as well,

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Speaker 1: because we also saw them going out their purchasing names

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Speaker 1: like Google and uh in meta as well. But on

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Speaker 1: that tech trade, I mean, what's interesting to me is

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Speaker 1: that I think the story of one that I think

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Speaker 1: people still say is seeping into two, although I very

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Speaker 1: aggressively disagree, is that tech is only responding to rates,

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Speaker 1: and I personally feel that tech has more to do

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Speaker 1: with fun flows that you're seeing from around the world

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Speaker 1: Asian investors, European investors saying, you know what, we want

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Speaker 1: to buy defensive tech that are still, by the way,

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Speaker 1: the fastest growing companies in the SMP five hundred. What

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Speaker 1: do you think, from a cross asset perspective, is driving

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Speaker 1: the trade? Um? I do think it one is there's

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Speaker 1: a little bit of a rotational trade. Into your point,

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Speaker 1: it's not necessarily we're going all in on defensives or

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Speaker 1: we're piling the cyclicals. I think the view is just

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Speaker 1: looking at companies that maybe have positive earnings, a little

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Speaker 1: bit more of a solid fundamental underpinnion in terms of

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Speaker 1: they can write out anything that's going to play out

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Speaker 1: um here for the remainder of the year and end

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Speaker 1: the next year. Those are the kind of companies that

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Speaker 1: I think has really been driving the traded and driving

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Speaker 1: the investment dollars um, not not necessarily going into the

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Speaker 1: you know whatever is the the in vogue as a

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Speaker 1: service company that is and expected to be profitable for

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Speaker 1: three to five years, shunning those names, but going into

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Speaker 1: names like Amazon, who you know, may have some bumps

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Speaker 1: along the way, but I don't think anyone is expecting

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Speaker 1: the Amazon to go anywhere anytime soon. All right, John,

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Speaker 1: that's good stuff. Appreciate it as always. Sean Cruz, he's

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Speaker 1: the senior manager of Trader Services and Client Advocacy at

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Speaker 1: TD A Merrior Trade. They have their Investor Movement Index,

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Speaker 1: gets a good sense of kind of what the average

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Speaker 1: retail trader out there for TD and merrit Trade, how

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Speaker 1: they're feeling about the markets where they're putting money to work.

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Speaker 1: So it's always good checking in with Shawn to get

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Speaker 1: a good sense of what's going on there. Pretty one

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Speaker 1: of my first jobs in equity research on wallst it

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Speaker 1: was covering the transportation sector, the railroads, the trucking stocks. UM,

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Speaker 1: good stuff. Um. There's a few of them left actually

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Speaker 1: in the public market's Norfolk, Southern, CSX, Union Pacific for

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Speaker 1: the US, they're all down about nine to sevent year

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Speaker 1: to date. This is an industry that's really really consolidate

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Speaker 1: into just a handful of names, But the big issue

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Speaker 1: for them is a potential strike coming up, and that

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Speaker 1: can't be good for the old supply chain and the

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Speaker 1: economy in general. Let's get the latest. We can do

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Speaker 1: that with Bloomberg laws. Rebecca Rainey, Rebecca, where are we

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Speaker 1: in this process? Just frame out for me what the

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Speaker 1: issues are between the railroads and and some of these

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Speaker 1: unions and kind of how it might play out. Are

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Speaker 1: we gonna have a strike? Are we are we gonna

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Speaker 1: have a strike? And what's it about? Yeah, so the

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Speaker 1: chances of us seeing a strike on Friday are much

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Speaker 1: higher than they were last week. UM. You know, when

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Speaker 1: we were coming into Monday, we had you heard that

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Speaker 1: most of the twelve railroad unions who were involved in

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Speaker 1: the dispute, how reached over close to UM, you know

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Speaker 1: what is known as a tenative agreement UM with these

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Speaker 1: brake carriers. UM. So you know, as of last night

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Speaker 1: there was one union that said, you know, that kind

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Speaker 1: of agreement we had, we don't think we can bring

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Speaker 1: it to our members for ratification. I think that's another

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Speaker 1: piece we need to talk about here too. Even though

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Speaker 1: these agreements are you know, kind of said for UM,

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Speaker 1: it's still requires the membership of the unions to vote

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Speaker 1: to ratify them. So with that change late last night,

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Speaker 1: and then the two uh largest unions involved in this

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Speaker 1: dispute still not at a deal yet. Um, I think

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Speaker 1: it's safe to say the chances are rather you know,

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Speaker 1: concerning that there may be um a strike this So

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Speaker 1: would that mean all the freight railroads in this country

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Speaker 1: will just stop on Friday? What does that actually mean

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Speaker 1: if they go on strike? Yes? So, while not again

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Speaker 1: as I mentioned earlier, you know, while not all of

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Speaker 1: these twelve unions involved in this dispute have reached an agreement,

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Speaker 1: all of the unions have agreed to honor the strike line.

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Speaker 1: If you know, the remaining unions that haven't reached a

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Speaker 1: deal don't reach it you all by Friday. So that means,

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Speaker 1: you know, roughly a hundred and twenty five thousand rail

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Speaker 1: works could be on strike as soon as Friday, UM,

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Speaker 1: And that would you know their industry leaders are warning,

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Speaker 1: you know, shut down the entire system. You know, Rebecca, Um,

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Speaker 1: I'm reading about this right now, trying to figure out

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Speaker 1: how we're going to be covering this later in the week.

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Speaker 1: And some of the issues here are really crucial. It's

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Speaker 1: not just about pay and the wage increases, which, by

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Speaker 1: the way, uh, the agreement on the table, get this

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Speaker 1: call increase by that is a huge alley. It's the

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Speaker 1: biggest wage increase I believe in about forty years according

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Speaker 1: to some analyst notes that I'm reading Rebecca. But that's

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Speaker 1: not the only issue on the table here. It's also

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Speaker 1: about sick days, medical leaf, health coverage. Talk to us

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Speaker 1: about that aspect, yeah, yeah, And you know, in regards

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Speaker 1: to the wage increases as well, I know the unions

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Speaker 1: would say a lot of these workers haven't seen increases,

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Speaker 1: haven't seen any radis is over the past couple of years,

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Speaker 1: especially through the pandemic. So you know, they say this

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Speaker 1: is a long time coming. Um. But when it comes

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Speaker 1: to sick leave, um. You know, these two major unions

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Speaker 1: say that whenever, even when it comes to taking time

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Speaker 1: off routine medical appointments, they can receive you know, kind

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Speaker 1: of uh negative points or um get you know, negative

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Speaker 1: demerits towards their their scheduling. UM. So it's really important,

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Speaker 1: they say, for their workers to be able to take

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Speaker 1: time off without you know, fear of getting in trouble

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Speaker 1: at work or with their standing, um, with their employer.

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Speaker 1: You know, the train companies say that rail employees get

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Speaker 1: you know, five weeks of vacation in addition to fourteen

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Speaker 1: paid holidays. UM. But you know, union members say that's

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Speaker 1: not enough. They want you know, dedicated sick time. UM.

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Speaker 1: As part of this you know emergency board that came

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Speaker 1: up with recommendations to kind of help resolve this UM,

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Speaker 1: they had initially asked for fifteen days of paid sick

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Speaker 1: leave each year. You know, if I'm just thinking of

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Speaker 1: you know, we're just starting to try to get out

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Speaker 1: from the supply chain issues throughout the U. S economy

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Speaker 1: and the global economy quite quite frankly, and there's still

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Speaker 1: a lot of you know, kind of challenges out there

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Speaker 1: as it relates to the transportation system. I think arguably

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Speaker 1: the last thing, uh, this country, this economy needs is

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Speaker 1: a railroad strike. So given that background, what's the White

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Speaker 1: House said? What is their position? Because you know, you

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Speaker 1: see in past the White House would maybe uh kind

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Speaker 1: of step in and try to, you know, kind of

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Speaker 1: help get things moving, whether it's the airline industry, the

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Speaker 1: railroad industry, the shipping industry. What's the White House position? Definitely?

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Speaker 1: And you know, um My colleagues are at Bloomberg did

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Speaker 1: report yesterday that Biden and Labor Secretary Marty Walsh have

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Speaker 1: been in contact with the parties UM in this dispute.

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Speaker 1: And you know, Labor Secretary Marty Walsh was supposed to

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Speaker 1: travel to Ireland this week, UM, and he postponed that

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Speaker 1: trip to help gave full attention to this issue. UM.

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Speaker 1: You know, we've been hearing that the White House is

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Speaker 1: emphasizing that a shutdown of the freight rail system is

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Speaker 1: just not an acceptable option at this time. So it's

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Speaker 1: very interesting because we have a very pro labor administration

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Speaker 1: that is unabashedly pro union and nearly all of the

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Speaker 1: policies it proposes. UM. But it would be very UM.

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Speaker 1: It would put the White House in a tough position

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Speaker 1: to have to go against these two unions who are saying, hey,

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Speaker 1: we want some more stick time. But for you know,

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Speaker 1: the White House or President Biden to say, hey, you

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Speaker 1: need to accept what we have on the table now. UM.

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Speaker 1: It's going to be very interesting to see if this

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Speaker 1: White House and the Biden administration will have to kind

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Speaker 1: of stand up to unions UM in in this juncture.

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Speaker 1: You Know what's interesting to me is also the regionality

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Speaker 1: of this. Yere, you mentioned a hundred and fifteen thousand

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Speaker 1: potentially going on strike. Where in the country are we

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Speaker 1: going to see the biggest effects? Um? I think you

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Speaker 1: can definitely. I know there's a lot of concern among

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Speaker 1: agricultural employers about how this will affect their shipments ahead

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Speaker 1: of harvest season. So if you look in those areas,

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Speaker 1: you know, the bread basket areas, I would say they're

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Speaker 1: going to be feeling this more acutely. Um, when you're

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Speaker 1: thinking too, just about the broader economy. You know, officials

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Speaker 1: and rail executives are warning that this could touch every

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Speaker 1: piece of our economy. Um. You know, if shippers aren't

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Speaker 1: able to get products out, this is also going to

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Speaker 1: lead to even bottlenecks or delays that could last, you know,

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Speaker 1: for weeks. Um. We're especially ahead of you know, the

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Speaker 1: retail holiday season and harvest season. Right, All right, good stuff,

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Speaker 1: Rebecca Rainey, thank you so much for bringing us up

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Speaker 1: to date. Rebecca Rainy from Bloomberg Law giving us an

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Speaker 1: update on what could become a big economic issue. Again,

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Speaker 1: I guess the drop dead date in terms of getting

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Speaker 1: a negotiation done and setting a strike this coming Friday railroads.

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Speaker 1: Many of the unions have some issues with the big

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Speaker 1: railroads in this country and again threatening to strike Friday. Hopefully,

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Speaker 1: you know, we'll get some type of resolution before them,

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Speaker 1: because that would just be another challenge for this economy

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Speaker 1: in terms of supply chain challenges. Brent Donley, he's a

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Speaker 1: president of Spectr Markets. He's been doing this currency thing

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Speaker 1: on the street for a long time, so he knows

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Speaker 1: what's going on. Brand I'm just gonna start off with

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Speaker 1: my kind of my stock f X question, which is

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Speaker 1: is there a bear case for the green back. Well,

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Speaker 1: the funny thing is we had a bear case for

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Speaker 1: the last week or two. We had PBOC and the

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Speaker 1: Bank of Japan pushing back on dollar strength. He had

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Speaker 1: some good news out of Ukraine. You had the ECB

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Speaker 1: kind of stepping up a little bit, and then you

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Speaker 1: had like a big pocket of demand for euros around

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Speaker 1: one double o. And then today just everything onlines in

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Speaker 1: two seconds. Because the problem is so b O J

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Speaker 1: and p BOC can push back all they want, but

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Speaker 1: they're running the loosest monetary policy in the world, so

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Speaker 1: they need help from the data and they're just not

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Speaker 1: getting it. So now again, if b o J is

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Speaker 1: peggy yields at twenty five basis points in the tenure.

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Speaker 1: You know, Delian is just gonna go up. They can

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Speaker 1: say whatever they want, Delian is just gonna keep on

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Speaker 1: going up. But how long does that last? Because it

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Speaker 1: feels like the bear case for the dollar that you

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Speaker 1: just reference, a lot of that came from interest rate differentials,

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Speaker 1: the idea that if the e C b UH surprises

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Speaker 1: the market in some way, that ends up creating a

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Speaker 1: bowl case for the euro, and therefore you sell the

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Speaker 1: dollar off the back of that. But even that was

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Speaker 1: a temporary scenario. So how long does the bear case

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Speaker 1: for the dollar really last? Well, that's kind of my

386
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Speaker 1: point is that it doesn't last very long. We get

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Speaker 1: these quick little moves for maybe a week or two

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Speaker 1: and there's a ray of hope for dollar bears, but

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Speaker 1: then then you know, one other one side, either on

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Speaker 1: the energy side in Europe or on the right side

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Speaker 1: in the US, the hammer just comes down again on

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Speaker 1: the euro. And that's what we're seeing again today. So

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Speaker 1: to me, it's very reminiscent of two thousand, two thousand one,

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Speaker 1: where it's just an impulsive move and really nothing's going

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Speaker 1: to stand in the way until you get like a

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Speaker 1: fundamental turn in US rates, which obviously we keep waiting

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Speaker 1: for and sometimes pricing but never actually is delivered. So

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Speaker 1: it's you know, Tom Keane and the surveillance, radio and

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Speaker 1: TV team. They're over in London covering the Queen's upcoming funerals,

400
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Speaker 1: so they're benefiting from this strong dollar. But dos you

401
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Speaker 1: think about the euro at parody the pound at once

402
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Speaker 1: about one five? Do you just trade those things or

403
00:21:39,600 --> 00:21:44,479
Speaker 1: do you just stay away from European currencies? Well, I

404
00:21:44,480 --> 00:21:47,199
Speaker 1: mean the trend is still intact, so I think a

405
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Speaker 1: lot of people have just been playing the trend all year.

406
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Speaker 1: Really that has been the play is just that's been

407
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Speaker 1: the right playbook, has been selling rallies in euro and Sterling.

408
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Speaker 1: Of course, now we're in an in territory where valuation

409
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Speaker 1: starts to come into play. You start to see changes

410
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Speaker 1: of behavior like m and A cross border m and

411
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Speaker 1: A starts to change, Americans start going to Europe more.

412
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Speaker 1: But all that stuff just takes forever to bleed through.

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Speaker 1: So um, I mean, for me, I've had a couple

414
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Speaker 1: of brief forays being barised dollars, but it's just never fun.

415
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Speaker 1: The fun is always selling rallies and euro and you

416
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Speaker 1: know the d x y went much higher than this

417
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Speaker 1: in in two thousand, two thousand one, and there's a

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Speaker 1: lot of parallels to that period. So you know, any

419
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Speaker 1: any long earros of a rental and but you can

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Speaker 1: own the short earros for a while. One about the

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Speaker 1: pound here, because it feels like now that we've I

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Speaker 1: want to say, talked about your dollar parody, it's in

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Speaker 1: the rare view mirror some extent, really just hovering. It's

424
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Speaker 1: actually literally at one point zero zero zero nine at

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Speaker 1: the moment. But the pound here we're looking at one

426
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Speaker 1: spot one five. I'm curious if pound parody is realistic

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Speaker 1: by the end of the year. So I'm less pessimistic

428
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Speaker 1: on then than many people. But there is a scenario

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Speaker 1: where they're issuing so many guilts to finance the the

430
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Speaker 1: energy subsidies, and um, you know, they're also not doing

431
00:23:11,520 --> 00:23:14,199
Speaker 1: quantitative easing in the UK anymore, so there is a

432
00:23:14,200 --> 00:23:17,200
Speaker 1: scenario where there's a buyer strike and guilts creator and

433
00:23:17,200 --> 00:23:20,320
Speaker 1: and sterling creaters. I'm not a huge believer in that,

434
00:23:20,400 --> 00:23:23,800
Speaker 1: just because I find in G ten usually eventually higher

435
00:23:23,840 --> 00:23:27,480
Speaker 1: rates just attract capital. So at some point, real money,

436
00:23:27,560 --> 00:23:29,639
Speaker 1: we'll just want to buy guilts because the yields are

437
00:23:29,680 --> 00:23:33,080
Speaker 1: high enough. But there definitely is a more emerging markets

438
00:23:33,119 --> 00:23:35,320
Speaker 1: type of scenario where you get the bond sell off

439
00:23:35,400 --> 00:23:37,840
Speaker 1: and the currency sell off. Like I said, that's not

440
00:23:37,960 --> 00:23:39,800
Speaker 1: my base case, but I mean there's a lot of

441
00:23:39,840 --> 00:23:42,200
Speaker 1: strategists are calling for that, and that kind of scenario

442
00:23:42,200 --> 00:23:45,000
Speaker 1: would take us to one double O and sterling. Brent,

443
00:23:45,119 --> 00:23:48,440
Speaker 1: what's the your FX market telling you about this Feder reserve?

444
00:23:48,480 --> 00:23:50,320
Speaker 1: I mean it's had a you know, kind of a

445
00:23:50,359 --> 00:23:53,199
Speaker 1: tag around its neck of being behind the curve. But

446
00:23:53,240 --> 00:23:56,440
Speaker 1: if we get a third semi five basis point rate

447
00:23:56,480 --> 00:24:00,399
Speaker 1: increase next week, is that still a fair character the

448
00:24:00,480 --> 00:24:04,960
Speaker 1: characterization of the U S FED Reserve? I mean I

449
00:24:05,000 --> 00:24:08,159
Speaker 1: would still argue yes, because we're just getting to neutral

450
00:24:08,240 --> 00:24:10,920
Speaker 1: still and we've been you know, above five percent inflation

451
00:24:11,000 --> 00:24:13,440
Speaker 1: for more than a year, so you know, the FED

452
00:24:13,680 --> 00:24:16,600
Speaker 1: should have been I think by most measures in restrictive

453
00:24:16,680 --> 00:24:20,040
Speaker 1: territory months and months ago. So I would say yes

454
00:24:20,119 --> 00:24:23,119
Speaker 1: because the size of the rate hikes is just commensurate

455
00:24:23,160 --> 00:24:26,680
Speaker 1: with how loose they were. What are you buying today

456
00:24:26,800 --> 00:24:29,000
Speaker 1: and you're if you're trading today and I'm assume you're

457
00:24:29,000 --> 00:24:31,320
Speaker 1: going to trade a gazillion times today, What what are

458
00:24:31,359 --> 00:24:36,639
Speaker 1: you buying? Dollien? Now, I think now that the boj

459
00:24:36,840 --> 00:24:38,639
Speaker 1: is coming up, and I don't think that they're going

460
00:24:38,680 --> 00:24:40,919
Speaker 1: to do anything, and that just opens the door for

461
00:24:40,960 --> 00:24:46,840
Speaker 1: one yen front very quickly. Is currency intervention a logical

462
00:24:46,880 --> 00:24:48,399
Speaker 1: thing to be considering right now when it comes to

463
00:24:48,440 --> 00:24:54,480
Speaker 1: dollar yen? No, because usually the framework is monetary policy

464
00:24:54,560 --> 00:24:57,720
Speaker 1: and currency intervention have to be aligned. So if you're

465
00:24:57,760 --> 00:25:00,720
Speaker 1: pegging rates at twenty five basis points, selling dolly and

466
00:25:00,840 --> 00:25:03,239
Speaker 1: isn't going to do anything. So when they get to

467
00:25:03,280 --> 00:25:06,600
Speaker 1: the point of actual pain for Coroda, so the Ministry

468
00:25:06,640 --> 00:25:08,840
Speaker 1: of Finance is already in pain, but Coroda is sort

469
00:25:08,880 --> 00:25:11,040
Speaker 1: of kind of trying to hold off as long as

470
00:25:11,040 --> 00:25:14,680
Speaker 1: possible because he's out in March. So what you need

471
00:25:14,720 --> 00:25:17,760
Speaker 1: for intervention to work is coordinated monetary policy. So they

472
00:25:17,760 --> 00:25:20,840
Speaker 1: would have to raise the yield curve, raise the yield target,

473
00:25:21,280 --> 00:25:23,880
Speaker 1: and then intervene and that would work. But I don't

474
00:25:23,880 --> 00:25:26,560
Speaker 1: think we're there yet. All right, Brent, good stuff. You're

475
00:25:26,600 --> 00:25:29,160
Speaker 1: a go to guy on all things currencies and big

476
00:25:29,160 --> 00:25:32,760
Speaker 1: big moves here Again, I can't think of a bare

477
00:25:32,840 --> 00:25:34,719
Speaker 1: dollar case, I'll just keep buying the dollars I got

478
00:25:34,760 --> 00:25:38,360
Speaker 1: but dollars in my pocket literally, so that's appreciated. Paul

479
00:25:38,400 --> 00:25:41,119
Speaker 1: has one of those old like cash wad holders. I

480
00:25:41,200 --> 00:25:46,040
Speaker 1: do money clip. I haven't seen uh really outside of

481
00:25:46,320 --> 00:25:49,879
Speaker 1: the National History Museum. Yes, thank you very much. Brent Downland,

482
00:25:49,880 --> 00:25:51,919
Speaker 1: he's a president of Spector Markets, He's our go to

483
00:25:52,440 --> 00:25:55,560
Speaker 1: person when we talk currencies. Here and again. D x

484
00:25:55,720 --> 00:25:59,040
Speaker 1: Y index one spot I'm sorry, one zero nine spot

485
00:25:59,119 --> 00:26:05,440
Speaker 1: five five, that's up one percent today, big, big moves

486
00:26:05,480 --> 00:26:09,119
Speaker 1: in these markets? Is it an overreactions? Checking with the

487
00:26:09,280 --> 00:26:13,399
Speaker 1: Ellis Piffer, Managing director Fixed Income Capital Markets for Raymond

488
00:26:13,480 --> 00:26:15,800
Speaker 1: James Ellis, when you take a look at the equity markets,

489
00:26:15,800 --> 00:26:18,400
Speaker 1: when you take a look at the treasury markets, big

490
00:26:18,400 --> 00:26:21,240
Speaker 1: moves in the short end of the curve here, what

491
00:26:21,320 --> 00:26:23,000
Speaker 1: do you make of these moves were seeing in the

492
00:26:23,080 --> 00:26:25,240
Speaker 1: risk assets today on the back of that higher than

493
00:26:25,280 --> 00:26:29,600
Speaker 1: expected inflation print. Good morning. Um, Yeah, I think it's

494
00:26:29,600 --> 00:26:32,800
Speaker 1: it's pretty much a knee jerk reaction that's um, probably

495
00:26:32,840 --> 00:26:35,119
Speaker 1: a little bit overdone. I mean, the equity markets obviously

496
00:26:35,200 --> 00:26:37,120
Speaker 1: have a little bit more to contend with because they've

497
00:26:37,160 --> 00:26:40,520
Speaker 1: got not only the inflation issue, but potentially you know,

498
00:26:40,560 --> 00:26:44,159
Speaker 1: the FED tightening us into a softening economy, bringing us

499
00:26:44,240 --> 00:26:46,960
Speaker 1: forward into a recession. So there's a little bit more

500
00:26:47,000 --> 00:26:50,159
Speaker 1: issue there on the bond market side. Um. You know,

501
00:26:50,200 --> 00:26:53,320
Speaker 1: obviously the move up is a bit of reaction to

502
00:26:53,359 --> 00:26:57,280
Speaker 1: it as well, but you know, the numbers underneath are

503
00:26:57,280 --> 00:27:00,240
Speaker 1: a little bit more predictable than than what maybe the

504
00:27:00,240 --> 00:27:02,639
Speaker 1: markets should have thought about. UM. And I think it

505
00:27:02,720 --> 00:27:05,119
Speaker 1: is a little bit bit overreaction on the bond markets are,

506
00:27:05,200 --> 00:27:08,480
Speaker 1: for sure. So given kind of the backdrop of again,

507
00:27:08,520 --> 00:27:10,560
Speaker 1: the data we we've seen over the last few weeks,

508
00:27:10,600 --> 00:27:13,879
Speaker 1: including most notably today, what do you expect our freder

509
00:27:14,000 --> 00:27:16,840
Speaker 1: reserved to do next week? Not so much, I guess

510
00:27:16,840 --> 00:27:18,680
Speaker 1: the rate increase because the market seems to be fully

511
00:27:18,680 --> 00:27:21,840
Speaker 1: discounting in a semi five basis point increase, but maybe

512
00:27:21,880 --> 00:27:24,199
Speaker 1: some shading around the edges in terms of kind of

513
00:27:24,240 --> 00:27:27,440
Speaker 1: how they make view the next couple of meetings. Yeah,

514
00:27:27,440 --> 00:27:29,240
Speaker 1: I think they're gonna you know, they're gonna continue to

515
00:27:29,240 --> 00:27:32,000
Speaker 1: talk tough. I mean, their their biggest concern is the

516
00:27:32,040 --> 00:27:34,760
Speaker 1: consumer's behavior. You know, they don't want to file let

517
00:27:34,800 --> 00:27:37,679
Speaker 1: the inflation expectations get un anchored as they like to

518
00:27:37,720 --> 00:27:40,760
Speaker 1: call it, so people to behave differently and start acting

519
00:27:40,800 --> 00:27:45,200
Speaker 1: like there's price increases and start rushing to buy things

520
00:27:45,240 --> 00:27:48,080
Speaker 1: to sort of become some of somewhat of a spiral

521
00:27:48,840 --> 00:27:51,080
Speaker 1: with rates higher, so that their job this became a

522
00:27:51,119 --> 00:27:56,280
Speaker 1: little bit harder today and trying to contain that inflation behavior.

523
00:27:57,000 --> 00:27:58,280
Speaker 1: And so I think they're going to try, you know,

524
00:27:58,400 --> 00:28:01,600
Speaker 1: continue to talk tough and let the data speak. And

525
00:28:02,040 --> 00:28:04,200
Speaker 1: you know, this month and next month of the easiest

526
00:28:04,240 --> 00:28:07,800
Speaker 1: months for the CPI data to actually beat on the upside,

527
00:28:07,800 --> 00:28:10,400
Speaker 1: you surprise on a negative basis, you know, when it

528
00:28:10,440 --> 00:28:13,400
Speaker 1: goes higher than expected, UM. And then in starting in October,

529
00:28:13,440 --> 00:28:14,880
Speaker 1: it's gonna be a little tougher for it to beat.

530
00:28:14,880 --> 00:28:17,840
Speaker 1: The base effect comes back into play. Uh, and so

531
00:28:17,920 --> 00:28:20,040
Speaker 1: it maybe a little bit easier for them at that point,

532
00:28:20,280 --> 00:28:24,960
Speaker 1: UM to maintain that behavior. What does that mean for

533
00:28:25,119 --> 00:28:28,000
Speaker 1: the federal reserves credibility? Though? I mean the deceleration here

534
00:28:28,040 --> 00:28:30,359
Speaker 1: when you're looking at some of the CPI data is

535
00:28:30,960 --> 00:28:34,359
Speaker 1: not as fast as I think the market was expecting

536
00:28:34,480 --> 00:28:37,800
Speaker 1: or really hoping for. A hundred basis points of a

537
00:28:37,880 --> 00:28:41,440
Speaker 1: hike would come with a lot of questions around UM,

538
00:28:41,560 --> 00:28:45,640
Speaker 1: is the federal reserve panicking. What else can they possibly

539
00:28:45,680 --> 00:28:50,160
Speaker 1: do here? I think that just it is very difficult

540
00:28:50,200 --> 00:28:52,440
Speaker 1: again for them to to try to contain this behavior,

541
00:28:52,480 --> 00:28:55,640
Speaker 1: and it is tough talk. Um. You know, the policy

542
00:28:55,760 --> 00:29:00,240
Speaker 1: error to hold off is in hiking to be again

543
00:29:00,280 --> 00:29:03,760
Speaker 1: with has being compounded now um, and now they they

544
00:29:03,760 --> 00:29:06,040
Speaker 1: are in somewhat of a I don't want to call

545
00:29:06,040 --> 00:29:08,160
Speaker 1: it a panic mode, but they obviously haven't to talk

546
00:29:08,200 --> 00:29:09,880
Speaker 1: a little bit tougher than they expected. I mean, this,

547
00:29:10,080 --> 00:29:12,600
Speaker 1: this we haven't seen in so long. This this this

548
00:29:12,680 --> 00:29:15,520
Speaker 1: type of inflation. People just aren't used to it. And

549
00:29:15,680 --> 00:29:19,280
Speaker 1: and there their biggest concern again is containing those expectations

550
00:29:19,560 --> 00:29:22,400
Speaker 1: and trying to keep them anchored, so to speak. Um,

551
00:29:22,520 --> 00:29:26,840
Speaker 1: And the bond market is is hasn't become un anchored. Um,

552
00:29:27,200 --> 00:29:30,800
Speaker 1: the consumers what they're really concerned about, and so um,

553
00:29:30,840 --> 00:29:33,360
Speaker 1: if that begins to become an anchor, then that they

554
00:29:33,360 --> 00:29:35,320
Speaker 1: will have to panic. I mean, that's that's a full

555
00:29:35,560 --> 00:29:38,760
Speaker 1: you know, full on vulk or type mode. Um. But

556
00:29:38,800 --> 00:29:40,560
Speaker 1: I don't see that happening. I think, you know, I

557
00:29:40,560 --> 00:29:42,240
Speaker 1: think they're looking ahead of the data and saying this

558
00:29:42,320 --> 00:29:44,920
Speaker 1: and these numbers are gonna be tougher to beat and

559
00:29:44,960 --> 00:29:46,680
Speaker 1: I think it's gonna be you know, we're gonna just

560
00:29:46,680 --> 00:29:49,080
Speaker 1: continue to talk tough and let the data kind of

561
00:29:49,280 --> 00:29:51,880
Speaker 1: kind of come here. UM. And yeah, the SETI card

562
00:29:51,880 --> 00:29:54,760
Speaker 1: basis points, like I said, is fully baked in, and

563
00:29:54,920 --> 00:29:57,400
Speaker 1: I expect that to happen as well. Alas what are

564
00:29:57,400 --> 00:29:59,600
Speaker 1: you seeing on the RIM and James desk here the

565
00:29:59,600 --> 00:30:02,240
Speaker 1: Capital markets desk? What are your clients telling you about

566
00:30:03,080 --> 00:30:07,440
Speaker 1: kind of their base case? Are they baking in recession scenarios?

567
00:30:07,560 --> 00:30:09,800
Speaker 1: Are they rushing to show up their balance sheets? What

568
00:30:09,840 --> 00:30:13,240
Speaker 1: do you what are you hear from your corporate clients. Yeah,

569
00:30:13,280 --> 00:30:16,040
Speaker 1: there's you know, there's still good demand for loans. UM.

570
00:30:16,120 --> 00:30:19,440
Speaker 1: There's there's still good activity if it could be had. UM.

571
00:30:19,480 --> 00:30:22,240
Speaker 1: The problem is there's a lack of liquidity in the

572
00:30:22,280 --> 00:30:26,160
Speaker 1: in the depository system. So you know, we're seeing you know,

573
00:30:26,480 --> 00:30:29,160
Speaker 1: consumers taking out more money to pay for the goods

574
00:30:29,200 --> 00:30:33,520
Speaker 1: because their wages aren't you know, maintaining UM. And so

575
00:30:34,120 --> 00:30:37,320
Speaker 1: the banks and depositors also seeing the potential recessions, they

576
00:30:37,320 --> 00:30:40,760
Speaker 1: are kind of viewing that UM and so we're seeing

577
00:30:40,800 --> 00:30:42,959
Speaker 1: some tightening of lending standards. So you have to be

578
00:30:43,040 --> 00:30:46,280
Speaker 1: more cautious, uh, in the loans that you are making

579
00:30:46,360 --> 00:30:49,880
Speaker 1: so but you know, with all of that comes this um,

580
00:30:49,920 --> 00:30:53,040
Speaker 1: you know, drain of liquidity that they're not actually spending

581
00:30:53,240 --> 00:30:55,640
Speaker 1: much money on the bond market either. So there's there's

582
00:30:55,800 --> 00:30:58,760
Speaker 1: you know, they've been one of the big guerrillas. You know,

583
00:30:58,760 --> 00:31:01,440
Speaker 1: when the Fed step back from buying bonds, the banks

584
00:31:01,520 --> 00:31:05,520
Speaker 1: were there to buy them, and there they are they

585
00:31:05,520 --> 00:31:08,960
Speaker 1: have had to pull back as well. So what's what's

586
00:31:08,960 --> 00:31:12,680
Speaker 1: the sector that you're seeing the most interest in right

587
00:31:12,680 --> 00:31:14,719
Speaker 1: now as you as you kind of think about your

588
00:31:14,720 --> 00:31:18,520
Speaker 1: capital markets activity. Yeah, we um, We've been talking to

589
00:31:18,560 --> 00:31:22,760
Speaker 1: a lot of clients about buying uh, adding some duration

590
00:31:22,800 --> 00:31:25,520
Speaker 1: to the portfolio. That's that's probably seeing a little bit

591
00:31:25,560 --> 00:31:29,360
Speaker 1: more reluctance than anything. UM. But you know, adding in

592
00:31:29,400 --> 00:31:33,680
Speaker 1: a in a form of deeply discounted collables and mortgages

593
00:31:33,680 --> 00:31:36,160
Speaker 1: are probably a very good play at these levels. Um.

594
00:31:36,240 --> 00:31:39,080
Speaker 1: You know that there's a risk reward that has drastically

595
00:31:39,160 --> 00:31:43,360
Speaker 1: changed in those two sectors in favor of the investor. Alright,

596
00:31:43,360 --> 00:31:46,520
Speaker 1: good stuff. L. S. Phiffer, Managing director Fixed income Capital

597
00:31:46,560 --> 00:31:49,400
Speaker 1: Markets for Raymond James, joining us talking to us about

598
00:31:49,680 --> 00:31:52,080
Speaker 1: kind of what he's seeing out there in these markets.

599
00:31:53,680 --> 00:31:58,880
Speaker 1: It's chicken with a professional economists, Simona Mokuda, chief economists

600
00:31:58,880 --> 00:32:01,640
Speaker 1: at State Street. Simona, thanks so much for joining us here,

601
00:32:02,280 --> 00:32:05,640
Speaker 1: chief economist at State Street. That means a lot. You've

602
00:32:05,640 --> 00:32:08,280
Speaker 1: got a big sway on the portfolio manager's at State

603
00:32:08,320 --> 00:32:12,600
Speaker 1: Street who run a lot of money. What's your takeaway

604
00:32:12,760 --> 00:32:16,280
Speaker 1: from the print we saw today? Well, I will say

605
00:32:16,400 --> 00:32:18,240
Speaker 1: it was a bit of a punch to the gut

606
00:32:18,400 --> 00:32:20,760
Speaker 1: right when the data first came out, and you've seen

607
00:32:20,800 --> 00:32:24,080
Speaker 1: the acute market reaction. But if you're willing to take

608
00:32:24,080 --> 00:32:27,920
Speaker 1: a step back from from the initial shock, I think

609
00:32:28,320 --> 00:32:31,840
Speaker 1: I would describe this as a stumble, but not a fall,

610
00:32:32,040 --> 00:32:36,000
Speaker 1: on the path towards disinflation. I think the next story

611
00:32:36,280 --> 00:32:39,080
Speaker 1: in the US inflation picture, and frankly, not just duus

612
00:32:39,120 --> 00:32:43,880
Speaker 1: but globally, is a fairly powerful disinflationary episode that's ahead

613
00:32:43,920 --> 00:32:48,560
Speaker 1: of us. Well, what I'm curious about, though, is the

614
00:32:48,600 --> 00:32:51,920
Speaker 1: pace of the deceleration. I've been asking every guests, uh,

615
00:32:52,080 --> 00:32:55,360
Speaker 1: since since since since the show began today, Simona walk

616
00:32:55,440 --> 00:32:58,400
Speaker 1: us through the timeline that we get inflation back to

617
00:32:58,880 --> 00:33:03,560
Speaker 1: even four percent? Yeah, I think. Um, Well, let's first

618
00:33:03,560 --> 00:33:06,080
Speaker 1: of all, are we talking about headline? Are we talking

619
00:33:06,080 --> 00:33:10,480
Speaker 1: about corners? About headline. I think headline you're looking, frankly,

620
00:33:10,760 --> 00:33:14,000
Speaker 1: second quarter of next year, you could be in that range.

621
00:33:14,600 --> 00:33:19,040
Speaker 1: It's hard to you know, picture that perhaps right now,

622
00:33:19,080 --> 00:33:22,520
Speaker 1: but we are having some very very powerful base effects

623
00:33:22,560 --> 00:33:26,960
Speaker 1: that come into play here. And more importantly, I think

624
00:33:27,000 --> 00:33:30,160
Speaker 1: a lot of the indicators that a year ago we're

625
00:33:30,240 --> 00:33:33,800
Speaker 1: signaling that we have an inflation problem on our hands

626
00:33:34,400 --> 00:33:38,800
Speaker 1: have now turned much more encouraging, whether you're looking at

627
00:33:39,720 --> 00:33:44,320
Speaker 1: pricing intentions, whether that's in manufacturing, whether that's the small

628
00:33:44,360 --> 00:33:46,960
Speaker 1: business surveys, or even you know, even today we got

629
00:33:47,000 --> 00:33:51,760
Speaker 1: the nfib UM survey, and the price plan measure in

630
00:33:51,880 --> 00:33:54,080
Speaker 1: that survey is now at the lowest level it's been

631
00:33:54,080 --> 00:33:59,480
Speaker 1: since January. Um It's going to take time for these

632
00:33:59,480 --> 00:34:04,160
Speaker 1: things to feed through into the CPI number, but they

633
00:34:04,200 --> 00:34:09,040
Speaker 1: will eventually make their way there. What's the risk in

634
00:34:09,080 --> 00:34:13,280
Speaker 1: your mind and your model, Simona, of the FED pushing

635
00:34:13,320 --> 00:34:19,000
Speaker 1: this economy into a recession? Um I. I you know, frankly,

636
00:34:19,520 --> 00:34:22,000
Speaker 1: whether it is a recession already or not is not

637
00:34:22,280 --> 00:34:26,520
Speaker 1: the even the most important question. I think it's undeniable

638
00:34:26,719 --> 00:34:30,279
Speaker 1: that we are in a meaningful slowdown episode. Of the

639
00:34:30,320 --> 00:34:33,240
Speaker 1: way I would rephrase the question is whether the FED

640
00:34:33,400 --> 00:34:36,399
Speaker 1: is making this slowdown worse than it needs to be.

641
00:34:36,560 --> 00:34:40,080
Speaker 1: I think the risk of that is fairly high. Actually, um,

642
00:34:40,200 --> 00:34:45,040
Speaker 1: I do believe that we are seeing substantial improvement on

643
00:34:45,160 --> 00:34:48,040
Speaker 1: supply chains, but the FED is no longer in a

644
00:34:48,080 --> 00:34:52,040
Speaker 1: place where it can you know, act on hope and

645
00:34:52,120 --> 00:34:55,960
Speaker 1: expectations and even perhaps their own forecast, but rather they

646
00:34:56,000 --> 00:34:58,720
Speaker 1: have to respond to the data in hand, and that's

647
00:34:58,760 --> 00:35:02,840
Speaker 1: not providing much really leave so far. So I think, um,

648
00:35:02,880 --> 00:35:05,560
Speaker 1: you know, we are probably going to end up tightening

649
00:35:05,560 --> 00:35:08,400
Speaker 1: a little too much and be forced to unwind that.

650
00:35:09,239 --> 00:35:12,200
Speaker 1: Um that will hurt the economy a little bit more

651
00:35:12,960 --> 00:35:15,400
Speaker 1: than otherwise would be the case. But I don't think

652
00:35:15,520 --> 00:35:18,320
Speaker 1: in any of these scenarios we are really talking about

653
00:35:18,920 --> 00:35:22,319
Speaker 1: a genuine crisis, right, So that's the silver lining in

654
00:35:22,360 --> 00:35:27,040
Speaker 1: this cloud. I'm wondering about the liquidity picture here, because

655
00:35:27,120 --> 00:35:29,480
Speaker 1: we talked about all the time from a market's perspective,

656
00:35:29,520 --> 00:35:32,600
Speaker 1: how that could actually crunch financial conditions, But from an

657
00:35:32,600 --> 00:35:37,800
Speaker 1: economic perspective, quantitative tightening is something that the FED hasn't

658
00:35:37,840 --> 00:35:41,680
Speaker 1: really undertaken in this size and in full, even going

659
00:35:41,719 --> 00:35:44,000
Speaker 1: back to the last tightening cycle. Your take on the

660
00:35:44,040 --> 00:35:49,239
Speaker 1: success rate of this operation well, that's another reason why

661
00:35:49,360 --> 00:35:52,440
Speaker 1: I think perhaps there is some wisdom in being a

662
00:35:52,440 --> 00:35:56,560
Speaker 1: little more careful on the right side itself, because you

663
00:35:56,640 --> 00:35:59,080
Speaker 1: do want to be able to continue this process. In

664
00:35:59,120 --> 00:36:02,080
Speaker 1: the background, you'd do want to reduce the balance sheet,

665
00:36:02,080 --> 00:36:05,440
Speaker 1: and you might not. You're probably trying to avoid the

666
00:36:05,480 --> 00:36:09,200
Speaker 1: situation where you're being forced into ending this process prematurely.

667
00:36:09,239 --> 00:36:12,600
Speaker 1: So we are watching that, we are thinking about that

668
00:36:12,680 --> 00:36:17,000
Speaker 1: as a you know, as a market functioning liquidity risk.

669
00:36:17,200 --> 00:36:20,920
Speaker 1: I think it just adds to our viewpoint that you know,

670
00:36:21,040 --> 00:36:25,200
Speaker 1: it's it's some cautional rates is warranted, especially the further

671
00:36:25,320 --> 00:36:28,560
Speaker 1: you go beyond neutral, and for sure we'll be quite

672
00:36:28,560 --> 00:36:33,120
Speaker 1: a bit beyond neutral after the September meeting. Alright, Simona,

673
00:36:33,160 --> 00:36:36,040
Speaker 1: thank you so much. We appreciate getting your thoughts and perspective.

674
00:36:36,040 --> 00:36:41,760
Speaker 1: Simona Mokuta, Chief economist for States three. Uh, definitely seeing

675
00:36:41,760 --> 00:36:44,640
Speaker 1: maybe some disinflation still in the picture, which I would

676
00:36:44,680 --> 00:36:49,880
Speaker 1: say that doesn't feel like it's again census. Bringing our

677
00:36:49,880 --> 00:36:52,239
Speaker 1: next guest, Ed Rosenberg, Senior VP and head of e

678
00:36:52,440 --> 00:36:56,320
Speaker 1: t S for American Century Investments in American Century Folks

679
00:36:56,440 --> 00:36:59,719
Speaker 1: is a huge money management outfit out there in Kansas City.

680
00:36:59,800 --> 00:37:01,960
Speaker 1: When your cell side analysts. You had to go out

681
00:37:01,960 --> 00:37:04,360
Speaker 1: there at least once, usually went out there twice a

682
00:37:04,440 --> 00:37:06,799
Speaker 1: year to get their vote. That's how big they are,

683
00:37:07,120 --> 00:37:08,960
Speaker 1: and they're now big in the e t F business.

684
00:37:09,400 --> 00:37:12,920
Speaker 1: At Rosenberg joins us here in studio. He has a

685
00:37:12,960 --> 00:37:15,680
Speaker 1: graduate of Muhlenberg College and an m b a From

686
00:37:15,920 --> 00:37:18,799
Speaker 1: Penn State University. I am wearing my Penn State little

687
00:37:18,840 --> 00:37:21,680
Speaker 1: hoodie here today. Um I wrote a lot of tuition

688
00:37:21,719 --> 00:37:24,040
Speaker 1: checks to Penn State, so I get this little shirt here.

689
00:37:24,400 --> 00:37:26,200
Speaker 1: Ed talked to us about the e t F business.

690
00:37:26,600 --> 00:37:28,840
Speaker 1: Ever since I've really kind of followed e t f s,

691
00:37:28,880 --> 00:37:33,080
Speaker 1: the story has just been funds flowing to ets. Is

692
00:37:33,120 --> 00:37:35,480
Speaker 1: that's still the case and what's driving it? Yeah, I

693
00:37:35,480 --> 00:37:38,640
Speaker 1: mean it's it's actually more so the case than ever before.

694
00:37:39,000 --> 00:37:41,480
Speaker 1: There was a period in time like through two thousand

695
00:37:41,480 --> 00:37:43,879
Speaker 1: and fourteen that's it was a lot of individual stock

696
00:37:43,920 --> 00:37:46,440
Speaker 1: traders shifted over to e t f s first. But

697
00:37:46,560 --> 00:37:49,399
Speaker 1: for the last eight nine years it's strictly been right

698
00:37:49,440 --> 00:37:52,080
Speaker 1: for mutual funds for the most part. And there's a

699
00:37:52,120 --> 00:37:54,840
Speaker 1: ton of reasons, but the first one is U E

700
00:37:54,960 --> 00:37:56,799
Speaker 1: t F s. I don't want to hear more tax

701
00:37:56,800 --> 00:37:59,520
Speaker 1: efficient because mutual funds can be, but e t F

702
00:37:59,600 --> 00:38:01,120
Speaker 1: s history, they have not paid a lot of capital

703
00:38:01,200 --> 00:38:04,480
Speaker 1: gains distribution, so it's made them more tax efficient. And

704
00:38:04,520 --> 00:38:07,560
Speaker 1: in years like we have today where the markets down right,

705
00:38:08,600 --> 00:38:11,160
Speaker 1: it's the worst thing for an adviser to say, oh,

706
00:38:11,160 --> 00:38:14,160
Speaker 1: your funds down and it pays a ten percent capital gain.

707
00:38:14,520 --> 00:38:16,560
Speaker 1: That's just a hard story. And going into e t

708
00:38:16,680 --> 00:38:20,759
Speaker 1: F s helps eliminate that conversation. Can you talk to

709
00:38:20,800 --> 00:38:23,600
Speaker 1: us a little bit about here and now the markets

710
00:38:23,600 --> 00:38:27,120
Speaker 1: are tanking here, the SPI down three percent, the NASDAC

711
00:38:27,719 --> 00:38:30,680
Speaker 1: Paul down four oh my gosh um, and the dollar

712
00:38:30,719 --> 00:38:33,320
Speaker 1: continues to be a session high fields as well. Walk

713
00:38:33,400 --> 00:38:36,200
Speaker 1: us through the impact that you foresee on the e

714
00:38:36,280 --> 00:38:39,439
Speaker 1: t F world. So I actually think days like this

715
00:38:39,640 --> 00:38:42,080
Speaker 1: and months that we've had the last couple of weeks,

716
00:38:42,120 --> 00:38:43,359
Speaker 1: I'll say, so I'm going to call it a month

717
00:38:43,400 --> 00:38:47,440
Speaker 1: including today, can be really advantageous d t F flows.

718
00:38:47,840 --> 00:38:49,400
Speaker 1: We're kicking off what I like to call it e

719
00:38:49,440 --> 00:38:52,800
Speaker 1: t F season. So you'll see this is the largest

720
00:38:52,880 --> 00:38:54,759
Speaker 1: quarter when we hit the fourth quarter for et F

721
00:38:54,760 --> 00:38:57,120
Speaker 1: flows every year, and a lot of that has to

722
00:38:57,160 --> 00:39:00,520
Speaker 1: do with the tax lost harvesting from other portfolio. And

723
00:39:00,560 --> 00:39:03,200
Speaker 1: if you've owned a mutual fund, let's say for ten years, right,

724
00:39:03,239 --> 00:39:05,720
Speaker 1: you put ten thousand in. Its total value is twenty,

725
00:39:06,440 --> 00:39:08,360
Speaker 1: but your real gain if you sold it today is

726
00:39:08,400 --> 00:39:10,520
Speaker 1: only a thousand because of the market pullback and all

727
00:39:10,520 --> 00:39:13,279
Speaker 1: the games it paid. It's an easy solution to sell

728
00:39:13,320 --> 00:39:16,040
Speaker 1: that and go into something more tax efficient. Or if

729
00:39:16,080 --> 00:39:19,479
Speaker 1: now you're at a loss because quite frankly, it paid

730
00:39:19,480 --> 00:39:21,120
Speaker 1: so many games over the years. It might have you

731
00:39:21,160 --> 00:39:23,920
Speaker 1: still might be up on a total return perspective, but

732
00:39:24,520 --> 00:39:27,840
Speaker 1: it's an easy time to sell that. And so across

733
00:39:27,880 --> 00:39:31,839
Speaker 1: the board, Muni struggled this year, right, so another fixed

734
00:39:31,880 --> 00:39:34,640
Speaker 1: income instruments struggled. You're not alone. You can do this

735
00:39:34,680 --> 00:39:37,600
Speaker 1: in equities. You can do an international anything that's owned

736
00:39:37,600 --> 00:39:39,880
Speaker 1: em has really struggled this year, especially if you had

737
00:39:39,880 --> 00:39:42,680
Speaker 1: exposure to China. And then once you get into fixed

738
00:39:42,719 --> 00:39:45,560
Speaker 1: income and just regular equities, there's so many places you

739
00:39:45,560 --> 00:39:47,759
Speaker 1: can start to do this with. And who wants a

740
00:39:47,760 --> 00:39:49,360
Speaker 1: tax bill at the end of the year, especially in

741
00:39:49,360 --> 00:39:51,719
Speaker 1: this year. I mean when you normally have a good year,

742
00:39:51,840 --> 00:39:54,040
Speaker 1: frustrated paying taxes, but in a bad year and you're like,

743
00:39:54,200 --> 00:39:57,759
Speaker 1: that's my bill, that's a much bigger discussion, and you

744
00:39:57,760 --> 00:40:00,720
Speaker 1: can avoid a lot of that by law taking losses

745
00:40:00,800 --> 00:40:04,600
Speaker 1: moving in d t S, what's the what are some

746
00:40:04,600 --> 00:40:06,040
Speaker 1: of the hot areas? And E t F because it

747
00:40:06,160 --> 00:40:08,000
Speaker 1: just seems to me as I read the headlines, there's

748
00:40:08,080 --> 00:40:11,560
Speaker 1: just an e t F for every shiny object out there.

749
00:40:12,320 --> 00:40:14,800
Speaker 1: I'm not sure if that's good or bad for the space.

750
00:40:15,280 --> 00:40:17,640
Speaker 1: But where's the real money going? Well, my joke is

751
00:40:17,640 --> 00:40:19,600
Speaker 1: not everything, because I was joking there should be a

752
00:40:19,600 --> 00:40:22,759
Speaker 1: baseball card TF that hasn't happened yet. But I mean,

753
00:40:22,960 --> 00:40:25,319
Speaker 1: if you look at this year, flows are a little

754
00:40:25,320 --> 00:40:27,719
Speaker 1: bit pale in comparison to last year. A lot of

755
00:40:27,719 --> 00:40:30,040
Speaker 1: the money has gone into just large cap us right,

756
00:40:30,480 --> 00:40:33,680
Speaker 1: it stayed away. There's some international flow in a sense,

757
00:40:33,719 --> 00:40:36,480
Speaker 1: but it's it's significantly less than it previous was. You're

758
00:40:36,480 --> 00:40:39,040
Speaker 1: talking a third. It's only about you to date it's

759
00:40:39,040 --> 00:40:41,680
Speaker 1: fifty billion. But if you look at just US it's

760
00:40:41,719 --> 00:40:43,800
Speaker 1: a eighties seven billion and flows through the end of

761
00:40:43,800 --> 00:40:49,000
Speaker 1: August that's tremendous. And fixed income right guields rose. Money

762
00:40:49,000 --> 00:40:52,000
Speaker 1: went into government's early, you've seen money flowing to muni's,

763
00:40:52,080 --> 00:40:54,919
Speaker 1: You've seen money throwing to like agg products throughout the year,

764
00:40:54,960 --> 00:40:58,480
Speaker 1: and the other thing investors were kind of smart about

765
00:40:58,520 --> 00:41:00,520
Speaker 1: how they did it. When you're talking about this all

766
00:41:00,920 --> 00:41:03,359
Speaker 1: the majority of the fixed income exposure, about a hundred

767
00:41:03,400 --> 00:41:08,440
Speaker 1: eleven billion went into short term and another went into intermediate,

768
00:41:09,000 --> 00:41:11,520
Speaker 1: and so the investors knew that rates were going to

769
00:41:11,560 --> 00:41:12,840
Speaker 1: go up and it's gonna be a tough year. So

770
00:41:12,920 --> 00:41:16,479
Speaker 1: let's get short and let's be realistic. We haven't had

771
00:41:16,520 --> 00:41:20,600
Speaker 1: these types of rates on funds UH in fifteen years

772
00:41:20,640 --> 00:41:23,360
Speaker 1: fourteen years, right, So there is some type of yield

773
00:41:23,360 --> 00:41:27,319
Speaker 1: to be had that investors finally get going forward. The

774
00:41:27,360 --> 00:41:29,120
Speaker 1: other place that a lot of money has gone into

775
00:41:29,320 --> 00:41:31,960
Speaker 1: is value, but it's a specific portion of value where

776
00:41:32,000 --> 00:41:35,560
Speaker 1: it's dived end fifty billion dollars in the US and

777
00:41:35,640 --> 00:41:37,759
Speaker 1: it was again it was that search for yield for

778
00:41:37,760 --> 00:41:41,320
Speaker 1: so long. So take this US cross acid here you

779
00:41:41,400 --> 00:41:43,839
Speaker 1: talked about the stock picture a little bit. Walk us

780
00:41:43,840 --> 00:41:48,359
Speaker 1: through things like appetite for bond ETFs, appetite for even

781
00:41:48,400 --> 00:41:51,040
Speaker 1: commodity e t F is. Given this kind of obsession

782
00:41:51,040 --> 00:41:53,800
Speaker 1: with inflation hedges in the last year or so, currency

783
00:41:53,840 --> 00:41:56,920
Speaker 1: ETFs are more complicated. So I'll leave spare our radio

784
00:41:56,960 --> 00:42:00,919
Speaker 1: audience for that, But walk us through the cross ass story. Yeah,

785
00:42:00,960 --> 00:42:03,040
Speaker 1: so fixed income has been popular. As I said, it's

786
00:42:03,040 --> 00:42:05,680
Speaker 1: about a hundred eleven billion, and there's been a lot

787
00:42:05,719 --> 00:42:09,080
Speaker 1: of investors moving in now tax lost harvesting from funds

788
00:42:09,560 --> 00:42:11,400
Speaker 1: into e t f to take advantage of one the

789
00:42:11,480 --> 00:42:14,719
Speaker 1: yield and get that tax loss. But other areas of

790
00:42:14,760 --> 00:42:16,759
Speaker 1: the t F market, the niche products, some of those

791
00:42:16,800 --> 00:42:20,960
Speaker 1: have taken off. But you mentioned commodities. Commodities this year

792
00:42:21,000 --> 00:42:23,320
Speaker 1: have been muted. You're only talking about five six billion

793
00:42:23,400 --> 00:42:26,680
Speaker 1: flows last month was negative. And it's interesting because you

794
00:42:26,680 --> 00:42:29,160
Speaker 1: get the one educational piece you have to remember is

795
00:42:29,440 --> 00:42:31,080
Speaker 1: when we talk about a t f s, they're really

796
00:42:31,200 --> 00:42:35,440
Speaker 1: exchange traded products. And there's several different structures out there right.

797
00:42:35,520 --> 00:42:37,960
Speaker 1: Some are under the forty Act. They they're regular E

798
00:42:38,040 --> 00:42:40,640
Speaker 1: t f s. They behave and and pay taxes similar

799
00:42:40,680 --> 00:42:42,960
Speaker 1: to like your mutual funds would. But then you get

800
00:42:43,000 --> 00:42:45,200
Speaker 1: into things registered on the thirty three at thirty four Act.

801
00:42:45,239 --> 00:42:47,439
Speaker 1: When you go into gold, they're collectible as you could

802
00:42:47,440 --> 00:42:49,319
Speaker 1: be in a partnership. What can you be in you

803
00:42:49,360 --> 00:42:51,440
Speaker 1: get a K one. So a lot of people have

804
00:42:51,480 --> 00:42:53,520
Speaker 1: struggled with some of those. And if it's all futures,

805
00:42:53,520 --> 00:42:55,759
Speaker 1: you have to look how it's set up, and so

806
00:42:55,960 --> 00:42:58,840
Speaker 1: while money has gone into those, there's been more straight

807
00:42:58,880 --> 00:43:02,160
Speaker 1: into gold than anything in this type of environment. But

808
00:43:02,239 --> 00:43:05,360
Speaker 1: it's also the structure. Advisors have to be leary, investors

809
00:43:05,360 --> 00:43:08,400
Speaker 1: have to be leary of what the consequences of that structure.

810
00:43:08,480 --> 00:43:10,160
Speaker 1: It's not bad if you know what it is, but

811
00:43:10,280 --> 00:43:12,880
Speaker 1: just understanding that about the structure of the entire market,

812
00:43:12,960 --> 00:43:16,200
Speaker 1: it's based effectively a DWOPPO, a State Street and Vanguard.

813
00:43:16,600 --> 00:43:19,399
Speaker 1: That's not good. Well, it's a little more than that,

814
00:43:19,480 --> 00:43:24,279
Speaker 1: but um, you know the top five makeup of all

815
00:43:24,280 --> 00:43:27,359
Speaker 1: the assets. But those are the basic products and if

816
00:43:27,360 --> 00:43:30,440
Speaker 1: you look at how the market is starting to shift, right,

817
00:43:30,520 --> 00:43:32,320
Speaker 1: those products have been around for a long time and

818
00:43:32,360 --> 00:43:34,759
Speaker 1: they're in a lot of models. So as you put

819
00:43:34,760 --> 00:43:36,960
Speaker 1: money into a model, whether it's through a wire house

820
00:43:37,080 --> 00:43:38,920
Speaker 1: or through an independent broken dealer or even are a

821
00:43:39,040 --> 00:43:41,759
Speaker 1: may have access to it, they're just in there. But

822
00:43:41,800 --> 00:43:44,799
Speaker 1: if you look at the active et F landscape, six

823
00:43:45,280 --> 00:43:48,160
Speaker 1: of all launches this year have been active. Scent last

824
00:43:48,280 --> 00:43:50,480
Speaker 1: year were active, and in the year before it was

825
00:43:50,520 --> 00:43:53,000
Speaker 1: about fifty one. It was the first year that active dominated.

826
00:43:53,320 --> 00:43:57,280
Speaker 1: The growth inactive has been tremendous you're talking at fifty

827
00:43:57,719 --> 00:44:01,440
Speaker 1: year over year, three year growth rate, and beyond that,

828
00:44:02,160 --> 00:44:04,600
Speaker 1: you know, we'll say, three years ago it was a

829
00:44:04,680 --> 00:44:08,799
Speaker 1: hundred billion dollar marketplace was equity. Now you're talking it's

830
00:44:08,800 --> 00:44:12,000
Speaker 1: four and fifty billion active and it's you know, almost

831
00:44:12,000 --> 00:44:15,759
Speaker 1: getting closer to So it's not just all you know,

832
00:44:15,800 --> 00:44:17,960
Speaker 1: fixed income anymore, it's equity as well. All right, good

833
00:44:18,000 --> 00:44:21,040
Speaker 1: stuff at Rosenberg, Senior vice president. He's head of E

834
00:44:21,200 --> 00:44:24,200
Speaker 1: t S at American Century Investments. Uh, they're based in

835
00:44:24,280 --> 00:44:26,560
Speaker 1: Kansas City, Edge based in New York, and he joined

836
00:44:26,640 --> 00:44:28,920
Speaker 1: us here in our Bloomberg Interactive Broker studio, So we

837
00:44:29,080 --> 00:44:32,840
Speaker 1: appreciate him taking the walk across the street here. Thanks

838
00:44:32,840 --> 00:44:36,279
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

839
00:44:36,320 --> 00:44:40,000
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast

840
00:44:40,080 --> 00:44:43,640
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at

841
00:44:43,680 --> 00:44:47,480
Speaker 1: Matt Miller. Yet on bal Swhee, I'm on Twitter at

842
00:44:47,480 --> 00:44:50,359
Speaker 1: pt Sweeney. Before the podcast, you can always catch us

843
00:44:50,400 --> 00:44:51,799
Speaker 1: worldwide at Bloomberg Radio