WEBVTT - Surveillance: Maximum Pressure with Michele 0:00:05.040 --> 0:00:08.880 This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woyd's 0:00:08.920 --> 0:00:11.879 along with Tom Keane and Jonathan Farrell, join us each 0:00:11.920 --> 0:00:15.720 day for insight from the best in economics, geopolitics, finance 0:00:15.760 --> 0:00:19.440 and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.560 --> 0:00:22.759 Spotify and anywhere you get your podcasts, and always on 0:00:22.840 --> 0:00:26.319 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.600 --> 0:00:28.120 We get lucky. We get to catch up with Bob 0:00:28.160 --> 0:00:30.440 Michael twice in a week, once on a Sunday evening. 0:00:30.760 --> 0:00:33.160 And this is more normal Bob, Good Morningtier from JP 0:00:33.200 --> 0:00:36.320 Morgan Asset Management. Bob Mike McKee messaged me earlier and 0:00:36.360 --> 0:00:38.400 he wanted to know one's Bob Michael on today? And 0:00:38.440 --> 0:00:40.280 two what does Bob want me to ask in a 0:00:40.360 --> 0:00:44.160 news conference? What is it today? Bob? Well, I think 0:00:44.159 --> 0:00:47.040 he's got to ask that the FED was set up 0:00:47.080 --> 0:00:50.440 the Federal Reserve Act of nineteen thirteen was designed to 0:00:50.479 --> 0:00:53.600 prevent a run on banks. So they must have seen this. 0:00:53.720 --> 0:00:57.279 They must have seen the deposit or outclothes. Are they 0:00:57.320 --> 0:01:00.800 seeing anything else that wearies them? And what is that? 0:01:01.240 --> 0:01:04.480 And I think there are things in the commercial property market. 0:01:04.920 --> 0:01:07.280 There are things in the bank loan market where the 0:01:07.360 --> 0:01:11.959 resets have doubled and tripled what borrowers are paying, So 0:01:12.040 --> 0:01:14.280 there's still a lot out there. So, Bob, how did 0:01:14.319 --> 0:01:17.039 they parse a message that goes from we want credit 0:01:17.040 --> 0:01:19.920 conditions to tighten to oh, my goodness, it's not a 0:01:19.959 --> 0:01:22.680 financial crisis, but things are tightening too quickly. How do 0:01:22.720 --> 0:01:25.800 they parse that line to a market that doesn't like nuance? 0:01:27.640 --> 0:01:31.120 They don't need to, Lisa, They've told us they're data dependent. 0:01:31.560 --> 0:01:35.119 Look at the data they've won. They don't need to 0:01:35.200 --> 0:01:39.240 pile on. Look at inflation. If you look at month 0:01:39.280 --> 0:01:42.720 to date ten year tips, they're down thirty basis points 0:01:42.760 --> 0:01:46.160 to two point one percent. Inflation expectations are coming down. 0:01:46.360 --> 0:01:50.080 Look at the University of Michigan consumer sentiment one year 0:01:50.120 --> 0:01:54.120 inflation expectations, they're down the most in two years. That's 0:01:54.400 --> 0:01:57.840 pre when they started high grades. They're at three point 0:01:57.880 --> 0:02:00.960 eight percent. And then if you go back to the charter, 0:02:01.120 --> 0:02:03.840 they were set up to prevent a run on banks, Well, 0:02:04.080 --> 0:02:06.160 they pushed it to the point where they had to 0:02:06.200 --> 0:02:09.440 step in and stop a run on banks. So they've 0:02:09.480 --> 0:02:13.880 achieved the maximum pressure they needed to to bring inflation down. 0:02:13.960 --> 0:02:17.200 It's happening, it's in the data. You pause any weight, 0:02:17.560 --> 0:02:19.639 then how do you make sense, Bob? If they probably 0:02:19.680 --> 0:02:23.280 saw the outflows from depositors from some of these banks 0:02:23.360 --> 0:02:26.400 before that speech, that testimony from j Power where he 0:02:26.440 --> 0:02:28.720 opened the door to a fifty basis point rate hike, 0:02:28.760 --> 0:02:31.359 how do they signal that the scenario has changed so 0:02:31.440 --> 0:02:34.360 dramatically in two weeks, given that a lot of what 0:02:34.400 --> 0:02:37.520 you're talking about, the winning of their war would have 0:02:37.560 --> 0:02:42.360 been won before what we saw with Silicon Valley Bank. Honestly, 0:02:42.560 --> 0:02:46.760 it really doesn't matter. These are the long and variable impacts. 0:02:47.040 --> 0:02:49.920 They're already catching up to the economy. We're seeing it. 0:02:50.000 --> 0:02:52.760 They're starting to bite hard. What's going to happen over 0:02:52.800 --> 0:02:55.440 the next three to six months. Let's wait and see 0:02:55.440 --> 0:02:59.160 what happens. For sure, We've looked at every time the 0:02:59.240 --> 0:03:03.280 FED has piking rates. On average, it's been about thirteen 0:03:03.320 --> 0:03:07.280 months to recession. So they could stop here and then 0:03:07.440 --> 0:03:09.400 let's see what happens over the next year. We think 0:03:09.440 --> 0:03:12.800 with quantitative tightening it actually pulls that forward into the 0:03:12.919 --> 0:03:14.480 end of this year. So, Bob, at the start of 0:03:14.480 --> 0:03:16.639 the year, when credit was ripping, high yield was doing 0:03:16.680 --> 0:03:19.119 really well. You resisted the urge to parliament as well, 0:03:19.480 --> 0:03:21.400 So I'd be interested to know what you've actually been 0:03:21.440 --> 0:03:23.600 doing over the last couple of weeks as things have 0:03:23.639 --> 0:03:25.680 started to go the other way and you weren't on 0:03:25.680 --> 0:03:27.400 the wrong side of the trade, so to speed. But 0:03:27.560 --> 0:03:32.040 what did you do. I'm holding on to our conservative 0:03:32.080 --> 0:03:36.839 position where we've had hedges in the CDX market. You're 0:03:36.920 --> 0:03:39.880 going to have to pry them out of my dying hands. 0:03:40.400 --> 0:03:43.480 This is the start, this is not the end. So 0:03:43.560 --> 0:03:46.680 let's talk about spread levels. So spread right now is 0:03:46.720 --> 0:03:49.760 at four eighty was as tight as about three ninety 0:03:49.760 --> 0:03:52.000 a number of weeks ago. You just talked me through, 0:03:52.040 --> 0:03:54.160 Bob levels. You and I've talked about this before, but 0:03:54.720 --> 0:03:57.160 the basic argument goes something like this, it's a high 0:03:57.280 --> 0:04:00.120 quality index. It won't get wider in the way it 0:04:00.160 --> 0:04:03.600 has done in recessions previously. Bob, you've pushed back against 0:04:03.600 --> 0:04:08.680 that notion. Why yes, because I've lived through every other 0:04:08.760 --> 0:04:12.240 cycle in the high yield market. People forget, this market 0:04:12.360 --> 0:04:15.600 isn't one hundred years old. It's just over thirty years old. 0:04:15.840 --> 0:04:18.800 And you hear that same story all the time. This 0:04:18.880 --> 0:04:22.600 time it's different. But the problem is that fear always 0:04:22.600 --> 0:04:26.799 replaces greed. People are scrambling for up in quality. We've 0:04:26.800 --> 0:04:28.760 seen in the last week. You don't know where the 0:04:28.839 --> 0:04:31.520 problems are going to happen, so you just try to 0:04:31.800 --> 0:04:35.479 de risk every single time high Yield goes to a 0:04:35.520 --> 0:04:38.960 minimum credit spread of eight hundred basis points over. I 0:04:39.000 --> 0:04:41.400 think we're easily on track for that. I know last 0:04:41.400 --> 0:04:44.919 time on Sunday, I think it was the evening we 0:04:45.000 --> 0:04:47.920 talked a little bit about non bank lenders, which are 0:04:48.160 --> 0:04:51.680 us in the market. So we're already starting to hear 0:04:51.720 --> 0:04:54.560 from our clients that they want to know what we 0:04:54.680 --> 0:04:58.280 hold in their portfolios. They're asking all their managers. So 0:04:58.400 --> 0:05:03.440 we're going to start tight credit conditions ourselves, just because 0:05:03.640 --> 0:05:06.279 our clients don't want us to take the kinds of 0:05:06.360 --> 0:05:08.520 risks that they were comfortable a year or so ago. 0:05:08.880 --> 0:05:11.800 That's not just us, it's every manager. It's in the 0:05:11.839 --> 0:05:15.360 public markets, and it's for sure in the private markets. So, Bob, 0:05:15.400 --> 0:05:17.840 how much has that accelerated over the past two weeks? 0:05:17.960 --> 0:05:20.839 And John asked me earlier, even if this issue with 0:05:20.880 --> 0:05:23.719 some of the medium sized businesses, medium sized banks rather 0:05:24.200 --> 0:05:26.719 is resolved and we do get some sort of backstop 0:05:27.000 --> 0:05:29.520 that staves off some sort of contagion risk or any 0:05:29.560 --> 0:05:33.080 of these concerns. How much have credit conditions tightened over 0:05:33.120 --> 0:05:37.920 the past two weeks anyway that will be persistent. Well, 0:05:37.920 --> 0:05:41.160 they've tightened everywhere. We've talked about the central banks waiting 0:05:41.279 --> 0:05:48.200 for those cumulative long variable lags to catch up. So 0:05:48.560 --> 0:05:52.200 they're going to catch up. So unless they start cutting 0:05:52.320 --> 0:05:57.279 rates or ending QT, that's going to be progressive. So 0:05:57.680 --> 0:06:00.680 central banks are still tightening credit conditions when you look 0:06:00.680 --> 0:06:04.200 at senior loan officers surveys, banks for sure have been 0:06:04.240 --> 0:06:07.360 tightening credit conditions, and I think with what's happened over 0:06:07.360 --> 0:06:09.960 the last couple of weeks, there's no going back on that. 0:06:10.040 --> 0:06:13.559 And then I talked about non bank lenders. We're all 0:06:13.600 --> 0:06:16.720 doing the work for the FED anyway they can hit 0:06:16.760 --> 0:06:20.120 the pause button. The banks are still tightening credit conditions, 0:06:20.279 --> 0:06:22.520 and as I said, non bank lenders are as well. 0:06:22.640 --> 0:06:25.240 I hate these analogies, Bob, but you mentioned commercial real estate. 0:06:25.279 --> 0:06:27.440 A lot of people are pointing at it. And if 0:06:27.480 --> 0:06:29.760 you could say where we are in terms of the 0:06:29.760 --> 0:06:32.480 devaluation in commercial real estate, are we at the beginning, 0:06:32.480 --> 0:06:34.120 are we at the middle? How much further does it 0:06:34.200 --> 0:06:38.680 have to go. Well, it depends where you are in 0:06:38.720 --> 0:06:43.200 the snake. I think for sure that property companies are 0:06:43.200 --> 0:06:48.040 already having problems with offices in central business districts, right, 0:06:48.440 --> 0:06:51.080 and you're just now starting to see that in some 0:06:51.160 --> 0:06:55.919 commercial mortgage backed securitizations. But there's the whole reap market, 0:06:55.960 --> 0:07:00.920 there's the CMBs market, there's the whole regional bank market 0:07:00.960 --> 0:07:03.760 where a lot of their loans are into the commercial 0:07:03.760 --> 0:07:07.479 property market. And then there's the g setbacks. So these 0:07:07.520 --> 0:07:11.040 things don't just tend to happen and go away. They 0:07:11.120 --> 0:07:14.120 tend to build, and they're with us for a while. So, Bob, 0:07:14.160 --> 0:07:16.600 just a final question from me. Number of weeks ago, 0:07:16.640 --> 0:07:19.720 you said to me the whole curve three handle, two's 0:07:19.720 --> 0:07:22.280 out to thirties. We've seen that. Are you saying right 0:07:22.320 --> 0:07:26.000 the way down to three percent? Yes, I didn't say 0:07:26.040 --> 0:07:28.360 three handle, I've said three percent. There we go, there's 0:07:28.360 --> 0:07:33.640 the three point zo minimum. Wow. JP Morgan, the thirties 0:07:33.680 --> 0:07:40.840 asset management, the brilliant Alicia Levine is alongside us today 0:07:40.880 --> 0:07:42.600 here in New York. She's got a line poll has 0:07:42.640 --> 0:07:45.440 no good choices today. There are no good choices today. 0:07:45.480 --> 0:07:47.200 I'm just going to wit through the price action, and 0:07:47.200 --> 0:07:49.560 then we'll get Alicia's thoughts on it. Equity futures right 0:07:49.600 --> 0:07:52.480 now unchanged on the SMP five hundred yields up by 0:07:52.520 --> 0:07:55.120 a single basis point on a ten year three sixty two. 0:07:55.280 --> 0:07:58.000 We've talked about the journey of the two year since 0:07:58.040 --> 0:08:00.600 the FED last met, from four point one sent all 0:08:00.640 --> 0:08:02.720 the way to four point two percent, with a lot 0:08:02.760 --> 0:08:05.880 of ziggin and zagging in between. Lisa, I feel bad 0:08:05.880 --> 0:08:08.080 for the two years. It's gonna be tired. Its journey 0:08:08.120 --> 0:08:11.280 has been long, it's been tumultuous, and we've been all 0:08:12.440 --> 0:08:14.920 who slept either you feel bad for it for the 0:08:14.960 --> 0:08:17.120 front end of the yield curve. Look, you got to 0:08:17.160 --> 0:08:18.960 bear with us because we've all been up since for 0:08:19.160 --> 0:08:22.440 you know, the past week and examining all of this, well, 0:08:22.480 --> 0:08:26.320 it never ended, and we're dealing with head spinning realities right, 0:08:26.360 --> 0:08:28.880 all of the complications you're just talking about passing through. 0:08:29.280 --> 0:08:31.760 Then try to give a market response to that, which 0:08:31.760 --> 0:08:34.199 always is wrong initially anyway, and it's always exactly what 0:08:34.320 --> 0:08:36.400 you don't think. So it's sort of you know, what's 0:08:36.400 --> 0:08:38.640 the point, Let's go back to bed. Alicia Evan joins 0:08:38.679 --> 0:08:41.640 us right now, the head of Equities and Capital Markets 0:08:41.640 --> 0:08:45.160 advisor at Bmy melon Mouth Management, Alicia, want to fool 0:08:45.160 --> 0:08:47.240 to catch out with you. Great to be here today. 0:08:47.880 --> 0:08:51.040 No good choices today, No good choices today. Twenty five. 0:08:51.600 --> 0:08:55.480 We do twenty five because the market is giving the 0:08:55.559 --> 0:08:57.920 FED twenty five in the pricing and so in a 0:08:58.040 --> 0:09:02.280 sense it's the easier decision. I'm not sure they should 0:09:02.320 --> 0:09:04.840 do twenty five here because I think what happened in 0:09:04.880 --> 0:09:07.360 the last couple of weeks was possibly the beginning of 0:09:07.360 --> 0:09:11.280 a credit issue as smaller and medium banks start to 0:09:11.440 --> 0:09:15.600 withdraw on credit provision. But the FED will go twenty five. 0:09:16.200 --> 0:09:19.040 And as you said, it's all in the messaging, and 0:09:19.080 --> 0:09:22.679 as we've seen sometimes the messaging can be really complicated. 0:09:23.679 --> 0:09:25.880 I would look to Christine Laguard, and I'd look to 0:09:25.960 --> 0:09:29.520 the inflation number in the UK this morning, as you 0:09:29.559 --> 0:09:32.280 were talking about earlier, as to signals of why we're 0:09:32.280 --> 0:09:34.599 going to do twenty five today, and as to the 0:09:34.720 --> 0:09:37.200 dat plots, I think the dat plots pretty much stay 0:09:37.280 --> 0:09:40.720 on track here for those reasons. If the Christine Laguard 0:09:40.880 --> 0:09:44.600 managed to message very well that they're keeping the two 0:09:44.840 --> 0:09:47.400 separate and can keep it separate, and I think that's 0:09:47.400 --> 0:09:49.600 what the FED ultimately is going to do today as well. 0:09:49.679 --> 0:09:52.040 Let's take the headlines from the Guard earlier. There's no 0:09:52.080 --> 0:09:54.720 trade off between price and financial stability. We will not 0:09:54.840 --> 0:09:57.840 entertain trade offs from the primary objective. What does that 0:09:57.880 --> 0:10:00.400 look like If Chairman Pound repeats exactly those saying words 0:10:00.720 --> 0:10:03.080 later in the news conference, so I think you keep 0:10:03.280 --> 0:10:07.280 ongoing increases in the statement. If he keeps to that 0:10:07.520 --> 0:10:10.280 kind of we're going to keep the two separate, and 0:10:10.480 --> 0:10:12.800 in your mind you need to keep this thing separate, 0:10:13.040 --> 0:10:16.080 then I think you keep the ongoing increases with the 0:10:16.120 --> 0:10:18.840 open endedness. I don't think the dots change, but you 0:10:18.880 --> 0:10:22.920 do keep the ongoing increases. But being open to that, 0:10:22.960 --> 0:10:25.800 the FED has the tools necessary to deal with the 0:10:25.840 --> 0:10:29.160 financial stability issue and those two things will be separate 0:10:29.160 --> 0:10:32.160 in the end. As we've seen all over, inflation on 0:10:32.200 --> 0:10:35.280 the way down has not been linear, and I think 0:10:35.400 --> 0:10:40.480 opening up the devishness that the market may want to 0:10:40.559 --> 0:10:43.640 see risks that other piece of it. And it's I 0:10:43.679 --> 0:10:47.240 think Laguard really showed the way to how to capture 0:10:47.280 --> 0:10:49.959 this right here, So I would suspect that he's going 0:10:49.960 --> 0:10:54.640 to separate it as well. Now, did something actually happen 0:10:55.280 --> 0:10:57.960 in the real world two weeks ago with the banks, 0:10:58.000 --> 0:11:00.760 and I think the answer is yes, right in the 0:11:00.800 --> 0:11:05.640 real world, credit contraction has likely accelerated. So let's take 0:11:05.640 --> 0:11:07.600 a step back and talk game theory, because that seems 0:11:07.640 --> 0:11:09.040 to be what we're all doing right now, to try 0:11:09.080 --> 0:11:11.960 to game out what they're signaling versus what they're going 0:11:12.000 --> 0:11:14.520 to do, versus what they know, versus what you believe. 0:11:14.720 --> 0:11:18.160 And I wonder if, as a market participant, you think 0:11:18.160 --> 0:11:21.520 that ja Pell has less credibility not only in having 0:11:21.720 --> 0:11:23.680 the authority on what they're going to do, but having 0:11:23.720 --> 0:11:27.320 any extra visibility into the path of a market that 0:11:27.360 --> 0:11:33.200 has been highly, highly in determined. So I think Japell's 0:11:33.240 --> 0:11:37.760 credibility is intact here. He's been very single minded on 0:11:37.800 --> 0:11:41.640 the inflation issue. There was some talk earlier in the 0:11:42.320 --> 0:11:45.480 other press conferences and talking about this inflation eleven times, 0:11:45.720 --> 0:11:49.440 but I think ultimately that the pivot was real, and 0:11:49.480 --> 0:11:51.840 I think the pivot is still there. And I think 0:11:51.880 --> 0:11:54.320 the thought that the FED actually does have the tools 0:11:54.320 --> 0:11:57.200 to understand the financial stability issue and what's happening with 0:11:57.240 --> 0:11:59.720 the banks is a very real and true thing. And 0:12:00.160 --> 0:12:02.520 if they hike today, it is a signal that they 0:12:02.520 --> 0:12:06.160 think they ring front fenced this and can prevent further deterioration. 0:12:06.720 --> 0:12:08.600 So if you say that there really has been something 0:12:08.640 --> 0:12:12.040 material that has happened in the economy, what's your investing 0:12:12.280 --> 0:12:14.840 change as a result? Right, So that's the big question. Right. 0:12:14.840 --> 0:12:16.480 We talk about the economy, but in the end, we 0:12:16.520 --> 0:12:19.560 have to invest our clients money. So our thinking on 0:12:19.600 --> 0:12:23.040 this originally was that the recession seemed to be pushed 0:12:23.040 --> 0:12:25.240 out and maybe the end of twenty twenty three into 0:12:25.320 --> 0:12:28.360 twenty twenty four, two weeks ago, when that inflation, all 0:12:28.400 --> 0:12:31.880 those inflation reads came in really hot and the economy 0:12:31.880 --> 0:12:34.800 seemed to be on fire. What we've said today is 0:12:34.840 --> 0:12:39.520 that this event actually changes, that the recession comes back 0:12:39.559 --> 0:12:43.040 into twenty twenty three, earnings likely go lower. We're pretty low, 0:12:43.040 --> 0:12:47.000 and earnings this year anyway, we're neutrally weighted on equities. 0:12:47.280 --> 0:12:50.719 We never really went for the full you know, disinflation 0:12:50.880 --> 0:12:53.920 is here, climb back in hand over fist, get greedy, 0:12:54.200 --> 0:12:56.400 because we simply didn't think that this was going to 0:12:56.520 --> 0:12:58.120 be so easy to get out of in the end. 0:12:58.200 --> 0:13:00.440 In the end, this is going to be a hike cycle. 0:13:00.480 --> 0:13:03.080 The fastest in forty years four hundred and fifty basis 0:13:03.120 --> 0:13:06.280 points today four hundred and seventy five basis points in 0:13:06.320 --> 0:13:08.520 twelve months. How do you get out of this without 0:13:08.520 --> 0:13:11.360 a recession or without something cracking. Well, in fact, something 0:13:11.360 --> 0:13:14.560 did crack yep so, and that tends to be not 0:13:14.679 --> 0:13:18.240 just one thing. So when there's an issue in the 0:13:18.320 --> 0:13:21.920 regional banks, they pull back on lending, and that's what happens. 0:13:21.960 --> 0:13:23.800 And as you know, more than fifty percent of the 0:13:23.880 --> 0:13:27.360 lending to various sectors of the economy comes from these 0:13:27.400 --> 0:13:30.800 banks with two hundred and fifty billion or under in assets. 0:13:30.880 --> 0:13:33.640 So let's work through the second sinc bank liquidity issues, 0:13:33.760 --> 0:13:37.160 credit issues because a tighter lending recession gets brought forward. 0:13:37.400 --> 0:13:39.080 We can agree on the date when they really kicked 0:13:39.080 --> 0:13:43.560 off February eighth, the Wednesday evening overnight into Thursday Wednesday, 0:13:44.440 --> 0:13:47.040 the eighth of March thirty nine, ninety two on the SMP. 0:13:47.559 --> 0:13:50.520 We're above that now, right Why because the market is 0:13:50.520 --> 0:13:54.600 pricing in that the regulatory authorities have ring fenced this, 0:13:55.080 --> 0:13:59.360 that they've prevented further deterioration in the system, in the 0:13:59.400 --> 0:14:02.440 banking system. Had there been doubt, you would have seen 0:14:02.480 --> 0:14:05.160 more of a deterioration, but it simply hasn't happened. So 0:14:05.200 --> 0:14:08.720 the equity market is saying, look, you know, the FED 0:14:08.880 --> 0:14:12.280 and the FDIC and the regulatory authorities have done the 0:14:12.360 --> 0:14:15.400 right thing, and they've done it well, and the stragglers 0:14:15.480 --> 0:14:18.920 left will be dealt with all things being equal, then 0:14:19.600 --> 0:14:22.480 is a slower pace of rate hikes and potentially fewer 0:14:22.520 --> 0:14:24.360 of them, which is what people have been expecting and 0:14:24.440 --> 0:14:29.840 pricing in stimulative for risk assets. It will be taken 0:14:29.840 --> 0:14:33.080 as such. It shouldn't be, but it will be taken 0:14:33.080 --> 0:14:35.960 as such. The market is on a hair trigger waiting 0:14:36.000 --> 0:14:38.880 for the pivot, right, I mean, if you think about 0:14:39.000 --> 0:14:42.480 starting less July, it was the pivot, then we pivoted 0:14:42.480 --> 0:14:44.240 from the pivot, then we went back to the pivot, 0:14:44.240 --> 0:14:48.360 then we pivoted from the pivot. It's nuts, It's really nuts. 0:14:48.960 --> 0:14:52.120 I don't understand why that with the six percent inflation, 0:14:52.600 --> 0:14:54.800 the market is not understanding that, actually the FED is 0:14:54.800 --> 0:14:56.840 going to keep on hiking as long as they ring 0:14:56.880 --> 0:15:01.040 fence the stability issue and they it will keep on hiking. 0:15:01.160 --> 0:15:02.960 We're missing a point, aren't We were just kind of 0:15:03.000 --> 0:15:05.120 not trade in the recession. We want to trade the recovery. 0:15:05.160 --> 0:15:06.800 To the recession we haven't had yet. We want the 0:15:06.800 --> 0:15:10.480 trade after the trade, totally right. There's been a different 0:15:10.480 --> 0:15:13.600 trade in the last couple of weeks, and the market 0:15:13.640 --> 0:15:16.520 wants the trade after the trade because it's all happened 0:15:16.560 --> 0:15:20.920 so fast. Think of how quickly those deposits left the bank, right, 0:15:20.960 --> 0:15:24.520 it was people on apps, So the systems moved quicker. 0:15:24.800 --> 0:15:28.480 Trading has moved, quicker. Regimes seem to move quicker, and 0:15:28.520 --> 0:15:30.600 the market wants to price it in before we get 0:15:30.600 --> 0:15:32.440 through the recession. No joke. I think we've had three 0:15:32.480 --> 0:15:36.080 different regimes in the first quarter alone. Just take a 0:15:36.080 --> 0:15:37.720 look a bit two year yield. I mean, we came 0:15:37.720 --> 0:15:39.760 into this year and it was all right, cuts recession. 0:15:40.160 --> 0:15:42.760 Then it was boom, no landing, more hikes maybe six 0:15:43.200 --> 0:15:45.880 and now it's financial instability pause. The hiking cycle is 0:15:45.960 --> 0:15:50.560 over and it's March twenty second. We haven't finished key one, right, 0:15:50.840 --> 0:15:53.400 So the market keeps on pricing in the pivot. That's 0:15:53.440 --> 0:15:55.120 the key thing. We keep on coming back to it. 0:15:55.160 --> 0:15:58.680 We hold thirty eight hundred, we call that level. I 0:15:58.760 --> 0:16:01.560 suspect we keep on bouncing around in this range between 0:16:01.600 --> 0:16:05.000 thirty eight yo hundred. It's going to be a very 0:16:05.080 --> 0:16:08.160 unsatisfying year, because they will be signs that there's some 0:16:08.240 --> 0:16:11.120 credit content contraction along the way. Earns will come down. 0:16:11.800 --> 0:16:15.440 Our portfolios are prepared for that. We thought this six 0:16:15.480 --> 0:16:18.200 months ago. We never believe that there was no landing. 0:16:18.240 --> 0:16:20.120 How do you have no landing when you're hiking like 0:16:20.160 --> 0:16:22.680 this and you start from a nine percent inflation rate? 0:16:22.760 --> 0:16:26.600 Just real quick here, Then what do you tell clients? Look, 0:16:26.680 --> 0:16:30.160 we went we went. We were underweight bonds last year, 0:16:30.200 --> 0:16:33.080 as we should have been. We went neutral umbonds. So 0:16:33.160 --> 0:16:37.200 we increase our waiting to bonds. We are conservative. We 0:16:37.240 --> 0:16:39.360 are telling clients it's going to be very volatile. We 0:16:39.400 --> 0:16:42.000 do think you actually end the year higher than you 0:16:42.200 --> 0:16:44.760 ended twenty twenty two. It's just not going to feel 0:16:44.880 --> 0:16:48.480 very good. So with our higher rating on bonds and 0:16:48.600 --> 0:16:51.640 our neutral unequities, we can pivot around there. But in 0:16:51.680 --> 0:16:54.520 the end, we don't hold cash in our portfolios and 0:16:54.600 --> 0:16:57.800 so we do relative relative trades and we think we're 0:16:57.840 --> 0:17:00.040 well positioned for this. In the end, the call and 0:17:00.120 --> 0:17:04.240 the real economy has been fairly fairly accurate. I'll say 0:17:04.280 --> 0:17:07.600 that it's what the market does with that, which is 0:17:07.600 --> 0:17:09.399 which is always the hot bit, which is always the 0:17:09.440 --> 0:17:12.399 hard bit. But I think that the table pounding on 0:17:12.480 --> 0:17:15.119 bonds is the right call. I'd always prefer to be 0:17:15.160 --> 0:17:18.240 wrong about the economy and just right accidentally about the market, 0:17:18.280 --> 0:17:22.200 that's correct, you know, Yeah, better to be lucky than right, right, Alicia, 0:17:22.400 --> 0:17:36.000 this was great as always, Alicia fbny manon he yields 0:17:36.000 --> 0:17:38.199 climbing just to touch higher. But the round trips that 0:17:38.240 --> 0:17:41.640 we have seen again and again really a head spinning 0:17:41.640 --> 0:17:44.639 for people trying to get their head around where we 0:17:44.680 --> 0:17:47.760 are in terms of a disinflationary course or not. Jonathan 0:17:47.800 --> 0:17:50.840 Pingle among them. He is chief US economist at UBS. 0:17:50.960 --> 0:17:53.200 Joins us. Now, Jonathan, can you give us a sense 0:17:53.600 --> 0:17:55.640 of how much has changed for you over the past 0:17:55.720 --> 0:18:00.760 two weeks? Well, I mean getting the magnitude exactly right 0:18:00.960 --> 0:18:03.040 right now is going to be just about impossible. And 0:18:03.080 --> 0:18:04.359 I know I was listening to some of your earlier 0:18:04.400 --> 0:18:07.200 conversation with Jonathan. I mean, this is one of those 0:18:07.240 --> 0:18:09.800 things where we can definitely sort of sign the effect. 0:18:10.000 --> 0:18:12.320 I mean, if you thought about the First National Bank 0:18:12.320 --> 0:18:17.520 of Pharaoh, maybe they're double checking their liquidity capital levels. 0:18:17.880 --> 0:18:19.600 You know they're gonna you know, they're they're gonna be 0:18:19.640 --> 0:18:22.040 wondering what the bank examiners are looking for next. You know, 0:18:22.080 --> 0:18:24.320 on the margin, this does go This is pretty likely 0:18:24.359 --> 0:18:28.520 to imply tighter credit going forward, when credit was already 0:18:28.560 --> 0:18:31.359 tightening in the US. So you know, we'll be watching 0:18:31.400 --> 0:18:33.520 the same things you all are watching with the H 0:18:33.640 --> 0:18:36.080 eight data, lending data for the provision of credit. But 0:18:36.160 --> 0:18:38.919 certainly it's a net negative in our expectation for the 0:18:39.000 --> 0:18:40.919 US economy. I've heard that the Bank of Faro has 0:18:40.960 --> 0:18:43.680 an unlimited credit line out to ac Milan, but I'm 0:18:43.720 --> 0:18:46.080 not going to confirm that, and that is just according 0:18:46.080 --> 0:18:48.840 to sources. I'm curious though, from your vantage point. We 0:18:48.920 --> 0:18:51.720 heard from a former FED governor this morning that all 0:18:51.760 --> 0:18:53.760 things being equal, this is not a credit problem, that 0:18:53.760 --> 0:18:56.159 there's not necessarily the same degree of credit tightening that 0:18:56.160 --> 0:19:00.520 people are ascribing the recent turmoil to the market, that 0:19:00.680 --> 0:19:03.320 in fact, there still is a very big inflation problem 0:19:03.760 --> 0:19:06.480 on the ground. What data are you looking at for 0:19:06.560 --> 0:19:10.280 your compass amid the noise, Well, you know, we are 0:19:10.320 --> 0:19:13.480 still getting you know, real time weekly data on everything 0:19:13.640 --> 0:19:18.160 from lending, mortgage applications, initial claims. We are getting regular 0:19:18.600 --> 0:19:21.760 you know, price signals from you know, big data sources, 0:19:21.760 --> 0:19:25.120 whether it's air fares used cars, right, So there's still 0:19:25.160 --> 0:19:27.960 a lot of data that's coming in every day that's 0:19:28.000 --> 0:19:31.000 going to allow us to assess, you know, what's unfolding 0:19:31.320 --> 0:19:33.719 and pretty close to real times these days. I mean, 0:19:33.720 --> 0:19:35.520 that was one of the things we really learned during 0:19:35.560 --> 0:19:38.640 the pandemic was you know, the availability of a lot 0:19:38.640 --> 0:19:41.080 of these new data sources. So you know, we are 0:19:41.119 --> 0:19:43.879 watching all of that, um you know, in particular the 0:19:43.920 --> 0:19:47.000 price data. But I think on net you know, we 0:19:47.000 --> 0:19:50.399 were already starting to get bearish or were bearish about 0:19:50.400 --> 0:19:54.359 the US economic outlook considering you know, there were some 0:19:54.440 --> 0:19:57.600 tentative signs that the rebound and data we saw in 0:19:57.680 --> 0:20:01.560 January really wasn't much of a re bound. And I 0:20:01.600 --> 0:20:03.879 think if you really put yourself in the position of 0:20:04.840 --> 0:20:08.720 a bank officer these days, you know, the guests are right. 0:20:08.760 --> 0:20:10.040 I mean, we don't look at this as a giant 0:20:10.040 --> 0:20:13.080 capital hole. It doesn't look like a sudden stop. But 0:20:13.200 --> 0:20:16.879 on the margin, this does seem more likely to imply 0:20:17.040 --> 0:20:20.280 less provision of credit than more, and less credit impulse 0:20:20.320 --> 0:20:23.159 for the economy usually isn't very good for growth, which 0:20:23.400 --> 0:20:26.240 raises also the issue of whether the VENT chair J. 0:20:26.320 --> 0:20:29.280 Powell recognizes us today in the press conference we heard 0:20:29.280 --> 0:20:32.320 from Betsy duca Is referencing her earlier and she said this, 0:20:32.680 --> 0:20:35.280 Chairman Powell was clear he expected the projections to come 0:20:35.320 --> 0:20:38.960 out in the SEP, the Summary of Economic Projections to 0:20:39.000 --> 0:20:42.439 be higher, and I don't see any way that doesn't happen. 0:20:42.480 --> 0:20:44.360 And she thinks that's going to be the big surprise 0:20:44.440 --> 0:20:47.080 of today's press conference. Can you give us a sense 0:20:47.240 --> 0:20:49.879 of how much you agree with that and what that 0:20:49.920 --> 0:20:53.000 would mean for your estimates of how quickly recession would 0:20:53.000 --> 0:20:56.719 take hold. Well, we do think that a they're going 0:20:56.760 --> 0:20:59.800 to raise raise twenty five basis points at today's meeting, 0:21:00.040 --> 0:21:02.679 and we do think that, you know, the median the 0:21:02.760 --> 0:21:05.520 median DOT is going to revise up for twenty twenty 0:21:05.520 --> 0:21:08.320 three by twenty five basis points compared to the December SEP. 0:21:08.640 --> 0:21:13.520 So that might sound hawkish and it might be a surprise, 0:21:13.640 --> 0:21:17.440 but we also think this comes with very data dependent language. 0:21:17.440 --> 0:21:19.160 I mean, we think they are going to put right 0:21:19.240 --> 0:21:22.920