1 00:00:14,080 --> 00:00:17,520 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,600 --> 00:00:21,000 Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg, and. 3 00:00:20,960 --> 00:00:23,919 Speaker 2: I'm Katie Greifeld. I'm an anchor with Bloomberg Television and 4 00:00:23,960 --> 00:00:25,000 Speaker 2: a cross auser reporter. 5 00:00:25,480 --> 00:00:28,000 Speaker 1: And this week on the show, while the Federal Reserve 6 00:00:28,320 --> 00:00:32,360 Speaker 1: raised borrowing costs again this week, taking their benchmark interest 7 00:00:32,440 --> 00:00:35,280 Speaker 1: rate to a twenty two year high. At Mane on 8 00:00:35,320 --> 00:00:37,879 Speaker 1: Wall Street, believe the Central Bank is either finished or 9 00:00:38,080 --> 00:00:42,440 Speaker 1: very close to being finished this very aggressive rate hike cycle. 10 00:00:43,080 --> 00:00:45,760 Speaker 1: But what about the recession that so many were convinced 11 00:00:45,760 --> 00:00:49,400 Speaker 1: would result from the Central Bank's aggressive fight against inflation? 12 00:00:50,080 --> 00:00:53,840 Speaker 1: Was that just misplaced pessimism or is the downturn still 13 00:00:53,880 --> 00:00:56,440 Speaker 1: on its way. We'll get into it with our guest, 14 00:00:56,560 --> 00:00:59,840 Speaker 1: who is an economist at a major investment firm. But 15 00:01:00,160 --> 00:01:02,640 Speaker 1: first I got a question for you. Yeah hit me, 16 00:01:02,840 --> 00:01:05,280 Speaker 1: And I know you went to college in the Philadelphia 17 00:01:05,319 --> 00:01:11,520 Speaker 1: area at Haverford. I assume you sampled the cheese steaks 18 00:01:12,319 --> 00:01:14,959 Speaker 1: in Philadelphia at some point, and you're. 19 00:01:14,920 --> 00:01:18,679 Speaker 2: Preaching right, No, I've never had a cheese steak. I 20 00:01:18,720 --> 00:01:21,320 Speaker 2: feel like I'm immediately killing our banter. Our top of 21 00:01:21,360 --> 00:01:23,360 Speaker 2: the show banter. But I've never had a cheese steak. 22 00:01:23,600 --> 00:01:25,240 Speaker 1: You've never had a cheese steak? 23 00:01:25,640 --> 00:01:26,679 Speaker 3: No, It just. 24 00:01:27,920 --> 00:01:30,880 Speaker 2: Something about the strips of meat never appealed to me. 25 00:01:31,000 --> 00:01:34,440 Speaker 2: I do eat, I'm not a vegetarian, but just did 26 00:01:34,480 --> 00:01:35,440 Speaker 2: not fill out my boat. 27 00:01:35,640 --> 00:01:38,959 Speaker 1: Oh man, all right, all right, that's fair. So your 28 00:01:39,000 --> 00:01:42,680 Speaker 1: answer is none of the above, Na, not applicable? 29 00:01:42,840 --> 00:01:44,759 Speaker 2: I said, yes, what would have happened? 30 00:01:44,959 --> 00:01:48,560 Speaker 1: My tradition here is to ask Philadelphia area guests what 31 00:01:48,680 --> 00:01:50,920 Speaker 1: their favorite cheese steak joint is. And I'm going to 32 00:01:50,960 --> 00:01:54,360 Speaker 1: tell you right now, Katie, If our guest this week 33 00:01:54,360 --> 00:01:56,560 Speaker 1: actually is a cheese steak eater, I think I can 34 00:01:56,600 --> 00:01:59,760 Speaker 1: guess what his favorite place is. And this after never 35 00:01:59,800 --> 00:02:03,640 Speaker 1: have met him, never spoken to him. That's how good 36 00:02:03,640 --> 00:02:05,440 Speaker 1: I am. All right, you ready? 37 00:02:05,520 --> 00:02:05,920 Speaker 3: All right? 38 00:02:06,440 --> 00:02:07,040 Speaker 2: I'm excited. 39 00:02:07,040 --> 00:02:09,240 Speaker 1: Now let's bring him in. He is Joe Davis. He's 40 00:02:09,240 --> 00:02:12,640 Speaker 1: the global chief economist and head of the Investment Strategy 41 00:02:12,680 --> 00:02:15,320 Speaker 1: Group at Vanguard. Joe, welcome to the show. 42 00:02:15,600 --> 00:02:16,600 Speaker 3: Oh thanks for having me. 43 00:02:16,639 --> 00:02:18,280 Speaker 1: All right, Joe? Are you ready to be blown away? 44 00:02:18,560 --> 00:02:19,240 Speaker 3: Yeah? Let's go. 45 00:02:19,639 --> 00:02:26,440 Speaker 1: Your favorite cheesesteak joint is Larry's Steaks on fifty for 46 00:02:26,800 --> 00:02:30,200 Speaker 1: fifty fourth I believe it is and city line on 47 00:02:30,280 --> 00:02:31,760 Speaker 1: Hawk Hill? Am I right? 48 00:02:32,280 --> 00:02:34,160 Speaker 3: Not bad? Not bad? 49 00:02:34,320 --> 00:02:34,799 Speaker 1: Did I get? 50 00:02:34,800 --> 00:02:35,880 Speaker 3: It's not my favorite? 51 00:02:35,880 --> 00:02:38,120 Speaker 4: So I grew up outside of Philly, but I went 52 00:02:38,160 --> 00:02:42,280 Speaker 4: to college in Philadelphia proper. So Larry's is a great one, 53 00:02:42,560 --> 00:02:46,720 Speaker 4: particularly after midnight because being in college, they're there. 54 00:02:47,160 --> 00:02:48,200 Speaker 3: It's a good cheese. 55 00:02:49,120 --> 00:02:51,600 Speaker 1: Joe Is, I believe you might be our first Hawk, 56 00:02:51,760 --> 00:02:54,440 Speaker 1: our first Saint Joseph's University hawk on the show, which 57 00:02:54,720 --> 00:02:57,480 Speaker 1: is exciting for me, my whole. I've one of six kids. 58 00:02:57,520 --> 00:03:00,239 Speaker 1: Everyone in the family went to Saint jose but me. Yeah, yeah, 59 00:03:00,280 --> 00:03:00,840 Speaker 1: it's crazy. 60 00:03:01,000 --> 00:03:02,960 Speaker 4: Well, how is this so if you're from Philadelphia, you 61 00:03:02,960 --> 00:03:05,000 Speaker 4: know a rivalry of Saint Jose's. 62 00:03:04,720 --> 00:03:06,320 Speaker 1: Villanova r Oh, absolutely yeah. 63 00:03:06,600 --> 00:03:08,680 Speaker 3: So that's where that's where my daughter's going next year. 64 00:03:08,680 --> 00:03:10,040 Speaker 3: So we're gonna have some family tensions. 65 00:03:10,080 --> 00:03:12,840 Speaker 1: Oh yeah, boy, you're at your let you're gonna let 66 00:03:12,880 --> 00:03:13,600 Speaker 1: her back in the house. 67 00:03:13,680 --> 00:03:14,040 Speaker 3: I don't know. 68 00:03:14,280 --> 00:03:15,920 Speaker 4: My son's at Penn. So we got the whole. We 69 00:03:15,960 --> 00:03:19,080 Speaker 4: have almost the entire Big Five. So yeah, long lived Pilly. 70 00:03:19,120 --> 00:03:21,600 Speaker 1: Three fifths of the Big Five. Well, Joe, let's get 71 00:03:21,600 --> 00:03:23,720 Speaker 1: down to business. Then, you know we have the fed 72 00:03:23,960 --> 00:03:27,280 Speaker 1: uh statement and press conference today. You know, the vibe 73 00:03:27,280 --> 00:03:30,560 Speaker 1: I'm getting is not too many surprises. You know, we 74 00:03:30,639 --> 00:03:34,239 Speaker 1: got the quarter point rate increase, so the FED funds 75 00:03:34,240 --> 00:03:36,480 Speaker 1: target's now five and a quarter to five and a 76 00:03:36,520 --> 00:03:40,440 Speaker 1: half percent. Anything shock you today or surprise you at 77 00:03:40,480 --> 00:03:42,920 Speaker 1: all about the statement or what Jerome Palell had to say. 78 00:03:43,080 --> 00:03:45,320 Speaker 3: No, I mean, nothing's really surprised me, Mike. 79 00:03:45,360 --> 00:03:47,560 Speaker 4: I mean again again, I think the big, open ended 80 00:03:47,640 --> 00:03:50,520 Speaker 4: question is the same question that we were facing at 81 00:03:50,560 --> 00:03:53,080 Speaker 4: the beginning of the year, and that really is how 82 00:03:53,160 --> 00:03:55,920 Speaker 4: much work, if at all, there needs to be done 83 00:03:56,000 --> 00:03:59,000 Speaker 4: from the Fed, which really brings to the heart really 84 00:03:59,000 --> 00:04:01,640 Speaker 4: the essential question, which is how restrictive are they today? 85 00:04:01,680 --> 00:04:04,840 Speaker 4: You hear Chairman pal saying they're restrictive. 86 00:04:04,360 --> 00:04:06,960 Speaker 3: By any measure. The question is how much? Because if 87 00:04:07,000 --> 00:04:07,440 Speaker 3: you can. 88 00:04:07,320 --> 00:04:09,560 Speaker 4: Get a handle on that, then you know how much 89 00:04:10,280 --> 00:04:13,680 Speaker 4: both inflation will fall and how much economic damage may 90 00:04:13,680 --> 00:04:16,160 Speaker 4: be done over the next six or twelve months. So 91 00:04:16,360 --> 00:04:18,400 Speaker 4: I think that's still the open question that we were 92 00:04:18,440 --> 00:04:19,440 Speaker 4: facing the beginning of the year. 93 00:04:20,360 --> 00:04:22,800 Speaker 2: Something else that I wanted to ask about, though, was 94 00:04:22,839 --> 00:04:26,719 Speaker 2: the fact that just stepping back from you know, will 95 00:04:26,760 --> 00:04:29,160 Speaker 2: they won't they? In terms of rate rises, it's been 96 00:04:29,200 --> 00:04:33,960 Speaker 2: striking to me how there's been so relatively few descents 97 00:04:34,360 --> 00:04:37,039 Speaker 2: on Chairman Palell's watch. This was another meeting that was 98 00:04:37,080 --> 00:04:41,039 Speaker 2: completely unanimous, even though in their words and the FED 99 00:04:41,120 --> 00:04:44,760 Speaker 2: speak that follows every big decision, there seems to be 100 00:04:44,920 --> 00:04:49,120 Speaker 2: some disagreement. You never see that in the actual votes. 101 00:04:49,400 --> 00:04:51,479 Speaker 2: I'm wondering if that's something you've noticed as well. 102 00:04:51,680 --> 00:04:54,320 Speaker 4: That is a good point, Katie, I have noticed it. 103 00:04:54,480 --> 00:04:57,400 Speaker 4: I think that if you know, going forward, we may 104 00:04:57,440 --> 00:05:01,760 Speaker 4: see greater disagreement. Certainly there's probably more healthy disagreement in 105 00:05:01,800 --> 00:05:05,120 Speaker 4: the actual discussions when they're making decisions rather than the statement. 106 00:05:05,279 --> 00:05:08,200 Speaker 4: But I think I think they've been I think Chairman 107 00:05:08,240 --> 00:05:10,640 Speaker 4: has been able to navigate that with more of the 108 00:05:11,080 --> 00:05:14,520 Speaker 4: first appause, you know, the last meeting and now being 109 00:05:14,560 --> 00:05:17,680 Speaker 4: a more data dependent phrase because you do have you know, 110 00:05:17,760 --> 00:05:20,240 Speaker 4: a healthy spectrum of those wanting to go a little 111 00:05:20,279 --> 00:05:22,920 Speaker 4: bit further and those thinking on the FED that they've 112 00:05:22,960 --> 00:05:25,479 Speaker 4: done enough. So I think that's also a somewhat of 113 00:05:25,480 --> 00:05:28,240 Speaker 4: a testament to his leadership being able to navigate that. 114 00:05:28,440 --> 00:05:31,200 Speaker 4: But I think from here on out, I think that 115 00:05:31,560 --> 00:05:34,520 Speaker 4: the probability of having you know, some modest descent could rise. 116 00:05:35,160 --> 00:05:38,320 Speaker 2: Do you think at all that it sort of muddles 117 00:05:38,360 --> 00:05:41,680 Speaker 2: the message coming from the FED that there has been 118 00:05:42,240 --> 00:05:45,279 Speaker 2: unanimous votes up until this point. And the reason I 119 00:05:45,279 --> 00:05:48,640 Speaker 2: asked is because I was listening to Andrew Hollenhorst from 120 00:05:48,720 --> 00:05:54,279 Speaker 2: City on ATV immediately after the decision, before the press 121 00:05:54,320 --> 00:05:59,520 Speaker 2: or after the decision, saying that basically they sacrifice clarity 122 00:06:00,240 --> 00:06:03,640 Speaker 2: in having a completely unanimous vote, especially after what we 123 00:06:03,680 --> 00:06:06,440 Speaker 2: saw in June where they decided to skip but they 124 00:06:06,480 --> 00:06:10,560 Speaker 2: signaled more raises to come. Is that something that that 125 00:06:10,640 --> 00:06:13,480 Speaker 2: irks you at all, something that muddels their message? Or 126 00:06:14,200 --> 00:06:15,640 Speaker 2: are they pretty loud and clear here? 127 00:06:16,240 --> 00:06:18,480 Speaker 4: No, I mean I think they're closer to loud and clear. 128 00:06:18,480 --> 00:06:21,000 Speaker 4: I mean I think reason why we probably haven't seen 129 00:06:21,040 --> 00:06:25,479 Speaker 4: as much of a descent or open aired sort of 130 00:06:25,520 --> 00:06:28,520 Speaker 4: dialogue is because inflation is still well buff target. Yes, 131 00:06:28,520 --> 00:06:31,800 Speaker 4: it has come down, you know, the more recent data 132 00:06:32,080 --> 00:06:34,400 Speaker 4: is lower than what it was a year ago. But 133 00:06:34,680 --> 00:06:37,240 Speaker 4: I think that that they're still off on their core mandate, 134 00:06:37,279 --> 00:06:41,080 Speaker 4: which is why we're seeing still coalestion coalescing around the 135 00:06:41,120 --> 00:06:43,640 Speaker 4: final decision. I think again, as we get closer to 136 00:06:43,720 --> 00:06:46,400 Speaker 4: two percent, could be a ways off, but as closer 137 00:06:46,480 --> 00:06:48,760 Speaker 4: we get a two percent inflation I think you could 138 00:06:48,839 --> 00:06:51,600 Speaker 4: see more healthy debate, including on. 139 00:06:51,560 --> 00:06:54,320 Speaker 1: The voting, you know, Joe, I think one of the 140 00:06:54,360 --> 00:06:58,800 Speaker 1: remarks that caught some people by surprise was when Jerome 141 00:06:58,880 --> 00:07:02,359 Speaker 1: Palce said he doesn't see the economy getting back to 142 00:07:02,440 --> 00:07:07,200 Speaker 1: that two percent target until twenty twenty five, so you know, 143 00:07:07,360 --> 00:07:10,360 Speaker 1: another year and change, you know, five quarters or so. 144 00:07:10,920 --> 00:07:12,920 Speaker 1: Does that make sense? You know, we've seen such an 145 00:07:12,960 --> 00:07:15,920 Speaker 1: aggressive drop from you know, what was the peak in 146 00:07:16,000 --> 00:07:19,800 Speaker 1: headline CPI like nine to three in the last print. 147 00:07:20,120 --> 00:07:21,920 Speaker 1: Does it make sense that it would take that much 148 00:07:22,000 --> 00:07:23,840 Speaker 1: longer to get to two? 149 00:07:24,360 --> 00:07:24,480 Speaker 3: You know? 150 00:07:24,640 --> 00:07:26,400 Speaker 1: Is it a is it a story of base effects 151 00:07:26,480 --> 00:07:29,520 Speaker 1: that you know, now we're comparing year over year to 152 00:07:30,000 --> 00:07:32,400 Speaker 1: inflation that had already cooled off. How are you thinking 153 00:07:32,440 --> 00:07:35,280 Speaker 1: about how long it'll take to get to that two percent? 154 00:07:36,440 --> 00:07:37,800 Speaker 3: Well, I think it will take some time. 155 00:07:37,840 --> 00:07:39,320 Speaker 4: I think that's you know, I think that was a 156 00:07:39,360 --> 00:07:41,240 Speaker 4: subtle but a very important point is actually it's one 157 00:07:41,280 --> 00:07:44,520 Speaker 4: of the most important comments I thought that was made today, Mike, 158 00:07:44,560 --> 00:07:48,200 Speaker 4: and that you know, there's there's our own research and projections, 159 00:07:48,680 --> 00:07:52,360 Speaker 4: the Federal reserves projections as well as academic analysis, including 160 00:07:52,360 --> 00:07:55,520 Speaker 4: from former chairman Ben Bernanke all point to that to 161 00:07:55,560 --> 00:07:59,360 Speaker 4: the same outcome, which is inflation and remaining elevated, meaning. 162 00:07:59,120 --> 00:08:01,520 Speaker 3: Above two percent for some time. 163 00:08:01,720 --> 00:08:04,360 Speaker 4: The primary reason for that is the tightness in the 164 00:08:04,400 --> 00:08:07,880 Speaker 4: labor market, and so you know, I think that's where 165 00:08:07,960 --> 00:08:09,840 Speaker 4: you know, and we have been of the view I've 166 00:08:09,840 --> 00:08:12,280 Speaker 4: been have had strong conviction for some time that we 167 00:08:12,280 --> 00:08:15,160 Speaker 4: were going to need to see some material cooling in 168 00:08:15,160 --> 00:08:17,880 Speaker 4: the labor market to get to two percent in any 169 00:08:17,920 --> 00:08:21,160 Speaker 4: near term horizon, because it is in the wage dynamics. 170 00:08:22,240 --> 00:08:25,160 Speaker 4: And so I don't I think the market has slowly, 171 00:08:25,200 --> 00:08:27,160 Speaker 4: the bond market has slowly come to grips with that 172 00:08:27,280 --> 00:08:30,280 Speaker 4: starting to price out cuts. Right if recall at the 173 00:08:30,280 --> 00:08:32,319 Speaker 4: beginning of the year there was you know, high conviction 174 00:08:32,360 --> 00:08:34,319 Speaker 4: in the bond market there would be significant easy and 175 00:08:34,360 --> 00:08:37,160 Speaker 4: almost at this point right now. And so I think 176 00:08:37,200 --> 00:08:40,319 Speaker 4: even those comments today, I still think point to the 177 00:08:40,320 --> 00:08:43,000 Speaker 4: fact that you know, it's going to take some labor 178 00:08:43,040 --> 00:08:46,679 Speaker 4: market weakness to get to that last yard at as 179 00:08:46,760 --> 00:08:50,160 Speaker 4: many call it, from three percent trend inflation down to two, 180 00:08:50,679 --> 00:08:54,680 Speaker 4: which brings up another I think important debate that words 181 00:08:54,800 --> 00:08:57,640 Speaker 4: matter with respect to this narrative around the soft landing. 182 00:08:57,679 --> 00:08:59,880 Speaker 4: But perhaps you know, I'll say that for another question. 183 00:09:00,160 --> 00:09:01,840 Speaker 2: Before we get there, and I do want to get there, 184 00:09:01,920 --> 00:09:04,080 Speaker 2: I want to talk a little bit more about what 185 00:09:04,080 --> 00:09:06,079 Speaker 2: you're saying about wages in the fact that we need 186 00:09:06,080 --> 00:09:08,720 Speaker 2: to see some cooling in the labor market to get 187 00:09:09,080 --> 00:09:12,440 Speaker 2: back to target. Is that because there's evidence of a 188 00:09:12,760 --> 00:09:15,000 Speaker 2: wage price spiral at this point? 189 00:09:15,360 --> 00:09:17,200 Speaker 4: Well, I think, kay, I think there was clearly that 190 00:09:17,320 --> 00:09:21,600 Speaker 4: last year you had wage pressures that were significant six 191 00:09:21,679 --> 00:09:25,120 Speaker 4: seven percent. You had labor market turnover that was as 192 00:09:25,160 --> 00:09:27,640 Speaker 4: high as a generation. Again, we all knew some of 193 00:09:27,640 --> 00:09:32,439 Speaker 4: that was somewhat temporary. But I think where I come out, 194 00:09:32,559 --> 00:09:34,920 Speaker 4: there's not a wage price spiral. But the fact is 195 00:09:34,960 --> 00:09:38,800 Speaker 4: the labor market is imbalanced, and we've grown. You know, 196 00:09:38,840 --> 00:09:41,960 Speaker 4: there's measures that many point to the vacancy to unemployment rate. 197 00:09:42,440 --> 00:09:45,160 Speaker 4: You know that ratio one is in balanced number of 198 00:09:45,200 --> 00:09:49,440 Speaker 4: vacancies equal number of unemployed Americans. We've grown that data 199 00:09:49,559 --> 00:09:52,079 Speaker 4: actually back to as far back as World War One, 200 00:09:52,160 --> 00:09:56,360 Speaker 4: so one hundred years, which gave us early insight during 201 00:09:56,400 --> 00:09:58,839 Speaker 4: the throes of COVID that we're going to have some 202 00:09:59,440 --> 00:10:03,080 Speaker 4: wage based inflation pressures. That ratio now has come down, 203 00:10:03,160 --> 00:10:06,559 Speaker 4: that's good news, but we're starting to enter the territory 204 00:10:06,600 --> 00:10:09,680 Speaker 4: the ratio is right now, one point five vacancies to 205 00:10:09,960 --> 00:10:13,000 Speaker 4: a unemployment of one, So one point five is above one. 206 00:10:13,040 --> 00:10:17,640 Speaker 4: It's imbalance demand exceed supply. We're starting to enter the 207 00:10:17,720 --> 00:10:21,360 Speaker 4: territory where any further drop in vacancies starts to be 208 00:10:21,400 --> 00:10:25,560 Speaker 4: associated with a modest increase in unemployment. That's important because 209 00:10:25,559 --> 00:10:28,360 Speaker 4: that suggests that and there hasn't been an exception to 210 00:10:28,400 --> 00:10:30,600 Speaker 4: that for one hundred years. So if we're right, we 211 00:10:30,600 --> 00:10:32,720 Speaker 4: should see some further weakness in the labor market. If 212 00:10:32,760 --> 00:10:35,360 Speaker 4: we do not, then that opens up a different door, 213 00:10:35,400 --> 00:10:39,199 Speaker 4: which means inflation may be stickier than we think, and 214 00:10:39,320 --> 00:10:40,720 Speaker 4: that would be a surprise to the market. 215 00:10:47,520 --> 00:10:49,959 Speaker 2: I did want to wrap in this conversation we're having 216 00:10:50,280 --> 00:10:53,960 Speaker 2: on the labor market to current events that we're seeing 217 00:10:53,960 --> 00:10:57,559 Speaker 2: in the economy, especially when we're seeing all these labor negotiations. 218 00:10:57,640 --> 00:11:00,880 Speaker 2: We saw a big win for labor un unions this 219 00:11:01,000 --> 00:11:05,240 Speaker 2: week with the Teamsters versus UPS, and actually the Teamsters 220 00:11:05,360 --> 00:11:08,760 Speaker 2: chief was on Bloomberg Television after that saying that now 221 00:11:08,800 --> 00:11:13,760 Speaker 2: they're taking the name at Amazon, and I'm wondering how 222 00:11:15,080 --> 00:11:19,720 Speaker 2: you're viewing that, whether those are one off scenarios where 223 00:11:20,000 --> 00:11:23,199 Speaker 2: you know, maybe that segment that was involved, that union 224 00:11:23,200 --> 00:11:26,280 Speaker 2: that was involved gets a price hike. How that is 225 00:11:26,320 --> 00:11:30,000 Speaker 2: fitting into your overall view on the labor market right now? 226 00:11:30,240 --> 00:11:32,080 Speaker 4: Well, you know, I think you know, if you talk 227 00:11:32,120 --> 00:11:35,439 Speaker 4: to friends and colleagues, as even a Boston as an employer, 228 00:11:35,720 --> 00:11:37,400 Speaker 4: you know, you can feel the tightness in the labor 229 00:11:37,440 --> 00:11:40,120 Speaker 4: market when you're looking for applicants. It's in the data, 230 00:11:40,240 --> 00:11:43,160 Speaker 4: it's in common experience. It's not as tight as a 231 00:11:43,240 --> 00:11:47,120 Speaker 4: year ago. Last year seemed like a really a frenzy 232 00:11:47,320 --> 00:11:50,920 Speaker 4: where demand just was was was drassicala ecceede supply. Labor 233 00:11:50,920 --> 00:11:54,599 Speaker 4: turnovers come down. We know, job you know wage increases 234 00:11:54,640 --> 00:11:56,559 Speaker 4: are double the rate when you leave a company for 235 00:11:56,600 --> 00:11:58,679 Speaker 4: a new job then when you stay at the existing ones, 236 00:11:58,760 --> 00:12:02,640 Speaker 4: So is labor turnovers come down. The wage growth is cooled, 237 00:12:03,080 --> 00:12:05,840 Speaker 4: and again this is good news for consumers. But the 238 00:12:05,920 --> 00:12:09,080 Speaker 4: fact is we still have an imbalanced labor market. Now 239 00:12:09,480 --> 00:12:11,800 Speaker 4: that's why the biggest reason why the Fed took rates 240 00:12:11,800 --> 00:12:14,880 Speaker 4: from zero to five percent, right, It's just that there 241 00:12:14,920 --> 00:12:17,319 Speaker 4: was that debate a year ago, your member, between Waller 242 00:12:17,480 --> 00:12:21,239 Speaker 4: and Summers and others and some calling that immaculate disinflation, 243 00:12:21,440 --> 00:12:24,200 Speaker 4: meaning you could have that ratio which at one point 244 00:12:24,240 --> 00:12:27,760 Speaker 4: was two vacancies to one unemployed. You could fall most 245 00:12:27,800 --> 00:12:32,640 Speaker 4: magically to one. I'm just saying that that's that's historically unprecedented. 246 00:12:32,720 --> 00:12:35,000 Speaker 4: You can drop from two to about one point five 247 00:12:35,080 --> 00:12:38,200 Speaker 4: maybe one point three, which we're we're tracking along that pace. 248 00:12:38,280 --> 00:12:41,800 Speaker 4: At that point, it becomes that that sort of that 249 00:12:41,880 --> 00:12:45,079 Speaker 4: line becomes a little kinked, and so any further drop 250 00:12:45,080 --> 00:12:47,839 Speaker 4: in vacancies to get a better balance in labor market, 251 00:12:47,880 --> 00:12:50,680 Speaker 4: which gets to the wage pressures being a little bit less, 252 00:12:50,760 --> 00:12:54,160 Speaker 4: you know, intense, you start to see a rise in unemployment, 253 00:12:54,280 --> 00:12:56,800 Speaker 4: and so there's no getting around that trade off at 254 00:12:56,840 --> 00:12:59,640 Speaker 4: some point. And that I think the soft that the 255 00:12:59,679 --> 00:13:01,880 Speaker 4: soft landing crowd has to come as to grips with 256 00:13:02,160 --> 00:13:05,800 Speaker 4: is that is it theoretically possible, Sure, but it would 257 00:13:05,800 --> 00:13:09,559 Speaker 4: actually require decent good luck and further labor supply coming 258 00:13:09,600 --> 00:13:12,679 Speaker 4: out of the woodwork for us to magically balance the 259 00:13:12,760 --> 00:13:13,679 Speaker 4: labor market. 260 00:13:13,440 --> 00:13:14,360 Speaker 3: Over the next six months. 261 00:13:14,640 --> 00:13:17,760 Speaker 1: Well, Joe, let's talk about that soft landing notion. I mean, 262 00:13:17,840 --> 00:13:22,439 Speaker 1: it seems like it's getting a bigger and bigger sort 263 00:13:22,679 --> 00:13:26,720 Speaker 1: of constituency among economists. One of the interesting things Pal 264 00:13:26,840 --> 00:13:30,360 Speaker 1: said today was that the FED staff is no longer 265 00:13:30,400 --> 00:13:34,040 Speaker 1: forecasting a recession. The IMF this week raised its its 266 00:13:34,120 --> 00:13:38,240 Speaker 1: growth forecast for next year. And at Bloomberg, you know, 267 00:13:38,360 --> 00:13:41,840 Speaker 1: obviously we do a lot of surveys of economists. They've 268 00:13:41,880 --> 00:13:45,400 Speaker 1: boosted their GDP estimates for the second and third quarters. 269 00:13:45,480 --> 00:13:48,920 Speaker 1: According to that survey, consensus is there's about a sixty 270 00:13:49,000 --> 00:13:52,959 Speaker 1: percent chance of a recession within the next twelve months. 271 00:13:53,200 --> 00:13:55,920 Speaker 1: I'm curious what how you're handicapping it, you know, is 272 00:13:55,960 --> 00:13:59,160 Speaker 1: that sixty percent sound high to you? Load to you? 273 00:13:59,320 --> 00:14:01,800 Speaker 1: Is it? Is it more of a sure thing than that? 274 00:14:01,960 --> 00:14:03,040 Speaker 1: How are you thinking about? 275 00:14:03,240 --> 00:14:04,960 Speaker 4: So I'll give you my answer. I also give you 276 00:14:05,000 --> 00:14:08,200 Speaker 4: which it's semantics, but it's actually a very important one 277 00:14:08,960 --> 00:14:12,520 Speaker 4: and that is actually many of the forecasts out there, 278 00:14:12,840 --> 00:14:16,240 Speaker 4: although they seem dramatically bipolar, either if there's a recession 279 00:14:16,280 --> 00:14:20,240 Speaker 4: camp or there's a soft landing camp, right, they're actually 280 00:14:20,240 --> 00:14:24,240 Speaker 4: the forecasts, including the FED, including vanguards you know, are 281 00:14:24,320 --> 00:14:27,960 Speaker 4: forecast and many from you know, many many economist firms. 282 00:14:28,000 --> 00:14:30,760 Speaker 4: They're actually more similar than different. There's just there's this 283 00:14:30,960 --> 00:14:33,160 Speaker 4: there's been this bipolar sort of oh we're in the 284 00:14:33,200 --> 00:14:34,080 Speaker 4: recession camp or not? 285 00:14:34,600 --> 00:14:35,400 Speaker 3: Why say that? 286 00:14:35,520 --> 00:14:38,880 Speaker 4: Is almost everyone has a rise in the unemployment rate 287 00:14:39,360 --> 00:14:41,760 Speaker 4: of at least thirty or forty basis points, so going 288 00:14:41,800 --> 00:14:43,520 Speaker 4: above four percent over the next year. 289 00:14:43,600 --> 00:14:44,000 Speaker 3: Right. 290 00:14:44,640 --> 00:14:47,720 Speaker 4: Well, historically that that that has been one hundred percent 291 00:14:47,760 --> 00:14:51,440 Speaker 4: associated with a recession, now not necessarily deep in magnitude, 292 00:14:51,440 --> 00:14:53,880 Speaker 4: but a recession that, by the way, is the Federal 293 00:14:53,920 --> 00:14:57,280 Speaker 4: Reserves forecast. So the Federal Reserve, I mean semantically, they 294 00:14:57,400 --> 00:15:01,560 Speaker 4: they're on record saying no, no recession, but by that metric, 295 00:15:01,640 --> 00:15:06,080 Speaker 4: it actually it would it is a recession because you 296 00:15:06,160 --> 00:15:10,440 Speaker 4: have very modest job losses. Now GDP could be you know, 297 00:15:10,600 --> 00:15:13,480 Speaker 4: zero point five percent, one percent next year. That's closer 298 00:15:13,520 --> 00:15:16,640 Speaker 4: to our projections one percent. You know, here's the quiz 299 00:15:16,680 --> 00:15:18,960 Speaker 4: in two thousand and one, which has been our central 300 00:15:19,080 --> 00:15:22,440 Speaker 4: tendency of what's the most closest reference point for a 301 00:15:22,560 --> 00:15:26,440 Speaker 4: very mild recession, which is our baseline two thousand and one, 302 00:15:26,520 --> 00:15:30,320 Speaker 4: GDP never fell on an annual basis Really, yeah, we 303 00:15:30,400 --> 00:15:31,440 Speaker 4: had unemployment rise. 304 00:15:31,560 --> 00:15:31,760 Speaker 1: Yeah. 305 00:15:31,800 --> 00:15:35,120 Speaker 4: No. In fact, many recessions do not have GDP fall 306 00:15:35,280 --> 00:15:39,280 Speaker 4: in the calendar year with which they occur. Again, except 307 00:15:39,360 --> 00:15:42,880 Speaker 4: GFC and nineteen eighty two and all those deep ones 308 00:15:43,080 --> 00:15:46,440 Speaker 4: clearly fall. So again, we haven't changed our view on 309 00:15:46,520 --> 00:15:48,680 Speaker 4: that the data has been a little bit stronger than expected. 310 00:15:48,720 --> 00:15:51,320 Speaker 4: But ultimately our view has been you can't have your cake, 311 00:15:51,320 --> 00:15:54,360 Speaker 4: you need it too, which means to get inflation down 312 00:15:54,400 --> 00:15:56,960 Speaker 4: to that last yard of two percent, you have to 313 00:15:57,000 --> 00:15:59,760 Speaker 4: see a modest weakening in the labor market, which means, 314 00:15:59,760 --> 00:16:03,000 Speaker 4: on pointing rate's going to rise, although hopefully not Drasticgo 315 00:16:03,120 --> 00:16:05,160 Speaker 4: let's say let's say four and a half percent over 316 00:16:05,200 --> 00:16:09,080 Speaker 4: the next year. Well, that's one hundred basis point rise, right, 317 00:16:09,160 --> 00:16:12,680 Speaker 4: So by definition, that is a recession. Now, anyone who 318 00:16:12,840 --> 00:16:15,520 Speaker 4: thinks that that's a soft landing is spitting in the 319 00:16:15,520 --> 00:16:17,760 Speaker 4: face of one hundred and fifty years of history. I'm 320 00:16:17,760 --> 00:16:20,600 Speaker 4: just saying that that's categorically wrong. Now, I think what 321 00:16:20,680 --> 00:16:23,560 Speaker 4: the soft landing camp really is is there's actually no 322 00:16:23,640 --> 00:16:27,680 Speaker 4: landing at all, meaning there's no rise in unemployment. Now 323 00:16:27,680 --> 00:16:30,880 Speaker 4: I would assign the probability of that of roughly fifteen percent. 324 00:16:30,960 --> 00:16:33,120 Speaker 4: I mean, that would be both good luck on the 325 00:16:33,160 --> 00:16:35,520 Speaker 4: supply side. We still have an increase in labor force 326 00:16:35,560 --> 00:16:38,560 Speaker 4: participation rate for example. Right, we got better news there, 327 00:16:39,520 --> 00:16:42,200 Speaker 4: and you would have the federal reserve really calibrated just 328 00:16:42,280 --> 00:16:44,200 Speaker 4: the right way. The five and a half percent fed 329 00:16:44,240 --> 00:16:48,000 Speaker 4: funds with core coming down, it's enough to have non 330 00:16:48,080 --> 00:16:50,720 Speaker 4: farm payrolls over the next year come in I don't know, 331 00:16:50,800 --> 00:16:54,800 Speaker 4: let's say one hundred thousand, just enough to have a 332 00:16:54,920 --> 00:16:57,520 Speaker 4: rise on point rate, but you don't have job losses 333 00:16:57,560 --> 00:16:59,760 Speaker 4: where you start to really you know, start to see 334 00:16:59,800 --> 00:17:04,200 Speaker 4: set am weaken further. Effectively, that's an environment where businesses 335 00:17:04,320 --> 00:17:07,520 Speaker 4: do not really have job cuts, they effectively they just 336 00:17:07,640 --> 00:17:08,720 Speaker 4: pause on hiring. 337 00:17:09,240 --> 00:17:11,760 Speaker 3: That is that, in my mind, is what the soft 338 00:17:11,880 --> 00:17:12,800 Speaker 3: landing really is. 339 00:17:13,520 --> 00:17:16,119 Speaker 4: And and so that's where I think, you know, from 340 00:17:16,160 --> 00:17:18,439 Speaker 4: an economists perspective, that may sound a little bit like 341 00:17:18,920 --> 00:17:21,880 Speaker 4: you know, splitting hairs, but it's actually important. So our view, 342 00:17:21,960 --> 00:17:25,080 Speaker 4: we say that is a low probability, so the odds 343 00:17:25,080 --> 00:17:29,160 Speaker 4: of recession are higher than sixty percent, but we're not calling, 344 00:17:29,680 --> 00:17:32,400 Speaker 4: you know, like for a deep recession. It's been it's 345 00:17:32,480 --> 00:17:37,280 Speaker 4: fairly mild and closest examples two thousand and one, so 346 00:17:37,320 --> 00:17:40,160 Speaker 4: hopefully that's helpful. I just see this disconnect between those 347 00:17:40,160 --> 00:17:42,320 Speaker 4: saying we're going to avoid recession, yet they have an 348 00:17:42,400 --> 00:17:44,800 Speaker 4: unemployment rate rise in of one hundred basis points. It's 349 00:17:44,880 --> 00:17:47,320 Speaker 4: just I just don't think that's possible to have those 350 00:17:47,320 --> 00:17:48,640 Speaker 4: two outcomes at the same time. 351 00:17:49,000 --> 00:17:51,560 Speaker 2: Joe, there's a lot to dig into there, But I 352 00:17:51,600 --> 00:17:53,840 Speaker 2: want to return to a point you made that to 353 00:17:53,880 --> 00:17:57,080 Speaker 2: get to the last yard, to get back to two percent, 354 00:17:57,800 --> 00:18:00,600 Speaker 2: sort of The plain question I have is whether or 355 00:18:00,640 --> 00:18:03,800 Speaker 2: not that's worth it. Is it worth it to get 356 00:18:04,080 --> 00:18:07,280 Speaker 2: to two percent and tip the economy into a recession 357 00:18:07,359 --> 00:18:10,800 Speaker 2: versus accepting, you know, maybe a higher inflation rate of 358 00:18:10,920 --> 00:18:12,000 Speaker 2: two and a half percent. 359 00:18:12,359 --> 00:18:15,240 Speaker 4: Again, it's a fair question, Katie. I've heard that dialogue. 360 00:18:15,240 --> 00:18:18,280 Speaker 4: I've been in research meetings with Federal Reserve officials. That 361 00:18:18,320 --> 00:18:22,760 Speaker 4: conversation has been had. I hear that argument. I just 362 00:18:22,800 --> 00:18:25,359 Speaker 4: think it's risky. Could it work? 363 00:18:25,560 --> 00:18:25,840 Speaker 3: Yes? 364 00:18:26,040 --> 00:18:28,120 Speaker 4: I mean, why die on the hill for two point 365 00:18:28,200 --> 00:18:29,480 Speaker 4: seven percent core inflection? 366 00:18:29,680 --> 00:18:29,880 Speaker 3: Right? 367 00:18:30,640 --> 00:18:33,040 Speaker 4: The only risk to that is what happened in nineteen 368 00:18:33,119 --> 00:18:35,680 Speaker 4: sixty seven, And that's actually the. 369 00:18:35,640 --> 00:18:38,240 Speaker 3: One year where the yield curve inverted, yet we didn't 370 00:18:38,240 --> 00:18:39,119 Speaker 3: have a recession. 371 00:18:39,960 --> 00:18:42,760 Speaker 4: People call it a soft landing, But as I've written 372 00:18:42,760 --> 00:18:46,359 Speaker 4: to our own clients and Vanguard, what happened two years 373 00:18:46,400 --> 00:18:50,119 Speaker 4: later was actually a deeper recession and inflation came back. 374 00:18:50,920 --> 00:18:52,879 Speaker 4: Now that's not our baseline, But why I bring up 375 00:18:52,960 --> 00:18:55,919 Speaker 4: nineteen sixty seven is comes back to that indicator I 376 00:18:55,960 --> 00:19:01,600 Speaker 4: mentioned before, the vacancy's unemployment ratio. In nineteen six, conditions 377 00:19:01,640 --> 00:19:04,600 Speaker 4: were very similar as now. The Federal Reserve cut rakes 378 00:19:04,680 --> 00:19:07,240 Speaker 4: because of some a little bit of credit pressures in 379 00:19:07,240 --> 00:19:09,639 Speaker 4: the banking sector. Now again, the Federal Reserve is not 380 00:19:09,680 --> 00:19:12,800 Speaker 4: cutting rates today. Within a year, though, that vacancy on 381 00:19:12,800 --> 00:19:16,320 Speaker 4: appointment ratio it cooled down but always remained well above one. 382 00:19:16,840 --> 00:19:19,320 Speaker 4: It started to rise again closer back to two, which 383 00:19:19,359 --> 00:19:20,960 Speaker 4: is where we were at the beginning of the year, 384 00:19:21,800 --> 00:19:24,480 Speaker 4: And so the Federal Reserve had to switch course dramatically 385 00:19:24,520 --> 00:19:26,400 Speaker 4: and actually had to take rates. They were at five 386 00:19:26,440 --> 00:19:28,560 Speaker 4: and a half, They took them down to three. By 387 00:19:28,560 --> 00:19:30,719 Speaker 4: the end of sixty nine are up to nine percent, 388 00:19:30,880 --> 00:19:35,560 Speaker 4: and a deep recession followed. Why so, like you could 389 00:19:35,680 --> 00:19:38,520 Speaker 4: let inflation kind of hover at two and a half 390 00:19:39,040 --> 00:19:42,040 Speaker 4: two point seven, I would be looking at that point 391 00:19:42,200 --> 00:19:45,600 Speaker 4: if that was the decision, where's that vacancy the unappointment. 392 00:19:45,200 --> 00:19:47,200 Speaker 3: Ratio is it? Is it good? 393 00:19:47,359 --> 00:19:49,480 Speaker 4: It is it around one, which is like the true 394 00:19:49,520 --> 00:19:52,760 Speaker 4: sooft landing, or is it going back up closer to 395 00:19:52,840 --> 00:19:55,480 Speaker 4: the two ratio than we had to beginning of the year. 396 00:19:55,800 --> 00:19:58,040 Speaker 4: If that is the case, then I would be screaming 397 00:19:58,200 --> 00:20:01,360 Speaker 4: for higher rates because we have seen that play out before. 398 00:20:02,000 --> 00:20:03,919 Speaker 4: So I would put a caveat, like, if you're going 399 00:20:03,960 --> 00:20:07,600 Speaker 4: to pursue that policy and let inflation hover around three percent, 400 00:20:08,320 --> 00:20:13,160 Speaker 4: really keep a close eye on the imbalance or balance 401 00:20:13,200 --> 00:20:16,320 Speaker 4: in the labor market, because that was a mistake that 402 00:20:16,440 --> 00:20:19,000 Speaker 4: I think many would take back that mistake in nineteen 403 00:20:19,119 --> 00:20:19,760 Speaker 4: sixty seven. 404 00:20:20,640 --> 00:20:23,119 Speaker 1: Hey, Joe, if I could ask you to switch hats 405 00:20:23,119 --> 00:20:25,480 Speaker 1: for a minute here, As I said at the top, 406 00:20:25,560 --> 00:20:27,879 Speaker 1: you are the global chief economist at Vanguard, but you're 407 00:20:27,880 --> 00:20:30,840 Speaker 1: also head of the investment strategy group and on the 408 00:20:30,920 --> 00:20:35,800 Speaker 1: portfolio management team in fixed income. So I'm curious how 409 00:20:35,800 --> 00:20:37,800 Speaker 1: you were thinking about the bond market. You know, it 410 00:20:37,840 --> 00:20:41,160 Speaker 1: seems like yields have sort of settled into this range 411 00:20:41,400 --> 00:20:44,160 Speaker 1: last few months, call it four point eight four point 412 00:20:44,280 --> 00:20:47,119 Speaker 1: nine on the two year and about three point eight 413 00:20:47,200 --> 00:20:48,879 Speaker 1: three point nine on the ten year. We did have 414 00:20:48,880 --> 00:20:51,240 Speaker 1: the ten year spike above four a few weeks ago, 415 00:20:51,280 --> 00:20:53,640 Speaker 1: but it seems like it's settled back into that three 416 00:20:53,640 --> 00:20:56,159 Speaker 1: point eight three point nine, you know, at least on 417 00:20:56,200 --> 00:20:59,760 Speaker 1: a nominal basis. Obviously, real yields are another story there. 418 00:21:00,280 --> 00:21:03,080 Speaker 1: As inflation comes down but are we just kind of 419 00:21:03,080 --> 00:21:07,440 Speaker 1: locked into this range phenomenal yields. Do you think if 420 00:21:07,480 --> 00:21:10,200 Speaker 1: we if the FED is sort of going into plateau 421 00:21:10,359 --> 00:21:13,000 Speaker 1: rates for the rest of this year and next year. 422 00:21:13,160 --> 00:21:13,919 Speaker 3: I think so. 423 00:21:14,320 --> 00:21:15,760 Speaker 4: I mean, I think, you know, first of all, from 424 00:21:15,800 --> 00:21:18,160 Speaker 4: an investment perspective, our theme has been for a year 425 00:21:18,200 --> 00:21:20,840 Speaker 4: that you know, bonds would come back because you have 426 00:21:20,920 --> 00:21:22,960 Speaker 4: some rich real yields that you mentioned Mike, right, You 427 00:21:23,000 --> 00:21:26,520 Speaker 4: have real yields positive across most of the term structure. 428 00:21:27,119 --> 00:21:29,240 Speaker 4: It's something that you know that I've called the beginning 429 00:21:29,200 --> 00:21:31,280 Speaker 4: of the year, that return to sound money, right, And 430 00:21:31,359 --> 00:21:34,600 Speaker 4: I think it's been the best positive single development in 431 00:21:34,640 --> 00:21:37,440 Speaker 4: the financial markets in the last twenty years bar none. 432 00:21:37,240 --> 00:21:40,160 Speaker 3: Because we have less of a subsidization by. 433 00:21:40,040 --> 00:21:42,359 Speaker 4: Savers to those have had debt, you know, because you 434 00:21:42,400 --> 00:21:44,640 Speaker 4: had you had negative interest real interest rates. 435 00:21:44,680 --> 00:21:46,960 Speaker 3: So that is a theme for us. 436 00:21:47,040 --> 00:21:49,960 Speaker 4: I think within the fixed income market. To have a 437 00:21:50,040 --> 00:21:51,960 Speaker 4: higher long end of the curve, to have a higher 438 00:21:52,000 --> 00:21:54,240 Speaker 4: ten year treasury, you're going to need to make an 439 00:21:54,359 --> 00:21:57,920 Speaker 4: argument that either inflation is going to cyclically come back, 440 00:21:57,960 --> 00:21:59,920 Speaker 4: which I would say more as a tail risk, although 441 00:22:00,040 --> 00:22:00,960 Speaker 4: certainly possible. 442 00:22:01,359 --> 00:22:03,520 Speaker 3: The other one is is that our star that's so 443 00:22:03,640 --> 00:22:04,960 Speaker 3: called neutral rate is higher. 444 00:22:05,320 --> 00:22:07,440 Speaker 4: And as you know, our listeners may know, you know, 445 00:22:07,880 --> 00:22:11,240 Speaker 4: or we've published research, we've put it on external websites 446 00:22:11,240 --> 00:22:13,600 Speaker 4: to say that our star is actually is higher, which 447 00:22:13,680 --> 00:22:15,560 Speaker 4: is one of our thesis going into the year that 448 00:22:15,640 --> 00:22:19,200 Speaker 4: FED wasn't as restrictive as people think. So I think 449 00:22:19,200 --> 00:22:21,560 Speaker 4: from a fixed income perspective, you know, but again, bonds 450 00:22:21,560 --> 00:22:26,159 Speaker 4: are back, They're providing income across various investment strategies. On 451 00:22:26,200 --> 00:22:28,960 Speaker 4: the corporate sector, I mean, you see the total nominal 452 00:22:29,040 --> 00:22:32,080 Speaker 4: yield and on a real, real perspective of pretty compelling 453 00:22:32,359 --> 00:22:36,040 Speaker 4: on the municipal space, similar case. So I think it's 454 00:22:36,119 --> 00:22:40,120 Speaker 4: been a great development. We viewed this as view really 455 00:22:40,200 --> 00:22:43,639 Speaker 4: as a positive outcome for investors. My biggest concern five 456 00:22:43,720 --> 00:22:45,840 Speaker 4: years ago, Mike, is that we had negative interest rates 457 00:22:45,920 --> 00:22:50,000 Speaker 4: or remember the concerns around secular stagnation and low interest 458 00:22:50,040 --> 00:22:52,200 Speaker 4: rates forever. I think this is, you know, the power 459 00:22:52,200 --> 00:22:56,320 Speaker 4: of compounding find an investment perspective is pretty powerful. 460 00:22:57,200 --> 00:22:59,640 Speaker 2: So just to draw that point out a little bit, 461 00:22:59,680 --> 00:23:05,240 Speaker 2: maybe this is an oversimplification, but if our star is higher, 462 00:23:05,720 --> 00:23:10,040 Speaker 2: do treasury yields across the curve need to be structurally 463 00:23:10,200 --> 00:23:11,240 Speaker 2: higher as well? 464 00:23:11,560 --> 00:23:15,440 Speaker 4: Yeah, it's an esoteric terms, okaitis you know, but it's 465 00:23:15,440 --> 00:23:18,840 Speaker 4: effectively a way saying, what is the neutral cache rate? Right, 466 00:23:18,880 --> 00:23:23,119 Speaker 4: which is the bise asset for any security in the world, equities, 467 00:23:23,160 --> 00:23:26,160 Speaker 4: fixed income, private equity, So the risk free rate? What's 468 00:23:26,200 --> 00:23:28,679 Speaker 4: that neutral risk free rate? No one can see it. 469 00:23:28,680 --> 00:23:31,880 Speaker 4: It's like something in the heavenly bodies. You know, it's 470 00:23:31,880 --> 00:23:34,200 Speaker 4: out there if you can't actually feel it with your hands. 471 00:23:34,320 --> 00:23:37,240 Speaker 4: But our research that we've updated, actually it's fed O 472 00:23:37,280 --> 00:23:39,720 Speaker 4: Reserve's own research, we can show that it's one hundred 473 00:23:39,720 --> 00:23:44,240 Speaker 4: basis points higher than whatever that neutral rate was before COVID, 474 00:23:44,440 --> 00:23:47,040 Speaker 4: and it was starting to rise actually before COVID, and 475 00:23:47,080 --> 00:23:49,920 Speaker 4: it doesn't move on a dime. So if we're right, 476 00:23:50,080 --> 00:23:53,920 Speaker 4: that means the neutral nominal rate is roughly three and 477 00:23:53,960 --> 00:23:56,560 Speaker 4: a half, maybe perhaps this high as four percent, say 478 00:23:56,560 --> 00:23:59,879 Speaker 4: a cash rate a treasury T bill, and then you 479 00:24:00,040 --> 00:24:03,000 Speaker 4: would price out the yield curve from that, which would 480 00:24:03,040 --> 00:24:06,800 Speaker 4: get out of fair value potentially for the tenure treasury 481 00:24:06,840 --> 00:24:11,280 Speaker 4: over time. So with the you know, a modestyness in 482 00:24:11,320 --> 00:24:13,600 Speaker 4: the yield curve, you can get a fair value five 483 00:24:13,680 --> 00:24:15,240 Speaker 4: or ten years from now on a tenure that's a 484 00:24:15,240 --> 00:24:17,720 Speaker 4: little bit higher than where we are today, and that's 485 00:24:17,720 --> 00:24:20,240 Speaker 4: really debate in the market. The market was very bomb market, 486 00:24:20,240 --> 00:24:23,000 Speaker 4: as you know, was very skeptical that we were ever 487 00:24:23,080 --> 00:24:27,320 Speaker 4: going to leave that secular stagnation camp. We were anticipating 488 00:24:27,400 --> 00:24:29,480 Speaker 4: high odds that we would. We just did not know 489 00:24:29,600 --> 00:24:32,800 Speaker 4: the timing of it. But we think this is more 490 00:24:32,840 --> 00:24:36,720 Speaker 4: there's more permanence to the recent rise in interest rates. Yeah, 491 00:24:36,800 --> 00:24:39,000 Speaker 4: the Federal Reserve may cut rates in the next two years 492 00:24:39,040 --> 00:24:43,280 Speaker 4: with some economic weakness, but I think neutral rate is 493 00:24:43,400 --> 00:24:46,600 Speaker 4: clearly nominal rate is clearly in the three percent, you know, 494 00:24:46,640 --> 00:24:50,040 Speaker 4: three to four percent range. We can debate within that 495 00:24:50,160 --> 00:24:52,960 Speaker 4: range and as if it's slightly over that. But again, 496 00:24:52,960 --> 00:24:55,000 Speaker 4: that's a dramatic shift from where we were pre. 497 00:24:54,920 --> 00:25:12,280 Speaker 2: COVID and Joe, You'll have to forgive me, but I'm 498 00:25:12,320 --> 00:25:17,320 Speaker 2: a journalist. I think in headlines so unforgivable listening to 499 00:25:17,359 --> 00:25:20,120 Speaker 2: what you're saying. I mean, ten year yields right now 500 00:25:20,160 --> 00:25:23,920 Speaker 2: we're at three point eighty six percent. If the cash 501 00:25:24,000 --> 00:25:25,879 Speaker 2: rate is you know, three and a half, I have 502 00:25:25,920 --> 00:25:28,640 Speaker 2: to assume that has to rise. Is this the end 503 00:25:28,840 --> 00:25:30,199 Speaker 2: of the bond bull market? 504 00:25:30,200 --> 00:25:33,360 Speaker 4: Then I would characterize it differently. So my headline would 505 00:25:33,400 --> 00:25:36,119 Speaker 4: be there's more permanence to this, and then this is 506 00:25:36,119 --> 00:25:38,560 Speaker 4: really a good news. So I think those that have 507 00:25:38,640 --> 00:25:41,439 Speaker 4: been betting that we're going to we're well above normal 508 00:25:41,560 --> 00:25:45,640 Speaker 4: ranges and betting on a significant drop in interest rates. 509 00:25:45,760 --> 00:25:48,960 Speaker 4: I just think it's off base now this fair value range. 510 00:25:48,960 --> 00:25:50,600 Speaker 4: You know, the ten year traders are three point eight. 511 00:25:50,600 --> 00:25:53,040 Speaker 4: But there's a probability of recession in the next twelve months, 512 00:25:53,040 --> 00:25:55,080 Speaker 4: and so the market is trying to have assign a 513 00:25:55,119 --> 00:25:58,640 Speaker 4: certain probability to that over the next several years, which 514 00:25:58,680 --> 00:26:02,160 Speaker 4: can drop us below the numbers I just gave you, right, 515 00:26:02,760 --> 00:26:05,480 Speaker 4: So it doesn't surprise me that we're a little bit 516 00:26:05,600 --> 00:26:08,480 Speaker 4: below the four percent for four and a half percent 517 00:26:08,600 --> 00:26:10,879 Speaker 4: range on the tenure because it's also trying to discount 518 00:26:11,320 --> 00:26:13,359 Speaker 4: economic weakness in the next two years. 519 00:26:13,440 --> 00:26:14,840 Speaker 3: But I again, I. 520 00:26:14,800 --> 00:26:17,360 Speaker 4: Think we're within a normal range. I think the big 521 00:26:17,400 --> 00:26:20,399 Speaker 4: headline I would be putting is bonds will stay back. 522 00:26:20,560 --> 00:26:23,080 Speaker 4: You know, the headline beginning the years was bonds are back. 523 00:26:23,119 --> 00:26:26,240 Speaker 4: I think that they'll they'll stay high in their perch 524 00:26:26,400 --> 00:26:27,600 Speaker 4: for the foreseeable future. 525 00:26:27,840 --> 00:26:31,960 Speaker 1: Chairman Palell duly noted at the press conference the long 526 00:26:32,000 --> 00:26:35,720 Speaker 1: and variable lags of monetary policy and how signal they're 527 00:26:35,760 --> 00:26:39,439 Speaker 1: still kind of waiting for perhaps some other shoes to drop. 528 00:26:39,520 --> 00:26:42,760 Speaker 1: You know, we saw the issues with regional banks in 529 00:26:42,800 --> 00:26:46,440 Speaker 1: the spring. These days, there's this sort of slow trickle 530 00:26:46,800 --> 00:26:50,960 Speaker 1: of alarming news in the commercial real estate sector. You know, 531 00:26:51,000 --> 00:26:54,560 Speaker 1: there's a lot of debt coming up for refinance in 532 00:26:54,600 --> 00:26:58,560 Speaker 1: the next few years at much higher rates, with much 533 00:26:58,640 --> 00:27:03,320 Speaker 1: lower occupancy rates on top of it. I'm just curious 534 00:27:03,440 --> 00:27:06,520 Speaker 1: where how you're thinking about that long and variable lag 535 00:27:06,680 --> 00:27:10,880 Speaker 1: and where maybe we should be looking for the effects 536 00:27:10,920 --> 00:27:14,560 Speaker 1: to perhaps surprise people. I mean, is it commercial real estate? 537 00:27:15,080 --> 00:27:19,240 Speaker 1: Is the regional banking issue not something that's completely solved 538 00:27:19,240 --> 00:27:23,560 Speaker 1: at the moment, Where perhaps would you worry about effects 539 00:27:23,600 --> 00:27:27,000 Speaker 1: from this aggressive interest rate campaign that we haven't really 540 00:27:27,040 --> 00:27:27,560 Speaker 1: seen yet. 541 00:27:28,280 --> 00:27:29,840 Speaker 3: Yeah, well, I think it'd be too Mike. I mean, 542 00:27:29,880 --> 00:27:31,159 Speaker 3: clearly commercial real estate. 543 00:27:31,040 --> 00:27:33,600 Speaker 4: Has gotten the most attention, and not to say that's 544 00:27:33,840 --> 00:27:36,959 Speaker 4: that that's misplaced. Myself and my team are looking at 545 00:27:36,960 --> 00:27:39,400 Speaker 4: two other areas in addition, and one is if we're 546 00:27:39,400 --> 00:27:41,359 Speaker 4: going to have a recession at all, or that's called it, 547 00:27:41,400 --> 00:27:44,600 Speaker 4: you know, just a significant slowdup. We had it in housing, 548 00:27:44,720 --> 00:27:46,840 Speaker 4: but there has to be weakness in the in the 549 00:27:46,880 --> 00:27:48,760 Speaker 4: construction in the employment. 550 00:27:48,280 --> 00:27:49,680 Speaker 3: Side we are now. 551 00:27:49,880 --> 00:27:52,639 Speaker 4: Housis would suggest that the pen up demand which was 552 00:27:52,760 --> 00:27:56,480 Speaker 4: which is still significant from the COVID type period, that 553 00:27:56,600 --> 00:27:59,200 Speaker 4: starts to wean its way through the system by November, 554 00:27:59,280 --> 00:28:02,000 Speaker 4: and so after that point, if there's not renewed demand, 555 00:28:02,640 --> 00:28:04,960 Speaker 4: then we're going to start to see modest layoffs. That's 556 00:28:04,960 --> 00:28:07,960 Speaker 4: the break even. So it puts you into early twenty 557 00:28:08,000 --> 00:28:09,960 Speaker 4: twenty four. And then the other one is what you 558 00:28:10,040 --> 00:28:12,359 Speaker 4: said in terms of terms out in terms of you know, 559 00:28:12,400 --> 00:28:14,400 Speaker 4: refinancing or new debt costs. 560 00:28:14,440 --> 00:28:16,640 Speaker 3: Again, because a lot of a lot of. 561 00:28:16,600 --> 00:28:20,520 Speaker 4: The locking in of low interest rates during COVID, I 562 00:28:20,560 --> 00:28:22,480 Speaker 4: think there is some truth to the fact that the 563 00:28:22,560 --> 00:28:25,240 Speaker 4: lives could be somewhat longer this cycle because of the 564 00:28:25,280 --> 00:28:28,120 Speaker 4: lock up. Exactly, the interest rates sensitivity for the economy 565 00:28:28,160 --> 00:28:30,640 Speaker 4: right now is lower than what it would be on average, 566 00:28:30,840 --> 00:28:33,879 Speaker 4: right And so both of them put you into not 567 00:28:34,000 --> 00:28:36,360 Speaker 4: that interest rates don't have an impact on the economy, 568 00:28:36,400 --> 00:28:40,160 Speaker 4: it just puts you in the downturn. The flowdown being 569 00:28:40,240 --> 00:28:44,240 Speaker 4: later into twenty twenty four. That would corroborate with another 570 00:28:44,280 --> 00:28:47,240 Speaker 4: piece Avage was had nothing to do with the lags, 571 00:28:47,280 --> 00:28:50,040 Speaker 4: and that's just what the fact is only now that 572 00:28:50,200 --> 00:28:52,600 Speaker 4: have we had the real, the real Fed funds rate, 573 00:28:52,640 --> 00:28:54,480 Speaker 4: so that you know where the Fed is five and 574 00:28:54,520 --> 00:28:57,880 Speaker 4: a half percent today minus the rate of trend inflation, 575 00:28:58,760 --> 00:29:01,880 Speaker 4: which you know is own recently gone. That those lines 576 00:29:01,880 --> 00:29:05,560 Speaker 4: have only recently crossed, and so you know, we've really 577 00:29:05,600 --> 00:29:08,760 Speaker 4: never had a recession without the Fed funds rateing at 578 00:29:08,880 --> 00:29:12,040 Speaker 4: least two percentage points above the rate of core inflation. 579 00:29:12,200 --> 00:29:13,640 Speaker 3: So if you put cord four and a. 580 00:29:13,680 --> 00:29:17,000 Speaker 4: Half roughly, let's say in three months we're down to 581 00:29:17,120 --> 00:29:20,720 Speaker 4: three and a half only, then you start really ticking 582 00:29:20,760 --> 00:29:24,160 Speaker 4: the clock between those long and variable lags impacting the 583 00:29:24,200 --> 00:29:27,800 Speaker 4: economy from a from a growth perspective. So housing is 584 00:29:27,840 --> 00:29:30,440 Speaker 4: still I think you know something I would I would 585 00:29:30,440 --> 00:29:33,239 Speaker 4: focus on. It's tough for me to square having a 586 00:29:33,280 --> 00:29:36,040 Speaker 4: slowdown in the labor market and not having some modest 587 00:29:36,120 --> 00:29:37,800 Speaker 4: job losses on the construction side. 588 00:29:38,040 --> 00:29:40,480 Speaker 2: Yeah, and it's been really interesting to watch the home 589 00:29:40,560 --> 00:29:44,040 Speaker 2: builder stocks in particular really crush it this year because 590 00:29:44,520 --> 00:29:46,840 Speaker 2: people just don't want to sell out of that three 591 00:29:46,920 --> 00:29:52,040 Speaker 2: percent mortgage. The supply of existing homes has been very tight. 592 00:29:52,080 --> 00:29:55,520 Speaker 2: So definitely an area that we've been watching at Bloomberg. 593 00:29:55,560 --> 00:29:57,480 Speaker 2: But I do want to ask about you know, we're 594 00:29:57,480 --> 00:29:59,840 Speaker 2: talking about all these scary things, and I want to 595 00:29:59,880 --> 00:30:03,520 Speaker 2: talk about what is the haven asset in this environment, 596 00:30:03,720 --> 00:30:06,600 Speaker 2: because you would think it's treasuries, But then you take 597 00:30:06,640 --> 00:30:10,240 Speaker 2: a look at treasury volatility. It's come in a little bit, 598 00:30:10,400 --> 00:30:14,240 Speaker 2: but it's still pretty elevated relative to history. And then 599 00:30:14,280 --> 00:30:16,440 Speaker 2: you take a look at some of the big tech 600 00:30:16,480 --> 00:30:20,160 Speaker 2: stocks that are just absolutely crushing it this year, and 601 00:30:20,600 --> 00:30:23,880 Speaker 2: it feels like the there's no volatility to speak of. 602 00:30:24,000 --> 00:30:27,120 Speaker 2: And I haven't even mentioned the vics here, and Joe, 603 00:30:27,120 --> 00:30:30,600 Speaker 2: I guess this is a long way of asking, why 604 00:30:30,760 --> 00:30:35,400 Speaker 2: is it that text stocks have pretty much supplanted treasuries 605 00:30:35,800 --> 00:30:39,960 Speaker 2: as the safety trade this year? And do you think that, 606 00:30:40,400 --> 00:30:43,080 Speaker 2: you know, maybe that holds water, that maybe that's not 607 00:30:43,800 --> 00:30:45,360 Speaker 2: the worst dynamic in the world. 608 00:30:45,680 --> 00:30:46,720 Speaker 3: Well, you know, we looked at that. 609 00:30:46,840 --> 00:30:49,280 Speaker 4: You know, ca'se a good question even over a year ago, 610 00:30:50,320 --> 00:30:51,920 Speaker 4: and we're back to where we were a year ago, 611 00:30:52,080 --> 00:30:54,760 Speaker 4: right where we had gross stocks. It's just you know, 612 00:30:55,800 --> 00:30:59,360 Speaker 4: fantastic valuation levels at least relative to say the other 613 00:30:59,440 --> 00:31:02,000 Speaker 4: half of the un verse, more value based companies. And 614 00:31:02,800 --> 00:31:05,080 Speaker 4: I think there's two things going on. One is legitimate 615 00:31:05,120 --> 00:31:06,880 Speaker 4: and one more of a narrative which you start to 616 00:31:06,880 --> 00:31:10,560 Speaker 4: get concerned with with overvaluations, and the narrative is today 617 00:31:10,600 --> 00:31:13,880 Speaker 4: it's AI, but before it was platform effects, network effects, 618 00:31:13,920 --> 00:31:16,440 Speaker 4: winner take all dynamics. Again, there's some truth to it, 619 00:31:16,520 --> 00:31:20,040 Speaker 4: but it's one of the reasons why you can get overvaluations. 620 00:31:19,840 --> 00:31:23,560 Speaker 4: It's the extent of the of the multiple that's priced in, 621 00:31:23,880 --> 00:31:25,640 Speaker 4: and the other one is just a discount rate. I mean, 622 00:31:25,680 --> 00:31:29,080 Speaker 4: I still think, you know, you can justify some of 623 00:31:29,120 --> 00:31:31,640 Speaker 4: the growth stock the tech stocks valuations only if you 624 00:31:31,760 --> 00:31:33,760 Speaker 4: think that we live in the old world and that 625 00:31:33,840 --> 00:31:36,440 Speaker 4: rates are going to are well above where they should be, 626 00:31:37,400 --> 00:31:39,320 Speaker 4: and that we're going to ultimately go back to the 627 00:31:39,440 --> 00:31:43,360 Speaker 4: very low interest rate environment. So I don't think, you know, 628 00:31:43,560 --> 00:31:46,280 Speaker 4: tech stocks are certainly not immune to gravity. So if 629 00:31:46,320 --> 00:31:49,200 Speaker 4: you ask your question, where is there a haven, I'd 630 00:31:49,240 --> 00:31:51,560 Speaker 4: be more I would want to stay fully investigate. I mean, 631 00:31:51,560 --> 00:31:54,720 Speaker 4: I think the natural response would be cash, but over 632 00:31:54,720 --> 00:31:56,280 Speaker 4: a long period of time, I'm not going to get 633 00:31:56,280 --> 00:31:59,239 Speaker 4: really a strong risk premium for that. So you know, 634 00:31:59,320 --> 00:32:01,640 Speaker 4: for me, person, oh yeah, I'm looking at areas that 635 00:32:01,840 --> 00:32:03,680 Speaker 4: haven't been his love for the past year, and that's 636 00:32:03,720 --> 00:32:06,160 Speaker 4: like the value part of the market. You're still participating 637 00:32:06,160 --> 00:32:09,120 Speaker 4: in the equity market, but you know, he doesn't have 638 00:32:09,160 --> 00:32:11,680 Speaker 4: that major run up like you have on the tech side. 639 00:32:11,960 --> 00:32:13,800 Speaker 4: And I don't need value stocks to grow at the 640 00:32:13,800 --> 00:32:15,880 Speaker 4: same path as gross stocks to win, because that has 641 00:32:15,920 --> 00:32:18,240 Speaker 4: not been the case historically, So I would put the 642 00:32:18,320 --> 00:32:20,960 Speaker 4: value of risk premium. It's been a headwind the past 643 00:32:21,000 --> 00:32:23,400 Speaker 4: six months, but I think over long periods of history 644 00:32:23,400 --> 00:32:26,360 Speaker 4: it's been a tailwind. So that's where I'd be kind 645 00:32:26,360 --> 00:32:30,520 Speaker 4: of rebalancing into because the market is pretty unbalanced within 646 00:32:30,560 --> 00:32:31,400 Speaker 4: the equity market. 647 00:32:32,280 --> 00:32:35,440 Speaker 1: Well, you're listening to Joe Davis. He's the global chief 648 00:32:35,480 --> 00:32:40,760 Speaker 1: Economists and head of Investment Strategy Group at Vanguard. Katie 649 00:32:41,160 --> 00:32:45,280 Speaker 1: at Larry Steaks in West Philly. The name of the sandwich, 650 00:32:45,400 --> 00:32:53,880 Speaker 1: the famous sandwich is the belly filler. That's you're just disgusted. 651 00:32:54,520 --> 00:32:56,640 Speaker 1: I was gonna say, I think Joe filled our belly 652 00:32:56,680 --> 00:32:58,760 Speaker 1: there with a lot of good information there is that 653 00:32:59,000 --> 00:33:02,760 Speaker 1: Is that too weird? The belly filler? Joe, the belly filler. 654 00:33:03,840 --> 00:33:07,720 Speaker 1: Thanks man, the belly filler. I always love that one. Anyway, Joe, 655 00:33:07,760 --> 00:33:09,360 Speaker 1: we can't let you go just yet. We do have 656 00:33:09,360 --> 00:33:13,160 Speaker 1: attrition on the podcast where we have to reveal the 657 00:33:13,200 --> 00:33:16,160 Speaker 1: craziest things we've seen in markets, or in your case, 658 00:33:16,160 --> 00:33:19,240 Speaker 1: I'll take in economic data. Whatever you got for the week, Katie, 659 00:33:19,280 --> 00:33:20,160 Speaker 1: how about you go first. 660 00:33:20,400 --> 00:33:22,640 Speaker 2: I think this is pretty good. Take a look at 661 00:33:22,640 --> 00:33:27,760 Speaker 2: the Dow Jones Industrial Average. On Wednesday, it closed it's 662 00:33:28,160 --> 00:33:32,000 Speaker 2: thirteenth straight up day in a row, a wind streak 663 00:33:32,040 --> 00:33:35,240 Speaker 2: of thirteen days. That is the longest wind streak for 664 00:33:35,360 --> 00:33:39,520 Speaker 2: the Dow since January nineteen eighty seven. 665 00:33:39,680 --> 00:33:42,160 Speaker 1: Since eighty seven. Oh boy, well, that's anomenous here to 666 00:33:42,200 --> 00:33:44,960 Speaker 1: bring out. I don't know about that, that connection to 667 00:33:45,080 --> 00:33:47,640 Speaker 1: nineteen eighty seven. I guess we got ten months till 668 00:33:47,960 --> 00:33:52,200 Speaker 1: everything hits the fan. That is pretty amazing. Thirteen days. Yeah, wow, 669 00:33:53,200 --> 00:33:56,640 Speaker 1: that's a good one. That is crazy. Yeah, you did well. 670 00:33:57,640 --> 00:33:58,160 Speaker 2: All right? 671 00:33:58,280 --> 00:34:00,760 Speaker 1: How about you, Joe, you got anything crazy for Yeah? 672 00:34:00,800 --> 00:34:03,480 Speaker 4: I would say, well, and it probably matches Katie's chart. 673 00:34:03,600 --> 00:34:05,880 Speaker 4: That would be you know, the number of web searches 674 00:34:05,880 --> 00:34:09,520 Speaker 4: for the phrase soft landing. It used to be high, 675 00:34:09,600 --> 00:34:12,880 Speaker 4: than it dropped to zero. Now it's back at record highs. 676 00:34:12,920 --> 00:34:16,000 Speaker 4: And so I think those two charts would be very 677 00:34:16,040 --> 00:34:18,680 Speaker 4: highly correlated. May maybe they stick for the rest of 678 00:34:18,719 --> 00:34:21,800 Speaker 4: the year. I'm skeptical, but hey, here's the wishing. 679 00:34:22,880 --> 00:34:25,880 Speaker 1: All right, good stuff to both you. I'll give you 680 00:34:25,920 --> 00:34:30,160 Speaker 1: mine now, all right. This is courtesy of cbsnews dot Com. Joe, 681 00:34:30,200 --> 00:34:33,800 Speaker 1: I prefer the alternative asset classes for my crazy things, 682 00:34:33,800 --> 00:34:38,279 Speaker 1: and this is about as alternative as it gets. It's 683 00:34:38,280 --> 00:34:42,720 Speaker 1: a gold, ruby and diamond ring worn by rapped legend 684 00:34:42,760 --> 00:34:47,920 Speaker 1: Tupac Shakur during his last public appearance. Wow, he were, yeah, 685 00:34:47,960 --> 00:34:50,799 Speaker 1: how about that? And it's pretty cool look and it's 686 00:34:50,840 --> 00:34:54,520 Speaker 1: got a crown on it, and with the crown is 687 00:34:54,560 --> 00:34:59,080 Speaker 1: made of rubies and diamonds and gold. He apparently was 688 00:34:59,080 --> 00:35:02,440 Speaker 1: a big reader of Machavelli and like the medieval kings 689 00:35:02,680 --> 00:35:06,399 Speaker 1: and medieval lure of Europe. Anyway, Yeah, yeah, who knew 690 00:35:06,440 --> 00:35:10,439 Speaker 1: about Tupac? What up production at Sotheby's. So it's time 691 00:35:10,480 --> 00:35:13,920 Speaker 1: to play that game. The price is precise. I regret 692 00:35:14,000 --> 00:35:18,080 Speaker 1: to inform both of you. You are contestants. Katie, what's 693 00:35:18,120 --> 00:35:23,200 Speaker 1: your price or the winning bid for rap legend Tupac 694 00:35:23,280 --> 00:35:26,160 Speaker 1: Shakur's gold, ruby and diamond ring. 695 00:35:26,920 --> 00:35:30,000 Speaker 2: Can I tell you something horrible? I actually just googled 696 00:35:30,000 --> 00:35:33,520 Speaker 2: it because it sounded so it sounded very pretty, and 697 00:35:33,560 --> 00:35:34,239 Speaker 2: I wanted. 698 00:35:34,000 --> 00:35:36,040 Speaker 1: To see no, no, googling. 699 00:35:36,840 --> 00:35:40,000 Speaker 2: I'm sorry, I'm sorry. I removed myself. 700 00:35:40,200 --> 00:35:43,080 Speaker 1: You forfeit, You forfeit. Well, Joe, I gotta tell you 701 00:35:43,080 --> 00:35:45,080 Speaker 1: you're automatically the winner. But I still want to hear 702 00:35:45,440 --> 00:35:46,120 Speaker 1: what your bid is. 703 00:35:46,160 --> 00:35:48,480 Speaker 3: Oh, I know I heard. I was just going to 704 00:35:48,520 --> 00:35:50,440 Speaker 3: throw it a million. I have no idea. 705 00:35:50,880 --> 00:35:53,640 Speaker 1: Are you googling too? Joe? You hit it exactly on 706 00:35:53,719 --> 00:35:55,040 Speaker 1: the nose. That's impressive. 707 00:35:55,880 --> 00:35:58,080 Speaker 3: How big was the diamonds and rubies? 708 00:35:58,280 --> 00:35:58,920 Speaker 1: Katie does it? 709 00:35:59,000 --> 00:35:59,239 Speaker 5: Say? 710 00:35:59,320 --> 00:36:01,279 Speaker 1: I don't know, but it's not it. 711 00:36:01,440 --> 00:36:05,400 Speaker 2: Yeah, I mean the diamonds are accents. I'm on people 712 00:36:05,440 --> 00:36:08,960 Speaker 2: dot com right now. It's more about the crown. Is 713 00:36:09,000 --> 00:36:11,480 Speaker 2: really the centerpiece of in the crowd. 714 00:36:11,719 --> 00:36:12,880 Speaker 1: Yeah, yeah, Well. 715 00:36:12,719 --> 00:36:14,680 Speaker 4: That makes more sense to me though than you know, 716 00:36:15,400 --> 00:36:17,160 Speaker 4: you know, things like sneakers and stuff. 717 00:36:17,200 --> 00:36:18,720 Speaker 3: At least there's intrinsic. 718 00:36:18,360 --> 00:36:20,080 Speaker 4: Guys who knows, well, at least you're gonna do if 719 00:36:20,080 --> 00:36:22,440 Speaker 4: you're gonna diversify and alternative assets. You got that, You 720 00:36:22,520 --> 00:36:26,000 Speaker 4: got gold, diamonds and ruby, so you got multiple You 721 00:36:26,000 --> 00:36:26,359 Speaker 4: got it. 722 00:36:26,320 --> 00:36:29,120 Speaker 1: All covered right South of Beys had only estimated two 723 00:36:29,160 --> 00:36:33,080 Speaker 1: hundred to three hundred thousand, so way off base. They said, wow, 724 00:36:33,120 --> 00:36:37,479 Speaker 1: this makes it the most valuable hip hop artifact ever sold, 725 00:36:37,520 --> 00:36:37,800 Speaker 1: I don't know. 726 00:36:37,960 --> 00:36:39,719 Speaker 4: Artifact sounds well, you could tell, you could tell that 727 00:36:39,760 --> 00:36:43,880 Speaker 4: the Federal Reserve that perhaps financial conditions are not that restrictive. 728 00:36:44,560 --> 00:36:46,000 Speaker 3: When you have things going on. 729 00:36:46,560 --> 00:36:50,120 Speaker 1: We're gonna add Tupac's jewelry to the financial conditions index. 730 00:36:52,960 --> 00:36:55,680 Speaker 1: But and rest in peace to uh to mister Shaker. 731 00:36:55,840 --> 00:36:58,239 Speaker 1: My old college buddy Jeff Peerlman is actually right in 732 00:36:58,239 --> 00:37:02,680 Speaker 1: a biography of them, so little shout out to them. Yeah, Joe, 733 00:37:03,040 --> 00:37:06,160 Speaker 1: pleasure to hear your thoughts. We really appreciate it. Oh 734 00:37:06,200 --> 00:37:08,120 Speaker 1: and you never didn't give us your favorite cheeseteak. Join 735 00:37:08,320 --> 00:37:09,200 Speaker 1: it's not Larry's. 736 00:37:09,400 --> 00:37:13,560 Speaker 4: Oh I go Pats Downtown. Yeah all right, yeah, but 737 00:37:13,600 --> 00:37:16,080 Speaker 4: they're all good, you know, classic. And you know, Katie, 738 00:37:16,120 --> 00:37:18,040 Speaker 4: you should try the chicken cheese steak. You know, It's 739 00:37:18,040 --> 00:37:19,799 Speaker 4: just it's a nice diversifier too. 740 00:37:19,920 --> 00:37:22,960 Speaker 1: I'm gonna I'm gonna buy you one next time I'm 741 00:37:22,960 --> 00:37:24,759 Speaker 1: in the Okay together, Katie. 742 00:37:24,640 --> 00:37:27,360 Speaker 2: I appreciate that, but I'll just have a burger. 743 00:37:27,680 --> 00:37:35,000 Speaker 1: Yeah, man man oh man. Anyway, Joe, David Niche so 744 00:37:35,080 --> 00:37:36,520 Speaker 1: much for your time. We really appreciate it. 745 00:37:36,560 --> 00:37:37,560 Speaker 3: Thank you both for having me. 746 00:37:46,320 --> 00:37:47,000 Speaker 2: What Goes Up. 747 00:37:47,120 --> 00:37:49,879 Speaker 5: We'll be back next week. Until then, you can find 748 00:37:49,960 --> 00:37:53,480 Speaker 5: us on the Bloomberg Terminal website and app, or wherever 749 00:37:53,520 --> 00:37:56,239 Speaker 5: you get your podcasts. We'd love it if you took 750 00:37:56,280 --> 00:37:58,480 Speaker 5: the time to rate and review the show so more 751 00:37:58,480 --> 00:38:01,520 Speaker 5: listeners can find us. You can find us on Twitter, 752 00:38:02,280 --> 00:38:06,800 Speaker 5: follow me at Wildona Hirich. Mike Reagan is at Reaganonymous. 753 00:38:07,280 --> 00:38:11,799 Speaker 5: You can also follow Boomer Podcasts at podcasts. What Goes 754 00:38:11,880 --> 00:38:14,400 Speaker 5: Up is produced by Stacy Wong, and our head of 755 00:38:14,440 --> 00:38:17,680 Speaker 5: podcasts is Sage Paulman. Thanks for listening and we'll see 756 00:38:17,719 --> 00:38:21,320 Speaker 5: you next week.