WEBVTT - The Diamond Market And Economy In 2022 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.479 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:24.160 at Bloomberg dot com Slash podcast in the Bloomberg Interactive 0:00:24.160 --> 0:00:27.320 Broker studio. As we speak, Jenna Drosos. She is all 0:00:27.360 --> 0:00:31.720 tested up for the COVID passing with colors. I would 0:00:31.720 --> 0:00:35.360 say she's the CEO of Signet Jewelers based in Accord, Ohio. 0:00:35.360 --> 0:00:38.000 It's a publicly traded company. S i G is a 0:00:38.040 --> 0:00:40.600 ticker about a four billion dollar market. Cappin. Jenna, thanks 0:00:40.600 --> 0:00:43.240 so much for joining us here. Talk to us about 0:00:43.440 --> 0:00:46.920 the jewelry business in the world of a global pandemic. 0:00:47.000 --> 0:00:48.919 Tell us what the last couple of years have been 0:00:48.960 --> 0:00:50.720 like for your business. The sixth sign it is I 0:00:50.800 --> 0:00:54.520 read that Signal is the world's largest retailer of diamond jewelry. 0:00:54.600 --> 0:00:57.800 Is that true? Yes, that's right. So we operate under 0:00:57.840 --> 0:01:02.000 a number of retail banners that many customers no k sales. 0:01:02.160 --> 0:01:06.720 Jared Banter by piercing Pagoda. We have an online purely 0:01:06.840 --> 0:01:10.560 digital play retailer, James Allen dot com. Just recently in 0:01:10.560 --> 0:01:13.480 the last year purchased Diamonds Direct and Rocks Box, which 0:01:13.520 --> 0:01:16.680 is the number one jewelry rental and subscription business in 0:01:16.720 --> 0:01:19.480 the US. So we are number one in the US 0:01:19.520 --> 0:01:22.959 both in bricks and mortar and e commerce. We're also 0:01:23.000 --> 0:01:26.200 the number one jeweler in Canada with People's Jewelers and 0:01:26.280 --> 0:01:28.959 in the UK with Ernest Jones and H. Samuel. So 0:01:29.080 --> 0:01:31.840 I'm just looking at your fundamentals here on the Bloomberg. 0:01:31.880 --> 0:01:33.640 It's great with any stock you can take GF go 0:01:33.800 --> 0:01:38.000 and see your revenue. Uh and um, EPs, you guys 0:01:38.040 --> 0:01:42.080 aren't doing great business obviously, up fifty percent year over 0:01:42.200 --> 0:01:45.280 year in terms of revenue growth EPs at a near 0:01:45.319 --> 0:01:50.120 record high. UM. Why Why is that? This is really 0:01:50.120 --> 0:01:53.920 the culmination of several years of transformation that the company 0:01:53.960 --> 0:01:56.440 has been under and I'm very proud of our team 0:01:56.480 --> 0:01:59.280 for embracing those strategies and for the passion that they have. 0:01:59.520 --> 0:02:02.600 We we have been working to drive out all costs 0:02:02.640 --> 0:02:05.440 that customers don't see or care about, and we've invested, 0:02:05.520 --> 0:02:09.359 We've invested that in creating a much stronger digital presence. 0:02:09.760 --> 0:02:12.079 What we know about shoppers as they came through COVID 0:02:12.160 --> 0:02:15.519 is that they're much more interested in searching and browsing 0:02:15.560 --> 0:02:18.760 online before they go to a retail store. In fact, 0:02:18.760 --> 0:02:22.880 in our business, now nine of our highest value customers, 0:02:22.919 --> 0:02:25.520 so people who spend more than five dollars with us, 0:02:25.960 --> 0:02:30.560 interact with us both online and in stores. So this 0:02:30.680 --> 0:02:33.960 this is growth. I mean, if you look across different 0:02:33.960 --> 0:02:37.359 segments and I know you have a ton of new 0:02:37.680 --> 0:02:43.320 kind of high tech businesses springing up, is online sales 0:02:43.360 --> 0:02:47.680 your your biggest growth business. It's definitely the biggest new 0:02:47.800 --> 0:02:51.680 interaction point for our customers. Still about eighty percent of 0:02:51.800 --> 0:02:55.120 stores and jewels of sales in jewelry happen in store, 0:02:55.639 --> 0:02:59.000 so people aren't buying as much online, but they're definitely 0:02:59.040 --> 0:03:02.560 getting informed on line. We have features now like virtual 0:03:02.680 --> 0:03:07.720 try on online, virtual jewelry consulting, asynchronous chat where you 0:03:07.720 --> 0:03:09.840 can chat with someone one day and come back to 0:03:09.919 --> 0:03:13.320 the same chat a week later. So we've really invested 0:03:13.320 --> 0:03:16.200 in digital tools to make the shopping experience easy. So 0:03:16.320 --> 0:03:18.680 talk to us about the pandemic that two years did 0:03:18.720 --> 0:03:22.000 you shut down stores and how did you manage that. 0:03:22.240 --> 0:03:24.560 I'm guessing it's a regional situation in different parts of 0:03:24.560 --> 0:03:28.720 the country doing different types of policies. So we we 0:03:28.800 --> 0:03:31.360 took a very proactive stance on that to keep our 0:03:31.400 --> 0:03:35.720 team members safe. UM we closed our stores almost exactly 0:03:35.760 --> 0:03:39.120 two years ago on March twenty three. That was a 0:03:39.240 --> 0:03:42.040 scary thing to do for a retailer that was very 0:03:42.040 --> 0:03:45.760 brick and mortar focused, but we had already been transforming 0:03:45.800 --> 0:03:50.680 our digital operations the Christmas before. UM. Everyone of our 0:03:50.760 --> 0:03:53.720 sales associates had been working with iPads in the store, 0:03:54.080 --> 0:03:56.400 so within forty eight hours we turned those on in 0:03:56.440 --> 0:03:59.400 their living rooms and they were still able to serve 0:04:00.040 --> 0:04:03.920 of our customers. Our digital business really exploded during that 0:04:04.000 --> 0:04:06.800 time period and we were ready to lean into that pivot. 0:04:07.240 --> 0:04:10.640 And and I would say, if anything, it accelerated our transformation. 0:04:10.680 --> 0:04:13.559 That's you know that amazed me talking to different luxury 0:04:13.600 --> 0:04:17.400 retailers about how customers did make the pivot to digital. Like, 0:04:17.440 --> 0:04:19.279 if I'm gonna lay down a big chunk of money 0:04:19.279 --> 0:04:22.479 for something, whether it's a diamond or an automobile or 0:04:22.480 --> 0:04:24.840 a fur coat, I want to see it, touch it, 0:04:24.880 --> 0:04:27.640 feel it. But that wasn't necessarily the case. Do you 0:04:27.640 --> 0:04:30.640 buy a lot of fur coats? I do not. Well, 0:04:31.000 --> 0:04:32.520 you know you have to. You have to think about 0:04:32.520 --> 0:04:35.359 what matters most in each category, and in jewelry, the 0:04:35.440 --> 0:04:38.440 two key things that customers are looking for before they 0:04:38.440 --> 0:04:43.679 make an expensive purchase our consultation or advice and visualization. 0:04:43.800 --> 0:04:46.200 You want to see what it looks like. But think 0:04:46.240 --> 0:04:48.560 about trying to look at a diamond in a store 0:04:48.720 --> 0:04:51.839 using a loop. It's not very easy. I mean, you 0:04:51.839 --> 0:04:53.560 pull it back and forth in front of your eye. 0:04:53.560 --> 0:04:56.200 You can't see the diamond that Well, we came up 0:04:56.200 --> 0:04:59.359 with a technology where we take hundreds of photos of 0:04:59.360 --> 0:05:02.960 a diamond, blow it up forty times in HD You 0:05:03.000 --> 0:05:06.320 can actually see that the you know, a diamond much 0:05:06.400 --> 0:05:09.680 better now digitally than you can't even in the store. Yeah, 0:05:09.680 --> 0:05:12.760 I'm sure that's that's the case. What about the current 0:05:12.800 --> 0:05:16.039 war in Ukraine? How and the sanctions on Russia? How 0:05:16.080 --> 0:05:20.159 difficult is that as a diamond retailer When I'm I've 0:05:20.200 --> 0:05:24.040 read that Russia maybe the world's largest supplier of raw diamonds. 0:05:25.520 --> 0:05:29.040 So thankfully we don't have any operations on the ground 0:05:29.080 --> 0:05:32.679 in Russia or Ukraine, but we did act very quickly 0:05:32.760 --> 0:05:36.240 on this um. Signet has been a leader in responsible 0:05:36.240 --> 0:05:39.320 and ethical sourcing of jewelry now for more than a decade, 0:05:39.320 --> 0:05:42.880 where founders of the Responsible Jewelry Council, members of the 0:05:42.920 --> 0:05:46.080 World Diamond Council, and we actually go above and beyond 0:05:46.200 --> 0:05:50.560 that and have our own Signet Responsible Sourcing protocol. So 0:05:50.640 --> 0:05:53.320 customers for many years have been able to count on 0:05:53.480 --> 0:05:58.799 everything in a Signet store being pristinely sourced. And we're agile. 0:05:59.200 --> 0:06:01.640 We have a group of changing vendors. We've gone to them, 0:06:01.640 --> 0:06:04.599 We've said we don't want any diamonds sourced after this 0:06:04.680 --> 0:06:08.040 conflict that came from Russia in our jewelry. We've stopped 0:06:08.040 --> 0:06:11.280 our own direct interaction and so customers can feel very 0:06:11.320 --> 0:06:14.000 good about buying jewelry at Signet. All right, Jenna, thank 0:06:14.040 --> 0:06:15.720 you so much for coming, and we really appreciate you 0:06:15.760 --> 0:06:19.800 coming into our studios here today. Jennet Drosos, CEO of 0:06:19.839 --> 0:06:22.920 Signet Jewelers again public and traded company s i G. 0:06:23.080 --> 0:06:26.159 They're based in Akron, Ohio, but Jenna joins us here 0:06:26.200 --> 0:06:32.640 in New York and we appreciate that. All Right, Supreme 0:06:32.680 --> 0:06:36.039 Court nomination, got another one coming. That means we're gonna 0:06:36.080 --> 0:06:39.080 have some holly contested I guess some hearings, if you will. 0:06:39.279 --> 0:06:42.360 June Grasso, host of Bloomberg Law and Bloomberg Opinion, joins 0:06:42.400 --> 0:06:44.839 us here in our Bloomberg Interactive Brooker Studio. All right, 0:06:44.920 --> 0:06:48.360 So Katanji Brown Jackson, June, what can you tell us 0:06:48.360 --> 0:06:54.279 about Katanji Brown Jackson? Well, she is currently uh appellate 0:06:54.320 --> 0:06:56.720 court on the d C Circuit Court of Appeals, which 0:06:56.760 --> 0:06:59.719 is sort of known as the second highest court in 0:06:59.720 --> 0:07:02.159 the and it's the feeder court for the Supreme Court. 0:07:02.640 --> 0:07:05.840 And um, she was a district court judge for ten years. 0:07:05.839 --> 0:07:07.960 She just had a hearing last year to get onto 0:07:07.960 --> 0:07:10.000 the d C Circuit Court of a judge. She has 0:07:10.040 --> 0:07:13.840 a background as a public defender, which is something that's 0:07:13.880 --> 0:07:17.080 so unusual on the court. The last person who defended 0:07:17.280 --> 0:07:21.080 criminals who sat on the court was um was it 0:07:21.200 --> 0:07:25.080 was decades ago. So what what? Um? What we're saying 0:07:25.160 --> 0:07:29.040 seeing is that she might be attacked because of her 0:07:29.240 --> 0:07:32.720 defense of you know people, and that's one of the 0:07:32.760 --> 0:07:37.320 attacks that they lodged when she was at her I 0:07:37.360 --> 0:07:40.560 just remember, I just remember the Cavanaugh hearing being so ugly, 0:07:41.120 --> 0:07:44.000 so ugly, and so many images that are seriously, people's 0:07:44.040 --> 0:07:46.120 you know, literally television images. How do you think this 0:07:46.120 --> 0:07:48.880 one's gonna go? Well, if you remember the Amy Coney 0:07:48.920 --> 0:07:51.640 Barrett hearings, which were after the caval hearings were not 0:07:51.680 --> 0:07:55.240 that ugly. Probably you remember that because you remember Kavanaugh 0:07:55.240 --> 0:07:58.280 because it stood out, and we remember Clarence Thomas. There 0:07:58.280 --> 0:08:00.680 are some hearings that really and out, and a lot 0:08:00.680 --> 0:08:04.400 of times you don't remember what what the the nominee said. 0:08:04.440 --> 0:08:07.560 You worry you remember what the attack on the nominee was. 0:08:07.640 --> 0:08:10.080 It's all about the questions in these kinds of hearings. 0:08:10.080 --> 0:08:12.640 It's all about the senators getting their questions in it. 0:08:12.760 --> 0:08:15.760 So you'll find a lot of the Republican senators who 0:08:15.840 --> 0:08:20.920 have presidential ambitions, like Josh Holly Ted Cruz are going 0:08:21.000 --> 0:08:24.160 to be on the attack most likely in these hearings. 0:08:24.200 --> 0:08:27.480 Even though I mean her record is I would say, 0:08:27.880 --> 0:08:31.080 I mean it's it's difficult to assail her on certain points. 0:08:31.080 --> 0:08:34.600 For example, the hot button issues like abortion, religious rights. 0:08:34.640 --> 0:08:37.400 She hasn't written about that. She's been on the court 0:08:37.480 --> 0:08:40.760 for only a few months, so she hasn't written about that, 0:08:41.000 --> 0:08:42.920 and her as a district court judge, you don't write 0:08:42.920 --> 0:08:44.559 about those things. So they're not gonna be able to 0:08:44.600 --> 0:08:46.800 get her on that. So they found other things too, 0:08:47.640 --> 0:08:52.120 assail her on whoa like what? Like what? That's a 0:08:52.120 --> 0:08:55.360 good question. That's a good question. Let me with that 0:08:55.400 --> 0:08:58.400 without we don't want to get political about it, obviously, 0:08:58.720 --> 0:09:02.960 Um but if you when you were at Harvard Law 0:09:03.200 --> 0:09:06.120 or wherever you studied, I'm sure you had to take 0:09:06.160 --> 0:09:09.400 the other side occasionally, right, So put yourself in the 0:09:09.440 --> 0:09:14.600 shoes of a white male Republican. I wonder which one 0:09:14.880 --> 0:09:18.440 of the few that around the Judiciary Committee, all of 0:09:18.480 --> 0:09:21.840 them except for one, there's one. There's one female Republican. 0:09:22.080 --> 0:09:23.959 I will tell you, because we know what they're going 0:09:23.960 --> 0:09:26.160 to attack on. Basically, they're going, what would you do 0:09:26.200 --> 0:09:28.680 if you were advising the Republican Party? How do you 0:09:28.720 --> 0:09:32.200 get rid of kenjy kb J? Can't do it. They 0:09:32.240 --> 0:09:34.440 can't get rid of her unless the Democrats, who have 0:09:34.480 --> 0:09:37.360 held together, by the way, all fifty Democrats on all 0:09:37.440 --> 0:09:40.679 of Biden's nominees. Unless one of them suddenly says Joe 0:09:40.760 --> 0:09:43.559 Manchin kristin cinema, Oh, I'm not going to support her. 0:09:43.880 --> 0:09:46.520 They really can't get her. And the thing is that 0:09:46.640 --> 0:09:49.080 so the attacks are going to be. Mitch McConnell has 0:09:49.080 --> 0:09:51.960 already signaled this. She's soft on crime. She was a 0:09:51.960 --> 0:09:55.240 public a federal public defender, so she's soft on crime. 0:09:55.280 --> 0:09:58.080 And also Josh Holly came out with something a week 0:09:58.120 --> 0:10:01.600 ago that has not been raised in the three times 0:10:01.600 --> 0:10:05.040 she's been before the Judiciary Committee and including the one 0:10:05.080 --> 0:10:07.319 time that she was there when he was questioning her, 0:10:07.600 --> 0:10:12.880 and that's that she's soft on child pornographers. That her sentencing. Now, 0:10:13.000 --> 0:10:16.559 this is a good area for Republicans because who doesn't 0:10:16.840 --> 0:10:20.640 hate child pornographers? You know, it's just certainly the Republicans 0:10:21.160 --> 0:10:25.360 do right, and the Democrats do y'all do right. It's 0:10:25.400 --> 0:10:28.160 and also it doesn't involve and it's about sentencing, and 0:10:28.200 --> 0:10:33.160 it doesn't involve the sensitive area of racist, racist sentencing, 0:10:33.160 --> 0:10:36.640 you know where that's been alleged. So she in point 0:10:36.679 --> 0:10:40.480 of fact, she's um, I think about nine defendants and 0:10:40.559 --> 0:10:45.080 she has sentenced to to below two to the minimum 0:10:45.400 --> 0:10:49.760 and I think seven to the a little below the minimum. 0:10:50.040 --> 0:10:53.400 Why wouldn't you just throw away the key because it's 0:10:53.480 --> 0:10:56.480 it's child pornography. For child pornography, this is your your 0:10:56.720 --> 0:10:58.680 what you have stuff on your computer? Right? You could 0:10:58.679 --> 0:11:01.679 go to prison for decade. The laws are really out 0:11:01.760 --> 0:11:04.120 of date, and in those cases, some of them, the 0:11:04.120 --> 0:11:08.120 federal prosecutors recommended below the minimum. The sentencing laws are 0:11:08.120 --> 0:11:11.120 out of date. And this all the judges, about six 0:11:11.720 --> 0:11:16.760 judges sentenced below the maximum on those kinds of crimes 0:11:16.800 --> 0:11:19.800 because it's you know, you have to compare them to 0:11:20.080 --> 0:11:23.400 you know, murder, two different arson. What's the timing on 0:11:23.400 --> 0:11:27.840 this whole process. They expect that before the Senate goes 0:11:27.880 --> 0:11:31.240 away on its Easter break that the process will be done, 0:11:31.240 --> 0:11:33.320 and maybe they'll be a vote before then. They're hoping 0:11:33.360 --> 0:11:35.600 that they will be a vote before them. And from 0:11:35.600 --> 0:11:37.560 your perspective, what do you think the odds are of 0:11:37.559 --> 0:11:40.240 her getting confirmed here? I think the odds are. I'm 0:11:40.240 --> 0:11:44.560 gonna say, just to leave, just to leave a so 0:11:44.600 --> 0:11:47.600 Matt will tell me later on. But that doesn't do 0:11:47.640 --> 0:11:50.480 anything really for the direction now. And that's why that's 0:11:50.480 --> 0:11:52.360 why this is not going to be you know, one 0:11:52.360 --> 0:11:56.280 of those like Kavanaugh that meant something, Amy Coney, Barrett, 0:11:56.360 --> 0:12:00.000 that meant something. But this is just replacing one liberal 0:12:00.160 --> 0:12:02.680 with another liberal in a court that has a sixth 0:12:03.240 --> 0:12:07.040 person conservative majority. All right, all right, Juan, thank you 0:12:07.040 --> 0:12:09.920 so much for joining us here in our studio June Grasso, 0:12:10.040 --> 0:12:13.520 host of Bloomberg Law and Bloomberg Opinion, giving us the 0:12:13.600 --> 0:12:18.040 latest on the Supreme Court process. Hopefully, Uh, get the 0:12:18.160 --> 0:12:21.240 Katanji Brown Jackson. I guess if you're a member of Congress, 0:12:21.240 --> 0:12:27.559 I'd like to get this done by easter. Well, we've 0:12:27.600 --> 0:12:30.000 been spending a lot of time recently talking about the 0:12:30.120 --> 0:12:32.680 rates market, the yield curve. We're at or near inversion 0:12:32.720 --> 0:12:35.080 in various portions of the yield curve. What does that mean? 0:12:35.600 --> 0:12:37.920 Let's bring in r J. Gallow, Senior portfolio manager for 0:12:38.000 --> 0:12:41.280 Federated Hermes. R J. When you see certain parts of 0:12:41.320 --> 0:12:44.960 the U S yield curve at or near inversion, does 0:12:44.960 --> 0:12:49.960 that meaningfully raised the recession risk in your mind? Good morning? 0:12:50.520 --> 0:12:54.560 I think it reflects the fact that we have a 0:12:54.640 --> 0:12:57.360 shock going on, sort of a series of them, the 0:12:57.400 --> 0:12:59.840 most notable being the Russian invasion of Ukraine in the 0:13:00.000 --> 0:13:03.040 area economic impacts in terms of the West response to 0:13:03.240 --> 0:13:09.239 that invasion. Uh. That's a clear aggregate supply shock, broad based, exogenous, 0:13:09.320 --> 0:13:12.640 if you will, coming from the geopolitical realm. UM, and 0:13:12.679 --> 0:13:17.000 that historically increases the risk of recession. UM. Add to 0:13:17.040 --> 0:13:21.000 that that the Feds in tightening mode. UH, and historically 0:13:21.040 --> 0:13:24.040 that also suggests increased risk of recession. Oftentimes, when the 0:13:24.120 --> 0:13:27.520 FED has to pivot aggressively to fight inflation, the result 0:13:28.000 --> 0:13:31.680 is a recession eventually ensues. So we're facing both of 0:13:31.720 --> 0:13:35.040 those factors, the geopolitical shock and in the sense one 0:13:35.360 --> 0:13:38.720 pivot from transitory too inflation is a problem. It makes 0:13:38.720 --> 0:13:41.120 sense that the Yolk curb is flattening given both of 0:13:41.160 --> 0:13:43.559 those you put those two together, it's clear that the 0:13:43.559 --> 0:13:46.520 recession risk is rising in the market's mind. However, I 0:13:46.520 --> 0:13:48.839 don't think the Yolk curb inverting is causal. I don't 0:13:48.840 --> 0:13:53.360 think that ever causes recessions. I understand that people you know, 0:13:53.440 --> 0:13:57.240 borrow short, land long, and can slow down uh the 0:13:57.280 --> 0:14:00.360 financial mechanism that you see in financial intermediation. But I 0:14:00.360 --> 0:14:02.200 think that the flattening of the curve is more people's 0:14:02.240 --> 0:14:05.640 expectations that recession risk has risen. It's not a causal 0:14:05.679 --> 0:14:08.480 relationship in my mind. I mean, some people have been 0:14:08.520 --> 0:14:10.960 saying lately the yield curve may have caused COVID nineteen. 0:14:11.640 --> 0:14:14.720 We saw it invert right before the pandemic. That was 0:14:14.760 --> 0:14:16.480 a joke to those who didn't get it. I'm looking 0:14:16.480 --> 0:14:20.720 at Paul's face, thinking he didn't get that correlation. He 0:14:20.760 --> 0:14:23.480 didn't get that. No, I mean obviously that that was 0:14:23.520 --> 0:14:26.880 our most recent recession, right, And UH, if you believe 0:14:26.920 --> 0:14:29.440 in the predictive qualities of an inverted yield curve, you've 0:14:29.440 --> 0:14:31.480 got to give it a lot of credit for that. Um. 0:14:32.040 --> 0:14:35.200 No one could could have seen that coming. Nonetheless, we 0:14:35.320 --> 0:14:40.560 have very high inflation and there is concerns of a 0:14:40.680 --> 0:14:43.880 growth slow down. UM. Even if we don't go into 0:14:43.880 --> 0:14:47.120 a recession, it looks like we could almost grind to 0:14:47.160 --> 0:14:51.560 a halt here. Are you worried about stagflation? UM? I 0:14:51.600 --> 0:14:55.320 think about six to twelve months ago, the words stagflation 0:14:55.360 --> 0:14:58.240 sort of made my skin crawls. You know, it seems 0:14:58.320 --> 0:15:01.400 inappropriate for the context that the time. I now think 0:15:01.440 --> 0:15:04.160 it's a word we should be using. Uh. It's very 0:15:04.160 --> 0:15:09.880 clear that the exogenous shock arising from the conflict, UH 0:15:10.320 --> 0:15:13.600 is the kind of thing that results in broad based inflation, 0:15:13.640 --> 0:15:17.160 which was already bad before the Russian troops invaded Ukraine. 0:15:17.680 --> 0:15:21.760 It's also the kind of thing that produces demand destruction 0:15:21.880 --> 0:15:25.479 ultimately slows down economic activities. So I do think stagpulation 0:15:25.520 --> 0:15:28.760 is an appropriate word probably more so for Europe. Maybe 0:15:28.760 --> 0:15:30.880 I'm being extreme, but I think when you actually have 0:15:31.040 --> 0:15:35.440 recession outcomes and inflation together, uh, stagflation is the right 0:15:35.480 --> 0:15:37.840 word to use now here in the United States. I 0:15:37.880 --> 0:15:41.040 think it's a stagflationary shock. Uh. We may be able 0:15:41.080 --> 0:15:44.400 to skirt a recession. The risks clearly risen, as evidenced 0:15:44.400 --> 0:15:48.000 by the yokurve um, but it's not baked in the cake. 0:15:48.080 --> 0:15:50.120 I mean, we have a lot of strong economic momentum 0:15:50.160 --> 0:15:53.360 here in both the labor market, balance sheets are strong, 0:15:53.440 --> 0:15:56.960 both for households and businesses. Uh, there's a good chance 0:15:57.040 --> 0:16:00.120 that the United States can sort of power through this um. 0:16:00.160 --> 0:16:02.800 That said, global markets are global in nature, and the 0:16:02.840 --> 0:16:04.760 response that you're seeing in terms of the Yoeld curve 0:16:05.440 --> 0:16:08.400 I think reflects the rising risks that are there. R J. 0:16:08.520 --> 0:16:10.840 We got the oil on the move higher again today 0:16:11.200 --> 0:16:14.760 w T I coot up over five about dollars a barrel, 0:16:15.040 --> 0:16:18.440 just kind of, you know, reiterating in people's minds the 0:16:18.440 --> 0:16:21.600 inflationary pressures that are out there in this economy. How 0:16:21.600 --> 0:16:24.120 do you think about inflation, whether it's you know, the 0:16:24.200 --> 0:16:26.920 duration of this inflationary cycle we're in or the severity 0:16:28.880 --> 0:16:32.680 I'm struck by the fact that the markets still have 0:16:33.240 --> 0:16:36.640 pretty high confidence. If you look at the the slope 0:16:36.680 --> 0:16:38.960 or the yield curve of of the U S TIPS 0:16:38.960 --> 0:16:42.280 break evens, UH, it's very downward sloping. It has been 0:16:42.280 --> 0:16:45.960 inverted for some time, meaning that near term expectations for 0:16:46.000 --> 0:16:49.200 inflation are much higher than long term expectations. So, for example, 0:16:49.800 --> 0:16:54.000 UM I LB on your Bloomberg, the break even of 0:16:54.040 --> 0:16:56.480 two and three years is are each well north of 0:16:56.520 --> 0:17:00.000 four percent. Four seventy eight for two year break evens, 0:17:00.080 --> 0:17:04.400 you know, astronomically high by by recent standards in recent decades. 0:17:04.800 --> 0:17:06.119 When you go out to the ten year, it's down 0:17:06.200 --> 0:17:09.720 to two high in the history of tips, but that's 0:17:09.760 --> 0:17:13.679 still a sharp disinflation between the shorter break even and 0:17:13.720 --> 0:17:15.199 the longer break even. You go all the way out 0:17:15.240 --> 0:17:17.920 to the third year, it's a two. So I think 0:17:17.960 --> 0:17:20.879 that the Fed has given the market what it needs 0:17:21.320 --> 0:17:23.800 in the sense that the market needs to believe that 0:17:23.840 --> 0:17:26.720 the Federal Reserve believes inflation fighting is still a huge 0:17:26.720 --> 0:17:29.000 part of their mandate, and in fact they are now 0:17:29.000 --> 0:17:32.160 focusing primarily on that side of their dual mandate. If 0:17:32.160 --> 0:17:34.840 the Fed we're not to have done that, I think 0:17:34.880 --> 0:17:37.239 we'd be facing a much more difficult bond market right 0:17:37.240 --> 0:17:40.680 now than we already have UM in the sense that 0:17:40.760 --> 0:17:44.240 nominal yields will be rising more rapidly, that these inflation 0:17:44.280 --> 0:17:46.679 break even is probably wouldn't be nearly as inverted, and 0:17:46.760 --> 0:17:48.720 losses would be more stark than they already are. And 0:17:48.720 --> 0:17:51.240 it's been a pretty rough year for bonds. When you 0:17:51.400 --> 0:17:55.480 think about the UH. The the Treasury Aggregate Index, for example, 0:17:56.000 --> 0:17:58.520 is on a year today basis, the Bloomberg Agreed Index, 0:17:58.560 --> 0:18:03.840 I should say, UH is now down five two percent, 0:18:03.960 --> 0:18:06.440 and the Treasury Index itself, that component is down four 0:18:06.640 --> 0:18:10.479 six So the inflation process, I think people believe if 0:18:10.520 --> 0:18:13.119 that's doing what it needs to do, and inflation should 0:18:13.160 --> 0:18:15.359 diminish as we move forward. If it doesn't happen, If 0:18:15.359 --> 0:18:17.840 that doesn't happen, the bond market sell off will will 0:18:17.880 --> 0:18:21.719 actually become more difficult, it will become more protractive. All right, 0:18:21.800 --> 0:18:23.920 r J, thanks so much for joining us. Once again. 0:18:23.960 --> 0:18:27.359 I always appreciate getting your perspective there are Gallo, senior 0:18:27.400 --> 0:18:32.800 portfolio manager for Federated Hermes UH. Looking about stagflation is 0:18:32.840 --> 0:18:35.800 something that is a term that's coming into our j's 0:18:35.960 --> 0:18:39.840 vocabulary recently, and he's a wolverine, and he's a Michigan wolverine. 0:18:40.160 --> 0:18:43.000 Actually was looking. I think he might have gone to 0:18:43.280 --> 0:18:46.399 the University of Michigan for a four year period in 0:18:46.400 --> 0:18:51.560 which Michigan won every single game. Is that right against 0:18:51.600 --> 0:18:56.919 the Ohio State University. This is the Big Take, the 0:18:57.040 --> 0:19:01.080 best of Boomberg's in depth original reporting from around the globe. 0:19:01.160 --> 0:19:04.080 This is a really fast moving story that caused a 0:19:04.080 --> 0:19:07.879 lot of outrage among investors. This is so fascinating. Market 0:19:07.960 --> 0:19:10.440 shutdown in a way it's never done before. That's gonna 0:19:10.440 --> 0:19:13.880 have consequences for years to come. The Big Take on 0:19:14.040 --> 0:19:18.800 Bloomberg Radio. All Right, Matt, I've told you before I 0:19:18.840 --> 0:19:22.560 take New Jersey Transit. Are we doing a sounder? I 0:19:22.800 --> 0:19:25.160 just talk right over there. Oh well, no worries, Okay, 0:19:25.240 --> 0:19:27.359 I gotta get this story. Did the sounder dud? We? Okay? 0:19:27.560 --> 0:19:29.280 All right? But you know, so I take New Jersey 0:19:29.280 --> 0:19:31.520 Transit in every day during the week man, and I 0:19:31.520 --> 0:19:34.000 would say the trains now are maybe fifty full, but 0:19:34.040 --> 0:19:37.160 on the weekends, just backed everybody's coming in and see 0:19:37.200 --> 0:19:39.159 games and go to bars and restaurants and stuff. But 0:19:39.760 --> 0:19:42.080 people ain't coming back to work in size, and that's 0:19:42.080 --> 0:19:44.440 a problem for New York City. I think Alicia Diaz, 0:19:44.520 --> 0:19:46.760 she's a writer for Bloomberg's Hop Live team, She's got 0:19:46.800 --> 0:19:50.040 the big take story of the day again, Alicia, thanks 0:19:50.040 --> 0:19:51.600 so much for joining us on our Bloomberg and Arctic 0:19:51.640 --> 0:19:54.080 Broker studio. What you find came to work today? She 0:19:54.119 --> 0:19:56.760 came to work today absolutely, which is probably more than 0:19:56.760 --> 0:20:01.280 you can say for a lot of her supervisors. Um, 0:20:01.440 --> 0:20:03.280 So we kind of looked at this as two groups. 0:20:03.280 --> 0:20:05.560 There's there's the tourist group. You know, we we're not 0:20:05.600 --> 0:20:08.359 having as many international visitors. And then also we're not 0:20:08.400 --> 0:20:10.880 having those, like you mentioned, the people who are commuting 0:20:10.880 --> 0:20:14.679 into the office. And so it seems like as a result, 0:20:14.680 --> 0:20:17.240 a lot of those restaurants, the coffee shops, the places 0:20:17.280 --> 0:20:20.800 around Midtown and fied I are kind of just struggling 0:20:20.800 --> 0:20:23.840 to keep their doors open. And that what the kids 0:20:23.840 --> 0:20:26.680 call the financial district. That's right, my daughter trying to 0:20:26.720 --> 0:20:28.440 explain that to me as like kids, I've been working 0:20:28.440 --> 0:20:30.919 down on Wall Street for thirty five years, just just 0:20:31.000 --> 0:20:35.000 tuned into that as well. The kids who sit around 0:20:34.240 --> 0:20:37.440 all right, so what has to happen here is it 0:20:37.960 --> 0:20:40.000 are the tourist coming back, because I was in Midtown 0:20:40.000 --> 0:20:41.919 a couple of weeks ago and I thought I felt 0:20:41.960 --> 0:20:46.040 a much more European international tourist. Play are we seeing 0:20:46.040 --> 0:20:48.920 any of that. It seems like it's slowly coming back, 0:20:49.080 --> 0:20:52.879 especially with um you know, Oh Macron being subdued, but 0:20:53.600 --> 0:20:56.120 it looks like more international tourist at least the level 0:20:56.119 --> 0:20:58.879 it was before the pandemics still aren't returning, and that 0:20:58.960 --> 0:21:02.919 could be to travel restrictions. Are still nervous about getting 0:21:02.920 --> 0:21:06.560 COVID or spreading covid um, and international tourists had to 0:21:06.560 --> 0:21:08.200 spend the most money, and so that's why a lot 0:21:08.200 --> 0:21:11.040 of the sectors relying on the most. So the problem, 0:21:11.119 --> 0:21:14.919 I mean, I can imagine here where we're sitting in Midtown, 0:21:15.480 --> 0:21:17.280 the problem must be that no one's coming back to 0:21:17.320 --> 0:21:20.119 the office because all of the big box stores, for example, 0:21:20.160 --> 0:21:22.680 that are downstairs in this building or across the street 0:21:22.800 --> 0:21:27.280 are empty still. I mean they haven't been um filled 0:21:27.320 --> 0:21:30.600 back up again. I don't understand what the problem is 0:21:30.640 --> 0:21:34.320 in the Bronx because here in New York seven seven 0:21:34.359 --> 0:21:37.080 point six percent unemployments, some of the worst of any 0:21:37.080 --> 0:21:39.399 major sitting in the country, But the Bronx is eleven 0:21:39.400 --> 0:21:43.040 percent And it's not exactly a Wall Street hub up there, right, 0:21:43.080 --> 0:21:45.800 So what's the problem. That's a great question. And it 0:21:45.880 --> 0:21:51.160 seems like, um, this is also um, disproportionately impacting um 0:21:51.200 --> 0:21:53.560 a lot of black workers as well. UM. And that 0:21:53.920 --> 0:21:57.399 could be because um, you know, they're more so in 0:21:57.440 --> 0:22:01.040 the service industry and they're more doing face to face 0:22:01.160 --> 0:22:03.640 jobs like being in healthcare or that kind of thing, 0:22:03.680 --> 0:22:07.160