1
00:00:05,120 --> 00:00:08,480
Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

2
00:00:08,520 --> 00:00:12,360
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

3
00:00:12,400 --> 00:00:16,880
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

4
00:00:17,280 --> 00:00:22,119
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

5
00:00:22,320 --> 00:00:26,600
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

6
00:00:26,640 --> 00:00:30,160
Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. We are

7
00:00:30,200 --> 00:00:33,960
Speaker 1: living it right now. A brief from Mark McCormick, Global

8
00:00:33,960 --> 00:00:37,560
Speaker 1: Head of Foreign Exchange in EM Strategy TD Securities. Mark,

9
00:00:37,600 --> 00:00:40,080
Speaker 1: and why don't you to explain to our audience why

10
00:00:40,120 --> 00:00:43,839
Speaker 1: a super strong dollars from twenty twelve and a super

11
00:00:43,880 --> 00:00:45,640
Speaker 1: week yen is disturbing?

12
00:00:47,520 --> 00:00:49,000
Speaker 2: Well, I think of what it does is it just

13
00:00:49,040 --> 00:00:52,120
Speaker 2: shows the massive divergence you have between central banks. I

14
00:00:52,120 --> 00:00:54,280
Speaker 2: think one of the things that you can unpack is

15
00:00:54,280 --> 00:00:56,800
Speaker 2: there are certain currencies that care about growth, there's certain

16
00:00:57,240 --> 00:00:59,960
Speaker 2: currencies that care about commodities, there's certain currencies that care

17
00:01:00,080 --> 00:01:03,200
Speaker 2: about different relative central bank functions. The thing that the

18
00:01:03,360 --> 00:01:05,640
Speaker 2: end cares a lot about is the ten year point

19
00:01:06,040 --> 00:01:07,920
Speaker 2: to look at euro. Euro cares about the two year

20
00:01:07,959 --> 00:01:10,080
Speaker 2: point of the curve. More than say the ten year

21
00:01:10,319 --> 00:01:12,240
Speaker 2: and if you take the combination of what we had,

22
00:01:12,280 --> 00:01:14,039
Speaker 2: and this is one of the most important things going

23
00:01:14,080 --> 00:01:16,920
Speaker 2: on effects is the relative terms of trade shift. Japan

24
00:01:17,040 --> 00:01:20,600
Speaker 2: is also a massive importer of energy and other commodities.

25
00:01:20,600 --> 00:01:22,560
Speaker 2: So you take the commodity story, you take the great

26
00:01:22,600 --> 00:01:26,240
Speaker 2: differential story, and now you take the aggressive bear steepening

27
00:01:26,240 --> 00:01:28,880
Speaker 2: of the US curves this summer, and you've got basically

28
00:01:28,920 --> 00:01:32,000
Speaker 2: a trifective things that will weaken the end quite considerably

29
00:01:32,040 --> 00:01:33,480
Speaker 2: unless the BOJ does something.

30
00:01:33,280 --> 00:01:36,120
Speaker 1: Well to the trifecta. Let's go to Mondel of Columbia.

31
00:01:36,160 --> 00:01:38,360
Speaker 1: I mentioned this with Vice Chairman Clara to the other day.

32
00:01:38,400 --> 00:01:41,720
Speaker 1: He will join US folks for our special FED coverage.

33
00:01:41,760 --> 00:01:44,160
Speaker 1: Look for that? Is that tomorrow? Yes, it's tomorrow. The

34
00:01:44,160 --> 00:01:46,760
Speaker 1: FED meeting is too more might people have just briefed

35
00:01:46,800 --> 00:01:49,120
Speaker 1: me and Mark I'm looking at that. I want to

36
00:01:49,120 --> 00:01:52,400
Speaker 1: echo what I talked to Professor Clara about, which is

37
00:01:52,480 --> 00:01:56,680
Speaker 1: something has to give here. When something gives, what is

38
00:01:56,720 --> 00:02:00,000
Speaker 1: the instability our audiences should be worried about?

39
00:02:01,160 --> 00:02:02,640
Speaker 2: Well, I think of the context of the end, what

40
00:02:02,760 --> 00:02:05,680
Speaker 2: needs to give is the actual the currency itself. As

41
00:02:05,720 --> 00:02:08,400
Speaker 2: you mentioned, there is a very interesting policy mix where

42
00:02:08,480 --> 00:02:12,400
Speaker 2: fiscal policy is actually quite favorable in forms of in

43
00:02:12,480 --> 00:02:15,200
Speaker 2: terms of growth, also inflation. You see the BOJ is

44
00:02:15,240 --> 00:02:18,079
Speaker 2: expecting higher inflation to kind of be a bit more sticky,

45
00:02:18,120 --> 00:02:20,440
Speaker 2: I think, than markets are looking for. And they've also

46
00:02:20,480 --> 00:02:23,160
Speaker 2: basically said we don't have a cap anymore. It can

47
00:02:23,200 --> 00:02:24,880
Speaker 2: go above one percent. So I think what they're trying

48
00:02:24,880 --> 00:02:27,160
Speaker 2: to do is synchronize themselves a little bit, which which

49
00:02:27,200 --> 00:02:31,079
Speaker 2: has been US yield rising, which would contain the weakness

50
00:02:31,080 --> 00:02:34,079
Speaker 2: in the end, But this is not a policy mix

51
00:02:34,160 --> 00:02:38,400
Speaker 2: that is coherent and it is no longer sustainable. So

52
00:02:38,440 --> 00:02:39,960
Speaker 2: I think a big thing is what we're going to

53
00:02:39,960 --> 00:02:42,720
Speaker 2: see is things are going to change. It will change abruptly,

54
00:02:43,040 --> 00:02:44,959
Speaker 2: but I think the movement that we had overnight where

55
00:02:44,960 --> 00:02:47,280
Speaker 2: they said there's no longer a one percent cap, is

56
00:02:47,320 --> 00:02:51,280
Speaker 2: actually quite a significant change. But it will take time

57
00:02:51,320 --> 00:02:53,959
Speaker 2: for this to work through the market. So again i'd

58
00:02:54,000 --> 00:02:56,680
Speaker 2: say that the thing that needs to break is yields

59
00:02:56,680 --> 00:02:59,040
Speaker 2: needs to be higher, yet needs to be stronger. It's

60
00:02:59,040 --> 00:03:00,800
Speaker 2: just going to take more time because we also need

61
00:03:00,840 --> 00:03:02,919
Speaker 2: to see a peak in the US yield story, which

62
00:03:02,960 --> 00:03:05,280
Speaker 2: again is not even about the FED anymore. When we

63
00:03:05,280 --> 00:03:07,160
Speaker 2: talk about the ten year yield. It's more about supply

64
00:03:07,200 --> 00:03:09,480
Speaker 2: and demand for ten year bonds.

65
00:03:09,800 --> 00:03:12,680
Speaker 3: This is a big mishmash. Do you have a sense

66
00:03:12,760 --> 00:03:15,360
Speaker 3: of what the response mechanism from the Bank of Japan is,

67
00:03:15,400 --> 00:03:17,839
Speaker 3: what the lines in the sand are, what they're sort

68
00:03:17,880 --> 00:03:20,240
Speaker 3: of looking at. I mean, we were talking about some

69
00:03:20,360 --> 00:03:23,080
Speaker 3: of the opacity that they put forward overnight.

70
00:03:24,880 --> 00:03:27,640
Speaker 2: It's very tricky because I think obviously most central banks

71
00:03:27,720 --> 00:03:30,120
Speaker 2: it's very common language. At this point, they care more

72
00:03:30,120 --> 00:03:32,680
Speaker 2: about the currency movements. So the end has not been

73
00:03:32,720 --> 00:03:35,240
Speaker 2: as volatile. So as you can see, we have not

74
00:03:35,680 --> 00:03:37,480
Speaker 2: the report came out this morning like they did not

75
00:03:37,600 --> 00:03:40,760
Speaker 2: intervene last month. So I think I don't think there's

76
00:03:40,760 --> 00:03:42,720
Speaker 2: a red line per se. I think they're all kind

77
00:03:42,720 --> 00:03:45,240
Speaker 2: of doing what everyone in the market's doing. They're very

78
00:03:45,280 --> 00:03:48,440
Speaker 2: confused about the drivers, They're very confused about the actual

79
00:03:48,520 --> 00:03:51,520
Speaker 2: themes in the market. FX has become very challenged, I

80
00:03:51,520 --> 00:03:54,160
Speaker 2: think for many people. So I think the line in

81
00:03:54,200 --> 00:03:57,440
Speaker 2: the sand is you're kind of thinking it's loose fiscal policy,

82
00:03:57,600 --> 00:04:02,119
Speaker 2: loose monetary policy, weakest currency on record. It deviated from

83
00:04:02,120 --> 00:04:05,360
Speaker 2: our longer term models by you know, magnitudes, you know,

84
00:04:05,400 --> 00:04:07,360
Speaker 2: our longer term fair value model and dollar again is

85
00:04:07,680 --> 00:04:10,520
Speaker 2: in one twenties. So what you're kind of looking for

86
00:04:10,640 --> 00:04:12,920
Speaker 2: is like the pressure points that will cause these things

87
00:04:12,920 --> 00:04:14,560
Speaker 2: to break. And again, I think a big part of

88
00:04:14,600 --> 00:04:18,040
Speaker 2: it is US data needs to roll over, US yields

89
00:04:18,080 --> 00:04:19,840
Speaker 2: need to come down a little bit, and the BOJ

90
00:04:20,000 --> 00:04:21,520
Speaker 2: I think the one thing that we're very out of

91
00:04:21,560 --> 00:04:23,520
Speaker 2: consensus on is we are looking for them to move

92
00:04:23,560 --> 00:04:26,520
Speaker 2: out of NERP next year because of the wage pressure

93
00:04:26,520 --> 00:04:30,600
Speaker 2: we're seeing in Japan right around the Shuto wage negoiation negotiations,

94
00:04:30,640 --> 00:04:34,120
Speaker 2: we should see higher wages and as a result of

95
00:04:34,200 --> 00:04:37,080
Speaker 2: you know, essentially higher wages and higher nominal rates coming up,

96
00:04:37,080 --> 00:04:40,560
Speaker 2: we should see real rates in Japan move substantially in

97
00:04:40,600 --> 00:04:42,640
Speaker 2: their favor versus the US next year.

98
00:04:42,760 --> 00:04:44,960
Speaker 3: When you take a step back, there's a question of

99
00:04:45,000 --> 00:04:47,200
Speaker 3: slowly or all at once, And you were saying it

100
00:04:47,200 --> 00:04:50,640
Speaker 3: will be all at once at some point. How disruptive

101
00:04:50,880 --> 00:04:52,479
Speaker 3: is this going to be at a time when so

102
00:04:52,480 --> 00:04:56,279
Speaker 3: many people were talking about Japanese flows underpinning are basically

103
00:04:56,320 --> 00:04:59,960
Speaker 3: suppressing yields globally and really keeping things a little bit

104
00:05:00,080 --> 00:05:00,680
Speaker 3: more in sync.

105
00:05:01,680 --> 00:05:03,680
Speaker 2: Yeah, I think that's a that's a big component because

106
00:05:03,680 --> 00:05:05,760
Speaker 2: I think since the summer, since the BOJ let the

107
00:05:06,000 --> 00:05:09,200
Speaker 2: the you know, kind of opened up the yield curve

108
00:05:09,240 --> 00:05:12,719
Speaker 2: control the suppression they had on it. We have seen

109
00:05:12,800 --> 00:05:14,960
Speaker 2: term premium rise across the world. We have seen the

110
00:05:15,000 --> 00:05:16,960
Speaker 2: US ten year rise. So I do think that there

111
00:05:17,040 --> 00:05:20,680
Speaker 2: is a blowback here that's happening slowly behind the scenes.

112
00:05:20,720 --> 00:05:22,240
Speaker 2: And again, I think a lot of people will make

113
00:05:22,240 --> 00:05:25,600
Speaker 2: the point that the ten year yield is now advanced

114
00:05:25,600 --> 00:05:29,320
Speaker 2: above FED expectations for twenty twenty four. It's above data surprises,

115
00:05:29,360 --> 00:05:32,919
Speaker 2: it's above US data trends. It's no longer reflecting the

116
00:05:32,960 --> 00:05:35,160
Speaker 2: correlations we saw in July. So I do think that

117
00:05:35,200 --> 00:05:37,960
Speaker 2: the BOJ and the fact that they're kind of moving

118
00:05:37,960 --> 00:05:40,599
Speaker 2: out of it. Obviously quantitative tightening has a component of

119
00:05:40,640 --> 00:05:43,719
Speaker 2: this as well, but the BOJ does have the ability

120
00:05:43,760 --> 00:05:46,280
Speaker 2: to kick start, you know, rises in the US ten years.

121
00:05:46,279 --> 00:05:48,480
Speaker 1: Well, bring up this board again on television and radio.

122
00:05:48,520 --> 00:05:50,560
Speaker 1: I have to review you this. I didn't do this.

123
00:05:50,720 --> 00:05:52,880
Speaker 1: Simon did this in the control and he's been reading.

124
00:05:52,920 --> 00:05:56,360
Speaker 1: Michael Rosenbergen for inn Exchange. Bring up that board again here. Yeah,

125
00:05:56,560 --> 00:06:00,400
Speaker 1: one fifty one week week week end two year yield

126
00:06:00,720 --> 00:06:04,719
Speaker 1: finally above zero ten year yield almost one percent. Those

127
00:06:04,720 --> 00:06:08,320
Speaker 1: are unimaginable numbers to pros mark. Is this going to

128
00:06:08,440 --> 00:06:11,720
Speaker 1: end stochastically? I talked to Martin Feldstein about this years ago,

129
00:06:12,120 --> 00:06:15,479
Speaker 1: Like Looney, let's go to Toronto Dominion Bank. Looney goes

130
00:06:15,560 --> 00:06:17,560
Speaker 1: up one thirty eight, you get up to one forty

131
00:06:17,560 --> 00:06:21,159
Speaker 1: two and it gets fixed. Is that where we're heading,

132
00:06:21,400 --> 00:06:23,360
Speaker 1: where the system just fixes itself.

133
00:06:24,839 --> 00:06:24,919
Speaker 4: No.

134
00:06:25,040 --> 00:06:27,800
Speaker 2: I think the system's quite dynamic. I think that that's

135
00:06:27,839 --> 00:06:30,680
Speaker 2: the interesting point. Like we brun out variations of lots

136
00:06:30,720 --> 00:06:33,080
Speaker 2: of different types of tools and models and different things.

137
00:06:33,120 --> 00:06:35,000
Speaker 2: We're trying to understand what's going on in the market.

138
00:06:35,800 --> 00:06:37,760
Speaker 2: As I mentioned, the things that are driving a weaker

139
00:06:37,839 --> 00:06:40,520
Speaker 2: yen are fundamentally based. They make they make a lot

140
00:06:40,560 --> 00:06:42,760
Speaker 2: of sense. And again the commodity story behind the scene

141
00:06:42,839 --> 00:06:46,159
Speaker 2: is quite quite important, especially from the handover to last year,

142
00:06:46,200 --> 00:06:49,120
Speaker 2: because what it does is it eliminates the trade surplus

143
00:06:49,120 --> 00:06:51,240
Speaker 2: and the trade surplus plus the current account plus the

144
00:06:51,320 --> 00:06:54,000
Speaker 2: balance of payments that is FX. You know, essentially everything

145
00:06:54,040 --> 00:06:55,640
Speaker 2: we talk about every day is trying to think about

146
00:06:55,640 --> 00:06:57,719
Speaker 2: how do we predict the balance of payments? So for

147
00:06:57,800 --> 00:06:59,560
Speaker 2: the end, I don't think any of this is stable.

148
00:06:59,560 --> 00:07:03,159
Speaker 2: I think is very unstable. Equilibrium even the shorter term

149
00:07:03,160 --> 00:07:05,320
Speaker 2: models that we look at that we use for trading

150
00:07:05,360 --> 00:07:10,760
Speaker 2: ideas Dollar Interview one five based on redifferentials and equities

151
00:07:10,760 --> 00:07:12,280
Speaker 2: and risk and these kind of things. So it's even

152
00:07:12,360 --> 00:07:14,880
Speaker 2: deviated now because you know markets are looking for a

153
00:07:14,920 --> 00:07:16,520
Speaker 2: trend to trade in dollar again, is the only one

154
00:07:16,520 --> 00:07:17,600
Speaker 2: that makes any sense right now?

155
00:07:17,720 --> 00:07:20,320
Speaker 1: Three people just drove off the Garden State Parkway. There's

156
00:07:20,320 --> 00:07:22,600
Speaker 1: your Global Wall Street Brief and foreign exchange. If you

157
00:07:22,680 --> 00:07:25,160
Speaker 1: only understood half of that like I did. He's Mark

158
00:07:25,240 --> 00:07:28,360
Speaker 1: McCormick of TD Securities.

159
00:07:32,600 --> 00:07:34,560
Speaker 3: John Solstice has been listening to this and wants to

160
00:07:34,560 --> 00:07:36,360
Speaker 3: weigh out on the Bunker Remo and beyond. And I'll

161
00:07:36,400 --> 00:07:37,760
Speaker 3: let you get to that, but first I want to

162
00:07:37,760 --> 00:07:41,280
Speaker 3: start to say how much are you basically saying we've

163
00:07:41,400 --> 00:07:42,920
Speaker 3: just a run out of time to get to that

164
00:07:42,960 --> 00:07:43,960
Speaker 3: forty nine hundred mark?

165
00:07:44,800 --> 00:07:45,000
Speaker 4: Yeah?

166
00:07:45,320 --> 00:07:49,920
Speaker 5: Really, really is? We We had to right size our expectations.

167
00:07:49,960 --> 00:07:54,400
Speaker 5: We always suggest that to do investors as they as

168
00:07:54,440 --> 00:07:57,040
Speaker 5: they consider what happens when markets.

169
00:07:56,880 --> 00:07:57,840
Speaker 6: Are are in.

170
00:07:59,560 --> 00:08:02,200
Speaker 5: Royal and so to speak. And what we've got to

171
00:08:02,240 --> 00:08:05,160
Speaker 5: consider here is the calendar is telling us that we're

172
00:08:05,160 --> 00:08:11,120
Speaker 5: getting close to a year end. The average rallies are positive.

173
00:08:11,200 --> 00:08:13,880
Speaker 5: You know, we get positive rallies after a dip like

174
00:08:13,920 --> 00:08:19,720
Speaker 5: we've seen traditionally or historically, but it's smaller amounts and

175
00:08:19,800 --> 00:08:24,400
Speaker 5: there are still lots of uncertainty that bears and nervous

176
00:08:24,400 --> 00:08:30,520
Speaker 5: investors and those who are skeptics can use to take

177
00:08:30,600 --> 00:08:33,960
Speaker 5: more profits out of the fabulous rally that we're still

178
00:08:34,000 --> 00:08:37,040
Speaker 5: living off from the lows of October twelfth of last year.

179
00:08:37,679 --> 00:08:40,160
Speaker 3: I feel like one just after another is basically coming

180
00:08:40,160 --> 00:08:42,719
Speaker 3: on and saying give investors a prozac, because frankly, there

181
00:08:42,760 --> 00:08:44,560
Speaker 3: is a lot of optimism. They're just not seeing it.

182
00:08:44,640 --> 00:08:48,480
Speaker 3: How much can you really hinge unfundamentals if the sentiment

183
00:08:48,640 --> 00:08:51,560
Speaker 3: is just so gloomy and prepared for the worst.

184
00:08:54,000 --> 00:08:57,040
Speaker 5: The problem is, I think that when you're in a

185
00:08:57,040 --> 00:09:01,520
Speaker 5: FED funds high cycle, it takes a while before the

186
00:09:02,520 --> 00:09:05,600
Speaker 5: marketplace gets a sense that the FED is indeed not

187
00:09:05,679 --> 00:09:09,120
Speaker 5: trying to destroy things, and that the FED might actually

188
00:09:09,200 --> 00:09:15,280
Speaker 5: succeed at its goals. The Fed isn't it isn't infallible,

189
00:09:15,640 --> 00:09:21,640
Speaker 5: but the FED has a remarkably simple a mandate essentially,

190
00:09:22,000 --> 00:09:26,560
Speaker 5: you know, stable economic growth with maximum employment. Of course,

191
00:09:26,600 --> 00:09:28,840
Speaker 5: what is it. A few weeks ago, I think was

192
00:09:28,880 --> 00:09:33,400
Speaker 5: the daily quote on the Bloomberg was Martin Scorsese, and

193
00:09:33,480 --> 00:09:36,160
Speaker 5: it was something that like simple is the best, but

194
00:09:36,240 --> 00:09:39,440
Speaker 5: it's the hardest to achieve. Well, that's what happens in

195
00:09:39,480 --> 00:09:43,319
Speaker 5: a FED funds hike cycle. But what happens is eventually

196
00:09:43,760 --> 00:09:47,840
Speaker 5: the marketplace. And you can see it related to higher

197
00:09:47,880 --> 00:09:52,560
Speaker 5: prices being accepted by consumers and business in that you

198
00:09:52,559 --> 00:09:55,959
Speaker 5: were just mentioning before there's a sense, Okay, we can

199
00:09:56,000 --> 00:09:58,760
Speaker 5: deal with this now and we keep moving forward. The

200
00:09:58,760 --> 00:10:02,600
Speaker 5: FED has been so set in applying it's mandate that

201
00:10:02,720 --> 00:10:06,520
Speaker 5: it hasn't knocked a part the resilience in the consumer,

202
00:10:07,080 --> 00:10:09,520
Speaker 5: in business and the overall economy.

203
00:10:10,000 --> 00:10:13,720
Speaker 1: That's just an extraordinary John Michael McKee with a brilliant

204
00:10:13,760 --> 00:10:16,400
Speaker 1: idea on the Magnificent Seven. He's going back to the movie.

205
00:10:16,400 --> 00:10:20,120
Speaker 1: He's looking at YOU'L. Brenner, Steve McQueen, Charles Bronson, Robert Vaughan,

206
00:10:20,800 --> 00:10:24,000
Speaker 1: James Coburn, Horse Bucklets and Brad Dexter. I mean they

207
00:10:24,040 --> 00:10:25,960
Speaker 1: were the Magnificent seven. What do you do with the

208
00:10:26,000 --> 00:10:29,959
Speaker 1: modern Magnificent seven? Is Apple going to deliver here? And

209
00:10:30,440 --> 00:10:33,080
Speaker 1: if you're going gloomy forty four hundred, do you sell

210
00:10:33,120 --> 00:10:35,400
Speaker 1: your big tech Well.

211
00:10:35,280 --> 00:10:38,920
Speaker 5: I'm not gloomy of four hundred at all. I'm just

212
00:10:38,920 --> 00:10:41,200
Speaker 5: saying it's more realistic from here to the end of

213
00:10:41,240 --> 00:10:43,960
Speaker 5: the year. Just wait until we put in our Brice

214
00:10:44,040 --> 00:10:47,200
Speaker 5: target for next year. That'll be later on.

215
00:10:47,240 --> 00:10:50,199
Speaker 1: Oh good, and no one's watching here, Come on compliance

216
00:10:50,240 --> 00:10:51,440
Speaker 1: at opcos not watching.

217
00:10:51,480 --> 00:10:52,280
Speaker 7: Give me a number.

218
00:10:52,440 --> 00:10:55,200
Speaker 1: Can you pop a five thousand for next year?

219
00:10:55,720 --> 00:10:58,560
Speaker 5: To do it? I got, I got compliance breeding down

220
00:10:58,600 --> 00:11:01,040
Speaker 5: my back. But when we look at things are getting

221
00:11:01,080 --> 00:11:05,240
Speaker 5: better and we think we're going to see competition return

222
00:11:05,800 --> 00:11:08,640
Speaker 5: in a lot of spaces, and competition is when all

223
00:11:08,640 --> 00:11:11,560
Speaker 5: of a sudden you've got everybody is passing on the

224
00:11:11,600 --> 00:11:14,920
Speaker 5: old higher prices getting away with it. And then some

225
00:11:15,559 --> 00:11:19,200
Speaker 5: guy in business or gal discovers the idea of well

226
00:11:19,240 --> 00:11:21,000
Speaker 5: maybe if I give up a little bit what I

227
00:11:21,040 --> 00:11:24,360
Speaker 5: get in per unit costs, maybe I can make it

228
00:11:24,440 --> 00:11:28,440
Speaker 5: up big time and volume. And that'll happen across the sectors.

229
00:11:28,480 --> 00:11:32,040
Speaker 5: But in the meantime, tech is empowering everything, and we

230
00:11:32,120 --> 00:11:34,679
Speaker 5: don't mean it like in some kind of a moonshot,

231
00:11:35,160 --> 00:11:40,040
Speaker 5: but it exists. Today. Corporations are doing better navigating very

232
00:11:40,080 --> 00:11:43,280
Speaker 5: tough environments. Well, it's the financial advices. Whether it was

233
00:11:43,280 --> 00:11:51,280
Speaker 5: the pandemic, post pandemic, the supply chain stabilization, the getting

234
00:11:51,320 --> 00:11:54,760
Speaker 5: away from one country centricity in terms of the global

235
00:11:54,800 --> 00:11:58,640
Speaker 5: supply chain. All of this technology is enabling a lot

236
00:11:58,679 --> 00:12:01,800
Speaker 5: of things both for the can consumer as well as

237
00:12:01,840 --> 00:12:06,040
Speaker 5: for business. And it's it's a dramatic change that combined

238
00:12:06,080 --> 00:12:11,880
Speaker 5: with sensitivity by the FED communication transparency that we think

239
00:12:12,000 --> 00:12:14,320
Speaker 5: is you know, the branking legacy that is still being

240
00:12:14,400 --> 00:12:18,079
Speaker 5: practiced by Jerome Howell in his own way. Yeah, you know,

241
00:12:18,520 --> 00:12:19,400
Speaker 5: positive effect.

242
00:12:19,520 --> 00:12:22,040
Speaker 3: I keep thinking the economy is not the stock market,

243
00:12:22,200 --> 00:12:24,800
Speaker 3: and this is not necessarily a stock market that's representative

244
00:12:24,840 --> 00:12:27,960
Speaker 3: of the broader economy that really is maybe the Russell

245
00:12:28,000 --> 00:12:31,880
Speaker 3: two thousand or the banking index, the regional Banking Index.

246
00:12:32,360 --> 00:12:35,920
Speaker 3: Does your optimism bleed over to small caps, to the

247
00:12:36,280 --> 00:12:37,319
Speaker 3: KBW index?

248
00:12:38,400 --> 00:12:41,600
Speaker 5: Well, I'd say not necessarily to the k b W.

249
00:12:42,000 --> 00:12:45,319
Speaker 5: Yet we've got to wait for the economy to show

250
00:12:45,760 --> 00:12:50,120
Speaker 5: a greater sustainability going forward and not as many concerns

251
00:12:50,160 --> 00:12:54,320
Speaker 5: in terms of commercial real estate and subbrime auto loans

252
00:12:54,320 --> 00:12:57,160
Speaker 5: and things like that. But what we would say is

253
00:12:57,480 --> 00:13:00,400
Speaker 5: when we when we look at this picture where all

254
00:13:00,400 --> 00:13:03,480
Speaker 5: things are getting better, it's been led by the large

255
00:13:03,520 --> 00:13:06,080
Speaker 5: caps but if we get to that point where we

256
00:13:06,200 --> 00:13:11,440
Speaker 5: get to see the sustainability of the economic expansion, of

257
00:13:11,559 --> 00:13:15,320
Speaker 5: becoming predominant in the picture, you're going to want to

258
00:13:15,360 --> 00:13:19,240
Speaker 5: own smalls and mid caps, and you probably want to consider,

259
00:13:19,840 --> 00:13:23,800
Speaker 5: for instance, we're near market cap agnostic in some ways

260
00:13:23,840 --> 00:13:27,720
Speaker 5: because our goal is beyond we're intermediate to longer term investors,

261
00:13:28,040 --> 00:13:33,319
Speaker 5: and the valuations are ridiculously low in many quality indices

262
00:13:33,360 --> 00:13:35,199
Speaker 5: of the small caps and mid caps.

263
00:13:35,600 --> 00:13:49,120
Speaker 1: Joss Dolphis thank you so much, greatly appreciating this should

264
00:13:49,120 --> 00:13:52,720
Speaker 1: be a two hour conversation. I can't say enough about

265
00:13:52,760 --> 00:13:57,120
Speaker 1: the work of doctor Miller. He is Aaron David Miller.

266
00:13:57,160 --> 00:13:59,960
Speaker 1: He's a senior fellow the Carnegie Endowment for in an

267
00:14:00,120 --> 00:14:03,120
Speaker 1: national piece. The signal is from the University of Michigan

268
00:14:03,200 --> 00:14:07,800
Speaker 1: Definitive and International Relations. And he wrote a book in

269
00:14:07,880 --> 00:14:13,760
Speaker 1: two thousand and eight. It was shockingly, shockingly prescient fifteen

270
00:14:13,840 --> 00:14:18,760
Speaker 1: years on about the mess we're in in the Eastern Mediterranean.

271
00:14:19,120 --> 00:14:21,560
Speaker 1: Aaron David Miller, thank you so much for joining us

272
00:14:21,560 --> 00:14:24,600
Speaker 1: this morning. When you wrote your masterpiece in two thousand

273
00:14:24,640 --> 00:14:28,000
Speaker 1: and eight, did you expect the tragedy we're living now?

274
00:14:30,160 --> 00:14:34,120
Speaker 8: I expected John at an unresolved Israeli Palestinian conflict driven

275
00:14:34,160 --> 00:14:38,240
Speaker 8: by a proximity problem. Israelis and Palestinians are living on

276
00:14:38,280 --> 00:14:40,960
Speaker 8: top of one another, and frankly, I think it was

277
00:14:41,000 --> 00:14:45,640
Speaker 8: Mark Twitter said that proximity breachs contempt and children. I

278
00:14:45,760 --> 00:14:49,400
Speaker 8: figured that this conflict would endure, It would go through

279
00:14:49,400 --> 00:14:53,480
Speaker 8: periods of accommodation, perhaps as it did, but also periods

280
00:14:53,520 --> 00:14:56,920
Speaker 8: of conflict that we've seen. But I think I, for one,

281
00:14:56,960 --> 00:14:59,480
Speaker 8: I'll put myself at the top of the list, never

282
00:14:59,520 --> 00:15:05,160
Speaker 8: anticipate paid the kind of trigger to this particular phase

283
00:15:06,040 --> 00:15:08,640
Speaker 8: of the Israeli Palestinian conflict. That is to say, what

284
00:15:08,720 --> 00:15:14,720
Speaker 8: happened on October seven, with Hamasa's brutal and savage attack

285
00:15:15,080 --> 00:15:21,000
Speaker 8: and it's wilful and intentional, indiscriminate murder of men, women

286
00:15:21,040 --> 00:15:24,760
Speaker 8: and children. I did not anticipate that, and clearly, in

287
00:15:24,840 --> 00:15:27,680
Speaker 8: what probably one of the two greatest intelligence failures in

288
00:15:27,720 --> 00:15:31,000
Speaker 8: the history of the State of Israel, neither did the Israelis.

289
00:15:31,920 --> 00:15:35,960
Speaker 1: Aaron David Miller. Robert Gates writes a piercing essay and

290
00:15:36,040 --> 00:15:39,200
Speaker 1: the New Foreign Affairs magazine. I read every word of it.

291
00:15:39,280 --> 00:15:43,040
Speaker 1: The former Defense Secretary and head of CIA on a

292
00:15:43,120 --> 00:15:49,120
Speaker 1: dysfunctional America, a dysfunctional superpower. You are someone that straddled

293
00:15:49,120 --> 00:15:52,160
Speaker 1: the line. I would say, within the politics of Washington,

294
00:15:52,760 --> 00:15:58,720
Speaker 1: what's Aaron David Miller's best practice? Now for the Biden administration.

295
00:16:00,000 --> 00:16:02,520
Speaker 8: Come to this particular crisis. Remember, we now have an

296
00:16:02,600 --> 00:16:05,840
Speaker 8: archa crisis. We have a major crisis in the Middle

297
00:16:05,880 --> 00:16:09,320
Speaker 8: East with the potential of escalade. Even further, if you

298
00:16:09,440 --> 00:16:11,560
Speaker 8: end up with in Israeli his bull of war, You're

299
00:16:11,560 --> 00:16:14,720
Speaker 8: going to see, not to mention the prospects of Iranian

300
00:16:14,760 --> 00:16:18,160
Speaker 8: involvement and direct conversation between Israel and I Ran, which

301
00:16:18,200 --> 00:16:21,360
Speaker 8: would lead to spiking oil prices and plunging financial markets,

302
00:16:21,400 --> 00:16:24,760
Speaker 8: and even more uncertainty with respect to the global economy.

303
00:16:25,000 --> 00:16:28,360
Speaker 8: You've got Russia's invasion of Ukraine, You've got tensions in

304
00:16:28,400 --> 00:16:34,040
Speaker 8: the Indo Pacific. Look, I long believe you know. I'm

305
00:16:34,080 --> 00:16:38,840
Speaker 8: a follower reinhold Nebe approximate solutions to insoluble problems. This

306
00:16:39,000 --> 00:16:42,800
Speaker 8: is a world that cannot be resolved. That is to say,

307
00:16:43,040 --> 00:16:45,920
Speaker 8: I'm not sure there is one conflict factor you could

308
00:16:45,920 --> 00:16:49,800
Speaker 8: identify that had a definitive, a comprehensive solution. This is

309
00:16:49,840 --> 00:16:55,920
Speaker 8: all about smart, smart management and a judicious and very

310
00:16:56,280 --> 00:16:59,920
Speaker 8: balanced view of the projection of American power in air

311
00:17:00,280 --> 00:17:03,360
Speaker 8: is that in fact we can, we can and effect.

312
00:17:03,400 --> 00:17:07,080
Speaker 8: But no, this is not a world to be redeemed

313
00:17:07,240 --> 00:17:10,320
Speaker 8: or resolved. It's want to be managed if we're lucky

314
00:17:10,359 --> 00:17:11,000
Speaker 8: and smart.

315
00:17:11,320 --> 00:17:14,040
Speaker 1: Aaron David Miller Robert Kaplan's new book, The Loom of

316
00:17:14,080 --> 00:17:15,919
Speaker 1: Time is my book of the year. It's just a

317
00:17:16,000 --> 00:17:19,240
Speaker 1: sprawling treatise from Morocco all the way over to Persia,

318
00:17:19,600 --> 00:17:24,080
Speaker 1: indeed on to Afghanistan as well. And what permeates Caplin's

319
00:17:24,160 --> 00:17:27,679
Speaker 1: real politic is the basic idea that we have a

320
00:17:27,800 --> 00:17:32,960
Speaker 1: human rights led foreign policy. Is our human rights led

321
00:17:33,040 --> 00:17:36,919
Speaker 1: foreign policy at risk given what we see in the

322
00:17:36,920 --> 00:17:38,520
Speaker 1: Eastern Mediterranean region.

323
00:17:39,200 --> 00:17:41,600
Speaker 8: You know, Caplin's you a really smart guy. Based on

324
00:17:41,720 --> 00:17:45,480
Speaker 8: my experience John working for Republicans and Democrats over a

325
00:17:45,600 --> 00:17:49,960
Speaker 8: thirty year period from Jimmy Carter to Bush forty three,

326
00:17:50,480 --> 00:17:52,960
Speaker 8: I don't think we have a human rights based policy.

327
00:17:53,640 --> 00:17:59,000
Speaker 8: In fact, human rights democracy promotion, responsibility to protect, the intervention,

328
00:17:59,440 --> 00:18:04,360
Speaker 8: to to prevent or even respond to mass killings, from

329
00:18:04,400 --> 00:18:07,480
Speaker 8: the Holocaust at Cambodia to Rwanda to Dartford to Sauth,

330
00:18:07,520 --> 00:18:11,239
Speaker 8: Sudan to Syria. Where has the United States been with

331
00:18:11,320 --> 00:18:14,679
Speaker 8: respect to the protection of human rights. I'm not saying

332
00:18:14,720 --> 00:18:17,760
Speaker 8: that that is a role we need to play and

333
00:18:17,840 --> 00:18:20,280
Speaker 8: can't play all the time, but I think human rights

334
00:18:20,080 --> 00:18:26,400
Speaker 8: is a factor. But based on my experience from Carter

335
00:18:26,480 --> 00:18:29,480
Speaker 8: to Bush forty three, it's rarely at the top of

336
00:18:29,520 --> 00:18:30,080
Speaker 8: our agenda.

337
00:18:30,160 --> 00:18:33,359
Speaker 1: There's been shades of isolationism there, even off of the

338
00:18:33,400 --> 00:18:36,960
Speaker 1: shock of Jimmy Carter and the Iranian hostage crisis. And

339
00:18:37,000 --> 00:18:41,159
Speaker 1: I believe seventy nine, what does our new isolationism look like.

340
00:18:42,600 --> 00:18:47,200
Speaker 8: I'm not sure. Well, clearly we're not there now. I mean,

341
00:18:47,240 --> 00:18:52,040
Speaker 8: I think the America first notion, although I think that

342
00:18:52,280 --> 00:18:56,040
Speaker 8: largely would translate into putting America last. We've got to

343
00:18:56,080 --> 00:18:59,080
Speaker 8: find the right balance, John, between doing too much in

344
00:18:59,080 --> 00:19:01,840
Speaker 8: the world and not doing enough. One of my former

345
00:19:01,920 --> 00:19:04,480
Speaker 8: VOUSE bosses, medal In Albert, referred to the United States

346
00:19:04,480 --> 00:19:07,240
Speaker 8: as the indispensable power. You know, and I remember what

347
00:19:07,680 --> 00:19:11,000
Speaker 8: de gaul said about the cemeteries of France. They're filled

348
00:19:11,040 --> 00:19:15,159
Speaker 8: with indispensable people. We can't be the indispensable power if

349
00:19:15,160 --> 00:19:19,160
Speaker 8: indispensability means that we need to be everywhere, to everyone

350
00:19:19,680 --> 00:19:24,080
Speaker 8: all the time. We have a dysfunctional political system. That's

351
00:19:24,119 --> 00:19:27,840
Speaker 8: the strength, by the way repairing that is critically important

352
00:19:28,080 --> 00:19:34,000
Speaker 8: for our capacity to lead, not by the what it was,

353
00:19:34,400 --> 00:19:38,119
Speaker 8: Joe Biden says, not by the example of our power,

354
00:19:38,200 --> 00:19:40,959
Speaker 8: but by the power of our example. There is something

355
00:19:41,000 --> 00:19:41,280
Speaker 8: to that.

356
00:19:42,280 --> 00:19:46,040
Speaker 1: From where you sit in international relations. Is our pentagon

357
00:19:46,160 --> 00:19:50,520
Speaker 1: properly funded? And specifically does the Navy have enough ships

358
00:19:50,520 --> 00:19:51,440
Speaker 1: and submarines?

359
00:19:52,119 --> 00:19:56,560
Speaker 8: Probably know, and no, I suspect, even though there some

360
00:19:56,680 --> 00:19:59,760
Speaker 8: will argue that our defense budget is way out of whack,

361
00:20:00,960 --> 00:20:03,199
Speaker 8: It'll be fascinating to try to see how we're going

362
00:20:03,280 --> 00:20:07,480
Speaker 8: to resource going forward because each of these problems I

363
00:20:07,560 --> 00:20:10,480
Speaker 8: referred to what you're seeing in the Middle East right now,

364
00:20:10,640 --> 00:20:15,000
Speaker 8: Russia's warview against Ukraine which seems to be forever, and

365
00:20:15,040 --> 00:20:18,680
Speaker 8: the prospects of arising China in the Indo Pacific. All

366
00:20:18,720 --> 00:20:21,640
Speaker 8: of these things have to be properly resourced. And that's

367
00:20:21,680 --> 00:20:25,320
Speaker 8: a concern that I have, given the nature of our

368
00:20:25,359 --> 00:20:26,480
Speaker 8: domestic politics.

369
00:20:26,760 --> 00:20:29,639
Speaker 1: One final questionnaireon to circle back to your two thousand

370
00:20:29,640 --> 00:20:34,000
Speaker 1: and eight treaties, there is a much too promised land.

371
00:20:34,440 --> 00:20:39,280
Speaker 1: What should we advocate to Israel and the Palestinians in

372
00:20:39,280 --> 00:20:40,719
Speaker 1: this November.

373
00:20:41,000 --> 00:20:43,040
Speaker 8: You know, a lot of people I respect John believe

374
00:20:43,080 --> 00:20:45,720
Speaker 8: that the so called two state solution has gone the

375
00:20:45,720 --> 00:20:49,520
Speaker 8: way of the Dodo. I understand the argument, but frankly,

376
00:20:50,160 --> 00:20:53,480
Speaker 8: it's the least bad solution to this conflict. Israelis and

377
00:20:53,520 --> 00:20:56,800
Speaker 8: Palestinians need to separate from one another through negotiations. There's

378
00:20:56,840 --> 00:21:01,160
Speaker 8: no precedent that I can think of of two two

379
00:21:01,240 --> 00:21:04,879
Speaker 8: national movements, one of state, a nonstate actor seeking to

380
00:21:04,920 --> 00:21:10,080
Speaker 8: become a movement living happily ever after under one roof.

381
00:21:11,040 --> 00:21:15,480
Speaker 8: It's Cyprus, Lebanon, Syria, Iraq. I mean, the beat goes on,

382
00:21:16,200 --> 00:21:18,280
Speaker 8: so it's not it's just a hop, skip and a

383
00:21:18,400 --> 00:21:21,480
Speaker 8: jump to understanding that if in fact you're going to

384
00:21:21,520 --> 00:21:25,159
Speaker 8: have anything resembling a conflict ending solution, I'm choosing my

385
00:21:25,200 --> 00:21:28,600
Speaker 8: words very carefully here. You really do need to have

386
00:21:28,720 --> 00:21:32,320
Speaker 8: separation through negotiation, maybe into a confederation at some point,

387
00:21:32,920 --> 00:21:38,480
Speaker 8: but you need to satisfy the political, territorial, emotional, psychological,

388
00:21:38,600 --> 00:21:41,800
Speaker 8: and religious underpinnings of this conflict. The only thing that

389
00:21:41,880 --> 00:21:47,840
Speaker 8: does that, in my judgment, is to separate through negotiation

390
00:21:48,400 --> 00:21:56,320
Speaker 8: state of Israel living peacefully next door to a Palestinian polity.

391
00:21:56,800 --> 00:21:59,640
Speaker 8: That to me is the only way to even begin

392
00:21:59,720 --> 00:22:00,760
Speaker 8: to think about fixation.

393
00:22:01,160 --> 00:22:03,280
Speaker 1: Aaron David Miller, thank you so much for the brief.

394
00:22:03,320 --> 00:22:11,840
Speaker 1: Hugely valuable with the Carnegie Endowment for International Peace. Stephen

395
00:22:11,920 --> 00:22:15,080
Speaker 1: Stanley joins us at right now with Santander or US

396
00:22:15,080 --> 00:22:19,920
Speaker 1: Capital Markets. You are acclaimed for analysis and GDP. How

397
00:22:19,920 --> 00:22:22,520
Speaker 1: does the bond market affect your analysis?

398
00:22:23,960 --> 00:22:27,480
Speaker 9: You know, I think the Fed is overstating the importance

399
00:22:27,520 --> 00:22:30,680
Speaker 9: of this little backup in bonnials that we've seen over

400
00:22:30,720 --> 00:22:34,120
Speaker 9: the last month. As we talked about the last time

401
00:22:34,160 --> 00:22:35,960
Speaker 9: I was here, I see it maybe as a little

402
00:22:36,000 --> 00:22:39,680
Speaker 9: bit more of an excuse than a reason. I think

403
00:22:39,680 --> 00:22:42,280
Speaker 9: they wanted to hold off, and that provided them with

404
00:22:42,280 --> 00:22:43,080
Speaker 9: a convenient reason.

405
00:22:43,359 --> 00:22:45,000
Speaker 7: Financial conditions have tightened a little bit.

406
00:22:45,040 --> 00:22:48,400
Speaker 9: But look, you know, as you all discuss, the economy

407
00:22:48,440 --> 00:22:52,120
Speaker 9: is still rolling at this point. So I think it's

408
00:22:52,119 --> 00:22:55,320
Speaker 9: wishful thinking that the last twenty or thirty basis points

409
00:22:55,320 --> 00:22:57,880
Speaker 9: on the on the bonyold is going to roll the economy.

410
00:22:57,920 --> 00:23:01,440
Speaker 1: But the I'll go with this easy, easy question here.

411
00:23:01,480 --> 00:23:04,960
Speaker 1: It's a cliche, but unfortunately it's apped right now. Are

412
00:23:04,960 --> 00:23:06,240
Speaker 1: they fighting in the last war?

413
00:23:07,920 --> 00:23:10,960
Speaker 9: I think it's too soon to say that, because you know,

414
00:23:11,040 --> 00:23:13,840
Speaker 9: the idea I assume what you're suggesting is well, inflation

415
00:23:13,920 --> 00:23:15,399
Speaker 9: has already licked well.

416
00:23:15,480 --> 00:23:18,199
Speaker 1: Dominicq constum in MISSOUI is calling it super restrictive. I

417
00:23:18,240 --> 00:23:21,240
Speaker 1: got people say in the five percent reality lay on

418
00:23:21,280 --> 00:23:24,600
Speaker 1: the bond market is a seven percent reality in the

419
00:23:24,640 --> 00:23:27,199
Speaker 1: economy as well? Are they? Are they working now? They

420
00:23:27,200 --> 00:23:29,520
Speaker 1: go to the meeting tomorrow in a restrictive milieu.

421
00:23:30,760 --> 00:23:33,440
Speaker 7: I think policy is restrictive, but is it restrictive enough?

422
00:23:33,520 --> 00:23:36,720
Speaker 9: I mean, until the economy actually slows down, until inflation

423
00:23:36,920 --> 00:23:39,840
Speaker 9: really comes off. It's it's hard to say that, and

424
00:23:39,880 --> 00:23:41,880
Speaker 9: so I think that's why that at a minimum, they're

425
00:23:41,880 --> 00:23:44,679
Speaker 9: certainly going to want to keep their options open. You know,

426
00:23:44,720 --> 00:23:47,800
Speaker 9: they they've signaled another pause, but Pallas certainly kept the

427
00:23:47,840 --> 00:23:49,000
Speaker 9: door open to further hikes.

428
00:23:49,040 --> 00:23:50,600
Speaker 3: So I'm not throw this question at you what I

429
00:23:50,640 --> 00:23:52,800
Speaker 3: was asking before, which is how long can the US

430
00:23:52,840 --> 00:23:55,600
Speaker 3: continue surprising to the upside with economic data and showing

431
00:23:55,640 --> 00:23:58,960
Speaker 3: momentum at the same time that you see Europe running

432
00:23:58,960 --> 00:24:03,280
Speaker 3: into recession coming out recession around the world a lot

433
00:24:03,280 --> 00:24:03,919
Speaker 3: of pain.

434
00:24:06,119 --> 00:24:09,040
Speaker 9: Maybe not to be overly glib, but basically forever. Because

435
00:24:09,080 --> 00:24:11,680
Speaker 9: the US is a domestically driven economy, and I think

436
00:24:11,760 --> 00:24:17,040
Speaker 9: economists and particularly the FED, have systematically over the years

437
00:24:17,280 --> 00:24:22,000
Speaker 9: overestimated the importance of the global economy for the US economy. We're,

438
00:24:22,320 --> 00:24:25,159
Speaker 9: you know what, between ten and fifteen percent of our

439
00:24:25,200 --> 00:24:27,560
Speaker 9: economy is trade, whereas for most of the other major

440
00:24:27,840 --> 00:24:29,520
Speaker 9: economies it's thirty forty percent.

441
00:24:29,840 --> 00:24:32,080
Speaker 3: Okay, I'll challenge that in one way, And this is

442
00:24:32,119 --> 00:24:33,680
Speaker 3: something that a lot of people have been talking about,

443
00:24:33,720 --> 00:24:35,800
Speaker 3: and I would love for you to push back if

444
00:24:35,800 --> 00:24:38,560
Speaker 3: this is the case, people say that the international transmission

445
00:24:39,160 --> 00:24:43,000
Speaker 3: transmission mechanism is the US yield is how many international

446
00:24:43,000 --> 00:24:45,560
Speaker 3: buyers are going to be coming in and picking up

447
00:24:45,600 --> 00:24:47,760
Speaker 3: treasuries at a time where the Bank of Japan's not

448
00:24:47,800 --> 00:24:49,520
Speaker 3: going to be buying, where you're going to have or

449
00:24:49,640 --> 00:24:52,399
Speaker 3: not going to be really pushing investors out of that

450
00:24:52,520 --> 00:24:56,359
Speaker 3: nation's asset market. Where you have certainly around the world

451
00:24:56,480 --> 00:24:59,880
Speaker 3: yields going higher and China not buying how much does

452
00:25:00,080 --> 00:25:02,959
Speaker 3: apply change that narrative and create more of an international

453
00:25:02,960 --> 00:25:05,040
Speaker 3: transmission mechanism than ever before.

454
00:25:05,359 --> 00:25:07,440
Speaker 7: Yeah, that's an interesting angle. Actually.

455
00:25:08,160 --> 00:25:09,880
Speaker 9: I think the root of the problem there, of course,

456
00:25:09,960 --> 00:25:13,879
Speaker 9: is the fact that we're that we're running such large deficits.

457
00:25:14,560 --> 00:25:17,600
Speaker 9: If we had a smaller deficit then this would be

458
00:25:17,640 --> 00:25:19,040
Speaker 9: so much of a problem. But the fact that the

459
00:25:19,080 --> 00:25:20,760
Speaker 9: Treasury is to borrow on extra to two and a

460
00:25:20,800 --> 00:25:25,439
Speaker 9: half trillion dollars a year, they need demand anywhere they

461
00:25:25,440 --> 00:25:27,879
Speaker 9: can get it, so that that actually does bring a

462
00:25:27,880 --> 00:25:30,159
Speaker 9: good point, which is that the it feels like the

463
00:25:30,160 --> 00:25:33,240
Speaker 9: international community has pulled back a little bit for various reasons,

464
00:25:33,320 --> 00:25:35,520
Speaker 9: and I think you know that's that's part of it,

465
00:25:35,960 --> 00:25:38,640
Speaker 9: a piece of why yields have backed up recently.

466
00:25:38,680 --> 00:25:41,000
Speaker 1: Well, Mike McKey summarizes for us we've heard this twice

467
00:25:41,000 --> 00:25:44,720
Speaker 1: today and surveillant Shill Moweko accent Stephen Stanley of Santandra

468
00:25:44,800 --> 00:25:49,440
Speaker 1: agree the United States is a relatively closed economy. Are

469
00:25:49,440 --> 00:25:52,720
Speaker 1: we an economy a fiscal stimulus thinking of refunding and

470
00:25:52,760 --> 00:25:57,960
Speaker 1: all the other debates versus Europe in austerity stimulus? I mean,

471
00:25:58,520 --> 00:26:01,479
Speaker 1: are we living a fiscal stimus that makes us different?

472
00:26:02,080 --> 00:26:05,399
Speaker 10: Well, yeah, I mean we as Chris says, we're, as

473
00:26:05,400 --> 00:26:09,440
Speaker 10: Steve says, we're a sort of closed economy. We don't

474
00:26:09,480 --> 00:26:12,840
Speaker 10: have to worry necessarily about what's happening in Europe as

475
00:26:12,920 --> 00:26:15,280
Speaker 10: much as Europe has to worry about what's happening in

476
00:26:15,320 --> 00:26:19,040
Speaker 10: the United States. And China their biggest trading partner, and

477
00:26:19,080 --> 00:26:23,359
Speaker 10: so we can stimulate the economy and we can run

478
00:26:23,440 --> 00:26:27,000
Speaker 10: deficits for a lot longer. Nobody knows exactly how high

479
00:26:27,080 --> 00:26:30,440
Speaker 10: or how long, but it doesn't have the same kind

480
00:26:30,480 --> 00:26:34,880
Speaker 10: of effect. Interesting to note where we are with yields

481
00:26:34,920 --> 00:26:38,320
Speaker 10: these days is where we were in the nineteen nineties

482
00:26:38,480 --> 00:26:40,679
Speaker 10: when we were growing at four and a half percent

483
00:26:40,720 --> 00:26:44,120
Speaker 10: a year. So can we live with this? I mean

484
00:26:44,240 --> 00:26:46,240
Speaker 10: for now we can't.

485
00:26:46,080 --> 00:26:47,840
Speaker 1: Right, Steven Stanley with us, So I'm not going to

486
00:26:47,880 --> 00:26:50,120
Speaker 1: go higher for longer. But just pick one of them.

487
00:26:50,160 --> 00:26:52,720
Speaker 1: Are we going to go higher or are we going

488
00:26:52,800 --> 00:26:53,480
Speaker 1: to go longer?

489
00:26:53,880 --> 00:26:56,000
Speaker 7: Well, I think the more important thing is the longer part.

490
00:26:57,080 --> 00:26:59,600
Speaker 9: You know, they may go one more time, but we're

491
00:26:59,600 --> 00:27:01,760
Speaker 9: pretty to the end, so I don't think the higher

492
00:27:01,800 --> 00:27:03,639
Speaker 9: part is the more important of the two right now.

493
00:27:03,680 --> 00:27:05,840
Speaker 9: I think is the more important issue is how long

494
00:27:05,840 --> 00:27:06,679
Speaker 9: are they going to stay?

495
00:27:07,400 --> 00:27:12,679
Speaker 1: Can the American economy equilibriate through a higher nominal and

496
00:27:12,760 --> 00:27:16,600
Speaker 1: real rate or almost equal calibrate?

497
00:27:16,600 --> 00:27:19,040
Speaker 9: I would said yes, I think We're in the process

498
00:27:19,040 --> 00:27:21,600
Speaker 9: of that. I think that in my mind, the neutral

499
00:27:21,720 --> 00:27:24,200
Speaker 9: rate is you know, anywhere from fifty to one hundred

500
00:27:24,200 --> 00:27:26,840
Speaker 9: basis points higher than it was before COVID.

501
00:27:27,080 --> 00:27:29,320
Speaker 1: So give me a ten year real rate, which is

502
00:27:29,320 --> 00:27:30,240
Speaker 1: going to be a run rate.

503
00:27:32,000 --> 00:27:34,120
Speaker 9: I think it's probably you know, one to one half

504
00:27:34,200 --> 00:27:35,520
Speaker 9: percent something like that.

505
00:27:35,600 --> 00:27:37,679
Speaker 3: Okay, when we look right now at the data that

506
00:27:37,680 --> 00:27:40,600
Speaker 3: we've getting this week, you said that the Fed seems

507
00:27:40,640 --> 00:27:43,040
Speaker 3: to be looking for an excuse, and it's not really

508
00:27:43,119 --> 00:27:45,280
Speaker 3: that they're so concerned about what you call this little

509
00:27:45,560 --> 00:27:49,960
Speaker 3: backup and yields. So what data could make it difficult

510
00:27:50,240 --> 00:27:52,600
Speaker 3: for them to use the backup and yields as some

511
00:27:52,600 --> 00:27:53,400
Speaker 3: sort of excuse.

512
00:27:53,560 --> 00:27:55,760
Speaker 9: Well, boy, we're really testing that right because since the

513
00:27:55,800 --> 00:27:58,360
Speaker 9: September meeting, we've had a blowout payroll number, a high

514
00:27:58,359 --> 00:28:01,679
Speaker 9: inflation number, stronger than expected consumer spending, and now we

515
00:28:01,720 --> 00:28:04,800
Speaker 9: get a firm wage number. So you know, you're pretty

516
00:28:04,840 --> 00:28:07,359
Speaker 9: much a clean sweep, and yet they're clearly going to pause.

517
00:28:07,480 --> 00:28:10,560
Speaker 9: So I think it's going to have to be not

518
00:28:10,680 --> 00:28:13,439
Speaker 9: so much a particular data point, but a duration of

519
00:28:13,480 --> 00:28:15,840
Speaker 9: a stretch of good data. If we continue to see

520
00:28:15,880 --> 00:28:18,280
Speaker 9: good data for another month or two, then I mean

521
00:28:18,280 --> 00:28:20,080
Speaker 9: it just becomes increasingly compelling.

522
00:28:20,320 --> 00:28:23,720
Speaker 3: So tomorrow, based on what they say and based on

523
00:28:23,720 --> 00:28:26,560
Speaker 3: the economic data, what are the chances from your view,

524
00:28:26,600 --> 00:28:29,840
Speaker 3: that they've got to go significantly further than currently markets

525
00:28:29,880 --> 00:28:30,359
Speaker 3: are pricing.

526
00:28:30,520 --> 00:28:34,080
Speaker 9: Yeah, so significantly further is a really important part of

527
00:28:34,080 --> 00:28:36,640
Speaker 9: that question, because, as I said, I mean my base case,

528
00:28:36,680 --> 00:28:39,080
Speaker 9: I have one more hike. But that's I mean, you know,

529
00:28:39,120 --> 00:28:41,120
Speaker 9: whether they do one or not, it's not that important.

530
00:28:41,360 --> 00:28:44,160
Speaker 9: But there is a scenario where inflation reaccelerates and they

531
00:28:44,240 --> 00:28:46,920
Speaker 9: end up having to go multiple times. That's the I

532
00:28:46,920 --> 00:28:49,040
Speaker 9: think that's the scenario that you might have in mind.

533
00:28:49,800 --> 00:28:52,560
Speaker 9: I mean, to me, that's the biggest risk fact. I

534
00:28:52,600 --> 00:28:54,360
Speaker 9: see that as a bigger risk than the risk that

535
00:28:54,400 --> 00:28:56,840
Speaker 9: the economy slides into recession and they end up easing

536
00:28:56,920 --> 00:29:00,480
Speaker 9: much sooner than people expect it. But it's at this

537
00:29:00,520 --> 00:29:02,480
Speaker 9: point it's for me, it's a risk scenario, not a

538
00:29:02,480 --> 00:29:03,040
Speaker 9: base case.

539
00:29:03,160 --> 00:29:04,800
Speaker 1: Are Is it true you're going for Halloween?

540
00:29:04,840 --> 00:29:08,360
Speaker 7: You're going to dot plot that. That's a room, right?

541
00:29:08,480 --> 00:29:11,080
Speaker 7: I can't confirm you had bullered up at the tippy

542
00:29:11,120 --> 00:29:13,680
Speaker 7: top of your head. There you go. Okay, I have

543
00:29:13,680 --> 00:29:15,520
Speaker 7: a lot of room on my head for you dods.

544
00:29:16,120 --> 00:29:19,440
Speaker 1: So do some of us is well? Also? John Ferrell,

545
00:29:19,480 --> 00:29:21,160
Speaker 1: going as you'll Brunner, I don't know if you knew

546
00:29:21,160 --> 00:29:23,280
Speaker 1: that one of the mania for seven.

547
00:29:25,880 --> 00:29:26,200
Speaker 10: John.

548
00:29:26,200 --> 00:29:28,480
Speaker 1: It was good to hear Stephen Stanley with his chief

549
00:29:28,560 --> 00:29:42,680
Speaker 1: US economist of Santander, Emily rolling this morning from Boston

550
00:29:42,760 --> 00:29:46,160
Speaker 1: here on a Halloween. What's your biggest fear out there

551
00:29:46,200 --> 00:29:49,960
Speaker 1: besides trigger treating, what's your biggest fear, Emily in this market?

552
00:29:50,960 --> 00:29:54,000
Speaker 11: My biggest fear is that we're actually in a scary

553
00:29:54,080 --> 00:29:56,600
Speaker 11: movie right now, but it's not over yet.

554
00:29:57,000 --> 00:29:57,160
Speaker 5: You know.

555
00:29:57,200 --> 00:30:00,280
Speaker 4: You think about the villain kind of being wounded.

556
00:29:59,800 --> 00:30:03,160
Speaker 11: But still alive, and the villain is higher borrowing costs

557
00:30:03,200 --> 00:30:05,920
Speaker 11: and the wake of the FED raising interest rates in

558
00:30:06,040 --> 00:30:08,640
Speaker 11: the shortest amount of time and the greatest extent in

559
00:30:08,680 --> 00:30:11,719
Speaker 11: several decades here, and we really haven't felt the sting

560
00:30:11,800 --> 00:30:14,680
Speaker 11: from that as far as consumers pulling back, you know,

561
00:30:14,720 --> 00:30:17,480
Speaker 11: as far as earning's getting hurt by that profit margin's

562
00:30:17,520 --> 00:30:18,200
Speaker 11: getting crushed.

563
00:30:18,200 --> 00:30:19,440
Speaker 4: So everything's fine right now.

564
00:30:19,440 --> 00:30:21,880
Speaker 11: We're sort of running to the safe part of the

565
00:30:21,920 --> 00:30:24,080
Speaker 11: house as we're getting chased by this villain, but we

566
00:30:24,160 --> 00:30:27,120
Speaker 11: need to remember that the movie simply isn't over yet.

567
00:30:27,160 --> 00:30:29,960
Speaker 6: Oh my god, Emily, I'm just thinking about you at

568
00:30:29,960 --> 00:30:32,480
Speaker 6: the sleepover with a bunch of eleven year old saying

569
00:30:32,520 --> 00:30:35,240
Speaker 6: it's a scary house and the bond villain is coming

570
00:30:35,280 --> 00:30:38,200
Speaker 6: to get you at some point. I'm wondering, Emily, how

571
00:30:38,280 --> 00:30:39,480
Speaker 6: much we're looking.

572
00:30:39,240 --> 00:30:42,080
Speaker 3: At a scenario we're yield to kind of reach to

573
00:30:42,160 --> 00:30:45,120
Speaker 3: a peak, and that really the uncertainty lies. And I

574
00:30:45,160 --> 00:30:47,440
Speaker 3: keep harping on this, but it lies with the deficit

575
00:30:47,600 --> 00:30:51,160
Speaker 3: financing and what we get tomorrow from the Treasury Department.

576
00:30:51,280 --> 00:30:54,160
Speaker 3: What we got yesterday actually underwhelmed with the amount that

577
00:30:54,200 --> 00:30:56,080
Speaker 3: the US would have to borrow in the third quarter,

578
00:30:56,440 --> 00:30:59,120
Speaker 3: and arguably that's what's leading yields lower this morning.

579
00:31:00,160 --> 00:31:03,280
Speaker 11: Yeah, certainly fears around supply have been a key to

580
00:31:03,320 --> 00:31:06,040
Speaker 11: the narrative around rising bond yields, but it's not like

581
00:31:06,080 --> 00:31:08,640
Speaker 11: we woke up one morning over the last few weeks

582
00:31:08,640 --> 00:31:10,400
Speaker 11: and all of a sudden found out that the treasure

583
00:31:10,480 --> 00:31:11,720
Speaker 11: was going to have to issue more debt.

584
00:31:11,960 --> 00:31:13,280
Speaker 4: That's been a known issue.

585
00:31:13,360 --> 00:31:16,400
Speaker 11: So for US, that's not really the primary reason that

586
00:31:16,400 --> 00:31:19,400
Speaker 11: bond yields have picked up. It's been just this unrelenting

587
00:31:19,520 --> 00:31:22,480
Speaker 11: strength in the economic data in the US, and certainly

588
00:31:22,520 --> 00:31:26,080
Speaker 11: fiscal spending has played a role in that. Excess savings

589
00:31:26,120 --> 00:31:28,640
Speaker 11: have played a role in that. In twenty twenty and

590
00:31:28,680 --> 00:31:32,240
Speaker 11: twenty twenty one. But really it's been the strength of

591
00:31:32,240 --> 00:31:36,320
Speaker 11: the data. There's something really really unusual happening in the

592
00:31:36,360 --> 00:31:39,560
Speaker 11: bond market right now. One, we're facing down potentially the

593
00:31:39,600 --> 00:31:43,280
Speaker 11: third consecutive year of negative returns for high quality bonds.

594
00:31:43,280 --> 00:31:46,760
Speaker 11: That's never happened before in history. We're also looking at

595
00:31:46,800 --> 00:31:49,680
Speaker 11: an environment where if the FED was done in July,

596
00:31:49,800 --> 00:31:52,640
Speaker 11: and we can talk about that, it's really unusual to

597
00:31:52,680 --> 00:31:55,840
Speaker 11: see the ten year treasure yield continuing to rise. Typically

598
00:31:55,840 --> 00:31:58,680
Speaker 11: what happens is that the ten year peaks right around

599
00:31:58,720 --> 00:32:02,640
Speaker 11: the same time, are just before the FED pauses, very unusual.

600
00:32:02,680 --> 00:32:07,200
Speaker 11: And then finally the elusive bear steepener another very notable

601
00:32:07,320 --> 00:32:10,840
Speaker 11: dynamic here that is not consistent with what we've seen

602
00:32:10,880 --> 00:32:13,160
Speaker 11: in recent history. So our view is that we could

603
00:32:13,240 --> 00:32:15,080
Speaker 11: be getting close here to the peak and yields.

604
00:32:15,120 --> 00:32:19,440
Speaker 3: This doesn't sound like a scary story actually. Arguably, and

605
00:32:19,480 --> 00:32:22,800
Speaker 3: as Gina Martin Adams yesterday was saying, this really speaks

606
00:32:22,840 --> 00:32:26,800
Speaker 3: to a pain trade of more momentum of gains of

607
00:32:26,840 --> 00:32:29,800
Speaker 3: a rally and risk assets. Because if yields are rising

608
00:32:30,000 --> 00:32:32,960
Speaker 3: because of growth, isn't it a good and beautiful thing?

609
00:32:34,040 --> 00:32:36,360
Speaker 11: Yeah? I mean, I think our standards for growth have

610
00:32:36,520 --> 00:32:38,520
Speaker 11: seemed to be shifted a little bit. Yes, there's a

611
00:32:38,520 --> 00:32:41,560
Speaker 11: lot of strength in the labor market, but we all

612
00:32:41,600 --> 00:32:44,560
Speaker 11: know that that's lagging data and those cracks are starting

613
00:32:44,600 --> 00:32:46,440
Speaker 11: to form. I think this week's going to be really

614
00:32:46,480 --> 00:32:49,680
Speaker 11: critical in terms of the jobs report on Friday, initial claims,

615
00:32:49,680 --> 00:32:52,120
Speaker 11: which have stayed stubbornly low. We've got to remember that

616
00:32:52,120 --> 00:32:55,400
Speaker 11: that data is subject to heavy revisions, and we're seeing

617
00:32:55,400 --> 00:32:59,080
Speaker 11: a lot of cracks in the consumer stories starting to emerge.

618
00:32:59,120 --> 00:33:00,760
Speaker 4: There's a lot of heads.

619
00:33:00,280 --> 00:33:02,960
Speaker 11: Out there, the resumption of student loan payments, credit card

620
00:33:03,040 --> 00:33:06,240
Speaker 11: interest rates at twenty five percent right now, auto loans

621
00:33:06,240 --> 00:33:09,080
Speaker 11: at seven percent, mortgage rate over eight percent.

622
00:33:09,200 --> 00:33:09,960
Speaker 4: That's a challenge.

623
00:33:10,040 --> 00:33:11,840
Speaker 1: How do you get out thirty six months? You're going

624
00:33:11,920 --> 00:33:14,520
Speaker 1: to tell me part of a carefully managed portfolio is

625
00:33:14,560 --> 00:33:17,440
Speaker 1: so look out three years, five years, years, maybe when

626
00:33:17,440 --> 00:33:20,320
Speaker 1: the red SOX go above five hundred again, Emily, the

627
00:33:20,360 --> 00:33:24,480
Speaker 1: basic idea here is people are scared stiff. How much

628
00:33:24,560 --> 00:33:29,040
Speaker 1: cash at five x percent should they own? Versus having

629
00:33:29,080 --> 00:33:32,000
Speaker 1: the courage to reach out thirty six months?

630
00:33:32,800 --> 00:33:36,000
Speaker 11: Yeah, I think the critical the scary part I guess

631
00:33:36,080 --> 00:33:38,800
Speaker 11: about being in cash right now is that your subject

632
00:33:38,880 --> 00:33:40,720
Speaker 11: to significant reinvestment risk.

633
00:33:40,800 --> 00:33:42,920
Speaker 4: Our view is that the normal.

634
00:33:42,600 --> 00:33:46,560
Speaker 11: Relationship with the economic cycle and bond yields remarries as

635
00:33:46,600 --> 00:33:49,959
Speaker 11: we head into this economic contraction into next year, and

636
00:33:50,000 --> 00:33:52,600
Speaker 11: in that environment, you want to move out the curve

637
00:33:52,720 --> 00:33:55,760
Speaker 11: and just really be able to capture the five six

638
00:33:55,840 --> 00:33:58,920
Speaker 11: percent income that you're seeing in high quality bonds right now.

639
00:33:58,960 --> 00:34:00,800
Speaker 11: I know we've been talking about this for a while.

640
00:34:00,840 --> 00:34:04,280
Speaker 11: There's been these significant odd dislocations in the bond market,

641
00:34:04,400 --> 00:34:06,680
Speaker 11: but if you're in cash right now, you might not

642
00:34:06,760 --> 00:34:08,040
Speaker 11: get that yield next year.

643
00:34:08,239 --> 00:34:12,000
Speaker 4: We have an opportunity again to lock that income stream

644
00:34:12,040 --> 00:34:13,960
Speaker 4: in for years, and I think we're going to look

645
00:34:14,000 --> 00:34:17,320
Speaker 4: back on this is quite an incredible opportunity to unlock

646
00:34:17,400 --> 00:34:18,480
Speaker 4: the value in bonds.

647
00:34:18,560 --> 00:34:23,480
Speaker 1: Thank you, Emily Rowland, John Hancock Investment Management, Boston. Subscribe

648
00:34:23,520 --> 00:34:27,280
Speaker 1: to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere

649
00:34:27,320 --> 00:34:31,680
Speaker 1: else you get your podcasts. Listen live every weekday starting

650
00:34:31,719 --> 00:34:36,280
Speaker 1: at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app,

651
00:34:36,600 --> 00:34:40,160
Speaker 1: tune In, and the Bloomberg Business app. You can watch

652
00:34:40,320 --> 00:34:44,640
Speaker 1: us live on Bloomberg Television and always I'm the Bloomberg Terminal.

653
00:34:45,040 --> 00:34:49,239
Speaker 7: Thanks for listening. I'm Tom Keane, and this is Bloomberg