WEBVTT - Bloomberg Surveillance: Final Fed Decision of 2023 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.120 the Bloomberg Terminal, and the Bloomberg Business App. Claudia som 0:00:31.400 --> 0:00:34.879 She has been front and center with this mystery of 0:00:34.920 --> 0:00:38.239 a non recession. Her work on a recession at Michigan 0:00:38.360 --> 0:00:42.160 was just extraordinary years ago. She is with Sound Consulting 0:00:42.560 --> 0:00:47.400 on this fed day. Claudia Claudiasm. I want you to 0:00:47.479 --> 0:00:50.239 talk about what you got from Claudia Golden. 0:00:50.520 --> 0:00:53.680 The idea here that it wasn't gonna be nice. 0:00:53.600 --> 0:00:56.600 We're gonna play hardball, We're gonna do first order at 0:00:56.640 --> 0:00:59.800 research like you did at Michigan. Tell me what Claudia 0:01:00.120 --> 0:01:01.000 Golden meant to you. 0:01:02.760 --> 0:01:06.000 Kadia Goldin's an absolute leader in the field of economics. 0:01:06.040 --> 0:01:08.400 She's a scholar. She's a hero to a lot of 0:01:08.440 --> 0:01:11.959 women and frankly men in the profession and it comes 0:01:11.959 --> 0:01:14.679 into the real world. She's one economist that really said, hey, 0:01:14.720 --> 0:01:17.520 we got to think about women in the workforce, and 0:01:18.560 --> 0:01:22.360 we saw this year women's employment rate for primge women 0:01:22.440 --> 0:01:25.440 hidden all time high. Right, So it's not just about 0:01:25.440 --> 0:01:27.920 the theory and the scholarship. It's about let's make this 0:01:27.959 --> 0:01:29.200 happen in the real world. 0:01:29.319 --> 0:01:31.960 This goes to the American mystery of a non recession. 0:01:32.040 --> 0:01:34.960 You've provided a leadership on this this year. Do we 0:01:35.080 --> 0:01:39.840 misjudge women in the economy? Do we misjudge technology in 0:01:39.880 --> 0:01:42.720 the economy? Which means we have to have a humility 0:01:42.760 --> 0:01:45.600 about the Psalm rule in twenty twenty four. 0:01:46.920 --> 0:01:49.320 So we absolutely, like I love that this is FED Day, 0:01:49.320 --> 0:01:52.160 but we have overplayed what the FED means to this economy. 0:01:52.200 --> 0:01:55.040 We need workers back, not fewer customers. The FED can 0:01:55.080 --> 0:01:57.760 only do the latter. We have seen workers come back. 0:01:57.800 --> 0:02:01.520 We have women, we have black men, have people with disabilities. 0:02:01.640 --> 0:02:04.240 And to your point, productivity, I mean, this is the 0:02:04.280 --> 0:02:08.520 holy grail of prosperity. We've had some pretty good productivity 0:02:08.720 --> 0:02:13.280 numbers recently, and frankly, there are technologies in place like 0:02:13.400 --> 0:02:16.000 work from Home did a lot to help women who 0:02:16.240 --> 0:02:18.760 were on the sidelines, were those with disabilities. I mean, 0:02:18.800 --> 0:02:22.200 we really have some great stuff going. We just got 0:02:22.200 --> 0:02:23.480 to keep pushing. 0:02:23.840 --> 0:02:25.560 Kludy, you were saying that the FED is not the 0:02:25.639 --> 0:02:27.360 end all be all, So then why are you so 0:02:27.400 --> 0:02:28.160 excited for today? 0:02:28.160 --> 0:02:30.600 What are you hoping to hear from the press conference? 0:02:31.520 --> 0:02:31.720 Oh? 0:02:31.760 --> 0:02:33.680 I love the FED, so I FED Day is always 0:02:33.680 --> 0:02:36.960 a fun day for me. So I feel like the 0:02:36.960 --> 0:02:39.720 soft landings in the bag for next year. Two percent inflation, 0:02:40.000 --> 0:02:45.040 unemployment day is below around four percent and that. But 0:02:45.160 --> 0:02:48.280 my biggest risk factor outside of politics in the economic 0:02:48.320 --> 0:02:51.200 space is the FED. And frankly, what I worry about 0:02:51.360 --> 0:02:55.400 is them confusing markets and like, I really not fully 0:02:55.400 --> 0:02:59.080 emotionally prepared for the Summary of Economic Projections this afternoon 0:02:59.080 --> 0:03:01.400 because I don't think it's going to markets clarity. They're 0:03:01.440 --> 0:03:03.720 all over the map on their cuts, like there's no 0:03:03.800 --> 0:03:06.760 way we're getting first border cuts from the FED. And 0:03:07.080 --> 0:03:10.120 I worried that they're going to create enough uncertainty that 0:03:10.240 --> 0:03:13.840 something breaks. We've been lucky so far, nothing's broken, and 0:03:13.880 --> 0:03:16.000 I could come back and put the soft landing in 0:03:16.080 --> 0:03:16.720 some danger. 0:03:16.919 --> 0:03:17.520 What would break? 0:03:17.560 --> 0:03:20.880 I mean, what we've seen is market's becoming more accommodative, 0:03:21.000 --> 0:03:25.600 A stabilization in a benchmark bond yields. Where is this 0:03:25.760 --> 0:03:29.560 potential for breaking coming from on the heels of FED communication? 0:03:30.919 --> 0:03:33.480 Right, So if I could predict a financial breakage, I 0:03:33.600 --> 0:03:35.680 could make a lot of money. Right, Like, these don't 0:03:35.720 --> 0:03:38.640 come in an expected way. I think Silicon Valley Bank 0:03:38.760 --> 0:03:41.200 was kind of there was a scary moment, right, the 0:03:41.240 --> 0:03:43.960 FED set up an environment with interest rate risk, and 0:03:44.000 --> 0:03:46.680 then you had a bank that had made incredibly bad decisions. 0:03:47.320 --> 0:03:49.440 So that kind of came out of nowhere in a 0:03:49.480 --> 0:03:52.280 big picture sense. And yet market we got it under control. 0:03:52.320 --> 0:03:56.160 The FED stepped in, regulators stepped in, So you know, 0:03:56.240 --> 0:03:57.840 I have a lot of faith. Again, this is a 0:03:57.960 --> 0:04:00.280 risk that I see, and it's a pretty low risk. 0:04:00.680 --> 0:04:03.920 But we've had a pretty good run of the FED 0:04:04.360 --> 0:04:08.400 like not things breaking in financial markets, and frankly, I'm 0:04:08.440 --> 0:04:10.680 a little surprised. I'm thankful, and I think we're on 0:04:10.720 --> 0:04:13.800 the right path. But they the FED needs to stop 0:04:13.840 --> 0:04:17.080 injecting uncertainty. They've got to get the message straight. 0:04:17.360 --> 0:04:21.040 Although it's unclear to create certainty of time that's deeply uncertain. 0:04:21.120 --> 0:04:23.520 This is sort of the conundrum for FED officials and 0:04:23.520 --> 0:04:27.359 for economists and even for people in the market. You 0:04:27.400 --> 0:04:29.560 are saying that next year. The soft landing seems to 0:04:29.560 --> 0:04:31.719 be in the bag. But the biggest risk factor is 0:04:31.760 --> 0:04:35.080 the FED. What is the bigger policy error that you 0:04:35.200 --> 0:04:37.880 see them committing. Would it be cutting too soon or 0:04:37.920 --> 0:04:38.719 cutting too late? 0:04:40.160 --> 0:04:43.039 I honestly don't think the FED matters much next year. 0:04:43.120 --> 0:04:45.480 This disinflation has not been about the FED. Jape is 0:04:45.520 --> 0:04:48.159 not landing this plane right, This is not about the FED. 0:04:48.640 --> 0:04:48.880 Now. 0:04:49.120 --> 0:04:51.360 One thing I would really like to see today is 0:04:51.400 --> 0:04:54.800 that j Palell articulate that they're going to go slowly 0:04:54.880 --> 0:04:58.039 and really get people off this first order call, like 0:04:58.080 --> 0:04:59.880 they're just not going to have enough data buy mar 0:05:00.080 --> 0:05:02.039 and they're going to be a little sea conservative and 0:05:02.080 --> 0:05:03.839 cutting because they don't want to have to raise again. 0:05:03.880 --> 0:05:06.440 They don't want to make it look like politics. Right, 0:05:06.480 --> 0:05:09.400 it's a collection year. So I just but there's been 0:05:09.640 --> 0:05:13.600 a lot of communication issues that you've got so many 0:05:13.760 --> 0:05:17.839 FOMC officials out. Frankly, I think they should limit their airtime. Sorry, 0:05:18.520 --> 0:05:21.000 but you know, I think there's where there's been some confusion. 0:05:21.000 --> 0:05:22.680 But when I listen to them, I'm like, they're going 0:05:22.760 --> 0:05:28.360 to wait. So, yeah, you get to listen to a lot, 0:05:28.640 --> 0:05:30.960 but I think they're going to get it together. They 0:05:31.120 --> 0:05:32.520 know what they're doing. 0:05:32.600 --> 0:05:35.200 Claudia out on LinkedIn today, you allude back to the 0:05:35.279 --> 0:05:38.839 Voker fantasy, the idea of Powell being like Voker, and 0:05:38.880 --> 0:05:41.600 you even take it back to the emotion that no 0:05:41.640 --> 0:05:44.240 one wants to be Arthur Burns. He had the Smike 0:05:44.279 --> 0:05:47.159 pipe smoking and what was a cloud of smoke telling 0:05:47.240 --> 0:05:49.919 us in the meeting, tell us what we want to 0:05:50.080 --> 0:05:53.320 avoid that Arthur Burns did decades ago. 0:05:54.839 --> 0:05:56.839 There were two things that Arthur Burns did that are 0:05:56.839 --> 0:06:01.160 at least seen as a mistake among monetary policy officials. 0:06:01.279 --> 0:06:05.000 One was, whenever unemployment started to drift up, he cut 0:06:05.640 --> 0:06:08.600 and then inflation came back even stronger. And there were 0:06:08.640 --> 0:06:10.560 a few episodes of this, and that meant when Bulker 0:06:10.600 --> 0:06:13.440 came in, there's real mass to cause of severe recession. 0:06:13.680 --> 0:06:16.960 J Powell has said on record that Bulker is his hero, right. 0:06:17.040 --> 0:06:19.400 And the second thing that Burns did that actually lines 0:06:19.480 --> 0:06:24.960 up with next year is Nixon really pushed on Burns 0:06:25.000 --> 0:06:29.200 to cut those rates. There is no way they want 0:06:29.240 --> 0:06:30.120 to do that this time. 0:06:30.279 --> 0:06:32.920 Let me channel from John Farrell this morning. Is Chair 0:06:33.080 --> 0:06:37.320 Yellen and Vice Chair Biden, are they pushing Powell to 0:06:37.440 --> 0:06:38.120 cut rates? 0:06:39.520 --> 0:06:42.200 No, this White House I mean, this is not the 0:06:42.320 --> 0:06:43.360 Nixon White House, right. 0:06:43.800 --> 0:06:45.000 They know better than that. 0:06:45.080 --> 0:06:48.200 I mean the former vice chair of the FED running 0:06:48.240 --> 0:06:50.559 any See, you've got the Chair of the FED running 0:06:50.600 --> 0:06:54.200 the treasury. There's a visual way, right, they know better. 0:06:54.640 --> 0:06:58.200 Claudia, congratulations on your impact this year. May a non 0:06:58.279 --> 0:07:02.400 recession trail you into two twenty four Doctor Somers and 0:07:02.400 --> 0:07:06.279 the SIME consulting in a absolute metric of original research 0:07:06.320 --> 0:07:09.160 to some rule front and center for so. 0:07:09.200 --> 0:07:13.920 Many in academic and market and economic. 0:07:17.400 --> 0:07:18.640 One of Wall Street's biggest balls. 0:07:18.680 --> 0:07:21.320 He's calling for the SMP to rise nearly thirteen percent 0:07:21.800 --> 0:07:24.720 next year to fifty two hundred. John Stolfis of Oppenheimer, 0:07:24.760 --> 0:07:27.000 writing this, we look for twenty twenty four to be 0:07:27.040 --> 0:07:30.120 a year of transition as markets navigate what we expect 0:07:30.120 --> 0:07:33.080 will be the Fed's pivot from a restrictive monetary policy 0:07:33.120 --> 0:07:37.120 setting to an easier stance. John Stelfer, some please to say, John, 0:07:37.200 --> 0:07:39.360 just right now, John, I actually think you call is 0:07:39.400 --> 0:07:41.880 original in the sense that I don't think it's too 0:07:41.920 --> 0:07:44.480 dependent on rate cuts next year in quite the same 0:07:44.520 --> 0:07:47.120 way as it is elsewhere. John, Can you just go 0:07:47.160 --> 0:07:49.760 through your framework the path to fifty two hundred on 0:07:49.800 --> 0:07:50.520 the SMP. 0:07:52.240 --> 0:07:54.440 Great to be on surveillance as always. 0:07:55.200 --> 0:07:55.440 John. 0:07:55.880 --> 0:07:58.400 You know the thing about this is how when we 0:07:58.480 --> 0:08:01.480 look at it, we think the traders right now are 0:08:01.520 --> 0:08:05.360 pushing this dream of four rate cuts next year. We 0:08:05.480 --> 0:08:09.680 think the economy is showing significant resilience in the face 0:08:09.720 --> 0:08:13.280 of what is at eleven hikes and three pauses thus far, 0:08:13.440 --> 0:08:16.760 or skips as the Fed prefers to call it. The 0:08:16.800 --> 0:08:21.360 FED has shown remarkable sensitivity as it practices its mandate 0:08:21.560 --> 0:08:26.760 to keep untoward levels of inflation in check. And so 0:08:26.960 --> 0:08:30.040 all in all, we think it's this looks good as 0:08:30.600 --> 0:08:34.280 it cuts likely to happen in the second half of 0:08:34.320 --> 0:08:39.439 the year and probably maintained mostly if it's going to happen, 0:08:39.440 --> 0:08:42.160 probably in the fourth quarter, and then only once or twice. 0:08:42.480 --> 0:08:44.280 John, there is a shift going on. 0:08:44.440 --> 0:08:47.319 I saw it from our Gina Martin Adams of Bloomberg Intelligence. 0:08:47.320 --> 0:08:48.920 It's obviously Stolefus. 0:08:48.480 --> 0:08:51.480 One on one, and also the great Urie and timor 0:08:51.600 --> 0:08:56.880 chart guy at Fidelity. There is a shift to earnings analysis. 0:08:57.200 --> 0:09:00.840 We're moving away from Fed naval gazing to OMG, look 0:09:00.840 --> 0:09:03.079 at revenues, OMG, look at earnings. 0:09:03.280 --> 0:09:07.680 We've seen this before. How does the market react we. 0:09:07.600 --> 0:09:12.480 Think that the market is actually well positioned to react 0:09:12.520 --> 0:09:16.200 positively to it. It's not only about traders, you know, 0:09:16.280 --> 0:09:21.680 it's intermediate, longer term investors and traders that create the environment. 0:09:21.720 --> 0:09:25.160 I mean, the markets are like music. It's math and emotion. 0:09:26.240 --> 0:09:30.320 It's fear, greed, and need. So some people invest for need, 0:09:30.440 --> 0:09:33.280 others invest for the short term the fear and greed aspect, 0:09:34.160 --> 0:09:37.200 and we think it creates I don't want to call 0:09:37.240 --> 0:09:40.360 it a cocktail because that sounds a little bit too volatile, 0:09:40.920 --> 0:09:43.760 but it creates an opportunity where if we focus on 0:09:43.960 --> 0:09:47.400 earnings in an environment where it's the end of free money, 0:09:47.480 --> 0:09:50.240 where bond issuers have to pay for the privilege of 0:09:50.360 --> 0:09:53.480 borrowing money and bond buyers get something in return. This 0:09:53.720 --> 0:09:57.400 just looks like a more normalized environment, and we like it. 0:09:57.440 --> 0:09:59.120 Does it make you nervous that everyone seems to be 0:09:59.160 --> 0:10:00.080 agreeing with you these day? 0:10:01.000 --> 0:10:02.800 I'm sure it does. That's the one thing. 0:10:02.920 --> 0:10:03.120 You know. 0:10:03.240 --> 0:10:05.760 We saw an awful lot of the bears last year. 0:10:05.840 --> 0:10:11.000 We're telling us about the pending recession and the massive 0:10:11.080 --> 0:10:15.400 unemployment that was coming and all this stuff that was negative. 0:10:15.440 --> 0:10:18.520 They took the negative pitch book sold. 0:10:18.280 --> 0:10:20.480 Last year and it's what we believe really caused the 0:10:20.520 --> 0:10:24.080 market to decline as it did last year on things 0:10:24.080 --> 0:10:28.040 that were never realized, and so the bears have pivoted. 0:10:28.400 --> 0:10:30.760 But when they pivot, you get that feeling if you're 0:10:30.800 --> 0:10:33.000 on a boat. All of a sudden, everybody's on your 0:10:33.080 --> 0:10:35.920 side of the boat. You start looking for a little ballast. 0:10:36.360 --> 0:10:39.480 And that might well be in terms of taking advantage 0:10:39.480 --> 0:10:42.640 of some of the diversification that fixed income offers, as 0:10:42.640 --> 0:10:45.880 well as other areas of the market that have the 0:10:45.920 --> 0:10:48.800 equity market that have yet to participate in this rally. 0:10:49.040 --> 0:10:51.400 So does that mean John, that you're broadening out to 0:10:51.520 --> 0:10:55.160 small caps some of the less loved areas away from 0:10:55.520 --> 0:10:56.760 just focusing on big tech. 0:10:57.520 --> 0:10:57.720 Yeah. 0:10:58.160 --> 0:11:00.960 You know, at LISA, we've been we've been working with 0:11:01.080 --> 0:11:05.920 better quality small caps on an alpha basis and in 0:11:06.000 --> 0:11:10.280 terms of on a beta basis, or using passive indexes, 0:11:10.679 --> 0:11:14.440 using the S and P six hundred ETFs versus the 0:11:14.520 --> 0:11:18.040 Russell two thousand for that purpose for quite a while. 0:11:18.360 --> 0:11:21.960 It's heard as in terms of overall performance, but it's 0:11:22.040 --> 0:11:24.959 given a stability. We can't help but notice on days 0:11:24.960 --> 0:11:28.840 when there's volatility in the market that's caused by nervous 0:11:28.920 --> 0:11:32.920 money pulling out of the large caps. Usually these days 0:11:32.920 --> 0:11:35.600 they're going into the S and P four hundred mid caps, 0:11:35.720 --> 0:11:38.480 or the S and P six hundred, or when all 0:11:38.640 --> 0:11:41.440 when the tide comes in at all ships are floating, 0:11:41.920 --> 0:11:44.160 they roar into the Russell two thousand. 0:11:44.400 --> 0:11:48.280 John, what's a comfortable price to earnings ratio? Right now 0:11:48.320 --> 0:11:52.640 we're twenty one SPX. Obviously there's been multiple expansion, But 0:11:53.160 --> 0:11:57.400 what's a historically comfortable pe for our viewers and listeners? 0:11:58.120 --> 0:12:01.040 I think tomboyend it comes to historically. You got to 0:12:01.080 --> 0:12:06.080 think the generations. I can't help but think Leon Cooperman's 0:12:08.320 --> 0:12:11.840 ratio is probably about twelve. It is the most twelve times. 0:12:12.280 --> 0:12:16.439 For most boomers it's around sixteen. And as you get younger, 0:12:16.520 --> 0:12:20.120 the generations keep pushing that multiple up. Some of that 0:12:20.320 --> 0:12:23.120 is probably because they wreck some of them. It's just 0:12:23.240 --> 0:12:26.640 a more aggressive positioning, okay. But it also has to 0:12:26.679 --> 0:12:29.480 do with the need that I think people are beginning 0:12:29.559 --> 0:12:33.080 to realize that social security will not be in the 0:12:33.120 --> 0:12:37.240 same instead that it was for many decades for generations 0:12:37.280 --> 0:12:39.960 to come and people need to invest. And it's just 0:12:40.040 --> 0:12:42.360 like real estate in New York, you know, back in 0:12:42.480 --> 0:12:44.839 seventy eight, you could buy a co op really cheap, 0:12:45.600 --> 0:12:48.120 even today with all the problems the city has. 0:12:48.480 --> 0:12:50.880 Gosh, if you look at the prices on co ops, at. 0:12:50.800 --> 0:12:54.840 Least the ask is just you pale looking at it 0:12:54.880 --> 0:12:58.120 when you give it a historic comparison. We think equities 0:12:58.160 --> 0:13:01.440 move higher here, so probably twenty one to twenty two. 0:13:02.000 --> 0:13:03.280 And I'm not a gunslinger. 0:13:03.280 --> 0:13:06.600 It's just that the demand for equities when private equity 0:13:06.600 --> 0:13:11.080 has taken so many stocks out of the market that 0:13:11.240 --> 0:13:14.920 it creates demand that is chasing supply. 0:13:15.200 --> 0:13:17.600 John Iyes have a good bank co op phase another day. 0:13:17.880 --> 0:13:18.280 Love that. 0:13:18.400 --> 0:13:21.560 John steff Is Offenheimer Asset Management. John, have a wonderful Christmas. 0:13:21.559 --> 0:13:22.800 It's going to catch up with the set. 0:13:32.440 --> 0:13:35.440 Michael Schumacher, Global ahead of macro Strategy at Wells Fargo, 0:13:35.520 --> 0:13:38.600 joins us right now. Michael, I love your calculus illusion. 0:13:38.720 --> 0:13:43.520 We're on a down escalator or a down elevator. What 0:13:43.559 --> 0:13:46.040 does twenty twenty four look like? Am I on the 0:13:46.160 --> 0:13:49.239 escalator or AM on the lower yield elevator? 0:13:51.240 --> 0:13:53.240 Think you're on the escalator. So it's going to be 0:13:53.280 --> 0:13:55.880 a slow move down in yields time. From art perspective, 0:13:56.320 --> 0:13:58.200 I thought it was really interesting to hear about the 0:13:58.240 --> 0:14:00.720 move since the last FED, meaning it's been phenomenal in 0:14:00.800 --> 0:14:03.400 terms of equities, bonds, what have you. But we do 0:14:03.480 --> 0:14:06.040 think the market's a bit overdone. It's probably overdone as 0:14:06.080 --> 0:14:08.120 yields went up. We think it's overdone as yields have 0:14:08.160 --> 0:14:11.040 gone down. We like the direction, we think it makes sense, 0:14:11.120 --> 0:14:14.320 but the ghost slow path here is our preferred route 0:14:14.360 --> 0:14:14.760 right now. 0:14:14.800 --> 0:14:18.240 How do you follow Jay Brison's economics into your study? 0:14:18.400 --> 0:14:22.280 Is it a study of global weakness as the IMF 0:14:22.320 --> 0:14:25.480 structures out to twenty twenty eight or can there be 0:14:25.560 --> 0:14:28.640 the surprise resiliency we saw at Q three US. 0:14:31.160 --> 0:14:33.320 You can always get a resiliency. There's a potential for 0:14:33.360 --> 0:14:37.080 your surprise. China is probably a decent example. Expectations are solo. 0:14:37.480 --> 0:14:40.240 Wouldn't take much for China to surprise to the upside. 0:14:40.520 --> 0:14:42.600 But I agree with Jay and his team. You think 0:14:42.640 --> 0:14:46.120 about the global backdrop economically, frankly, it's not that great, 0:14:46.240 --> 0:14:49.800 whether it's especially Europe. Canada looks like it's either in 0:14:49.840 --> 0:14:52.200 recession or very likely to go into one pretty soon. 0:14:52.400 --> 0:14:55.480 US probably lagging behind a bit so weakening but not 0:14:55.560 --> 0:14:56.120 as fast. 0:14:56.160 --> 0:14:58.000 But it's not a pretty picture. 0:14:58.040 --> 0:15:00.720 And yet that's really what you want from a power standpoint, 0:15:00.960 --> 0:15:03.040 you to take the wind out of the sales of inflation. 0:15:03.320 --> 0:15:05.920 You said that the move is overdone, and I'm curious 0:15:05.960 --> 0:15:08.840 which move in particular. Is it the fact that we're 0:15:08.960 --> 0:15:11.120 going to get so many rate cuts next year, is 0:15:11.120 --> 0:15:12.520 it the fact that we're going to have a strong 0:15:12.560 --> 0:15:16.920 economy that persists despite where we are in this economic cycle, 0:15:17.440 --> 0:15:20.040 or is it that this inflation can continue at the 0:15:20.040 --> 0:15:20.800 pace that we've seen. 0:15:23.040 --> 0:15:25.280 Now, what I was talking about, Lisa was the yield 0:15:25.320 --> 0:15:28.120 move up and then down. We think the volatility and 0:15:28.200 --> 0:15:31.640 bonds has been extraordinary, too much, so thinking about other 0:15:31.720 --> 0:15:34.280 things that are probably a bit overcooked as well. Think 0:15:34.280 --> 0:15:38.120 about market expectations for easing by pick your favorite central bank, 0:15:38.200 --> 0:15:41.080 the FED, ecb Bank of Canada, whatever it might be. 0:15:41.640 --> 0:15:44.920 They seem pretty aggressive to us right now for next year. 0:15:45.160 --> 0:15:47.400 That's not to say the central banks won't get there, 0:15:47.440 --> 0:15:50.360 but the market's ahead of the policy makers. So, for instance, 0:15:50.400 --> 0:15:54.000 the FED price to ease forty five basis points something 0:15:54.040 --> 0:15:56.760 like that by June of next year. It might actually 0:15:56.800 --> 0:15:59.240 do it, but the market, we think, is running too 0:15:59.280 --> 0:16:01.200 far ahead of j. Powle on team right now. So 0:16:01.240 --> 0:16:03.240 I think that also is a bit ahead of the 0:16:03.240 --> 0:16:04.200 game and overdone. 0:16:04.240 --> 0:16:06.720 So do you think that essentially the equity bet that 0:16:06.720 --> 0:16:09.720 the economy will remain strong is the correct one, but 0:16:09.800 --> 0:16:12.880 the idea that disinflation will come down enough to edify 0:16:13.000 --> 0:16:15.320 rate cut bets is not going to really follow through? 0:16:15.400 --> 0:16:20.920 Is that your call. 0:16:18.800 --> 0:16:21.840 It seems to me, is really an equity layman that 0:16:21.880 --> 0:16:25.000 what's going on now in risk markets is risk markets 0:16:25.000 --> 0:16:27.520 are reacting to what they think central bankers will do. 0:16:27.840 --> 0:16:31.080 So as it becomes less likely central bankers will hike 0:16:31.160 --> 0:16:34.040 or let's assume that's off the table, extra pan, more 0:16:34.120 --> 0:16:37.000 likely they're going to cut pretty soon. Risk markets like that. 0:16:37.200 --> 0:16:39.720 I think it's been about that simple. Chris Harvey can 0:16:39.720 --> 0:16:41.520 give you a chapter and verse, but to me, that 0:16:41.600 --> 0:16:42.920 seems to be the picture right now. 0:16:43.760 --> 0:16:47.360 Mike sure Maker, part of this is just folding in 0:16:47.760 --> 0:16:50.560 what the dollar would do. John mentioned Euro earlier, Wells 0:16:50.600 --> 0:16:53.480 Fargus did some great work on Euro, and all of 0:16:53.520 --> 0:16:57.200 this comes back to just the assumption weaker dollar. I 0:16:57.240 --> 0:16:58.920 don't want to make theater out of it, but just 0:16:58.960 --> 0:17:01.440 an ebbing dollar, if you will, is that your call. 0:17:03.760 --> 0:17:06.560 Dollar probably weekends somewhat, Tom, But I think there's a 0:17:06.880 --> 0:17:09.040 consensus for you out there and we disagree with it 0:17:09.040 --> 0:17:11.439 that the dollar files out of bed. And the basic 0:17:11.520 --> 0:17:15.000 thesis behind that argument is, Hey, the Fed's hiked a lot, 0:17:15.040 --> 0:17:17.680 the Fed's got the highest policy rate, therefore the Federal 0:17:17.800 --> 0:17:21.280 cut the most dollar weekends. Well, okay, but it's really 0:17:21.320 --> 0:17:23.439 all driven by the idea of the Fed goes first. 0:17:23.920 --> 0:17:26.560 Why should the Fed go first? Why shouldn't the ECB 0:17:26.680 --> 0:17:28.359 lead the way, or maybe the Bank of Canada. So 0:17:28.400 --> 0:17:31.280 we think that view the dollar really I wouldn't say collapses, 0:17:31.320 --> 0:17:32.160 but takes a big help. 0:17:32.200 --> 0:17:33.040 We think it's off base. 0:17:33.160 --> 0:17:36.040 A bit of weakness, yes, but massive weakness, no, we 0:17:36.040 --> 0:17:37.040 don't think that's on tap. 0:17:37.200 --> 0:17:39.040 Let's play that game. Just priced in a lot of 0:17:39.119 --> 0:17:41.840 rate cuts over the Bank of England. Growth not great, Mike, 0:17:41.840 --> 0:17:43.080 who do you think goes first? 0:17:45.960 --> 0:17:50.920 So let's say the candidate's John are, FED, Bank of Canada, ECB, BOE. 0:17:51.560 --> 0:17:55.120 I'll put the ECB in first place, Bank of Canada second, 0:17:55.720 --> 0:17:59.119 boees kind of a strange one to handicap. 0:17:59.280 --> 0:18:01.080 Fed's probably or BOE fourth? 0:18:01.280 --> 0:18:03.600 Is that growth call or a disinflation coll. 0:18:05.200 --> 0:18:07.560 Now it's the inflation comfort level call. I guess I 0:18:07.600 --> 0:18:08.159 would call it. 0:18:08.200 --> 0:18:11.120 So, how how certain are you as a policymaker, whether 0:18:11.119 --> 0:18:14.239 it's Andrew Bailey, J Powell, whomever, that inflation is not 0:18:14.400 --> 0:18:15.760 just down, but it's actually out. 0:18:16.000 --> 0:18:17.760 That to me is what's going to dictate the path. 0:18:17.920 --> 0:18:19.919 Hey, Mikey, one of the best. Thank you sir, and 0:18:20.040 --> 0:18:22.280 enjoy the holiday. It's happy Christmas. Always great to catch 0:18:22.320 --> 0:18:24.440 up my Schumacher there of Wells Falco. 0:18:28.560 --> 0:18:30.760 Our stress is to get the right person to talk to. 0:18:31.240 --> 0:18:36.760 Christopher mcgrety is with KBW. They are the institutional investor. 0:18:36.760 --> 0:18:37.600 Mid Camp bank. 0:18:38.560 --> 0:18:40.399 Do you look at JP Morgan at all or do 0:18:40.440 --> 0:18:42.280 you just ignore Fortresstein? 0:18:42.400 --> 0:18:43.879 Now you have to look at it. You have to 0:18:43.880 --> 0:18:45.520 look at it. There's another whatever for the industry. 0:18:45.640 --> 0:18:47.199 So what it's like the midcalf So I want to 0:18:47.200 --> 0:18:49.440 go to Tacoma, Washington, one of the banks you follow. 0:18:49.640 --> 0:18:50.840 I don't even know where Dacoma is on. 0:18:50.840 --> 0:18:54.800 The map, Tacoma nine eighty four or three. Columbia Banking system, 0:18:55.080 --> 0:18:56.320 Where are they going to be in a year? 0:18:56.840 --> 0:18:59.399 Where are the mid caps like Columbia Banking going to 0:18:59.480 --> 0:19:00.720 be five years? 0:19:01.600 --> 0:19:01.800 Right? 0:19:01.880 --> 0:19:05.080 I think consolidation is part of the question. Tom. The 0:19:05.119 --> 0:19:07.159 Colombia is a bank that's doubled in size over the 0:19:07.200 --> 0:19:09.880 past two years, and so we think scale is really 0:19:09.960 --> 0:19:12.680 important in this In this industry, we've done a lot 0:19:12.680 --> 0:19:15.439 of work and there's a really strong correlation between the 0:19:15.480 --> 0:19:18.640 size of your bank and the degree of profitability. And importantly, 0:19:18.680 --> 0:19:22.160 the market rewards scale. They also punish scale, and regulation 0:19:22.320 --> 0:19:23.720 is one of the things that we have to deal 0:19:23.760 --> 0:19:25.720 with the out of the COVID. 0:19:25.880 --> 0:19:28.560 Have you been surprised by how little consolidation we've seen 0:19:28.880 --> 0:19:30.720 between the stress of spring and now? 0:19:31.800 --> 0:19:31.879 No. 0:19:32.080 --> 0:19:35.320 I think it's an evolution, right. The spring was forced consolidation, 0:19:35.480 --> 0:19:38.240 it was failures. We saw three or four notable failures. 0:19:38.800 --> 0:19:41.360 But as the industry picks up the pieces from from 0:19:41.359 --> 0:19:45.280 March and that is that is happening, we will see consolidation. 0:19:45.400 --> 0:19:48.720 The industry still has four thousand banks, uh, that's the 0:19:48.760 --> 0:19:51.280 only developed country in the world that has this level 0:19:51.320 --> 0:19:54.280 of fragmentation. And I think one of the one of 0:19:54.320 --> 0:19:58.520 the consequences of failures and stress is that we need 0:19:58.560 --> 0:20:00.760 to pick up the pieces and and move forward. 0:20:00.880 --> 0:20:02.480 What's the right number of banks. 0:20:03.119 --> 0:20:05.560 A fewer, But I think what's important about the number 0:20:05.600 --> 0:20:08.800 of banks is we need more competition for the top 0:20:08.880 --> 0:20:12.120 three or four. Right, the biggest banks are the most 0:20:12.200 --> 0:20:17.440 regulated in the world, but there's really a general hesitation 0:20:17.520 --> 0:20:19.919 by the regulators to let the bigger banks get bigger. 0:20:19.920 --> 0:20:22.600 So the regionals the one hundred billions of two hundred billions, 0:20:22.800 --> 0:20:25.639 they need to be bigger to compete more effectively with 0:20:25.680 --> 0:20:27.560