1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,240 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot com, 6 00:00:26,600 --> 00:00:30,880 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Jerome Schneider, 7 00:00:30,920 --> 00:00:34,520 Speaker 1: I think he inherited Bill Gross's Monroe Trader out at PIMCO, 8 00:00:34,560 --> 00:00:37,080 Speaker 1: does the short term ballet there with a four point 9 00:00:37,120 --> 00:00:41,000 Speaker 1: eight seven percent to your yield and joins us this morning. 10 00:00:41,000 --> 00:00:44,640 Speaker 1: Just an open question on your desk, what is the 11 00:00:45,159 --> 00:00:48,280 Speaker 1: focal point within the short term space. There's a couple 12 00:00:48,280 --> 00:00:51,080 Speaker 1: of vocal points clearly the topic and topic to yours, 13 00:00:51,159 --> 00:00:53,640 Speaker 1: you know, simply that cash it back, bonds are back, 14 00:00:53,760 --> 00:00:56,080 Speaker 1: yields are higher. We can find a lot of attraction 15 00:00:56,200 --> 00:00:58,120 Speaker 1: simply being at the front of yolkurf. That's that's sort 16 00:00:58,120 --> 00:01:02,240 Speaker 1: of a no known but them. The minutia, which really 17 00:01:02,280 --> 00:01:04,520 Speaker 1: investors and savers need to think about is the fact 18 00:01:04,600 --> 00:01:07,880 Speaker 1: that depository rates are low. They need to be incentivized 19 00:01:07,920 --> 00:01:09,600 Speaker 1: to really look at that move out of one and 20 00:01:09,680 --> 00:01:12,440 Speaker 1: two percent depository rates out the curve, even into t 21 00:01:12,560 --> 00:01:15,200 Speaker 1: builds short term strategies to your notes things like that. 22 00:01:15,600 --> 00:01:18,080 Speaker 1: The second thing is is that clearly the FED is 23 00:01:18,160 --> 00:01:21,200 Speaker 1: data dependent, but that's also going to create an involving process. 24 00:01:21,240 --> 00:01:24,160 Speaker 1: Not necessarily that now that we're approaching the five point 25 00:01:24,160 --> 00:01:27,080 Speaker 1: four five point five percent terminal rate that people expect, 26 00:01:27,480 --> 00:01:31,560 Speaker 1: but more importantly that the cutting mechanism is focused less 27 00:01:31,600 --> 00:01:34,520 Speaker 1: on supporting growth, and that goes for the ECB two 28 00:01:34,560 --> 00:01:37,920 Speaker 1: as well tom as well, focused on the supporting growth, 29 00:01:38,080 --> 00:01:40,399 Speaker 1: but focusing on fighting inflation. We know that, and that's 30 00:01:40,400 --> 00:01:42,360 Speaker 1: a fundamental change compared to where we've been over the 31 00:01:42,400 --> 00:01:44,720 Speaker 1: past few decades in terms of that. And the final 32 00:01:44,760 --> 00:01:47,880 Speaker 1: thing really to think about is don't necessarily be worried 33 00:01:47,920 --> 00:01:51,240 Speaker 1: about liquidity conditions in the near term. There's plenty of 34 00:01:51,280 --> 00:01:54,720 Speaker 1: excess reserves around in this system and etc. But the 35 00:01:54,800 --> 00:01:57,520 Speaker 1: higher nominal rates that we are experiencing within the broader 36 00:01:57,560 --> 00:02:01,240 Speaker 1: economy are going to have reverberations in corporate credit within 37 00:02:01,360 --> 00:02:03,880 Speaker 1: various structures and we're going to see that proliferate. So 38 00:02:03,880 --> 00:02:06,360 Speaker 1: investors need to be thinking about how to go about 39 00:02:06,400 --> 00:02:10,000 Speaker 1: maintaining their degrees of freedom, high degrees of liquidity, and 40 00:02:10,240 --> 00:02:13,000 Speaker 1: more importantly, embracing these higher yields, which simply are going 41 00:02:13,040 --> 00:02:16,160 Speaker 1: to be a much more acceptable place to be over 42 00:02:16,200 --> 00:02:18,480 Speaker 1: the next year or so as we sort of continue 43 00:02:18,480 --> 00:02:22,079 Speaker 1: to romanticize going from, you know, effectively the deflationary utopia 44 00:02:22,120 --> 00:02:24,640 Speaker 1: that we once were in just a few weeks ago, 45 00:02:24,840 --> 00:02:28,239 Speaker 1: to the inflationary dystopia. Maybe that's a strong word that 46 00:02:28,280 --> 00:02:31,160 Speaker 1: we're possibly embarking on at this point in time. This 47 00:02:31,240 --> 00:02:33,760 Speaker 1: is a process takes a while. Whenever I speak to 48 00:02:33,760 --> 00:02:35,200 Speaker 1: you or see you now, I just think, which you run? 49 00:02:35,280 --> 00:02:37,359 Speaker 1: Must be so so busy. How long does this take 50 00:02:37,440 --> 00:02:39,560 Speaker 1: for people to shift and get away from their bank accounts, 51 00:02:39,600 --> 00:02:42,800 Speaker 1: which like off your zero and come to you and 52 00:02:42,880 --> 00:02:44,839 Speaker 1: give you the money. Well, for the short term desk 53 00:02:44,840 --> 00:02:47,240 Speaker 1: at PIMCO, it's very quick because we try to optimize 54 00:02:47,320 --> 00:02:50,040 Speaker 1: between all these mechanisms. But for the investor, even the 55 00:02:50,040 --> 00:02:54,120 Speaker 1: most sophisticated institutional investor, they're really not moving as quickly 56 00:02:54,120 --> 00:02:57,239 Speaker 1: as you would expect. And there's actually pretty big diversions. Sure, 57 00:02:57,320 --> 00:02:59,200 Speaker 1: a lot of retail investors are now focused on the 58 00:02:59,280 --> 00:03:01,840 Speaker 1: high amounts of sitting in their accounts. They're well aware 59 00:03:01,840 --> 00:03:04,440 Speaker 1: of yields where they are today. That's making an attraction 60 00:03:04,480 --> 00:03:07,720 Speaker 1: to be that bonds are back is a well known 61 00:03:07,760 --> 00:03:10,359 Speaker 1: thought process over the past few months, but the reality 62 00:03:10,480 --> 00:03:13,040 Speaker 1: is is that it's still an evolutionary process. It does 63 00:03:13,120 --> 00:03:16,000 Speaker 1: take time. The higher yields that we're sitting here talking 64 00:03:16,040 --> 00:03:18,239 Speaker 1: about today, even a four percent ten year note, is 65 00:03:18,280 --> 00:03:20,960 Speaker 1: a relatively new phenomenon, especially in history in the post 66 00:03:21,000 --> 00:03:24,760 Speaker 1: GFC world, So we need to think about the construction 67 00:03:24,800 --> 00:03:29,840 Speaker 1: of portfolios in a much more widespread, widespread criteria than 68 00:03:29,919 --> 00:03:32,359 Speaker 1: simply the past six weeks. And that's really what we're 69 00:03:32,360 --> 00:03:35,640 Speaker 1: going to do. So this is much more protracted evaluation 70 00:03:35,720 --> 00:03:38,800 Speaker 1: of how to create a different investment approach over the 71 00:03:38,840 --> 00:03:40,760 Speaker 1: medium term. One phrase that has cropped up over the 72 00:03:40,800 --> 00:03:43,440 Speaker 1: last couple of weeks is reinvestment risk, just the idea 73 00:03:43,480 --> 00:03:45,760 Speaker 1: that if you go short, too short, maybe miss the 74 00:03:45,760 --> 00:03:48,280 Speaker 1: window to really take these yields and bake them in 75 00:03:48,400 --> 00:03:51,720 Speaker 1: much longer. How do you advocate for where people should 76 00:03:51,760 --> 00:03:53,720 Speaker 1: be on the curve in the treasury mark. It's probably 77 00:03:53,720 --> 00:03:55,640 Speaker 1: a measured response, quite honestly, and you have to think 78 00:03:55,680 --> 00:03:57,360 Speaker 1: about it. You can look at it from an economic 79 00:03:57,360 --> 00:04:00,640 Speaker 1: point of view, where's the neutral rate of where's where 80 00:04:00,680 --> 00:04:03,160 Speaker 1: a neutral rate's going to be. There's inflationary expectations that 81 00:04:03,200 --> 00:04:05,760 Speaker 1: come into them into that as well, and so if 82 00:04:05,760 --> 00:04:07,880 Speaker 1: you think inflation is going to be higher, you have 83 00:04:07,920 --> 00:04:10,280 Speaker 1: to think where the neutral rate should be, which obviously 84 00:04:10,520 --> 00:04:14,200 Speaker 1: affects where you think you should be buying duration buying bonds, 85 00:04:14,600 --> 00:04:17,320 Speaker 1: and that of itself is a point to your point. 86 00:04:17,360 --> 00:04:21,479 Speaker 1: More microscopically, it cuts both ways, quite honestly, John, When 87 00:04:21,480 --> 00:04:23,880 Speaker 1: you think about it, the two year note actually has 88 00:04:23,880 --> 00:04:26,680 Speaker 1: a negative return so far this year, and if you 89 00:04:26,760 --> 00:04:28,120 Speaker 1: bought it, you know, at the end of last year 90 00:04:28,160 --> 00:04:30,000 Speaker 1: or to today, it's actually a negative return. If you 91 00:04:30,000 --> 00:04:32,359 Speaker 1: think about it, well, it does yield almost five percent 92 00:04:32,400 --> 00:04:34,720 Speaker 1: at this point in time, so that is attractive. So 93 00:04:34,800 --> 00:04:37,600 Speaker 1: it also beckons what is your horizon? What is your 94 00:04:37,640 --> 00:04:40,880 Speaker 1: investment horizon? What is your purpose as liquidity management? Is 95 00:04:40,880 --> 00:04:42,720 Speaker 1: that something to plan for the buying a house over 96 00:04:42,760 --> 00:04:45,440 Speaker 1: the next two or three years. Even though mortgage rates 97 00:04:45,440 --> 00:04:48,200 Speaker 1: are highed, there's a variety of circumstances. So understanding and 98 00:04:48,279 --> 00:04:52,520 Speaker 1: matching your investment needs with the investment itself is actually important, 99 00:04:52,560 --> 00:04:54,039 Speaker 1: and that's probably going to be the main driver of 100 00:04:54,080 --> 00:04:56,280 Speaker 1: how much are where an interest rate curve you you 101 00:04:56,400 --> 00:04:58,520 Speaker 1: end up buying. At this point in time, people are 102 00:04:58,520 --> 00:05:01,720 Speaker 1: trying to game out ostantially higher rates as we see 103 00:05:02,000 --> 00:05:06,960 Speaker 1: ongoing surprises with respect to inflation data. How disruptive would 104 00:05:06,960 --> 00:05:10,880 Speaker 1: it be if rates were to rise substantially more from here? Well, 105 00:05:10,920 --> 00:05:13,839 Speaker 1: you obviously have a different framework in play, and I 106 00:05:13,880 --> 00:05:17,279 Speaker 1: think again to reemphasize, the framework is not necessarily supporting 107 00:05:17,279 --> 00:05:19,600 Speaker 1: growth at this point in time. It's fighting inflation at 108 00:05:19,640 --> 00:05:21,880 Speaker 1: this point in time, something very different. So it's going 109 00:05:21,920 --> 00:05:23,760 Speaker 1: to be a bit of a long and dusty road 110 00:05:23,839 --> 00:05:26,839 Speaker 1: to that destination. We should expect a little bit more volatility. 111 00:05:26,839 --> 00:05:30,000 Speaker 1: We've clearly witnessed that over the past few weeks. Ultimately, 112 00:05:30,040 --> 00:05:31,880 Speaker 1: it's a question whether the FED takes the high road 113 00:05:31,960 --> 00:05:34,640 Speaker 1: or the low road proverbly and literally with rates and 114 00:05:34,800 --> 00:05:37,400 Speaker 1: understand where it's ultimately going to go. So, if you 115 00:05:37,440 --> 00:05:40,159 Speaker 1: did have a shock to the system of another few 116 00:05:40,200 --> 00:05:42,840 Speaker 1: hundred basis point of rates, sure, what we would recommend 117 00:05:42,839 --> 00:05:45,240 Speaker 1: and you would see is that the risk adversion you 118 00:05:45,240 --> 00:05:47,840 Speaker 1: would have would be focused on the center of those 119 00:05:47,839 --> 00:05:50,000 Speaker 1: concentric circles of risk that we have at PEMCO, meaning 120 00:05:50,040 --> 00:05:53,080 Speaker 1: the safest areas, and the outer realms of those concentric 121 00:05:53,080 --> 00:05:55,440 Speaker 1: circles would move wider in terms of price and spread 122 00:05:55,440 --> 00:05:58,719 Speaker 1: and yield to compensate for that. And what I suggested 123 00:05:58,720 --> 00:06:01,560 Speaker 1: where we are now is a gentle recalibration. What you're 124 00:06:01,600 --> 00:06:04,880 Speaker 1: suggesting by moving to those higher rates is a more methodical, 125 00:06:05,000 --> 00:06:10,279 Speaker 1: very drastic rationalization of return expectations, risk assumptions, spread assumptions. 126 00:06:10,320 --> 00:06:12,919 Speaker 1: So there is there is very much, you know, a 127 00:06:13,000 --> 00:06:15,800 Speaker 1: recalibration that would go on tightening conditions and you might 128 00:06:15,839 --> 00:06:17,880 Speaker 1: actually see some breakage at that point in time. But 129 00:06:18,240 --> 00:06:20,479 Speaker 1: I also think that what you're hearing clearly from the 130 00:06:20,480 --> 00:06:22,800 Speaker 1: FED is the process which is going to be a 131 00:06:22,800 --> 00:06:26,040 Speaker 1: digestive situation where they're going to digest the data. And 132 00:06:26,080 --> 00:06:28,400 Speaker 1: the market has rationalized over the past few weeks, not 133 00:06:28,520 --> 00:06:31,280 Speaker 1: necessarily that there's a lot of more rate hikes to come, 134 00:06:31,480 --> 00:06:34,520 Speaker 1: but there's less cuts to come, and there's a big 135 00:06:34,560 --> 00:06:37,560 Speaker 1: difference in that. So even at PIMCO, we've shifted our 136 00:06:37,600 --> 00:06:41,920 Speaker 1: expectations of a recession this year, push possibly pushing that 137 00:06:41,960 --> 00:06:44,640 Speaker 1: out to twenty twenty four, so modest growth in two 138 00:06:44,880 --> 00:06:47,440 Speaker 1: twenty three, perhaps pushing that out to twenty twenty four. 139 00:06:47,839 --> 00:06:50,719 Speaker 1: That's something that actually creates a longer road for the 140 00:06:50,760 --> 00:06:54,080 Speaker 1: FED to really rationalized decisions, be more data dependent, fortunately 141 00:06:54,120 --> 00:06:57,240 Speaker 1: or unfortunately, and maybe doesn't necessarily create that shock to 142 00:06:57,279 --> 00:06:59,200 Speaker 1: the system that you're suggesting. So I'm you're going to 143 00:06:59,240 --> 00:07:01,000 Speaker 1: stick with us, But to say up in the next segment, 144 00:07:01,560 --> 00:07:03,560 Speaker 1: high phlonga, we all get the higher piece of this. 145 00:07:03,760 --> 00:07:05,760 Speaker 1: You've just touched on the plonger bit of it. Where 146 00:07:05,880 --> 00:07:08,760 Speaker 1: are you on the forlonga bit of it? How long full? Yeah? 147 00:07:08,880 --> 00:07:10,840 Speaker 1: And I think that's really putting it. You're going to 148 00:07:10,920 --> 00:07:15,840 Speaker 1: have ultimately when you see PCE core specifically coming down, 149 00:07:15,920 --> 00:07:17,920 Speaker 1: and you might not actually get that data until late 150 00:07:17,960 --> 00:07:20,800 Speaker 1: this year and early next year. So the longer is 151 00:07:20,840 --> 00:07:24,600 Speaker 1: an eternity. It's maybe just a pensive thought process which 152 00:07:24,600 --> 00:07:27,240 Speaker 1: puts us well into twenty twenty four. It is a 153 00:07:27,320 --> 00:07:31,120 Speaker 1: joy to have Jerome Schneider with us with PIMCO. Undiscovered Jerome. 154 00:07:31,200 --> 00:07:34,480 Speaker 1: This week was what I'm gonna call the IDEs of October. 155 00:07:34,520 --> 00:07:37,840 Speaker 1: I know you run your short term portfolio off lunar astrology, 156 00:07:38,360 --> 00:07:41,320 Speaker 1: but not the IDEs of March. But the Bloomberg Total 157 00:07:41,360 --> 00:07:44,720 Speaker 1: Return Index reached a low in October of last year, 158 00:07:44,800 --> 00:07:48,760 Speaker 1: priced down, yield up very quietly this week we slipped 159 00:07:48,800 --> 00:07:53,640 Speaker 1: below the December The history here between October and now, 160 00:07:53,960 --> 00:07:58,600 Speaker 1: is there a possibility we retest priced down yield up 161 00:07:58,680 --> 00:08:01,680 Speaker 1: that we saw in October? And what will be the 162 00:08:01,760 --> 00:08:04,440 Speaker 1: consequences to your short term paper now that you divulge 163 00:08:04,520 --> 00:08:06,640 Speaker 1: the secret of the short term desk at PIMCO. I'm 164 00:08:06,680 --> 00:08:09,960 Speaker 1: embarrassed fund, but at the reality is is that there's 165 00:08:10,000 --> 00:08:15,200 Speaker 1: one thing very different in the calculus today than October yield. 166 00:08:15,600 --> 00:08:18,480 Speaker 1: When you think about total return, whether it's a short 167 00:08:18,560 --> 00:08:21,720 Speaker 1: term bond fund, a total term bond fund, income, it's 168 00:08:21,800 --> 00:08:26,040 Speaker 1: the composition of capital appreciation plus yield, and that yield 169 00:08:26,040 --> 00:08:29,400 Speaker 1: and carry component is worth five hundred plus basis points 170 00:08:29,400 --> 00:08:31,560 Speaker 1: depending on the type of strategy at this point in time, 171 00:08:31,960 --> 00:08:34,600 Speaker 1: That in of itself can alleviate a lot of the 172 00:08:34,640 --> 00:08:38,040 Speaker 1: capital appreciation or depreciation. To say so, when I said before, 173 00:08:38,160 --> 00:08:40,600 Speaker 1: be careful owning the two year note because it's actually 174 00:08:40,640 --> 00:08:43,640 Speaker 1: a negative total return this year. Yes, we're looking at 175 00:08:43,640 --> 00:08:45,920 Speaker 1: a microcosum of a couple of months. In general, if 176 00:08:45,920 --> 00:08:48,120 Speaker 1: you're holding it to maturity, you will make those yields. 177 00:08:48,360 --> 00:08:50,680 Speaker 1: But there's different ways to manage your interest rate exposure 178 00:08:50,679 --> 00:08:53,000 Speaker 1: and interestrate exposures, the sensitivities right where I wanted to go, 179 00:08:53,000 --> 00:08:54,880 Speaker 1: and I want to play it off Mandalorian because I 180 00:08:54,920 --> 00:08:57,360 Speaker 1: know at PIMCO, when they make a successful trade, they go, 181 00:08:57,480 --> 00:08:59,599 Speaker 1: this is the way. But the answer is you and 182 00:08:59,679 --> 00:09:01,680 Speaker 1: Chris z are the only two people on the planet 183 00:09:01,720 --> 00:09:04,360 Speaker 1: that read FIBOZI cover to cover and to keep it 184 00:09:04,400 --> 00:09:09,079 Speaker 1: real simple, here do I gather a ten year success 185 00:09:09,480 --> 00:09:13,280 Speaker 1: by taking five two year tranches out? Is that where 186 00:09:13,320 --> 00:09:16,240 Speaker 1: we are right now in terms of retail clients. Grab 187 00:09:16,280 --> 00:09:19,080 Speaker 1: the two year and trunch it out five times. I 188 00:09:19,080 --> 00:09:21,760 Speaker 1: think when investors are looking to do is simply navigate 189 00:09:21,800 --> 00:09:25,760 Speaker 1: the next one to two years of uncertainty in the macroeconomics. 190 00:09:25,800 --> 00:09:29,160 Speaker 1: And typically you're having an inflection point. You owe equities. 191 00:09:29,160 --> 00:09:31,400 Speaker 1: You own equities because you believe that there is a 192 00:09:31,480 --> 00:09:34,800 Speaker 1: rate stabilization and inflation understanding that is going to be 193 00:09:34,840 --> 00:09:38,360 Speaker 1: stable for the next empteen years, and that inevitably owning 194 00:09:38,360 --> 00:09:41,880 Speaker 1: inequity is effectively owning a long duration bond with some 195 00:09:41,960 --> 00:09:46,640 Speaker 1: given profitability, earnings and obviously risk free rate assumptions baked in. 196 00:09:47,280 --> 00:09:50,080 Speaker 1: What we ultimately want to think about, though, is investors 197 00:09:50,120 --> 00:09:51,840 Speaker 1: have had a lot of reinvestment to do over the 198 00:09:51,840 --> 00:09:56,680 Speaker 1: past few years, and then they were faced with uncertainty, wars, pandemics. 199 00:09:56,840 --> 00:09:59,319 Speaker 1: These are all factors that really change the psychology of 200 00:09:59,440 --> 00:10:01,640 Speaker 1: investors that we have to think about things that we 201 00:10:01,640 --> 00:10:04,439 Speaker 1: haven't seen in many years. In fact, many traders today 202 00:10:04,480 --> 00:10:07,400 Speaker 1: on Wall Street, young people haven't seen many of the 203 00:10:07,400 --> 00:10:10,120 Speaker 1: phenomenon that we are witnessing today. Even positive rates as 204 00:10:10,440 --> 00:10:14,640 Speaker 1: an obvious example, inflationary expectations in the general population. These 205 00:10:14,640 --> 00:10:16,760 Speaker 1: are things that we haven't seen in forty plus years. 206 00:10:16,800 --> 00:10:20,520 Speaker 1: So the calculus is ripe for a pause. It means 207 00:10:20,520 --> 00:10:24,160 Speaker 1: that traditional mechanisms for just simply earning interest put the 208 00:10:24,679 --> 00:10:27,319 Speaker 1: baton firmly in the hand of savers, and it doesn't 209 00:10:27,320 --> 00:10:29,560 Speaker 1: necessarily mean you me to make these bold predictions in 210 00:10:29,679 --> 00:10:32,120 Speaker 1: terms of taking a lot of risk at this point 211 00:10:32,120 --> 00:10:34,680 Speaker 1: in time. Having some optionality, just like the FED, is 212 00:10:34,679 --> 00:10:36,880 Speaker 1: exactly what investors want to do at this point in time. 213 00:10:37,080 --> 00:10:39,720 Speaker 1: When you talk about optionality. People have gotten a little 214 00:10:39,720 --> 00:10:43,280 Speaker 1: bit hysterical this week, and I admit that I understand 215 00:10:43,320 --> 00:10:46,840 Speaker 1: why this feeling that maybe we have totally underestimated inflation 216 00:10:46,920 --> 00:10:49,840 Speaker 1: and how sticky it is globally. What central banks have 217 00:10:49,920 --> 00:10:52,120 Speaker 1: to do, what a terminal rate actually looks like there 218 00:10:52,160 --> 00:10:54,880 Speaker 1: has been a reset this week. What gives you the 219 00:10:54,920 --> 00:10:58,480 Speaker 1: Pimco confidence that we're not at that point that the 220 00:10:58,520 --> 00:11:00,920 Speaker 1: market's gotten ahead of itself right now, that the Fed 221 00:11:01,000 --> 00:11:02,640 Speaker 1: doesn't need to do that much more, It just needs 222 00:11:02,679 --> 00:11:05,400 Speaker 1: to pause, and that the data that's coming in shows 223 00:11:05,480 --> 00:11:09,240 Speaker 1: progress even if the headline big numbers aren't necessarily screaming 224 00:11:09,240 --> 00:11:11,400 Speaker 1: that message. Yea. We are actually debating this next week 225 00:11:11,440 --> 00:11:14,160 Speaker 1: at pimcoone an arcyclical form which we look at the 226 00:11:14,200 --> 00:11:16,160 Speaker 1: next year or so view of where we're headed for 227 00:11:16,200 --> 00:11:18,280 Speaker 1: the economy. I think one of the healthy debates in 228 00:11:18,320 --> 00:11:20,320 Speaker 1: there is not necessarily just where the neutral rate would 229 00:11:20,360 --> 00:11:23,480 Speaker 1: be and where their interest or inflation expectations come down, 230 00:11:23,679 --> 00:11:25,880 Speaker 1: but really how sticky they are going to remain. And 231 00:11:25,920 --> 00:11:28,360 Speaker 1: I think unfortunately we are on this long road and 232 00:11:28,400 --> 00:11:30,480 Speaker 1: we are not necessarily knowing where the end of that 233 00:11:30,559 --> 00:11:33,400 Speaker 1: road is going to be. So the consequences the Fed's 234 00:11:33,440 --> 00:11:35,280 Speaker 1: going to probably remain unhold. They're going to be faced 235 00:11:35,280 --> 00:11:38,079 Speaker 1: with pc core PCs that are well above that two 236 00:11:38,120 --> 00:11:40,440 Speaker 1: percent number. We don't necessarily see that coming down until 237 00:11:40,480 --> 00:11:43,880 Speaker 1: twenty twenty four, possibly twenty five at the earliest. So 238 00:11:43,920 --> 00:11:46,800 Speaker 1: the consequences is that there is a lot of unknowns 239 00:11:46,840 --> 00:11:49,520 Speaker 1: right now, and that's perfectly fine, and investors unfortunately have 240 00:11:49,640 --> 00:11:52,520 Speaker 1: to be prepared for that uncertainty as a result. So 241 00:11:52,760 --> 00:11:55,120 Speaker 1: what we want to do and as a practitioner, is 242 00:11:55,160 --> 00:11:58,800 Speaker 1: prepare portfolios for that resiliency that we think is going 243 00:11:58,840 --> 00:12:02,240 Speaker 1: to be necessary to survive the insority the next few years. 244 00:12:02,280 --> 00:12:04,240 Speaker 1: So can you give us a sneak peek into that 245 00:12:04,280 --> 00:12:07,200 Speaker 1: committee brawl and this sort of discussion what the range 246 00:12:07,200 --> 00:12:09,720 Speaker 1: of views looks like in terms of terminal rates, in 247 00:12:09,840 --> 00:12:12,880 Speaker 1: terms of inflation over the longer term. Yeah, I wouldn't 248 00:12:12,880 --> 00:12:15,360 Speaker 1: necessarily give the depiction of an economic gladiator set, but 249 00:12:15,400 --> 00:12:18,400 Speaker 1: it is. It is like it is effectively a healthy debate, 250 00:12:18,440 --> 00:12:20,200 Speaker 1: and we put all these variables and we want to 251 00:12:20,200 --> 00:12:24,400 Speaker 1: effectively understand how portfolios can behave in a variety of 252 00:12:24,440 --> 00:12:28,160 Speaker 1: circumstances left tail, right tail, and then ultimately rationalize it 253 00:12:28,200 --> 00:12:30,400 Speaker 1: in this higher rate environment. As an example, when we 254 00:12:30,440 --> 00:12:32,959 Speaker 1: actually think about this environment right now, we're faced with 255 00:12:33,000 --> 00:12:36,440 Speaker 1: the multitude of things which create different levels of uncertainty. However, 256 00:12:36,679 --> 00:12:39,920 Speaker 1: higher rates create different outcomes than zero or near zero 257 00:12:40,040 --> 00:12:42,400 Speaker 1: or even negative rates, So we have to think about 258 00:12:42,440 --> 00:12:45,200 Speaker 1: the construction and that confidence. We think that, as I 259 00:12:45,200 --> 00:12:48,160 Speaker 1: said previously, that we're not necessarily going to see a recession, 260 00:12:48,400 --> 00:12:50,120 Speaker 1: you know, in two twenty three, it might get pushed 261 00:12:50,120 --> 00:12:52,400 Speaker 1: to twenty twenty four. That and of itself puts us 262 00:12:52,400 --> 00:12:54,320 Speaker 1: in this situation where the Fed probably has a little 263 00:12:54,320 --> 00:12:57,199 Speaker 1: bit longer runway to be on that holder building period 264 00:12:57,240 --> 00:12:59,560 Speaker 1: for a little bit longer. Here, it doesn't necessarily create 265 00:12:59,600 --> 00:13:01,719 Speaker 1: saying that this is fair value right this second. There's 266 00:13:01,760 --> 00:13:04,960 Speaker 1: clearly curve construction, curve considerations where the ten year note is, 267 00:13:05,120 --> 00:13:08,080 Speaker 1: which involves term premiums, and that's obviously a factor whether 268 00:13:08,120 --> 00:13:10,040 Speaker 1: you want to be in the REDCNY. But a four 269 00:13:10,080 --> 00:13:12,720 Speaker 1: percent ten ye note, five percent to your note, those 270 00:13:12,760 --> 00:13:15,880 Speaker 1: are very different constructions of owning duration, owning bonds, which 271 00:13:15,880 --> 00:13:18,040 Speaker 1: makes it a very interesting environment. This this goes to 272 00:13:18,080 --> 00:13:20,480 Speaker 1: the herder what we were talking about two hours ago, 273 00:13:20,679 --> 00:13:23,600 Speaker 1: which is suddenly you get a higher rate, you get 274 00:13:23,600 --> 00:13:27,239 Speaker 1: some inflation, you get some nominal GDP, and things actually 275 00:13:27,240 --> 00:13:31,080 Speaker 1: work out better. Giving Powell and Laguard breathing room, this 276 00:13:31,240 --> 00:13:34,080 Speaker 1: is transformational. I'm not sure anything about what's happening right 277 00:13:34,120 --> 00:13:36,760 Speaker 1: now gives panel to God breathing room back what's happening 278 00:13:36,880 --> 00:13:41,280 Speaker 1: Canno with actually recently all right? Was that correction are correct? 279 00:13:41,760 --> 00:13:47,559 Speaker 1: Sur corrections rare? Thank you, it's good to see you, undimcut. 280 00:13:58,520 --> 00:14:00,480 Speaker 1: Lindsay Piggs is on her fourth we do with the 281 00:14:00,600 --> 00:14:03,280 Speaker 1: architect on the blowout of the kitchen in Wisconsin and 282 00:14:03,360 --> 00:14:06,840 Speaker 1: joins us today here in New York chief economist at Steple. 283 00:14:06,880 --> 00:14:09,320 Speaker 1: What's the mood of the consumer? I mean, is there 284 00:14:10,080 --> 00:14:13,040 Speaker 1: in New York here? We clearly get this effervescence that's 285 00:14:13,080 --> 00:14:15,240 Speaker 1: out there. The residents are packed, etc. You know the 286 00:14:15,320 --> 00:14:19,040 Speaker 1: drill as well. Is it legit nationwide? Well, it's interesting 287 00:14:19,040 --> 00:14:21,680 Speaker 1: because we did see that pop and consumer activity at 288 00:14:21,680 --> 00:14:23,320 Speaker 1: the start of the year, but at the same time, 289 00:14:23,360 --> 00:14:26,560 Speaker 1: we saw consumer confidence tick down at the start of 290 00:14:26,560 --> 00:14:29,560 Speaker 1: the year. So it doesn't appear as if the consumer 291 00:14:29,720 --> 00:14:33,600 Speaker 1: is increasingly confident in their financial footing. It appears more 292 00:14:33,640 --> 00:14:36,880 Speaker 1: as if we're seeing the consumer's last stand, if you will, 293 00:14:37,160 --> 00:14:40,080 Speaker 1: As households are drawing down the very last of savings, 294 00:14:40,360 --> 00:14:43,240 Speaker 1: they're ramping up credit card debt. Now this doesn't mean 295 00:14:43,240 --> 00:14:45,960 Speaker 1: that it's a one month off. We could see continued 296 00:14:46,000 --> 00:14:49,120 Speaker 1: strength then in February, maybe even March, but this is 297 00:14:49,200 --> 00:14:53,720 Speaker 1: not a lasting trend of robust activity on the consumer part. 298 00:14:53,840 --> 00:14:56,120 Speaker 1: So some people will push back inevitably since that's what 299 00:14:56,160 --> 00:14:59,360 Speaker 1: the market is doing, pushing back against your view and saying, well, 300 00:14:59,400 --> 00:15:01,560 Speaker 1: if you look at all of the inflation data, it's 301 00:15:01,560 --> 00:15:04,560 Speaker 1: come in surprisingly hot again and again. What can give 302 00:15:04,640 --> 00:15:07,680 Speaker 1: us confidence that is that this is just the last 303 00:15:07,720 --> 00:15:12,640 Speaker 1: gasp before a more protracted disinflation and more protracted decline. Oh, 304 00:15:12,680 --> 00:15:14,360 Speaker 1: I don't think we have the confidence right now, and 305 00:15:14,400 --> 00:15:16,480 Speaker 1: certainly from the Fed's point of view, we're not seeing 306 00:15:16,480 --> 00:15:18,760 Speaker 1: that in the inflation data. So they're going to have 307 00:15:18,800 --> 00:15:23,240 Speaker 1: to see a market decline in consumer activity translating into 308 00:15:23,280 --> 00:15:27,720 Speaker 1: then significant job destruction in order to see confidence in 309 00:15:28,200 --> 00:15:31,040 Speaker 1: the sense that wage pressures are coming down. Now. Earlier 310 00:15:31,040 --> 00:15:33,760 Speaker 1: we were talking about services, and for the FED, that's 311 00:15:33,800 --> 00:15:37,680 Speaker 1: where the focus lies in core services, excluded housing. They 312 00:15:37,800 --> 00:15:40,360 Speaker 1: want to see that proxy for the wage price spiral 313 00:15:40,720 --> 00:15:44,040 Speaker 1: show improvement, and we just haven't seen that yet. So 314 00:15:44,120 --> 00:15:46,440 Speaker 1: while we are confident that is the FED continues to 315 00:15:46,520 --> 00:15:49,600 Speaker 1: raise rates, the economy will slow, and by extension, the 316 00:15:49,640 --> 00:15:52,840 Speaker 1: consumer will slow, there's still a considerable amount of work 317 00:15:52,880 --> 00:15:56,520 Speaker 1: left to be done. Let's talk about long and variable lags. 318 00:15:56,600 --> 00:15:58,960 Speaker 1: This question around when we'll start to see the bulk 319 00:15:59,120 --> 00:16:01,600 Speaker 1: of some of the rate rises that already have taken place. 320 00:16:01,640 --> 00:16:04,400 Speaker 1: Tom was talking about that Dallas FED survey on housing 321 00:16:04,840 --> 00:16:08,480 Speaker 1: potentially declining by twenty percent in valuations as a response 322 00:16:08,480 --> 00:16:10,840 Speaker 1: in a response to what we're seeing in mortgage rates. 323 00:16:11,080 --> 00:16:14,480 Speaker 1: Can you talk about how long those lags are before 324 00:16:14,480 --> 00:16:16,160 Speaker 1: we start to see some sort of repricing based in 325 00:16:16,160 --> 00:16:18,320 Speaker 1: the fact that people aren't moving around. They've got locked 326 00:16:18,320 --> 00:16:20,200 Speaker 1: in mortgage rates that are very low and they're not 327 00:16:20,280 --> 00:16:24,480 Speaker 1: moving well. Traditionally, the impact from earlier policy metrics take 328 00:16:24,560 --> 00:16:28,760 Speaker 1: about six to nine months to filter into financial markets, 329 00:16:29,160 --> 00:16:32,640 Speaker 1: but now, arguably that lag is much shorter. If you 330 00:16:32,680 --> 00:16:35,480 Speaker 1: think about all of the transparency that we have with 331 00:16:35,520 --> 00:16:38,560 Speaker 1: the FED. We didn't have a press conference at every 332 00:16:38,560 --> 00:16:40,640 Speaker 1: FED meeting in the past. We didn't have a summary 333 00:16:40,640 --> 00:16:44,280 Speaker 1: of economic projections every quarter. We didn't have every FETE 334 00:16:44,280 --> 00:16:47,600 Speaker 1: official taking the stage at every opportunity to explain not 335 00:16:47,720 --> 00:16:49,560 Speaker 1: only what the FED has done, but what they're going 336 00:16:49,600 --> 00:16:53,560 Speaker 1: to do. So arguably there's an anticipatory nature of financial 337 00:16:53,600 --> 00:16:57,640 Speaker 1: market reactions, and I do think that has significantly reduced 338 00:16:57,760 --> 00:17:00,000 Speaker 1: the lag, or the need for the FED to pause 339 00:17:00,200 --> 00:17:03,040 Speaker 1: and take a look back. One of microeconomic foundations here 340 00:17:03,360 --> 00:17:07,359 Speaker 1: is just as one example, oversupply solves oversupply, and to 341 00:17:07,480 --> 00:17:09,719 Speaker 1: carry it over doctor Terry Weisman who was with us 342 00:17:09,720 --> 00:17:13,440 Speaker 1: with mcquarie earlier, and he said high inflation can solve 343 00:17:13,480 --> 00:17:18,040 Speaker 1: high inflation. Oliver Chen at TD Cowen published moments ago 344 00:17:18,720 --> 00:17:24,800 Speaker 1: that he observes costco seeing finally food disinflation in America. 345 00:17:25,160 --> 00:17:29,119 Speaker 1: Does high inflation solve high inflation? It could on the 346 00:17:29,160 --> 00:17:32,119 Speaker 1: supply side, but on the demand side, what we're seeing 347 00:17:32,200 --> 00:17:35,719 Speaker 1: is this lingering imbalance between labor demand and labor supply, 348 00:17:36,000 --> 00:17:38,879 Speaker 1: and that will not be solved by high inflation. That 349 00:17:39,000 --> 00:17:42,240 Speaker 1: becomes the wage price spiral that the FED so greatly fears, 350 00:17:42,480 --> 00:17:46,000 Speaker 1: where high inflation leads to even higher inflation. So for 351 00:17:46,040 --> 00:17:48,640 Speaker 1: the Fed, I don't think simply standing by the wayside 352 00:17:48,640 --> 00:17:51,879 Speaker 1: and allowing natural markets to clear itself will be a 353 00:17:51,920 --> 00:17:54,000 Speaker 1: long term solution. Do you think it's realistic that the 354 00:17:54,000 --> 00:17:56,719 Speaker 1: Fed could get to six percent in the FED funds rate? Absolutely? 355 00:17:56,760 --> 00:18:01,320 Speaker 1: That has been our long standing call for the terminal rate. Absolutely. Okay, 356 00:18:01,359 --> 00:18:03,879 Speaker 1: So at what point do they sort of signal that 357 00:18:03,920 --> 00:18:06,480 Speaker 1: to markets? Because that is significantly above where the market 358 00:18:06,520 --> 00:18:09,240 Speaker 1: has retraced too, and we have seen a big repricing 359 00:18:09,280 --> 00:18:12,160 Speaker 1: this week. What kicks them up to that level? Well, 360 00:18:12,200 --> 00:18:14,760 Speaker 1: I think they're slowly making their way, but they don't 361 00:18:14,800 --> 00:18:18,120 Speaker 1: want to overpromise in terms of the terminal rate. If 362 00:18:18,160 --> 00:18:21,920 Speaker 1: in fact inflation does so, excuse me, does show market improvement. 363 00:18:22,200 --> 00:18:24,240 Speaker 1: But given the fact that the market and the FED 364 00:18:24,320 --> 00:18:28,120 Speaker 1: consistently underestimates the sticky nature of inflation, what we've seen 365 00:18:28,200 --> 00:18:31,400 Speaker 1: is the FED consistently revised higher. Their forecast now two 366 00:18:31,520 --> 00:18:34,560 Speaker 1: hundred and thirty basis points higher than that initial forecast 367 00:18:34,840 --> 00:18:37,440 Speaker 1: in March of last year. Might help me here. You know, 368 00:18:37,520 --> 00:18:40,120 Speaker 1: we've got a huge formula one weekend and we were 369 00:18:40,160 --> 00:18:42,600 Speaker 1: so honored to have Christian Horner where this from Red 370 00:18:42,640 --> 00:18:45,600 Speaker 1: Bull with us on Monday after the race. Did I 371 00:18:45,640 --> 00:18:49,080 Speaker 1: miss the memo that we have to dress Ferrari today? 372 00:18:48,760 --> 00:18:51,920 Speaker 1: Did I miss? Did I miss the memo? I mean 373 00:18:52,840 --> 00:18:56,320 Speaker 1: it's just like it's like Red Wow on radio. We 374 00:18:56,359 --> 00:18:58,320 Speaker 1: have two lovely ladies in red I mean, yeah, I 375 00:18:58,359 --> 00:19:02,320 Speaker 1: just love dressing Ferrari is fine and they're all Ferrari. Mark, 376 00:19:02,359 --> 00:19:03,879 Speaker 1: you listen to this. What do you think of this? 377 00:19:04,040 --> 00:19:08,120 Speaker 1: What do you think of this? Inflation solves high inflation. Well, 378 00:19:08,119 --> 00:19:10,800 Speaker 1: I mean that's an old line about the cure for 379 00:19:10,880 --> 00:19:13,560 Speaker 1: high commodity prices is high commodity prices, because then it 380 00:19:13,600 --> 00:19:17,480 Speaker 1: brings more people in more supply, and so prices come down. 381 00:19:17,640 --> 00:19:21,120 Speaker 1: And I think that's probably what's going to happen eventually. 382 00:19:21,200 --> 00:19:24,199 Speaker 1: The question is how long it takes for inflation to 383 00:19:24,200 --> 00:19:27,000 Speaker 1: come down, and how sticky it is, and how much 384 00:19:27,040 --> 00:19:29,840 Speaker 1: the Fed thinks it can affect that by continuing to 385 00:19:29,920 --> 00:19:33,520 Speaker 1: raise interest rates. Their view is they're pretty close to 386 00:19:34,040 --> 00:19:38,359 Speaker 1: restrictive enough. They're not sure if they're restrictive. Ye, yet 387 00:19:38,440 --> 00:19:41,040 Speaker 1: they're right on the line. So do they go to 388 00:19:41,080 --> 00:19:43,719 Speaker 1: six percent? I think it'd be a slow process for 389 00:19:43,760 --> 00:19:46,680 Speaker 1: them to do that and to talk about it, because, 390 00:19:46,720 --> 00:19:49,080 Speaker 1: as Lindsay says, you don't want to overpromise, and indrices, well, 391 00:19:49,080 --> 00:19:52,000 Speaker 1: why didn't you go to six percent if suddenly we 392 00:19:52,080 --> 00:19:55,119 Speaker 1: see things to start to turn around? But Lindsay, I 393 00:19:55,160 --> 00:19:56,840 Speaker 1: don't want to go back to something to Jerome Schneider 394 00:19:57,000 --> 00:19:58,920 Speaker 1: was talking about if Pimco that if we were to 395 00:19:58,920 --> 00:20:02,119 Speaker 1: get to six percent, that would perhaps get us that 396 00:20:02,200 --> 00:20:04,600 Speaker 1: much closer to a hard landing. Right that then further 397 00:20:04,640 --> 00:20:08,080 Speaker 1: the Fed has to go. The more you're almost securing 398 00:20:08,280 --> 00:20:11,280 Speaker 1: a very difficult situation for this economy. Is that what 399 00:20:11,280 --> 00:20:14,000 Speaker 1: you're saying that that's almost the base case for you 400 00:20:14,280 --> 00:20:15,760 Speaker 1: at a time when a lot of people might be 401 00:20:15,800 --> 00:20:19,439 Speaker 1: pushing back their accession calls but not necessarily increasing the 402 00:20:19,480 --> 00:20:21,919 Speaker 1: depth of them. I think if we do get to 403 00:20:22,040 --> 00:20:25,199 Speaker 1: a six percent rate and have to hold at six percent, 404 00:20:25,560 --> 00:20:29,119 Speaker 1: I think we're increasing the probability of a hard landing. If, however, 405 00:20:29,119 --> 00:20:31,800 Speaker 1: the FED pushes up to six percent, realizes that they're 406 00:20:31,840 --> 00:20:35,000 Speaker 1: sufficiently restrictive, and then come back to a five five 407 00:20:35,040 --> 00:20:37,320 Speaker 1: and a half percent range, we may be able to 408 00:20:37,359 --> 00:20:39,920 Speaker 1: mitigate some of the depth or duration of the downturn. 409 00:20:39,960 --> 00:20:42,399 Speaker 1: But from the FEDS point of view, a period of 410 00:20:42,400 --> 00:20:46,520 Speaker 1: pain is not only likely but necessary for the economy 411 00:20:47,119 --> 00:20:49,840 Speaker 1: reinstate price stability. But to that point, Tom, and you're 412 00:20:49,920 --> 00:20:52,679 Speaker 1: right to that point, lindsay, what kind of damage do 413 00:20:52,760 --> 00:20:56,040 Speaker 1: we see to housing valuations that haven't been gamed into 414 00:20:56,040 --> 00:20:59,159 Speaker 1: the Dallas FEDS point? We're going to see a significant 415 00:20:59,359 --> 00:21:03,439 Speaker 1: decline appsolutely. But remember when we talk about this housing 416 00:21:03,480 --> 00:21:07,640 Speaker 1: market cycle, I think it's a very maybe superficial analysis 417 00:21:07,680 --> 00:21:10,400 Speaker 1: to assume that because it's the most interest rate sensitive 418 00:21:10,440 --> 00:21:13,080 Speaker 1: sector of the economy. As the FED raises rates, the 419 00:21:13,680 --> 00:21:16,439 Speaker 1: housing market falls off a cliff. This time around, we 420 00:21:16,520 --> 00:21:19,439 Speaker 1: went into the cycle with a multi year deficit in 421 00:21:19,560 --> 00:21:22,600 Speaker 1: terms of housing stock, and so even with demand coming 422 00:21:22,600 --> 00:21:25,280 Speaker 1: off of peaks and supply arguably coming off the lows, 423 00:21:25,600 --> 00:21:28,359 Speaker 1: we still have a disconnect in the market that should 424 00:21:28,440 --> 00:21:31,439 Speaker 1: provide somewhat of a floor to this housing market cycle, 425 00:21:31,760 --> 00:21:34,400 Speaker 1: even if we continue to see downward momentum from here. 426 00:21:34,480 --> 00:21:37,919 Speaker 1: There's an interesting thing going on in the housing markets 427 00:21:37,920 --> 00:21:39,800 Speaker 1: too that I was talking to some FED officials. They've 428 00:21:39,800 --> 00:21:43,159 Speaker 1: been surprised by that a lot of builders are subsidizing 429 00:21:43,240 --> 00:21:45,600 Speaker 1: mortgage loans right now. They're doing buy downs for people 430 00:21:45,600 --> 00:21:48,600 Speaker 1: because they want to keep the business going. And we 431 00:21:48,680 --> 00:21:51,119 Speaker 1: saw a little bit of something like that with Automo 432 00:21:51,119 --> 00:21:54,000 Speaker 1: Wheels coming out of the Great Financial Crisis, where the 433 00:21:54,080 --> 00:21:57,639 Speaker 1: auto companies offered zero percent loans and kept people buying cars. 434 00:21:57,960 --> 00:22:01,840 Speaker 1: So it may be a little harder to model out 435 00:22:01,880 --> 00:22:04,240 Speaker 1: what's going to happen in the housing industry if people 436 00:22:04,280 --> 00:22:06,600 Speaker 1: are going to buy you into it. One of the 437 00:22:06,600 --> 00:22:10,080 Speaker 1: most complicated environments I could possibly imagine. Lindsay Pegska of CFL, 438 00:22:10,200 --> 00:22:12,040 Speaker 1: thank you so much for being here. Michael McKey as 439 00:22:12,040 --> 00:22:18,480 Speaker 1: always wonderful to get your comments. Katy Kamitski joins NA 440 00:22:18,600 --> 00:22:21,199 Speaker 1: chief Reset strategist to Alpha Simplex. Katie, you have been 441 00:22:21,280 --> 00:22:23,640 Speaker 1: phenomenal for the whole of last year and then into 442 00:22:23,720 --> 00:22:26,280 Speaker 1: this year. Katie, everyone's turned around. I say, everyone, you 443 00:22:26,320 --> 00:22:28,120 Speaker 1: know where I'm coming with this. A lot of people 444 00:22:28,200 --> 00:22:30,359 Speaker 1: turned around and said, it's the year of bonds, get 445 00:22:30,440 --> 00:22:34,359 Speaker 1: long fixed income, and you went shut stay shure, Ksey, 446 00:22:34,440 --> 00:22:38,359 Speaker 1: Why well, let's just focus on the fact that inflation 447 00:22:38,600 --> 00:22:41,760 Speaker 1: is looking stickier, and if we look at last year, 448 00:22:41,840 --> 00:22:43,520 Speaker 1: I think we like to see it this way, is 449 00:22:43,560 --> 00:22:46,359 Speaker 1: that the stock market and the bond market don't agree. 450 00:22:46,520 --> 00:22:49,560 Speaker 1: Right now. The stock market things everything's great. The bond 451 00:22:49,640 --> 00:22:52,920 Speaker 1: market that says, this could be dangerous. Look at the curve. 452 00:22:52,960 --> 00:22:56,400 Speaker 1: It's inverted. We could have problems. So we think last 453 00:22:56,480 --> 00:22:59,440 Speaker 1: year the bond market was right. This year it's a 454 00:22:59,480 --> 00:23:02,920 Speaker 1: little gear. We're seeing that the bond market is looking 455 00:23:02,960 --> 00:23:05,399 Speaker 1: a little weaker in the sense that stock market is 456 00:23:05,480 --> 00:23:08,520 Speaker 1: looking positive, saying hey, wait a minute, we might pause. 457 00:23:09,080 --> 00:23:12,719 Speaker 1: Either way, we're not there, which means that even if 458 00:23:12,760 --> 00:23:15,240 Speaker 1: the stock market's right and we pause, we could see 459 00:23:15,240 --> 00:23:17,960 Speaker 1: the end of the curve steep and severely, and that 460 00:23:18,040 --> 00:23:21,280 Speaker 1: would cause negative trends in the long end of the curve. 461 00:23:21,760 --> 00:23:24,000 Speaker 1: Or if the bond market's right and we're looking in 462 00:23:24,000 --> 00:23:27,439 Speaker 1: a recession and deflationary environment, then you're also looking at 463 00:23:27,560 --> 00:23:30,159 Speaker 1: higher rates, at least in the short term. So bonds 464 00:23:30,160 --> 00:23:33,680 Speaker 1: are definitely looking tricky this year, even though many a 465 00:23:33,720 --> 00:23:36,280 Speaker 1: little bit more about this short then where across the 466 00:23:36,359 --> 00:23:39,359 Speaker 1: curve is that short, more pronounces it spread evenly, Is 467 00:23:39,400 --> 00:23:43,880 Speaker 1: it a specific pocket pop point of that yield curve, Well, 468 00:23:43,920 --> 00:23:48,119 Speaker 1: generally it's pretty much short across the board across global economies, 469 00:23:48,400 --> 00:23:50,560 Speaker 1: and that in some sense tells you that we have 470 00:23:50,760 --> 00:23:53,920 Speaker 1: farther to go in terms of raising rates to either 471 00:23:54,000 --> 00:23:56,119 Speaker 1: get to a point where we can find inflation get 472 00:23:56,160 --> 00:23:58,440 Speaker 1: it to be less sticky, or we get to a 473 00:23:58,520 --> 00:24:01,040 Speaker 1: situation where central bankers throw up their hands and say 474 00:24:01,240 --> 00:24:05,360 Speaker 1: we're going to tolerate a higher inflation level. And either 475 00:24:05,480 --> 00:24:07,520 Speaker 1: of those is going to be very tricky for fixed 476 00:24:07,560 --> 00:24:10,919 Speaker 1: cash flows, which means that bond signals in general remain 477 00:24:11,080 --> 00:24:13,960 Speaker 1: short on the technical side, even though the fundamental side, 478 00:24:14,040 --> 00:24:16,560 Speaker 1: many people are starting to get interested. Katie, Let's have 479 00:24:16,680 --> 00:24:19,879 Speaker 1: fun on Friday. Let's channel Wells Wilder who invented so 480 00:24:20,040 --> 00:24:22,040 Speaker 1: much of this in nineteen seventy eight. I know you 481 00:24:22,160 --> 00:24:25,600 Speaker 1: named your dog average to range, Katie. The answer is 482 00:24:25,680 --> 00:24:29,920 Speaker 1: there's been a magnificent trend of higher yield. I was 483 00:24:29,960 --> 00:24:32,920 Speaker 1: shocked to go to the Bloomberg and under one technical 484 00:24:33,000 --> 00:24:35,920 Speaker 1: study ad x DMI see that A the trends in 485 00:24:36,080 --> 00:24:39,800 Speaker 1: place and we're really in a good position to continue 486 00:24:39,920 --> 00:24:43,440 Speaker 1: the trend out there. How do you use that kind 487 00:24:43,520 --> 00:24:49,440 Speaker 1: of mumbo jumbo to stay in a trend once you've profited. Well, 488 00:24:49,480 --> 00:24:52,080 Speaker 1: that's a good point. I mean, I'll be honest. January 489 00:24:52,240 --> 00:24:55,719 Speaker 1: was a period where we saw consolidation. People thought yields 490 00:24:55,760 --> 00:24:58,240 Speaker 1: were not going to go higher, And it's really about 491 00:24:58,359 --> 00:25:01,880 Speaker 1: balancing the long term and term views. And what we've 492 00:25:01,920 --> 00:25:04,280 Speaker 1: seen is longer term views are saying we're in a 493 00:25:04,359 --> 00:25:08,159 Speaker 1: secular move towards higher rates, and we're not there yet. 494 00:25:08,240 --> 00:25:10,600 Speaker 1: I think the equity market also likes to be quick 495 00:25:10,680 --> 00:25:12,880 Speaker 1: to say that things are over so I think it's 496 00:25:12,920 --> 00:25:18,200 Speaker 1: really about balancing multiple perspectives and seeing things over time 497 00:25:18,280 --> 00:25:20,720 Speaker 1: as opposed to reacting too quickly. What are you looking for, 498 00:25:20,920 --> 00:25:24,399 Speaker 1: Katie to unwind too short bet on rates? Well, I 499 00:25:24,440 --> 00:25:27,240 Speaker 1: think The biggest is if the stock market wins, aka, 500 00:25:27,760 --> 00:25:31,600 Speaker 1: if central bankers step back like we saw commentary yesterday 501 00:25:31,880 --> 00:25:34,560 Speaker 1: and say wait a minute, we're going to tolerate more inflation. 502 00:25:35,080 --> 00:25:37,119 Speaker 1: What that means is that you're going to see a 503 00:25:37,160 --> 00:25:39,120 Speaker 1: steepening of the curve. So you're going to see sort 504 00:25:39,119 --> 00:25:42,240 Speaker 1: of the bottom of the short end of the short 505 00:25:42,320 --> 00:25:45,200 Speaker 1: end of the curve, So shorter term rates will be stickier, 506 00:25:45,280 --> 00:25:47,359 Speaker 1: and then you'll start to see people actually take on 507 00:25:48,160 --> 00:25:50,560 Speaker 1: higher yields and then bond. But that's going to mean 508 00:25:50,640 --> 00:25:52,360 Speaker 1: that longer term yields are gonna have to go up 509 00:25:52,600 --> 00:25:56,440 Speaker 1: to compensate for that risk over longer terms. So I 510 00:25:56,560 --> 00:25:58,680 Speaker 1: think that's where you're going to see the shorts disappearing 511 00:25:58,720 --> 00:26:00,560 Speaker 1: on the short end of the curve. You're gonna still 512 00:26:00,600 --> 00:26:02,960 Speaker 1: see some strong signals on the long end of the 513 00:26:03,040 --> 00:26:07,760 Speaker 1: curve as the market moves to a higher inflation tolerance environment. Katie, 514 00:26:07,800 --> 00:26:09,800 Speaker 1: can you talk a little bit about the long end 515 00:26:09,920 --> 00:26:11,760 Speaker 1: and where you see the range, because right now we 516 00:26:11,840 --> 00:26:14,280 Speaker 1: have a growing number of bond strategists saying that we 517 00:26:14,440 --> 00:26:17,400 Speaker 1: possibly are at the peaks, and you're suggesting we're far 518 00:26:17,600 --> 00:26:21,080 Speaker 1: from them. How far well? I think it will definitely 519 00:26:21,080 --> 00:26:23,560 Speaker 1: be a situation if we had a healthy yield curve 520 00:26:23,640 --> 00:26:26,720 Speaker 1: which we could see, and we were to tolerate higher inflation, 521 00:26:26,840 --> 00:26:29,680 Speaker 1: you could imagine that you had the longer term rates 522 00:26:29,720 --> 00:26:32,200 Speaker 1: going up several percent above what you see on the 523 00:26:32,280 --> 00:26:35,119 Speaker 1: two year. I mean that would sort of symbolize a 524 00:26:35,280 --> 00:26:39,480 Speaker 1: very stable environment with higher inflation, whereas I don't think 525 00:26:39,520 --> 00:26:42,160 Speaker 1: you're seeing that yet, but that would be an environment 526 00:26:42,200 --> 00:26:45,160 Speaker 1: where basically we give up on trying to find inflation 527 00:26:45,240 --> 00:26:48,040 Speaker 1: down to two and thus the risk premium on the 528 00:26:48,119 --> 00:26:50,080 Speaker 1: longer end has to go up and you have to 529 00:26:50,160 --> 00:26:52,920 Speaker 1: get a longer yield if you don't expect yields to 530 00:26:53,160 --> 00:26:57,320 Speaker 1: go up or inflation to go down in the longer term. Katy, 531 00:26:57,359 --> 00:27:00,359 Speaker 1: you've just been phenomenal. Thanks for being with a sismonic shadow. 532 00:27:00,400 --> 00:27:03,520 Speaker 1: And let's cant shout more often, Katy Kamiskia of Alpha Simplex. 533 00:27:13,840 --> 00:27:17,320 Speaker 1: Terry Weisman is out of Vasser and out of Harvard. 534 00:27:17,359 --> 00:27:20,760 Speaker 1: We had the privilege of being in the same corridors. 535 00:27:21,000 --> 00:27:23,320 Speaker 1: Is Benjamin Freedman. I'm going to go back right now 536 00:27:23,400 --> 00:27:27,960 Speaker 1: to the gentleman strategist at Macquarie, to Benjamin Freedman's great 537 00:27:28,000 --> 00:27:32,320 Speaker 1: the consequences the moral consequences of growth. I want you 538 00:27:32,400 --> 00:27:34,840 Speaker 1: to sum up today where we are, and that is 539 00:27:34,920 --> 00:27:40,480 Speaker 1: the consequences of pandemic stimulus that include that broadening inflation. Yeah, 540 00:27:40,720 --> 00:27:43,800 Speaker 1: in some respect, what policymakers did during the pandemic has 541 00:27:43,840 --> 00:27:46,800 Speaker 1: turned out to be a disaster. I think that what 542 00:27:47,119 --> 00:27:49,080 Speaker 1: they were thinking was they were looking back on the 543 00:27:49,119 --> 00:27:52,840 Speaker 1: past ten years and saw very little relationship between unemployment 544 00:27:52,880 --> 00:27:55,800 Speaker 1: and inflation. They saw, as a result of the big 545 00:27:56,119 --> 00:28:00,240 Speaker 1: increase in monetary balances coming out of the GFC, really 546 00:28:00,320 --> 00:28:03,600 Speaker 1: no inflation, and they thought they could effectively repeat that experiment, 547 00:28:04,000 --> 00:28:06,320 Speaker 1: and it's been proven to be wrong. I think it 548 00:28:06,440 --> 00:28:08,240 Speaker 1: was wrong this time around because it wasn't just a 549 00:28:08,359 --> 00:28:12,040 Speaker 1: monetary experiment. It was an experiment combined with a fiscal experiment. 550 00:28:12,400 --> 00:28:15,800 Speaker 1: In other words, excessive fiscal spending not just in the 551 00:28:15,840 --> 00:28:19,439 Speaker 1: Western world, but across the developed markets and the emerging markets. 552 00:28:19,640 --> 00:28:22,760 Speaker 1: At the same time expansive monetary policy in the emerging 553 00:28:22,800 --> 00:28:25,240 Speaker 1: market and developed markets. So we have a global inflation 554 00:28:25,320 --> 00:28:27,800 Speaker 1: problem as a result of this. The good news, if 555 00:28:27,840 --> 00:28:29,840 Speaker 1: there is any is that there are you know, there 556 00:28:29,920 --> 00:28:32,640 Speaker 1: are ways to stop inflations. There were really two ways. 557 00:28:32,680 --> 00:28:35,080 Speaker 1: In fact, one of them is to tighten monetary policy 558 00:28:35,119 --> 00:28:37,080 Speaker 1: for the other the other way, Interestingly enough, it is 559 00:28:37,080 --> 00:28:39,880 Speaker 1: actually to let the inflation happen, because when you do that, 560 00:28:40,120 --> 00:28:44,120 Speaker 1: real monetary balances start to shrink. And when real monetary 561 00:28:44,120 --> 00:28:47,560 Speaker 1: balances shrink, the consumer feels squeezed. And you can see 562 00:28:47,600 --> 00:28:49,400 Speaker 1: that in the US data right if you look at 563 00:28:49,480 --> 00:28:53,760 Speaker 1: real monetary balances measured by commercial deposits should say bank 564 00:28:53,800 --> 00:28:57,160 Speaker 1: deposits commercial banks in the US, they're almost back to 565 00:28:57,240 --> 00:29:00,880 Speaker 1: their trend level. Part of that is the quantitative tightening 566 00:29:00,920 --> 00:29:02,760 Speaker 1: that we've seen over the last few months, but most 567 00:29:02,800 --> 00:29:05,120 Speaker 1: of that is the inflation that's already happened. In other words, 568 00:29:05,160 --> 00:29:08,560 Speaker 1: by virtue of having inflation, you eventually slow down and 569 00:29:08,760 --> 00:29:11,800 Speaker 1: reduce the real balances and the consumer feels squeeze. One 570 00:29:11,840 --> 00:29:13,400 Speaker 1: of the reasons why I think that we're going to 571 00:29:13,480 --> 00:29:16,000 Speaker 1: see a resumption of the trend in disinflation in the 572 00:29:16,160 --> 00:29:19,360 Speaker 1: US is for that very reason. Europe, on the other hand, 573 00:29:19,520 --> 00:29:23,200 Speaker 1: is another story. They're just starting their QT. Let's go 574 00:29:23,240 --> 00:29:26,080 Speaker 1: to Chicago on this. How do you overlay? As you mentioned, 575 00:29:26,320 --> 00:29:29,320 Speaker 1: the monetary balance is how do you overlay as stunning 576 00:29:29,880 --> 00:29:33,800 Speaker 1: increase and then stunning decline we've seen in M two. God, 577 00:29:33,800 --> 00:29:36,440 Speaker 1: Milton Friedman on us right now? Is that of value 578 00:29:36,520 --> 00:29:38,840 Speaker 1: to you to see M two as such a plunge? 579 00:29:39,080 --> 00:29:41,000 Speaker 1: It is, And I have to admit that, you know, 580 00:29:41,120 --> 00:29:42,959 Speaker 1: posted GFC, I might have been one of those who 581 00:29:43,040 --> 00:29:45,480 Speaker 1: thought that money was no longer important. I might have 582 00:29:45,520 --> 00:29:48,120 Speaker 1: abandoned the old monitoris view coming out of the University 583 00:29:48,120 --> 00:29:51,480 Speaker 1: of Chicago because the data simply didn't didn't support it. 584 00:29:51,800 --> 00:29:54,880 Speaker 1: The correlations didn't support it, the trends didn't support it. 585 00:29:55,320 --> 00:29:59,640 Speaker 1: But now we see a resumption of validity in the 586 00:29:59,680 --> 00:30:02,520 Speaker 1: monit to a story that money does matter. And we 587 00:30:02,720 --> 00:30:05,040 Speaker 1: probably got to a point where those real monetary balances 588 00:30:05,040 --> 00:30:07,160 Speaker 1: in the US got to about twenty percent above the 589 00:30:07,240 --> 00:30:10,280 Speaker 1: trend line. Well guess what that would necessary? That would 590 00:30:10,360 --> 00:30:12,640 Speaker 1: you know, you know, back of the envelope, That would 591 00:30:12,640 --> 00:30:14,840 Speaker 1: imply that we're going to see a twenty percent increase 592 00:30:14,880 --> 00:30:17,440 Speaker 1: in prices over and above the trend line for CPI. 593 00:30:17,800 --> 00:30:21,120 Speaker 1: It's not so far from where we've gotten to, right um. 594 00:30:21,440 --> 00:30:23,720 Speaker 1: And But but again, the good news is that it's 595 00:30:23,760 --> 00:30:27,040 Speaker 1: being unwound here certainly not in other places, but in 596 00:30:27,040 --> 00:30:29,600 Speaker 1: the US it is. So let's talk about the unwinding process, 597 00:30:29,680 --> 00:30:32,440 Speaker 1: because there has been percolating on the peripherise this question 598 00:30:32,520 --> 00:30:35,280 Speaker 1: of unwinding the balance sheet about the ECB and the 599 00:30:35,440 --> 00:30:38,080 Speaker 1: US more quickly than people have previously thought, that that 600 00:30:38,120 --> 00:30:40,400 Speaker 1: will be the primary tool over the next nine to 601 00:30:40,520 --> 00:30:43,959 Speaker 1: twelve months, rather than rate hikes. How much higher does 602 00:30:44,000 --> 00:30:47,360 Speaker 1: that push longer and rates both in the US and 603 00:30:47,560 --> 00:30:50,280 Speaker 1: in Europe. Well, you can you can say that by 604 00:30:50,360 --> 00:30:52,680 Speaker 1: virtue of quant tightening, we were going to see the 605 00:30:52,800 --> 00:30:57,440 Speaker 1: central banks no longer buying bonds and eventually potentially even 606 00:30:57,480 --> 00:30:59,920 Speaker 1: selling their bonds. But that that's running up against the 607 00:31:00,120 --> 00:31:02,280 Speaker 1: other problem, which is the problem of a slowing economy. 608 00:31:02,280 --> 00:31:04,600 Speaker 1: And I'm not exactly sure which is going to dominate, 609 00:31:04,640 --> 00:31:06,480 Speaker 1: but I think for the next three to six months, 610 00:31:06,800 --> 00:31:09,000 Speaker 1: we're probably going to see lower yields in the US, 611 00:31:09,120 --> 00:31:12,000 Speaker 1: not higher yields. I know this is not necessarily the 612 00:31:12,160 --> 00:31:15,200 Speaker 1: vogue thing to say right now. The ten year yield 613 00:31:15,240 --> 00:31:18,320 Speaker 1: just reach a cyclical high of four point one yesterday, 614 00:31:18,560 --> 00:31:20,600 Speaker 1: but keep in mind. My view is that we're going 615 00:31:20,680 --> 00:31:22,640 Speaker 1: to see a slowdown in the US economy in the 616 00:31:22,720 --> 00:31:24,959 Speaker 1: next few months, and it will be significant. I think 617 00:31:25,000 --> 00:31:27,240 Speaker 1: in many sectors we're already seeing it. Technology is certainly 618 00:31:27,240 --> 00:31:30,360 Speaker 1: in a recessionary environment right now, all new economy sectors 619 00:31:30,400 --> 00:31:33,959 Speaker 1: are finance potentially as well housing certainly, so that's going 620 00:31:34,000 --> 00:31:37,320 Speaker 1: to broaden. And I think we're looking at peak ten 621 00:31:37,360 --> 00:31:38,880 Speaker 1: year yields right now. I think they're going to start 622 00:31:38,880 --> 00:31:41,000 Speaker 1: heading down over the next three to six months. Not 623 00:31:41,120 --> 00:31:43,480 Speaker 1: by a lot, mind you. Okay, but this has important 624 00:31:43,520 --> 00:31:46,320 Speaker 1: implications for a yield curve that has been deeply inverted. 625 00:31:46,520 --> 00:31:48,560 Speaker 1: And does this mean that it gets even more so 626 00:31:48,760 --> 00:31:51,600 Speaker 1: substantially more inverted. Potentially, yes, But keep in mind it 627 00:31:51,640 --> 00:31:53,960 Speaker 1: depends how you measure that inversion. If it's two's to tens, 628 00:31:54,080 --> 00:31:56,320 Speaker 1: and by the time we rolled you three months from now, 629 00:31:56,480 --> 00:31:59,440 Speaker 1: you know the fattest signaling that's about to stop hiking rates, well, 630 00:31:59,600 --> 00:32:02,600 Speaker 1: that inversion may stop on a TuS to tens basis, 631 00:32:02,640 --> 00:32:04,320 Speaker 1: it may still persist on a three month to ten 632 00:32:04,440 --> 00:32:06,760 Speaker 1: year yield curve basis. So it's Terry, what I'm hearing 633 00:32:06,800 --> 00:32:09,040 Speaker 1: from you is that right, differentials between Europe the Anonis 634 00:32:09,080 --> 00:32:11,400 Speaker 1: states could narrow and if they do, web with that 635 00:32:11,480 --> 00:32:15,760 Speaker 1: leaf phone exchange, So that's that's absolutely right. You could 636 00:32:15,800 --> 00:32:18,600 Speaker 1: see higher yields in Europe still because they've been late 637 00:32:18,760 --> 00:32:21,880 Speaker 1: to addressing the inflation issue, and inflation is higher there 638 00:32:22,200 --> 00:32:24,080 Speaker 1: on top of that. And I would make even a 639 00:32:24,160 --> 00:32:25,960 Speaker 1: case that the esoteric truth out there is that the 640 00:32:26,000 --> 00:32:29,640 Speaker 1: European economy is actually stronger than the US economy right now. Yes, 641 00:32:29,840 --> 00:32:31,560 Speaker 1: believe it or not, it may very well be. Look 642 00:32:31,600 --> 00:32:33,920 Speaker 1: at the PMIS this morning on the services side, they 643 00:32:34,080 --> 00:32:35,760 Speaker 1: there's a potential that they come in in line with 644 00:32:35,840 --> 00:32:39,000 Speaker 1: the US. Remember, Europe is coming out of its funk 645 00:32:39,120 --> 00:32:41,240 Speaker 1: that it experienced in Q four by virtue of the 646 00:32:41,360 --> 00:32:44,360 Speaker 1: of the winter emergency. It has China backing it up 647 00:32:44,360 --> 00:32:46,880 Speaker 1: all of a sudden with its stimulus. It's very possible 648 00:32:46,880 --> 00:32:48,640 Speaker 1: that the European economy is doing a little bit better 649 00:32:48,720 --> 00:32:50,480 Speaker 1: than the US right now in terms of growth, and 650 00:32:50,640 --> 00:32:53,560 Speaker 1: that all supports higher yields in the Euro Area versus 651 00:32:53,600 --> 00:32:55,880 Speaker 1: the US, at least on a relative basis twenty seconds. 652 00:32:56,040 --> 00:32:59,240 Speaker 1: How long could Europe remain stronger economically than the US 653 00:32:59,280 --> 00:33:01,760 Speaker 1: in your view, well until we finally start to see 654 00:33:01,840 --> 00:33:04,080 Speaker 1: some real tightening by the ECB, and we haven't seen 655 00:33:04,160 --> 00:33:06,200 Speaker 1: that yet. I mean, you know, if Tom was talking 656 00:33:06,200 --> 00:33:10,280 Speaker 1: about nine percent inflation headline basis in the Euro Area, 657 00:33:10,720 --> 00:33:12,760 Speaker 1: the deposit rates two and a half, I mean those 658 00:33:12,760 --> 00:33:15,160 Speaker 1: are the kind of negative real rates that you would 659 00:33:15,160 --> 00:33:18,080 Speaker 1: expect from a rogue central bank a Turkey for example. 660 00:33:18,120 --> 00:33:20,000 Speaker 1: I hate to use that term, but I can't find 661 00:33:20,000 --> 00:33:23,680 Speaker 1: a better one. At this point, it looks blotically. You 662 00:33:23,720 --> 00:33:25,600 Speaker 1: can make a case that the ECB has gotten rogue 663 00:33:25,640 --> 00:33:28,760 Speaker 1: and it's just finally starting to get back inst It's really, 664 00:33:28,760 --> 00:33:31,520 Speaker 1: it's only really since December that Christine Lagarde has really 665 00:33:31,560 --> 00:33:34,120 Speaker 1: emphasized the need to address the inflation issue. And I 666 00:33:34,200 --> 00:33:35,720 Speaker 1: think it was that time, you know, just really two 667 00:33:35,760 --> 00:33:38,240 Speaker 1: months ago the she, you know, to her credit, started 668 00:33:38,280 --> 00:33:39,880 Speaker 1: to realize that this was there was a broadening of 669 00:33:39,920 --> 00:33:41,720 Speaker 1: the inflation December was strung and then we had the 670 00:33:41,800 --> 00:33:43,440 Speaker 1: last mate, which was kind of developed where she said 671 00:33:43,440 --> 00:33:45,880 Speaker 1: that risks around the inflation outlook had become more balanced. 672 00:33:45,880 --> 00:33:48,920 Speaker 1: I wonder if that gets revised. I meant structurally, there 673 00:33:48,920 --> 00:33:50,480 Speaker 1: are a bunch of problems that are point to higher 674 00:33:50,480 --> 00:33:52,680 Speaker 1: inflation in your area as well, right, I mean, you 675 00:33:52,760 --> 00:33:55,840 Speaker 1: know Cornell University as an institute that does fantastic work 676 00:33:55,880 --> 00:33:58,400 Speaker 1: on just tracking labor action, labor strikes in the US. Well, 677 00:33:58,440 --> 00:34:01,080 Speaker 1: guess what it peaked in the summer. Yes, Since then, 678 00:34:01,280 --> 00:34:04,280 Speaker 1: labor has become less agitated in the US, less active, 679 00:34:04,440 --> 00:34:07,880 Speaker 1: less strike oriented, different than in Europe right now. Look 680 00:34:07,920 --> 00:34:10,400 Speaker 1: at the UK, they're worried about more strikes. Francis just 681 00:34:10,480 --> 00:34:13,320 Speaker 1: getting through a wave of them right now. Wage pressures 682 00:34:13,320 --> 00:34:15,440 Speaker 1: are higher in your area right now than the r 683 00:34:15,480 --> 00:34:17,279 Speaker 1: in US. Was not that case in the summer. It 684 00:34:17,400 --> 00:34:19,080 Speaker 1: is the case against the club. I got to squeeze 685 00:34:19,080 --> 00:34:21,840 Speaker 1: it in again. You're at tull'st one of six. Everything 686 00:34:21,880 --> 00:34:24,920 Speaker 1: you've said just screamed stronger Europe doesn't stronger euro So 687 00:34:25,040 --> 00:34:26,560 Speaker 1: what's your talk is? Yeah, for the next for the 688 00:34:26,640 --> 00:34:28,879 Speaker 1: next two or three or four months into the middle 689 00:34:28,880 --> 00:34:30,120 Speaker 1: of the year, I think we get back up to 690 00:34:30,200 --> 00:34:32,239 Speaker 1: that one ten level in the Europe Okay, right, Yeah, 691 00:34:32,440 --> 00:34:36,759 Speaker 1: nothing too dramatic, nothing too dramatic. Remember, if the world 692 00:34:36,800 --> 00:34:38,719 Speaker 1: goes into recession, that tends to be good for the dollars. 693 00:34:38,760 --> 00:34:40,400 Speaker 1: You have to consider that's going to offset that, that 694 00:34:40,640 --> 00:34:43,280 Speaker 1: that upward pressure on these terry. This was great, just fantastic, 695 00:34:43,440 --> 00:34:46,040 Speaker 1: my pleasure, your perspective, pretty original. Right now. I've got 696 00:34:46,120 --> 00:34:49,160 Speaker 1: to say, yeah, you're a consensus stronger than the US actually, 697 00:34:49,320 --> 00:34:50,480 Speaker 1: or they've heard that a couple of times in the 698 00:34:50,560 --> 00:34:53,439 Speaker 1: last twenty four hours. I hope Europe better than the US. 699 00:34:53,600 --> 00:34:56,160 Speaker 1: Thank I love it. I'm not sure pressing the card 700 00:34:56,200 --> 00:34:59,080 Speaker 1: would have left that this morning, Terry Wassman mcquore, Terry, 701 00:34:59,120 --> 00:35:02,560 Speaker 1: thank you, just wonderful. Subscribe to the Bloomberg Surveillance Podcasts 702 00:35:02,600 --> 00:35:06,320 Speaker 1: on Apple, Spotify, and anywhere else you get your podcasts. 703 00:35:06,840 --> 00:35:10,920 Speaker 1: Listen live every weekday, starting at seven am Eastern. I'm 704 00:35:10,960 --> 00:35:14,920 Speaker 1: Bloomberg dot Com, the iHeartRadio app tune In, and the 705 00:35:15,000 --> 00:35:19,000 Speaker 1: Bloomberg Business app. You can watch us live. I'm Bloomberg 706 00:35:19,080 --> 00:35:23,200 Speaker 1: Television and always I'm the Bloomberg Terminal. Thanks for listening. 707 00:35:23,760 --> 00:35:26,560 Speaker 1: I'm Tom Keane, and this is Bloomberg