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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. It's one for

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Speaker 1: you from Bill Dudley. The headline of his latest pace,

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Speaker 1: The Federal Reserve owes the world a mia coppa. Bill Dudley,

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Speaker 1: bloom Big Opinion columnist and former New York Fed President,

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Speaker 1: a good friend of this program as well, joined us

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Speaker 1: right now, Bill, let's start there, a mia coppo. What

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Speaker 1: do you want that to look like? I think the

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Speaker 1: Fed needs to explain to the world what went wrong? Why?

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Speaker 1: Why are we having to rage rates on four d

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Speaker 1: basis points this year four percentage points since year. That's

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Speaker 1: a huge amount of taking in a short period of

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Speaker 1: time and is evidence that the FIT was very late. Um,

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Speaker 1: the FIT made a couple of mistakes. Number one, how

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Speaker 1: they implemented their two percent average inflation regime and they

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Speaker 1: basically tied their hands and said we can't raise rates

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Speaker 1: until a whole bunch of things happen. Number two, they

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Speaker 1: made some important forecasting errors, both on inflation and enter

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Speaker 1: tightness of the livor market. I think you know, doing

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Speaker 1: a mea culp. I think it's important to basically build

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Speaker 1: the fits credibility for the future. If you don't admit error,

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Speaker 1: how can you be confident that that the central play

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Speaker 1: will make make a whole another mistake next time? But

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Speaker 1: do you think they can do both of that and

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Speaker 1: do something which you asked them to do a number

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Speaker 1: of weeks ago, which is to be much more open

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Speaker 1: about the pain that this country, this economy is about

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Speaker 1: to go through. And I wonder if they do both.

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Speaker 1: You say it enhance its credibility. Do you think it

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Speaker 1: also invites questions about whether it should retain its independence? Well,

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Speaker 1: I think you wanted the Central Bank to retain its

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Speaker 1: independence because you don't want monetary policy to be politicized

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Speaker 1: monetary policy, Because politicize you're gonna have even worse mindory

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Speaker 1: policy that we've gotten over the last couple of years. Bill.

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Speaker 1: On the flip side, there is an increasing chorus of

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Speaker 1: big names saying that the Fed is moving to make

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Speaker 1: a policy error. On the other side, by raising too

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Speaker 1: far that a deep recession is not an inevitability, but

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Speaker 1: will be the consequence of them and raising rates as

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Speaker 1: much as they're expected to raise rates. Are you sympathetic

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Speaker 1: to that view? Well, I think that's a logical outcome

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Speaker 1: of being very slow to tighten in the first place.

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Speaker 1: You've been slow to tighten, and you have to do

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Speaker 1: a lot to catch up. If you do a lot

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Speaker 1: to catch up, you may not notice that you've done

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Speaker 1: more than that's actually sufficient. I think you know, hard

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Speaker 1: landing is very likely because the labor market has gotten

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Speaker 1: too tight. The FED needs to push the unemploying rate

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Speaker 1: up significantly, and that's likely to lead to a recession.

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Speaker 1: I think it's almost inevitable at this point. What's the

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Speaker 1: economic benefit to the FED coming out and being honest

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Speaker 1: and saying what John was pointing out is a very

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Speaker 1: difficult message to swallow, which is we made mistakes. Oh

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Speaker 1: and by the way, we're gonna necessarily make a mistake

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Speaker 1: on the other side, tighten into a hard landing. What

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Speaker 1: does that give them in terms of credibility that can

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Speaker 1: actually help meal your the cycle. Well, I think that

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Speaker 1: they are not going to say that we're going to

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Speaker 1: take on purpose to generate a recession. I don't think

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Speaker 1: you'd ever expected center back to to say that, but

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Speaker 1: I do think Paul has now endorsed the notion that

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Speaker 1: there is going to be some pain involved. I think

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Speaker 1: what the FIT has not done, though, is admitted how

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Speaker 1: do we get into this mess in the first place.

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Speaker 1: And I think that's part of the message that the

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Speaker 1: FIT needs to send to Marcus to build their credibility

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Speaker 1: for the future and build credit to you. I remember

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Speaker 1: doing a panel with you and Muhammad Alarian back in June,

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Speaker 1: maybe May of one, and you're both making this point

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Speaker 1: that the FAT needs to appreciate some two way risk here.

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Speaker 1: Perhaps start by pulling back on que that would have

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Speaker 1: meant maybe going six months earlier than they actually did. Bill,

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Speaker 1: What difference would six months have made, do you think?

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Speaker 1: I think that the end of going earlier is you

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Speaker 1: wouldn't have to go as fast and you have more

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Speaker 1: ability to assess the effects of your actions. Right now,

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Speaker 1: they have to get to take very quickly, and given

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Speaker 1: a lot long legs of Montary policy, this is increases

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Speaker 1: the risk that they overdo it. If you spread out

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Speaker 1: the Monterey paulicy tightening over longer period of time, you

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Speaker 1: have more time to assess the impact of your actions.

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Speaker 1: You've talked Bill about how you could see a peak

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Speaker 1: FED funds rate north of five percent. The market is

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Speaker 1: coming to your view. You're out front that way right

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Speaker 1: now in the market we have a nearly four point

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Speaker 1: seven percent terminal rate for next year. Where have you

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Speaker 1: changed your view on where you think the FED has

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Speaker 1: to go in order to bring in inflation and honestly

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Speaker 1: address some of the flaws of the previous thinking. I

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Speaker 1: don't think it's so much that the peak and rates

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Speaker 1: has to be higher. I think the fact is the

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Speaker 1: FED has to hold that peak for for a longer

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Speaker 1: period time. I think the Fed's pop strategy here is

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Speaker 1: not to just keep hiking regardless of what's what's happening

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Speaker 1: in terms of the real economy. But I think they

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Speaker 1: want to go to a restrictive policy and then they

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Speaker 1: want to hold it there until they see clear signs

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Speaker 1: that's actually bringing inflation down and generating more slack in

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Speaker 1: the U s leavel market. I built one for to

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Speaker 1: catch up a great rate as always, and good have

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Speaker 1: you on the program with us this morning. Built Donte

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Speaker 1: that they form new York Fed President and now, of

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Speaker 1: course Bloomberg opinion columnists, amongst other things. Shout joins USNAP,

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Speaker 1: chief Global strategistic Principal Asset Management seem a ringing the

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Speaker 1: bout at the nastact today, buzzing for that. I'm sure

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Speaker 1: I always look up, don't you always look up around

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Speaker 1: the open and bound, and people emphatically clap and with

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Speaker 1: their hands even even when it's down, which is always

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Speaker 1: kind of I always find that would if we're down today,

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Speaker 1: when you screaming and shouting, I'm going to clap, You're

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Speaker 1: still going to clap even if we're down. Okay, opportunities

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Speaker 1: to buy? Is that? Is that going to be your

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Speaker 1: story whilst you're here, the opportunities to buy this on today? No, No,

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Speaker 1: I have to say, I think I think there's there's

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Speaker 1: worse to come from the market. Unfortunately. You know, you

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Speaker 1: talk about we talk all the time about the third

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Speaker 1: about inflation, about growth, and then you're adding all these

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Speaker 1: additional geopolitical pressures. It's very difficult to find anything to

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Speaker 1: be positive about at the moment, and a lot of

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Speaker 1: these things. I don't think it's fully priced into the

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Speaker 1: market either. Earning seasons. Of course, it's going to be

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Speaker 1: really interesting. We are expecting to see weakness study to

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Speaker 1: really feed through now, um, a lot of the narrative

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Speaker 1: about march and pressures, but also just generally starting to

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Speaker 1: feel the pressure of consumers potentially putting back from next year.

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Speaker 1: So there's a lot I think to be concerned about convestors.

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Speaker 1: When you say it's not priced yet, out of everything

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Speaker 1: you've just said, what isn't priced, I still think that

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Speaker 1: the recession is not priced right, So I think the

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Speaker 1: market is eventually. I mean, look, it keeps switching every

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Speaker 1: few days, but I think generally speaking, the market is

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Speaker 1: coming to terms with the idea that rates are going

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Speaker 1: to go higher and they're going to stay there for longer.

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Speaker 1: As well. The bit that the market is still playing

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Speaker 1: around with is this recession. You know a lot of

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Speaker 1: people still thinking that soft landing is possible. We think

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Speaker 1: it's very unlikely. Um And with recession, unfortually does come

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Speaker 1: and exprocession. So which aspects of the market are not

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Speaker 1: sufficiently priced? Because some people might look at retail for example,

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Speaker 1: they might look at some of the semiconductors and they'll

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Speaker 1: say recessions price there Where is it not or is

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Speaker 1: it even client on semiconductors that has not fully appreciated

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Speaker 1: the depth of this downturn, not just whether there will

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Speaker 1: be a technical recession. So, like you said, I think

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Speaker 1: there are segments of the market which really have struggled,

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Speaker 1: and semi conductors have have been one of them. Unfortunately,

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Speaker 1: latest news probably suggests that they could be from further

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Speaker 1: down Downblard movement from there. So valuations at this kind

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Speaker 1: of stage, they are instructive, but they're not going to

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Speaker 1: tell the full story. So in the same way, in

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Speaker 1: the last five ten years, we've known that valuations are

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Speaker 1: very expensive, but it hasn't stopped markets from going up.

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Speaker 1: Cheap valuations don't necessarily mean that markets are not going

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Speaker 1: to go down. Further, I was reading a piece of

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Speaker 1: research over the weekend which was talking about how if

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Speaker 1: you look at some of the AII sentiment, it looks

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Speaker 1: really bearish. People say they're feeling terrible, things are going

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Speaker 1: to go down, and then you look at their actual

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Speaker 1: positioning and they're still pretty invested in equities. They're still

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Speaker 1: actually fairly bullish, at least in terms of their positioning.

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Speaker 1: What's the trigger to wash that out? So I think

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Speaker 1: I'm not sure if you're going to see necessarily a

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Speaker 1: washing out, because even from today, you know, we are

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Speaker 1: expecting further declines. But the quant the one question that

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Speaker 1: keeps coming up. I've been traveling around the US in

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Speaker 1: the last week. The question keeps coming up. It's like,

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Speaker 1: but when is this flow going to come? When can

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Speaker 1: I start buy right? So that is the question that

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Speaker 1: people are trying to figure out. When is the timing

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Speaker 1: for them to increase their exposure. And I think at

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Speaker 1: this stage, you know, if we look at historical bear

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Speaker 1: market cycles, your average downfall is that if you're down

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Speaker 1: and you don't think this is going to be like

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Speaker 1: the GFC, then we're more than halfway there. So if

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Speaker 1: you're not already underweight, this is probably not the time

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Speaker 1: to start reducing even further. What do they ask you

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Speaker 1: about Europe when you tow this country? How much do

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Speaker 1: they hate that market right now? So much? But I

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Speaker 1: understand that, and actually I fully agree with our perspective

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Speaker 1: for the Europe It is a very very challenging time.

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Speaker 1: And I think that what we're starting to see in

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Speaker 1: the US is they are understanding that actually, in Europe

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Speaker 1: this situation is considerably worse um, and put on top

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Speaker 1: of that is there's so many things that we cannot predict.

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Speaker 1: We're not meteorologists. We cannot predict what the weather is

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Speaker 1: going to be. No one in the whole world probably

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Speaker 1: cann can predict what's going on Putin's head. So with

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Speaker 1: those two incredible uncertainties, despite European valuations being so cheap,

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Speaker 1: this is probably not the time to increase your exposure

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Speaker 1: when you have those two things hanging of you. You

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Speaker 1: talked about the persistence of this, particularly around rates, that

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Speaker 1: we could be living with this for the next twelve

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Speaker 1: months or so, then that's also a conversation taking place

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Speaker 1: much more sub in Europe now that we could be

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Speaker 1: living with this for more than one winter, maybe too,

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Speaker 1: perhaps even longer. When you start to think about the

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Speaker 1: United States in that respect, ten years ago we talked

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Speaker 1: about the United States decoupling for the mess that was

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Speaker 1: playing out in Europe. Is that still the case? Would

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Speaker 1: you say say that's still the case? I think it

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Speaker 1: is to some extent. I mean, one of the things

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Speaker 1: that we are studying to fill is that in the

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Speaker 1: US there is this belief that there is a complete decoupling.

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Speaker 1: But of course that doesn't happen. You know, Europe. Whatever

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Speaker 1: European tensions there are, whatever the energy situation is, they

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Speaker 1: will be leakage into the US. In Europe, You're already

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Speaker 1: seeing this huge substitution from natural gas towards oil, and

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Speaker 1: of course there will be inevitable repercussions for the US

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Speaker 1: as well. So I don't think it's a full decoupling.

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Speaker 1: I think the U s does come out better than

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Speaker 1: Europe sunny, not completely compling. Okay, so wear with me.

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Speaker 1: But everyone who I know is going to Europe for

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Speaker 1: a vacation, including Tom Keane, who's over in Europe right now.

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Speaker 1: And we're hearing about the negative effect from the strong

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Speaker 1: dollar on US companies, But that's because things are on

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Speaker 1: sale effectively from say European industrial So when is the

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Speaker 1: currency differential a good thing for Europe the way it

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Speaker 1: used to be, say five years ago, when the currency

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Speaker 1: wars were reversed. Well, I think you've already seen some

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Speaker 1: of that play out this summer, which is why you

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Speaker 1: haven't seen European GDP actually contract yet. If you look

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Speaker 1: at Spain, Italy, all of the southern European countries have

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Speaker 1: benefited significantly from the weak currency and that is going

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Speaker 1: to moderate a little bit some of the downtown that

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Speaker 1: Europe is going to feel. But this is I mean,

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Speaker 1: from an investment perspective for the U S it's one

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Speaker 1: of the key reasons why we've been overweight midcaps Roden

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Speaker 1: lodge cap. The MidCap exposure to domestic is significantly higher

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Speaker 1: than what you see for large camp UM and you

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Speaker 1: know they've out performed to be expecting to continue to

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Speaker 1: our perform. One theme that we've heard from a lot

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Speaker 1: of the investors who we speak with is it's starting

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Speaker 1: to look attractive to go into longer dated bonds. How

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Speaker 1: much conviction do you have around that kind of view,

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Speaker 1: both in the US but also in places like Europe.

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Speaker 1: So we have, for example, increase or exposure to long

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Speaker 1: dated bonds fairly significantly in the last two months. UM

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Speaker 1: A couple of reasons. One is that we are, as

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Speaker 1: I said, expecting recession to hit next year, and in

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Speaker 1: that environment typically you should see down with pressure on yields.

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Speaker 1: But like you said, in Europe, there's the added pressure.

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Speaker 1: What are central banks doing there raising rates but they're

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Speaker 1: also pushing down the long end, or at least they're

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Speaker 1: trying to push down the long end. At some point

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Speaker 1: there's going to be some kind of success or at

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Speaker 1: least it's going to stop any further movement. So if

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Speaker 1: you have to be anywhere in the yield, cuve, I

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Speaker 1: would rather be on the long end than the short

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Speaker 1: land for sure. In the guild market or treasuries, I

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Speaker 1: don't think you want to be in the UK. I

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Speaker 1: asked the question because you're based in London. I just

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Speaker 1: wondered whether you've been buying guilts in the last couple

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Speaker 1: of weeks. We did not foresee what was going to

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Speaker 1: happen to the guild market, like anyone else, I think

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Speaker 1: UM just generally speaking, the UK, we have the serious

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Speaker 1: concerns about the fiscal story is not going to improve.

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Speaker 1: I think as much as they can walk back, there

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Speaker 1: are certain segments of that political story, the fiscal story,

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Speaker 1: that they're going to stick to. So if you're looking

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Speaker 1: at a longer term horizon, in the UK has worse

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Speaker 1: inflation problem, it's got a worse growth problem. So if

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Speaker 1: I had to pick one over the other, I would

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Speaker 1: pick the U S Halloween budget. What do you want

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Speaker 1: from there? As an economist, I want them to underwind everything,

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Speaker 1: undwind everything, just go back to having some serious fiscal

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Speaker 1: policy where they're trying to actually balance the budget in

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Speaker 1: the same way that really in the UK, unlike many

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Speaker 1: other countries, fiscal balancing is a hallmark a fiscal policy

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Speaker 1: for the last two decades. So for them to walk

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Speaker 1: away from it at this time is a very difficult time.

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Speaker 1: In two or three years time, who knows trickled down

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Speaker 1: economics could work. Do you think that everyone in the

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Speaker 1: UK right now you ask them about what's going on

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Speaker 1: with the guilt market, and they just sort of sigh

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Speaker 1: and look at you like, please, can I just disappear

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Speaker 1: right now by the guilt market? Sort of? Someone did

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Speaker 1: buy the guilt market and made a tremendous amount of money.

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Speaker 1: I just say that when the bank having been stepped, dear,

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Speaker 1: and yields dropped by what a hundred basis points at

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Speaker 1: one point in that day, Which is the reason why

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Speaker 1: I mean to see him as point the reason why

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Speaker 1: the long end perhaps is getting some credence or some

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Speaker 1: conviction on people because they do believe eventually central banks

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Speaker 1: will step in at least for that because of some

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Speaker 1: of the structural issues that require something from without them

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Speaker 1: stepping in. At some point, you'd have to believe bonds

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Speaker 1: start behaving like bonds go into an economic downturn. People

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Speaker 1: have gotten wrong what that point is though, again and again,

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Speaker 1: and we have seen people change their expectations for how

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Speaker 1: high yields could go. And at this point, I think

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Speaker 1: there's a feeling of being shaken a bit about what

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Speaker 1: is the base at this point after a world of

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Speaker 1: zero rates for so long, massively zero confidence in a

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Speaker 1: high volatility world, zero confidence, a complete lack of conviction

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Speaker 1: seem with thank you, enjoy ringing the bow, you press

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Speaker 1: a button, right, There's nothing cool about that? Is that

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Speaker 1: just sort of principlesca management should go in with your

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Speaker 1: own balance, just you know, shake things up. Yeah, film

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Speaker 1: is going to join us now. It feels like euro

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Speaker 1: crisis all over again, except it's different chief economist to

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Speaker 1: acts or investment managers. So let's start there. Let's just

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Speaker 1: start with the key differences between what we're facing now

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Speaker 1: and what we face back then. Well, first of all,

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Speaker 1: at the time, we had massive external imbalances in the periphery.

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Speaker 1: We had massive current agaunt deficits. So you had an

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Speaker 1: issue with the government, but you had an issue with

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Speaker 1: the way the entire economy was working in the South

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Speaker 1: of Europe. You don't have that now. Of the those

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Speaker 1: countries have really Donald, good Joe and re establishing proper

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Speaker 1: external external position. The other big differences that we have

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Speaker 1: different instruments. The big issue we had in two thousand

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Speaker 1: and ten and ten thousand and eleven is that there

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Speaker 1: was nothing in the arsenal that you could use to

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Speaker 1: actually stop this. We don't have the the s M,

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Speaker 1: we didn't have an ECB, which after that has proved

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Speaker 1: it's deexibility. So there was this, you know, scrambled to

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Speaker 1: finding institutional solutions in just a matter of month. Now

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Speaker 1: at least we know that we can rely on those

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Speaker 1: emergency mechanisms if things get to the point that we

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Speaker 1: need to to to use them. And I think the

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Speaker 1: market knows it, and that explains It's one of the

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Speaker 1: reasons why we have unseen, for instance, a lot of

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Speaker 1: contagion moving away from Italy and and and and affecting

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Speaker 1: other countries in the South. We know that the instruments

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Speaker 1: are there. They came up with o MT We're drunk

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Speaker 1: in the summer twenty twelve and the beauty of lantiers.

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Speaker 1: It never got activated, never had to be used. This

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Speaker 1: summer they came up with tp I, the Transmission Protection Instrument.

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Speaker 1: Is that right, t p I? Okay, when does tp

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Speaker 1: I start to become a real consideration? Fifty basis points

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Speaker 1: to spread right now, I'm just trying to wonder what's

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Speaker 1: the threshold when that starts to kick in. They they've

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Speaker 1: never been clear on this, and they don't want to

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Speaker 1: be clear on this. I'm talking about the CP Obviously

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Speaker 1: there's a noo full lot of discretion there. And I

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Speaker 1: guess is that it's not just a case of the

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Speaker 1: level of the spread or the level of interest rates,

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Speaker 1: the speed at which things are moving, and so far

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Speaker 1: it's been fairly contained. The biggest issue for me with

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Speaker 1: t p I is actually not of a technical nature.

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Speaker 1: It's it's political. The way t p I has been designed,

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Speaker 1: it's definitely not uh done in a way that would

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Speaker 1: protect the governments against its own mistakes. And that's the issue.

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Speaker 1: If you could come up with the situation where the

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Speaker 1: market is punishing a state for things which has not

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Speaker 1: even done or announced, then TPI is probably there. If

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Speaker 1: a government is doing stuff which is triggering a sort

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Speaker 1: of rational reaction by the market, then t p I

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Speaker 1: is probably not the right instrument, and then you need

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Speaker 1: to go to to MT. But so far, at least,

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Speaker 1: the news that we have from Italy, which is the

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Speaker 1: biggest tissue in there, is that the government, the new

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Speaker 1: government we don't have one yet, but the noises we

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Speaker 1: got from the new majority so that they want to

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Speaker 1: be prudent. So if they don't do if they don't

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Speaker 1: make big policy announcement that would make the CB nervous,

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Speaker 1: they could actually benefit from TP and there's a relationship

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Speaker 1: with the market that you can build on that. I

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Speaker 1: just can hear your voice in my head right now,

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Speaker 1: so I can hear Jonathan you're saying, yeah, you're mind

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Speaker 1: reading because it's very loud right now, and he's saying, Okay,

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Speaker 1: So they're gonna talk about political risk and the peripheries.

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Speaker 1: What about the fact that Germany is the biggest risk

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Speaker 1: right now to the entire European economy and that some

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Speaker 1: of these things. So there you go. So what's the

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Speaker 1: what's the answer. How is this situation different, both with

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Speaker 1: the political considerations and from just distinguishing from the euro

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Speaker 1: crisis of two thousand ten, considering that Germany is one

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Speaker 1: of the biggest problems, one of the biggest downside risks

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Speaker 1: to the entire economic outlook. Germany is clearly one of

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Speaker 1: the biggest downside risks to the macro story, but it's

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Speaker 1: also the country which is the whitest policy space, and

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Speaker 1: they are using their policy space quite a lot. I mean,

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Speaker 1: you've seen the announcements that we we had last week

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Speaker 1: from from the German government. The steel can mitigate a

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Speaker 1: lot of the current pressure that they get from from

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Speaker 1: from guys prices with the billions that they are about

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Speaker 1: to spend. So in this case, yes, it's quite negative.

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Speaker 1: Of the last two three quarters. A recession in Germany

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Speaker 1: is absolutely unavoidable, I think at this stage. But we

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Speaker 1: know that they can deal with this on their own forces,

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Speaker 1: which is not something that we have in other countries.

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Speaker 1: That's the big difference. Although you do have to wonder

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Speaker 1: how much higher inflation is going to be for a

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Speaker 1: longer period of time given the fiscal response in Germany,

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Speaker 1: and that the political pressure from the peripher regions will

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Speaker 1: say if you guys can have such a big fiscal response,

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Speaker 1: we can too, because you're gonna just let us you

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Speaker 1: know suffer as we finance your deficit by bringing down

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Speaker 1: the cost of your your financing through a weaker euro

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Speaker 1: a Keyshue. There thing is um whether all this triggers

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Speaker 1: another round of debt mutilization in Europe, which is definitely

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Speaker 1: what we need to see when we have the pandemic.

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Speaker 1: We ended up with debt mutilization. It was partial, obviously,

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Speaker 1: it was the next generation pack, but we did it.

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Speaker 1: I'm a bit surprised and disappointed that we haven't seen

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Speaker 1: more progress on debt another round of demonetrilization to deal

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Speaker 1: with the full out from the Ukraine War. But there's

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Speaker 1: going to be a point where we will get there.

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Speaker 1: I mean, Europe is always no tiring for for external

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Speaker 1: observers because it takes so much time to get to

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Speaker 1: the right solutions. But I'm quite convinced that if we

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Speaker 1: get a situation where we will see bigger cracks appearing

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Speaker 1: in our fabric, you will see this further movement of demonotization.

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Speaker 1: You will see a clear capacity from the EU as

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Speaker 1: an entity to provide support to the most fragile countries.

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Speaker 1: We've done this with Italy with the next Generation packed

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Speaker 1: fourth standing It's not done to deal with the full

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Speaker 1: of the Ukraine War. But I really have no doubt

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Speaker 1: that we would get there if it be. Let's talk

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Speaker 1: about the cracks right now. The mystery for many of

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Speaker 1: us the e c P. Why is it not forecasting

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Speaker 1: a recession? How on earth they're not forecast and recession

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Speaker 1: in the euroSign Now I was, I was, I was

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Speaker 1: very surprised, and then I knew. I reminded myself of

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Speaker 1: of of my time when I was in central banking.

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Speaker 1: You probably don't want to be the one, you know,

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Speaker 1: validating market expectations of of of the recession. You probably

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Speaker 1: don't want to add to the general bleakness in in

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Speaker 1: in in the system by coming up with a very scary,

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Speaker 1: scary forecast. I guess it's part of of what central

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Speaker 1: banks usually do. I notice that in the U s

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Speaker 1: to feders taken an offul left time before saying that yes,

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Speaker 1: maybe unemployment would have to rise to get inflation back

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Speaker 1: under control. Well, it should be the same in in Europe.

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Speaker 1: Central bank very rarely want to be at the bottom

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Speaker 1: of the distribution when it comes to forecasts. Sure, except

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Speaker 1: that there is a credibility issue that the central banks

432
00:20:37,359 --> 00:20:40,560
Speaker 1: will go through with the tightening plans they're projecting because

433
00:20:40,920 --> 00:20:43,639
Speaker 1: casual observers would say, well, you put A plus B together,

434
00:20:43,680 --> 00:20:45,879
Speaker 1: you get recession. And they're saying no, no, no, A

435
00:20:45,960 --> 00:20:48,760
Speaker 1: plus B equals roses and lots of beautiful things. So

436
00:20:48,800 --> 00:20:51,720
Speaker 1: at what point does that undermine the faith that they

437
00:20:51,720 --> 00:20:54,720
Speaker 1: will continue with their tightening cycle. Well, they don't deny

438
00:20:54,840 --> 00:20:56,880
Speaker 1: the risk of the recession to be to be fair,

439
00:20:56,960 --> 00:21:00,280
Speaker 1: and we we didn't have a super rosy mess age

440
00:21:00,320 --> 00:21:03,600
Speaker 1: coming from from from from the CB. But they are

441
00:21:03,600 --> 00:21:06,120
Speaker 1: in a complicated position because and that's a big difference

442
00:21:06,160 --> 00:21:09,600
Speaker 1: with with the U s um inflation in Europe is

443
00:21:09,640 --> 00:21:13,159
Speaker 1: not or is not essentially domestically driven. It's none o

444
00:21:13,160 --> 00:21:16,200
Speaker 1: our fault to to to to to to to summarize,

445
00:21:16,520 --> 00:21:19,119
Speaker 1: and we have an ECB which is forced into tightening

446
00:21:19,800 --> 00:21:23,679
Speaker 1: UH to keep inflation expectations anchored in a situation of

447
00:21:24,240 --> 00:21:28,000
Speaker 1: massively adverse supply side chalk. It's not an easy thing

448
00:21:28,040 --> 00:21:31,760
Speaker 1: to explain, especially if we've spent the last twenty years,

449
00:21:31,880 --> 00:21:34,720
Speaker 1: not just in Europe but also in the US explaining

450
00:21:34,840 --> 00:21:37,399
Speaker 1: to a stakeholders in the real economy, middles in the

451
00:21:37,440 --> 00:21:39,760
Speaker 1: markets that you know what central banks have have your

452
00:21:39,800 --> 00:21:42,840
Speaker 1: back at this time. No, Sorry, central banks cannot have

453
00:21:43,400 --> 00:21:47,359
Speaker 1: your back because there's an inflation issue, there's an inflation

454
00:21:47,400 --> 00:21:51,760
Speaker 1: expectations issue, and central banks are not going to be

455
00:21:51,840 --> 00:21:56,159
Speaker 1: to be your friend. It's incredibly complicated to explain again

456
00:21:56,200 --> 00:21:59,359
Speaker 1: coming up to twenty years of military policies which have

457
00:21:59,440 --> 00:22:02,240
Speaker 1: been explore and they're only accommodative. They're delaying the inevitable,

458
00:22:02,200 --> 00:22:04,879
Speaker 1: thou aren't they? They have to confront this at some point.

459
00:22:04,920 --> 00:22:07,760
Speaker 1: They're talking about raising interest rates. A lot of people

460
00:22:07,760 --> 00:22:09,480
Speaker 1: assume that by the end of the year, this is

461
00:22:09,520 --> 00:22:12,080
Speaker 1: the economic situation we're looking at, whether they forecasted it

462
00:22:12,160 --> 00:22:14,280
Speaker 1: or not, and they keep on hiking as the numbers

463
00:22:14,280 --> 00:22:16,680
Speaker 1: clearly show this economy is in recession. Yeah. My My

464
00:22:17,040 --> 00:22:21,399
Speaker 1: point is that if there, I think there's already debate

465
00:22:21,480 --> 00:22:24,720
Speaker 1: actually at the ECB, which is for now not having

466
00:22:24,760 --> 00:22:28,320
Speaker 1: a direct impact on their immediate decisions. Um, they all

467
00:22:28,359 --> 00:22:31,680
Speaker 1: agree on the idea that no, our monijtory stance with supercommodative,

468
00:22:31,880 --> 00:22:34,240
Speaker 1: you bring it, let's say, to the upper end of

469
00:22:34,320 --> 00:22:37,679
Speaker 1: the neutral range, and then this is where the differences appear.

470
00:22:38,119 --> 00:22:40,400
Speaker 1: You have those we're going to say, I don't care,

471
00:22:40,440 --> 00:22:44,240
Speaker 1: I just continue hiking as long as insolations there and others,

472
00:22:44,320 --> 00:22:46,840
Speaker 1: And I would probably agree with with those who would say, look,

473
00:22:47,160 --> 00:22:50,000
Speaker 1: once we've brought I would probably see rate at your

474
00:22:50,119 --> 00:22:53,919
Speaker 1: band of neutral range, let's stop awhile, let's pose, and

475
00:22:54,040 --> 00:22:57,800
Speaker 1: let's see how things happen. But for the tending, there

476
00:22:57,880 --> 00:23:00,600
Speaker 1: is an alignment actually of doves and whole around this

477
00:23:00,680 --> 00:23:03,919
Speaker 1: idea that in any case our stands was far too

478
00:23:03,960 --> 00:23:07,560
Speaker 1: accommodative to start with. So I don't expect actually this

479
00:23:07,640 --> 00:23:10,280
Speaker 1: debate to really trigger, to really have an impact on

480
00:23:10,359 --> 00:23:12,800
Speaker 1: decisions before the very end of this year. In the meantime,

481
00:23:12,960 --> 00:23:16,440
Speaker 1: it's you, as as Jo will say, they will keep

482
00:23:16,440 --> 00:23:18,000
Speaker 1: at it. Are you feeling the pain if you're a

483
00:23:18,080 --> 00:23:20,760
Speaker 1: dollar parity personally in your first few days of being

484
00:23:20,840 --> 00:23:23,160
Speaker 1: hit and certainly not the most move all the rule

485
00:23:23,280 --> 00:23:25,520
Speaker 1: person on on on earth. But yeah, I've been in

486
00:23:25,680 --> 00:23:28,200
Speaker 1: New York for two days now, and yeah, you feel

487
00:23:28,280 --> 00:23:29,760
Speaker 1: you feel that your coffee is much worse it sp

488
00:23:31,040 --> 00:23:32,800
Speaker 1: It's a shock, Grandma. I took the other side of

489
00:23:32,840 --> 00:23:35,400
Speaker 1: the trade, going after Europe, and it feels so much better.

490
00:23:35,600 --> 00:23:38,679
Speaker 1: So isn't it great? Everything's on sale. It's so exciting

491
00:23:38,720 --> 00:23:41,920
Speaker 1: for Americans going over jail. It's a fantastic time. Please,

492
00:23:42,000 --> 00:23:45,679
Speaker 1: we we need you, We need Americans. It was there

493
00:23:45,720 --> 00:23:47,439
Speaker 1: in the summer and every where you went, I just

494
00:23:47,520 --> 00:23:51,240
Speaker 1: had American accents Everywhemerican accents pretty much everywhere. Joe Mark,

495
00:23:51,280 --> 00:23:52,679
Speaker 1: thank you sir. It's going to see it. It's why

496
00:23:52,760 --> 00:23:54,440
Speaker 1: Maxi Investment managers and I know you're going down to

497
00:23:54,480 --> 00:24:08,600
Speaker 1: the m F meeting, so enjoy. Bobby Orga can talk

498
00:24:08,640 --> 00:24:11,960
Speaker 1: to us about energy to understand Manergy Future Senior strategist

499
00:24:12,000 --> 00:24:15,200
Speaker 1: and executive director and Miszoo. Bobby, you said you're not

500
00:24:15,240 --> 00:24:17,639
Speaker 1: a big belief in the OPEC plus two million barrel

501
00:24:17,680 --> 00:24:20,840
Speaker 1: production cup. What do you mean by that? Well, I

502
00:24:20,880 --> 00:24:25,159
Speaker 1: think they will see only about one to one point

503
00:24:25,400 --> 00:24:28,520
Speaker 1: one one point two million barrels and cuts that are

504
00:24:28,560 --> 00:24:32,960
Speaker 1: actually made in this opeque um production cut deal. You'll

505
00:24:32,960 --> 00:24:36,040
Speaker 1: see Saudi Arabia cut. They're good for the word United

506
00:24:36,040 --> 00:24:38,280
Speaker 1: at of Ram rights same thing. But there's a lot

507
00:24:38,320 --> 00:24:40,800
Speaker 1: of folks in a lot of countries in OPEC that

508
00:24:40,840 --> 00:24:43,720
Speaker 1: are under producing for size, they're not going to cut

509
00:24:43,760 --> 00:24:48,119
Speaker 1: production further. Russia is basically around one point three below

510
00:24:48,160 --> 00:24:51,600
Speaker 1: the existing quota going into the OPEC meeting. Nigeria was

511
00:24:51,640 --> 00:24:55,600
Speaker 1: about eight hundred thousand barrels below. Angola was four hundred

512
00:24:55,600 --> 00:24:58,639
Speaker 1: thousand barrels below. They're not going to cut any further.

513
00:24:59,080 --> 00:25:02,000
Speaker 1: And a lot of the other participating countries are happy

514
00:25:02,080 --> 00:25:04,080
Speaker 1: just to stay where they were. They're not going to

515
00:25:04,160 --> 00:25:07,200
Speaker 1: go out and pull back on production today. Um, They're

516
00:25:07,240 --> 00:25:08,959
Speaker 1: just going to do their best to stay where they are.

517
00:25:09,040 --> 00:25:11,520
Speaker 1: This struggling to be where they are, So I would

518
00:25:11,560 --> 00:25:14,680
Speaker 1: see I would expect to see Salty's cut. I expect

519
00:25:14,680 --> 00:25:16,920
Speaker 1: to see you a cut for about one point one

520
00:25:16,960 --> 00:25:20,800
Speaker 1: million barrels given the lack of spare capacity, bob wire

521
00:25:20,840 --> 00:25:25,199
Speaker 1: prices not higher demand is really the issue here. I

522
00:25:25,240 --> 00:25:27,480
Speaker 1: think that's another one that do PEC folks missed a

523
00:25:27,520 --> 00:25:33,120
Speaker 1: little bit. The problem is not supply, the problem is demand. Um,

524
00:25:33,440 --> 00:25:36,480
Speaker 1: we are here. The dollar is higher for starters. That

525
00:25:36,600 --> 00:25:39,720
Speaker 1: is a reverse correlation to the to the barrel to

526
00:25:39,800 --> 00:25:44,080
Speaker 1: crude oil. Higher the dollar, the less dollar it takes

527
00:25:44,119 --> 00:25:46,760
Speaker 1: to make to buy a barrel of crude oil. Uh.

528
00:25:47,160 --> 00:25:51,959
Speaker 1: China situation is very negative for for OPEC. That's a

529
00:25:51,960 --> 00:25:54,560
Speaker 1: big piece of the demand puzzle that's been taken off

530
00:25:54,640 --> 00:25:58,280
Speaker 1: the off the table. So until that comes back, you're

531
00:25:58,320 --> 00:26:00,159
Speaker 1: not gonna get We're not going to return to a

532
00:26:00,240 --> 00:26:03,600
Speaker 1: hundred and thirty dollars like we were in March. Um,

533
00:26:03,640 --> 00:26:07,720
Speaker 1: but you also have the global economy teetering on the

534
00:26:07,760 --> 00:26:11,679
Speaker 1: brink of global recession here, that's a demand event. Cutting

535
00:26:11,680 --> 00:26:14,200
Speaker 1: barrels is not going to make a big difference there, Bob.

536
00:26:14,280 --> 00:26:18,520
Speaker 1: On October six, the People's Party Congress National Congress over

537
00:26:18,520 --> 00:26:20,639
Speaker 1: in China is going to kick off, and a lot

538
00:26:20,640 --> 00:26:22,520
Speaker 1: of people are looking at this as a threshold moment

539
00:26:22,560 --> 00:26:26,360
Speaker 1: after which perhaps the zero COVID policy could be lifted

540
00:26:26,440 --> 00:26:29,440
Speaker 1: in some capacity. What would happen if you did see

541
00:26:29,480 --> 00:26:32,680
Speaker 1: a softening, especially as we've heard pushback from other officials

542
00:26:32,680 --> 00:26:37,280
Speaker 1: recently about how unsustainable as policy really is. If you

543
00:26:37,320 --> 00:26:39,040
Speaker 1: come out and you see that red headline on the

544
00:26:39,040 --> 00:26:41,800
Speaker 1: Bloomberg terminal, that's going to definitely see the price go

545
00:26:41,920 --> 00:26:44,800
Speaker 1: up a little bit here. Um, we probably would trade

546
00:26:44,800 --> 00:26:47,640
Speaker 1: towards if China is on the way back, and if

547
00:26:47,680 --> 00:26:50,800
Speaker 1: that's a big move in the right direction, we probably

548
00:26:50,800 --> 00:26:53,320
Speaker 1: will see the market trade towards one hundred dollars. But

549
00:26:53,400 --> 00:26:55,280
Speaker 1: I don't see it returning to a hundred and thirty

550
00:26:55,320 --> 00:26:57,520
Speaker 1: dollars where it was at the beginning of the Ukraine crisis.

551
00:26:57,840 --> 00:27:00,399
Speaker 1: So yes, that would be um that's a big piece.

552
00:27:00,760 --> 00:27:04,320
Speaker 1: That would be a big demand construction event. It would

553
00:27:04,320 --> 00:27:07,760
Speaker 1: be very positive for the market. But um bob. And

554
00:27:07,760 --> 00:27:11,960
Speaker 1: beyond that, with the FED still likely to increase the

555
00:27:12,359 --> 00:27:16,840
Speaker 1: situation by basis points next meeting fifty the one after that,

556
00:27:17,240 --> 00:27:22,200
Speaker 1: I mean, you're purposely pulling back on the global economy.

557
00:27:22,400 --> 00:27:25,240
Speaker 1: So it's it's going to leave a mark. Hi bubb,

558
00:27:25,440 --> 00:27:29,680
Speaker 1: Thank you, sirs. Wi bup yoga that f Americus. This

559
00:27:29,720 --> 00:27:33,480
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us

560
00:27:33,600 --> 00:27:37,359
Speaker 1: live weekdays from seven to ten am Eastern on Bloomberg

561
00:27:37,440 --> 00:27:41,280
Speaker 1: Radio and on Bloomberg Television each day from six to

562
00:27:41,400 --> 00:27:46,040
Speaker 1: nine am for insight from the best in economics, finance, investment,

563
00:27:46,200 --> 00:27:51,199
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

564
00:27:51,280 --> 00:27:55,119
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

565
00:27:55,240 --> 00:27:59,399
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg