WEBVTT - Surveillance: Earnings Story with Wilson 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg surveillance podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownowitz, daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.840 --> 0:00:23.560 To Find Bloomberg surveillance on Apple podcast, Suncloud, Bloomberg Dot 0:00:23.560 --> 0:00:29.720 Com and, of course, on the Bloomberg terminal. It is 0:00:29.760 --> 0:00:32.519 so true that the media, the financial media, loves to 0:00:32.520 --> 0:00:34.640 look at strategists to say, are you right or wrong? 0:00:34.680 --> 0:00:38.559 You've failed, you're done. The reality is the way strategists 0:00:38.560 --> 0:00:41.160 are used on Wall Street and no one has given 0:00:41.200 --> 0:00:43.839 more guidance this year, in the last twelve months, and 0:00:43.960 --> 0:00:47.200 Michael Wilson, C I O in chief US equity strategist 0:00:47.280 --> 0:00:51.279 at Morgan Stanley, because it's been a consistent and coagent 0:00:51.479 --> 0:00:55.880 message of beware the future. Mike. We are now where 0:00:55.880 --> 0:00:58.480 we have a Mike Wilson's stock market, and what I 0:00:58.600 --> 0:01:02.160 note is, you mentioned it is picked over. I can't 0:01:02.200 --> 0:01:06.440 find scale, there's not enough to choose from. WHERE DO 0:01:06.520 --> 0:01:11.080 I hide? Yeah, well, thanks, Tom, appreciate your kind words. 0:01:11.120 --> 0:01:13.039 I mean look, I think the I mean the market, 0:01:13.080 --> 0:01:15.760 is picked over, because this is where we are in 0:01:15.800 --> 0:01:19.080 the evolution of this bear market. Essentially, when bear markets begin, 0:01:19.120 --> 0:01:21.800 they always go after the high flyers, you know, things 0:01:21.800 --> 0:01:24.280 that are kind of ridiculously priced or where their earnings 0:01:24.360 --> 0:01:27.680 risk is is more evident. And that's what happened really, 0:01:27.800 --> 0:01:29.440 you know, kind of earlier this year, late last year. 0:01:29.480 --> 0:01:32.360 Quite frankly, really began almost a year ago and now. 0:01:33.000 --> 0:01:34.840 But as you kind of go through, people getting high. 0:01:34.920 --> 0:01:36.399 It's like, you know, in the water rise as you 0:01:36.440 --> 0:01:38.360 go to the higher part of the mountain, and so 0:01:38.400 --> 0:01:41.360 everybody's kind of crammed into the same stuff, just kind 0:01:41.360 --> 0:01:43.840 of waiting for, you know, some conclusion to this story. 0:01:43.840 --> 0:01:46.000 Either we avoid a recession and move forward to a 0:01:46.000 --> 0:01:48.320 soft landing, or we don't and we clear the decks 0:01:48.320 --> 0:01:49.920 and then we can move forward from there. We're kind 0:01:49.960 --> 0:01:52.320 of more in that second camp because our view on 0:01:52.320 --> 0:01:54.760 earnings is just so negative, whether we have a recession 0:01:54.840 --> 0:01:57.320 or not. All of our top down models, which are, 0:01:57.360 --> 0:02:00.160 you know, pretty good, are telling us that, know, the 0:02:00.240 --> 0:02:04.440 spread between our forecasts and the actual forecast by the street, 0:02:04.520 --> 0:02:07.960 mean bottoms up, has never been wider. It's the only 0:02:08.000 --> 0:02:09.799 time it's been as wide. As you know, no eight, 0:02:09.880 --> 0:02:11.280 and then back in no one, and we know what 0:02:11.360 --> 0:02:13.720 happened there. So the earning story is what we're focused on. 0:02:14.120 --> 0:02:16.080 I mean the Fed is important still. Obviously they're not 0:02:16.160 --> 0:02:18.840 getting off the gas here on their hawkishness, and nor 0:02:18.919 --> 0:02:21.120 should they. But that's pretty priced. I mean I I 0:02:21.400 --> 0:02:24.200 wouldn't be surprised if today we get some relief, quite frankly, 0:02:24.280 --> 0:02:26.480 led by the bottom market, after the Fed does their thing. 0:02:26.880 --> 0:02:29.079 Maybe stocks can rally one more time. But the end 0:02:29.080 --> 0:02:31.040 game for us is all about the earnings and the 0:02:31.080 --> 0:02:33.880 growth now and we're you know, we're just not optimistic 0:02:33.919 --> 0:02:35.639 there for the next six or twelve months and that 0:02:35.600 --> 0:02:37.480 that will get price pretty quickly. So he got thirty 0:02:37.520 --> 0:02:41.079 four undred as the base case, fifty probability. My three 0:02:41.120 --> 0:02:45.000 thousand the back case recession scenario, forty percent probability. I 0:02:45.040 --> 0:02:47.359 put out this research, that quote on twitter in the 0:02:47.440 --> 0:02:49.160 last week and a lot of people wanted to know 0:02:49.720 --> 0:02:53.120 where's the other ten percent, Mike, what's the ten percent? Yeah, 0:02:53.200 --> 0:02:55.280 that's uh, that's the mystery now. I mean it's pretty 0:02:55.320 --> 0:02:57.000 straightforward to me. In the bolt case is just not 0:02:57.120 --> 0:03:00.240 that probable. Uh, I think you know November and we 0:03:00.240 --> 0:03:02.440 talked about this, as you recall, John, the bolt case 0:03:02.520 --> 0:03:05.200 was goldilocks and we said well, you know, the probability 0:03:05.240 --> 0:03:07.480 of goldilocks looks pretty unlikely. So we, you know, are 0:03:07.520 --> 0:03:09.639 boat case. You know, we can flex that from you 0:03:09.680 --> 0:03:13.440 know zero, or not really zero but five, that we're, 0:03:13.480 --> 0:03:15.440 you know, sort of five to ten percent now. But 0:03:15.480 --> 0:03:17.520 the boat case is not no longer goldilocks. It's kind 0:03:17.520 --> 0:03:20.400 of this soft landing for the economy. However, that's not 0:03:20.480 --> 0:03:22.760 a soft landing for earning. So, you know, our bowl 0:03:22.800 --> 0:03:24.880 case is not getting much different from our from our 0:03:24.919 --> 0:03:27.080 base case. I mean we think, we think maybe you 0:03:27.120 --> 0:03:29.519 don't make new loads in the bowlt case, but Um, 0:03:29.560 --> 0:03:31.880 there's not a lot of upside. Okay, over the next 0:03:31.880 --> 0:03:34.640 six months. And that's really how we manage money. I 0:03:34.639 --> 0:03:37.119 mean we you know, we look at risk reward and 0:03:37.440 --> 0:03:40.160 you know, at thirty nine the risk reward is probably 0:03:40.360 --> 0:03:43.160 five to one. You know. On the down side it's 0:03:43.160 --> 0:03:44.880 sort of the it's sort of the middle of our 0:03:45.080 --> 0:03:46.960 our viewpoint, and that's at the SMP level. I want 0:03:46.960 --> 0:03:48.720 to make this clear because, you know, tom asked the 0:03:48.760 --> 0:03:50.839 right question, which is, you know, this is the part 0:03:50.840 --> 0:03:53.040 of the bear market we should be looking for individual 0:03:53.080 --> 0:03:55.280 stocks that you want to own coming out of this. 0:03:55.800 --> 0:03:58.440 Some are priced, you know, appropriately where you want to 0:03:58.440 --> 0:04:00.960 take that risk. But look what happened this week with 0:04:01.080 --> 0:04:04.200 F X. I mean, like you know clearly that wasn't priced. Um. 0:04:04.240 --> 0:04:06.280 So you gotta be really careful, like thinking, oh well, 0:04:06.560 --> 0:04:08.520 everybody knows this, it's already priced. Then you get hit 0:04:08.560 --> 0:04:11.520 over the head and the stacks down. That's uh, you 0:04:11.560 --> 0:04:13.400 know that. Everybody has their own risk tolerance, they have 0:04:13.440 --> 0:04:15.120 their own work and you know, we have our own 0:04:15.120 --> 0:04:18.160 focused list as well. We're staying defensively oriented. We're not 0:04:18.200 --> 0:04:21.560 reaching for cignicality or, you know, kind of crazy growth 0:04:21.600 --> 0:04:23.920 stacks yet. We think it's premature for that. But we're 0:04:23.920 --> 0:04:25.920 getting closer. I mean we think we're within a couple 0:04:25.960 --> 0:04:28.760 of months probably. So there's an issue with how long 0:04:28.839 --> 0:04:30.920 this is going to last. We were speaking yesterday with 0:04:31.000 --> 0:04:34.280 Christopher own who talked of a lost decade of profits 0:04:34.400 --> 0:04:37.800 on the headline level for the SMP, just based on 0:04:37.839 --> 0:04:39.800 the fact that eelds are going to remain higher, inflation 0:04:39.839 --> 0:04:42.400 is going to be greater. Do you agree or do 0:04:42.440 --> 0:04:43.960 you think that we're gonna get a rebound on the 0:04:44.000 --> 0:04:47.800 other side of this six months, twelve months down the line? Yeah, 0:04:47.800 --> 0:04:49.680 I mean I think we will get a rebound but 0:04:49.760 --> 0:04:51.920 you know, our view for a while now has been 0:04:51.960 --> 0:04:55.760 we've moved out of the monetary policy dominant world to 0:04:55.920 --> 0:04:59.240 a fiscal dominant policy world, and what that means is 0:04:59.279 --> 0:05:01.880 that the Fed is no longer another central banks quay. 0:05:01.920 --> 0:05:04.920 Frank you can no longer smooth over the edges the 0:05:04.960 --> 0:05:07.520 way they have historically because inflation, while maybe it's gonna 0:05:07.560 --> 0:05:09.080 come down over the next six months, which is our 0:05:09.080 --> 0:05:11.640 core view, um it's not going away, it's gonna be 0:05:11.680 --> 0:05:14.240 dormant and then we'll re accelerate again in the next upturn. 0:05:14.440 --> 0:05:16.279 What's gonna Happen least, I think, is that you're going 0:05:16.360 --> 0:05:18.960 to clear the decks and up on expectations on growth, 0:05:19.400 --> 0:05:21.279 that you can then have a re acceleration and that 0:05:21.320 --> 0:05:23.640 will be driven by the natural ebbing and flowing of 0:05:23.680 --> 0:05:27.360 supplying demand, but also more aggressive fiscal policy. I think 0:05:27.360 --> 0:05:30.040 it's interesting to note in the last month, I mean 0:05:30.240 --> 0:05:32.960 fiscal policy, has been turned down like a spicket again. Right, 0:05:33.000 --> 0:05:36.000 we have this debt forgiveness program here we have this 0:05:36.120 --> 0:05:40.200 two hundred billion pound stimulus for energy subsidies in the UK, 0:05:40.320 --> 0:05:42.680 which is equivalent to a trillion dollars in the US 0:05:42.720 --> 0:05:45.600 economic standpoint. So it's it's kind of interesting and you 0:05:45.760 --> 0:05:48.320 you have kind of everybody's worried about inflation, but the 0:05:48.320 --> 0:05:53.039 fiscal policy is working counterproductively to the monetary tightening. But 0:05:53.120 --> 0:05:54.760 that's the world, I think we're living in now and 0:05:55.120 --> 0:05:58.160 you have to understand that, because it's not all barish right. 0:05:58.240 --> 0:05:59.919 There will be a time when fiscal picks it up 0:05:59.920 --> 0:06:02.000 a again next year, even though monetary can't do its 0:06:02.040 --> 0:06:04.360 job it has been doing in the past and in 0:06:04.440 --> 0:06:06.840 the fetes job in my view, and the in the 0:06:06.920 --> 0:06:09.360 in the CBS view and Exbus job and my view, 0:06:09.480 --> 0:06:11.839 their their main job going forward is to be funding 0:06:11.839 --> 0:06:14.960 the government. Whatever the government decides to spend, they will 0:06:15.000 --> 0:06:19.159 have to fund implicitly, very similar to the forties analog 0:06:19.240 --> 0:06:21.360 that we've been using. Mike, just want for the question, 0:06:21.520 --> 0:06:24.120 and I think it's lost in the conversations. Often say 0:06:24.200 --> 0:06:26.520 with you that it's not just about an index level. 0:06:26.600 --> 0:06:28.680 Col with you and the team, there's some single name 0:06:28.720 --> 0:06:30.839 stuff in the mix too. Could you have us with 0:06:30.880 --> 0:06:32.960 just the call right now? Something you do like in 0:06:32.960 --> 0:06:35.760 the security market, something that has worked that you stick 0:06:35.839 --> 0:06:39.560 in with? Yeah, I mean I think like the managed 0:06:39.560 --> 0:06:42.120 care stocks have been terrific Um and that's an area 0:06:42.240 --> 0:06:44.680 that you know, these are these are gross stacks Um, 0:06:44.800 --> 0:06:46.840 and they don't. They don't. They're not priced as grows 0:06:46.839 --> 0:06:48.479 stacks and they never have been because of, you know, 0:06:48.520 --> 0:06:52.080 concerns about perhaps regulatory oversight and things like that. But, 0:06:52.240 --> 0:06:55.160 you know, healthcare in general, I would argue, is an 0:06:55.200 --> 0:06:58.039 area of the market where you have pent up demand 0:06:58.560 --> 0:07:00.919 from the pandemic as opposed to back in demand like 0:07:00.960 --> 0:07:04.440 for technology spending or consumer goods. And for whatever reason 0:07:04.480 --> 0:07:07.919 it's still trades really cheaply Um. And once again it 0:07:07.960 --> 0:07:10.640 goes back to this idea that there may be fear about, 0:07:10.760 --> 0:07:13.200 you know, pricing controls and things like that, but to 0:07:13.240 --> 0:07:15.560 me that's a fat pitch and uh, you know that 0:07:15.560 --> 0:07:18.320 that scenario. We've had a lot of exposure. UH, would be, 0:07:18.480 --> 0:07:20.559 you know, in Pharma, managed care, some of the cheaper 0:07:20.560 --> 0:07:22.840 areas of healthcare, and I think that continues to work. 0:07:22.880 --> 0:07:26.040 The other area would be, say, integrated energy companies, where 0:07:26.080 --> 0:07:28.680 they're they're more defensively oriented, not so depending on the 0:07:28.680 --> 0:07:31.040 price deck. They pay a great dividend Um and you 0:07:31.080 --> 0:07:32.840 get some come out of exposure, you know, as a 0:07:33.040 --> 0:07:35.960 hedge against you know, inflation staying sticky or hot. But 0:07:36.040 --> 0:07:38.080 the overwriting message, John, as you know, this year from 0:07:38.120 --> 0:07:43.280 us has been defensive, earning, stability, operational efficiency, boring type metrics. 0:07:43.560 --> 0:07:45.200 But you know it's been working nicely and I think 0:07:45.200 --> 0:07:47.000 it will continue until we get the trough in this 0:07:47.040 --> 0:07:49.320 beer market. It's been working in a tough, tough year. 0:07:49.480 --> 0:07:51.800 Congrats to you in the same Mike Wilson, so far 0:07:52.040 --> 0:08:00.120 for just absolutely brilliant. Mike Wilson, that of more CON Stanley. 0:08:00.960 --> 0:08:04.120 One of those some years ago was Michael Pond. His 0:08:04.240 --> 0:08:07.560 fancy title now is head of global inflation linked research 0:08:07.880 --> 0:08:11.800 at Barclay's. Far More Accurately, he is truly expert, with 0:08:11.880 --> 0:08:15.880 the exception maybe of Ian Lincoln at Demo. I'm full 0:08:15.960 --> 0:08:19.119 faith in credit and he joins us today. Michael Pond. 0:08:19.160 --> 0:08:21.720 If I look at the real yield and I look 0:08:21.760 --> 0:08:25.800 at two partial differentials of the nominal yield and some 0:08:25.880 --> 0:08:31.280 measurement of inflation, which matters right now, it's the real 0:08:31.400 --> 0:08:33.680 yield that that matters and it's moved up a lot 0:08:34.000 --> 0:08:37.800 over the summer. The market was was not really buying 0:08:37.840 --> 0:08:41.720 into the feds resolved to hike rates enough to slow 0:08:41.840 --> 0:08:46.080 the economy and getting inflation down. Um, since Jackson Hole, though. 0:08:46.440 --> 0:08:49.600 Really yields have have soared, particularly at the at the 0:08:49.760 --> 0:08:53.360 front end, where they were almost at at zero earlier 0:08:53.400 --> 0:08:56.360 this month. Now they're above one percent when we look 0:08:56.400 --> 0:08:59.760 at shorthand forward. So the markets moved a lot and 0:09:00.120 --> 0:09:02.560 accepted the hawks tone of the FT. So if I 0:09:02.600 --> 0:09:05.080 look not at the ten year real yield but Michael Pon, 0:09:05.240 --> 0:09:07.880 let's go shorter to maybe the two year, if you 0:09:07.960 --> 0:09:11.280 agree with me on that, from a negative three hundred 0:09:11.320 --> 0:09:15.360 basis points in version to a positive one hundred sixty 0:09:15.440 --> 0:09:21.760 four basis points, that's a hugely linear jump condition. How 0:09:21.800 --> 0:09:26.280 do other asset classes react to the Michael Pond World? Well, 0:09:26.360 --> 0:09:29.600 risk assets do not love higher yields that are not 0:09:29.679 --> 0:09:34.679 supported by strong growth. Really, where really yields are rising 0:09:34.720 --> 0:09:37.120 here is because the fat has become much more Hawk 0:09:37.240 --> 0:09:40.280 is trying to slow the economy and that's in part 0:09:40.320 --> 0:09:43.959 why risk assets have been on the back foot since 0:09:44.080 --> 0:09:47.520 Jackson Hall. So the Fed's trying to get the economy 0:09:47.520 --> 0:09:50.800 in a position where inflation comes down and then it 0:09:50.840 --> 0:09:53.120 can take it's its foot off the off the brake 0:09:53.160 --> 0:09:55.360 a little bit and allow growth to go back up. Well, we're, 0:09:55.440 --> 0:09:58.599 we think we're years from that. The Fed's resolve is 0:09:58.679 --> 0:10:01.520 strong here. That was clear at the at the Jackson 0:10:01.559 --> 0:10:05.640 Hole Speech by by chair Powell ripping up this, up 0:10:05.679 --> 0:10:09.520 the script then and channeling his his inner volcre risk 0:10:09.520 --> 0:10:11.920 assets have responded, but now they're at the point where 0:10:11.960 --> 0:10:15.560 perhaps they've overreacted. You know, obviously we'll we'll get the 0:10:15.880 --> 0:10:18.600 message from the Fed that's on the hawkish side, but 0:10:18.840 --> 0:10:21.840 markets are already prepared for a very hawk is fed. 0:10:22.080 --> 0:10:25.120 So it's a delicate balance. Today, before we veer too 0:10:25.120 --> 0:10:27.360 far into that they might be prepared for Hawk is Fed, 0:10:27.400 --> 0:10:30.880 there's a question of how quickly that leads to economic deterioration, 0:10:30.920 --> 0:10:32.880 and we can get there. But I want to sit 0:10:32.920 --> 0:10:35.680 on this idea right now of what it means to 0:10:35.840 --> 0:10:39.520 have a vulcarized fedsure reserve, particularly with wheel rates at 0:10:39.520 --> 0:10:41.840 the highest levels going back to two thousand and eleven. 0:10:41.880 --> 0:10:45.360 Do you foresee ever again in the next few decades 0:10:45.720 --> 0:10:48.320 this fedures are of going back to zero interest rates? 0:10:49.240 --> 0:10:51.760 It's very possible. You know, we we thought that the 0:10:51.800 --> 0:10:55.400 market was pricing in too much of a too high 0:10:55.400 --> 0:10:59.440 of a probability of strong fed cuts in next year, 0:11:00.200 --> 0:11:03.520 in in late summer. Uh, those that basically been taken 0:11:03.520 --> 0:11:06.079 out as appropriate. But we certainly could if you look 0:11:06.120 --> 0:11:08.920 at the housing market and say the housing market becomes 0:11:08.920 --> 0:11:12.040 a sign of the broader economic outlook it, and then 0:11:12.120 --> 0:11:14.520 then we could be in in trouble here and the 0:11:14.520 --> 0:11:17.840 Fed would have to respond, putting its dove hat back on. 0:11:18.040 --> 0:11:22.000 We think we're we're not likely to enter that that regime, 0:11:22.880 --> 0:11:26.000 but it's certainly possible that we enter a recession. They've 0:11:26.000 --> 0:11:30.240 had hastories, you know, backtrack and send rates right back 0:11:30.280 --> 0:11:32.320 to zero. Well, okay, so this is sort of the 0:11:32.360 --> 0:11:35.680 big attention right now in a bond markets, particularly on 0:11:35.720 --> 0:11:38.440 the long end, with your tenure yields at the highest 0:11:38.480 --> 0:11:41.640 levels that they've been going back years and years. And 0:11:41.720 --> 0:11:45.000 yet some people, including Michael Collins from peach of fixed 0:11:45.040 --> 0:11:48.240 income earlier, saying it's unclear whether it's really time to 0:11:48.280 --> 0:11:51.480 pounce because there could be more. Is this the last 0:11:51.520 --> 0:11:54.840 time that we'll see real yields of this level, because 0:11:54.880 --> 0:11:57.120 this fed is poised to make some sort of turn 0:11:57.400 --> 0:12:00.959 in the not so distant future. I think depends on 0:12:01.000 --> 0:12:05.960 the path of core inflation readings and the labor market. 0:12:06.320 --> 0:12:09.959 That's why the FT is reacting so hawkishly here. They've 0:12:10.000 --> 0:12:12.840 done quite a bit. Uh. Some parts of the economy 0:12:12.880 --> 0:12:16.000 has has begun to slow, such as the housing market, 0:12:16.280 --> 0:12:19.240 but the latest print on core CPI was point six 0:12:19.559 --> 0:12:25.000 and labor markets clearly remain quite, quite tight, quite robust, 0:12:25.280 --> 0:12:28.360 at a three point seven percent unemployment rate. The Fed 0:12:28.480 --> 0:12:31.120 really needs to see a slow down in the monthly 0:12:31.200 --> 0:12:35.800 pace of inflation readings, particularly on core, and a weakening 0:12:35.920 --> 0:12:40.840 of the labor market. Again, the chair talked about inducing 0:12:40.880 --> 0:12:44.440 pain in the economy. Again, channeling is inner vocre uh, 0:12:44.480 --> 0:12:47.719 in order to get inflation down. So the fat has 0:12:47.760 --> 0:12:50.360 to do a lot more to get get the economy 0:12:50.360 --> 0:12:53.320 where it wants. Michael, they you embrace a dual mandate. 0:12:53.440 --> 0:12:55.080 I get that and you know, we could talk all 0:12:55.200 --> 0:12:57.520 day about jobless claims, this, that and the other thing, 0:12:57.640 --> 0:13:00.079 or trim mean Dallas. Maybe the chairman will bring that 0:13:00.240 --> 0:13:03.800 up today. He's got another mandate, which is the credibility 0:13:03.880 --> 0:13:08.200 that fed. But just up against political realities. If we 0:13:08.240 --> 0:13:11.280 get a Barclay's recession, if we get a barklay sort 0:13:11.280 --> 0:13:16.120 of recession, does that become a third mandate for this chairman? Well, 0:13:16.160 --> 0:13:20.640 the Fed is absolutely trying to make sure it retains credibility, 0:13:20.720 --> 0:13:24.920 particularly what when it comes to UH inflation fighting. So 0:13:25.200 --> 0:13:27.800 one of the reasons why it's being so hawkish here 0:13:27.920 --> 0:13:32.200 is to make sure that inflation expectations don't get out 0:13:32.240 --> 0:13:36.640 of control, because that's when the Fed fears and inflationary spiral. 0:13:36.760 --> 0:13:39.360 We're inflation is high, people expect it to be high 0:13:39.559 --> 0:13:42.400 and it just feeds on itself. So one of the 0:13:42.400 --> 0:13:44.120 things that Fed is trying to do here is make 0:13:44.200 --> 0:13:49.880 sure that high inflation itself doesn't lead to higher inflation expectations. 0:13:49.880 --> 0:13:52.640 So it's trying to maintain its credibility and if we 0:13:52.720 --> 0:13:55.040 look at break evens, if we look at surveys such 0:13:55.080 --> 0:13:57.000 as that from the New York Fed or the University 0:13:57.000 --> 0:13:59.320 of Michigan, the Fed is doing a good job on 0:13:59.360 --> 0:14:03.760 that front and it's able to ignore any political issues 0:14:03.800 --> 0:14:06.239 with a with a slow down, John. I'm sorry, politics 0:14:06.320 --> 0:14:08.800 matters here. It's gonna Matter Tomorrow for Bank of England. 0:14:08.800 --> 0:14:11.840 It's gonna Matter Today for Chairman Paul. I dentists agree, 0:14:11.920 --> 0:14:13.199 and I think, Michael, this is going to be the 0:14:13.240 --> 0:14:15.840 difficult part. How do they convince people that high unemployment 0:14:15.920 --> 0:14:18.760 is a price worth paying for lower inflation? Easy to 0:14:18.760 --> 0:14:20.720 say that now, but when people actually start to see 0:14:20.800 --> 0:14:23.440 materially higher unemployment? How difficult you think this is going 0:14:23.480 --> 0:14:25.960 to get? Well, that's one of the SEP the survey 0:14:26.040 --> 0:14:29.080 of economic productions, or the dots, if you will, will 0:14:29.080 --> 0:14:32.840 be so important today, Um, when we get the statement, 0:14:33.360 --> 0:14:34.960 when we look at the statement, one of the things 0:14:35.000 --> 0:14:38.520 we'll be looking at is the unemployment rate path. So 0:14:38.840 --> 0:14:41.920 you know the the the SEP is opposed to be 0:14:42.280 --> 0:14:48.080 the the economic outlook under a path of perfect monetary policy. 0:14:48.440 --> 0:14:52.080 And if the unemployment rate remains elevated in their forecast, 0:14:52.200 --> 0:14:54.520 that's a signal to the market that they're willing to 0:14:54.520 --> 0:14:59.360 tolerate UH decently higher unemployment rates in order to get 0:14:59.680 --> 0:15:02.040 in Asian down. That's a message that the fete has 0:15:02.080 --> 0:15:04.720 been sending, but we'll really be looking at the SEP 0:15:04.960 --> 0:15:07.600 to confirm that. Michael, just real quick here. I'm wondering 0:15:07.640 --> 0:15:10.320 what your projection is for how quickly inflation will come 0:15:10.360 --> 0:15:13.320 down that headline CPI, at the end of this year, 0:15:13.360 --> 0:15:16.400 at the end of next. We're fairly optimistic that it 0:15:16.480 --> 0:15:20.680 will start to slow particularly with the October reading, in 0:15:20.760 --> 0:15:23.960 part because of technical reasons, at least in CP I, 0:15:24.280 --> 0:15:27.560 but even beyond that, again we've seen signs and commodities 0:15:27.600 --> 0:15:33.160 and shipping rates, uh in in UH related futures, corn wheat, 0:15:33.200 --> 0:15:36.640 et CETERA. That many price pressures have peaked. Wages, though, 0:15:36.720 --> 0:15:39.680 are keeping inflation high and that's the key to inflation 0:15:39.760 --> 0:15:42.520 really rolling over. Michael, just quickly, what are you talking 0:15:42.520 --> 0:15:44.160 about in terms of levels? Are we gonna end the 0:15:44.200 --> 0:15:48.080 year at six percent? When do we get back? We 0:15:48.160 --> 0:15:50.360 think we'll. Will certainly come down from that when it 0:15:50.400 --> 0:15:54.480 comes to headline inflation, in part because of the strong 0:15:54.560 --> 0:15:58.600 decline in gasoline prices since since since March, but core 0:15:58.680 --> 0:16:01.840 can remain sticky. So well, we think will slow in 0:16:01.840 --> 0:16:04.800 inflation readings, but certainly well above where the Fed would 0:16:04.800 --> 0:16:18.640 like them least. Thank you very good we will continue 0:16:18.760 --> 0:16:21.480 right now on this on corporate credit with Michael Collins, 0:16:21.880 --> 0:16:25.480 senior portfolio manager of Pigeon Fixed Income. Michael, what I 0:16:25.600 --> 0:16:28.600 noticed here, and I understand the mathewness of it, let's 0:16:28.600 --> 0:16:31.880 forget that yield up. We all know that. Chairman Powell 0:16:31.920 --> 0:16:36.120 deal that today. But in many cases price very, very, 0:16:36.360 --> 0:16:39.040 very down, and we're seeing it in the Bloomberg Total 0:16:39.080 --> 0:16:42.600 Return Aggregate Index, the Old Lehman Barclay's indusease as well. 0:16:42.640 --> 0:16:45.800 What is the significance of new low price on those 0:16:45.880 --> 0:16:50.680 aggregate indices. Yeah, Tomas, as you point out, has really 0:16:50.720 --> 0:16:53.000 been nowhere to hide this year. And Fixed Income, I 0:16:53.040 --> 0:16:56.040 mean in our shop we've gotten three big things right. 0:16:56.080 --> 0:16:58.960 We've kind of stepped aside on on duration, meaning taking 0:16:58.960 --> 0:17:02.120 our our long positions down to to neutral. We've taken 0:17:02.120 --> 0:17:04.360 credit risk way down, we've generally been a little along 0:17:04.400 --> 0:17:07.120 the dollar, but that has not been enough to protect 0:17:07.119 --> 0:17:11.440 investors from that big trend down in prices. The good 0:17:11.440 --> 0:17:14.080 news is, as you know, when bond prices are down 0:17:14.640 --> 0:17:18.040 below par, which they all are really for the first 0:17:18.080 --> 0:17:21.240 time I can think of in my career, Tom we're 0:17:21.280 --> 0:17:25.160 seeing the bonds across the board, across all of our portfolios, 0:17:25.160 --> 0:17:28.800 trading a big discounts to par and, as you know, 0:17:28.920 --> 0:17:31.720 as long as they don't default, as Lisa pointed out, 0:17:32.040 --> 0:17:34.199 they end up back at par right. So so you 0:17:34.240 --> 0:17:39.280 actually have this really uh positive long term opportunity and 0:17:39.320 --> 0:17:41.400 fixed income which we haven't had for for well over 0:17:41.440 --> 0:17:44.280 a decade. Michael, I look at the mantra of the 0:17:44.320 --> 0:17:48.520 real yield, the whole professional study of the inflation adjusted 0:17:48.600 --> 0:17:54.080 yield explained to mere mortals, while the real yield matters. Yeah, 0:17:54.119 --> 0:17:56.359 I mean that is the world's discount right, right. I 0:17:56.359 --> 0:17:59.679 mean I'm always surprised when when people say, wow, I 0:17:59.720 --> 0:18:03.320 can't believe stocks and bonds are both selling off at 0:18:03.359 --> 0:18:05.680 the same time this year, and what I tell them is, well, 0:18:05.720 --> 0:18:08.760 you just wait until you see real estate and private 0:18:08.800 --> 0:18:12.560 debt and other assets that that haven't sold off because 0:18:12.560 --> 0:18:16.240 they're not actively traded, they're not marked to market every day. 0:18:16.560 --> 0:18:20.120 Wait for those shoes to drop, because when the discount rate, 0:18:20.160 --> 0:18:24.879 the world's discount rate, which is really real treasury yields, 0:18:24.880 --> 0:18:27.640 by and large, goes up as much as it has, 0:18:27.680 --> 0:18:29.800 as much as you know, a couple hundred basis points, 0:18:30.200 --> 0:18:33.840 all asset prices have to come down and the question 0:18:33.880 --> 0:18:36.600 really is, have they come down enough at this point? Well, 0:18:36.680 --> 0:18:38.520 let's get into that right now. Mike. We caught up 0:18:38.520 --> 0:18:42.160 with our good friends buff Michael of jpmrecan asset management yesterday. 0:18:42.200 --> 0:18:44.120 I asked him about high he already said not yet. 0:18:44.400 --> 0:18:47.680 Patients spreads need to get somewhere close to seven fifty 0:18:47.720 --> 0:18:50.480 basis points. The Trad series need to get somewhere close 0:18:50.760 --> 0:18:53.720 to four point five. The fat funds could push five. 0:18:54.960 --> 0:18:56.840 Any of that resonating with you? Right now, Mike, or 0:18:56.880 --> 0:18:59.080 would you take the other side of that trade? Yeah, 0:18:59.160 --> 0:19:01.000 you know, I'll take a little bit of the other side. 0:19:01.040 --> 0:19:03.240 On on the rate thing, I think we're much closer 0:19:03.520 --> 0:19:05.560 on the rate side right our view is that the 0:19:05.920 --> 0:19:08.760 rates are going to crest and come down first, and 0:19:08.800 --> 0:19:13.120 then credit spreads and and equities will will continue to 0:19:13.119 --> 0:19:16.920 to widen and sell off before they they settle down. 0:19:17.000 --> 0:19:20.040 But but I think we're really getting close to a point, Jonathan, 0:19:20.720 --> 0:19:23.680 where the likelihood of the Fed and and most other 0:19:23.720 --> 0:19:29.159 central banks over shooting significantly on the upside and having 0:19:29.520 --> 0:19:32.280 to reverse course. I know the whole concept of the pivot, 0:19:32.560 --> 0:19:34.200 you know, it was in vogue a couple of months 0:19:34.200 --> 0:19:37.000 ago and now people are pushing that aside. And Wow, 0:19:37.080 --> 0:19:39.840 as as as they keep pushing these rates up at 0:19:39.840 --> 0:19:44.359 the same time that global growth, you know, risk is 0:19:44.400 --> 0:19:47.960 coming down, earnings are coming down, as Lisa points out, 0:19:48.000 --> 0:19:51.920 the faults are probably going to go off, geopolitical risk 0:19:52.000 --> 0:19:56.240 continues to to elevate. Wow, and inflation globally is really 0:19:56.640 --> 0:19:58.560 kind of rolling over and I think it's going to 0:19:58.640 --> 0:20:01.440 be probably a lot lower a year from now. Just 0:20:01.520 --> 0:20:03.919 as all those things are happening, these central banks are 0:20:04.040 --> 0:20:07.639 jacking up rates at Nauseam, and I think that's a 0:20:07.720 --> 0:20:11.800 real recipe for a big reverse course on the rate side. 0:20:11.840 --> 0:20:14.560 On the credit side, I think you're right. I mean earnings. 0:20:14.560 --> 0:20:17.879 We've done a lot of work on on earnings expectations 0:20:17.880 --> 0:20:20.920 going forward and and I think they're gonna keep coming down. Right, 0:20:20.960 --> 0:20:23.560 and people don't talk enough about the dollar and the 0:20:23.600 --> 0:20:27.520 impact on that for US companies, for their competitiveness, for 0:20:27.560 --> 0:20:31.760 their repate patriated earnings. The labor costs continue to put 0:20:31.800 --> 0:20:34.439 pressure on margins and, as Lisa pointed out, you know, 0:20:34.480 --> 0:20:37.640 you're starting to see layoffs. Finally happened. So I think 0:20:37.680 --> 0:20:41.040 there's a little more downside and credit before before you 0:20:41.119 --> 0:20:43.159 jump in with both feet. This is all really messy. 0:20:43.280 --> 0:20:45.719 Of Michael, I wonder, just to put it all together quickly, 0:20:45.760 --> 0:20:47.480 if you could give us a sense of how you 0:20:47.520 --> 0:20:51.200