WEBVTT - DeepSeek Artificial Intelligence, Trump Tariffs and Oil 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.120 --> 0:00:31.040 Joining us now is Derek Halpenny on foreign exchange. It 0:00:31.040 --> 0:00:33.960 has been way too long since you otaman. He's just 0:00:34.479 --> 0:00:37.720 done a great job at MUFG for decades. 0:00:38.040 --> 0:00:41.040 Derek, Let's go right to the dollar. With the tests 0:00:41.040 --> 0:00:41.479 that are. 0:00:41.360 --> 0:00:45.760 Going on, is it dollar resilience that you observe. 0:00:46.880 --> 0:00:52.160 Well when you consider the level of expectations that were 0:00:52.360 --> 0:00:57.800 surrounding inauguration day and day one Taruff's being implemented. Yes, 0:00:58.040 --> 0:01:01.600 I think the correction weaker when you consider the scale 0:01:01.600 --> 0:01:04.880 of dollar strength in Q four of last year, I 0:01:04.920 --> 0:01:09.480 think is still pretty moderate, and for obvious reasons. You know, 0:01:09.560 --> 0:01:12.480 I think you'd be a brave man to be selling 0:01:12.520 --> 0:01:15.760 the dollar here. When he listened to Trump last night 0:01:15.880 --> 0:01:18.000 and the way he was talking about trade tariffs and 0:01:18.040 --> 0:01:21.039 how he loves them and all the advantages tariffs are coming. 0:01:21.080 --> 0:01:22.959 It's just it's just a matter of way. 0:01:23.400 --> 0:01:26.840 You are experted flows what are the flows from the 0:01:26.880 --> 0:01:31.080 continent to America and vice versa, or from the Pacific 0:01:31.160 --> 0:01:32.080 RIM to America. 0:01:33.120 --> 0:01:38.160 Well, well, speaking from an MUFG perspective, the Pacific RIM, 0:01:38.680 --> 0:01:42.720 you know, to Japan and both you know or sorry 0:01:42.800 --> 0:01:45.880 Japan to the United States from the Pacific RIM, and 0:01:45.959 --> 0:01:50.400 also in Europe, you know, there's definitely been reduced appetite 0:01:50.680 --> 0:01:54.320 for fixed income investments, and I think in that it 0:01:54.520 --> 0:01:59.640 partly reflects the increased cost of hedging for Japanese investors 0:02:00.280 --> 0:02:04.400 has curtailed their appetites because, as you know, Tom, there's 0:02:04.440 --> 0:02:08.280 an appetite for fixed income, but also hedging that to 0:02:08.360 --> 0:02:11.160 some degree, and the cost of hedging I think has 0:02:11.200 --> 0:02:15.440 brought down overall the buying of fixed income in the 0:02:15.520 --> 0:02:19.200 United States. And it's even more obvious in Europe, where 0:02:19.320 --> 0:02:23.959 Japanese investors have been outright sellers, probably on political risk 0:02:24.919 --> 0:02:28.239 in France in particular, where we've seen some heavy selling 0:02:28.639 --> 0:02:31.040 of French bonds over the last couple of months. 0:02:31.560 --> 0:02:34.640 It's interesting because Chris Fheron over at Strateiguez was pointing 0:02:34.680 --> 0:02:37.240 out yesterday that how if you're looking at the performers 0:02:37.280 --> 0:02:40.320 for technology stocks and how they peaked in July when 0:02:40.320 --> 0:02:42.560 the yen first Strengthen, if you're looking at the US 0:02:42.680 --> 0:02:45.919 dollar versus the Japanese yen still around that one fifty 0:02:46.000 --> 0:02:48.560 five level, what are you watching there and how does 0:02:48.560 --> 0:02:51.000 that kind of in relation to what we saw with 0:02:51.120 --> 0:02:53.400 China their AI model. What that means kind of more 0:02:53.440 --> 0:02:55.560 broadly when you're looking at this space. 0:02:56.280 --> 0:02:58.560 Yeah, like we had an interesting move yesterday, like the 0:02:59.280 --> 0:03:03.120 Japanese yen was the clear out performer, and I think 0:03:03.240 --> 0:03:05.960 if you look at the cost of hedging going back 0:03:05.960 --> 0:03:08.640 to that point, and by that I mean just looking 0:03:08.680 --> 0:03:11.480 at three month money spreads, because a lot of Japanese 0:03:11.480 --> 0:03:14.560 investors hedge on a three month rolling basis. You know, 0:03:14.680 --> 0:03:18.320 the cost of hedging is coming down, and it's coming 0:03:18.360 --> 0:03:24.160 down steadily, and as that happens, that obviously incentivize incentivizes 0:03:24.240 --> 0:03:27.400 Japanese investors to hedge moore, which is essentially yen buying. 0:03:28.000 --> 0:03:32.000 And if that flow dynamic continues to gradually change, then 0:03:32.040 --> 0:03:35.240 I think you get back to the old traditional type 0:03:35.280 --> 0:03:37.440 moves that we might get where you have a risk 0:03:37.520 --> 0:03:39.880 off scenario, you have a drop in yields in the 0:03:39.960 --> 0:03:43.440 United States, and you have the Japanese yen outperforming like 0:03:43.520 --> 0:03:46.000 what we had yesterday, but you know, we still have 0:03:46.520 --> 0:03:49.119 quite a substantial spread. So of course today we've seen 0:03:49.160 --> 0:03:51.720 the en rewaken again, but I think the story is 0:03:51.760 --> 0:03:52.440 slowly changed. 0:03:52.520 --> 0:03:54.240 But Derek, cut to the chase. Here, do you have 0:03:54.280 --> 0:03:57.400 a vector of disinflation and lower yields? We've got Ian 0:03:57.480 --> 0:04:00.680 Lingoln coming up here. He's in that camp. Michael will 0:04:00.680 --> 0:04:03.720 be with us and the Fed show tomorrow. I mean, Derek, 0:04:03.760 --> 0:04:06.480 are you still looking for a disinflationary tendency? 0:04:07.680 --> 0:04:09.960 Yeah, well, certainly in terms of a global perspective, I'm 0:04:10.040 --> 0:04:12.840 quite optimistic on inflation, you know, and I think that 0:04:12.920 --> 0:04:17.200 the battle is effectively close to one. But from a 0:04:17.279 --> 0:04:20.640 Japanese perspective, it's certainly different. And that's why I think 0:04:20.680 --> 0:04:23.440 that that story is going to continue, where the boj 0:04:23.640 --> 0:04:26.599 continue to raise rates, and then while the FED maybe 0:04:26.600 --> 0:04:30.800 in for a period of pause, the more favorable inflation backdrop, 0:04:30.880 --> 0:04:34.640 certainly by the second half of this year, is going 0:04:34.680 --> 0:04:38.760 to allow the Fed to continue or to restart cutting rates, 0:04:39.160 --> 0:04:42.880 and then that kind of spread dynamic becomes, you know, 0:04:43.000 --> 0:04:46.479 more favorable for Japanese and strength. But certainly in terms 0:04:46.520 --> 0:04:50.800 of the broader inflation picture, I'm more optimistic. 0:04:51.000 --> 0:04:51.160 Now. 0:04:51.200 --> 0:04:53.080 Of course, we need to assess what Trump does in 0:04:53.160 --> 0:04:54.159 terms of trade tariffs. 0:04:54.160 --> 0:04:55.600 Well, that's what I was going to ask you. Because 0:04:55.760 --> 0:04:58.200 the global battle is mostly one on inflation. What do 0:04:58.240 --> 0:04:59.840 you think is the biggest risk? 0:05:01.240 --> 0:05:06.039 Well, yeah, like come to trade tarfs obviously, because it 0:05:06.120 --> 0:05:10.160 all depends on the aggressiveness of the trade tariffs that 0:05:10.200 --> 0:05:12.839 are implemented. Now, if you if you look right now 0:05:12.880 --> 0:05:15.719 at the moment at dollar CAD, look at dollar mechs, 0:05:16.240 --> 0:05:19.400 the moves that we've had in those currencies do not 0:05:19.760 --> 0:05:23.640 reflect expectations of an implementation of a twenty five percent 0:05:23.760 --> 0:05:29.600 trade tarff. So markets are still skeptical of Trump's willingness 0:05:29.640 --> 0:05:34.120 to act aggressively given the near term inflation risks. If 0:05:34.360 --> 0:05:36.400 if we're wrong on that and he is much more 0:05:36.400 --> 0:05:39.680 aggressive and twenty five percent on what nearly one third 0:05:39.720 --> 0:05:44.160 of your imports would be very very substantial, then the 0:05:44.440 --> 0:05:47.560 inflation dynamic is obviously different very quickly. 0:05:47.640 --> 0:05:49.840 Or what's your key pair to make big figure moves? 0:05:49.920 --> 0:05:52.520 Jess Metton's got to pay back all the Texas A 0:05:52.600 --> 0:05:55.159 and m bettings she did where she went down in flames. 0:05:55.200 --> 0:05:58.960 What's what's the Derek Hallpenny pair where I can make 0:05:59.000 --> 0:06:00.680 some money over the next six months. 0:06:02.000 --> 0:06:05.159 Well, we have a dollar peak story in about three 0:06:05.160 --> 0:06:07.400 to four months, So if I do it over that period, 0:06:07.440 --> 0:06:09.279 I think the dollar still has more strength to go, 0:06:09.400 --> 0:06:11.680 but obviously not against the Japanese yam. Like I mentioned, 0:06:12.000 --> 0:06:14.880 so like we think euro can still drop below posy 0:06:15.640 --> 0:06:18.520 assuming we do get this period of you know, some 0:06:18.880 --> 0:06:22.680 adoption of trade tariffs, the fed on holes probably until 0:06:22.680 --> 0:06:25.600 the summer, the ECB continuing to cuss. I think euro 0:06:25.720 --> 0:06:28.360 dollar is heading to Parsey and potentially below. 0:06:28.600 --> 0:06:31.320 Derek, thank you so much. Derek Halpenny with us this 0:06:31.320 --> 0:06:32.400 morning with m UFG. 0:06:38.360 --> 0:06:41.960 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:06:42.000 --> 0:06:45.200 weekday afternoons from seven to ten am Eastern. Listen on 0:06:45.240 --> 0:06:48.640 Apple Karplay and Android Otto with the Bloomberg Business app, 0:06:48.839 --> 0:06:50.560 or watch us live on YouTube. 0:06:50.800 --> 0:06:51.559 This is a joy. 0:06:51.600 --> 0:06:55.400 I'm going to spare the long Introdutch in the densest 0:06:55.720 --> 0:06:58.400 most read note and fixed income on Wall Street is 0:06:58.440 --> 0:07:02.000 with our question. Ian Lingoln he wandered through parchment at 0:07:02.080 --> 0:07:07.160 Yale University in Minnesota, a CFA and just absolutely iconic 0:07:07.200 --> 0:07:09.320 in terms of looking at raids. He holds court with 0:07:09.360 --> 0:07:12.520 BEMO Capital Markets. His compliance told me he is on 0:07:12.680 --> 0:07:16.760 speaking terms with Brian Belski. Belski started drinking at ten 0:07:16.840 --> 0:07:20.360 am yesterday. What did you do on the desk with 0:07:20.680 --> 0:07:24.840 correlation here? Price down, yield up? Is Ian Lnoln buying 0:07:25.000 --> 0:07:26.240 ten years yesterday? 0:07:27.000 --> 0:07:29.800 I do think that what we saw yesterday was the 0:07:29.840 --> 0:07:34.680 beginning of a repricing in of the safe haven quality 0:07:34.680 --> 0:07:37.800 of treasuries. We were reminded that there's more going on 0:07:38.000 --> 0:07:42.760 in the world than just tariffs, than just the Goldilocks economy. 0:07:43.000 --> 0:07:46.120 In fact, when things go wrong inequitizer in different parts 0:07:46.160 --> 0:07:49.120 of this system, we see a quick bid for treasuries, 0:07:49.160 --> 0:07:50.800 and that's what we saw. That's stabilizing bid. 0:07:51.080 --> 0:07:53.400 You stole a line from Carly Simon that great song 0:07:53.480 --> 0:07:58.080 she had apprehension. The apprehension is out there yesterday. 0:07:58.240 --> 0:08:01.640 I get that. But on a vecfter basis, with a FED. 0:08:01.400 --> 0:08:06.280 Meeting tomorrow, can Ian Lingoln say the disinflationary trend is 0:08:06.320 --> 0:08:07.040 still in place. 0:08:07.680 --> 0:08:10.840 The disinflationary trend is in place, but we're trading off 0:08:10.880 --> 0:08:14.920 of the potential for a forward reflationary one based on tariffs, 0:08:15.000 --> 0:08:17.800 which frankly I think is somewhat overblown. At this point, 0:08:18.040 --> 0:08:20.920 we are going to enter into a period where the 0:08:21.080 --> 0:08:23.960 data is confusing for the FED because we'll have a 0:08:24.000 --> 0:08:27.560 floor in the realized inflation data as a function of 0:08:27.680 --> 0:08:29.960 the tariffs that presumably are going to be rolled out 0:08:30.000 --> 0:08:32.720 over the course of the next several quarters, and that's 0:08:32.760 --> 0:08:34.720 going to make it very difficult for the FED to 0:08:34.760 --> 0:08:35.640 get back to normal. 0:08:35.960 --> 0:08:39.640 Do you have a magnitude adjustment of the tariff in 0:08:39.640 --> 0:08:42.520 that I guess we could. The line now is are 0:08:42.559 --> 0:08:45.559 going to ramp in tariffs. But does ian Lncoln make 0:08:45.600 --> 0:08:49.720 a distinction between three percent ish all in tariffs versus 0:08:49.720 --> 0:08:53.880 the magnitude the president's talking about. Those are two different stories, right. 0:08:54.320 --> 0:08:57.800 They're two entirely different stories. However, I think the most 0:08:57.840 --> 0:09:01.880 important aspect is whether or not it's gradual or a 0:09:02.120 --> 0:09:04.600 one off adjustment, because if it's a one off adjustment, 0:09:04.840 --> 0:09:07.240 the Fed's going to look at that and say, that's. 0:09:07.040 --> 0:09:08.080 A tax on the consumer. 0:09:08.280 --> 0:09:09.240 Let's move forward. 0:09:09.520 --> 0:09:12.600 If it's gradually brought in, which I can appreciate from 0:09:12.600 --> 0:09:14.920 a political perspective, you want to take the sticker shock 0:09:14.960 --> 0:09:17.800 out of higher prices. But that's an environment where the 0:09:17.840 --> 0:09:22.199 Fed's going to struggle to really break down the difference 0:09:22.240 --> 0:09:26.440 between true demand side inflation and tariff related inflation. 0:09:26.840 --> 0:09:30.960 Looking at the tenure, obviously it came down pretty significantly yesterday, 0:09:31.000 --> 0:09:33.560 but up about two basis points around four or five five. 0:09:33.600 --> 0:09:36.840 But what a speculative net future positioning tell us about 0:09:36.880 --> 0:09:39.080 how investors are potentially shorting the tenure. 0:09:40.040 --> 0:09:42.240 I think that this is the part of the cycle 0:09:42.520 --> 0:09:45.240 where it is a make or break moment for the 0:09:45.280 --> 0:09:49.480 bear steepening narrative, and that is that core short from 0:09:49.520 --> 0:09:52.679 the speculative community in tens and thirties that has been 0:09:52.720 --> 0:09:55.720 persistent throughout a lot of the cycle. I think that 0:09:55.760 --> 0:09:59.360 we're poised for a reversal. Everyone's been waiting for an 0:09:59.360 --> 0:10:03.679 opportunity to buy treasuries. They've been waiting for the proverbial 0:10:03.760 --> 0:10:07.440 dust to settle. Hasn't settled yet, but it's to some extent. 0:10:07.480 --> 0:10:09.800 It's the opposite of what we've seen in the equity market, 0:10:09.800 --> 0:10:12.400 which is everyone's waiting for a moment to sell. Now 0:10:12.480 --> 0:10:15.320 people are waiting for a moment to add to treasuries. 0:10:15.440 --> 0:10:17.320 Okay, they're going to add to treasuries, and we're going 0:10:17.400 --> 0:10:19.439 to get the second derive. The convexity is going to 0:10:19.520 --> 0:10:22.800 come in and yields are going to accelerate down it's 0:10:22.800 --> 0:10:26.000 away from your remit. But if tens and thirties move 0:10:26.040 --> 0:10:29.160 in an Ian Lincoln Way, do we get mortgage rate relief? 0:10:29.720 --> 0:10:31.960 Does the housing market, which we all agree is a 0:10:32.000 --> 0:10:34.959 train wreck, does it get some relief? 0:10:35.040 --> 0:10:39.120 This year, I've been very surprised at how long the 0:10:39.160 --> 0:10:41.640 mortgage basis has stayed as high as it has and 0:10:41.679 --> 0:10:42.319 why is that? 0:10:42.559 --> 0:10:42.679 Well? 0:10:42.720 --> 0:10:44.559 I think to a large extent, because of the regional 0:10:44.600 --> 0:10:47.720 banking crisis. We lost some of the core buyers in 0:10:47.760 --> 0:10:51.440 the mortgage business, which are the regional banks. They are 0:10:51.520 --> 0:10:53.680 starting to come back. They're starting to come back slowly, 0:10:53.679 --> 0:10:56.200 and I think that will compress the mortgage basis, which 0:10:56.240 --> 0:10:59.720 will at a minimum put a cap in for mortgage rates. 0:10:59.760 --> 0:11:03.200 I don't think that we're going back to a pre 0:11:04.760 --> 0:11:08.000 pre pandemic reality for the mortgage space. Hopefully at one 0:11:08.000 --> 0:11:10.720 point we will, but not at this stage. I think 0:11:10.720 --> 0:11:12.240 there's still plenty of work to be done. 0:11:12.440 --> 0:11:15.360 So where do you think the neutral rate actually is? 0:11:15.400 --> 0:11:17.480 Since we're going to have the FED meeting tomorrow and 0:11:17.520 --> 0:11:19.400 the debate surrounding that, which is kind of like the 0:11:19.400 --> 0:11:20.599 million dollar question. 0:11:21.559 --> 0:11:24.120 My key observation in that regard is that it's a 0:11:24.160 --> 0:11:28.320 moving target. It was certainly higher during the last several year, 0:11:28.559 --> 0:11:30.360 year and a half than I think the market was 0:11:30.440 --> 0:11:33.719 expecting it and the FED. I'll also note that the 0:11:33.760 --> 0:11:37.600 FED has moved up their longer run dot over the 0:11:37.600 --> 0:11:40.160 course of the last year, so they've indirected to directly 0:11:40.200 --> 0:11:43.120 acknowledge that it's fifty basis points higher at least. So 0:11:43.160 --> 0:11:45.720 that gets us to three percent. I would say it's 0:11:45.760 --> 0:11:47.480 probably three and a quarter or three and a half. 0:11:47.520 --> 0:11:49.480 The only one I know in Lingo who could say 0:11:49.520 --> 0:11:52.280 the longer run dot and keep a straight face. 0:11:53.559 --> 0:11:54.840 With BMO Capital Market. 0:11:54.840 --> 0:11:58.360 It's an extended conversation, a trait for Global. Wall Street 0:11:58.440 --> 0:11:59.880 really can't say enough about it. 0:12:00.160 --> 0:12:01.880 Reddigreen on the screen that vis comes in. 0:12:01.880 --> 0:12:05.480 Under eighty Jess met in cool Com collected today its 0:12:05.559 --> 0:12:08.640 seventeen point eight zero yields MOVI, I I look at 0:12:08.640 --> 0:12:10.600 the ten year real yield. I only do that to 0:12:10.640 --> 0:12:13.840 impress the in Lincoln two point one five percent gone 0:12:13.880 --> 0:12:17.280 two twenty to two ten, we're back halfway on the 0:12:17.320 --> 0:12:19.880 real yield. I guess it's fear missing. I will leave 0:12:19.880 --> 0:12:22.280 it at that. Just save me here for Ian Lincoln. 0:12:22.320 --> 0:12:24.520 Well, because of the backdrop, and you were mentioning about 0:12:24.520 --> 0:12:28.520 the new administration coming in in Washington under President Donald Trump. 0:12:28.559 --> 0:12:31.000 How is the market in the economy different now when 0:12:31.040 --> 0:12:33.840 he first was taken in in twenty seventeen versus what 0:12:33.840 --> 0:12:35.880 we're seeing at this point, and what does the bond 0:12:35.920 --> 0:12:38.040 market tell us about the direction of inflation. 0:12:37.720 --> 0:12:38.400 In the economy. 0:12:38.920 --> 0:12:41.120 Well, it is a decidedly different world than it was 0:12:41.160 --> 0:12:43.800 in the beginning of two thousand and seventeen when he 0:12:43.880 --> 0:12:47.040 first took the presidency or took over. But what we 0:12:47.320 --> 0:12:51.439 did see is what we are seeing is a inflationary 0:12:51.480 --> 0:12:55.000 trend that's higher on average, but moderating versus where it 0:12:55.080 --> 0:12:57.599 was a couple of years ago. We have a decidedly 0:12:57.640 --> 0:13:01.040 lower unemployment rate and the perception that we're in a 0:13:01.120 --> 0:13:04.760 Goldilock's economy that's going to continue in perpetuity. Now, that's 0:13:04.800 --> 0:13:08.440 a different departure point. One observation I will make, though, 0:13:08.920 --> 0:13:12.920 is that a lot of the Trump related trade war 0:13:12.960 --> 0:13:16.840 initiatives that he put in place during his first presidency 0:13:17.040 --> 0:13:20.080 were not wholesale unlound, a lot of the tariffs persisted, 0:13:20.160 --> 0:13:23.640 a lot of that protectionism was already in earth is 0:13:23.640 --> 0:13:26.559 still in place, and so we're starting that process from 0:13:26.559 --> 0:13:30.720 a higher plateau, which does have more potentially negative ramifications 0:13:30.720 --> 0:13:31.720 for the global economy. 0:13:32.360 --> 0:13:34.120 Look at ling in at all this, and the heart 0:13:34.160 --> 0:13:38.080 of the matter is we had a great disinflation, very 0:13:38.120 --> 0:13:39.560 low yields, negative rates. 0:13:39.559 --> 0:13:42.240 We all know the drill. 0:13:41.440 --> 0:13:45.760 Is now normal within the historic span that you are 0:13:45.880 --> 0:13:49.720 expert at. Are we back to like these are normal 0:13:49.840 --> 0:13:54.679 interest rates for Kimberly Clark or the Bank of Montreal 0:13:54.840 --> 0:13:58.640 and everybody else, Lisa Matteil, Is this normal. 0:13:59.240 --> 0:14:03.400 If we look historically. It's very tempting to say, look, 0:14:03.440 --> 0:14:06.440 we're back towards the averages, we're back at normal. But 0:14:06.480 --> 0:14:09.120 the reality is that as the real economy has evolved 0:14:09.160 --> 0:14:11.160 over the course of the last two or three decades, 0:14:11.480 --> 0:14:15.360 we have become accustomed to lower real yields and lower 0:14:15.400 --> 0:14:19.120 nominal yields. So I'll argue that we're still at the 0:14:19.240 --> 0:14:23.480 upper end, or the restrictive part of the cycle. And 0:14:23.800 --> 0:14:28.720 the nuance is that during the pandemic, everyone including corporations, 0:14:28.960 --> 0:14:32.520 we're able to lock in extremely low long term financing 0:14:32.600 --> 0:14:36.520 rack of mortgages, and we're still working through that buffer 0:14:36.720 --> 0:14:39.800 to absorb higher inflation or to drive consumption. When that 0:14:39.920 --> 0:14:42.520 gives that's when we'll realize how tight policy is. 0:14:42.520 --> 0:14:44.800 Okay, so a year from now, where's the ten year yield? 0:14:44.960 --> 0:14:45.920 Let's just start with that. 0:14:46.360 --> 0:14:48.080 Well, we're certainly going to be trading with a three 0:14:48.160 --> 0:14:50.400 handle by the beginning of next year. 0:14:50.480 --> 0:14:53.160 If somebody in the other day shocked me from Peyton, 0:14:53.240 --> 0:14:56.520 Riegal lot in La jeff Cleveland, Jeffrey Cleveland saying a 0:14:56.600 --> 0:14:59.720 three sixty, I about fell off my chair and Lncoln's 0:14:59.720 --> 0:15:02.920 not three sixty right, you're at three eighty three ninety. 0:15:02.720 --> 0:15:04.720 Yeah, I think we could easily at this time next year, 0:15:04.800 --> 0:15:07.280 we could easily be in a range between let's call 0:15:07.280 --> 0:15:09.640 it three sixty five and three ninety five. 0:15:09.720 --> 0:15:11.960 I don't think how do we get there? 0:15:12.040 --> 0:15:15.600 Brian Belski's I'm going i'd with Brian Belski, Brian, thanks 0:15:15.600 --> 0:15:16.680 for watching YouTube. 0:15:16.720 --> 0:15:19.680 He's going to ask, and how we get there? What's 0:15:19.720 --> 0:15:20.120 the hew? 0:15:22.000 --> 0:15:24.760 The FED is going to be successful in their ability 0:15:24.880 --> 0:15:27.720 or in their endeavor to re establish christ stability. That 0:15:27.760 --> 0:15:31.680 brings forward inflation expectations down. Even if real rates stay 0:15:31.760 --> 0:15:35.480 roughly where we are. We could compress tenure break evens 0:15:35.520 --> 0:15:40.120 from two sixty to one ninety five or two hundred 0:15:40.120 --> 0:15:43.400 basis points, and that gets us right up against four percent. 0:15:43.480 --> 0:15:45.720 Right now, okay, for the non global washteon, I'm going 0:15:45.760 --> 0:15:48.840 to translate that is the inflation adjusted. 0:15:48.400 --> 0:15:50.960 Yield even with stability. 0:15:51.600 --> 0:15:55.280 The other parts of the yield structure are price up 0:15:55.360 --> 0:15:59.720 yield down, right, I do. Okay, there, I only got 0:15:59.720 --> 0:16:02.560 to payos alone. 0:16:02.640 --> 0:16:04.360 Well, actually, look at the tenure. I mean it was 0:16:04.400 --> 0:16:06.720 around three six back in September. Obviously a lot of 0:16:06.720 --> 0:16:09.120 things have transpired since then, but that wasn't that long 0:16:09.160 --> 0:16:11.520 ago to your point, So how do you think it 0:16:11.560 --> 0:16:12.440 kind of builds on that? 0:16:12.880 --> 0:16:16.280 Well, we were at in let's call it three four 0:16:16.400 --> 0:16:19.720 thirty two four forty recently, and that that was with 0:16:19.840 --> 0:16:24.080 break evens at two ten. All we need to do 0:16:24.400 --> 0:16:28.800 is get forward expectations of inflation to price out the 0:16:28.880 --> 0:16:33.200 Trump reflation trade and start to price in the potential 0:16:33.280 --> 0:16:36.320 for economic damage to be done from a global trade bark. 0:16:36.400 --> 0:16:38.720 Does that happen soon as because the rents, OER and 0:16:38.760 --> 0:16:41.280 the rest of the housing complex, or is it the 0:16:41.320 --> 0:16:42.960 price of eggs finally comes in. 0:16:43.600 --> 0:16:44.920 I think at the end of the day, what we 0:16:44.960 --> 0:16:48.280 see is the supercore measure of inflation, which is core 0:16:48.360 --> 0:16:53.160 services excluding rent and OER, that printed at just point 0:16:53.200 --> 0:16:56.480 two in December and there's so there's downward potential yet 0:16:56.560 --> 0:16:59.040 to be realized there. I think we could very easily 0:16:59.080 --> 0:17:02.000 see that because that's has the high correlation with realized 0:17:02.040 --> 0:17:05.800 wages and the employment market. While ostensibly on strong footing, 0:17:06.400 --> 0:17:09.280 does we're at at the point where we would expect 0:17:09.280 --> 0:17:12.760 to see further job reduction and an increase in the 0:17:12.840 --> 0:17:15.440 unemployment rate? You have to be realized. I'll be the 0:17:15.480 --> 0:17:16.800 first acknowledge that if. 0:17:16.720 --> 0:17:19.480 You could ask FED chair pal a question at his 0:17:19.560 --> 0:17:21.720 press conference tomorrow, what would it be? 0:17:21.880 --> 0:17:23.359 I would never ask that question. 0:17:25.880 --> 0:17:29.280 Well, the biggest question on my mind, and the one 0:17:29.280 --> 0:17:32.520 that I suspect that the chair would be unwilling to answer, 0:17:32.800 --> 0:17:37.080 is we see the dispersion of the dot plot, which 0:17:37.160 --> 0:17:40.440 dot is yours? What's the chair thinking? 0:17:40.560 --> 0:17:42.800 But there's not. Come on, they're not going to answer 0:17:42.840 --> 0:17:45.000 that question. Are we done with the dots? 0:17:45.119 --> 0:17:47.720 I've been asking this since Richard Berner was at Morgan 0:17:47.800 --> 0:17:50.720 Stalley and we're both going mental about the dots? Are 0:17:50.720 --> 0:17:53.239 we done with the dot experiment? And do you get 0:17:53.280 --> 0:17:54.400 any value out of it? 0:17:54.720 --> 0:17:54.880 So? 0:17:55.080 --> 0:17:58.080 I think that that's a very very interesting observation because 0:17:58.080 --> 0:18:01.480 the FED has tried so hard to de emphasize the 0:18:01.600 --> 0:18:04.879 value of the dots and their forward predictive qualities. But 0:18:05.080 --> 0:18:07.560 at the end of the day, the algos and the 0:18:07.680 --> 0:18:09.680 CTAs they need something to trade. 0:18:09.760 --> 0:18:12.040 They need why do we care about them? 0:18:12.119 --> 0:18:16.280 We care about the efficacy of America based on a 0:18:16.359 --> 0:18:17.359 dual mandate. 0:18:17.440 --> 0:18:19.960 We don't care about the roulette. 0:18:19.520 --> 0:18:24.399 Wheel of the CTA machine, Monroe Trout because Jim Bullard, 0:18:24.400 --> 0:18:26.920 who used to work at the St. Louis, why don't 0:18:26.920 --> 0:18:29.800 we give a damn about CTAs when we're trying to 0:18:29.800 --> 0:18:32.240 create public policy here with the Fed? 0:18:32.720 --> 0:18:34.920 Well, I don't think that the Fed cares as much 0:18:35.000 --> 0:18:37.359 about the dots as the market does. And the market 0:18:37.400 --> 0:18:39.800 only cares about the dots because we need something to trade. 0:18:40.119 --> 0:18:43.240 When they updated SEP hits and we're not going to 0:18:43.320 --> 0:18:45.879 trade the growth numbers. We're not going to trade the 0:18:45.880 --> 0:18:48.639 inflation numbers because they're always overly optimistic, and they assume 0:18:48.680 --> 0:18:49.800 that the Fed's doing their job. 0:18:49.920 --> 0:18:52.159 And we won't get the dots this time because they're quarterly, 0:18:52.240 --> 0:18:53.680 so we won't get them again until March. 0:18:55.920 --> 0:18:57.879 So there you go. How do we get rid of 0:18:57.920 --> 0:18:59.520 the dots? A wise one? 0:19:00.160 --> 0:19:04.160 So I will argue that there has been a very 0:19:04.840 --> 0:19:07.639 concerted effort to increase transparency over the course of the 0:19:07.760 --> 0:19:10.639 last twenty years by monetary policy makers the FED, but 0:19:10.760 --> 0:19:15.280 globally that hasn't necessarily translated through to the best outcome. 0:19:15.600 --> 0:19:19.080 There's a case to be made for less transparency, for 0:19:19.160 --> 0:19:21.640 speaking a little bit less, given a little bit less 0:19:21.640 --> 0:19:25.000 forward guidance, and dropping the dots. I think could be 0:19:25.280 --> 0:19:28.080 a reasonable first step towards that objective. I don't think 0:19:28.080 --> 0:19:30.720 they'll do it, but I could argue that they might. 0:19:31.080 --> 0:19:33.320 Well, that's an interesting point because the communication with the 0:19:33.320 --> 0:19:35.639 Federal Reserve has changed so much, even coming out of 0:19:35.640 --> 0:19:38.040 the housing crisis with Bernaki, there used to not be 0:19:38.119 --> 0:19:41.560 pet press conferences after these statements, especially when Greenspan was 0:19:41.600 --> 0:19:44.760 FED chair, and now once Pale came into play. Would 0:19:44.760 --> 0:19:47.120 you started having them after every meeting, not even every 0:19:47.119 --> 0:19:49.800 other meeting? So how do you think what would be 0:19:49.840 --> 0:19:52.520 the sort of way that they would communicate less because 0:19:52.560 --> 0:19:55.040 it seems like the markets want to know every little detail. 0:19:55.800 --> 0:19:59.480 I think that the first step towards a more unified 0:19:59.600 --> 0:20:03.760 communityication process would be to be a bit more sparing 0:20:04.000 --> 0:20:06.840 on how the regional banking presidents speak and how the 0:20:06.960 --> 0:20:10.119 non core members of the f mc are able to 0:20:11.320 --> 0:20:13.560 air their views as it were. I don't think again, 0:20:13.640 --> 0:20:18.560 I don't think that's going to happen, but a convergence 0:20:18.640 --> 0:20:21.080 of thinking right, it would be a big key on 0:20:21.119 --> 0:20:21.960 the messaging side. 0:20:21.960 --> 0:20:24.159 But again I'm busting your chops. 0:20:24.200 --> 0:20:27.399 But we're getting a huge response on YouTube. Thank you 0:20:27.480 --> 0:20:30.640 so much. I can't say enough folks about Ian Lncoln 0:20:31.000 --> 0:20:31.840 is someone out. 0:20:31.640 --> 0:20:32.440 On YouTube set. 0:20:32.520 --> 0:20:35.320 He's the only one that makes the complexities of what 0:20:35.440 --> 0:20:40.359 Frank Forbosey rought somehow in the King's English. Ian lingoln 0:20:40.520 --> 0:20:43.760 Is with BEMO Capital Markets can't say enough about his 0:20:43.840 --> 0:20:44.480 morning note. 0:20:44.760 --> 0:20:45.280