WEBVTT - Bloomberg Surveillance TV: May 17, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:38.760 Terminal and the Bloomberg Business App. Mohammad Allan of Queen's College, Cambridge, Mohammid, 0:00:38.760 --> 0:00:39.839 Good mornagor it's going to see you. 0:00:39.880 --> 0:00:41.400 Good morning, John, Thanks for saying all. 0:00:41.440 --> 0:00:43.520 Just a bunch of happy talk, all these good things, 0:00:43.520 --> 0:00:45.080 good vibes about the US economy. 0:00:45.479 --> 0:00:49.720 It's happy talk, justified on where we've been, but it 0:00:49.800 --> 0:00:51.479 is dangerous looking forward. 0:00:51.720 --> 0:00:54.360 Jamie Diamond sounded like you earlier this week speaking to 0:00:54.360 --> 0:00:56.240 Francine lacro I'm not sure if you've seen the conversation. 0:00:56.280 --> 0:00:57.320 I'll bring you one of the quotes. 0:00:57.440 --> 0:00:59.640 There's a lot of inflationary forces in front of us, 0:00:59.640 --> 0:01:01.480 he said, but it gave us a list of reasons, 0:01:01.520 --> 0:01:03.840 a list of reasons that you've given us before, the green, 0:01:03.880 --> 0:01:09.080 economic remilitarization, infrastructure spending, trade disputes, large fiscal deficits. What 0:01:09.160 --> 0:01:11.160 exactly is this FED a reserve fighting? 0:01:11.880 --> 0:01:14.240 So first of all, Jamie and I have been on 0:01:14.280 --> 0:01:17.080 the same wavelength for a while, so thank you for 0:01:17.120 --> 0:01:20.600 saying that. Look, this is a reactive feed. This is 0:01:20.640 --> 0:01:24.640 a data dependent FED. So when Jamie and others list 0:01:24.680 --> 0:01:27.960 the things look going forward that are inflation in nature, 0:01:28.040 --> 0:01:30.320 that's not something that the FED talks about. The FED 0:01:30.360 --> 0:01:33.119 talks about the latest set of data and that we're 0:01:33.120 --> 0:01:35.520 going to continue having a reactive FED. Because this is 0:01:35.560 --> 0:01:38.720 a FED that loss self confidence back in twenty twenty 0:01:38.760 --> 0:01:41.080 one when they try to be strategic and got the 0:01:41.160 --> 0:01:44.039 call horribly wrong. So what is the safest thing to 0:01:44.040 --> 0:01:46.319 do is to become data dependent and that's where. 0:01:46.160 --> 0:01:48.440 The FED is So no strategic chutcare, which is what 0:01:48.520 --> 0:01:52.080 you've talked about repeatedly, and hypersensitive from data point to 0:01:52.160 --> 0:01:55.040 data point. Ultimately, what does that mean for financial markets? 0:01:55.040 --> 0:01:56.720 Lots of volatility, bit trending higher. 0:01:57.840 --> 0:02:01.320 Yes, as long as these the whiff I want to 0:02:01.320 --> 0:02:04.920 stress it's a whiff of stagflation doesn't turn into something stronger. 0:02:04.960 --> 0:02:07.000 Snackflactory winds, I think is what you've called them. 0:02:07.040 --> 0:02:09.400 Correct, correct, And that's what you have to keep an 0:02:09.440 --> 0:02:11.600 eye on, is that we don't want that to become 0:02:11.680 --> 0:02:13.119 something much stronger. 0:02:13.200 --> 0:02:15.520 When you say the FED is data dependent, how dangerous 0:02:15.560 --> 0:02:17.280 is that when you have revisions like we had this 0:02:17.320 --> 0:02:18.519 week with the PPI report. 0:02:19.080 --> 0:02:21.280 No, it's very dangerous. It's dangerous first because the data 0:02:21.360 --> 0:02:24.040 is very noisy, both in terms of month to month, 0:02:24.160 --> 0:02:28.200 but also in terms of revisions. Is also dangerous because 0:02:28.240 --> 0:02:31.560 the data's backward looking and the tools act with a lag. 0:02:31.960 --> 0:02:33.679 So this is not where you want to be. And 0:02:34.080 --> 0:02:37.400 that articles was another one yesterday where that they're trying 0:02:37.440 --> 0:02:40.000 to encourage the FED to be more self confident and 0:02:40.080 --> 0:02:42.799 look forward and be less data dependent. 0:02:42.639 --> 0:02:45.000 When you talk about potentially stagflationary winds. 0:02:45.000 --> 0:02:47.160 I recently caught up with the former World Bank head 0:02:47.200 --> 0:02:47.919 David Malpass. 0:02:47.960 --> 0:02:49.480 He's been talking about this for a while. 0:02:49.960 --> 0:02:52.560 Where exactly would you see that showing up if we 0:02:52.560 --> 0:02:53.679 were to see stagflation? 0:02:54.080 --> 0:02:55.720 Where exactly would you be looking so? 0:02:55.760 --> 0:02:58.520 And may you talked about it earlier? Listen to the 0:02:58.560 --> 0:03:02.320 corporate calls that telling you that certain segments of the 0:03:02.320 --> 0:03:06.280 consumer base are already having problems. Listen to the previous interview, 0:03:06.320 --> 0:03:09.000 which was a very bullish interview about the economy, but 0:03:09.040 --> 0:03:13.359 there was an admission right there that if anything happens 0:03:13.360 --> 0:03:16.480 to the labor market, we have no buffers, we have 0:03:16.560 --> 0:03:20.320 no spare tires, that balance sheets have really deteriorated. John 0:03:20.400 --> 0:03:24.280 mentioned what happened in the interview where it's every segment 0:03:25.280 --> 0:03:28.760 of the population that's now running much higher balances. So 0:03:28.800 --> 0:03:31.960 we no longer have pandemic savings. We have higher balances 0:03:32.000 --> 0:03:34.440 on credit cards, we have higher interest rates, so we 0:03:34.680 --> 0:03:38.400 totally dependent on wage income. And if anything happens to 0:03:38.440 --> 0:03:40.120 the labor market, which I hope it doesn't, but if 0:03:40.120 --> 0:03:43.240 anything happens, then we are going to slow down really quickly. 0:03:43.600 --> 0:03:45.760 But Muhammed, this is the thing I mean you've hit 0:03:45.760 --> 0:03:47.920 the nail on the head, is that the data is uneven. 0:03:48.160 --> 0:03:51.800 We're seeing a divergence between different types of consumers, except 0:03:51.800 --> 0:03:53.000 perhaps when it comes to some of the. 0:03:53.040 --> 0:03:53.920 Credit card data. 0:03:54.600 --> 0:03:56.520 The data was built a long time ago when we 0:03:56.560 --> 0:03:59.080 didn't have that type of divergence. It was trying to 0:03:59.120 --> 0:04:02.000 capture an American economy that was a monolith do we 0:04:02.040 --> 0:04:04.600 have the right tools to even evaluate the American economy 0:04:04.600 --> 0:04:05.280 at this point. 0:04:05.440 --> 0:04:07.840 So, Danny, that's a really important point. And also it 0:04:07.880 --> 0:04:10.520 explains and Marie's point as to why the person in 0:04:10.560 --> 0:04:14.280 the street doesn't feel as good as the macrodata suggests. Look, 0:04:14.440 --> 0:04:16.920 during the pandemic, we had this wonderful moment where we 0:04:17.000 --> 0:04:21.200 realized that our existing databases were too partial, and we 0:04:21.240 --> 0:04:24.240 moved quickly to high frequency data, and suddenly we were 0:04:24.240 --> 0:04:26.960 living in this world where we were as economists, we 0:04:26.960 --> 0:04:29.960 were much more focused on let's get the best data, 0:04:30.000 --> 0:04:32.440 let's get high frequency data. When we got out of 0:04:32.440 --> 0:04:34.840 the pandemic, we went back to the old world, and 0:04:34.880 --> 0:04:37.120 we don't use the high frequency data enough. Now our 0:04:37.160 --> 0:04:40.080 efforts being made at the NBR and elsewhere to try 0:04:40.080 --> 0:04:43.640 and incorporate that high frequency data. The big problem that 0:04:43.680 --> 0:04:45.960 we don't talk about is that the providers of those 0:04:46.040 --> 0:04:49.200 high frequency data, who used to provide it free, are 0:04:49.240 --> 0:04:52.800 now charging money. So when you charge money, guess what happens. 0:04:53.080 --> 0:04:55.480 The access to that data goes down. So this is 0:04:55.960 --> 0:04:58.040 an issue that's being discussed in the economic profession. 0:04:58.360 --> 0:05:01.200 Do you see mistakes being made this time around being 0:05:01.200 --> 0:05:03.600 the reverse of the mistakes mate. Last time around, coming 0:05:03.640 --> 0:05:05.559 out of the Great Financial Crisis, we were all waiting 0:05:05.600 --> 0:05:07.120 for the economy to go back to what it used 0:05:07.120 --> 0:05:09.560 to look like, and it never did. And it took 0:05:09.560 --> 0:05:11.719 a while for everyone to start agreeing with Larry Summers, 0:05:11.760 --> 0:05:14.520 and they eventually did. And coming out of the pandemic, 0:05:14.560 --> 0:05:16.320 cultually we're waiting for the economy to go back to 0:05:16.360 --> 0:05:18.840 what it used to look like, and maybe it never will. 0:05:19.080 --> 0:05:20.880 And we heard this from Bridgewater this week at the 0:05:21.000 --> 0:05:24.880 Qatar Economic forumpowered by Bloomberg. When Bridgewater is near Bardea said, 0:05:25.040 --> 0:05:27.280 don't use the playbook for the last ten to fifteen 0:05:27.320 --> 0:05:29.839 years for the next ten to fifteen years. So let's 0:05:29.880 --> 0:05:33.040 maybe park next month's data, next quarter's data. What are 0:05:33.080 --> 0:05:35.240 you looking at right now for the next decade or so, 0:05:35.440 --> 0:05:36.200 what do you expecting? 0:05:36.440 --> 0:05:38.680 So first of all, I think the big mistake coming 0:05:38.680 --> 0:05:41.240 out of global financial crisis was to assume the shock 0:05:41.320 --> 0:05:43.719 was cyclical if you like, like a V and not 0:05:43.760 --> 0:05:46.880 too realized it was secular, thus Pinkle's new normal, which 0:05:46.920 --> 0:05:49.840 came early on in two thousand and nine. I think 0:05:50.120 --> 0:05:52.279 the big issue right now is that we as a 0:05:52.279 --> 0:05:54.360 profession and we as a market are too influenced by 0:05:54.400 --> 0:05:57.640 what happened after the global financial crisis. We believe, somehow 0:05:57.760 --> 0:06:00.440 still in the back of our mind that law interest rates, 0:06:00.640 --> 0:06:02.880 very low interest rates are the norm, not the exception. 0:06:03.520 --> 0:06:06.960 We believe that inflation is not an issue. So look 0:06:07.000 --> 0:06:09.680 what has happened to the Fed. The Fed pivoted on 0:06:09.720 --> 0:06:12.000 the basis of data. It was the opposite of the 0:06:12.000 --> 0:06:16.400 pivot they did in December when they pivoted on basis. 0:06:16.400 --> 0:06:18.520 Now they have to do a U turn. As they're 0:06:18.520 --> 0:06:22.400 doing the U turn and say higher for longer, the 0:06:22.440 --> 0:06:24.680 market is going the other way. So you saw what 0:06:24.680 --> 0:06:26.160 happened to the two years, So what happened to. 0:06:26.120 --> 0:06:26.520 The ten year? 0:06:27.240 --> 0:06:30.480 And then there are two really problematic issues that we 0:06:30.560 --> 0:06:34.760 don't talk enough. How sensitive are the stubborn components of 0:06:34.800 --> 0:06:38.719 inflation to interest rates? They're not very sensitive. That's problem 0:06:38.800 --> 0:06:41.919 number one. Problem in number two, what indications are we 0:06:41.920 --> 0:06:45.400 getting off The economy is slowly weakening. So it weighses 0:06:45.440 --> 0:06:47.520 the issue that once again the Fed is going to 0:06:47.560 --> 0:06:50.240 have to pivot, this time not on the basis of 0:06:50.240 --> 0:06:52.560 the inflation numbers, but on the basis of the real 0:06:52.600 --> 0:06:55.760 economy numbers. It will pivot yet again. And then there's 0:06:55.760 --> 0:06:57.600 the big issue that I know no one wants to discuss, 0:06:58.160 --> 0:07:03.120 and I insist stand that fully is the inflation target 0:07:03.120 --> 0:07:05.919 the right target. We all talk about wanting to go 0:07:05.960 --> 0:07:09.159 back to two percent. Every single quote you had this morning, YEP, 0:07:09.279 --> 0:07:11.640 assumes that two percent is the right inflation target. Two 0:07:11.680 --> 0:07:16.080 percent total arbitrary. But I understand why no one wants 0:07:16.080 --> 0:07:18.800 to talk about this. But we should all realize that 0:07:18.800 --> 0:07:22.160 if we are pursuing the wrong inflation target, the risk 0:07:22.240 --> 0:07:27.280 of a mistake, and that mistake would mean sacrificing growth unnecessarily. 0:07:27.560 --> 0:07:29.560 The risk of that mistake is high, especially when the 0:07:29.600 --> 0:07:31.000 low income people are most at risk. 0:07:31.040 --> 0:07:32.800 I know how much criticism you get every time you 0:07:32.840 --> 0:07:34.440 bring this up, because you've been bringing it up with 0:07:34.480 --> 0:07:36.640 me for the best part of twelve months, maybe longer. Now. 0:07:36.920 --> 0:07:38.960 If we go back to the Jackson Hole speech from 0:07:39.040 --> 0:07:41.320 chairm and Powell in August of twenty two, when he 0:07:41.400 --> 0:07:44.200 talked about pain being required to get inflation under control, 0:07:44.520 --> 0:07:46.400 then the experience of the last twelve months where we 0:07:46.440 --> 0:07:48.480 all got seduced by this idea that maybe we don't 0:07:48.480 --> 0:07:51.840 need pain whatsoever to get inflation back under control. Are 0:07:51.880 --> 0:07:54.560 you saying that the pain that's required to go from 0:07:54.600 --> 0:07:56.680 three to two just is not worth a squeeze. 0:07:56.880 --> 0:07:57.320 Correct. 0:07:57.520 --> 0:08:01.679 I'm saying that if you were to establishing an inflation 0:08:01.720 --> 0:08:04.680 target today based on the secular issues, and let's talk 0:08:04.680 --> 0:08:08.360 about it, the domestic paradigm is changing. We're no longer 0:08:08.400 --> 0:08:13.000 in this Washington consensus of deregulation, liberalization, fiscal prudence. We 0:08:13.080 --> 0:08:18.200 are in a world of industrial policy, government intervention, and 0:08:18.280 --> 0:08:23.640 fiscal irresponsibility. Let's talk about the international We're no longer 0:08:23.920 --> 0:08:28.480 talking about ever closer globalization, We're talking about fragmentation. Then 0:08:28.480 --> 0:08:31.480 look at the transitions we have. We have major transitions 0:08:31.480 --> 0:08:35.560 going on, not just generative AI, life sciences and sustainable energy. 0:08:35.840 --> 0:08:38.040 You have things happening in healthcare. You have things happening 0:08:38.080 --> 0:08:40.760 in defense, you have things happening in food security. If 0:08:40.760 --> 0:08:44.160 you put all that together, it is a different inflation environment. 0:08:44.160 --> 0:08:47.120 It's a world that's subject to higher inflation. And we've 0:08:47.160 --> 0:08:49.280 come from a world that was subject to lower inflation. 0:08:49.880 --> 0:08:53.120 But if the world still has that recency bias in 0:08:53.160 --> 0:08:55.160 their mind that we're going to go back to two percent, 0:08:55.240 --> 0:08:58.959 their entire industries that are extending and pretending and hoping 0:08:59.000 --> 0:09:01.439 we're getting back there, think of the private capital world, 0:09:01.480 --> 0:09:03.960 for example. So if you have financial markets that have 0:09:04.160 --> 0:09:07.160 engineered themselves to be used to a low inflation world, 0:09:07.160 --> 0:09:09.880 they've been used to rates getting somewhere to two percent, 0:09:10.320 --> 0:09:11.080 what happens? 0:09:11.360 --> 0:09:12.720 What happens if we don't get there? 0:09:13.080 --> 0:09:16.280 You're absolutely right. And yesterday, the whole news yesterday was 0:09:16.320 --> 0:09:19.599 about commercial real estate whether pot slowed. Right, we have 0:09:19.760 --> 0:09:24.360 recognized and more importantly, investors have recognized that there's evaluation 0:09:25.000 --> 0:09:28.760 issue ahead, and that's that's that's also an issue, is 0:09:28.800 --> 0:09:31.959 you have slower moving segments that we finance in a 0:09:32.080 --> 0:09:34.360 very discrete fashion that we're going to have to deal with. 0:09:34.559 --> 0:09:47.839 Absolutely right, Stocks on pause, with markets at a crossroad, 0:09:47.920 --> 0:09:50.480 Kenny Kaminsky of Out for Simplex right, in this the 0:09:50.559 --> 0:09:53.680 market seems to be polarized between two views, bullish view 0:09:53.760 --> 0:09:56.760 on equities and growth versus worry are the sticky inflation 0:09:56.840 --> 0:09:59.800 and higher for longer As a result, trend signals with 0:10:00.040 --> 0:10:04.720 long equities, with short fixed income, long dollar, and long commodities. 0:10:04.800 --> 0:10:07.199 Katie joins us. Now for more, Katie, let's just sort 0:10:07.200 --> 0:10:09.240 of break it down into its individual paths and start 0:10:09.280 --> 0:10:11.800 with the bond market. Last time we spoke, you said 0:10:11.800 --> 0:10:14.480 there were more reasons to be sure. What's happened in 0:10:14.520 --> 0:10:16.520 between conversations. 0:10:16.960 --> 0:10:19.839 Well, I mean, we've really seen a pullback this month 0:10:19.960 --> 0:10:24.160 based on inflation coming not as hot as people might 0:10:24.160 --> 0:10:26.680 have been worried about, and so I think we're getting 0:10:26.720 --> 0:10:30.680 closer to a point where we might actually see cuts 0:10:30.679 --> 0:10:32.760 this year, and we know the Fed wants to cut. 0:10:33.000 --> 0:10:35.640 I think this trend it's been very confusing. 0:10:36.040 --> 0:10:38.920 Look at bonds, they're trading a lot more like equities 0:10:39.000 --> 0:10:42.240 fall as high and on the year, bonds are down. 0:10:42.720 --> 0:10:44.920 So I think the really big question is going to 0:10:44.920 --> 0:10:48.199 be who wins. Is it the inflation narrative staying longer, 0:10:48.720 --> 0:10:50.600 or is it that equities are right that we can 0:10:50.679 --> 0:10:54.160 sort of smooth in too rate cuts this year. So far, 0:10:54.320 --> 0:10:57.280 signals are still short and fixed income because look at 0:10:57.280 --> 0:11:01.559 the long term trend, it's still there despite the recent pullback. 0:11:01.760 --> 0:11:03.319 So if you can help us go through what your 0:11:03.360 --> 0:11:06.680 positioned for right now bottons versus commodities, and let's throw 0:11:07.000 --> 0:11:08.160 foreign exchange in there too. 0:11:09.240 --> 0:11:12.160 So I'd say, right now, what you see is that the. 0:11:11.840 --> 0:11:15.240 Short bond signals really tell you higher for longer. 0:11:15.520 --> 0:11:16.800 You're also seeing. 0:11:16.480 --> 0:11:18.800 In the commodity markets, and I think that's the thing 0:11:18.840 --> 0:11:22.680 that we're watching the most massive moves and commodities this year. 0:11:22.960 --> 0:11:26.320 Commodity indices are up over ten percent. Take a at 0:11:26.400 --> 0:11:31.000 the preciss metals. Copper in particular has been up tremendously lately. 0:11:31.360 --> 0:11:34.240 So these are signs that are not talking about the consumer, 0:11:34.320 --> 0:11:37.320 but really talking about prices of raw goods. And I 0:11:37.320 --> 0:11:40.680 think you're still seeing that mixed picture where cross asset 0:11:40.720 --> 0:11:43.880 themes suggest higher for longer and concern that it's going 0:11:43.960 --> 0:11:47.640 to take longer to get over the inflation issue and 0:11:47.679 --> 0:11:51.319 get inflation down than people would like. It's very fascinating 0:11:51.360 --> 0:11:54.600 as well that the ECB might cut first. In some sense, 0:11:54.640 --> 0:11:56.880 that'll be a good proof point to see what happens 0:11:57.320 --> 0:11:59.839 when someone actually starts win a large economy like the 0:11:59.880 --> 0:12:01.440 starts cutting. 0:12:01.960 --> 0:12:03.719 Let's go there, then, Katie, what are you looking for? 0:12:03.760 --> 0:12:07.440 What are the risks and potential takeaways from the reaction 0:12:07.480 --> 0:12:09.320 to the bond market to the ECB that you can 0:12:09.320 --> 0:12:10.160 apply to the US. 0:12:11.240 --> 0:12:14.239 Well, if you look at inflation data, it looks steadier 0:12:14.320 --> 0:12:18.280 in the Eurozone, and the Eurozone has definitely seen more 0:12:18.320 --> 0:12:23.199 restrictive effects of policy, and thus they're Like your previous 0:12:23.240 --> 0:12:26.520 guest said, more positioned to kind of have to deal 0:12:26.559 --> 0:12:29.960 with that issue. The US is more confusing because the 0:12:30.160 --> 0:12:30.880 data is just. 0:12:30.920 --> 0:12:31.800 Much more mixed. 0:12:32.200 --> 0:12:35.400 So it'll be interesting to see how the market actually reacts. 0:12:35.720 --> 0:12:38.520 And if indeed we do see a pop up in inflation, 0:12:38.640 --> 0:12:41.840 which is sort of your upside risk in the Eurozone, 0:12:41.960 --> 0:12:44.240 then it's really going to get interesting this summer. So 0:12:44.280 --> 0:12:47.200 there's really a lot of things that can cause markets 0:12:47.200 --> 0:12:50.400 to be very trendy but also very volatile as we 0:12:50.480 --> 0:12:51.800 try and navigate this pivot. 0:12:51.960 --> 0:12:54.160 And that's exactly what we've had, Katie. We've had huge 0:12:54.160 --> 0:12:56.200 amounts of volatility. You and the team have done the 0:12:56.200 --> 0:12:59.640 research that bond volatility is something like fifty percent above 0:12:59.640 --> 0:13:02.280 its pre tw twenty two level. That's great for you 0:13:02.320 --> 0:13:04.200 in the team at Alpha Simplex, who can trade in 0:13:04.200 --> 0:13:07.079 and out of bonds. What about the rest of investors, Katie, 0:13:07.120 --> 0:13:10.120 that view bonds as something that you buy and you hold. 0:13:10.200 --> 0:13:13.320 How does it change things when you see this market 0:13:13.360 --> 0:13:16.600 that's known for being stayed, being more volatile, in some 0:13:16.679 --> 0:13:19.200 cases more than equities and more than FX. 0:13:20.320 --> 0:13:22.120 This is a very good point, and I think it's 0:13:22.160 --> 0:13:24.960 the biggest and most important thing for investors to take 0:13:25.000 --> 0:13:28.760 home when you're thinking about bonds as a risk off asset, 0:13:28.840 --> 0:13:32.280 as a risk free, safe haven asset. That is not 0:13:32.440 --> 0:13:36.480 the case an environment when inflation comes into play. In fact, 0:13:37.040 --> 0:13:41.600 bond stock correlation has been positive for quite some time, 0:13:41.920 --> 0:13:45.120 and bond volatility is higher. Like I said, bonds trade 0:13:45.120 --> 0:13:48.280 a little bit more like equities. This means that investors 0:13:48.320 --> 0:13:51.720 need to look around and find things that actually like 0:13:51.800 --> 0:13:55.640 inflation and like this type of environment, that actually complement 0:13:55.679 --> 0:13:59.400 their portfolios, because you just don't have that flight to 0:13:59.440 --> 0:14:03.199 safety in the traditional sense. When we think about stocks 0:14:03.200 --> 0:14:06.000 going down, we think about bonds being there as are ballast, 0:14:06.400 --> 0:14:09.760 and in fact, when we're dealing with inflation, that ballast 0:14:09.840 --> 0:14:11.200 is just not as good. 0:14:11.559 --> 0:14:15.280 So are there strategies ben Katie that going forward should 0:14:15.280 --> 0:14:18.080 cease to exist that investors shouldn't be looking into anymore. 0:14:18.080 --> 0:14:20.880 I'm thinking of the risk parody, the sixty forties. We've 0:14:20.880 --> 0:14:22.560 talked about the death of them for a long time. 0:14:22.600 --> 0:14:23.400 It hasn't happened. 0:14:23.520 --> 0:14:23.960 Is this it? 0:14:25.080 --> 0:14:25.120 No? 0:14:25.400 --> 0:14:28.000 I would say they still are there as an important 0:14:28.040 --> 0:14:31.640 tool in your portfolio, but you just your portfolio isn't complete. 0:14:32.040 --> 0:14:34.720 You need to start thinking about what assets will benefit 0:14:34.800 --> 0:14:39.120 from changes in inflation. Things like commodity exposure, things like 0:14:39.280 --> 0:14:43.360 assets that have real estate, for example. So really sort 0:14:43.400 --> 0:14:46.880 of diversifying your portfolio to be aware of the potential 0:14:46.920 --> 0:14:50.280 vulnerabilities of fixed cash flows in an inflation environment. 0:14:50.400 --> 0:14:51.760 Hey, Katie, I think you said it at the start 0:14:51.760 --> 0:14:55.440 of the conversation. The risk mitigation characteristics required depends on 0:14:55.480 --> 0:14:57.760 what you think the dominant risk actually is and when 0:14:57.800 --> 0:14:59.640 it goes through your quote again, the market seems to 0:14:59.680 --> 0:15:02.200 be a rise between two views, a bullish few on 0:15:02.240 --> 0:15:05.880 equities and growth versus over sticky inflation and high for longer. 0:15:06.400 --> 0:15:08.359 What are the two ballats you need in the portfolio 0:15:08.400 --> 0:15:10.080 to account for some of the risks out there, given 0:15:10.080 --> 0:15:11.880 how polarized they are at the moment. 0:15:13.160 --> 0:15:15.400 This is a good point because usually we just worry 0:15:15.440 --> 0:15:16.280 about recession. 0:15:16.320 --> 0:15:18.360 We worry about equities going down. 0:15:18.520 --> 0:15:21.280 Right now, we have to worry about the impact of inflation. 0:15:21.760 --> 0:15:24.720 And that's precisely the risk that you saw manifest itself 0:15:24.760 --> 0:15:25.240 in April. 0:15:25.280 --> 0:15:27.600 I know we've already forgotten about it after last. 0:15:27.360 --> 0:15:30.960 Week's this week's big rally, but the truth is, the 0:15:31.120 --> 0:15:34.120 key risks that we're facing is more that inflation is 0:15:34.440 --> 0:15:38.720 really causing stress in our system and thus a risk 0:15:38.800 --> 0:15:42.240 for investors is very different from a pre COVID type 0:15:42.280 --> 0:15:45.360 of risk, where we're thinking about how inflation will affect 0:15:45.400 --> 0:15:48.120 all of the assets that we hold and will cause 0:15:48.160 --> 0:15:53.120 divergence across both monetary policy and also across regions geographically. 0:15:53.200 --> 0:15:55.240 And this takes us to the commodity market, which you've 0:15:55.240 --> 0:15:58.320 already referenced. It's a broad place, a broad space, Katie. 0:15:58.320 --> 0:16:00.280 What would you pick out in a commodity market now? 0:16:00.320 --> 0:16:03.920 Is it bise, metsos, precious metsos, fossil fuels, Where do 0:16:03.920 --> 0:16:04.440 you want to bathe? 0:16:05.440 --> 0:16:07.480 So so far are the things that have really been 0:16:07.520 --> 0:16:08.160 working this year. 0:16:08.200 --> 0:16:10.800 I mean, take a look at copper, cocoa, some of 0:16:10.840 --> 0:16:13.680 these big commodities that have moved. I highlighted that the 0:16:13.720 --> 0:16:15.720 index is up over eleven percent. 0:16:16.280 --> 0:16:17.320 But you're also. 0:16:17.080 --> 0:16:19.880 Seeing, I think the most interesting trend to start watching. 0:16:20.360 --> 0:16:23.960 The one sector that has been disinflationary this year to 0:16:24.040 --> 0:16:29.480 date has been agriculturals. And you've actually seen things like corn, wheat, soy, 0:16:29.880 --> 0:16:32.880 many of the agricultural products actually starting to pivot for 0:16:32.920 --> 0:16:36.120 the first time just as we're talking about cuts. So 0:16:36.200 --> 0:16:39.840 that to me is very interesting. Watch energy, it's continued 0:16:39.880 --> 0:16:42.520 to move up as well. So all of these things 0:16:42.560 --> 0:16:47.440 are definitely putting a headwind against this inflation narrative, and 0:16:47.480 --> 0:16:49.640 they're going to make this more tricky this. 0:16:49.640 --> 0:16:52.520 Summer, Katie. One metal you didn't mention is gold continues 0:16:52.520 --> 0:16:52.920 to rise. 0:16:52.960 --> 0:16:55.600 But there's a lot of different reasons why some strategists 0:16:55.640 --> 0:16:57.760 say it will continue on this trajectory. 0:16:57.760 --> 0:16:59.520 What do you make of gold descent? 0:17:00.960 --> 0:17:03.920 So gold is often seen as a great safe haven 0:17:04.000 --> 0:17:07.679 investment for inflation, and so what was interesting to me 0:17:07.960 --> 0:17:11.280 is just to watch the tremendous acceleration in gold around 0:17:11.280 --> 0:17:15.000 the time where people started to get reconcerned about. 0:17:14.600 --> 0:17:18.359 Inflation, particularly April. But what's even more interesting is that 0:17:18.440 --> 0:17:20.000 it's continued into May. 0:17:20.440 --> 0:17:23.119 So it seems in some sense that people are thinking 0:17:23.119 --> 0:17:26.560 about gold as their safe haven asset instead of bonds, 0:17:26.920 --> 0:17:30.520 given the volatility and the risk off properties dissipating in 0:17:30.560 --> 0:17:32.680 those assets. So I think gold is something to watch 0:17:32.720 --> 0:17:36.280 as a barometer of how people feel about the realities 0:17:36.320 --> 0:17:36.840 of inflation. 0:17:37.200 --> 0:17:37.480 Katy. 0:17:37.520 --> 0:17:51.160 Thank you, Kitty Convinsky that of aphasimplex, FED officials maintaining 0:17:51.240 --> 0:17:54.480 the Central Bank should hold rights higher for longer while 0:17:54.520 --> 0:17:57.400 the ACP gives up to begin counting next month. Jill 0:17:57.480 --> 0:18:01.200 MOWAKAVACSA Group saying this, we are con about the risk 0:18:01.520 --> 0:18:04.639 of an intellectual contagion from the debates in the US. 0:18:04.840 --> 0:18:09.080 The is asymmetric across the Atlantic. Reading Europe with American 0:18:09.160 --> 0:18:12.960 lenses could lead to costly policy mistakes. She'll joined us 0:18:13.000 --> 0:18:15.280 now for more wonderful perspectives. 0:18:15.520 --> 0:18:16.359 Do you see that as a. 0:18:16.440 --> 0:18:21.880 Very real and evident risk right now? In Europe? 0:18:22.040 --> 0:18:22.600 As usual? 0:18:22.880 --> 0:18:26.240 The US market is is the dominant market of the world, 0:18:27.119 --> 0:18:30.919 and there might be a sense in Europe that diverging 0:18:31.000 --> 0:18:33.679 too much from what the Fed is is about to 0:18:33.680 --> 0:18:37.159 do or about not to do, would actually trigger a 0:18:37.280 --> 0:18:40.800 further weakening of our currency, which in turn would trigger 0:18:41.400 --> 0:18:44.639 more imported in inflation and would make our own progress 0:18:44.680 --> 0:18:49.679 towards our inflation target harder to hit. So there is 0:18:49.760 --> 0:18:53.679 this contagent channel which which is pretty traditional in policy 0:18:53.680 --> 0:18:57.199 making in Europe. But what I would venture is that 0:18:58.200 --> 0:19:00.919 first of all, the inflation story in Europe clearer than 0:19:00.920 --> 0:19:03.040 in the US. It's heading down, I think, in a 0:19:03.080 --> 0:19:07.080 more obvious manner than the US. And second, when we 0:19:07.119 --> 0:19:11.600 still have issues with our inflationary process in Europe, it 0:19:11.680 --> 0:19:15.360 does not it doesn't have anything to do with important inflation. 0:19:15.520 --> 0:19:19.639 It's usually about domestic forces, services inflation in particular. So 0:19:19.840 --> 0:19:23.160 even if we had a further degociation of the euro 0:19:23.359 --> 0:19:26.280 in case of a growing divergence with the FED, I 0:19:26.320 --> 0:19:29.600 don't think it would massively change the picture for our 0:19:29.600 --> 0:19:30.520 inflation forecast. 0:19:30.640 --> 0:19:32.399 So you think they should emphasize the importance of the 0:19:32.440 --> 0:19:33.800 effects channel. Is that right? 0:19:34.680 --> 0:19:34.960 Yes? 0:19:35.200 --> 0:19:39.399 And that was something that was very obvious in the 0:19:39.480 --> 0:19:43.679 latest minutes of the the cd Governing Council that clearly 0:19:43.760 --> 0:19:46.320 spent quite a bit of time talking about inflation in 0:19:46.359 --> 0:19:49.000