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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast

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Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. All right, let's bring

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Speaker 1: a Nika Group that she's a director of macro economic

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Speaker 1: research at Wisdom Tree, and Nika loved it. You start,

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Speaker 1: we can talk about your economic call here, but how

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Speaker 1: do you think about the housing market? Here? Matt and

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Speaker 1: I are just talking about the you know, the mortgage

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Speaker 1: rate surging. What do you think what do you think

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Speaker 1: the impact is on housing and housing market on the economy.

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Speaker 1: Thanks for having me. Yes, you know, you're you're hitting

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Speaker 1: what you're you're you're really targeting one of the most

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Speaker 1: important sectors that showing signs of pain at this point

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Speaker 1: in time. You know, higher rates have clearly been reflected

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Speaker 1: in the higher mortgage trades in the US, UH you know,

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Speaker 1: which is at an extremely high rate right now and

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Speaker 1: it's clearly impacting you know, the US average household UM

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Speaker 1: you know, we've already seen signed the slowdown in Canada,

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Speaker 1: in the Australian housing market, UM, and it's it's slowly

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Speaker 1: trickling down into United Kingdom as well. UM. You know,

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Speaker 1: and we and obviously you we've seen UM record stimulus

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Speaker 1: package that he's been UM unleashed in in UK and

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Speaker 1: at the same time you've got bank in England, you know,

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Speaker 1: trying to figure out how they're supposed to health the economy. UM.

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Speaker 1: Through this phase is you know, we've seen a big

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Speaker 1: a clash with the sterling in response to the moves

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Speaker 1: that we've seen from the government and UM, you know

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Speaker 1: clearly Andrew Bailey's hands it tied. So far, all we've

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Speaker 1: seen is an intervention UM. And that's really the save

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Speaker 1: the pension market. So I think broadly with rising weights, uh,

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Speaker 1: you know, the first pain is being felt by the

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Speaker 1: housing market, and I think it's really a squeezeably cudity

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Speaker 1: that is impactingly invested globally. Well, what about Anika. Your

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Speaker 1: sounds like you're based in London. I know you studied

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Speaker 1: at Oxford for example. UM. How much of the U

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Speaker 1: sort of self inflicted pain out of the UK is

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Speaker 1: spreading around the world. Are are we seeing even in

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Speaker 1: US treasury markets contagion um from what's being viewed as

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Speaker 1: like the biggest policy policy mistake in a generation from

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Speaker 1: your government. Well, it's very much. Uh, you know, it's

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Speaker 1: I think if we didn't see that intervention by the

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Speaker 1: Bank of England yesterday, um, we could we could have seen,

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Speaker 1: you know, some widespread impact across financial markets. So I

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Speaker 1: think they did just about managed to save uh, you know,

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Speaker 1: the pension system here in the UK, uh, you know,

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Speaker 1: and and try to arrest those margin goals that the

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Speaker 1: pension sector was was being faced with. Uh. But you know,

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Speaker 1: they're they're very very There was a very high likelihood

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Speaker 1: that this could have spread, uh you know, spread across

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Speaker 1: to the US and globally. Um, if those margin calls

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Speaker 1: were not arrested, and if uh, you know, it's the

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Speaker 1: extension sounds just hit a hit a scenario where the

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Speaker 1: it was, you know, sell whatever you can to get

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Speaker 1: that liquidity back back on board. But doesn't it look

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Speaker 1: like we did see some margin calls. I mean, doesn't

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Speaker 1: it look like we are seeing some just liquidation in

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Speaker 1: these markets. I see on the S and P five hundred,

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Speaker 1: for example, only five stocks are rising, so fourde or down. Um.

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Speaker 1: We saw you know, US rates to ten US tenure

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Speaker 1: one above four percent. So it wasn't just the guilt

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Speaker 1: market that went haywire. It was treasuries as well, I

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Speaker 1: guess because of low liquidity, but also surely um, British

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Speaker 1: pension companies had to sell treasuries to meet margins. Uh,

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Speaker 1: that's absolutely right. I think you know, the psychology on

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Speaker 1: the market right now is of extreme anxiousness um. And

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Speaker 1: and that is that is why we we've been seeing

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Speaker 1: this sharp sell off this week. But that that set

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Speaker 1: off really was triggered when the market started to take

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Speaker 1: the send a lot more seriously for what they were

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Speaker 1: actually saying. You know, until this, until this, until the

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Speaker 1: Said meeting took place, I think the market was expecting

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Speaker 1: the SAID to pivot. We saw that mid rally take place,

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Speaker 1: and especially essentially we were you know, what we were

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Speaker 1: seeing um across equili markets was this brief turnaround of um,

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Speaker 1: you know, hope that the SAID would pivot. Uh, you know,

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Speaker 1: growth would come back into limelight and um, everything would

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Speaker 1: would be okay. But the Fed you know, has drawn

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Speaker 1: the line and said we are going to quite fixed

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Speaker 1: on raising great until uh, you know, we have the

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Speaker 1: Insotian story under control and and I think with that

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Speaker 1: in the background, in addition with Q three earning, UH

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Speaker 1: for us to look forward to UM, you know that

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Speaker 1: that I think that's that's opening up a lot of concerns,

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Speaker 1: especially in the US because uh, you know everyone if

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Speaker 1: everyone is now coming to terms with the fact that

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Speaker 1: you know, you have this extremely strong dollar that is

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Speaker 1: reading have a cross risk asset. UM. If you look

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Speaker 1: at concerned to learning expectations for earnings, they you know,

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Speaker 1: they're still quite high. They are correcting, but they still

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Speaker 1: remain quite high. UM. And you know, the strong dollar

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Speaker 1: certainly puts a lot of pressure for UH international US

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Speaker 1: companies that are now not going to be that competitive.

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Speaker 1: So UM I think invested essentially bracing for a bit

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Speaker 1: of bad news that that could be triggered in uh

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Speaker 1: you know the Q three earning scenario where you could

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Speaker 1: see a lot more companies being FedEx Right, all right,

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Speaker 1: A great stuff. Really appreciate you taking the time out

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Speaker 1: of your busines schedule to check in with us. A.

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Speaker 1: Nika Gupta, director of macroeconomic research at Wisdom Tree, journey

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Speaker 1: US from London, where it has been a tumultuous week,

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Speaker 1: particularly in that uh English bond market there, the guilt

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Speaker 1: market there, just a crazy week there as they try

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Speaker 1: to kind of prevent uh you know, a real contagient

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Speaker 1: in that market, and apparently fairly successful in some of

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Speaker 1: the interventions this week. Dave Harden joins us. He's a

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Speaker 1: founder president of Summit Global Advisors. And initially I thought

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Speaker 1: it was in Summit, New Jersey. You were hoping. I

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Speaker 1: was hoping, but I wasn't even close. Bountiful, Utah. Dave,

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Speaker 1: where is Bountiful Utah? Well, it's on the It's in

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Speaker 1: the most beautiful place on earth. We're setten here in Utah,

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Speaker 1: right next to Salt Lake City just north and uh,

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Speaker 1: you know, the fall is amazing. You guys need to

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Speaker 1: come out here and experience it. Good stuff. I'm out there.

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Speaker 1: You know this. This is what happens with me and

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Speaker 1: my ski buddies in New Jersey. We all talk a

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Speaker 1: big game in like around September. Let's go to tell

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Speaker 1: you ride. Let's go to like Montana, and then when

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Speaker 1: push comes to show, we say, a screw it, Let's

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Speaker 1: go out to Salt Lake and we'll ski all the

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Speaker 1: great places out there. That's what always happens. Well, that's right,

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Speaker 1: that's a bounty of them right there is also you

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Speaker 1: could go to Park City and all that good stuff.

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Speaker 1: Like the canyon. You just have to pick your You

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Speaker 1: just have to pick your canyon you want to go

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Speaker 1: up to. All right, Dave, are we are we capitulating?

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Speaker 1: I'm not sure if I used that correctly. Are we

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Speaker 1: seen a capitulation here? Or it's just just another day?

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Speaker 1: Well so far in just another day, but we'd like

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Speaker 1: to get it better. At the VIX up ten percent today,

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Speaker 1: we're getting closer thirty three. We want to see that

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Speaker 1: VIX about forty. That's real, true capitulation capitulation. So if

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Speaker 1: you if you look back at the past corrections when

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Speaker 1: those bottoms hit, we gotta get that bickx up to forty.

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Speaker 1: So not quite there. We're getting closer, but I'm afraid

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Speaker 1: there's still some more downside ahead. So why aren't we

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Speaker 1: pricing in a deeper, darker recession? Are people still sticking

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Speaker 1: with the forecast for um short and shallow one? Well,

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Speaker 1: I think I think there's still some hope out there. Right,

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Speaker 1: We've been through COVID where the government build US out.

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Speaker 1: We've been through COVID where the FED beld is out,

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Speaker 1: We've been through pivot changes constantly throughout the year where

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Speaker 1: the Fed's beild is out. So why can't they do

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Speaker 1: it one more time? Dave, I'd noticed on some of

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Speaker 1: the names that you guys are buying Lockheed Martin, simple

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Speaker 1: L M T. Is that just simply you know there's

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Speaker 1: a big war on over in Europe and they need stuff.

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Speaker 1: Is that kind of the play there? Well, for certainly

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Speaker 1: that's that's that's a defensive nature. We absolutely know that

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Speaker 1: in the down markets, defensive plays tend to play better,

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Speaker 1: and so you want to be defensive here in this

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Speaker 1: in this situation. So it's also diversification. I think Blackey

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Speaker 1: Martin is a great option that goes with a lot

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Speaker 1: of people's tech stocks, It goes with a lot of

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Speaker 1: people's utilities, whatever they're buying, banks, financials, et cetera. But

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Speaker 1: let's face it, locked themselves have solid rings, they have

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Speaker 1: a low p they're cheap, and the war is not

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Speaker 1: going away anytime soon. It seems like as the US

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Speaker 1: just told everybody to get out of Russia. So what

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Speaker 1: else do you like? Are your other plays? Defensive. I see,

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Speaker 1: for example, kind of o phillips here, is that a

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Speaker 1: defensive play? Well, Conics a little bit of a defense

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Speaker 1: in the sense that it could be diversification. But I

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Speaker 1: think energy stocks have pulled back throughout the summer. You

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Speaker 1: saw crude oil fall tremendously, and so I think a

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Speaker 1: lot was taken off the table there. But Conical has

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Speaker 1: a pretty good exposure to supplies, natural gas, et cetera.

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Speaker 1: You know, those supplies issues create higher demand. We got

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Speaker 1: Winner coming on. They have a great dividend yesterday, so

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Speaker 1: yesterday and they were up more than four So you

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Speaker 1: love that. You love to get paid to have a dividend. Yeah.

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Speaker 1: So in this studio, Dave, we are a meta and

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Speaker 1: alphabet free studio. So Facebook is one of the names

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Speaker 1: or Meta that's the ticker. But Facebook's a name that

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Speaker 1: you're avoiding. Why still, Well, I think I think, let's

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Speaker 1: face it, Facebook is going through a business model change

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Speaker 1: they started a while back. They changed their ticker now

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Speaker 1: from you know, Facebook to Meta. They're trying to go

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Speaker 1: away from this social media and the negativeness. When Mark

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Speaker 1: would come before Congress, it just didn't work out very

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Speaker 1: good for him. So they've been trying to transition their

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Speaker 1: revenues from Instagram and Facebook to this metaverse, and it's

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Speaker 1: gonna take some time. And over the last four consecutive quarters,

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Speaker 1: they've missed journeys, they've missed estimates. Analysts aren't really getting

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Speaker 1: their arms around kind of where the money is coming

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Speaker 1: from and how this business model is going to pan out.

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Speaker 1: I think long term, if you've got twenty years, great,

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Speaker 1: maybe that's a great business model to be into and

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Speaker 1: and the and the future, so to speak. But until

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Speaker 1: they get there and create that space right now, I

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Speaker 1: would just say you need to avoid that until their

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Speaker 1: business model completely changes. Isn't there a certain point? I mean,

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Speaker 1: they're trading for eleven times earnings. Isn't there a certain

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Speaker 1: point when it gets cheap enough? Well? I think so

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Speaker 1: we've gotta be careful of those cheap traps, right in

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Speaker 1: the sense that you think, wow, look how cheap this is,

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Speaker 1: but you've got it continues to miss earnings, So how

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Speaker 1: cheap can it go? And so I think it can

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Speaker 1: go a little bit cheaper. And with volatility in the market,

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Speaker 1: I think there's just some better things you can purchase

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Speaker 1: for right now. Maybe maybe look at them in six

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Speaker 1: months or maybe look at them in about a year.

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Speaker 1: Dave talked to us about the Salt Lake. How's the

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Speaker 1: economy there? How, how are folks doing there? How how

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Speaker 1: is it on the other end of this pandemic here. Well,

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Speaker 1: it's interesting. Utah has a lot of small business. It's

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Speaker 1: had a lot of big players come in with silicon slopes.

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Speaker 1: We're talking the Apples and the Googles and the technologies

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Speaker 1: of the world. And Adobe very big in Utah, so

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Speaker 1: a lot of you know, it's Golden Sacks second biggest

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Speaker 1: employer area. So from an economy standpoint, I think we're

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Speaker 1: doing very very well. Housing is starting to soffer though

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Speaker 1: at the six point you know whatever, it feels like

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Speaker 1: ten percent interest rates on mortgages, and so I think

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Speaker 1: you're seeing some of those investors kind of get nervous,

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Speaker 1: and that's making some people a little bit nervous. Definitely,

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Speaker 1: recession is on the mind, even in the small towns. Yea,

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Speaker 1: all right, Dave, good stuff. Well we'll think snow certainly

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Speaker 1: at this time of year. For our good friends out West,

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Speaker 1: Dave Harden found their president in Summit Global Investments. I

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Speaker 1: mean he got his under grad from like, where is

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Speaker 1: it Boston College? And then gets his masters from Boston

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Speaker 1: University and then he says, I'm not heck with this stuff.

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Speaker 1: I'm heading out west. You Yeah, I mean why not.

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Speaker 1: You can manage money any We can do a lot

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Speaker 1: of things anywhere that We've proven that with the pandemic.

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Speaker 1: So we're bringing on a rock Rana. He covers all

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Speaker 1: things technology for Bloomberg Intelligence. Just give us your updated

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Speaker 1: view of Apple. Where are we here? Is this? How

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Speaker 1: is the story holding up here? Because I know there

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Speaker 1: was some concerns about the new iPhone and maybe the

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Speaker 1: demand wasn't there. What's what's your call right here? Yeah, So, Paul,

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Speaker 1: we talked about over a month ago when we basically

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Speaker 1: said that iPhone putein is not going to move the

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Speaker 1: needle just because of two reasons. And the first is

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Speaker 1: the economic backdrop of the global economy is fared worse

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Speaker 1: than it was a year ago. Second is that Europe

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Speaker 1: in China makes up for total revenue for Apple, and

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Speaker 1: that those two geographies up pretty much, you know, in

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Speaker 1: really bad shape right now. And I would say the

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Speaker 1: third element would be that the iPhone puotein is not

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Speaker 1: the hardware upgrade that you normally see on a three

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Speaker 1: year cycle. That's going to be next year. So we

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Speaker 1: have been a lot more cautious than most people, I

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Speaker 1: would say, for some time, and I think I would

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Speaker 1: say the rest of the street is catching up at

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Speaker 1: this point. What more can an iPhone do? I mean,

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Speaker 1: if it doesn't make me breakfast, like, I don't see

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Speaker 1: how it can get any more advanced than it already is.

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Speaker 1: So I mean, I said this last time. Also it does.

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Speaker 1: They don't need to find new users. They have an

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Speaker 1: installed bait of installed base of over eight hundred million users.

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Speaker 1: Every year they're gonna sell two twenty million bits, no

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Speaker 1: matter what that is plus a minus one to two.

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Speaker 1: In good years they're going to sell a few more,

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Speaker 1: and bad years they're going to sell a few less.

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Speaker 1: So next if you didn't upgrade this year, you may

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Speaker 1: upgrade the year after all the year after, but eventually

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Speaker 1: you will upgrade. And the reason you're gonna upgrade is

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Speaker 1: battery life. When the battery life starts to bother you,

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Speaker 1: you're gonna say, you know what, I'm going to go

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Speaker 1: out and get another phone, keep it for three years

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Speaker 1: and then go out and um, you know, upgrade at

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Speaker 1: that time. Do they do They engineer them so that

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Speaker 1: the battery starts to die right at the end of

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Speaker 1: your two year contract. It's not two years. It's usually

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Speaker 1: a little more around three and a half to four years.

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Speaker 1: So I mean a lot of people upgrade two years.

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Speaker 1: I upgrade about two years. A lot of people upgrade

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Speaker 1: five years. But you take the average of it, it's

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Speaker 1: about three point seven, you know, three point six years

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Speaker 1: or so. And that's all Apple cares about at any

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Speaker 1: given time. The reason why this company is so stable

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Speaker 1: in terms of free cash flow is because that installed

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Speaker 1: base is sacred. People do not it doesn't matter economies

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Speaker 1: go to bad. They're not going to get rid of

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Speaker 1: their iPhone and go buy a Nokia. But so what,

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Speaker 1: So what do we read into this bloomberg um scoop

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Speaker 1: that you know they were going to upgrade. They were

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Speaker 1: at least thinking about upgrading. They were telling their suppliers

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Speaker 1: like an upgrade in terms of you know, producing more,

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Speaker 1: selling more, and now they're not and they're gonna do

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Speaker 1: flat flat is very good, Matt. Flat flat revenues from

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Speaker 1: this year the next year for Apple would be very good.

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Speaker 1: They're going to generate in three cash flow. If they

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Speaker 1: go flat, that's not bad for me. Yeah, but the

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Speaker 1: stock is down four and a half percent today, so

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Speaker 1: it's bad for somebody. It's bad for praatos. That's I mean,

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Speaker 1: this is again depending on who's the buyer of the stock,

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Speaker 1: if you have long term holders versus short term traados. Alright,

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Speaker 1: So when I hear you know, smart people like you

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Speaker 1: who analyze Apple on a day to day basis and

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Speaker 1: you speak to institutional investors on a day to day basis,

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Speaker 1: it seems to me that the story for here that

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Speaker 1: I guess the delta for the Apple income statement and

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Speaker 1: it's stock is the services business? Is that is that

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Speaker 1: still something people focus on? Yeah, and again you know,

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Speaker 1: services has been very strong over the last two and

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Speaker 1: a half years, and that's another area we think, you know,

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Speaker 1: it's going to be probably the first time next year

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Speaker 1: that it's not going to be in double digits, and

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Speaker 1: that is not something that people are used to. People

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Speaker 1: started reading Apple like a growth stock over the last

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Speaker 1: I would say three years or so, and I think

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Speaker 1: a lot of people are not coming to realization that

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Speaker 1: this company is going to have a made too high

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Speaker 1: single digit growth rate. And I think that's a lot

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Speaker 1: of the market is digesting it. You know, we published

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Speaker 1: another note last week which says the delta that we

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Speaker 1: see between evaluation delta between Microsoft and Apple is not

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Speaker 1: fair enough of you. We think Microsoft is a far

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Speaker 1: more diversified business model than Apple, and yet Apple trades

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Speaker 1: is a much higher multiple. What we are seeing over

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Speaker 1: the last seven eight days is kind of a rerating

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Speaker 1: of that. All right, So is there anything in the

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Speaker 1: Apple story? And I think I already know the answer here,

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Speaker 1: But you look at all the cash on the bounty,

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Speaker 1: look at all the free cash flow. Is there anything

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Speaker 1: I'm not gonna say transformative, but something that would move

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Speaker 1: the needle for this company. I don't know whether it's

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Speaker 1: an acquisition, whether it's a change in, maybe a return

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Speaker 1: neck of capital shareholders a car. Is there anything out there? Yeah?

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Speaker 1: So from a transformative fine, I don't think it is

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Speaker 1: going to be anything. From a product point, I would

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Speaker 1: hope that the company is going to be far more

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Speaker 1: aggressive of their buy backs. I mean, exactly speaking, they

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Speaker 1: can they can spend billion dollars a year on buy back.

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Speaker 1: If they do that, our calculations say that EPs is

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Speaker 1: going to go up anywhere from four to five, that's

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Speaker 1: not bad. If you get flat earning the PLATFOM revenue growth,

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Speaker 1: or let's say even a high single digit, a low

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Speaker 1: single digit revenue growth you add some buy backs to it,

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Speaker 1: that's ten percent EPs growth. That's not bad in a recession.

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Speaker 1: That's actually very impressive in our you all right, So

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Speaker 1: what's the across your universe? You got? You see everything

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Speaker 1: across the tech space where you know, given that the

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Speaker 1: economic backdrop we're in, when you as you talk to

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Speaker 1: institutional investors, where are they putting their money these days

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Speaker 1: in tech? I think they're all running away from tech

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Speaker 1: arctually because of inflation. And I think that is um

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Speaker 1: that is going to remain the same trend unless we

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Speaker 1: see a Regerson inflation. And I said this yesterday on

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Speaker 1: the TV also that the delta over here is what's

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Speaker 1: the discount rate. If the two year and the ten

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Speaker 1: year remain at these levels and we find out that

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Speaker 1: inflation is going down, then the Pick universe is going

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Speaker 1: to have a blast. You're going to see a massive

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Speaker 1: reversal of trends here. But the problem is people don't

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Speaker 1: know which way inflation is going to go. If inflation

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Speaker 1: keeps the way it is, and we keep on raising grades,

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Speaker 1: then the discount rate for growth sox gets hammered and

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Speaker 1: the valuations remain where it is or even down. Let

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Speaker 1: me just ask quickly. We only have a minute left

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Speaker 1: about the car um It seems like you're kind of

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Speaker 1: poop pooing it, and in fact, nobody seems that pumped

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Speaker 1: about it. But they do keep hiring people to work

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Speaker 1: on it. So what's the deal. Yeah, it's our Our

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Speaker 1: thesis on that is it's going to really help their

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Speaker 1: market cap. Frankly speaking, just because tess Like is such

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Speaker 1: a hot s it is coming. They're making their own car. Yeah,

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Speaker 1: but I do not know whether it's coming this year

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Speaker 1: or next year or the year after. I have no

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Speaker 1: way of figuring out when that's going to come. But

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Speaker 1: something is going to happen there there. You're right, they

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Speaker 1: hide a lot of people in that area. They're talking

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Speaker 1: to portion about something. So something's gonna come, but I

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Speaker 1: have no way of figuring out when it is. In

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Speaker 1: my view, it's going to once again not be that

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Speaker 1: in her mental to the sales and bottom line, but

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Speaker 1: it's going to really help their market cap. All right,

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Speaker 1: on a rock, ran I thank you appreciate it as

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Speaker 1: always phoning it in from some remote location, which I note,

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Speaker 1: but he does come in, you know, regularly. But he

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Speaker 1: I think he absconded from the metro New York region.

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Speaker 1: But during the pandemic, he's one of those smart guys. Rana.

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Speaker 1: He covers all things technology. Vince Wignarella. He does all

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Speaker 1: the trading stuff for Bloomberg News and he has just

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Speaker 1: made working from home a science and art. But something

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Speaker 1: got him into the city today, so we we we

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Speaker 1: grabbed him and Vince, what a great day, I mean,

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Speaker 1: another rough day out in the markets here. I'd love

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Speaker 1: for you to put in what we're seeing over the

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Speaker 1: last six seven weeks. Put it in the context here. Yeah,

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Speaker 1: like like you said, tough, tough playing in the sandbox today,

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Speaker 1: traders getting a little bit confused and spank. Today we

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Speaker 1: saw a little bit of a bit in sterling, a

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Speaker 1: little bit of a bid for UK gilts. That usually

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Speaker 1: spells positive for risk. And there was a hope that

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Speaker 1: the downside we about today, which came from the data

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Speaker 1: you mentioned earlier, um would turn a bit and and

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Speaker 1: markets would pick pack up. And that really hasn't happened.

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Speaker 1: And so the traders that I'm talking to are feeling

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Speaker 1: a little bit more pain than normal because I think

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Speaker 1: they feel like they got sucked in by the moves

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Speaker 1: in the UK and that was supposed to lead to

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Speaker 1: something which it hasn't. So what do you think about

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Speaker 1: the moves in the UK that we saw. It seemed

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Speaker 1: really dramatic, thirty year guilds moving, swinging a hundred basis

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Speaker 1: points in both directions after kind of a catastrophic economic

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Speaker 1: plan was announced and followed by intervention of the b

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Speaker 1: o E. How much did that move US markets? Move

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Speaker 1: US markets a lot? I think there was some sentiment

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Speaker 1: out there yesterday that maybe, uh, something similar could happen

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Speaker 1: here and the FED would have to pause a little bit,

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Speaker 1: that this, uh, the fiscal situation um, the little bit

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Speaker 1: of an instability in the bond market over in the

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Speaker 1: UK might might pour into the US, and that the

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Speaker 1: central banks in general might have to say, wait a minute,

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Speaker 1: you know, and place it's really bad, but you know,

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Speaker 1: fiscal stability is obviously far more important, and maybe move

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Speaker 1: a little bit more towards this. They are not doing that.

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Speaker 1: They're not saying it. Every every voice we've heard, I

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Speaker 1: we're gonna hear two more later today at least off

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Speaker 1: top of my head and Mr and daily Uh, and

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Speaker 1: they are most likely they're gonna come off the top

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Speaker 1: rope and continue the preaching from the same hymno about

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Speaker 1: higher rates. So how high are they going to go?

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Speaker 1: I mean four point six percent at one point Pal

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Speaker 1: in the last press conference alluded to. But he also

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Speaker 1: you know, mentioned five they could be headed at that

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Speaker 1: far and he just said they want to get real

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Speaker 1: rates up. Um, you know, two levels that would shock

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Speaker 1: the economy. Um, how far do you think they're going

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Speaker 1: to go? I personally think they have one more in them,

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00:21:45,880 --> 00:21:47,600
Speaker 1: and then I think they're gonna shock the economy, and

428
00:21:47,640 --> 00:21:49,320
Speaker 1: I think we're gonna be going into a recession and

429
00:21:49,320 --> 00:21:51,240
Speaker 1: they're gonna have to pause. But they don't seem to care.

430
00:21:51,280 --> 00:21:53,920
Speaker 1: And you know, and it is troubling, to be perfectly

431
00:21:53,960 --> 00:21:56,080
Speaker 1: honest with you, because I'm not really sure where it

432
00:21:56,119 --> 00:21:58,480
Speaker 1: says in the f O m C mandate. Uh, we're

433
00:21:58,480 --> 00:22:01,280
Speaker 1: allowed to take out the paddle and old the economy,

434
00:22:01,560 --> 00:22:04,080
Speaker 1: uh and punish people just they have to keep procession

435
00:22:04,359 --> 00:22:07,600
Speaker 1: inflation down. So well, you know, the inflation is coming down.

436
00:22:07,640 --> 00:22:09,720
Speaker 1: I mean, other than we saw the data this morning,

437
00:22:09,720 --> 00:22:12,359
Speaker 1: But in general, the anecdotal evidence we're seeing from data

438
00:22:12,520 --> 00:22:14,800
Speaker 1: is that inflation is coming down, just not coming down

439
00:22:14,800 --> 00:22:17,359
Speaker 1: fast enough for the FED. And the question is, you know,

440
00:22:17,560 --> 00:22:20,200
Speaker 1: is it is it legitimate that the FED should be

441
00:22:20,240 --> 00:22:23,280
Speaker 1: impatient and try and get it back to where they'd

442
00:22:23,280 --> 00:22:25,399
Speaker 1: like to see it in a very, very short They

443
00:22:25,400 --> 00:22:27,639
Speaker 1: don't want to make an Arthur Burn's mistake, right. I

444
00:22:27,640 --> 00:22:30,439
Speaker 1: think they already have. Um, they made it in the

445
00:22:30,440 --> 00:22:33,960
Speaker 1: middle of the pandemic by saying it was transitory. I mean,

446
00:22:34,000 --> 00:22:36,440
Speaker 1: that was the reverse Arthur Burns mistake. And I think

447
00:22:36,440 --> 00:22:38,440
Speaker 1: now it's almost more of an ego game where they're

448
00:22:38,440 --> 00:22:41,360
Speaker 1: so afraid of losing credibility that that that's what's really

449
00:22:41,440 --> 00:22:43,760
Speaker 1: driving them, not the economy. But they can't. I mean,

450
00:22:44,040 --> 00:22:47,240
Speaker 1: what what reason does Jerome Powell have to turn around?

451
00:22:47,480 --> 00:22:50,120
Speaker 1: He's he's got like a hundred fifty million dollars, right,

452
00:22:50,200 --> 00:22:53,360
Speaker 1: so he's doing well on his own. Um, he doesn't care.

453
00:22:53,640 --> 00:22:57,560
Speaker 1: He's been confirmed for this term. Um Uh. I just

454
00:22:57,600 --> 00:23:00,760
Speaker 1: can't imagine anything that would convince him. You, Elizabeth Warren

455
00:23:00,760 --> 00:23:04,560
Speaker 1: can tweet all day long and he's going to continue

456
00:23:04,560 --> 00:23:08,360
Speaker 1: on this path. Yeah, they don't. They don't care what Jesus. Actually,

457
00:23:08,440 --> 00:23:11,520
Speaker 1: most of the street doesn't really carry you. So when

458
00:23:11,520 --> 00:23:13,840
Speaker 1: you go out and and I'm assuming you're in a city,

459
00:23:13,880 --> 00:23:15,960
Speaker 1: so you're gonna probably meet a couple of your trader

460
00:23:15,960 --> 00:23:17,920
Speaker 1: buddies and have a beverage of your choice. As Tom

461
00:23:17,920 --> 00:23:20,200
Speaker 1: would say, what do you think you hear from the

462
00:23:20,240 --> 00:23:22,880
Speaker 1: trader's day to day or we're in this market? Are

463
00:23:22,920 --> 00:23:25,240
Speaker 1: they just kind of staying on the sidelines, trading around

464
00:23:25,240 --> 00:23:27,600
Speaker 1: the edges? I mean, I can't imagine trying to catch

465
00:23:27,600 --> 00:23:29,920
Speaker 1: a falling knife here. Yeah, no, they're they're trading around

466
00:23:29,920 --> 00:23:31,400
Speaker 1: the edges. It's a little bit of stick and move

467
00:23:31,520 --> 00:23:34,080
Speaker 1: kind of thing. You know, they'll step in briefly, um,

468
00:23:34,280 --> 00:23:36,800
Speaker 1: look for look for a quick profit. Perhaps if lucky,

469
00:23:37,359 --> 00:23:40,760
Speaker 1: um quick quick stops. If if they're unlucky, and and

470
00:23:40,800 --> 00:23:43,360
Speaker 1: they're just getting in and out, um, you know they

471
00:23:43,359 --> 00:23:47,320
Speaker 1: do keep asking The general question is when is it, like,

472
00:23:47,359 --> 00:23:50,560
Speaker 1: when do we feel comfortable stepping in for a more

473
00:23:50,640 --> 00:23:53,760
Speaker 1: longer term play And that's just not there yet. That's

474
00:23:53,760 --> 00:23:55,520
Speaker 1: a lot of folks will say, Like as it relates

475
00:23:55,560 --> 00:23:58,359
Speaker 1: to the VIX, for example, in the VIX today is

476
00:23:58,440 --> 00:24:01,200
Speaker 1: up about eight percent to just uh, just about thirty three.

477
00:24:01,440 --> 00:24:03,280
Speaker 1: You need to see a VIX up around forties. That

478
00:24:03,400 --> 00:24:06,800
Speaker 1: something that that you think about when you when you're

479
00:24:06,800 --> 00:24:09,000
Speaker 1: trying to identify are we add or near close to

480
00:24:09,040 --> 00:24:11,600
Speaker 1: a bottom or pass the bottom? Fix? Really isn't something

481
00:24:11,640 --> 00:24:13,840
Speaker 1: I paid that close attention to. To be honest, I've

482
00:24:13,880 --> 00:24:16,960
Speaker 1: never really had UM. I think that the key thing

483
00:24:17,000 --> 00:24:20,160
Speaker 1: to pay attention to, you know that it is really

484
00:24:20,200 --> 00:24:21,880
Speaker 1: going to be the data. And I think the data

485
00:24:21,920 --> 00:24:24,000
Speaker 1: is starting to show inflation coming down. We need to

486
00:24:24,040 --> 00:24:27,360
Speaker 1: see it's coming down far more aggressively UH to get

487
00:24:27,400 --> 00:24:30,760
Speaker 1: Powell off the gas pedal, but I think it will

488
00:24:31,160 --> 00:24:33,639
Speaker 1: and certainly recession will do the trick. What do you

489
00:24:33,680 --> 00:24:38,280
Speaker 1: watch for in terms of UH volatility measures? I have

490
00:24:38,359 --> 00:24:40,800
Speaker 1: to move up on my screen. It's you know, off

491
00:24:40,840 --> 00:24:45,679
Speaker 1: the chart at this point. In terms of capitulation signs,

492
00:24:46,119 --> 00:24:48,160
Speaker 1: what what do you watch? I mean, I think we're

493
00:24:48,160 --> 00:24:49,960
Speaker 1: just seeing it across the board. You know you mentioned

494
00:24:49,960 --> 00:24:52,280
Speaker 1: but UK gilst did yesterday and that was just a

495
00:24:52,359 --> 00:24:56,359
Speaker 1: pure short covering, nasty move and we saw it with

496
00:24:56,720 --> 00:24:59,040
Speaker 1: equities following through yesterday. A lot of a lot of

497
00:24:59,080 --> 00:25:02,679
Speaker 1: what we're seeing is driven by a smaller positions and

498
00:25:02,680 --> 00:25:05,760
Speaker 1: that's what's causing the higher volatility. People not sticking and

499
00:25:06,520 --> 00:25:08,800
Speaker 1: that they're not staying with what they have, They're they're

500
00:25:08,800 --> 00:25:11,160
Speaker 1: getting chased out easily, and a lot of that chase

501
00:25:11,280 --> 00:25:13,440
Speaker 1: is machine driven. I mean, the the algos are really

502
00:25:13,520 --> 00:25:16,239
Speaker 1: running the game at this point because the moves are

503
00:25:16,320 --> 00:25:18,240
Speaker 1: so fierce. I mean, people have been saying the Algoes

504
00:25:18,240 --> 00:25:19,800
Speaker 1: are running the game since I've been in this job,

505
00:25:20,520 --> 00:25:22,960
Speaker 1: and that's really true. I mean, it's it's totally true.

506
00:25:22,960 --> 00:25:24,600
Speaker 1: It's one of the things I think the s sc

507
00:25:24,960 --> 00:25:28,520
Speaker 1: SEC is blown in a major way by taking humans

508
00:25:28,520 --> 00:25:31,400
Speaker 1: out of the picture and making it, you know, completely

509
00:25:32,280 --> 00:25:35,240
Speaker 1: a machines driven and it feels like they're all they're

510
00:25:35,280 --> 00:25:37,919
Speaker 1: all written by the same programmer. Actually, it's it's kind

511
00:25:37,960 --> 00:25:41,520
Speaker 1: of odd. Do we get parody on the pound? I

512
00:25:41,560 --> 00:25:44,520
Speaker 1: feel like it's in the cards. Um we're not seeing

513
00:25:44,760 --> 00:25:47,679
Speaker 1: the fiscal policy being altered in any way by the

514
00:25:47,680 --> 00:25:52,240
Speaker 1: Prime Minister. It runs at odds to monetary policy. Those

515
00:25:52,280 --> 00:25:56,120
Speaker 1: things usually uh and badly for our currency. I think

516
00:25:56,119 --> 00:25:58,440
Speaker 1: we're seeing, you know, again, a bit of a relief rally.

517
00:25:58,480 --> 00:26:01,600
Speaker 1: It's been sold off so aggressively, more short covering today

518
00:26:01,920 --> 00:26:04,800
Speaker 1: back on a one ten handle. But um as my

519
00:26:05,119 --> 00:26:08,679
Speaker 1: trader friend buddies would have say, better levels to sell, right,

520
00:26:08,880 --> 00:26:10,760
Speaker 1: all right, good stuff. Hey, Matt, I have to note

521
00:26:10,720 --> 00:26:12,760
Speaker 1: that we got Vincent's studio, but I have to note

522
00:26:12,800 --> 00:26:14,880
Speaker 1: he has not taken off his coat. I don't think

523
00:26:14,880 --> 00:26:17,560
Speaker 1: he plans on didn't take it off on TV either. Okay,

524
00:26:17,600 --> 00:26:19,919
Speaker 1: so sometimes I don't take off my jacket. You know,

525
00:26:19,960 --> 00:26:22,199
Speaker 1: it's can be a little chilly. Just I just take

526
00:26:22,240 --> 00:26:24,639
Speaker 1: away like he's got one eye on the door already. Yeah,

527
00:26:24,840 --> 00:26:27,200
Speaker 1: so that's kind of was my take away. Great to

528
00:26:27,240 --> 00:26:29,480
Speaker 1: see my friend. Thanks for coming and give us sharing

529
00:26:29,520 --> 00:26:31,920
Speaker 1: some of your thoughts here on these marks another rough

530
00:26:32,040 --> 00:26:37,600
Speaker 1: day out there for the trader types as well. Jay

531
00:26:37,640 --> 00:26:40,560
Speaker 1: Bryson joins us well as Fargo chief economists. Jay, thanks

532
00:26:40,560 --> 00:26:42,480
Speaker 1: so much for joining us here. I love to just

533
00:26:42,560 --> 00:26:47,200
Speaker 1: start off by saying, or just asking if this economy

534
00:26:47,240 --> 00:26:50,440
Speaker 1: is either in a recession or goes into a recession

535
00:26:51,600 --> 00:26:53,560
Speaker 1: in a in a time when we've got high inflation.

536
00:26:53,560 --> 00:26:56,200
Speaker 1: It seems like, you know, some of the some groups

537
00:26:56,200 --> 00:26:58,800
Speaker 1: are gonna be that can't really afford to be hit

538
00:26:58,840 --> 00:27:00,840
Speaker 1: by this, are gonna be hit the heart. How do

539
00:27:00,840 --> 00:27:04,240
Speaker 1: you think about that? Well, that's that's true. I mean

540
00:27:04,240 --> 00:27:06,560
Speaker 1: when you go into into recession. I mean, obviously the

541
00:27:06,640 --> 00:27:11,520
Speaker 1: unemployment rate rises, and you know people who um are

542
00:27:11,600 --> 00:27:15,320
Speaker 1: are are working and who are particularly in particularly simply

543
00:27:15,359 --> 00:27:18,640
Speaker 1: called sensitive sort of industries that you see a lot,

544
00:27:18,720 --> 00:27:22,560
Speaker 1: that's where the layoffs tend to occur, and so um,

545
00:27:22,600 --> 00:27:24,720
Speaker 1: you know people who are working in those industries, and

546
00:27:24,920 --> 00:27:28,480
Speaker 1: I would account Hispanics among that group could be hit

547
00:27:28,520 --> 00:27:32,000
Speaker 1: harder than other people. I was, I have a canned

548
00:27:32,080 --> 00:27:34,879
Speaker 1: question I've been asking this week. A viewers sent it

549
00:27:34,920 --> 00:27:36,280
Speaker 1: to me and I thought a listeners send it to me,

550
00:27:36,280 --> 00:27:37,800
Speaker 1: and I thought it was good enough to save, so

551
00:27:38,200 --> 00:27:39,960
Speaker 1: I'll pitch it to you as well. He says, I'm

552
00:27:39,960 --> 00:27:44,240
Speaker 1: curious to know last year's inflation is transitory, seems to

553
00:27:44,240 --> 00:27:47,960
Speaker 1: be this year's short and shallow recession. What changes the

554
00:27:47,960 --> 00:27:53,239
Speaker 1: short and shallow to uh, you know, longer and deeper. Well, so,

555
00:27:53,320 --> 00:27:55,040
Speaker 1: first of all, I guess it would be if inflation

556
00:27:55,119 --> 00:27:58,320
Speaker 1: doesn't come down as much. And so you know, right

557
00:27:58,320 --> 00:28:01,119
Speaker 1: now the market is priced for terminal said funds rate

558
00:28:01,200 --> 00:28:04,280
Speaker 1: of roughly four and a half percent. If inflation doesn't

559
00:28:04,280 --> 00:28:07,760
Speaker 1: come down, maybe it's six percent. And the more the

560
00:28:07,840 --> 00:28:09,840
Speaker 1: higher rates go, the more things are going to start

561
00:28:09,840 --> 00:28:13,240
Speaker 1: to break, and the other thing would just be some

562
00:28:13,320 --> 00:28:17,000
Speaker 1: hidden vulnerabilities that we don't really know about. I mean,

563
00:28:17,240 --> 00:28:19,439
Speaker 1: looking for example, look what's happened in the UK this

564
00:28:19,520 --> 00:28:23,000
Speaker 1: week and right now that's causing a fair amount of

565
00:28:23,320 --> 00:28:29,200
Speaker 1: dislocations in the treasury market here. Um, maybe there's more

566
00:28:29,240 --> 00:28:32,199
Speaker 1: things like the UK out there that we're not thinking

567
00:28:32,240 --> 00:28:35,320
Speaker 1: about right now that are deep beneath the surface. But

568
00:28:35,359 --> 00:28:38,880
Speaker 1: if those things start to break, then potentially, you know,

569
00:28:38,920 --> 00:28:43,720
Speaker 1: you could have a bunch of financial unwinding occurring other

570
00:28:43,760 --> 00:28:45,840
Speaker 1: places around the world. It could be could lead the

571
00:28:45,880 --> 00:28:48,400
Speaker 1: continent around the world. What do you worry about right now?

572
00:28:48,440 --> 00:28:51,520
Speaker 1: I mean, I saw, um, the CarMax earnings come out

573
00:28:51,560 --> 00:28:54,720
Speaker 1: earlier and the shares are down, But really across the

574
00:28:56,000 --> 00:28:59,680
Speaker 1: across the industry, those companies that are public, like Carbona

575
00:28:59,840 --> 00:29:02,560
Speaker 1: or On Automotive, they're all trading down big time, General

576
00:29:02,560 --> 00:29:06,360
Speaker 1: Motors and Ford as well, because the concern is consumer

577
00:29:06,440 --> 00:29:12,520
Speaker 1: sentiment is weakening and rates are rising hitting demand right

578
00:29:12,640 --> 00:29:16,280
Speaker 1: as those car makers and manufacturers are finally getting supply

579
00:29:16,360 --> 00:29:18,320
Speaker 1: back up to speed. Yeah, I mean, so you know,

580
00:29:18,400 --> 00:29:20,040
Speaker 1: in general kind of goes back to what I was

581
00:29:20,080 --> 00:29:23,680
Speaker 1: talking about before in terms of cyclically sensitive interest rate

582
00:29:23,800 --> 00:29:27,240
Speaker 1: sensitive sort of industries. You mentioned the car industry, you know,

583
00:29:27,320 --> 00:29:31,800
Speaker 1: that's obviously interest rate sensitive. Another industry that's really interest

584
00:29:31,840 --> 00:29:34,920
Speaker 1: rate sensitive is housing. I mean, we're already seeing housing

585
00:29:35,760 --> 00:29:39,240
Speaker 1: weakening significantly. You know, you mentioned earlier that the yield

586
00:29:39,280 --> 00:29:40,920
Speaker 1: on the on the the you know, for the third

587
00:29:41,040 --> 00:29:44,080
Speaker 1: year sixth or eight mortgages up to six and three

588
00:29:44,160 --> 00:29:47,280
Speaker 1: quarters per cent. We haven't seen that in decades, um,

589
00:29:47,440 --> 00:29:49,040
Speaker 1: and so you could see, you know, you could really

590
00:29:49,040 --> 00:29:50,960
Speaker 1: start to see the housing work is starting to weaken

591
00:29:50,960 --> 00:29:53,160
Speaker 1: here as well. So, J I know you and your

592
00:29:53,160 --> 00:29:55,200
Speaker 1: team are out with this report about you know, the

593
00:29:55,200 --> 00:29:59,360
Speaker 1: potential impact on Hispanic workers here in a potential recession.

594
00:29:59,640 --> 00:30:01,680
Speaker 1: Where are we just it just feels like for the

595
00:30:01,720 --> 00:30:05,880
Speaker 1: broader economy, we're at our near full employment here. Give

596
00:30:05,960 --> 00:30:09,040
Speaker 1: us the picture in the Hispanic community and maybe how

597
00:30:09,080 --> 00:30:11,320
Speaker 1: that might play out if we do, in fact, you know,

598
00:30:11,400 --> 00:30:16,600
Speaker 1: have a material recession. Yeah. So you know, I've said

599
00:30:16,600 --> 00:30:20,840
Speaker 1: a few times now already about cyclically sensitive sort of industries.

600
00:30:21,240 --> 00:30:24,840
Speaker 1: And when you look at where Hispanics are, I'll call

601
00:30:24,920 --> 00:30:28,640
Speaker 1: them overrepresented, um. And so keep in mind a Hispanics

602
00:30:28,640 --> 00:30:33,160
Speaker 1: account for a roughly ent or so of the workforce. Okay,

603
00:30:33,320 --> 00:30:37,800
Speaker 1: if you look at construction, Hispanics account for a third there.

604
00:30:37,920 --> 00:30:44,320
Speaker 1: Construction cyclically sensitive. If you look at transportation and warehousing, um,

605
00:30:44,440 --> 00:30:48,600
Speaker 1: you know again Hispanics account for more than of the

606
00:30:48,680 --> 00:30:53,800
Speaker 1: workforce there. Non durable manufacturing account for more than These

607
00:30:53,800 --> 00:30:56,959
Speaker 1: are all cyclically sensitive sort of industries. And so if

608
00:30:56,960 --> 00:30:59,400
Speaker 1: the economy were go into recession or if we see,

609
00:30:59,520 --> 00:31:03,320
Speaker 1: you know, a long period of weak economic growth, that's

610
00:31:03,360 --> 00:31:06,200
Speaker 1: where you're probably gonna get some more layoffs in those

611
00:31:06,200 --> 00:31:08,760
Speaker 1: sorts of industries. And I would expect to see the

612
00:31:08,840 --> 00:31:12,360
Speaker 1: unemployment rate among Hispanics, which is kind of close to

613
00:31:12,480 --> 00:31:15,360
Speaker 1: the overall national rate right now, I would expect to

614
00:31:15,400 --> 00:31:18,520
Speaker 1: see that rise more. And we definitely have seen that

615
00:31:18,600 --> 00:31:22,040
Speaker 1: in the last three cycles, where the Hispanic rate tends

616
00:31:22,080 --> 00:31:24,760
Speaker 1: to go up more during the recession than what it

617
00:31:24,920 --> 00:31:28,840
Speaker 1: does for the overall population. All right, j let's talk hoops.

618
00:31:29,000 --> 00:31:31,200
Speaker 1: Is North Carolina even gonna be able to field a

619
00:31:31,240 --> 00:31:35,200
Speaker 1: basketball team this year? Are you kidding me? Carolina? You

620
00:31:35,240 --> 00:31:37,840
Speaker 1: know they have all these guys coming back, who are

621
00:31:38,320 --> 00:31:41,200
Speaker 1: you know, seniors? You know the team that beat Duke

622
00:31:41,280 --> 00:31:44,600
Speaker 1: last year in the final in the final four, they're

623
00:31:44,640 --> 00:31:47,000
Speaker 1: all they're all back, And who does Douke have. I

624
00:31:47,040 --> 00:31:48,880
Speaker 1: mean they have a bunch of freshmen who have never

625
00:31:48,880 --> 00:31:51,280
Speaker 1: played together. So we have and we have a new

626
00:31:51,280 --> 00:31:53,440
Speaker 1: coach though, So that you have a new coach, you

627
00:31:53,440 --> 00:31:58,080
Speaker 1: can allow your players to drive stolen cars where Oh yes,

628
00:31:58,160 --> 00:32:00,160
Speaker 1: that's a d u I right, there's a little d

629
00:32:00,240 --> 00:32:02,480
Speaker 1: o I issue for my for my dukeys. All right, Jake,

630
00:32:02,520 --> 00:32:04,160
Speaker 1: thanks so much for joining us. Jay Brice and he's

631
00:32:04,200 --> 00:32:07,640
Speaker 1: the chief economist for Wells Fargo and he is all

632
00:32:07,760 --> 00:32:10,240
Speaker 1: in U n C. He's got the undergrad and economics

633
00:32:10,240 --> 00:32:14,000
Speaker 1: from UNC. Dr philosophy economics from the University of North Carolina.

634
00:32:14,080 --> 00:32:16,960
Speaker 1: He lectures there. He's on the economic board. He is

635
00:32:17,080 --> 00:32:19,760
Speaker 1: all in tar heels. I'm sure he bleeds tar Heel blue.

636
00:32:20,120 --> 00:32:23,240
Speaker 1: And if God's not Atario, why is the sky Carolina blue?

637
00:32:23,680 --> 00:32:25,960
Speaker 1: See that's kind of I learned in my two years

638
00:32:25,960 --> 00:32:29,080
Speaker 1: of Duke. Thanks for listening to the Bloomberg Markets podcast.

639
00:32:29,440 --> 00:32:32,680
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

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Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

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Speaker 1: on Twitter at Matt Miller V three pen on ball

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Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast.

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Speaker 1: You can always catch us worldwide at Bloomberg Radio