1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,280 Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,600 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Let's get 7 00:00:30,680 --> 00:00:31,920 Speaker 1: right to it. We have to do that with the 8 00:00:31,960 --> 00:00:34,680 Speaker 1: important economic data coming up as well, and we're thrilled 9 00:00:34,720 --> 00:00:36,600 Speaker 1: to bring you from our studios in New York on 10 00:00:36,720 --> 00:00:41,360 Speaker 1: radio and television worldwide. Matthew Lozette, Chief US economist at 11 00:00:41,360 --> 00:00:43,760 Speaker 1: Deutsche Bank. Matt, thank you so much for joining us 12 00:00:43,760 --> 00:00:47,680 Speaker 1: in studio with his data coming out is well. You 13 00:00:47,840 --> 00:00:51,559 Speaker 1: nailed the win of it. Absolutely nailed not only the 14 00:00:51,640 --> 00:00:53,959 Speaker 1: vector of the call and this on GDP and recession 15 00:00:54,000 --> 00:00:57,000 Speaker 1: and not nbeer recession, but the idea of a slowdown. 16 00:00:57,640 --> 00:01:02,279 Speaker 1: But you nailed where everybody got wrong, the immediacy of recession. 17 00:01:02,320 --> 00:01:05,160 Speaker 1: And you said, no, do you stick with that? Now? 18 00:01:05,240 --> 00:01:08,280 Speaker 1: When is the win of any kind of slowdown that 19 00:01:08,360 --> 00:01:10,680 Speaker 1: we see? Yeah? I think the recent data we've seen 20 00:01:10,720 --> 00:01:13,839 Speaker 1: over the past several months. If anything, I think gives 21 00:01:13,840 --> 00:01:16,840 Speaker 1: you greater confidence in that kind of timeline. Certainly the 22 00:01:16,840 --> 00:01:20,480 Speaker 1: economy has momentum. Now. What we've seen from the jobs reports, 23 00:01:20,560 --> 00:01:23,480 Speaker 1: or retail sales or some of the survey data bottoming 24 00:01:23,600 --> 00:01:25,840 Speaker 1: and picking back up all tells you. I think that 25 00:01:25,920 --> 00:01:28,800 Speaker 1: Q one growth should be solid. It's certainly above trend, 26 00:01:28,880 --> 00:01:31,600 Speaker 1: we think. I think that the ongoing narrative that we 27 00:01:31,800 --> 00:01:34,039 Speaker 1: hear from the FED about this kind of gradual slowdown 28 00:01:34,040 --> 00:01:36,560 Speaker 1: and growth over the coming quarters doesn't really seem to 29 00:01:36,560 --> 00:01:37,920 Speaker 1: fit with the data that we have. I think that 30 00:01:37,920 --> 00:01:40,720 Speaker 1: that narrative likely has to change. But at the same time, 31 00:01:40,840 --> 00:01:42,840 Speaker 1: we've seen from an inflation perspective, is a lot less 32 00:01:42,840 --> 00:01:45,759 Speaker 1: disinflation than we thought late last year. We see core 33 00:01:45,800 --> 00:01:48,480 Speaker 1: inflation picking back up over the coming months. We think 34 00:01:48,480 --> 00:01:50,080 Speaker 1: that leads the FED to be more aggressive. We have 35 00:01:50,080 --> 00:01:52,120 Speaker 1: a five point six percent terminal rate, which I think 36 00:01:52,160 --> 00:01:54,280 Speaker 1: then builds into the hard landing wrestles later. Well, let's 37 00:01:54,280 --> 00:01:56,280 Speaker 1: talk about the hand landing risks. Where do you have 38 00:01:56,320 --> 00:01:58,560 Speaker 1: to downturn on the Canada? Difficult to do, but just 39 00:01:58,640 --> 00:02:01,360 Speaker 1: to set up the conversation, no doubt, it's difficult to do. 40 00:02:01,400 --> 00:02:03,440 Speaker 1: We currently have it in Q four. We've gone Q 41 00:02:03,560 --> 00:02:05,200 Speaker 1: three Q four. It's but always been a second half 42 00:02:05,320 --> 00:02:08,040 Speaker 1: story for us. I think it's a few things. One, 43 00:02:08,240 --> 00:02:10,000 Speaker 1: you know, we do expect the FED to be more aggressive. 44 00:02:10,040 --> 00:02:12,440 Speaker 1: The market has repriced the terminal rate a lot, but 45 00:02:12,520 --> 00:02:14,800 Speaker 1: I think not enough yet. I think we would probably 46 00:02:14,800 --> 00:02:17,799 Speaker 1: see the market repriced at higher on upcoming inflation data. 47 00:02:17,880 --> 00:02:19,120 Speaker 1: And then you have a number of things in the 48 00:02:19,160 --> 00:02:21,440 Speaker 1: second half of the year. Households lose their excess savings. 49 00:02:21,560 --> 00:02:23,960 Speaker 1: I think that leads to household fragility. You obviously have 50 00:02:23,960 --> 00:02:26,320 Speaker 1: a debt ceiling, which could lead to financial condition tightening 51 00:02:26,960 --> 00:02:29,760 Speaker 1: and weaker government spending. So there's a lot of risks 52 00:02:29,760 --> 00:02:31,280 Speaker 1: as we look out into Q three. You're at five 53 00:02:31,320 --> 00:02:33,160 Speaker 1: to sixty now, right we are. So I'm gonna write, 54 00:02:33,960 --> 00:02:36,959 Speaker 1: do you find this upside risk to that view? Look 55 00:02:37,080 --> 00:02:39,400 Speaker 1: with the data as it is today, I do think 56 00:02:39,400 --> 00:02:42,040 Speaker 1: that there's upside risks that view. If you look at 57 00:02:42,080 --> 00:02:44,240 Speaker 1: the labor market, and I think it's really important. It's 58 00:02:44,240 --> 00:02:46,520 Speaker 1: not just the latest data points, because we should take 59 00:02:46,639 --> 00:02:49,000 Speaker 1: the January data with some grain of salt. Given weather, 60 00:02:49,320 --> 00:02:53,000 Speaker 1: seasonal adjustment factors. We had meaningful upward revisions to household 61 00:02:53,000 --> 00:02:56,119 Speaker 1: income in the Q four of last year. You've had 62 00:02:56,240 --> 00:02:59,560 Speaker 1: inflation data which was revised up meaningfully in Q four. 63 00:03:00,120 --> 00:03:01,799 Speaker 1: So I think as you look at the FED, I 64 00:03:01,840 --> 00:03:03,440 Speaker 1: don't think that they will really have any evidence of 65 00:03:03,480 --> 00:03:07,440 Speaker 1: disinflation by the May meeting. They may only have a 66 00:03:07,480 --> 00:03:09,919 Speaker 1: month or two by the July meeting, and really it's 67 00:03:09,960 --> 00:03:12,440 Speaker 1: a question of, you know, ken they tighten financial conditions enough. 68 00:03:12,440 --> 00:03:14,520 Speaker 1: I think we heard concerns about that in the minutes yesterday. 69 00:03:14,800 --> 00:03:16,200 Speaker 1: I want to take into that a little bit more 70 00:03:16,280 --> 00:03:20,200 Speaker 1: upside surprise to five point six percent. Is that because 71 00:03:20,520 --> 00:03:23,040 Speaker 1: long and variable lags isn't a thing, and it like 72 00:03:23,120 --> 00:03:25,520 Speaker 1: we're already seeing basically the effect of the tightness, and 73 00:03:25,560 --> 00:03:28,040 Speaker 1: that just isn't tight enough at a five percent or 74 00:03:28,080 --> 00:03:30,760 Speaker 1: a five point five percent, Or is this that this 75 00:03:30,840 --> 00:03:33,520 Speaker 1: is a less interest rate sensitive economy that needs to 76 00:03:33,560 --> 00:03:36,000 Speaker 1: have a much bigger shock. Yeah. I think there's two 77 00:03:36,040 --> 00:03:38,240 Speaker 1: lags that we probably want to talk about. There's what 78 00:03:38,320 --> 00:03:40,200 Speaker 1: the FED does and what happens with monetary policy to 79 00:03:40,200 --> 00:03:43,040 Speaker 1: financial conditions. I think that lag has been very quick 80 00:03:43,080 --> 00:03:46,120 Speaker 1: and tight. We saw it reflected in mortgage rates. Financial 81 00:03:46,120 --> 00:03:49,080 Speaker 1: conditions actually tightened very quickly, and then there's the lag 82 00:03:49,080 --> 00:03:51,440 Speaker 1: of that financial condition tightening onto the economy. I think 83 00:03:51,480 --> 00:03:53,840 Speaker 1: that's where you know, we are probably seeing economy that's 84 00:03:53,880 --> 00:03:56,080 Speaker 1: more resilient. You have the excess savings, we still think 85 00:03:56,080 --> 00:03:58,480 Speaker 1: it's one trillion dollars. You've had state in local governments 86 00:03:58,480 --> 00:04:00,280 Speaker 1: that we're sending out checks, so there's been this latent 87 00:04:00,320 --> 00:04:02,800 Speaker 1: stimulus in the system. At the same time, you have 88 00:04:02,840 --> 00:04:05,400 Speaker 1: a labor market that's undersupplied, which I think is making 89 00:04:05,400 --> 00:04:07,680 Speaker 1: it very resilient to the tightening so far. So I 90 00:04:07,680 --> 00:04:10,760 Speaker 1: think those two lags have different lag structures, but the 91 00:04:10,760 --> 00:04:12,760 Speaker 1: one where it hits the economy that's taking longer than 92 00:04:12,760 --> 00:04:14,400 Speaker 1: I think we've seen in the past. Is there a 93 00:04:14,440 --> 00:04:17,800 Speaker 1: sense that there is a level at which the economy 94 00:04:17,800 --> 00:04:21,000 Speaker 1: would break or that could really put a major halt 95 00:04:21,400 --> 00:04:24,680 Speaker 1: on an economic trajectory that still seems to have momentum. Look, 96 00:04:24,839 --> 00:04:26,479 Speaker 1: I'll be quite honest, I think we don't know what 97 00:04:26,600 --> 00:04:28,600 Speaker 1: level that is. And I think that's in part the 98 00:04:29,120 --> 00:04:31,719 Speaker 1: idea that there's upside risks to the terminal rate. You know, 99 00:04:31,800 --> 00:04:34,280 Speaker 1: going back a year ago, if you would have said 100 00:04:34,279 --> 00:04:36,560 Speaker 1: that we'd have a five percent handle on the Fed 101 00:04:36,600 --> 00:04:38,600 Speaker 1: funds rate, and we'd be contemplating whether or not the 102 00:04:38,680 --> 00:04:40,680 Speaker 1: economy being in a recession. I think that'd be almost 103 00:04:40,720 --> 00:04:44,440 Speaker 1: preposterous conversation to be having. As we continue to price 104 00:04:44,520 --> 00:04:48,120 Speaker 1: higher financial conditions. You know they're tight, they've tightened, but 105 00:04:48,160 --> 00:04:50,560 Speaker 1: I don't think they're tight enough to achieve the fed 106 00:04:50,680 --> 00:04:52,800 Speaker 1: dual mandate objectives. And so I think we have to 107 00:04:52,839 --> 00:04:55,000 Speaker 1: be open minded and humble about where that terminal rate 108 00:04:55,040 --> 00:04:56,400 Speaker 1: is actually going to be. I want to take the 109 00:04:56,480 --> 00:04:59,520 Speaker 1: heritage Deutsche Bank. And this goes back to thirteen years now, 110 00:04:59,560 --> 00:05:02,760 Speaker 1: to raging debate at the time off of Duley, Garber 111 00:05:02,839 --> 00:05:06,520 Speaker 1: and folkirts Land out David leading all of your research effort, 112 00:05:06,960 --> 00:05:10,599 Speaker 1: and there was a titanic debate about China's savings and 113 00:05:10,720 --> 00:05:13,679 Speaker 1: China flow. Paul McCauley was involved in this, Brad sets 114 00:05:13,680 --> 00:05:15,960 Speaker 1: are in others. I want to bring that to the 115 00:05:16,040 --> 00:05:19,800 Speaker 1: domestic right now. Not the unknown with China, but what's 116 00:05:19,839 --> 00:05:24,760 Speaker 1: the unknown for Matt Lozzetti in the American economic experiment 117 00:05:24,839 --> 00:05:27,839 Speaker 1: right now? What's the mystery out there for you three 118 00:05:27,960 --> 00:05:30,520 Speaker 1: four or five years out? So I think three four 119 00:05:30,560 --> 00:05:33,440 Speaker 1: or five years out there's this really interesting conversation about 120 00:05:33,440 --> 00:05:35,440 Speaker 1: what the neutral that funds rate is likely to be. 121 00:05:35,520 --> 00:05:37,600 Speaker 1: It does plan too a little bit about the global 122 00:05:37,640 --> 00:05:40,400 Speaker 1: saving story, and I think it's really about what are 123 00:05:40,400 --> 00:05:44,440 Speaker 1: we seeing today that is simply reflecting unique circumstances around 124 00:05:44,440 --> 00:05:47,479 Speaker 1: the pandemic, or what is it something that is more structural. 125 00:05:47,560 --> 00:05:48,880 Speaker 1: I think some things that we know that might be 126 00:05:48,920 --> 00:05:51,039 Speaker 1: more structural. I think inflation is going to be structurally 127 00:05:51,080 --> 00:05:53,560 Speaker 1: higher going forward. You know, we have all these shifts 128 00:05:53,600 --> 00:05:58,360 Speaker 1: going on, demographic forces, deglobalization, you have climate change policy. 129 00:05:58,360 --> 00:06:00,280 Speaker 1: All these things I think are at the margin least 130 00:06:00,279 --> 00:06:03,080 Speaker 1: are going to be inflationary. I think you also have 131 00:06:03,279 --> 00:06:06,040 Speaker 1: a world where maybe fiscal policy in the US has 132 00:06:06,080 --> 00:06:08,760 Speaker 1: not structurally changed in an easier direction, but I think 133 00:06:08,800 --> 00:06:11,919 Speaker 1: globally we might see that shifting in a more easier direction, 134 00:06:12,160 --> 00:06:13,920 Speaker 1: and I think that does lift the neutral rate for 135 00:06:14,160 --> 00:06:16,680 Speaker 1: the feed as we look at you see that coming 136 00:06:16,680 --> 00:06:18,640 Speaker 1: from Europe, China? Where do you see that coming from? 137 00:06:18,680 --> 00:06:21,279 Speaker 1: So I think we have in Europe, we have defense spending, 138 00:06:21,279 --> 00:06:23,520 Speaker 1: you have climate change policy. In China, you likely have 139 00:06:23,560 --> 00:06:27,400 Speaker 1: a shift away from domestic savings in their economy over time. 140 00:06:27,800 --> 00:06:29,320 Speaker 1: In the US, it's a more up in question. You know, 141 00:06:29,360 --> 00:06:30,880 Speaker 1: we have a debt sailing debate that that's going to 142 00:06:30,920 --> 00:06:32,599 Speaker 1: be happening in the second half of this year. Could 143 00:06:32,600 --> 00:06:34,640 Speaker 1: this lead to fiscal or trenchmen It seems pretty likely 144 00:06:34,680 --> 00:06:36,680 Speaker 1: to put death sentence in there in China savings just 145 00:06:36,760 --> 00:06:39,040 Speaker 1: to keep his job focus. Landau was watching are you 146 00:06:39,080 --> 00:06:41,640 Speaker 1: getting questions on that debt saving debate yet? Or a 147 00:06:41,680 --> 00:06:43,560 Speaker 1: people avoiding it? Is it you trying to talk to 148 00:06:43,560 --> 00:06:45,479 Speaker 1: clients about it or clients trying to talk to you. 149 00:06:45,720 --> 00:06:47,400 Speaker 1: It's clients trying to talk to us at the moment. 150 00:06:47,440 --> 00:06:50,120 Speaker 1: I would say that the past few it was more 151 00:06:50,560 --> 00:06:52,479 Speaker 1: we have to come up against it, you have to 152 00:06:52,480 --> 00:06:54,560 Speaker 1: see it reflected in the bill market, and then everybody 153 00:06:54,640 --> 00:06:56,520 Speaker 1: starts to focus on it. I think this time around 154 00:06:56,560 --> 00:06:58,560 Speaker 1: there's been a lot more focused early on Maybe it's 155 00:06:58,720 --> 00:07:01,119 Speaker 1: you know, what was going on with this speaker leadership votes. 156 00:07:01,800 --> 00:07:03,840 Speaker 1: It's very clear that I think from both sides that 157 00:07:03,920 --> 00:07:08,039 Speaker 1: they're they're kind of entrenched in their views at this 158 00:07:08,080 --> 00:07:10,680 Speaker 1: point and that it will be an issue, and so 159 00:07:10,720 --> 00:07:12,080 Speaker 1: I think that there has been greater focus on it 160 00:07:12,160 --> 00:07:13,280 Speaker 1: this time around. You think for it not to be 161 00:07:13,320 --> 00:07:14,880 Speaker 1: an issue, it needs to become an issue. And what 162 00:07:14,960 --> 00:07:16,200 Speaker 1: I mean by that they need to push it far 163 00:07:16,320 --> 00:07:18,120 Speaker 1: enough that something happens in markets for them to back 164 00:07:18,160 --> 00:07:19,520 Speaker 1: a white Is that way you see this guy. I 165 00:07:19,680 --> 00:07:22,040 Speaker 1: don't see any way that either side should back down 166 00:07:22,080 --> 00:07:24,400 Speaker 1: from their view unless it becomes an issue where financial 167 00:07:24,400 --> 00:07:26,360 Speaker 1: conditions begins to tighten. The problem we've all got is 168 00:07:26,400 --> 00:07:28,600 Speaker 1: it's an issue for like somewhere else further out, and 169 00:07:28,560 --> 00:07:31,080 Speaker 1: they cant delay selects in the summer sea into the summer. 170 00:07:31,160 --> 00:07:34,000 Speaker 1: It's such a frustrating discussion to have if there is one. 171 00:07:34,160 --> 00:07:36,320 Speaker 1: A group of economists over at Jeffreys put out this 172 00:07:36,360 --> 00:07:38,760 Speaker 1: note basically saying some of the sell off you've seen 173 00:07:38,800 --> 00:07:40,920 Speaker 1: in bills with gilds rising above five percent in the 174 00:07:40,960 --> 00:07:43,360 Speaker 1: short end could be tied to some of this death 175 00:07:43,440 --> 00:07:45,960 Speaker 1: sailing debate. Muhammadalaran came out and he basically was like, no, 176 00:07:46,000 --> 00:07:47,800 Speaker 1: it's not, it's all the fact, but you know this 177 00:07:47,840 --> 00:07:49,120 Speaker 1: is the issue. It's sort of like, how do you 178 00:07:49,160 --> 00:07:51,760 Speaker 1: game that out? Because even the reaction function in markets, 179 00:07:51,760 --> 00:07:53,440 Speaker 1: what is it is it to go into short term 180 00:07:53,480 --> 00:07:56,320 Speaker 1: decks it's safe. I mean the irony around how the 181 00:07:56,320 --> 00:07:59,160 Speaker 1: market would even respond when issue that seems to pay 182 00:07:59,480 --> 00:08:01,440 Speaker 1: the play every single time, We'll say it is different 183 00:08:01,480 --> 00:08:04,000 Speaker 1: this time anyway, core PC a little bit hotter for 184 00:08:04,040 --> 00:08:06,440 Speaker 1: the fourth quarter. Tom, that's another reader that four point 185 00:08:06,480 --> 00:08:09,520 Speaker 1: three percent jobless claims expected to climb higher. They did not. 186 00:08:09,600 --> 00:08:12,920 Speaker 1: They declined to one ninety two from a revised one 187 00:08:13,240 --> 00:08:15,400 Speaker 1: ninety five. What do you make of that GDP price 188 00:08:15,480 --> 00:08:17,680 Speaker 1: index up as well? And just to the amateur take, 189 00:08:17,760 --> 00:08:21,560 Speaker 1: I'd take us to add up GDP annualized plus the 190 00:08:21,680 --> 00:08:24,640 Speaker 1: GDP price index and I got nominal GDP of six 191 00:08:24,720 --> 00:08:28,240 Speaker 1: point six percent, if I Matt Laszoti math is correct. 192 00:08:28,320 --> 00:08:31,120 Speaker 1: And I'm sorry, John, that's a that's that's what keeps 193 00:08:31,160 --> 00:08:34,120 Speaker 1: you going when you've got nominal GDP at that level. Matt, 194 00:08:34,120 --> 00:08:35,920 Speaker 1: we've got to come to you on that. Matt Lasotti 195 00:08:36,160 --> 00:08:38,319 Speaker 1: from Deutsche Bank alongside us, Can we just start with 196 00:08:38,360 --> 00:08:40,720 Speaker 1: that number, one hundred and ninety two thousand, Your thoughts 197 00:08:40,760 --> 00:08:43,480 Speaker 1: on it. I mean, it's remarkable. I mean it's remarkable 198 00:08:43,520 --> 00:08:45,360 Speaker 1: that the FETT tightened as much as they have and 199 00:08:45,440 --> 00:08:47,960 Speaker 1: you don't see a labor market that is really certainly 200 00:08:48,000 --> 00:08:50,000 Speaker 1: not shedding labor. It's not coming into better balance as 201 00:08:50,000 --> 00:08:53,160 Speaker 1: the ft had hoped for. UM. I think the revisions 202 00:08:53,160 --> 00:08:55,200 Speaker 1: to the recent data you've had, plus the latest data 203 00:08:55,200 --> 00:08:57,960 Speaker 1: show really no weakening at all. I would highlight the 204 00:08:57,960 --> 00:09:00,800 Speaker 1: core PC number there as well, uppard revisions. I think 205 00:09:00,800 --> 00:09:03,400 Speaker 1: it likely reflects the seasonal adjustment that we saw in 206 00:09:03,480 --> 00:09:06,560 Speaker 1: the CPI now getting reflected in the core PC data 207 00:09:06,559 --> 00:09:08,840 Speaker 1: as well. You get that if plus a point five 208 00:09:09,040 --> 00:09:12,440 Speaker 1: reading tomorrow, I think we're you know, the ten minutes. 209 00:09:12,760 --> 00:09:15,719 Speaker 1: The sentence that I focused on the most was you know, 210 00:09:15,760 --> 00:09:18,079 Speaker 1: there's concern if they don't tighten sufficiently that progress on 211 00:09:18,120 --> 00:09:21,360 Speaker 1: inflation could halt. I think that with the revisions to 212 00:09:21,400 --> 00:09:24,280 Speaker 1: the data, with the incoming data that we're seeing, there 213 00:09:24,320 --> 00:09:25,760 Speaker 1: has to be a question about whether or not they 214 00:09:25,800 --> 00:09:27,720 Speaker 1: are tightened sufficiently, and whether or not, with the market 215 00:09:27,800 --> 00:09:30,320 Speaker 1: is pricing right now, is tightening sufficiently. After pay Rose, 216 00:09:30,400 --> 00:09:31,880 Speaker 1: I spoke to a lot of people that said that 217 00:09:31,960 --> 00:09:35,040 Speaker 1: was more noise than signal in the January data. Based 218 00:09:35,040 --> 00:09:36,800 Speaker 1: on the data we've had in the last couple of weeks, 219 00:09:37,000 --> 00:09:39,199 Speaker 1: do you think it was most signal the noise. Look, 220 00:09:39,240 --> 00:09:40,760 Speaker 1: I don't think we're going to print five hundred thousand 221 00:09:40,840 --> 00:09:43,920 Speaker 1: jobs per month on average, so there's there's no doubt 222 00:09:43,920 --> 00:09:47,079 Speaker 1: the headline, there's no doubt a lot of noise there. 223 00:09:47,280 --> 00:09:49,000 Speaker 1: But when you look at the broad labor market data. 224 00:09:49,000 --> 00:09:50,400 Speaker 1: If you looked at the Jolts data, you know a 225 00:09:50,440 --> 00:09:53,040 Speaker 1: few days before that job opening is picking up initial 226 00:09:53,120 --> 00:09:55,280 Speaker 1: jobless claims. Everything is telling you the labor market that 227 00:09:55,320 --> 00:09:59,520 Speaker 1: has momentum and that is tight. I look at just 228 00:09:59,559 --> 00:10:04,640 Speaker 1: the equation, why we'll see plus I plus G plus nx. 229 00:10:05,040 --> 00:10:09,000 Speaker 1: Can we guestimate any of those factors? Given we're coming 230 00:10:09,000 --> 00:10:11,959 Speaker 1: out of a pandemic with a Biden stimulus. I am 231 00:10:12,000 --> 00:10:15,560 Speaker 1: so fortunate I'm not doing what Peter Hooper's told you 232 00:10:15,640 --> 00:10:19,240 Speaker 1: to do, which is actually try to guestimate this. What's 233 00:10:19,240 --> 00:10:24,199 Speaker 1: your confidence in guestimating forward? Look, it's it's always difficult. 234 00:10:24,200 --> 00:10:26,400 Speaker 1: I think it's it's even more difficult in the current environment. 235 00:10:26,520 --> 00:10:29,800 Speaker 1: As I look at those Q four GDP numbers, the 236 00:10:29,840 --> 00:10:33,640 Speaker 1: downgraded consumption is meaningful. We were actually close to zero 237 00:10:33,720 --> 00:10:36,320 Speaker 1: growth in private domestic demand already, meaning if you were 238 00:10:36,320 --> 00:10:39,440 Speaker 1: to look at housing consumption and capex and so, it 239 00:10:39,480 --> 00:10:41,520 Speaker 1: does look like from those numbers you had even probably 240 00:10:41,520 --> 00:10:44,040 Speaker 1: a sharper slowdown in domestic demand growth in Q four. 241 00:10:44,880 --> 00:10:46,640 Speaker 1: But I think the data we've had since then is 242 00:10:46,640 --> 00:10:49,480 Speaker 1: suggestive that was a temporary blip. It was around the 243 00:10:49,480 --> 00:10:51,920 Speaker 1: period where we think financial conditions were hitting the economy 244 00:10:52,160 --> 00:10:55,400 Speaker 1: probably most significantly, and if the Fed does not continue 245 00:10:55,440 --> 00:10:58,320 Speaker 1: to engineer conditions that are tight enough, you have an 246 00:10:58,320 --> 00:11:00,640 Speaker 1: economy that I think is likely to pick back up 247 00:11:00,679 --> 00:11:02,880 Speaker 1: and a labor market that is unlikely to listen. Does 248 00:11:02,920 --> 00:11:05,199 Speaker 1: that mean that there's another fifty basis point on the table. 249 00:11:06,000 --> 00:11:08,240 Speaker 1: I think you know it's not the optimal choice from 250 00:11:08,280 --> 00:11:11,080 Speaker 1: their perspective. If they ratch it up to fifty basis points, 251 00:11:11,080 --> 00:11:13,000 Speaker 1: we get back into this process of how do you 252 00:11:13,040 --> 00:11:15,679 Speaker 1: get back down from fifty to twenty five? And if 253 00:11:15,679 --> 00:11:18,880 Speaker 1: you only want to go one or two, it's going 254 00:11:18,920 --> 00:11:20,400 Speaker 1: to be very difficult to do that by the mayor 255 00:11:20,480 --> 00:11:22,760 Speaker 1: June meetings. I could think for the March meeting, if 256 00:11:22,760 --> 00:11:26,000 Speaker 1: they need to deliver a hawker's surprise, you always kind 257 00:11:26,000 --> 00:11:27,480 Speaker 1: of have that free card of the dot plot. The 258 00:11:27,559 --> 00:11:29,920 Speaker 1: dot plot is able to signal their intentions. They could 259 00:11:30,240 --> 00:11:33,040 Speaker 1: show a FED funds terminal rate that's higher than what 260 00:11:33,080 --> 00:11:36,040 Speaker 1: the market has priced in holding it for longer. And 261 00:11:36,120 --> 00:11:38,040 Speaker 1: the messaging I think is really important here. If they 262 00:11:38,040 --> 00:11:40,360 Speaker 1: were simply to talk down financial conditions, as as the 263 00:11:40,360 --> 00:11:42,680 Speaker 1: minutes did a little bit, I think that that would happen. 264 00:11:42,600 --> 00:11:46,439 Speaker 1: It is critical, this is original. Since when does a 265 00:11:46,600 --> 00:11:51,000 Speaker 1: central bank quote unquote talk down financial conditions? I actually 266 00:11:51,000 --> 00:11:53,240 Speaker 1: looked at that than us and them literally bore the 267 00:11:53,280 --> 00:11:59,559 Speaker 1: pass back just talken about talking about it. And the 268 00:11:59,640 --> 00:12:02,880 Speaker 1: Schwartz didn't talk about it, The Georgia School didn't talk 269 00:12:02,920 --> 00:12:05,839 Speaker 1: about it. You Cela didn't talk about it. How do 270 00:12:05,920 --> 00:12:09,640 Speaker 1: they quote unquote talk down financial conditions? Look, I think 271 00:12:09,640 --> 00:12:12,160 Speaker 1: we're in a in a Obviously, the past decade decond 272 00:12:12,160 --> 00:12:14,679 Speaker 1: and a half is a new period of communications from 273 00:12:14,679 --> 00:12:17,840 Speaker 1: central banks. It is guiding towards their expectations of what 274 00:12:17,880 --> 00:12:20,319 Speaker 1: they want to do in order to bring about financial 275 00:12:20,320 --> 00:12:22,480 Speaker 1: conditions that will achieve their objectives. And so they always 276 00:12:22,480 --> 00:12:25,720 Speaker 1: should be asking the question, is the market interpreting our 277 00:12:25,760 --> 00:12:28,160 Speaker 1: signals as we want them to be interpreting them? And 278 00:12:28,320 --> 00:12:32,360 Speaker 1: are we achieving financial conditions that will achieve our Doctor Phil, 279 00:12:32,400 --> 00:12:35,000 Speaker 1: except it's doctor Matt. But the interesting thing is is 280 00:12:35,040 --> 00:12:37,680 Speaker 1: that actually this fed has less power than it has 281 00:12:37,760 --> 00:12:40,120 Speaker 1: for a long time, simply because the data is what 282 00:12:40,160 --> 00:12:42,680 Speaker 1: the data is, and they have to respond accordingly, and 283 00:12:42,679 --> 00:12:44,640 Speaker 1: the market is trading off the data, it's not necessarily 284 00:12:44,679 --> 00:12:47,160 Speaker 1: trading off the rhetoric that we're hearing from the Federal Reserve. So, Matt, 285 00:12:47,200 --> 00:12:49,400 Speaker 1: when you take a look at what we're seeing, especially 286 00:12:49,400 --> 00:12:53,480 Speaker 1: at the upside revision to the core PC, is there 287 00:12:53,520 --> 00:12:55,600 Speaker 1: a sense that we could end the year with even 288 00:12:55,640 --> 00:12:58,560 Speaker 1: a four handle on inflation or a five handle on 289 00:12:58,600 --> 00:13:03,680 Speaker 1: the overall headline, something significantly above where people are projecting. Look, 290 00:13:03,679 --> 00:13:05,480 Speaker 1: you don't have too much confidence in an inflation has 291 00:13:05,480 --> 00:13:07,680 Speaker 1: been very difficult to forecasts. I think it's just unlikely 292 00:13:07,720 --> 00:13:09,440 Speaker 1: given what we know what's going to happen with rent 293 00:13:09,440 --> 00:13:11,920 Speaker 1: and oere. We know that in the back half of 294 00:13:11,920 --> 00:13:14,719 Speaker 1: this year, those two really important components are going to 295 00:13:14,760 --> 00:13:17,440 Speaker 1: be trending down. That said, you know we have a 296 00:13:17,480 --> 00:13:20,040 Speaker 1: three three COREPC forecast for the end of the year. 297 00:13:20,320 --> 00:13:22,080 Speaker 1: The Fed's forecasts of three and a half, which was 298 00:13:22,640 --> 00:13:24,800 Speaker 1: laughed out, I think a few months ago, looks a 299 00:13:24,800 --> 00:13:27,959 Speaker 1: lot more plausible given the data that we're seeing, and 300 00:13:28,080 --> 00:13:30,760 Speaker 1: you're an environment where you don't want to discount upside 301 00:13:30,840 --> 00:13:33,520 Speaker 1: risks to inflation, particularly if the labor market is not 302 00:13:33,520 --> 00:13:35,760 Speaker 1: going to be listening. Matt. Communication from the Fed over 303 00:13:35,760 --> 00:13:38,200 Speaker 1: the last ten years changed, and we've talked about that. 304 00:13:38,240 --> 00:13:40,720 Speaker 1: They started to manage financial conditions in a much more direct, 305 00:13:40,720 --> 00:13:43,240 Speaker 1: transparent way. But that's uncle because the nature of the 306 00:13:43,280 --> 00:13:45,920 Speaker 1: economy changed over the last several decades. It became much 307 00:13:45,960 --> 00:13:49,800 Speaker 1: more financialized. Because of the financialization of the economy, we 308 00:13:49,920 --> 00:13:52,760 Speaker 1: also thought that when they started to raise interest rates 309 00:13:52,800 --> 00:13:54,760 Speaker 1: to your point earlier on, that it would hit the 310 00:13:54,800 --> 00:13:58,520 Speaker 1: economy much faster. The communications changed, the nature of transmission 311 00:13:58,520 --> 00:14:01,120 Speaker 1: has changed through to financial market. It's everything tightens up. 312 00:14:01,640 --> 00:14:03,160 Speaker 1: I just think I have to sit here and sit 313 00:14:03,200 --> 00:14:05,840 Speaker 1: here now and say, there's so much we don't know. 314 00:14:06,360 --> 00:14:09,320 Speaker 1: Because to your point, if you told me twelve months ago, 315 00:14:09,679 --> 00:14:13,400 Speaker 1: told anyone five hand or FED funds guess where unemployment is, 316 00:14:13,400 --> 00:14:15,640 Speaker 1: they would not have said three point four percent. They 317 00:14:15,640 --> 00:14:18,240 Speaker 1: wouldn't have said claims at two hundred thousand. So do 318 00:14:18,280 --> 00:14:19,520 Speaker 1: you think we need to be a little bit more 319 00:14:19,640 --> 00:14:21,680 Speaker 1: and not you because we get along. This is not 320 00:14:21,680 --> 00:14:23,200 Speaker 1: directed at you. Do you think we need to be 321 00:14:23,200 --> 00:14:25,160 Speaker 1: a little bit more humble about what we don't know 322 00:14:25,520 --> 00:14:27,280 Speaker 1: about what's happening with the FED here? And do you 323 00:14:27,280 --> 00:14:30,840 Speaker 1: think they need to be as well? Absolutely? I mean 324 00:14:30,840 --> 00:14:34,760 Speaker 1: we're in an environment of significant uncertainty about the outlook 325 00:14:34,960 --> 00:14:38,000 Speaker 1: of a lot of data, volatility of mixed signals from 326 00:14:38,040 --> 00:14:41,760 Speaker 1: the typically very reliable leaning indicators that we would look at. 327 00:14:42,640 --> 00:14:45,160 Speaker 1: You have an unprecedented environment, and where you have households 328 00:14:45,200 --> 00:14:48,040 Speaker 1: which are still sitting on a substantial amount of excess savings, 329 00:14:48,080 --> 00:14:51,840 Speaker 1: where a labor market seems to be structurally undersupplied. You know, 330 00:14:51,880 --> 00:14:54,040 Speaker 1: how all those things work out, and how the lick 331 00:14:54,120 --> 00:14:56,760 Speaker 1: structure of monetary policy to the economy works out is 332 00:14:56,800 --> 00:14:59,480 Speaker 1: all key sources of uncertainty. I think for the FED 333 00:15:00,120 --> 00:15:02,000 Speaker 1: view is that it means they need to see evidence 334 00:15:02,000 --> 00:15:03,480 Speaker 1: that things are moving in the right direction to be 335 00:15:03,560 --> 00:15:05,680 Speaker 1: able to back off. We just don't have that evidence 336 00:15:05,680 --> 00:15:08,320 Speaker 1: at the moment. Is there anything stimulative about being able 337 00:15:08,400 --> 00:15:12,280 Speaker 1: to earn money from your cash? Look that if you 338 00:15:12,360 --> 00:15:14,240 Speaker 1: looked at it just within that margin, I think you 339 00:15:14,280 --> 00:15:17,080 Speaker 1: would say yes. The bigger picture is, as the FED 340 00:15:17,080 --> 00:15:19,880 Speaker 1: titans monetary policy. We've seen what happens to mortgage rates, 341 00:15:19,920 --> 00:15:22,200 Speaker 1: We've seen what's happened to the housing market. We see 342 00:15:22,680 --> 00:15:26,040 Speaker 1: rising delinquencies on autos. So I don't think raising rates 343 00:15:26,080 --> 00:15:29,080 Speaker 1: is stimulative. I think that component of it could be. 344 00:15:29,320 --> 00:15:31,920 Speaker 1: But the bigger pictures is certainly that a titan's financial 345 00:15:31,920 --> 00:15:34,600 Speaker 1: condition that's straight at the School of Dramatis did he 346 00:15:34,680 --> 00:15:37,080 Speaker 1: message you. That's exactly the kind of thing in dream 347 00:15:37,080 --> 00:15:39,120 Speaker 1: mattis tost about. But you have to think, if suddenly 348 00:15:39,160 --> 00:15:41,920 Speaker 1: you can make five percent on your cash, then it's 349 00:15:42,000 --> 00:15:43,640 Speaker 1: you know, free money. You can play with it, you 350 00:15:43,680 --> 00:15:46,119 Speaker 1: can do things, etc. And then is there something stimulative, 351 00:15:46,200 --> 00:15:48,080 Speaker 1: especially if you're not seeing the weakness, if you've got 352 00:15:48,080 --> 00:15:50,120 Speaker 1: locked in mortgage rates, if you've got a lot of 353 00:15:50,120 --> 00:15:52,400 Speaker 1: these other costs that have already been immunized. I'm just 354 00:15:52,480 --> 00:15:55,400 Speaker 1: wondering reverse argum as an argument people might when we 355 00:15:55,440 --> 00:15:58,160 Speaker 1: have negative interest rates exactly. Yeah, but that's what I'm saying. 356 00:15:58,200 --> 00:16:00,160 Speaker 1: But it wasn't Spring geekin all my kitivity. But he 357 00:16:00,280 --> 00:16:01,760 Speaker 1: was sparing some people to double down to try and 358 00:16:01,800 --> 00:16:04,320 Speaker 1: save more, exactly. So why couldn't you make the argument 359 00:16:04,320 --> 00:16:06,360 Speaker 1: potentially that it could have the opposite effect. I don't know. 360 00:16:06,400 --> 00:16:08,400 Speaker 1: It's just something to throw out there, something to talk about, 361 00:16:08,440 --> 00:16:10,160 Speaker 1: something to think about, because I just don't think we've 362 00:16:10,160 --> 00:16:12,040 Speaker 1: got a cliff. I think that that's correct any of this. 363 00:16:12,240 --> 00:16:14,080 Speaker 1: I wonder if the federal zev's even got the toes 364 00:16:14,360 --> 00:16:18,200 Speaker 1: to bring inflation dat towards target without just absolutely smashing 365 00:16:18,200 --> 00:16:20,880 Speaker 1: this economy to paces, which is what Mohammed's talking about. 366 00:16:21,000 --> 00:16:22,480 Speaker 1: I think that a lot of people are wondering what 367 00:16:22,480 --> 00:16:24,080 Speaker 1: it looks like when you cross them. I mentioned three 368 00:16:24,120 --> 00:16:28,240 Speaker 1: percent inflation of Matte Lozetti tomorrow PCE deflator top line 369 00:16:28,400 --> 00:16:32,640 Speaker 1: point four point one point one. I do a quick 370 00:16:32,680 --> 00:16:35,280 Speaker 1: three month annualized, you get a two point four zero percent. 371 00:16:35,360 --> 00:16:37,560 Speaker 1: That's how you get what's the value right now of 372 00:16:37,600 --> 00:16:41,600 Speaker 1: a three month annualized review by guys like you, when 373 00:16:41,600 --> 00:16:44,080 Speaker 1: you're wedded in the chairman's wedded to month month year 374 00:16:44,120 --> 00:16:46,560 Speaker 1: over year. Is there a value to looking at ninety 375 00:16:46,640 --> 00:16:49,680 Speaker 1: days annualized? Absolutely? I think you know, we know a 376 00:16:49,720 --> 00:16:51,200 Speaker 1: lot of the year over year is being inflated by 377 00:16:51,280 --> 00:16:53,080 Speaker 1: very strong prince that we had last year. You want 378 00:16:53,080 --> 00:16:55,840 Speaker 1: to be looking at the shorter term trends to see gospel, 379 00:16:55,960 --> 00:16:57,880 Speaker 1: to see what to see what they're showing. And that's 380 00:16:57,880 --> 00:17:00,360 Speaker 1: where I really think the revisions were important. So at 381 00:17:00,360 --> 00:17:02,920 Speaker 1: the February meeting, the Fed core CPI was three point 382 00:17:02,920 --> 00:17:05,520 Speaker 1: one percent annualized, they found out it was actually four 383 00:17:05,520 --> 00:17:07,600 Speaker 1: point two four point three percent annualized. And you're getting 384 00:17:07,600 --> 00:17:09,959 Speaker 1: a pickup in inflation on top of that, and so 385 00:17:10,040 --> 00:17:11,960 Speaker 1: I think you've completely changed the trajectory of what it 386 00:17:11,960 --> 00:17:13,280 Speaker 1: looked like at the end of last year. That's such 387 00:17:13,280 --> 00:17:15,840 Speaker 1: a strong point, Matt, thanks for that, Mattless Eddie Attebank, 388 00:17:25,880 --> 00:17:27,920 Speaker 1: a wise man said to us a number of weeks ago, 389 00:17:27,960 --> 00:17:30,480 Speaker 1: if you're not paying attention, if you're not confused, you're 390 00:17:30,520 --> 00:17:33,400 Speaker 1: not paying attention. That was dune In Emmanuel of Ever, 391 00:17:33,520 --> 00:17:35,240 Speaker 1: Corny joins us around the table. We're going to catch 392 00:17:35,320 --> 00:17:37,000 Speaker 1: up with him in just a moment. Features up by 393 00:17:37,000 --> 00:17:38,920 Speaker 1: about a half of one percent on the SMP Tom 394 00:17:38,920 --> 00:17:40,520 Speaker 1: coming off a four day losing streak and trying to 395 00:17:40,560 --> 00:17:44,119 Speaker 1: bounce exactly, trying to bounce Nastac one hundred up nine 396 00:17:44,200 --> 00:17:46,960 Speaker 1: tenths of a percent, trying to bounce Vis comes in 397 00:17:47,040 --> 00:17:49,680 Speaker 1: twenty three to twenty one, breaches twenty two, twenty one 398 00:17:49,680 --> 00:17:52,080 Speaker 1: point eighty six. But I think it's right. Trying is 399 00:17:52,680 --> 00:17:54,800 Speaker 1: the right equity energy this morning, and keep him one 400 00:17:54,840 --> 00:17:57,720 Speaker 1: eye on the bond market, maybe two, maybe two one morning. 401 00:17:57,800 --> 00:18:00,240 Speaker 1: The yex pushing Harrik and Lisa approaching high a year, 402 00:18:00,320 --> 00:18:02,560 Speaker 1: and it's not just absolute nominal yields, but you're also 403 00:18:02,560 --> 00:18:04,240 Speaker 1: looking at real year as a ten year real yield 404 00:18:04,520 --> 00:18:07,400 Speaker 1: hitting the highest level of the year. Basically going back 405 00:18:07,400 --> 00:18:09,960 Speaker 1: to early January. At what point have we gotten the 406 00:18:10,000 --> 00:18:12,840 Speaker 1: full reset in stocks that we're feeling in bonds? Have 407 00:18:13,000 --> 00:18:16,640 Speaker 1: we priced in the full pace of rate hiking even 408 00:18:16,760 --> 00:18:19,520 Speaker 1: with some of the recent weakness. Let's we're through these markets. 409 00:18:19,560 --> 00:18:21,399 Speaker 1: I don't want to leave you waiting, Julian, just you know, 410 00:18:21,600 --> 00:18:23,960 Speaker 1: itch into speates here we left at home. You just 411 00:18:23,960 --> 00:18:26,040 Speaker 1: look like this on sm F five hundred and a 412 00:18:26,040 --> 00:18:28,159 Speaker 1: half of one percent, yields coming up a couple of 413 00:18:28,160 --> 00:18:30,440 Speaker 1: basis points three ninety three ninety one on a US 414 00:18:30,480 --> 00:18:32,639 Speaker 1: ten year and euro dollar earlier this morning, if you're 415 00:18:32,640 --> 00:18:35,639 Speaker 1: just tuning in euros on CPI Lisa coming in at 416 00:18:35,640 --> 00:18:38,879 Speaker 1: a record high on core and revised upward after the 417 00:18:39,080 --> 00:18:41,160 Speaker 1: German mystery figures that they got in. Here's what we're 418 00:18:41,160 --> 00:18:43,080 Speaker 1: looking at today. At thirty am, we get US initial 419 00:18:43,160 --> 00:18:46,280 Speaker 1: jobs claims plus the second read of the fourth quarter 420 00:18:46,800 --> 00:18:50,320 Speaker 1: GDP in the United States, initial jobs claims expected to 421 00:18:50,320 --> 00:18:54,479 Speaker 1: come in still near historic lows. Again, where is that's 422 00:18:54,680 --> 00:18:56,920 Speaker 1: loosening in the labor market that a lot of people 423 00:18:56,920 --> 00:18:59,280 Speaker 1: are asking for? It has not shown up yet. At 424 00:18:59,320 --> 00:19:02,680 Speaker 1: twelve pm from US Commerce Secretary Gina Raimondo, She's talking 425 00:19:02,720 --> 00:19:05,800 Speaker 1: about chips. She's talking about developing more technology in the 426 00:19:05,880 --> 00:19:08,480 Speaker 1: United States. I want to hear what she says about China. 427 00:19:08,680 --> 00:19:10,439 Speaker 1: Will that be in the speech or will that be 428 00:19:10,480 --> 00:19:13,240 Speaker 1: the subtext that we hear basically under a lot of 429 00:19:13,280 --> 00:19:15,919 Speaker 1: the innuendo that she discusses. And today we hear some 430 00:19:16,040 --> 00:19:18,040 Speaker 1: more FED speak because we you know, it's another day 431 00:19:18,080 --> 00:19:20,720 Speaker 1: that's not a quiet period. Atlanta FED President Raphael Bosk 432 00:19:20,760 --> 00:19:23,560 Speaker 1: is speaking at ten fifty am. San Francisco FED Mary 433 00:19:23,640 --> 00:19:27,160 Speaker 1: Daily at two pm. Is FED speak taking on less 434 00:19:27,200 --> 00:19:30,760 Speaker 1: importance John at a time when the data is so confusing, 435 00:19:31,040 --> 00:19:33,639 Speaker 1: and it all is about the data, not about the 436 00:19:33,760 --> 00:19:37,359 Speaker 1: nuances of which member and what voting pattern. Without a doubt, 437 00:19:37,400 --> 00:19:39,600 Speaker 1: it's the data that closed the gap between the FED 438 00:19:39,760 --> 00:19:41,800 Speaker 1: projections and where the market was at a stand of 439 00:19:41,800 --> 00:19:44,200 Speaker 1: the year. They can talk about knock cutting go what 440 00:19:44,280 --> 00:19:47,639 Speaker 1: they like. Ultimately, investors kind of understand, I say, kind 441 00:19:47,680 --> 00:19:50,359 Speaker 1: of understand the reaction functioned if the FED and of 442 00:19:50,440 --> 00:19:54,160 Speaker 1: responded to that economic data, pay rolls, retail, sus CPIPPI 443 00:19:54,240 --> 00:19:56,800 Speaker 1: take your pick and push the terminal right high. Well, 444 00:19:56,840 --> 00:19:59,080 Speaker 1: and the reaction function, let's be clear, has kind of 445 00:19:59,119 --> 00:20:02,040 Speaker 1: shifted a little bit over time. So there's this issue, okay, 446 00:20:02,040 --> 00:20:05,600 Speaker 1: inflations number one. But people are basically believing that the 447 00:20:05,600 --> 00:20:08,280 Speaker 1: FED will be more hawkish if the data is more aggressive, 448 00:20:08,320 --> 00:20:09,960 Speaker 1: and they won't be if it weren't in period. What 449 00:20:10,040 --> 00:20:13,359 Speaker 1: happened to the disinflationary process starting? I didn't see it 450 00:20:13,400 --> 00:20:15,600 Speaker 1: anywhere in the minutes. Maybe it's already ended. It's kind 451 00:20:15,600 --> 00:20:18,000 Speaker 1: of bizarre, isn't it. Usually the chairman's meant to reflect 452 00:20:18,040 --> 00:20:20,480 Speaker 1: the consensus whatever that might be on the committee in 453 00:20:20,520 --> 00:20:22,679 Speaker 1: the news conference, and then if he doesn't interview somewhere 454 00:20:22,800 --> 00:20:26,680 Speaker 1: or testifies, he can talk about his own thoughts on matters. 455 00:20:26,960 --> 00:20:29,840 Speaker 1: That performance in the news conference sounds even stranger now 456 00:20:29,880 --> 00:20:32,560 Speaker 1: going over those minutes from yesterday. I would agree. At 457 00:20:32,560 --> 00:20:35,679 Speaker 1: the same time, I wonder how much the disinflation was 458 00:20:35,760 --> 00:20:38,600 Speaker 1: his I hear you, Emmanuel laughing, But you're raising a 459 00:20:38,640 --> 00:20:41,440 Speaker 1: great point. Was that the massaging to take out all 460 00:20:41,440 --> 00:20:44,720 Speaker 1: the disinflationary talk or was that a Joe Powell issue 461 00:20:44,760 --> 00:20:47,760 Speaker 1: and not necessarily a committee issue? Okay, Julian's with us 462 00:20:47,840 --> 00:20:51,000 Speaker 1: said that four time. So hello, Julian, Well you should 463 00:20:51,000 --> 00:20:53,280 Speaker 1: just start with you straight away. Do that more often. 464 00:20:53,400 --> 00:20:55,560 Speaker 1: You've got a line here in your research that says 465 00:20:55,600 --> 00:20:57,720 Speaker 1: the path to our year round forty one fifty price 466 00:20:57,800 --> 00:21:01,720 Speaker 1: target is lower than higher. Why is it lower than higher? So, 467 00:21:02,240 --> 00:21:04,600 Speaker 1: if you think about coming into the beginning of the year, 468 00:21:04,720 --> 00:21:07,360 Speaker 1: there were three reasons the market had done as well 469 00:21:07,520 --> 00:21:10,080 Speaker 1: as it had done until a week and a half ago. 470 00:21:10,680 --> 00:21:13,800 Speaker 1: Number one, the positioning was incredibly barished. We all knew 471 00:21:13,840 --> 00:21:16,760 Speaker 1: that there was epic tax laws selling, which is why 472 00:21:16,840 --> 00:21:20,240 Speaker 1: the stocks that were the biggest sellers, the ones that 473 00:21:20,560 --> 00:21:22,960 Speaker 1: really had the weakest performance, are all the ones that 474 00:21:23,080 --> 00:21:26,320 Speaker 1: rebounded that's been neutralized. The second thing is, as you 475 00:21:26,440 --> 00:21:30,880 Speaker 1: alluded to a moment ago, is inflation. The benefits of 476 00:21:30,920 --> 00:21:34,080 Speaker 1: the decline in inflation where now at the bumpy path, 477 00:21:34,119 --> 00:21:36,600 Speaker 1: and the question is are we plateauing? We don't think 478 00:21:36,640 --> 00:21:40,440 Speaker 1: we are, but the market has discounted the benefits of 479 00:21:40,480 --> 00:21:45,040 Speaker 1: the initial fallen inflation. And then, of course, the third 480 00:21:45,080 --> 00:21:49,320 Speaker 1: element here is this whole idea that the combination of 481 00:21:49,359 --> 00:21:53,160 Speaker 1: the inflation reaction and the price action in the equity 482 00:21:53,200 --> 00:21:57,399 Speaker 1: markets themselves have caused people to believe that the soft 483 00:21:57,520 --> 00:22:00,520 Speaker 1: lending is now the base case. So at the end 484 00:22:00,520 --> 00:22:03,760 Speaker 1: of the year December, remember the market was falling apart. 485 00:22:03,840 --> 00:22:07,919 Speaker 1: Everyone was kind of pessimistic eighty percent chance of a 486 00:22:07,960 --> 00:22:11,000 Speaker 1: recession in the next year. We think that numbers around thirty. 487 00:22:11,240 --> 00:22:13,800 Speaker 1: You look at New York Fed measures, that number is 488 00:22:13,840 --> 00:22:17,800 Speaker 1: closer to fifty seven. So that to us is overdiscounted. 489 00:22:18,119 --> 00:22:21,359 Speaker 1: Whether it happens or not, it's overdiscounted. And this is 490 00:22:21,359 --> 00:22:24,400 Speaker 1: a probabilistic world. So we do think that the path 491 00:22:24,520 --> 00:22:28,080 Speaker 1: is shifted to potentially lower before we start moving. Benjamin 492 00:22:28,119 --> 00:22:31,320 Speaker 1: the Borrowed City Group talks about United Kingdom disinflation like 493 00:22:31,560 --> 00:22:35,760 Speaker 1: ede Heiman of evercore Issi talks about US disinflation. What 494 00:22:35,800 --> 00:22:39,720 Speaker 1: do stocks do if we get ede Heiman's sub three 495 00:22:39,800 --> 00:22:43,800 Speaker 1: percent disinflation? So in the long run that's going to 496 00:22:43,840 --> 00:22:47,639 Speaker 1: be extremely beneficial. But I think again, and part of 497 00:22:47,640 --> 00:22:52,200 Speaker 1: this environment is parsing between the short run, the medium term, 498 00:22:52,280 --> 00:22:54,880 Speaker 1: and the long term. With the short term having been 499 00:22:54,880 --> 00:22:57,439 Speaker 1: this incredible rip in the stocks that we're most sold 500 00:22:57,680 --> 00:23:00,040 Speaker 1: over the last several weeks, we would say in the 501 00:23:00,080 --> 00:23:04,560 Speaker 1: medium term that a consequence of inflation starting towards that 502 00:23:04,680 --> 00:23:08,760 Speaker 1: path is going to be the growth slowdown that frankly, 503 00:23:09,520 --> 00:23:13,480 Speaker 1: you know, the FED wants because that's how the labor 504 00:23:13,520 --> 00:23:16,800 Speaker 1: market cools off, and then ultimately when we get to 505 00:23:16,880 --> 00:23:20,679 Speaker 1: that point, that's when the benefits of inflation kick in 506 00:23:21,200 --> 00:23:24,159 Speaker 1: a lower inflation, but that is often into the future. 507 00:23:24,160 --> 00:23:26,800 Speaker 1: At this point, let's translate this into a stock market call. 508 00:23:26,920 --> 00:23:28,520 Speaker 1: Given the fact that at the end of last year 509 00:23:28,560 --> 00:23:31,080 Speaker 1: a lot of the pessimism came from this expectation of 510 00:23:31,160 --> 00:23:35,680 Speaker 1: margin compression, We've gotten earnings, massive margin compression. Why has 511 00:23:35,720 --> 00:23:41,000 Speaker 1: that not been priced in more significantly? Again, and this 512 00:23:41,040 --> 00:23:45,800 Speaker 1: is something that we all talked about very frequently last year. 513 00:23:46,000 --> 00:23:49,880 Speaker 1: The price action sets the narrative. So you had two 514 00:23:49,960 --> 00:23:56,520 Speaker 1: consecutive quarters of EPs reductions and the stock market rallied 515 00:23:56,560 --> 00:24:00,480 Speaker 1: in the face of that. And so given the positionitioning 516 00:24:00,840 --> 00:24:03,919 Speaker 1: and the price action, there is a tolerance for it. 517 00:24:04,000 --> 00:24:07,080 Speaker 1: But from our point of view, this whole idea of 518 00:24:07,280 --> 00:24:13,000 Speaker 1: multiple expansion happening before the economic downturn, however shallow and 519 00:24:13,040 --> 00:24:17,280 Speaker 1: we do expect to shallow downturn, doesn't really add up. 520 00:24:17,440 --> 00:24:20,720 Speaker 1: We'd rather see that multiple expansion coming out of the 521 00:24:20,760 --> 00:24:24,000 Speaker 1: short and shallow recession that Anheimer's forecasting. A number of 522 00:24:24,080 --> 00:24:26,080 Speaker 1: years ago, Judie and I went for lunch. I believe 523 00:24:26,080 --> 00:24:28,560 Speaker 1: it was Greek Greek food. It was very good, and 524 00:24:28,640 --> 00:24:30,320 Speaker 1: he said to me said, Johnny needs to be watching 525 00:24:30,359 --> 00:24:33,120 Speaker 1: what's hand him in volatility. And then we had vold 526 00:24:33,200 --> 00:24:36,400 Speaker 1: mcgeddon in early twenty eighteen, and again now and now 527 00:24:36,400 --> 00:24:40,320 Speaker 1: this conversation of vol mcgeddon two point zero. Thank for America, 528 00:24:40,400 --> 00:24:43,000 Speaker 1: say that this warning of vol mcgeddon two point zero, 529 00:24:43,040 --> 00:24:46,720 Speaker 1: which was presented by Marko Kolanovitch of JP Morgan recently 530 00:24:46,760 --> 00:24:49,320 Speaker 1: be of a sets overblown. Can you talk to us 531 00:24:49,359 --> 00:24:51,560 Speaker 1: about what that so called vold mcgeddon two points I 532 00:24:51,760 --> 00:24:55,560 Speaker 1: might look like and whether that warning is overblown, overblown 533 00:24:55,600 --> 00:25:00,280 Speaker 1: to the third power in our opinion. Okay, here's the setup, right, 534 00:25:00,880 --> 00:25:06,280 Speaker 1: What zero days expiration options do is actually increase volatility 535 00:25:06,640 --> 00:25:10,320 Speaker 1: intra day, but if you look at the last several weeks, 536 00:25:10,400 --> 00:25:14,760 Speaker 1: it's decreased it in inter day. Right, So so basically 537 00:25:15,160 --> 00:25:17,720 Speaker 1: you have zigs and zags from nine thirty till four 538 00:25:17,720 --> 00:25:20,280 Speaker 1: o'clock that at the end of the day, because the 539 00:25:20,320 --> 00:25:25,040 Speaker 1: options expire, it's all neutralized. And that is a recipe 540 00:25:25,480 --> 00:25:30,919 Speaker 1: for books staying balance, no force selling, no force, volatility squeezes. 541 00:25:31,000 --> 00:25:32,840 Speaker 1: It's not gonna have. You could lecture on that at 542 00:25:32,880 --> 00:25:35,520 Speaker 1: San Diego. I mean, they're the land of this statistic 543 00:25:35,760 --> 00:25:38,199 Speaker 1: that was brilliant inter day. You know, it drives me 544 00:25:38,320 --> 00:25:43,359 Speaker 1: nuts how people conflate intra day vaal with inter day vall. 545 00:25:43,520 --> 00:25:46,600 Speaker 1: Let's take it out longer. When will you know that 546 00:25:46,800 --> 00:25:50,919 Speaker 1: Ed Hyman's write about disinflation? You reads report just like 547 00:25:51,000 --> 00:25:53,639 Speaker 1: we do. He said he planted you at his office 548 00:25:53,680 --> 00:25:55,640 Speaker 1: like back, you're so far back in the cheap seats 549 00:25:55,680 --> 00:25:58,679 Speaker 1: you're looking at, you know, Brooklyn and Queens. But but 550 00:25:59,000 --> 00:26:02,400 Speaker 1: when you find only get to read Ed's report, how 551 00:26:02,400 --> 00:26:04,879 Speaker 1: do you distill the win of it? When do we 552 00:26:04,920 --> 00:26:09,399 Speaker 1: get that disinflation? Well, we actually think it is still 553 00:26:09,600 --> 00:26:14,640 Speaker 1: part of the subtext right now. So I agree our 554 00:26:15,160 --> 00:26:20,400 Speaker 1: proprietary surveys are showing that actually some of the shelter 555 00:26:20,560 --> 00:26:25,400 Speaker 1: costs are continuing to subside, contrary to what we saw 556 00:26:25,560 --> 00:26:29,760 Speaker 1: last week from the FEDS, you know, the shelter component. 557 00:26:30,359 --> 00:26:34,480 Speaker 1: We're seeing wages really start to moderate. They're still elevated. 558 00:26:35,160 --> 00:26:37,600 Speaker 1: But all of this really in our view, and the 559 00:26:37,640 --> 00:26:41,120 Speaker 1: goods part we all know that that's an open that's 560 00:26:41,200 --> 00:26:44,879 Speaker 1: that's well known. So frankly, I think it's some of 561 00:26:44,920 --> 00:26:48,400 Speaker 1: the more. You know, the monthly data has got another 562 00:26:48,480 --> 00:26:50,720 Speaker 1: month or two of choppiness, and then I think you're 563 00:26:50,720 --> 00:26:54,119 Speaker 1: going to continue to subside, perhaps more gently than you. 564 00:26:54,359 --> 00:26:56,439 Speaker 1: John the pros on this and this I learned it 565 00:26:56,440 --> 00:26:58,679 Speaker 1: from Ed Hyman. He was a firm called you weren't there. 566 00:26:58,680 --> 00:27:01,680 Speaker 1: You weren't CJ. Lawrence where you Hyman was at C. J. 567 00:27:01,840 --> 00:27:04,720 Speaker 1: Lawrence And he's screaming about three months annualized. We look 568 00:27:04,760 --> 00:27:07,280 Speaker 1: at month over month and granted it's important hour year 569 00:27:07,320 --> 00:27:10,280 Speaker 1: over year, and there's different ways Britain calculates it different 570 00:27:10,320 --> 00:27:13,119 Speaker 1: than we do. Adults look at the three months of 571 00:27:13,280 --> 00:27:16,680 Speaker 1: data and then annualize it out and those numbers on 572 00:27:16,800 --> 00:27:19,440 Speaker 1: inflation out are not in the perception of the market. 573 00:27:19,480 --> 00:27:21,800 Speaker 1: They're low numbers for a couple of months ago than 574 00:27:21,840 --> 00:27:24,880 Speaker 1: they do now. Yeah, I just changed. I just looked 575 00:27:24,880 --> 00:27:26,800 Speaker 1: at the thirty year mortgage rate and you know, I 576 00:27:27,200 --> 00:27:29,480 Speaker 1: just I was gonna buy and I can't. Jadi and 577 00:27:29,480 --> 00:27:32,000 Speaker 1: Hapasis the office at the moment of people coming in, 578 00:27:32,200 --> 00:27:34,199 Speaker 1: we want to know, Yeah, there's getting busier. Is it 579 00:27:34,280 --> 00:27:37,639 Speaker 1: three day week? Four day week? It has been consistently 580 00:27:37,680 --> 00:27:41,080 Speaker 1: a four day week, and I think there's a little 581 00:27:41,119 --> 00:27:44,880 Speaker 1: bit more cross over there. But the really good thing 582 00:27:45,000 --> 00:27:48,320 Speaker 1: is is that the client engagement is better. I've got 583 00:27:48,400 --> 00:27:51,080 Speaker 1: a full travel schedule in March, and I think that's 584 00:27:51,119 --> 00:27:56,359 Speaker 1: a you're traveling below fifty ninth Street, below and above 585 00:27:57,400 --> 00:28:00,000 Speaker 1: and on planes. Are you finding that you're more productive 586 00:28:00,040 --> 00:28:02,919 Speaker 1: if post pandemic? Are you seeing more clients than you 587 00:28:02,920 --> 00:28:05,399 Speaker 1: did pre pandemic just by not being in the office 588 00:28:05,440 --> 00:28:07,960 Speaker 1: so much? Has it working out well? Well? Zoom is 589 00:28:08,880 --> 00:28:12,360 Speaker 1: a remarkable thing, you know, it's it's it. You can 590 00:28:12,400 --> 00:28:15,679 Speaker 1: go back to back to back to back. But again 591 00:28:16,080 --> 00:28:19,000 Speaker 1: maybe it's old school whatever. There's no stuff suit for 592 00:28:19,080 --> 00:28:21,800 Speaker 1: in person. Hold on a second, John, you're just steadily 593 00:28:21,920 --> 00:28:24,199 Speaker 1: arguing for a four day work week. You find that 594 00:28:24,240 --> 00:28:27,600 Speaker 1: you're more productive. You're basically saying, you know that people 595 00:28:27,640 --> 00:28:30,600 Speaker 1: you know should be allowed to have either forty weekly. 596 00:28:31,000 --> 00:28:36,160 Speaker 1: You say that's what was going on? Think a productive 597 00:28:36,240 --> 00:28:40,040 Speaker 1: in general? How dare you? I am Jenny, and thank you, 598 00:28:40,320 --> 00:28:42,760 Speaker 1: Thank you. Get to see you buddy as always, Jennet Manuel, 599 00:28:42,960 --> 00:28:49,640 Speaker 1: I've ever cool and the shortlist for vice chairman. Laura 600 00:28:49,680 --> 00:28:52,959 Speaker 1: Rahim joins us right now, chief US economist FS Investments 601 00:28:53,000 --> 00:28:55,440 Speaker 1: as well. Laura, I want to go to a great 602 00:28:55,480 --> 00:28:59,720 Speaker 1: phrase you've got on savings momentum in the income you 603 00:28:59,800 --> 00:29:02,160 Speaker 1: have said it's going to be difficult to get the recession. 604 00:29:02,200 --> 00:29:05,560 Speaker 1: Matt Lozetti joins us later, who was called for a longer, 605 00:29:05,680 --> 00:29:09,040 Speaker 1: farther outpoint of recession, and all of that, to me, 606 00:29:09,320 --> 00:29:12,600 Speaker 1: hinges on what John Farrell just mentioned, which is housing. 607 00:29:13,040 --> 00:29:16,640 Speaker 1: Does housing put us into recession? This is actually a 608 00:29:16,720 --> 00:29:19,600 Speaker 1: very unique business cycle, and I am happy that we're 609 00:29:19,600 --> 00:29:21,960 Speaker 1: talking about housing because it's just one example of how 610 00:29:22,040 --> 00:29:25,520 Speaker 1: no business cycle ever truly repeats itself. I think something 611 00:29:25,600 --> 00:29:28,680 Speaker 1: when we look at the impact of higher rates, housing 612 00:29:28,880 --> 00:29:31,760 Speaker 1: is clearly ground zero in terms of activity. But when 613 00:29:31,800 --> 00:29:33,720 Speaker 1: you look at GDP, when you look at the things 614 00:29:33,720 --> 00:29:36,040 Speaker 1: that the FETE is really monitoring when they think about recession, 615 00:29:36,400 --> 00:29:39,240 Speaker 1: employments one of them. And we often think that when 616 00:29:39,240 --> 00:29:41,680 Speaker 1: housing falls like this, you would see a lot of 617 00:29:41,760 --> 00:29:45,720 Speaker 1: layoffs in the construction sector, and we haven't seen that really. 618 00:29:46,120 --> 00:29:49,280 Speaker 1: So it's just one small example of how the dynamics 619 00:29:49,320 --> 00:29:52,160 Speaker 1: this time around are really different. The labor scarcity that 620 00:29:52,200 --> 00:29:58,440 Speaker 1: you're experiencing in construction remains a lot of these projects 621 00:29:58,520 --> 00:30:02,160 Speaker 1: have long legs, and maybe they were put off a 622 00:30:02,160 --> 00:30:05,600 Speaker 1: couple of years ago because they couldn't even find the 623 00:30:05,640 --> 00:30:08,360 Speaker 1: products to actually build these homes. That's a little bit 624 00:30:08,360 --> 00:30:10,440 Speaker 1: of a cool desact on. But it's just a way 625 00:30:10,480 --> 00:30:13,239 Speaker 1: to say that. You know, in every recession, we go 626 00:30:13,280 --> 00:30:16,680 Speaker 1: into it thinking, you know, looking at our past prior 627 00:30:16,800 --> 00:30:20,000 Speaker 1: business cycles, pulling out the playbook, and you just really 628 00:30:20,040 --> 00:30:22,959 Speaker 1: have to rethink it every time. And that's why, you know, 629 00:30:23,000 --> 00:30:25,240 Speaker 1: we have to think about what the FET is trying 630 00:30:25,280 --> 00:30:28,280 Speaker 1: to accomplish. That is to slow the economy down, and 631 00:30:28,320 --> 00:30:31,440 Speaker 1: our economy naturally wants to grow. It needs to kind 632 00:30:31,480 --> 00:30:35,360 Speaker 1: of break something to get it off those growth rails, 633 00:30:35,680 --> 00:30:38,880 Speaker 1: and we still haven't done that yet, even with such 634 00:30:38,920 --> 00:30:41,400 Speaker 1: a big hit housing. I think we all feel, well, 635 00:30:41,400 --> 00:30:44,760 Speaker 1: the famous rom GDP now index, everybody looks at that. 636 00:30:44,920 --> 00:30:47,720 Speaker 1: Where's the momentum right now? Laura, I mean, are we 637 00:30:48,760 --> 00:30:52,160 Speaker 1: going to do a Q four equivalency forward in Q one, 638 00:30:52,320 --> 00:30:56,600 Speaker 1: Q two, Q three? I still it's still it's still 639 00:30:56,760 --> 00:31:00,719 Speaker 1: based in consumption, an unemployment rate at three point four percent. 640 00:31:00,920 --> 00:31:03,640 Speaker 1: We're going to get the personal income and spending data 641 00:31:03,840 --> 00:31:06,560 Speaker 1: you know, later in the week, but the income data 642 00:31:06,600 --> 00:31:09,920 Speaker 1: are just not going to really or they're not going 643 00:31:10,000 --> 00:31:13,400 Speaker 1: to fall until we get some meaningful change in employment. 644 00:31:13,680 --> 00:31:15,680 Speaker 1: And with the three point four percent unemployment, right you 645 00:31:15,680 --> 00:31:18,239 Speaker 1: just don't get a recession. They need to move the 646 00:31:18,240 --> 00:31:24,040 Speaker 1: needle on employment as part of their inflation wage goals 647 00:31:24,200 --> 00:31:27,080 Speaker 1: and then getting those back to two percent. But for now, 648 00:31:27,160 --> 00:31:29,720 Speaker 1: I think you're just continuing to see that momentum coming 649 00:31:29,800 --> 00:31:33,280 Speaker 1: from the household, from household spending, which is much more 650 00:31:33,320 --> 00:31:35,920 Speaker 1: income based than wealth driven. Lauren, how much do you 651 00:31:36,000 --> 00:31:38,160 Speaker 1: have faith with the long and variable legs to think 652 00:31:38,200 --> 00:31:40,280 Speaker 1: that perhaps we just haven't seen the effect of the 653 00:31:40,360 --> 00:31:42,720 Speaker 1: rate hikes and that if the FED doesn't hike rates further, 654 00:31:43,080 --> 00:31:45,080 Speaker 1: leaves them where they are, it'll be enough to bring 655 00:31:45,080 --> 00:31:48,320 Speaker 1: down inflation. Well, this is one of the paradoxes. You 656 00:31:48,360 --> 00:31:51,160 Speaker 1: fix the mortgage market, which was the problem of the 657 00:31:51,240 --> 00:31:54,760 Speaker 1: last business cycle, and now you've kind of taken that 658 00:31:54,840 --> 00:31:58,840 Speaker 1: piece away from monetary policy. With homes and mortgage prices 659 00:31:58,920 --> 00:32:02,120 Speaker 1: mortgage payments lawed in, You're just not going to see 660 00:32:02,160 --> 00:32:05,719 Speaker 1: monetary policy have the immediate impact on spending like you 661 00:32:05,760 --> 00:32:08,680 Speaker 1: did during the two thousand five rate high cycles. So 662 00:32:09,080 --> 00:32:10,760 Speaker 1: you know, I'm not saying that a recess is a 663 00:32:10,800 --> 00:32:15,040 Speaker 1: foregone conclusion. I think the GDP outlook for twenty twenty 664 00:32:15,080 --> 00:32:19,280 Speaker 1: three remains stagnant, probably zero point seven for the entire year. 665 00:32:19,560 --> 00:32:22,400 Speaker 1: The first half of that probably one point five percent growth. 666 00:32:22,760 --> 00:32:24,880 Speaker 1: But at the end of the day, you know, you're 667 00:32:24,880 --> 00:32:29,520 Speaker 1: really seeing an economy that is grinding along, and the 668 00:32:29,600 --> 00:32:32,160 Speaker 1: FED is going to continue to have to push against 669 00:32:32,200 --> 00:32:34,920 Speaker 1: a lot of momentum that plays out of recorders. Well, 670 00:32:35,000 --> 00:32:37,719 Speaker 1: this raise suspector of potentially much higher terminal rates than 671 00:32:37,720 --> 00:32:41,720 Speaker 1: people expected, especially the lack of sensitivity in areas like housing. 672 00:32:41,800 --> 00:32:45,160 Speaker 1: How much have you ratcheted up your expectation from perhaps 673 00:32:45,280 --> 00:32:47,320 Speaker 1: not the Phillips curve kind of models that people are 674 00:32:47,360 --> 00:32:49,600 Speaker 1: talking about with eight percent types of terminal yields, but 675 00:32:49,920 --> 00:32:51,840 Speaker 1: something above that five and a half percent of the 676 00:32:51,880 --> 00:32:54,720 Speaker 1: market's gaming out. I mean, Lisa, it happens so rarely 677 00:32:54,720 --> 00:32:56,440 Speaker 1: that I'm right that I have to crow when I am. 678 00:32:56,480 --> 00:32:58,200 Speaker 1: But I've been saying for a long time that I 679 00:32:58,240 --> 00:32:59,920 Speaker 1: think they're going to have to go above five percent, 680 00:33:00,000 --> 00:33:03,120 Speaker 1: and as high as even five fifty. I think. You 681 00:33:03,120 --> 00:33:07,600 Speaker 1: know that has been something that has been clearer because 682 00:33:08,120 --> 00:33:10,720 Speaker 1: you know, while they absolutely need to slow the pace 683 00:33:10,760 --> 00:33:13,640 Speaker 1: of rate heights, they were basically raising rates with their 684 00:33:13,640 --> 00:33:16,840 Speaker 1: eyes shut last year. You know, they need to now 685 00:33:17,160 --> 00:33:20,680 Speaker 1: be a little more thoughtful, be more methodical. But we 686 00:33:20,880 --> 00:33:24,160 Speaker 1: just the economy had so much momentum going into it, 687 00:33:24,480 --> 00:33:27,920 Speaker 1: and I think, you know, also fighting against these market 688 00:33:27,960 --> 00:33:31,520 Speaker 1: expectations of rate cuts, which I think they've very effectively done, 689 00:33:31,520 --> 00:33:33,680 Speaker 1: and the markets have I think, had to come to 690 00:33:33,840 --> 00:33:38,400 Speaker 1: terms with the FED. I think really at this time 691 00:33:38,400 --> 00:33:42,240 Speaker 1: around strong sentiment that they are going to need to 692 00:33:42,240 --> 00:33:44,960 Speaker 1: stay higher for longer. I think the data change that conversation, 693 00:33:45,240 --> 00:33:47,320 Speaker 1: not the FEDS fake the data. From the start of 694 00:33:47,320 --> 00:33:50,120 Speaker 1: the year, we've been talking about residential real estate. Lara, 695 00:33:50,120 --> 00:33:52,760 Speaker 1: can we talk about commercial real estate just briefly. We 696 00:33:52,840 --> 00:33:55,000 Speaker 1: had this headline, this story in the last twenty four 697 00:33:55,040 --> 00:33:59,040 Speaker 1: hours that an office landlord controlled by PIMCO has defaulted 698 00:33:59,120 --> 00:34:01,640 Speaker 1: on about one point seven billion dollars of mortgage notes 699 00:34:01,640 --> 00:34:07,080 Speaker 1: across seven buildings. Laura, what's going on there? I Commercial 700 00:34:07,120 --> 00:34:10,319 Speaker 1: real estate is also interest rate sensitive, so we're going 701 00:34:10,360 --> 00:34:13,600 Speaker 1: to see some of these valuations be impacted. Remember, there 702 00:34:13,600 --> 00:34:15,719 Speaker 1: are just so many fewer data points, and the data 703 00:34:15,760 --> 00:34:17,960 Speaker 1: is lagging in that sector more than it is for 704 00:34:18,040 --> 00:34:20,799 Speaker 1: the residential sector. So I think we're going to start 705 00:34:20,800 --> 00:34:23,640 Speaker 1: seeing headlines like this, But it is a sector where 706 00:34:23,640 --> 00:34:27,400 Speaker 1: you're seeing such diffuse performance. We know that office space 707 00:34:27,520 --> 00:34:30,800 Speaker 1: is going to be challenged, especially in the major metropolitan areas. 708 00:34:31,160 --> 00:34:33,799 Speaker 1: But that's why, you know, I think for investors we 709 00:34:33,840 --> 00:34:36,320 Speaker 1: need to look in other areas. We need to look 710 00:34:36,680 --> 00:34:43,560 Speaker 1: at industrial, we need to continue to look at you know, 711 00:34:43,640 --> 00:34:47,360 Speaker 1: the to some degree even some belt states regionally, we 712 00:34:47,440 --> 00:34:49,719 Speaker 1: need to look at multi family. I think there are 713 00:34:49,760 --> 00:34:52,759 Speaker 1: a lot of areas where we've continued to underbuild in 714 00:34:52,800 --> 00:34:56,359 Speaker 1: this sector since the Great Recession, so there's still some 715 00:34:56,680 --> 00:34:59,040 Speaker 1: there's still a lot of room for returns there. But 716 00:34:59,160 --> 00:35:00,480 Speaker 1: at the end of the day, you just need to 717 00:35:00,560 --> 00:35:03,680 Speaker 1: access that differently. It's not a sector that I think 718 00:35:03,880 --> 00:35:08,640 Speaker 1: we're going to see as uniform move invaluations as we 719 00:35:08,680 --> 00:35:11,239 Speaker 1: have seen in residential real estate. Lara, this was great 720 00:35:11,320 --> 00:35:25,960 Speaker 1: Laura of FS Investments joining us now as someone expert 721 00:35:26,000 --> 00:35:29,440 Speaker 1: on the granularity of China away from the headlines, Leland 722 00:35:29,480 --> 00:35:32,280 Speaker 1: Miller to say his chief executive officer of China Beije 723 00:35:32,320 --> 00:35:36,160 Speaker 1: Book International, doesn't describe the ability. Leland, what does a 724 00:35:36,280 --> 00:35:40,280 Speaker 1: symbolism you see if a year ago mister Putin's talking 725 00:35:40,280 --> 00:35:43,800 Speaker 1: a football field away on a table to mister Lavrov 726 00:35:44,200 --> 00:35:47,480 Speaker 1: versus what we observed. I believe it was yesterday between 727 00:35:47,520 --> 00:35:51,960 Speaker 1: Putin basically playing bridge with mister Wang of China. What 728 00:35:52,160 --> 00:35:56,160 Speaker 1: is the symbolism of how close they were yesterday talking 729 00:35:56,160 --> 00:35:59,880 Speaker 1: to each other. Well, the imagery is perfect for this. 730 00:36:00,160 --> 00:36:03,480 Speaker 1: I mean, you have China making no bones about being 731 00:36:03,520 --> 00:36:08,120 Speaker 1: closer and closer to Russia, particularly as Russia's encountered way 732 00:36:08,120 --> 00:36:10,279 Speaker 1: more problems than anyone expect at the beginning. So I 733 00:36:10,320 --> 00:36:12,920 Speaker 1: think there's there's no question right now that from a 734 00:36:13,719 --> 00:36:16,040 Speaker 1: you know, China is all in on Russia's side form 735 00:36:16,040 --> 00:36:18,719 Speaker 1: the perspective of their support. The question is are they 736 00:36:18,760 --> 00:36:21,640 Speaker 1: crossing red lines in the background, And that has become 737 00:36:21,719 --> 00:36:24,200 Speaker 1: It wasn't an issue, you know, the first first six 738 00:36:24,239 --> 00:36:26,359 Speaker 1: months of the war. Now there are reports that they 739 00:36:26,440 --> 00:36:29,160 Speaker 1: might be willing to cross lines in terms of providing 740 00:36:29,200 --> 00:36:32,480 Speaker 1: goods to Russia, providing lethal arms. That that takes us 741 00:36:32,480 --> 00:36:35,840 Speaker 1: in an entirely different direction. Is the backdrop here a 742 00:36:35,960 --> 00:36:41,040 Speaker 1: recovery after pandemic for China? Ever, core ISSI suggest, as 743 00:36:41,080 --> 00:36:43,920 Speaker 1: others do, we could see buoyant five even Dare I 744 00:36:43,960 --> 00:36:48,920 Speaker 1: say six percent GDP? Do you agree? I do agree. Look, 745 00:36:48,920 --> 00:36:52,040 Speaker 1: there will be a cyclical bounce back in China starting 746 00:36:52,040 --> 00:36:54,560 Speaker 1: in the second quarter. I think people have made too 747 00:36:54,680 --> 00:36:58,359 Speaker 1: much of a baby indicators in January and February. Oh, 748 00:36:58,440 --> 00:37:00,120 Speaker 1: or you know the story should be more bullish. Are 749 00:37:00,160 --> 00:37:03,200 Speaker 1: less bullish? The recovery will start no earlier than March, 750 00:37:03,480 --> 00:37:05,680 Speaker 1: you know, possibly April, and then you're going to see 751 00:37:05,680 --> 00:37:08,040 Speaker 1: a real recovery because businesses will get back at it. 752 00:37:08,120 --> 00:37:09,960 Speaker 1: You know, they told us last year they didn't want 753 00:37:09,960 --> 00:37:11,319 Speaker 1: to invest, they didn't want to borrow, they didn't want 754 00:37:11,360 --> 00:37:13,200 Speaker 1: to hire. Well now they're going to do some of that, 755 00:37:13,239 --> 00:37:16,160 Speaker 1: and there will be some measure of revenge spending, revenge 756 00:37:16,160 --> 00:37:18,600 Speaker 1: consumer spending as well. The questions when you get to 757 00:37:18,640 --> 00:37:21,280 Speaker 1: the second half of the year, how much policies support 758 00:37:21,320 --> 00:37:23,160 Speaker 1: the government wants to lay on top of what will 759 00:37:23,200 --> 00:37:27,400 Speaker 1: already be an organic recovery. So you absolutely have the ability. 760 00:37:27,440 --> 00:37:30,239 Speaker 1: You're bouncing off terrible numbers for twenty twenty two. The 761 00:37:30,360 --> 00:37:32,759 Speaker 1: numbers will be good. There will be a recovery in 762 00:37:32,840 --> 00:37:35,319 Speaker 1: China in twenty twenty three. The question is is this 763 00:37:35,360 --> 00:37:38,000 Speaker 1: more than two to four quarters? We don't think so. 764 00:37:38,400 --> 00:37:40,320 Speaker 1: Laden is there's a lot of attention at the moment 765 00:37:40,320 --> 00:37:42,920 Speaker 1: now on the auto market, given what's been happening with 766 00:37:43,000 --> 00:37:46,000 Speaker 1: Tesla and other brands. Are you saying that Chinese consume 767 00:37:46,080 --> 00:37:51,120 Speaker 1: it tend more and more to domestic brands within China. Oh, 768 00:37:51,120 --> 00:37:53,760 Speaker 1: it's sort of hard to read through the noise of COVID. 769 00:37:53,840 --> 00:37:56,160 Speaker 1: I mean, in general, yes, I think that that's that's 770 00:37:56,200 --> 00:37:58,320 Speaker 1: the inclination. But you know, you have a big problem 771 00:37:58,320 --> 00:38:01,680 Speaker 1: where you know the world wasn't exporting much during a 772 00:38:01,719 --> 00:38:04,040 Speaker 1: time where China's exporters were running full throttle for the 773 00:38:04,120 --> 00:38:06,319 Speaker 1: last three years. So as we get into the post 774 00:38:06,360 --> 00:38:09,040 Speaker 1: COVID era, we'll be able to tell that more. But 775 00:38:09,200 --> 00:38:11,080 Speaker 1: but certainly when you look at cars and you look 776 00:38:11,120 --> 00:38:14,840 Speaker 1: at some developments in ev technology and battery technology, the 777 00:38:15,000 --> 00:38:18,200 Speaker 1: Chinese are dominating, so there will be an inclination to 778 00:38:18,800 --> 00:38:22,319 Speaker 1: buy home on some of these things, and maybe maybe 779 00:38:22,360 --> 00:38:24,279 Speaker 1: a lot of things. We've been trying to sort of 780 00:38:24,360 --> 00:38:27,520 Speaker 1: decipher the change in Jijimping's tone over the past year. 781 00:38:27,560 --> 00:38:29,680 Speaker 1: You talked about how the red lines they didn't want 782 00:38:29,719 --> 00:38:32,520 Speaker 1: to cross they now seem more willing to cross. And 783 00:38:32,920 --> 00:38:36,279 Speaker 1: what is the implication from the underlying economy. Is it 784 00:38:36,360 --> 00:38:39,799 Speaker 1: youth unemployment going up? Is it this sense a frustration 785 00:38:39,880 --> 00:38:42,279 Speaker 1: with the administration. Is there something going on that can 786 00:38:42,320 --> 00:38:44,960 Speaker 1: give us a sense of why there's been this shift. 787 00:38:46,360 --> 00:38:48,279 Speaker 1: There has been a shift, but I think it's a 788 00:38:48,360 --> 00:38:50,799 Speaker 1: mistake to call the game changer. A lot of people 789 00:38:50,840 --> 00:38:53,880 Speaker 1: in Wall Street are saying there was never a desire 790 00:38:53,960 --> 00:38:57,000 Speaker 1: by Jijimping to run the property sector from its heights 791 00:38:57,200 --> 00:39:00,320 Speaker 1: in the pre COVID down to zero. There was always 792 00:39:00,320 --> 00:39:01,879 Speaker 1: going to be a little bit of a roller coaster ride. 793 00:39:01,920 --> 00:39:03,799 Speaker 1: And the way that we describe this was they need 794 00:39:03,840 --> 00:39:06,279 Speaker 1: to cull the herd and then ventilate. Cull the herd 795 00:39:06,360 --> 00:39:08,600 Speaker 1: to take out weak firms. Would ventilate before they take 796 00:39:08,640 --> 00:39:11,680 Speaker 1: out the strong firms, before cash flow drives up, before 797 00:39:11,719 --> 00:39:14,840 Speaker 1: contagion spreads. So you're in a ventilation part of the sector. 798 00:39:14,960 --> 00:39:17,160 Speaker 1: If they think the risky companies are still doing risky 799 00:39:17,239 --> 00:39:20,200 Speaker 1: things they need to be handled, then we're going to 800 00:39:20,280 --> 00:39:22,239 Speaker 1: go back into that part of the cycle. So this 801 00:39:22,440 --> 00:39:26,440 Speaker 1: is a this is a relatively gradual process to minimize 802 00:39:26,480 --> 00:39:29,120 Speaker 1: properties a growth driver. The fact that we're seeing, you know, 803 00:39:29,200 --> 00:39:32,600 Speaker 1: a relaxation of the three lines that's happening right now. 804 00:39:32,680 --> 00:39:35,279 Speaker 1: But that doesn't mean that Chijinping has suddenly decided his 805 00:39:35,360 --> 00:39:37,439 Speaker 1: policy of the past three years is wrong. I don't 806 00:39:37,480 --> 00:39:40,000 Speaker 1: think he has. Although going forward, do you think that 807 00:39:40,120 --> 00:39:42,440 Speaker 1: this is a sign that perhaps the Chinese economent has 808 00:39:42,480 --> 00:39:46,360 Speaker 1: insulated itself enough from the US, from other nations that 809 00:39:46,440 --> 00:39:49,759 Speaker 1: they can withstand sanctions or any consequences put on the 810 00:39:49,880 --> 00:39:53,560 Speaker 1: nation as a response to crossing other readlines, say with Russia. 811 00:39:54,760 --> 00:39:56,719 Speaker 1: Depends on the sanctions. So I would say that you 812 00:39:56,760 --> 00:39:59,120 Speaker 1: know the sanctions that we were used to, you know, three, five, 813 00:39:59,280 --> 00:40:03,800 Speaker 1: ten years ago. Sure they're baby sanctions, sanctions on individuals, sanctions, 814 00:40:04,120 --> 00:40:06,719 Speaker 1: baby sanctions on banks. The kinds of sanctions we're looking 815 00:40:06,719 --> 00:40:10,399 Speaker 1: at right now are big economic warfare tools. Foreign direct 816 00:40:10,440 --> 00:40:12,799 Speaker 1: product rule can take out the Chinese tech sector, could 817 00:40:12,840 --> 00:40:15,600 Speaker 1: take out major Chinese companies. This is the This is 818 00:40:15,640 --> 00:40:19,680 Speaker 1: the question about whether China will actually move forward with 819 00:40:20,960 --> 00:40:25,040 Speaker 1: violating the big bank sanctions, giving Russia tools in Ukraine, 820 00:40:25,200 --> 00:40:27,480 Speaker 1: giving Russia arms in Ukraine. If they do that, the 821 00:40:27,600 --> 00:40:30,279 Speaker 1: President Biden's going to have a very big mess on 822 00:40:30,400 --> 00:40:32,560 Speaker 1: his hands because in order not to hollow out the 823 00:40:32,600 --> 00:40:36,440 Speaker 1: credibility of these really powerful sanctions, which were intended for 824 00:40:36,560 --> 00:40:38,400 Speaker 1: China in the first place, if you really look at it, 825 00:40:38,920 --> 00:40:41,000 Speaker 1: then he has to fall through and crack down on 826 00:40:41,040 --> 00:40:43,440 Speaker 1: companies that are violating. But that could cause a bigger 827 00:40:43,440 --> 00:40:45,480 Speaker 1: bruhaha with China this year, which is something he's been 828 00:40:45,520 --> 00:40:48,280 Speaker 1: trying to avoid. So if the Chinese are behaving badly 829 00:40:48,400 --> 00:40:50,160 Speaker 1: right now, and we don't know yet but there are 830 00:40:50,239 --> 00:40:52,560 Speaker 1: leaks that they are, then then this could go in 831 00:40:52,640 --> 00:40:55,480 Speaker 1: a very negative direction this year and quickly. This is 832 00:40:55,480 --> 00:40:57,520 Speaker 1: a very tense moment. Lela thank you, sir, day in 833 00:40:57,520 --> 00:41:00,279 Speaker 1: the middle of that of the China basebook International. Right 834 00:41:00,320 --> 00:41:04,040 Speaker 1: to the Bloomberg Surveillance Podcast on Apple, Spotify and anywhere 835 00:41:04,080 --> 00:41:08,440 Speaker 1: else you get your podcasts. Listen live every weekday starting 836 00:41:08,480 --> 00:41:13,000 Speaker 1: at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app, 837 00:41:13,360 --> 00:41:16,880 Speaker 1: tune In, and the Bloomberg Business app. You can watch 838 00:41:17,120 --> 00:41:21,360 Speaker 1: us live. I'm Bloomberg Television and always I'm the Bloomberg Terminal. 839 00:41:21,800 --> 00:41:26,000 Speaker 1: Thanks for listening. I'm Tom Keane and this is Bloomberg