WEBVTT - Bloomberg Surveillance TV: December 20, 2024 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.159 Terminal and the Bloomberg Business app. The EU. We'll be 0:00:37.200 --> 0:00:39.760 hoping this is the same political theater as twenty eighteen. 0:00:39.840 --> 0:00:41.839 I would argue that hope is not a plan, and 0:00:41.880 --> 0:00:44.319 Alan g imports won't address the size of the US 0:00:44.400 --> 0:00:47.040 trade deficit. But it's the best that EU have got 0:00:47.080 --> 0:00:50.120 to work with. Jordan, Welcome to the program Siran news 0:00:50.440 --> 0:00:55.200 or noise. When you read that statement, it's news because 0:00:55.280 --> 0:00:57.400 if you think about it, John, and Merry Christmas. By 0:00:57.400 --> 0:00:59.400 the way, I can see, if you think about it, 0:00:59.400 --> 0:01:02.520 we've had come in winning the election. He targeted Canada 0:01:02.520 --> 0:01:05.919 and Mexico and China, and I noted to clients mysteriously 0:01:05.959 --> 0:01:08.679 absent on the rest of the world Europe, Japan, the 0:01:08.680 --> 0:01:10.800 rest of Asia, and he started to pick. 0:01:10.600 --> 0:01:12.080 Them off one by one. As time has gone on, 0:01:12.200 --> 0:01:14.240 we've had India this week and now we've had the 0:01:14.280 --> 0:01:17.040 EU today. And as I've put in the note to clients, 0:01:17.080 --> 0:01:20.280 the tricky thing is if he's serious. If he's serious, 0:01:20.319 --> 0:01:23.119 the EU can definitely buy more LNG, but the problem 0:01:23.160 --> 0:01:25.800 is they won't at all be able to plug the 0:01:25.800 --> 0:01:28.479 deficit with the US just from LLERG alone. Oil might 0:01:28.520 --> 0:01:30.119 help as well, but I think oil is pretty much 0:01:30.120 --> 0:01:32.560 maxed out too. If you look at the LNG purchases 0:01:32.600 --> 0:01:35.560 the EU has made from the US, it's already half 0:01:35.800 --> 0:01:39.640 of EU LNG imports. It's a fantastic achievement. And the 0:01:39.800 --> 0:01:42.479 exports of LERG from the US have been ramping up 0:01:42.560 --> 0:01:45.480 a lot over the past five years, but they can't 0:01:45.520 --> 0:01:48.560 double in the space of this one year period, I 0:01:48.560 --> 0:01:52.200 would say, And they're annuallyzing around twenty six billion dollars 0:01:52.240 --> 0:01:54.600 a year in what the EU buys from the US 0:01:55.400 --> 0:01:59.000 if it was to take all American LLERG exports. So 0:01:59.040 --> 0:02:01.360 it's just really difficult for the mass to add up. 0:02:01.520 --> 0:02:04.200 So in answer your question, it's news if he's serious 0:02:04.480 --> 0:02:07.000 because the eu A won't be able to negotiate a 0:02:07.040 --> 0:02:09.880 deal on behalf of other members. Junker didn't have that 0:02:09.919 --> 0:02:15.679 power Arsen Ofvonderland now And what Junker did in twenty 0:02:15.720 --> 0:02:18.399 eighteen was a political charade. Really, it was a memorandum 0:02:18.440 --> 0:02:20.640 of understanding. It wasn't a trade deal. It was just 0:02:20.680 --> 0:02:23.360 a sort of loosely worded statement saying we'll buy more 0:02:23.480 --> 0:02:24.639 lerg and soybeans. 0:02:24.919 --> 0:02:25.240 Or they have. 0:02:25.639 --> 0:02:29.160 And Trump's still complaining the deficit has gotten wider since 0:02:29.200 --> 0:02:32.079 the EU has actually already increased their energy purchases. 0:02:32.280 --> 0:02:33.440 So if he's serious, the. 0:02:33.400 --> 0:02:36.320 Master doesn't add up and tariff's come into place. But 0:02:36.560 --> 0:02:38.560 I think perhaps John, he's giving them a way out 0:02:38.800 --> 0:02:40.440 to do the same they did in twenty eighteen of 0:02:40.520 --> 0:02:43.880 a memorandum of understanding, and maybe he avoids tariff in 0:02:43.919 --> 0:02:46.320 Europe to begin with. But it's all down to human 0:02:46.360 --> 0:02:47.680 decision at the end of the day. 0:02:47.600 --> 0:02:49.520 John Jordan, Let's take this story and push it through 0:02:49.560 --> 0:02:51.400 through an exchange, as we often do. We've already had 0:02:51.400 --> 0:02:53.880 a five percent move on euro dollar week of euro 0:02:54.200 --> 0:02:57.080 through this year so far. Is this another reason in 0:02:57.120 --> 0:03:00.760 a long list of reasons to keep selling the euro Yea. 0:03:00.680 --> 0:03:02.280 There's a long list of reason to keep saying that the 0:03:02.280 --> 0:03:04.799 Europe's like cats and dogs. You've got what's going on 0:03:04.880 --> 0:03:06.920 with the tariff situation, You've got what's going on with 0:03:06.919 --> 0:03:11.120 European macro. The industrial recession in Germany just keeps getting worse. 0:03:11.639 --> 0:03:14.080 In the short term, we've had services strength in Europe 0:03:14.160 --> 0:03:16.840 keep us in doubt about how far the ECB can 0:03:16.840 --> 0:03:19.239 cut rates. But I think the services sector will turn 0:03:19.280 --> 0:03:21.920 lower next year. It's just so difficult for services to 0:03:21.919 --> 0:03:25.119 do well if you're laying off your manufacturing employees, as 0:03:25.160 --> 0:03:27.560 Germany and others are doing in Europe right now. So 0:03:27.600 --> 0:03:30.840 we've got one oh one so near parity in Eurojohn, 0:03:30.960 --> 0:03:34.120 But the key message from my side, John, is that's 0:03:34.160 --> 0:03:36.400 a view into January the twentieth, and I think the 0:03:36.400 --> 0:03:39.640 inauguration is an event risk in itself. It could be 0:03:39.680 --> 0:03:41.840 a day where we get a list of executive orders 0:03:41.960 --> 0:03:44.680 in the afternoon from Donald Trump. If tariffs do not 0:03:44.760 --> 0:03:47.119 feature in that list, if he doesn't start a sort 0:03:47.120 --> 0:03:50.400 of investigation into raising tariffs on others, it could be 0:03:50.400 --> 0:03:51.960 a by the room of cell the fat moment. And 0:03:51.960 --> 0:03:54.040 that's why I think one oh one we price in 0:03:54.160 --> 0:03:57.480 maximum pain and then if it goes more smoothly, if 0:03:57.480 --> 0:03:59.640 there's not a significant tariff hike on day one of 0:03:59.640 --> 0:04:02.200 his present and see, perhaps it's mean reversion and this 0:04:02.320 --> 0:04:04.560 market likes to mean revert and the dollar sells off 0:04:04.600 --> 0:04:04.960 from there. 0:04:05.360 --> 0:04:07.240 In the past, the dollar has sort of had a 0:04:07.280 --> 0:04:10.760 self correcting mechanism where if it gets too strong, things 0:04:10.800 --> 0:04:13.800 start to break and then suddenly weakness takes it over 0:04:13.920 --> 0:04:17.040 and there is this normalization. At what point do you 0:04:17.120 --> 0:04:19.040 see that risk coming into play? 0:04:20.360 --> 0:04:24.680 Indeed, it ties to the f MC response function. Typically 0:04:24.680 --> 0:04:27.320 you have a big self in equities, the f MC 0:04:27.520 --> 0:04:29.680 kind of rides out for a bit, but when you 0:04:29.720 --> 0:04:32.440 have a ten percent draw down, they tend to circle 0:04:32.520 --> 0:04:36.400 wagons and reverse course. I think that could be the case. 0:04:36.560 --> 0:04:38.640 It feels a lot like twenty eighteen to me, Lisa. 0:04:38.880 --> 0:04:41.640 Remember twenty eighteen, we had a pretty hawkish fed. We 0:04:41.680 --> 0:04:43.240 had a ten percent sell off in the S and 0:04:43.279 --> 0:04:46.200 P five hundred, and then we got to January and 0:04:46.360 --> 0:04:49.279 power changed is sort of mood music quite quickly in 0:04:49.360 --> 0:04:51.920 just public statements, and we had most of that sell 0:04:51.960 --> 0:04:54.760 off come back in the first part of January twenty nineteen, 0:04:54.960 --> 0:04:56.479 so we could be in for a case of that 0:04:56.600 --> 0:04:58.320 sort of story. I'm not calling for a ten percent 0:04:58.400 --> 0:05:01.760 draw down, but that's the saw of pain threshold where 0:05:01.960 --> 0:05:05.120 you get the FED members responding and perhaps changing their language. 0:05:05.160 --> 0:05:07.680 But it's really difficult because the macro data supports are 0:05:07.760 --> 0:05:10.760 much more hawkish FED. We've long had a four percent 0:05:10.880 --> 0:05:14.080 terminal as our view at Mazoo before Trump won the election. 0:05:14.120 --> 0:05:16.080 A lot of people joined us in that race to 0:05:16.160 --> 0:05:19.960 four percent once Trump was elected, but we're now pricing 0:05:20.000 --> 0:05:22.839 that pretty much perfectly in the rates curve, so it 0:05:22.839 --> 0:05:24.240 could be the case lead. So I think the risk 0:05:24.279 --> 0:05:26.360 reward is we actually price in a little bit more 0:05:26.360 --> 0:05:29.200 cuts than what's now in the market. I think we 0:05:29.240 --> 0:05:31.440 should be at least pricing a cup by March or June. 0:05:31.640 --> 0:05:34.560 There's about one cut by June, but March is around 0:05:34.600 --> 0:05:37.200 fifty to fifty, so we should see some curves steepening 0:05:37.200 --> 0:05:39.760 on the back of it. Two tens looks really interesting here. 0:05:39.920 --> 0:05:42.160 We've talked about two different issues or whether it's the 0:05:42.240 --> 0:05:46.120 tariffs and just the Donald Trump risk two potentially a 0:05:46.160 --> 0:05:50.160 weaker euro, stronger dollar, and then there's the FED response mechanism, 0:05:50.480 --> 0:05:52.160 which do you think is in the driver's seed? 0:05:53.960 --> 0:05:56.320 Ugh, well, I think the Trump trade is in the 0:05:56.360 --> 0:05:59.520 driver's seat for everything in January. It all boils down 0:05:59.560 --> 0:06:01.520 to that. And then once we know that, once we 0:06:01.680 --> 0:06:03.240 know what's happening with tariffs. 0:06:02.880 --> 0:06:03.279 It's done. 0:06:03.520 --> 0:06:05.919 It's essentially the informations in the market, and then we 0:06:06.000 --> 0:06:08.680 go back to following what the inflation data says, what 0:06:08.720 --> 0:06:11.839 the GDP data says. And it's just difficult for the 0:06:11.839 --> 0:06:14.760 Fed to be dubbsh when you've got GDP at three 0:06:14.800 --> 0:06:17.000 percent and they're now casting even a bit higher than that. 0:06:17.200 --> 0:06:20.120 You've got inflation reaccelerating on the month of month numbers, 0:06:20.320 --> 0:06:22.880 and tying this into the LNG story. Have a look 0:06:22.880 --> 0:06:25.040 at natural gas prices at Henry Hub. They're at the 0:06:25.120 --> 0:06:27.920 highst of the month. They're rising in fashion that could 0:06:27.960 --> 0:06:31.000 bring energy services CPI as a problem next year for 0:06:31.040 --> 0:06:34.200 the Fed. So all together, Trump's in the driving seat 0:06:34.200 --> 0:06:37.039 trying to push up LNG price at LERG exports push 0:06:37.120 --> 0:06:40.560 us up domestic prices. It's inflationary as a policy. And 0:06:40.600 --> 0:06:43.280 then you've got the situation with tariffs, which of course 0:06:43.400 --> 0:06:47.320 are inflationary. I suspect they'll stagger the tariffs though over 0:06:47.360 --> 0:06:50.440 a year to try and reduce the knee jerk reaction 0:06:51.320 --> 0:06:53.560 from firms having to raise prices as soon as the 0:06:53.600 --> 0:06:56.440 news is out, and we're hoping to see or we're 0:06:56.440 --> 0:06:59.520 probably going to see FX depreciation in China and all 0:06:59.520 --> 0:07:03.080 those otherrencies such as euro to help offset the impact 0:07:03.120 --> 0:07:05.039 of any tariffs if they come in. So if you 0:07:05.080 --> 0:07:07.679 have the sixty percent tariff on China, that's a huge 0:07:07.720 --> 0:07:10.480 piece of news. That's definitely in the driving seat right now. 0:07:10.600 --> 0:07:13.000 Last question, then, Jordan year Today, if I go on 0:07:13.040 --> 0:07:15.360 the screen on the Bloomberg terminal and have a look 0:07:15.360 --> 0:07:17.520 at where things are at the moment, everything in G 0:07:17.680 --> 0:07:21.440 ten is weaker against the US dollar, including the Japanese 0:07:21.600 --> 0:07:23.560 m with a ten percent move. When I do the 0:07:23.600 --> 0:07:25.800 same thing at the end of twenty twenty five, it's 0:07:25.840 --> 0:07:27.480 that screen gonna look any different. 0:07:29.720 --> 0:07:32.720 Good question. I think it will look different. As I say, 0:07:32.760 --> 0:07:34.320 I think we actually get a dollar weakness by the 0:07:34.440 --> 0:07:36.560 end of next year, but it's dollar up for the 0:07:36.600 --> 0:07:39.560 next quarter and then down from Q two onwards. I 0:07:39.600 --> 0:07:41.520 think you will see the the end strength come back 0:07:41.560 --> 0:07:43.360 in as we're still in a rate hiking cyber from 0:07:43.400 --> 0:07:45.800 the Bank Japan, and you will see the economic data improve. 0:07:45.800 --> 0:07:48.160 I'm an optimist John for the second half of next year. 0:07:48.160 --> 0:07:50.680 We've got all this monetary easing, we've got the potential 0:07:50.680 --> 0:07:53.600 for China fiscal stimulus in Q two. We should be 0:07:53.600 --> 0:07:55.400 seeing a week of dollar when that happens. So we've 0:07:55.400 --> 0:07:57.320 got euro bouncing back to one oh five. But it's 0:07:57.360 --> 0:08:00.560 such a mild rally. I'd focus more on the sort 0:08:00.600 --> 0:08:02.280 of story for the dollar right here and now. 0:08:02.280 --> 0:08:05.320 Got it, Jordan, Merry Christmas, sir, thanks for everything this year. 0:08:05.320 --> 0:08:07.720 I appreciate it. Thank you, buddy, Jordan Rochester there of 0:08:07.840 --> 0:08:20.800 Mazumo Savantaria for SoC GEN with a surround a table 0:08:20.840 --> 0:08:23.800 sapantry Kamonic, good morning. I think before the Federal Reserve 0:08:23.800 --> 0:08:25.360 you had two is going down to something like three 0:08:25.360 --> 0:08:27.440 p fifty at the front end of the curve. Has 0:08:27.480 --> 0:08:31.440 that changed since you heard from Chairman Powell. 0:08:30.280 --> 0:08:33.240 Three point fifty for the end of next year. So 0:08:33.280 --> 0:08:36.200 we don't really, I mean, we're we were anticipating. We 0:08:36.280 --> 0:08:40.199 are anticipating more cuts next year. You know, our economists 0:08:40.240 --> 0:08:42.480 surely haven't changed their call for the FED because we 0:08:42.600 --> 0:08:45.400 just don't have much by way of new information. Yes, 0:08:45.440 --> 0:08:49.880 the Fed, the Committee itself recalibrated to just two cuts 0:08:49.920 --> 0:08:52.840 for next year. But there you know, the way the 0:08:52.840 --> 0:08:56.679 economy has been going, you should see a moderation in growth, 0:08:56.679 --> 0:08:59.280 you should see a moderation in employment, you should see 0:08:59.280 --> 0:09:03.200 a moderation in inflation. And under the circumstances, the event 0:09:03.280 --> 0:09:06.120 might be able to deliver four cuts. But as a 0:09:06.200 --> 0:09:11.040 rate strategist, I do my biases that they deliver less cuts. 0:09:11.280 --> 0:09:13.520 So the market is very very efficiently priced in for 0:09:13.559 --> 0:09:16.360 a very benign policy path. But if they do deliver 0:09:16.480 --> 0:09:20.120 four cuts and aligned with our economists call, then the 0:09:20.120 --> 0:09:22.600 two year could end the year next year on three 0:09:22.640 --> 0:09:23.200 and a half percent. 0:09:23.360 --> 0:09:23.760 Interesting. 0:09:23.800 --> 0:09:25.679 We've had a robust debate around this table over the 0:09:25.760 --> 0:09:27.880 last few days about what was behind and what underpinned 0:09:27.920 --> 0:09:30.520 those changes to the forecastle of feder Reserve, the data 0:09:30.840 --> 0:09:33.480 or Trump. We're teasing out some of that information from 0:09:33.720 --> 0:09:36.720 officials on the FMC Mary Daily. The San Francisco FED 0:09:36.720 --> 0:09:38.400 president told us about an hour ago that for her 0:09:38.440 --> 0:09:40.679 it was the data, but for others it was clear. 0:09:40.800 --> 0:09:43.559 There was also about the policies. What is it for you? 0:09:43.720 --> 0:09:44.959 What are you basing your calls on? 0:09:46.160 --> 0:09:48.080 So I think it's going to be a bit of both, 0:09:48.120 --> 0:09:51.120 and I think it's going to be a constant recalibration 0:09:51.320 --> 0:09:55.160 process as we get new information hitting the tapes, and 0:09:55.160 --> 0:09:57.079 there's going to be a lot of that three am 0:09:57.160 --> 0:09:59.120 tweets that we have to respond to next year, so 0:09:59.160 --> 0:10:02.440 we're all getting ready for of that. But you know, 0:10:02.480 --> 0:10:06.040 it's going to be quite difficult depending on how the 0:10:06.080 --> 0:10:09.160 tariffs are rolled out. I mean, last go around, tariffs 0:10:09.160 --> 0:10:11.760 were over a two year period and on you know, 0:10:11.840 --> 0:10:14.720 sometimes on very specific products. This time this could be 0:10:14.760 --> 0:10:17.319 it could be much more of a sweeping terraff regime. 0:10:18.320 --> 0:10:20.440 So we're going to have to recalibrate as the data 0:10:20.480 --> 0:10:22.560 comes in. I mean the FED, I think, as we 0:10:22.640 --> 0:10:25.040 heard from from a chair power, some of the fair 0:10:25.400 --> 0:10:28.240 FED members are already incorporating some of the changes that 0:10:28.280 --> 0:10:30.440 could come down the pike, and others are not. And 0:10:30.480 --> 0:10:33.600 that's exactly what you're seeing among street economists. 0:10:33.720 --> 0:10:35.720 What's your reaction function to the tweets? 0:10:37.679 --> 0:10:40.760 You know, it's it's funny because I'm now mentally preparing 0:10:40.800 --> 0:10:42.840 myself to wake up in the morning to stuff that 0:10:42.920 --> 0:10:45.080 I was not prepared for and then having to react 0:10:45.160 --> 0:10:50.440 very quickly. And and our counterparts in Asia especially are 0:10:50.480 --> 0:10:52.520 looking forward to it because they can react to the 0:10:52.559 --> 0:10:55.319 volatility as it's happening because they're awake at three am 0:10:56.000 --> 0:10:59.720 New York time to to to respond to the incoming 0:10:59.760 --> 0:11:02.120 new So you know it's going to be it's going 0:11:02.160 --> 0:11:04.280 to be interesting. It's it's just a paradigm shift to 0:11:04.920 --> 0:11:06.960 where we were between twenty sixteen and twenty twenty. 0:11:07.040 --> 0:11:08.680 So things are going to get pretty noisy, right. I 0:11:08.679 --> 0:11:10.199 mean it's sort of a question of do you get 0:11:10.200 --> 0:11:12.800 more tactical or long term and how much is this 0:11:12.920 --> 0:11:17.520 increasingly a tactical market because of how obscured what's going 0:11:17.520 --> 0:11:18.840 on underneath actually is. 0:11:19.040 --> 0:11:21.040 Yeah, I know it's going to be a very tactical market. 0:11:21.280 --> 0:11:23.560 We're going to have to constantly reculber. Just look at 0:11:23.600 --> 0:11:26.120 the last two days. We've gone back and forth on 0:11:26.160 --> 0:11:28.880 whether there's going to be government shutdown or not, based 0:11:28.920 --> 0:11:33.600 on information from either the Trump Aids or from Trump. 0:11:34.360 --> 0:11:36.240 So you're going to need to see that. It's going 0:11:36.280 --> 0:11:37.600 to be a lot of back and forth like that 0:11:37.720 --> 0:11:40.600 for the next you know, two years, and then perhaps 0:11:40.640 --> 0:11:41.520 in the next four years. 0:11:41.640 --> 0:11:43.720 Things really are obvious if you just take the example 0:11:43.760 --> 0:11:45.680 of this morning, we've all woken up to this post 0:11:45.760 --> 0:11:48.720 from the present elect on truth, so so suggesting that 0:11:48.760 --> 0:11:51.200 if the Europeans don't close the trade deficit and buy 0:11:51.240 --> 0:11:54.320 more LERG, there'll be tariffs. I don't think it's clear 0:11:54.360 --> 0:11:56.600 what happens with that at all. The Europeans have already 0:11:56.600 --> 0:11:57.959 come out ahead of time and said we want to 0:11:57.960 --> 0:12:00.680 buy the LNG. I think Collie Crook said a little 0:12:00.679 --> 0:12:02.400 bit earlier reference in one of our colleagues that they're 0:12:02.400 --> 0:12:04.960 pushing on an open door at the moment they want 0:12:05.000 --> 0:12:07.400 that to happen. Of course, there's an outstanding question whether 0:12:07.400 --> 0:12:09.960 it's enough to close the trade deficit, and whether if 0:12:10.000 --> 0:12:11.719 they don't, whether you actually get those tarifts. So I 0:12:11.760 --> 0:12:14.840 don't think anything's clear before you even begin to assess 0:12:14.880 --> 0:12:17.719 how inflationary or not those tarifts would actually be. There 0:12:17.760 --> 0:12:20.720 is nothing cut and dry about twenty five and beyond. 0:12:20.600 --> 0:12:23.360 Especially given the fact that even the reaction in markets, 0:12:23.400 --> 0:12:25.559 the reaction and the economy will look different, given that 0:12:25.600 --> 0:12:27.400 we're coming from a very different starting point. And I 0:12:27.440 --> 0:12:30.600 think about right now, you're talking about a government shutdown, 0:12:30.600 --> 0:12:32.720 and we did get a tweet from Donald Trump saying 0:12:32.720 --> 0:12:35.160 that let's set it down now before I get into office, 0:12:35.200 --> 0:12:37.120 because then that's on his head, not my head. And 0:12:37.160 --> 0:12:40.400 I'm just wondering what's the response to that in the 0:12:40.480 --> 0:12:41.600 fixed income market. 0:12:42.760 --> 0:12:45.920 So I think that you're right in pointing out that 0:12:45.960 --> 0:12:49.439 the starting point is very, very different, And I'm really 0:12:49.480 --> 0:12:53.160 concerned about that from the inflation perspective, because you know, 0:12:53.200 --> 0:12:57.400 between twenty sixteen and twenty twenty, inflation was not a concern. 0:12:57.520 --> 0:13:00.640 I mean, we had like maybe a two year decade 0:13:01.000 --> 0:13:04.760 period when you know, core CPI, core PCE never really 0:13:04.800 --> 0:13:06.760 exceeded that two to two and a half percent level. 0:13:07.200 --> 0:13:09.400 Now our starting point is a lot higher. You're looking 0:13:09.440 --> 0:13:14.600 at core PCE around two point eight percent. The economy 0:13:14.640 --> 0:13:18.440 is extraordinary vulnerable to inflationary shocks on the services side. 0:13:19.040 --> 0:13:21.800 So I think that that is really the game changer 0:13:21.840 --> 0:13:24.640 this time around, is that if you do see you know, 0:13:24.679 --> 0:13:26.840 tweets and the market reacts and things that it's going 0:13:26.880 --> 0:13:30.280 to be inflationary, then you're going to see these volatility 0:13:30.320 --> 0:13:34.440 and inflation expectations. So the break even market is not 0:13:34.600 --> 0:13:37.600 really priced for that. So I'm expecting a lot more 0:13:37.679 --> 0:13:41.720 volatility inflation break evens next year because of the fact 0:13:41.760 --> 0:13:43.880 that we're in a very different inflation regime this time around, 0:13:43.920 --> 0:13:46.719 as opposed to back in you know, the Trump one 0:13:46.720 --> 0:13:48.080 point or timeframe. 0:13:47.880 --> 0:13:49.760 Savantra, It's good to say it, Scredie, catch up. I 0:13:49.760 --> 0:13:52.719 appreciate it's time. Thank you, Savantra. Jampa of self check, 0:14:02.320 --> 0:14:04.319 Jim Carrot and Mooke and Stanley writes him, sell off 0:14:04.320 --> 0:14:07.280 inequities is healthy? Better to happen now when Yes, today 0:14:07.320 --> 0:14:10.280 equities are up more than twenty percent versus early January 0:14:10.520 --> 0:14:11.600 and stopped the year in a hole. 0:14:11.800 --> 0:14:12.360 Jim joins us. 0:14:12.400 --> 0:14:14.320 Now for more, Jim, welcome, buddy, It's good to see you. 0:14:14.400 --> 0:14:15.360 What's healthy about this? 0:14:15.360 --> 0:14:17.840 Good morning? I'm sorry I didn't catch that. 0:14:17.880 --> 0:14:20.680 What's healthy about this? Fourteen days and negative breadth on 0:14:20.760 --> 0:14:22.840 the S and P? What's healthy about it? Jim? 0:14:23.280 --> 0:14:23.520 Yeah? 0:14:23.560 --> 0:14:25.600 So, look, I mean, you know, the markets were technically 0:14:25.680 --> 0:14:29.120 very overbought. This sell off does not represent a change 0:14:29.160 --> 0:14:32.320 and trend. As you were saying earlier on the show, 0:14:32.320 --> 0:14:36.280 there's been a very heavy concentration in a very few names. 0:14:36.280 --> 0:14:39.760 That narrowness of breath has already started to widen out. 0:14:39.920 --> 0:14:42.080 But when you get these big adjustments, and you get 0:14:42.080 --> 0:14:45.440 these expectations of earnings still coming in good but maybe 0:14:45.480 --> 0:14:47.800 not as stellar as people had thought in the past, 0:14:48.280 --> 0:14:49.840 then I think you start to get the sell off. 0:14:49.880 --> 0:14:51.520 Look I mean, the S and P five hundred was 0:14:51.600 --> 0:14:54.760 up about twenty seven percent on a year today basis, 0:14:55.200 --> 0:14:57.320 and we owed that to a very very few set 0:14:57.360 --> 0:14:57.840 of names. 0:14:58.200 --> 0:15:00.320 This is now starting to broad out. 0:15:00.360 --> 0:15:02.960 And as the market broadens out, what that means is 0:15:02.960 --> 0:15:06.040 that the former winners are going to start to decline 0:15:06.040 --> 0:15:06.320 a bit. 0:15:06.640 --> 0:15:08.400 Doesn't mean it's the start of a bear market. 0:15:08.600 --> 0:15:11.400 It just means that we're in an adjustment process of 0:15:12.000 --> 0:15:15.000 broadening out the markets, moving into sectors that are more 0:15:15.160 --> 0:15:18.720 MidCap orientated, which is our view that we think can 0:15:18.760 --> 0:15:21.800 potentially do better from an earning's growth perspective. 0:15:22.160 --> 0:15:25.160 Jim, did anything change for you Wednesday afternoon when Sham 0:15:25.160 --> 0:15:26.240 and Poal finished speak. 0:15:26.040 --> 0:15:30.120 In You know, it's kind of interesting, right because this 0:15:30.160 --> 0:15:33.880 is the dilemma for the market. All Powell basically did. Yes, 0:15:34.000 --> 0:15:37.960 he did announce a slower pace of rate cuts. The 0:15:38.000 --> 0:15:41.000 dots did move up fifty basis points across the curve. 0:15:41.320 --> 0:15:44.480 But guess what, that's exactly almost exactly what the market 0:15:44.520 --> 0:15:47.720 was expecting. If you looked at fedpund's futures prior to 0:15:47.760 --> 0:15:50.600 the meeting and then after the meeting, they were you know, 0:15:50.640 --> 0:15:52.120 I mean, they were a little bit higher, but they 0:15:52.120 --> 0:15:55.480 weren't materially higher. I think what the market's reaction is 0:15:55.560 --> 0:15:59.080 here is it's really about the bond market, so effectively, 0:15:59.200 --> 0:16:01.480 where people are arting to get nervous is from a 0:16:01.520 --> 0:16:03.920 positioning standpoint. If you look at year to date returns 0:16:04.280 --> 0:16:07.200 in bonds, it's in the low single digits. It's around 0:16:07.280 --> 0:16:09.280 two to three percent, let's say for most of the 0:16:09.320 --> 0:16:12.560 AG indices. If you get another twenty five basis point 0:16:12.600 --> 0:16:14.840 rise and yields between now and year end, which which 0:16:14.840 --> 0:16:17.720 is possible, and you get a widening of spreads, many 0:16:17.760 --> 0:16:20.440 bond investors are at risk of losing their whole year 0:16:20.560 --> 0:16:21.800 in the next two weeks. 0:16:22.000 --> 0:16:23.760 That's not our forecast, that's not our. 0:16:23.640 --> 0:16:28.160 Base case, but it does create this riskiness that you 0:16:28.200 --> 0:16:32.480 could get these extended sell offs in the market, yields rising, 0:16:33.000 --> 0:16:33.360 and that. 0:16:33.280 --> 0:16:36.000 Could have a negative impact on equities. 0:16:36.080 --> 0:16:38.440 So we have to put this into context and understand 0:16:38.440 --> 0:16:39.680 those technicals as well. 0:16:40.320 --> 0:16:42.440 Jim, I'd like to dig a little bit more into that. 0:16:42.800 --> 0:16:45.080 At what point is that the reason why you're not 0:16:45.200 --> 0:16:47.800 buying bonds right now, even though they've sold off and 0:16:48.160 --> 0:16:52.720 generally you're optimistic about the disinflationary narrative, you still think 0:16:52.840 --> 0:16:54.880 you want to wait for a greater sell off. What's 0:16:54.880 --> 0:16:56.400 the point, what's the trigger for you to buy? 0:16:57.200 --> 0:16:57.480 Yeah? 0:16:57.560 --> 0:17:00.160 So look, I mean the place that we're looking to 0:17:00.200 --> 0:17:03.200 line up and buy, really our holiday shopping list is 0:17:03.240 --> 0:17:05.760 really going to go towards the equity market because we 0:17:05.840 --> 0:17:09.240 have to understand why is the FED willing to cut 0:17:09.359 --> 0:17:12.080 rates by less. It's probably because the economy is doing 0:17:12.160 --> 0:17:15.120 a bit better. That's good news for equities, right, So 0:17:15.400 --> 0:17:20.040 moving into midcaps, you know, active, over passive materials, more cyclicals, 0:17:20.320 --> 0:17:23.440 all of that. Now in bonds though, I think that 0:17:24.200 --> 0:17:27.080 at this level, I think this is this is an 0:17:27.119 --> 0:17:28.960 area where bond yields can kind of hang out. I'm 0:17:28.960 --> 0:17:31.560 looking for an overshoot. I'm looking for bond yields ten 0:17:31.640 --> 0:17:34.240 year treasuries. Let's use that as a proxy to move 0:17:34.320 --> 0:17:37.480 up towards about four point seventy five percent before I 0:17:37.480 --> 0:17:41.200 would start to get long duration extend my positions in bonds, 0:17:41.440 --> 0:17:43.120 because at the end of the day, I still think 0:17:43.160 --> 0:17:45.280 the FED is going to cut a couple of times 0:17:45.440 --> 0:17:49.520 next year, which means that the upside in yield for 0:17:49.600 --> 0:17:51.919 bonds is somewhat limited. And this is why when you 0:17:51.960 --> 0:17:55.640 look at a sixty forty portfolio or balanced portfolio inequities 0:17:55.840 --> 0:17:58.919 that it's not quite like twenty twenty two. There is 0:17:59.080 --> 0:18:04.320 some upside, potential upside stopping of yields. We're just not 0:18:04.359 --> 0:18:06.480 in the same cycle that we were back in twenty 0:18:06.480 --> 0:18:09.240 twenty two. So I think the setup right now going 0:18:09.240 --> 0:18:12.160 into twenty twenty five is much more healthy because it's 0:18:12.200 --> 0:18:15.840 giving you higher bond yields potentially wider spreads. 0:18:15.440 --> 0:18:17.359 So therefore more value for twenty twenty five. 0:18:17.840 --> 0:18:20.159 And you're getting a sell off in the equity market 0:18:20.200 --> 0:18:22.760 in areas that you maybe wanted to rebalance into in 0:18:22.760 --> 0:18:25.560 the first place, and here's your gift, here's your opportunity 0:18:25.600 --> 0:18:26.040 to do that. 0:18:26.320 --> 0:18:28.480 So Jim, just putting this all together, it sounds like 0:18:28.480 --> 0:18:32.199 it's overly simplistic to say simply higher yields causes the 0:18:32.280 --> 0:18:35.520 sell off in the stock space, right, So it's not 0:18:35.640 --> 0:18:38.560 that that alone can make you perish, But that tied 0:18:38.680 --> 0:18:41.440 with the context, as John was pointing out, of the 0:18:41.520 --> 0:18:44.879