WEBVTT - Surveillance: Fed Hikes with Hatzius 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.680 and of course on the Bloomberg Terminal. It is amazing 0:00:29.720 --> 0:00:32.400 in the housing economy to think of the housing dynamics 0:00:32.400 --> 0:00:35.159 and the prediction that the moon shot and housing will end. 0:00:35.520 --> 0:00:38.200 That was where I first met Janahats is now chief 0:00:38.200 --> 0:00:41.519 economists at Goldman Sachs. He on the high ground on 0:00:41.640 --> 0:00:45.199 the last housing boom. Events are so important. We're not 0:00:45.280 --> 0:00:48.760 going to talk about that on this Friday morning with Janatis. 0:00:48.920 --> 0:00:51.960 We're gonna talk about the Golden sax call, the gloom 0:00:52.000 --> 0:00:57.160 of recession, and the global and American labor economy. Drs, 0:00:57.160 --> 0:00:59.400 thank you so much for joining us again. I've got 0:00:59.400 --> 0:01:01.520 to go to Labe. I want to go Dudley mclvey 0:01:01.600 --> 0:01:04.399 from years ago when you were a young upstart at 0:01:04.440 --> 0:01:08.520 Goldban Sex and go back further. Your analysis on where 0:01:08.600 --> 0:01:12.040 we are now with this strange labor economy goes back 0:01:12.080 --> 0:01:15.319 to the late forties in the early fifties, that's right. 0:01:15.400 --> 0:01:19.160 So if you look at the gap between the total 0:01:19.319 --> 0:01:22.479 number of jobs and the total number of workers were 0:01:22.520 --> 0:01:25.560 we've got the most overheated labor market going back all 0:01:25.600 --> 0:01:29.240 the way to the early nineteen fifties. Best way to 0:01:29.240 --> 0:01:33.920 see it, eleven million open positions, six million unemployed workers. 0:01:34.000 --> 0:01:37.840 That five million gap is a record both in absolute 0:01:37.959 --> 0:01:40.280 terms and relative to the size of the economy. So 0:01:40.319 --> 0:01:43.200 I think that's really what the head's going to be 0:01:43.200 --> 0:01:47.640 focused on. Politicians want un employed America. If I'm elected, 0:01:47.680 --> 0:01:50.680 free beer, if I'm elected, a job for all. What's 0:01:50.720 --> 0:01:55.880 wrong with an overheated labor economy. Well, if it generates 0:01:55.880 --> 0:02:00.120 wage growth that's more than what you can sustain with 0:02:00.320 --> 0:02:03.600 maybe one and a half to two percent productivity growth 0:02:03.640 --> 0:02:07.720 and a two percent inflation target, then ultimately you get 0:02:07.760 --> 0:02:13.320 higher inflation that erodes the real wage of of workers. 0:02:13.320 --> 0:02:17.320 So that's ultimately not really in anybody's interests. And right now, 0:02:17.760 --> 0:02:20.600 you know wages are growing in the five to six 0:02:20.680 --> 0:02:23.200 percent range, and that is too fast. And you're not 0:02:23.240 --> 0:02:25.880 a recession easter. You say, we think a recession is 0:02:25.880 --> 0:02:28.440 far from inevitable, but you are looking for some severe 0:02:28.480 --> 0:02:31.720 deceleration in this economy. Just laying out the forecast for 0:02:31.880 --> 0:02:34.040 US GDP a year end where you think we're gonna 0:02:34.120 --> 0:02:36.240 land and why you think the Fed will still be 0:02:36.320 --> 0:02:41.440 pushing on even with those numbers. We're expecting slow down 0:02:41.560 --> 0:02:44.239 from five and a half percent growth last year to 0:02:45.200 --> 0:02:47.880 just under two percent this year if we look at 0:02:47.919 --> 0:02:50.880 it on a fourth quarter to fourth quarter basis. So 0:02:51.720 --> 0:02:55.560 basically from very far above trend, very strong V shaped 0:02:55.600 --> 0:03:00.680 recovery to something around the economy's trend pace, and the 0:03:00.720 --> 0:03:03.600 FED will be pushing on because the labor market is 0:03:03.680 --> 0:03:06.840 overheated and inflation is too high. So I would say 0:03:06.880 --> 0:03:10.080 that the reason, one very important part of the reason 0:03:10.360 --> 0:03:12.800 why growth is going to be slower is that the 0:03:12.880 --> 0:03:16.000 FED is trying to slow things down. So yeah, and 0:03:16.040 --> 0:03:18.480 you'll have GDP with the one handle by year end 0:03:18.840 --> 0:03:20.600 where cp I at that point, I just want to 0:03:20.639 --> 0:03:25.000 understand the mix inflation to growth. I think CPI around 0:03:25.080 --> 0:03:29.160 five pent for you know, core PC we have a 0:03:29.200 --> 0:03:32.680 little over four four and a quarter percent, so you know, 0:03:32.840 --> 0:03:37.440 still well above the two percent target, though lower than 0:03:37.480 --> 0:03:40.680 now because I do think that some of the inflation 0:03:40.760 --> 0:03:42.400 is going to come off in the in the good 0:03:42.480 --> 0:03:44.720 sector as we go forward. That's just mechanically we should 0:03:44.720 --> 0:03:46.680 say a mechanical peak later this year. Yeah, and I 0:03:46.680 --> 0:03:48.680 think most people are looking for that. I'm trying to 0:03:48.720 --> 0:03:51.080 work out next year just in terms of where this 0:03:51.200 --> 0:03:54.080 FED funds would peak. What would influence that call for you? 0:03:54.120 --> 0:03:55.920 What would you be looking for through the next six 0:03:55.960 --> 0:03:59.200 to nine months. Well, I think if the economy does 0:03:59.280 --> 0:04:04.640 not slow, and if we in particular don't get a 0:04:04.680 --> 0:04:10.000 pretty substantial slowdown in employment growth, then you'd be looking 0:04:10.040 --> 0:04:14.520 at something, you know, that could go significantly higher to 0:04:14.600 --> 0:04:18.200 the four percent plus range. Our baseline is pretty close 0:04:18.240 --> 0:04:22.000 to market pricing a little over three percent, but it 0:04:22.040 --> 0:04:25.880 could be significantly higher than that if we see continued 0:04:26.160 --> 0:04:29.680 increases in this overheating. Hold on a second, Yeah, I 0:04:29.720 --> 0:04:31.960 want to sit on that for a second. Four percent 0:04:32.360 --> 0:04:34.960 terminal FED funds rate. When do you see that being 0:04:35.000 --> 0:04:37.520 a possibility if we continue to see strength in the 0:04:37.640 --> 0:04:41.560 labor market. I think in two thousand and twenty twenty 0:04:41.640 --> 0:04:45.320 three it's a possibility. Uh. You know, again, our baseline 0:04:45.440 --> 0:04:48.760 is that by the middle of two thousand and twenty 0:04:48.800 --> 0:04:51.599 three will be at a little over three percent, but 0:04:52.040 --> 0:04:55.320 you know, there obviously risks around that. On the downside 0:04:55.800 --> 0:04:58.240 if we get a you know, much sharper tightening in 0:04:58.279 --> 0:05:01.840 financial conditions than they want. On the upside, if the 0:05:01.839 --> 0:05:06.479 economy stays stronger, or you fail to get additional tightening 0:05:06.480 --> 0:05:09.120 and financial conditions. I mean, the goal for the FED 0:05:09.320 --> 0:05:13.520 is to bring about a gradual tightening in financial conditions. 0:05:13.560 --> 0:05:16.800 Otherwise they're not going to achieve the goals that they have, 0:05:16.960 --> 0:05:20.359 which is to stabilize the economy near full employment but 0:05:20.400 --> 0:05:22.279 not in an overheated state. So do you agree with 0:05:22.320 --> 0:05:25.080 Bill Dudley that the Fed has to essentially cause stock 0:05:25.120 --> 0:05:29.440 prices to decline. It doesn't have to be declining stock prices, 0:05:29.520 --> 0:05:33.920 but it has to be some combination of weaker stock prices, 0:05:34.080 --> 0:05:38.400 higher interest rates, a stronger currency, and wider credit spreads, 0:05:38.400 --> 0:05:41.320 and these things, you know, can be substitute able for 0:05:41.360 --> 0:05:44.480 one another. We look at our Goldman Sachs Financial Conditions Index, 0:05:44.520 --> 0:05:47.599 and those are the different components in there. I was 0:05:47.600 --> 0:05:50.039 looking at the rates cold over a government just in 0:05:50.160 --> 0:05:52.840 terms of where treasuries will be inversion year end in 0:05:52.960 --> 0:05:56.360 version year and next year and again the year after that. Yeah, 0:05:56.400 --> 0:05:58.560 and what would that mean from an economics perspective. Just 0:05:58.680 --> 0:06:01.120 your relationship with the race team, their co year end 0:06:01.120 --> 0:06:02.840 this year, the year after, the year after. What does 0:06:02.880 --> 0:06:06.839 that mean, Well, they build in the economy, the call 0:06:06.920 --> 0:06:10.680 from the economics team on the real economy and on 0:06:10.800 --> 0:06:14.440 monetary policy. And we have the funds rate a little 0:06:14.440 --> 0:06:17.800 over three percent and ten year yields a little under 0:06:17.839 --> 0:06:21.279 three percent. So yes, mild inversion. I would also say 0:06:21.320 --> 0:06:24.400 that if you look at market pricing for the federal 0:06:24.440 --> 0:06:28.600 funds rate, of course that's already that already shows an inversion. 0:06:28.800 --> 0:06:31.520 Market pricing goes up to a little over three and 0:06:31.560 --> 0:06:34.440 then it comes down to about two in sort of 0:06:34.640 --> 0:06:37.000 starting in late two thousand and twenty three. So the 0:06:37.040 --> 0:06:41.640 market is saying there's a meaningful risk of renewed rate 0:06:41.680 --> 0:06:44.960 cuts because the market sees a meaningful risk of a recession. 0:06:45.080 --> 0:06:47.720 There's a missing ingredient in this conversation, and it's the 0:06:47.760 --> 0:06:50.400 labor markets. Where you started with Tom three point five 0:06:50.400 --> 0:06:53.800 percent is where the federcent year end. Again, he around three. 0:06:54.240 --> 0:06:57.040 Given what you expect, the kind of deceleration you're looking 0:06:57.080 --> 0:07:00.440 for in the economy, the persistence of inflation as well, 0:07:00.520 --> 0:07:03.120 the work the FED needs to do. What do you 0:07:03.160 --> 0:07:05.880 see happening and how out of sync with that gene 0:07:06.000 --> 0:07:09.080 is that unemployment target with what you're looking for, Well, 0:07:09.160 --> 0:07:11.920 we actually have the unemployment rate fall a little bit 0:07:11.960 --> 0:07:15.240 further to three and a quarter percent, despite the weaker 0:07:15.240 --> 0:07:18.120 growth forecast. I mean, I think the three point five 0:07:18.200 --> 0:07:22.720 percent forecast from the Fed is already a little bit stale, 0:07:22.760 --> 0:07:26.800 probably just given that we're already down to three point 0:07:26.840 --> 0:07:30.880 six percent, since the summary of economic projections was this 0:07:31.000 --> 0:07:33.200 is really important though, everything you're expecting and you still 0:07:33.200 --> 0:07:35.920 expect unemployment to keep fooling. Doesn't that just tell you 0:07:35.960 --> 0:07:39.160 that actually they've got to go high with interest rates. Well, 0:07:39.320 --> 0:07:41.240 I think they do have to go higher with interest rates, 0:07:41.360 --> 0:07:45.400 and I think you're anticipating, but possibly possibly, although it's 0:07:45.400 --> 0:07:48.160 not just about the unemployment rate. I mean, this overheating 0:07:48.160 --> 0:07:51.040 in the labor market is you know, on the demand side, 0:07:51.680 --> 0:07:56.920 it's unemployment, but it's also it's also open possessions or jobs, 0:07:56.960 --> 0:07:59.920 but also open possessions. We do expect that open possess 0:08:00.680 --> 0:08:03.480 probably will come down somewhat. So in an ideal world, 0:08:03.760 --> 0:08:06.880 what the FED would do is slow the economy to 0:08:06.960 --> 0:08:12.120 a degree that leads companies to you know, delay or 0:08:12.360 --> 0:08:16.360 or or shelves some of their expansion. Expansion plans thereby 0:08:16.480 --> 0:08:20.800 bring down these extremely high open possessions without slowing it 0:08:20.880 --> 0:08:24.320 so much that you get substantial layoffs. And that's what 0:08:24.480 --> 0:08:27.160 that's what you're shooting for. Is that going to be 0:08:27.400 --> 0:08:30.440 you know available? Is that? Is that what actually happens? 0:08:30.480 --> 0:08:32.640 We're going to have to see it's going to I 0:08:32.679 --> 0:08:35.800 think requires some fancy footwork from the Fed. Yeah, I 0:08:35.800 --> 0:08:38.640 see why it's a narrow path to this soft landing. 0:08:39.120 --> 0:08:42.320 How high do rates go before there's a recession? Can 0:08:42.360 --> 0:08:45.520 we handle a four percent FED funds rate without a 0:08:45.559 --> 0:08:49.120 recession occurring in the United States? Well, I think the 0:08:49.240 --> 0:08:52.600 higher rates have to go, and especially if rates have 0:08:52.679 --> 0:08:56.800 to go significantly higher because you see even clearer signs 0:08:56.800 --> 0:09:00.200 of overheating, the higher the recession risk goals or if 0:09:00.240 --> 0:09:02.360 you go if you go up to for the risk 0:09:02.480 --> 0:09:04.160 is higher than if you're if you're in the sort 0:09:04.200 --> 0:09:08.160 of lultimate threes. Yeah, and the Twitter's lighten up here. 0:09:08.200 --> 0:09:11.960 The emails are coming in the pandemics over One of 0:09:11.960 --> 0:09:15.160 the glimmers of joy within the pandemic was you and 0:09:15.280 --> 0:09:18.200 fair on me going back and forth with no tie on. 0:09:18.880 --> 0:09:21.160 You're coming in to day tie We need to know 0:09:21.480 --> 0:09:24.839 does Solomon force you to wear a tie today? Is 0:09:24.880 --> 0:09:27.840 this the new Solomon regime? I just wanted to celebrate 0:09:27.960 --> 0:09:30.760 that I'm coming back into this office. That's just for us. 0:09:30.880 --> 0:09:33.400 We wanted David had nothing to do with this, right, 0:09:33.840 --> 0:09:36.080 you did not have anything. Okay, there's your there's your 0:09:36.080 --> 0:09:39.599 personal celebration. There's your bre exclusive today with Yeah, and 0:09:39.640 --> 0:09:41.800 that was a clinic. Just fantastic to get your thoughts 0:09:41.800 --> 0:09:43.760 and the hold of the table for a government tom 0:09:43.840 --> 0:09:50.840 and what they're looking at at the moment. Christina Kevin, 0:09:51.440 --> 0:09:54.320 who is what America is about? When you come out 0:09:54.360 --> 0:09:58.200 of school and you joined this strange thing called the 0:09:58.280 --> 0:10:01.880 Foreign Service. Her for tour of duty was in Paris, France, 0:10:01.920 --> 0:10:04.840 which is heavy lifting. But for that she has spanned 0:10:04.880 --> 0:10:08.800 the world for the United States of America being a diplomat. 0:10:08.800 --> 0:10:13.360 She's US charged affairs to Ukraine. Right now, Christina, what 0:10:13.480 --> 0:10:17.840 are the ramifications to all of this? If Russia not 0:10:18.000 --> 0:10:22.400 so much takes eastern Ukraine but takes the shores of 0:10:22.440 --> 0:10:26.400 the Black Sea, what will be our diplomatic response to 0:10:26.520 --> 0:10:32.280 something as shocking as they're taking of Odessa. Well, first 0:10:32.320 --> 0:10:37.320 of all, I would say, um, obviously, Russia's attack in 0:10:37.400 --> 0:10:40.160 the south of Ukraine and also their blockage of the 0:10:40.200 --> 0:10:44.000 Black Sea is a significant barrier to trade, not just 0:10:44.120 --> 0:10:48.080 with Ukraine but with other countries that are literal states 0:10:48.080 --> 0:10:51.760 of the Black Sea. So the economic costs are significant. 0:10:52.440 --> 0:10:56.400 Right now, the Russians have not their Their invasion of 0:10:56.480 --> 0:10:59.400 Ukraine has not gone according to plan. I think they 0:10:59.480 --> 0:11:02.440 thought they might be able to take Odessa easily within 0:11:02.480 --> 0:11:05.880 a matter of weeks, and clearly that hasn't happened. In fact, 0:11:06.200 --> 0:11:09.880 Russia has had to pull back from uh its central 0:11:09.920 --> 0:11:13.559 position and in its approach on Keith, and so far 0:11:13.600 --> 0:11:15.840 they have not been able to get They have not 0:11:15.880 --> 0:11:19.320 been able to take Mikoliev, which is to the east 0:11:19.440 --> 0:11:21.960 of Odessa and would have to be taken before they 0:11:21.960 --> 0:11:24.760 could take Odessa. So I would say that it's a 0:11:24.760 --> 0:11:27.360 little early to suggest that Rachel would be able to 0:11:27.360 --> 0:11:30.160 take Odessa, given the fact that they have not succeeded 0:11:30.200 --> 0:11:33.000 so far in in most of their plans. I agree 0:11:33.040 --> 0:11:35.880 that's a that's a fair statement. I'm gonna call you 0:11:35.920 --> 0:11:40.160 Ambassador because of your years of public service to the country, Ambassador. 0:11:40.240 --> 0:11:44.720 My colleague Jonathan Pharaoh ass of Turkey, the Black Sea, 0:11:44.800 --> 0:11:48.360 the boss First Straits as well. What is the present 0:11:48.440 --> 0:11:54.679 relationship of Mr Biden and Mr er to Wan. Mr Biden, 0:11:54.880 --> 0:11:57.560 President Biden and President are er to Wan have a 0:11:57.559 --> 0:12:01.440 good relationship. They talked frequently and they talk about the 0:12:01.480 --> 0:12:04.880 many important issues that Turkey is a part of. I 0:12:04.880 --> 0:12:08.520 would say to that Turkey has been quite supportive of Ukraine. 0:12:09.200 --> 0:12:12.600 President z Lnsky also has a good relationship with President Erdowan, 0:12:12.640 --> 0:12:15.679 and Turkey has actually been hosting some of the negotiations 0:12:15.760 --> 0:12:18.800 between Ukraine and Russia. So I think Turkey has been 0:12:18.800 --> 0:12:21.679 playing a positive role in this. And finally, as a 0:12:21.760 --> 0:12:24.840 NATO ally of course and part of a unified NATO 0:12:25.320 --> 0:12:29.640 that stands against Russian aggression. UM, Turkey has been supportive. Christina. 0:12:29.679 --> 0:12:32.880 There's been an ongoing conversation about the potential for a 0:12:33.040 --> 0:12:37.760 no fly zone or more aggressive offensive weapons given to Ukraine. 0:12:37.760 --> 0:12:40.280 There has been a shift in the type of military 0:12:40.920 --> 0:12:44.480 weapons that are being given to Ukraine. How much do 0:12:44.520 --> 0:12:46.560 you consider this an escalation or do you think that 0:12:46.600 --> 0:12:50.240 the line that determines escalation has shifted with what we 0:12:50.280 --> 0:12:55.040 saw out of Buccha. Well, I would say, first of all, uh, 0:12:55.200 --> 0:12:58.480 it's Russia that's causing the escalation. So what we're trying 0:12:58.520 --> 0:13:03.280 to do is help you Braine defend itself, UH, And honestly, 0:13:03.400 --> 0:13:07.199 the Ukrainian Foreign Minister has said to me more than 0:13:07.280 --> 0:13:10.720 once that any weapon that's used in Ukraine to defend 0:13:11.000 --> 0:13:15.080 Ukrainian territory is by UH its nature a defensive weapon. 0:13:15.640 --> 0:13:19.199 So what we're doing now is taking all of Ukraine's 0:13:19.240 --> 0:13:23.480 requests for various weapons systems and UH seeing how we 0:13:23.520 --> 0:13:26.360 can match them with what we have in stock and 0:13:26.400 --> 0:13:28.959 what we think Ukraine could best use right now if 0:13:29.000 --> 0:13:32.199 we give it to them immediately. And we've already given 0:13:32.240 --> 0:13:37.319 them a very large supply of both anti air, anti 0:13:37.400 --> 0:13:44.040 tank ammunition, defensive things like body armor and other material, 0:13:44.520 --> 0:13:46.880 but we are looking at at further systems that they 0:13:46.880 --> 0:13:50.280 will be able to use to help UH not just 0:13:50.559 --> 0:13:54.160 defend against Russia, but repel them from the areas of 0:13:54.240 --> 0:13:57.280 Ukraine that they still continue to occupy. Christinue you talked 0:13:57.320 --> 0:14:00.600 about trying to do it quickly, immediately and certainly for 0:14:00.640 --> 0:14:03.559 a Minister Khalva of Ukraine has been emphasizing the need 0:14:03.640 --> 0:14:06.480 for speed as Russia regroups. How big is this window 0:14:06.480 --> 0:14:11.800 of time? Well, we are concerned as Ukrainians have said 0:14:12.080 --> 0:14:16.520 that President Putin is UH not withdrawing but regrouping, and 0:14:16.559 --> 0:14:19.720 when he regroups UH it is believed that he may 0:14:19.760 --> 0:14:22.800 be making an offensive, a heavy offensive in the east, 0:14:22.880 --> 0:14:26.360 perhaps in the Don Boss. So it is a relatively 0:14:26.360 --> 0:14:29.320 short period of time that Ukraine has to make sure 0:14:29.360 --> 0:14:32.480 that they're ready for that. But we since since before 0:14:32.920 --> 0:14:36.080 the war, actually we have been flowing weapons into Ukraine. 0:14:36.400 --> 0:14:39.680 In fact, several months before the war started, we had 0:14:39.720 --> 0:14:43.880 seen what Russia was starting to UH do and we 0:14:43.960 --> 0:14:46.600 started to flow weapons in before the war started, and 0:14:46.640 --> 0:14:49.200 then after the war started, of course we flow we 0:14:49.320 --> 0:14:52.400 have flowed in even more. So we're getting weapons to 0:14:52.480 --> 0:14:56.880 Ukraine every single day. However, of course, Ukraine needs as 0:14:56.880 --> 0:14:59.080 many as they can possibly get, and we're doing our 0:14:59.200 --> 0:15:01.000 utmost to try to get them as much as we 0:15:01.120 --> 0:15:03.640 can as soon as we can. Christina, just briefly, what 0:15:03.720 --> 0:15:07.240 is the difference between defensive and offensive weaponry? What is 0:15:07.240 --> 0:15:12.080 the difference? Well, again, I would go back to US 0:15:12.600 --> 0:15:18.040 Foreign Minister Kuleba's view that any weapon that is in 0:15:18.360 --> 0:15:22.600 Ukrainian territory defending against attacks against Ukraine is by nature 0:15:22.720 --> 0:15:25.520 a defensive weapon. Seems to be some disagreement that on 0:15:25.560 --> 0:15:27.880 that on the International SNICE though, Christina, thank you for 0:15:27.920 --> 0:15:35.880 your heart work throughout all of this. Christina Kavina Anastasia 0:15:35.880 --> 0:15:39.240 Amrosa joins his chief investment strategist at I Capital and 0:15:39.320 --> 0:15:41.120 a stage. I want to talk to you about international 0:15:41.120 --> 0:15:44.640 RELATIONSHS will save that for later in the conversation. How 0:15:44.680 --> 0:15:49.680 has your outlook changed if we begin the second quarter, Well, 0:15:49.720 --> 0:15:51.880 thom has changed quite a bit. But one thing that 0:15:51.880 --> 0:15:54.760 actually hasn't changed is the view that I've had on 0:15:54.800 --> 0:15:57.320 cyclicals for a while, and it was not the time 0:15:57.400 --> 0:16:01.040 to chase performance on cyclicals or performance on value. So 0:16:01.080 --> 0:16:03.800 we've actually been talking to investors about rotating out of 0:16:03.800 --> 0:16:07.120 those cyclical spots, and for reasons exactly what John just 0:16:07.200 --> 0:16:10.800 talked about, which is this is not a set of 0:16:11.160 --> 0:16:14.880 bullish rate hikes. This is not a set of bullish 0:16:14.880 --> 0:16:17.680 development that the fet is pulling back on liquidity. So 0:16:17.880 --> 0:16:20.160 I think there's a real concern right now about a 0:16:20.280 --> 0:16:23.600 slow down that is consumer lead, because things are getting 0:16:23.600 --> 0:16:27.360 too expensive and consumers may potentially be in a double wham, 0:16:27.360 --> 0:16:31.240 a situation where prices are high and the fetish hiking rates, 0:16:31.280 --> 0:16:33.840 which is making all the interest rate sensitive parts of 0:16:33.840 --> 0:16:37.560 the economy really prohibitive as well. So I think that's 0:16:37.720 --> 0:16:40.720 a big part that's been a big part of the outlook. 0:16:41.200 --> 0:16:43.960 And now the other thing Tom that I would say 0:16:44.920 --> 0:16:47.680 we have a little bit of breathing group near term. 0:16:47.720 --> 0:16:51.000 I think given how much valuation reset that we've had 0:16:51.000 --> 0:16:53.880 in Q one, and given how much positioning reset lower 0:16:53.920 --> 0:16:56.280 that we've had in Q one, and I think we're 0:16:56.320 --> 0:16:59.520 now in the stalemate situation, whether it's inflation, whether it's 0:16:59.520 --> 0:17:02.840 your gray So barring adverse developments, I think we have 0:17:02.880 --> 0:17:05.480 a little bit of breathing room for the equity markets. 0:17:05.520 --> 0:17:08.520 But having said that, we can't ignore the longer term 0:17:08.640 --> 0:17:11.879 risks of this consumer lead recession or slow down, whatever 0:17:11.920 --> 0:17:14.960 it may be, that are building. So now I think 0:17:15.240 --> 0:17:18.359 is the time to right size the risk in the portfolios. 0:17:18.440 --> 0:17:21.159 And so when we have those rallies, when we have 0:17:21.240 --> 0:17:24.280 the research lower and volatility, I would be using that 0:17:24.359 --> 0:17:27.440 to actually de risk parts of the portfolio. And it says, yeah, 0:17:27.440 --> 0:17:30.000 what do you expect to start seeing a consumer lead 0:17:30.119 --> 0:17:32.800 recession or signs of it if that really does come 0:17:32.800 --> 0:17:35.399 to pass, Well, I think we're going to see in 0:17:35.440 --> 0:17:38.080 the coming quarters, probably this quarter and next at least 0:17:38.080 --> 0:17:41.280 as slow down. I mean, if you look at consumer confidence, 0:17:41.280 --> 0:17:44.080 for example, it is already at a ten year low 0:17:44.400 --> 0:17:47.320 and a one year recession probability. From this point of 0:17:47.320 --> 0:17:51.280 consumer confidences about so, I think we have some of 0:17:51.280 --> 0:17:55.159 the indications there. We also have expectations for consumers for 0:17:55.200 --> 0:17:58.919 their own personal finances that have fallen sharply. The buying 0:17:59.040 --> 0:18:02.520 conditions for horrible goods have slumped, I want to say, 0:18:02.560 --> 0:18:05.000 to the lowest level on record. So again, I'm not 0:18:05.080 --> 0:18:07.919 surprised to see that the transportation sector is starting to 0:18:07.960 --> 0:18:10.240 feel that. So I really think we're going to start 0:18:10.280 --> 0:18:12.920 to see a slowdown in the next quarter or two. 0:18:13.400 --> 0:18:16.160 But to have this really be a recession, I do 0:18:16.320 --> 0:18:19.240 think that the Fed has to commit a policy error 0:18:19.440 --> 0:18:23.240 and has to overtien too much into a slowing economy. 0:18:23.680 --> 0:18:26.320 It's not the base case at the moment, but I 0:18:26.359 --> 0:18:29.200 think that's definitely a risk worth watching and a risk 0:18:29.200 --> 0:18:32.040 worth hedging. Right now, what's the ballast of the portfolio? 0:18:32.320 --> 0:18:35.320 Is it the commodity sector? Is it long bonds after 0:18:35.359 --> 0:18:39.520 they've risen the yields have risen so high, price down. Well, 0:18:39.680 --> 0:18:41.560 first we should talk about the core of the portfolio, 0:18:41.600 --> 0:18:44.400 which for most people is some sort of SMP exposure 0:18:44.440 --> 0:18:47.160 for the NASTAC exposure, and if you step back over 0:18:47.200 --> 0:18:51.800 the last two years, since January or February, the sn 0:18:51.880 --> 0:18:55.840 P is up plus and since March of we're lucky 0:18:55.880 --> 0:18:59.000 to put money to work. At that particular moment, you're 0:18:58.600 --> 0:19:01.879 a percent So that's a huge return already over the 0:19:01.960 --> 0:19:05.200 last couple of years. So it's right sizing and reducing 0:19:05.200 --> 0:19:07.399 the risk in that. And I think one way to 0:19:07.480 --> 0:19:09.800 do that there was a time and a place to 0:19:09.840 --> 0:19:12.879 be long equities that be long only and have this 0:19:12.960 --> 0:19:16.760 one directional exposure. But now we're talking about layering some 0:19:16.840 --> 0:19:19.600 hedges and maybe you sell away some of the upside 0:19:19.600 --> 0:19:22.400 by selling a call option and you buy and use 0:19:22.440 --> 0:19:25.120 that premium to buy a put option, so you do 0:19:25.280 --> 0:19:27.919 have some sort of protection on the downside. So I 0:19:27.960 --> 0:19:30.240 think that right there is one of the more important 0:19:30.280 --> 0:19:34.000 things that investors can do. And then it's about sectors, 0:19:34.080 --> 0:19:36.440 and then it's about where else can you get yield? Tom, 0:19:36.760 --> 0:19:40.400 what's the price to hedge right now? Is it outrageous? 0:19:40.560 --> 0:19:42.800 Is everybody on board and that they knocked up the 0:19:42.840 --> 0:19:47.480 price to hedge? No, it's not outrageous, And that's exactly 0:19:47.520 --> 0:19:50.199 why I'm talking about it today versus let's say a 0:19:50.240 --> 0:19:52.639 month ago when you had the VOCs that spiked to 0:19:52.800 --> 0:19:55.080 thirty five. That was definitely not the time to be 0:19:55.160 --> 0:19:58.399 talking about putting on this downside protection. But now it 0:19:58.560 --> 0:20:01.560 vics you know twenty as your Oh uh, now is 0:20:01.600 --> 0:20:03.840 the time to be looking at some of those put options. 0:20:04.000 --> 0:20:06.840 I mean it gets very nuanced and very dynamic very quickly. 0:20:06.880 --> 0:20:09.680 But you want to find the points on the volatility 0:20:09.720 --> 0:20:13.320 curve where you can sell rich call premium and you 0:20:13.359 --> 0:20:18.280 can get put option that's reasonably Priced's definitely not outrageous. 0:20:18.320 --> 0:20:20.920 Right now, we've caught on you over the years for 0:20:21.000 --> 0:20:25.440 the perspective of your heritage in the travelers you've made, 0:20:25.480 --> 0:20:29.520 particularly to the Black Sea. This is a weekend where 0:20:29.520 --> 0:20:34.440 Odessa is under unique threat to you. What is the 0:20:34.520 --> 0:20:39.000 Odessa distinction? Now? What does it mean for Ukraine? For 0:20:39.119 --> 0:20:43.800 that matter, what does it mean for Russia? Well, uh, 0:20:44.040 --> 0:20:47.440 it is uh, it is a dire situation, needless to say, 0:20:47.760 --> 0:20:52.440 um in Ukraine. And you know, unfortunately there's been almost 0:20:52.440 --> 0:20:56.720 an international concession right now that Russia is not likely 0:20:56.920 --> 0:21:00.760 to succeed broadly in Ukraine. But it's is like Russia 0:21:00.840 --> 0:21:03.520 has a pretty good chance of succeeding in the don 0:21:03.560 --> 0:21:08.679 Bass region, in the Black Sea region, and really connecting that. 0:21:08.880 --> 0:21:12.080 So perhaps Russia is not going to get Ukraine has 0:21:12.160 --> 0:21:15.040 the buffer zone that they were really hoping for, but 0:21:15.080 --> 0:21:18.360 it seems like it's pretty likely that they might succeed 0:21:18.440 --> 0:21:23.359 in reuniting the southeastern part of Ukraine and carving that 0:21:23.440 --> 0:21:27.320 out as the buffer zone they so desperately wanted. And 0:21:27.320 --> 0:21:30.639 I you're just awesome as always in fantastic thank you, 0:21:30.800 --> 0:21:34.159 and samros there of I capital on a situation in 0:21:34.280 --> 0:21:36.160 Ukraine and of course on the broader market as well. 0:21:40.359 --> 0:21:42.720 Let's kick things off with Abrahim rach Bowery Globe ahead 0:21:42.720 --> 0:21:45.200 of FX analysis is City and Ebrahim, let's start right 0:21:45.200 --> 0:21:47.280 here and we price to get a slow down or 0:21:47.320 --> 0:21:52.159 something worse than that in this market. It's great to 0:21:52.200 --> 0:21:54.480 be joining you again. I think for now we're only 0:21:54.560 --> 0:21:56.560 placing in a slow down. I don't think the market 0:21:56.640 --> 0:21:58.560 is quite made up its mind whether it's going to 0:21:58.680 --> 0:22:01.560 be a recession or Josh quote unquote a growth recession. 0:22:01.760 --> 0:22:05.040 But as we've heard from Bill Dudley among others, we 0:22:05.119 --> 0:22:07.960 do need unemployment to go up probably to contain these 0:22:07.960 --> 0:22:10.879 extremely unusual levels of in place. So for now I 0:22:10.920 --> 0:22:13.800 would say slowdown rather than a recession. But as you know, 0:22:14.000 --> 0:22:17.760 fine tuning that slowdown is going to be in incredibly 0:22:17.800 --> 0:22:20.920 difficult Abram, I want to talk about the barbell that 0:22:21.000 --> 0:22:23.760 everyone in economics is talking about, which is a hole 0:22:23.840 --> 0:22:27.440 and horse Leguard barbell. You've got Andrew hole and horse 0:22:27.640 --> 0:22:30.679 up up up on rates, You've got Laguard trying to 0:22:30.760 --> 0:22:33.720 keep up with Powell. How do you balance the city 0:22:33.800 --> 0:22:37.040 call on rates with all of the challenges la Guard 0:22:37.160 --> 0:22:43.240 has for Euros stability? Well, I would say that as 0:22:43.280 --> 0:22:47.000 as clear as the direction of that, the the intention 0:22:47.040 --> 0:22:49.160 to tighten in the US is now and and and 0:22:49.160 --> 0:22:51.919 and Andrew has really been at the banguard for anticipating it. 0:22:52.840 --> 0:22:55.760 I think the minutes the Easy Minutes yesterday were remarkable 0:22:55.960 --> 0:22:59.760 because I think a little less noticed has been the 0:23:00.000 --> 0:23:02.080