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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course on the Bloomberg terminal. This is really important.

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Speaker 1: Now we're gonna jump to the equity markets here with

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Speaker 1: Katie Kaminski. She's chief research strategist at Alpha Simplex. And

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Speaker 1: what's so important is you can't pronounce her focus at

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Speaker 1: the Massachusetts Institute of Technology stochastic processes, stopping rules, and

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Speaker 1: investment heuristics. I've aged saying that Katie joins us now

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Speaker 1: with an encyclopedic knowledge of math and trend Katie, your

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Speaker 1: your work with Andrew Lowe and all the others around

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Speaker 1: trend based analogy, says leads us to one single question.

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Speaker 1: Have we broken the bear market trend? That's a really

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Speaker 1: good question because what we have seen lately, which I

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Speaker 1: think is the most interesting from a technical perspective, is

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Speaker 1: that we've seen signals really dissipate in the last two

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Speaker 1: to three months, and so it really feels like an

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Speaker 1: you know, an inflection point. Right now for us, we're

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Speaker 1: still seeing sort of a net short but it's very weak. UM.

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Speaker 1: That kind of indicates that we could go either direction

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Speaker 1: depending on what occurs, and I think yesterday I just

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Speaker 1: kind of showed that we might be going in a

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Speaker 1: better direction than people have thoughts. Katy want to go

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Speaker 1: inside baseball to Monroe Trout and asking tell Paul Wilmot

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Speaker 1: and the others from years ago, mostly out of Imperial College.

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Speaker 1: The raging debate is their value to volume analysis? Do

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Speaker 1: you study volume? I don't. So volume is a good

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Speaker 1: indicator to understand whether or not you can trade a

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Speaker 1: market and whether or not you're sizing is appropriate, but

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Speaker 1: unfortunately a lot of indicators of volume have been difficult

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Speaker 1: to document empirically UM as predictive UM. There may be

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Speaker 1: exceptions to this, but I think volume is still a

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Speaker 1: key metric because it really tells you something about whether

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Speaker 1: or not the trade ability of individual markets is there

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Speaker 1: UM and that's how we tend to think about it.

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Speaker 1: As you know, futures quants, Katie. Liza McCormick of Bloomberg

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Speaker 1: News wrote a story about a paper that you wrote

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Speaker 1: about how pigs flew at least in your world because

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Speaker 1: you shorted bonds and you were able to deliver return

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Speaker 1: or more in the beginning of this year, the first

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Speaker 1: half of this year, have you closed that trade out?

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Speaker 1: Are you still trying to short bonds here? Especially after

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Speaker 1: the rally. So that's a good question because what we

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Speaker 1: saw in June was a big spike involved we saw

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Speaker 1: cross correlation spiking as well, so signals and bonds have

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Speaker 1: actually dissipated. UM. The reason we wrote this paper is

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Speaker 1: that we really wanted to clarify that shorting bonds is

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Speaker 1: not a fluke if we continue you to see rising rates.

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Speaker 1: That in fact, when you think about a rising rate environment,

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Speaker 1: you're going to have to consider the shape of the

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Speaker 1: curve and whether or not there may be some tactical

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Speaker 1: short signals and bonds that could potentially work. And I

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Speaker 1: think this is particularly pertinent right now as we're moving

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Speaker 1: from an inversion towards a slightly steeper curve. Right now,

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Speaker 1: as we're seeing that could be an indication that things

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Speaker 1: are getting better. UM, as long as we see that persist. Well, Katie,

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Speaker 1: you say, in a rising rate environment and what we're

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Speaker 1: hearing from the Federal Reserve is Yes, rates are going

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Speaker 1: to keep rising. We are going to keep hiking into

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Speaker 1: next year because inflation is nowhere near where we'd like

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Speaker 1: to see it. So how wrong is the market now?

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Speaker 1: So I think the market is a little optimistic because

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Speaker 1: I think, you know, it's always good to have a

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Speaker 1: good number, to have a good print, to have something

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Speaker 1: that brings your averages down. But most of us in

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Speaker 1: the futures markets, we've already seen those moves and energies.

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Speaker 1: We were kind of expecting this already. So I'd say

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Speaker 1: that it's a little bit as would expected, slightly better.

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Speaker 1: But what that means is that there may be a

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Speaker 1: little bit of optimism over the first data point that

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Speaker 1: confirms what people really want, which is things to go

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Speaker 1: back to normal, and the sixty, as Lisa put it,

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Speaker 1: to just be back into you know, a good place,

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Speaker 1: which is basically what most people are used to. Katie.

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Speaker 1: One final question. A lot of people are looking at

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Speaker 1: moving averages and their eyes are glazing over. I'm a

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Speaker 1: huge disbeliever in bologny like the death cross, and that

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Speaker 1: can you use moving averages right now to figure out

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Speaker 1: if this is a breaking of the bear market trend.

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Speaker 1: So if you do use moving asages right now, I'll

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Speaker 1: tell you that your signals are going to be very mixed. Um,

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Speaker 1: you're gonna have a lot of indications that things look

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Speaker 1: better on the shorter end, and you're gonna have a

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Speaker 1: lot of indications that they don't look good and then

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Speaker 1: meet into long term. So I'd say that it's really

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Speaker 1: really unclear, and the only thing we can say is

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Speaker 1: a quant right now is that there is very little

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Speaker 1: signal and there's room to move in a new direction.

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Speaker 1: That was a very safe answered Stie Kimisky channeling George Kleinman.

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Speaker 1: There and what are known as climb and exponential moving averages.

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Speaker 1: You killed at Katie, don't be a stranger, Kati Kaminsky

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Speaker 1: with alpha simplexy. Right now, we're just trying to understand

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Speaker 1: how much conviction this rally does have. Jim Pulson said

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Speaker 1: he thinks he has conviction, which gives a lot of

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Speaker 1: conviction to the conviction Chief Invested Strategies at the Luthhole Group. Jim,

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Speaker 1: you've been bullish, You've been then a little bit pulling back,

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Speaker 1: and now all of a sudden the melt up has begun.

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Speaker 1: Something a little bit more concrete. Do you buy into

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Speaker 1: this or do you see this as a head fake.

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Speaker 1: I'm on to buy into it side, Lisa, I think

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Speaker 1: that a couple of things for me. I think it's

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Speaker 1: at the forefront, you know, talk about the feed a minute.

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Speaker 1: I think the case for additional FED tightening is rapidly dissipating.

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Speaker 1: I mean, we've we've brought a real GDP growth down

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Speaker 1: to a crawl um overall um. I think there's still

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Speaker 1: downside moment month growth as we go through the balance

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Speaker 1: this year. The past tightened policies of money growth slowing,

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Speaker 1: fiscal growth slowing, dollar rising, yields rising is likely to

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Speaker 1: keep real growth sluggish. On top of that, the inflation

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Speaker 1: evidence just continues to get more and more pronounced. I

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Speaker 1: don't know how long it will take to come down,

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Speaker 1: but clearly the momentum is down on inflation. I think

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Speaker 1: by September we're going to see the FED case for

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Speaker 1: why keep hiking kind of dissipated a little bit. And

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Speaker 1: this is you know, I mean, I don't mean to interrupt,

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Speaker 1: I'm just thinking about what you're saying, and that we

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Speaker 1: are seeing increasing evidence that inflation is coming down. The

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Speaker 1: pushback I'm sure that you hear and you're going to

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Speaker 1: hear it A lot is not when it comes to rent,

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Speaker 1: not when it comes to food, not when it comes

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Speaker 1: to medical costs, not when it comes to how much

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Speaker 1: you're paying for services. So, yes, you are seeing disinflation

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Speaker 1: in some areas, but it's not as broad as money

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Speaker 1: people would like to see. What gives you conviction that

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Speaker 1: we're seeing the beginning of something that is going to

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Speaker 1: broaden out later this year into next, Well, I think

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Speaker 1: that having real economic growth, you know, zero to two

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Speaker 1: percent as a as a a big part of it.

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Speaker 1: Having the past economic policies that they have lags and

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Speaker 1: they're going to continue to be a negative downward force.

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Speaker 1: The reason inflation peaked in the March April May period

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Speaker 1: was because a year earlier, fiscal growth peaked, monetary growth peak,

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Speaker 1: dollars started to rise, yield started to go up. That

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Speaker 1: is about a one year lag policy has on the

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Speaker 1: economy and inflation, and that lag is going to continue

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Speaker 1: to be negative going forward. Also, you know, you can

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Speaker 1: always pick parts of the inflation center that are still hot,

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Speaker 1: but there's a lot of parts that aren't. You know,

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Speaker 1: the inflationary thrust of commodities, which was driving this at

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Speaker 1: the leading edge, is now a deflationary thrust overall. You know,

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Speaker 1: the core rates of c P, I P P I

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Speaker 1: PC have now all decelerated year on year. In the

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Speaker 1: last three to four months, UH annual wage inflation was

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Speaker 1: six and a half percent on a six month basis

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Speaker 1: the end of the year. It's now four point seven

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Speaker 1: percent or four point three on one of those that

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Speaker 1: can't remember. But it's a big desceleration a year to date.

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Speaker 1: So I think I think the debate on inflation has peaked.

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Speaker 1: I think that's over and now it's a debate on

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Speaker 1: how fast it comes down. And I'm just saying, you know,

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Speaker 1: by September meeting, we're gonna get more claim numbers that

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Speaker 1: probably will show a little more weakness, and um, I

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Speaker 1: think the case is going to start to go away.

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Speaker 1: But beyond that, this is really why I'm more bullish.

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Speaker 1: I don't really care what the FED is gonna do,

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Speaker 1: because the FED isn't driving this ship. If I look

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Speaker 1: at what's happening, We're already into a brand new easing

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Speaker 1: cycle right now. Bawn spawn yields from two years to

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Speaker 1: thirty years have already started to ease. The dollars rolled over.

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Speaker 1: It's already started to ease. Junk spreads have gone from

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Speaker 1: over six to under five. They've started to ease. Real

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Speaker 1: money growth at minus three point it can't go much lower.

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Speaker 1: I think it's gonna start to improved because inflation comes

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Speaker 1: down and fiscal growth has already started to go back

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Speaker 1: to easing. So do you want to miss an easing cycle, Jim,

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Speaker 1: I totally hear you. Yet at the same time, I

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Speaker 1: also hear Federal Reserve officials like Neil Kashkari saying we

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Speaker 1: are nowhere near done. We still have so much tightening

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Speaker 1: left to do because inflation is still very far from

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Speaker 1: our target, even if yes, it is moderating. Clearly you

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Speaker 1: are in that camp. But as you talk about all

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Speaker 1: of these things that are changing, financial conditions that are easing,

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Speaker 1: and the FED not being in control, does that not

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Speaker 1: mean they are going to be even more aggressive to

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Speaker 1: get that control back. Well. I think it's interesting how

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Speaker 1: much attention we devote to the FED because the Fed's

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Speaker 1: been behind the curve the whole time. Fortunately, inflation is

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Speaker 1: coming down today, not because the FED lifted the funds

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Speaker 1: rate for the first time. In February this year because

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Speaker 1: monetary growth, fiscal growth, dollar growth, yield growth, we're tightening

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Speaker 1: all last year and that's what's bringing the slower economy

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Speaker 1: and slower inflation. So now why the Fed still behind

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Speaker 1: the curve but all the markets are going on the

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Speaker 1: other way and starting to ease. So why should we

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Speaker 1: continue to give so much dominance to the Federal Reserve? Jim?

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Speaker 1: We had Kati Kaminsky on from m i t here earlier,

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Speaker 1: and it sprawls out to your Iowa state. With the

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Speaker 1: rigor of mathematics and the rigger of trend, the rigger

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Speaker 1: of a time series being all, when we look at

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Speaker 1: the equity markets, how do we move from what's an

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Speaker 1: obvious short squeeze futures up twenty one DAR, futures up

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Speaker 1: two days in a row, to a constructive bullmarket trend?

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Speaker 1: How do you transition from an obvious short squeeze out

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Speaker 1: to a durable trend. Yeah, I that's a good point time,

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Speaker 1: you know. Eventually to keep this going, well, we'll have

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Speaker 1: to decide that we're not going to resiss. So that

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Speaker 1: that to me is almost becoming the bigger issue that

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Speaker 1: inflation right now is are we going to resss soon.

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Speaker 1: If we're not going to resiss, then I think that

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Speaker 1: gives you a fundamental undertow to your sent to your

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Speaker 1: point of giving sustainability in the short term, though, we're

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Speaker 1: dealing with a lot of bears in the sidelines, a

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Speaker 1: lot of sellers that have come out, and and we're

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Speaker 1: dealing with some technical levels that are right there in

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Speaker 1: front of us right now. Two And if you break

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Speaker 1: through some of those, then you're going to see a

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Speaker 1: lot of the technicians that have been bearish changed tune,

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Speaker 1: and that could bring some buying in that could sustain

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Speaker 1: could sustain this for a while. So it's if we

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Speaker 1: fail it, you know, then we probably have some downside

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Speaker 1: because it's probably ahead of itself. But if we break

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Speaker 1: through that, then I think you could convert some bears

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Speaker 1: and bring some sustainability for a period. Jim Pauson, brilliant, Louisville.

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Speaker 1: Thank you so much, greatly, greatly appreciate this. This is

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Speaker 1: what we like to do. We are driven by the

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Speaker 1: research of our guests, and when someone writes a piercing note,

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Speaker 1: we say, Michael Purvis of Tall Back, and we don't

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Speaker 1: care that you're living large in Spain. We need to

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Speaker 1: speak to you in the Spanish afternoon of a four

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Speaker 1: pm with a sangria or a martini by a side.

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Speaker 1: Michael Purvis joins us on optimism on the market. Michael,

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Speaker 1: I would predict every strategist, every market savant, has to

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Speaker 1: come out this weekend and adjust. How did you adjust

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Speaker 1: this morning? Well, look, I've I've been arguing that the

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Speaker 1: recession um economic contraction was was really a pretty specultive

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Speaker 1: argument that that was the argument had been made pretty substantially.

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Speaker 1: And this in the last two weeks, we've had the

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Speaker 1: most important economic data points, you know, the I s M,

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Speaker 1: the services I M, the non farm payroll and then

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Speaker 1: the inflation yesterday come in just the way you want

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Speaker 1: them in terms of affirming that not necessarily in a

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Speaker 1: high inflation, negative growth our contractionary condition there. So, um,

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Speaker 1: what when you look at positioning tom um, and this

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Speaker 1: is both treasury positioning and equity positioning, it is extremely

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Speaker 1: barre from both on both sides there right, So the

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Speaker 1: market is there's a vacuum there. And when you have

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Speaker 1: those three important data points line up, you're looking at

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Speaker 1: Q two earnings that have actually the beef on earning

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Speaker 1: for both governors, and earnings were better than the Q

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Speaker 1: one beats. You're looking at a situation where where the

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Speaker 1: market is going to move higher. So I have a

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Speaker 1: tactical call up another two hundred points to hundred and

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Speaker 1: my year end call like adjusted to there. I'm not

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Speaker 1: saying we're completely out of the woods, but I think

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Speaker 1: the the the certainly for the near terms, the water

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Speaker 1: is going to be hired out lower. Michael, how much

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Speaker 1: is your conviction right now underpinned by this idea that

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Speaker 1: we just heard from Jim Paulson, which is that we

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Speaker 1: are at the beginning of an easing cycle, that inflation

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Speaker 1: is rolling off much more quickly than the FETE is

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Speaker 1: expecting that they're going to have to catch up with

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Speaker 1: the market. Look, I think there's a you know, sort

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Speaker 1: of looking at the R dollar features curve and looking

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Speaker 1: at this, I think it's fifty basis points right now

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Speaker 1: cuts next year. I think that's an aggressive assumption here.

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Speaker 1: But from a from an how assets trade point of view,

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Speaker 1: we see some stability where sort of peak hawkishness going

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Speaker 1: from the speed pivot of just a year ago being

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Speaker 1: categorically of us too now sort of categorically pawkish, right,

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Speaker 1: that's one of the most aggressive pivots, and that policy

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Speaker 1: you're going to have that asset prices disruptive and we've

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Speaker 1: had that, right, So I think right now that that

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Speaker 1: is in and so whether we get fifty basis point

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Speaker 1: basis points or zero basis points and cuts and twenty three,

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Speaker 1: I think as long as we can look at something

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Speaker 1: that's resembling some sort of stability in the bob market,

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Speaker 1: that's almost more important than than you know, uh, what

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Speaker 1: the average uh expectations for your dollars Michael, how much

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Speaker 1: do you take a look at this idea that you

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Speaker 1: had the biggest increase in food prices going back to

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Speaker 1: seventy nine, Rents are surging, You see areas in nondiscretionary

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Speaker 1: spending that are crimping the average American household balance sheet,

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Speaker 1: and that has yet to fully play out. How do

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Speaker 1: you factor that into your bullish thesis. Well, that's a

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Speaker 1: very good, very fair point, and I do think there's

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Speaker 1: very strong arguments for a lot of components of inflation

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Speaker 1: to state higher longer, right. But I think the question

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Speaker 1: is is if the markets and the economy can sort

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Speaker 1: of adjust to that, right, um, uh, they're just then

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Speaker 1: I think the paces of that sort of inflationary surges

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Speaker 1: are going to be very different than what we've seen

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Speaker 1: over the last nine months. Right. It's it's really the

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Speaker 1: surge in in in the velocity of these inflation prints

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Speaker 1: that have really, uh, you know, disrupted the markets. If

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Speaker 1: we get to a point where where you know, we

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Speaker 1: never get down to two and we're sort of adjusting

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Speaker 1: to a new normal because of uh, you know, reglobal deglobalization, relocalization,

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Speaker 1: higher food prices, uh, energy supplied that never really fully expands,

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Speaker 1: so that the well gets down to fifty bucks again,

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Speaker 1: then I think you can look at a condition where

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Speaker 1: where that those types of dynamics will play out in

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Speaker 1: a much slower and basis and the economy can sort

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Speaker 1: of adjustice that maybe the tenure doesn't go back to

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Speaker 1: two percent, and maybe that it's through to four percent,

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Speaker 1: but if it stays there, and then you can have

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Speaker 1: the condition for risk assets to be supported. Is there

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Speaker 1: going to be fundamental support though when we're thinking about earnings,

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Speaker 1: because as we talk about these inflationary pressures, there has

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Speaker 1: been a lot of warning on the more embarrassed end

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Speaker 1: of the spectrum from Mike Wilson, for example, about margin

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Speaker 1: pressure coming on and does I now look at an

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Speaker 1: S and P five trading back at a multiple almost

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Speaker 1: at nineteen on forward earnings, when are we going to

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Speaker 1: start to maybe have a problem with that denominator? Yeah, well,

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Speaker 1: the earnings question, you know, like earnings bottom estimates compiled

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Speaker 1: by Bloomberg are off about six and a half percent

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Speaker 1: from the beginning of the year. That's unusual. Usually they

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Speaker 1: go down through the year there, and the Q two

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Speaker 1: numbers have been generally pretty good. I think it's important

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Speaker 1: to recognize that that if you have a high inflationary

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Speaker 1: environment without an economic major economic contraction right meaning p

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Speaker 1: M s and forties or thirties, right, you will have

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Speaker 1: high earning strows. In the nineteen seventies, you didn't have

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Speaker 1: a great real GDP condition. You have just had a

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Speaker 1: lot of inflation, but earnings growth was literally twice as

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Speaker 1: high in the nineteen seventies, and it was in the

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Speaker 1: nineteen sixties with real GDP average like four point three

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Speaker 1: to that decade there, And I think that's one of

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Speaker 1: those things that high nomenal GDP can wash away and

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Speaker 1: actually helped margins for many companies, right, and certainly the

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Speaker 1: top line is inflated by revenues as well, so you're

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Speaker 1: not seeing a lot of margins present the other stories

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Speaker 1: the market. And again i'm talking about S and P

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Speaker 1: five index level. Right. Obviously there's a lot of specific

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Speaker 1: caspectors where there's a lot of vulnerability. But if you

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Speaker 1: look at the income market that's being being expected by

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Speaker 1: UH foreign estimates, that is that is um that is

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Speaker 1: buters and and shown resilience. Michael, you know, we gotta

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Speaker 1: leave it there. But on behalf of Kayleie, Lisa, me

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Speaker 1: and John, I just gotta say, tomar una babida alexeion

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Speaker 1: nailed it. Have a beverage of your choice, we say

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Speaker 1: to Michael Purvis in Spain as he slips into the

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Speaker 1: Spanish late afternoon a trooper to be with us right now.

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Speaker 1: The record has speaking to it this time. Matthew Lozetti,

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Speaker 1: his chief US economists at Deutsche Bank, and you know

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Speaker 1: as well, for those that keep track, he was way

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Speaker 1: out front and calling for some form of economic contraction

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Speaker 1: in America. Met Zettie. With the data we've seen on jobs,

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Speaker 1: with the data we've seen on inflation, CPI and P

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Speaker 1: p I, can you and Peter Hooper reaffirm US recession? Sure? First,

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Speaker 1: thanks so much for having me. I think it does

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Speaker 1: reaffirm our view, which is that we're not in a

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Speaker 1: near term recession in the economy. Certainly that the labor

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Speaker 1: market data we saw last week, the jobless Clayton's data

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Speaker 1: are are kind of edging higher but still at very

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Speaker 1: low levels. A labor market that is very tight, I

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Speaker 1: think I'll suggest that we're not heading into recession eminently. However,

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Speaker 1: I think it does point to a labor market that

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Speaker 1: is still tight, wage pressures that are still well above

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Speaker 1: the what would be consistent with the FEDS objective, uh,

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Speaker 1: you know, labor cost growth that is, you know, about

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Speaker 1: five percent, and inflation pressures which yes, they are coming down,

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Speaker 1: but I think are very far away from the FEDS objective.

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Speaker 1: We saw trim mean cp I yesterday forty five basis

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Speaker 1: points month on month, seven percent year on year, and

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Speaker 1: so we would stick with our view that we still

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Speaker 1: have a recession, that recession is likely next year, around

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Speaker 1: the middle of next year, and it still remains one

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Speaker 1: that is Fed induced, as as the FED continued to

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Speaker 1: tighten monetary policy. But Matt do you actually expect this

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Speaker 1: to be a less severe recession than you had perhaps

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Speaker 1: a couple of months ago, based on this decline that

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Speaker 1: we've seen both in cp I and p P I. Yeah,

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Speaker 1: we we had as a baseline what I would call

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Speaker 1: a moderate recession. We had the unemployment rate rising. You know,

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Speaker 1: it doesn't seem like moderate, but but two percentage points

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Speaker 1: uh and something that would be kind of akin to

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Speaker 1: what we saw in their early nineteen nines, about a

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Speaker 1: one percent decline in GDP. I think the key reasons

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Speaker 1: for that were, One, you have private sector balance shees

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Speaker 1: that are in good shape to kind of the cyclical

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Speaker 1: sectors and housing and autos have been supply constrained. Um.

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Speaker 1: And Three you know that that you did have monetary

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Speaker 1: policy that you know would would ease next year um

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Speaker 1: and and kind of help out I think on the margin.

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Speaker 1: You know, certainly the inflation data this week was weaker

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Speaker 1: than we anticipated. I think it does help our call

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Speaker 1: for the Fed to move rates by fifty basis points

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Speaker 1: at this Timber meeting. And it's just really a question

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Speaker 1: of do we see these downside Mrs Persisting. I think

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Speaker 1: given the trim mean data, we continue to see inflation

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Speaker 1: over the coming months. That is well ahead of the

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Speaker 1: FED objective, which means that the markets pricing of the

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Speaker 1: terminaire is probably too low with the at this point.

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Speaker 1: So where are some of the inflationary pressures coming from.

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Speaker 1: We've been talking about food or rising at the fastest

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Speaker 1: pace since since nineteen seventy nine. We've been talking about

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Speaker 1: rent on a terror, We've been talking about medical costs.

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Speaker 1: How sticky are these particular elements as we see energy

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Speaker 1: prices really cool off as well as some of the

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Speaker 1: other issues with respect two goods, Yeah, I think the

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Speaker 1: ones you mentioned are the ones that tend to be sticky,

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Speaker 1: especially rent and O E R. And you know, those

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Speaker 1: are the ones when you look at the minutes over

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Speaker 1: the past year or FED officials comments, those are the

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Speaker 1: ones that they're concerned about because they're they're sick, sticky,

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Speaker 1: they're persistent. Uh. And also FED research shows that as

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Speaker 1: they tighten monetary policy, UH, it kind of pushes down

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Speaker 1: housing affordability, pushes people away from hone membership into renting,

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Speaker 1: and push up rental prices for a period of time.

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Speaker 1: The other point that I would I would note, and

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Speaker 1: particularly for the p P I this morning, is healthcare

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Speaker 1: Inflation is likely to be rising, possibly substantially for the

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Speaker 1: PC healthcare healthcare gage over the next year, and that's

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Speaker 1: simply a function of underlying wage pressures that we're seeing

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Speaker 1: in in the hospital and healthcare sector. We think that

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Speaker 1: adds about fifty basis points to core PC over the

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Speaker 1: next year. So that is an important inflationary impulse for

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Speaker 1: the FED that is upcoming and we haven't actually seen yet,

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Speaker 1: which is why we continue to hear FED officials even

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Speaker 1: after the CPI saying, look, our job isn't done. We

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Speaker 1: still have a long way to go to get inflation

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Speaker 1: down to target. But Matt it raises the question of

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Speaker 1: how high the bar is, meaning how high a rate

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Speaker 1: of inflation are they ultimately going to be willing to tolerate.

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Speaker 1: Is three or four percent going to be the new

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Speaker 1: two percent? Do we have to make that adjustment? You know,

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Speaker 1: I think we heard some strong comments from Governor Waller

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Speaker 1: before the last FMC meaning on that point. You know,

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Speaker 1: it was noted that a prior months we had point

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Speaker 1: three percent type core PC prints and he was asked of,

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Speaker 1: you know, if that was sufficient, and what he said

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Speaker 1: is that that annuallyzes to about four percent. That is

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Speaker 1: more than double our objective, and it's nowhere near um

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Speaker 1: you know where we need to be. You can say

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Speaker 1: the same thing about yesterday's course cp I print, you know,

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Speaker 1: annualizes almost four So I think until you really see

429
00:23:14,440 --> 00:23:17,159
Speaker 1: strong evidence that inflation is coming down, we continue to

430
00:23:17,200 --> 00:23:19,280
Speaker 1: hear Hawker's comments from the Fed because they need to

431
00:23:19,320 --> 00:23:23,000
Speaker 1: have credibility to keep inflation expectations in check and in

432
00:23:23,080 --> 00:23:25,440
Speaker 1: order to have I think hope of getting inflation pressures

433
00:23:25,440 --> 00:23:29,440
Speaker 1: back down to target over time. And as we say

434
00:23:29,480 --> 00:23:33,600
Speaker 1: over time, over what time period do you think is realistic? Ultimately,

435
00:23:33,640 --> 00:23:36,040
Speaker 1: when we get into the start of when this market

436
00:23:36,080 --> 00:23:37,520
Speaker 1: is betting that the Fed is going to be able

437
00:23:37,680 --> 00:23:39,600
Speaker 1: to cut rates a couple of months later, what rate

438
00:23:39,600 --> 00:23:41,480
Speaker 1: of inflation do you think we will be seen then?

439
00:23:43,040 --> 00:23:44,840
Speaker 1: I don't think anywhere near the rate of inflation that

440
00:23:44,880 --> 00:23:46,280
Speaker 1: the Fed would need to see the cut rates at

441
00:23:46,320 --> 00:23:49,240
Speaker 1: that point unless the labor market has really deteriorate and

442
00:23:49,280 --> 00:23:52,440
Speaker 1: the unemployment rate has has risen substantially. If you look

443
00:23:52,480 --> 00:23:54,359
Speaker 1: at policy rules, you know, any of the ones that

444
00:23:54,400 --> 00:23:55,879
Speaker 1: the Fed would look at, none of them would call

445
00:23:55,920 --> 00:23:59,920
Speaker 1: for rate cuts early next year unless inflation were really

446
00:24:00,040 --> 00:24:02,680
Speaker 1: coming down. We're expecting you still have core PC above

447
00:24:02,720 --> 00:24:04,760
Speaker 1: four percent early next year. We think it ends this

448
00:24:04,800 --> 00:24:07,000
Speaker 1: year around four and a half percent, and so that's

449
00:24:07,000 --> 00:24:10,120
Speaker 1: still double the Fed's objective in the year over year terms,

450
00:24:10,119 --> 00:24:13,200
Speaker 1: and just very clearly that's not anywhere near the level

451
00:24:13,200 --> 00:24:15,800
Speaker 1: that the FED would cut rates. Now you're reading my mind,

452
00:24:15,920 --> 00:24:17,639
Speaker 1: that's right where I wanted to go, and actually just

453
00:24:17,680 --> 00:24:21,480
Speaker 1: brought up the chart. The fact is four percent inflation

454
00:24:22,200 --> 00:24:26,760
Speaker 1: we can enjoy, we can enjoy nine seventy and of

455
00:24:26,760 --> 00:24:29,520
Speaker 1: course a massive volatility coming out of World War two

456
00:24:29,920 --> 00:24:32,800
Speaker 1: and into Korea. Mat was that the fact as America

457
00:24:32,880 --> 00:24:40,359
Speaker 1: has survived four percent inflation before, will we do it now? Absolutely?

458
00:24:40,640 --> 00:24:43,760
Speaker 1: I think we will see the FED, uh, you know,

459
00:24:43,800 --> 00:24:47,000
Speaker 1: achieve their objective over time. We're confident that the FED

460
00:24:47,040 --> 00:24:50,560
Speaker 1: will do what is necessary in order to tame inflation

461
00:24:50,640 --> 00:24:53,040
Speaker 1: pressures ensure that we don't have a repeat of the

462
00:24:53,119 --> 00:24:57,160
Speaker 1: nineteen seventies. Um. President cash cars comments yesterday. I think

463
00:24:57,160 --> 00:25:00,200
Speaker 1: we're very clear about that. Um. The key QUI and

464
00:25:00,280 --> 00:25:02,960
Speaker 1: I think, and it's the ongoing macro debate, is how

465
00:25:03,040 --> 00:25:05,480
Speaker 1: much pain will that require in the labor market And

466
00:25:05,480 --> 00:25:08,440
Speaker 1: from a growth perspective, we can we continue to think

467
00:25:08,480 --> 00:25:10,879
Speaker 1: that it will mean that the unemployment rate needs to rise,

468
00:25:11,160 --> 00:25:15,400
Speaker 1: and I think the recent wage data, Uh, certainly the

469
00:25:15,280 --> 00:25:19,280
Speaker 1: is the interview outcome here, Matt Lozetti that David focus

470
00:25:19,359 --> 00:25:21,560
Speaker 1: Landau believes in the Phillips curve. It mean is that

471
00:25:21,600 --> 00:25:25,439
Speaker 1: what we're saying. I think when you look at what

472
00:25:25,600 --> 00:25:28,560
Speaker 1: is driving inflation pressure today, there's no doubt an important

473
00:25:28,560 --> 00:25:31,879
Speaker 1: supply side component. It's in autos, it has been an energy,

474
00:25:32,119 --> 00:25:35,000
Speaker 1: but there's also a very important demand side components um

475
00:25:35,080 --> 00:25:36,840
Speaker 1: and that is the component that the FED needs to

476
00:25:36,880 --> 00:25:39,960
Speaker 1: act on. It tends to be in services shelter inflation

477
00:25:40,000 --> 00:25:43,160
Speaker 1: in particular. And the Phillips curve we think will work

478
00:25:43,840 --> 00:25:46,800
Speaker 1: in terms of getting impression down. It was flat pre COVID.

479
00:25:46,800 --> 00:25:49,040
Speaker 1: There is some evidence that is steeping now. Matt Losotti,

480
00:25:49,200 --> 00:25:50,919
Speaker 1: thank you for the brief as well. Lisa, did you

481
00:25:50,920 --> 00:25:53,200
Speaker 1: think you did well? They're dodging that question. I think

482
00:26:01,800 --> 00:26:05,040
Speaker 1: we digress right now and do what is unusual because

483
00:26:05,040 --> 00:26:10,119
Speaker 1: the stereotype and conceit is American investors, American tourists bombarding

484
00:26:10,160 --> 00:26:14,159
Speaker 1: Europe as we're seeing this year. Andrea Bonamy is a

485
00:26:14,160 --> 00:26:17,080
Speaker 1: founder of invest Industrial and he is someone who believes

486
00:26:17,200 --> 00:26:19,960
Speaker 1: in investing in America. He's done this in any number

487
00:26:20,400 --> 00:26:23,240
Speaker 1: at forms. And what I would say is, and he's

488
00:26:23,280 --> 00:26:27,040
Speaker 1: done this beautifully here He's invested in Ducatti Matthew Miller

489
00:26:27,080 --> 00:26:29,879
Speaker 1: of course, with a nodding acquaintance with that. And what

490
00:26:30,080 --> 00:26:34,280
Speaker 1: is so great about Ducatti Andrea is it's right next

491
00:26:34,280 --> 00:26:36,440
Speaker 1: to one of the best Italian restaurants in New York,

492
00:26:36,440 --> 00:26:39,399
Speaker 1: Altre Paradiso. I love how you put that together. A

493
00:26:39,440 --> 00:26:44,320
Speaker 1: great Italian restaurant next to dacatign but but but design.

494
00:26:44,400 --> 00:26:46,400
Speaker 1: But trust me, it works out. I've done it too

495
00:26:46,400 --> 00:26:49,399
Speaker 1: many at times. I want you to tell us with

496
00:26:49,480 --> 00:26:53,119
Speaker 1: the transactions you did today, and they're smaller and they

497
00:26:53,160 --> 00:26:54,920
Speaker 1: have to do with this, that and the other thing

498
00:26:54,960 --> 00:27:00,760
Speaker 1: in food. Your belief from Italy in American invest describe

499
00:27:00,800 --> 00:27:04,080
Speaker 1: that absolutely. Um, what if you look at the United

500
00:27:04,119 --> 00:27:07,080
Speaker 1: States for success re Italian companies is the single biggest market,

501
00:27:07,160 --> 00:27:10,400
Speaker 1: It's the single biggest growth market. We have about eight

502
00:27:10,400 --> 00:27:14,520
Speaker 1: thousand employees across across the group, and the United States

503
00:27:14,520 --> 00:27:17,919
Speaker 1: will remain important for US. So I think there is

504
00:27:17,960 --> 00:27:22,159
Speaker 1: no difference whether one looks at political or exchange rate issues.

505
00:27:22,400 --> 00:27:24,639
Speaker 1: In the medium term, the US will remain a very

506
00:27:24,640 --> 00:27:28,600
Speaker 1: important market for successful Italian companies. You do something like confections,

507
00:27:28,600 --> 00:27:31,080
Speaker 1: where you're making little chocolates, say I can't afford, but

508
00:27:31,119 --> 00:27:33,000
Speaker 1: they're all over my house. I get you know, I

509
00:27:33,040 --> 00:27:36,119
Speaker 1: get the I get the drill. But what it's about

510
00:27:36,320 --> 00:27:40,000
Speaker 1: is a technology conceit of America. We think we do

511
00:27:40,080 --> 00:27:44,640
Speaker 1: technology better than Italy, better than continental Europe. Do we

512
00:27:45,560 --> 00:27:48,240
Speaker 1: You do technology better, but we do industry better, and

513
00:27:48,280 --> 00:27:51,240
Speaker 1: we do brands better. So I think Italy is a

514
00:27:51,280 --> 00:27:56,520
Speaker 1: single largest industrial producer in Europe after Germany. And our

515
00:27:56,560 --> 00:28:00,080
Speaker 1: strength will come through and UH and under growth in

516
00:28:00,080 --> 00:28:03,959
Speaker 1: the other states. Will Will Will will support us on that. Andrea,

517
00:28:03,960 --> 00:28:06,399
Speaker 1: I'd like to get to the Italian economy, which has

518
00:28:06,400 --> 00:28:09,040
Speaker 1: been really a pinpoint, a pivot point for a lot

519
00:28:09,080 --> 00:28:12,399
Speaker 1: of discussion. But before we do the conviction to buy,

520
00:28:12,520 --> 00:28:15,320
Speaker 1: the conviction to make a deal. Right now, as people

521
00:28:15,400 --> 00:28:19,320
Speaker 1: talk about record uncertainty and you see money cash piling

522
00:28:19,400 --> 00:28:22,320
Speaker 1: up on venture capital funds at a record pace, where

523
00:28:22,320 --> 00:28:25,720
Speaker 1: do you get that conviction? You get a conviction because

524
00:28:25,760 --> 00:28:28,919
Speaker 1: probat equity is supposed to invest in moments like like this.

525
00:28:29,119 --> 00:28:32,439
Speaker 1: Our our usefulness to the world is to provide liquidity

526
00:28:32,480 --> 00:28:35,920
Speaker 1: when other people are are are scared or or are

527
00:28:35,960 --> 00:28:38,719
Speaker 1: pulling back, and usually people pull back when they're when

528
00:28:38,760 --> 00:28:41,600
Speaker 1: you're supposed to invest. So this, uh, this investment that

529
00:28:41,640 --> 00:28:43,760
Speaker 1: we've just done in the other States, which is about

530
00:28:43,760 --> 00:28:46,120
Speaker 1: two and a half billion of sales to our food

531
00:28:46,880 --> 00:28:50,280
Speaker 1: build up um is important and you can do it

532
00:28:50,360 --> 00:28:53,640
Speaker 1: because there are moments like this where supply chain issues,

533
00:28:53,720 --> 00:28:58,280
Speaker 1: exchange issues, s G issues, wars, et cetera, are are

534
00:28:58,360 --> 00:29:00,840
Speaker 1: are impacting the market, and this is the moment where

535
00:29:00,880 --> 00:29:04,280
Speaker 1: you're supposed to continue investing, not pulling back. Andrea's it's

536
00:29:04,320 --> 00:29:06,520
Speaker 1: safer for you to invest in the United States right

537
00:29:06,520 --> 00:29:09,880
Speaker 1: now than the euroregion based on the tightening plan that

538
00:29:09,960 --> 00:29:13,320
Speaker 1: holds more uncertainty. They're based on the state of the economy,

539
00:29:13,400 --> 00:29:16,360
Speaker 1: based on gas prices, based on what we hear about,

540
00:29:16,400 --> 00:29:21,320
Speaker 1: which is fragmentation of the euro project. In the short term, yes,

541
00:29:21,400 --> 00:29:24,120
Speaker 1: in the medium term, no, as prices in Europe are

542
00:29:24,160 --> 00:29:27,280
Speaker 1: are becoming very good right now. So we will continue

543
00:29:27,360 --> 00:29:33,120
Speaker 1: both both tracks, Okay, Andreas, So that's where regionally you're investing.

544
00:29:33,280 --> 00:29:36,560
Speaker 1: Let's talk about company specific the kinds of companies you're

545
00:29:36,560 --> 00:29:39,520
Speaker 1: putting money into. Your making food related deals at a

546
00:29:39,600 --> 00:29:43,080
Speaker 1: time of very high inflation pressure for some of these companies.

547
00:29:43,120 --> 00:29:47,320
Speaker 1: How do you navigate that challenge? Absolutely? So, right now

548
00:29:47,360 --> 00:29:50,840
Speaker 1: you've got raw material price inflation, you've got problems with

549
00:29:50,880 --> 00:29:55,600
Speaker 1: supply chain, you've got an an on shoring off off

550
00:29:56,080 --> 00:29:59,360
Speaker 1: off if you want sourcing. So there are tons of

551
00:29:59,400 --> 00:30:01,680
Speaker 1: issues right now in the food industry. But if you

552
00:30:01,720 --> 00:30:04,680
Speaker 1: look in the medium term, food is the biggest challenge

553
00:30:04,720 --> 00:30:07,720
Speaker 1: we have on the global economy today. Security of food,

554
00:30:07,800 --> 00:30:11,360
Speaker 1: safety of food, quality of food, quality of ingredients. So

555
00:30:11,400 --> 00:30:14,120
Speaker 1: we're doing these two major build ups, one in the

556
00:30:14,240 --> 00:30:16,760
Speaker 1: ingredients side where we have reached about a billion in sales,

557
00:30:17,000 --> 00:30:19,920
Speaker 1: and one which is three enough billion, which is our

558
00:30:20,080 --> 00:30:23,360
Speaker 1: our our our private label. One of the both deals

559
00:30:23,440 --> 00:30:26,120
Speaker 1: today are on those two two ends of the market.

560
00:30:26,400 --> 00:30:29,760
Speaker 1: And this will will are spot on where the world

561
00:30:29,840 --> 00:30:32,479
Speaker 1: is going. So it you'll see major changes in your

562
00:30:32,600 --> 00:30:37,200
Speaker 1: in food and food will become a central issue also

563
00:30:37,280 --> 00:30:39,880
Speaker 1: because of the droughts, et cetera. It will be it

564
00:30:39,920 --> 00:30:41,960
Speaker 1: will be you mentioned technology before, it would be as

565
00:30:42,000 --> 00:30:44,240
Speaker 1: biggest technology. I think, Andrea, I've got to talk to

566
00:30:44,280 --> 00:30:46,520
Speaker 1: you about what matters, and what matters is you know.

567
00:30:46,560 --> 00:30:48,720
Speaker 1: I looked for your letter to me on the Taylor

568
00:30:48,800 --> 00:30:53,240
Speaker 1: swift graduation at your New York University is well, this

569
00:30:53,400 --> 00:30:56,840
Speaker 1: was a huge deal in Manhattan. And I think what

570
00:30:57,000 --> 00:31:01,240
Speaker 1: was really missed about MS Swift speak cant Yankee Stadium

571
00:31:01,280 --> 00:31:04,240
Speaker 1: to your n y U was this is a kid

572
00:31:04,240 --> 00:31:08,000
Speaker 1: who never went to college. She did high school and literally,

573
00:31:08,040 --> 00:31:11,680
Speaker 1: because of her claim, worked out at airport terminals. Is

574
00:31:11,760 --> 00:31:14,760
Speaker 1: she studied? What was it like having a kid that

575
00:31:14,960 --> 00:31:17,960
Speaker 1: never did that show up at n y U. Well,

576
00:31:18,000 --> 00:31:19,960
Speaker 1: I'm only a board member. And where you both end

577
00:31:19,960 --> 00:31:24,960
Speaker 1: where you I didn't, and what you is is a

578
00:31:25,080 --> 00:31:27,280
Speaker 1: university which was born out of this city. And this

579
00:31:27,360 --> 00:31:30,400
Speaker 1: city is is a city which gives opportunity to everybody.

580
00:31:30,640 --> 00:31:33,720
Speaker 1: And it goes to your questions about also the United States.

581
00:31:33,960 --> 00:31:36,880
Speaker 1: The United States is a place where you can have opportunity.

582
00:31:36,920 --> 00:31:39,440
Speaker 1: And that's and that's what then what he was there for,

583
00:31:39,560 --> 00:31:41,800
Speaker 1: and that's what what I think. I gotta make some

584
00:31:41,880 --> 00:31:44,200
Speaker 1: news here. I got the editor chiefess emailed me and

585
00:31:44,240 --> 00:31:46,920
Speaker 1: this is this is boring. Make some news. How do

586
00:31:46,960 --> 00:31:49,000
Speaker 1: you top Taylor Swift at n y U. Are you

587
00:31:49,080 --> 00:31:51,640
Speaker 1: gonna have Mario Draggy speak at n YU next year?

588
00:31:51,760 --> 00:31:54,200
Speaker 1: I don't think Mario Dragon will get We'll get the

589
00:31:54,200 --> 00:31:59,280
Speaker 1: same reception, not even, but I mean digging a hole

590
00:31:59,360 --> 00:32:04,000
Speaker 1: for himself. He's exactly, he's a he's a good manager.

591
00:32:04,040 --> 00:32:05,840
Speaker 1: But then they'll I don't think that'll that will be,

592
00:32:05,920 --> 00:32:08,200
Speaker 1: that will be, That's gonna be across all of the

593
00:32:08,200 --> 00:32:11,680
Speaker 1: Italian newspapers tomorrow, Andrea. But I mean, thank you so

594
00:32:11,800 --> 00:32:15,320
Speaker 1: much with invest Industrial digging himself a hole of the

595
00:32:15,400 --> 00:32:19,960
Speaker 1: Italian press. This is the Bloomberg Surveillance Podcast. Thanks for listening.

596
00:32:20,280 --> 00:32:23,640
Speaker 1: Join us live weekdays from seven to ten am Eastern

597
00:32:23,880 --> 00:32:27,960
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

598
00:32:27,960 --> 00:32:33,240
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

599
00:32:33,400 --> 00:32:38,400
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

600
00:32:38,480 --> 00:32:42,320
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

601
00:32:42,400 --> 00:32:46,560
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg