Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. This is really important.
Speaker 1: Now we're gonna jump to the equity markets here with
Speaker 1: Katie Kaminski. She's chief research strategist at Alpha Simplex. And
Speaker 1: what's so important is you can't pronounce her focus at
Speaker 1: the Massachusetts Institute of Technology stochastic processes, stopping rules, and
Speaker 1: investment heuristics. I've aged saying that Katie joins us now
Speaker 1: with an encyclopedic knowledge of math and trend Katie, your
Speaker 1: your work with Andrew Lowe and all the others around
Speaker 1: trend based analogy, says leads us to one single question.
Speaker 1: Have we broken the bear market trend? That's a really
Speaker 1: good question because what we have seen lately, which I
Speaker 1: think is the most interesting from a technical perspective, is
Speaker 1: that we've seen signals really dissipate in the last two
Speaker 1: to three months, and so it really feels like an
Speaker 1: you know, an inflection point. Right now for us, we're
Speaker 1: still seeing sort of a net short but it's very weak. UM.
Speaker 1: That kind of indicates that we could go either direction
Speaker 1: depending on what occurs, and I think yesterday I just
Speaker 1: kind of showed that we might be going in a
Speaker 1: better direction than people have thoughts. Katy want to go
Speaker 1: inside baseball to Monroe Trout and asking tell Paul Wilmot
Speaker 1: and the others from years ago, mostly out of Imperial College.
Speaker 1: The raging debate is their value to volume analysis? Do
Speaker 1: you study volume? I don't. So volume is a good
Speaker 1: indicator to understand whether or not you can trade a
Speaker 1: market and whether or not you're sizing is appropriate, but
Speaker 1: unfortunately a lot of indicators of volume have been difficult
Speaker 1: to document empirically UM as predictive UM. There may be
Speaker 1: exceptions to this, but I think volume is still a
Speaker 1: key metric because it really tells you something about whether
Speaker 1: or not the trade ability of individual markets is there
Speaker 1: UM and that's how we tend to think about it.
Speaker 1: As you know, futures quants, Katie. Liza McCormick of Bloomberg
Speaker 1: News wrote a story about a paper that you wrote
Speaker 1: about how pigs flew at least in your world because
Speaker 1: you shorted bonds and you were able to deliver return
Speaker 1: or more in the beginning of this year, the first
Speaker 1: half of this year, have you closed that trade out?
Speaker 1: Are you still trying to short bonds here? Especially after
Speaker 1: the rally. So that's a good question because what we
Speaker 1: saw in June was a big spike involved we saw
Speaker 1: cross correlation spiking as well, so signals and bonds have
Speaker 1: actually dissipated. UM. The reason we wrote this paper is
Speaker 1: that we really wanted to clarify that shorting bonds is
Speaker 1: not a fluke if we continue you to see rising rates.
Speaker 1: That in fact, when you think about a rising rate environment,
Speaker 1: you're going to have to consider the shape of the
Speaker 1: curve and whether or not there may be some tactical
Speaker 1: short signals and bonds that could potentially work. And I
Speaker 1: think this is particularly pertinent right now as we're moving
Speaker 1: from an inversion towards a slightly steeper curve. Right now,
Speaker 1: as we're seeing that could be an indication that things
Speaker 1: are getting better. UM, as long as we see that persist. Well, Katie,
Speaker 1: you say, in a rising rate environment and what we're
Speaker 1: hearing from the Federal Reserve is Yes, rates are going
Speaker 1: to keep rising. We are going to keep hiking into
Speaker 1: next year because inflation is nowhere near where we'd like
Speaker 1: to see it. So how wrong is the market now?
Speaker 1: So I think the market is a little optimistic because
Speaker 1: I think, you know, it's always good to have a
Speaker 1: good number, to have a good print, to have something
Speaker 1: that brings your averages down. But most of us in
Speaker 1: the futures markets, we've already seen those moves and energies.
Speaker 1: We were kind of expecting this already. So I'd say
Speaker 1: that it's a little bit as would expected, slightly better.
Speaker 1: But what that means is that there may be a
Speaker 1: little bit of optimism over the first data point that
Speaker 1: confirms what people really want, which is things to go
Speaker 1: back to normal, and the sixty, as Lisa put it,
Speaker 1: to just be back into you know, a good place,
Speaker 1: which is basically what most people are used to. Katie.
Speaker 1: One final question. A lot of people are looking at
Speaker 1: moving averages and their eyes are glazing over. I'm a
Speaker 1: huge disbeliever in bologny like the death cross, and that
Speaker 1: can you use moving averages right now to figure out
Speaker 1: if this is a breaking of the bear market trend.
Speaker 1: So if you do use moving asages right now, I'll
Speaker 1: tell you that your signals are going to be very mixed. Um,
Speaker 1: you're gonna have a lot of indications that things look
Speaker 1: better on the shorter end, and you're gonna have a
Speaker 1: lot of indications that they don't look good and then
Speaker 1: meet into long term. So I'd say that it's really
Speaker 1: really unclear, and the only thing we can say is
Speaker 1: a quant right now is that there is very little
Speaker 1: signal and there's room to move in a new direction.
Speaker 1: That was a very safe answered Stie Kimisky channeling George Kleinman.
Speaker 1: There and what are known as climb and exponential moving averages.
Speaker 1: You killed at Katie, don't be a stranger, Kati Kaminsky
Speaker 1: with alpha simplexy. Right now, we're just trying to understand
Speaker 1: how much conviction this rally does have. Jim Pulson said
Speaker 1: he thinks he has conviction, which gives a lot of
Speaker 1: conviction to the conviction Chief Invested Strategies at the Luthhole Group. Jim,
Speaker 1: you've been bullish, You've been then a little bit pulling back,
Speaker 1: and now all of a sudden the melt up has begun.
Speaker 1: Something a little bit more concrete. Do you buy into
Speaker 1: this or do you see this as a head fake.
Speaker 1: I'm on to buy into it side, Lisa, I think
Speaker 1: that a couple of things for me. I think it's
Speaker 1: at the forefront, you know, talk about the feed a minute.
Speaker 1: I think the case for additional FED tightening is rapidly dissipating.
Speaker 1: I mean, we've we've brought a real GDP growth down
Speaker 1: to a crawl um overall um. I think there's still
Speaker 1: downside moment month growth as we go through the balance
Speaker 1: this year. The past tightened policies of money growth slowing,
Speaker 1: fiscal growth slowing, dollar rising, yields rising is likely to
Speaker 1: keep real growth sluggish. On top of that, the inflation
Speaker 1: evidence just continues to get more and more pronounced. I
Speaker 1: don't know how long it will take to come down,
Speaker 1: but clearly the momentum is down on inflation. I think
Speaker 1: by September we're going to see the FED case for
Speaker 1: why keep hiking kind of dissipated a little bit. And
Speaker 1: this is you know, I mean, I don't mean to interrupt,
Speaker 1: I'm just thinking about what you're saying, and that we
Speaker 1: are seeing increasing evidence that inflation is coming down. The
Speaker 1: pushback I'm sure that you hear and you're going to
Speaker 1: hear it A lot is not when it comes to rent,
Speaker 1: not when it comes to food, not when it comes
Speaker 1: to medical costs, not when it comes to how much
Speaker 1: you're paying for services. So, yes, you are seeing disinflation
Speaker 1: in some areas, but it's not as broad as money
Speaker 1: people would like to see. What gives you conviction that
Speaker 1: we're seeing the beginning of something that is going to
Speaker 1: broaden out later this year into next, Well, I think
Speaker 1: that having real economic growth, you know, zero to two
Speaker 1: percent as a as a a big part of it.
Speaker 1: Having the past economic policies that they have lags and
Speaker 1: they're going to continue to be a negative downward force.
Speaker 1: The reason inflation peaked in the March April May period
Speaker 1: was because a year earlier, fiscal growth peaked, monetary growth peak,
Speaker 1: dollars started to rise, yield started to go up. That
Speaker 1: is about a one year lag policy has on the
Speaker 1: economy and inflation, and that lag is going to continue
Speaker 1: to be negative going forward. Also, you know, you can
Speaker 1: always pick parts of the inflation center that are still hot,
Speaker 1: but there's a lot of parts that aren't. You know,
Speaker 1: the inflationary thrust of commodities, which was driving this at
Speaker 1: the leading edge, is now a deflationary thrust overall. You know,
Speaker 1: the core rates of c P, I P P I
Speaker 1: PC have now all decelerated year on year. In the
Speaker 1: last three to four months, UH annual wage inflation was
Speaker 1: six and a half percent on a six month basis
Speaker 1: the end of the year. It's now four point seven
Speaker 1: percent or four point three on one of those that
Speaker 1: can't remember. But it's a big desceleration a year to date.
Speaker 1: So I think I think the debate on inflation has peaked.
Speaker 1: I think that's over and now it's a debate on
Speaker 1: how fast it comes down. And I'm just saying, you know,
Speaker 1: by September meeting, we're gonna get more claim numbers that
Speaker 1: probably will show a little more weakness, and um, I
Speaker 1: think the case is going to start to go away.
Speaker 1: But beyond that, this is really why I'm more bullish.
Speaker 1: I don't really care what the FED is gonna do,
Speaker 1: because the FED isn't driving this ship. If I look
Speaker 1: at what's happening, We're already into a brand new easing
Speaker 1: cycle right now. Bawn spawn yields from two years to
Speaker 1: thirty years have already started to ease. The dollars rolled over.
Speaker 1: It's already started to ease. Junk spreads have gone from
Speaker 1: over six to under five. They've started to ease. Real
Speaker 1: money growth at minus three point it can't go much lower.
Speaker 1: I think it's gonna start to improved because inflation comes
Speaker 1: down and fiscal growth has already started to go back
Speaker 1: to easing. So do you want to miss an easing cycle, Jim,
Speaker 1: I totally hear you. Yet at the same time, I
Speaker 1: also hear Federal Reserve officials like Neil Kashkari saying we
Speaker 1: are nowhere near done. We still have so much tightening
Speaker 1: left to do because inflation is still very far from
Speaker 1: our target, even if yes, it is moderating. Clearly you
Speaker 1: are in that camp. But as you talk about all
Speaker 1: of these things that are changing, financial conditions that are easing,
Speaker 1: and the FED not being in control, does that not
Speaker 1: mean they are going to be even more aggressive to
Speaker 1: get that control back. Well. I think it's interesting how
Speaker 1: much attention we devote to the FED because the Fed's
Speaker 1: been behind the curve the whole time. Fortunately, inflation is
Speaker 1: coming down today, not because the FED lifted the funds
Speaker 1: rate for the first time. In February this year because
Speaker 1: monetary growth, fiscal growth, dollar growth, yield growth, we're tightening
Speaker 1: all last year and that's what's bringing the slower economy
Speaker 1: and slower inflation. So now why the Fed still behind
Speaker 1: the curve but all the markets are going on the
Speaker 1: other way and starting to ease. So why should we
Speaker 1: continue to give so much dominance to the Federal Reserve? Jim?
Speaker 1: We had Kati Kaminsky on from m i t here earlier,
Speaker 1: and it sprawls out to your Iowa state. With the
Speaker 1: rigor of mathematics and the rigger of trend, the rigger
Speaker 1: of a time series being all, when we look at
Speaker 1: the equity markets, how do we move from what's an
Speaker 1: obvious short squeeze futures up twenty one DAR, futures up
Speaker 1: two days in a row, to a constructive bullmarket trend?
Speaker 1: How do you transition from an obvious short squeeze out
Speaker 1: to a durable trend. Yeah, I that's a good point time,
Speaker 1: you know. Eventually to keep this going, well, we'll have
Speaker 1: to decide that we're not going to resiss. So that
Speaker 1: that to me is almost becoming the bigger issue that
Speaker 1: inflation right now is are we going to resss soon.
Speaker 1: If we're not going to resiss, then I think that
Speaker 1: gives you a fundamental undertow to your sent to your
Speaker 1: point of giving sustainability in the short term, though, we're
Speaker 1: dealing with a lot of bears in the sidelines, a
Speaker 1: lot of sellers that have come out, and and we're
Speaker 1: dealing with some technical levels that are right there in
Speaker 1: front of us right now. Two And if you break
Speaker 1: through some of those, then you're going to see a
Speaker 1: lot of the technicians that have been bearish changed tune,
Speaker 1: and that could bring some buying in that could sustain
Speaker 1: could sustain this for a while. So it's if we
Speaker 1: fail it, you know, then we probably have some downside
Speaker 1: because it's probably ahead of itself. But if we break
Speaker 1: through that, then I think you could convert some bears
Speaker 1: and bring some sustainability for a period. Jim Pauson, brilliant, Louisville.
Speaker 1: Thank you so much, greatly, greatly appreciate this. This is
Speaker 1: what we like to do. We are driven by the
Speaker 1: research of our guests, and when someone writes a piercing note,
Speaker 1: we say, Michael Purvis of Tall Back, and we don't
Speaker 1: care that you're living large in Spain. We need to
Speaker 1: speak to you in the Spanish afternoon of a four
Speaker 1: pm with a sangria or a martini by a side.
Speaker 1: Michael Purvis joins us on optimism on the market. Michael,
Speaker 1: I would predict every strategist, every market savant, has to
Speaker 1: come out this weekend and adjust. How did you adjust
Speaker 1: this morning? Well, look, I've I've been arguing that the
Speaker 1: recession um economic contraction was was really a pretty specultive
Speaker 1: argument that that was the argument had been made pretty substantially.
Speaker 1: And this in the last two weeks, we've had the
Speaker 1: most important economic data points, you know, the I s M,
Speaker 1: the services I M, the non farm payroll and then
Speaker 1: the inflation yesterday come in just the way you want
Speaker 1: them in terms of affirming that not necessarily in a
Speaker 1: high inflation, negative growth our contractionary condition there. So, um,
Speaker 1: what when you look at positioning tom um, and this
Speaker 1: is both treasury positioning and equity positioning, it is extremely
Speaker 1: barre from both on both sides there right, So the
Speaker 1: market is there's a vacuum there. And when you have
Speaker 1: those three important data points line up, you're looking at
Speaker 1: Q two earnings that have actually the beef on earning
Speaker 1: for both governors, and earnings were better than the Q
Speaker 1: one beats. You're looking at a situation where where the
Speaker 1: market is going to move higher. So I have a
Speaker 1: tactical call up another two hundred points to hundred and
Speaker 1: my year end call like adjusted to there. I'm not
Speaker 1: saying we're completely out of the woods, but I think
Speaker 1: the the the certainly for the near terms, the water
Speaker 1: is going to be hired out lower. Michael, how much
Speaker 1: is your conviction right now underpinned by this idea that
Speaker 1: we just heard from Jim Paulson, which is that we
Speaker 1: are at the beginning of an easing cycle, that inflation
Speaker 1: is rolling off much more quickly than the FETE is
Speaker 1: expecting that they're going to have to catch up with
Speaker 1: the market. Look, I think there's a you know, sort
Speaker 1: of looking at the R dollar features curve and looking
Speaker 1: at this, I think it's fifty basis points right now
Speaker 1: cuts next year. I think that's an aggressive assumption here.
Speaker 1: But from a from an how assets trade point of view,
Speaker 1: we see some stability where sort of peak hawkishness going
Speaker 1: from the speed pivot of just a year ago being
Speaker 1: categorically of us too now sort of categorically pawkish, right,
Speaker 1: that's one of the most aggressive pivots, and that policy
Speaker 1: you're going to have that asset prices disruptive and we've
Speaker 1: had that, right, So I think right now that that
Speaker 1: is in and so whether we get fifty basis point
Speaker 1: basis points or zero basis points and cuts and twenty three,
Speaker 1: I think as long as we can look at something
Speaker 1: that's resembling some sort of stability in the bob market,
Speaker 1: that's almost more important than than you know, uh, what
Speaker 1: the average uh expectations for your dollars Michael, how much
Speaker 1: do you take a look at this idea that you
Speaker 1: had the biggest increase in food prices going back to
Speaker 1: seventy nine, Rents are surging, You see areas in nondiscretionary
Speaker 1: spending that are crimping the average American household balance sheet,
Speaker 1: and that has yet to fully play out. How do
Speaker 1: you factor that into your bullish thesis. Well, that's a
Speaker 1: very good, very fair point, and I do think there's
Speaker 1: very strong arguments for a lot of components of inflation
Speaker 1: to state higher longer, right. But I think the question
Speaker 1: is is if the markets and the economy can sort
Speaker 1: of adjust to that, right, um, uh, they're just then
Speaker 1: I think the paces of that sort of inflationary surges
Speaker 1: are going to be very different than what we've seen
Speaker 1: over the last nine months. Right. It's it's really the
Speaker 1: surge in in in the velocity of these inflation prints
Speaker 1: that have really, uh, you know, disrupted the markets. If
Speaker 1: we get to a point where where you know, we
Speaker 1: never get down to two and we're sort of adjusting
Speaker 1: to a new normal because of uh, you know, reglobal deglobalization, relocalization,
Speaker 1: higher food prices, uh, energy supplied that never really fully expands,
Speaker 1: so that the well gets down to fifty bucks again,
Speaker 1: then I think you can look at a condition where
Speaker 1: where that those types of dynamics will play out in
Speaker 1: a much slower and basis and the economy can sort
Speaker 1: of adjustice that maybe the tenure doesn't go back to
Speaker 1: two percent, and maybe that it's through to four percent,
Speaker 1: but if it stays there, and then you can have
Speaker 1: the condition for risk assets to be supported. Is there
Speaker 1: going to be fundamental support though when we're thinking about earnings,
Speaker 1: because as we talk about these inflationary pressures, there has
Speaker 1: been a lot of warning on the more embarrassed end
Speaker 1: of the spectrum from Mike Wilson, for example, about margin
Speaker 1: pressure coming on and does I now look at an
Speaker 1: S and P five trading back at a multiple almost
Speaker 1: at nineteen on forward earnings, when are we going to
Speaker 1: start to maybe have a problem with that denominator? Yeah, well,
Speaker 1: the earnings question, you know, like earnings bottom estimates compiled
Speaker 1: by Bloomberg are off about six and a half percent
Speaker 1: from the beginning of the year. That's unusual. Usually they
Speaker 1: go down through the year there, and the Q two
Speaker 1: numbers have been generally pretty good. I think it's important
Speaker 1: to recognize that that if you have a high inflationary
Speaker 1: environment without an economic major economic contraction right meaning p
Speaker 1: M s and forties or thirties, right, you will have
Speaker 1: high earning strows. In the nineteen seventies, you didn't have
Speaker 1: a great real GDP condition. You have just had a
Speaker 1: lot of inflation, but earnings growth was literally twice as
Speaker 1: high in the nineteen seventies, and it was in the
Speaker 1: nineteen sixties with real GDP average like four point three
Speaker 1: to that decade there, And I think that's one of
Speaker 1: those things that high nomenal GDP can wash away and
Speaker 1: actually helped margins for many companies, right, and certainly the
Speaker 1: top line is inflated by revenues as well, so you're
Speaker 1: not seeing a lot of margins present the other stories
Speaker 1: the market. And again i'm talking about S and P
Speaker 1: five index level. Right. Obviously there's a lot of specific
Speaker 1: caspectors where there's a lot of vulnerability. But if you
Speaker 1: look at the income market that's being being expected by
Speaker 1: UH foreign estimates, that is that is um that is
Speaker 1: buters and and shown resilience. Michael, you know, we gotta
Speaker 1: leave it there. But on behalf of Kayleie, Lisa, me
Speaker 1: and John, I just gotta say, tomar una babida alexeion
Speaker 1: nailed it. Have a beverage of your choice, we say
Speaker 1: to Michael Purvis in Spain as he slips into the
Speaker 1: Spanish late afternoon a trooper to be with us right now.
Speaker 1: The record has speaking to it this time. Matthew Lozetti,
Speaker 1: his chief US economists at Deutsche Bank, and you know
Speaker 1: as well, for those that keep track, he was way
Speaker 1: out front and calling for some form of economic contraction
Speaker 1: in America. Met Zettie. With the data we've seen on jobs,
Speaker 1: with the data we've seen on inflation, CPI and P
Speaker 1: p I, can you and Peter Hooper reaffirm US recession? Sure? First,
Speaker 1: thanks so much for having me. I think it does
Speaker 1: reaffirm our view, which is that we're not in a
Speaker 1: near term recession in the economy. Certainly that the labor
Speaker 1: market data we saw last week, the jobless Clayton's data
Speaker 1: are are kind of edging higher but still at very
Speaker 1: low levels. A labor market that is very tight, I
Speaker 1: think I'll suggest that we're not heading into recession eminently. However,
Speaker 1: I think it does point to a labor market that
Speaker 1: is still tight, wage pressures that are still well above
Speaker 1: the what would be consistent with the FEDS objective, uh,
Speaker 1: you know, labor cost growth that is, you know, about
Speaker 1: five percent, and inflation pressures which yes, they are coming down,
Speaker 1: but I think are very far away from the FEDS objective.
Speaker 1: We saw trim mean cp I yesterday forty five basis
Speaker 1: points month on month, seven percent year on year, and
Speaker 1: so we would stick with our view that we still
Speaker 1: have a recession, that recession is likely next year, around
Speaker 1: the middle of next year, and it still remains one
Speaker 1: that is Fed induced, as as the FED continued to
Speaker 1: tighten monetary policy. But Matt do you actually expect this
Speaker 1: to be a less severe recession than you had perhaps
Speaker 1: a couple of months ago, based on this decline that
Speaker 1: we've seen both in cp I and p P I. Yeah,
Speaker 1: we we had as a baseline what I would call
Speaker 1: a moderate recession. We had the unemployment rate rising. You know,
Speaker 1: it doesn't seem like moderate, but but two percentage points
Speaker 1: uh and something that would be kind of akin to
Speaker 1: what we saw in their early nineteen nines, about a
Speaker 1: one percent decline in GDP. I think the key reasons
Speaker 1: for that were, One, you have private sector balance shees
Speaker 1: that are in good shape to kind of the cyclical
Speaker 1: sectors and housing and autos have been supply constrained. Um.
Speaker 1: And Three you know that that you did have monetary
Speaker 1: policy that you know would would ease next year um
Speaker 1: and and kind of help out I think on the margin.
Speaker 1: You know, certainly the inflation data this week was weaker
Speaker 1: than we anticipated. I think it does help our call
Speaker 1: for the Fed to move rates by fifty basis points
Speaker 1: at this Timber meeting. And it's just really a question
Speaker 1: of do we see these downside Mrs Persisting. I think
Speaker 1: given the trim mean data, we continue to see inflation
Speaker 1: over the coming months. That is well ahead of the
Speaker 1: FED objective, which means that the markets pricing of the
Speaker 1: terminaire is probably too low with the at this point.
Speaker 1: So where are some of the inflationary pressures coming from.
Speaker 1: We've been talking about food or rising at the fastest
Speaker 1: pace since since nineteen seventy nine. We've been talking about
Speaker 1: rent on a terror, We've been talking about medical costs.
Speaker 1: How sticky are these particular elements as we see energy
Speaker 1: prices really cool off as well as some of the
Speaker 1: other issues with respect two goods, Yeah, I think the
Speaker 1: ones you mentioned are the ones that tend to be sticky,
Speaker 1: especially rent and O E R. And you know, those
Speaker 1: are the ones when you look at the minutes over
Speaker 1: the past year or FED officials comments, those are the
Speaker 1: ones that they're concerned about because they're they're sick, sticky,
Speaker 1: they're persistent. Uh. And also FED research shows that as
Speaker 1: they tighten monetary policy, UH, it kind of pushes down
Speaker 1: housing affordability, pushes people away from hone membership into renting,
Speaker 1: and push up rental prices for a period of time.
Speaker 1: The other point that I would I would note, and
Speaker 1: particularly for the p P I this morning, is healthcare
Speaker 1: Inflation is likely to be rising, possibly substantially for the
Speaker 1: PC healthcare healthcare gage over the next year, and that's
Speaker 1: simply a function of underlying wage pressures that we're seeing
Speaker 1: in in the hospital and healthcare sector. We think that
Speaker 1: adds about fifty basis points to core PC over the
Speaker 1: next year. So that is an important inflationary impulse for
Speaker 1: the FED that is upcoming and we haven't actually seen yet,
Speaker 1: which is why we continue to hear FED officials even
Speaker 1: after the CPI saying, look, our job isn't done. We
Speaker 1: still have a long way to go to get inflation
Speaker 1: down to target. But Matt it raises the question of
Speaker 1: how high the bar is, meaning how high a rate
Speaker 1: of inflation are they ultimately going to be willing to tolerate.
Speaker 1: Is three or four percent going to be the new
Speaker 1: two percent? Do we have to make that adjustment? You know,
Speaker 1: I think we heard some strong comments from Governor Waller
Speaker 1: before the last FMC meaning on that point. You know,
Speaker 1: it was noted that a prior months we had point
Speaker 1: three percent type core PC prints and he was asked of,
Speaker 1: you know, if that was sufficient, and what he said
Speaker 1: is that that annuallyzes to about four percent. That is
Speaker 1: more than double our objective, and it's nowhere near um
Speaker 1: you know where we need to be. You can say
Speaker 1: the same thing about yesterday's course cp I print, you know,
Speaker 1: annualizes almost four So I think until you really see
Speaker 1: strong evidence that inflation is coming down, we continue to
Speaker 1: hear Hawker's comments from the Fed because they need to
Speaker 1: have credibility to keep inflation expectations in check and in
Speaker 1: order to have I think hope of getting inflation pressures
Speaker 1: back down to target over time. And as we say
Speaker 1: over time, over what time period do you think is realistic? Ultimately,
Speaker 1: when we get into the start of when this market
Speaker 1: is betting that the Fed is going to be able
Speaker 1: to cut rates a couple of months later, what rate
Speaker 1: of inflation do you think we will be seen then?
Speaker 1: I don't think anywhere near the rate of inflation that
Speaker 1: the Fed would need to see the cut rates at
Speaker 1: that point unless the labor market has really deteriorate and
Speaker 1: the unemployment rate has has risen substantially. If you look
Speaker 1: at policy rules, you know, any of the ones that
Speaker 1: the Fed would look at, none of them would call
Speaker 1: for rate cuts early next year unless inflation were really
Speaker 1: coming down. We're expecting you still have core PC above
Speaker 1: four percent early next year. We think it ends this
Speaker 1: year around four and a half percent, and so that's
Speaker 1: still double the Fed's objective in the year over year terms,
Speaker 1: and just very clearly that's not anywhere near the level
Speaker 1: that the FED would cut rates. Now you're reading my mind,
Speaker 1: that's right where I wanted to go, and actually just
Speaker 1: brought up the chart. The fact is four percent inflation
Speaker 1: we can enjoy, we can enjoy nine seventy and of
Speaker 1: course a massive volatility coming out of World War two
Speaker 1: and into Korea. Mat was that the fact as America
Speaker 1: has survived four percent inflation before, will we do it now? Absolutely?
Speaker 1: I think we will see the FED, uh, you know,
Speaker 1: achieve their objective over time. We're confident that the FED
Speaker 1: will do what is necessary in order to tame inflation
Speaker 1: pressures ensure that we don't have a repeat of the
Speaker 1: nineteen seventies. Um. President cash cars comments yesterday. I think
Speaker 1: we're very clear about that. Um. The key QUI and
Speaker 1: I think, and it's the ongoing macro debate, is how
Speaker 1: much pain will that require in the labor market And
Speaker 1: from a growth perspective, we can we continue to think
Speaker 1: that it will mean that the unemployment rate needs to rise,
Speaker 1: and I think the recent wage data, Uh, certainly the
Speaker 1: is the interview outcome here, Matt Lozetti that David focus
Speaker 1: Landau believes in the Phillips curve. It mean is that
Speaker 1: what we're saying. I think when you look at what
Speaker 1: is driving inflation pressure today, there's no doubt an important
Speaker 1: supply side component. It's in autos, it has been an energy,
Speaker 1: but there's also a very important demand side components um
Speaker 1: and that is the component that the FED needs to
Speaker 1: act on. It tends to be in services shelter inflation
Speaker 1: in particular. And the Phillips curve we think will work
Speaker 1: in terms of getting impression down. It was flat pre COVID.
Speaker 1: There is some evidence that is steeping now. Matt Losotti,
Speaker 1: thank you for the brief as well. Lisa, did you
Speaker 1: think you did well? They're dodging that question. I think
Speaker 1: we digress right now and do what is unusual because
Speaker 1: the stereotype and conceit is American investors, American tourists bombarding
Speaker 1: Europe as we're seeing this year. Andrea Bonamy is a
Speaker 1: founder of invest Industrial and he is someone who believes
Speaker 1: in investing in America. He's done this in any number
Speaker 1: at forms. And what I would say is, and he's
Speaker 1: done this beautifully here He's invested in Ducatti Matthew Miller
Speaker 1: of course, with a nodding acquaintance with that. And what
Speaker 1: is so great about Ducatti Andrea is it's right next
Speaker 1: to one of the best Italian restaurants in New York,
Speaker 1: Altre Paradiso. I love how you put that together. A
Speaker 1: great Italian restaurant next to dacatign but but but design.
Speaker 1: But trust me, it works out. I've done it too
Speaker 1: many at times. I want you to tell us with
Speaker 1: the transactions you did today, and they're smaller and they
Speaker 1: have to do with this, that and the other thing
Speaker 1: in food. Your belief from Italy in American invest describe
Speaker 1: that absolutely. Um, what if you look at the United
Speaker 1: States for success re Italian companies is the single biggest market,
Speaker 1: It's the single biggest growth market. We have about eight
Speaker 1: thousand employees across across the group, and the United States
Speaker 1: will remain important for US. So I think there is
Speaker 1: no difference whether one looks at political or exchange rate issues.
Speaker 1: In the medium term, the US will remain a very
Speaker 1: important market for successful Italian companies. You do something like confections,
Speaker 1: where you're making little chocolates, say I can't afford, but
Speaker 1: they're all over my house. I get you know, I
Speaker 1: get the I get the drill. But what it's about
Speaker 1: is a technology conceit of America. We think we do
Speaker 1: technology better than Italy, better than continental Europe. Do we
Speaker 1: You do technology better, but we do industry better, and
Speaker 1: we do brands better. So I think Italy is a
Speaker 1: single largest industrial producer in Europe after Germany. And our
Speaker 1: strength will come through and UH and under growth in
Speaker 1: the other states. Will Will Will will support us on that. Andrea,
Speaker 1: I'd like to get to the Italian economy, which has
Speaker 1: been really a pinpoint, a pivot point for a lot
Speaker 1: of discussion. But before we do the conviction to buy,
Speaker 1: the conviction to make a deal. Right now, as people
Speaker 1: talk about record uncertainty and you see money cash piling
Speaker 1: up on venture capital funds at a record pace, where
Speaker 1: do you get that conviction? You get a conviction because
Speaker 1: probat equity is supposed to invest in moments like like this.
Speaker 1: Our our usefulness to the world is to provide liquidity
Speaker 1: when other people are are are scared or or are
Speaker 1: pulling back, and usually people pull back when they're when
Speaker 1: you're supposed to invest. So this, uh, this investment that
Speaker 1: we've just done in the other States, which is about
Speaker 1: two and a half billion of sales to our food
Speaker 1: build up um is important and you can do it
Speaker 1: because there are moments like this where supply chain issues,
Speaker 1: exchange issues, s G issues, wars, et cetera, are are
Speaker 1: are impacting the market, and this is the moment where
Speaker 1: you're supposed to continue investing, not pulling back. Andrea's it's
Speaker 1: safer for you to invest in the United States right
Speaker 1: now than the euroregion based on the tightening plan that
Speaker 1: holds more uncertainty. They're based on the state of the economy,
Speaker 1: based on gas prices, based on what we hear about,
Speaker 1: which is fragmentation of the euro project. In the short term, yes,
Speaker 1: in the medium term, no, as prices in Europe are
Speaker 1: are becoming very good right now. So we will continue
Speaker 1: both both tracks, Okay, Andreas, So that's where regionally you're investing.
Speaker 1: Let's talk about company specific the kinds of companies you're
Speaker 1: putting money into. Your making food related deals at a
Speaker 1: time of very high inflation pressure for some of these companies.
Speaker 1: How do you navigate that challenge? Absolutely? So, right now
Speaker 1: you've got raw material price inflation, you've got problems with
Speaker 1: supply chain, you've got an an on shoring off off
Speaker 1: off if you want sourcing. So there are tons of
Speaker 1: issues right now in the food industry. But if you
Speaker 1: look in the medium term, food is the biggest challenge
Speaker 1: we have on the global economy today. Security of food,
Speaker 1: safety of food, quality of food, quality of ingredients. So
Speaker 1: we're doing these two major build ups, one in the
Speaker 1: ingredients side where we have reached about a billion in sales,
Speaker 1: and one which is three enough billion, which is our
Speaker 1: our our our private label. One of the both deals
Speaker 1: today are on those two two ends of the market.
Speaker 1: And this will will are spot on where the world
Speaker 1: is going. So it you'll see major changes in your
Speaker 1: in food and food will become a central issue also
Speaker 1: because of the droughts, et cetera. It will be it
Speaker 1: will be you mentioned technology before, it would be as
Speaker 1: biggest technology. I think, Andrea, I've got to talk to
Speaker 1: you about what matters, and what matters is you know.
Speaker 1: I looked for your letter to me on the Taylor
Speaker 1: swift graduation at your New York University is well, this
Speaker 1: was a huge deal in Manhattan. And I think what
Speaker 1: was really missed about MS Swift speak cant Yankee Stadium
Speaker 1: to your n y U was this is a kid
Speaker 1: who never went to college. She did high school and literally,
Speaker 1: because of her claim, worked out at airport terminals. Is
Speaker 1: she studied? What was it like having a kid that
Speaker 1: never did that show up at n y U. Well,
Speaker 1: I'm only a board member. And where you both end
Speaker 1: where you I didn't, and what you is is a
Speaker 1: university which was born out of this city. And this
Speaker 1: city is is a city which gives opportunity to everybody.
Speaker 1: And it goes to your questions about also the United States.
Speaker 1: The United States is a place where you can have opportunity.
Speaker 1: And that's and that's what then what he was there for,
Speaker 1: and that's what what I think. I gotta make some
Speaker 1: news here. I got the editor chiefess emailed me and
Speaker 1: this is this is boring. Make some news. How do
Speaker 1: you top Taylor Swift at n y U. Are you
Speaker 1: gonna have Mario Draggy speak at n YU next year?
Speaker 1: I don't think Mario Dragon will get We'll get the
Speaker 1: same reception, not even, but I mean digging a hole
Speaker 1: for himself. He's exactly, he's a he's a good manager.
Speaker 1: But then they'll I don't think that'll that will be,
Speaker 1: that will be, That's gonna be across all of the
Speaker 1: Italian newspapers tomorrow, Andrea. But I mean, thank you so
Speaker 1: much with invest Industrial digging himself a hole of the
Speaker 1: Italian press. This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from
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Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg