WEBVTT - Surveillance: Inflation Elation with Tallbacken's Purves 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.840 and of course on the Bloomberg terminal. This is really important. 0:00:29.880 --> 0:00:31.960 Now we're gonna jump to the equity markets here with 0:00:32.080 --> 0:00:36.400 Katie Kaminski. She's chief research strategist at Alpha Simplex. And 0:00:36.440 --> 0:00:39.599 what's so important is you can't pronounce her focus at 0:00:39.640 --> 0:00:45.360 the Massachusetts Institute of Technology stochastic processes, stopping rules, and 0:00:45.520 --> 0:00:49.400 investment heuristics. I've aged saying that Katie joins us now 0:00:49.479 --> 0:00:55.440 with an encyclopedic knowledge of math and trend Katie, your 0:00:55.640 --> 0:00:58.880 your work with Andrew Lowe and all the others around 0:00:58.920 --> 0:01:02.800 trend based analogy, says leads us to one single question. 0:01:03.200 --> 0:01:07.760 Have we broken the bear market trend? That's a really 0:01:07.800 --> 0:01:11.000 good question because what we have seen lately, which I 0:01:11.040 --> 0:01:14.360 think is the most interesting from a technical perspective, is 0:01:14.360 --> 0:01:17.360 that we've seen signals really dissipate in the last two 0:01:17.360 --> 0:01:20.240 to three months, and so it really feels like an 0:01:20.640 --> 0:01:23.119 you know, an inflection point. Right now for us, we're 0:01:23.120 --> 0:01:26.880 still seeing sort of a net short but it's very weak. UM. 0:01:26.920 --> 0:01:29.759 That kind of indicates that we could go either direction 0:01:29.880 --> 0:01:32.560 depending on what occurs, and I think yesterday I just 0:01:32.640 --> 0:01:34.800 kind of showed that we might be going in a 0:01:34.840 --> 0:01:37.280 better direction than people have thoughts. Katy want to go 0:01:37.360 --> 0:01:40.840 inside baseball to Monroe Trout and asking tell Paul Wilmot 0:01:40.880 --> 0:01:43.920 and the others from years ago, mostly out of Imperial College. 0:01:44.400 --> 0:01:50.120 The raging debate is their value to volume analysis? Do 0:01:50.240 --> 0:01:55.240 you study volume? I don't. So volume is a good 0:01:55.280 --> 0:01:58.360 indicator to understand whether or not you can trade a 0:01:58.400 --> 0:02:01.880 market and whether or not you're sizing is appropriate, but 0:02:02.400 --> 0:02:05.720 unfortunately a lot of indicators of volume have been difficult 0:02:05.720 --> 0:02:09.840 to document empirically UM as predictive UM. There may be 0:02:09.919 --> 0:02:12.240 exceptions to this, but I think volume is still a 0:02:12.320 --> 0:02:15.160 key metric because it really tells you something about whether 0:02:15.240 --> 0:02:18.320 or not the trade ability of individual markets is there 0:02:18.760 --> 0:02:20.560 UM and that's how we tend to think about it. 0:02:20.600 --> 0:02:25.200 As you know, futures quants, Katie. Liza McCormick of Bloomberg 0:02:25.240 --> 0:02:27.120 News wrote a story about a paper that you wrote 0:02:27.160 --> 0:02:29.840 about how pigs flew at least in your world because 0:02:29.840 --> 0:02:32.520 you shorted bonds and you were able to deliver return 0:02:32.600 --> 0:02:34.640 or more in the beginning of this year, the first 0:02:34.639 --> 0:02:37.119 half of this year, have you closed that trade out? 0:02:37.200 --> 0:02:40.320 Are you still trying to short bonds here? Especially after 0:02:40.360 --> 0:02:43.880 the rally. So that's a good question because what we 0:02:43.960 --> 0:02:46.880 saw in June was a big spike involved we saw 0:02:46.960 --> 0:02:50.520 cross correlation spiking as well, so signals and bonds have 0:02:50.600 --> 0:02:54.480 actually dissipated. UM. The reason we wrote this paper is 0:02:54.520 --> 0:02:58.240 that we really wanted to clarify that shorting bonds is 0:02:58.280 --> 0:03:01.919 not a fluke if we continue you to see rising rates. 0:03:01.919 --> 0:03:05.639 That in fact, when you think about a rising rate environment, 0:03:05.639 --> 0:03:08.000 you're going to have to consider the shape of the 0:03:08.040 --> 0:03:10.519 curve and whether or not there may be some tactical 0:03:10.560 --> 0:03:13.760 short signals and bonds that could potentially work. And I 0:03:13.760 --> 0:03:16.560 think this is particularly pertinent right now as we're moving 0:03:16.600 --> 0:03:19.680 from an inversion towards a slightly steeper curve. Right now, 0:03:20.040 --> 0:03:22.600 as we're seeing that could be an indication that things 0:03:22.639 --> 0:03:26.800 are getting better. UM, as long as we see that persist. Well, Katie, 0:03:26.840 --> 0:03:28.959 you say, in a rising rate environment and what we're 0:03:28.960 --> 0:03:31.480 hearing from the Federal Reserve is Yes, rates are going 0:03:31.520 --> 0:03:34.239 to keep rising. We are going to keep hiking into 0:03:34.360 --> 0:03:37.280 next year because inflation is nowhere near where we'd like 0:03:37.400 --> 0:03:40.000 to see it. So how wrong is the market now? 0:03:41.440 --> 0:03:45.320 So I think the market is a little optimistic because 0:03:45.560 --> 0:03:47.280 I think, you know, it's always good to have a 0:03:47.320 --> 0:03:49.400 good number, to have a good print, to have something 0:03:49.440 --> 0:03:52.320 that brings your averages down. But most of us in 0:03:52.360 --> 0:03:55.600 the futures markets, we've already seen those moves and energies. 0:03:56.000 --> 0:03:58.839 We were kind of expecting this already. So I'd say 0:03:58.880 --> 0:04:02.920 that it's a little bit as would expected, slightly better. 0:04:03.240 --> 0:04:05.000 But what that means is that there may be a 0:04:05.040 --> 0:04:07.720 little bit of optimism over the first data point that 0:04:07.760 --> 0:04:10.720 confirms what people really want, which is things to go 0:04:10.760 --> 0:04:13.640 back to normal, and the sixty, as Lisa put it, 0:04:13.720 --> 0:04:16.400 to just be back into you know, a good place, 0:04:16.640 --> 0:04:20.320 which is basically what most people are used to. Katie. 0:04:20.400 --> 0:04:22.640 One final question. A lot of people are looking at 0:04:22.720 --> 0:04:26.000 moving averages and their eyes are glazing over. I'm a 0:04:26.080 --> 0:04:29.000 huge disbeliever in bologny like the death cross, and that 0:04:29.440 --> 0:04:32.400 can you use moving averages right now to figure out 0:04:32.640 --> 0:04:34.880 if this is a breaking of the bear market trend. 0:04:36.240 --> 0:04:38.719 So if you do use moving asages right now, I'll 0:04:38.720 --> 0:04:41.839 tell you that your signals are going to be very mixed. Um, 0:04:41.880 --> 0:04:44.160 you're gonna have a lot of indications that things look 0:04:44.240 --> 0:04:46.040 better on the shorter end, and you're gonna have a 0:04:46.080 --> 0:04:48.240 lot of indications that they don't look good and then 0:04:48.240 --> 0:04:50.960 meet into long term. So I'd say that it's really 0:04:51.000 --> 0:04:53.240 really unclear, and the only thing we can say is 0:04:53.279 --> 0:04:56.039 a quant right now is that there is very little 0:04:56.080 --> 0:04:58.279 signal and there's room to move in a new direction. 0:04:58.600 --> 0:05:02.200 That was a very safe answered Stie Kimisky channeling George Kleinman. 0:05:02.279 --> 0:05:05.600 There and what are known as climb and exponential moving averages. 0:05:05.640 --> 0:05:08.680 You killed at Katie, don't be a stranger, Kati Kaminsky 0:05:08.960 --> 0:05:15.560 with alpha simplexy. Right now, we're just trying to understand 0:05:15.600 --> 0:05:18.400 how much conviction this rally does have. Jim Pulson said 0:05:18.560 --> 0:05:21.760 he thinks he has conviction, which gives a lot of 0:05:21.839 --> 0:05:25.599 conviction to the conviction Chief Invested Strategies at the Luthhole Group. Jim, 0:05:25.760 --> 0:05:28.880 you've been bullish, You've been then a little bit pulling back, 0:05:28.960 --> 0:05:30.840 and now all of a sudden the melt up has begun. 0:05:30.920 --> 0:05:33.640 Something a little bit more concrete. Do you buy into 0:05:33.680 --> 0:05:35.600 this or do you see this as a head fake. 0:05:37.760 --> 0:05:41.440 I'm on to buy into it side, Lisa, I think 0:05:41.480 --> 0:05:44.400 that a couple of things for me. I think it's 0:05:44.400 --> 0:05:47.360 at the forefront, you know, talk about the feed a minute. 0:05:47.360 --> 0:05:51.720 I think the case for additional FED tightening is rapidly dissipating. 0:05:52.120 --> 0:05:55.080 I mean, we've we've brought a real GDP growth down 0:05:55.160 --> 0:05:58.920 to a crawl um overall um. I think there's still 0:05:59.000 --> 0:06:01.720 downside moment month growth as we go through the balance 0:06:01.839 --> 0:06:04.919 this year. The past tightened policies of money growth slowing, 0:06:04.960 --> 0:06:08.960 fiscal growth slowing, dollar rising, yields rising is likely to 0:06:09.040 --> 0:06:12.839 keep real growth sluggish. On top of that, the inflation 0:06:12.920 --> 0:06:17.279 evidence just continues to get more and more pronounced. I 0:06:17.279 --> 0:06:19.040 don't know how long it will take to come down, 0:06:19.080 --> 0:06:23.200 but clearly the momentum is down on inflation. I think 0:06:23.279 --> 0:06:26.400 by September we're going to see the FED case for 0:06:26.560 --> 0:06:29.800 why keep hiking kind of dissipated a little bit. And 0:06:29.839 --> 0:06:32.200 this is you know, I mean, I don't mean to interrupt, 0:06:32.400 --> 0:06:34.359 I'm just thinking about what you're saying, and that we 0:06:34.400 --> 0:06:37.839 are seeing increasing evidence that inflation is coming down. The 0:06:37.839 --> 0:06:39.960 pushback I'm sure that you hear and you're going to 0:06:40.080 --> 0:06:42.359 hear it A lot is not when it comes to rent, 0:06:42.440 --> 0:06:44.240 not when it comes to food, not when it comes 0:06:44.279 --> 0:06:46.080 to medical costs, not when it comes to how much 0:06:46.080 --> 0:06:48.920 you're paying for services. So, yes, you are seeing disinflation 0:06:48.920 --> 0:06:51.640 in some areas, but it's not as broad as money 0:06:51.680 --> 0:06:54.200 people would like to see. What gives you conviction that 0:06:54.200 --> 0:06:56.359 we're seeing the beginning of something that is going to 0:06:56.400 --> 0:07:01.280 broaden out later this year into next, Well, I think 0:07:01.320 --> 0:07:04.400 that having real economic growth, you know, zero to two 0:07:04.440 --> 0:07:06.520 percent as a as a a big part of it. 0:07:06.600 --> 0:07:10.320 Having the past economic policies that they have lags and 0:07:10.360 --> 0:07:12.840 they're going to continue to be a negative downward force. 0:07:13.200 --> 0:07:16.040 The reason inflation peaked in the March April May period 0:07:16.160 --> 0:07:20.239 was because a year earlier, fiscal growth peaked, monetary growth peak, 0:07:20.360 --> 0:07:23.080 dollars started to rise, yield started to go up. That 0:07:23.240 --> 0:07:26.360 is about a one year lag policy has on the 0:07:26.400 --> 0:07:29.080 economy and inflation, and that lag is going to continue 0:07:29.080 --> 0:07:32.320 to be negative going forward. Also, you know, you can 0:07:32.360 --> 0:07:36.040 always pick parts of the inflation center that are still hot, 0:07:36.080 --> 0:07:38.440 but there's a lot of parts that aren't. You know, 0:07:38.480 --> 0:07:42.320 the inflationary thrust of commodities, which was driving this at 0:07:42.320 --> 0:07:46.480 the leading edge, is now a deflationary thrust overall. You know, 0:07:46.560 --> 0:07:48.760 the core rates of c P, I P P I 0:07:48.880 --> 0:07:52.440 PC have now all decelerated year on year. In the 0:07:52.520 --> 0:07:55.960 last three to four months, UH annual wage inflation was 0:07:56.040 --> 0:07:58.160 six and a half percent on a six month basis 0:07:58.280 --> 0:08:00.960 the end of the year. It's now four point seven 0:08:01.000 --> 0:08:03.600 percent or four point three on one of those that 0:08:03.680 --> 0:08:07.240 can't remember. But it's a big desceleration a year to date. 0:08:07.560 --> 0:08:11.760 So I think I think the debate on inflation has peaked. 0:08:11.840 --> 0:08:14.120 I think that's over and now it's a debate on 0:08:14.160 --> 0:08:17.680 how fast it comes down. And I'm just saying, you know, 0:08:17.720 --> 0:08:21.000 by September meeting, we're gonna get more claim numbers that 0:08:21.080 --> 0:08:24.040 probably will show a little more weakness, and um, I 0:08:24.080 --> 0:08:25.840 think the case is going to start to go away. 0:08:25.920 --> 0:08:29.000 But beyond that, this is really why I'm more bullish. 0:08:29.480 --> 0:08:31.320 I don't really care what the FED is gonna do, 0:08:31.640 --> 0:08:36.040 because the FED isn't driving this ship. If I look 0:08:36.080 --> 0:08:39.040 at what's happening, We're already into a brand new easing 0:08:39.080 --> 0:08:43.120 cycle right now. Bawn spawn yields from two years to 0:08:43.200 --> 0:08:46.680 thirty years have already started to ease. The dollars rolled over. 0:08:46.800 --> 0:08:49.760 It's already started to ease. Junk spreads have gone from 0:08:49.760 --> 0:08:53.560 over six to under five. They've started to ease. Real 0:08:53.600 --> 0:08:57.600 money growth at minus three point it can't go much lower. 0:08:58.240 --> 0:09:01.640 I think it's gonna start to improved because inflation comes 0:09:01.679 --> 0:09:05.160 down and fiscal growth has already started to go back 0:09:05.160 --> 0:09:08.200 to easing. So do you want to miss an easing cycle, Jim, 0:09:08.320 --> 0:09:10.360 I totally hear you. Yet at the same time, I 0:09:10.400 --> 0:09:13.320 also hear Federal Reserve officials like Neil Kashkari saying we 0:09:13.360 --> 0:09:16.360 are nowhere near done. We still have so much tightening 0:09:16.440 --> 0:09:18.760 left to do because inflation is still very far from 0:09:18.760 --> 0:09:22.120 our target, even if yes, it is moderating. Clearly you 0:09:22.200 --> 0:09:25.000 are in that camp. But as you talk about all 0:09:25.040 --> 0:09:27.840 of these things that are changing, financial conditions that are easing, 0:09:28.160 --> 0:09:30.240 and the FED not being in control, does that not 0:09:30.400 --> 0:09:32.880 mean they are going to be even more aggressive to 0:09:33.000 --> 0:09:37.600 get that control back. Well. I think it's interesting how 0:09:37.679 --> 0:09:41.240 much attention we devote to the FED because the Fed's 0:09:41.240 --> 0:09:44.640 been behind the curve the whole time. Fortunately, inflation is 0:09:44.679 --> 0:09:47.120 coming down today, not because the FED lifted the funds 0:09:47.240 --> 0:09:50.920 rate for the first time. In February this year because 0:09:51.120 --> 0:09:55.720 monetary growth, fiscal growth, dollar growth, yield growth, we're tightening 0:09:55.800 --> 0:09:58.960 all last year and that's what's bringing the slower economy 0:09:59.000 --> 0:10:02.520 and slower inflation. So now why the Fed still behind 0:10:02.559 --> 0:10:04.960 the curve but all the markets are going on the 0:10:04.960 --> 0:10:07.320 other way and starting to ease. So why should we 0:10:07.360 --> 0:10:10.280 continue to give so much dominance to the Federal Reserve? Jim? 0:10:10.280 --> 0:10:13.120 We had Kati Kaminsky on from m i t here earlier, 0:10:13.200 --> 0:10:15.719 and it sprawls out to your Iowa state. With the 0:10:15.880 --> 0:10:19.199 rigor of mathematics and the rigger of trend, the rigger 0:10:19.240 --> 0:10:21.560 of a time series being all, when we look at 0:10:21.559 --> 0:10:25.440 the equity markets, how do we move from what's an 0:10:25.440 --> 0:10:29.680 obvious short squeeze futures up twenty one DAR, futures up 0:10:30.480 --> 0:10:34.560 two days in a row, to a constructive bullmarket trend? 0:10:34.920 --> 0:10:38.679 How do you transition from an obvious short squeeze out 0:10:38.720 --> 0:10:43.520 to a durable trend. Yeah, I that's a good point time, 0:10:43.559 --> 0:10:46.160 you know. Eventually to keep this going, well, we'll have 0:10:46.240 --> 0:10:49.800 to decide that we're not going to resiss. So that 0:10:49.800 --> 0:10:51.800 that to me is almost becoming the bigger issue that 0:10:51.880 --> 0:10:54.760 inflation right now is are we going to resss soon. 0:10:55.120 --> 0:10:57.000 If we're not going to resiss, then I think that 0:10:57.040 --> 0:10:59.679 gives you a fundamental undertow to your sent to your 0:10:59.720 --> 0:11:03.680 point of giving sustainability in the short term, though, we're 0:11:03.760 --> 0:11:06.760 dealing with a lot of bears in the sidelines, a 0:11:06.760 --> 0:11:09.280 lot of sellers that have come out, and and we're 0:11:09.360 --> 0:11:12.760 dealing with some technical levels that are right there in 0:11:12.800 --> 0:11:17.880 front of us right now. Two And if you break 0:11:17.920 --> 0:11:20.079 through some of those, then you're going to see a 0:11:20.160 --> 0:11:23.560 lot of the technicians that have been bearish changed tune, 0:11:23.760 --> 0:11:26.480 and that could bring some buying in that could sustain 0:11:26.840 --> 0:11:29.040 could sustain this for a while. So it's if we 0:11:29.120 --> 0:11:32.000 fail it, you know, then we probably have some downside 0:11:32.040 --> 0:11:34.400 because it's probably ahead of itself. But if we break 0:11:34.440 --> 0:11:37.280 through that, then I think you could convert some bears 0:11:37.320 --> 0:11:40.640 and bring some sustainability for a period. Jim Pauson, brilliant, Louisville. 0:11:40.679 --> 0:11:48.680 Thank you so much, greatly, greatly appreciate this. This is 0:11:48.679 --> 0:11:51.200 what we like to do. We are driven by the 0:11:51.280 --> 0:11:54.640 research of our guests, and when someone writes a piercing note, 0:11:55.080 --> 0:11:57.880 we say, Michael Purvis of Tall Back, and we don't 0:11:57.960 --> 0:12:01.440 care that you're living large in Spain. We need to 0:12:01.480 --> 0:12:04.520 speak to you in the Spanish afternoon of a four 0:12:04.640 --> 0:12:08.199 pm with a sangria or a martini by a side. 0:12:08.880 --> 0:12:13.160 Michael Purvis joins us on optimism on the market. Michael, 0:12:13.240 --> 0:12:17.480 I would predict every strategist, every market savant, has to 0:12:17.520 --> 0:12:20.880 come out this weekend and adjust. How did you adjust 0:12:21.000 --> 0:12:26.280 this morning? Well, look, I've I've been arguing that the 0:12:26.320 --> 0:12:32.319 recession um economic contraction was was really a pretty specultive 0:12:32.440 --> 0:12:36.160 argument that that was the argument had been made pretty substantially. 0:12:36.400 --> 0:12:39.280 And this in the last two weeks, we've had the 0:12:38.600 --> 0:12:42.160 most important economic data points, you know, the I s M, 0:12:42.280 --> 0:12:45.240 the services I M, the non farm payroll and then 0:12:45.240 --> 0:12:48.199 the inflation yesterday come in just the way you want 0:12:48.240 --> 0:12:51.520 them in terms of affirming that not necessarily in a 0:12:51.600 --> 0:12:57.040 high inflation, negative growth our contractionary condition there. So, um, 0:12:57.040 --> 0:13:00.600 what when you look at positioning tom um, and this 0:13:00.640 --> 0:13:04.600 is both treasury positioning and equity positioning, it is extremely 0:13:04.640 --> 0:13:07.800 barre from both on both sides there right, So the 0:13:07.880 --> 0:13:10.679 market is there's a vacuum there. And when you have 0:13:10.800 --> 0:13:14.080 those three important data points line up, you're looking at 0:13:14.160 --> 0:13:17.120 Q two earnings that have actually the beef on earning 0:13:17.200 --> 0:13:19.319 for both governors, and earnings were better than the Q 0:13:19.480 --> 0:13:23.440 one beats. You're looking at a situation where where the 0:13:23.480 --> 0:13:25.320 market is going to move higher. So I have a 0:13:25.360 --> 0:13:29.400 tactical call up another two hundred points to hundred and 0:13:29.559 --> 0:13:34.000 my year end call like adjusted to there. I'm not 0:13:34.040 --> 0:13:36.000 saying we're completely out of the woods, but I think 0:13:36.440 --> 0:13:40.160 the the the certainly for the near terms, the water 0:13:40.240 --> 0:13:42.480 is going to be hired out lower. Michael, how much 0:13:42.679 --> 0:13:46.000 is your conviction right now underpinned by this idea that 0:13:46.040 --> 0:13:48.600 we just heard from Jim Paulson, which is that we 0:13:48.600 --> 0:13:51.559 are at the beginning of an easing cycle, that inflation 0:13:51.600 --> 0:13:53.480 is rolling off much more quickly than the FETE is 0:13:53.520 --> 0:13:55.200 expecting that they're going to have to catch up with 0:13:55.240 --> 0:14:00.760 the market. Look, I think there's a you know, sort 0:14:00.760 --> 0:14:03.880 of looking at the R dollar features curve and looking 0:14:03.920 --> 0:14:06.439 at this, I think it's fifty basis points right now 0:14:06.600 --> 0:14:09.480 cuts next year. I think that's an aggressive assumption here. 0:14:09.800 --> 0:14:14.000 But from a from an how assets trade point of view, 0:14:14.840 --> 0:14:21.000 we see some stability where sort of peak hawkishness going 0:14:21.080 --> 0:14:23.440 from the speed pivot of just a year ago being 0:14:23.880 --> 0:14:27.600 categorically of us too now sort of categorically pawkish, right, 0:14:27.640 --> 0:14:30.120 that's one of the most aggressive pivots, and that policy 0:14:30.400 --> 0:14:33.360 you're going to have that asset prices disruptive and we've 0:14:33.400 --> 0:14:36.160 had that, right, So I think right now that that 0:14:36.280 --> 0:14:38.280 is in and so whether we get fifty basis point 0:14:38.840 --> 0:14:41.520 basis points or zero basis points and cuts and twenty three, 0:14:42.080 --> 0:14:44.120 I think as long as we can look at something 0:14:44.200 --> 0:14:47.240 that's resembling some sort of stability in the bob market, 0:14:47.600 --> 0:14:51.800 that's almost more important than than you know, uh, what 0:14:51.960 --> 0:14:55.960 the average uh expectations for your dollars Michael, how much 0:14:56.000 --> 0:14:58.240 do you take a look at this idea that you 0:14:58.320 --> 0:15:01.000 had the biggest increase in food prices going back to 0:15:01.640 --> 0:15:06.240 seventy nine, Rents are surging, You see areas in nondiscretionary 0:15:06.360 --> 0:15:09.760 spending that are crimping the average American household balance sheet, 0:15:10.000 --> 0:15:12.160 and that has yet to fully play out. How do 0:15:12.200 --> 0:15:17.320 you factor that into your bullish thesis. Well, that's a 0:15:17.400 --> 0:15:19.720 very good, very fair point, and I do think there's 0:15:19.880 --> 0:15:22.520 very strong arguments for a lot of components of inflation 0:15:22.600 --> 0:15:25.960 to state higher longer, right. But I think the question 0:15:26.200 --> 0:15:29.080 is is if the markets and the economy can sort 0:15:29.120 --> 0:15:34.720 of adjust to that, right, um, uh, they're just then 0:15:34.760 --> 0:15:40.080 I think the paces of that sort of inflationary surges 0:15:40.160 --> 0:15:42.120 are going to be very different than what we've seen 0:15:42.120 --> 0:15:45.000 over the last nine months. Right. It's it's really the 0:15:45.160 --> 0:15:49.600 surge in in in the velocity of these inflation prints 0:15:49.600 --> 0:15:53.240 that have really, uh, you know, disrupted the markets. If 0:15:53.280 --> 0:15:55.520 we get to a point where where you know, we 0:15:55.640 --> 0:15:57.840 never get down to two and we're sort of adjusting 0:15:57.880 --> 0:16:03.320 to a new normal because of uh, you know, reglobal deglobalization, relocalization, 0:16:03.720 --> 0:16:09.040 higher food prices, uh, energy supplied that never really fully expands, 0:16:09.080 --> 0:16:11.320 so that the well gets down to fifty bucks again, 0:16:11.600 --> 0:16:13.680 then I think you can look at a condition where 0:16:13.680 --> 0:16:17.680 where that those types of dynamics will play out in 0:16:17.720 --> 0:16:20.520 a much slower and basis and the economy can sort 0:16:20.560 --> 0:16:23.280 of adjustice that maybe the tenure doesn't go back to 0:16:23.320 --> 0:16:26.440 two percent, and maybe that it's through to four percent, 0:16:26.680 --> 0:16:29.640 but if it stays there, and then you can have 0:16:29.760 --> 0:16:33.640 the condition for risk assets to be supported. Is there 0:16:33.640 --> 0:16:36.800 going to be fundamental support though when we're thinking about earnings, 0:16:36.840 --> 0:16:39.800 because as we talk about these inflationary pressures, there has 0:16:39.800 --> 0:16:41.600 been a lot of warning on the more embarrassed end 0:16:41.600 --> 0:16:44.960 of the spectrum from Mike Wilson, for example, about margin 0:16:45.000 --> 0:16:46.760 pressure coming on and does I now look at an 0:16:46.800 --> 0:16:49.080 S and P five trading back at a multiple almost 0:16:49.320 --> 0:16:51.560 at nineteen on forward earnings, when are we going to 0:16:51.680 --> 0:16:57.000 start to maybe have a problem with that denominator? Yeah, well, 0:16:57.120 --> 0:17:01.880 the earnings question, you know, like earnings bottom estimates compiled 0:17:01.920 --> 0:17:05.600 by Bloomberg are off about six and a half percent 0:17:05.720 --> 0:17:07.960 from the beginning of the year. That's unusual. Usually they 0:17:08.040 --> 0:17:10.880 go down through the year there, and the Q two 0:17:10.920 --> 0:17:13.720 numbers have been generally pretty good. I think it's important 0:17:13.760 --> 0:17:17.040 to recognize that that if you have a high inflationary 0:17:17.119 --> 0:17:22.040 environment without an economic major economic contraction right meaning p 0:17:22.240 --> 0:17:24.919 M s and forties or thirties, right, you will have 0:17:25.000 --> 0:17:27.760 high earning strows. In the nineteen seventies, you didn't have 0:17:27.800 --> 0:17:30.080 a great real GDP condition. You have just had a 0:17:30.080 --> 0:17:35.000 lot of inflation, but earnings growth was literally twice as 0:17:35.080 --> 0:17:37.159 high in the nineteen seventies, and it was in the 0:17:37.200 --> 0:17:40.639 nineteen sixties with real GDP average like four point three 0:17:41.080 --> 0:17:42.840 to that decade there, And I think that's one of 0:17:42.840 --> 0:17:47.080 those things that high nomenal GDP can wash away and 0:17:47.400 --> 0:17:52.520 actually helped margins for many companies, right, and certainly the 0:17:52.560 --> 0:17:55.040 top line is inflated by revenues as well, so you're 0:17:55.040 --> 0:17:58.280 not seeing a lot of margins present the other stories 0:17:58.320 --> 0:18:00.399 the market. And again i'm talking about S and P 0:18:00.520 --> 0:18:03.360 five index level. Right. Obviously there's a lot of specific 0:18:03.480 --> 0:18:06.520 caspectors where there's a lot of vulnerability. But if you 0:18:06.640 --> 0:18:11.760 look at the income market that's being being expected by 0:18:12.040 --> 0:18:16.879 UH foreign estimates, that is that is um that is 0:18:16.960 --> 0:18:24.800 buters and and shown resilience. Michael, you know, we gotta 0:18:24.880 --> 0:18:27.040 leave it there. But on behalf of Kayleie, Lisa, me 0:18:27.119 --> 0:18:33.520 and John, I just gotta say, tomar una babida alexeion 0:18:34.000 --> 0:18:39.960 nailed it. Have a beverage of your choice, we say 0:18:40.000 --> 0:18:42.800 to Michael Purvis in Spain as he slips into the 0:18:42.880 --> 0:18:50.720 Spanish late afternoon a trooper to be with us right now. 0:18:50.760 --> 0:18:52.960 The record has speaking to it this time. Matthew Lozetti, 0:18:53.320 --> 0:18:55.800 his chief US economists at Deutsche Bank, and you know 0:18:55.960 --> 0:18:58.840 as well, for those that keep track, he was way 0:18:58.880 --> 0:19:02.840 out front and calling for some form of economic contraction 0:19:03.280 --> 0:19:06.680 in America. Met Zettie. With the data we've seen on jobs, 0:19:07.000 --> 0:19:09.760 with the data we've seen on inflation, CPI and P 0:19:09.920 --> 0:19:17.000 p I, can you and Peter Hooper reaffirm US recession? Sure? First, 0:19:17.040 --> 0:19:19.680 thanks so much for having me. I think it does 0:19:19.760 --> 0:19:22.199 reaffirm our view, which is that we're not in a 0:19:22.280 --> 0:19:24.720 near term recession in the economy. Certainly that the labor 0:19:24.760 --> 0:19:27.680 market data we saw last week, the jobless Clayton's data 0:19:27.720 --> 0:19:29.800 are are kind of edging higher but still at very 0:19:29.800 --> 0:19:32.159 low levels. A labor market that is very tight, I 0:19:32.160 --> 0:19:36.400 think I'll suggest that we're not heading into recession eminently. However, 0:19:36.480 --> 0:19:38.760 I think it does point to a labor market that 0:19:38.800 --> 0:19:40.920 is still tight, wage pressures that are still well above 0:19:41.240 --> 0:19:43.919 the what would be consistent with the FEDS objective, uh, 0:19:43.960 --> 0:19:45.879 you know, labor cost growth that is, you know, about 0:19:45.880 --> 0:19:49.640 five percent, and inflation pressures which yes, they are coming down, 0:19:49.640 --> 0:19:51.760 but I think are very far away from the FEDS objective. 0:19:51.800 --> 0:19:54.679 We saw trim mean cp I yesterday forty five basis 0:19:54.680 --> 0:19:57.879 points month on month, seven percent year on year, and 0:19:57.920 --> 0:20:00.280 so we would stick with our view that we still 0:20:00.320 --> 0:20:02.600 have a recession, that recession is likely next year, around 0:20:02.600 --> 0:20:04.760 the middle of next year, and it still remains one 0:20:04.760 --> 0:20:06.879 that is Fed induced, as as the FED continued to 0:20:06.920 --> 0:20:09.439 tighten monetary policy. But Matt do you actually expect this 0:20:09.520 --> 0:20:12.840 to be a less severe recession than you had perhaps 0:20:12.880 --> 0:20:15.399 a couple of months ago, based on this decline that 0:20:15.400 --> 0:20:19.160 we've seen both in cp I and p P I. Yeah, 0:20:19.160 --> 0:20:20.760 we we had as a baseline what I would call 0:20:20.760 --> 0:20:24.199 a moderate recession. We had the unemployment rate rising. You know, 0:20:24.200 --> 0:20:26.600 it doesn't seem like moderate, but but two percentage points 0:20:27.000 --> 0:20:28.800 uh and something that would be kind of akin to 0:20:28.840 --> 0:20:30.600 what we saw in their early nineteen nines, about a 0:20:30.640 --> 0:20:34.120 one percent decline in GDP. I think the key reasons 0:20:34.160 --> 0:20:37.160 for that were, One, you have private sector balance shees 0:20:37.200 --> 0:20:39.400 that are in good shape to kind of the cyclical 0:20:39.440 --> 0:20:43.040 sectors and housing and autos have been supply constrained. Um. 0:20:43.240 --> 0:20:46.320 And Three you know that that you did have monetary 0:20:46.359 --> 0:20:49.800 policy that you know would would ease next year um 0:20:50.000 --> 0:20:52.119 and and kind of help out I think on the margin. 0:20:52.359 --> 0:20:55.240 You know, certainly the inflation data this week was weaker 0:20:55.240 --> 0:20:57.760 than we anticipated. I think it does help our call 0:20:57.840 --> 0:20:59.760 for the Fed to move rates by fifty basis points 0:20:59.760 --> 0:21:02.200 at this Timber meeting. And it's just really a question 0:21:02.240 --> 0:21:05.360 of do we see these downside Mrs Persisting. I think 0:21:05.359 --> 0:21:08.200 given the trim mean data, we continue to see inflation 0:21:08.240 --> 0:21:09.800 over the coming months. That is well ahead of the 0:21:09.800 --> 0:21:12.480 FED objective, which means that the markets pricing of the 0:21:12.560 --> 0:21:14.560 terminaire is probably too low with the at this point. 0:21:14.720 --> 0:21:17.320 So where are some of the inflationary pressures coming from. 0:21:17.320 --> 0:21:19.399 We've been talking about food or rising at the fastest 0:21:19.400 --> 0:21:22.040 pace since since nineteen seventy nine. We've been talking about 0:21:22.040 --> 0:21:24.760 rent on a terror, We've been talking about medical costs. 0:21:25.040 --> 0:21:28.720 How sticky are these particular elements as we see energy 0:21:28.760 --> 0:21:32.080 prices really cool off as well as some of the 0:21:32.119 --> 0:21:36.040 other issues with respect two goods, Yeah, I think the 0:21:36.119 --> 0:21:38.000 ones you mentioned are the ones that tend to be sticky, 0:21:38.080 --> 0:21:39.919 especially rent and O E R. And you know, those 0:21:39.920 --> 0:21:41.560 are the ones when you look at the minutes over 0:21:41.600 --> 0:21:44.119 the past year or FED officials comments, those are the 0:21:44.160 --> 0:21:46.359 ones that they're concerned about because they're they're sick, sticky, 0:21:46.440 --> 0:21:49.600 they're persistent. Uh. And also FED research shows that as 0:21:49.640 --> 0:21:53.639 they tighten monetary policy, UH, it kind of pushes down 0:21:54.720 --> 0:21:58.359 housing affordability, pushes people away from hone membership into renting, 0:21:58.359 --> 0:22:00.320