WEBVTT - Surveillance: Standing Markets with Slimmon (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.160 with Jonathan Farrell 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, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.960 and of course on the Bloomberg terminal. We will stomp 0:00:29.960 --> 0:00:32.360 down the equity market in the day, trading and the 0:00:32.440 --> 0:00:37.239 churning and such and talk about results. He is far 0:00:37.320 --> 0:00:40.280 too shy to talk about his results. They're out in 0:00:40.440 --> 0:00:45.159 little percentile analysis by Morgan Stanley. But the answer is 0:00:45.200 --> 0:00:49.199 the M S I f US Core portfolio is on 0:00:49.280 --> 0:00:51.879 the edge of act of God. Andrew Slimmon joins us 0:00:52.240 --> 0:00:55.920 to this morning to speak gospel. He's senior portfolio manager 0:00:55.960 --> 0:01:00.520 managing director at the ninety three and nine percentile for folio. 0:01:00.560 --> 0:01:03.560 Of the duration it matters, Andrew, your idea of short 0:01:03.680 --> 0:01:06.640 term is three years. For those who can't get out there, 0:01:06.880 --> 0:01:09.880 how do they get the courage to invest forgetting about 0:01:09.959 --> 0:01:13.600 one week or one year action and say I want 0:01:13.600 --> 0:01:15.760 to invest for three years so I can get a 0:01:15.840 --> 0:01:20.759 ninety three percentile, Like Andrew Slimon, Well, I mean looking 0:01:20.800 --> 0:01:24.479 from a market standpoint, when the markets down tent uh, 0:01:24.800 --> 0:01:29.320 you look out three years, the returns are phenomenal. And uh, 0:01:29.360 --> 0:01:31.920 I think that's what people are missing when people say recession. 0:01:31.920 --> 0:01:35.480 Now recession, I said, markets down twenty percent, We've built 0:01:35.520 --> 0:01:38.800 in a lot of bad news here, and then from 0:01:38.840 --> 0:01:42.679 you know, getting to a high percentile. When the markets 0:01:42.680 --> 0:01:45.959 downcent you can't go buy defensive stocks. You have to 0:01:46.000 --> 0:01:49.960 start looking for good quality companies that are down more 0:01:50.040 --> 0:01:52.160 than that. And I just think there are a lot 0:01:52.200 --> 0:01:57.360 of companies down forty fifty sixty percent and that's embedded 0:01:57.400 --> 0:02:00.559 a lot of bad news into their into their sock price. 0:02:00.920 --> 0:02:03.400 Nobody from Morgan sent is watching this morning, Andrew, give 0:02:03.400 --> 0:02:07.640 me some names. Well, I think the consumer discution. I mean, 0:02:07.640 --> 0:02:10.160 look at University of Michigan. Consumer sentiment is at a 0:02:10.200 --> 0:02:12.840 forty four year low. You all have to think about 0:02:12.880 --> 0:02:15.680 which is the direction of change. And at that level, 0:02:15.800 --> 0:02:19.040 it's so bad that eventually it's going to improve. And 0:02:19.040 --> 0:02:24.160 I think gas prices coming down, optimism is going to improve. 0:02:24.200 --> 0:02:27.600 And when I think about what is where are stocks 0:02:27.680 --> 0:02:32.280 reflecting that very low sentiment, it's in the consumer area, home, 0:02:32.919 --> 0:02:37.560 home apparel, home furnishing, home retail, home builders. Those socks 0:02:37.560 --> 0:02:41.320 have been crushed, and I think that's very, very attractive. 0:02:41.400 --> 0:02:44.440 And usually when I mentioned socks like that, people tell 0:02:44.440 --> 0:02:47.360 me all the reason why they're down already by that amount. 0:02:47.400 --> 0:02:49.799 And I think you just have to think things could 0:02:49.880 --> 0:02:53.440 get better from here. It's they priced in a lot 0:02:53.520 --> 0:02:56.359 of bad news, so you have to think things could 0:02:56.360 --> 0:02:58.640 get better from here. But isn't the conversation we're having 0:02:58.639 --> 0:03:01.480 on the economic growth front. Things are going to get worse, 0:03:01.560 --> 0:03:03.799 that we're going too slow as the FED tights room, 0:03:04.480 --> 0:03:08.600 no question, no question. Look, and at the market level, 0:03:08.680 --> 0:03:11.120 the market there's a battle going on. On the one hand, 0:03:11.600 --> 0:03:14.799 the bar was so low going into this earning season. 0:03:14.840 --> 0:03:18.640 I mean, Tom Kayley, how many how many strategies have 0:03:18.720 --> 0:03:20.600 come on your show and said guidance is going to 0:03:20.680 --> 0:03:23.840 be lower. I mean everyone expected a bad earning season, 0:03:23.880 --> 0:03:28.640 so the setup was deliciously wonderful for you know, beating 0:03:28.639 --> 0:03:31.280 a low bar. That's a good news. The bad news 0:03:31.440 --> 0:03:35.000 is the Fed's not done raising rates, and I think 0:03:35.040 --> 0:03:39.360 we can't be too optimistic at the market level for 0:03:39.480 --> 0:03:42.560 that for that reason. But when you start to search 0:03:42.600 --> 0:03:45.240 for stocks, which is what I do, there are a 0:03:45.240 --> 0:03:47.680 lot of stock down a lot more than the than 0:03:47.720 --> 0:03:49.880 the market, and I think there's a lot of quality 0:03:49.920 --> 0:03:52.200 stocks down a lot more than the market. Well, Andrew, 0:03:52.200 --> 0:03:54.360 you talk about how everyone's expectation seems to be that 0:03:54.360 --> 0:03:56.760 guidance is going to be disappointing. It also seems that 0:03:56.800 --> 0:03:59.320 there's a lot of cohesion around the idea that the 0:03:59.400 --> 0:04:01.040 dollar is going to be a big theme as well 0:04:01.120 --> 0:04:03.920 the starning season. We've already seen it a warning from Microsoft, 0:04:04.000 --> 0:04:05.600 We saw it show up at IBM and J and 0:04:05.720 --> 0:04:09.320 J results yesterday. How large a headwind really is the 0:04:09.360 --> 0:04:13.240 dollar strength that has faded over the last few days. Yeah, 0:04:13.640 --> 0:04:17.480 So look number one is there's really no evidence that 0:04:17.720 --> 0:04:19.960 when the dollar goes up a lot it leads to 0:04:20.160 --> 0:04:23.159 weak stock market over time. There's really no evidence. In fact, 0:04:23.240 --> 0:04:25.400 if you look at the last time ten times the 0:04:25.440 --> 0:04:28.480 markets up over ten the dollars up over ten percent 0:04:28.480 --> 0:04:31.960 in a year, the market is actually higher three six 0:04:32.000 --> 0:04:35.159 months later. So there's no evidence of that. But I 0:04:35.200 --> 0:04:37.880 think the reason for that is a lot of times 0:04:37.880 --> 0:04:40.720 the stock market says, well, you know, it's the dollar, 0:04:41.000 --> 0:04:45.640 and the market looks through that dollar weakness because the 0:04:45.720 --> 0:04:50.359 dollar gyrates, it's an incredibly difficult to call the market 0:04:51.200 --> 0:04:54.560 based on you know, where your perceptions of where the 0:04:55.000 --> 0:04:58.119 dollar is going. So I just wouldn't do that. Other 0:04:58.160 --> 0:05:00.839 than the extent, I think you have have to think 0:05:00.880 --> 0:05:05.200 about going into earning season, how we have stock spen 0:05:05.640 --> 0:05:07.760 and how low is a bar, and right now the 0:05:07.800 --> 0:05:10.400 bar is really really low. So I think what you're 0:05:10.400 --> 0:05:13.039 gonna see is some of these companies are gonna say, yeah, 0:05:13.080 --> 0:05:16.760 you know, earnings aren't great because the dollar is too strong. 0:05:17.279 --> 0:05:19.520 And I question whether the stocks are going to go 0:05:19.600 --> 0:05:22.120 down on that because a lot of that's already embedded 0:05:22.120 --> 0:05:25.680 in the stock prices. Do we need a Catharsis? I mean, 0:05:25.720 --> 0:05:28.320 it's as simple as that. The Bear crew saying we've 0:05:28.360 --> 0:05:32.200 got to get out Vicks forty cart, Catharsis, Andrew Slimon, 0:05:32.640 --> 0:05:37.240 you know, Ages, Grace Further, et cetera. Do we need that? Yeah? 0:05:37.320 --> 0:05:40.040 I mean that is a very good point time, which 0:05:40.120 --> 0:05:43.920 is usually when you have these types of sell offs, 0:05:44.040 --> 0:05:48.120 they end in some you know, cathartic event. There are 0:05:48.240 --> 0:05:51.920 some type of bad financial you know, some somebody, I 0:05:52.000 --> 0:05:54.880 hate to say it, but somebody flows the surface and 0:05:55.200 --> 0:05:58.080 is that? Is that what's happening? Cryptocurrency and some of 0:05:58.080 --> 0:06:01.960 these vendors. Is that enough. It's hard to think that's 0:06:02.000 --> 0:06:04.360 the case. So again I do go back to the 0:06:04.640 --> 0:06:07.680 I'm just not sure. I think the markets in a 0:06:07.960 --> 0:06:11.719 kind of in a standing mode where on one hand, 0:06:12.040 --> 0:06:15.080 you know, again earnings are okay by on the other hand, 0:06:15.160 --> 0:06:19.279 the Fed's tightening and usually that ends lows end and 0:06:19.320 --> 0:06:23.559 some cathartic event maybe that happens, you know, earlier this fall. 0:06:23.680 --> 0:06:26.040 I still think the market will be substantially higher by 0:06:26.160 --> 0:06:28.839 year end, but I just think it's too soon to 0:06:28.920 --> 0:06:31.839 get too optimistic at the market level. And so I 0:06:31.880 --> 0:06:35.000 swear that you would definitively perished the last time we 0:06:35.120 --> 0:06:39.159 caught up as something started to change it. So you well, 0:06:39.200 --> 0:06:43.000 I think what's what's changed is that everyone thinks earnings 0:06:43.000 --> 0:06:45.360 are gonna be horrible. I mean, the one side of 0:06:45.360 --> 0:06:50.560 the boat is so crowded guidance is earnings are expected 0:06:50.600 --> 0:06:53.600 to be so weak that I think that presents, you know, 0:06:53.680 --> 0:06:57.000 a very intriguing opportunity. And the other thing is I'm 0:06:57.080 --> 0:06:58.960 always very nervous. I mean, I've been on this show. 0:06:59.000 --> 0:07:02.760 I'm always nerve. Is going into the summer, bad things 0:07:02.839 --> 0:07:04.800 happened to the market in the summer, and I think, 0:07:05.040 --> 0:07:07.599 you know, we're in the earning season. We're getting a 0:07:07.640 --> 0:07:09.840 lift out of earning season. But in the but the 0:07:09.880 --> 0:07:11.960 Fed's going to raise rates and what's gonna happen next 0:07:11.960 --> 0:07:14.160 month where it's all going to be about how many 0:07:14.160 --> 0:07:16.880 more times the beds raising rates? And I and that 0:07:17.000 --> 0:07:22.800 gets me nervous. Any time the conversation pivots from individual stocks, 0:07:23.000 --> 0:07:26.280 which is what we're doing right now, to the market overall, 0:07:26.720 --> 0:07:29.080 I think the market becomes more val Usually people get 0:07:29.120 --> 0:07:30.680 nervous coming on the show because I don't know what 0:07:30.680 --> 0:07:33.960 song's gonna ask him and could be anythick Andrew Slim 0:07:34.040 --> 0:07:41.160 in their Morgan Standing Investment Management, Andrew, thank you. Lorena. 0:07:41.400 --> 0:07:45.360 You reaches us economist of tro Price UH with a 0:07:45.480 --> 0:07:48.960 really different outlook. And what we haven't talked about this morning, 0:07:49.360 --> 0:07:51.840 Lorena is a labor market, and I want to talk 0:07:51.880 --> 0:07:55.240 about all the gloom that's out there amid three point 0:07:55.360 --> 0:08:02.200 six percent unemployment. You lead with that in your note. Absolutely, 0:08:02.240 --> 0:08:05.000 I think I'm taking a lot of signal from the 0:08:05.040 --> 0:08:08.160 health and strength of the US labor market. It's surprised 0:08:08.240 --> 0:08:12.360 us consistently to the upside this year. Job creation at 0:08:12.440 --> 0:08:15.480 three hundred fifty k per month on a three month 0:08:15.600 --> 0:08:19.360 average basis. We know the FED looks at this it's 0:08:19.520 --> 0:08:22.280 pretty strong, and the unemployment trade is all the way 0:08:22.320 --> 0:08:25.160 down to pre pandemic levels when we had we know 0:08:25.240 --> 0:08:27.920 we had a hot and very strong labor market. I 0:08:27.960 --> 0:08:30.920 think the labor market will matter a lot for the 0:08:31.000 --> 0:08:34.480 outlook of the US consumer and their confidence to continue 0:08:34.520 --> 0:08:37.280 spending in the coming quarters. So from that, I think 0:08:37.280 --> 0:08:41.360 the doom and gloom on recession is a little bit exaggerated. 0:08:41.400 --> 0:08:45.760 At the moment. We parse inflation as services and goods. 0:08:46.320 --> 0:08:49.880 How do you parse the labor economy? Is it? The 0:08:49.960 --> 0:08:52.680 recovery that we saw on restaurants and bars was a 0:08:52.800 --> 0:08:55.240 theme a year year and a half ago or so. 0:08:55.760 --> 0:08:58.960 Where is that persistency of good news and labor now? 0:08:59.040 --> 0:09:03.800 What part of our labor market? So what we're seeing 0:09:03.960 --> 0:09:07.920 is a broadly based growth in job creation, and I 0:09:07.960 --> 0:09:11.520 think this is what kept job growth going for so 0:09:11.559 --> 0:09:15.720 many months. Now, this could turn around quickly, especially if 0:09:15.760 --> 0:09:18.920 we talk ourselves into a recession. But for a moment, 0:09:19.120 --> 0:09:22.400 I think let's pay attention to what we're hearing from companies. 0:09:22.559 --> 0:09:25.920 They're hiring intentions over the coming few months, and right 0:09:25.960 --> 0:09:30.160 now we're seeing hiring freezes or a small job cuts 0:09:30.640 --> 0:09:34.600 predominantly in the tech and finance sector. I think if 0:09:34.640 --> 0:09:38.040 we see this being more broadly based in other sectors 0:09:38.080 --> 0:09:40.320 of the economy, this is when we need to start 0:09:40.360 --> 0:09:43.160 getting worried about the outfit for the US job market. 0:09:43.600 --> 0:09:45.880 Can we talk about the housing market as well, because 0:09:45.880 --> 0:09:48.120 we've had a series of data points that just point 0:09:48.160 --> 0:09:51.040 to a really dramatic cooling and Diane Swag who's now 0:09:51.120 --> 0:09:54.000 chief economist over at KPMG, was talking about how we 0:09:54.040 --> 0:09:56.640 saw mortgage demand dropping to a twenty two year low 0:09:56.880 --> 0:09:58.800 in data this morning. She says, the canary in the 0:09:58.800 --> 0:10:01.280 coal mine has lost its song. The correction in housing, 0:10:01.559 --> 0:10:04.120 the most interest rate sensitive sector, is leading the economy 0:10:04.120 --> 0:10:07.960 into a more significant slowdown or worse. Should we be 0:10:08.040 --> 0:10:11.800 more worried about how quickly the housing market is cooling off? 0:10:13.040 --> 0:10:16.120 I think this is a great question. We should focus 0:10:16.240 --> 0:10:18.440 on two things. In the housing market, we're seeing a 0:10:18.480 --> 0:10:24.480 deterioration because of bad affordability. Homes became very unaffordable for 0:10:24.520 --> 0:10:29.040 households because of the very fast home price appreciation post pandemic, 0:10:29.200 --> 0:10:32.079 and because of higher interest rates. We know the housing 0:10:32.120 --> 0:10:35.400 market is one of the most interest rate sensitive sectors 0:10:35.440 --> 0:10:38.520 of the US economy, But we should be careful to 0:10:38.640 --> 0:10:43.439 extrapolate what's happening with house home sales to the broader economy. 0:10:43.520 --> 0:10:45.960 We know this is one of the most interest rate 0:10:46.040 --> 0:10:50.360 sensitive sectors, but UM at this point not convinced that 0:10:50.640 --> 0:10:53.760 this kind of dramatic slowdown is going to spread spread 0:10:53.800 --> 0:10:57.720 to consumer spending because of how healthy their bound sheets are, 0:10:58.120 --> 0:11:01.400 how healthy the labor market is, and their ability to 0:11:01.480 --> 0:11:04.920 absorb some of the inflationary hits in the cash pafort 0:11:04.920 --> 0:11:08.320 that we know that accumulated. But given that, doesn't that 0:11:08.400 --> 0:11:11.160 mean that the federal reserves job in trying to rein 0:11:11.240 --> 0:11:13.760 in demand in order to get inflation down is then 0:11:13.840 --> 0:11:16.720 that much harder? Is the U S consumer too resilient 0:11:16.800 --> 0:11:19.840 for them to be effective in doing that. I think 0:11:19.880 --> 0:11:22.600 there in lies the problem for the FED. We have 0:11:22.760 --> 0:11:26.000 a very strong economy and they're trying to walk this 0:11:26.120 --> 0:11:30.199 tide rope of bringing inflation down while the unemployment rate 0:11:30.360 --> 0:11:32.920 only picks up a little bit. Because this will be 0:11:32.960 --> 0:11:36.920 absorbed in the job openings that are at record highs 0:11:37.000 --> 0:11:40.160 at the moment, I think we should be prepared for 0:11:40.200 --> 0:11:43.439 the for a FED that needs to hike more than 0:11:43.480 --> 0:11:46.400 the markets are anticipating right now rending. Your job at 0:11:46.600 --> 0:11:50.400 ro price is to talk to portfolio managers about sector 0:11:50.440 --> 0:11:53.600 bets and even individual stock bets, and it starts and 0:11:53.720 --> 0:11:58.120 ends with unit dynamics and price dynamics of the revenue line. 0:11:58.440 --> 0:12:01.080 What are you telling them about what revenues will do 0:12:01.160 --> 0:12:06.360 over the next twelve months. So I focus a lot 0:12:06.480 --> 0:12:09.160 on the US consumer, and we've spoken a fair bit 0:12:09.200 --> 0:12:13.840 about it already today, and so I think what happens 0:12:13.880 --> 0:12:16.760 with consumer spending over the coming months will be key 0:12:16.840 --> 0:12:19.920 for revenues. Of course, we're going to have a correction 0:12:20.120 --> 0:12:23.200 from the levels that we saw last year that was 0:12:23.320 --> 0:12:27.400 unsustainably high spending for the US consumer. But we're shifting 0:12:28.200 --> 0:12:31.360 our view to focusing more on the services sector, where 0:12:31.400 --> 0:12:34.800 we think the economy is going to rebalance and towards 0:12:34.800 --> 0:12:38.959 those staples as activity normalizes and all the pent up 0:12:39.000 --> 0:12:43.880 demand on goods and services gets absorbed. Focus on those 0:12:44.360 --> 0:12:49.400 necessities and nondiscretion respending for the consumer, well, the consumers there. 0:12:49.440 --> 0:12:54.440 And I see Atlantic Atlanta GDP now Atlantic Atlanta GDP 0:12:55.080 --> 0:12:58.400 statistics that are really quite gloomy. Should we trust those 0:12:58.440 --> 0:13:02.240 statistics or is the resilient consumer going to surprise all. 0:13:03.679 --> 0:13:07.600 I think we with every data report, we should really 0:13:07.640 --> 0:13:10.400 look under the hood and see what the details of 0:13:10.480 --> 0:13:13.480 that report are telling us. And what we're seeing in 0:13:13.520 --> 0:13:16.880 the net accounts in the GDP numbers is that a 0:13:16.960 --> 0:13:20.120 lot of this weakness and volatility is being driven by 0:13:20.200 --> 0:13:24.839 inventory restalking and de stalking by next trade, two components 0:13:24.920 --> 0:13:28.040 that tend to be very volatile. So over the coming months, 0:13:28.080 --> 0:13:30.480 we're going to sit here and discuss at rate length 0:13:30.800 --> 0:13:33.800 the signal from GDP versus g d I data. Should 0:13:33.840 --> 0:13:37.480 we focus on personal consumers and domestic sales? And I 0:13:37.520 --> 0:13:39.520 think there's gonna be a lot of debate on this, 0:13:39.679 --> 0:13:43.319 but ultimately we should focus on consumer spending, and we 0:13:43.360 --> 0:13:47.160 should focus on how fast jobs are being created in 0:13:47.200 --> 0:13:50.080 the economy. Well, something else we're likely to debate over 0:13:50.160 --> 0:13:52.920 several months is what size FED hike we're going to 0:13:52.960 --> 0:13:55.320 get at any given month, But perhaps the more important 0:13:55.320 --> 0:13:57.760 conversation is where we ultimately are going to get. We've 0:13:57.800 --> 0:13:59.880 heard from Blackstone in the last twenty four hours saying 0:14:00.160 --> 0:14:02.760 could be close to five percent on FED funds, when 0:14:02.760 --> 0:14:04.959 all of a sudden, dungeon Bianco agreed with that take. 0:14:05.040 --> 0:14:06.800 So I guess kind of a three part question, how 0:14:06.840 --> 0:14:09.000 high do you think we get on FED funds, at 0:14:09.040 --> 0:14:10.839 what point do we reach it? And for how long 0:14:10.880 --> 0:14:14.600 do we stay there before the cuts follow? So I 0:14:14.640 --> 0:14:18.560 think that we probably get to four percent interest rates 0:14:18.600 --> 0:14:21.240 by the end of this year before the FED takes 0:14:21.240 --> 0:14:25.600 an opportunity to pose and see the effects of tightening 0:14:25.680 --> 0:14:29.480 financial conditions on the labor market and on inflation. And 0:14:29.520 --> 0:14:32.880 then I think risks for next year are pretty wide. 0:14:33.360 --> 0:14:36.280 If the economy continues to grow and surprise us to 0:14:36.320 --> 0:14:41.320 the outside five percent interest rates, it's not unthinkable if 0:14:41.360 --> 0:14:45.200 the FACT thinks this is necessary to bring inflation down, 0:14:45.400 --> 0:14:47.480 they will go ahead and do that. They've told us 0:14:47.480 --> 0:14:50.720 they really prioritize price stability. At this point, when I 0:14:50.720 --> 0:14:52.840 look at market pricing, I think they are being a 0:14:52.840 --> 0:14:57.560 little bit too sanguine about the FED cutting interest rates already. 0:14:57.600 --> 0:14:59.400 Next year, I don't think it's going to be as 0:14:59.400 --> 0:15:02.200 simple as out in this business cycle, So no design. 0:15:02.360 --> 0:15:05.000 Franklin Templeton sent pretty much the same thing to us recently. 0:15:05.120 --> 0:15:07.960 Lurin you reachi that the US economy is the trod 0:15:08.000 --> 0:15:17.640 price echo, and some of that from Sonolan J Jim Bianco, 0:15:17.800 --> 0:15:20.360 president of Bianco Research, jim you know the recent theme. 0:15:20.520 --> 0:15:22.280 I don't even know it's recent. It's been gone on 0:15:22.320 --> 0:15:26.080 for months. Fight the inflation story, Fight the inflation story. Jimmy, 0:15:26.120 --> 0:15:29.280 you push him back against that. Yeah, I am, but 0:15:29.400 --> 0:15:32.040 I am this. Uh, this year's people that are calling 0:15:32.040 --> 0:15:35.880 for inflation peaked are last year's people that called inflation transitory. 0:15:36.160 --> 0:15:38.280 And it goes to a broader theme in the market 0:15:38.320 --> 0:15:42.720 that there's a very difficult understanding of what inflation is. Look, 0:15:42.760 --> 0:15:45.400 the chairman was right, we've understand now what little we 0:15:45.480 --> 0:15:49.000 understand about inflation. And the same thing applies to Wall Street, 0:15:49.080 --> 0:15:53.080 and the story continues that inflation is a problem and 0:15:53.120 --> 0:15:56.000 it's going to stay a problem, and those that think 0:15:56.040 --> 0:15:59.120 it might have peaked at nine point one. I am 0:15:59.280 --> 0:16:02.120 kind of on the on that. But more to the point, 0:16:02.640 --> 0:16:05.960 it isn't going to come down fast anytime soon, and 0:16:06.000 --> 0:16:09.239 the Fed's gonna have no choice but to stay aggressive. 0:16:09.360 --> 0:16:12.200 And the last thing is, I still think that all 0:16:12.280 --> 0:16:14.800 the talk about whether we're in a recession, and I 0:16:14.880 --> 0:16:18.200 happen to think we are, is of secondary importance. What's 0:16:18.200 --> 0:16:20.600 a primary importance is inflation. If it doesn't come down, 0:16:20.920 --> 0:16:23.400 the Fed's not going to stop. And in a recession. 0:16:23.720 --> 0:16:25.840 I don't think it's going to stop them. Jim Bianco, 0:16:25.920 --> 0:16:29.160 your beloved Cubs are going back to the nineties seventies 0:16:29.160 --> 0:16:31.840 and their level of mediocrity through the baseball season. In 0:16:31.840 --> 0:16:35.160 the seventies, we were all nominal. You allude in your 0:16:35.200 --> 0:16:40.520 research note to the idea of nominal inflation analysis, nominal 0:16:40.600 --> 0:16:45.920 GDP analysis, the nominal analysis of corporate revenues in a 0:16:46.000 --> 0:16:50.400 new inflation world discussed that. Yeah, so a lot of 0:16:50.400 --> 0:16:52.960 people talking about whether or not we're having a recession 0:16:53.000 --> 0:16:55.320 are asking the question, well, if we created three seventy 0:16:55.320 --> 0:16:57.720 thousand jobs, how can we have a recession? If we've 0:16:57.760 --> 0:17:00.680 got a bunch of positive economic reports, how can we 0:17:00.720 --> 0:17:03.000 have a recession? The answer is not whether or not 0:17:03.040 --> 0:17:05.879 it's positive or negative. Is is it faster than the 0:17:05.920 --> 0:17:08.560 inflation rate? And the answer for a lot of this 0:17:08.680 --> 0:17:10.920 is no, it's not. And that's why the first quarter 0:17:10.960 --> 0:17:13.879 GDP was negative, and that's why you're hearing more and 0:17:13.920 --> 0:17:17.160 more calls, including the Atlanta Fed GDP for this second 0:17:17.240 --> 0:17:21.080 quarter GDP to be negative. Yes, on a nominal basis, 0:17:21.080 --> 0:17:24.120 it will have expanded, it just won't beat the inflation rate, 0:17:24.440 --> 0:17:26.639 and that gives you negative real growth, and that is 0:17:26.680 --> 0:17:29.840 the very definition of a recession. Well, as we talk 0:17:29.880 --> 0:17:32.600 about you think the US economy already in a recession, 0:17:32.600 --> 0:17:34.480 you don't think it will stop the Federal Reserve and 0:17:34.480 --> 0:17:36.880 it's fight against inflation. Where is that going to put 0:17:37.160 --> 0:17:40.280 FED funds when because you had Blackstone out overnight saying 0:17:40.280 --> 0:17:44.440 we're getting a five percent next year potentially, Yeah, that's yes, 0:17:44.520 --> 0:17:48.520 that every FED rate hike cycle has ended, every one 0:17:48.520 --> 0:17:51.320 of them back to nineteen fifties with positive real yields. 0:17:51.359 --> 0:17:54.440 In other words, interest rates above the inflation rate. Now, 0:17:54.480 --> 0:17:56.320 that doesn't mean we have to go to nine percent 0:17:56.400 --> 0:17:58.760 on the funds rate. The inflation rate will come down, 0:17:59.440 --> 0:18:02.880 but we have to see the funds rate go above 0:18:02.960 --> 0:18:06.200 the inflation rate. Now, take Wall Street, Wall Streets most 0:18:06.200 --> 0:18:09.600 optimistic scenario is that the PC rate, which about a 0:18:09.600 --> 0:18:11.960 half a percent lower than c p I, will hit 0:18:12.000 --> 0:18:14.080 four percent by the end of next year. Well, that's 0:18:14.080 --> 0:18:17.240 gonna put the funds rate over four maybe near five. 0:18:17.359 --> 0:18:20.240 So I think people have to realize that rates have 0:18:20.320 --> 0:18:22.439 to go a lot higher. Now. The only thing that 0:18:22.520 --> 0:18:25.760 changes that is if we have a bad recession and 0:18:25.840 --> 0:18:29.320 that kills demand and that brings down prices quite a bit, 0:18:29.359 --> 0:18:32.159 but then we have a bad recession at that point. 0:18:32.200 --> 0:18:35.240 So I don't see the idea of a September pause 0:18:35.280 --> 0:18:38.320 that the FED is done after July as being in 0:18:38.440 --> 0:18:43.920 play right now unless something dramatically turned south in the economy. Jim, 0:18:43.960 --> 0:18:45.359 I'll give you a fund of what the a c 0:18:45.520 --> 0:18:48.720 BA tomorrow. What are you looking for from President of 0:18:48.720 --> 0:18:52.760 the count President Laggard? Uh, you know, finally getting off 0:18:52.760 --> 0:18:56.119 this night and hiking rates. I suspect that they're going 0:18:56.160 --> 0:18:58.200 to be like the e c B and they're gonna 0:18:58.240 --> 0:19:00.560 go twenty five and they're gonna be very considered and 0:19:00.720 --> 0:19:04.439 very slow moving. And all the talk about fifty is 0:19:04.560 --> 0:19:06.800 while I think they should do it, they won't. Don't 0:19:06.880 --> 0:19:09.639 move very slow, President Languette, Do you like that time? 0:19:10.040 --> 0:19:12.640 That's a new one, President Languett, There we go, gim 0:19:12.640 --> 0:19:15.520 Pianco Pianco Research. Thank you, Jim. It's going to catch 0:19:15.560 --> 0:19:21.640 up you. We count of get down to a big 0:19:21.640 --> 0:19:24.679 ECP decision tomorrow. We can do that with our Seleniosity, 0:19:24.720 --> 0:19:28.360 global head of effect Strategy at URBC outside tomorrow, am 0:19:28.359 --> 0:19:34.000 I trading the ECB or north stream one? Oh? There's 0:19:34.000 --> 0:19:36.160 so much event risk, isn't there? But it does feel 0:19:36.200 --> 0:19:39.280 like we've got a lot of the clues for the 0:19:39.280 --> 0:19:43.560 event risk actually coming all together yesterday. So sources suggesting 0:19:43.600 --> 0:19:46.240 that North Stream will be reopened, albeit remains to be 0:19:46.280 --> 0:19:49.560 seen that what capacity. And then sources again suggesting the 0:19:49.640 --> 0:19:52.960 CB is considering fifty beats, and um, we're getting some 0:19:53.040 --> 0:19:55.760 hints of what the antifragmentation looked to al might look like. 0:19:55.880 --> 0:19:58.359 So for all the kind of build up into tomorrow, 0:19:58.359 --> 0:20:00.679 and there's still a lot to watch, we have certainly 0:20:00.720 --> 0:20:03.040 seen a lot of the hints and clues coming ahead 0:20:03.040 --> 0:20:06.919 of time. We're looking for the theory of fragmentation ELSA, 0:20:07.359 --> 0:20:10.919 and then there's the application of the theory. Does it 0:20:11.080 --> 0:20:14.160 sound doable to you? Whatever plan they come up with, 0:20:14.960 --> 0:20:19.399 explain to me how it's doable. So there are a 0:20:19.400 --> 0:20:23.320 few big questions. I mean, clearly what's been talked about 0:20:23.480 --> 0:20:27.040 or the sources been suggesting something that would be pretty 0:20:27.040 --> 0:20:31.000 monumentous in terms of size and scope, talking about very 0:20:31.040 --> 0:20:34.600 loose conditionality mainly country sticking to the growth and stability pack. 0:20:35.040 --> 0:20:37.359 But of course there are two biggests. One will that 0:20:37.520 --> 0:20:40.680 get past the German constitutional court As we know when 0:20:40.680 --> 0:20:44.000 t was challenged all the previous programs have been challenged, 0:20:44.040 --> 0:20:47.520 they passed, but this would be a further step. And 0:20:47.520 --> 0:20:50.200 the second is what happens on the political front, because 0:20:50.200 --> 0:20:52.040 it's all very well saying a country needs to be 0:20:52.080 --> 0:20:54.600 abiding by the growth and Stability pack, but there's certainly 0:20:54.640 --> 0:20:57.040 a lot of populist parties across Europe that have no 0:20:57.119 --> 0:21:00.160 intention of doing anything of the sort. As we talk 0:21:00.200 --> 0:21:03.040 about the euro, obviously it has been substantially weaker at 0:21:03.040 --> 0:21:05.199 the same time that the dollar has been stronger, and 0:21:05.240 --> 0:21:07.359 there's a question of cause and effect. ELSA on this 0:21:07.400 --> 0:21:10.159 program yesterday we were speaking with Andrew Sheets and Morgan Stanley, 0:21:10.160 --> 0:21:12.280 and he said he thinks the dollar index could go 0:21:12.280 --> 0:21:15.280 out to one twelve in the third quarter, which was 0:21:15.359 --> 0:21:18.520 kind of a wow call. John asked the question yesterday, 0:21:18.560 --> 0:21:21.080 where does that put the euro if the dollar strengthens 0:21:21.119 --> 0:21:25.439 to that extent. I mean, there are certainly a lot 0:21:25.520 --> 0:21:29.000 of scenarios where euro dollar could weaken materially from here. Um, 0:21:29.040 --> 0:21:31.359 they're they're more extreme scenarios. You know, we're talking about 0:21:31.640 --> 0:21:35.639 total gas cut off from Russia to Europe, deep European recession, 0:21:36.240 --> 0:21:38.600 and under those conditions, of course, you'd expect to see 0:21:38.600 --> 0:21:40.919 euro dollar trade quite a bit weaker. It's not our 0:21:40.960 --> 0:21:43.080 base case scenario. We actually started the year with a 0:21:43.119 --> 0:21:45.879 call for parity um and that was the kind of 0:21:45.880 --> 0:21:48.719 forecast from December, and so being where we are now, 0:21:48.760 --> 0:21:50.880 it kind of feels like the bulk of the move 0:21:51.040 --> 0:21:53.800 is behind us um. Our target at the moment is 0:21:53.880 --> 0:21:56.439 something around the ninety level. But of course, if some 0:21:56.520 --> 0:21:59.600 of those more extreme tel risk scenarios pan out, then yes, 0:21:59.680 --> 0:22:01.720 you know, rodollar could be trading even to a native 0:22:01.760 --> 0:22:04.280 something handled. So every single morning I keep seeing more 0:22:04.320 --> 0:22:06.320 and more news about Europe, whether it's the e c 0:22:06.480 --> 0:22:09.560 B or Vladimir Poocha and nord Stream one. Not enough 0:22:09.560 --> 0:22:13.520 on China Alsa, What is going on in China with 0:22:13.560 --> 0:22:17.080 the mortgage market, this growing lone boycott and what on 0:22:17.160 --> 0:22:21.720