WEBVTT - Surveillance: Economy Could Use More Fed Support, Memani Says 0:00:02.600 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.560 Bloomberg dot Com, and of course, on the Bloomberg Rob 0:00:28.640 --> 0:00:32.920 Caroline is our Bloomberg meteorologist and has provided gentle perspective 0:00:33.360 --> 0:00:35.960 on a slow moving storm. Rob, let's start with that, 0:00:36.080 --> 0:00:40.320 what is the why of why Dorian is moving so slowly? 0:00:40.880 --> 0:00:43.240 While the why behind that, Tom is a high pressure 0:00:43.240 --> 0:00:45.479 which was up over the northeast this weekend was what 0:00:45.520 --> 0:00:48.960 was steering Dorian into the northwestern Bahamas. That system has 0:00:49.000 --> 0:00:51.120 moved off shore. We've actually had a coal front move 0:00:51.159 --> 0:00:53.880 across the northeast, so there's nothing helping to push that 0:00:53.960 --> 0:00:56.720 storm along. What's going to happen is coal front in 0:00:56.720 --> 0:00:58.920 the western Great Lakes. It's a fairly strong one. It 0:00:58.960 --> 0:01:01.960 will drop down kind of start to draw Dorrian north 0:01:02.040 --> 0:01:05.080 northwesterly later today, to the north tomorrow and then kick 0:01:05.120 --> 0:01:07.400 it out to the northeast as we head through Thursday 0:01:07.400 --> 0:01:11.200 and Friday. Is it is it a hurricane still and 0:01:11.240 --> 0:01:14.320 when does that shift with the erosion of the energy 0:01:14.400 --> 0:01:16.920 and the power of the inertial force. When does it 0:01:17.040 --> 0:01:20.200 shift to a tropical storm when it gets into the 0:01:20.240 --> 0:01:22.480 North Atlantic. It is going to remain as a hurricane 0:01:22.480 --> 0:01:25.720 the entire time. Yeah, it's spun down now to a 0:01:25.840 --> 0:01:28.199 hundred and twenty miles an hour sustained, but that's still 0:01:28.200 --> 0:01:31.760 a Category three hurricane, major hurricane. It's lashing on the 0:01:31.760 --> 0:01:34.200 northern side of Grand Bahama Island that has been doing 0:01:34.240 --> 0:01:37.120 so since yesterday morning. The devastation there is going to 0:01:37.200 --> 0:01:39.959 be horrific. The good news is the track should keep 0:01:40.000 --> 0:01:43.000 the strongest wins just east of the Florida coast, the 0:01:43.040 --> 0:01:45.840 Georga True Coast, and the South Carolina coast. I think 0:01:46.040 --> 0:01:48.520 the best chance for a potential landfall and the continent 0:01:48.520 --> 0:01:50.960 of the United States would be around Cape Hatteras early 0:01:51.000 --> 0:01:53.120 in the morning on Friday. So this is something that 0:01:53.120 --> 0:01:56.440 people have been talking about. The Florida and South Carolina 0:01:56.520 --> 0:01:58.680 not totally out of the woods, yex. It would just 0:01:58.720 --> 0:02:02.520 take a little shift to send the eye directly to 0:02:02.600 --> 0:02:05.080 make landfall. What are people looking for? When will we 0:02:05.120 --> 0:02:07.400 have a better sense of of what could potentially get 0:02:07.480 --> 0:02:09.880 hit well? The good news is lisaid the fact that 0:02:09.919 --> 0:02:12.359 the storm isn't moving right now, is what the model suggested. 0:02:12.400 --> 0:02:15.960 What happened, so we're not seeing anything unexpected. What we're 0:02:15.960 --> 0:02:18.040 waiting for now is that movement in the north and 0:02:18.080 --> 0:02:21.359 northwest today and the north later today. That'll start to 0:02:21.360 --> 0:02:23.440 give us some confidence that those stronger winds are gonna 0:02:23.440 --> 0:02:26.200 remain off shore and not impact the Florida coast at all. 0:02:26.280 --> 0:02:28.480 You know, Rob, I got three networks right now here 0:02:28.480 --> 0:02:30.919 in our studios. Folks were all wired up worldwide, all 0:02:30.919 --> 0:02:34.200 the Machendra for Bloomberg Television right now in the Green 0:02:34.600 --> 0:02:37.639 and Parliament. But in America we got three guys were 0:02:37.680 --> 0:02:41.600 in Patagonia standing on the shore getting splashed. And you know, 0:02:41.639 --> 0:02:44.239 we love Rob. You don't do that. Forget about the 0:02:44.360 --> 0:02:47.720 drama and all that. What have we learned about your 0:02:47.840 --> 0:02:52.840 business since Andrew of decades ago? Ah, the potential for 0:02:52.880 --> 0:02:56.560 these very small hurricanes to do horrific damage. Uh, Andrew 0:02:56.639 --> 0:02:59.000 was the same type of storm and same type of season, 0:02:59.440 --> 0:03:01.720 Andrew being the A storm was the end of August. 0:03:01.720 --> 0:03:03.760 We had had a very quiet summer that year, and 0:03:03.840 --> 0:03:06.079 not a whole lot had gun on This being the 0:03:06.160 --> 0:03:08.480 d storm ends up being a hundred and eighty five 0:03:08.480 --> 0:03:12.800 mile hour hurricane with two it only takes one storm 0:03:13.040 --> 0:03:15.840 to do horrific damage. And again, I can't imagine what 0:03:15.880 --> 0:03:18.200 it's going to look like on Grand Bahama Island tomorrow 0:03:18.240 --> 0:03:19.720 morning when they finally get a chance to get some 0:03:19.760 --> 0:03:21.960 TV crews in there, just to push this forward. Rob, 0:03:22.120 --> 0:03:23.840 what does it look like in terms of the rest 0:03:23.840 --> 0:03:27.160 of the hurricane season and the other storms that meteorologists 0:03:27.160 --> 0:03:29.200 have been keeping their eye on, Well, it's gonna get 0:03:29.280 --> 0:03:32.000 much more active than it's been, Lisa. We see conditions 0:03:32.000 --> 0:03:34.119 getting ripe in the Atlantic. In fact, we can see 0:03:34.120 --> 0:03:36.680 that this morning there's the potential system that may develop 0:03:36.720 --> 0:03:39.040 in the western Gulf of Mexico. Um it may end 0:03:39.080 --> 0:03:41.000 up being a tropical storm. And then there's a wave 0:03:41.120 --> 0:03:43.720 off the coast of Africa on thirty one west that 0:03:43.840 --> 0:03:45.800 may become a depression within the next couple of days. 0:03:45.800 --> 0:03:47.360 So it's certainly gonna be much more busy in the 0:03:47.440 --> 0:03:49.800 Atlantic over the next month than it's been the previous 0:03:49.800 --> 0:03:52.040 three months. Rob, your pro thanks so much. He is 0:03:52.080 --> 0:03:55.360 our Bloomberg meteorologist for all of our weather storms, snow 0:03:55.400 --> 0:04:07.800 and the rest of it. This is a joy and 0:04:07.880 --> 0:04:10.400 to start this Tuesday, you know it's like New Year's 0:04:10.400 --> 0:04:12.400 in the business world. Every you know, it's like a 0:04:12.720 --> 0:04:16.200 happy Tuesday kind of time, and it is wonderful. To 0:04:16.240 --> 0:04:20.760 start with Lorie Calvacina of OURBC on the equity markets. 0:04:20.800 --> 0:04:22.880 There's a lot of naval gays in this weekend, Laurie 0:04:22.880 --> 0:04:26.680 about what to do all this other noise, bonds, currencies, 0:04:27.160 --> 0:04:31.359 sterling under one nineteen, et cetera. I guess steadfast and 0:04:31.400 --> 0:04:35.520 an equity call or have you amended things? So I 0:04:35.520 --> 0:04:38.080 would say the only thing that's really changed in our 0:04:38.160 --> 0:04:40.320 view over the past, you know, stay a week week 0:04:40.320 --> 0:04:42.479 and had since we had that awful Friday where the 0:04:42.480 --> 0:04:45.440 trade war escalated again, is you know, I would say, 0:04:45.440 --> 0:04:47.560 in the short term, at least we have more conviction 0:04:47.560 --> 0:04:49.800 that we're going to see a full on ten percent pullback, 0:04:49.839 --> 0:04:52.839 and we've said that the risk of having that pulled 0:04:52.880 --> 0:04:55.400 back morphed into what we call a growth scare. We 0:04:55.440 --> 0:04:57.960 think the risks there have risen. It's not our base case. 0:04:58.360 --> 0:05:01.000 By growth scare, I mean something my took what took 0:05:01.080 --> 0:05:03.960 us to the loads of eleven or twenty sixteen, where 0:05:03.960 --> 0:05:06.599 you saw basically like a fifteen to pull back in 0:05:06.600 --> 0:05:08.800 the market. That's not our base case, but we do 0:05:08.880 --> 0:05:11.960 think the risks has risen significantly, So Laurie, a ten 0:05:12.000 --> 0:05:15.160 percent pull back would that be across the board, and 0:05:15.200 --> 0:05:18.720 just sort of talking about correlations, everything going down at once, 0:05:18.839 --> 0:05:21.920 or they're going to be certain sectors hit harder. So 0:05:22.080 --> 0:05:25.240 you know what we always see on these really bad days, 0:05:25.400 --> 0:05:27.480 and you don't necessarily see it in the weekly data 0:05:27.560 --> 0:05:29.320 or the monthly data, but we do tend to see 0:05:29.360 --> 0:05:31.640 some of the names most heavily owned by hedge funds, 0:05:31.640 --> 0:05:35.160 particularly in the T I M T complex, the software space, 0:05:35.200 --> 0:05:38.480 I T services, things that might not necessarily be associated 0:05:38.480 --> 0:05:41.320 with the trade war directly, but that are simply widely 0:05:41.400 --> 0:05:44.599 held on big proxy for equity exposure among the hedgepunk crowd. 0:05:44.920 --> 0:05:46.880 Those are things to watch out for. I mean, you know, 0:05:46.920 --> 0:05:50.600 we we still like things like utilities, reaps, consumer staples. 0:05:50.880 --> 0:05:53.080 Were not necessarily saying that they will go up in 0:05:53.120 --> 0:05:55.640 a pullback. We think they go down less. Lauria, we're 0:05:55.720 --> 0:05:58.840 jargon free, particularly one of Brammo Wosis in the room. 0:05:58.960 --> 0:06:03.440 What is T I M T tech, Internet media and telecoms. 0:06:03.480 --> 0:06:05.320 So I'm a child of the tech bubble. I came 0:06:05.360 --> 0:06:07.400 into the business back in two thousand and that's how 0:06:07.440 --> 0:06:09.919 we used to talk about it then. And what we 0:06:10.000 --> 0:06:12.839 find is, you know, gigs has moved around the sector 0:06:12.920 --> 0:06:15.400 a little bit over the last year. That's really how 0:06:15.440 --> 0:06:17.000 a lot of hedge funds and a lot of growth 0:06:17.040 --> 0:06:20.279 investors do their tech allocations. They lump media and telecomm 0:06:20.279 --> 0:06:22.560 and yeah, we call that. Those of us of a 0:06:22.680 --> 0:06:25.599 later vintage, at least they called that. Stocks with no 0:06:25.720 --> 0:06:29.599 profits continued, well, some of them do. But it is 0:06:29.680 --> 0:06:32.200 interesting to see what you were talking about, Laurie, that 0:06:32.279 --> 0:06:36.400 the idea that hedge fund ownership is a recipe for volatility. 0:06:36.440 --> 0:06:40.160 And I'm wondering what you're increasingly telling and advising clients 0:06:40.240 --> 0:06:43.279 to look at hedge fund ownership of stocks and then 0:06:43.279 --> 0:06:46.600 saying stay away. It's it's something that we've looked at 0:06:46.640 --> 0:06:48.880 for a long time. Um, we have one product that 0:06:48.920 --> 0:06:51.080 we put out. We put this out in August, and 0:06:51.440 --> 0:06:53.000 you know, we do go through and we look at 0:06:53.040 --> 0:06:55.159 the names that are most heavily owned by hedge funds, 0:06:55.240 --> 0:06:57.359 both in terms of dollar value in terms of market 0:06:57.360 --> 0:07:00.280 cap exposure percent of market cap owned by hedge funs. 0:07:00.680 --> 0:07:02.440 What we've actually found is if you go back and 0:07:02.440 --> 0:07:04.320 you look at last year in the second half of 0:07:05.720 --> 0:07:07.760 When you flipped over into the second half of the year, 0:07:07.800 --> 0:07:09.720 it was like flipping a switch. And the names most 0:07:09.760 --> 0:07:12.360 heavily owned by hedge funds, just the biggest market CALF 0:07:12.480 --> 0:07:17.000 names um underperformed pretty uh steadily until you got to 0:07:17.080 --> 0:07:19.160 basically kind of early December, and then they were kind 0:07:19.160 --> 0:07:22.559 of in line performers. But we saw those stocks start 0:07:22.600 --> 0:07:25.000 to break down before the market did. One thing that 0:07:25.040 --> 0:07:27.400 I'm wondering and that LORI, I know that you've embarished 0:07:27.400 --> 0:07:30.040 for a while. The amount of bearished sentiment in the 0:07:30.080 --> 0:07:33.280 market is getting to be sort of growing. Din at 0:07:33.320 --> 0:07:36.880 what point is that a positive indicator for stocks? So 0:07:36.960 --> 0:07:39.240 you know, it's interesting. We have a scorecard where we 0:07:39.280 --> 0:07:42.160 monitor different drivers for equities and one of those drivers 0:07:42.400 --> 0:07:45.280 is investor sentiment and positioning, and we consider it to 0:07:45.320 --> 0:07:48.520 be mixed, and the mixed is on the negative side. 0:07:48.600 --> 0:07:50.920 We still have positioning, which we think has been quite 0:07:50.960 --> 0:07:53.640 euphoric and in the process of unwinding. If you look 0:07:53.680 --> 0:07:56.480 at CFTC data, it's telling you that it's starting to 0:07:56.520 --> 0:08:00.000 catch up with where sentiment itself already is now. Sentiment 0:08:00.000 --> 0:08:02.600 it has been quite bearished, and on some metrics if 0:08:02.600 --> 0:08:06.120 you look at AII, the American Association of Individual Investors. 0:08:06.400 --> 0:08:09.680 Retail sentiment is quite bearished. That's usually a good bye signal. 0:08:09.960 --> 0:08:12.920 But the positioning, especially on the institutional side, which is 0:08:12.920 --> 0:08:15.680 what you're seeing with that CFTC data, it's been lagging 0:08:15.720 --> 0:08:17.680 a bit behind. It's catching up to where that Parish 0:08:17.720 --> 0:08:22.240 sentiment already is. Thank you. We will continue with thrills 0:08:22.240 --> 0:08:24.800 that she could be with us for a substantial uh 0:08:24.920 --> 0:08:40.440 time here this morning she's at RBC Capital Markets. Dana 0:08:40.480 --> 0:08:42.960 i On is joining us now. Dan On BNP PARIBA 0:08:43.120 --> 0:08:45.959 chief US Economist and ahead of Marcus three six in 0:08:46.000 --> 0:08:49.920 North America at former U S. Department of State Chief Economist, 0:08:49.920 --> 0:08:51.920 and Dan I want to start there with your experience 0:08:52.360 --> 0:08:55.400 in UH the State Department. Considering the fact that so 0:08:55.440 --> 0:09:00.480 many economists have basically written off the likelihood of a deal, 0:09:00.720 --> 0:09:04.120 I'm wondering, as we see the increasing expectations for a 0:09:04.320 --> 0:09:08.840 US recession, how much would those get absolutely annihilated if 0:09:08.840 --> 0:09:10.600 there were some trade deal? In other words, you know, 0:09:10.760 --> 0:09:14.400 could the U. S. Economy grow substantially if we remove 0:09:14.480 --> 0:09:17.160 some of these trade tensions? All Right, it's a pleasure 0:09:17.160 --> 0:09:19.560 to be on and that's an excellent question. Um I 0:09:19.559 --> 0:09:23.440 think actually the weakness that we're seeing in the U. 0:09:23.480 --> 0:09:25.880 S economy and in fact around the world. UM, it's 0:09:25.960 --> 0:09:29.800 not driven solely by trade tensions. This was a cycle 0:09:29.880 --> 0:09:35.520 that in manufacturing that began before the trade tensions really 0:09:36.480 --> 0:09:41.600 accelerated them. So even a removal of the trade tensions 0:09:41.720 --> 0:09:45.440 UH may not be enough to, you know, cause the 0:09:45.440 --> 0:09:48.880 the U S and the global economy to rebound that strongly. UM. 0:09:49.080 --> 0:09:53.640 That But that said, there are I think tentative signs 0:09:53.720 --> 0:09:58.880 that perhaps both sides are recognizing the the economic damage 0:09:59.160 --> 0:10:01.480 that this is inflict upon themselves as well as the 0:10:01.480 --> 0:10:05.720 rest of the world. UH and uh. UM. While it's 0:10:05.800 --> 0:10:09.080 really challenging to predict exactly the twists and turns of 0:10:09.120 --> 0:10:12.160 the trade tensions, UM, I think the prospects for a 0:10:12.200 --> 0:10:15.679 ceasefire UM are still there. Okay, So Dan, I'm just wondering, 0:10:15.760 --> 0:10:18.920 given the fact that there are still some chances for 0:10:19.000 --> 0:10:21.800 a ceasefire, what's the likelihood of the US recession the 0:10:21.840 --> 0:10:28.559 next twelve months? So UM. Obviously much will still depend upon, uh, 0:10:28.840 --> 0:10:32.840 how well the trade talks go in September and beyond. UM. 0:10:32.880 --> 0:10:35.839 But I think it's premature to talk about the R 0:10:35.920 --> 0:10:39.360 word right now. It's Uh. Yes, you know, there are 0:10:39.400 --> 0:10:42.320 some important signals, notably the yield curve, which are pointing 0:10:42.400 --> 0:10:46.840 toward UM, toward a recession. But and clearly a deceleration 0:10:46.880 --> 0:10:50.960 and a slowdown in US growth UM is already happening. UM. 0:10:51.000 --> 0:10:54.679 But the you know, the U. S consumer which comprises 0:10:55.440 --> 0:10:59.400 the economy is still strong. UM. There's only tentative signs 0:10:59.440 --> 0:11:01.520 that sentiment maybe shifting. So I think we need to 0:11:01.520 --> 0:11:05.240 see some more data UM coming before we know for 0:11:05.320 --> 0:11:07.559 sure that the consumer is turning. The doctor on your 0:11:07.559 --> 0:11:10.600 note is remarkably global. As you pull it all back 0:11:10.640 --> 0:11:13.440 to the U. S. Economy, I want you to fold 0:11:13.480 --> 0:11:16.760 in Japan right now. You've got a fabulous chart buried 0:11:16.760 --> 0:11:20.280 in your note of the slowdown uh in their domestic 0:11:20.360 --> 0:11:23.480 machine orders versus what else is going on in Japan? 0:11:24.240 --> 0:11:29.920 Is Jerome Powell the central bank or did Japan? Right now? Yes? 0:11:30.000 --> 0:11:32.960 And unfortunately he's in a position where, with so much 0:11:33.000 --> 0:11:35.560 of the rest of the economy and particularly emerging markets, 0:11:35.600 --> 0:11:38.640 I would say, as well as other developed markets hinged 0:11:38.720 --> 0:11:43.839 upon US monetary policy, he is de facto acting as 0:11:43.840 --> 0:11:47.000 a central bank of the world, even if his mandate 0:11:47.040 --> 0:11:50.000 from Congress is of course just the US focused, and 0:11:50.080 --> 0:11:53.920 of course, uh, they're people in washing d C who 0:11:53.960 --> 0:11:57.760 want him to be even more uh solely focused on 0:11:57.800 --> 0:12:00.240 the US rather than the rest of So does that 0:12:00.280 --> 0:12:03.400 do for September eighteen? Lisa? What is it? The fourth authority? Today? 0:12:04.000 --> 0:12:07.200 Third third? So we're like fifteen days away from a 0:12:07.240 --> 0:12:10.760 FED meeting? What is what is the global nature of 0:12:10.840 --> 0:12:16.160 this mean for the chairman? Is he looks to September eighteen? Yeah? So, um. 0:12:16.240 --> 0:12:20.960 Chair Powell has definitely mentioned external conditions as one of 0:12:21.000 --> 0:12:26.040 the three reasons why he has already started cutting rates. Um. 0:12:26.160 --> 0:12:31.360 He believes that this is part of a risk management strategy, UM, 0:12:31.400 --> 0:12:36.319 where the fundamentals themselves may not quite justify already moving 0:12:36.360 --> 0:12:40.839 into an easy cycle. Um, but there's are reasons, including 0:12:41.000 --> 0:12:46.719 as you said, external external global economic weakness that justifies 0:12:46.840 --> 0:12:51.640 rate cutting. So I think he will use similar justifications, UM, 0:12:51.880 --> 0:12:54.719 because the reasons, the three reasons are all still there, uh, 0:12:54.960 --> 0:12:59.920 weak economic conditions, trade tensions, and a muted inflationary outlaw 0:13:00.640 --> 0:13:04.079 uh to support further cuts. So you were saying that 0:13:04.240 --> 0:13:06.520 it's too early to start talking about the R word, 0:13:06.679 --> 0:13:09.240 And whenever anyone says the R word, it makes it 0:13:09.320 --> 0:13:12.319 sound that much more ominous, But we are seeing that 0:13:12.400 --> 0:13:15.400 yield curve, whether it's two tens, whether it's three month tenure, 0:13:16.080 --> 0:13:18.520 wherever you want to slice and dice it, you're seeing 0:13:18.520 --> 0:13:21.679 the inversion persist. Is this time different? Does this sort 0:13:21.679 --> 0:13:25.800 of mean nothing? Yeah, it's always perilous for economists to 0:13:25.840 --> 0:13:27.959 say this time is different when so many times it's 0:13:28.000 --> 0:13:30.520 not actually the case. But I actually do think that 0:13:30.600 --> 0:13:33.040 this time it's a little different. There are reasons to 0:13:33.040 --> 0:13:37.440 believe that structurally, long term interest rates have been depressed lower. 0:13:37.760 --> 0:13:40.200 I mean, in the end of the day, yield curve 0:13:40.280 --> 0:13:45.520 inversion is basically a prediction that short term rates are 0:13:45.559 --> 0:13:49.680 going to continue to fall um and that has always 0:13:49.720 --> 0:13:53.880 been correlated with the recession UM. But you know, but 0:13:53.960 --> 0:13:57.880 the causal channels are complex, and with rates already at 0:13:57.880 --> 0:14:00.680 a relatively low rate, it doesn't take because much this 0:14:00.760 --> 0:14:03.120 time around for the yield curve to invert. You know, 0:14:03.200 --> 0:14:05.400 part of your charm as you took a finance degree 0:14:05.480 --> 0:14:07.960 with an economic degree as well, what is the causal 0:14:08.000 --> 0:14:11.880 transmission of negative interest rates that wasn't in your studies? 0:14:12.080 --> 0:14:16.280 Was it? No? And it's an ongoing area for for 0:14:16.360 --> 0:14:20.440 research right now. Um, and uh, the latest I think 0:14:20.440 --> 0:14:23.760 in academic thinking is that yes, you know, we can 0:14:23.920 --> 0:14:27.520 move somewhat into negative territory. We've already seen that with 0:14:27.760 --> 0:14:30.440 you know, with Switzerland, with some of the Spinavian countries 0:14:30.480 --> 0:14:33.880 and so on. But there reaches a quick point, a 0:14:33.960 --> 0:14:38.360 point where once you depress interest rates, uh in negative 0:14:38.440 --> 0:14:42.280 territory too far. You know, other mitigating strategies like hearing 0:14:42.320 --> 0:14:44.680 et cetera can only do so much before this actually 0:14:44.720 --> 0:14:47.120 trying to be bad for the economy rather than good 0:14:47.160 --> 0:14:49.080 for the economy. And now, as a point, folks, where 0:14:49.080 --> 0:14:52.320 we go. Academic Marvin good Friend at Carnegie Mellon would 0:14:52.360 --> 0:14:56.720 suggest a braver approach on negative interest rates, which deals 0:14:56.720 --> 0:14:59.640 with the amplitude of a difference equation. I mean, if 0:14:59.680 --> 0:15:02.440 you yield with the amplitude and pushed down negative rates 0:15:02.480 --> 0:15:05.480 as we're seeing in Germany right now. In Switzerland, I mean, 0:15:05.520 --> 0:15:08.720 we had a record load tenure yield two hours ago, folks. 0:15:08.840 --> 0:15:13.080 Dr Ron, If we if we boost the amplitude of 0:15:13.160 --> 0:15:17.960 negative interest rates, doesn't that provide instability by definition when 0:15:17.960 --> 0:15:21.520 you recover. Yeah, we were certainly kind of on the 0:15:21.560 --> 0:15:24.600 other side of the looking glass here. Um, none of 0:15:24.640 --> 0:15:28.160 the standard kind of theories sort of accepts that negative 0:15:28.160 --> 0:15:30.400 interest rates are even possible, and yet here we are 0:15:31.040 --> 0:15:34.800 Uh so, yeah, we are in uncharted territory and that 0:15:34.920 --> 0:15:39.280 is always dangerous for for policymakers. Uh and uh and 0:15:39.400 --> 0:15:44.360 for academics. Uh. Maybe kind of exciting for academics, but uh, 0:15:44.400 --> 0:15:48.080 it's it's uncharted territory here. So uh um, I mean 0:15:48.120 --> 0:15:51.200 bottom line. Uh, you know, we can quibble about exactly 0:15:51.240 --> 0:15:55.640 what is the right kind of negative interest rates that 0:15:56.240 --> 0:15:59.560 should be set, but I think the big picture here 0:15:59.680 --> 0:16:02.960 is that at um, the headwinds faced by the global 0:16:03.000 --> 0:16:07.040 economy are not monetary and and uh and credit related 0:16:07.080 --> 0:16:09.320 in nature, and so there's only so much that you 0:16:09.360 --> 0:16:13.040 can use actually a monetary tool to fix non monetary problems. 0:16:13.200 --> 0:16:16.040 You sound like Bill Dudley. I didn't mean that. Dr Ron, 0:16:16.120 --> 0:16:28.960 thank you so much, greatly appreciate it. With BP joining 0:16:29.040 --> 0:16:32.120 us now, Lindsay pegs act. She is Steple chief economist, 0:16:32.320 --> 0:16:34.880 and Lindsay I want to talk about manufacturing. So we've 0:16:34.880 --> 0:16:37.240 got a bunch of readings out from Europe and from 0:16:37.280 --> 0:16:41.040 Asia and they painted the same picture. Factories are producing 0:16:41.320 --> 0:16:43.600 less and it does not seem to be getting better 0:16:43.760 --> 0:16:48.000 anytime soon. Is this something specific to the industrial sector, 0:16:48.080 --> 0:16:51.720 or does this represent a broader, more sustained slowdown that 0:16:51.760 --> 0:16:54.760 will happen regardless of whether the trade tensions are resolved. 0:16:55.840 --> 0:16:58.320 You're right, we have been saying this very steep downward 0:16:58.400 --> 0:17:02.760 trend in manufacturing global manufacturing. Now. I do think that 0:17:02.800 --> 0:17:05.800 at the heart of this weakness is deteriorating trade relations, 0:17:05.840 --> 0:17:08.720 but we were beginning to see weakness bubble underneath the 0:17:08.760 --> 0:17:12.680 surface independent of these trade negotiations. So I do think 0:17:12.680 --> 0:17:17.359 that it's a dual pathway that's really compounding this negative implication. 0:17:17.960 --> 0:17:19.800 So in other words, that you think that it's not 0:17:20.240 --> 0:17:23.800 just simply the new trade regime. And given that, do 0:17:23.880 --> 0:17:27.679 you think that it signals some sort of global recession 0:17:27.920 --> 0:17:29.760 or a sort of deepening of the downturn, or do 0:17:29.800 --> 0:17:31.560 you think that we're seeing things kind of peek out 0:17:31.600 --> 0:17:35.040 here at the bottom. I don't think we can blame 0:17:35.119 --> 0:17:39.520 just trade in terms of the weaker fundamentals that we're seeing. 0:17:39.560 --> 0:17:41.640 And this is something that the Federal Reserve pointed out 0:17:41.640 --> 0:17:45.720 as well. Think, yes, trade negotiations and these tensions have 0:17:45.840 --> 0:17:49.240 exacerbated this downward trend, but we were beginning to see 0:17:49.280 --> 0:17:51.760 the end of a credit cycle, the beginning of again 0:17:51.800 --> 0:17:57.000 these weakening factors already become evident independent of these trade 0:17:57.040 --> 0:18:01.080 negotiations or deteriorating trade negotiations. That being said, when we 0:18:01.119 --> 0:18:04.159 look at the weakness abroad, when we see struggling growth 0:18:04.280 --> 0:18:08.960 in Europe's key economy Germany, Italy, France, China of course 0:18:09.000 --> 0:18:12.480 slowing to the weakest pace of expansion in decades, and 0:18:12.560 --> 0:18:16.639 of course the US still positive but seeing very clear 0:18:16.760 --> 0:18:21.160 signs of weakness and deteriorating composition of growth. I think 0:18:21.200 --> 0:18:24.960 this does sell maybe not a global recession, but certainly 0:18:25.040 --> 0:18:28.560 a non accelerating economic period. What's global economy? What's the 0:18:28.640 --> 0:18:32.080 trended inflation right now? What are the differentials between service 0:18:32.080 --> 0:18:35.399 sector inflation call it two point eight percent and goods 0:18:35.440 --> 0:18:39.480 inflation barely above zero granted recovering, but what are the 0:18:39.560 --> 0:18:43.119 dynamics of inflation you see? Lindsay, Well, that's one of 0:18:43.160 --> 0:18:45.119 the problems, and that's one of the issues that the 0:18:45.119 --> 0:18:47.480 Federal Reserve has struggled with, the fact that there's really 0:18:47.520 --> 0:18:50.960 two tales of inflation. When we look at goods inflation, 0:18:51.040 --> 0:18:53.720 this is primarily reflecting the fact that this is a 0:18:53.760 --> 0:18:56.520 global economy, and when we see the goods to produce 0:18:56.560 --> 0:19:00.080 at a cheaper level overseas, we import that deflation and 0:19:00.200 --> 0:19:03.280 here in the US, and that's restraining goods prices. But 0:19:03.359 --> 0:19:06.760 of course services are harder to export overseas, and what 0:19:06.760 --> 0:19:09.960 we're seeing is more of an inflationary environment, okay, which 0:19:10.000 --> 0:19:12.680 has been trending well above two percent. But of course 0:19:12.760 --> 0:19:16.119 monetary policy can't be two different types of policy to 0:19:16.480 --> 0:19:19.720 combat those those different lindsay, I cooked a barbecue this weekend, 0:19:19.800 --> 0:19:23.359 cater by shake check and and and in doing it 0:19:24.119 --> 0:19:27.080 you go real Simply is the inflation what our listeners 0:19:27.160 --> 0:19:34.080 feel translated service sector inflation like books Brandy Melville and tuitions, 0:19:34.240 --> 0:19:39.760 or is the inflation a lower statistic? Which is it? Well, remember, 0:19:39.760 --> 0:19:43.560 as consumers, we feel the brunt of that, regardless of 0:19:43.560 --> 0:19:46.879 whether it's goods inflation service inflation. We feel the composition 0:19:46.880 --> 0:19:49.720 of that because we're paying for those goods and services. 0:19:49.760 --> 0:19:52.320 But from a monetary policy standpoint, the set has to 0:19:52.359 --> 0:19:54.800 be very careful and the FETE has to look at 0:19:54.840 --> 0:19:57.399 the differences that we're seeing. And we still are seeing 0:19:57.560 --> 0:20:01.400 very stable services cost while above or should say well 0:20:01.440 --> 0:20:05.280 anchored above two percent versus goods costs, which again can 0:20:05.320 --> 0:20:09.840 reflect some of those international pathways and and flows of 0:20:09.880 --> 0:20:13.080 capital and goods. So the FED doesn't want to overreact 0:20:13.080 --> 0:20:17.200 to one category of declining prices. But I think more broadly, 0:20:17.200 --> 0:20:19.360 when we look at the PC, both the headline and 0:20:19.400 --> 0:20:21.800 the core, they're well below two percent, and the FED 0:20:21.920 --> 0:20:24.520 was appropriate to act. In July, lindsay, I'm glad we 0:20:24.560 --> 0:20:26.960 brought up the consumer. How long can can the consumer 0:20:27.040 --> 0:20:31.280 stay strong with business confidence declining? There to the degree 0:20:31.320 --> 0:20:34.399 that it has been well, it's it's shocking really that 0:20:34.440 --> 0:20:36.639 the consumer has been able to stay this strong for 0:20:36.760 --> 0:20:39.560 this long, not only with confidence speaking, but it was 0:20:39.720 --> 0:20:43.280 really a lack of meaningful wage gains. We have seen 0:20:43.320 --> 0:20:45.359 wage games pick up to be abso to be fair, 0:20:45.920 --> 0:20:48.879 more recently, but we're talking about minimal tenth of a 0:20:48.960 --> 0:20:52.640 percentage point ten years into the recovery. If we were 0:20:52.680 --> 0:20:55.800 honestly talking about such a pronounced improvement in the labor 0:20:55.840 --> 0:20:58.440 market with such a minimal amount of slack, we would 0:20:58.480 --> 0:21:00.800 easily have been talking about four or four and a 0:21:00.800 --> 0:21:04.520 half percent wage games on a sustained basis. So it's 0:21:04.640 --> 0:21:06.840 very surprising to me that the consumer has been this 0:21:07.000 --> 0:21:10.880 resilient without meaningful wage gains. Okay, okay, the wage gains 0:21:10.920 --> 0:21:14.000 aren't there or is it? They're all skewed to the 0:21:14.080 --> 0:21:16.320 upper x per cent? I mean, is there a part 0:21:16.320 --> 0:21:20.120 of America getting a seven, eight, twelve percent wage gain 0:21:20.400 --> 0:21:24.640 and there's another part of America flat on our back? Actually, 0:21:24.800 --> 0:21:27.560 you're exactly right. We're not seeing these wage games expand 0:21:27.600 --> 0:21:30.000 across the entire economy. And in fact, I think the 0:21:30.040 --> 0:21:32.920 biggest divide. But I think the biggest divide is between 0:21:33.000 --> 0:21:37.760 the skills havevers and that those that appropriate skills. And 0:21:37.800 --> 0:21:41.080 so when you're looking at manufacturing wages, mining, how about 0:21:41.080 --> 0:21:44.360 the service sector, You're struggling to keep up with inflation 0:21:44.400 --> 0:21:46.160 in terms of your wage games. But if you're lucky 0:21:46.280 --> 0:21:50.120 enough to have a job and engineering i t. Computer science, 0:21:50.240 --> 0:21:54.480 you could actually be experiencing five six wage games. So 0:21:54.520 --> 0:21:57.520 there's a very clear divide between the specific skills and 0:21:57.640 --> 0:22:03.560 employers want and those that that employees have. Lindsay Piezka, 0:22:03.800 --> 0:22:08.240 Thanks so much, Lindsay pieza step chief economist, joining us 0:22:08.280 --> 0:22:22.080 to talk all things economics. It is the new year. 0:22:22.359 --> 0:22:25.159 It is all I was. I was pulling out Reminiscence 0:22:25.200 --> 0:22:28.320 of Stock Operator, like you read it every September. I 0:22:28.400 --> 0:22:31.119 know Christian Maman he's read it like fourteen. At times 0:22:31.119 --> 0:22:34.640 he's with Invesco and with a wonderful perspective on what 0:22:34.720 --> 0:22:37.359 to do and not to do in the market creation. 0:22:37.440 --> 0:22:40.280