WEBVTT - Surveillance: Inflation Target with Slok 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.200 the Bloomberg Terminal and the Bloomberg Business app. Tourston slockholding 0:00:31.200 --> 0:00:33.680 court at Deutsche Bank for years. He's a chief economist 0:00:34.000 --> 0:00:36.920 at a Rising Apollo. Torston, thank you so much for 0:00:37.000 --> 0:00:39.879 joining this morning. What's the operative theory right now for 0:00:39.920 --> 0:00:42.720 a FED Let's say they're restrictive, some would say they're 0:00:42.800 --> 0:00:46.680 super restrictive. Underlying that is a need to turn at 0:00:46.720 --> 0:00:49.920 some point. What's the theory they have right now to 0:00:50.000 --> 0:00:53.400 get ready to turn out quarters up meeting zone. 0:00:53.720 --> 0:00:55.360 Well, that's a very good question, and I think the 0:00:55.440 --> 0:00:57.520 answer to that is it's all about the dual mandate. 0:00:58.000 --> 0:00:59.920 That for a long long time they've been focusing on 0:01:00.080 --> 0:01:02.080 the inflation part of the dual mandate because it was 0:01:02.160 --> 0:01:05.839 very clear that inflation was and still is at levels 0:01:05.880 --> 0:01:08.160 that are too high for their comfort. I do think 0:01:08.160 --> 0:01:10.360 that the narrative, both for the FED and also for 0:01:10.440 --> 0:01:14.080 markets will now begin to change towards growth or towards employment. 0:01:14.360 --> 0:01:18.559 In other words, what are the reasons why we're still 0:01:18.560 --> 0:01:21.200 having this strong economy? And if the lack of effects 0:01:21.240 --> 0:01:23.880 of monetary policy that they have spoken about for so long, 0:01:23.880 --> 0:01:26.080 where it takes twelve to eighteen months to slow the 0:01:26.120 --> 0:01:29.080 economy down, well, the lacked effects of Fed hikes will 0:01:29.120 --> 0:01:31.480 eventually begin to slow things down. We're already seeing that 0:01:31.880 --> 0:01:34.520 across all indicators, and we should expect that also to 0:01:34.560 --> 0:01:35.760 happen over the coming quarters. 0:01:35.800 --> 0:01:38.000 Son, how do you explain jobless claims coming in lower 0:01:38.040 --> 0:01:41.480 than expected? How do you explain other metrics of wage 0:01:41.520 --> 0:01:43.240 growth continuing to remain robust. 0:01:43.480 --> 0:01:45.240 Yeah, so, in that sense, there's still a very strong 0:01:45.280 --> 0:01:47.960 label market. Everagej ob earning last Friday went up, and 0:01:48.040 --> 0:01:51.400 this label market, obviously in jobless claims still looking relatively tight, 0:01:51.640 --> 0:01:53.880 would certainly also get the Fed to say, well, we 0:01:53.960 --> 0:01:56.640 still need to hike rate more and still tighter monetary 0:01:56.640 --> 0:01:57.480 policy is needed. 0:01:57.880 --> 0:02:01.000 But at this point, if you see companies, whether it's Delta, 0:02:01.120 --> 0:02:03.720 whether it's PEPSI, whether it's a number of the others 0:02:03.760 --> 0:02:07.440 that are seeing profit margins expand with their input prices 0:02:07.480 --> 0:02:09.960 coming down more than what they can charge consumers. 0:02:10.280 --> 0:02:11.680 You have people who are employed. 0:02:11.720 --> 0:02:14.880 At what point does it become a virtuous cycle that 0:02:15.080 --> 0:02:18.080 offsets any pain of those rate hikes. 0:02:18.240 --> 0:02:20.400 Well, and also at this point, as you also talk 0:02:20.440 --> 0:02:22.519 a lot about the housing market is beginning to recover, 0:02:22.600 --> 0:02:25.440 traffic or prospective buyers is going up. You look, existing 0:02:25.440 --> 0:02:27.600 home sales is going up, New home sales is going up. 0:02:27.639 --> 0:02:30.160 Home build their confidence, home bio confidence. Even the number 0:02:30.160 --> 0:02:32.520 of office receiveder sole property is also going up. That 0:02:32.560 --> 0:02:35.040 bidding walls are coming back. And remember housing makes up 0:02:35.080 --> 0:02:37.760 forty percent of the CPI. So the risk is if 0:02:37.760 --> 0:02:41.360 we start with core CPI, which was at four point eight, 0:02:41.720 --> 0:02:44.120 that's still just way too high for their comfort. So 0:02:44.160 --> 0:02:47.440 that's why for them it's still the hawkish communication saying 0:02:47.840 --> 0:02:50.239 both on the inflation side and on the growth side, 0:02:50.280 --> 0:02:52.480 on the employment side of the dual mandate, we just 0:02:52.520 --> 0:02:54.640 got to keep making sure that we don't have an 0:02:54.680 --> 0:02:57.239 economy that continues to look overheated on a number of 0:02:57.240 --> 0:02:57.840 different fronts. 0:02:58.040 --> 0:03:00.440 I want to look at the larger of the miss 0:03:00.440 --> 0:03:03.920 standpoint that America is fully employed. This is in theegeis 0:03:03.960 --> 0:03:07.200 off the jobs report five six, eight days ago, and 0:03:07.240 --> 0:03:11.280 this is the employment as compared to population ratio of 0:03:11.480 --> 0:03:15.320 prime age people in America. It is a full recovery 0:03:15.360 --> 0:03:20.040 mode and particularly back on literally back on regression, back 0:03:20.120 --> 0:03:23.079 on trend. That's got to be the most optimistic chart 0:03:23.200 --> 0:03:24.679 for politicians in America. 0:03:24.800 --> 0:03:27.760 Well, and that's why the debate for the FIT is probably, well, 0:03:27.960 --> 0:03:30.120 do we need to solten the label market? As you know, 0:03:30.200 --> 0:03:33.240 different FMC members are putting different weight on this. Do 0:03:33.280 --> 0:03:34.920 we need to solvet in the label market to get 0:03:34.920 --> 0:03:38.120 inflation to come down? I mean, let's not forget inflation. Today, 0:03:38.280 --> 0:03:41.720 Core CPI was at four point eight. We are nowhere 0:03:41.760 --> 0:03:43.880 near the two percent target where they wanted to be. 0:03:44.240 --> 0:03:46.600 And with that backdrop, of course, they will continue to 0:03:46.640 --> 0:03:49.200 say we just got to keep going because we still 0:03:49.240 --> 0:03:50.280 have way too high inflation. 0:03:50.600 --> 0:03:53.960 One less understood aspect of FED policy is not just 0:03:54.040 --> 0:03:56.400 what happens when you raise rates to the pace they have, 0:03:56.880 --> 0:03:59.280 but what happens when you hold them for a prolonged 0:03:59.280 --> 0:04:03.120 period of time, especially as companies have already refinanced and 0:04:03.160 --> 0:04:05.600 aren't really capturing a lot of the higher yields that 0:04:05.680 --> 0:04:07.920 are being charged out there by investors. 0:04:08.360 --> 0:04:11.280 When does that bite? When does that scenario change? 0:04:11.480 --> 0:04:11.680 Yeah? 0:04:11.760 --> 0:04:13.400 No, The very important answer to that is that this 0:04:13.480 --> 0:04:16.359 is exactly the crystallization of the transmission making. This of 0:04:16.360 --> 0:04:18.960 monetary policy. Where is it showing up? And the answer 0:04:19.000 --> 0:04:20.680 to your question leads, that's showing up in a number 0:04:20.720 --> 0:04:23.520 of different places. You are beginning to see the linguity 0:04:23.680 --> 0:04:27.000 rates for auto loans going up, the linguagy rates for 0:04:27.120 --> 0:04:29.200 credit cards are going up. You beginning to see the 0:04:29.200 --> 0:04:33.080 default rates for corporates on high yield going up. Loans 0:04:33.279 --> 0:04:36.039 also see default rates going up, so across the board, 0:04:36.120 --> 0:04:39.280 both for consumers and for corporates. The conclusion is that 0:04:39.360 --> 0:04:42.640 default cycle has started, so it is biting. It's just 0:04:42.720 --> 0:04:45.400 not showing up at the macro level quite yet. But 0:04:45.440 --> 0:04:47.960 it's very clear that the effects of monetary policy are 0:04:48.200 --> 0:04:50.839 showing up in the background and it will eventually begin 0:04:50.920 --> 0:04:51.720 to slow things down. 0:04:51.960 --> 0:04:55.440 Lisa, this employment to population primate, this is the core 0:04:55.520 --> 0:04:59.719 of America. The success of a decade twenty ten, off 0:04:59.720 --> 0:05:04.200 of the terrible financial crisis, moving to seventy five percent employed, 0:05:04.800 --> 0:05:07.080 up to eighty percent employed. Granted, there's a lot of 0:05:07.080 --> 0:05:10.000 people not in that number that are unemployed. A pandemic 0:05:10.040 --> 0:05:14.000 that was worse than the financial crisis. We've rebounded back 0:05:14.040 --> 0:05:17.160 and we burst through where we were in the autumn 0:05:17.200 --> 0:05:21.160 of two thousand and nineteen. It's a fully employed America 0:05:21.640 --> 0:05:23.680 of the people that are employable. 0:05:23.400 --> 0:05:27.040 Well, and this becomes sort of the question what could 0:05:27.160 --> 0:05:31.120 change that scenario, which is why we're wondering about transmission mechanism. 0:05:31.839 --> 0:05:33.840 If you don't see that, you're saying, we do see 0:05:33.839 --> 0:05:37.480 a default cycle that is starting. However, at the same time, 0:05:37.800 --> 0:05:41.159 some of these companies were sort of destined to default 0:05:41.160 --> 0:05:42.960 to while back and are now just sort of being 0:05:43.120 --> 0:05:43.719 washed out. 0:05:44.279 --> 0:05:47.120 What do you see this cycle looking like eventually? When 0:05:47.120 --> 0:05:49.200 do you start to see some of those lag effects 0:05:49.200 --> 0:05:49.800 taking effect. 0:05:49.920 --> 0:05:51.600 Well, one way to do that is on my Bloomberg 0:05:51.640 --> 0:05:54.480 scream to type shok and try to give a shock 0:05:54.520 --> 0:05:56.960 to the fitfunds rate five percent is points higher. What 0:05:57.080 --> 0:06:00.679 is the profile for GDP over the next several years 0:06:00.760 --> 0:06:02.719 if you do raise the Fed funds rate by five 0:06:02.720 --> 0:06:04.920 percent is points in a very short period of time. 0:06:05.200 --> 0:06:07.720 And the answer is that it takes three, four or 0:06:07.800 --> 0:06:10.320 five quarters before you get the maximum impact. So in 0:06:10.360 --> 0:06:13.279 other ways, let's talk about this as what happened to 0:06:13.600 --> 0:06:16.600 the lack of effects of monetary policy. Inflation is coming down, 0:06:16.760 --> 0:06:18.680 but what about growth? And I think the narrative will 0:06:18.680 --> 0:06:21.200 now shift away from saying inflation looks better, the trend 0:06:21.279 --> 0:06:23.320 is better. We're still at a high level. But what 0:06:23.400 --> 0:06:25.719 about this idea that when we step on the brakes 0:06:25.920 --> 0:06:28.760 you will see monetary posts you're having a negative impact 0:06:28.839 --> 0:06:31.920 on consumption, on capic spinning. And that's exactly what we're seeing. 0:06:32.160 --> 0:06:34.600 You see same store retail sales is coming down. You're 0:06:34.600 --> 0:06:37.080 seeing cape spending coming down. The fault rates are going up, 0:06:37.080 --> 0:06:39.520 the linguity rates are going up. It is beginning to bite, 0:06:39.600 --> 0:06:41.760 as you're saying, Lisa in the background. So we will 0:06:41.800 --> 0:06:43.960 and should still expect to see over the next slevel 0:06:44.040 --> 0:06:46.479 quarters a continued slow down. This is what the Fed wants. 0:06:46.520 --> 0:06:48.359 This is the whole reason why they're raising interest rates 0:06:48.440 --> 0:06:50.520 to get the economy to continue to slow down. 0:06:50.520 --> 0:06:53.000 That's worked out well. You know, I got fourteen ways 0:06:53.000 --> 0:06:56.120 to go here in our two hour conversation, but I've 0:06:56.160 --> 0:06:59.760 got to drive towards the arch overlay here, which you 0:06:59.800 --> 0:07:02.039 say about it, Apollo, And I'm going to go to 0:07:02.080 --> 0:07:05.120 Paul Romer, the great growth economists, the great economists thinking 0:07:05.160 --> 0:07:08.920 about technology. Are we just fooling ourselves in that there's 0:07:08.960 --> 0:07:14.400 a technology technological overlay where the halves of all incomes 0:07:14.960 --> 0:07:18.200 are benefiting from technology, and there's a whole other loudite 0:07:18.240 --> 0:07:21.480 part of society that's not participating. 0:07:21.120 --> 0:07:23.480 Well, at least on the AI front. It's certainly something 0:07:23.520 --> 0:07:25.920 that's small happening in financial markets than out there, and 0:07:25.920 --> 0:07:26.920 they're really con what. 0:07:26.960 --> 0:07:28.840 About out in the real economy. I'm thinking about your 0:07:28.840 --> 0:07:30.560 Germany flat on its back right now. 0:07:30.640 --> 0:07:34.880 No, well, the bottom line is still that the Europeans definitely, 0:07:35.040 --> 0:07:37.920 of course experiencing some hitwinds as a result of the 0:07:38.000 --> 0:07:41.320 AI boom that we're seeing in the US at the moment. Unfortunately, 0:07:41.360 --> 0:07:43.520 we're not quite seeing that in the productivity data as 0:07:43.520 --> 0:07:45.880 we speak, but you're right, over time, this will certainly 0:07:45.920 --> 0:07:47.720 be something that helps. I don't think this matters so 0:07:47.800 --> 0:07:50.040 much for the business side in the NIEM and for 0:07:50.080 --> 0:07:51.920 the FAT, but I do think that it does matter 0:07:51.960 --> 0:07:54.480 for discussions about the potential growth rate of the US economy. 0:07:54.520 --> 0:07:57.520 It's quickly here you were talking about how as inflation 0:07:57.640 --> 0:07:59.920 comes down, that's when you start to see profits come 0:08:00.120 --> 0:08:03.480 revenues come down. Is this sort of the unspoken reality 0:08:03.720 --> 0:08:08.400 that actually inflation was positive for companies increase their revenues 0:08:08.440 --> 0:08:09.480 and allowed the growth. 0:08:09.720 --> 0:08:09.840 Oh. 0:08:09.880 --> 0:08:12.320 Absolutely, this is spot on, because inflation is not only 0:08:12.360 --> 0:08:15.720 about output prices, it's also input prices. In other words, 0:08:15.760 --> 0:08:18.000 things that are sold when you have high inflation could 0:08:18.040 --> 0:08:21.320 have wider profit margins. But the cost of production we're 0:08:21.360 --> 0:08:23.720 also very elevated. And if all that comes down is 0:08:23.760 --> 0:08:26.120 not only helping in terms of lower cost of production, 0:08:26.320 --> 0:08:27.960 it's also going to squeeze margins. 0:08:28.720 --> 0:08:31.400 I keep thinking Tom about what Torristen Slock just said, 0:08:31.400 --> 0:08:34.040 and we heard a similar kind of discussion from Tony 0:08:34.160 --> 0:08:37.320 Dwyer that when revenues come in, that is when it 0:08:37.400 --> 0:08:38.280 is a game changer. 0:08:38.320 --> 0:08:39.199 And perhaps one of the. 0:08:39.120 --> 0:08:44.640 Most unstated, understated and also misunderstood aspects of inflation was 0:08:44.640 --> 0:08:49.520 how much boosted companies revenues? How much boosted and all 0:08:49.600 --> 0:08:52.320 of a sudden, when you start to see inflation come 0:08:52.360 --> 0:08:56.199 in and revenues don't increase the same kind of levels, 0:08:56.600 --> 0:08:59.880 then how much do you see a resetting back to 0:09:00.120 --> 0:09:02.720 a normal type of assam Sure you impute. 0:09:02.400 --> 0:09:05.160 The inflation in the system. The giant Phil Couray value 0:09:05.200 --> 0:09:07.240 investor pioneer in New York lived to be one hundred 0:09:07.280 --> 0:09:11.760 and four whatever. Nominal GDP is the great misguest right now, 0:09:11.840 --> 0:09:12.160 isn't it? 0:09:12.200 --> 0:09:14.960 Absolutely? And what's really critical about this is that equities 0:09:15.080 --> 0:09:19.200 trade on nominal data. Bonds and rates traits on real data. 0:09:19.840 --> 0:09:23.600 Stop the show, guys, frame that give that to every 0:09:23.640 --> 0:09:27.160 show this week, say it again. Nominal GDP matters. 0:09:26.920 --> 0:09:29.960 Because what matters phenomenal earnings in this in P five hundred, 0:09:29.960 --> 0:09:32.880 which has grown six percent annually for the last forty years, 0:09:33.400 --> 0:09:37.840 is all about nominal variables and normal GDP, nominal revenue. 0:09:38.000 --> 0:09:40.360 Everything is mentioned in normal terms. So when facing comes down, 0:09:40.480 --> 0:09:42.679 you should also expect the bond market to look at 0:09:42.679 --> 0:09:44.280 that and say, well, that's not for us. That's what's 0:09:44.280 --> 0:09:46.880 happening in equities, whereas bond markets will say it's all 0:09:46.920 --> 0:09:48.640 about what's happening on the real side, meaning on the 0:09:48.720 --> 0:09:49.880 volume on the unit side. 0:09:50.200 --> 0:09:53.160 Turston, thank you so much, greatly, greatly appreciate this today 0:09:53.160 --> 0:10:06.559 with Apollo as well, the hallmark of the show has 0:10:06.720 --> 0:10:09.880 always been to keep score. We take careful care with 0:10:10.000 --> 0:10:14.160 those that get it wrong. We really pay attention to 0:10:14.240 --> 0:10:17.160 those that get it right. There is no surprise to 0:10:17.200 --> 0:10:19.960 anyone over the decades to know, with a longer timeframe, 0:10:20.320 --> 0:10:23.600 a longer perspective, the gentleman from Yale once again has 0:10:23.720 --> 0:10:26.880 nailed it. Edward Yard Danny joines this, President of your 0:10:26.920 --> 0:10:29.720 Danny Research. What were you thinking, not the third week 0:10:30.040 --> 0:10:32.520 of October the low, but let me say, the first 0:10:32.559 --> 0:10:35.959 week of October, the hysteria there, the gloom. How are 0:10:35.960 --> 0:10:39.360 you framing out the optimism that got this realized? 0:10:39.640 --> 0:10:43.640 I watch sentiment in the equity market very carefully, and 0:10:43.880 --> 0:10:48.240 there's something called the investors Intelligence old Bear ratio, And 0:10:48.320 --> 0:10:51.360 in mid October it got down to zero point six 0:10:51.400 --> 0:10:54.679 to zero, which is as depressed as it was in 0:10:54.720 --> 0:10:59.839 March of twenty two thousand and nine. And I was thinking, 0:11:00.400 --> 0:11:03.160 surely things aren't anywhere near as bad as they were 0:11:03.200 --> 0:11:06.760 back then. And I've also been in of the view 0:11:06.840 --> 0:11:09.560 that we're not going to have a economy wide recession. 0:11:09.640 --> 0:11:11.880 I would have the view that we've been in a 0:11:11.960 --> 0:11:14.880 rolling recession. So it all kind of came together for 0:11:14.960 --> 0:11:16.560 me by the end of October, and I said, you know, 0:11:16.600 --> 0:11:17.920 I think October twelfth was low. 0:11:18.360 --> 0:11:21.080 Do you think we can carry on beating up low expectations? 0:11:22.440 --> 0:11:25.960 Well, the problem now is that there's too many bulls. 0:11:26.640 --> 0:11:30.640 You know, we've nothing to fear, but fearless investors, we 0:11:30.720 --> 0:11:33.920 don't really have enough. I mean, the technical sentiment picture 0:11:33.960 --> 0:11:37.599 isn't that that good because there just aren't enough pessimists 0:11:37.640 --> 0:11:40.800 out there. But the problem is, the fundamentals are really good. 0:11:41.640 --> 0:11:41.800 You know. 0:11:41.840 --> 0:11:46.640 I think everybody's swung around from worrying about an economy 0:11:46.640 --> 0:11:50.520 wide recession to sort of embracing a disinflationary soft landing. 0:11:51.160 --> 0:11:53.640 And you know, we'll see what happens with the PPI, 0:11:53.800 --> 0:11:55.960 but you know, we could have a trifecta of really 0:11:55.960 --> 0:12:00.280 great numbers. Expected inflation on Monday was lower than the next, 0:12:00.840 --> 0:12:03.320 and the CPI was great, and I think the PPI 0:12:03.440 --> 0:12:06.160 is going to be very good as well. So disinflation 0:12:06.320 --> 0:12:06.880 is here. 0:12:06.720 --> 0:12:09.800 Well bank and ex validates some of the optimism I think. 0:12:09.840 --> 0:12:12.720 So I think we are going to see a continuation, 0:12:12.920 --> 0:12:15.880 as you've pointed out, of an increase in loan loss reserves. 0:12:17.080 --> 0:12:19.800 The Fed actually puts out a weekly series on that 0:12:19.880 --> 0:12:22.520 for large banks and small banks. For the large banks 0:12:22.640 --> 0:12:25.160 is actually up sixteen percent on a year over year basis, 0:12:25.160 --> 0:12:29.240 So there could be some disappointment on earnings from that perspective, 0:12:30.000 --> 0:12:32.839 but much depends on the economy. If people embrace the 0:12:33.200 --> 0:12:36.240 view that the economy continue to grow, then credit quality 0:12:36.320 --> 0:12:38.440 is not going to be that big an issue and 0:12:38.480 --> 0:12:41.160 they may be able to within a few quarters just 0:12:41.160 --> 0:12:43.800 to reduce those loan loss reserves, and suddenly the profits 0:12:43.840 --> 0:12:44.880 are looking pretty good again. 0:12:45.080 --> 0:12:47.439 Months ago, you were talking about forty five hundred. How 0:12:47.520 --> 0:12:49.480 high have you gone in terms of s and p FO. 0:12:49.600 --> 0:12:52.480 Yeah, I've actually I'm going to raise you by one hundred. 0:12:53.400 --> 0:12:56.760 I've been talking about forty six hundred. But what's the difference. 0:12:57.360 --> 0:12:59.640 You know, it's been a bull market since October twelfth, 0:13:00.120 --> 0:13:03.360 and the problem with forty six hundred is roughly close 0:13:03.400 --> 0:13:06.080 to that. That's my year end target, and it looked 0:13:06.080 --> 0:13:09.040 delusional earlier this year, I have to admit, but it's 0:13:09.080 --> 0:13:11.480 worked out awfully well. We're only, what you know, one 0:13:11.559 --> 0:13:14.720 hundred and fifty points away from them, maybe less than that. 0:13:16.520 --> 0:13:18.880 So let's get to forty six hundred and then ask 0:13:18.960 --> 0:13:21.160 me again. But I'll probably raise it to forty eight hundred, 0:13:21.200 --> 0:13:24.360 depending on how things are shaping up. 0:13:24.400 --> 0:13:27.200 How profit margins fit into this. Because we were speaking 0:13:27.240 --> 0:13:30.240 earlier about the likelihood where we could see a shifting 0:13:30.600 --> 0:13:33.880 narrative there, especially if revenues come in the way that 0:13:33.920 --> 0:13:37.160 Tony Dwyer was talking about, do you see things differently? 0:13:37.800 --> 0:13:41.560 Well, we have had a earnings recession, a very mild one. 0:13:42.120 --> 0:13:43.920 It looks like earnings are going to be down about 0:13:43.960 --> 0:13:46.439 eight percent on a year over year basis during the 0:13:46.480 --> 0:13:48.320 second quarter, and that should be the worst of it, 0:13:48.720 --> 0:13:51.400 and then we start to progressively see better comparisons than 0:13:51.400 --> 0:13:55.520 a positive comparison by the fourth quarter. Interestingly, this earnings 0:13:55.520 --> 0:14:00.120 recession hasn't been attributable to revenues. Revenues for us P 0:14:00.200 --> 0:14:02.720 five hundred are at an all time record high, so clearly 0:14:02.760 --> 0:14:05.360 it's been the profit margin. So the profit margin has 0:14:05.400 --> 0:14:08.000 been getting squeezed for the past year or so. But 0:14:08.080 --> 0:14:12.520 I see signs in weekly data that we monitor, looking 0:14:12.520 --> 0:14:15.840 at forward earnings and forward revenues, that suggests that analysts 0:14:15.840 --> 0:14:19.160 are seeing signs that revenues are that profit margins are bottoming. 0:14:19.920 --> 0:14:22.280 I look at your Denny at the past here, and 0:14:22.320 --> 0:14:24.320 it's so easy to go back and do some analog 0:14:24.440 --> 0:14:27.680 with ten years ago or forty years ago. The fact is, 0:14:28.120 --> 0:14:31.120 when you know, we first knew your Denny at CJ. Lawrence, 0:14:31.720 --> 0:14:35.000 you were with lu Rukaiser talking about the public and 0:14:35.240 --> 0:14:39.560 individual stocks. Now we are overwhelmed with index fund investment 0:14:39.960 --> 0:14:43.400 and ETF investment. How does that change the dynamics of 0:14:43.440 --> 0:14:48.880 the market, optimistically or negatively given these new instruments. 0:14:48.920 --> 0:14:52.240 Well, it's very frustrating for individual investors and certainly for 0:14:52.280 --> 0:14:57.440 institutional investors that we're taught that diversification is an important 0:14:57.480 --> 0:15:02.200 aspect of managing a portfolio, and suddenly we have the 0:15:02.240 --> 0:15:05.600 megacap eight stocks that accounts for twenty seven percent of 0:15:05.640 --> 0:15:08.440 the S and P five hundred. So you know, if 0:15:08.520 --> 0:15:11.200 you don't have twenty seven percent of your portfolio those stocks, 0:15:11.480 --> 0:15:14.120 you've been underperforming. So it's a lot of pressure to 0:15:14.640 --> 0:15:18.240 you know, play that game, to you know, continue to 0:15:18.240 --> 0:15:22.360 buy into that group of stocks. But it is what 0:15:22.400 --> 0:15:27.640 it is. These are great companies and they're I think 0:15:27.680 --> 0:15:31.160 it all really started, you know, with when Facebook realized 0:15:31.200 --> 0:15:34.120 that the stock was getting the hammered. They said, well, 0:15:34.120 --> 0:15:35.960 we can show everybody just how much we really make. 0:15:36.000 --> 0:15:37.520 All we got to do is cut our expenses and 0:15:37.560 --> 0:15:39.880 that's easy enough, and that's what a lot of them did. 0:15:39.920 --> 0:15:42.200 And then the AI think, so. 0:15:42.080 --> 0:15:44.440 What's the theme for twelve ands forward? What's the next 0:15:44.480 --> 0:15:46.320 theme for corporate America to perform? 0:15:46.360 --> 0:15:49.440 Well, my theme is I tend to focus on longer 0:15:49.560 --> 0:15:52.320 term themes. My theme is the Roaring twenty twenties, which 0:15:52.360 --> 0:15:56.600 again looked quite delusional over the past few years. But 0:15:56.880 --> 0:15:58.840 the decade isn't over and there's still time for it 0:15:58.880 --> 0:16:01.600 to run, and I think it. I think technological innovation 0:16:01.720 --> 0:16:03.040 is going to make a big difference. 0:16:03.120 --> 0:16:06.600 Johnny, there's the pandemic of nineteen eighteen, nineteen nineteen, yea 0:16:06.640 --> 0:16:07.880 boom right into the roaring. 0:16:08.160 --> 0:16:11.360 You coined the term bond vigilantes. Can you offer us 0:16:11.400 --> 0:16:14.520 your analysis on the bond market right now Treasury specifically. 0:16:15.160 --> 0:16:17.640 Well, it's interesting how well the bond market's been doing 0:16:18.360 --> 0:16:20.480 in an environment where the FED has been raising short 0:16:20.560 --> 0:16:24.240 term raise quite aggressively, and in an environment where we 0:16:24.320 --> 0:16:28.160 have quantitative tightening where they're actually letting their securities mature. 0:16:28.240 --> 0:16:33.440 There's clearly been a tremendous demand for bonds. I think 0:16:33.440 --> 0:16:36.680 a lot of it is there's a tremendous funel liquidity 0:16:36.680 --> 0:16:39.760 out there still. I know people have focused on M 0:16:39.880 --> 0:16:44.440 two and have had a dumish scenario because M two 0:16:44.480 --> 0:16:47.360 has been declining, but two is still about a trillion 0:16:47.400 --> 0:16:51.680 dollars above its pre pandemic trend line. Demand deposits are 0:16:51.760 --> 0:16:55.120 also something more than that. Actually, M two has never 0:16:55.160 --> 0:16:56.160 been more liquid. 0:16:56.480 --> 0:16:59.440 Is there an obvious relationship at the moment between how 0:16:59.480 --> 0:17:02.320 treasuries performed and what equities have been doing? 0:17:02.480 --> 0:17:02.680 Yeah? 0:17:03.160 --> 0:17:03.720 What is it? 0:17:04.520 --> 0:17:07.440 Well? I think you know, last year they were both 0:17:07.480 --> 0:17:11.320 doing horribly. It was something we hadn't seen in quite 0:17:11.320 --> 0:17:15.600 some time. Now, I think both ascid classes have done 0:17:15.640 --> 0:17:19.199 quite well. I mean, you know, the bonds have at 0:17:19.280 --> 0:17:21.359 least earned you the coupon. They haven't really hurt you. 0:17:21.840 --> 0:17:24.439 I'm looking at the bonds to I think the bonds 0:17:24.480 --> 0:17:28.600 peaked at four point two percent on October twenty fourth. 0:17:28.640 --> 0:17:31.200 I believe last year a lot of good things happened 0:17:31.200 --> 0:17:33.960 in October of last year, and so I think the 0:17:34.000 --> 0:17:37.320 bonds are okay. And I think stocks still have upside, 0:17:37.440 --> 0:17:40.359 especially in the laggers like financials and industrials. 0:17:40.440 --> 0:17:42.160 So you think even if the FED sticks AT's say 0:17:42.200 --> 0:17:45.000 five point fifty and just holds it, that this equity 0:17:45.080 --> 0:17:45.760 market it's okay. 0:17:46.280 --> 0:17:48.440 Well, you know, the fans have been kind of telling 0:17:48.480 --> 0:17:52.320 different stories. When an individual FED officials have been talking, 0:17:52.400 --> 0:17:55.520 they've been awfully hawkish. But when they get together and 0:17:55.560 --> 0:17:59.280 put together there's summary of economic projections. They've been very reasonable. 0:17:59.320 --> 0:18:00.680 They said, look, we want to get it up to 0:18:00.720 --> 0:18:04.440 a restrictive level. I think they're there. The banking crisis 0:18:04.480 --> 0:18:07.800 I think demonstrated that they're there. It's restrictive enough, and 0:18:07.840 --> 0:18:09.400 I think they want to keep it there. I never 0:18:09.760 --> 0:18:12.000 was in that camp that believe that the FED was 0:18:12.000 --> 0:18:14.320 going to lower industry, so I took them at their word. 0:18:14.680 --> 0:18:17.679 I think they could declare mission accomplished, except that's the jinks. 0:18:18.000 --> 0:18:20.000 So it's better that they don't do that and that 0:18:20.080 --> 0:18:24.680 they continue to talk about Well, I hope they don't. 0:18:25.040 --> 0:18:27.200 You know, victory laps are jinx is. You know, there 0:18:27.240 --> 0:18:29.440 you go. I've had a few of those in my career, 0:18:29.520 --> 0:18:31.760 only to be wrong that almost the next time. 0:18:31.800 --> 0:18:33.879 That's our theme. This morning, when you weren't here, they 0:18:33.880 --> 0:18:35.879 were busting my jobs about victory labs. 0:18:36.000 --> 0:18:37.840 Well, we won't call this a victory lap for you, 0:18:37.880 --> 0:18:40.280 but certainly so fast. Don't do that so fast, so 0:18:40.400 --> 0:18:42.879 good that it's going to see you, Thank you, thank you, sir. 0:18:43.000 --> 0:18:45.520 At any of any research. 0:18:49.280 --> 0:18:52.800 My experience is people listen when Alan Ruskins speaks. He 0:18:52.800 --> 0:18:55.280 has the privilege of working with David folkerts Landau and 0:18:55.320 --> 0:18:59.800 putting together Holistic Global Research for Deutsche Bank. They're chief 0:18:59.800 --> 0:19:03.120 and national strategist. Joins us on what I'm calling from 0:19:03.119 --> 0:19:06.600 Steve England or a game changer Thursday. How much did 0:19:06.600 --> 0:19:11.960 the game change yesterday, Alan Ruskin? With disinflation codified in 0:19:12.000 --> 0:19:12.880 the United. 0:19:12.520 --> 0:19:19.240 States, whether disinflation was codified, but things did certainly change 0:19:19.280 --> 0:19:22.080 substantially in the FX market. We've been entrenched in this 0:19:22.240 --> 0:19:24.080 incredibly narrow range really. 0:19:24.320 --> 0:19:25.560 For most of this year. 0:19:25.840 --> 0:19:30.320 Euro dollar in particular, it's seemingly capped at one ten nineteen. 0:19:30.359 --> 0:19:32.960 I think once we broke that level, it's opened the 0:19:33.000 --> 0:19:35.840 floodgates in a way, and the dollars on the defensive 0:19:35.880 --> 0:19:40.560 pretty much against all currency. So it's codified a change, 0:19:40.560 --> 0:19:43.560 as it were in the FX market, Tom. 0:19:43.760 --> 0:19:47.160 I looked at a very fancy regression of the blended 0:19:47.240 --> 0:19:52.119 dxynx back twenty years and certainly off the Great Financial 0:19:52.119 --> 0:19:55.000 event of two thousand and eight. I can look for 0:19:55.119 --> 0:19:59.040 further eight percent dollar weakness. Do you see that kind 0:19:59.080 --> 0:20:02.320 of scale to go further with dollar weakness? 0:20:03.600 --> 0:20:05.760