1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,800 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:30,080 Speaker 1: and of course on the Bloomberg terminal. Alan Ruskin right 6 00:00:30,080 --> 00:00:34,080 Speaker 1: now chief international strategist at Deutsche Bank and hugely esteemed 7 00:00:34,200 --> 00:00:37,080 Speaker 1: in this uh Ellen Ruskin and paper by the former 8 00:00:37,200 --> 00:00:40,559 Speaker 1: vice chair and chairman Allan Blinder years ago. How do 9 00:00:40,840 --> 00:00:48,879 Speaker 1: central banks talk? How do they talk with this dot plot? Well, 10 00:00:48,880 --> 00:00:52,160 Speaker 1: I think they try stee other markets to where they 11 00:00:52,280 --> 00:00:56,480 Speaker 1: think rates should be. And obviously they've got a little 12 00:00:56,480 --> 00:00:59,520 Speaker 1: bit of a problem right now because the markets very 13 00:00:59,600 --> 00:01:02,800 Speaker 1: pacis stant in his thought process that the FED is 14 00:01:02,800 --> 00:01:05,640 Speaker 1: going to be cutting rates in three I think the 15 00:01:05,880 --> 00:01:08,720 Speaker 1: intriguing aspect of what you have right now is that, 16 00:01:09,440 --> 00:01:12,399 Speaker 1: you know, we thought the FED would probably lose control 17 00:01:12,600 --> 00:01:15,240 Speaker 1: or could lose control of the back end of the 18 00:01:15,319 --> 00:01:19,280 Speaker 1: curve because back end heels were too high, and you know, 19 00:01:19,360 --> 00:01:22,640 Speaker 1: QUT would maybe push heels higher, and we've got exactly 20 00:01:22,680 --> 00:01:27,040 Speaker 1: the reverse problem um with heels. You know, more consistent 21 00:01:27,120 --> 00:01:29,240 Speaker 1: with the three percent funds rate than a five percent 22 00:01:29,280 --> 00:01:32,640 Speaker 1: funds rate. So the mark is not really listening to 23 00:01:32,680 --> 00:01:35,600 Speaker 1: the Fed. It's not the worst problem the Fed could have, 24 00:01:35,880 --> 00:01:38,240 Speaker 1: but I think the fair is s thoughts trying to 25 00:01:38,360 --> 00:01:41,720 Speaker 1: steer the curve higher in terms of heals, Allen, do 26 00:01:41,760 --> 00:01:46,920 Speaker 1: you see them being successful in doing so? Not at 27 00:01:46,959 --> 00:01:51,560 Speaker 1: this meeting necessarily. I think, you know, the odds are 28 00:01:51,600 --> 00:01:57,200 Speaker 1: that the twenty three three dart is between four and 29 00:01:57,240 --> 00:02:00,280 Speaker 1: three quarters and five percent um. You know, it looked 30 00:02:00,280 --> 00:02:02,960 Speaker 1: like it maybe a bit higher than that before cp I, 31 00:02:03,000 --> 00:02:06,160 Speaker 1: But I think that probably is a reasonable guestimate of 32 00:02:06,160 --> 00:02:09,600 Speaker 1: where that medium dot will be. Uh, you know, that's 33 00:02:10,200 --> 00:02:12,320 Speaker 1: not far from where the Fed, of you know, where 34 00:02:12,360 --> 00:02:15,799 Speaker 1: the market effectively believes the peak will be. Anyway, it's 35 00:02:15,800 --> 00:02:18,519 Speaker 1: really the discrepancy, I think, is in the rate cuts 36 00:02:18,520 --> 00:02:21,200 Speaker 1: that follow very soon after the market thinks this is 37 00:02:21,200 --> 00:02:24,040 Speaker 1: going to be more of a traditional cycle. You get 38 00:02:24,080 --> 00:02:26,160 Speaker 1: to the peak, you don't spend very much time there, 39 00:02:26,280 --> 00:02:28,440 Speaker 1: and you start to see rate cuts and the FED 40 00:02:28,520 --> 00:02:30,800 Speaker 1: saying no, wait a minute, yeah, there is a different cycle. 41 00:02:31,040 --> 00:02:33,640 Speaker 1: And obviously the more the back end hills are low, 42 00:02:34,240 --> 00:02:37,840 Speaker 1: the more you could actually see fed funds plateau for 43 00:02:37,919 --> 00:02:39,840 Speaker 1: quite some time. Alan, I remember a note that you 44 00:02:39,960 --> 00:02:42,520 Speaker 1: put out months ago when you look at the previous 45 00:02:42,560 --> 00:02:45,800 Speaker 1: few rate hiking cycles and calculated the average duration of 46 00:02:45,840 --> 00:02:48,280 Speaker 1: staying at peak. We put out a similar story over 47 00:02:48,320 --> 00:02:50,560 Speaker 1: the weekend last five cycles. I think the average was 48 00:02:50,560 --> 00:02:53,680 Speaker 1: about eleven months. And what is about the characteristics of 49 00:02:53,720 --> 00:02:56,480 Speaker 1: this tightening cycle, the economic back draft the influences your 50 00:02:56,520 --> 00:03:01,000 Speaker 1: thoughts about how long they will stay at peak? Yeah, 51 00:03:01,040 --> 00:03:03,600 Speaker 1: you know, I think it's all about how much the 52 00:03:03,720 --> 00:03:08,280 Speaker 1: economy slows, and how much that slowing, particularly in the 53 00:03:08,360 --> 00:03:11,799 Speaker 1: labor market, leads to a reduction in wage inflation that's 54 00:03:11,880 --> 00:03:14,840 Speaker 1: consistent with a two percent inflation rate. You know, I 55 00:03:14,840 --> 00:03:17,720 Speaker 1: think the supply side is all coming together very nicely. 56 00:03:17,720 --> 00:03:21,720 Speaker 1: We're actually getting a positive supply side shock developing, and 57 00:03:22,080 --> 00:03:26,320 Speaker 1: it's really the demand side that needs restraint. And it's 58 00:03:26,320 --> 00:03:29,000 Speaker 1: not obvious what's going to happen here, because you can 59 00:03:29,040 --> 00:03:33,640 Speaker 1: imagine a situation where if employment remains pretty resilient and 60 00:03:33,960 --> 00:03:38,040 Speaker 1: inflation starting to come down. That mix of employments resilience 61 00:03:38,240 --> 00:03:43,920 Speaker 1: driving nominal wages and inflation being lower means the real 62 00:03:43,960 --> 00:03:47,400 Speaker 1: incomes will actually be growing again and demand could be 63 00:03:47,440 --> 00:03:51,280 Speaker 1: quite resilient. So you know, there's a lot to play 64 00:03:51,320 --> 00:03:55,160 Speaker 1: for here. The recession, which seemed like a complete gimme h, 65 00:03:55,360 --> 00:03:57,800 Speaker 1: you know a couple of months ago, is you know, 66 00:03:57,920 --> 00:04:00,720 Speaker 1: certainly looking at at worst like a know, a very 67 00:04:00,800 --> 00:04:03,000 Speaker 1: much sort of soft procession as it work. Well, that's 68 00:04:03,000 --> 00:04:06,080 Speaker 1: where I wanted to go. Allen. Does yesterday's CPI print 69 00:04:06,440 --> 00:04:09,600 Speaker 1: give you a greater sense that there could potentially be 70 00:04:09,640 --> 00:04:12,200 Speaker 1: a soft landing? Does it make that a more plausible 71 00:04:12,240 --> 00:04:16,480 Speaker 1: scenario to you? I think it does At the margins, 72 00:04:16,560 --> 00:04:20,400 Speaker 1: I think absolutely. I think you're seeing that the goods 73 00:04:20,400 --> 00:04:26,520 Speaker 1: disinflation that we all have been anticipating is definitely feeding through. 74 00:04:26,680 --> 00:04:29,679 Speaker 1: I mean, we we do some nice calculations on the CPI. 75 00:04:29,760 --> 00:04:33,000 Speaker 1: Of course, we go x energy, X food, X shelter, 76 00:04:33,480 --> 00:04:36,880 Speaker 1: you know, lose half of CPI and low and behold, 77 00:04:37,120 --> 00:04:41,160 Speaker 1: we don't have much inflation. We have disinflation. Um. So 78 00:04:41,200 --> 00:04:43,400 Speaker 1: maybe that's a bit of an exaggeration, but I think 79 00:04:43,400 --> 00:04:47,760 Speaker 1: you're getting some constructive signals there that the supply side 80 00:04:48,040 --> 00:04:50,560 Speaker 1: is without question helpful. I think you're going to see 81 00:04:50,560 --> 00:04:52,800 Speaker 1: it right now. In fact, the import priced data that's 82 00:04:52,800 --> 00:04:55,240 Speaker 1: coming out at thirty look at that and you know, 83 00:04:55,279 --> 00:04:58,520 Speaker 1: look at the x petroleum numbers. They've been down for 84 00:04:58,560 --> 00:05:02,120 Speaker 1: the last six consecutive months, and that serves as a 85 00:05:02,160 --> 00:05:05,200 Speaker 1: strong correlation with pp I finished goods. So I think 86 00:05:05,279 --> 00:05:08,200 Speaker 1: that side is actually very constructive as far as the 87 00:05:08,200 --> 00:05:10,400 Speaker 1: soft landing is concerned. As I said, I think you've 88 00:05:10,440 --> 00:05:12,760 Speaker 1: got to be cautious on the wage inflation side. I 89 00:05:12,760 --> 00:05:16,080 Speaker 1: think Pal laid this out lot in his last speech 90 00:05:16,520 --> 00:05:19,359 Speaker 1: when he suggested that, you know, with it effectively excess 91 00:05:19,360 --> 00:05:22,159 Speaker 1: demand to tune about four million workers. I think that 92 00:05:22,279 --> 00:05:26,000 Speaker 1: is deeply problematic to get inflation down quickly. I think 93 00:05:26,200 --> 00:05:29,400 Speaker 1: what you have right now is not that inflation is 94 00:05:29,480 --> 00:05:33,000 Speaker 1: coming down, but ultimately can we make that transition from 95 00:05:33,000 --> 00:05:37,040 Speaker 1: say a three and a half percent core inflation rate 96 00:05:37,080 --> 00:05:39,320 Speaker 1: to a two percent inflation rate? Just real quick here out. 97 00:05:39,320 --> 00:05:41,039 Speaker 1: And we were speaking with Sarah House of VOLS Fargo 98 00:05:41,120 --> 00:05:43,599 Speaker 1: earlier and she said, all things being equal, a reopening 99 00:05:43,600 --> 00:05:47,000 Speaker 1: of China would be inflationary. We are looking at a 100 00:05:47,080 --> 00:05:50,320 Speaker 1: more rapid reopening that many people had expected. Do you 101 00:05:50,400 --> 00:05:52,520 Speaker 1: see this boosting inflation in a way that it's not 102 00:05:52,680 --> 00:05:59,120 Speaker 1: currently being accounted for by by current projections? Yeah, I 103 00:05:59,160 --> 00:06:02,560 Speaker 1: think you know, if the opening is successful and it's 104 00:06:02,560 --> 00:06:04,800 Speaker 1: a you know, big If you could think in terms 105 00:06:04,880 --> 00:06:09,719 Speaker 1: of revising up Chinese GDP numbers, you know, our forecasts 106 00:06:09,760 --> 00:06:11,880 Speaker 1: about four and a half percent, you could think, you know, 107 00:06:12,000 --> 00:06:15,120 Speaker 1: successful opening could raise that number up to six percent. 108 00:06:15,480 --> 00:06:20,320 Speaker 1: Obviously you've seen base metal cyclicals are very depressed, if anything, 109 00:06:21,160 --> 00:06:25,279 Speaker 1: in over the last six to twelve months. And um, 110 00:06:25,720 --> 00:06:29,000 Speaker 1: you could see that commodities inflation start to pick up 111 00:06:29,000 --> 00:06:31,599 Speaker 1: to a degree, but I'm not particularly worried that that's 112 00:06:31,640 --> 00:06:34,000 Speaker 1: the big driver at this point in time. And again, 113 00:06:34,000 --> 00:06:35,880 Speaker 1: if you look at the import prices, you can you 114 00:06:35,880 --> 00:06:39,880 Speaker 1: know see today, Um, you know, the inflation pressures from 115 00:06:40,000 --> 00:06:43,920 Speaker 1: China are quite muted. The import prices from China of 116 00:06:44,560 --> 00:06:47,560 Speaker 1: quite muted, running roughly about two percent. And just to 117 00:06:47,600 --> 00:06:50,040 Speaker 1: squeeze this in just briefly, at the top of your 118 00:06:50,080 --> 00:06:53,120 Speaker 1: note that you put out yesterday, you indicated that for 119 00:06:53,160 --> 00:06:55,880 Speaker 1: the last year, the two year has sold off for 120 00:06:55,960 --> 00:06:59,039 Speaker 1: every single FED meeting. I wasn't aware of that, Alan, 121 00:06:59,080 --> 00:07:04,120 Speaker 1: Do you believe today is going to be any different? Um? 122 00:07:04,120 --> 00:07:07,000 Speaker 1: I think pal is going to triangle in that direction. 123 00:07:07,320 --> 00:07:09,720 Speaker 1: So you know, at least you've got the fat chair 124 00:07:09,840 --> 00:07:12,400 Speaker 1: pushing in that direction. Uh, you know is it going 125 00:07:12,440 --> 00:07:15,480 Speaker 1: to be successful for more than twenty four hours. Probably 126 00:07:15,480 --> 00:07:19,600 Speaker 1: not that uh I would say on balance the biases 127 00:07:19,600 --> 00:07:22,080 Speaker 1: in that direction, slightly higher to your heels. And I'm 128 00:07:22,120 --> 00:07:24,920 Speaker 1: rescing at Deutsche Bank and a great note again, fantastic. 129 00:07:35,560 --> 00:07:38,600 Speaker 1: We are honored to bring a Torsten Slack for years 130 00:07:38,600 --> 00:07:41,520 Speaker 1: of Deutsche Bank and now chief economist and Apollo Management 131 00:07:41,880 --> 00:07:45,800 Speaker 1: to brief this morning. As we said defined cumulative, let's 132 00:07:45,840 --> 00:07:49,200 Speaker 1: define faster. That's a lead note. David mel passed now 133 00:07:49,240 --> 00:07:50,960 Speaker 1: at the World Bank, when he was at bear Stearns 134 00:07:51,240 --> 00:07:54,680 Speaker 1: love to use that word as a calculus substitution. What 135 00:07:54,760 --> 00:07:57,760 Speaker 1: does faster mean as we look at the inflation continuum 136 00:07:57,840 --> 00:08:01,200 Speaker 1: right now? So of course what's important is, as you 137 00:08:01,320 --> 00:08:04,440 Speaker 1: just talked about, the interest rates have already gone up 138 00:08:04,600 --> 00:08:07,640 Speaker 1: and the cumulative effects are beginning to show, most importantly 139 00:08:07,680 --> 00:08:10,560 Speaker 1: in interest rate sensitive components of GDP. We're seeing a 140 00:08:10,640 --> 00:08:13,480 Speaker 1: slow down in housing. We're seeing a slow down in autos, 141 00:08:13,600 --> 00:08:16,559 Speaker 1: and because those are the sectors that require financing. So 142 00:08:16,800 --> 00:08:19,640 Speaker 1: at the moment, the good spot of the economy housing, 143 00:08:19,680 --> 00:08:22,760 Speaker 1: all those durable goods washers, dryers, is slowing down. It's 144 00:08:22,760 --> 00:08:25,560 Speaker 1: the service sector that the Fed would like to slow 145 00:08:25,600 --> 00:08:27,520 Speaker 1: down at this point you said that it's too it's 146 00:08:27,560 --> 00:08:29,640 Speaker 1: too soon to call the all clear, that we're actually 147 00:08:29,680 --> 00:08:31,680 Speaker 1: on some sort of disinflationary tread. But you also have 148 00:08:31,720 --> 00:08:35,079 Speaker 1: been talking about how there is this strong year over 149 00:08:35,200 --> 00:08:38,199 Speaker 1: year comparison effect that is taking effect and that is 150 00:08:38,240 --> 00:08:42,000 Speaker 1: going to drive inflation lower. So how should investors look 151 00:08:42,040 --> 00:08:44,360 Speaker 1: at this? Are we heading into the same era that 152 00:08:44,400 --> 00:08:47,720 Speaker 1: we left or is this a new more inflationary environment 153 00:08:47,720 --> 00:08:50,240 Speaker 1: that we're seeing led by services. Well, that's a very 154 00:08:50,320 --> 00:08:52,679 Speaker 1: very important question, Lisa, because there is a very important 155 00:08:52,679 --> 00:08:55,400 Speaker 1: debate in FIT working papers and in the academic circles 156 00:08:55,440 --> 00:08:59,240 Speaker 1: also about how much demand destruction is needed to get 157 00:08:59,280 --> 00:09:01,800 Speaker 1: inflation back to two percent. A lot of people highlight 158 00:09:01,840 --> 00:09:04,000 Speaker 1: and say are they're worried about inflation might be sticking 159 00:09:04,000 --> 00:09:07,000 Speaker 1: at say three fall five percent, But that is not 160 00:09:07,080 --> 00:09:09,080 Speaker 1: anchored in any model or any framework other than the 161 00:09:09,160 --> 00:09:12,000 Speaker 1: fear that more demand instruction is needed. And there's a 162 00:09:12,080 --> 00:09:15,360 Speaker 1: very wide range of views that. For example, Danny blast 163 00:09:15,400 --> 00:09:17,720 Speaker 1: Flower is saying, well, we'll be back at two percent 164 00:09:17,720 --> 00:09:21,480 Speaker 1: inflation in six months, whereas the SEP the summer if 165 00:09:21,480 --> 00:09:23,040 Speaker 1: your own projection from the FIT is saying no, this 166 00:09:23,080 --> 00:09:25,480 Speaker 1: will be more like three years. So the question for 167 00:09:25,520 --> 00:09:27,960 Speaker 1: markets is not whether inflation is folding. Everyone agrees that 168 00:09:28,000 --> 00:09:30,480 Speaker 1: inflation is falling. But the question is if you both 169 00:09:30,559 --> 00:09:33,439 Speaker 1: have know that the supply chains are getting straightened out, 170 00:09:33,760 --> 00:09:35,920 Speaker 1: and also the economy is slowing down, it was the 171 00:09:35,960 --> 00:09:38,079 Speaker 1: good sector and the interest rate sensitive components, you could 172 00:09:38,160 --> 00:09:41,439 Speaker 1: have the combination of inflation coming down potentially faster than 173 00:09:41,480 --> 00:09:43,800 Speaker 1: what the consensus is saying here at the moment. Un 174 00:09:43,920 --> 00:09:47,839 Speaker 1: financial conditions tie into this trajectory. In other words, would 175 00:09:47,920 --> 00:09:52,120 Speaker 1: tighter financial conditions lead to a faster rate of change 176 00:09:52,200 --> 00:09:54,760 Speaker 1: or faster rate of inflation coming down and to a 177 00:09:54,840 --> 00:09:57,680 Speaker 1: lower multiple. Yeah, that's very critical. I mean, it's not 178 00:09:57,679 --> 00:10:00,400 Speaker 1: clear to me that the fit once financial distance with 179 00:10:00,480 --> 00:10:03,320 Speaker 1: titan everywhere. That's a very important nuance in this debate 180 00:10:03,400 --> 00:10:06,560 Speaker 1: about interest rate sensitive components of GDP slowing. So we're 181 00:10:06,559 --> 00:10:09,840 Speaker 1: definitely seeing housing all those rouble goods slowing down, and 182 00:10:09,880 --> 00:10:12,560 Speaker 1: that's of course helpful in both dragging inflation down and 183 00:10:12,600 --> 00:10:14,880 Speaker 1: in slowing growth down. But the service TX that's not 184 00:10:14,960 --> 00:10:18,160 Speaker 1: quite slowing down yet. So tightening financial conditions is already happening, 185 00:10:18,320 --> 00:10:20,440 Speaker 1: in particular on the good side, but on the service side. 186 00:10:20,480 --> 00:10:23,480 Speaker 1: If think about primary high yield markets essentially shut down 187 00:10:23,520 --> 00:10:26,000 Speaker 1: at the moment? Is that a desired goal for the Fed? 188 00:10:26,040 --> 00:10:28,199 Speaker 1: Do they want that to spread to i G? I mean, 189 00:10:28,240 --> 00:10:30,640 Speaker 1: that's a very important debate about, well, do they really 190 00:10:30,679 --> 00:10:33,320 Speaker 1: want to slow down financial markets to the degree that 191 00:10:33,720 --> 00:10:36,680 Speaker 1: is potentially required? And maybe they want to broaden this 192 00:10:36,720 --> 00:10:38,719 Speaker 1: out and spread this out over a longer period. When 193 00:10:38,720 --> 00:10:40,880 Speaker 1: you're George B I could just see Dr Hooper turning 194 00:10:40,920 --> 00:10:42,840 Speaker 1: to you and saying, Tarsten, would you make up a 195 00:10:42,920 --> 00:10:46,559 Speaker 1: chart here about when the real yield the real wage flips. 196 00:10:46,559 --> 00:10:49,599 Speaker 1: So part of the service sector idea here is we 197 00:10:49,720 --> 00:10:54,800 Speaker 1: have massive negative real wages. What's the dynamic as we 198 00:10:54,840 --> 00:10:57,480 Speaker 1: go through this process? Chairman Powell wants us to go. 199 00:10:57,559 --> 00:10:59,760 Speaker 1: So you mentioned i G as a risk spreading over 200 00:10:59,800 --> 00:11:05,520 Speaker 1: from housing. Well, can they successfully manage allousy inflation adjusted 201 00:11:05,640 --> 00:11:09,000 Speaker 1: wage back to some kind of positive wage. Well that's 202 00:11:09,000 --> 00:11:11,040 Speaker 1: a real challenge because as you know, about full million 203 00:11:11,040 --> 00:11:13,520 Speaker 1: workers are missing from the workforce. The labor force participation 204 00:11:13,640 --> 00:11:16,240 Speaker 1: rates about full million below trend, and that means that 205 00:11:16,280 --> 00:11:18,640 Speaker 1: the pressure on wages continues to be out there, and 206 00:11:18,679 --> 00:11:21,319 Speaker 1: with wage inflation at five pc, it is absolutely the 207 00:11:21,400 --> 00:11:24,080 Speaker 1: case that the labor market does need to deteriorate, meaning 208 00:11:24,120 --> 00:11:26,120 Speaker 1: to soften a bit more, and that's also what Japal 209 00:11:26,240 --> 00:11:28,840 Speaker 1: himself has been asking for. But to your point, there 210 00:11:28,920 --> 00:11:31,360 Speaker 1: is a very important question also about can we have 211 00:11:31,800 --> 00:11:34,600 Speaker 1: inflation coming back to two percent without the labor markets 212 00:11:34,640 --> 00:11:37,440 Speaker 1: often incontentially, So you're talking about the people who are 213 00:11:37,440 --> 00:11:39,800 Speaker 1: pitted on either sides of that exact debate of where 214 00:11:39,800 --> 00:11:42,200 Speaker 1: exactly we're heading and where the natural rate of inflation 215 00:11:42,240 --> 00:11:45,079 Speaker 1: will end up. Where do you stand? So I do 216 00:11:45,160 --> 00:11:47,400 Speaker 1: think that from all the FED working papers that have 217 00:11:47,480 --> 00:11:50,080 Speaker 1: looked at what drove inflation higher, two thirds of the 218 00:11:50,120 --> 00:11:52,600 Speaker 1: increase in inflation was probably because of supply shocks and 219 00:11:52,600 --> 00:11:54,880 Speaker 1: supply chains that are now getting straightened out. We'll resolve 220 00:11:54,880 --> 00:11:56,719 Speaker 1: that on its own time will take care of that, 221 00:11:57,000 --> 00:11:59,120 Speaker 1: but the one third that's demand is going to be 222 00:11:59,200 --> 00:12:01,640 Speaker 1: much more challenging. But the question is, with the cumulative 223 00:12:01,840 --> 00:12:04,440 Speaker 1: rates increases that we've already seen, maybe this could be 224 00:12:04,559 --> 00:12:07,560 Speaker 1: enough to actually lower the economy down. So therefore, if 225 00:12:07,600 --> 00:12:09,640 Speaker 1: you look easy FCCO on your Bloomberg screen and the 226 00:12:09,640 --> 00:12:12,719 Speaker 1: contentious expects growth and basically zero for the first two 227 00:12:12,760 --> 00:12:14,600 Speaker 1: quarters of next year, and that does mean that maybe 228 00:12:14,600 --> 00:12:16,920 Speaker 1: we already have in the pipeline that's lowdown that's required 229 00:12:17,120 --> 00:12:19,040 Speaker 1: to gradually lift there on the flo rate and therefore, 230 00:12:19,080 --> 00:12:21,440 Speaker 1: get to your question, leads and the soft landing that 231 00:12:21,480 --> 00:12:24,199 Speaker 1: I think is the most likely scenario, And other people 232 00:12:24,200 --> 00:12:26,040 Speaker 1: are starting to agree with you more than they were 233 00:12:26,120 --> 00:12:29,000 Speaker 1: perhaps three weeks ago. The Max Kuttter view of the world, 234 00:12:29,000 --> 00:12:31,760 Speaker 1: the Neil Dotter view of the world is for perhaps 235 00:12:31,840 --> 00:12:34,080 Speaker 1: not a recession in the first half of next year, 236 00:12:34,160 --> 00:12:37,280 Speaker 1: perhaps pushing it back to later in the year. This 237 00:12:37,360 --> 00:12:40,240 Speaker 1: is not a positive outcome though for markets, because it 238 00:12:40,280 --> 00:12:42,640 Speaker 1: indicates the Fed will have to keep rates at a 239 00:12:42,720 --> 00:12:45,160 Speaker 1: high level. Do you agree, Well, no, I don't agree 240 00:12:45,160 --> 00:12:47,520 Speaker 1: because I think remember, if we do not have a 241 00:12:47,559 --> 00:12:50,520 Speaker 1: deep recession, then earnings should actually still be okay. So 242 00:12:50,559 --> 00:12:52,440 Speaker 1: if there's a soft landing, I still think markets could 243 00:12:52,440 --> 00:12:54,640 Speaker 1: actually do okay. But we are going into the period. 244 00:12:54,640 --> 00:12:56,920 Speaker 1: The inflection point is very clear. We're going from a 245 00:12:56,920 --> 00:12:58,880 Speaker 1: period where the FED was saying rates are going up 246 00:12:58,960 --> 00:13:00,880 Speaker 1: up up to now I fet is saying, well, we 247 00:13:00,920 --> 00:13:02,920 Speaker 1: can see the peak is in sight, and now we 248 00:13:03,000 --> 00:13:05,040 Speaker 1: might begin to see rates going sideways. That means that 249 00:13:05,120 --> 00:13:08,360 Speaker 1: vall was very, very significant, very high when we were 250 00:13:08,360 --> 00:13:10,360 Speaker 1: going up and now vall is being compressed, and that 251 00:13:10,400 --> 00:13:12,520 Speaker 1: should also get more clarity to equity investors and to 252 00:13:12,600 --> 00:13:14,920 Speaker 1: credit investors both for i g. Higher than the loans. 253 00:13:15,120 --> 00:13:17,960 Speaker 1: You should begin to see more clarity about well where 254 00:13:18,040 --> 00:13:19,960 Speaker 1: is the peak and rates. We're getting closer to the 255 00:13:19,960 --> 00:13:22,720 Speaker 1: point when we will have a better idea about where 256 00:13:22,720 --> 00:13:24,760 Speaker 1: we're going in terms of the economic data. So the 257 00:13:24,800 --> 00:13:26,560 Speaker 1: bottom line where that is that from having a long 258 00:13:26,600 --> 00:13:28,800 Speaker 1: period of a risk of a hotter landing, I think 259 00:13:28,800 --> 00:13:30,800 Speaker 1: that the mall we can get the sequencing of inflation 260 00:13:30,840 --> 00:13:33,960 Speaker 1: coming down without the plan rate going up the mall, 261 00:13:34,000 --> 00:13:36,559 Speaker 1: we will be moving towards the south landing scenario. Most 262 00:13:36,679 --> 00:13:42,560 Speaker 1: people talk, including me, you do you play soccer all 263 00:13:42,559 --> 00:13:45,120 Speaker 1: the time over in Brooklyn. This was a dump of 264 00:13:45,160 --> 00:13:49,080 Speaker 1: a shipyard which was a grassroots Brooklyn effort. And then 265 00:13:49,720 --> 00:13:52,120 Speaker 1: Governor Pataki and a mayor I can't remember his name, 266 00:13:52,160 --> 00:13:55,960 Speaker 1: but then a mayor jump started this going into a 267 00:13:56,000 --> 00:14:00,280 Speaker 1: gorgeous soccer field as well. You are qualified here team 268 00:14:00,360 --> 00:14:05,960 Speaker 1: Denmark and uh Brooklyn. Can Morocco actually get this done today? 269 00:14:06,000 --> 00:14:08,080 Speaker 1: Are they gonna, you know, be like Croatian? Then we've 270 00:14:08,080 --> 00:14:10,800 Speaker 1: got France, Argentina, They've clearly been the underdog. They've been 271 00:14:10,880 --> 00:14:13,440 Speaker 1: very impressive, as Thesa was just mentioning that defense is 272 00:14:13,559 --> 00:14:16,440 Speaker 1: very very good. She more than me, so I think, well, friends, 273 00:14:16,480 --> 00:14:18,640 Speaker 1: of course they like they lose to France, so you 274 00:14:18,640 --> 00:14:23,720 Speaker 1: think that's funny over there, I do that one. We'll see, 275 00:14:23,760 --> 00:14:25,800 Speaker 1: we'll see how far they get. But I mean France, 276 00:14:25,840 --> 00:14:32,320 Speaker 1: of course, Bobby is just outstanding. France Argentina quick it's Argentina. Yeah, well, 277 00:14:33,080 --> 00:14:35,640 Speaker 1: well I'm going to go with friends. But but Argentina 278 00:14:35,800 --> 00:14:37,400 Speaker 1: has some really good players. But I still think that 279 00:14:37,520 --> 00:14:39,760 Speaker 1: France has the opperlex. I mean, they have some really 280 00:14:39,800 --> 00:14:43,200 Speaker 1: good players. They've been praying incredible tournament so so, but 281 00:14:43,280 --> 00:14:46,040 Speaker 1: let's see both both of course are very good. Argentina 282 00:14:46,080 --> 00:14:48,600 Speaker 1: of course also has with messy and incredible team and 283 00:14:48,640 --> 00:14:52,680 Speaker 1: they did incredibly well yesterday. Would you like to incredibly 284 00:14:52,680 --> 00:14:57,400 Speaker 1: creative offense. I've really enjoy his his energy and and 285 00:14:58,280 --> 00:15:03,160 Speaker 1: has illusions. Mr to uh Pharaoh says to diego Madonna. 286 00:15:03,320 --> 00:15:05,600 Speaker 1: You know, I think it really works out that that 287 00:15:05,720 --> 00:15:08,720 Speaker 1: sounded really smart, Tom, that was good. It was really fun. 288 00:15:09,520 --> 00:15:14,800 Speaker 1: Any other references there is really good. He really played well. 289 00:15:14,880 --> 00:15:22,920 Speaker 1: Torson slock, thank you Paul, Liz Young joins his head 290 00:15:22,920 --> 00:15:25,920 Speaker 1: of investor strategies. So far in our fed hour, it 291 00:15:26,080 --> 00:15:29,160 Speaker 1: is about the time continuum, which is moving averages, and 292 00:15:29,240 --> 00:15:33,080 Speaker 1: Liz Young has written about something I can't stand, which 293 00:15:33,120 --> 00:15:36,320 Speaker 1: is the gloomy death cross. Liz Young, what does the 294 00:15:36,400 --> 00:15:39,480 Speaker 1: death cross and what does it matter for Chairman Paul Well? 295 00:15:39,520 --> 00:15:41,520 Speaker 1: I don't know that it matters so much for Chairman Paul, 296 00:15:41,560 --> 00:15:44,200 Speaker 1: but it matters for investors, and it's been something that's 297 00:15:44,200 --> 00:15:47,400 Speaker 1: signaled earlier this year. What happens is when the fifty 298 00:15:47,480 --> 00:15:51,000 Speaker 1: day moving average goes below the two D day moving average, 299 00:15:51,040 --> 00:15:53,880 Speaker 1: that's the death cross. And at that point, it's widely 300 00:15:53,920 --> 00:15:57,680 Speaker 1: believed that the two D day moving average becomes our 301 00:15:57,720 --> 00:16:00,720 Speaker 1: top point, our resistance level. And if you watch what 302 00:16:00,760 --> 00:16:03,360 Speaker 1: the SMP five hundred has done this year, we have 303 00:16:03,600 --> 00:16:06,960 Speaker 1: not been able to break above those resistance levels. You 304 00:16:07,000 --> 00:16:09,000 Speaker 1: can draw those in a couple of different ways, but 305 00:16:09,080 --> 00:16:12,320 Speaker 1: the point is that they have held strong, and they 306 00:16:12,360 --> 00:16:15,480 Speaker 1: held strong again yesterday we got right up to about 307 00:16:15,520 --> 00:16:18,120 Speaker 1: forty one and gave a lot of it back. So 308 00:16:18,200 --> 00:16:20,800 Speaker 1: the market just has not gotten out of that range. 309 00:16:20,920 --> 00:16:22,520 Speaker 1: So what does that mean? How does that push back 310 00:16:22,560 --> 00:16:25,240 Speaker 1: against the bulliance that we have felt about disinflation in 311 00:16:25,280 --> 00:16:29,960 Speaker 1: the FED moving away from some of the more hawkish proclamations. Well, 312 00:16:30,000 --> 00:16:33,000 Speaker 1: I think that there is a desire by a lot 313 00:16:33,040 --> 00:16:35,280 Speaker 1: of investors to number one, just be done with all 314 00:16:35,320 --> 00:16:38,840 Speaker 1: this negativity and find some durable upside in the market. 315 00:16:39,120 --> 00:16:41,640 Speaker 1: But when we sit here with three different yield curve 316 00:16:41,680 --> 00:16:44,120 Speaker 1: in versions that are very meaningful, and many of those 317 00:16:44,200 --> 00:16:47,480 Speaker 1: are meaningful to the FED. We've got the twos tends inverted, 318 00:16:47,680 --> 00:16:50,160 Speaker 1: the three month tenure, and now it's called the near 319 00:16:50,240 --> 00:16:54,080 Speaker 1: term forward spread inverted. That keeps a lid on equity market. 320 00:16:54,320 --> 00:16:57,880 Speaker 1: And when you look at just the upside opportunity, it's 321 00:16:57,920 --> 00:17:02,320 Speaker 1: difficult to get past certain les evaluation and really feel 322 00:17:02,320 --> 00:17:05,320 Speaker 1: like we deserve to be at that pe. So when 323 00:17:05,320 --> 00:17:07,280 Speaker 1: you get up where we are now seventeen and a 324 00:17:07,280 --> 00:17:11,200 Speaker 1: half to seventeen point eight times forward earnings, it's difficult 325 00:17:11,240 --> 00:17:14,800 Speaker 1: to really say, Okay, we're doing that based on strong 326 00:17:14,800 --> 00:17:18,280 Speaker 1: earnings momentum or strong fundamentals in the economy. It's just 327 00:17:18,400 --> 00:17:21,320 Speaker 1: not the case right now. There's still a lot of headwinds. So, Liz, 328 00:17:21,320 --> 00:17:23,959 Speaker 1: how do you talk then with investors in terms of 329 00:17:24,080 --> 00:17:26,760 Speaker 1: how they should look at next year, how they should 330 00:17:26,760 --> 00:17:29,120 Speaker 1: look at the FED, how they should look at what 331 00:17:29,200 --> 00:17:31,080 Speaker 1: may or may not be a recession if you take 332 00:17:31,119 --> 00:17:34,840 Speaker 1: a look at some of the increasing pullback from recessionary 333 00:17:34,880 --> 00:17:37,440 Speaker 1: types of scenarios. Even Alan Ruskin over at Deutsche Bank 334 00:17:37,520 --> 00:17:41,200 Speaker 1: saying that yesterday's data pointed more toward a soft landing 335 00:17:41,240 --> 00:17:44,760 Speaker 1: than he previously thought. Look, yesterday's data was good. That 336 00:17:44,840 --> 00:17:47,199 Speaker 1: was that was a positive report in the sense that 337 00:17:47,240 --> 00:17:51,080 Speaker 1: we surprised to the downside. It's signaled to the market 338 00:17:51,160 --> 00:17:55,479 Speaker 1: that it's possible we we avert catastrophe. But we're still 339 00:17:55,520 --> 00:17:57,520 Speaker 1: not done with this. And here's what I want to 340 00:17:57,520 --> 00:18:00,640 Speaker 1: hear from Jerome Powell today. I expect that they will 341 00:18:00,680 --> 00:18:03,560 Speaker 1: do a fifty basis point hike. I'd like to hear 342 00:18:03,720 --> 00:18:06,639 Speaker 1: how they decided to downshift, because it will give us 343 00:18:06,640 --> 00:18:10,840 Speaker 1: a signal of exactly what indicators they're watching to choose 344 00:18:10,840 --> 00:18:13,040 Speaker 1: whether or not they need to slow down or pause, 345 00:18:13,080 --> 00:18:14,960 Speaker 1: and that will give us a little bit more certainty 346 00:18:14,960 --> 00:18:19,000 Speaker 1: going into I'd also like to hear, sorry, just real quick, 347 00:18:19,000 --> 00:18:21,800 Speaker 1: I'd also like to hear what his definition of restrictive is. 348 00:18:22,160 --> 00:18:24,200 Speaker 1: Does four and a half on the upper round get 349 00:18:24,280 --> 00:18:27,680 Speaker 1: us to restrict it? Interesting. Is the stock market one 350 00:18:27,760 --> 00:18:31,119 Speaker 1: of his indicators, as it was for Chairman Greenspan. I 351 00:18:31,119 --> 00:18:34,959 Speaker 1: think it's one of the indicators for financial conditions. But 352 00:18:34,960 --> 00:18:37,000 Speaker 1: what we've heard from them, and I don't expect this 353 00:18:37,080 --> 00:18:40,080 Speaker 1: to change today or anytime soon, is that they are 354 00:18:40,280 --> 00:18:43,119 Speaker 1: laser focused on inflation and the labor market. So I 355 00:18:43,160 --> 00:18:45,879 Speaker 1: think the more likely narrative shift will be that we 356 00:18:45,960 --> 00:18:49,200 Speaker 1: stop hearing so much about inflation and we start hearing 357 00:18:49,240 --> 00:18:52,440 Speaker 1: about the tight labor market, much more interesting, lace brilliant 358 00:18:52,440 --> 00:18:55,159 Speaker 1: as a wise So I final LEAs, thank you, thank you, 359 00:18:59,480 --> 00:19:02,000 Speaker 1: and I'm going narrow here when I could go broad, 360 00:19:02,040 --> 00:19:04,760 Speaker 1: broad broad with Edward s. I'man he is the ever 361 00:19:04,840 --> 00:19:07,920 Speaker 1: cores I s I founder, far more than that, someone 362 00:19:08,040 --> 00:19:11,040 Speaker 1: so esteemed in market economics. He has been discussed as 363 00:19:11,080 --> 00:19:13,679 Speaker 1: a member of the governor Board of Governors of the 364 00:19:13,720 --> 00:19:16,520 Speaker 1: FED or vice chairman. And have you've ever been vetted 365 00:19:16,560 --> 00:19:19,639 Speaker 1: to be chairman of the Fed? Has anyone been that? 366 00:19:20,240 --> 00:19:23,720 Speaker 1: You know? I can't imagine you demanding the FED members 367 00:19:23,920 --> 00:19:27,120 Speaker 1: to read your note? Have you ever been vetted? We'll 368 00:19:27,240 --> 00:19:30,639 Speaker 1: do reading some, but you know, as you know on 369 00:19:30,760 --> 00:19:33,919 Speaker 1: my fourth I love your show, everything you do, but 370 00:19:34,480 --> 00:19:39,120 Speaker 1: my criminal record just gets in a way round. We're 371 00:19:39,119 --> 00:19:41,879 Speaker 1: not going to crypto right now, and I want to 372 00:19:41,880 --> 00:19:45,160 Speaker 1: go to one paragraph and this goes back to C. J. Lawrence. 373 00:19:45,160 --> 00:19:48,680 Speaker 1: Folks in my ute when when Ed was at C. J. 374 00:19:48,840 --> 00:19:51,960 Speaker 1: Lawrence in venting market economics as we know it today, 375 00:19:52,200 --> 00:19:55,679 Speaker 1: the world stopped. I believe it was Thursday afternoon for 376 00:19:56,000 --> 00:19:58,160 Speaker 1: M O, which is Larry Cudler's big number M one, 377 00:19:58,400 --> 00:20:00,879 Speaker 1: M two, M three, M eight and the rest of it. 378 00:20:01,400 --> 00:20:05,000 Speaker 1: You have ad him in a chart which speaks volumes 379 00:20:05,000 --> 00:20:09,200 Speaker 1: of United States inflation adjusted M two and the only 380 00:20:09,240 --> 00:20:12,679 Speaker 1: word that works in the modern lexicon is cratered. What 381 00:20:12,720 --> 00:20:15,640 Speaker 1: do we make of the plunge in M two off 382 00:20:15,680 --> 00:20:19,879 Speaker 1: the pandemic spike? That's dangerous? Uh, time you hit the 383 00:20:19,880 --> 00:20:23,920 Speaker 1: thing I'm most focused on right now. I just had 384 00:20:24,000 --> 00:20:28,400 Speaker 1: Greg you go in uh for our morning meeting, and 385 00:20:28,840 --> 00:20:33,399 Speaker 1: he's somewhat dismissive of this, and the fete is totally dismissive. 386 00:20:34,000 --> 00:20:39,320 Speaker 1: But I've I grew up in this period in his seventies, UH, 387 00:20:40,040 --> 00:20:43,560 Speaker 1: when Russell Freeland was rock star, and so I think 388 00:20:43,560 --> 00:20:47,080 Speaker 1: it's very serious. But we have an analyst here, Glenn 389 00:20:47,080 --> 00:20:50,359 Speaker 1: Shore does the banks number one analysts in space. And 390 00:20:50,400 --> 00:20:53,080 Speaker 1: he's been telling me this for six months that bank 391 00:20:53,119 --> 00:20:56,000 Speaker 1: deposits are going to decline three this year and as 392 00:20:56,000 --> 00:20:59,280 Speaker 1: a Friday down one per cent. Uh. And bank deposits 393 00:20:59,280 --> 00:21:02,560 Speaker 1: are five percent and two So you can get your 394 00:21:02,640 --> 00:21:08,000 Speaker 1: MP too reading uh now from that source on Friday afternoon. 395 00:21:08,520 --> 00:21:12,199 Speaker 1: And now bank deposits are down a little over one 396 00:21:12,240 --> 00:21:15,840 Speaker 1: percent already. Uh. And that means my supplies probably contracting 397 00:21:15,920 --> 00:21:23,560 Speaker 1: hasn't contracted since. So let's say to you, you follow everything, 398 00:21:24,040 --> 00:21:27,320 Speaker 1: You're amazing, but let's say the odds that it makes 399 00:21:27,320 --> 00:21:35,080 Speaker 1: a difference or eighty or sixty. It's a very serious issue. Uh, 400 00:21:35,800 --> 00:21:38,679 Speaker 1: we'll see how it works. Is slowing And how do 401 00:21:38,720 --> 00:21:41,439 Speaker 1: you feel about the age old effect of liquidity? We 402 00:21:41,480 --> 00:21:44,320 Speaker 1: have four out of five guests telling us the liquidity 403 00:21:44,400 --> 00:21:47,800 Speaker 1: fears are overrated. But Mr Diamond is going to look 404 00:21:47,840 --> 00:21:50,520 Speaker 1: at this deposit base and do I suggest ad that 405 00:21:50,600 --> 00:21:53,760 Speaker 1: we have a caution in the winds for two thousand 406 00:21:53,840 --> 00:21:57,439 Speaker 1: twenty three because of a dampening at least if not 407 00:21:57,560 --> 00:22:03,080 Speaker 1: ill liquidity. Yeah. So, Uh, you're also a historian and 408 00:22:05,080 --> 00:22:09,240 Speaker 1: John Maynard Kane wrote a paper uh that found the 409 00:22:09,520 --> 00:22:13,280 Speaker 1: my supply leads to GDP by six sixteen months. Think 410 00:22:13,320 --> 00:22:15,760 Speaker 1: of that, and that's about what you know, the long 411 00:22:15,800 --> 00:22:20,760 Speaker 1: and variable lags would suggest. But uh, the point here 412 00:22:20,880 --> 00:22:23,760 Speaker 1: a little bit, it's not I don't have all my 413 00:22:23,800 --> 00:22:27,960 Speaker 1: eggs in one basket. So as of this afternoon, the 414 00:22:28,119 --> 00:22:32,439 Speaker 1: San Francisco uh FET fundra adjusted for QT what is 415 00:22:32,440 --> 00:22:35,679 Speaker 1: it called a proxy f fundrate will be six and 416 00:22:35,680 --> 00:22:38,879 Speaker 1: a half percent, and the core PC is uh I 417 00:22:38,880 --> 00:22:43,440 Speaker 1: think four seventy or five, and so the F fundred 418 00:22:43,480 --> 00:22:47,680 Speaker 1: adjusted for quantitated tightening will be well over the inflation rate, 419 00:22:47,720 --> 00:22:49,840 Speaker 1: which is what the fifth says they want. Well, I'm 420 00:22:49,880 --> 00:22:53,320 Speaker 1: saying they got it. And the bonnil is three fifty. 421 00:22:53,840 --> 00:22:58,760 Speaker 1: So you have a massive point inversion of the Yolk curve. 422 00:22:59,760 --> 00:23:02,880 Speaker 1: And and you know, you know, we've we've got these 423 00:23:02,880 --> 00:23:04,879 Speaker 1: recession calls out there, and I guess folks are just 424 00:23:04,880 --> 00:23:07,760 Speaker 1: trying to parse out how deep, how severe, how long 425 00:23:08,080 --> 00:23:13,200 Speaker 1: the duration. But the consumer is just incredibly resilient here 426 00:23:13,240 --> 00:23:16,840 Speaker 1: and the you know, the labor market is robust, and 427 00:23:16,880 --> 00:23:20,520 Speaker 1: we've and it seems like inflation is peaked. How does 428 00:23:20,520 --> 00:23:23,880 Speaker 1: that all add up in your models for a recession? 429 00:23:23,880 --> 00:23:31,000 Speaker 1: In so my my basic case for years now has 430 00:23:31,080 --> 00:23:34,880 Speaker 1: been to look at our company surveys, which go from 431 00:23:34,920 --> 00:23:38,760 Speaker 1: trucking to retailing, home building. And then look at the 432 00:23:38,760 --> 00:23:41,960 Speaker 1: p M I s. The PM surveys have dropped a lot, 433 00:23:42,040 --> 00:23:45,080 Speaker 1: they're still pretty high. Uh and the p m I 434 00:23:45,200 --> 00:23:48,800 Speaker 1: s are below fifty, I think. And then I look 435 00:23:48,960 --> 00:23:53,040 Speaker 1: at labor market indicators like unemployment claims, and they've now 436 00:23:53,400 --> 00:23:56,560 Speaker 1: moved up. And we do a tally of layoff announcements. 437 00:23:57,119 --> 00:23:59,160 Speaker 1: Uh two months ago there were eight hundred a week 438 00:23:59,200 --> 00:24:02,840 Speaker 1: and now the ten thousand a week. Uh So, you know, 439 00:24:02,880 --> 00:24:07,400 Speaker 1: it's none of this is really ringing alarm bells at 440 00:24:07,400 --> 00:24:10,320 Speaker 1: the moment or not, most of us not. Uh So 441 00:24:10,359 --> 00:24:12,560 Speaker 1: it's really a question of whether or not these things 442 00:24:12,600 --> 00:24:17,600 Speaker 1: I mentioned earlier are leading indicators or not. And that's 443 00:24:17,680 --> 00:24:21,000 Speaker 1: my job. So I think they probably do. But I 444 00:24:21,000 --> 00:24:24,520 Speaker 1: think the consummlers in in great shape and times. You know, 445 00:24:24,600 --> 00:24:29,200 Speaker 1: we our oldest survey we do is of retailers and 446 00:24:29,440 --> 00:24:31,520 Speaker 1: it was like seventy five or something, and that was 447 00:24:33,200 --> 00:24:35,480 Speaker 1: I mean, your real job, Your real job is to 448 00:24:35,520 --> 00:24:40,199 Speaker 1: contain Julian Emmanuel, which is I don't want to get 449 00:24:40,200 --> 00:24:42,960 Speaker 1: into dad, Julian told me the other day, and more 450 00:24:43,000 --> 00:24:47,320 Speaker 1: fans over here. Julian told me the other day that 451 00:24:47,480 --> 00:24:51,560 Speaker 1: he needs to see Catharsis. You're the adult on this. 452 00:24:52,160 --> 00:24:56,320 Speaker 1: Must we have a Catharsis a vix of thirty five 453 00:24:56,440 --> 00:24:58,920 Speaker 1: or forty in the Emmanuel language, or however you want 454 00:24:58,960 --> 00:25:02,080 Speaker 1: to put it. But do we need a market Catharsis 455 00:25:02,080 --> 00:25:07,320 Speaker 1: to move forward to a better future? Yeah, So let 456 00:25:07,400 --> 00:25:11,040 Speaker 1: me explain my position. Uh. I have a I worry 457 00:25:11,080 --> 00:25:14,400 Speaker 1: about the economy a lot, as you can imagine. Uh. 458 00:25:14,560 --> 00:25:16,560 Speaker 1: I also think it's possible we don't have a recession 459 00:25:16,600 --> 00:25:20,920 Speaker 1: if inflation slows rapidly. But you know that's starting to happen, 460 00:25:21,000 --> 00:25:25,240 Speaker 1: but not enough yet. Then I have Julian and and 461 00:25:25,240 --> 00:25:28,119 Speaker 1: and he he thinks this is a pretty dark picture 462 00:25:28,480 --> 00:25:31,840 Speaker 1: because he listens to what I'm covering. Uh. And then 463 00:25:31,840 --> 00:25:34,640 Speaker 1: I have Rich Ross, who does technical like this guy 464 00:25:34,760 --> 00:25:38,639 Speaker 1: is like it unabashedly bullish. Uh. You know the market 465 00:25:38,880 --> 00:25:42,640 Speaker 1: then the Catharsis, but has the size of the market bottom. 466 00:25:42,680 --> 00:25:45,800 Speaker 1: So I'm a little bit not a good guest for 467 00:25:45,880 --> 00:25:52,520 Speaker 1: you that strong opinion. Uh. So I don't have a 468 00:25:52,560 --> 00:25:56,120 Speaker 1: strong opinion. I'm a little bit more bullish than bearish 469 00:25:56,280 --> 00:25:59,480 Speaker 1: because inflation is slowing. As then one of my maybe 470 00:25:59,560 --> 00:26:03,840 Speaker 1: my main uh view it looks as though he saw yesterday. 471 00:26:03,880 --> 00:26:08,040 Speaker 1: When it slows market, it is happy because it makes 472 00:26:08,080 --> 00:26:11,040 Speaker 1: it fit. Well. Maybe have to maybe have to do 473 00:26:11,080 --> 00:26:12,800 Speaker 1: with list well, and we're gonna have to go here. 474 00:26:12,840 --> 00:26:14,439 Speaker 1: I do. I do want to mention folks because I'm 475 00:26:14,440 --> 00:26:17,680 Speaker 1: gonna get five emails send me Ed's note. We protect 476 00:26:17,680 --> 00:26:20,560 Speaker 1: the copyright of all of our guests. That's been a surveillance, 477 00:26:21,119 --> 00:26:24,280 Speaker 1: uh lodestone from today one. He has Edward S. Hyman 478 00:26:24,640 --> 00:26:28,119 Speaker 1: of his I s I ever cor I s I N. 479 00:26:38,560 --> 00:26:43,000 Speaker 1: We introduce him differently than we ever have before. He's 480 00:26:43,119 --> 00:26:45,879 Speaker 1: Terry Haynes. He talks to us about Washington. He has 481 00:26:45,920 --> 00:26:49,919 Speaker 1: a wonderful and different prison year. But also he is 482 00:26:50,000 --> 00:26:53,679 Speaker 1: a grizzled veteran of all the chit chat the media 483 00:26:53,760 --> 00:26:57,960 Speaker 1: is doing right now. In the vicinity of two thousand two, 484 00:26:58,200 --> 00:27:03,119 Speaker 1: Mr Haynes provided general council services to House Financial Committee 485 00:27:03,160 --> 00:27:07,720 Speaker 1: under Mr Oxley. I believe it was on scandal. The 486 00:27:07,800 --> 00:27:12,199 Speaker 1: extinguished veteran Terry Haynes joins us this morning, Terry, is 487 00:27:12,280 --> 00:27:15,320 Speaker 1: this different than what you witnessed in the early part 488 00:27:15,760 --> 00:27:20,720 Speaker 1: long ago of this century. Well, it's not. What's different 489 00:27:20,760 --> 00:27:23,840 Speaker 1: about it is Tom Frankly, as the market impact. I 490 00:27:23,840 --> 00:27:27,320 Speaker 1: think what people forget about the Enron and world Com 491 00:27:27,400 --> 00:27:33,320 Speaker 1: scandals and what made necessary the Starbanes Oxley Act is 492 00:27:33,520 --> 00:27:38,040 Speaker 1: that markets started to view it as an as an 493 00:27:38,080 --> 00:27:45,119 Speaker 1: attack on the the the ability of markets to understand, uh, 494 00:27:45,200 --> 00:27:48,760 Speaker 1: you know the books of the books, the solvency of 495 00:27:48,800 --> 00:27:52,879 Speaker 1: the prospects of publicly traded companies. They figured, you know, 496 00:27:52,920 --> 00:27:55,960 Speaker 1: if Enron went down and then world Com had did 497 00:27:56,000 --> 00:28:00,240 Speaker 1: this very simple fraud, Uh, you know what's next, right, 498 00:28:00,320 --> 00:28:04,280 Speaker 1: it was really destroying wealth and value. We don't have 499 00:28:04,359 --> 00:28:07,040 Speaker 1: that situation today, so it's much different than that regarding 500 00:28:07,119 --> 00:28:08,680 Speaker 1: you know, John and Lisa want to jump in here, 501 00:28:08,680 --> 00:28:10,600 Speaker 1: but Terry, I'm gonna cut to the chase. The what 502 00:28:10,920 --> 00:28:14,800 Speaker 1: next is called binance? How should Mr Gensler? How should 503 00:28:14,880 --> 00:28:19,240 Speaker 1: c f TC? How should the politicians you advised years ago? 504 00:28:19,840 --> 00:28:22,720 Speaker 1: Now what they should they do on the what next 505 00:28:22,800 --> 00:28:26,879 Speaker 1: of binance? Well, Congress, let me take Congress first, and 506 00:28:26,920 --> 00:28:30,320 Speaker 1: then the regulators. Congress you know, created the regulators oversees 507 00:28:30,400 --> 00:28:32,600 Speaker 1: them all the rest. So you know, my my view 508 00:28:32,640 --> 00:28:34,760 Speaker 1: here as Congress. You know, it's kind at the top 509 00:28:34,760 --> 00:28:38,240 Speaker 1: of the food chain. The you know, Commresce doesn't know 510 00:28:38,320 --> 00:28:41,120 Speaker 1: much about crypto doesn't know much about finance, But what 511 00:28:41,160 --> 00:28:43,640 Speaker 1: I got from the hearing yesterday is Congress thinks this 512 00:28:43,680 --> 00:28:46,640 Speaker 1: stuff as a scam, and even people that think there's 513 00:28:46,640 --> 00:28:49,400 Speaker 1: promise in it, they think that the actors are a 514 00:28:49,440 --> 00:28:51,760 Speaker 1: scam and they're running away from it as as quickly 515 00:28:51,800 --> 00:28:55,400 Speaker 1: as they can. Uh. What Gary Gensler and others were 516 00:28:55,400 --> 00:28:58,800 Speaker 1: saying yesterday very simply was, uh, you know, no matter 517 00:28:58,840 --> 00:29:00,880 Speaker 1: who you are in the space, we're coming after you. 518 00:29:01,080 --> 00:29:04,520 Speaker 1: And uh so you know, whatever is going on at finance, Uh, 519 00:29:04,720 --> 00:29:08,080 Speaker 1: you know, Gensler is going to use the maximum amount 520 00:29:08,120 --> 00:29:10,640 Speaker 1: of his power to try to bring them to heal 521 00:29:10,680 --> 00:29:13,160 Speaker 1: as quickly as possible. I mean, that's that's the bottom line. 522 00:29:13,280 --> 00:29:15,440 Speaker 1: Yesterday we saw resilience in terms of the shares of 523 00:29:15,520 --> 00:29:18,560 Speaker 1: crypto companies as well as a bitcoin which continues to 524 00:29:18,680 --> 00:29:21,160 Speaker 1: rise today. This goes against what you were saying, or 525 00:29:21,240 --> 00:29:22,880 Speaker 1: you said that this does not look like a bad 526 00:29:22,920 --> 00:29:25,920 Speaker 1: moment from which crypto can recover. It's much likely to 527 00:29:25,920 --> 00:29:29,360 Speaker 1: begin likelier to be the beginning of the end for crypto. 528 00:29:29,440 --> 00:29:32,080 Speaker 1: Why do you say that with such confidence given the 529 00:29:32,120 --> 00:29:35,560 Speaker 1: acceptance that the market has had of what has just transpired. 530 00:29:35,600 --> 00:29:39,160 Speaker 1: Without some sort of massive disruption at least. I think 531 00:29:39,200 --> 00:29:42,920 Speaker 1: what you've got here is a kind of a perfect storm. 532 00:29:42,960 --> 00:29:46,600 Speaker 1: You've got a situation where you've got uh yeah, what 533 00:29:46,680 --> 00:29:50,120 Speaker 1: crypto is looking at in the future is years to 534 00:29:50,120 --> 00:29:55,960 Speaker 1: come of investigation and investigations, potential indictments and uh and 535 00:29:56,040 --> 00:29:59,760 Speaker 1: certainly enforcement actions number one. Number two. What you've got, 536 00:30:00,040 --> 00:30:03,760 Speaker 1: you've got a situation where crypto is gonna be is 537 00:30:03,800 --> 00:30:08,960 Speaker 1: going to be busily enfolded into the existing regulatory regime. 538 00:30:09,160 --> 00:30:12,480 Speaker 1: The Biden administration. Regulators have been after this for about 539 00:30:12,480 --> 00:30:15,440 Speaker 1: a year. They've been really public about it, but uh, 540 00:30:15,480 --> 00:30:17,920 Speaker 1: crypto people on Wall Street haven't wanted to believe it. 541 00:30:17,960 --> 00:30:20,200 Speaker 1: Well as of yesterday, they should believe it, because that's 542 00:30:20,200 --> 00:30:23,360 Speaker 1: exactly what Gensler and others are gonna be up to. 543 00:30:24,120 --> 00:30:28,520 Speaker 1: When you combine when you combine that with the possibility 544 00:30:28,560 --> 00:30:32,000 Speaker 1: of crypto exposure from more established players, what you do, 545 00:30:32,160 --> 00:30:34,800 Speaker 1: what you're gonna get is a continued overall is a 546 00:30:34,920 --> 00:30:38,040 Speaker 1: continued flight of capital. Uh. And you know, people are 547 00:30:38,080 --> 00:30:41,840 Speaker 1: not gonna want to be involved with something that looks 548 00:30:41,880 --> 00:30:44,080 Speaker 1: like it's a potential scam that might get them in 549 00:30:44,200 --> 00:30:48,040 Speaker 1: some some fairly serious trouble. So you know, you know, 550 00:30:48,200 --> 00:30:51,080 Speaker 1: an uptick in all this. Uh, you know, given the 551 00:30:51,200 --> 00:30:55,000 Speaker 1: last year the crypto has had. Uh, certainly possible, but 552 00:30:55,240 --> 00:30:56,920 Speaker 1: this is not going to be the force, not going 553 00:30:57,000 --> 00:30:59,080 Speaker 1: to be the game changer anybody ever thought it was 554 00:30:59,080 --> 00:31:02,160 Speaker 1: gonna be ter You started we started by talking about 555 00:31:02,160 --> 00:31:05,400 Speaker 1: your comment about the strange timing that the Department of 556 00:31:05,440 --> 00:31:08,959 Speaker 1: Justice didn't give it heads up to Congress ahead of 557 00:31:09,000 --> 00:31:12,480 Speaker 1: releasing this indictment. Also with the SEC, You've had extensive 558 00:31:12,520 --> 00:31:15,600 Speaker 1: work with both the SEC and the Southern District of 559 00:31:15,640 --> 00:31:18,640 Speaker 1: New York with some of these investigations. Do you believe 560 00:31:18,880 --> 00:31:23,880 Speaker 1: that it could have been politically motivated? Um? I raised 561 00:31:23,920 --> 00:31:26,640 Speaker 1: it as a possibility. Uh. You know, do I think 562 00:31:26,720 --> 00:31:30,680 Speaker 1: it's likely? Uh? I certainly hope not. Uh. But you 563 00:31:30,720 --> 00:31:34,240 Speaker 1: know what, what has happened here beyond the beyond the 564 00:31:34,640 --> 00:31:39,400 Speaker 1: bottom line politics is very simply that the regulators and 565 00:31:39,560 --> 00:31:43,719 Speaker 1: the litigators decided together that they were gonna push this 566 00:31:43,840 --> 00:31:47,240 Speaker 1: thing forward uh and uh and shove Congress to the 567 00:31:47,280 --> 00:31:50,120 Speaker 1: side as much as possible. Uh. You know, the SDN 568 00:31:50,240 --> 00:31:54,880 Speaker 1: Y was very specific about bringing up the campaign finance 569 00:31:54,920 --> 00:31:59,920 Speaker 1: activities of SPF. The implication there is that one implication 570 00:32:00,520 --> 00:32:05,080 Speaker 1: is that you know, Congress is somehow unable to strongly 571 00:32:05,200 --> 00:32:10,200 Speaker 1: investigate this stuff because they had taken money from SPF 572 00:32:10,400 --> 00:32:15,120 Speaker 1: F TDX crypto more largely. Uh, you know, I think 573 00:32:15,160 --> 00:32:18,000 Speaker 1: that's dead wrong, by the way, But but but that's 574 00:32:18,040 --> 00:32:20,959 Speaker 1: an implication of it. And uh, and you know, so 575 00:32:21,000 --> 00:32:22,960 Speaker 1: what we're gonna get here is we're gonna get a 576 00:32:23,000 --> 00:32:26,880 Speaker 1: competition between the regulators and the litigators on the one 577 00:32:26,920 --> 00:32:30,480 Speaker 1: side and Congress on the other. I think that's unfortunate, frankly, 578 00:32:30,520 --> 00:32:35,680 Speaker 1: because it strings out much longer, Uh, the resolution of 579 00:32:35,680 --> 00:32:38,440 Speaker 1: a lot of crypto issues. Hi, Terry, got to catch up. 580 00:32:38,480 --> 00:32:41,880 Speaker 1: Set as always, Terry Hanks, the founder of pange A Policy. 581 00:32:42,040 --> 00:32:45,800 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 582 00:32:45,920 --> 00:32:49,320 Speaker 1: us live weekdays from seven to ten am Eastern. I'm 583 00:32:49,360 --> 00:32:53,600 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 584 00:32:53,680 --> 00:32:58,560 Speaker 1: to nine am for insight from the best in economics, finance, investment, 585 00:32:58,720 --> 00:33:03,720 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 586 00:33:03,800 --> 00:33:07,600 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 587 00:33:07,720 --> 00:33:11,880 Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg