Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. Alan Ruskin right
Speaker 1: now chief international strategist at Deutsche Bank and hugely esteemed
Speaker 1: in this uh Ellen Ruskin and paper by the former
Speaker 1: vice chair and chairman Allan Blinder years ago. How do
Speaker 1: central banks talk? How do they talk with this dot plot? Well,
Speaker 1: I think they try stee other markets to where they
Speaker 1: think rates should be. And obviously they've got a little
Speaker 1: bit of a problem right now because the markets very
Speaker 1: pacis stant in his thought process that the FED is
Speaker 1: going to be cutting rates in three I think the
Speaker 1: intriguing aspect of what you have right now is that,
Speaker 1: you know, we thought the FED would probably lose control
Speaker 1: or could lose control of the back end of the
Speaker 1: curve because back end heels were too high, and you know,
Speaker 1: QUT would maybe push heels higher, and we've got exactly
Speaker 1: the reverse problem um with heels. You know, more consistent
Speaker 1: with the three percent funds rate than a five percent
Speaker 1: funds rate. So the mark is not really listening to
Speaker 1: the Fed. It's not the worst problem the Fed could have,
Speaker 1: but I think the fair is s thoughts trying to
Speaker 1: steer the curve higher in terms of heals, Allen, do
Speaker 1: you see them being successful in doing so? Not at
Speaker 1: this meeting necessarily. I think, you know, the odds are
Speaker 1: that the twenty three three dart is between four and
Speaker 1: three quarters and five percent um. You know, it looked
Speaker 1: like it maybe a bit higher than that before cp I,
Speaker 1: But I think that probably is a reasonable guestimate of
Speaker 1: where that medium dot will be. Uh, you know, that's
Speaker 1: not far from where the Fed, of you know, where
Speaker 1: the market effectively believes the peak will be. Anyway, it's
Speaker 1: really the discrepancy, I think, is in the rate cuts
Speaker 1: that follow very soon after the market thinks this is
Speaker 1: going to be more of a traditional cycle. You get
Speaker 1: to the peak, you don't spend very much time there,
Speaker 1: and you start to see rate cuts and the FED
Speaker 1: saying no, wait a minute, yeah, there is a different cycle.
Speaker 1: And obviously the more the back end hills are low,
Speaker 1: the more you could actually see fed funds plateau for
Speaker 1: quite some time. Alan, I remember a note that you
Speaker 1: put out months ago when you look at the previous
Speaker 1: few rate hiking cycles and calculated the average duration of
Speaker 1: staying at peak. We put out a similar story over
Speaker 1: the weekend last five cycles. I think the average was
Speaker 1: about eleven months. And what is about the characteristics of
Speaker 1: this tightening cycle, the economic back draft the influences your
Speaker 1: thoughts about how long they will stay at peak? Yeah,
Speaker 1: you know, I think it's all about how much the
Speaker 1: economy slows, and how much that slowing, particularly in the
Speaker 1: labor market, leads to a reduction in wage inflation that's
Speaker 1: consistent with a two percent inflation rate. You know, I
Speaker 1: think the supply side is all coming together very nicely.
Speaker 1: We're actually getting a positive supply side shock developing, and
Speaker 1: it's really the demand side that needs restraint. And it's
Speaker 1: not obvious what's going to happen here, because you can
Speaker 1: imagine a situation where if employment remains pretty resilient and
Speaker 1: inflation starting to come down. That mix of employments resilience
Speaker 1: driving nominal wages and inflation being lower means the real
Speaker 1: incomes will actually be growing again and demand could be
Speaker 1: quite resilient. So you know, there's a lot to play
Speaker 1: for here. The recession, which seemed like a complete gimme h,
Speaker 1: you know a couple of months ago, is you know,
Speaker 1: certainly looking at at worst like a know, a very
Speaker 1: much sort of soft procession as it work. Well, that's
Speaker 1: where I wanted to go. Allen. Does yesterday's CPI print
Speaker 1: give you a greater sense that there could potentially be
Speaker 1: a soft landing? Does it make that a more plausible
Speaker 1: scenario to you? I think it does At the margins,
Speaker 1: I think absolutely. I think you're seeing that the goods
Speaker 1: disinflation that we all have been anticipating is definitely feeding through.
Speaker 1: I mean, we we do some nice calculations on the CPI.
Speaker 1: Of course, we go x energy, X food, X shelter,
Speaker 1: you know, lose half of CPI and low and behold,
Speaker 1: we don't have much inflation. We have disinflation. Um. So
Speaker 1: maybe that's a bit of an exaggeration, but I think
Speaker 1: you're getting some constructive signals there that the supply side
Speaker 1: is without question helpful. I think you're going to see
Speaker 1: it right now. In fact, the import priced data that's
Speaker 1: coming out at thirty look at that and you know,
Speaker 1: look at the x petroleum numbers. They've been down for
Speaker 1: the last six consecutive months, and that serves as a
Speaker 1: strong correlation with pp I finished goods. So I think
Speaker 1: that side is actually very constructive as far as the
Speaker 1: soft landing is concerned. As I said, I think you've
Speaker 1: got to be cautious on the wage inflation side. I
Speaker 1: think Pal laid this out lot in his last speech
Speaker 1: when he suggested that, you know, with it effectively excess
Speaker 1: demand to tune about four million workers. I think that
Speaker 1: is deeply problematic to get inflation down quickly. I think
Speaker 1: what you have right now is not that inflation is
Speaker 1: coming down, but ultimately can we make that transition from
Speaker 1: say a three and a half percent core inflation rate
Speaker 1: to a two percent inflation rate? Just real quick here out.
Speaker 1: And we were speaking with Sarah House of VOLS Fargo
Speaker 1: earlier and she said, all things being equal, a reopening
Speaker 1: of China would be inflationary. We are looking at a
Speaker 1: more rapid reopening that many people had expected. Do you
Speaker 1: see this boosting inflation in a way that it's not
Speaker 1: currently being accounted for by by current projections? Yeah, I
Speaker 1: think you know, if the opening is successful and it's
Speaker 1: a you know, big If you could think in terms
Speaker 1: of revising up Chinese GDP numbers, you know, our forecasts
Speaker 1: about four and a half percent, you could think, you know,
Speaker 1: successful opening could raise that number up to six percent.
Speaker 1: Obviously you've seen base metal cyclicals are very depressed, if anything,
Speaker 1: in over the last six to twelve months. And um,
Speaker 1: you could see that commodities inflation start to pick up
Speaker 1: to a degree, but I'm not particularly worried that that's
Speaker 1: the big driver at this point in time. And again,
Speaker 1: if you look at the import prices, you can you
Speaker 1: know see today, Um, you know, the inflation pressures from
Speaker 1: China are quite muted. The import prices from China of
Speaker 1: quite muted, running roughly about two percent. And just to
Speaker 1: squeeze this in just briefly, at the top of your
Speaker 1: note that you put out yesterday, you indicated that for
Speaker 1: the last year, the two year has sold off for
Speaker 1: every single FED meeting. I wasn't aware of that, Alan,
Speaker 1: Do you believe today is going to be any different? Um?
Speaker 1: I think pal is going to triangle in that direction.
Speaker 1: So you know, at least you've got the fat chair
Speaker 1: pushing in that direction. Uh, you know is it going
Speaker 1: to be successful for more than twenty four hours. Probably
Speaker 1: not that uh I would say on balance the biases
Speaker 1: in that direction, slightly higher to your heels. And I'm
Speaker 1: rescing at Deutsche Bank and a great note again, fantastic.
Speaker 1: We are honored to bring a Torsten Slack for years
Speaker 1: of Deutsche Bank and now chief economist and Apollo Management
Speaker 1: to brief this morning. As we said defined cumulative, let's
Speaker 1: define faster. That's a lead note. David mel passed now
Speaker 1: at the World Bank, when he was at bear Stearns
Speaker 1: love to use that word as a calculus substitution. What
Speaker 1: does faster mean as we look at the inflation continuum
Speaker 1: right now? So of course what's important is, as you
Speaker 1: just talked about, the interest rates have already gone up
Speaker 1: and the cumulative effects are beginning to show, most importantly
Speaker 1: in interest rate sensitive components of GDP. We're seeing a
Speaker 1: slow down in housing. We're seeing a slow down in autos,
Speaker 1: and because those are the sectors that require financing. So
Speaker 1: at the moment, the good spot of the economy housing,
Speaker 1: all those durable goods washers, dryers, is slowing down. It's
Speaker 1: the service sector that the Fed would like to slow
Speaker 1: down at this point you said that it's too it's
Speaker 1: too soon to call the all clear, that we're actually
Speaker 1: on some sort of disinflationary tread. But you also have
Speaker 1: been talking about how there is this strong year over
Speaker 1: year comparison effect that is taking effect and that is
Speaker 1: going to drive inflation lower. So how should investors look
Speaker 1: at this? Are we heading into the same era that
Speaker 1: we left or is this a new more inflationary environment
Speaker 1: that we're seeing led by services. Well, that's a very
Speaker 1: very important question, Lisa, because there is a very important
Speaker 1: debate in FIT working papers and in the academic circles
Speaker 1: also about how much demand destruction is needed to get
Speaker 1: inflation back to two percent. A lot of people highlight
Speaker 1: and say are they're worried about inflation might be sticking
Speaker 1: at say three fall five percent, But that is not
Speaker 1: anchored in any model or any framework other than the
Speaker 1: fear that more demand instruction is needed. And there's a
Speaker 1: very wide range of views that. For example, Danny blast
Speaker 1: Flower is saying, well, we'll be back at two percent
Speaker 1: inflation in six months, whereas the SEP the summer if
Speaker 1: your own projection from the FIT is saying no, this
Speaker 1: will be more like three years. So the question for
Speaker 1: markets is not whether inflation is folding. Everyone agrees that
Speaker 1: inflation is falling. But the question is if you both
Speaker 1: have know that the supply chains are getting straightened out,
Speaker 1: and also the economy is slowing down, it was the
Speaker 1: good sector and the interest rate sensitive components, you could
Speaker 1: have the combination of inflation coming down potentially faster than
Speaker 1: what the consensus is saying here at the moment. Un
Speaker 1: financial conditions tie into this trajectory. In other words, would
Speaker 1: tighter financial conditions lead to a faster rate of change
Speaker 1: or faster rate of inflation coming down and to a
Speaker 1: lower multiple. Yeah, that's very critical. I mean, it's not
Speaker 1: clear to me that the fit once financial distance with
Speaker 1: titan everywhere. That's a very important nuance in this debate
Speaker 1: about interest rate sensitive components of GDP slowing. So we're
Speaker 1: definitely seeing housing all those rouble goods slowing down, and
Speaker 1: that's of course helpful in both dragging inflation down and
Speaker 1: in slowing growth down. But the service TX that's not
Speaker 1: quite slowing down yet. So tightening financial conditions is already happening,
Speaker 1: in particular on the good side, but on the service side.
Speaker 1: If think about primary high yield markets essentially shut down
Speaker 1: at the moment? Is that a desired goal for the Fed?
Speaker 1: Do they want that to spread to i G? I mean,
Speaker 1: that's a very important debate about, well, do they really
Speaker 1: want to slow down financial markets to the degree that
Speaker 1: is potentially required? And maybe they want to broaden this
Speaker 1: out and spread this out over a longer period. When
Speaker 1: you're George B I could just see Dr Hooper turning
Speaker 1: to you and saying, Tarsten, would you make up a
Speaker 1: chart here about when the real yield the real wage flips.
Speaker 1: So part of the service sector idea here is we
Speaker 1: have massive negative real wages. What's the dynamic as we
Speaker 1: go through this process? Chairman Powell wants us to go.
Speaker 1: So you mentioned i G as a risk spreading over
Speaker 1: from housing. Well, can they successfully manage allousy inflation adjusted
Speaker 1: wage back to some kind of positive wage. Well that's
Speaker 1: a real challenge because as you know, about full million
Speaker 1: workers are missing from the workforce. The labor force participation
Speaker 1: rates about full million below trend, and that means that
Speaker 1: the pressure on wages continues to be out there, and
Speaker 1: with wage inflation at five pc, it is absolutely the
Speaker 1: case that the labor market does need to deteriorate, meaning
Speaker 1: to soften a bit more, and that's also what Japal
Speaker 1: himself has been asking for. But to your point, there
Speaker 1: is a very important question also about can we have
Speaker 1: inflation coming back to two percent without the labor markets
Speaker 1: often incontentially, So you're talking about the people who are
Speaker 1: pitted on either sides of that exact debate of where
Speaker 1: exactly we're heading and where the natural rate of inflation
Speaker 1: will end up. Where do you stand? So I do
Speaker 1: think that from all the FED working papers that have
Speaker 1: looked at what drove inflation higher, two thirds of the
Speaker 1: increase in inflation was probably because of supply shocks and
Speaker 1: supply chains that are now getting straightened out. We'll resolve
Speaker 1: that on its own time will take care of that,
Speaker 1: but the one third that's demand is going to be
Speaker 1: much more challenging. But the question is, with the cumulative
Speaker 1: rates increases that we've already seen, maybe this could be
Speaker 1: enough to actually lower the economy down. So therefore, if
Speaker 1: you look easy FCCO on your Bloomberg screen and the
Speaker 1: contentious expects growth and basically zero for the first two
Speaker 1: quarters of next year, and that does mean that maybe
Speaker 1: we already have in the pipeline that's lowdown that's required
Speaker 1: to gradually lift there on the flo rate and therefore,
Speaker 1: get to your question, leads and the soft landing that
Speaker 1: I think is the most likely scenario, And other people
Speaker 1: are starting to agree with you more than they were
Speaker 1: perhaps three weeks ago. The Max Kuttter view of the world,
Speaker 1: the Neil Dotter view of the world is for perhaps
Speaker 1: not a recession in the first half of next year,
Speaker 1: perhaps pushing it back to later in the year. This
Speaker 1: is not a positive outcome though for markets, because it
Speaker 1: indicates the Fed will have to keep rates at a
Speaker 1: high level. Do you agree, Well, no, I don't agree
Speaker 1: because I think remember, if we do not have a
Speaker 1: deep recession, then earnings should actually still be okay. So
Speaker 1: if there's a soft landing, I still think markets could
Speaker 1: actually do okay. But we are going into the period.
Speaker 1: The inflection point is very clear. We're going from a
Speaker 1: period where the FED was saying rates are going up
Speaker 1: up up to now I fet is saying, well, we
Speaker 1: can see the peak is in sight, and now we
Speaker 1: might begin to see rates going sideways. That means that
Speaker 1: vall was very, very significant, very high when we were
Speaker 1: going up and now vall is being compressed, and that
Speaker 1: should also get more clarity to equity investors and to
Speaker 1: credit investors both for i g. Higher than the loans.
Speaker 1: You should begin to see more clarity about well where
Speaker 1: is the peak and rates. We're getting closer to the
Speaker 1: point when we will have a better idea about where
Speaker 1: we're going in terms of the economic data. So the
Speaker 1: bottom line where that is that from having a long
Speaker 1: period of a risk of a hotter landing, I think
Speaker 1: that the mall we can get the sequencing of inflation
Speaker 1: coming down without the plan rate going up the mall,
Speaker 1: we will be moving towards the south landing scenario. Most
Speaker 1: people talk, including me, you do you play soccer all
Speaker 1: the time over in Brooklyn. This was a dump of
Speaker 1: a shipyard which was a grassroots Brooklyn effort. And then
Speaker 1: Governor Pataki and a mayor I can't remember his name,
Speaker 1: but then a mayor jump started this going into a
Speaker 1: gorgeous soccer field as well. You are qualified here team
Speaker 1: Denmark and uh Brooklyn. Can Morocco actually get this done today?
Speaker 1: Are they gonna, you know, be like Croatian? Then we've
Speaker 1: got France, Argentina, They've clearly been the underdog. They've been
Speaker 1: very impressive, as Thesa was just mentioning that defense is
Speaker 1: very very good. She more than me, so I think, well, friends,
Speaker 1: of course they like they lose to France, so you
Speaker 1: think that's funny over there, I do that one. We'll see,
Speaker 1: we'll see how far they get. But I mean France,
Speaker 1: of course, Bobby is just outstanding. France Argentina quick it's Argentina. Yeah, well,
Speaker 1: well I'm going to go with friends. But but Argentina
Speaker 1: has some really good players. But I still think that
Speaker 1: France has the opperlex. I mean, they have some really
Speaker 1: good players. They've been praying incredible tournament so so, but
Speaker 1: let's see both both of course are very good. Argentina
Speaker 1: of course also has with messy and incredible team and
Speaker 1: they did incredibly well yesterday. Would you like to incredibly
Speaker 1: creative offense. I've really enjoy his his energy and and
Speaker 1: has illusions. Mr to uh Pharaoh says to diego Madonna.
Speaker 1: You know, I think it really works out that that
Speaker 1: sounded really smart, Tom, that was good. It was really fun.
Speaker 1: Any other references there is really good. He really played well.
Speaker 1: Torson slock, thank you Paul, Liz Young joins his head
Speaker 1: of investor strategies. So far in our fed hour, it
Speaker 1: is about the time continuum, which is moving averages, and
Speaker 1: Liz Young has written about something I can't stand, which
Speaker 1: is the gloomy death cross. Liz Young, what does the
Speaker 1: death cross and what does it matter for Chairman Paul Well?
Speaker 1: I don't know that it matters so much for Chairman Paul,
Speaker 1: but it matters for investors, and it's been something that's
Speaker 1: signaled earlier this year. What happens is when the fifty
Speaker 1: day moving average goes below the two D day moving average,
Speaker 1: that's the death cross. And at that point, it's widely
Speaker 1: believed that the two D day moving average becomes our
Speaker 1: top point, our resistance level. And if you watch what
Speaker 1: the SMP five hundred has done this year, we have
Speaker 1: not been able to break above those resistance levels. You
Speaker 1: can draw those in a couple of different ways, but
Speaker 1: the point is that they have held strong, and they
Speaker 1: held strong again yesterday we got right up to about
Speaker 1: forty one and gave a lot of it back. So
Speaker 1: the market just has not gotten out of that range.
Speaker 1: So what does that mean? How does that push back
Speaker 1: against the bulliance that we have felt about disinflation in
Speaker 1: the FED moving away from some of the more hawkish proclamations. Well,
Speaker 1: I think that there is a desire by a lot
Speaker 1: of investors to number one, just be done with all
Speaker 1: this negativity and find some durable upside in the market.
Speaker 1: But when we sit here with three different yield curve
Speaker 1: in versions that are very meaningful, and many of those
Speaker 1: are meaningful to the FED. We've got the twos tends inverted,
Speaker 1: the three month tenure, and now it's called the near
Speaker 1: term forward spread inverted. That keeps a lid on equity market.
Speaker 1: And when you look at just the upside opportunity, it's
Speaker 1: difficult to get past certain les evaluation and really feel
Speaker 1: like we deserve to be at that pe. So when
Speaker 1: you get up where we are now seventeen and a
Speaker 1: half to seventeen point eight times forward earnings, it's difficult
Speaker 1: to really say, Okay, we're doing that based on strong
Speaker 1: earnings momentum or strong fundamentals in the economy. It's just
Speaker 1: not the case right now. There's still a lot of headwinds. So, Liz,
Speaker 1: how do you talk then with investors in terms of
Speaker 1: how they should look at next year, how they should
Speaker 1: look at the FED, how they should look at what
Speaker 1: may or may not be a recession if you take
Speaker 1: a look at some of the increasing pullback from recessionary
Speaker 1: types of scenarios. Even Alan Ruskin over at Deutsche Bank
Speaker 1: saying that yesterday's data pointed more toward a soft landing
Speaker 1: than he previously thought. Look, yesterday's data was good. That
Speaker 1: was that was a positive report in the sense that
Speaker 1: we surprised to the downside. It's signaled to the market
Speaker 1: that it's possible we we avert catastrophe. But we're still
Speaker 1: not done with this. And here's what I want to
Speaker 1: hear from Jerome Powell today. I expect that they will
Speaker 1: do a fifty basis point hike. I'd like to hear
Speaker 1: how they decided to downshift, because it will give us
Speaker 1: a signal of exactly what indicators they're watching to choose
Speaker 1: whether or not they need to slow down or pause,
Speaker 1: and that will give us a little bit more certainty
Speaker 1: going into I'd also like to hear, sorry, just real quick,
Speaker 1: I'd also like to hear what his definition of restrictive is.
Speaker 1: Does four and a half on the upper round get
Speaker 1: us to restrict it? Interesting. Is the stock market one
Speaker 1: of his indicators, as it was for Chairman Greenspan. I
Speaker 1: think it's one of the indicators for financial conditions. But
Speaker 1: what we've heard from them, and I don't expect this
Speaker 1: to change today or anytime soon, is that they are
Speaker 1: laser focused on inflation and the labor market. So I
Speaker 1: think the more likely narrative shift will be that we
Speaker 1: stop hearing so much about inflation and we start hearing
Speaker 1: about the tight labor market, much more interesting, lace brilliant
Speaker 1: as a wise So I final LEAs, thank you, thank you,
Speaker 1: and I'm going narrow here when I could go broad,
Speaker 1: broad broad with Edward s. I'man he is the ever
Speaker 1: cores I s I founder, far more than that, someone
Speaker 1: so esteemed in market economics. He has been discussed as
Speaker 1: a member of the governor Board of Governors of the
Speaker 1: FED or vice chairman. And have you've ever been vetted
Speaker 1: to be chairman of the Fed? Has anyone been that?
Speaker 1: You know? I can't imagine you demanding the FED members
Speaker 1: to read your note? Have you ever been vetted? We'll
Speaker 1: do reading some, but you know, as you know on
Speaker 1: my fourth I love your show, everything you do, but
Speaker 1: my criminal record just gets in a way round. We're
Speaker 1: not going to crypto right now, and I want to
Speaker 1: go to one paragraph and this goes back to C. J. Lawrence.
Speaker 1: Folks in my ute when when Ed was at C. J.
Speaker 1: Lawrence in venting market economics as we know it today,
Speaker 1: the world stopped. I believe it was Thursday afternoon for
Speaker 1: M O, which is Larry Cudler's big number M one,
Speaker 1: M two, M three, M eight and the rest of it.
Speaker 1: You have ad him in a chart which speaks volumes
Speaker 1: of United States inflation adjusted M two and the only
Speaker 1: word that works in the modern lexicon is cratered. What
Speaker 1: do we make of the plunge in M two off
Speaker 1: the pandemic spike? That's dangerous? Uh, time you hit the
Speaker 1: thing I'm most focused on right now. I just had
Speaker 1: Greg you go in uh for our morning meeting, and
Speaker 1: he's somewhat dismissive of this, and the fete is totally dismissive.
Speaker 1: But I've I grew up in this period in his seventies, UH,
Speaker 1: when Russell Freeland was rock star, and so I think
Speaker 1: it's very serious. But we have an analyst here, Glenn
Speaker 1: Shore does the banks number one analysts in space. And
Speaker 1: he's been telling me this for six months that bank
Speaker 1: deposits are going to decline three this year and as
Speaker 1: a Friday down one per cent. Uh. And bank deposits
Speaker 1: are five percent and two So you can get your
Speaker 1: MP too reading uh now from that source on Friday afternoon.
Speaker 1: And now bank deposits are down a little over one
Speaker 1: percent already. Uh. And that means my supplies probably contracting
Speaker 1: hasn't contracted since. So let's say to you, you follow everything,
Speaker 1: You're amazing, but let's say the odds that it makes
Speaker 1: a difference or eighty or sixty. It's a very serious issue. Uh,
Speaker 1: we'll see how it works. Is slowing And how do
Speaker 1: you feel about the age old effect of liquidity? We
Speaker 1: have four out of five guests telling us the liquidity
Speaker 1: fears are overrated. But Mr Diamond is going to look
Speaker 1: at this deposit base and do I suggest ad that
Speaker 1: we have a caution in the winds for two thousand
Speaker 1: twenty three because of a dampening at least if not
Speaker 1: ill liquidity. Yeah. So, Uh, you're also a historian and
Speaker 1: John Maynard Kane wrote a paper uh that found the
Speaker 1: my supply leads to GDP by six sixteen months. Think
Speaker 1: of that, and that's about what you know, the long
Speaker 1: and variable lags would suggest. But uh, the point here
Speaker 1: a little bit, it's not I don't have all my
Speaker 1: eggs in one basket. So as of this afternoon, the
Speaker 1: San Francisco uh FET fundra adjusted for QT what is
Speaker 1: it called a proxy f fundrate will be six and
Speaker 1: a half percent, and the core PC is uh I
Speaker 1: think four seventy or five, and so the F fundred
Speaker 1: adjusted for quantitated tightening will be well over the inflation rate,
Speaker 1: which is what the fifth says they want. Well, I'm
Speaker 1: saying they got it. And the bonnil is three fifty.
Speaker 1: So you have a massive point inversion of the Yolk curve.
Speaker 1: And and you know, you know, we've we've got these
Speaker 1: recession calls out there, and I guess folks are just
Speaker 1: trying to parse out how deep, how severe, how long
Speaker 1: the duration. But the consumer is just incredibly resilient here
Speaker 1: and the you know, the labor market is robust, and
Speaker 1: we've and it seems like inflation is peaked. How does
Speaker 1: that all add up in your models for a recession?
Speaker 1: In so my my basic case for years now has
Speaker 1: been to look at our company surveys, which go from
Speaker 1: trucking to retailing, home building. And then look at the
Speaker 1: p M I s. The PM surveys have dropped a lot,
Speaker 1: they're still pretty high. Uh and the p m I
Speaker 1: s are below fifty, I think. And then I look
Speaker 1: at labor market indicators like unemployment claims, and they've now
Speaker 1: moved up. And we do a tally of layoff announcements.
Speaker 1: Uh two months ago there were eight hundred a week
Speaker 1: and now the ten thousand a week. Uh So, you know,
Speaker 1: it's none of this is really ringing alarm bells at
Speaker 1: the moment or not, most of us not. Uh So
Speaker 1: it's really a question of whether or not these things
Speaker 1: I mentioned earlier are leading indicators or not. And that's
Speaker 1: my job. So I think they probably do. But I
Speaker 1: think the consummlers in in great shape and times. You know,
Speaker 1: we our oldest survey we do is of retailers and
Speaker 1: it was like seventy five or something, and that was
Speaker 1: I mean, your real job, Your real job is to
Speaker 1: contain Julian Emmanuel, which is I don't want to get
Speaker 1: into dad, Julian told me the other day, and more
Speaker 1: fans over here. Julian told me the other day that
Speaker 1: he needs to see Catharsis. You're the adult on this.
Speaker 1: Must we have a Catharsis a vix of thirty five
Speaker 1: or forty in the Emmanuel language, or however you want
Speaker 1: to put it. But do we need a market Catharsis
Speaker 1: to move forward to a better future? Yeah, So let
Speaker 1: me explain my position. Uh. I have a I worry
Speaker 1: about the economy a lot, as you can imagine. Uh.
Speaker 1: I also think it's possible we don't have a recession
Speaker 1: if inflation slows rapidly. But you know that's starting to happen,
Speaker 1: but not enough yet. Then I have Julian and and
Speaker 1: and he he thinks this is a pretty dark picture
Speaker 1: because he listens to what I'm covering. Uh. And then
Speaker 1: I have Rich Ross, who does technical like this guy
Speaker 1: is like it unabashedly bullish. Uh. You know the market
Speaker 1: then the Catharsis, but has the size of the market bottom.
Speaker 1: So I'm a little bit not a good guest for
Speaker 1: you that strong opinion. Uh. So I don't have a
Speaker 1: strong opinion. I'm a little bit more bullish than bearish
Speaker 1: because inflation is slowing. As then one of my maybe
Speaker 1: my main uh view it looks as though he saw yesterday.
Speaker 1: When it slows market, it is happy because it makes
Speaker 1: it fit. Well. Maybe have to maybe have to do
Speaker 1: with list well, and we're gonna have to go here.
Speaker 1: I do. I do want to mention folks because I'm
Speaker 1: gonna get five emails send me Ed's note. We protect
Speaker 1: the copyright of all of our guests. That's been a surveillance,
Speaker 1: uh lodestone from today one. He has Edward S. Hyman
Speaker 1: of his I s I ever cor I s I N.
Speaker 1: We introduce him differently than we ever have before. He's
Speaker 1: Terry Haynes. He talks to us about Washington. He has
Speaker 1: a wonderful and different prison year. But also he is
Speaker 1: a grizzled veteran of all the chit chat the media
Speaker 1: is doing right now. In the vicinity of two thousand two,
Speaker 1: Mr Haynes provided general council services to House Financial Committee
Speaker 1: under Mr Oxley. I believe it was on scandal. The
Speaker 1: extinguished veteran Terry Haynes joins us this morning, Terry, is
Speaker 1: this different than what you witnessed in the early part
Speaker 1: long ago of this century. Well, it's not. What's different
Speaker 1: about it is Tom Frankly, as the market impact. I
Speaker 1: think what people forget about the Enron and world Com
Speaker 1: scandals and what made necessary the Starbanes Oxley Act is
Speaker 1: that markets started to view it as an as an
Speaker 1: attack on the the the ability of markets to understand, uh,
Speaker 1: you know the books of the books, the solvency of
Speaker 1: the prospects of publicly traded companies. They figured, you know,
Speaker 1: if Enron went down and then world Com had did
Speaker 1: this very simple fraud, Uh, you know what's next, right,
Speaker 1: it was really destroying wealth and value. We don't have
Speaker 1: that situation today, so it's much different than that regarding
Speaker 1: you know, John and Lisa want to jump in here,
Speaker 1: but Terry, I'm gonna cut to the chase. The what
Speaker 1: next is called binance? How should Mr Gensler? How should
Speaker 1: c f TC? How should the politicians you advised years ago?
Speaker 1: Now what they should they do on the what next
Speaker 1: of binance? Well, Congress, let me take Congress first, and
Speaker 1: then the regulators. Congress you know, created the regulators oversees
Speaker 1: them all the rest. So you know, my my view
Speaker 1: here as Congress. You know, it's kind at the top
Speaker 1: of the food chain. The you know, Commresce doesn't know
Speaker 1: much about crypto doesn't know much about finance, But what
Speaker 1: I got from the hearing yesterday is Congress thinks this
Speaker 1: stuff as a scam, and even people that think there's
Speaker 1: promise in it, they think that the actors are a
Speaker 1: scam and they're running away from it as as quickly
Speaker 1: as they can. Uh. What Gary Gensler and others were
Speaker 1: saying yesterday very simply was, uh, you know, no matter
Speaker 1: who you are in the space, we're coming after you.
Speaker 1: And uh so you know, whatever is going on at finance, Uh,
Speaker 1: you know, Gensler is going to use the maximum amount
Speaker 1: of his power to try to bring them to heal
Speaker 1: as quickly as possible. I mean, that's that's the bottom line.
Speaker 1: Yesterday we saw resilience in terms of the shares of
Speaker 1: crypto companies as well as a bitcoin which continues to
Speaker 1: rise today. This goes against what you were saying, or
Speaker 1: you said that this does not look like a bad
Speaker 1: moment from which crypto can recover. It's much likely to
Speaker 1: begin likelier to be the beginning of the end for crypto.
Speaker 1: Why do you say that with such confidence given the
Speaker 1: acceptance that the market has had of what has just transpired.
Speaker 1: Without some sort of massive disruption at least. I think
Speaker 1: what you've got here is a kind of a perfect storm.
Speaker 1: You've got a situation where you've got uh yeah, what
Speaker 1: crypto is looking at in the future is years to
Speaker 1: come of investigation and investigations, potential indictments and uh and
Speaker 1: certainly enforcement actions number one. Number two. What you've got,
Speaker 1: you've got a situation where crypto is gonna be is
Speaker 1: going to be busily enfolded into the existing regulatory regime.
Speaker 1: The Biden administration. Regulators have been after this for about
Speaker 1: a year. They've been really public about it, but uh,
Speaker 1: crypto people on Wall Street haven't wanted to believe it.
Speaker 1: Well as of yesterday, they should believe it, because that's
Speaker 1: exactly what Gensler and others are gonna be up to.
Speaker 1: When you combine when you combine that with the possibility
Speaker 1: of crypto exposure from more established players, what you do,
Speaker 1: what you're gonna get is a continued overall is a
Speaker 1: continued flight of capital. Uh. And you know, people are
Speaker 1: not gonna want to be involved with something that looks
Speaker 1: like it's a potential scam that might get them in
Speaker 1: some some fairly serious trouble. So you know, you know,
Speaker 1: an uptick in all this. Uh, you know, given the
Speaker 1: last year the crypto has had. Uh, certainly possible, but
Speaker 1: this is not going to be the force, not going
Speaker 1: to be the game changer anybody ever thought it was
Speaker 1: gonna be ter You started we started by talking about
Speaker 1: your comment about the strange timing that the Department of
Speaker 1: Justice didn't give it heads up to Congress ahead of
Speaker 1: releasing this indictment. Also with the SEC, You've had extensive
Speaker 1: work with both the SEC and the Southern District of
Speaker 1: New York with some of these investigations. Do you believe
Speaker 1: that it could have been politically motivated? Um? I raised
Speaker 1: it as a possibility. Uh. You know, do I think
Speaker 1: it's likely? Uh? I certainly hope not. Uh. But you
Speaker 1: know what, what has happened here beyond the beyond the
Speaker 1: bottom line politics is very simply that the regulators and
Speaker 1: the litigators decided together that they were gonna push this
Speaker 1: thing forward uh and uh and shove Congress to the
Speaker 1: side as much as possible. Uh. You know, the SDN
Speaker 1: Y was very specific about bringing up the campaign finance
Speaker 1: activities of SPF. The implication there is that one implication
Speaker 1: is that you know, Congress is somehow unable to strongly
Speaker 1: investigate this stuff because they had taken money from SPF
Speaker 1: F TDX crypto more largely. Uh, you know, I think
Speaker 1: that's dead wrong, by the way, But but but that's
Speaker 1: an implication of it. And uh, and you know, so
Speaker 1: what we're gonna get here is we're gonna get a
Speaker 1: competition between the regulators and the litigators on the one
Speaker 1: side and Congress on the other. I think that's unfortunate, frankly,
Speaker 1: because it strings out much longer, Uh, the resolution of
Speaker 1: a lot of crypto issues. Hi, Terry, got to catch up.
Speaker 1: Set as always, Terry Hanks, the founder of pange A Policy.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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