WEBVTT - SURV_podcast_08-09-22_1 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.400 and of course, on the Bloomberg Terminal. Claudia Sam writes 0:00:30.600 --> 0:00:34.640 brilliantly about the stresses within the American political economy. Founder 0:00:34.640 --> 0:00:37.680 of Sound Consulting, writing for Bloomberg, Opinion in the New 0:00:37.760 --> 0:00:41.080 York Times, and a former Fellow Reserve economist, and always 0:00:41.120 --> 0:00:45.360 interesting even if you don't agree with her. Claudia David 0:00:45.400 --> 0:00:49.680 blanche Flower published a working paper nb ER yesterday with 0:00:49.800 --> 0:00:53.000 some colleagues from Dartmouth, and it's real simple, he says, 0:00:53.080 --> 0:00:57.120 calm down. The labor economy is not hot hot hot. 0:00:57.120 --> 0:01:01.120 Wages are not hot hot hot. You say that may 0:01:01.160 --> 0:01:04.720 be right, or the warriors may be right as well, 0:01:04.840 --> 0:01:06.880 and there may be a middle ground. And what we 0:01:06.959 --> 0:01:11.240 need is time to let things solve out. Claudia Sam 0:01:11.280 --> 0:01:14.000 wants to go out the X axis. How much time 0:01:14.040 --> 0:01:17.800 do we need to get this fixed? Yeah, that's that's 0:01:17.840 --> 0:01:22.200 a big question. So we are absolutely seeing a very 0:01:22.240 --> 0:01:28.880 disrupted economy begin to heal. That is one important interpretation 0:01:29.080 --> 0:01:32.640 of the job's report that we saw last week. We 0:01:32.760 --> 0:01:35.800 have a lot of hiring, We do have strong wage growth. 0:01:35.920 --> 0:01:38.399 How else are you going to solve the labor shortage 0:01:38.440 --> 0:01:42.000 and bring workers back without paying them more? That is 0:01:42.040 --> 0:01:44.640 absolutely a piece of what we're seeing now. We see 0:01:44.680 --> 0:01:49.120 services becoming more prevalent in consumer spending. So a lot 0:01:49.160 --> 0:01:53.840 of the disruptions we saw appear to be unwinding. They 0:01:53.880 --> 0:01:57.760 gotta unwind faster than the Fed keeps going with the rates. 0:01:57.840 --> 0:02:01.920 So that's that's the big question. If we have enough time. 0:02:02.280 --> 0:02:07.880 The politicians, Claudia have a timeline which is based on 0:02:07.960 --> 0:02:11.880 election days. You don't and we don't either. Is this 0:02:11.960 --> 0:02:16.080 an inflation story to be solved in quarters or years 0:02:17.840 --> 0:02:21.560 to be fully solved, it's a solution over years. I 0:02:21.560 --> 0:02:24.040 think we could and and are on track to be 0:02:24.160 --> 0:02:28.880 seeing some relief in the coming quarters. Uh If we 0:02:28.960 --> 0:02:32.200 don't see it, then we're we're going to a very 0:02:32.240 --> 0:02:38.400 weak recessionary place next year. Uh So, and that'll do 0:02:38.760 --> 0:02:41.600 a good number on inflation if we get there. But 0:02:41.680 --> 0:02:45.480 I think a path that's really a healing that is 0:02:45.960 --> 0:02:49.640 um slow but steady pointed in the right direction gets 0:02:49.720 --> 0:02:52.760 us back to something like two percent in two or 0:02:52.800 --> 0:02:56.120 three years. This is not a quick turn in terms of, 0:02:56.200 --> 0:02:58.799 you know, turning back the lights on getting us back 0:02:58.840 --> 0:03:02.800 to a normal that that just takes takes time. But Claudia, 0:03:02.840 --> 0:03:04.840 the new normal is something people have been talking about, 0:03:04.919 --> 0:03:07.640 especially with the participation rate remaining so low. And this 0:03:07.680 --> 0:03:09.720 is the reason why the likes of Danny Blanche Flower 0:03:09.760 --> 0:03:12.400 and others say there's more slack in this labor market 0:03:12.440 --> 0:03:16.080 than it may seem. Do you understand why there are 0:03:16.120 --> 0:03:18.560 so many people still not going back to work? Is 0:03:18.560 --> 0:03:20.760 it long COVID? Is it retirements? Is it all of 0:03:20.800 --> 0:03:24.960 the above. There's some very good research, though it is 0:03:25.080 --> 0:03:30.680 preliminary that we that the long COVID, just that piece 0:03:30.680 --> 0:03:34.480 of it could explain two tents three tents off the 0:03:34.600 --> 0:03:38.080 labor force participation. Right, that's pretty close to a fifth 0:03:38.200 --> 0:03:41.920 of that gap that we've seen open up. So that's 0:03:41.960 --> 0:03:45.120 a piece of it. We know people still have care issues, 0:03:45.440 --> 0:03:48.800 you know, just the ability to be working. We've seen 0:03:48.880 --> 0:03:51.240 a lot of people unable to work as many hours 0:03:51.280 --> 0:03:53.200 as they want to because you know, they get sick, 0:03:53.240 --> 0:03:56.280 they have to come home, there's a lot, and then 0:03:56.560 --> 0:04:01.119 older workers that took this as an opportunity to retire, 0:04:01.760 --> 0:04:04.720 some of them could have retired a lot sooner. So, Claudia, 0:04:04.720 --> 0:04:06.720 the reason why I bring this up is because all 0:04:06.800 --> 0:04:09.280 these issues are sticky issues, right. They're not going to 0:04:09.360 --> 0:04:11.520 bring people back in. You're not gonna necessarily see that 0:04:11.560 --> 0:04:15.040 participation rate go up. So when you talk about time, 0:04:15.520 --> 0:04:18.440 what is your fear that if the FED does back 0:04:18.520 --> 0:04:21.599 off or doesn't raise rates as quickly to allow some time, 0:04:22.000 --> 0:04:24.520 that it gets it wrong yet again, when it's ideological 0:04:24.560 --> 0:04:27.440 framework has been proven wrong or at least delayed again 0:04:27.440 --> 0:04:31.760 and again. I think it's a matter of interpretation. The 0:04:31.800 --> 0:04:35.280 fed's baseline interpretation of what's happening in the labor market 0:04:35.400 --> 0:04:38.760 is running really hot. There are signs that demand is 0:04:38.800 --> 0:04:42.120 cooling all over the place, the business investment, the consumer spending. 0:04:42.160 --> 0:04:45.120 But when they look at that labor market, they're seeing 0:04:45.200 --> 0:04:50.080 hot not everyone right. Governor Waller has expressed some views 0:04:50.200 --> 0:04:54.800 about the vacancy rate coming down without unemployment rising. That 0:04:54.960 --> 0:04:59.080 is clearly a correction of some structural issues. So the 0:04:59.160 --> 0:05:02.839 FED is open minded, as the FED always is. Their 0:05:02.960 --> 0:05:06.640 baseline has been looking at the labor market it's too hot, 0:05:06.720 --> 0:05:09.800 it's unhealthy, and that's what they're trying to cool down. 0:05:10.880 --> 0:05:13.360 It could be too much, well, Claudia to that point. 0:05:13.400 --> 0:05:15.880 Looking at the n f i B Small Business Optimism 0:05:15.960 --> 0:05:19.000 Survey that came out, fort pent of all owners reported 0:05:19.080 --> 0:05:22.359 job openings that they could not fill in the current period. 0:05:22.800 --> 0:05:25.960 So as what we're talking about realistically just an absence 0:05:26.000 --> 0:05:28.800 of hiring, but not necessarily businesses that are going to 0:05:28.839 --> 0:05:32.159 be outright firing people, especially as they've had difficulty bringing 0:05:32.200 --> 0:05:36.480 people back after layoffs during the pandemic. Right, a lot 0:05:36.520 --> 0:05:39.800 of the jobs that are missing are part time jobs. 0:05:40.120 --> 0:05:42.680 I mean, so we've seen an increase in the multiple 0:05:42.800 --> 0:05:46.400 job holders. We've seen people moving back from self employment 0:05:46.560 --> 0:05:50.840 into being employees. That was a very unusual pattern in 0:05:50.880 --> 0:05:57.400 the crisis. The UH. The optimistic scenario is that the 0:05:57.520 --> 0:06:01.920 first place, if if businesses see demands slowing down, which 0:06:01.960 --> 0:06:05.239 it clearly is and it's been at an unsubstainably high pace, 0:06:05.760 --> 0:06:08.359 when they see it slow down, that they're going to 0:06:08.440 --> 0:06:12.480 go first to pulling job openings and not firing because 0:06:12.520 --> 0:06:15.839 they've learned, hopefully at this point, that if you fire 0:06:15.920 --> 0:06:18.200 a bunch of your workers, it can be hard to 0:06:18.240 --> 0:06:21.599 bring them back. I think we gotta go because of 0:06:21.640 --> 0:06:24.680 breaking is Claudius sum thank you so much, particularly on 0:06:24.760 --> 0:06:27.719 inflation tomorrow on some of the labor linkage is that 0:06:27.800 --> 0:06:35.599 we see there as well. Let us give a little 0:06:35.640 --> 0:06:38.359 history here on one of the great great surprises of 0:06:38.400 --> 0:06:41.640 the last twenty years. They were those guys over in 0:06:41.800 --> 0:06:45.400 New Jersey and in our childhood they owned a piece 0:06:45.440 --> 0:06:47.960 of the rock and they would show you Gibraltar and 0:06:48.000 --> 0:06:51.680 they were Prudential, and that's the way it was. Prudential 0:06:51.760 --> 0:06:55.680 became p JIM and with it they became truly one 0:06:55.720 --> 0:06:59.560 of our best best opinionated bond houses. These are bi 0:06:59.680 --> 0:07:04.520 side people managing bond money, full faith and credit, investment 0:07:04.560 --> 0:07:07.760 grade credit, which Lisa's expert in, and also of course 0:07:07.839 --> 0:07:11.280 distress debt. But more than anything, they have done it 0:07:11.320 --> 0:07:17.080 with an opinionated alan that is absolutely second to none, Lisa. 0:07:17.120 --> 0:07:20.280 That includes a gentleman greeting us this morning. Yeah, Greg Peters, co, 0:07:20.400 --> 0:07:23.040 Chief investment Officer at p JIM Fixed Income, who is 0:07:23.080 --> 0:07:25.920 joining us at a time when the one conviction in 0:07:25.960 --> 0:07:29.440 markets had been longer term bonds and continues to be 0:07:29.640 --> 0:07:32.360 longer term bonds. And you've had such a fascinating view 0:07:32.480 --> 0:07:36.320 on this oscillating between conviction and not so much. Where 0:07:36.320 --> 0:07:38.760 do you stand on an area that has been a 0:07:38.800 --> 0:07:43.880 haven amid near term concerns about inflation. Yes, so I 0:07:43.920 --> 0:07:47.440 think the bond market has just reflected the new reality 0:07:47.520 --> 0:07:52.000 after Russian made Ukraine coach lockdown. So we have seen 0:07:52.160 --> 0:07:56.360 and then we're still experiencing this inflation surge um and 0:07:56.600 --> 0:07:59.200 growth surge. And the thing that I'm focused on and 0:07:59.240 --> 0:08:02.840 we're focused on p GEM is as like everyone else 0:08:02.880 --> 0:08:05.320 to rollover in inflation. But I think that kind of 0:08:05.360 --> 0:08:09.240 misses the bigger question on the table is so what snacks? 0:08:09.360 --> 0:08:12.080 And you know we were talking earlier, and I think 0:08:12.120 --> 0:08:15.880 the markets are entirely too comfortable with this notion we're 0:08:16.040 --> 0:08:18.760 just going to be a straight line down, smooth and 0:08:18.840 --> 0:08:25.640 easy right to the FED UH mandated zone. So I 0:08:25.760 --> 0:08:28.680 still think there's lots of room for volatilly, lots of 0:08:28.760 --> 0:08:32.800 room for rates to move both higher and lower UH 0:08:32.840 --> 0:08:36.160 and credit spreads to be much more volatile and wider. 0:08:36.200 --> 0:08:39.000 On balance, that's exactly where I wanted to go. This 0:08:39.080 --> 0:08:41.440 conviction that people have that the FED will get to 0:08:41.559 --> 0:08:43.520 their two percent target that you can see in that 0:08:43.600 --> 0:08:46.640 conviction for longer term bonds. You can see this also 0:08:46.720 --> 0:08:49.360 and break even rates that have actually come down as 0:08:49.400 --> 0:08:51.840 the Fed job bones. Do you expect that to change 0:08:51.880 --> 0:08:53.480 that as we head into the end of the year 0:08:53.800 --> 0:08:55.960 and as people start to see a cooling office some 0:08:56.000 --> 0:08:58.440 of the inflation data, you get less of an inversion. 0:08:58.480 --> 0:09:00.400 The two tents spread, and that ends up being bad 0:09:00.480 --> 0:09:03.480 from markets because that means the long end is increasing, 0:09:03.640 --> 0:09:06.840 yields going higher as people start to question the fasibility 0:09:06.880 --> 0:09:10.600 to get things under control. Yeah, so that's a good question. 0:09:11.120 --> 0:09:13.720 I think that there's a high probability that the high 0:09:13.800 --> 0:09:17.599 end rates have already been put into this market. A 0:09:17.679 --> 0:09:21.199 lot can change, So my conviction level isn't as high 0:09:21.240 --> 0:09:23.679 as it normally has, just given kind of the uncertainty 0:09:23.679 --> 0:09:27.720 and the volatility, the unprecedented nature of it all. But 0:09:27.800 --> 0:09:30.840 I do worry about that. But but actually, Lisa, I 0:09:30.880 --> 0:09:33.160 kind of worry about the flip side of that, where 0:09:33.600 --> 0:09:37.360 once rates do come down, that markets get or not 0:09:37.480 --> 0:09:40.880 rates Inflation rates can come down, the markets get too 0:09:40.920 --> 0:09:44.880 excited over that, and they're declaring victory in the middle 0:09:44.920 --> 0:09:46.960 of the battle. And I think that's where the whip 0:09:47.000 --> 0:09:50.600 saw a moment could really come in uh in her 0:09:50.720 --> 0:09:53.439 investors in a meaningful way. Well, Greg, of course, it's 0:09:53.440 --> 0:09:56.400 not just about getting inflation down. It's what it takes 0:09:56.440 --> 0:09:58.880 to get inflation down. And there is this narrative out 0:09:58.880 --> 0:10:02.400 there that if the data is looking okay, looking resilient, 0:10:02.480 --> 0:10:04.560 that means that the FED can hike aggressively in order 0:10:04.600 --> 0:10:08.480 detain inflation and land softly while doing so. But is 0:10:08.520 --> 0:10:11.040 it actually if the data is stronger, the FED has 0:10:11.080 --> 0:10:13.360 to be even more aggressive in order to actually get 0:10:13.360 --> 0:10:16.080 a handle on demand and bring prices down, and therefore 0:10:15.960 --> 0:10:19.679 a hard landing is inevitable. Yeah, that's kind of been 0:10:19.679 --> 0:10:23.280 my narrative all along. I've always felt that this underlying 0:10:23.360 --> 0:10:27.160 strength of the economy no nominal GDP is really quite robust, 0:10:27.200 --> 0:10:29.520 which is why you're seeing I can be earning supplies 0:10:29.559 --> 0:10:31.720 through the upside, or at least not be as as 0:10:31.760 --> 0:10:35.800 poor as many thought or asserted. So yeah, to me, 0:10:36.240 --> 0:10:40.079 the stronger the economy, and this is a very strong 0:10:40.160 --> 0:10:43.520 economy and lots of different respects requires the FED to 0:10:43.559 --> 0:10:47.240 do more, which in turn means the risk of a 0:10:47.320 --> 0:10:50.679 hard landing uh E is actually higher, not lower. So 0:10:51.080 --> 0:10:52.960 I know it's a perverse way to think about it, 0:10:53.040 --> 0:10:58.199 but that's kind of the viewpoint that I have. So 0:10:58.280 --> 0:11:00.559 if they have to do more, which is get the 0:11:00.640 --> 0:11:03.079 terminal rate to a higher level, what is your expectation 0:11:03.120 --> 0:11:05.480 about how long realistically they're going to be able to 0:11:05.520 --> 0:11:08.400 stay there before cutting, Because this market is still betting 0:11:08.440 --> 0:11:11.800 the cuts are going to come next year. Yeah, so 0:11:11.840 --> 0:11:14.800 the cuts in the marketplace, uh next year seem a 0:11:14.800 --> 0:11:19.560 little heroic to me. Uh so, Um that that's where 0:11:19.600 --> 0:11:23.839 I really disagree with the market. So, you know, once again, 0:11:23.920 --> 0:11:28.280 it's about the path, and I think the markets extrapolating 0:11:28.320 --> 0:11:33.320 the straight line lower and my strong suspicion is that 0:11:33.360 --> 0:11:35.760 you're not going to move in a straight line, and 0:11:35.800 --> 0:11:38.679 so those cuts that are being priced in the market 0:11:39.120 --> 0:11:43.000 next year are unlikely to be fulfilled in my mind. So, Greg, 0:11:43.000 --> 0:11:45.959 given the lack of conviction about a specific trade that 0:11:46.000 --> 0:11:50.160 will be consistently a winning trade, and given your expectation 0:11:50.840 --> 0:11:53.240 that there is going to be more spread widening, where's 0:11:53.320 --> 0:11:56.000 the haven trade, where's the ballast when you start to 0:11:56.000 --> 0:11:59.800 look at investments. Yeah, So I think it's about relative value, 0:12:00.000 --> 0:12:03.559 a risk neutral type of uh themes. And so one 0:12:03.559 --> 0:12:05.720 of the teams exactly Europe over the U S. So 0:12:06.120 --> 0:12:08.120 you know, we look at investment grade corporates, we see 0:12:08.120 --> 0:12:10.600 a lot more value, even with kind of the move 0:12:10.720 --> 0:12:15.120 tighter here in Europe than in the US. We see 0:12:15.160 --> 0:12:18.680 a lot of value and high quality structured products. These 0:12:18.720 --> 0:12:21.720 are assets that should do really well in the environment that, 0:12:22.040 --> 0:12:25.520 you know, the tightened type of recession risk. Uh and 0:12:25.520 --> 0:12:28.240 and basically playing the front end of these predectors. So 0:12:28.280 --> 0:12:32.360 if you believe that these investments that you have will 0:12:32.400 --> 0:12:36.160 be quote unquote money good will not involved, then mining 0:12:36.200 --> 0:12:40.400 that front end is an area to get roll and carry, 0:12:40.440 --> 0:12:43.400 as we like to say in fixing. Come finally, Greg, 0:12:43.720 --> 0:12:46.760 obviously CPI tomorrow eight thirty am Eastern time. The print 0:12:46.840 --> 0:12:51.000 is hot, what happens the prince is cold? What happens? Well, 0:12:51.080 --> 0:12:53.280 So I think it's uh, you know, the market setting 0:12:53.320 --> 0:12:55.160 up for a lower print at least kind of in 0:12:55.640 --> 0:12:59.559 uh in you know the whispers um so um. If 0:12:59.600 --> 0:13:02.199 it is, I think that is a decided risk off 0:13:02.720 --> 0:13:06.079 a type of environment. Uh. And if it's at or below, 0:13:06.160 --> 0:13:08.480 I think we continue to grind here through the course 0:13:08.480 --> 0:13:11.319 of the summer. Just one caveat I'd like to make though, 0:13:11.679 --> 0:13:13.880 is you know, August is a period of time where 0:13:14.160 --> 0:13:17.440 there's not a lot of informational content coming from the marketplace. 0:13:17.800 --> 0:13:21.400 Liquidity is much more thin. A lot of investors are, 0:13:21.440 --> 0:13:24.480 you know, taking their mandatory two weekers, and so let's 0:13:24.480 --> 0:13:27.160 not read too much into what happens here Over the 0:13:27.200 --> 0:13:29.599 next couple of weeks. I think September will get a 0:13:29.679 --> 0:13:32.760 much better read on really the market, true market direction. 0:13:33.320 --> 0:13:36.120 Greg Peters, thank you so much, greatly appreciate it. This morning, 0:13:36.520 --> 0:13:44.760 Greg Peters with Pijam. It is the morning after a 0:13:44.920 --> 0:13:49.040 raid by the Federal Bureau of Investigation under search warrant. 0:13:49.480 --> 0:13:53.080 So not a raid, but a search of a former 0:13:53.160 --> 0:13:59.439 president's private residence. It is unprecedented, Greg Villier, on short 0:13:59.480 --> 0:14:02.440 notice to this this morning. We're honored that the gentleman 0:14:02.440 --> 0:14:05.160 from a g F could join us. Greg. You and 0:14:05.200 --> 0:14:10.199 I remember in our ute water Gate. This isn't Watergate, 0:14:10.480 --> 0:14:14.280 isn't it? No, it's not. There are a lot of differences, 0:14:14.320 --> 0:14:17.240 and one is that, of course Nixon resisted all of this. 0:14:17.360 --> 0:14:20.560 And I would argue Tom that last night was a 0:14:20.640 --> 0:14:26.240 trifecta for Trump at three victories in in one one evening. 0:14:26.480 --> 0:14:29.000 Number one, he's on the front page of every newspaper 0:14:29.000 --> 0:14:32.280 in America. He loves that. Number two he gets to 0:14:32.320 --> 0:14:35.840 play martyr. He's brilliant at playing martyr. And number three, 0:14:35.960 --> 0:14:38.720 the Republicans are looking pretty unified, and if you look 0:14:38.720 --> 0:14:42.640 at the quotes from everyone from Kevin McCarthy to obscure 0:14:42.760 --> 0:14:45.920 House members, they are all outraged that this happens. So 0:14:46.160 --> 0:14:50.320 for I think it's a victory. If Democrats, independence and 0:14:50.400 --> 0:14:54.280 Republicans assumed that the Attorney General will in some point 0:14:54.520 --> 0:15:00.120 voice or act or begin a judicial process, does that 0:15:00.240 --> 0:15:04.640 get in the way of our electoral process this November 0:15:04.760 --> 0:15:08.400 or a November thirty months from now. It made to 0:15:08.440 --> 0:15:11.200 the extent that it might affect voting, but I don't 0:15:11.240 --> 0:15:15.560 think legally it will because Donald Trump specializes in in 0:15:15.640 --> 0:15:19.120 cases the drag on for seven eight years, so he'll 0:15:19.160 --> 0:15:21.800 appeal and appeal and appeal, and I think he still 0:15:22.000 --> 0:15:26.400 could run. The key has always is moderate voters. Will 0:15:26.480 --> 0:15:31.200 moderates decide they've had enough, like many Republican moderates have decided. 0:15:31.560 --> 0:15:35.680 That can make a difference. But right now I think 0:15:35.720 --> 0:15:38.360 that this is a again, it's a plus for Trump. 0:15:38.640 --> 0:15:40.880 How much greg does this change the dynamic heading into 0:15:40.880 --> 0:15:42.640 the midterm elections, Because we didn't see some of the 0:15:42.680 --> 0:15:45.440 polls showing the Democrats had been gaining ground on the 0:15:45.480 --> 0:15:49.160 heels of lower gas prices and some of these legislative wins. Yeah, 0:15:49.200 --> 0:15:51.360 that's really intriguing. I mean, you've got food and gas 0:15:51.400 --> 0:15:54.800 prices coming down, You've got Biden having a pretty darn 0:15:54.840 --> 0:15:58.920 good summer. So it's possible that maybe the Democrats losses 0:15:58.960 --> 0:16:01.720 will only be five or ten seats in the House. 0:16:02.040 --> 0:16:04.840 Maybe the Democrats will keep the Senate. But I can't 0:16:04.840 --> 0:16:07.960 see the House staying democratic. I think the House will flip. 0:16:08.440 --> 0:16:11.000 But Greg, what does it say in terms of President 0:16:11.040 --> 0:16:14.400 Biden's second two years of his first term, this idea 0:16:14.520 --> 0:16:16.240 that he will not be able to get that much 0:16:16.240 --> 0:16:19.560 more legislation through. How do you sort of advise some 0:16:19.680 --> 0:16:22.320 of your clients in terms of what they can expect 0:16:22.320 --> 0:16:24.600 in response to a downturn, what they can expect in 0:16:24.680 --> 0:16:27.200 terms of debt reduction and some of these other issues 0:16:27.240 --> 0:16:31.320 that have been increasing talking points. It's gonna be a 0:16:31.360 --> 0:16:34.920 pretty meek agenda in the last two years. There's there's 0:16:34.920 --> 0:16:37.760 not not much left that they can get done. So 0:16:37.880 --> 0:16:40.880 for my clients in the financial world, that's a good story. 0:16:41.320 --> 0:16:43.960 Gridlock is a good story. They don't have much to 0:16:44.000 --> 0:16:46.520 worry about. I don't see any new taxes coming for 0:16:46.560 --> 0:16:49.440 a long long time. I don't see any big new 0:16:49.480 --> 0:16:53.040 spending coming for a long time. The big crisis, I 0:16:53.080 --> 0:16:58.280 would argue, is geopolitical. There's a lot to worry about there. Yeah, well, 0:16:58.280 --> 0:17:01.520 on that point, Greg, this is a US United States 0:17:01.520 --> 0:17:04.560 of America where we're talking about the home of a 0:17:04.600 --> 0:17:08.359 former president being searched for documentation he may or may 0:17:08.400 --> 0:17:10.359 not have taken from the White House at the same 0:17:10.400 --> 0:17:12.800 time that we're expecting in a couple of weeks hearings 0:17:12.800 --> 0:17:15.840 to resume on insurrection at the US capital. That to 0:17:15.880 --> 0:17:19.040 me looks like a democracy very much in some form 0:17:19.080 --> 0:17:21.639 of crisis. How does that play when we're trying to 0:17:21.680 --> 0:17:25.879 defend democracy in Taiwan. Yeah, it's a very very good point. 0:17:25.960 --> 0:17:28.720 And I think Trump, of course breaks all of the rules. 0:17:28.800 --> 0:17:32.280 That's always been the case with him, and I think 0:17:32.320 --> 0:17:37.560 it will will happen again. If if I would just 0:17:37.600 --> 0:17:40.680 say that Trump is still alive politically, and I would 0:17:40.680 --> 0:17:43.080 have guessed a few months ago that he'd be close 0:17:43.160 --> 0:17:47.480 to finished, He's not finished. You can't underestimate this guy. 0:17:47.920 --> 0:17:51.360 And what about the other Republican potential candidates for they're 0:17:51.400 --> 0:17:54.040 realistically anyone who could beat him if he runs again. 0:17:54.119 --> 0:17:57.920 At this point maybe just Santis. You can't rule him out. 0:17:58.320 --> 0:18:01.680 I think after Liz Cheney lou Is his next Tuesday, 0:18:02.000 --> 0:18:04.520 she'll probably go to New Hampshire and see how things 0:18:04.560 --> 0:18:07.080 look for her as a candidate. There could be a 0:18:07.119 --> 0:18:11.320 dozen candidates, but if Trump runs, he'll clear the field. 0:18:11.920 --> 0:18:13.760 Great value. You better leave it there. Thank you on 0:18:13.880 --> 0:18:16.400 short notice for joining us here on this most historic 0:18:16.480 --> 0:18:19.520 day for a shocked America again a search Warren and 0:18:19.560 --> 0:18:22.600 a search by the Federal Bureau of Investigation of a 0:18:22.640 --> 0:18:32.880 former president's residence. This is in Mara Lago, Florida, right 0:18:32.880 --> 0:18:36.200 now and hugely anticipated. Neil Dotta joins us. He's head 0:18:36.200 --> 0:18:39.639 of the US Economic Research it renaissance macro research. But 0:18:39.680 --> 0:18:42.520 what's important there is, he writes, with a stiletto knife 0:18:42.560 --> 0:18:45.879 in his hands, slicing and dicing the zeitgeist there is 0:18:45.920 --> 0:18:49.520 out there. Neil Dotta joins us on our American economy. 0:18:49.680 --> 0:18:53.280 I love the way you go after consensus. What's consensus 0:18:53.320 --> 0:18:57.800 get most wrong? Right now? Well, I think the consensus 0:18:57.880 --> 0:19:01.119 right now is pivoting very uh feels like very quickly 0:19:01.160 --> 0:19:05.560 to peek inflation slower inflation. Um, you know, maybe the 0:19:05.560 --> 0:19:10.879 FED backing off. I think that's probably a mistake. You 0:19:10.920 --> 0:19:12.520 think that that's a mistake, Neil, because you think that 0:19:12.560 --> 0:19:15.159 the FED is going to keep going and that inflation 0:19:15.560 --> 0:19:20.000 hasn't yet peaked. Well, I don't think core inflation is peaked. Lisa. 0:19:20.359 --> 0:19:22.480 There she is, tom My arch Nemesis. Now my best 0:19:22.520 --> 0:19:25.080 friend were on the same side of that. We're on 0:19:25.119 --> 0:19:27.919 the same side of the fence. Um. Yeah, look, I 0:19:27.960 --> 0:19:29.479 mean you know, at the end of the day, I 0:19:29.480 --> 0:19:31.840 think things changed. At the June fform Sea meeting. The 0:19:31.880 --> 0:19:35.320 FED basically told us that I was willing to, um, 0:19:35.440 --> 0:19:39.719 you know, push the economy into recession to achieve its goals. 0:19:39.760 --> 0:19:41.879 And you know, we went from it's going to be 0:19:41.960 --> 0:19:44.920 challenging to achieve a soft landing, now it's going to 0:19:45.000 --> 0:19:49.679 be very challenging to achieve achieve a soft landing. I mean, um, 0:19:49.720 --> 0:19:51.440 you know, the path is narrowing. I mean they sort 0:19:51.480 --> 0:19:54.879 of use these kinds of you know, words to to 0:19:54.960 --> 0:19:58.159 basically demonstrate how difficult the task is going to be. 0:19:58.720 --> 0:20:01.800 But you know, look, I mean the last employment report 0:20:01.880 --> 0:20:07.440 was a knockout, and you know, essentially we have inflation 0:20:08.000 --> 0:20:10.840 significantly above target. You heard Mike McKee. They're talking about 0:20:10.920 --> 0:20:12.920 unit labor costs. I mean, your labor costs are up 0:20:12.920 --> 0:20:15.840 a lot. You know, interestingly enough, during the pandemic, prices 0:20:15.880 --> 0:20:17.919 have actually been trailing in a labor costs, which in 0:20:17.920 --> 0:20:21.879 my view means that there's more upside to prices going forward. Um. 0:20:21.920 --> 0:20:24.600 And despite the fact that price inflation is so elevated 0:20:24.680 --> 0:20:26.800 financial conditions, what have they been doing over the last 0:20:26.800 --> 0:20:28.639 couple of weeks while they've been easing so to me, 0:20:28.680 --> 0:20:30.920 that suggests that the FED has a lot more room 0:20:30.960 --> 0:20:33.680 to go. UM. I think the diet is cast now 0:20:33.720 --> 0:20:36.960 for a seventy basis point move at the September of 0:20:37.040 --> 0:20:38.760 Film Sea meeting, and they need to leave it on 0:20:38.800 --> 0:20:41.879 the table for the remaining two meetings this year. What 0:20:41.920 --> 0:20:44.000 does that mean for equities? I know that you've been 0:20:44.000 --> 0:20:46.240 a big bull in terms of the corporate resilience and 0:20:46.280 --> 0:20:48.679 their ability to adapt and adjust. To use Tom's phrase, 0:20:49.080 --> 0:20:52.080 why is this time different? This moment different? When it 0:20:52.080 --> 0:20:56.840 comes to that, well, I mean and I mean equity markets. Um. 0:20:56.960 --> 0:21:00.000 When you think about it, fundamentally, it's really different by 0:21:00.080 --> 0:21:04.600 three factors, right, Lisa. It's interest rates, actual and expected earnings, 0:21:04.680 --> 0:21:09.080 and the risk premium right. So the move in July, 0:21:09.280 --> 0:21:12.399 the nine burst in the SNP five last month, that 0:21:12.560 --> 0:21:16.960 was entirely driven by lower interest rates. So if I 0:21:17.000 --> 0:21:19.320 think the Fed's gonna keep hiking, I think interestings will 0:21:19.359 --> 0:21:22.199 go up, and you know, the economy is not out 0:21:22.240 --> 0:21:24.960 of the woods. I mean, we're gonna see residential investment 0:21:25.000 --> 0:21:27.960 contract in the third quarter. We're going to see capital 0:21:28.000 --> 0:21:33.680 spending come down because growth expectations have softened. UM, inventories 0:21:33.720 --> 0:21:38.080 will likely be UM more negative, and particularly for you know, 0:21:38.080 --> 0:21:40.400 sort of durable goods industries, so you'll see an inventory 0:21:40.400 --> 0:21:43.359 liquidation of some kind. I'm assuming that's all negative for 0:21:43.440 --> 0:21:46.640 GDP growth, which is negative for for growth and earnings 0:21:46.800 --> 0:21:50.159 and so um. And so if if interest rates are 0:21:50.160 --> 0:21:53.440 going up and earnings estimates are coming down, uh, it's 0:21:53.480 --> 0:21:55.679 hard to be optimistic about the equity market. And of 0:21:55.720 --> 0:21:57.639 course the equity market is one way the FED has 0:21:57.680 --> 0:22:00.080 to slow the economy down. Yeah. On the subject of 0:22:00.119 --> 0:22:03.919 earnings new obviously, the ability to retain profit margin in 0:22:04.000 --> 0:22:06.760 an inflationary environment like this one is predicated on the 0:22:06.800 --> 0:22:09.240 ability to pass on higher input costs to the consumer 0:22:09.280 --> 0:22:13.199 and consumers to tolerate those higher prices. Are we overestimating 0:22:13.240 --> 0:22:16.879 the resilience of the U S consumer. Consumers have an 0:22:17.000 --> 0:22:20.239 enormous ability to take on higher prices, as evidenced by 0:22:20.280 --> 0:22:22.679 the fact that you know, look at how much excess 0:22:22.680 --> 0:22:25.040 savings they have. They I mean, the entire improvement in 0:22:25.080 --> 0:22:27.000 consumer spending in the first half of the year was 0:22:27.080 --> 0:22:29.480 driven by lower savings rates. But that can't last forever, 0:22:29.600 --> 0:22:35.040 right BINGO. So where does that leave us new? I mean, 0:22:35.080 --> 0:22:36.840 to me, it just leaves me more cautious on the 0:22:36.840 --> 0:22:41.760 economic outlook. I mean, and yeah, I'd be cautious on stocks. 0:22:41.760 --> 0:22:43.600 I mean, I get that the equity markets have kind 0:22:43.640 --> 0:22:45.760 of ripped here. Um. You know, maybe a lot of 0:22:45.800 --> 0:22:48.760 the people that were, you know, thinking the way I 0:22:48.800 --> 0:22:51.840 do about things already sold back in June. But you 0:22:51.880 --> 0:22:54.719 know this isn't over yet. Um and uh you know 0:22:54.800 --> 0:22:58.399 that that that's my view. Um, but I definitely and 0:22:58.440 --> 0:23:00.080 I think one of that is one of those in 0:23:00.200 --> 0:23:02.119