WEBVTT - Surveillance: Don't Press Panic Button, says Crescenzi 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.440 Bloomberg dot Com, and of course on the Bloomberg. We 0:00:33.520 --> 0:00:37.800 thought we'd bring in someone truly expert on that short 0:00:37.960 --> 0:00:41.760 term area and it's linkage is to behavior and particularly 0:00:41.760 --> 0:00:45.320 to corporate trust. He is Anthony Krisnsi, a penco working 0:00:45.320 --> 0:00:49.400 with Jerome Schneider. How is Jerome Schneider's week, Ben? I mean, 0:00:49.440 --> 0:00:51.839 you guys are in the short term space. Are you 0:00:51.880 --> 0:00:55.240 guys just watching the long duration guys lather up? Or 0:00:55.560 --> 0:01:00.000 or is a guy like Jerome Schneider had that invests 0:01:00.120 --> 0:01:03.640 and PIMCO broadly invest in short term instruments. Is still 0:01:03.680 --> 0:01:07.360 finding value there because it's still yields to be had. 0:01:07.959 --> 0:01:10.400 Three month librar is still in the twos. It will 0:01:10.440 --> 0:01:13.400 go lower, but it's still higher than these longer term 0:01:13.440 --> 0:01:15.640 interest rates. That's what an inversion is, and so there's 0:01:15.680 --> 0:01:18.000 some value there, especially if you think that the federal 0:01:18.000 --> 0:01:20.360 deserved will deliver a fewer indust rate cuts than the 0:01:20.400 --> 0:01:23.480 market is priced for the markets thinking there's a fifty 0:01:23.600 --> 0:01:26.200 chance of a half point cut in September, and the 0:01:26.240 --> 0:01:28.959 market is priced for one percent policy rate by the 0:01:29.040 --> 0:01:32.880 end of that's down from the current level of two 0:01:32.920 --> 0:01:35.160 and a quarter. And so if you think that these 0:01:35.760 --> 0:01:39.679 these rates will won't be realized, then there's still some boundy. Okay, well, 0:01:39.680 --> 0:01:41.800 what's the value now a little bit away from the 0:01:41.840 --> 0:01:45.679 frenzy of Tuesday, Wednesday, Thursday to an emergency FED cut. 0:01:45.760 --> 0:01:49.360 I mean, what's the so what of waiting for the meeting, 0:01:49.720 --> 0:01:52.640 are actually just saying Okay, we're gonna move this thing 0:01:52.720 --> 0:01:55.800 forward and coming in cut? Tom? But did you look 0:01:55.840 --> 0:01:59.920 at yesterday's retail sales report and the figures in there 0:02:00.080 --> 0:02:03.040 within it, which was so robust and indicating that the 0:02:03.360 --> 0:02:06.680 economy has reasonable momentum going into the third cord. The 0:02:06.680 --> 0:02:09.800 way GDP is calculated, it's looks it looks at the 0:02:09.800 --> 0:02:13.280 the average of one courts activity versus the average of another. 0:02:13.400 --> 0:02:16.760 And so if activity ended a quarter strongly, and it 0:02:16.800 --> 0:02:19.640 did in the second court of June, that means it 0:02:19.680 --> 0:02:22.880 begins the third quarter at a level that's above the 0:02:22.919 --> 0:02:25.120 previous court is average, and so it looks like growth 0:02:25.160 --> 0:02:28.040 will be reasonably good nearly the Fed wants it, which 0:02:28.040 --> 0:02:30.680 is around two percent or so in the third quarter. 0:02:30.760 --> 0:02:33.840 That's not a reason to panic financial conditions. Perhaps if 0:02:33.880 --> 0:02:37.360 they would dire, they would it would be But with 0:02:37.440 --> 0:02:39.920 the SMP five up in the low teens and NASTACK 0:02:40.000 --> 0:02:41.680 up in the high teens, is that a reason to 0:02:41.800 --> 0:02:44.320 put press the panic button, especially when policy related issues 0:02:44.360 --> 0:02:47.680 that can't control are causing the nervousness The panic buttons 0:02:47.800 --> 0:02:49.840 setting plenty of cash into money markets, right, I mean, 0:02:49.840 --> 0:02:52.440 we saw one of the biggest inflows in the week 0:02:52.520 --> 0:02:56.280 and in Wednesday eighteen billion dollars of inflows, so the 0:02:56.360 --> 0:02:59.320 ten year high we're currently at that when it comes 0:02:59.320 --> 0:03:01.480 to money market funds, I want to switch gears a 0:03:01.520 --> 0:03:04.000 little bit. There was a white paper out of black 0:03:04.080 --> 0:03:07.359 Rock basically arguing for helicopter money in the next downturn 0:03:07.840 --> 0:03:09.920 that came out yesterday, and I want to talk about 0:03:09.960 --> 0:03:13.040 this because it's sort of goes to the zeitgeist of today, 0:03:13.320 --> 0:03:15.800 which is this fear that the Federal Reserve is out 0:03:15.840 --> 0:03:17.919 of ammunition, which is what we're seeing in the yield curve, 0:03:18.120 --> 0:03:19.960 and that the next go around is going to have 0:03:20.040 --> 0:03:23.280 to be extreme and very different. Do you buy into 0:03:23.360 --> 0:03:27.520 the idea of some sort of helicopters policy. In fact, 0:03:28.280 --> 0:03:34.600 Marina Eckles echals there's the FED chief. The FED building 0:03:34.639 --> 0:03:38.120 today is named after Echo's called the Echos Building. He 0:03:38.280 --> 0:03:41.400 talked about the FED pushing on a string. One could 0:03:41.400 --> 0:03:43.520 say that the FED is today in other central banks 0:03:43.560 --> 0:03:46.200 pushing on a string, and no matter what they do 0:03:46.280 --> 0:03:48.400 in terms of putting money in the system, it will 0:03:48.440 --> 0:03:51.560 not have impact. One could say that this, this helicopter 0:03:51.640 --> 0:03:54.280 idea was attempted in two thousand nine in the American 0:03:54.760 --> 0:03:59.920 Recovery and Reinvestment Act. How well, it's a different form. Well, 0:04:00.040 --> 0:04:02.080 it was one form. Perhaps it was the first salvo 0:04:02.640 --> 0:04:05.440 um the The US deficit was about ten percent of 0:04:05.480 --> 0:04:07.880 g d P. In that deficit, there was a spending 0:04:08.640 --> 0:04:13.520 agreement to to distribute fifty million checks too Americans, or 0:04:13.520 --> 0:04:16.240 about two fifty dollars. We've forgotten about it because it's 0:04:16.279 --> 0:04:18.400 such a tiny amount of money. So where where is 0:04:18.440 --> 0:04:20.440 that money today? Or in other words, where would that 0:04:20.440 --> 0:04:22.840 money go in the future if they were given. Did 0:04:22.880 --> 0:04:26.560 it go towards maybe a nice movie, dinner, clothing? Who 0:04:26.600 --> 0:04:29.800 knows what it's all gone? It didn't get invested, so 0:04:29.839 --> 0:04:32.400 how could it have any meaningful long term impact. If 0:04:32.440 --> 0:04:35.599 it's meaning if it simply goes towards consumption, letting people 0:04:35.600 --> 0:04:37.640 have some a little bit extra to spend. You're not 0:04:37.720 --> 0:04:39.760 trying helicopter money. I can tell but here, but but 0:04:39.839 --> 0:04:43.240 here's my question. I mean, how important are these questions? Uh? 0:04:43.320 --> 0:04:46.479 In terms of where people's minds are, They're very important, 0:04:46.560 --> 0:04:49.559 But they're moved there. They're they're the wrong questions because 0:04:49.600 --> 0:04:51.919 the too too often, and the President is doing this 0:04:51.960 --> 0:04:54.279 as well as the fingers appointed at the Fed and 0:04:54.279 --> 0:04:56.760 should be at the fiscal Authority, not the monetary authority, 0:04:56.760 --> 0:04:59.200 because they are the ones in control of of the 0:04:59.200 --> 0:05:03.680 way growth is um conducted or produced, not the central Bank. 0:05:03.720 --> 0:05:05.600 They produced one thing money. I want to go back 0:05:05.600 --> 0:05:08.400 to your wheelhouse, which is the short term paper market 0:05:08.440 --> 0:05:11.479 in the indications of trust. The old days, it used 0:05:11.480 --> 0:05:14.520 to be the commercial paper market. That's gone. What do 0:05:14.600 --> 0:05:18.520 you look at now is a measurement of trust, particularly 0:05:18.600 --> 0:05:22.360 in European banking and finance. What's the indicator you look 0:05:22.400 --> 0:05:26.320 at and what does it say? Well? One one of 0:05:26.360 --> 0:05:31.360 pimco's high investor, high conviction investments is to invest in 0:05:31.960 --> 0:05:36.200 European bank capital, not all banks, but many banks. It's 0:05:36.520 --> 0:05:39.080 and this is it's not too complicates. Understand, there's different 0:05:39.120 --> 0:05:41.680 levels of what's called the capital structure. The equity investor 0:05:41.760 --> 0:05:44.400 is the one that gets hurt most because they've directly 0:05:44.440 --> 0:05:49.400 involved in them. But a senior bond holder is senior 0:05:49.480 --> 0:05:51.800 and the first in line if something goes wrong, The 0:05:51.839 --> 0:05:55.520 equity holders last in line, the the bank capital owners 0:05:55.640 --> 0:05:58.840 second in line. One could say it's sliver above equity 0:05:59.000 --> 0:06:02.680 in the bank buddle structure. But we like those securities 0:06:02.760 --> 0:06:05.960 and that's a statement in itself because we wouldn't go there. 0:06:06.000 --> 0:06:08.560 We wouldn't invest in the security we thought the system 0:06:08.720 --> 0:06:12.680 were in in dire Do we go into the weekend 0:06:13.080 --> 0:06:16.760 and end of September frankly with the trust measures that 0:06:16.839 --> 0:06:20.640 you and Jerome Schneider look at intact? Is the system 0:06:21.080 --> 0:06:25.240 functioning in terms of liquidity? No, it SolV Yes, it's intact, 0:06:25.960 --> 0:06:29.279 but there is fragility. The biggest worry of all is 0:06:29.320 --> 0:06:31.920 that the and it's not trade, but that the U. S. 0:06:31.960 --> 0:06:35.240 And China are entering a cold started the starting this 0:06:35.360 --> 0:06:38.159 this start of a new Cold War that could have 0:06:38.279 --> 0:06:42.159 a longer period of implication because the trade story is 0:06:42.600 --> 0:06:46.039 a short term one. But the geopolitical tension, that the 0:06:46.040 --> 0:06:51.800 acidities trapped the named uh for the Graham Alison idea. 0:06:51.800 --> 0:06:54.760 I was going to Graham else that the rising power 0:06:54.800 --> 0:06:57.880 threatens an existing one at least to warfe and you've 0:06:57.920 --> 0:07:01.440 seen Great Dahlia talking about this on a linked video 0:07:01.520 --> 0:07:05.240 this week. In five years have been sixteen changes in 0:07:05.360 --> 0:07:09.080 leaders hedgemons as they're called. Twelve of those changes led 0:07:09.120 --> 0:07:12.040 to actual war. No one is calling for that, but 0:07:13.280 --> 0:07:19.680 we are traversing away from cooperation and short term paper 0:07:19.760 --> 0:07:21.520 to the Greek wars. Well, I mean, but this is 0:07:21.520 --> 0:07:24.239 actually where we're at right this sort of existential question 0:07:24.520 --> 0:07:28.160 of whether growth ever again and whether the state of 0:07:28.160 --> 0:07:32.240 geopolitical uh, geopolitical relations. But I do have to wonder 0:07:32.840 --> 0:07:35.400 going forward, because it does feel like there has been 0:07:35.640 --> 0:07:40.080 a change this week, last week we have tipped a corner. 0:07:40.720 --> 0:07:42.960 Is that an accurate characterists? Let me tell you what 0:07:43.000 --> 0:07:46.080 hasn't changed. Let's go back. Let's think Adam Smith in 0:07:46.080 --> 0:07:49.880 the Sevres the Wealth of Nations. He talked about this. 0:07:49.920 --> 0:07:52.480 I heard him on your show and the radio is listening. 0:07:53.760 --> 0:07:56.880 How is wealth created in the nations by individuals, companies 0:07:56.960 --> 0:08:00.800 all striving to fair bet and full themselves for their companies. 0:08:01.000 --> 0:08:05.000 Has this passion ending because of political uncertainty? No, we 0:08:05.040 --> 0:08:06.800 still will work week up every day. We're here on 0:08:06.840 --> 0:08:09.960 the radio all trying to help others to make money. 0:08:10.840 --> 0:08:13.760 Seven eight am in the morning. I'm done with the esoteric. 0:08:14.040 --> 0:08:16.720 Are we going to revisit an inverted yield curve? Or 0:08:16.800 --> 0:08:18.520 was that a scare? And we've come back to some 0:08:18.640 --> 0:08:22.160 normalcy set at a lower rate. DIO curve is not 0:08:22.280 --> 0:08:25.400 like that would be a lasting condition because the conditions 0:08:25.440 --> 0:08:28.840 that cause it the type that the Central Bank would 0:08:28.880 --> 0:08:33.679 generally respond to and cause it to disinvert. Anthony Cosenzi 0:08:33.800 --> 0:08:36.600 And what's great about Tony Cosenzi is there's a real 0:08:36.600 --> 0:08:42.240 palaty history and society across his discussion of finance. You 0:08:42.360 --> 0:08:47.000 mentioned the Chicago Cubs fan from from Chicago, Richard Taylor, 0:08:47.360 --> 0:08:51.480 the laureate on Behavioral Economic Did you, Lisa, did you 0:08:51.520 --> 0:08:53.840 ever do a course with Taylor? I would not like 0:08:53.840 --> 0:08:57.160 to do a seminar dark of the door with him. 0:08:57.200 --> 0:08:59.920 He's like huge. And of course Taylor talks to pimp 0:09:00.120 --> 0:09:03.000 all the time. And you mentioned Tony that this crazy 0:09:03.120 --> 0:09:06.559 week we've seen old people, which you know, Lisa doesn't 0:09:06.640 --> 0:09:11.280 understand this conversation old people look at the screening, go really, 0:09:11.800 --> 0:09:14.120 I mean there's a lot of that going on, right, Yes, 0:09:14.160 --> 0:09:16.559 And it's this bias that we have to remove. And Richard, 0:09:17.080 --> 0:09:20.040 by the way, I feel like, look at the screen 0:09:20.080 --> 0:09:22.599 not just race, but inflation and growth in the relationship 0:09:22.679 --> 0:09:27.719 to interest rates and economies. M. Richard Taylor's has is 0:09:27.720 --> 0:09:31.360 a Nobel laureate and behavioral economics, and PIMCO employs him. 0:09:31.360 --> 0:09:35.079 And we had one of his former students, Rique Mamendia, 0:09:35.320 --> 0:09:37.720 in attendance at one of our forums in May, and 0:09:37.720 --> 0:09:40.000 we discussed this idea of age having an impact on 0:09:40.040 --> 0:09:44.160 how people think about things, including inflation. And she even 0:09:44.200 --> 0:09:46.920 studied the Federal Reserve and how different members of the 0:09:46.920 --> 0:09:50.760 Fed because of their ages, might think differently about whether 0:09:50.800 --> 0:09:53.600 inflation will pick up. And that's important to investors because 0:09:54.040 --> 0:09:56.480 what the Fed thinks about the future from inflation effects 0:09:56.559 --> 0:09:59.000 when it decides to move on interest rates and how 0:09:59.040 --> 0:10:03.679 by how much stuck in our past? Me fifty plus 0:10:03.720 --> 0:10:06.959 says uh, Well, I saw a CPI at six percent 0:10:07.000 --> 0:10:10.600 in eight nine, so inflation could pick up when growth 0:10:10.600 --> 0:10:17.200 picks up, but it hasn't. It's son and three kids 0:10:17.240 --> 0:10:20.520 will do that preserve you or they'll take you down. 0:10:20.600 --> 0:10:23.559 Let me tell you it's the other way around. I 0:10:23.600 --> 0:10:26.320 don't know. I'm a tony with hair like on Saturday 0:10:26.360 --> 0:10:30.000 night fever. That's that's that's what's causing. But we think 0:10:30.080 --> 0:10:32.840 differently about We think inflation will pick up because we 0:10:32.920 --> 0:10:36.520 observed it, we experienced it, But unfortunately a baby boomer 0:10:37.559 --> 0:10:40.680 like me will ultimately come out of the equation. In surveys, 0:10:40.679 --> 0:10:45.400 you'll see inflation expectations fall over time because at least 0:10:45.400 --> 0:10:48.240 of people like you and other younger individuals will be 0:10:48.280 --> 0:10:51.000 part of that survey more and more and their experiences 0:10:51.040 --> 0:10:54.480 will be biased by their low inflation experience. This is 0:10:54.520 --> 0:10:56.520 this is really tremendous. You guys both are you know 0:10:56.600 --> 0:11:01.920 you're you're younger than I. Therefore care for your towards 0:11:01.960 --> 0:11:11.240 not understanding the I'm the new it's the new crop. 0:11:12.000 --> 0:11:13.880 At least of the new crop of PhDs are the 0:11:13.880 --> 0:11:15.240 ones that are gonna that are going to have the 0:11:15.320 --> 0:11:19.120 future so called Phillips curve models. The most exciting material 0:11:19.160 --> 0:11:21.240 will probably come out in the next decade because I'll 0:11:21.240 --> 0:11:25.439 have experienced things that that that we haven't created these 0:11:25.440 --> 0:11:28.000 other things. You know, I hear both sides of this. Number. One, 0:11:28.040 --> 0:11:30.200 I hear people kind of are are stuck in the 0:11:30.200 --> 0:11:32.640 past and are looking for inflation models that are different. 0:11:32.840 --> 0:11:34.600 And then I hear the other side of the equation, 0:11:34.600 --> 0:11:36.520 which is, if you look at the trading desks on 0:11:36.559 --> 0:11:39.000 Wall Street, they're all under the age of thirty and 0:11:39.040 --> 0:11:41.120 they've never seen a cycle and they don't know how 0:11:41.120 --> 0:11:43.400 to operate. So which is it? Good points, So it's 0:11:43.440 --> 0:11:46.960 it's possible then with their bias towards inflation being low, 0:11:47.840 --> 0:11:50.800 policymakers will come up with an idea that creates more 0:11:50.840 --> 0:11:53.800 inflation and they'll be blindsided. So there's the other side 0:11:53.800 --> 0:11:57.320 of that equation. Good point. I'm not big on like 0:11:57.480 --> 0:12:02.319 viewer questions and all that, but this woman is absolutely brilliant. 0:12:02.840 --> 0:12:05.160 This is some Julius and he's got it in trump 0:12:05.240 --> 0:12:09.640 like all caps. Ask Tony what savers are to do 0:12:10.480 --> 0:12:14.760 in new lower low rate environment? All the blatherer we're 0:12:14.800 --> 0:12:17.480 doing sailor all the rest of it. The fact that 0:12:17.520 --> 0:12:21.560 I mane should forget about it. What do savers? Well, 0:12:21.760 --> 0:12:26.560 we think what to deploy that financial capital? It's it's electronic, 0:12:26.640 --> 0:12:30.120 it's paper. Why not make it something physical? As you know, 0:12:30.240 --> 0:12:34.560 there is a bias toward investments, private equity and real assets, 0:12:34.559 --> 0:12:38.800 including real estate. Owning businesses is also a good idea. Yes, 0:12:39.840 --> 0:12:42.439 we have too few in the amount of savings to 0:12:42.840 --> 0:12:45.440 do all of that, so it is. It is a 0:12:45.440 --> 0:12:48.600 difficult situation, but it depends on one's age. And if Julius, 0:12:48.640 --> 0:12:52.640 you're young enough, don't bet against America. Warren Buffett would 0:12:52.640 --> 0:12:56.359 tell you that, don't bet against capitalists. People worry about populist, 0:12:56.400 --> 0:12:59.000 but what about the capitalist. Isn't it the business owner, 0:12:59.240 --> 0:13:03.040 the individual worthy of some attention, because aren't they the 0:13:03.080 --> 0:13:06.120 true disruptors? That phone you're carrying and perhaps sent tom 0:13:06.160 --> 0:13:08.160 the message on? Do you think that that was made 0:13:08.160 --> 0:13:11.160 by a populist? Some capitalists decided to make it and 0:13:11.160 --> 0:13:12.960 then making a profit, and you could have made a 0:13:12.960 --> 0:13:15.880 profit investing in that individual who made those I wonder 0:13:15.880 --> 0:13:19.080 if he's always as philosophical or if this era unfortunately 0:13:19.120 --> 0:13:23.160 negative yields towards things that I shouldn't be philosophical about. 0:13:23.360 --> 0:13:26.360 Is negatively very quickly, we're gonna run out of time, 0:13:26.440 --> 0:13:29.720 Mr Cosenzi, but our negative yields here to stay. Or 0:13:29.760 --> 0:13:31.439 do you still look at him as a one off? 0:13:31.840 --> 0:13:38.200 Two admiration, negad Adventistrates destroy money, so it is unlikely 0:13:38.320 --> 0:13:40.960 they will be sustained over the long run. They also 0:13:41.000 --> 0:13:43.560 siphon money from the private sector to the government, which 0:13:43.600 --> 0:13:46.480 is an inefficient use of money. So it's improbable that 0:13:46.480 --> 0:13:48.160 the last and it's a bad idea and something that 0:13:48.200 --> 0:13:51.200 federal is unlikely to want to avoid. That's good. It's 0:13:51.200 --> 0:13:54.280 a perfect time, Tony Coni. Thank you so much, Thanks 0:13:54.280 --> 0:14:08.679 so much. Absolutely one thing. This is one of the 0:14:08.760 --> 0:14:12.080 quietest notes of the week, and it's from City Group. 0:14:12.080 --> 0:14:15.400 It's one, two, three, four, five, six paragraphs. Big deal. 0:14:15.840 --> 0:14:18.840 Dana Peterson worked us up in the car going to work. 0:14:19.320 --> 0:14:22.520 Uh this morning, she joins us. Now, Dana, it's a 0:14:22.680 --> 0:14:26.359 it's a note of optimism. I mean, there's a consumption 0:14:26.480 --> 0:14:31.120 driven optimism to the American economy. Does that EBB or 0:14:31.200 --> 0:14:36.320 does that sustain us in the next year? Well, I 0:14:36.360 --> 0:14:40.280 think that. You know, we're definitely seeing this theme of 0:14:40.280 --> 0:14:44.880 of domestic resilience driven by households and government uh and 0:14:45.000 --> 0:14:48.240 external weakness. And certainly when we saw the retail sales, 0:14:48.440 --> 0:14:51.360 with the exception of autos, we saw across the broad strength, 0:14:51.600 --> 0:14:54.480 a board strength and even department stores, which is posted 0:14:54.480 --> 0:15:00.240 a negative string of negative prints were up, Dana. Key 0:15:00.320 --> 0:15:04.640 question for me this month this year, who leads the 0:15:04.680 --> 0:15:08.400 consumer our businesses when it comes to the cycle. Well, 0:15:08.440 --> 0:15:10.120 I think it's going to be It's definitely going to 0:15:10.160 --> 0:15:12.960 be consumers, because what we're seeing is that the US 0:15:13.160 --> 0:15:17.240 is participating in this global trade and manufacturing slump, but 0:15:17.520 --> 0:15:20.240 we're it's still expressing resilience and other sectors and that's 0:15:20.280 --> 0:15:23.800 being certainly helped by the consumer as well as the 0:15:23.840 --> 0:15:28.080 massive amounts of discal stimulus that was implemented last year 0:15:28.080 --> 0:15:32.680 and then will be implemented yet again. So what's your 0:15:32.720 --> 0:15:35.520 GDP called twelve months out? Just to frame the conversation 0:15:36.000 --> 0:15:38.720 is City Group and Dana Peterson and two percent plus? 0:15:39.040 --> 0:15:42.760 Are you below two percent? We still have two percent 0:15:42.840 --> 0:15:46.280 and that's because you have two different drivers going on. 0:15:46.280 --> 0:15:48.960 On the one hand, the downward revisions from the benchmark 0:15:49.000 --> 0:15:54.240 GDP release placed downward pressure on on growth for next year, 0:15:54.640 --> 0:15:57.720 so we might see below two percent. But on the 0:15:57.760 --> 0:16:00.080 other hand, you have upward pressure from the bipart are 0:16:00.120 --> 0:16:02.640 some budgets aft between nineteen So together that's keeping you 0:16:02.720 --> 0:16:05.800 right around supercent Danta. What will be the effect of 0:16:05.840 --> 0:16:08.160 the FED cutting fifty basis points in September, and some 0:16:08.160 --> 0:16:11.400 people are hoping, well, that's a great question. We asked 0:16:11.440 --> 0:16:14.600 our our investors who read our research, and they said, 0:16:14.600 --> 0:16:17.560 it's probably just going to inflate asset prices. That's not 0:16:17.640 --> 0:16:21.720 really going to drive additional consumption or even urge businesses 0:16:21.760 --> 0:16:25.080 to invest. And indeed, businesses are on the sidelines because 0:16:25.080 --> 0:16:28.120 they're concerned about the external environment. They're concerned. They're very 0:16:28.200 --> 0:16:31.280 uncertain with respect to the trade wars between US and China, 0:16:31.760 --> 0:16:35.400 and in that environment, the said, it seems like it's 0:16:35.480 --> 0:16:39.600 more willing to cut clearly, but will it upset all 0:16:39.720 --> 0:16:43.640 the weakness from abroad? Probably not. Yeah, data, I guess 0:16:43.640 --> 0:16:47.560 there's also a sort of angst over markets. Have we shifted? 0:16:47.800 --> 0:16:51.840 Has something materially changed over the past few weeks when 0:16:51.880 --> 0:16:54.920 it comes to sentiment and the direction of markets given 0:16:54.920 --> 0:16:57.520 the fact that businesses aren't spending as much in the 0:16:57.560 --> 0:17:00.440 wake of uncertainty, etcetera. I mean, have we entered a 0:17:00.480 --> 0:17:05.800 new regime, a new paradigm. Well, I think we've been. 0:17:05.840 --> 0:17:08.600 We've been moving in that direction since it earlier this year. 0:17:08.680 --> 0:17:10.800 We've seen that and the FED speak, you know, the 0:17:10.880 --> 0:17:14.520 FED went from being pretty hawkish in December of last 0:17:14.600 --> 0:17:19.520 year to putious native watching and then shifting to an 0:17:19.520 --> 0:17:22.960 actual rate cut and signaling that there could be more. Okay, 0:17:23.000 --> 0:17:24.879 but this is really critical at Lisa brought up as 0:17:24.920 --> 0:17:26.960 the arch theme of the week in the Central Bank, 0:17:27.320 --> 0:17:30.360 and it is we've had a regime shift in bonds inversion, 0:17:30.440 --> 0:17:34.080 distant version, but clearly a lower set on yield. Has 0:17:34.119 --> 0:17:37.560 it been a Bullard like regime shift or is it 0:17:37.640 --> 0:17:43.080 business as usual for Philip's curve structured fed Well, I 0:17:43.320 --> 0:17:46.359 think there has been a regime ship in terms of 0:17:46.680 --> 0:17:50.800 markets viewing this in version of the yield curve psychologically, 0:17:50.840 --> 0:17:52.479 and I think it us have fed a little bit 0:17:52.480 --> 0:17:55.600 more ammunition to go ahead. This is critical, Lisa. I mean, 0:17:55.640 --> 0:17:57.520 I'm glad you brought this up because it really goes 0:17:57.600 --> 0:18:00.399 to the heart of the communication the FEDS speak. We're 0:18:00.440 --> 0:18:03.240 going to get is do they come over to build 0:18:03.280 --> 0:18:07.359 Bullard's important short paper. I'm going to guess three years 0:18:07.359 --> 0:18:11.399 ago where they've got a shift to regimes study versus 0:18:11.480 --> 0:18:14.919 a more theoretical construction. Yeah, and Dana, I do have 0:18:15.000 --> 0:18:17.639 to wonder also we're talking about the Federal Reserve and 0:18:17.680 --> 0:18:20.800 their reaction function. But I do have to wonder whether 0:18:20.840 --> 0:18:23.359 we're past the point of the U. S And China 0:18:23.440 --> 0:18:26.240 coming to some agreement and making this all better. Whether 0:18:26.320 --> 0:18:28.919 we've sort of passed that point at the at a 0:18:28.960 --> 0:18:32.240 time when businesses aren't investing and we've already gotten that 0:18:32.320 --> 0:18:36.879 sort of baked into the economy. Well, I don't know 0:18:37.000 --> 0:18:40.960 that we're past the point for any change, um, meaning 0:18:40.960 --> 0:18:43.920 things can get better. Certainly, President Trump said that he's 0:18:43.960 --> 0:18:46.840 waiting for a phone call from President She and the 0:18:46.920 --> 0:18:51.160 Chinese have been willing to deal with the US on 0:18:51.240 --> 0:18:54.119 the point by point basis, meaning China is not willing 0:18:54.160 --> 0:18:56.040 to go further than the US is. So I think 0:18:56.080 --> 0:19:01.160 there is some time to reverse on this course. Um. 0:19:01.200 --> 0:19:03.280 I mean, are we, you know, headed for a regime 0:19:03.320 --> 0:19:06.720 where there's going to be perpetually weak growth. Probably not. 0:19:06.880 --> 0:19:09.560 I mean, this is just part of the what happens 0:19:09.560 --> 0:19:11.680 when you have a trade war. You know, it's global 0:19:12.080 --> 0:19:15.879 and unless you have some change, it's going to be weak. Dana, 0:19:16.080 --> 0:19:18.280 we've been talking about the yield curve and version the 0:19:18.320 --> 0:19:22.320 gap between twos and tens uh throughout the week. I'm wondering, 0:19:22.320 --> 0:19:24.560 do you think that is an indicator of recession in 0:19:24.600 --> 0:19:28.080 the next six or twelve months in the United States. Well, 0:19:28.119 --> 0:19:30.840 I would suggest that you should never place all your 0:19:30.840 --> 0:19:33.120 ships on one measure um, and we know that there's 0:19:33.160 --> 0:19:35.720 been different activity at both ends of the curve. At 0:19:35.720 --> 0:19:38.159 the shorter end, you do have market signaling that the 0:19:38.240 --> 0:19:40.720 said policies are too tight, the FED needs to cut. 0:19:40.880 --> 0:19:42.960 At the longer end, some of that related to the 0:19:42.960 --> 0:19:45.920 equity market. People are also nervous about second half earnings 0:19:46.320 --> 0:19:49.200 and so they're buying treasuries as a you know, search 0:19:49.280 --> 0:19:52.879 for for equality. Right um, So I would suggest that 0:19:52.920 --> 0:19:55.760 it's not as strong as an indication. And plus you 0:19:55.800 --> 0:19:58.520 have quantitative easing which kind of dampens back into the 0:19:58.560 --> 0:20:01.399 Yolk curve as well. So would look at a multitude 0:20:01.400 --> 0:20:04.280 of indicators. And right now the labor markets doing fine 0:20:04.880 --> 0:20:08.800 um and growth outlook is still healthy. We still have 0:20:08.840 --> 0:20:11.840 another round the fiscal stimulus in the US. I'm not 0:20:11.880 --> 0:20:15.040 sure if at all signals right now, if anything signaling 0:20:15.080 --> 0:20:17.800 a recession in the US. We are seeing signals of 0:20:17.840 --> 0:20:20.959 a potential flowdown or even a recession globally led by 0:20:21.040 --> 0:20:25.520 China and Germany, fueled by the trade wars. Dana, thank 0:20:25.560 --> 0:20:28.080 you so much. Dana Peterson with US with City Group 0:20:28.119 --> 0:20:31.640 this morning on a two percent economy. Two point zero 0:20:31.640 --> 0:20:44.560 percent economy, I believe is where she is. We are 0:20:44.600 --> 0:20:47.840 thrilled to bring in now for two sections, Michael Darta. 0:20:48.560 --> 0:20:50.840 He is at a profound impact on Bloomberg on the 0:20:50.880 --> 0:20:56.080 economy and Bloomberg surveillance synthesizing economics into markets. No one 0:20:56.200 --> 0:20:59.959 on the street uses Bloomberg charts like Michael dart is. Mike, 0:21:00.160 --> 0:21:02.880 what's the most important chart for you on the Bloomberg 0:21:03.000 --> 0:21:06.280 right now? What matters? And the zillions of charts you construct. 0:21:07.680 --> 0:21:10.720 Thanks for having me on, Tom. You know, I'm watching 0:21:10.760 --> 0:21:14.320 these various measures of the of the yield curve, both 0:21:14.359 --> 0:21:18.600 here and overseas, and you know, one thing that's really 0:21:18.680 --> 0:21:20.840 jumped out in the last week. I know, you know 0:21:20.880 --> 0:21:23.640 a lot of journalists have been focusing on the very 0:21:23.760 --> 0:21:26.840 brief inversion in the ten year to two years spread 0:21:27.480 --> 0:21:30.000 uh this week, but we've had other measures of the 0:21:30.080 --> 0:21:34.560 yield curve that certainly have some prominence in the academic literature, 0:21:34.640 --> 0:21:36.720 like the tenure to the T bill rate that have 0:21:36.800 --> 0:21:40.320 been inverted since May uh. And we're even you know, 0:21:40.320 --> 0:21:43.840 we're seeing that inversion intensify. And I think one reason 0:21:43.920 --> 0:21:47.359 for that was this hot CPI inflation report, which sounds 0:21:47.359 --> 0:21:50.960 pretty counterintuitive. If inflation comes in above expectations, why the 0:21:51.000 --> 0:21:54.560 heck would investors you want to buy bonds and invert 0:21:54.600 --> 0:21:59.280 the yield curve. Well, if that hot inflation report creates 0:21:59.280 --> 0:22:02.040 some more of a luctance for the Fed to to 0:22:02.240 --> 0:22:06.840 move in it gingerly fashioned, it could actually increase risks 0:22:06.840 --> 0:22:09.320 of a downturn. And I think that's, you know, part 0:22:09.359 --> 0:22:12.159 of what happened this week, even though it didn't get 0:22:12.160 --> 0:22:14.840 a lot of attention. So, Mike, here's the thing. I'm 0:22:14.840 --> 0:22:18.199 trying to square the sort of concern about recession that 0:22:18.240 --> 0:22:21.639 we saw pervasive throughout the week with the retail sales 0:22:21.680 --> 0:22:24.240 that we saw which were really good, and the fact 0:22:24.320 --> 0:22:27.600 that we saw retailers like Walmart post really good returns 0:22:27.600 --> 0:22:31.240 and results. How do you square those two realities. Yeah, 0:22:31.280 --> 0:22:34.439 that's a great question. So there there's I think been 0:22:34.480 --> 0:22:37.639 a lot of confusion in looking at some of these 0:22:37.720 --> 0:22:40.359 long leading indicators, like the yield curve is a is 0:22:40.400 --> 0:22:44.160 a very long leading indicator with quite a bit of variation. Historically, 0:22:44.200 --> 0:22:48.159 typically an inversion will occur anywhere between seven to twenty 0:22:48.200 --> 0:22:50.600 one months before a recession. So if we were just 0:22:50.680 --> 0:22:54.480 starting to see incipient and versions back in May and June. 0:22:55.040 --> 0:22:58.000 It would likely be way too early to see the 0:22:58.080 --> 0:23:02.760 coincident indicators meaning reach, hail, sales, production, jobs, incomes. Those 0:23:02.800 --> 0:23:05.320