WEBVTT - Surveillance: Formula One Growth with Horner 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.000 with Jonathan Farrell and Lisa are Bramoweds join us each 0:00:12.080 --> 0:00:16.800 day for insight from the best in economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.880 the Bloomberg Terminal, and the Bloomberg Business App. Seven years ago, 0:00:30.920 --> 0:00:33.199 if I tried to talk about Formula one on this program, 0:00:33.200 --> 0:00:35.200 Tom would what are you doing? What are you doing 0:00:35.240 --> 0:00:38.000 with formula what? What's Formula one all about? Back in 0:00:38.080 --> 0:00:40.839 twenty fifteen, the former F one boss Bernie eccleston had 0:00:40.840 --> 0:00:42.960 this to say to ESPN. He said, we ought to 0:00:42.960 --> 0:00:45.200 try to break America, but it's hard for me because 0:00:45.240 --> 0:00:48.200 I'm not very enthusiastic about the country. It's difficult because 0:00:48.200 --> 0:00:50.680 they are sort of isolated. They are a big island, 0:00:50.800 --> 0:00:53.400 and they're slowly starting to learn about what other people 0:00:53.440 --> 0:00:56.080 in the world do well. Mister ecclestone was wrong. It 0:00:56.200 --> 0:00:58.640 seems the United States has learned quickly. Following the sale 0:00:58.640 --> 0:01:01.120 of Formula one to Uspace Nobody Media and with the 0:01:01.160 --> 0:01:03.920 help of Netflix's Drive to Survive series. Look at the 0:01:03.960 --> 0:01:06.959 TV audience here, Tom, average race viewership in the US 0:01:07.319 --> 0:01:09.960 has gone from about half a million bank in twenty 0:01:09.959 --> 0:01:13.039 seven yesterday to one point two million last year. Where 0:01:13.080 --> 0:01:15.640 was it yesterday? Probably bigger for the season, probably bigger. 0:01:15.680 --> 0:01:17.760 This is a join our Christian Horner to join us, 0:01:17.760 --> 0:01:20.040 and of course mister Farrell will lead this with legit 0:01:20.120 --> 0:01:23.240 knowledge on Formula one. But all I can say is 0:01:23.240 --> 0:01:25.399 what is so dominant here and is it's a safe 0:01:25.400 --> 0:01:29.600 free zone from Manchester United this morning, Bloomberg surveillance is 0:01:29.640 --> 0:01:33.080 a safe free zone for everybody in Formula one that 0:01:33.240 --> 0:01:37.200 cut their clocks cleaned yesterday. Just ridiculous dominance time. Absolutely. 0:01:37.280 --> 0:01:40.280 Christine Horner, the team principal of Red Bull Racing F one, 0:01:40.360 --> 0:01:42.720 joined us right now. Christin, congratulations on the window for 0:01:42.720 --> 0:01:45.520 the weekend and let's start there. What goes into it 0:01:45.680 --> 0:01:48.200 over the winter to turn up in race one and 0:01:48.320 --> 0:01:52.200 absolutely dominate the way you did well. First of all, 0:01:52.200 --> 0:01:53.960 thanks very much. I mean it was a great start 0:01:54.000 --> 0:01:58.080 for us yesterday. And the regulations you know, they're constantly 0:01:58.120 --> 0:02:01.800 being tuned and of evolving. But the basis of the 0:02:01.840 --> 0:02:04.080 car is similar to the twenty twenty two rags. So 0:02:04.120 --> 0:02:06.800 the team have done a great job in evolving the 0:02:06.920 --> 0:02:10.639 car and involving every single detail. Almost every component is 0:02:10.720 --> 0:02:12.760 new for this year, and with only three days of 0:02:13.440 --> 0:02:17.919 practicing of testing, it was great to get that first 0:02:17.960 --> 0:02:20.720 big scoring yesterday with the one to finish Christian. We've 0:02:20.720 --> 0:02:23.680 all heard about the rule changes in the last eighteen months. 0:02:24.000 --> 0:02:26.040 It was meant to make it more competitive, and I 0:02:26.080 --> 0:02:27.600 think a lot of people over the weekend might be 0:02:27.639 --> 0:02:30.120 looking at the front two and saying, what happened? What 0:02:30.320 --> 0:02:32.600 is it about this set up, these rule changes that 0:02:32.639 --> 0:02:35.840 you think suits you and the team so well. I 0:02:35.880 --> 0:02:38.760 think we've only run the cars at this track in 0:02:38.880 --> 0:02:41.120 bar Rain. We tested there and we raced there and 0:02:41.160 --> 0:02:44.120 it certainly suited our car, you know, incredibly well. But 0:02:44.440 --> 0:02:47.200 you know, the former one calendar is twenty three different races, 0:02:47.320 --> 0:02:52.000 twenty three different circuits, different asphalts, different conditions, and the 0:02:52.120 --> 0:02:54.880 big question is is that kind of performance going to 0:02:54.960 --> 0:02:57.640 carry over into the different variants of circuits that we have. 0:02:57.800 --> 0:03:00.120 So it's going to take two or three races. I 0:03:00.120 --> 0:03:01.799 know a lot of people are saying, ah that you know, 0:03:01.840 --> 0:03:04.120 Rebel are going to run away with it, But you know, 0:03:04.120 --> 0:03:06.959 we're certainly not thinking like that, and we need to 0:03:07.000 --> 0:03:09.359 see a few more races to see how things how 0:03:09.400 --> 0:03:12.080 things pan out. Christian, we started this conversation by talking 0:03:12.080 --> 0:03:15.480 about the changes we've seen in your sport, the attention 0:03:15.520 --> 0:03:17.680 it now gets from the rest of the world. Can 0:03:17.680 --> 0:03:19.519 you give us a flavor of that, just how maybe 0:03:19.600 --> 0:03:22.000 some of the nature and the size of the sponsorship 0:03:22.040 --> 0:03:26.520 deals have adapted changed increased over the last couple of years. Well, look, 0:03:26.520 --> 0:03:29.160 we've seen massive growth. I think that the whole phenomenon 0:03:29.240 --> 0:03:32.239 through Drives and Survivors just introduced fomaller one to a 0:03:32.280 --> 0:03:35.040 whole new audience, a younger audience, and very much an 0:03:35.040 --> 0:03:38.440 American audience. So I think out of the twenty five 0:03:38.960 --> 0:03:41.600 new partners that we've introduced in the last three years, 0:03:41.600 --> 0:03:45.240 twenty one of them are US based, and you know 0:03:45.280 --> 0:03:48.560 three of them are in the Fortune five hundred And 0:03:49.160 --> 0:03:51.640 it's just Formula one is on far at the moment. 0:03:51.680 --> 0:03:54.200 And what Drives and Survivor has done is it's it's 0:03:54.280 --> 0:03:57.880 done a great job of explaining the sport and bringing 0:03:57.880 --> 0:04:00.920 a new fan base in a young and base female 0:04:00.960 --> 0:04:05.040 fan base as well, and it's shown some of the 0:04:05.120 --> 0:04:09.240 characters and some of the competition you know that goes 0:04:09.280 --> 0:04:11.240 on behind the scene. So it's a bit like you know, 0:04:11.360 --> 0:04:15.200 the Kardashians on wheels at the time, Chris, and I'm 0:04:15.240 --> 0:04:16.960 sure that's Salon in a big way. Does that work 0:04:17.000 --> 0:04:21.160 for you time? The Karsassians on the side of Max's 0:04:21.240 --> 0:04:24.600 car Kardashians, I'm not sure Max would go with that, Christian. 0:04:24.640 --> 0:04:27.000 There are some hardcore fans, if you will, that are 0:04:27.040 --> 0:04:30.080 disappointed by some of the new tracks, including last year 0:04:30.400 --> 0:04:33.440 in Florida. Is there a risk that we sacrifice track 0:04:33.480 --> 0:04:38.280 and race quality for commercial and geographic expansion. I don't 0:04:38.320 --> 0:04:39.880 think so. I think you've got to protect, you know, 0:04:39.960 --> 0:04:43.480 the old circuits like the Monacos and the silver Stones 0:04:43.520 --> 0:04:45.719 and the Monsters, but then to bring in new circuits. 0:04:45.760 --> 0:04:49.120 I mean, we have Miami last year as a new venue. 0:04:49.200 --> 0:04:51.360 This year we got Las Vegas and I have never 0:04:51.400 --> 0:04:54.560 seen hype around a race like that. I think it's 0:04:54.600 --> 0:04:57.720 going to be the biggest sporting event on the globe 0:04:57.720 --> 0:05:00.320 this year, and you know the demand for that race 0:05:00.640 --> 0:05:04.400 is off the chart, so of course, you know, the 0:05:04.440 --> 0:05:07.320 commercial demand for the sport is at an all time 0:05:07.440 --> 0:05:11.240 high with twenty three races at twenty three different venues 0:05:11.279 --> 0:05:14.080 around the world, so you know there's a mixture of 0:05:14.120 --> 0:05:16.600 street tracks and some of the old classic circuits. So 0:05:17.480 --> 0:05:20.400 I think it does data forever then Christian, unlike some 0:05:20.480 --> 0:05:23.039 of the owners and the elites of Formula one, you've 0:05:23.080 --> 0:05:27.240 actually raced the cars. I'm fascinated what you think about 0:05:27.240 --> 0:05:31.279 the expansion of four more cars within Formula one. I 0:05:31.320 --> 0:05:34.800 know a six hundred million dollars buy in is out there. 0:05:34.839 --> 0:05:38.320 To me, that seems low, but can the track take 0:05:38.680 --> 0:05:43.560 four more cars in the first dangerous turn? I think 0:05:44.120 --> 0:05:47.719 the tracks are certified to be able to take more cars. 0:05:47.800 --> 0:05:51.320 I think it boils down to, you know, the practicalities 0:05:51.360 --> 0:05:55.400 you mentioned an entry, an entry criteria, and of course 0:05:55.640 --> 0:05:59.279 the commercials, like in any business you know, are going 0:05:59.320 --> 0:06:02.080 to drive the Asian making you know on this Effectively, 0:06:02.080 --> 0:06:04.400 you've got a ten franchise set up at the moment 0:06:04.480 --> 0:06:11.320 that uh, you know, have their value through the exclusivity 0:06:11.400 --> 0:06:14.359 of you know, those ten franchises, and I think Liberty 0:06:14.360 --> 0:06:17.120 are keen to protect that as the custodians and the 0:06:17.120 --> 0:06:20.800 owner of the commercial rights holder, the FIA, the regulator 0:06:21.000 --> 0:06:23.760 obviously they're looking to see you know, cam more teams 0:06:23.839 --> 0:06:27.160 be accommodated, and so inevitably they'll need to be a 0:06:27.160 --> 0:06:31.680 compromise founders found at some point. But at the end 0:06:31.720 --> 0:06:33.560 of the day, it's going to come down to who 0:06:33.640 --> 0:06:36.960 pays for it. Christian, you're talking about expanding to the 0:06:37.080 --> 0:06:39.200 US and that things won't be sacrificed. But with the 0:06:39.279 --> 0:06:43.000 nature of the sponsors and the nature of the audience, 0:06:43.360 --> 0:06:46.320 which target audience are you going after? Is formula one 0:06:46.400 --> 0:06:49.719 going after in the United States? Well, we're bringing in 0:06:50.000 --> 0:06:52.400 a young audience and we're signed you know, we've signed 0:06:52.440 --> 0:06:54.960 up so many partners, you know, recently like Oracle and 0:06:55.080 --> 0:06:58.000 hard Rock and Rocks and cash app and so and 0:06:58.040 --> 0:07:01.000 of course the big announcement for us last months the 0:07:01.000 --> 0:07:04.599 announcement with Ford for twenty twenty six on our power train, 0:07:04.680 --> 0:07:08.039 and you know we're bringing we're looking to appeal to 0:07:08.080 --> 0:07:11.960 a younger demographic. Red Bull is an edgy team. You know, 0:07:12.000 --> 0:07:14.680 we've got drivers that push the boundaries. Were a team 0:07:14.680 --> 0:07:18.680 that pushes the boundaries. And you know, our following in 0:07:18.720 --> 0:07:22.080 the US is bigger than any other bigger than any 0:07:22.080 --> 0:07:24.800 other team. And I think it's only a matter of 0:07:24.800 --> 0:07:27.440 time in future years that the you know, an American 0:07:27.560 --> 0:07:30.080 driver will be running at the front in Formula One, 0:07:30.080 --> 0:07:32.720 and again we want to be at the forefront of that. 0:07:32.880 --> 0:07:35.800 So you know, we're looking to make sure that we 0:07:35.840 --> 0:07:38.720 protect the die hard fans, but that we attract a 0:07:38.840 --> 0:07:42.440 new audience, a younger audience, and a more diverse audience 0:07:42.520 --> 0:07:45.520 into the sport a Christian. That's going to mean cheaper tickets. 0:07:45.800 --> 0:07:47.720 Maybe I was just looking at some of the prices 0:07:48.320 --> 0:07:50.440 in Vegas. It was cheaper for some of us on 0:07:50.480 --> 0:07:52.360 the East Coast. I think just to fly to Europe 0:07:52.360 --> 0:07:54.240 to go to Silverston Christian then try and get a 0:07:54.240 --> 0:07:56.600 ticket at some of the tracks here in the United States. 0:07:56.600 --> 0:08:00.560 What can be done about that? Well, look, I think 0:08:00.560 --> 0:08:03.800 it's again it's supply and demand, design and demand. For Vegas. 0:08:03.880 --> 0:08:06.760 He's just off the charts. Anybody that's anyone is going 0:08:06.800 --> 0:08:11.840 to be at that that weekend and I think it's 0:08:11.880 --> 0:08:14.680 going to be the most watch sporting venue, as I say, 0:08:14.720 --> 0:08:16.720 of the year. But we do need to look after 0:08:16.760 --> 0:08:19.800 the fans. We need to have a sensible entry price 0:08:19.840 --> 0:08:24.680 that fans can come and see ignal precon see these 0:08:24.720 --> 0:08:26.920 incredible cars, because until you see it live, you can't 0:08:27.240 --> 0:08:30.400 comprehend the speed of these machines and what you know, 0:08:30.440 --> 0:08:33.640 a human being is actually able to control around the 0:08:33.679 --> 0:08:36.640 streets for example of Las Vegas. So you know that's 0:08:36.640 --> 0:08:39.880 a responsibility that we as teams and the commercial rights 0:08:39.880 --> 0:08:42.560 holder have to protect and look after. You know, the 0:08:42.640 --> 0:08:44.839 diehard fans Chris and you mentioned Ford, they're going to 0:08:44.880 --> 0:08:46.520 have a role in the speed of Red Bull racing 0:08:46.880 --> 0:08:49.080 in a few years time. Can you just discuss the 0:08:49.160 --> 0:08:51.760 risks arounding new relationship with a new partner and when 0:08:51.760 --> 0:08:56.040 the planning really begins. Well, you know, for twenty twenty 0:08:56.040 --> 0:09:00.199 six it's new regulations for a new engine and as 0:09:00.240 --> 0:09:03.839 Red Bull decided to take on that challenge ourselves as 0:09:03.880 --> 0:09:06.280 an independent you know, as a subsidiary of an energy 0:09:06.360 --> 0:09:10.040 drinks manufacturer taking on Mercedes and Ferrari and now Audi 0:09:10.200 --> 0:09:14.800 and Reno and so so we felt that it was 0:09:14.920 --> 0:09:17.520 right for us to align ourselves with a with a 0:09:17.600 --> 0:09:21.079 manufacturer to give us, you know, access to some of 0:09:21.120 --> 0:09:23.679 the R and D that that they're investing, for example 0:09:23.679 --> 0:09:28.240 in electrification and discussing with you know, Jim Farley from 0:09:28.280 --> 0:09:31.560 with from Ford and Bill Ford, um, they were looking 0:09:31.600 --> 0:09:34.600 at at Formula one and therefore, you know a partnership 0:09:34.800 --> 0:09:38.160 with Red Bull was a very natural thing on both 0:09:38.200 --> 0:09:40.520 sides to do, and um, you know we're going to 0:09:40.600 --> 0:09:43.000 benefit from their knowledge and their technical know how in 0:09:43.880 --> 0:09:47.160 you know, certainly in the electrification and you know we're 0:09:47.360 --> 0:09:50.319 that process has started already because twenty twenty six, as 0:09:50.320 --> 0:09:53.800 far as the engines is literally tomorrow. Christen, I want 0:09:53.840 --> 0:09:56.160 to bring up someone else over the weekend. I think 0:09:56.160 --> 0:09:58.000 he joked that there were three red bulls on the 0:09:58.080 --> 0:10:00.880 podium over the weekend. Number three is the Aston Martin 0:10:01.200 --> 0:10:04.440 of Fernando Alonzo Kristin, you've been in a car before, 0:10:04.679 --> 0:10:08.640 can you describe how crazy it is what Finando Alonso 0:10:08.760 --> 0:10:12.160 is doing in his early forties. Well, look, I mean, 0:10:12.200 --> 0:10:15.800 Fernando is a fantastic driver. He's you know, one of 0:10:15.800 --> 0:10:20.440 the best of all time, and he's finally got himself 0:10:20.440 --> 0:10:23.880 in a competitive car and forty one years of age, 0:10:23.880 --> 0:10:26.960 he's giving all of forty something's something a root for 0:10:27.120 --> 0:10:29.960 and he's showed yesterday he's lost none of that racing 0:10:30.000 --> 0:10:34.240 spirit or drive or determination or skill. And you know, 0:10:34.280 --> 0:10:36.840 he's in great shape and he's going to be a 0:10:36.840 --> 0:10:41.040 competitive you know, driver and team this year for us, 0:10:41.080 --> 0:10:43.000 and we've got to know very much keep an eye 0:10:43.040 --> 0:10:45.160 on them because I think they could be the dark 0:10:45.160 --> 0:10:47.320 horse of this championship. Well, I was hoping that you'd 0:10:47.320 --> 0:10:49.439 say Ferrari, but maybe it's going to be Aston Martin, 0:10:49.480 --> 0:10:53.120 t K. Ferrari just not getting it done over the weekend, 0:10:53.400 --> 0:10:57.760 that's all, Christian. Congratulations on a dominant race weekend. I 0:10:57.760 --> 0:10:59.400 hope we can do this again soon, and please come 0:10:59.440 --> 0:11:01.440 to the studio in New York when you might cove 0:11:01.480 --> 0:11:04.000 to the States. Christine Hana. That a red bull racing 0:11:14.040 --> 0:11:16.920 right now. Leadership from James Bianco, Jim Bianco's founder and 0:11:16.960 --> 0:11:20.400 president of Bianco a Research. Jim, I'm just thrilled to 0:11:20.440 --> 0:11:23.240 have you on here on a hallmark day of three months. 0:11:23.360 --> 0:11:26.560 Liebor at five percent, what does that signal to you? 0:11:27.760 --> 0:11:29.920 That short rates are going to keep going higher, that 0:11:30.120 --> 0:11:32.680 defeat at a minimum is going to be higher for longer. 0:11:33.240 --> 0:11:36.240 And the aggressive call right now is that they're going 0:11:36.280 --> 0:11:39.400 to move maybe seventy five or another hundred basis points 0:11:39.400 --> 0:11:42.200 and we could be talking about a sixth handle before 0:11:42.240 --> 0:11:45.360 the end of the year on the funds rate. But 0:11:45.640 --> 0:11:48.160 short rates are going to keep going up, and that 0:11:48.280 --> 0:11:50.720 I think is the big driver of why the yield 0:11:50.720 --> 0:11:54.600 curve has become a new record inversion because it's all 0:11:54.640 --> 0:11:57.080 been driven by the long end. When the tenure rallies, 0:11:57.120 --> 0:12:00.000 we get record inversions. When the tenure rises in the yield, 0:12:00.360 --> 0:12:02.720 we get some flattening of the Yeel curve, maybe less 0:12:02.720 --> 0:12:04.880 in version of the Yeel curve. And I think that 0:12:04.880 --> 0:12:07.679 that story is going to continue with the bond market. Jim, 0:12:07.800 --> 0:12:11.000 Jim expect Chamanpan will be reluctant to lean into that argument, 0:12:11.000 --> 0:12:15.719 given with still whiteson for Payrose Friday and cpon next week. No, 0:12:15.840 --> 0:12:17.840 I don't think he will. I think that you know 0:12:17.920 --> 0:12:20.040 the data, You're right, I heard you before saying, you know, 0:12:20.040 --> 0:12:22.079 it's just one month of data, and it's all been very, 0:12:22.160 --> 0:12:24.920 very strong. But the arc of data that we've seen 0:12:24.960 --> 0:12:27.600 over the last several months has not been weak. It 0:12:27.679 --> 0:12:31.480 has not been what Elizabeth Warren, a senator from Massachusetts, 0:12:31.360 --> 0:12:33.800 has been calling, you know, millions of people losing their jobs. 0:12:34.679 --> 0:12:38.440 It hasn't happened. Maybe it does, but it hasn't happened yet, 0:12:38.640 --> 0:12:40.400 and a lot of people thought it would have happened 0:12:40.440 --> 0:12:42.959 by now. So I think he's probably going to stay 0:12:43.120 --> 0:12:46.240 with the more aggressive move that the Fed is going 0:12:46.240 --> 0:12:49.120 to continue to go at least two or three more 0:12:49.200 --> 0:12:52.400 rate hikes, and if you're right, if the payroll data 0:12:52.480 --> 0:12:55.360 is strong, or if the CPI data is strong, that 0:12:55.440 --> 0:12:58.439 we'll be talking about fifty for the March meeting. Right now, 0:12:58.440 --> 0:13:01.480 the market is putting about a third percent chance that 0:13:01.559 --> 0:13:04.160 the Fed will go fifty basis points at the March meeting. 0:13:04.400 --> 0:13:07.240 It wouldn't take much to push that over fifty percent 0:13:07.480 --> 0:13:09.680 and get people talking about it. With a strong payroll 0:13:09.760 --> 0:13:12.679 number or CPI next week and the potential for a 0:13:12.840 --> 0:13:15.520 short term rates to go even higher. As the reason 0:13:15.559 --> 0:13:18.360 why we've been talking all morning about this inversion, this 0:13:18.440 --> 0:13:20.960 yield curve in version, the two tents spread the most 0:13:21.000 --> 0:13:23.880 inverted going back to nineteen eighty one. Some people are 0:13:23.880 --> 0:13:26.839 dismissing this and saying, ah, you can't read too much 0:13:26.880 --> 0:13:28.880 into it. Other people are saying, historically it has been 0:13:28.880 --> 0:13:31.280 one of the best indicators of recession to come. What 0:13:31.480 --> 0:13:34.720 is the correct read on this, Jim that a yield 0:13:34.760 --> 0:13:38.720 curve in version is a forward the indicator of recession. 0:13:38.840 --> 0:13:42.760 But more inversion does not mean a faster or harder 0:13:42.800 --> 0:13:46.280 recession than less inversion. It's a binary thing. Once you 0:13:46.320 --> 0:13:48.719 go inverted, you should be looking for a recession. Now, 0:13:48.720 --> 0:13:51.520 that thing about the yield curve is it can lead 0:13:51.559 --> 0:13:54.600 as much as eighteen months before you eventually have that 0:13:54.679 --> 0:13:57.400 recession that would put you in the first or second 0:13:57.480 --> 0:14:00.199 quarter of next year. And I think that the whole 0:14:00.280 --> 0:14:02.800 narrative around the recession that a lot of people don't 0:14:02.840 --> 0:14:05.000 have that kind of patience. They think that the slowdown 0:14:05.120 --> 0:14:07.520 is going to happen in the next couple of months, 0:14:07.840 --> 0:14:11.440 as opposed to an early twenty four story. So, yes, 0:14:11.520 --> 0:14:14.480 the eal curve is a very powerful signal that we 0:14:14.559 --> 0:14:16.680 might be seeing a very big slowdown in the economy. 0:14:17.160 --> 0:14:19.720 But just because it's inverting more does not mean it's 0:14:19.760 --> 0:14:21.720 gonna be worse, and it could still be up to 0:14:21.760 --> 0:14:24.280 a year away. Do you think that based on that 0:14:24.520 --> 0:14:26.720 and based on the readjustment that we've seen in markets 0:14:26.800 --> 0:14:30.040 for the past four months, do you think that there 0:14:30.160 --> 0:14:33.480 is a position that seems obviously crowded amid all of 0:14:33.520 --> 0:14:37.960 this uncertainty. Oh, that's a good one right now. I 0:14:37.960 --> 0:14:40.160 think that if there isn't a position that is very 0:14:40.160 --> 0:14:44.040 crowded in the bond market, it's definitely, you know, higher 0:14:44.080 --> 0:14:47.320 short rates that you've seen a lot of speculative positions 0:14:47.320 --> 0:14:49.920 and a lot of people lining up to basically make 0:14:49.920 --> 0:14:52.440 a bet that short term interest rates to your note, 0:14:52.920 --> 0:14:55.400 you know, the live or the Fed funds rate or whatever, 0:14:55.560 --> 0:14:57.720 is going to continue to go higher. Now, the thing 0:14:57.720 --> 0:15:01.640 about those kind of overcrowded trades is those are less 0:15:01.680 --> 0:15:05.040 market driven and more federal reserve policy driven type of trades, 0:15:05.360 --> 0:15:08.080 so they can be right at times. Other than that, 0:15:08.120 --> 0:15:09.960 if you want to look for crowded trades, I'd have 0:15:10.000 --> 0:15:13.800 to meander outside of interest rates and maybe say, the 0:15:13.960 --> 0:15:16.480 reopening in China is probably on my radar as being 0:15:16.520 --> 0:15:19.040 the biggest crowded trade that we're seeing right now. Everybody's 0:15:19.080 --> 0:15:21.560 in on that trade, and with the idea that they're 0:15:21.640 --> 0:15:24.320 only pushing five percent growth for this year, was a 0:15:24.360 --> 0:15:26.800 bit of a disappointment for that trade. Jemmy, you suggesting 0:15:26.880 --> 0:15:29.720 we may have sent the reopening tried to play out already, Yeah, 0:15:29.760 --> 0:15:33.160 I think so. I mean reopening. Yes, the economy is 0:15:33.200 --> 0:15:35.600 going to reopen, it's going to be stronger than it was. 0:15:36.120 --> 0:15:38.400 But this whole idea that it's going to be rip 0:15:38.520 --> 0:15:41.480 warring in China, that they are going to produce a 0:15:41.560 --> 0:15:44.400 ton of stuff, put it on cargo ships, send it 0:15:44.440 --> 0:15:48.920 to the US and collapse goods inflation in the US. 0:15:48.960 --> 0:15:51.440 I think that trade is a little bit overdone right now, 0:15:51.440 --> 0:15:53.840 and there's really no evidence than any of that is 0:15:53.840 --> 0:15:55.840 going to come to pass. Jim want for the cast, 0:15:55.840 --> 0:15:57.760 show meany to get you thought sense. Always looking forward 0:15:57.800 --> 0:16:03.800 to hearing moll from you through the week. The Federal 0:16:03.800 --> 0:16:06.440 Reserve Chair used to phrase in the last couple of months. 0:16:06.440 --> 0:16:09.960 He said that disinflationary process has started. And our next 0:16:09.960 --> 0:16:12.840 guest had something to say about that. David Lebovitz, global 0:16:12.840 --> 0:16:15.120 market is trying to just at jpmulgan as in management. David, 0:16:15.120 --> 0:16:17.240 I remember you sang it your words. You said that 0:16:17.320 --> 0:16:19.840 phrase might go on the schaf with transit tree. Has 0:16:19.840 --> 0:16:22.200 that gone on the schaff with transit tree? I think 0:16:22.240 --> 0:16:23.760 it has. I mean, when you look at the data 0:16:23.760 --> 0:16:25.680 that's come out so far this year, whether you look 0:16:25.680 --> 0:16:28.400 at the hard data being the job's numbers, whether you 0:16:28.400 --> 0:16:30.400 look at the soft data. I mean, the survey data 0:16:30.400 --> 0:16:33.800 for February was very robust. This is clearly an economy 0:16:33.840 --> 0:16:35.920 that's proving to be more resilient than a lot of 0:16:35.960 --> 0:16:38.640 people expected. And I'm not sure that that disinflation the 0:16:38.680 --> 0:16:41.160 market was really grabbing onto at the start of the 0:16:41.240 --> 0:16:44.360 year is necessarily going to come through. I mean, particularly 0:16:44.360 --> 0:16:47.000 when you look at where job growth has been most robust, 0:16:47.000 --> 0:16:49.960 where wage growth has been most robust, it's in leisure, 0:16:49.960 --> 0:16:52.720 in hospitality, it's in the service sector more broadly, and 0:16:52.840 --> 0:16:55.520 the reality is that services are not really showing any 0:16:55.560 --> 0:16:57.960 signs of slowing down. The leisure in hospitality. That's what 0:16:57.960 --> 0:17:00.800 we're doing right here. We're leisure in hospitality. I mean, 0:17:00.840 --> 0:17:04.200 that's what we do at Bloomberg Surveillance every day. You're 0:17:04.440 --> 0:17:08.520 in the calm patient long term business, what do you 0:17:08.600 --> 0:17:12.439 say to JP Morgan clients in a panic about the 0:17:12.480 --> 0:17:14.840 people that say not only we're going to drop, but 0:17:14.920 --> 0:17:18.439 we're going to drop at some point precipitously. So I 0:17:18.560 --> 0:17:20.800 think the first point that we've been trying to make 0:17:20.800 --> 0:17:23.400 to people is that a lot of folks are suffering 0:17:23.400 --> 0:17:26.000 from recency bias. Right when they start to get agitated, 0:17:26.000 --> 0:17:28.200 they immediately think about one of two things. They either 0:17:28.240 --> 0:17:30.720 think about twenty twenty or they think about two thousand 0:17:30.760 --> 0:17:33.439 and eight. Statistically, those are very much outliers, and so 0:17:33.480 --> 0:17:35.720 when we look at the fundamental data, when we look 0:17:35.720 --> 0:17:38.680 at say the cyclical sectors of the economy, we don't 0:17:38.720 --> 0:17:41.359 really see anything that is so far offsides that it 0:17:41.480 --> 0:17:45.720 suggests an outsized downturn when one does materialize. And so 0:17:45.920 --> 0:17:47.720 I think what we've been trying to lean on is, 0:17:47.880 --> 0:17:50.400 you know, look, this economy has more momentum, and yes, 0:17:50.440 --> 0:17:53.640 that has implications for inflation. But if the FED decides 0:17:53.680 --> 0:17:55.760 to crash the ship at some point down the road, 0:17:56.000 --> 0:17:58.000 we don't really see the pieces in place the way 0:17:58.000 --> 0:17:59.960 that they were say in OH seven and O eight 0:18:00.040 --> 0:18:02.959 with respect to housing, and certainly don't foresee another global 0:18:02.960 --> 0:18:05.919 pandemic coming anytime did it take for the FED to 0:18:06.000 --> 0:18:09.040 crash this party? So I think, you know, the one 0:18:09.200 --> 0:18:11.160 thing that we've been spending a lot of time thinking 0:18:11.200 --> 0:18:13.000 about is that at the end of the day, this 0:18:13.080 --> 0:18:15.800 is really an exercise in central banks and the FED 0:18:15.840 --> 0:18:18.760 in particular, defending their credibility. I mean, the FED can 0:18:18.800 --> 0:18:21.119 get inflation to wherever they want it to be, they 0:18:21.119 --> 0:18:22.879 can get growth to wherever they want it to be. 0:18:23.240 --> 0:18:25.159 The question is what needs to happen to rates, and 0:18:25.240 --> 0:18:28.399 more specifically, what does the terminal rate actually look like? 0:18:28.440 --> 0:18:31.400 If this is a more inflationary economy, what that means 0:18:31.480 --> 0:18:33.399 is that our star isn't two and a half percent, 0:18:33.440 --> 0:18:36.520 it's probably somewhere higher, and that has implications for what 0:18:36.560 --> 0:18:38.960 the FED needs to do in order to snuff this 0:18:39.000 --> 0:18:42.200 inflation candle out. And so to me, the worst case 0:18:42.200 --> 0:18:46.040 scenario is a FED that gets very frustrated with their 0:18:46.119 --> 0:18:49.840 inability seeming inability to get inflation back into check and 0:18:49.880 --> 0:18:52.359 they keep hiking and hiking and hiking, and throw that 0:18:52.440 --> 0:18:54.800 whole theory about leads and lags and it takes time 0:18:54.840 --> 0:18:57.000 for this to work its way through the economy very 0:18:57.080 --> 0:18:58.760 much into the wind. That's the big risk to the 0:18:58.760 --> 0:19:01.639 economy this year. Do you game out that risk and 0:19:01.720 --> 0:19:04.480 you're investing because right now you're talking about perhaps we're 0:19:04.480 --> 0:19:06.239 not going back to another two thousand and seven two 0:19:06.240 --> 0:19:09.639 thousand and eight kind of crisis. So if you see resilience, 0:19:09.640 --> 0:19:12.399 that could be good for stocks, not necessarily bad unless 0:19:12.440 --> 0:19:14.320 there is that downside risk. Well, I think it's a 0:19:14.320 --> 0:19:15.919 good short term and I think that a lot of 0:19:15.920 --> 0:19:18.440 the concerns about profits are going to collapse by thirty 0:19:18.440 --> 0:19:21.280 percent that we've talked about together over the past couple 0:19:21.280 --> 0:19:24.320 of months. That's not necessarily going to come to fruition. 0:19:24.359 --> 0:19:27.240 If the economy is still humming along and inflation is 0:19:27.280 --> 0:19:29.440 taking longer to come down. So I do think that 0:19:29.600 --> 0:19:32.520 near term there is an opportunity in risk, and risk 0:19:32.560 --> 0:19:35.760 could certainly end up performing well again in the short run. 0:19:36.280 --> 0:19:38.440 I think that the challenge is how do you get 0:19:38.520 --> 0:19:41.439 inflation back in the bottle? Well, you reduce demand and 0:19:41.480 --> 0:19:43.760 at some point that shows up in corporate revenues and 0:19:43.800 --> 0:19:47.160 corporate profits, and when earnings begin to really fall apart, 0:19:47.200 --> 0:19:48.960 that to me is what's going to lead the market 0:19:49.000 --> 0:19:51.919 back down, not necessarily to a new low, but perhaps 0:19:51.920 --> 0:19:54.040 the levels that we saw back in October in June 0:19:54.040 --> 0:19:57.320 of last year. Do you see evidence that earnings are 0:19:57.400 --> 0:20:01.720 quote unquote falling apart? I think that earnings estimates are 0:20:01.720 --> 0:20:03.600 coming back down to earth, and I think that that's 0:20:03.640 --> 0:20:05.560 a good thing. You know, the twenty twenty three number 0:20:05.600 --> 0:20:08.160 is down, call it seven eight percent so far year 0:20:08.240 --> 0:20:11.119