WEBVTT - Jim Bianco Talks Resilient Inflation, Restructured Economy

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>There's a gentleman and it's Bill Murray, and it's Tailor

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<v Speaker 2>of Chicago, the Nobel Laureate. And then there's Jim Bianco

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<v Speaker 2>who hang out at Wrigley Field. And as we look

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<v Speaker 2>to the Knicks and what we're observing in New York,

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<v Speaker 2>Jim Bianco has lived it. John Lester came to the

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<v Speaker 2>rescue with Joe Madden. But it was brutal nineteen forty five,

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<v Speaker 2>one hundred and eight years of losing, losing, And that

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<v Speaker 2>pressure cooker of twenty sixteen is exactly like MSG tonight,

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<v Speaker 2>isn't it.

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<v Speaker 3>Absolutely When in twenty sixteen with the Cubs, it wasn't

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<v Speaker 3>a sporting event, it was in a milestone in human history.

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<v Speaker 3>And the pressure on the team, the pressure on the

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<v Speaker 3>players were so great. They lost all the home games.

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<v Speaker 3>They won the World Series by winning the away games.

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<v Speaker 3>I kind of felt that way watching the Game three

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<v Speaker 3>in Madison Square Garden. That is, it's not just a

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<v Speaker 3>basketball game, it's a Mileston own in this city's history.

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<v Speaker 3>And the pressure on those players is so great. I

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<v Speaker 3>wonder if they're gonna have to do the same as

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<v Speaker 3>the Cubs and win this on the road.

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<v Speaker 4>You were you at Game three?

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<v Speaker 1>I know I watched the Game three. I was at

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<v Speaker 1>the Tops Games ten years ago.

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<v Speaker 2>Okay, I mean, what do you think of Alexis?

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<v Speaker 5>I mean, I.

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<v Speaker 4>Have to tell you, I hear what you're saying, and

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<v Speaker 4>I kind of feel it a little bit myself. I

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<v Speaker 4>was watching and it just looked insane. Everybody with their

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<v Speaker 4>lights on looked like a huge, you know, music concert.

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<v Speaker 4>The sound was just booming, and you just wonder if that. Yeah,

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<v Speaker 4>maybe they want to throw off the Spurs, but are

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<v Speaker 4>you throwing off your own guys in the process.

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<v Speaker 3>Right, You're not disappointing the Spurs. You're only disappointing your

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<v Speaker 3>home team. When you have a situation like that.

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<v Speaker 2>Montreal Canadians were exactly the same young kids up there.

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<v Speaker 2>These kids are twenty twenty two and the frenzy of

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<v Speaker 2>the Vatica.

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<v Speaker 4>Even for veterans, it could be a lot. But let's

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<v Speaker 4>hope you're wrong.

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<v Speaker 1>That's okay, wrong?

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<v Speaker 2>Should we continue on this theme or actually talk about it?

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<v Speaker 2>Let's you are the arch call ages Ago in lonely

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<v Speaker 2>with Muhammad al Arian. I get him credit saying inflation

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<v Speaker 2>will be resilient what's the quality of our resilient inflation now?

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<v Speaker 2>Above four percent?

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<v Speaker 3>Yeah, you know, we should get it about four percent today,

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<v Speaker 3>it'll be sixty three months that it's been above two

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<v Speaker 3>percent the FEDS target, and even core inflation is going

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<v Speaker 3>to start creeping towards three percent. So it's just not

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<v Speaker 3>oh gasoline, it's more than gasoline. I think that the

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<v Speaker 3>inflation rate is continuing to be problematic. I also think

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<v Speaker 3>if you were to break it down and look at

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<v Speaker 3>the so called CA shaped economy, it's actually worse at

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<v Speaker 3>the lower end because they tend to spend more of

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<v Speaker 3>their income on stuff like food, think beef prices or

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<v Speaker 3>gasoline prices as a percentage of their income than the

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<v Speaker 3>higher end. So they're getting a higher inflation rate than

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<v Speaker 3>even that four percent inflation rate that we're seeing as

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<v Speaker 3>the average right now.

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<v Speaker 1>So it's still with us that it's still a problem.

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<v Speaker 5>You mentioned sixty three months of this inflation. What's let's

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<v Speaker 5>just x out the energy stuff from Iran and so

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<v Speaker 5>that what's driving inflation higher than the two percent? And

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<v Speaker 5>is two percent even a realistic number of these days

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<v Speaker 5>in this economy?

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<v Speaker 3>No, I don't think it's a realistic number. But I

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<v Speaker 3>think what's driving it is the cycle turned in twenty twenty.

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<v Speaker 3>I think, you know, every time we have a recession,

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<v Speaker 3>we come out of a recession, the economy changes. And

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<v Speaker 3>I like to say change. I didn't say dystopian, it's

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<v Speaker 3>just it's different. This is a post pandemic economy. Post

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<v Speaker 3>pandemic economy is a work from home economy. That structure

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<v Speaker 3>restructured the entire workforce, the office market, and the way

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<v Speaker 3>we live because we're at home a lot more. It's

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<v Speaker 3>a deglobalization economy. And unfortunately, it's an economy with more

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<v Speaker 3>war because according to the Institute of War, we've got

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<v Speaker 3>the most war now in forty years around the world

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<v Speaker 3>that we're seeing. So all of those things are leading

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<v Speaker 3>to frictions and higher prices. And that's the state of

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<v Speaker 3>the world we live in right now.

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<v Speaker 2>I think one of the reality is there. Eric emails

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<v Speaker 2>in from a childcare center in New York. Thank you

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<v Speaker 2>for that, Eric, and he notes that pigs and Bianco

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<v Speaker 2>of Chicago got the inflation call right. I look at

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<v Speaker 2>the farm, I look you wake up in Chicago. You

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<v Speaker 2>look south, you look west. It's a whole different view

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<v Speaker 2>than looking out at the Hudson River I got since

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<v Speaker 2>COVID farm production expense is surging thirty four percent as well.

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<v Speaker 2>Basically our farm economies flat on their back because of inflation.

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<v Speaker 1>Right, Yeah, it is struggling.

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<v Speaker 3>But one of the things that the farmers have going

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<v Speaker 3>for them is they've got other income. I've got a

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<v Speaker 3>bunch of friends that are in that business. So they

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<v Speaker 3>could put up solar panels, they could work with data centers,

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<v Speaker 3>and they could make income off of a lot of

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<v Speaker 3>that stuff to kind of keep the farms going. But

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<v Speaker 3>you're right, if you're looking at purely being a farmer

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<v Speaker 3>trying to grow corner wheat or soybeans and make a

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<v Speaker 3>living off of it, it's very difficult right now.

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<v Speaker 5>So this deglobalization which we all grew up with globalization,

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<v Speaker 5>and they're resulting lower prices now to the extent that

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<v Speaker 5>there's a de globalization trend out there. The America first

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<v Speaker 5>type of thing is higher inflation the new norm? And

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<v Speaker 5>does the FED have to adjust to that?

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<v Speaker 1>Yes, I do think higher inflation is the new norm,

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<v Speaker 1>And I.

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<v Speaker 3>Like to be clear that I think it's like a

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<v Speaker 3>three percent maybe three high threes inflation world, not an

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<v Speaker 3>eight times Zimbabwe inflation world. So when you know, when

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<v Speaker 3>you say inflation, you don't want to give that. But yeah,

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<v Speaker 3>the Fed does have to start thinking about it in

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<v Speaker 3>those terms, because not are they no, because they think

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<v Speaker 3>that the neutral rate is still three percent. They come up.

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<v Speaker 3>They arrive at that by saying that the long run

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<v Speaker 3>inflation rates two plus one for our star. But if

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<v Speaker 3>that two percent numbers closer to three three and a half,

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<v Speaker 3>then neutral might be right where we're at right now,

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<v Speaker 3>and that they don't need to be cutting rates anymore.

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<v Speaker 5>Do they need to be raising rates? I mean, I'm

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<v Speaker 5>looking at the warp function kind of suggesting maybe a

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<v Speaker 5>little bit.

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<v Speaker 1>Oh it's not even just a little bit.

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<v Speaker 3>It's one hundred percent chance that they're going to raise

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<v Speaker 3>rates by the end of the year. I think, no,

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<v Speaker 3>they shouldn't be raising rates. Maybe at next week's meeting.

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<v Speaker 3>They don't have to be that urgent. But I think

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<v Speaker 3>that as the market starts to move forward, if we're

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<v Speaker 3>going to be in a high inflation world.

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<v Speaker 1>I'll quote Bob Michael. He has a great line that I.

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<v Speaker 3>Attribute to him that as a bond investor, I can

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<v Speaker 3>stop panicking when the FED starts panicking.

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<v Speaker 1>So if the Fed doesn't feel.

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<v Speaker 3>The need to panic at four percent inflation, then maybe

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<v Speaker 3>bond investors should start panicking and leave. So maybe they

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<v Speaker 3>should consider raising rates or at least talking a little

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<v Speaker 3>bit more hawkish to calm bond investors.

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<v Speaker 2>So then discuss the ambiguity of a level or Bianco

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<v Speaker 2>like higher rate regime on the equity market.

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<v Speaker 3>You know, I don't think it's a I don't think

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<v Speaker 3>it's a problem. I think what the President has done

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<v Speaker 3>is a very good job of telling everybody think of

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<v Speaker 3>interest rates like a real estate guy. Right, lower is

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<v Speaker 3>always better for whatever reason, and higher is always bad

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<v Speaker 3>for whatever reason. But that's not the way rates should work.

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<v Speaker 3>They should approximate a they're a little more nuanced of

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<v Speaker 3>fair value. If the economy is stronger, if the inflation's

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<v Speaker 3>moving up, they should creep higher. And that's what they've

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<v Speaker 3>been doing. And as long as they do that, I

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<v Speaker 3>don't think it should be a problem for the equity market.

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<v Speaker 3>But no, the equity market thinks of it like a

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<v Speaker 3>real estate person. Oh they went up, it's bad, So

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<v Speaker 3>that's kind of the way they think we're.

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<v Speaker 1>Gonna run here.

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<v Speaker 2>But in thirty seconds, are you is Bianca looking for

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<v Speaker 2>a modest move higher in rates, or you with the

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<v Speaker 2>wordzagg and posing that we could see a real jump condition.

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<v Speaker 3>I'm looking for a modest move higher in rates. The

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<v Speaker 3>jump condition would occur if I think a the FED

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<v Speaker 3>seems to be dismissive about inflation or b the story

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<v Speaker 3>today that's got the market down. If we do get

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<v Speaker 3>something that produces a massive jump in crude oil prices,

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<v Speaker 3>that could a jump.

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<v Speaker 2>Lets of emails in from the other side of the studio,

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<v Speaker 2>Nicks or Spurs.

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<v Speaker 3>I'm gonna go with the Knicks and seven just because

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<v Speaker 3>you're killing me seven.

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<v Speaker 1>Seven, geez all right, Spurs are good team. Heard that.

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<v Speaker 4>I don't want to hear that, but I do hear

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<v Speaker 4>you though.

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<v Speaker 2>Go away shouldn't be on. Thank you so much in

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<v Speaker 2>our studios from Chicago. Greatly appreciated today. He's been just

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<v Speaker 2>fabulous on his higher inflation regime.