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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferroll and Lisa Brownowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. Let's get right

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Speaker 1: to it. Lisa Brownson Tom Key with an important conversation

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Speaker 1: on her automobile company, General Motors, about Mary Barrow and

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Speaker 1: much more this morning the chair of the chief executive

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Speaker 1: officer of GM. Mary, you came out of General Motors

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Speaker 1: Institute when we were kids in the Midwest. That was

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Speaker 1: the cool school. And then you got the job in

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Speaker 1: the Midwest, folks, a co op job at GM. You've

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Speaker 1: been doing this a long time. I want you to

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Speaker 1: talk now about the manufacturing quality of Vira's General mode

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Speaker 1: is going back to nineteen seven and that classic movie

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Speaker 1: on GM tolerances versus what we see from for example, Tesla.

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Speaker 1: How are GM cars built better than what Elon Musk

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Speaker 1: is doing. Well. Uh, really appreciate the opportunity to be

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Speaker 1: on today, so thanks so much. And before I dive

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Speaker 1: into quality, I do want to thank the entire General

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Speaker 1: Mooters team, all of our stakeholders and partners for you know,

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Speaker 1: really working hard to deliver such a strong first quarter.

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Speaker 1: You know, we continue the momentum on our EV and

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Speaker 1: a VY journey, and quality is one important story for

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Speaker 1: that because we have a very uh you know, demonstrated

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Speaker 1: quality system with our global manufacturing system. And I was

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Speaker 1: just at the spring Hill plant last week looking at

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Speaker 1: the catalog lyric and the vehicle is just building perfectly.

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Speaker 1: What people want to know, MS, I don't mean to interrupt,

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Speaker 1: but what people want to know is do you have

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Speaker 1: demonstable evidence yet that people will move away from Tesla

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Speaker 1: to awards other electric vehicles because of manufacturing integrity? Have

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Speaker 1: you seen that in the research? Well, we do know

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Speaker 1: from the customers that buy our bold Evy and Evy

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Speaker 1: there's some of the most satisfied customers of any in industry.

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Speaker 1: I can also tell you with our reservations for the

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Speaker 1: Silverado EV about six are new to GM and about

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Speaker 1: that are coming from East and West Coast where we

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Speaker 1: haven't sold as many vehicles. So I think those are

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Speaker 1: early indicators that yes, we are gonna we have great

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Speaker 1: products right now when the customers have responded, and the

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Speaker 1: interest in whether it's the Hummer e V. There you go,

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Speaker 1: whether it's the lyric Um they're they're coming and they

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Speaker 1: just gotten an order in the Hummer EV. Lisa pick

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Speaker 1: it up. Mary, I do not have an order in

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Speaker 1: the Humpy, but perhaps if there was space in New

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Speaker 1: York City perhaps I do wonder when you talked about

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Speaker 1: this on the call that you're going to make you

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Speaker 1: expect to make more vehicles this year than last year.

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Speaker 1: How much does that relaw on a reopening in China

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Speaker 1: and a continuing a momentum in the US economy. Well, Uh, definitely,

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Speaker 1: from a wholesale perspective, we see strength with the consumer,

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Speaker 1: especially for GM products. We're you know, watching this very

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Speaker 1: carefully with UH inflation and with interest rates. But again,

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Speaker 1: when we deliver vehicles to plants, most of them are

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Speaker 1: either sold or are sold very very quickly. For instance,

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Speaker 1: in trucks in the US, we have less than twelve

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Speaker 1: days supply, which is extremely low when you look at

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Speaker 1: the strength of our truck our truck franchise. So we're

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Speaker 1: seeing strong demand. Um, we think there's a lot of

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Speaker 1: pent up demand from the consumer, but we're watching it

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Speaker 1: very very carefully as it relates to China. We are

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Speaker 1: seeing you know, what we think our green shoots with

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Speaker 1: the government indicating cases are coming down and U you know,

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Speaker 1: so far it's been minimal, uh, minimal impact. And we

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Speaker 1: see if if what's happening now continues that we should

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Speaker 1: be able to manage through from a supply chain perspective.

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Speaker 1: So again, a lot of moving pieces, but we're very

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Speaker 1: optimistic and and uh looking forward to being able to

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Speaker 1: wholesale you know, more vehicles this year. Mary, have you

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Speaker 1: shifted any of your supply chain dynamics out of China

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Speaker 1: in response to the rolling lockdowns that we've seen over

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Speaker 1: the past few years. Well, if you you know, when

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Speaker 1: you look at the supply chain, um, it's a very

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Speaker 1: complex supply chain. And we are looking with the lessons

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Speaker 1: learned from the semiconductor from COVID of how do we

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Speaker 1: need to strengthen our supply chain make it more resilient.

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Speaker 1: And so there are steps being taken on balance as

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Speaker 1: we look at what is the way to make sure

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Speaker 1: we aren't constrained like we have been for the last

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Speaker 1: you know, year year and a half. Mary, I want

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Speaker 1: to go all cattering on you the new General Motors Institute.

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Speaker 1: You go in there and you've got all sorts of courses.

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Speaker 1: You took them Electrical engineering, jewels, kilowatt hours are David

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Speaker 1: Welch and Detroit wants to know your battery trend in

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Speaker 1: physics in kilowatt hours versus what others including Tesla are doing.

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Speaker 1: The heart of the matter is you got to build

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Speaker 1: a better battery. I need an update. Well, you know,

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Speaker 1: we think we're very competitive right now with the batteries

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Speaker 1: that we have, and we actually think with the chemistry

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Speaker 1: that we're launching now with ultim, we're in a leadership position.

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Speaker 1: It's less expensive. You know, the Silverado that will be

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Speaker 1: launching will have four hundred miles of range and that's

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Speaker 1: you know, less than a year away. So we think

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Speaker 1: we're in a leading position with our battery chemistry technology

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Speaker 1: and you know, and we're not stopping. We have more work.

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Speaker 1: We're working not only with LG but with Solid Energy

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Speaker 1: Solutions and other partners. Um. You know, I've been in meetings,

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Speaker 1: several meetings just in the less uh several weeks of

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Speaker 1: talking to you know, new battery um uh battery makers

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Speaker 1: because we want to make sure that we have the

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Speaker 1: best technology from an energy density, efficiency cost perspective, and

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Speaker 1: the beauty of our ultim platform that is the foundation

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Speaker 1: for the Hummer and for the Lyric and all of

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Speaker 1: our vehicles going forward from an e V perspective is

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Speaker 1: that it's chemistry agnostic. So as we see opportunity to

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Speaker 1: use a new and validated chemistry, we can do that

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Speaker 1: with minimal disruption. Before we let you go, Mary, I

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Speaker 1: do wonder whether you see an opening for General Motors

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Speaker 1: to gain a competitive advantage while Tesla is dealing with

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Speaker 1: some of the drama around Elon Musk's bid for Twitter.

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Speaker 1: Is this actually an opportunity or is it more complication

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Speaker 1: around the e V space? Well, you know, when we

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Speaker 1: look at it, we're focused on our plan of executing.

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Speaker 1: You know, General Motors has a today we offer a

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Speaker 1: full portfolio for all customers when you look at what

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Speaker 1: we're going to have from a Chevy perspective, from a

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Speaker 1: GMC perspective. But do you have that? But Mary, sorry

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Speaker 1: to cut you off, but do you have a response

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Speaker 1: to the Twitter issue and sort of Elon Musk's bid

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Speaker 1: There actually no? I mean, as a company, you know

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Speaker 1: we're gonna wait and see if what it shamed one

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Speaker 1: of the dynamics that change as it relates. But right

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Speaker 1: now we're focused on our ev execution and I don't

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Speaker 1: think it really plays into it. Mary, I'm running out

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Speaker 1: of time very quickly here. What do you see on

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Speaker 1: the wage dynamic at your acclaimed factories? What do you

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Speaker 1: see in terms of wage inflation for the next twelve months?

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Speaker 1: You know, we are seeing first of all, you know,

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Speaker 1: we are very proud that we have you know, very

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Speaker 1: competitive wages in uh, you know, from a from a

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Speaker 1: GM perspective, and our facilities. UM, you know, that's we

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Speaker 1: built the middle class from an automotive perspective, and so

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Speaker 1: we're very proud of that. As we bring new people in, UM,

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Speaker 1: you know, we're evaluating what it's going to take to

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Speaker 1: make sure that we get people into our factory. So

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Speaker 1: it varies my country, but for the most part, it's

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Speaker 1: not uh, it's not causing us an issue right now, Mary,

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Speaker 1: I gotta come to Detroit and I gotta see the

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Speaker 1: Detroit Tigers plan. That's all there is to it. I

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Speaker 1: got eight more questions, Mary Barr, thank you so much.

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Speaker 1: General Motors Chair Chief executive Officers There joining us Now

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Speaker 1: gentlemen that nailed Shakespeare in school Andrew slamming joints the

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Speaker 1: senior portfolio manager hit Morgan Stanley. I love, Love, love

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Speaker 1: Andrew the adult note where you say, do your research,

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Speaker 1: do your homework and look for maximum growth scare. What

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Speaker 1: does the maximum growth scare look like? I think I

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Speaker 1: think they market will end up year five at year end,

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Speaker 1: but I suspect at some point the anxiety around the

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Speaker 1: FED will lead to the you know, a greater scare

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Speaker 1: of recession and I think we could see the SMP,

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Speaker 1: you know, thirty eight hundred would be down to from

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Speaker 1: the peaks, and I think that doable the first half

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Speaker 1: of this year. My argument has been this year is

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Speaker 1: a battle ground between uh FED pivoting a negative and

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Speaker 1: the positive that continuation of good corporate fundamentals. It will

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Speaker 1: lead to a subpar year, but that's off forty seven

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Speaker 1: seventy eight, which is where we begin the year. And

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Speaker 1: when the when the SMP is down at the four

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Speaker 1: thousand level, the returns in the year for the rest

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Speaker 1: of the year could be very, very attractive. And I

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Speaker 1: think the love will be on maximum growth scare that

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Speaker 1: the world is, you know, the world's ending, and that

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Speaker 1: reminds me very much of eleven, where we had a

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Speaker 1: peaks trop declin in nineteen, fundamentals did not evaporate and

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Speaker 1: the market came roaring back and with that back to

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Speaker 1: an all time high in four months. I think that's

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Speaker 1: the scenario that we're looking at. But right now we're

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Speaker 1: in the negative side of that. I think it will

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Speaker 1: turn more positive the second half of the year. How

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Speaker 1: do you distinguish sectors? I mean, right now we're in

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Speaker 1: the heart of big, big tech and they're making big,

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Speaker 1: big profit and I understand there's nuances and they go

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Speaker 1: down next percent or that, But how do you take

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Speaker 1: what is of sp X on their way to being

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Speaker 1: how do you handle them versus the other sectors? Yeah,

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Speaker 1: I think this is okay. So this is I'm kind

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Speaker 1: of shifting my tune here, which is we bought a

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Speaker 1: number of defensive socks. Being a long equity manager, I've

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Speaker 1: got to stay invested. We we we bought a number of

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Speaker 1: defensive areas going into the year. We're underweight tech, But

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Speaker 1: what we see going on is that quality growth stocks,

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Speaker 1: of which many of these tech stocks are earning. The

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Speaker 1: ones that are earning money they've been so hammered that

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Speaker 1: I think you have it's too late to buy the defenses.

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Speaker 1: You have to arrange a list of companies that you

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Speaker 1: think evaluations have come down enough that you're willing to

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Speaker 1: step in if we see further weekness in the market,

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Speaker 1: which I think we will at some point in the

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Speaker 1: next couple of months. In these technology stocks as well

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Speaker 1: as some of these home related retailers and companies like that.

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Speaker 1: I think they've been hammered so much that you those

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Speaker 1: will be the opportunities coming off the rebound the second

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Speaker 1: half of the year, not the defenses and what to

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Speaker 1: put the banks. And we just go through the five

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Speaker 1: DAN year today performance because it has been dreadful five

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Speaker 1: days down six percent on JP Morgan year today, DAN

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Speaker 1: two City Group DAN year today sixteen eight percent. Bank

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Speaker 1: of America down eighteen percentage points. Andrew, this is going

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Speaker 1: into a great hiking cycle. What's going on? Yeah, well,

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Speaker 1: I would expand Jonathan. Not only that, but I think

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Speaker 1: these regional banks which are benefiting from a better NYM.

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Speaker 1: I mean, these companies are reporting very good numbers and

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Speaker 1: the stocks are getting so I think it's a story

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Speaker 1: of too much beta, too much risk. The one thing

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Speaker 1: that I don't like about some of the money centers

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Speaker 1: is just there their exposure to other parts of the

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Speaker 1: world that are harder to handicapped. So my view is

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Speaker 1: to again look to add positions uh in the regionals

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Speaker 1: that are benefiting from fair raising rates. And then but

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Speaker 1: again I would argue it's a little earlier. I think

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Speaker 1: you might be a little earlier. The pain these they

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Speaker 1: gone down a lot, but I wouldn't bottom fish quite yet.

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Speaker 1: I went for the SMP to be down at that

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Speaker 1: four thousand, eight hundred before step and it was going

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Speaker 1: to come this summer. It seems to be coming sooner

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Speaker 1: than I expected. So another nine percent decline to get

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Speaker 1: to that thirty eight hundred point. Do you think the

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Speaker 1: banks are going to lead? It? Is that basically going

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Speaker 1: to be the disproportionate decline. I think banks. I think

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Speaker 1: tech will lead coming out, but it's not gonna lead

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Speaker 1: down the thirty eight hundred. It's gonna it's gonna there's

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Speaker 1: gonna be more pay Andrew, one thing that you said

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Speaker 1: that I loved was I am not a strategist. I

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Speaker 1: have to put money to work, and I wear my mistakes.

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Speaker 1: What has been your biggest mistake, your biggest misperception heading

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Speaker 1: into this year that you've had to reform for the

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Speaker 1: remainder of I think the biggest steak is that I

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Speaker 1: didn't think, you know, just as Jonathan said, I thought that, uh,

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Speaker 1: to marry defensive that's worked, but to stick with the

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Speaker 1: financials because I thought they were going to report very

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Speaker 1: good numbers, which they have and that has not. Uh,

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Speaker 1: that's not helped the stocks. The stocks have dropped more

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Speaker 1: than I expected because you know, again, I thought they

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Speaker 1: would be supported by better earnings and that's not been

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Speaker 1: the case. The corporations adapt to all of this, Andrew,

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Speaker 1: I mean, I mean that one way they adapt is

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Speaker 1: a cut cost. Is that what we don't see out

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Speaker 1: there is they're going to come in with a whole

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Speaker 1: new round of cost rationalizations to right size this well.

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Speaker 1: I I think the the the answer is that I

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Speaker 1: guess one of the reason why I'm a little bit

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Speaker 1: more optimistic than some is that I'm out there talking

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Speaker 1: to companies and listening to companies, and I don't see

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Speaker 1: the degree of concern that I do at the strategy level,

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Speaker 1: and I'm watching every week the earning on among the

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Speaker 1: census estimate for this year continues to go up, and

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Speaker 1: I just want to make sure that's an understood fact

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Speaker 1: because I don't hear that much consensus going on. The

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Speaker 1: Other thing that I think is important, and I'm getting

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Speaker 1: to your question, is what we're hearing is a number

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Speaker 1: of companies, a couple of industrial companies yesterday beat in

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Speaker 1: the first quarter, and they didn't raise guidance, not because

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Speaker 1: they saw big weakness coming, but they just were cautious

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Speaker 1: because what's the point of raising guidance at this juncture.

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Speaker 1: So it's possible that if we get through this without

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Speaker 1: a big disaster, you see concests going up. I think

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Speaker 1: to your point is it is not unusual in the

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Speaker 1: second or third year coming out of recession to have

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Speaker 1: margins continue expand. And I think that's what's going on.

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Speaker 1: So I get more comforted when i'm dad in the

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Speaker 1: micro talking companies than when we focus on the macro,

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Speaker 1: the big, big picture. And so I I look and say,

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Speaker 1: it's really not been different than we've seen before, which

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Speaker 1: is the third year coming our recession. Fundamentals continue to

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Speaker 1: be pretty good. Andrew slimon Mogus Standing investment management andreck

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Speaker 1: write a catch out, buddy. It is a perfect time

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Speaker 1: after the Secretary of Defenses uh comments in Europe to

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Speaker 1: speak to Tina Fordham, founder geopolitical strategistic Fordham Global Foresight,

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Speaker 1: but far far more with a few decades of really

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Speaker 1: legit experience, including public service to the United Kingdom. Tina,

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Speaker 1: I want to go right to it. The first sentence

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Speaker 1: of your note, you say there is a military shift

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Speaker 1: towards Ukraine. How do you observe that? Well, I think,

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Speaker 1: first of all, I think the conflict is tipping towards Ukraine.

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Speaker 1: There will be some, you know, some setbacks for both sides,

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Speaker 1: but for example, Ukraine now has more tanks than Russia

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Speaker 1: does in the field. This is remarkable. Of course, it's

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Speaker 1: a combination of tanks the commandeered from Russia plus supplies

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Speaker 1: that that they've got um, the information wore the momentum.

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Speaker 1: But you just mentioned the meeting yesterday the Ramsdy Air Base.

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Speaker 1: Forty countries have now come together in unity around one

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Speaker 1: really important idea, and that is that Ukraine can't lose

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Speaker 1: this conflict. Tina. If that's really the case, can we

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Speaker 1: view the cutting off of gas supplies to Bulgaria to

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Speaker 1: Poland is basically an escalation because Vladimir Putin is getting

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Speaker 1: more desperate. If he is at a losing foot, well,

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Speaker 1: he's going to raise our costs right for um for

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Speaker 1: pushing back on his military objective. Remember he got away

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Speaker 1: with Georgia in two thousand and eight and Crimea in

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Speaker 1: He wasn't expecting this resistance and so we got to

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Speaker 1: raise the cost for us. The problem is for for

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Speaker 1: Putin is that the combination of those forty countries coming

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Speaker 1: together with a much more accelerated response to the need

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Speaker 1: to provide arms to Ukraine. Plus this move this morning

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Speaker 1: to cut off supplies to Bulgaria and Romania to EU

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Speaker 1: and NATO member states if they don't pay in rubles,

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Speaker 1: it's going to accelerate. In my view, European Union resolve

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Speaker 1: to switch away from Russian gas supplies. Germany has been

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Speaker 1: the laggard. Uh they're starting to see the light, or

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Speaker 1: rather respond to the pressure of their fellow member suits.

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Speaker 1: So Tina, as you advise companies on how to handle

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Speaker 1: the potential sanctions, the prolonged nature of the conflict, what

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Speaker 1: are you telling them with respect to how this is

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Speaker 1: going to proceed, how they should hedge, how they should

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Speaker 1: really position to try to get the most advantage ahead

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Speaker 1: of what a lot of people are seeing as prolonged

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Speaker 1: weakness in the euro region because of that shift that

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Speaker 1: you're talking about, the will elevation gas gas prices. Yes, well,

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Speaker 1: it's it's a pretty mixed bad right. So one of

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Speaker 1: the things is how does it affect kind of classical

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Speaker 1: political risk outcomes like elections. Now we would have said

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Speaker 1: that the combination of inflation cost of living increases should

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Speaker 1: have heard an incumbent like Makron at the polls in France.

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Speaker 1: We just had the result second term and an historic

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Speaker 1: second term. So even in politics, the traditional correlations in

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Speaker 1: the data are breaking down. On the sanctions level, we

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Speaker 1: need to be thinking about a pretty long trajectory because

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Speaker 1: so many of the most powerful sanctions that the West

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Speaker 1: can levy against Russia are being held back, particularly in

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Speaker 1: the event of an unconventional weapons attack. So that is

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Speaker 1: the next thing on my watch list. I think everything

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Speaker 1: is on the table for Putin. All taboos have been broken.

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Speaker 1: If Russia does cut off gas supplies, of course to

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Speaker 1: pull it in Bulgaria. It's not a reliable energy supplier,

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Speaker 1: and I think that it's it's days of being the

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Speaker 1: supplier of choice to Europe are coming to a close

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Speaker 1: in the last ten days. Has there been a shift

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Speaker 1: in and I mean this in a general way, not

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Speaker 1: a specific allegation, but has there been a shift in

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Speaker 1: the West timidity to take on Mr Putin because of

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Speaker 1: fear of greater issues like the proverbial World War three?

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Speaker 1: Has there been a shift? Absolutely we're coming up to

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Speaker 1: or just I suppose reached two months since the invasion,

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Speaker 1: that initial kind of reluctance to get involved. Remember Biden

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Speaker 1: said US soldiers won't be fighting against I think he

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Speaker 1: would still say that, But what I think has changed,

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Speaker 1: and we heard this in Defense Secretary Austin's remarks. It's

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Speaker 1: going to be about degrading Russia's capacity to inflict this

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Speaker 1: kind of damage against its neighbors. And that is a

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Speaker 1: massive shift. Tina Fordham of Fordham Global Foresight, thank you

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Speaker 1: for being with us today. It's never a trial to

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Speaker 1: speak to Edward yar Danny. He's president of Yar Denny

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Speaker 1: Research and has enjoyed corrections and bear markets such as

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Speaker 1: we in Are we in? Now? I know and it's

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Speaker 1: not seventy three seventy four, But what is it. What

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Speaker 1: is the character of this downdraft? Well, I think the

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Speaker 1: key characteristic here is, uh, the stag inflationary environment that

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Speaker 1: we've inadvertently walked into. I mean, we've had two years

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Speaker 1: of helicopter money and that was the easy way to

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Speaker 1: deal with the crisis of the pandemic. But now we're

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Speaker 1: paying the price for it with the higher inflation. So

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Speaker 1: I think that's the big difference. Uh, you know, the

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Speaker 1: stock market can't have a tapering tantrum here and expect

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Speaker 1: that the Fed is going to respond because inflation is

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Speaker 1: much more severe than the past three tapering tantrums. Jar Denny.

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Speaker 1: How will corporations adjust? We're gonna speak to Mari Barry

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Speaker 1: here in a bit of general motors and whether it's

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Speaker 1: something as state as auto, is something as sexy as

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Speaker 1: Facebook and the rest of it. How do corporations adapt

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Speaker 1: given these economic events? Well, look, I know there's a

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Speaker 1: lot of concern here that the risks of a recession

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Speaker 1: have increased, and they certainly have increased in my mind,

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Speaker 1: they've come up from before the war in Ukraine to

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Speaker 1: but one of the reasons that I'm not convinced yet

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Speaker 1: that we're going to fall into recession. Here is the

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Speaker 1: consumer sectors in very good shape. And to your question,

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Speaker 1: the corporate sector is in phenomenally good shape. You know,

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Speaker 1: they raised over two trillion dollars in the corporate bond

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Speaker 1: market that non financial corporations have and they refer instant

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Speaker 1: tremendous amount of their debt at record low interest rates.

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Speaker 1: So as the feeder raising interest rates here, there's still

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Speaker 1: plenty of liquidity left over from the past two years

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Speaker 1: of helicopter money. So you said that there's about at

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Speaker 1: chance of recession. It's gone up since the start of

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Speaker 1: the war in the US and this year or is

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Speaker 1: that through next year? What's your time frame here? Well,

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Speaker 1: I I think you know, if you ask me about Europe,

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Speaker 1: it's more like the way it's going, especially with this

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Speaker 1: latest collect this year for this year, yes, um, for

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Speaker 1: the thirty percent um, I think it's uh, it's more

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Speaker 1: next year then this year. The leading indicators are still

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Speaker 1: an all time record high, telling us that there's no

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Speaker 1: immediate risk of a e A recession. The stock market

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Speaker 1: is certainly acting like it. Well, do you do you

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Speaker 1: agree with Bill Dudley and some others that if this

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Speaker 1: ongoing momentum continues that it will result in a more

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Speaker 1: severe shock later on, a more severe crash later on,

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Speaker 1: simply because inflation won't get contained and it will become

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Speaker 1: more entrenched. Not really. I mean, if you look at

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Speaker 1: the history of inflation that doesn't just keep going up

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Speaker 1: and up and up. It's very it's very spiky. Even

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Speaker 1: in seventy three and seventy nine we saw these spikes

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Speaker 1: and inflation and then they moderated. You know, the arithmetic

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Speaker 1: of year over year percent changes is that when when

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Speaker 1: they are increasing a very rapid rate compared to the past,

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Speaker 1: at some point the arithmetic starts to slow them down.

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Speaker 1: And I think we are going to see some moderation here.

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Speaker 1: And consumer durable good inflation, which has really been the

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Speaker 1: heart of the inflation problem, I think we're satisfying a

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Speaker 1: tremendous amount of pent up demand. Services have been relatively moderate.

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Speaker 1: The problem is within the services area, the rent inflation

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Speaker 1: for the next two years is going to be going higher,

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Speaker 1: So I think we're looking at higher for longer inflation

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Speaker 1: at a completely unfair question, but I want to synthesize

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Speaker 1: the original Yale University study of fiscal economics, which folks,

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Speaker 1: was literally a franchise of New Haven for decades. We've

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Speaker 1: got the mother of all fiscal stimulus is and then

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Speaker 1: we bring it over to the monetary side. Almost Milton

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Speaker 1: Friedman like to an inflation study, What is your perspective

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Speaker 1: of the duration of excess inflation? Even the fiscal impulse

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Speaker 1: we've lived? Well, my my forecast is higher for longer inflation.

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Speaker 1: But that doesn't mean it's not gonna come down. It's

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Speaker 1: just gonna mean that. I kind of seriously, I sacondously

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Speaker 1: doubt we're gonna see two percent inflation anytime soon. Again,

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Speaker 1: that in the next twelve to twenty four months. But

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Speaker 1: will it come down to three to four percent next

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Speaker 1: year using the consumption deflator? I think? So? Is that doable?

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Speaker 1: I don't mean to interrupt. This is critical that you're Danny.

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Speaker 1: This is Olivier Blanchard and had imposing. Can this nation?

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Speaker 1: Can our viewers and listeners survive sustain three point five

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Speaker 1: percent inflation? I think we may very well learn to

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Speaker 1: live with it. We've learned to live with COVID. I

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Speaker 1: think we're gonna learn to live with three to four

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Speaker 1: percent inflation. But it's not necessarily something that's going to

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Speaker 1: persist forever. I mean, I that's that's got sort of

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Speaker 1: my applook for next year and for the financial market's

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Speaker 1: a stock market, in the bond market, just saying a

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Speaker 1: peak in inflation, let's say by the middle of the year,

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Speaker 1: early summer, would be very helpful as we talk about

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Speaker 1: these big macros UH developments and this idea of the

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00:25:02,400 --> 00:25:04,920
Speaker 1: Fed hiking rates. I do go back to this case

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00:25:04,960 --> 00:25:07,879
Speaker 1: against Bill Wanang of Archagas and this idea of leverage

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00:25:07,880 --> 00:25:10,640
Speaker 1: in this system. And this is unique, and obviously he's

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00:25:10,640 --> 00:25:13,520
Speaker 1: being accused by the US Attorney's Office in the Southern

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00:25:13,560 --> 00:25:16,199
Speaker 1: District of New York of criminal acts, but it does

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00:25:16,320 --> 00:25:18,679
Speaker 1: raise a question about what else is out there with

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00:25:18,720 --> 00:25:21,720
Speaker 1: respect to leverage, with respect to our visibility, how are

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00:25:21,760 --> 00:25:24,400
Speaker 1: you viewing that in terms of what we can expect

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00:25:24,480 --> 00:25:27,719
Speaker 1: in the upcoming months. Well, you know, as we all know,

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00:25:27,800 --> 00:25:30,440
Speaker 1: the Federal Reserve is so far increased the FED funds

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00:25:30,520 --> 00:25:33,359
Speaker 1: rate by twenty five basis points and where a range

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00:25:33,359 --> 00:25:37,600
Speaker 1: of fifty basis points, and yet the markets are already

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00:25:37,640 --> 00:25:40,560
Speaker 1: discounting that there's something is going to break here when

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00:25:40,560 --> 00:25:43,240
Speaker 1: the Fed really starts to move more aggressively, and everybody

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00:25:43,240 --> 00:25:45,960
Speaker 1: expects in the early May meeting that the FED is

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00:25:46,000 --> 00:25:49,399
Speaker 1: going to go and go ahead with a fifty basis

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00:25:49,400 --> 00:25:52,639
Speaker 1: for and increase, and the market's got this jitter, is

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00:25:52,680 --> 00:25:54,840
Speaker 1: like something is going to break and I see just

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00:25:55,440 --> 00:25:58,120
Speaker 1: I see like three trillion dollars of excess liquidity left

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00:25:58,160 --> 00:26:01,879
Speaker 1: over from the past two years of helicopter money. But

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00:26:03,000 --> 00:26:07,119
Speaker 1: the markets have their own, uh agenda, Well, they don't

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Speaker 1: be to take that a step further. And do you

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Speaker 1: think that the safeguards in place to avoid something kindastrophic

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00:26:13,119 --> 00:26:16,399
Speaker 1: or some sort of systemic meltdown stemming from leverage really

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00:26:16,480 --> 00:26:19,520
Speaker 1: are secure enough to prevent that kind of action that

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00:26:19,600 --> 00:26:22,880
Speaker 1: perhaps people are taking the wrong lesson from previous times

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00:26:23,200 --> 00:26:26,560
Speaker 1: because this system is much safer. Is that your interpretation, well,

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00:26:26,600 --> 00:26:28,919
Speaker 1: at the risk of being dead wrong. Uh, that is

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00:26:28,960 --> 00:26:33,960
Speaker 1: my interpretation that the system is more robust. The banks

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00:26:33,960 --> 00:26:37,919
Speaker 1: are in great shape, corporations are in great shape. Consumers

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00:26:37,920 --> 00:26:40,520
Speaker 1: are sitting a tremendous amount of M two and most

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00:26:40,520 --> 00:26:44,280
Speaker 1: of it is in demand deposits. Look, not everybody is

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00:26:45,400 --> 00:26:48,560
Speaker 1: well off and doing well. I mean, clearly inflation is

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00:26:48,560 --> 00:26:52,760
Speaker 1: eating eroding everybody's purchasing power. But in terms of something

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00:26:52,800 --> 00:26:55,159
Speaker 1: breaking in the credit system, I just don't see it.

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00:26:55,960 --> 00:26:59,600
Speaker 1: I'm watching the junk bond yield to see whether that's

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00:26:59,600 --> 00:27:03,960
Speaker 1: gonna ignal some real serious problems, and so far it's

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00:27:04,000 --> 00:27:09,040
Speaker 1: pretty calm. And we're going back to Arthur Burns. Inflation

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00:27:09,359 --> 00:27:12,880
Speaker 1: move a rather rate moves fifty beats. Some people talk

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00:27:12,960 --> 00:27:19,119
Speaker 1: seats as well, did that work out the last time? Well? Um,

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00:27:19,680 --> 00:27:23,919
Speaker 1: the Burns environment, of course is what we go to

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00:27:23,920 --> 00:27:27,600
Speaker 1: to look at. The FED raising interest rates too little,

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00:27:27,640 --> 00:27:32,000
Speaker 1: too late, and then eventually Vulker came in in the

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00:27:32,040 --> 00:27:35,399
Speaker 1: late nineties seventies and just let it rip, let interest

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00:27:35,440 --> 00:27:37,680
Speaker 1: rates go up to levels of cause of recession. I mean,

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00:27:37,720 --> 00:27:42,120
Speaker 1: we do know that recessions always bring inflation down. Um,

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00:27:42,160 --> 00:27:45,439
Speaker 1: but whether we can achieve a soft landing is the

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00:27:45,440 --> 00:27:49,439
Speaker 1: big controversy here. I suspect that we either do or

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00:27:49,520 --> 00:27:54,200
Speaker 1: we get a real short and moderate recession again, because

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Speaker 1: I think the system is relatively robust if any recess.

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Speaker 1: Thank you. This is the blue Burg Surveillance Podcast. Thanks

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00:28:01,960 --> 00:28:05,280
Speaker 1: for listening. Join us live weekdays from seven to ten

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00:28:05,359 --> 00:28:09,800
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

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00:28:09,920 --> 00:28:13,639
Speaker 1: day from six to nine am for insight from the

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00:28:13,680 --> 00:28:18,880
Speaker 1: best in economics. Finance, investment, and international relations. And subscribe

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00:28:18,920 --> 00:28:23,840
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

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00:28:23,920 --> 00:28:27,159
Speaker 1: and of course, on the terminal. I'm Tom Keene, and

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00:28:27,320 --> 00:28:29,199
Speaker 1: this is Bloomberg.