WEBVTT - Surveillance: Inflation Fighters with Peters 0:00:05.040 --> 0:00:08.880 This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woyd's 0:00:08.920 --> 0:00:11.879 along with Tom Keane and Jonathan Farrow, join us each 0:00:11.920 --> 0:00:15.720 day for insight from the best in economics, geopolitics, finance 0:00:15.760 --> 0:00:19.480 and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.560 --> 0:00:22.759 Spotify and anywhere you get your podcasts, and always on 0:00:22.840 --> 0:00:26.360 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.960 --> 0:00:29.640 In the bond space right now, it is always important 0:00:29.640 --> 0:00:32.320 to check in with Greg Peters. He's the co cio 0:00:32.400 --> 0:00:35.440 at PIGEM Fixed Income and far more has a mantle 0:00:35.520 --> 0:00:38.640 at home with all sorts of investment managers of the 0:00:38.760 --> 0:00:42.279 year in fixed income. Greg, thank you for joining us. 0:00:42.320 --> 0:00:46.280 Just as you rewrite the twelve thirty one outlook for PIGIM, 0:00:46.360 --> 0:00:49.120 you do this on March thirty one. What do you 0:00:49.320 --> 0:00:54.880 adjust to look forward within a fixed income portfolio? Yeah, so, 0:00:55.000 --> 0:00:59.240 I think what you adjust is the probability of our recession. 0:00:59.400 --> 0:01:03.440 So we were actually reasonably optimistic that the fit could 0:01:03.440 --> 0:01:07.120 achieve a soft landing as still possibility Tom, for sure, 0:01:07.240 --> 0:01:12.080 but I think the probability of a recession is much 0:01:12.120 --> 0:01:16.480 higher today, just given what's occurring in the banking space. 0:01:16.720 --> 0:01:20.080 So you know, I think the theme that continues from 0:01:20.160 --> 0:01:23.640 last year into this year is one of uncertainty that 0:01:23.720 --> 0:01:28.199 you basically have a set of scenarios and bimodal trimodal 0:01:28.240 --> 0:01:31.600 type of outcomes and makes it a very difficult space 0:01:31.760 --> 0:01:36.400 to navigate. And I think as a consequential see volatility 0:01:36.480 --> 0:01:41.160 quite pa which actually great opportunities at the same time. 0:01:41.200 --> 0:01:44.040 So it's one of these things with overall macro pictures cloudy, 0:01:44.080 --> 0:01:46.679 but we're seeing a lot of opportunities within the space. 0:01:46.920 --> 0:01:49.560 Greg Peters, a global law Street wants to know from you, 0:01:49.800 --> 0:01:51.800 and I guess it's pjam in general. But let's go 0:01:51.840 --> 0:01:55.320 to Greg Peters, what's the new duration forward? I mean, 0:01:55.360 --> 0:01:59.000 what point? And the maturity curve is a comfortable place 0:01:59.080 --> 0:02:06.200 to be given endless algebraic epsilon given the reality of uncertainty. Well, 0:02:06.280 --> 0:02:09.120 so you know, it is continued on your outlook, of course, 0:02:09.240 --> 0:02:13.280 but I do believe that rates are too high over 0:02:13.320 --> 0:02:19.760 the medium long term that will be remedied over time. Effectively, 0:02:19.800 --> 0:02:23.720 if you're worried about a recession, then adding duration, having 0:02:24.080 --> 0:02:27.000 risk out the curve via duration is a very good 0:02:27.000 --> 0:02:29.560 place to be and The question you have to ask 0:02:29.600 --> 0:02:33.200 yourself as an investor is do you think the tenure 0:02:33.320 --> 0:02:35.640 yield will be this called three and a half percent 0:02:35.760 --> 0:02:40.200 five years forward? Three years forward? And if the answer 0:02:40.280 --> 0:02:43.200 is no, I think will be lower than you know 0:02:44.160 --> 0:02:49.200 whether the volatility and ad duration. So what do you 0:02:49.200 --> 0:02:50.560 make greg if you think that rates are going to 0:02:50.600 --> 0:02:53.919 be longer higher? For our brother acts to say, if 0:02:53.960 --> 0:02:55.400 you think that rates are going to be lower for 0:02:55.440 --> 0:02:57.880 a longer period of time, then what is the FED 0:02:57.960 --> 0:02:59.920 getting wrong? How do you push back against the Fed 0:03:00.040 --> 0:03:02.280 to reserve? It keeps saying we're going to keep rates 0:03:02.320 --> 0:03:06.440 elevated and we see inflation as a serious concern. Yeah, 0:03:06.520 --> 0:03:08.880 but inflation is a serious concern. So one of the 0:03:08.960 --> 0:03:13.519 gets the other. So in order to get rates lower 0:03:13.560 --> 0:03:18.040 over time, central banks have to be viewed as inflation fighters. 0:03:18.080 --> 0:03:22.440 If they lose that credibility and then rates will just 0:03:22.720 --> 0:03:26.239 naturally rise. So one big gets the other Lisa, And 0:03:26.320 --> 0:03:29.240 so it's really critical for the FED and other central 0:03:29.240 --> 0:03:34.280 banks to be viewed as vigilant around inflation because credibility 0:03:34.680 --> 0:03:37.960 is based off that, and if central banks lose that credibility, 0:03:38.120 --> 0:03:41.720 they lose the ability to actually kind of manage the 0:03:41.800 --> 0:03:44.600 yield curve if you would, so, so it's really important 0:03:44.640 --> 0:03:46.640 to get it right or the near term and if 0:03:46.680 --> 0:03:52.520 anything air on the side of you know, reducing eliminating 0:03:52.520 --> 0:03:56.800 inflation in the system, I think that's a job number one. Okay. 0:03:56.800 --> 0:03:59.320 So given that, do you think that rates are too 0:03:59.440 --> 0:04:01.880 high on the longer end or on the shorter end? 0:04:01.920 --> 0:04:03.920 In other words, do you think that this market has 0:04:03.920 --> 0:04:07.400 been overly aggressive with pricing out rate hikes and basically 0:04:07.440 --> 0:04:09.720 saying to the Fed you're done and oh yeah, you're 0:04:09.720 --> 0:04:11.720 going to cut rates by almost one hundred basis points 0:04:11.720 --> 0:04:14.640 in the next twelve months. I do. I think the 0:04:14.800 --> 0:04:18.520 markets are way too optimistic around the notion of rate cuts. 0:04:19.200 --> 0:04:23.720 To me, I don't see that playing out precisely because 0:04:23.800 --> 0:04:26.640 inflation remains quite high. So I don't see the scope 0:04:26.680 --> 0:04:31.080 for central banks, namely the FED here cutting rates in 0:04:31.160 --> 0:04:35.400 the manner that the markets are suggesting. So that seems 0:04:35.440 --> 0:04:39.760 oft to me, quite frankly, and we're leaning against that notion, 0:04:39.839 --> 0:04:44.400 so we don't necessarily see the rate cuts being pricings 0:04:44.520 --> 0:04:47.599 the market coming to fruition. So that's one error the 0:04:47.600 --> 0:04:52.159 market that we think it's completely are. So based on 0:04:52.200 --> 0:04:54.839 what you're saying, which is a short end rates it 0:04:54.880 --> 0:04:56.880 could stay high and even be much higher, and long 0:04:57.000 --> 0:05:00.279 term rates could fall much lower. We're talking about really 0:05:00.320 --> 0:05:03.559 substantial inverted yield curve, perhaps even more than a hundred 0:05:03.560 --> 0:05:08.200 basis points that we saw earlier this year. Is that correct, Greg? Yeah, 0:05:08.240 --> 0:05:11.800 so I think that is the path forward unless you 0:05:11.920 --> 0:05:17.840 really get this harsh recession with inflation coming down pretty 0:05:17.960 --> 0:05:21.400 rapidly than I expect the yield curve to remain inverted 0:05:21.880 --> 0:05:25.720 and continue to get even more inverted. So I still 0:05:25.760 --> 0:05:29.680 have this triple digit target between two tens. I think 0:05:29.720 --> 0:05:34.680 that's where where we land, and that's what we're forecast. Well, yeah, 0:05:34.680 --> 0:05:37.640 I got four questions, Greg, but no time for it. 0:05:37.760 --> 0:05:40.599 Where's the ten year yield a year from now off 0:05:40.640 --> 0:05:45.000 of that triple digit inverted curve? I think there's a 0:05:45.120 --> 0:05:49.400 very good chance that, you know, the tenure just kind 0:05:49.400 --> 0:05:52.760 of moves around, you know, plus or minus twenty basis points. 0:05:52.760 --> 0:05:54.880 So I don't see at this point in time given 0:05:54.960 --> 0:05:58.320 the data, and you guys mentioned how we're so data dependent, 0:05:58.640 --> 0:06:00.640 so it makes it hard to port. But I don't 0:06:00.680 --> 0:06:03.680 really see your radical shift over the near term twelve months. 0:06:04.200 --> 0:06:06.680 But on the ten year part of the firm unless 0:06:06.839 --> 0:06:11.520 you get a real change in the economy, including inflation. 0:06:11.720 --> 0:06:14.400 So those are the big caveats. Of course, Greg Peters, 0:06:14.440 --> 0:06:17.279 thank you so much. With PGIM and PJAM fixed income. 0:06:22.279 --> 0:06:25.440 He is with Renaissance Macro. He is aware we moved 0:06:25.480 --> 0:06:28.359 from an Atlanta GDP NOW number of three point x 0:06:28.440 --> 0:06:32.280 percent under two percent as well, the world turning against 0:06:32.279 --> 0:06:35.120 the optimism of Neil Datta. Neil Dutta, do you like 0:06:35.240 --> 0:06:40.400 the Atlanta GDP NOW statistic? Is it a value? Oh? 0:06:40.480 --> 0:06:45.320 Of course it's a value, Tom. But like anything, your 0:06:45.360 --> 0:06:50.240 assumptions drive your conclusions, and the Atlanta FED number had 0:06:50.279 --> 0:06:53.760 a sharp downward revision yesterday because of the ism manufacturing 0:06:53.880 --> 0:06:59.279 PMI now. The ism manufacturing PMI last I check doesn't 0:06:59.279 --> 0:07:04.320 formally get looked into the GDP calculation. So it's important 0:07:04.360 --> 0:07:06.960 to remember that the GDP NOW estimate is not a 0:07:07.120 --> 0:07:11.800 pure GDP sort of beam counting exercise. Um what does 0:07:11.840 --> 0:07:14.480 go into GDP, by the way, is unit auto sales. 0:07:14.480 --> 0:07:16.280 And auto sales came in a little bit better than 0:07:16.320 --> 0:07:21.320 expected in March, and that tells me that motor vehicles 0:07:22.800 --> 0:07:25.400 consumption on motor vehicles will be a significant boost to 0:07:25.920 --> 0:07:30.720 first quarter GDP and remember that because of the ISM number, 0:07:30.800 --> 0:07:33.000 the Atlanta fe has, you know, had a sharp down 0:07:33.040 --> 0:07:36.720 revision to their durable goods consumption estimates for Q one, 0:07:36.880 --> 0:07:39.600 So you know, it's important to kind of understand how 0:07:39.640 --> 0:07:42.440 these numbers work as opposed to just sort of finally saying, 0:07:42.480 --> 0:07:45.480 look it's down. You know that's not right. It's not 0:07:45.520 --> 0:07:48.840 that easy. Well, we appreciate the analysis of it versus 0:07:48.880 --> 0:07:52.120 it's down or it's up as well. What is the 0:07:52.240 --> 0:07:55.560 state of the American consumer? Now, there's so many cross currents, 0:07:55.640 --> 0:08:01.000 many of us witnessing packed airplanes, buoyant travel, and yet 0:08:01.120 --> 0:08:06.200 real worry about different deciles of the American people. What 0:08:06.400 --> 0:08:10.680 is the state of that consumer? Well, I think the 0:08:10.720 --> 0:08:13.640 most important thing is that the real incomes have been 0:08:13.640 --> 0:08:17.600 climbing and ultimately that is going to plant the seeds 0:08:17.600 --> 0:08:20.760 of future consumer spending. To me, it's really that straightforward. 0:08:21.800 --> 0:08:25.320 And I expect real consumer spending real incomes to continue 0:08:25.320 --> 0:08:28.840 climbing into the second quarter. Remember, natural gas prices have 0:08:28.960 --> 0:08:32.160 come down. That's going to bleed into household utility bills 0:08:32.160 --> 0:08:34.880 over the second quarter. Given the state of the labor market, 0:08:34.960 --> 0:08:39.560 which is still okay, that's going to mean stronger real 0:08:39.559 --> 0:08:42.040 income growth in the second quarter, which will in turn 0:08:42.080 --> 0:08:46.480 support real consumer spending. So I know there's a lot 0:08:46.480 --> 0:08:49.480 of angst around the consumer. And you know, we've gone 0:08:49.559 --> 0:08:54.760 from kind of talking about weird seasonal adjustment factors. Maybe 0:08:54.760 --> 0:08:57.000 it was the warm weather, but you know, at the 0:08:57.120 --> 0:09:00.480 end of the day, when you look at consumer spending 0:09:00.480 --> 0:09:05.040 relative to where it was for the pandemic, it's off 0:09:05.040 --> 0:09:07.720 the charts. So I think the Bears still have a 0:09:07.760 --> 0:09:10.760 lot of explaining to do, and you know, I don't 0:09:10.800 --> 0:09:13.080 really think the consumer is about to fall off the 0:09:13.080 --> 0:09:15.240 cliff here. Well, Neil, we've got to make note here 0:09:15.240 --> 0:09:17.920 you've been dead on about the lack of recession and 0:09:17.920 --> 0:09:21.160 the resiliency of the American consumer. The zeitgeist right now, 0:09:21.200 --> 0:09:24.400 Neil Datta is you know, off Adam two's's essay in 0:09:24.440 --> 0:09:28.319 the Financial Times is a new respect for nominal GDP, 0:09:28.520 --> 0:09:32.320 which is at real GDP with a movable dynamic of 0:09:32.360 --> 0:09:36.560 inflation overlaid on top of it. Now you've got nominal GDP, 0:09:36.760 --> 0:09:40.280 you've got incomes, whether real or top line, and then 0:09:40.280 --> 0:09:43.880 it boosts right into corporate revenues as well, maybe giving 0:09:43.960 --> 0:09:47.640 us a buoyant stock market. What does nominal GDP do 0:09:48.040 --> 0:09:51.680 over the next nine months. I think the underlying trend 0:09:51.679 --> 0:09:54.320 of nominal growth is around five to six percent, which 0:09:54.360 --> 0:09:57.800 makes you know, these sort of calls that basically overlay 0:09:57.960 --> 0:10:02.120 like corporate earnings over on the im sort of pointless. 0:10:02.240 --> 0:10:05.959 I mean, um, it's all in the market. I mean 0:10:06.000 --> 0:10:08.240 the sort of earnings recession that the bears have kind 0:10:08.280 --> 0:10:09.959 of been talking about. I mean, to me, it's very 0:10:10.000 --> 0:10:13.400 difficult to get a steeper earnings recession from this at 0:10:13.440 --> 0:10:16.640 this point, because nominal incomes are running, nominal growth is 0:10:16.720 --> 0:10:19.400 running five to six percent. At the same time, keep 0:10:19.440 --> 0:10:21.560 in mind that the dollar is off about six and 0:10:21.559 --> 0:10:25.920 a half percent over the last six months or so. 0:10:26.840 --> 0:10:29.880 That's also a teal one for corporate earnings. And importantly, 0:10:29.880 --> 0:10:31.800 in my world, it's a it's a tale went for 0:10:31.840 --> 0:10:34.920 real export activity over the next year. So, um, a 0:10:34.960 --> 0:10:37.800 lot of what's traded in the markets are you know, 0:10:37.920 --> 0:10:40.640 large multinationals that do a lot of business overseas. And 0:10:40.679 --> 0:10:43.120 if the global economy is looking a bit better than 0:10:43.120 --> 0:10:44.960 it did last year, and which I think is really 0:10:44.960 --> 0:10:49.559 frankly undeniable, then then that's gonna that's gonna bleed into 0:10:49.559 --> 0:10:52.560 corporate earnings, which should support you know US equity price. 0:10:52.840 --> 0:10:54.840 Now done to one more question, we've better run after 0:10:54.880 --> 0:10:58.960 Brussels here in the historic moment for Europe. But first 0:10:59.240 --> 0:11:02.880 to you, finally here on the fed derby all of 0:11:02.880 --> 0:11:06.040 the gloom that's out there, the FED has to adapt 0:11:06.120 --> 0:11:11.120 in a responsible, data dependent way. What data matters for 0:11:11.200 --> 0:11:15.600 them on the road to May. Third, Well, I mean 0:11:15.640 --> 0:11:18.080 this is going to sound, you know, pretty obvious, I think, 0:11:18.120 --> 0:11:21.440 But to me it's it's employment and inflation. And remember 0:11:21.480 --> 0:11:23.720 we only get one jobs number between now and the 0:11:23.760 --> 0:11:26.920 May meeting, and I think that's really not enough time 0:11:26.960 --> 0:11:29.199 for them to assess the fallout from what we saw 0:11:30.040 --> 0:11:32.679 in the middle of March with the banking stresses that 0:11:32.679 --> 0:11:37.200 that flared out. Now that being said, the consensus and 0:11:37.280 --> 0:11:40.640 the FED are assuming a sudden stop in the economy. 0:11:41.160 --> 0:11:44.000 Recession is imminent. We're about to fall off the cliff. 0:11:44.040 --> 0:11:45.280 I mean, these are the sort of things that you 0:11:45.320 --> 0:11:49.200 hear about, you know, from the consensus economics community. I 0:11:49.320 --> 0:11:53.960 utterly reject that view. I think the economy is not collapsing. 0:11:54.120 --> 0:11:58.360 We're probably growing at potential, and that's going to mean 0:11:58.360 --> 0:12:00.440 that the unemployment rate is not going to rise in 0:12:00.440 --> 0:12:05.079 a way that everyone expects and that ultimately leaves inflation 0:12:05.200 --> 0:12:10.960 I think unresolved, frankly, and that's why I think, you know, 0:12:11.080 --> 0:12:13.520 give it till June. We got a couple more jobs numbers. 0:12:13.520 --> 0:12:15.840 At that point we'll see that, you know, we're still 0:12:15.840 --> 0:12:18.920 cranking out a number of jobs, and ultimately I think 0:12:19.000 --> 0:12:20.920 that's going to mean the next FED move will be 0:12:20.920 --> 0:12:23.000 a hike. Neil Dada, thank you so much for joining 0:12:23.080 --> 0:12:24.880 us too brief a visit this morning. He is with 0:12:25.000 --> 0:12:39.360 Renaissance and Macro Research. She's been a resilient bull Lean 0:12:39.440 --> 0:12:43.520 forward and listen to Barbara Reinhard of Voya Investment Management. 0:12:43.600 --> 0:12:45.440 Are you still bullish? You have to the move off 0:12:45.440 --> 0:12:48.240 of October? We are. We still bullish because we believe 0:12:48.360 --> 0:12:52.920 that the SPB banking crisis really gave the central banks 0:12:52.920 --> 0:12:56.680 an opportunity to reassess they have muscle memory on what 0:12:56.720 --> 0:12:59.920 a systemic crisis looks like. While the FED raised race 0:13:00.040 --> 0:13:02.199 said its last meeting, we think this gives it an 0:13:02.200 --> 0:13:05.559 opportunity to slow down some of its hawkishness, who were 0:13:05.640 --> 0:13:08.680 only talking about fifty basis points hyke just a month ago. 0:13:09.480 --> 0:13:12.040 They only did twenty five. And you're seeing some relief 0:13:12.080 --> 0:13:15.280 on inflation, Jamie Diamond in his letter this morning, and 0:13:15.320 --> 0:13:17.360 I've just skimmed through it, folks, We're all right, you know, 0:13:17.559 --> 0:13:20.079 I'll go and read the whole thing tonight over a 0:13:20.120 --> 0:13:23.600 beverage of my choice. Mister Diamond says, maybe with SVB 0:13:24.120 --> 0:13:26.720 we have some form of and these are my own words, 0:13:26.760 --> 0:13:31.360 paradigm shift. How do you shift your equity investment given 0:13:31.400 --> 0:13:34.960 the shock that we had systemically. It may seem peculiar, 0:13:35.040 --> 0:13:37.240 but you know what, the big rally off of the bottom, 0:13:37.240 --> 0:13:40.760 it was participated on very strongly by the international equity markets, 0:13:40.840 --> 0:13:44.840 so developed international Europe and emerging markets were some of 0:13:44.840 --> 0:13:47.240 the big gainers off of that bottom of the October low. 0:13:47.640 --> 0:13:49.880 But what we saw in March, we think is an 0:13:49.880 --> 0:13:53.520 important shift. The US outperformed the rest of the world, 0:13:53.559 --> 0:13:56.520 and pretty strongly. So we think that the seven hundred 0:13:56.520 --> 0:13:59.760 basis points of the international markets outperformance of the US 0:14:00.080 --> 0:14:03.280 the past year is largely behind us, and we think 0:14:03.280 --> 0:14:05.040 it's going to be the US that's going to be 0:14:05.080 --> 0:14:08.800 the leader going forward. Barbara, what data are you looking 0:14:08.840 --> 0:14:11.200 at the suggests that the US is doing so much 0:14:11.280 --> 0:14:13.760 better than other nations? And I ask this because George 0:14:13.760 --> 0:14:16.000 Saravellos over at Deutsche Bank put out a note saying 0:14:16.400 --> 0:14:19.600 that European wages are outpacing those in the US for 0:14:19.600 --> 0:14:21.800 the first time in more than a decade. Right, Well, 0:14:21.800 --> 0:14:24.280 that's the thing is, it gives the opportunity, the slowing 0:14:24.280 --> 0:14:27.160 inflation scenario that you have in the US gives the 0:14:27.280 --> 0:14:30.560 central Bank the opportunity to slow their rate hikes even 0:14:31.040 --> 0:14:34.840 possibly pause at their next meeting, and that means that 0:14:34.880 --> 0:14:37.040 the US is likely to be one of those first 0:14:37.080 --> 0:14:39.280 in to fight inflation and one of the first ones 0:14:39.640 --> 0:14:43.120 also to start pausing and then potentially cutting sometime in 0:14:43.120 --> 0:14:46.840 the next year. Remember that first rate pause. When the 0:14:46.880 --> 0:14:50.720 Fed pauses, there's usually a very big counter trend rally 0:14:51.160 --> 0:14:55.840 in equities. You have that also coincidence with very high 0:14:55.880 --> 0:14:59.400 cash levels at mutual funds and also somewhat depress sentiment, 0:14:59.600 --> 0:15:02.400 and it is a very important kind of push forward 0:15:02.440 --> 0:15:06.440 for equities, likely onto new highs. Barbara, I absolutely love 0:15:06.480 --> 0:15:08.960 how you troll all the bears out there and successfully 0:15:09.000 --> 0:15:12.080 because frankly, you have been right basically saying, what's been 0:15:12.080 --> 0:15:14.160 the biggest pain trade since last October? The answer is 0:15:14.200 --> 0:15:16.960 being short stocks for long cash. What do you think 0:15:17.480 --> 0:15:19.440 is going to be the leadership here. Is it going 0:15:19.520 --> 0:15:22.480 to continue to be tech on the heels of that pause, 0:15:22.680 --> 0:15:24.200 or is it going to be broad based? Is this 0:15:24.360 --> 0:15:28.040 really something more holistic and longer lasting. Look, for sure, 0:15:28.080 --> 0:15:29.840 there are parts of the market that are more affected 0:15:29.840 --> 0:15:31.920 by SVB than others. Right there's going to be a 0:15:31.960 --> 0:15:35.800 continued tightening of credit conditions that affects US smallcaps, US 0:15:35.880 --> 0:15:38.400 midcaps much more than it does large caps. But I 0:15:38.440 --> 0:15:41.080 would say they've been so beaten down at this point, 0:15:41.480 --> 0:15:44.000 you're likely to see a broadening out of the equity market. 0:15:44.040 --> 0:15:46.240 And it's going to broaden out from leadership, not only 0:15:46.280 --> 0:15:49.000 from US growth, but take some of the other parts 0:15:49.000 --> 0:15:52.160 of the market, likely the lower cap size along with it. 0:15:52.480 --> 0:15:54.760 I think it's difficult to mount the sustainable rally in 0:15:54.800 --> 0:15:58.560 the early cyclicles at this point, but we do think 0:15:58.560 --> 0:16:01.920 that it's likely indeed to have a very much bigger, 0:16:02.000 --> 0:16:05.480 broader base in terms of capsize. I want to address 0:16:05.520 --> 0:16:07.880 this from Jamie Diamond's letter released an hour ago. I 0:16:07.920 --> 0:16:10.200 assume you did not get an advanced copy. Now I 0:16:10.240 --> 0:16:13.040 did not. There's a banking Numbers's joke, folks, there's a 0:16:13.120 --> 0:16:16.760 banking numbers as well, and down at the bottom. It 0:16:16.200 --> 0:16:21.000 was the next Secretary of Treasury talking about policy, diplomacy 0:16:21.000 --> 0:16:24.040 and that, and in the middle he says, there are 0:16:24.080 --> 0:16:26.800 storm clouds ahead because of the shock we had from 0:16:26.960 --> 0:16:30.720 SVB deposit flows and things. Maybe we don't know right now. 0:16:31.280 --> 0:16:33.720 How do you stay a bull? How do you stay 0:16:33.720 --> 0:16:37.320 in the market on a Friday afternoon? If mister Diamond 0:16:37.320 --> 0:16:40.320 and you suggest there are storm clouds ahead, there are 0:16:40.360 --> 0:16:43.240 always storm clouds ahead. Right You've had this expansion going 0:16:43.240 --> 0:16:45.720 for quite some time in the US if you count 0:16:45.760 --> 0:16:49.760 that the COVID reset in the COVID recession that we 0:16:49.800 --> 0:16:54.800 had wasn't necessarily a classic business cycle contraction. So yes, 0:16:54.960 --> 0:16:57.720 we're further along in the cycle, but there's always storm 0:16:57.720 --> 0:17:00.280 clouds ahead. When you have a five hundred basis point 0:17:00.280 --> 0:17:03.480 tightening in rates like you've had from the Fed over 0:17:03.480 --> 0:17:06.440 the past year, things start to break. We've had things 0:17:06.480 --> 0:17:09.560 breaking for over a year. However, if you do not 0:17:09.680 --> 0:17:12.680 believe the recession is upon us in the next six months, 0:17:12.720 --> 0:17:15.440 and we do not think that there is, equity markets 0:17:15.440 --> 0:17:17.440 tend to do very well in the year up to 0:17:17.560 --> 0:17:21.520 your recession. The raging theme over the weekend, Adam two 0:17:21.640 --> 0:17:24.359 is leading a debate in the FT is the power 0:17:24.359 --> 0:17:30.720 of nominal GDP. Does an inflation juicd nominal GDP mean 0:17:30.760 --> 0:17:34.040 a surprise and revenue growth for American corporations, Well, it 0:17:34.080 --> 0:17:37.040 makes everybody feel better to have faster GPP growth, right. 0:17:37.320 --> 0:17:40.080 The margin compression story is a real concern, of course 0:17:40.080 --> 0:17:43.240 in the US, But we do believe that there's enough 0:17:43.680 --> 0:17:45.760 that the Fed's going to be able to pause, that 0:17:45.840 --> 0:17:49.399 they've done enough to get inflation under control. And you 0:17:49.400 --> 0:17:51.520 start to see it. You had a much better core 0:17:51.560 --> 0:17:54.560 PC number that was just released, and if you had 0:17:54.840 --> 0:17:58.600 and in South Korea today we saw disinflation there as well, exactly, 0:17:58.640 --> 0:18:00.280 So it could be a world that's going to be 0:18:00.320 --> 0:18:03.560 a wash in slowing inflation at least through the second 0:18:03.600 --> 0:18:06.080 quarter of this year. What we're gonna do here, folks, 0:18:06.119 --> 0:18:08.400 is through all of twenty twenty three, we're gonna put 0:18:08.400 --> 0:18:11.240 Bramo and Reinhard on the desk together here to have 0:18:11.840 --> 0:18:15.560 a dueling debate on the tone of our economic polity 0:18:16.359 --> 0:18:26.360 moving forward. Barbara Reinhard is with Voi Investment Management this morning. 0:18:26.560 --> 0:18:29.800 Where our heads are spinning home in a way. It's 0:18:29.800 --> 0:18:32.760 the name of his new sub stack effort. Richard hass 0:18:32.840 --> 0:18:35.120 joins us on the home and the way, Richard, Let's 0:18:35.160 --> 0:18:37.440 go to the away first. And the way is what 0:18:37.520 --> 0:18:39.600 you when you were at Oberlin a million years ago, 0:18:40.119 --> 0:18:43.360 you were falling asleep on a two pm Thursday afternoon, 0:18:43.760 --> 0:18:47.560 and somebody said, Finland will forever remain neutral. And here 0:18:47.600 --> 0:18:50.359 you and I are looking at Finland to enter NATO. 0:18:50.520 --> 0:18:53.800 How did we get here? Oh, if you had asked 0:18:53.800 --> 0:18:55.320 me that when I was in college, I would have 0:18:55.320 --> 0:18:58.440 said the Cold War was permanent. So much has happened 0:18:58.840 --> 0:19:02.160 that I didn't quite anticipate. I think this is part 0:19:02.200 --> 0:19:06.480 of the unintended consequence of mister Putin's war. People thought 0:19:06.520 --> 0:19:11.320 after the Cold War ended, NATO lacked a rationale. It's one. 0:19:11.480 --> 0:19:14.959 It's old rationale has come back on stilts. And the 0:19:15.000 --> 0:19:17.879 fact that Finland is in NATO, Sweden's moving in that 0:19:17.960 --> 0:19:21.000 direction again. This is what mister Putin has wrought. We 0:19:21.119 --> 0:19:23.080 never could have done it, shall we say? Without him? 0:19:23.680 --> 0:19:25.679 When I look at the map and I don't have 0:19:25.760 --> 0:19:27.800 it in front of me, folks, you know I flunked 0:19:27.800 --> 0:19:30.920 finished geography. But if you come down to the bottom 0:19:31.000 --> 0:19:34.479 near Helsinki and you move over to the east, NATO 0:19:34.720 --> 0:19:38.160 is not all that far from Saint Petersburg, is it? 0:19:38.160 --> 0:19:43.880 It's remarkable we worried about Ukraine being close Condoleeza, Rice, Bill, 0:19:44.240 --> 0:19:48.320 Robert Gates and others pushing back on Ukraine and NATO. 0:19:48.760 --> 0:19:53.120 My word, NATO to Saint Petersburg now is a quick ride, Ambassador, 0:19:53.200 --> 0:19:56.480 isn't it that? And you've also got far more a 0:19:56.560 --> 0:20:00.640 border for Russia to worry about again. Strategically, this makes 0:20:00.720 --> 0:20:03.720 zero sense. I think what it shows from Plutin's point 0:20:03.720 --> 0:20:05.639 of view, either he didn't see this happening, or if 0:20:05.640 --> 0:20:08.080 he did, he didn't much care. Tom he puts he's 0:20:08.119 --> 0:20:11.040 put so much of an emphasis on Ukraine, he's in 0:20:11.080 --> 0:20:14.800 some ways rolled the dice. His own presidency depends upon it. That. 0:20:15.000 --> 0:20:17.480 My guess is, whatever costs he has to pay, whether 0:20:17.480 --> 0:20:21.880 it's manpower, economically, strategically, he's prepared to pay because he's 0:20:21.880 --> 0:20:25.040 put at risk his own political future and the future 0:20:25.080 --> 0:20:28.240 of authoritarian Russian Chris, thank you for the headline. Across 0:20:28.280 --> 0:20:33.320 the Bloomberg Terminal. Finland officially joins NATO is thirty first member. 0:20:33.520 --> 0:20:36.280 Maria too is in Brussels and will be looking for 0:20:36.400 --> 0:20:39.320 ceremony there. I believe in the next hour let us 0:20:39.359 --> 0:20:42.360 turn home of your home and away sub stack effort. 0:20:42.520 --> 0:20:46.680 Retired Ambassador hass Here from the Council on Ford Relations. 0:20:47.040 --> 0:20:49.200 The home event, Well, I've got to go down Fifth 0:20:49.280 --> 0:20:52.920 Avenue plass Trump Tower, and maybe down into Center Street 0:20:52.960 --> 0:20:56.520 as well. Your comments on the bills and the obligations, 0:20:56.520 --> 0:21:01.200 the obligations Richard, the president Trump has to this process 0:21:01.240 --> 0:21:06.000 of indictment and arrangement. Well, Tommy, it's more than an 0:21:06.040 --> 0:21:10.359 obligation to follow the law. Obligations or things you should 0:21:10.359 --> 0:21:12.479 do but don't have to do. And Donald Trump has 0:21:12.520 --> 0:21:17.640 been a serial violator of obligations. The idea of norms, 0:21:17.680 --> 0:21:21.160 the peaceful transfer of political power, the most basic defining 0:21:21.240 --> 0:21:26.760 norm of American democracy. He violated that. Civility he violates 0:21:26.760 --> 0:21:31.720 on a daily basis, is signaling about political violence. Another 0:21:31.960 --> 0:21:35.000 violation the idea of putting country before party or person. 0:21:35.440 --> 0:21:37.639 I would say, in many ways, his whole career is 0:21:37.640 --> 0:21:41.120 a violation of that obligation. The law, though, is something else, 0:21:41.119 --> 0:21:43.400 so we have a system for dealing with it. That's 0:21:43.400 --> 0:21:46.840 why we have courts and the light. Obligations though, or 0:21:46.920 --> 0:21:49.800 something citizens have to insist upon, and that brings it 0:21:49.840 --> 0:21:52.119 all back to the ballot Box. He could well be 0:21:52.200 --> 0:21:55.360 the Republican nominee. I think what this indictment has done 0:21:55.359 --> 0:21:58.679 in some ways is frozen the other Republican candidates. It 0:21:58.760 --> 0:22:02.240 increases the odds Nonald Trump is the Republican nominee. And 0:22:02.359 --> 0:22:05.840 let's be brutally honest. If Donald Trump is the Republican nominee, Tom, 0:22:05.880 --> 0:22:07.919 he's one of the two most likely people to be 0:22:07.960 --> 0:22:11.480 the next president of the United States. Richard Hass I 0:22:11.480 --> 0:22:13.439 don't want to be inflammatory here, and I want to 0:22:13.440 --> 0:22:16.760 take the arc up to eighteen sixty. It can be Kansas, 0:22:16.800 --> 0:22:20.119 Nebraska and the rest. But there's a mood there now 0:22:20.280 --> 0:22:23.520 of disunion of a nation. Not that would break up. 0:22:23.560 --> 0:22:26.040 I just don't want to go there, but of this 0:22:26.280 --> 0:22:30.280 absolute polarization we see with the president former president's poll 0:22:30.400 --> 0:22:34.960 ratings and such, with your people at CFR, how close 0:22:35.119 --> 0:22:40.360 are we to a dialogue of disunion, if not outright disunion. 0:22:41.560 --> 0:22:44.240 I'm not worried about formal disunion. I agree with you, Tom, 0:22:44.320 --> 0:22:47.720 but we already have very shepherd Americas. The red versus 0:22:47.720 --> 0:22:51.000 blue look at life expectancy, the differences between red and 0:22:51.080 --> 0:22:54.119 blue states. You look at him. People now are really 0:22:54.160 --> 0:22:58.240 separated by geography, by religion by what cable shows they watch. 0:22:58.520 --> 0:23:02.160 That really worries me. Increasingly America, which is a country 0:23:02.200 --> 0:23:05.440 founded on ideas, we no longer have a common set 0:23:05.440 --> 0:23:07.840 of ideas. It's one of the many prices we pay 0:23:07.920 --> 0:23:12.200