Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Terminal. Dragging himself back
Speaker 1: from Hong Kong, Stephen Major joins us now with HSBC
Speaker 1: Global Head of Fixed Income Research, and we're thrilled he
Speaker 1: could join Bloomberg in our New York studios. Forget about
Speaker 1: all the market talk here. What is the experience of
Speaker 1: living in Hong Kong under quarantine? It's it's getting easier,
Speaker 1: much easier, And uh, I can't wait to go back
Speaker 1: because we're we're we're free now that there is no quotantine.
Speaker 1: So I've I've done my time. Now. You think they
Speaker 1: can salvage their relationship. I don't want to get you
Speaker 1: in trouble. They just be management. But you are optimistic
Speaker 1: they can salvage their relationship with Western banks to stay
Speaker 1: a financial capital. Yeah, I think I think all the
Speaker 1: moves have in place. In November is a big month.
Speaker 1: People are going there. Yes, we're thrilled to join us
Speaker 1: for this entire half hour. You are known as someone
Speaker 1: that has said price up and yield will stay down.
Speaker 1: We've seen a major adjustment here. What is the new
Speaker 1: major look on how yield finally crawls lower and price higher?
Speaker 1: When do we get there? Don't you have a show
Speaker 1: called real Yield? Is that one of John's one? And
Speaker 1: you're doing it? At least it's relevant now because because
Speaker 1: you actually do have a real real you know it's
Speaker 1: relevant because Lisa's doing it and John's not doing Actually, yeah,
Speaker 1: let's have fun at John's expense. Seven continue, Mr Major.
Speaker 1: But but if you can get real yield anywhere near
Speaker 1: two percent, that covers real GDP. So if you're building
Speaker 1: a portfolio from scratch, and you know this is without
Speaker 1: being an cumbered by all of the carnage markets that
Speaker 1: last few months, if you're building from scratch, two real
Speaker 1: yield covers GDP in the longer run. So we don't
Speaker 1: know where inflation is, it seems to be a good
Speaker 1: place to start building a portfolio with a real yield
Speaker 1: close to So let's just put this into something that's
Speaker 1: very clear. Do you see ten your yields at four
Speaker 1: point three percent in the US see screaming by load
Speaker 1: up because we are not going to see yields like
Speaker 1: this again. Ye. Well, fortunately I work with some professionals
Speaker 1: who contained my enthusiasm because I would have been buying
Speaker 1: every week, right. So, um, that's why I'm not a trailer.
Speaker 1: But the point is that the valuations today show a
Speaker 1: very strong recency bias. I mean, I can honestly believe
Speaker 1: that yields will keep going up in the near term,
Speaker 1: but but you could also build a plausible scenario that
Speaker 1: there's a hard landing and that yields should be less
Speaker 1: than two percent. You can build that scenario. The question
Speaker 1: is what waiting do you put on it? Right, So
Speaker 1: at the moment, we're pricing a very high probability of
Speaker 1: the FED going to five and staying there forever, which
Speaker 1: that doesn't seem plausible. Well, a lot of people well,
Speaker 1: and this is something that I was really excited that
Speaker 1: you were coming on to push against. What I'm hearing
Speaker 1: increasingly is that there is a stickier, more pervasive inflation
Speaker 1: over the long term, and at the FED funds rate
Speaker 1: is not going to go below two percent anytime in
Speaker 1: the next decades simply because of the de globalization or
Speaker 1: the localized globalization, some of the population trends, and some
Speaker 1: of these other macro factors. I don't think the longer
Speaker 1: term picture has changed, Lisa, demographics, debt, wealth in the
Speaker 1: quality that the explanations for low our star have not
Speaker 1: have not reversed. I think you can give me some
Speaker 1: arguments that may be under right or underpin the arstar,
Speaker 1: but not reverse it. I don't think you can reverse
Speaker 1: the pre the pre pandemic trend just to quickly follow
Speaker 1: onto this and do you see where do you think
Speaker 1: we're going to see zero percent rates in the next
Speaker 1: five years. I think you'll get a hard landing, and
Speaker 1: the probability of the market pricing and return to the
Speaker 1: zero cannot be uh ignored. So it's it's all about
Speaker 1: probabilities the markets of pricing rates at five right, so
Speaker 1: the two year yield can be a hundred to a
Speaker 1: hundred and fifty over the current money rate money rate
Speaker 1: in an easing cycle, the two year can be a
Speaker 1: hundred and fifty through the money rate. So so that's
Speaker 1: not happening this week, but sometime next year at the
Speaker 1: market would not be wrong to be pricing in an
Speaker 1: easing cycle at a zillion angles. Here if you're on
Speaker 1: radio Stephen Major, where this with HSBC for this entire
Speaker 1: half hour and the one angle I want to talk about,
Speaker 1: as you mentioned, the breakers that could be there and
Speaker 1: what we're observing right now in the markets, d x
Speaker 1: Y getting up near a one fourteen is with our question.
Speaker 1: The focus at the i m F was on swap lines. Yeah.
Speaker 1: Is it enough of a power in the foreign exchange
Speaker 1: market to see dollars strong where there's a swap line
Speaker 1: demand or a desire for swap lines even if I
Speaker 1: can't get them, And is that enough to make your
Speaker 1: own pile blink? There are a number of economies in
Speaker 1: Asia where there's been a tightness in the funding markets
Speaker 1: recently and looking ahead to year end kind of pictures. Yeah.
Speaker 1: We we had a fire drill with the UK which
Speaker 1: shows what what what lessons did we get from the UK?
Speaker 1: Fast moves are dangerous. It isn't just the level, it's
Speaker 1: a speed right, Um, So I wouldn't be surprised if
Speaker 1: the FED was watching that very closely. Was there a
Speaker 1: point a week or so ago when people were worried? Um?
Speaker 1: You see at the moment what happened in the UK
Speaker 1: wasn't enough to distract the FED from its hawkishness. But
Speaker 1: who's to know if something spills into a market somewhere,
Speaker 1: And in fact, it would be wrong with me to speculate.
Speaker 1: But but there are so many pools of leverage in
Speaker 1: the global economy, so many areas that need to refinance.
Speaker 1: And when the dollar is moving like this and the
Speaker 1: rates are so high that spread it so wide, Um,
Speaker 1: there's going to be some pain. So I don't want
Speaker 1: to come on here and speculate as to where it is.
Speaker 1: But but but you're right, the swap lines are being
Speaker 1: looked at because there's tension. Do we have good data now?
Speaker 1: John burn Murdach. First thing I tweeted out today over
Speaker 1: at the FT with a fabulous essay on the opacity
Speaker 1: of Chinese economic data. Do you feel, sitting at your
Speaker 1: desk in Hong Kong that you have good Pacific room data,
Speaker 1: that you have good global data or the tensions Germaine
Speaker 1: as you see in the swap lind I think, I
Speaker 1: think we're always struggling to catch up Tom and we're
Speaker 1: all experts about l d I now in the UK.
Speaker 1: But we weren't before, were we. Well, we can all
Speaker 1: quote numbers and talk about what happened, but can I
Speaker 1: can I do a shout out to Jordan Rochester number
Speaker 1: just killed it. I found a number of paper from
Speaker 1: four or five years ago on l D I absolutely
Speaker 1: nailed what was going to So we're all experts in
Speaker 1: ld I and we're also all experts in British politics.
Speaker 1: I'm wondering as you talk about the speed, and this
Speaker 1: is something people have been talking about, what happens to
Speaker 1: ten your treasury yields if Japan abandons, perhaps it's PEG
Speaker 1: or has some sort of failed intervention as we see
Speaker 1: almost one one one point nine right now on the dolivers.
Speaker 1: We're trying to game this one out um with the
Speaker 1: with US yields here, if the y c C was changed,
Speaker 1: if there was an iterative shift, it would have much
Speaker 1: less impact than where yields were one year ago. So
Speaker 1: so if Japan had changed its policy, global fixed income
Speaker 1: could have been de anchored a year ago. If if
Speaker 1: they were to do it today, it kind of doesn't
Speaker 1: matter so much because they're going to be adjusting into
Speaker 1: a bigger spread because US yields are so high, compared
Speaker 1: to japan UM. So the Bank of Japan estimates that
Speaker 1: the ten years GB would be around seventy eighty basis
Speaker 1: points if there was no y c C. But we're not.
Speaker 1: This isn't black and white. It's not going to be
Speaker 1: no y c C. It's going to be an iterative shift.
Speaker 1: What you're saying, though, is important, which is we've already
Speaker 1: done a lot of the work to reduce the shock values.
Speaker 1: How quickly the moves can be. Does this mean, perversely
Speaker 1: that you end up with yields higher for longer because
Speaker 1: there isn't some sort of trigger that causes some sort
Speaker 1: of monetary policy to step in higher for longer. Well,
Speaker 1: that's a good one. So is that the opposite of
Speaker 1: lower for longer? Exactly? We saw that for a long time.
Speaker 1: I think that when when when you've had a once
Speaker 1: in a century pandemic and all the other supply side
Speaker 1: shocks that we've had, we shouldn't expect a return in
Speaker 1: the space of a year to what we had before.
Speaker 1: It's a multi year process. I think that three to
Speaker 1: five years out will be back where we were in
Speaker 1: two thousand nine. And what a joy some quiet moments
Speaker 1: here with Stephen Major of HSBC in a very unquiet time.
Speaker 1: My study, and this goes back to Martin Feldstein of Harvard,
Speaker 1: is if these things end stochastically, things move, and they
Speaker 1: don't level, they don't plateaux, they get pointy, they turn
Speaker 1: around in reverse. What is the stochastic event that will
Speaker 1: allow some of the carnage I see on my screen
Speaker 1: to reverse? That's that's right, Tom. I think that it
Speaker 1: might even be a biomodal market. So you've got one
Speaker 1: mode that's got this strong recency bias, and then there's
Speaker 1: the other one that prices in an event. I mean,
Speaker 1: the facts are that the median number of months between
Speaker 1: the last hike and the first cut, based on the
Speaker 1: last seventy years of data, guess what four months? The
Speaker 1: mean is eight. So it's skewed because of the two
Speaker 1: thousand and six two thou eight period. But my point
Speaker 1: is you just just look at the numbers. Once they've
Speaker 1: hit the peak. The market is not wrong to be
Speaker 1: looking over the other side and um, what's the event? Well,
Speaker 1: the UK could have been if the UK event of
Speaker 1: fast moving yields and disruption somehow infected affected the US
Speaker 1: financial markets. And I'm talking here about money markets or
Speaker 1: mortgage markets, or you said swap lines all this stuff.
Speaker 1: Who knows that that makes the head think twice about
Speaker 1: going all the way to five? Or you're living Hong Kong,
Speaker 1: you're living in the the anti science of China. Fine, the
Speaker 1: anti science of monetary policy is Japan. Everyone knows this.
Speaker 1: What are the ramifications to the steve major world? When
Speaker 1: they colpitulate on y c C in some face saving
Speaker 1: form and you get yeah, one to one nine over
Speaker 1: literally a cup of coffee, what happens to the system.
Speaker 1: I don't think you get the shock that you could
Speaker 1: have had if they had changed y SEC a year ago.
Speaker 1: Because of where US yields sit today, they're so far
Speaker 1: above so they can soak up easily a Japanese move.
Speaker 1: I imagine that the Japanese curve would would flatten, so
Speaker 1: it will be a bare flattening because the curve is
Speaker 1: so steep between ten and thirty years now in global
Speaker 1: fixed income that's not gone unnoticed. If you're sitting in Germany,
Speaker 1: you can switch from your local market into j g
Speaker 1: B s and pick up yield because of the curve steepness.
Speaker 1: The hedging hedging, because because Japanese rates have below zero
Speaker 1: at the front end, whereas ECB and FEDER hiking. So
Speaker 1: so you know there are opportunities here in global fixed
Speaker 1: income from the divergence to go to your arch thesis,
Speaker 1: is they manufacture? You know, I'm going to gitoralize here
Speaker 1: in fay a pseudo inflation. Are we essentially going to
Speaker 1: have a stochastic move back tow disinflationary trends and the
Speaker 1: arch major theory, which is some forms of deflation? I
Speaker 1: think so. And from a Japanese perspective, if you've waited
Speaker 1: thirty years to come out of deflation, a couple of
Speaker 1: months of plus two plus three doesn't do it. And
Speaker 1: and that's the Corona approach. We don't know who Coroda's
Speaker 1: replacement is going to be. He or she won't be
Speaker 1: in place until next year. UM, so it's just speculation
Speaker 1: on our part and I feel very much that's all
Speaker 1: we're doing, right or we're trying to game it out anyway.
Speaker 1: And now, folks, we dive into our World Cup coverage,
Speaker 1: we do so that jack fair, which is unfortunate. You
Speaker 1: of course have a global mandate. You're gonna be in
Speaker 1: the Middle East. I guess you're going to attend the
Speaker 1: World Cup. Can you explain to your mortals like me,
Speaker 1: how we see a good product with eighties six degrees
Speaker 1: on the field. It might be a slow game, it
Speaker 1: could be completely different. I'm I'm I'm going to go
Speaker 1: and see some England games. Um, I'm lucky enough to
Speaker 1: get tickets. But I think it's going to be a
Speaker 1: strange World Cup. It's going to be surreal because in
Speaker 1: that kind of heat it will be it will be
Speaker 1: a lot cooler than it is in the summer, obviously,
Speaker 1: but but the game is going to be slower and
Speaker 1: I guess more measured. It's not going to be as
Speaker 1: as crazy as the Premiership because you've seen how fast
Speaker 1: how fast they play in the Premiership. You've seen it yourself.
Speaker 1: And sterling and guilts. Let's let's finish say I've got
Speaker 1: one four's, we've moved a full stick here on sterling
Speaker 1: and this morning one twelve down to one ten eighty seven.
Speaker 1: It's inappropriate for you to comment on the politics, but
Speaker 1: please and the pressures at Governor Bailey faces, well, he's
Speaker 1: he's reiterated the independence and um, I think he's been
Speaker 1: pushed into a bit of a corner. I mean it
Speaker 1: didn't help that the Bank of England was was hiking
Speaker 1: a pace less than the FED before the events in
Speaker 1: Downing Street. Um. But the Bank of England's role is
Speaker 1: quite interesting here because they are buyer of last resort
Speaker 1: and they've shown their ability to do that. And um,
Speaker 1: I think the guilt market has actually calmed down quite
Speaker 1: a lot. And one of the big differences between the
Speaker 1: UK and US is that things can happen very very quickly.
Speaker 1: In the UK, all of those fiscal proposals have basically
Speaker 1: been abandoned. Could you be lying ten through year guilt
Speaker 1: this morning? I think I think you could. I think
Speaker 1: you can start to look at it. And I'm interested
Speaker 1: in how guilts look compared to equities, for example, and
Speaker 1: and there there will be a lot of fund managers
Speaker 1: looking at those relationships and bonds versus equities. It's the
Speaker 1: same in the US. There's there's there's a point when
Speaker 1: you have to start favor bonds with the risky assets.
Speaker 1: And I think that that's ultimately for the Bank of England,
Speaker 1: it's um. Uh. You know, they've got the QT and
Speaker 1: they've got the q E, they've got the policy rates,
Speaker 1: they've got to work with the d m O on
Speaker 1: on patterns of issuance which could which could be modified.
Speaker 1: I think that the worst has passed us now and
Speaker 1: I think we'll probably see a period of calm after
Speaker 1: after the shot. The period of calm will come after
Speaker 1: your view forward for two thousand twenty three. Some a
Speaker 1: theme for two thousand twenty three that we may see
Speaker 1: written by HSBC. Yeah, I'm not gonna front run the
Speaker 1: research because we haven't published. I mean, did you hear that, folks?
Speaker 1: I didn't hear that. We haven't but we haven't even
Speaker 1: sat down. I think we'd be pleased to get to
Speaker 1: the end of this year trying to Stephen Major, thank
Speaker 1: you so much, greatly, greatly, greatly appreciated this morning. He
Speaker 1: is with HSBC and this is what we try to
Speaker 1: do to bring in the conversation on this in settled
Speaker 1: times and decidedly unsettled times um as well. Alicia Levine
Speaker 1: actually joins us here without the star destroyer behind her.
Speaker 1: Alicia Levine, head of Equities and Capital Market Advisory at
Speaker 1: bn Y Melon Wealth Management. What is your view, Alicia,
Speaker 1: and how you view this move upwards and yield? Are
Speaker 1: we watching something break in slow motion, So I don't
Speaker 1: think we're watching anything break. But we shouldn't be surprised
Speaker 1: at this because that last cp I print really said
Speaker 1: it all. Core inflation is now higher today than it
Speaker 1: was in two Forget the top line, it's the core,
Speaker 1: and that's ultimately what central banks are looking at and
Speaker 1: what the FED is looking at, and that's our problem.
Speaker 1: What's amazing to me is that ratch up and yields
Speaker 1: this week, the equity market kind of shrugged it off.
Speaker 1: You would have thought there would have been a more
Speaker 1: dramatic reaction there. So I think we we get something
Speaker 1: in the next few days to reflect what's happened with
Speaker 1: yields and with rates ratchetting up higher. You are hugely
Speaker 1: adept at the mathematics of the moment. I want you
Speaker 1: to correlate the bond dynamics we're all talking about over
Speaker 1: to how you reset for equities in the next year.
Speaker 1: Can you link the two beasts together or are they
Speaker 1: non correlated? So I think you have to link the
Speaker 1: two together, because in this year, equities were really the
Speaker 1: caboose and the bond market was driving the train here,
Speaker 1: which I get teased about blaming the bond market but
Speaker 1: it is true because your multiples get compressed when yields
Speaker 1: and rates move higher. What the market is doing is
Speaker 1: pricing in an over five fed funds, right, You're going
Speaker 1: to feel it. On the equity side. You can't avoid that.
Speaker 1: It's it's all one system. You don't have you don't
Speaker 1: have assets that just trade on their own. It's against
Speaker 1: the risk rate in a log Euclidean space, or even
Speaker 1: if you go to some fancy X y Z space
Speaker 1: as well. Is it nonlinear from here in the dynamics
Speaker 1: of the bond market pushing stocks around? So that that's
Speaker 1: a really interesting question. You're asking has the work been
Speaker 1: done right? You're asking have we had enough multiple compression?
Speaker 1: And I think the answer is the direction is still
Speaker 1: an evolved hell way. But I do think a lot
Speaker 1: of the multiple compression has already been taken care of.
Speaker 1: Because if you think we're headed into recession the first
Speaker 1: half of the year, you're going to wind up with
Speaker 1: lower yields eventually, and that, in a weird way, is
Speaker 1: going to support the market. Also, the earning season is
Speaker 1: coming in Lisa, as you pointed out, better than expected,
Speaker 1: in part because of inflation, in part because we had
Speaker 1: the financials report, and so they're doing well on net
Speaker 1: interest margin. And you know that the high end consumer
Speaker 1: is spending. Think about Nordstrom's, think about LVMH, I mean
Speaker 1: and travel. So people are out there spending. It's not
Speaker 1: a total collapse yet, so you could have some stabilization
Speaker 1: as you have to your to your yields move higher.
Speaker 1: So what happens first the FED blinking or seeing gilds
Speaker 1: kind of get out of control and cause some sort
Speaker 1: of torpedo effect in the multiple valuations. So I don't
Speaker 1: think the Fed blinks. Okay, the Fed will blink if
Speaker 1: there's an event. And right now, the UK walked back
Speaker 1: from their events, which walk back the event on the
Speaker 1: global bond market, and they seem very intent on getting
Speaker 1: higher here and they've they've really trapped themselves, right, They've
Speaker 1: trapped themselves because they keep on talking about c p I,
Speaker 1: which as you know, is backward looking, because they want
Speaker 1: to signal to the the average household that the FED
Speaker 1: is on the inflation jobs backward looking. We still haven't
Speaker 1: seen the effects of the rate hiking cycle for another
Speaker 1: six months. So you know, you have signs housings rolling over,
Speaker 1: you have signs of a slowdown, but the Feds out
Speaker 1: there hiking with old data. Meanwhile taking a look at
Speaker 1: what we're expecting from earnings, we get some of the
Speaker 1: big tech names next week. We have seen snap that
Speaker 1: was concerning, and it's been very concerning this morning for
Speaker 1: owners of Meadow, which already has tanked. I mean, Facebook
Speaker 1: has lost a significant portion of its value. How much
Speaker 1: more do the tech bubbles have to burst at a
Speaker 1: time where they've already been devalued de value dramatically. So
Speaker 1: high growth names when they stopped growing, high growth ly
Speaker 1: get not only in earnings and earnings down grade, but
Speaker 1: you get the multiple compression as well. So to the
Speaker 1: extent that you have stuck, they're still trading at forty
Speaker 1: times next Year's that that the tech names are still
Speaker 1: too high and ultimately those names have not been been
Speaker 1: driven down dramatically. Slip this in if there's a factor
Speaker 1: adjustment into two thousand twenty three, and I'm really big
Speaker 1: on the zombies are going to be taken out in
Speaker 1: this new rate regime. What do the non zombies do?
Speaker 1: In which factors matter? Next year for the profitable non zombies,
Speaker 1: So there will be a wave of m n A
Speaker 1: coming from from the non zombies and cheap right, You're
Speaker 1: gonna have really fire sale of companies here for i
Speaker 1: P as well. I mean you could have mn ages
Speaker 1: for i P in some of these sectors. But you know, ultimately,
Speaker 1: to the extent that companies raised cash during the time
Speaker 1: of near zero rates, you should have some resiliency there.
Speaker 1: I think the credit cycle happens in the private markets,
Speaker 1: in the in those middle markets where they couldn't quite
Speaker 1: raise the cash. Because the corporate America is flushed with
Speaker 1: cash right now, the refinancing there is not going to
Speaker 1: be the problem, and ultimately the American consumer. You know,
Speaker 1: I'm looking at the the unemployment data yesterday, the new
Speaker 1: claims data. I mean, we're at rock bottom. There is
Speaker 1: not a problem in the labor market here. So you know,
Speaker 1: you have this weird push pull where you're getting the
Speaker 1: bullup effect on inventories and you've got labor working and spending.
Speaker 1: Alicia Levina, too short. Thank you so much for being
Speaker 1: with us. Alicia Levine of bn Y mel And Wealth Management.
Speaker 1: Mark Chandler has written books on the astrology of foreign exchange,
Speaker 1: the interdependencies nation to nation. His chief market strategist of
Speaker 1: Bannock Bird and we start strong with Mr Chandler this morning, Mark,
Speaker 1: let me go to Global Wall Street and what everybody
Speaker 1: wants to know, when is the comfortable time for Ministry
Speaker 1: of Finance in Japan to step in on one fifty
Speaker 1: one yen? Do they do it now? Do they do
Speaker 1: it in the quiet of their weekend, or do they
Speaker 1: wait for the Asian Monday morning, our Sunday seven pm.
Speaker 1: It's a great question time after they intervened at the
Speaker 1: end of last month, and I think they did three
Speaker 1: things that make the intervention less than successful. First, it
Speaker 1: was not a surprise. They continue to warn the market
Speaker 1: they were planning to intervene. Secondly, they did it unilaterally.
Speaker 1: That is, there's very little support from you. It's Europe
Speaker 1: where the United States for b o J intervention. And
Speaker 1: the third thing I think they did they by intervening,
Speaker 1: they did not signal the changing policy. And so what
Speaker 1: we were telling our clients was that the only thing
Speaker 1: worse than intervention was failed intervention, and I think that's
Speaker 1: what's happened. And so I think the Bank in Japan
Speaker 1: is in a tough position. If they do intervene, it
Speaker 1: probably won't be as successful as a as A as
Speaker 1: a last about they spent twenty billion dollars practically to
Speaker 1: get maybe a week's night, a week's night worth of
Speaker 1: pleasant sleep. Mark. The Chandler word for acceleration, for a
Speaker 1: rapid advancement is convexity. There's clear convexity and the unraveling
Speaker 1: of Japanese yen, Turkish lear and that. Do you anticipate
Speaker 1: a fourth quarter and in the two thousand and twenty
Speaker 1: three of acceleration in these trends or can we find stability? Yeah,
Speaker 1: that's the that's a that's a million dollar question the time.
Speaker 1: I think that the dollar is close to a top,
Speaker 1: partly because I think that FED policy, as the market's
Speaker 1: got a priced in there five percent now at the
Speaker 1: seventy five basis point hip in early November and again
Speaker 1: in December, and another rate hike early next year, I
Speaker 1: think that inflation is close to a peak. Uh, even
Speaker 1: if the core rate is too sticky. I think here's
Speaker 1: what I'm looking at. One, the annualized rate of cp
Speaker 1: I was over ten percent. In Q two, the annualized
Speaker 1: rate of U s c p I headline was still
Speaker 1: above ten percent. Q three fell to fell to about two.
Speaker 1: So I'm looking at inflation to be coming off. I
Speaker 1: know that it's very controversial right now. I know many
Speaker 1: people have been burned calling for this before. But I
Speaker 1: think that we're coming to the tail end of this
Speaker 1: historic dollar move, and I think the Bank of Japan
Speaker 1: and the PBOC the Central Bank in China are basically
Speaker 1: playing for time until FED policy peaks, until the market
Speaker 1: brings a dollar back off of these historic levels. Does
Speaker 1: this mean simply that it doesn't matter what happens in Europe,
Speaker 1: that this is entirely a FED story from your vantage
Speaker 1: point and peak inflation in the US, and that it's
Speaker 1: not necessary to see a material turning around in European region.
Speaker 1: Seems like it's heading into a really difficult ament. Yes,
Speaker 1: and I agree with that at least. I think that
Speaker 1: for me, there's two big drivers there. One, of course,
Speaker 1: FED policy, everybody everybody knows about that. I think what's
Speaker 1: less appreciated is that there's been a serious deterioration of
Speaker 1: Europe's traits balance as well as Japan's. So the deterioration
Speaker 1: of the external accounts, as economist would call it, I think,
Speaker 1: is another factor weighing on the currencies. But I think
Speaker 1: in the most immediate sense that once if the Federal
Speaker 1: announced today maybe a FED speech says that we've done.
Speaker 1: I think you see the dollar off very sharply, Mark,
Speaker 1: you've just driven the tenure real yield ever higher. Rounded up,
Speaker 1: we're up at one point seven eight percent. We've moved
Speaker 1: mightily like eight percent to my study of two point
Speaker 1: zero five percent is somewhat of a normal tenure real yield.
Speaker 1: Where's your number on that? What is a normal tenure
Speaker 1: real yield? Yeah? Kind of truth. I don't have a clue.
Speaker 1: And I think that because I say that partly because
Speaker 1: no see these things like a real yield, our star,
Speaker 1: he can't touch them. There's sort of uh abstractions, the
Speaker 1: statistical abstractions. And I think that when you look at
Speaker 1: FED funds rate, which is really what I focus on
Speaker 1: for the real rate, I think we're still looking at
Speaker 1: a negative real rate on Fed funds and typically looking
Speaker 1: for a further out to the two year you get
Speaker 1: a positive two year yield real yield, and we don't
Speaker 1: have that yet. But I think this is a different cycle,
Speaker 1: and I'm and I think that because it's an unusual cycle.
Speaker 1: It's all these shocks whether it's COVID, whether it is
Speaker 1: the supply shocks, whether it is Russia's invasion. I'm just
Speaker 1: not sure that these benchmarks are very useful. Now, this
Speaker 1: is really really important, folks. This is why we have
Speaker 1: channel leading off today because a he does not have
Speaker 1: a clothe There's no question about that. This is the
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