WEBVTT - Surveillance: Real Yields with HSBC's Major 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.920 and of course, on the Bloomberg Terminal. Dragging himself back 0:00:30.960 --> 0:00:34.000 from Hong Kong, Stephen Major joins us now with HSBC 0:00:34.159 --> 0:00:36.960 Global Head of Fixed Income Research, and we're thrilled he 0:00:37.000 --> 0:00:40.040 could join Bloomberg in our New York studios. Forget about 0:00:40.040 --> 0:00:42.800 all the market talk here. What is the experience of 0:00:42.880 --> 0:00:46.519 living in Hong Kong under quarantine? It's it's getting easier, 0:00:47.360 --> 0:00:50.640 much easier, And uh, I can't wait to go back 0:00:50.840 --> 0:00:54.600 because we're we're we're free now that there is no quotantine. 0:00:55.160 --> 0:00:57.600 So I've I've done my time. Now. You think they 0:00:57.600 --> 0:00:59.680 can salvage their relationship. I don't want to get you 0:00:59.680 --> 0:01:02.920 in trouble. They just be management. But you are optimistic 0:01:02.960 --> 0:01:06.559 they can salvage their relationship with Western banks to stay 0:01:06.560 --> 0:01:09.200 a financial capital. Yeah, I think I think all the 0:01:09.280 --> 0:01:11.559 moves have in place. In November is a big month. 0:01:11.880 --> 0:01:14.160 People are going there. Yes, we're thrilled to join us 0:01:14.200 --> 0:01:17.040 for this entire half hour. You are known as someone 0:01:17.200 --> 0:01:19.840 that has said price up and yield will stay down. 0:01:20.280 --> 0:01:23.480 We've seen a major adjustment here. What is the new 0:01:23.560 --> 0:01:28.600 major look on how yield finally crawls lower and price higher? 0:01:28.680 --> 0:01:31.319 When do we get there? Don't you have a show 0:01:31.400 --> 0:01:34.800 called real Yield? Is that one of John's one? And 0:01:35.920 --> 0:01:39.039 you're doing it? At least it's relevant now because because 0:01:39.080 --> 0:01:41.959 you actually do have a real real you know it's 0:01:41.959 --> 0:01:45.360 relevant because Lisa's doing it and John's not doing Actually, yeah, 0:01:45.480 --> 0:01:50.320 let's have fun at John's expense. Seven continue, Mr Major. 0:01:50.480 --> 0:01:52.920 But but if you can get real yield anywhere near 0:01:53.080 --> 0:01:56.360 two percent, that covers real GDP. So if you're building 0:01:56.360 --> 0:01:59.360 a portfolio from scratch, and you know this is without 0:01:59.560 --> 0:02:02.920 being an cumbered by all of the carnage markets that 0:02:03.000 --> 0:02:06.200 last few months, if you're building from scratch, two real 0:02:06.280 --> 0:02:09.839 yield covers GDP in the longer run. So we don't 0:02:09.840 --> 0:02:12.160 know where inflation is, it seems to be a good 0:02:12.200 --> 0:02:14.799 place to start building a portfolio with a real yield 0:02:14.840 --> 0:02:18.519 close to So let's just put this into something that's 0:02:18.600 --> 0:02:21.560 very clear. Do you see ten your yields at four 0:02:21.639 --> 0:02:25.280 point three percent in the US see screaming by load 0:02:25.400 --> 0:02:27.120 up because we are not going to see yields like 0:02:27.120 --> 0:02:30.240 this again. Ye. Well, fortunately I work with some professionals 0:02:30.240 --> 0:02:33.480 who contained my enthusiasm because I would have been buying 0:02:33.520 --> 0:02:37.280 every week, right. So, um, that's why I'm not a trailer. 0:02:37.639 --> 0:02:40.520 But the point is that the valuations today show a 0:02:40.600 --> 0:02:43.880 very strong recency bias. I mean, I can honestly believe 0:02:44.000 --> 0:02:46.799 that yields will keep going up in the near term, 0:02:46.880 --> 0:02:49.680 but but you could also build a plausible scenario that 0:02:49.720 --> 0:02:52.360 there's a hard landing and that yields should be less 0:02:52.360 --> 0:02:54.640 than two percent. You can build that scenario. The question 0:02:54.720 --> 0:02:56.760 is what waiting do you put on it? Right, So 0:02:56.800 --> 0:02:59.200 at the moment, we're pricing a very high probability of 0:02:59.200 --> 0:03:02.760 the FED going to five and staying there forever, which 0:03:02.800 --> 0:03:05.280 that doesn't seem plausible. Well, a lot of people well, 0:03:05.320 --> 0:03:07.120 and this is something that I was really excited that 0:03:07.120 --> 0:03:10.040 you were coming on to push against. What I'm hearing 0:03:10.080 --> 0:03:14.200 increasingly is that there is a stickier, more pervasive inflation 0:03:14.440 --> 0:03:16.880 over the long term, and at the FED funds rate 0:03:16.960 --> 0:03:19.680 is not going to go below two percent anytime in 0:03:19.720 --> 0:03:23.680 the next decades simply because of the de globalization or 0:03:23.800 --> 0:03:27.440 the localized globalization, some of the population trends, and some 0:03:27.480 --> 0:03:30.400 of these other macro factors. I don't think the longer 0:03:30.520 --> 0:03:35.160 term picture has changed, Lisa, demographics, debt, wealth in the 0:03:35.240 --> 0:03:38.400 quality that the explanations for low our star have not 0:03:38.800 --> 0:03:41.760 have not reversed. I think you can give me some 0:03:41.880 --> 0:03:45.440 arguments that may be under right or underpin the arstar, 0:03:45.560 --> 0:03:47.840 but not reverse it. I don't think you can reverse 0:03:47.920 --> 0:03:50.560 the pre the pre pandemic trend just to quickly follow 0:03:50.600 --> 0:03:51.920 onto this and do you see where do you think 0:03:51.920 --> 0:03:54.080 we're going to see zero percent rates in the next 0:03:54.200 --> 0:03:56.800 five years. I think you'll get a hard landing, and 0:03:56.840 --> 0:03:59.440 the probability of the market pricing and return to the 0:03:59.520 --> 0:04:04.320 zero cannot be uh ignored. So it's it's all about 0:04:04.320 --> 0:04:09.400 probabilities the markets of pricing rates at five right, so 0:04:09.520 --> 0:04:11.400 the two year yield can be a hundred to a 0:04:11.480 --> 0:04:14.360 hundred and fifty over the current money rate money rate 0:04:14.680 --> 0:04:16.520 in an easing cycle, the two year can be a 0:04:16.600 --> 0:04:19.880 hundred and fifty through the money rate. So so that's 0:04:19.920 --> 0:04:22.800 not happening this week, but sometime next year at the 0:04:22.839 --> 0:04:24.960 market would not be wrong to be pricing in an 0:04:24.960 --> 0:04:27.640 easing cycle at a zillion angles. Here if you're on 0:04:27.720 --> 0:04:31.239 radio Stephen Major, where this with HSBC for this entire 0:04:31.360 --> 0:04:33.760 half hour and the one angle I want to talk about, 0:04:33.800 --> 0:04:35.520 as you mentioned, the breakers that could be there and 0:04:35.560 --> 0:04:37.560 what we're observing right now in the markets, d x 0:04:37.720 --> 0:04:41.720 Y getting up near a one fourteen is with our question. 0:04:41.760 --> 0:04:44.640 The focus at the i m F was on swap lines. Yeah. 0:04:44.880 --> 0:04:47.160 Is it enough of a power in the foreign exchange 0:04:47.200 --> 0:04:50.680 market to see dollars strong where there's a swap line 0:04:50.720 --> 0:04:53.599 demand or a desire for swap lines even if I 0:04:53.640 --> 0:04:55.840 can't get them, And is that enough to make your 0:04:55.839 --> 0:04:59.440 own pile blink? There are a number of economies in 0:04:59.560 --> 0:05:03.560 Asia where there's been a tightness in the funding markets 0:05:03.600 --> 0:05:07.640 recently and looking ahead to year end kind of pictures. Yeah. 0:05:08.360 --> 0:05:11.400 We we had a fire drill with the UK which 0:05:11.400 --> 0:05:13.800 shows what what what lessons did we get from the UK? 0:05:14.680 --> 0:05:17.600 Fast moves are dangerous. It isn't just the level, it's 0:05:17.600 --> 0:05:20.760 a speed right, Um, So I wouldn't be surprised if 0:05:20.800 --> 0:05:23.400 the FED was watching that very closely. Was there a 0:05:23.440 --> 0:05:27.119 point a week or so ago when people were worried? Um? 0:05:27.400 --> 0:05:29.599 You see at the moment what happened in the UK 0:05:29.839 --> 0:05:34.039 wasn't enough to distract the FED from its hawkishness. But 0:05:35.080 --> 0:05:38.680 who's to know if something spills into a market somewhere, 0:05:38.680 --> 0:05:40.560 And in fact, it would be wrong with me to speculate. 0:05:40.680 --> 0:05:43.680 But but there are so many pools of leverage in 0:05:43.720 --> 0:05:46.720 the global economy, so many areas that need to refinance. 0:05:47.120 --> 0:05:49.400 And when the dollar is moving like this and the 0:05:49.600 --> 0:05:52.480 rates are so high that spread it so wide, Um, 0:05:52.520 --> 0:05:54.280 there's going to be some pain. So I don't want 0:05:54.279 --> 0:05:56.080 to come on here and speculate as to where it is. 0:05:56.120 --> 0:05:58.599 But but but you're right, the swap lines are being 0:05:58.600 --> 0:06:01.120 looked at because there's tension. Do we have good data now? 0:06:01.200 --> 0:06:03.440 John burn Murdach. First thing I tweeted out today over 0:06:03.480 --> 0:06:07.000 at the FT with a fabulous essay on the opacity 0:06:07.080 --> 0:06:10.200 of Chinese economic data. Do you feel, sitting at your 0:06:10.200 --> 0:06:14.000 desk in Hong Kong that you have good Pacific room data, 0:06:14.200 --> 0:06:17.320 that you have good global data or the tensions Germaine 0:06:17.360 --> 0:06:19.359 as you see in the swap lind I think, I 0:06:19.360 --> 0:06:22.599 think we're always struggling to catch up Tom and we're 0:06:22.600 --> 0:06:25.279 all experts about l d I now in the UK. 0:06:25.720 --> 0:06:29.080 But we weren't before, were we. Well, we can all 0:06:29.160 --> 0:06:31.640 quote numbers and talk about what happened, but can I 0:06:31.680 --> 0:06:33.719 can I do a shout out to Jordan Rochester number 0:06:33.960 --> 0:06:36.040 just killed it. I found a number of paper from 0:06:36.120 --> 0:06:39.440 four or five years ago on l D I absolutely 0:06:39.680 --> 0:06:42.080 nailed what was going to So we're all experts in 0:06:42.160 --> 0:06:44.400 ld I and we're also all experts in British politics. 0:06:44.480 --> 0:06:46.480 I'm wondering as you talk about the speed, and this 0:06:46.560 --> 0:06:49.280 is something people have been talking about, what happens to 0:06:49.360 --> 0:06:53.960 ten your treasury yields if Japan abandons, perhaps it's PEG 0:06:54.080 --> 0:06:57.560 or has some sort of failed intervention as we see 0:06:57.600 --> 0:07:02.440 almost one one one point nine right now on the dolivers. 0:07:02.720 --> 0:07:06.039 We're trying to game this one out um with the 0:07:06.160 --> 0:07:10.720 with US yields here, if the y c C was changed, 0:07:10.760 --> 0:07:13.360 if there was an iterative shift, it would have much 0:07:13.440 --> 0:07:17.160 less impact than where yields were one year ago. So 0:07:17.280 --> 0:07:20.600 so if Japan had changed its policy, global fixed income 0:07:20.640 --> 0:07:23.360 could have been de anchored a year ago. If if 0:07:23.400 --> 0:07:25.720 they were to do it today, it kind of doesn't 0:07:25.760 --> 0:07:28.320 matter so much because they're going to be adjusting into 0:07:28.400 --> 0:07:31.760 a bigger spread because US yields are so high, compared 0:07:31.800 --> 0:07:35.040 to japan UM. So the Bank of Japan estimates that 0:07:35.120 --> 0:07:39.080 the ten years GB would be around seventy eighty basis 0:07:39.080 --> 0:07:41.440 points if there was no y c C. But we're not. 0:07:41.640 --> 0:07:43.560 This isn't black and white. It's not going to be 0:07:43.600 --> 0:07:46.240 no y c C. It's going to be an iterative shift. 0:07:47.160 --> 0:07:49.400 What you're saying, though, is important, which is we've already 0:07:49.400 --> 0:07:52.360 done a lot of the work to reduce the shock values. 0:07:52.480 --> 0:07:56.720 How quickly the moves can be. Does this mean, perversely 0:07:57.080 --> 0:07:59.600 that you end up with yields higher for longer because 0:07:59.600 --> 0:08:01.800 there isn't some sort of trigger that causes some sort 0:08:01.840 --> 0:08:04.840 of monetary policy to step in higher for longer. Well, 0:08:04.840 --> 0:08:08.040 that's a good one. So is that the opposite of 0:08:08.080 --> 0:08:11.080 lower for longer? Exactly? We saw that for a long time. 0:08:11.440 --> 0:08:14.320 I think that when when when you've had a once 0:08:14.320 --> 0:08:17.520 in a century pandemic and all the other supply side 0:08:17.520 --> 0:08:20.800 shocks that we've had, we shouldn't expect a return in 0:08:20.840 --> 0:08:23.640 the space of a year to what we had before. 0:08:24.000 --> 0:08:26.560 It's a multi year process. I think that three to 0:08:26.640 --> 0:08:29.880 five years out will be back where we were in 0:08:29.960 --> 0:08:33.080 two thousand nine. And what a joy some quiet moments 0:08:33.120 --> 0:08:38.439 here with Stephen Major of HSBC in a very unquiet time. 0:08:38.760 --> 0:08:43.080 My study, and this goes back to Martin Feldstein of Harvard, 0:08:43.720 --> 0:08:48.439 is if these things end stochastically, things move, and they 0:08:48.440 --> 0:08:52.320 don't level, they don't plateaux, they get pointy, they turn 0:08:52.400 --> 0:08:56.720 around in reverse. What is the stochastic event that will 0:08:56.800 --> 0:08:59.840 allow some of the carnage I see on my screen 0:09:00.080 --> 0:09:03.200 to reverse? That's that's right, Tom. I think that it 0:09:03.280 --> 0:09:06.040 might even be a biomodal market. So you've got one 0:09:06.080 --> 0:09:09.200 mode that's got this strong recency bias, and then there's 0:09:09.200 --> 0:09:11.640 the other one that prices in an event. I mean, 0:09:11.679 --> 0:09:16.480 the facts are that the median number of months between 0:09:16.559 --> 0:09:19.240 the last hike and the first cut, based on the 0:09:19.280 --> 0:09:23.000 last seventy years of data, guess what four months? The 0:09:23.080 --> 0:09:26.720 mean is eight. So it's skewed because of the two 0:09:26.760 --> 0:09:29.000 thousand and six two thou eight period. But my point 0:09:29.080 --> 0:09:31.480 is you just just look at the numbers. Once they've 0:09:31.559 --> 0:09:33.880 hit the peak. The market is not wrong to be 0:09:33.960 --> 0:09:38.120 looking over the other side and um, what's the event? Well, 0:09:38.360 --> 0:09:41.560 the UK could have been if the UK event of 0:09:41.800 --> 0:09:50.160 fast moving yields and disruption somehow infected affected the US 0:09:50.240 --> 0:09:53.800 financial markets. And I'm talking here about money markets or 0:09:54.160 --> 0:09:57.240 mortgage markets, or you said swap lines all this stuff. 0:09:58.040 --> 0:10:02.000 Who knows that that makes the head think twice about 0:10:02.040 --> 0:10:05.920 going all the way to five? Or you're living Hong Kong, 0:10:05.920 --> 0:10:09.000 you're living in the the anti science of China. Fine, the 0:10:09.080 --> 0:10:12.920 anti science of monetary policy is Japan. Everyone knows this. 0:10:13.559 --> 0:10:17.079 What are the ramifications to the steve major world? When 0:10:17.120 --> 0:10:20.080 they colpitulate on y c C in some face saving 0:10:20.160 --> 0:10:24.920 form and you get yeah, one to one nine over 0:10:25.520 --> 0:10:29.199 literally a cup of coffee, what happens to the system. 0:10:29.320 --> 0:10:31.480 I don't think you get the shock that you could 0:10:31.520 --> 0:10:34.520 have had if they had changed y SEC a year ago. 0:10:34.640 --> 0:10:37.320 Because of where US yields sit today, they're so far 0:10:37.480 --> 0:10:40.800 above so they can soak up easily a Japanese move. 0:10:41.320 --> 0:10:45.080 I imagine that the Japanese curve would would flatten, so 0:10:45.120 --> 0:10:47.400 it will be a bare flattening because the curve is 0:10:47.440 --> 0:10:50.160 so steep between ten and thirty years now in global 0:10:50.200 --> 0:10:54.120 fixed income that's not gone unnoticed. If you're sitting in Germany, 0:10:54.400 --> 0:10:56.719 you can switch from your local market into j g 0:10:56.880 --> 0:10:59.880 B s and pick up yield because of the curve steepness. 0:11:00.080 --> 0:11:03.880 The hedging hedging, because because Japanese rates have below zero 0:11:03.960 --> 0:11:07.120 at the front end, whereas ECB and FEDER hiking. So 0:11:07.120 --> 0:11:09.880 so you know there are opportunities here in global fixed 0:11:09.880 --> 0:11:13.439 income from the divergence to go to your arch thesis, 0:11:13.880 --> 0:11:17.000 is they manufacture? You know, I'm going to gitoralize here 0:11:17.040 --> 0:11:20.319 in fay a pseudo inflation. Are we essentially going to 0:11:20.440 --> 0:11:24.760 have a stochastic move back tow disinflationary trends and the 0:11:24.880 --> 0:11:29.280 arch major theory, which is some forms of deflation? I 0:11:29.320 --> 0:11:31.880 think so. And from a Japanese perspective, if you've waited 0:11:31.920 --> 0:11:35.400 thirty years to come out of deflation, a couple of 0:11:35.440 --> 0:11:38.959 months of plus two plus three doesn't do it. And 0:11:39.200 --> 0:11:42.080 and that's the Corona approach. We don't know who Coroda's 0:11:42.080 --> 0:11:44.640 replacement is going to be. He or she won't be 0:11:44.679 --> 0:11:48.840 in place until next year. UM, so it's just speculation 0:11:49.000 --> 0:11:51.280 on our part and I feel very much that's all 0:11:51.320 --> 0:11:54.800 we're doing, right or we're trying to game it out anyway. 0:11:55.120 --> 0:11:58.960 And now, folks, we dive into our World Cup coverage, 0:11:58.960 --> 0:12:02.400 we do so that jack fair, which is unfortunate. You 0:12:02.559 --> 0:12:05.080 of course have a global mandate. You're gonna be in 0:12:05.320 --> 0:12:07.120 the Middle East. I guess you're going to attend the 0:12:07.160 --> 0:12:10.160 World Cup. Can you explain to your mortals like me, 0:12:10.640 --> 0:12:14.079 how we see a good product with eighties six degrees 0:12:14.400 --> 0:12:17.680 on the field. It might be a slow game, it 0:12:17.720 --> 0:12:20.720 could be completely different. I'm I'm I'm going to go 0:12:20.760 --> 0:12:24.319 and see some England games. Um, I'm lucky enough to 0:12:24.360 --> 0:12:26.720 get tickets. But I think it's going to be a 0:12:26.760 --> 0:12:29.320 strange World Cup. It's going to be surreal because in 0:12:29.320 --> 0:12:31.120 that kind of heat it will be it will be 0:12:31.120 --> 0:12:33.079 a lot cooler than it is in the summer, obviously, 0:12:33.120 --> 0:12:35.000 but but the game is going to be slower and 0:12:35.040 --> 0:12:37.200 I guess more measured. It's not going to be as 0:12:37.240 --> 0:12:40.920 as crazy as the Premiership because you've seen how fast 0:12:41.040 --> 0:12:43.560 how fast they play in the Premiership. You've seen it yourself. 0:12:43.640 --> 0:12:46.360 And sterling and guilts. Let's let's finish say I've got 0:12:46.440 --> 0:12:49.920 one four's, we've moved a full stick here on sterling 0:12:50.240 --> 0:12:53.200 and this morning one twelve down to one ten eighty seven. 0:12:53.440 --> 0:12:56.200 It's inappropriate for you to comment on the politics, but 0:12:56.320 --> 0:12:59.680 please and the pressures at Governor Bailey faces, well, he's 0:12:59.760 --> 0:13:05.120 he's reiterated the independence and um, I think he's been 0:13:05.160 --> 0:13:07.320 pushed into a bit of a corner. I mean it 0:13:07.360 --> 0:13:10.160 didn't help that the Bank of England was was hiking 0:13:10.280 --> 0:13:14.480 a pace less than the FED before the events in 0:13:14.840 --> 0:13:18.840 Downing Street. Um. But the Bank of England's role is 0:13:18.920 --> 0:13:22.440 quite interesting here because they are buyer of last resort 0:13:22.480 --> 0:13:26.280 and they've shown their ability to do that. And um, 0:13:26.320 --> 0:13:28.640 I think the guilt market has actually calmed down quite 0:13:28.679 --> 0:13:30.800 a lot. And one of the big differences between the 0:13:30.880 --> 0:13:34.160 UK and US is that things can happen very very quickly. 0:13:34.160 --> 0:13:37.920 In the UK, all of those fiscal proposals have basically 0:13:37.960 --> 0:13:40.760 been abandoned. Could you be lying ten through year guilt 0:13:40.760 --> 0:13:43.520 this morning? I think I think you could. I think 0:13:43.559 --> 0:13:46.280 you can start to look at it. And I'm interested 0:13:46.280 --> 0:13:49.960 in how guilts look compared to equities, for example, and 0:13:49.960 --> 0:13:52.640 and there there will be a lot of fund managers 0:13:52.679 --> 0:13:55.920 looking at those relationships and bonds versus equities. It's the 0:13:55.960 --> 0:13:58.800 same in the US. There's there's there's a point when 0:13:58.840 --> 0:14:02.000 you have to start favor bonds with the risky assets. 0:14:02.080 --> 0:14:05.680 And I think that that's ultimately for the Bank of England, 0:14:05.840 --> 0:14:08.839 it's um. Uh. You know, they've got the QT and 0:14:08.880 --> 0:14:11.079 they've got the q E, they've got the policy rates, 0:14:11.080 --> 0:14:13.880 they've got to work with the d m O on 0:14:13.240 --> 0:14:16.640 on patterns of issuance which could which could be modified. 0:14:16.760 --> 0:14:19.040 I think that the worst has passed us now and 0:14:19.760 --> 0:14:21.920 I think we'll probably see a period of calm after 0:14:21.960 --> 0:14:23.960 after the shot. The period of calm will come after 0:14:24.040 --> 0:14:27.760 your view forward for two thousand twenty three. Some a 0:14:27.920 --> 0:14:30.360 theme for two thousand twenty three that we may see 0:14:30.360 --> 0:14:33.520 written by HSBC. Yeah, I'm not gonna front run the 0:14:33.600 --> 0:14:38.160 research because we haven't published. I mean, did you hear that, folks? 0:14:38.280 --> 0:14:40.440 I didn't hear that. We haven't but we haven't even 0:14:40.480 --> 0:14:42.440 sat down. I think we'd be pleased to get to 0:14:42.480 --> 0:14:46.440 the end of this year trying to Stephen Major, thank 0:14:46.520 --> 0:14:50.440 you so much, greatly, greatly, greatly appreciated this morning. He 0:14:50.600 --> 0:14:52.800 is with HSBC and this is what we try to 0:14:52.840 --> 0:14:56.520 do to bring in the conversation on this in settled 0:14:56.560 --> 0:15:13.280 times and decidedly unsettled times um as well. Alicia Levine 0:15:13.600 --> 0:15:16.480 actually joins us here without the star destroyer behind her. 0:15:16.520 --> 0:15:19.760 Alicia Levine, head of Equities and Capital Market Advisory at 0:15:19.760 --> 0:15:22.920 bn Y Melon Wealth Management. What is your view, Alicia, 0:15:23.000 --> 0:15:26.680 and how you view this move upwards and yield? Are 0:15:26.680 --> 0:15:30.120 we watching something break in slow motion, So I don't 0:15:30.120 --> 0:15:33.400 think we're watching anything break. But we shouldn't be surprised 0:15:33.440 --> 0:15:36.120 at this because that last cp I print really said 0:15:36.120 --> 0:15:40.800 it all. Core inflation is now higher today than it 0:15:40.880 --> 0:15:44.480 was in two Forget the top line, it's the core, 0:15:45.120 --> 0:15:47.720 and that's ultimately what central banks are looking at and 0:15:47.760 --> 0:15:50.160 what the FED is looking at, and that's our problem. 0:15:50.160 --> 0:15:52.880 What's amazing to me is that ratch up and yields 0:15:52.920 --> 0:15:56.200 this week, the equity market kind of shrugged it off. 0:15:56.240 --> 0:15:57.720 You would have thought there would have been a more 0:15:57.800 --> 0:16:01.080 dramatic reaction there. So I think we we get something 0:16:01.120 --> 0:16:03.280 in the next few days to reflect what's happened with 0:16:03.400 --> 0:16:07.560 yields and with rates ratchetting up higher. You are hugely 0:16:07.640 --> 0:16:10.280 adept at the mathematics of the moment. I want you 0:16:10.320 --> 0:16:13.960 to correlate the bond dynamics we're all talking about over 0:16:14.000 --> 0:16:17.200 to how you reset for equities in the next year. 0:16:17.520 --> 0:16:20.240 Can you link the two beasts together or are they 0:16:20.280 --> 0:16:22.280 non correlated? So I think you have to link the 0:16:22.320 --> 0:16:25.760 two together, because in this year, equities were really the 0:16:25.800 --> 0:16:28.840 caboose and the bond market was driving the train here, 0:16:29.160 --> 0:16:32.600 which I get teased about blaming the bond market but 0:16:32.720 --> 0:16:36.440 it is true because your multiples get compressed when yields 0:16:36.440 --> 0:16:39.360 and rates move higher. What the market is doing is 0:16:39.400 --> 0:16:42.320 pricing in an over five fed funds, right, You're going 0:16:42.360 --> 0:16:45.000 to feel it. On the equity side. You can't avoid that. 0:16:45.120 --> 0:16:47.400 It's it's all one system. You don't have you don't 0:16:47.440 --> 0:16:50.680 have assets that just trade on their own. It's against 0:16:50.680 --> 0:16:53.320 the risk rate in a log Euclidean space, or even 0:16:53.360 --> 0:16:55.640 if you go to some fancy X y Z space 0:16:56.000 --> 0:17:00.640 as well. Is it nonlinear from here in the dynamics 0:17:00.720 --> 0:17:04.080 of the bond market pushing stocks around? So that that's 0:17:04.119 --> 0:17:06.600 a really interesting question. You're asking has the work been 0:17:06.640 --> 0:17:10.920 done right? You're asking have we had enough multiple compression? 0:17:11.560 --> 0:17:14.280 And I think the answer is the direction is still 0:17:14.280 --> 0:17:17.119 an evolved hell way. But I do think a lot 0:17:17.640 --> 0:17:20.959 of the multiple compression has already been taken care of. 0:17:21.760 --> 0:17:24.640 Because if you think we're headed into recession the first 0:17:24.680 --> 0:17:26.919 half of the year, you're going to wind up with 0:17:26.960 --> 0:17:29.800 lower yields eventually, and that, in a weird way, is 0:17:29.840 --> 0:17:33.359 going to support the market. Also, the earning season is 0:17:33.400 --> 0:17:36.640 coming in Lisa, as you pointed out, better than expected, 0:17:36.720 --> 0:17:40.040 in part because of inflation, in part because we had 0:17:40.080 --> 0:17:43.200 the financials report, and so they're doing well on net 0:17:43.200 --> 0:17:46.760 interest margin. And you know that the high end consumer 0:17:46.880 --> 0:17:50.920 is spending. Think about Nordstrom's, think about LVMH, I mean 0:17:51.080 --> 0:17:53.760 and travel. So people are out there spending. It's not 0:17:53.800 --> 0:17:57.560 a total collapse yet, so you could have some stabilization 0:17:58.040 --> 0:18:00.359 as you have to your to your yields move higher. 0:18:00.560 --> 0:18:03.959 So what happens first the FED blinking or seeing gilds 0:18:04.000 --> 0:18:06.440 kind of get out of control and cause some sort 0:18:06.480 --> 0:18:10.440 of torpedo effect in the multiple valuations. So I don't 0:18:10.480 --> 0:18:14.280 think the Fed blinks. Okay, the Fed will blink if 0:18:14.320 --> 0:18:17.560 there's an event. And right now, the UK walked back 0:18:17.720 --> 0:18:20.480 from their events, which walk back the event on the 0:18:20.520 --> 0:18:24.000 global bond market, and they seem very intent on getting 0:18:24.040 --> 0:18:26.360 higher here and they've they've really trapped themselves, right, They've 0:18:26.400 --> 0:18:29.320 trapped themselves because they keep on talking about c p I, 0:18:29.440 --> 0:18:32.760 which as you know, is backward looking, because they want 0:18:32.800 --> 0:18:35.800 to signal to the the average household that the FED 0:18:35.880 --> 0:18:39.560 is on the inflation jobs backward looking. We still haven't 0:18:39.600 --> 0:18:42.720 seen the effects of the rate hiking cycle for another 0:18:42.760 --> 0:18:47.160 six months. So you know, you have signs housings rolling over, 0:18:47.240 --> 0:18:50.560 you have signs of a slowdown, but the Feds out 0:18:50.600 --> 0:18:53.879 there hiking with old data. Meanwhile taking a look at 0:18:53.960 --> 0:18:55.720 what we're expecting from earnings, we get some of the 0:18:55.720 --> 0:18:59.239 big tech names next week. We have seen snap that 0:18:59.320 --> 0:19:01.919 was concerning, and it's been very concerning this morning for 0:19:02.000 --> 0:19:04.920 owners of Meadow, which already has tanked. I mean, Facebook 0:19:04.920 --> 0:19:07.880 has lost a significant portion of its value. How much 0:19:07.960 --> 0:19:10.639 more do the tech bubbles have to burst at a 0:19:10.640 --> 0:19:14.120 time where they've already been devalued de value dramatically. So 0:19:14.800 --> 0:19:18.520 high growth names when they stopped growing, high growth ly 0:19:19.080 --> 0:19:22.480 get not only in earnings and earnings down grade, but 0:19:22.520 --> 0:19:25.040 you get the multiple compression as well. So to the 0:19:25.119 --> 0:19:27.720 extent that you have stuck, they're still trading at forty 0:19:27.720 --> 0:19:30.600 times next Year's that that the tech names are still 0:19:30.640 --> 0:19:34.120 too high and ultimately those names have not been been 0:19:34.200 --> 0:19:37.000 driven down dramatically. Slip this in if there's a factor 0:19:37.040 --> 0:19:41.240 adjustment into two thousand twenty three, and I'm really big 0:19:41.320 --> 0:19:43.119 on the zombies are going to be taken out in 0:19:43.200 --> 0:19:46.439 this new rate regime. What do the non zombies do? 0:19:46.800 --> 0:19:51.840 In which factors matter? Next year for the profitable non zombies, 0:19:52.240 --> 0:19:54.679 So there will be a wave of m n A 0:19:54.920 --> 0:19:58.160 coming from from the non zombies and cheap right, You're 0:19:58.160 --> 0:20:01.679 gonna have really fire sale of companies here for i 0:20:01.840 --> 0:20:04.240 P as well. I mean you could have mn ages 0:20:04.280 --> 0:20:08.520 for i P in some of these sectors. But you know, ultimately, 0:20:08.560 --> 0:20:12.359 to the extent that companies raised cash during the time 0:20:12.440 --> 0:20:15.600 of near zero rates, you should have some resiliency there. 0:20:16.080 --> 0:20:19.840 I think the credit cycle happens in the private markets, 0:20:20.119 --> 0:20:22.920 in the in those middle markets where they couldn't quite 0:20:23.000 --> 0:20:26.280 raise the cash. Because the corporate America is flushed with 0:20:26.359 --> 0:20:29.600 cash right now, the refinancing there is not going to 0:20:29.680 --> 0:20:34.199 be the problem, and ultimately the American consumer. You know, 0:20:34.240 --> 0:20:38.440 I'm looking at the the unemployment data yesterday, the new 0:20:38.520 --> 0:20:41.760 claims data. I mean, we're at rock bottom. There is 0:20:41.760 --> 0:20:44.800 not a problem in the labor market here. So you know, 0:20:44.880 --> 0:20:47.119 you have this weird push pull where you're getting the 0:20:47.160 --> 0:20:52.879 bullup effect on inventories and you've got labor working and spending. 0:20:53.640 --> 0:20:56.040 Alicia Levina, too short. Thank you so much for being 0:20:56.040 --> 0:20:58.880 with us. Alicia Levine of bn Y mel And Wealth Management. 0:21:03.320 --> 0:21:06.960 Mark Chandler has written books on the astrology of foreign exchange, 0:21:07.040 --> 0:21:11.000 the interdependencies nation to nation. His chief market strategist of 0:21:11.040 --> 0:21:14.800 Bannock Bird and we start strong with Mr Chandler this morning, Mark, 0:21:14.920 --> 0:21:16.880 let me go to Global Wall Street and what everybody 0:21:16.880 --> 0:21:20.080 wants to know, when is the comfortable time for Ministry 0:21:20.080 --> 0:21:22.840 of Finance in Japan to step in on one fifty 0:21:22.920 --> 0:21:25.159 one yen? Do they do it now? Do they do 0:21:25.240 --> 0:21:27.879 it in the quiet of their weekend, or do they 0:21:27.880 --> 0:21:32.280 wait for the Asian Monday morning, our Sunday seven pm. 0:21:32.520 --> 0:21:35.080 It's a great question time after they intervened at the 0:21:35.200 --> 0:21:37.720 end of last month, and I think they did three 0:21:37.760 --> 0:21:41.439 things that make the intervention less than successful. First, it 0:21:41.520 --> 0:21:43.560 was not a surprise. They continue to warn the market 0:21:43.560 --> 0:21:47.040 they were planning to intervene. Secondly, they did it unilaterally. 0:21:47.280 --> 0:21:50.119 That is, there's very little support from you. It's Europe 0:21:50.200 --> 0:21:53.159 where the United States for b o J intervention. And 0:21:53.200 --> 0:21:56.920 the third thing I think they did they by intervening, 0:21:56.920 --> 0:22:00.760 they did not signal the changing policy. And so what 0:22:00.800 --> 0:22:02.640