WEBVTT - Core PCE Rises at Mild Pace 0:00:02.920 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on Affo, cardplay and Android 0:00:17.000 --> 0:00:20.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:20.160 --> 0:00:24.400 you get your podcasts, or watch us live on YouTube. 0:00:25.000 --> 0:00:28.120 The real data was the June number for PCE. This 0:00:28.200 --> 0:00:30.600 is what the FED looks at, personal income up two 0:00:30.600 --> 0:00:33.400 tenths of one percent, spending up three tenths of one percent, 0:00:33.440 --> 0:00:36.720 holding up. You also had a core PCE on a 0:00:36.800 --> 0:00:38.959 month on month coming in just two tenths of one 0:00:38.960 --> 0:00:42.000 percent and two point six percent year on year. 0:00:42.440 --> 0:00:43.880 So they say this is status quo. 0:00:44.200 --> 0:00:46.400 John Tucker, how goldly lockxy? 0:00:46.840 --> 0:00:47.639 Is this I mean? 0:00:47.960 --> 0:00:49.800 Or is it just a case of confirmation bias? Like 0:00:49.840 --> 0:00:53.000 you see what you want to see? Yeah, let's have 0:00:53.080 --> 0:00:55.120 someone who might have an opinion on that one. Lauren 0:00:55.160 --> 0:00:58.840 Saylor Baker is economists and senior consulting speaker at ITR 0:00:58.960 --> 0:01:02.080 Economics on the data. Is this data like a see 0:01:02.120 --> 0:01:04.119 what you want to see? Or is this a goldilocks 0:01:04.120 --> 0:01:04.680 for real. 0:01:07.480 --> 0:01:08.120 Result to be? 0:01:08.240 --> 0:01:11.440 This is not confirmation bias, as we got the GDP 0:01:11.520 --> 0:01:14.720 numbers yesterday. The economy is still holding up, very resilient, 0:01:15.080 --> 0:01:18.679 inflation finally coming down. It was a little more persistent, 0:01:18.760 --> 0:01:20.560 a little stickier than the FED wanted to see at 0:01:20.600 --> 0:01:22.800 the start of the year. But all of the most 0:01:22.840 --> 0:01:25.000 recent months of data giving them what they need to start. 0:01:25.040 --> 0:01:25.959 Cuts in September. 0:01:26.840 --> 0:01:30.039 All right, cuts in September. What about July thirty? First 0:01:30.120 --> 0:01:34.679 we heard from Bill Dudley, even Mohammad al Arian Bloomberg 0:01:34.760 --> 0:01:37.960 columnists saying that they should get it done with and 0:01:38.000 --> 0:01:38.839 get it done soon. 0:01:40.040 --> 0:01:42.800 I think that's the wishful thinking in the room. I 0:01:42.920 --> 0:01:45.160 do not expect the FED to be moving in their 0:01:45.240 --> 0:01:47.480 meeting next week. If we could accuse the FED of 0:01:47.520 --> 0:01:50.200 one thing, it would probably not be cutting rights too 0:01:50.280 --> 0:01:50.960 soon in this cycle. 0:01:52.320 --> 0:01:54.520 What do you think that the well, what are we 0:01:54.560 --> 0:01:56.360 gonna learn? Though, Like, Okay, they don't want to cut 0:01:56.600 --> 0:01:58.560 too soon. But to John Tucker's point, I get next 0:01:58.560 --> 0:02:00.720 week might be pushing a little bit. What else are 0:02:00.720 --> 0:02:04.080 we going to learn from next week until September that 0:02:04.160 --> 0:02:06.360 will really cement anything. It's just going to be the 0:02:06.360 --> 0:02:07.920 same trajectory, right. 0:02:08.840 --> 0:02:09.720 Well, that's their hope. 0:02:09.960 --> 0:02:12.040 So the FED really does want The word they're using 0:02:12.120 --> 0:02:15.000 is confidence, and to them that just means more months 0:02:15.000 --> 0:02:18.959 of data, additional data points coming in, so they don't 0:02:18.960 --> 0:02:21.280 want to move too quickly. I mentioned very strong GDP 0:02:21.440 --> 0:02:25.000 numbers that came out yesterday that will very likely be 0:02:25.080 --> 0:02:28.000 revised in future releases. So they just want to see 0:02:28.000 --> 0:02:31.720 that the inflation, as I mentioned, has been more persistent, 0:02:31.800 --> 0:02:34.160 has been stick here, that it isn't starting to creep 0:02:34.200 --> 0:02:37.880 back up by the end of the summer. Again, I 0:02:37.880 --> 0:02:40.120 think it's moving in the right direction finally, But because 0:02:40.160 --> 0:02:41.880 it took so long for us to get here. We 0:02:41.960 --> 0:02:45.679 had been on a nice smooth disinflationary track and then 0:02:45.760 --> 0:02:47.880 we hit that three three and a half percent range 0:02:47.919 --> 0:02:50.120 and things went much more sideways. So the Fed just 0:02:50.160 --> 0:02:51.800 wants to be sure this isn't a blip. We've had 0:02:51.840 --> 0:02:53.880 a couple of months of good data. They want to 0:02:53.880 --> 0:02:54.640 see a couple more. 0:02:55.120 --> 0:02:58.120 Well, there's another sign to their policy mandate. Isn't there 0:02:58.240 --> 0:03:01.320 and what's happening on that it has been there? 0:03:01.320 --> 0:03:01.720 There is? 0:03:02.240 --> 0:03:05.120 Yeah, Yes, the labor market is actually something they had 0:03:05.160 --> 0:03:08.400 wanted to see. Wage inflation cool. If we separate goods 0:03:08.400 --> 0:03:11.160 inflation out from service inflation, that good side of things 0:03:11.240 --> 0:03:14.000 is well under control. It has been for some time. 0:03:14.000 --> 0:03:16.079 Now it's the service side that's been held up by 0:03:16.120 --> 0:03:19.600 a very very tight labor market, so they're watching again. 0:03:19.720 --> 0:03:24.600 Cooling labor has really been expected. Our labor market was 0:03:24.680 --> 0:03:27.320 just on fire for the past couple of years. I 0:03:27.400 --> 0:03:30.600 expect long term we have a floor under labor market activity. 0:03:30.800 --> 0:03:33.680 We're starting to see the tide shift back in flavor of, 0:03:35.040 --> 0:03:37.520 you know, a slightly looser market at the moment. I 0:03:37.520 --> 0:03:39.400 don't think we're going to go too far that way though. 0:03:39.400 --> 0:03:42.080 It's just a demographic issue. We have baby boomers, that 0:03:42.160 --> 0:03:45.760 huge generation finally retiring. We don't have a huge glot 0:03:45.800 --> 0:03:48.440 of workers waiting on the sidelines or aging into the 0:03:48.480 --> 0:03:51.320 workforce at this point, so the numbers aren't going to 0:03:51.600 --> 0:03:54.960 materially rebalance this little bit of loosening in twenty twenty four. 0:03:55.000 --> 0:03:56.520 But I think that's a temporary trend. 0:03:56.720 --> 0:04:00.520 Well what happens, What's what happens more quickly, when labor 0:04:00.600 --> 0:04:03.400 starts to cool. Does that really really start to cool? 0:04:03.480 --> 0:04:08.440 Because it also affects personal spending as well. 0:04:08.720 --> 0:04:12.120 Sure, again, I don't think it really really starts to cool. 0:04:12.200 --> 0:04:15.800 Labor has been supporting that personal spending component, which again 0:04:15.840 --> 0:04:18.680 about two thirds of GDP driven by consumer spending, so 0:04:18.760 --> 0:04:21.360 that is the floor under economic activity this time around. 0:04:21.760 --> 0:04:24.520 We do see some echo effects from the pandemic still 0:04:24.560 --> 0:04:27.520 playing out in the labor market. Because things got so 0:04:27.800 --> 0:04:30.080 tight in that twenty one twenty two time frame, it 0:04:30.160 --> 0:04:32.279 drew a lot of folks into the labor market. So 0:04:32.320 --> 0:04:35.119 as we look at things like labor force participation rates 0:04:35.200 --> 0:04:37.800 for primeage workers, those are at twenty plus year highs 0:04:37.880 --> 0:04:41.000 right now. Again, we've brought more of those workers back 0:04:41.040 --> 0:04:44.200 to the workforce. The risk now is if we start 0:04:44.200 --> 0:04:46.200 to see layoffs or even if we just see more 0:04:46.240 --> 0:04:49.279 folks entering again. I don't think there are too many 0:04:49.279 --> 0:04:51.800 of them left on the sidelines, but that could pull 0:04:51.880 --> 0:04:55.800 down some of that, say unemployment rate. I don't think 0:04:55.839 --> 0:04:58.080 the fundamental drivers are there, and I think the ones 0:04:58.120 --> 0:05:00.960 that we're seeing are again a very temporary shoe focused 0:05:01.000 --> 0:05:04.359 on twenty twenty four, twenty five and beyond. Looks like 0:05:04.400 --> 0:05:06.440 that tightness will just be grinding tighter. 0:05:06.520 --> 0:05:09.400 Still, going back to the inflation point for a moment, 0:05:09.680 --> 0:05:12.680 we have seen freight rates kind of start to move 0:05:12.680 --> 0:05:15.839 a lot higher. We heard from Chipotle that their costs 0:05:15.839 --> 0:05:18.680 are really starting to increase, Like they singled out the 0:05:18.680 --> 0:05:20.960 price of avocado. And I can appreciate that some of 0:05:21.000 --> 0:05:24.400 these are idiosyncratic, but is there a danger that certain 0:05:24.440 --> 0:05:27.080 type of inflation that we felt was done will start 0:05:27.080 --> 0:05:27.640 coming back. 0:05:29.080 --> 0:05:32.600 We will always see pockets of inflation, I mean avocado specifically. 0:05:32.600 --> 0:05:36.040 If you look at those trade routes, we get these 0:05:36.120 --> 0:05:38.919 odd kind of one off events. So weather events. There's 0:05:38.960 --> 0:05:41.119 been a drought in the Panama Canal that is keeping 0:05:41.120 --> 0:05:43.520 ships from getting through. That's really increasing the time and 0:05:43.560 --> 0:05:47.520 the cost of that journey. So I from an economic 0:05:47.600 --> 0:05:50.880 fundamental point of view, I wouldn't say that's the trend, 0:05:50.960 --> 0:05:54.200 but yes, weather events, these kind of black swan events. Obviously, 0:05:54.279 --> 0:05:57.480 geopolitics that is the big one right now. I would 0:05:57.480 --> 0:05:59.520 not want to make any predictions on that front. That's 0:05:59.560 --> 0:06:02.320 not my ex for tease. But generally, if we look 0:06:02.360 --> 0:06:06.559 at major industrial commodity prices right raw material cost most 0:06:06.560 --> 0:06:08.720 of those are still below the year ago level. They're 0:06:08.800 --> 0:06:12.120 trending much more sideways than outright rise or decline. So 0:06:12.200 --> 0:06:14.600 I hope that's a breath of relief after a few 0:06:14.680 --> 0:06:17.840 years of very strong volatility. But we'll always be able 0:06:17.880 --> 0:06:19.160 to cherry pick those examples. 0:06:19.279 --> 0:06:20.960 You know what, I haven't looked at a long time 0:06:21.080 --> 0:06:24.640 and just look at the yield curve, the inversion between 0:06:25.120 --> 0:06:31.159 twos and tens. It's less invertity. What yeah, what does 0:06:31.160 --> 0:06:31.680 that tell you? 0:06:34.200 --> 0:06:36.719 So the yield curve, it's a great rule of thumb 0:06:36.800 --> 0:06:41.040 that yield curb inversions tend to precede a recession. This 0:06:41.200 --> 0:06:44.520 time around, clearly that has not been the case. We've 0:06:44.520 --> 0:06:47.240 been inverted for what two years now, are going on 0:06:47.279 --> 0:06:48.919 two years now, it's. 0:06:48.800 --> 0:06:51.960 Just eighteen basis points separation. 0:06:53.120 --> 0:06:55.799 Well, we like to see that come under control. Looks 0:06:55.839 --> 0:06:59.320 like it might normalize sooner than later, but that was 0:06:59.400 --> 0:07:03.520 never a guarantee. We've had several historical cases, so a 0:07:03.520 --> 0:07:05.880 lot of precedent for an inverted yield curve with no 0:07:06.160 --> 0:07:07.159 following recession. 0:07:07.279 --> 0:07:08.200 So I think. 0:07:08.040 --> 0:07:10.320 That's a funroll of thumb. It certainly gives us a 0:07:10.360 --> 0:07:14.520 great look into, you know, where the market is expecting 0:07:14.560 --> 0:07:17.480 things to trend, but not an iron cloud guarantee. And again, 0:07:17.520 --> 0:07:20.280 I think the outlier this time around, what really kept 0:07:20.320 --> 0:07:23.120 us out of that GDP recession was the labor side 0:07:23.120 --> 0:07:25.440 of things. That tight labor market supporting the consumer. 0:07:25.600 --> 0:07:27.360 All right, Lauren, thanks a lot, We really appreciate it. 0:07:27.440 --> 0:07:32.320 Lauren Zadelbaker is economists and senior consulting speaker at ITR Economics. 0:07:32.360 --> 0:07:33.400 Thank you very much. 0:07:34.960 --> 0:07:38.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:38.920 --> 0:07:42.440 weekdays at ten am Eastern on applecar Play and Android 0:07:42.480 --> 0:07:45.239 Auto with the Bloomberg Business at You can also listen 0:07:45.360 --> 0:07:48.440 live on Amazon Alexa from our flagship New York station, 0:07:48.800 --> 0:07:51.600 Just say Alexa play Bloomberg eleven thirty. 0:07:53.120 --> 0:07:55.920 There was another story that is starting that was reading 0:07:56.000 --> 0:07:59.040 high that was a surprise to many, and that is 0:07:59.240 --> 0:08:04.200 the se SEE suing Andrew Left of committing fraud through 0:08:04.280 --> 0:08:08.040 stock trades, social media posts, and research reports. This is 0:08:08.400 --> 0:08:11.680 SEC's biggest move yet in a year's long crackdown against 0:08:11.720 --> 0:08:15.360 traders who tout these bearish bets. Joining us now is 0:08:15.400 --> 0:08:17.880 Tom Schoenberg, a Bloomberg senior reporter. 0:08:18.520 --> 0:08:21.040 Tom. Can you walk us through what we know about 0:08:21.080 --> 0:08:21.440 the suit? 0:08:22.800 --> 0:08:24.680 Well, first of who is mister Left? 0:08:25.080 --> 0:08:26.960 Oh, sorry, who's mister Left? 0:08:28.120 --> 0:08:32.120 Andrew Left is a famed short seller. He has a 0:08:32.320 --> 0:08:36.280 you know, website, Citron Research, and he's been making sort 0:08:36.280 --> 0:08:40.280 of bearish bets for years of kind of a real, real, 0:08:40.360 --> 0:08:44.679 sort of well known voice in stock trade. 0:08:45.160 --> 0:08:48.360 So what was the problem because I mean short sellers, 0:08:48.400 --> 0:08:49.840 long long guys come on, they. 0:08:49.760 --> 0:08:50.800 Talk about the stocks they like. 0:08:51.040 --> 0:08:52.880 Short sellers come on, they talk about what they don't 0:08:52.920 --> 0:08:55.800 like about the stock, and they have positions on that 0:08:55.920 --> 0:08:57.959 benefit if the stock goes down. But we know all 0:08:58.000 --> 0:08:59.920 of this, So what was the specific problem with an 0:09:00.080 --> 0:09:00.559 your Left? 0:09:01.679 --> 0:09:04.480 So so what's happening here is both we've had both 0:09:04.480 --> 0:09:06.880 the SEC and the d o J. Now the criminal 0:09:06.920 --> 0:09:15.000 case alleging that Andrew Left was essentially not trading on 0:09:15.440 --> 0:09:17.720 the way he was telling the public he was going 0:09:17.760 --> 0:09:22.160 to be traded, he would essentially profit from going out 0:09:22.280 --> 0:09:25.720 either releasing a report or tweets or other social media 0:09:25.800 --> 0:09:30.240 interviews saying company stock, what should be valued at x 0:09:30.800 --> 0:09:33.920 and as everyone as as the market moved to that, 0:09:34.480 --> 0:09:38.120 he was immediately getting out and sort of making a 0:09:38.160 --> 0:09:41.520 profit on those sort of you know, short term stock movements. 0:09:42.040 --> 0:09:46.240 So saying one thing and doing another, basically. 0:09:45.760 --> 0:09:47.840 That's correct, that's according to the government. 0:09:47.920 --> 0:09:51.040 Yet this is something that's been kind of plaguing this 0:09:51.400 --> 0:09:53.000 industry for a while, isn't it. 0:09:54.160 --> 0:09:57.440 Well, this is obviously you know, uh, you know, the 0:09:57.559 --> 0:10:02.160 mean stock frenzy from the about three years ago, you know, 0:10:02.480 --> 0:10:06.040 caused sort of a longer, deeper look into this, both 0:10:06.080 --> 0:10:09.719 by you know, Congress and that as we're seeing here 0:10:09.760 --> 0:10:13.040 the Justice Department in the SEC, and you know, it 0:10:13.080 --> 0:10:16.160 looks like they're looking at conduct, you know, conduct in 0:10:16.240 --> 0:10:19.920 both of these cases go as far back as twenty eighteen, 0:10:20.200 --> 0:10:22.560 and with the Justice Department saying as recent is October 0:10:22.600 --> 0:10:23.400 twenty twenty three. 0:10:24.640 --> 0:10:28.160 So this, this conversation happens at home like every six months. 0:10:28.160 --> 0:10:30.520 My husband says, I don't understand short selling. Why do 0:10:30.600 --> 0:10:31.199 we allow it? 0:10:31.440 --> 0:10:33.679 And my response is like, oh, because it helps keep 0:10:33.720 --> 0:10:36.920 markets in our CEOs in check because they have someone 0:10:37.480 --> 0:10:41.560 being more critical the short I'm just explaining. But you 0:10:41.600 --> 0:10:43.640 know what if we look at it, like why do 0:10:43.679 --> 0:10:44.680 we allow short selling? 0:10:46.040 --> 0:10:48.480 Right? Well, what you see with you know, Andrew Left 0:10:48.600 --> 0:10:51.960 essentially became sort of a well known short seller in 0:10:52.080 --> 0:10:55.160 part because of a number of the reports that he released, 0:10:55.920 --> 0:10:59.319 you know, we wound up leading to actual charges against 0:10:59.360 --> 0:11:03.480 the company or you know, SEC violations and so on. 0:11:03.600 --> 0:11:06.600 So he established a you know, having a good reputation 0:11:06.679 --> 0:11:08.640 in the space. And what the government is saying here 0:11:08.760 --> 0:11:11.520 is that you know, once he had that reputation, had 0:11:11.520 --> 0:11:15.040 that audience, he sort of misused that to sort of 0:11:15.840 --> 0:11:19.240 you know, essentially fool people into moving to a certain 0:11:19.280 --> 0:11:22.640 position that he himself wasn't maintaining, even though he gave 0:11:23.480 --> 0:11:25.800 the illusion that that's where he was. 0:11:26.320 --> 0:11:27.840 What what are the companies involved? 0:11:27.840 --> 0:11:27.880 Do? 0:11:28.000 --> 0:11:28.120 What? 0:11:28.679 --> 0:11:29.680 Do we know? The names? 0:11:30.400 --> 0:11:36.080 Well, we got everything from Tesla, Roku, Navidia, there's you 0:11:36.120 --> 0:11:38.800 know about you know, I think two dozen or more 0:11:39.480 --> 0:11:39.880 in here. 0:11:40.280 --> 0:11:42.800 And how much did he how much did he make 0:11:42.840 --> 0:11:45.280 as a result of this? Do we know what? The SEC? 0:11:46.240 --> 0:11:49.480 Yeah, SEC is saying that he profited as. 0:11:49.640 --> 0:11:52.840 Just twenty million dollars. 0:11:52.120 --> 0:11:54.720 Which also involved you know, one of the one of 0:11:54.720 --> 0:12:00.000 the criminal charges against Andrew is for lying to federal 0:12:00.120 --> 0:12:04.880 agents claiming that he also wasn't didn't receive a conversational 0:12:04.960 --> 0:12:07.959 hedge funds. They're saying, you see more than a million 0:12:08.000 --> 0:12:09.760 dollars from two edge funds. 0:12:09.880 --> 0:12:12.000 Real quick? Have we heard from mister Left. 0:12:13.520 --> 0:12:17.440 At the moment, he has, he's not commenting. You know, 0:12:17.480 --> 0:12:20.800 if that changes, obviously we will we will report that. 0:12:21.200 --> 0:12:22.719 All right, We appreciate it, Thank you very much. 0:12:22.760 --> 0:12:26.600 Tom. Tom Schomberg, Bloomberg senior reporter, joining us on that game. 0:12:27.760 --> 0:12:31.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:12:31.720 --> 0:12:34.360 weekdays at ten am Eastern on Apple car Play and 0:12:34.360 --> 0:12:37.440 Android Auto with the Bloomberg Business App. Listen on demand 0:12:37.480 --> 0:12:41.800 wherever you get your podcasts, or watch us live on YouTube. 0:12:42.400 --> 0:12:44.080 Let's get back to the market. Lisa was talking about 0:12:44.080 --> 0:12:45.920 what's happening in the bond market. You're seen buying pretty 0:12:45.960 --> 0:12:48.040 much all across the curve. It's been quite a week 0:12:48.120 --> 0:12:50.360 and we've seen a steepener of the last few days. 0:12:50.360 --> 0:12:52.120 That has been quite a week. 0:12:52.640 --> 0:12:54.440 So we want to get some great insight here with 0:12:54.480 --> 0:12:56.960 Steve Major. He's a global head of fixed income research 0:12:56.960 --> 0:12:59.280 at HSBC. I keep saying he lives in Asia. It 0:12:59.400 --> 0:13:01.480 was Hong Kong and now he's in Dubai. 0:13:01.559 --> 0:13:05.240 But the point is Shanghai Bank of Commerce, right, so. 0:13:05.360 --> 0:13:08.680 Banking corporation, Okay, But the point is he's never here, 0:13:09.080 --> 0:13:11.400 so you have to be on the early, early, early show, 0:13:11.720 --> 0:13:13.280 or he has to stay up late late late for 0:13:13.360 --> 0:13:15.880 you in order to get him on TV and radio. 0:13:15.960 --> 0:13:17.920 But he's here in studio and this is very exciting. 0:13:17.960 --> 0:13:20.640 He's a prolific voice when it comes to the fixed 0:13:20.679 --> 0:13:21.520 income market. 0:13:21.559 --> 0:13:23.920 Steve, thanks for being here. It's great to see you. 0:13:24.080 --> 0:13:24.960 Thank you for having me. 0:13:25.360 --> 0:13:27.520 So just broad Stokes, What are your calls right now 0:13:27.720 --> 0:13:29.400 on the US bond market. 0:13:29.440 --> 0:13:33.439 Well, it's lower yields. We've tended to have a lower 0:13:33.480 --> 0:13:36.040 as you know. And it's not just for the sake 0:13:36.080 --> 0:13:38.120 of it. We're not just doing it. We're not doing 0:13:38.160 --> 0:13:40.920 it to attract attention. It's because we incorporate a more 0:13:40.960 --> 0:13:45.679 structural and secular approach to the to the forecasting. If 0:13:45.720 --> 0:13:48.280 you just do it based on the cyclicuse, you'd always 0:13:48.320 --> 0:13:51.160 have a higher yield. And that might explain why other 0:13:51.160 --> 0:13:54.319 people think yields should be five. And so to me, 0:13:54.920 --> 0:13:57.679 if yields are bearing down on four for the ten 0:13:57.760 --> 0:13:59.959 year right now, and you ask me where we're being 0:14:00.040 --> 0:14:02.280 a year or so, it's time, I would say nearer 0:14:02.320 --> 0:14:03.240 to three than five. 0:14:04.240 --> 0:14:07.400 So you're looking at the stuff that's not necessarily short termy, 0:14:07.480 --> 0:14:08.880 but the more long term. 0:14:08.760 --> 0:14:12.160 Stand exactly structural and secular. Structural tends to be more 0:14:12.840 --> 0:14:17.560 things like regulation. Perhaps secular would be more demographic, so 0:14:18.000 --> 0:14:21.200 the impact of aging populations, things. 0:14:20.960 --> 0:14:22.120 That's really long term. 0:14:22.200 --> 0:14:25.120 Yeah, well yes, but then you need to because you 0:14:25.240 --> 0:14:27.240 have to have a view on the equilibrium to have 0:14:27.280 --> 0:14:29.240 a view on the tenure. Now, this is where many 0:14:29.240 --> 0:14:32.920 people switch off they'll say, well, I can't observe this 0:14:33.160 --> 0:14:36.440 our star or this equilibrium rate, so I'm not going 0:14:36.520 --> 0:14:39.600 to use it. Well, everyone who buys or sells a 0:14:39.640 --> 0:14:45.200 ten year security is implicitly taking a view on that number, 0:14:45.520 --> 0:14:49.280 because the tenure yield is not defined by today's policy rate, 0:14:49.400 --> 0:14:51.680 is defined by the path of that policy rate and 0:14:51.720 --> 0:14:54.720 where it ends up in the longer run. So if 0:14:54.760 --> 0:14:58.000 you think that the longer un equilibrium policy rate is four, 0:14:58.480 --> 0:15:03.480 for example, and then you think that the yield probably 0:15:03.480 --> 0:15:06.000 won't go down much more from here, and you would 0:15:06.000 --> 0:15:10.680 also think that the FED isn't particularly restrictive. Okay, that's 0:15:10.680 --> 0:15:11.520 an interesting point. 0:15:12.200 --> 0:15:14.960 Yeah, it's the FED restrictive because I can't figure out 0:15:15.240 --> 0:15:18.120 and then also when you answer that question for me, 0:15:18.520 --> 0:15:21.480 what goes into making that determination whether or not they 0:15:21.640 --> 0:15:22.680 are restrictive. 0:15:23.080 --> 0:15:25.960 Yeah, so you know, our assumption is that the fed's 0:15:25.960 --> 0:15:29.640 longer run equilibrium is about where the FED thinks it is, 0:15:29.640 --> 0:15:32.680 which is two and a half percent, and it's two 0:15:32.680 --> 0:15:35.680 point seven to be precise, and it's pretty much unchanged 0:15:35.720 --> 0:15:39.320 from before the pandemic. Now, I would look at this 0:15:39.600 --> 0:15:43.240 as scientifically as possible. It's difficult to be a scientist 0:15:43.320 --> 0:15:46.400 in bonds really, but the point is what has changed? 0:15:46.720 --> 0:15:50.000 And it's very easy to say the market indicates something 0:15:50.040 --> 0:15:52.960 has changed, therefore the world has changed. That's not good enough. 0:15:53.760 --> 0:15:57.080 All there is is a risk premium around the possibility 0:15:57.120 --> 0:16:00.120 that the world has changed. It is very different. So 0:16:00.640 --> 0:16:04.360 I think that the policy is restrictive because today's rate 0:16:04.480 --> 0:16:07.680 is more than double what the longer run equilibrium is. 0:16:07.960 --> 0:16:10.040 How do you look at something like fiscal stimulus And 0:16:10.040 --> 0:16:11.960 I appreciate that you're going to say that that's cyclical, 0:16:12.360 --> 0:16:15.480 but when we're looking at something globally from the energy 0:16:15.520 --> 0:16:19.480 transition where companies, private equity, and governments are going to 0:16:19.480 --> 0:16:23.480 be spending boltloads of money in the next thirty years, Yeah, 0:16:23.600 --> 0:16:24.880 how does that fit into your model? 0:16:25.120 --> 0:16:28.320 Yeah, so there's a debt, there's a debt and a deficit, 0:16:28.360 --> 0:16:32.200 there's a stock and a flow effect. I think that 0:16:32.280 --> 0:16:35.920 when you're talking about deficits that are going up and 0:16:36.120 --> 0:16:38.600 therefore more bonds, you can see how that can feed 0:16:38.600 --> 0:16:41.640 into the risk premium. But then the debt stock is 0:16:41.680 --> 0:16:44.600 a drag on longer run growth because it has to 0:16:44.640 --> 0:16:46.880 be rolled over and finance, and it takes cash flow 0:16:46.920 --> 0:16:51.120 away from investment and consumption. My point is that it's 0:16:51.240 --> 0:16:54.640 just it can be a little bit too easy and 0:16:55.240 --> 0:16:58.200 somewhat lazy to say there's a lot of supply, therefore 0:16:58.240 --> 0:17:00.480 the yield has to go up because you really do 0:17:00.600 --> 0:17:03.720 need to know what's on the other side. Now, when 0:17:03.800 --> 0:17:06.720 it comes to bonds, the substitution effect, if you like, 0:17:07.400 --> 0:17:09.600 it depends on the value. What a bonds look like 0:17:09.720 --> 0:17:13.199 compared to stocks, what a bonds look like compared to money, 0:17:13.480 --> 0:17:16.960 what do government bonds look like compared to credit, etc. Etc. 0:17:17.640 --> 0:17:21.000 It strikes me that the valuation argument for bonds is 0:17:21.000 --> 0:17:22.000 looking pretty good. 0:17:22.640 --> 0:17:25.120 All right, So what am I supposed to buy right now? 0:17:25.760 --> 0:17:30.600 Well, most real money investors that's different to a hedge 0:17:30.600 --> 0:17:33.040 fund or a trader, are sitting in what we call 0:17:33.080 --> 0:17:36.640 the belly in the middle majorities in credit. That way, 0:17:36.680 --> 0:17:40.119 they mitigate the negative carry because the market's implying the cuts. 0:17:40.200 --> 0:17:43.520 So your good quality You can buy indices of good 0:17:43.640 --> 0:17:47.400 quality credit and you're going to get a yield more 0:17:47.600 --> 0:17:50.600 than on the S and P five hundred forward earnings. 0:17:50.840 --> 0:17:54.040 And to me, you could have said that at any 0:17:54.080 --> 0:17:57.800 point in the last year. But ultimately it's a safe 0:17:57.840 --> 0:18:01.439 investment to be buying good quality US corporates. 0:18:02.119 --> 0:18:04.280 What about in the treasury curve. Where do you think 0:18:04.320 --> 0:18:06.320 we're going to see the most action, Alex. 0:18:06.160 --> 0:18:08.720 You mentioned the steepener that's been playing out. Do you 0:18:08.760 --> 0:18:11.720 know that the movement in let's look at twos tens right, 0:18:11.760 --> 0:18:15.439 the two tens has moved about as much as it 0:18:15.480 --> 0:18:18.800 did in the one month after the twenty sixteen election, 0:18:19.280 --> 0:18:21.760 which says that if there is a trade around this, 0:18:22.000 --> 0:18:24.639 it just played out. It just happened. Now it's all 0:18:24.680 --> 0:18:27.560 about the probabilities around the election result, and we've just 0:18:27.600 --> 0:18:30.320 seen a huge swing in that in the last few weeks. 0:18:30.400 --> 0:18:33.520 So the idea that it was all one way traffic 0:18:33.560 --> 0:18:35.320 and there was only gonna be one winner and one 0:18:35.359 --> 0:18:38.960 outcome with one set of policies, that's no longer clear today. 0:18:39.160 --> 0:18:42.879 So if the steepener was predicated on that, then I 0:18:42.880 --> 0:18:46.320 think people will start to think again. So it's, you know, 0:18:46.359 --> 0:18:49.320 to put a steepener on at this point today, given 0:18:49.359 --> 0:18:51.680 how much it just moved, I think would be dangerous. 0:18:51.800 --> 0:18:53.560 But what if it wasn't about the election? What if 0:18:53.600 --> 0:18:55.240 it was about pricing in the cuts? 0:18:55.400 --> 0:18:58.480 And that's I think you're spot on, because in fact 0:18:59.040 --> 0:19:02.560 it's been the it's been the recent inflation prints and 0:19:02.600 --> 0:19:07.240 the calling real economy that has dominated the scenario analysis 0:19:07.520 --> 0:19:12.040 and the fiscal views and the election views, and so 0:19:12.720 --> 0:19:16.560 that's explained the steepening. That's explained why two's are pushing 0:19:16.600 --> 0:19:19.399 to the low yield for the last year. But the 0:19:19.440 --> 0:19:21.720 problem is, if you enter today, you buy a two 0:19:21.760 --> 0:19:24.760 year that is so far through the money market rate 0:19:25.080 --> 0:19:28.000 that if the Fed isn't cutting and cutting by more 0:19:28.040 --> 0:19:31.080 than is priced in on the WRP screen, you're not 0:19:31.119 --> 0:19:34.240 going to make any money. And so that's why I 0:19:34.240 --> 0:19:37.760 think that the steepener may have played out. 0:19:38.359 --> 0:19:42.000 Okay, so the obligatory question we'll finish up with this September, 0:19:42.119 --> 0:19:45.639 how and what's the path forward beyond September. 0:19:45.760 --> 0:19:48.520 The baseline is they do twenty five. The interesting thing 0:19:48.600 --> 0:19:51.800 is that the scenarios around that, whether it could be 0:19:51.840 --> 0:19:56.000 more to me to value a bond today, you need 0:19:56.040 --> 0:19:58.440 to think about not just the next couple of meetings, 0:19:58.440 --> 0:20:00.879 it's the it's through next year as well. They're in 0:20:00.880 --> 0:20:04.119 anmazing path and I think that they will deliver at 0:20:04.200 --> 0:20:08.639 least what's in the in the forwards, which makes it 0:20:08.680 --> 0:20:11.280 difficult to buy the front end, but makes you want 0:20:11.359 --> 0:20:13.080