1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

2
00:00:09,200 --> 00:00:13,200
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

3
00:00:13,280 --> 00:00:18,600
Speaker 1: insight from the best and economics, finance, investment, and international relations.

4
00:00:18,840 --> 00:00:23,799
Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,

5
00:00:23,920 --> 00:00:29,920
Speaker 1: and of course on the Bloomberg terminal. This was a joy.

6
00:00:30,480 --> 00:00:32,680
Speaker 1: On the day of the Federal Reserve meetings, we had

7
00:00:32,880 --> 00:00:35,800
Speaker 1: Richard Clarato with us, the vice chairman, former vice chairman,

8
00:00:36,159 --> 00:00:38,600
Speaker 1: and also William Dudley of course a former president of

9
00:00:38,640 --> 00:00:41,319
Speaker 1: New York Fed as well, and we are thrilled Bill

10
00:00:41,400 --> 00:00:43,760
Speaker 1: Dudley you would find on your date calendar to come

11
00:00:43,760 --> 00:00:48,640
Speaker 1: back and join us. Here is we reset into January.

12
00:00:48,680 --> 00:00:51,080
Speaker 1: What will you glean? And I know what you're gonna

13
00:00:51,080 --> 00:00:53,520
Speaker 1: tell me. You're not gonna rely on one data point,

14
00:00:54,040 --> 00:00:57,280
Speaker 1: but what does the data point of January twelve the

15
00:00:57,320 --> 00:01:01,840
Speaker 1: inflation reports signal to the Fed where possibly they will

16
00:01:01,880 --> 00:01:06,840
Speaker 1: have three data points lined up marking some form of disinflation.

17
00:01:08,800 --> 00:01:11,399
Speaker 1: Paul have been very clear that to chief success he

18
00:01:11,480 --> 00:01:14,560
Speaker 1: needs to see moderation of goods prices, which he is

19
00:01:14,560 --> 00:01:20,120
Speaker 1: seeing moderation of services prices excluding housing, which he's not seeing,

20
00:01:20,600 --> 00:01:22,959
Speaker 1: and more slack in the labor market, which he's not seeing.

21
00:01:23,000 --> 00:01:25,720
Speaker 1: So he's only achieved one out of its three goals.

22
00:01:25,720 --> 00:01:27,720
Speaker 1: So the thing that focus on is what's happening to

23
00:01:27,760 --> 00:01:30,760
Speaker 1: the services inflation excluding housing because we know housing is

24
00:01:30,760 --> 00:01:33,080
Speaker 1: going to come down with a lag. And what's happening

25
00:01:33,080 --> 00:01:35,000
Speaker 1: in the labor market. You know we have you know

26
00:01:35,120 --> 00:01:39,080
Speaker 1: less player e poloyment increase. We need to see pyroll

27
00:01:39,120 --> 00:01:42,600
Speaker 1: gains of fifty thousand, seventy five a month. We need

28
00:01:42,640 --> 00:01:44,959
Speaker 1: to see an increase in the unemployment rate on FUNT

29
00:01:45,200 --> 00:01:47,360
Speaker 1: to generate and a slack in the labor market. We

30
00:01:47,400 --> 00:01:50,240
Speaker 1: need to get inflation down in the services sector. You

31
00:01:50,280 --> 00:01:53,560
Speaker 1: were expert with on this at Goldman Sachs with a

32
00:01:53,600 --> 00:01:56,760
Speaker 1: guy named McKelvie in a young Turk names hot Sis

33
00:01:57,040 --> 00:01:59,919
Speaker 1: and the bottom line, I love Bill, what you're saying.

34
00:02:00,040 --> 00:02:02,760
Speaker 1: We need to get from two hundred thousand plus down

35
00:02:02,760 --> 00:02:05,680
Speaker 1: to something that's the run rate of fifty seventy thousand

36
00:02:05,760 --> 00:02:09,880
Speaker 1: non farm payrolls. When we do that, where does that

37
00:02:10,160 --> 00:02:13,320
Speaker 1: dearth of job growth come from? I mean, there's no

38
00:02:13,480 --> 00:02:17,200
Speaker 1: evidence out there on how to get from there here

39
00:02:17,240 --> 00:02:19,760
Speaker 1: to there. The main phrase I'm trying to talk like

40
00:02:19,840 --> 00:02:22,440
Speaker 1: him at Bowden, but I'm going down in flames. How

41
00:02:22,440 --> 00:02:25,840
Speaker 1: do we get from here to thar? Well? What the

42
00:02:25,919 --> 00:02:28,440
Speaker 1: feed is said that that we need tighter financial conditions.

43
00:02:28,480 --> 00:02:31,000
Speaker 1: We need tighter financial to getations to slow the economy

44
00:02:31,040 --> 00:02:34,040
Speaker 1: down so there's less demand for labor. That's why Pollen

45
00:02:34,160 --> 00:02:36,400
Speaker 1: is the press conference last week with basically pointing out

46
00:02:36,400 --> 00:02:39,359
Speaker 1: if financial conditions ease and the Fed Reserve is gonna

47
00:02:39,360 --> 00:02:42,040
Speaker 1: have to do more. The Fed is targeting financial conditions

48
00:02:42,040 --> 00:02:45,200
Speaker 1: because that's the mechanism that slows down the economy. When

49
00:02:45,240 --> 00:02:48,520
Speaker 1: sponds rally and stocks rally, then that just mean there's

50
00:02:48,520 --> 00:02:51,280
Speaker 1: more for the Fed to do. Bill. I've been confused

51
00:02:51,280 --> 00:02:54,160
Speaker 1: by the market response after we got the latest Fed meeting.

52
00:02:54,639 --> 00:02:57,520
Speaker 1: There hasn't been a real increase in bond yields and

53
00:02:57,560 --> 00:03:00,680
Speaker 1: there is still priced into the market a lower terminal rate.

54
00:03:00,680 --> 00:03:02,680
Speaker 1: Them with the FETE is saying that they are going

55
00:03:02,760 --> 00:03:07,680
Speaker 1: to do How do you understand that? There's two possible explanations.

56
00:03:07,880 --> 00:03:10,560
Speaker 1: Number One, the market thinks that the Federal blank once

57
00:03:10,560 --> 00:03:13,120
Speaker 1: the unemployer rate starts going up. So the market is

58
00:03:13,160 --> 00:03:15,160
Speaker 1: basically saying that the FETE doesn't mean what it says

59
00:03:15,200 --> 00:03:17,320
Speaker 1: that they're saying this to try to talk tough, but

60
00:03:17,440 --> 00:03:20,680
Speaker 1: when the going gets difficult, the federal fold. That's one

61
00:03:20,720 --> 00:03:22,720
Speaker 1: possible explanation. I don't believe that. I think Paul is

62
00:03:22,760 --> 00:03:25,240
Speaker 1: going to do what he says. And number two, they

63
00:03:25,280 --> 00:03:27,320
Speaker 1: may just have a more benign view about how fast

64
00:03:27,360 --> 00:03:29,400
Speaker 1: inflation is going to come down. I think the market

65
00:03:29,480 --> 00:03:32,639
Speaker 1: is overweighting the improvement in goods price inflation. We knew

66
00:03:32,680 --> 00:03:35,480
Speaker 1: goods price inflation was going to come down for two reasons.

67
00:03:35,800 --> 00:03:40,400
Speaker 1: Number one, the switch in in the pandemic has reduced

68
00:03:40,400 --> 00:03:43,360
Speaker 1: the demand for good versus services. And two, we knew

69
00:03:43,360 --> 00:03:45,560
Speaker 1: that some of these supply chain disruptions we're gonna normally.

70
00:03:45,640 --> 00:03:47,200
Speaker 1: The fact that used car prices are falling out was

71
00:03:47,200 --> 00:03:50,480
Speaker 1: don't surprise anybody. At the same time, people point to

72
00:03:50,520 --> 00:03:53,960
Speaker 1: the fact that credit card receivables are going up, people

73
00:03:53,960 --> 00:03:56,480
Speaker 1: are borrowing more. It indicates that the cushion is getting

74
00:03:56,560 --> 00:04:00,240
Speaker 1: used up, and there will be a music stoppage at

75
00:04:00,240 --> 00:04:02,280
Speaker 1: the beginning of the year that people will stop spending,

76
00:04:02,280 --> 00:04:04,560
Speaker 1: and perhaps they already are. How do you push back

77
00:04:04,600 --> 00:04:07,560
Speaker 1: against that and say no, there is actually more momentum,

78
00:04:07,600 --> 00:04:12,480
Speaker 1: more dynamism behind that that this bed has to curb. Well.

79
00:04:12,520 --> 00:04:15,520
Speaker 1: One aspect of good price inflation going down is the

80
00:04:15,520 --> 00:04:18,240
Speaker 1: oval inflation rates lower, so people's wages go a bit

81
00:04:18,279 --> 00:04:21,440
Speaker 1: further than they were before. And as you said, you

82
00:04:21,440 --> 00:04:23,880
Speaker 1: know the excess savings is coming down, but still there's

83
00:04:23,880 --> 00:04:27,119
Speaker 1: no about truly and a half money of savings above

84
00:04:27,200 --> 00:04:29,479
Speaker 1: what you would expect the situation to be if we

85
00:04:29,480 --> 00:04:32,920
Speaker 1: hadn't had those large fiscal transfers. And finally, there's gonna

86
00:04:32,920 --> 00:04:37,120
Speaker 1: be a lot more income for people caused by indexing.

87
00:04:37,120 --> 00:04:39,719
Speaker 1: So look at Social Security eight point seven percent increase

88
00:04:39,839 --> 00:04:42,599
Speaker 1: coming next month. It's a hundred billion dollar increase in

89
00:04:42,640 --> 00:04:44,920
Speaker 1: federal spending. All those people are going to go out

90
00:04:44,920 --> 00:04:46,919
Speaker 1: and spend that money. What kind of recession do you

91
00:04:46,920 --> 00:04:50,359
Speaker 1: foresee given the outlook that you're talking about, given the

92
00:04:50,400 --> 00:04:52,920
Speaker 1: fact that if gasoline prices rise, you end up with

93
00:04:52,960 --> 00:04:57,400
Speaker 1: another situation at a time when suddenly the momentum is waning.

94
00:04:58,880 --> 00:05:00,800
Speaker 1: I don't expect every set quiet yet. I think the

95
00:05:00,800 --> 00:05:03,640
Speaker 1: economy still has considerable for momentum. If you look at

96
00:05:03,640 --> 00:05:06,600
Speaker 1: the Atlanta ft GDP now forecast for the fourth quarters,

97
00:05:06,720 --> 00:05:09,240
Speaker 1: it's in the two to three percent range. Uh And

98
00:05:09,279 --> 00:05:11,800
Speaker 1: I think that the conno will continue to grow through

99
00:05:11,800 --> 00:05:14,719
Speaker 1: the first quarter. I think the recession, when it finally

100
00:05:14,760 --> 00:05:18,680
Speaker 1: does occur, will be mild because the federal reserves in control.

101
00:05:19,000 --> 00:05:21,839
Speaker 1: This is a recession if it occurs is completely induced

102
00:05:21,839 --> 00:05:24,520
Speaker 1: by the FED to generate more slack in the labor market.

103
00:05:24,760 --> 00:05:27,120
Speaker 1: That means, once enough slack in the labor market has

104
00:05:27,120 --> 00:05:30,240
Speaker 1: been produced to bring inflation down, the Fed can relent.

105
00:05:30,800 --> 00:05:33,800
Speaker 1: Uh short commentious rates are gonna be around five points,

106
00:05:33,920 --> 00:05:35,840
Speaker 1: so plenty of room for the FED to cut rates

107
00:05:36,040 --> 00:05:38,560
Speaker 1: to stimulate the economy when the time comes. This is

108
00:05:38,560 --> 00:05:40,120
Speaker 1: one reason why I think the stock market is still

109
00:05:40,160 --> 00:05:44,520
Speaker 1: pretty poyant giving the fact that likely because they see

110
00:05:44,560 --> 00:05:46,880
Speaker 1: the other side. Bill. This is why we love to

111
00:05:46,920 --> 00:05:49,280
Speaker 1: have you on, I mean, the idea and this is

112
00:05:49,320 --> 00:05:51,600
Speaker 1: so important, folks. I knew that we were going up

113
00:05:51,640 --> 00:05:56,120
Speaker 1: eight point seven and social Security, but there it is

114
00:05:56,720 --> 00:05:59,960
Speaker 1: Dr Dudley quantifying it and showing that it's a return

115
00:06:00,040 --> 00:06:02,479
Speaker 1: and Bill it's almost like, you know, I expect Wayne

116
00:06:02,520 --> 00:06:05,040
Speaker 1: Angel to be on after you. We're almost like back

117
00:06:05,080 --> 00:06:08,960
Speaker 1: to the sixties and seventies with an observation like that,

118
00:06:09,160 --> 00:06:11,640
Speaker 1: is this good old demand pull inflation? I mean, is

119
00:06:11,640 --> 00:06:14,400
Speaker 1: that where we are we got our social Security check,

120
00:06:14,760 --> 00:06:19,000
Speaker 1: let's go spend it and prices go up. Well, novel

121
00:06:19,080 --> 00:06:21,279
Speaker 1: GDP is on a strong trajectory, and the FED needs

122
00:06:21,279 --> 00:06:23,480
Speaker 1: to take that novel GDP growth, which we've been running

123
00:06:23,480 --> 00:06:26,240
Speaker 1: around nine percent over the last year down to about three.

124
00:06:26,680 --> 00:06:28,839
Speaker 1: That's a big job for the FIT to pull off.

125
00:06:29,279 --> 00:06:36,360
Speaker 1: Bill Dudley, thank you so much. Lisa Bramlinson. Tom King

126
00:06:36,480 --> 00:06:40,000
Speaker 1: was one of the stars of Wall Street. She is

127
00:06:40,080 --> 00:06:42,320
Speaker 1: definitive on E s G. I'll try to get some

128
00:06:42,400 --> 00:06:45,359
Speaker 1: questions in on that after a really brutal year for

129
00:06:45,560 --> 00:06:47,200
Speaker 1: E s G. But we speak with the head of

130
00:06:47,279 --> 00:06:51,159
Speaker 1: US Equity Quantitative Strategy at Bank of America, Sevita Supermanian

131
00:06:51,600 --> 00:06:55,600
Speaker 1: joins US as well. Sevita, You've got a very cautious view,

132
00:06:55,760 --> 00:06:59,920
Speaker 1: a defensive view for two thousand twenty three. My statement

133
00:07:00,240 --> 00:07:05,800
Speaker 1: is corporations will adapt. How will the corporations adapt to

134
00:07:05,920 --> 00:07:10,960
Speaker 1: your caution to husband and to husband free cash flow?

135
00:07:12,560 --> 00:07:15,480
Speaker 1: You know what I think they're already adapting. And what

136
00:07:15,520 --> 00:07:20,000
Speaker 1: we're seeing is that companies are spending on automation to

137
00:07:20,280 --> 00:07:24,360
Speaker 1: replace you know, kind of expensive labor with machines and uh,

138
00:07:24,520 --> 00:07:28,880
Speaker 1: we're actually seeing the seeds sown for a strong productivity cycle.

139
00:07:29,200 --> 00:07:31,480
Speaker 1: The problem is it takes a little while for all

140
00:07:31,520 --> 00:07:34,080
Speaker 1: of that to come to fruition. I think companies are

141
00:07:34,120 --> 00:07:37,760
Speaker 1: also adapting to geopolitical risk as well as you know,

142
00:07:37,840 --> 00:07:42,520
Speaker 1: supply chain friction by reshoring and then you know, just

143
00:07:42,600 --> 00:07:44,680
Speaker 1: a little on the E s G, a little sprinkle

144
00:07:44,720 --> 00:07:46,880
Speaker 1: of E s G here a lot of One of

145
00:07:46,880 --> 00:07:50,760
Speaker 1: the biggest reasons that companies are moving plant and property

146
00:07:50,760 --> 00:07:55,200
Speaker 1: and equipment closer to consumers is to reduce travel related

147
00:07:55,360 --> 00:07:58,440
Speaker 1: emissions risks. So there's a lot of reasons that companies are,

148
00:07:58,680 --> 00:08:02,360
Speaker 1: you know, adapting to this environment by reshoring, spending a

149
00:08:02,440 --> 00:08:04,520
Speaker 1: little bit of money on you know, a better set

150
00:08:04,560 --> 00:08:07,120
Speaker 1: up in the future, but it costs money in the

151
00:08:07,160 --> 00:08:09,440
Speaker 1: near term and that's what we're worried about over the

152
00:08:09,480 --> 00:08:12,440
Speaker 1: next twelve months. Stuart Kaiser over at City Group is

153
00:08:12,480 --> 00:08:15,480
Speaker 1: in the same camp I'm in that when you get

154
00:08:15,600 --> 00:08:21,320
Speaker 1: Sevita Subramanian gloom, your choice set gets smaller and smaller.

155
00:08:21,960 --> 00:08:24,880
Speaker 1: Our index funds going to get hammered in the next

156
00:08:24,880 --> 00:08:31,920
Speaker 1: twelve months versus active, more narrow less diversified securities analysis

157
00:08:32,320 --> 00:08:35,720
Speaker 1: because there's just not that many good ideas out there.

158
00:08:35,760 --> 00:08:41,119
Speaker 1: Given the Sevita gloom Look, I'm not gloomy on everything,

159
00:08:41,160 --> 00:08:43,040
Speaker 1: and I do think that there are parts of the

160
00:08:43,120 --> 00:08:47,040
Speaker 1: market that are worth uh really kind of gaining exposure to.

161
00:08:47,160 --> 00:08:50,600
Speaker 1: I mean, the problem is when everybody is gloomy, the

162
00:08:50,720 --> 00:08:53,840
Speaker 1: chances are that information is more priced into the market

163
00:08:53,880 --> 00:08:57,240
Speaker 1: than it has been when everybody is really excited. So

164
00:08:57,240 --> 00:09:00,560
Speaker 1: so I think that it is time to avoid being

165
00:09:00,600 --> 00:09:04,440
Speaker 1: an indexer and get active. I completely agree. There's a

166
00:09:04,520 --> 00:09:06,920
Speaker 1: lot of reasons for that. I mean, in our quant work,

167
00:09:06,920 --> 00:09:13,720
Speaker 1: we're noticing that dispersion valuations is that almost extreme highs

168
00:09:13,840 --> 00:09:17,000
Speaker 1: and extreme historical highs. So what that means is there's

169
00:09:17,040 --> 00:09:20,880
Speaker 1: a lot of alpha to be made by just kind

170
00:09:20,880 --> 00:09:25,800
Speaker 1: of playing mean reversion of valuation UM. So that's one reason.

171
00:09:25,880 --> 00:09:28,360
Speaker 1: The second reason that I think that indexing is going

172
00:09:28,400 --> 00:09:31,560
Speaker 1: to underperform active for you know, one of the first

173
00:09:32,120 --> 00:09:34,880
Speaker 1: years in a very long time is that you know,

174
00:09:35,800 --> 00:09:39,959
Speaker 1: the index itself is still very top heavy in long

175
00:09:40,080 --> 00:09:45,000
Speaker 1: duration high growth. You know, tech TMT kind of the

176
00:09:45,040 --> 00:09:48,360
Speaker 1: old leadership that did really well when interest rates were

177
00:09:48,400 --> 00:09:52,360
Speaker 1: falling to zero, the cost of capital was free, and

178
00:09:52,520 --> 00:09:55,760
Speaker 1: you know, any company got funding to do whatever it wanted.

179
00:09:56,000 --> 00:09:58,680
Speaker 1: I think we're moving into an environment that's more rational

180
00:09:59,080 --> 00:10:02,920
Speaker 1: and you really need to sift through and pick the winners. Um,

181
00:10:02,960 --> 00:10:04,680
Speaker 1: you know, kind of figure out the winners from the

182
00:10:04,720 --> 00:10:07,760
Speaker 1: losers and sevida that seems to be more energy and

183
00:10:07,760 --> 00:10:12,760
Speaker 1: financials ironically, rather than tech and discretionary and TMT. That's

184
00:10:12,800 --> 00:10:14,360
Speaker 1: something that you talked about, the sort of flipping of

185
00:10:14,360 --> 00:10:17,440
Speaker 1: the risk premia, which I loved this concept. How much

186
00:10:17,480 --> 00:10:20,560
Speaker 1: does that take into account the likelihood of some sort

187
00:10:20,600 --> 00:10:23,160
Speaker 1: of recession, of the fact that yields would be coming

188
00:10:23,200 --> 00:10:26,560
Speaker 1: back down and the potentially oil prices wouldn't raise as

189
00:10:26,679 --> 00:10:29,640
Speaker 1: high arise as as high as people think. How much

190
00:10:29,679 --> 00:10:33,040
Speaker 1: does that still support a narrative of financials and oil

191
00:10:33,080 --> 00:10:38,839
Speaker 1: companies outperforming. Look if rates come back to zero and

192
00:10:38,880 --> 00:10:42,560
Speaker 1: if oil companies flood the market with supply, I'm gonna

193
00:10:42,600 --> 00:10:45,440
Speaker 1: be wrong. I just don't think either of those things happen.

194
00:10:45,800 --> 00:10:49,600
Speaker 1: Over the next twelve months. Oil companies finally have capital

195
00:10:49,640 --> 00:10:53,880
Speaker 1: discipline and they're more focused on returning cash to shareholders

196
00:10:53,920 --> 00:10:56,800
Speaker 1: and meeting their E s G goals then turning back

197
00:10:56,920 --> 00:11:00,360
Speaker 1: the you know, drilling and extracting more oil. They have

198
00:11:00,559 --> 00:11:05,600
Speaker 1: completely pivoted from flooding the market with supply I'm not

199
00:11:05,640 --> 00:11:09,800
Speaker 1: talking about just the constraints on energy from the war

200
00:11:09,840 --> 00:11:12,400
Speaker 1: in Ukraine and talking about something that's been in place

201
00:11:12,480 --> 00:11:15,800
Speaker 1: for the last several years, which is oil companies in

202
00:11:15,840 --> 00:11:20,959
Speaker 1: the US are not They're not motivated by increasing supply.

203
00:11:21,120 --> 00:11:26,720
Speaker 1: They're motivated by pivoting to green and their CEO CEOs

204
00:11:26,760 --> 00:11:31,480
Speaker 1: at energy companies pay themselves not in alignment with production goals,

205
00:11:31,520 --> 00:11:34,000
Speaker 1: but in alignment with E s G goals. I think

206
00:11:34,000 --> 00:11:37,520
Speaker 1: this is a very different sector than it has been Financials.

207
00:11:37,760 --> 00:11:40,839
Speaker 1: I mean, even if rates flatline, I think financials is

208
00:11:40,880 --> 00:11:44,760
Speaker 1: a sector that has morphed from being this toxic credit

209
00:11:44,840 --> 00:11:48,160
Speaker 1: sensitive sector of two thousand seven to a sector that

210
00:11:48,240 --> 00:11:51,920
Speaker 1: has lower earnings volatility than the SMP five hundred, a

211
00:11:52,000 --> 00:11:55,120
Speaker 1: sector that has better balance sheets and it's ever had

212
00:11:55,200 --> 00:11:59,280
Speaker 1: in the history of its existence, and can actually amp

213
00:11:59,360 --> 00:12:03,559
Speaker 1: up its div it end, you know, amidst an economic slowdown.

214
00:12:03,600 --> 00:12:06,960
Speaker 1: I think it's a really interesting sector right now, Savida.

215
00:12:07,200 --> 00:12:09,679
Speaker 1: Where do we pivot to after next year. Let's say

216
00:12:09,679 --> 00:12:12,680
Speaker 1: it's the reset year where we understand whether we've seen

217
00:12:12,720 --> 00:12:15,960
Speaker 1: peak inflation and the trajectory of inflation. From there, are

218
00:12:15,960 --> 00:12:19,160
Speaker 1: we moving to a lost decade one of slow grinding

219
00:12:19,200 --> 00:12:22,840
Speaker 1: returns for fields remain higher, or are we entering a

220
00:12:22,880 --> 00:12:26,960
Speaker 1: new bull market that has legs. Look, I think that

221
00:12:27,040 --> 00:12:30,559
Speaker 1: we're in an environment where we're moving from just simply

222
00:12:30,640 --> 00:12:35,080
Speaker 1: price appreciation to total return. And that's been our thesis

223
00:12:35,160 --> 00:12:37,160
Speaker 1: for for the last couple of years. I mean, if

224
00:12:37,200 --> 00:12:39,440
Speaker 1: you look at the last ten years we've had, you know,

225
00:12:39,679 --> 00:12:41,599
Speaker 1: very most of the returns of the S and P

226
00:12:41,720 --> 00:12:45,559
Speaker 1: five have been from just capital appreciation, like less than

227
00:12:45,720 --> 00:12:48,640
Speaker 1: fifteen percent of returns have been from dividends. I think

228
00:12:48,640 --> 00:12:51,120
Speaker 1: we're moving into an environment where fifty percent of your

229
00:12:51,160 --> 00:12:54,280
Speaker 1: returns are going to be from dividends, are going to

230
00:12:54,360 --> 00:12:56,920
Speaker 1: be from price appreciation. So it's gonna be not as

231
00:12:56,960 --> 00:12:59,920
Speaker 1: exciting from just buying a stock and watching it go up,

232
00:13:00,160 --> 00:13:03,160
Speaker 1: but it is very exciting from the idea that companies

233
00:13:03,160 --> 00:13:07,480
Speaker 1: could actually increase their dividends. Um your total return profile

234
00:13:07,559 --> 00:13:10,400
Speaker 1: could be that much better than bonds. I still like

235
00:13:10,520 --> 00:13:13,640
Speaker 1: stocks more than bonds for the next ten years. And

236
00:13:13,760 --> 00:13:15,840
Speaker 1: you know, Lisa, one thing that I think is good news,

237
00:13:16,000 --> 00:13:18,760
Speaker 1: so I'll end on a positive note, is that our

238
00:13:18,920 --> 00:13:22,679
Speaker 1: you know, our long term models were very negative on

239
00:13:22,840 --> 00:13:25,559
Speaker 1: equities at the beginning of this year, but the good

240
00:13:25,640 --> 00:13:28,240
Speaker 1: thing about this correction that we've seen in the market.

241
00:13:28,320 --> 00:13:31,160
Speaker 1: The good thing about valuations coming down is that the

242
00:13:31,240 --> 00:13:34,200
Speaker 1: setup right now is spitting out something like five percent

243
00:13:34,280 --> 00:13:37,800
Speaker 1: returns per annum over the next ten years, rather than

244
00:13:37,880 --> 00:13:40,080
Speaker 1: negative returns that we were seeing at the beginning of

245
00:13:40,080 --> 00:13:42,160
Speaker 1: the year. So yeah, I'm not going to be great

246
00:13:42,160 --> 00:13:44,679
Speaker 1: as the twenty tens, but it's going to be better

247
00:13:44,760 --> 00:13:48,840
Speaker 1: than than negative. Sevita, thank you so much. Sevita Subermannia

248
00:13:48,880 --> 00:13:52,760
Speaker 1: and the Bank of America Securities here this morning. We've

249
00:13:52,760 --> 00:13:54,280
Speaker 1: got to get her back on to talk about the

250
00:13:54,320 --> 00:14:06,800
Speaker 1: new e s G. Right now, we're gonna spend four

251
00:14:06,840 --> 00:14:10,320
Speaker 1: minutes with Matt Brill of Investco on a day job,

252
00:14:10,360 --> 00:14:12,360
Speaker 1: and then we are gonna wander over to his good

253
00:14:12,360 --> 00:14:15,319
Speaker 1: experiences at the World Cup, he greets us this morning

254
00:14:15,360 --> 00:14:17,760
Speaker 1: for those of you on radio, and I don't what

255
00:14:17,800 --> 00:14:19,560
Speaker 1: did they say, the blue and the blanche. I don't

256
00:14:19,600 --> 00:14:21,560
Speaker 1: even know what the language is here to Argentina with

257
00:14:21,640 --> 00:14:25,760
Speaker 1: the blue and the white Jersey met bro. The bond

258
00:14:25,760 --> 00:14:30,080
Speaker 1: market needs to win next year after a horrific two

259
00:14:30,120 --> 00:14:33,640
Speaker 1: thousand twenty two. What is the path to total return

260
00:14:33,720 --> 00:14:38,720
Speaker 1: next year in debt markets? He good morning, Tom, Yeah,

261
00:14:38,720 --> 00:14:41,040
Speaker 1: it was. It's been a very challenging two thousand and

262
00:14:41,080 --> 00:14:43,680
Speaker 1: twenty two. I think the the I G index is

263
00:14:43,680 --> 00:14:47,960
Speaker 1: down about UM, but the coupon is materially higher going forward,

264
00:14:47,960 --> 00:14:49,800
Speaker 1: and yields are a lot higher going forward, so you know,

265
00:14:49,840 --> 00:14:52,080
Speaker 1: the look at the starting point is good. Um. We

266
00:14:52,120 --> 00:14:54,440
Speaker 1: think that for two reasons you tend to not have

267
00:14:54,520 --> 00:14:56,960
Speaker 1: back to back negative years for fixed income. The first

268
00:14:57,040 --> 00:14:59,240
Speaker 1: is that obviously a higher yield gives you a greater

269
00:14:59,320 --> 00:15:02,880
Speaker 1: break even it or buffer going forward um for volatility

270
00:15:02,880 --> 00:15:05,760
Speaker 1: and for spread and interest right widening. But to that,

271
00:15:05,800 --> 00:15:07,640
Speaker 1: the higher cost of debt generally is a burden on

272
00:15:07,680 --> 00:15:10,360
Speaker 1: the economy, and as you have a higher cost of debt,

273
00:15:10,400 --> 00:15:13,120
Speaker 1: it starts to slow the economy and makes things uh,

274
00:15:13,280 --> 00:15:15,200
Speaker 1: it makes eventually the FED cut, which we do think

275
00:15:15,280 --> 00:15:17,800
Speaker 1: is is certainly in play the back half of three.

276
00:15:17,880 --> 00:15:20,680
Speaker 1: So pretty good starting point. Um. He got a goodfferent

277
00:15:20,720 --> 00:15:22,360
Speaker 1: painter of this year, but I do think the technicals

278
00:15:22,400 --> 00:15:24,440
Speaker 1: will be very good for a G next year. UM

279
00:15:24,520 --> 00:15:26,440
Speaker 1: at these higher yield levels. Let's talk about the pain.

280
00:15:26,840 --> 00:15:28,760
Speaker 1: I'm looking at stocks and I'm just asking myself, is

281
00:15:28,800 --> 00:15:31,760
Speaker 1: that it with down almost on the SMP year today?

282
00:15:31,840 --> 00:15:34,080
Speaker 1: Death thirty one on the nastack A little bit more

283
00:15:34,080 --> 00:15:36,480
Speaker 1: on that. I look away spreads this year, Matt, and

284
00:15:36,520 --> 00:15:38,160
Speaker 1: I'm just asking myself, is that it is that the

285
00:15:38,200 --> 00:15:40,320
Speaker 1: price that we have to pay for four hundred basis

286
00:15:40,360 --> 00:15:42,720
Speaker 1: points worth of tightening and nine months? And some people say, yeah,

287
00:15:42,840 --> 00:15:45,600
Speaker 1: I think that's it. Others Matts say no way, You're

288
00:15:45,640 --> 00:15:48,520
Speaker 1: not getting away with blown up ten years a decade

289
00:15:48,520 --> 00:15:52,200
Speaker 1: worth of easy central bank policy with these numbers. What

290
00:15:52,240 --> 00:15:55,320
Speaker 1: do you say back to those people? So so, I

291
00:15:55,320 --> 00:15:57,240
Speaker 1: won't speak to the equity markets, but I'll speaking to

292
00:15:57,320 --> 00:15:59,360
Speaker 1: the fixed in compartment. It's it's the worst year we've

293
00:15:59,400 --> 00:16:01,440
Speaker 1: ever had. So what you say is that it? I

294
00:16:01,440 --> 00:16:03,880
Speaker 1: mean we were down over at one point and that

295
00:16:03,960 --> 00:16:07,280
Speaker 1: was just an absolute catastrophe and things that never anybody

296
00:16:07,280 --> 00:16:09,200
Speaker 1: ever would have thought could happen to that magnitude. I

297
00:16:09,200 --> 00:16:11,560
Speaker 1: don't think, Um, we're very few people were calling for

298
00:16:11,640 --> 00:16:14,880
Speaker 1: a down year in the bondom market. Um, so you know,

299
00:16:14,920 --> 00:16:18,200
Speaker 1: I think that the readjustment has taken place. Um, when

300
00:16:18,240 --> 00:16:20,400
Speaker 1: you type, when you hike for inner basis points in

301
00:16:20,720 --> 00:16:23,360
Speaker 1: less than nine months, UM, you know it's gonna it's

302
00:16:23,360 --> 00:16:25,560
Speaker 1: gonna leave a mark. And that's certainly is what happened.

303
00:16:25,560 --> 00:16:27,480
Speaker 1: But I do think we're much better in balance at

304
00:16:27,480 --> 00:16:29,320
Speaker 1: this point. And you know, we're talking earlier whether the

305
00:16:29,400 --> 00:16:31,840
Speaker 1: FED hikes one, two, or three more times. You know,

306
00:16:31,880 --> 00:16:33,440
Speaker 1: I'm kind of more in the camp of the hike

307
00:16:33,480 --> 00:16:35,440
Speaker 1: in February. I do think they'll hike again in March,

308
00:16:35,720 --> 00:16:38,720
Speaker 1: but that's that's probably it. So we're of the way

309
00:16:38,880 --> 00:16:41,280
Speaker 1: done here. Um So, I think, you know, the floors

310
00:16:41,320 --> 00:16:43,200
Speaker 1: has sort of been set and the worst is certainly

311
00:16:43,240 --> 00:16:45,280
Speaker 1: behind us. Although credit spreads are pretty much in line

312
00:16:45,320 --> 00:16:47,800
Speaker 1: with averages, are they pretty pricing in a recession as well?

313
00:16:48,120 --> 00:16:52,040
Speaker 1: Or are they pricing in something much more mild? Yeah,

314
00:16:52,040 --> 00:16:53,720
Speaker 1: so it's it's the tail of two markets. If you

315
00:16:53,800 --> 00:16:56,760
Speaker 1: just look at spreads, the answer is no. Um here

316
00:16:56,760 --> 00:16:59,880
Speaker 1: where the thirty basis point range on spreads that is

317
00:17:00,000 --> 00:17:02,160
Speaker 1: already the fifty basis points wider on the year, So

318
00:17:02,160 --> 00:17:04,960
Speaker 1: it is a pretty material and move wider. But they've

319
00:17:04,960 --> 00:17:07,639
Speaker 1: been cheaper about thirty of the time over the last

320
00:17:07,800 --> 00:17:10,320
Speaker 1: five years and about of the time over the last

321
00:17:10,320 --> 00:17:12,880
Speaker 1: ten years, so we're not pricing it intercession. If things

322
00:17:12,880 --> 00:17:16,080
Speaker 1: were to significantly slow down, credit spreads likely would happen

323
00:17:16,160 --> 00:17:18,880
Speaker 1: go wider. But if you look at yields, yields aren't

324
00:17:18,920 --> 00:17:21,760
Speaker 1: that roughly the nine percentile over the last decade, So

325
00:17:22,000 --> 00:17:24,359
Speaker 1: all in yields are still very elevated, and you are

326
00:17:24,400 --> 00:17:26,880
Speaker 1: getting paid, in my opinion, to take on credit risk.

327
00:17:27,160 --> 00:17:28,879
Speaker 1: The question is are you Are you better off in treasuries?

328
00:17:28,880 --> 00:17:30,919
Speaker 1: Are you better off in credit? Matt Brill dressed in

329
00:17:31,000 --> 00:17:34,200
Speaker 1: Argentine is blue and white. You were in cutter from

330
00:17:34,240 --> 00:17:38,320
Speaker 1: many many of these games you experienced at firsthand. The

331
00:17:38,359 --> 00:17:41,080
Speaker 1: World Cup in four years will address New York City

332
00:17:41,119 --> 00:17:45,560
Speaker 1: and also with Investco Atlanta is well other cities across

333
00:17:45,600 --> 00:17:48,720
Speaker 1: this nation. What should we look for in four years

334
00:17:48,760 --> 00:17:53,679
Speaker 1: after what you experienced this year? Well, this was the

335
00:17:53,720 --> 00:17:55,359
Speaker 1: World Cup on like any other that you could have

336
00:17:55,400 --> 00:17:57,560
Speaker 1: it all in one place. But um, you know, I

337
00:17:57,600 --> 00:18:00,199
Speaker 1: just think there's gonna be a hot ticket here in

338
00:18:00,200 --> 00:18:02,640
Speaker 1: the US. And we've got a good young team. I'm

339
00:18:02,640 --> 00:18:04,040
Speaker 1: not sure we're gonna get a new coach or not.

340
00:18:04,280 --> 00:18:05,920
Speaker 1: I'm not gonna get in that conversation, but I think

341
00:18:05,920 --> 00:18:08,679
Speaker 1: we like we will, got a great core of the team,

342
00:18:08,760 --> 00:18:10,880
Speaker 1: and I see it in the youth ranks. Everybody's talking

343
00:18:10,880 --> 00:18:12,719
Speaker 1: about this World Cup. Everybody wants to go to it.

344
00:18:12,920 --> 00:18:15,000
Speaker 1: I was able to get six games in four days

345
00:18:15,040 --> 00:18:17,080
Speaker 1: over in Guitar all at face value. I don't think

346
00:18:17,119 --> 00:18:19,359
Speaker 1: that's gonna necessarily happen. Ever here in the US. I

347
00:18:19,359 --> 00:18:21,399
Speaker 1: think it's gonna be the hottest ticket. Everyone's gonna want

348
00:18:21,400 --> 00:18:22,960
Speaker 1: to be a part of this World Cup, and I

349
00:18:23,000 --> 00:18:25,000
Speaker 1: think it's gonna be, you know, a fantastic time here

350
00:18:25,040 --> 00:18:27,560
Speaker 1: in North America. I gotta mention it's in Canada, Mexico

351
00:18:27,640 --> 00:18:29,600
Speaker 1: as well. Very cool, Matt. I've been thinking about the

352
00:18:29,600 --> 00:18:31,840
Speaker 1: same thing, buddy already have Can you imagine how expensive

353
00:18:31,880 --> 00:18:34,520
Speaker 1: it will be if you don't get those tickets? Hit

354
00:18:34,880 --> 00:18:39,440
Speaker 1: coverage in Atlanta? Well Pharaoh today, Oh and Matt brill

355
00:18:39,880 --> 00:18:41,520
Speaker 1: White down in Atlanta. Why can't we just do it?

356
00:18:41,560 --> 00:18:43,360
Speaker 1: I'll pay it. We can do if you gotta go run,

357
00:18:43,400 --> 00:18:46,800
Speaker 1: you gotta go to Mexico, go to Canada, you know coverage,

358
00:18:47,240 --> 00:18:50,520
Speaker 1: Lisa and I will stay home and watch, you know whatever.

359
00:18:54,920 --> 00:18:56,399
Speaker 1: Right now, we are going to get a brief on

360
00:18:56,440 --> 00:18:59,399
Speaker 1: the holiday festivities with one Tea Haynes. Terry Haynes as

361
00:18:59,440 --> 00:19:04,240
Speaker 1: founder of Penge, and we welcome him again this morning. Terry,

362
00:19:04,520 --> 00:19:08,359
Speaker 1: we're all distracted by football in the holiday season, etcetera.

363
00:19:08,840 --> 00:19:13,119
Speaker 1: Is Washington shut down yet or are they actually pretending

364
00:19:13,200 --> 00:19:18,320
Speaker 1: work this week? Tom, You know Russ never sleeps in Washington,

365
00:19:18,520 --> 00:19:22,879
Speaker 1: and uhh no, they'll be working all week putting together

366
00:19:23,080 --> 00:19:28,000
Speaker 1: what I hope are the final touches on a full

367
00:19:28,080 --> 00:19:31,159
Speaker 1: year spending bill. They've they've been promising that that will happen,

368
00:19:31,520 --> 00:19:34,800
Speaker 1: so it probably will happen. But otherwise that'll be a

369
00:19:34,840 --> 00:19:37,639
Speaker 1: bit help us here. With all the knowledge base you

370
00:19:37,720 --> 00:19:42,840
Speaker 1: have of the ten people it takes to make a

371
00:19:42,920 --> 00:19:48,760
Speaker 1: run for president, which people are percolating the hardest, besides

372
00:19:48,800 --> 00:19:52,680
Speaker 1: the obvious names to make a dash for the presidency,

373
00:19:52,720 --> 00:19:55,439
Speaker 1: which are hiring all the people you know at that

374
00:19:55,560 --> 00:20:00,040
Speaker 1: octagonal bar at the Willard, Well, most of them have

375
00:20:00,160 --> 00:20:03,240
Speaker 1: been hired up already, you know. And you you've saved

376
00:20:03,280 --> 00:20:06,200
Speaker 1: me some time by going through the usual names. There's

377
00:20:06,240 --> 00:20:08,920
Speaker 1: a lot of usual names, of course, starting from De

378
00:20:09,000 --> 00:20:12,800
Speaker 1: Santis and going through Vice President Pence, Governor Haley others,

379
00:20:13,320 --> 00:20:15,800
Speaker 1: and uh, you know a lot of those have already

380
00:20:15,800 --> 00:20:19,400
Speaker 1: staffed up and briefed up, you know. The uh. Back

381
00:20:19,400 --> 00:20:22,639
Speaker 1: in the eighties, Uh, the man who became Bush forty

382
00:20:22,640 --> 00:20:26,160
Speaker 1: one was thought of as being slightly insane for starting

383
00:20:26,280 --> 00:20:30,440
Speaker 1: his his campaign the three full years early, but ever

384
00:20:30,520 --> 00:20:34,360
Speaker 1: since then it's been that sort of uh, that sort

385
00:20:34,400 --> 00:20:37,480
Speaker 1: of staffing up. So you know, everybody's jockeying for position,

386
00:20:37,520 --> 00:20:40,280
Speaker 1: and they have been for some time. So we'll start

387
00:20:40,280 --> 00:20:42,120
Speaker 1: to see them break cover earlier in the new year.

388
00:20:42,200 --> 00:20:44,800
Speaker 1: How much pushback is there in the Democratic Party for

389
00:20:45,040 --> 00:20:47,760
Speaker 1: from Joe Biden running again? We had we had seen

390
00:20:47,800 --> 00:20:50,480
Speaker 1: over the weekend a number of reports talking about how

391
00:20:50,520 --> 00:20:53,600
Speaker 1: he's beating up his social presence, particularly in some of

392
00:20:53,640 --> 00:20:57,560
Speaker 1: the networks that don't have political advertising allowed. What do

393
00:20:57,600 --> 00:21:00,919
Speaker 1: you take for that from this? UM? I take the

394
00:21:01,480 --> 00:21:05,760
Speaker 1: largely that the president intends to run for reelection and

395
00:21:06,080 --> 00:21:09,280
Speaker 1: the party can't identify a good alternative. There are a

396
00:21:09,320 --> 00:21:12,760
Speaker 1: lot of voices in the party that say that the

397
00:21:12,800 --> 00:21:15,480
Speaker 1: president should not run again for a variety of reasons,

398
00:21:15,520 --> 00:21:19,080
Speaker 1: age being the age and the bridge being the two

399
00:21:19,119 --> 00:21:22,320
Speaker 1: major ones. But in point in fact, there's nobody around

400
00:21:22,359 --> 00:21:25,240
Speaker 1: that's going to be able to command, uh, the ability

401
00:21:26,000 --> 00:21:30,280
Speaker 1: to continue to attract progressives. UH. And you know Biden

402
00:21:30,320 --> 00:21:34,240
Speaker 1: has been essentially running the progressive agenda as much as

403
00:21:34,280 --> 00:21:40,040
Speaker 1: possible UH and also appeal to centrists and UH, he's

404
00:21:40,520 --> 00:21:45,400
Speaker 1: making a case that that's what the midterms showed, and

405
00:21:45,520 --> 00:21:50,399
Speaker 1: so they're they're all kind of reluctantly follow the falling

406
00:21:50,440 --> 00:21:52,359
Speaker 1: in line on this, I think. And Terry, one of

407
00:21:52,400 --> 00:21:56,760
Speaker 1: his hallmark policies had to do with oil prices, uh guess,

408
00:21:56,920 --> 00:21:59,159
Speaker 1: and the fact that he released as much as he

409
00:21:59,160 --> 00:22:02,240
Speaker 1: did a record amount from the Strategic Petroleum Reserve over

410
00:22:02,280 --> 00:22:05,200
Speaker 1: the past twelve months. Now we're hearing that in February,

411
00:22:05,400 --> 00:22:08,440
Speaker 1: they have plans to start refilling it. How is that

412
00:22:08,520 --> 00:22:13,600
Speaker 1: going to affect the connection between gasoline prices and sentiment

413
00:22:13,720 --> 00:22:16,840
Speaker 1: and political popularity if it reverses some of the price

414
00:22:17,000 --> 00:22:22,120
Speaker 1: drops that we've seen. Well, I think, Uh, the president

415
00:22:22,200 --> 00:22:26,000
Speaker 1: is not particularly popular as as as everyone knows, and

416
00:22:26,200 --> 00:22:29,280
Speaker 1: isn't going to you know, magically become more popular his

417
00:22:29,800 --> 00:22:33,720
Speaker 1: his popularity still hovers around forty depending on which polls

418
00:22:33,720 --> 00:22:37,120
Speaker 1: you like. And uh, you know, so refilling the Strategic

419
00:22:37,359 --> 00:22:40,239
Speaker 1: Patroleum Reserve, frankly, as policy is a very good thing

420
00:22:40,280 --> 00:22:43,480
Speaker 1: because there's a great concern about how low it's gotten.

421
00:22:44,080 --> 00:22:47,439
Speaker 1: But you know, it will have a detrimental impact on

422
00:22:47,760 --> 00:22:51,920
Speaker 1: gasoline prices, uh during the during the winter, and uh,

423
00:22:51,960 --> 00:22:54,000
Speaker 1: you know that's going to be difficult for a lot

424
00:22:54,040 --> 00:22:56,919
Speaker 1: of people, So you know, they're trying to balance here

425
00:22:56,960 --> 00:23:00,320
Speaker 1: as best they can. But now that he's gotten pass

426
00:23:00,480 --> 00:23:04,119
Speaker 1: the mid terms, I think you can say he's he

427
00:23:04,200 --> 00:23:08,000
Speaker 1: feels a little bit freer to to to re engage

428
00:23:08,000 --> 00:23:11,080
Speaker 1: and reinflate the spr Terry, what you're betting that the

429
00:23:11,119 --> 00:23:15,679
Speaker 1: President of the United States will run for a second term? Uh?

430
00:23:16,320 --> 00:23:20,119
Speaker 1: I think probably. Uh. They've They've given every indication that

431
00:23:20,160 --> 00:23:23,480
Speaker 1: he will, assuming he's physically able to do it. I said,

432
00:23:24,000 --> 00:23:27,320
Speaker 1: I see no no reason today why you won't. Very good,

433
00:23:27,400 --> 00:23:30,720
Speaker 1: Terry Haynes, Thank You's isn't he Yeah, he's It's completely

434
00:23:30,800 --> 00:23:35,520
Speaker 1: wired in and he's got some serious credit thirty years ago.

435
00:23:35,560 --> 00:23:38,840
Speaker 1: I mean, he's been through this a few times, unlike

436
00:23:38,880 --> 00:23:42,240
Speaker 1: a lot of other people out there. This is the

437
00:23:42,240 --> 00:23:46,919
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays

438
00:23:46,960 --> 00:23:50,439
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and

439
00:23:50,520 --> 00:23:54,760
Speaker 1: on Bloomberg Television each day from six to nine am

440
00:23:54,840 --> 00:23:58,600
Speaker 1: for insight from the best in economics, finance, investment, and

441
00:23:58,720 --> 00:24:05,240
Speaker 1: international relations. And subscribe to the Surveillance Podcast on Apple podcast, SoundCloud,

442
00:24:05,400 --> 00:24:09,000
Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm

443
00:24:09,040 --> 00:24:11,639
Speaker 1: Tom keene In, This is Bloomberg,