WEBVTT - Surveillance: Financial Conditions with Dudley 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. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.920 and of course on the Bloomberg terminal. This was a joy. 0:00:30.480 --> 0:00:32.680 On the day of the Federal Reserve meetings, we had 0:00:32.880 --> 0:00:35.800 Richard Clarato with us, the vice chairman, former vice chairman, 0:00:36.159 --> 0:00:38.600 and also William Dudley of course a former president of 0:00:38.640 --> 0:00:41.319 New York Fed as well, and we are thrilled Bill 0:00:41.400 --> 0:00:43.760 Dudley you would find on your date calendar to come 0:00:43.760 --> 0:00:48.640 back and join us. Here is we reset into January. 0:00:48.680 --> 0:00:51.080 What will you glean? And I know what you're gonna 0:00:51.080 --> 0:00:53.520 tell me. You're not gonna rely on one data point, 0:00:54.040 --> 0:00:57.280 but what does the data point of January twelve the 0:00:57.320 --> 0:01:01.840 inflation reports signal to the Fed where possibly they will 0:01:01.880 --> 0:01:06.840 have three data points lined up marking some form of disinflation. 0:01:08.800 --> 0:01:11.399 Paul have been very clear that to chief success he 0:01:11.480 --> 0:01:14.560 needs to see moderation of goods prices, which he is 0:01:14.560 --> 0:01:20.120 seeing moderation of services prices excluding housing, which he's not seeing, 0:01:20.600 --> 0:01:22.959 and more slack in the labor market, which he's not seeing. 0:01:23.000 --> 0:01:25.720 So he's only achieved one out of its three goals. 0:01:25.720 --> 0:01:27.720 So the thing that focus on is what's happening to 0:01:27.760 --> 0:01:30.760 the services inflation excluding housing because we know housing is 0:01:30.760 --> 0:01:33.080 going to come down with a lag. And what's happening 0:01:33.080 --> 0:01:35.000 in the labor market. You know we have you know 0:01:35.120 --> 0:01:39.080 less player e poloyment increase. We need to see pyroll 0:01:39.120 --> 0:01:42.600 gains of fifty thousand, seventy five a month. We need 0:01:42.640 --> 0:01:44.959 to see an increase in the unemployment rate on FUNT 0:01:45.200 --> 0:01:47.360 to generate and a slack in the labor market. We 0:01:47.400 --> 0:01:50.240 need to get inflation down in the services sector. You 0:01:50.280 --> 0:01:53.560 were expert with on this at Goldman Sachs with a 0:01:53.600 --> 0:01:56.760 guy named McKelvie in a young Turk names hot Sis 0:01:57.040 --> 0:01:59.919 and the bottom line, I love Bill, what you're saying. 0:02:00.040 --> 0:02:02.760 We need to get from two hundred thousand plus down 0:02:02.760 --> 0:02:05.680 to something that's the run rate of fifty seventy thousand 0:02:05.760 --> 0:02:09.880 non farm payrolls. When we do that, where does that 0:02:10.160 --> 0:02:13.320 dearth of job growth come from? I mean, there's no 0:02:13.480 --> 0:02:17.200 evidence out there on how to get from there here 0:02:17.240 --> 0:02:19.760 to there. The main phrase I'm trying to talk like 0:02:19.840 --> 0:02:22.440 him at Bowden, but I'm going down in flames. How 0:02:22.440 --> 0:02:25.840 do we get from here to thar? Well? What the 0:02:25.919 --> 0:02:28.440 feed is said that that we need tighter financial conditions. 0:02:28.480 --> 0:02:31.000 We need tighter financial to getations to slow the economy 0:02:31.040 --> 0:02:34.040 down so there's less demand for labor. That's why Pollen 0:02:34.160 --> 0:02:36.400 is the press conference last week with basically pointing out 0:02:36.400 --> 0:02:39.359 if financial conditions ease and the Fed Reserve is gonna 0:02:39.360 --> 0:02:42.040 have to do more. The Fed is targeting financial conditions 0:02:42.040 --> 0:02:45.200 because that's the mechanism that slows down the economy. When 0:02:45.240 --> 0:02:48.520 sponds rally and stocks rally, then that just mean there's 0:02:48.520 --> 0:02:51.280 more for the Fed to do. Bill. I've been confused 0:02:51.280 --> 0:02:54.160 by the market response after we got the latest Fed meeting. 0:02:54.639 --> 0:02:57.520 There hasn't been a real increase in bond yields and 0:02:57.560 --> 0:03:00.680 there is still priced into the market a lower terminal rate. 0:03:00.680 --> 0:03:02.680 Them with the FETE is saying that they are going 0:03:02.760 --> 0:03:07.680 to do How do you understand that? There's two possible explanations. 0:03:07.880 --> 0:03:10.560 Number One, the market thinks that the Federal blank once 0:03:10.560 --> 0:03:13.120 the unemployer rate starts going up. So the market is 0:03:13.160 --> 0:03:15.160 basically saying that the FETE doesn't mean what it says 0:03:15.200 --> 0:03:17.320 that they're saying this to try to talk tough, but 0:03:17.440 --> 0:03:20.680 when the going gets difficult, the federal fold. That's one 0:03:20.720 --> 0:03:22.720 possible explanation. I don't believe that. I think Paul is 0:03:22.760 --> 0:03:25.240 going to do what he says. And number two, they 0:03:25.280 --> 0:03:27.320 may just have a more benign view about how fast 0:03:27.360 --> 0:03:29.400 inflation is going to come down. I think the market 0:03:29.480 --> 0:03:32.639 is overweighting the improvement in goods price inflation. We knew 0:03:32.680 --> 0:03:35.480 goods price inflation was going to come down for two reasons. 0:03:35.800 --> 0:03:40.400 Number one, the switch in in the pandemic has reduced 0:03:40.400 --> 0:03:43.360 the demand for good versus services. And two, we knew 0:03:43.360 --> 0:03:45.560 that some of these supply chain disruptions we're gonna normally. 0:03:45.640 --> 0:03:47.200 The fact that used car prices are falling out was 0:03:47.200 --> 0:03:50.480 don't surprise anybody. At the same time, people point to 0:03:50.520 --> 0:03:53.960 the fact that credit card receivables are going up, people 0:03:53.960 --> 0:03:56.480 are borrowing more. It indicates that the cushion is getting 0:03:56.560 --> 0:04:00.240 used up, and there will be a music stoppage at 0:04:00.240 --> 0:04:02.280 the beginning of the year that people will stop spending, 0:04:02.280 --> 0:04:04.560 and perhaps they already are. How do you push back 0:04:04.600 --> 0:04:07.560 against that and say no, there is actually more momentum, 0:04:07.600 --> 0:04:12.480 more dynamism behind that that this bed has to curb. Well. 0:04:12.520 --> 0:04:15.520 One aspect of good price inflation going down is the 0:04:15.520 --> 0:04:18.240 oval inflation rates lower, so people's wages go a bit 0:04:18.279 --> 0:04:21.440 further than they were before. And as you said, you 0:04:21.440 --> 0:04:23.880 know the excess savings is coming down, but still there's 0:04:23.880 --> 0:04:27.119 no about truly and a half money of savings above 0:04:27.200 --> 0:04:29.479 what you would expect the situation to be if we 0:04:29.480 --> 0:04:32.920 hadn't had those large fiscal transfers. And finally, there's gonna 0:04:32.920 --> 0:04:37.120 be a lot more income for people caused by indexing. 0:04:37.120 --> 0:04:39.719 So look at Social Security eight point seven percent increase 0:04:39.839 --> 0:04:42.599 coming next month. It's a hundred billion dollar increase in 0:04:42.640 --> 0:04:44.920 federal spending. All those people are going to go out 0:04:44.920 --> 0:04:46.919 and spend that money. What kind of recession do you 0:04:46.920 --> 0:04:50.359 foresee given the outlook that you're talking about, given the 0:04:50.400 --> 0:04:52.920 fact that if gasoline prices rise, you end up with 0:04:52.960 --> 0:04:57.400 another situation at a time when suddenly the momentum is waning. 0:04:58.880 --> 0:05:00.800 I don't expect every set quiet yet. I think the 0:05:00.800 --> 0:05:03.640 economy still has considerable for momentum. If you look at 0:05:03.640 --> 0:05:06.600 the Atlanta ft GDP now forecast for the fourth quarters, 0:05:06.720 --> 0:05:09.240 it's in the two to three percent range. Uh And 0:05:09.279 --> 0:05:11.800 I think that the conno will continue to grow through 0:05:11.800 --> 0:05:14.719 the first quarter. I think the recession, when it finally 0:05:14.760 --> 0:05:18.680 does occur, will be mild because the federal reserves in control. 0:05:19.000 --> 0:05:21.839 This is a recession if it occurs is completely induced 0:05:21.839 --> 0:05:24.520 by the FED to generate more slack in the labor market. 0:05:24.760 --> 0:05:27.120 That means, once enough slack in the labor market has 0:05:27.120 --> 0:05:30.240 been produced to bring inflation down, the Fed can relent. 0:05:30.800 --> 0:05:33.800 Uh short commentious rates are gonna be around five points, 0:05:33.920 --> 0:05:35.840 so plenty of room for the FED to cut rates 0:05:36.040 --> 0:05:38.560 to stimulate the economy when the time comes. This is 0:05:38.560 --> 0:05:40.120 one reason why I think the stock market is still 0:05:40.160 --> 0:05:44.520 pretty poyant giving the fact that likely because they see 0:05:44.560 --> 0:05:46.880 the other side. Bill. This is why we love to 0:05:46.920 --> 0:05:49.280 have you on, I mean, the idea and this is 0:05:49.320 --> 0:05:51.600 so important, folks. I knew that we were going up 0:05:51.640 --> 0:05:56.120 eight point seven and social Security, but there it is 0:05:56.720 --> 0:05:59.960 Dr Dudley quantifying it and showing that it's a return 0:06:00.040 --> 0:06:02.479 and Bill it's almost like, you know, I expect Wayne 0:06:02.520 --> 0:06:05.040 Angel to be on after you. We're almost like back 0:06:05.080 --> 0:06:08.960 to the sixties and seventies with an observation like that, 0:06:09.160 --> 0:06:11.640 is this good old demand pull inflation? I mean, is 0:06:11.640 --> 0:06:14.400 that where we are we got our social Security check, 0:06:14.760 --> 0:06:19.000 let's go spend it and prices go up. Well, novel 0:06:19.080 --> 0:06:21.279 GDP is on a strong trajectory, and the FED needs 0:06:21.279 --> 0:06:23.480 to take that novel GDP growth, which we've been running 0:06:23.480 --> 0:06:26.240 around nine percent over the last year down to about three. 0:06:26.680 --> 0:06:28.839 That's a big job for the FIT to pull off. 0:06:29.279 --> 0:06:36.360 Bill Dudley, thank you so much. Lisa Bramlinson. Tom King 0:06:36.480 --> 0:06:40.000 was one of the stars of Wall Street. She is 0:06:40.080 --> 0:06:42.320 definitive on E s G. I'll try to get some 0:06:42.400 --> 0:06:45.359 questions in on that after a really brutal year for 0:06:45.560 --> 0:06:47.200 E s G. But we speak with the head of 0:06:47.279 --> 0:06:51.159 US Equity Quantitative Strategy at Bank of America, Sevita Supermanian 0:06:51.600 --> 0:06:55.600 joins US as well. Sevita, You've got a very cautious view, 0:06:55.760 --> 0:06:59.920 a defensive view for two thousand twenty three. My statement 0:07:00.240 --> 0:07:05.800 is corporations will adapt. How will the corporations adapt to 0:07:05.920 --> 0:07:10.960 your caution to husband and to husband free cash flow? 0:07:12.560 --> 0:07:15.480 You know what I think they're already adapting. And what 0:07:15.520 --> 0:07:20.000 we're seeing is that companies are spending on automation to 0:07:20.280 --> 0:07:24.360 replace you know, kind of expensive labor with machines and uh, 0:07:24.520 --> 0:07:28.880 we're actually seeing the seeds sown for a strong productivity cycle. 0:07:29.200 --> 0:07:31.480 The problem is it takes a little while for all 0:07:31.520 --> 0:07:34.080 of that to come to fruition. I think companies are 0:07:34.120 --> 0:07:37.760 also adapting to geopolitical risk as well as you know, 0:07:37.840 --> 0:07:42.520 supply chain friction by reshoring and then you know, just 0:07:42.600 --> 0:07:44.680 a little on the E s G, a little sprinkle 0:07:44.720 --> 0:07:46.880 of E s G here a lot of One of 0:07:46.880 --> 0:07:50.760 the biggest reasons that companies are moving plant and property 0:07:50.760 --> 0:07:55.200 and equipment closer to consumers is to reduce travel related 0:07:55.360 --> 0:07:58.440 emissions risks. So there's a lot of reasons that companies are, 0:07:58.680 --> 0:08:02.360 you know, adapting to this environment by reshoring, spending a 0:08:02.440 --> 0:08:04.520 little bit of money on you know, a better set 0:08:04.560 --> 0:08:07.120 up in the future, but it costs money in the 0:08:07.160 --> 0:08:09.440 near term and that's what we're worried about over the 0:08:09.480 --> 0:08:12.440 next twelve months. Stuart Kaiser over at City Group is 0:08:12.480 --> 0:08:15.480 in the same camp I'm in that when you get 0:08:15.600 --> 0:08:21.320 Sevita Subramanian gloom, your choice set gets smaller and smaller. 0:08:21.960 --> 0:08:24.880 Our index funds going to get hammered in the next 0:08:24.880 --> 0:08:31.920 twelve months versus active, more narrow less diversified securities analysis 0:08:32.320 --> 0:08:35.720 because there's just not that many good ideas out there. 0:08:35.760 --> 0:08:41.119 Given the Sevita gloom Look, I'm not gloomy on everything, 0:08:41.160 --> 0:08:43.040 and I do think that there are parts of the 0:08:43.120 --> 0:08:47.040 market that are worth uh really kind of gaining exposure to. 0:08:47.160 --> 0:08:50.600 I mean, the problem is when everybody is gloomy, the 0:08:50.720 --> 0:08:53.840 chances are that information is more priced into the market 0:08:53.880 --> 0:08:57.240 than it has been when everybody is really excited. So 0:08:57.240 --> 0:09:00.560 so I think that it is time to avoid being 0:09:00.600 --> 0:09:04.440 an indexer and get active. I completely agree. There's a 0:09:04.520 --> 0:09:06.920 lot of reasons for that. I mean, in our quant work, 0:09:06.920 --> 0:09:13.720 we're noticing that dispersion valuations is that almost extreme highs 0:09:13.840 --> 0:09:17.000 and extreme historical highs. So what that means is there's 0:09:17.040 --> 0:09:20.880 a lot of alpha to be made by just kind 0:09:20.880 --> 0:09:25.800 of playing mean reversion of valuation UM. So that's one reason. 0:09:25.880 --> 0:09:28.360 The second reason that I think that indexing is going 0:09:28.400 --> 0:09:31.560 to underperform active for you know, one of the first 0:09:32.120 --> 0:09:34.880 years in a very long time is that you know, 0:09:35.800 --> 0:09:39.959 the index itself is still very top heavy in long 0:09:40.080 --> 0:09:45.000 duration high growth. You know, tech TMT kind of the 0:09:45.040 --> 0:09:48.360 old leadership that did really well when interest rates were 0:09:48.400 --> 0:09:52.360 falling to zero, the cost of capital was free, and 0:09:52.520 --> 0:09:55.760 you know, any company got funding to do whatever it wanted. 0:09:56.000 --> 0:09:58.680 I think we're moving into an environment that's more rational 0:09:59.080 --> 0:10:02.920 and you really need to sift through and pick the winners. Um, 0:10:02.960 --> 0:10:04.680 you know, kind of figure out the winners from the 0:10:04.720 --> 0:10:07.760 losers and sevida that seems to be more energy and 0:10:07.760 --> 0:10:12.760 financials ironically, rather than tech and discretionary and TMT. That's 0:10:12.800 --> 0:10:14.360 something that you talked about, the sort of flipping of 0:10:14.360 --> 0:10:17.440 the risk premia, which I loved this concept. How much 0:10:17.480 --> 0:10:20.560 does that take into account the likelihood of some sort 0:10:20.600 --> 0:10:23.160 of recession, of the fact that yields would be coming 0:10:23.200 --> 0:10:26.560 back down and the potentially oil prices wouldn't raise as 0:10:26.679 --> 0:10:29.640 high arise as as high as people think. How much 0:10:29.679 --> 0:10:33.040 does that still support a narrative of financials and oil 0:10:33.080 --> 0:10:38.839 companies outperforming. Look if rates come back to zero and 0:10:38.880 --> 0:10:42.560 if oil companies flood the market with supply, I'm gonna 0:10:42.600 --> 0:10:45.440 be wrong. I just don't think either of those things happen. 0:10:45.800 --> 0:10:49.600 Over the next twelve months. Oil companies finally have capital 0:10:49.640 --> 0:10:53.880 discipline and they're more focused on returning cash to shareholders 0:10:53.920 --> 0:10:56.800 and meeting their E s G goals then turning back 0:10:56.920 --> 0:11:00.360 the you know, drilling and extracting more oil. They have 0:11:00.559 --> 0:11:05.600 completely pivoted from flooding the market with supply I'm not 0:11:05.640 --> 0:11:09.800 talking about just the constraints on energy from the war 0:11:09.840 --> 0:11:12.400 in Ukraine and talking about something that's been in place 0:11:12.480 --> 0:11:15.800 for the last several years, which is oil companies in 0:11:15.840 --> 0:11:20.959 the US are not They're not motivated by increasing supply. 0:11:21.120 --> 0:11:26.720 They're motivated by pivoting to green and their CEO CEOs 0:11:26.760 --> 0:11:31.480 at energy companies pay themselves not in alignment with production goals, 0:11:31.520 --> 0:11:34.000 but in alignment with E s G goals. I think 0:11:34.000 --> 0:11:37.520 this is a very different sector than it has been Financials. 0:11:37.760 --> 0:11:40.839 I mean, even if rates flatline, I think financials is 0:11:40.880 --> 0:11:44.760 a sector that has morphed from being this toxic credit 0:11:44.840 --> 0:11:48.160 sensitive sector of two thousand seven to a sector that 0:11:48.240 --> 0:11:51.920 has lower earnings volatility than the SMP five hundred, a 0:11:52.000 --> 0:11:55.120 sector that has better balance sheets and it's ever had 0:11:55.200 --> 0:11:59.280 in the history of its existence, and can actually amp 0:11:59.360 --> 0:12:03.559 up its div it end, you know, amidst an economic slowdown. 0:12:03.600 --> 0:12:06.960 I think it's a really interesting sector right now, Savida. 0:12:07.200 --> 0:12:09.679 Where do we pivot to after next year. Let's say 0:12:09.679 --> 0:12:12.680 it's the reset year where we understand whether we've seen 0:12:12.720 --> 0:12:15.960 peak inflation and the trajectory of inflation. From there, are 0:12:15.960 --> 0:12:19.160 we moving to a lost decade one of slow grinding 0:12:19.200 --> 0:12:22.840 returns for fields remain higher, or are we entering a 0:12:22.880 --> 0:12:26.960 new bull market that has legs. Look, I think that 0:12:27.040 --> 0:12:30.559 we're in an environment where we're moving from just simply 0:12:30.640 --> 0:12:35.080 price appreciation to total return. And that's been our thesis 0:12:35.160 --> 0:12:37.160 for for the last couple of years. I mean, if 0:12:37.200 --> 0:12:39.440 you look at the last ten years we've had, you know, 0:12:39.679 --> 0:12:41.599 very most of the returns of the S and P 0:12:41.720 --> 0:12:45.559 five have been from just capital appreciation, like less than 0:12:45.720 --> 0:12:48.640 fifteen percent of returns have been from dividends. I think 0:12:48.640 --> 0:12:51.120 we're moving into an environment where fifty percent of your 0:12:51.160 --> 0:12:54.280 returns are going to be from dividends, are going to 0:12:54.360 --> 0:12:56.920 be from price appreciation. So it's gonna be not as 0:12:56.960 --> 0:12:59.920 exciting from just buying a stock and watching it go up, 0:13:00.160 --> 0:13:03.160 but it is very exciting from the idea that companies 0:13:03.160 --> 0:13:07.480 could actually increase their dividends. Um your total return profile 0:13:07.559 --> 0:13:10.400 could be that much better than bonds. I still like 0:13:10.520 --> 0:13:13.640 stocks more than bonds for the next ten years. And 0:13:13.760 --> 0:13:15.840 you know, Lisa, one thing that I think is good news, 0:13:16.000 --> 0:13:18.760 so I'll end on a positive note, is that our 0:13:18.920 --> 0:13:22.679 you know, our long term models were very negative on 0:13:22.840 --> 0:13:25.559 equities at the beginning of this year, but the good 0:13:25.640 --> 0:13:28.240 thing about this correction that we've seen in the market. 0:13:28.320 --> 0:13:31.160 The good thing about valuations coming down is that the 0:13:31.240 --> 0:13:34.200 setup right now is spitting out something like five percent 0:13:34.280 --> 0:13:37.800 returns per annum over the next ten years, rather than 0:13:37.880 --> 0:13:40.080 negative returns that we were seeing at the beginning of 0:13:40.080 --> 0:13:42.160 the year. So yeah, I'm not going to be great 0:13:42.160 --> 0:13:44.679 as the twenty tens, but it's going to be better 0:13:44.760 --> 0:13:48.840 than than negative. Sevita, thank you so much. Sevita Subermannia 0:13:48.880 --> 0:13:52.760 and the Bank of America Securities here this morning. We've 0:13:52.760 --> 0:13:54.280 got to get her back on to talk about the 0:13:54.320 --> 0:14:06.800 new e s G. Right now, we're gonna spend four 0:14:06.840 --> 0:14:10.320 minutes with Matt Brill of Investco on a day job, 0:14:10.360 --> 0:14:12.360 and then we are gonna wander over to his good 0:14:12.360 --> 0:14:15.319 experiences at the World Cup, he greets us this morning 0:14:15.360 --> 0:14:17.760 for those of you on radio, and I don't what 0:14:17.800 --> 0:14:19.560 did they say, the blue and the blanche. I don't 0:14:19.600 --> 0:14:21.560 even know what the language is here to Argentina with 0:14:21.640 --> 0:14:25.760 the blue and the white Jersey met bro. The bond 0:14:25.760 --> 0:14:30.080 market needs to win next year after a horrific two 0:14:30.120 --> 0:14:33.640 thousand twenty two. What is the path to total return 0:14:33.720 --> 0:14:38.720 next year in debt markets? He good morning, Tom, Yeah, 0:14:38.720 --> 0:14:41.040 it was. It's been a very challenging two thousand and 0:14:41.080 --> 0:14:43.680 twenty two. I think the the I G index is 0:14:43.680 --> 0:14:47.960 down about UM, but the coupon is materially higher going forward, 0:14:47.960 --> 0:14:49.800 and yields are a lot higher going forward, so you know, 0:14:49.840 --> 0:14:52.080 the look at the starting point is good. Um. We 0:14:52.120 --> 0:14:54.440 think that for two reasons you tend to not have 0:14:54.520 --> 0:14:56.960 back to back negative years for fixed income. The first 0:14:57.040 --> 0:14:59.240 is that obviously a higher yield gives you a greater 0:14:59.320 --> 0:15:02.880 break even it or buffer going forward um for volatility 0:15:02.880 --> 0:15:05.760 and for spread and interest right widening. But to that, 0:15:05.800 --> 0:15:07.640 the higher cost of debt generally is a burden on 0:15:07.680 --> 0:15:10.360 the economy, and as you have a higher cost of debt, 0:15:10.400 --> 0:15:13.120 it starts to slow the economy and makes things uh, 0:15:13.280 --> 0:15:15.200 it makes eventually the FED cut, which we do think 0:15:15.280 --> 0:15:17.800 is is certainly in play the back half of three. 0:15:17.880 --> 0:15:20.680 So pretty good starting point. Um. He got a goodfferent 0:15:20.720 --> 0:15:22.360 painter of this year, but I do think the technicals 0:15:22.400 --> 0:15:24.440 will be very good for a G next year. UM 0:15:24.520 --> 0:15:26.440 at these higher yield levels. Let's talk about the pain. 0:15:26.840 --> 0:15:28.760 I'm looking at stocks and I'm just asking myself, is 0:15:28.800 --> 0:15:31.760 that it with down almost on the SMP year today? 0:15:31.840 --> 0:15:34.080 Death thirty one on the nastack A little bit more 0:15:34.080 --> 0:15:36.480 on that. I look away spreads this year, Matt, and 0:15:36.520 --> 0:15:38.160 I'm just asking myself, is that it is that the 0:15:38.200 --> 0:15:40.320 price that we have to pay for four hundred basis 0:15:40.360 --> 0:15:42.720 points worth of tightening and nine months? And some people say, yeah, 0:15:42.840 --> 0:15:45.600 I think that's it. Others Matts say no way, You're 0:15:45.640 --> 0:15:48.520 not getting away with blown up ten years a decade 0:15:48.520 --> 0:15:52.200 worth of easy central bank policy with these numbers. What 0:15:52.240 --> 0:15:55.320 do you say back to those people? So so, I 0:15:55.320 --> 0:15:57.240 won't speak to the equity markets, but I'll speaking to 0:15:57.320 --> 0:15:59.360 the fixed in compartment. It's it's the worst year we've 0:15:59.400 --> 0:16:01.440 ever had. So what you say is that it? I 0:16:01.440 --> 0:16:03.880 mean we were down over at one point and that 0:16:03.960 --> 0:16:07.280 was just an absolute catastrophe and things that never anybody 0:16:07.280 --> 0:16:09.200 ever would have thought could happen to that magnitude. I 0:16:09.200 --> 0:16:11.560 don't think, Um, we're very few people were calling for 0:16:11.640 --> 0:16:14.880 a down year in the bondom market. Um, so you know, 0:16:14.920 --> 0:16:18.200 I think that the readjustment has taken place. Um, when 0:16:18.240 --> 0:16:20.400 you type, when you hike for inner basis points in 0:16:20.720 --> 0:16:23.360 less than nine months, UM, you know it's gonna it's 0:16:23.360 --> 0:16:25.560 gonna leave a mark. And that's certainly is what happened. 0:16:25.560 --> 0:16:27.480 But I do think we're much better in balance at 0:16:27.480 --> 0:16:29.320 this point. And you know, we're talking earlier whether the 0:16:29.400 --> 0:16:31.840 FED hikes one, two, or three more times. You know, 0:16:31.880 --> 0:16:33.440 I'm kind of more in the camp of the hike 0:16:33.480 --> 0:16:35.440 in February. I do think they'll hike again in March, 0:16:35.720 --> 0:16:38.720 but that's that's probably it. So we're of the way 0:16:38.880 --> 0:16:41.280 done here. Um So, I think, you know, the floors 0:16:41.320 --> 0:16:43.200 has sort of been set and the worst is certainly 0:16:43.240 --> 0:16:45.280 behind us. Although credit spreads are pretty much in line 0:16:45.320 --> 0:16:47.800 with averages, are they pretty pricing in a recession as well? 0:16:48.120 --> 0:16:52.040 Or are they pricing in something much more mild? Yeah, 0:16:52.040 --> 0:16:53.720 so it's it's the tail of two markets. If you 0:16:53.800 --> 0:16:56.760 just look at spreads, the answer is no. Um here 0:16:56.760 --> 0:16:59.880 where the thirty basis point range on spreads that is 0:17:00.000 --> 0:17:02.160 already the fifty basis points wider on the year, So 0:17:02.160 --> 0:17:04.960 it is a pretty material and move wider. But they've 0:17:04.960 --> 0:17:07.639 been cheaper about thirty of the time over the last 0:17:07.800 --> 0:17:10.320 five years and about of the time over the last 0:17:10.320 --> 0:17:12.880 ten years, so we're not pricing it intercession. If things 0:17:12.880 --> 0:17:16.080 were to significantly slow down, credit spreads likely would happen 0:17:16.160 --> 0:17:18.880 go wider. But if you look at yields, yields aren't 0:17:18.920 --> 0:17:21.760 that roughly the nine percentile over the last decade, So 0:17:22.000 --> 0:17:24.359 all in yields are still very elevated, and you are 0:17:24.400 --> 0:17:26.880 getting paid, in my opinion, to take on credit risk. 0:17:27.160 --> 0:17:28.879 The question is are you Are you better off in treasuries? 0:17:28.880 --> 0:17:30.919 Are you better off in credit? Matt Brill dressed in 0:17:31.000 --> 0:17:34.200 Argentine is blue and white. You were in cutter from 0:17:34.240 --> 0:17:38.320 many many of these games you experienced at firsthand. The 0:17:38.359 --> 0:17:41.080 World Cup in four years will address New York City 0:17:41.119 --> 0:17:45.560 and also with Investco Atlanta is well other cities across 0:17:45.600 --> 0:17:48.720 this nation. What should we look for in four years 0:17:48.760 --> 0:17:53.679 after what you experienced this year? Well, this was the 0:17:53.720 --> 0:17:55.359 World Cup on like any other that you could have 0:17:55.400 --> 0:17:57.560 it all in one place. But um, you know, I 0:17:57.600 --> 0:18:00.199 just think there's gonna be a hot ticket here in 0:18:00.200 --> 0:18:02.640 the US. And we've got a good young team. I'm 0:18:02.640 --> 0:18:04.040 not sure we're gonna get a new coach or not. 0:18:04.280 --> 0:18:05.920 I'm not gonna get in that conversation, but I think 0:18:05.920 --> 0:18:08.679 we like we will, got a great core of the team, 0:18:08.760 --> 0:18:10.880 and I see it in the youth ranks. Everybody's talking 0:18:10.880 --> 0:18:12.719 about this World Cup. Everybody wants to go to it. 0:18:12.920 --> 0:18:15.000 I was able to get six games in four days 0:18:15.040 --> 0:18:17.080 over in Guitar all at face value. I don't think 0:18:17.119 --> 0:18:19.359 that's gonna necessarily happen. Ever here in the US. I 0:18:19.359 --> 0:18:21.399 think it's gonna be the hottest ticket. Everyone's gonna want 0:18:21.400 --> 0:18:22.960 to be a part of this World Cup, and I 0:18:23.000 --> 0:18:25.000 think it's gonna be, you know, a fantastic time here 0:18:25.040 --> 0:18:27.560 in North America. I gotta mention it's in Canada, Mexico 0:18:27.640 --> 0:18:29.600 as well. Very cool, Matt. I've been thinking about the 0:18:29.600 --> 0:18:31.840 same thing, buddy already have Can you imagine how expensive 0:18:31.880 --> 0:18:34.520 it will be if you don't get those tickets? Hit 0:18:34.880 --> 0:18:39.440 coverage in Atlanta? Well Pharaoh today, Oh and Matt brill 0:18:39.880 --> 0:18:41.520 White down in Atlanta. Why can't we just do it? 0:18:41.560 --> 0:18:43.360 I'll pay it. We can do if you gotta go run, 0:18:43.400 --> 0:18:46.800 you gotta go to Mexico, go to Canada, you know coverage, 0:18:47.240 --> 0:18:50.520 Lisa and I will stay home and watch, you know whatever. 0:18:54.920 --> 0:18:56.399 Right now, we are going to get a brief on 0:18:56.440 --> 0:18:59.399 the holiday festivities with one Tea Haynes. Terry Haynes as 0:18:59.440 --> 0:19:04.240 founder of Penge, and we welcome him again this morning. Terry, 0:19:04.520 --> 0:19:08.359 we're all distracted by football in the holiday season, etcetera. 0:19:08.840 --> 0:19:13.119 Is Washington shut down yet or are they actually pretending 0:19:13.200 --> 0:19:18.320 work this week? Tom, You know Russ never sleeps in Washington, 0:19:18.520 --> 0:19:22.879 and uhh no, they'll be working all week putting together 0:19:23.080 --> 0:19:28.000 what I hope are the final touches on a full 0:19:28.080 --> 0:19:31.159 year spending bill. They've they've been promising that that will happen, 0:19:31.520 --> 0:19:34.800 so it probably will happen. But otherwise that'll be a 0:19:34.840 --> 0:19:37.639 bit help us here. With all the knowledge base you 0:19:37.720 --> 0:19:42.840 have of the ten people it takes to make a 0:19:42.920 --> 0:19:48.760 run for president, which people are percolating the hardest, besides 0:19:48.800 --> 0:19:52.680 the obvious names to make a dash for the presidency, 0:19:52.720 --> 0:19:55.439 which are hiring all the people you know at that 0:19:55.560 --> 0:20:00.040 octagonal bar at the Willard, Well, most of them have 0:20:00.160 --> 0:20:03.240 been hired up already, you know. And you you've saved 0:20:03.280 --> 0:20:06.200 me some time by going through the usual names. There's 0:20:06.240 --> 0:20:08.920 a lot of usual names, of course, starting from De 0:20:09.000 --> 0:20:12.800 Santis and going through Vice President Pence, Governor Haley others, 0:20:13.320 --> 0:20:15.800 and uh, you know a lot of those have already 0:20:15.800 --> 0:20:19.400 staffed up and briefed up, you know. The uh. Back 0:20:19.400 --> 0:20:22.639 in the eighties, Uh, the man who became Bush forty 0:20:22.640 --> 0:20:26.160 one was thought of as being slightly insane for starting 0:20:26.280 --> 0:20:30.440 his his campaign the three full years early, but ever 0:20:30.520 --> 0:20:34.360 since then it's been that sort of uh, that sort 0:20:34.400 --> 0:20:37.480 of staffing up. So you know, everybody's jockeying for position, 0:20:37.520 --> 0:20:40.280 and they have been for some time. So we'll start 0:20:40.280 --> 0:20:42.120 to see them break cover earlier in the new year. 0:20:42.200 --> 0:20:44.800 How much pushback is there in the Democratic Party for 0:20:45.040 --> 0:20:47.760 from Joe Biden running again? We had we had seen 0:20:47.800 --> 0:20:50.480 over the weekend a number of reports talking about how 0:20:50.520 --> 0:20:53.600 he's beating up his social presence, particularly in some of 0:20:53.640 --> 0:20:57.560 the networks that don't have political advertising allowed. What do 0:20:57.600 --> 0:21:00.919 you take for that from this? UM? I take the 0:21:01.480 --> 0:21:05.760 largely that the president intends to run for reelection and 0:21:06.080 --> 0:21:09.280 the party can't identify a good alternative. There are a 0:21:09.320 --> 0:21:12.760 lot of voices in the party that say that the 0:21:12.800 --> 0:21:15.480 president should not run again for a variety of reasons, 0:21:15.520 --> 0:21:19.080 age being the age and the bridge being the two 0:21:19.119 --> 0:21:22.320 major ones. But in point in fact, there's nobody around 0:21:22.359 --> 0:21:25.240 that's going to be able to command, uh, the ability 0:21:26.000 --> 0:21:30.280