1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Abramowitz Jaily. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com 5 00:00:23,920 --> 00:00:28,760 Speaker 1: and of course on the Bloomberg terminal. It is a 6 00:00:28,880 --> 00:00:30,680 Speaker 1: joint up right now to speak to one of the 7 00:00:30,760 --> 00:00:33,839 Speaker 1: lightning rods of an international relations and our study of 8 00:00:33,840 --> 00:00:38,240 Speaker 1: our relationships worldwide, and that is John Bolton, of course, 9 00:00:38,240 --> 00:00:41,680 Speaker 1: Ambassador Bolton, with so many tours of duty and always 10 00:00:41,680 --> 00:00:45,559 Speaker 1: someone looking at the force and power of Russia, give 11 00:00:45,640 --> 00:00:48,680 Speaker 1: us a measurement on this Monday morning, John, of the 12 00:00:48,760 --> 00:00:53,640 Speaker 1: force and power of Mr Putin, Well, he suffered some 13 00:00:53,840 --> 00:00:57,960 Speaker 1: severe setback so far in almost six weeks of war 14 00:00:58,000 --> 00:01:01,400 Speaker 1: in Ukraine. There's no doubt about it. The Russians obviously 15 00:01:01,440 --> 00:01:05,640 Speaker 1: miscalculated the extent of Ukraine's resistance, which has been heroic, 16 00:01:06,200 --> 00:01:09,520 Speaker 1: and they miscalculated the capability of their own military, which 17 00:01:09,520 --> 00:01:12,640 Speaker 1: has had one failure after another from the strategic level 18 00:01:12,720 --> 00:01:16,600 Speaker 1: on down the simple logistics like food and gasoline. Now, 19 00:01:16,640 --> 00:01:19,520 Speaker 1: all that said, they still control a considerable amount of 20 00:01:19,600 --> 00:01:23,200 Speaker 1: Ukrainian territory, and it looks like they're trying to get 21 00:01:23,200 --> 00:01:28,200 Speaker 1: their act together, regroup, pursue more sensible objectives. I'll have 22 00:01:28,240 --> 00:01:32,000 Speaker 1: a piece up dot com a little bit later this morning. 23 00:01:32,319 --> 00:01:35,320 Speaker 1: It says, I think what the men Many are also saying, 24 00:01:35,319 --> 00:01:38,880 Speaker 1: they're going to go after the russiphile areas of southern 25 00:01:38,880 --> 00:01:42,600 Speaker 1: and eastern Ukraine. And let's remember when we come when 26 00:01:42,600 --> 00:01:45,520 Speaker 1: we come to negotiations, which we're not in seriously yet, 27 00:01:45,560 --> 00:01:48,279 Speaker 1: but when we come to it, the more land Russia holds, 28 00:01:48,440 --> 00:01:49,880 Speaker 1: the harder it's going to be to get them to 29 00:01:49,880 --> 00:01:52,520 Speaker 1: give it up. John Boldon, I want your perspective, as 30 00:01:52,520 --> 00:01:55,520 Speaker 1: we talked to admnstra Vetas as well, about what has 31 00:01:55,520 --> 00:01:59,400 Speaker 1: been underreported in my opinion, which is the land grab 32 00:01:59,440 --> 00:02:03,880 Speaker 1: along the Black Sea. What should be the American response 33 00:02:04,240 --> 00:02:08,959 Speaker 1: to the territory taken down to Odessa? Right? I think 34 00:02:09,000 --> 00:02:12,280 Speaker 1: this is a central part of what Putin's objectives have 35 00:02:12,400 --> 00:02:14,680 Speaker 1: been in which, frankly, if he had focused on the 36 00:02:14,720 --> 00:02:16,799 Speaker 1: south and the east at the beginning of the war 37 00:02:16,840 --> 00:02:21,440 Speaker 1: in February, he might already have putin once the entire 38 00:02:21,560 --> 00:02:23,519 Speaker 1: north coast of the Black Sea. I don't think there's 39 00:02:23,520 --> 00:02:26,680 Speaker 1: any question about that. Even so, Deatha wants all that 40 00:02:26,840 --> 00:02:30,360 Speaker 1: territory because he thinks it's strategically critical to Russia and 41 00:02:30,480 --> 00:02:34,120 Speaker 1: because it will landlock Ukraine. So either things that have 42 00:02:34,160 --> 00:02:37,080 Speaker 1: been coming through Odessa into Ukraine now will have to 43 00:02:37,120 --> 00:02:40,000 Speaker 1: pass through Russian tolls and pay for it. Are they 44 00:02:40,000 --> 00:02:44,000 Speaker 1: gonna have to completely switch their trading routes through Poland 45 00:02:44,040 --> 00:02:47,440 Speaker 1: and Hungary and other Eastern European countries. It will give 46 00:02:47,720 --> 00:02:51,079 Speaker 1: putin enormous strategic leverage over Ukraine. And as I say, 47 00:02:51,120 --> 00:02:53,760 Speaker 1: why he didn't go after it first, I don't understand. 48 00:02:53,880 --> 00:02:56,760 Speaker 1: I want to turn Inbassador Bolton to the reality. You 49 00:02:56,840 --> 00:02:59,600 Speaker 1: came out of Yale. You worked with David Keane, you 50 00:02:59,680 --> 00:03:02,079 Speaker 1: worked the no no relation to me, I should point 51 00:03:02,080 --> 00:03:06,600 Speaker 1: out you you worked with with a Rush, a Republican 52 00:03:07,160 --> 00:03:10,960 Speaker 1: party that wasn't afraid to project. Then you work for 53 00:03:11,000 --> 00:03:15,760 Speaker 1: Donald Trump, who had his unique isolation As Tendencies described 54 00:03:15,800 --> 00:03:23,200 Speaker 1: the new American isolationism described the new GOP isolationism, well, 55 00:03:23,240 --> 00:03:26,440 Speaker 1: I think there's always been a strand of isolationism in 56 00:03:26,480 --> 00:03:29,200 Speaker 1: the Republican Party. I think it's actually broader in the 57 00:03:29,200 --> 00:03:32,119 Speaker 1: Democratic Party. It takes a somewhat different form. They think 58 00:03:32,120 --> 00:03:35,360 Speaker 1: the world is going to be saved by multilateral organizations 59 00:03:35,400 --> 00:03:38,000 Speaker 1: like the United Nations. That's kind of delusional. But the 60 00:03:38,080 --> 00:03:42,200 Speaker 1: Republican delusion is that none of this overseas, none of 61 00:03:42,240 --> 00:03:45,080 Speaker 1: this in Ukraine has anything to do with us. I 62 00:03:45,440 --> 00:03:48,240 Speaker 1: think it has everything to do with us. Our way 63 00:03:48,280 --> 00:03:51,760 Speaker 1: of life depends on interest scattered all over the world, 64 00:03:51,760 --> 00:03:54,680 Speaker 1: and the isolationists and the Republican Party don't see that, 65 00:03:54,760 --> 00:03:57,600 Speaker 1: don't see anything worth defending. They'd find out when they 66 00:03:57,640 --> 00:04:00,920 Speaker 1: began to disappear. But I am actually hopeful. I think 67 00:04:00,960 --> 00:04:05,440 Speaker 1: the isolationist strand in the Republican Party has shrunk almost 68 00:04:05,480 --> 00:04:09,800 Speaker 1: back to historic low levels. I think Biden's catastrophic withdrawal 69 00:04:09,840 --> 00:04:13,720 Speaker 1: from Afghanistan last summer was a major factor there. And 70 00:04:13,760 --> 00:04:17,200 Speaker 1: I think if you look at Republican views on assistance 71 00:04:17,240 --> 00:04:20,200 Speaker 1: to Ukraine and the current conflict, you can almost see 72 00:04:20,240 --> 00:04:23,760 Speaker 1: those two events pushing the party back to its real 73 00:04:23,800 --> 00:04:28,599 Speaker 1: Reaganite foundations for the contemporary world. So, what would be 74 00:04:28,640 --> 00:04:31,480 Speaker 1: an appropriate response from the United States, or for Europe 75 00:04:31,520 --> 00:04:34,240 Speaker 1: for that matter, for alleged war crimes in Busha and 76 00:04:34,279 --> 00:04:38,760 Speaker 1: other cities in Ukraine. Look, this is there's there's little 77 00:04:38,839 --> 00:04:41,680 Speaker 1: doubt based on the evidence we had of real barbarity 78 00:04:41,720 --> 00:04:43,760 Speaker 1: on the part of the Russians. But look, it's nothing 79 00:04:43,800 --> 00:04:46,200 Speaker 1: new for them that this. They've done the Sinceria, they 80 00:04:46,240 --> 00:04:49,440 Speaker 1: did it in Czechnia. Uh and so we shouldn't have 81 00:04:49,480 --> 00:04:52,080 Speaker 1: been surprised by it. But I'll tell you something, none 82 00:04:52,080 --> 00:04:55,480 Speaker 1: of this intimidates Vladimir Putin or the Siloviki, the men 83 00:04:55,560 --> 00:04:58,800 Speaker 1: of power around him. These are the hard men of history. 84 00:04:58,880 --> 00:05:02,560 Speaker 1: You can threaten them with crimes prosecutions all you want, 85 00:05:02,600 --> 00:05:04,760 Speaker 1: it's not going to slow him down in the slightest 86 00:05:05,160 --> 00:05:08,320 Speaker 1: I think I've written on this extensively for over twenty years. 87 00:05:08,880 --> 00:05:13,719 Speaker 1: These International Criminal Court the type operations do not deter 88 00:05:13,960 --> 00:05:18,000 Speaker 1: these things from happening, and they're very rarely able to 89 00:05:18,080 --> 00:05:20,960 Speaker 1: administer punishment. That this this will have to come when 90 00:05:21,040 --> 00:05:24,480 Speaker 1: Russians get control of their government again and take actions 91 00:05:24,520 --> 00:05:27,120 Speaker 1: if they desire to, against the people who committed the 92 00:05:27,160 --> 00:05:30,600 Speaker 1: crimes in their name. Okay, So if Latimer Putin has 93 00:05:30,640 --> 00:05:32,800 Speaker 1: proven time and again that he is not capable of 94 00:05:32,800 --> 00:05:36,159 Speaker 1: being deterred, that deterrence tactics to this point have not worked, 95 00:05:36,800 --> 00:05:39,280 Speaker 1: what will he respond to? Does use the force need 96 00:05:39,360 --> 00:05:40,800 Speaker 1: to be on the table. And when the U S 97 00:05:40,880 --> 00:05:43,120 Speaker 1: and other countries like the UK today for example, saying 98 00:05:43,160 --> 00:05:44,640 Speaker 1: that they don't want to escalate, they don't want to 99 00:05:44,640 --> 00:05:49,120 Speaker 1: be escalatory, what would escalation actually look like? How far 100 00:05:49,279 --> 00:05:52,240 Speaker 1: can they take it? Well? I think Putin would have 101 00:05:52,279 --> 00:05:55,359 Speaker 1: responded to adequate deterrence, but he hasn't seen any of it. 102 00:05:55,720 --> 00:05:58,599 Speaker 1: You know, there's a lot of nattering by leaders of 103 00:05:58,680 --> 00:06:01,960 Speaker 1: NATO countries about United the Alliances and so on, and 104 00:06:02,080 --> 00:06:04,400 Speaker 1: yet we can't get the leader of the Free world 105 00:06:04,440 --> 00:06:09,240 Speaker 1: to agree to transfer of Polish MiGs to Doukrainian Air Force. 106 00:06:09,279 --> 00:06:11,599 Speaker 1: He said again yesterday it would be World War three, 107 00:06:11,640 --> 00:06:15,240 Speaker 1: which it certainly would not. The West clearly failed. This 108 00:06:15,320 --> 00:06:17,839 Speaker 1: is a shame that we will have to bear in 109 00:06:17,960 --> 00:06:21,919 Speaker 1: not being able to determin who starting this evasion. John, 110 00:06:21,920 --> 00:06:24,200 Speaker 1: that was very rude and undiplomatic of you, as you've 111 00:06:24,240 --> 00:06:28,479 Speaker 1: been called before. Let's drive a conversation for to what 112 00:06:28,560 --> 00:06:32,360 Speaker 1: to do now? Are you advocating at the Secretary of 113 00:06:32,440 --> 00:06:36,080 Speaker 1: State needs to take the Bolton rute and undiplomatic and 114 00:06:36,120 --> 00:06:39,200 Speaker 1: be more assertive, more aggressive or can we have a 115 00:06:39,279 --> 00:06:43,640 Speaker 1: grace to our diplomacy? Is we force what America wants? 116 00:06:44,839 --> 00:06:48,120 Speaker 1: Look I think we have. We have been plenty graceful 117 00:06:48,200 --> 00:06:51,159 Speaker 1: with our allies, and we're still not getting them to 118 00:06:51,200 --> 00:06:53,320 Speaker 1: do enough. And we're not doing enough either. I think 119 00:06:53,320 --> 00:06:56,440 Speaker 1: if you listen to some Europeans, the British in particular, 120 00:06:57,080 --> 00:07:00,560 Speaker 1: uh that they say we're constantly being dragged long by 121 00:07:00,640 --> 00:07:04,840 Speaker 1: Europeans like themselves urging us to do more, or pressure 122 00:07:04,960 --> 00:07:08,440 Speaker 1: from both the House and the Senate Democrat and Republican like. 123 00:07:09,320 --> 00:07:13,080 Speaker 1: The fact is, if Putin retains territory after this is over, 124 00:07:13,360 --> 00:07:16,280 Speaker 1: he has won and and and his effort to re 125 00:07:16,520 --> 00:07:20,080 Speaker 1: establish Russian hegemony and maybe even sovereignty in the space 126 00:07:20,080 --> 00:07:24,080 Speaker 1: of the four Soviet Union has been very paid. I 127 00:07:24,360 --> 00:07:25,760 Speaker 1: don't mean to cut you off, but this is too 128 00:07:25,840 --> 00:07:28,480 Speaker 1: important John right now. And that is a new domino 129 00:07:28,640 --> 00:07:32,640 Speaker 1: theory moving from Russia west. Are you suggesting there could 130 00:07:32,640 --> 00:07:35,880 Speaker 1: be a domino theory here if he takes part a 131 00:07:36,000 --> 00:07:40,360 Speaker 1: bit some of Ukraine. Yeah, he already has some after 132 00:07:40,400 --> 00:07:43,680 Speaker 1: the fourteen invasion, to which we did not respond effectively, 133 00:07:43,680 --> 00:07:46,360 Speaker 1: and he's obviously going to try and get more. He's 134 00:07:46,400 --> 00:07:49,680 Speaker 1: got plenty of other targets beside NATO countries within the 135 00:07:49,720 --> 00:07:52,200 Speaker 1: space of the former Soviet Union. But if you ask 136 00:07:52,520 --> 00:07:55,920 Speaker 1: the polls, if you ask Estonia, lad Via, Lithuania, they 137 00:07:55,920 --> 00:07:59,160 Speaker 1: are deeply afraid that that they're very high on the 138 00:07:59,240 --> 00:08:03,160 Speaker 1: Russian card a list and an ineffective, indeed feckless Western 139 00:08:03,240 --> 00:08:08,360 Speaker 1: response will simply encourage Prutin. Okay, so that's looking west. 140 00:08:08,480 --> 00:08:11,360 Speaker 1: What about to its other border with China, Mr Bolton, 141 00:08:11,480 --> 00:08:13,960 Speaker 1: what role do you think China is playing actively or 142 00:08:14,000 --> 00:08:17,320 Speaker 1: inactively here? Well? I wrote in the Wall Street Journal 143 00:08:17,320 --> 00:08:19,320 Speaker 1: a couple of weeks ago. I think Russian China haven't 144 00:08:19,360 --> 00:08:22,160 Speaker 1: on top here. It's not a full up alliance, but 145 00:08:22,200 --> 00:08:24,720 Speaker 1: it's an understanding. I think China has Russia is back 146 00:08:24,760 --> 00:08:27,720 Speaker 1: in this conflict, and they'll expect Russia is back when 147 00:08:27,720 --> 00:08:30,840 Speaker 1: they launched their aggressive actions, whether it's against Taiwan or 148 00:08:30,840 --> 00:08:34,040 Speaker 1: more in the South China See or elsewhere along their 149 00:08:34,080 --> 00:08:37,160 Speaker 1: periphery in the Indo Pacific. Right now. I think what 150 00:08:37,240 --> 00:08:40,880 Speaker 1: the Chinese are doing is making their financial institutions available 151 00:08:40,920 --> 00:08:44,560 Speaker 1: to sanction Russian banks and others to ineffect launder that 152 00:08:44,720 --> 00:08:47,840 Speaker 1: moment back into the financial system. And I think although 153 00:08:47,920 --> 00:08:51,960 Speaker 1: China already purchases significant amounts of Russian oil and gas, 154 00:08:52,120 --> 00:08:55,280 Speaker 1: they'll be happy to purchase or uh if if we 155 00:08:55,360 --> 00:08:58,120 Speaker 1: had an effective embargo, which we don't. So these are 156 00:08:58,120 --> 00:09:01,760 Speaker 1: the kinds of relationships. It doesn't require military assistance from China. 157 00:09:01,960 --> 00:09:05,679 Speaker 1: Economic assistance is very important, and you've got other major 158 00:09:05,720 --> 00:09:11,079 Speaker 1: countries like India, which, according to press reports, quadruple its 159 00:09:11,080 --> 00:09:13,800 Speaker 1: purchases of Russian oil in February. John, I gotta get 160 00:09:13,840 --> 00:09:17,679 Speaker 1: this into too important. In this conversation, you mentioned we 161 00:09:17,720 --> 00:09:20,439 Speaker 1: should not worry of World War three, and perhaps we 162 00:09:20,520 --> 00:09:24,120 Speaker 1: should not worry of Mr Putin and his nuclear abilities. 163 00:09:24,559 --> 00:09:27,760 Speaker 1: How do we manage that? How do we develop a 164 00:09:27,880 --> 00:09:31,920 Speaker 1: confidence that we will not find some form of World 165 00:09:31,920 --> 00:09:34,720 Speaker 1: War Well, I'm not saying we shouldn't worry about it, 166 00:09:34,720 --> 00:09:37,160 Speaker 1: of course we should. But right now we failed to 167 00:09:37,200 --> 00:09:40,400 Speaker 1: deter Putin, and he's deterring us uh. And I think 168 00:09:40,440 --> 00:09:42,520 Speaker 1: if he can get what he wants for free without 169 00:09:42,559 --> 00:09:46,800 Speaker 1: effective Allied response, he's going to be encouraged to do more. 170 00:09:46,880 --> 00:09:49,880 Speaker 1: I think providing the Polish mixes is actually a pretty 171 00:09:49,920 --> 00:09:53,480 Speaker 1: small piece here. We're now in a race of time 172 00:09:53,559 --> 00:09:56,439 Speaker 1: with the Russians. We've got to get more military assistance 173 00:09:56,480 --> 00:09:59,000 Speaker 1: to the Ukrainians. We should be doing a lot more. 174 00:09:59,120 --> 00:10:01,400 Speaker 1: I think a lot abo pctions we had are off 175 00:10:01,400 --> 00:10:04,160 Speaker 1: the table. Biden gave them away in early December when 176 00:10:04,160 --> 00:10:08,160 Speaker 1: he took American force away as an option. By the way, 177 00:10:08,120 --> 00:10:11,600 Speaker 1: I got absolutely nothing for that. So we're constrained by 178 00:10:11,640 --> 00:10:13,680 Speaker 1: what's going before us. But I think we should be 179 00:10:13,720 --> 00:10:18,200 Speaker 1: absolutely clear here. If we allowed Russia to get a 180 00:10:18,360 --> 00:10:21,199 Speaker 1: major part of its objectives in Ukraine, we have suffered 181 00:10:21,200 --> 00:10:24,760 Speaker 1: a significant defeat. John Bolton, thank you so much, John, 182 00:10:24,840 --> 00:10:29,160 Speaker 1: Thank you for having always thoughtful and controversial to say. 183 00:10:29,559 --> 00:10:36,240 Speaker 1: At least Lori Calvacina has had the courage to be 184 00:10:36,400 --> 00:10:39,480 Speaker 1: in the markets. She's done it small cap, large cap 185 00:10:39,480 --> 00:10:43,760 Speaker 1: at RBC Capital Markets. But far more, John, Lori Calvacina 186 00:10:44,160 --> 00:10:47,880 Speaker 1: has done sector analysis of what to do and just 187 00:10:47,960 --> 00:10:51,400 Speaker 1: as much what not to do. Joins us now, Tom, 188 00:10:51,400 --> 00:10:53,600 Speaker 1: thank you Lori. Let's start with that energy code that's 189 00:10:53,600 --> 00:10:56,240 Speaker 1: not at twenty one. Get along overweight. You like the 190 00:10:56,280 --> 00:10:58,960 Speaker 1: sector he left the sector That one has popped big 191 00:10:59,000 --> 00:11:02,040 Speaker 1: time through twenty one, three two. Then in the last 192 00:11:02,080 --> 00:11:04,240 Speaker 1: week you've made a move. Can you walk us through it, 193 00:11:04,280 --> 00:11:08,680 Speaker 1: just piece by piece? What led you to this point? Sure? So. Look, 194 00:11:08,760 --> 00:11:11,000 Speaker 1: our job as a strategist is to really connect the 195 00:11:11,040 --> 00:11:13,400 Speaker 1: macro and the micro and so let's start with the macro. 196 00:11:13,640 --> 00:11:15,760 Speaker 1: We had this sense that we really wanted to reduce 197 00:11:15,760 --> 00:11:17,960 Speaker 1: some exposure to the value trade, and that's really for 198 00:11:18,000 --> 00:11:20,440 Speaker 1: two reasons. Number One, the FED we have passed an 199 00:11:20,480 --> 00:11:23,360 Speaker 1: important mile marker. When the FED lifts off. We typically 200 00:11:23,360 --> 00:11:25,800 Speaker 1: see value outperform ahead of that, but growth take back 201 00:11:25,920 --> 00:11:30,160 Speaker 1: leadership afterwards. Secondly, economic forecasts are coming down. Tom Porcelli 202 00:11:30,240 --> 00:11:31,800 Speaker 1: just took his number to two and a half percent, 203 00:11:31,840 --> 00:11:34,040 Speaker 1: which is trend, and consensus is looking for two point 204 00:11:34,040 --> 00:11:37,400 Speaker 1: three percent next year. And we typically see value outperform 205 00:11:37,480 --> 00:11:39,640 Speaker 1: and a hot or above at trend economy, but growth 206 00:11:39,640 --> 00:11:42,640 Speaker 1: outperforms when the economy is running cool, so we think 207 00:11:42,679 --> 00:11:45,080 Speaker 1: markets are really ready to start shifting back to growth. 208 00:11:45,280 --> 00:11:47,200 Speaker 1: And in fact, in mid March we started to see 209 00:11:47,200 --> 00:11:50,480 Speaker 1: growth outperformed value. So that's the macro, and when we 210 00:11:50,520 --> 00:11:53,760 Speaker 1: thought about how we wanted to reduce that value exposure, 211 00:11:54,160 --> 00:11:56,200 Speaker 1: we turned to our analyst survey, which is something that 212 00:11:56,200 --> 00:11:58,440 Speaker 1: we do once a quarter and just completed last week. 213 00:11:58,760 --> 00:12:01,360 Speaker 1: Back in December. When we did this survey, my Energy team, 214 00:12:01,360 --> 00:12:05,160 Speaker 1: which had been bullish and highly bullish throughout all, was 215 00:12:05,280 --> 00:12:08,080 Speaker 1: number one in terms of their performance assessments over the 216 00:12:08,120 --> 00:12:10,640 Speaker 1: next six to twelve months, and the survey we just completed, 217 00:12:10,679 --> 00:12:12,960 Speaker 1: they fell the number four. Now I'm not saying they're bearished, 218 00:12:12,960 --> 00:12:15,679 Speaker 1: but their enthusiasm clearly fell it much and we had 219 00:12:15,679 --> 00:12:18,680 Speaker 1: a sense that between that and financial's energy was really 220 00:12:18,679 --> 00:12:21,439 Speaker 1: the better place to reduce that value exposure, just given 221 00:12:21,440 --> 00:12:23,640 Speaker 1: those bottom up and puts from our analysts. So learning 222 00:12:23,640 --> 00:12:25,880 Speaker 1: help us understand. Also then the next logical question, and 223 00:12:25,920 --> 00:12:28,040 Speaker 1: this sequence of questions that will have with you this morning, 224 00:12:28,440 --> 00:12:31,800 Speaker 1: why maintain the overweight un financials given the growth slowed 225 00:12:31,800 --> 00:12:35,560 Speaker 1: down that you seem to be talking about. So I 226 00:12:35,600 --> 00:12:38,559 Speaker 1: think we're, you know, when we're thinking about that economic forecast, 227 00:12:38,600 --> 00:12:41,400 Speaker 1: we're making the assumption that we're heading for a below 228 00:12:41,480 --> 00:12:44,520 Speaker 1: trend type economic backdrop, but not a recession. And I 229 00:12:44,559 --> 00:12:46,559 Speaker 1: do leave that call to Tom for Shelley, and he 230 00:12:46,600 --> 00:12:48,240 Speaker 1: will tell you that the risks have grown, but he 231 00:12:48,280 --> 00:12:50,640 Speaker 1: hasn't really pulled into been pulled into that yet as 232 00:12:50,720 --> 00:12:53,920 Speaker 1: his base case. I do think financials have been suffering 233 00:12:54,720 --> 00:12:57,520 Speaker 1: from that growing sense of recession fears. And I think 234 00:12:57,559 --> 00:13:00,480 Speaker 1: as the market really sort of transitions and sort of 235 00:13:00,520 --> 00:13:02,640 Speaker 1: settles into this idea that we're just going to hit 236 00:13:02,720 --> 00:13:05,720 Speaker 1: growth significantly, but not really enter a recession. You could 237 00:13:05,720 --> 00:13:08,840 Speaker 1: actually see some relief on the financial side. Also. Frankly, John, 238 00:13:08,880 --> 00:13:11,160 Speaker 1: I think that heading into this reporting season, the sentiment 239 00:13:11,160 --> 00:13:14,120 Speaker 1: on financials has been pretty dour. That's the complete opposite 240 00:13:14,120 --> 00:13:16,120 Speaker 1: of what we saw ahead of the last reporting season 241 00:13:16,160 --> 00:13:17,959 Speaker 1: when they had really been flying and got you know, 242 00:13:18,040 --> 00:13:19,920 Speaker 1: kind of pulled back down. I think we have a 243 00:13:19,920 --> 00:13:22,079 Speaker 1: better set up going into this reporting season just from 244 00:13:22,080 --> 00:13:25,800 Speaker 1: a sentiment perspective, Laura, the zeitgeist is that earnings grow 245 00:13:26,440 --> 00:13:29,600 Speaker 1: and then they don't. That the market goes up and 246 00:13:29,640 --> 00:13:33,600 Speaker 1: then it doesn't, That nominal GDP is pretty good, and 247 00:13:33,640 --> 00:13:37,280 Speaker 1: then it's not. How do you determine that tip point 248 00:13:37,440 --> 00:13:42,040 Speaker 1: when earnings turn low single digit or dare I say negative? 249 00:13:43,760 --> 00:13:45,880 Speaker 1: So it's a great question, Tom, and I will tell 250 00:13:45,920 --> 00:13:48,640 Speaker 1: you that as a forecaster and someone who builds a 251 00:13:48,679 --> 00:13:51,680 Speaker 1: lot of back tests and regressions, earnings have simply gotten 252 00:13:51,760 --> 00:13:55,000 Speaker 1: much harder to forecast. And there are models that we've build, 253 00:13:55,040 --> 00:13:57,640 Speaker 1: inputs that we've looked at over time, things liking that 254 00:13:57,760 --> 00:14:01,199 Speaker 1: labor costs, for example, which have been brilliant at forecasting 255 00:14:01,240 --> 00:14:03,960 Speaker 1: earnings in the past um but haven't worked as well 256 00:14:03,960 --> 00:14:05,480 Speaker 1: when we look over the past few years, and I'm 257 00:14:05,480 --> 00:14:08,480 Speaker 1: thinking specifically about margets and I think the reason for that, 258 00:14:08,520 --> 00:14:10,720 Speaker 1: and you know, I'm a transcript junkie. We really go 259 00:14:10,800 --> 00:14:12,959 Speaker 1: through and just you know, read everything we can in 260 00:14:13,160 --> 00:14:16,520 Speaker 1: SMP five hundred recording season each quarter, and what we've 261 00:14:16,559 --> 00:14:19,520 Speaker 1: really seen or two things is Number one, companies have 262 00:14:19,640 --> 00:14:23,480 Speaker 1: just gotten much much better at combating margin pressures and 263 00:14:23,520 --> 00:14:27,800 Speaker 1: so new efficiencies, software, new tools, new recruiting strategies, those 264 00:14:27,840 --> 00:14:29,280 Speaker 1: are all kind of throwing a monkey wrench in the 265 00:14:29,320 --> 00:14:32,000 Speaker 1: models for people like me. Secondly, when you think about 266 00:14:32,040 --> 00:14:35,280 Speaker 1: the market from kind of a top down perspective, technology 267 00:14:35,440 --> 00:14:38,280 Speaker 1: has been just a structural margin winner over time, and 268 00:14:38,320 --> 00:14:41,160 Speaker 1: it now accounts for a disproportionate share of earnings, much 269 00:14:41,240 --> 00:14:44,200 Speaker 1: much bigger impact now than it has in the past, 270 00:14:44,200 --> 00:14:46,720 Speaker 1: and so that's also throwing some of those backward models off. 271 00:14:46,960 --> 00:14:48,520 Speaker 1: And I'll tell you, I think the by side has 272 00:14:48,520 --> 00:14:51,480 Speaker 1: really ratcheted down their expectations for earnings coming into this 273 00:14:51,560 --> 00:14:54,640 Speaker 1: recording season. So we're not expecting things to be fantastic, 274 00:14:54,680 --> 00:14:56,160 Speaker 1: but we do think there's already a lot of fear 275 00:14:56,200 --> 00:14:59,240 Speaker 1: baked it awesome. As always, you know, we love catching 276 00:14:59,280 --> 00:15:01,160 Speaker 1: up with you lot of count of scena of obviously 277 00:15:01,240 --> 00:15:03,800 Speaker 1: capital markets, just on some of the changing kids around 278 00:15:03,840 --> 00:15:05,960 Speaker 1: the sect of preferences for obviously and how to line 279 00:15:06,000 --> 00:15:13,960 Speaker 1: up with you can always tain as well without further ado. 280 00:15:14,640 --> 00:15:18,600 Speaker 1: Andrew Hallandhorst the most studied economist in America in the 281 00:15:18,680 --> 00:15:22,360 Speaker 1: last number of days. He's chief US Economists City Group. Andrew, 282 00:15:22,440 --> 00:15:24,680 Speaker 1: John Ferreroll Torrio to Shreds a day you put out 283 00:15:24,720 --> 00:15:27,160 Speaker 1: your note looking for a set of higher notes. I'm 284 00:15:27,160 --> 00:15:29,800 Speaker 1: glad to see you survived, Andrew. I want to talk 285 00:15:29,840 --> 00:15:32,240 Speaker 1: about the underlying theory at you see l A that 286 00:15:32,320 --> 00:15:35,640 Speaker 1: you learned on all this. If we get the persistency 287 00:15:35,960 --> 00:15:40,680 Speaker 1: of a non measured rate rise, what are the responsiveness 288 00:15:40,840 --> 00:15:45,360 Speaker 1: is within the system you're most focused on. Those elasticities 289 00:15:45,360 --> 00:15:49,960 Speaker 1: are going to be absolutely original. Given the Hollendhorst move, 290 00:15:50,560 --> 00:15:54,520 Speaker 1: which ones matter? Yeah, thanks very much Tom for having me. 291 00:15:54,560 --> 00:15:58,040 Speaker 1: It's a great question how the economy responds as you 292 00:15:58,040 --> 00:16:00,920 Speaker 1: start to see interest rates moving higher um and you 293 00:16:01,120 --> 00:16:03,160 Speaker 1: to your point. I think when people first saw our 294 00:16:03,160 --> 00:16:05,920 Speaker 1: call for fifty basis point hikes at the next four meetings, 295 00:16:06,280 --> 00:16:09,080 Speaker 1: it looked aggressive to some people. But if you think 296 00:16:09,080 --> 00:16:12,080 Speaker 1: about the kind of underlying theory, like you were mentioning, 297 00:16:12,640 --> 00:16:15,800 Speaker 1: this is a FED that has a neutral rate. They 298 00:16:15,800 --> 00:16:18,040 Speaker 1: think around two and a half percent. In a world 299 00:16:18,040 --> 00:16:21,600 Speaker 1: of two percent inflation. We're living in a world of 300 00:16:22,080 --> 00:16:25,520 Speaker 1: six seven, eight, almost nine percent inflation, depending on how 301 00:16:25,520 --> 00:16:28,880 Speaker 1: you calculate it. So the idea that FED officials would 302 00:16:28,880 --> 00:16:31,480 Speaker 1: want to pretty expeditiously to use their term, get to 303 00:16:31,680 --> 00:16:34,440 Speaker 1: a number like two percent, a little bit over two percent, 304 00:16:34,560 --> 00:16:37,080 Speaker 1: that that's not that aggressive of a call. Okay, well 305 00:16:37,120 --> 00:16:39,680 Speaker 1: this is important. Let's chop it down from I S 306 00:16:39,840 --> 00:16:42,600 Speaker 1: l M and all the other theories blah blah blah 307 00:16:42,960 --> 00:16:46,240 Speaker 1: down to the core economic function. If we get a 308 00:16:46,280 --> 00:16:51,840 Speaker 1: whole norse move, which partial differential moves the most consumption 309 00:16:52,480 --> 00:16:55,240 Speaker 1: or business investment or is it going to be expressed 310 00:16:55,240 --> 00:16:59,120 Speaker 1: in the trade balance, which one matters? Tom. I would 311 00:16:59,200 --> 00:17:01,640 Speaker 1: watch the howasing market here. I think that's really the 312 00:17:01,680 --> 00:17:04,640 Speaker 1: important sector to watch in general. That's where interest rates 313 00:17:04,640 --> 00:17:06,800 Speaker 1: have a very direct effect on what's going on in 314 00:17:06,840 --> 00:17:09,320 Speaker 1: the economy. And if you look at that thirty year 315 00:17:09,640 --> 00:17:13,280 Speaker 1: fixed rate nominal mortgage rate that's moved up from around 316 00:17:13,280 --> 00:17:16,040 Speaker 1: three percent above four and a half percent now, so 317 00:17:16,080 --> 00:17:18,800 Speaker 1: we've had a significant move in mortgage rates. The question 318 00:17:18,840 --> 00:17:21,000 Speaker 1: you ask as an economist, is is four and a 319 00:17:21,040 --> 00:17:24,159 Speaker 1: half percent mortgage rate really that high in a world 320 00:17:24,200 --> 00:17:26,760 Speaker 1: where you're seeing inflation that's much higher. Does the FED 321 00:17:26,840 --> 00:17:29,120 Speaker 1: need to go even further than that? But I think 322 00:17:29,160 --> 00:17:31,399 Speaker 1: that is kind of the first sign that we're getting, 323 00:17:31,440 --> 00:17:34,119 Speaker 1: you know, some traction from what the FED is doing 324 00:17:34,680 --> 00:17:37,840 Speaker 1: feeding through to broader financial conditions, WHI should feed through 325 00:17:37,840 --> 00:17:39,760 Speaker 1: in some way to the housing market. It's just it's 326 00:17:39,800 --> 00:17:41,520 Speaker 1: not really that that's gonna be enough to pull off 327 00:17:41,560 --> 00:17:44,480 Speaker 1: the housing market. And that really that really rings true 328 00:17:44,480 --> 00:17:47,440 Speaker 1: here is Kaylee looks at seven thousand square feet downtown. 329 00:17:47,480 --> 00:17:50,280 Speaker 1: I mean, the mortgage rate adjustment has been huge. Honestly, 330 00:17:50,359 --> 00:17:52,760 Speaker 1: house prices Tom in this country, in the UK, for 331 00:17:52,800 --> 00:17:57,959 Speaker 1: that match, are obscene, absolutely incredible. Nuts, are right, I'm 332 00:17:58,000 --> 00:18:00,520 Speaker 1: gonna use that word. They are nuts. And Drew I 333 00:18:00,640 --> 00:18:02,560 Speaker 1: wasn't tough on you at till a couple of weeks ago, 334 00:18:02,720 --> 00:18:05,480 Speaker 1: and you know that. Let's talk about the economic data. Andrew. 335 00:18:05,480 --> 00:18:07,800 Speaker 1: You've got faith in this economy. You've got faith in 336 00:18:07,800 --> 00:18:10,280 Speaker 1: this economy, and for that reason, to restrain this economy, 337 00:18:10,280 --> 00:18:11,960 Speaker 1: you think rates have to go a whole lot higher. 338 00:18:12,200 --> 00:18:15,320 Speaker 1: There was one little crack in that on Friday, and 339 00:18:15,359 --> 00:18:17,920 Speaker 1: even the team picked up on it. The I M. 340 00:18:17,960 --> 00:18:20,560 Speaker 1: Can you walk us through what's been happening and why 341 00:18:20,600 --> 00:18:22,639 Speaker 1: that maybe just a little bit of a blinking, flashing 342 00:18:22,720 --> 00:18:25,560 Speaker 1: light on your dashboard. Yeah, I think you really have 343 00:18:25,600 --> 00:18:28,360 Speaker 1: to be watching all the signals here because to your point, John, 344 00:18:28,359 --> 00:18:30,920 Speaker 1: I mean, we have very strong demand, demand that is 345 00:18:30,960 --> 00:18:34,800 Speaker 1: exceeding supply. The issue when demand exceeds supply is that 346 00:18:34,880 --> 00:18:37,440 Speaker 1: even as demand begins to cool, you might not see 347 00:18:37,480 --> 00:18:40,800 Speaker 1: activities slow that much. You would really see prices slow 348 00:18:40,840 --> 00:18:44,240 Speaker 1: down because well, you're constrained by supply at the beginning 349 00:18:44,240 --> 00:18:46,520 Speaker 1: of the day in any case. UM, So we're watching 350 00:18:46,520 --> 00:18:49,080 Speaker 1: all these indicators on something like in I s M 351 00:18:49,160 --> 00:18:53,120 Speaker 1: slowing down UM that that would be raising our level 352 00:18:53,160 --> 00:18:55,600 Speaker 1: of concerns somewhat. You know a lot of people looking 353 00:18:55,600 --> 00:18:57,760 Speaker 1: at the yield curve. That's another signal that I think 354 00:18:57,800 --> 00:19:00,760 Speaker 1: means we should be cognizant of the fact that the 355 00:19:00,800 --> 00:19:03,560 Speaker 1: economy may slow down UM and and the FIT may 356 00:19:03,600 --> 00:19:06,600 Speaker 1: need to slow down the economy down significantly to get 357 00:19:06,640 --> 00:19:08,639 Speaker 1: inflation down. So there's a lot of reasons to be 358 00:19:09,080 --> 00:19:11,840 Speaker 1: thinking about scenarios where the economy slows down. But what 359 00:19:11,920 --> 00:19:14,439 Speaker 1: I would go back to is the other number on Friday, 360 00:19:14,440 --> 00:19:18,639 Speaker 1: which was the jobs report, and we're running on average 361 00:19:18,800 --> 00:19:22,439 Speaker 1: above five thousand new jobs a month. You have wage 362 00:19:22,480 --> 00:19:27,119 Speaker 1: inflation above five percent annualized. UM. You put those numbers together, 363 00:19:27,160 --> 00:19:30,879 Speaker 1: you have nominal incomes that are running above ten percent 364 00:19:31,040 --> 00:19:33,040 Speaker 1: year on year, and I think that kind of nominal 365 00:19:33,080 --> 00:19:35,399 Speaker 1: income growth, we're probably going to see a lot of 366 00:19:35,440 --> 00:19:38,520 Speaker 1: spending power behind that. But in the face of higher 367 00:19:38,520 --> 00:19:42,000 Speaker 1: oil prices, really higher prices across the board, Andrew, how 368 00:19:42,040 --> 00:19:45,360 Speaker 1: long can the American consumer go before demand destruction really 369 00:19:45,359 --> 00:19:48,359 Speaker 1: starts to kick in. Yeah, it's a great question, and 370 00:19:48,560 --> 00:19:50,720 Speaker 1: I think we are seeing that to some extent. Um. 371 00:19:50,960 --> 00:19:53,720 Speaker 1: We were talking about housing before. Um, you would demand 372 00:19:53,720 --> 00:19:56,000 Speaker 1: for housing be even stronger if house prices were not 373 00:19:56,040 --> 00:19:58,560 Speaker 1: as high as they are. That's definitely the case. So 374 00:19:58,640 --> 00:20:00,680 Speaker 1: you know, a combination of higher price prices and higher 375 00:20:00,680 --> 00:20:03,240 Speaker 1: mortgage traits in the housing market. And then we're broadly 376 00:20:03,280 --> 00:20:05,920 Speaker 1: for consumption, like you're talking about, we have higher oil prices, 377 00:20:06,160 --> 00:20:08,640 Speaker 1: higher gasoline prices at the pump that that really does 378 00:20:09,000 --> 00:20:12,440 Speaker 1: hurt consumers on a day to day basis. Um. Again, though, 379 00:20:12,440 --> 00:20:16,920 Speaker 1: you're just coming at that from so much nominal income 380 00:20:16,960 --> 00:20:20,919 Speaker 1: power you know, hitting that increase in prices that I 381 00:20:20,960 --> 00:20:23,320 Speaker 1: don't think that will be enough so far. Now we're 382 00:20:23,320 --> 00:20:25,520 Speaker 1: watching the you know, if you watch the consumer sentiment 383 00:20:25,600 --> 00:20:27,520 Speaker 1: numbers for instance, there you do see some of those 384 00:20:27,560 --> 00:20:30,439 Speaker 1: numbers tipping because people are concerned about prices that are 385 00:20:30,480 --> 00:20:33,360 Speaker 1: moving higher as they should be. Um but so far 386 00:20:33,440 --> 00:20:36,320 Speaker 1: it still looks like an economy that was running well 387 00:20:36,359 --> 00:20:39,840 Speaker 1: above two percent potential growth, probably still running above two 388 00:20:39,840 --> 00:20:41,600 Speaker 1: percent potential growth. But you know, kind of like you 389 00:20:41,600 --> 00:20:44,920 Speaker 1: were discussing earlier, slowing down closer to that two percent numbers. 390 00:20:44,960 --> 00:20:47,119 Speaker 1: You go through the year, Andrew, to bring it back 391 00:20:47,160 --> 00:20:50,280 Speaker 1: to monetary policy, how does the balance sheet factor into 392 00:20:50,359 --> 00:20:54,440 Speaker 1: your assumptions of potentially two basis points of move over 393 00:20:54,480 --> 00:20:57,960 Speaker 1: four meetings? If the balance sheet is introduced as a 394 00:20:58,000 --> 00:21:03,119 Speaker 1: factor in May, does what influence? Does that have? Great question? 395 00:21:03,160 --> 00:21:05,560 Speaker 1: So economists like myself spending a lot of time right 396 00:21:05,560 --> 00:21:08,400 Speaker 1: now guessing at what these interest rate increases will look 397 00:21:08,400 --> 00:21:10,680 Speaker 1: like beneficials spending a lot of time talking about the 398 00:21:10,720 --> 00:21:13,879 Speaker 1: potential path of interest rate increases. But really we should 399 00:21:13,880 --> 00:21:17,359 Speaker 1: probably all be a bit more focused on the balance sheet. 400 00:21:17,640 --> 00:21:20,040 Speaker 1: That's an incredibly important tool that the FED has when 401 00:21:20,040 --> 00:21:22,320 Speaker 1: we talk about a flat yield curve, two ye yields 402 00:21:22,359 --> 00:21:25,480 Speaker 1: being pretty high and tenure yields staying relatively low. Well, 403 00:21:25,600 --> 00:21:28,520 Speaker 1: the FED is a very large owner of long term 404 00:21:28,520 --> 00:21:31,600 Speaker 1: treasuries and mortgage backed securities. That's gonna put downward pressure 405 00:21:31,640 --> 00:21:34,040 Speaker 1: on long term yield So I think the FED is 406 00:21:34,080 --> 00:21:36,880 Speaker 1: going to start this on somewhat of an autopilot where 407 00:21:36,920 --> 00:21:41,359 Speaker 1: there are caps on the amount of securities that are 408 00:21:41,359 --> 00:21:43,800 Speaker 1: reinvested each month. That's going to bring the balance sheet 409 00:21:43,840 --> 00:21:48,679 Speaker 1: down slowly. Um. But it's something to watch because if 410 00:21:48,720 --> 00:21:51,359 Speaker 1: the FED needs another lever to pull on to fight 411 00:21:51,640 --> 00:21:53,800 Speaker 1: inflation that's running too high, well, the balance sheet is 412 00:21:53,840 --> 00:21:56,000 Speaker 1: there as a lever could defend at some point, think 413 00:21:56,040 --> 00:21:58,200 Speaker 1: about sales to they think about being more aggressive with 414 00:21:58,240 --> 00:21:59,920 Speaker 1: the balance sheet. I think all those things are on 415 00:22:00,000 --> 00:22:03,200 Speaker 1: a table. We're just not really focused on them right now. Andrew, 416 00:22:03,359 --> 00:22:05,920 Speaker 1: fascinating kill. We appreciate your time as a white buddy 417 00:22:05,960 --> 00:22:07,960 Speaker 1: to can't hump and break it down for Sandraw Holland, 418 00:22:07,960 --> 00:22:14,840 Speaker 1: host there of sits. This is when Jay Kramer out 419 00:22:14,880 --> 00:22:18,280 Speaker 1: on Twitter this morning, Elon Moss, could you please create 420 00:22:18,280 --> 00:22:21,200 Speaker 1: an algorithm for Twitter to get rid of the death 421 00:22:21,200 --> 00:22:24,320 Speaker 1: threats and the like. Also, how about a two track, 422 00:22:24,840 --> 00:22:27,960 Speaker 1: one with real names that is paid for and one 423 00:22:28,000 --> 00:22:31,400 Speaker 1: that is at supported where people can hide behind anonymous 424 00:22:31,480 --> 00:22:35,800 Speaker 1: names and dump on du Chasso. We did that, we 425 00:22:36,520 --> 00:22:41,199 Speaker 1: Jim's Jim's um. Yeah, a wise comment because there's so 426 00:22:41,280 --> 00:22:44,119 Speaker 1: much vitriol. It's like it's a cesspool. It's you know, 427 00:22:44,240 --> 00:22:47,840 Speaker 1: I go on and off because people are so filled 428 00:22:47,840 --> 00:22:51,080 Speaker 1: with hate and get it too, but not like especially 429 00:22:51,280 --> 00:22:56,359 Speaker 1: especially you know a lot of these people are you know, 430 00:22:56,480 --> 00:22:59,600 Speaker 1: reside in the cheap seats and they're shrouded by and 431 00:22:59,760 --> 00:23:03,480 Speaker 1: then emmity, and they've never been on the playing field, 432 00:23:03,720 --> 00:23:05,800 Speaker 1: and they say that they wouldn't say to your face, 433 00:23:06,080 --> 00:23:08,240 Speaker 1: you've been cautious here? What do you do with Twitter? 434 00:23:08,280 --> 00:23:11,159 Speaker 1: Now that Mr Musco is nine point x percent stock up? 435 00:23:13,640 --> 00:23:17,879 Speaker 1: Doubly trade? I probably traded Twitter, uh those people on 436 00:23:18,040 --> 00:23:21,439 Speaker 1: real money pro on the street No, Over twenty times 437 00:23:21,440 --> 00:23:25,919 Speaker 1: over the last seven years, starting at I actually was 438 00:23:25,960 --> 00:23:28,119 Speaker 1: not long going into this, but I showed a stock 439 00:23:28,520 --> 00:23:31,480 Speaker 1: at sixty as I tweeted out, and then covered about 440 00:23:31,480 --> 00:23:33,800 Speaker 1: five percent lower this morning, so I'm flat the stock 441 00:23:34,720 --> 00:23:38,520 Speaker 1: um Musk is a genius. The irony is that the 442 00:23:38,640 --> 00:23:43,440 Speaker 1: SEC doesn't allow him to tweet, but unless his counsel 443 00:23:43,520 --> 00:23:47,120 Speaker 1: at at at Tesla allows him, you know, goes over 444 00:23:47,160 --> 00:23:51,400 Speaker 1: what he's going to tweet. So it's filled with irony. Um, 445 00:23:51,680 --> 00:23:54,480 Speaker 1: he filed thirteen G, not at thirteen D, so he's passive. 446 00:23:54,840 --> 00:23:57,080 Speaker 1: So I think it's an over reaction in my view. 447 00:23:57,359 --> 00:23:59,400 Speaker 1: All right, Doug, So you know, I'm I'm just looking 448 00:23:59,400 --> 00:24:01,040 Speaker 1: around here. I just came back from a nice few 449 00:24:01,119 --> 00:24:05,080 Speaker 1: days off in California. Things are great out there, sunshine 450 00:24:05,160 --> 00:24:07,760 Speaker 1: six and a half dollars a gallon for gas. But 451 00:24:07,800 --> 00:24:10,120 Speaker 1: I've got an economy that's slowing. I got interest rates 452 00:24:10,160 --> 00:24:13,919 Speaker 1: that are going higher. I've got inflation. My Huevos Franciero's 453 00:24:13,960 --> 00:24:17,480 Speaker 1: a Katie's placing Carmel this yesterday cost me twenty one 454 00:24:17,840 --> 00:24:22,120 Speaker 1: dollars um. What do I do in this market? Well, 455 00:24:22,280 --> 00:24:27,080 Speaker 1: I mentioned to Tom and and Apropos to answering your question, Paul, 456 00:24:27,560 --> 00:24:31,400 Speaker 1: that I wanted to rip up the script and basically 457 00:24:31,480 --> 00:24:34,439 Speaker 1: link something that I learned in my first statistics class 458 00:24:34,440 --> 00:24:38,679 Speaker 1: at Wharton with Jamie Diamond's comment, because I think it 459 00:24:38,760 --> 00:24:42,639 Speaker 1: will serve to answer your question. The term I learned 460 00:24:43,000 --> 00:24:48,879 Speaker 1: was gausy and distribution or normal distribution before everyone's eyes 461 00:24:48,960 --> 00:24:52,400 Speaker 1: glaze over. Most no gauzy in by a different name, 462 00:24:52,600 --> 00:24:55,040 Speaker 1: and it's a familiar name. It's a bell shaped curve, 463 00:24:55,080 --> 00:24:59,639 Speaker 1: which is a probability distribution function used in statistical analysis. 464 00:25:00,280 --> 00:25:03,360 Speaker 1: Now most view market outcomes these days as a bell 465 00:25:03,480 --> 00:25:06,840 Speaker 1: shaped curve. The average strategist comes in and says, well, 466 00:25:06,920 --> 00:25:09,760 Speaker 1: Tom and Paul, the market smps can earn three twenty 467 00:25:09,760 --> 00:25:14,639 Speaker 1: five dollars plus a minus apply one multiple, where maybe 468 00:25:14,760 --> 00:25:19,720 Speaker 1: two or three uh pe numbers higher than normal, but 469 00:25:19,920 --> 00:25:22,840 Speaker 1: interest rates are low, so the stocks are not expensive 470 00:25:22,960 --> 00:25:26,800 Speaker 1: expensive relative to interest rates. I think that's linear thinking. 471 00:25:27,480 --> 00:25:32,280 Speaker 1: Um uh, you know, in a normal distribution a normal world, 472 00:25:33,400 --> 00:25:37,200 Speaker 1: of the outcomes are within three standard deviations of the mean, 473 00:25:37,640 --> 00:25:40,880 Speaker 1: and two thirds are within one standard deviation. That's how 474 00:25:41,080 --> 00:25:44,720 Speaker 1: the majority of investors are thinking today. I strongly disagree 475 00:25:45,760 --> 00:25:48,919 Speaker 1: what I believe to be the normal distribution consensus. I 476 00:25:48,920 --> 00:25:51,560 Speaker 1: see it much differently. I don't see a Gaussian or 477 00:25:51,680 --> 00:25:55,240 Speaker 1: normal curve. I see what I call a Cassian distribution 478 00:25:55,280 --> 00:26:00,320 Speaker 1: and abnormal distribution aftorial. Some call me abnormal on Twitter. Um. 479 00:26:00,359 --> 00:26:03,960 Speaker 1: But and a normal distribution considers that there's a wide 480 00:26:04,080 --> 00:26:08,320 Speaker 1: range of tail outcomes that have a higher probability than 481 00:26:08,359 --> 00:26:11,720 Speaker 1: at any time in the last few decades. In other words, 482 00:26:11,920 --> 00:26:14,760 Speaker 1: to me, the markets pull are underprising risk in the 483 00:26:14,840 --> 00:26:16,879 Speaker 1: rally over the last half of market looks like a 484 00:26:16,920 --> 00:26:20,240 Speaker 1: bear market rally. And let's consider what Jamie Diamond says. 485 00:26:20,280 --> 00:26:23,639 Speaker 1: I've I have said online on the show and offline 486 00:26:23,680 --> 00:26:29,640 Speaker 1: to John you Um and Tom that um My concern 487 00:26:29,760 --> 00:26:34,120 Speaker 1: is chiefly that there's abundance of uncertainties and the very 488 00:26:34,240 --> 00:26:38,520 Speaker 1: probabilities of outcomes that exist today, d Jamie Diamond said 489 00:26:38,520 --> 00:26:41,600 Speaker 1: this morning. He warned that the war in Ukraine would 490 00:26:41,600 --> 00:26:46,320 Speaker 1: collide with rising inflation UH to slow the pandemic recovery 491 00:26:46,480 --> 00:26:49,359 Speaker 1: and alter global alliances for that case to come, but 492 00:26:49,440 --> 00:26:52,320 Speaker 1: what he wrote next is far more important. He wrote, 493 00:26:52,359 --> 00:26:58,119 Speaker 1: they referencing Ukraine inflation present completely different circumstances than what 494 00:26:58,240 --> 00:27:02,320 Speaker 1: we've experienced in the past, and their confluence may dramatically 495 00:27:02,480 --> 00:27:05,440 Speaker 1: increase the risk of the head. Well, it is possible 496 00:27:05,440 --> 00:27:08,720 Speaker 1: and hopeful that all these events will have peaceful resolutions, 497 00:27:09,160 --> 00:27:13,480 Speaker 1: we should prepare for the potential negative outcomes. And this 498 00:27:13,560 --> 00:27:16,119 Speaker 1: is why I view the world, the stock market, the 499 00:27:16,240 --> 00:27:21,480 Speaker 1: SMP as overvalued. Never before have we had the possibility 500 00:27:21,880 --> 00:27:27,280 Speaker 1: of these outlier unexpected outcomes which are happening with greater frequency. 501 00:27:27,359 --> 00:27:31,600 Speaker 1: So twenty one times the ratio one times is really 502 00:27:31,720 --> 00:27:34,840 Speaker 1: quite expensive. Doug, what's important yours? We don't know where 503 00:27:34,840 --> 00:27:37,040 Speaker 1: the Baltimore Orioles are in the Bell curve, but it's 504 00:27:37,080 --> 00:27:39,439 Speaker 1: not a good sight to see. I know where the 505 00:27:39,520 --> 00:27:42,680 Speaker 1: Yankees are and I don't even want to discuss it anymore. 506 00:27:43,600 --> 00:27:45,400 Speaker 1: It's part of your terms for coming out. We talk 507 00:27:45,440 --> 00:27:48,040 Speaker 1: to your people and said you wouldn't talk about it. Doug. 508 00:27:48,119 --> 00:27:53,560 Speaker 1: What's so important within this analysis is corporations adapt with 509 00:27:53,720 --> 00:27:56,000 Speaker 1: your analysis? Do you go to you know, forget about 510 00:27:56,040 --> 00:27:59,320 Speaker 1: trading like casts? Do you go to cash? Or are 511 00:27:59,359 --> 00:28:04,520 Speaker 1: there places to hide given your caution? Well, I have 512 00:28:05,320 --> 00:28:09,720 Speaker 1: a very long list of shorts. Uh, some companies you 513 00:28:09,760 --> 00:28:16,800 Speaker 1: haven't heard of, or whether fraud exists or the company's outlook. Uh. 514 00:28:17,480 --> 00:28:19,240 Speaker 1: I'm not going to get into the details, but I'll 515 00:28:19,320 --> 00:28:22,919 Speaker 1: briefly give you some names. Carbon Crispy Cream, you know, 516 00:28:23,040 --> 00:28:29,920 Speaker 1: Robin Hood the Crispy Cream, awful business model. It's going 517 00:28:29,960 --> 00:28:32,600 Speaker 1: to go the way the first Crispy Cream did could 518 00:28:32,600 --> 00:28:36,280 Speaker 1: put Berkeley lights light speed. One of my favorites is 519 00:28:36,400 --> 00:28:39,840 Speaker 1: Digital World acquisition, which is down nine dollars this morning. 520 00:28:40,040 --> 00:28:44,200 Speaker 1: And that's of course Donald Trump's Truth Social, which is 521 00:28:44,280 --> 00:28:48,840 Speaker 1: having serious problems having people download. There's a waiting list 522 00:28:48,880 --> 00:28:51,360 Speaker 1: of over a million names. I've tried to get on it, 523 00:28:51,440 --> 00:28:56,120 Speaker 1: not because I'm interested in in the propaganda, but I'm 524 00:28:56,160 --> 00:28:58,400 Speaker 1: trying to figure out how the site is working, how 525 00:28:58,440 --> 00:29:02,320 Speaker 1: effectively it is working. In fact, over the weekend, the 526 00:29:02,440 --> 00:29:07,560 Speaker 1: two people that lead the technology and development resigned from 527 00:29:07,600 --> 00:29:10,960 Speaker 1: the company, and um, they're gonna have problems. You know. 528 00:29:11,000 --> 00:29:14,920 Speaker 1: The other thing is in theory. UM truth Social provides 529 00:29:15,760 --> 00:29:21,520 Speaker 1: um a platform versus Twitter. But I think people from 530 00:29:21,520 --> 00:29:24,760 Speaker 1: the right and the left like Twitter because they could 531 00:29:24,840 --> 00:29:27,640 Speaker 1: kill each other with so much vitriol and hate. I 532 00:29:27,680 --> 00:29:30,320 Speaker 1: don't think it is as compelling if you have a 533 00:29:30,400 --> 00:29:36,600 Speaker 1: site with only right leaning um uh tweeters or contributor. 534 00:29:36,680 --> 00:29:38,960 Speaker 1: IM out of time. I got five seconds. Would you 535 00:29:39,000 --> 00:29:43,080 Speaker 1: explain the price of Florida real estate? Oh my god, 536 00:29:43,120 --> 00:29:45,280 Speaker 1: I've been talking about this whole weekend. Have you been 537 00:29:45,520 --> 00:29:49,480 Speaker 1: spying on my conversation? If I told you what I 538 00:29:49,520 --> 00:29:52,880 Speaker 1: paid for my house on Seabreeze Avenue in Palm Beach 539 00:29:55,080 --> 00:29:58,640 Speaker 1: and it was offered Friday night by someone who walks 540 00:29:58,760 --> 00:30:01,120 Speaker 1: not a realtor, so when he wants to pay me cash, 541 00:30:01,200 --> 00:30:03,520 Speaker 1: just walked up and knocked on my door. Happened him 542 00:30:03,560 --> 00:30:07,680 Speaker 1: at home. My dog, my two docksins um Ali and 543 00:30:07,760 --> 00:30:12,000 Speaker 1: Daisy at barking um and I was, I was, I 544 00:30:12,080 --> 00:30:16,720 Speaker 1: was stunned. Okay, well I'm not telling you because it's 545 00:30:16,720 --> 00:30:20,240 Speaker 1: in a residence stress with my kids. Doug cast thank 546 00:30:20,280 --> 00:30:22,440 Speaker 1: you so much, knocking on his door down in Florida 547 00:30:22,480 --> 00:30:27,720 Speaker 1: with Seabreees partners as well. This is the Bloomberg Surveillance Podcast. 548 00:30:27,960 --> 00:30:31,360 Speaker 1: Thanks for listening. Join us live weekdays from seven to 549 00:30:31,440 --> 00:30:35,520 Speaker 1: ten am Eastern. I'm Bloomberg Radio and on Bloomberg Television 550 00:30:35,840 --> 00:30:39,880 Speaker 1: each day from six to nine am for insight from 551 00:30:39,880 --> 00:30:44,440 Speaker 1: the best in economics, finance, investment, and international relations. And 552 00:30:44,560 --> 00:30:49,720 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 553 00:30:49,720 --> 00:30:53,040 Speaker 1: dot com, and of course on the terminal. I'm Tom 554 00:30:53,160 --> 00:31:02,800 Speaker 1: Keene and this is Bloomberg