WEBVTT - Surveillance: China Growth with Emanuel 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:12.720 with Jonathan Ferrell and Lisa A. Brawmowitz Jay Lee. We 0:00:12.840 --> 0:00:16.759 bring you insight from the best and economics, finance, investment 0:00:17.079 --> 0:00:22.440 and international relations Fine Bloomberg Surveillance on Apple Podcast, Suncloud, 0:00:22.800 --> 0:00:26.280 Bloomberg dot Com, and of course on the Bloomberg Terminal. 0:00:29.360 --> 0:00:31.680 I'm looking at jud In Emmanuel and he's just itching 0:00:31.880 --> 0:00:34.040 to jump in on this. Judy and Dipping Rip, I 0:00:34.040 --> 0:00:37.960 think Mike Wilson and Morgan Stanley asked yesterday, I wouldn't 0:00:37.960 --> 0:00:43.400 do this for anyone else. Mike Wilson turned round and said, 0:00:43.440 --> 0:00:45.800 how is the consensus wrong? He thinks it's not the direction, 0:00:45.840 --> 0:00:48.080 it's the magnitude. Max Kentner coming out this morning, same 0:00:48.120 --> 0:00:50.800 first half. First half might be better than people expect. 0:00:50.840 --> 0:00:53.720 What do you say, Well, look, you know that we're 0:00:53.760 --> 0:00:58.240 in in the dipping rip camp, and frankly, being in 0:00:58.280 --> 0:01:01.400 the consensus has always in a point of of bother 0:01:02.400 --> 0:01:04.600 for us. But when you when you look at it, 0:01:04.680 --> 0:01:09.320 you know you're fighting this whole notion that the FED 0:01:09.560 --> 0:01:12.560 is going to hike at least fifty, maybe seventy five 0:01:12.600 --> 0:01:15.360 basis points more and the I S M S both 0:01:15.400 --> 0:01:20.520 manufacturing and now services are in recession. Let's not hey 0:01:20.520 --> 0:01:23.560 with cham and pal three has away. Some mentioned it 0:01:23.680 --> 0:01:26.319 financial conditions of a somewhat. Do you think he pushes 0:01:26.360 --> 0:01:31.319 back against that? He does? Do you think it works? Uh? Here, 0:01:31.360 --> 0:01:33.360 here's the issue. The issue is there's a lot of 0:01:33.400 --> 0:01:36.160 position in going on in front of Thursday's cp I. 0:01:36.760 --> 0:01:41.600 Uh so, So from the aspect of a cap being 0:01:41.720 --> 0:01:45.039 on risk assets like we saw basically two hours into 0:01:45.120 --> 0:01:48.680 yesterday's session, it probably does work, but it's could be 0:01:48.720 --> 0:01:52.080 an entirely new narrative after that report comes out. Your 0:01:52.200 --> 0:01:57.880 shop invented the synthesis of equity analysis and economic analysis. 0:01:57.920 --> 0:02:01.000 A guy from Texas to this a few years years ago. 0:02:01.360 --> 0:02:06.919 Synthesize right now the enduring Ed Hyman belief that America 0:02:07.080 --> 0:02:11.239 clears itself like nobody else. We will get through higher rates, 0:02:11.560 --> 0:02:13.680 we will get through all the tech layoffs and all 0:02:13.720 --> 0:02:17.560 the other drama. It's out there. Synthesize the optimism on 0:02:17.639 --> 0:02:20.920 your floor right now, well point blank. Ed has been 0:02:21.160 --> 0:02:24.880 of the view a good nine months now that inflation 0:02:24.960 --> 0:02:27.840 is going to fall faster than the market believes, and 0:02:27.919 --> 0:02:31.720 thus far it's starting to materialize. His full year inflation 0:02:31.760 --> 0:02:36.359 forecast is two and a half percent the golden to handle. Okay, 0:02:36.720 --> 0:02:40.040 that is an entire new set of circumstances for the 0:02:40.080 --> 0:02:42.840 FED to deal with if in fact that's right, And 0:02:42.840 --> 0:02:46.520 and you know that is probably in and of itself 0:02:46.680 --> 0:02:49.960 the argument for risk assets that we think materializes at 0:02:50.000 --> 0:02:51.440 the end of the year, at the end of the year, 0:02:51.560 --> 0:02:53.040 but not at the beginning of the year. And this 0:02:53.080 --> 0:02:55.000 is what I wanted to raise because I actually understand 0:02:55.000 --> 0:02:57.000 what Max Kettner is getting at people who are saying, 0:02:57.200 --> 0:02:59.560 wait a second, the data isn't that bad. There has 0:02:59.600 --> 0:03:02.040 been eight change in facts with better than expected weather, 0:03:02.120 --> 0:03:05.119 warmer than expected weather, and a China that's reopening. Why 0:03:05.160 --> 0:03:07.960 isn't that enough to sustain things for a bit longer? 0:03:08.000 --> 0:03:10.640 Before people hear what Raphael Boss is saying. I am 0:03:10.680 --> 0:03:13.480 not a pivot guy, look, no question about it. The 0:03:13.919 --> 0:03:16.399 surprise to me when I got to the green room 0:03:16.840 --> 0:03:19.240 was to look at natural guests and realize it has 0:03:19.280 --> 0:03:21.600 a three handle on it after what we've seen the 0:03:21.680 --> 0:03:24.920 last several months. That's a big deal. But but at 0:03:24.919 --> 0:03:26.920 the end of the day, we have this set of 0:03:26.960 --> 0:03:32.000 circumstances where the FED is intent on raining in the 0:03:32.120 --> 0:03:35.480 labor situation, and the only way you do that at 0:03:35.520 --> 0:03:38.280 this point is to cause I wouldn't call it a 0:03:38.360 --> 0:03:41.280 material slow down, but look ed is looking for a 0:03:41.320 --> 0:03:44.360 couple of negative GDP quarters what we used to call 0:03:44.480 --> 0:03:47.840 until the first half of last year a recession. Okay, 0:03:48.080 --> 0:03:50.240 and I understand they dig There is a lot of 0:03:50.240 --> 0:03:52.680 people are saying it didn't actually happen. So what causes 0:03:53.120 --> 0:03:55.760 the rip? What causes the upside? If the FETE is 0:03:55.800 --> 0:03:59.839 determined to bring inflation down, if they're really going gangbusters 0:03:59.840 --> 0:04:02.720 the air, and you don't necessarily get some sort of 0:04:02.760 --> 0:04:05.640 fiscal impulse or anything to really drive things near the direction. 0:04:06.680 --> 0:04:11.520 It's essentially this idea that there is a terminal, you know, 0:04:11.800 --> 0:04:16.440 endpoint to the hiking. You don't necessarily need to see 0:04:16.480 --> 0:04:19.720 the easing, and the market is probably and I think 0:04:19.760 --> 0:04:22.160 we're going to hear this in a few hours incorrect 0:04:22.240 --> 0:04:25.400 and believing that there's going to be any sort of 0:04:25.480 --> 0:04:29.599 material easing in three But what it really is is 0:04:29.640 --> 0:04:33.039 what you have every time at market bottoms. There has 0:04:33.160 --> 0:04:37.520 never been a bear market bottom without a capitulation, without 0:04:37.560 --> 0:04:41.600 an emotional volatility spike, and that in it of itself 0:04:41.960 --> 0:04:44.359 clears the playing field for the next bowl market. And 0:04:44.400 --> 0:04:47.039 we think that's going to happen if I'm not in cash, 0:04:47.080 --> 0:04:50.680 where am I? What sectors have value and have protection? 0:04:51.200 --> 0:04:55.120 We continue to think that value has value. Okay, it 0:04:55.279 --> 0:04:58.320 is going to be challenged for the next couple of 0:04:58.360 --> 0:05:02.960 weeks at mids Uh, That's that's part of it. Look, 0:05:03.000 --> 0:05:08.320 we're very defensive minded right now. Consumer staples, healthcare, and 0:05:08.560 --> 0:05:11.520 energy continues to be you know, it's sort of the 0:05:11.560 --> 0:05:15.080 pinata back and forth, you know, with ways of emotion 0:05:15.240 --> 0:05:17.479 and you know, ticks in the oil price. But at 0:05:17.520 --> 0:05:19.800 the end of the day, even if we dip into 0:05:19.839 --> 0:05:23.280 a recession, energy is five percent of the index weight 0:05:23.440 --> 0:05:25.479 and it's going to account for nine percent of the 0:05:25.480 --> 0:05:28.320 earnings issues. So you don't think TANK can regain leadership here, 0:05:28.440 --> 0:05:31.920 it's basically the message. In the short term, it absolutely can. 0:05:32.120 --> 0:05:35.279 But in the long term, look, the fact is is 0:05:35.320 --> 0:05:39.040 that the investing public still owns too much. Fang, you're 0:05:39.040 --> 0:05:41.400 a student of market history. I think what we're all 0:05:41.480 --> 0:05:43.919 leaning on here is this idea that's incredibly rare to 0:05:43.960 --> 0:05:47.000 get a market low before the recession. Is that basically 0:05:47.000 --> 0:05:50.839 the argument here? Yeah, in a nutshell, absolutely it would 0:05:50.880 --> 0:05:54.160 it would look again, we have to take it from 0:05:54.200 --> 0:05:57.120 the jump off point that everything that we've seen in 0:05:57.160 --> 0:06:01.040 the last three years is about, you know, has very little, 0:06:01.120 --> 0:06:04.880 if any historical precedent, but this is one of these things. 0:06:05.920 --> 0:06:09.760 Entire the entirety of two We were asked, when's the capitulation, 0:06:09.839 --> 0:06:13.680 when's the chicarsis, when's the emotion? It's coming? And the 0:06:13.800 --> 0:06:16.880 saint Yeah, Junemanny, what have a acre alongside us in 0:06:16.960 --> 0:06:19.240 the studio today, Judy, what do you make of all 0:06:19.279 --> 0:06:22.080 this euro optimism we're waking up to this morning and 0:06:22.080 --> 0:06:23.960 this dollar weakness was seeing as well off the back 0:06:23.960 --> 0:06:27.719 of this chin of reopening story. Uh. In the immediate term, 0:06:27.839 --> 0:06:30.080 it may be a little bit in terms of the 0:06:30.120 --> 0:06:34.719 reaction of of euro dollar at one oh seven, that's understandable. 0:06:35.080 --> 0:06:38.240 But the bigger picture is is that what the last 0:06:38.400 --> 0:06:42.839 nine months have been about is ridding the Eurozone of 0:06:42.920 --> 0:06:47.520 the psychology of negative interest rates. It's very difficult to 0:06:47.720 --> 0:06:52.720 overstate how important that is for risk assets, for investors, 0:06:52.960 --> 0:06:57.320 you know, assessing capital allocation decisions. Uh, you know, in 0:06:57.440 --> 0:07:01.279 that part of the world. And when you think at 0:07:01.320 --> 0:07:05.520 the about the discount for over a decade during which 0:07:05.560 --> 0:07:10.720 time the dollar rallied almost consistently. It makes sense the 0:07:10.760 --> 0:07:13.520 case for Europe. What's revenue growth do if we get 0:07:13.520 --> 0:07:16.800 an ed him an inflation scenario, which is a forty 0:07:16.880 --> 0:07:19.280 eight or fifty two I can't remember even into alright, 0:07:19.320 --> 0:07:22.600 deflation in the early fifties, What does corporate revenue growth 0:07:22.680 --> 0:07:26.960 do given a rapid disinflation. It's certainly going to decline, 0:07:26.960 --> 0:07:31.880 and it's going to decline faster than the market expects. 0:07:32.600 --> 0:07:36.239 Is it going to go negative? Very unlikely, because frankly, 0:07:36.280 --> 0:07:39.400 again you have the other side of the fact that 0:07:39.480 --> 0:07:44.440 you've got so much stock of consumer savings, and in 0:07:44.480 --> 0:07:47.560 that environment, one might be able to argue that you're 0:07:47.560 --> 0:07:49.800 going to have I wouldn't say a soft landing, but 0:07:50.000 --> 0:07:53.360 not a crash to call it over five in the 0:07:53.440 --> 0:07:56.840 unemployment rate, and so you're still going to have that 0:07:56.960 --> 0:08:01.080 backstop that gets you through the shallow session to the 0:08:01.160 --> 0:08:04.000 recovery in twenty four. If this is true, does that 0:08:04.040 --> 0:08:08.080 mean that the FED the e CP can remove accommodation completely, 0:08:08.320 --> 0:08:12.240 go from negative or zero to two three four percent 0:08:12.560 --> 0:08:15.480 without causing a financial crisis, without causing a crash, a 0:08:15.480 --> 0:08:18.400 normalization that just leaves a couple of potholes, but not 0:08:18.440 --> 0:08:21.680 that much more along the way. It's very difficult. It's 0:08:21.840 --> 0:08:28.000 literally only happened. Uh And interestingly enough, when you look 0:08:28.040 --> 0:08:31.000 at ninety four, that was the only other year in 0:08:31.040 --> 0:08:34.400 the bond stock quadrant where you had negative returns to 0:08:34.520 --> 0:08:37.000 both bonds and socks. Granted there were nowhere near the 0:08:37.040 --> 0:08:40.680 scope of what we saw in two, but the upside 0:08:40.720 --> 0:08:42.840 is it is possible. But we reverted back to low 0:08:42.920 --> 0:08:45.360 yields after that, and it really entered this decade, these 0:08:45.360 --> 0:08:48.520 two decades, three decades of the incredible bond rally. If 0:08:48.520 --> 0:08:50.520 we don't get that, if this is the new normal, 0:08:50.600 --> 0:08:53.520 maybe not this high, but a three percent fed funds rate, 0:08:53.640 --> 0:08:55.840 an e c B rate of two percent, does that 0:08:55.920 --> 0:08:57.520 mean that we can just live with that? Then it 0:08:57.600 --> 0:09:00.320 just is basically, money isn't free, but it's not gonna 0:09:00.360 --> 0:09:03.520 necessarily cause some complete rereading of stock and bond returns 0:09:03.520 --> 0:09:05.760 for a longer period of time. It is possible. It's 0:09:05.760 --> 0:09:09.880 going to compress multiples, it's going to compress leverage, it's 0:09:09.920 --> 0:09:13.560 going to compress valuations across assets. But it isn't a 0:09:13.640 --> 0:09:16.080 deal killer, and at the end of the day, it 0:09:16.160 --> 0:09:20.520 doesn't depress materially the concept of earnings and earning growth, 0:09:20.640 --> 0:09:23.320 which is what drives stock process in Europe. This goes 0:09:23.520 --> 0:09:26.600 beyond the weather. This seems to all go back to China. 0:09:27.120 --> 0:09:28.600 I think so many of the calls that we're seeing 0:09:28.600 --> 0:09:31.280 this morning are underpinned by this more optimistic constructive for 0:09:31.280 --> 0:09:34.320 you on China reopening, Morgan Stanley, We're pretty blunt about it. 0:09:34.360 --> 0:09:36.920 We believe the market is under appreciating the farm reaching 0:09:37.000 --> 0:09:40.800 ramifications of reopening and the possibility that a robust cyclical 0:09:40.800 --> 0:09:44.080 recovery can occur despite lingering structural headwinds. So make it 0:09:44.120 --> 0:09:46.000 really simple. I think for a lot of people waking 0:09:46.040 --> 0:09:48.120 up this morning in the market, they want to work 0:09:48.120 --> 0:09:50.800 out whether they should be investing in a story where 0:09:50.800 --> 0:09:53.839 growth slows or investing in a story where growth rebounds. 0:09:53.920 --> 0:09:57.480 Which one is it. We think there's a very good 0:09:57.520 --> 0:10:01.439 case to be made for China assets right now. In fact, 0:10:01.440 --> 0:10:04.679 our China strategist Neo Wang thinks we get to six 0:10:04.760 --> 0:10:10.120 point two percent GDP growth this year. Yep. It's just stunning. 0:10:10.200 --> 0:10:14.679 Yep exactly, And I s I ever Core Asian Economists 0:10:14.679 --> 0:10:18.840 feels they get a six plus handle. Ye wow, absolutely, John, 0:10:18.840 --> 0:10:21.559 what we're talking about here in my head is spinning 0:10:21.600 --> 0:10:23.719 over where we were three weeks So I believe three 0:10:23.760 --> 0:10:25.560 weeks ago the world was ending as we know it, 0:10:26.240 --> 0:10:28.360 and now we've got all this optimism mere and only 0:10:28.440 --> 0:10:33.240 one thing has changed. Disinflation in Spain, disinflation in France, 0:10:33.320 --> 0:10:37.360 some other place. I can't remember this stunning six percent call, 0:10:37.920 --> 0:10:41.160 stunning six percent call on China, and what are we 0:10:41.200 --> 0:10:43.079 going to see Thursday in the United So I'll answer 0:10:43.080 --> 0:10:45.280 my own question. I guess it depends where you look. 0:10:45.360 --> 0:10:47.280 If you look to China, things look better. If you 0:10:47.280 --> 0:10:49.360 look to the United States, maybe things look worse. And 0:10:49.440 --> 0:10:52.160 Judian just as a final question that teas up the 0:10:52.320 --> 0:10:55.000 question we ask almost every single January, every single year 0:10:55.400 --> 0:10:58.800 is whether we can get our performance x US, whether 0:10:58.840 --> 0:11:02.760 that's where the performance is international markets beyond US shows 0:11:02.880 --> 0:11:05.400 isn't that where it is? So so it's it's been 0:11:05.440 --> 0:11:08.600 it fits and starts type of argument. And again, if 0:11:08.600 --> 0:11:11.760 you look at the broad sweep, it's because of the 0:11:11.760 --> 0:11:14.160 prevalence of negative rates in much of the rest of 0:11:14.160 --> 0:11:17.240 the world and because the dollar has rallied. We think 0:11:17.280 --> 0:11:19.720 that we're not saying you're in the dollar bearer market, 0:11:19.920 --> 0:11:22.240 but the dollar has topped in our view, and that 0:11:22.400 --> 0:11:25.120 is absolutely tail when for the rest of the world 0:11:25.160 --> 0:11:28.240 out performance this was great. Should Manuel I've a kill 0:11:28.320 --> 0:11:40.080 in a studio. Let's go on dow in an important 0:11:40.080 --> 0:11:42.880 conversation for Global Wall Street, Mr Kentner, where the chief 0:11:42.960 --> 0:11:46.040 multiss strategist that hus be seeing, Max John's got a 0:11:46.040 --> 0:11:48.880 lot of important questions. I'm gonna do this simple. How 0:11:48.920 --> 0:11:52.520 do you dovetail your shift into Steve Major's call for 0:11:52.600 --> 0:11:56.319 low interest rates? Yeah? Good morning. So I think it's 0:11:56.320 --> 0:11:59.199 probably the key question is already around the sequencing, right, 0:11:59.280 --> 0:12:01.760 not so much where the end results is going to be. 0:12:02.080 --> 0:12:05.480 I think it's really a sequencing question. And with this 0:12:05.840 --> 0:12:10.079 really really pessimistic, you know, these pessimistic outlooks that we 0:12:10.200 --> 0:12:12.040 got both from the cell side and the buy side 0:12:12.720 --> 0:12:16.040 in the last couple of months, I think there is 0:12:16.080 --> 0:12:18.520 a very very strong contenders, and it is my feeling 0:12:18.559 --> 0:12:22.800 that it's probably the most concentrated consensus that we had 0:12:22.840 --> 0:12:25.400 ever since the end of twenties seventeen. You may remember 0:12:25.400 --> 0:12:29.440 back then we had this idea of globally synchronized growth 0:12:29.480 --> 0:12:32.400 that really then went horribly wrong in twenty eighteen, and 0:12:32.480 --> 0:12:34.720 I think that's probably as much you know as much 0:12:34.720 --> 0:12:38.480 of a concentrated consensus as we've got right now. So therefore, 0:12:38.600 --> 0:12:41.719 what simply what we're saying is that actually against the 0:12:41.720 --> 0:12:45.360 backgroup of such a concentrated consentus, there's simply a lack 0:12:45.360 --> 0:12:48.720 of downside catalysts, a lack of downsides of prises, and 0:12:48.800 --> 0:12:51.600 therefore the only way is up. So Max, let's talk 0:12:51.640 --> 0:12:56.319 about that. So your words super depressed growth expectations are key. 0:12:56.600 --> 0:12:59.120 Is there any evidence Max, here that those growth expectations 0:12:59.120 --> 0:13:01.920 are captured in the ice of markets right now and 0:13:01.960 --> 0:13:04.760 where you're seeing that? Yeah? I think so. I think 0:13:04.760 --> 0:13:06.880 when we look at market pricing, so we look at 0:13:06.880 --> 0:13:10.480 things like equities versus rates, we look at equities versus 0:13:10.559 --> 0:13:13.000 rates against p M e s, equities versus fixed income, 0:13:13.400 --> 0:13:17.040 comparing that against break evens, across acid relationships or cross 0:13:17.040 --> 0:13:20.200 acid against macro relationships. All of that looks a bit more, 0:13:20.559 --> 0:13:23.079 a bit more realistic now. And I think one thing 0:13:23.080 --> 0:13:25.400 that I would say is it's it's not like we're 0:13:25.480 --> 0:13:27.400 super bullish, right, It's not like I'm saying, you know, 0:13:27.440 --> 0:13:29.280 growth is going to go through the roof and it's 0:13:29.280 --> 0:13:31.920 gonna be rock and roll. The only thing I'm gonna 0:13:31.960 --> 0:13:34.000 say as well. It's not gonna be a rocky horror show, 0:13:34.120 --> 0:13:36.839 right so that that's the only thing that I'm saying 0:13:36.840 --> 0:13:41.439 that basically we're not going to see such extreme pessimism 0:13:41.520 --> 0:13:45.600 and such against the factup of such extreme pessimism. You know, 0:13:45.840 --> 0:13:49.080 you don't need an awful lot of positive surprises, right 0:13:49.160 --> 0:13:52.640 to really make risk asses get going a little bit 0:13:52.960 --> 0:13:54.840 at the upside. And in the first half of the year, 0:13:55.000 --> 0:13:56.559 it could change in the second half of the year, 0:13:56.640 --> 0:14:00.720 right when the ultimate the ultimate level of inflation. Perhaps 0:14:00.760 --> 0:14:02.800 then it's a bit sticky then thought, But you know 0:14:03.000 --> 0:14:06.080 that's something for in six nine months time, not something 0:14:06.080 --> 0:14:08.120 to fret about right now. Why don't get the feeling 0:14:08.120 --> 0:14:13.520 you practiced that line a little bit earlier this morning, Suitely, Max, 0:14:13.600 --> 0:14:16.040 Let's finish on this underweight in cash that you did have. 0:14:16.520 --> 0:14:19.080 Where you allocating that capital? Where does it go? We've 0:14:19.080 --> 0:14:22.200 had some big calls this morning on China reopening, Morkan 0:14:22.280 --> 0:14:24.920 Stanley one of them on the Eurozone Goldener dropping its 0:14:24.920 --> 0:14:29.440 recession call. Where does that cash call go now? So 0:14:29.480 --> 0:14:33.080 it's not going into full on overweight equities yet, right, 0:14:33.080 --> 0:14:35.800 So we haven't been as crazy as going from maximum 0:14:35.880 --> 0:14:38.520 weeight equity is to max overweight equities, So we're sort 0:14:38.520 --> 0:14:41.160 of dipping out of toes. We're going into i G credit, 0:14:41.240 --> 0:14:44.320 into high yeld credit, into emerging market debt, right, so 0:14:44.400 --> 0:14:47.800 really sort of dipping out toes into risk acids. It's 0:14:47.840 --> 0:14:50.440 still a preference of value over growth rate and equities. 0:14:50.480 --> 0:14:53.680 So we still actually like European equities, um, you know, 0:14:53.720 --> 0:14:56.680 we like European equities more than US equities. Really like 0:14:56.800 --> 0:14:59.680 also in EM and Chinese equities now, so I do 0:15:00.080 --> 0:15:03.080 in against the backdrup of Chinese reopening. Still a bit 0:15:03.120 --> 0:15:06.640 of underlying pessimism around Chinese growth, right, So we've just 0:15:06.720 --> 0:15:09.840 heard a bit of a pretty old call around China 0:15:09.880 --> 0:15:12.760 growth early on in your program. It's at starting to 0:15:12.800 --> 0:15:16.160 happen now people are starting to drop recession calls for 0:15:16.240 --> 0:15:19.560 Europe and for the Eurozone. All that really should be 0:15:19.800 --> 0:15:22.320 continuing in the next couple of weeks, and as that 0:15:22.440 --> 0:15:26.520 rear repraisal really continues, that should be beneficial for EM 0:15:26.600 --> 0:15:29.600 equities and for European equity. So what's on the other side, Max, 0:15:29.840 --> 0:15:33.160 with the rocky horror show potential that you were talking 0:15:33.200 --> 0:15:35.680 about for the first half that seems to be pushed out. 0:15:35.960 --> 0:15:38.200 What are you looking for to determine whether you should 0:15:38.240 --> 0:15:41.840 go back into your defensive hunch. Yeah, I think the 0:15:41.840 --> 0:15:44.560 defensive haunch is probably towards the second half of the year. 0:15:44.640 --> 0:15:48.880 Once we've seen the negative rate of change in inflation 0:15:48.960 --> 0:15:51.000 play out, which is really probably going to be happening 0:15:51.080 --> 0:15:53.400 over the next sort of four or five months, right 0:15:54.000 --> 0:15:57.400 then was something you to start saying, Okay, now the 0:15:57.440 --> 0:16:00.720 negative rate of inflation is in the real right, that's 0:16:00.720 --> 0:16:03.480 the rear view. Now we've played that. Now let's talk 0:16:03.480 --> 0:16:06.280 about the ultimate level of inflation work in a state? 0:16:06.920 --> 0:16:09.320 Does the FED have to you know, and does the 0:16:09.360 --> 0:16:11.840 FED in other center branks have to keep raids a 0:16:11.840 --> 0:16:14.160 little bit higher for longer? Does do the put first 0:16:14.240 --> 0:16:16.600 have to be praised at? And that then could be 0:16:16.760 --> 0:16:20.280 leading to perhaps an accident on financial markets or a 0:16:20.320 --> 0:16:26.280 retightening of financial conditions via higher higher credit spreads, lower equities. 0:16:26.680 --> 0:16:28.800 That's then something for the second half of the year 0:16:28.880 --> 0:16:32.240 once that, you know, once that focus shift from initially 0:16:32.280 --> 0:16:35.360 now the negative rate of change in inflation, so the 0:16:35.440 --> 0:16:38.880 delta and inflation, to the ultimate level of inflation where 0:16:38.880 --> 0:16:41.560 we're going to encompat. Do you think that the ultimate 0:16:41.680 --> 0:16:45.480 path for European equities is actually more positive than you 0:16:45.560 --> 0:16:49.480 previously thought because of this d emphasis a U s 0:16:49.520 --> 0:16:52.640 tech basically that yes, there might be a downturn, but 0:16:52.680 --> 0:16:56.920 the optimism around Europe is sustainable. Yeah, I think so, 0:16:57.040 --> 0:17:00.240 especially against the expectations. Right. Let's let's remember there's two 0:17:00.240 --> 0:17:01.920 things that we do in markets. We trade the rate 0:17:02.000 --> 0:17:05.240 of change and we trade data versus consensus. Right, we 0:17:05.280 --> 0:17:08.760 don't really care whether data is, say, we care about 0:17:08.800 --> 0:17:12.359 how it pans out against consensus expectations. And I would 0:17:12.440 --> 0:17:14.879 argue one and a half two months ago it was 0:17:15.280 --> 0:17:18.120 there was barely any ball to be found on Europe. Right, 0:17:18.160 --> 0:17:21.240 So that's not long ago. That's just starting now, right, 0:17:21.440 --> 0:17:24.280 that shift is just starting. So I would really expect 0:17:24.600 --> 0:17:27.480 there is a bit more, a bit more more positive, 0:17:27.640 --> 0:17:31.040 a bit more a positive run to go for for Europe, 0:17:31.080 --> 0:17:35.080 both on the credit side, on EFX and on equities. Wow. Max, 0:17:35.240 --> 0:17:37.119 great to catch out, buddy, Thanks for jumping on with us. 0:17:37.200 --> 0:17:44.399 Max counting there of HSPC Lindsay pegs are with US 0:17:44.800 --> 0:17:47.760 chief economists Stephile lindsay, I'm gonna cut to the chase. 0:17:47.960 --> 0:17:51.240 Our audiences, our viewers are listeners, their heads are spinning 0:17:51.680 --> 0:17:55.399 Atlanta GDP now is a stunning three and a half 0:17:55.440 --> 0:17:59.359 percent plus guestimate of where we are. The fourth quarter 0:17:59.400 --> 0:18:02.639 looks pretty good after all the gloom. Where is the 0:18:02.720 --> 0:18:07.399 assured nous of economic slowdown in this ninety days or 0:18:07.520 --> 0:18:10.760 dare I say even Q two? Well, I think the 0:18:10.800 --> 0:18:14.040 assuredness comes from the weakness that we're seeing on part 0:18:14.040 --> 0:18:16.480 of the consumer. As a consumer based economy, if the 0:18:16.560 --> 0:18:19.679 consumer is not out in the marketplace, happy and healthy, 0:18:19.760 --> 0:18:22.919 we would expect a meaningful decline from that more robust 0:18:23.000 --> 0:18:25.560 pace as we saw in the second half of the year, 0:18:25.920 --> 0:18:29.119 and against the backdrop of negative real income growth, higher 0:18:29.160 --> 0:18:32.680 borrowing cards, and of course many consumers facing the risk 0:18:32.920 --> 0:18:36.320 of variable rate debt resetting in the first quarter at 0:18:36.400 --> 0:18:41.080 higher levels. This will compound the pressure on consumers. Linsy, 0:18:41.119 --> 0:18:44.000 you're reading my mind. The chart yesterday, I believe zero 0:18:44.000 --> 0:18:46.080 hedg chat at thank you zero hedge and it was 0:18:46.240 --> 0:18:49.320 a big, a bloomberg chart. I can't remember of the 0:18:49.359 --> 0:18:52.760 credit card interest rate is a variable rate. I mean, 0:18:52.760 --> 0:18:55.640 we're all looking at housing in that, but fold into 0:18:55.680 --> 0:19:02.960 your analysis credit card rates that were to how does 0:19:03.000 --> 0:19:07.240 that play in to the caution Well, it plays in significantly, 0:19:07.240 --> 0:19:11.760 particularly as savings are now drawn down to near zero levels. 0:19:11.800 --> 0:19:15.119 Whmembere the consumer was very much supported by this accumulation 0:19:15.160 --> 0:19:18.600 of wealth during the pandemic and the immediate aftermath. We 0:19:18.760 --> 0:19:21.560 estimate there was an additional about six trillion in terms 0:19:21.600 --> 0:19:25.080 of a wealth cushion supporting consumers, and that removed any 0:19:25.080 --> 0:19:28.160 sense of immediacy to revert back to the normal labor 0:19:28.200 --> 0:19:32.320 force participation formation that we've seen in previous cycles. But 0:19:32.359 --> 0:19:35.240 now as we go forward and consumers draw down that savings, 0:19:35.560 --> 0:19:39.080 we're seeing this return to a reliance on credit card debt. Now, 0:19:39.160 --> 0:19:43.600 arguably the household balance sheet is beginning from relatively healthier 0:19:43.680 --> 0:19:47.080 position than in previous cycles, but still we don't have 0:19:47.520 --> 0:19:50.600 this unlimited amount of wiggle room for consumers to take 0:19:50.600 --> 0:19:53.240 on that new amount of debt, and particularly as that 0:19:53.280 --> 0:19:57.080 debt is now repricing at higher levels, this will compound 0:19:57.119 --> 0:20:00.720 that pressure as I said, on consumers limited their ability 0:20:00.720 --> 0:20:03.119 to go out into the marketplace. That doesn't mean that 0:20:03.160 --> 0:20:05.600 consumers are going to fall off a cliff, but that 0:20:05.640 --> 0:20:09.359 does mean a meaningful loss of momentum, and again is 0:20:09.359 --> 0:20:11.320 the key part of the economy is going to be 0:20:11.400 --> 0:20:14.639 nearly impossible to maintain then that level of three percent 0:20:14.760 --> 0:20:17.359 growth as we turned the corner now into the new year. So, lindsay, 0:20:17.359 --> 0:20:19.199 would you push back against some of the optimism that 0:20:19.240 --> 0:20:21.720 we've been hearing from people who have been pessimistic through 0:20:21.760 --> 0:20:24.959 all of the second half of last year. Well, I 0:20:25.000 --> 0:20:28.679 think the timeline for the pessimism to set in was extended. 0:20:28.760 --> 0:20:33.080 Consumers did prove to be surprisingly resilient through much of 0:20:33.080 --> 0:20:37.000 this turmoil INWO But again, it doesn't negate the fact 0:20:37.080 --> 0:20:41.159 that these outlying variables will weigh on the consumer and 0:20:41.240 --> 0:20:44.320 limit their ability to spend. There's only so much savings 0:20:44.560 --> 0:20:46.679 that we can draw down, there's only so much credit 0:20:46.680 --> 0:20:49.320 card debt that consumers can ramp up. And so just 0:20:49.520 --> 0:20:52.760 looking at this from a quantitative perspective, regardless of our 0:20:52.840 --> 0:20:57.600 qualitative optimism, the numbers suggests that consumers simply will not 0:20:57.760 --> 0:21:00.119 be there in the first half of the year. Just 0:21:00.240 --> 0:21:03.840 changing the timeline change the depths of whatever downturn you're 0:21:03.840 --> 0:21:05.679 expecting to happen. In other words, does it make it 0:21:05.760 --> 0:21:08.600 less or does it make it more? As new excesses 0:21:08.760 --> 0:21:11.880 build up Now, well, I think the depth and duration 0:21:11.960 --> 0:21:14.000 in terms of the downturn is very much going to 0:21:14.040 --> 0:21:18.159 be hinged on monetary policy and the sticky nature of inflation. 0:21:18.600 --> 0:21:21.600 The higher that prices remain, the longer that prices remain 0:21:21.680 --> 0:21:24.280 in this uncomfortable level relative to what the Fed can 0:21:24.320 --> 0:21:27.120 would stand, that's going to force the Fed to raise 0:21:27.280 --> 0:21:30.800 rates higher and potentially keep rates higher for a longer 0:21:30.840 --> 0:21:33.720 period of time. And that's going to be the scenario 0:21:34.119 --> 0:21:36.520 that's going to compound that that downturn in the duration 0:21:36.600 --> 0:21:38.440 of that downturn. You know, Lindsay, I know you hang 0:21:38.440 --> 0:21:41.359 on every word we do. And Julian Emmanuel is just 0:21:41.440 --> 0:21:44.800 done with Mr Edward S. Highman and their team in 0:21:44.840 --> 0:21:49.680 Asia modeling six percent plus China g d P. Not 0:21:49.920 --> 0:21:51.560 that I don't need you to tell me that's what 0:21:51.600 --> 0:21:54.880 we're gonna see. But if we get five point eight, 0:21:54.920 --> 0:21:58.280 six point to whatever, what does that do to exports 0:21:58.280 --> 0:22:03.400 and imports in your US g d P mass, Well, 0:22:03.480 --> 0:22:06.119 certainly it's it's going to be difficult to get to 0:22:06.200 --> 0:22:09.520 six per cent. That that's extremely optimistic. That being said, 0:22:09.600 --> 0:22:11.720 it does seem as if there's nowhere to go but up. 0:22:11.720 --> 0:22:16.040 When you're talking about an economy emerging from a nationwide 0:22:16.040 --> 0:22:19.960 shutdown or or more restrictive zero COVID policies. But that 0:22:20.040 --> 0:22:23.120