1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,799 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,160 Speaker 1: and of course, on the Bloomberg Terminal. David Rosenberg joins 6 00:00:30,200 --> 00:00:32,400 Speaker 1: now with Rosenberg Research. He is the best in the 7 00:00:32,440 --> 00:00:35,919 Speaker 1: world at parsing inflation. I will not mince words about it, 8 00:00:36,320 --> 00:00:39,520 Speaker 1: David and the Bloomberg I can look at CPI inflation 9 00:00:39,640 --> 00:00:42,920 Speaker 1: back to World War One and the average over the 10 00:00:42,960 --> 00:00:46,239 Speaker 1: many hundred and ten years is three point one percent. 11 00:00:46,960 --> 00:00:50,120 Speaker 1: Part of that are the spikes up which are hugely 12 00:00:50,240 --> 00:00:57,480 Speaker 1: stochastic and come down quickly. Will we disinflate rapidly? I 13 00:00:57,560 --> 00:01:00,000 Speaker 1: think we will, Tom, and I think that you are 14 00:01:00,040 --> 00:01:03,360 Speaker 1: you sing it and a lot of indicators I'll mention 15 00:01:03,520 --> 00:01:08,520 Speaker 1: three uh. Commodity prices are well off their highs, even 16 00:01:08,520 --> 00:01:11,479 Speaker 1: though all prices have hung in in the past couple 17 00:01:11,560 --> 00:01:15,119 Speaker 1: of weeks. They're down more than from the peak. Base 18 00:01:15,160 --> 00:01:19,360 Speaker 1: metal prices are down, Um, you know, you've got lumbers 19 00:01:19,440 --> 00:01:24,440 Speaker 1: down more like seventy so the commodity complex which hasn't 20 00:01:24,440 --> 00:01:27,679 Speaker 1: shown up yet. You know, in that chunk of the 21 00:01:27,760 --> 00:01:30,440 Speaker 1: CPI called goods, you know the stuff that you can 22 00:01:30,440 --> 00:01:35,120 Speaker 1: see such and feel commodities are are deflating. You've got 23 00:01:35,240 --> 00:01:37,360 Speaker 1: freight costs across the board. I mean, look at the 24 00:01:37,600 --> 00:01:42,280 Speaker 1: Baltic Dry Index. Yes, yes, yes, I want to stop there. 25 00:01:43,760 --> 00:01:46,360 Speaker 1: The most dollar is up twelve percent year every year. 26 00:01:46,440 --> 00:01:48,360 Speaker 1: Does anybody in the world think that you see in 27 00:01:48,400 --> 00:01:51,640 Speaker 1: all the pass through from the strength and the dollar 28 00:01:52,360 --> 00:01:55,320 Speaker 1: into goods prices? And the answer is no. This will 29 00:01:55,360 --> 00:01:57,639 Speaker 1: all show up with the next twelve months. David Lizian 30 00:01:57,720 --> 00:02:00,920 Speaker 1: Saunders featured Baltic Dry Index US to explain to our 31 00:02:00,920 --> 00:02:04,920 Speaker 1: global audience of symbolism of the cratering of the Baltic 32 00:02:05,000 --> 00:02:08,000 Speaker 1: Dry Index. Well, I think a lot of it is 33 00:02:08,000 --> 00:02:10,760 Speaker 1: the byproduct of the fact that global demand is coming 34 00:02:10,840 --> 00:02:14,680 Speaker 1: under downward pressure. I would also say that we are seeing, 35 00:02:14,760 --> 00:02:18,160 Speaker 1: notwithstanding the ongoing war in the Ukraine, which doesn't seem 36 00:02:18,200 --> 00:02:20,600 Speaker 1: to make the fun pages of the paper anymore, you 37 00:02:20,639 --> 00:02:23,120 Speaker 1: are starting to see and unclogging in a lot of 38 00:02:23,120 --> 00:02:27,080 Speaker 1: the port congestion globally, and so you're seeing the supply 39 00:02:27,240 --> 00:02:30,680 Speaker 1: side thought out. You know where you're seeing that most evidently, 40 00:02:30,880 --> 00:02:35,200 Speaker 1: tom is in the survey data on supply delivery delays, 41 00:02:35,720 --> 00:02:39,880 Speaker 1: which have come down dramatically across every single survey Richmond FED, 42 00:02:39,960 --> 00:02:43,640 Speaker 1: Kansas City FED, Philly FED, New York Empire. And you know, 43 00:02:43,680 --> 00:02:47,400 Speaker 1: it's very interesting from a FED perspective, is that you know, 44 00:02:47,440 --> 00:02:50,120 Speaker 1: about five months ago J. Powell said that, you know, 45 00:02:50,200 --> 00:02:54,680 Speaker 1: we're gonna operate policy blindly relative to what's happening on 46 00:02:54,720 --> 00:02:57,480 Speaker 1: the supply side. The FED made a decision five months 47 00:02:57,480 --> 00:03:00,920 Speaker 1: ago that we're just going to concentrate on the man destruction, 48 00:03:01,919 --> 00:03:05,440 Speaker 1: getting or getting demand growth below supply, which I think 49 00:03:05,520 --> 00:03:08,160 Speaker 1: is a wise policy. But you see, the supply side 50 00:03:08,800 --> 00:03:12,880 Speaker 1: is finally taking hold and creating the disinflation before you've 51 00:03:12,760 --> 00:03:15,239 Speaker 1: even seen any of the lagged impacts that the FED 52 00:03:15,280 --> 00:03:18,080 Speaker 1: has already done, you know, through rates and QT on 53 00:03:18,120 --> 00:03:21,320 Speaker 1: the demand side. So you have the supply curve actually 54 00:03:21,360 --> 00:03:24,360 Speaker 1: becoming more elastic at a time when the Feed is 55 00:03:24,400 --> 00:03:27,440 Speaker 1: engaging in a policy that's going to really kill demand. 56 00:03:28,040 --> 00:03:30,399 Speaker 1: So explain to me, as we get the chalkboard out, 57 00:03:30,440 --> 00:03:33,440 Speaker 1: then you draw these demands supply curves, how does inflation 58 00:03:33,600 --> 00:03:37,160 Speaker 1: not absolutely collapse in the next year? You know, I 59 00:03:37,440 --> 00:03:39,440 Speaker 1: say that's to my clients. They look at me like 60 00:03:39,480 --> 00:03:44,320 Speaker 1: I'm crazy. Not all of them do. Megan Soyber over 61 00:03:44,520 --> 00:03:46,560 Speaker 1: at Bank of America would not look at you like 62 00:03:46,560 --> 00:03:49,120 Speaker 1: you're crazy, because she's still expecting rate cuts next year. 63 00:03:49,160 --> 00:03:51,440 Speaker 1: And it's not because she doubts the reaction function from 64 00:03:51,440 --> 00:03:55,040 Speaker 1: the Fed, but she also sees the prospect of inflation 65 00:03:55,080 --> 00:03:57,840 Speaker 1: coming down very rapidly as we head into the second 66 00:03:57,880 --> 00:04:02,000 Speaker 1: half of three. At what point, and this is really headspinning, 67 00:04:02,000 --> 00:04:04,120 Speaker 1: does this become in some ways good news for the 68 00:04:04,160 --> 00:04:07,200 Speaker 1: market because they can start to price in a softer 69 00:04:07,400 --> 00:04:11,440 Speaker 1: touch or a softer approach from the Federal Reserve? Well, so, 70 00:04:11,560 --> 00:04:14,240 Speaker 1: what's going to happen at some point? And who knows when? 71 00:04:14,320 --> 00:04:16,679 Speaker 1: With this fat in particular, I mean, when Neil cash 72 00:04:16,720 --> 00:04:19,440 Speaker 1: Carry becomes the biggest hawk on the f O m C, 73 00:04:20,120 --> 00:04:23,880 Speaker 1: you know you're in a whole new world altogether. So 74 00:04:24,040 --> 00:04:29,080 Speaker 1: what happens historically is the Fed pauses, and a tightening 75 00:04:29,120 --> 00:04:32,000 Speaker 1: cycle always ends, just like an easing cycle always ends. 76 00:04:32,000 --> 00:04:34,760 Speaker 1: And then with the pause you get a relief rally. 77 00:04:34,800 --> 00:04:37,640 Speaker 1: But then what happens is that the recessionary pressures take hold. 78 00:04:38,240 --> 00:04:40,640 Speaker 1: Then what happens is the Fed cut rates and we've 79 00:04:40,680 --> 00:04:42,320 Speaker 1: seen this so many times in the past, and you 80 00:04:42,400 --> 00:04:45,560 Speaker 1: get another relief rally. Uh, and then once again the 81 00:04:45,600 --> 00:04:49,600 Speaker 1: recession pressures take hold. When when they pause, you want 82 00:04:49,600 --> 00:04:52,760 Speaker 1: to be very wary about the relief rally. You can 83 00:04:52,839 --> 00:04:54,520 Speaker 1: rent it, you can't, don't it. And even if the 84 00:04:54,640 --> 00:04:57,720 Speaker 1: after the first rate cut in the recessionary bear market, 85 00:04:57,960 --> 00:05:00,400 Speaker 1: the market doesn't bottom after the first break cut, you know, 86 00:05:00,400 --> 00:05:03,359 Speaker 1: in the market bottoms. The market bottoms after the last 87 00:05:03,440 --> 00:05:06,560 Speaker 1: rate cut. After you get the last rate cut and 88 00:05:06,600 --> 00:05:09,760 Speaker 1: the market sees the whites of the eyes of the recovery, 89 00:05:09,839 --> 00:05:12,520 Speaker 1: that's the fundamental low. You know that might be that 90 00:05:12,600 --> 00:05:14,680 Speaker 1: might be twelve months from now, So be where the 91 00:05:14,720 --> 00:05:18,200 Speaker 1: pause will generate headline news. You folks report on the pause. 92 00:05:18,560 --> 00:05:20,520 Speaker 1: Then they'll cut rates and then we'll have a pop 93 00:05:20,520 --> 00:05:22,680 Speaker 1: in the market and everybody will think that you know, 94 00:05:22,800 --> 00:05:25,160 Speaker 1: the bull markets right in front of us. But no, no, 95 00:05:25,160 --> 00:05:27,680 Speaker 1: no, no no. If you want to pay attention to the 96 00:05:27,720 --> 00:05:31,239 Speaker 1: historical record, and we know that history rhymes, the time 97 00:05:31,240 --> 00:05:33,919 Speaker 1: to go super long the markets to understand when the 98 00:05:33,920 --> 00:05:38,159 Speaker 1: fundamental low is is actually after the last rate cut, 99 00:05:38,279 --> 00:05:42,359 Speaker 1: when the Fed re steepens the yield curve usually a 100 00:05:42,400 --> 00:05:45,760 Speaker 1: two stands curves plus huntern forty basis points meeting and 101 00:05:45,800 --> 00:05:48,240 Speaker 1: mean by the time the market bottoms, we are so 102 00:05:48,279 --> 00:05:50,880 Speaker 1: long away from that right now, it's not even funny. Well, 103 00:05:50,960 --> 00:05:53,520 Speaker 1: but David, to John's point earlier in the show, when 104 00:05:53,520 --> 00:05:55,880 Speaker 1: he was talking to Sebastian Page, he said, is being 105 00:05:55,920 --> 00:05:58,240 Speaker 1: bullish fighting the FED right now because exactly what you 106 00:05:58,320 --> 00:06:00,280 Speaker 1: pointed to Neil cush Cary coming out in saying he 107 00:06:00,320 --> 00:06:03,200 Speaker 1: was disappointed to say that the market was rallying after 108 00:06:03,600 --> 00:06:07,039 Speaker 1: that Powell speech, and that he isn't terribly unhappy and 109 00:06:07,080 --> 00:06:09,400 Speaker 1: maybe even happy to see that the market is selling 110 00:06:09,440 --> 00:06:12,200 Speaker 1: off in response to the latest guidance. How much are 111 00:06:12,200 --> 00:06:15,920 Speaker 1: we looking for a weakening in the h it's heightening 112 00:06:16,080 --> 00:06:19,320 Speaker 1: in the financial conditions in order to satisfy the FET's 113 00:06:19,400 --> 00:06:24,560 Speaker 1: desire in terms of transmitting their policy. Right Well, that's 114 00:06:24,600 --> 00:06:27,880 Speaker 1: the question. Um. I'm paying attention to what the FETE 115 00:06:27,960 --> 00:06:31,039 Speaker 1: is telling us. I think they're wrong. I think that 116 00:06:31,160 --> 00:06:35,400 Speaker 1: Powell has already told us we are operating policy without 117 00:06:35,480 --> 00:06:38,240 Speaker 1: focusing on what's happening on the supply side of the economy. 118 00:06:38,520 --> 00:06:41,719 Speaker 1: Of course, after sixteen months, the grand total of sixteen 119 00:06:41,720 --> 00:06:45,880 Speaker 1: months which in the annals of economic history is still transitory. 120 00:06:46,120 --> 00:06:48,920 Speaker 1: The FETE has given as valuable information we are operating 121 00:06:48,960 --> 00:06:52,800 Speaker 1: policy without actually focusing on what's happening in the supply 122 00:06:52,880 --> 00:06:55,080 Speaker 1: set anymore. They're they're not relying on the fact that 123 00:06:55,120 --> 00:06:58,560 Speaker 1: these bottlenecks pressures are going to continue to ease, although 124 00:06:58,600 --> 00:07:00,479 Speaker 1: all the data are showing that they are. Reason So 125 00:07:00,520 --> 00:07:03,760 Speaker 1: they're focused on the demand side. So the question becomes, um, 126 00:07:03,839 --> 00:07:07,119 Speaker 1: given where the FED thinks sees of the supply curve going, 127 00:07:07,160 --> 00:07:09,840 Speaker 1: how far do they have to contract demand? How far 128 00:07:09,880 --> 00:07:12,280 Speaker 1: do financial conditions have to tighten to get to that 129 00:07:12,400 --> 00:07:15,000 Speaker 1: holy grail? In their model, I would say, and I've 130 00:07:15,000 --> 00:07:19,200 Speaker 1: tried to copy their model, it's the lowest the smp 131 00:07:19,480 --> 00:07:23,760 Speaker 1: okay and high yield spreads or seven basis points. That's 132 00:07:24,200 --> 00:07:27,120 Speaker 1: that's the matrix. That's the combination that we'd have to 133 00:07:27,120 --> 00:07:30,720 Speaker 1: get to to make make has scary more comfortable with 134 00:07:30,840 --> 00:07:33,320 Speaker 1: where the market you're there's a little bit of the 135 00:07:33,400 --> 00:07:37,560 Speaker 1: Rosenberg humor there this morning, David Off of Jackson Hole 136 00:07:37,840 --> 00:07:41,320 Speaker 1: in the codification of two is the goal is the 137 00:07:41,360 --> 00:07:44,240 Speaker 1: idea that it's not one America. I've been talking all 138 00:07:44,280 --> 00:07:49,360 Speaker 1: morning about a heterogeneous America heterogeneous outcomes. It's a challenge 139 00:07:49,680 --> 00:07:53,120 Speaker 1: for any central bank. What does the FED do about two, 140 00:07:53,200 --> 00:07:58,360 Speaker 1: three and even four America's Blanche Flower is apoplectic over 141 00:07:58,400 --> 00:08:01,680 Speaker 1: the oddities of the America in labor market. Do they 142 00:08:01,720 --> 00:08:04,600 Speaker 1: need to look at us is one America or can 143 00:08:04,640 --> 00:08:10,080 Speaker 1: they study two three or even four America's Now, I'd 144 00:08:10,080 --> 00:08:15,680 Speaker 1: say that monetary policy has to be a national policy. 145 00:08:16,120 --> 00:08:20,000 Speaker 1: You can't carry out a policy based on uh couple 146 00:08:20,040 --> 00:08:23,840 Speaker 1: of segments of the economy or a couple of socioeconomic segments. 147 00:08:23,920 --> 00:08:26,240 Speaker 1: I know, look this time last year, j PLA will 148 00:08:26,280 --> 00:08:28,880 Speaker 1: sending more like a social worker. You really have to 149 00:08:28,920 --> 00:08:31,920 Speaker 1: take a national approach. And I'd be the first to say, 150 00:08:32,000 --> 00:08:34,400 Speaker 1: by the way, that you know, with the unemploy rate 151 00:08:34,640 --> 00:08:37,640 Speaker 1: where it is, the participation right where it is, that's 152 00:08:37,679 --> 00:08:41,160 Speaker 1: obviously on the fads mind, is the tightness of the 153 00:08:41,240 --> 00:08:43,960 Speaker 1: labor market. This is so bizarre, Tom that we would 154 00:08:43,960 --> 00:08:46,319 Speaker 1: have had a year whether you okay, the debate about 155 00:08:46,360 --> 00:08:49,000 Speaker 1: g d I and GDP is a complete waste of time. 156 00:08:49,320 --> 00:08:51,320 Speaker 1: Let's take both measures together and just come to a 157 00:08:51,320 --> 00:08:54,600 Speaker 1: conclusion that the economy is flat whether you look at 158 00:08:54,600 --> 00:08:57,240 Speaker 1: it from an income perspective, in real terms or spending. 159 00:08:57,280 --> 00:09:00,959 Speaker 1: It's basically a flat economy. And here the consensus is 160 00:09:01,040 --> 00:09:04,560 Speaker 1: three hundred thousand on non foreign payrolls on Friday. Does 161 00:09:04,600 --> 00:09:08,160 Speaker 1: anybody stop to think, why would a flat economy need 162 00:09:08,200 --> 00:09:12,000 Speaker 1: to be adding any jobs at all? That's the oddity 163 00:09:12,200 --> 00:09:16,520 Speaker 1: unless you think, unless you think potential is negative, which 164 00:09:16,559 --> 00:09:19,360 Speaker 1: to me is ridiculous. Um So I think at some point, 165 00:09:19,440 --> 00:09:21,080 Speaker 1: let me just say, at some point, and this is 166 00:09:21,120 --> 00:09:25,160 Speaker 1: where the tightening policy by the Feds kiboshed is. When 167 00:09:25,200 --> 00:09:27,400 Speaker 1: you start to see the erosion at the labor market, 168 00:09:27,480 --> 00:09:29,760 Speaker 1: I think that's really what they're waiting for. David, you 169 00:09:29,840 --> 00:09:32,280 Speaker 1: just touched on it. I'll be a little bit more diplomatic. 170 00:09:32,679 --> 00:09:35,599 Speaker 1: The Chairman in the past is demonstrated that sensitivious to 171 00:09:35,640 --> 00:09:38,720 Speaker 1: the political mood in the moment. If unemployment starts climbing, 172 00:09:38,720 --> 00:09:42,959 Speaker 1: do you expect to see the same Chairman Pound again. Well, 173 00:09:43,000 --> 00:09:46,520 Speaker 1: I don't know if we'll see the same Chairman Powell again. 174 00:09:46,600 --> 00:09:49,319 Speaker 1: But do I think that the Fed will respond to 175 00:09:49,960 --> 00:09:52,800 Speaker 1: a loosening in the labor market. I think they're waiting 176 00:09:52,880 --> 00:09:55,600 Speaker 1: for that. I think all of us have been waiting 177 00:09:55,679 --> 00:09:58,960 Speaker 1: for at least the participation rate to start going up. 178 00:09:59,240 --> 00:10:01,360 Speaker 1: I mean, nobody want us to see outright job loss, 179 00:10:01,440 --> 00:10:03,880 Speaker 1: but the big surprise has been in and maybe there's 180 00:10:03,960 --> 00:10:06,800 Speaker 1: maybe there's something to this long COVID story in terms 181 00:10:06,840 --> 00:10:10,439 Speaker 1: of how it's impairing the participation rate. Nobody wants to 182 00:10:10,440 --> 00:10:13,000 Speaker 1: see employment go down. You can actually see the unemployment 183 00:10:13,080 --> 00:10:16,400 Speaker 1: rate actually go up if the participation rate starts to 184 00:10:16,480 --> 00:10:18,400 Speaker 1: go up. So that's going to be very critical. But 185 00:10:18,520 --> 00:10:22,120 Speaker 1: do I think that if the unemploymentrate goes up three, 186 00:10:22,240 --> 00:10:24,960 Speaker 1: four or five tenths where it is today, that they're done. 187 00:10:25,480 --> 00:10:27,559 Speaker 1: I think that's all it would take. In fact, usually 188 00:10:27,600 --> 00:10:29,480 Speaker 1: when you get three or four tenths of an increase 189 00:10:29,480 --> 00:10:32,079 Speaker 1: in the unemployment rate, the lagging indicative that it is 190 00:10:32,520 --> 00:10:36,520 Speaker 1: the recession has already started. So that's yes. So I 191 00:10:36,600 --> 00:10:39,040 Speaker 1: think that I think that would be enough to push 192 00:10:39,440 --> 00:10:42,760 Speaker 1: the Powell pivot back on the front burner. We appreciate 193 00:10:42,800 --> 00:10:46,920 Speaker 1: your for you. So why Stephen Rosenberg that of Rosenberg Research. 194 00:11:00,120 --> 00:11:02,920 Speaker 1: Let's get to set page sow Sebastian page join us 195 00:11:02,960 --> 00:11:05,360 Speaker 1: nowt's he wrote price c IO and head a global 196 00:11:05,400 --> 00:11:08,280 Speaker 1: multi asset Sebastian awesome to catch up. I'll ask that 197 00:11:08,400 --> 00:11:10,679 Speaker 1: question I asked of Lisa. If I'm buy stocks, am 198 00:11:10,720 --> 00:11:16,040 Speaker 1: I fighting this FED? You know, Lisa said that the 199 00:11:16,160 --> 00:11:19,440 Speaker 1: FED expects a gang buster economy. I don't think that's 200 00:11:19,480 --> 00:11:21,920 Speaker 1: the case. I actually think that not only is the 201 00:11:22,000 --> 00:11:25,240 Speaker 1: FED put gone, but there's a FED call in the 202 00:11:25,320 --> 00:11:28,079 Speaker 1: sense that any good news gets taken away by the 203 00:11:28,200 --> 00:11:32,600 Speaker 1: FEDS need to tighten. So yes, I think you are 204 00:11:32,760 --> 00:11:35,400 Speaker 1: fighting the FED. If you're bullish. It's hard to find 205 00:11:35,480 --> 00:11:38,880 Speaker 1: anybody that's bullish now on your show. I saw you 206 00:11:38,960 --> 00:11:42,120 Speaker 1: try with prior guests. Today. I just came back from 207 00:11:42,320 --> 00:11:45,520 Speaker 1: a trip to Australian Japan, meeting with the world's largest 208 00:11:45,559 --> 00:11:48,240 Speaker 1: some of the world's largest pools of capital, and I 209 00:11:48,280 --> 00:11:52,080 Speaker 1: couldn't give anybody to say anything optimistic about the economy 210 00:11:52,240 --> 00:11:54,240 Speaker 1: or markets. Said, I'm not going to mince words for 211 00:11:54,280 --> 00:11:57,480 Speaker 1: our listeners and viewers. This is the most important conversation 212 00:11:57,559 --> 00:12:01,520 Speaker 1: of the day because of your book Beyond Versification. Peter 213 00:12:01,679 --> 00:12:05,680 Speaker 1: Lynch called it diversification. Given the cards we have into 214 00:12:05,760 --> 00:12:10,000 Speaker 1: the autumn into two thousand twenty three, what character of 215 00:12:10,080 --> 00:12:14,319 Speaker 1: diversification should we be right now? Over diversified or a 216 00:12:14,400 --> 00:12:19,280 Speaker 1: more focused effort to guess the right instruments? You know, Tom, 217 00:12:19,400 --> 00:12:21,920 Speaker 1: I love that question. And the number one question around 218 00:12:21,960 --> 00:12:27,800 Speaker 1: diversification is will bonds treasuries in particular diversify stocks if 219 00:12:27,880 --> 00:12:31,880 Speaker 1: we're heading towards recession risk, and I think they will, 220 00:12:31,960 --> 00:12:34,760 Speaker 1: and in fact, we've closed their underweight bonds to go 221 00:12:34,880 --> 00:12:38,679 Speaker 1: back to neutral. We've had a year where diversification between 222 00:12:38,760 --> 00:12:42,640 Speaker 1: stocks and bonds is completely disappeared. The draw down in 223 00:12:42,840 --> 00:12:46,840 Speaker 1: bonds has been unprecedented, and the code draw down between 224 00:12:46,920 --> 00:12:51,599 Speaker 1: stocks and bonds has shaken investors worldwide. So we do 225 00:12:51,760 --> 00:12:55,400 Speaker 1: need to rethink portfolio construction. Tom I would say we're 226 00:12:55,440 --> 00:12:59,280 Speaker 1: going through a paradigm shift in terms of portfolio construction 227 00:12:59,400 --> 00:13:02,040 Speaker 1: and the role bonds will be diminished, but to the 228 00:13:02,080 --> 00:13:04,559 Speaker 1: extent we get growth shocks, you still want to own 229 00:13:04,600 --> 00:13:07,480 Speaker 1: some treasuries, So it's a bestion. I want to clarify 230 00:13:07,600 --> 00:13:09,160 Speaker 1: what I was trying to get at earlier when I 231 00:13:09,240 --> 00:13:11,920 Speaker 1: was talking about the FED. Basically, there is a belief 232 00:13:12,000 --> 00:13:14,800 Speaker 1: that the economy is so strong that it can withstand 233 00:13:15,040 --> 00:13:18,160 Speaker 1: and requires a big dose of pain in terms of 234 00:13:18,200 --> 00:13:20,199 Speaker 1: how high rates go and how long they have to 235 00:13:20,280 --> 00:13:21,840 Speaker 1: hold them there. That was sort of the message from 236 00:13:21,920 --> 00:13:24,880 Speaker 1: Jackson Hole, and then they still reiterated this soft landing 237 00:13:24,960 --> 00:13:29,600 Speaker 1: scenario in one FED official after another. The bull argument, 238 00:13:29,679 --> 00:13:33,720 Speaker 1: ironically is pushing back against that, seeing the deceleration already here, 239 00:13:34,120 --> 00:13:36,679 Speaker 1: that things aren't that strong and it won't require as 240 00:13:36,760 --> 00:13:40,240 Speaker 1: much pain as executed by the FED. Do you believe that? 241 00:13:40,400 --> 00:13:42,440 Speaker 1: I mean, basically, do you think that that's what people 242 00:13:42,480 --> 00:13:44,600 Speaker 1: are doing right now and that you should lean against 243 00:13:44,679 --> 00:13:47,720 Speaker 1: that and believe what they're saying, and that basically bet 244 00:13:47,920 --> 00:13:52,040 Speaker 1: on a hard landing right now. Look, I always say 245 00:13:52,200 --> 00:13:55,040 Speaker 1: you should stay invested no matter what if your horizon 246 00:13:55,120 --> 00:13:58,760 Speaker 1: and say longer than twelve months. But we are underweight 247 00:13:58,880 --> 00:14:02,160 Speaker 1: stocks at the moment we're watching this. We're not ready 248 00:14:02,240 --> 00:14:04,959 Speaker 1: to get back in again. We are in stocks for 249 00:14:05,040 --> 00:14:08,120 Speaker 1: the long run, but we are underweight. There are ways 250 00:14:08,240 --> 00:14:11,600 Speaker 1: to play a more sort of soft landing scenario from 251 00:14:11,640 --> 00:14:15,520 Speaker 1: a tactical assocation perspective, for example, through small caps. I 252 00:14:15,600 --> 00:14:18,559 Speaker 1: think small caps are already pricing in a very deep recession, 253 00:14:19,120 --> 00:14:21,680 Speaker 1: and so to the extent you get a recession, maybe 254 00:14:21,760 --> 00:14:24,760 Speaker 1: they will go down with the market. And to the 255 00:14:24,840 --> 00:14:27,960 Speaker 1: extent that you get anything that's not as bad as that, 256 00:14:28,240 --> 00:14:31,680 Speaker 1: a soft or softest landing, then maybe you have some 257 00:14:31,840 --> 00:14:34,080 Speaker 1: upside at some point with small caps. It takes some 258 00:14:34,200 --> 00:14:38,160 Speaker 1: courage to lean in. But the valuation spread. Look, large 259 00:14:38,240 --> 00:14:42,800 Speaker 1: caps are in the nine persentile of their historical valuation 260 00:14:43,320 --> 00:14:47,160 Speaker 1: relative to small caps, so large caps expensive relative to 261 00:14:47,200 --> 00:14:49,840 Speaker 1: small caps. That you get a strong dollar, which tends 262 00:14:49,880 --> 00:14:52,040 Speaker 1: to be more of a headwind for large caps. So 263 00:14:52,080 --> 00:14:55,160 Speaker 1: there are ways to play offense. But I call it. 264 00:14:55,280 --> 00:14:58,680 Speaker 1: I don't call it offense. I call it playing aggressive defense. 265 00:14:58,760 --> 00:15:01,120 Speaker 1: And one thing I would say says there is no 266 00:15:01,360 --> 00:15:04,080 Speaker 1: doubt the tone was hawkish. In fact, there was no 267 00:15:04,200 --> 00:15:06,800 Speaker 1: new information at Jackson Hall in the speech. It was 268 00:15:06,840 --> 00:15:10,440 Speaker 1: a short speech, no messy press conference to mix up 269 00:15:10,600 --> 00:15:14,480 Speaker 1: the message, but definitely a hawkish tone. With you mentioned 270 00:15:14,520 --> 00:15:20,800 Speaker 1: the word pain resolved, unconditional. Powell mentioned price stability ten times. 271 00:15:21,040 --> 00:15:25,600 Speaker 1: How many times did you mention unemployment? Zero? That changes? 272 00:15:26,640 --> 00:15:28,880 Speaker 1: It was in the case of the cost of bringing 273 00:15:28,920 --> 00:15:33,280 Speaker 1: inflation down. Yeah, Sebastian Page price step well said buddy 274 00:15:33,320 --> 00:15:40,280 Speaker 1: on a number of things. Jones just about walked off 275 00:15:40,320 --> 00:15:43,200 Speaker 1: the camera, joining us now from Charles Schwab, the chief 276 00:15:43,640 --> 00:15:47,240 Speaker 1: fixed incomes strategist, Cathy Jones, Cathy, where the bonds fit 277 00:15:47,280 --> 00:15:50,880 Speaker 1: in the portfolio? Help me here? It's August. I'm reframing 278 00:15:51,000 --> 00:15:54,680 Speaker 1: for the Q four, I'm reframing for ownership of fixed 279 00:15:54,720 --> 00:15:57,960 Speaker 1: income into two thousand twenty three, and I'm sorry, I'm lost. 280 00:15:59,120 --> 00:16:03,320 Speaker 1: Where does it fit to a portfolio? Yeah? Tom, I 281 00:16:03,560 --> 00:16:05,960 Speaker 1: you know, obviously it's been a very tough year and 282 00:16:06,040 --> 00:16:08,560 Speaker 1: there's been a lot of questions about whether bonds can 283 00:16:08,640 --> 00:16:12,880 Speaker 1: deliver that revlicification benefit that they have for so many years. 284 00:16:13,000 --> 00:16:15,640 Speaker 1: But I would argue this that you still get capital 285 00:16:15,760 --> 00:16:19,360 Speaker 1: preservation and now you're actually getting income and fixed income, 286 00:16:19,760 --> 00:16:22,400 Speaker 1: So I think there's still a valid reason to have 287 00:16:22,600 --> 00:16:25,920 Speaker 1: fixed income. Obviously, you need to be pretty strategic about 288 00:16:25,960 --> 00:16:28,240 Speaker 1: the amount that you have and the type that you have. 289 00:16:28,480 --> 00:16:32,640 Speaker 1: We like have a higher credit quality, and um, we're 290 00:16:32,720 --> 00:16:35,320 Speaker 1: moving out in duration as yelds move up so that 291 00:16:35,400 --> 00:16:38,760 Speaker 1: we can capture some of that income screen longer term. Kathy, 292 00:16:39,000 --> 00:16:41,440 Speaker 1: what is credit fit in given the difficulties we could 293 00:16:41,440 --> 00:16:46,360 Speaker 1: face it to this year. Yeah, we're very cautious on credit, 294 00:16:46,440 --> 00:16:50,600 Speaker 1: particularly how yield. Um. You know, the spreads move up, 295 00:16:50,680 --> 00:16:52,560 Speaker 1: then it came down and started to move up again, 296 00:16:52,640 --> 00:16:54,800 Speaker 1: but we just don't think how yield is price to 297 00:16:54,960 --> 00:16:58,160 Speaker 1: deliver the kinds of returns we'd like to see in 298 00:16:58,480 --> 00:17:03,040 Speaker 1: a slowing economy of mental recession scenario. So I would 299 00:17:03,040 --> 00:17:06,480 Speaker 1: be pretty careful on high yield investment grade that you know, 300 00:17:06,560 --> 00:17:08,520 Speaker 1: we think it's okay, We wouldn't take the hig amount 301 00:17:08,520 --> 00:17:11,480 Speaker 1: of duration risk, but some of the bigger companies with 302 00:17:11,720 --> 00:17:14,879 Speaker 1: solid balance sheets should be able to deliver. And you 303 00:17:15,000 --> 00:17:19,480 Speaker 1: can get decent income in investment grade corporates right now 304 00:17:19,920 --> 00:17:22,280 Speaker 1: and locking some of that in and even a five 305 00:17:22,359 --> 00:17:25,320 Speaker 1: year duration is going to even north for four percent, 306 00:17:25,440 --> 00:17:29,000 Speaker 1: which is which is not bad for an income investor. 307 00:17:29,400 --> 00:17:31,440 Speaker 1: When you look internationally, Cathy, and you look at some 308 00:17:31,520 --> 00:17:35,479 Speaker 1: of the projections for the ECB raising rates possibly by 309 00:17:35,520 --> 00:17:38,600 Speaker 1: seventy five basis points next month, how much does that 310 00:17:38,720 --> 00:17:42,400 Speaker 1: change your outlook more broadly considering the regime that we've 311 00:17:42,440 --> 00:17:45,600 Speaker 1: seen and considering how much pain we have seen it 312 00:17:45,760 --> 00:17:50,800 Speaker 1: transpire in the euro project. Yeah, you know, our premis 313 00:17:50,880 --> 00:17:55,040 Speaker 1: conviction this year is that the yield curve will will invert, 314 00:17:55,240 --> 00:17:59,600 Speaker 1: and that inversion will deepen, and the harder the central 315 00:17:59,640 --> 00:18:02,720 Speaker 1: banks go in that direction in terms of raising rates 316 00:18:03,160 --> 00:18:06,040 Speaker 1: fresh inflation. But more likely we are to see that 317 00:18:06,280 --> 00:18:10,200 Speaker 1: in virgin continue. So it doesn't really change the scenario 318 00:18:10,240 --> 00:18:14,240 Speaker 1: that actually, I guess reinforces the idea that if the 319 00:18:14,359 --> 00:18:19,240 Speaker 1: ECB heightens aggressively into a very weak economy on top 320 00:18:19,280 --> 00:18:22,160 Speaker 1: of the FAT and all the other simple banks, it's 321 00:18:22,200 --> 00:18:25,240 Speaker 1: really hard to see that we avoid sto global recession. 322 00:18:25,440 --> 00:18:29,000 Speaker 1: And that should mean more and more envision in you so, 323 00:18:29,240 --> 00:18:32,080 Speaker 1: and that means also the reason why you're more enthusiastic 324 00:18:32,119 --> 00:18:35,000 Speaker 1: about duration. What does that mean in terms of the 325 00:18:35,119 --> 00:18:37,960 Speaker 1: likelihood of the credit declines that you expect not only 326 00:18:37,960 --> 00:18:40,400 Speaker 1: in the US but also in Europe. When you're talking 327 00:18:40,400 --> 00:18:44,000 Speaker 1: about being very cautious on high yield, what's the magnitude 328 00:18:44,280 --> 00:18:47,760 Speaker 1: of the potential losses that you see versus just simply 329 00:18:47,800 --> 00:18:50,280 Speaker 1: strategically being away from them as you wait for this 330 00:18:50,400 --> 00:18:55,440 Speaker 1: to play out. Yeah, it's one of a strategic decision um. Obviously, 331 00:18:55,520 --> 00:18:59,360 Speaker 1: triple siege, you know, the very lowest credit quality. We're 332 00:18:59,400 --> 00:19:02,119 Speaker 1: always a little conscious on that, but particularly that's a 333 00:19:02,240 --> 00:19:05,359 Speaker 1: pro cyclical position and this is not the time to 334 00:19:05,480 --> 00:19:08,600 Speaker 1: be in the lowest credit quality. So we think, you know, 335 00:19:08,720 --> 00:19:11,320 Speaker 1: you could see UH spreads wide in a hundred and 336 00:19:11,359 --> 00:19:14,119 Speaker 1: fifty basis points of so in the high yield area, 337 00:19:14,640 --> 00:19:17,800 Speaker 1: and there's just not a lot of potential reward for 338 00:19:17,920 --> 00:19:21,840 Speaker 1: the risk that you're taking in that that area. Now, 339 00:19:21,960 --> 00:19:23,960 Speaker 1: that's my grade looks a little bit stronger. You know, 340 00:19:24,000 --> 00:19:25,960 Speaker 1: a lot of these companies have turned out their debt 341 00:19:26,040 --> 00:19:29,680 Speaker 1: over long term, so we don't see quite as much 342 00:19:29,840 --> 00:19:33,760 Speaker 1: risk there. But it's definitely credit is pro cyclical, and 343 00:19:33,880 --> 00:19:36,920 Speaker 1: this is not the time to be overweighting credit. Yeah. Well, 344 00:19:37,000 --> 00:19:38,520 Speaker 1: I think I agree with that when I look at 345 00:19:38,520 --> 00:19:41,240 Speaker 1: the charts, Kathy. I just looked at a vanilla corporate 346 00:19:41,359 --> 00:19:44,720 Speaker 1: piece of quality name everybody knows, and I'm sorry, it's 347 00:19:44,760 --> 00:19:47,040 Speaker 1: had an ugly August. And I look at the Bloomberg 348 00:19:47,560 --> 00:19:52,359 Speaker 1: Total Return the index. It's now down fourteen even fift 349 00:19:53,040 --> 00:19:55,760 Speaker 1: from the peak. But it concerns me, Cathy, is in 350 00:19:55,840 --> 00:20:00,359 Speaker 1: the last week it's rolled over again. It's a lower price, 351 00:20:00,880 --> 00:20:06,400 Speaker 1: higher yield. What are the ramifications if that index breaks 352 00:20:06,560 --> 00:20:09,320 Speaker 1: through the let me get the date, John, if it 353 00:20:09,400 --> 00:20:14,880 Speaker 1: breaks through the June low, I mean, I mean, it's stunning. Yeah, 354 00:20:15,040 --> 00:20:16,960 Speaker 1: you know, I think what we're reflecting here is this 355 00:20:17,160 --> 00:20:22,040 Speaker 1: combination of fear of federate hikes and deteriorating economic growth. 356 00:20:22,600 --> 00:20:24,920 Speaker 1: So we break that low. I don't know that there's 357 00:20:25,000 --> 00:20:28,800 Speaker 1: a huge significance to it. I don't think that We're 358 00:20:28,880 --> 00:20:31,879 Speaker 1: still going to say huge amounts of flows in and 359 00:20:32,000 --> 00:20:36,280 Speaker 1: out based on you know levels anymore. Um, anybody who 360 00:20:36,359 --> 00:20:39,080 Speaker 1: wanted to exit fixed income where the credit markets, it's 361 00:20:39,119 --> 00:20:41,920 Speaker 1: probably done so already at this stage of the game 362 00:20:42,000 --> 00:20:45,080 Speaker 1: and moved to very short term treasuries. But you know, 363 00:20:45,200 --> 00:20:49,200 Speaker 1: if it continues to wear on this, uh, the total 364 00:20:49,280 --> 00:20:52,680 Speaker 1: return in portfolios overall, you know, not making money in 365 00:20:52,760 --> 00:20:55,720 Speaker 1: stock and I'm making money in bonds and uh. And 366 00:20:55,840 --> 00:20:58,000 Speaker 1: I think that people just will tend to want to 367 00:20:58,080 --> 00:21:02,600 Speaker 1: be in safer and safer assets. So compro Cathy Jones, 368 00:21:02,760 --> 00:21:05,600 Speaker 1: Cathy love catching of you, Mr the Piano, Mr Piano, 369 00:21:05,880 --> 00:21:07,960 Speaker 1: Really do do you see? Lizzie Byrden yesterday time with 370 00:21:08,000 --> 00:21:11,399 Speaker 1: the piano behind her told the sur Fatmans rules that 371 00:21:11,440 --> 00:21:13,440 Speaker 1: if you turn up with the piano but a plane, 372 00:21:14,080 --> 00:21:16,560 Speaker 1: she said it wasn't in tune. Yeah, well that's a 373 00:21:16,600 --> 00:21:22,080 Speaker 1: good John the piano in tune. It sounds like it's 374 00:21:22,119 --> 00:21:38,359 Speaker 1: not in tune. Jeffrey You, joins, a senior email market 375 00:21:38,440 --> 00:21:41,800 Speaker 1: strategist at B and Y Melan It is a jumble. 376 00:21:42,000 --> 00:21:45,360 Speaker 1: In August, Jeffrey You, if you were having the next 377 00:21:45,440 --> 00:21:48,720 Speaker 1: cup of coffee with Jerome Powell, what would you say, 378 00:21:48,880 --> 00:21:54,720 Speaker 1: he needs to watch globally for September. Globally for September. 379 00:21:54,880 --> 00:21:57,320 Speaker 1: Look at what your peers are doing. Are they going 380 00:21:57,400 --> 00:21:59,800 Speaker 1: to follow you and say, not only our raids going 381 00:21:59,840 --> 00:22:01,680 Speaker 1: to go up, but they're going to go up for 382 00:22:01,960 --> 00:22:05,280 Speaker 1: a sustained period. Europe is next. What are the BOE 383 00:22:05,560 --> 00:22:08,200 Speaker 1: going to do for so much? For such a while 384 00:22:08,560 --> 00:22:11,280 Speaker 1: market has been pricing in a quick aggressive move by 385 00:22:11,320 --> 00:22:13,240 Speaker 1: the b o E and then cuts towards the end 386 00:22:13,280 --> 00:22:15,680 Speaker 1: of twenty three or maybe early twenty four. Is that 387 00:22:15,800 --> 00:22:18,080 Speaker 1: going to happen now? Because if Europe is now looking 388 00:22:18,119 --> 00:22:21,760 Speaker 1: at sustained high rates for some time, then that's going 389 00:22:21,840 --> 00:22:24,200 Speaker 1: to constrain global growth. And then you just ask where 390 00:22:24,320 --> 00:22:26,160 Speaker 1: is the growth going to come from? Jeff, on your 391 00:22:26,200 --> 00:22:29,640 Speaker 1: tour meeting clients, do you meet any bills because we're 392 00:22:29,640 --> 00:22:32,959 Speaker 1: struggling to find them. No, Well, I am in Europe, 393 00:22:32,960 --> 00:22:35,960 Speaker 1: you know right now, So within Europe until there is 394 00:22:36,080 --> 00:22:38,280 Speaker 1: a plan to deal with the energy situation that sounds 395 00:22:38,359 --> 00:22:42,560 Speaker 1: like behind the scenes, no plans are being formulated, then 396 00:22:42,680 --> 00:22:44,720 Speaker 1: we'll just go and revisit, you know, once we see 397 00:22:44,760 --> 00:22:46,439 Speaker 1: what the plans are. But then again, you know, being 398 00:22:46,480 --> 00:22:48,560 Speaker 1: the UK, where you know let's just say there is 399 00:22:48,600 --> 00:22:49,879 Speaker 1: a bit of a vacuum, you know, at the very 400 00:22:49,960 --> 00:22:52,560 Speaker 1: top right now, we're waiting for plans. It's really hard 401 00:22:52,640 --> 00:22:54,600 Speaker 1: to know, you know, what the outlook is when there 402 00:22:54,680 --> 00:22:57,400 Speaker 1: is just no plan. At some point things get better 403 00:22:57,720 --> 00:22:59,440 Speaker 1: and they come in better than expected. Jeff, do you 404 00:22:59,480 --> 00:23:01,639 Speaker 1: think the market position for that kind of story? Have 405 00:23:01,760 --> 00:23:03,920 Speaker 1: we seen that wash out in any way, shape or 406 00:23:03,960 --> 00:23:07,080 Speaker 1: form from from your perspective? Well, I always go back 407 00:23:07,119 --> 00:23:09,480 Speaker 1: to positioning, you know, just looking at how markets have 408 00:23:09,640 --> 00:23:12,320 Speaker 1: their assetlication right now in some of your risk assets. 409 00:23:12,400 --> 00:23:15,240 Speaker 1: So you're still relatively overweight US as set, just still 410 00:23:15,359 --> 00:23:18,080 Speaker 1: overweight the dollar. So there's only one direction to go. 411 00:23:18,200 --> 00:23:19,760 Speaker 1: You want to wait for that trigger. So if I 412 00:23:19,840 --> 00:23:22,639 Speaker 1: want to construct a positive narrative, you know, maybe China 413 00:23:23,080 --> 00:23:25,399 Speaker 1: is no. Not right now, we probably could use a 414 00:23:25,440 --> 00:23:28,320 Speaker 1: bit of a bit more disinflation from China. But heading 415 00:23:28,320 --> 00:23:30,520 Speaker 1: into next year, just as the world you know, needs 416 00:23:30,520 --> 00:23:33,119 Speaker 1: a bit of a growth kick, that external demand may 417 00:23:33,240 --> 00:23:36,280 Speaker 1: come from China's normalization story. So that's something I'm holding 418 00:23:36,320 --> 00:23:38,520 Speaker 1: out for maybe six months or further down the line, 419 00:23:38,800 --> 00:23:41,120 Speaker 1: but at this point, best to stay conservative, go back 420 00:23:41,160 --> 00:23:44,040 Speaker 1: to positioning. We're positioning is lightest and risk where you're 421 00:23:44,040 --> 00:23:46,240 Speaker 1: going to see the brace of positivity. You have another 422 00:23:46,280 --> 00:23:48,560 Speaker 1: way of asking what John was getting at, is have 423 00:23:48,800 --> 00:23:52,440 Speaker 1: we praised in fully a recession in Europe, a downturn 424 00:23:52,520 --> 00:23:54,639 Speaker 1: that flows with the recession, or is one in the 425 00:23:54,760 --> 00:23:59,480 Speaker 1: United States, and a sub three GDP handle on Chinese growth? 426 00:23:59,520 --> 00:24:03,359 Speaker 1: Have we already price set in to global markets? So 427 00:24:03,480 --> 00:24:05,879 Speaker 1: we've certainly priced in recession in Europe just looking at 428 00:24:05,880 --> 00:24:08,680 Speaker 1: how the euro's treading was around parity right now three 429 00:24:09,119 --> 00:24:12,159 Speaker 1: you know China. Uh So it really depends on which day, 430 00:24:12,200 --> 00:24:14,879 Speaker 1: because if I look at now how Chinese equities are performed, 431 00:24:14,960 --> 00:24:18,120 Speaker 1: espessially the tech space, I think markets actually looking for positivity, 432 00:24:18,440 --> 00:24:21,560 Speaker 1: looking for some relief on the regulatory side. You looking 433 00:24:21,600 --> 00:24:25,080 Speaker 1: for perhaps down the line some normalization in societal restrictions 434 00:24:25,119 --> 00:24:28,120 Speaker 1: as well. So actually, in China three percent maybe headline 435 00:24:28,160 --> 00:24:31,040 Speaker 1: growth investment driven, but the Chinese consumer, the household probably 436 00:24:31,080 --> 00:24:33,240 Speaker 1: not as bad and you are certainly not a recession 437 00:24:33,320 --> 00:24:35,080 Speaker 1: and yet as as long as the labor markets and 438 00:24:35,160 --> 00:24:37,640 Speaker 1: rude health. But let's see after Friday, maybe that could 439 00:24:37,720 --> 00:24:40,240 Speaker 1: change as well. So Jeff, if that's the case, what 440 00:24:40,320 --> 00:24:42,240 Speaker 1: would you have to see it to not be quite 441 00:24:42,280 --> 00:24:44,840 Speaker 1: as bearish, right to not be quite as conservative if 442 00:24:44,920 --> 00:24:49,399 Speaker 1: the positioning right now is pretty gloomy, so to not 443 00:24:50,200 --> 00:24:54,159 Speaker 1: be bearish, I think we'll be a peaking in inflation numbers, 444 00:24:54,240 --> 00:24:56,879 Speaker 1: because that then you know that the household started to 445 00:24:56,960 --> 00:24:59,719 Speaker 1: show some restraint. And then on top of that um 446 00:25:00,119 --> 00:25:03,040 Speaker 1: as Chen Powell has already said, and probably global central 447 00:25:03,080 --> 00:25:05,399 Speaker 1: banks they're going to keep rates high, probably for a 448 00:25:05,560 --> 00:25:08,320 Speaker 1: little longer than then you have that dual problem approach 449 00:25:08,680 --> 00:25:11,800 Speaker 1: whereby growth is going to come off, So you need 450 00:25:11,880 --> 00:25:14,080 Speaker 1: to be like the end of the tunnel. But inflation expectations, 451 00:25:14,160 --> 00:25:16,280 Speaker 1: that's the bossom mine. Jeff, You, you and I were 452 00:25:16,359 --> 00:25:21,000 Speaker 1: trained that in finance four standard deviations is a substantial move, 453 00:25:21,480 --> 00:25:24,760 Speaker 1: and we learned that in medicine six standard deviations is 454 00:25:24,840 --> 00:25:28,520 Speaker 1: maybe equivalent. Because of the resiliency of the human body, 455 00:25:29,240 --> 00:25:33,920 Speaker 1: German inflation is reported moments ago off. The long term 456 00:25:34,000 --> 00:25:39,800 Speaker 1: trend is a really elegant study of nine standard deviations. 457 00:25:40,440 --> 00:25:44,520 Speaker 1: We have never seen this. How do we extricate ourselves 458 00:25:44,680 --> 00:25:49,040 Speaker 1: from a nine standard deviation move? Well, let me tell 459 00:25:49,080 --> 00:25:51,080 Speaker 1: you how our days are shown. The euro is trying 460 00:25:51,119 --> 00:25:53,480 Speaker 1: to position itself for that. We are at three and 461 00:25:53,560 --> 00:25:58,359 Speaker 1: a half times usual level of euro holdings short within 462 00:25:58,440 --> 00:26:00,840 Speaker 1: our position days, especially for the main does anything beyond 463 00:26:00,880 --> 00:26:03,760 Speaker 1: one and a half times short or long, then I 464 00:26:04,040 --> 00:26:06,359 Speaker 1: set up and take notice. Euros at three and a 465 00:26:06,480 --> 00:26:08,920 Speaker 1: half already. So do you chase that? What do you 466 00:26:09,040 --> 00:26:11,280 Speaker 1: fade it? You know sore right now, It's like hearts 467 00:26:11,320 --> 00:26:14,080 Speaker 1: has faded. But head said you probably, well you don't 468 00:26:14,080 --> 00:26:15,760 Speaker 1: want to chase it, but you certainly don't want to 469 00:26:16,160 --> 00:26:18,520 Speaker 1: go against that right now. So the market is pushing this. 470 00:26:18,800 --> 00:26:20,560 Speaker 1: They want to see how low things can get before 471 00:26:20,800 --> 00:26:24,160 Speaker 1: we get a policy reaction and more importantly a plan 472 00:26:24,280 --> 00:26:26,480 Speaker 1: you know, from the European Commission, from the Energy Minister, 473 00:26:26,760 --> 00:26:29,560 Speaker 1: from the energy ministers. But going back to your stand 474 00:26:29,640 --> 00:26:32,240 Speaker 1: nine standard deviation movement markets are really close by Euros 475 00:26:32,240 --> 00:26:35,320 Speaker 1: standards to forcing that case, Jeff. Some of these numbers 476 00:26:35,560 --> 00:26:38,720 Speaker 1: this from Goldman this morning, just reading this note that 477 00:26:38,840 --> 00:26:42,520 Speaker 1: inflation could top next year in the UK if natural 478 00:26:42,560 --> 00:26:45,040 Speaker 1: gas prices remain elevated in the coming months. So city 479 00:26:45,160 --> 00:26:48,800 Speaker 1: last week that would be the peak for UK cp 480 00:26:48,920 --> 00:26:52,520 Speaker 1: I for them bankving that's got it a thirteen, Jeff. 481 00:26:52,880 --> 00:26:54,720 Speaker 1: Can you get your head around that kind of number 482 00:26:54,760 --> 00:26:58,960 Speaker 1: in the UK? Well, it really is going to be 483 00:26:59,000 --> 00:27:01,159 Speaker 1: a struggle for the b o E to you know, 484 00:27:01,280 --> 00:27:03,520 Speaker 1: try to communicate that and to be frank, you know, 485 00:27:03,640 --> 00:27:05,800 Speaker 1: looking at the consumption days in the UK right now, 486 00:27:06,240 --> 00:27:08,680 Speaker 1: we aren't exactly you know, seeing that retrenchment you know 487 00:27:08,840 --> 00:27:12,240 Speaker 1: in spending. So that's like the household is actually doing okay, 488 00:27:12,480 --> 00:27:15,440 Speaker 1: So is there a gap between reality and what's going 489 00:27:15,480 --> 00:27:17,879 Speaker 1: on the ground. So we need to see some convergence 490 00:27:17,920 --> 00:27:20,000 Speaker 1: at this point. Until we get that convergence, you know, 491 00:27:20,160 --> 00:27:22,480 Speaker 1: we will be painful then, I'm sorry. The central back 492 00:27:22,560 --> 00:27:24,399 Speaker 1: message is going to be very, very fierce, you know, 493 00:27:24,600 --> 00:27:27,680 Speaker 1: hold back right now. She's going to get out of control. Jeff, 494 00:27:27,760 --> 00:27:33,280 Speaker 1: you disterling trade weighted reach, the jan major weaknesses of 495 00:27:36,000 --> 00:27:40,080 Speaker 1: so very a lot to try to make those comparisons 496 00:27:40,080 --> 00:27:42,239 Speaker 1: because there was a deep pegging involved, you know, at 497 00:27:42,280 --> 00:27:45,040 Speaker 1: that point. But put it this way, right, if they 498 00:27:45,200 --> 00:27:47,800 Speaker 1: want to you know, limit the fallout you know from 499 00:27:48,480 --> 00:27:50,679 Speaker 1: an exchange rate and the collapse, and then we need 500 00:27:50,760 --> 00:27:52,720 Speaker 1: a plan in right now that cooked up as early 501 00:27:52,760 --> 00:27:55,440 Speaker 1: as next week, right to match the euro at least 502 00:27:55,640 --> 00:27:58,200 Speaker 1: to save the household, especially on the lower income side. 503 00:27:58,359 --> 00:28:00,760 Speaker 1: That is absolutely necessary at this pin and the market's 504 00:28:00,800 --> 00:28:04,080 Speaker 1: anticipating that if the new government comes short, you know, 505 00:28:04,280 --> 00:28:07,440 Speaker 1: then I think comparisons with are going to be drawn. 506 00:28:07,560 --> 00:28:11,000 Speaker 1: So let's we visit Hi, Jeff, you, thank you, sir 507 00:28:11,520 --> 00:28:15,359 Speaker 1: and y Mellen. This is the Bloomberg Surveillance Podcast. Thanks 508 00:28:15,400 --> 00:28:18,720 Speaker 1: for listening. Join us live weekdays from seven to ten 509 00:28:18,760 --> 00:28:22,560 Speaker 1: a m Eastern. I'm Bloomberg Radio and on Bloomberg Television 510 00:28:22,960 --> 00:28:26,960 Speaker 1: each day from six to nine am for insight from 511 00:28:27,000 --> 00:28:31,520 Speaker 1: the best in economics, finance, investment, and international relations. And 512 00:28:31,640 --> 00:28:36,760 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 513 00:28:36,840 --> 00:28:40,120 Speaker 1: dot com, and of course on the terminal. I'm Tom 514 00:28:40,280 --> 00:28:42,560 Speaker 1: Keene and this is Bloomberg