Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Terminal. David Rosenberg joins
Speaker 1: now with Rosenberg Research. He is the best in the
Speaker 1: world at parsing inflation. I will not mince words about it,
Speaker 1: David and the Bloomberg I can look at CPI inflation
Speaker 1: back to World War One and the average over the
Speaker 1: many hundred and ten years is three point one percent.
Speaker 1: Part of that are the spikes up which are hugely
Speaker 1: stochastic and come down quickly. Will we disinflate rapidly? I
Speaker 1: think we will, Tom, and I think that you are
Speaker 1: you sing it and a lot of indicators I'll mention
Speaker 1: three uh. Commodity prices are well off their highs, even
Speaker 1: though all prices have hung in in the past couple
Speaker 1: of weeks. They're down more than from the peak. Base
Speaker 1: metal prices are down, Um, you know, you've got lumbers
Speaker 1: down more like seventy so the commodity complex which hasn't
Speaker 1: shown up yet. You know, in that chunk of the
Speaker 1: CPI called goods, you know the stuff that you can
Speaker 1: see such and feel commodities are are deflating. You've got
Speaker 1: freight costs across the board. I mean, look at the
Speaker 1: Baltic Dry Index. Yes, yes, yes, I want to stop there.
Speaker 1: The most dollar is up twelve percent year every year.
Speaker 1: Does anybody in the world think that you see in
Speaker 1: all the pass through from the strength and the dollar
Speaker 1: into goods prices? And the answer is no. This will
Speaker 1: all show up with the next twelve months. David Lizian
Speaker 1: Saunders featured Baltic Dry Index US to explain to our
Speaker 1: global audience of symbolism of the cratering of the Baltic
Speaker 1: Dry Index. Well, I think a lot of it is
Speaker 1: the byproduct of the fact that global demand is coming
Speaker 1: under downward pressure. I would also say that we are seeing,
Speaker 1: notwithstanding the ongoing war in the Ukraine, which doesn't seem
Speaker 1: to make the fun pages of the paper anymore, you
Speaker 1: are starting to see and unclogging in a lot of
Speaker 1: the port congestion globally, and so you're seeing the supply
Speaker 1: side thought out. You know where you're seeing that most evidently,
Speaker 1: tom is in the survey data on supply delivery delays,
Speaker 1: which have come down dramatically across every single survey Richmond FED,
Speaker 1: Kansas City FED, Philly FED, New York Empire. And you know,
Speaker 1: it's very interesting from a FED perspective, is that you know,
Speaker 1: about five months ago J. Powell said that, you know,
Speaker 1: we're gonna operate policy blindly relative to what's happening on
Speaker 1: the supply side. The FED made a decision five months
Speaker 1: ago that we're just going to concentrate on the man destruction,
Speaker 1: getting or getting demand growth below supply, which I think
Speaker 1: is a wise policy. But you see, the supply side
Speaker 1: is finally taking hold and creating the disinflation before you've
Speaker 1: even seen any of the lagged impacts that the FED
Speaker 1: has already done, you know, through rates and QT on
Speaker 1: the demand side. So you have the supply curve actually
Speaker 1: becoming more elastic at a time when the Feed is
Speaker 1: engaging in a policy that's going to really kill demand.
Speaker 1: So explain to me, as we get the chalkboard out,
Speaker 1: then you draw these demands supply curves, how does inflation
Speaker 1: not absolutely collapse in the next year? You know, I
Speaker 1: say that's to my clients. They look at me like
Speaker 1: I'm crazy. Not all of them do. Megan Soyber over
Speaker 1: at Bank of America would not look at you like
Speaker 1: you're crazy, because she's still expecting rate cuts next year.
Speaker 1: And it's not because she doubts the reaction function from
Speaker 1: the Fed, but she also sees the prospect of inflation
Speaker 1: coming down very rapidly as we head into the second
Speaker 1: half of three. At what point, and this is really headspinning,
Speaker 1: does this become in some ways good news for the
Speaker 1: market because they can start to price in a softer
Speaker 1: touch or a softer approach from the Federal Reserve? Well, so,
Speaker 1: what's going to happen at some point? And who knows when?
Speaker 1: With this fat in particular, I mean, when Neil cash
Speaker 1: Carry becomes the biggest hawk on the f O m C,
Speaker 1: you know you're in a whole new world altogether. So
Speaker 1: what happens historically is the Fed pauses, and a tightening
Speaker 1: cycle always ends, just like an easing cycle always ends.
Speaker 1: And then with the pause you get a relief rally.
Speaker 1: But then what happens is that the recessionary pressures take hold.
Speaker 1: Then what happens is the Fed cut rates and we've
Speaker 1: seen this so many times in the past, and you
Speaker 1: get another relief rally. Uh, and then once again the
Speaker 1: recession pressures take hold. When when they pause, you want
Speaker 1: to be very wary about the relief rally. You can
Speaker 1: rent it, you can't, don't it. And even if the
Speaker 1: after the first rate cut in the recessionary bear market,
Speaker 1: the market doesn't bottom after the first break cut, you know,
Speaker 1: in the market bottoms. The market bottoms after the last
Speaker 1: rate cut. After you get the last rate cut and
Speaker 1: the market sees the whites of the eyes of the recovery,
Speaker 1: that's the fundamental low. You know that might be that
Speaker 1: might be twelve months from now, So be where the
Speaker 1: pause will generate headline news. You folks report on the pause.
Speaker 1: Then they'll cut rates and then we'll have a pop
Speaker 1: in the market and everybody will think that you know,
Speaker 1: the bull markets right in front of us. But no, no,
Speaker 1: no, no no. If you want to pay attention to the
Speaker 1: historical record, and we know that history rhymes, the time
Speaker 1: to go super long the markets to understand when the
Speaker 1: fundamental low is is actually after the last rate cut,
Speaker 1: when the Fed re steepens the yield curve usually a
Speaker 1: two stands curves plus huntern forty basis points meeting and
Speaker 1: mean by the time the market bottoms, we are so
Speaker 1: long away from that right now, it's not even funny. Well,
Speaker 1: but David, to John's point earlier in the show, when
Speaker 1: he was talking to Sebastian Page, he said, is being
Speaker 1: bullish fighting the FED right now because exactly what you
Speaker 1: pointed to Neil cush Cary coming out in saying he
Speaker 1: was disappointed to say that the market was rallying after
Speaker 1: that Powell speech, and that he isn't terribly unhappy and
Speaker 1: maybe even happy to see that the market is selling
Speaker 1: off in response to the latest guidance. How much are
Speaker 1: we looking for a weakening in the h it's heightening
Speaker 1: in the financial conditions in order to satisfy the FET's
Speaker 1: desire in terms of transmitting their policy. Right Well, that's
Speaker 1: the question. Um. I'm paying attention to what the FETE
Speaker 1: is telling us. I think they're wrong. I think that
Speaker 1: Powell has already told us we are operating policy without
Speaker 1: focusing on what's happening on the supply side of the economy.
Speaker 1: Of course, after sixteen months, the grand total of sixteen
Speaker 1: months which in the annals of economic history is still transitory.
Speaker 1: The FETE has given as valuable information we are operating
Speaker 1: policy without actually focusing on what's happening in the supply
Speaker 1: set anymore. They're they're not relying on the fact that
Speaker 1: these bottlenecks pressures are going to continue to ease, although
Speaker 1: all the data are showing that they are. Reason So
Speaker 1: they're focused on the demand side. So the question becomes, um,
Speaker 1: given where the FED thinks sees of the supply curve going,
Speaker 1: how far do they have to contract demand? How far
Speaker 1: do financial conditions have to tighten to get to that
Speaker 1: holy grail? In their model, I would say, and I've
Speaker 1: tried to copy their model, it's the lowest the smp
Speaker 1: okay and high yield spreads or seven basis points. That's
Speaker 1: that's the matrix. That's the combination that we'd have to
Speaker 1: get to to make make has scary more comfortable with
Speaker 1: where the market you're there's a little bit of the
Speaker 1: Rosenberg humor there this morning, David Off of Jackson Hole
Speaker 1: in the codification of two is the goal is the
Speaker 1: idea that it's not one America. I've been talking all
Speaker 1: morning about a heterogeneous America heterogeneous outcomes. It's a challenge
Speaker 1: for any central bank. What does the FED do about two,
Speaker 1: three and even four America's Blanche Flower is apoplectic over
Speaker 1: the oddities of the America in labor market. Do they
Speaker 1: need to look at us is one America or can
Speaker 1: they study two three or even four America's Now, I'd
Speaker 1: say that monetary policy has to be a national policy.
Speaker 1: You can't carry out a policy based on uh couple
Speaker 1: of segments of the economy or a couple of socioeconomic segments.
Speaker 1: I know, look this time last year, j PLA will
Speaker 1: sending more like a social worker. You really have to
Speaker 1: take a national approach. And I'd be the first to say,
Speaker 1: by the way, that you know, with the unemploy rate
Speaker 1: where it is, the participation right where it is, that's
Speaker 1: obviously on the fads mind, is the tightness of the
Speaker 1: labor market. This is so bizarre, Tom that we would
Speaker 1: have had a year whether you okay, the debate about
Speaker 1: g d I and GDP is a complete waste of time.
Speaker 1: Let's take both measures together and just come to a
Speaker 1: conclusion that the economy is flat whether you look at
Speaker 1: it from an income perspective, in real terms or spending.
Speaker 1: It's basically a flat economy. And here the consensus is
Speaker 1: three hundred thousand on non foreign payrolls on Friday. Does
Speaker 1: anybody stop to think, why would a flat economy need
Speaker 1: to be adding any jobs at all? That's the oddity
Speaker 1: unless you think, unless you think potential is negative, which
Speaker 1: to me is ridiculous. Um So I think at some point,
Speaker 1: let me just say, at some point, and this is
Speaker 1: where the tightening policy by the Feds kiboshed is. When
Speaker 1: you start to see the erosion at the labor market,
Speaker 1: I think that's really what they're waiting for. David, you
Speaker 1: just touched on it. I'll be a little bit more diplomatic.
Speaker 1: The Chairman in the past is demonstrated that sensitivious to
Speaker 1: the political mood in the moment. If unemployment starts climbing,
Speaker 1: do you expect to see the same Chairman Pound again. Well,
Speaker 1: I don't know if we'll see the same Chairman Powell again.
Speaker 1: But do I think that the Fed will respond to
Speaker 1: a loosening in the labor market. I think they're waiting
Speaker 1: for that. I think all of us have been waiting
Speaker 1: for at least the participation rate to start going up.
Speaker 1: I mean, nobody want us to see outright job loss,
Speaker 1: but the big surprise has been in and maybe there's
Speaker 1: maybe there's something to this long COVID story in terms
Speaker 1: of how it's impairing the participation rate. Nobody wants to
Speaker 1: see employment go down. You can actually see the unemployment
Speaker 1: rate actually go up if the participation rate starts to
Speaker 1: go up. So that's going to be very critical. But
Speaker 1: do I think that if the unemploymentrate goes up three,
Speaker 1: four or five tenths where it is today, that they're done.
Speaker 1: I think that's all it would take. In fact, usually
Speaker 1: when you get three or four tenths of an increase
Speaker 1: in the unemployment rate, the lagging indicative that it is
Speaker 1: the recession has already started. So that's yes. So I
Speaker 1: think that I think that would be enough to push
Speaker 1: the Powell pivot back on the front burner. We appreciate
Speaker 1: your for you. So why Stephen Rosenberg that of Rosenberg Research.
Speaker 1: Let's get to set page sow Sebastian page join us
Speaker 1: nowt's he wrote price c IO and head a global
Speaker 1: multi asset Sebastian awesome to catch up. I'll ask that
Speaker 1: question I asked of Lisa. If I'm buy stocks, am
Speaker 1: I fighting this FED? You know, Lisa said that the
Speaker 1: FED expects a gang buster economy. I don't think that's
Speaker 1: the case. I actually think that not only is the
Speaker 1: FED put gone, but there's a FED call in the
Speaker 1: sense that any good news gets taken away by the
Speaker 1: FEDS need to tighten. So yes, I think you are
Speaker 1: fighting the FED. If you're bullish. It's hard to find
Speaker 1: anybody that's bullish now on your show. I saw you
Speaker 1: try with prior guests. Today. I just came back from
Speaker 1: a trip to Australian Japan, meeting with the world's largest
Speaker 1: some of the world's largest pools of capital, and I
Speaker 1: couldn't give anybody to say anything optimistic about the economy
Speaker 1: or markets. Said, I'm not going to mince words for
Speaker 1: our listeners and viewers. This is the most important conversation
Speaker 1: of the day because of your book Beyond Versification. Peter
Speaker 1: Lynch called it diversification. Given the cards we have into
Speaker 1: the autumn into two thousand twenty three, what character of
Speaker 1: diversification should we be right now? Over diversified or a
Speaker 1: more focused effort to guess the right instruments? You know, Tom,
Speaker 1: I love that question. And the number one question around
Speaker 1: diversification is will bonds treasuries in particular diversify stocks if
Speaker 1: we're heading towards recession risk, and I think they will,
Speaker 1: and in fact, we've closed their underweight bonds to go
Speaker 1: back to neutral. We've had a year where diversification between
Speaker 1: stocks and bonds is completely disappeared. The draw down in
Speaker 1: bonds has been unprecedented, and the code draw down between
Speaker 1: stocks and bonds has shaken investors worldwide. So we do
Speaker 1: need to rethink portfolio construction. Tom I would say we're
Speaker 1: going through a paradigm shift in terms of portfolio construction
Speaker 1: and the role bonds will be diminished, but to the
Speaker 1: extent we get growth shocks, you still want to own
Speaker 1: some treasuries, So it's a bestion. I want to clarify
Speaker 1: what I was trying to get at earlier when I
Speaker 1: was talking about the FED. Basically, there is a belief
Speaker 1: that the economy is so strong that it can withstand
Speaker 1: and requires a big dose of pain in terms of
Speaker 1: how high rates go and how long they have to
Speaker 1: hold them there. That was sort of the message from
Speaker 1: Jackson Hole, and then they still reiterated this soft landing
Speaker 1: scenario in one FED official after another. The bull argument,
Speaker 1: ironically is pushing back against that, seeing the deceleration already here,
Speaker 1: that things aren't that strong and it won't require as
Speaker 1: much pain as executed by the FED. Do you believe that?
Speaker 1: I mean, basically, do you think that that's what people
Speaker 1: are doing right now and that you should lean against
Speaker 1: that and believe what they're saying, and that basically bet
Speaker 1: on a hard landing right now. Look, I always say
Speaker 1: you should stay invested no matter what if your horizon
Speaker 1: and say longer than twelve months. But we are underweight
Speaker 1: stocks at the moment we're watching this. We're not ready
Speaker 1: to get back in again. We are in stocks for
Speaker 1: the long run, but we are underweight. There are ways
Speaker 1: to play a more sort of soft landing scenario from
Speaker 1: a tactical assocation perspective, for example, through small caps. I
Speaker 1: think small caps are already pricing in a very deep recession,
Speaker 1: and so to the extent you get a recession, maybe
Speaker 1: they will go down with the market. And to the
Speaker 1: extent that you get anything that's not as bad as that,
Speaker 1: a soft or softest landing, then maybe you have some
Speaker 1: upside at some point with small caps. It takes some
Speaker 1: courage to lean in. But the valuation spread. Look, large
Speaker 1: caps are in the nine persentile of their historical valuation
Speaker 1: relative to small caps, so large caps expensive relative to
Speaker 1: small caps. That you get a strong dollar, which tends
Speaker 1: to be more of a headwind for large caps. So
Speaker 1: there are ways to play offense. But I call it.
Speaker 1: I don't call it offense. I call it playing aggressive defense.
Speaker 1: And one thing I would say says there is no
Speaker 1: doubt the tone was hawkish. In fact, there was no
Speaker 1: new information at Jackson Hall in the speech. It was
Speaker 1: a short speech, no messy press conference to mix up
Speaker 1: the message, but definitely a hawkish tone. With you mentioned
Speaker 1: the word pain resolved, unconditional. Powell mentioned price stability ten times.
Speaker 1: How many times did you mention unemployment? Zero? That changes?
Speaker 1: It was in the case of the cost of bringing
Speaker 1: inflation down. Yeah, Sebastian Page price step well said buddy
Speaker 1: on a number of things. Jones just about walked off
Speaker 1: the camera, joining us now from Charles Schwab, the chief
Speaker 1: fixed incomes strategist, Cathy Jones, Cathy, where the bonds fit
Speaker 1: in the portfolio? Help me here? It's August. I'm reframing
Speaker 1: for the Q four, I'm reframing for ownership of fixed
Speaker 1: income into two thousand twenty three, and I'm sorry, I'm lost.
Speaker 1: Where does it fit to a portfolio? Yeah? Tom, I
Speaker 1: you know, obviously it's been a very tough year and
Speaker 1: there's been a lot of questions about whether bonds can
Speaker 1: deliver that revlicification benefit that they have for so many years.
Speaker 1: But I would argue this that you still get capital
Speaker 1: preservation and now you're actually getting income and fixed income,
Speaker 1: So I think there's still a valid reason to have
Speaker 1: fixed income. Obviously, you need to be pretty strategic about
Speaker 1: the amount that you have and the type that you have.
Speaker 1: We like have a higher credit quality, and um, we're
Speaker 1: moving out in duration as yelds move up so that
Speaker 1: we can capture some of that income screen longer term. Kathy,
Speaker 1: what is credit fit in given the difficulties we could
Speaker 1: face it to this year. Yeah, we're very cautious on credit,
Speaker 1: particularly how yield. Um. You know, the spreads move up,
Speaker 1: then it came down and started to move up again,
Speaker 1: but we just don't think how yield is price to
Speaker 1: deliver the kinds of returns we'd like to see in
Speaker 1: a slowing economy of mental recession scenario. So I would
Speaker 1: be pretty careful on high yield investment grade that you know,
Speaker 1: we think it's okay, We wouldn't take the hig amount
Speaker 1: of duration risk, but some of the bigger companies with
Speaker 1: solid balance sheets should be able to deliver. And you
Speaker 1: can get decent income in investment grade corporates right now
Speaker 1: and locking some of that in and even a five
Speaker 1: year duration is going to even north for four percent,
Speaker 1: which is which is not bad for an income investor.
Speaker 1: When you look internationally, Cathy, and you look at some
Speaker 1: of the projections for the ECB raising rates possibly by
Speaker 1: seventy five basis points next month, how much does that
Speaker 1: change your outlook more broadly considering the regime that we've
Speaker 1: seen and considering how much pain we have seen it
Speaker 1: transpire in the euro project. Yeah, you know, our premis
Speaker 1: conviction this year is that the yield curve will will invert,
Speaker 1: and that inversion will deepen, and the harder the central
Speaker 1: banks go in that direction in terms of raising rates
Speaker 1: fresh inflation. But more likely we are to see that
Speaker 1: in virgin continue. So it doesn't really change the scenario
Speaker 1: that actually, I guess reinforces the idea that if the
Speaker 1: ECB heightens aggressively into a very weak economy on top
Speaker 1: of the FAT and all the other simple banks, it's
Speaker 1: really hard to see that we avoid sto global recession.
Speaker 1: And that should mean more and more envision in you so,
Speaker 1: and that means also the reason why you're more enthusiastic
Speaker 1: about duration. What does that mean in terms of the
Speaker 1: likelihood of the credit declines that you expect not only
Speaker 1: in the US but also in Europe. When you're talking
Speaker 1: about being very cautious on high yield, what's the magnitude
Speaker 1: of the potential losses that you see versus just simply
Speaker 1: strategically being away from them as you wait for this
Speaker 1: to play out. Yeah, it's one of a strategic decision um. Obviously,
Speaker 1: triple siege, you know, the very lowest credit quality. We're
Speaker 1: always a little conscious on that, but particularly that's a
Speaker 1: pro cyclical position and this is not the time to
Speaker 1: be in the lowest credit quality. So we think, you know,
Speaker 1: you could see UH spreads wide in a hundred and
Speaker 1: fifty basis points of so in the high yield area,
Speaker 1: and there's just not a lot of potential reward for
Speaker 1: the risk that you're taking in that that area. Now,
Speaker 1: that's my grade looks a little bit stronger. You know,
Speaker 1: a lot of these companies have turned out their debt
Speaker 1: over long term, so we don't see quite as much
Speaker 1: risk there. But it's definitely credit is pro cyclical, and
Speaker 1: this is not the time to be overweighting credit. Yeah. Well,
Speaker 1: I think I agree with that when I look at
Speaker 1: the charts, Kathy. I just looked at a vanilla corporate
Speaker 1: piece of quality name everybody knows, and I'm sorry, it's
Speaker 1: had an ugly August. And I look at the Bloomberg
Speaker 1: Total Return the index. It's now down fourteen even fift
Speaker 1: from the peak. But it concerns me, Cathy, is in
Speaker 1: the last week it's rolled over again. It's a lower price,
Speaker 1: higher yield. What are the ramifications if that index breaks
Speaker 1: through the let me get the date, John, if it
Speaker 1: breaks through the June low, I mean, I mean, it's stunning. Yeah,
Speaker 1: you know, I think what we're reflecting here is this
Speaker 1: combination of fear of federate hikes and deteriorating economic growth.
Speaker 1: So we break that low. I don't know that there's
Speaker 1: a huge significance to it. I don't think that We're
Speaker 1: still going to say huge amounts of flows in and
Speaker 1: out based on you know levels anymore. Um, anybody who
Speaker 1: wanted to exit fixed income where the credit markets, it's
Speaker 1: probably done so already at this stage of the game
Speaker 1: and moved to very short term treasuries. But you know,
Speaker 1: if it continues to wear on this, uh, the total
Speaker 1: return in portfolios overall, you know, not making money in
Speaker 1: stock and I'm making money in bonds and uh. And
Speaker 1: I think that people just will tend to want to
Speaker 1: be in safer and safer assets. So compro Cathy Jones,
Speaker 1: Cathy love catching of you, Mr the Piano, Mr Piano,
Speaker 1: Really do do you see? Lizzie Byrden yesterday time with
Speaker 1: the piano behind her told the sur Fatmans rules that
Speaker 1: if you turn up with the piano but a plane,
Speaker 1: she said it wasn't in tune. Yeah, well that's a
Speaker 1: good John the piano in tune. It sounds like it's
Speaker 1: not in tune. Jeffrey You, joins, a senior email market
Speaker 1: strategist at B and Y Melan It is a jumble.
Speaker 1: In August, Jeffrey You, if you were having the next
Speaker 1: cup of coffee with Jerome Powell, what would you say,
Speaker 1: he needs to watch globally for September. Globally for September.
Speaker 1: Look at what your peers are doing. Are they going
Speaker 1: to follow you and say, not only our raids going
Speaker 1: to go up, but they're going to go up for
Speaker 1: a sustained period. Europe is next. What are the BOE
Speaker 1: going to do for so much? For such a while
Speaker 1: market has been pricing in a quick aggressive move by
Speaker 1: the b o E and then cuts towards the end
Speaker 1: of twenty three or maybe early twenty four. Is that
Speaker 1: going to happen now? Because if Europe is now looking
Speaker 1: at sustained high rates for some time, then that's going
Speaker 1: to constrain global growth. And then you just ask where
Speaker 1: is the growth going to come from? Jeff, on your
Speaker 1: tour meeting clients, do you meet any bills because we're
Speaker 1: struggling to find them. No, Well, I am in Europe,
Speaker 1: you know right now, So within Europe until there is
Speaker 1: a plan to deal with the energy situation that sounds
Speaker 1: like behind the scenes, no plans are being formulated, then
Speaker 1: we'll just go and revisit, you know, once we see
Speaker 1: what the plans are. But then again, you know, being
Speaker 1: the UK, where you know let's just say there is
Speaker 1: a bit of a vacuum, you know, at the very
Speaker 1: top right now, we're waiting for plans. It's really hard
Speaker 1: to know, you know, what the outlook is when there
Speaker 1: is just no plan. At some point things get better
Speaker 1: and they come in better than expected. Jeff, do you
Speaker 1: think the market position for that kind of story? Have
Speaker 1: we seen that wash out in any way, shape or
Speaker 1: form from from your perspective? Well, I always go back
Speaker 1: to positioning, you know, just looking at how markets have
Speaker 1: their assetlication right now in some of your risk assets.
Speaker 1: So you're still relatively overweight US as set, just still
Speaker 1: overweight the dollar. So there's only one direction to go.
Speaker 1: You want to wait for that trigger. So if I
Speaker 1: want to construct a positive narrative, you know, maybe China
Speaker 1: is no. Not right now, we probably could use a
Speaker 1: bit of a bit more disinflation from China. But heading
Speaker 1: into next year, just as the world you know, needs
Speaker 1: a bit of a growth kick, that external demand may
Speaker 1: come from China's normalization story. So that's something I'm holding
Speaker 1: out for maybe six months or further down the line,
Speaker 1: but at this point, best to stay conservative, go back
Speaker 1: to positioning. We're positioning is lightest and risk where you're
Speaker 1: going to see the brace of positivity. You have another
Speaker 1: way of asking what John was getting at, is have
Speaker 1: we praised in fully a recession in Europe, a downturn
Speaker 1: that flows with the recession, or is one in the
Speaker 1: United States, and a sub three GDP handle on Chinese growth?
Speaker 1: Have we already price set in to global markets? So
Speaker 1: we've certainly priced in recession in Europe just looking at
Speaker 1: how the euro's treading was around parity right now three
Speaker 1: you know China. Uh So it really depends on which day,
Speaker 1: because if I look at now how Chinese equities are performed,
Speaker 1: espessially the tech space, I think markets actually looking for positivity,
Speaker 1: looking for some relief on the regulatory side. You looking
Speaker 1: for perhaps down the line some normalization in societal restrictions
Speaker 1: as well. So actually, in China three percent maybe headline
Speaker 1: growth investment driven, but the Chinese consumer, the household probably
Speaker 1: not as bad and you are certainly not a recession
Speaker 1: and yet as as long as the labor markets and
Speaker 1: rude health. But let's see after Friday, maybe that could
Speaker 1: change as well. So Jeff, if that's the case, what
Speaker 1: would you have to see it to not be quite
Speaker 1: as bearish, right to not be quite as conservative if
Speaker 1: the positioning right now is pretty gloomy, so to not
Speaker 1: be bearish, I think we'll be a peaking in inflation numbers,
Speaker 1: because that then you know that the household started to
Speaker 1: show some restraint. And then on top of that um
Speaker 1: as Chen Powell has already said, and probably global central
Speaker 1: banks they're going to keep rates high, probably for a
Speaker 1: little longer than then you have that dual problem approach
Speaker 1: whereby growth is going to come off, So you need
Speaker 1: to be like the end of the tunnel. But inflation expectations,
Speaker 1: that's the bossom mine. Jeff, You, you and I were
Speaker 1: trained that in finance four standard deviations is a substantial move,
Speaker 1: and we learned that in medicine six standard deviations is
Speaker 1: maybe equivalent. Because of the resiliency of the human body,
Speaker 1: German inflation is reported moments ago off. The long term
Speaker 1: trend is a really elegant study of nine standard deviations.
Speaker 1: We have never seen this. How do we extricate ourselves
Speaker 1: from a nine standard deviation move? Well, let me tell
Speaker 1: you how our days are shown. The euro is trying
Speaker 1: to position itself for that. We are at three and
Speaker 1: a half times usual level of euro holdings short within
Speaker 1: our position days, especially for the main does anything beyond
Speaker 1: one and a half times short or long, then I
Speaker 1: set up and take notice. Euros at three and a
Speaker 1: half already. So do you chase that? What do you
Speaker 1: fade it? You know sore right now, It's like hearts
Speaker 1: has faded. But head said you probably, well you don't
Speaker 1: want to chase it, but you certainly don't want to
Speaker 1: go against that right now. So the market is pushing this.
Speaker 1: They want to see how low things can get before
Speaker 1: we get a policy reaction and more importantly a plan
Speaker 1: you know, from the European Commission, from the Energy Minister,
Speaker 1: from the energy ministers. But going back to your stand
Speaker 1: nine standard deviation movement markets are really close by Euros
Speaker 1: standards to forcing that case, Jeff. Some of these numbers
Speaker 1: this from Goldman this morning, just reading this note that
Speaker 1: inflation could top next year in the UK if natural
Speaker 1: gas prices remain elevated in the coming months. So city
Speaker 1: last week that would be the peak for UK cp
Speaker 1: I for them bankving that's got it a thirteen, Jeff.
Speaker 1: Can you get your head around that kind of number
Speaker 1: in the UK? Well, it really is going to be
Speaker 1: a struggle for the b o E to you know,
Speaker 1: try to communicate that and to be frank, you know,
Speaker 1: looking at the consumption days in the UK right now,
Speaker 1: we aren't exactly you know, seeing that retrenchment you know
Speaker 1: in spending. So that's like the household is actually doing okay,
Speaker 1: So is there a gap between reality and what's going
Speaker 1: on the ground. So we need to see some convergence
Speaker 1: at this point. Until we get that convergence, you know,
Speaker 1: we will be painful then, I'm sorry. The central back
Speaker 1: message is going to be very, very fierce, you know,
Speaker 1: hold back right now. She's going to get out of control. Jeff,
Speaker 1: you disterling trade weighted reach, the jan major weaknesses of
Speaker 1: so very a lot to try to make those comparisons
Speaker 1: because there was a deep pegging involved, you know, at
Speaker 1: that point. But put it this way, right, if they
Speaker 1: want to you know, limit the fallout you know from
Speaker 1: an exchange rate and the collapse, and then we need
Speaker 1: a plan in right now that cooked up as early
Speaker 1: as next week, right to match the euro at least
Speaker 1: to save the household, especially on the lower income side.
Speaker 1: That is absolutely necessary at this pin and the market's
Speaker 1: anticipating that if the new government comes short, you know,
Speaker 1: then I think comparisons with are going to be drawn.
Speaker 1: So let's we visit Hi, Jeff, you, thank you, sir
Speaker 1: and y Mellen. This is the Bloomberg Surveillance Podcast. Thanks
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