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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App.

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Speaker 2: Lurri Cavsine joined us.

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Speaker 1: Now.

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Speaker 3: How do us secuity strategy at RBC Capital Markets?

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Speaker 2: Laurie?

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Speaker 3: What if I have you with us on the program

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Speaker 3: to kick off this trade and week. There's a line

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Speaker 3: in your recent note we aren't convinced this is the

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Speaker 3: end of the current period of equity market weakness.

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Speaker 2: Lorie. Why is that?

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Speaker 4: Well, I think that basically what we did with the

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Speaker 4: government shutdown is we took one of a number of

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Speaker 4: different issues that have been weighing on market short term

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Speaker 4: off the table, and we only took it off the

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Speaker 4: table for you know, maybe a month and a half

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Speaker 4: or so. We'll see how long it lasts. But I think,

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Speaker 4: you know, we always look at these kind of episodes

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Speaker 4: and markets and say where was sentiment? And I don't

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Speaker 4: think sentiment got bad enough last week to serve as

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Speaker 4: any kind of big springboard. So we were looking at

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Speaker 4: some of the commentary that was coming out over the

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Speaker 4: weekend saying you know, it's time to buy, We're in

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Speaker 4: the clear, and said, well, this thing has just been

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Speaker 4: kicked down the road. There's still a lot of other

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Speaker 4: stuff we're going through, and sediment just never got that bad.

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Speaker 4: We just really we saw concern comeback last week. We

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Speaker 4: didn't see fear. And if you look at the AAII survey,

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Speaker 4: net bulls got down to about minus thirteen percent on

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Speaker 4: the weekly data point, but the four week data point,

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Speaker 4: the four week average was about flat. You contrast that

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Speaker 4: with back around the SBB period, we were at minus

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Speaker 4: twenty percent or worse for four weeks in a row.

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Speaker 4: So we're just not anywhere near the same kind of

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Speaker 4: point where we can say, Okay, it's so bad, we

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Speaker 4: got to go higher from here.

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Speaker 1: Laurie, Once again, small caps disappoint. I have a chart

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Speaker 1: a keep of a NASTAQ one hundred, granted seven or

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Speaker 1: eight super stocks. Maybe they're Dow stocks, but we don't

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Speaker 1: want to admit it. And the Russell two thousand, and

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Speaker 1: it's a chart of failure. What should these companies do

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Speaker 1: if they can't get value from the market. Should they

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Speaker 1: go private? Should they merge? Should the zombies go away?

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Speaker 4: Well, I think there's always going to be, you know,

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Speaker 4: sort of that zombie element, and the Russell two thousand,

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Speaker 4: I don't think they're going to you know, disappear anytime soon.

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Speaker 4: I do think that we have to keep an eye

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Speaker 4: out to see whether or not there's more m and

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Speaker 4: a activity that comes up, particularly in an area, say

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Speaker 4: like the industrial space, where we often hear from small

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Speaker 4: cap portfolio managers that quality of management and quality of

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Speaker 4: businesses is quite high. So I think that's one thing

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Speaker 4: that we can look at I think, frankly, small caps

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Speaker 4: just have a problem at this point in time after

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Speaker 4: that last FED meeting, because while I do think twenty

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Speaker 4: twenty four cuts are still on the horizon, that's still

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Speaker 4: the call of our rate strategy team. I think there's

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Speaker 4: starting to be some doubts about how many cuts, about when,

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Speaker 4: and that was really the catalyst. I think that small

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Speaker 4: caps needed to really get going, and it seems like

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Speaker 4: it's been damaged. I think we're also just in an

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Speaker 4: air pocket of economic uncertainty right now, and small caps

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Speaker 4: I think also needed to see incremental enthusiasm about the

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Speaker 4: twenty twenty four economy emerged, and instead we've gotten the

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Speaker 4: return of uncertainty in here.

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Speaker 5: Laurie, a couple of months ago, you came on and

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Speaker 5: you expressed caution but said you were not bearish, that

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Speaker 5: you did see equities muddling through. Am I hearing that

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Speaker 5: you are more bearished now after seeing where bond markets are,

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Speaker 5: how high yields are, the fact that yield cuts, that

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Speaker 5: cuts are not being priced into the market maybe shouldn't

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Speaker 5: be pricedge to the market for next year.

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Speaker 4: Now, I think you know, our head is still really

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Speaker 4: where it was at the beginning of August that we've

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Speaker 4: got some short term issues that we've got to work through.

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Speaker 4: We've had a tremendous run in the market this year.

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Speaker 4: I would say, though, you know, there's definitely a camp

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Speaker 4: of strategists out there right who are you know, very

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Speaker 4: much in the doom and gloom camp for next year.

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Speaker 4: And I wouldn't put me in that camp by any stretch.

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Speaker 4: I do, you know, sort of subscribe to what you

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Speaker 4: guys were living to us the neil do to you earlier,

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Speaker 4: kind of the resiliency of the consumer. I just think

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Speaker 4: we're not going to get a lot of information about

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Speaker 4: that in the here and now. Companies seem to have

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Speaker 4: planned up and they're frankly not saying anything that's all

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Speaker 4: that useful, whether you're looking at conferences or the last

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Speaker 4: round of earnings reports. And I think that's a problem

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Speaker 4: when you've had the year like we've had, Doubts are

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Speaker 4: starting to create about the economy again, and we're not

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Speaker 4: getting a lot of stars to navigate by at this

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Speaker 4: point in time.

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Speaker 3: I think the interesting point about this moment, Laurie is

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Speaker 3: that unlight through the most rest of this year, consumer

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Speaker 3: discretion rey is starting to crack. The equity market is

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Speaker 3: starting to show some real weakness that the story of

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Speaker 3: the year is being consumer discretionary has really performed to

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Speaker 3: perform quite strongly. What do you take away from the

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Speaker 3: weakness we're seeing in the equity market for discretionary recently, Laurie,

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Speaker 3: whether you see that as a buying opportunity if we

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Speaker 3: discounted enough gun into Q four.

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Speaker 2: I think it.

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Speaker 4: Depends on what part of consumer discretionary you're talking about.

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Speaker 4: You know, we talked a little bit about small cap earlier.

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Speaker 4: Small cap consumer discretionary stocks which do tend to you know,

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Speaker 4: sort of migrain order to lower end. They're more domestically focused.

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Speaker 4: They priced in a recession last year. The big cap

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Speaker 4: s and P five hundred consumer discretionary stocks did not.

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Speaker 4: And while valuations don't look terrible right now, they haven't

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Speaker 4: been looking cheap at any point in our model over

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Speaker 4: the last year year and a half, So we think

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Speaker 4: the risk reward there is not fantastic. And then, you know,

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Speaker 4: we talked a little bit about higher bond yields. That's really,

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Speaker 4: I think probably one of the biggest problems we're dealing with,

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Speaker 4: and the problem is that it Traditionally, if you look

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Speaker 4: at a post GFC world, the sectors that do most

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Speaker 4: poorly when bond yields arising aren't things like consumer discretionary,

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Speaker 4: communication services, kind of those growthier parts of the market.

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Speaker 4: So you've got a sector that it never get cheap enough.

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Speaker 4: Economic angst is rising, and you've got this bond yield

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Speaker 4: negative catalyst hitting all of you know, kind of hitting

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Speaker 4: them precisely the wrong time.

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Speaker 1: Laurie James Diamond is going to get all the press today.

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Speaker 1: He's going to do chit chat with Emily Chang and London. Great.

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Speaker 1: It's all going to be, you know, the usual big

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Speaker 1: bank stuff. The BKX chart is a train wreck. Are

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Speaker 1: the banks some mother of all value traps here?

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Speaker 4: You know, it's interesting financial should be outperforming in a

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Speaker 4: higher bond yield environment. They're not doing that right now,

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Speaker 4: not to the extent that they should be anyway, And

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Speaker 4: we're seeing, you know, energy has really kind of sucked,

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Speaker 4: you know, some of the benefit that the other parts

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Speaker 4: of the value trade would see. I think it depends

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Speaker 4: on your time horizon, you know. I do like financials.

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Speaker 4: In the S and P we're overweight. We have said

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Speaker 4: we like energy better. You are seeing a nice revisions

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Speaker 4: recovery if you look at the bank space in particular,

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Speaker 4: but we haven't quite crossed over into positive revision territory.

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Speaker 6: Things have just been.

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Speaker 4: Getting less negative. I do often find that when you

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Speaker 4: see Earning's revisions turning, but they're not quite in positive

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Speaker 4: territory yet, you still have a lot of doubters in

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Speaker 4: the trade, and that's often a good opportunity to come in.

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Speaker 4: I think there's money to be made here long term,

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Speaker 4: but I do think you have to have a stronger stomach,

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Speaker 4: and there, frankly may be other parts of the value

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Speaker 4: trade that just don't have as much.

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Speaker 7: Hair on them.

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Speaker 3: Hey, Luri, thank you, good luck for the rest of

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Speaker 3: this Waight Lo Cavasity, the of RBC Capital Markets.

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Speaker 1: Joining us on Jordan Rochester g Ten, FX strategist at Nomura.

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Speaker 1: What I see Jordan this morning that is absolutely distinct

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Speaker 1: is finally Swiss Frank gives way to stronger Swiss Frank.

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Speaker 1: It's ever so slight, but that's a distinctive tea leave

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Speaker 1: link euro trajectory with the symbolism of a stronger Swiss

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Speaker 1: Frank to come.

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Speaker 8: Indeed, some I think last week's weakness in Swiss Frank

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Speaker 8: was a lot to do in month fender as well.

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Speaker 8: A lot of moves last week cool her to do

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Speaker 8: that month end flow because of the equity sell off

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Speaker 8: that we had. But when it comes to the sort

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Speaker 8: of view on the Swiss and Stocky and all those

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Speaker 8: sort of local Euro Area currencies, Swiss is one of

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Speaker 8: those currencies where in a global slowdown it tends to strengthen.

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Speaker 8: It's still got a banking repatriation flow as well. So

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Speaker 8: if you think the Euro Area is going into a recession,

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Speaker 8: which we do, that is usually to Swiss Frank's benefit,

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Speaker 8: You've still got a central bank that is also intervening

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Speaker 8: in the FX market as well, eleven billion euros per

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Speaker 8: per month of in FX intervention to strengthen their currency.

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Speaker 2: So even though we think the SMB is.

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Speaker 8: Done with rate hikes, because of the impending global slowdown

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Speaker 8: and potential for recession risks pretty much in Europe and

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Speaker 8: the US, it's very hard to be selling the Swiss franc.

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Speaker 1: Okay, sell Swiss Frank, I'll go with that. But then

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Speaker 1: they got the euro. What is the appropriate pair to

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Speaker 1: play weaker euro?

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Speaker 8: Well, we're looking at it this morning. I mean, the

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Speaker 8: view for US is euro dollar and EUROCAD. I think

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Speaker 8: euro dollar towards one o two doors parity is very

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Speaker 8: possible as long as oil prices don't find.

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Speaker 2: A way to collapse.

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Speaker 8: In the previous guest you had on Kit Jukes, he

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Speaker 8: was talking about US yields rising higher.

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Speaker 2: Well, US rates suggest that euro dollar should.

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Speaker 8: Be at one oh one to one oh three already,

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Speaker 8: and if oil gets to one hundred dollars a barrel

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Speaker 8: to one hundred and ten dollars a barrel, it's very

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Speaker 8: easy for the Euro Area to see their currency weaker

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Speaker 8: because they are an energy importer. The problem for all

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Speaker 8: of US this year and euro as a chart shows you,

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Speaker 8: it's been a zigzag up down, up, down, up down,

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Speaker 8: and this looks to be finally an exit of that

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Speaker 8: rangebound price action.

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Speaker 2: This looks to me more like a trend now. It's

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Speaker 2: a bit of deja vu to last year.

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Speaker 8: Last year euro broke through parity thanks to vadamir Putin

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Speaker 8: natural gas supplies being squeezed. This year, it's more thanks

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Speaker 8: to what's going on in the Middle East with the

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Speaker 8: lack of oil supply, and that's going to help.

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Speaker 2: The euro get towards those sort of figures.

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Speaker 8: The main risk is if the US data starts to

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Speaker 8: come in soft and US yields stop climbing. But I

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Speaker 8: think we've had a bit of good luck in that respect.

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Speaker 8: For this week, at least, US government shutdown has been avoided,

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Speaker 8: which means that we're going to get non farm payrolls,

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Speaker 8: we're going to get the jolts data, and crucially, we're

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Speaker 8: not going to get all those government workers laid off.

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Speaker 8: It was going to be really difficult for the market

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Speaker 8: to buy the dollar with initial claims jobbers claims spiking

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Speaker 8: higher on Thursday. Well, that shouldn't happen now thanks to

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Speaker 8: that government shutdown being avoided.

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Speaker 3: Jordan, we've got a natural bias here to ask questions

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Speaker 3: about the US dollar. US rates better reserve the US economy.

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Speaker 3: You touched on the international story. Can you have us

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Speaker 3: understand how important that is, not just what's happening with

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Speaker 3: the Middle Eastern crude, but also what's happened or hasn't

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Speaker 3: happened over in China.

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Speaker 8: Absolutely well, the situation in China has been that for

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Speaker 8: the first half this year, most economists were quite disappointed

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Speaker 8: with the growth data. We've had a more bear sho

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Speaker 8: outlook on China than most when.

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Speaker 2: It comes to our GDP forecast.

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Speaker 8: But what's happened over the summer is that China has

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Speaker 8: done little bits of policy here and there, and it's

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Speaker 8: kind of built up to a much more mixed view

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Speaker 8: in the market on China, which is is China slowing

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Speaker 8: down or is it bouncing back? And the property measures

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Speaker 8: such as cutting mortgage rates for first time buyers is

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Speaker 8: a significant one because most of the Chinese property market

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Speaker 8: is first time buyers. Well, that's going to lead to

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Speaker 8: some of the Chinese data looking healthier over the short term.

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Speaker 8: But for us, the long term is that China's trade

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Speaker 8: balanced China's current account those flows are looking pretty weak,

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Speaker 8: especially with the tourism outflows which are going to continue

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Speaker 8: to pick up. So from a flow perspective, we're not

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Speaker 8: seeing the inflows into China bonds like we saw from

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Speaker 8: foreign investors either. All together, weaker outlook for China a

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Speaker 8: bit messy in the short term for data surprises because

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Speaker 8: of all of these sort of measures that were announced,

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Speaker 8: But the big picture is a slowdown and a weaker

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Speaker 8: Remember for us, does.

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Speaker 3: That make it more difficult to make a call for

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Speaker 3: next year, that goes beyond one ten.

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Speaker 8: Well, the difficulty with the euro dollar view is that

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Speaker 8: when the FED cuts rates, when you get liquidity, it

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Speaker 8: leads to dollar weakness. Now we have the view that

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Speaker 8: the FED could even cut rates as soon as March

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Speaker 8: because of a recession call that the US economics team

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Speaker 8: at number have that starts in Q four, by the way,

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Speaker 8: but if they're wrong, if we get an actual off

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Speaker 8: landing for the next few months, because soft landings can

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Speaker 8: last a few months before it turns into a hard landing,

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Speaker 8: if we have all the data in the US pretty

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Speaker 8: healthy in Q four, it pushes those FED cuts out,

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Speaker 8: so that one ten call is based on that a

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Speaker 8: Q one story next year, really where the market quickly

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Speaker 8: shifts to saying yep, FED cuts are coming in the

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Speaker 8: next few meetings. At the moment, we're in the higher

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Speaker 8: for longer phase. That's why the dollar's not selling off

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Speaker 8: here Jordan.

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Speaker 5: One reason why I love your research is because you

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Speaker 5: always put the sort of conviction level that you have

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Speaker 5: on each trade. Can you talk about how difficult it

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Speaker 5: is to have conviction at a moment where you're dealing

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Speaker 5: with so many variables. We're tracking the weather. Again, we're

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Speaker 5: tracking you know, different congestion pricing and congestion emissions over

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Speaker 5: in China. To understand the recovery, I mean, how do

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Speaker 5: you have conviction in a market like this.

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Speaker 2: You have to look at the local stories.

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Speaker 8: I think, so you have the broad dollar view, which

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Speaker 8: we've got a pretty high conviction on, you know, three

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Speaker 8: to four out of five, I would say for the

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Speaker 8: long dollar vie, then the local story. And what helps me,

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Speaker 8: Lisa is positioning. So just a few weeks ago, maybe

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Speaker 8: let's go about four weeks ago, you would have had

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Speaker 8: guests on here saying the Bank of England could raise

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Speaker 8: rates maybe to seven percent, And because of one week

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Speaker 8: services CPI and one Bank of England meeting and a

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Speaker 8: week labor report as well, it's quickly shifted to the

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Speaker 8: Bank of England's done. And because of that shifting narrative,

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Speaker 8: you've got a lot of stale positioning out there. So

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Speaker 8: I think in Sterling there's still long Sterling position amongst

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Speaker 8: some investors that needs to be unwound. We've gone through

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Speaker 8: a lot of that already, but I think there's more

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Speaker 8: to go. So that helps me have a four out

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Speaker 8: of five on short cable for example. Or then you

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Speaker 8: have to look at the other factors in Asia and

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Speaker 8: elsewhere and think where is there less positioning? I think

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Speaker 8: that's where you have lower conviction. So if there's less positioning,

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Speaker 8: lesser positioning squeeze, there's not much of a.

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Speaker 2: Trade to do. But short cable short ur.

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Speaker 8: I think there's still some stale lungs out there that

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Speaker 8: need to be unwound.

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Speaker 1: Joan.

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Speaker 5: This is a pretty toxic recipe for the Bank of

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Speaker 5: England and for the European Central Bank.

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Speaker 2: Right with inflation, well, inflation's coming down. The main thing

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Speaker 2: is does it not fall to two percent? And that's

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Speaker 2: what the center banks are really worried about.

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Speaker 8: I personally look at all these charts that help us

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Speaker 8: forecast inflation, and it looks like it's going even below

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Speaker 8: two percent on some of them. So PPI, which is

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Speaker 8: the manufacturing inflation in the UK.

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Speaker 2: And Europe, it's pretty awful.

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Speaker 8: I think in Norway it's minus thirty five percent year

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Speaker 8: on year, So you get these extremes in manufacturing that

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Speaker 8: will push the headline down eventually. So I think, look,

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Speaker 8: we could be looking at CPI falling much closer to

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Speaker 8: two percent than center banks think, and then Lisa, we'll

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Speaker 8: be looking at global recession risks in the early part

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Speaker 8: of next year, and a lot of these center banks

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Speaker 8: that worried about inflation today will be very worried about

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Speaker 8: growth and employment tomorrow. We've already got signs in the

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Speaker 8: UK labor data, the Swedish labor data, there's layoffs happening,

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Speaker 8: and when we get to the year end, I think

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Speaker 8: a lot of center banks we're changing their focus on

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Speaker 8: inflation was high today and focusing more on the fact

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Speaker 8: that it was going to be quite low tomorrow. The

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Speaker 8: main risk to that, of course, is oil and the

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Speaker 8: supply side. So in the US, these UAW strikes and

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Speaker 8: boosting car prices and as we know, the oil markets

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Speaker 8: moving headline inflation higher as well. If we have another

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Speaker 8: rise in oil to one ten per barrel, then inflations

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Speaker 8: will be the center banks will be in a stagflationary

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Speaker 8: mode and the markets won't like it. FX will be

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Speaker 8: selling those sort of currencies like the pound, like Swedish krona,

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Speaker 8: because that's what the sort of mix we had in

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Speaker 8: twenty twenty two. So we could be going back to

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Speaker 8: a twenty twenty two style FX market reaction, which was

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Speaker 8: massive dollar strength.

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Speaker 3: But twenty seconds for you, Jordan, you can have it.

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Speaker 3: When was the last time Villa scored six goals? I

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Speaker 3: can't remember.

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Speaker 8: That's a good stat But it's bloody good, isn't em.

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Speaker 3: It's bloody good to to hear that Jordan's words.

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Speaker 1: I practice for a week in proper.

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Speaker 2: Jordan Rochester any more? Jordnah, thank you?

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Speaker 1: Proper Never with a crok in his mouth is Michael Darta,

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Speaker 1: chief economist, macro strategist, dog keeper for Roth MKM. Just

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Speaker 1: back from Japan, which is always a good and wonderful thing,

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Speaker 1: Michael data in your political economics, What did you learn

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Speaker 1: in Tokyo and Kyoto?

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Speaker 6: Well, Tom, we were there on pleasure, not business. You know,

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Speaker 6: incredibly beautiful cities, majestic if you're talking about Kyoto, and

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Speaker 6: for people that have never experienced it, I mean in Tokyo,

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Speaker 6: imagine a city three times the size of New York

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Speaker 6: City with essentially no litter, no crime, and almost no

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Speaker 6: one even disobeying traffic lights. I mean, it's quite a trip.

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Speaker 6: You have to experience it firsthand really to believe it.

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Speaker 1: Frankly, they are imputing inflation into their system. Some would

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Speaker 1: say they're inventing an inflation. Do you see any historical

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Speaker 1: analog that any country can manage inflation higher successfully?

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Speaker 6: Well, sure, Tom, if you believe in the power of

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Speaker 6: the central bank. And that's essentially what's happening the discussion earlier,

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Speaker 6: Lisa really hit it on the head. The problem for

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Speaker 6: the boj is that they can't hit two targets with

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Speaker 6: one arrow. So if you're going to effectively peg an

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Speaker 6: interest rate, you can't at the same time peg the

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Speaker 6: currency or even you know, control the price level, you know, perfectly,

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Speaker 6: So you know, what's happening is they've got to adjust

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Speaker 6: the you know, the rate pegs based on macroeconomic conditions.

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Speaker 6: It's different in the sense that typically central banks, you know,

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Speaker 6: will target the you know, the short policy rate. In

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Speaker 6: Japan because of the zero lower bound situation, they're targeting

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Speaker 6: a long term interest rate. But the same basic concept applies, Mike.

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Speaker 5: If we do get some sort of abandonment of yieldcraft

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Speaker 5: control or the Bank of Japan losing the plot, losing control,

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Speaker 5: losing the narrative when it comes to controlling bond yields

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Speaker 5: and controlling the depreciation of the end, how much does

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Speaker 5: that accelerate the move up in US yields that we've

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Speaker 5: seen as we see just yields globally rise and maybe

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Speaker 5: some of those buyers from over in Japan step away

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Speaker 5: from the US market.

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Speaker 6: Yeah, it's an interesting situation. I mean, if you look

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Speaker 6: at what's happened in the US bond market, we've had

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Speaker 6: a huge real rate shock, so this isn't really an

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Speaker 6: inflation expectations story. So you do have movement in global

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Speaker 6: yields on the back of central banks trying to persist

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Speaker 6: in a tighter policy regime, but it's really driven by

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Speaker 6: real interest rates. Inflation expectations in the US have really

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Speaker 6: barely budged, so crude oil prices are spiking higher, coppers

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Speaker 6: rolling over and FED rate hiking expectations. Or if you

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Speaker 6: look at let's say the thirty six month FED fund's

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Speaker 6: futures yield, it's moved up one hundred and fifty basis

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Speaker 6: points since the spring of this year, So that really

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Speaker 6: accounts for the entirety more than the entirety of the

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Speaker 6: rise in the ten year yield. So it's a higher

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Speaker 6: for longer trade based on the back of perceived economic

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Speaker 6: resilience in the States and the fact that you know,

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Speaker 6: the Fed's reaction function is to make sure that growth

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Speaker 6: slows below trend, So you know, if it looks like

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Speaker 6: that's not happening, then they're going to persist for a

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Speaker 6: longer period of time.

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Speaker 5: Mike, there are a lot of questions over the weekend

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Speaker 5: about why something hasn't broken, given how quickly rates have rised,

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Speaker 5: given how quickly benchmarking yields have rised. Do you see

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Speaker 5: any evidence either any economy or in the markets that

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Speaker 5: you track that shows that something is breaking.

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Speaker 6: Well, you know, I think the reason something hasn't broken

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Speaker 6: yet is the strength of the cyclical upswing that we've

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Speaker 6: had coming out of the COVID shock has been much

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Speaker 6: more robust in what we've seen historically, especially relative to

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Speaker 6: the last cycle. So with that, you're going to have

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Speaker 6: a higher neutral interest rate, and with a higher neutral

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Speaker 6: interest rate, it'll simply take longer before things start breaking,

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Speaker 6: so you can have more central bank tightening before things

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Speaker 6: fall apart. There also may have been some temporary factors

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Speaker 6: that have held things up this year. There's been a

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Speaker 6: very strange explosion in the fiscal deficit at a time

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Speaker 6: of full employment. You know, that is probably also feeding

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Speaker 6: into the higher for longer strategy on the part of

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Speaker 6: the FED. So those you know, those factors matter, But

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Speaker 6: the critical element here is, you know, nominal growth is slowing,

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Speaker 6: Nominal GDP growth is slowing on the back of tighter

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Speaker 6: FED policy. Gross domestic income in nominal terms, even if

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Speaker 6: you adjust for FED losses, has essentially decelerated to trend

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Speaker 6: or below trend growth. Here you have the FED, you know,

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Speaker 6: with policy rates up at five and a quarter to

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Speaker 6: five and a half, and they may move up further.

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Speaker 6: So I think in terms of something breaking that could

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Speaker 6: still be in front of us. There's a perception that

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Speaker 6: we've successfully soft landed. But those kinds of discussions are

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Speaker 6: pretty common prior to business cycle peaks and recessions, so

437
00:20:29,400 --> 00:20:31,160
Speaker 6: we're not quite out of the work just yet.

438
00:20:31,480 --> 00:20:34,720
Speaker 1: Michael, first day of Q four Primmer, what is the

439
00:20:34,840 --> 00:20:38,399
Speaker 1: signal of disinversion? If two ten spread is one hundred

440
00:20:38,400 --> 00:20:41,720
Speaker 1: prems or basis points, and we reverse and we start

441
00:20:41,760 --> 00:20:45,920
Speaker 1: to disinvert towards normal, what is the signal of that?

442
00:20:46,880 --> 00:20:50,560
Speaker 6: Well, you don't get meaningful and sustained disinversions without the

443
00:20:50,600 --> 00:20:53,639
Speaker 6: front end of the year yield curve coming down, you know,

444
00:20:53,680 --> 00:20:57,080
Speaker 6: which would happen in a slower growth recession scenario with

445
00:20:57,119 --> 00:21:01,080
Speaker 6: the FED cutting interest rates. You know, it certainly would

446
00:21:01,080 --> 00:21:03,879
Speaker 6: be possible, at least theoretically, for the long end to

447
00:21:04,000 --> 00:21:06,480
Speaker 6: just keep rising in the curve to disinvert. But that's

448
00:21:06,520 --> 00:21:09,760
Speaker 6: actually pretty unusual historically. The last time we saw anything

449
00:21:09,760 --> 00:21:12,200
Speaker 6: even close to that was actually two thousand and seven,

450
00:21:12,240 --> 00:21:15,360
Speaker 6: and within a few months we were actually in one

451
00:21:15,359 --> 00:21:18,439
Speaker 6: of the longest deepest recessions in history. So, you know,

452
00:21:18,520 --> 00:21:22,800
Speaker 6: this inverted yield curve structure backdrop that we have, I

453
00:21:22,800 --> 00:21:24,800
Speaker 6: think is a real warning sign in terms of the

454
00:21:24,800 --> 00:21:28,600
Speaker 6: sustainability of the business cycle. And you know, I think

455
00:21:28,640 --> 00:21:30,560
Speaker 6: a bit of cold water in terms of getting too

456
00:21:30,600 --> 00:21:33,199
Speaker 6: excited about any kind of sustained growth acceleration.

457
00:21:33,960 --> 00:21:36,960
Speaker 3: Mike, some real confusion for me, at least at the moment.

458
00:21:37,480 --> 00:21:40,479
Speaker 3: I hear lots of confidence to why yields can go lower,

459
00:21:40,960 --> 00:21:43,080
Speaker 3: but I feel that I hear little conviction as to

460
00:21:43,080 --> 00:21:43,760
Speaker 3: why they're higher.

461
00:21:44,640 --> 00:21:44,800
Speaker 5: Mike.

462
00:21:44,840 --> 00:21:46,600
Speaker 3: I don't know how you can make the coal for

463
00:21:46,680 --> 00:21:49,640
Speaker 3: the former without an understanding of the latter. Mike, Why

464
00:21:49,680 --> 00:21:51,919
Speaker 3: I yields up so much at the long end? How

465
00:21:52,000 --> 00:21:55,040
Speaker 3: much of this is just about budget deficits in Washington.

466
00:21:56,720 --> 00:21:59,480
Speaker 6: Yeah, I think a combination of for US is John. Obviously,

467
00:21:59,560 --> 00:22:03,000
Speaker 6: the economy has been more resilient than anticipated this year,

468
00:22:03,800 --> 00:22:07,440
Speaker 6: and you do have this strange fiscal policy and environment

469
00:22:07,920 --> 00:22:11,880
Speaker 6: where the fiscal deficits exploded to levels really never seen

470
00:22:11,960 --> 00:22:15,000
Speaker 6: outside of wartime when you're at full employment. And so

471
00:22:15,040 --> 00:22:18,560
Speaker 6: the Fed's higher for longer strategy has been self actualized

472
00:22:18,560 --> 00:22:20,600
Speaker 6: by the bond market. You know, we can see them

473
00:22:20,640 --> 00:22:24,680
Speaker 6: move up in real yields is going basically step for

474
00:22:24,800 --> 00:22:28,639
Speaker 6: step with that thirty six month Fed fund futures implied yield.

475
00:22:28,720 --> 00:22:32,280
Speaker 6: So that's the higher for longer trade, but that can

476
00:22:32,320 --> 00:22:35,480
Speaker 6: also be unwound. You know, this has happened over the

477
00:22:35,520 --> 00:22:38,760
Speaker 6: course of this year, over the last six months really,

478
00:22:39,960 --> 00:22:43,879
Speaker 6: and with softer data going forward that you know that

479
00:22:43,920 --> 00:22:45,960
Speaker 6: trade can be unwound. So I think we know why

480
00:22:46,000 --> 00:22:48,159
Speaker 6: it's happening. The question is you know what is the

481
00:22:48,200 --> 00:22:51,120
Speaker 6: forecast going forward and will that forecast be accurate?

482
00:22:51,480 --> 00:22:53,640
Speaker 3: Mike, thanks for the inside buddy, As always my town

483
00:22:53,680 --> 00:22:57,959
Speaker 3: of rough mcm on this bum market.

484
00:23:06,520 --> 00:23:08,720
Speaker 1: Let us dive in right now to what you and

485
00:23:08,800 --> 00:23:11,960
Speaker 1: I witnessed this weekend. He witnessed it as well. The

486
00:23:12,000 --> 00:23:15,080
Speaker 1: congressman from Arkansas, french Hill, he's been such a good

487
00:23:15,720 --> 00:23:18,440
Speaker 1: friend of the show and trying to give us perspective

488
00:23:19,200 --> 00:23:23,120
Speaker 1: on the history we're witnessing. French Shill, I really take

489
00:23:23,240 --> 00:23:26,000
Speaker 1: issue with people that say this has never happened before.

490
00:23:26,080 --> 00:23:29,520
Speaker 1: It's an outrage, beloney. My reading a history back to

491
00:23:29,640 --> 00:23:34,560
Speaker 1: Alien Sedition Act is this is frequent, like Joe Cannon

492
00:23:35,119 --> 00:23:40,400
Speaker 1: nineteen ten. Is an absolute parallel here from those analogs

493
00:23:40,400 --> 00:23:44,359
Speaker 1: of the past Alien s Edition Joe Cannon nineteen ten.

494
00:23:44,760 --> 00:23:47,320
Speaker 1: What is the outcome for the Speaker of the House?

495
00:23:47,480 --> 00:23:48,240
Speaker 1: You support?

496
00:23:50,000 --> 00:23:51,880
Speaker 7: Well, Tom, It's great to be with you, always good

497
00:23:51,880 --> 00:23:54,480
Speaker 7: to be on the program. Look, I think Kevin McCarthy

498
00:23:55,119 --> 00:23:58,840
Speaker 7: should Congressman Matt Gates bring a motion to vacate the

499
00:23:58,960 --> 00:24:01,840
Speaker 7: chair to the House floor, There'll be a motion made

500
00:24:01,880 --> 00:24:05,560
Speaker 7: to table that motion, and I think Kevin McCarthy survives. Look,

501
00:24:05,640 --> 00:24:09,080
Speaker 7: Kevin McCarthy has over two hundred solid supporters in the

502
00:24:09,119 --> 00:24:12,800
Speaker 7: Republican Party. You witness that in in January when it

503
00:24:12,800 --> 00:24:16,320
Speaker 7: took fifteen rounds for him to be elected Speaker of

504
00:24:16,359 --> 00:24:19,400
Speaker 7: the House. And on your historic point, that hadn't happened

505
00:24:19,760 --> 00:24:23,159
Speaker 7: that many times since nineteen twenty three, exactly one hundred

506
00:24:23,200 --> 00:24:26,520
Speaker 7: years before, and I think it was nine rounds then.

507
00:24:26,600 --> 00:24:29,920
Speaker 7: So these items have historic precedent. As you point out,

508
00:24:30,160 --> 00:24:33,080
Speaker 7: Kevin McCarthy has the support of his conference. He's doing

509
00:24:33,119 --> 00:24:36,040
Speaker 7: a good job as Speaker of the House, bringing to

510
00:24:36,080 --> 00:24:40,520
Speaker 7: the House floor important measures. He negotiated single handedly virtually

511
00:24:40,560 --> 00:24:43,400
Speaker 7: a good debt sealing deal that lowers spending twenty twenty

512
00:24:43,440 --> 00:24:46,280
Speaker 7: four over twenty twenty three and has some other important

513
00:24:46,280 --> 00:24:50,240
Speaker 7: economic reforms. And so that's why I think his colleagues

514
00:24:50,280 --> 00:24:53,399
Speaker 7: will sustain him as Speaker of the House.

515
00:24:53,800 --> 00:24:58,439
Speaker 1: You're entrenched in Arkansas. Fine, there are Republicans up north

516
00:24:59,000 --> 00:25:03,200
Speaker 1: who are not entrenched, and they're outrage this weekend seem

517
00:25:03,240 --> 00:25:06,719
Speaker 1: to be tangible. Are those Republicans in the north at

518
00:25:06,880 --> 00:25:09,960
Speaker 1: risk because of the foolishness of the weekend.

519
00:25:11,400 --> 00:25:14,359
Speaker 7: It's such an important point. We have our majority tom

520
00:25:14,440 --> 00:25:17,360
Speaker 7: our very narrow majority where we can only lose four

521
00:25:17,440 --> 00:25:21,239
Speaker 7: or five votes on the House floor because we have

522
00:25:21,359 --> 00:25:24,639
Speaker 7: one districts in which President Biden was so in New

523
00:25:24,720 --> 00:25:28,320
Speaker 7: York and in California particularly, we have House Republicans that

524
00:25:28,480 --> 00:25:32,040
Speaker 7: won successfully with outstanding campaigns in twenty twenty two, but

525
00:25:32,119 --> 00:25:34,439
Speaker 7: they might be in a Biden district plus three or

526
00:25:34,440 --> 00:25:38,639
Speaker 7: a Biden district plus thirteen, and so they are really

527
00:25:38,760 --> 00:25:41,560
Speaker 7: hurt in their districts if it looks like we're not

528
00:25:41,720 --> 00:25:46,680
Speaker 7: governing and not honoring our commitments on spending and regulatory policy.

529
00:25:46,720 --> 00:25:49,680
Speaker 7: In other words, they're conservatives and they're advocating at home

530
00:25:49,960 --> 00:25:53,960
Speaker 7: for solid conservative Republican values, but they want to deliver

531
00:25:54,000 --> 00:25:55,960
Speaker 7: it in a way that makes sense, and this kind

532
00:25:56,000 --> 00:25:59,160
Speaker 7: of back and forth does, I think put them at risk.

533
00:25:59,280 --> 00:26:01,960
Speaker 3: Congressman, does help them if you combine the Ukraine aid

534
00:26:01,960 --> 00:26:05,359
Speaker 3: effort with the aid effort for the Southern Border.

535
00:26:06,880 --> 00:26:10,119
Speaker 7: Jonathan, I think you'll find that we will move a

536
00:26:10,280 --> 00:26:13,080
Speaker 7: Ukraine bill in the coming days, and that we're building

537
00:26:13,119 --> 00:26:17,080
Speaker 7: a consensus around what that should look like, including oversight

538
00:26:17,240 --> 00:26:21,480
Speaker 7: of the administration's strategy in Ukraine to win and win promptly.

539
00:26:21,880 --> 00:26:24,920
Speaker 7: But look overwhelmingly, you've seen it in vote after a vote,

540
00:26:25,240 --> 00:26:30,240
Speaker 7: there's a majority of members of Congress that support Ukraine funding.

541
00:26:30,280 --> 00:26:32,600
Speaker 7: They want to make sure that other countries are doing

542
00:26:32,640 --> 00:26:34,720
Speaker 7: their part. They want to make sure that that money

543
00:26:34,760 --> 00:26:37,359
Speaker 7: is transparent, and they want to make sure that the

544
00:26:37,400 --> 00:26:41,160
Speaker 7: Biden administration is encouraging a strategy in Ukraine that can

545
00:26:41,200 --> 00:26:45,800
Speaker 7: win and win promptly, there's definitely fatigue after the stalemate

546
00:26:46,200 --> 00:26:48,639
Speaker 7: of this summer along the front lines of Ukraine.

547
00:26:48,760 --> 00:26:52,400
Speaker 3: Why is it importance combine that with a border security issue,

548
00:26:52,440 --> 00:26:55,320
Speaker 3: which essentially is what Speak mcconfe communicated over the weekend.

549
00:26:56,920 --> 00:27:00,560
Speaker 7: Well, this is an important political point domestically, Jonathan. People

550
00:27:00,640 --> 00:27:04,679
Speaker 7: are stunned by the incompetence of the Biden administration to

551
00:27:04,720 --> 00:27:08,040
Speaker 7: secure the border. Over six million people across the border,

552
00:27:08,320 --> 00:27:10,359
Speaker 7: over one hundred and fifty one people on the tear

553
00:27:10,480 --> 00:27:14,320
Speaker 7: watch list across the border, hundreds of pounds of fentomyl

554
00:27:14,359 --> 00:27:17,520
Speaker 7: that can kill the Americans many times over, and two

555
00:27:17,600 --> 00:27:20,480
Speaker 7: hundred thousand people a month they're coming across the border,

556
00:27:20,600 --> 00:27:23,359
Speaker 7: setting a record up twenty five percent from last year.

557
00:27:23,760 --> 00:27:26,200
Speaker 7: So I believe, and I hear this from my constituents.

558
00:27:26,440 --> 00:27:28,800
Speaker 7: The Governor of New York has even called out the

559
00:27:28,880 --> 00:27:32,480
Speaker 7: National Guard on this issue. So every state's a border state.

560
00:27:32,560 --> 00:27:37,040
Speaker 7: We think the most pressing domestic problem, besides getting spending

561
00:27:37,119 --> 00:27:41,560
Speaker 7: under control from the pandemic, is the border and border security.

562
00:27:41,560 --> 00:27:44,240
Speaker 7: And that's why I think Speaker McCarthy set that out.

563
00:27:44,520 --> 00:27:47,919
Speaker 7: Let's find a compromise and do something about border security.

564
00:27:48,440 --> 00:27:51,160
Speaker 7: Honor a commitment. We've passed that bill across the House

565
00:27:51,160 --> 00:27:54,400
Speaker 7: floor only with Republican votes. We call it HR two,

566
00:27:54,880 --> 00:27:56,639
Speaker 7: and we'd like to see if we can get Democrats

567
00:27:56,680 --> 00:28:00,919
Speaker 7: and support in the Senate for border security. There is

568
00:28:00,960 --> 00:28:03,800
Speaker 7: a strong majority to support Ukraine under the terms that

569
00:28:03,880 --> 00:28:07,680
Speaker 7: I just outlined. So let's do both. Let's have two

570
00:28:07,720 --> 00:28:09,720
Speaker 7: wins by working together.

571
00:28:10,160 --> 00:28:13,440
Speaker 5: Whether it's the border, whether it's Ukraine, whether it's the budget,

572
00:28:13,720 --> 00:28:16,960
Speaker 5: whether it's getting Kevin McCarthy to remain a speaker Congressman,

573
00:28:17,040 --> 00:28:21,159
Speaker 5: are you finding sort of a greater ally in centrist

574
00:28:21,200 --> 00:28:24,840
Speaker 5: Democrats right now than the far right of the Republican Party.

575
00:28:25,760 --> 00:28:28,560
Speaker 7: Well, inside the Republican Party, we have some goals. We

576
00:28:28,600 --> 00:28:31,520
Speaker 7: want to secure the border. We want spending below the

577
00:28:31,560 --> 00:28:34,760
Speaker 7: pre pandemic levels to the best that we can considering

578
00:28:34,880 --> 00:28:37,960
Speaker 7: the wins that we locked in in the debt sealing

579
00:28:38,040 --> 00:28:42,800
Speaker 7: deal between President Biden and Speaker McCarthy, those are shared priorities.

580
00:28:43,200 --> 00:28:47,360
Speaker 7: Inside the Republican Conference, we're still educating, in my view,

581
00:28:48,040 --> 00:28:51,560
Speaker 7: our members on what is the best course forward for Ukraine.

582
00:28:51,680 --> 00:28:54,360
Speaker 7: I admit there's a party split there and I'm disappointed

583
00:28:54,360 --> 00:28:57,440
Speaker 7: about it. I'm a strong supporter of kicking Putin out

584
00:28:57,440 --> 00:29:00,360
Speaker 7: of Russia. It's an outrage that he's there. And there

585
00:29:00,360 --> 00:29:06,000
Speaker 7: are many reasons why Putin was greenlighted to invade Ukraine

586
00:29:06,000 --> 00:29:09,240
Speaker 7: that date back to the Obama administration. But where we

587
00:29:09,280 --> 00:29:11,520
Speaker 7: are is where we are, and we're doing that work

588
00:29:11,680 --> 00:29:13,920
Speaker 7: I think to find consensus on how to move forward

589
00:29:14,000 --> 00:29:14,520
Speaker 7: on Ukraine.

590
00:29:14,600 --> 00:29:17,240
Speaker 5: Congressman, I guess what I'm trying to say is, if

591
00:29:17,280 --> 00:29:21,120
Speaker 5: Speaker McCarthy remains speaker, there's going to be some Democrats

592
00:29:21,240 --> 00:29:24,360
Speaker 5: that basically give a pass to it. Is there increasingly

593
00:29:24,440 --> 00:29:28,160
Speaker 5: a centrist coalition that's going to have a greater influence

594
00:29:28,200 --> 00:29:28,840
Speaker 5: going forward.

595
00:29:30,560 --> 00:29:33,920
Speaker 7: I think it could be, Lisa, you saw that in

596
00:29:34,000 --> 00:29:37,880
Speaker 7: the run up on trying to find a solution in

597
00:29:38,000 --> 00:29:41,880
Speaker 7: this most recent conflict on the end of year spending,

598
00:29:41,920 --> 00:29:46,320
Speaker 7: where you had centrist Democrats work with Republicans to try

599
00:29:46,320 --> 00:29:50,160
Speaker 7: to find a way forward for a continuing resolution. So

600
00:29:50,240 --> 00:29:52,480
Speaker 7: you may see that continuing. If so, that may be

601
00:29:53,000 --> 00:29:56,720
Speaker 7: in the best interest of the American people if centrist

602
00:29:56,800 --> 00:29:59,560
Speaker 7: Democrats come to the Republican side and work with us

603
00:29:59,600 --> 00:30:03,280
Speaker 7: on things to cut spending, secure the border, and properly

604
00:30:03,480 --> 00:30:05,280
Speaker 7: fund assistance to UKRAI.

605
00:30:05,120 --> 00:30:06,880
Speaker 3: The Congressman, I've known you long enough to know that

606
00:30:06,920 --> 00:30:11,520
Speaker 3: these issues frustrate you. Shut down debates, debt ceiling issues.

607
00:30:12,040 --> 00:30:14,560
Speaker 3: Do you think your colleagues in Washington understand that they're

608
00:30:14,600 --> 00:30:17,560
Speaker 3: losing the privilege to act recklessly based on what's developing

609
00:30:17,560 --> 00:30:19,040
Speaker 3: in the treasury market.

610
00:30:19,960 --> 00:30:22,160
Speaker 7: Jonathan, You are so right. I have made that point

611
00:30:22,200 --> 00:30:25,480
Speaker 7: repeatedly over the last month. Looking at that tenure this

612
00:30:25,600 --> 00:30:29,360
Speaker 7: morning at over four to six, gets my attention. Moody's

613
00:30:29,360 --> 00:30:32,120
Speaker 7: comments get my attention. And one thing that we had

614
00:30:32,160 --> 00:30:36,520
Speaker 7: and you'll all appreciate this, in the Republican continuing resolution

615
00:30:36,640 --> 00:30:40,320
Speaker 7: that failed on Saturday, all the Democrats voted against it

616
00:30:40,560 --> 00:30:45,600
Speaker 7: and thirty one Republicans voted against it. Very disappointing, very disappointing.

617
00:30:45,640 --> 00:30:47,880
Speaker 7: You would have secured the border cut spending by eight

618
00:30:47,960 --> 00:30:51,959
Speaker 7: percent for four weeks. Was a debt commission, Jonathan. And

619
00:30:52,000 --> 00:30:55,360
Speaker 7: that's exactly what we need, is a bipartisan Alan Greenspan

620
00:30:55,520 --> 00:30:58,479
Speaker 7: type approach dating back to nineteen eighty three where we

621
00:30:59,320 --> 00:31:03,200
Speaker 7: solved US Social Security solvency at the time and produced

622
00:31:03,200 --> 00:31:06,960
Speaker 7: a forty year positive outcome for that very very important

623
00:31:07,000 --> 00:31:10,320
Speaker 7: program for our seniors. That's the kind of approach we

624
00:31:10,360 --> 00:31:14,320
Speaker 7: need to take on finding a bipartisan solution to long

625
00:31:14,400 --> 00:31:18,520
Speaker 7: term fiscal concern on that two thirds of spending that

626
00:31:18,600 --> 00:31:20,400
Speaker 7: the US con does not debate.

627
00:31:20,600 --> 00:31:22,960
Speaker 3: We got to talk more about it. We can do it.

628
00:31:23,040 --> 00:31:28,040
Speaker 3: Maybe in Alabama, raise a Backspama October fourteenth, Congressman, Thank you, Congressman.

629
00:31:28,040 --> 00:31:29,520
Speaker 3: French Show Avonkasoul.

630
00:31:29,640 --> 00:31:33,440
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631
00:31:33,600 --> 00:31:37,800
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632
00:31:38,040 --> 00:31:41,560
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633
00:31:41,680 --> 00:31:46,200
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634
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635
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636
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637
00:32:00,400 --> 00:32:02,680
Speaker 7: Red pup didn