WEBVTT - Bloomberg Surveillance TV: July 3, 2024 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.640 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:36.720 Terminal and the Bloomberg Business app. We'll begin with our 0:00:36.760 --> 0:00:40.040 top story, investors positioning for a potential second Trump term, 0:00:40.240 --> 0:00:43.559 James Athey of Marlbaret Investment Management, writing, this isn't it 0:00:43.560 --> 0:00:46.000 a bit keen to be positioning for the Trump trade 0:00:46.040 --> 0:00:49.839 four months before the election, six months before inauguration, and 0:00:49.880 --> 0:00:52.880 based on the twenty seventeen timeline around eighteen months before 0:00:52.880 --> 0:00:56.520 the passing of legislation. James Jones is now for more so, James, 0:00:56.560 --> 0:00:59.440 do you think maybe this move is a little bit premature? 0:01:01.200 --> 0:01:01.400 Yeah? 0:01:01.680 --> 0:01:04.720 Either that, John, or really with sort of backward engineering 0:01:04.760 --> 0:01:07.520 and narrative to describe the move higher and treasury yields, 0:01:07.560 --> 0:01:11.360 I mean the timing with respect to this move higher 0:01:11.360 --> 0:01:13.360 in the odds of Trump being elected doesn't seem to 0:01:13.760 --> 0:01:17.480 tie up perfectly. It almost looked to me like maybe 0:01:17.520 --> 0:01:21.240 there was a bit of inventory overhang from dealers into 0:01:21.319 --> 0:01:24.760 and out of month end, and that's just precipitated and 0:01:24.840 --> 0:01:27.640 move higher and treasury yields led by the long end, 0:01:27.880 --> 0:01:31.200 and now we're starting to sort of engineer that into 0:01:31.280 --> 0:01:34.760 being related to an increased chance of Trump's elections. So 0:01:35.240 --> 0:01:38.120 either way, for me, now is not the time to 0:01:38.200 --> 0:01:44.120 push hard on trades investment ideas which rely on Trump 0:01:44.200 --> 0:01:46.280 passing legislation. I think there's a lot of wood to 0:01:46.319 --> 0:01:47.200 chop before we get there. 0:01:47.280 --> 0:01:48.640 So James, what should we rely on? 0:01:48.680 --> 0:01:51.120 You said it's too early to position for a Trump presidency. 0:01:51.200 --> 0:01:54.080 You say there's nothing clear on the macro front either, 0:01:54.360 --> 0:01:56.120 So what should I focus on and what should I do? 0:01:57.040 --> 0:01:59.520 No, exactly, And that's the difficult thing. I mean, the 0:01:59.560 --> 0:02:02.080 trade trend in the last six weeks or so has 0:02:02.120 --> 0:02:04.680 been a reversal of the trend which had preceded it, 0:02:04.680 --> 0:02:07.160 which is to say, we've had some upside surprises in 0:02:07.200 --> 0:02:09.760 economic data in Europe and the UK, and some downside 0:02:09.760 --> 0:02:12.960 surprises in the US, But broadly speaking, the US still 0:02:13.000 --> 0:02:15.240 feels like it's in a better place. You know, if 0:02:15.240 --> 0:02:18.200 you look traditionally at economic cycles, they don't turn on 0:02:18.240 --> 0:02:21.079 the consumer, they turn on business investment, and that then 0:02:21.120 --> 0:02:25.239 precipitates through into higher unemployment and the consumer. In Europe 0:02:25.240 --> 0:02:28.800 and the UK, we are seeing that deterioration in investment data. 0:02:28.960 --> 0:02:31.160 In the US. Actually, we've seen that picking up of 0:02:31.240 --> 0:02:33.280 late and so it still looks to us that you 0:02:33.320 --> 0:02:37.320 should be more comfortable taking duration positions from an economic perspective. 0:02:37.440 --> 0:02:39.880 In Europe and the UK, we've already had one cut 0:02:39.880 --> 0:02:42.560 from the ECB. Yes, they got buyers remorse, but I 0:02:42.560 --> 0:02:44.400 think the data is going to give them cover to 0:02:44.720 --> 0:02:47.600 continue cutting. Likewise, the bank when we get to August 0:02:47.880 --> 0:02:50.880 fed certainly more uncertain, but you're just getting paid that 0:02:51.080 --> 0:02:54.280 little bit more to take on that duration risk in 0:02:54.320 --> 0:02:57.079 the US, and so ultimately we still see that as 0:02:57.080 --> 0:03:00.560 being attractive because the direction of travel is cycle. 0:03:00.880 --> 0:03:03.040 This is fascinating to me, this whole idea of market 0:03:03.080 --> 0:03:05.120 move in search of a narrative, which is something that 0:03:05.120 --> 0:03:07.000 we've seen consistently and the part of the reason why 0:03:07.000 --> 0:03:09.680 we've been playing you know, market ping pong or table tennis. 0:03:09.760 --> 0:03:12.600 With the respect of different narratives. What narrative do you 0:03:12.639 --> 0:03:16.040 paint end of cycle rate cutting, go into duration, probably 0:03:16.080 --> 0:03:18.959 more heavily in Europe, less so maybe in the US, 0:03:19.000 --> 0:03:21.880 but still in the US, go into dollar assets. Is 0:03:21.919 --> 0:03:24.120 this basically the game plan that you've just been describing. 0:03:25.440 --> 0:03:28.160 Yeah, ultimately, Lisa, it is. I mean, obviously, you know, 0:03:28.200 --> 0:03:30.919 what we're not trying to do is make some bold 0:03:31.000 --> 0:03:33.959 prognostication on the macro outlook and then vet the farm. 0:03:34.000 --> 0:03:37.240 You know, we're trying to think about the world probabilistically. 0:03:37.280 --> 0:03:41.280 We're trying to understand the various outcomes of the various scenarios, 0:03:41.320 --> 0:03:44.360 the various themes that are affect in market pricing, deduce 0:03:44.400 --> 0:03:46.920 what we think the market is assuming, and position ourselves 0:03:47.040 --> 0:03:49.640 where it's most attractive, where the most asymmetry is. So 0:03:49.960 --> 0:03:52.560 the fact that you've got credit spreads as tight as 0:03:52.560 --> 0:03:54.600 they are and equities at the all time highs and 0:03:54.640 --> 0:03:59.160 equity multiples looking very rich. Meanwhile, you've got yields broadly 0:03:59.200 --> 0:04:02.080 and particularly sort of five to ten year yields looking 0:04:02.120 --> 0:04:06.640 pretty attractive relative to the dynamics which are being described 0:04:06.680 --> 0:04:10.120 broadly by the economic data that as a starting proposition 0:04:10.160 --> 0:04:13.200 as an asset allocator that to us informs the idea 0:04:13.240 --> 0:04:18.000 that bonds, and particularly high quality, safe defensive government bonds 0:04:18.320 --> 0:04:21.120 are the more attractive medium term investment proposition. 0:04:21.160 --> 0:04:23.239 Here, a lot of people are looking to the data 0:04:23.279 --> 0:04:25.640 that we get today, John just went through it, and 0:04:25.680 --> 0:04:28.640 then on Friday we get the non FORIGN payrolls report. 0:04:29.000 --> 0:04:32.840 A key question here has been how dependent is this market? 0:04:32.880 --> 0:04:36.360 How data dependent are people like yourself who don't know 0:04:36.440 --> 0:04:40.359 what macro compass to really use. What's the more important 0:04:40.480 --> 0:04:43.279 data to really be looking at in the slew of 0:04:43.320 --> 0:04:45.960 information that we get today and also on Friday. 0:04:46.839 --> 0:04:49.880 Yeah, and therein lies the problem, Lisa, because the data 0:04:49.880 --> 0:04:52.880 that matters the most in our opinion ultimately is unemployment, 0:04:52.880 --> 0:04:55.680 the labor market in general. That is the spine of 0:04:55.720 --> 0:04:59.360 the economic cycle. That's exactly how you know, these sort 0:04:59.360 --> 0:05:02.600 of positive and negative drivers feed through the economy in 0:05:02.640 --> 0:05:05.560 a cyclical fashion. You know, the same dollar being spent 0:05:05.920 --> 0:05:09.920 multiple times, that cyclicality that's both good in the upswing 0:05:09.960 --> 0:05:12.600 and then very negative in the downswing. And those changes 0:05:12.680 --> 0:05:16.360 largely happen because of changes to employment or changes to unemployment. 0:05:16.600 --> 0:05:19.520 But of course that's the most lagging of those major 0:05:19.800 --> 0:05:23.080 indicators and so it's difficult to make forecast based on that. 0:05:23.120 --> 0:05:25.359 So you have to use the forward looking data to 0:05:25.440 --> 0:05:28.040 try and inform a view and where the labor. 0:05:27.760 --> 0:05:28.520 Market is heading. 0:05:28.760 --> 0:05:31.520 And broadly speaking, this data has been telling us for 0:05:31.560 --> 0:05:34.480 a while and continues to tell us that things are softening, 0:05:34.520 --> 0:05:37.880 things are normalizing. And again, the nature of the economy 0:05:37.920 --> 0:05:42.320 means that that second derivative is incredibly important in trying 0:05:42.360 --> 0:05:45.719 to understand where a more medium trend is. So unless 0:05:45.760 --> 0:05:48.480 we see the jobs market picking up again, it still 0:05:48.520 --> 0:05:50.760 looks to us to be an economy which is losing speed. 0:05:50.960 --> 0:05:53.160 James, we started this conversation and you were playing down 0:05:53.200 --> 0:05:55.880 the importance of politics in the United States. I just 0:05:55.920 --> 0:05:59.000 wonder how important the politics are, how relevant the elections 0:05:59.040 --> 0:06:02.599 are in the UK and France over the next several days, James, 0:06:02.600 --> 0:06:05.240 given that this list trust shark seems to have become 0:06:05.240 --> 0:06:08.599 a south imposed debt break across the continent, just how 0:06:08.640 --> 0:06:10.200 relevant is the politics? 0:06:11.400 --> 0:06:12.920 Yeah, and I think that's a really important point. 0:06:13.000 --> 0:06:13.200 John. 0:06:13.200 --> 0:06:15.000 I would note the same that I think there's been 0:06:15.000 --> 0:06:17.840 a wake up moment for UK politicians in particular, and 0:06:17.880 --> 0:06:20.080 I think it's good politics from the labor Party to 0:06:20.160 --> 0:06:24.039 essentially shackle themselves to the kind of fiscal responsibility that 0:06:24.080 --> 0:06:28.240 the Tories were campaigning on from an electioneering perspective that 0:06:28.440 --> 0:06:31.320 new to the Tories. Their chances of winning became virtually 0:06:31.440 --> 0:06:35.719 zero at that point, and ultimately the lessons will live 0:06:35.880 --> 0:06:37.719 somewhat long in the memory, at least for the next 0:06:37.800 --> 0:06:40.520 year or so, I would have thought. In Europe, it's 0:06:40.520 --> 0:06:43.799 almost constitutional. You have fiscal rules still within the European Union, 0:06:44.800 --> 0:06:48.840 conveniently ignored during the pandemic, but they're starting to hove 0:06:48.920 --> 0:06:53.240 interview again. Excessive deficit procedures certainly are going to be 0:06:53.279 --> 0:06:57.280 part of the future. What that means for European politics, however, 0:06:57.720 --> 0:07:00.000 is less easy to say, because you have this right 0:07:00.240 --> 0:07:04.400 of the extremes who really are ultimately skeptical with respect 0:07:04.480 --> 0:07:07.240 to Europe and the power of the European Commission, and 0:07:07.279 --> 0:07:09.760 of course that could set some of these countries on 0:07:09.800 --> 0:07:13.040 a collision course with Brussels near term. Therefore, there is 0:07:13.080 --> 0:07:16.040 a lot of event risk. But actually in Europe medium term, 0:07:16.080 --> 0:07:19.239 I think there are more structural risks to bond market pricing. 0:07:19.480 --> 0:07:21.760 So, in other words, by the dear treasuries. 0:07:21.840 --> 0:07:23.400 In longer term, treasuries. 0:07:22.960 --> 0:07:25.800 And political risk maybe a little bit less so over 0:07:25.960 --> 0:07:28.280 in euroregion, just because of some of these structural issues. 0:07:28.360 --> 0:07:28.760 Is that right? 0:07:29.760 --> 0:07:32.320 Well, certainly in the non core you know that Germany 0:07:32.400 --> 0:07:34.840 is the safe haven, that's the core rates market. We 0:07:35.000 --> 0:07:37.120 do not favor owning a lot of the spread risk 0:07:37.200 --> 0:07:40.480 here because we think there are a preponderance of downside 0:07:40.560 --> 0:07:44.360 risks and the market is not handicapping pricing those effectively 0:07:44.400 --> 0:07:47.040 at the moment. We'd like to see more spread before 0:07:47.080 --> 0:07:49.080 we'd be comfortable taking on some of those risks. 0:07:49.160 --> 0:07:51.440 Hey, James, going to catch up, sir as always James 0:07:51.480 --> 0:08:04.320 Act of Marlborough Investment Management, Adam London, Thomas sim As, 0:08:04.320 --> 0:08:06.840 a Jeffries mart mccomack a tad Bank. With this amount 0:08:06.840 --> 0:08:08.920 of table, thomast I start with you. Lets talk about that, 0:08:08.920 --> 0:08:11.520 don't worry about that, okay, talk about jobless claims. What 0:08:11.640 --> 0:08:13.640 do you think is sort of normal and what's worthy 0:08:13.640 --> 0:08:15.800 of worry as we start to creep a little bit higher? 0:08:16.840 --> 0:08:19.400 So normal is really hard to define, right, I mean, 0:08:19.440 --> 0:08:21.600 we've had many different states of normal in the last 0:08:21.680 --> 0:08:24.360 four years, and I think that on an almost daily basis, 0:08:24.400 --> 0:08:26.960 there's a new sort of remark of where normal is right, 0:08:27.240 --> 0:08:28.840 last few months, it seems like two hundred and thirty 0:08:28.880 --> 0:08:31.120 K is more or less normal, two twenty something like that. 0:08:31.680 --> 0:08:34.360 I think that that's probably a decent enough benchmark for 0:08:34.880 --> 0:08:37.400 the next few weeks at least, But as you get 0:08:37.440 --> 0:08:39.000 into the end of the year, we'll probably continue to 0:08:39.000 --> 0:08:41.680 creep a little bit higher. Right. If you go from 0:08:41.720 --> 0:08:43.840 two thirty to two fifty or two sixty over the 0:08:43.880 --> 0:08:47.439 course of six months, that's actually exactly what the Fed wants, right. 0:08:47.520 --> 0:08:49.839 Like the whole thing with like the you know, the 0:08:50.040 --> 0:08:52.440 the some rule and these these inflection points and whatnot, 0:08:52.520 --> 0:08:55.480 is that this concept that economic data you know, goes 0:08:55.640 --> 0:08:57.920 down on an elevator up on an escalator, right, Like 0:08:57.920 --> 0:09:01.920 there's momentum that becomes self reinforced. Sing If we in 0:09:01.960 --> 0:09:04.880 fact actually get this very gradual decline in you know, 0:09:05.000 --> 0:09:07.920 labor market pressure, I think that's actually quite a good outcome. 0:09:07.960 --> 0:09:09.240 Okay, let's build on that a little bit more. 0:09:09.240 --> 0:09:10.960 Because City were with us earlier and they said two 0:09:10.960 --> 0:09:13.480 sixties the dangers on for job as claims, they've got 0:09:13.480 --> 0:09:14.960 a different view on this. They just don't think that 0:09:15.000 --> 0:09:17.600 you stabilize at this lower level. You don't platt ou 0:09:17.640 --> 0:09:20.400 here that once this journey starts, it continues, right. 0:09:20.320 --> 0:09:22.560 And I mean, you know, you look at eighty five 0:09:22.640 --> 0:09:25.400 plus years of labor market data and it supports that fact, 0:09:25.440 --> 0:09:27.560 right that when when things start to go wrong, they 0:09:27.640 --> 0:09:28.640 get wronger and wronger. 0:09:28.760 --> 0:09:28.920 Right. 0:09:29.559 --> 0:09:31.439 But the issue is, I think we have a very 0:09:31.480 --> 0:09:35.760 different set of demographics that you know, is not consistent 0:09:35.800 --> 0:09:39.640 with any other real, you know, labor market episode we've 0:09:39.679 --> 0:09:42.040 had in the economy before. Right, we have a shrinking 0:09:42.440 --> 0:09:45.679 prime age labor force as a percentage of the overall population. 0:09:46.160 --> 0:09:49.719 We're ten plus years into baby boomers retiring at a 0:09:49.800 --> 0:09:52.120 rate of about ten thousand people per day. We still 0:09:52.200 --> 0:09:55.680 have about six more years of that to go. So there, 0:09:55.960 --> 0:09:58.720 you know, the labor market shortage. The scarcity became extremely 0:09:58.760 --> 0:10:01.960 acute after the pendemic was over. But that's not a 0:10:02.040 --> 0:10:04.760 temporary factor. That's actually a secular trend that's going to 0:10:04.760 --> 0:10:05.439 continue for years. 0:10:05.600 --> 0:10:06.960 Malk Is it different this time? 0:10:08.360 --> 0:10:11.400 I think what's important is really kind of considering the 0:10:11.440 --> 0:10:13.960 supply side of the economy as well along with the 0:10:14.000 --> 0:10:16.680 growth side. Like everyone is very focused on growth for 0:10:16.720 --> 0:10:18.520 the FED, but it's like we kind of drop the 0:10:18.520 --> 0:10:20.480 ball that inflation is still kind of the key metric 0:10:20.600 --> 0:10:22.360 and it's like what we do is we run strategies 0:10:22.400 --> 0:10:24.280 and we're trying to figure out what teams are driving 0:10:24.280 --> 0:10:27.280 the markets. Like everyone's talking about this, but this factor 0:10:27.320 --> 0:10:29.040 is what makes money, and no one's talking about that 0:10:29.080 --> 0:10:31.800 anymore because it's not as interesting. But a key thing 0:10:31.880 --> 0:10:33.920 is is if you look at currencies, they are trading 0:10:33.960 --> 0:10:36.040 more on inflation than growth. And if you run back 0:10:36.080 --> 0:10:39.839 tests on data surprises, consensus revisions, data strength, those things 0:10:39.880 --> 0:10:42.680 aren't working. So while it's interesting to kind of work 0:10:42.679 --> 0:10:44.760 through the data and say this is important, this one's 0:10:44.840 --> 0:10:46.480 driving the FED, at the end of the day, what's 0:10:46.480 --> 0:10:47.960 going to drive the FED in the next three months 0:10:48.000 --> 0:10:51.240 to September is inflation. So if inflation's hot next week, 0:10:51.320 --> 0:10:52.760 or if it's hot in the next month, or if 0:10:52.760 --> 0:10:56.200 it's one hot inflation report could kill the entire narrative 0:10:56.200 --> 0:10:58.080 that they will cut this year. So I think that's 0:10:58.120 --> 0:11:00.120 one of the important things to think about is what 0:11:00.200 --> 0:11:02.199 we tend to do from a market strategy point is 0:11:02.280 --> 0:11:05.120 kind of aggregate all the data, scale it compared to 0:11:05.120 --> 0:11:07.480 different countries and which country looks better. Right now, it's 0:11:07.480 --> 0:11:10.280 still very clear that US is slowing, but it's slowing 0:11:10.280 --> 0:11:12.640 from a very hot level, but it's still good and 0:11:12.679 --> 0:11:14.440 it's still better than most of the rest of the world. 0:11:14.440 --> 0:11:17.600 So I still think that's a key consideration that while 0:11:18.440 --> 0:11:20.319 we could move into this inflection point where we go 0:11:20.400 --> 0:11:22.920 from linear to nonlinear, and that's kind of how complex 0:11:22.920 --> 0:11:25.600 systems work, but if it is a linear slow down, 0:11:25.640 --> 0:11:27.959 you're just moving in a direction that markets are already 0:11:27.960 --> 0:11:29.920 prepared for an absolutely price for this year. 0:11:30.040 --> 0:11:32.120 So you don't think that there's a point at which 0:11:32.360 --> 0:11:35.079 the labor market becomes a check on the ultimate read 0:11:35.160 --> 0:11:36.800 that you say is inflation. 0:11:37.320 --> 0:11:39.839 If it's non linear, Yes, But I think the thing 0:11:39.960 --> 0:11:42.360 on the inflation side, as the drivers are coming from 0:11:42.360 --> 0:11:47.600 the supply side, demographics, geopolitics, the changing nature of technology, 0:11:47.880 --> 0:11:50.240 the pricing around those technologies. I think when you think 0:11:50.280 --> 0:11:52.040 about war and some of the things that we've had 0:11:52.080 --> 0:11:54.440 on the energy side, all the things that are happening 0:11:54.440 --> 0:11:57.600 on the supply side have been accelerating through the pandemic. 0:11:57.640 --> 0:12:00.240 But these are things that start in twenty ten. You know, 0:12:00.240 --> 0:12:01.520 if we kind of look at all the you know, 0:12:01.559 --> 0:12:04.280 if we look at like what is happening with globalization 0:12:04.360 --> 0:12:06.720 and what is happening and how that impacts national sovereignty, 0:12:06.720 --> 0:12:09.040 and politics, those things are all moving in a direction. 0:12:09.120 --> 0:12:12.560 Even think about immigration trends. All these things are potential 0:12:12.640 --> 0:12:16.280 drags on the supply side that makes inflation stickier over time, 0:12:16.320 --> 0:12:18.440 which has nothing to do with demand or growth. So 0:12:18.480 --> 0:12:20.920 I think those are things that are happening behind the background. 0:12:21.000 --> 0:12:22.600 The FED has no control over that they have to 0:12:22.600 --> 0:12:24.719 be cognitive of. And also in the next couple of months, 0:12:24.720 --> 0:12:26.800 we're going to see base effects also just push inflation 0:12:26.880 --> 0:12:29.160 higher just naturally from you know, the math of things 0:12:29.160 --> 0:12:32.120 moving around. So those are considerations. I know the market 0:12:32.240 --> 0:12:34.600 is really focused on the growth story, but we're still 0:12:34.720 --> 0:12:37.400 like really focused on the inflation side for the dollar, 0:12:37.520 --> 0:12:38.880 for the market, and for the Fed. 0:12:39.120 --> 0:12:41.080 Tom, Do you agree, yeah, more or less. 0:12:41.120 --> 0:12:42.640 I mean, you know, I think that our views on 0:12:42.640 --> 0:12:43.960 the supply side are very similar. 0:12:44.040 --> 0:12:44.240 You know. 0:12:44.760 --> 0:12:47.360 I've kind of been trying to you know and again 0:12:47.440 --> 0:12:49.920 sort of assessing new normal, like looking at what consumption 0:12:50.000 --> 0:12:52.680 patterns are looking at like and kind of understanding this 0:12:52.840 --> 0:12:55.640 dichotomy of you know, has versus have nuts in the economy. 0:12:56.040 --> 0:12:58.120 You know, I think that there's probably some dynamic where 0:12:58.160 --> 0:13:01.480 you know, we focus all this consumption pattern recognition on 0:13:02.320 --> 0:13:05.720 you know, people traveling entertainment, all these things that are 0:13:05.760 --> 0:13:08.400 really you know, services that are enjoyed by hire income households. 0:13:08.480 --> 0:13:08.640 Right. 0:13:09.520 --> 0:13:10.920 A lot of that happens in the second half of 0:13:10.920 --> 0:13:13.400 the year, right, So like while we've seen growth slow down, 0:13:14.040 --> 0:13:16.880 we could just have all of that activity kind of 0:13:16.920 --> 0:13:18.839 concentrate in the second half, and then we'll see the 0:13:18.920 --> 0:13:22.400 kind of logjam of supply not really being able to 0:13:22.440 --> 0:13:24.760 meet demand in certain sectors. 0:13:24.800 --> 0:13:24.920 Right. 0:13:24.960 --> 0:13:27.079 I think that in the service sector that's going to 0:13:27.160 --> 0:13:29.880 be something that we see consistently over time again for 0:13:30.240 --> 0:13:33.240 many many years. Certainly you see it in the housing sector. 0:13:33.280 --> 0:13:35.920 I mean, like that's probably the best example. I think 0:13:35.960 --> 0:13:38.160 that a lot of folks who've been more sanguine on 0:13:38.160 --> 0:13:39.920 inflation have been expecting that we're going to get some 0:13:40.000 --> 0:13:43.880 delivered disinflation from rent and the or and whatnot. We 0:13:43.920 --> 0:13:45.520 may get that for a short period of time, but 0:13:45.559 --> 0:13:47.640 at the end of the day, we're still very undersupplied 0:13:47.679 --> 0:13:50.960 with shelter, and I don't think that we're you know, 0:13:51.040 --> 0:13:53.839 you can consistently expect that that's going to be something 0:13:53.880 --> 0:13:55.320 that's relatively soft over time. 0:13:55.559 --> 0:13:58.480 Less complicate things, and I mean really complicate things. The 0:13:58.520 --> 0:14:02.000 Anhansis of Goldman with this to say in Centro Portugal. 0:14:02.080 --> 0:14:05.160 I imagine this will get picked up everywhere on Wall 0:14:05.200 --> 0:14:07.080 Street and political circles. 0:14:06.840 --> 0:14:09.280 Maybe much more so. This is what he had to say. 0:14:09.360 --> 0:14:12.800 The Trump proposals coming from the Donald Trump campaign could 0:14:12.880 --> 0:14:16.000 raise the average US tariff rate by sixteen percentage points 0:14:16.040 --> 0:14:19.080 to nearly twenty percent, which would be the highest in 0:14:19.120 --> 0:14:21.760 the post war period. So that's sort of what their 0:14:21.800 --> 0:14:23.920 base case is, and this is what they think the 0:14:23.920 --> 0:14:27.920 implications are for monetary policy hawkish to the tune of 0:14:27.920 --> 0:14:31.040 one hundred and thirty basis points, because the large hawkish 0:14:31.040 --> 0:14:34.720 inflation effect clearly outweighs the smaller dubbish growth effect. At Goldman, 0:14:35.000 --> 0:14:37.680 jan Hatzius is sort of modeling out the potential for 0:14:37.760 --> 0:14:40.560 something like five hikes from the FED based on policy 0:14:41.000 --> 0:14:41.840 from the Trump admin. 0:14:42.000 --> 0:14:42.960 What's your reaction to that? 0:14:43.600 --> 0:14:45.920 So my view has been that if the Fed were 0:14:46.000 --> 0:14:47.840 to have to hike again, they would have to hike 0:14:47.960 --> 0:14:49.920 something like five or six more times. Like one more 0:14:49.960 --> 0:14:52.480 hike wouldn't really do too much, right, If we're pricing 0:14:52.560 --> 0:14:55.160 in one hike, we should price in substantially more. I 0:14:55.200 --> 0:14:58.040 don't necessarily share the view that tariffs should be you know, 0:14:58.080 --> 0:15:01.120 should generate that sort of reaction. Remember even in twenty sixteen, 0:15:01.160 --> 0:15:04.440 twenty seventeen, when Trump was initially putting on his big 0:15:04.480 --> 0:15:07.560 tariffs against China, you know, Yellen's reaction was like, hey, look, 0:15:08.040 --> 0:15:10.800 tariffs increase of price level once, but they don't create 0:15:10.840 --> 0:15:13.560 like an upward slope of prices, right, so it may 0:15:13.560 --> 0:15:17.920 be needed to kind of, you know, maybe offset one 0:15:18.360 --> 0:15:22.720 vector of inflation. But I would be a I would 0:15:22.720 --> 0:15:25.760 be very surprised that Trump actually did imply it, you know, 0:15:26.200 --> 0:15:29.720 put in policy a tariff that was that high. And 0:15:29.760 --> 0:15:33.360 I would be equally surprised if a chair Pale would 0:15:33.400 --> 0:15:34.080 react that way. 0:15:34.320 --> 0:15:36.560 Well, there's a lot of scenario analysis taking place right now, 0:15:36.600 --> 0:15:38.480 Mark work with us. Let's cite that is the assumption, 0:15:38.840 --> 0:15:40.640 and let's cite those policies that delivered. 0:15:40.800 --> 0:15:42.040 Do you think that would be the reaction. 0:15:43.280 --> 0:15:46.600 Well, yeah, that's a very spicy proposal. I think part 0:15:46.600 --> 0:15:48.720 of it is that it's again two sided, like you 0:15:48.760 --> 0:15:51.280 have lots of inflation and the other thing is is 0:15:51.320 --> 0:15:54.360 you are taking away growth. So we are in goldilocks 0:15:54.440 --> 0:15:57.040 right now. Our macro vall models are basically at the 0:15:57.080 --> 0:16:00.320 lowest levels we've seen through the cycle. Carry trade kind 0:16:00.320 --> 0:16:03.240 of incrementally blowing up here or there. But Carrie does 0:16:03.280 --> 0:16:04.200 struggle when you start. 0:16:04.080 --> 0:16:04.960 To see volatility. 0:16:05.280 --> 0:16:07.320 But a big piece of that is if you have 0:16:07.640 --> 0:16:11.480 like essentially growth being taken away from China and Europe 0:16:11.560 --> 0:16:13.440 and even parts of the US, and then you have 0:16:13.560 --> 0:16:15.720 higher inflation, you have the Fed responding to that. The 0:16:15.760 --> 0:16:19.000 initial move is a much stronger dollar. It is a 0:16:19.080 --> 0:16:22.160 complete decimation of goldilocks and a move into a higher 0:16:22.240 --> 0:16:24.880 all environment. So I think the markets are not prepared 0:16:24.880 --> 0:16:26.640 for this at all. And I think that's again you 0:16:26.720 --> 0:16:28.640 come back to like what happened in the debate, and 0:16:28.640 --> 0:16:30.040 then you kind of look at we had the French 0:16:30.040 --> 0:16:32.280 elections over the weekend, which are important, but as soon 0:16:32.320 --> 0:16:34.200 as we got the Supreme Court ruling kind of coming 0:16:34.200 --> 0:16:37.080 out on Bloomberg dollar rallies. So we are like right 0:16:37.120 --> 0:16:40.080 back into the kind of silly season here where every 0:16:40.080 --> 0:16:43.920 headline related to a poll or who's happening? Is Trump leading? 0:16:43.960 --> 0:16:45.880 All these things are going to drive markets now at least, 0:16:46.040 --> 0:16:48.640 if not through the summer September, it's on. So if 0:16:48.640 --> 0:16:52.120 we move into that direction, just the thought or the 0:16:52.200 --> 0:16:55.520 uncertainty of the Fed having to reverse course and actually 0:16:55.520 --> 0:16:59.000 start hiking again will be very bad for risk markets 0:16:59.240 --> 0:16:59.640 either way. 0:16:59.720 --> 0:17:01.920 Tom, And this is something that we keep talking about. 0:17:02.560 --> 0:17:04.960 What does this mean in terms of what the neutral 0:17:05.040 --> 0:17:08.159 rate could potentially be, not just rate hikes, but just 0:17:08.240 --> 0:17:10.879 how far the FED can cut We were talking to Sneldasa, 0:17:11.119 --> 0:17:13.119 She's talking about four to four and a quarter percent. 0:17:13.359 --> 0:17:15.040 So even as we talk about the idea of a 0:17:15.080 --> 0:17:18.520 label market that's normalizing, there is a floor to how 0:17:18.560 --> 0:17:19.280 far they can go. 0:17:19.400 --> 0:17:20.159 Do you agree with that? 0:17:20.280 --> 0:17:20.520 I do. 0:17:20.600 --> 0:17:22.560 Actually, it's more or less right around where I think 0:17:22.600 --> 0:17:24.639 the terminal rate is going to end up, probably sometime 0:17:24.720 --> 0:17:27.359 towards the end of twenty twenty six. I think that 0:17:27.480 --> 0:17:29.239 it's it's something that FED really needs to be very 0:17:29.280 --> 0:17:32.479 careful about. You know, we see more research coming out, 0:17:32.520 --> 0:17:34.320 for instance from John Williams at the New York FED 0:17:34.359 --> 0:17:36.359 just put out another paper this morning saying that, you know, 0:17:36.400 --> 0:17:38.800 he still doesn't think that our star has moved very much, 0:17:39.520 --> 0:17:41.040 you know, I mean, I have to give some difference 0:17:41.040 --> 0:17:42.879 to him. He's spent probably more time than I've been 0:17:42.920 --> 0:17:45.520 alive studying this, so I can't really, you know, say 0:17:45.560 --> 0:17:47.040 that I know more than him. 0:17:46.880 --> 0:17:47.919 But I. 0:17:49.720 --> 0:17:54.840 Well, I d age myself like I like focus on 0:17:54.880 --> 0:17:59.360 me a little bit more so the so fun Yeah, yeah, 0:17:59.600 --> 0:18:03.040 I don't. I think that it's that easy to dismiss 0:18:03.080 --> 0:18:06.119 that we're in the old normal that you know, our 0:18:06.160 --> 0:18:08.040 star is still around two and a half percent. You know, 0:18:08.040 --> 0:18:10.080 it wasn't that long ago that the Fed still thought 0:18:10.080 --> 0:18:12.760 it was, you know, quite a bit higher. So I 0:18:12.800 --> 0:18:15.160 think that if we do get, for instance, another wave 0:18:15.200 --> 0:18:17.680 of terariffs, it really lowers potential growth, and then I 0:18:17.680 --> 0:18:20.960 would be willing to entertain the fact that perhaps we 0:18:21.119 --> 0:18:25.000 are moving to a lower rate environment overall, because it's 0:18:25.280 --> 0:18:28.040 functionally like a tax, right, Like as much as it's 0:18:28.040 --> 0:18:31.800 oh it's you know, tariffs are on the exporting countries. 0:18:32.240 --> 0:18:34.000