1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,200 Speaker 2: Terminal and the Bloomberg Business app. Mohammed's with us around 10 00:00:37,240 --> 00:00:39,239 Speaker 2: the table. Mhammeed caa mornet here. Good morning, John, it's 11 00:00:39,240 --> 00:00:40,280 Speaker 2: going to see I won't ask you if you can 12 00:00:40,320 --> 00:00:42,279 Speaker 2: get an auto loan from Bank for America. I will 13 00:00:42,320 --> 00:00:44,400 Speaker 2: talk to you about what we've been writing about, though extensively, 14 00:00:44,440 --> 00:00:46,120 Speaker 2: and I think the rest of the street is catching on. 15 00:00:46,479 --> 00:00:47,960 Speaker 2: I think the rest of the media is catching on 16 00:00:48,040 --> 00:00:50,280 Speaker 2: as well. The amount of times we've all read articles 17 00:00:50,320 --> 00:00:53,680 Speaker 2: over the last few days talking about US exceptionalism. This 18 00:00:53,720 --> 00:00:55,880 Speaker 2: is something you've been touching on. What are the sources 19 00:00:55,920 --> 00:00:57,960 Speaker 2: of it, Muhammad? And how durable do you think they are? 20 00:00:58,400 --> 00:01:00,560 Speaker 3: I think you have two sets of sources that speak 21 00:01:00,560 --> 00:01:03,880 Speaker 3: to us exceptionalism. One is the inherent attributes of the US. 22 00:01:04,240 --> 00:01:08,480 Speaker 3: It is more flexible, it is benefiting from the higher 23 00:01:08,560 --> 00:01:11,920 Speaker 3: labor force participation, it is more entrepreneurial. And then there's 24 00:01:11,959 --> 00:01:15,040 Speaker 3: a second element, which is policy. It's been running a 25 00:01:15,200 --> 00:01:18,880 Speaker 3: very very loose fiscal policy. We're running deficits of seven 26 00:01:18,880 --> 00:01:23,280 Speaker 3: percent when unemployment is under four percent. That is unthinkable, 27 00:01:23,400 --> 00:01:26,840 Speaker 3: but it's happening. But also importantly, the US is investing 28 00:01:26,840 --> 00:01:30,279 Speaker 3: in the drivers of tomorrow's growth and it's way ahead 29 00:01:30,280 --> 00:01:31,800 Speaker 3: of other countries in that. And I think if you 30 00:01:31,800 --> 00:01:36,280 Speaker 3: put all that together, you get this incredible engine that 31 00:01:36,360 --> 00:01:37,360 Speaker 3: drives exceptionalism. 32 00:01:37,440 --> 00:01:40,240 Speaker 2: How sustainable to youth in the second element is policy. 33 00:01:41,000 --> 00:01:44,880 Speaker 3: So I think it is more sustainable than people realize, 34 00:01:44,920 --> 00:01:47,560 Speaker 3: but there is a limit to it. Look, this can 35 00:01:47,600 --> 00:01:49,960 Speaker 3: be derailed by one of two things. Oil at one 36 00:01:50,040 --> 00:01:54,559 Speaker 3: ten or a FED that's too tight. Those are these 37 00:01:54,600 --> 00:01:57,320 Speaker 3: two things. And if they come together, which is a 38 00:01:57,360 --> 00:02:00,720 Speaker 3: possibility the geopoliticist gets worse, then you could do ail 39 00:02:00,960 --> 00:02:01,520 Speaker 3: US growth. 40 00:02:01,920 --> 00:02:04,480 Speaker 4: You wrote about this just in terms of the pressures 41 00:02:04,640 --> 00:02:06,280 Speaker 4: of what's going on with the Middle East and the 42 00:02:06,280 --> 00:02:09,680 Speaker 4: potential increasing commodity prices on the heels of that. One 43 00:02:09,760 --> 00:02:11,639 Speaker 4: kind of theme we've heard is that Europe will be 44 00:02:11,720 --> 00:02:14,840 Speaker 4: hit much harder than the US. You're saying, maybe so, 45 00:02:15,400 --> 00:02:17,480 Speaker 4: but it doesn't mean that the US is immune. Can 46 00:02:17,520 --> 00:02:18,079 Speaker 4: you elaborate? 47 00:02:18,400 --> 00:02:18,480 Speaker 5: So? 48 00:02:18,560 --> 00:02:21,960 Speaker 3: I think the US dominates in relative space. It dominates 49 00:02:21,960 --> 00:02:25,920 Speaker 3: almost regardless of what the global scenario is. But in 50 00:02:26,080 --> 00:02:30,160 Speaker 3: absolute space, the US has dominated so far, and for 51 00:02:30,240 --> 00:02:33,160 Speaker 3: the US to continue to dominate, we need to avoid 52 00:02:33,440 --> 00:02:36,919 Speaker 3: really high energy prices, and we need to avoid another 53 00:02:36,919 --> 00:02:40,320 Speaker 3: policy mistake, so it will dominate in relative space for 54 00:02:40,360 --> 00:02:41,200 Speaker 3: a very long time. 55 00:02:41,639 --> 00:02:44,160 Speaker 4: This goes to the question that ECB board members were 56 00:02:44,160 --> 00:02:46,240 Speaker 4: talking about, which is that they might not be able 57 00:02:46,280 --> 00:02:49,960 Speaker 4: to cut rates because of geopolitics. Do you think that 58 00:02:50,040 --> 00:02:53,000 Speaker 4: this sort of one two punch is looking more likely 59 00:02:53,200 --> 00:02:55,160 Speaker 4: for the Federal Reserve as well, that they will keep 60 00:02:55,280 --> 00:02:58,880 Speaker 4: rates higher for longer in response to higher commodity prices, 61 00:02:59,240 --> 00:03:02,000 Speaker 4: even at a time of a potential shock that could 62 00:03:02,040 --> 00:03:02,920 Speaker 4: curtail growth. 63 00:03:03,000 --> 00:03:05,000 Speaker 3: So, Lisa, this is a great question because I think 64 00:03:05,120 --> 00:03:08,200 Speaker 3: most people, not everybody, most people on your show have 65 00:03:08,280 --> 00:03:10,960 Speaker 3: now agreed that the last mile of inflation is going 66 00:03:11,000 --> 00:03:14,560 Speaker 3: to be complicated, that inflation's most sticky. Where there's massive 67 00:03:14,600 --> 00:03:18,160 Speaker 3: disagreement is what the FED should do and what the 68 00:03:18,200 --> 00:03:21,880 Speaker 3: FED will do. Right, there's massive disagreement that those who 69 00:03:21,880 --> 00:03:24,640 Speaker 3: think the FED should hike. You had the UBS today 70 00:03:25,080 --> 00:03:29,000 Speaker 3: showing six percent that those who think like me, the 71 00:03:29,040 --> 00:03:32,840 Speaker 3: FED should maintain its course and cut twice this year 72 00:03:32,960 --> 00:03:35,240 Speaker 3: by twenty five basis points. Now, why are we all 73 00:03:35,280 --> 00:03:39,080 Speaker 3: over the place. It's because we disagree on what our 74 00:03:39,160 --> 00:03:42,200 Speaker 3: star is. We disagree on what the white inflation target is, 75 00:03:42,600 --> 00:03:45,040 Speaker 3: and therefore we disagree on how the FED can best 76 00:03:45,080 --> 00:03:48,280 Speaker 3: meet as dual mandate. So this is where it's going 77 00:03:48,320 --> 00:03:51,640 Speaker 3: to play out over the next year. In order to 78 00:03:51,640 --> 00:03:54,360 Speaker 3: predict the FED. If you think that we remain data dependent, 79 00:03:55,040 --> 00:03:58,560 Speaker 3: which they are today because they got so embarrassed by 80 00:03:58,560 --> 00:04:02,400 Speaker 3: what happened twenty twenty one, then the FED will not cut. If, however, 81 00:04:02,640 --> 00:04:06,240 Speaker 3: like me, hope that they will go from excessive data 82 00:04:06,280 --> 00:04:09,720 Speaker 3: dependency to also having a macro framework in their head 83 00:04:09,840 --> 00:04:12,280 Speaker 3: and looking forward, then they would cut. And that's what 84 00:04:12,280 --> 00:04:15,760 Speaker 3: we're going to see play out in the next few months. 85 00:04:15,800 --> 00:04:18,120 Speaker 6: But if they are data dependent and you see inflation, 86 00:04:18,279 --> 00:04:21,240 Speaker 6: we had hot retail sales yesterday, and they do, and 87 00:04:21,279 --> 00:04:24,359 Speaker 6: they do start to get more concerned about inflation. Is 88 00:04:24,400 --> 00:04:27,440 Speaker 6: it not just they're not going to cut like the ubs? Note, 89 00:04:27,480 --> 00:04:28,400 Speaker 6: do you think they could hike? 90 00:04:29,240 --> 00:04:32,159 Speaker 3: Look inflation. If inflation gets much worse, they could hike. 91 00:04:32,360 --> 00:04:35,360 Speaker 3: But I think if they do hike, we're going to 92 00:04:35,440 --> 00:04:37,680 Speaker 3: have a regional banking crisis. We're going to have all 93 00:04:37,760 --> 00:04:41,919 Speaker 3: sorts of damage in the marketplace. And I think that 94 00:04:42,040 --> 00:04:43,800 Speaker 3: is at the back of the head. So I think 95 00:04:43,800 --> 00:04:47,560 Speaker 3: the likelihood of them hiking is low. Is it zero? 96 00:04:47,680 --> 00:04:47,760 Speaker 5: No? 97 00:04:48,200 --> 00:04:48,640 Speaker 3: They could. 98 00:04:48,760 --> 00:04:51,200 Speaker 2: What's the difference between them hiking twenty five basis points 99 00:04:51,200 --> 00:04:52,479 Speaker 2: and just hold them for the rest of the year. 100 00:04:53,040 --> 00:04:55,000 Speaker 2: How big is twenty five basis points? 101 00:04:55,520 --> 00:04:57,679 Speaker 3: The minute that hack twenty five basis points, they open 102 00:04:57,960 --> 00:05:02,320 Speaker 3: the way to hiking more. That's the difference we're going 103 00:05:02,360 --> 00:05:05,520 Speaker 3: to see today. Chair Pal is going to try, I think, 104 00:05:05,560 --> 00:05:08,679 Speaker 3: to do exactly what he did earlier, which is maintained 105 00:05:08,760 --> 00:05:12,560 Speaker 3: maximum optionality. On the one hand, I think he's going 106 00:05:12,600 --> 00:05:15,719 Speaker 3: to basically say the inflation story has not fundamentally changed, 107 00:05:15,720 --> 00:05:18,039 Speaker 3: and he's going to probably use the word fundamentally. On 108 00:05:18,080 --> 00:05:20,760 Speaker 3: the other hand, he's going to say, well, we need 109 00:05:20,800 --> 00:05:23,200 Speaker 3: more evidence to know what we're doing, and he's going 110 00:05:23,240 --> 00:05:25,520 Speaker 3: to keep his options open, and that's what he's going 111 00:05:25,520 --> 00:05:26,480 Speaker 3: to keep doing for a while. 112 00:05:26,520 --> 00:05:28,039 Speaker 2: Is it too early to move away from bumps in 113 00:05:28,040 --> 00:05:29,800 Speaker 2: the road? Three bumps in the road. 114 00:05:30,440 --> 00:05:33,719 Speaker 3: I would have moved away a long time ago, but 115 00:05:35,560 --> 00:05:37,320 Speaker 3: then probably will maintain the bumps in the road. 116 00:05:38,600 --> 00:05:41,159 Speaker 4: You talk about all the disagreements, and I'm still sitting 117 00:05:41,240 --> 00:05:45,599 Speaker 4: here thinking about what fe Williams, New York Fetcher william 118 00:05:45,680 --> 00:05:47,919 Speaker 4: said when he said, you know, we're not really thinking 119 00:05:47,920 --> 00:05:49,800 Speaker 4: about the target. We're just kind of playing it by 120 00:05:49,880 --> 00:05:50,960 Speaker 4: year and taking the data. 121 00:05:51,400 --> 00:05:53,200 Speaker 2: And you talked about how the biggest debate. 122 00:05:53,120 --> 00:05:56,000 Speaker 4: Among you and your colleagues really is where is the endpoint? 123 00:05:56,040 --> 00:05:58,839 Speaker 4: It basically is the destination is the biggest issue. What 124 00:05:58,960 --> 00:06:02,279 Speaker 4: gives you confidence in your goal of the destination that 125 00:06:02,360 --> 00:06:04,600 Speaker 4: makes you think that they should just sort of adopt 126 00:06:04,680 --> 00:06:07,200 Speaker 4: some kind of belief and go with it rather than 127 00:06:07,279 --> 00:06:09,760 Speaker 4: just kind of live in the marass that we're living 128 00:06:09,839 --> 00:06:11,200 Speaker 4: in of just complete confusion. 129 00:06:11,520 --> 00:06:14,240 Speaker 3: So confidence, I don't have, hope I have Okay, I 130 00:06:14,279 --> 00:06:16,400 Speaker 3: mean there's a definitely confidence and hope. You know, they 131 00:06:16,440 --> 00:06:19,560 Speaker 3: do have a deal mandate. They do understand how exceptional 132 00:06:19,680 --> 00:06:24,080 Speaker 3: US economic performance has been. That proud of it, it's incredible. 133 00:06:24,080 --> 00:06:26,560 Speaker 3: I mean, you opened up with how depressing it is 134 00:06:27,120 --> 00:06:29,680 Speaker 3: that we've had two days of massive losses. If I 135 00:06:29,720 --> 00:06:32,760 Speaker 3: had come here in December and said to you all 136 00:06:33,200 --> 00:06:36,720 Speaker 3: the market is going to reprice fed cuts from seven 137 00:06:37,240 --> 00:06:39,840 Speaker 3: to under two and the S and P would be 138 00:06:39,920 --> 00:06:42,240 Speaker 3: up six percent in a prop what would you have 139 00:06:42,240 --> 00:06:45,800 Speaker 3: said to me, you're nuts. Were still up six percent 140 00:06:46,080 --> 00:06:48,680 Speaker 3: on the SNP, right, we were up ten percent in 141 00:06:48,680 --> 00:06:51,839 Speaker 3: the first quarter. So to go back to your question, 142 00:06:51,920 --> 00:06:54,760 Speaker 3: I don't have confidence. I have hope. That's what I have. 143 00:06:54,839 --> 00:06:57,640 Speaker 3: Hope that they'll understand that they need to get away 144 00:06:57,640 --> 00:07:01,360 Speaker 3: from this excessive data dependence. They need to look forward, 145 00:07:01,720 --> 00:07:02,159 Speaker 3: and they. 146 00:07:02,040 --> 00:07:02,800 Speaker 1: Need to have a view. 147 00:07:03,240 --> 00:07:06,360 Speaker 3: You know, they're being pressed hard on tell us what 148 00:07:06,400 --> 00:07:09,040 Speaker 3: you view with and at some point they're gonna have 149 00:07:09,080 --> 00:07:13,040 Speaker 3: to live on that now. You know. President Williams has said, 150 00:07:13,120 --> 00:07:15,040 Speaker 3: you know, think about the target. You're going to hear 151 00:07:15,120 --> 00:07:17,920 Speaker 3: this term longer term. Come in every time to talk 152 00:07:17,960 --> 00:07:21,960 Speaker 3: about the inflation target. Yes, it's our longer term inflation target, yeah, right, 153 00:07:22,440 --> 00:07:24,760 Speaker 3: or medium term inflation target. And that's the way they're 154 00:07:24,760 --> 00:07:26,000 Speaker 3: going to do it. They're not going to come out 155 00:07:26,000 --> 00:07:28,400 Speaker 3: with some massive statement. They're just going to start offer 156 00:07:28,440 --> 00:07:30,720 Speaker 3: skating what exactly is meant by a target? 157 00:07:30,840 --> 00:07:32,680 Speaker 2: Can you imagine if Chairman Pound came out this afternoon 158 00:07:32,720 --> 00:07:35,040 Speaker 2: he said I don't have confidence, I have hope. Can 159 00:07:35,080 --> 00:07:37,160 Speaker 2: you imagine how that would go down with financial markets? 160 00:07:37,160 --> 00:07:39,480 Speaker 4: You know what people would clap, They would say, finally, 161 00:07:39,520 --> 00:07:40,880 Speaker 4: you're telling us of. 162 00:07:40,920 --> 00:07:43,480 Speaker 2: Days type stuff. You know, I don't have confidence, I 163 00:07:43,480 --> 00:07:54,480 Speaker 2: have hope. I'm really close to say that, Johning us. 164 00:07:54,520 --> 00:07:57,520 Speaker 2: Now around the table, it's David Hart, the CEO of PGM. 165 00:07:57,600 --> 00:07:59,800 Speaker 2: David Camonicsy, sir, good morning, it's supposed to be with you. 166 00:08:00,000 --> 00:08:01,480 Speaker 2: Thank you very much for being with us. I want 167 00:08:01,480 --> 00:08:03,240 Speaker 2: to pick up on Shinati's comments at the end that 168 00:08:03,400 --> 00:08:06,000 Speaker 2: the prospective money coming out of money market funds and 169 00:08:06,120 --> 00:08:08,400 Speaker 2: Mike writing gas sway, are you beginning to see that 170 00:08:08,400 --> 00:08:09,040 Speaker 2: trend develop? 171 00:08:09,440 --> 00:08:10,880 Speaker 1: You know, Jath, we are seeing that. 172 00:08:11,280 --> 00:08:13,480 Speaker 7: We've seen that really for the last six months, but 173 00:08:13,520 --> 00:08:16,080 Speaker 7: it's been in small, small pieces. But I do think 174 00:08:16,080 --> 00:08:18,400 Speaker 7: it's beginning to pick up pick up steam. 175 00:08:18,840 --> 00:08:21,240 Speaker 1: And some of the reasons are obvious. You know. 176 00:08:21,320 --> 00:08:25,120 Speaker 7: Certainly, I'm at a higher level of interest rates relative 177 00:08:25,120 --> 00:08:27,240 Speaker 7: to money market funds, and as we begin to see 178 00:08:27,560 --> 00:08:30,880 Speaker 7: rates peak and then decline duration begins to look a 179 00:08:30,880 --> 00:08:33,400 Speaker 7: little bit more more attractive. But there are two other 180 00:08:33,440 --> 00:08:35,840 Speaker 7: things that are going on which are at least as important. 181 00:08:36,240 --> 00:08:39,199 Speaker 7: One is that the big pension funds with higher rates 182 00:08:39,200 --> 00:08:42,560 Speaker 7: are actually better funded and so they actually are using 183 00:08:42,600 --> 00:08:45,040 Speaker 7: this as a chance to de risk, and that means 184 00:08:45,080 --> 00:08:47,360 Speaker 7: for them they are moving money into fixed income. 185 00:08:47,720 --> 00:08:48,720 Speaker 1: And the second is. 186 00:08:48,640 --> 00:08:53,200 Speaker 7: That you know, we have the continued demographic trends going on, 187 00:08:53,240 --> 00:08:55,280 Speaker 7: not just in this country but around the world, and 188 00:08:55,440 --> 00:08:59,240 Speaker 7: retirees need income. So we are in the process now 189 00:08:59,280 --> 00:09:04,000 Speaker 7: of this huge shift from accumulation products to decumulation and 190 00:09:04,040 --> 00:09:07,200 Speaker 7: income products, and those need fixed income. So if you 191 00:09:07,280 --> 00:09:09,680 Speaker 7: take the kind of short term shift, you add to 192 00:09:09,720 --> 00:09:13,080 Speaker 7: them two structural shifts. We think over the next three years, 193 00:09:13,120 --> 00:09:15,160 Speaker 7: we really are going to see bonds are back. 194 00:09:15,360 --> 00:09:17,000 Speaker 2: This sounds like a new regiame. And I'm going to 195 00:09:17,040 --> 00:09:19,080 Speaker 2: give you obtain a bit of a shouts out because 196 00:09:19,120 --> 00:09:21,720 Speaker 2: you're a modest man. My Cullings, Greg paid is rubbitt 197 00:09:21,720 --> 00:09:25,800 Speaker 2: SIP just absolutely phenomenal pre pandemic really defining that bond 198 00:09:25,840 --> 00:09:28,640 Speaker 2: market regime of yester year. Can you talk to me 199 00:09:28,679 --> 00:09:31,200 Speaker 2: about how different this regime is going to be compared 200 00:09:31,240 --> 00:09:31,520 Speaker 2: to that. 201 00:09:31,480 --> 00:09:34,200 Speaker 7: We think it will be different, and you're right, they 202 00:09:34,280 --> 00:09:36,319 Speaker 7: were right on the lower for longer, for quite a 203 00:09:36,360 --> 00:09:39,200 Speaker 7: long time in that, and then more recently our call 204 00:09:39,280 --> 00:09:41,640 Speaker 7: has actually been that we're going to be higher. So 205 00:09:42,000 --> 00:09:44,640 Speaker 7: if you go back six months, we were very early 206 00:09:44,760 --> 00:09:48,440 Speaker 7: to the hey, we're looking at kind of two cuts 207 00:09:48,120 --> 00:09:51,520 Speaker 7: for twenty four when the market was pricing in seven, 208 00:09:52,160 --> 00:09:56,120 Speaker 7: and we held with that view, and the market's. 209 00:09:55,800 --> 00:09:57,720 Speaker 1: Kind of come back to us at this point. 210 00:09:57,800 --> 00:10:02,000 Speaker 7: So we pride ourselves on taking I think, considered non 211 00:10:02,120 --> 00:10:05,559 Speaker 7: consensus views that are long term in nature rather than 212 00:10:05,640 --> 00:10:08,560 Speaker 7: simply trading views. And I think that we've made a 213 00:10:08,679 --> 00:10:11,840 Speaker 7: very good job on those. And I will say that 214 00:10:11,880 --> 00:10:14,320 Speaker 7: in order to do that, you need a culture that 215 00:10:14,400 --> 00:10:19,040 Speaker 7: supports people to take those non consensus views even during 216 00:10:19,080 --> 00:10:19,760 Speaker 7: times when. 217 00:10:19,600 --> 00:10:20,640 Speaker 1: They don't look so ripe. 218 00:10:20,800 --> 00:10:23,360 Speaker 7: And many organizations have a hard time doing that, and 219 00:10:23,559 --> 00:10:25,000 Speaker 7: we're proud of our culture to do it. 220 00:10:25,320 --> 00:10:27,360 Speaker 4: To rip up the script just quickly, because I have 221 00:10:27,480 --> 00:10:29,760 Speaker 4: got Tom Keene's shadow over me and all of these 222 00:10:29,760 --> 00:10:32,800 Speaker 4: banking earnings that come out, with compensation expenses coming up, 223 00:10:32,840 --> 00:10:36,000 Speaker 4: is it getting harder to recruit and keep that kind 224 00:10:36,000 --> 00:10:36,440 Speaker 4: of talent? 225 00:10:37,640 --> 00:10:38,560 Speaker 1: No question, It is. 226 00:10:38,640 --> 00:10:42,640 Speaker 7: I mean, if you look just over the last twenty years, 227 00:10:42,720 --> 00:10:45,840 Speaker 7: you would say that many of the functions and things 228 00:10:45,840 --> 00:10:48,319 Speaker 7: that used to be done in the investment banks are 229 00:10:48,360 --> 00:10:50,200 Speaker 7: now being done on the buy side. I mean, I 230 00:10:50,240 --> 00:10:52,439 Speaker 7: have more than one hundred and thirty credit analysts. 231 00:10:52,480 --> 00:10:55,040 Speaker 1: You would never have seen that before. 232 00:10:55,400 --> 00:10:58,079 Speaker 7: All of that would have been done by Golden Sachs 233 00:10:58,080 --> 00:11:01,000 Speaker 7: and Morgan Stanley and we would have bought research from them. 234 00:11:01,440 --> 00:11:03,320 Speaker 1: So the actual value. 235 00:11:02,960 --> 00:11:07,280 Speaker 7: Chain continues to move from the cell side to the buyside. 236 00:11:07,400 --> 00:11:09,920 Speaker 7: And that's a trend that I don't think is going 237 00:11:09,960 --> 00:11:12,160 Speaker 7: to change, and that of course puts a lot of 238 00:11:12,200 --> 00:11:15,160 Speaker 7: pressure on those of us on the buy side because 239 00:11:15,200 --> 00:11:19,560 Speaker 7: we do need to move our compensation levels up in 240 00:11:19,600 --> 00:11:22,240 Speaker 7: step with that. So the war for talent is very 241 00:11:22,280 --> 00:11:24,320 Speaker 7: real and very practical. 242 00:11:23,840 --> 00:11:24,640 Speaker 1: For us day to day. 243 00:11:24,760 --> 00:11:27,400 Speaker 4: So artificial intelligence, how do you use that? And I'm 244 00:11:27,440 --> 00:11:29,200 Speaker 4: really I'm diverging here. I was going to talk about 245 00:11:29,200 --> 00:11:31,320 Speaker 4: bos being back, but this is fascinating. 246 00:11:30,920 --> 00:11:32,559 Speaker 2: Today talking about Greg paid his bonus. 247 00:11:32,559 --> 00:11:34,880 Speaker 4: Okay, well you can go there next and talk about 248 00:11:34,880 --> 00:11:37,839 Speaker 4: the winebar. But I am curious about this idea of 249 00:11:38,040 --> 00:11:40,959 Speaker 4: how you make things more efficient to reduce costs while 250 00:11:41,040 --> 00:11:45,120 Speaker 4: continuing to prioritize this talent. I mean, how do you 251 00:11:45,160 --> 00:11:46,720 Speaker 4: see that playing out or do you think that some 252 00:11:46,760 --> 00:11:49,880 Speaker 4: of the gains of productivity are overstated and that it 253 00:11:49,920 --> 00:11:52,160 Speaker 4: really just comes down to talent and people who can 254 00:11:52,160 --> 00:11:53,000 Speaker 4: do the job best. 255 00:11:53,840 --> 00:11:56,040 Speaker 7: So I think that we are in the midst of 256 00:11:56,080 --> 00:11:59,680 Speaker 7: a game changer on technology in asset management. Over the 257 00:11:59,760 --> 00:12:04,160 Speaker 7: last decade, technology has mostly been about can we automate things? 258 00:12:04,160 --> 00:12:06,640 Speaker 7: Can we get more efficient at things? And so it 259 00:12:06,679 --> 00:12:10,240 Speaker 7: has been a bit of a cost play. That's not 260 00:12:10,280 --> 00:12:13,959 Speaker 7: where the game is today. Technology now is allowing us 261 00:12:14,000 --> 00:12:16,719 Speaker 7: to move data to the cloud and then to do 262 00:12:16,800 --> 00:12:19,800 Speaker 7: things with artificial intelligence that we never could do before, 263 00:12:20,280 --> 00:12:23,559 Speaker 7: and so it now is actually being used by our investors, 264 00:12:23,559 --> 00:12:26,600 Speaker 7: it's actually being used by the frontline to make decisions. 265 00:12:27,080 --> 00:12:29,840 Speaker 7: That's a very different use of technology that it was before, 266 00:12:29,840 --> 00:12:32,040 Speaker 7: and I think that's very exciting. But it means that 267 00:12:32,080 --> 00:12:34,440 Speaker 7: we are needing to significantly up our game on the 268 00:12:34,520 --> 00:12:37,720 Speaker 7: use of technology and making sure that we're employing some 269 00:12:37,840 --> 00:12:42,240 Speaker 7: of these latest uses of it in our actual investment process, 270 00:12:42,280 --> 00:12:45,160 Speaker 7: as well as trying to get more efficient in some 271 00:12:45,240 --> 00:12:48,439 Speaker 7: of the back office functions. But that's different for the industry. 272 00:12:48,160 --> 00:12:50,439 Speaker 6: So you're saying it's making you more efficient, but not 273 00:12:50,480 --> 00:12:52,800 Speaker 6: that it means you need a leaner team. 274 00:12:53,240 --> 00:12:55,840 Speaker 7: It means that the quality of jobs that we have 275 00:12:55,960 --> 00:12:58,600 Speaker 7: will actually be better because we will take a bunch 276 00:12:58,640 --> 00:13:01,400 Speaker 7: of things that are kind of fairly wrote and we'll 277 00:13:01,440 --> 00:13:04,600 Speaker 7: be able to do that much more efficiently with technology. 278 00:13:04,920 --> 00:13:07,679 Speaker 7: And then we will be able to augment our portfolio 279 00:13:07,800 --> 00:13:12,280 Speaker 7: managers with technology so that they're actually making better investment decisions. 280 00:13:12,280 --> 00:13:14,360 Speaker 7: And that's what they want to focus on anyway. So 281 00:13:14,440 --> 00:13:17,360 Speaker 7: the more I can focus them on the higher value topics, 282 00:13:18,040 --> 00:13:21,360 Speaker 7: the better and happier they are through the use of technology. 283 00:13:21,520 --> 00:13:24,320 Speaker 6: When you look at AI and inflation, well let's come 284 00:13:24,360 --> 00:13:24,880 Speaker 6: back to the US. 285 00:13:25,040 --> 00:13:25,959 Speaker 2: We're coming back to. 286 00:13:26,880 --> 00:13:29,439 Speaker 6: Sorry, that's my view, isn't it an outlook for the 287 00:13:29,840 --> 00:13:33,000 Speaker 6: economy is weak inflation? But is that the rest of 288 00:13:33,040 --> 00:13:35,560 Speaker 6: the economy or also as well in the United States 289 00:13:35,559 --> 00:13:37,199 Speaker 6: where we see continuosly hot day. 290 00:13:37,360 --> 00:13:40,280 Speaker 7: So the big story that I think doesn't really get 291 00:13:40,320 --> 00:13:43,840 Speaker 7: reported enough is that the world has never been, at 292 00:13:43,920 --> 00:13:46,400 Speaker 7: least in the last couple of years, more divergent in 293 00:13:46,440 --> 00:13:50,559 Speaker 7: their views of growth. So spending time in Europe, I 294 00:13:50,600 --> 00:13:53,199 Speaker 7: would say, actually, the UK is in a technical recession 295 00:13:53,240 --> 00:13:53,640 Speaker 7: right now. 296 00:13:53,840 --> 00:13:54,720 Speaker 1: You spend time in. 297 00:13:54,640 --> 00:13:57,520 Speaker 7: Germany, boy, growth is really hard to come by, and 298 00:13:57,520 --> 00:14:01,520 Speaker 7: it's not looking so terrific and continues to be a worry, 299 00:14:01,520 --> 00:14:03,280 Speaker 7: but it's come down a lot and is related to 300 00:14:03,360 --> 00:14:06,640 Speaker 7: mostly to energy prices. You move to the US and 301 00:14:06,720 --> 00:14:09,720 Speaker 7: actually growth is higher than most people thought. Their labor 302 00:14:09,760 --> 00:14:14,800 Speaker 7: market is in excellent shape, and growth appears and productivity 303 00:14:14,800 --> 00:14:16,320 Speaker 7: appears to be better. 304 00:14:16,320 --> 00:14:18,000 Speaker 1: Inflation is higher and rates are higher. 305 00:14:18,920 --> 00:14:22,760 Speaker 7: I just spent last week in Japan, and you know, 306 00:14:22,920 --> 00:14:27,840 Speaker 7: it's fascinating. After literally thirty years of trying to get 307 00:14:27,880 --> 00:14:31,760 Speaker 7: inflation to go again, it's a beautiful spring week. The 308 00:14:31,840 --> 00:14:34,040 Speaker 7: cherry blossoms were out, and there is a spring in 309 00:14:34,040 --> 00:14:38,240 Speaker 7: the Japanese stout. They finally have inflation coming back, They 310 00:14:38,320 --> 00:14:40,960 Speaker 7: have productivity and members that look better, They have some growth, 311 00:14:41,480 --> 00:14:43,960 Speaker 7: and so the stock market is an all time high 312 00:14:44,000 --> 00:14:46,160 Speaker 7: and you feel an optimism in Japan. 313 00:14:46,600 --> 00:14:48,160 Speaker 1: We saw the numbers come out of China. 314 00:14:48,600 --> 00:14:53,000 Speaker 7: So China continues to push on manufacturing in order to get. 315 00:14:52,920 --> 00:14:53,840 Speaker 1: Their economy going. 316 00:14:54,520 --> 00:14:56,760 Speaker 7: I think all of us wish that they had the 317 00:14:56,880 --> 00:15:01,240 Speaker 7: tools to get domestic personal consumption going, because that's really 318 00:15:01,320 --> 00:15:02,640 Speaker 7: the rebalancing that they need. 319 00:15:02,680 --> 00:15:03,440 Speaker 1: In their economy. 320 00:15:03,880 --> 00:15:05,880 Speaker 7: The way they're going right now is just going to 321 00:15:06,080 --> 00:15:09,920 Speaker 7: flood the world with cheaper manufacturing goods, which is, you know, 322 00:15:09,960 --> 00:15:12,920 Speaker 7: maybe going to export deflation back to kind. 323 00:15:12,760 --> 00:15:13,600 Speaker 1: Of five years ago. 324 00:15:14,120 --> 00:15:16,880 Speaker 7: But it's not the balancing that we would hope. And 325 00:15:16,920 --> 00:15:20,320 Speaker 7: I think that if they could get their domestic consumption going, 326 00:15:20,360 --> 00:15:22,400 Speaker 7: it would be good for the Chinese people, good for 327 00:15:22,440 --> 00:15:24,240 Speaker 7: the Chinese economy, and better. 328 00:15:24,000 --> 00:15:24,960 Speaker 1: For the world economy. 329 00:15:25,240 --> 00:15:27,120 Speaker 7: So the reason we come to weakflation to come to 330 00:15:27,160 --> 00:15:30,280 Speaker 7: your question is that the world is very different. But 331 00:15:30,360 --> 00:15:32,760 Speaker 7: when you put all of that together, growth is going 332 00:15:32,800 --> 00:15:35,960 Speaker 7: too slow from what it has been, and we are 333 00:15:36,080 --> 00:15:39,360 Speaker 7: going to have higher inflation we believe for longer and 334 00:15:39,480 --> 00:15:41,840 Speaker 7: higher rates, and that's where you get the weak flation 335 00:15:41,880 --> 00:15:44,400 Speaker 7: piece of it. And it's very different from stagflation, where 336 00:15:44,560 --> 00:15:46,920 Speaker 7: obviously the labor market is in bad shape. We think 337 00:15:46,960 --> 00:15:48,360 Speaker 7: the labor market is pretty strong. 338 00:15:48,560 --> 00:15:50,760 Speaker 2: There's a ton to impact that. I want to unpack 339 00:15:50,800 --> 00:15:52,560 Speaker 2: the China piece of it just a little bit, focus 340 00:15:52,680 --> 00:15:55,400 Speaker 2: on that. That growth model at the moment is controversial. 341 00:15:55,720 --> 00:15:57,920 Speaker 2: It's getting old of the wrong kind of attention from 342 00:15:58,120 --> 00:16:01,240 Speaker 2: policymakers worldwide, particularly here in the United States, and there 343 00:16:01,320 --> 00:16:04,400 Speaker 2: is talk of maybe even more policies going against China 344 00:16:04,400 --> 00:16:06,520 Speaker 2: from the United States. Secretary Evan's been talking about that 345 00:16:06,520 --> 00:16:08,400 Speaker 2: over the last week. Does that make it harder for 346 00:16:08,440 --> 00:16:10,760 Speaker 2: you to run a global business? Is it more difficult 347 00:16:10,800 --> 00:16:11,640 Speaker 2: now than it used to be? 348 00:16:12,280 --> 00:16:13,440 Speaker 1: Yes, it certainly is. 349 00:16:13,480 --> 00:16:15,480 Speaker 7: And I think many of us are headed down to 350 00:16:15,520 --> 00:16:17,320 Speaker 7: the IMF meetings this week, and I think that one 351 00:16:17,360 --> 00:16:20,280 Speaker 7: of the big topics is going to be what are 352 00:16:20,360 --> 00:16:23,800 Speaker 7: the impacts of the new Chinese economy and what will 353 00:16:23,880 --> 00:16:25,560 Speaker 7: the US administration. 354 00:16:25,160 --> 00:16:26,880 Speaker 1: Do in response to that. 355 00:16:27,360 --> 00:16:30,960 Speaker 7: I will say, having spent a week in Japan, that 356 00:16:31,000 --> 00:16:34,280 Speaker 7: the country that is the number one beneficiary of the 357 00:16:34,720 --> 00:16:38,320 Speaker 7: tension between the US and China is Japan. When I 358 00:16:38,400 --> 00:16:41,880 Speaker 7: was there, there were three companies launching new chip manufacturing 359 00:16:41,960 --> 00:16:45,040 Speaker 7: centers there, There was companies that wanted to invest more 360 00:16:45,080 --> 00:16:48,040 Speaker 7: in Japan. And so Japan has actually taken on a 361 00:16:48,160 --> 00:16:51,600 Speaker 7: role in Europe, in Asia and in a Pan Asia 362 00:16:51,720 --> 00:16:54,640 Speaker 7: trade book that they didn't have before. And the other 363 00:16:54,680 --> 00:16:58,080 Speaker 7: thing that's happened is that the security alliances have come together, 364 00:16:58,240 --> 00:17:00,000 Speaker 7: I think faster than any of us would have thought. 365 00:17:00,560 --> 00:17:01,600 Speaker 1: When I spend time with. 366 00:17:01,600 --> 00:17:05,720 Speaker 7: Folks in both the diplomatic and security world. There the 367 00:17:05,800 --> 00:17:09,639 Speaker 7: coming together of Japan, of South Korea, now of the 368 00:17:09,640 --> 00:17:13,040 Speaker 7: Philippines and Australia is creating a stronger. 369 00:17:12,720 --> 00:17:13,879 Speaker 1: Alliance than we had before. 370 00:17:14,200 --> 00:17:18,440 Speaker 7: And so you know, these kinds of reverse powerful impacts 371 00:17:18,440 --> 00:17:20,760 Speaker 7: that we have are hard to predict, but they do 372 00:17:20,880 --> 00:17:22,359 Speaker 7: change those supply changes quite a lot. 373 00:17:22,400 --> 00:17:25,199 Speaker 2: You've mentioned Japan a few times. He visited that it 374 00:17:25,240 --> 00:17:26,800 Speaker 2: was not the business. Then what are you up to 375 00:17:26,880 --> 00:17:27,280 Speaker 2: in Japan? 376 00:17:27,800 --> 00:17:30,200 Speaker 7: So we are one of the largest foreign asset managers 377 00:17:30,680 --> 00:17:36,680 Speaker 7: in Japan. We absolutely believe that it's a critical country. Obviously, 378 00:17:36,720 --> 00:17:39,040 Speaker 7: if you just look at where is the money around 379 00:17:39,080 --> 00:17:41,800 Speaker 7: the world, Japan remains one of the wealthiest and highest 380 00:17:41,840 --> 00:17:45,040 Speaker 7: savings places, so there's a lot of money to manage. 381 00:17:45,040 --> 00:17:46,119 Speaker 2: It's that money coming home. 382 00:17:46,680 --> 00:17:49,359 Speaker 7: So the money is coming home to some extent, but 383 00:17:49,400 --> 00:17:52,000 Speaker 7: also foreign money, as I mentioned, is going in both 384 00:17:52,080 --> 00:17:56,720 Speaker 7: portfolio flows and FDI, which again is a fairly new storage. 385 00:17:57,200 --> 00:18:10,520 Speaker 2: It's a massive change. Apollos Torston slock with this to say, 386 00:18:10,840 --> 00:18:13,800 Speaker 2: the strong tail wind from easy financial conditions continues to 387 00:18:13,800 --> 00:18:17,400 Speaker 2: boost inflation and growth, including consumer spending. In March, given 388 00:18:17,440 --> 00:18:20,080 Speaker 2: the ongoing re acceleration in the economy, the FED will 389 00:18:20,160 --> 00:18:23,639 Speaker 2: not cut interest rates in twenty twenty four, Apollos Torston 390 00:18:23,640 --> 00:18:25,520 Speaker 2: slock Is with this around of table, Torston, it's been 391 00:18:25,560 --> 00:18:27,720 Speaker 2: quite a cool and I imagine you're feeling better about 392 00:18:27,760 --> 00:18:29,800 Speaker 2: that called over the last week or so well. 393 00:18:29,840 --> 00:18:32,160 Speaker 5: I think that what is happening is that when they're 394 00:18:32,160 --> 00:18:34,800 Speaker 5: fit pivoted, after having said for two years rates are 395 00:18:34,800 --> 00:18:37,439 Speaker 5: going up, up, up, now they're actually saying rates are 396 00:18:37,480 --> 00:18:39,240 Speaker 5: going down. And they're still saying rates are going down 397 00:18:39,680 --> 00:18:42,359 Speaker 5: when that change came at the November one FMC meeting. 398 00:18:42,440 --> 00:18:45,679 Speaker 5: Since then, there's some peers up ten trillion dollars. In 399 00:18:45,720 --> 00:18:49,159 Speaker 5: other words, to tailwind to wealth in the household sector, 400 00:18:49,160 --> 00:18:51,840 Speaker 5: the tailwind to wealth for corporates, and therefore the tilwind 401 00:18:51,840 --> 00:18:54,600 Speaker 5: to consumption to capis is really not surprising that non 402 00:18:54,600 --> 00:18:56,520 Speaker 5: found payer rules for the last three months has been strong. 403 00:18:56,600 --> 00:18:59,119 Speaker 5: It's not surprising retails has has been strong, and therefore 404 00:18:59,119 --> 00:19:01,879 Speaker 5: it's also not surprise that inflation has been strong, and 405 00:19:01,920 --> 00:19:04,240 Speaker 5: I think that deal will continue for the next several quarters. 406 00:19:04,320 --> 00:19:06,680 Speaker 2: You're not lonely joining you, I think sock Gen and 407 00:19:06,720 --> 00:19:08,840 Speaker 2: Stephen Gallagher in the last couple of days now saying 408 00:19:08,840 --> 00:19:11,560 Speaker 2: no cuts. In twenty four even mattless Eli, a Deutsche 409 00:19:11,600 --> 00:19:14,680 Speaker 2: Bank saying one cut December. Likewise from Mike Gapano for 410 00:19:14,720 --> 00:19:17,160 Speaker 2: a Bank for America. What's interesting about the way you 411 00:19:17,200 --> 00:19:19,439 Speaker 2: frame it is you put a lot of this on looser, 412 00:19:19,600 --> 00:19:23,520 Speaker 2: easy financial conditions. When you speak to the Fed, they 413 00:19:23,560 --> 00:19:27,760 Speaker 2: say financial conditions are tight, not loose, even with stocks 414 00:19:27,760 --> 00:19:30,320 Speaker 2: close to all time highs and credit spreads really tight. 415 00:19:30,520 --> 00:19:32,680 Speaker 2: So what are you saying that then are So. 416 00:19:32,640 --> 00:19:36,080 Speaker 5: That's really important because that discussion splits into two things. Namely, 417 00:19:36,119 --> 00:19:38,159 Speaker 5: if you look only at rates and the level of 418 00:19:38,200 --> 00:19:40,000 Speaker 5: the FIT funds rate at five and a half, that 419 00:19:40,119 --> 00:19:42,960 Speaker 5: is certainly above most estimates of our star, meaning the 420 00:19:43,000 --> 00:19:46,280 Speaker 5: long run equilibrium interest rate for the economy, which normally 421 00:19:46,400 --> 00:19:47,960 Speaker 5: the FIT would say is two and a half. So 422 00:19:48,040 --> 00:19:51,040 Speaker 5: looking at rates on their own in your old school 423 00:19:51,160 --> 00:19:54,320 Speaker 5: is element models in the economics literature, you will look 424 00:19:54,359 --> 00:19:57,000 Speaker 5: at that and say, hey, you have that exactly. 425 00:19:57,000 --> 00:19:58,080 Speaker 1: Monetary policy is tight. 426 00:19:58,520 --> 00:20:01,600 Speaker 5: But what has happened is that has been completely neutralized 427 00:20:01,600 --> 00:20:04,359 Speaker 5: and offset by the rise in the dark market, the 428 00:20:04,480 --> 00:20:07,960 Speaker 5: rally in IG in high yield and loans, the incredibly 429 00:20:08,000 --> 00:20:10,680 Speaker 5: increase we've seen issuance in ITG also in high yield 430 00:20:10,880 --> 00:20:13,200 Speaker 5: and likewise, IPO and m and a activity coming back. 431 00:20:13,320 --> 00:20:15,520 Speaker 5: So you have on the one hand, yes, it's true 432 00:20:15,560 --> 00:20:18,320 Speaker 5: that your old school textbook model tells you the rates 433 00:20:18,320 --> 00:20:20,600 Speaker 5: are higher than where they will be in the long run. Namely, 434 00:20:20,640 --> 00:20:22,240 Speaker 5: five and a half is bigger than two and a half, 435 00:20:22,359 --> 00:20:24,840 Speaker 5: so that seal shoe policy is tight. But that's completely 436 00:20:24,880 --> 00:20:27,720 Speaker 5: being more than offset by a dramatic tailwind. 437 00:20:27,920 --> 00:20:29,159 Speaker 1: You could call it a sugar. 438 00:20:28,960 --> 00:20:32,480 Speaker 5: High coming from the easy and financial conditions, lifting the 439 00:20:32,560 --> 00:20:36,639 Speaker 5: wealth component for households, that is boosting consumption. Therefore you 440 00:20:36,640 --> 00:20:40,479 Speaker 5: see increases of course in travel, restaurants, airplanes, everything when 441 00:20:40,520 --> 00:20:43,280 Speaker 5: you come to hotels, concerts, sporting events as a huge 442 00:20:43,280 --> 00:20:46,600 Speaker 5: taill with consumer services, and that's why super coinflation is 443 00:20:46,640 --> 00:20:48,520 Speaker 5: accelerating so quickly at the moment. 444 00:20:48,640 --> 00:20:50,720 Speaker 4: Essentially, are you saying that it was a policy error 445 00:20:50,840 --> 00:20:54,679 Speaker 4: for Fetcher Reserve chair Powell to talk about in December 446 00:20:54,760 --> 00:20:56,080 Speaker 4: the potential for cutting rates. 447 00:20:56,119 --> 00:20:58,240 Speaker 5: See, I don't think this was the intention. I think 448 00:20:58,280 --> 00:21:01,480 Speaker 5: the intention was to take the text book out and say, well, 449 00:21:01,520 --> 00:21:04,440 Speaker 5: when we run Tailor rolls and Phillips curve, we get 450 00:21:04,480 --> 00:21:06,680 Speaker 5: that it only is rates as John is saying, that matters, 451 00:21:06,920 --> 00:21:09,600 Speaker 5: and they did not have the intention of lifting financial 452 00:21:09,640 --> 00:21:11,520 Speaker 5: conditions and boosting the stock market as much as they 453 00:21:11,600 --> 00:21:13,920 Speaker 5: remember this. And P is up twenty five percent since 454 00:21:13,920 --> 00:21:15,760 Speaker 5: November the first, and the market cap of this in 455 00:21:15,800 --> 00:21:17,639 Speaker 5: P is about forty four trillion, so that brings us 456 00:21:17,760 --> 00:21:21,359 Speaker 5: roughly around ten eleven trillion additional increase in wealth for 457 00:21:21,400 --> 00:21:23,679 Speaker 5: the household sector. I don't think this was the intention 458 00:21:23,840 --> 00:21:26,159 Speaker 5: to generate this wealth increase. It just happens to be 459 00:21:26,280 --> 00:21:28,800 Speaker 5: what I've described as sugar high that is now lifting 460 00:21:28,840 --> 00:21:31,760 Speaker 5: for several quarters because we can't have this twenty five 461 00:21:32,320 --> 00:21:34,440 Speaker 5: twenty five percent, but for several quarters we'll get that 462 00:21:34,480 --> 00:21:37,440 Speaker 5: tailwind where consumers will say, well, my balance, it looks 463 00:21:37,440 --> 00:21:39,520 Speaker 5: a lot better, probably better than it's done, meaning for 464 00:21:39,560 --> 00:21:42,200 Speaker 5: the household sector, than it's done for a long long time. 465 00:21:42,320 --> 00:21:44,440 Speaker 5: And as a result of that, consumption is getting a 466 00:21:44,520 --> 00:21:46,359 Speaker 5: huge tailwind. As the data yesterday was showing. 467 00:21:46,560 --> 00:21:47,960 Speaker 1: This race is a question. 468 00:21:47,880 --> 00:21:50,879 Speaker 4: Of what happens if the market starts to completely agree 469 00:21:50,880 --> 00:21:53,359 Speaker 4: with you and make in no rate cuts this year. 470 00:21:53,600 --> 00:21:56,160 Speaker 4: Does that curtail some of the sugar high. We're already 471 00:21:56,200 --> 00:21:58,719 Speaker 4: starting to see some people on Wall Street wonder, okay, 472 00:21:58,760 --> 00:22:01,080 Speaker 4: are we going to see yield where they are bite 473 00:22:01,080 --> 00:22:04,520 Speaker 4: into equity valuation slow some of the capital markets activity. 474 00:22:04,920 --> 00:22:06,520 Speaker 1: Do you believe that too? Absolutely? 475 00:22:06,560 --> 00:22:08,679 Speaker 5: So. I do think that the rate hikes that we 476 00:22:08,720 --> 00:22:10,399 Speaker 5: have had, and the five and a half higher than 477 00:22:10,400 --> 00:22:12,879 Speaker 5: two and a half, it is already biting hot on 478 00:22:13,000 --> 00:22:16,720 Speaker 5: highly levered consumer balance sheets, highly levered corporate balance sheets, 479 00:22:16,920 --> 00:22:19,760 Speaker 5: and also hard on banks, in particularly on regional banks. 480 00:22:19,840 --> 00:22:21,760 Speaker 5: So the consequence of this is that we still have 481 00:22:22,200 --> 00:22:25,320 Speaker 5: the negative effects of the transmission mechanism. Margarry policy is 482 00:22:25,320 --> 00:22:28,119 Speaker 5: still working, it's just only working on those balances that 483 00:22:28,200 --> 00:22:30,359 Speaker 5: have a lot of debt. And therefore we are working 484 00:22:30,359 --> 00:22:33,040 Speaker 5: through that process. And as that sugar high starts to fade, 485 00:22:33,040 --> 00:22:35,240 Speaker 5: if the stock market doesn't continue to go up, you 486 00:22:35,240 --> 00:22:37,320 Speaker 5: will eventually get that effect to begin to dominate, and 487 00:22:37,359 --> 00:22:39,800 Speaker 5: that's probably what we get in twenty twenty five, when 488 00:22:39,840 --> 00:22:42,399 Speaker 5: you ultimately will then get the risk of a harder landing. 489 00:22:42,440 --> 00:22:45,080 Speaker 5: But for now, the economy is certainly riding the wave 490 00:22:45,280 --> 00:22:47,800 Speaker 5: of the increase in the stock market and crypture prices 491 00:22:47,800 --> 00:22:50,639 Speaker 5: and home prices and cash flows in fixed income because 492 00:22:50,680 --> 00:22:53,120 Speaker 5: of all in yields being so high, being probably higher 493 00:22:53,119 --> 00:22:55,520 Speaker 5: than they've been for decades, that's very supportive for the 494 00:22:55,520 --> 00:22:56,400 Speaker 5: household balance sheet. 495 00:22:56,440 --> 00:22:58,120 Speaker 2: So just to mind. This really confusing. If we start 496 00:22:58,119 --> 00:23:00,000 Speaker 2: to believe there will be no cuts, that will be cut. 497 00:23:00,560 --> 00:23:03,359 Speaker 5: Well, eventually, the FED has the goal of getting inflation 498 00:23:03,440 --> 00:23:05,239 Speaker 5: back to two percent, and inflation is not a two 499 00:23:05,280 --> 00:23:07,960 Speaker 5: percent If you look at the three month annualized change 500 00:23:08,040 --> 00:23:10,840 Speaker 5: in super COO, inflation is eight percent. So the trend 501 00:23:10,880 --> 00:23:13,560 Speaker 5: in particularly in SUPERCOT is really not the Fed's friend here. 502 00:23:13,760 --> 00:23:15,919 Speaker 5: So the worry is it might take a lot longer 503 00:23:16,040 --> 00:23:18,320 Speaker 5: to get down to two percent, so that fight against 504 00:23:18,359 --> 00:23:20,480 Speaker 5: inflation is not over. And the consequence of that is 505 00:23:20,480 --> 00:23:23,160 Speaker 5: that we may get the market environment for twenty twenty 506 00:23:23,200 --> 00:23:25,679 Speaker 5: two to come back, because in twenty twenty two we 507 00:23:25,760 --> 00:23:28,520 Speaker 5: had stocks down, rates higher, and obviously this was not 508 00:23:28,560 --> 00:23:30,840 Speaker 5: good for markets and for your sixty to forty portfolio, 509 00:23:30,880 --> 00:23:33,280 Speaker 5: and that environment is at risk of coming back if 510 00:23:33,320 --> 00:23:34,720 Speaker 5: we're not done fighting. 511 00:23:34,359 --> 00:23:36,200 Speaker 1: Inflation first, and what about hikes. 512 00:23:36,880 --> 00:23:38,480 Speaker 6: People are actually starting to talk about this. 513 00:23:38,600 --> 00:23:40,520 Speaker 5: I think, and this is of course in your world. 514 00:23:40,520 --> 00:23:43,440 Speaker 5: I think that the ligra of that is still relatively low, 515 00:23:43,640 --> 00:23:47,040 Speaker 5: because there's just so many complications in doing that and 516 00:23:47,080 --> 00:23:49,040 Speaker 5: in saying well, we were wrong and now rates are 517 00:23:49,080 --> 00:23:51,280 Speaker 5: not going down, our rates are going up again. There's 518 00:23:51,320 --> 00:23:53,719 Speaker 5: also some challenges with the basic effas of inflation, some 519 00:23:53,720 --> 00:23:55,879 Speaker 5: more technical things about we got to go with it 520 00:23:55,960 --> 00:23:58,359 Speaker 5: in July, otherwise it'll be in December or next year. 521 00:23:58,560 --> 00:24:00,919 Speaker 5: Because we have the basic fake there's very supportive for 522 00:24:00,960 --> 00:24:03,120 Speaker 5: inflation for the second half of this year. So it's 523 00:24:03,119 --> 00:24:05,520 Speaker 5: also going to be quite challenging for the FIT to 524 00:24:05,600 --> 00:24:07,920 Speaker 5: get all that in place in time to turn things 525 00:24:07,920 --> 00:24:09,600 Speaker 5: around and say maybe we need another high go too. 526 00:24:09,600 --> 00:24:11,840 Speaker 5: I think they were rather from a transmission making this 527 00:24:11,880 --> 00:24:13,920 Speaker 5: in perspective key brates higher for a little bit longer, 528 00:24:13,960 --> 00:24:16,520 Speaker 5: maybe one two quarters, and then achieve their goal of 529 00:24:16,560 --> 00:24:18,320 Speaker 5: getting the economy and inflation to slow down. 530 00:24:18,440 --> 00:24:20,320 Speaker 2: So you don't think if we get too soft prints 531 00:24:20,320 --> 00:24:22,800 Speaker 2: on inflation, we end up with a cut in July. 532 00:24:22,960 --> 00:24:25,280 Speaker 5: See, but I don't see whether those soft friends should 533 00:24:25,280 --> 00:24:27,560 Speaker 5: be coming from retails yes yesterday, I mean super core 534 00:24:27,600 --> 00:24:30,840 Speaker 5: inflation and shelter time inflation is showing signs of coming 535 00:24:30,920 --> 00:24:33,439 Speaker 5: down much slower than what anyone expected. And if I 536 00:24:33,440 --> 00:24:35,920 Speaker 5: look at my Bloomberg screen at ism price is paid, 537 00:24:36,240 --> 00:24:38,320 Speaker 5: you also get that that's also beginning to accelerate. So 538 00:24:38,400 --> 00:24:40,679 Speaker 5: even goods inflation, which went through the roller coaster of 539 00:24:40,760 --> 00:24:43,600 Speaker 5: being no problem, a big problem and no problem again. 540 00:24:43,960 --> 00:24:46,600 Speaker 5: And now goods inflation, including with energy and oil, you 541 00:24:46,720 --> 00:24:49,120 Speaker 5: have that good inflation is at risk of also providing 542 00:24:49,240 --> 00:24:50,080 Speaker 5: some lift to inflation. 543 00:24:50,160 --> 00:24:52,080 Speaker 2: To be honest toast them, was a reaction function question, 544 00:24:52,160 --> 00:24:54,480 Speaker 2: not a forecast question. So let's just assume we do 545 00:24:54,560 --> 00:24:57,240 Speaker 2: get that data. Do two soft prints lead to a 546 00:24:57,280 --> 00:24:59,440 Speaker 2: cut given how much they've seemed to want to cut 547 00:24:59,720 --> 00:25:01,080 Speaker 2: still at the Federal Reserve. 548 00:25:00,840 --> 00:25:02,600 Speaker 5: So let's turn that around and say, if they do 549 00:25:02,720 --> 00:25:04,880 Speaker 5: absolutely want to card in June or July, we will 550 00:25:04,880 --> 00:25:07,600 Speaker 5: need some very very dramatic slow down in inflation in 551 00:25:07,640 --> 00:25:08,360 Speaker 5: the next several months. 552 00:25:08,400 --> 00:25:11,399 Speaker 2: Absolutely, Okay, Tilston, this was great, just really really smart. 553 00:25:11,400 --> 00:25:13,800 Speaker 2: Tolston's slock of Apollo feeling much much better about its 554 00:25:13,840 --> 00:25:16,520 Speaker 2: call for no interest rate cuts in twenty twenty four. 555 00:25:17,640 --> 00:25:21,240 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 556 00:25:21,240 --> 00:25:24,560 Speaker 2: in markets, economics, angiot politics. 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