WEBVTT - Surveillance: Pound Gets Truss-Inspired Boost 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrill and Lisa Brownwitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance and Apple Podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.320 and of course, on the Bloomberg Terminal. John us nas 0:00:29.360 --> 0:00:32.640 been labor global market strategist that eats are open. It's 0:00:32.680 --> 0:00:34.640 your job to tell us how on earth you can 0:00:34.640 --> 0:00:37.199 be bullish in a moment like this. How can you be? 0:00:38.680 --> 0:00:40.760 I think you just answered the question yourself, haven't you. 0:00:41.159 --> 0:00:43.360 When everyone's on this sort of race to the bottom 0:00:43.479 --> 0:00:45.199 of you know, who can get more bearish? You can 0:00:45.240 --> 0:00:48.320 have the more outlandished so forecast. I think I just 0:00:48.360 --> 0:00:51.680 told you where market psychology is right now. You know, sentiment, 0:00:51.800 --> 0:00:55.080 different ways to measure it. It's a global financial crisis. 0:00:55.280 --> 0:00:59.000 Lows um and however bad you think this is, that's 0:00:59.040 --> 0:01:02.120 not it's um. The inflation fever, I think is is 0:01:02.160 --> 0:01:05.559 beginning to is beginning to break. You've got corporate consumers 0:01:05.640 --> 0:01:10.240 that for now are remaining remarkably resilient. It won't last forever, 0:01:10.720 --> 0:01:14.000 but it's it's it's the fact of the matter today, Uh, 0:01:14.120 --> 0:01:16.600 the U. S. Economy is actually re accelerating right now, 0:01:16.760 --> 0:01:20.640 right it's not about to plunge intercession. We're having helping 0:01:20.720 --> 0:01:24.000 jobs reports. We've got gasoline places coming down. The consumer's 0:01:24.000 --> 0:01:27.600 gonna end up with more money in in in their pocket. 0:01:27.600 --> 0:01:29.360 I mean, I could go on and on. I do 0:01:29.480 --> 0:01:32.360 think this is a This is a market which or 0:01:32.920 --> 0:01:36.440 which is talking itself into into a fund and a 0:01:36.440 --> 0:01:38.760 little bit of less bad news, which is all you need. 0:01:39.440 --> 0:01:41.240 I think goes a very long way from here. And 0:01:41.280 --> 0:01:43.600 then the research dum this morning is off the chart. 0:01:43.640 --> 0:01:46.000 And want to congratulate you on your E T F 0:01:46.000 --> 0:01:50.920 and passive investment research pieces just really extraordinary. But I 0:01:51.000 --> 0:01:54.240 gotta stay on markets this morning. Buried in your note 0:01:54.520 --> 0:01:57.600 is a single line that the bond market is speaking. 0:01:57.880 --> 0:02:04.720 The bond market is saying companies are fine. Discuss that. Yeah, 0:02:04.800 --> 0:02:07.040 that's exactly it. I mean, I'm you know, we look 0:02:07.080 --> 0:02:10.240 at earnings, I mean, owning expectations you talked about earlier. Yeah, 0:02:10.240 --> 0:02:12.880 they're falling, but there's still seven eight percent. They're still 0:02:12.960 --> 0:02:16.959 very healthy. Corporate profit margins are Yes, they're falling, but 0:02:16.960 --> 0:02:20.359 they're falling from sort of record levels. The fault rates 0:02:20.480 --> 0:02:23.760 are absolutely you know, record loads. Companies you know used 0:02:23.800 --> 0:02:27.839 the last crisis very well to sort of refinance um 0:02:27.919 --> 0:02:29.920 And that's the message you're getting sort of loud and 0:02:29.960 --> 0:02:33.320 clear from from the corporate bond market. Yes, spreads of widen, 0:02:33.520 --> 0:02:36.120 Yes the week. His companies are finding it difficult to refinance. 0:02:36.480 --> 0:02:40.000 But spreads are very tight versus sort of historical levels. 0:02:40.000 --> 0:02:41.840 And I can think, you know we're talking about I mean, 0:02:42.080 --> 0:02:44.560 I'm the equity guy, but you know you're you're getting 0:02:44.600 --> 0:02:46.600 these messages if you choose to look for them. And 0:02:46.639 --> 0:02:49.360 I'm not sure everybody is that are telling you that 0:02:49.639 --> 0:02:53.240 corporates are I've been very nimble and very resilient, have 0:02:53.760 --> 0:02:55.920 you know to fault rates are low and you know 0:02:56.080 --> 0:02:58.919 there whether they're ready to weather this slowdown that's coming. 0:02:59.160 --> 0:03:00.680 A lot of people are then say that the corporate 0:03:00.680 --> 0:03:03.480 bond market isn't the same weather vain that it used 0:03:03.480 --> 0:03:05.799 to be, simply because of how much company has turned 0:03:05.880 --> 0:03:08.760 out some of their maturities. Looking at the bottom line, 0:03:08.800 --> 0:03:12.119 have we priced in the ramifications for US companies from 0:03:12.200 --> 0:03:15.200 a deep European recession which is becoming the base case 0:03:15.240 --> 0:03:19.840 for an increasing number of Wall Street firms. So what 0:03:19.919 --> 0:03:23.120 happens if you don't get a deep European recession? So, 0:03:23.200 --> 0:03:25.280 I mean, there are no good policy choices in Europe 0:03:25.360 --> 0:03:27.959 right now, But basically every single government is going to 0:03:28.040 --> 0:03:31.720 come out with some got gantuan package to either cut 0:03:31.760 --> 0:03:34.480 break the link between gas prices and ectricity prices or 0:03:34.520 --> 0:03:37.320 cat those prices. What's that going to do? That's going 0:03:37.360 --> 0:03:40.080 to soften the recession through the winter, and that's going 0:03:40.120 --> 0:03:42.840 to bring down inflation. Now, yes, that's gonna store up 0:03:42.880 --> 0:03:45.280 sort of paying for further down, further down the line. 0:03:45.760 --> 0:03:47.440 But I actually think again, and this is sort of 0:03:47.480 --> 0:03:50.880 raised the bottom of market expectations. I think this is 0:03:50.960 --> 0:03:52.800 a wall of money which is coming out. Why it's 0:03:52.800 --> 0:03:54.280 going to do an awful lot to soften that, at 0:03:54.320 --> 0:03:56.480 least in the near term. But man, you're saying that 0:03:56.480 --> 0:03:58.560 basically fiscal support will come in if there is a 0:03:58.600 --> 0:04:00.800 deep recession. Who's going to finance that at a time 0:04:01.000 --> 0:04:05.720 where you already see yields climb. Yeah, absolutely, you'd probably 0:04:05.720 --> 0:04:07.600 climb a little bit further, right, But these are still 0:04:07.680 --> 0:04:11.320 very very low yield by any historical context. And we'll see, 0:04:11.360 --> 0:04:14.520 we'll see how high yields really go if inflation keeps coming. 0:04:14.560 --> 0:04:17.480 If inflation you know, if I'm right that this inflation 0:04:17.520 --> 0:04:21.200 fever is breaking, and inflation starts to come down, and 0:04:21.200 --> 0:04:23.880 and economies keeps softening, we'll see how high bond deals 0:04:23.920 --> 0:04:26.560 really going. Ben later it all right, Thank you, Ben, 0:04:26.600 --> 0:04:35.200 We appreciate your time. We're gonna pause right now. We 0:04:35.279 --> 0:04:37.560 do so with Bruce chasm In, Chief Economists, head of 0:04:37.560 --> 0:04:42.200 Global economic Research for JP Morgan, with so many things 0:04:42.200 --> 0:04:44.760 to talk about in the frame where we are now 0:04:45.320 --> 0:04:48.360 through the litmus paper of the system, which is foreign exchange, 0:04:48.640 --> 0:04:50.880 and Bruce, we hearken back here to all the work 0:04:50.960 --> 0:04:54.679 over more than half a century of mundel Onto. Jacob Frankel, 0:04:54.920 --> 0:04:57.919 of course, was working for JP Morgan for years, and 0:04:57.920 --> 0:05:00.760 then under Ken Rogoff, and then i'd a boost Brus 0:05:00.880 --> 0:05:02.880 Casiman in there as well. So we're gonna talk to 0:05:02.920 --> 0:05:07.279 you this morning about what foreign exchange signals here. What 0:05:07.440 --> 0:05:11.280 does foreign exchange signal and is it the ultimate release 0:05:11.440 --> 0:05:16.360 veilve for these fiscal and monetary stresses. Well, I think 0:05:16.400 --> 0:05:20.400 the simple thing that foreign exchange is is signaling right 0:05:20.440 --> 0:05:22.800 now is that the U. S economy is faring better 0:05:22.839 --> 0:05:24.799 than the rest of the world, and the FED has 0:05:25.000 --> 0:05:27.440 more work to do, so we're seeing the dollar moving up. 0:05:28.279 --> 0:05:32.000 I think what's interesting about the the dynamic and what's 0:05:32.000 --> 0:05:34.440 reflected in FX as we moved from a world where 0:05:34.440 --> 0:05:36.640 in the last two three months we've been worried about 0:05:36.640 --> 0:05:40.240 a US led global recession to now one where the 0:05:40.320 --> 0:05:44.680 combination of European crimes with energy and China weakening is 0:05:44.720 --> 0:05:48.680 now the more significant problem. Dr Kasmin, I know you 0:05:48.720 --> 0:05:51.240 were like me in the basement with your Gilbert Kem 0:05:51.320 --> 0:05:54.200 set long ago. There was logwood and all those other 0:05:54.320 --> 0:05:58.159 little chemistry things we made your Gilbert Kem set. Right 0:05:58.200 --> 0:06:02.200 now is Japan. They are failing in a theory that 0:06:02.320 --> 0:06:05.640 keeps getting tested and tested by the market. When does 0:06:05.680 --> 0:06:11.360 their theory of limiting through bond ill liquidity the rate rise? 0:06:11.720 --> 0:06:16.600 When does that end well? I think the story in 0:06:16.680 --> 0:06:21.160 Japan is interesting because the continued purchases of assets is 0:06:21.240 --> 0:06:27.080 probably uh counterproductive at this point and unsustainable. But the 0:06:27.160 --> 0:06:30.920 dynamic of the bank in Japan letting the inflation story 0:06:31.040 --> 0:06:35.200 run through trying to establish a more sustainable rise in 0:06:35.279 --> 0:06:38.320 inflation makes sense. I think the problem in Japan is 0:06:38.360 --> 0:06:40.640 they're getting stuck in this mode of thing that they 0:06:40.640 --> 0:06:45.040 continue to need to buy assets keep interest rates pegged 0:06:45.960 --> 0:06:49.279 close to zero in a world in which the dynamics 0:06:49.279 --> 0:06:52.120 are really requiring something different. I would like to see 0:06:52.120 --> 0:06:55.120 them move away from y c C targets as tight 0:06:55.160 --> 0:06:58.520 as they are, but keep policy rates unchanged to continue 0:06:58.560 --> 0:07:02.640 to keep the inflation snary dynamic moving through the system 0:07:02.640 --> 0:07:04.840 there in a way that they certainly need. Well, Bruce, 0:07:04.920 --> 0:07:07.120 Japan's an island of its own, both physically as well 0:07:07.160 --> 0:07:09.000 as from monetary policy. The rest of the world is 0:07:09.080 --> 0:07:11.800 hiking rates into weakness, and we are seeing that with 0:07:11.880 --> 0:07:14.280 the Federal Reserve to a lesser degree, but to a 0:07:14.360 --> 0:07:17.200 bigger degree the ECB, which is expected to raise rates 0:07:17.200 --> 0:07:20.360 by seventy five basis points on Thursday. How much are 0:07:20.360 --> 0:07:23.280 we looking at both the fiscal and the monetary impulse 0:07:23.360 --> 0:07:25.920 working against each other and creating a whole lot of 0:07:25.960 --> 0:07:30.640 pain that we're not pricing in. Well, it's an interesting question. 0:07:30.680 --> 0:07:34.360 I think DCB needs to get policy rates towards neutral 0:07:34.440 --> 0:07:37.400 in the world in which they certainly have recession risks, 0:07:37.440 --> 0:07:41.360 but they also have fairly significant inflation concerns. Keeping policy 0:07:41.440 --> 0:07:43.240 rates at zero don't make sense. We think they're going 0:07:43.280 --> 0:07:46.240 to move seventy five basis points. And as you're noting 0:07:46.280 --> 0:07:49.440 the fiscal policy in Europe, and by the way, Europe 0:07:49.480 --> 0:07:53.040 and China are both moving in the other direction supporting growth. 0:07:53.560 --> 0:07:55.520 I think this is the right thing to do against 0:07:55.560 --> 0:07:58.880 the backdrop of what is a huge hit to household 0:07:58.920 --> 0:08:02.560 and in some cases business incomes um. But the consequences 0:08:02.560 --> 0:08:04.600 of that are we believe that the CD is going 0:08:04.640 --> 0:08:07.120 to move policy rates up to something like one and 0:08:07.120 --> 0:08:10.200 a half percent even as the European economy suffers as 0:08:10.200 --> 0:08:12.559 we go through this winter, one and a half percent 0:08:12.600 --> 0:08:15.320 by the end of this year. You're saying, firs, that's correct, yea. 0:08:15.560 --> 0:08:18.840 So let's talk about what kind of downturn we're expecting 0:08:18.920 --> 0:08:21.200 from that. If there is the fiscal support that's helping 0:08:21.240 --> 0:08:24.600 to support the economy, but there needs to be, according 0:08:24.600 --> 0:08:28.360 to certain economic theory, some sort of deceleration activity in 0:08:28.480 --> 0:08:31.760 order to bring inflation under control. What kind of deceleration 0:08:31.880 --> 0:08:35.000 is required, both European wise as well as in the US, 0:08:35.080 --> 0:08:37.800 to bring inflation back to something more like the target 0:08:37.840 --> 0:08:41.120 for central banks. I think that's the rub here, which 0:08:41.160 --> 0:08:43.839 is to say that if we avoid the very damaging 0:08:44.640 --> 0:08:48.600 recession dynamic in which labor markets weaken a lot. The 0:08:48.679 --> 0:08:52.480 combination of tight labor markets, salience which is changing wage 0:08:52.480 --> 0:08:55.480 and price setting process, and some things that are happening 0:08:55.480 --> 0:08:57.360 in the global economy that are not going to return 0:08:57.400 --> 0:09:00.240 to normal suggests to us that you're gonna get inflation 0:09:00.320 --> 0:09:02.199 down quite a bit here, but you're not gonna get 0:09:02.200 --> 0:09:05.600 it down enough. So I don't think we'll move up 0:09:05.600 --> 0:09:08.520 back to seven percent unemployment in the Euro Area, which 0:09:08.559 --> 0:09:11.719 is our forecast with a mild recession. I don't think 0:09:11.720 --> 0:09:14.920 it move up to four percent inflation. Unemployment rates excuse 0:09:14.960 --> 0:09:16.840 me in the US are going to be enough to 0:09:16.880 --> 0:09:19.480 do the job, and I think central banks are starting 0:09:19.480 --> 0:09:22.920 to understand that they're not there yet. But over time, 0:09:22.960 --> 0:09:25.120 I think part of the problem we have is we're 0:09:25.120 --> 0:09:28.679 gonna need much more significant adjustments in labor markets to 0:09:28.720 --> 0:09:33.080 contain inflation. Then, with that said, Brad, excuse me, uh 0:09:33.920 --> 0:09:37.720 Dr kems In With that said, very very important important here. 0:09:38.960 --> 0:09:44.000 Where is where does it become more difficult for central bankers. 0:09:44.080 --> 0:09:46.720 One of my problems is everybody is stressed out about 0:09:46.760 --> 0:09:49.439 the now, and I'm like, wait a minute, the now 0:09:49.640 --> 0:09:52.440 is not the point we're out. There is where the 0:09:52.480 --> 0:09:56.160 stress really comes in for monetary decision is it this 0:09:56.240 --> 0:10:00.240 year next year? Well, I think it comes when polose 0:10:00.280 --> 0:10:03.520 these stances are restrictive and labor markets are turning soft. 0:10:03.600 --> 0:10:05.559 And that's you know, I think one of the interesting 0:10:05.600 --> 0:10:08.880 things in the US right now. Last Friday's report doesn't 0:10:08.920 --> 0:10:11.199 suggest to us that the labor market is soft at 0:10:11.200 --> 0:10:13.920 this point, so the FED doesn't have a really difficult 0:10:14.000 --> 0:10:16.800 choice continuing to move. But once you get policy into 0:10:17.480 --> 0:10:20.360 a restrictive stance, which the c B is far away from, 0:10:20.360 --> 0:10:22.800 but the FED is starting to move towards, and you 0:10:22.880 --> 0:10:25.760 start to see the effects of tight monetary policy and 0:10:25.800 --> 0:10:28.360 other things we can laby markets, that's when the choice 0:10:28.400 --> 0:10:33.000 has become more difficult. We're not there yet for the 0:10:33.000 --> 0:10:34.839 FED in terms of the labor market. We're not there 0:10:34.920 --> 0:10:37.120 yet for the e c B in terms of policy stance. 0:10:37.679 --> 0:10:40.120 I think we get there sometime early next year. And 0:10:40.160 --> 0:10:43.200 that's what I think. You're gonna have more interesting choices 0:10:43.240 --> 0:10:45.280 to be made, more difficult choices to be made. We 0:10:45.320 --> 0:10:47.640 do think the FED is going to stop somewhere close 0:10:47.679 --> 0:10:49.439 to for and we think d CB is gonna stop 0:10:49.440 --> 0:10:51.720 somewhere close to one and a half to take stock 0:10:51.720 --> 0:10:54.880 of what they've done against softening economies. So Bruce, let's 0:10:54.960 --> 0:10:57.720 put some numbers on this. What kind of unemployment rate 0:10:57.720 --> 0:11:01.120 are you expecting that is required to inflation under control 0:11:01.280 --> 0:11:05.120 in the European region as well as in the United States. Well, 0:11:05.200 --> 0:11:07.120 let's just be careful here. I think a move from 0:11:07.160 --> 0:11:10.160 what has been something like nine percent inflation over the 0:11:10.200 --> 0:11:12.800 last year down to four or five that's going to 0:11:12.920 --> 0:11:17.680 happen with energy markets normalizing, with the slowing we've seen 0:11:17.679 --> 0:11:19.920 in global growth, taking goods pressures off. I think you 0:11:19.960 --> 0:11:23.480 get that pretty much without having to do anything. The 0:11:23.559 --> 0:11:26.840 question is getting back down to two. And I think 0:11:26.880 --> 0:11:29.480 in that context, I would argue that you need to 0:11:29.640 --> 0:11:33.200 probably push the US unemployment rate up above five percent 0:11:33.400 --> 0:11:36.040 and probably push the euro are unemployer rate up towards 0:11:36.120 --> 0:11:39.120 eight percent at minimums. And that's not going to happen 0:11:39.200 --> 0:11:43.439 without uh, something that we would naturally call a retrenchment, 0:11:43.480 --> 0:11:47.000 a recession of more magnitude than what we're forecasting, and 0:11:47.040 --> 0:11:49.679 most others are short and Shannow doesn't fit in. That 0:11:49.800 --> 0:11:55.559 doesn't brace short and Shannow recessions. It doesn't. First of all, 0:11:55.559 --> 0:11:58.760 that's hard to achieve. Let's just to to gradually move 0:11:58.800 --> 0:12:01.040 the US unemployer rate up to four percent is something 0:12:01.559 --> 0:12:04.560 which would be hard to do, not not by any 0:12:04.559 --> 0:12:07.800 means impossible, but yeah, I think to get the inflation 0:12:07.840 --> 0:12:11.800 picture back in the bottle with a four percent unemployment rate, 0:12:11.800 --> 0:12:15.640 a very mild subpart growth face, that's not what history 0:12:15.720 --> 0:12:19.280 suggests can really do the job. Recognizing getting down from 0:12:19.360 --> 0:12:21.240 nine is easy, you know, getting from nine to four 0:12:21.320 --> 0:12:23.760 or five, I think that's a done deal, just just 0:12:24.320 --> 0:12:27.680 given where inflation, energy prices are, given what's happening in 0:12:27.679 --> 0:12:32.080 global manufacturing. Brice Casman, Thank you, Brice. Really thoughtful stuff 0:12:32.240 --> 0:12:44.480 from J. K. Morgan Semester. May let me thank you 0:12:44.520 --> 0:12:49.320 for joining us here. Do let's trust face dynamics like 0:12:49.679 --> 0:12:54.280 the United Kingdom face thirty years ago. Well, there's one 0:12:54.640 --> 0:13:00.120 huge difference tone, which is that back in standing as 0:13:00.200 --> 0:13:04.080 part of the European exchange rate mechanism, and that created 0:13:04.240 --> 0:13:06.880 one of these asymmetric bets for drug A, Miller and 0:13:06.920 --> 0:13:11.200 Soros where they knew that sterling was not going to rise. 0:13:11.320 --> 0:13:13.840 It was at the bottom of the permitted band in 0:13:13.840 --> 0:13:16.360 the exchange rate mechanism at the time, and because Britain 0:13:16.400 --> 0:13:18.720 was in the recession, the Bank of England was going 0:13:18.760 --> 0:13:21.319 to keep rates as late as it could get away with, right, 0:13:21.400 --> 0:13:23.559 So if Sterling was to rise a little bit, it 0:13:23.600 --> 0:13:25.719 wouldn't rise more. But if it crashed out of the 0:13:25.920 --> 0:13:29.080 r M, it could go down in one shot. And 0:13:29.120 --> 0:13:33.120 that's what created this totally asymmetric bet. That's why George 0:13:33.120 --> 0:13:35.679 Soros said to drug a miller famously goes to the 0:13:35.800 --> 0:13:38.200 regular on this. Put more money on, more money on. 0:13:38.840 --> 0:13:40.680 And ye know they were both up all night trying 0:13:40.720 --> 0:13:43.720 to find counterparties to put more positions on so that 0:13:43.760 --> 0:13:46.880 they could get that billion daughter profit when Sterling did 0:13:46.880 --> 0:13:50.719 crack this time today, you know the pland floats, it's 0:13:50.760 --> 0:13:56.000 already down a huge amount. It's down to levels, so 0:13:56.280 --> 0:13:59.320 it's adjusted gradually. There isn't one single breaking point, and 0:13:59.360 --> 0:14:02.920 that a very different dynamic. Is a kid Sebastian, you 0:14:03.000 --> 0:14:05.920 live this. Your father was the United Kingdom ambassador of 0:14:06.080 --> 0:14:09.559 Germany and it was a time of Deutsche mark volatility, 0:14:09.679 --> 0:14:12.640 to say the least. Are you looking at the currency 0:14:12.760 --> 0:14:17.239 markets as being the release valve for a system buffeted 0:14:17.280 --> 0:14:20.840 by a war in Ukraine? Yeah, I mean I think 0:14:21.360 --> 0:14:24.400 flexible exchange rates are playing their intended role of being 0:14:24.960 --> 0:14:28.040 shock absorbers right now, the US is in somewhat better 0:14:28.040 --> 0:14:30.200 shape than Europe. Is farther away from Ukraine, it's less 0:14:30.200 --> 0:14:34.040 exposed to the inflation, so the US can have a 0:14:34.080 --> 0:14:40.200 very strong dollar therefore absorbed foreign imports more and that's 0:14:40.200 --> 0:14:42.200 going to be a bit of a benefit for the 0:14:42.240 --> 0:14:44.880 rest of the world. China's in the dumps and so 0:14:45.040 --> 0:14:49.560 it's not playing that role. And meanwhile, Britain, which isn't 0:14:49.560 --> 0:14:54.720 a very weak position because of uncertainty over huge gas 0:14:54.720 --> 0:15:00.400 price rises etan inflation government stacks predicting inflation coming up 0:15:00.800 --> 0:15:04.200 in the UK. So these are dire straits um but 0:15:04.360 --> 0:15:08.440 because sterling has already fallen a lot, it gives some 0:15:08.600 --> 0:15:11.680 release in terms of the stimulus to exports from Britain, 0:15:12.000 --> 0:15:14.480 an attraction for foreigners to come into the UK property 0:15:14.480 --> 0:15:17.320 market because everything is so cheap, and that is somewhat 0:15:17.320 --> 0:15:20.200 of the stabilizing factor. So beastly if you framed these 0:15:20.280 --> 0:15:23.600 numbers yet from less trust a hundred and seventy billion 0:15:24.120 --> 0:15:26.680 sterling to offset some of the energy pain, if you 0:15:26.760 --> 0:15:29.440 thought much about how big that it actually is, the 0:15:29.480 --> 0:15:32.360 scale of that, and what it could mean for respective 0:15:32.400 --> 0:15:35.400 bond markets across Europe. Yeah, I mean, we've come out 0:15:35.440 --> 0:15:39.320 of this, you know, Covidge shock of enormous fiscal response 0:15:39.840 --> 0:15:42.200 to a public health emergency, and now we're going right 0:15:42.240 --> 0:15:45.480 back into a new kind of shock and energy price shark, 0:15:46.480 --> 0:15:49.960 which is going to call forth another round of enormous stimulus. 0:15:49.960 --> 0:15:51.520 I haven't got the numbers in my head as to 0:15:51.560 --> 0:15:54.680 whether this these hundred and something billions that people are 0:15:54.680 --> 0:15:56.440 banding around. We don't know for sure what the numbers 0:15:56.480 --> 0:15:58.480 are going to be yet, because the speech will come 0:15:58.480 --> 0:16:03.320 on Thursday, I believe. But whether it's bigger or smaller 0:16:03.360 --> 0:16:08.240 than the the the COVID fiscal response, I'm not clear, 0:16:08.360 --> 0:16:11.560 but it's it's cumulative. Right, We've already got a position 0:16:11.600 --> 0:16:13.680 of huge public debt because we've come out of covid 0:16:14.480 --> 0:16:16.600 um and now we're going to lay on more. And 0:16:16.680 --> 0:16:18.560 it's not clear what you know, how much the markets 0:16:18.560 --> 0:16:21.280 are wunning to finance now at some price of studying 0:16:21.520 --> 0:16:24.360 depreciates even more. I guess foreigners will come in and 0:16:24.360 --> 0:16:28.160 buy UK assets and plug the funding gap, but it 0:16:28.200 --> 0:16:30.400 may take, you know, an even weak apparent for that 0:16:30.440 --> 0:16:34.040 to happen. Sebastian back in the pandemic policy from fiscal 0:16:34.080 --> 0:16:37.600 authorities and monetary authorities complemented each other. This time it 0:16:37.600 --> 0:16:39.880 feels like it's in conflict. What do you think the 0:16:39.920 --> 0:16:42.800 consequences will be for things like growth inflation with these 0:16:42.840 --> 0:16:46.080 kind of dynamics. Yeah, I mean that's a super important 0:16:46.080 --> 0:16:49.400 point because as you say in COVID, we had the 0:16:49.440 --> 0:16:51.800 ear of magic money as I called it in a 0:16:51.960 --> 0:16:55.320 Foreign Affairs essay, meaning that it was this assumption inflation 0:16:55.640 --> 0:16:57.840 wasn't going to be there, so you could have both 0:16:58.000 --> 0:17:00.840 fiscal and monetary stimulus and you were not afraid of 0:17:00.920 --> 0:17:03.720 being punished in terms of high inflation. Now clearly that's 0:17:03.760 --> 0:17:07.960 totally reversed. How inflation is a reality, so central banks 0:17:08.000 --> 0:17:10.360 have to raise rates. So in a situation where you're 0:17:10.359 --> 0:17:12.359 getting fiscal stillers on the one hand in Europe, but 0:17:12.400 --> 0:17:14.960 at the same time the e CB this Thursday is 0:17:14.960 --> 0:17:17.440 going to raise your interest rates and the Bank of 0:17:17.480 --> 0:17:19.800 England is going to have to tighten too, And so 0:17:20.000 --> 0:17:23.680 you've got, as you say, the two engines putting against 0:17:23.680 --> 0:17:25.520 each other, and that's going to create more of the 0:17:25.600 --> 0:17:29.120 stop start experience and it's going to be tougher. Sebastin, 0:17:29.200 --> 0:17:31.840 do you consider this as a one off winter or 0:17:31.840 --> 0:17:33.760 do we have to gear out for a repeat act 0:17:33.800 --> 0:17:37.360 next year and maybe even a year after that. Well, 0:17:37.440 --> 0:17:40.680 I'm pessimistic in terms of like the geopolitics of the war. 0:17:40.760 --> 0:17:43.560 I do think that neither side has an off ramp. 0:17:43.720 --> 0:17:48.080 Ukraine cannot accept the idea that it lost the territory 0:17:48.080 --> 0:17:51.440 after February in a permanent way, so it's determined to 0:17:51.480 --> 0:17:54.120 win that back. And there have been these atrocious walk 0:17:54.160 --> 0:17:58.600 crimes in Mariopol, and no Ukrainian leader can just say, well, 0:17:58.640 --> 0:18:01.080 that's okay, we're going to Nega. On the other hand, 0:18:01.160 --> 0:18:02.760 Cougon is not the kind of person is going to 0:18:02.840 --> 0:18:06.000 lose face easily. So I think the war, to answer 0:18:06.000 --> 0:18:09.359 that part of the question, could go on indefinitely. It 0:18:09.440 --> 0:18:12.000 could be a very long process. On the other hand, 0:18:12.320 --> 0:18:14.520 we'll have to remember that with the inflation shot the 0:18:14.600 --> 0:18:16.880 results from the war, you do get these base effects. 0:18:16.880 --> 0:18:19.919 So the first round is that you know, energy prices 0:18:19.960 --> 0:18:23.680 spike up, that creates inflation, but they're not going to 0:18:23.800 --> 0:18:26.480 spike out further from the spike. At some point. Indeed, 0:18:26.560 --> 0:18:28.520 we've seen that in markets they start to come back down. 0:18:28.960 --> 0:18:31.480 So because of these base effects, I don't think inflation 0:18:31.680 --> 0:18:35.320 isn't ongoing double winter kind of problem. Sebastian, this was 0:18:35.320 --> 0:18:37.560 a clinic and it's a conversation we need to continue 0:18:37.640 --> 0:18:40.160 very soon. Sebasti, Manity, there are they cancel on foreign 0:18:40.160 --> 0:18:53.760 relations right now? Victoria Green joins his chief investment officer, 0:18:53.880 --> 0:18:56.080 g Squired Private Wealth, and what we're gonna do here 0:18:56.160 --> 0:18:58.440 is dive into the idea of what do you actually 0:18:58.560 --> 0:19:02.800 do how do you effect investment given all of the 0:19:02.840 --> 0:19:07.080 turmoil that's out there? Victoria? How valuable is cash right now? 0:19:08.440 --> 0:19:10.840 Cash is good. I'd rather set in a very ultrashort 0:19:10.880 --> 0:19:13.199 T bill somewhere between zero and six months. You know, 0:19:13.280 --> 0:19:15.440 you're getting on a six months T bill now, which 0:19:15.440 --> 0:19:18.119 has very limited duration or price risk. You're getting a 0:19:18.160 --> 0:19:20.760 three point one three point two percent as this front 0:19:20.840 --> 0:19:23.360 end comes up. Yes, if you look on a real basis, 0:19:23.359 --> 0:19:26.600 you're still losing versus inflation. But park it somewhere safe, 0:19:26.760 --> 0:19:28.840 and we do think cash is an allocation. Isn't a 0:19:28.920 --> 0:19:31.280 best bad place to be. You know one thing we 0:19:31.320 --> 0:19:34.479 do always advise, even when things feel very dark, panic 0:19:34.600 --> 0:19:38.119 is never a good investment strategy. And it's funny, you 0:19:38.160 --> 0:19:41.160 have very very smart people that that when we start 0:19:41.200 --> 0:19:44.320 to see these losses pile on, they just can't take it. 0:19:44.720 --> 0:19:47.520 Let me announce a victoria with you. My theme of 0:19:47.600 --> 0:19:51.320 the next ninety days in investment, which is something I 0:19:51.400 --> 0:19:54.280 heard in the dregs of August, which is trying to 0:19:54.320 --> 0:19:58.840 find scale. You and I have three or four good ideas, 0:19:58.880 --> 0:20:02.480 but it's so hard out to get scale in investment, 0:20:02.840 --> 0:20:06.080 to get belief across X number of equities, to get 0:20:06.160 --> 0:20:10.160 belief across different portfolios. How do you get scale if 0:20:10.160 --> 0:20:13.320 you've got a fair amount of money, Well, what you 0:20:13.359 --> 0:20:14.840 wanna do is is you want to be in the 0:20:14.920 --> 0:20:17.480 right places. You know. I don't think diversification is dead, 0:20:17.520 --> 0:20:19.680 though I think it is amusing every time we see 0:20:19.720 --> 0:20:22.240 stress and volatility. You know, the fixes remained low, but 0:20:22.280 --> 0:20:24.720 we saw us it's become correlated. And honestly, I think 0:20:24.720 --> 0:20:27.200 it was the fixed income that's surprised everybody this year. 0:20:27.400 --> 0:20:29.639 But I do think when you're looking at investing, you 0:20:29.680 --> 0:20:31.320 don't want to just say I'm gonna put a little 0:20:31.359 --> 0:20:33.280 bit and everything, because there are markets that are gonna 0:20:33.280 --> 0:20:35.640 do a little bit better than others. Right now, we're 0:20:35.680 --> 0:20:38.320 not very bullish on Europe or the UK. No offense, John, 0:20:38.520 --> 0:20:40.560 but there's a bit of a hut. All they have 0:20:40.680 --> 0:20:42.800 the they have the work on over there, So I 0:20:42.880 --> 0:20:45.480 prefer to be like, let's be a little more concentrated 0:20:45.600 --> 0:20:49.000 US blue chips, value dividends. Put your stocks where you're 0:20:49.040 --> 0:20:51.720 gonna have a little bit of a bunker mentality, and 0:20:51.720 --> 0:20:53.920 then work your way back out into risk. We're never 0:20:53.960 --> 0:20:55.720 black and white. We're not a hedge fund. We're not 0:20:55.760 --> 0:20:58.679 trying to long short and trade every single day. But 0:20:58.760 --> 0:21:00.360 if you were to look at the world, I'd say 0:21:00.359 --> 0:21:02.680 I would bunker in quality. I'd make sure you understand 0:21:02.760 --> 0:21:05.159 everything you own and what kind of risk you have 0:21:05.240 --> 0:21:08.200 in your portfolio, and then understand your time frame as 0:21:08.200 --> 0:21:11.400 an investor, because if you can wait it out six months, 0:21:11.400 --> 0:21:13.960 twelve months, it's going to be okay. It's just you 0:21:14.000 --> 0:21:16.800 have to emotionally get ready that maybe you shouldn't look 0:21:16.800 --> 0:21:20.480 at it every day, and then definitely don't panic. And honestly, 0:21:21.080 --> 0:21:24.040 uh panic is one of the biggest risk to investors 0:21:24.119 --> 0:21:25.960 right now. Let's say we go down four weeks in 0:21:25.960 --> 0:21:28.680 a row. Let's say we retest our thirty six hundred lows. 0:21:28.960 --> 0:21:31.359 Do you have the courage and conviction to hang onto 0:21:31.359 --> 0:21:33.800