1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 2 00:00:09,200 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jay Lee. We bring 3 00:00:13,119 --> 00:00:17,119 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,239 --> 00:00:23,320 Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:29,840 Speaker 1: dot Com, and of course on the Bloomberg terminal. Now 6 00:00:29,960 --> 00:00:32,040 Speaker 1: you've looked at the same economics, I tea thoughts what 7 00:00:32,040 --> 00:00:34,479 Speaker 1: you're saying on the blame bag. Well, I mean, one 8 00:00:34,479 --> 00:00:37,199 Speaker 1: of the reasons why inventories fell in October, for at 9 00:00:37,200 --> 00:00:40,520 Speaker 1: the retail level, is because we had a absolute blowout 10 00:00:40,600 --> 00:00:43,800 Speaker 1: in retail sales. So think about what the inventory to 11 00:00:43,840 --> 00:00:46,199 Speaker 1: sales ratio is looking like in the retail sector. I'm 12 00:00:46,240 --> 00:00:48,960 Speaker 1: guessing lower. So I guess you know. One of the 13 00:00:48,960 --> 00:00:52,239 Speaker 1: ways that a recession works is through some element of surprise. 14 00:00:52,520 --> 00:00:55,400 Speaker 1: Companies think that things will be okay. Then something bad happens. 15 00:00:55,400 --> 00:00:58,040 Speaker 1: They have to clear out inventories and they're hiring and 16 00:00:58,440 --> 00:01:01,160 Speaker 1: adjust their capex plans and so forth. But what if 17 00:01:01,280 --> 00:01:03,880 Speaker 1: the what if the process works in reverse? What if 18 00:01:03,880 --> 00:01:07,520 Speaker 1: company We've been talking about recession what since June of 19 00:01:07,600 --> 00:01:11,600 Speaker 1: this year and companies have been adjusting to some extent. 20 00:01:11,640 --> 00:01:14,800 Speaker 1: I mean, inventories have been being paired back, capex has 21 00:01:14,840 --> 00:01:20,080 Speaker 1: been slaming somewhat um and what if they're surprised the 22 00:01:20,120 --> 00:01:22,640 Speaker 1: other way? Now, what if growth is accelerating and the 23 00:01:22,680 --> 00:01:25,120 Speaker 1: recession they anticipated didn't happen. So let's get a teeth 24 00:01:25,160 --> 00:01:27,399 Speaker 1: into twenty three. What we're really discussing here is what 25 00:01:27,520 --> 00:01:29,440 Speaker 1: is wrong about a consensus. Deutsche Bank came out a 26 00:01:29,440 --> 00:01:31,120 Speaker 1: little bit earlier this morning. I'll share this quote with 27 00:01:31,120 --> 00:01:33,080 Speaker 1: everyone who might have missed it a little bit earlier. 28 00:01:33,200 --> 00:01:35,600 Speaker 1: It's worth remembering that exactly a year ago, markets were 29 00:01:35,640 --> 00:01:38,559 Speaker 1: pricing a fat funds rate of zero point six eight percent. 30 00:01:38,560 --> 00:01:41,000 Speaker 1: By the end of twenty two, economists had CPI at 31 00:01:41,000 --> 00:01:43,960 Speaker 1: two point six percent. Given the huge forecasting miss over 32 00:01:44,000 --> 00:01:46,720 Speaker 1: the last twelve months, it's remarkable how settled the consensus 33 00:01:46,880 --> 00:01:51,040 Speaker 1: is around a terminal rate of five percent. Their question, 34 00:01:51,160 --> 00:01:53,920 Speaker 1: I think, is your question? Should we be questioning five 35 00:01:54,680 --> 00:01:57,520 Speaker 1: a whole lot more? Yeah? I think there is reskewed 36 00:01:57,560 --> 00:01:59,560 Speaker 1: to the upside. I mean, when Chair Powell tells you 37 00:01:59,640 --> 00:02:03,240 Speaker 1: that doesn't know what the path for rates will be, 38 00:02:03,320 --> 00:02:04,960 Speaker 1: he just knows that it will be enough. I think 39 00:02:04,960 --> 00:02:06,480 Speaker 1: you have to take that as a signal that they're 40 00:02:06,480 --> 00:02:09,000 Speaker 1: willing to do more rather than less. And if real 41 00:02:09,040 --> 00:02:11,799 Speaker 1: economic growth is accelerating, which I believe it is at 42 00:02:11,800 --> 00:02:17,000 Speaker 1: the moment, then that puts pressure on resource capacity and 43 00:02:17,600 --> 00:02:19,880 Speaker 1: that in turn puts upward pressure on prices. So a 44 00:02:19,960 --> 00:02:22,840 Speaker 1: lot of the things that people are talking about, um, 45 00:02:22,880 --> 00:02:25,720 Speaker 1: you know, with respect to some of these bull whip effects, Um, 46 00:02:25,760 --> 00:02:29,560 Speaker 1: you know, in household durable goods that could prove transitory. 47 00:02:30,320 --> 00:02:32,600 Speaker 1: So um, you know, I hate to use that word, 48 00:02:32,639 --> 00:02:34,320 Speaker 1: but that that's sort that's sort of where I come 49 00:02:34,360 --> 00:02:36,760 Speaker 1: down on this. I mean, ultimately, Um, you know, people 50 00:02:36,760 --> 00:02:39,239 Speaker 1: look at what's going on with with with car prices 51 00:02:39,320 --> 00:02:42,960 Speaker 1: and prices for household durables. Uh, they're coming down, Okay, 52 00:02:43,000 --> 00:02:45,079 Speaker 1: rents are coming down, But if aggregant incomes are still 53 00:02:45,080 --> 00:02:47,359 Speaker 1: growing at a healthy paste, all that's doing is freeing 54 00:02:47,440 --> 00:02:50,600 Speaker 1: up people to go spend money somewhere else. And you know, 55 00:02:50,639 --> 00:02:53,200 Speaker 1: if savings doesn't really go up, then that's going to 56 00:02:53,320 --> 00:02:55,120 Speaker 1: drive up the prices for the goods and services that 57 00:02:55,160 --> 00:02:57,040 Speaker 1: they start to spend their money on. If you're bullish 58 00:02:57,080 --> 00:02:59,760 Speaker 1: on the economy, does that mean you're bullish for risk? 59 00:02:59,800 --> 00:03:02,920 Speaker 1: Ass it's for next year? No, I don't think so. 60 00:03:03,520 --> 00:03:06,120 Speaker 1: I think that we're probably in for a period of 61 00:03:06,480 --> 00:03:09,720 Speaker 1: below trend returns in the equity markets. So part that 62 00:03:09,840 --> 00:03:11,440 Speaker 1: out to this idea that we're going to see better 63 00:03:11,480 --> 00:03:14,720 Speaker 1: than expected growth in yours in your estimation, that you're 64 00:03:14,720 --> 00:03:19,079 Speaker 1: seeing ongoing resilience, that that's bad news. Well, I'm I 65 00:03:19,120 --> 00:03:20,920 Speaker 1: don't want to fight the FED, right, I mean, you 66 00:03:20,960 --> 00:03:23,640 Speaker 1: know it's it's it's it's it's it's um It's very 67 00:03:23,680 --> 00:03:25,440 Speaker 1: amusing though some of so many of the people that 68 00:03:25,560 --> 00:03:27,920 Speaker 1: you know following the financial crisis, Oh, the FED is 69 00:03:27,960 --> 00:03:30,639 Speaker 1: just driving off stocks and you know it's the balance. Well, 70 00:03:30,720 --> 00:03:32,360 Speaker 1: like now, if you don't want to fight the FED, 71 00:03:33,160 --> 00:03:37,400 Speaker 1: that means you should be cautious on stocks. I looked 72 00:03:37,440 --> 00:03:40,120 Speaker 1: Neil at the math here on the second look GDP, 73 00:03:40,240 --> 00:03:42,840 Speaker 1: and let's call it, and this is completely amateur, folks. 74 00:03:43,360 --> 00:03:46,200 Speaker 1: We had a real GDP two point nine price index 75 00:03:46,200 --> 00:03:48,080 Speaker 1: of four point whatever percent and we come out to 76 00:03:48,160 --> 00:03:51,720 Speaker 1: some form of nominal spirit of seven point two percent. 77 00:03:52,160 --> 00:03:54,200 Speaker 1: We finally got a risk free rate where you know, 78 00:03:54,240 --> 00:03:58,520 Speaker 1: money actually is not free anymore. Do we adapt? How 79 00:03:58,560 --> 00:04:01,080 Speaker 1: do we adjust to going back to what we knew 80 00:04:01,320 --> 00:04:06,760 Speaker 1: decades low, decades ago? With a substantial nominal GDP money 81 00:04:06,760 --> 00:04:09,800 Speaker 1: now actually costs something, and I don't send any gloom 82 00:04:09,840 --> 00:04:15,560 Speaker 1: from you will be fine, right Well, I I don't know. 83 00:04:15,680 --> 00:04:17,920 Speaker 1: I mean I think that, I mean, I think my 84 00:04:18,000 --> 00:04:20,080 Speaker 1: view is that if you're thinking about the next two 85 00:04:20,279 --> 00:04:24,160 Speaker 1: three years, UM, we will probably have a we need 86 00:04:24,200 --> 00:04:26,200 Speaker 1: a period I think of below trend growth to ring 87 00:04:26,240 --> 00:04:28,520 Speaker 1: the inflation out of the system. Right so, even though 88 00:04:28,520 --> 00:04:31,400 Speaker 1: we may be accende real g d P yeah, most 89 00:04:31,440 --> 00:04:34,400 Speaker 1: likely faroly over JP Moor and John is like even 90 00:04:34,560 --> 00:04:36,400 Speaker 1: lower than that as a run rate, I'm not gonna 91 00:04:36,400 --> 00:04:39,400 Speaker 1: see at a point four twenty three. But the question 92 00:04:39,480 --> 00:04:43,400 Speaker 1: is the question is I mean, forecasting out twelve eighteen 93 00:04:43,400 --> 00:04:46,320 Speaker 1: months is difficult. What I have more confidence in is 94 00:04:46,360 --> 00:04:49,719 Speaker 1: what's happening right now. And right now, you know, even 95 00:04:49,760 --> 00:04:52,120 Speaker 1: if you believe that we see some below trend growth 96 00:04:52,160 --> 00:04:54,000 Speaker 1: for a longer period of time, right now things are 97 00:04:54,000 --> 00:04:57,039 Speaker 1: looking a little bit better. And so I think that's 98 00:04:57,040 --> 00:04:59,760 Speaker 1: really the tension. When they started talking about non convertible 99 00:04:59,839 --> 00:05:01,680 Speaker 1: that what do you hear when you see that in 100 00:05:01,680 --> 00:05:04,520 Speaker 1: a statement? Because we had a story of two parts 101 00:05:04,600 --> 00:05:06,920 Speaker 1: around the last fat decision. You have a statement, Then 102 00:05:06,920 --> 00:05:08,600 Speaker 1: you had the news conference can you walk us through 103 00:05:08,600 --> 00:05:10,800 Speaker 1: how you interpreted the statement in that line which many 104 00:05:10,839 --> 00:05:12,880 Speaker 1: people a tribute today. I think I think the Doves 105 00:05:12,920 --> 00:05:15,000 Speaker 1: made a great trade. I mean, if you're sitting around 106 00:05:15,000 --> 00:05:19,160 Speaker 1: the farm c table and you're layle brainerd you got 107 00:05:19,240 --> 00:05:21,960 Speaker 1: them to codify that into the statement in exchange for 108 00:05:22,000 --> 00:05:25,120 Speaker 1: them to say something about neutral interest rates and you know, 109 00:05:25,200 --> 00:05:28,400 Speaker 1: sound puffing their chest at the press conference. And but 110 00:05:28,520 --> 00:05:30,800 Speaker 1: that's all later. That's like five six months from now. 111 00:05:30,839 --> 00:05:32,760 Speaker 1: Lots of things can change, the data can go their 112 00:05:32,800 --> 00:05:35,640 Speaker 1: way in the Dove's way, So you're trading the certainty 113 00:05:35,640 --> 00:05:39,080 Speaker 1: of stepping down to fifty basis points now in exchange 114 00:05:39,080 --> 00:05:41,800 Speaker 1: for the uncertainty around what neutral rates maybe. And so 115 00:05:41,880 --> 00:05:44,800 Speaker 1: in my in my in my view, even though um, 116 00:05:44,839 --> 00:05:48,200 Speaker 1: you know the that was a down day for markets 117 00:05:48,200 --> 00:05:50,640 Speaker 1: and financial conducis titans, so the hawks looked like they 118 00:05:50,640 --> 00:05:53,160 Speaker 1: may have one, I think actually the Doves played their 119 00:05:53,160 --> 00:05:56,480 Speaker 1: hand pretty well. And and I think that's again that's 120 00:05:56,480 --> 00:05:58,560 Speaker 1: part of the problem that it's it's too soon for 121 00:05:58,560 --> 00:06:00,720 Speaker 1: the Doves to be winning any of these debates. This 122 00:06:00,760 --> 00:06:02,440 Speaker 1: is the reason why there's so many people who still 123 00:06:02,440 --> 00:06:04,280 Speaker 1: believe that the FED is going to not raise rates 124 00:06:04,279 --> 00:06:06,560 Speaker 1: to the point that you're saying that that perhaps five 125 00:06:06,920 --> 00:06:09,440 Speaker 1: will be the ceiling, and that they could even start 126 00:06:09,480 --> 00:06:12,839 Speaker 1: cutting rates next year. What gives you confidence that the 127 00:06:12,920 --> 00:06:15,600 Speaker 1: Doves aren't going to win another trade, that they aren't 128 00:06:15,600 --> 00:06:18,320 Speaker 1: going to make something else? That really complicates the message 129 00:06:18,320 --> 00:06:20,360 Speaker 1: when you say don't fight the Fed. Is I think 130 00:06:20,360 --> 00:06:22,919 Speaker 1: the data the data will make it. I mean to me, 131 00:06:23,000 --> 00:06:24,839 Speaker 1: the data will not make it tenable for them to 132 00:06:24,880 --> 00:06:27,680 Speaker 1: make their case for cuts because the unemployment rate would 133 00:06:27,720 --> 00:06:30,040 Speaker 1: not have gone up enough in order to justify that outcome. 134 00:06:30,440 --> 00:06:32,840 Speaker 1: And you know, look, look at what's already happening. I mean, 135 00:06:32,880 --> 00:06:35,920 Speaker 1: interest rates down. Oh, look what's happening. Purchase applications going 136 00:06:36,000 --> 00:06:39,440 Speaker 1: up for more, mortgage demand is rising, um, the dollars 137 00:06:39,440 --> 00:06:41,680 Speaker 1: going down. Have you looked at the performance of industrial 138 00:06:41,720 --> 00:06:45,400 Speaker 1: stocks lately? Global growth may well be picking up next year. 139 00:06:45,440 --> 00:06:47,520 Speaker 1: What do you think that? What do you think that's 140 00:06:47,520 --> 00:06:51,440 Speaker 1: going to mean for US manufactured exports? So what if 141 00:06:51,480 --> 00:06:54,680 Speaker 1: companies are done with inventory adjustment and so? Do you 142 00:06:54,800 --> 00:06:58,560 Speaker 1: not share the housing gloom that's out there? It's tangible? No, 143 00:06:58,720 --> 00:07:01,680 Speaker 1: I mean, look, the housing market is the one area 144 00:07:01,720 --> 00:07:03,920 Speaker 1: where the FEDS policies has gotten a lot of traction. 145 00:07:04,839 --> 00:07:10,120 Speaker 1: But now, uh, interest rates have come down a little bit, 146 00:07:10,160 --> 00:07:13,560 Speaker 1: and that's unlocking some activity. And up is ultimately up. 147 00:07:13,560 --> 00:07:15,000 Speaker 1: I mean this is one of these arguments, Oh, look 148 00:07:15,000 --> 00:07:17,000 Speaker 1: at new home sales. It's all about cancelations. I mean, 149 00:07:17,040 --> 00:07:18,720 Speaker 1: give me a break. I mean, up is up. The 150 00:07:18,760 --> 00:07:22,440 Speaker 1: fact that the fact that people are signing new home 151 00:07:22,520 --> 00:07:26,240 Speaker 1: sales up. No home, new home sales are booked when 152 00:07:26,240 --> 00:07:28,560 Speaker 1: a contract is signed. Are people not knowing what the 153 00:07:28,600 --> 00:07:31,240 Speaker 1: interest rate is when they signed that contract. The fact 154 00:07:31,280 --> 00:07:33,360 Speaker 1: that they're signing the contract knowing what the rates are 155 00:07:33,440 --> 00:07:35,520 Speaker 1: is a sign of confidence in and of itself. If 156 00:07:35,520 --> 00:07:37,560 Speaker 1: you look at the last Conference Sports survey, they're the 157 00:07:37,600 --> 00:07:40,600 Speaker 1: last couple of conference sports surveys. People see rates to 158 00:07:40,640 --> 00:07:43,320 Speaker 1: be somewhat lower in the year ahead, and what happens, 159 00:07:43,400 --> 00:07:47,600 Speaker 1: buying conditions for homes go up. So I think if, if, if, 160 00:07:47,640 --> 00:07:49,920 Speaker 1: if the Fed pauses rates come in, I mean, yeah, 161 00:07:50,040 --> 00:07:51,920 Speaker 1: residential investment is not going to be as much of 162 00:07:51,920 --> 00:07:54,520 Speaker 1: a drag in Q two of next year as it 163 00:07:54,600 --> 00:07:58,120 Speaker 1: is at this very moment. We haven't mentioned. It comes 164 00:07:58,120 --> 00:08:01,800 Speaker 1: on a proba, he says, long, Sterling, I'm bullish Sterling 165 00:08:01,800 --> 00:08:05,440 Speaker 1: and Rishio and now back up to one twenty got 166 00:08:05,440 --> 00:08:13,920 Speaker 1: any more exactly? No? Ever? Nice? Do you have a 167 00:08:13,960 --> 00:08:16,000 Speaker 1: sweater to go with your tie? For those you? So 168 00:08:16,080 --> 00:08:18,000 Speaker 1: we're looking for the Christmas so we play this up? 169 00:08:18,000 --> 00:08:19,880 Speaker 1: Can we sit in because I'm getting people rank and 170 00:08:20,320 --> 00:08:23,760 Speaker 1: look like pap a grain with laser and sang it's 171 00:08:23,920 --> 00:08:29,760 Speaker 1: not ranked. But these are dear with with sets around him. Yeah, nice, 172 00:08:29,800 --> 00:08:32,800 Speaker 1: big ears, it's like that. Now he says that right here, 173 00:08:32,840 --> 00:08:34,480 Speaker 1: do you have a sweater to go with this? Can 174 00:08:34,480 --> 00:08:36,800 Speaker 1: we get you on before Christmas? With this? Sure, I'll 175 00:08:36,840 --> 00:08:38,720 Speaker 1: be happy to put on my Mr Rodgers look for you. 176 00:08:38,880 --> 00:08:41,440 Speaker 1: Very good. We can do Christmas sweaters? Are we doing that? Please? 177 00:08:41,480 --> 00:08:43,320 Speaker 1: Do you know I think that you should with like 178 00:08:43,320 --> 00:08:45,880 Speaker 1: a little bow tie around them? That I think really 179 00:08:46,120 --> 00:08:49,960 Speaker 1: of course, little like pump pumps and little very joyful 180 00:08:50,080 --> 00:08:58,640 Speaker 1: guy around, very joyful man. Iron Jersey owns the high 181 00:08:58,920 --> 00:09:01,480 Speaker 1: I didn't know that doesn't sweater territory. I thought you 182 00:09:01,760 --> 00:09:04,600 Speaker 1: did football scoffs. He's good, same thing. It's a scarf sweater. 183 00:09:04,679 --> 00:09:19,240 Speaker 1: Carboy joined this now. Senior investment strategistic Edward Giants might 184 00:09:19,240 --> 00:09:21,320 Speaker 1: not have to say. Reading through your work, you sound 185 00:09:21,400 --> 00:09:25,720 Speaker 1: a little bit more constructive. It's what does that constructive 186 00:09:25,840 --> 00:09:29,280 Speaker 1: you come from? Yeah, thanks, Sean. Look, you know, I 187 00:09:29,320 --> 00:09:32,800 Speaker 1: think we have a journey to get to that constructive view. 188 00:09:32,800 --> 00:09:35,560 Speaker 1: But it's certainly the FED is still on this path 189 00:09:35,679 --> 00:09:38,160 Speaker 1: to raise rates. They've made it clear they are not done, 190 00:09:38,520 --> 00:09:40,880 Speaker 1: and in fact we're probably heading towards that five percent 191 00:09:40,960 --> 00:09:45,040 Speaker 1: level early. And of course the focus is shifting somewhat 192 00:09:45,080 --> 00:09:50,199 Speaker 1: in markets from this inflationary ongoing upward pressure to perhaps 193 00:09:50,200 --> 00:09:53,640 Speaker 1: some stabilization, but then of course a shift towards what 194 00:09:53,679 --> 00:09:57,200 Speaker 1: happens to the economic growth picture, which we think does soften, 195 00:09:57,320 --> 00:10:00,599 Speaker 1: especially in that first half of UM, but perhaps a 196 00:10:00,720 --> 00:10:03,079 Speaker 1: silver lining. And that more constructive view comes from the 197 00:10:03,120 --> 00:10:06,440 Speaker 1: fact that we are perhaps set up then the stages 198 00:10:06,520 --> 00:10:10,280 Speaker 1: then set for potential recovery from a market perspective, and 199 00:10:10,360 --> 00:10:12,839 Speaker 1: keep in mind, the market cycle and economic cycle are 200 00:10:12,920 --> 00:10:17,480 Speaker 1: two different animals, and in fact, markets can you know, 201 00:10:17,640 --> 00:10:20,360 Speaker 1: head towards a low, make a low, but then rebound 202 00:10:20,480 --> 00:10:23,880 Speaker 1: even as we are in perhaps a downturn or recession. 203 00:10:24,160 --> 00:10:26,600 Speaker 1: And so I think that's where the constructive view comes from. 204 00:10:26,679 --> 00:10:29,360 Speaker 1: And of course the hope and the leading indicators of 205 00:10:29,400 --> 00:10:32,920 Speaker 1: inflation that are showing that stability ahead in the next 206 00:10:33,120 --> 00:10:36,520 Speaker 1: year would you explain surveillance one oh one that the 207 00:10:36,559 --> 00:10:40,480 Speaker 1: world doesn't end if we get a five percent terminal rate. 208 00:10:40,679 --> 00:10:44,520 Speaker 1: We've been there before. Why are we so angst ridden 209 00:10:44,520 --> 00:10:48,079 Speaker 1: this time? Yeah, a great point. And in fact, if 210 00:10:48,120 --> 00:10:50,000 Speaker 1: you look at you know, a thirty year history, a 211 00:10:50,040 --> 00:10:52,640 Speaker 1: five percent FRED funds rate is not out of the norm, 212 00:10:52,679 --> 00:10:54,800 Speaker 1: and a treasury yeld certainly at three and a half 213 00:10:54,840 --> 00:10:56,600 Speaker 1: to four percent, is not out of the norm. What 214 00:10:56,720 --> 00:10:59,560 Speaker 1: we will say is unique this time around versus the 215 00:10:59,640 --> 00:11:03,760 Speaker 1: last ten years, perhaps the period after the Great Financial Crisis, 216 00:11:04,160 --> 00:11:07,080 Speaker 1: that's when the FED was perhaps closer to the zero bound, 217 00:11:07,280 --> 00:11:10,760 Speaker 1: treasury yields closer to two percent. That whole period was 218 00:11:10,880 --> 00:11:14,199 Speaker 1: really marked by a growth out performance, growth versus value. 219 00:11:14,640 --> 00:11:17,720 Speaker 1: This period ahead is unique in the fact that we 220 00:11:17,800 --> 00:11:20,000 Speaker 1: probably won't head back to zero bound. You know, the 221 00:11:20,000 --> 00:11:22,920 Speaker 1: FED can go from about a five percent rate over time, 222 00:11:23,000 --> 00:11:25,240 Speaker 1: perhaps back to a more neutral rate two and a 223 00:11:25,280 --> 00:11:29,240 Speaker 1: half percent range, let's say, um, but yields treasure yields 224 00:11:29,240 --> 00:11:31,600 Speaker 1: in that environment may also remain in that two to 225 00:11:31,720 --> 00:11:34,680 Speaker 1: three three and a half percent range. And so what's different, 226 00:11:34,679 --> 00:11:36,440 Speaker 1: I think, is that you do have an alternative to 227 00:11:36,520 --> 00:11:40,320 Speaker 1: equities and play probably a better mix between bonds and 228 00:11:40,480 --> 00:11:44,040 Speaker 1: stocks in your portfolio, but also that environment where growth 229 00:11:44,080 --> 00:11:47,600 Speaker 1: outperformed for perhaps close to a decade UM, it maybe 230 00:11:47,679 --> 00:11:50,240 Speaker 1: look a little different in the next decade ahead, and 231 00:11:50,280 --> 00:11:52,720 Speaker 1: that because yields are higher, we could get a better 232 00:11:52,760 --> 00:11:55,280 Speaker 1: balance between growth and value as well. What if Evan 233 00:11:55,320 --> 00:11:57,880 Speaker 1: Brown of Ubs is right and we avoid a recession 234 00:11:57,920 --> 00:12:00,560 Speaker 1: next year and that ends up being really negative in 235 00:12:00,679 --> 00:12:04,960 Speaker 1: terms of creating higher rates for longer that bleeds into 236 00:12:05,080 --> 00:12:08,240 Speaker 1: an over indebted society, which a lot of people say 237 00:12:08,480 --> 00:12:12,600 Speaker 1: is the case. How's that factor into your outlook? Yeah, 238 00:12:12,600 --> 00:12:15,640 Speaker 1: you know, it's interesting. We don't necessarily think the path 239 00:12:15,720 --> 00:12:18,840 Speaker 1: to a soft landing is completely closed either, but we 240 00:12:18,880 --> 00:12:20,440 Speaker 1: do think it's getting narrow, and a lot of the 241 00:12:20,480 --> 00:12:23,120 Speaker 1: leading indicators that we watch, including the curve but also 242 00:12:23,240 --> 00:12:24,719 Speaker 1: things like the p M I S and I S 243 00:12:24,880 --> 00:12:28,960 Speaker 1: M indicators are pointing towards, if not recession, at least 244 00:12:28,960 --> 00:12:31,760 Speaker 1: a softening below trend. So, um, we do think that 245 00:12:31,920 --> 00:12:34,480 Speaker 1: is in the cards. But if we do avoid that 246 00:12:34,520 --> 00:12:37,560 Speaker 1: recessionary path and hit the soft landing, um, we do 247 00:12:37,640 --> 00:12:41,480 Speaker 1: think actually markets will respond favorably to that to some extent. 248 00:12:41,559 --> 00:12:43,720 Speaker 1: You know, I think the jobs picture will be in 249 00:12:43,800 --> 00:12:47,160 Speaker 1: decent condition will have a consumer and healthy shape, and 250 00:12:47,200 --> 00:12:50,160 Speaker 1: in fact, you could get through this period. We think 251 00:12:50,160 --> 00:12:54,360 Speaker 1: the inflationary pressures were largely supply side driven, UM, and 252 00:12:54,400 --> 00:12:56,840 Speaker 1: the demand picture will soften it. So we think inflation 253 00:12:56,880 --> 00:12:58,559 Speaker 1: could come in as well, and so we don't think 254 00:12:58,559 --> 00:13:03,160 Speaker 1: it's necessarily this dire scenario to avoid a recession here 255 00:13:03,160 --> 00:13:05,880 Speaker 1: in the US. But keep in mind recessionary cycles are 256 00:13:06,400 --> 00:13:09,040 Speaker 1: part of the business cycle, and so we do think 257 00:13:09,080 --> 00:13:11,959 Speaker 1: at some point the excesses that have have accumulated over 258 00:13:12,000 --> 00:13:14,520 Speaker 1: the past you know, two or three years UM, that 259 00:13:14,600 --> 00:13:17,319 Speaker 1: will you know, play itself out in some to some extent, 260 00:13:17,400 --> 00:13:20,120 Speaker 1: and perhaps we will won't see a broader recession, but 261 00:13:20,160 --> 00:13:22,400 Speaker 1: we could see what we're calling that rolling recession in 262 00:13:22,440 --> 00:13:25,040 Speaker 1: certain sectors, and perhaps are starting to see that in 263 00:13:25,080 --> 00:13:27,199 Speaker 1: the tech sector, which was probably where a lot of 264 00:13:27,200 --> 00:13:30,400 Speaker 1: the excess has happened during that pandemic period. UM. But 265 00:13:30,440 --> 00:13:33,520 Speaker 1: I think your broader point, you know, with debt increasing 266 00:13:33,559 --> 00:13:36,680 Speaker 1: and yields moving higher and perhaps staying higher, UM, we 267 00:13:36,720 --> 00:13:38,880 Speaker 1: will see a little bit of a clearing impact on 268 00:13:38,920 --> 00:13:41,280 Speaker 1: the credit side as well. But probably a good thing 269 00:13:41,360 --> 00:13:43,800 Speaker 1: for investors who are looking for value. Someone I just 270 00:13:43,840 --> 00:13:45,680 Speaker 1: want to squeeze this in twenty seconds. Can you be 271 00:13:45,960 --> 00:13:48,079 Speaker 1: super specific why you think the leadership is going to 272 00:13:48,160 --> 00:13:52,320 Speaker 1: come from. Yeah, we think heading into the year, we 273 00:13:52,360 --> 00:13:55,640 Speaker 1: could still see this defensive value play have a little 274 00:13:55,640 --> 00:13:58,160 Speaker 1: bit of legs because we are in entering a period 275 00:13:58,160 --> 00:14:01,440 Speaker 1: of potential downward tim in the economy. But as we 276 00:14:01,480 --> 00:14:04,000 Speaker 1: re emerge from that, we think the recovery playbook is 277 00:14:04,000 --> 00:14:07,160 Speaker 1: back in play areas. You know, parts of quality growth 278 00:14:07,280 --> 00:14:10,280 Speaker 1: will probably take some leadership, but cyclicals and maybe even 279 00:14:10,320 --> 00:14:13,200 Speaker 1: that small cap sector um will return as well. So 280 00:14:13,360 --> 00:14:16,880 Speaker 1: think about more balance in your portfolio heading into Thank you, 281 00:14:18,000 --> 00:14:28,640 Speaker 1: omistic constructive. That was the constructive. I'm not doing crystal ball. 282 00:14:28,680 --> 00:14:30,960 Speaker 1: I'm looking at the present, which is what Realie is doing. 283 00:14:31,000 --> 00:14:34,320 Speaker 1: She's global chief investment strategist of black Rock. Helped us 284 00:14:34,320 --> 00:14:36,600 Speaker 1: out in London when we were there, uh a number 285 00:14:36,600 --> 00:14:38,200 Speaker 1: of weeks ago, and we're thrilled you join us in 286 00:14:38,240 --> 00:14:40,760 Speaker 1: New York this morning. I'm gonna cut to the chase. 287 00:14:40,920 --> 00:14:43,640 Speaker 1: What's changed here not the crystal ball that John mentions, 288 00:14:44,000 --> 00:14:46,200 Speaker 1: but what changed is that we have a risk free rate, 289 00:14:46,240 --> 00:14:48,920 Speaker 1: we have cash as values. We're getting on our iPhones, 290 00:14:48,960 --> 00:14:51,520 Speaker 1: YouTube can make three point two percent. You know it's 291 00:14:51,560 --> 00:14:54,320 Speaker 1: like from another time and place. Now that the risk 292 00:14:54,480 --> 00:14:58,760 Speaker 1: free rate is back, we have almost a real money environment. 293 00:14:59,040 --> 00:15:02,280 Speaker 1: What does that mean for as an allocation? Well, as 294 00:15:02,360 --> 00:15:06,000 Speaker 1: we enter this new region, in fact, well already in 295 00:15:06,040 --> 00:15:09,680 Speaker 1: this new region where it departs from the Great moderation 296 00:15:10,000 --> 00:15:13,800 Speaker 1: and now we're in a word shaped by supply, in 297 00:15:13,880 --> 00:15:17,960 Speaker 1: our view, it needs to require the rethink of us 298 00:15:17,960 --> 00:15:20,400 Speaker 1: a location. You talked about free rate. In fact, we 299 00:15:20,440 --> 00:15:24,360 Speaker 1: think that the new region requires a new playbook altogether. 300 00:15:24,520 --> 00:15:27,280 Speaker 1: So we talked about forecast for next year, and we 301 00:15:27,320 --> 00:15:30,320 Speaker 1: believe that even as we enter a recession, which is 302 00:15:30,400 --> 00:15:34,760 Speaker 1: our expectation for next year, inflation could surprise on the upside. 303 00:15:34,760 --> 00:15:36,560 Speaker 1: It's going to be lower than what we have seen 304 00:15:36,640 --> 00:15:38,280 Speaker 1: so far this year, but you could surprise on the 305 00:15:38,360 --> 00:15:40,920 Speaker 1: upside because we believe central banks are not going to 306 00:15:41,040 --> 00:15:43,560 Speaker 1: go all the way to fight inflation to bring it 307 00:15:43,600 --> 00:15:45,760 Speaker 1: down to target. And at the same time you talked 308 00:15:45,760 --> 00:15:50,760 Speaker 1: about consensus by nour risk of we're not that constructive 309 00:15:50,840 --> 00:15:54,160 Speaker 1: on risk center. You underway equities, where underway equities, We 310 00:15:54,320 --> 00:15:56,800 Speaker 1: remain under way equities at this juncture. But I think 311 00:15:56,800 --> 00:16:02,080 Speaker 1: what is more important is when we would become more constructive, 312 00:16:02,120 --> 00:16:05,120 Speaker 1: and we expect to be more constructive at some point 313 00:16:05,280 --> 00:16:08,760 Speaker 1: in twenty twenty three, and having the mechanism of gauging 314 00:16:08,840 --> 00:16:12,160 Speaker 1: when to turn positive is important. Sizing the damage of 315 00:16:12,600 --> 00:16:16,280 Speaker 1: the macro scarring as a result of central banks overtightening 316 00:16:16,320 --> 00:16:19,680 Speaker 1: and also understanding to what extent that damage is in 317 00:16:19,720 --> 00:16:22,040 Speaker 1: the price is going to be critical as we think 318 00:16:22,040 --> 00:16:26,240 Speaker 1: about when to turn positive, and also importantly as written positive, 319 00:16:26,520 --> 00:16:29,320 Speaker 1: it's not going to be the prelude of a decades 320 00:16:29,400 --> 00:16:31,880 Speaker 1: long booll market that we have seen in the past. 321 00:16:32,240 --> 00:16:34,200 Speaker 1: We believe that there's going to be a lot more volatile, 322 00:16:34,320 --> 00:16:37,040 Speaker 1: a lot more trophy. And again here size in the damage, 323 00:16:37,120 --> 00:16:39,040 Speaker 1: understanding what's in the price is going to become what's 324 00:16:39,040 --> 00:16:41,280 Speaker 1: shaping your view about that shift in the market, right shame, 325 00:16:41,880 --> 00:16:45,120 Speaker 1: what drives you towards making that conclusion. It's very much 326 00:16:45,160 --> 00:16:48,000 Speaker 1: around our conviction that we're in a word, shaped by 327 00:16:48,440 --> 00:16:52,680 Speaker 1: multiple factors of supply constraint. Yes, of course, energy prices 328 00:16:52,800 --> 00:16:54,560 Speaker 1: coming down a little bit and some of the supply 329 00:16:54,680 --> 00:16:59,600 Speaker 1: bottlenecks is getting alleviated, but looking beyond that, we're still 330 00:16:59,640 --> 00:17:05,040 Speaker 1: face seen three structural catalysts for elevated inflations in the 331 00:17:05,080 --> 00:17:08,639 Speaker 1: long term, so aging demographics. You know, over the last 332 00:17:08,920 --> 00:17:12,400 Speaker 1: fifteen years in the US actually participation rate went from 333 00:17:12,520 --> 00:17:15,679 Speaker 1: sixty eight percent to sixty two percent. There is wholly 334 00:17:15,760 --> 00:17:20,200 Speaker 1: explainable by aging demographics. And also we have geopolitical fragmentation 335 00:17:20,600 --> 00:17:26,360 Speaker 1: that represents further supply constrained restoring French shoring, as well 336 00:17:26,400 --> 00:17:29,160 Speaker 1: as the net zero transition, where we believe that there 337 00:17:29,160 --> 00:17:32,080 Speaker 1: will be a mismatch between demand and supply. Just like 338 00:17:32,200 --> 00:17:35,000 Speaker 1: during the pandemic, there was a mismatch between demand and 339 00:17:35,040 --> 00:17:38,480 Speaker 1: supply and that pushed up inflation. So we see this persisting, 340 00:17:38,520 --> 00:17:40,879 Speaker 1: which is why even as inflation goes down, as we 341 00:17:40,920 --> 00:17:43,119 Speaker 1: look at next year, we believe that it's going to 342 00:17:43,240 --> 00:17:47,879 Speaker 1: settle higher versus the pre pandemic levels. Even that, how 343 00:17:47,960 --> 00:17:51,760 Speaker 1: much conviction can you have going into long duration currently, 344 00:17:51,840 --> 00:17:55,480 Speaker 1: we actually want to push back against this notion that 345 00:17:55,680 --> 00:17:59,480 Speaker 1: as we enter a recession you just automatically hide in 346 00:17:59,560 --> 00:18:02,159 Speaker 1: long do raction bonds, because this recession is going to 347 00:18:02,160 --> 00:18:05,440 Speaker 1: be caused by central banks over tightening. This is previous 348 00:18:05,440 --> 00:18:08,159 Speaker 1: recessions where central banks are expected to come to the 349 00:18:08,200 --> 00:18:10,960 Speaker 1: rescue and cut rate. We actually don't believe that the 350 00:18:11,119 --> 00:18:14,560 Speaker 1: developed markets central banks in particular, the FED is able 351 00:18:14,600 --> 00:18:18,199 Speaker 1: to cut rates next year, Marcus surprising. Ray cuts are 352 00:18:18,200 --> 00:18:21,560 Speaker 1: pretty aggressive ray cut cycle. But in the face of 353 00:18:21,600 --> 00:18:25,160 Speaker 1: this persistent inflation and supply constraint that I just talked about, 354 00:18:25,200 --> 00:18:27,840 Speaker 1: we believe that they're gonna high and stay at those 355 00:18:27,920 --> 00:18:30,720 Speaker 1: levels for an extended period of time. This is an 356 00:18:30,760 --> 00:18:33,960 Speaker 1: important day for China. One of your leaders has died, 357 00:18:34,000 --> 00:18:35,520 Speaker 1: and I want to go back. Before you were at 358 00:18:35,560 --> 00:18:38,680 Speaker 1: the University of Cambridge. You did something no one we've 359 00:18:38,680 --> 00:18:41,480 Speaker 1: ever talked to did, which is you did the mathematical 360 00:18:41,480 --> 00:18:45,800 Speaker 1: Olympiad in your China, not once but twice, which is, folks, 361 00:18:45,840 --> 00:18:50,520 Speaker 1: trust me unheard of. How do you perceive the leadership 362 00:18:50,720 --> 00:18:52,199 Speaker 1: change that we say. I don't want to get in 363 00:18:52,200 --> 00:18:55,600 Speaker 1: trouble with black Rock, but the new China or the 364 00:18:55,680 --> 00:18:58,919 Speaker 1: next China, what does it look like to you and 365 00:18:58,960 --> 00:19:03,399 Speaker 1: the stayver gendas. I think one beak takeaway from the 366 00:19:03,440 --> 00:19:08,440 Speaker 1: Party Congress earlier in the quarter is that the focus 367 00:19:08,560 --> 00:19:14,720 Speaker 1: is broadening out from growth to social coherence, common prosperity 368 00:19:14,760 --> 00:19:18,000 Speaker 1: in national security, and what that means over the longer 369 00:19:18,119 --> 00:19:21,600 Speaker 1: term is that we should expect a lower trend growth 370 00:19:21,760 --> 00:19:25,160 Speaker 1: for China and also in terms of the transmission mechanism 371 00:19:25,200 --> 00:19:28,800 Speaker 1: from macro to micro would become less efficient, so all 372 00:19:28,840 --> 00:19:31,119 Speaker 1: of the warrants are higher risk premier as you think 373 00:19:31,119 --> 00:19:33,879 Speaker 1: about incorporating China in a Hope portfolio context, which is 374 00:19:33,880 --> 00:19:37,359 Speaker 1: why technically when neutral China asks even as the country 375 00:19:37,359 --> 00:19:41,560 Speaker 1: opens up, but strategically we're actually underweight China government bonds 376 00:19:41,600 --> 00:19:45,760 Speaker 1: because of the yield attractiveness becoming less This was brilliant. 377 00:19:45,760 --> 00:19:48,080 Speaker 1: I'm going to take the opportunity to to promote some 378 00:19:48,119 --> 00:19:50,080 Speaker 1: of the research for a Black right time, because I 379 00:19:50,080 --> 00:19:52,000 Speaker 1: think a lot of people outside of Wall Street they 380 00:19:52,000 --> 00:19:56,080 Speaker 1: find it differ undower certain research. Not to be clear, 381 00:19:56,160 --> 00:20:00,000 Speaker 1: hits on the Investment Institute weekly No is available online 382 00:20:00,160 --> 00:20:03,440 Speaker 1: on the website for everyone and it's a great rate. 383 00:20:03,560 --> 00:20:16,960 Speaker 1: Always enjoy it. Whitely fantastic from Black. Let's do this, folks. 384 00:20:17,040 --> 00:20:19,520 Speaker 1: Let's go to someone that can piece together You're November 385 00:20:19,840 --> 00:20:22,800 Speaker 1: and try to stagger into two thousand twenty three. They 386 00:20:22,840 --> 00:20:25,399 Speaker 1: do that at Deutsche Bank, led by David focus Landau, 387 00:20:25,520 --> 00:20:28,919 Speaker 1: and he has as his chief international strategist Alan Ruskin, 388 00:20:29,240 --> 00:20:31,800 Speaker 1: who has been such a supporter of the show through 389 00:20:31,840 --> 00:20:33,840 Speaker 1: this crazy year. Ellen, I want to go a little 390 00:20:33,840 --> 00:20:37,560 Speaker 1: bit technical right now. The Bloomberg Financial Conditions Index, which 391 00:20:37,640 --> 00:20:40,800 Speaker 1: I think the great Michael Rosenberg told me, is eleven ratios. 392 00:20:41,240 --> 00:20:44,960 Speaker 1: The fact is, over November it has become more accommodative. 393 00:20:45,280 --> 00:20:48,400 Speaker 1: On a standard deviation basis. We moved from the gloom 394 00:20:48,400 --> 00:20:52,760 Speaker 1: of a negative one standard deviation almost back to negative 395 00:20:52,800 --> 00:20:57,600 Speaker 1: point five zero standard deviation. We are more accommodative. How 396 00:20:57,640 --> 00:21:01,680 Speaker 1: does that change Chairman Powell's each today and the FED 397 00:21:01,760 --> 00:21:05,720 Speaker 1: meeting forward? Tom, I think it's a great question really 398 00:21:05,760 --> 00:21:08,960 Speaker 1: because I think on the one hand, Chairman pal will 399 00:21:09,040 --> 00:21:12,160 Speaker 1: just look to what the FED fund futures are pricing 400 00:21:12,200 --> 00:21:16,280 Speaker 1: in and it's looking for a peek in fat funds, 401 00:21:16,280 --> 00:21:19,080 Speaker 1: and around five percent I think that would seem pretty 402 00:21:19,080 --> 00:21:22,000 Speaker 1: reasonable to him. Then you look at really what's happened 403 00:21:22,040 --> 00:21:25,400 Speaker 1: since the last firm C meeting, and you know, as 404 00:21:25,440 --> 00:21:30,440 Speaker 1: you remark, every component, every major component of the Financial 405 00:21:30,480 --> 00:21:36,000 Speaker 1: Conditions Index has ease substantially. Obviously, the bond market particularly, 406 00:21:36,040 --> 00:21:38,800 Speaker 1: I think it's been driving things. Some of this is 407 00:21:39,520 --> 00:21:42,440 Speaker 1: very much related to c p I, but you've also 408 00:21:42,480 --> 00:21:45,359 Speaker 1: got tangential markets, things like the oil price which has 409 00:21:45,400 --> 00:21:48,000 Speaker 1: come down very sharply. I think around the fm C 410 00:21:48,200 --> 00:21:50,439 Speaker 1: was tracking around ninety dollars a barrel, and the w 411 00:21:50,560 --> 00:21:53,040 Speaker 1: T I it's now eighty dollars a barrel. Um. It's 412 00:21:53,040 --> 00:21:55,800 Speaker 1: just everything is pointing in a more constructive way. I 413 00:21:55,800 --> 00:21:58,480 Speaker 1: don't think that's a terrible thing from your standpoint. I 414 00:21:58,480 --> 00:22:02,199 Speaker 1: think it's once something you've one to monitor, but I 415 00:22:02,240 --> 00:22:07,639 Speaker 1: think it takes away to some extent the fears of 416 00:22:07,880 --> 00:22:11,280 Speaker 1: particularly sharp slowdowning growth. I thought Drugging was so good 417 00:22:11,280 --> 00:22:13,800 Speaker 1: on this at the ECB. The economists from M, I, T, 418 00:22:14,000 --> 00:22:16,280 Speaker 1: and L, and you are as well in your research. 419 00:22:16,320 --> 00:22:18,400 Speaker 1: You know, you spend a lot of time on the when. 420 00:22:18,920 --> 00:22:21,399 Speaker 1: The way we frame this, folks, our listeners and viewers 421 00:22:21,520 --> 00:22:24,480 Speaker 1: is the X axis. Think about that chart you made 422 00:22:24,480 --> 00:22:28,280 Speaker 1: in school, Allen Ruskin. What matters on the X axis 423 00:22:28,400 --> 00:22:30,400 Speaker 1: right now as you go out in the next year 424 00:22:30,640 --> 00:22:33,560 Speaker 1: and indeed into two thousand twenty four. Where is the 425 00:22:33,640 --> 00:22:37,479 Speaker 1: when that you're focused on? Yeah, well, I think you know, 426 00:22:38,240 --> 00:22:42,680 Speaker 1: people ask questions on the when related to when will 427 00:22:42,720 --> 00:22:47,000 Speaker 1: we have a recession? And the main recession indicated that 428 00:22:47,080 --> 00:22:49,520 Speaker 1: people have been looking at. Of course we all focused 429 00:22:49,560 --> 00:22:52,639 Speaker 1: on is the yield curve, and that suggestive of a recession. 430 00:22:53,000 --> 00:22:56,200 Speaker 1: Normally it leads by roughly about eighty months to two 431 00:22:56,280 --> 00:22:59,080 Speaker 1: years at long lead time, and that would suggest pretty 432 00:22:59,119 --> 00:23:02,479 Speaker 1: much the second half of three is the when on 433 00:23:02,480 --> 00:23:06,480 Speaker 1: that particular question. When we look at other leading indicators, 434 00:23:06,520 --> 00:23:10,639 Speaker 1: of course you're seeing something which is on a path 435 00:23:10,800 --> 00:23:14,840 Speaker 1: towards a recession, but it is not saying a recessions 436 00:23:14,880 --> 00:23:17,760 Speaker 1: baked in the cake. The one point of that I 437 00:23:17,760 --> 00:23:20,000 Speaker 1: would say to them that I would emphasize, as we 438 00:23:20,040 --> 00:23:22,080 Speaker 1: are all looking at the same thing, and the yield 439 00:23:22,119 --> 00:23:26,720 Speaker 1: curve could give some misleading signals given the supply side shock, 440 00:23:26,880 --> 00:23:30,000 Speaker 1: and it's a favorable supply side shock that we're currently 441 00:23:30,080 --> 00:23:34,280 Speaker 1: under at the moment. You know that that that could 442 00:23:34,280 --> 00:23:37,160 Speaker 1: certainly lead to more flattening of the yield curve than 443 00:23:37,280 --> 00:23:39,920 Speaker 1: you would otherwise think. And I don't think it's quite 444 00:23:39,960 --> 00:23:43,359 Speaker 1: as recessionary or as stronger recession signal as it would 445 00:23:43,359 --> 00:23:45,760 Speaker 1: otherwise be. Lisa, can we have a victory lab from 446 00:23:45,800 --> 00:23:49,080 Speaker 1: Matthew Lozetti a colleague and Mr Ruskin he nailed the 447 00:23:49,119 --> 00:23:52,520 Speaker 1: recession call. That also the win of it in hindsight 448 00:23:52,880 --> 00:23:55,800 Speaker 1: out farther. Remember we were given him grief because he 449 00:23:55,840 --> 00:23:58,600 Speaker 1: was talking end of two thousand twenty three. Whatever I 450 00:23:58,600 --> 00:24:01,399 Speaker 1: mean Lozetti nailed so far, and a lot of people 451 00:24:01,400 --> 00:24:04,320 Speaker 1: are on board with that. The question that I'm wondering, though, 452 00:24:04,359 --> 00:24:07,840 Speaker 1: exactly to your point, Alan, is a supply side issues 453 00:24:07,840 --> 00:24:10,920 Speaker 1: which we really don't understand in terms of whether they 454 00:24:10,920 --> 00:24:13,919 Speaker 1: come back online, whether you get those production delays that 455 00:24:13,920 --> 00:24:16,960 Speaker 1: are eradicated, especially with COVID zero. What's your base case 456 00:24:17,000 --> 00:24:20,760 Speaker 1: in terms of supply chain disruptions and lack of supplies, 457 00:24:20,800 --> 00:24:23,560 Speaker 1: and whether the ease is enough next year to really 458 00:24:23,560 --> 00:24:27,000 Speaker 1: reduce some of the inflationary pressure. I think it's easied 459 00:24:27,119 --> 00:24:30,679 Speaker 1: enormously really. I think if you look at supply deliveries 460 00:24:30,720 --> 00:24:35,760 Speaker 1: in particular, in most indicators, they've actually you know, normalized 461 00:24:35,800 --> 00:24:37,800 Speaker 1: the pretty much got back into the range that we 462 00:24:37,800 --> 00:24:41,040 Speaker 1: saw pre COVID. When you look at p m my 463 00:24:41,400 --> 00:24:45,320 Speaker 1: prices paid, those numbers are typically also within the zone 464 00:24:45,359 --> 00:24:47,639 Speaker 1: of what we saw pre COVID as well. So I 465 00:24:47,640 --> 00:24:50,639 Speaker 1: think there's reasons for optimism on on the supply side. 466 00:24:50,840 --> 00:24:53,960 Speaker 1: I think, like everybody, you know, the biggest concern is 467 00:24:53,960 --> 00:24:56,560 Speaker 1: that inflation has been around for long enough that has 468 00:24:56,600 --> 00:24:59,640 Speaker 1: become entrenched in the labor market, and you know, that's 469 00:24:59,720 --> 00:25:03,080 Speaker 1: I think where the residual inflation pressures still reside and 470 00:25:03,119 --> 00:25:05,439 Speaker 1: that's really you know, which is gonna It's really going 471 00:25:05,480 --> 00:25:08,119 Speaker 1: to create angst amongst the sed you know if we 472 00:25:08,200 --> 00:25:12,040 Speaker 1: see employment cost index and not come down the other 473 00:25:12,080 --> 00:25:14,640 Speaker 1: way to indicators like audio and he's not come down. 474 00:25:14,800 --> 00:25:16,320 Speaker 1: Which is a reason why a lot of people are 475 00:25:16,320 --> 00:25:19,640 Speaker 1: watching jolts today and on Friday the jobs report. People 476 00:25:19,640 --> 00:25:22,439 Speaker 1: are also watching the housing market reports to get some 477 00:25:22,480 --> 00:25:25,639 Speaker 1: sort of sense with respect to your core, which is 478 00:25:25,720 --> 00:25:29,199 Speaker 1: Fax where you started. And I'm wondering Vasilius Tunakas yesterday 479 00:25:29,240 --> 00:25:31,600 Speaker 1: of City saying that the housing market may be the 480 00:25:31,760 --> 00:25:35,760 Speaker 1: biggest distinguishing feature between the winners and the losers internationally, 481 00:25:36,080 --> 00:25:38,960 Speaker 1: the ones that have the worst housing markets might end 482 00:25:39,080 --> 00:25:42,719 Speaker 1: up suffering the biggest weakening in their currencies. Do you 483 00:25:42,840 --> 00:25:44,439 Speaker 1: buy that? Do you see that as a as a 484 00:25:44,760 --> 00:25:48,359 Speaker 1: as a correct roadmap? Um? I think it is an 485 00:25:48,400 --> 00:25:51,639 Speaker 1: important roadmap and in most cycles it tends to be dominant. 486 00:25:51,880 --> 00:25:54,879 Speaker 1: I would say here in the US at least, the 487 00:25:54,920 --> 00:25:59,440 Speaker 1: concerns on housing are probably a low exaggerated. Starts is 488 00:25:59,480 --> 00:26:01,959 Speaker 1: one of the housing starts one of the best indicators, 489 00:26:01,960 --> 00:26:04,480 Speaker 1: permits one of the best indicators. But I think you 490 00:26:04,520 --> 00:26:10,200 Speaker 1: can have house price deflation come off quite substantially without 491 00:26:10,240 --> 00:26:13,240 Speaker 1: it being too problematic for consumption, in part because house 492 00:26:13,400 --> 00:26:16,280 Speaker 1: inflation was so strong to begin with. I think on 493 00:26:16,320 --> 00:26:19,880 Speaker 1: an international side, the countries I would worry about. Most 494 00:26:19,920 --> 00:26:23,200 Speaker 1: of my colleagues in London have pointed the Start, Sweden 495 00:26:23,240 --> 00:26:27,720 Speaker 1: and Canada those of the countries where the debt to 496 00:26:27,840 --> 00:26:31,879 Speaker 1: relatively disposable income is most problematic, the financing issues are 497 00:26:31,920 --> 00:26:34,720 Speaker 1: most problematic. So I think you have to watch Canada, 498 00:26:35,119 --> 00:26:38,239 Speaker 1: the Canadian dollar and the Start. You really those are 499 00:26:38,280 --> 00:26:41,080 Speaker 1: the vulnerable currencies. And I know you are buying Christmas 500 00:26:41,119 --> 00:26:43,760 Speaker 1: tree to keep up with the Faroe family and Farrell 501 00:26:43,840 --> 00:26:46,440 Speaker 1: had a tree up away before Thanksgiving. I'm going out 502 00:26:46,480 --> 00:26:49,359 Speaker 1: today on demand of afterthought and I need to make 503 00:26:49,400 --> 00:26:54,240 Speaker 1: a fects trade here. Dollar up four off the bottom? 504 00:26:54,280 --> 00:26:57,720 Speaker 1: Can you stay resilient strong dollar this year? And what's 505 00:26:57,760 --> 00:27:00,800 Speaker 1: the best way to play it? Yeah? Look, I think 506 00:27:00,840 --> 00:27:03,800 Speaker 1: the dollar has almost certainly peaked. You know, you don't 507 00:27:03,800 --> 00:27:08,359 Speaker 1: get these sizeable moves without usually some sort of follow through. 508 00:27:08,520 --> 00:27:09,639 Speaker 1: But I think we're going to have a bit of 509 00:27:09,680 --> 00:27:12,240 Speaker 1: a bumpy year as it were, because you know, the 510 00:27:12,240 --> 00:27:14,560 Speaker 1: Fed is obviously saw tightening. We've still got to get 511 00:27:14,600 --> 00:27:18,080 Speaker 1: to at least a five percent funds rate. If they're 512 00:27:18,160 --> 00:27:20,800 Speaker 1: risks in terms of the funds rate, it's probably still 513 00:27:20,800 --> 00:27:23,359 Speaker 1: to the top side rather than to the downside. So 514 00:27:23,680 --> 00:27:26,439 Speaker 1: you know, that's going to bolster the dollars case. I 515 00:27:26,480 --> 00:27:29,359 Speaker 1: think over time we're just building an effectively a base 516 00:27:29,560 --> 00:27:32,879 Speaker 1: on euro dollar between parity and say one oh five, 517 00:27:33,480 --> 00:27:37,000 Speaker 1: for an eventual assault on sort of one ten. Uh. 518 00:27:37,000 --> 00:27:39,640 Speaker 1: You know later in the year, Alan want to put 519 00:27:39,640 --> 00:27:43,560 Speaker 1: a from twenty three that is yeah, Alam Ruskin at 520 00:27:43,560 --> 00:27:47,399 Speaker 1: Deutsche Bank. Allen, thank you. This is the Bloomberg Surveillance Podcast. 521 00:27:47,680 --> 00:27:50,960 Speaker 1: Thanks for listening. Join us live week days from seven 522 00:27:50,960 --> 00:27:55,200 Speaker 1: to ten AMI Eastern. I'm Bloomberg Radio and Bloomberg Television 523 00:27:55,560 --> 00:27:59,560 Speaker 1: each day from six to nine AM for insight from 524 00:27:59,560 --> 00:28:04,119 Speaker 1: the best in economics, finance, investment, and international relations. And 525 00:28:04,240 --> 00:28:09,360 Speaker 1: subscribe to the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg 526 00:28:09,440 --> 00:28:12,760 Speaker 1: dot com, and of course on the terminal. I'm Tom 527 00:28:12,840 --> 00:28:15,159 Speaker 1: Keene and this is Bloomberg