Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jay Lee. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg terminal. Now
Speaker 1: you've looked at the same economics, I tea thoughts what
Speaker 1: you're saying on the blame bag. Well, I mean, one
Speaker 1: of the reasons why inventories fell in October, for at
Speaker 1: the retail level, is because we had a absolute blowout
Speaker 1: in retail sales. So think about what the inventory to
Speaker 1: sales ratio is looking like in the retail sector. I'm
Speaker 1: guessing lower. So I guess you know. One of the
Speaker 1: ways that a recession works is through some element of surprise.
Speaker 1: Companies think that things will be okay. Then something bad happens.
Speaker 1: They have to clear out inventories and they're hiring and
Speaker 1: adjust their capex plans and so forth. But what if
Speaker 1: the what if the process works in reverse? What if
Speaker 1: company We've been talking about recession what since June of
Speaker 1: this year and companies have been adjusting to some extent.
Speaker 1: I mean, inventories have been being paired back, capex has
Speaker 1: been slaming somewhat um and what if they're surprised the
Speaker 1: other way? Now, what if growth is accelerating and the
Speaker 1: recession they anticipated didn't happen. So let's get a teeth
Speaker 1: into twenty three. What we're really discussing here is what
Speaker 1: is wrong about a consensus. Deutsche Bank came out a
Speaker 1: little bit earlier this morning. I'll share this quote with
Speaker 1: everyone who might have missed it a little bit earlier.
Speaker 1: It's worth remembering that exactly a year ago, markets were
Speaker 1: pricing a fat funds rate of zero point six eight percent.
Speaker 1: By the end of twenty two, economists had CPI at
Speaker 1: two point six percent. Given the huge forecasting miss over
Speaker 1: the last twelve months, it's remarkable how settled the consensus
Speaker 1: is around a terminal rate of five percent. Their question,
Speaker 1: I think, is your question? Should we be questioning five
Speaker 1: a whole lot more? Yeah? I think there is reskewed
Speaker 1: to the upside. I mean, when Chair Powell tells you
Speaker 1: that doesn't know what the path for rates will be,
Speaker 1: he just knows that it will be enough. I think
Speaker 1: you have to take that as a signal that they're
Speaker 1: willing to do more rather than less. And if real
Speaker 1: economic growth is accelerating, which I believe it is at
Speaker 1: the moment, then that puts pressure on resource capacity and
Speaker 1: that in turn puts upward pressure on prices. So a
Speaker 1: lot of the things that people are talking about, um,
Speaker 1: you know, with respect to some of these bull whip effects, Um,
Speaker 1: you know, in household durable goods that could prove transitory.
Speaker 1: So um, you know, I hate to use that word,
Speaker 1: but that that's sort that's sort of where I come
Speaker 1: down on this. I mean, ultimately, Um, you know, people
Speaker 1: look at what's going on with with with car prices
Speaker 1: and prices for household durables. Uh, they're coming down, Okay,
Speaker 1: rents are coming down, But if aggregant incomes are still
Speaker 1: growing at a healthy paste, all that's doing is freeing
Speaker 1: up people to go spend money somewhere else. And you know,
Speaker 1: if savings doesn't really go up, then that's going to
Speaker 1: drive up the prices for the goods and services that
Speaker 1: they start to spend their money on. If you're bullish
Speaker 1: on the economy, does that mean you're bullish for risk?
Speaker 1: Ass it's for next year? No, I don't think so.
Speaker 1: I think that we're probably in for a period of
Speaker 1: below trend returns in the equity markets. So part that
Speaker 1: out to this idea that we're going to see better
Speaker 1: than expected growth in yours in your estimation, that you're
Speaker 1: seeing ongoing resilience, that that's bad news. Well, I'm I
Speaker 1: don't want to fight the FED, right, I mean, you
Speaker 1: know it's it's it's it's it's it's um It's very
Speaker 1: amusing though some of so many of the people that
Speaker 1: you know following the financial crisis, Oh, the FED is
Speaker 1: just driving off stocks and you know it's the balance. Well,
Speaker 1: like now, if you don't want to fight the FED,
Speaker 1: that means you should be cautious on stocks. I looked
Speaker 1: Neil at the math here on the second look GDP,
Speaker 1: and let's call it, and this is completely amateur, folks.
Speaker 1: We had a real GDP two point nine price index
Speaker 1: of four point whatever percent and we come out to
Speaker 1: some form of nominal spirit of seven point two percent.
Speaker 1: We finally got a risk free rate where you know,
Speaker 1: money actually is not free anymore. Do we adapt? How
Speaker 1: do we adjust to going back to what we knew
Speaker 1: decades low, decades ago? With a substantial nominal GDP money
Speaker 1: now actually costs something, and I don't send any gloom
Speaker 1: from you will be fine, right Well, I I don't know.
Speaker 1: I mean I think that, I mean, I think my
Speaker 1: view is that if you're thinking about the next two
Speaker 1: three years, UM, we will probably have a we need
Speaker 1: a period I think of below trend growth to ring
Speaker 1: the inflation out of the system. Right so, even though
Speaker 1: we may be accende real g d P yeah, most
Speaker 1: likely faroly over JP Moor and John is like even
Speaker 1: lower than that as a run rate, I'm not gonna
Speaker 1: see at a point four twenty three. But the question
Speaker 1: is the question is I mean, forecasting out twelve eighteen
Speaker 1: months is difficult. What I have more confidence in is
Speaker 1: what's happening right now. And right now, you know, even
Speaker 1: if you believe that we see some below trend growth
Speaker 1: for a longer period of time, right now things are
Speaker 1: looking a little bit better. And so I think that's
Speaker 1: really the tension. When they started talking about non convertible
Speaker 1: that what do you hear when you see that in
Speaker 1: a statement? Because we had a story of two parts
Speaker 1: around the last fat decision. You have a statement, Then
Speaker 1: you had the news conference can you walk us through
Speaker 1: how you interpreted the statement in that line which many
Speaker 1: people a tribute today. I think I think the Doves
Speaker 1: made a great trade. I mean, if you're sitting around
Speaker 1: the farm c table and you're layle brainerd you got
Speaker 1: them to codify that into the statement in exchange for
Speaker 1: them to say something about neutral interest rates and you know,
Speaker 1: sound puffing their chest at the press conference. And but
Speaker 1: that's all later. That's like five six months from now.
Speaker 1: Lots of things can change, the data can go their
Speaker 1: way in the Dove's way, So you're trading the certainty
Speaker 1: of stepping down to fifty basis points now in exchange
Speaker 1: for the uncertainty around what neutral rates maybe. And so
Speaker 1: in my in my in my view, even though um,
Speaker 1: you know the that was a down day for markets
Speaker 1: and financial conducis titans, so the hawks looked like they
Speaker 1: may have one, I think actually the Doves played their
Speaker 1: hand pretty well. And and I think that's again that's
Speaker 1: part of the problem that it's it's too soon for
Speaker 1: the Doves to be winning any of these debates. This
Speaker 1: is the reason why there's so many people who still
Speaker 1: believe that the FED is going to not raise rates
Speaker 1: to the point that you're saying that that perhaps five
Speaker 1: will be the ceiling, and that they could even start
Speaker 1: cutting rates next year. What gives you confidence that the
Speaker 1: Doves aren't going to win another trade, that they aren't
Speaker 1: going to make something else? That really complicates the message
Speaker 1: when you say don't fight the Fed. Is I think
Speaker 1: the data the data will make it. I mean to me,
Speaker 1: the data will not make it tenable for them to
Speaker 1: make their case for cuts because the unemployment rate would
Speaker 1: not have gone up enough in order to justify that outcome.
Speaker 1: And you know, look, look at what's already happening. I mean,
Speaker 1: interest rates down. Oh, look what's happening. Purchase applications going
Speaker 1: up for more, mortgage demand is rising, um, the dollars
Speaker 1: going down. Have you looked at the performance of industrial
Speaker 1: stocks lately? Global growth may well be picking up next year.
Speaker 1: What do you think that? What do you think that's
Speaker 1: going to mean for US manufactured exports? So what if
Speaker 1: companies are done with inventory adjustment and so? Do you
Speaker 1: not share the housing gloom that's out there? It's tangible? No,
Speaker 1: I mean, look, the housing market is the one area
Speaker 1: where the FEDS policies has gotten a lot of traction.
Speaker 1: But now, uh, interest rates have come down a little bit,
Speaker 1: and that's unlocking some activity. And up is ultimately up.
Speaker 1: I mean this is one of these arguments, Oh, look
Speaker 1: at new home sales. It's all about cancelations. I mean,
Speaker 1: give me a break. I mean, up is up. The
Speaker 1: fact that the fact that people are signing new home
Speaker 1: sales up. No home, new home sales are booked when
Speaker 1: a contract is signed. Are people not knowing what the
Speaker 1: interest rate is when they signed that contract. The fact
Speaker 1: that they're signing the contract knowing what the rates are
Speaker 1: is a sign of confidence in and of itself. If
Speaker 1: you look at the last Conference Sports survey, they're the
Speaker 1: last couple of conference sports surveys. People see rates to
Speaker 1: be somewhat lower in the year ahead, and what happens,
Speaker 1: buying conditions for homes go up. So I think if, if, if,
Speaker 1: if the Fed pauses rates come in, I mean, yeah,
Speaker 1: residential investment is not going to be as much of
Speaker 1: a drag in Q two of next year as it
Speaker 1: is at this very moment. We haven't mentioned. It comes
Speaker 1: on a proba, he says, long, Sterling, I'm bullish Sterling
Speaker 1: and Rishio and now back up to one twenty got
Speaker 1: any more exactly? No? Ever? Nice? Do you have a
Speaker 1: sweater to go with your tie? For those you? So
Speaker 1: we're looking for the Christmas so we play this up?
Speaker 1: Can we sit in because I'm getting people rank and
Speaker 1: look like pap a grain with laser and sang it's
Speaker 1: not ranked. But these are dear with with sets around him. Yeah, nice,
Speaker 1: big ears, it's like that. Now he says that right here,
Speaker 1: do you have a sweater to go with this? Can
Speaker 1: we get you on before Christmas? With this? Sure, I'll
Speaker 1: be happy to put on my Mr Rodgers look for you.
Speaker 1: Very good. We can do Christmas sweaters? Are we doing that? Please?
Speaker 1: Do you know I think that you should with like
Speaker 1: a little bow tie around them? That I think really
Speaker 1: of course, little like pump pumps and little very joyful
Speaker 1: guy around, very joyful man. Iron Jersey owns the high
Speaker 1: I didn't know that doesn't sweater territory. I thought you
Speaker 1: did football scoffs. He's good, same thing. It's a scarf sweater.
Speaker 1: Carboy joined this now. Senior investment strategistic Edward Giants might
Speaker 1: not have to say. Reading through your work, you sound
Speaker 1: a little bit more constructive. It's what does that constructive
Speaker 1: you come from? Yeah, thanks, Sean. Look, you know, I
Speaker 1: think we have a journey to get to that constructive view.
Speaker 1: But it's certainly the FED is still on this path
Speaker 1: to raise rates. They've made it clear they are not done,
Speaker 1: and in fact we're probably heading towards that five percent
Speaker 1: level early. And of course the focus is shifting somewhat
Speaker 1: in markets from this inflationary ongoing upward pressure to perhaps
Speaker 1: some stabilization, but then of course a shift towards what
Speaker 1: happens to the economic growth picture, which we think does soften,
Speaker 1: especially in that first half of UM, but perhaps a
Speaker 1: silver lining. And that more constructive view comes from the
Speaker 1: fact that we are perhaps set up then the stages
Speaker 1: then set for potential recovery from a market perspective, and
Speaker 1: keep in mind, the market cycle and economic cycle are
Speaker 1: two different animals, and in fact, markets can you know,
Speaker 1: head towards a low, make a low, but then rebound
Speaker 1: even as we are in perhaps a downturn or recession.
Speaker 1: And so I think that's where the constructive view comes from.
Speaker 1: And of course the hope and the leading indicators of
Speaker 1: inflation that are showing that stability ahead in the next
Speaker 1: year would you explain surveillance one oh one that the
Speaker 1: world doesn't end if we get a five percent terminal rate.
Speaker 1: We've been there before. Why are we so angst ridden
Speaker 1: this time? Yeah, a great point. And in fact, if
Speaker 1: you look at you know, a thirty year history, a
Speaker 1: five percent FRED funds rate is not out of the norm,
Speaker 1: and a treasury yeld certainly at three and a half
Speaker 1: to four percent, is not out of the norm. What
Speaker 1: we will say is unique this time around versus the
Speaker 1: last ten years, perhaps the period after the Great Financial Crisis,
Speaker 1: that's when the FED was perhaps closer to the zero bound,
Speaker 1: treasury yields closer to two percent. That whole period was
Speaker 1: really marked by a growth out performance, growth versus value.
Speaker 1: This period ahead is unique in the fact that we
Speaker 1: probably won't head back to zero bound. You know, the
Speaker 1: FED can go from about a five percent rate over time,
Speaker 1: perhaps back to a more neutral rate two and a
Speaker 1: half percent range, let's say, um, but yields treasure yields
Speaker 1: in that environment may also remain in that two to
Speaker 1: three three and a half percent range. And so what's different,
Speaker 1: I think, is that you do have an alternative to
Speaker 1: equities and play probably a better mix between bonds and
Speaker 1: stocks in your portfolio, but also that environment where growth
Speaker 1: outperformed for perhaps close to a decade UM, it maybe
Speaker 1: look a little different in the next decade ahead, and
Speaker 1: that because yields are higher, we could get a better
Speaker 1: balance between growth and value as well. What if Evan
Speaker 1: Brown of Ubs is right and we avoid a recession
Speaker 1: next year and that ends up being really negative in
Speaker 1: terms of creating higher rates for longer that bleeds into
Speaker 1: an over indebted society, which a lot of people say
Speaker 1: is the case. How's that factor into your outlook? Yeah,
Speaker 1: you know, it's interesting. We don't necessarily think the path
Speaker 1: to a soft landing is completely closed either, but we
Speaker 1: do think it's getting narrow, and a lot of the
Speaker 1: leading indicators that we watch, including the curve but also
Speaker 1: things like the p M I S and I S
Speaker 1: M indicators are pointing towards, if not recession, at least
Speaker 1: a softening below trend. So, um, we do think that
Speaker 1: is in the cards. But if we do avoid that
Speaker 1: recessionary path and hit the soft landing, um, we do
Speaker 1: think actually markets will respond favorably to that to some extent.
Speaker 1: You know, I think the jobs picture will be in
Speaker 1: decent condition will have a consumer and healthy shape, and
Speaker 1: in fact, you could get through this period. We think
Speaker 1: the inflationary pressures were largely supply side driven, UM, and
Speaker 1: the demand picture will soften it. So we think inflation
Speaker 1: could come in as well, and so we don't think
Speaker 1: it's necessarily this dire scenario to avoid a recession here
Speaker 1: in the US. But keep in mind recessionary cycles are
Speaker 1: part of the business cycle, and so we do think
Speaker 1: at some point the excesses that have have accumulated over
Speaker 1: the past you know, two or three years UM, that
Speaker 1: will you know, play itself out in some to some extent,
Speaker 1: and perhaps we will won't see a broader recession, but
Speaker 1: we could see what we're calling that rolling recession in
Speaker 1: certain sectors, and perhaps are starting to see that in
Speaker 1: the tech sector, which was probably where a lot of
Speaker 1: the excess has happened during that pandemic period. UM. But
Speaker 1: I think your broader point, you know, with debt increasing
Speaker 1: and yields moving higher and perhaps staying higher, UM, we
Speaker 1: will see a little bit of a clearing impact on
Speaker 1: the credit side as well. But probably a good thing
Speaker 1: for investors who are looking for value. Someone I just
Speaker 1: want to squeeze this in twenty seconds. Can you be
Speaker 1: super specific why you think the leadership is going to
Speaker 1: come from. Yeah, we think heading into the year, we
Speaker 1: could still see this defensive value play have a little
Speaker 1: bit of legs because we are in entering a period
Speaker 1: of potential downward tim in the economy. But as we
Speaker 1: re emerge from that, we think the recovery playbook is
Speaker 1: back in play areas. You know, parts of quality growth
Speaker 1: will probably take some leadership, but cyclicals and maybe even
Speaker 1: that small cap sector um will return as well. So
Speaker 1: think about more balance in your portfolio heading into Thank you,
Speaker 1: omistic constructive. That was the constructive. I'm not doing crystal ball.
Speaker 1: I'm looking at the present, which is what Realie is doing.
Speaker 1: She's global chief investment strategist of black Rock. Helped us
Speaker 1: out in London when we were there, uh a number
Speaker 1: of weeks ago, and we're thrilled you join us in
Speaker 1: New York this morning. I'm gonna cut to the chase.
Speaker 1: What's changed here not the crystal ball that John mentions,
Speaker 1: but what changed is that we have a risk free rate,
Speaker 1: we have cash as values. We're getting on our iPhones,
Speaker 1: YouTube can make three point two percent. You know it's
Speaker 1: like from another time and place. Now that the risk
Speaker 1: free rate is back, we have almost a real money environment.
Speaker 1: What does that mean for as an allocation? Well, as
Speaker 1: we enter this new region, in fact, well already in
Speaker 1: this new region where it departs from the Great moderation
Speaker 1: and now we're in a word shaped by supply, in
Speaker 1: our view, it needs to require the rethink of us
Speaker 1: a location. You talked about free rate. In fact, we
Speaker 1: think that the new region requires a new playbook altogether.
Speaker 1: So we talked about forecast for next year, and we
Speaker 1: believe that even as we enter a recession, which is
Speaker 1: our expectation for next year, inflation could surprise on the upside.
Speaker 1: It's going to be lower than what we have seen
Speaker 1: so far this year, but you could surprise on the
Speaker 1: upside because we believe central banks are not going to
Speaker 1: go all the way to fight inflation to bring it
Speaker 1: down to target. And at the same time you talked
Speaker 1: about consensus by nour risk of we're not that constructive
Speaker 1: on risk center. You underway equities, where underway equities, We
Speaker 1: remain under way equities at this juncture. But I think
Speaker 1: what is more important is when we would become more constructive,
Speaker 1: and we expect to be more constructive at some point
Speaker 1: in twenty twenty three, and having the mechanism of gauging
Speaker 1: when to turn positive is important. Sizing the damage of
Speaker 1: the macro scarring as a result of central banks overtightening
Speaker 1: and also understanding to what extent that damage is in
Speaker 1: the price is going to be critical as we think
Speaker 1: about when to turn positive, and also importantly as written positive,
Speaker 1: it's not going to be the prelude of a decades
Speaker 1: long booll market that we have seen in the past.
Speaker 1: We believe that there's going to be a lot more volatile,
Speaker 1: a lot more trophy. And again here size in the damage,
Speaker 1: understanding what's in the price is going to become what's
Speaker 1: shaping your view about that shift in the market, right shame,
Speaker 1: what drives you towards making that conclusion. It's very much
Speaker 1: around our conviction that we're in a word, shaped by
Speaker 1: multiple factors of supply constraint. Yes, of course, energy prices
Speaker 1: coming down a little bit and some of the supply
Speaker 1: bottlenecks is getting alleviated, but looking beyond that, we're still
Speaker 1: face seen three structural catalysts for elevated inflations in the
Speaker 1: long term, so aging demographics. You know, over the last
Speaker 1: fifteen years in the US actually participation rate went from
Speaker 1: sixty eight percent to sixty two percent. There is wholly
Speaker 1: explainable by aging demographics. And also we have geopolitical fragmentation
Speaker 1: that represents further supply constrained restoring French shoring, as well
Speaker 1: as the net zero transition, where we believe that there
Speaker 1: will be a mismatch between demand and supply. Just like
Speaker 1: during the pandemic, there was a mismatch between demand and
Speaker 1: supply and that pushed up inflation. So we see this persisting,
Speaker 1: which is why even as inflation goes down, as we
Speaker 1: look at next year, we believe that it's going to
Speaker 1: settle higher versus the pre pandemic levels. Even that, how
Speaker 1: much conviction can you have going into long duration currently,
Speaker 1: we actually want to push back against this notion that
Speaker 1: as we enter a recession you just automatically hide in
Speaker 1: long do raction bonds, because this recession is going to
Speaker 1: be caused by central banks over tightening. This is previous
Speaker 1: recessions where central banks are expected to come to the
Speaker 1: rescue and cut rate. We actually don't believe that the
Speaker 1: developed markets central banks in particular, the FED is able
Speaker 1: to cut rates next year, Marcus surprising. Ray cuts are
Speaker 1: pretty aggressive ray cut cycle. But in the face of
Speaker 1: this persistent inflation and supply constraint that I just talked about,
Speaker 1: we believe that they're gonna high and stay at those
Speaker 1: levels for an extended period of time. This is an
Speaker 1: important day for China. One of your leaders has died,
Speaker 1: and I want to go back. Before you were at
Speaker 1: the University of Cambridge. You did something no one we've
Speaker 1: ever talked to did, which is you did the mathematical
Speaker 1: Olympiad in your China, not once but twice, which is, folks,
Speaker 1: trust me unheard of. How do you perceive the leadership
Speaker 1: change that we say. I don't want to get in
Speaker 1: trouble with black Rock, but the new China or the
Speaker 1: next China, what does it look like to you and
Speaker 1: the stayver gendas. I think one beak takeaway from the
Speaker 1: Party Congress earlier in the quarter is that the focus
Speaker 1: is broadening out from growth to social coherence, common prosperity
Speaker 1: in national security, and what that means over the longer
Speaker 1: term is that we should expect a lower trend growth
Speaker 1: for China and also in terms of the transmission mechanism
Speaker 1: from macro to micro would become less efficient, so all
Speaker 1: of the warrants are higher risk premier as you think
Speaker 1: about incorporating China in a Hope portfolio context, which is
Speaker 1: why technically when neutral China asks even as the country
Speaker 1: opens up, but strategically we're actually underweight China government bonds
Speaker 1: because of the yield attractiveness becoming less This was brilliant.
Speaker 1: I'm going to take the opportunity to to promote some
Speaker 1: of the research for a Black right time, because I
Speaker 1: think a lot of people outside of Wall Street they
Speaker 1: find it differ undower certain research. Not to be clear,
Speaker 1: hits on the Investment Institute weekly No is available online
Speaker 1: on the website for everyone and it's a great rate.
Speaker 1: Always enjoy it. Whitely fantastic from Black. Let's do this, folks.
Speaker 1: Let's go to someone that can piece together You're November
Speaker 1: and try to stagger into two thousand twenty three. They
Speaker 1: do that at Deutsche Bank, led by David focus Landau,
Speaker 1: and he has as his chief international strategist Alan Ruskin,
Speaker 1: who has been such a supporter of the show through
Speaker 1: this crazy year. Ellen, I want to go a little
Speaker 1: bit technical right now. The Bloomberg Financial Conditions Index, which
Speaker 1: I think the great Michael Rosenberg told me, is eleven ratios.
Speaker 1: The fact is, over November it has become more accommodative.
Speaker 1: On a standard deviation basis. We moved from the gloom
Speaker 1: of a negative one standard deviation almost back to negative
Speaker 1: point five zero standard deviation. We are more accommodative. How
Speaker 1: does that change Chairman Powell's each today and the FED
Speaker 1: meeting forward? Tom, I think it's a great question really
Speaker 1: because I think on the one hand, Chairman pal will
Speaker 1: just look to what the FED fund futures are pricing
Speaker 1: in and it's looking for a peek in fat funds,
Speaker 1: and around five percent I think that would seem pretty
Speaker 1: reasonable to him. Then you look at really what's happened
Speaker 1: since the last firm C meeting, and you know, as
Speaker 1: you remark, every component, every major component of the Financial
Speaker 1: Conditions Index has ease substantially. Obviously, the bond market particularly,
Speaker 1: I think it's been driving things. Some of this is
Speaker 1: very much related to c p I, but you've also
Speaker 1: got tangential markets, things like the oil price which has
Speaker 1: come down very sharply. I think around the fm C
Speaker 1: was tracking around ninety dollars a barrel, and the w
Speaker 1: T I it's now eighty dollars a barrel. Um. It's
Speaker 1: just everything is pointing in a more constructive way. I
Speaker 1: don't think that's a terrible thing from your standpoint. I
Speaker 1: think it's once something you've one to monitor, but I
Speaker 1: think it takes away to some extent the fears of
Speaker 1: particularly sharp slowdowning growth. I thought Drugging was so good
Speaker 1: on this at the ECB. The economists from M, I, T,
Speaker 1: and L, and you are as well in your research.
Speaker 1: You know, you spend a lot of time on the when.
Speaker 1: The way we frame this, folks, our listeners and viewers
Speaker 1: is the X axis. Think about that chart you made
Speaker 1: in school, Allen Ruskin. What matters on the X axis
Speaker 1: right now as you go out in the next year
Speaker 1: and indeed into two thousand twenty four. Where is the
Speaker 1: when that you're focused on? Yeah, well, I think you know,
Speaker 1: people ask questions on the when related to when will
Speaker 1: we have a recession? And the main recession indicated that
Speaker 1: people have been looking at. Of course we all focused
Speaker 1: on is the yield curve, and that suggestive of a recession.
Speaker 1: Normally it leads by roughly about eighty months to two
Speaker 1: years at long lead time, and that would suggest pretty
Speaker 1: much the second half of three is the when on
Speaker 1: that particular question. When we look at other leading indicators,
Speaker 1: of course you're seeing something which is on a path
Speaker 1: towards a recession, but it is not saying a recessions
Speaker 1: baked in the cake. The one point of that I
Speaker 1: would say to them that I would emphasize, as we
Speaker 1: are all looking at the same thing, and the yield
Speaker 1: curve could give some misleading signals given the supply side shock,
Speaker 1: and it's a favorable supply side shock that we're currently
Speaker 1: under at the moment. You know that that that could
Speaker 1: certainly lead to more flattening of the yield curve than
Speaker 1: you would otherwise think. And I don't think it's quite
Speaker 1: as recessionary or as stronger recession signal as it would
Speaker 1: otherwise be. Lisa, can we have a victory lab from
Speaker 1: Matthew Lozetti a colleague and Mr Ruskin he nailed the
Speaker 1: recession call. That also the win of it in hindsight
Speaker 1: out farther. Remember we were given him grief because he
Speaker 1: was talking end of two thousand twenty three. Whatever I
Speaker 1: mean Lozetti nailed so far, and a lot of people
Speaker 1: are on board with that. The question that I'm wondering, though,
Speaker 1: exactly to your point, Alan, is a supply side issues
Speaker 1: which we really don't understand in terms of whether they
Speaker 1: come back online, whether you get those production delays that
Speaker 1: are eradicated, especially with COVID zero. What's your base case
Speaker 1: in terms of supply chain disruptions and lack of supplies,
Speaker 1: and whether the ease is enough next year to really
Speaker 1: reduce some of the inflationary pressure. I think it's easied
Speaker 1: enormously really. I think if you look at supply deliveries
Speaker 1: in particular, in most indicators, they've actually you know, normalized
Speaker 1: the pretty much got back into the range that we
Speaker 1: saw pre COVID. When you look at p m my
Speaker 1: prices paid, those numbers are typically also within the zone
Speaker 1: of what we saw pre COVID as well. So I
Speaker 1: think there's reasons for optimism on on the supply side.
Speaker 1: I think, like everybody, you know, the biggest concern is
Speaker 1: that inflation has been around for long enough that has
Speaker 1: become entrenched in the labor market, and you know, that's
Speaker 1: I think where the residual inflation pressures still reside and
Speaker 1: that's really you know, which is gonna It's really going
Speaker 1: to create angst amongst the sed you know if we
Speaker 1: see employment cost index and not come down the other
Speaker 1: way to indicators like audio and he's not come down.
Speaker 1: Which is a reason why a lot of people are
Speaker 1: watching jolts today and on Friday the jobs report. People
Speaker 1: are also watching the housing market reports to get some
Speaker 1: sort of sense with respect to your core, which is
Speaker 1: Fax where you started. And I'm wondering Vasilius Tunakas yesterday
Speaker 1: of City saying that the housing market may be the
Speaker 1: biggest distinguishing feature between the winners and the losers internationally,
Speaker 1: the ones that have the worst housing markets might end
Speaker 1: up suffering the biggest weakening in their currencies. Do you
Speaker 1: buy that? Do you see that as a as a
Speaker 1: as a correct roadmap? Um? I think it is an
Speaker 1: important roadmap and in most cycles it tends to be dominant.
Speaker 1: I would say here in the US at least, the
Speaker 1: concerns on housing are probably a low exaggerated. Starts is
Speaker 1: one of the housing starts one of the best indicators,
Speaker 1: permits one of the best indicators. But I think you
Speaker 1: can have house price deflation come off quite substantially without
Speaker 1: it being too problematic for consumption, in part because house
Speaker 1: inflation was so strong to begin with. I think on
Speaker 1: an international side, the countries I would worry about. Most
Speaker 1: of my colleagues in London have pointed the Start, Sweden
Speaker 1: and Canada those of the countries where the debt to
Speaker 1: relatively disposable income is most problematic, the financing issues are
Speaker 1: most problematic. So I think you have to watch Canada,
Speaker 1: the Canadian dollar and the Start. You really those are
Speaker 1: the vulnerable currencies. And I know you are buying Christmas
Speaker 1: tree to keep up with the Faroe family and Farrell
Speaker 1: had a tree up away before Thanksgiving. I'm going out
Speaker 1: today on demand of afterthought and I need to make
Speaker 1: a fects trade here. Dollar up four off the bottom?
Speaker 1: Can you stay resilient strong dollar this year? And what's
Speaker 1: the best way to play it? Yeah? Look, I think
Speaker 1: the dollar has almost certainly peaked. You know, you don't
Speaker 1: get these sizeable moves without usually some sort of follow through.
Speaker 1: But I think we're going to have a bit of
Speaker 1: a bumpy year as it were, because you know, the
Speaker 1: Fed is obviously saw tightening. We've still got to get
Speaker 1: to at least a five percent funds rate. If they're
Speaker 1: risks in terms of the funds rate, it's probably still
Speaker 1: to the top side rather than to the downside. So
Speaker 1: you know, that's going to bolster the dollars case. I
Speaker 1: think over time we're just building an effectively a base
Speaker 1: on euro dollar between parity and say one oh five,
Speaker 1: for an eventual assault on sort of one ten. Uh.
Speaker 1: You know later in the year, Alan want to put
Speaker 1: a from twenty three that is yeah, Alam Ruskin at
Speaker 1: Deutsche Bank. Allen, thank you. This is the Bloomberg Surveillance Podcast.
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