WEBVTT - Surveillance: Russia Talks with Trubowitz

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along

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<v Speaker 1>with Jonathan Ferroll and Lisa Brownowitz Jaily. We bring you

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<v Speaker 1>insight from the best and economics, finance, investment, and international relations.

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<v Speaker 1>Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com

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<v Speaker 1>and of course on the Bloomberg Terminal. Now a definitive

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<v Speaker 1>conversation with Peter Tribowitz, Professor of International Relations at LS

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<v Speaker 1>of course iconic at University of Texas, and it's important

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<v Speaker 1>group group effort the retreat of the West, which was timely,

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<v Speaker 1>to say the least, over the past twenty four at months.

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<v Speaker 1>I want to take it the other way, Professor Trubowitz,

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<v Speaker 1>and say the advance of the East. If I look

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<v Speaker 1>at Putin and I see him, and this is a

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<v Speaker 1>phrase from you, of the power, power and partisan ship

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<v Speaker 1>that we can see. How much power does Mr Putin

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<v Speaker 1>hold and what partisanship can he look for? Is the

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<v Speaker 1>East advances? I'm good to be with you. So, uh,

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<v Speaker 1>Putin holds a lot of cards and he's displaying them.

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<v Speaker 1>He's been using them and playing them. Um, they're mostly

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<v Speaker 1>hard power cards, deploying troops, running exercises, moving his ships

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<v Speaker 1>through the Dardanel Straits and so forth. He doesn't have

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<v Speaker 1>much soft power, and there's a lot of opposition uh

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<v Speaker 1>in Europe to what he's doing, and the closer you

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<v Speaker 1>get to Russia, the more opposition there is if you're

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<v Speaker 1>talking about in the Baltic States and obviously in in Ukraine.

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<v Speaker 1>I think he's gotten himself to a point now where

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<v Speaker 1>he's I mean, he's laid down a lot of demands

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<v Speaker 1>and I think we're now kind of a crunch time

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<v Speaker 1>where we're to see whether or not he gets traction

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<v Speaker 1>on his main demand, which is that the Ukraine not

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<v Speaker 1>joined NATO or not. I think that's where the game

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<v Speaker 1>is right now. We're in the eleventh hour or whatever

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<v Speaker 1>you know metaphor you want to use. There's some hopeful signs,

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<v Speaker 1>but this could easily go south. What will you listen

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<v Speaker 1>for from the new leader of Germany and the coming hours.

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<v Speaker 1>I think that's is a very interesting trip that he's

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<v Speaker 1>making because first, as you know, he stopped yesterday in

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<v Speaker 1>Kiev and had a conversation there with Zelensky, the Ukrainian leader,

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<v Speaker 1>before moving on to to Putin. I think the question

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<v Speaker 1>here is in my what I'm looking for is whether

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<v Speaker 1>or not Zelenski's comment yesterday about NATO being his country's

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<v Speaker 1>desire to be part of NATO being more a dream

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<v Speaker 1>in quotes than a realistic goal is somehow the basis

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<v Speaker 1>for private negotiations, stuff that we're just not privy to

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<v Speaker 1>right now and arrangements that are going on, And whether

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<v Speaker 1>or not the announcement this morning that Russia was pulling

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<v Speaker 1>back some of its troops is in response to that

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<v Speaker 1>unclear reading tea leaves. Um, but um, that's that is

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<v Speaker 1>where I think they you know, the discussion and the

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<v Speaker 1>negotiation is right now, Peter. Usually it is reading tea leaves.

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<v Speaker 1>And yet we've gotten an unprecedented amount of information from

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<v Speaker 1>the US administration in real time about what they believe

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<v Speaker 1>to be happening. How do you read that? I think

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<v Speaker 1>there are multiple audiences there, Lisa, that's a great question.

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<v Speaker 1>One of them is to underscore to the Ukrainians how

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<v Speaker 1>serious the situation is. The second is really or maybe

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<v Speaker 1>it should be. The first is to deter putin they're

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<v Speaker 1>getting information, it's coming from close to Bolton, it would appear,

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<v Speaker 1>and uh, and to really raise in a sense his

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<v Speaker 1>understanding or the stakes that are involved, and that the

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<v Speaker 1>US is is in a sense trying to get out

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<v Speaker 1>in front on the narrative or the information game. But

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<v Speaker 1>I think the third thing is to try to demonstrate

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<v Speaker 1>to the American public that it's all they're on game

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<v Speaker 1>inside the United State, that Biden administration is managing this

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<v Speaker 1>much more effectively than let's say it managed the Afghan

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<v Speaker 1>pull out. Peter Trubowitz to go back to George Kennon

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<v Speaker 1>and the founding of all this, is this the new containment?

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<v Speaker 1>Are we searching for a new Western strategy to contain

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<v Speaker 1>the leader of Russia? Well, I think the West is

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<v Speaker 1>searching for a strategy. I don't think that this is

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<v Speaker 1>our primary Western states like the U S and Germany

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<v Speaker 1>and UK and others. I don't think this is what

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<v Speaker 1>they had imagined. And but ironically, what is going on

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<v Speaker 1>here thus far is it putent. Efforts to change the

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<v Speaker 1>European security structure have actually um I think given native

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<v Speaker 1>given the Western Alliance kind of new purpose, something that

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<v Speaker 1>really hasn't had as your question alludes to since the

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<v Speaker 1>Soviet Union collapsed thirty years ago. It's led to the

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<v Speaker 1>deployment of more US and other troops in Eastern Europe

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<v Speaker 1>as well as the delivery of thousands of anti tank

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<v Speaker 1>missiles and other weapons to the Ukraine. Putin has managed

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<v Speaker 1>to get everybody's attention in the West, but the results

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<v Speaker 1>are not all favorable to him. Whether or not this

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<v Speaker 1>is what takes form as kind of on a Western

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<v Speaker 1>collective strategy is unclear. Remember what Joe Biden would like

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<v Speaker 1>to be focusing on is China and East Asia. So

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<v Speaker 1>every day that he is in his team is investing

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<v Speaker 1>time in Europe, is the day really that they're not

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<v Speaker 1>getting the message out as much with respect to East

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<v Speaker 1>Asia and in China. And I say that despite the

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<v Speaker 1>fact that the Secretary of State is in East Asia

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<v Speaker 1>right now. But that story is buried below the full Professor,

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<v Speaker 1>what a great point. This tritey was a clinic and

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<v Speaker 1>I'd love for you to come back soon so we

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<v Speaker 1>can extend that conversation to the second chapter of this

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<v Speaker 1>which I believe is a discussion about China. Peter, Thank you,

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<v Speaker 1>Peter Tripu. It's that of the London School of Economics.

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<v Speaker 1>Gabriella scientist joins his global market Strategies that JP Morgan

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<v Speaker 1>Asset Management. She writes one of the clearest, most detailed

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<v Speaker 1>notes on the street with a real sense of international affairs. Gabriella,

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<v Speaker 1>thank you so much for joining us. I love what

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<v Speaker 1>you say. Throw out the blueprint, Okay, brilliant, what's the

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<v Speaker 1>what's the replacement? What is the new blueprint that matters? Hi? Tom,

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<v Speaker 1>good to see you. So I think that's ultimately what

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<v Speaker 1>we're trying to figure out this year as investors. Right,

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<v Speaker 1>the market is pricing in today what's going to be

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<v Speaker 1>a transition year for the economy from pandemic recovery to

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<v Speaker 1>post pandemic expansion. It's one where we have more optimism

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<v Speaker 1>about growth, but we're also a bit more concerned about inflation.

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<v Speaker 1>So it does mean a different withdrawal of liquidity than

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<v Speaker 1>we had post financial crisis. That's not the blueprint. Now,

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<v Speaker 1>we need to figure out what the new blueprint is,

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<v Speaker 1>and I don't think investors have a clear reading that,

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<v Speaker 1>and neither do policymakers. They're trying to figure that out

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<v Speaker 1>real time, out loud with several FED speeches. Uh. And

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<v Speaker 1>there's so many permutations we can come up with right

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<v Speaker 1>in terms of rates and balance sheet timing, pace endpoint.

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<v Speaker 1>So ultimately we do think volatility is going to stay

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<v Speaker 1>higher for longer. That means making big outsize bets on

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<v Speaker 1>a tactical position is really difficult this year, Gabrielle. I

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<v Speaker 1>know you speak four or five six eight language, jas.

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<v Speaker 1>I mean that's what you do with Pennsylvania. But the

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<v Speaker 1>answer is you speak Greek. Let's go alpha beta right now?

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<v Speaker 1>You say, within investment in finance, alpha matters? What does

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<v Speaker 1>alpha and why does it matter? Now? So beta is

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<v Speaker 1>just really the kind of return you can get just

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<v Speaker 1>by being invested in the market. Alpha is the kind

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<v Speaker 1>of excess return you can generate by focusing on the

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<v Speaker 1>kinds of companies you invested. And I think for the

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<v Speaker 1>last fifteen years or so, it's been a cycle of beta.

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<v Speaker 1>I was all just about being invested in writing um

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<v Speaker 1>returns of of indices, right, and you could have generated

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<v Speaker 1>a six and a half percent annualized returns just from

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<v Speaker 1>a very simple sixty four portfolio. But going forward, because

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<v Speaker 1>the market has recovered already so quickly post pandemic shock,

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<v Speaker 1>we only project beta returns going forward of four point

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<v Speaker 1>three percent annualized, So we gotta work harder to generate

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<v Speaker 1>the same returns as the last cycle. And that's where

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<v Speaker 1>alpha comes in, you're starting to see a turn and

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<v Speaker 1>hedge fun alpha. That could be a sign that really

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<v Speaker 1>this is the dawn of alpha. There's a lot of

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<v Speaker 1>valuation dispersion beneath the surface. There's a lot of value

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<v Speaker 1>to add by focusing on stock pick and going forward.

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<v Speaker 1>How much of the alpha Gabriella comes from China. So

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<v Speaker 1>China is a really important piece of this puzzle because

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<v Speaker 1>you can add alpha in Chinese markets, and you can

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<v Speaker 1>also improve the sharp ratio of a portfolio by adding

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<v Speaker 1>Chinese onshore assets um SO both stocks and bonds. We

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<v Speaker 1>projected for China to have the highest returns over the

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<v Speaker 1>next decade, double for Chinese A shares versus the US

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<v Speaker 1>and double for Chinese local currency government bonds versus U

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<v Speaker 1>S Treasury. So there's a lot of improvement that can

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<v Speaker 1>happen on returns by adding Chinese assets, and you also

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<v Speaker 1>get a diversification kicker from those markets. They really beat

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<v Speaker 1>to their own drum. You're seeing that in action this year. Santos,

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<v Speaker 1>thank you so much. With JP Morgan Asset Management, Mark

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<v Speaker 1>McCormick here Global Ahead a foreign exchange strategy TV Securities

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<v Speaker 1>in Canada. Mark McCormick joins us this morning, Mark, I

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<v Speaker 1>look at the continuum of your note and it seems

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<v Speaker 1>like it's a McCormick see change here off of your

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<v Speaker 1>wonderful call on dollar resiliency. Are you ready to make,

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<v Speaker 1>as Bullard would say, a regime change call in the

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<v Speaker 1>land of McCormick. Yeah, I think we're getting closer to

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<v Speaker 1>the top and the dollar in broad terms, but I

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<v Speaker 1>do think what's what's kind of interesting is there's still

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<v Speaker 1>some more dollar resiliency ahead. So I know there's like

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<v Speaker 1>kind of a big shift in the market in terms

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<v Speaker 1>of how much expectations are going on the Euro, but

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<v Speaker 1>I still think that there's room here to trade euro

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<v Speaker 1>from the downside. Um, so we're kind of thinking a

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<v Speaker 1>bit about a V shape bounce in the Euro. So

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<v Speaker 1>we see another move maybe towards one twelve. We bought

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<v Speaker 1>them out there around fed fed liftoff time, and then

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<v Speaker 1>we're basically off to the races in the back half

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<v Speaker 1>of the year, looking for kind of a revisit around

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<v Speaker 1>one twenty toward the end of You do a great

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<v Speaker 1>job on the currency wars, and a currency wars are

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<v Speaker 1>usually ascribe to race to the bottom of weaker and

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<v Speaker 1>weaker currencies to boost exports. But you take it a

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<v Speaker 1>different way, what does next year's currency wars look like?

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<v Speaker 1>So we're basically living in it now, which is a

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<v Speaker 1>race to the top where essentially policymakers prefer currency strength

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<v Speaker 1>because it's a way to limit inflationary pressures. And I think,

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<v Speaker 1>as you mentioned, you noted Swiss frank and that's a

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<v Speaker 1>that's a clear story here that the central bank, the SMB,

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<v Speaker 1>has allowed a little bit more currency strength and more

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<v Speaker 1>people wouldn't have anticipated. And Swissy has been much stronger

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<v Speaker 1>than more people would have expected in this environment of

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<v Speaker 1>higher global yields, largely because they're allowing the currency to

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<v Speaker 1>do some of the work for them. So stronger currency,

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<v Speaker 1>lower infreation. And now every central bank around the world,

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<v Speaker 1>all policymakers actually are looking for stronger currencies. They're not

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<v Speaker 1>telling you that, but you can see it based on

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<v Speaker 1>what their actions and what they're doings in. The preference

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<v Speaker 1>now is for stronger currency um and that's helping to

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<v Speaker 1>work off some of the inflationary pressures we have mark

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<v Speaker 1>In the past decade, we've really talked about rate hikes

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<v Speaker 1>or rate cuts really dictating the moves that we've seen

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<v Speaker 1>in currency markets, and that's shifted over the past year

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<v Speaker 1>to a growth outlook over the next twelve months, do

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<v Speaker 1>you think it's going to primarily be driven by growth

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<v Speaker 1>and not necessarily rate moves? And I point to China

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<v Speaker 1>for example, where you see the one actually strengthening despite

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<v Speaker 1>the increased support and the potential rate cuts coming up. Yeah,

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<v Speaker 1>it's an important question because what I think is most important,

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<v Speaker 1>and our work shows it, is currencies are multidimensional. So

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<v Speaker 1>I know we're kind of focused on central banks and

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<v Speaker 1>geopolitics right now, but if you look at what factors

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<v Speaker 1>have been making money the last couple of years, it's value,

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<v Speaker 1>it's growth, and it's also terms of trade. So I

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<v Speaker 1>do think growth is also it's it shows on our

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<v Speaker 1>back test it's the most important factor through periods of time,

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<v Speaker 1>and I think it's it's one of the things that

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<v Speaker 1>will matter most, especially on COVID reopenings. You know, if

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<v Speaker 1>we're moving in a world where we have since we

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<v Speaker 1>have synchronized policies that are kind of allowing everyone to reopen,

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<v Speaker 1>growth is gonna matter and we're going to see growth diversions.

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<v Speaker 1>But I think when we think about central banks, growth, commodity,

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<v Speaker 1>terms of trade, and value, and I think one of

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<v Speaker 1>the most important things we have to think about our equities.

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<v Speaker 1>But on the rate side, where we're going now it's

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<v Speaker 1>really about terminal rate pricing. It's kind of like the

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<v Speaker 1>first ones in are now kind of the countries are

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<v Speaker 1>at a big, big disadvantage. If you look at the

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<v Speaker 1>Canadian dollar and the BOC started to move last year

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<v Speaker 1>and it's kind of one of the least exciting currencies

0:13:28.160 --> 0:13:31.199
<v Speaker 1>now in the central bank trade. But there's a moment

0:13:31.200 --> 0:13:32.920
<v Speaker 1>in time here for probably the next three to six

0:13:32.960 --> 0:13:35.760
<v Speaker 1>months when we think about terminal rates and figuring out

0:13:35.760 --> 0:13:37.920
<v Speaker 1>who is the highest terminal rate will help the currency.

0:13:38.000 --> 0:13:40.640
<v Speaker 1>But if we step back from that, growth, terms of

0:13:40.679 --> 0:13:44.760
<v Speaker 1>trade and commodity exposure, equity momentum, and value are the

0:13:44.840 --> 0:13:47.520
<v Speaker 1>critical drivers for currencies moving through this year and probably

0:13:47.559 --> 0:13:49.720
<v Speaker 1>into next year. So if we connect this mark with

0:13:49.800 --> 0:13:52.040
<v Speaker 1>this idea of the currency wars that you're talking about,

0:13:52.320 --> 0:13:56.040
<v Speaker 1>where nations want to see stronger currencies to fight off inflation,

0:13:56.400 --> 0:13:58.679
<v Speaker 1>how does this factor into the Fed's calculus. Does this

0:13:58.760 --> 0:14:01.599
<v Speaker 1>actually encourage them to be a little bit more hesitant

0:14:01.920 --> 0:14:05.280
<v Speaker 1>to raise rates or be more aggressive in order to allow,

0:14:05.480 --> 0:14:08.920
<v Speaker 1>ironically the dollar to strengthen more because it will increase

0:14:08.960 --> 0:14:13.760
<v Speaker 1>growth prospects. Well, I think part of it is they

0:14:13.840 --> 0:14:16.960
<v Speaker 1>want to essentially, I wouldn't use the words shock the markets,

0:14:16.960 --> 0:14:18.319
<v Speaker 1>but essentially what they want to do is kind of

0:14:18.360 --> 0:14:20.400
<v Speaker 1>get ahead of expectations. And I think what we're what

0:14:20.600 --> 0:14:22.880
<v Speaker 1>US is worried more so than any other country in

0:14:22.920 --> 0:14:25.000
<v Speaker 1>the world, is that ranted wage pressures are starting to

0:14:25.080 --> 0:14:27.440
<v Speaker 1>rise faster than other countries. If you still kind of

0:14:27.440 --> 0:14:30.680
<v Speaker 1>strip out your diffusion indicators for inflation in Europe, there's

0:14:30.680 --> 0:14:32.680
<v Speaker 1>still definitely a focus on energy and that's a big

0:14:32.760 --> 0:14:35.800
<v Speaker 1>driver of inflation. But US is starting to see um

0:14:35.800 --> 0:14:39.400
<v Speaker 1>expectations around longer term projections of inflation starting to rise

0:14:39.400 --> 0:14:42.560
<v Speaker 1>potentially uncomfortable levels. So I think there's a component here

0:14:42.600 --> 0:14:44.560
<v Speaker 1>that what the fence trying to do is really they've

0:14:44.680 --> 0:14:47.040
<v Speaker 1>got a little bit too far behind the curve. They're

0:14:47.040 --> 0:14:49.080
<v Speaker 1>trying to get aggressively in front of the curve, but

0:14:49.080 --> 0:14:52.760
<v Speaker 1>they're also wary that growth is also slowing. So they

0:14:52.800 --> 0:14:54.680
<v Speaker 1>have a moment in time here where they can hike,

0:14:54.680 --> 0:14:56.840
<v Speaker 1>and they can hike aggressively because they actually might be

0:14:56.920 --> 0:14:59.960
<v Speaker 1>hiking into what is very slowly slow down in the

0:15:00.000 --> 0:15:02.040
<v Speaker 1>economy next year. So I think they're definitely just trying

0:15:02.040 --> 0:15:04.720
<v Speaker 1>to get ahead of things and anchor longer term inflation

0:15:04.720 --> 0:15:07.360
<v Speaker 1>expect Here, you're gonna revisit Swiss franc Here you're a

0:15:07.440 --> 0:15:09.880
<v Speaker 1>swissy and one oh four eight seven five and one

0:15:09.880 --> 0:15:12.000
<v Speaker 1>oh five print would be weaker Swiss franc We're not

0:15:12.120 --> 0:15:15.920
<v Speaker 1>there yet. You've been doing this for years. Mark watching

0:15:16.080 --> 0:15:20.040
<v Speaker 1>Swiss National Bank. We're talking about balance sheet dynamics in America.

0:15:20.800 --> 0:15:24.880
<v Speaker 1>They own a truckload of Apples, Starbucks and other selected

0:15:25.000 --> 0:15:30.360
<v Speaker 1>equity shares. What is their vulnerability is they make a

0:15:30.400 --> 0:15:33.880
<v Speaker 1>potload of money and in Apple's shares. I just don't

0:15:33.960 --> 0:15:37.680
<v Speaker 1>understand that. Well. It's quite interesting too because it goes

0:15:37.720 --> 0:15:40.760
<v Speaker 1>around with the global growth momentum stories. So if you

0:15:40.760 --> 0:15:43.680
<v Speaker 1>think about kind of a big driver this moving markets around,

0:15:43.840 --> 0:15:46.880
<v Speaker 1>you know what's underperforming? US equities are underperforming because they

0:15:46.920 --> 0:15:49.880
<v Speaker 1>are highly leveraged to growth. Growth is highly levered to

0:15:50.080 --> 0:15:52.720
<v Speaker 1>real rates, and so not not only are U S

0:15:52.760 --> 0:15:55.120
<v Speaker 1>real rates rising now, but global real rates a rising.

0:15:55.160 --> 0:15:58.480
<v Speaker 1>So the concern from that trade is that they're going

0:15:58.520 --> 0:16:01.680
<v Speaker 1>to be owning underperforming sets um And I think what's

0:16:01.760 --> 0:16:03.840
<v Speaker 1>what's a very interesting is that when we think about

0:16:03.880 --> 0:16:07.160
<v Speaker 1>the growth to growth to value rotation, which I think

0:16:07.160 --> 0:16:09.320
<v Speaker 1>is going to occur in equities, but the sequencing is

0:16:09.360 --> 0:16:12.040
<v Speaker 1>too quick to trade it now because ultimately we need

0:16:12.120 --> 0:16:14.920
<v Speaker 1>higher real rates, which means we need fed terminal priceing

0:16:14.960 --> 0:16:18.440
<v Speaker 1>to go up. But the concern for that moment for

0:16:18.560 --> 0:16:22.760
<v Speaker 1>Swiss franc is Euro offers a tremendous amount more value

0:16:23.160 --> 0:16:24.840
<v Speaker 1>than the Swiss Frank. And then if you kind of

0:16:24.880 --> 0:16:27.440
<v Speaker 1>again think about the performance of the balance sheet or

0:16:27.480 --> 0:16:30.520
<v Speaker 1>having exposures to those equity markets, those are the gonna

0:16:30.520 --> 0:16:33.040
<v Speaker 1>be the equity markets that are underperforming probably over the

0:16:33.080 --> 0:16:35.040
<v Speaker 1>next six months, over the next twelve months. So this

0:16:35.080 --> 0:16:37.200
<v Speaker 1>is where Euro Swiss is gonna be very interesting. Is

0:16:37.240 --> 0:16:41.160
<v Speaker 1>that Swissy was allowed to kind of again control inflation

0:16:41.520 --> 0:16:43.520
<v Speaker 1>a little bit more than anticipating you didn't need that

0:16:43.600 --> 0:16:46.000
<v Speaker 1>from the Euro. You also got again the balance she's

0:16:46.080 --> 0:16:48.800
<v Speaker 1>kind of leveraged these global growth stocks or there are

0:16:48.840 --> 0:16:51.400
<v Speaker 1>leverage real rates, But the value in the equity store

0:16:51.440 --> 0:16:53.320
<v Speaker 1>is really in the Euro, not in Swiss frank. As

0:16:53.320 --> 0:16:54.760
<v Speaker 1>we move forward, and Mark, I'm going to ask you

0:16:54.800 --> 0:16:56.560
<v Speaker 1>a question and if you don't want to answer it,

0:16:56.600 --> 0:16:59.880
<v Speaker 1>you can just pretend you can't hear me, guy, and

0:17:00.040 --> 0:17:04.080
<v Speaker 1>in Canada right now. Yeah, So in March, the central

0:17:04.080 --> 0:17:08.480
<v Speaker 1>Bank is going to rate and that's exactly what I's got.

0:17:08.560 --> 0:17:14.040
<v Speaker 1>Mort Away, thank you, Mott, m Security, thank you very much.

0:17:18.560 --> 0:17:22.720
<v Speaker 1>Na marcsca joins now chief Financial A constant Jeffreys Ania.

0:17:22.960 --> 0:17:28.960
<v Speaker 1>The inflation reports plural that we've seen signify more sustained inflation.

0:17:29.440 --> 0:17:32.040
<v Speaker 1>Do you need to take a terminal rate year end

0:17:32.880 --> 0:17:35.760
<v Speaker 1>or end of first quarter two thousand twenty three and

0:17:35.840 --> 0:17:40.600
<v Speaker 1>bring it up. I would say, you know, we should

0:17:40.600 --> 0:17:45.320
<v Speaker 1>certainly be pricing more hikes um into the curve. The

0:17:45.400 --> 0:17:48.680
<v Speaker 1>question is should be pricing more in the next six months,

0:17:49.040 --> 0:17:51.560
<v Speaker 1>And I think the answer to that from my perspective

0:17:51.840 --> 0:17:55.399
<v Speaker 1>is no, because although inflation has you know, persisted a

0:17:55.440 --> 0:17:58.760
<v Speaker 1>little bit longer than expected, we have some forward looking

0:17:58.760 --> 0:18:02.119
<v Speaker 1>indicators that's still suggest that within the next few months,

0:18:02.520 --> 0:18:05.120
<v Speaker 1>you know, it will peak. And the fact is that

0:18:05.160 --> 0:18:08.040
<v Speaker 1>we just don't know at this point how much of

0:18:08.080 --> 0:18:11.720
<v Speaker 1>this will self correct versus how much will ultimately have

0:18:11.880 --> 0:18:13.959
<v Speaker 1>to be squeezed out by the fact. Well, what are

0:18:14.000 --> 0:18:16.240
<v Speaker 1>some of those points? Are those points in c p

0:18:16.440 --> 0:18:20.359
<v Speaker 1>I or are they in PPI? The business inflation index.

0:18:20.440 --> 0:18:24.040
<v Speaker 1>What are the tea leaves that give you confidence inflation

0:18:24.200 --> 0:18:29.120
<v Speaker 1>abbs after the two sets of data we've received. So, look,

0:18:29.160 --> 0:18:32.280
<v Speaker 1>one of the things that drives inflation is product shortages,

0:18:32.400 --> 0:18:35.360
<v Speaker 1>and we've clearly seen that kind of build and and

0:18:35.800 --> 0:18:38.840
<v Speaker 1>intensified through the course of the last year. But those

0:18:38.880 --> 0:18:42.479
<v Speaker 1>supply demendant balances, at least in the consumer product space,

0:18:42.840 --> 0:18:48.840
<v Speaker 1>actually peaked around October November December. Imports surged tremendously at

0:18:48.840 --> 0:18:52.080
<v Speaker 1>a time where demands sort of plateaued. As a result,

0:18:52.160 --> 0:18:55.760
<v Speaker 1>we've built some inventories in the retail sector in particular,

0:18:55.800 --> 0:18:58.679
<v Speaker 1>where inventories are at the highest level they've been since

0:18:59.000 --> 0:19:02.639
<v Speaker 1>April of twenty twenty. We're also starting to see some

0:19:02.720 --> 0:19:06.080
<v Speaker 1>signs that inflation expectations on the part of consumers are

0:19:06.119 --> 0:19:08.240
<v Speaker 1>rolling over. That was the case with the New York

0:19:09.080 --> 0:19:11.720
<v Speaker 1>survey that came out yesterday. The three year I've had

0:19:11.760 --> 0:19:15.240
<v Speaker 1>inflation expectations. The climb pretty sharply, also two levels not

0:19:15.400 --> 0:19:18.879
<v Speaker 1>seen since April of twenties. So I think that you know,

0:19:19.000 --> 0:19:22.600
<v Speaker 1>consumers are recognizing the product shortages are not as acute

0:19:22.640 --> 0:19:26.080
<v Speaker 1>as they were, um say, in September October, and it

0:19:26.119 --> 0:19:29.359
<v Speaker 1>seems like that's what they're responding to that where does

0:19:29.400 --> 0:19:32.000
<v Speaker 1>inflation have to come down to make you comfortable to

0:19:32.040 --> 0:19:35.240
<v Speaker 1>feel like the Fed can hike less than seven times

0:19:35.320 --> 0:19:40.159
<v Speaker 1>and still be complacent. I think if we see um

0:19:40.200 --> 0:19:43.640
<v Speaker 1>the month over month trajectory kind of recre get down

0:19:43.720 --> 0:19:47.480
<v Speaker 1>two point three type readings, I think that will be

0:19:47.640 --> 0:19:50.399
<v Speaker 1>enough to sort of stabilize expectations at the front end

0:19:50.440 --> 0:19:53.040
<v Speaker 1>of the curve. Um, you know, when we're thinking about

0:19:53.080 --> 0:19:57.080
<v Speaker 1>the longevity or sustainability of this tightening cycle, and it's

0:19:57.119 --> 0:19:59.800
<v Speaker 1>the curve price for enough in twenty three and twenty four.

0:20:00.200 --> 0:20:02.320
<v Speaker 1>I think that's more of a question related to the

0:20:02.400 --> 0:20:04.679
<v Speaker 1>labor market in the shape of the Phillips curve. And

0:20:04.720 --> 0:20:07.520
<v Speaker 1>I do think that, you know, those pressures will persist.

0:20:07.960 --> 0:20:10.120
<v Speaker 1>Right now, it seems to me like the labor market

0:20:10.160 --> 0:20:12.720
<v Speaker 1>is going to put a floor under inflation at around

0:20:12.760 --> 0:20:15.119
<v Speaker 1>three percent, just given where we are right now in

0:20:15.160 --> 0:20:18.600
<v Speaker 1>terms of wages, unit labor calls, so um, you know. So,

0:20:18.600 --> 0:20:20.600
<v Speaker 1>so I do think that there is a piece of

0:20:20.600 --> 0:20:23.560
<v Speaker 1>this inflation story that will have to be squeezed out

0:20:23.600 --> 0:20:26.280
<v Speaker 1>by the FED, and and probably a two percent terminal

0:20:26.359 --> 0:20:29.000
<v Speaker 1>rate is not enough to do that. But I just

0:20:29.160 --> 0:20:31.119
<v Speaker 1>I just don't necessarily think that we need to be

0:20:31.160 --> 0:20:35.680
<v Speaker 1>pricing any more than seven hike into and at what

0:20:35.920 --> 0:20:39.840
<v Speaker 1>terminal rate is possible to keep the economy from tanking?

0:20:39.840 --> 0:20:42.520
<v Speaker 1>In other words, how much can the Fed hike before

0:20:42.520 --> 0:20:45.240
<v Speaker 1>it curtails any kind of recovery and goes in the

0:20:45.240 --> 0:20:48.640
<v Speaker 1>opposite direction. I think it really has to do with

0:20:48.720 --> 0:20:52.080
<v Speaker 1>that kind of speed and how they distribute those hikes, right,

0:20:52.119 --> 0:20:54.160
<v Speaker 1>because if they get to the neutral rate of two

0:20:54.240 --> 0:20:57.600
<v Speaker 1>fifty in one year, uh, that's gonna knock off a

0:20:57.760 --> 0:20:59.680
<v Speaker 1>lot of you know, from growth next year and could

0:20:59.720 --> 0:21:02.600
<v Speaker 1>put actually took us into the recession um if they

0:21:02.600 --> 0:21:04.880
<v Speaker 1>had seven times this year, which is our base base

0:21:04.960 --> 0:21:07.600
<v Speaker 1>and from which is what's priced into the curve, that's

0:21:07.600 --> 0:21:11.119
<v Speaker 1>gonna take off just under one percent from growth momentum

0:21:11.200 --> 0:21:14.879
<v Speaker 1>in twenty three um, which is obviously a sizeable drug,

0:21:15.040 --> 0:21:17.960
<v Speaker 1>but not enough to put us in a recession um.

0:21:18.040 --> 0:21:20.320
<v Speaker 1>So it really depends on how quickly we get to

0:21:20.359 --> 0:21:22.919
<v Speaker 1>that neutral rate. Does someone want the meeting room at

0:21:22.960 --> 0:21:26.560
<v Speaker 1>Jeff Ferrance is not what the banking is. Apparently there's

0:21:26.600 --> 0:21:29.280
<v Speaker 1>construction going on above this. We go Aneta will let

0:21:29.320 --> 0:21:31.159
<v Speaker 1>you go. Thank you so much for being with us,

0:21:31.160 --> 0:21:35.000
<v Speaker 1>Anna marksca of Jefferies. We appreciate it. This is the

0:21:35.000 --> 0:21:39.679
<v Speaker 1>Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays

0:21:39.720 --> 0:21:43.159
<v Speaker 1>from seven to ten am Eastern on Bloomberg Radio and

0:21:43.280 --> 0:21:47.520
<v Speaker 1>on Bloomberg Television each day from six to nine am

0:21:47.600 --> 0:21:51.359
<v Speaker 1>for insight from the best in economics, finance, investment, and

0:21:51.480 --> 0:21:58.000
<v Speaker 1>international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

0:21:58.160 --> 0:22:01.760
<v Speaker 1>Bloomberg dot com, and of course on the terminal. I'm

0:22:01.800 --> 0:22:04.360
<v Speaker 1>Tom keene In. This is Bloomer