WEBVTT - Surveillance: Inflation Concerns with Reinhart (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jaily, we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.280 and of course on the Bloomberg Terminal. Inflation is still hot, 0:00:30.320 --> 0:00:32.280 and so it becomes a question of do we believe 0:00:32.320 --> 0:00:34.000 that the fete is going to stay firm and it's 0:00:34.000 --> 0:00:36.880 resolved to fight those price pressures instead of reacting to 0:00:36.960 --> 0:00:39.000 weak data. The equity market telling you in the last 0:00:39.040 --> 0:00:41.879 couple of days there will be weakness in their resolve. 0:00:42.040 --> 0:00:44.919 Will there though, Is this a vulcar Esque pal or not? 0:00:45.159 --> 0:00:46.920 Joining us now to try and answer some of that 0:00:47.000 --> 0:00:49.000 is Vince Ryan Hot, chief economist that dry us and 0:00:49.040 --> 0:00:52.040 Melod Vince, let's start here. This market believes we're saying 0:00:52.080 --> 0:00:55.680 the first steps potentially towards defen pivot. Do you agree. 0:00:57.160 --> 0:01:00.480 Not particularly central to this is the view that there 0:01:00.480 --> 0:01:05.080 will be this immaculate disinflation. Yes, the news might be 0:01:05.080 --> 0:01:09.320 in a touch worse than expecting this morning, but we 0:01:09.400 --> 0:01:12.800 believe the FED inflation will have over the next year, 0:01:13.200 --> 0:01:16.319 and that will allow them to pivot. Inflation just doesn't 0:01:16.600 --> 0:01:19.679 come down that way. So, Vince, which is it? Is 0:01:19.680 --> 0:01:22.800 the economy doing really well or is it not? In 0:01:22.840 --> 0:01:25.280 other words, I'm trying to parse out the equity move. 0:01:25.360 --> 0:01:27.280 Some people are accusing me of just being parish no 0:01:27.319 --> 0:01:29.560 matter what, which maybe you can, you know, accuse me 0:01:29.600 --> 0:01:32.600 of whatever you want. But if the economy is weakening, 0:01:33.319 --> 0:01:36.800 we have a FED that is willing to potentially curtail 0:01:36.920 --> 0:01:39.760 that if they continue with their rate hikes. Do you 0:01:39.800 --> 0:01:42.640 think that they are going to cause a recession by design? 0:01:42.920 --> 0:01:45.400 As j Pala seemed to be sort of not suggesting 0:01:45.400 --> 0:01:48.880 but hinting that there was a risk if you believe 0:01:49.040 --> 0:01:54.080 j pal that inflation is the number one concern of 0:01:54.160 --> 0:01:59.400 the Federal Reserve. Now they've elevated that in the dual mandate. Uh, 0:02:00.000 --> 0:02:02.800 woke up this morning. Inflation is a problem. Inflation is 0:02:02.800 --> 0:02:06.760 still a problem. Therefore, he's got a slow aggregate demand 0:02:06.960 --> 0:02:10.640 and hope that aggregate supply fills in the way you 0:02:10.800 --> 0:02:16.840 slow aggregate demand is tighten financial conditions. Uh, we don't 0:02:17.000 --> 0:02:20.960 have slow enough aggregate demand, yet it doesn't seem to 0:02:21.040 --> 0:02:24.480 be slowing enough. And trained and we got mixed evidence 0:02:24.520 --> 0:02:29.200 that aggregate supplies filling in, so he needs tighter financial conditions. 0:02:29.440 --> 0:02:31.880 What data is the Federals are going to be looking 0:02:31.880 --> 0:02:35.960 at in their data dependency. I think the answer is 0:02:36.000 --> 0:02:40.200 always all of it. Uh that in particular, he brought 0:02:40.240 --> 0:02:44.280 back his stars in his press conference over on Wednesday, 0:02:44.919 --> 0:02:51.600 I e. The FED look has basically set central guide posts, 0:02:51.600 --> 0:02:55.600 but there are only estimated. They're approximated, and a big 0:02:55.639 --> 0:03:00.200 one is inflation and inflation expectations. That's why you in 0:03:00.240 --> 0:03:02.480 your viewers should be looking forward to the University of 0:03:02.520 --> 0:03:07.200 Michigan survey. Uh. That's why they care about what's happening 0:03:07.240 --> 0:03:09.440 in bond markets right now, because that tells them what 0:03:09.600 --> 0:03:14.520 inflation compensation is uh. Right now inflation job number one. 0:03:14.680 --> 0:03:19.720 So everything that goes into the space to predict inflation 0:03:19.960 --> 0:03:24.919 is what's important. Commodity prices, inflation expectations, exchange value of 0:03:24.919 --> 0:03:28.519 the dollar. Where do you think inflation realistically can get 0:03:28.520 --> 0:03:29.799 down to you by the end of the year. But 0:03:29.840 --> 0:03:33.040 it's what's the figure? Uh, Not as much as the 0:03:33.080 --> 0:03:38.720 FED hopes, and much less. In twenty twenty three, I 0:03:38.760 --> 0:03:43.760 think that uh, we'll get a modest upticking the unemployment rate. 0:03:43.840 --> 0:03:47.840 Demand really is going to be slowly and inflation is 0:03:47.920 --> 0:03:51.160 going to be off off of percentage point and a 0:03:51.160 --> 0:03:55.800 half or even two talking about the PC index, So 0:03:55.880 --> 0:04:02.320 we're in the high fives. FED is forecasting not atlantish. 0:04:02.320 --> 0:04:05.680 For two. It's going to be more persistent next year 0:04:05.720 --> 0:04:08.000 because we have so much inertia. We saw it this 0:04:08.080 --> 0:04:11.440 morning with with that uh the e c I. Uh, 0:04:11.480 --> 0:04:14.080 the e c I wasn't as much looking forward to 0:04:14.520 --> 0:04:18.080 future inflation. It was trying to catch up to pass 0:04:18.160 --> 0:04:21.720 erosion to purchasing power. Okay, So given all of that, 0:04:21.839 --> 0:04:25.279 stickier higher inflation than the FED really realistically wants it 0:04:25.320 --> 0:04:26.800 to be. That would indicate that the FED is not 0:04:26.839 --> 0:04:29.400 going to be able to blink even if the data deteriorates. 0:04:29.400 --> 0:04:31.880 And yet that is fully what this market expects. And Vince, 0:04:31.880 --> 0:04:35.120 you said a moment ago they need financial conditions to tighten. 0:04:35.279 --> 0:04:38.159 That's not what they've gotten in recent days. How aggressive 0:04:38.160 --> 0:04:40.600 do you expect the pushback to be over the coming weeks. 0:04:41.440 --> 0:04:44.719 I think they're gonna have to push back, to be honest, 0:04:44.760 --> 0:04:47.840 I was a little disappointed and share Pal on Wednesday 0:04:47.960 --> 0:04:51.239 he was he seemed to be accepting of where markets 0:04:51.240 --> 0:04:54.960 were right there, right, right then and there, he said. 0:04:55.080 --> 0:05:00.520 Essentially the some real economic projections is still appropriate both 0:05:00.560 --> 0:05:04.040 in terms of their forecast for the policy rate and 0:05:04.960 --> 0:05:09.680 the macro outcomes to optimistic on inflation. Essentially, right now 0:05:10.200 --> 0:05:15.080 markets believe the ends to what the FED wants lower inflation. 0:05:15.640 --> 0:05:18.799 They don't quite have it right about what the means 0:05:18.839 --> 0:05:23.680 will be. The means will be tighter financial conditions. Uh, 0:05:23.760 --> 0:05:28.839 if you tightened basis points and financial conditions are easier, 0:05:29.040 --> 0:05:31.280 something went wrong and you're gonna have to push back, 0:05:31.600 --> 0:05:35.440 Vincent just quickly here from your perspective, how much would 0:05:35.480 --> 0:05:38.760 inflation have to come down for the Fed to truly pivot? 0:05:41.120 --> 0:05:44.400 I think at that point, UH is going to be 0:05:44.400 --> 0:05:47.240 important about the other part of the dual mandate, where's 0:05:47.279 --> 0:05:50.640 the unemployment rate. If inflation has come down a lot, 0:05:50.760 --> 0:05:54.560 it probably means the unemployment rate is going up. As 0:05:54.600 --> 0:05:57.640 inflation gets closer to their goal, they can put more 0:05:57.720 --> 0:06:01.160 weight to their other goal, maximum employ him. It unemployment 0:06:01.200 --> 0:06:04.880 rate starts rising, they will pivot. In our forecast, we 0:06:05.040 --> 0:06:09.160 think the pit the FED declares victory a little earlier. 0:06:09.839 --> 0:06:15.159 Remember Paul Boker did too. If inflation is notably lower 0:06:15.240 --> 0:06:19.119 in three I e. Still in the three but maybe 0:06:19.120 --> 0:06:23.680 not at goal. The FED will connect dots that says 0:06:23.839 --> 0:06:27.000 it was lower now than it was six months ago 0:06:27.160 --> 0:06:30.520 than six months before that. We're headed in the right direction. 0:06:30.839 --> 0:06:34.320 Now is the time to worry about activity. However, you 0:06:34.400 --> 0:06:37.640 don't get the slowness of activity. You don't get that 0:06:37.720 --> 0:06:41.120 decline and inflation unless you get tighter front nancial conditions. Now. 0:06:41.400 --> 0:06:43.760 Vince run Hunt drive us amount of Vince a clinic 0:06:43.880 --> 0:06:49.640 from US. Oh White, thank you said, a lot of 0:06:49.680 --> 0:06:52.159 people have been talking about complacency, and thank you John. Honestly, 0:06:52.520 --> 0:06:54.960 we're still seeing that rally continue and we're still seeing 0:06:54.960 --> 0:06:56.800 a lot of short positions come out and we are 0:06:56.920 --> 0:07:00.240 poised for the biggest rally going back to of our 0:07:00.720 --> 0:07:02.800 twenty in the S and P. Some people who last 0:07:02.880 --> 0:07:06.640 year we're talking about how there was a faulty call 0:07:06.800 --> 0:07:11.000 in transitory or included among them Barbara and Bernard. She 0:07:11.120 --> 0:07:13.080 came out and she was saying, this is not the case. 0:07:13.120 --> 0:07:16.360 It's stickier, it's more protracted. You need to plan as such. 0:07:16.400 --> 0:07:18.960 She is founder. She is chief executive officer and chief 0:07:19.040 --> 0:07:22.280 investment officer of Windcrest Capital. Joining us right now from 0:07:22.440 --> 0:07:24.800 the Bahamas. Barbara and can you just talk about what 0:07:24.880 --> 0:07:27.080 you make of this rally that we've seen so far 0:07:27.080 --> 0:07:29.600 in July, which might be the biggest going back to 0:07:29.640 --> 0:07:34.360 November of Thanks for the opportunity, Lisa. Yeah. I think 0:07:34.440 --> 0:07:37.080 this is a bear market rally for sure, and it's 0:07:37.160 --> 0:07:40.080 based on hope, not on free cash flow, not on 0:07:40.120 --> 0:07:42.080 the free cash flow of the consumer, and not on 0:07:42.120 --> 0:07:44.520 the free cash flow of the corporate when you have 0:07:44.920 --> 0:07:47.800 we're looking at as negative real wage growth, which is 0:07:47.840 --> 0:07:51.320 why we have the lowest consumer confidence in forty years. 0:07:51.840 --> 0:07:55.440 And what businesses are facing is the highest PPI grates 0:07:55.800 --> 0:07:59.200 in forty five years, which is why small business confidence 0:07:59.360 --> 0:08:02.240 is at an altime I'm low. So these businesses are 0:08:02.280 --> 0:08:06.040 facing very little visibility over demand for their goods and 0:08:06.080 --> 0:08:09.880 the cost to produce them, which is not a healthy situation. 0:08:10.280 --> 0:08:14.040 And meanwhile, the market is rallying on, like we said, hope, 0:08:14.080 --> 0:08:18.240 not free cash flow. So I don't think it's sustainable unfortunately, Barbara. 0:08:18.280 --> 0:08:21.000 And let's go to the phrase that John Farrow hates 0:08:21.040 --> 0:08:22.960 the most, which is bad news is good news, which 0:08:23.000 --> 0:08:25.840 is what Jonathan Galab was talking about in his note today. 0:08:25.880 --> 0:08:28.080 That's what it's become that the more people start to 0:08:28.120 --> 0:08:30.360 talk pessimistically the way that you do. They talk about 0:08:30.400 --> 0:08:33.240 possibly some sort of pivot from the FED. Why is 0:08:33.240 --> 0:08:35.040 this not the right way to look at it since 0:08:35.080 --> 0:08:36.720 it has been the right way to look at it 0:08:36.800 --> 0:08:40.440 for the past few decades. Well, let's just break that down. 0:08:40.520 --> 0:08:42.640 Is bad news ever really good news? What you're talking 0:08:42.679 --> 0:08:45.880 about is the FED what will not raise rates? So 0:08:45.920 --> 0:08:50.120 we're talking about MULTIPLE expansion, not EPs expansion, and a 0:08:50.120 --> 0:08:54.400 healthy economy is based on EPs expansion. So yes, you 0:08:54.400 --> 0:08:56.080 don't want to fight the FED, but we also want 0:08:56.080 --> 0:09:00.040 a healthy economy, don't we. Well, in theory, Barbrand, I 0:09:00.040 --> 0:09:01.760 would assume so. But on the subject of the FED 0:09:01.840 --> 0:09:03.920 and how they would likely view what we have seen 0:09:04.360 --> 0:09:07.720 in the equity market a rally, financial conditions getting easier 0:09:07.760 --> 0:09:09.439 and not tighter. At what point will they have to 0:09:09.480 --> 0:09:12.600 push back on this? Well, I feel like they induced 0:09:12.600 --> 0:09:16.520 this rally right. It was the most confusing. Either I 0:09:16.559 --> 0:09:20.680 was on the wrong call or misunderstood the market, But 0:09:20.760 --> 0:09:23.680 what I heard was there's no more guidance. People retired 0:09:23.679 --> 0:09:25.640 of being wrong the number and the number one our 0:09:25.679 --> 0:09:28.600 goal is to bring down inflation for a soft landing. 0:09:28.880 --> 0:09:32.080 But number two, we understand that's challenging and it's got 0:09:32.280 --> 0:09:35.840 more challenging in the recent months. None of that's positive 0:09:35.840 --> 0:09:38.440 to me. And then I think the real error was 0:09:38.480 --> 0:09:40.840 calling to and a quarter to two and a half 0:09:40.960 --> 0:09:44.440 a neutral rate. In my economics techt books, that's not 0:09:44.480 --> 0:09:48.400 the case, particularly not when inflations at nine percent. So 0:09:48.840 --> 0:09:52.400 that is very stimulative and accommodative, and that's what's fueling 0:09:53.320 --> 0:09:56.559 um you know, these forces. At the same time he's 0:09:56.840 --> 0:10:00.559 trying to squash So he also said the dot plot 0:10:00.600 --> 0:10:02.680 is the best indicator. Well, what does the dot plot 0:10:02.800 --> 0:10:04.960 say that we have a hundred basis points of more 0:10:05.000 --> 0:10:08.480 increases this year in fifty next year. So rates are 0:10:08.520 --> 0:10:13.040 still rising and we have consumer and business confidence falling. 0:10:13.240 --> 0:10:17.120 We've never raised rates into falling confidence. And the other 0:10:17.360 --> 0:10:21.280 really interesting experiment is we've never raised rates when the 0:10:21.400 --> 0:10:25.679 US FED debt to GDP ratios are so high. So 0:10:25.760 --> 0:10:29.040 if we do induce a recession, the real risk out 0:10:29.040 --> 0:10:31.880 there is now you have lower tax receipts and higher 0:10:31.880 --> 0:10:34.840 interest expense, which is also not a pretty picture. So 0:10:35.640 --> 0:10:38.439 I'm this is not easy, and I think as an 0:10:38.480 --> 0:10:41.000 active manager, what you want to do is really stay 0:10:41.120 --> 0:10:45.360 nimble and humble, because we're now told were focus on data, 0:10:45.400 --> 0:10:47.840 which is going to be much more volatile. Well, of 0:10:47.880 --> 0:10:50.520 course Chairman Palace said they need to be humble as well. 0:10:50.559 --> 0:10:52.400 As you're doing that. As you're being nimble and humble, 0:10:52.480 --> 0:10:53.800 what does that mean you want to buy in the 0:10:53.880 --> 0:10:56.240 environment you're describing, which, as you say, we've never been 0:10:56.240 --> 0:10:59.160 in before. In theory, higher rates mean you don't necessarily 0:10:59.160 --> 0:11:01.120 want to be owning oath and yet if the economy 0:11:01.200 --> 0:11:03.120 is slowing, maybe you want that cash flow. So what 0:11:03.120 --> 0:11:06.880 do you do? It's a great question. So we actually 0:11:06.880 --> 0:11:08.760 are a net short and we have a mountain of 0:11:08.800 --> 0:11:11.240 cash to buy great opportunities when we see them, we 0:11:11.280 --> 0:11:14.520 don't think we're there yet. Um, we have initiated too 0:11:14.520 --> 0:11:18.360 long new long positions all year and so the barrier 0:11:18.600 --> 0:11:21.840 to entry to get into our fund right now is 0:11:21.880 --> 0:11:24.640 so high. So what does an attractive opportunity look at. 0:11:24.679 --> 0:11:27.200 We're talking about companies that are trading for the cash 0:11:27.240 --> 0:11:29.920 on their balance sheet when we're getting the operating business 0:11:29.920 --> 0:11:33.719 for free. So that kind of upside downside skew is 0:11:33.760 --> 0:11:36.640 the margin of safety I'm willing to take. Otherwise we've 0:11:36.679 --> 0:11:39.240 been generating tremendous ALFA on the short side. I think 0:11:39.280 --> 0:11:41.400 we have thirty six. Actually, I know we have thirty 0:11:41.440 --> 0:11:45.480 seven individual short positions. And this is a real stock 0:11:45.520 --> 0:11:48.560 pickers market. You would be very happy if you were 0:11:48.640 --> 0:11:51.640 long Amazon and not Walmart this week, right, that's a 0:11:51.679 --> 0:11:54.920 stock picker's choice. So being tethered to an index that 0:11:55.000 --> 0:11:57.040 I think is further downside is where I see the 0:11:57.080 --> 0:11:59.240 real risk. By brand. Do you see a lot more 0:11:59.280 --> 0:12:02.280 potholes the ones that we have seen in specific names 0:12:02.280 --> 0:12:04.920 and I'm thinking of some of the darlings of the 0:12:04.920 --> 0:12:08.000 pandemic era. Do you see more of that coming or 0:12:08.080 --> 0:12:10.880 is this just an ongoing bleed that the short positions 0:12:10.880 --> 0:12:14.560 will capture. No. Absolutely, I mean, at least if you 0:12:14.600 --> 0:12:17.880 think about this in a rising rate environment, it's crushing 0:12:18.000 --> 0:12:21.760 a whole cohort of companies whose business model was built 0:12:21.760 --> 0:12:25.800 on free money, and so all of that speculative has 0:12:25.840 --> 0:12:28.880 to drain the small and so you're looking at companies 0:12:29.200 --> 0:12:32.839 that are over levered. You know, we're counting on free money, 0:12:33.280 --> 0:12:36.079 um and and and they're they're really gonna be in trouble. 0:12:36.120 --> 0:12:39.680 So we haven't seen the zombies fully deflayed yet. And 0:12:39.679 --> 0:12:42.200 then you're also looking at companies in the pandemic era 0:12:42.440 --> 0:12:44.560 that took on a ton of debt. You know, you 0:12:44.600 --> 0:12:47.160 just look at someone like Carnival Cruises who's just did 0:12:47.160 --> 0:12:49.600 a billion dollar equity raise and still has six times 0:12:49.600 --> 0:12:51.640 net debt to EBITDA And if you go by what 0:12:51.760 --> 0:12:54.679 Royal Caribbean said this week, demands not there that is 0:12:54.720 --> 0:12:58.560 a problem. So now the shorts are very very company specific. 0:12:58.600 --> 0:13:02.400 It's not it's more specific than a macro view. But 0:13:02.520 --> 0:13:04.599 this is a real source of alpha generation in a 0:13:04.679 --> 0:13:08.320 market like this. This final point is so important, not 0:13:08.360 --> 0:13:11.680 just Walmart versus Amazon, but Alphabet versus Facebook as well, Barbara, 0:13:11.679 --> 0:13:13.959 and fantastic to catch up with you, Barbara, and burn 0:13:13.960 --> 0:13:23.840 out there of Wincress Capital. Joanna us Now is Selita Marcelli, 0:13:24.200 --> 0:13:27.840 chief investment officer for the America's at UBS Global Wealth Management. 0:13:27.880 --> 0:13:30.240 So to let's start here. I wonder your view on 0:13:30.320 --> 0:13:32.520 the following Is this something you want to chase or 0:13:32.600 --> 0:13:36.000 something you want to fade. I don't think that this 0:13:36.080 --> 0:13:38.040 is not something I want to chase. Look, I think 0:13:38.480 --> 0:13:41.640 the market is have seen earnings that are not as 0:13:41.679 --> 0:13:45.320 bad as feared and perceived fair to be davish because 0:13:45.320 --> 0:13:48.959 their data dependent and data is coming a little bit softer. 0:13:49.040 --> 0:13:51.400 But I don't think FAT is pivoting here. I don't 0:13:51.440 --> 0:13:53.880 think the market is pivoting. There's a long way to go. 0:13:54.640 --> 0:13:56.199 At least in the short term, it's going to be 0:13:56.320 --> 0:13:58.240 much more shoppy. I think we're going to see some 0:13:58.320 --> 0:14:01.240 of these games take can out on the market, so 0:14:01.440 --> 0:14:05.240 I wouldn't necessarily be chasing it at this point. However, Um, 0:14:05.280 --> 0:14:09.120 if you put your long term investor lences on, then 0:14:09.160 --> 0:14:11.280 it is still a great time to invest. There's still 0:14:11.280 --> 0:14:14.120 a lot of opportunity. Just that the next six months 0:14:14.120 --> 0:14:16.640 I think is going to be quite volatile after this 0:14:16.720 --> 0:14:18.880 earning season is over, Selida, what are you looking at 0:14:18.920 --> 0:14:22.800 for the catalyst for the declines that you're talking about. Well, 0:14:22.840 --> 0:14:26.400 first of all, Um, in this earning season, we heard 0:14:26.440 --> 0:14:29.040 a lot of talk of recession, but we haven't seen 0:14:29.080 --> 0:14:32.600 any indication in the results. Right, We're not seeing broad 0:14:32.640 --> 0:14:37.760 based UM layoffs. There's maybe slowing of hiring UM and 0:14:37.760 --> 0:14:41.200 and consumers are still resilient, even though we heard that 0:14:41.480 --> 0:14:43.760 you know, low income households may be seeing some pressures 0:14:43.760 --> 0:14:47.000 from Walmart from a t nt UH, it's still consumers 0:14:47.040 --> 0:14:50.920 are resilient. Visa told told us that credit card spending 0:14:51.240 --> 0:14:55.960 has been very strong um, we're seeing still travel, leisure, Um, 0:14:56.200 --> 0:14:58.400 you know, seeing a lot of great demands. So I 0:14:58.440 --> 0:15:00.960 think what we would be looking at is, first of all, 0:15:01.440 --> 0:15:05.000 what is happening on the um hiring or or or 0:15:05.160 --> 0:15:08.440 or employment side. And in any case, that's what FED 0:15:08.560 --> 0:15:10.840 is looking at as well. Right, more than anything else, 0:15:10.960 --> 0:15:13.960 wage growth is important. And if they can see that 0:15:14.040 --> 0:15:16.920 the vacancies are coming down and that takes some of 0:15:16.960 --> 0:15:19.240 the pressure of the wage growth, that would give us 0:15:19.240 --> 0:15:21.560 success that they maybe they will be able to pivot. 0:15:21.720 --> 0:15:26.480 But if the you know, if we stave otherwise, then um, 0:15:26.520 --> 0:15:30.040 you know, it probably means that the consumers spend, real 0:15:30.080 --> 0:15:33.280 consumer spending that has been flat so far will probably 0:15:33.320 --> 0:15:36.480 tear our negative and there's going to be a higher 0:15:36.640 --> 0:15:40.160 probability of recession coming towards the end of this year. Well, soel, 0:15:40.200 --> 0:15:42.280 you know, we were catching up with Barbara and Bernard 0:15:42.320 --> 0:15:44.720 of Windcraft Capital in the previous hour and she agrees 0:15:44.800 --> 0:15:49.000 that the market got this FED entire FED conversation wrong, 0:15:49.080 --> 0:15:51.280 that the pivot isn't necessarily coming, that it wasn't as 0:15:51.320 --> 0:15:54.480 devilish as the market perceived, and she said for that reason, 0:15:54.520 --> 0:15:56.520 given the environment she's looking at, she is sitting on 0:15:56.560 --> 0:15:59.960 a mountain of cash? Is it right to be sitting 0:16:00.040 --> 0:16:04.200 on a mountain of cash right now? Um? I don't believe. So. 0:16:04.320 --> 0:16:07.920 I mean you as an investor or, as as our clients, 0:16:07.920 --> 0:16:10.920 private world clients or should have enough cash uh you know, 0:16:10.960 --> 0:16:13.200 to get you through the next six months and liquidity 0:16:13.200 --> 0:16:16.040 for the next two to three years for expenses. But 0:16:16.200 --> 0:16:20.800 beyond that, I think there's the benefits of staying on 0:16:20.840 --> 0:16:24.200 the sideline. Staying in cash is limited, but the opportunity 0:16:24.280 --> 0:16:27.240 cost of being out of the market for the long 0:16:27.360 --> 0:16:31.480 term is much much bigger. Um. You know, I think 0:16:31.520 --> 0:16:35.080 what we did so many analysis on this in our team. Um. 0:16:35.400 --> 0:16:38.920 You know, if if if, if you wait for historically 0:16:38.960 --> 0:16:42.360 going back to if you wait for another ten percent 0:16:42.440 --> 0:16:45.800 downside and then get in and then sell at the 0:16:45.840 --> 0:16:50.360 brand new highs, you're most likely to underperform uh eighty 0:16:50.440 --> 0:16:53.960 times versus a buy and hold strategy. So I would 0:16:53.960 --> 0:16:56.280 say this is like I said before, for a long 0:16:56.400 --> 0:16:59.160 term investor, is still a great time to invest because 0:16:59.200 --> 0:17:02.760 we have a low average valuations in the equity market. 0:17:02.800 --> 0:17:05.600 We have seen almost five percent the rating compared to 0:17:05.640 --> 0:17:09.120 the last twelve months. Um. Right, and when you look 0:17:09.160 --> 0:17:13.040 back since nineteen sixty that is sort of consistent with 0:17:13.359 --> 0:17:16.760 return expectations of seven to nine percent annual for the 0:17:16.840 --> 0:17:20.160 next decade. You have bond yields that are UM close 0:17:20.240 --> 0:17:22.679 to highest since two thousand eighteen, and before that the 0:17:22.720 --> 0:17:26.120 highest was two thousand eight So UM, you know starting 0:17:26.119 --> 0:17:28.440 point in buying is actually a good indication of your 0:17:28.440 --> 0:17:32.080 total returns US. And then you have in alternatives. Even 0:17:32.080 --> 0:17:34.639 in the private equity space. Right, you might see for 0:17:34.720 --> 0:17:38.800 existing funds valuation downgrades in the near term UM, but 0:17:38.960 --> 0:17:42.679 data tells us that funds that are launched UM a 0:17:42.760 --> 0:17:45.480 year after the peak or after significant sell off in 0:17:45.480 --> 0:17:49.920 the in the public markets tend to have superior returns 0:17:49.920 --> 0:17:52.719 over the long term. So I think staying in cash 0:17:52.960 --> 0:17:56.040 is not the best strategy if you have long term horizon. 0:17:56.280 --> 0:17:58.439 So later, I've got twenty seconds, I'll give you a 0:17:58.440 --> 0:18:00.760 five year buying hold. You gotta pick one. Think what 0:18:00.800 --> 0:18:05.080 would it be? As boring it may sound, it's a wild, diverse, 0:18:05.160 --> 0:18:11.560 fied portfolio. I think that's stilled in only Why did 0:18:11.640 --> 0:18:14.159 I ask Selta? Thank you Selta Massetti? There have you 0:18:14.280 --> 0:18:20.920 BS Global westh Management Joint US now is Isaac Boltanski, 0:18:21.000 --> 0:18:24.359 Policy Research director of bt I, g Isaac, this feels 0:18:24.400 --> 0:18:26.280 like lose lose. I now you think it feels like 0:18:26.359 --> 0:18:29.439 lose lose? Which loss is she going to take? It 0:18:29.880 --> 0:18:34.639 feels incredibly difficult for her to pull back at this stage. 0:18:34.920 --> 0:18:37.000 My sense is that she's going to have to go 0:18:37.080 --> 0:18:40.119 to Taiwan. I think that the optics would be absolutely 0:18:40.119 --> 0:18:42.720 atrocious if she skips out on it now, and it 0:18:42.720 --> 0:18:48.000 would be a terrible signal given given our relations with Taiwan. So, Isaac, 0:18:48.280 --> 0:18:50.399 how does President Biden deal with this and what does 0:18:50.440 --> 0:18:53.000 this due to his agenda when he's focused on this 0:18:53.080 --> 0:18:55.240 and he spent two hours and twenty minutes speaking about 0:18:55.240 --> 0:18:58.359 that with jjim ping rather than everything else at a 0:18:58.400 --> 0:19:01.680 time when he's losing support rapidly. Yeah, look, I think 0:19:01.680 --> 0:19:04.560 that from a practical perspective, whether she goes or not, 0:19:04.680 --> 0:19:06.840 I'm not sure if there's much impact for the market. 0:19:06.880 --> 0:19:09.119 But I'll tell you this, most of my contacts and 0:19:09.200 --> 0:19:11.240 DC now believe that we're not going to have a 0:19:11.320 --> 0:19:14.800 massive pull back on the China tariffs. There's a sense 0:19:14.840 --> 0:19:18.879 that we will have some targeted and narrow relaxation of 0:19:18.920 --> 0:19:21.679 certain tariffs with a real focus on the consumer side. 0:19:22.080 --> 0:19:24.400 But beyond that, We're not going to have the sweeping 0:19:24.480 --> 0:19:26.879 pull back on the tariffs at summit. Hope. There was 0:19:26.920 --> 0:19:29.520 some chatter not that long ago that we would relax 0:19:29.720 --> 0:19:33.360 all of the tariffs on Chinese goods. That's just not happening. 0:19:33.359 --> 0:19:36.679 I think as we see geopolitical tensions UM continue to 0:19:36.720 --> 0:19:40.120 mount with China over Taiwan and over other issues UM, 0:19:40.240 --> 0:19:42.400 the most that we're going to see are these targeted, 0:19:42.800 --> 0:19:46.600 narrow set of teriff relaxations focused on consumer goods and 0:19:46.640 --> 0:19:48.840 other inputs. Which raises a question, Isaac, of how this 0:19:48.880 --> 0:19:52.480 administration is going to continue putting pressure on bringing inflation 0:19:52.520 --> 0:19:54.480 down aside from just pointing the finger at the FED. 0:19:54.880 --> 0:19:58.320 And they do talk about the recent legislation that they're 0:19:58.359 --> 0:20:00.280 lining up that Joe Manchon did get up word with. 0:20:00.359 --> 0:20:02.520 Do you think that actually could, in the near term 0:20:02.760 --> 0:20:07.199 do anything to reduce inflation? Simple answer is no, I 0:20:07.240 --> 0:20:10.159 don't think that this bill, even though it's called the 0:20:10.200 --> 0:20:13.960 Inflation Reduction Act of two, is really going to do 0:20:14.040 --> 0:20:17.439 all that much for inflation. There's definitely some components of 0:20:17.440 --> 0:20:18.920 it that we can point to that are going to 0:20:19.040 --> 0:20:23.480 have an impact over time. Right, the drug pricing dynamics 0:20:23.560 --> 0:20:25.439 can have an impact, but a lot of that is 0:20:25.760 --> 0:20:29.800 backloaded into a longer period. I think that the minimum 0:20:29.880 --> 0:20:34.320 tax can have some impact over time, but again that's limited, right, 0:20:34.320 --> 0:20:37.800 It's only companies over a billion dollars in income um. 0:20:37.880 --> 0:20:40.359 So there are definitely certain elements that we're going to 0:20:40.440 --> 0:20:43.359 see Democrats point to and say, look, we're actually trying 0:20:43.400 --> 0:20:46.000 to tackle inflation. But in reality it's going to have 0:20:46.040 --> 0:20:49.800 a marginal impact at most. Well, and that's if it 0:20:49.880 --> 0:20:51.639 gets over the finish line. Where do you put the 0:20:51.640 --> 0:20:54.080 odds of Carson Cinema giving it a thumbs up and 0:20:54.119 --> 0:20:57.760 it actually becoming a reality. So there are three essays 0:20:57.800 --> 0:21:00.240 that we're all trying to figure out. Right, it's Cinema, mum, 0:21:00.600 --> 0:21:04.040 It's the Salt Crew, and it's sickness. Right, let's just 0:21:04.119 --> 0:21:06.600 run through each one of them quickly. Sickness. We don't 0:21:06.600 --> 0:21:09.960 know which senator is going to get COVID next, right, 0:21:10.000 --> 0:21:12.520 and that's something that matters when you need literally every 0:21:12.560 --> 0:21:15.320 single vote to get it through. On the Salt Crew, 0:21:15.400 --> 0:21:18.880 we've got to watch Senator Menendez and Congressman Goottenheimer, both 0:21:18.880 --> 0:21:21.360 from New Jersey, to see if they're gonna blow up 0:21:21.400 --> 0:21:24.399 this whole deal over the fact that the salt cap 0:21:24.680 --> 0:21:28.240 has not been lifted or eliminated in this proposal, and 0:21:28.280 --> 0:21:32.040 then it's all lies on Senator Cinema. And at the moment, 0:21:32.119 --> 0:21:34.240 I think that she's going to be a yes. Most 0:21:34.280 --> 0:21:36.600 of my contacts believe that she will get to yes, 0:21:37.000 --> 0:21:39.840 and that it's exceedingly difficult to see her blowing up 0:21:39.880 --> 0:21:43.680 this deal over things like the carried interest treatment, which 0:21:43.720 --> 0:21:45.920 is something that has mattered to her in the past. 0:21:45.960 --> 0:21:48.040 And so I'm telling clients that we have to now 0:21:48.080 --> 0:21:50.960 expect this bill to become law. Um, I think the 0:21:51.000 --> 0:21:52.879 odds are are a little bit better than three and 0:21:52.920 --> 0:21:55.639 four that that this bill becomes law by the end 0:21:55.680 --> 0:21:57.840 of the year. Cinema sell sickness. I'm not sure it's 0:21:57.840 --> 0:21:59.520 gonna ring to it, but I'll got with it. Can 0:21:59.520 --> 0:22:02.960 I throw an nextra s Sacrecy Isaac? We didn't know 0:22:03.000 --> 0:22:05.240 about this. I found that pretty interesting. I just wonder 0:22:05.280 --> 0:22:07.440 what asked We don't know how did they get this 0:22:07.480 --> 0:22:11.720