WEBVTT - Fed Hawks Take Flight 0:00:12.960 --> 0:00:16.640 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:16.760 --> 0:00:19.600 My name is Mike Reagan, I'm a senior editor at 0:00:19.600 --> 0:00:23.480 Bloomberg and i'm La Donna Higher, across asset reporter with Bloomberg. 0:00:24.480 --> 0:00:26.920 And this week on the show, well, as my colleague 0:00:26.960 --> 0:00:30.040 Cameron Christ wrote, the Fed jest doesn't get much more 0:00:30.080 --> 0:00:33.560 hawkish than this. After raising interest rates by a quarter 0:00:33.600 --> 0:00:37.360 percentage point, policymakers are projecting the equivalent of six more 0:00:37.479 --> 0:00:41.120 such increases this year, and this comes as Russia's war 0:00:41.240 --> 0:00:45.200 with Ukraine rages on, clouding the outlook for the global economy. 0:00:45.880 --> 0:00:48.400 So what's it all mean for markets? Well, we're lucky 0:00:48.400 --> 0:00:51.000 to have two veteran FED watchers on his guests this 0:00:51.040 --> 0:00:53.800 week to sort it all out for us. But first, 0:00:53.800 --> 0:00:56.520 Fili Donna, I have to point out that we are 0:00:56.560 --> 0:01:00.280 recording this podcast on St Patrick's Day, March seven teeth 0:01:01.160 --> 0:01:04.080 And for guys like me you know of Irish descent 0:01:04.160 --> 0:01:06.600 but really have never stepped foot in Ireland, we have 0:01:06.640 --> 0:01:09.040 a few traditions on St Patrick's Day, so so let 0:01:09.040 --> 0:01:11.640 me just tell you what they are. My favorite Irish 0:01:11.680 --> 0:01:14.520 tradition is you get the whole extended Irish family together 0:01:14.920 --> 0:01:19.080 and eat Italian food. So I did that. That's that's 0:01:19.400 --> 0:01:23.080 that's one thing, spaghetti or something. Yeah. Yeah. The other 0:01:23.120 --> 0:01:27.000 thing is we tend to tell really long, rambling stories 0:01:27.040 --> 0:01:29.200 that really don't have much of a point um, but 0:01:29.240 --> 0:01:30.800 they have a lot of metaphors. So I'm gonna do 0:01:30.840 --> 0:01:32.280 that right now because I want to tell you a 0:01:32.319 --> 0:01:34.160 story about a good friend of mine. He was a 0:01:34.160 --> 0:01:37.960 photographer at the Associated Press for like thirty years. Like 0:01:38.120 --> 0:01:41.520 guy lived the life. He went to every Olympics, he 0:01:42.360 --> 0:01:47.120 photographed like every NBA Championship. Anyway, now he's retired and 0:01:47.120 --> 0:01:49.920 he's on Long Beach Island and all he does all 0:01:50.040 --> 0:01:54.960 days take pictures of birds, regrets, and the herons and 0:01:54.960 --> 0:01:58.400 and all sorts of uh seabirds, um, and they're beautiful. 0:01:58.440 --> 0:02:01.240 It's like kept me saying, you're in the endemic. But 0:02:01.360 --> 0:02:04.960 recently he took a picture over the bay. It was 0:02:05.000 --> 0:02:07.640 sunset on Barnegat Bay, and on the other side of 0:02:07.640 --> 0:02:11.359 the bay they were doing a controlled burn of the 0:02:11.400 --> 0:02:14.040 pine lands. So they were trying to burn down I 0:02:14.080 --> 0:02:17.040 guess a few acres in order to not have a 0:02:17.120 --> 0:02:21.040 bad forest fire in the pilots. And I thought, vil Donna, 0:02:21.200 --> 0:02:23.799 this is exactly what's the FED is doing right now? 0:02:24.000 --> 0:02:29.440 Controlled burn of the markets in order to avoid a 0:02:29.480 --> 0:02:33.440 major nasty, uh forest fire later on. What do you 0:02:33.440 --> 0:02:36.080 think about that? Pretty good for at least you warned us. 0:02:36.240 --> 0:02:39.280 But that is a really long winded way to get 0:02:39.280 --> 0:02:42.880 back to the FED. Yeah, yeah, it could have been 0:02:42.880 --> 0:02:44.919 more long winded. I've been known to being more long winded, 0:02:44.919 --> 0:02:47.520 as you know. I heard, I heard, actually I think 0:02:47.560 --> 0:02:49.919 it was. A strategist wrote in a note a better 0:02:50.639 --> 0:02:54.360 sort of analogy. The FED is dating without the commitment, 0:02:55.200 --> 0:02:58.720 dating without the committing something like that. I like mine better, 0:02:58.720 --> 0:03:02.280 But that's fine. Ya, you go with here. It's good, 0:03:02.360 --> 0:03:05.760 it's fine. Think I have a kill. They're gonna pick 0:03:05.800 --> 0:03:09.320 minds better. Why I want to bring in Ben Emmons. 0:03:09.360 --> 0:03:12.720 He's the managing director of Global macro Strategy at Medley Global. 0:03:13.120 --> 0:03:16.200 And we also have Edward Harrison, who's with Bloomberg's Markets 0:03:16.240 --> 0:03:18.040 team with us with us this week. So I want 0:03:18.040 --> 0:03:21.720 to welcome you both to the podcast. Thank you very much. 0:03:22.560 --> 0:03:24.400 And uh and I want to start with you because 0:03:24.840 --> 0:03:27.360 Ben's been on this show probably as many times as 0:03:27.440 --> 0:03:30.959 Rodney Dangerfield was on Johnny Carson, and uh, he gets 0:03:31.000 --> 0:03:33.239 a little bit more respect from US. But but about 0:03:33.240 --> 0:03:35.440 that many appearances, but this is your first time, so 0:03:35.480 --> 0:03:37.960 welcome to the show. I wanted to just tell our 0:03:38.000 --> 0:03:39.920 listeners a little bit about yourself, how you ended up 0:03:39.960 --> 0:03:42.520 in Bloomberg and ed. You'll be happy to know we 0:03:42.560 --> 0:03:44.560 allow a little bit of book talking on this show. 0:03:44.640 --> 0:03:47.960 So so tell us about your new newsletter too. Yes, actually, 0:03:47.960 --> 0:03:52.120 that's that's good. And by the way, I vacation every 0:03:52.160 --> 0:03:56.720 summer on LBI, so I'm probably partial to you to 0:03:56.800 --> 0:04:00.080 your story about that because I go up to Barney It. 0:04:00.360 --> 0:04:02.760 I have a good friend who has a house up there, 0:04:02.800 --> 0:04:07.000 and uh so good good story. Definitely beautiful part of 0:04:07.040 --> 0:04:09.440 the world too. By the way, Jersey gets a bad rap, 0:04:09.440 --> 0:04:12.200 but that is some of the most beautiful scenery over 0:04:12.200 --> 0:04:16.200 that ball in my opinion. So I came to Bloomberg 0:04:16.200 --> 0:04:19.640 through securitist route that started as I was a diplomat 0:04:19.680 --> 0:04:23.960 in the US Born Service. I left to go to 0:04:24.080 --> 0:04:28.480 business school, ended up in UH financial markets doing leverage 0:04:28.520 --> 0:04:34.080 finance and high yield in London. UH subsequently decided this 0:04:34.160 --> 0:04:37.120 was the Internet bubble. Why don't I get into the bubble? 0:04:37.800 --> 0:04:41.560 Went to UH some technology companies as an M and 0:04:41.600 --> 0:04:46.920 a guy and Eventually I found my way uh into 0:04:47.080 --> 0:04:51.839 back into the markets uh via writing. UH. I was 0:04:52.000 --> 0:04:56.239 writing a blog which became a newsletter called Credit write Downs, 0:04:56.400 --> 0:05:00.720 which I did for thirteen years before I came the Bloomberg. 0:05:01.040 --> 0:05:05.080 And so now I'm reanimating a newsletter called The Everything 0:05:05.200 --> 0:05:09.160 Risk and sort of the main gist of it is 0:05:09.000 --> 0:05:14.400 is that we have a very difficult macro situation in 0:05:14.440 --> 0:05:19.560 the developed economies that allows us to continuously be at 0:05:19.720 --> 0:05:26.799 risk from large uh financial large economic events and so uh, 0:05:26.839 --> 0:05:30.160 this this sort of semi crisis uh state that we're 0:05:30.160 --> 0:05:33.960 in is a result of the preconditions. UH. Much of 0:05:34.000 --> 0:05:37.040 that has to do with debt and demographics. That's my uh, 0:05:37.360 --> 0:05:41.800 that's my book talking there and I have to uh 0:05:42.040 --> 0:05:45.800 two posts that I've done thus far, but many more 0:05:45.800 --> 0:05:48.680 to coom H. I love the name of the newsletter 0:05:48.720 --> 0:05:51.560 for for a paranoid worry work like me, The Everything 0:05:51.720 --> 0:05:53.960 Risk early hits home. That's a that's a good name. 0:05:54.640 --> 0:05:56.760 And then to turn to you and to turn to 0:05:57.080 --> 0:05:59.000 this week, I was actually hoping you could sort of 0:05:59.040 --> 0:06:03.720 recap some of the takeaways from from Paul's conference this week, 0:06:03.760 --> 0:06:06.279 and I wanted to ask you why you think stocks 0:06:06.400 --> 0:06:12.520 ended up rallying so strongly after shortly after he started speaking, Yeah, sure, 0:06:12.560 --> 0:06:15.280 and again Feldana and Mike, it's great to be back. 0:06:15.320 --> 0:06:17.320 I think it is need my third or fourth time 0:06:17.360 --> 0:06:21.880 on the podcast. It's great to have this discussion. So 0:06:22.160 --> 0:06:25.320 you know yesterday that you could explain it one one 0:06:25.400 --> 0:06:28.159 or the other way. So the fat delivers is fat. 0:06:28.160 --> 0:06:30.640 There's dark plot that looks pretty hockeys. Right. All these 0:06:30.680 --> 0:06:34.400 dots are movable a significant amount, but if you really 0:06:34.520 --> 0:06:36.520 drill into it, then you can see that they match 0:06:36.600 --> 0:06:39.320 the expectations from the market, at least for this and 0:06:39.440 --> 0:06:42.239 next year. And that's just how far the market wants 0:06:42.279 --> 0:06:45.920 to look out for policy, because whatever happens in twenty four, 0:06:45.960 --> 0:06:48.280 who knows, right like it could be a recession. Who 0:06:48.279 --> 0:06:51.040 knows to spaying certain So I think that was one 0:06:51.120 --> 0:06:54.480 candalyst that the market said, Okay, this is a fat 0:06:54.560 --> 0:06:56.919 that's willing to step on the break, but not go 0:06:57.200 --> 0:06:59.760 much more beyond what we already have been pricing in 0:07:00.400 --> 0:07:03.760 about right, So there's a little reaction tending your yields 0:07:03.839 --> 0:07:06.119 on that announcement. I think there was just a slight 0:07:06.400 --> 0:07:09.720 difference between twenty three projection and when the market was 0:07:09.760 --> 0:07:12.760 at that moment, but by and large I think that 0:07:12.840 --> 0:07:15.840 was I think the key catalysts. Now coming into the meeting, 0:07:15.880 --> 0:07:19.080 we had two other tillings behind us, in which I 0:07:19.160 --> 0:07:21.840 think was a very nicely put by a colleague, John 0:07:21.880 --> 0:07:25.680 Author's today of basically had three people throwing in the 0:07:25.760 --> 0:07:28.760 towel pow right. I guess on inflation, I could gotta 0:07:28.800 --> 0:07:31.960 fight it. But just the news out of China definitely 0:07:32.000 --> 0:07:36.240 played a role, because that's a that's a different story, 0:07:37.000 --> 0:07:39.840 but can have significant effect on markets, right because if 0:07:39.880 --> 0:07:43.680 if you're gaining, is a real support of Chinese equities 0:07:44.280 --> 0:07:46.720 that spreads around the region. It's not just there, it's 0:07:46.800 --> 0:07:50.560 Hong Kong. She was significant, so that it's still over 0:07:50.600 --> 0:07:53.240 I think to the equity markets here as we went 0:07:53.280 --> 0:07:56.640 into that meeting, and then a lot of noise but 0:07:57.200 --> 0:08:00.680 cutting through it, Ukraine and Russia are moving lowly towards 0:08:00.760 --> 0:08:04.320 some sort of a cease fire at some points as 0:08:04.360 --> 0:08:07.800 these conditions are negotiated. The ft with floating it. So 0:08:07.840 --> 0:08:11.120 I think it was all a combined catalysts taking it 0:08:11.160 --> 0:08:14.040 back to the fat um now creadly they want to 0:08:14.040 --> 0:08:16.680 step on the break this year in particularly to get 0:08:16.680 --> 0:08:19.960 that infatier rate. You now down to two percent by 0:08:20.000 --> 0:08:21.920 next year two and a half to to point seven. 0:08:22.520 --> 0:08:26.680 And the market seek incredibility in that, they say, and 0:08:26.720 --> 0:08:29.320 that was the reaction the law under you curve it 0:08:29.360 --> 0:08:32.600 would autherivize have sold off quite aggressively on the Harkeys dots. 0:08:32.720 --> 0:08:37.160 It didn't because, as imagine they analyze this restrictive policy 0:08:37.160 --> 0:08:40.880 that maybe the feathers pursuing. Paul took that back and said, like, 0:08:40.920 --> 0:08:43.640 we're not reading in the business of restrictive policy. We 0:08:43.679 --> 0:08:46.280 want to get back to neutrals practically as we can. 0:08:46.360 --> 0:08:48.720 And how he said it that was too a soothing 0:08:48.760 --> 0:08:52.360 way of saying, we're taking steps. You may get to 0:08:52.440 --> 0:08:55.120 this neutral rate maybe student a half to seventy five 0:08:55.160 --> 0:08:58.000 what it is, and that's sufficient enough to get this 0:08:58.080 --> 0:09:00.480 infatier rate over time back to two percent. I think 0:09:00.520 --> 0:09:04.000 all of that together that it is relief rally, which 0:09:04.200 --> 0:09:08.440 didn't continue today. But it was a notable movie, you know. Uh. 0:09:08.800 --> 0:09:12.000 But it's a great point about the China story sort 0:09:12.040 --> 0:09:15.439 of being an underlying story there for listeners who might 0:09:15.440 --> 0:09:17.240 have missed that. I mean, I guess the big concern 0:09:17.920 --> 0:09:21.320 lately in China is that all these US listed uh 0:09:21.559 --> 0:09:25.240 Chinese companies would basically get kicked off of the exchanges 0:09:25.360 --> 0:09:30.400 for not uh complying with the auditing requirements that that 0:09:30.440 --> 0:09:33.000 the US wants, and China came out and said they're 0:09:33.000 --> 0:09:35.720 gonna make some concessions to allow that, and and there's 0:09:36.000 --> 0:09:38.640 a few other statements to to basically try to prop 0:09:38.720 --> 0:09:41.920 up the market. That and as that Golden China Golden 0:09:41.960 --> 0:09:45.199 Dragon China Index up thirty percent, I think on the 0:09:45.280 --> 0:09:48.880 day the biggest game ever, unbelievable story and it's it's 0:09:48.920 --> 0:09:52.200 a you know, I think that is sort of something 0:09:52.240 --> 0:09:55.520 that that propped up sentiment, you know, despite the FED. Um, 0:09:55.679 --> 0:09:58.160 and I'm glad you brought that up. But but let's 0:09:58.160 --> 0:10:01.640 bring you in here. Um, any other takeaways from the 0:10:01.640 --> 0:10:04.520 FED for you? And one thing I'm I'm really curious 0:10:04.600 --> 0:10:08.840 about is FED credibility. Um, they seem to have lost 0:10:08.880 --> 0:10:13.800 a lot of credibility regarding the notion of inflation being transitory. 0:10:14.320 --> 0:10:16.160 They basically come out and said, what's our bet, We're 0:10:16.200 --> 0:10:18.120 gonna take a mulligan on that. We we got that 0:10:18.160 --> 0:10:21.680 one wrong. And some of the rationality I I heard 0:10:21.720 --> 0:10:24.600 for the rally after the statement was that while they're 0:10:24.720 --> 0:10:28.280 expressing confidence that these rate hikes won't uh you know, 0:10:28.320 --> 0:10:31.080 temp us into a recession. Um. But I'm wondering how 0:10:31.160 --> 0:10:35.720 much credibility they have left and whether you know, that 0:10:35.800 --> 0:10:37.880 might be a mistake by some people to to use 0:10:37.880 --> 0:10:40.480 that as a rationale to buy. Yeah, you know, I 0:10:40.520 --> 0:10:42.760 think that what Ben was saying about the relief rally 0:10:42.840 --> 0:10:44.720 there at the end makes a lot of sense to 0:10:44.760 --> 0:10:49.720 me that, uh, there was a certain relief that uh 0:10:49.760 --> 0:10:52.720 the news is behind this. Uh, stocks world were sold. 0:10:53.280 --> 0:10:56.000 Uh so people they bought in. And now we can 0:10:56.040 --> 0:10:59.880 see how much, how much, how many legs the relief rally, 0:10:59.880 --> 0:11:03.720 how as how long this relief rally lasts. I look 0:11:03.800 --> 0:11:07.280 at this last move is sort of a regime shift. Uh. 0:11:07.320 --> 0:11:11.560 It's a regime shift basically because we're moving from the 0:11:11.640 --> 0:11:16.360 forward guidance game, uh to actual rate cuts or rate hikes, 0:11:16.760 --> 0:11:22.640 because that's the Fed's main policy tool. When rates or zero, 0:11:22.679 --> 0:11:25.400 they don't have any rate cuts or rate hikes that 0:11:25.440 --> 0:11:28.040 they can they don't have any rate cuts they can use, 0:11:28.480 --> 0:11:30.720 so they have to use forward guidance. But now that 0:11:30.720 --> 0:11:32.960 we're getting off the zero lower bound, we're moving to 0:11:33.000 --> 0:11:36.040 a different regime. And so the question for the FED was, 0:11:36.120 --> 0:11:39.839 as we moved to this regime. How much can credibility 0:11:39.880 --> 0:11:44.520 can we have in terms of meeting market expectations. I 0:11:44.600 --> 0:11:47.040 think it was interesting that Ben talked about the FED 0:11:47.120 --> 0:11:50.960 being banged on expectations, uh for what the market is 0:11:51.000 --> 0:11:54.400 looking for. They basically capitulated because if you looked at 0:11:54.480 --> 0:11:59.360 the dot plot from December two one, uh to the 0:11:59.440 --> 0:12:02.600 one that just came out, and think about the messaging 0:12:02.640 --> 0:12:06.240 in between, this is a lot more hawkish than they 0:12:06.280 --> 0:12:10.600 were speaking uh two weeks ago. So they basically have said, 0:12:10.640 --> 0:12:15.880 we're shifting from the Ford guidance game to rate hikes, 0:12:16.200 --> 0:12:19.319 and we're gonna do that by taking on the market position. 0:12:19.320 --> 0:12:23.800 We're capitulating our previous position. We're you know, waving the 0:12:24.120 --> 0:12:27.760 white flag telling everyone that we got it wrong, and 0:12:27.880 --> 0:12:29.720 we're going to take on the market position. And so 0:12:29.760 --> 0:12:33.280 the reset is now for for that. And you know 0:12:33.320 --> 0:12:37.640 I wrote about this actually a month ago. UH. Greenspan 0:12:37.720 --> 0:12:39.920 back in two thousand and three, he was concerned about 0:12:39.920 --> 0:12:42.960 the FED running out of bullets during that particular recession. 0:12:43.520 --> 0:12:47.520 And what he said is is is that he was 0:12:47.559 --> 0:12:50.720 talking to then Kansas City FED President Thomas Hoenig, and 0:12:50.760 --> 0:12:53.400 he said, be as non specific as you know how 0:12:53.480 --> 0:12:56.360 to be that was his guidance to him, and Ben 0:12:56.400 --> 0:12:58.880 Bernanki got in there and he interceded. He said, you 0:12:58.880 --> 0:13:01.960 know what, no, don't do that. Ambiguity had This is 0:13:01.960 --> 0:13:06.160 his quote exact quote. Ambiguity has its uses, but mostly 0:13:06.240 --> 0:13:10.000 in non cooperative games like poker. Monetary policy is a 0:13:10.040 --> 0:13:13.520 cooperative game. The whole point is to get financial markets 0:13:13.559 --> 0:13:15.800 on our side and for them to do some of 0:13:15.800 --> 0:13:19.040 our workforce. So that's what the FEDS doing. They're saying, 0:13:20.120 --> 0:13:22.080 you did all the work to get to the seven, 0:13:22.200 --> 0:13:25.559 we're moving to your position and as a result, now 0:13:26.040 --> 0:13:28.520 the proof is in the pudding in terms of whether 0:13:28.640 --> 0:13:32.000 we uh, you know, move to the position that you 0:13:32.080 --> 0:13:34.760 see and that's the best possible outcome that you could 0:13:34.760 --> 0:13:39.480 get for fed that was behind the curve and losing credibility. Yeah, 0:13:39.480 --> 0:13:42.319 And to me, and it reminds me when I was 0:13:42.360 --> 0:13:44.160 a kid and I'd get in trouble with my parents 0:13:44.160 --> 0:13:46.280 and they'd say, you're we're gonna ground you for the 0:13:46.320 --> 0:13:48.720 next year, and then they'd kind of softened up in 0:13:48.800 --> 0:13:50.720 a week or two. And so I wonder if that's 0:13:50.760 --> 0:13:52.320 part of it, is kind of you know, trying to 0:13:52.320 --> 0:13:56.640 influence behavior with with uh, you know, this really hawkish 0:13:56.720 --> 0:13:59.160 dot plot, whereas you know, those dots can always move 0:13:59.200 --> 0:14:02.000 down again later year if if inflation does sort of 0:14:02.080 --> 0:14:05.160 behave better than than what everyone's but then what it's 0:14:05.160 --> 0:14:07.080 doing now anyways, that you think that's part? Is there 0:14:07.080 --> 0:14:08.760 a little bit of a psychology game going on? Do 0:14:08.800 --> 0:14:12.680 you think I just feel that they have They're very 0:14:12.679 --> 0:14:17.400 concerned about, uh, disappointing the market. Uh. They want to 0:14:17.440 --> 0:14:21.120 be as transparent as possible. They tried their best to 0:14:21.400 --> 0:14:24.200 talk down the market from seven rate hikes. You know, 0:14:24.400 --> 0:14:27.200 people were upp in the anti from seven to eight 0:14:27.240 --> 0:14:31.800 to nine consecutive rate hikes, and they weren't able to 0:14:31.840 --> 0:14:35.960 do that, and so, uh, they had a decision to 0:14:36.000 --> 0:14:39.760 make when we come out, are we going to move 0:14:39.840 --> 0:14:43.240 to this new regime of rate hikes from Ford guidance 0:14:43.600 --> 0:14:47.000 with the market and and ourselves, um, not on the 0:14:47.040 --> 0:14:49.880 same page. The last time they did this in two 0:14:49.880 --> 0:14:53.080 thousand and eighteen, they were telling the market, look, we're 0:14:53.080 --> 0:14:56.960 gonna hike uh two times, We're gonna hike three times. 0:14:57.400 --> 0:15:00.240 The market didn't believe them. The market was and we're 0:15:00.280 --> 0:15:02.600 gonna hike. They're gonna hike two times, and they ended 0:15:02.640 --> 0:15:05.520 up hiking four and it was that fourth hike in 0:15:05.640 --> 0:15:09.280 December of two eighteen that caused the markets to just 0:15:09.600 --> 0:15:12.760 go bananas. So I think that that's what they want 0:15:12.800 --> 0:15:15.840 to avoid. They want to you know, give it to 0:15:15.920 --> 0:15:18.800 the market on a platter, say we're meeting your expectations, 0:15:19.120 --> 0:15:22.760 and then we can use forward guidance at the the 0:15:24.200 --> 0:15:27.520 you know, um, at the margin to sort of you know, 0:15:27.840 --> 0:15:31.080 get people to dial up or down bit depending upon 0:15:31.120 --> 0:15:41.800 the economic circumstances at the time. And I want to 0:15:41.840 --> 0:15:44.680 ask you too, maybe add on to that, and also 0:15:44.720 --> 0:15:47.800 a weigh in on the recession talk. We keep hearing 0:15:47.800 --> 0:15:50.440 about recession talk, and I wanted to ask you what 0:15:50.480 --> 0:15:53.720 you make of that idea that potentially the US could 0:15:54.040 --> 0:15:57.680 see a recession and then maybe possibly as soon as 0:15:58.080 --> 0:16:00.920 later this year or early next year. Is that likely 0:16:00.960 --> 0:16:05.400 to materialize? Yeah, I hope not. But it's something that's 0:16:05.760 --> 0:16:10.000 has really creeped into the market's narrative increasingly. Of course, 0:16:10.000 --> 0:16:13.160 everybody's zero into on the on the you curve, there 0:16:13.160 --> 0:16:16.840 are inversions appearing. If you actually look at the three 0:16:16.880 --> 0:16:19.800 monten year curve, which is what most of these recession 0:16:19.840 --> 0:16:23.080 models are based upon, that's still very steep curve. But 0:16:23.120 --> 0:16:26.680 if you discounted a year from now forward. It's it's inverted. 0:16:26.760 --> 0:16:29.560 So there's definitely expectation that we're going to hit the 0:16:29.680 --> 0:16:33.120 Ukraine version, and it has been the best predictor of 0:16:33.280 --> 0:16:37.480 future recessions. So it seems like that the bomb market 0:16:37.520 --> 0:16:40.600 is looking at this is a recession that may happen 0:16:40.680 --> 0:16:44.320 by twenty four or about something in that nature, which 0:16:44.360 --> 0:16:48.400 may also explain why there are rate cuts sort of 0:16:48.480 --> 0:16:51.920 price starting in that year. And by the way, on 0:16:51.960 --> 0:16:54.960 the on the vet Stop plot, there's one member that 0:16:55.120 --> 0:16:58.800 actually put in a rate cut in that plot for 0:16:58.960 --> 0:17:02.440 twenty four, right, so just keep that in mind to 0:17:02.520 --> 0:17:07.040 the recession talk is here. Paul of course was pushing 0:17:07.119 --> 0:17:09.680 back on that, not pushing hard like like aggressive, but 0:17:09.760 --> 0:17:12.760 basically dismissing the idea that they are the economy is 0:17:12.880 --> 0:17:15.520 way too strong. It's not, which was by the way, 0:17:15.560 --> 0:17:18.040 another reason why perhaps of markets were up like it's 0:17:18.080 --> 0:17:20.800 with Voto conference on the economy is always a really 0:17:21.240 --> 0:17:24.400 positive impact on markets, especially if the fact comes out 0:17:24.480 --> 0:17:27.520 with that sort of language. Even if their models are on, 0:17:28.119 --> 0:17:31.920 it's an important psychological factor. So do that point BacT 0:17:32.480 --> 0:17:34.399 if we're going to continue to talk about it. We 0:17:34.440 --> 0:17:36.040 know from years ago, we're going to end up with 0:17:36.119 --> 0:17:40.280 talking ourselves into this recession. People were back. Risk is 0:17:40.320 --> 0:17:44.640 taken down, savings are off, and people are careful, right, 0:17:44.680 --> 0:17:48.680 and that's something that we have to monitor. Now. Look 0:17:48.760 --> 0:17:52.320 at the shocks that we just went through with Ukraine, 0:17:53.040 --> 0:17:57.160 especially two weeks ago, is enormous if you believe on 0:17:57.160 --> 0:18:00.639 on on how global and global skill that is taking 0:18:00.680 --> 0:18:05.800 place because of oh, wheat exports for example come out 0:18:05.800 --> 0:18:10.480 of that Bombus region as well as in the Odessa region, 0:18:10.600 --> 0:18:12.359 So it all comes through the force and all the 0:18:12.480 --> 0:18:15.399 size of the of Ukraine that in itself can have 0:18:15.400 --> 0:18:19.200 a huge effect on global economy. Right. There's of food 0:18:19.280 --> 0:18:23.399 either shortages or or sky marketing food prices that is 0:18:23.440 --> 0:18:27.560 going to impact lower incomes and that's here happening here too. 0:18:28.080 --> 0:18:30.879 And now it has to be method monetary tightening. And 0:18:30.960 --> 0:18:34.960 that combination has been historically time and time again and 0:18:35.080 --> 0:18:38.959 not a predictor of recession um and the last year 0:18:39.000 --> 0:18:42.240 I guess is that that if you watch carefully with 0:18:42.280 --> 0:18:45.200 credit markets are doing, I've always found out a good 0:18:45.320 --> 0:18:48.840 leading indicator. So far, we haven't had the structures that 0:18:48.960 --> 0:18:52.120 we had say five years ago, through energy markets into 0:18:52.119 --> 0:18:55.840 the high market and spilling over the credit um. But 0:18:55.920 --> 0:18:57.840 it is to be watched there too because you know, 0:18:57.960 --> 0:19:01.800 the trading houses in modies are are really constraint in 0:19:01.840 --> 0:19:05.440 liquidity currently cannot get any access of credit. So there's 0:19:05.480 --> 0:19:08.600 something of a spill over going on that may become bigger. 0:19:08.960 --> 0:19:12.200 And as that is the case if credit really starts 0:19:12.240 --> 0:19:15.040 to like be pulled back, and there was some talk 0:19:15.119 --> 0:19:19.000 about it that companies would challenged with with issuing bonds 0:19:19.040 --> 0:19:22.439 in a certain period when the market got temporary volatile 0:19:22.480 --> 0:19:25.439 because the Ukraine that just leads to the disruption and 0:19:25.480 --> 0:19:28.400 I could lead them to again pairing back of activity 0:19:28.960 --> 0:19:31.600 and lead us to down to that path. So I 0:19:31.640 --> 0:19:34.160 think if I to take those three the you curve, 0:19:34.960 --> 0:19:38.520 you know the fact that food press and and and 0:19:38.640 --> 0:19:43.199 multi policy tightening, combined with signs some science and credit, 0:19:43.680 --> 0:19:45.960 it points to that at least going to face a 0:19:45.960 --> 0:19:49.280 significant slowdown of the economy, that's for sure. I think 0:19:49.320 --> 0:19:53.600 that's almost a given. Now we would not be to 0:19:53.640 --> 0:19:59.520 be authorized with equities here already correcting about twelve that 0:19:59.560 --> 0:20:01.680 would have been last it we've been taken back much. 0:20:01.760 --> 0:20:04.639 I think the rally is the last point yesterday was 0:20:04.640 --> 0:20:08.400 was that Relieve rally on all the uncertainties that came 0:20:08.440 --> 0:20:11.439 sort of to get over taken out briefly. But I 0:20:11.560 --> 0:20:15.119 was not about, oh, Will the economy is actually a 0:20:15.160 --> 0:20:18.919 good shape. We had mis calculate it is therefore rally 0:20:19.080 --> 0:20:21.159 so I think the market is worried that there is 0:20:21.200 --> 0:20:24.879 a risk of procession on the horizon. Yeah, it's a 0:20:25.040 --> 0:20:27.800 it's an interesting point about credit. I mean, I feel 0:20:27.800 --> 0:20:31.680 like the last time everyone freaked out about credit spreads 0:20:31.760 --> 0:20:34.680 was when oil prices were so low that all that 0:20:34.800 --> 0:20:37.560 junk energy debt was under pressure. Now you've got sort 0:20:37.560 --> 0:20:39.560 of the opposite idea. And I wonder, you know, I 0:20:39.560 --> 0:20:43.920 wonder if credit isn't maybe the signal uh as powerful 0:20:43.960 --> 0:20:46.640 of the signal as as it was in previous time. 0:20:46.920 --> 0:20:49.440 But I wanted to pick both of your brains about 0:20:49.760 --> 0:20:53.280 the notion of inflation right now. Um to me, I 0:20:53.359 --> 0:20:57.240 was never, you know, quite convinced that everyone was wrong 0:20:57.280 --> 0:21:01.480 about transitory inflation. I just thought at the length of 0:21:01.480 --> 0:21:05.120 of how long the transitory period was was off and 0:21:05.119 --> 0:21:08.960 and but by the the whole paradigm is shifted now 0:21:09.000 --> 0:21:13.000 with Will doing what it's doing, uh, China locking down 0:21:13.080 --> 0:21:17.159 some factories again, you know, fouling up supply chains again. 0:21:18.640 --> 0:21:21.200 But I'm curious how you both are thinking about inflation. 0:21:21.280 --> 0:21:26.880 Have we sort of progressed away from the supply chains 0:21:27.359 --> 0:21:30.600 uh and and sort of that big rebound and demand 0:21:30.840 --> 0:21:34.080 being the main drivers of inflation. Are we more now? 0:21:34.119 --> 0:21:37.720 And sort of the scary lingering effects of inflation with 0:21:37.720 --> 0:21:41.720 wages going up and that forcing uh costs to go up, 0:21:42.080 --> 0:21:45.880 you know, and and that cycle sort of feeding onto itself. Uh, 0:21:46.040 --> 0:21:49.560 sort of that that labor push inflation. And how are 0:21:49.600 --> 0:21:51.359 you thinking about it? Are are we in sort of 0:21:51.680 --> 0:21:53.840 as the inflation genie kind of out of the bottle 0:21:53.880 --> 0:21:57.040 now and you can't really put it back, um, regardless 0:21:57.119 --> 0:22:00.480 of whether we normalize supply chains and everything else. Yeah, 0:22:00.520 --> 0:22:04.840 I think we're definitely in a different mode right now 0:22:05.040 --> 0:22:07.240 than we were. We're not in the so called secular 0:22:07.280 --> 0:22:11.560 stagnation mode. Even Larry Summers, who's the guy who coined 0:22:11.560 --> 0:22:14.760 that phrase, would say that. And going back to Ben's 0:22:14.800 --> 0:22:18.280 comments just from before, that's one of the reasons that 0:22:18.400 --> 0:22:22.920 you see the numbers ticking up in terms of the 0:22:22.920 --> 0:22:24.960 FED model. You know, the New York Fed has a 0:22:25.000 --> 0:22:29.639 probability of US recession uh predicted by the Treasury spread, 0:22:29.720 --> 0:22:31.920 the one that Ben was talking about the three months 0:22:31.960 --> 0:22:34.680 of the ten year, and if you look at how 0:22:34.720 --> 0:22:38.240 that works out, we're right now at sort of two 0:22:38.320 --> 0:22:43.480 thousand eighteen levels. That's when the FED was forced to pivot. Uh. 0:22:43.760 --> 0:22:46.920 The numbers that you were talking about back during the 0:22:47.800 --> 0:22:51.399 shale oil days were slightly lower, but they were still concerning. 0:22:51.400 --> 0:22:55.120 That was still a concerning market. But the reason that 0:22:55.760 --> 0:23:00.679 it's like that is is there's a residual leaf that 0:23:00.760 --> 0:23:05.399 the FED may not need the seven may not be enough, 0:23:05.920 --> 0:23:09.760 and we they may have to accelerate. So the market 0:23:09.960 --> 0:23:12.920 is positioned as it is now with a rate hike 0:23:12.960 --> 0:23:17.400