Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. Sometimes you get
Speaker 1: lucky in your scheduling. We do that with William Cohen.
Speaker 1: To say he's chairman and chief executive officer of Cohen
Speaker 1: Group barely describes it. He's a former Secretary of Defense,
Speaker 1: and of course this public service and really bipartisan approach here,
Speaker 1: but far more back to Nixon Kissinger on China, he
Speaker 1: among few is on the high ground. Maybe Mike Mansfield
Speaker 1: up in Jaman, up in Japan would be somewhat the
Speaker 1: equivalent Secretary Cohen. We're honored to have you here today.
Speaker 1: Is Speaker Pelosi making the right decision if she travels
Speaker 1: and lands in Taipei and greets the Taiwanese people. Well,
Speaker 1: I think what we have to do is understand what
Speaker 1: our policy towards China is and what our strategy is.
Speaker 1: We have taken a one China policy, Uh as far
Speaker 1: as the last fifty sixty years, and the question then becomes,
Speaker 1: what is our strategy for implementing that. Do we make
Speaker 1: a decision do we want to have any kind of
Speaker 1: a positive relationship going forward, and if so, how do
Speaker 1: we get there? And so I think what has happened
Speaker 1: with Speaker Pelosi's trip is she has raised very high
Speaker 1: expectations in Taiwan, very high anxieties in China. I believe
Speaker 1: that are how we deal with the Taiwan is a
Speaker 1: very big, bright red line as far as the Chinese
Speaker 1: are concerned, and I think they will respond, if not militarily,
Speaker 1: I don't expect that to take place. If she should
Speaker 1: go to Taiwan, I think they will find a way
Speaker 1: to respond in their own fashion that will inflict some
Speaker 1: harm upon us. So it's got a tough decision to make.
Speaker 1: The military is apparently indicated it's rather dangerous time for
Speaker 1: us in the region, and she'll have to take that
Speaker 1: into account. In the arc that we have of our
Speaker 1: relationship with China A one China and with FOREMOSTA with Taiwan,
Speaker 1: there have been assurances six assurances over time. You are
Speaker 1: directly involved with that. How strong are our six assurances
Speaker 1: to Taiwan. Well, it's the assurances are inconsistent with the
Speaker 1: passage of the Taiwan Relations Act, and I was a
Speaker 1: part of that. Going back to nine, we said that
Speaker 1: we will help provide for the defense of Taiwan. Since
Speaker 1: that time, President Biden has said we will defend Taiwan.
Speaker 1: That has caused great confusion in terms not only with China,
Speaker 1: but also our Asian allies. All of those in the
Speaker 1: Asia Pacific region are now the Indo Pacific region are concerned.
Speaker 1: What does that mean? Are we prepared to go to
Speaker 1: war with China over Taiwan and will they be with us?
Speaker 1: So we have to get more clarity in terms of
Speaker 1: exactly what we're prepared to do. Is it just helped
Speaker 1: provide defensive equipment or actually go to war should China
Speaker 1: try to attack Taiwan. So this confusion that needs to
Speaker 1: be clarification, and that's something I would think that speak of.
Speaker 1: Pelosi has talked with the administration, has talked obviously to
Speaker 1: the military, and I think during this trip she needs
Speaker 1: to talk and we'll talk with all of our allies
Speaker 1: in the Asia Pacific region because they have a lot
Speaker 1: at stake in terms of what we'll do and what
Speaker 1: will fail to do should there be a conflict, Secretary
Speaker 1: as at tensions begin and continue to really escalate in
Speaker 1: a new way between China and the US. Is the
Speaker 1: US dealing with a weekend or an emboldened Jijian paying
Speaker 1: a strength in Jijian Ping then perhaps a few years ago. Well,
Speaker 1: I think he's much stronger than he's ever been. I
Speaker 1: think that he will not be contested in the so
Speaker 1: called election coming up. I think you'll have a third term.
Speaker 1: And I think the Chinese will regard this, even though
Speaker 1: we've tried to persuade them that this is something that
Speaker 1: we do. We defend democracies, we defend human rights, they
Speaker 1: will see this as pointing a finger in the eye
Speaker 1: of Titian pay. And I think when we talk about
Speaker 1: red lines, going back to red lines with Russia, for example,
Speaker 1: going back as early as two thousand three, Bill Burns,
Speaker 1: our current CIA director, wrote to the Bush administration said
Speaker 1: Russia will see any move on the part of Ukraine,
Speaker 1: Tornado or EU as a red line that they will
Speaker 1: not allow Ukraine to cross. Well, that was twenty years ago.
Speaker 1: I think from what my travels in the entire region
Speaker 1: China will see this as a red line and they
Speaker 1: will find a way to take reaction to the United
Speaker 1: States that will in some way impact negatively upon the
Speaker 1: US and our allies. So it's one of those issues
Speaker 1: the Chris Christofferson song is the going up worth the
Speaker 1: coming down? We will have to decide is going up
Speaker 1: in terms of ratcheting up the attentions with China with
Speaker 1: China worth coming after that? What will be the nature
Speaker 1: of the relationship. Will we still be engaged with China
Speaker 1: or do we want to follow a policy of decoupling.
Speaker 1: Can we pull our economic engagement with China out? And
Speaker 1: if we pull out, will the European allies pull out?
Speaker 1: Will the Southeast Asian allies pull out? So these are
Speaker 1: all issues tied up with our relationship with China. So
Speaker 1: it's not easy. It's very complicated. Secretary, just quickly here.
Speaker 1: Do you think that this trip by Nancy Pelosi is
Speaker 1: advisable or a grave mistake? I don't know the answer
Speaker 1: to that. I would think that one option would be
Speaker 1: to um say that you will visit Taiwan, but perhaps
Speaker 1: at a later time. That would be one option. But
Speaker 1: she may feel that she's compelled to do so now,
Speaker 1: but understanding what the risks are. I think it's going
Speaker 1: to be complicated again because of expectations that she's being
Speaker 1: pushed by Republicans and Democrats to go. I think the
Speaker 1: administration slashing a warning sign without telling her not to.
Speaker 1: So the decision ultimately will be up to her, but
Speaker 1: I think it does. It certainly has some grave dangerous involved.
Speaker 1: There are many who feel China's bluffing. I don't think
Speaker 1: China's bluffing. William Cohen, thank you so much. We looked
Speaker 1: forward to speaking to you again, particularly on the US military.
Speaker 1: In a in a fract just two thousand and twenty two,
Speaker 1: Laura Ram joins US right now FS Investments with a
Speaker 1: really really sharp note about what to watch as we
Speaker 1: vault into August. Let me take you back to March
Speaker 1: of the beginning of the pandemic. Claims exploded higher five
Speaker 1: point nine million. I believe that number is. It's a
Speaker 1: huge statistic, and we've come down to the glory two
Speaker 1: years later of a hundred and seventy one thousand with
Speaker 1: a survey this Thursday of two hundred and sixty thousand. Laura,
Speaker 1: good morning. You say it is these statistics that matters,
Speaker 1: and you benchmarketed two hundred eighty thousand, how close are
Speaker 1: we to get into the rum two hundred eighty thousand.
Speaker 1: Still think we're about a quarter away from getting to
Speaker 1: a level that much more clearly predicts a recession as
Speaker 1: defined by the body that really is the arbiter of this,
Speaker 1: the official referee um. You know, claims typically bottom about
Speaker 1: nine to twenty four months ahead of a recession, and
Speaker 1: they bottomed back in March at a very historically low level,
Speaker 1: but they've been slowly creeping up, and there's a seasonal
Speaker 1: component to that. I think that's why I'm watching something
Speaker 1: a little bit higher, more like two eight, to try
Speaker 1: to differentiate between something that's more cyclical and something that's
Speaker 1: just easy. Does the FED weight is the fed ex
Speaker 1: post where they just have to wait for the lower
Speaker 1: rain to or the act before so that you know
Speaker 1: they're acting. And I think this is the big you
Speaker 1: know question that we saw after Wednesday, right, the markets
Speaker 1: are now really pricing in rate cuts and it's caused
Speaker 1: the FED funds futures curve to diverge significantly from the
Speaker 1: dot plot um, which you know, I grant you the
Speaker 1: FED really has removed there forward guidance piece of this,
Speaker 1: but I do think that that is going to be
Speaker 1: at the core of FED speak this week. FED speakers
Speaker 1: are looking at the market reaction and the higher inflation
Speaker 1: is a game changer. You cannot price in the same
Speaker 1: FED that we had in two thousand eighteen. You can't
Speaker 1: price the same reaction function at the first sign of weakness.
Speaker 1: And we're already seeing that the FED is not gonna
Speaker 1: be able to come in and ride to the rescue
Speaker 1: with rap cuts with the same speed and flexibility that
Speaker 1: they would have, and we have inflation a super second.
Speaker 1: What's driven you crasia the recession debate or the interpretation
Speaker 1: of that meeting last week of this FED. I think
Speaker 1: the recession debate, to me, is really taking the oxygen
Speaker 1: away from what we really need to be focused on,
Speaker 1: because the start date of the recession at the end
Speaker 1: of the date is really only good for years later
Speaker 1: when we're comparing it to other recessions. The reality is
Speaker 1: the economy is weakening, It's probably going to weaken further.
Speaker 1: Job losses are the hallmark of the classic definition of
Speaker 1: recession that or they're a hallmark component of that, and
Speaker 1: looking forward there's more, probably more weakness ahead. And you
Speaker 1: know right now Q three GDP is actually shaping up
Speaker 1: to be positive, a small positive, But I think we
Speaker 1: really need to wait. That there's another shoe out there
Speaker 1: to drop, and it's the jobs. And the FED probably
Speaker 1: said that about ten times that to them, they're really
Speaker 1: going to continue to address inflation primarily until they see
Speaker 1: problem with the jobs. It's in the first line of
Speaker 1: the statement. You can see in the first paragraph they
Speaker 1: reference the jobs market, writes the question, what do you
Speaker 1: expect to see that weakness bleed into the labor market?
Speaker 1: It's Friday too soon? Is next month too soon? Yeah?
Speaker 1: It is too soon. We've seen this consistent strength. We
Speaker 1: still have the job openings. It's not it's something that
Speaker 1: I don't really affect to materialize until the fourth quarter
Speaker 1: or even early in the first quarter next year. Which
Speaker 1: raises a question, Laura, about whether the dual mandate of
Speaker 1: the Fed comes into question at that point, whether inflation
Speaker 1: starts to become less of the obvious goal if the
Speaker 1: labor market is also struggling. Do you think that when
Speaker 1: we get there, inflation will have come down significantly to
Speaker 1: a level where it will be a more comfortable discussion
Speaker 1: for the Federal Reserve to have. No it's so much
Speaker 1: has to go right to get inflation back down to
Speaker 1: anything close to where the FED can plant a flag
Speaker 1: in a clear victory. You need either deep energy price deflation,
Speaker 1: you need rents to turn around, and you need durable
Speaker 1: goods price deflation. All those three components will be required.
Speaker 1: And right now I'm looking at your end g d P,
Speaker 1: it's hard to even get it below seven percent UM.
Speaker 1: You know, my forecast still is around six percent, but
Speaker 1: that's looking increasingly optimistic with every month UM where you
Speaker 1: just get these reports filled with upside surprises and inflation
Speaker 1: bubbling up from virtually every quarter of the economy. So
Speaker 1: it's a lot of economic uncertainty over the next year.
Speaker 1: And this is something that traditional you know, equity markets
Speaker 1: just haven't wrapped their head around. They're looking at a
Speaker 1: more classic V shape recovery, and I would argue we
Speaker 1: still have an hit the bottom of that yet. Just
Speaker 1: quickly here, Laura, given the fact that FED Chair J.
Speaker 1: Powell came out and said that we are getting closer
Speaker 1: to neutral, and that Larry Summers came out and said
Speaker 1: that that was indefensible where do you see this idea
Speaker 1: of neutral kind of evening out? You know, the their
Speaker 1: estimates of neutral are so based on their Phillips curve
Speaker 1: related models, and they really take for granted this deep
Speaker 1: durable goods price deflation that we've seen from China in
Speaker 1: the face of the globalization. Neutral is likely higher. Their
Speaker 1: models haven't caught up to that yet, and I think
Speaker 1: that's what so many of us are sort of pounding
Speaker 1: the table about. It's going to have to be a
Speaker 1: higher terminal rate. It may even be three and a
Speaker 1: half percent, but even that, I think would require a
Speaker 1: hawkish pivot from where markets are positioning today. Right. Thank
Speaker 1: you of FS Investment. This is a joy Edward Moore's
Speaker 1: defines a global oil and on analysis. He's how to
Speaker 1: come out of his research at City Group. Let's get
Speaker 1: right to it, Ad Morris, I want to talk about
Speaker 1: demand responsiveness or demand elasticity nation to nation. Is the
Speaker 1: demand dynamics of less demand in the United States the
Speaker 1: same as the demand dynamics say in Germany or Singapore. Absolutely,
Speaker 1: European economic conditions are worse than they are in the US.
Speaker 1: Compound that with the higher price and yes, we're not
Speaker 1: seeing any demand growth in Europe. We're not seeing very
Speaker 1: much demand growth around the world. It's just two prices
Speaker 1: are too high, and even though they've come off, the
Speaker 1: gasoline prices have come off, the continued strength of the dollar,
Speaker 1: even they'll use you noted, it's weakening, and just the
Speaker 1: sheer high price is to turn people from using the
Speaker 1: car as much as they were in the past. Do
Speaker 1: you assume out of the bulls and you've been right,
Speaker 1: right right in the last number of months, add morse,
Speaker 1: do you assume the demand clicks in if COVID is
Speaker 1: solved in Asia? Well, certainly there's one level where demand
Speaker 1: will absolutely kicked in, and that's jet field demand. China
Speaker 1: is a very large user of jet fuel. They've shut
Speaker 1: down international travel, so they've they've they're down about a
Speaker 1: million barrels a day from where they've been just on
Speaker 1: the jet fuel side. So yes, we do expect a
Speaker 1: year from now all our sequels that we're going to
Speaker 1: see significantly more jet field demand. We don't see that happening,
Speaker 1: by the way, in the other transportation fuels. We think
Speaker 1: gasoline and diesel are likely to remain weak unless for
Speaker 1: some reason there's going to be a rebirth of global
Speaker 1: trade um and some shot in the arm to to
Speaker 1: get people driving again. If this is the case, side,
Speaker 1: why are we not seeing inventories build more? Well, we
Speaker 1: are seeing inventories build. The problem is I've been such
Speaker 1: at such a low level. That's one of the problems.
Speaker 1: The other problem is that when we look back at
Speaker 1: the second quarter, there was a good inventory build, but
Speaker 1: most of it took place in China. We had a
Speaker 1: month and a half in which demand, real demand was
Speaker 1: down about a million barrels a day a little bit more,
Speaker 1: and we had inventories building because there was another million
Speaker 1: barrels a day of imports coming out of taking advantage
Speaker 1: of the low price of Russian crude and actually stock building.
Speaker 1: They We had a lot of imports of Saudi crude,
Speaker 1: up around seven hundred thousand barrels a day alone one
Speaker 1: month after the other. So the inventory building Q two,
Speaker 1: which is unevenly distributed, we're seeing actually an inventory build
Speaker 1: west of Suez right now, which is not seeing it
Speaker 1: in the US. The US is in this bizarre position
Speaker 1: of being not one market, but three or four different markets.
Speaker 1: We are an open market. We can't export other than
Speaker 1: by pipeline, and I used the word to export euphemistically.
Speaker 1: We had export from the Gulf coast to the East coast.
Speaker 1: Um uh. We can export to Europe and other places.
Speaker 1: The turning away from Russia by European countries and companies
Speaker 1: have had them turning to the United States. But last
Speaker 1: week the data from the A had US exports that
Speaker 1: are record high of ten point nine million barrellars a
Speaker 1: day growth ten point nine million of of of including
Speaker 1: well over four million barrels a day of crude oil.
Speaker 1: So we're having the kind of this discontinuities in the market,
Speaker 1: pulling oil out of the US going into other parts
Speaker 1: of the world. But there definitely is weakness on the
Speaker 1: inventory side, and we're seeing that in the level of backgradation.
Speaker 1: Prices have gone down. PROMP prices are going down when
Speaker 1: it comes to crude at a faster rate than deferred prices.
Speaker 1: The difference between the prompt month and the second month
Speaker 1: is narrowing, and we're seeing flows coming out of commodities.
Speaker 1: The liquidity of the market is low UH, and it's
Speaker 1: getting lower as people are abandoning commodities for other other assets.
Speaker 1: At the moment, one of the reasons why the oil
Speaker 1: picture has been so complicated at it is because of
Speaker 1: how much it does hinge on the zero COVID policy
Speaker 1: in China, how much it hinges on whether that Russian
Speaker 1: oil ill can actually move around more consistently or actually
Speaker 1: not at all, whether it's restricted more. How much do
Speaker 1: you change your parameters, how much do you change what
Speaker 1: your base case is for the price if say China
Speaker 1: does reopen, or if we do get some sort of
Speaker 1: continuing of a studying in the global economy, well we
Speaker 1: do have that as a as a contingency. We think
Speaker 1: the bigger risk on the upside at the moment is
Speaker 1: not a change in the economic situation globally, but rather
Speaker 1: we understand the fragility of exports in some countries. It's
Speaker 1: not just Olivia, which has gone up by the way
Speaker 1: by seven or eight hundred thousand bars a day in
Speaker 1: the last couple of weeks. How long will that last
Speaker 1: is a barris factor of the market. Will we be
Speaker 1: seeing disruptions to supply there? Again? Also in Nigeria, uh
Speaker 1: we're noticing that the Iraq has not yet had a
Speaker 1: government since the elections of last October. We've had the
Speaker 1: Parliament house occupied twice by protesters worrying about a government
Speaker 1: that's going to be too moose to Iran. The the
Speaker 1: likelihood of disruption risks in both Iran and Iraq is
Speaker 1: not exactly zero. Uh So there are bullets factors that
Speaker 1: are hanging over the market. And I don't want to
Speaker 1: caut you on awares on this. And if City Group
Speaker 1: has a banking relationship, please speak up and I apologize.
Speaker 1: Moments ago we have a headline that a Ramco will
Speaker 1: take out the global products division of Velvioline. Folks Ed
Speaker 1: Morrison are the only ones in financial media that actually
Speaker 1: used a can of velvoline in the first car we
Speaker 1: are allowed ever to do an oil change. And there's
Speaker 1: a romance here of the troops from Lexington, Kentucky discussed
Speaker 1: that the synergies of a giant like a Ramco was
Speaker 1: something that's so absolutely iconic in America. UM, I can't
Speaker 1: speak to the synergies. I can speak to a company that,
Speaker 1: as our own my own college, who report on a
Speaker 1: rampo of noted is a wash in cash uh and
Speaker 1: is under pressure to spend it uh. And there are
Speaker 1: market niches that are highly profitable that companies like that
Speaker 1: go after so, without speaking to product issue, I think
Speaker 1: it's just has to do with what the extraordinary cash
Speaker 1: flow and cash position of that company is looking for
Speaker 1: good investments to make. And do you see this to
Speaker 1: continue across all of big oil. I mean, we think
Speaker 1: of x On and XTO, But is this the future
Speaker 1: of an oil a washing cash? Well, the question is
Speaker 1: how long will oil companies be a washing cash. We've
Speaker 1: had very unusual cracks friends. At the moment, A significant
Speaker 1: amount of that profitability doesn't come from the price of
Speaker 1: oil itself. It comes from other things in the market,
Speaker 1: and particularly the strength of the product markets. The strength
Speaker 1: of the product markets is very unusual. China has a
Speaker 1: massive role to play in it. China, as I noted earlier,
Speaker 1: was building inventory. They not only building inventory, but at
Speaker 1: the same time they've cut out exports of product and
Speaker 1: particularly diesel. A year ago they were exporting seven hundred
Speaker 1: thousand barrels today of diesel it's now zero. That's seven
Speaker 1: hundred thousand barrels a day. If it were in the market,
Speaker 1: and if there were some other adjustments, would bring that
Speaker 1: cracks and the refinery margins the profitability of reviding down significantly.
Speaker 1: And before I let you go, what's your base case
Speaker 1: for how low oil prices could go in the next
Speaker 1: six months. Well, our base cases for oils to continued
Speaker 1: to drift downward is seeing rent in the mid eighties
Speaker 1: and w t I in the low eighties for year end. Uh,
Speaker 1: and then continuing on that path into the months into
Speaker 1: the eighties. Low a t C around at Molsa City.
Speaker 1: Thank you, what a move we've had in July, the
Speaker 1: biggest month of gangs of the SMP bats in November.
Speaker 1: Off the lows of June, the June sixteenth closing low
Speaker 1: on the NASTAG one hundred, we have round eight more
Speaker 1: than sixteen percent. Stewart Kins was waiting for that move.
Speaker 1: The head efectuity thrivers. This research at ups joins this
Speaker 1: right now, Stewart, Is it too added to take a
Speaker 1: victory lap? I don't think there's any victory laps in
Speaker 1: these in these markets, John, But uh, look, I think
Speaker 1: I think the big picture here's expectations just got you know,
Speaker 1: so extremely low that it didn't take a whole lot
Speaker 1: to kind of surprise sentiment to the upside, especially given
Speaker 1: more positioning. Is But yeah, I think any any victory
Speaker 1: laps are short lived these days. I look, Stewart at
Speaker 1: the move we've had. When you synthesize all of UBS research,
Speaker 1: can you say it is a bull market? Can you say,
Speaker 1: as we've heard from a number of other guests, optimistic
Speaker 1: guests like you, that is a bottom um. I think
Speaker 1: we do see some room for the market to continue
Speaker 1: to move higher in August. I don't think I call
Speaker 1: it a bull market. You know, when when the how
Speaker 1: do you know when it's a bull market? I mean,
Speaker 1: that's a great question. I think for us, we'd like
Speaker 1: to see some follow through. I think if you look
Speaker 1: at performers in the equity markets the last five months,
Speaker 1: winners have outperformed underperformed losers that the following month for
Speaker 1: five consecutive months. So basically, people have been aggressively selling winners.
Speaker 1: And I think if we could see some a little uh,
Speaker 1: you know, follow through in August, we probably see that
Speaker 1: as a as incrementally positive. But look until until the
Speaker 1: Fed seems comfortable that inflations under control and they're willing
Speaker 1: to sort of back off a little bit of these
Speaker 1: hard landing outcomes, I think it's hard to really call
Speaker 1: for a bull market at this point, Stuart, understanding technical
Speaker 1: versus fundamental underpinnings of the rally that we just saw.
Speaker 1: There was a story that caught my attention on Friday
Speaker 1: that QUANTZ sold a huge amount of their barrished positions
Speaker 1: they had to close out over the past few weeks
Speaker 1: and that that was fueling the rally. How much is
Speaker 1: that the main factor that's really been driving a market
Speaker 1: that's been operating in thin liquidity and very uncertain economic
Speaker 1: outlooks At least, I think it's actually a pretty big
Speaker 1: part of it. If you look at the performance of
Speaker 1: hot short interest stocks, they they've rallied considerably in July,
Speaker 1: and I think that's evidence of what you've been seeing
Speaker 1: on the quant side. But you know, I think that
Speaker 1: just speaks to bigger picture that that positioning and sentiment
Speaker 1: had been so washed out that you've got a relatively
Speaker 1: solid earning seasons, certainly not as as strong as we've
Speaker 1: seen the past couple, but a solid earning season, and
Speaker 1: the FED that just sort of stayed on scripts. So
Speaker 1: didn't you know, provide an additional negative catalyst into the market,
Speaker 1: And and that's you know, hasn't to your point, I
Speaker 1: don't think it's drawn a lot of new investors into
Speaker 1: the market, but I think it's scared a lot of
Speaker 1: the shorts out. And and that's kind of what we've
Speaker 1: seen in July story your response to when we tried
Speaker 1: to give you a victory lap spoke volumes, it was
Speaker 1: just sort of this exhaustion from this whip saw action
Speaker 1: that we've been seeing in the uncertainty. What's your compass
Speaker 1: when you try to get a gauge of what's to come?
Speaker 1: Is it the economic data? Is it the prognostications for
Speaker 1: FED officials, or is it the line by line reports
Speaker 1: that we're getting from a lot of companies as they
Speaker 1: report earnings. I think right now it's it's the earning
Speaker 1: side of it. But just because expectations, especially from the
Speaker 1: more barre side of the of the ledger, have been
Speaker 1: so negative on earning, so I think you know, about
Speaker 1: a five percent upside to EPs has really helped in
Speaker 1: terms of the feed. Look, I mean the feed as
Speaker 1: a dual mandate, and their view, I think has been
Speaker 1: that the the tail risk on the inflation side of
Speaker 1: their mandate was was so far off and so huge
Speaker 1: that they had to prioritize that, and they frontloaded high
Speaker 1: makes and and to their credit market based inflation expectations
Speaker 1: have come under control. What they've sacrificed there is they've
Speaker 1: sort of introduced a tail risk on the growth side
Speaker 1: of the market. So it's going to be that back
Speaker 1: and forth between how the FED is managing, you know,
Speaker 1: inflation risk in the face of declining growth. And I
Speaker 1: think the real challenge is going to be if we
Speaker 1: see weakness in the labor market, how will the FEDG
Speaker 1: communication evolve. I think from their perspective right now, the
Speaker 1: tail risk on the growth side is smaller and further
Speaker 1: in the future, so they're gonna prioritize inflation as that
Speaker 1: growth tail risk gets closer. How does that communication of
Speaker 1: office that's going to be I think the number one
Speaker 1: focus for us as we get through earnings is is
Speaker 1: how the fact communicates that balance. I'm asking for a friend,
Speaker 1: but for people that have missed the equity market completely,
Speaker 1: I mean, just you know a few people that have
Speaker 1: actually completely missed the equity market, how do you begin
Speaker 1: to get on board? Do you do you plunge in?
Speaker 1: Is it you have such an enthusiasm that you dive in,
Speaker 1: or is it the proverbial dollar cost average. Um, you know,
Speaker 1: we're not in We're not in the diving camp at
Speaker 1: this point. I think if if the FED is focused
Speaker 1: on growth and is willing to allow hard landing outcomes,
Speaker 1: I think you need to enter this through higher quality,
Speaker 1: you know, larger market cap type companies. And I think
Speaker 1: that's frankly why large cap tech has benefited, because they
Speaker 1: fall into that category. So for us, it's you know,
Speaker 1: I think you want to be careful legg again here,
Speaker 1: it's hard to recommend to buy value and cyclicals at
Speaker 1: a time when the FED seems comfortable, you know, causing
Speaker 1: a recession. And look at the investor conversation is not
Speaker 1: if there's a recession, right, it's when and how much?
Speaker 1: And if that's the case, I think you need to
Speaker 1: be pretty cautious about how you add risk at this point.
Speaker 1: So it kinds they're also going to catch out with
Speaker 1: you as a wise here in New York City. Steve,
Speaker 1: thank you said, this is the Bloomberg Surveillance Podcast. Thanks
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