WEBVTT - Surveillance: Inflation Expectations with Rajan (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily 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 --> 0:00:23.759 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.560 and of course on the Bloomberg terminal. Right now, we 0:00:31.600 --> 0:00:33.920 are thrilled to bring to you a Rockin rog And 0:00:33.920 --> 0:00:36.600 he is of course at the University of Chicago Boost School. 0:00:36.920 --> 0:00:40.159 He is of course a former Reserve Bank of India governor, 0:00:40.240 --> 0:00:43.800 but also one of the most prescient students of American 0:00:43.960 --> 0:00:47.040 culture and our future. Were thrilled that Dr Roger could 0:00:47.120 --> 0:00:50.360 join Bloomberg this morning. Rockerman, want to go back to 0:00:50.440 --> 0:00:53.920 I think it was two thousand twelve and your postmortem 0:00:53.920 --> 0:00:56.920 in the Corporate and the Corporation and Finance where you 0:00:56.960 --> 0:01:00.480 talked about the near death experience of two thousand eight. 0:01:01.200 --> 0:01:04.360 How close are we to that now? When you look 0:01:04.440 --> 0:01:09.080 at the unique challenges every central bank happens, including the 0:01:09.120 --> 0:01:12.360 work at Bank of India UH ten days ago, I 0:01:12.400 --> 0:01:15.440 will say, how close are we to a two thousand 0:01:15.920 --> 0:01:22.520 twenty two near death experience? Well, every UH sort of 0:01:23.080 --> 0:01:28.120 episode is different. Of course, I think we are not 0:01:28.480 --> 0:01:31.440 as fearful of the banking sector this time because of 0:01:31.480 --> 0:01:36.440 substantially more capital in that sector. What is less known 0:01:36.480 --> 0:01:41.839 as what happens in the shadow banking system, uh, the cryptos, 0:01:41.959 --> 0:01:48.880 the finance companies, the various funds, and UH. What has 0:01:48.920 --> 0:01:52.360 happened over the last ten years is we've had very 0:01:52.400 --> 0:01:56.800 easy money. Very easy money means leverage. Very easy money 0:01:56.840 --> 0:02:01.520 means a dependence on liquity, UH, and dependence on being 0:02:01.560 --> 0:02:04.880 able to roll over stuff. And the big unknown is 0:02:05.040 --> 0:02:09.200 how many, how much of the financial sector is is 0:02:09.240 --> 0:02:12.960 actually going to have problems as rates go up, as 0:02:13.040 --> 0:02:16.360 rollovers become more difficult. Yesterday, day before, we saw that 0:02:16.520 --> 0:02:20.320 happening to stable coins. What else is waiting out there 0:02:20.360 --> 0:02:23.400 by now? Pay later? Yeah? What what's so important here, 0:02:23.480 --> 0:02:27.880 Dr Roger? And is the University of Chicago's intellectual foundation 0:02:27.960 --> 0:02:31.920 and leadership on the breaking of inflation by Paul Woker 0:02:32.160 --> 0:02:36.840 a few decades ago. I know history doesn't repeat, but 0:02:36.960 --> 0:02:39.400 what are the methods we need to do to break 0:02:39.560 --> 0:02:46.320 this inflation? Well, Paul Volker used a sledgehammer, right. He 0:02:46.680 --> 0:02:51.440 essentially created a double dep procession in order to squeeze 0:02:51.440 --> 0:02:57.000 out inflation. We hope it doesn't come to that this time. Nevertheless, 0:02:57.919 --> 0:03:02.680 I think the message from Volker is as inflation gets legs, 0:03:02.760 --> 0:03:05.400 as it picks up, as it spreads, and it spreads 0:03:05.440 --> 0:03:08.280 not just within the country across goods and services, but 0:03:08.480 --> 0:03:13.000 across the world, you have to take strong medicine, and 0:03:13.040 --> 0:03:17.720 that means raising rates, typically a percentage point or two 0:03:17.760 --> 0:03:21.799 above the prevailing inflation rate, and right now we are 0:03:21.880 --> 0:03:24.600 so far from it. Now. The good news, I think 0:03:24.800 --> 0:03:27.320 is when you look at an inflation expectations over the 0:03:27.400 --> 0:03:30.520 last few days, they seem to have come down. That's 0:03:30.520 --> 0:03:34.360 an interesting development. People think the Fed is serious. The 0:03:34.440 --> 0:03:37.920 markets may not be perfectly right, but they certainly think 0:03:37.920 --> 0:03:39.920 the FED has a chance. Now you look at five 0:03:40.000 --> 0:03:43.280 year five year forward expectations, they had gone up to 0:03:43.320 --> 0:03:45.800 two and a half percent. They're back down to two 0:03:45.840 --> 0:03:49.640 point three now. So there's something here suggesting the market 0:03:49.760 --> 0:03:53.240 believes the Fed is serious. Program. You're talking about the 0:03:53.280 --> 0:03:56.840 concern about financial stability as well as this belief in 0:03:56.920 --> 0:03:59.440 faith that the FED can actually bring down inflation, that 0:03:59.440 --> 0:04:02.080 they're actually to go ahead and do that. In some ways, 0:04:02.280 --> 0:04:05.480 does the FED get more conviction to go faster and 0:04:05.520 --> 0:04:08.040 more from the fact that the disruptions, whether it's in 0:04:08.080 --> 0:04:09.920 the stable coin that you talk about, whether it's the 0:04:09.960 --> 0:04:12.560 fact that we've seen massive amounts of pain in the 0:04:12.600 --> 0:04:15.360 big tech sector, that we have not seen a wholesale 0:04:15.400 --> 0:04:18.000 financial market collapse in some of the shadow banking sector. 0:04:18.200 --> 0:04:20.520 Does that give the FED more confidence that they can 0:04:20.640 --> 0:04:23.640 raise rates to the pace that they're planning to. I 0:04:23.640 --> 0:04:27.720 think it does. I also do think that, uh, you know, 0:04:27.960 --> 0:04:31.960 the fact that the market was not reacting earlier in 0:04:32.000 --> 0:04:35.200 the year to anticipation that the FED would do something, 0:04:35.240 --> 0:04:39.000 certainly into late last year and earlier this year, Um, 0:04:39.160 --> 0:04:42.559 that was a source of concern. Everybody knew the FED 0:04:42.640 --> 0:04:45.839 had to start raising rates and uh, you know, you 0:04:45.960 --> 0:04:49.480 wanted some of the uh sort of wombs behind the 0:04:49.520 --> 0:04:54.040 market to die down. Now that has happened, but as 0:04:54.080 --> 0:04:57.159 you said, it hasn't resulted in the wholesale collapse. It 0:04:57.240 --> 0:05:01.360 has been you know, steady declines. Uh that's not a 0:05:01.400 --> 0:05:04.799 bad thing. Of course, the FED is weary. It doesn't 0:05:04.839 --> 0:05:09.120 want to cause the market collapse and uh that you know, 0:05:09.200 --> 0:05:13.599 if that does happen, it may have to rethink a 0:05:13.640 --> 0:05:16.560 little bit of strategy. But certainly steady decline is not 0:05:16.600 --> 0:05:18.760 a bad thing for the FED. Meanwhile, the great Fed 0:05:18.839 --> 0:05:22.440 conundrum of two is just how much growth has to 0:05:22.480 --> 0:05:25.159 come down in order to meet their goal of bringing 0:05:25.240 --> 0:05:28.280 down inflation in light of some of the supply chain disruptions, 0:05:28.360 --> 0:05:31.760 the supply side issues that have really caused this. Where 0:05:31.760 --> 0:05:34.080 do you weigh in on this as a former central banker, 0:05:34.120 --> 0:05:36.520 as a former head of a central bank that had 0:05:36.560 --> 0:05:38.400 to make some of these hard decisions. Do you think 0:05:38.400 --> 0:05:41.760 it's worth it to curtail employment to potentially send the 0:05:41.880 --> 0:05:44.919 economy into a recession if that's what it takes to 0:05:45.000 --> 0:05:49.880 bring down inflation. Well, there are two sources of concern right. 0:05:49.920 --> 0:05:54.760 One is that inflationary expectations get more entrenched as you 0:05:54.800 --> 0:05:58.159 see higher inflation over a sustained period. And the second 0:05:58.240 --> 0:06:02.440 is that translates into workers demanding higher wages, and you 0:06:02.480 --> 0:06:06.480 get the wage price spiral. Workers demanding higher wages causing 0:06:06.560 --> 0:06:10.880 higher inflation causing them to demand more. Now, there are 0:06:10.920 --> 0:06:13.200 two ways to break this. One, of course, is to 0:06:13.279 --> 0:06:17.480 bring down inflation so expectations come down. The other is 0:06:17.560 --> 0:06:20.320 to take some of the heat of the labor market 0:06:20.920 --> 0:06:25.760 uh to create some slack so that workers now say, well, 0:06:26.040 --> 0:06:28.960 maybe inflation has gone up, but I'd rather prefer having 0:06:29.000 --> 0:06:32.600 my job than going out, uh, you know, demanding a 0:06:32.720 --> 0:06:36.360 wage hike and uh, I think you can work on 0:06:36.480 --> 0:06:39.800 both now. The the I think the possibility of having 0:06:39.800 --> 0:06:42.720 a softer landing is certainly one that has been talked 0:06:42.760 --> 0:06:46.320 about a lot. And increase in labor supply as COVID 0:06:46.720 --> 0:06:50.479 sort of fears come down, but importantly as immigration picks 0:06:50.560 --> 0:06:54.120 up and and floods the lower end with a few 0:06:54.120 --> 0:06:57.240 more people taking the heat of the labor market in 0:06:57.400 --> 0:07:01.320 that at that end, and that can trans make upwards. 0:07:01.360 --> 0:07:03.719 But I think these are things that take time. I 0:07:03.760 --> 0:07:05.960 think the FED has to act to show that it's 0:07:06.000 --> 0:07:09.800 serious and hope that these forces uh sort of kicking 0:07:10.160 --> 0:07:14.200 down the line and prevent that that recession from necessarily happening. 0:07:15.120 --> 0:07:17.520 Very importantly here, your book, The Third Pillar, was one 0:07:17.520 --> 0:07:19.760 of my books of the summer. You talked there about 0:07:19.840 --> 0:07:24.360 the elites of America leaving the community behind. Give us 0:07:24.360 --> 0:07:27.119 an update. I don't think it's that pretty, is it. 0:07:28.160 --> 0:07:31.440 It isn't. And my big worry is that we've spent 0:07:31.560 --> 0:07:35.320 six trillion, but a lot of it was income support 0:07:35.640 --> 0:07:39.880 and not so much on structural reforms that would strengthen 0:07:40.800 --> 0:07:44.400 the capacity of those communities that are disadvantages, that are 0:07:44.440 --> 0:07:48.360 falling behind their capacity to earn a you know, stronger 0:07:48.400 --> 0:07:52.040 living to have stronger institutions. Now I think we have 0:07:52.080 --> 0:07:57.560 a chance. I think with the increase in technology, the 0:07:57.600 --> 0:08:00.880 ability to work from home that we've learned in the pandemic, 0:08:01.560 --> 0:08:05.960 maybe economic opportunity can spread more widely, that people in 0:08:06.080 --> 0:08:09.480 skilled services don't have to go into the big city 0:08:09.520 --> 0:08:12.440 every day. They can stay in more remote places. They 0:08:12.480 --> 0:08:16.680 can fertilize those places with their capabilities, with the incomes, 0:08:16.720 --> 0:08:20.040 and you get a spreading of economic activity. But we 0:08:20.120 --> 0:08:22.920 have to work on this. We have to do far more, 0:08:23.440 --> 0:08:26.120 and I think if we do more, it will reduce 0:08:26.240 --> 0:08:28.920 some of the divide that plagues not just the United 0:08:28.960 --> 0:08:32.800 States but almost every industrial country. We do have to 0:08:33.080 --> 0:08:37.760 build up elsewhere, level up, so to speak. I always 0:08:37.800 --> 0:08:40.000 enjoy listening to say thanks to famous for so long 0:08:40.320 --> 0:08:43.079 a ranch and there at the University of Chicago. Let's 0:08:43.080 --> 0:08:51.400 go right now and moving forward into the summer. Is 0:08:51.440 --> 0:08:54.040 a joy to speak to Angelo's stand. She is non 0:08:54.040 --> 0:08:57.400 resident Senior Fellow Brookings and author of my book of 0:08:57.440 --> 0:08:59.959 the Year, made far too early in this Tumultua was 0:09:00.040 --> 0:09:03.720 two thousand, twenty two Putin's world. All I can say 0:09:03.840 --> 0:09:07.400 is it's definitive. Professor Stan, thank you so much for 0:09:07.480 --> 0:09:11.760 joining today. Here's what Wikipedia says about Mr Putin's health. 0:09:12.559 --> 0:09:16.319 These claims are speculative and made by those who are 0:09:16.360 --> 0:09:20.319 not medical professionals. So Dr stant I remember you on 0:09:20.480 --> 0:09:24.520 Dr Kildare a few years ago, how is Mr Putin's health? 0:09:25.600 --> 0:09:29.800 I am not a medical doctor. Good morning, So it 0:09:30.000 --> 0:09:32.320 is all speculation. I mean, if you looked at him 0:09:33.000 --> 0:09:37.600 on Monday in the May ninth rally commemorating the anniversary 0:09:37.600 --> 0:09:41.000 of the defeated the Nazis, he didn't look quite you know, 0:09:41.120 --> 0:09:44.880 as robust, let's say, as he's done on previous occasions. 0:09:45.240 --> 0:09:48.520 His speech was very short. We all expected something longer 0:09:49.200 --> 0:09:51.160 and more bombastic in a way. I mean, it was 0:09:51.200 --> 0:09:53.760 still pretty aggressive, but it was kind of toned down 0:09:53.800 --> 0:09:56.839 and he didn't make really any news, which people thought 0:09:56.840 --> 0:10:01.440 he would. But we do have to reiterate it's all regulation. Um. 0:10:01.480 --> 0:10:04.520 You know, I've seen on Twitter many people claiming to 0:10:04.559 --> 0:10:07.480 be medical professionals who have diagnosed him with a large 0:10:07.559 --> 0:10:10.199 number of ailments. But we just don't know the truth. 0:10:10.400 --> 0:10:14.680 I don't understand. You have studied Napoleon to Moscow, Hitler 0:10:14.840 --> 0:10:20.520 to Moscow, and now Putent to Kiev. Is his military overextended? 0:10:22.240 --> 0:10:24.880 I think it is. I think they're doing much less 0:10:24.880 --> 0:10:27.440 well than people thought. They're even having a very hard 0:10:27.440 --> 0:10:29.959 time taking the rest of the dune bus. They have 0:10:30.120 --> 0:10:32.800 taken some territory in the past few weeks, and they're 0:10:32.800 --> 0:10:36.319 grinding on. They're still just as brutal, but we one 0:10:36.320 --> 0:10:38.080 would have thought that they would have been able to 0:10:38.120 --> 0:10:41.479 take more territory. You have this kind of dynamic stalemate 0:10:41.559 --> 0:10:44.400 now in the Ukraine War, the Russians take some territory, 0:10:44.600 --> 0:10:47.800 the Ukrainians pushed them back. The Ukrainians are now pushing 0:10:47.800 --> 0:10:51.199 them back from Harkey, the second largest city. So they 0:10:51.200 --> 0:10:53.800 are not performing as well as people thought they would. 0:10:53.920 --> 0:10:56.600 But they still do have the firepower and the manpower, 0:10:56.920 --> 0:10:59.839 so they're going to continue this grinding war. I go 0:11:00.120 --> 0:11:02.640 as long as they can until they achieve some of 0:11:02.679 --> 0:11:06.400 their objectives. Angela, how much raw equipment do they have 0:11:06.520 --> 0:11:08.840 left that doesn't need any repairs? And I asked this 0:11:08.920 --> 0:11:11.280 because a lot of people were talking about the sanctions 0:11:11.559 --> 0:11:14.840 and how it would prevent imports to Russia of some 0:11:14.960 --> 0:11:18.160 of the key aspects to fix for example, tanks, to 0:11:18.280 --> 0:11:20.920 fix other issues their planes. How much is that starting 0:11:20.960 --> 0:11:23.880 to bite? Oh, I think it's definitely starting to buy 0:11:24.200 --> 0:11:26.880 exactly with the sanctions and the spare parts. I mean, 0:11:26.880 --> 0:11:29.000 they still do have equipment, but as far as we 0:11:29.040 --> 0:11:32.080 can see, it isn't top shape, it isn't in great shape. 0:11:32.160 --> 0:11:34.760 So it's going to get more challenging for them going 0:11:34.800 --> 0:11:37.199 forward with respect to gas and oil. And I want 0:11:37.200 --> 0:11:39.280 to pivot to that point because we are hearing so 0:11:39.360 --> 0:11:43.720 much about ongoing negotiations in Europe, how would you characterize 0:11:43.760 --> 0:11:46.400 them Because there's so much uncertainty of what they've agreed on, 0:11:46.480 --> 0:11:49.640 what they're planning to do, what groundwork is actually getting laid. 0:11:49.880 --> 0:11:52.440 How realistic is it to see a real shift away 0:11:52.559 --> 0:11:55.960 from Russian gas in the near future. So at the 0:11:56.000 --> 0:11:59.000 moment on the oil, they're still arguing within the EU 0:11:59.120 --> 0:12:02.880 about a total off, particularly Hungry as a holdout and 0:12:02.920 --> 0:12:05.280 says that it's not going to stop importing Russian oil 0:12:05.520 --> 0:12:08.400 because that would be devastating for its own economy. One 0:12:08.440 --> 0:12:11.880 assumes that they're going to continue these difficult negotiations and 0:12:11.920 --> 0:12:14.760 try and come to some compromise with the Hungarians, and 0:12:14.800 --> 0:12:17.080 then with gas it is more challenging. I mean, the 0:12:17.160 --> 0:12:19.840 Germans have now said that they do want to get 0:12:19.880 --> 0:12:22.760 off imports of Russian gas, but they can't do it 0:12:22.800 --> 0:12:25.680 tomorrow more even in six months, it's going to take 0:12:25.720 --> 0:12:28.400 them a longer time. The Russians, of course threatening and 0:12:28.480 --> 0:12:31.559 actually coming off some of the gas supplies already, so 0:12:31.640 --> 0:12:35.480 that's a rather messy set of negotiations. But they are 0:12:35.520 --> 0:12:38.520 continuing to try and figure out how best that is. 0:12:38.600 --> 0:12:42.160 Europe can wean itself totally off Freshian energy, but it'll 0:12:42.160 --> 0:12:46.240 still take time. Angela Stent years ago, I remember asking 0:12:46.280 --> 0:12:49.240 the giant Marshall Goulden this question. Let me ask the 0:12:49.280 --> 0:12:53.199 same one to you. We were wrong, wrong, wrong, wrong 0:12:53.280 --> 0:12:56.880 about the strengths in our intelligence of the Soviet Union. 0:12:57.559 --> 0:13:00.280 Do you believe we have a good understanding of the 0:13:00.360 --> 0:13:06.400 strength of the Russian army, the Russian military complex, including navy. 0:13:06.640 --> 0:13:10.160 So I think we overestimated the strength of the Russian military, 0:13:10.360 --> 0:13:13.760 just apparently as Putin did. I think even our intelligence 0:13:14.120 --> 0:13:18.280 services have been surprised by how badly they've done, because 0:13:18.320 --> 0:13:21.120 maybe we just didn't have insight into the impact of 0:13:21.160 --> 0:13:24.320 this pervasive corruption where a lot of the money that 0:13:24.440 --> 0:13:27.880 was supposed to have gone to new equipment, to training, 0:13:27.920 --> 0:13:31.200 to building up the army is lining people's pockets and 0:13:31.280 --> 0:13:33.720 maybe we just didn't understand that well enough. And I 0:13:33.720 --> 0:13:38.240 think we're now coming trying to reassess our previous assessments 0:13:38.400 --> 0:13:41.240 of the Russian military and maybe downgrade them. But I 0:13:41.280 --> 0:13:44.480 think it's sort of natural that any intelligence agency will 0:13:44.520 --> 0:13:47.040 look at the worst case scenario because that's what they 0:13:47.080 --> 0:13:50.360 have to do. And therefore they probably did overestimate how 0:13:50.440 --> 0:13:53.079 quickly the Russians would they will be able to accomplish 0:13:53.080 --> 0:13:54.880 what they're trying to do in Ukraine and to the 0:13:54.960 --> 0:13:57.000 stand of Brookins, and they're just wonderful to have you 0:13:57.040 --> 0:13:58.760 with this on the program as always, and you to 0:13:58.840 --> 0:14:07.840 thank you. This is a joy in a great pleasure. 0:14:08.080 --> 0:14:11.080 Barton Crockett is a gentleman of certain courage. He's at 0:14:11.160 --> 0:14:14.120 Rose and Blood Securities and joins us right now. And 0:14:14.160 --> 0:14:16.520 as all of you look at your draw down, let's 0:14:16.520 --> 0:14:22.520 pick amazon down from the peaks. Crockett lonely was out front. 0:14:22.680 --> 0:14:26.360 He has been a consistent neutral as a general statement 0:14:26.760 --> 0:14:30.760 on the fangs for quarters and quarters and quarters, Barton, 0:14:30.800 --> 0:14:33.040 I want to drill down to one emotion right now, 0:14:33.480 --> 0:14:36.720 which is does Jeff Bezos come back to Amazon? Is 0:14:36.760 --> 0:14:41.960 Amazon online retail so screwed up that like Igor at Disney, 0:14:42.160 --> 0:14:47.960 Bezos must return? Oh Bezos isn't coming back. He's uh, 0:14:48.200 --> 0:14:52.560 he's enjoying life. UM. You know, I think that UM. 0:14:52.600 --> 0:14:54.960 The focus at Amazon for growth is going to be 0:14:55.000 --> 0:15:00.440 on Amazon Web services, Amazon retail, there direct to retail 0:15:00.520 --> 0:15:03.920 or third party retail. UM is a business that I 0:15:03.960 --> 0:15:06.840 think is doing what every business should do, which has 0:15:06.840 --> 0:15:09.360 gotten so large that I think it is hitting a 0:15:09.440 --> 0:15:12.240 maturity plateau. And if you look at the numbers for 0:15:12.320 --> 0:15:17.520 Amazon retail UM for UM a few quarters now, they're 0:15:17.560 --> 0:15:22.400 not growing faster than retail overall. And that's sales for 0:15:22.440 --> 0:15:25.920 Amazon and UM. You could argue that that's not the 0:15:26.000 --> 0:15:29.160 driver of value. The web services is, which is I 0:15:29.200 --> 0:15:32.080 think the saving grace for the stock, but a big 0:15:32.120 --> 0:15:35.800 revenue line I think is resetting UM. I think the 0:15:36.600 --> 0:15:41.840 growth story of Amazon is different now because of the pandemic. 0:15:41.920 --> 0:15:45.160 We've had a pull forward, We've had the competitive set improve, 0:15:45.880 --> 0:15:49.880 You've weeded out the weakest players UM, and Amazon doesn't 0:15:49.920 --> 0:15:53.840 have a strong play in click and brick, and that's 0:15:53.840 --> 0:15:56.600 a meaningful part of what consumers are looking for right now. 0:15:56.600 --> 0:15:58.960 Parton with the pullback that we were, the pullback that 0:15:59.000 --> 0:16:03.400 we're enjoying, or would you suggest that the anointed profitable 0:16:03.400 --> 0:16:06.360 of technology are going to have a come to Jesus 0:16:06.440 --> 0:16:10.400 moment and they're gonna change their business models more towards 0:16:10.520 --> 0:16:17.000 profitability and use of free cash flow. We're already seeing changes, 0:16:17.200 --> 0:16:22.760 you know. We're we're seeing Amazon work through excess supply. 0:16:22.880 --> 0:16:26.600 Remember a bull argument for Amazon was that in the pandemic, 0:16:26.640 --> 0:16:29.480 they build up the supply that would power the business 0:16:29.560 --> 0:16:32.720 because it would give them the capacity to meet the demand, 0:16:33.760 --> 0:16:36.680 and instead they overbuilt, so they're having a right size 0:16:36.720 --> 0:16:41.840 to reality. Um, you know, we're seeing that in other businesses, 0:16:42.240 --> 0:16:45.880 um a tighter focus from these growth stories on what 0:16:46.080 --> 0:16:49.760 life is when you start to face more maturity, which 0:16:49.800 --> 0:16:51.120 is what a lot of these big companies are coming 0:16:51.160 --> 0:16:53.600 into right now. So talking about right sizing, we've seen 0:16:53.640 --> 0:16:55.920 a huge right sizing and Twitter share prices today. We've 0:16:55.960 --> 0:16:58.320 seen Ellen must come out and say that he was 0:16:58.360 --> 0:16:59.920 going to put it on hold, but then he just 0:17:00.040 --> 0:17:02.560 came out recently in the past few moments saying that 0:17:02.600 --> 0:17:05.199 he was still committed to the acquisition. You're seeing a 0:17:05.240 --> 0:17:08.160 bit of a pop near forty dollars on the shares, 0:17:08.400 --> 0:17:11.240 but still a deep skepticism that this will get done 0:17:11.600 --> 0:17:13.520 at the deal, at the price deal that that he 0:17:13.560 --> 0:17:16.320 was talking about. How much of a rerating do you 0:17:16.320 --> 0:17:19.320 think needs to happen further, based not just on Twitter's 0:17:19.400 --> 0:17:23.360 up model, but also on the broader reevaluation of how 0:17:23.440 --> 0:17:26.880 much some of these big tech companies are worth well. 0:17:26.920 --> 0:17:30.080 I think I think in the case of Twitter UM, 0:17:30.119 --> 0:17:34.200 I think that this is Elon musk being Elon musk Um. 0:17:34.240 --> 0:17:35.920 I think at the end of the day, he's he's 0:17:36.359 --> 0:17:39.240 put his uh put himself so deep into the water 0:17:39.320 --> 0:17:41.000 on this one that I don't see it, see it. 0:17:41.200 --> 0:17:43.560 I don't see him turning back Um. You know, if 0:17:43.560 --> 0:17:46.679 he did turn back Twitter, there'd be some sentiment reset. 0:17:46.760 --> 0:17:49.280 But I think on a fundamental basis, I don't think 0:17:49.280 --> 0:17:51.480 he actually paid much of a premium. I think that 0:17:51.560 --> 0:17:56.879 Twitter um was not as miss priced as as you know, 0:17:56.920 --> 0:18:00.480 perhaps some other equities have been. UM. Look, I think 0:18:00.520 --> 0:18:05.400 that that what we're confronting right now is UH separation 0:18:05.520 --> 0:18:09.120 from some companies. So some companies are confronting the reality 0:18:09.119 --> 0:18:11.080 of an addressable market that is not what we thought. 0:18:11.119 --> 0:18:13.080 We're seeing that with Netflix. I think we're seeing that 0:18:13.160 --> 0:18:16.960 with Amazon Retail. UM. Other companies I think are going 0:18:17.000 --> 0:18:19.920 through UH situations that are going to be long lived. 0:18:19.920 --> 0:18:23.760 And I put Apple in China UM. The never ending 0:18:23.800 --> 0:18:26.080 COVID lockdown is what that does for an important end market, 0:18:26.119 --> 0:18:29.439 what that does for never ending supply disruptions. I put 0:18:29.600 --> 0:18:32.480 them in that camp. UM, you know, for businesses where 0:18:32.800 --> 0:18:36.159 the blue sky story is not what it was or 0:18:36.280 --> 0:18:39.000 is being challenged. UM. You know, I think right now 0:18:39.080 --> 0:18:40.960 is a time of reset and a time of rethink 0:18:41.640 --> 0:18:43.359 for companies that are going to be able to power 0:18:43.400 --> 0:18:46.320 through this. And I put alphabet UM in that camp. 0:18:46.359 --> 0:18:50.240 The search business is something that will be here generationally. 0:18:50.359 --> 0:18:54.160 YouTube I think can handle its short form transition. UH 0:18:54.320 --> 0:18:57.520 cloud services, I think, you know, that's a company that 0:18:57.560 --> 0:18:59.360 I think can separate. So in the Fang group, that's 0:18:59.359 --> 0:19:02.160 the one company that I'm recommending UM near the other 0:19:02.160 --> 0:19:04.520 companies I think have issues that need to be worked through. 0:19:04.600 --> 0:19:06.919 Abouttom one issue with Twitter, and let's finish there. Just 0:19:06.960 --> 0:19:09.639 on a substance of the tweet from Elon Musk this morning, 0:19:10.320 --> 0:19:13.240 he's basically probing this idea that there might be more 0:19:13.520 --> 0:19:15.560 than five percent of the ubas a base that make 0:19:15.640 --> 0:19:18.639 up spam, fake account spots and all the rest. You've 0:19:18.680 --> 0:19:23.040 got any calculation on that whatsoever? No, I mean there's 0:19:23.040 --> 0:19:25.480 no one on the outside that can can you go 0:19:25.600 --> 0:19:30.240 beyond Twitter's disclosures, nor can Musk. I don't think Musk knows, 0:19:30.640 --> 0:19:33.399 you know, I think this is talk. I think this 0:19:33.720 --> 0:19:36.800 is him doing what he does, which is stirring up 0:19:36.800 --> 0:19:40.760 the pot um and so uh, you know the caveat 0:19:40.840 --> 0:19:43.239 is that you know, I'm not Musk. I don't know 0:19:43.400 --> 0:19:45.280 precisely what he's going to do, but like that would 0:19:45.280 --> 0:19:48.200 be time. I think there's gonna be the bottom line. 0:19:48.240 --> 0:19:50.359 No one knows what Elon Musk is thinking. Let's not 0:19:50.720 --> 0:19:53.520 try and work that out. Bona Crockett Rose and Blast Securities, 0:19:58.000 --> 0:20:01.760 Megan Green, Global Chief Economists Institute where Thissen, Senior Fellow, 0:20:02.080 --> 0:20:04.960 Harvard Kennedy School. Megan, you know the framework here two 0:20:04.960 --> 0:20:08.680 percent and unders where we're comfortable on inflation. Adam Posing 0:20:08.720 --> 0:20:12.800 and Peterson Institute is controversially suggested maybe the new two 0:20:12.800 --> 0:20:16.119 percent is three percent, hoping a prayer or trying to 0:20:16.160 --> 0:20:19.720 get back to four percent. How important is this discussion 0:20:20.160 --> 0:20:22.360 of two or three and four percent is a new 0:20:22.440 --> 0:20:26.440 level of inflation. I actually don't think it's that important. 0:20:26.520 --> 0:20:28.760 Lots of people have been saying that the FED should 0:20:28.800 --> 0:20:32.760 be targeting three percent inflation all along. Anyhow, the point 0:20:32.800 --> 0:20:35.000 isn't whether it's two, three, or four. It's it's whether 0:20:35.040 --> 0:20:38.080 it's stable or not. And so I think the glide 0:20:38.080 --> 0:20:41.000 path to that is what's most important, whether it's to 0:20:41.240 --> 0:20:43.520 three or four percent. I think the FED, by the way, 0:20:43.800 --> 0:20:46.879 would be fine with three or four percent inflation by 0:20:46.920 --> 0:20:48.680 the end of the year. Unfortunately, I don't think we'll 0:20:48.760 --> 0:20:50.960 quite get there yet. That might we might have to 0:20:50.960 --> 0:20:53.159 wait until next year for that, but it's it's the 0:20:53.200 --> 0:20:56.960 path there as long as inflation expectations remain anchored. I 0:20:57.000 --> 0:20:59.560 think the FED is okay with overshooting your target, but 0:20:59.720 --> 0:21:01.760 that much they're just not okay with what we have now. 0:21:02.280 --> 0:21:05.399 How much of that glide path is linked to the 0:21:05.440 --> 0:21:10.800 glide path of a slowdown and economic growth. They're clearly linked, 0:21:11.000 --> 0:21:13.960 um and they get at the debate on whether inflation 0:21:14.040 --> 0:21:16.560 is so much higher because of demand side factors or 0:21:16.600 --> 0:21:20.959 supply side factors, and we economists just fundamentally cannot agree 0:21:20.960 --> 0:21:24.000 on that, in part because we've never put the economy 0:21:24.000 --> 0:21:26.400 on a deep freeze in defrosted it before, so we've 0:21:26.440 --> 0:21:29.200 never done this before. But also in part because it's 0:21:29.240 --> 0:21:32.920 demand relative to supply and supply relative to demand. So 0:21:33.280 --> 0:21:36.639 if we have a weaker economy, that undermines demand and 0:21:37.040 --> 0:21:39.400 so that can take some of the heat off inflation. 0:21:39.480 --> 0:21:41.560 And that's pretty much all the FED has got to 0:21:41.640 --> 0:21:44.960 work with. The FED can't do much about supply side actions, 0:21:45.000 --> 0:21:47.199 and I tend to actually think that it's the supply 0:21:47.240 --> 0:21:50.400 side factors that are overwhelming demand side factors on inflation. 0:21:50.520 --> 0:21:52.919 Right now, all the FAI can really do is engage 0:21:52.920 --> 0:21:56.040 in what we economists call, you know, aggregate demand management, 0:21:56.080 --> 0:21:59.080 which means killing off demand. And that's why everyone's so 0:21:59.119 --> 0:22:02.320 worried about FED actions resulting in a recession. Megan, if 0:22:02.320 --> 0:22:05.240 you're talking about the majority of inflation coming from the 0:22:05.280 --> 0:22:09.640 supply side, then essentially, given how strong those pressures are, 0:22:10.160 --> 0:22:13.080 does the FED essentially have to spur a recession in 0:22:13.200 --> 0:22:15.920 order to fight inflation? And I ask this because frankly, 0:22:16.280 --> 0:22:18.359 it's a sort of delicate issue that a lot of 0:22:18.359 --> 0:22:22.200 FETE officials are trying to dance around. Yeah, it may 0:22:22.240 --> 0:22:24.760 well have to. As I said before, the FED can 0:22:24.880 --> 0:22:27.440 do anything about supply side factor is all I can 0:22:27.520 --> 0:22:31.119 do is tinker with demand. And so we obviously are 0:22:31.160 --> 0:22:33.879 out of whack between the two uh, and so the 0:22:33.880 --> 0:22:36.520 FED is going to have to cool off demand UM. 0:22:36.600 --> 0:22:40.040 And of course central banking tools aren't precise. They kick 0:22:40.119 --> 0:22:43.399 in with long and variable lags, and so you know, 0:22:43.480 --> 0:22:46.840 the FIG can't find tweak this perfectly. It may end 0:22:46.880 --> 0:22:49.520 up hiking too much and pushing us into recession. In fact, 0:22:49.600 --> 0:22:52.600 that's what usually happens. The hope is that the FIG 0:22:52.640 --> 0:22:56.720 can generate some kind of soft landing. I would say 0:22:56.720 --> 0:22:58.080 this is going to be really hard. I mean, the 0:22:58.119 --> 0:23:02.440 FEED is effectively trying to thread needle wearing of admitst blindfolded. 0:23:02.520 --> 0:23:04.920 It's it's going to be really tough. So we haven't 0:23:04.920 --> 0:23:07.679 really seen the repricing to the same degree and credit 0:23:07.680 --> 0:23:10.840 as we have in equities. And this is interesting because frankly, 0:23:10.880 --> 0:23:12.719