WEBVTT - Surveillance: Fed Tightening with Carpenter 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 --> 0:00:23.560 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:29.560 com and of course on the Bloomberg terminal. Let's get 0:00:29.640 --> 0:00:31.720 right to in the currency markets really moving right now 0:00:31.760 --> 0:00:33.479 to be interesting to see what we do really in 0:00:33.520 --> 0:00:36.400 the next one hour to the market opening. D x 0:00:36.520 --> 0:00:39.040 y soldly above one o eight. We're watching sterling John 0:00:39.040 --> 0:00:42.280 and I one eighteen thirty one. We will speak to 0:00:42.400 --> 0:00:45.559 him the day before Paul speaks and a data dependent 0:00:45.600 --> 0:00:49.360 FED will change to next Thursday. Seth Carpenter of Morgan 0:00:49.440 --> 0:00:52.320 Stanley will join us. We will be in Jackson Hole. 0:00:52.440 --> 0:00:55.360 He'll be cool common collected on the East Coast. We're 0:00:55.360 --> 0:00:59.720 thrilled at Mr Carpenter could join us this morning. Seth Carpenter, 0:01:00.000 --> 0:01:03.640 your note is frightening. The brewing storm. You talk about 0:01:03.720 --> 0:01:07.399 it sounds like Wins of War from nineteen thirty nine 0:01:07.400 --> 0:01:11.039 and all defined the brewing storm. What what what is 0:01:11.080 --> 0:01:16.679 the distinction now of this August of two thousand twenty two. Yeah. 0:01:16.720 --> 0:01:19.000 I mean, I think for markets, August is always a 0:01:19.000 --> 0:01:21.880 little liquidity moment, so you're gonna see all sorts of 0:01:21.959 --> 0:01:23.959 choppiness there. But I think when it comes to the 0:01:24.040 --> 0:01:27.559 macro front, you've got three key economies in the world. 0:01:27.600 --> 0:01:30.639 You've got the U S, You've got Europe, You've got China. 0:01:30.840 --> 0:01:34.280 China we know is struggling. Uh they had a contraction 0:01:34.319 --> 0:01:38.240 in Q two. They've got this burgeoning housing problem that 0:01:38.280 --> 0:01:41.600 they're trying to solve. The PBC just had to ease 0:01:41.640 --> 0:01:44.240 policy again in a bit of a surprise move. Now 0:01:44.520 --> 0:01:47.800 we think Beijing, through various sorts of policy, both monetary 0:01:47.800 --> 0:01:50.160 and fiscal, will come to the rescue. But the question 0:01:50.240 --> 0:01:53.320 is when does the inflection point happen and we get 0:01:53.320 --> 0:01:56.880 a big rebounder as it's soft shifting to Europe. Right, 0:01:57.120 --> 0:02:00.120 You've got this restriction and gas flow from Russia as 0:02:00.160 --> 0:02:04.240 invasion of Ukraine that's crippling the European economy. We have 0:02:04.360 --> 0:02:07.240 a baseline view of a recession in Europe. Q four 0:02:07.320 --> 0:02:10.480 being outright contraction. Q one being another contractions and that's 0:02:10.480 --> 0:02:15.160 not a great look. So the US right now pretty solid. 0:02:15.240 --> 0:02:18.480 We got the retail sales report in line with our expectations. 0:02:18.760 --> 0:02:22.560 The consensus a little bit. Non farm perils was super 0:02:22.600 --> 0:02:26.840 strong and over five thousand. But is good news good 0:02:26.840 --> 0:02:28.840 news in this case, I don't know. The fight has 0:02:28.880 --> 0:02:31.680 been very clear. They need to slow the economy down, 0:02:32.000 --> 0:02:34.480 so the stronger it is now, the more hiking they have. 0:02:34.680 --> 0:02:36.360 You know, we always look at our guests and we 0:02:36.400 --> 0:02:38.680 try to figure out from the back of their bookshelf 0:02:38.720 --> 0:02:41.200 Seth Carponer what they're actually thinking. And it's good to 0:02:41.240 --> 0:02:45.360 see that. You've got Tony Krissenzi of pimcost Stagum's Fixed 0:02:45.360 --> 0:02:49.320 income Bible over your right shoulder. What does the bond 0:02:49.360 --> 0:02:53.560 market tell an economist like you? I mean, I think 0:02:53.639 --> 0:02:56.359 right now the bond market is really struggling to read 0:02:56.400 --> 0:02:59.239 the tea leaves about what's happening. We saw this sense 0:02:59.280 --> 0:03:02.320 of relief in markets, I think when we got CPI 0:03:02.680 --> 0:03:07.079 tipping over, and when the market heard the Feds saying, gosh, 0:03:07.080 --> 0:03:09.440 we're taking a balanced approach. We care about both the 0:03:09.440 --> 0:03:11.880 growth in the economy and inflation. But what I think 0:03:11.880 --> 0:03:16.079 the market didn't hear enough of is the way inflation 0:03:16.200 --> 0:03:19.080 over the next two years is going to come down 0:03:19.120 --> 0:03:22.040 to the Fed's target is only if you get enough 0:03:22.040 --> 0:03:24.680 slowing in growth, and so as a result, you know, 0:03:24.840 --> 0:03:26.840 we think the peak rate that the market is priced 0:03:26.919 --> 0:03:29.280 is about right. But the cuts in the market that 0:03:29.320 --> 0:03:32.120 the market has in place for a lot of next year, uh, 0:03:32.160 --> 0:03:35.040 that's not really consistent with our forecast. Well on that 0:03:35.080 --> 0:03:37.200 point set the market thinks that the FED is going 0:03:37.240 --> 0:03:39.320 to get to the terminal rate and then very quickly 0:03:39.360 --> 0:03:42.280 thereafter come down from it. We've been having the conversation 0:03:42.360 --> 0:03:44.320 all week as to whether or not that's really true. 0:03:44.360 --> 0:03:46.119 How long do you think they have to stay up there? 0:03:47.360 --> 0:03:49.960 I mean, our baseline forecast is that they're there for 0:03:50.000 --> 0:03:52.280 a year. So they get to the peak grade in December, 0:03:52.320 --> 0:03:55.760 and then the first very grudging you know, basis point 0:03:55.760 --> 0:03:58.240 easing off in terms of a cut comes a year 0:03:58.320 --> 0:04:02.480 later in December. Ree. I mean, the short answer is no, 0:04:02.520 --> 0:04:05.360 one knows for sure. We think the US economy has 0:04:05.400 --> 0:04:09.000 a fair amount of momentum behind it, and more importantly, 0:04:09.040 --> 0:04:11.440 as I was saying before, they really do need to 0:04:11.880 --> 0:04:14.480 slow things down a lot. They need to take job 0:04:14.520 --> 0:04:17.880 growth from five hundred thousand per month down to something 0:04:17.920 --> 0:04:20.760 closer to a hundred thousand per month or maybe even 0:04:20.800 --> 0:04:22.760 a little bit below in order to get that real 0:04:22.880 --> 0:04:25.760 underlying trend inflation down, So they're gonna have to stay 0:04:25.800 --> 0:04:28.600 tight for a while. How low do you think realistically 0:04:28.640 --> 0:04:30.880 inflation will get? Is three percent going to be the 0:04:30.920 --> 0:04:34.719 new two percent? So sadly this is where you get 0:04:34.720 --> 0:04:37.520 the eggheaded economists talking about the two different measures of 0:04:37.600 --> 0:04:41.839 inflation CPI versus pc UM. I think three percent on 0:04:41.920 --> 0:04:44.600 CPI is very, very possible. I don't think that that's 0:04:44.640 --> 0:04:47.360 going to be happy to just let PC inflation, which 0:04:47.400 --> 0:04:49.560 is really what they said that two percent target for. 0:04:50.200 --> 0:04:52.039 I don't think they're going to be happy to let 0:04:52.320 --> 0:04:55.839 PC inflation settle in at three percent. They'll be happy 0:04:55.880 --> 0:04:58.160 when it gets down to three percent if it's on 0:04:58.200 --> 0:05:01.160 a downward trend, but they're not gonna declare victory if 0:05:01.200 --> 0:05:04.320 it's hanging out. I sided not budging, So set frame 0:05:04.720 --> 0:05:09.760 your and Elexantner's ex access to me. The big mistake 0:05:09.800 --> 0:05:12.160 here is the now now now of how policy is 0:05:12.160 --> 0:05:15.719 gonna move. Is this really a six quarter, eight quarter, 0:05:15.839 --> 0:05:21.000 even twelve quarter path that we're on far longer? Tom 0:05:21.000 --> 0:05:23.440 That's that's a great way of phrasing it. I think 0:05:23.520 --> 0:05:26.919 one issue that's important for everyone to keep in mind, 0:05:27.320 --> 0:05:30.280 is that monetary policy does in fact work with the lag. 0:05:30.640 --> 0:05:32.800 We know that markets are pricing in now at peak 0:05:32.839 --> 0:05:34.920 grade that's close to where we think that peep grade 0:05:35.040 --> 0:05:38.000 is just over three point six percent. But in terms 0:05:38.040 --> 0:05:41.520 of the actual drag on the economy from UH that 0:05:41.640 --> 0:05:45.000 policy stance, it hasn't shown through completely yet. We've seen 0:05:45.000 --> 0:05:47.039 it in housing, that's important. We're going to see it 0:05:47.080 --> 0:05:49.520 a bit in durable goods, and we'll see it more 0:05:49.600 --> 0:05:52.400 endurable goods. But that still has to play out. So 0:05:52.480 --> 0:05:55.280 it is not what's going on right now that matters. 0:05:55.320 --> 0:05:57.440 It is, in fact, as you say, what happens over 0:05:57.480 --> 0:06:00.240 the next two quarters, over the next four quarters, and yes, 0:06:00.600 --> 0:06:03.920 ultimately over the next six how will corporations and their 0:06:04.040 --> 0:06:09.719 investment react to a pernicious four or five percent inflation 0:06:10.080 --> 0:06:13.560 in the United Kingdom? Everyone from lisz Trust to Mr 0:06:13.640 --> 0:06:17.320 Sunac suggests there's been a dearth of investment in the UK. 0:06:17.800 --> 0:06:19.719 Are we going to see a dearth of investment in 0:06:19.760 --> 0:06:22.920 the United States? So I don't think we're going to 0:06:23.040 --> 0:06:26.080 see a dearth of investment, but we we should, by 0:06:26.080 --> 0:06:30.200 all all expectations, see a slowing in in that investment spending. 0:06:30.240 --> 0:06:33.920 What you see in the macro data is typically business 0:06:34.440 --> 0:06:38.640 investment spending tends to follow the overall trajectory of the economy. 0:06:38.640 --> 0:06:42.440 And so if we're right that the slowing and housing, 0:06:42.480 --> 0:06:44.560 the slowing and durable good spending, and with it the 0:06:44.600 --> 0:06:47.760 slowing in jobs leads to an overall slowing and aggregate demand, 0:06:47.800 --> 0:06:50.800 and absolutely businesses should be looking around and saying, Okay, 0:06:50.880 --> 0:06:53.360 there's gonna be less of a need for that sort 0:06:53.360 --> 0:06:56.440 of aggressive investment spending. I don't think it drops off 0:06:56.480 --> 0:06:58.240 of a cliff. I don't think we're going to have 0:06:58.279 --> 0:07:02.440 a massive shortfall. UK has its own idiots and credit issues, 0:07:02.520 --> 0:07:05.560 let's say, but we should see things starting to slow 0:07:05.600 --> 0:07:08.800 down as aggregate demand slows down, and businesses pay attention 0:07:08.839 --> 0:07:10.720 to that. So if we all know I read a 0:07:10.720 --> 0:07:12.720 lot of Morgan Stanley research, I shared a lot of 0:07:12.760 --> 0:07:17.120 it on this program, I'm wondering, set of course you'd 0:07:17.160 --> 0:07:19.360 say that, Seth. I'm wondering when I received that note 0:07:19.360 --> 0:07:22.160 from you that says global recession that's the base case. 0:07:22.440 --> 0:07:26.560 How close are we to you sending that note. Gosh, 0:07:26.600 --> 0:07:28.640 the SEC would get mad at me if I previewed 0:07:29.040 --> 0:07:32.360 forthcoming research. So I will say that we we We 0:07:32.480 --> 0:07:35.560 definitely had a global recession as one of the scenarios 0:07:35.640 --> 0:07:38.240 when we put out our mid year outlook in in April, 0:07:38.600 --> 0:07:40.880 and we are very much moving closer and closer to 0:07:40.920 --> 0:07:44.640 that scenario. I mean, the gas situation in Europe matters 0:07:44.640 --> 0:07:46.600 a lot, and we have a recession in Europe as 0:07:46.600 --> 0:07:50.320 our forecast. There's clear downside risk to China from their 0:07:50.320 --> 0:07:53.680 housing situation, something that's worse since we wrote that note. 0:07:53.920 --> 0:07:56.720 So we're moving in that direction. I think it's too 0:07:56.760 --> 0:08:00.560 soon yet the recession. But John, what just means Carpenter's 0:08:00.560 --> 0:08:04.680 got a published before next Thursday. We needed the fall. 0:08:04.800 --> 0:08:07.520 Jackson Hope a seth also to catch up sir as 0:08:07.560 --> 0:08:14.560 a White set copp into that of markin Stanley dry 0:08:14.560 --> 0:08:17.200 An Interview of the Day, Jane Folly joins us an 0:08:17.200 --> 0:08:19.080 out from Robbo Bank. Jane, let's get right to it. 0:08:19.160 --> 0:08:21.480 John's got a lot of technical questions. I've got one 0:08:21.920 --> 0:08:25.520 that's just simple. There's a log vector of weaker, weaker work, 0:08:25.640 --> 0:08:30.120 weaker sterling, and then it rolls over at what level 0:08:30.480 --> 0:08:33.720 is the tipping point you have in your head where 0:08:33.760 --> 0:08:37.400 things fall apart? For Governor Bailey, Well, to be honest, 0:08:37.400 --> 0:08:39.640 it's an awful lot depression on Governor Bailey already sent 0:08:39.760 --> 0:08:41.680 me from matt List. Trusty looks as if she could 0:08:41.679 --> 0:08:43.680 be the next step prime minister of the UK. But 0:08:43.720 --> 0:08:45.920 I think we could be heading down to one fifteen, 0:08:45.920 --> 0:08:49.600 maybe one fourteen on on cable and and that would 0:08:49.640 --> 0:08:52.000 add and I mean to interrupt, but if we go 0:08:52.080 --> 0:08:55.120 to one fourteen, is that a trend and a controlled 0:08:55.200 --> 0:08:59.920 trend or the things to borrow phrase from politics unraveled, 0:09:00.760 --> 0:09:03.680 you know, I I think if we're at one fifteen fourteen, 0:09:03.760 --> 0:09:05.600 A lot of that, actually you really does depend on 0:09:05.600 --> 0:09:07.880 on the dollar, and specifically on euro dollar, because what 0:09:07.920 --> 0:09:10.080 we're seeing at the moment is that if euro dollar dips, 0:09:10.080 --> 0:09:12.920 and of course it's been dipping, it's very difficult for 0:09:13.040 --> 0:09:15.719 cable to hang on in there has been dragged lower too, 0:09:15.760 --> 0:09:18.280 So a lot of this is a dollar move, certainly 0:09:18.280 --> 0:09:21.000 over the last week. But that said, there is a 0:09:21.040 --> 0:09:25.719 lot of sterling weakness. You know that the pound has 0:09:25.720 --> 0:09:28.320 really been suffering I would say for the last four 0:09:28.360 --> 0:09:31.040 or five years since the twenty sixteen Breakxit referendum. Sterling 0:09:31.080 --> 0:09:34.040 has never really been able to recover. Investment has never 0:09:34.080 --> 0:09:37.600 really been able to recover. Investors are still quite sept skeptical. 0:09:37.640 --> 0:09:40.440 I think of the prost Brexit UK economy and the 0:09:40.480 --> 0:09:42.920 government that we've had hasn't really been able to convince 0:09:42.920 --> 0:09:45.000 investors to come back. And you've got to bear in 0:09:45.040 --> 0:09:47.480 mind that the UK has got a current account deficit 0:09:47.600 --> 0:09:50.240 and if there was overseas savers are looking in at 0:09:50.240 --> 0:09:53.240 the UK and they're not liking what they're seeing. Well, 0:09:53.280 --> 0:09:55.040 you know, sterling is likely to a just lower and 0:09:55.080 --> 0:09:58.120 I think that's the situation that the pound finds itself 0:09:58.160 --> 0:10:01.160 in and and without the growth with at the investment, 0:10:01.679 --> 0:10:03.520 I think sterling could remain you know, pretty weak for 0:10:03.520 --> 0:10:05.960 a while. Jane, the Great Heights make a difference. Are 0:10:05.960 --> 0:10:08.640 you saying they don't? I don't think they do. I mean, look, 0:10:08.679 --> 0:10:10.960 if you go back to May, we had admittedly and 0:10:11.000 --> 0:10:13.760 as expected to interestrate hip then it was the twenty 0:10:13.760 --> 0:10:17.040 five back then in May, and sterling really dove. And 0:10:17.040 --> 0:10:20.400 the reason it dived lower was because the Bank of 0:10:20.440 --> 0:10:23.880 England at that point in its quarterly review down graded 0:10:23.960 --> 0:10:28.600 the inflation, sorry down graded the the growth number. Um 0:10:28.640 --> 0:10:30.800 and if we go if you fast forward to to 0:10:30.800 --> 0:10:33.480 to August, the next quarterly review, this is the one 0:10:33.480 --> 0:10:36.080 where we have the governor saying we're going to have 0:10:36.080 --> 0:10:39.080 a five quarter recession. And again, you know, Sterling reacted 0:10:39.120 --> 0:10:41.440 badly because you know, if we think that a lot 0:10:41.480 --> 0:10:43.959 of this is about the lack of investment growth in 0:10:44.200 --> 0:10:47.520 the UK, um investors need something to hang the hats, 0:10:47.520 --> 0:10:51.800 and they wanted to see improvements in productivity, improvements in growth, 0:10:51.800 --> 0:10:54.240 and that's not what they're seeing right now, and that's 0:10:54.320 --> 0:10:57.760 I think why Sterling is really so so weak. Well 0:10:57.800 --> 0:10:59.400 in the b O, we obviously is in a tough 0:10:59.400 --> 0:11:01.400 spot in that regard, but the e c B is too. 0:11:01.400 --> 0:11:03.360 There is a question of whether they can do anything 0:11:03.400 --> 0:11:05.240 to support the Euro if we get a break of 0:11:05.320 --> 0:11:09.080 parody once again, where's the bottom? Well, you know, I 0:11:09.120 --> 0:11:10.880 think if we were to break paroity, I think there's 0:11:10.920 --> 0:11:13.760 every reason that we could fall quite fast, maybe towards 0:11:13.800 --> 0:11:16.360 certain and there's some options that below there which could 0:11:16.360 --> 0:11:18.360 trigger U such a move. And I think it's I 0:11:18.400 --> 0:11:21.040 think you're right really to make some comparisons between at 0:11:21.080 --> 0:11:23.360 the Bank of England and where the ECB could find 0:11:23.360 --> 0:11:25.800 itself perhaps in a few months time, because if we 0:11:25.840 --> 0:11:28.800 look at the situation in the neurozone, it's all about energy. 0:11:28.840 --> 0:11:31.640 We know that if we do have, say, blackouts in 0:11:31.720 --> 0:11:35.000 Germany's industry groups over the winter months, if we do 0:11:35.120 --> 0:11:37.720 have the market panicking about what that would mean for 0:11:38.000 --> 0:11:40.400 that for growth or lack of growth in the Eurozone, 0:11:40.640 --> 0:11:43.880 But that wouldn't necessarily do anything to bring inflation down. 0:11:43.920 --> 0:11:47.000 So we could have a hawk ish ECB and that 0:11:47.080 --> 0:11:50.360 sort of scenario, but that wouldn't be a scenario which 0:11:50.360 --> 0:11:53.080 we which which would be beneficial for the euro. So again, 0:11:53.160 --> 0:11:58.120 it could be that the growth worry overtakes the outlet 0:11:58.160 --> 0:12:00.400 for the currency over and above the whole business of 0:12:00.440 --> 0:12:03.160 the central bank. Well, and there's a question of causation 0:12:03.240 --> 0:12:05.160 here is it? Is it weakness of the euro or 0:12:05.240 --> 0:12:07.920 strength of the dollar? More so? And on that point, 0:12:08.160 --> 0:12:09.800 where do you think the peak is on the d 0:12:10.000 --> 0:12:12.640 X Y Well, you know, I think we're going to 0:12:12.720 --> 0:12:14.800 remain strong at least for the next six months. And 0:12:15.360 --> 0:12:17.240 I think you're right. For instance, if we look at 0:12:17.280 --> 0:12:20.640 the G ten currency performance today, actually think the Euro 0:12:20.960 --> 0:12:23.800 is holding in relatively well, actually better than than many 0:12:23.880 --> 0:12:26.160 of the other G ten peers. So this is about 0:12:26.160 --> 0:12:28.079 dollar strength right now. I mean, of course, is euro 0:12:28.200 --> 0:12:30.520 weakness in there, and the energy story is really important, 0:12:30.520 --> 0:12:33.280 but this is about dollar strength. And and to be honest, 0:12:33.320 --> 0:12:35.679 I think for a while that the dollar has got 0:12:35.679 --> 0:12:38.599 these two pronged factors driving in and the first is 0:12:38.640 --> 0:12:40.679 of course the FED and now the markets again thinking 0:12:40.679 --> 0:12:43.000 that the FED could be higher for longer um in 0:12:43.080 --> 0:12:45.360 terms of interest rates, that maybe it needs to keep 0:12:45.400 --> 0:12:49.560 interest rates higher next year, next year in order to 0:12:49.559 --> 0:12:52.440 to to really get that inflation back in the box. 0:12:52.760 --> 0:12:54.720 But the other factory is a called safe haven. And 0:12:54.760 --> 0:12:56.680 don't forget at the start of the week we had 0:12:56.840 --> 0:13:00.480 a lot of poor Chinese data. Now that's really bad 0:13:00.520 --> 0:13:03.679 for emerging markets, it's really bad for world growth um, 0:13:03.800 --> 0:13:06.160 and and that is you know, part of the attraction 0:13:06.200 --> 0:13:09.360 of the dollar, this safe haven flows. So I think 0:13:09.400 --> 0:13:13.160 both of those things together have been pushing the dollar higher, 0:13:13.200 --> 0:13:16.079 and I don't think the dollar has done yet. Jane. 0:13:16.080 --> 0:13:18.240 With that in mind, what's the downside on a currency 0:13:18.280 --> 0:13:20.760 pair like cable? Now, once you take out the mitchell 0:13:20.840 --> 0:13:25.160 I lows, what next? You know? I do think one fifteen, 0:13:25.280 --> 0:13:27.400 you know, we could certainly see there. But it does 0:13:27.520 --> 0:13:30.360 depend on where euro dollar it goes, because there's a 0:13:30.400 --> 0:13:32.240 bit more of an equal battle at the moment between 0:13:32.280 --> 0:13:35.119 the poor fundamentals and the sterling and the poor fundamentals 0:13:35.120 --> 0:13:37.520 in the EU. So I think that the guide here 0:13:37.520 --> 0:13:41.240 will be your a dollar. John of her wonderful comments, 0:13:41.440 --> 0:13:45.000 Jane'll love this. I just did a log interpolation of 0:13:45.160 --> 0:13:50.559 euro sterling over the sterling dollar. You're ready, John, one eleven, 0:13:50.760 --> 0:13:54.679 one eleven. If you get sterling, the strengthen against euro 0:13:54.960 --> 0:13:59.960 is misfolly talked about it roughly interpolates to a one eleven. 0:14:00.120 --> 0:14:02.720 Jane Foley of Rabbit Bank, jank awesome to catch up 0:14:12.679 --> 0:14:16.160 right now an important interview with Patrick Armstrong, ce I 0:14:16.240 --> 0:14:18.840 O of Pleuri Meat Wealth. Patrick, I want to cut 0:14:18.840 --> 0:14:21.920 to the chase. The level of gloom now approximates the 0:14:22.000 --> 0:14:25.960 level of gloom of early June. Can you be long equities? 0:14:27.240 --> 0:14:30.480 I'm net long equities where I have completely flexible mandates. Um, 0:14:30.560 --> 0:14:32.720 we've got one fund where I can be short or long, 0:14:32.880 --> 0:14:36.440 and we're long net. So I've got actually fifty of 0:14:36.480 --> 0:14:40.160 my portfolio on long equities, and I've got thtent in shorts. 0:14:40.600 --> 0:14:43.920 And there's some extremely cheap talks out there that I've 0:14:44.000 --> 0:14:46.440 not seen in decades. Really, like a company like Moler 0:14:46.520 --> 0:14:49.120 marrisk is trading it less than two times earnings today 0:14:49.160 --> 0:14:51.400 it's paying me a twelve percent dividend deal, it's buying 0:14:51.400 --> 0:14:54.080 back shares. It's probably gonna pay a special dividend it 0:14:54.120 --> 0:14:56.400 will announced later this year. So it's got a lot 0:14:56.440 --> 0:14:59.480 of cyclical risk. Rate rates are going to collapse. Market 0:14:59.480 --> 0:15:01.880 says they're gonn a collaps starting today. I think those 0:15:01.960 --> 0:15:04.480 rates don't collapse until we're into next year. I think 0:15:04.560 --> 0:15:07.760 supply chains remain challenged, a lot of bottlenecks. There's an 0:15:07.760 --> 0:15:09.600 amount of goods in the world that need to be shipped. 0:15:10.000 --> 0:15:13.160 There's not enough shipping capacity. Oil and gas stocks exact 0:15:13.200 --> 0:15:15.840 same scenario, and maybe not to the same extent. Markets 0:15:15.880 --> 0:15:19.040 pricing and oil plummeting in the future. I don't know 0:15:19.120 --> 0:15:21.640 if it will. You've not seen to demand destroyed yet, 0:15:21.680 --> 0:15:24.120 supplies not coming on stream, and these companies are just 0:15:24.200 --> 0:15:26.880 producing massive cash flow every day. The Patrick, it sounds 0:15:26.920 --> 0:15:31.480 like you're still long inflation. Well, I think inflations plateaued 0:15:31.560 --> 0:15:34.760 in the United States and the strong dollar. Lower commodity 0:15:34.840 --> 0:15:37.640 prices are going to see your on your prints continue 0:15:37.680 --> 0:15:40.880 to go down. UM in Europe. In the UK, UM 0:15:41.000 --> 0:15:43.640 commodity prices haven't fallen in the same way because the 0:15:43.720 --> 0:15:47.000 currencies have fallen, and electricity prices are jumping in European 0:15:47.080 --> 0:15:49.920 natural gases moving higher. So I think you've got a 0:15:50.000 --> 0:15:52.880 lot of stagflationary forces that are remaining in Europe, where 0:15:52.960 --> 0:15:55.320 the US has probably passed the worst of that. Patrick, 0:15:55.400 --> 0:15:58.000 Just how bad is the story in Europe and how 0:15:58.040 --> 0:15:59.840 bad is it relative to the price at the story 0:16:00.200 --> 0:16:04.080 in the market. I don't think the market's really priced 0:16:04.160 --> 0:16:07.000 in how bad it can be in Europe unless something 0:16:07.200 --> 0:16:10.960 dramatic changes where you do get Russian gas into Europe again. 0:16:12.120 --> 0:16:14.640 Manufacturing is going to slow, hiring is going to slow, 0:16:14.720 --> 0:16:17.360 There's gonna be brownouts and blackouts, people told to work 0:16:17.440 --> 0:16:19.920 from home. All of those things are negative for the 0:16:20.000 --> 0:16:24.360 economy obviously, And it's just Germany is going to solve 0:16:24.400 --> 0:16:27.200 its reliance on Russian natural gas, but it's just not 0:16:27.320 --> 0:16:29.920 going to be in two in the winter of three. 0:16:29.960 --> 0:16:31.880 It's going to be another year and a half before 0:16:31.920 --> 0:16:34.600 they can get all the other measures in place that 0:16:34.640 --> 0:16:37.760 they're not reliant on Russian natural gas. On the subject 0:16:37.880 --> 0:16:39.720 of Europe, Patrick, one of the lines in your note 0:16:39.760 --> 0:16:41.320 that stood out to me was the market has the 0:16:41.360 --> 0:16:44.960 ECB hiking while the FED cuts in dot dot dot. 0:16:45.600 --> 0:16:47.880 No way what do you think is more likely that 0:16:48.080 --> 0:16:52.120 neither is hiking next year or that both are. I 0:16:52.240 --> 0:16:55.720 think neither will be hiking probably when we get to three. 0:16:55.720 --> 0:16:58.320 The U S economy is slowing, it's still growing, the 0:16:58.360 --> 0:17:03.640 employment situation still look pretty robust. That small companies say 0:17:03.640 --> 0:17:06.880 they're they're having trouble filling job opening so, um there's 0:17:06.880 --> 0:17:09.960 anecdotal evidence about layoffs coming the p w CS p 0:17:10.200 --> 0:17:13.920 WC surveys talking about half our companies doing layoffs next year, 0:17:14.000 --> 0:17:17.000 but companies aren't being able to fill the job openings 0:17:17.080 --> 0:17:20.000 they have. Um F, it's gonna be hiking in September, 0:17:20.400 --> 0:17:23.679 maybe once more after that, but while the economy slows 0:17:23.720 --> 0:17:26.080 and the rest of Europe falls into a deeper session, 0:17:26.880 --> 0:17:28.560 I don't think the Fed's going to be doing much 0:17:28.600 --> 0:17:30.520 in terms of hikes next year. But there's no way 0:17:30.560 --> 0:17:32.800 the e c B will be hiking with that backdrop. Well, 0:17:32.840 --> 0:17:35.359 I understand how the data could lead to a picture 0:17:35.400 --> 0:17:37.640 of the federal reserve backing off, but does that leave 0:17:37.720 --> 0:17:43.560 the job on inflation undone? Um? Yeah, So Powell characterized 0:17:43.600 --> 0:17:46.520 where rates were after the last hike is neutral. I 0:17:46.720 --> 0:17:48.800 don't think that could have been scripted. I don't think 0:17:48.840 --> 0:17:50.920 it's at neutral. I think if we do another seventy 0:17:51.000 --> 0:17:54.800 five basis points, you can plausibly say that's at neutral. Um, 0:17:55.520 --> 0:17:58.480 if the economic situation does weaken in the rest of 0:17:58.520 --> 0:18:01.600 the world, you've got a really strong dollar that continues 0:18:01.680 --> 0:18:04.160 to mute out inflation as well. So strong dollar means 0:18:04.200 --> 0:18:06.200 all your imports are a little bit cheaper, and that 0:18:07.000 --> 0:18:10.040 is disinflationary. So you can see that scenario where the 0:18:10.080 --> 0:18:12.520 Fed doesn't have to hike next year just because the 0:18:12.600 --> 0:18:16.159 dollar strengthening and the rest of Europe is probably in 0:18:16.200 --> 0:18:19.159 a pretty bad economic situation. Patrick, how useful is this 0:18:19.240 --> 0:18:23.080 conversation around neutral. It's such a fuzzy concept, and they're 0:18:23.080 --> 0:18:25.760 talking about a short run neutral level, a longer run 0:18:26.119 --> 0:18:30.560 neutral level. How useful? How valuable is that conversation right now? Well, 0:18:30.680 --> 0:18:33.280 if you get any insight onto what the Fed thinks 0:18:33.359 --> 0:18:36.119 is neutral, that's very important because that's the guy that 0:18:36.160 --> 0:18:38.520 will guide you on where they're going to put policy. 0:18:38.800 --> 0:18:41.760 I don't think Powell believes it's at neutral right now. Um, 0:18:42.280 --> 0:18:44.640 you've seen a lot of liquidity in markets. You've seen 0:18:44.680 --> 0:18:47.240 meme stocks rallying, you've seen no Learning's tech rallying, and 0:18:47.359 --> 0:18:49.760 you've not seen the FED meaningfully reduced its balance sheet, 0:18:49.800 --> 0:18:52.160 which is the other thing they indicated they would be doing, 0:18:52.200 --> 0:18:55.639 which isn't really happened yet. Um, but where neutral is 0:18:55.760 --> 0:18:58.120 is something no one will ever know. Even looking historically, 0:18:58.160 --> 0:19:00.760 you never know exactly where it is. But it does 0:19:00.840 --> 0:19:03.240 guide to fagine what they're trying to achieve while they're 0:19:03.359 --> 0:19:06.320 I guess driving half blindfolded. Pat check got a catch 0:19:06.400 --> 0:19:14.440 off set as a wise Patrick compstrong right now on 0:19:14.520 --> 0:19:16.760 the airlines, and it is something we've all got our 0:19:16.840 --> 0:19:20.000 stories about trying to get back to travel, trying to 0:19:20.080 --> 0:19:23.439 get back to normal. It's not, say Seth Joins, US 0:19:23.480 --> 0:19:26.239 Airlines Managing Director Ramon James Savy. I want to get 0:19:26.280 --> 0:19:27.919 this out of the way right now on a bi 0:19:28.000 --> 0:19:32.879 hold cell basis, which is the American airline to believe 0:19:32.960 --> 0:19:35.399 in over the next three to five years. Which is 0:19:35.480 --> 0:19:40.680 a stock that's getting it right. Hey, Tommy, I think 0:19:41.000 --> 0:19:44.000 Delta is probably a good stock to o and here 0:19:44.119 --> 0:19:47.280 there's a lot of uncertainties. Is a cyclical sector, but 0:19:47.400 --> 0:19:50.200 I think you've got quality. They're a good balance sheet 0:19:50.359 --> 0:19:55.200 and customer service that's returning. So that's probably my colleagues, 0:19:55.200 --> 0:19:57.280 Savvy Paul Sweeney has got me into looking at the 0:19:57.359 --> 0:20:00.400 app where I can watch the airlines take off. Last 0:20:00.480 --> 0:20:03.159 night at Newark e w R, I basically saw a 0:20:03.280 --> 0:20:09.280 controlled chaos. There were seventeen planes, imperfect weather trying to 0:20:09.400 --> 0:20:12.840 get up in the air. How did we get here 0:20:13.359 --> 0:20:19.080 where the actual physical airports are a mess? The issue 0:20:19.119 --> 0:20:21.280 with the Northeast though, is and then this has always 0:20:21.320 --> 0:20:23.800 been an issue, is it's and you look out, it's 0:20:23.840 --> 0:20:26.640 perfect weather. But whether in Pennsylvania, you know, the weather 0:20:26.720 --> 0:20:29.719 in the whole corridor matters to the airport. So it's 0:20:29.760 --> 0:20:33.280 it's long being a frustration. Um And and on top 0:20:33.359 --> 0:20:35.960 of that, you know you're you're layering on more recently 0:20:36.440 --> 0:20:39.840 air traffic control staffing that's that's lower than in the past. 0:20:40.000 --> 0:20:43.000 You're you have kind of just across the supply chain 0:20:43.119 --> 0:20:46.440 at the airlines and the airports. Um, just staffing levels 0:20:46.480 --> 0:20:49.200 that aren't you back to the productivity that we saw 0:20:49.320 --> 0:20:51.800 pree crisis. Hopefully, as we kind of go through the 0:20:51.840 --> 0:20:55.720