Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. We had, uh, what
Speaker 1: looked to me at least like a very dovish J.
Speaker 1: Powell on Wednesday with just a mini hike five basis points.
Speaker 1: Almost didn't even notice that, and then um talking about
Speaker 1: dependency on data and didn't give a straight no to
Speaker 1: the question of whether they thought about a pause in
Speaker 1: the meeting. UM just generally, you know, he thought financial
Speaker 1: conditions were tightening, which we're still not sure what index
Speaker 1: he was looking at. UM that may change after Friday's
Speaker 1: jobs number blew away the estimates and showed that this
Speaker 1: US labor market is still red hot, regardless of the
Speaker 1: West Coast pink slips that we report on every day.
Speaker 1: Let's bring in Liz Capit McCormick to talk about this,
Speaker 1: Chief Correspondent Global Macro Markets for Bloomberg News. So did
Speaker 1: Friday you know, change the path for the FED. Well,
Speaker 1: I think you want to hope that even despite pal
Speaker 1: sounding devish, they had a plan. They kept saying higher
Speaker 1: for longer. Maybe it doesn't matter whenever comes next, is
Speaker 1: you know, whichever way the wind blows is the way
Speaker 1: they're going. I know it's a rough road, but I
Speaker 1: think Friday kind of locked in. You saw a lot
Speaker 1: of the street economist say, you know, those who are
Speaker 1: forecasting two more three more quarter point hikes said oh yeah,
Speaker 1: we're good, you know. I mean, it was just so
Speaker 1: strong all across the board. You know, it's kind of
Speaker 1: head scratching. But no one kind of wrote it off
Speaker 1: as like a cork or something. So I think it
Speaker 1: definitely figure out what it was because a lot of
Speaker 1: people did try and write it off. I didn't see
Speaker 1: any credible arguments. Um, but it wasn't just the most
Speaker 1: recent month. Um. They also revised previous months higher. It
Speaker 1: just looks incredible. Yeah. And I was listening to our
Speaker 1: Mike McKee, and he went through it all and he
Speaker 1: didn't couldn't find any reason to like write it off.
Speaker 1: You know, like you said, the revisions were higher. I mean,
Speaker 1: maybe some people say even if you took out some
Speaker 1: of it, it's still strong. Right. We want to be
Speaker 1: kind of below one fifty. I mean, not that we
Speaker 1: want people out of work, but to kind of cool
Speaker 1: the labor market a little and bring inflation down further.
Speaker 1: What does that the mean for the bond market reaction?
Speaker 1: I think it was up like sixteen basis points on
Speaker 1: the front end of the curve just off that report.
Speaker 1: The equity market was kind of like, but the bond
Speaker 1: market was very much reacting to it. But even another
Speaker 1: twelve today, fourty on the two year, exactly one on
Speaker 1: the tenure. But it's still within its range. Yeah, but
Speaker 1: look at the terminal rates. So finally, like like Matt
Speaker 1: was saying Wednesday, oh, people thought pal was kind of dubbish.
Speaker 1: The terminal rate, where the market sees the peak for
Speaker 1: the Fed, came down even further. They were like locking
Speaker 1: in fifty basis points the cuts coming by the end
Speaker 1: of the year. Now things have changed a little. They
Speaker 1: got the terminal rate back up towards like five point
Speaker 1: one percent, which is about around where the dots are
Speaker 1: the FEDS dots, and there's less than half a point
Speaker 1: of cuts in there now. So I think the market
Speaker 1: kind of got a little religion on Friday to say, oh,
Speaker 1: you know, maybe we've gone too far, you know, maybe
Speaker 1: we kind of we're wrong footed, and the impression of
Speaker 1: pal or even not even if we were right now,
Speaker 1: these jobs data is so strong. Now we have another
Speaker 1: jobs report right before the next FED meetings, so let's
Speaker 1: see what happens there. We have the inflation numbers. But
Speaker 1: I think the bond market kind of got a gut check,
Speaker 1: you know that maybe we've kind of leaned too far,
Speaker 1: Like what's the new trendy thing now they're saying no landing,
Speaker 1: you know, you know, some saying soft landing. Maybe there's
Speaker 1: no landing. I don't know about that, but I think
Speaker 1: the barn market, at least that is hedging. And we
Speaker 1: have a lot of supply this week coming with the
Speaker 1: refundings and about nineties six billion. I was gonna say
Speaker 1: for debt auctions to your point, that is a lot
Speaker 1: of new supply addition to a lot of the M
Speaker 1: and A deals by the way, that are I think
Speaker 1: being funded mostly by debt. Yeah, um, what does that
Speaker 1: then do? What do we expect this week? Well, it's
Speaker 1: been crazy this year. The auctions have gone like crazy good,
Speaker 1: you know, not that I don't want them to go well,
Speaker 1: but like so many in a row, the yield came
Speaker 1: below that where it was trading right before the bidding,
Speaker 1: which is a sign of strong demand. So people are saying,
Speaker 1: maybe not this round. Nine billion, yields aren't as high
Speaker 1: as they were. Um, now we think the Fed maybe
Speaker 1: higher for longer. It's going to be a real litmus
Speaker 1: test of how strong is this demand for treasuries. So
Speaker 1: we'll see, well what does it mean to I mean
Speaker 1: if if you know, bond auctions are going great and
Speaker 1: m and I EM and a activity picks up, and um,
Speaker 1: you know we're adding five thousand jobs a month, or
Speaker 1: even if we're adding two jobs a month, um, and
Speaker 1: inflation is coming down, then the Fed is pretty cool
Speaker 1: on its um you know, wandering path of of devishness. Well,
Speaker 1: but is deva fishness like the market was pricing dovishness cuts?
Speaker 1: You know, should they wander to cuts. There's a lot
Speaker 1: of people who say, like, why does the market price
Speaker 1: that in it's just hopes brings eternal in the equity
Speaker 1: market or in the in the fixed income market. I
Speaker 1: think so, and they have to be leading and to
Speaker 1: be all. To be fair, there's some optionality in that, right,
Speaker 1: if you're a trader, you got a price, let me
Speaker 1: hedge myself. There's some risk of cuts, so that's gonna
Speaker 1: bring the implied rate in the futures down. Um. But
Speaker 1: I think, you know, it's I hate to say, like
Speaker 1: Pavlov's dogs. The market is so you know, trading the pivot.
Speaker 1: We've got to get hitt of the pivot. And they've
Speaker 1: been wrong a lot. Um. Not that the Fed hasn't
Speaker 1: been wrong on many things, to be fair, but I
Speaker 1: think the market it just thinks, like the old playbook,
Speaker 1: the FED has to pivot. But you know, if inflation,
Speaker 1: even if it comes down four percent, is way above
Speaker 1: two percent, you know, and if the growth is going
Speaker 1: okay and we don't have a bad recession, why does
Speaker 1: the Fed have to cut anyway? You know? So I
Speaker 1: don't know. I think we could be sitting here in
Speaker 1: December and saying, good point, Wow, the Fed didn't even
Speaker 1: cut this year at all. They just stuck at five.
Speaker 1: What ever, that would be a new thing as long
Speaker 1: as the economy is humming on all cylinders. Um, if
Speaker 1: inflation is coming down, we're adding jobs, m and a
Speaker 1: activity is good, Um, you know, earnings aren't a drop
Speaker 1: of then they might as well leave it where it
Speaker 1: is until we have a problem. And Pal said on Wednesday, like,
Speaker 1: we see more risk to turning to you know, easy
Speaker 1: policy too soon than going a little bit too far
Speaker 1: because we can always cut later. And I think that
Speaker 1: was a very telling point. You know, they want to
Speaker 1: air on the side of maybe going a little too
Speaker 1: far quote unquote then turning course too fast and having
Speaker 1: to restart. They don't like that stop stark kind of thing.
Speaker 1: But then how do you factor in, say the e
Speaker 1: C B, the b O E. If you're looking at
Speaker 1: what could be some very volatile days ahead for for
Speaker 1: the boon market, specifically in the guilt market, how does
Speaker 1: that translate or at least affect the treasury market. Well,
Speaker 1: it was interesting last week. I thought Laguard did a
Speaker 1: nice job at a press conference. I thought they were
Speaker 1: hawkers that market rally too. So there's a little bit
Speaker 1: of this uber euphoria going on all around. But if
Speaker 1: if she was saying there they intend to raise rates
Speaker 1: fifty right, she was, Yeah, they're not. They're not locking
Speaker 1: in there, you know, right, Well, they they can't write
Speaker 1: a legal contracts were for sure. I'm just saying, like
Speaker 1: you know, across the board, you didn't really hear forcefully
Speaker 1: hawkish language. You heard a lot of optionality, which I'm
Speaker 1: not saying that's the wrong move. I would want optionality too.
Speaker 1: I'm just saying the way the market interprets that is devishness. Well,
Speaker 1: and like you said, the central banks have to kind
Speaker 1: of set the stage, right, even if the stage means
Speaker 1: a couple quarters away, I don't think anyone could argue.
Speaker 1: We were talking to some of my colleagues that bond
Speaker 1: ball has come down a lot. That's a good thing,
Speaker 1: and people are saying, at the least give or take
Speaker 1: two more hikes, three more hikes, what the ECB does, whatever,
Speaker 1: we're getting closer to the end than last year when
Speaker 1: we had this big hill to climb of tightening, right,
Speaker 1: So I think bond ball coming down is telling to
Speaker 1: your point that, yeah, they're getting closer to the end,
Speaker 1: whether of FED just kind of hikes to whatever's terminal
Speaker 1: for them, it just sits there for a year. That's
Speaker 1: also good for all. If we know, hey, FED sent
Speaker 1: still and maybe they cut. I'm not predicting that, but
Speaker 1: we know, like somebody was saying to me the other
Speaker 1: day that last year, every meeting, you're like, is it
Speaker 1: is it fifties at least? All that has kind of
Speaker 1: narrowed down the range of outcomes for the FED, the ECB,
Speaker 1: other central banks, I would say has narrowed. But so um,
Speaker 1: I think last year, late last year Daniel D. Martino
Speaker 1: Booth was telling us she thought Powell was trying to
Speaker 1: kill the FED put and you know, you point out
Speaker 1: that everybody wants to trade the pivot. You know it's
Speaker 1: gonna happen, it's gonna happen, it's gonna happen. It never happens.
Speaker 1: But this isn't killed. He's not putting it to bed
Speaker 1: with that kind of language. None of them really are. Um.
Speaker 1: They're all kind of leaving it open, and that leads
Speaker 1: to looser financial conditions, which could lead to more inflation.
Speaker 1: That's the problem, right, right, And I think you're right, Like,
Speaker 1: no one wants to go against the Chairman of the FED,
Speaker 1: but everyone was kind of like, what way financial conditions
Speaker 1: are tighter than a month ago? What are they looking at?
Speaker 1: So I think, yes, he's right, long run versus last year,
Speaker 1: they're tighter but that you know, some people are saying
Speaker 1: like things are heating up again, the housing markets picking
Speaker 1: up a little bit, like they don't want things to
Speaker 1: heat up again, right, which is inflationary? I mean not
Speaker 1: for nothing. They've brought inflation down a lot, but it's
Speaker 1: still has more to go. And a few people smarter
Speaker 1: than me have said, you know, the hardest nut for
Speaker 1: inflation is the final like few percentage points bringing it down,
Speaker 1: getting it from the uber high to hear, you know,
Speaker 1: took a lot like these last five pounds killing, so true,
Speaker 1: so true, Poor, poor poor Matt on the last five pounds. Uh.
Speaker 1: Liz McCormick, thank you, as always, Chief Markets correspondent, Um.
Speaker 1: She kind of does a little bit of everything, bonds,
Speaker 1: dollar stocks, anything you need, right, Matt. Yeah, and we're
Speaker 1: very happy to have her. Thank you, very She wrote
Speaker 1: the cover story as well with Katie Greifeld on the
Speaker 1: latest edition of Bloomberg Business Week, and what a timely
Speaker 1: cover story that is definitely check out that don't the
Speaker 1: FED addition or we are fighting the FED addition. M
Speaker 1: let's bring in pre a miserable She is managing director
Speaker 1: and global head of Rate Strategy over a T D
Speaker 1: securities Pria. What was your take on the incredible roller
Speaker 1: coaster ride that we had last week after the FED
Speaker 1: um and the non farm payrolls. Sure, thanks for having
Speaker 1: me on, It's been quite the week. Um So I think,
Speaker 1: you know, I think the market is dealing with both
Speaker 1: uncertaintly on the economic outclook, and that's what we saw
Speaker 1: with both payrolls as well as i s M very
Speaker 1: strong numbers. We're not seeing signs of slowdown there at
Speaker 1: least in the labor market or even service demand. Actually
Speaker 1: was more interested in is M services because I think
Speaker 1: that's going to be a leading indicator and so far
Speaker 1: not really seen moderation. But then the other source of
Speaker 1: uncertaintly is the FED, and there was there's a clear
Speaker 1: lack of urgency from chap out from the Fed to
Speaker 1: keep hiking, and he was very noncommittal. I mean, I
Speaker 1: was surprised a little bit with the re action on
Speaker 1: Wednesday because I don't think he was devilish per se,
Speaker 1: but he didn't push back on the using of financial
Speaker 1: conditions that we've seen since December. He was very noncommittal
Speaker 1: on the end point, like where do they end hikes
Speaker 1: and sort of left it to the data, so I
Speaker 1: think it's going to really come down. I know there's
Speaker 1: a lot of focus on tomorrow's comments by Chepower, but
Speaker 1: I think their data dependent and it's very hard for
Speaker 1: the market to get you know, exactly where the end
Speaker 1: point is. We're gonna have to watch the economy and inflation.
Speaker 1: I think there's a lot of optimism that inflation will
Speaker 1: keep declining, and our view is it's going to be sticky,
Speaker 1: and so you'll get a series of twenty five hikes
Speaker 1: as the Fed ends, but they don't end what the
Speaker 1: market was pricing in on Wednesday, just one more high week.
Speaker 1: Expect two more hikes, possibly chance of another twenty five
Speaker 1: in June. If inflation sort of flatlines here and doesn't
Speaker 1: keep declining, let's put some numbers on that. Here, we're
Speaker 1: looking at ten years, Matt pointed out higher about nine
Speaker 1: basis points three sixty one. As the bond market is
Speaker 1: factoring everything you just laid out is kind of being
Speaker 1: a little wishy washy and just kind of sticking into
Speaker 1: this trading range. Why aren't we seeing it break out?
Speaker 1: I think the tenure is really tricky, right, because that's
Speaker 1: your view on fat funds, in a way over the
Speaker 1: next ten years, and so that incorporates a slowdown you know,
Speaker 1: later this year, next year, it incorporates rate cuts at
Speaker 1: some point. I mean, even if we get a soft landing,
Speaker 1: the FED is not going to keep rates at five
Speaker 1: or five in a quarter. They're going to have to
Speaker 1: bring it down. So I think the tenure likely stays
Speaker 1: in a range. Seventy five is the range we're thinking.
Speaker 1: The front end I think can break out. If we
Speaker 1: find that inflation is sticky, UM wages are staying strong,
Speaker 1: then I can see front endry. It's going back to
Speaker 1: the upper bound of the range, maybe even moving higher
Speaker 1: because we realize the FED is not cutting. We have
Speaker 1: a lot of cuts priced in for this year and
Speaker 1: next year. I think they can start to get taken out.
Speaker 1: That terminal rate can go higher than where it is
Speaker 1: right now, like just above five percent. We can get
Speaker 1: to five and a quarter. So the front end can
Speaker 1: absolute selo. The tenure does get tricky because it's a longer.
Speaker 1: It's your view over you know, the next ten years.
Speaker 1: Why do you think the FED is going to have
Speaker 1: to cut If we're adding jobs UM at such a
Speaker 1: fantastic pace and UM we don't see such a huge
Speaker 1: drop in earnings. I think right down right now, we're
Speaker 1: looking at a three percent drop in earnings last quarter. Um,
Speaker 1: what's gonna be the impetus for the cut? Great question.
Speaker 1: So I'm gonna go back to the Fed's dual mandate
Speaker 1: inflation and growth. So our view for rate cuts. We've
Speaker 1: actually got a lot of cuts penciled in for next
Speaker 1: years because we're looking for a recession in the base case,
Speaker 1: and we see inflation I said it's sticky, but by
Speaker 1: next year starting to get within the three two and
Speaker 1: a half percent range. So cutting for both sides of
Speaker 1: the dual mandate. But let's say we get this what
Speaker 1: we're calling immaculate disinflation scenario right where inflation continues to fall,
Speaker 1: soft landing every risk asset to the moon. Even in
Speaker 1: that AIO, I can see the Fed cutting rates, which
Speaker 1: is embedded in their dot plot. Right, They've got a
Speaker 1: hundred basis once next day and the year after. That's
Speaker 1: not for growth reasons, that's for inflation reasons, and because
Speaker 1: the FED wants to get at that point rates away
Speaker 1: from restrictive into let's in neutral territory. So if inflation
Speaker 1: gets back to two and a half by the end
Speaker 1: of the year. I think there's a case for the
Speaker 1: FED starting to cut because FED funds at five or
Speaker 1: five and a quarter is too high. We should be
Speaker 1: closer to two and a half or three percent, So
Speaker 1: that's the reason to cut. The timing the peace would
Speaker 1: depend a lot, whether it's a recession or a soft
Speaker 1: landing scenario. But the rate cuts is just if inflation
Speaker 1: comes back down. Whenever it does, I think the FED
Speaker 1: then starts to signal rate cuts. All right, Prea, thanks
Speaker 1: so much for joining us. Priam Isra. They're managing director
Speaker 1: and global head of rate strategy over TV Securities. We
Speaker 1: love to get her take on the FED and the
Speaker 1: fixed income space, and we hope to have her on
Speaker 1: again very soon and talk to her a little bit longer. Okay,
Speaker 1: let's bring in uh Andrew Merrick right now for Raymond James.
Speaker 1: He's the VP of Equity Research and also has many
Speaker 1: I'm sure thoughts on chickens and eggs and all. Yeah,
Speaker 1: do you also spend so much time trying to understand
Speaker 1: the eggs. Well, it's a real chicken in the eggs situation.
Speaker 1: You're perfect for this, all right, Let's ask about, um,
Speaker 1: what your reaction was to last week, because just I
Speaker 1: spent the whole weekend talking about last week's news with
Speaker 1: people who don't even participate in markets. I mean, it
Speaker 1: was just that dramatic. Um, with the press conference on
Speaker 1: Wednesday and then the job's number on Friday, does it
Speaker 1: change at all your views what we saw? Well? So
Speaker 1: in the gaming sector specifically. I mean, you know, the
Speaker 1: economy and those types of reports are going to have
Speaker 1: some impact, but gaming has proven to be a pretty
Speaker 1: resilient form of entertainment when it comes to economic conditions
Speaker 1: and things like that, because when you're buying a game
Speaker 1: sixty seventy dollars, you get quite a good value in
Speaker 1: terms of the number of hours of entertainment out of that.
Speaker 1: So hell yeah, sometimes I'll be playing like red Dead
Speaker 1: Redemption and realized that nine hours have gone by hundreds
Speaker 1: of hours And that happens a lot, by the way,
Speaker 1: you know, and with call of duty, and uh, well
Speaker 1: I used to be a big Halo guy. Um, just flies,
Speaker 1: do you play cretty? Do you play any games? Don't?
Speaker 1: But I have to say, when, um, what was it
Speaker 1: called red dead redemption? Redemption to red dead redemption to
Speaker 1: his first release. I think it was I want to
Speaker 1: say I was on the video game beat and they
Speaker 1: gave us like an exclusive trial or whatever. It was
Speaker 1: like all these other video game analysts and everyone was
Speaker 1: so excited. It was like a bunch of dudes, and
Speaker 1: I was just like, why am I here? I actually
Speaker 1: asked myself the same question when I'm asking me when
Speaker 1: I'm playing Red Dead Redemption? So, uh, you think Activision,
Speaker 1: Blizzard and what are the other names in the gaming
Speaker 1: industry that you follow? Yeah, the big ones right now
Speaker 1: are Activision, Blizzard, e A and Take two Interactive, And uh,
Speaker 1: you think they're set up for continued games? Yeah, I
Speaker 1: think that. You know, we had seen over the past
Speaker 1: two years since the pandemic, there was kind of a
Speaker 1: moderation in the amount of time that people spend playing.
Speaker 1: So there was a big spike around the pandemic onset
Speaker 1: where people were cooped up found gaming as a nice
Speaker 1: social outlet when you couldn't see people face to face,
Speaker 1: And as things started to reopen and get back to normal,
Speaker 1: people played a little bit less and less. Now I
Speaker 1: think we're entering a more normalized environment for demand, where
Speaker 1: the success of the companies and the stocks are more
Speaker 1: dependent on things like how good are the coming games,
Speaker 1: how good are the current games, rather than things like
Speaker 1: are people playing less those more exogenous factors. What about
Speaker 1: meta I mean, how long until we start spending all
Speaker 1: of our time in the metaverse? Yeah? The the new
Speaker 1: frontier of VR and the metaverse. I mean a lot
Speaker 1: of these games are pretty metaverse already are. Yeah. I
Speaker 1: think that's one thing that the traditional publishers, if you
Speaker 1: want to call them that, the activisions and take twos
Speaker 1: of the world, would say, is that we already integrate
Speaker 1: so many of those digital community focused aspects that the
Speaker 1: metaverse really, um, the metaverse really advertises already in our games.
Speaker 1: Our games are already massively online multiplayer environments that are
Speaker 1: living and breathing. Um. I would say probably the only
Speaker 1: big difference is that you're not wearing an immersive headset
Speaker 1: to play Call of Duty or Grand Theft Auto. At
Speaker 1: this point, I think that there are still probably some
Speaker 1: gains to be made on that virtual reality side. It
Speaker 1: will probably be a little bit more incremental rather than
Speaker 1: big leaps and bounds, um. But I think that that's
Speaker 1: something to keep an eye on, maybe as like a
Speaker 1: five plus year driver for the gaming space. Isn't there
Speaker 1: a story out somewhere that a lot of the games
Speaker 1: from uh I believe it's activision, like Star Wars, for example,
Speaker 1: has been delayed to the tune if I want to
Speaker 1: say six weeks um, what kind of effect does that
Speaker 1: have on the bottom line for life's activision or take
Speaker 1: two or whatever. Yeah, so the Star Wars game the
Speaker 1: e a game um six week delay. When you get
Speaker 1: those smaller delays like that, in terms of the bottom line,
Speaker 1: it can move a quarter, like the Star Wars game
Speaker 1: was moved from the end of one quarter to the
Speaker 1: beginning of another. But in general, in terms of the
Speaker 1: expectations for the lifetime sales of that game, doesn't really
Speaker 1: affect it too much unless you think that the delay
Speaker 1: is a signal of the upcoming quality of the game,
Speaker 1: which we do not. UM. Where you start to get
Speaker 1: into the more um the delays that more effect the
Speaker 1: bottom lines are those ones where the games get pushed
Speaker 1: by a few months or even delayed and definitely because
Speaker 1: the project isn't progressings as they liked. We've seen a
Speaker 1: couple of those over the course of the pandemic, where
Speaker 1: work from home kind of up ended the development cycle.
Speaker 1: But as we've gotten you know, used to work from
Speaker 1: home people back in the office, we're seeing less of
Speaker 1: those major impactful delays that would really hit bottom lines.
Speaker 1: You seem um pretty grounded, uh for someone who has
Speaker 1: a minor a nuclear engineer and M I T. I
Speaker 1: mean you talk about these incremental changes, are there any
Speaker 1: like moonshot um stocks out there that you like? I'm
Speaker 1: just thinking about that because, UM, we heard so much
Speaker 1: earlier this year about the uh possibility to uh create
Speaker 1: basically a perpetual motion machine with vision or fusion. I
Speaker 1: can remember which one it is. UM and we and
Speaker 1: we see these big bets at like Facebook, you know,
Speaker 1: putting ten billion a year or whatever into the metaverse,
Speaker 1: but it's so far off right, Yeah. And I think
Speaker 1: that Facebook specifically, like they're interested in that metaverse project
Speaker 1: because it is kind of what they view as the
Speaker 1: next major step change in digital life and digital interaction.
Speaker 1: You know, we went from offline to the internet, and
Speaker 1: now we're going to go from the Internet to the metaverse.
Speaker 1: I think they want to be owners of of that
Speaker 1: change in the way that some of the platform owners
Speaker 1: that Facebook is not a part of at this point
Speaker 1: have kind of owned that shift to the internet. So again,
Speaker 1: you know, I think it's more of a long term shift,
Speaker 1: but it is definitely something to keep an eye on,
Speaker 1: given the sums of money invested and given the promise
Speaker 1: that the metaverse holds. So but who are the big competitors?
Speaker 1: Is it just roadblocks? Is there somebody else that you
Speaker 1: think is going to be a winner here? Yeah, roadblocks
Speaker 1: is kind of what investor view is kind of like
Speaker 1: the pure play UM in metaverse at this point, I
Speaker 1: think you're probably going to see a lot of companies
Speaker 1: who come up through the ranks of venture funding UM
Speaker 1: who probably aren't household names at this point, who are
Speaker 1: specialists in the metaverse in VR, in that kind of
Speaker 1: digital interaction that may become a little bit out of
Speaker 1: left field. I think that's a very interesting space to
Speaker 1: to keep an eye on, and you know, we'll be
Speaker 1: we'll be following up with great interests as well. In
Speaker 1: our last thirty seconds or so, here, how did you
Speaker 1: go from a minor in nuclear engineering? Like why aren't
Speaker 1: you not like a mad scientist somewhere at m I
Speaker 1: T Well, you know, the the job's outlook at at
Speaker 1: nuclear fusion at the time was was not as promising
Speaker 1: as it is now. The old saying was, um, fusion
Speaker 1: is twenty years away, and it has been for the
Speaker 1: last sixty years. Um. But now now we've got it,
Speaker 1: and uh, you know the eggs on my face. You know, well,
Speaker 1: we're glad you ended up where you are because now
Speaker 1: he gets talked to you in the studio and hope
Speaker 1: we can get you back in here soon. Andrew Mack
Speaker 1: their VP of equity research over at Raymond James. Now
Speaker 1: let's get back to the markets here and bringing Jay Hatfield,
Speaker 1: he's the CEO of Infrastructure Capital Advisors. And finally we
Speaker 1: have a bowl on the program. Um. We were just
Speaker 1: talking about David Costin lowering his expectation for the SPI
Speaker 1: to four thousand, three months out and at the end
Speaker 1: of the year, so he doesn't think the market's going
Speaker 1: to do a whole lot of anything except for drop. Um,
Speaker 1: why are you and I believe you have a higher
Speaker 1: target ten percent higher target for a year and why
Speaker 1: are you so bullish? Jay? Thanks man Critty for having
Speaker 1: me on. First of all, we're bullish because we're far
Speaker 1: more optimistic that inflation. But not only is inflation declining,
Speaker 1: but they were actually in a deflation and the reason
Speaker 1: for that is that we do have an inflation is very,
Speaker 1: very similar to the seventies. In the seventies we had
Speaker 1: to gigantic energy UM crisis is in seventy and we
Speaker 1: had loose monetary policy and high inflation and housing. It's
Speaker 1: exactly what we have now. But housing has rolled over UM.
Speaker 1: It's been down five months in a row. So that's
Speaker 1: why our index CPI dash R is negative UH annualized
Speaker 1: four pc over the last quarter. And that's really what's
Speaker 1: been we think has been playing out so far this
Speaker 1: year is the rest of the world is kind of
Speaker 1: coming along around to that view. Wait, what's the index
Speaker 1: CPI dash R. So it's a real time CPI index.
Speaker 1: Would be happy to license it to Bloomberg and you
Speaker 1: can put this is a proprietary hand. You have the
Speaker 1: infrastructure capital advisors and does it remove UM, how housing
Speaker 1: or how does this differ from the typical CPI index.
Speaker 1: It's it's not very exotic. It's really going back to
Speaker 1: do inflation exactly how it was done before when they
Speaker 1: switched from just taking housing prices and then having a
Speaker 1: UM clawed measured measurement of owners equivalent rent, and an
Speaker 1: actual rent problem with that is then you introduce the
Speaker 1: twelve month lag because housing prices lead. Of course there's
Speaker 1: a survey that slows it down as well, but it
Speaker 1: leads the BLS index. I think last time I was
Speaker 1: on you can verify that on the terminal and do
Speaker 1: aggression sevent correlated, so you get the information twelve months
Speaker 1: in advance, and it's sevent correlated. So the FED is
Speaker 1: focused on the labor market. In certain markets, labor is important,
Speaker 1: but when goods are um and particularly energy is skyrocketing
Speaker 1: and then dropping goods actually drives labor or wages more
Speaker 1: than vice versa. And we think that the FED will
Speaker 1: eventually come aout around to that view, and in fact,
Speaker 1: Leo Brainer you mentioned something along those lines. Unfortunately, she's
Speaker 1: going to potentially move off the FED bet. So there
Speaker 1: are some doves on the FED. So we think by
Speaker 1: May they'll halt just as they said they would, and
Speaker 1: that will be a big catalyst for the market. Well,
Speaker 1: if you're looking at the inflationary story, how does the
Speaker 1: commodity standpoint factor in there? For example, one of the
Speaker 1: things that Tom Keen and I were actually speaking about
Speaker 1: earlier on Bloomberck surveillance was why is Brent crude with
Speaker 1: all of the bullish reopening themes not at a hundred
Speaker 1: right now? Why is it? Well, now we're looking at
Speaker 1: seventy handle. What is going on with that commodity? Well, Um,
Speaker 1: the real key driver is the weather. So we're four
Speaker 1: and a half degrees warmer in North America, which tracks
Speaker 1: you are pretty closely as well, UM, and that's a
Speaker 1: key driver during this more than last year than average
Speaker 1: so um, but even the near term average or well
Speaker 1: well above normal. It's a fifty degrees in Manhattan right now,
Speaker 1: So during this season, heating oil demand is really critical.
Speaker 1: So that's taken um some edge off of it. And
Speaker 1: really the Russian situation, oil is fully fungible because it's
Speaker 1: easy to transport. You can do rail, you can do
Speaker 1: um trucking, shipping, and so that really hasn't been a
Speaker 1: big impact. And that's really why, um, you haven't seen
Speaker 1: a big increase. But I would also focus on natural gas.
Speaker 1: It's off from its highs from the beginning of two
Speaker 1: and keep in mind and the FED doesn't seem to
Speaker 1: focus on this, even though they have a paper that
Speaker 1: validates it. There's a five percent bleed through from energy
Speaker 1: prices to core. So if you get natural gas down,
Speaker 1: that's going to be a big help to inflation coming down.
Speaker 1: But nobody seemed to focus on and they don't really
Speaker 1: care about natural gas because you don't have to fill
Speaker 1: your car up with it. It's half of the energy
Speaker 1: costs of a consumer comes from natural gas because it
Speaker 1: prices electricity as well. So that's a big bullish factor
Speaker 1: that nobody's talking about. As well. Also helps the consumer
Speaker 1: because they have more discretion discretionary spend. By the way,
Speaker 1: when you're trying to figure out what j Pal and Co.
Speaker 1: Are going to do next, it sounds like you have
Speaker 1: a view on what the Fed should do and what
Speaker 1: the Fed does do. Right, Um, what changes in your
Speaker 1: mind what they should do to what they do do?
Speaker 1: And I know I just said do do? But I mean,
Speaker 1: is it a political issue? Is it a lack of independence?
Speaker 1: Why do they you think make these mistakes even though
Speaker 1: they have the research backing up your view on what
Speaker 1: they what they should be doing. Well, it is a
Speaker 1: little bit of a political issue because labor economists tend
Speaker 1: to be Kinsian, which tend to be Democrats, and Biden
Speaker 1: has appointed five out of the seven permanent members. But
Speaker 1: having said that, even some of the Trump and appointees
Speaker 1: were also Keynsian, so monitorism is really not well represented.
Speaker 1: And by the way, you know, if you're just trying
Speaker 1: to make money in the market, you shouldn't be either.
Speaker 1: In some markets, a monetary policy dominates, like when the
Speaker 1: FED increases the monetary base and then down twenty that's
Speaker 1: going to be the key factor. If monetary policies flat
Speaker 1: and you head into a pandemic, then you better be
Speaker 1: looking at the labor market. So for us ordinary humans,
Speaker 1: you just have to make money. It's better not to
Speaker 1: be too ideological. But there are Keynesians clearly dominate the
Speaker 1: FED at this point. They're too focused on the labor
Speaker 1: market and not enough on energy prices and housing, and
Speaker 1: they created the housing bubble. So that's one reason we
Speaker 1: developed CPI dash are it's the smoking gun for bad
Speaker 1: FED policy. They they had just followed that, they would
Speaker 1: have started tightening in two thousand twenty and not in
Speaker 1: late Are you at all factoring the debt ceiling when
Speaker 1: you look at monetary policy the last time we have
Speaker 1: kind of a debt ceiling crisis. We were in a
Speaker 1: tightening e see me a easing phase of the economy.
Speaker 1: Square the two for us, Well, there's no doubt that
Speaker 1: that's a big risk for the stock market if we
Speaker 1: get closer and closer to a showdown. But there is
Speaker 1: a factor that rarely gets discussed, definitely not in the media,
Speaker 1: and that is crowding out and I would go to
Speaker 1: green Span is really the expert on that. So just
Speaker 1: out of control federal spending is a problem, and there's
Speaker 1: only one mechanism in federal law to limit that, which
Speaker 1: is the debt ceiling. So the notion that we should
Speaker 1: just automatically increase it because we owe the bills, I
Speaker 1: think is a little bit overblown. But we're not worried
Speaker 1: too worried about a crisis because the problem solvers Caucus,
Speaker 1: which is a bipardon artisan caucus, has pretty much said
Speaker 1: they're going to come to an agreement, and I think
Speaker 1: that's the right outcome. You know, obviously you don't want
Speaker 1: to default, but you shouldn't just ignore the only limit
Speaker 1: that we have on federal spending. Whereas the state's almost
Speaker 1: universally have balanced budgetmendance. So we think that in the
Speaker 1: long run will be good for the stock market is
Speaker 1: a risk factor and one thing to know too about
Speaker 1: We have a target for the SMP, but that's a
Speaker 1: year end target, not a end of February target, So
Speaker 1: we're going to have a lot of volatility and we
Speaker 1: think will be a little bit range bound until the
Speaker 1: FED pauses, and this will be one of the factors
Speaker 1: that you know, bears will use to you know, as
Speaker 1: an excuse to trade the market down. Do you think that,
Speaker 1: I mean with a year end target on the SMP,
Speaker 1: does that I mean we're gonna have also eight barrels
Speaker 1: of m W t I and hundred dollar barrels are brent. Yeah,
Speaker 1: that would be the midpoint of our range is ninety
Speaker 1: dollars per per barrel. And keep in mind, O, that's
Speaker 1: still off the hides of a hundred and twenty dollars.
Speaker 1: So it's not going to be a huge problem for
Speaker 1: CPI because do annualize all these increases and I would
Speaker 1: just go back to natural gas where we're to fifty
Speaker 1: that's where it's been. That's like near the lows for
Speaker 1: the last thirty years. The natural gas, it doesn't go
Speaker 1: into your car and it doesn't sort of go on
Speaker 1: this wheel that everybody gets excited about, but it's very
Speaker 1: critical because the prices all electricity United States, so you
Speaker 1: have the natural gas part of it offsetting the oil. Yeah. Alright,
Speaker 1: J great having in the studio. Thanks so much for
Speaker 1: coming and joining us. Jay Hatfield their CEO and founder
Speaker 1: of Infrastructure Capital Advisers. He talks about his um proprietary
Speaker 1: inflation and x CPI dash R, which you can get
Speaker 1: on his website Infra cap Funds dot com. Now it's
Speaker 1: the moment you've all been waiting for. We're gonna focus
Speaker 1: in on the balloon. Okay, Uh, let's bring in West Cassova.
Speaker 1: He is the Bloomberg Big Take podcast host and uh,
Speaker 1: you know, Paul and I love these Big Take stories. Um,
Speaker 1: kind of the first thing we talked about when we
Speaker 1: get to work at the morning every day, and I
Speaker 1: assume that Cretti reads them to cret does read them
Speaker 1: and I big take. Well, West, are you zooming in
Speaker 1: on this big balloon? What's the story, uh with with
Speaker 1: the podcast today? Well, we actually just try to get
Speaker 1: to the bottom of this whole thing. You know, last
Speaker 1: week when that thing was kind of floating above mantenna,
Speaker 1: and it was making its way across the country. A
Speaker 1: team like this kind of curiosity, little alarming Chinese balloon
Speaker 1: with a lot of equipment attached to it, but I
Speaker 1: don't could quite know where to make of it um
Speaker 1: And then it became pretty clear that there's something very
Speaker 1: unusual about this situation. I mean, it's big, Like you
Speaker 1: think about these weather balloons, are even those kind of
Speaker 1: big balloons that can kind of take pictures of sight.
Speaker 1: This thing is as big as two or three school busses,
Speaker 1: just enormous and unlet's the payload you're talking about, right,
Speaker 1: not the actual balloon, because I keep seeing references to
Speaker 1: the balloon being two or three school busses. But the
Speaker 1: balloon isn't what we're talking about. We're talking about the
Speaker 1: thing it's carrying, and it had a lot of different
Speaker 1: kind of equipment. They still want to know exactly what
Speaker 1: U And then there were these growing calls to shoot
Speaker 1: the thing down. Well, you're gonna shoot down three school buses?
Speaker 1: Who knows where it's going to land? So well in Montana,
Speaker 1: so it won't hit anything yet, never tell, you can
Speaker 1: never tell. And also you know when it did eventually
Speaker 1: come down and they shouted down it. Uh, you know,
Speaker 1: spread debris for a seven mile radio, So that's a
Speaker 1: lot of things that could have hit. So anyway, it
Speaker 1: cuts across the water of South Carolina, and they ordered
Speaker 1: the things shot down by fighter jets. And now there's
Speaker 1: this whole incident between the US and China about what
Speaker 1: that thing was. China claims it was a civilian science
Speaker 1: balloon that drifted off course. The US says there's no
Speaker 1: way that's true, that it's not plausible. And so tensions
Speaker 1: between the U S and chinnel already high, are how
Speaker 1: higher as a result of this? Wait? Well, I'm confused.
Speaker 1: Feel I feel like airspace is something that is monitored
Speaker 1: by the f a A all the time, and if
Speaker 1: you go even higher, I'm assuming by NASA at some point.
Speaker 1: Why didn't anyone see this on the radar? So big? Yeah?
Speaker 1: We talked, Yeah, we talked about this a little bit
Speaker 1: on the podcast. UM I talked to Rod mathieson Neverosities
Speaker 1: all of Bloomberg's government coverage, and she, you know, has
Speaker 1: been all over this story. And the interesting thing about
Speaker 1: these bloons is exactly what you're saying, is, you know,
Speaker 1: we have satellites looking down. We have everybody looking up,
Speaker 1: and yet China seem to think that either this wouldn't
Speaker 1: go you know, like that would go unnoticed, or maybe
Speaker 1: they didn't intend for it to go there. Um. And
Speaker 1: one reason why these blons are still used is that
Speaker 1: they are sometimes able to evade the usual means of detection.
Speaker 1: They're hard to hard to see. This one, though, is
Speaker 1: so huge they it was impossible admit. And to be clear,
Speaker 1: we did see it. I mean we tracked it coming
Speaker 1: in over Alaska, um and then through Canada. I feel
Speaker 1: like there's ample places to have shot it down with
Speaker 1: a seven mile radius. But of course you don't want
Speaker 1: to lose the gear, right. The key is we want
Speaker 1: to get to that gear and find out what it is,
Speaker 1: who made it, what they're doing, right, And that was
Speaker 1: the other the other thing, you know. I mean, it's
Speaker 1: really easy to say I'll just shoot the team down,
Speaker 1: but I don't know would you want to be the
Speaker 1: one to make that call and be responsible for what
Speaker 1: it might hit. And then, of course, aside from that,
Speaker 1: let's say you really were in desolate place if it
Speaker 1: just smashed the smithereens and you lose the ability to
Speaker 1: find out. But by the way, do you think, um,
Speaker 1: this caught our attention or or scared us or freaked
Speaker 1: us out because just because we can see it. Since
Speaker 1: we all know that the Chinese have satellites UM with
Speaker 1: super zooms on them, right, they can already see everything
Speaker 1: that we're doing with this satellite. They don't need a
Speaker 1: balloon necessarily. It's actually like a step back in terms
Speaker 1: of technology. So why do we care so much? Yeah,
Speaker 1: it's a really good question. That's something that I asked
Speaker 1: Rods about too. And in fact, these balloons, despite all
Speaker 1: the satellite technology, have other kinds of capabilities, are able
Speaker 1: to reason, detect and measure different sort of things that satellites,
Speaker 1: which way up in space can't do. And so it's
Speaker 1: not just China, but the US and a lot of
Speaker 1: other countries are investing more in these balloon programs. And
Speaker 1: this balloon was the one that you know got Carrent.
Speaker 1: We all saw it. But uh, it seems that there's
Speaker 1: been any number of these balloons fly around in the US.
Speaker 1: Flies them too, that go that do sort of go
Speaker 1: unnoticed because they're smaller, they flied beneath radar and they
Speaker 1: wind up not being detected. But what about the ones
Speaker 1: I mean, and now there's I believe reports of another
Speaker 1: one I want to say, Latin America of the Olivia.
Speaker 1: I want to say, I mean, what is the international
Speaker 1: response to this? Right now? It's really cast sort of
Speaker 1: a light end because you're right, Uh, China in particular
Speaker 1: has used these balloons for various reasons, Uh, in many
Speaker 1: different countries, you know, crossing space. And I have a
Speaker 1: feeling that we're going to start to see more of
Speaker 1: an international discussion about this violate you know, national international
Speaker 1: borders and sovereignty into what it Maybe we haven't before,
Speaker 1: just because it only takes one thing to call attention
Speaker 1: to it, to bring something that it may be, you know,
Speaker 1: simmering under the surface into the light. Yeah, if it's
Speaker 1: under the Carmen line, that it is our airspace, right,
Speaker 1: and this was well under the Carmen line. Um. Uh,
Speaker 1: you talk about our balloons and are spying, and we're
Speaker 1: so mad right now about the fact that the Chinese
Speaker 1: are spying on us? Do we spy on them too?
Speaker 1: I'm asking, well, I mean you sarcastically to assume, of course,
Speaker 1: you know, right exactly, I mean, of course we do. Yeah,
Speaker 1: and so it really is kind of when you don't
Speaker 1: see if you don't really think about it. But this
Speaker 1: seemed either really bad sort of mess up where this thing,
Speaker 1: for one reason or another, was where they didn't want
Speaker 1: it to be, or it would appear to be pretty
Speaker 1: brazen because something that big, you would think they wouldn't
Speaker 1: believe would go on. Detective What about the now that
Speaker 1: it is shot down, it's underwater now, isn't it across
Speaker 1: off the coast of South apparently not very deep? But
Speaker 1: still doesn't it Yeah, this is another thing we talked about,
Speaker 1: which is, you know they want that stuff. There's a
Speaker 1: question of the water destroyed to have any sort of
Speaker 1: self destruct mechanisms so that it would be destroyed before
Speaker 1: anyone could get to it. And they just don't know.
Speaker 1: They're going to get this thing and haul it out.
Speaker 1: And I don't know that we're going to be finding
Speaker 1: out exactly what was done anytime soon, because you could
Speaker 1: imagine that they're going to keep secret a lot of
Speaker 1: the stuff that they find. So of course we'll be reporting,
Speaker 1: try and find out everything we can to tell our listeners, viewers, readers,
Speaker 1: all the way that we try to tell people what's
Speaker 1: happening in the world. All right, I hope when we
Speaker 1: build our balloons we do include a self destruct mechanism.
Speaker 1: It seems like a no brainer, right, I mean sure, yeah.
Speaker 1: In any case, we can learn lessons from the Chinese West.
Speaker 1: Thanks so much for joining us. West Gasova their host
Speaker 1: of the Bloomberg Big Take podcast. They're focused on, um,
Speaker 1: the alleged spy balloon, and of course now we know
Speaker 1: it's been shot down by an F twenty two raptor,
Speaker 1: which is pretty cool in itself. Thanks for listening to
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to
Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller seventy three,
Speaker 1: and I'm fall Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio