WEBVTT - Bonds, Inflation, and the Equity Rally (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news on the Bloomberg Markets Podcast, 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.639 at Bloomberg dot com slash podcast. We had, uh, what 0:00:22.840 --> 0:00:24.919 looked to me at least like a very dovish J. 0:00:25.079 --> 0:00:29.440 Powell on Wednesday with just a mini hike five basis points. 0:00:29.520 --> 0:00:32.960 Almost didn't even notice that, and then um talking about 0:00:33.040 --> 0:00:37.360 dependency on data and didn't give a straight no to 0:00:37.400 --> 0:00:40.000 the question of whether they thought about a pause in 0:00:40.080 --> 0:00:44.000 the meeting. UM just generally, you know, he thought financial 0:00:44.000 --> 0:00:47.479 conditions were tightening, which we're still not sure what index 0:00:47.479 --> 0:00:52.159 he was looking at. UM that may change after Friday's 0:00:52.240 --> 0:00:56.680 jobs number blew away the estimates and showed that this 0:00:56.800 --> 0:01:00.480 US labor market is still red hot, regardless of the 0:01:00.520 --> 0:01:02.680 West Coast pink slips that we report on every day. 0:01:02.720 --> 0:01:04.640 Let's bring in Liz Capit McCormick to talk about this, 0:01:04.720 --> 0:01:09.920 Chief Correspondent Global Macro Markets for Bloomberg News. So did 0:01:09.920 --> 0:01:14.920 Friday you know, change the path for the FED. Well, 0:01:14.959 --> 0:01:18.199 I think you want to hope that even despite pal 0:01:18.280 --> 0:01:21.039 sounding devish, they had a plan. They kept saying higher 0:01:21.120 --> 0:01:25.480 for longer. Maybe it doesn't matter whenever comes next, is 0:01:25.560 --> 0:01:27.160 you know, whichever way the wind blows is the way 0:01:27.200 --> 0:01:29.240 they're going. I know it's a rough road, but I 0:01:29.280 --> 0:01:31.640 think Friday kind of locked in. You saw a lot 0:01:31.680 --> 0:01:34.240 of the street economist say, you know, those who are 0:01:34.319 --> 0:01:38.280 forecasting two more three more quarter point hikes said oh yeah, 0:01:38.280 --> 0:01:40.200 we're good, you know. I mean, it was just so 0:01:40.280 --> 0:01:42.520 strong all across the board. You know, it's kind of 0:01:42.560 --> 0:01:44.759 head scratching. But no one kind of wrote it off 0:01:44.800 --> 0:01:47.160 as like a cork or something. So I think it 0:01:47.280 --> 0:01:50.080 definitely figure out what it was because a lot of 0:01:50.080 --> 0:01:52.000 people did try and write it off. I didn't see 0:01:52.000 --> 0:01:57.200 any credible arguments. Um, but it wasn't just the most 0:01:57.240 --> 0:02:00.880 recent month. Um. They also revised previous months higher. It 0:02:00.960 --> 0:02:03.240 just looks incredible. Yeah. And I was listening to our 0:02:03.320 --> 0:02:05.200 Mike McKee, and he went through it all and he 0:02:05.240 --> 0:02:07.800 didn't couldn't find any reason to like write it off. 0:02:07.880 --> 0:02:10.959 You know, like you said, the revisions were higher. I mean, 0:02:11.320 --> 0:02:14.320 maybe some people say even if you took out some 0:02:14.560 --> 0:02:16.839 of it, it's still strong. Right. We want to be 0:02:16.960 --> 0:02:18.960 kind of below one fifty. I mean, not that we 0:02:19.040 --> 0:02:21.080 want people out of work, but to kind of cool 0:02:21.120 --> 0:02:24.079 the labor market a little and bring inflation down further. 0:02:25.320 --> 0:02:27.320 What does that the mean for the bond market reaction? 0:02:27.320 --> 0:02:29.080 I think it was up like sixteen basis points on 0:02:29.080 --> 0:02:31.000 the front end of the curve just off that report. 0:02:31.040 --> 0:02:34.079 The equity market was kind of like, but the bond 0:02:34.160 --> 0:02:37.360 market was very much reacting to it. But even another 0:02:37.400 --> 0:02:41.519 twelve today, fourty on the two year, exactly one on 0:02:41.560 --> 0:02:44.840 the tenure. But it's still within its range. Yeah, but 0:02:44.840 --> 0:02:47.640 look at the terminal rates. So finally, like like Matt 0:02:47.680 --> 0:02:51.080 was saying Wednesday, oh, people thought pal was kind of dubbish. 0:02:51.160 --> 0:02:54.120 The terminal rate, where the market sees the peak for 0:02:54.160 --> 0:02:57.040 the Fed, came down even further. They were like locking 0:02:57.080 --> 0:02:59.760 in fifty basis points the cuts coming by the end 0:02:59.800 --> 0:03:02.000 of the year. Now things have changed a little. They 0:03:02.080 --> 0:03:04.560 got the terminal rate back up towards like five point 0:03:04.560 --> 0:03:07.000 one percent, which is about around where the dots are 0:03:07.080 --> 0:03:10.200 the FEDS dots, and there's less than half a point 0:03:10.200 --> 0:03:12.800 of cuts in there now. So I think the market 0:03:13.080 --> 0:03:16.520 kind of got a little religion on Friday to say, oh, 0:03:16.880 --> 0:03:19.360 you know, maybe we've gone too far, you know, maybe 0:03:19.400 --> 0:03:22.880 we kind of we're wrong footed, and the impression of 0:03:22.960 --> 0:03:26.160 pal or even not even if we were right now, 0:03:26.240 --> 0:03:29.080 these jobs data is so strong. Now we have another 0:03:29.160 --> 0:03:31.880 jobs report right before the next FED meetings, so let's 0:03:31.880 --> 0:03:34.560 see what happens there. We have the inflation numbers. But 0:03:34.639 --> 0:03:36.840 I think the bond market kind of got a gut check, 0:03:36.960 --> 0:03:39.480 you know that maybe we've kind of leaned too far, 0:03:39.720 --> 0:03:43.240 Like what's the new trendy thing now they're saying no landing, 0:03:43.400 --> 0:03:45.880 you know, you know, some saying soft landing. Maybe there's 0:03:45.880 --> 0:03:48.480 no landing. I don't know about that, but I think 0:03:48.480 --> 0:03:50.560 the barn market, at least that is hedging. And we 0:03:50.600 --> 0:03:52.360 have a lot of supply this week coming with the 0:03:52.360 --> 0:03:56.680 refundings and about nineties six billion. I was gonna say 0:03:56.680 --> 0:03:58.840 for debt auctions to your point, that is a lot 0:03:59.040 --> 0:04:00.840 of new supply addition to a lot of the M 0:04:00.840 --> 0:04:02.640 and A deals by the way, that are I think 0:04:02.680 --> 0:04:06.280 being funded mostly by debt. Yeah, um, what does that 0:04:06.280 --> 0:04:07.960 then do? What do we expect this week? Well, it's 0:04:08.000 --> 0:04:11.080 been crazy this year. The auctions have gone like crazy good, 0:04:11.240 --> 0:04:12.960 you know, not that I don't want them to go well, 0:04:13.000 --> 0:04:15.800 but like so many in a row, the yield came 0:04:15.840 --> 0:04:18.040 below that where it was trading right before the bidding, 0:04:18.040 --> 0:04:20.159 which is a sign of strong demand. So people are saying, 0:04:21.480 --> 0:04:25.320 maybe not this round. Nine billion, yields aren't as high 0:04:25.400 --> 0:04:28.720 as they were. Um, now we think the Fed maybe 0:04:28.800 --> 0:04:31.080 higher for longer. It's going to be a real litmus 0:04:31.080 --> 0:04:34.160 test of how strong is this demand for treasuries. So 0:04:34.320 --> 0:04:36.160 we'll see, well what does it mean to I mean 0:04:36.200 --> 0:04:40.080 if if you know, bond auctions are going great and 0:04:40.320 --> 0:04:43.200 m and I EM and a activity picks up, and um, 0:04:43.240 --> 0:04:45.720 you know we're adding five thousand jobs a month, or 0:04:45.760 --> 0:04:48.800 even if we're adding two jobs a month, um, and 0:04:48.880 --> 0:04:53.239 inflation is coming down, then the Fed is pretty cool 0:04:53.400 --> 0:04:58.680 on its um you know, wandering path of of devishness. Well, 0:04:58.920 --> 0:05:02.560 but is deva fishness like the market was pricing dovishness cuts? 0:05:03.400 --> 0:05:06.000 You know, should they wander to cuts. There's a lot 0:05:06.040 --> 0:05:08.080 of people who say, like, why does the market price 0:05:08.120 --> 0:05:10.520 that in it's just hopes brings eternal in the equity 0:05:10.560 --> 0:05:12.839 market or in the in the fixed income market. I 0:05:12.839 --> 0:05:14.520 think so, and they have to be leading and to 0:05:14.600 --> 0:05:17.279 be all. To be fair, there's some optionality in that, right, 0:05:17.320 --> 0:05:19.000 if you're a trader, you got a price, let me 0:05:19.040 --> 0:05:21.839 hedge myself. There's some risk of cuts, so that's gonna 0:05:22.000 --> 0:05:25.400 bring the implied rate in the futures down. Um. But 0:05:25.520 --> 0:05:27.440 I think, you know, it's I hate to say, like 0:05:27.520 --> 0:05:30.719 Pavlov's dogs. The market is so you know, trading the pivot. 0:05:30.720 --> 0:05:32.039 We've got to get hitt of the pivot. And they've 0:05:32.040 --> 0:05:34.880 been wrong a lot. Um. Not that the Fed hasn't 0:05:34.880 --> 0:05:37.080 been wrong on many things, to be fair, but I 0:05:37.120 --> 0:05:40.000 think the market it just thinks, like the old playbook, 0:05:40.040 --> 0:05:43.000 the FED has to pivot. But you know, if inflation, 0:05:43.040 --> 0:05:45.240 even if it comes down four percent, is way above 0:05:45.320 --> 0:05:47.880 two percent, you know, and if the growth is going 0:05:47.920 --> 0:05:50.120 okay and we don't have a bad recession, why does 0:05:50.160 --> 0:05:52.640 the Fed have to cut anyway? You know? So I 0:05:52.680 --> 0:05:54.359 don't know. I think we could be sitting here in 0:05:54.400 --> 0:05:57.479 December and saying, good point, Wow, the Fed didn't even 0:05:57.520 --> 0:05:59.640 cut this year at all. They just stuck at five. 0:05:59.720 --> 0:06:02.080 What ever, that would be a new thing as long 0:06:02.120 --> 0:06:05.960 as the economy is humming on all cylinders. Um, if 0:06:06.000 --> 0:06:09.360 inflation is coming down, we're adding jobs, m and a 0:06:09.360 --> 0:06:13.080 activity is good, Um, you know, earnings aren't a drop 0:06:13.120 --> 0:06:16.000 of then they might as well leave it where it 0:06:16.040 --> 0:06:19.280 is until we have a problem. And Pal said on Wednesday, like, 0:06:19.400 --> 0:06:23.719 we see more risk to turning to you know, easy 0:06:23.800 --> 0:06:26.120 policy too soon than going a little bit too far 0:06:26.160 --> 0:06:27.880 because we can always cut later. And I think that 0:06:27.920 --> 0:06:29.839 was a very telling point. You know, they want to 0:06:29.839 --> 0:06:32.960 air on the side of maybe going a little too 0:06:33.000 --> 0:06:37.040 far quote unquote then turning course too fast and having 0:06:37.080 --> 0:06:39.800 to restart. They don't like that stop stark kind of thing. 0:06:39.880 --> 0:06:41.880 But then how do you factor in, say the e 0:06:41.920 --> 0:06:43.919 C B, the b O E. If you're looking at 0:06:44.200 --> 0:06:46.599 what could be some very volatile days ahead for for 0:06:46.600 --> 0:06:49.200 the boon market, specifically in the guilt market, how does 0:06:49.240 --> 0:06:52.000 that translate or at least affect the treasury market. Well, 0:06:52.000 --> 0:06:54.279 it was interesting last week. I thought Laguard did a 0:06:54.360 --> 0:06:56.320 nice job at a press conference. I thought they were 0:06:56.400 --> 0:06:59.200 hawkers that market rally too. So there's a little bit 0:06:59.240 --> 0:07:02.680 of this uber euphoria going on all around. But if 0:07:02.880 --> 0:07:06.200 if she was saying there they intend to raise rates 0:07:06.640 --> 0:07:10.600 fifty right, she was, Yeah, they're not. They're not locking 0:07:10.640 --> 0:07:13.320 in there, you know, right, Well, they they can't write 0:07:13.360 --> 0:07:16.480 a legal contracts were for sure. I'm just saying, like 0:07:16.560 --> 0:07:19.080 you know, across the board, you didn't really hear forcefully 0:07:19.120 --> 0:07:22.160 hawkish language. You heard a lot of optionality, which I'm 0:07:22.200 --> 0:07:25.320 not saying that's the wrong move. I would want optionality too. 0:07:26.400 --> 0:07:30.040 I'm just saying the way the market interprets that is devishness. Well, 0:07:30.080 --> 0:07:32.320 and like you said, the central banks have to kind 0:07:32.360 --> 0:07:35.160 of set the stage, right, even if the stage means 0:07:35.160 --> 0:07:38.040 a couple quarters away, I don't think anyone could argue. 0:07:38.040 --> 0:07:39.800 We were talking to some of my colleagues that bond 0:07:39.840 --> 0:07:41.760 ball has come down a lot. That's a good thing, 0:07:42.120 --> 0:07:44.440 and people are saying, at the least give or take 0:07:44.480 --> 0:07:47.400 two more hikes, three more hikes, what the ECB does, whatever, 0:07:47.600 --> 0:07:50.160 we're getting closer to the end than last year when 0:07:50.200 --> 0:07:52.880 we had this big hill to climb of tightening, right, 0:07:53.000 --> 0:07:55.760 So I think bond ball coming down is telling to 0:07:55.840 --> 0:07:59.280 your point that, yeah, they're getting closer to the end, 0:07:59.600 --> 0:08:02.240 whether of FED just kind of hikes to whatever's terminal 0:08:02.320 --> 0:08:03.920 for them, it just sits there for a year. That's 0:08:03.960 --> 0:08:06.240 also good for all. If we know, hey, FED sent 0:08:06.440 --> 0:08:09.880 still and maybe they cut. I'm not predicting that, but 0:08:10.280 --> 0:08:13.000 we know, like somebody was saying to me the other 0:08:13.080 --> 0:08:16.000 day that last year, every meeting, you're like, is it 0:08:16.040 --> 0:08:19.120 is it fifties at least? All that has kind of 0:08:19.200 --> 0:08:22.680 narrowed down the range of outcomes for the FED, the ECB, 0:08:22.840 --> 0:08:27.600 other central banks, I would say has narrowed. But so um, 0:08:27.640 --> 0:08:30.320 I think last year, late last year Daniel D. Martino 0:08:30.360 --> 0:08:32.679 Booth was telling us she thought Powell was trying to 0:08:32.760 --> 0:08:35.600 kill the FED put and you know, you point out 0:08:35.640 --> 0:08:37.800 that everybody wants to trade the pivot. You know it's 0:08:37.840 --> 0:08:40.160 gonna happen, it's gonna happen, it's gonna happen. It never happens. 0:08:40.559 --> 0:08:44.040 But this isn't killed. He's not putting it to bed 0:08:44.080 --> 0:08:47.079 with that kind of language. None of them really are. Um. 0:08:47.120 --> 0:08:50.040 They're all kind of leaving it open, and that leads 0:08:50.080 --> 0:08:53.360 to looser financial conditions, which could lead to more inflation. 0:08:53.480 --> 0:08:55.880 That's the problem, right, right, And I think you're right, Like, 0:08:56.280 --> 0:08:58.240 no one wants to go against the Chairman of the FED, 0:08:58.280 --> 0:09:01.640 but everyone was kind of like, what way financial conditions 0:09:01.679 --> 0:09:04.079 are tighter than a month ago? What are they looking at? 0:09:04.160 --> 0:09:07.439 So I think, yes, he's right, long run versus last year, 0:09:07.520 --> 0:09:10.280 they're tighter but that you know, some people are saying 0:09:10.320 --> 0:09:12.679 like things are heating up again, the housing markets picking 0:09:12.760 --> 0:09:14.560 up a little bit, like they don't want things to 0:09:14.640 --> 0:09:17.480 heat up again, right, which is inflationary? I mean not 0:09:17.600 --> 0:09:19.640 for nothing. They've brought inflation down a lot, but it's 0:09:19.679 --> 0:09:22.320 still has more to go. And a few people smarter 0:09:22.400 --> 0:09:25.000 than me have said, you know, the hardest nut for 0:09:25.040 --> 0:09:28.800 inflation is the final like few percentage points bringing it down, 0:09:28.840 --> 0:09:31.439 getting it from the uber high to hear, you know, 0:09:31.520 --> 0:09:36.320 took a lot like these last five pounds killing, so true, 0:09:36.480 --> 0:09:40.319 so true, Poor, poor poor Matt on the last five pounds. Uh. 0:09:40.440 --> 0:09:44.480 Liz McCormick, thank you, as always, Chief Markets correspondent, Um. 0:09:44.559 --> 0:09:46.319 She kind of does a little bit of everything, bonds, 0:09:46.400 --> 0:09:49.920 dollar stocks, anything you need, right, Matt. Yeah, and we're 0:09:50.040 --> 0:09:51.680 very happy to have her. Thank you, very She wrote 0:09:51.720 --> 0:09:54.800 the cover story as well with Katie Greifeld on the 0:09:54.880 --> 0:09:57.559 latest edition of Bloomberg Business Week, and what a timely 0:09:57.640 --> 0:10:00.320 cover story that is definitely check out that don't the 0:10:00.360 --> 0:10:05.520 FED addition or we are fighting the FED addition. M 0:10:07.960 --> 0:10:10.000 let's bring in pre a miserable She is managing director 0:10:10.000 --> 0:10:12.079 and global head of Rate Strategy over a T D 0:10:12.280 --> 0:10:16.160 securities Pria. What was your take on the incredible roller 0:10:16.200 --> 0:10:19.000 coaster ride that we had last week after the FED 0:10:19.520 --> 0:10:23.600 um and the non farm payrolls. Sure, thanks for having 0:10:23.600 --> 0:10:26.880 me on, It's been quite the week. Um So I think, 0:10:27.400 --> 0:10:30.440 you know, I think the market is dealing with both 0:10:30.520 --> 0:10:33.040 uncertaintly on the economic outclook, and that's what we saw 0:10:33.120 --> 0:10:35.520 with both payrolls as well as i s M very 0:10:35.559 --> 0:10:38.480 strong numbers. We're not seeing signs of slowdown there at 0:10:38.559 --> 0:10:41.120 least in the labor market or even service demand. Actually 0:10:41.280 --> 0:10:43.800 was more interested in is M services because I think 0:10:43.800 --> 0:10:45.760 that's going to be a leading indicator and so far 0:10:45.920 --> 0:10:48.840 not really seen moderation. But then the other source of 0:10:48.880 --> 0:10:51.720 uncertaintly is the FED, and there was there's a clear 0:10:51.800 --> 0:10:54.760 lack of urgency from chap out from the Fed to 0:10:55.160 --> 0:10:58.319 keep hiking, and he was very noncommittal. I mean, I 0:10:58.360 --> 0:11:00.400 was surprised a little bit with the re action on 0:11:00.440 --> 0:11:02.880 Wednesday because I don't think he was devilish per se, 0:11:02.920 --> 0:11:05.079 but he didn't push back on the using of financial 0:11:05.080 --> 0:11:09.160 conditions that we've seen since December. He was very noncommittal 0:11:09.200 --> 0:11:11.400 on the end point, like where do they end hikes 0:11:11.480 --> 0:11:13.200 and sort of left it to the data, so I 0:11:13.200 --> 0:11:15.480 think it's going to really come down. I know there's 0:11:15.480 --> 0:11:18.760 a lot of focus on tomorrow's comments by Chepower, but 0:11:19.400 --> 0:11:21.920 I think their data dependent and it's very hard for 0:11:21.960 --> 0:11:25.360 the market to get you know, exactly where the end 0:11:25.400 --> 0:11:27.959 point is. We're gonna have to watch the economy and inflation. 0:11:28.280 --> 0:11:30.360 I think there's a lot of optimism that inflation will 0:11:30.440 --> 0:11:33.320 keep declining, and our view is it's going to be sticky, 0:11:33.800 --> 0:11:36.040 and so you'll get a series of twenty five hikes 0:11:36.080 --> 0:11:38.360 as the Fed ends, but they don't end what the 0:11:38.400 --> 0:11:41.360 market was pricing in on Wednesday, just one more high week. 0:11:41.360 --> 0:11:44.720 Expect two more hikes, possibly chance of another twenty five 0:11:44.760 --> 0:11:47.880 in June. If inflation sort of flatlines here and doesn't 0:11:47.960 --> 0:11:51.000 keep declining, let's put some numbers on that. Here, we're 0:11:51.000 --> 0:11:53.199 looking at ten years, Matt pointed out higher about nine 0:11:53.200 --> 0:11:57.000 basis points three sixty one. As the bond market is 0:11:57.040 --> 0:12:00.680 factoring everything you just laid out is kind of being 0:12:00.679 --> 0:12:02.800 a little wishy washy and just kind of sticking into 0:12:02.800 --> 0:12:04.920 this trading range. Why aren't we seeing it break out? 0:12:06.000 --> 0:12:08.240 I think the tenure is really tricky, right, because that's 0:12:08.280 --> 0:12:11.000 your view on fat funds, in a way over the 0:12:11.040 --> 0:12:15.880 next ten years, and so that incorporates a slowdown you know, 0:12:15.960 --> 0:12:19.079 later this year, next year, it incorporates rate cuts at 0:12:19.120 --> 0:12:21.400 some point. I mean, even if we get a soft landing, 0:12:21.760 --> 0:12:23.720 the FED is not going to keep rates at five 0:12:23.800 --> 0:12:25.280 or five in a quarter. They're going to have to 0:12:25.320 --> 0:12:27.760 bring it down. So I think the tenure likely stays 0:12:28.000 --> 0:12:31.720 in a range. Seventy five is the range we're thinking. 0:12:32.200 --> 0:12:34.880 The front end I think can break out. If we 0:12:34.960 --> 0:12:38.960 find that inflation is sticky, UM wages are staying strong, 0:12:39.520 --> 0:12:41.920 then I can see front endry. It's going back to 0:12:42.000 --> 0:12:44.640 the upper bound of the range, maybe even moving higher 0:12:44.679 --> 0:12:47.160 because we realize the FED is not cutting. We have 0:12:47.200 --> 0:12:48.880 a lot of cuts priced in for this year and 0:12:48.960 --> 0:12:52.000 next year. I think they can start to get taken out. 0:12:52.120 --> 0:12:55.040 That terminal rate can go higher than where it is 0:12:55.120 --> 0:12:57.400 right now, like just above five percent. We can get 0:12:57.440 --> 0:12:59.560 to five and a quarter. So the front end can 0:12:59.600 --> 0:13:03.840 absolute selo. The tenure does get tricky because it's a longer. 0:13:04.040 --> 0:13:07.920 It's your view over you know, the next ten years. 0:13:08.160 --> 0:13:09.720 Why do you think the FED is going to have 0:13:09.800 --> 0:13:14.760 to cut If we're adding jobs UM at such a 0:13:14.760 --> 0:13:18.560 fantastic pace and UM we don't see such a huge 0:13:18.640 --> 0:13:21.079 drop in earnings. I think right down right now, we're 0:13:21.080 --> 0:13:24.440 looking at a three percent drop in earnings last quarter. Um, 0:13:24.520 --> 0:13:29.000 what's gonna be the impetus for the cut? Great question. 0:13:29.080 --> 0:13:31.160 So I'm gonna go back to the Fed's dual mandate 0:13:31.440 --> 0:13:34.559 inflation and growth. So our view for rate cuts. We've 0:13:34.559 --> 0:13:36.560 actually got a lot of cuts penciled in for next 0:13:36.640 --> 0:13:39.240 years because we're looking for a recession in the base case, 0:13:39.640 --> 0:13:42.120 and we see inflation I said it's sticky, but by 0:13:42.200 --> 0:13:45.120 next year starting to get within the three two and 0:13:45.120 --> 0:13:47.599 a half percent range. So cutting for both sides of 0:13:47.640 --> 0:13:50.480 the dual mandate. But let's say we get this what 0:13:50.520 --> 0:13:55.079 we're calling immaculate disinflation scenario right where inflation continues to fall, 0:13:55.640 --> 0:13:59.560 soft landing every risk asset to the moon. Even in 0:13:59.600 --> 0:14:02.280 that AIO, I can see the Fed cutting rates, which 0:14:02.320 --> 0:14:04.120 is embedded in their dot plot. Right, They've got a 0:14:04.160 --> 0:14:06.840 hundred basis once next day and the year after. That's 0:14:06.840 --> 0:14:11.240 not for growth reasons, that's for inflation reasons, and because 0:14:11.320 --> 0:14:14.040 the FED wants to get at that point rates away 0:14:14.040 --> 0:14:18.080 from restrictive into let's in neutral territory. So if inflation 0:14:18.120 --> 0:14:20.000 gets back to two and a half by the end 0:14:20.040 --> 0:14:21.960 of the year. I think there's a case for the 0:14:21.960 --> 0:14:24.920 FED starting to cut because FED funds at five or 0:14:24.960 --> 0:14:27.160 five and a quarter is too high. We should be 0:14:27.200 --> 0:14:29.360 closer to two and a half or three percent, So 0:14:29.440 --> 0:14:32.840 that's the reason to cut. The timing the peace would 0:14:32.920 --> 0:14:35.160 depend a lot, whether it's a recession or a soft 0:14:35.240 --> 0:14:38.800 landing scenario. But the rate cuts is just if inflation 0:14:38.840 --> 0:14:41.760 comes back down. Whenever it does, I think the FED 0:14:41.800 --> 0:14:44.920 then starts to signal rate cuts. All right, Prea, thanks 0:14:44.920 --> 0:14:47.880 so much for joining us. Priam Isra. They're managing director 0:14:47.960 --> 0:14:50.880 and global head of rate strategy over TV Securities. We 0:14:51.000 --> 0:14:54.360 love to get her take on the FED and the 0:14:54.400 --> 0:14:57.160 fixed income space, and we hope to have her on 0:14:57.200 --> 0:15:00.440 again very soon and talk to her a little bit longer. Okay, 0:15:02.080 --> 0:15:05.160 let's bring in uh Andrew Merrick right now for Raymond James. 0:15:05.240 --> 0:15:09.120 He's the VP of Equity Research and also has many 0:15:09.240 --> 0:15:12.120 I'm sure thoughts on chickens and eggs and all. Yeah, 0:15:12.200 --> 0:15:14.480 do you also spend so much time trying to understand 0:15:14.520 --> 0:15:17.479 the eggs. Well, it's a real chicken in the eggs situation. 0:15:19.960 --> 0:15:23.720 You're perfect for this, all right, Let's ask about, um, 0:15:24.440 --> 0:15:27.000 what your reaction was to last week, because just I 0:15:27.280 --> 0:15:29.800 spent the whole weekend talking about last week's news with 0:15:29.840 --> 0:15:32.000 people who don't even participate in markets. I mean, it 0:15:32.080 --> 0:15:35.920 was just that dramatic. Um, with the press conference on 0:15:36.320 --> 0:15:39.520 Wednesday and then the job's number on Friday, does it 0:15:39.680 --> 0:15:42.920 change at all your views what we saw? Well? So 0:15:43.040 --> 0:15:46.560 in the gaming sector specifically. I mean, you know, the 0:15:46.600 --> 0:15:49.200 economy and those types of reports are going to have 0:15:49.400 --> 0:15:52.880 some impact, but gaming has proven to be a pretty 0:15:52.960 --> 0:15:57.000 resilient form of entertainment when it comes to economic conditions 0:15:57.000 --> 0:15:59.480 and things like that, because when you're buying a game 0:15:59.600 --> 0:16:02.720 sixty seventy dollars, you get quite a good value in 0:16:02.840 --> 0:16:05.280 terms of the number of hours of entertainment out of that. 0:16:05.440 --> 0:16:08.800 So hell yeah, sometimes I'll be playing like red Dead 0:16:08.840 --> 0:16:12.680 Redemption and realized that nine hours have gone by hundreds 0:16:12.720 --> 0:16:15.000 of hours And that happens a lot, by the way, 0:16:15.200 --> 0:16:18.560 you know, and with call of duty, and uh, well 0:16:18.680 --> 0:16:22.640 I used to be a big Halo guy. Um, just flies, 0:16:22.960 --> 0:16:24.920 do you play cretty? Do you play any games? Don't? 0:16:24.960 --> 0:16:27.160 But I have to say, when, um, what was it 0:16:27.200 --> 0:16:30.600 called red dead redemption? Redemption to red dead redemption to 0:16:30.720 --> 0:16:33.240 his first release. I think it was I want to 0:16:33.240 --> 0:16:35.120 say I was on the video game beat and they 0:16:35.120 --> 0:16:38.560 gave us like an exclusive trial or whatever. It was 0:16:38.600 --> 0:16:40.720 like all these other video game analysts and everyone was 0:16:40.760 --> 0:16:42.840 so excited. It was like a bunch of dudes, and 0:16:42.880 --> 0:16:45.560 I was just like, why am I here? I actually 0:16:45.600 --> 0:16:47.920 asked myself the same question when I'm asking me when 0:16:47.920 --> 0:16:51.640 I'm playing Red Dead Redemption? So, uh, you think Activision, 0:16:51.680 --> 0:16:54.240 Blizzard and what are the other names in the gaming 0:16:54.320 --> 0:16:56.160 industry that you follow? Yeah, the big ones right now 0:16:56.200 --> 0:17:00.560 are Activision, Blizzard, e A and Take two Interactive, And uh, 0:17:00.880 --> 0:17:03.400 you think they're set up for continued games? Yeah, I 0:17:03.440 --> 0:17:06.200 think that. You know, we had seen over the past 0:17:06.240 --> 0:17:08.720 two years since the pandemic, there was kind of a 0:17:08.760 --> 0:17:12.280 moderation in the amount of time that people spend playing. 0:17:12.640 --> 0:17:15.800 So there was a big spike around the pandemic onset 0:17:15.880 --> 0:17:18.480 where people were cooped up found gaming as a nice 0:17:18.560 --> 0:17:21.359 social outlet when you couldn't see people face to face, 0:17:21.840 --> 0:17:24.359 And as things started to reopen and get back to normal, 0:17:24.600 --> 0:17:27.080 people played a little bit less and less. Now I 0:17:27.080 --> 0:17:30.879 think we're entering a more normalized environment for demand, where 0:17:31.080 --> 0:17:33.880 the success of the companies and the stocks are more 0:17:33.880 --> 0:17:36.719 dependent on things like how good are the coming games, 0:17:36.760 --> 0:17:39.399 how good are the current games, rather than things like 0:17:39.480 --> 0:17:43.160 are people playing less those more exogenous factors. What about 0:17:43.240 --> 0:17:46.440 meta I mean, how long until we start spending all 0:17:46.480 --> 0:17:48.920 of our time in the metaverse? Yeah? The the new 0:17:49.000 --> 0:17:51.679 frontier of VR and the metaverse. I mean a lot 0:17:51.720 --> 0:17:54.520 of these games are pretty metaverse already are. Yeah. I 0:17:54.560 --> 0:17:57.399 think that's one thing that the traditional publishers, if you 0:17:57.440 --> 0:17:59.440 want to call them that, the activisions and take twos 0:17:59.440 --> 0:18:02.560 of the world, would say, is that we already integrate 0:18:02.680 --> 0:18:07.000 so many of those digital community focused aspects that the 0:18:07.040 --> 0:18:11.879 metaverse really, um, the metaverse really advertises already in our games. 0:18:11.880 --> 0:18:16.439 Our games are already massively online multiplayer environments that are 0:18:16.480 --> 0:18:19.639 living and breathing. Um. I would say probably the only 0:18:20.280 --> 0:18:23.400 big difference is that you're not wearing an immersive headset 0:18:23.600 --> 0:18:25.960 to play Call of Duty or Grand Theft Auto. At 0:18:26.000 --> 0:18:28.320 this point, I think that there are still probably some 0:18:28.359 --> 0:18:31.720 gains to be made on that virtual reality side. It 0:18:31.760 --> 0:18:34.520 will probably be a little bit more incremental rather than 0:18:34.560 --> 0:18:37.320 big leaps and bounds, um. But I think that that's 0:18:37.359 --> 0:18:39.280 something to keep an eye on, maybe as like a 0:18:39.400 --> 0:18:43.320 five plus year driver for the gaming space. Isn't there 0:18:43.400 --> 0:18:45.560 a story out somewhere that a lot of the games 0:18:45.600 --> 0:18:48.560 from uh I believe it's activision, like Star Wars, for example, 0:18:48.600 --> 0:18:49.920 has been delayed to the tune if I want to 0:18:49.920 --> 0:18:54.000 say six weeks um, what kind of effect does that 0:18:54.080 --> 0:18:57.080 have on the bottom line for life's activision or take 0:18:57.119 --> 0:19:00.280 two or whatever. Yeah, so the Star Wars game the 0:19:00.400 --> 0:19:03.320 e a game um six week delay. When you get 0:19:03.320 --> 0:19:06.120 those smaller delays like that, in terms of the bottom line, 0:19:06.160 --> 0:19:08.520 it can move a quarter, like the Star Wars game 0:19:08.640 --> 0:19:10.800 was moved from the end of one quarter to the 0:19:10.800 --> 0:19:13.840 beginning of another. But in general, in terms of the 0:19:13.880 --> 0:19:16.880 expectations for the lifetime sales of that game, doesn't really 0:19:16.920 --> 0:19:19.200 affect it too much unless you think that the delay 0:19:19.320 --> 0:19:22.160 is a signal of the upcoming quality of the game, 0:19:22.200 --> 0:19:24.840 which we do not. UM. Where you start to get 0:19:24.840 --> 0:19:28.040 into the more um the delays that more effect the 0:19:28.040 --> 0:19:30.680 bottom lines are those ones where the games get pushed 0:19:30.720 --> 0:19:34.720 by a few months or even delayed and definitely because 0:19:34.720 --> 0:19:37.639 the project isn't progressings as they liked. We've seen a 0:19:37.640 --> 0:19:40.280 couple of those over the course of the pandemic, where 0:19:40.680 --> 0:19:43.600 work from home kind of up ended the development cycle. 0:19:43.920 --> 0:19:46.560 But as we've gotten you know, used to work from 0:19:46.600 --> 0:19:49.879 home people back in the office, we're seeing less of 0:19:49.920 --> 0:19:54.399 those major impactful delays that would really hit bottom lines. 0:19:54.760 --> 0:19:59.560 You seem um pretty grounded, uh for someone who has 0:19:59.600 --> 0:20:02.159