WEBVTT - Surveillance: Labor Market with Richardson 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 Ferroll 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, SoundCloud, Bloomberg dot 0:00:23.560 --> 0:00:29.760 Com and of course on the Bloomberg terminal. Right now, 0:00:30.400 --> 0:00:33.440 on the economy, on what we saw on Friday and 0:00:33.479 --> 0:00:37.520 the adjustment forward. She is with a DP automatic data processing, 0:00:37.960 --> 0:00:41.519 is with our question most locked into our paychecks of 0:00:41.640 --> 0:00:44.720 any company in the country. She's their chief economist. Nila 0:00:44.840 --> 0:00:49.000 Richardson adds value. Nila, good morning to you, Um Nila, 0:00:49.040 --> 0:00:51.760 I really want to focus in here on what a 0:00:51.960 --> 0:00:55.400 d PC is. Not your proprietary stuff. I don't need 0:00:55.440 --> 0:00:59.960 the state secrets, but with the advantage of your payroll knowledge, 0:01:00.160 --> 0:01:02.720 what did you learn Friday and how does it amend 0:01:02.760 --> 0:01:07.920 your view forward? Well, we we learned that our firms 0:01:07.959 --> 0:01:11.120 are clients over a million clients that are still hiring 0:01:11.240 --> 0:01:15.120 rather aggressively. We also learned that that hiring intensity is 0:01:15.200 --> 0:01:18.240 coming from small and median firms that were blocked out 0:01:18.440 --> 0:01:21.880 through a lot of the hiring in two outmanned by 0:01:21.959 --> 0:01:25.080 larger firms when it came to benefits and wages. And 0:01:25.120 --> 0:01:26.800 then the third thing we learned, and I think this 0:01:26.959 --> 0:01:29.800 is really important when you talk about the next steps 0:01:29.800 --> 0:01:34.160 for the FED, is that wages are moderating. They are um, 0:01:34.200 --> 0:01:38.160 but they're not moderating quickly enough to make even a 0:01:38.160 --> 0:01:41.360 two percent inflation target seemed reasonable. At this point, they're 0:01:41.400 --> 0:01:44.440 still quite high, almost double what they were going into 0:01:44.480 --> 0:01:46.440 the pandemic. So there's still a lot of work to 0:01:46.520 --> 0:01:49.320 do when it comes to wages and getting them down 0:01:49.360 --> 0:01:52.960 to a tolerable UH pace of growth that meets the 0:01:52.960 --> 0:01:56.560 FED target. The economist John Pharaoh is really emphasized the 0:01:56.640 --> 0:02:00.440 I S M numbers on Friday is well, they show 0:02:00.520 --> 0:02:04.520 some soggyess. How does Nila Richardson define a soft landing? 0:02:04.560 --> 0:02:06.960 I have trouble with that phrase. But if we don't 0:02:07.000 --> 0:02:09.640 like the phrase soft landing, where are we going with 0:02:09.720 --> 0:02:14.120 that optimistic outcome? Well, to me, a soft landing as 0:02:14.160 --> 0:02:16.040 a landing you can walk away from. And I think 0:02:16.040 --> 0:02:18.680 the economy is strong enough right now at least it 0:02:18.720 --> 0:02:21.480 looks like that it'll do. So we pretty much got 0:02:21.480 --> 0:02:24.680 a Goldilocks report on the six um And I'm gonna 0:02:24.720 --> 0:02:26.880 say more about that in a second. But we got 0:02:26.880 --> 0:02:29.720 a report where you still saw a strong jobs growth 0:02:30.000 --> 0:02:33.360 and moderating wage growth. That's like the perfect scenario for 0:02:33.400 --> 0:02:36.440 a soft landing. The question is will that trend continue? 0:02:36.720 --> 0:02:38.960 And I think what people get wrong about the current 0:02:39.000 --> 0:02:40.880 state of the labor market is that all of this 0:02:41.000 --> 0:02:43.760 is cyclical, that it can be controlled by a slightly 0:02:43.800 --> 0:02:46.079 higher interest rate. Much of what we're seeing in the 0:02:46.160 --> 0:02:49.520 labor market right now is structural, and if you look 0:02:49.520 --> 0:02:52.040 at the hard data, you'll see that employment growth over 0:02:52.080 --> 0:02:55.640 the next decade is expected to be half of what 0:02:55.720 --> 0:02:59.240 it was the previous decade. That means labor shortages are persistent, 0:02:59.520 --> 0:03:02.560 and this vector of higher wages, especially in the service sector, 0:03:02.760 --> 0:03:04.640 will be with us for some time to come. So, 0:03:04.639 --> 0:03:06.600 in other words, Nila, if I were going to sort 0:03:06.639 --> 0:03:08.560 of put a bow on that, are you basically saying 0:03:08.560 --> 0:03:10.680 that hope of a soft landing based on the print 0:03:10.680 --> 0:03:15.720 that we got on Friday is perhaps more wish than reality. 0:03:16.639 --> 0:03:19.400 I'm saying that the doors still open, actually, but that 0:03:19.440 --> 0:03:22.880 door swings both ways. Uh. We still have a robust 0:03:22.919 --> 0:03:26.040 labor market three and a half percent unemployment rate. I mean, 0:03:26.120 --> 0:03:28.959 there's no getting around that. That's a strong labor market, 0:03:29.200 --> 0:03:33.359 and we're seeing initial jobless claims barely above two hundred thousand. 0:03:33.680 --> 0:03:37.000 That's a really strong labor market. However, that's a labor 0:03:37.040 --> 0:03:41.080 market that's also at risk of higher wage pressure at 0:03:41.120 --> 0:03:43.880 every turn. So this idea that the Fed can just 0:03:43.920 --> 0:03:46.760 get to this terminal rate and then pivot to me 0:03:46.960 --> 0:03:50.320 that door is closed. Uh, where I expect to see 0:03:50.400 --> 0:03:53.680 federal funds rates higher for longer, for some time to come, 0:03:54.000 --> 0:03:57.160 because the labor shortages aspect of the labor market isn't 0:03:57.160 --> 0:03:59.640 going away. Well, people to point to the services im 0:03:59.680 --> 0:04:01.839 which you mention that was weaker than expected, that came 0:04:01.840 --> 0:04:05.000 in with contractionary territory, and then areas like the housing 0:04:05.040 --> 0:04:08.560 market that have seen incredible destruction in terms of how 0:04:08.640 --> 0:04:11.560 much prices have come down, perhaps not that significant, but 0:04:11.640 --> 0:04:14.760 certainly the volume of sales. How much more is there 0:04:14.800 --> 0:04:16.720 to go in some of the industries that have been 0:04:16.800 --> 0:04:21.280 first hit by some of the tightening FED funds rate. Well, 0:04:21.360 --> 0:04:23.440 let me point out that the housing The issue with 0:04:23.520 --> 0:04:26.400 housing is more structural than it is cyclical. It's not 0:04:26.480 --> 0:04:29.960 just higher mortgage rates. People have bought housing a much 0:04:30.040 --> 0:04:32.360 higher mortgage rates than what we're seeing now it's about 0:04:32.400 --> 0:04:35.080 the monthly payment. What we're seeing in housing is just 0:04:35.200 --> 0:04:38.039 the lack of inventory and that had set a supply 0:04:38.160 --> 0:04:41.560 issue that has been an issue for over a decade, 0:04:41.760 --> 0:04:44.359 and that supply issue is likely to get worse with 0:04:44.440 --> 0:04:47.960 higher interest rates. So that's something that is structural the 0:04:49.000 --> 0:04:51.960 But to get that to your question, Um, we can't 0:04:51.960 --> 0:04:55.760 expect the labor market to behave in a uniform way. 0:04:56.080 --> 0:04:59.640 This is a very fragmented market, and so you're seeing 0:04:59.680 --> 0:05:04.039 interes straight sensitive sectors like manufacturing start to slow. We've 0:05:04.080 --> 0:05:09.080 seen that firms that overhired last year, like information technology, 0:05:09.480 --> 0:05:12.680 they're starting to pause and slow. But at the same time, 0:05:12.720 --> 0:05:15.800 when one door closes, another door opens. You see that 0:05:15.880 --> 0:05:18.320 in the Jolts data there's still a lot of job 0:05:18.360 --> 0:05:21.400 openings and there are firms waiting in line to scoop 0:05:21.480 --> 0:05:24.159 up that headcount right now in this very tight labor market. 0:05:24.440 --> 0:05:26.960 Well that's where I wanted to go. Look, I mean, 0:05:26.960 --> 0:05:29.440 I don't know if you've got any interior knowledge on this, Nila, 0:05:29.520 --> 0:05:31.680 but let's go there with all the bias. You have 0:05:31.720 --> 0:05:35.360 an excellence with a DP. There's this tech hemorrhage going 0:05:35.400 --> 0:05:41.960 on right now. Do those people find jobs. It's too 0:05:42.000 --> 0:05:45.120 soon to tell how quickly they find jobs, and I 0:05:45.120 --> 0:05:48.279 think that underlies your question how quickly they find jobs. 0:05:48.360 --> 0:05:50.520 We don't expect them to be part of the long 0:05:50.640 --> 0:05:53.840 term unemployed of six months or more that you see 0:05:53.880 --> 0:05:58.160 in other parts of their segments of the population. But 0:05:58.480 --> 0:06:02.000 it's how quickly they are observed. And my feeling and 0:06:02.520 --> 0:06:06.880 is that those skills are readily observed absorbed, not necessarily 0:06:06.880 --> 0:06:10.840 in tech, but in other sectors of the economy that 0:06:11.000 --> 0:06:15.520 benefit from advanced tech and data skills and software development. 0:06:15.800 --> 0:06:19.719 Some of these UH technologies that were really important during 0:06:19.720 --> 0:06:23.720 the pandemic have now gone mainstream, and companies are more 0:06:23.880 --> 0:06:27.200 likely to need tech tilent in the future than less, 0:06:27.480 --> 0:06:31.520 so I expect that these numbers will be quickly absorbed. 0:06:31.520 --> 0:06:34.880 Though it's highly disruptive for people in the short term. 0:06:36.040 --> 0:06:38.520 This is really really important, And Lisa, would you agree 0:06:38.560 --> 0:06:41.760 with me? This is in the zeitgeist that that there's 0:06:41.800 --> 0:06:44.600 a lot of carnage going on in technology, But I'm sorry, 0:06:44.720 --> 0:06:47.919 there's an American job economy out there. Maybe maybe on 0:06:47.960 --> 0:06:50.279 a on a stock basis or the hopes of a 0:06:50.360 --> 0:06:53.640 tech stock boom, you don't make the same compensation but 0:06:53.720 --> 0:06:55.880 it's not like they're going out into a nothingness, which 0:06:55.920 --> 0:06:57.839 is the reason why we haven't necessarily seen it in 0:06:57.920 --> 0:07:00.320 some of those numbers. Nila, this really racist a question, 0:07:00.360 --> 0:07:02.880 at what point do we start to see the destruction 0:07:03.000 --> 0:07:05.520 in the numbers that we're seeing in certain industries. Are 0:07:05.520 --> 0:07:07.560 we ever going to see it? Could we see a 0:07:07.640 --> 0:07:11.120 recession without necessarily an unemployment rate that picks up all 0:07:11.160 --> 0:07:14.840 that much? If we daily said it will be the 0:07:14.920 --> 0:07:18.200 weirdest recession in US history. I mean, I start from 0:07:18.240 --> 0:07:22.160 first principles, the jobless claims numbers. Those numbers are super low, 0:07:22.360 --> 0:07:25.520 and then I add the unemployment rate fifty year low, 0:07:26.080 --> 0:07:28.960 and then I see the best hiring. And yes, there 0:07:29.000 --> 0:07:31.320 could be some softness next year, and we could see 0:07:31.360 --> 0:07:34.160 weaker hiring next year. But the fact that firms are 0:07:34.200 --> 0:07:38.640 still hiring when all expectation is that the economy is slowing, 0:07:39.040 --> 0:07:44.640 slowing significantly from last year and definitely from that means 0:07:44.880 --> 0:07:48.160 makes the hiring even more remarkable. It tells me that 0:07:48.200 --> 0:07:52.000 what we're seeing is impervious to interest rate hikes, that 0:07:52.040 --> 0:07:55.320 there's something more going on, and that companies still need 0:07:55.360 --> 0:07:58.360 to hire and find qualified talent. So Nila, just to 0:07:58.400 --> 0:08:00.120 sort of wrap this all up. You said that you 0:08:00.160 --> 0:08:02.760 think that this ultimately will push the FED to raise 0:08:02.880 --> 0:08:05.440 rates to a higher level for longer and keep it 0:08:05.480 --> 0:08:08.000 there for longer than people currently are expecting. Can you 0:08:08.040 --> 0:08:10.840 give us some parameters of what you're expecting and when 0:08:10.880 --> 0:08:13.080 it will be felt by an economy that still has 0:08:13.120 --> 0:08:18.559 been resilient. Yeah. I don't know if the FEDS path 0:08:18.680 --> 0:08:21.480 is through the labor market. I know the narrative is 0:08:21.520 --> 0:08:24.000 that if we can cripple the labor market, we can 0:08:24.040 --> 0:08:27.320 slow down hiring, we can spike up the unemployment rate, 0:08:27.640 --> 0:08:31.000 and that we can crush wage pressures. That's going to 0:08:31.200 --> 0:08:35.000 lead to lower inflation. I'm not sure that's the path anymore. 0:08:35.640 --> 0:08:37.920 I think what we need actually is to see more 0:08:37.960 --> 0:08:41.240 people into the labor market, and unfortunately, what that means 0:08:41.280 --> 0:08:43.400 from for the FED is that it's not just a 0:08:43.440 --> 0:08:48.400 monetary response response, it's a fiscal response. So jobs retraining 0:08:48.440 --> 0:08:52.240 response is to get people into those interviews, response which 0:08:52.320 --> 0:08:56.280 needs more federal and local support, not just monetary support. 0:08:56.520 --> 0:08:58.600 So the idea that the FED can do this alone 0:08:58.640 --> 0:09:01.600 and fix the labor market, bring down inflation, and get 0:09:01.640 --> 0:09:04.880 people back into the labor market is I think is 0:09:04.920 --> 0:09:08.720 a little idealistic, so the Fed can only stay in 0:09:08.720 --> 0:09:11.439 its lane. I would expect to see a federal funds 0:09:11.520 --> 0:09:13.839 rate over five per cent, and I would expect them 0:09:13.880 --> 0:09:15.640 to hold there for a quite a bit of time. 0:09:15.720 --> 0:09:19.000 That means through Nila, thank you so much. A breath 0:09:19.040 --> 0:09:33.000 from Neila Richardson of ADP. Joining US now is Laurie Canvasina. 0:09:33.120 --> 0:09:36.080 How do US ancurity strategy? Obviously capital markets? Laurie, let's 0:09:36.080 --> 0:09:38.760 start there. Well, Lisa finished the bank earnings this week. 0:09:38.960 --> 0:09:40.720 What are you looking for from the likes of JP 0:09:40.840 --> 0:09:43.080 Morgan and others to get a broader rate on what's 0:09:43.080 --> 0:09:46.880 happening here? Well, I always love hearing the comment from 0:09:46.920 --> 0:09:50.199 the banks about what's going on in terms of consumer deposits. Um. 0:09:50.200 --> 0:09:52.360 We also like hearing, you know a lot about what's 0:09:52.400 --> 0:09:55.280 going on with our corporate clients. So that's really you know, Frankly, 0:09:55.320 --> 0:09:57.200 I care a little bit less about the actual bank 0:09:57.280 --> 0:09:59.400 earnings and I care more about those macro tidmets that 0:09:59.440 --> 0:10:01.160 we're gonna get. But I have to tell you, John, 0:10:01.200 --> 0:10:03.240 I pulled up this morning just looking at my Bloomberg 0:10:03.240 --> 0:10:06.800 about the sector performance over the past month. Financials have 0:10:06.840 --> 0:10:08.680 actually done pretty well in a relative basis, And I 0:10:08.760 --> 0:10:12.000 never liked that set up when financials have outperformed heading 0:10:12.040 --> 0:10:15.320 into recording season, because there's usually not that great at 0:10:15.360 --> 0:10:17.199 a set up. But we'll see what happens on Friday. 0:10:17.880 --> 0:10:20.760 Or I'm fascinated by the interviews we have away from 0:10:20.840 --> 0:10:24.160 your expertise talking about bi quality, which means Apple and 0:10:24.240 --> 0:10:28.560 three other stocks. Are there qualities small caps? I mean, 0:10:29.000 --> 0:10:31.760 if if somebody says in a big cap area, I 0:10:31.800 --> 0:10:35.320 want quality, can Laurie Kelvisina say that in mid caps 0:10:35.320 --> 0:10:39.800 and small caps you can. It's on a relative basis, 0:10:39.880 --> 0:10:42.520 and you don't necessarily, you know, have the ability to 0:10:42.559 --> 0:10:44.400 come in and make the argument to say your top 0:10:44.480 --> 0:10:47.120 quality small cap is better than you know, kind of 0:10:47.160 --> 0:10:50.439 your top quality of large caps. But within the small 0:10:50.480 --> 0:10:53.200 cap space, you to generally tend to find that stocks 0:10:53.240 --> 0:10:55.880 with better r o e s positive earnings tend to 0:10:55.920 --> 0:10:59.040 outperform over time. You really kind of have two different 0:10:59.080 --> 0:11:01.000 worlds within the small hap index. Is you have the 0:11:01.040 --> 0:11:04.679 teeny tiny microcaps that have no liquidity, nobody trades, that 0:11:04.760 --> 0:11:07.040 nobody pays attention to them, and they have that kind 0:11:07.040 --> 0:11:10.439 of upper echelon that does have some pretty good quality. Now, 0:11:10.440 --> 0:11:12.960 those typically get to be pretty crowded by small cap 0:11:13.040 --> 0:11:15.600 managers and typically get to be pretty expensive. But one 0:11:15.640 --> 0:11:17.520 of the reasons I love small caps right now is 0:11:17.559 --> 0:11:21.120 that upper echelon of market cap is actually pretty reasonably valued, 0:11:21.120 --> 0:11:23.160 and we don't get an opportunity to buy those high 0:11:23.240 --> 0:11:25.720 quality small caps like this all that often. Loria, How 0:11:25.760 --> 0:11:27.960 concerned were you though, by the I S m print 0:11:27.960 --> 0:11:31.000 that we got on Friday, the services components supposedly the 0:11:31.040 --> 0:11:36.439 strongest one coming in in contraction. Look what, whether or 0:11:36.480 --> 0:11:38.960 not this is a recession, something close to it, that's 0:11:38.960 --> 0:11:40.840 something that kind of smells like it but isn't quite 0:11:40.880 --> 0:11:42.920 this one. Whatever it is, we need to go ahead 0:11:42.960 --> 0:11:44.320 and get it done, and we need to go ahead 0:11:44.360 --> 0:11:46.760 and get it started. From an equity market perspective, and 0:11:46.800 --> 0:11:49.439 obviously there's a human cost to that, and we're we're 0:11:49.480 --> 0:11:52.880 not being disrespectful of that. But from a market pricing perspective, 0:11:53.280 --> 0:11:56.480 markets typically actually do well in negative GDP years and 0:11:56.520 --> 0:11:59.720 don't do well and sluggish GDP years, And that's historically 0:11:59.720 --> 0:12:02.360 because markets really can't handle that. Will we won't will 0:12:02.400 --> 0:12:04.040 we won't we They just want to know. They just 0:12:04.080 --> 0:12:05.600 want to rip off the band aid and get back 0:12:05.640 --> 0:12:08.800 to business. I think that certain parts of the equity market, 0:12:08.920 --> 0:12:12.160 like small caps, have been pricing in a plunge in 0:12:12.280 --> 0:12:16.560 I s M manufacturing for quite some time. The services side, though, 0:12:16.640 --> 0:12:19.000 is really what's been kind of feeding, uh, you know, 0:12:19.080 --> 0:12:21.560 kind of the the inflationary fears, and so I do 0:12:21.600 --> 0:12:24.400 think we needed to see some damage there really to 0:12:24.480 --> 0:12:27.040 kind of get this inflation narrative under control once and 0:12:27.040 --> 0:12:28.960 for all. So we talk about what's priced in, right, 0:12:28.960 --> 0:12:30.840 That's been a sort of one of the big question 0:12:30.880 --> 0:12:33.360 marks for a lot of the analyst reports we've been reading. 0:12:33.559 --> 0:12:37.199 And you took a look at how tech consumer discretionary 0:12:37.280 --> 0:12:42.240 communication services stocks accounted for of the decline last year 0:12:42.240 --> 0:12:45.760 on the SMP. But tech is still overvalued by some measures. 0:12:45.760 --> 0:12:48.360 So at what point how much more damage is necessary 0:12:48.559 --> 0:12:52.360 in that sector to become appealing to you. So I 0:12:52.400 --> 0:12:54.400 think that tech is an area if we do get 0:12:54.400 --> 0:12:56.920 another ballot of market volatility in the first order, and 0:12:56.920 --> 0:12:58.640 I do think that we're probably going to see that 0:12:58.679 --> 0:13:01.520 once reporting seasons set send. I do think that tech 0:13:01.600 --> 0:13:03.079 is going to have a problem because I do think 0:13:03.080 --> 0:13:05.520 that that's where some of the earnings expectations do still 0:13:05.559 --> 0:13:08.559 need to be pulled down um and typically we really 0:13:08.600 --> 0:13:10.640 want to buy tech as a recovery story, so we 0:13:10.679 --> 0:13:12.800 need to put that market bottom in before we can 0:13:12.840 --> 0:13:14.400 really get to a point where you want to buy 0:13:14.480 --> 0:13:17.160 the tech sector. But the we go back to this 0:13:17.280 --> 0:13:19.480 quality issue, Lisa, because if I take a look at 0:13:19.520 --> 0:13:21.800 all the SMP five hundred sectors and rank them in 0:13:21.880 --> 0:13:25.800 terms of quality, that classic tech sector, software, semi hardware, 0:13:25.840 --> 0:13:28.960 that component that really ranks is the highest quality part 0:13:28.960 --> 0:13:31.600 of the SMP five hundred. So you might not necessarily 0:13:31.600 --> 0:13:34.800 get super cheap valuations before investors will move back in. 0:13:35.080 --> 0:13:37.440 We do probably need to get better valuations, or at 0:13:37.520 --> 0:13:40.520 least more certainty around valuations than what you've got right now, 0:13:40.520 --> 0:13:43.600 before you'll really see sustainable buyers come back. We're spent 0:13:43.679 --> 0:13:48.240 the weekend trying to calibrate the gloom in economics. We're 0:13:48.240 --> 0:13:51.880 seeing a lot of gloom. Are you seeing an investment 0:13:52.000 --> 0:13:55.120 and it's linkage over to finance? Are you seeing a 0:13:55.120 --> 0:14:00.079 lot of gloom from OURBC Capital clients? We do. I 0:14:00.120 --> 0:14:02.920 mean I spent a lot of time in December overseas 0:14:02.960 --> 0:14:05.920 talking to non US based investors, and I would say 0:14:05.920 --> 0:14:07.880 what was surprising to me, Tom, is that the sense 0:14:07.920 --> 0:14:10.200 of bloom was probably not as dire as I would 0:14:10.200 --> 0:14:13.120 have expected, and not quite as dire as what I 0:14:13.160 --> 0:14:16.440 would have seen just from talking to US based investors. 0:14:16.679 --> 0:14:19.480 Still pretty low, UM, but I got the sense that 0:14:19.920 --> 0:14:22.280 talking to non US based investors, they were starting to 0:14:22.320 --> 0:14:24.720 sense opportunities out of the US, and so they were 0:14:24.720 --> 0:14:28.120 still concerned generally that the US was overvalued. But I 0:14:28.160 --> 0:14:31.080 was hearing actually sort of a benign discussion coming out 0:14:31.080 --> 0:14:34.480 of European based clients in particular, UM, And that was 0:14:34.560 --> 0:14:37.320 something that surprised me. It felt like maybe we had 0:14:37.360 --> 0:14:40.240 in certain corners of this market really saw that gloom 0:14:40.640 --> 0:14:43.000 start to receive just a little bit, and that is 0:14:43.040 --> 0:14:44.640 something you do tend to want to look for at 0:14:44.680 --> 0:14:47.120 market bottoms. You can fill this hope count for twenty 0:14:47.160 --> 0:14:48.440 three that this is the year that you get that 0:14:48.480 --> 0:14:56.000 international performance. Tom before that, I know, Laurie, thank you. 0:14:56.120 --> 0:15:03.320 Just fantastic. Laurie Cavastin of MBC Capital Markets, Let's just 0:15:03.320 --> 0:15:06.440 gotta writes holistic notes pulling in the economics into the 0:15:06.480 --> 0:15:09.320 fixed income space as well, and his recent note John, 0:15:09.400 --> 0:15:13.080 I mean, it's just extraordinary in its nuance, not only 0:15:13.120 --> 0:15:16.800 in the United States, but also the Transatlantic dynamics as well, 0:15:16.840 --> 0:15:19.920 people lining up to buy fixed income. That's the heart 0:15:19.960 --> 0:15:22.960 of the matter. That's the heart of the he joins 0:15:23.000 --> 0:15:25.560 us Sell, Michael Schumacher's global head of macro strategy at 0:15:25.600 --> 0:15:30.480 Wells Fargo, with exceptionally acute notes. Mike, your acute note 0:15:30.560 --> 0:15:33.480 says higher yields. Are we all gonna die if we 0:15:33.560 --> 0:15:39.000 have higher yields? I hope not, at least not quickly anyway, Tom, 0:15:39.000 --> 0:15:41.520 and it's it's interesting when you think about the move 0:15:41.560 --> 0:15:44.000 on Friday. I agree it was huge, but still the 0:15:44.040 --> 0:15:47.000 bond market has been so choppy, so volwerful now for 0:15:47.000 --> 0:15:49.200 early the past six months. I wouldn't take too much 0:15:49.240 --> 0:15:51.840 on a one day's move. A lot of events coming up, 0:15:51.880 --> 0:15:54.600 a lot of progress and inflation. Sure, but it's not 0:15:54.720 --> 0:15:57.160 yet time to signal. Hey, it's all clear for bonds. 0:15:57.200 --> 0:15:59.360 If we sum it all up into the Bloomberg Total 0:15:59.400 --> 0:16:03.320 Return index known over the years at Lehman Brothers and such, 0:16:03.520 --> 0:16:06.240 the answer is down ginormous with a little bit of 0:16:06.240 --> 0:16:10.240 a bounce. If you call for higher yields. Does the 0:16:10.320 --> 0:16:17.240 blended total return index seek new loads in price? It 0:16:17.280 --> 0:16:18.960 depends where you look on the curve time. So if 0:16:18.960 --> 0:16:20.840 you focus on the front end, you probably still get 0:16:20.880 --> 0:16:23.360 positive returns. Let's say the two year treasury. You've got 0:16:23.400 --> 0:16:25.480 such a high yield baked in that if you alter 0:16:25.640 --> 0:16:28.480 to go up twenty five or fifty basis points, yes 0:16:28.520 --> 0:16:30.360 it matters, but it's not going to knock out that 0:16:30.440 --> 0:16:34.040 four plus coupon in the tenure area. Very different story, 0:16:34.120 --> 0:16:36.240 a little bit of an uptick, long duration, and you're 0:16:36.240 --> 0:16:38.520 looking at negative returns. How much are you going to 0:16:38.600 --> 0:16:41.880 expect the market to move to a higher expectation of 0:16:41.880 --> 0:16:44.400 a terminal FED funds rate in a very violent manner 0:16:44.560 --> 0:16:46.560 as they start to realize that the Fed is serious 0:16:46.560 --> 0:16:51.120 about what they're saying. It's gonna take a while, I think, Lisa. 0:16:51.120 --> 0:16:53.240 And the problem is the Fed's credibility, frankly, is not 0:16:53.320 --> 0:16:55.280 very good if you look back a year. So go 0:16:55.360 --> 0:16:58.080 back to December of one, take a look at the 0:16:58.200 --> 0:16:59.960 terminal dot or take a look at the FED fund 0:17:00.000 --> 0:17:01.920 and stot for twenty two. At that point it was 0:17:02.040 --> 0:17:05.120 less than one percent. That didn't work out at all. 0:17:05.400 --> 0:17:08.120 So I think the market listens to Chair Powell. So yeah, 0:17:08.119 --> 0:17:10.199 it sounds pretty serious. He's been talking to off for 0:17:10.240 --> 0:17:13.040 four or five months. But let's see how this pans out. 0:17:13.119 --> 0:17:15.240 Let's see if the Fed hikes in February. Let's see 0:17:15.280 --> 0:17:17.440 if the Fed hikes in March. The market's going to 0:17:17.520 --> 0:17:20.280 give the Fed not much credit, frankly, because the forecasts 0:17:20.320 --> 0:17:22.520 have been so poor. Mike, I gotta ask you, because 0:17:22.520 --> 0:17:24.639 we've been talking about this and kind of questioning how 0:17:24.680 --> 0:17:26.919 much we have to care about this. Not to shift 0:17:27.040 --> 0:17:29.440 zones outside of A. J. Powell, but we've been talking 0:17:29.480 --> 0:17:31.960 about the debt ceiling debate and at what point this 0:17:32.000 --> 0:17:34.399 bond market will care about the potential for a default 0:17:34.480 --> 0:17:37.359 at two thousand and eleven. What's your expectation? Is it 0:17:37.359 --> 0:17:42.399 on your radar. We're more concerned than we would normally 0:17:42.440 --> 0:17:45.720 be this far out, simply because of all the pandemonium 0:17:45.720 --> 0:17:48.480 in Washington over the last week. But the markets seen 0:17:48.520 --> 0:17:51.000 this movie a bunch of times. So typically people in 0:17:51.040 --> 0:17:54.600 the market don't care about the debt ceiling until three 0:17:54.720 --> 0:17:58.320 maybe four weeks before the extraordinary measures appear to be exhausted, 0:17:58.760 --> 0:18:01.080 and then they care a lot. So cared none, none, none, 0:18:01.080 --> 0:18:03.480 a bunch and then you see market shift. Equities do 0:18:03.600 --> 0:18:06.320 strange things, T bill yield spike, that kind of stuff. 0:18:06.359 --> 0:18:09.480 But we're not there yet. I think it takes a while. Mike. Yeah. 0:18:09.560 --> 0:18:11.320 I look at the total Return Index and I know 0:18:11.359 --> 0:18:13.800 that guys like you are dealing in spread and relative 0:18:14.560 --> 0:18:18.679 yield analysis. Deborah Cunningham was on last week Confederated and 0:18:18.720 --> 0:18:21.879 she stopped the show where their caution on, it's going 0:18:21.920 --> 0:18:24.400 to be a clip a coup on year and prices 0:18:24.440 --> 0:18:28.080 are gonna go down if we breach last year's carnage 0:18:28.080 --> 0:18:31.080 in the total return indexs we go back to a 0:18:31.200 --> 0:18:36.480 price of two thousand and sixteen. Is that feasible that 0:18:36.560 --> 0:18:40.840 we could see a second year of price trauma in bonds? 0:18:43.560 --> 0:18:46.320 Last year was incredible, tom So thinking about the moves 0:18:46.320 --> 0:18:49.760 in the market relative to where the year began blowing 0:18:49.800 --> 0:18:53.560 away forwards, I think that's very tough to imagine, not 0:18:53.640 --> 0:18:56.639 impossible because things have been so strange. But think about 0:18:56.720 --> 0:18:59.200 let's say monetary policy for the e c B or 0:18:59.240 --> 0:19:02.200 the Fed. What's the upper bound we'd put on maybe 0:19:02.240 --> 0:19:05.200 Fed activity this year six percent something like that. So 0:19:05.520 --> 0:19:08.360 that's much less movement this year than we had last year. 0:19:08.400 --> 0:19:10.320 For the e c B. Maybe it goes a hundred, 0:19:10.320 --> 0:19:13.720 a hundred and fifty. Big moves, yes, but again not 0:19:13.800 --> 0:19:16.080 really shocking the market as we had a year ago, 0:19:16.200 --> 0:19:18.920 so I think the idea or at least hopefully the 0:19:19.280 --> 0:19:22.240 chance of being repeating something like last year in the 0:19:22.240 --> 0:19:24.760 bond market's pretty small. So you think that this year 0:19:24.960 --> 0:19:27.879 bonds will offer an offset to the potential risk in 0:19:28.400 --> 0:19:31.280 higher risk assets in the case of some sort of downturn. 0:19:33.160 --> 0:19:35.040 I think it's a really interesting point least. And you 0:19:35.080 --> 0:19:38.920 think about these correlations between bonds and equities. For let's 0:19:38.920 --> 0:19:41.000 say most of the last ten years, you have this 0:19:41.080 --> 0:19:43.720 case where equities that sell off bonds and rallies the 0:19:43.800 --> 0:19:46.199 bonds would provide that ballast to last year. And more 0:19:46.280 --> 0:19:49.160 recently it's been oh, yields are down, this is good 0:19:49.200 --> 0:19:52.000 for stocks, and we had this on Friday too, So 0:19:52.040 --> 0:19:54.640 we don't have that correlation normalizing quite yet. I think 0:19:54.640 --> 0:19:57.040 it will, but it's probably gonna take another quarter or two. 0:19:57.119 --> 0:19:59.040 Is my guests and Mike quite to catch up. As 0:19:59.080 --> 0:20:01.160 always interesting was out there at the moment, might show 0:20:01.240 --> 0:20:14.040 MCADA last fog. Right now, we are going to go 0:20:14.080 --> 0:20:18.560 to the deepest part of what we do in equities, bonds, currencies, commodities. 0:20:18.680 --> 0:20:21.439 Always it is a foreign exchange market, and we do 0:20:21.480 --> 0:20:25.200 it with Rubble Bank with their immense heritage of being 0:20:25.200 --> 0:20:29.119 on the other side of speculation making commercial transactions. Go 0:20:29.520 --> 0:20:33.040 Jane Folly holds court at Rubble Bank. Jane, wonderful to 0:20:33.080 --> 0:20:35.800 have you here and timely as well. Buried in your 0:20:35.840 --> 0:20:40.360 note at the bottom is dollar bulls do not give up? 0:20:40.760 --> 0:20:44.000 Why should the dollar bulls not give up? As we 0:20:44.080 --> 0:20:48.199 see weaker dollar moving into a trend? Well, you know, 0:20:48.280 --> 0:20:49.800 I think if there ever was a year of a 0:20:49.960 --> 0:20:51.960 two handed economists, I think this is going to be 0:20:52.040 --> 0:20:55.280 the year. There are so many different permutations, accommodations, I 0:20:55.320 --> 0:20:57.439 think hitting the market, so many different ways you can 0:20:57.560 --> 0:21:02.000 argue the issues that are at and I think particularly positioning. Now, 0:21:02.280 --> 0:21:05.760 I think we've got to look at the events before 0:21:05.800 --> 0:21:08.320 us through the prism of positioning. And what we've had 0:21:08.720 --> 0:21:11.120 in the last few months of the year into this 0:21:11.200 --> 0:21:13.600