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Speaker 1: I will say this is a crazier moment than usual,

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Speaker 1: big surprise in the market, just like it is in

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Speaker 1: the economy. You don't usually have cross currents of this violence.

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Speaker 2: Really from Bloomberg News and iHeartRadio, it's the big take.

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Speaker 2: I'm Westkosova today. Is the economy getting better or worse

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Speaker 2: or a little of both? Economists and Wall Street watchers

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Speaker 2: have been predicting a coming recession for months now, and

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Speaker 2: yet it hasn't happened. Some signals look pretty ominous. Inflation

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Speaker 2: still high. The US Federal Reserve raised interest rates again

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Speaker 2: on Wednesday in its ongoing efforts to cool the economy,

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Speaker 2: and we just saw another financial institution collapse. First Republic

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Speaker 2: Bank has now taken Silicon Valley Bank spot as the

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Speaker 2: second largest US bank failure. Ever, other parts of the

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Speaker 2: economy are looking pretty good. One of the surest signs

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Speaker 2: of a recession is deep, widespread layoffs, and that hasn't happened.

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Speaker 2: The number of open jobs is declining, but there are

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Speaker 2: still more jobs available in the US than workers willing

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Speaker 2: to fill them. So what are we supposed to make

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Speaker 2: of all these contradictory signals. Two of my Bloomberg colleagues

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Speaker 2: have bravely agreed to try to answer that question. Senior

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Speaker 2: executive editor Chris Naji, who you heard at the very

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Speaker 2: top of the show, and economics reporter Reed Pickert. They're

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Speaker 2: here to help make sense of what's going on and

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Speaker 2: where things go from here. Read Can you start just

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Speaker 2: by painting a picture of the economy right now, because

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Speaker 2: it seems pretty confusing.

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Speaker 3: So in a big picture, I think we can describe

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Speaker 3: the economy as one that's still chugging along but is

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Speaker 3: losing momentum, and it helps to look at some of

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Speaker 3: the major building blocks of the economy. So let's start,

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Speaker 3: for instance, with the labor market. Unemployment remains really low,

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Speaker 3: and overall job growth is still quite solid, and we

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Speaker 3: know many businesses in addition to those want to hire

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Speaker 3: but are struggling to fill open positions. A mid low unemployment,

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Speaker 3: but that mismatch between labor demand and the supply of

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Speaker 3: workers has eased. You know, we've seen the pace of

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Speaker 3: hiring moderate, and within that, we've seen hiring become more

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Speaker 3: concentrated to specific industries and pockets of the job market.

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Speaker 3: While job openings still number in the millions, they've declined

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Speaker 3: for three straight months now, and we've also started to

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Speaker 3: see some more layoffs, though so far many have been

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Speaker 3: concentrated in sectors like tech and finance. So that out

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Speaker 3: Friday we'll get the monthly jobs report, which will give

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Speaker 3: us an updated picture of where things stood in April.

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Speaker 3: But you know, over they're all the resilience of the

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Speaker 3: labor market is really key to economic growth because having

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Speaker 3: a job and an income are the most important aspects

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Speaker 3: of kind of support to household spending, and consumers are

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Speaker 3: really that engine of the economy.

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Speaker 2: Chris that consumer spending, despite some other economic indicators that

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Speaker 2: looked a little bit wildly, also help corporate profits, which

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Speaker 2: kept markets relatively high.

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Speaker 1: Really inflation itself could be said to have helped corporate

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Speaker 1: profits to a certain degree. I think that's one of

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Speaker 1: the reasons is such a complicated moment in the sort

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Speaker 1: of the analytical history of the economy, is that a

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Speaker 1: lot of things that people are pretty sure are eventually

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Speaker 1: going to wreak havoc aren't quite yet, certainly at the

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Speaker 1: headline level, certainly at the level of sort of the

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Speaker 1: conventional indicators that we would look at, including the stock market,

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Speaker 1: But because inflation is the sort of ticking time bomb

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Speaker 1: that everyone expects to go off and that the FED

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Speaker 1: has been working so hard to eradicate. It remains sort

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Speaker 1: of the expectation level that eventually this is all going

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Speaker 1: to end up being bad at some level.

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Speaker 4: There's really a shortage of real.

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Speaker 1: Time evidence that it is yet, and I think that's

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Speaker 1: part of what's making this such a hard moment to predict.

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Speaker 1: Really it's at the edges and you know, to some

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Speaker 1: degree or roarsatch test that you could interpret however you wanted.

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Speaker 4: This is another problem sort of second level indicators.

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Speaker 2: Chris, What is a second level indicator?

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Speaker 1: Particularly in this environment of banking stress. There's a panoply

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Speaker 1: of these things, ranging from like loan officers surveys to

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Speaker 1: credit spreads, even in the corporate bond market. It's also

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Speaker 1: true that the headline indicators are sort of famous for

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Speaker 1: not showing anything until it's way too late. So there's

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Speaker 1: good reason that people look at this stuff at the

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Speaker 1: moment it's not like resoundingly negative. But I think people

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Speaker 1: are also aware that the point of these indicators is

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Speaker 1: that they're rarely resoundingly anything, and they're fraying, but not

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Speaker 1: in a unanimous way that everyone can be sure of

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Speaker 1: making some kind of forecast based on them.

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Speaker 2: Chris. Sometimes we hear this expression that the market has

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Speaker 2: priced in certain things. They priced in inflation, they priced

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Speaker 2: in the risk of a recession. What is the market

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Speaker 2: priced in now and what has the market grown to

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Speaker 2: be concerned about?

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Speaker 4: Yeah, another complicated question.

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Speaker 1: One thing I would just say top down and almost

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Speaker 1: set a psych or sank level is when the SMP

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Speaker 1: falls twenty five percent, as it did last year, the

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Speaker 1: main stock benchmark. It's exceptionally rare that what happened last

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Speaker 1: year in the stock market isn't the precursor to a recession.

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Speaker 1: It's kind of an inconvenient timeline because, certainly for journalists

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Speaker 1: and macro analysts as a population, everyone's forgotten about what

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Speaker 1: happened last year, and everyone is aware now that the

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Speaker 1: stock market is looking relatively buoyant at the moment, it

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Speaker 1: remains a lot closer to the lows it hit last

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Speaker 1: year than the highs from before that, so that remains

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Speaker 1: the pricing in of a recession. The other big sort

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Speaker 1: of market signal of the last few months is what

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Speaker 1: happens to the bond market. Posts the initial wave of

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Speaker 1: banking crisis, the SVB collapse. The lurch in bond yields

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Speaker 1: that occurred in the week after that event really was

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Speaker 1: almost like historically level sharp and most straightforward interpretation of

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Speaker 1: that is that was the bond market stopping worrying about

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Speaker 1: inflation and the FED response and becoming convinced that a

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Speaker 1: recession was hence, if not already upon.

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Speaker 3: US markets are definitely pricing in a recession, and a

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Speaker 3: lot of economists are expecting one this year, but it's

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Speaker 3: by no means assured. And I think, you know, when

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Speaker 3: we think about kind of where the economy is going,

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Speaker 3: one place that folks have pointed to is the housing market.

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Speaker 3: So when we think about this kind of overall picture

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Speaker 3: of all of these things happening underneath the surface, the

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Speaker 3: housing market has looked to finally be bottoming. So we've

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Speaker 3: started to see that while mortgage rates are still exceptionally

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Speaker 3: high compared to where they were a couple of years ago,

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Speaker 3: they've come off their highs and you've seen purchases kind

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Speaker 3: of stabilize, and there's this hope that after being this

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Speaker 3: huge drag on the economy for quarter after quarter, that housing,

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Speaker 3: which has typically been a critical driver of kind of

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Speaker 3: the broader business cycle, that the turnaround could actually be

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Speaker 3: helpful for growth. So as we watch other parts of

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Speaker 3: the economy loose steam, whether that's consumers or business investment,

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Speaker 3: that housing might offer this beacon of hope that could

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Speaker 3: help carry us through this year.

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Speaker 2: And how would that happen. How does that translate into

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Speaker 2: something that helps to either ward off a recession or

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Speaker 2: lessen its impact.

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Speaker 3: So the housing market is one of the sectors most

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Speaker 3: vulnerable to rising interest rates because of the relationship between

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Speaker 3: FED policy and mortgage rates. So the ensuing spike in

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Speaker 3: mortgage rates that we saw last year really drove this

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Speaker 3: sharp deterioration in the housing market, where we saw sales drop,

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Speaker 3: construction slump, demand for these homes really slide, and we

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Speaker 3: saw folks stop listing their homes because they wanted to

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Speaker 3: lock in that lower mortgage rate too. Inventory also fell sharply.

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Speaker 3: But now we're starting to see what looks like a

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Speaker 3: bottoming for housing, so some stabilization in sales and in theory.

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Speaker 3: The thought is that an increase in demand for homes

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Speaker 3: would ultimately boost home prices, that would boost building activity

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Speaker 3: and support construction jobs. And for those who already own

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Speaker 3: a home, higher home prices, you know, are then bolstering

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Speaker 3: that key source of wealth for American families. All of

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Speaker 3: that would then hopefully limit the pain to the rest

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Speaker 3: of the economy when the full impact of the Fed's

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Speaker 3: rate hikes and the tighter credit conditions that we've been

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Speaker 3: talking about truly materialize.

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Speaker 1: One interesting thing that hits me when Read's talking Read,

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Speaker 1: I'm interested in do you guys ever hear you occasionally

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Speaker 1: get this thing in markets where they'll talk about normally

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Speaker 1: recessions kind of all occur at once. There's been a

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Speaker 1: kind of new wavy theorizing this year that you're getting

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Speaker 1: this sort of staggered thing going on, and these things

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Speaker 1: that usually kind of line up and all combined into

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Speaker 1: big forcefull slow downs, that you're getting this sort of

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Speaker 1: slow motion thing that may end up not being some

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Speaker 1: giant trauma for everyone, but something that goes on for

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Speaker 1: a while is like each sort of shoe falls.

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Speaker 3: That's absolutely right. We've heard economists call this a rolling recession,

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Speaker 3: and the idea behind it is exactly what you said

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Speaker 3: is kind of each part of the economy takes its

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Speaker 3: turn being the weak one, and that kind of slowly

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Speaker 3: moves along one thing about that to keep in mind

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Speaker 3: is that all recessions are different, and so the recessions

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Speaker 3: that we have at the top of mind right now

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Speaker 3: are a pandemic recession, which was sharp, unprecedented, there's nothing

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Speaker 3: quite like it. And then before that we had the

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Speaker 3: Great Financial Crisis, which also has seared people's memories as

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Speaker 3: one of the worst recessions the United States has ever had.

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Speaker 3: The first half of last year felt terrible for people,

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Speaker 3: and for most people it did feel like a recession.

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Speaker 3: Not many people had lost their jobs at that point,

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Speaker 3: and unemployment was pretty low, and that's because inflation was

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Speaker 3: so high. And so when people looked around, the kind

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Speaker 3: of so called misery index, which is a combination of

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Speaker 3: unemployment and inflation, it was so high because of that

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Speaker 3: inflation component, and people felt poor even though they still

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Speaker 3: had their jobs. But yet that wasn't considered a recession,

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Speaker 3: even though we did see economic activity contract. Then, so

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Speaker 3: when we think about, you know, a potential recession for

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Speaker 3: this year, that there's kind of a several components that

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Speaker 3: you need. You need that element of the economy slowing

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Speaker 3: down paired with historically an increase in unemployment and job

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Speaker 3: losses that are more broad based than what we've currently

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Speaker 3: seen so far, and so from the perspective of whether

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Speaker 3: some kind of town turn, even if it doesn't, you know,

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Speaker 3: qualify as a recession could be painful.

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Speaker 2: It will always be.

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Speaker 3: Painful for people who lose their jobs, and a lot

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Speaker 3: of people have already lost their jobs. But in terms

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Speaker 3: of being an actual recession, you need a ployment to

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Speaker 3: move higher than the historically low level that we.

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Speaker 2: See now, and is that likely it happen. If all

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Speaker 2: of those other things are happening, then there's pressure on

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Speaker 2: companies to find ways to save costs, and labor is

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Speaker 2: the highest cost center for a lot of businesses and

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Speaker 2: that's where they look.

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Speaker 3: That's absolutely right. So we've heard a lot of talk

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Speaker 3: about labor hoarding. So because these businesses have fought so

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Speaker 3: hard to attract and retain these employees, now they've raised

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Speaker 3: their wages quite substantially to try to hold on to

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Speaker 3: them and attract them. The last thing that any of

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Speaker 3: these companies want to do is just cut them loose,

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Speaker 3: because they'll be in the exact same situation. But when

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Speaker 3: your bottom line is threatened and the choice is whether

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Speaker 3: you let go of workers or your company goes under,

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Speaker 3: especially a small business, you make the decisions that you

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Speaker 3: have to make, and that often comes with laying.

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Speaker 2: Folks off after the break. Why so many people are

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Speaker 2: on the lookout for layer Chris. We saw the failure

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Speaker 2: of Silicon Valley Bank earlier in the year, and just

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Speaker 2: this week we had the collapse of First Republic Bank.

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Speaker 2: Exactly how does that fit into this bigger picture of

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Speaker 2: the economy. We thought of Silicon Valley as this kind

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Speaker 2: of one off, an unusual way the bank was operating,

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Speaker 2: But now it's starting to look like it's more than that.

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Speaker 1: I mean, the main fear and the big thing in

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Speaker 1: market and sort of economic forecasting over the last few

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Speaker 1: months is to what degree do these failures pretend a

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Speaker 1: big freezing up in credit? That's the main channel that

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Speaker 1: everyone's worried about that other banks will, you know, look

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Speaker 1: at what went down at the ones who went under

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Speaker 1: and couldn't make it and decide one of the ways

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Speaker 1: they'll prevent themselves from becoming one of them is to

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Speaker 1: cut off the spigot. And that sort of split second

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Speaker 1: and local decision really is the reason that Bonn Yields

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Speaker 1: fell so much in March that everyone just decided at

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Speaker 1: once that there would be a big credit crunch in

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Speaker 1: the US and all of you know, it's not like

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Speaker 1: the economy was doing screamingly well before any of that

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Speaker 1: stuff happened, but the bank failures really convinced a lot

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Speaker 1: of people that the economy was doomed. More ors you

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Speaker 1: said sphoeb was a one off. I mean, I think

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Speaker 1: there's a category of people, including JP Morgan's CEO, Jamie Diamond,

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Speaker 1: who this week is saying he sees the end the

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Speaker 1: of the banking crisis coming. So that's not a baseless claim.

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Speaker 1: The banks that have gone under have been particularly leveraged

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Speaker 1: for the circumstances that have evolved.

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Speaker 4: I think that history is littered.

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Speaker 1: With examples of people deciding that something was idiosyncratic.

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Speaker 4: Though.

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Speaker 1: I think that's the big sort of psychological thing in

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Speaker 1: people's minds right now, is that even though there aren't

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Speaker 1: like obvious, blatant other problem children banks to look at,

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Speaker 1: it's still early. That really is an issue with this

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Speaker 1: kind of forecasting. At this point, it's only about a

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Speaker 1: month and a half since the banking stress unleashed, and

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Speaker 1: I think it's kind of crazy to have expected it

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Speaker 1: to found its full implication and the economy at so again,

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Speaker 1: everyone just sort of stares at their favorite tea leaves

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Speaker 1: and tries to decide if the trend is moving towards

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Speaker 1: something sort of all encompassing.

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Speaker 2: In the end, well, when you look at those indicators,

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Speaker 2: the headline indicators, you say, the really big ones that

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Speaker 2: everyone looks at, and then these secondary indicators, do you

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Speaker 2: think that the banking stress is over?

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Speaker 4: So I'm a market's guy. My big indicators for better

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Speaker 4: or worse would be markets.

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Speaker 1: To a large degree, I feel like the sort of

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Speaker 1: collective unconscious of millions of people synthesizing this stuff on

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Speaker 1: their own tends to cough up a pretty pretty reliable signal.

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Speaker 1: At the moment, you have to say, you look at

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Speaker 1: corporate bond spreads, which is basically the level of credit

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Speaker 1: risk built into yields on corporate bonds. They're hanging tight

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Speaker 1: for whatever is in the stock market. Definitely price the

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Speaker 1: recession in last year, but now it's you know, it

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Speaker 1: basically doesn't move. It takes a great deal to get

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Speaker 1: it to go anywhere. The government bond sort of the

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Speaker 1: risk free lending rate that really caused people to freak

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Speaker 1: out in March has stopped behaving volidly. I look at

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Speaker 1: it all and I find the case that maybe it's believable.

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Speaker 4: Would I kitch my whole wag into it.

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Speaker 1: I think it'd be crazy just to announce that the

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Speaker 1: crisis is over, although I mean, again, Jamie Diamond came

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Speaker 1: very close to doing that.

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Speaker 4: So they are definitely people who who can be led

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Speaker 4: to believe.

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Speaker 1: That the idiosyncraticness of the ones that have gone under

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Speaker 1: will kind of wall the economy off from further shocks.

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Speaker 1: I guess it remains to be seen, but I mean,

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Speaker 1: it's not a crazy argument.

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Speaker 3: Just to add a little bit to what Chris said

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Speaker 3: in terms of thinking about why we care about credit conditions.

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Speaker 3: In order for the economy to expand, businesses really need

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Speaker 3: loans in order to expand their businesses, to open new businesses.

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Speaker 3: New businesses means new hiring, more jobs, and more people employed,

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Speaker 3: and those more people employed have more money to spend

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Speaker 3: in the economy. So that is kind of the chain

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Speaker 3: when we think about what this pullback and credit conditions

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Speaker 3: really means for people.

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Speaker 2: And do you think that there's now pressure on loans

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Speaker 2: as a result of this, that there's greater scrutiny by

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Speaker 2: banks on where that money is being lent.

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Speaker 1: We saw that there was.

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Speaker 3: Some tightening credit conditions prior to svb's failure, but it

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Speaker 3: does appear to be going that direction. I mean, economists

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Speaker 3: certainly think it's going that direction, and tightening credit conditions

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Speaker 3: are an expected. Tightening credit conditions is one of the

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Speaker 3: key elements of most economists who are expecting a forecast expectations.

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Speaker 3: But it'll be interesting when we get the Senior Loan

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Speaker 3: Officer Survey to see kind of what the latest update

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Speaker 3: is there.

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Speaker 2: Okay, Senior Loan Officers Survey tell us about that.

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Speaker 3: It is essentially a survey of all of these different

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Speaker 3: banks across the country, and they talk about their lending practices,

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Speaker 3: whether that relates to commercial loans or consumer loans, residential loans.

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Speaker 3: And it was already starting to show that banks were

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Speaker 3: pulling back a little bit prior to kind of everything

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Speaker 3: that happened in March. But what really matters is if

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Speaker 3: we continue to see that trend moving forward, So see

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Speaker 3: that tightening titan even further, and then the next one

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Speaker 3: titan even further.

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Speaker 2: One thing we saw at First Republic was the kind

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Speaker 2: of lending for the housing market, which you were talking about,

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Speaker 2: usually a good thing, turned out to be a really

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Speaker 2: bad thing because they were lending enormous amounts of money

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Speaker 2: to very, very rich people and that wound up getting

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Speaker 2: them upside down.

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Speaker 1: That's another argument that these are isolated cases. You can

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Speaker 1: make a case for all of the ones that have

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Speaker 1: gone under it. I would say First Republic probably looked

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Speaker 1: more like a normal bank than all of the rest

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Speaker 1: of them. But you're right, it did have a particularly

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Speaker 1: aggress of sort of franchise with people that ironically they

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Speaker 1: felt their credit worthiness was so great that it could

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Speaker 1: skip some of the steps ordinarily prudent banks would undertake.

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Speaker 1: I mean, so again, it becomes if you want to

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Speaker 1: frame an argument that says these are not representative banks

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Speaker 1: and that they're isolated shocks. All of that stuff matters,

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Speaker 1: and that has tended to become a big, you know,

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Speaker 1: part of the bowl case such as it is at

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Speaker 1: the moment.

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Speaker 2: Chris and Reid tell us where they see the economy

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Speaker 2: headed when we come back. So we painted this very

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Speaker 2: broad picture of the economy all looking forward to the

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Speaker 2: question that we keep asking again and again, will there

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Speaker 2: won't there be a recession? What are you looking for

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Speaker 2: now as you look at the economy, as you look

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Speaker 2: at all of these indicators we've been talking.

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Speaker 3: The world that we're living in right now appears to

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Speaker 3: be one where growth is slowing but inflation remains really high,

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Speaker 3: which is, you know, really problematic from a perspective of

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Speaker 3: the economy. And when we think about the Fed's mandate

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Speaker 3: to bring inflation under control, they will get it under control.

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Speaker 3: The question is whether it takes a recession to get

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Speaker 3: there or not. So in terms of what we're looking

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Speaker 3: at right now, it's some of these indicators we've still

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Speaker 3: been talking about. It's consumer spending, it's the jobs market,

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Speaker 3: whether we're starting to see any layoffs there, It's the

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Speaker 3: housing market. It's these inflation numbers to see whether they're

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Speaker 3: you know, really on a downward path. And we've seen

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Speaker 3: some kind of inspirational readings there, but we've also seen

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Speaker 3: some kind of pockets of concern within the inflation data

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Speaker 3: that makes us know that it's not going away anytime soon.

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Speaker 2: And what are those so kind of.

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Speaker 3: Underneath the surface of the inflation problem. So besides the

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Speaker 3: fact that we're basically roughly double where the FED would

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Speaker 3: hope for inflation to be right now.

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Speaker 2: They have a t target of two percent.

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Speaker 3: Two and it's around four percent now. So when you

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Speaker 3: look at the details, it kind of matters in terms

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Speaker 3: of what consumers are spending on, and we've seen consumers

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Speaker 3: have this almost pent up demand for services. And services

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Speaker 3: is also where we're seeing some of the worst labor shortages,

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Speaker 3: and so when we talk to businesses and hear about

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Speaker 3: places that are still struggling to kind of beef up

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Speaker 3: their payrolls. A lot of the areas that you're seeing

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Speaker 3: in in are the service sectors like restaurants and bars

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Speaker 3: or hotels.

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Speaker 2: And those are places that tend to pay less, and

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Speaker 2: in a tight labor market where workers have a choice,

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Speaker 2: they don't want to take those jobs anymore.

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Speaker 3: Absolutely, and FED chair Jerome Powell has said that he's

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Speaker 3: particularly worried about this service sector inflation as a kind

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Speaker 3: of persistent upward pressure on inflation. That these kind of

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Speaker 3: sticky prices, because service prices are largely influenced by the

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Speaker 3: wages that you're paying for workers, because it's a very

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Speaker 3: work intensive industry, that that could help keep inflation for longer.

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Speaker 3: We've seen a little bit of abatement in terms of

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Speaker 3: service prices, services inflation in a report that was out

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Speaker 3: last week. But overall, we're still working with price pressures

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Speaker 3: in that category that are way too high compared to

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Speaker 3: where the FED wants them.

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Speaker 2: And Chris, when you look at markets, I guess the

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Speaker 2: same question. We've started to see a lot of turmoil

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Speaker 2: in the tech industry. Where are other areas that you're

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Speaker 2: looking at as a sign of what's to come.

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Speaker 1: It's interesting because, yes, tech industry has been one of

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Speaker 1: the only places doing any wayoffs the only place that

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Speaker 1: hired enough that it can afford to cut some of

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Speaker 1: its excess. But as far as the stock market's concerned,

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Speaker 1: tech companies have done amazingly well this year. It's one

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Speaker 1: of these sort of massive planet uncertainty situations where these

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Speaker 1: companies are gigantic operators.

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Speaker 4: In the US economy.

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Speaker 1: They really like macro significant things companies like Apple and Microsoft,

400
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Speaker 1: which they insinuate their themselves into the economy.

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Speaker 4: Is crazy.

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Speaker 1: Their stocks doing well is not like an unadulterated vote

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Speaker 1: of confidence in the economy either, though. I mean, on

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Speaker 1: a basic level, yes, they're growth stocks and high valuations,

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Speaker 1: et cetera. But people also know that they're probably the

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Speaker 1: least likely to be affected.

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Speaker 4: By normal economic gyrations.

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Speaker 1: For lack of a better phrase, how well the nasdac's

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Speaker 1: doing right now and kind of shudder a little bit.

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Speaker 4: It's very much shades of early twenty twenty.

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Speaker 1: And if you're looking for kind of a fat problematic

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Speaker 1: signal for the likelihood of a recession, you kind of

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Speaker 1: have to view that as.

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Speaker 4: One of them.

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Speaker 2: And is that because I guess sometimes we talk about

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Speaker 2: the animal spirits in the market, the idea that a

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Speaker 2: market stays high because people want it to stay high,

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Speaker 2: and it crashes when people just all of a sudden say,

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Speaker 2: wait a minute, this thing is priced too high. We

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Speaker 2: no longer believe it. And some of it is really

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Speaker 2: just what people believe about the direction of a market.

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Speaker 1: Yeah, absolutely, that's what makes it a decent tool, sometimes

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Speaker 1: in spite of itself, to tease out its macro message.

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Speaker 1: And right now that's kind of a grim one. I

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Speaker 1: would say generally, again, if I wanted to go look

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Speaker 1: for positive signs in the US doock market, I could

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Speaker 1: find them. I could find them in credit spreads as discussed.

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Speaker 1: I could find them in home builders doing quite.

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Speaker 4: Well right now.

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Speaker 1: Cruise lines are doing amazingly well in Europe, Luxury goods

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Speaker 1: makers are doing well. All of those things are pretty

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Speaker 1: straightforward proxies on consumer spending. And if you wanted to

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Speaker 1: hit your wagons that message, you could just easily do that.

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Speaker 1: I'm acting like a typical markets journalist here and giving

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Speaker 1: nine different accounts of what might happen, but it is

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Speaker 1: sort of what's going on. I will say, this is

437
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Speaker 1: a crazier moment than usual, big surprise in the market,

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Speaker 1: just like it is in the economy, Like you don't

439
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Speaker 1: usually have cross currents of this violence really to assess.

440
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Speaker 1: And I mean that alone is kind of a message,

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Speaker 1: maybe somewhat of a bad portent.

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Speaker 2: So we started this conversation talking about all the different

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Speaker 2: mixed messages the economy is sending us, and looks like

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Speaker 2: we're ending this conversation on the same thing. As you say, Chris,

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Speaker 2: you can find hopeful signs and you can find some

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Speaker 2: pretty pessimistic signs. So let me ask you the unfair question,

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Speaker 2: and I'll start with you read will we have a recession?

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Speaker 2: And when? How bad?

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Speaker 3: In short, we don't know. We simply don't know. And

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Speaker 3: there are a host of economists who certainly think that

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Speaker 3: we will have a recession this year as you kind

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Speaker 3: of pair together the high inflation, high interest rates, pullback

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Speaker 3: in business investment, tightening credit conditions, and kind of all

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Speaker 3: of that works together to lead to some job losses

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Speaker 3: and this contraction and activity. But you also have the

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Speaker 3: other argument where we may not be having any gangbusters growth,

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Speaker 3: that things may just keep trucking along. I mean, if

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Speaker 3: we think back to last year, economists have been expecting

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Speaker 3: a recession for a long while now, and at a

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Speaker 3: certain point, it's kind of like, you know, if you

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Speaker 3: keep on pushing your timeline back and back, business cycles

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Speaker 3: do have to end at some point, So we'll get

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Speaker 3: one eventually. But will it be this year? It's hard

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Speaker 3: to know.

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Speaker 2: Chris, you said that everybody looks at their favorite tea

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Speaker 2: leaves to try to figure out what's going to happen.

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Speaker 2: When you look at yours, what do you use at.

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Speaker 1: The end of the day of twenty five percent decline

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Speaker 1: in the S and P Sorry to be a broken record,

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Speaker 1: but that never happens without a recession. One thing that

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Speaker 1: might be useful to do is just what's the bull

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Speaker 1: case here? What could possibly happens avoid a recession?

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Speaker 4: Happening.

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Speaker 1: One something needs to cause the FED to decide that

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Speaker 1: inflation has been subdued.

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Speaker 4: It's a long way from happening.

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Speaker 1: Yet while it's come down, it remains pesqually high in

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Speaker 1: sort of a seventies ESQ way, and that the FED

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Speaker 1: is going to have to continue its aggressiveness. The argument

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Speaker 1: now would be that the banking crisis does enough, sort

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Speaker 1: of symbolically to cause just enough credit withdraw in the economy,

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Speaker 1: that financial conditions tighten and inflation it's taken care of

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Speaker 1: without a ton more FED interaction, and that that credit

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Speaker 1: withdraw isn't so great that it causes some massive recession.

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Speaker 1: An argument for that would be the companies are not

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Speaker 1: hugely in need of financing right now, big companies. They

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Speaker 1: took out a lot of loans, they sold bonds while

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00:26:17,359 --> 00:26:20,160
Speaker 1: the sun shone in twenty twenty and twenty one, so

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Speaker 1: they're not hugely sensitive to a credit cycle. But still

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Speaker 1: that's a lot that needs to go right at the

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Speaker 1: moment to avoid a recession. Could it happen? Yeah, this

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Speaker 1: is a weird time. The economy is weird. The economy,

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Speaker 1: never mind the pandemic and everything else. The economy is

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Speaker 1: now dominated by a bunch of intellectual property begemis.

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Speaker 4: Think about what you need to get through the day.

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Speaker 1: It's all of the products of basically Microsoft, Apple, Amazon,

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Speaker 1: It's a weird economy, possible recessions don't look like they

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Speaker 1: used to do. But leaving that somewhat fuzzy headed view aside,

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Speaker 1: it just seems like you have to peer so carefully

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Speaker 1: to see the conditions, seeing the whole that Neil can

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Speaker 1: thread at this point that I have to say, you know,

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Speaker 1: sort of odds on in my head. For whatever it's worth,

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Speaker 1: it just seems like a long shot.

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Speaker 2: Chris Read, thanks so much for coming on the show,

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Speaker 2: Thanks for having us, Thanks for listening to us here

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Speaker 2: at The Big Take. It's a daily podcast from Bloomberg

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Speaker 2: Take at Bloomberg dot net. The supervising producer of The

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Speaker 2: tomorrow with another big take.