WEBVTT - Surveillance: Inflation with Sen. Rounds (Podcast) 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 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.920 and of course on the Bloomberg terminal. Let's move on 0:00:30.040 --> 0:00:32.000 right now. And we are guilty of this, and I 0:00:32.040 --> 0:00:35.479 am incredibly guilty of this. We look at well, the 0:00:35.600 --> 0:00:38.400 joke of me going below fifty ninth Street, or the 0:00:38.479 --> 0:00:41.120 idea that most of our audiences in three zip codes 0:00:41.159 --> 0:00:44.040 and a couple in London as well, and we forget 0:00:44.080 --> 0:00:47.000 about the open plains. Mike Rounds knows where the Missouri 0:00:47.159 --> 0:00:50.159 River is. He knows it. Getting from Pierre, not Pierre, 0:00:50.520 --> 0:00:53.840 but Pierre, South Dakota over to the Target store up 0:00:53.840 --> 0:00:57.600 by twenty nine north the Sioux Falls is actually something 0:00:57.640 --> 0:01:01.800 difficult to do. Evermore so five dollars a gallon gasoline. 0:01:02.120 --> 0:01:05.440 The senator from South Dakota, their former governor, joins us 0:01:05.600 --> 0:01:08.679 this morning, I want you to give me a visceral picture, 0:01:08.760 --> 0:01:12.320 real estate guy, of the emotion and Pier and the 0:01:12.319 --> 0:01:16.360 emotion at that target store Northsoux Falls. What's going on 0:01:16.800 --> 0:01:20.479 out there away from the fancy people like Global Wall Street. 0:01:21.720 --> 0:01:24.760 I know you like dollars and cents. The average South 0:01:24.840 --> 0:01:28.280 Dakota family right now is paying over six d and 0:01:28.319 --> 0:01:31.720 four dollars more per month in living expenses and what 0:01:31.800 --> 0:01:36.400 they were in January of that's seven thousand dollars plus 0:01:36.480 --> 0:01:39.600 per year more. And wages aren't going up that fast. 0:01:40.040 --> 0:01:42.560 When you start talking about that in places like South Dakota, 0:01:42.640 --> 0:01:45.040 the pain is real. And it's the same thing across 0:01:45.080 --> 0:01:47.920 the entire country. And the worst part about this whole 0:01:47.920 --> 0:01:51.320 thing is is this is policy induced. When you start 0:01:51.400 --> 0:01:54.880 driving up the price of fuels, diesel, natural gas and 0:01:54.920 --> 0:01:59.279 so forth by policy determination. Uh, and you start limiting 0:01:59.280 --> 0:02:01.440 the amounts of some applies that are being produced, and 0:02:01.480 --> 0:02:04.480 you recognize that that you're doing it, and you do 0:02:04.520 --> 0:02:08.240 it anyway, then it's a policy induced movement. We can 0:02:08.240 --> 0:02:10.120 do a lot to change that right now in the 0:02:10.200 --> 0:02:12.680 United States, and it's got to come back down to 0:02:12.720 --> 0:02:16.200 an administration recognizing that. Uh. You know, look, I know 0:02:16.240 --> 0:02:18.640 they're fighting climate change, but the bottom line is you've 0:02:18.639 --> 0:02:20.320 got to have a strong economy to do a good 0:02:20.400 --> 0:02:23.400 job on that. And they are hurting this economy with 0:02:23.480 --> 0:02:25.919 their policies, and people in South Dakota field that and 0:02:25.919 --> 0:02:28.680 they're not happy about it. Sent it around. Gerald Ford 0:02:28.760 --> 0:02:32.800 of the Republican Grand Rapids Michigan Persuasion years ago said 0:02:32.840 --> 0:02:36.720 he was gonna whip inflation. Now, what is the Republican 0:02:36.840 --> 0:02:42.960 prescription day one to stop this inflation? There are three 0:02:43.000 --> 0:02:45.440 parts of the policy. One is demand you can do 0:02:45.480 --> 0:02:48.200 that through action of the Federal Reserve. But it's because 0:02:48.240 --> 0:02:50.560 we put a huge amount of cash into the economy earlier. 0:02:51.080 --> 0:02:53.200 Uh and that was a president that was a Biden 0:02:53.240 --> 0:02:56.040 decision and he did it without the assistance of Republicans 0:02:56.320 --> 0:02:59.280 in January of last year. At number two, you have 0:02:59.480 --> 0:03:02.160 to read us the cost of energy, and that means 0:03:02.160 --> 0:03:05.520 you produce more energy all of the above, whether it 0:03:05.560 --> 0:03:08.880 be nuclear, whether it be more pumping, it means more 0:03:09.040 --> 0:03:11.760 leases being released. And then allowing them to get that 0:03:11.880 --> 0:03:16.079 that that crude oil out of the ground with additional 0:03:16.160 --> 0:03:18.960 licenses and then allow them to be able to actually 0:03:19.000 --> 0:03:22.120 move that to the marketplace with pipelines. That would be 0:03:22.160 --> 0:03:25.160 an immediate thing. And finally, you have to address the 0:03:25.160 --> 0:03:27.320 workforce issues right now. And I know that this isn't 0:03:27.320 --> 0:03:29.480 a popular thing to talk about, but we have to 0:03:29.520 --> 0:03:33.120 have legal immigration reform. We need visas, we need H 0:03:33.160 --> 0:03:36.320 two B visas, we need H two A visas right now, 0:03:36.880 --> 0:03:39.720 and we've got legislation in place right now that we're 0:03:39.720 --> 0:03:43.000 recommending that would do that. All of those would help 0:03:43.040 --> 0:03:46.440 to reduce inflation in this country and the effects would 0:03:46.440 --> 0:03:49.720 be immediate. Well, just a senator, just to push back 0:03:49.720 --> 0:03:53.520 a little bit. You're talking about the issues with certain 0:03:53.600 --> 0:03:56.160 policy prescriptions that led to the inflation. But a lot 0:03:56.200 --> 0:03:58.680 of this, a lot of economists say, is driven by 0:03:58.760 --> 0:04:01.280 some of the supply disruption is whether it's in China 0:04:01.400 --> 0:04:04.480 or particularly the war in Ukraine. How much do you 0:04:04.520 --> 0:04:07.840 see as inflation staying high as a results certain national 0:04:07.880 --> 0:04:12.800 security decisions being made that you've supported. Yeah, First of all, 0:04:12.840 --> 0:04:16.400 I think the actual inflationary trends with regard to the 0:04:16.400 --> 0:04:18.640 supply chains and so forth, a lot of that has 0:04:18.680 --> 0:04:21.960 to do with the cost of transportation of those items. Now, 0:04:22.040 --> 0:04:24.720 can you have supply disruptions, We had it. We had 0:04:24.720 --> 0:04:27.719 it during the previous administration, but you did not see 0:04:27.760 --> 0:04:31.960 that driving up inflation. You saw inflation begin almost immediately 0:04:32.000 --> 0:04:35.000 upon the recognition that we were going to have increases 0:04:35.040 --> 0:04:37.800 in the cost of energy within this country, and they 0:04:37.800 --> 0:04:41.400 were going to be increased by policy determination. Once again, 0:04:41.839 --> 0:04:44.599 if you take back and you look at the actual 0:04:44.640 --> 0:04:47.440 costs of energy and the impact of that has on 0:04:47.600 --> 0:04:51.599 all types of pricing for services and for products, it's 0:04:51.600 --> 0:04:54.680 a no brainer that you can begin to reduce inflation 0:04:54.760 --> 0:04:58.039 if you address the cost of energy. It's in all 0:04:58.240 --> 0:05:01.400 those products aside from just the energy issue. Though, I'm wondering, Senator, 0:05:01.440 --> 0:05:04.760 would you agree with potentially relaxing certain tariffs in China 0:05:05.120 --> 0:05:09.600 or perhaps changing certain stances in order to reduce inflation domestically, 0:05:09.680 --> 0:05:12.680 even if on a national security level it was viewed 0:05:13.120 --> 0:05:16.760 to be prudent to keep certain things in place. I 0:05:16.760 --> 0:05:19.080 think that there there is always the possibility of looking 0:05:19.080 --> 0:05:23.480 at modifying policy with regard to needed items. But remember 0:05:23.600 --> 0:05:25.880 there's a reason why we put those in place in 0:05:25.920 --> 0:05:27.760 the first place, and that was to try to develop 0:05:27.960 --> 0:05:31.000 domestic production. But if you can't do it domestically and 0:05:31.000 --> 0:05:33.240 you've tried it, then to look at other alternatives with 0:05:33.279 --> 0:05:36.040 other countries. It's not that we want to produce everything 0:05:36.080 --> 0:05:38.680 in the United States. We'd love to have good trading partners, 0:05:39.040 --> 0:05:41.160 but we also have to recognize it. Simply going back 0:05:41.200 --> 0:05:43.320 to China does not get into the long term scheme. 0:05:43.760 --> 0:05:45.640 And as long as they're going to try to continue 0:05:45.640 --> 0:05:48.120 to steal the i P in this country, we've got 0:05:48.120 --> 0:05:52.320 to continue to to recognize the need for enforcement of 0:05:52.400 --> 0:05:55.520 trade deals and the limitation of trade with China whenever 0:05:55.600 --> 0:05:58.480 possible until they come around and recognize that they can't 0:05:58.520 --> 0:06:02.000 be stealing the i P, the copyrights and so forth. 0:06:02.040 --> 0:06:04.800 So yeah, look, I I'd be very stingy about going 0:06:04.839 --> 0:06:07.200 back on what we've already done with China. I try 0:06:07.240 --> 0:06:10.120 to develop some of those products, those product lines with 0:06:10.160 --> 0:06:12.680 our other allies and other people that literally want to 0:06:12.720 --> 0:06:15.040 do business with us under the rule of law. Senator, 0:06:15.200 --> 0:06:17.200 thanks for your time today. We appreciate it, Senator. My 0:06:17.320 --> 0:06:20.040 grants there on the story at d C and Worldwide. 0:06:24.080 --> 0:06:26.760 Love Hano joins US now Global Chief Investment Officer of 0:06:26.760 --> 0:06:30.120 State Street Global Advices. Laurie, you've got that big cash position. 0:06:30.160 --> 0:06:31.760 You can talk to us about how big that is. 0:06:32.240 --> 0:06:35.560 What do you want you for to deploy it? Well, 0:06:35.560 --> 0:06:37.800 first of all, there's a lot of uncertainty out there, 0:06:37.839 --> 0:06:40.040 So I would say the biggest theme around our portfolios 0:06:40.120 --> 0:06:42.760 right now is less about the directional trade and much 0:06:42.760 --> 0:06:45.240 more about the relative value. So we've been trading around 0:06:45.279 --> 0:06:48.760 different markets, deploying capital into the US, which we thought 0:06:48.880 --> 0:06:50.920 was still a bit of a safe haven relative to 0:06:50.960 --> 0:06:54.880 other regions, but also looking at places like commodities, looking 0:06:54.960 --> 0:06:57.320 like at places like gold and as you say, holding 0:06:57.400 --> 0:07:00.599 a bit of a five percent cash position right now, Laura, 0:07:00.640 --> 0:07:03.200 you are the perfect one to talk about right now. 0:07:03.240 --> 0:07:06.640 And folks, this is the esteem Shairman of Bloomberg Peter T. 0:07:06.839 --> 0:07:10.679 Grower telling me in times of stress you see transactions 0:07:10.720 --> 0:07:14.760 and combinations calls is flat on their back. They have 0:07:14.880 --> 0:07:18.200 just announced within all the troubles of calls over decades, 0:07:18.760 --> 0:07:23.080 board thoroughly testing standalone strategic plan. Are we going to 0:07:23.200 --> 0:07:27.920 see one big roll up, Laurie of American Financing corporations 0:07:27.920 --> 0:07:32.920 out of these risks and challenges, Well, every situation is. 0:07:32.920 --> 0:07:35.240 It is socratic. And one of the things that striking 0:07:35.280 --> 0:07:38.200 about the recent announcements on the consumer side is that 0:07:38.240 --> 0:07:40.520 we've known for a while that consumers were likely to 0:07:40.560 --> 0:07:44.240 move from more goods oriented purchases to more service oriented purchases. 0:07:44.600 --> 0:07:46.440 And while we certainly have had some of the news 0:07:46.440 --> 0:07:49.880 out on on some of those retail uh franchises. The 0:07:49.920 --> 0:07:52.360 other side of it is you've got airlines and other 0:07:52.360 --> 0:07:55.560 service providers that are actually saying very good demanded actually 0:07:55.560 --> 0:07:58.640 having the chrising power. So there's it's not just a 0:07:58.680 --> 0:08:00.120 one size so it's all there's gonna be a out 0:08:00.120 --> 0:08:03.400 of idiosyncratic behavior and companies that can think about what 0:08:03.600 --> 0:08:06.200 their exposures are and how to hedge those and where 0:08:06.200 --> 0:08:09.120 they do have pricing flexibility or power, those are the 0:08:09.160 --> 0:08:12.239 ones that are going to survive. I can't emphasize Lisa enough. 0:08:12.560 --> 0:08:16.480 They need here to see one size is wrong. Target 0:08:16.680 --> 0:08:22.320 four fifty thousand employees Calls thirty five thousand, and yet 0:08:22.400 --> 0:08:25.880 people like to compare the two are completely different into 0:08:26.040 --> 0:08:30.080 in a ten year total return, Target gets it. Calls 0:08:30.120 --> 0:08:32.880 has been a disaster, right, And we can talk more 0:08:32.920 --> 0:08:35.120 about the two distinct stories, but they're responding to the 0:08:35.160 --> 0:08:38.360 same macroeconomic backdrop. And Lorie, when you take a look 0:08:38.640 --> 0:08:42.000 at this multifascinated backdrop that is not just one narrative, 0:08:42.320 --> 0:08:45.440 what gives you conviction that, frankly, the market is right 0:08:45.480 --> 0:08:47.760 that the FED is going to blink well before it 0:08:47.840 --> 0:08:50.319 raises rates to restrictive territory, which seems to be the 0:08:50.400 --> 0:08:54.679 zeitgeist right now in markets. Well, the big contectrum is 0:08:54.760 --> 0:08:56.600 we've talked about, and I've heard you talking about this 0:08:56.640 --> 0:08:58.839 morning as well, is that on the one hand, we 0:08:58.960 --> 0:09:01.200 still have inflation with we could argue whether we've hit 0:09:01.240 --> 0:09:03.440 peak inflation or not, but the numbers are still quite 0:09:03.440 --> 0:09:06.400 eye popping. We all know that eventually that wears itself 0:09:06.440 --> 0:09:08.840 out because the comps here over you get harder and harder. 0:09:09.080 --> 0:09:11.199 But that's happening at the same time that growth in 0:09:11.240 --> 0:09:14.360 the from a macro standpoint is slowing. And so this 0:09:14.480 --> 0:09:17.040 delicate balancing act is what the Fed's got to navigate, 0:09:17.080 --> 0:09:19.640 what all central bankers have to navigate, and everybody is 0:09:19.640 --> 0:09:21.040 afraid that they're going to get it wrong, and the 0:09:21.160 --> 0:09:24.080 chances are that they will get it wrong. We actually 0:09:24.160 --> 0:09:26.360 are a little bit more dubbish in terms of what 0:09:26.400 --> 0:09:28.280 we think the Fed's going to do, and if they 0:09:28.320 --> 0:09:30.160 move in the summer and then actually do take a 0:09:30.200 --> 0:09:31.880 bit of a pause, then there's a chance that we 0:09:31.960 --> 0:09:34.559 get out of this without a recession. Laurie, thank you 0:09:34.640 --> 0:09:37.080 for your perspective. As always. Lori Hano, the of State 0:09:37.080 --> 0:09:45.760 Street Global Advices, this is an example of what you're 0:09:45.800 --> 0:09:49.480 seeing on the street he maintains outperform on target, but 0:09:49.720 --> 0:09:53.640 lowers the price target big time from a three oh 0:09:53.640 --> 0:09:57.760 five down to two. Those are the microadjustments being made. 0:09:58.120 --> 0:10:02.319 Patrick Palfrey is cohead of Quantitative Research and senior equity 0:10:02.400 --> 0:10:06.280 strategistic Credit Squeeze and is looking at the macro adjustments. 0:10:06.320 --> 0:10:10.320 How are you using the micro changes of your cell 0:10:10.440 --> 0:10:15.440 side research team, Patrick, this morning, Well, when we talk 0:10:15.559 --> 0:10:18.040 with our analysts and we go through the transcripts and 0:10:18.080 --> 0:10:21.000 we look at where earnings estimates are moving, everything on 0:10:21.040 --> 0:10:26.320 the fundamental front seems very much intact. Estimates continue to 0:10:26.440 --> 0:10:30.160 rise their certain sectors communications in particularly what you're seeing pressure, 0:10:30.480 --> 0:10:34.719 but generally speaking, estimates are holding up quite well, including revenues. 0:10:35.240 --> 0:10:37.960 Margins a little bit less weaker, but but still enough 0:10:38.000 --> 0:10:40.400 to propride the earning sport in a meaningful way. Were 0:10:40.800 --> 0:10:43.200 this is important, folks, because Credit Squeeze hit the ball out. 0:10:43.240 --> 0:10:45.400 So we hit the ball out of the park eighteen 0:10:45.400 --> 0:10:49.280 months ago with a wonderful Barbell strategy of bullishness. Patrick, 0:10:49.320 --> 0:10:52.520 if you've got a constructive view like that, are we 0:10:52.679 --> 0:10:56.520 over focusing on margins and not looking at a pretty 0:10:56.559 --> 0:11:00.319 good or good revenue lift based on nominal g d P. 0:11:02.160 --> 0:11:04.840 We'll talk it. I think you're absolutely right. Companies live 0:11:04.880 --> 0:11:07.880 in a nominal world. I know, as as economist, individuals 0:11:07.920 --> 0:11:09.800 like to talk about real activity and they're like the 0:11:09.840 --> 0:11:12.680 piece out inflation. But companies, for the most part don't 0:11:12.679 --> 0:11:16.360 really matter. They are oftentimes in most cases able to 0:11:16.400 --> 0:11:18.839 pass that on and we're seeing that come through with 0:11:18.960 --> 0:11:21.800 revenues UH this year expecting to be plus tempers that 0:11:21.800 --> 0:11:25.320 that's an incredibly strong number. So with revenues that strong, 0:11:25.440 --> 0:11:28.439 there's an ability to give up very incremental margin to 0:11:28.520 --> 0:11:31.120 see the range pictures still be up eighth to nine percent, 0:11:31.400 --> 0:11:34.320 and that is spectacular for this point in the cycle. 0:11:34.600 --> 0:11:36.840 What are you counting on in terms of rates to 0:11:36.960 --> 0:11:39.880 get you to that level in equities based in the 0:11:39.920 --> 0:11:41.600 fact that not only do you have, yes, you've got 0:11:41.640 --> 0:11:45.559 denominal growth, but you also have a revaluation based on 0:11:45.640 --> 0:11:48.640 higher inflation and frankly based on a FED willing to 0:11:48.679 --> 0:11:52.960 raise rates much beyond what people had imagined a year ago. Well, 0:11:53.000 --> 0:11:55.200 it's it's it's a great question. And I think really 0:11:55.280 --> 0:11:58.240 what people are trying to understand there's a lot of 0:11:58.240 --> 0:12:01.520 pieces moving around here in our focus is really here 0:12:01.520 --> 0:12:04.920 on valuation that's really where the biggest distortions were. At 0:12:04.960 --> 0:12:06.600 the beginning of the year, we started with the twenty 0:12:06.600 --> 0:12:09.719 one point five multiple. We're down to a sixteen point five. 0:12:09.760 --> 0:12:12.679 That's roughly in line with long term averages. But more importantly, 0:12:12.720 --> 0:12:15.960 expensive companies were extremely expensive, and that's where all the 0:12:16.000 --> 0:12:19.120 pain has been. You see that in secular growth themes, 0:12:19.160 --> 0:12:22.160 you see that in technology and communications. When you look 0:12:22.240 --> 0:12:25.520 outside of those groups, valuations look a lot more reasonable 0:12:25.520 --> 0:12:29.280 if the pain looks a lot less meaningful in those groups. 0:12:29.480 --> 0:12:33.360 This has been a valuation rerating because of higher interest rates, 0:12:33.360 --> 0:12:35.880 and that's a meaningful part of the discussion, which sounds 0:12:35.960 --> 0:12:38.120 all very logical, and it's easy to then come on 0:12:38.200 --> 0:12:40.080 and say, look, if I like those stocks before they've 0:12:40.120 --> 0:12:42.640 been on sale, let's buy them. But it doesn't count 0:12:42.679 --> 0:12:46.200 for the behavior of investors who see their statements and say, 0:12:46.280 --> 0:12:48.160 holy cow, we've got to get rid of this. We've 0:12:48.160 --> 0:12:50.760 got to actually start selling. We haven't seen those kinds 0:12:50.760 --> 0:12:53.480 of mass sales. How much of an over suits the 0:12:53.520 --> 0:12:55.600 downside could we see before we get to what you 0:12:55.679 --> 0:12:59.079 expect to be a rally. Well, I think we're pretty 0:12:59.160 --> 0:13:02.400 much getting close to that bottom now, Like like we 0:13:02.520 --> 0:13:06.240 piloted earlier in the show. Right now is really where 0:13:06.240 --> 0:13:09.679 the SMP is down historically, and and bear bear markets, 0:13:09.720 --> 0:13:11.800 we see it down a little bit more. But that 0:13:11.800 --> 0:13:14.960 tends to be recessionary. Right now, we have an incredibly 0:13:15.120 --> 0:13:19.200 strong economic outlook. Certainly inflation is a concern and I 0:13:19.280 --> 0:13:22.480 agree with that. But right now, nominally GPS expect to 0:13:22.520 --> 0:13:25.839 be nine percent this year with real gene being three percent. 0:13:25.960 --> 0:13:29.680 That doesn't feel reflection, That doesn't feel recessionary to me. 0:13:30.080 --> 0:13:32.720 This is really important folks that are hearing here, this 0:13:32.880 --> 0:13:36.200 nominal versus real argument. Patrick. Let's say we've got a 0:13:36.240 --> 0:13:39.160 nominal glide path. I'm going to call it a harmonic 0:13:39.240 --> 0:13:41.840 You go from nine percent as you stayed, to four 0:13:41.880 --> 0:13:43.880 and a half percent. Maybe we get down to two 0:13:43.880 --> 0:13:46.960 and a quarter percent at some point japan like. But 0:13:47.120 --> 0:13:52.200 within that time frame, corporations adjust and they adjust use 0:13:52.360 --> 0:13:56.400 of cash. What are you, as optimists feel use of 0:13:56.480 --> 0:14:01.120 cash will be starting now into this summer, and then 0:14:01.160 --> 0:14:07.439 there's a budget outlook the corporation's frame for two thousand three. Well, 0:14:08.000 --> 0:14:11.240 you know, companies are always very rational. What's how they 0:14:11.280 --> 0:14:15.640 deploy their capital? Right now, we've seen shifts towards the dividends, 0:14:15.640 --> 0:14:17.920 we've seen increasingly shifts towards five backs. We've also seen 0:14:17.960 --> 0:14:20.400 a shift towards capex. I think all three of those 0:14:20.440 --> 0:14:22.760 areas are going to continue to see growth. We're seeing 0:14:22.880 --> 0:14:26.560 areas like dividends and like in capex get rewarded a 0:14:26.640 --> 0:14:30.080 lot more than five backs. So companies shifting that way 0:14:30.120 --> 0:14:33.400 are going to likely see better returns than perhaps going 0:14:33.480 --> 0:14:36.840 directly towards five backs. But there's ample capital on many 0:14:36.880 --> 0:14:39.880 of these companies, particularly large cap companies, given how strong 0:14:39.960 --> 0:14:42.920 for capitalism, were expected to continue to use that well. 0:14:43.040 --> 0:14:45.080 A router way to ask Tom's question is they could 0:14:45.080 --> 0:14:47.200 start to lay off people in order to save costs 0:14:47.200 --> 0:14:50.000 in order to increase their margins, especially as you get 0:14:50.000 --> 0:14:53.840 the likes of Amazon and Walmart talking about how basically 0:14:54.240 --> 0:14:57.000 they have too many people paid too much. Based on 0:14:57.040 --> 0:15:01.600 the shift in appetite by consumers, I think as long 0:15:01.640 --> 0:15:04.160 as the demand is their companies are staffing to meet 0:15:04.200 --> 0:15:06.840 the level of demand. They're not staffing to meet stock 0:15:06.880 --> 0:15:10.000 market gyration. So yes, the markets down, and I think 0:15:10.000 --> 0:15:13.120 investors are assuming that's going to impact company's decisions. But 0:15:13.160 --> 0:15:14.840 a company doesn't say I'm not going to need your 0:15:14.920 --> 0:15:17.920 order because my stock is up. They say, no, you 0:15:17.960 --> 0:15:20.280 want an order, I'm going to supply you with that order. 0:15:20.720 --> 0:15:24.760 Depending on how much demand declines from here, that's ultimately 0:15:24.920 --> 0:15:27.640 to depend on how much tapping they need. Right now, 0:15:27.640 --> 0:15:30.760 the GDP backdrop still remains quite wherebust. Labor market remains 0:15:30.800 --> 0:15:35.200 incredibly tight. Does that weaken incrementally, perhaps, But I don't 0:15:35.200 --> 0:15:38.160 see that as being a huge catalyst in the story here. Actually, 0:15:38.160 --> 0:15:40.440 just to jump in because I think this is really important. 0:15:40.840 --> 0:15:43.240 I know that companies don't face what they need to 0:15:43.240 --> 0:15:45.320 supply the company with face on what's handing in the 0:15:45.320 --> 0:15:46.840 equity market. But I would say some of the C 0:15:46.960 --> 0:15:49.840 suite right now they are worse calling their own company 0:15:49.840 --> 0:15:51.840 than some people are on this show calling this market. 0:15:52.200 --> 0:15:54.840 And that's been the problem. These companies have set them 0:15:54.840 --> 0:15:57.160 sunds up for the demand of last year, and it's 0:15:57.200 --> 0:15:59.640 not there anymore. We saw that with Target, we saw 0:15:59.680 --> 0:16:02.280 that with Amount was sort with Amazon. Patrick, We've got 0:16:02.360 --> 0:16:05.760 some stuff to work through here, don't you agree? I 0:16:06.080 --> 0:16:07.920 do think we agree, And I think there's areas of 0:16:07.960 --> 0:16:11.160 market that are particularly under pressure. Discrection areas is an 0:16:11.200 --> 0:16:13.480 area that's probably going to be weaker. I think technology 0:16:13.560 --> 0:16:15.560 is area that's going to be weaker as well. I 0:16:15.600 --> 0:16:18.080 think investors need to be selective and when where they 0:16:18.160 --> 0:16:21.120 look at the opportunities for companies. I mean, we're we're investing. 0:16:21.720 --> 0:16:26.600 We're encouraging investors to look at cyclical oriented companies like energy, materials, industrials, 0:16:27.240 --> 0:16:31.240 things that benefit more from this backdrop and are less 0:16:31.280 --> 0:16:34.320 exposed to some of the issues that are happening perhaps 0:16:34.400 --> 0:16:36.760 with technology and and and with some of the issues 0:16:36.760 --> 0:16:38.720 with the consumer at the moment. Great to catch on 0:16:38.760 --> 0:16:41.560 Patrick as always to get your your perspective and send 0:16:41.600 --> 0:16:44.200 out best to Jonathan as well. Patrick Putrey the credit 0:16:44.200 --> 0:16:52.040 sways this should be a three hour discussion. His ability 0:16:52.560 --> 0:16:56.440 in our international relations linked to our economy is formidable 0:16:56.520 --> 0:16:59.400 with his work at Goldman Sex International for years. Robert 0:16:59.440 --> 0:17:02.000 Harman's US now a tite of an advisor and a 0:17:02.120 --> 0:17:04.840 course of service to the nation in the State Department. 0:17:04.840 --> 0:17:08.040 Ambassador Hormats, I want to cut to the chase right now. 0:17:08.960 --> 0:17:11.639 I am hearing in every interview we will see a 0:17:11.760 --> 0:17:15.080 defense build out by Germany. We will see a defense 0:17:15.119 --> 0:17:18.600 build out by the United States of America. The President 0:17:18.800 --> 0:17:22.320 waltzes off to the Pacific rim. What do we need 0:17:22.359 --> 0:17:26.080 to rebuild in the Pacific, to show the flag in 0:17:26.160 --> 0:17:32.240 an appropriate manner. Well, two things. One, I'm glad he's 0:17:32.280 --> 0:17:35.959 doing this now because I think there was a feeling 0:17:36.000 --> 0:17:39.159 in the Pacific, in some countries at least, that we 0:17:39.160 --> 0:17:43.400 were so preoccupied with Ukraine and Europe that we had 0:17:43.720 --> 0:17:47.560 more or less forgotten about the Pacific. This trip will 0:17:47.720 --> 0:17:51.280 demonstrate that we have not forgotten, that we realize that 0:17:51.400 --> 0:17:55.119 it's important. Second, he's got to get this set of 0:17:55.119 --> 0:17:58.920 alliances organized. And there's been a lot of talk about 0:17:59.040 --> 0:18:03.960 coopera Aracian coordination, but there really hasn't been much progress 0:18:04.000 --> 0:18:08.760 on on trade, UM, the cooperation between the United States, 0:18:08.880 --> 0:18:14.080 Japan and Australia, New Zealand UM are all all these 0:18:14.080 --> 0:18:18.800 are important, and he has got to demonstrate that this 0:18:18.880 --> 0:18:22.680 is a sustainable alliance. Pulling out of t p P 0:18:23.320 --> 0:18:26.240 was one of the worst possible things we could have done, 0:18:26.760 --> 0:18:31.240 because it showed not only a trade set of actions 0:18:31.320 --> 0:18:34.119 that was a pulling, but it showed that we really 0:18:34.160 --> 0:18:37.600 were not committed to a sustainable embassador. I want to 0:18:37.640 --> 0:18:40.080 get through this quickly because Lisa's got some really important 0:18:40.200 --> 0:18:44.880 questions away from this. This is your wheelhouse all Republicans 0:18:44.880 --> 0:18:47.840 and Democrats are against t p P. My guess is 0:18:47.840 --> 0:18:52.119 there against Indo Pacific. Let's go granular to the reported 0:18:52.240 --> 0:18:56.200 victory of Marcos Jr. In the Philippines and what we 0:18:56.400 --> 0:19:00.240 do at Subic Bay and at Clark how and we 0:19:00.440 --> 0:19:04.240 shift our modern behavior back to what you and I 0:19:04.320 --> 0:19:09.000 knew in our ute. This is a critically important point. 0:19:09.480 --> 0:19:11.760 They're the way to look at Asia is there two 0:19:12.680 --> 0:19:16.359 island chains. One is the one that's very close to China. 0:19:16.400 --> 0:19:20.960 The Chinese really have increased their domination over that with 0:19:21.119 --> 0:19:24.439 their small islands and their new air force spaces that 0:19:24.520 --> 0:19:27.680 they put in. We have to demonstrate that we have 0:19:28.440 --> 0:19:32.280 credibility in that so called second island chain, which is 0:19:32.840 --> 0:19:40.040 the Philippines, which is the Marianas, Guam and Um Australian 0:19:40.119 --> 0:19:43.720 New Zealand. We have to show that we are strong, 0:19:44.240 --> 0:19:47.920 a strong presence there and working with the Philippines, which 0:19:47.960 --> 0:19:51.200 is critically important. It was in World War Two, it 0:19:51.680 --> 0:19:55.119 is now and that's going to be I think extremely 0:19:55.160 --> 0:19:58.800 important to demonstrate that we can work with young Marcos 0:19:58.840 --> 0:20:04.159 and and develop our main structure which was as you know, 0:20:04.560 --> 0:20:09.080 virtually eliminated. But how optimistic are you that the political 0:20:09.119 --> 0:20:12.600 noise will be able to dovetail the national security issues 0:20:13.000 --> 0:20:15.960 of shifting around some trade partnerships at a time when 0:20:15.960 --> 0:20:18.720 inflation is very much at the forefront and people are 0:20:18.800 --> 0:20:21.639 more concerned about how quickly prices are rising as a 0:20:21.680 --> 0:20:23.960 result in part at least for some of the supply 0:20:24.040 --> 0:20:28.440 chain disruptions and realignments. A very good point. I mean, 0:20:28.480 --> 0:20:31.800 the presidents in a difficult spot. On one hand, it 0:20:31.960 --> 0:20:35.000 is clear that a lot of the tariffs that we've 0:20:35.040 --> 0:20:40.240 imposed on China do contribute. They're not the main contributing factor, 0:20:40.320 --> 0:20:43.840 but they do contribute to higher prices in the United States. 0:20:44.200 --> 0:20:46.919 And yet if the president were to appear to be 0:20:46.960 --> 0:20:49.080 weak on that, it would look like he was weak 0:20:49.200 --> 0:20:53.320 on on China. The priority here, it seems to me, 0:20:53.480 --> 0:20:57.080 is to deal with the inflationary issues. We can demonstrate 0:20:57.440 --> 0:21:00.840 that we're still resolute on China by strength in our 0:21:00.880 --> 0:21:05.879 alliances in the region, which gives the president more flexibility 0:21:05.920 --> 0:21:09.440 to lower some of the tariffs on China, which really 0:21:09.440 --> 0:21:13.439 have not had any impact on China anyway, but certainly 0:21:13.480 --> 0:21:16.720 have had an impact on prices in certain sectors in 0:21:16.720 --> 0:21:19.760 the United States. So if he's if he's tough enough 0:21:19.800 --> 0:21:23.640 and firm enough in building our alliances. It gives them 0:21:23.680 --> 0:21:27.080 a little more wable room to take action to reduce 0:21:27.720 --> 0:21:31.600 UH tariffs on certain Chinese items. And he needs to 0:21:31.680 --> 0:21:36.240 develop these trade relationships that we threw away when we 0:21:36.640 --> 0:21:39.560 got out of t p P. He's got to resurrect 0:21:39.680 --> 0:21:42.720 those and make sure that we don't just talk about them, 0:21:42.720 --> 0:21:47.720 that we have a firm and and sustain program of 0:21:47.760 --> 0:21:52.479 trade cooperation with these countries in the Indo Pacific. Well, 0:21:52.600 --> 0:21:54.359 just real quick here, we just have a little bit 0:21:54.359 --> 0:21:57.000 of time left. What grade would you give this administration 0:21:57.040 --> 0:22:01.439 in terms of reaffirming some of these alliances. M I 0:22:01.520 --> 0:22:03.639 give them very high marks. I think the fact that 0:22:03.640 --> 0:22:05.679 the president, now in the middle of what's going on 0:22:05.720 --> 0:22:09.320 in Europe, is making a major trip to Asia is 0:22:09.359 --> 0:22:11.199 going to be very important. There's gonna be a G 0:22:11.320 --> 0:22:14.520 twenty meeting coming up. Whether he goes is not clear, 0:22:14.600 --> 0:22:18.200