WEBVTT - Surveillance: Market Cracks with Bob Doll 0:00:05.080 --> 0:00:07.200 This is the Bloomberg Surveillance Podcast. 0:00:07.680 --> 0:00:10.799 I'm Lisa Abramoids along with Tom Keane and Jonathan Ferrell. 0:00:11.160 --> 0:00:15.280 Join us each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:19.520 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.600 --> 0:00:22.840 Spotify and anywhere you get your podcasts, and always on 0:00:22.880 --> 0:00:26.440 Bloomberg dot com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.920 --> 0:00:27.760 I'll be with us. 0:00:27.760 --> 0:00:30.960 Now, let's talk about markets. Cee of cross Smark Global 0:00:31.000 --> 0:00:33.520 Investments Pop, Good morning to here same. Let's talk about 0:00:33.520 --> 0:00:36.000 retail sales twenty five minutes away. Are we going to 0:00:36.000 --> 0:00:39.040 see that resilience in this US economy? This US consumer 0:00:39.280 --> 0:00:40.880 in the data was set to say in this hour, 0:00:41.240 --> 0:00:41.639 you just. 0:00:41.600 --> 0:00:43.040 Put a lot of good things, the two of you 0:00:43.200 --> 0:00:47.279 on the table. A soft landing is like putting a 0:00:47.360 --> 0:00:50.040 thread into the needle and the eye of that needle 0:00:50.120 --> 0:00:54.080 is shrinking. It's getting tougher and tougher. The com consumer 0:00:54.200 --> 0:00:58.360 eventually will come to their niece. We always see at 0:00:58.360 --> 0:01:01.480 the low end. We all see it with credit extension, 0:01:02.760 --> 0:01:06.759 we see it. Wage growth is strong. How long will 0:01:06.800 --> 0:01:10.920 it stay strong? And that is just fueled the consumer 0:01:10.959 --> 0:01:13.640 and it's fueled our economy. And this thing is kept 0:01:13.680 --> 0:01:17.720 ongoing despite all the things in the background that you 0:01:17.959 --> 0:01:21.080 just put on the table, including the lagged effects of 0:01:21.120 --> 0:01:23.080 the FED gone from zero to five and a quarter. 0:01:23.240 --> 0:01:24.720 We have not felt all of that yet. 0:01:24.840 --> 0:01:27.839 Let's unpack that it will happen eventually. Are we seeing 0:01:27.880 --> 0:01:29.759 signs of it now? You mentioned credit? You can see 0:01:29.800 --> 0:01:32.119 it through credit maybe one way. Another way it might 0:01:32.120 --> 0:01:33.679 be to sit in the official data. We'll see that 0:01:33.680 --> 0:01:35.800 at the bottom of the hour eight thirty. Another way 0:01:35.880 --> 0:01:37.880 might be the earnings across those three things right now, 0:01:37.920 --> 0:01:41.240 credit data, earnings. Are you seeing a slow down? 0:01:41.600 --> 0:01:47.760 Not really, It's all lead indicators. The coincident indicators are positive. 0:01:47.880 --> 0:01:50.120 Some of them are getting a little mixed. It's going 0:01:50.200 --> 0:01:52.440 to take some more time to go there. We've been 0:01:52.480 --> 0:01:56.360 since the first of the year saying recession starts sometimes 0:01:56.440 --> 0:01:59.120 between labor day and the end of the year. Still 0:01:59.120 --> 0:02:01.360 sticking with that. Think it's it's a mild recession, as 0:02:01.400 --> 0:02:04.320 many do, although recessions left most people's vocabularies. 0:02:04.360 --> 0:02:07.040 You know, but where does that recession come from? If 0:02:07.080 --> 0:02:09.640 you do see the strength in consumers, and a lot 0:02:09.680 --> 0:02:12.160 of people have pointed to the student loan issue. And 0:02:12.240 --> 0:02:14.840 I was reading this article the survey by Credit Karma, 0:02:15.680 --> 0:02:18.600 and it was showing that forty five percent of student 0:02:18.680 --> 0:02:20.919 loan borrowers say that they are not going to repay. 0:02:20.919 --> 0:02:23.680 They're basically going to be delinquent for twelve months because 0:02:23.720 --> 0:02:25.600 they're not going to get penalized. 0:02:25.120 --> 0:02:26.960 For being delinquent for twelve months. 0:02:27.080 --> 0:02:31.200 So aren't we basically getting a self stimulus ongoing that 0:02:31.360 --> 0:02:33.200 will remain in place for a while. 0:02:33.400 --> 0:02:36.799 Well, it's been the story, and it's lasted a little 0:02:36.840 --> 0:02:40.160 longer than many people thought, and it's still not finished. 0:02:40.320 --> 0:02:44.160 But eventually consumers will come to the realization that things 0:02:44.160 --> 0:02:47.320 are a lot more expensive. Inflation is still a problem. 0:02:47.680 --> 0:02:50.120 They have no savings at the lower end of the 0:02:50.160 --> 0:02:53.640 consumer bracket and that's a problem, and they're going to 0:02:53.680 --> 0:02:55.880 have to retrench some or find a second job, and 0:02:55.880 --> 0:02:56.720 they've already done that. 0:02:57.000 --> 0:02:57.919 What's the hedge? 0:02:57.960 --> 0:02:59.160 What's the defensive play? 0:02:59.200 --> 0:03:01.200 At a time A lot one of the strongest companies 0:03:01.280 --> 0:03:04.720 have incredibly high multiples, and you're looking at bond yields 0:03:04.760 --> 0:03:06.720 that are not giving a consistent message. 0:03:06.919 --> 0:03:09.679 Yeah, I think that within the equity market, you try 0:03:09.680 --> 0:03:13.960 to focus on companies that are high earnings predictability, high 0:03:13.960 --> 0:03:18.320 earnings persistence, and are not selling it crazy prices. That's 0:03:18.720 --> 0:03:20.760 not a whole lot of places. I like the HMOs 0:03:20.760 --> 0:03:23.560 for example. I've not given up on tech, but I 0:03:23.600 --> 0:03:26.160 want to be careful what pe I'm paying for my tech. 0:03:26.280 --> 0:03:30.399 So some of the semiconductor stocks, some of the software stocks, 0:03:30.680 --> 0:03:33.720 they're not so cheap Visa MasterCard, two names. I still 0:03:33.760 --> 0:03:36.520 like they've gotten more expensive. So you have to pick 0:03:36.600 --> 0:03:39.560 your spots. And I come back to earnings persistence and 0:03:39.600 --> 0:03:40.520 cash flow generation. 0:03:40.680 --> 0:03:43.680 Let's talk about the retailers then, I'm deepot out this morning, 0:03:44.000 --> 0:03:47.280 Walmart later this week, Thursday, Target tomorrow. Have they still 0:03:47.280 --> 0:03:50.360 got that pricing power? Can they keep margins pretty steady 0:03:50.400 --> 0:03:52.720 or do those margins get eaten away out eventually? 0:03:52.760 --> 0:03:55.320 And I think we'll see some of that, Like now, 0:03:55.880 --> 0:04:00.280 those margins get eaten away because you see, companies can 0:04:00.280 --> 0:04:03.320 only raise prices so far, and you're already seeing consumers 0:04:03.360 --> 0:04:08.000 begin to make noise and balk and stop buying some things. 0:04:08.680 --> 0:04:12.600 It won't it won't be everything, but slowly but surely 0:04:12.640 --> 0:04:15.200 you take the edge off. We have to operate on 0:04:15.280 --> 0:04:17.640 eight cylinders to keep the thing where it is now 0:04:17.960 --> 0:04:19.919 and even we back off to six, that's going to 0:04:19.920 --> 0:04:22.320 disappoint a lot of people with stock selling where they. 0:04:22.200 --> 0:04:27.240 Are the winness forget tech cruise lines, airlines. Are we 0:04:27.320 --> 0:04:32.240 at that point where we've reached consumer price intolerance. They 0:04:32.279 --> 0:04:33.320 just don't want to pay it anymore. 0:04:34.120 --> 0:04:36.160 As you said a minute ago, people are flying around 0:04:36.600 --> 0:04:39.080 going on an airplane and you know, every seat's taken. 0:04:39.160 --> 0:04:41.160 So we're not there yet, but we'll get there. 0:04:41.320 --> 0:04:41.640 Okay. 0:04:41.680 --> 0:04:42.680 So what's going to get us there? 0:04:42.680 --> 0:04:45.200 Because everyone's been saying this that the consumer eventually will 0:04:45.240 --> 0:04:48.400 push back, and then they haven't, and then you go 0:04:48.440 --> 0:04:50.160 out to eat and it costs twice what it used to. 0:04:50.240 --> 0:04:52.240 I mean, honestly, this is the kind of increases that 0:04:52.279 --> 0:04:52.719 you're seeing. 0:04:52.760 --> 0:04:55.440 Yeah, so it was subtle. We had fifteen months in 0:04:55.440 --> 0:05:00.240 a row of better than expected monthly employment numbers. Two 0:05:00.240 --> 0:05:04.320 months have been below expectations, so their cracks beginning to develop. 0:05:04.600 --> 0:05:07.279 I don't want to come across as the economy's tanking 0:05:07.720 --> 0:05:10.560 and you know, want to be a bear overall. I'm 0:05:10.680 --> 0:05:13.360 just cautious. And I add to it, I said, all right, 0:05:13.360 --> 0:05:16.400 I'll say it again. If the pe were fourteen, different story. 0:05:16.720 --> 0:05:18.280 But you know, at the peak a couple of weeks ago, 0:05:18.320 --> 0:05:21.280 I looked at my screen on trailing earnings twenty three 0:05:21.360 --> 0:05:22.160 times earnings. 0:05:22.320 --> 0:05:25.520 When you talk about being cautious, what's the ballast if 0:05:25.520 --> 0:05:28.320 you talked about your equities, Is it cash? 0:05:28.440 --> 0:05:29.960 Is it going into duration? 0:05:30.800 --> 0:05:33.160 I think having some cash in your portfolio when he 0:05:33.200 --> 0:05:35.520 yields five percent is not a stupid idea. Have you 0:05:35.560 --> 0:05:39.040 been increasing it in the balanced accounts where we can 0:05:39.200 --> 0:05:42.520 in the equity market neutral portfolios, We've been bringing our 0:05:42.560 --> 0:05:45.239 ex exposure down in there for our cash exposure up. Yes, 0:05:45.600 --> 0:05:49.680 bonds own some bonds. I'm not sure that we've seen 0:05:49.680 --> 0:05:52.360 the high end yields yet, but I'd rather begin to 0:05:52.480 --> 0:05:54.640 nibble it. You know, four and a quarter than three 0:05:54.640 --> 0:05:56.360 and a half where we were not that long ago. 0:05:56.480 --> 0:05:58.599 You think, start to go out along the curve, startlocking 0:05:58.680 --> 0:05:59.919 some of the stuff in slowly. 0:06:00.160 --> 0:06:01.599 Truly, Yes, I heard the same. 0:06:01.400 --> 0:06:03.520 Thing from Lisa shatout over in Morgan Stanley. You think 0:06:03.520 --> 0:06:06.560 we face that reinvestment risk rate cuts on the horizon. 0:06:06.160 --> 0:06:08.040 That will happen at some point. So I want all 0:06:08.080 --> 0:06:11.640 my eggs in the short term five percent basket. Look 0:06:11.720 --> 0:06:14.520 a year ago, eighteen months ago, one and a half percent, 0:06:14.560 --> 0:06:17.360 ten year Treasury. That was a bad deal four and 0:06:17.440 --> 0:06:20.160 a quarter. I think I'll think about it. 0:06:20.160 --> 0:06:22.920 It's unthinkable, isn't it. It wasn't let long ago. No, 0:06:23.320 --> 0:06:24.880 it wasn't. That happened fast. 0:06:25.000 --> 0:06:27.280 I know it really did, Bob, It's happening fast now. 0:06:27.360 --> 0:06:29.640 Bob's good to see you. Thank you, sir, Thank you, 0:06:29.839 --> 0:06:37.880 Bob Dole of cross Mark Global Investments. Jordan Rochester join 0:06:38.000 --> 0:06:40.400 us now G ten FX strategist over Namura. 0:06:40.640 --> 0:06:40.880 Jordan. 0:06:40.960 --> 0:06:42.640 Great to catch up with you, buddy. Let's just start 0:06:42.720 --> 0:06:45.800 in the UK at the Bank of England, record wage growth. 0:06:46.120 --> 0:06:48.560 Are we bringing them back in for more rate hikes 0:06:48.600 --> 0:06:48.840 to come? 0:06:50.160 --> 0:06:50.400 John? 0:06:50.520 --> 0:06:52.680 I think that wage number will definitely make the Bank 0:06:52.680 --> 0:06:55.479 of England's absolutely think about raising rates the next meeting. 0:06:55.520 --> 0:06:57.200 We think there'll be two more rate hikes this year, 0:06:57.680 --> 0:06:59.760 so we already thought there was enough data to tell. 0:06:59.640 --> 0:07:01.480 Them you should probably keep more hiking more. 0:07:01.800 --> 0:07:02.479 I do think the. 0:07:02.600 --> 0:07:05.559 Risks are that we get a weaker services CPI, perhaps 0:07:05.640 --> 0:07:08.200 not this month, maybe next month, and that the risks 0:07:08.240 --> 0:07:10.560 are actually tilted to just one hike rather than two. 0:07:11.080 --> 0:07:14.120 The idea of having two maybe three would require a 0:07:14.200 --> 0:07:17.920 reacceleration in that services CPI. So I always John think 0:07:17.960 --> 0:07:20.880 that the labor markets the most lagged indicator to track 0:07:20.920 --> 0:07:24.480 as a central banker. Rewind back two years ago, the ECB, 0:07:24.600 --> 0:07:26.360 the Bank of England, all these other central banks that 0:07:26.440 --> 0:07:28.440 are pointing out weak wages as a reason not to 0:07:28.600 --> 0:07:31.480 raise rates was actually a ridiculous thing to look at 0:07:31.600 --> 0:07:34.320 because you missed all of the energy and commodities inflation 0:07:34.400 --> 0:07:36.400 that was coming. And it's why we are where we 0:07:36.440 --> 0:07:38.120 are today with central banks having to make up for 0:07:38.200 --> 0:07:40.480 lost time with all these rate hikes quite late on 0:07:40.800 --> 0:07:44.360 in that cycle. John, so strong wages fantastic for those workers. 0:07:45.080 --> 0:07:46.040 Pretty difficult for. 0:07:46.040 --> 0:07:48.160 The Bank of England to turn dovish with those numbers. 0:07:48.280 --> 0:07:50.640 Sterling positive or still in negative if they have to 0:07:50.720 --> 0:07:51.240 hike more. 0:07:52.200 --> 0:07:53.600 Well, look at the reaction today. 0:07:53.720 --> 0:07:55.480 You're at Sterling is the way to look at it. 0:07:55.760 --> 0:07:58.320 Sterling tried to rally and then it came back off 0:07:58.360 --> 0:08:00.680 and you're Sterling's pretty much flat on the day. If 0:08:00.720 --> 0:08:02.840 the banking and raise rates at twenty five based up 0:08:02.840 --> 0:08:04.760 points like we expect, it wouldn't really move the needle 0:08:04.800 --> 0:08:07.320 for stirring. I think what'll be really interesting is if 0:08:07.400 --> 0:08:09.600 we get some more negative news on growth. We're starting 0:08:09.600 --> 0:08:11.560 to see that in China for example, But we were 0:08:11.560 --> 0:08:14.600 also having pretty dismal surveys out of the UK as well. 0:08:14.640 --> 0:08:17.080 When it comes to price pressures, they're all turning lower. 0:08:17.720 --> 0:08:19.560 Maybe at the next meeting we'll get a better sense 0:08:19.600 --> 0:08:22.080 of whether that we will get that extra fifty. So 0:08:22.280 --> 0:08:23.400 two twenty five is in a row. 0:08:23.800 --> 0:08:25.880 How much is that weakness that we're seeing in China 0:08:26.040 --> 0:08:28.800 bleeding through not only do the UK but Europe and 0:08:28.920 --> 0:08:30.760 the euro I. 0:08:30.800 --> 0:08:32.640 Think what you were saying earlier, Lisa is spot on. 0:08:32.720 --> 0:08:34.920 There has been a little bit decoupling. You look at 0:08:34.960 --> 0:08:37.400 the likes of risk on in the US market, the 0:08:37.440 --> 0:08:39.800 move in US yields. Yet if you were to use 0:08:39.800 --> 0:08:42.839 the usual frameworks when China slows down like this, usually 0:08:42.880 --> 0:08:45.520 it's risk off and very dubvish, and it leads to 0:08:46.320 --> 0:08:48.880 dollar strength. And this is kind of what we're seeing 0:08:48.920 --> 0:08:50.880 in dollar C and H. So that's a clear trade. 0:08:51.080 --> 0:08:53.000 We think dollar S and H gets to seven to fifty, 0:08:53.000 --> 0:08:54.200 perhaps that's the sort. 0:08:54.080 --> 0:08:54.839 Of move we're looking for. 0:08:54.960 --> 0:08:57.280 We're doing it in a basket format, but it's not 0:08:57.440 --> 0:08:59.840 leading to massive Euro dollar weakness, which is very odd. 0:09:00.280 --> 0:09:02.719 And it's similar for sterling as well. It used to 0:09:02.760 --> 0:09:04.600 be If C and H move like this, you would 0:09:04.640 --> 0:09:07.040 absolutely have to be short euro. And the reason for 0:09:07.120 --> 0:09:09.800 that is because of this decoupling, equities are rallying in 0:09:09.840 --> 0:09:11.880 the US more broadly over the past few months, and 0:09:11.960 --> 0:09:12.719 that's held up euro. 0:09:13.080 --> 0:09:13.720 Can it last? 0:09:13.880 --> 0:09:16.720 And I noticed that you actually abandoned your strong Euro 0:09:16.880 --> 0:09:18.839 call recently, and you said, you know what, I actually 0:09:18.920 --> 0:09:19.880 see it being a bit. 0:09:19.840 --> 0:09:21.280 Weaker from here. 0:09:21.559 --> 0:09:24.199 What triggers that, if not the bad data out of 0:09:24.320 --> 0:09:27.000 China and this concern around the inability to stimulate. 0:09:28.400 --> 0:09:30.920 The hardest part about effects, Lisa is there's three pillars 0:09:30.960 --> 0:09:33.320 to consider. One is what's going on with equities, Two 0:09:33.760 --> 0:09:35.559 what's going on with rates, and three what's going on 0:09:35.640 --> 0:09:38.120 with commodities. And for quite some time I was leaning 0:09:38.160 --> 0:09:41.120 on that equity pillar. The sort of rally we'd had 0:09:41.160 --> 0:09:42.959 in equities over the past few months was one of 0:09:43.000 --> 0:09:44.480 the reasons we had that uro dollar call. 0:09:45.280 --> 0:09:46.320 We're looking for top side. 0:09:46.360 --> 0:09:48.319 We still are by year end, but in the short 0:09:48.440 --> 0:09:51.400 term I see the other two pillars really dominating, which 0:09:51.520 --> 0:09:53.560 is the rates market says ur dollars should be towards 0:09:53.600 --> 0:09:56.000 one oh five. That's not a good thing where we 0:09:56.040 --> 0:09:59.079 are at current levels. And of course, with commodities, we've said, 0:09:59.080 --> 0:10:01.640 we've had a much higher and oil prices and natural 0:10:01.800 --> 0:10:04.240 gas one of the biggest imports for the Euro Area. 0:10:04.360 --> 0:10:07.880 Energy supply crisis has perked up recently of late, so 0:10:08.120 --> 0:10:10.640 it's maybe more nervous watching dollar s and h moved 0:10:10.640 --> 0:10:14.079 the way it is. Default risks building in China, low 0:10:14.160 --> 0:10:16.839 credit demand, we saw new one loans collapse. That in 0:10:16.920 --> 0:10:19.720 the short term, given we've got not very little data 0:10:19.800 --> 0:10:22.360 now until we get the next CPI and NFP reports, 0:10:22.360 --> 0:10:24.280 and we've got Jackson Hole, but I think in the 0:10:24.320 --> 0:10:26.880 short term that they're not catalysts enough to boost euro. 0:10:27.240 --> 0:10:30.600 I'm surprised euro wasn't on an one eleven handle after 0:10:30.679 --> 0:10:34.240 that CPI report. So a few disappointments with the reactions 0:10:34.280 --> 0:10:36.800 in the market and going forward over the next two 0:10:36.840 --> 0:10:39.400 weeks only Jackson Hole to really talk about. That's not 0:10:39.480 --> 0:10:41.400 a reason to be long euro dollar. But we are 0:10:41.480 --> 0:10:44.800 long Euro versus Norway, and we are long euroversus Sterling, 0:10:44.840 --> 0:10:46.720 so there are still eurobside bias in. 0:10:46.679 --> 0:10:47.400 Our view, Jordan. 0:10:47.480 --> 0:10:51.160 What you just described smeus like Eurozone stagflation is that 0:10:51.280 --> 0:10:51.640 what it is. 0:10:53.360 --> 0:10:54.840 Well, inflation's going to. 0:10:54.840 --> 0:10:56.680 Come down, John, It's going to come down quite quickly 0:10:56.800 --> 0:10:59.319 according to the sort of PPI and surveys. So the 0:10:59.320 --> 0:11:02.559 stagflation concerns, I think we're more last year's story. But 0:11:02.840 --> 0:11:06.120 the growth numbers Zew's this morning were pretty disappointing. I 0:11:06.240 --> 0:11:09.120 thought maybe we start to see positive momentum in European 0:11:09.240 --> 0:11:12.720 data surprises. They were so weak that maybe they improved, 0:11:12.760 --> 0:11:15.520 but ultimately the surveys suggests that it's going to be 0:11:15.559 --> 0:11:18.600 a pretty weak outlook for European growth. And my problem 0:11:18.679 --> 0:11:20.280 on that side is I'm not sure where the next 0:11:20.280 --> 0:11:22.439 stimulus is going to come from. The Fed's not cutting 0:11:22.480 --> 0:11:25.000 rates until March next year, the ECB is not going 0:11:25.080 --> 0:11:28.480 to be talking about cutting rates until later the next 0:11:28.559 --> 0:11:31.600 year October November time. China's not doing a big fiscal 0:11:31.640 --> 0:11:34.439 steamer so far. So it is a combination that makes 0:11:34.480 --> 0:11:36.920 it really hard for me to see why surveys and 0:11:37.040 --> 0:11:38.959 growth surveys should really pick up. So yes, and answer 0:11:38.960 --> 0:11:41.360 your question, it's still a bit like stagflation, but hopefully 0:11:41.360 --> 0:11:42.640 that inflation component comes down. 0:11:42.720 --> 0:11:44.800 So Jordan, just quickly you think the guard is done. 0:11:46.400 --> 0:11:46.599 We do. 0:11:46.920 --> 0:11:48.839 We do think the ECB is done because we think 0:11:48.840 --> 0:11:51.080 that the data over the next few months will develop 0:11:51.320 --> 0:11:54.000 in such a way they'll justify no more rate hikes. 0:11:54.120 --> 0:11:56.240 I think the ECB and the FED have both introduced 0:11:56.280 --> 0:11:59.400 the skip concept, and hopefully by the time we get 0:11:59.480 --> 0:12:02.240 a few more reports that will then say we don't 0:12:02.280 --> 0:12:04.520 maybe need to hike at all. The banking in a 0:12:04.559 --> 0:12:06.520 weird place where they don't give that sort of strong 0:12:06.600 --> 0:12:10.000 forward guidance about skipping or not. Hopefully we start to 0:12:10.040 --> 0:12:11.840 see that build up as a narrative for the UK 0:12:11.920 --> 0:12:13.080 as well in the next few months too. 0:12:13.080 --> 0:12:15.080 I've got a birthday present for you. We're not going 0:12:15.160 --> 0:12:17.600 to talk about Eston Villa, Okay, I'm just gonna let 0:12:17.640 --> 0:12:20.000 you go. We won't talk about the score over the weekend. 0:12:20.240 --> 0:12:22.800 Short and happy birthday song. 0:12:22.920 --> 0:12:25.800 Cheers guys, Rochester and Namura Jordan. Thank you. 0:12:38.120 --> 0:12:40.719 Lindsay pigs As, someone who's been calling for reeds to 0:12:40.800 --> 0:12:43.719 be much higher, potentially even with a six handoff for 0:12:43.760 --> 0:12:46.920 the Federal Reserve to get inflation under control, joins us 0:12:46.960 --> 0:12:49.280 right now. She is a chief economist at Stifel. 0:12:49.440 --> 0:12:50.880 Lindsay, what's your view. 0:12:50.920 --> 0:12:53.280 On why we saw such a big upside surprise on 0:12:53.400 --> 0:12:54.120 retail sales? 0:12:55.360 --> 0:12:57.839 Well, this certainly was a stronger than expected report. And 0:12:57.920 --> 0:13:01.160 no doubt this will boost optimates that because of the 0:13:01.240 --> 0:13:04.320 resilience of the consumer, we can achieve that soft landing. 0:13:04.840 --> 0:13:07.360 But I would push back a little bit in the 0:13:07.440 --> 0:13:09.240 sense that we don't need to put too much focus 0:13:09.320 --> 0:13:12.559 on one month's numbers. What we have seen is a 0:13:12.679 --> 0:13:16.760 tremendous amount of volatility in terms of consumer activity month 0:13:16.800 --> 0:13:20.000 to month, suggesting that yes, while this was a welcome 0:13:20.040 --> 0:13:23.760 step in the right direction, consumers are increasingly shifting the 0:13:23.840 --> 0:13:26.000 goods and services in their basket on a month to 0:13:26.080 --> 0:13:29.320 month basis, something that they do, something we do as 0:13:29.360 --> 0:13:33.520 consumers when we are increasingly concerned about our financial footing. 0:13:33.960 --> 0:13:37.800 So while this is again beating the expectations for the market, 0:13:38.240 --> 0:13:40.520 I wouldn't necessarily say that this is a trend that 0:13:40.640 --> 0:13:44.719 can continue to rise, particularly against the backdrop drop of 0:13:44.840 --> 0:13:49.120 some of these factors that prove artificial support drawing down 0:13:49.240 --> 0:13:52.640 savings a last sputtering of state and local stimulus. We 0:13:52.840 --> 0:13:56.559 see hardship withdraws from four to one k's up over 0:13:56.679 --> 0:13:59.960 forty percent on a year over year basis. But while 0:14:00.160 --> 0:14:02.679 this will provide a temporary support, this is not an 0:14:02.720 --> 0:14:04.480 indefinite support to the consumer. 0:14:04.679 --> 0:14:06.360 So where does this fit in Lindsay to your view 0:14:06.840 --> 0:14:08.679 that you previously had, that the FED had a lot 0:14:08.760 --> 0:14:10.520 more work to do, that they had to get to 0:14:10.600 --> 0:14:13.120 a level that nobody was gaming out or very few 0:14:13.320 --> 0:14:14.679 of six percent or north of that. 0:14:15.840 --> 0:14:17.520 Well, I think this is going to make the Fed's 0:14:17.600 --> 0:14:20.600 job more difficult because the longer it takes for the 0:14:20.720 --> 0:14:24.360 labor market for the consumer to show that needed weakness 0:14:24.480 --> 0:14:28.400 or respond to earlier policy tightening, the more aggressive the 0:14:28.480 --> 0:14:33.520 response from the FED must be, thus ensuring an eventual downturn. 0:14:33.920 --> 0:14:36.800 So the notion that the fact that consumer has continued 0:14:36.840 --> 0:14:39.120 to be resilient across the first five hundred and twenty 0:14:39.160 --> 0:14:42.120 five basis points supporting the notion of a soft landing, No, 0:14:42.200 --> 0:14:44.680 I would argue it's quite the opposite. That simply means 0:14:44.760 --> 0:14:48.040 the Fed will have to be more aggressive raising rates 0:14:48.160 --> 0:14:52.280 higher and keeping rates higher for longer than investors had anticipated, 0:14:52.600 --> 0:14:57.120 suggesting that the downturn potentially and eventually will come and 0:14:57.480 --> 0:15:02.800 may be more more aggressive, more of a downturn than 0:15:02.880 --> 0:15:05.640 previously anticipated. If the Fed didn't need to raise rates 0:15:05.720 --> 0:15:07.600 quite as much, lindsa squash out inflation. 0:15:07.800 --> 0:15:10.960 Lindsay said two things, raise rates higher and keep them 0:15:11.000 --> 0:15:13.840 there for longer, and those are worthy ideas that people had, 0:15:14.040 --> 0:15:15.800 But some people are starting to think, Okay, what if 0:15:15.800 --> 0:15:18.520 the Fed is done with how high they're going to 0:15:19.280 --> 0:15:21.520 raise rates, but they are going to keep them there 0:15:21.560 --> 0:15:23.560 for longer. And that's what we're seeing priced into the 0:15:23.680 --> 0:15:27.680 market gradually with some of the highest longer term expectations 0:15:28.080 --> 0:15:30.720 for FED funds rates that we've seen in this cycle. 0:15:30.920 --> 0:15:34.080 At what point does that cause more damage in your view? 0:15:35.040 --> 0:15:37.520 Well, I think it's certainly going to cause more damage. Again, 0:15:37.520 --> 0:15:40.480 the more pressure on the FED to respond. Now, if 0:15:40.520 --> 0:15:43.000 we continue to see this type of resilience, if we 0:15:43.080 --> 0:15:47.760 continue to see a third quarter GDP surpass earlier expectations 0:15:47.840 --> 0:15:50.560 or surpass what we saw in the second quarter, I 0:15:50.640 --> 0:15:53.240 think the FED doesn't necessarily need to continue to raise 0:15:53.320 --> 0:15:57.360 rates indefinitely. But once they reached that sufficiently restrictive level, 0:15:57.400 --> 0:16:00.600 as you mentioned, we've long conceded that will be six 0:16:00.680 --> 0:16:03.360 percent or above, the Feed is likely going to be 0:16:03.480 --> 0:16:06.760 forced to keep us at that elevated level for some time. 0:16:07.200 --> 0:16:09.600 The FET itself has said rate cuts are not in 0:16:09.680 --> 0:16:12.560 their base case scenario for twenty twenty three, but even 0:16:12.640 --> 0:16:15.800 twenty twenty four remains a sizable question mark. If we 0:16:16.000 --> 0:16:20.120 aren't able to see that intended result. Remember, the feed 0:16:20.240 --> 0:16:23.400 is raising rates to tap down consumption, tap down investment, 0:16:23.720 --> 0:16:27.160 and result in a slower level of activity in order 0:16:27.240 --> 0:16:29.880 to get that more benign inflation. But thus far the 0:16:29.960 --> 0:16:33.440 economy is pushing very hard against the intentions of tighter 0:16:33.480 --> 0:16:34.360 monetary policy. 0:16:34.600 --> 0:16:36.680 If you are just joining us, we are just seeing 0:16:36.720 --> 0:16:40.560 the ramifications of retail sales numbers that came in significantly 0:16:40.680 --> 0:16:43.560 higher than expected. We're seeing the overall month over month 0:16:43.640 --> 0:16:47.160 headline number of zero point seven percent versus expectations of 0:16:47.280 --> 0:16:50.640 zero point four percent. The control group, which does factor 0:16:50.840 --> 0:16:54.240 into the US gross domestic product figure, came in at 0:16:54.280 --> 0:16:57.720 one percent from the expected zero point five percent. We 0:16:57.840 --> 0:17:01.640 are seeing two year yield surge past five percent, ten 0:17:01.720 --> 0:17:04.639 year yields and thirty year yields both reaching the highest 0:17:04.720 --> 0:17:08.840 level since October, climbing up. We're seeing thirty year yields 0:17:08.920 --> 0:17:12.760 four point three two percent. Lindsay Piagsa of Stefol with 0:17:12.920 --> 0:17:15.320 us and Lindsey, I really want to get your sense 0:17:15.600 --> 0:17:18.800 of what could potentially halt this spending. You're saying it 0:17:18.880 --> 0:17:21.520 can't persist. You're not going to see this forever. Some 0:17:21.640 --> 0:17:24.439 people have pointed to the student loan repayments that are 0:17:24.480 --> 0:17:25.800 going to start in October. 0:17:26.359 --> 0:17:27.760 Do you give credence to. 0:17:27.800 --> 0:17:30.440 This sort of idea that we could see some sort 0:17:30.440 --> 0:17:34.240 of tightening and and fiscal tightening on that front going forward. 0:17:35.000 --> 0:17:37.399 Oh. Absolutely, But there's a number of factors. And remember, 0:17:37.480 --> 0:17:41.280 even with this monthly increase of beating expectations, when we 0:17:41.359 --> 0:17:43.800 take a step back and look at the longer term momentum, 0:17:43.920 --> 0:17:47.600 it's very clear that consumers are beginning to slow their activity. 0:17:47.960 --> 0:17:50.359 Coming out of the gate from the Great Shutdown, we 0:17:50.440 --> 0:17:53.200 had double digit growth, then we slowed to eight to six. 0:17:53.320 --> 0:17:55.919 Now we're talking about bouncing around two percent on an 0:17:55.920 --> 0:17:59.360 annual basis. So while still positive, the consumer has clearly 0:17:59.520 --> 0:18:02.760 pulled back. And these other factors, as you mentioned, monthly 0:18:02.800 --> 0:18:06.280 payments for student loans, additional housing payments coming back online. 0:18:06.720 --> 0:18:10.560 This is going to compound the pressure on the consumer. Now, 0:18:10.600 --> 0:18:13.600 there are some temporary supports that we're still tapping into. 0:18:14.040 --> 0:18:16.480 There still is a sputtering of state and local stimulus. 0:18:16.760 --> 0:18:19.719 Consumers are turning to four oh one ks, Consumers are 0:18:19.840 --> 0:18:22.840 ramping up credit card debt, and with the relative health 0:18:22.920 --> 0:18:25.640 of the balance sheet, meaning we paid down debt during 0:18:25.720 --> 0:18:29.000 the closure during the pandemic, there still is some wiggle 0:18:29.040 --> 0:18:31.800 room for the consumer to expand that balance sheet. So 0:18:31.880 --> 0:18:34.240 I'm certainly not suggesting that the consumer is going to 0:18:34.320 --> 0:18:37.200 immediately fall off a cliff. But what we are seeing 0:18:37.480 --> 0:18:42.879 is these indefinite supports beginning to wane, putting additional pressure 0:18:42.920 --> 0:18:45.480 on the consumer eventually as we head further into the 0:18:45.560 --> 0:18:46.560