1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:29,280 Speaker 1: dot Com, and of course on the Bloomberg terminal. We've 6 00:00:29,320 --> 00:00:32,200 Speaker 1: been very lucky over the last month with a fantastic 7 00:00:32,200 --> 00:00:35,360 Speaker 1: team at Bloomberg, including Bloomberg's Maria. Today, I'm bringing us 8 00:00:35,400 --> 00:00:38,720 Speaker 1: some of the conversations out of Brussels and out of 9 00:00:38,720 --> 00:00:41,400 Speaker 1: the continent as well. And we have another one right now, 10 00:00:41,600 --> 00:00:45,360 Speaker 1: Hey Maria. Yes, Jonathan, and we're now joined by Latvia's 11 00:00:45,440 --> 00:00:48,320 Speaker 1: UH defense Minister of Babis Atkis who of course he 12 00:00:48,320 --> 00:00:51,080 Speaker 1: he's one of the most outspoken ministers, I would say 13 00:00:51,200 --> 00:00:54,280 Speaker 1: in in the European Union when it comes to defense, Sir, 14 00:00:54,520 --> 00:00:57,080 Speaker 1: you were telling me off camera Europe really needs a 15 00:00:57,120 --> 00:01:00,320 Speaker 1: reality check. We needs to be much more forceful on Russia. 16 00:01:00,360 --> 00:01:02,800 Speaker 1: When you say that, what do you mean? I would 17 00:01:02,880 --> 00:01:07,679 Speaker 1: like to say that the job is half done, because yes, 18 00:01:07,840 --> 00:01:11,080 Speaker 1: we reacted in quite a unitary form as far as 19 00:01:11,080 --> 00:01:14,200 Speaker 1: the sanctions towards Russia. And also as far as the 20 00:01:14,240 --> 00:01:18,560 Speaker 1: military and umlitarian assistance to Ukraine. But now we are 21 00:01:18,600 --> 00:01:21,800 Speaker 1: already in the third force week of this aggression from 22 00:01:21,880 --> 00:01:25,000 Speaker 1: Russian side, and the job is half done because there 23 00:01:25,000 --> 00:01:29,480 Speaker 1: are still companies in Russia which are functioning for different 24 00:01:29,480 --> 00:01:33,240 Speaker 1: types of reasons. Then as far as Europe itself, I 25 00:01:33,280 --> 00:01:37,800 Speaker 1: think we have to go complete with completion of this 26 00:01:38,280 --> 00:01:45,640 Speaker 1: deep butinization of these societies where the corrupt oligarchic, autoritarian 27 00:01:45,800 --> 00:01:51,680 Speaker 1: Russian people have been really very deeply routed now in 28 00:01:51,720 --> 00:01:54,560 Speaker 1: these societies and this have to be done. And as 29 00:01:54,600 --> 00:01:57,800 Speaker 1: far as the military and other support to Ukraine, I 30 00:01:57,880 --> 00:02:01,560 Speaker 1: would say that maybe it's sounds at the beginning very 31 00:02:01,680 --> 00:02:05,320 Speaker 1: kind of even dangerous approach, but I think we should 32 00:02:05,360 --> 00:02:10,920 Speaker 1: consider to reverse this very early escape of number of 33 00:02:10,919 --> 00:02:15,959 Speaker 1: our embassies from Kiev because the country needs to support 34 00:02:16,160 --> 00:02:19,320 Speaker 1: Ukraine needs to support. And And so when you say deepotinized, 35 00:02:19,360 --> 00:02:21,040 Speaker 1: I wonder what do you mean by that, and if 36 00:02:21,080 --> 00:02:23,200 Speaker 1: and if it means what I think it means. Many 37 00:02:23,240 --> 00:02:26,200 Speaker 1: europe say that's very provocative, but you say Europe should 38 00:02:26,200 --> 00:02:28,880 Speaker 1: not be scared being provocative when it comes to Russia. 39 00:02:28,919 --> 00:02:31,280 Speaker 1: So how do you go about that? Well, first, of all, 40 00:02:31,560 --> 00:02:34,639 Speaker 1: Kremlin thinking about provocation is very simple. If they will 41 00:02:34,680 --> 00:02:37,359 Speaker 1: be willing to do they will always find an excuse 42 00:02:37,400 --> 00:02:40,640 Speaker 1: to tell that this is a provocation. So that's not important. 43 00:02:40,720 --> 00:02:43,440 Speaker 1: I think we simply should looten to the eyes of 44 00:02:43,840 --> 00:02:47,160 Speaker 1: Kremlin leaders and say, now you committed the crime. You 45 00:02:47,240 --> 00:02:51,120 Speaker 1: committed aggression. Now we will act. And there is nothing 46 00:02:52,520 --> 00:02:56,519 Speaker 1: provocative by simply telling. Look, you have been by corruptive 47 00:02:56,600 --> 00:03:00,440 Speaker 1: or other means, buying these villas, buying these proper taste, 48 00:03:00,760 --> 00:03:03,800 Speaker 1: and you are now waging an aggressive war, just like 49 00:03:03,919 --> 00:03:07,679 Speaker 1: Hitler's Germany against a neighboring country. But at the same 50 00:03:07,680 --> 00:03:09,680 Speaker 1: time you still want to enjoy a great life in 51 00:03:09,720 --> 00:03:12,560 Speaker 1: the rest which you despise. This is not possible. And 52 00:03:12,560 --> 00:03:14,200 Speaker 1: and and of course I want to ask you one thing. 53 00:03:14,800 --> 00:03:17,360 Speaker 1: You know, you say deputinize, you say a lot of 54 00:03:17,360 --> 00:03:20,919 Speaker 1: this is almost like Hitler after Nazi Germany. Uh, your 55 00:03:20,960 --> 00:03:22,959 Speaker 1: country has a history with Russia. Of course, it is 56 00:03:23,000 --> 00:03:24,440 Speaker 1: no not a secret that you were a part of 57 00:03:24,440 --> 00:03:26,840 Speaker 1: the Soviet Union. I wonder when you look at what's happening, 58 00:03:26,919 --> 00:03:29,120 Speaker 1: is this Vladimir Putting being a madman? Or is this 59 00:03:29,240 --> 00:03:31,919 Speaker 1: someone who has made very clear over twenty years. My 60 00:03:32,120 --> 00:03:34,480 Speaker 1: idea is to restore the U. S. S R. Because 61 00:03:34,520 --> 00:03:37,320 Speaker 1: it's greatness for Russia that I'm after. In many ways, 62 00:03:37,400 --> 00:03:40,480 Speaker 1: we have been warning already for almost twenty years. So 63 00:03:40,560 --> 00:03:43,440 Speaker 1: he's not a madman that's happening. What is his state 64 00:03:43,480 --> 00:03:46,680 Speaker 1: of mind personally at this moment. It's difficult to say, 65 00:03:46,720 --> 00:03:49,840 Speaker 1: because we don't know the information from the first hands, 66 00:03:49,880 --> 00:03:53,640 Speaker 1: And of course he is kind of confused because he 67 00:03:53,760 --> 00:03:57,280 Speaker 1: was obviously not thinking that this type of war will 68 00:03:57,320 --> 00:04:00,840 Speaker 1: not succeed. But at the same time time we still 69 00:04:01,080 --> 00:04:05,560 Speaker 1: have to act in a way that we force all 70 00:04:05,600 --> 00:04:09,840 Speaker 1: the Russian society also to think it stands and I 71 00:04:09,880 --> 00:04:13,440 Speaker 1: think it includes also very much of information sphere and 72 00:04:13,440 --> 00:04:17,600 Speaker 1: and all the possibility to break this bubble of information 73 00:04:17,920 --> 00:04:21,520 Speaker 1: which Kremlin is using for their own population and and searches. 74 00:04:21,600 --> 00:04:24,159 Speaker 1: Two very brief questions. There's a real debate about what 75 00:04:24,200 --> 00:04:26,520 Speaker 1: to do with energy imports. It is becoming clear that 76 00:04:26,600 --> 00:04:28,160 Speaker 1: your sanctions and you said this is going to be 77 00:04:28,200 --> 00:04:30,320 Speaker 1: the mother of all sanctions, but they're not for Russia. 78 00:04:30,360 --> 00:04:33,040 Speaker 1: They continue to meet females and dollars. Is it time 79 00:04:33,040 --> 00:04:35,880 Speaker 1: to step it up and target energy? Well, first of all, 80 00:04:35,920 --> 00:04:38,280 Speaker 1: we have to get out all the Western companies from Russia, 81 00:04:38,480 --> 00:04:41,600 Speaker 1: it's their model duty to leave this country now. As 82 00:04:41,640 --> 00:04:44,200 Speaker 1: far as energy, of course, if the country have been 83 00:04:44,200 --> 00:04:47,640 Speaker 1: on the gas or oil needle for twenty or thirty years, 84 00:04:47,920 --> 00:04:50,479 Speaker 1: it's difficult to do it in one day. But imagine 85 00:04:50,520 --> 00:04:55,800 Speaker 1: the situation. What if that not be Ukraine invaded by Russia, 86 00:04:55,880 --> 00:04:59,120 Speaker 1: but would be European Union invaded. Would be still go 87 00:04:59,200 --> 00:05:03,200 Speaker 1: into the war and buy GUS. So it's so it's 88 00:05:03,240 --> 00:05:06,159 Speaker 1: a mistakes. So when Germany says the reality is we 89 00:05:06,240 --> 00:05:09,080 Speaker 1: can unplug, you're thinking, as a Germany is wrong. You 90 00:05:09,120 --> 00:05:12,719 Speaker 1: can't do it. Well, it's probably very difficult to do 91 00:05:12,800 --> 00:05:15,599 Speaker 1: it immediately, but let's put it like this, to be rational. 92 00:05:15,640 --> 00:05:19,640 Speaker 1: At the same time, we probably have to be hyper 93 00:05:19,839 --> 00:05:23,720 Speaker 1: active and very fast to unplug as fast as we can, 94 00:05:24,200 --> 00:05:26,400 Speaker 1: really as fast as we can, and not to think 95 00:05:26,440 --> 00:05:29,200 Speaker 1: about returning to this anymore. So you say after this 96 00:05:29,440 --> 00:05:32,240 Speaker 1: is a point of no return. Essentially it's it's isolation 97 00:05:32,240 --> 00:05:35,120 Speaker 1: for Russia. But when it comes to Ukraine, there's many 98 00:05:35,200 --> 00:05:37,920 Speaker 1: out there who believe at this point this is a 99 00:05:37,920 --> 00:05:40,440 Speaker 1: hell of awards. Twenty six days, it's been brutal on 100 00:05:40,520 --> 00:05:43,479 Speaker 1: the Ukrainian population, just negotiate any ceasefire and get on 101 00:05:43,560 --> 00:05:46,440 Speaker 1: with it. What's your take on that ceasefire is not 102 00:05:46,520 --> 00:05:50,719 Speaker 1: a way out, as a way out is immediate withdrawal 103 00:05:50,800 --> 00:05:53,880 Speaker 1: of all the Russian troops from Ukrainian territory. There is 104 00:05:53,880 --> 00:05:57,120 Speaker 1: no other way out. And I would say that Ukrainians 105 00:05:57,279 --> 00:06:00,640 Speaker 1: buy their blood paid also for the membership in your union. 106 00:06:01,000 --> 00:06:04,359 Speaker 1: So I understand you cry Ukraine cannot become a member 107 00:06:04,360 --> 00:06:07,440 Speaker 1: today tomorrow, but there must be a certain fast track 108 00:06:07,600 --> 00:06:10,360 Speaker 1: established along with the way how we will pay because 109 00:06:10,400 --> 00:06:12,839 Speaker 1: we would have to pay for the construction of this country. 110 00:06:12,920 --> 00:06:15,760 Speaker 1: So I believe that five years that would be the 111 00:06:15,880 --> 00:06:18,880 Speaker 1: limit put also in our planning when we, if everything 112 00:06:18,920 --> 00:06:22,200 Speaker 1: goes okay, should accept this country as a member country. 113 00:06:22,400 --> 00:06:24,960 Speaker 1: And and over the weekend we saw the Russian say 114 00:06:25,000 --> 00:06:27,440 Speaker 1: you have to surrender Marouble. We also saw them bringing 115 00:06:27,440 --> 00:06:29,840 Speaker 1: out the big weapons of the hypersonic missiles. When you 116 00:06:29,839 --> 00:06:32,960 Speaker 1: look at the situation on the ground, do you really believe, seriously, 117 00:06:33,000 --> 00:06:35,360 Speaker 1: look into your heart, the Ukraine can win this war. 118 00:06:35,920 --> 00:06:38,320 Speaker 1: You can already won this war. Yes, there will be 119 00:06:38,360 --> 00:06:42,200 Speaker 1: more sacrifices. But even if Mariopo falls, even if key 120 00:06:42,200 --> 00:06:45,000 Speaker 1: of falls, which I don't think will happen as a 121 00:06:45,080 --> 00:06:48,479 Speaker 1: struggle will continue because these people have nowhere to retreat. 122 00:06:48,640 --> 00:06:51,799 Speaker 1: And in fact I must say also our particularly Western 123 00:06:51,800 --> 00:06:55,560 Speaker 1: European and friends and sisters and brothers also we have 124 00:06:55,880 --> 00:06:58,560 Speaker 1: nowhere to retreat. This is a way where we have 125 00:06:58,680 --> 00:07:01,120 Speaker 1: to stand and keep the lot time because we have 126 00:07:01,200 --> 00:07:05,120 Speaker 1: been retreating on the front of this aggressive and dictator 127 00:07:05,240 --> 00:07:08,240 Speaker 1: for too long and that was our hugest mistake. And 128 00:07:08,320 --> 00:07:10,880 Speaker 1: just the final question. I know you have communications with 129 00:07:10,920 --> 00:07:13,800 Speaker 1: the Ukrainian government. Were you here for Zelenski? Is it 130 00:07:13,880 --> 00:07:15,880 Speaker 1: obvious to you that does man will either win or 131 00:07:15,920 --> 00:07:18,440 Speaker 1: die in Ukraine and that's his thinking here will win 132 00:07:19,200 --> 00:07:22,200 Speaker 1: and we should stand with him. Well, sir, thank you 133 00:07:22,240 --> 00:07:24,960 Speaker 1: so much. Of course, always good to speak to you, 134 00:07:25,000 --> 00:07:27,920 Speaker 1: and you certainly are are very open with your words. 135 00:07:27,920 --> 00:07:30,280 Speaker 1: Of course I was glad VIA's Defense minister. Mr Fabric's 136 00:07:30,320 --> 00:07:34,040 Speaker 1: joining us here in Brussels today, Jonathan Maria, thank you. 137 00:07:34,120 --> 00:07:43,040 Speaker 1: Wonderful work has always Leslie Felconio joined us now seeing 138 00:07:43,040 --> 00:07:45,720 Speaker 1: your fixed income strategies for the America's at UBS Global 139 00:07:45,760 --> 00:07:48,120 Speaker 1: Wealth Management, Leslie, I want to start with this bond market. 140 00:07:48,840 --> 00:07:51,480 Speaker 1: Can I be blunt? Is bizarre coming out of chairman 141 00:07:51,520 --> 00:07:54,560 Speaker 1: pound the news conference on Wednesday to see break even's higher, 142 00:07:54,720 --> 00:07:58,400 Speaker 1: not lower, real yields lower, not higher, the curve starting 143 00:07:58,440 --> 00:08:00,160 Speaker 1: to invert a little bit, Leslie, can you make sense 144 00:08:00,200 --> 00:08:03,440 Speaker 1: of this why we're pricing almost in some parts some 145 00:08:03,480 --> 00:08:05,440 Speaker 1: pockets are fixed income. It was as if we had 146 00:08:05,440 --> 00:08:09,120 Speaker 1: a Dovish news Comforts and a Dovish meet sinc. Well, 147 00:08:09,120 --> 00:08:11,080 Speaker 1: I don't think it's surprising that the short end of 148 00:08:11,120 --> 00:08:13,000 Speaker 1: the break evens are actually moving higher. And when you 149 00:08:13,000 --> 00:08:16,280 Speaker 1: think about really what's happening with sanctions and now with 150 00:08:16,400 --> 00:08:18,800 Speaker 1: Russian Ukraine and some of the an increase in the 151 00:08:18,800 --> 00:08:21,560 Speaker 1: supply chain bottleneck and the increase in oil that we're seeing. 152 00:08:21,800 --> 00:08:23,720 Speaker 1: But to your point, I mean, having the tenure break 153 00:08:23,800 --> 00:08:26,440 Speaker 1: even reached that three percent level, you know, it's not 154 00:08:26,680 --> 00:08:29,080 Speaker 1: you know, concerning, but it's something that definitely believe that 155 00:08:29,080 --> 00:08:31,120 Speaker 1: the FED is going to watch going forward. I mean, 156 00:08:31,280 --> 00:08:34,600 Speaker 1: and I think the real gield rate now our expectation 157 00:08:34,840 --> 00:08:37,160 Speaker 1: for real guilds, at least in the tenure area is 158 00:08:37,200 --> 00:08:39,880 Speaker 1: to move higher. Ian we do expect break evens, particularly 159 00:08:39,920 --> 00:08:42,240 Speaker 1: the long end, as the FED starts to become a 160 00:08:42,240 --> 00:08:45,120 Speaker 1: bit more aggressive, to come down. But that short end, 161 00:08:45,160 --> 00:08:48,040 Speaker 1: which is really you know, moved by sentiment, and things 162 00:08:48,080 --> 00:08:50,800 Speaker 1: like oil might stay the breake evens might say happen 163 00:08:50,880 --> 00:08:53,480 Speaker 1: quite some time. So Leslie, this is the aspect that 164 00:08:53,600 --> 00:08:56,200 Speaker 1: really doesn't make sense to me that not only do 165 00:08:56,280 --> 00:08:59,599 Speaker 1: we see tenure treasury yield still relatively low versus the 166 00:08:59,640 --> 00:09:03,120 Speaker 1: expectations for inflation over the next ten years, but also 167 00:09:03,440 --> 00:09:06,720 Speaker 1: people are pouring money at the fastest pace, uh, some 168 00:09:06,760 --> 00:09:09,160 Speaker 1: of the fastest paces we've seen in the past decade. 169 00:09:09,200 --> 00:09:10,840 Speaker 1: If you look at the e t F that tracks 170 00:09:10,880 --> 00:09:13,520 Speaker 1: the longest dated e t f s. Does this make 171 00:09:13,559 --> 00:09:16,400 Speaker 1: sense to you that people see value in two point 172 00:09:16,520 --> 00:09:20,680 Speaker 1: one eight percent yields on a ten year note. Well, 173 00:09:20,720 --> 00:09:23,840 Speaker 1: I think that the expectation is at least our expectation 174 00:09:23,960 --> 00:09:25,880 Speaker 1: is only looking for about like a two point three 175 00:09:25,920 --> 00:09:28,040 Speaker 1: percent ten year yield. And you have to remember how 176 00:09:28,120 --> 00:09:30,480 Speaker 1: quickly Removed went from one a half percent in the 177 00:09:30,480 --> 00:09:32,120 Speaker 1: beginning of the year all the way to a two 178 00:09:32,160 --> 00:09:35,120 Speaker 1: point two four within ten weeks. That is an incredible move. 179 00:09:35,200 --> 00:09:38,199 Speaker 1: And now that the ft is has become fairly aggressive, 180 00:09:38,320 --> 00:09:40,280 Speaker 1: not to menagtion, the fact we do have qut in 181 00:09:40,400 --> 00:09:43,400 Speaker 1: may more than likely, you know, there is a normalization 182 00:09:43,400 --> 00:09:45,440 Speaker 1: of the yield curves, So I do understand why people 183 00:09:45,480 --> 00:09:47,760 Speaker 1: would really want to stop and take on some interest 184 00:09:47,800 --> 00:09:50,920 Speaker 1: rate risk at these levels. Normalization of the yield curve. 185 00:09:51,000 --> 00:09:53,520 Speaker 1: Let's talk about the yield curve. Leslie's two stands. Does 186 00:09:53,559 --> 00:09:57,480 Speaker 1: it invert? If so, when I think there's a potential 187 00:09:57,520 --> 00:09:59,440 Speaker 1: that you know, two tents can invert, you know, the 188 00:09:59,520 --> 00:10:01,559 Speaker 1: latter half the year. But I also think it's important 189 00:10:01,559 --> 00:10:04,160 Speaker 1: to note that it's not just tipps and verts, it's 190 00:10:04,160 --> 00:10:07,719 Speaker 1: a magnitude of the inversion and how sustainable that vision is. 191 00:10:07,760 --> 00:10:09,480 Speaker 1: I mean, we all know when the curb and verts, 192 00:10:09,640 --> 00:10:12,000 Speaker 1: you know, it's a it's a coincident indicator in our opinion, 193 00:10:12,240 --> 00:10:14,120 Speaker 1: you know, two or three years out, you know, does 194 00:10:14,320 --> 00:10:16,679 Speaker 1: can indicate a recession. But we look at things like 195 00:10:16,679 --> 00:10:19,240 Speaker 1: the two year yield which went to two percent. I mean, 196 00:10:19,240 --> 00:10:21,000 Speaker 1: this is some of the biggest moves that we've seen, 197 00:10:21,360 --> 00:10:23,640 Speaker 1: with the FED only going twenty five basis points right, 198 00:10:23,679 --> 00:10:26,440 Speaker 1: that magnitude of the moved two year yield, the FED 199 00:10:26,440 --> 00:10:27,960 Speaker 1: funds ring would already be a one and a a quarter 200 00:10:28,000 --> 00:10:30,240 Speaker 1: one and a half min now nicely, just looking at 201 00:10:30,240 --> 00:10:32,560 Speaker 1: the yield curve, then let's sum it up. Threes are 202 00:10:32,600 --> 00:10:37,360 Speaker 1: basically in line with tens. Five yields above tens seven 203 00:10:37,440 --> 00:10:41,880 Speaker 1: year yields above tens should not constrain risk appetite our 204 00:10:42,000 --> 00:10:44,320 Speaker 1: swhere or do you think investors will just look through 205 00:10:44,360 --> 00:10:47,280 Speaker 1: some of this. I think it's really gonna depend on 206 00:10:47,320 --> 00:10:49,720 Speaker 1: real guilds. I remember, real guilds are still negative. The 207 00:10:49,840 --> 00:10:52,560 Speaker 1: term premiums on me, you know. And at the end 208 00:10:52,559 --> 00:10:54,360 Speaker 1: of the day, again, I know we always say this, 209 00:10:54,440 --> 00:10:56,760 Speaker 1: but it's true. It really does come down to the consumer, 210 00:10:57,240 --> 00:10:59,920 Speaker 1: and you know, real consumption is still still very strong. 211 00:11:00,400 --> 00:11:03,719 Speaker 1: Let's not forget the majority of consumer debt is mortgages, 212 00:11:03,960 --> 00:11:07,400 Speaker 1: and the majority of those mortgages are fixed. So I mean, 213 00:11:07,440 --> 00:11:09,520 Speaker 1: we do think that obviously that you could have some 214 00:11:09,600 --> 00:11:12,600 Speaker 1: headwinds from the inversion, but really you'll still remain negative. 215 00:11:13,240 --> 00:11:16,640 Speaker 1: So Leslie, what are you actually doing well? We've been, 216 00:11:16,679 --> 00:11:19,199 Speaker 1: you know, are we've had we would say, in the 217 00:11:19,200 --> 00:11:20,760 Speaker 1: fixed income side, more of a risk on. I mean, 218 00:11:20,760 --> 00:11:23,600 Speaker 1: our expectation was an interest rates of rise heading into 219 00:11:23,640 --> 00:11:26,400 Speaker 1: the year. We've liked that floating rate asset things like 220 00:11:26,440 --> 00:11:28,440 Speaker 1: senior loans, so we've had a bit of what we 221 00:11:28,520 --> 00:11:31,920 Speaker 1: could consider credit exposure. But now again as we started 222 00:11:31,920 --> 00:11:35,079 Speaker 1: starting normalize Advan, and we've seen this headwind from interest 223 00:11:35,160 --> 00:11:39,080 Speaker 1: rates going higher and spreads widening the two variables, which 224 00:11:39,160 --> 00:11:41,600 Speaker 1: is a major headwind towards total return and performance on 225 00:11:41,600 --> 00:11:43,400 Speaker 1: the fixed income side. You know, it may not be 226 00:11:43,400 --> 00:11:44,920 Speaker 1: a bad time to you know, go a little bit 227 00:11:44,960 --> 00:11:46,560 Speaker 1: up and fality, and as we said, even on the 228 00:11:46,640 --> 00:11:49,520 Speaker 1: right side, we don't expect indust rates to really move 229 00:11:49,679 --> 00:11:53,160 Speaker 1: materially higher from here. Leslie, thank you for your perspective, 230 00:11:53,160 --> 00:11:55,080 Speaker 1: and so White so Lesie found county of that of 231 00:11:55,240 --> 00:12:02,400 Speaker 1: UBS Global Wealth Management. We have got a perfect conversation 232 00:12:02,440 --> 00:12:05,360 Speaker 1: now with Dave Eltzic, the executive vice president and director 233 00:12:05,360 --> 00:12:08,200 Speaker 1: of Research at the Federal Reserve Bank of Atlanta, the 234 00:12:08,240 --> 00:12:13,600 Speaker 1: president also of the National Association for Business Economics as well. David, 235 00:12:13,600 --> 00:12:16,920 Speaker 1: come to you first. That survey is pretty brutal. That's 236 00:12:16,920 --> 00:12:19,120 Speaker 1: the fact that these respondents think is going to stay 237 00:12:19,160 --> 00:12:21,439 Speaker 1: behind the curve. Dave, what's this fact going to do 238 00:12:21,480 --> 00:12:28,280 Speaker 1: about it? Well, I mean, the the the form C 239 00:12:28,480 --> 00:12:30,679 Speaker 1: is going to do what the fform C does and 240 00:12:30,679 --> 00:12:36,439 Speaker 1: and conduct monetary policy of course as they deem appropriate 241 00:12:37,320 --> 00:12:40,680 Speaker 1: to meet the committee's goal. So I'm not quite sure 242 00:12:40,720 --> 00:12:43,400 Speaker 1: the survey is going to move the needle and it's 243 00:12:43,440 --> 00:12:46,920 Speaker 1: worth recognizing and remembering that the survey was done a 244 00:12:47,040 --> 00:12:50,520 Speaker 1: week it was in the field a week before the 245 00:12:50,559 --> 00:12:54,360 Speaker 1: meeting itself, so we're not quite certain how that might 246 00:12:54,400 --> 00:12:57,640 Speaker 1: have moved the needle on sentiment. Uh. I imagine I 247 00:12:57,679 --> 00:12:59,400 Speaker 1: will be talking to a lot of people today who 248 00:12:59,440 --> 00:13:01,280 Speaker 1: are going to let me know exactly how it's going 249 00:13:01,320 --> 00:13:04,200 Speaker 1: to move the needle in the sentiment um. But the 250 00:13:04,280 --> 00:13:08,520 Speaker 1: messages were pretty clear that are our members on in 251 00:13:08,720 --> 00:13:12,680 Speaker 1: name have some concerns about inflation and about the course 252 00:13:12,679 --> 00:13:14,960 Speaker 1: of FED policy. Do they think that the FED is 253 00:13:15,160 --> 00:13:19,000 Speaker 1: deliberately going to remain behind the curve or do they think, Dave, 254 00:13:19,080 --> 00:13:22,120 Speaker 1: that we're going to get a FED incapable of curbing 255 00:13:22,160 --> 00:13:24,720 Speaker 1: inflation at a cycle when it's a lot of supply 256 00:13:24,800 --> 00:13:29,000 Speaker 1: chain driven issues, when you have really a conunsum we're 257 00:13:29,040 --> 00:13:31,440 Speaker 1: the only way for them to counter it is to 258 00:13:31,520 --> 00:13:36,319 Speaker 1: damp in demand in a tenuous recovery moment. Yeah, it's 259 00:13:36,320 --> 00:13:39,880 Speaker 1: a little bit hard always to kind of uh interpret 260 00:13:40,440 --> 00:13:44,200 Speaker 1: what any group of individuals mean when they answer a 261 00:13:44,240 --> 00:13:47,400 Speaker 1: survey like this. There are a couple of the details 262 00:13:47,440 --> 00:13:51,720 Speaker 1: sort of in the survey itself, which gives some clues 263 00:13:51,800 --> 00:13:55,560 Speaker 1: about what might be generating some of this um, not 264 00:13:55,679 --> 00:13:59,960 Speaker 1: so sanguine view of inflation. Um, Ukraine is very deaf 265 00:14:00,160 --> 00:14:02,600 Speaker 1: only sort of looming large, and it's loom and it 266 00:14:02,640 --> 00:14:06,680 Speaker 1: shows up in two places really in the survey. In 267 00:14:06,679 --> 00:14:10,400 Speaker 1: In the first place, uh, there is a clear sentiment 268 00:14:10,559 --> 00:14:15,520 Speaker 1: that the situation Ukraine is going to exacerbate and sort 269 00:14:15,559 --> 00:14:19,480 Speaker 1: of elongate the process of getting the supply chain disruption 270 00:14:19,680 --> 00:14:23,560 Speaker 1: sort of back into order. Uh. And the second is 271 00:14:24,240 --> 00:14:30,040 Speaker 1: reaction that, because of the uncertainty associated with the situation 272 00:14:30,080 --> 00:14:35,840 Speaker 1: in Ukraine and probably broader geopolitical concerns, that it will 273 00:14:35,880 --> 00:14:40,240 Speaker 1: create a scenario where, um, there will be a more 274 00:14:40,320 --> 00:14:43,920 Speaker 1: cautious approach than what otherwise would be. So I think 275 00:14:43,920 --> 00:14:49,240 Speaker 1: in part those are elements underneath of the pessimism. I 276 00:14:49,240 --> 00:14:52,680 Speaker 1: don't think it's a didn't pick up any sense that 277 00:14:52,800 --> 00:14:56,280 Speaker 1: it's a belief that the situation with the rate of 278 00:14:56,360 --> 00:14:59,840 Speaker 1: with the inflation rate is not being taken seriously, or 279 00:15:00,040 --> 00:15:05,680 Speaker 1: that the pivot towards of the inflation fight is being 280 00:15:06,120 --> 00:15:09,200 Speaker 1: uh just just lip service. I just think it's a 281 00:15:09,200 --> 00:15:10,920 Speaker 1: lot of the confluence of a lot of these other 282 00:15:11,000 --> 00:15:14,760 Speaker 1: things that are making people a little concerned about whether 283 00:15:14,840 --> 00:15:17,520 Speaker 1: things will be as aggressive as they would like them. David, 284 00:15:17,640 --> 00:15:20,400 Speaker 1: moving beyond the survey, what's your view on the ground 285 00:15:20,600 --> 00:15:22,640 Speaker 1: as head of research at the Atlanta Fed, because they 286 00:15:22,640 --> 00:15:27,280 Speaker 1: do concredible research on GDP, on wages, of the resilience 287 00:15:27,400 --> 00:15:33,680 Speaker 1: of the American consumer. Well, I mean, we're still detecting 288 00:15:34,000 --> 00:15:39,560 Speaker 1: virtually no signals of any um softening of demand when 289 00:15:39,600 --> 00:15:42,760 Speaker 1: we talked to firms. Uh, and we talked to a 290 00:15:42,800 --> 00:15:44,720 Speaker 1: lot of them. I mean, we spend a great deal 291 00:15:44,760 --> 00:15:47,880 Speaker 1: of our time with our boots on the ground talking 292 00:15:47,920 --> 00:15:53,560 Speaker 1: to the people actually making pricing decisions and employment decisions. Uh, 293 00:15:53,600 --> 00:15:56,800 Speaker 1: there really is not much of a signal we're getting 294 00:15:56,960 --> 00:16:02,800 Speaker 1: that of consumer demand is substantially weakening. UM. Pricing power 295 00:16:02,960 --> 00:16:06,600 Speaker 1: appears to not be waning at all, at least from 296 00:16:06,600 --> 00:16:10,480 Speaker 1: the anecdotal reports and actually from survey reports as well. 297 00:16:11,160 --> 00:16:15,080 Speaker 1: And there's some you know, the question is always how 298 00:16:15,120 --> 00:16:18,480 Speaker 1: long can that last? UM? But no one is sort 299 00:16:18,520 --> 00:16:24,360 Speaker 1: of ringing the bell about the process of of fairly 300 00:16:24,400 --> 00:16:29,720 Speaker 1: strong uh consumer demand and fairly resilient demand. Uh. That 301 00:16:29,760 --> 00:16:33,360 Speaker 1: seems to still be the play on the subject of demand, 302 00:16:33,400 --> 00:16:36,680 Speaker 1: and it's in elasticity or elasticity though, Dave, at what 303 00:16:36,720 --> 00:16:40,080 Speaker 1: point would you start to expect demand destruction to to 304 00:16:40,200 --> 00:16:42,480 Speaker 1: kick in. Is there this historical level that you'd be 305 00:16:42,520 --> 00:16:48,520 Speaker 1: watching um no um. I mean, one of the things 306 00:16:48,560 --> 00:16:52,880 Speaker 1: that we've obviously been fairly uh concerned about and tuned 307 00:16:52,920 --> 00:16:57,960 Speaker 1: into is the waning of the fiscal stimulus. But if 308 00:16:58,000 --> 00:17:02,600 Speaker 1: you if you, for example, track consumer spending with wage 309 00:17:02,640 --> 00:17:06,359 Speaker 1: and salary income, those things tracked very closely, and what 310 00:17:06,480 --> 00:17:09,600 Speaker 1: that means is there was an awful lot of the 311 00:17:09,680 --> 00:17:14,600 Speaker 1: stimulus that was essentially kept in reserve and not used 312 00:17:14,640 --> 00:17:20,119 Speaker 1: to um support in a substantial way, uh spending beyond 313 00:17:20,119 --> 00:17:22,800 Speaker 1: the early age, you know, early days of the pandemic. 314 00:17:23,440 --> 00:17:26,639 Speaker 1: So it would seem just from that sort of information 315 00:17:26,680 --> 00:17:30,880 Speaker 1: and that sort of data that there um uh there's 316 00:17:31,000 --> 00:17:34,200 Speaker 1: not a situation where the consumers way out over their 317 00:17:34,359 --> 00:17:41,000 Speaker 1: skis and unable to kind of sustain through uh the 318 00:17:41,760 --> 00:17:44,520 Speaker 1: fading away of all the support that happened as a 319 00:17:44,560 --> 00:17:47,240 Speaker 1: result of the pandemic. I've awsome to catch up because 320 00:17:47,359 --> 00:17:49,320 Speaker 1: I've got a busy a few days, busy week ahead 321 00:17:49,359 --> 00:17:51,040 Speaker 1: of you. So thanks for spending some time with this 322 00:17:51,080 --> 00:18:00,359 Speaker 1: stavertic that of the Federal Reserve Bank of Atlanta. Devid 323 00:18:00,440 --> 00:18:03,359 Speaker 1: Raley join US now Chief Investment strategist of Blue Pay 324 00:18:03,400 --> 00:18:06,080 Speaker 1: Asset Management, David. I won't ask you a pointed question, 325 00:18:06,119 --> 00:18:08,160 Speaker 1: I'll ask you an open one. Your reaction to what's 326 00:18:08,160 --> 00:18:11,119 Speaker 1: happening in this bond market at the moment. Yeah, I 327 00:18:11,160 --> 00:18:15,480 Speaker 1: think the bond market is um you know, clearly signaling 328 00:18:15,600 --> 00:18:18,879 Speaker 1: that it is not as bullish as certainly the equity market. 329 00:18:18,920 --> 00:18:20,199 Speaker 1: I mean, I think there is a little bit of 330 00:18:20,200 --> 00:18:24,480 Speaker 1: a sort of disconnect between those two, and if you 331 00:18:24,520 --> 00:18:26,320 Speaker 1: look at the one year forward tend to it is 332 00:18:26,359 --> 00:18:30,440 Speaker 1: already inverted. That being said, I don't think the bond 333 00:18:30,480 --> 00:18:36,959 Speaker 1: market is necessarily pricing you know, a high risk of recession. 334 00:18:37,080 --> 00:18:39,359 Speaker 1: I think what it's pricing at the longer end, it's 335 00:18:39,440 --> 00:18:43,240 Speaker 1: just a wider distribution of outcomes. This uncertainty that you 336 00:18:43,280 --> 00:18:47,879 Speaker 1: know you've been talking about in during the program. You know, 337 00:18:47,920 --> 00:18:51,560 Speaker 1: where is inflation going to settle, how far is the 338 00:18:51,600 --> 00:18:54,359 Speaker 1: Fed going to raise rates, and what's the outlook for growth? 339 00:18:54,400 --> 00:18:57,320 Speaker 1: Not this year, which I think is reasonably going to 340 00:18:57,359 --> 00:18:59,359 Speaker 1: be reasonably kind of solid, but you know, if we're 341 00:18:59,359 --> 00:19:03,560 Speaker 1: going to twenty twenty three, and what we do know 342 00:19:03,760 --> 00:19:05,679 Speaker 1: and is getting priced in the two year no, is 343 00:19:05,680 --> 00:19:08,560 Speaker 1: that the Fed is on a hiking cycle. Um, they're 344 00:19:08,560 --> 00:19:11,800 Speaker 1: going to be raising rates twenty five basis points every 345 00:19:11,840 --> 00:19:14,720 Speaker 1: every meeting, is going to start balance sheet reduction as well, 346 00:19:15,080 --> 00:19:18,720 Speaker 1: and also wants some tiding and financial conditions, and that 347 00:19:19,080 --> 00:19:21,240 Speaker 1: I think it's going to be quite a meaningful headwind 348 00:19:21,280 --> 00:19:24,639 Speaker 1: for risk assets and particularly for equities. David, if we 349 00:19:24,640 --> 00:19:28,040 Speaker 1: were to price stagflation in fixed income, and this is 350 00:19:28,040 --> 00:19:30,399 Speaker 1: not a view of mine, a personal opinion, this is 351 00:19:30,400 --> 00:19:34,320 Speaker 1: an observation about what is happening in fixed income, you 352 00:19:34,359 --> 00:19:37,520 Speaker 1: would say what would happen ultimately is that you would 353 00:19:37,560 --> 00:19:39,879 Speaker 1: start to see an inversion of the yield curve because 354 00:19:39,920 --> 00:19:43,359 Speaker 1: this market would start to smell out slowing growth. And 355 00:19:43,440 --> 00:19:46,840 Speaker 1: what you would also see is elevated break evens because 356 00:19:46,840 --> 00:19:50,520 Speaker 1: this market would believe that even with slowing growth, inflation 357 00:19:50,520 --> 00:19:53,480 Speaker 1: will remain elevator. And David, I have to say, that's 358 00:19:53,520 --> 00:19:56,840 Speaker 1: exactly what I could see post Federal Reserve. What we've 359 00:19:56,880 --> 00:19:59,879 Speaker 1: seen is the curve slowly invert. Nominal yields to his 360 00:20:00,000 --> 00:20:02,719 Speaker 1: out to tens. We've got three ye yeelds above tens, 361 00:20:02,800 --> 00:20:05,440 Speaker 1: five or year olds above tens, seven year olds above tens. 362 00:20:05,480 --> 00:20:08,920 Speaker 1: That's nominal sorted. Look at break evens at the highs 363 00:20:08,960 --> 00:20:12,200 Speaker 1: of the year last week, David on ten year break evens. 364 00:20:12,640 --> 00:20:16,119 Speaker 1: Isn't that what stagflation starts to look like in fixed income? 365 00:20:16,840 --> 00:20:19,520 Speaker 1: I mean, you're right to highlight that, Jonathan, But also 366 00:20:19,560 --> 00:20:21,520 Speaker 1: I would say, look at the five year, five year 367 00:20:21,640 --> 00:20:24,679 Speaker 1: in terms of inflation break evens, and that's actually not 368 00:20:24,800 --> 00:20:27,600 Speaker 1: that far above what you would consider to be over 369 00:20:27,640 --> 00:20:31,080 Speaker 1: the medium term the Fed's target. What the market has 370 00:20:31,119 --> 00:20:32,680 Speaker 1: done and what the bond market has done is say, 371 00:20:32,720 --> 00:20:37,480 Speaker 1: we've got a stagflationary shock coming from uh, the Russian 372 00:20:37,480 --> 00:20:41,199 Speaker 1: war on Ukraine. We don't know how severe that's going 373 00:20:41,240 --> 00:20:43,760 Speaker 1: to be, both in terms of growth and in terms 374 00:20:43,760 --> 00:20:46,040 Speaker 1: of inflation, because you know, it depends on how that 375 00:20:46,119 --> 00:20:50,960 Speaker 1: conflict develops, what happens in terms of commodity prices. But 376 00:20:50,960 --> 00:20:52,560 Speaker 1: but we do know that inflation is going to be 377 00:20:52,640 --> 00:20:56,000 Speaker 1: higher um as as a result of that, particularly in 378 00:20:56,119 --> 00:20:59,639 Speaker 1: the nearer terms. So you know, clearly the market, I 379 00:20:59,680 --> 00:21:02,360 Speaker 1: think is pricing, and the bond market, as I say, 380 00:21:02,440 --> 00:21:05,680 Speaker 1: is pricing a sort of broader distribution of of of risk, 381 00:21:05,760 --> 00:21:08,320 Speaker 1: and I think that's why you know we're starting to 382 00:21:08,359 --> 00:21:10,760 Speaker 1: get a bit of a bid at the longer end. 383 00:21:11,480 --> 00:21:15,359 Speaker 1: Um well, that inflationary pressure is feeding through. In terms 384 00:21:15,480 --> 00:21:17,639 Speaker 1: of this, you know, more hawk is few if you like, 385 00:21:17,720 --> 00:21:21,479 Speaker 1: in terms of the FED. But you know, I actually 386 00:21:21,480 --> 00:21:24,080 Speaker 1: think now we're pretty fairly priced at the short end. 387 00:21:24,119 --> 00:21:27,760 Speaker 1: I mean, we've closed are sort of short duration positions 388 00:21:27,800 --> 00:21:30,200 Speaker 1: at the short end of the curve because I don't 389 00:21:30,200 --> 00:21:32,040 Speaker 1: think the FED is going to be more aggressive than 390 00:21:32,080 --> 00:21:34,080 Speaker 1: they're setting out at the moment. But I do think 391 00:21:34,080 --> 00:21:36,640 Speaker 1: the FED is clearly signaling and power is very clear. 392 00:21:36,680 --> 00:21:39,639 Speaker 1: I thought on this in the press conference is if 393 00:21:39,640 --> 00:21:42,639 Speaker 1: we want to avoid those stagflationary risks, we need to 394 00:21:42,680 --> 00:21:45,000 Speaker 1: get to neutral sooner rather than later. So I think, 395 00:21:45,119 --> 00:21:47,399 Speaker 1: you know they are on a path to more aggressive 396 00:21:47,800 --> 00:21:50,199 Speaker 1: or you know, hence whether they kind of validated that 397 00:21:50,200 --> 00:21:54,080 Speaker 1: more aggressive path for for for eight heights and then 398 00:21:54,440 --> 00:21:58,000 Speaker 1: you know, let's see what happens in three. My bias 399 00:21:58,040 --> 00:22:00,000 Speaker 1: is actually the FED will have to do more big 400 00:22:00,000 --> 00:22:04,280 Speaker 1: as are those sticky in inflation. But right now I 401 00:22:04,320 --> 00:22:06,520 Speaker 1: think the market is recently well priced, particularly at the 402 00:22:06,560 --> 00:22:09,600 Speaker 1: short end. David, just quickly here, if you're just as 403 00:22:09,640 --> 00:22:11,840 Speaker 1: confused as we are, what's the safest as a class 404 00:22:11,920 --> 00:22:15,600 Speaker 1: right now? The safest as a class, I think, I 405 00:22:15,600 --> 00:22:18,919 Speaker 1: mean where I would go and where we've been, you know, 406 00:22:19,000 --> 00:22:23,560 Speaker 1: at the margin, adding some risk is basically for example, 407 00:22:23,720 --> 00:22:26,359 Speaker 1: in in in credit, I mean the credit market. You know, 408 00:22:26,400 --> 00:22:28,240 Speaker 1: it is the other part of the broader bomb market, 409 00:22:28,320 --> 00:22:31,400 Speaker 1: and it's not signaling near term recession risk. But we've 410 00:22:31,400 --> 00:22:36,000 Speaker 1: seen a pretty meaningful repricing both in yield and spread terms, 411 00:22:36,000 --> 00:22:38,639 Speaker 1: and I think you're getting adibly compensated for the default 412 00:22:38,720 --> 00:22:42,440 Speaker 1: risk over the next twelve months or so. So UM, 413 00:22:42,480 --> 00:22:45,639 Speaker 1: I actually do like some of um you know, parts 414 00:22:45,640 --> 00:22:49,119 Speaker 1: of the credit market, and in places like within structured credit, 415 00:22:49,160 --> 00:22:53,840 Speaker 1: getting exposure to the US consumer through for example, mortgage 416 00:22:53,840 --> 00:22:57,240 Speaker 1: securities and other structured credit. I think, as your previous 417 00:22:57,320 --> 00:23:00,440 Speaker 1: guest was highlighting, the U s consumers still proving to 418 00:23:00,480 --> 00:23:03,280 Speaker 1: be pretty resilient. So if you're a little bit cautious 419 00:23:03,280 --> 00:23:06,520 Speaker 1: around sort of corporate risk, I think actually US consumer 420 00:23:06,600 --> 00:23:10,760 Speaker 1: risk is a good place to take exposure. Interesting David Raleigh, 421 00:23:11,000 --> 00:23:13,480 Speaker 1: Thank you, sir. Fantastic to catch up with flood Bay 422 00:23:13,560 --> 00:23:18,160 Speaker 1: asset Management. This is the Bloomberg Surveillance Podcast. Thanks for listening. 423 00:23:18,520 --> 00:23:21,280 Speaker 1: Join us live weekdays from seven to ten a m. 424 00:23:21,400 --> 00:23:25,800 Speaker 1: Eastern on Bloomberg Radio and on Bloomberg Television. Each day 425 00:23:25,920 --> 00:23:29,560 Speaker 1: from six to nine am for insight from the best 426 00:23:29,600 --> 00:23:34,679 Speaker 1: in economics, finance, investment, and international relations. And subscribe to 427 00:23:34,760 --> 00:23:39,480 Speaker 1: the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, 428 00:23:39,560 --> 00:23:42,800 Speaker 1: and of course, on the terminal. I'm Tom Keene, and 429 00:23:42,920 --> 00:23:44,840 Speaker 1: this is Bloomberg.