WEBVTT - Surveillance: Latvia Defense Minister Pabriks 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.280 dot Com, and of course on the Bloomberg terminal. We've 0:00:29.320 --> 0:00:32.200 been very lucky over the last month with a fantastic 0:00:32.200 --> 0:00:35.360 team at Bloomberg, including Bloomberg's Maria. Today, I'm bringing us 0:00:35.400 --> 0:00:38.720 some of the conversations out of Brussels and out of 0:00:38.720 --> 0:00:41.400 the continent as well. And we have another one right now, 0:00:41.600 --> 0:00:45.360 Hey Maria. Yes, Jonathan, and we're now joined by Latvia's 0:00:45.440 --> 0:00:48.320 UH defense Minister of Babis Atkis who of course he 0:00:48.320 --> 0:00:51.080 he's one of the most outspoken ministers, I would say 0:00:51.200 --> 0:00:54.280 in in the European Union when it comes to defense, Sir, 0:00:54.520 --> 0:00:57.080 you were telling me off camera Europe really needs a 0:00:57.120 --> 0:01:00.320 reality check. We needs to be much more forceful on Russia. 0:01:00.360 --> 0:01:02.800 When you say that, what do you mean? I would 0:01:02.880 --> 0:01:07.679 like to say that the job is half done, because yes, 0:01:07.840 --> 0:01:11.080 we reacted in quite a unitary form as far as 0:01:11.080 --> 0:01:14.200 the sanctions towards Russia. And also as far as the 0:01:14.240 --> 0:01:18.560 military and umlitarian assistance to Ukraine. But now we are 0:01:18.600 --> 0:01:21.800 already in the third force week of this aggression from 0:01:21.880 --> 0:01:25.000 Russian side, and the job is half done because there 0:01:25.000 --> 0:01:29.480 are still companies in Russia which are functioning for different 0:01:29.480 --> 0:01:33.240 types of reasons. Then as far as Europe itself, I 0:01:33.280 --> 0:01:37.800 think we have to go complete with completion of this 0:01:38.280 --> 0:01:45.640 deep butinization of these societies where the corrupt oligarchic, autoritarian 0:01:45.800 --> 0:01:51.680 Russian people have been really very deeply routed now in 0:01:51.720 --> 0:01:54.560 these societies and this have to be done. And as 0:01:54.600 --> 0:01:57.800 far as the military and other support to Ukraine, I 0:01:57.880 --> 0:02:01.560 would say that maybe it's sounds at the beginning very 0:02:01.680 --> 0:02:05.320 kind of even dangerous approach, but I think we should 0:02:05.360 --> 0:02:10.920 consider to reverse this very early escape of number of 0:02:10.919 --> 0:02:15.959 our embassies from Kiev because the country needs to support 0:02:16.160 --> 0:02:19.320 Ukraine needs to support. And And so when you say deepotinized, 0:02:19.360 --> 0:02:21.040 I wonder what do you mean by that, and if 0:02:21.080 --> 0:02:23.200 and if it means what I think it means. Many 0:02:23.240 --> 0:02:26.200 europe say that's very provocative, but you say Europe should 0:02:26.200 --> 0:02:28.880 not be scared being provocative when it comes to Russia. 0:02:28.919 --> 0:02:31.280 So how do you go about that? Well, first, of all, 0:02:31.560 --> 0:02:34.639 Kremlin thinking about provocation is very simple. If they will 0:02:34.680 --> 0:02:37.359 be willing to do they will always find an excuse 0:02:37.400 --> 0:02:40.640 to tell that this is a provocation. So that's not important. 0:02:40.720 --> 0:02:43.440 I think we simply should looten to the eyes of 0:02:43.840 --> 0:02:47.160 Kremlin leaders and say, now you committed the crime. You 0:02:47.240 --> 0:02:51.120 committed aggression. Now we will act. And there is nothing 0:02:52.520 --> 0:02:56.519 provocative by simply telling. Look, you have been by corruptive 0:02:56.600 --> 0:03:00.440 or other means, buying these villas, buying these proper taste, 0:03:00.760 --> 0:03:03.800 and you are now waging an aggressive war, just like 0:03:03.919 --> 0:03:07.679 Hitler's Germany against a neighboring country. But at the same 0:03:07.680 --> 0:03:09.680 time you still want to enjoy a great life in 0:03:09.720 --> 0:03:12.560 the rest which you despise. This is not possible. And 0:03:12.560 --> 0:03:14.200 and and of course I want to ask you one thing. 0:03:14.800 --> 0:03:17.360 You know, you say deputinize, you say a lot of 0:03:17.360 --> 0:03:20.919 this is almost like Hitler after Nazi Germany. Uh, your 0:03:20.960 --> 0:03:22.959 country has a history with Russia. Of course, it is 0:03:23.000 --> 0:03:24.440 no not a secret that you were a part of 0:03:24.440 --> 0:03:26.840 the Soviet Union. I wonder when you look at what's happening, 0:03:26.919 --> 0:03:29.120 is this Vladimir Putting being a madman? Or is this 0:03:29.240 --> 0:03:31.919 someone who has made very clear over twenty years. My 0:03:32.120 --> 0:03:34.480 idea is to restore the U. S. S R. Because 0:03:34.520 --> 0:03:37.320 it's greatness for Russia that I'm after. In many ways, 0:03:37.400 --> 0:03:40.480 we have been warning already for almost twenty years. So 0:03:40.560 --> 0:03:43.440 he's not a madman that's happening. What is his state 0:03:43.480 --> 0:03:46.680 of mind personally at this moment. It's difficult to say, 0:03:46.720 --> 0:03:49.840 because we don't know the information from the first hands, 0:03:49.880 --> 0:03:53.640 And of course he is kind of confused because he 0:03:53.760 --> 0:03:57.280 was obviously not thinking that this type of war will 0:03:57.320 --> 0:04:00.840 not succeed. But at the same time time we still 0:04:01.080 --> 0:04:05.560 have to act in a way that we force all 0:04:05.600 --> 0:04:09.840 the Russian society also to think it stands and I 0:04:09.880 --> 0:04:13.440 think it includes also very much of information sphere and 0:04:13.440 --> 0:04:17.600 and all the possibility to break this bubble of information 0:04:17.920 --> 0:04:21.520 which Kremlin is using for their own population and and searches. 0:04:21.600 --> 0:04:24.159 Two very brief questions. There's a real debate about what 0:04:24.200 --> 0:04:26.520 to do with energy imports. It is becoming clear that 0:04:26.600 --> 0:04:28.160 your sanctions and you said this is going to be 0:04:28.200 --> 0:04:30.320 the mother of all sanctions, but they're not for Russia. 0:04:30.360 --> 0:04:33.040 They continue to meet females and dollars. Is it time 0:04:33.040 --> 0:04:35.880 to step it up and target energy? Well, first of all, 0:04:35.920 --> 0:04:38.280 we have to get out all the Western companies from Russia, 0:04:38.480 --> 0:04:41.600 it's their model duty to leave this country now. As 0:04:41.640 --> 0:04:44.200 far as energy, of course, if the country have been 0:04:44.200 --> 0:04:47.640 on the gas or oil needle for twenty or thirty years, 0:04:47.920 --> 0:04:50.479 it's difficult to do it in one day. But imagine 0:04:50.520 --> 0:04:55.800 the situation. What if that not be Ukraine invaded by Russia, 0:04:55.880 --> 0:04:59.120 but would be European Union invaded. Would be still go 0:04:59.200 --> 0:05:03.200 into the war and buy GUS. So it's so it's 0:05:03.240 --> 0:05:06.159 a mistakes. So when Germany says the reality is we 0:05:06.240 --> 0:05:09.080 can unplug, you're thinking, as a Germany is wrong. You 0:05:09.120 --> 0:05:12.719 can't do it. Well, it's probably very difficult to do 0:05:12.800 --> 0:05:15.599 it immediately, but let's put it like this, to be rational. 0:05:15.640 --> 0:05:19.640 At the same time, we probably have to be hyper 0:05:19.839 --> 0:05:23.720 active and very fast to unplug as fast as we can, 0:05:24.200 --> 0:05:26.400 really as fast as we can, and not to think 0:05:26.440 --> 0:05:29.200 about returning to this anymore. So you say after this 0:05:29.440 --> 0:05:32.240 is a point of no return. Essentially it's it's isolation 0:05:32.240 --> 0:05:35.120 for Russia. But when it comes to Ukraine, there's many 0:05:35.200 --> 0:05:37.920 out there who believe at this point this is a 0:05:37.920 --> 0:05:40.440 hell of awards. Twenty six days, it's been brutal on 0:05:40.520 --> 0:05:43.479 the Ukrainian population, just negotiate any ceasefire and get on 0:05:43.560 --> 0:05:46.440 with it. What's your take on that ceasefire is not 0:05:46.520 --> 0:05:50.719 a way out, as a way out is immediate withdrawal 0:05:50.800 --> 0:05:53.880 of all the Russian troops from Ukrainian territory. There is 0:05:53.880 --> 0:05:57.120 no other way out. And I would say that Ukrainians 0:05:57.279 --> 0:06:00.640 buy their blood paid also for the membership in your union. 0:06:01.000 --> 0:06:04.359 So I understand you cry Ukraine cannot become a member 0:06:04.360 --> 0:06:07.440 today tomorrow, but there must be a certain fast track 0:06:07.600 --> 0:06:10.360 established along with the way how we will pay because 0:06:10.400 --> 0:06:12.839 we would have to pay for the construction of this country. 0:06:12.920 --> 0:06:15.760 So I believe that five years that would be the 0:06:15.880 --> 0:06:18.880 limit put also in our planning when we, if everything 0:06:18.920 --> 0:06:22.200 goes okay, should accept this country as a member country. 0:06:22.400 --> 0:06:24.960 And and over the weekend we saw the Russian say 0:06:25.000 --> 0:06:27.440 you have to surrender Marouble. We also saw them bringing 0:06:27.440 --> 0:06:29.840 out the big weapons of the hypersonic missiles. When you 0:06:29.839 --> 0:06:32.960 look at the situation on the ground, do you really believe, seriously, 0:06:33.000 --> 0:06:35.360 look into your heart, the Ukraine can win this war. 0:06:35.920 --> 0:06:38.320 You can already won this war. Yes, there will be 0:06:38.360 --> 0:06:42.200 more sacrifices. But even if Mariopo falls, even if key 0:06:42.200 --> 0:06:45.000 of falls, which I don't think will happen as a 0:06:45.080 --> 0:06:48.479 struggle will continue because these people have nowhere to retreat. 0:06:48.640 --> 0:06:51.799 And in fact I must say also our particularly Western 0:06:51.800 --> 0:06:55.560 European and friends and sisters and brothers also we have 0:06:55.880 --> 0:06:58.560 nowhere to retreat. This is a way where we have 0:06:58.680 --> 0:07:01.120 to stand and keep the lot time because we have 0:07:01.200 --> 0:07:05.120 been retreating on the front of this aggressive and dictator 0:07:05.240 --> 0:07:08.240 for too long and that was our hugest mistake. And 0:07:08.320 --> 0:07:10.880 just the final question. I know you have communications with 0:07:10.920 --> 0:07:13.800 the Ukrainian government. Were you here for Zelenski? Is it 0:07:13.880 --> 0:07:15.880 obvious to you that does man will either win or 0:07:15.920 --> 0:07:18.440 die in Ukraine and that's his thinking here will win 0:07:19.200 --> 0:07:22.200 and we should stand with him. Well, sir, thank you 0:07:22.240 --> 0:07:24.960 so much. Of course, always good to speak to you, 0:07:25.000 --> 0:07:27.920 and you certainly are are very open with your words. 0:07:27.920 --> 0:07:30.280 Of course I was glad VIA's Defense minister. Mr Fabric's 0:07:30.320 --> 0:07:34.040 joining us here in Brussels today, Jonathan Maria, thank you. 0:07:34.120 --> 0:07:43.040 Wonderful work has always Leslie Felconio joined us now seeing 0:07:43.040 --> 0:07:45.720 your fixed income strategies for the America's at UBS Global 0:07:45.760 --> 0:07:48.120 Wealth Management, Leslie, I want to start with this bond market. 0:07:48.840 --> 0:07:51.480 Can I be blunt? Is bizarre coming out of chairman 0:07:51.520 --> 0:07:54.560 pound the news conference on Wednesday to see break even's higher, 0:07:54.720 --> 0:07:58.400 not lower, real yields lower, not higher, the curve starting 0:07:58.440 --> 0:08:00.160 to invert a little bit, Leslie, can you make sense 0:08:00.200 --> 0:08:03.440 of this why we're pricing almost in some parts some 0:08:03.480 --> 0:08:05.440 pockets are fixed income. It was as if we had 0:08:05.440 --> 0:08:09.120 a Dovish news Comforts and a Dovish meet sinc. Well, 0:08:09.120 --> 0:08:11.080 I don't think it's surprising that the short end of 0:08:11.120 --> 0:08:13.000 the break evens are actually moving higher. And when you 0:08:13.000 --> 0:08:16.280 think about really what's happening with sanctions and now with 0:08:16.400 --> 0:08:18.800 Russian Ukraine and some of the an increase in the 0:08:18.800 --> 0:08:21.560 supply chain bottleneck and the increase in oil that we're seeing. 0:08:21.800 --> 0:08:23.720 But to your point, I mean, having the tenure break 0:08:23.800 --> 0:08:26.440 even reached that three percent level, you know, it's not 0:08:26.680 --> 0:08:29.080 you know, concerning, but it's something that definitely believe that 0:08:29.080 --> 0:08:31.120 the FED is going to watch going forward. I mean, 0:08:31.280 --> 0:08:34.600 and I think the real gield rate now our expectation 0:08:34.840 --> 0:08:37.160 for real guilds, at least in the tenure area is 0:08:37.200 --> 0:08:39.880 to move higher. Ian we do expect break evens, particularly 0:08:39.920 --> 0:08:42.240 the long end, as the FED starts to become a 0:08:42.240 --> 0:08:45.120 bit more aggressive, to come down. But that short end, 0:08:45.160 --> 0:08:48.040 which is really you know, moved by sentiment, and things 0:08:48.080 --> 0:08:50.800 like oil might stay the breake evens might say happen 0:08:50.880 --> 0:08:53.480 quite some time. So Leslie, this is the aspect that 0:08:53.600 --> 0:08:56.200 really doesn't make sense to me that not only do 0:08:56.280 --> 0:08:59.599 we see tenure treasury yield still relatively low versus the 0:08:59.640 --> 0:09:03.120 expectations for inflation over the next ten years, but also 0:09:03.440 --> 0:09:06.720 people are pouring money at the fastest pace, uh, some 0:09:06.760 --> 0:09:09.160 of the fastest paces we've seen in the past decade. 0:09:09.200 --> 0:09:10.840 If you look at the e t F that tracks 0:09:10.880 --> 0:09:13.520 the longest dated e t f s. Does this make 0:09:13.559 --> 0:09:16.400 sense to you that people see value in two point 0:09:16.520 --> 0:09:20.680 one eight percent yields on a ten year note. Well, 0:09:20.720 --> 0:09:23.840 I think that the expectation is at least our expectation 0:09:23.960 --> 0:09:25.880 is only looking for about like a two point three 0:09:25.920 --> 0:09:28.040 percent ten year yield. And you have to remember how 0:09:28.120 --> 0:09:30.480 quickly Removed went from one a half percent in the 0:09:30.480 --> 0:09:32.120 beginning of the year all the way to a two 0:09:32.160 --> 0:09:35.120 point two four within ten weeks. That is an incredible move. 0:09:35.200 --> 0:09:38.199 And now that the ft is has become fairly aggressive, 0:09:38.320 --> 0:09:40.280 not to menagtion, the fact we do have qut in 0:09:40.400 --> 0:09:43.400 may more than likely, you know, there is a normalization 0:09:43.400 --> 0:09:45.440 of the yield curves, So I do understand why people 0:09:45.480 --> 0:09:47.760 would really want to stop and take on some interest 0:09:47.800 --> 0:09:50.920 rate risk at these levels. Normalization of the yield curve. 0:09:51.000 --> 0:09:53.520 Let's talk about the yield curve. Leslie's two stands. Does 0:09:53.559 --> 0:09:57.480 it invert? If so, when I think there's a potential 0:09:57.520 --> 0:09:59.440 that you know, two tents can invert, you know, the 0:09:59.520 --> 0:10:01.559 latter half the year. But I also think it's important 0:10:01.559 --> 0:10:04.160 to note that it's not just tipps and verts, it's 0:10:04.160 --> 0:10:07.719 a magnitude of the inversion and how sustainable that vision is. 0:10:07.760 --> 0:10:09.480 I mean, we all know when the curb and verts, 0:10:09.640 --> 0:10:12.000 you know, it's a it's a coincident indicator in our opinion, 0:10:12.240 --> 0:10:14.120 you know, two or three years out, you know, does 0:10:14.320 --> 0:10:16.679 can indicate a recession. But we look at things like 0:10:16.679 --> 0:10:19.240 the two year yield which went to two percent. I mean, 0:10:19.240 --> 0:10:21.000 this is some of the biggest moves that we've seen, 0:10:21.360 --> 0:10:23.640 with the FED only going twenty five basis points right, 0:10:23.679 --> 0:10:26.440 that magnitude of the moved two year yield, the FED 0:10:26.440 --> 0:10:27.960 funds ring would already be a one and a a quarter 0:10:28.000 --> 0:10:30.240 one and a half min now nicely, just looking at 0:10:30.240 --> 0:10:32.560 the yield curve, then let's sum it up. Threes are 0:10:32.600 --> 0:10:37.360 basically in line with tens. Five yields above tens seven 0:10:37.440 --> 0:10:41.880 year yields above tens should not constrain risk appetite our 0:10:42.000 --> 0:10:44.320 swhere or do you think investors will just look through 0:10:44.360 --> 0:10:47.280 some of this. I think it's really gonna depend on 0:10:47.320 --> 0:10:49.720 real guilds. I remember, real guilds are still negative. The 0:10:49.840 --> 0:10:52.560 term premiums on me, you know. And at the end 0:10:52.559 --> 0:10:54.360 of the day, again, I know we always say this, 0:10:54.440 --> 0:10:56.760 but it's true. It really does come down to the consumer, 0:10:57.240 --> 0:10:59.920 and you know, real consumption is still still very strong. 0:11:00.400 --> 0:11:03.719 Let's not forget the majority of consumer debt is mortgages, 0:11:03.960 --> 0:11:07.400 and the majority of those mortgages are fixed. So I mean, 0:11:07.440 --> 0:11:09.520 we do think that obviously that you could have some 0:11:09.600 --> 0:11:12.600 headwinds from the inversion, but really you'll still remain negative. 0:11:13.240 --> 0:11:16.640 So Leslie, what are you actually doing well? We've been, 0:11:16.679 --> 0:11:19.199 you know, are we've had we would say, in the 0:11:19.200 --> 0:11:20.760 fixed income side, more of a risk on. I mean, 0:11:20.760 --> 0:11:23.600 our expectation was an interest rates of rise heading into 0:11:23.640 --> 0:11:26.400 the year. We've liked that floating rate asset things like 0:11:26.440 --> 0:11:28.440 senior loans, so we've had a bit of what we 0:11:28.520 --> 0:11:31.920 could consider credit exposure. But now again as we started 0:11:31.920 --> 0:11:35.079 starting normalize Advan, and we've seen this headwind from interest 0:11:35.160 --> 0:11:39.080 rates going higher and spreads widening the two variables, which 0:11:39.160 --> 0:11:41.600 is a major headwind towards total return and performance on 0:11:41.600 --> 0:11:43.400 the fixed income side. You know, it may not be 0:11:43.400 --> 0:11:44.920 a bad time to you know, go a little bit 0:11:44.960 --> 0:11:46.560 up and fality, and as we said, even on the 0:11:46.640 --> 0:11:49.520 right side, we don't expect indust rates to really move 0:11:49.679 --> 0:11:53.160 materially higher from here. Leslie, thank you for your perspective, 0:11:53.160 --> 0:11:55.080 and so White so Lesie found county of that of 0:11:55.240 --> 0:12:02.400 UBS Global Wealth Management. We have got a perfect conversation 0:12:02.440 --> 0:12:05.360 now with Dave Eltzic, the executive vice president and director 0:12:05.360 --> 0:12:08.200 of Research at the Federal Reserve Bank of Atlanta, the 0:12:08.240 --> 0:12:13.600 president also of the National Association for Business Economics as well. David, 0:12:13.600 --> 0:12:16.920 come to you first. That survey is pretty brutal. That's 0:12:16.920 --> 0:12:19.120 the fact that these respondents think is going to stay 0:12:19.160 --> 0:12:21.439 behind the curve. Dave, what's this fact going to do 0:12:21.480 --> 0:12:28.280 about it? Well, I mean, the the the form C 0:12:28.480 --> 0:12:30.679 is going to do what the fform C does and 0:12:30.679 --> 0:12:36.439 and conduct monetary policy of course as they deem appropriate 0:12:37.320 --> 0:12:40.680 to meet the committee's goal. So I'm not quite sure 0:12:40.720 --> 0:12:43.400 the survey is going to move the needle and it's 0:12:43.440 --> 0:12:46.920 worth recognizing and remembering that the survey was done a 0:12:47.040 --> 0:12:50.520 week it was in the field a week before the 0:12:50.559 --> 0:12:54.360 meeting itself, so we're not quite certain how that might 0:12:54.400 --> 0:12:57.640 have moved the needle on sentiment. Uh. I imagine I 0:12:57.679 --> 0:12:59.400 will be talking to a lot of people today who 0:12:59.440 --> 0:13:01.280 are going to let me know exactly how it's going 0:13:01.320 --> 0:13:04.200 to move the needle in the sentiment um. But the 0:13:04.280 --> 0:13:08.520 messages were pretty clear that are our members on in 0:13:08.720 --> 0:13:12.680 name have some concerns about inflation and about the course 0:13:12.679 --> 0:13:14.960 of FED policy. Do they think that the FED is 0:13:15.160 --> 0:13:19.000 deliberately going to remain behind the curve or do they think, Dave, 0:13:19.080 --> 0:13:22.120 that we're going to get a FED incapable of curbing 0:13:22.160 --> 0:13:24.720 inflation at a cycle when it's a lot of supply 0:13:24.800 --> 0:13:29.000 chain driven issues, when you have really a conunsum we're 0:13:29.040 --> 0:13:31.440 the only way for them to counter it is to 0:13:31.520 --> 0:13:36.319 damp in demand in a tenuous recovery moment. Yeah, it's 0:13:36.320 --> 0:13:39.880 a little bit hard always to kind of uh interpret 0:13:40.440 --> 0:13:44.200 what any group of individuals mean when they answer a 0:13:44.240 --> 0:13:47.400 survey like this. There are a couple of the details 0:13:47.440 --> 0:13:51.720 sort of in the survey itself, which gives some clues 0:13:51.800 --> 0:13:55.560 about what might be generating some of this um, not 0:13:55.679 --> 0:13:59.960 so sanguine view of inflation. Um, Ukraine is very deaf 0:14:00.160 --> 0:14:02.600 only sort of looming large, and it's loom and it 0:14:02.640 --> 0:14:06.680 shows up in two places really in the survey. In 0:14:06.679 --> 0:14:10.400 In the first place, uh, there is a clear sentiment 0:14:10.559 --> 0:14:15.520 that the situation Ukraine is going to exacerbate and sort 0:14:15.559 --> 0:14:19.480 of elongate the process of getting the supply chain disruption 0:14:19.680 --> 0:14:23.560 sort of back into order. Uh. And the second is 0:14:24.240 --> 0:14:30.040 reaction that, because of the uncertainty associated with the situation 0:14:30.080 --> 0:14:35.840 in Ukraine and probably broader geopolitical concerns, that it will 0:14:35.880 --> 0:14:40.240 create a scenario where, um, there will be a more 0:14:40.320 --> 0:14:43.920 cautious approach than what otherwise would be. So I think 0:14:43.920 --> 0:14:49.240 in part those are elements underneath of the pessimism. I 0:14:49.240 --> 0:14:52.680 don't think it's a didn't pick up any sense that 0:14:52.800 --> 0:14:56.280 it's a belief that the situation with the rate of 0:14:56.360 --> 0:14:59.840 with the inflation rate is not being taken seriously, or 0:15:00.040 --> 0:15:05.680 that the pivot towards of the inflation fight is being 0:15:06.120 --> 0:15:09.200 uh just just lip service. I just think it's a 0:15:09.200 --> 0:15:10.920 lot of the confluence of a lot of these other 0:15:11.000 --> 0:15:14.760 things that are making people a little concerned about whether 0:15:14.840 --> 0:15:17.520 things will be as aggressive as they would like them. David, 0:15:17.640 --> 0:15:20.400 moving beyond the survey, what's your view on the ground 0:15:20.600 --> 0:15:22.640 as head of research at the Atlanta Fed, because they 0:15:22.640 --> 0:15:27.280 do concredible research on GDP, on wages, of the resilience 0:15:27.400 --> 0:15:33.680 of the American consumer. Well, I mean, we're still detecting 0:15:34.000 --> 0:15:39.560 virtually no signals of any um softening of demand when 0:15:39.600 --> 0:15:42.760 we talked to firms. Uh, and we talked to a 0:15:42.800 --> 0:15:44.720 lot of them. I mean, we spend a great deal 0:15:44.760 --> 0:15:47.880 of our time with our boots on the ground talking 0:15:47.920 --> 0:15:53.560 to the people actually making pricing decisions and employment decisions. Uh, 0:15:53.600 --> 0:15:56.800 there really is not much of a signal we're getting 0:15:56.960 --> 0:16:02.800 that of consumer demand is substantially weakening. UM. Pricing power 0:16:02.960 --> 0:16:06.600 appears to not be waning at all, at least from 0:16:06.600 --> 0:16:10.480 the anecdotal reports and actually from survey reports as well. 0:16:11.160 --> 0:16:15.080 And there's some you know, the question is always how 0:16:15.120 --> 0:16:18.480 long can that last? UM? But no one is sort 0:16:18.520 --> 0:16:24.360 of ringing the bell about the process of of fairly 0:16:24.400 --> 0:16:29.720 strong uh consumer demand and fairly resilient demand. Uh. That 0:16:29.760 --> 0:16:33.360 seems to still be the play on the subject of demand, 0:16:33.400 --> 0:16:36.680 and it's in elasticity or elasticity though, Dave, at what 0:16:36.720 --> 0:16:40.080 point would you start to expect demand destruction to to 0:16:40.200 --> 0:16:42.480 kick in. Is there this historical level that you'd be 0:16:42.520 --> 0:16:48.520 watching um no um. I mean, one of the things 0:16:48.560 --> 0:16:52.880 that we've obviously been fairly uh concerned about and tuned 0:16:52.920 --> 0:16:57.960 into is the waning of the fiscal stimulus. But if 0:16:58.000 --> 0:17:02.600 you if you, for example, track consumer spending with wage 0:17:02.640 --> 0:17:06.359 and salary income, those things tracked very closely, and what 0:17:06.480 --> 0:17:09.600 that means is there was an awful lot of the 0:17:09.680 --> 0:17:14.600 stimulus that was essentially kept in reserve and not used 0:17:14.640 --> 0:17:20.119 to um support in a substantial way, uh spending beyond 0:17:20.119 --> 0:17:22.800 the early age, you know, early days of the pandemic. 0:17:23.440 --> 0:17:26.639 So it would seem just from that sort of information 0:17:26.680 --> 0:17:30.880 and that sort of data that there um uh there's 0:17:31.000 --> 0:17:34.200 not a situation where the consumers way out over their 0:17:34.359 --> 0:17:41.000 skis and unable to kind of sustain through uh the 0:17:41.760 --> 0:17:44.520 fading away of all the support that happened as a 0:17:44.560 --> 0:17:47.240 result of the pandemic. I've awsome to catch up because 0:17:47.359 --> 0:17:49.320 I've got a busy a few days, busy week ahead 0:17:49.359 --> 0:17:51.040 of you. So thanks for spending some time with this 0:17:51.080 --> 0:18:00.359 stavertic that of the Federal Reserve Bank of Atlanta. Devid 0:18:00.440 --> 0:18:03.359 Raley join US now Chief Investment strategist of Blue Pay 0:18:03.400 --> 0:18:06.080 Asset Management, David. I won't ask you a pointed question, 0:18:06.119 --> 0:18:08.160 I'll ask you an open one. Your reaction to what's 0:18:08.160 --> 0:18:11.119 happening in this bond market at the moment. Yeah, I 0:18:11.160 --> 0:18:15.480 think the bond market is um you know, clearly signaling 0:18:15.600 --> 0:18:18.879 that it is not as bullish as certainly the equity market. 0:18:18.920 --> 0:18:20.199 I mean, I think there is a little bit of 0:18:20.200 --> 0:18:24.480 a sort of disconnect between those two, and if you 0:18:24.520 --> 0:18:26.320 look at the one year forward tend to it is 0:18:26.359 --> 0:18:30.440 already inverted. That being said, I don't think the bond 0:18:30.480 --> 0:18:36.959 market is necessarily pricing you know, a high risk of recession. 0:18:37.080 --> 0:18:39.359 I think what it's pricing at the longer end, it's 0:18:39.440 --> 0:18:43.240 just a wider distribution of outcomes. This uncertainty that you 0:18:43.280 --> 0:18:47.879 know you've been talking about in during the program. You know, 0:18:47.920 --> 0:18:51.560 where is inflation going to settle, how far is the 0:18:51.600 --> 0:18:54.359 Fed going to raise rates, and what's the outlook for growth? 0:18:54.400 --> 0:18:57.320 Not this year, which I think is reasonably going to 0:18:57.359 --> 0:18:59.359 be reasonably kind of solid, but you know, if we're 0:18:59.359 --> 0:19:03.560 going to twenty twenty three, and what we do know 0:19:03.760 --> 0:19:05.679 and is getting priced in the two year no, is 0:19:05.680 --> 0:19:08.560 that the Fed is on a hiking cycle. Um, they're 0:19:08.560 --> 0:19:11.800 going to be raising rates twenty five basis points every 0:19:11.840 --> 0:19:14.720 every meeting, is going to start balance sheet reduction as well, 0:19:15.080 --> 0:19:18.720 and also wants some tiding and financial conditions, and that 0:19:19.080 --> 0:19:21.240 I think it's going to be quite a meaningful headwind 0:19:21.280 --> 0:19:24.639 for risk assets and particularly for equities. David, if we 0:19:24.640 --> 0:19:28.040 were to price stagflation in fixed income, and this is 0:19:28.040 --> 0:19:30.399 not a view of mine, a personal opinion, this is 0:19:30.400 --> 0:19:34.320 an observation about what is happening in fixed income, you 0:19:34.359 --> 0:19:37.520 would say what would happen ultimately is that you would 0:19:37.560 --> 0:19:39.879 start to see an inversion of the yield curve because 0:19:39.920 --> 0:19:43.359 this market would start to smell out slowing growth. And 0:19:43.440 --> 0:19:46.840 what you would also see is elevated break evens because 0:19:46.840 --> 0:19:50.520 this market would believe that even with slowing growth, inflation 0:19:50.520 --> 0:19:53.480 will remain elevator. And David, I have to say, that's 0:19:53.520 --> 0:19:56.840 exactly what I could see post Federal Reserve. What we've 0:19:56.880 --> 0:19:59.879 seen is the curve slowly invert. Nominal yields to his 0:20:00.000 --> 0:20:02.719 out to tens. We've got three ye yeelds above tens, 0:20:02.800 --> 0:20:05.440 five or year olds above tens, seven year olds above tens. 0:20:05.480 --> 0:20:08.920 That's nominal sorted. Look at break evens at the highs 0:20:08.960 --> 0:20:12.200 of the year last week, David on ten year break evens. 0:20:12.640 --> 0:20:16.119 Isn't that what stagflation starts to look like in fixed income? 0:20:16.840 --> 0:20:19.520 I mean, you're right to highlight that, Jonathan, But also 0:20:19.560 --> 0:20:21.520 I would say, look at the five year, five year 0:20:21.640 --> 0:20:24.679 in terms of inflation break evens, and that's actually not 0:20:24.800 --> 0:20:27.600 that far above what you would consider to be over 0:20:27.640 --> 0:20:31.080 the medium term the Fed's target. What the market has 0:20:31.119 --> 0:20:32.680 done and what the bond market has done is say, 0:20:32.720 --> 0:20:37.480 we've got a stagflationary shock coming from uh, the Russian 0:20:37.480 --> 0:20:41.199 war on Ukraine. We don't know how severe that's going 0:20:41.240 --> 0:20:43.760 to be, both in terms of growth and in terms 0:20:43.760 --> 0:20:46.040 of inflation, because you know, it depends on how that 0:20:46.119 --> 0:20:50.960 conflict develops, what happens in terms of commodity prices. But 0:20:50.960 --> 0:20:52.560 but we do know that inflation is going to be 0:20:52.640 --> 0:20:56.000 higher um as as a result of that, particularly in 0:20:56.119 --> 0:20:59.639 the nearer terms. So you know, clearly the market, I 0:20:59.680 --> 0:21:02.360 think is pricing, and the bond market, as I say, 0:21:02.440 --> 0:21:05.680 is pricing a sort of broader distribution of of of risk, 0:21:05.760 --> 0:21:08.320 and I think that's why you know we're starting to 0:21:08.359 --> 0:21:10.760 get a bit of a bid at the longer end. 0:21:11.480 --> 0:21:15.359 Um well, that inflationary pressure is feeding through. In terms 0:21:15.480 --> 0:21:17.639 of this, you know, more hawk is few if you like, 0:21:17.720 --> 0:21:21.479 in terms of the FED. But you know, I actually 0:21:21.480 --> 0:21:24.080 think now we're pretty fairly priced at the short end. 0:21:24.119 --> 0:21:27.760 I mean, we've closed are sort of short duration positions 0:21:27.800 --> 0:21:30.200 at the short end of the curve because I don't 0:21:30.200 --> 0:21:32.040 think the FED is going to be more aggressive than 0:21:32.080 --> 0:21:34.080 they're setting out at the moment. But I do think 0:21:34.080 --> 0:21:36.640 the FED is clearly signaling and power is very clear. 0:21:36.680 --> 0:21:39.639 I thought on this in the press conference is if 0:21:39.640 --> 0:21:42.639 we want to avoid those stagflationary risks, we need to 0:21:42.680 --> 0:21:45.000 get to neutral sooner rather than later. So I think, 0:21:45.119 --> 0:21:47.399 you know they are on a path to more aggressive 0:21:47.800 --> 0:21:50.199 or you know, hence whether they kind of validated that 0:21:50.200 --> 0:21:54.080 more aggressive path for for for eight heights and then 0:21:54.440 --> 0:21:58.000 you know, let's see what happens in three. My bias 0:21:58.040 --> 0:22:00.000 is actually the FED will have to do more big 0:22:00.000 --> 0:22:04.280 as are those sticky in inflation. But right now I 0:22:04.320 --> 0:22:06.520