WEBVTT - Bloomberg Surveillance TV: May 24, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.439 with Lisa Bromwitz and am Marie Hortern. Join us each 0:00:18.520 --> 0:00:21.400 day for insight from the best in markets, economics, and 0:00:21.440 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.800 --> 0:00:27.440 are live on Bloomberg Television weekday mornings from six to 0:00:27.520 --> 0:00:31.040 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.520 --> 0:00:35.880 Bloomberg Terminal and the Bloomberg Business app. 0:00:36.200 --> 0:00:38.400 Day joins us now, O day. Wonderful to see you. 0:00:38.800 --> 0:00:40.159 Love having you in the studio. 0:00:40.479 --> 0:00:43.199 Can you talk about just how much in the crystal 0:00:43.240 --> 0:00:46.640 ball discussions that we've been having about artificial intelligence, why 0:00:46.720 --> 0:00:49.520 you think the price action shows we're just not bullish enough? 0:00:49.800 --> 0:00:51.760 Well, I think the market tells us that, right with 0:00:51.800 --> 0:00:54.320 the reaction to the news. The fact that the stock 0:00:54.400 --> 0:00:56.680 is up ten percent on the day tells you it 0:00:56.760 --> 0:01:00.160 was a positive surprise just by definition and so and 0:01:00.200 --> 0:01:01.920 it was. I mean it's super impressive, right, I mean 0:01:01.960 --> 0:01:06.520 you have to admit a tripling of revenue and a sevenfold, 0:01:07.040 --> 0:01:10.280 sevenfold increase in profits year over year. I mean that 0:01:10.480 --> 0:01:12.560 is that that is just you know, it's unheard of, 0:01:12.959 --> 0:01:14.920 and so you have a ten percent move and you 0:01:14.959 --> 0:01:18.320 don't have the rest of the market responding, as was 0:01:18.360 --> 0:01:20.959 discussed just a minute or so ago. But to us, 0:01:21.000 --> 0:01:24.240 what we're believers, right, we are believers that every company, 0:01:25.360 --> 0:01:28.280 every government in the world is going to have to 0:01:28.319 --> 0:01:32.520 participate in the AI age and it's either you participate 0:01:32.760 --> 0:01:35.760 or you lose. And it's that simple. And there's this 0:01:35.880 --> 0:01:39.119 concept which we believe in, which is called sovereign AI 0:01:39.240 --> 0:01:43.039 as an example, which basically states that every country is 0:01:43.080 --> 0:01:46.479 going to want its own AI. So you're just talking 0:01:46.520 --> 0:01:51.400 about just a massive global explosion of demand and you're 0:01:51.440 --> 0:01:52.960 seeing that with the video. 0:01:53.040 --> 0:01:56.080 Although you're seeing it with Nvidia. They're the winner, and 0:01:56.120 --> 0:01:56.360 it's a. 0:01:56.440 --> 0:01:59.160 Question of can they basically rise all boats or is 0:01:59.200 --> 0:02:01.240 it going to be at video game and party and 0:02:01.400 --> 0:02:03.840 only in videos, game and party as they potentially take 0:02:03.840 --> 0:02:06.800 share from AMD, from Intel, from a lot of other 0:02:06.880 --> 0:02:10.000 companies that otherwise might be getting some of these dollars. 0:02:10.800 --> 0:02:13.280 Look, we're believers in what we call the pick and 0:02:13.280 --> 0:02:16.120 shovel thesis of investing in this. Right, we want to 0:02:16.120 --> 0:02:19.480 be in the digital pick and shovel and for that 0:02:19.480 --> 0:02:23.000 that means for us rather semiconductors, okay, because they're needed 0:02:23.040 --> 0:02:25.120 for the whole process. They're the winners of this to 0:02:25.160 --> 0:02:28.640 your point, and whether you know EX company versus Y 0:02:28.720 --> 0:02:31.400 company is a different story. To us, it's quite simple. 0:02:31.400 --> 0:02:33.399 As an investor, we want to be in the pick 0:02:33.440 --> 0:02:35.200 and shovel. So in the pick and shovel in the 0:02:35.240 --> 0:02:38.679 digital age is the semiconductor space, and then the pick 0:02:38.720 --> 0:02:42.040 and shovel in the physical space is the miners. Because 0:02:42.040 --> 0:02:45.400 what's really interesting, and you touched on it with commodities earlier, 0:02:45.560 --> 0:02:49.840 what's really interesting is you're fusing the digital in physical 0:02:49.919 --> 0:02:54.919 worlds through the power demands for the data center buildouts. 0:02:55.360 --> 0:02:58.280 And again I mean I think the CEO of the 0:02:58.360 --> 0:03:00.359 video is a guy you have to pay attention to. 0:03:00.760 --> 0:03:02.800 He is at the forefront of this. He's like evon one. 0:03:02.919 --> 0:03:05.280 Musk was a couple of years ago with evs right. 0:03:05.600 --> 0:03:07.320 He was on the front end of it, and so 0:03:07.400 --> 0:03:10.560 he was seeing what was coming and Musk was right. Okay, 0:03:10.960 --> 0:03:14.760 So now you follow the CEO of Navidia and he's 0:03:14.800 --> 0:03:18.040 talking about the factories of the future. He's talking about 0:03:18.080 --> 0:03:21.680 the data centers being the modern factories of our world 0:03:21.680 --> 0:03:25.320 as we move forward, and they need power. So I'll 0:03:25.360 --> 0:03:28.640 just give you an example. You know, natural gas UNNG 0:03:29.120 --> 0:03:33.480 up forty percent in the last month. Before that, it 0:03:33.520 --> 0:03:36.840 was copper copper because you need copper for the electric 0:03:37.120 --> 0:03:41.040 electrification in the power generation, which again is going to 0:03:41.040 --> 0:03:44.640 be global, every country, every region. So it really feeds 0:03:44.680 --> 0:03:48.000 into our tripolar world. Pieces of regional deepening and regional 0:03:48.000 --> 0:03:51.800 integration in Asia, Europe, and the Americas. And you see it. 0:03:51.880 --> 0:03:54.920 The Europeans are building out AI, the Chinese are building 0:03:54.920 --> 0:03:58.960 out AI, the Americans are building out AI. Everybody has 0:03:59.040 --> 0:04:00.600 to have it, and they have to have it now. 0:04:00.640 --> 0:04:02.880 And then the last point I would make is that, 0:04:03.200 --> 0:04:06.240 and I'm a believer in this idea, is that this 0:04:06.360 --> 0:04:08.520 is going to come much faster. So I respect Ian 0:04:08.640 --> 0:04:10.800 earlier and he was saying with AI, he's not sure 0:04:10.800 --> 0:04:13.880 how it's going to come through. My feeling is that 0:04:14.240 --> 0:04:16.960 the infrastructure for AI has already been built out right. 0:04:17.000 --> 0:04:18.520 Well, can I just defend the in for a moment, 0:04:18.560 --> 0:04:20.200 because part of his thesis was. 0:04:23.480 --> 0:04:24.440 Nothing but silence. 0:04:24.600 --> 0:04:28.919 I mean, come on, John, Yeah, exactly, I'll take the 0:04:28.960 --> 0:04:33.560 combative view. If it's not here, I'll try. My son 0:04:33.600 --> 0:04:35.920 isn't keeping up with it, but my combativeness I'm trying to. 0:04:36.240 --> 0:04:38.400 Okay, No, I'm okay, okay. 0:04:38.440 --> 0:04:41.120 So Ian's argument is basically that it's not going to 0:04:41.120 --> 0:04:43.880 be adopted as soon, specifically with companies, because if you 0:04:43.880 --> 0:04:46.320 think about the Internet boom, you know, everyone and their 0:04:46.360 --> 0:04:48.640 mother could simply sign up to the Worldwide Web, get 0:04:48.680 --> 0:04:51.000 their own website, and then there you go, you take off. 0:04:51.279 --> 0:04:54.880 Integrating AI is a much more complicated and longer process. 0:04:55.200 --> 0:04:58.520 Okay. The pushback is that it took a decade or 0:04:58.520 --> 0:05:00.640 more for the Internet to be built by because every 0:05:00.760 --> 0:05:03.599 piece had to be created from the start. The point 0:05:03.640 --> 0:05:05.800 of the AI age is that it's a layering on. 0:05:06.560 --> 0:05:09.279 The infrastructure is already built out, and so it's going 0:05:09.360 --> 0:05:11.880 to accelerate much much more quickly. So I'm in the 0:05:11.960 --> 0:05:14.520 I'm in the it's going to accelerate much more quickly. 0:05:14.640 --> 0:05:17.000 Camp Ian can be in the other camp. We see 0:05:17.000 --> 0:05:19.000 how it plays out. And I go back to the 0:05:19.040 --> 0:05:22.520 idea that every company is going to have to participate 0:05:22.560 --> 0:05:25.640 in this, every country is going to have to participate this, 0:05:25.760 --> 0:05:28.479 and it's and it's a race, and so the money 0:05:28.520 --> 0:05:31.719 that's being put into this and again talked about fiscal 0:05:31.760 --> 0:05:36.480 earlier a little bit. Interest rates, governments and companies are 0:05:36.520 --> 0:05:39.000 going to spend money on this. Companies are cash rich, 0:05:39.800 --> 0:05:42.760 governments are spending The G seven just came out with 0:05:42.839 --> 0:05:46.040 their outlook or the IMF for fiscal for the next 0:05:46.800 --> 0:05:50.560 through twenty twenty nine, no change, So there is no 0:05:50.800 --> 0:05:56.240 there's no community for significant fiscal cutting. And you have 0:05:56.320 --> 0:05:59.280 the companies also spending. So there's again the video is 0:05:59.279 --> 0:06:03.919 a perfect example. It increased its cap X, it raised 0:06:03.920 --> 0:06:06.840 its civit end, it's got a stock splitch. So there's 0:06:06.880 --> 0:06:09.600 all these things that are happening because they're making so 0:06:09.680 --> 0:06:12.000 much money. They made fifteen billion dollars in a quarter. 0:06:12.279 --> 0:06:15.080 Well, you had Greenspan, for example, back in the nineties 0:06:15.080 --> 0:06:18.479 early on. It's talking about the productivity boost, the paradigm 0:06:18.520 --> 0:06:22.240 shift basically from the Internet age. Do central bankers this 0:06:22.279 --> 0:06:25.719 time around, are they aware of the potential changes to 0:06:25.760 --> 0:06:28.320 the macro landscape that you're talking about and they need 0:06:28.360 --> 0:06:31.360 to start thinking about policy potentially differently because of that. 0:06:31.760 --> 0:06:34.279 Yeah, that's an excellent question. I mean, we're believers and 0:06:34.320 --> 0:06:37.240 what we call the global macro blue sky outlook. So 0:06:37.320 --> 0:06:39.919 twenty twenty three to twenty twenty seven, we see a 0:06:40.000 --> 0:06:42.960 very bullish outcome, and this what we just talked about 0:06:43.040 --> 0:06:45.800 underpins that because it's a We wrote a piece a 0:06:45.839 --> 0:06:48.520 couple of weeks ago called the Age of Investment. We 0:06:48.560 --> 0:06:51.520 are in an age of investment. So twenty ten to 0:06:51.520 --> 0:06:56.239 twenty twenty was monetary policy driven central bankers rule the world. 0:06:56.560 --> 0:06:59.359 Now we're in the space where fiscal policymakers are going 0:06:59.400 --> 0:07:01.680 to rule the world. And again it's a recognition that 0:07:01.920 --> 0:07:04.720 we need sovereign ai we need to pay for it. 0:07:04.880 --> 0:07:07.640 We need climate mitigation, we need to pay for it. 0:07:07.720 --> 0:07:10.040 We need defense spending, we need to pay for it. 0:07:10.320 --> 0:07:12.520 And so all these things are driving, as I say, 0:07:12.560 --> 0:07:15.040 we believe in age of investment, which is going to 0:07:15.080 --> 0:07:18.880 reinforce that productivity gain, which is also being fueled by 0:07:18.920 --> 0:07:22.000 a fact that we're in a shrinkage of the global workforce. 0:07:22.800 --> 0:07:26.280 So demographically, we're in a whole new world which we 0:07:26.320 --> 0:07:30.160 think is going to continue to drive automation, drive robotics, 0:07:31.280 --> 0:07:34.800 and drive the regionalization of things so that you have 0:07:34.880 --> 0:07:37.320 a whole reshaping of the supply chain, which is happening 0:07:37.360 --> 0:07:39.880 in Asia right now with China. I mean, China is 0:07:39.960 --> 0:07:44.119 basically carving out Southeast Asia, which is the fastest growing 0:07:44.120 --> 0:07:46.880 part of the world, and they're going to dominate that space. 0:07:47.000 --> 0:07:49.360 And just look at what they're doing with EVS in 0:07:49.440 --> 0:07:54.040 Thailand and Vietnam, etc. They're setting up a regional production 0:07:54.600 --> 0:07:57.800 supply chain for evs and they're going to own that space. 0:07:58.560 --> 0:08:00.400 Well, I want to ask you about China because so 0:08:00.480 --> 0:08:03.400 much of your thesis, basically the basis is that China 0:08:03.480 --> 0:08:06.560 still integrated with the West. What happens if it's not. 0:08:07.600 --> 0:08:10.040 I don't believe that that's going to happen. 0:08:10.600 --> 0:08:12.760 If people actually think we would see what we saw 0:08:12.800 --> 0:08:15.600 with Russia's invasion of Ukraine. Within a weekend, you had 0:08:15.640 --> 0:08:18.920 companies pulling out their central bank assets locked. 0:08:19.000 --> 0:08:21.400 Yeah, well, I think we've made a queer to China 0:08:21.440 --> 0:08:24.880 that we want to control their ability to rise on 0:08:24.920 --> 0:08:27.960 the tech stack. And so they're now coming back to 0:08:28.040 --> 0:08:30.560 us and saying fine, And I think that's an opportunity 0:08:30.640 --> 0:08:33.440 right what we call our two tech stack thesis, right 0:08:33.480 --> 0:08:36.680 where the Chinese companies are going to dominate China tech sack, 0:08:37.000 --> 0:08:39.920 the American company is going to dominate the American tech stack. 0:08:39.960 --> 0:08:43.280 That's fine. Investors have cotton down to the latter. They 0:08:43.280 --> 0:08:46.200 haven't figured out about the former. Right, so you have 0:08:46.320 --> 0:08:49.080 China tech selling at a massive discount to US tech, 0:08:49.400 --> 0:08:52.120 even though the China tech space is twice as large, 0:08:52.360 --> 0:08:55.080 growing twice as fast. And so for US, we want 0:08:55.080 --> 0:08:57.640 to own the China tech space because that's where the 0:08:57.679 --> 0:09:01.640 opportunity is. And now you're seeing the same thing with evs, right, 0:09:01.960 --> 0:09:05.640 China does not want to. China is integrated into the 0:09:05.640 --> 0:09:09.439 global trade patterns. Right. They have massive trade surplus and 0:09:09.559 --> 0:09:13.120 massive exports. They cannot afford to be cut out of 0:09:13.160 --> 0:09:16.760 the global trade flows. And so you're seeing how you're 0:09:16.760 --> 0:09:20.000 seeing that in the reaction we believe to Biden's announcement 0:09:20.080 --> 0:09:23.439 last week about one hundred percent tariffs on evs. That's huge, 0:09:23.559 --> 0:09:26.600 But yet there's been no nothing from the Chinese because 0:09:26.640 --> 0:09:28.880 they know they need to keep the Europeans on. 0:09:28.880 --> 0:09:31.199 Well, they signaled they're going to potentially. 0:09:30.679 --> 0:09:33.000 Have tax and they want to do it on the 0:09:33.559 --> 0:09:36.480 European side. They need to keep the Europeans on side. 0:09:36.559 --> 0:09:38.640 The Americans, it's kind of already a done deal. So 0:09:38.640 --> 0:09:43.920 they're threatening the Europeans with big tariffs on internal combustion 0:09:44.040 --> 0:09:49.040 engine European exports into China, and that's a massive market 0:09:49.120 --> 0:09:51.760 for the Europeans, and that's where the game is being played. 0:09:51.880 --> 0:09:55.160 But they are I believe China will continue in the economy, 0:09:55.520 --> 0:09:58.560 but the tech stack is being divided up and being 0:09:58.559 --> 0:09:59.959 closed off on both sides. 0:10:00.360 --> 0:10:15.080 J Ploski of TPW Advisory Tripolar World Advisory joining us now, 0:10:15.160 --> 0:10:19.319 I'm so pleased to say nations wide, nationwide. Kathy Bustansik 0:10:19.440 --> 0:10:23.720 and Alberto Galo of Andromeda Capital Management. Kathy, what do 0:10:23.760 --> 0:10:26.000 you make of yesterday's data in particular? 0:10:26.080 --> 0:10:27.880 I really want to start with that and how. 0:10:27.840 --> 0:10:31.640 Much that has sort of forward looking in dictator indications 0:10:32.120 --> 0:10:36.200 of goods prices starting to really, I don't know, go up, reaccelerate. 0:10:37.400 --> 0:10:39.280 Yeah, good morning, Lisa, happy to be with you. 0:10:40.400 --> 0:10:41.520 Yeah, I think you know. 0:10:41.600 --> 0:10:46.000 That's you know, something that's quite interesting because goods prices, 0:10:46.040 --> 0:10:50.200 as you know, have really been the positive factor here 0:10:50.280 --> 0:10:53.720 in the inflation story and have actually the latest data 0:10:54.040 --> 0:10:56.600 sort of suggested when you look at CPI that is 0:10:57.200 --> 0:11:01.320 that we had further deflationary pressures. If that starts to 0:11:01.400 --> 0:11:05.480 temper or we see some uplift, that could really, you know, 0:11:05.600 --> 0:11:10.440 change the story here. Good gasoline prices obviously headline inflation 0:11:10.600 --> 0:11:14.600 very sensitive to that, and the reason that again matters, 0:11:14.679 --> 0:11:17.080 is that we still have this ongoing stickiness in the 0:11:17.120 --> 0:11:21.000 service side of the economy, whether it's core services or 0:11:21.080 --> 0:11:22.679 also looking at rental. 0:11:22.320 --> 0:11:24.880 Inflation and kayathy. This is the reason why people are 0:11:24.920 --> 0:11:26.239 talking about whether. 0:11:26.000 --> 0:11:29.600 There is some sort of restrictiveness currently in the system. Alberto, 0:11:29.920 --> 0:11:33.040 you wrote a fascinating note about this, just how restrictive 0:11:33.280 --> 0:11:36.319 FED policy actually is and how it's sort of, I 0:11:36.360 --> 0:11:39.439 don't know, a mirage that they're using front end of 0:11:39.480 --> 0:11:42.199 the yield curve to try to seem like they're restrictive, 0:11:42.280 --> 0:11:45.360 but they're really not so much. Please explain, because to me, 0:11:45.480 --> 0:11:47.560 this is fascinating at a time where people are pushing 0:11:47.600 --> 0:11:49.840 back their expectations of a rate cut. 0:11:51.080 --> 0:11:51.880 Good morning, Lisa. 0:11:52.000 --> 0:11:54.840 Essentially, what we're talking about is the FED trying to 0:11:55.080 --> 0:11:56.360 perform a magic trick. 0:11:56.920 --> 0:12:00.040 They have focused the audience attention. 0:11:59.880 --> 0:12:02.400 On the front end rate, and you know, they've raised 0:12:02.600 --> 0:12:04.720 front end rates by five hundred basis points. 0:12:05.200 --> 0:12:07.400 But on the other hand, what they're doing. 0:12:07.280 --> 0:12:10.200 Is to reduce in the pace of tapering, and they've 0:12:10.200 --> 0:12:12.880 reduced it by more than expected. So the FED balance 0:12:12.880 --> 0:12:16.040 sheet is still you know, very large, and it hasn't 0:12:16.080 --> 0:12:19.840 really fallen since the since the peak. At the same time, 0:12:19.840 --> 0:12:22.520 there's also a lot of fiscal and there's indirect quy. 0:12:22.679 --> 0:12:26.440 For example, the Bonk term funding program has allowed banks 0:12:26.480 --> 0:12:29.360 to fund cheaply to buy treasuries, so you know, they're 0:12:29.440 --> 0:12:33.360 hiking with one hand, they are not hiking with the other. 0:12:33.480 --> 0:12:37.520 The result is that there is a record loose financial conditions. 0:12:37.559 --> 0:12:42.760 So we definitely don't see any any restrict restrictiveness in 0:12:42.800 --> 0:12:46.720 financial conditions right now unless you are you're a weak 0:12:46.760 --> 0:12:49.679 household and you're funding with credit cards or auto loans, 0:12:49.720 --> 0:12:52.960 so you're depending on the front end rate. But for 0:12:53.080 --> 0:12:57.240 large firms, for whoever funds in the bond market or 0:12:57.400 --> 0:13:01.560 long term mortgage borrowers, funding conditions are still pretty good. 0:13:02.120 --> 0:13:06.320 And that means persistent inflation. It means that there's rates polatility, 0:13:06.720 --> 0:13:09.480 and we are a lot more worried about reacceleration in 0:13:09.520 --> 0:13:13.400 the economy or persistent inflation, you know, hurting the rates market, 0:13:13.840 --> 0:13:16.439 rather than the recession that you know, every economist has 0:13:16.440 --> 0:13:18.600 been thinking about for the past three years. 0:13:18.679 --> 0:13:20.600 Well, Berta, we got a first call from Goldman Sachs 0:13:20.640 --> 0:13:23.360 this morning saying that they now expect to cut to 0:13:23.440 --> 0:13:27.160 be in September. Initially they were talking about. Most recently 0:13:27.160 --> 0:13:30.040 they were talking about July. What do you view in 0:13:30.120 --> 0:13:32.720 terms of the timeline, given what you're saying about the 0:13:32.720 --> 0:13:34.319 policy not being so restrictive. 0:13:35.720 --> 0:13:38.520 I think here the trade is for next year. Yes, 0:13:38.679 --> 0:13:41.800 we might have one cut this year. Our forecus is 0:13:41.840 --> 0:13:46.360 still for zero, but the realities there's still a lot 0:13:46.360 --> 0:13:48.319 of cuts that are priced in for twenty twenty five, 0:13:48.320 --> 0:13:52.319 and I think that is wrong, especially with the outlook. 0:13:52.000 --> 0:13:53.160 That we have for elections. 0:13:53.200 --> 0:13:54.480 You know, we're going to have a lot of physical 0:13:54.480 --> 0:13:58.240 stimulus next year, regardless of who wins. But you know 0:13:58.280 --> 0:14:00.960 there are some scenarios where there's even more physical stimulus 0:14:00.960 --> 0:14:03.600 then the CBO is expecting for next year. So we 0:14:03.640 --> 0:14:07.720 have persistent fiscal and you know, the eighty plus basis 0:14:07.720 --> 0:14:10.400 points cuts that we are seeing in the market for 0:14:10.480 --> 0:14:12.200 next year are not going to happen in our view. 0:14:12.240 --> 0:14:14.840 So yes, we might have a cut, but it's going 0:14:14.920 --> 0:14:16.160 to look like a policy. 0:14:15.880 --> 0:14:16.600 Error in our view. 0:14:16.640 --> 0:14:19.600 And you know, even other central banks are starting to 0:14:19.680 --> 0:14:20.520 change the narrative. 0:14:20.560 --> 0:14:23.200 So we need to learn to live. We'd hire for. 0:14:23.200 --> 0:14:25.680 Longer, and there's a lot of us at a location 0:14:25.840 --> 0:14:30.640 that has been centered around the expectation of lower rates, 0:14:30.720 --> 0:14:32.120 and that's going to have to reprice. 0:14:32.960 --> 0:14:35.640 Kathy, I know you also think cuts could be delayed 0:14:35.640 --> 0:14:39.280 in a certain scenario till twenty twenty five. But Alberta 0:14:39.320 --> 0:14:42.640 there is talking about potentially the fiscal impulse we'll also 0:14:42.680 --> 0:14:44.720 get in twenty twenty five. How much harder is that 0:14:44.760 --> 0:14:46.760 going to make the FED even to cut next year? 0:14:49.160 --> 0:14:53.120 Yeah, you know, I'm not so sure we get a 0:14:53.120 --> 0:14:55.360 lot of physical stimus next year. Certainly if we do, 0:14:55.680 --> 0:14:59.240 then that would delay, you know, or dampen a FED 0:15:00.160 --> 0:15:03.360 ray cuts. But you know, I think, you know, from 0:15:03.360 --> 0:15:06.760 from my perspective, we are seeing some moderation and economic 0:15:06.880 --> 0:15:11.160 activity right now. It's just the first step and there's 0:15:11.200 --> 0:15:13.800 a long ways to go in terms of economic activity 0:15:13.880 --> 0:15:18.880 and also inflation. But we're still hopeful that we do get, 0:15:19.200 --> 0:15:22.280 you know, some further drop in inflation, particularly we think 0:15:22.360 --> 0:15:25.600 rental inflation. But the problem is it may be brief, right. 0:15:25.720 --> 0:15:29.560 It's because we've seen some signs of rental inflation picking 0:15:29.640 --> 0:15:32.040 up and home prices of picking up. The problem is 0:15:32.080 --> 0:15:35.680 there's long lags, right It typically it's about twelve months. 0:15:35.680 --> 0:15:39.440 This time it seems to be longer. But you know, 0:15:39.520 --> 0:15:41.880 so we're hopeful that we do get you know, further 0:15:41.960 --> 0:15:44.840 cooling inflation. I think that's really what matters most for 0:15:44.880 --> 0:15:49.360 the FED, and and I would agree with ROBERTA. There's 0:15:49.400 --> 0:15:51.280 like a tale of two economies going on right now. 0:15:51.320 --> 0:15:54.440 If you can come to capital markets, you're a large corporation, 0:15:54.920 --> 0:15:57.000 you're you're and you're turned out your debt, you're you're 0:15:57.040 --> 0:15:59.760 in a pretty good situation. But if you're small business, 0:16:00.240 --> 0:16:03.040 or if your middle income a household or lower income, 0:16:03.400 --> 0:16:06.200 you're a variable rate borrower, you are feeling the attention. 0:16:06.520 --> 0:16:08.840 I think higher rates have had an impact. Look at 0:16:08.840 --> 0:16:11.600 the housing market. You know, the existing home sales market 0:16:11.600 --> 0:16:13.320 has been essentially stalled. 0:16:13.560 --> 0:16:15.640 And that's potentially part of the reason that small caps, 0:16:15.640 --> 0:16:18.640 for example, haven't kept up with the games gains. Alberto 0:16:18.760 --> 0:16:21.800 in this idea that policy is easy, not just because 0:16:21.800 --> 0:16:24.000 of the fiscal but because of QT two. 0:16:24.040 --> 0:16:24.920 The FED would. 0:16:24.680 --> 0:16:27.240 Say to that that they are slowing the draw down 0:16:27.320 --> 0:16:30.160 of the balance sheet, not because they want to ultimately 0:16:30.280 --> 0:16:32.560 not draw down as much, but it allows them to 0:16:32.600 --> 0:16:35.960 do it for longer and potentially ultimately get to a 0:16:36.040 --> 0:16:39.160 lower level because they can keep drawing down without the 0:16:39.280 --> 0:16:42.800 risk of any financial accident. What would you say to that. 0:16:43.960 --> 0:16:48.200 Well, the first the first phase has been very easy 0:16:48.400 --> 0:16:52.640 for central banks because inflation came down thanks to an 0:16:52.640 --> 0:16:55.520 easing of supply constraints and also we had a very 0:16:55.560 --> 0:17:00.360 strong inflow of immigration of relatively cheap labor. Now these 0:17:00.440 --> 0:17:03.040 one off positives are going to fade, so the first 0:17:03.040 --> 0:17:07.200 phase of this inflation has been much easier. Now it's 0:17:07.240 --> 0:17:09.640 you know, the hard part is what's ahead of us. 0:17:09.680 --> 0:17:13.240 So we have less flow of immigration, and we actually 0:17:13.320 --> 0:17:17.360 have you know, still supply constraints that are persistent, and. 0:17:17.359 --> 0:17:18.639 There are some feedback loops. 0:17:18.680 --> 0:17:22.760 So the idea of keeping the balance sheet very large 0:17:22.800 --> 0:17:27.560 and and you know, making it come down very slowly 0:17:28.080 --> 0:17:30.800 in theory looks good, but in practice what it does 0:17:30.880 --> 0:17:33.200 is that it keeps financial conditions loose for a large 0:17:33.280 --> 0:17:35.879 chunk of the economy. So there's no real tightening for 0:17:35.960 --> 0:17:38.680 large firms, for mortgage borrowers that are long term. 0:17:39.800 --> 0:17:41.679 And so I think that the. 0:17:43.280 --> 0:17:47.040 Result of higher front end but also a persistent physical 0:17:47.320 --> 0:17:50.760 and a persistently large balance sheet as being that financial 0:17:50.760 --> 0:17:54.159 conditions are not as restrictive as the FED thought they 0:17:54.200 --> 0:17:56.439 would be, and the narrative is changing. 0:17:56.520 --> 0:17:57.359 The narative is changing. 0:17:57.359 --> 0:18:00.560 I think that some fat residents are already taking that 0:18:00.600 --> 0:18:02.760 into account, which means that you know, you're not you 0:18:02.800 --> 0:18:05.080 won't be able to do a lot of cuts. 0:18:05.080 --> 0:18:06.560 But the other consequence is that. 0:18:06.680 --> 0:18:10.600 Eventually some central banks will have to choose between price 0:18:10.640 --> 0:18:15.119 stability and financial stability. So it is true that it's 0:18:15.560 --> 0:18:18.679 really good to not cause any issues in the financial market, 0:18:19.160 --> 0:18:21.479 and no one wants it ahead of elections, but you know, 0:18:21.720 --> 0:18:24.439 the mandate is also price stability, and I think that 0:18:24.480 --> 0:18:28.080 there's been a lot of micro management of volatility from 0:18:28.080 --> 0:18:28.800 central banks. 0:18:29.080 --> 0:18:31.200 We see it in the allocation of risk causses. 0:18:31.240 --> 0:18:33.240 We see it in the love for credit and for 0:18:33.320 --> 0:18:35.720 carry that there is in the market right now where 0:18:35.760 --> 0:18:39.360 we're at record tight spreads and investors, you know, are 0:18:39.480 --> 0:18:43.720 essentially ignoring this front end five percent rate because the 0:18:43.760 --> 0:18:44.760 long end is inverted. 0:18:45.400 --> 0:18:48.119 Cassie, would you just say to that that Alberta is 0:18:48.160 --> 0:18:50.760 wrong because it's just a lag that that's actually what 0:18:50.760 --> 0:18:52.840 we're seeing, not that that policy isn't tight enough. 0:18:54.320 --> 0:18:55.040 Well, yeah, I. 0:18:55.000 --> 0:18:59.440 Have subsympathy to Alberto's comments. You know, certainly financial conditions 0:18:59.520 --> 0:19:02.160 are easy. Part of that's because the equity market continues 0:19:02.200 --> 0:19:05.000 to rally, so much, and we do have. 0:19:04.960 --> 0:19:05.840 An inverted curve. 0:19:05.920 --> 0:19:09.840 But long term rates are higher, you know, I think 0:19:09.880 --> 0:19:12.400 in terms of the thing about mortgage borrowers, they're still 0:19:12.400 --> 0:19:14.520 looking at seven percent rates. 0:19:14.600 --> 0:19:16.240 That's quite drag. 0:19:16.119 --> 0:19:19.040 Cony and especially compared where we were. And I think 0:19:19.160 --> 0:19:21.480 some corporations, you know, if they have to come to 0:19:21.600 --> 0:19:25.000 market and roll over their debt, you know they are fine, 0:19:25.080 --> 0:19:29.119 you know, facing higher refinancing costs. But in general, yes, 0:19:29.240 --> 0:19:32.720 I mean, if you're an asset holder and your corporation 0:19:32.880 --> 0:19:34.639 that has a lot of cash and you turned out 0:19:34.680 --> 0:19:37.719 your debt, the short term interest rates are not biting 0:19:37.720 --> 0:19:40.000 as much as the FED had thought previously, and I 0:19:40.040 --> 0:19:42.760 think that is key, and I can see the FED 0:19:42.840 --> 0:19:46.920 holding rates higher for longer, possibly if maybe would raise 0:19:47.000 --> 0:19:50.640 rates higher. So so I do I have sympathy to that. 0:19:50.720 --> 0:19:53.440 I think it just really does depend though on inflation, 0:19:53.520 --> 0:19:57.000 and if we start to see inflation trend lower than 0:19:57.040 --> 0:19:59.440 the FED will have the green light to start cutting rates, 0:19:59.680 --> 0:20:00.800 especial next year. 0:20:01.200 --> 0:20:03.320 On the show, just a couple of minutes ago, we 0:20:03.320 --> 0:20:05.760 were talking about deflation, and we were talking about deflation 0:20:05.840 --> 0:20:09.320 when it comes to gasoline prices in particular. We had 0:20:09.880 --> 0:20:12.720 this discussion around the average price going down to three 0:20:12.760 --> 0:20:15.480 dollars and twenty nine cents from the current three sixty 0:20:15.520 --> 0:20:18.760 one in the United States. Michael McKee still with us, Mike, 0:20:18.840 --> 0:20:20.639 I wanted to talk with you about how important that 0:20:20.720 --> 0:20:23.800 is from an economic perspective, from consumer spending, from what 0:20:23.880 --> 0:20:27.560 this does to the package of household budget that can 0:20:27.600 --> 0:20:31.360 go to other things. How stimulative essentially would it be 0:20:31.640 --> 0:20:33.680 if gasoline prices go down significantly. 0:20:33.840 --> 0:20:36.480 Well, the change that we've seen so far isn't that significant. 0:20:36.520 --> 0:20:39.600 What you usually see in terms of gasoline prices is 0:20:39.800 --> 0:20:43.240 when they go over the previous high. That's when people 0:20:43.359 --> 0:20:45.800 start to pull back and get nervous because it's something 0:20:45.840 --> 0:20:47.240 that they really notice. 0:20:47.720 --> 0:20:51.400 Slight changes ten twenty cents either way. They bothered more 0:20:51.440 --> 0:20:56.320