1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,799 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,640 Speaker 1: and of course on the Bloomberg Terminal. I will introduce 6 00:00:31,000 --> 00:00:34,000 Speaker 1: Philip Lane. He's the chief Economist at the e c B, 7 00:00:34,159 --> 00:00:36,919 Speaker 1: and I want to make clear, particularly to our American audience, 8 00:00:36,960 --> 00:00:40,280 Speaker 1: there is no equivalent at the FED, with the inaugural 9 00:00:40,360 --> 00:00:44,280 Speaker 1: Chief Economist Marius sing of Germany. This is considered a 10 00:00:44,400 --> 00:00:48,240 Speaker 1: key position in global economics. Philip Lane, I want to 11 00:00:48,280 --> 00:00:51,040 Speaker 1: go back to a paper you did from Trinity over 12 00:00:51,080 --> 00:00:54,160 Speaker 1: to Harvard years ago with a guy named Manque, and 13 00:00:54,200 --> 00:00:58,760 Speaker 1: you and Greg Manque did a paper on economics and 14 00:00:58,800 --> 00:01:03,560 Speaker 1: the scientists in engineering of it all? Do we throw 15 00:01:03,640 --> 00:01:07,040 Speaker 1: the textbooks out? Now? Does the science and does the 16 00:01:07,120 --> 00:01:12,440 Speaker 1: engineering of modern economics work given this moment? So I'm 17 00:01:12,480 --> 00:01:15,319 Speaker 1: familiar with that with that paper, but I cannot take credit. 18 00:01:15,520 --> 00:01:18,160 Speaker 1: I think there might have been a Greg Manki and 19 00:01:18,240 --> 00:01:21,759 Speaker 1: maybe Ricardo reset the London s going of economics, But 20 00:01:21,760 --> 00:01:25,880 Speaker 1: but the the basic question is still very relevant and 21 00:01:26,680 --> 00:01:31,600 Speaker 1: absolutely in central banking. Um, it's a blend of of course, 22 00:01:31,680 --> 00:01:37,400 Speaker 1: respecting the science of the textbook while also understanding we 23 00:01:37,440 --> 00:01:39,440 Speaker 1: live in the real world where we have to you know, 24 00:01:39,840 --> 00:01:43,920 Speaker 1: understand the actual data arriving and to filter out and 25 00:01:44,600 --> 00:01:47,199 Speaker 1: come up with policies that that work in the real world, 26 00:01:47,640 --> 00:01:50,680 Speaker 1: not just in the textbook version. Well, let's talk about 27 00:01:50,680 --> 00:01:52,720 Speaker 1: the real world and the data this morning, Philip, right 28 00:01:52,720 --> 00:01:54,080 Speaker 1: to have you with us on the program. So, by 29 00:01:54,120 --> 00:01:57,240 Speaker 1: the way, the writing core inflation in the urosign more 30 00:01:57,280 --> 00:02:00,200 Speaker 1: bad news comes in at three point. It's that with 31 00:02:00,240 --> 00:02:02,200 Speaker 1: how worried you are about the second round effects here 32 00:02:02,560 --> 00:02:04,880 Speaker 1: and how quickly you think we should react to that pressure. 33 00:02:05,960 --> 00:02:10,160 Speaker 1: So clearly the Holy economy, all sectors, so core non core, 34 00:02:10,320 --> 00:02:14,640 Speaker 1: the Holy economy has to adjust at essentially three factors 35 00:02:14,680 --> 00:02:19,680 Speaker 1: in Europe. One is the very large increase in energy prices, 36 00:02:20,680 --> 00:02:24,720 Speaker 1: which of course matters directly, but also matters indirectly because 37 00:02:24,760 --> 00:02:29,600 Speaker 1: every sector uses energy, so every every business which uses 38 00:02:29,720 --> 00:02:33,120 Speaker 1: energies and input, including in the services sector just think 39 00:02:33,160 --> 00:02:39,079 Speaker 1: about hotels, restaurants, transportation, That energy shock will show up everywhere. 40 00:02:39,919 --> 00:02:44,240 Speaker 1: A second factor is the pandemic and that's working through 41 00:02:44,320 --> 00:02:49,320 Speaker 1: different channels. As you know, now with the renewed wave 42 00:02:49,400 --> 00:02:52,720 Speaker 1: of lockdowns in China, we have new bottom x. Well, 43 00:02:52,560 --> 00:02:55,600 Speaker 1: we also in Europe have the reopening of the economy 44 00:02:55,919 --> 00:02:59,639 Speaker 1: this winter, including the early weeks of Q one, which 45 00:02:59,680 --> 00:03:02,920 Speaker 1: we just seen, a lot of sectors were still locked down, 46 00:03:03,080 --> 00:03:06,760 Speaker 1: which basically meant that there was a lack of activity 47 00:03:07,040 --> 00:03:12,320 Speaker 1: and also honestly in the world where of that less 48 00:03:12,360 --> 00:03:15,919 Speaker 1: pricing pressure. And then as we reopened those sectors, at 49 00:03:15,960 --> 00:03:19,400 Speaker 1: those sectors are also going to normalized prices. And then 50 00:03:19,440 --> 00:03:22,359 Speaker 1: the third element is the war, and the war when 51 00:03:22,360 --> 00:03:26,240 Speaker 1: we're talking about started as you know in late February, 52 00:03:27,160 --> 00:03:29,880 Speaker 1: and this is a source of great uncertainty for the 53 00:03:29,880 --> 00:03:34,840 Speaker 1: European economy. Of course, it interacts with the with the 54 00:03:34,960 --> 00:03:38,880 Speaker 1: energy shock, it interacts with bottomnecks, but also has a 55 00:03:38,920 --> 00:03:42,320 Speaker 1: direct effect in terms of annually trying to kind of 56 00:03:42,720 --> 00:03:46,600 Speaker 1: form their outlook for for Europe for the coming months 57 00:03:46,640 --> 00:03:49,360 Speaker 1: and years. How the war plays out in the coming 58 00:03:49,400 --> 00:03:53,160 Speaker 1: weeks and months is really the most important topic. Well, 59 00:03:53,200 --> 00:03:55,720 Speaker 1: let's talk about how that informs your sequencing. The latest 60 00:03:55,720 --> 00:03:58,600 Speaker 1: minutes published by the ECB. Let's call them the account 61 00:03:58,680 --> 00:04:00,600 Speaker 1: the way you like us to show. Do you viewed 62 00:04:00,600 --> 00:04:03,160 Speaker 1: the call for a rate hikes sometime after the end 63 00:04:03,160 --> 00:04:06,160 Speaker 1: of asset purchases. I understand from your point of view 64 00:04:06,160 --> 00:04:09,720 Speaker 1: you want to disentangle the rate hikes from asset purchases. 65 00:04:09,880 --> 00:04:12,560 Speaker 1: I get all of that. You suggested recently, Philip, that 66 00:04:12,640 --> 00:04:15,600 Speaker 1: would give the Governing Council this extra space. Do you 67 00:04:15,640 --> 00:04:18,640 Speaker 1: think you still need that extra space given everything you've 68 00:04:18,640 --> 00:04:21,560 Speaker 1: just said and given the data this morning. So so 69 00:04:21,600 --> 00:04:24,000 Speaker 1: I suppose that, let me be clear along a few 70 00:04:24,040 --> 00:04:29,120 Speaker 1: dimensions after us uh, the the idea is to have 71 00:04:29,200 --> 00:04:32,760 Speaker 1: an option. So that option is an option that that 72 00:04:32,880 --> 00:04:36,599 Speaker 1: could be invoked quickly, as President of Guard has said. 73 00:04:36,640 --> 00:04:40,520 Speaker 1: I think in the press conferences it covers, you know, 74 00:04:40,560 --> 00:04:43,440 Speaker 1: I arranged at the long end from a few months 75 00:04:44,160 --> 00:04:47,320 Speaker 1: to the short end, you know, as you know of 76 00:04:47,320 --> 00:04:49,520 Speaker 1: of you know, even a week. I think specially mentioned 77 00:04:49,520 --> 00:04:52,480 Speaker 1: that at the short end. So it's an option, it's 78 00:04:52,520 --> 00:04:55,640 Speaker 1: not a it's not a fixed window of time. And 79 00:04:55,839 --> 00:04:59,280 Speaker 1: essentially here we are at the end of April. We're 80 00:04:59,320 --> 00:05:02,080 Speaker 1: nearly six weeks, six weeks I think from yesterday to 81 00:05:02,120 --> 00:05:05,280 Speaker 1: the June meeting, and after that we have another number 82 00:05:05,279 --> 00:05:07,800 Speaker 1: of weeks to the next meeting in July and and 83 00:05:07,839 --> 00:05:12,599 Speaker 1: so on. So I appreciate those who are trying to 84 00:05:12,760 --> 00:05:18,200 Speaker 1: uh form market judgments like predictions. I'm much more focused 85 00:05:18,200 --> 00:05:21,640 Speaker 1: on the process. We we need to take into account 86 00:05:21,640 --> 00:05:24,440 Speaker 1: of data we've seen today, We need to take into 87 00:05:24,520 --> 00:05:30,479 Speaker 1: county boat on GDP and on inflation. We're basically, honestly 88 00:05:30,600 --> 00:05:34,640 Speaker 1: in the middle of trying of the staff are working 89 00:05:34,800 --> 00:05:37,600 Speaker 1: on the projections that will inform the June meeting. And 90 00:05:38,120 --> 00:05:42,320 Speaker 1: we we were clear sequencing, if in terms of policymaking, 91 00:05:42,480 --> 00:05:44,719 Speaker 1: but also in terms of the meetings we have and 92 00:05:44,760 --> 00:05:47,800 Speaker 1: the information we have. So I don't really want to 93 00:05:47,880 --> 00:05:50,760 Speaker 1: run ahead of that sequence. Philip, you mentioned market pricing. 94 00:05:51,400 --> 00:05:54,280 Speaker 1: Do you think it adequately reflects right now? The way 95 00:05:54,320 --> 00:05:57,400 Speaker 1: you're communicating is that of any interest to you whatsoever? 96 00:05:58,560 --> 00:06:01,039 Speaker 1: So I mean, I think the is involved in the 97 00:06:01,120 --> 00:06:07,160 Speaker 1: market and policymakers are essentially confronted with a number of factors. 98 00:06:08,000 --> 00:06:11,080 Speaker 1: Number one, I think you said earlier on in the commentary. 99 00:06:12,080 --> 00:06:18,200 Speaker 1: Our current policies are interest rate policies were developed at 100 00:06:18,240 --> 00:06:21,560 Speaker 1: a time when when the imperative was to try and 101 00:06:21,640 --> 00:06:25,080 Speaker 1: tackle inflation that was persistently below our two percent target. 102 00:06:25,720 --> 00:06:29,119 Speaker 1: So we've been basically saying all the year long that 103 00:06:29,120 --> 00:06:33,960 Speaker 1: that on a step by step basis uh uh conditional 104 00:06:34,240 --> 00:06:37,800 Speaker 1: on this outlet where we do think, um, we are 105 00:06:37,880 --> 00:06:42,559 Speaker 1: not returning to that low inflation trap of normalizing interest 106 00:06:42,640 --> 00:06:45,960 Speaker 1: rate policy. So so the interest rate policy will move 107 00:06:46,520 --> 00:06:49,040 Speaker 1: at the you know, the question of I know of 108 00:06:49,200 --> 00:06:54,640 Speaker 1: of interest at to everyone is exactly when that that 109 00:06:54,720 --> 00:06:58,720 Speaker 1: will start. And you know, we essentially have been assessing 110 00:06:58,720 --> 00:07:01,960 Speaker 1: in our recent meetings that we should be data dependent 111 00:07:03,160 --> 00:07:06,400 Speaker 1: to respect the uncertainty we face, and that you know 112 00:07:06,560 --> 00:07:09,600 Speaker 1: we thought you respect. Can I just jump into some 113 00:07:09,720 --> 00:07:12,080 Speaker 1: central bankers that you will be data dependent and then 114 00:07:12,120 --> 00:07:14,480 Speaker 1: I see the data change, and then I don't see 115 00:07:14,480 --> 00:07:17,840 Speaker 1: anything you say that changes whatsoever. I ask the question 116 00:07:17,880 --> 00:07:20,080 Speaker 1: earlier on about what you said about a month ago 117 00:07:20,480 --> 00:07:22,680 Speaker 1: relative to what the data says now, about whether you 118 00:07:22,720 --> 00:07:26,040 Speaker 1: still need that extra space between ending rate purchases and 119 00:07:26,160 --> 00:07:29,360 Speaker 1: rate heights, and then you say data dependence still sure, 120 00:07:29,440 --> 00:07:33,800 Speaker 1: jump back in. Let's let me challenge this. Just look 121 00:07:34,000 --> 00:07:38,720 Speaker 1: at the very large changes in the ECB's monetary stance 122 00:07:39,840 --> 00:07:43,520 Speaker 1: since since December. So in December, you know we took 123 00:07:43,560 --> 00:07:48,040 Speaker 1: decisions which you know we're not We're not universally praised 124 00:07:48,080 --> 00:07:50,560 Speaker 1: at the time to to have a big scaling down 125 00:07:50,600 --> 00:07:54,320 Speaker 1: of ass of purchases, including through the ending the announced 126 00:07:54,400 --> 00:07:56,560 Speaker 1: end of the of the PEP purchases at the end 127 00:07:56,600 --> 00:08:00,920 Speaker 1: of March. So in terms of step one scaling down 128 00:08:00,960 --> 00:08:04,320 Speaker 1: that the monthly volume of purchases, a lot has already happened. 129 00:08:05,840 --> 00:08:09,680 Speaker 1: Step two of not only going ending the PEP but 130 00:08:09,800 --> 00:08:14,040 Speaker 1: talking about concluding net purchases under the app. You know, 131 00:08:14,280 --> 00:08:17,920 Speaker 1: we we've signaled that strong expectation that this, this is, 132 00:08:18,040 --> 00:08:21,080 Speaker 1: this is coming up. And then after that sequence it's 133 00:08:21,120 --> 00:08:24,720 Speaker 1: it's the issue about moving interest rates and you know, 134 00:08:24,760 --> 00:08:29,600 Speaker 1: the market um um and for ourselves, you know, it's 135 00:08:29,720 --> 00:08:32,920 Speaker 1: the story is not you know, the issue about uh, 136 00:08:33,120 --> 00:08:35,120 Speaker 1: you know, are we going to move away from from 137 00:08:35,160 --> 00:08:38,440 Speaker 1: minus zero point five for for the deposit rate. The 138 00:08:38,480 --> 00:08:42,160 Speaker 1: big issue which we do have to still be data 139 00:08:42,200 --> 00:08:46,640 Speaker 1: dependent about is the scale and the timing of interest 140 00:08:46,720 --> 00:08:49,800 Speaker 1: rate normalization. And you know, we've just thought about the 141 00:08:49,840 --> 00:08:54,360 Speaker 1: high uncertainty um it's recurrent everywhere that that that there 142 00:08:54,400 --> 00:08:58,280 Speaker 1: are mixed dynamics into your area in the near term. Yes, 143 00:08:58,320 --> 00:09:01,079 Speaker 1: inflation is very high, and that us carry its own 144 00:09:01,160 --> 00:09:05,240 Speaker 1: risk of momentum under the hand at the high energy 145 00:09:05,280 --> 00:09:10,520 Speaker 1: prices are eating into a disposal incomes. It's reducing consumption. 146 00:09:11,320 --> 00:09:14,720 Speaker 1: The war you know, has the scope especially you know, 147 00:09:14,840 --> 00:09:19,440 Speaker 1: depending on how it goes in terms of mapping into 148 00:09:19,520 --> 00:09:24,520 Speaker 1: lower investment, lower consumption at true true confidence effects and 149 00:09:24,640 --> 00:09:27,920 Speaker 1: the extra pressure and energy. So I'm going to hold 150 00:09:28,320 --> 00:09:32,400 Speaker 1: to this perspective that the a lot remains data dependent. 151 00:09:32,440 --> 00:09:35,640 Speaker 1: But but but but I would emphasize though, is at 152 00:09:36,480 --> 00:09:38,680 Speaker 1: where where you know, I don't think you're hearing anyone 153 00:09:38,840 --> 00:09:43,320 Speaker 1: saying that the the current deposit rate of minus zero 154 00:09:43,360 --> 00:09:47,760 Speaker 1: point five is going to be remained there indefinitely. It's 155 00:09:47,800 --> 00:09:52,760 Speaker 1: all about the prudent and the robust and durable way 156 00:09:53,520 --> 00:09:56,600 Speaker 1: of having normalization. Looking at the move in the Euro, 157 00:09:57,559 --> 00:09:59,640 Speaker 1: it's been pretty brutal over the last month, phill It 158 00:10:00,000 --> 00:10:02,319 Speaker 1: you're a dollars down about four point five on a 159 00:10:02,360 --> 00:10:04,360 Speaker 1: month so far. You will, of course tell me that 160 00:10:04,400 --> 00:10:06,160 Speaker 1: this is not a policy target, but we can all 161 00:10:06,160 --> 00:10:08,920 Speaker 1: agree it has possible implications for the immediate turn outlook 162 00:10:08,920 --> 00:10:11,960 Speaker 1: for price stability. We then in mind, Philip, the latest 163 00:10:12,000 --> 00:10:15,560 Speaker 1: development is problematic for you. The way I mean I 164 00:10:15,559 --> 00:10:19,200 Speaker 1: would think about it, I think I've always taken this 165 00:10:19,280 --> 00:10:22,800 Speaker 1: view is that the exchange rate is a very important 166 00:10:23,040 --> 00:10:26,560 Speaker 1: macroeconomic variable for Europe. The your area is a big 167 00:10:26,600 --> 00:10:30,600 Speaker 1: trading block. It's from a Marcrot point of view, the 168 00:10:30,600 --> 00:10:33,920 Speaker 1: exchange rate absolutely matters. So when we are when the 169 00:10:33,920 --> 00:10:37,720 Speaker 1: staff now are working through the projections for June, that 170 00:10:37,880 --> 00:10:42,480 Speaker 1: that currency depreciation will will be an important factor shaping 171 00:10:42,520 --> 00:10:47,319 Speaker 1: their projections. And again to emphasize, it's you know, one 172 00:10:47,440 --> 00:10:50,520 Speaker 1: channel is a mechanical effect and import prices, but when 173 00:10:50,559 --> 00:10:54,880 Speaker 1: we think about investment, when we think about consumption net 174 00:10:54,880 --> 00:10:56,720 Speaker 1: exports for the your area, it's it's a it's a 175 00:10:56,720 --> 00:11:02,920 Speaker 1: big macro variable and this movie significant. So anyone looking 176 00:11:02,960 --> 00:11:05,000 Speaker 1: at that and trying to think about the implications from 177 00:11:05,000 --> 00:11:08,560 Speaker 1: mantro policy, that will definitely be one trend along with 178 00:11:08,640 --> 00:11:11,040 Speaker 1: every other trend that we need to think about, which 179 00:11:11,080 --> 00:11:14,280 Speaker 1: will be integrated into an overall assessment in the In 180 00:11:14,320 --> 00:11:17,400 Speaker 1: the June forecast, Philip, how much does it affect your 181 00:11:17,440 --> 00:11:20,439 Speaker 1: expectation for the potential for a recession in the Euroregion? 182 00:11:20,800 --> 00:11:24,000 Speaker 1: And I say this as ECB member Mattis Muller came 183 00:11:24,000 --> 00:11:26,600 Speaker 1: out and said that they saw that the chance of 184 00:11:26,600 --> 00:11:31,199 Speaker 1: a recession in the euroregion was low. Do you agree so? Absolutely? 185 00:11:31,200 --> 00:11:35,280 Speaker 1: In our baseline. Let me point point out two factors. One, 186 00:11:36,320 --> 00:11:39,120 Speaker 1: this is still a lot of momentum from from the 187 00:11:39,160 --> 00:11:43,120 Speaker 1: recovery from the pandemic um. That's true, especially when you 188 00:11:43,120 --> 00:11:46,640 Speaker 1: think about year on year, because this time last year 189 00:11:46,800 --> 00:11:49,320 Speaker 1: there was you know, we were still very far below 190 00:11:49,360 --> 00:11:52,920 Speaker 1: at the now, so you know, when we think about 191 00:11:52,960 --> 00:11:55,880 Speaker 1: the economy, that momentum is there. But it's not just 192 00:11:55,960 --> 00:11:58,760 Speaker 1: about that kind of base effect, Like you know, the 193 00:11:58,840 --> 00:12:03,120 Speaker 1: momentum we've just seen, you know, a positive Q one, 194 00:12:03,520 --> 00:12:07,840 Speaker 1: not very high, admittedly, that's still positive. And the we 195 00:12:07,960 --> 00:12:12,640 Speaker 1: know from the near time indicators for what's going on 196 00:12:12,760 --> 00:12:16,960 Speaker 1: right now that this still seems to be resoural activity 197 00:12:17,080 --> 00:12:20,600 Speaker 1: right now here at the end of April um. So again, 198 00:12:21,240 --> 00:12:23,360 Speaker 1: I don't think it's it's the most interesting way to 199 00:12:23,480 --> 00:12:28,080 Speaker 1: to kind of frame the question because even if the 200 00:12:28,080 --> 00:12:33,040 Speaker 1: economic continues to grow compared to the pre war baseline, 201 00:12:33,800 --> 00:12:38,559 Speaker 1: you know, under all scenarios, the path for output is 202 00:12:38,960 --> 00:12:41,360 Speaker 1: not going to be as high as we as we 203 00:12:41,360 --> 00:12:44,760 Speaker 1: were hoping before before the war broke out. So the 204 00:12:45,080 --> 00:12:50,120 Speaker 1: basic analysis applies regardless of whether everything ends up being 205 00:12:50,160 --> 00:12:53,160 Speaker 1: so strong to put us into negative territory. But but 206 00:12:53,520 --> 00:12:57,280 Speaker 1: really it's it's not so much about what we know today. 207 00:12:57,320 --> 00:12:59,800 Speaker 1: It's we all know the possible scenarios. We all know 208 00:12:59,880 --> 00:13:04,200 Speaker 1: the possible scenarios about the intensification of the interruption of 209 00:13:04,240 --> 00:13:08,400 Speaker 1: amgry supplies and other scenarios which could and this is 210 00:13:08,440 --> 00:13:12,839 Speaker 1: why at the ECB we've been, you know, publishing scenarios. 211 00:13:13,320 --> 00:13:15,679 Speaker 1: We've been emphasizing we don't just look at the baseline, 212 00:13:15,679 --> 00:13:19,000 Speaker 1: but also adverse and severe scenarios. Philip, just a sort 213 00:13:19,040 --> 00:13:21,960 Speaker 1: of some up though. Are you saying that the market 214 00:13:22,120 --> 00:13:25,040 Speaker 1: is wrong because the market seems to increasingly be pricing 215 00:13:25,080 --> 00:13:28,079 Speaker 1: in a recession in the euroregion and pricing in that 216 00:13:28,200 --> 00:13:31,120 Speaker 1: those scenarios look a lot more likely. Are you saying 217 00:13:31,360 --> 00:13:35,199 Speaker 1: that the risk reward is perhaps a little less pessimistic 218 00:13:35,400 --> 00:13:40,240 Speaker 1: from your perspective. I don't think again, I want to 219 00:13:40,280 --> 00:13:43,400 Speaker 1: spend any time on the commenting on that. What's too 220 00:13:43,440 --> 00:13:45,800 Speaker 1: is the market, of course has to fold in a 221 00:13:45,840 --> 00:13:50,720 Speaker 1: significant risk premium, a wrist premium on inflation, a wrist 222 00:13:50,720 --> 00:13:54,320 Speaker 1: premium on GDP, and there is a covariance factor there 223 00:13:54,880 --> 00:13:58,440 Speaker 1: which which is basically the urge to to kind of 224 00:13:58,840 --> 00:14:02,439 Speaker 1: look for protection. It's going to be higher where when 225 00:14:02,440 --> 00:14:05,600 Speaker 1: you're confronted with the risk of higher inflationment and lower output, 226 00:14:06,360 --> 00:14:10,319 Speaker 1: and so filtering out between risk premia and what the 227 00:14:10,400 --> 00:14:13,880 Speaker 1: market truly expects. Of course, we we we we we 228 00:14:13,920 --> 00:14:17,320 Speaker 1: did that ourselves in understanding the data. But that but 229 00:14:17,559 --> 00:14:22,280 Speaker 1: both forces risk management and kind of true forecasts are 230 00:14:22,600 --> 00:14:26,160 Speaker 1: off the influencing market pricing. Philip Line of ECV, the 231 00:14:26,200 --> 00:14:29,200 Speaker 1: chief economist, Philip, fantastic to catch up with you, deeply 232 00:14:29,200 --> 00:14:33,240 Speaker 1: thoughtful stuff on a tricky moment for this European Central Bank, Philip, 233 00:14:33,280 --> 00:14:42,480 Speaker 1: Thank you. Tom Purcellio joins us now truly expert within 234 00:14:42,520 --> 00:14:45,920 Speaker 1: market economics in America on wage dynamics time. You're the 235 00:14:45,960 --> 00:14:48,680 Speaker 1: best guy to talk to about this right now. Is 236 00:14:48,720 --> 00:14:54,240 Speaker 1: it a wage spiral? Yeah, you know so. I'm sympathetic 237 00:14:54,280 --> 00:14:56,680 Speaker 1: to everyone looking at ECI because Powell mentioned it, But 238 00:14:56,960 --> 00:15:01,040 Speaker 1: I don't know too. It's quarterly number, and because monthly 239 00:15:01,120 --> 00:15:02,880 Speaker 1: stuff in hand, where you have a month, we have 240 00:15:02,960 --> 00:15:04,720 Speaker 1: a new month, we have March in hand. We're gonna 241 00:15:04,720 --> 00:15:06,760 Speaker 1: get April dat as soon enough. I mean, look, if 242 00:15:06,800 --> 00:15:08,640 Speaker 1: you're looking at wages and salaries, I think it's really 243 00:15:08,680 --> 00:15:10,720 Speaker 1: interesting that at the month on months actually continue to 244 00:15:10,800 --> 00:15:12,400 Speaker 1: slow and that's been going on for quite a number 245 00:15:12,400 --> 00:15:14,520 Speaker 1: of months now again make a mistake. I mean, we're 246 00:15:14,560 --> 00:15:16,760 Speaker 1: looking at really high run rate here, but at the 247 00:15:16,840 --> 00:15:19,240 Speaker 1: end of the day, I mean, you know, look, everyone 248 00:15:19,280 --> 00:15:21,160 Speaker 1: wants it so fast, right like they just wanted like 249 00:15:21,240 --> 00:15:22,840 Speaker 1: one month. They want they want to wake up one 250 00:15:22,920 --> 00:15:24,640 Speaker 1: day and they want like inflation back to you know, 251 00:15:24,680 --> 00:15:27,040 Speaker 1: two percent. This is not how it's gonna work, right, mean, 252 00:15:27,040 --> 00:15:28,320 Speaker 1: you have to look for like these sort of little 253 00:15:28,320 --> 00:15:30,200 Speaker 1: shifts that are happening. And one of the I think 254 00:15:30,240 --> 00:15:32,360 Speaker 1: there's a couple of interesting shifts that are happening right now. 255 00:15:32,400 --> 00:15:34,600 Speaker 1: One of them is wages and salaries are actually slowing 256 00:15:34,600 --> 00:15:36,760 Speaker 1: down on a month on month basis. Again running at 257 00:15:36,760 --> 00:15:38,440 Speaker 1: a high level, we get that, but you got to 258 00:15:38,480 --> 00:15:40,680 Speaker 1: look for these little ships. I thought the Beige Book 259 00:15:40,680 --> 00:15:42,480 Speaker 1: from last week, I thought that was really interesting too. 260 00:15:42,520 --> 00:15:45,640 Speaker 1: I mean, you know, there was this commentary embedded throughout 261 00:15:45,680 --> 00:15:46,920 Speaker 1: again right like the things that you're not going to 262 00:15:47,000 --> 00:15:49,520 Speaker 1: see at the at the headline. I'm looking at the 263 00:15:49,520 --> 00:15:51,520 Speaker 1: comment right here. I thought it was really interesting. A 264 00:15:51,520 --> 00:15:54,680 Speaker 1: few firms noted that they're reevaluating their employment level and 265 00:15:54,720 --> 00:15:58,080 Speaker 1: maybe ready for some attrition to reduce staff size, and 266 00:15:58,120 --> 00:16:00,840 Speaker 1: comments like that are embedded throughout the bag book. Now again, 267 00:16:00,960 --> 00:16:02,960 Speaker 1: I want to be clear, You're not gonna wake up 268 00:16:03,000 --> 00:16:04,640 Speaker 1: one day and everything is going to be sort of different. 269 00:16:04,680 --> 00:16:06,480 Speaker 1: I'm just simply saying you've got to look at these things. 270 00:16:06,520 --> 00:16:08,640 Speaker 1: We're sort of you know, signs or how things are 271 00:16:08,640 --> 00:16:11,560 Speaker 1: starting to shift. Um, and I will submit to you 272 00:16:11,600 --> 00:16:13,880 Speaker 1: that that that is happening. So you know what it 273 00:16:13,880 --> 00:16:15,520 Speaker 1: means for markets, Tom, And you're trying to pick up 274 00:16:15,520 --> 00:16:17,440 Speaker 1: on the e c I the recent people care it's 275 00:16:17,440 --> 00:16:19,520 Speaker 1: because Chapman pounce old as he cares. This is about 276 00:16:19,520 --> 00:16:21,600 Speaker 1: the reaction function of the FED. So let's work through 277 00:16:21,640 --> 00:16:24,840 Speaker 1: it together. How do you anticipate this data will develop? 278 00:16:24,880 --> 00:16:28,040 Speaker 1: There will be a mechanical peak developing in CP in America. 279 00:16:28,120 --> 00:16:30,480 Speaker 1: We may have already seen that peak. Tom. How do 280 00:16:30,520 --> 00:16:33,600 Speaker 1: you think this Federal Reserve will internalize that data and 281 00:16:33,640 --> 00:16:35,680 Speaker 1: react to it as it peaks and you start to 282 00:16:35,720 --> 00:16:38,160 Speaker 1: see this slow deceleration that I assume that you anticipate 283 00:16:38,200 --> 00:16:40,800 Speaker 1: through the summer. Yeah, Jonathan, So I think that this 284 00:16:40,880 --> 00:16:42,440 Speaker 1: is the question that you know, we've just wrote about 285 00:16:42,440 --> 00:16:43,760 Speaker 1: this the other day, and I think this is the 286 00:16:43,760 --> 00:16:45,920 Speaker 1: thing that you know, the FED is going to need 287 00:16:45,920 --> 00:16:49,600 Speaker 1: to sort of quantify to some extent. Think about last year. 288 00:16:50,200 --> 00:16:52,320 Speaker 1: Think about what they did last year. Last year, it 289 00:16:52,360 --> 00:16:54,920 Speaker 1: was basically all about getting to max employment, right, like 290 00:16:55,080 --> 00:16:57,720 Speaker 1: you know, forget about inflation. Um, it was, it was 291 00:16:57,760 --> 00:17:00,320 Speaker 1: all it was, you know, a bee line to getting 292 00:17:00,360 --> 00:17:03,080 Speaker 1: to max employment. Well we see how that worked out, 293 00:17:03,160 --> 00:17:04,840 Speaker 1: right when you have your blinders on and you're only 294 00:17:04,880 --> 00:17:07,840 Speaker 1: focused on a single side of the mandate. So the 295 00:17:07,920 --> 00:17:11,160 Speaker 1: question today is are they only going to focus on 296 00:17:11,240 --> 00:17:14,280 Speaker 1: getting back to target inflation? Because I'll tell you if 297 00:17:14,320 --> 00:17:16,880 Speaker 1: that's true. Look, you're speaking to someone and I think 298 00:17:16,880 --> 00:17:18,679 Speaker 1: you will know this. You're speaking to someone who actually 299 00:17:18,680 --> 00:17:20,680 Speaker 1: thinks that inflation will slow down as the as the 300 00:17:20,760 --> 00:17:23,800 Speaker 1: year progresses. But if if it's, if this is a 301 00:17:23,880 --> 00:17:28,000 Speaker 1: march to target, then you're gonna blow through bullards three fifty. 302 00:17:28,160 --> 00:17:30,600 Speaker 1: I mean you're not gonna get to target until well 303 00:17:30,640 --> 00:17:34,760 Speaker 1: into next year. Um. From a from a core perspective, Um, 304 00:17:34,880 --> 00:17:37,320 Speaker 1: So I think the Fed needs to define what they 305 00:17:37,440 --> 00:17:40,480 Speaker 1: sort of would will feel comfortable with from an inflation perspective, 306 00:17:40,840 --> 00:17:43,760 Speaker 1: because if it's if it's, if it's target, then you're 307 00:17:43,760 --> 00:17:46,879 Speaker 1: gonna be meanifully higher than than neutral and you're going 308 00:17:46,960 --> 00:17:49,560 Speaker 1: to cause a recession. So where do you think that 309 00:17:49,600 --> 00:17:53,200 Speaker 1: they should be okay or comfortable with inflation. Coming down 310 00:17:53,200 --> 00:17:56,200 Speaker 1: to yeah, Lisa, I think that it's it really is 311 00:17:56,240 --> 00:17:58,959 Speaker 1: about the movement of inflation. Right Like if if by 312 00:17:59,000 --> 00:18:00,760 Speaker 1: the end of the year your whole a three handle 313 00:18:00,840 --> 00:18:04,480 Speaker 1: on core inflation, core inflation, UM, I would I would 314 00:18:04,520 --> 00:18:06,919 Speaker 1: define that as actually feeling like you're in a good spot, right. 315 00:18:06,960 --> 00:18:09,000 Speaker 1: It's it's about the movement and where we are going. 316 00:18:09,040 --> 00:18:10,840 Speaker 1: It's about the narrative in place at the time. It's 317 00:18:10,880 --> 00:18:12,800 Speaker 1: really easy today to say, hey, inflation is can be 318 00:18:12,800 --> 00:18:15,920 Speaker 1: an eight at eight percent, because that's all people see 319 00:18:16,000 --> 00:18:18,440 Speaker 1: is eight percent inflation. But I think as the year progresses, 320 00:18:18,480 --> 00:18:20,320 Speaker 1: I think the sort of the tone on that will 321 00:18:20,359 --> 00:18:22,960 Speaker 1: be very different. I think as the year progresses, the 322 00:18:22,960 --> 00:18:25,480 Speaker 1: tone on spending will be very different. I mean, we've 323 00:18:25,480 --> 00:18:27,640 Speaker 1: talked about this quite a bit. If you look at 324 00:18:27,680 --> 00:18:32,159 Speaker 1: the lower end consumer, at the fourth and fifth income quintiles, 325 00:18:32,200 --> 00:18:36,120 Speaker 1: they're tapped out. They don't have the ability to overspend overspend, 326 00:18:36,160 --> 00:18:38,080 Speaker 1: which is what happened last year, and the data are 327 00:18:38,080 --> 00:18:40,159 Speaker 1: pretty clear on that, you know. I think it's interesting. 328 00:18:40,200 --> 00:18:42,399 Speaker 1: I was listening to um you guys earlier, and I 329 00:18:42,400 --> 00:18:45,760 Speaker 1: think Tom was was completely spot on. I think that 330 00:18:45,840 --> 00:18:49,320 Speaker 1: the most recent I think that yesterday's GDP number, I 331 00:18:49,320 --> 00:18:51,879 Speaker 1: think that's fascinating. I think that that is a really 332 00:18:51,920 --> 00:18:54,320 Speaker 1: interesting report. And it has nothing to do with the negative. 333 00:18:54,520 --> 00:18:56,200 Speaker 1: It's nothing to do with the fact that the consumer 334 00:18:56,240 --> 00:18:58,800 Speaker 1: held in nothing. Has everything to do with trade and 335 00:18:58,840 --> 00:19:02,359 Speaker 1: inventories and when and this is again feeds into our 336 00:19:02,400 --> 00:19:05,760 Speaker 1: story so so nicely. I think it's really interesting that 337 00:19:05,800 --> 00:19:09,359 Speaker 1: the inventory build has been staggering over the last couple 338 00:19:09,440 --> 00:19:14,280 Speaker 1: of quarters, absolutely staggering. And yes it's subtracted from growth yesterday, 339 00:19:14,359 --> 00:19:16,679 Speaker 1: but only before you know, because of the way is 340 00:19:16,680 --> 00:19:18,720 Speaker 1: the delta right, It is just because the build was 341 00:19:18,840 --> 00:19:21,440 Speaker 1: less than what we saw last quarter. But the last 342 00:19:21,440 --> 00:19:25,280 Speaker 1: two quarters we have seen an absolutely enormous amount of build. 343 00:19:25,840 --> 00:19:28,000 Speaker 1: Think about that in the context of the other thing 344 00:19:28,000 --> 00:19:31,280 Speaker 1: that's subtracted from growth, that was trade. We're importing. We've 345 00:19:31,320 --> 00:19:36,199 Speaker 1: imported almost the annual run rate is eighteen percent, eighteen 346 00:19:36,240 --> 00:19:39,960 Speaker 1: percent over the last two quarters. This is amazing, iRacing us. 347 00:19:40,119 --> 00:19:42,240 Speaker 1: So sorry, let's just finish his point. So what's happening 348 00:19:42,240 --> 00:19:45,240 Speaker 1: is we're building all of this inventory and at the 349 00:19:45,320 --> 00:19:48,320 Speaker 1: same time that the consumer is transitioning from good spending 350 00:19:48,320 --> 00:19:50,679 Speaker 1: the services spending. Um, what do you think is going 351 00:19:50,720 --> 00:19:53,639 Speaker 1: to happen to good prices? In that context? Good prices 352 00:19:53,640 --> 00:19:54,880 Speaker 1: are going to fall, And I think it could fall 353 00:19:54,880 --> 00:19:57,440 Speaker 1: pretty sharply, just real quickly. We only have about forty 354 00:19:57,440 --> 00:19:59,840 Speaker 1: five seconds left. It's no problem. I know that you're 355 00:20:00,040 --> 00:20:02,399 Speaker 1: you is that the FED shouldn't go too quickly and 356 00:20:02,480 --> 00:20:05,280 Speaker 1: force a recession. What would you have to see in 357 00:20:05,320 --> 00:20:07,840 Speaker 1: the data that would make you change your mind about 358 00:20:07,840 --> 00:20:12,080 Speaker 1: the momentum that the FED has to curtail. So so, Lisa, 359 00:20:12,200 --> 00:20:15,200 Speaker 1: if if if we're wrong, if inflation remains elevated, then yes, 360 00:20:15,240 --> 00:20:17,919 Speaker 1: of course then the FED should engineer a recession, right, 361 00:20:17,960 --> 00:20:21,800 Speaker 1: They basically should just get aggressive and knock this thing out. Um. 362 00:20:21,840 --> 00:20:24,160 Speaker 1: But but again I think, well I've said this many 363 00:20:24,160 --> 00:20:26,159 Speaker 1: times on your program. I just think a little bit 364 00:20:26,200 --> 00:20:28,560 Speaker 1: of sort of patients and and and and a little 365 00:20:28,560 --> 00:20:30,639 Speaker 1: bit of sort of look, making sure you're sort of 366 00:20:30,640 --> 00:20:32,920 Speaker 1: noting both sides of the mandate. I think that would 367 00:20:32,920 --> 00:20:35,080 Speaker 1: get you to a pretty reasonable place. You know, we 368 00:20:35,119 --> 00:20:37,640 Speaker 1: don't have to generate a recession. I don't think we'll 369 00:20:37,640 --> 00:20:39,680 Speaker 1: have to generate a recession and inflation slows down. But 370 00:20:39,720 --> 00:20:41,360 Speaker 1: if it doesn't, then yes, I think the FED will 371 00:20:41,840 --> 00:20:44,119 Speaker 1: necessarily have to get aggressive some do you think the 372 00:20:44,160 --> 00:20:46,000 Speaker 1: pivot was more to do with secure in a second 373 00:20:46,040 --> 00:20:48,440 Speaker 1: term and not the a CI. Then just a final 374 00:20:48,520 --> 00:20:51,240 Speaker 1: question from me. You know, you know Jonathan, I I 375 00:20:52,040 --> 00:20:54,240 Speaker 1: don't think so. I mean, I don't I don't pretend 376 00:20:54,280 --> 00:20:57,600 Speaker 1: to know J. Powell in any meaningful way, but I 377 00:20:57,640 --> 00:21:00,040 Speaker 1: don't think that's that what was driving just incline in 378 00:21:00,119 --> 00:21:05,080 Speaker 1: minds once tonight. Some thank you, So I don't think obviously. 379 00:21:05,200 --> 00:21:08,520 Speaker 1: Cavina Markets, thank you very much, just checking in. So 380 00:21:08,840 --> 00:21:18,560 Speaker 1: it's just having a word. Ellen Wald is definitive off 381 00:21:18,560 --> 00:21:21,520 Speaker 1: the Atlantic Council as a senior fellow in a wonderful 382 00:21:21,520 --> 00:21:24,439 Speaker 1: book Saudi and kind of culture, the fabric of the 383 00:21:24,560 --> 00:21:28,240 Speaker 1: royal family in Saudi Arabia, And today we're all embargo 384 00:21:28,720 --> 00:21:32,480 Speaker 1: with ellen Wald. Ellen, it's really simple. Can an embargo 385 00:21:32,640 --> 00:21:36,960 Speaker 1: work on oil against Russia? I don't think that in 386 00:21:37,200 --> 00:21:41,800 Speaker 1: this case an embargo really can work on oil against Russia, because, UH, 387 00:21:42,080 --> 00:21:44,520 Speaker 1: there are, first of all, so many different points that 388 00:21:44,640 --> 00:21:49,080 Speaker 1: Russia is able to UH to to export oil. We've 389 00:21:49,119 --> 00:21:52,840 Speaker 1: got pipelines, we've got multiple ports. UH. In fact, we've 390 00:21:52,880 --> 00:21:56,200 Speaker 1: got ports and UH and pipeline systems that they share 391 00:21:56,280 --> 00:21:59,560 Speaker 1: with other countries like Kazakhstan, and that would be very 392 00:21:59,720 --> 00:22:02,160 Speaker 1: very are to police. So I think that what we're 393 00:22:02,160 --> 00:22:05,560 Speaker 1: really talking about here is um Europe is kind of 394 00:22:05,560 --> 00:22:10,680 Speaker 1: embargoing itself against Russian oil and that oil will go 395 00:22:10,840 --> 00:22:13,679 Speaker 1: to other sources. In fact, we just got news that 396 00:22:14,040 --> 00:22:18,879 Speaker 1: UM Indian oil companies, Indian refineries are looking to set 397 00:22:19,240 --> 00:22:23,359 Speaker 1: and to secure some longish term contracts with Russia to 398 00:22:23,440 --> 00:22:26,720 Speaker 1: import Russian oil. And there really isn't any way that, 399 00:22:27,040 --> 00:22:29,560 Speaker 1: you know, short of of some kind of military embargo, 400 00:22:30,000 --> 00:22:33,000 Speaker 1: that the EU and the United States can stop that 401 00:22:33,119 --> 00:22:39,720 Speaker 1: from happening. So then does Europe go after India. Well, 402 00:22:39,760 --> 00:22:42,399 Speaker 1: they can definitely exert pressure on India, but India is 403 00:22:42,840 --> 00:22:46,920 Speaker 1: a huge country with an absolutely huge population that has 404 00:22:47,280 --> 00:22:51,080 Speaker 1: no domestic oil production, so they have to import all 405 00:22:51,119 --> 00:22:55,600 Speaker 1: of their oil. Their oil consumption is growing, their population 406 00:22:55,720 --> 00:22:59,600 Speaker 1: is growing, They're looking to really, uh, you know, to 407 00:22:59,600 --> 00:23:02,040 Speaker 1: to develop their country, and to do that they need 408 00:23:02,160 --> 00:23:05,679 Speaker 1: access to fossil fuels like oil, and they're not going 409 00:23:05,720 --> 00:23:09,560 Speaker 1: to just bow down to what Europe wants. Because of 410 00:23:09,680 --> 00:23:12,680 Speaker 1: some you know, conflict that Europe is in with Russia. 411 00:23:13,080 --> 00:23:15,359 Speaker 1: They were we were able to get them on board 412 00:23:15,400 --> 00:23:18,520 Speaker 1: with the embargo against Iran, with the Iran oil stactions, 413 00:23:18,680 --> 00:23:21,560 Speaker 1: but Russia is a whole another ballgame. Meanwhile, we're talking 414 00:23:21,680 --> 00:23:25,200 Speaker 1: about the issues with Russian oil and perhaps a lack 415 00:23:25,240 --> 00:23:28,480 Speaker 1: of willingness to dramatically ramp up production Here in the US. 416 00:23:28,560 --> 00:23:31,320 Speaker 1: We got Chevron earnings, We've got x On earnings, and 417 00:23:31,680 --> 00:23:34,760 Speaker 1: both are still under investing relative to where they were 418 00:23:34,880 --> 00:23:37,520 Speaker 1: over the recent past. Excellent in particular, I'm looking at 419 00:23:37,800 --> 00:23:41,199 Speaker 1: three point four billion dollar charge off for Russia. What 420 00:23:41,280 --> 00:23:44,080 Speaker 1: do you think of that number? Well, that's that's a 421 00:23:44,119 --> 00:23:47,040 Speaker 1: pretty big, big number, and it's it's interesting to see 422 00:23:47,040 --> 00:23:51,480 Speaker 1: how they these companies are taking UH significant right downs 423 00:23:51,520 --> 00:23:55,760 Speaker 1: for getting out of their assets in Russia. And yet 424 00:23:55,800 --> 00:23:59,280 Speaker 1: you know, we're still seeing huge profits and huge earnings 425 00:23:59,280 --> 00:24:01,840 Speaker 1: from these companies, and one would expect that we'd see 426 00:24:01,880 --> 00:24:05,760 Speaker 1: a lot of that maybe reinvested into UH into upstream 427 00:24:05,920 --> 00:24:10,280 Speaker 1: or downstream development. But I think that we're we're seeing 428 00:24:10,359 --> 00:24:13,600 Speaker 1: instead of seeing that, we're seeing UH significant amounts of 429 00:24:13,600 --> 00:24:17,280 Speaker 1: money being put towards share buybacks to lift the share price, 430 00:24:17,320 --> 00:24:19,960 Speaker 1: which I think is something that um, you know, long 431 00:24:20,119 --> 00:24:23,199 Speaker 1: term and longtime investors in these big oil companies have 432 00:24:23,320 --> 00:24:26,520 Speaker 1: really been looking forward to because they've been on such 433 00:24:26,560 --> 00:24:30,080 Speaker 1: a downward trend for for many years, UH, and so 434 00:24:30,119 --> 00:24:32,840 Speaker 1: now with high oil prices, they're looking forward to seeing 435 00:24:33,119 --> 00:24:35,920 Speaker 1: their share prices go up. And one of the other 436 00:24:36,000 --> 00:24:40,000 Speaker 1: issues with increasing oil production in the US is really 437 00:24:40,080 --> 00:24:44,560 Speaker 1: the bottlenecks, the supply chain issues, and the regulatory regime 438 00:24:44,600 --> 00:24:48,280 Speaker 1: that's making it very difficult and costly UH to ramp 439 00:24:48,359 --> 00:24:51,680 Speaker 1: up production in a in a hasty way. Well, but 440 00:24:51,760 --> 00:24:54,000 Speaker 1: ellen to that point, I mean Excellon tripled their share 441 00:24:54,000 --> 00:24:56,480 Speaker 1: buy back to thirty billion dollars. They did not boost 442 00:24:56,520 --> 00:24:59,600 Speaker 1: their dividend, although they are expected to later in the year. 443 00:24:59,800 --> 00:25:02,640 Speaker 1: L How much does this make business sense for them 444 00:25:02,640 --> 00:25:05,359 Speaker 1: that frankly it does not in their economic interest to 445 00:25:05,359 --> 00:25:08,119 Speaker 1: boost production due to the boom and bus nature of 446 00:25:08,160 --> 00:25:11,119 Speaker 1: the oil market. Or is this something where they just 447 00:25:11,240 --> 00:25:13,320 Speaker 1: see it as no advantage because of some of the 448 00:25:13,400 --> 00:25:16,600 Speaker 1: kinks in the supply chains now, but longer term would 449 00:25:16,640 --> 00:25:19,680 Speaker 1: also make business sense. I think that you can make 450 00:25:19,680 --> 00:25:22,600 Speaker 1: an argument that it would be UH that they could 451 00:25:22,640 --> 00:25:27,440 Speaker 1: increase their revenue if they did increase production, because increasing 452 00:25:27,440 --> 00:25:29,760 Speaker 1: production is not going to bring oil prices down that 453 00:25:29,880 --> 00:25:33,320 Speaker 1: much at this point because in particular there being uh, 454 00:25:33,400 --> 00:25:37,840 Speaker 1: these other factors, geopolitical factors are what's causing our prices 455 00:25:37,880 --> 00:25:40,320 Speaker 1: to rise. W t I is up at you know, 456 00:25:40,520 --> 00:25:43,280 Speaker 1: a hundred and six dollars of barrel just on news 457 00:25:43,320 --> 00:25:46,639 Speaker 1: that Germany says it won't oppose an oil embargo and 458 00:25:46,760 --> 00:25:50,240 Speaker 1: EU oil embargo against Russia. And that's not something that 459 00:25:50,480 --> 00:25:53,600 Speaker 1: any number of increase in barrels per day productions from 460 00:25:53,600 --> 00:25:57,159 Speaker 1: the US can combat. So they definitely could make more money. 461 00:25:57,359 --> 00:26:00,080 Speaker 1: But if you're looking at the long term picture, and 462 00:26:00,160 --> 00:26:03,520 Speaker 1: then yes, it does make sense not to shell out 463 00:26:03,560 --> 00:26:05,919 Speaker 1: a lot of money in a very hasty way to 464 00:26:06,240 --> 00:26:09,399 Speaker 1: try to increase production that you might not really be 465 00:26:09,520 --> 00:26:12,320 Speaker 1: able to because of all of these other factors. And 466 00:26:12,400 --> 00:26:15,320 Speaker 1: instead it does make sense to say, pay down debt, 467 00:26:15,600 --> 00:26:19,040 Speaker 1: to increase your dividend, to do these these share buybacks. 468 00:26:19,080 --> 00:26:22,000 Speaker 1: These companies will probably be in a very good position 469 00:26:22,720 --> 00:26:26,240 Speaker 1: going forward. But you know, from the perspective of the consumer, 470 00:26:26,520 --> 00:26:29,919 Speaker 1: it certainly is it certainly looks like they're taking advantage 471 00:26:29,920 --> 00:26:32,520 Speaker 1: of the situation. And I'm well at the Atlantic Council 472 00:26:32,520 --> 00:26:41,080 Speaker 1: and thank you, let's dive into this right now. We're 473 00:26:41,119 --> 00:26:42,760 Speaker 1: not going to do price target. We're not gonna do 474 00:26:42,840 --> 00:26:44,679 Speaker 1: buy old Cell. We're gonna talk to Brent Still And 475 00:26:44,680 --> 00:26:47,520 Speaker 1: what you need to know is it was major global 476 00:26:47,560 --> 00:26:51,080 Speaker 1: Wall Street headlines. A day he launched from UBS over 477 00:26:51,119 --> 00:26:54,680 Speaker 1: to Jeffries and Mr Sail joins us. Uh this morning, brand, 478 00:26:54,760 --> 00:26:58,720 Speaker 1: I want to talk about Silicon Valley arrogance. You are 479 00:26:58,840 --> 00:27:02,040 Speaker 1: really really good at this. How do you feel about 480 00:27:02,119 --> 00:27:06,080 Speaker 1: the bazos, Jessie feeling that we're only in this for 481 00:27:06,200 --> 00:27:09,960 Speaker 1: our consumers. We're not going to harm our consumers. The 482 00:27:10,040 --> 00:27:13,320 Speaker 1: inflation is something we're gonna deal with separate. Are they 483 00:27:13,440 --> 00:27:18,840 Speaker 1: forgetting their shareholders because they're thinking only of the consumers 484 00:27:19,119 --> 00:27:24,359 Speaker 1: and they need to input inflation fighting price increases? Right now? 485 00:27:27,040 --> 00:27:29,680 Speaker 1: I think they protected us in the pandemic. I mean, 486 00:27:29,720 --> 00:27:32,239 Speaker 1: if you think about what happened, you know, they went 487 00:27:32,280 --> 00:27:36,720 Speaker 1: from growth growth overnight, and you can't automate a delivery 488 00:27:36,720 --> 00:27:41,440 Speaker 1: of toothpaste via a drone in some software, and so 489 00:27:42,000 --> 00:27:44,119 Speaker 1: they had to build this capacity out. And then all 490 00:27:44,160 --> 00:27:46,760 Speaker 1: of a sudden, we're back to normal. We're starting to 491 00:27:46,800 --> 00:27:50,320 Speaker 1: go back from from clicks, you know, into bricks. Right 492 00:27:50,320 --> 00:27:54,000 Speaker 1: we're wandering in the Target and walmarts and in convenience 493 00:27:54,040 --> 00:27:57,840 Speaker 1: stores on our local walks to pick up goods. We're 494 00:27:57,920 --> 00:28:02,600 Speaker 1: walking back into into physical stores. The world's returning to normal, 495 00:28:03,160 --> 00:28:06,639 Speaker 1: and they can't just automatically snap their fingers and and 496 00:28:06,720 --> 00:28:10,679 Speaker 1: go back to normal. So it's gonna take time to unwind. 497 00:28:11,560 --> 00:28:14,160 Speaker 1: Uh this and they've said they have over capacity now, 498 00:28:14,560 --> 00:28:17,320 Speaker 1: so it just takes it takes time. So I want 499 00:28:17,320 --> 00:28:21,000 Speaker 1: to buy holders sell into one year out or two 500 00:28:21,119 --> 00:28:23,960 Speaker 1: years out or three years out. Did you find a 501 00:28:24,040 --> 00:28:27,879 Speaker 1: confidence on the call yesterday that they can manage out 502 00:28:27,960 --> 00:28:31,760 Speaker 1: from this pandemic to a good outcome of growth on 503 00:28:31,800 --> 00:28:35,920 Speaker 1: the income statement? Well, I think they've been great. Uh 504 00:28:36,480 --> 00:28:39,760 Speaker 1: you know, sources of value for shareholders over time. So 505 00:28:39,840 --> 00:28:42,640 Speaker 1: I think the the answer right now for tech is 506 00:28:42,800 --> 00:28:45,360 Speaker 1: all of text in the palony box. We're seeing a 507 00:28:45,440 --> 00:28:51,440 Speaker 1: massive downswing post pandemic, hangover multiples have come from living 508 00:28:51,480 --> 00:28:53,880 Speaker 1: with the aliens as we call it, back the planet Earth, 509 00:28:54,480 --> 00:28:58,280 Speaker 1: and we have a potential recession that we're all staring 510 00:28:58,320 --> 00:29:01,800 Speaker 1: at in the next year. So right now, every asset 511 00:29:01,840 --> 00:29:06,080 Speaker 1: classes under duress. And I think it's not only Amazon, 512 00:29:06,120 --> 00:29:09,000 Speaker 1: it's the rest attack and so I think that over 513 00:29:09,080 --> 00:29:11,760 Speaker 1: a one to two year period, the answer is yes, 514 00:29:12,400 --> 00:29:14,239 Speaker 1: it's a great investment if you start to look at 515 00:29:14,280 --> 00:29:18,360 Speaker 1: now the recurring software and AD business, you know, these 516 00:29:18,360 --> 00:29:23,640 Speaker 1: two businesses um could potentially account for Amazon's entire market 517 00:29:23,680 --> 00:29:26,880 Speaker 1: cap on this on this pull back, when you look 518 00:29:26,920 --> 00:29:28,920 Speaker 1: at a few years out and start to put some 519 00:29:29,000 --> 00:29:32,200 Speaker 1: multiples on the some of the parts, uh and Amazon's 520 00:29:32,240 --> 00:29:36,240 Speaker 1: E of U S business is only getting stronger. So 521 00:29:36,720 --> 00:29:39,360 Speaker 1: I think you have to separate the business between the 522 00:29:39,400 --> 00:29:42,840 Speaker 1: software ad business in the retail business. The retail businesses 523 00:29:42,880 --> 00:29:46,160 Speaker 1: and is in the tailspin in the short term with 524 00:29:46,840 --> 00:29:51,240 Speaker 1: decline in in actual demand as well as costs they're 525 00:29:51,680 --> 00:29:54,560 Speaker 1: they're having, you know, to get ahold of. So yeah, 526 00:29:54,640 --> 00:29:58,240 Speaker 1: price increases have to come in. But again this just 527 00:29:58,280 --> 00:30:00,640 Speaker 1: takes some time. On the retail side. I think most 528 00:30:00,640 --> 00:30:03,240 Speaker 1: of our investors are are looking at that, are looking 529 00:30:03,280 --> 00:30:04,920 Speaker 1: at the other part of the business and some of 530 00:30:04,960 --> 00:30:07,800 Speaker 1: the parts and really looking at the A W S 531 00:30:07,840 --> 00:30:10,080 Speaker 1: and AD business. Right I'm looking right now at your 532 00:30:10,080 --> 00:30:12,400 Speaker 1: price target of thirty seven hundred, and you've got a 533 00:30:12,440 --> 00:30:16,600 Speaker 1: buy rating on Amazon shares currently nine one. What do 534 00:30:16,640 --> 00:30:18,239 Speaker 1: you think or that that was where they were at 535 00:30:18,240 --> 00:30:20,080 Speaker 1: the close yesterday. They're down a lot lower than that 536 00:30:20,600 --> 00:30:23,320 Speaker 1: now in pre market trading. What makes you think that 537 00:30:23,400 --> 00:30:25,479 Speaker 1: they can get to that thirty seven hundred is it's 538 00:30:25,640 --> 00:30:32,560 Speaker 1: entirely a bet on AWS stripping out the entire commerce business. Well, 539 00:30:32,600 --> 00:30:35,560 Speaker 1: there's some of the parts. When you take effectively the 540 00:30:35,920 --> 00:30:38,800 Speaker 1: six big parts of the business and you you strip 541 00:30:38,880 --> 00:30:41,640 Speaker 1: them down and look at what multiple do you pay 542 00:30:42,000 --> 00:30:45,080 Speaker 1: if the Amazon was a stand own company. If you 543 00:30:45,120 --> 00:30:47,760 Speaker 1: look at two thousand twenty three, you know this company 544 00:30:47,800 --> 00:30:49,960 Speaker 1: is gonna do the division of the eight of us 545 00:30:50,040 --> 00:30:53,440 Speaker 1: is going to do a hundred million in revenue plus, 546 00:30:54,520 --> 00:30:58,240 Speaker 1: and most investors would pay you eight to nine times 547 00:30:58,280 --> 00:31:01,320 Speaker 1: for revenue. You know that then itself is worth in 548 00:31:01,520 --> 00:31:05,720 Speaker 1: nine billion just for that business. So you know, you 549 00:31:06,040 --> 00:31:08,400 Speaker 1: take the decline in the stock, you start to add 550 00:31:08,440 --> 00:31:11,160 Speaker 1: the ad business, you start part of the media business, 551 00:31:11,440 --> 00:31:15,160 Speaker 1: and you subtract the retail business. And this is critical. 552 00:31:15,280 --> 00:31:17,240 Speaker 1: You mentioned this twice now, bron we're gonna end the 553 00:31:17,280 --> 00:31:18,920 Speaker 1: interview here and I need to get this in. It's 554 00:31:18,960 --> 00:31:22,280 Speaker 1: too important. Are you telling me an acquisition of Amazon 555 00:31:22,360 --> 00:31:25,680 Speaker 1: shares this morning, that I'm getting a cardboard box business 556 00:31:25,840 --> 00:31:29,280 Speaker 1: for nothing. You're not getting it for nothing, but you're 557 00:31:29,320 --> 00:31:32,480 Speaker 1: getting it for a multiple depending where it opens. And 558 00:31:32,960 --> 00:31:35,880 Speaker 1: it's really not a huge multiple. And you're getting a 559 00:31:35,960 --> 00:31:38,680 Speaker 1: free call option over time that that can come back 560 00:31:38,720 --> 00:31:43,800 Speaker 1: and stabilize. So I think again, Uh, you have to 561 00:31:43,840 --> 00:31:45,960 Speaker 1: look at it from from the sum of the parts, 562 00:31:46,320 --> 00:31:48,840 Speaker 1: not from just the retail business. And I think that's 563 00:31:48,880 --> 00:31:50,960 Speaker 1: what everyone's doing. So we're trying to think of it 564 00:31:51,160 --> 00:31:54,120 Speaker 1: a little more thoughtfully over a period of time. And 565 00:31:54,160 --> 00:31:57,360 Speaker 1: I'm telling you, when you have six market share of 566 00:31:57,360 --> 00:32:01,080 Speaker 1: the big three in the cloud against Microsoft, Google, I'm 567 00:32:01,080 --> 00:32:06,120 Speaker 1: not worried about their high sources of profitability. Uh, this 568 00:32:06,200 --> 00:32:08,920 Speaker 1: is the thirty to forty percent margin business or time 569 00:32:09,360 --> 00:32:11,960 Speaker 1: that no company is gonna leave once they go to 570 00:32:12,520 --> 00:32:15,560 Speaker 1: on the of the US. I wanted to squeeze it 571 00:32:15,640 --> 00:32:18,760 Speaker 1: in if I'm a your view seems to be the 572 00:32:18,920 --> 00:32:21,640 Speaker 1: view on the south side right now, fifty seven buys 573 00:32:21,680 --> 00:32:24,640 Speaker 1: one hold, one cell. The market seems to be interpreting 574 00:32:24,680 --> 00:32:27,360 Speaker 1: things differently. When you have the conversations with the buy 575 00:32:27,440 --> 00:32:29,640 Speaker 1: side and you talk about what's happening with this name, 576 00:32:29,640 --> 00:32:33,400 Speaker 1: what's the pushmak agett in Brent pushback right now is 577 00:32:33,440 --> 00:32:36,360 Speaker 1: no one wants to buy anything in tech. So it's 578 00:32:36,360 --> 00:32:39,760 Speaker 1: not just Amazon. Go pull up a chart on on Microsoft, 579 00:32:39,760 --> 00:32:41,200 Speaker 1: Go pull up but chart on Google pull up a 580 00:32:41,280 --> 00:32:44,200 Speaker 1: chart on anything. We are on a buyer strike across 581 00:32:44,200 --> 00:32:49,680 Speaker 1: Wall Street. On on software, Brent Hill alsome to catch 582 00:32:49,760 --> 00:32:53,920 Speaker 1: up of Jeffreys. This is the Bloomberg Surveillance Podcast. Thanks 583 00:32:53,920 --> 00:32:57,240 Speaker 1: for listening. Join us live weekdays from seven to ten 584 00:32:57,320 --> 00:33:02,240 Speaker 1: AMI Eastern. I'm Bloomberg Radio and Bloomberg Television each day 585 00:33:02,280 --> 00:33:05,920 Speaker 1: from six to nine AM for insight from the best 586 00:33:05,960 --> 00:33:11,000 Speaker 1: in economics, finance, investment, and international relations. And subscribe to 587 00:33:11,080 --> 00:33:15,840 Speaker 1: the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg dot com, 588 00:33:15,920 --> 00:33:19,160 Speaker 1: and of course, on the terminal. I'm Tom keene In. 589 00:33:19,280 --> 00:33:21,120 Speaker 1: This is Bloomberg