WEBVTT - Surveillance: Inflation Drivers with Stiglitz (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferroll and Lisa A. Brownwitz. Daily we bring 0:00:13.080 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:22.440 international relations. To find Bloomberg Surveillance on Apple Podcast, Suncloud, 0:00:22.800 --> 0:00:26.240 Bloomberg dot Com, and of course on the Bloomberg terminal. 0:00:30.560 --> 0:00:33.600 Right now, the honor of the laureate from Columbia University, 0:00:33.720 --> 0:00:36.519 Joseph Stiglets joins us. And on any number of the 0:00:36.600 --> 0:00:39.720 topics we could talk about, we go to something dear 0:00:39.760 --> 0:00:42.960 to his heart is a gentleman from Gary, Indiana long 0:00:43.000 --> 0:00:48.400 ago new different bouts of inflation, fear and inflation scare 0:00:48.800 --> 0:00:53.480 Joe Stiglets. Your basic message is what everyone calmed down. 0:00:54.000 --> 0:01:00.880 Why is this inflation not like the inflation of Heller seventies. Well, 0:01:00.920 --> 0:01:05.640 first of all, it's mostly a supply side inflation. And 0:01:05.760 --> 0:01:08.280 think about some of the things that are really driving it. 0:01:08.840 --> 0:01:10.920 Take the price of energy. In the price of oil, 0:01:11.760 --> 0:01:14.880 it's way up. We have a war in Ukraine. We 0:01:15.040 --> 0:01:18.600 understand that, but we know over the long run, and 0:01:18.640 --> 0:01:20.600 I when I'm talking about the long run, and it's 0:01:20.640 --> 0:01:25.720 not that long. Uh. The price of oil energy is 0:01:25.760 --> 0:01:30.920 going to come down because the backstop, as we call it. Uh, 0:01:30.959 --> 0:01:34.880 we know we can produce an unlimited amount of renewable 0:01:35.000 --> 0:01:42.120 energy at the equivalent of about fifty a barrel. And 0:01:42.160 --> 0:01:45.920 if that number keeps coming down, so that is the 0:01:46.040 --> 0:01:49.960 number that energy is going to be. So you're gonna 0:01:50.000 --> 0:01:53.160 be disinflation. We're gonna go through disinflation in the future. Well, 0:01:53.280 --> 0:01:56.080 I can't tell you when it's gonna happen. Unfair, Okay, 0:01:56.360 --> 0:01:58.520 you know what's so important here, Joe. And if people 0:01:58.560 --> 0:02:01.360 even reducts back then forty seven out to the eyes 0:02:01.400 --> 0:02:05.440 and our disinflation and the two bouts of disinflation we 0:02:05.520 --> 0:02:12.360 had into the early nineteen fifties. Once inflation begins to disinflate, 0:02:13.080 --> 0:02:16.080 do you believe it keeps going or do we come 0:02:16.080 --> 0:02:19.440 down and stay at a certain point which causes an 0:02:19.520 --> 0:02:26.160 uproar once? Is there a momentum to a disinflation? Well, uh, 0:02:26.200 --> 0:02:28.760 the people used to think that there was a momentum 0:02:29.080 --> 0:02:34.279 on inflation and then a momentum on disinflation. But uh, 0:02:34.400 --> 0:02:37.960 the forces for that momentum are much much weaker today 0:02:38.040 --> 0:02:44.120 than they were, say, fifty years ago. Uh, fifty years ago. Uh, 0:02:44.320 --> 0:02:48.000 Unions were strong. When prices went up, they demanded higher wages. 0:02:48.160 --> 0:02:52.120 Higher wages led to higher prices. UH. Unions are weak, 0:02:52.680 --> 0:02:56.600 and so we're back to you might call normal competitive forces. 0:02:57.080 --> 0:03:01.799 And what we saw in the year before the pandemic 0:03:02.320 --> 0:03:07.720 that overall UH supply was extraordinary robust and prices were 0:03:08.320 --> 0:03:11.600 kept down. UH and I think we're going to be 0:03:11.680 --> 0:03:15.280 returning to that kind of a world. Well, what's the 0:03:15.280 --> 0:03:17.960 Fed's role in this then, because there is this belief 0:03:18.040 --> 0:03:20.840 out there that this is a different moment, and people 0:03:20.919 --> 0:03:23.680 point to not just oil prices and commodity prices, but 0:03:23.800 --> 0:03:27.440 also this fissure between the US and China and a 0:03:27.560 --> 0:03:31.160 restoring of some of the supplies, which is naturally inflationary. 0:03:31.200 --> 0:03:35.080 Also some of the conflicts inflationary by nature with Russia 0:03:35.120 --> 0:03:38.760 and Ukraine. How much are you looking at a FED that, 0:03:38.920 --> 0:03:41.839 even if they don't want to, has to raise rates 0:03:41.880 --> 0:03:45.760 substantially to get ahead of inflation that may disinflate down 0:03:45.760 --> 0:03:48.360 the line, but not quickly enough to create some real 0:03:48.560 --> 0:03:52.120 threats to this economy. Well, first of all, you know 0:03:52.160 --> 0:03:57.080 almost all those forces you site are either long term 0:03:57.560 --> 0:04:00.680 or real. Do we small, Yeah, we're going to be 0:04:00.760 --> 0:04:06.560 restoring we have low cost suppliers that are alternative to China, 0:04:07.560 --> 0:04:11.600 Vietnam and Asia. Latin America has a lot of capacity. 0:04:12.240 --> 0:04:14.839 So yes, costs are going to go up and there's 0:04:14.880 --> 0:04:18.680 going to be a readjustment. But I don't and it's 0:04:18.760 --> 0:04:20.400 but it's gonna take over a number of years, and 0:04:20.440 --> 0:04:23.480 it's not going to be that big. We ought to 0:04:23.520 --> 0:04:26.920 get prepared for it. Um. What I worry is on 0:04:26.960 --> 0:04:32.919 the other side, that the fed UH works too fast 0:04:33.560 --> 0:04:37.039 and too much. Remember it takes about eighteen months for 0:04:37.160 --> 0:04:40.440 the full effects of monetary policy to be felt. And 0:04:40.680 --> 0:04:43.919 in the span of eighteen months, if the war in 0:04:44.000 --> 0:04:48.520 Russia comes to an end, the energy prices will come down. 0:04:48.680 --> 0:04:52.240 That would be a strong disinflationary force. Food prices will 0:04:52.279 --> 0:04:54.680 come down. They're already signs of that. That will be 0:04:54.720 --> 0:04:59.640 a strong disinflationary force. Remember, over the last fifty years, 0:05:00.440 --> 0:05:05.680 public policy has been telling farmers don't produce, don't make 0:05:05.720 --> 0:05:09.359 so much food, And if we just reverse that policy, 0:05:09.880 --> 0:05:14.359 prices of agricultural goods are going to come down. So again, 0:05:14.400 --> 0:05:17.760 we have a backstop here that it's hard for me 0:05:17.880 --> 0:05:22.400 to believe that will sit by and simply let prices 0:05:22.880 --> 0:05:25.680 be so high while we continue to subsidize our farmers. 0:05:25.720 --> 0:05:28.680 We're gonna tell our farmers. So it seems like you 0:05:28.720 --> 0:05:32.600 think that the potential error is worse but the FED 0:05:32.680 --> 0:05:35.479 going too fast rather than too slowly, which is the 0:05:35.480 --> 0:05:37.680 opposite of what a lot of people are saying, including 0:05:38.040 --> 0:05:40.800 some FED members. What would you have to see to 0:05:40.920 --> 0:05:43.080 change your mind in terms of the data, in terms 0:05:43.120 --> 0:05:46.880 of the incoming developments on the ground of the economy, Well, 0:05:46.920 --> 0:05:53.160 I would be looking for a particular acceleration of inflation. Uh. 0:05:53.320 --> 0:05:56.600 You know, right now wages are not keeping up with prices. 0:05:57.120 --> 0:06:01.159 Uh really, Uh, the opposite of what you would expect 0:06:01.480 --> 0:06:04.440 in a very tight labor market. So if I saw 0:06:04.839 --> 0:06:09.679 real wages going up dramatically and I saw inflation start 0:06:09.760 --> 0:06:14.039 to take off at a higher rate rather now the 0:06:14.120 --> 0:06:16.640 rate of inflation is happening and still going up, but 0:06:16.720 --> 0:06:19.680 it's at much lower rate, those are signs that I 0:06:19.720 --> 0:06:22.880 would I would would leave me to take stronger action. 0:06:23.320 --> 0:06:32.360 Joseph Stiglet's the Laureate of Columbia. Right now, we got 0:06:32.360 --> 0:06:34.520 any ways to go here with Kathleen vis Johnson is 0:06:34.560 --> 0:06:38.520 just so wonderful at Oxford Economics is their chief US coons. Cathy, 0:06:38.720 --> 0:06:40.960 let me set the groundwork for what Lisa John want 0:06:40.960 --> 0:06:43.600 to talk about, which is just simply, where are we 0:06:43.680 --> 0:06:48.240 on the guestimate of Q three g d P now 0:06:48.279 --> 0:06:51.599 that July has closed. Do you have any handle on 0:06:51.680 --> 0:06:55.640 it or is it just too early? Hi? John and 0:06:55.760 --> 0:06:58.920 Tom happy to be with you. So, you know, three 0:06:59.000 --> 0:07:01.240 quarter GDP is going to be quite important because we 0:07:01.279 --> 0:07:04.160 had the two negative prints for Q one and Q two, 0:07:04.200 --> 0:07:07.760 so so called technical recession. UM. We don't look for 0:07:07.920 --> 0:07:11.600 the large inventory drag that you had in Q two 0:07:12.000 --> 0:07:14.800 and also to QUBA one to some extent, so that's 0:07:14.800 --> 0:07:18.160 going to make things arithmetically look better. Right, So we're 0:07:18.200 --> 0:07:20.800 looking for, you know, roughly around one and a half 0:07:20.840 --> 0:07:24.200 percent annualized real growth for Q three, but we don't 0:07:24.280 --> 0:07:28.920 have many hard data points right to really corroborate that 0:07:29.480 --> 0:07:32.880 UM and particularly consumer spending is always at the heart 0:07:33.000 --> 0:07:36.640 of UM, you know GDP. Well, then link that into oil. 0:07:36.680 --> 0:07:40.160 I mean, we were one twenty on Brent whatever it was. 0:07:40.240 --> 0:07:43.200 We come down many guests talking about we'll get some 0:07:43.280 --> 0:07:46.040 real good news on oil. We've got the news this morning, 0:07:46.040 --> 0:07:49.080 and I get it's just OPEC plus and that how 0:07:49.200 --> 0:07:53.200 sensitive is consumer spending? The oil in the modern day 0:07:53.800 --> 0:07:56.400 versus in the seventies when we were driving around VW 0:07:56.600 --> 0:08:04.360 Rabbit diesels. Um. Well, the consumers still very sensitive to 0:08:05.280 --> 0:08:08.640 energy prices, particularly gasoline. So so oil obviously is going 0:08:08.680 --> 0:08:11.360 to be a big input to gasoline prices. But gasoline 0:08:11.360 --> 0:08:15.840 prices have really um weighed heavily on consumer sentiment and 0:08:15.880 --> 0:08:19.920 competence and also consumer's pocketbooks. So the fact that gasoline 0:08:19.920 --> 0:08:23.880 prices are down seventeen percent or so, that's big news. 0:08:24.000 --> 0:08:26.600 UM still high right, still, you know, well above four 0:08:26.680 --> 0:08:29.320 dollars a gallon, but the fact that we're seeing the 0:08:29.400 --> 0:08:32.480 decline that may lift spirits a little bit and help 0:08:32.600 --> 0:08:35.120 ease things a little for the consumer. But you know, 0:08:35.240 --> 0:08:37.920 just keep in mind what the Fatal Reserve wants. And 0:08:37.960 --> 0:08:41.280 you mentioned the Fed officials still sounding very hawkish. They 0:08:41.440 --> 0:08:44.160 want things to slow down. They want the economy slow down. 0:08:44.200 --> 0:08:46.640 They don't want to crash, they don't want recession, but 0:08:46.720 --> 0:08:49.600 they do need things to slow down enable for inflation 0:08:49.640 --> 0:08:52.320 to continue to go lower. How much, Kathy is the 0:08:52.320 --> 0:08:56.040 Federal Reserve inadvertently tracking oil prices? In other words, you 0:08:56.040 --> 0:08:58.880 were just talking about how people will have lifted spirits 0:08:58.920 --> 0:09:01.920 if gas prices come down. They might spend more, there 0:09:02.000 --> 0:09:05.080 might be a dip in some of the headline CPI 0:09:05.240 --> 0:09:07.920 figures how much will the Fed use that to back 0:09:07.960 --> 0:09:11.199 away versus say, you cannot count on this and it 0:09:11.240 --> 0:09:14.319 could change on a dime. Well, that's a good point, 0:09:14.400 --> 0:09:18.320 and we see the volatility across many asset classes, including 0:09:18.400 --> 0:09:22.400 particularly oil, and things could change um. But I think 0:09:22.920 --> 0:09:25.880 what they're going to be looking at is the fact 0:09:25.960 --> 0:09:31.199 that the headline number can influence um inflation expectations. So 0:09:31.240 --> 0:09:34.400 whether it's market expectations, but more importantly consumer and businesses, 0:09:34.840 --> 0:09:37.760 that's going to be important. And as long as gasoline 0:09:37.760 --> 0:09:40.959 prices continue to trend lower, that is really good news 0:09:41.000 --> 0:09:45.000 for all together. Right, for all expectations and the actual 0:09:45.040 --> 0:09:47.520 prints core inflation is gonna matter though too. Right the 0:09:47.679 --> 0:09:51.400 service prices, which we know have been rising, UM, that's 0:09:51.440 --> 0:09:53.520 going to continue to still be an issue from the 0:09:53.520 --> 0:09:55.520 Fed Reserve and they're not going to keep They're not 0:09:55.520 --> 0:09:57.480 going to take the ball, their eye off the balls. 0:09:57.520 --> 0:10:00.680 Put it that way. So today is either OPEC plus 0:10:00.800 --> 0:10:03.920 Wednesday or I s M Services Wednesday, depending on what 0:10:03.960 --> 0:10:07.680 you think. Tomorrow is jobless claims also the Bank of England, 0:10:07.840 --> 0:10:11.040 and on a Friday is the Big Jobs Report. Which data? 0:10:11.160 --> 0:10:13.520 What type of data are you watching? And I keep 0:10:13.600 --> 0:10:16.400 asking different guests the same question, because that has been 0:10:16.400 --> 0:10:19.560 the key question for the Federal Reserve. What data matters 0:10:19.559 --> 0:10:25.440 to determine their policy? Well, every little bit matters, because 0:10:25.640 --> 0:10:27.959 if it's a it's part of the jigsaw puzzle, the 0:10:28.320 --> 0:10:32.360 broader portrait of the macroeconomy. But I would say, oh, 0:10:32.480 --> 0:10:35.600 this week, I would be looking towards the payroll number. 0:10:35.960 --> 0:10:39.280 Um just for the fact that many of us have 0:10:39.320 --> 0:10:41.760 been saying, you know, when a technical recession but not 0:10:41.840 --> 0:10:44.480 a true recession, because the labor market is so strong. 0:10:44.520 --> 0:10:47.360 When the labor market is strong, it provides income, and 0:10:47.400 --> 0:10:50.480 that's the wherewithal for consumers to keep spending even though 0:10:50.520 --> 0:10:53.320 they're getting hit by by still high prices. If you 0:10:53.360 --> 0:10:56.240 start to see cracks and labor market, that becomes a 0:10:56.360 --> 0:10:59.160 very different story. Kathy, you and I have been through 0:10:59.200 --> 0:11:01.760 thick and thin on this, and right now is like 0:11:01.840 --> 0:11:05.679 just kidding John Farrell, I'm drowning in gloom. I mean 0:11:05.720 --> 0:11:09.440 the level of gloom out there. Worried, the handwringing. It's 0:11:09.520 --> 0:11:11.480 you know, is it oh seven? Is it oh nine? 0:11:11.520 --> 0:11:15.080 You know, collapse of the Great Financial crisis. No, how 0:11:15.120 --> 0:11:19.520 bad is it out there? Kathy help me, Well, it's 0:11:19.600 --> 0:11:21.960 it's in our opinion, is not anything near the Great 0:11:21.960 --> 0:11:26.719 Financial Crisis or the COVID recession that we just went through. Um. 0:11:27.200 --> 0:11:30.720 At worst, it would be, you know, a moderate recession 0:11:30.760 --> 0:11:33.120 in our opinion, But we think if we do fall 0:11:33.160 --> 0:11:36.400 into recession, it could be quite shallow. Um. You know, 0:11:36.559 --> 0:11:38.960 we were not in the camp that thinks that unemployment 0:11:39.040 --> 0:11:41.920 rate needs to go sharply hired to bring inflation down. 0:11:41.960 --> 0:11:46.439 We're already seeing goods inflation trending lower and um, and 0:11:46.440 --> 0:11:50.199 we think eventually, right credental prices will come down. His home, 0:11:51.160 --> 0:11:53.600 Sam Stove all a seafar. It was just on modeling 0:11:53.720 --> 0:11:57.679 nine down to seven percent or something like that. Do 0:11:57.760 --> 0:12:01.040 you detect a pause on the way down or is 0:12:01.080 --> 0:12:04.040 there an inertial force to it? That really gets us 0:12:04.080 --> 0:12:10.080 back towards the vaunted that that the Fed speakers talk of. Well, 0:12:10.080 --> 0:12:12.199 we we have a similar forecast. Actually for this year 0:12:12.240 --> 0:12:14.760 we think nine percent. We're kind of trending around nine 0:12:14.760 --> 0:12:17.920 percent maybe eight for the next few months. By year 0:12:18.000 --> 0:12:20.600 and somewhere around seven percent. But the year and year 0:12:20.679 --> 0:12:24.040 comparisons get much easier next year and that's the key, 0:12:24.200 --> 0:12:27.880 and you don't need outright price declines, right, the levels 0:12:27.920 --> 0:12:31.320 don't have to apply. Just the month to month change 0:12:31.400 --> 0:12:34.079 has to slow and we need to see service price 0:12:34.280 --> 0:12:37.080 inflation start to cool. But again, you don't need outright 0:12:37.160 --> 0:12:40.200 declines in price levels. And I think that's important to 0:12:40.240 --> 0:12:43.360 keep in mind, Kathy. How much does the policy mix 0:12:43.480 --> 0:12:46.280 in Washington, d C. Change the picture at all for you, 0:12:46.360 --> 0:12:49.560 whether it's the policy internationally with China or some of 0:12:49.600 --> 0:12:54.240 the domestic bills that you're seeing proposed. Yeah, you know 0:12:54.520 --> 0:12:56.880 right now that the size of uh, you know, the 0:12:57.600 --> 0:13:02.040 billback mansion bill is um rather small rate compared to 0:13:02.040 --> 0:13:04.560 what we've just come through in terms of fiscal policy, 0:13:04.800 --> 0:13:07.679 and it's over a ten year period, so it incrementally 0:13:07.760 --> 0:13:11.160 could be positive for the economy. We believe overall socially 0:13:11.200 --> 0:13:16.240 fits starts to boost innovation and um technology, but but 0:13:16.440 --> 0:13:18.720 not a big game changer for us. And it's just 0:13:19.280 --> 0:13:23.320 right now, there's not a reason for fiscal policy to 0:13:23.360 --> 0:13:26.360 pick up a lot and boost the economy because we 0:13:26.400 --> 0:13:29.480 wanted to see things cool down in terms of geopolitical 0:13:29.640 --> 0:13:31.920 that that is always a bit of a wild card rate. Um, 0:13:32.559 --> 0:13:34.560 we didn't really know what was going to happen with 0:13:34.640 --> 0:13:36.880 Russia and Ukraine. We don't really know what's going to 0:13:36.960 --> 0:13:39.880 play out with China and Taiwan. A lot of brinkmanship 0:13:39.920 --> 0:13:41.920 and I think that makes you know, makes us nervous, 0:13:42.040 --> 0:13:44.920 makes the markets servous um And we'll have to see 0:13:44.920 --> 0:13:46.960 how that plays out, but that that's always a wild 0:13:47.000 --> 0:13:49.200 card for us, Canthy, Can I get to the academic 0:13:49.280 --> 0:13:51.800 debate at the moment in economics and it has implications 0:13:51.800 --> 0:13:53.880 for financial markets. It's being led at the moment by 0:13:53.920 --> 0:13:57.360 Olivia Blanchard over the Peterson Institute. And the question I'll 0:13:57.400 --> 0:13:59.720 ask is the question they ask is through declines in 0:13:59.760 --> 0:14:02.640 vake seas involved less increases and unemployment when the initial 0:14:02.720 --> 0:14:05.880 vacancy rate is this high, Kathy, if you spend some 0:14:05.920 --> 0:14:07.560 time looking at that, because that seems to be the 0:14:07.679 --> 0:14:13.760 debate from blanchardtow going against say Governor Walla over the Fed. Yeah. 0:14:13.800 --> 0:14:18.920 I mean traditionally, when when the vacancy rates decline, you 0:14:18.960 --> 0:14:21.240 do see a large increase in the unemployment rate. But 0:14:21.280 --> 0:14:24.800 we think this time is quite different. There is um. 0:14:24.960 --> 0:14:27.080 Even though the economy is slowing down, we still have 0:14:27.160 --> 0:14:30.520 a really tight labor market and there's still more jobs 0:14:30.640 --> 0:14:34.520 out there than workers. So I think it is possible 0:14:34.600 --> 0:14:38.240 to call the labor market equal the economy without seeing 0:14:38.280 --> 0:14:42.000 a real large increase in unemploymentry. We may get some right, 0:14:42.720 --> 0:14:44.360 but we're talking, you know, are we going to go 0:14:44.440 --> 0:14:47.200 to you know, two percent, three percent, four percent higher? 0:14:47.480 --> 0:14:50.280 We don't think that's necessary to bring inflation down. We 0:14:50.640 --> 0:14:52.560 think there there is a way to kind of thread 0:14:52.560 --> 0:14:54.720 that needle, even if we have a bit of a 0:14:54.760 --> 0:14:57.600 mild reception. Kathy also going to catch up with you. 0:14:57.680 --> 0:15:00.680 As always, Cathy bus chances that of ox An Economics, 0:15:05.760 --> 0:15:08.760 Isaac Voltanski is a perfect person to speak to. It's 0:15:08.800 --> 0:15:12.200 with bt I g and Yes, director of Policy Research, 0:15:12.240 --> 0:15:17.280 but writes very informed notes on the synthesis of legislative 0:15:17.280 --> 0:15:20.960 into presidential politics as well. Isaac, I want to go 0:15:21.040 --> 0:15:24.200 to a photo op pass, the fist bump, and maybe 0:15:24.240 --> 0:15:27.640 a photo op forward, which is the president meeting with 0:15:27.720 --> 0:15:31.640 the leadership of China. I mean, what does Mr Biden 0:15:31.640 --> 0:15:35.280 need on the photoop passed and the photo op forward 0:15:35.640 --> 0:15:40.280 When we see this morning slap of OPEC plus. You know, 0:15:40.400 --> 0:15:44.400 it's it's hard to overstate how disappointing this OPEC plus 0:15:44.440 --> 0:15:48.880 decision is for the Biden administration. Frankly, it's the geopolitical 0:15:49.080 --> 0:15:53.120 equivalent of a slap in the face. The Biden administration 0:15:53.280 --> 0:15:57.440 made a huge miscalculation. Their bet was they could go 0:15:57.560 --> 0:16:01.160 to Saudi Arabia, they could have that fist picture with 0:16:01.240 --> 0:16:04.920 the crown prints, which carries a bit of political complexity 0:16:04.960 --> 0:16:09.120 to it, but that that would help make an increase 0:16:09.160 --> 0:16:12.880 in production easier for the pat This hundred thousand is 0:16:12.960 --> 0:16:16.400 not worth it or any of the political baggage that 0:16:16.480 --> 0:16:18.360 came along with it for the Biden of industry. You 0:16:18.360 --> 0:16:23.560 are perfect about the machinery of our legislative branch. What 0:16:23.720 --> 0:16:28.200 does the people of Capitol Hill think about a change 0:16:28.200 --> 0:16:30.880 in the gallon of gas? They're not looking at every 0:16:30.960 --> 0:16:35.760 nickel move, are they? But what do they looking at? Well, look, 0:16:36.200 --> 0:16:38.560 and for a lot of these economic data points, there 0:16:38.640 --> 0:16:41.880 is a it's it's almost a political warshop test, right where, 0:16:42.440 --> 0:16:45.320 depending upon where you are on the ideological spectrum, you 0:16:45.360 --> 0:16:49.120 can use any of these data points in your flyers, 0:16:49.160 --> 0:16:52.800 in your press releases on the campaign trail. But the 0:16:52.800 --> 0:16:55.600 reality is folks are feeling it at the pump, They're 0:16:55.600 --> 0:16:58.400 feeling it in their rent, they're feeling it at the 0:16:58.400 --> 0:17:00.440 grocery store, and I think that that is going to 0:17:00.480 --> 0:17:03.560 pull through to the election. And even though we had 0:17:03.640 --> 0:17:07.879 some sort of cross currents with the primaries and decisions 0:17:07.960 --> 0:17:10.359 last night, UM, that tell us a little bit of 0:17:10.440 --> 0:17:13.919 a jarbald story. To me. One of the reasons I 0:17:13.920 --> 0:17:16.600 have so much confidence the House is gonna flip Tom 0:17:16.760 --> 0:17:19.960 is because of the inflation story. That impact on the 0:17:20.000 --> 0:17:22.800 pocketbook gives me confidence that Republicans are going to take 0:17:22.800 --> 0:17:25.719 the House. Isaac, how much it can President Biden come 0:17:25.760 --> 0:17:28.359 out and seem angry about this, say, this is a 0:17:28.400 --> 0:17:31.520 repudiation of the good graces that he showed. How much 0:17:31.560 --> 0:17:35.760 does he message that sort of disappointment in this versus 0:17:35.920 --> 0:17:37.800 at least it's something In other words, how does he 0:17:37.880 --> 0:17:40.720 pivot from what you just called a slap in the 0:17:40.720 --> 0:17:43.840 face from the Saudi Arabian Kingdom. I mean, what we've 0:17:43.880 --> 0:17:46.000 seen thus far from the Biden administration is that the 0:17:46.080 --> 0:17:50.639 President will still speak optimistically, uh and positively about this. 0:17:50.760 --> 0:17:55.760 He will focus on attempting to cajole OPEC plus on 0:17:55.880 --> 0:17:58.639 the next decision. But we're going to hear something I 0:17:58.640 --> 0:18:03.240 think pretty sharp commentary from the cabinet members around this. UM. 0:18:03.280 --> 0:18:06.479 I don't know yet what The underlying justification is, as 0:18:06.520 --> 0:18:09.600 you said earlier, is this a supplier demand decision? What 0:18:09.760 --> 0:18:12.800 really drove O peck plus is thinking here, But for 0:18:12.880 --> 0:18:16.520 the Biden administration, they were desperately hoping to get more 0:18:16.520 --> 0:18:18.840 than a hundred thousand barrels a day to alleviate the 0:18:18.920 --> 0:18:21.280 pressure of the pump in the coming weeks and months 0:18:21.280 --> 0:18:24.200 before the midterms. The good news is that gas prices 0:18:24.200 --> 0:18:26.320 have been down every single day since the middle of June. 0:18:26.320 --> 0:18:28.280 If they weren't heading in that direction, Isaac, this would 0:18:28.320 --> 0:18:31.480 be much more controversial, Isaac. We always appreciate your time, sir. 0:18:31.600 --> 0:18:33.120 I got to catch over the weekend, I said bot 0:18:33.160 --> 0:18:40.960 Tansky there with bt I G. Kristin Bidley joins us 0:18:40.960 --> 0:18:43.040 now from City Global Wealth Management, Christ and I was 0:18:43.080 --> 0:18:45.840 going through the notes from you, and this just jumps 0:18:45.880 --> 0:18:47.800 out to all of us. We have shifted to our 0:18:47.840 --> 0:18:52.080 most cautious yet still fully invested portfolio since the first 0:18:52.160 --> 0:18:57.399 quarter of Kristen. What does that mean? So what we've said, 0:18:57.440 --> 0:18:59.160 and we've said this for the past couple of months, 0:18:59.200 --> 0:19:01.560 it's really looking at where we could go from here. 0:19:01.960 --> 0:19:04.080 And so there's three different scenarios that we could see 0:19:04.080 --> 0:19:07.920 for markets and for the economy robust, resilient or recessionary 0:19:07.960 --> 0:19:11.280 scenario robust really strong growth. I don't think anyone is 0:19:11.280 --> 0:19:14.040 really calling for that. We have right now about a 0:19:14.080 --> 0:19:16.639 fifty fifty chance in terms of tipping over into a 0:19:16.640 --> 0:19:20.320 true recession, not a technical recession, or seeing that resilient, 0:19:20.480 --> 0:19:23.000 slowing growth environment. And what we want to do is 0:19:23.040 --> 0:19:26.000 prepare portfolios for both. So the changes that we recently 0:19:26.040 --> 0:19:29.560 made in terms of investing in high quality equities, we've 0:19:29.560 --> 0:19:32.280 been there all along really year to date and starting 0:19:32.320 --> 0:19:34.960 in Q three of last year, upping our quality and 0:19:34.960 --> 0:19:37.760 our fixing come portfolios. And we also pulled back on 0:19:37.800 --> 0:19:40.960 some of our commodity positions energy positions due to the 0:19:41.000 --> 0:19:43.600 fact that we're seeing some of those inflationary pressures a bait. 0:19:43.920 --> 0:19:46.000 And that was really more in our portfolios for a 0:19:46.040 --> 0:19:49.760 hedging purpose than any type of long call. Kristen, you're 0:19:49.840 --> 0:19:53.040 so good down the income statement. What did you learn 0:19:53.200 --> 0:19:57.320 about margin dynamics? Is I believe we've got seventy x 0:19:57.359 --> 0:19:59.640 percent of earnings in right now? What have you learn 0:20:00.080 --> 0:20:03.080 about what we need to study down the income statement? 0:20:03.920 --> 0:20:06.120 So what we need to look at really going into 0:20:06.359 --> 0:20:08.520 Q two. The end of Q two earnings. In Q 0:20:08.720 --> 0:20:10.880 three earnings, I think when we look at this rally 0:20:10.920 --> 0:20:12.560 that we saw in July, I know a lot of 0:20:12.560 --> 0:20:15.760 people pointed to that there's a potential fed pivot, some 0:20:15.880 --> 0:20:18.000 dovish comments. I don't think that was it at all. 0:20:18.080 --> 0:20:21.840 I think earning showed some resiliency that was not antithy. 0:20:22.000 --> 0:20:24.359 Where was it on the income statement? I don't you know. 0:20:24.400 --> 0:20:26.280 I get the earnings were there, and we chat up 0:20:26.320 --> 0:20:29.240 revenues as well, it was just about gross margin. Was 0:20:29.280 --> 0:20:33.080 it about dynamics, we're operating income? Where was it on 0:20:33.119 --> 0:20:35.320 the income statement that you saw? It was actually a 0:20:35.400 --> 0:20:37.600 top line revenue and so okay, when you look at 0:20:37.600 --> 0:20:40.200 the top line revenue growth that we saw, I think 0:20:40.240 --> 0:20:43.320 that was surprising because everyone was looking at after you're 0:20:43.359 --> 0:20:47.280 looking at you are looking at consumer spending. Consumer spending 0:20:47.480 --> 0:20:50.920 is six of GDP, and we were trying to look 0:20:50.920 --> 0:20:54.359 for cracks in the consumer backdrop. In Q two, we 0:20:54.359 --> 0:20:57.200 started with financials. We looked at the loan loss reserves 0:20:57.240 --> 0:21:01.520 better than feared. Basically, everything came out better than feared 0:21:01.600 --> 0:21:04.439 when it came to the consumer. The only real cracks 0:21:04.440 --> 0:21:06.399 that we started to see we're in the mass market 0:21:06.400 --> 0:21:09.879 retailers right, like Walmart, Best Buy. We saw some commentary 0:21:09.960 --> 0:21:13.160 there in terms of the shifting consumer spending pattern and 0:21:13.200 --> 0:21:15.159 this is why when you look at our portfolio and 0:21:15.240 --> 0:21:17.600 how we're allocated, we want to prepare for those two 0:21:17.600 --> 0:21:22.159 different situations, resilient or recession, because from here, if consumers 0:21:22.200 --> 0:21:25.359 are shifting their consumers their spending patterns, if they're pulling 0:21:25.359 --> 0:21:28.200 away from services, if we're seeing some of that dynamic 0:21:28.280 --> 0:21:31.320 over the summer that really was just revenge spending and traveling, 0:21:31.480 --> 0:21:33.600 getting a lot of that out of the system, and 0:21:33.640 --> 0:21:37.120 now they're preparing for a recession along with companies preparing 0:21:37.160 --> 0:21:39.440 for a recession. That's going to start to flow through 0:21:39.440 --> 0:21:42.040 to earnings and we're going to see some some some 0:21:42.200 --> 0:21:44.920 estimates revised down from here. We hear the phrase data 0:21:44.960 --> 0:21:48.239 dependency all the time. What is your data dependency as 0:21:48.240 --> 0:21:50.880 you try to gauge whether there is a broadening out 0:21:51.200 --> 0:21:54.360 in that weakness of consumer spending that we saw anecdotally 0:21:54.760 --> 0:21:58.960 in the Walmarts and the targets but not that much elsewhere. Yeah, 0:21:59.040 --> 0:22:00.920 So I think what we're and have to look at 0:22:01.160 --> 0:22:04.720 is really some of those the data around whether so 0:22:04.880 --> 0:22:07.840 take inflation right, and I think what people can agree upon. 0:22:07.960 --> 0:22:12.280 Right now, growth is slowing. Core inflation is actually proving persistent, 0:22:12.320 --> 0:22:15.280 but headline inflation is slowing on energy prices. So I 0:22:15.280 --> 0:22:18.880 think this tight rope, tight rope walk that we're going 0:22:18.920 --> 0:22:21.560 to have is really on the sense that some people 0:22:21.800 --> 0:22:25.280 that the more resilient bulls are pointing to commodity prices 0:22:25.280 --> 0:22:28.240 coming over, gasoline prices coming down, but I think you 0:22:28.320 --> 0:22:31.119 still have the shelter costs, right, You still have that 0:22:31.359 --> 0:22:35.800 housing affordability has deteriorated substantially, and so that balance that 0:22:35.880 --> 0:22:38.199 the average consumer is really walking through. So I think 0:22:38.240 --> 0:22:41.239 you can see spending patterns in credit cards, you can 0:22:41.280 --> 0:22:44.600 see overall consumer patterns there, and then looking through in 0:22:44.720 --> 0:22:47.480 terms of the inflation dynamics that we're facing and whether 0:22:47.520 --> 0:22:50.639 some of that core inflation is stickier than expected. Kristen 0:22:50.760 --> 0:22:56.359 Supercocious to catch up Kristin Bidley the Citsy. This is 0:22:56.359 --> 0:23:00.400 the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 0:23:00.520 --> 0:23:04.280 weekdays from seven to ten am Eastern on Bloomberg Radio 0:23:04.520 --> 0:23:08.120 and on Bloomberg Television each day from six to nine 0:23:08.160 --> 0:23:12.600 am for insight from the best in economics, finance, investment, 0:23:12.720 --> 0:23:17.760 and international relations. And subscribe to the Surveillance podcast on 0:23:17.840 --> 0:23:21.639