1 00:00:13,680 --> 00:00:16,880 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:16,960 --> 00:00:18,959 Speaker 1: My name is Mike Reagan. I'm a senior editor at 3 00:00:19,000 --> 00:00:23,279 Speaker 1: Bloomberg now Madonna higher across asset reporter with Bloomberg at 4 00:00:23,320 --> 00:00:26,000 Speaker 1: this week on the show, Well, as you may have heard, 5 00:00:26,440 --> 00:00:28,960 Speaker 1: both the stock and bond markets have gotten off to 6 00:00:29,040 --> 00:00:31,880 Speaker 1: a rip roaring start this year, and that meant that 7 00:00:31,920 --> 00:00:35,040 Speaker 1: basically everyone and their dog was predicting that Fed Chair 8 00:00:35,159 --> 00:00:37,520 Speaker 1: Jerome Pow would come out to the podium this week 9 00:00:37,560 --> 00:00:40,240 Speaker 1: and ruin all the fun for everyone. But he didn't 10 00:00:40,320 --> 00:00:43,600 Speaker 1: quite do that, and stock prices continue to rip higher, 11 00:00:43,800 --> 00:00:47,440 Speaker 1: bond yields continue there to sent back to Earth. So 12 00:00:47,520 --> 00:00:50,320 Speaker 1: what's the deal? What's going on? Doesn't the Fed still 13 00:00:50,400 --> 00:00:53,720 Speaker 1: want to tighten financial conditions? We'll get into it with 14 00:00:53,880 --> 00:00:56,320 Speaker 1: a chief investment officer from a firm I think you've 15 00:00:56,320 --> 00:01:00,200 Speaker 1: probably heard of, but Vildonna. Before that, I've got play 16 00:01:00,200 --> 00:01:04,440 Speaker 1: a little word association with you. If I say to 17 00:01:04,560 --> 00:01:08,000 Speaker 1: you the song remains the same, what's the first thing 18 00:01:08,040 --> 00:01:13,880 Speaker 1: that pops into your head? Jerome Paul Jerome pal is 19 00:01:13,920 --> 00:01:16,400 Speaker 1: the first thing that pops into your head? All right? 20 00:01:16,600 --> 00:01:19,280 Speaker 1: How about if I say the end is near? What 21 00:01:19,400 --> 00:01:24,800 Speaker 1: pops into your head. Um, I don't know some apocalyptic movies. 22 00:01:25,800 --> 00:01:28,040 Speaker 1: I'm really bad at this. Okay, I'm really bad at this, 23 00:01:30,000 --> 00:01:32,319 Speaker 1: so well, to me, it's my old record collection, because 24 00:01:32,360 --> 00:01:36,000 Speaker 1: I think the sweet guest has a similar record collection. 25 00:01:36,040 --> 00:01:38,520 Speaker 1: To mind, the song remains the same, is of course 26 00:01:38,600 --> 00:01:42,759 Speaker 1: led Zeppelin song album and movie I total, I believe, 27 00:01:43,000 --> 00:01:44,839 Speaker 1: and I'm not sure, but I think he was referring 28 00:01:44,840 --> 00:01:47,160 Speaker 1: to Sinatra with the End is Near, but we'll have 29 00:01:47,200 --> 00:01:50,240 Speaker 1: to find out. Okay, you're just dating our guests. Basically 30 00:01:50,320 --> 00:01:53,320 Speaker 1: I'm dating myself a little bit too. And you just 31 00:01:53,320 --> 00:01:56,880 Speaker 1: showed off you're too young to know who led Zeppelin is. 32 00:01:57,000 --> 00:01:59,000 Speaker 1: You didn't have a gene jacket in the eighties with 33 00:01:59,040 --> 00:02:01,559 Speaker 1: the led Zeppelin huge led Zeppelin patch on the back 34 00:02:02,800 --> 00:02:06,800 Speaker 1: obviously not did I you're asking me? No, I was 35 00:02:06,840 --> 00:02:13,400 Speaker 1: born in Hello, Okay, so let's see if if our 36 00:02:13,480 --> 00:02:17,520 Speaker 1: guess is um mad at being dated by you. But 37 00:02:17,560 --> 00:02:20,560 Speaker 1: it's Jim Karen. He's co chief investment Officer of Global 38 00:02:20,600 --> 00:02:23,880 Speaker 1: Balance Funds at Morgan Stanley Investment Management. And Jim, thank 39 00:02:23,919 --> 00:02:26,360 Speaker 1: you so much for joining us and apologies for for 40 00:02:26,480 --> 00:02:32,000 Speaker 1: Mike's comments. No, no, my pleasure. I'm glad. He got 41 00:02:32,040 --> 00:02:35,440 Speaker 1: the references. Those are exactly the references. And I did 42 00:02:35,480 --> 00:02:38,520 Speaker 1: have a gene jacket in the seventies and also in 43 00:02:38,560 --> 00:02:41,560 Speaker 1: the eighties, I did have like the little pins on 44 00:02:41,600 --> 00:02:45,040 Speaker 1: the gene jacket. And part of the reference to is 45 00:02:45,160 --> 00:02:48,919 Speaker 1: that that the record label for led Zeppelin was Swan signed. 46 00:02:49,280 --> 00:02:51,040 Speaker 1: So the other reference is that this is also a 47 00:02:51,080 --> 00:02:53,760 Speaker 1: Swan sign for the rate hiking psychos. There's a lot 48 00:02:53,800 --> 00:02:57,679 Speaker 1: of references that are going on multi layer there, all right, 49 00:02:57,760 --> 00:03:00,240 Speaker 1: I do understand this finance stuff after all, the don 50 00:03:00,320 --> 00:03:02,840 Speaker 1: I I clearly, I clearly don't. This stuff should be 51 00:03:02,840 --> 00:03:05,320 Speaker 1: on the CFA exam for sure. But it's funny though, 52 00:03:05,360 --> 00:03:08,440 Speaker 1: you know, uh strategists realized they'll get a lot of 53 00:03:08,520 --> 00:03:11,240 Speaker 1: readers of a certain age to to you know, read 54 00:03:11,280 --> 00:03:13,720 Speaker 1: their stuff when they throw in those classic rock references. 55 00:03:13,760 --> 00:03:16,160 Speaker 1: So I I applaud you, Jim. I definitely want to 56 00:03:16,160 --> 00:03:18,000 Speaker 1: get into the markets talk. But I was I was 57 00:03:18,040 --> 00:03:21,600 Speaker 1: just going through your background. And it's funny because I 58 00:03:21,680 --> 00:03:26,000 Speaker 1: have this recurring dream where I'm back in college for 59 00:03:26,040 --> 00:03:28,360 Speaker 1: a second bachelor's degree and everyone's like, what are you 60 00:03:28,360 --> 00:03:30,360 Speaker 1: doing getting a second batrilo's degree. I'm like, I don't know. 61 00:03:30,360 --> 00:03:32,160 Speaker 1: It just it just felt right. But I find it 62 00:03:32,200 --> 00:03:37,560 Speaker 1: fascinating your education. So bachelor's in physics UH from Bowden 63 00:03:38,280 --> 00:03:43,240 Speaker 1: then and other bachelor's UH in Aeronautical engineering from Californy 64 00:03:43,320 --> 00:03:48,160 Speaker 1: Institute of Technology. Very interesting background, and it's always fascinating 65 00:03:48,160 --> 00:03:50,480 Speaker 1: to me the different paths people take to Wall Street. 66 00:03:50,520 --> 00:03:53,240 Speaker 1: A lot of times it is that physics or engineering background. 67 00:03:53,360 --> 00:03:55,440 Speaker 1: So what were you thinking back then where you It 68 00:03:55,480 --> 00:03:57,440 Speaker 1: sounds like you wanted to be a rocket scientist when 69 00:03:57,440 --> 00:04:01,040 Speaker 1: you're when you're a kid. Yeah, that's that's probably correct. 70 00:04:01,080 --> 00:04:03,200 Speaker 1: So I was on a program what was called a 71 00:04:03,280 --> 00:04:05,560 Speaker 1: three two programs, So I spent three years of Bowden, 72 00:04:05,680 --> 00:04:07,720 Speaker 1: got a physics degree, and then went to cal Tech 73 00:04:08,160 --> 00:04:12,120 Speaker 1: to do engineering. And I always loved the markets, and 74 00:04:12,200 --> 00:04:14,920 Speaker 1: I always thought of the markets as as almost like 75 00:04:14,920 --> 00:04:18,520 Speaker 1: a financial engineering experience. That plus the fact that I 76 00:04:18,560 --> 00:04:21,120 Speaker 1: was graduating during the time where there was a big recession, 77 00:04:21,160 --> 00:04:23,880 Speaker 1: a big piece dividend was being paid. UM, the Berlin 78 00:04:23,880 --> 00:04:26,800 Speaker 1: Wall had come down, a lot of the engineering work 79 00:04:27,000 --> 00:04:30,039 Speaker 1: was going into the defense sector, which was being you know, 80 00:04:30,640 --> 00:04:35,479 Speaker 1: eliminated pretty much. So UM, I really started to get 81 00:04:35,520 --> 00:04:38,840 Speaker 1: interested in the markets, and that's where it led me 82 00:04:38,880 --> 00:04:41,720 Speaker 1: and I loved all of the math and the complexity 83 00:04:41,880 --> 00:04:44,840 Speaker 1: that was going through at the time. And it was 84 00:04:44,880 --> 00:04:47,760 Speaker 1: actually when actually Bloomberg in some ways was it. It 85 00:04:47,800 --> 00:04:50,440 Speaker 1: was in its infancy and today people take it as 86 00:04:50,520 --> 00:04:52,680 Speaker 1: a as a granted, but I used to do a 87 00:04:52,760 --> 00:04:55,279 Speaker 1: lot of my calculations on a calculator called him Monroe, 88 00:04:56,000 --> 00:04:58,360 Speaker 1: and we would and that was the Bloomberg of the time. 89 00:04:58,400 --> 00:05:00,200 Speaker 1: That was the high technology of the time. It was 90 00:05:00,200 --> 00:05:03,240 Speaker 1: one of those big hand calculators. So I really have 91 00:05:03,279 --> 00:05:06,600 Speaker 1: an appreciation for how things get done, how things come together, 92 00:05:06,720 --> 00:05:10,160 Speaker 1: how things actually work. And I think of the broader 93 00:05:10,200 --> 00:05:12,560 Speaker 1: markets is almost like a machine or or or an 94 00:05:12,560 --> 00:05:15,720 Speaker 1: engine in some ways where everything needs to be just 95 00:05:15,880 --> 00:05:19,160 Speaker 1: right for for it to run smoothly. So so that's 96 00:05:19,160 --> 00:05:22,360 Speaker 1: the association that I have between the engineering and science 97 00:05:22,360 --> 00:05:26,919 Speaker 1: background versus what's going on in markets today. I really 98 00:05:26,960 --> 00:05:29,760 Speaker 1: like that and I like your description of it, and um, 99 00:05:29,800 --> 00:05:32,200 Speaker 1: it's a perfect segue into what is going on in 100 00:05:32,240 --> 00:05:35,360 Speaker 1: markets today. Because we did hear from the FED. The 101 00:05:35,440 --> 00:05:38,360 Speaker 1: tone of the press conference was very different from what 102 00:05:38,440 --> 00:05:41,920 Speaker 1: investors had been expecting. So maybe just like layout for 103 00:05:41,960 --> 00:05:45,320 Speaker 1: our listeners, what do we get from the FED? UH 104 00:05:45,320 --> 00:05:49,039 Speaker 1: and what your main takeaways were from from the pressor so. 105 00:05:49,160 --> 00:05:53,039 Speaker 1: I think it's very interesting to the extent that how 106 00:05:53,279 --> 00:05:55,840 Speaker 1: is really trying to walk a very very fine line, 107 00:05:56,000 --> 00:05:58,719 Speaker 1: to the extent that he wants to signal that the 108 00:05:58,839 --> 00:06:01,200 Speaker 1: rate hiking cycle is coming to an end. And he 109 00:06:01,240 --> 00:06:03,880 Speaker 1: even made reference to that, and he said, we're talking 110 00:06:03,920 --> 00:06:05,960 Speaker 1: about a couple of more hikes. Well, a couple to 111 00:06:06,040 --> 00:06:09,800 Speaker 1: me means to possibly too. But at the same time, 112 00:06:10,240 --> 00:06:13,920 Speaker 1: he doesn't want to let financial conditions become very very easy, 113 00:06:14,160 --> 00:06:17,360 Speaker 1: have stock markets go up at credit spreads tightened very quickly, 114 00:06:17,960 --> 00:06:21,640 Speaker 1: and all of a sudden bring in those inflationary pressures again, 115 00:06:21,640 --> 00:06:24,919 Speaker 1: and that would really work against him. So in one sense, 116 00:06:24,960 --> 00:06:27,840 Speaker 1: he wants to say, I'm slowing the pace of rate 117 00:06:27,920 --> 00:06:30,240 Speaker 1: hikes and I might be coming towards the end, but 118 00:06:31,080 --> 00:06:36,440 Speaker 1: the terminal policy rate has not yet been determined. Now, obviously, 119 00:06:36,680 --> 00:06:38,839 Speaker 1: if you say we have a couple of more hikes 120 00:06:38,880 --> 00:06:41,280 Speaker 1: to do, or we're you know, coming towards the end 121 00:06:41,320 --> 00:06:43,119 Speaker 1: of this, you know, we can all do the math 122 00:06:43,160 --> 00:06:45,640 Speaker 1: and say, well, then the fens either done in March 123 00:06:46,160 --> 00:06:48,800 Speaker 1: with the next bases point rate hike, or or they're 124 00:06:48,839 --> 00:06:51,800 Speaker 1: done on May three, which is their meeting after the 125 00:06:51,839 --> 00:06:55,719 Speaker 1: March meeting with so they're either done at five or 126 00:06:55,760 --> 00:06:59,800 Speaker 1: five point to five. And I think that is essentially 127 00:07:00,800 --> 00:07:03,320 Speaker 1: what the market started a key off of if we 128 00:07:03,400 --> 00:07:07,120 Speaker 1: think back to what the December Summary of Economic projections were, 129 00:07:07,240 --> 00:07:10,120 Speaker 1: so the big meeting before this meeting that we had 130 00:07:10,160 --> 00:07:14,880 Speaker 1: on Wednesday, it basically told us that the terminal policy 131 00:07:15,000 --> 00:07:17,240 Speaker 1: rate was going to be somewhere between five and five 132 00:07:17,360 --> 00:07:21,760 Speaker 1: point five. And now it seems like that's even coming 133 00:07:21,760 --> 00:07:25,080 Speaker 1: down to a more truncated five to five point to five. 134 00:07:25,360 --> 00:07:28,400 Speaker 1: But let's just say by by the end of the 135 00:07:28,400 --> 00:07:32,400 Speaker 1: second quarter the FETE is done. Um, probably by the 136 00:07:32,440 --> 00:07:35,320 Speaker 1: beginning of the second quarter, the FETE is going to 137 00:07:35,360 --> 00:07:37,760 Speaker 1: be done. And I think the markets are taking some 138 00:07:37,880 --> 00:07:40,360 Speaker 1: solace in that, and you're seeing interest rates come down 139 00:07:40,440 --> 00:07:43,400 Speaker 1: and you're seeing equity prices move up as a result. Yeah, 140 00:07:43,520 --> 00:07:46,320 Speaker 1: And it's interesting and he even refer to the past 141 00:07:46,360 --> 00:07:49,280 Speaker 1: where they would you know, high creates every other meeting 142 00:07:49,320 --> 00:07:52,280 Speaker 1: almost you know, perhaps signaling that that's a possibility that 143 00:07:52,320 --> 00:07:55,240 Speaker 1: maybe they'll pause, pause in March and then come again 144 00:07:55,240 --> 00:07:58,320 Speaker 1: in maybe What's I find fascinating, Jim, is you know, 145 00:07:59,160 --> 00:08:03,400 Speaker 1: all of Wall Street, the financial world watching Pal's press 146 00:08:03,400 --> 00:08:06,280 Speaker 1: press conference on one screen and on their their other screen, 147 00:08:06,280 --> 00:08:08,960 Speaker 1: they've got the markets, you know, whether Bloomberg terminal or 148 00:08:09,040 --> 00:08:11,080 Speaker 1: I don't know, there's something else other people use. But 149 00:08:11,200 --> 00:08:14,080 Speaker 1: is there anything else? I don't know, I don't know, 150 00:08:14,480 --> 00:08:17,679 Speaker 1: But you know, I almost wish Pal had the benefit 151 00:08:17,720 --> 00:08:19,680 Speaker 1: of having a terminal in front of him when he's speaking, 152 00:08:19,720 --> 00:08:22,800 Speaker 1: because you don't quite you know, it's the question is 153 00:08:22,800 --> 00:08:26,200 Speaker 1: always you know, did he sort of not get the 154 00:08:26,240 --> 00:08:29,640 Speaker 1: intended message that he wants out? You know, is there 155 00:08:29,680 --> 00:08:33,880 Speaker 1: going to be some hawkish commentary coming from some of 156 00:08:33,880 --> 00:08:36,559 Speaker 1: the other speakers in the next few weeks and from 157 00:08:36,600 --> 00:08:39,760 Speaker 1: him himself to sort of walk back this loosening in 158 00:08:39,800 --> 00:08:42,079 Speaker 1: financial conditions that we have to. I mean, we really 159 00:08:42,520 --> 00:08:46,600 Speaker 1: quite loose all year, and looser after the press conference 160 00:08:46,640 --> 00:08:49,599 Speaker 1: in terms of you know, stocks ripping, higher yields and 161 00:08:49,640 --> 00:08:51,680 Speaker 1: spreads coming in. Do you think we'll get a little 162 00:08:51,679 --> 00:08:55,480 Speaker 1: bit of that, a reminder that hey, you know, we're 163 00:08:55,520 --> 00:08:57,320 Speaker 1: still going to keep these rates high, We're not gonna 164 00:08:57,360 --> 00:08:59,160 Speaker 1: cut this year. You know, is is there sort of 165 00:08:59,160 --> 00:09:02,600 Speaker 1: a whiplashed to expect in the coming weeks? You know, 166 00:09:02,640 --> 00:09:05,760 Speaker 1: there was whiplash during the press conference, so so so Yes, 167 00:09:05,960 --> 00:09:08,800 Speaker 1: I think, Look, I think this is a great question, 168 00:09:08,880 --> 00:09:10,960 Speaker 1: because this is one of the risks that I think 169 00:09:11,000 --> 00:09:13,160 Speaker 1: that we have coming up over the next few weeks, 170 00:09:13,600 --> 00:09:16,840 Speaker 1: is that if the intended market reaction, if there even 171 00:09:17,000 --> 00:09:20,240 Speaker 1: was one, doesn't match what the intended statement was supposed 172 00:09:20,240 --> 00:09:23,360 Speaker 1: to convey, then, as is typical, there's going to be 173 00:09:23,360 --> 00:09:26,400 Speaker 1: some walking back of this. And I want to really 174 00:09:26,480 --> 00:09:30,560 Speaker 1: highlight this because I think it's extremely extremely important. What 175 00:09:30,720 --> 00:09:35,280 Speaker 1: Powell said in the statement was viewed as relatively hawkish, right, 176 00:09:35,440 --> 00:09:38,240 Speaker 1: and then all of a sudden, he starts his uh, 177 00:09:38,280 --> 00:09:41,960 Speaker 1: he starts his his press conference, and he basically says 178 00:09:42,040 --> 00:09:44,080 Speaker 1: the exact same thing that he said back in December. 179 00:09:44,120 --> 00:09:46,960 Speaker 1: It was almost a carbon copy of of of the issues. 180 00:09:47,320 --> 00:09:50,760 Speaker 1: First one was that labor markets remain tight, which is 181 00:09:51,200 --> 00:09:55,160 Speaker 1: keeping inflation risks elevated. Second point that he made was 182 00:09:56,440 --> 00:09:58,760 Speaker 1: he started to call out, you know, despite the decline 183 00:09:58,760 --> 00:10:01,080 Speaker 1: and CPI and wageing for sation, it's still too high 184 00:10:01,080 --> 00:10:05,600 Speaker 1: to be consistent with inflation becoming um anchored at at 185 00:10:05,679 --> 00:10:08,040 Speaker 1: target levels. So he's still worried about it. And then 186 00:10:08,080 --> 00:10:11,160 Speaker 1: he goes further and he starts to talk about again 187 00:10:11,200 --> 00:10:14,439 Speaker 1: exactly what he talked about in December, the service sector 188 00:10:14,440 --> 00:10:17,480 Speaker 1: inflation versus the goods sector inflation. And he said, look, 189 00:10:17,480 --> 00:10:21,800 Speaker 1: we know why inflation is coming down. Durable goods, supply chains, 190 00:10:21,840 --> 00:10:24,120 Speaker 1: all of these things are are certainly coming down, but 191 00:10:24,320 --> 00:10:28,600 Speaker 1: service sector inflation is not coming down as fast as 192 00:10:28,600 --> 00:10:30,840 Speaker 1: they like. And then he even went further up the 193 00:10:30,920 --> 00:10:34,480 Speaker 1: anti on that even more, and he said that in fact, 194 00:10:34,760 --> 00:10:37,640 Speaker 1: the service sector and inflation, if we look at it 195 00:10:37,760 --> 00:10:42,640 Speaker 1: core services x housing again, core services x housing, that's 196 00:10:42,679 --> 00:10:44,280 Speaker 1: what he's looking at, and that's what we should all 197 00:10:44,360 --> 00:10:47,959 Speaker 1: be looking at. He said, hasn't even started to fall. 198 00:10:48,480 --> 00:10:50,920 Speaker 1: So as I'm listening to this, this is a guy 199 00:10:50,920 --> 00:10:54,520 Speaker 1: who's worried about inflation. This is somebody who's not done 200 00:10:54,960 --> 00:10:58,640 Speaker 1: tightening by any stretch of the imagination. And and then 201 00:10:58,640 --> 00:11:01,320 Speaker 1: he said that that was about percent or the majority 202 00:11:01,480 --> 00:11:03,880 Speaker 1: of or a large part of the core PC in 203 00:11:04,040 --> 00:11:07,120 Speaker 1: the index, which is what the FEDS favorite gauge of 204 00:11:07,120 --> 00:11:10,080 Speaker 1: of inflation is. So if the core services X housing 205 00:11:10,240 --> 00:11:12,920 Speaker 1: isn't hasn't even begun to fall yet and they look 206 00:11:12,960 --> 00:11:17,320 Speaker 1: at core that the core PC index, um, he still 207 00:11:17,320 --> 00:11:19,839 Speaker 1: believes it's going to be elevated. Then he went on 208 00:11:19,960 --> 00:11:23,120 Speaker 1: even further to say wouldn't it be a shame if 209 00:11:23,240 --> 00:11:26,360 Speaker 1: just when we had inflation on the brink of being, 210 00:11:26,600 --> 00:11:30,520 Speaker 1: you know, a solved problem, that we didn't tighten enough, 211 00:11:30,679 --> 00:11:32,760 Speaker 1: and then all of a sudden it started to resurge 212 00:11:32,880 --> 00:11:36,640 Speaker 1: later on. That would be That would be really bad. 213 00:11:36,760 --> 00:11:39,440 Speaker 1: And to me, that is my core risk. If somebody 214 00:11:39,480 --> 00:11:41,640 Speaker 1: asks me, what's the risk that keeps you up at night? 215 00:11:41,920 --> 00:11:45,200 Speaker 1: Aside from all the geopolitical potential risks, the risk that 216 00:11:45,280 --> 00:11:47,720 Speaker 1: keeps me up at night is that we get this 217 00:11:47,800 --> 00:11:49,880 Speaker 1: decline in inflation in the first half of the year, 218 00:11:49,920 --> 00:11:52,160 Speaker 1: which we know is happening, but all of a sudden 219 00:11:52,200 --> 00:11:54,240 Speaker 1: we realize in the second half of the year that 220 00:11:54,320 --> 00:11:56,719 Speaker 1: it's not anchored. It comes down, but then all of 221 00:11:56,760 --> 00:11:59,240 Speaker 1: a sudden starts to show signs and it may start 222 00:11:59,280 --> 00:12:02,880 Speaker 1: to bubble up in four and beyond, and then they 223 00:12:02,920 --> 00:12:05,640 Speaker 1: have to come back in and start hiking again from 224 00:12:05,679 --> 00:12:08,880 Speaker 1: an already high base. The markets do not have this 225 00:12:08,960 --> 00:12:11,720 Speaker 1: priced in. Everybody's talking about the pivot and FED funds 226 00:12:11,720 --> 00:12:13,960 Speaker 1: and the expectation for rates to come down and what 227 00:12:14,080 --> 00:12:18,040 Speaker 1: have you. It would be a significant surprise and really 228 00:12:18,040 --> 00:12:21,040 Speaker 1: bad per house of prices if in fact that this 229 00:12:21,160 --> 00:12:24,000 Speaker 1: all got turned on its head, and all of a sudden, 230 00:12:24,000 --> 00:12:26,319 Speaker 1: the FED said, no, we actually have to start restart 231 00:12:26,360 --> 00:12:28,640 Speaker 1: our hiking cycle, or we started to price that back 232 00:12:28,679 --> 00:12:32,319 Speaker 1: in if that were to happen, if inflation became unanchored. 233 00:12:32,320 --> 00:12:34,000 Speaker 1: And he again he mentioned this, so this is this 234 00:12:34,080 --> 00:12:36,960 Speaker 1: is him saying this, So this does not sound like 235 00:12:37,000 --> 00:12:44,000 Speaker 1: a person that is UM is ending their inflation fighting plight. UM. 236 00:12:44,080 --> 00:12:46,600 Speaker 1: But then in the second part of the press conference 237 00:12:46,640 --> 00:12:48,080 Speaker 1: he went on to say, yeah, but you know what, 238 00:12:48,120 --> 00:12:50,120 Speaker 1: we're probably just talking about a couple of more hikes, 239 00:12:50,120 --> 00:12:52,040 Speaker 1: and then he became a lot more devish in the 240 00:12:52,080 --> 00:12:55,079 Speaker 1: market just seized on that. So I do think over 241 00:12:55,120 --> 00:12:58,160 Speaker 1: the next couple of weeks we're going to see other 242 00:12:58,200 --> 00:13:02,280 Speaker 1: FED officials come out and try to rebalance that statement 243 00:13:02,400 --> 00:13:05,400 Speaker 1: so that there's two sided risk in the market that 244 00:13:05,600 --> 00:13:07,920 Speaker 1: it shouldn't be taken according to the Fed as a 245 00:13:07,960 --> 00:13:11,440 Speaker 1: done deal, that they're done, that that there may still 246 00:13:11,480 --> 00:13:13,480 Speaker 1: be more to go. And I think this is really 247 00:13:14,360 --> 00:13:17,000 Speaker 1: the key here, which is creating confusion. But you know, 248 00:13:17,040 --> 00:13:19,760 Speaker 1: obviously in March there's gonna be a new summary of 249 00:13:19,800 --> 00:13:23,839 Speaker 1: economic projections, their forecasts for the next quarter um or 250 00:13:23,960 --> 00:13:25,640 Speaker 1: not just for the next quarter, but for the next 251 00:13:25,640 --> 00:13:29,480 Speaker 1: few years, they redo their forecasts and we'll have a 252 00:13:29,520 --> 00:13:33,240 Speaker 1: better understanding as to what they see in terms of 253 00:13:33,280 --> 00:13:44,040 Speaker 1: inflation expectations and policy expectations. So I wonder, you know 254 00:13:44,120 --> 00:13:46,480 Speaker 1: that risk that's keeping you up at night, how do 255 00:13:46,520 --> 00:13:48,600 Speaker 1: you categorize it is at a tail risk? Or do 256 00:13:48,600 --> 00:13:51,520 Speaker 1: you think that's something we're really got to worry about? 257 00:13:52,080 --> 00:13:55,720 Speaker 1: And what would cause that sort of resurgence in inflation? 258 00:13:55,760 --> 00:13:58,520 Speaker 1: Would we need some sort of exogenous event, oil price 259 00:13:58,559 --> 00:14:00,680 Speaker 1: shock or something like that. Where is it just a 260 00:14:00,720 --> 00:14:03,920 Speaker 1: matter of look, you know, uh, this is unchartered water, 261 00:14:04,400 --> 00:14:07,560 Speaker 1: and inflation can can be unpredictable. Yeah, So so let 262 00:14:07,559 --> 00:14:09,560 Speaker 1: me split the difference on the level of risk, and 263 00:14:09,559 --> 00:14:11,679 Speaker 1: I'll say it's a fat tail risk. Right, So it's 264 00:14:11,679 --> 00:14:14,240 Speaker 1: a tail risk, but it's a fat tail meaning that 265 00:14:14,320 --> 00:14:19,000 Speaker 1: it has a higher than ordinary probability for um uh 266 00:14:19,320 --> 00:14:22,080 Speaker 1: for the event to occur. And I would even subjectively 267 00:14:22,120 --> 00:14:24,880 Speaker 1: put that as high as right, which is to me, 268 00:14:25,000 --> 00:14:28,080 Speaker 1: that's you know, we can debate as a tail risk, right, 269 00:14:28,080 --> 00:14:30,960 Speaker 1: I mean, it's it's a reasonable risk, but it's not 270 00:14:31,240 --> 00:14:33,840 Speaker 1: to me, it's not in the majority. So so what 271 00:14:34,040 --> 00:14:37,840 Speaker 1: creates that? Well, certainly energy prices could do that right. Certainly, 272 00:14:37,920 --> 00:14:40,640 Speaker 1: that is um something that's out there. We know that 273 00:14:40,680 --> 00:14:43,920 Speaker 1: there's been you know, not enough productive production relative to 274 00:14:44,000 --> 00:14:46,320 Speaker 1: the demand, and we know all of the different factors. 275 00:14:46,320 --> 00:14:49,360 Speaker 1: Their energy has come down for various reasons. In the 276 00:14:49,400 --> 00:14:52,400 Speaker 1: second half of two it's started to come down, and 277 00:14:52,440 --> 00:14:56,160 Speaker 1: it's it's still staying relatively low. But to me, that's 278 00:14:56,200 --> 00:14:59,800 Speaker 1: not really the main issue here. The main issue is 279 00:14:59,800 --> 00:15:03,640 Speaker 1: the labor market. The labor market is what's perplexing everybody, 280 00:15:03,680 --> 00:15:06,440 Speaker 1: and everybody has different theories and different views on it, 281 00:15:06,520 --> 00:15:08,360 Speaker 1: and there's one thing in common is that it really 282 00:15:08,480 --> 00:15:10,720 Speaker 1: most models really just haven't worked in terms of trying 283 00:15:10,720 --> 00:15:14,080 Speaker 1: to predict labor. And the issue that we have right 284 00:15:14,120 --> 00:15:16,760 Speaker 1: now is that there's that there's a lot of tightness 285 00:15:16,760 --> 00:15:18,880 Speaker 1: still in the labor market. Look, we got a Jolts 286 00:15:19,080 --> 00:15:23,080 Speaker 1: survey that came out you know, this past week, and 287 00:15:23,320 --> 00:15:26,160 Speaker 1: essentially it showed eleven million job openings, right, so the 288 00:15:26,240 --> 00:15:29,120 Speaker 1: job opening is actually ticked up. They haven't been going 289 00:15:29,200 --> 00:15:33,200 Speaker 1: down as as expected, again baffling most people's forecasts. The 290 00:15:33,240 --> 00:15:37,440 Speaker 1: other is that the vacancy to unemployment rate, so the 291 00:15:37,560 --> 00:15:41,560 Speaker 1: number of jobs open for every unemployed person is sitting 292 00:15:41,640 --> 00:15:44,000 Speaker 1: at about one point nine to one. Let's call that 293 00:15:44,040 --> 00:15:46,080 Speaker 1: two to one, So there are two jobs open for 294 00:15:46,120 --> 00:15:50,480 Speaker 1: every unemployed person. So while consumer confidence is coming down 295 00:15:50,560 --> 00:15:54,320 Speaker 1: because we're hearing about layoffs in the tech sector and 296 00:15:54,520 --> 00:15:57,440 Speaker 1: in these big gargangea win numbers that are being thrown 297 00:15:57,440 --> 00:15:59,680 Speaker 1: out there, the reality is is that when we look 298 00:15:59,680 --> 00:16:02,200 Speaker 1: at all this claims, when we look at the unemployment 299 00:16:02,280 --> 00:16:04,840 Speaker 1: rate um, and when we look at the BLS, UH 300 00:16:05,080 --> 00:16:08,720 Speaker 1: surveys and statistics, what we're finding is that these people 301 00:16:08,720 --> 00:16:11,520 Speaker 1: who are being laid off in the tech sector are 302 00:16:11,640 --> 00:16:15,800 Speaker 1: finding jobs in other areas. Now, the nuance here is 303 00:16:15,840 --> 00:16:19,560 Speaker 1: that the jobs that they're finding are lower pain. So 304 00:16:19,880 --> 00:16:21,920 Speaker 1: now I want to be very very clear about this 305 00:16:22,320 --> 00:16:24,720 Speaker 1: because I think this is an important point to make. 306 00:16:24,800 --> 00:16:31,120 Speaker 1: Foreree is going to feel worse to Main Street and 307 00:16:31,200 --> 00:16:36,040 Speaker 1: better to Wall Street. Felt worse for Wall Street and 308 00:16:36,160 --> 00:16:38,760 Speaker 1: better for Main Street. So look, if we look at 309 00:16:40,200 --> 00:16:44,160 Speaker 1: what we saw was inflation going to forty years highs, 310 00:16:44,200 --> 00:16:45,600 Speaker 1: we'd have to go back to the eighties and the 311 00:16:45,640 --> 00:16:48,040 Speaker 1: seventies to see the levels of inflation that we had. 312 00:16:48,280 --> 00:16:51,160 Speaker 1: We had gas prices going up to sky high levels 313 00:16:51,160 --> 00:16:54,400 Speaker 1: and all of these various things, but what we also 314 00:16:54,480 --> 00:16:57,840 Speaker 1: had was job creation people were employed. The jobs market 315 00:16:57,880 --> 00:17:01,080 Speaker 1: was still very, very strong and had our's weakened. So 316 00:17:01,160 --> 00:17:04,640 Speaker 1: even though higher prices were coming into the economy, what 317 00:17:04,720 --> 00:17:08,120 Speaker 1: people realized is that, well, they had a job, they 318 00:17:08,119 --> 00:17:10,200 Speaker 1: could pay the higher prices. They would still go out 319 00:17:10,240 --> 00:17:12,760 Speaker 1: to eat at restaurants and spend time at hotels and 320 00:17:13,040 --> 00:17:15,880 Speaker 1: go on airplanes and do all these various things. So 321 00:17:16,000 --> 00:17:18,840 Speaker 1: even though yes, all of that bad economic stuff was happening, 322 00:17:18,840 --> 00:17:21,480 Speaker 1: and certainly the bond market took notice of that, bond 323 00:17:21,600 --> 00:17:25,000 Speaker 1: yields rose quite a bit. Certainly equities took notice of that, 324 00:17:25,040 --> 00:17:26,720 Speaker 1: and you know, we all know what the performance of 325 00:17:27,520 --> 00:17:32,520 Speaker 1: equity prices were. But the consumer felt, Okay, now what 326 00:17:32,560 --> 00:17:35,320 Speaker 1: we're seeing is the we're coming to the end of 327 00:17:35,359 --> 00:17:38,800 Speaker 1: this inflation cycle. At least for now, it's starting to 328 00:17:38,840 --> 00:17:41,200 Speaker 1: come down. We're coming to the end of this rate 329 00:17:41,240 --> 00:17:45,520 Speaker 1: hiking cycle. So rates are coming down, equities are responding positively, 330 00:17:45,680 --> 00:17:49,280 Speaker 1: bonds are responding positively. If you ask people on Wall Street, hey, look, 331 00:17:49,359 --> 00:17:51,800 Speaker 1: things are pretty good. If you ask people on Main Street, 332 00:17:51,840 --> 00:17:56,080 Speaker 1: they're saying the exact opposite thing. Now, why this now, 333 00:17:56,200 --> 00:17:58,879 Speaker 1: all of a sudden becomes a lot more important. Is 334 00:17:58,920 --> 00:18:03,119 Speaker 1: that in going into four starts the year of the 335 00:18:03,119 --> 00:18:07,040 Speaker 1: political cycle of a presidential election. So all of these 336 00:18:07,040 --> 00:18:10,960 Speaker 1: discussions around how do we control inflation? And I always 337 00:18:10,960 --> 00:18:14,040 Speaker 1: think it's very informative that every press conference that Pal 338 00:18:14,240 --> 00:18:17,640 Speaker 1: has started going back about you know, almost a year now, 339 00:18:17,960 --> 00:18:21,399 Speaker 1: he starts off by apologizing to the American people. He says, listen, 340 00:18:21,400 --> 00:18:23,399 Speaker 1: you know, we're sensitive to everybody's paying. We know that 341 00:18:23,440 --> 00:18:27,440 Speaker 1: there's the unemployment rate. The employment situation may get worse 342 00:18:27,480 --> 00:18:30,080 Speaker 1: in the future, but we think it's a necessary thing 343 00:18:30,200 --> 00:18:33,600 Speaker 1: to do to control inflation. The reality is at the 344 00:18:33,680 --> 00:18:37,439 Speaker 1: unemployment rate has stayed relatively low, with the jobs market 345 00:18:37,480 --> 00:18:40,679 Speaker 1: has stayed relatively tight. So what that tells us is 346 00:18:40,720 --> 00:18:45,080 Speaker 1: that if we do get into a situation where, um, 347 00:18:45,119 --> 00:18:47,560 Speaker 1: where we do get a slowing in the economy, but 348 00:18:47,640 --> 00:18:51,840 Speaker 1: the jobs market stays relatively robust, people still have uh 349 00:18:51,880 --> 00:18:54,600 Speaker 1: you know, consumers still have dollars to spend um and 350 00:18:54,680 --> 00:18:58,280 Speaker 1: consumption is GDP, that we could all of a sudden 351 00:18:58,400 --> 00:19:01,760 Speaker 1: start to get a resurgence in demand. Now, remember when 352 00:19:01,760 --> 00:19:03,879 Speaker 1: the Fed heights interest rates, what they're trying to do 353 00:19:03,960 --> 00:19:07,199 Speaker 1: is push down demand. But if we get through this 354 00:19:07,320 --> 00:19:11,320 Speaker 1: soft patch, this corrective patch of Fed policy, inflation and 355 00:19:11,600 --> 00:19:13,960 Speaker 1: everything else, and we come through this with a soft 356 00:19:14,040 --> 00:19:17,320 Speaker 1: landing or maybe a mild recession, then we're going to 357 00:19:17,440 --> 00:19:21,399 Speaker 1: come out of that like wild horses, right, and that 358 00:19:21,640 --> 00:19:25,720 Speaker 1: wage inflation, that inflation could then go on to create 359 00:19:25,760 --> 00:19:28,239 Speaker 1: what what Powell calls and what the central bankers call 360 00:19:28,600 --> 00:19:32,119 Speaker 1: the wage price spiral inflation. And he always says, look, 361 00:19:32,160 --> 00:19:33,800 Speaker 1: there's no evidence of it yet, but as soon as 362 00:19:33,800 --> 00:19:35,919 Speaker 1: we see it, game is already over right, So you 363 00:19:36,000 --> 00:19:39,040 Speaker 1: never want to get to that point. And so that's 364 00:19:39,080 --> 00:19:41,800 Speaker 1: why that's the risk that keeps me up is that 365 00:19:41,840 --> 00:19:45,360 Speaker 1: I think that there could be some underpinnings to say, well, 366 00:19:45,680 --> 00:19:48,679 Speaker 1: let's slow down the hikes right now, because you know, 367 00:19:48,720 --> 00:19:50,639 Speaker 1: we need to be sensitive to you know, politically and 368 00:19:50,960 --> 00:19:55,080 Speaker 1: everything else. But it doesn't do the inflation fighting job, 369 00:19:55,440 --> 00:19:57,520 Speaker 1: and then we have a worse problem a year later, 370 00:19:57,840 --> 00:20:00,600 Speaker 1: eleven million job openings out there. So it's so, you know, 371 00:20:00,800 --> 00:20:05,080 Speaker 1: it's it's that labor market is still red hot. So so, Jim, 372 00:20:05,119 --> 00:20:07,600 Speaker 1: what did you make of um Powell almost taking a 373 00:20:07,720 --> 00:20:11,200 Speaker 1: victory lap when he said, this is the first time 374 00:20:11,359 --> 00:20:15,080 Speaker 1: that the Fed can actually admit we are seeing disinflation, 375 00:20:15,160 --> 00:20:19,920 Speaker 1: which was a common that really struck me. I think 376 00:20:19,960 --> 00:20:22,760 Speaker 1: he wishes that he could take that word back, because 377 00:20:23,160 --> 00:20:27,000 Speaker 1: that as soon as he said that, the markets took 378 00:20:27,040 --> 00:20:28,720 Speaker 1: off like a rocket. I mean you could time it 379 00:20:28,800 --> 00:20:31,160 Speaker 1: to that statement, and it was only he was only 380 00:20:31,200 --> 00:20:36,120 Speaker 1: referring to goods prices too, you know. Specifically. I think, well, 381 00:20:36,720 --> 00:20:40,639 Speaker 1: we'll see, now you were paying attention. Other people just 382 00:20:40,680 --> 00:20:43,199 Speaker 1: heard the word, you know, disinflation, and they hit the 383 00:20:43,200 --> 00:20:44,800 Speaker 1: buy button and they just left the finger on the 384 00:20:44,800 --> 00:20:47,720 Speaker 1: button until all their orders were filled. Well, that's right, 385 00:20:48,000 --> 00:20:50,120 Speaker 1: you know, And I think that's going to be part 386 00:20:50,160 --> 00:20:51,919 Speaker 1: of the walk back is to say, well, what I 387 00:20:51,920 --> 00:20:55,119 Speaker 1: said disinflation, what I really meant was goods disinflation, and 388 00:20:55,160 --> 00:20:58,359 Speaker 1: that should be a good You know, he's getting too 389 00:20:58,720 --> 00:21:01,760 Speaker 1: nuanced in these things, right, you have to really be 390 00:21:01,840 --> 00:21:04,520 Speaker 1: a professional listening to this. I think most people are 391 00:21:04,600 --> 00:21:07,560 Speaker 1: kind of listening to it out of one ear and 392 00:21:07,560 --> 00:21:11,080 Speaker 1: and then they're trading in the markets, you know, um 393 00:21:11,119 --> 00:21:14,800 Speaker 1: at the same time. So yeah, I think that he's 394 00:21:14,840 --> 00:21:18,560 Speaker 1: correct in saying that about goods prices. I wish he 395 00:21:19,480 --> 00:21:23,600 Speaker 1: framed it differently because I think it just creates more 396 00:21:23,800 --> 00:21:27,560 Speaker 1: volatility markets. Yeah, can I can? I also ask you then, 397 00:21:27,640 --> 00:21:30,920 Speaker 1: just to go back to the financial discussion about financial 398 00:21:30,920 --> 00:21:34,879 Speaker 1: conditions because obviously the FED doesn't want looser financial conditions, 399 00:21:35,160 --> 00:21:39,680 Speaker 1: but and we already mentioned this, they are looser because 400 00:21:39,960 --> 00:21:42,440 Speaker 1: of the value we've seen in the stock market, etcetera. 401 00:21:43,400 --> 00:21:46,800 Speaker 1: Powell said that they've tightened significantly, that the FED is 402 00:21:46,920 --> 00:21:50,560 Speaker 1: looking at financial conditions in a longer term versus a 403 00:21:50,600 --> 00:21:53,639 Speaker 1: shorter term time frame. And then the discussion on Twitter 404 00:21:54,119 --> 00:21:56,600 Speaker 1: was like, Okay, where is he looking Like what models 405 00:21:56,640 --> 00:21:59,080 Speaker 1: is he looking at? Because you know, even if we 406 00:21:59,119 --> 00:22:03,280 Speaker 1: look at the there's a Bloomberg financial conditions um in 407 00:22:03,400 --> 00:22:07,440 Speaker 1: next that has just loosened significantly since when they started 408 00:22:07,600 --> 00:22:10,119 Speaker 1: hikes last March. Like, what do you what do you 409 00:22:10,160 --> 00:22:15,359 Speaker 1: make of this discussion? What might Paul be referring to? I? 410 00:22:15,359 --> 00:22:18,440 Speaker 1: I love that you're asking this question. It's a question 411 00:22:18,480 --> 00:22:22,000 Speaker 1: that most people use the words financial conditions and they 412 00:22:22,000 --> 00:22:25,960 Speaker 1: don't quite understand what that is um And it's actually 413 00:22:26,080 --> 00:22:28,760 Speaker 1: questions that I've I've actually gotten I've gotten this question 414 00:22:28,800 --> 00:22:32,440 Speaker 1: exactly because people are there are various ways to calculate 415 00:22:32,720 --> 00:22:35,040 Speaker 1: financial conditions, and and let me just start from the 416 00:22:35,080 --> 00:22:40,040 Speaker 1: top and just say financial conditions are really a measure 417 00:22:40,200 --> 00:22:45,800 Speaker 1: of how the how market prices are reflecting central bank policy. 418 00:22:45,920 --> 00:22:49,399 Speaker 1: So then it becomes okay, well, what market prices, what 419 00:22:49,600 --> 00:22:52,760 Speaker 1: market indicators are you looking at? Because in theory, if 420 00:22:52,800 --> 00:22:56,320 Speaker 1: you increase policy rates, you should get a weakening of 421 00:22:56,640 --> 00:22:59,440 Speaker 1: financial asset prices. That's just the way these things work. 422 00:22:59,760 --> 00:23:02,760 Speaker 1: But now we have to create um financial conditions is 423 00:23:02,760 --> 00:23:06,000 Speaker 1: actually an index, right, So now we have to create 424 00:23:06,119 --> 00:23:08,400 Speaker 1: a and I know Bloomberg has an index of financial 425 00:23:08,440 --> 00:23:11,120 Speaker 1: conditions as well. It has a lot of different variables 426 00:23:11,119 --> 00:23:16,000 Speaker 1: in it. The five principal components of financial conditions, meaning 427 00:23:16,040 --> 00:23:20,160 Speaker 1: that the five factors that drive financial conditions the most. 428 00:23:20,160 --> 00:23:23,959 Speaker 1: Where you're gonna get the information is going to come 429 00:23:23,960 --> 00:23:26,359 Speaker 1: from five things. Number one, short term interest rates. That 430 00:23:26,359 --> 00:23:28,480 Speaker 1: could be three month T bill rates. That could be 431 00:23:28,480 --> 00:23:30,399 Speaker 1: policy rates. You know, let's call it three month TI 432 00:23:30,440 --> 00:23:33,199 Speaker 1: bill rates, because that's something that we can measure in 433 00:23:33,240 --> 00:23:35,639 Speaker 1: the markets, right, that's something that we can watch. The 434 00:23:35,680 --> 00:23:39,520 Speaker 1: second would be intermediate term treasury rates, and that would 435 00:23:39,520 --> 00:23:42,800 Speaker 1: be called that the tenure treasury yield, again, another market 436 00:23:43,000 --> 00:23:47,440 Speaker 1: measurable item that we can use to reflect central bank policy. 437 00:23:47,920 --> 00:23:51,200 Speaker 1: The third is going to be triple be credit spreads. 438 00:23:51,720 --> 00:23:54,280 Speaker 1: So that tells us something about the credit conditions in 439 00:23:54,400 --> 00:23:58,480 Speaker 1: the markets. The fourth is going to be the equity market, 440 00:23:58,560 --> 00:24:00,840 Speaker 1: so let's call that the S and P five hundred broadly. 441 00:24:01,440 --> 00:24:04,040 Speaker 1: The fifth is going to be the trade weighted value 442 00:24:04,160 --> 00:24:07,000 Speaker 1: of the US dollar. Those five are the big five. 443 00:24:07,119 --> 00:24:09,520 Speaker 1: Those matter the most. Now you could say, well, what 444 00:24:09,600 --> 00:24:12,639 Speaker 1: about home prices, and how about oil or how about that. 445 00:24:13,040 --> 00:24:15,480 Speaker 1: We could throw a hundred different things in there. The 446 00:24:15,560 --> 00:24:18,480 Speaker 1: problem statistically when you do that is that you end 447 00:24:18,520 --> 00:24:22,199 Speaker 1: up like losing the information. So those five if you 448 00:24:22,200 --> 00:24:25,680 Speaker 1: did a pc a principal component analysis on financial conditions 449 00:24:26,080 --> 00:24:30,160 Speaker 1: and reflected that to central bank policy, those five are 450 00:24:30,160 --> 00:24:33,240 Speaker 1: the ones that matter the most. So it's an index, 451 00:24:33,280 --> 00:24:35,840 Speaker 1: meaning that there's a waiting that gets attached to each 452 00:24:35,920 --> 00:24:40,280 Speaker 1: one of those uh five variables or five five components, 453 00:24:40,680 --> 00:24:42,560 Speaker 1: and then you come up with a number, right, and 454 00:24:42,640 --> 00:24:44,679 Speaker 1: that becomes your index. It's just like a typical it's 455 00:24:44,720 --> 00:24:48,360 Speaker 1: like calculating any any old index, and that's what you measured. 456 00:24:48,720 --> 00:24:52,720 Speaker 1: So when we look at financial conditions, I would say 457 00:24:52,720 --> 00:24:56,200 Speaker 1: that financial conditions you have become easier, but they've also 458 00:24:56,359 --> 00:24:59,000 Speaker 1: tightened the lot. Just look at what happened last year. 459 00:24:59,320 --> 00:25:03,639 Speaker 1: Credit spreads wide, end um interest rates rose, the dollar 460 00:25:03,760 --> 00:25:06,119 Speaker 1: got very strong, so a stronger dollar is weaker for 461 00:25:06,160 --> 00:25:09,600 Speaker 1: financial conditions. If you have UM, it just makes your 462 00:25:09,600 --> 00:25:12,360 Speaker 1: exports more expensive and it's harder for you know, your 463 00:25:12,480 --> 00:25:15,280 Speaker 1: companies to make money in that sense. Obviously, higher interest rates, 464 00:25:15,320 --> 00:25:18,560 Speaker 1: higher cost of capital, higher credit spreads, tighter credit spreads 465 00:25:18,560 --> 00:25:21,720 Speaker 1: are weaker for financial conditions, weaker equity prices, all of 466 00:25:21,760 --> 00:25:24,880 Speaker 1: those things. So financial conditions actually tightened quite a bit 467 00:25:25,560 --> 00:25:29,399 Speaker 1: recently with the decline and interest rates, the decline in 468 00:25:29,440 --> 00:25:33,480 Speaker 1: the dollar, the decline and credit spreads, the increase in 469 00:25:33,520 --> 00:25:38,359 Speaker 1: equity prices. Those have now recently started to ease financial conditions, 470 00:25:38,680 --> 00:25:41,320 Speaker 1: but only after they've tightened a lot. But they're not 471 00:25:41,480 --> 00:25:44,560 Speaker 1: easier today than where they were a year ago. There's 472 00:25:44,560 --> 00:25:47,080 Speaker 1: still a lot tighter than where they were a year ago. 473 00:25:47,600 --> 00:25:51,320 Speaker 1: But there has been an easing of financial conditions over 474 00:25:51,359 --> 00:25:55,439 Speaker 1: the past say four or five weeks, just given the market. 475 00:25:55,480 --> 00:25:58,360 Speaker 1: So when Pile saying I'm not concerned about short term 476 00:25:58,400 --> 00:26:01,639 Speaker 1: financial conditions, I'm really more learned about longer term. I 477 00:26:01,680 --> 00:26:04,439 Speaker 1: think what he's basically saying is like, look as I 478 00:26:04,520 --> 00:26:07,919 Speaker 1: come to an end of the rate hiking cycle, UM 479 00:26:07,960 --> 00:26:10,880 Speaker 1: and people start to price in more stable interest rates 480 00:26:10,920 --> 00:26:14,280 Speaker 1: and possibly even lower interest rates at some point. Of course, 481 00:26:14,400 --> 00:26:16,240 Speaker 1: in the near term you're going to get an easing 482 00:26:16,240 --> 00:26:19,760 Speaker 1: of financial conditions because I'm not tightening anymore, um. But 483 00:26:20,400 --> 00:26:23,399 Speaker 1: longer term, these are the long and variable legs. The 484 00:26:23,440 --> 00:26:26,399 Speaker 1: fact that they may keep the policy rate at five percent, 485 00:26:26,520 --> 00:26:30,320 Speaker 1: let's say, for an extended period of time, might actually 486 00:26:30,600 --> 00:26:32,919 Speaker 1: tighten financial conditions because they're just going to keep the 487 00:26:32,920 --> 00:26:36,560 Speaker 1: cost of capital, keep the costs of credit higher for 488 00:26:36,600 --> 00:26:38,960 Speaker 1: a longer period of time. So he's just saying, look, 489 00:26:38,960 --> 00:26:41,720 Speaker 1: I'm not trying to micro manage the markets by looking 490 00:26:41,760 --> 00:26:44,640 Speaker 1: at financial conditions. We have to think about what our 491 00:26:44,680 --> 00:26:48,760 Speaker 1: policy decision and keeping our policy decision in place is 492 00:26:48,800 --> 00:26:53,159 Speaker 1: going to do for the longer term. And that's essentially 493 00:26:53,200 --> 00:27:10,880 Speaker 1: what he's saying. Jim, if I'm remembering your resume correctly, 494 00:27:11,240 --> 00:27:13,520 Speaker 1: you were rate strategist for a long time, right and 495 00:27:13,640 --> 00:27:17,520 Speaker 1: uh now co chief investment of the Global balance funds 496 00:27:17,920 --> 00:27:21,000 Speaker 1: at Morgan Stanley Investment Management. This is how I segue 497 00:27:21,000 --> 00:27:23,080 Speaker 1: into the part of the podcast I call it the 498 00:27:23,320 --> 00:27:25,640 Speaker 1: just tell me what to do with my money already 499 00:27:26,359 --> 00:27:29,359 Speaker 1: element of the podcast. You know, obviously from from a 500 00:27:29,960 --> 00:27:33,800 Speaker 1: balanced fund perspective, last year nothing work, you know, sixty 501 00:27:33,840 --> 00:27:37,439 Speaker 1: forty was you know, just a nightmare this year. I 502 00:27:37,480 --> 00:27:40,720 Speaker 1: gotta think back from the dead for sixty forty or 503 00:27:40,760 --> 00:27:44,400 Speaker 1: whatever your preferred ratio is. To some degree, I'm curious 504 00:27:44,400 --> 00:27:47,080 Speaker 1: how you're thinking about it. You know, whatever your allotment 505 00:27:47,200 --> 00:27:50,840 Speaker 1: is to, if it's not six to socks and bonds, 506 00:27:51,320 --> 00:27:54,520 Speaker 1: are you tweaking that ratio at all? Do you think 507 00:27:54,720 --> 00:27:59,440 Speaker 1: maybe in favor of bonds and specifically in fixed income? Um, well, 508 00:27:59,720 --> 00:28:03,160 Speaker 1: at totally. There's a lot of bankruptcy talk swelling around. 509 00:28:03,440 --> 00:28:06,840 Speaker 1: You know, if these rates stay higher for longer, are 510 00:28:06,880 --> 00:28:09,840 Speaker 1: are you worried about credit spreads? Are you leaning more 511 00:28:09,880 --> 00:28:13,359 Speaker 1: towards just safe, safe treasuries in that fixed income bucket? 512 00:28:13,440 --> 00:28:16,720 Speaker 1: So how are you thinking about portfolio composition as a whole? 513 00:28:16,760 --> 00:28:19,520 Speaker 1: I guess is the to boil it down? So this 514 00:28:19,600 --> 00:28:21,199 Speaker 1: is the key. This is a key issue here for 515 00:28:21,240 --> 00:28:22,720 Speaker 1: this year, and not only just for this year, but 516 00:28:22,760 --> 00:28:24,879 Speaker 1: even over the past few years. It's really about the 517 00:28:24,880 --> 00:28:28,840 Speaker 1: portfolio construction. So what a global balanced strategy does is 518 00:28:28,880 --> 00:28:33,840 Speaker 1: it tries to look across multiple assets fixed income, equities, commodities, currencies, 519 00:28:34,160 --> 00:28:38,680 Speaker 1: and tries to put together a balance of risks that 520 00:28:38,880 --> 00:28:41,880 Speaker 1: creates an optimal risk adjusted return, and that's what our 521 00:28:41,920 --> 00:28:46,600 Speaker 1: strategy effectively does. And the the idea right now or 522 00:28:46,640 --> 00:28:48,640 Speaker 1: the problem that we have right now is not a 523 00:28:48,680 --> 00:28:51,240 Speaker 1: new problem, and this is something that I I so 524 00:28:51,280 --> 00:28:53,520 Speaker 1: I'm glad, I'm glad, I'm glad you're asking this question 525 00:28:53,840 --> 00:28:56,160 Speaker 1: because this is this is an important issue for us, 526 00:28:56,560 --> 00:29:01,000 Speaker 1: which is that we have a high correlation in markets 527 00:29:01,080 --> 00:29:02,680 Speaker 1: right now. So if we go back to two thousand 528 00:29:02,680 --> 00:29:06,320 Speaker 1: and eighteen, we had high correlation markets there where fixed 529 00:29:06,320 --> 00:29:08,480 Speaker 1: income and equity didn't work so well together. So the 530 00:29:08,520 --> 00:29:12,080 Speaker 1: sixty forty didn't work. Two thousand and nineteen, the sixty 531 00:29:12,120 --> 00:29:15,640 Speaker 1: forty portfolio worked well because all of a sudden, you know, 532 00:29:15,760 --> 00:29:18,560 Speaker 1: equities and fixed income went up. Two thousand twenty was 533 00:29:18,600 --> 00:29:20,320 Speaker 1: an odd year. It was the year of the pandemic. 534 00:29:20,560 --> 00:29:22,680 Speaker 1: But ultimately, by the end of the year, the sixty 535 00:29:22,680 --> 00:29:26,640 Speaker 1: forty portfolio did well because equities went up in price 536 00:29:26,720 --> 00:29:28,960 Speaker 1: and bonds went up in price. So so so far, 537 00:29:29,080 --> 00:29:31,560 Speaker 1: going back to what I've highlighted is that we've been 538 00:29:31,560 --> 00:29:37,800 Speaker 1: in a high correlation market. In nineteen and now as 539 00:29:37,840 --> 00:29:41,640 Speaker 1: we go to one, we also had a very high 540 00:29:41,680 --> 00:29:46,080 Speaker 1: correlation market. We had fixed income and equity doing poorly, 541 00:29:46,160 --> 00:29:49,440 Speaker 1: and people tend to notice high correlations when fixed income 542 00:29:49,520 --> 00:29:54,080 Speaker 1: and equity do poorly. And now here we are in three, 543 00:29:54,160 --> 00:29:57,960 Speaker 1: we also have a high correlation market. Both fixed income 544 00:29:58,040 --> 00:30:01,720 Speaker 1: and equities are doing well. People ignore high correlation risks 545 00:30:02,080 --> 00:30:05,200 Speaker 1: when both assets are doing well, but they tend to 546 00:30:05,240 --> 00:30:08,600 Speaker 1: notice them greatly when both assets are doing poorly. The 547 00:30:08,640 --> 00:30:12,560 Speaker 1: point that I'd like to make is that we were, 548 00:30:12,600 --> 00:30:14,760 Speaker 1: we've been in a high correlation market for the past 549 00:30:14,800 --> 00:30:17,400 Speaker 1: several years, and I think this really puts a lot 550 00:30:17,480 --> 00:30:20,480 Speaker 1: of stress and pressure on the sixty portfolio. So to 551 00:30:20,560 --> 00:30:23,960 Speaker 1: answer your question, you know, more directly after that preface 552 00:30:24,480 --> 00:30:26,200 Speaker 1: is you know, so what do we do is what 553 00:30:26,240 --> 00:30:30,280 Speaker 1: we need to do is we need to balance a portfolio. 554 00:30:30,800 --> 00:30:33,760 Speaker 1: We need to think about how we balance the risks, 555 00:30:33,920 --> 00:30:37,280 Speaker 1: meaning that um, how we look at equity risk, how 556 00:30:37,320 --> 00:30:39,160 Speaker 1: we look at fixed income risk. If they're both going 557 00:30:39,200 --> 00:30:43,640 Speaker 1: to be highly correlated, your traditional sixty forty isn't really 558 00:30:43,680 --> 00:30:45,920 Speaker 1: going to work the way that it did in the past. 559 00:30:46,080 --> 00:30:49,200 Speaker 1: Because what we have to remember is the reason the 560 00:30:49,200 --> 00:30:53,960 Speaker 1: sixty forty portfolio works so well having six equity bonds 561 00:30:54,560 --> 00:30:57,840 Speaker 1: was because the bond market fell you know, basically performed 562 00:30:57,880 --> 00:31:00,320 Speaker 1: well in thirty six out of the last forty years 563 00:31:00,400 --> 00:31:03,080 Speaker 1: except for last year, right, So we had a bullmarket 564 00:31:03,120 --> 00:31:06,640 Speaker 1: in bonds for forty years just about and and essentially 565 00:31:06,800 --> 00:31:09,640 Speaker 1: the bonds were a good hedge for anything. But now 566 00:31:09,720 --> 00:31:12,720 Speaker 1: as we get to a point in the economic environment 567 00:31:12,760 --> 00:31:15,320 Speaker 1: and the structure of the economy where risk free rates 568 00:31:15,360 --> 00:31:17,120 Speaker 1: are going to be higher, I think we're gonna have 569 00:31:17,160 --> 00:31:21,040 Speaker 1: inflation issues and risks for the foreseeable future for the 570 00:31:21,080 --> 00:31:23,560 Speaker 1: next five or seven ten years, and you're gonna have 571 00:31:23,600 --> 00:31:27,200 Speaker 1: more variability in interest rates. So now, all of a sudden, 572 00:31:27,240 --> 00:31:30,760 Speaker 1: the sixty forty portfolio doesn't work as well as having 573 00:31:30,800 --> 00:31:34,120 Speaker 1: a static allocation. So what we have to think about 574 00:31:34,960 --> 00:31:38,360 Speaker 1: in terms of hedging and creating a more dynamic, better 575 00:31:38,400 --> 00:31:43,400 Speaker 1: portfolio that optimizes risk adjusted returns is trying to manage 576 00:31:43,440 --> 00:31:46,200 Speaker 1: the volatility. So, in other words, if what the sixty 577 00:31:46,280 --> 00:31:49,520 Speaker 1: forty portfolio was supposed to do for you was give 578 00:31:49,560 --> 00:31:53,400 Speaker 1: you a stable return profile, what I'm saying is that 579 00:31:53,520 --> 00:31:56,120 Speaker 1: in that static sixty forty portfolio, you're not going to 580 00:31:56,240 --> 00:31:59,640 Speaker 1: get that anymore. You haven't been getting it since. But 581 00:32:00,040 --> 00:32:03,120 Speaker 1: what you need to do is target of volatility. What 582 00:32:03,320 --> 00:32:05,040 Speaker 1: you have to say is, if I want to get 583 00:32:05,240 --> 00:32:07,960 Speaker 1: pick a number. I want a seven percent return, right, 584 00:32:08,200 --> 00:32:10,760 Speaker 1: But I want a seven percent return, but I want 585 00:32:10,840 --> 00:32:12,880 Speaker 1: that within a range I don't want to I don't 586 00:32:12,880 --> 00:32:15,280 Speaker 1: want to take on too much volatility to get that 587 00:32:15,600 --> 00:32:18,680 Speaker 1: seven return. So I want my volatility to be in 588 00:32:18,720 --> 00:32:21,520 Speaker 1: a range between say four and ten percent. Right, I'll 589 00:32:21,560 --> 00:32:25,440 Speaker 1: accept that as an acceptable range from my return volatility. 590 00:32:25,520 --> 00:32:27,920 Speaker 1: So really what we have to start thinking about today 591 00:32:28,080 --> 00:32:31,880 Speaker 1: is not the static six forty portfolio, but really trying 592 00:32:31,920 --> 00:32:36,760 Speaker 1: to target the volatility of the portfolio so that you 593 00:32:36,760 --> 00:32:40,560 Speaker 1: you can manage your return profile in a more stable range. 594 00:32:41,000 --> 00:32:43,160 Speaker 1: And what that allows you to do. The big benefit 595 00:32:43,200 --> 00:32:46,680 Speaker 1: there is it allows you to compound your returns over 596 00:32:46,840 --> 00:32:50,120 Speaker 1: time in a more stable manner. That's what the sixty 597 00:32:50,480 --> 00:32:54,800 Speaker 1: portfolio was able to provide for like like since and 598 00:32:54,840 --> 00:32:59,120 Speaker 1: what we've seen since is that that sixty forty hasn't 599 00:32:59,160 --> 00:33:03,040 Speaker 1: been working as advertised, and that that's what I would 600 00:33:03,040 --> 00:33:06,240 Speaker 1: say is start thinking about strategies, you know, like the 601 00:33:06,280 --> 00:33:10,400 Speaker 1: one that I manage effectively that thinks about stabilizing the 602 00:33:10,480 --> 00:33:15,040 Speaker 1: volatility of returns to have a more balanced portfolio. But Jim, 603 00:33:15,080 --> 00:33:18,440 Speaker 1: you mentioned you expect inflation to be an issue for 604 00:33:18,480 --> 00:33:21,440 Speaker 1: the next five, seven, ten, years. So where do you see? 605 00:33:21,800 --> 00:33:24,480 Speaker 1: What do you see happening with inflation? Because we've had 606 00:33:24,520 --> 00:33:26,720 Speaker 1: some guests on the podcast the last couple of weeks 607 00:33:26,720 --> 00:33:31,880 Speaker 1: who have said they don't see they sort of see inflation, um, 608 00:33:32,040 --> 00:33:34,840 Speaker 1: the downturn and inflation topping out at around five percent 609 00:33:34,960 --> 00:33:39,120 Speaker 1: maybe and staying around five percent. So what do you see? Well, 610 00:33:39,160 --> 00:33:42,920 Speaker 1: you know, even if the downturn in inflation tops out 611 00:33:42,920 --> 00:33:47,080 Speaker 1: of five percent, that's way above the fed's target of two. Right. 612 00:33:47,120 --> 00:33:49,800 Speaker 1: So so now we have to we have to think 613 00:33:49,840 --> 00:33:54,680 Speaker 1: structurally about what's going on um from a very macro perspective. Right, 614 00:33:54,920 --> 00:33:58,080 Speaker 1: So when we think about why inflation started to fall 615 00:33:58,120 --> 00:34:00,680 Speaker 1: and when did it really start to fall, precipit this league. 616 00:34:00,720 --> 00:34:03,040 Speaker 1: I mean, obviously it peaked in the in the early 617 00:34:03,080 --> 00:34:06,800 Speaker 1: eighties under Vulcar he killed inflation hydrates a lot um. 618 00:34:06,840 --> 00:34:08,680 Speaker 1: But then all of a sudden we had a big 619 00:34:08,800 --> 00:34:11,680 Speaker 1: change in policy under President Reagan. He moved more towards 620 00:34:11,680 --> 00:34:15,200 Speaker 1: the supply side economics UM type of a solution. And 621 00:34:15,239 --> 00:34:18,920 Speaker 1: what he did was he deregulated and essentially what he 622 00:34:18,960 --> 00:34:22,440 Speaker 1: did in the supply side economics is he increased the 623 00:34:22,440 --> 00:34:27,239 Speaker 1: productive capacity of corporations to make supply meet demand and 624 00:34:27,280 --> 00:34:29,960 Speaker 1: bring down prices so you can have higher growth and 625 00:34:30,000 --> 00:34:31,880 Speaker 1: lower prices. And that was really the miracle of the 626 00:34:31,880 --> 00:34:35,120 Speaker 1: eighties that then spilled over into the nineties. By two 627 00:34:35,200 --> 00:34:38,720 Speaker 1: thousand and one, we had another big event China joined 628 00:34:38,719 --> 00:34:41,400 Speaker 1: the w t O. And you know, China was a 629 00:34:41,400 --> 00:34:43,640 Speaker 1: factor in the nineties as well, but really started to 630 00:34:43,680 --> 00:34:46,520 Speaker 1: come online, you know, starting in two thousand and one. 631 00:34:47,040 --> 00:34:50,919 Speaker 1: Now we had globalization and offshoring of production in all 632 00:34:50,960 --> 00:34:54,320 Speaker 1: of these various factors, and that was it for inflation. 633 00:34:54,440 --> 00:34:58,080 Speaker 1: We didn't worry about it, you know until two right 634 00:34:58,280 --> 00:35:01,600 Speaker 1: inflation just came came write down. So now what do 635 00:35:01,640 --> 00:35:04,840 Speaker 1: we know that's going on? Well, globalization is now in 636 00:35:05,000 --> 00:35:10,120 Speaker 1: the globalization effectively, we're not offshoring production, we're on shoring production. 637 00:35:10,760 --> 00:35:14,000 Speaker 1: Energy costs are are a lot higher, um, there are 638 00:35:14,000 --> 00:35:16,920 Speaker 1: a lot of various for good reasons. Climate change initiatives 639 00:35:16,920 --> 00:35:21,880 Speaker 1: that you know is constraining some of the production of energy, 640 00:35:22,280 --> 00:35:25,360 Speaker 1: so so that's something that's out there as well. Energy 641 00:35:25,440 --> 00:35:28,960 Speaker 1: and we also have to remember feeds into fertilizer prices, 642 00:35:28,960 --> 00:35:32,160 Speaker 1: food prices, and everything else, so that all of a 643 00:35:32,200 --> 00:35:35,080 Speaker 1: sudden really starts to bring inflation and prices of a 644 00:35:35,080 --> 00:35:40,440 Speaker 1: lot of goods and consumables like food also also a 645 00:35:40,480 --> 00:35:42,720 Speaker 1: lot higher. And we're not we're not at a point 646 00:35:42,760 --> 00:35:46,760 Speaker 1: structurally where we're increasing the productive capacity to meet that demand. 647 00:35:47,360 --> 00:35:50,360 Speaker 1: So that structurally where we are, we are at a 648 00:35:50,440 --> 00:35:54,200 Speaker 1: structural change in the markets today. On top of that, 649 00:35:54,280 --> 00:35:58,040 Speaker 1: we had this awful pandemic, you know, sadly, you know, 650 00:35:58,080 --> 00:36:02,200 Speaker 1: many people left the workforce and um and aren't coming back, 651 00:36:02,800 --> 00:36:06,200 Speaker 1: and that's created a lot of constraint in terms of labor. 652 00:36:06,760 --> 00:36:10,880 Speaker 1: So so now labor is really in charge, not capital 653 00:36:11,040 --> 00:36:13,200 Speaker 1: so much, and labor being in charge, are going to 654 00:36:13,280 --> 00:36:18,080 Speaker 1: demand higher wages. You get higher wages, you get higher inflation. Structurally, 655 00:36:18,160 --> 00:36:21,480 Speaker 1: that's where we are. Nothing's turning that around. Look, there 656 00:36:21,520 --> 00:36:24,160 Speaker 1: are arguments that we've been in this period of secular 657 00:36:24,200 --> 00:36:27,000 Speaker 1: stagnation for a long time and it's only been interrupted 658 00:36:27,040 --> 00:36:30,279 Speaker 1: and it might reassert itself. I'll take that on board 659 00:36:30,320 --> 00:36:33,400 Speaker 1: as as certainly a possibility, but so far I'm not 660 00:36:33,440 --> 00:36:37,239 Speaker 1: seeing any real evidence of that. So I'm much more 661 00:36:37,280 --> 00:36:42,040 Speaker 1: concerned about the fact that we are structurally moving into 662 00:36:42,120 --> 00:36:47,560 Speaker 1: an onshoring, deglobalization, higher cost of productivity situation. Now, the 663 00:36:47,640 --> 00:36:51,400 Speaker 1: only thing that solves this problem. Is a is higher 664 00:36:51,800 --> 00:36:57,280 Speaker 1: business productivity, you know, capex, business investment. Productivity is output 665 00:36:57,320 --> 00:37:00,479 Speaker 1: per hours work. Right, So if you can be rely 666 00:37:00,560 --> 00:37:04,960 Speaker 1: on technology robotics AI to do the work of people 667 00:37:05,000 --> 00:37:07,560 Speaker 1: that you can't find and higher, then that will bring 668 00:37:07,560 --> 00:37:10,440 Speaker 1: down you know, wages, you know, essentially. But that's the 669 00:37:10,480 --> 00:37:13,680 Speaker 1: measure that we're looking at right now. And that's and 670 00:37:13,719 --> 00:37:15,520 Speaker 1: that's why I think that inflation is going to be 671 00:37:15,600 --> 00:37:18,280 Speaker 1: with us for a while. It takes a long time 672 00:37:18,400 --> 00:37:21,080 Speaker 1: for companies to become a lot more productive. Do need 673 00:37:21,120 --> 00:37:23,920 Speaker 1: a supply side response, which means that you need and 674 00:37:23,960 --> 00:37:27,160 Speaker 1: that's a fiscal policy. Fiscal policy creates a supply side response, 675 00:37:27,400 --> 00:37:30,920 Speaker 1: that's taxes, regulation, you know, to to generate capex and 676 00:37:30,920 --> 00:37:35,320 Speaker 1: productivity and things like that. We are nowhere near sending 677 00:37:35,320 --> 00:37:37,720 Speaker 1: a message to the American people saying, I know everybody 678 00:37:37,760 --> 00:37:40,520 Speaker 1: is suffering right now with higher wages and sorry, higher 679 00:37:40,520 --> 00:37:43,239 Speaker 1: inflation and what have you. And the answer to that 680 00:37:43,400 --> 00:37:46,200 Speaker 1: is to cut taxes for corporations, right, because that's the 681 00:37:46,200 --> 00:37:49,000 Speaker 1: way the narrative will be spun. It's wrong, that's not 682 00:37:49,200 --> 00:37:51,400 Speaker 1: that's not exactly true, but but that but that's the 683 00:37:51,400 --> 00:37:54,320 Speaker 1: way the narrative will be spun and it's gonna be 684 00:37:54,360 --> 00:37:58,040 Speaker 1: hard to get that supply side response. Until we get 685 00:37:58,080 --> 00:38:01,279 Speaker 1: that supply side response where the abductive capacity of the 686 00:38:01,280 --> 00:38:05,439 Speaker 1: economy is increased to make supply meet demand and bring 687 00:38:05,440 --> 00:38:09,000 Speaker 1: down prices more durably, we're going to have an inflation problem. 688 00:38:09,120 --> 00:38:10,839 Speaker 1: That's how it was solved in the eighties. That's how 689 00:38:10,840 --> 00:38:12,919 Speaker 1: it will be solved again. It's just a matter of when, 690 00:38:13,000 --> 00:38:15,640 Speaker 1: and I don't think it's any time soon. Great stuff, 691 00:38:15,680 --> 00:38:19,120 Speaker 1: We really appreciate your time. We cannot let you go though, 692 00:38:19,239 --> 00:38:22,760 Speaker 1: until we hear the craziest thing you've seen in markets 693 00:38:22,840 --> 00:38:26,600 Speaker 1: this week data as always, Why don't you get us started? Okay, 694 00:38:26,640 --> 00:38:29,320 Speaker 1: I have one with that I chose with you in mind, 695 00:38:30,600 --> 00:38:32,920 Speaker 1: and I really hope you haven't seen it yet, so 696 00:38:32,960 --> 00:38:36,520 Speaker 1: it's a nice surprise. Okay. A Porsche dealership in China 697 00:38:38,280 --> 00:38:40,400 Speaker 1: has the ring bells. No, you haven't seen this? No? 698 00:38:40,719 --> 00:38:43,480 Speaker 1: And why a Porsche dealership in China made you think 699 00:38:43,520 --> 00:38:46,600 Speaker 1: of me? I I'm dying of Okay, listen, Okay, a 700 00:38:46,719 --> 00:38:49,800 Speaker 1: Porsche dealership in China they put up an online ad 701 00:38:49,920 --> 00:38:52,400 Speaker 1: for a I don't know this car, but maybe people 702 00:38:52,400 --> 00:38:56,280 Speaker 1: do Panamera, a Panama a type of Porsche, I guess, 703 00:38:57,960 --> 00:39:01,680 Speaker 1: but they accidentally put it up for eighteen thousand dollars 704 00:39:02,120 --> 00:39:04,840 Speaker 1: instead of the starting price of a hundred and forty 705 00:39:04,920 --> 00:39:07,880 Speaker 1: eight thousands. Oh my gosh, did they actually have to 706 00:39:07,920 --> 00:39:11,080 Speaker 1: sell any at that price? So I guess hundreds of 707 00:39:11,080 --> 00:39:13,759 Speaker 1: people immediately put in bids for it or try to 708 00:39:13,800 --> 00:39:18,120 Speaker 1: buy it or however this process works, and they had 709 00:39:18,120 --> 00:39:21,040 Speaker 1: to apologize and pulled the whole thing. But Porsche did 710 00:39:21,080 --> 00:39:22,960 Speaker 1: say that they got in touch with the very first 711 00:39:22,960 --> 00:39:27,320 Speaker 1: person who made the online reservation and they quote negotiated 712 00:39:27,440 --> 00:39:33,560 Speaker 1: an agreeable outcomes. Still, you can't even get a used 713 00:39:33,560 --> 00:39:38,239 Speaker 1: car for eighteen thousand. Used China's CPI would have gone 714 00:39:38,239 --> 00:39:41,120 Speaker 1: negative for the quarter. If that there's if there's sales 715 00:39:41,160 --> 00:39:44,560 Speaker 1: went through. That's pretty good. That's pretty good, thank you. 716 00:39:44,640 --> 00:39:48,319 Speaker 1: Although I still don't know how Porsche made you think 717 00:39:48,320 --> 00:39:51,759 Speaker 1: of me. I'm I'm like a Volkswagen Beetles because so 718 00:39:51,880 --> 00:39:57,439 Speaker 1: just the listeners, No, Mike has, Mike has four Porsches now, 719 00:39:57,480 --> 00:40:00,400 Speaker 1: because I knew you would like the you know posted 720 00:40:00,440 --> 00:40:05,080 Speaker 1: for eighteen was supposed to I like a good a 721 00:40:05,080 --> 00:40:08,040 Speaker 1: good fat finger train exactly, all right, that's a good one, 722 00:40:08,080 --> 00:40:10,080 Speaker 1: Bill Don I'll hand it to you, Jim. How about you. 723 00:40:10,080 --> 00:40:13,200 Speaker 1: You see anything crazy recently in markets? Well, you know, 724 00:40:13,440 --> 00:40:15,680 Speaker 1: I don't have anything to compete with a eighteen thousand 725 00:40:15,719 --> 00:40:18,759 Speaker 1: dollar Panama Porsche UM, which I wish I was the 726 00:40:18,800 --> 00:40:22,319 Speaker 1: first person to actually see that. UM. I would say 727 00:40:22,360 --> 00:40:25,680 Speaker 1: that the it's more of a it's more of a 728 00:40:25,800 --> 00:40:30,240 Speaker 1: change in um in sentiment and thought where the growth 729 00:40:30,280 --> 00:40:33,800 Speaker 1: sector was just so hated for so long. Nobody, anybody 730 00:40:33,800 --> 00:40:36,759 Speaker 1: that you spoke to, UM, you know, going back over 731 00:40:36,800 --> 00:40:39,840 Speaker 1: the past few weeks, I would say, you're you're crazy 732 00:40:40,040 --> 00:40:43,440 Speaker 1: if you think that. UM. You know, look at the NASDAC, 733 00:40:43,520 --> 00:40:45,479 Speaker 1: look at some of these high tech stocks and they're 734 00:40:45,560 --> 00:40:49,040 Speaker 1: laying people off and the earnings are terrible, and how 735 00:40:49,080 --> 00:40:52,279 Speaker 1: the earnings announcements have come down so much. But yet 736 00:40:52,920 --> 00:40:56,920 Speaker 1: you looking at the markets today, it's just bewildering, maybe 737 00:40:56,920 --> 00:40:59,560 Speaker 1: as much as, maybe not as bewildering as the eighteen 738 00:40:59,560 --> 00:41:03,359 Speaker 1: thousand dollars, but it's just it's to me, it's it's 739 00:41:03,360 --> 00:41:06,080 Speaker 1: in the same category of how in the world can 740 00:41:06,080 --> 00:41:09,160 Speaker 1: this be happening with all of this bad news that's 741 00:41:09,160 --> 00:41:11,640 Speaker 1: out there, so not not not as not as interesting, 742 00:41:12,160 --> 00:41:14,520 Speaker 1: but but but it's my it's where it's where my 743 00:41:14,560 --> 00:41:17,719 Speaker 1: mind went. Is that just a sort of a high 744 00:41:17,719 --> 00:41:21,080 Speaker 1: beata reaction to this sense that the FED is going 745 00:41:21,160 --> 00:41:23,240 Speaker 1: to cut this year? I mean, you know, I assume 746 00:41:23,320 --> 00:41:26,880 Speaker 1: the rate these people must be assuming lower rates to 747 00:41:26,920 --> 00:41:29,680 Speaker 1: be buying growth stocks like that, or is it just 748 00:41:30,040 --> 00:41:32,840 Speaker 1: January mean reversion? Maybe? You know. I think it's a 749 00:41:32,840 --> 00:41:34,799 Speaker 1: couple of things. And the thing I'll attribute it to 750 00:41:34,920 --> 00:41:37,120 Speaker 1: is that people have a lot of cash and they're underinvested. 751 00:41:37,440 --> 00:41:39,640 Speaker 1: And as I like to say, risk on is a 752 00:41:39,760 --> 00:41:43,040 Speaker 1: risk and if you're under invested in the market goes up, 753 00:41:43,480 --> 00:41:46,480 Speaker 1: you have a lot of explaining to do. So if so, 754 00:41:46,560 --> 00:41:48,560 Speaker 1: you end up chasing the things that went up the most, 755 00:41:48,800 --> 00:41:52,880 Speaker 1: and unfortunately, you know, or maybe fortunately, people are chasing 756 00:41:52,920 --> 00:41:56,240 Speaker 1: these you know, these higher flying high beata names, and 757 00:41:57,000 --> 00:41:59,480 Speaker 1: maybe we get silly levels at some point and it 758 00:41:59,520 --> 00:42:03,120 Speaker 1: doesn't end well, but who knows. Yep, yep, Now that 759 00:42:03,160 --> 00:42:07,560 Speaker 1: makes sense. Alright, Uh my turn, Viltano. Are you having 760 00:42:07,600 --> 00:42:11,040 Speaker 1: a Super Bowl party this year? No? Hell, I know 761 00:42:11,120 --> 00:42:12,840 Speaker 1: I'm going to have like a Super Bowl funeral. And 762 00:42:12,840 --> 00:42:18,960 Speaker 1: the Bills aren't playing Eagles. I am an Eagles fan, now, yeah, 763 00:42:19,000 --> 00:42:23,040 Speaker 1: I love the Eagles, flies, I have. I have an 764 00:42:23,080 --> 00:42:26,840 Speaker 1: Eagle's jersey, you know, so I wore last for the 765 00:42:26,920 --> 00:42:30,040 Speaker 1: last game and it brought it brought good luck. Yeah, 766 00:42:30,080 --> 00:42:32,399 Speaker 1: I keep wearing it then, Yeah I will, I will. 767 00:42:33,320 --> 00:42:37,120 Speaker 1: I'm not having one because that the a little too passionate, 768 00:42:37,239 --> 00:42:39,320 Speaker 1: you know, the potential for violence is too great to 769 00:42:39,840 --> 00:42:42,960 Speaker 1: have other uh other people around. But if you are 770 00:42:43,040 --> 00:42:45,919 Speaker 1: having one, USA today as a story, some good news. 771 00:42:46,000 --> 00:42:48,719 Speaker 1: Now Jim gets us to read his notes with good 772 00:42:48,800 --> 00:42:51,840 Speaker 1: led Zeppelin references. The other the other thing is strategist 773 00:42:51,880 --> 00:42:54,719 Speaker 1: can do is is somehow tied of football super Bowl 774 00:42:54,760 --> 00:42:59,600 Speaker 1: into their research so wells Fargo. They looked at inflation 775 00:43:00,080 --> 00:43:05,680 Speaker 1: on items popular at Super Bowl parties, um so. And 776 00:43:05,760 --> 00:43:08,040 Speaker 1: the good news is there that there there does seem 777 00:43:08,160 --> 00:43:12,279 Speaker 1: to be some disinflation, but not in everything. So I'm 778 00:43:12,280 --> 00:43:14,960 Speaker 1: gonna make you guys play the little game show here 779 00:43:15,040 --> 00:43:19,440 Speaker 1: the prices precise, and guess what has happened to prices 780 00:43:19,680 --> 00:43:24,520 Speaker 1: of avocados over the last year. Avocados obviously super important 781 00:43:24,640 --> 00:43:28,960 Speaker 1: for guacamole, and Jim, no pressure, I don't. I don't 782 00:43:29,000 --> 00:43:32,439 Speaker 1: really expect you to know what what avocado inflation has done. 783 00:43:33,120 --> 00:43:35,360 Speaker 1: But I'm still gonna make you play the prices precise, 784 00:43:35,640 --> 00:43:37,880 Speaker 1: and guess I'm gonna say they're up for rex. I'm 785 00:43:37,920 --> 00:43:40,560 Speaker 1: gonna say four x because I know, I know these 786 00:43:40,600 --> 00:43:43,560 Speaker 1: things have gone up crazy because I love avocados and blackamol. 787 00:43:43,640 --> 00:43:46,600 Speaker 1: You all is that close? And I'm going with the 788 00:43:46,719 --> 00:43:51,719 Speaker 1: under I think avocado prices are down. I bought six 789 00:43:51,800 --> 00:43:56,480 Speaker 1: avocados this week for four So I'm gonna go with yes. 790 00:43:56,880 --> 00:43:59,200 Speaker 1: Am I wrong? Oh my gosh, I'm wrong? Should I 791 00:43:59,280 --> 00:44:03,160 Speaker 1: redo my answer? I'm gonna say that prices went down? 792 00:44:03,680 --> 00:44:05,960 Speaker 1: You buy him six? Up? Pop? You that's a lot 793 00:44:06,040 --> 00:44:10,200 Speaker 1: of avocado toast. Well, I'm a millennial, that's true. That's 794 00:44:10,239 --> 00:44:15,120 Speaker 1: why you broke that. Millennials. Uh, actually I agree with 795 00:44:16,040 --> 00:44:19,360 Speaker 1: I was going to actually do they were, But I 796 00:44:19,440 --> 00:44:21,879 Speaker 1: think it's a little mean reversion there too, because they were. 797 00:44:22,400 --> 00:44:24,160 Speaker 1: They did go through the roof there for a while. 798 00:44:24,520 --> 00:44:29,319 Speaker 1: But more importantly, all right, you can get uh get 799 00:44:29,360 --> 00:44:33,560 Speaker 1: some vengeance here, Jim, restore your reputation here. Price of 800 00:44:33,640 --> 00:44:37,040 Speaker 1: beer and even more important ingredients for a Super Bowl party. 801 00:44:37,440 --> 00:44:40,800 Speaker 1: What do you think beer's done? Year over? Yere? You 802 00:44:40,840 --> 00:44:43,040 Speaker 1: go first? Oh, I go first to time? Okay, well, 803 00:44:43,120 --> 00:44:46,839 Speaker 1: obviously it's come up. Otherwise you wouldn't have chosen it. Um, 804 00:44:47,280 --> 00:44:51,080 Speaker 1: I'll go with up up ten, up between ten and 805 00:44:52,280 --> 00:44:55,000 Speaker 1: that's good. Uh, it's like psychology there. I don't know. 806 00:44:55,080 --> 00:44:57,560 Speaker 1: I'm not saying it's that was the right Maybe I 807 00:44:57,600 --> 00:45:01,040 Speaker 1: went reverse psychology. Jim, what you think Bear did in 808 00:45:01,120 --> 00:45:06,399 Speaker 1: the last year. I want to say, let's say, yeah, 809 00:45:06,520 --> 00:45:12,839 Speaker 1: I'm in that same category. So you guys are Yeah, 810 00:45:13,360 --> 00:45:16,280 Speaker 1: I was in the right ballpark, Jam, Eagles are Kansas 811 00:45:16,320 --> 00:45:20,000 Speaker 1: City and there's only one correct answer. Yeah, I know, 812 00:45:20,320 --> 00:45:24,160 Speaker 1: I know, so. Um so. Admittedly, being from Boston, my 813 00:45:24,440 --> 00:45:26,920 Speaker 1: team is a Patriots so so so they're out. But 814 00:45:27,040 --> 00:45:30,239 Speaker 1: that's okay. Um So, I think it's going to be 815 00:45:30,400 --> 00:45:32,719 Speaker 1: the Eagles that win. I think it's going to be 816 00:45:32,800 --> 00:45:36,800 Speaker 1: a really good game. But I kind of like to 817 00:45:36,840 --> 00:45:40,480 Speaker 1: see Kansas City. No, that's the wrong answer. That's the 818 00:45:40,560 --> 00:45:46,440 Speaker 1: wrong answer. I know. But this podcast I said too 819 00:45:46,560 --> 00:45:50,520 Speaker 1: late for that. Well, I I'm a little too emotionally invested. 820 00:45:50,560 --> 00:45:52,359 Speaker 1: I'm not going to make any predictions. I don't want 821 00:45:52,360 --> 00:45:55,680 Speaker 1: anything to drink anything. I hope both teams have have fun. 822 00:45:55,920 --> 00:45:58,880 Speaker 1: How about that? Oh my gosh, that's the most diplomatic 823 00:45:58,920 --> 00:46:01,719 Speaker 1: answer I've ever heard. I'll where my jersey all right, 824 00:46:01,840 --> 00:46:05,040 Speaker 1: do you wear your jersey? Jim Karen, such a pleasure 825 00:46:05,160 --> 00:46:06,920 Speaker 1: to pick your brain. I hope we can bring you 826 00:46:06,960 --> 00:46:09,719 Speaker 1: back sometime and do it all again. Absolutely had a 827 00:46:09,760 --> 00:46:21,080 Speaker 1: lot of fun with this. Thank you, Jim. What Goes Up. 828 00:46:21,120 --> 00:46:23,000 Speaker 1: We'll be back next week and so then you can 829 00:46:23,000 --> 00:46:25,759 Speaker 1: find us on the Bloomberg Terminal website and app or 830 00:46:25,960 --> 00:46:28,680 Speaker 1: wherever you get your podcasts. We love it if you 831 00:46:28,760 --> 00:46:30,719 Speaker 1: took the time to rate and review the show on 832 00:46:30,840 --> 00:46:34,080 Speaker 1: Apple Podcasts, so more listeners can find us. And you 833 00:46:34,120 --> 00:46:37,719 Speaker 1: can find us on Twitter, follow me at Reaganonymous. Well, 834 00:46:37,760 --> 00:46:40,680 Speaker 1: Donna Hirich is at bil Donna high Rich. You can 835 00:46:40,680 --> 00:46:45,279 Speaker 1: also follow Bloomberg Podcasts at podcasts. What Goes Up is 836 00:46:45,360 --> 00:46:48,600 Speaker 1: produced by Stacy Wong. Thanks for listening, See you next time. 837 00:47:04,239 --> 00:47:05,080 Speaker 1: The FO