WEBVTT - Inflation, Israel, And Intel Job Cuts (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.280 at Bloomberg dot com slash podcast. Man Deep sings here. 0:00:22.360 --> 0:00:25.440 He's a senior analyst covers all things technology for Bloomberg Intelligence. 0:00:25.480 --> 0:00:27.360 And there's a lot to get to. Let's first go 0:00:27.440 --> 0:00:31.000 to Intel. I'm looking at I NTC Equity Go and 0:00:31.040 --> 0:00:33.360 then I hit the f A function for financial analysis. 0:00:33.600 --> 0:00:36.040 I got revenue going from seventy five billion last year 0:00:36.159 --> 0:00:39.560 to sixty five billion this year. I got free cash 0:00:39.600 --> 0:00:42.280 along going from ten billion last year to negative three 0:00:42.320 --> 0:00:45.400 point four billion this year. What's going on with Intel? 0:00:45.680 --> 0:00:49.080 I thought this was the steady eddie of all technology stocks. No, 0:00:49.280 --> 0:00:51.840 I mean, look at the management changes they've had over 0:00:51.880 --> 0:00:54.840 the years. They brought back Pat gould Singer, and the 0:00:54.920 --> 0:00:57.680 reason was Intel has been behind both in terms of 0:00:57.760 --> 0:01:01.319 chip manufacturing as well as chip designed. Remember there were 0:01:01.360 --> 0:01:06.360 the vertically integrated players. Moore's law was really all about law, 0:01:06.400 --> 0:01:09.560 which is like every something every year gets I mean 0:01:09.720 --> 0:01:13.040 basically the transit. You can pack more transistors in a 0:01:13.120 --> 0:01:16.960 chip because of Moore's law, and that Moore's law paces declining. 0:01:16.959 --> 0:01:19.720 But that should affect everyone. The problem with Intel is 0:01:20.000 --> 0:01:23.600 it's really trailed on the process, not technology, the geometries 0:01:23.640 --> 0:01:27.039 that enable more transistors to fit in that chip. And 0:01:27.080 --> 0:01:32.039 that's where t SMC has really hive on semiconductors. So 0:01:32.200 --> 0:01:36.600 Apple and Video, A, m D, all the fabless chip makers, 0:01:37.040 --> 0:01:39.920 they give their designs to t SMC. T SMC makes 0:01:39.959 --> 0:01:42.319 them and that is why they're doing so well in 0:01:42.400 --> 0:01:45.200 terms of market share. Until on the other hand, is 0:01:45.280 --> 0:01:49.200 losing its relevance in CPUs because of processed note as well. 0:01:49.240 --> 0:01:51.920 As you know the nature of computing is changing now 0:01:51.960 --> 0:01:54.680 we keep talking about more and more AI. AI is 0:01:54.760 --> 0:01:58.240 done is done not just using CPUs but also GPUs 0:01:58.320 --> 0:02:03.040 and other types of custom chips. So lots of job cuts. 0:02:03.160 --> 0:02:09.320 Who cuts jobs in Silicon Valley? Well, it's inevitable here everybody, Yes, everybody. 0:02:09.440 --> 0:02:11.720 I think you make a great point, Matt. You will 0:02:11.800 --> 0:02:14.720 see that with big tech across the board, and Intel 0:02:14.800 --> 0:02:19.160 more so, because clearly something is not working in terms 0:02:19.160 --> 0:02:21.880 of you know, their designs as well as manufacturing. And 0:02:21.880 --> 0:02:24.240 even though they bought a company Tower Semi, that was 0:02:24.240 --> 0:02:27.320 a recent acquisition to you know, scale up on the 0:02:27.320 --> 0:02:31.280 foundry side, I think they have a lot of inefficiencies 0:02:31.280 --> 0:02:33.760 in just how the companies run. So I wouldn't be 0:02:33.800 --> 0:02:36.959 surprised if you see ten to fifteen percent in fixed 0:02:36.960 --> 0:02:39.480 cost custs and we estimate that to be you know, 0:02:39.560 --> 0:02:42.720 around two to three billion just in cost. I think 0:02:42.880 --> 0:02:44.560 one of the things that's hard for us man deep 0:02:44.600 --> 0:02:48.880 wrap our heads around is over the last couple of years, um, 0:02:48.919 --> 0:02:53.400 no one could sell enough products to match demand because 0:02:53.400 --> 0:02:56.520 nobody had chips. And it didn't matter what segment you 0:02:56.520 --> 0:03:00.360 were in. If you're talking about cars, mobile phones, refrigeration, eiders, 0:03:00.800 --> 0:03:02.799 you didn't have enough chips, so you couldn't meet demand. 0:03:02.840 --> 0:03:06.119 Demand was so high and your uh, your your production 0:03:06.200 --> 0:03:09.239 was too low because you couldn't access these things. Now, 0:03:09.280 --> 0:03:13.600 this year I look at the Socks Philadelphia Semiconductor Index. 0:03:14.560 --> 0:03:17.280 These guys who were the most in demand product like 0:03:17.320 --> 0:03:19.720 in the world for last two years, every single one 0:03:19.760 --> 0:03:22.080 of them is down. There's not one of the thirty 0:03:22.520 --> 0:03:25.880 semiconductor manufacturers on the Philadelphia Index that's had a game 0:03:25.919 --> 0:03:30.160 for the year. Why, Well, because this is a cyclical sector. 0:03:30.320 --> 0:03:34.520 You you go and you know this time is no different. 0:03:34.720 --> 0:03:36.240 But it's like it turned on a dime. It was 0:03:36.280 --> 0:03:40.280 boom and then bands and that's where I think you 0:03:40.360 --> 0:03:44.120 have to go segment by segments. So Qualcom really is 0:03:44.160 --> 0:03:48.120 big on the mobile chips side. Apple does their own chips, 0:03:48.200 --> 0:03:51.800 but on the PC side it's Intel. On the AI 0:03:51.960 --> 0:03:55.600 side it's in video, and then m D to an 0:03:55.640 --> 0:03:58.640 extent as well. You know, they have diversified both on 0:03:58.680 --> 0:04:02.600 the server side as well as the client PCs and gaming. 0:04:02.720 --> 0:04:05.160 So clearly all of those names. Who I'm just saying, 0:04:05.160 --> 0:04:07.640 who are the winner? Intels down year to date, and 0:04:07.720 --> 0:04:09.800 videos down sixty one percent year to date, a m 0:04:09.880 --> 0:04:11.800 D is down sixty year to date. Who one are 0:04:11.800 --> 0:04:15.240 the winners here? Who's up? Well? Long term, you know 0:04:15.360 --> 0:04:18.440 there will be more demand for AI and machine learning, 0:04:18.440 --> 0:04:21.119 these kind of workloads, and that's why and videos still 0:04:21.160 --> 0:04:24.080 trades at a premium to a m D and everyone 0:04:24.120 --> 0:04:26.640 else in the group because they have the highest share 0:04:26.640 --> 0:04:29.240 over there. So if you go by that token, the 0:04:29.279 --> 0:04:32.160 market is already rewarding in video with a horror multiple. 0:04:32.480 --> 0:04:35.440 But clearly expectations are coming down because we are in 0:04:35.480 --> 0:04:38.200 that blood situation that I mentioned. Our former colleague on 0:04:38.400 --> 0:04:42.080 Entrini Bouston, he taught me, like they won when I 0:04:42.080 --> 0:04:44.280 was asking about Semis, this is a this is a 0:04:44.800 --> 0:04:48.200 this is not a place for you know, the pain 0:04:48.320 --> 0:04:51.000 of heart, because these things move big, and they move 0:04:51.040 --> 0:04:52.560 in these big cycles, and you've got to be in 0:04:52.560 --> 0:04:54.479 front of the cycle. You're gonna get crushed. Look at 0:04:54.560 --> 0:05:00.000 memory yep, you know, down just because of the blood situation. 0:05:00.000 --> 0:05:01.920 It's a commodity at the end of the day, all right, 0:05:02.040 --> 0:05:04.359 So real quick on Intel, finish up Intel. It's a 0:05:04.360 --> 0:05:06.480 big name, you know, a hundred billion dollar market cap. 0:05:06.520 --> 0:05:09.240 It's got a five point eight percent dividende. I like that, 0:05:10.240 --> 0:05:12.120 but that's is that at risk here when I look 0:05:12.160 --> 0:05:15.400 at a company with negative free cash flow? Absolutely, and 0:05:15.440 --> 0:05:18.760 I think the fact that they're talking about cutting costs, 0:05:18.800 --> 0:05:21.280 I mean and and obviously they were a beneficiary of 0:05:21.320 --> 0:05:24.560 the chip sacked. They are getting those government subsidies. If 0:05:24.600 --> 0:05:26.720 they continue with the dividend, I think there will be 0:05:26.880 --> 0:05:30.040 questions asked around why they are going out with such 0:05:30.040 --> 0:05:33.440 a big you know, uh cost cuts. So clearly I 0:05:33.480 --> 0:05:36.160 do expect, you know, given the negative free cash flow. 0:05:36.360 --> 0:05:38.599 And it's not as if you know, when Sammy's come back, 0:05:38.680 --> 0:05:41.880 which again, Sammy's a cyclical things will come back. But 0:05:41.960 --> 0:05:45.200 then Intel's problems are more than you know, the cyclical 0:05:45.320 --> 0:05:49.799 nature of this semi cycle that we are witnessing their position. Yes, 0:05:50.800 --> 0:05:53.719 so the dividend is at risk. I mean that's the 0:05:53.760 --> 0:05:59.040 scariest part. I mean, think about like original Silicon Valley companies. 0:05:59.200 --> 0:06:03.200 You think into else Santa Clara, California, UM, some of 0:06:03.240 --> 0:06:05.599 the you know in the garage kind of thing, but 0:06:05.839 --> 0:06:07.920 you know, as Mandeep suggests, you know, in the very 0:06:07.960 --> 0:06:13.520 beteen garage, a spotless garage with zero particles per million exactly. 0:06:13.960 --> 0:06:17.120 Sing Senior Annals covering technology for Bloomberg Intelligence, joining us 0:06:17.160 --> 0:06:20.400 Live and our Bloomberg Intelligence studio. He does not mail 0:06:20.440 --> 0:06:26.240 it in, he comes in. We appreciate that. Well, we 0:06:26.320 --> 0:06:30.800 got earnings kicking off in Earnest Friday when the banks 0:06:31.320 --> 0:06:32.960 kick us off here, and we'll have it for the 0:06:32.960 --> 0:06:34.600 next few weeks. But it really just feels like the 0:06:35.200 --> 0:06:37.160 this market is really focused on one thing and one 0:06:37.200 --> 0:06:39.320 thing only, and that is the photo reserve. How high 0:06:39.640 --> 0:06:42.680 will the FED take rates and how quickly will they 0:06:42.720 --> 0:06:45.240 do that. Let's have a little roundtable discussion on that. 0:06:45.279 --> 0:06:48.159 We bring in Vince Signarolla, global macro strategist with Bloomberg 0:06:48.160 --> 0:06:51.560 News and and along chief US economists with Bloomberg Economics, 0:06:51.600 --> 0:06:53.800 and let's start with you. You had and your economics 0:06:53.800 --> 0:06:55.640 team had a really bold call, I'm gonna say a 0:06:55.680 --> 0:06:57.120 couple of months ago, and you said that you think 0:06:57.160 --> 0:07:00.000 the Fed funds rate might go up to his high 0:07:00.200 --> 0:07:03.600 is five when I think the consensus is probably somewhere 0:07:03.600 --> 0:07:06.840 in a three three plus range. It kind of feels 0:07:06.880 --> 0:07:09.360 like you're on the right side of that trade. Here. 0:07:10.040 --> 0:07:12.680 What is your call about how high or how aggressive 0:07:12.680 --> 0:07:16.240 this Federal reserve will be? Right? So, Um, the reason 0:07:16.360 --> 0:07:19.560 why we thought the terminal rate would be five percent, 0:07:19.800 --> 0:07:23.320 so the Fed will have to rate raise rates to 0:07:23.520 --> 0:07:28.200 five percent around in late spring next year. The reason 0:07:28.320 --> 0:07:32.040 is because we think that the Fed is very concerned 0:07:32.080 --> 0:07:35.920 about a potential wage price spiral. Um. And in their 0:07:36.000 --> 0:07:40.720 reaction function there they are basically assuming a natural rate 0:07:40.760 --> 0:07:44.200 of unemployment or some people call it nehru uh to 0:07:44.200 --> 0:07:47.440 to be four point four percent rather than the you know, 0:07:47.560 --> 0:07:51.360 before the pandemic it's around four percent and and um, 0:07:51.480 --> 0:07:54.480 so if you make that assumption, then five percent would 0:07:54.480 --> 0:07:58.640 be the optimal monetary policy. So that's why we arrived 0:07:58.640 --> 0:08:01.200 at that number. And I do see risk that they 0:08:01.240 --> 0:08:04.920 could have they might have to go higher than that. Um, 0:08:04.960 --> 0:08:08.320 if the neighbor really is more more around the ballpark 0:08:08.320 --> 0:08:12.600 of five, as Larry Summers is suggesting. All right, Vince, 0:08:13.280 --> 0:08:18.120 you've had access to Anna's research for months. Where did 0:08:18.120 --> 0:08:21.080 you get it wrong? Where did I get it wrong? 0:08:21.080 --> 0:08:22.760 I don't think I got it wrong. Didn't you think 0:08:22.760 --> 0:08:25.000 the Fed was going to turn around and and start 0:08:25.080 --> 0:08:27.400 to cut? I mean, shouldn't we be at a point 0:08:27.400 --> 0:08:30.520 where they are done now? I think the Fed may 0:08:30.560 --> 0:08:32.520 have one more in them, but I think that that's 0:08:32.520 --> 0:08:34.880 about the last one they're going to have in them. Um, 0:08:35.040 --> 0:08:37.720 we're closing in on a potential recession. The numbers don't 0:08:37.720 --> 0:08:42.040 look good. Uh. Today's price PPI numbers were really mixed. 0:08:42.080 --> 0:08:46.240 And the market right now is actually trading off the 0:08:46.320 --> 0:08:49.520 yield of tenure guilts, not really trading off us inflation. 0:08:49.640 --> 0:08:52.960 When UK ten you're guilts at a two thousand eight high. Uh, 0:08:53.000 --> 0:08:55.400 this market tanks and I think people looked at that 0:08:55.440 --> 0:08:58.199 and thought, oh, well, we're reacting to the PPI numbers. 0:08:58.640 --> 0:09:02.160 That is not the case. Now we're see down in 0:09:02.240 --> 0:09:04.040 the S and P and the green and that's because 0:09:04.160 --> 0:09:06.400 UK ten, your guilts are off twelve basis points from 0:09:06.440 --> 0:09:10.080 their eves. It's it's about financial conditions and the risk 0:09:10.360 --> 0:09:12.920 that is what's wearing financial markets right now. And if 0:09:12.920 --> 0:09:14.880 the Fed wood raised to five percent, I think they 0:09:14.880 --> 0:09:19.280 would crush financial conditions and close an all out jailbreak 0:09:19.840 --> 0:09:22.120 on risk. And I don't see how they could would 0:09:22.200 --> 0:09:25.520 would be able to stay in higher rates in that scenario. 0:09:25.640 --> 0:09:28.160 I mean this this started with Balley. Frankly, what I 0:09:28.160 --> 0:09:32.160 would say were your responsible comments yesterday by basically saying 0:09:32.200 --> 0:09:35.360 to pension funds, you've got three days before we close 0:09:35.400 --> 0:09:38.680 the door on you. But they've known that for weeks. Yeah, 0:09:38.720 --> 0:09:41.360 But I mean, you know, the hope in these financial 0:09:41.400 --> 0:09:43.560 markets is that they will always give them more time 0:09:43.600 --> 0:09:46.240 if the situation persists. But you've got to have some spine, 0:09:46.360 --> 0:09:48.560 right as a central banker, You've got to have some backbone. 0:09:48.559 --> 0:09:51.080 You can't let the markets wag you around all day long. 0:09:51.160 --> 0:09:53.640 I mean, in the in the last fifteen years, when 0:09:53.679 --> 0:09:56.280 have they had it? No. I think that's the precisely 0:09:56.280 --> 0:09:59.720 what J Powell is trying to reinstate here. Um, they're 0:09:59.760 --> 0:10:02.560 gonna raise rates until they break inflation and break the 0:10:02.600 --> 0:10:04.719 idea that there's a FED put and if you're on 0:10:04.760 --> 0:10:07.240 the wrong side of that trade, it's gonna hurt. I 0:10:07.280 --> 0:10:09.040 think they're gonna break a lot of other things before 0:10:09.040 --> 0:10:12.000 they break inflation, very likely coming from it seems like 0:10:12.000 --> 0:10:15.480 they know that as well. That's that's part of the trade. Well, 0:10:15.760 --> 0:10:17.560 I don't see how that's a FED mandate that they 0:10:17.600 --> 0:10:20.440 need to break everything just to get inflation down where 0:10:20.880 --> 0:10:24.079 it's most of the inflation is food and energy, and 0:10:24.120 --> 0:10:26.000 it's out of their control. I don't see how razy 0:10:26.000 --> 0:10:28.400 weights is going to lower the price of gasoline or 0:10:28.520 --> 0:10:31.960 lower the price of groceries. I mean, what how you 0:10:32.000 --> 0:10:35.600 know Volker did the same thing and he's he's hailed 0:10:35.600 --> 0:10:39.440 as a hero these days. Completely completely. He broke a lot, 0:10:39.679 --> 0:10:42.040 went over, you know, the country went crazy. People were 0:10:42.040 --> 0:10:44.240 throwing bricks through the window the Federal Reserve. He still 0:10:44.280 --> 0:10:48.360 did it, and he won. This is not the seventies, 0:10:48.400 --> 0:10:51.120 trust me. Um. What led to the inflation of nineteen 0:10:51.200 --> 0:10:54.080 seventies was part Mr Burns. Every time, every time a 0:10:54.120 --> 0:10:56.880 component of the CPI would go up, he would remove 0:10:56.920 --> 0:10:59.000 it from the CPI, so the CPI number would re 0:10:59.040 --> 0:11:02.280 maintain it's I would argue that this is a difference 0:11:02.280 --> 0:11:06.280 between PC and CPR, when when Greenspan removed food and 0:11:06.360 --> 0:11:09.800 energy and by moving over the core PC instead of CPR, 0:11:09.920 --> 0:11:12.120 he did exactly the same thing. He took out the 0:11:12.400 --> 0:11:16.680 components that that are essentially what are driving inflation right now, 0:11:16.960 --> 0:11:18.719 and may things look to him for a long time 0:11:18.760 --> 0:11:21.960 today if they could so, Anna, Anna, do you share 0:11:21.960 --> 0:11:25.200 the concern that this FED may go too far? Well, 0:11:25.240 --> 0:11:27.520 you know, I'm actually on the side that I think 0:11:28.400 --> 0:11:32.240 Powell and and his colleagues might lose their nerves and 0:11:32.840 --> 0:11:37.320 could possibly decide to to cut late in three or 0:11:38.160 --> 0:11:40.839 four if the recession is deep. Keep in mind that 0:11:41.200 --> 0:11:46.360 during Bulker's era, Bulker did a change the monetary policy 0:11:46.520 --> 0:11:52.840 operation to allow um you know, instead of discretionary um 0:11:53.040 --> 0:11:56.760 UM FED funds right targeting, he moved to reserve targeting. 0:11:57.080 --> 0:12:01.280 So actually he took that really uh that that that 0:12:01.480 --> 0:12:05.120 that decision of raising rates to off his hand. It's 0:12:05.160 --> 0:12:08.200 not his doing, he can claim to the politicians and 0:12:08.679 --> 0:12:10.920 you know main stream back then, it's not not our 0:12:10.920 --> 0:12:14.640 fault because we we didn't raise it to this automatic, 0:12:14.840 --> 0:12:19.160 you know, algorithm working in the background, whereas today Powell 0:12:19.160 --> 0:12:22.040 has to make the decision whether they have to keep raising. 0:12:22.559 --> 0:12:25.079 And if you look at the dot plot in September, 0:12:25.160 --> 0:12:28.599 you can see that in four there's actually a dispersion 0:12:28.760 --> 0:12:32.000 of views among the f O m C members as 0:12:32.000 --> 0:12:34.960 to how much to cut so and and in their 0:12:35.000 --> 0:12:38.400 projections they only have unemployment rate at worse to you know, 0:12:38.520 --> 0:12:41.120 four point four to four point six percent. So I 0:12:41.160 --> 0:12:44.520 think that if unemployment rate turns out to rise to 0:12:44.679 --> 0:12:48.920 like five or five point five, they might lose their nerve. Okay, 0:12:49.120 --> 0:12:50.920 we'll have to see. It's a we'll see if they 0:12:50.920 --> 0:12:53.440 can keep their nerve. There, great stuff, great round table 0:12:53.720 --> 0:12:56.840 of Insignarella, global macro strategist with Bloomberg News and An Alan, 0:12:56.920 --> 0:13:03.120 chief US Economists with Bloomberg Economics. Matt, we've got a 0:13:03.120 --> 0:13:06.040 special guest in the student. Yes we saw, I saw 0:13:06.080 --> 0:13:08.760 you run over there. Yeah, into the TV studio and 0:13:08.760 --> 0:13:10.439 grab him and bring him in here for ray. Well, 0:13:10.640 --> 0:13:15.000 this guy you heard Chief market Economists UM or chief 0:13:15.000 --> 0:13:18.160 economists at banks. Gary Shilling was the first one. He 0:13:18.320 --> 0:13:25.560 started that. If I'm not incorrect, UM after what after Stanford? No, 0:13:25.720 --> 0:13:28.960 I I worked for Santral New Jersey first that was 0:13:29.280 --> 0:13:36.600 now uh standard, and then went to Merrill Lynch. Okay, so, 0:13:36.800 --> 0:13:40.880 but it was Merrill Lynch, Pierce Fenner and Smith. That's 0:13:41.080 --> 0:13:44.840 he did it back before? Is that right? Okay? Carling's 0:13:44.840 --> 0:13:47.559 first being and then Smith because wyn Smith was short 0:13:47.600 --> 0:13:51.280 of the modern farmer of the firm. In any case, Um, 0:13:51.480 --> 0:13:54.839 fast forward to the Great Financial Crisis, and you were 0:13:54.880 --> 0:13:56.880 one of the big bears, one of the few people, 0:13:57.720 --> 0:14:02.480 um warning as we were also sighted and buying five houses, 0:14:03.200 --> 0:14:06.520 fully levered up and I thought the prices would never 0:14:06.559 --> 0:14:08.559 go down. You were one of the few people warning 0:14:08.600 --> 0:14:12.079 of that. What do you think now as we are 0:14:13.520 --> 0:14:17.720 entering another crisis of sorts, right? I mean we had 0:14:17.760 --> 0:14:22.080 the pandemic, which was something completely different. Um, then we 0:14:22.600 --> 0:14:24.960 I guess spent printed and spent as much money as 0:14:24.960 --> 0:14:26.880 we could. And now we're going to pay the price 0:14:26.920 --> 0:14:29.080 for that. We're gonna get the hangover for that party 0:14:29.120 --> 0:14:32.120 that we had. Right. Well, we we don't have anything 0:14:32.680 --> 0:14:37.600 huge like the dot com uh nonsense of the late 0:14:37.640 --> 0:14:40.920 of the late uh the unities early two thousand's, and 0:14:40.960 --> 0:14:43.400 we're certainly in housing. You know, we've had a bubble 0:14:43.400 --> 0:14:46.520 and housing you've had the flight from city apartments to 0:14:46.600 --> 0:14:50.160 the suburbs, rural areas with a pandemic, and a big 0:14:50.240 --> 0:14:53.600 run in single family housing. But it's it just doesn't 0:14:53.640 --> 0:14:57.840 compare with the with the subprime mortgage nonsense that we 0:14:57.920 --> 0:15:01.480 saw a decade ago. So but it's it's more a 0:15:01.480 --> 0:15:03.320 little of this, a little of that. And again I 0:15:03.360 --> 0:15:07.160 think that I think the overall arching theme is there's 0:15:07.200 --> 0:15:10.720 just been too much money in the economy pumped out 0:15:10.880 --> 0:15:15.600 by the UH Congress administration in response to the pandemic, 0:15:15.920 --> 0:15:18.480 and then of course the FED just I mean, you know, 0:15:18.480 --> 0:15:21.800 there are assets went from from four billion to nine 0:15:21.840 --> 0:15:25.000 billion in a matter of five years, I mean traillion. 0:15:28.000 --> 0:15:31.040 It's unbelievable. And of course what the problem now is 0:15:31.360 --> 0:15:34.640 the FED is embarked on the on the mission to 0:15:34.760 --> 0:15:36.800 get rid of that liquidity. Now, how much they're going 0:15:36.840 --> 0:15:41.280 to get rid of Uh, they're taking Their target is 0:15:42.600 --> 0:15:44.560 a month, but just add that up and see how 0:15:44.560 --> 0:15:46.600 many years they were taking it to even go to 0:15:46.680 --> 0:15:50.360 trillion back it's uh, it's what do you think? And 0:15:50.240 --> 0:15:52.040 and it wasn't even five years by the way I'm 0:15:52.080 --> 0:15:54.560 looking at If you type FED val so f E 0:15:54.680 --> 0:15:57.000 D space B A l go on the Bloomberg terminal, 0:15:57.040 --> 0:15:58.840 you can see the one I learned their balance sheet. 0:15:59.080 --> 0:16:05.120 We went from UH in two years three point six trillion, 0:16:05.440 --> 0:16:15.320 let's say two eight point five trillion, so in two years, um, 0:16:15.400 --> 0:16:18.680 So what is the FED now? It seems that Powell 0:16:18.840 --> 0:16:21.240 is intent and we were just talking about this within 0:16:21.360 --> 0:16:26.080 Signarella and along, intent on raising rates until he breaks 0:16:26.160 --> 0:16:29.160 inflation and doesn't care what else he breaks. Is that 0:16:29.200 --> 0:16:31.800 the right interpretation. The one thing he doesn't want to 0:16:31.840 --> 0:16:36.520 break has already bent is FED credibility. I think that's 0:16:36.560 --> 0:16:40.480 the whole, the whole secret to the FED action. They 0:16:40.480 --> 0:16:43.840 were behind the curve. They clearly did not recognize that 0:16:43.920 --> 0:16:48.240 inflation was more than just supply chain disruptions reopening the 0:16:48.280 --> 0:16:54.800 economy very ephemeral UH features and so they they really 0:16:54.800 --> 0:16:58.640 are playing catch up. And and you know, Paul Is, 0:16:58.720 --> 0:17:01.120 he's made it clear he's he's an effect said we're 0:17:01.120 --> 0:17:03.880 going to do this recession or no recession. And of 0:17:03.880 --> 0:17:07.439 course he's also fighting the string of puts, the Greens 0:17:07.480 --> 0:17:12.680 fan put, the Bernankee put, the yelling put, and everybody 0:17:12.720 --> 0:17:14.240 thought there was going to be a pole put, you know, 0:17:14.520 --> 0:17:17.320 was the FED would bail out Wall Street and so 0:17:17.400 --> 0:17:20.080 he has he was really behind the behind the a 0:17:20.200 --> 0:17:23.480 brill there and and uh, I think it's as they say, 0:17:23.680 --> 0:17:28.119 the FED normally, uh turns towards ease even before the 0:17:28.119 --> 0:17:29.840 peak in business. They never know where the peak in 0:17:29.880 --> 0:17:33.040 business is until National Bureau Economic Research says so, and 0:17:33.119 --> 0:17:36.000 that a year later, and that's you know, and when 0:17:36.040 --> 0:17:37.600 you find out it's about those hand as a pocket 0:17:37.640 --> 0:17:39.640 in your underwear because it's three or four quarters later. 0:17:40.000 --> 0:17:43.120 But their point is, Uh, the FED, when they see 0:17:43.160 --> 0:17:46.520 that they've done the dirty deed and precipitated recession, they 0:17:46.520 --> 0:17:49.200 ease off. This time. I think they're going to continue. 0:17:49.760 --> 0:17:51.919 We and we probably are already in the recession, but 0:17:51.960 --> 0:17:55.000 I think they're going to continue. And they really want 0:17:55.080 --> 0:17:59.200 to see confirmation that inflation is down and that their 0:17:59.240 --> 0:18:03.160 credibility is re established. And you know, I think there's 0:18:03.200 --> 0:18:07.520 still a lot of of question is whether Fed and 0:18:07.600 --> 0:18:10.880 the and the and whether Paul and the Fed half 0:18:10.920 --> 0:18:14.200 teeth right. So I mean we're speaking with Gary Shilling, 0:18:14.200 --> 0:18:18.560 President a Gary Shilling and Company. Gary, how about the consumer? 0:18:18.640 --> 0:18:22.240 It seems like the consumers still hanging in there, buying stuff, 0:18:22.280 --> 0:18:26.399 going on trips. You know, it doesn't feel like the 0:18:26.440 --> 0:18:32.240 consumers really uh Bloomberg column a few weeks ago, pointing 0:18:32.240 --> 0:18:36.960 out that it's the real economy declining. The nominal economy 0:18:37.040 --> 0:18:40.200 isn't well when you get eight point three rear inflation, 0:18:40.840 --> 0:18:45.880 you know, if if that that that's on top, that's 0:18:45.880 --> 0:18:48.639 the that's the veil of inflation. And this is what 0:18:48.720 --> 0:18:51.760 we had in the late sixties and nineteen seventies. Uh. 0:18:51.800 --> 0:18:55.680 You know, I can remember back then, Uh the uh, 0:18:55.880 --> 0:19:00.920 the gal Jones industrials were skirting back and forth around 0:19:00.960 --> 0:19:05.800 a thousand for uh for ten years in real terms, 0:19:05.840 --> 0:19:11.160 in real terms, it declined. It declined seventy percent. Yeah, 0:19:11.400 --> 0:19:13.359 And it's the same thing here. And I think I 0:19:13.400 --> 0:19:16.240 think the media is And that's why I wrote that 0:19:16.320 --> 0:19:18.800 column when we're calum because I think the media is 0:19:19.440 --> 0:19:22.720 very off base and not realizing that the real economy 0:19:22.800 --> 0:19:26.840 is real. Real retail sales are down, real hourly wages 0:19:26.840 --> 0:19:29.920 are down. Uh and and and you know the consumer 0:19:30.160 --> 0:19:33.280 is is really retrenching and there and the consumer doesn't 0:19:33.280 --> 0:19:34.719 have a lot of spending power a lot. I mean 0:19:34.840 --> 0:19:37.920 maybe that's what is driving the Fed here. Got to 0:19:38.000 --> 0:19:41.000 get that inflation down. Well oh yeah, oh yeah, oh yeah, 0:19:41.040 --> 0:19:43.200 they've got the bit. They've gotten their bit and their teeth. 0:19:43.240 --> 0:19:45.240 But you know, you look at the consumer and they 0:19:45.400 --> 0:19:48.359 they've spent a lot of that of that, uh the 0:19:48.480 --> 0:19:54.520 money they got from uh pandemic, uh stimulus and where 0:19:54.520 --> 0:19:57.840 else where what else they got? Housing? House prices are declining, 0:19:57.920 --> 0:20:02.359 stocks stocks are collapsing, So people really don't have the money, 0:20:02.359 --> 0:20:04.400 you know. Obviously the guys on the top are okay, 0:20:04.400 --> 0:20:07.480 but the rest are are are in trouble. And so 0:20:07.880 --> 0:20:10.800 we're gonna we're gonna see further declines in real spending. 0:20:10.880 --> 0:20:13.359 In all likelihood, no more money, But we got honey. 0:20:13.440 --> 0:20:16.040 When's the next batch coming out? Garry is also the 0:20:16.119 --> 0:20:19.560 probably the most famous apiarist on Wall Street, Is that right? Okay? Yeah? 0:20:19.600 --> 0:20:22.440 You keep bees in I think two different places, right yeah. Well, 0:20:22.440 --> 0:20:25.640 I've got some out on Fire Island, Beach House, most 0:20:25.640 --> 0:20:28.040 of them in New Jersey, a couple of locations. But 0:20:28.200 --> 0:20:30.840 I gotta tell you, this is the worst year for 0:20:31.040 --> 0:20:34.520 honey I've ever had. We normally, we normally take off 0:20:35.160 --> 0:20:37.399 three or four thousand of those one pound jars that 0:20:37.440 --> 0:20:40.240 we hand around you guys, and this year we got 0:20:40.280 --> 0:20:46.320 si wow, WHOA, Well, we'll have to I'm glad. I 0:20:46.359 --> 0:20:49.679 don't try to make my living in agriculture. All right, Gary, 0:20:49.720 --> 0:20:51.879 thank you so much for joining Gary Shilling. He's president 0:20:51.960 --> 0:20:54.679 of a Gary Shilling and Company. Joining us live in 0:20:54.680 --> 0:20:58.199 his Bloomberg Interactive Broker's studio because Matt Miller went and 0:20:58.240 --> 0:21:00.240 grabbed him from the television studio. I'm going is that 0:21:03.840 --> 0:21:05.760 I want to get right to our next guest, Matt Winkler. 0:21:05.760 --> 0:21:09.520 He's the editor in chief emeritus founder of Bloomberg News. 0:21:09.960 --> 0:21:12.360 He's usually in our Bloomberg and Actor Brooker studio, best 0:21:12.400 --> 0:21:15.560 in our San Francisco Bureau, which is a phenomenal office 0:21:15.600 --> 0:21:18.840 by the way, right on the wharf. They're overlooking the 0:21:18.840 --> 0:21:21.000 Bay Bridge. Good stuff there. Who knows what kind of 0:21:21.240 --> 0:21:23.040 trouble he's getting into, Matt. I hope he's going to 0:21:23.080 --> 0:21:27.880 Humphrey Slocum, No Hill, No Humphrey Slocum. That's the ice 0:21:27.920 --> 0:21:30.480 cream place that's near the office. And I'm gonna say, 0:21:30.640 --> 0:21:33.040 if you get a chance, stop by there and order 0:21:33.119 --> 0:21:36.160 a scoop of secret breakfast ice cream. Okay, so there's 0:21:36.200 --> 0:21:38.919 actually he needs to go to Taddich Grill. That is 0:21:38.920 --> 0:21:41.240 the oldest restaurant in San Francisco. It is awesome and 0:21:41.240 --> 0:21:43.760 I think it's right up. Matt's Ali, Matt, You've got 0:21:43.760 --> 0:21:48.320 a great column out today about Israel. Ignore Israel politics. 0:21:48.960 --> 0:21:52.399 It's economy is thriving. When I think Israel economy, I 0:21:52.400 --> 0:21:55.199 think technology. What's what's driving Israel these days? Well, you 0:21:55.320 --> 0:21:57.639 just nailed it. It's great to be with you, and 0:21:58.920 --> 0:22:02.880 it is technology. And and essentially what happened is during 0:22:02.920 --> 0:22:07.679 the past decade, corporate Israel, if you like which is 0:22:07.840 --> 0:22:13.439 you know more than six companies, was transformed to something 0:22:13.520 --> 0:22:16.879 much more diverse. And the diversity is really what's driving 0:22:16.920 --> 0:22:21.520 the economy. Where Israel ten years ago was mostly you know, 0:22:21.640 --> 0:22:25.240 if you like pharmaceutical Tiva is obviously the name comes 0:22:25.240 --> 0:22:29.920