WEBVTT - Richard Bernstein Talks Fed, Inflation & Trade

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>After four days of losses on the S and P

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<v Speaker 2>five hundred, Richard Bernstein if Bernstein advises, writing the FED

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<v Speaker 2>is caught between a rock and a hard place. GENIP

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<v Speaker 2>forecasts are being revised downward, but inflation expectations seeing poised

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<v Speaker 2>to accelerate. Richard joined us now for more, Richard, welcome

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<v Speaker 2>to the program. You put it in your note. Everyone's

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<v Speaker 2>got a plan, and so they get punched in the face.

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<v Speaker 2>That famous strategist on Wall Street, Mike Tyson, how strong

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<v Speaker 2>is that punch this morning?

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<v Speaker 3>I think the punch is a real It's not a jab,

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<v Speaker 3>it's a real roundhouse punch. And I think John, look,

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<v Speaker 3>you've been talking a lot about all the different uncertainties

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<v Speaker 3>and all the different things that are going on. That's fine,

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<v Speaker 3>but I think one also has to realize that we

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<v Speaker 3>entered the year with investors historically confident, so this has

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<v Speaker 3>a magnified effect on investors' confidence that they're being shaken.

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<v Speaker 3>So that was my point about that everybody has a

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<v Speaker 3>plan until they get punched in the mouth. Because everybody

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<v Speaker 3>had a plan, they thought it was easy. They thought

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<v Speaker 3>this was like, oh, you know, it's just buy an

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<v Speaker 3>index funder, let's buy the MAG seven. And all of

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<v Speaker 3>a sudden they're realizing that was the unusual period, and

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<v Speaker 3>now we're going back to something that's much more uncertain,

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<v Speaker 3>and they're getting punched in the mouth.

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<v Speaker 1>Richard Scott Best in Treasure Secretary speaking with Henry our

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<v Speaker 1>Own here and saying that this then is not necessarily

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<v Speaker 1>a MAGA problem, it's a MAG seven problem.

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<v Speaker 2>Do agree?

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<v Speaker 1>Is that basically what you're seeing right now is the

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<v Speaker 1>unwind of an overvaluation of a crowded trade at the

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<v Speaker 1>end of the last year beginning of this one.

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<v Speaker 3>Well, well, Lisa, I understand where he's going with that question.

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<v Speaker 3>But my response would be, why is the Russell two

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<v Speaker 3>thousand and performing so dramatically here if it were just

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<v Speaker 3>a MAG seven point? Why are the domestic the most

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<v Speaker 3>domestically focused companies in America smaller companies are underperforming? Right? So?

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<v Speaker 3>How is this just a large cap MAGA effect. It's

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<v Speaker 3>clearly not seven effects. Sorry, it's clearly not the You know,

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<v Speaker 3>I think this is a comment the markets are are

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<v Speaker 3>making a comment on the broad economy in the United States,

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<v Speaker 3>And you know, I think also the notion that this

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<v Speaker 3>is an orderly process. That's fine, I would agree with that,

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<v Speaker 3>but the process is not a positive one the markets.

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<v Speaker 3>You're not giving a positive verdict on that, And that's

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<v Speaker 3>kind of what I think people are still sort.

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<v Speaker 1>Of missing here, Richard. How do you navigate a situation

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<v Speaker 1>like this where the rules of the world may be

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<v Speaker 1>be called into question over a longer period of time

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<v Speaker 1>and acid allocation potentially could look very different if the

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<v Speaker 1>trends that we're seeing in markets today would hold. So

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<v Speaker 1>how are you thinking about not just short term investing

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<v Speaker 1>but the one year, two year, five years ahead?

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<v Speaker 2>Right?

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<v Speaker 3>So, so, Lisa, I think in the short term, you know,

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<v Speaker 3>you're using the word uncertainty. Everybody's using the word uncertainly.

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<v Speaker 3>I shouldn't personalize it like that. Everybody's using the word uncertainty.

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<v Speaker 3>That means is the scarcity in the marketplace is certainty.

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<v Speaker 3>That's what will command a premium through time is certainty.

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<v Speaker 3>What does that mean? That means quality, That means more

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<v Speaker 3>certain cash flows, it means dividends, it means near you know,

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<v Speaker 3>really kind of focusing on near term fundamentals as opposed

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<v Speaker 3>to long term growth stories. The second thing is, you know,

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<v Speaker 3>what do you do for three years, five years, ten years,

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<v Speaker 3>two years, whatever. And I think, look, the goal of

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<v Speaker 3>what's going on, of returning industrial processing back to the

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<v Speaker 3>United States and manufacturing back to the United States, I

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<v Speaker 3>think that's a that's a great goal. In fact, we've

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<v Speaker 3>been talking about it in my firm at Richard Bernsty

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<v Speaker 3>Advisors for ten years. I wrote an op ed in

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<v Speaker 3>twenty eleven in the Financial Times about this topic and

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<v Speaker 3>how important it was. This is. The goal is real. However,

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<v Speaker 3>the method that they're choosing to try and get to

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<v Speaker 3>that goal, what personal opinion here for a second, is

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<v Speaker 3>incredibly ham handed. There are many better ways to do

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<v Speaker 3>with that. Do not place attacks on the US consumer.

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<v Speaker 2>Richard. We heard from one ECP official earlier on this

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<v Speaker 2>morning that said there's no reason for a rate cut

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<v Speaker 2>right now. I think you refer to fifty basis point

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<v Speaker 2>kunts as ridiculous. Mary Daily, the San Francisco FED president,

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<v Speaker 2>putting out a post on LinkedIn saying we have the

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<v Speaker 2>time and space to deliberate our next moves. Lisa, that's

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<v Speaker 2>what's different about this moment. These officials are these central

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<v Speaker 2>banks aren't Russian to race in, Russian to step in

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<v Speaker 2>and provide support like maybe they would have done a

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<v Speaker 2>number of years ago, and.

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<v Speaker 1>For the correct reasons, which is this is a very

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<v Speaker 1>different type of crisis that is not of the credit

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<v Speaker 1>markets making. This is about policy uncertainty and the potential

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<v Speaker 1>stagflationary shock that comes along with inflation. If you take

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<v Speaker 1>a look at two year break even rates, they've actually

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<v Speaker 1>hit the highest level going back to two thousand and

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<v Speaker 1>two earlier this morning. It's shifting around incredibly volatile markets,

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<v Speaker 1>but the signal is not so clear in terms of

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<v Speaker 1>how they should act, let alone.

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<v Speaker 2>If Richard, are you thinking about where pockets are leverage

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<v Speaker 2>might be. This has been a really unusual cycle here

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<v Speaker 2>in the United States and worldwide because of the support

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<v Speaker 2>that was offered through the pandemic and through the recovery

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<v Speaker 2>as well. When you think about where pockets of leverage

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<v Speaker 2>might be this time around, how do you ask that question?

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<v Speaker 3>So, John, it's related to what you and Lisa were

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<v Speaker 3>just talking about. The FED was spoiled for many, many years,

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<v Speaker 3>decades two to two three decades by globalization. Globalization was

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<v Speaker 3>a massive disinflationary force on the US economy. Why because

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<v Speaker 3>we were just increasing competition and we all know when

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<v Speaker 3>you increase competition, you put downward persure on prices, so

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<v Speaker 3>the FED could play the hero and ride in on

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<v Speaker 3>the white horse and save the day. Now what we're

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<v Speaker 3>seeing is deglobalization. That whole disinflationary process is now being reversed.

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<v Speaker 3>So it's now an inflationary process that ties the Fed's hands,

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<v Speaker 3>and the FED can't play the hero anymore. And I

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<v Speaker 3>think that's one of the things that's happening. So where

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<v Speaker 3>is the pocket of leverage. I don't really know. You know,

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<v Speaker 3>one could argue that it's in the private market somewhere,

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<v Speaker 3>because I think that a lot of their returns have

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<v Speaker 3>been boosted by by leverage and the ability to borrow

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<v Speaker 3>cheaply to make acquisitions. Maybe that's where it is, you

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<v Speaker 3>know it certainly you know not going to be I

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<v Speaker 3>would argue it's unlikely to be in the big banks.

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<v Speaker 3>The big banks, for all the all the their whining

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<v Speaker 3>about over regulation, big bank balance sheets are pretty strong.

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<v Speaker 3>It looks like the regulation has worked. But where is

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<v Speaker 3>that leverage. It's in things like private debt and and

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<v Speaker 3>all of that. So the risk hasn't gone away, it's

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<v Speaker 3>just moved I think from the public markets. To the

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<v Speaker 3>private markets. It's an interesting monetary and fiscal question, is

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<v Speaker 3>that if there is some kind of problem in the

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<v Speaker 3>private markets, they're supposed to be private, will they come

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<v Speaker 3>to the rescue. I would think they'd be very hesitany

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<v Speaker 3>to do that.

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<v Speaker 1>The Treasury Secretary this morning is saying really nothing to

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<v Speaker 1>see here. I feel like I'm going to sound like Lisa,

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<v Speaker 1>but how do you think this bond auction is going

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<v Speaker 1>to go today? For the ten year?

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<v Speaker 3>Well, a little outside my area of expertise, I just

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<v Speaker 3>don't think. I think what we are seeing is a

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<v Speaker 3>complete repricing of US assets with a higher risk premium.

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<v Speaker 3>Right if you think about it, we've taken about five,

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<v Speaker 3>maybe six multiple points off the S and P despite

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<v Speaker 3>good earnings. We're seeing in a very short period of

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<v Speaker 3>time the ten years self off. But certainly bond volatility

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<v Speaker 3>has gone up. Whether whether you agree with my statement

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<v Speaker 3>about the risk creamer now, certainly bond volatility has gone up.

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<v Speaker 3>And I think what's happening is US assets are being repriced.

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<v Speaker 3>You know, you mentioned before about you know, or are

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<v Speaker 3>we a safe haven anymore?

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<v Speaker 2>Maybe not?

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<v Speaker 3>And that's kind of what we're seeing.

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<v Speaker 2>I spy the Tottenham emblem right behind you as well, Richard,

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<v Speaker 2>super depressing stuff for you. I appreciate the time as

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<v Speaker 2>Alway Rough rough season. Thank you, Sir. Richard Ferns stated

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<v Speaker 2>Richard Ferns stand advisist. Thank you very much