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Speaker 1: Welcome to the Bloomberg surveillance podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you

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Speaker 1: insight from the best and economics, finance, investment and international relations.

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Speaker 1: Find Bloomberg surveillance on Apple podcast, Suncloud, Bloomberg Dot Com and,

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Speaker 1: of course, on the Bloomberg terminal. Kathy changes hits away

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Speaker 1: and she's not Kathy staying with us that way. I'm

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Speaker 1: not coming to you on that, Kathy. We all want

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Speaker 1: to know. A ten year, three, three fifty, a two

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Speaker 1: year approaching four, Kathy, these big buys. Either one of

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Speaker 1: them for you. Well, we like extending duration here. I

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Speaker 1: think it's unsustainable to have the Fed hiking rates at

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Speaker 1: a very rapid rate, doing qt with, you know, the

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Speaker 1: economy slowing. We've had six months of declining ALII, which

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Speaker 1: the housing market decline. Uh. These are unsustainable trends. At

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Speaker 1: some stage of the game the FAD will have to

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Speaker 1: shift and or, you know, we're just going to go

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Speaker 1: into a deeper recession than we may already be in.

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Speaker 1: And so we do like expanding duration. Albeit yeah, rates

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Speaker 1: could continue to move up, but I think all we're

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Speaker 1: getting is a deeper and deeper in version of the

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Speaker 1: ill curve here. And, Kathy, this cold and extended duration

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Speaker 1: ultimately has to be a call on economy rolling over.

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Speaker 1: Do you have an idea of the pain threshold the

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Speaker 1: Fed is willing to go through? Well, I did mention

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Speaker 1: pain for households and businesses last time and I think

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Speaker 1: there's a willingness to let it continue and and worsen,

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Speaker 1: particularly Um. I think the Fed wants to see unemployment rise.

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Speaker 1: They won't say that out loud, but I think they

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Speaker 1: want to see Um Labor conditions not as tight as

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Speaker 1: the way that they'll put it, and they want to

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Speaker 1: see wages slow down. Right now, average hour learning is

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Speaker 1: running at five point two percent a year over year.

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Speaker 1: It's leveled off, it's stabilized, but we haven't seen it

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Speaker 1: decline and I think their comfort zone is closer to

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Speaker 1: three percent in terms of wage gains than five percent.

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Speaker 1: So that is probably what you know. They're willing to tolerate. Um.

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Speaker 1: The question is whether you know whether risk assets can

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Speaker 1: tolerate that sort of pain. Cathy, do care about the

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Speaker 1: DUB plot? Well, we have to write because I put

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Speaker 1: it out there, UM, but it's a moving target. I

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Speaker 1: just look at it as a moment in time. Guesses.

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Speaker 1: I'm not going to take it too seriously. I think

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Speaker 1: it's a messaging tool. Um, simply the FAD will show

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Speaker 1: that they want of hype grades and keep them there

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Speaker 1: for a long time. But it's a moving target. Kathy,

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Speaker 1: I asked this because there's a question about the credibility

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Speaker 1: of this Fedu reserve, the credibility that they're actually coming

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Speaker 1: up with a thesis that they can follow through on,

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Speaker 1: versus just following the market and doing what the market

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Speaker 1: is dictated day. How much has that shifted your view

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Speaker 1: of how to operate and how much volatility is going

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Speaker 1: to be injected in these markets at a time when

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Speaker 1: the feed is not leading anymore, it is apparently following

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Speaker 1: much more with the markets already doing. Yeah, I think

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Speaker 1: the fat is in a position now actually following the

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Speaker 1: inflation data, and we know the inflations are lagging indicator.

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Speaker 1: We know that monetary policy works with the leg and

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Speaker 1: so they've shifted instead of saying, Hey, we're on top

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Speaker 1: of this, you know, we're we're taking action, we've got

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Speaker 1: qt on top of a rapid tightening cycle. Um, they

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Speaker 1: shifted instead of saying, okay, we know that what we're

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Speaker 1: doing will make progress in the future, to reacting to

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Speaker 1: numbers that are coming out today, and that's why the

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Speaker 1: risk is for a deeper and deeper slowdown in the economy,

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Speaker 1: and this is compounded globally. You know, we're seeing this

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Speaker 1: all over the world and that that makes it even

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Speaker 1: more of a problem for people who are trying to

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Speaker 1: look forward and look at what the is saying versus

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Speaker 1: what the fet is doing. How much conviction do you have, Kathy?

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Speaker 1: You are saying it is a good time to go

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Speaker 1: into duration, and how much conviction do you have that?

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Speaker 1: We've seen the highs were at some of the higher

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Speaker 1: levels for longer term treasuries at a time when you're

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Speaker 1: questioning whether or not we're actually already in a recession,

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Speaker 1: let alone headed for one? You know, we feel pretty

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Speaker 1: confident in moving out the curb. We're not all in buying,

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Speaker 1: you know, thirty year bonds or ten year bonds here,

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Speaker 1: but we do think that it's unsustainable. We're starting to

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Speaker 1: see credit spreads widen't a bit, the straints in the economy,

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Speaker 1: the strains in the marketplace. Liquidity isn't what it used

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Speaker 1: to be, and so you feel pretty confident that this

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Speaker 1: is the time to start taking advantage of yields where

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Speaker 1: you can lock in, you know, an investment grade portfolio

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Speaker 1: right now. You can lock at fortified percent yields without

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Speaker 1: taking a tremendous amount of duration risk. We think that

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Speaker 1: that's a good alternative compared to some of the other

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Speaker 1: asset classes out there. Kathy, thank you. They're putting in

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Speaker 1: Kathy John's a child swap on the bond market. Christopher Ryan,

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Speaker 1: partner had a technical mat try strategistic to take us

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Speaker 1: some bad company. Great Co Chris. I mean, we're so

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Speaker 1: close three. I think we came even closer than that.

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Speaker 1: When next, I guess? And just the B L J blank. Well,

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Speaker 1: I think they have to. I mean when you look

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Speaker 1: at yields around the world, US tends, as we mentioned,

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Speaker 1: our three fifty three. This morning German tens are basically

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Speaker 1: two percent. We've seen UK tens absolutely run away and

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Speaker 1: we sit here and Japanese tenure yields are Bass points.

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Speaker 1: I'm just not sure how much longer the B O

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Speaker 1: j can sustain this cap on yield without losing total

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Speaker 1: control of the end. So we like dollar yen higher until, frankly,

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Speaker 1: someone breaks, and I think that's the B O j.

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Speaker 1: So whether that's one fifty or one fifty five or

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Speaker 1: some other level, Um, I think we're on a collision

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Speaker 1: course here that ends with B o j capitulating, raising

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Speaker 1: the cap on yields to get more in step with

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Speaker 1: what we're seeing a around the world. And Chris, if

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Speaker 1: you've thought much about how the dominoes fall from that,

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Speaker 1: if that headline drop that they stepped away from your control,

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Speaker 1: what it makes for Buns, what it makes to try

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Speaker 1: to race? I mean I think the initial reaction is

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Speaker 1: maybe you then you get your blow off in yield.

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Speaker 1: But our experience just has been, I think the historical

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Speaker 1: experience has been, bond yields tend to go up until

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Speaker 1: something breaks, and that's why I just don't think that

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Speaker 1: we're done here yet on yields. Our view on yields

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Speaker 1: has simply been they're going to remain stickier and higher

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Speaker 1: than the consensus believes until there's an accident, and I'm

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Speaker 1: not convinced we've quite seen that accident yet. And the

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Speaker 1: accident comes with longer term yields rising in addition to

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Speaker 1: short term yields. Possibly what you're talking about with the

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Speaker 1: yield curve control being abandoned in the bank Japan and

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Speaker 1: the ripple effects through the rest of the world. What

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Speaker 1: kind of downside are you looking at? How do you

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Speaker 1: sort of hedge against that scenario at a time when

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Speaker 1: it could take a lot longer than people could afford

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Speaker 1: to keep that position on? Well, I think it just

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Speaker 1: speaks to our overall positioning here, which is placed ball,

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Speaker 1: go slow, be prudent. Caution is still the word of

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Speaker 1: the day and you know, where you really see, at

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Speaker 1: least the impact of yields is on what the leadership

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Speaker 1: framework of this market looks like. You have yields up

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Speaker 1: and utilities continue to dominate. So I look at that

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Speaker 1: as a very lead cycle message. You know, when you

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Speaker 1: look at the top of the market, the big stocks,

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Speaker 1: the big weights, the one everyone owns right, a lot

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Speaker 1: of those are already below where they were in June,

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Speaker 1: whether it's Google or whether it's Microsoft. So you know,

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Speaker 1: you see the impact of yields continuing to hit Tech

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Speaker 1: Um and I think that's going to remain the story

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Speaker 1: until yields peak, which I just don't think's here. So

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Speaker 1: when you look out to what's going to happen in

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Speaker 1: the next couple of months. What I'm wrapping my head

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Speaker 1: around is what's the downside here, right? I mean an accident?

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Speaker 1: How does that ripple through a market when people are

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Speaker 1: saying there isn't the same kind of leverage, you're not

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Speaker 1: seeing the fragility in banks. You have a much more

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Speaker 1: stable base of consumers and their savings and corporate savings.

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Speaker 1: So that's the reason why you have this bid, you

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Speaker 1: have this range. What's going to break that? Will anything

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Speaker 1: or is that so going to be the reality? You know,

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Speaker 1: I think that's unclear. The narrative or the consensus is

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Speaker 1: that there's no ice to banks or that consumers are

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Speaker 1: in better shape than we've seen. But I'm gonna let

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Speaker 1: the market be the judge of that. When I look

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Speaker 1: kind of a different pockets around the world, I could

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Speaker 1: show you plenty of weak consumer stocks that would suggest,

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Speaker 1: Um that the market might have a very different opinion

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Speaker 1: of that. Are Plenty of weak bank stocks that would

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Speaker 1: suggest the market has a different opinion to that. So

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Speaker 1: we let the market kind of dictate that. What I

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Speaker 1: think is most important for investors is, you know, the

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Speaker 1: debate on the street is okay, SMP gonna, you know,

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Speaker 1: revisit or retest or undercut the Jew lows. And the

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Speaker 1: only thing I would add to that conversation is a

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Speaker 1: lot of important stocks already have right when we talk

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Speaker 1: about the top of the market, Microsoft has, Google has

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Speaker 1: Um Meta is back to where it was at the

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Speaker 1: covid loans right. So kind of go down the line

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Speaker 1: and a lot of big names, a lot of big

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Speaker 1: weights have already, I think, started to reflect that risk.

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Speaker 1: Chris lost decades on, unheard of. You can have much

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Speaker 1: thought to that. That's so recently. When it comes to

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Speaker 1: the UITY market, it's it's funny that that you mentioned that, Jonathan.

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Speaker 1: Earlier in the year we wrote something to the effect of,

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Speaker 1: you know, the most provocative thing we could say is

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Speaker 1: not that the SMP is going to go a ton lower,

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Speaker 1: because I think everyone was pretty bearish, but that the

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Speaker 1: SMP is not going to make much progress for a

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Speaker 1: long period of time. And that's a view that that

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Speaker 1: that that we've kind of embraced here as you kind

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Speaker 1: of make this transition from que e to qt. I

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Speaker 1: think at a minimum, when you look at the very

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Speaker 1: liquidity sensitive assets out there, new I P O, s, bitcoin,

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Speaker 1: high multiple software stocks. I think those things are done

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Speaker 1: as your leadership. For a very, very long time that's

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Speaker 1: been our view that remains our view. So I think

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Speaker 1: when you look at those, uh, you know, very speculative

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Speaker 1: corners of the market, they are saying, even if the

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Speaker 1: SMP loads are in here, there is no new liquidity

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Speaker 1: cycle in front of us. The reason I bring this up,

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Speaker 1: and I imagine it's the reason you're thinking about it too,

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Speaker 1: is that we've just blown up a decade of Quei

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Speaker 1: forever and serve and I just struggle, Chris, and we're

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Speaker 1: living this in real time. I just struggle to understand

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Speaker 1: why twelve months of race and interest rates in turn

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Speaker 1: a bit of cute and then we go back to

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Speaker 1: where we were before. These are big moves. It's not

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Speaker 1: just the Fed, it seems to be pretty much everyone,

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Speaker 1: with the exception of, say, the B O J. I mean,

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Speaker 1: why would it take just twelve months to reverse ten

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Speaker 1: years of that? And then the consequences are, oh yeah,

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Speaker 1: we just got back to the old playbook in about

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Speaker 1: six nages. I'm with you, I think, to kind of

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Speaker 1: maybe use a little bit of a cliche this, this

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Speaker 1: does look and feel like regime change, and I think

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Speaker 1: that the one chart of the one exhument that speaks

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Speaker 1: to that, it's on the Bloomberg terminal, is that dollar

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Speaker 1: value of negative yielding debt. You know, we went from

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Speaker 1: eighteen trillion dollars of negative building debt as recently as

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Speaker 1: a year ago. It's down to about one trillion dollars today.

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Speaker 1: So if you're looking for regime change, I think there's

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Speaker 1: no better exhibit of it than that. Is this a

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Speaker 1: resume change when it comes to nominal yield or is

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Speaker 1: this a regime change when it comes to real yields?

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Speaker 1: Are we going to see real yields continue to climb

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Speaker 1: as people price in a very different response from central banks? Well,

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Speaker 1: it's both. And I think the thing about real yields

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Speaker 1: right it's it's it's Um it's somewhat fashionable to say

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Speaker 1: that that that really yields are positive or that, you know,

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Speaker 1: really yield are above one percent, but not not really.

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Speaker 1: I mean the Fed funds rate is still well below

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Speaker 1: the rate of inflation. So in kind of in any

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Speaker 1: practical sense for savers, really ills are not positive here yet.

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Speaker 1: So I think ultimately, as we've seen in every single

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Speaker 1: cycle going back the last fifty years, the Fed funds

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Speaker 1: rate will overcome the rate of inflation. That's when the

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Speaker 1: Fed has done enough, and I think there's certainly time

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Speaker 1: before we get there. Lisa, are people position for what

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Speaker 1: you're expecting, Chris, this sort of accident or something breaking? No,

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Speaker 1: I think you know. When you look at what positioning

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Speaker 1: looks like, there is a decade of residual positioning at

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Speaker 1: the top of the market, the big weights that have

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Speaker 1: been so reliable for so long and kind of our

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Speaker 1: viuew is again. Whether it's market up or market down,

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Speaker 1: that's actually less important. What's more important here is this

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Speaker 1: massive leadership change that we've seen. I'm very reminded of

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Speaker 1: in two thousand two, when the NASDACK bottomed in October.

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Speaker 1: Bow Two right in bottomed with everything in October vow two.

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Speaker 1: It continued to underperform for the next four years. So

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Speaker 1: your price low in NASDAC, I don't think, will be

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Speaker 1: your price low in relative performance. That is the big

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Speaker 1: takeaway from us. The leadership picture has changed dramatically here. Interesting. Hi, Chris,

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Speaker 1: great cold on the end, buddy, and I'm sorry for,

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Speaker 1: like you, I'll never laugh again. I Will Christopherry let's

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Speaker 1: just take it. Let's get straight to relation of a

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Speaker 1: in the head of equities and Capital Market Advisory at

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Speaker 1: Ben why? Madam Mouth Management, Alicia, how big is the

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Speaker 1: risk that we're heading back towards something like thirty? Look,

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Speaker 1: I think it's it's a, you know, fifty percent odds

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Speaker 1: on that. We go there simply because, all you're the

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Speaker 1: the equity market has really been following the bond market

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Speaker 1: here and as tenure yields move higher and push through

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Speaker 1: three point point five percent, that's our trigger for another

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Speaker 1: move lower from here. So in thirty nine hundred couldn't hold,

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Speaker 1: which was sort of that last vestige of support where

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Speaker 1: there was a lot of supply and a lot of

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Speaker 1: trading previously. Technically, when that didn't hold, you know, it

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Speaker 1: was just kind of clear that as you move on

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Speaker 1: yields up, the equity markets are going lower, and and

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Speaker 1: really for good reason, because the top of the market,

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Speaker 1: or high growth and tech stocks, where the valuations will

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Speaker 1: come down as yields move higher. So it's a neat

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Speaker 1: little equation. Unfortunately it's playing out uh, and that opens

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Speaker 1: up downside from here. But as you say that that

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Speaker 1: three sixty six, the June seventeenth below is not that

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Speaker 1: far away from here. It's not. It's not a heroic

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Speaker 1: call to say that. Anymore, are we pricing in the

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Speaker 1: weakness that we're hearing from the likes of Ford, from

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Speaker 1: the likes of fed x that already are starting to

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Speaker 1: sound some profit warnings? So so, in an interesting way,

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Speaker 1: your conversation about. How does this conversation change right? How

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Speaker 1: do we move higher from here? It is our view

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Speaker 1: that the way the equity market can climb out of

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Speaker 1: this hole, but it's kind of got it and gotten

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Speaker 1: itself in, is for estimates to finally come down and

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Speaker 1: and for realistically to price in the slowdown and growth,

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Speaker 1: because it's all been driven by yields. Even now, even now,

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Speaker 1: estimates are holding in there. You know, the forward twelve

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Speaker 1: month on the SMP is something like seventeen times and

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Speaker 1: if you take energy out of it it's nineteen times.

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Speaker 1: That is not a cheap market and it's not a

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Speaker 1: market reflecting a slowdown and growth. That has to happen

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Speaker 1: and I think if you realistically reset growth expectations and

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Speaker 1: earnings then you can begin to bottom. But until that

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Speaker 1: happens wholesale, then I think we're sort of stuck in

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Speaker 1: this purgatory for a while. So this is the part

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Speaker 1: of the conversation where equity strategists wear their bond hats,

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Speaker 1: because it's all about rates and this is what we've

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Speaker 1: been seeing for a long time, and so you have

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Speaker 1: to come up with a call whether we're getting to

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Speaker 1: peak hawkishness, whether people already pricing in more than the

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Speaker 1: Fed could potentially do. Do you have a call on that?

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Speaker 1: Is that something that you want to game out, or

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Speaker 1: is there some kind of relative trade that seems a

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Speaker 1: little bit more insulated from those macro guessing games? UH,

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Speaker 1: great question. I think that the risk is actually two

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Speaker 1: more hawkishness here, simply because, if you think about uh,

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Speaker 1: that that CPI print was pretty devastating for the Fed

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Speaker 1: dot plots, I think, and for the terminal rate on

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Speaker 1: the Fed funds Um so that likely goes higher. If

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Speaker 1: that goes higher, multiples get compressed further. But that hasn't

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Speaker 1: happened yet. So I think there is some thought that

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Speaker 1: we're getting to pe caucushness, but that's not going to

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Speaker 1: move the market now. It's the earnings that are going

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Speaker 1: to move the market and a realistic reset of where

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Speaker 1: we're going in this. So yes, there are relative valuations. Look,

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Speaker 1: in the end, this is a short duration market. It

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Speaker 1: has been a short duration market, same in equities and

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Speaker 1: not just in bonds. So we still like that. Utilities

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Speaker 1: are fine, some staples are fine, safety is fine. We

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Speaker 1: love real assets. We we are, you know, allocating our

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Speaker 1: clients to real assets because we do think we are

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Speaker 1: in a regime change where inflation remains higher for longer

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Speaker 1: and rates remain higher for longer as a result. And

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Speaker 1: all you have to do is listen to some of

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Speaker 1: the workers strikes that are going on out there, what

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Speaker 1: happened with the rail strike. I mean, these are huge

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Speaker 1: wage increases. This will is a change for the economy

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Speaker 1: and the rates we're going are going to reflect reflect

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Speaker 1: that going forward. I don't think we're going back to

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Speaker 1: a world where you have, you know, one percent yields

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Speaker 1: on the ten year and let's have a party of by,

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Speaker 1: you know, high growth and they're earning tech stocks. So

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Speaker 1: we're still in that short duration world. And to your question,

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Speaker 1: our bonds an alternative, not on the long end, but

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Speaker 1: on the short end. They certainly are doing better. And

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Speaker 1: whether a four percent yield on a two year is

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Speaker 1: fully reflecting inflation on a real basis. It is not,

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Speaker 1: but it's sure of a lot better than losing money

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Speaker 1: in the equity market and sh just quickly. What's your

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Speaker 1: time and rising for all of this. It's so well

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Speaker 1: put together. When you start thinking about these issues sticking

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Speaker 1: with us for longer. How much long are we talking? Years?

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Speaker 1: We talked five, ten, what is it? So look, I

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Speaker 1: was trained as a historian and I look at things

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Speaker 1: in big picture ways. In the short term, I think

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Speaker 1: we get a nice bump coming out of the election. Okay,

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Speaker 1: mid year. Elections are notoriously difficult leading up to it

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Speaker 1: and you never lose money in the twelve month after

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Speaker 1: the election since so we likely have a rally coming

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Speaker 1: out of the election and it could be sustainable because

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Speaker 1: we'll get to that peak nastiness heading into it. Right

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Speaker 1: we have terrible seasonality. Now better seasonality, but at the

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Speaker 1: end of the year. So we're optimistic for how this

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Speaker 1: year can stabilize and move higher. Looking forward, I think

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Speaker 1: you have to have a more intellectual view of where

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Speaker 1: yields can be and where the market is and where

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Speaker 1: we can grow, and one of my favorite things to

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Speaker 1: do is just look at you know, the top ten

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Speaker 1: stocks of the SMP or the top ten stocks of

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Speaker 1: the Dow the beginning of every decade to see the

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Speaker 1: change of where capital is being allocated and what the

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Speaker 1: growth companies are. And I think you can make a

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Speaker 1: good case that some of these large pap tech is

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Speaker 1: where the risk is here. Let's just avoid the down,

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Speaker 1: you know, just stick to the SPENCOURAGE, encourage. Honestly, you know,

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Speaker 1: one of the best relation events we management. It's the

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Speaker 1: housing market very much in the forefront as we watch

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Speaker 1: yields rise because mortgage rates have been climbing so significantly.

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Speaker 1: And there's no one better to speak to this to

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Speaker 1: Jonathan Miller, who has decades studying the industry, President CEO

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Speaker 1: of Miller Samuel. He always puts out these fantastic reports

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Speaker 1: that gives these real deep dives into what's actually happening

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Speaker 1: on the ground. And we're talking about the pain. We're

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Speaker 1: talking about home builder sentiment rolling over yesterday. We're talking

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Speaker 1: about what it means to have a mortgage rate at

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Speaker 1: six percent and you are still seeing bidding wars. Are

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Speaker 1: we underestimating the demand, the strength in this housing market?

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Speaker 1: Absolutely before the Fed was raising rates, bidding wars in

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Speaker 1: most of the markets we cover across the country where

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Speaker 1: somewhere in the neighborhood of of all transactions, southern California

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Speaker 1: was two thirds of transactions. Uh, there's still bidding wars now.

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Speaker 1: So it's just much more muted. Uh. I think the

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Speaker 1: the narrative is that, you know, you can hear crickets

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Speaker 1: and that is not the case. It's just not what

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Speaker 1: it was and what it wasn't sustainable. But how much

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Speaker 1: are we speaking about idiosyncratic markets right? I mean the

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Speaker 1: market in Connecticut, for example, very different than the market

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Speaker 1: in Phoenix, Arizona, or the market in San Francisco? How

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Speaker 1: much are we seeing potholes where you are seeing wholesale

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Speaker 1: declines and prices in some areas, particularly the sun belt darlings,

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Speaker 1: whereas other areas are holding in more significantly? I think

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Speaker 1: the the chatter on pricing is more about sellers cutting

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Speaker 1: asking prices more than wholesale price declines throughout a region. Uh,

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Speaker 1: you know, in aggregate in these regions, uh, because inventory

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Speaker 1: is so low, even with the increases that we've seen,

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Speaker 1: there's a fairly firm underpinning under price. It's certainly you know,

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Speaker 1: I'm not saying we're not looking at some sort of

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Speaker 1: price decline a couple quarters out or, you know, sometime

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Speaker 1: in but I don't. I don't see this as a

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Speaker 1: correction scenario because the market was wildly overweighted on the

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Speaker 1: demand side going into this and inventory was literally obliterated.

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Speaker 1: You know, a typical market, sub market, might have two

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Speaker 1: hundred listings just before the Fed rate increases. In beginning

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Speaker 1: a year there might have been ten listings, twelve listings.

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Speaker 1: Now there's fifty. It's still sevent below. I mean that's

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Speaker 1: sort of the scenario we're seeing Um in the different

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Speaker 1: markets that we cover. But just to push back, we're

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Speaker 1: seeing the just the volume of sales drop off a

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Speaker 1: cliff and a lot of times that's a precursor to

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Speaker 1: price drops that are more substantial. Right, it really is

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Speaker 1: a matter of where people are willing to transact, especially

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Speaker 1: if they're all in borrowing costs arising by hundreds of

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Speaker 1: dollars a month. I mean, at what point does that

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Speaker 1: housing the sales slowdown translate into something materially in price? Yeah,

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Speaker 1: so typically there's an average of about a fifteen month

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Speaker 1: lag between Um sales, sales correction and some kind of

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Speaker 1: price decline. I think what many people get wrong in

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Speaker 1: a market pivot like this is the scenario is external event.

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Speaker 1: Sales activity falls than inventory rises and then, because there's

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Speaker 1: more supplied, prices correct. But how thing prices are sticky

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Speaker 1: on the downside, that they take longer to fall than

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Speaker 1: they do to rise, and we're in that sort of

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Speaker 1: discovery period right now. But what's different is that supply

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Speaker 1: in general is still relatively low as compared to historical norms. Jonathan,

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Speaker 1: you're talking about how just because rent increases are slowing

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Speaker 1: down doesn't mean they're you're going to see a decline

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Speaker 1: in rents, and you've talked before how rents typically are

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Speaker 1: pretty sticky, that they don't go down that much. Does

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Speaker 1: that mean that the transmission mechanism of mortgage rates where

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Speaker 1: they are are, is going to be largely ineffective at

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Speaker 1: bringing down some of the base costs like rents, like

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Speaker 1: housing prices, that people are imagining as the case right

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Speaker 1: I I think you know, housing is about CPI and

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Speaker 1: its owner's equivalent rent. It's not, you know, any kind

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Speaker 1: of correction in housing prices is gonna bear a little

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Speaker 1: impact on our limited impact on inflation, because its owner's

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Speaker 1: equivalent rent. Um. And effectively what's been happening is if

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Speaker 1: you have a slow down in the sales market, Um uh,

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Speaker 1: and largely because of the loss of affordability, with a

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Speaker 1: spike and mortgage rates. Mortgage rates are literally double what

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Speaker 1: they were at the end of December, and the scenario

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Speaker 1: ends up, Um uh, you're pushing those people into the

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Speaker 1: rental market, which is already tight, which keeps rent elevated,

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Speaker 1: which makes me worry that the that the Fed path

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Speaker 1: is going to be longer than we think in terms

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Speaker 1: of pressing rates higher. How high could mortgage rates go

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Speaker 1: in your view? Uh, who knows? I'M NOT UM. It's funny.

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Speaker 1: About a year ago I was basically saying that rates

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00:24:20,600 --> 00:24:23,320
Speaker 1: should be in the in the fives. That would be

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Speaker 1: a more normalized market. Maybe the sixes. Um, I'm skeptical

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00:24:29,359 --> 00:24:33,040
Speaker 1: that they can. They can leave the sixes, but but

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Speaker 1: I still think there's some upward movement going forward. Um.

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Speaker 1: There's no barring a recession. I mean, you know the

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Speaker 1: idea that, um, the Fed is taking a baseball back

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00:24:47,400 --> 00:24:52,439
Speaker 1: to the economy is, Um something that has to factor

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00:24:52,480 --> 00:24:56,040
Speaker 1: in housing, since it's so large, and I'm not sure

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00:24:56,080 --> 00:24:58,399
Speaker 1: if that's going to be effective just because of the

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00:24:58,440 --> 00:25:02,480
Speaker 1: owner's equivalent rent calcula driving rent are keeping rent high.

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Speaker 1: The opposite of rising rent is not falling rent, it's

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Speaker 1: stabilizing rent, in my view, and the only thing that's

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Speaker 1: going to bring rents down is going to be some

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Speaker 1: sort of profession, at least at this point. Jonathan, twenty seconds.

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Speaker 1: Have we overdone the back to cities trend or is

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Speaker 1: that going to continue? I think it's stays where it is.

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Speaker 1: Pretty it's pretty close to that. Uh, this is this

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Speaker 1: is not returning to the mean sort of scenario. We've

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Speaker 1: been working from home too long for this pattern to

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Speaker 1: go away. Jonathan Miller of Miller Samuel. Thank you so

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Speaker 1: much for being with us. I always love speaking with you.

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Speaker 1: This is the Bloomberg surveillance podcast. Thanks for listening. Join

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Speaker 1: on the terminal. I'm Tom Keene in this is Bloomberg,