WEBVTT - Equity Push as Bond Yields Rise 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.200 or watch us live on YouTube. 0:00:27.720 --> 0:00:32.080 Monica Descenzo joins US snub had a global investment strategy 0:00:32.120 --> 0:00:36.839 GP Morgan Private Bank. What are fancy people doing with 0:00:36.960 --> 0:00:38.560 their cash? 0:00:38.920 --> 0:00:40.559 I don't know about fancy people. What I can tell 0:00:40.560 --> 0:00:43.000 you what my clients are doing with their cash. Balances 0:00:43.040 --> 0:00:45.600 are actually still pretty high. If you look like a 0:00:45.640 --> 0:00:48.400 cross our entire platform, something around twenty percent of assets 0:00:48.520 --> 0:00:50.840 is actually still sitting in cash. Some of my larger 0:00:50.840 --> 0:00:52.920 clients so that it's even greater than that, And I 0:00:52.960 --> 0:00:55.400 think that just reflects the desire for many people to 0:00:55.520 --> 0:00:57.720 add to risk assets on some kind of pullback. We 0:00:57.840 --> 0:01:00.320 just haven't had a prolonged pullback. We've had volatile but 0:01:00.400 --> 0:01:02.920 it hasn't been very long lasting. So I expect as 0:01:02.920 --> 0:01:04.480 we move through the summer, maybe if we get a 0:01:04.520 --> 0:01:06.560 few more bumps, you'll see some of that move into 0:01:06.560 --> 0:01:08.639 the market. And then I think as we move towards 0:01:08.640 --> 0:01:10.560 the back half of the year. I think people are 0:01:10.640 --> 0:01:12.640 just hoping that we get through all this turmoil in 0:01:12.640 --> 0:01:15.160 the Middle East and some of these headlines. The problem is, 0:01:15.200 --> 0:01:16.840 you know, when it feels good, that's generally not the 0:01:16.840 --> 0:01:19.319 best time to invest, So you probably should be sticking 0:01:19.319 --> 0:01:20.440 a toe in now. 0:01:20.240 --> 0:01:23.640 How concerned are your clients about inflation? I know it's 0:01:23.760 --> 0:01:25.440 you know, this inflation that we're seeing out there. It 0:01:25.440 --> 0:01:28.040 impacts the lower end of the case shaped economy, perhaps 0:01:28.040 --> 0:01:29.880 a little bit more than the higher end. But I'm 0:01:29.880 --> 0:01:31.240 guessing you're getting some phone calls. 0:01:31.959 --> 0:01:34.360 It is by far the biggest risk that people think about. 0:01:34.560 --> 0:01:36.000 I think when you think about the client base, I 0:01:36.040 --> 0:01:38.440 work with many of them, remember the seventies, and they say, Okay, 0:01:38.440 --> 0:01:40.199 we look at this market. It just keeps grinding higher, 0:01:40.240 --> 0:01:43.920 grinding higher, and yet you have higher rates, higher inflation 0:01:43.959 --> 0:01:46.120 that feels like it's going to be more persistent, and 0:01:46.200 --> 0:01:47.960 so that they're very concerned that this could somehow be 0:01:48.040 --> 0:01:50.240 the seventies all over again, where we get caught, you know, 0:01:50.800 --> 0:01:53.800 off kilter. That said, when I look at portfolios, I 0:01:53.800 --> 0:01:56.840 don't see portfolios that are built for a higher inflationary environment. 0:01:56.880 --> 0:01:59.440 And so when you look at this market, hi single 0:01:59.440 --> 0:02:02.400 digits here date. That's where we're having most of our conversations. 0:02:02.440 --> 0:02:05.160 Think about rebalancing, think about adding more to your portfolio 0:02:05.360 --> 0:02:08.120 that's going to carry better in an inflationary environment. So 0:02:08.120 --> 0:02:11.400 you got to look at real assets, infrastructure, even hedge 0:02:11.400 --> 0:02:13.280 funds again, which many of my clients have not used 0:02:13.280 --> 0:02:14.800 as a tool in a very long time. I know, 0:02:15.000 --> 0:02:16.600 just saying it, I kind of chuckle like you because 0:02:17.080 --> 0:02:18.160 they were out of favor. 0:02:17.919 --> 0:02:18.480 For a long time. 0:02:18.520 --> 0:02:21.000 And I think now people are starting to appreciate what 0:02:21.120 --> 0:02:23.800 uncorrelated strategies could do in an inflationary environment. 0:02:24.040 --> 0:02:25.680 Even in a fixed income market up well, you could 0:02:25.680 --> 0:02:27.440 sit in to your treasure and get north to four 0:02:27.480 --> 0:02:29.280 percent now, and I mean that's got to be attractive for. 0:02:29.280 --> 0:02:31.040 A lot of it is, especially in a world where 0:02:31.160 --> 0:02:33.320 we look out twelve months, we're looking for five six 0:02:33.400 --> 0:02:35.919 seven percent returns in equities, So if you can get 0:02:35.960 --> 0:02:38.119 close to that with fixed income with much less volatility, 0:02:38.120 --> 0:02:40.520 then that feels attractive. And so I think the big 0:02:40.600 --> 0:02:42.160 question that you mentioned at the beginning of the cash 0:02:42.760 --> 0:02:44.880 with inflation, where it is cash is not real you 0:02:44.880 --> 0:02:47.000 should be So do need to dip a toe in 0:02:47.040 --> 0:02:49.040 and into risk assets in some form, even if it's 0:02:49.080 --> 0:02:50.519 just you know, going out a little bit in the risk. 0:02:50.560 --> 0:02:53.280 So what do you do with duration? First of all, 0:02:53.360 --> 0:02:56.160 let's get this stereotype out of the way. Fancy people 0:02:56.280 --> 0:02:59.400 as I call them. Are they sixty forty Are they 0:02:59.440 --> 0:03:02.480 loaded the book on Apple and Nvidia? Are they eighty 0:03:02.560 --> 0:03:06.680 five percent bonds? What's the actual makeup of those portfolios? 0:03:07.440 --> 0:03:09.120 When you start to go to like the higher end 0:03:09.120 --> 0:03:12.000 of the well spectrum, you do see more assets in 0:03:12.240 --> 0:03:16.760 longer duration investments that could be alternatives other areas like that, 0:03:16.800 --> 0:03:18.440 because they don't need a liquidity right and so that 0:03:18.520 --> 0:03:20.160 they can take a lot more risk. So that's gonna 0:03:20.160 --> 0:03:21.800 be different from like a standard you know, mom and 0:03:21.800 --> 0:03:24.959 pop investor. And so that's where I see more investments 0:03:25.000 --> 0:03:27.120 going that they're playing for the long term. They want 0:03:27.120 --> 0:03:28.720 to ride this out, they don't want to worry about Okay, 0:03:28.800 --> 0:03:29.239 So you've. 0:03:29.080 --> 0:03:31.840 Got a family of forty five people deciding which f 0:03:31.919 --> 0:03:34.640 one grand prix to go to next? Great, and there's 0:03:34.680 --> 0:03:39.240 one person who's responsible is they look at the monthly statement. 0:03:39.640 --> 0:03:43.640 If we see yield up, price down, how many months 0:03:43.680 --> 0:03:46.520 out do they have to see price down before they 0:03:46.520 --> 0:03:47.200 get upset? 0:03:48.160 --> 0:03:50.800 You know, it's funny, I that'sn't a way. While alternatives 0:03:50.880 --> 0:03:53.000 can be a better asset class, some of these marked 0:03:53.040 --> 0:03:55.800 you know, not donate as regular basis. So it helps 0:03:55.960 --> 0:03:59.280 people hang in there. You know, clients do panic. That's 0:03:59.280 --> 0:04:01.400 why I have a job right to try to keep 0:04:01.400 --> 0:04:03.720 them steady. And where we spend a lot of time 0:04:03.960 --> 0:04:06.320 beside hogwe inflation, is what is your plan, what is 0:04:06.360 --> 0:04:08.640 your goal? What is this money for? And if it's 0:04:08.680 --> 0:04:10.680 for five, ten, fifteen years from now, your kids or 0:04:10.680 --> 0:04:14.080 your grandkids, you should not panic on a monthly statement. 0:04:14.120 --> 0:04:17.680 I try to caution people to not let that cause 0:04:17.680 --> 0:04:20.600 these reactions. And even I mentioned market up nine percent 0:04:20.640 --> 0:04:22.560 year to date, people look at that and they say, oh, 0:04:22.560 --> 0:04:24.680 I can't add here. I shouldn't add at highs. All 0:04:24.720 --> 0:04:26.719 the data we look at, we look at it over time. 0:04:26.800 --> 0:04:28.320 Maybe not in a two or three month period, but 0:04:28.520 --> 0:04:30.720 four or five months are longer. Adding it an all 0:04:30.760 --> 0:04:33.000 time high almost no different than adding on a dep 0:04:33.040 --> 0:04:35.440 And so I try to caution people on the behavioral 0:04:35.480 --> 0:04:38.279 side to not let your emotions dictate how you invest, 0:04:38.320 --> 0:04:40.760 and rather stick to the plan that we've articulated. 0:04:40.960 --> 0:04:42.320 Easier said than done that exactly. 0:04:42.480 --> 0:04:45.200 How about gold gold Wait we hit a you know, 0:04:45.839 --> 0:04:48.679 hit five thousand. We've now pulled back to forty five hundred. 0:04:48.680 --> 0:04:51.920 But still I know gold is in the conversation off 0:04:51.960 --> 0:04:52.599 with your clients. 0:04:52.640 --> 0:04:55.520 Absolutely, I you know, most of my clients in spite 0:04:55.560 --> 0:04:57.080 of the rally what over one hundred percent of the 0:04:57.160 --> 0:04:59.320 last few years, so golds had an amazing rally. And 0:04:59.400 --> 0:05:01.680 yet on this re in volatility, I think people assumed 0:05:02.040 --> 0:05:04.120 the Middle East crisis would cause a rally and that's 0:05:04.160 --> 0:05:05.720 not what happened. And there's a lot of reasons for that. 0:05:05.920 --> 0:05:07.839 But you look at where gold is now and you say, okay, 0:05:08.320 --> 0:05:10.080 I still most of my clients still want to diversify 0:05:10.120 --> 0:05:12.520 a bit outside of their dollar exposure, so gold helps there. 0:05:12.720 --> 0:05:14.440 And then you look at Central Bank of buying, which 0:05:14.440 --> 0:05:15.960 we think is still going to be a tailwind over 0:05:16.000 --> 0:05:19.360 the next six to eighteen months. And so that we 0:05:19.400 --> 0:05:21.520 have those two together, still feels like there's a place 0:05:21.520 --> 0:05:24.000 for golden portfolios. The question is how you add it. 0:05:24.040 --> 0:05:26.680 And so they actually have some volatility, so you can 0:05:26.760 --> 0:05:29.240 sell puts, you can do strategies like that to leg 0:05:29.279 --> 0:05:30.760 in at a lower level, which has been house in 0:05:30.800 --> 0:05:32.000 my larger families have been doing it. 0:05:32.160 --> 0:05:34.600 Madican. Thank you so much, Medica. This sends over JP 0:05:34.720 --> 0:05:38.000 Moore in Private Bank. Stay with us. More from Bloomberg 0:05:38.080 --> 0:05:40.120 Surveillance coming up after this. 0:05:47.360 --> 0:05:50.960 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:05:51.040 --> 0:05:54.200 weekday afternoons from seven to ten am Eastern. Listen on 0:05:54.279 --> 0:05:57.919 Applecarplay and Android Otto with the Bloomberg Business app, or 0:05:58.080 --> 0:05:59.520 watch US live on YouTube. 0:05:59.600 --> 0:06:03.359 David Oil right now with us on economics and the 0:06:03.440 --> 0:06:06.719 America's at Macquarie as well. David, I don't feel like 0:06:06.720 --> 0:06:10.840 I've had a traditional economics discussion, like Paul, what when 0:06:10.839 --> 0:06:13.520 the Red Sox had penet hopes? Fact, David, if you're 0:06:13.560 --> 0:06:16.960 writing an eight page memo today, do you have any 0:06:17.080 --> 0:06:21.680 understanding of where the American economy is, say September November 0:06:21.760 --> 0:06:22.400 of this year. 0:06:24.720 --> 0:06:28.719 Yeah, Well, look, Tom, we are actually fairly optimistic in 0:06:28.800 --> 0:06:30.640 terms of where things are heading. We think that the 0:06:30.680 --> 0:06:34.719 consumer is proving resilient, and credit growth remains strong. The 0:06:34.760 --> 0:06:39.719 AI capex cycle continues to run strong. So we suspect 0:06:39.720 --> 0:06:42.080 that you're in a good place, and I think that 0:06:42.080 --> 0:06:44.280 that will remain the play the case when you get 0:06:44.360 --> 0:06:47.440 to the fall and you'll be talking about how strong 0:06:47.480 --> 0:06:50.200 the economy is and the need for rate hikes down 0:06:50.200 --> 0:06:50.960 the line from the Fed. 0:06:51.960 --> 0:06:55.360 David, how concerned are you about the inflation in this economy? 0:06:56.040 --> 0:07:00.279 Is it a short term war driven energy inflation or 0:07:00.320 --> 0:07:01.040 is it something more? 0:07:03.160 --> 0:07:04.920 I think there's something more. I think that you you know, 0:07:04.960 --> 0:07:08.280 certainly the oil spike is probably passing through and you're 0:07:08.320 --> 0:07:10.200 likely to see that come through in core inflation and 0:07:11.160 --> 0:07:13.520 coming months. But I think on top of that you 0:07:13.600 --> 0:07:15.240 have a tech boom. And I think this is one 0:07:15.280 --> 0:07:18.360 of the undertold stories of twenty twenty five and even 0:07:18.360 --> 0:07:22.040 twenty twenty six now is how much tech is driving 0:07:22.080 --> 0:07:24.280 and inflation impulse. If you look at at things like 0:07:24.320 --> 0:07:28.560 computer software and accessories in the Consumer Price Index that 0:07:28.560 --> 0:07:31.560 has historically been about minus five percent year on year. 0:07:31.920 --> 0:07:34.960 In the latest release for April that was up fourteen 0:07:35.040 --> 0:07:38.040 percent year over year, So you've seen a real inflection 0:07:38.280 --> 0:07:42.480 in that PPI. Semiconductor similar story, that's up twenty five 0:07:42.560 --> 0:07:43.920 twenty six percent year on year. 0:07:44.680 --> 0:07:48.000 With the inflation we have of a central tendency three 0:07:48.040 --> 0:07:51.080 point eight percent. I notice Canada coming out today with 0:07:51.120 --> 0:07:55.960 a much lower inflation regime. Is Macquarie modeling out a 0:07:56.000 --> 0:08:00.000 potential four percent statistic or or do you just see 0:08:00.400 --> 0:08:04.680 migrating not to two percent forget about that's silliness, but 0:08:05.400 --> 0:08:09.320 just nudging down if you will. 0:08:09.680 --> 0:08:11.480 I think in the US, of course you have a 0:08:11.560 --> 0:08:14.240 much tighter labor market, and then what's the case in Canada. 0:08:14.280 --> 0:08:16.679 Canada built up some labor slacks. I think that helps 0:08:16.680 --> 0:08:20.160 to explain why you're seeing some divergence in the inflation 0:08:20.240 --> 0:08:22.840 data out over over the last couple of months in 0:08:22.840 --> 0:08:26.080 those two economies. But I'd say that four percent on 0:08:26.120 --> 0:08:30.680 a headline number is probably likely to occur later this 0:08:30.760 --> 0:08:32.800 year in the US, So it's not something that we 0:08:32.800 --> 0:08:36.080 think will be sustained, but certainly with the oil price increase, 0:08:36.240 --> 0:08:39.480 that's four percent is obtainable. I think probably longer term, 0:08:39.480 --> 0:08:41.640 you're looking at inflation settling in around two and a 0:08:41.679 --> 0:08:44.040 half to three percent. We've had, I mean, inflation has 0:08:44.080 --> 0:08:45.800 been above target for over five years now. 0:08:45.880 --> 0:08:50.400 We turned a surveillance experts here with David Alexis Christophers 0:08:50.480 --> 0:08:54.120 and Paul Sweeney. Guys, if we get four or four 0:08:54.160 --> 0:08:58.760 point one percent inflation, mentally, we're not ready for that, 0:08:59.120 --> 0:09:00.280 I would suggest I don't. 0:09:00.360 --> 0:09:02.520 And this is a US consumer, like a lot of 0:09:02.520 --> 0:09:04.440 consumers around the world, have been beat over the head 0:09:04.440 --> 0:09:06.640 with inflation for a long time now. 0:09:06.720 --> 0:09:08.720 And it'll be the first time a whole generation has 0:09:08.720 --> 0:09:10.040 seen inflation be that high. 0:09:10.240 --> 0:09:11.480 So they don't do what. 0:09:12.120 --> 0:09:15.120 David, That's a really important point from Alexis. I mean, 0:09:15.160 --> 0:09:17.200 this is a whole new new for a lot of people, 0:09:17.320 --> 0:09:19.280 isn't Well. 0:09:19.480 --> 0:09:22.360 I think the lived experience for a lot of people 0:09:22.360 --> 0:09:25.079 that entered their working lives or their adulthood and you 0:09:25.160 --> 0:09:28.280 know around twenty twenty has been you know, elevated inflation. 0:09:28.520 --> 0:09:31.120 And so I think that the luxury that we had 0:09:31.160 --> 0:09:33.160 in twenty twenty two and in twenty twenty three when 0:09:33.160 --> 0:09:35.640 you had that first wave of inflation posts the COVID 0:09:35.679 --> 0:09:39.560 reopening was that you had had low inflation for you know, 0:09:39.600 --> 0:09:42.520 thirty or forty years, So people weren't I didn't have 0:09:42.559 --> 0:09:44.679 their backup as much about it. And I think that 0:09:44.800 --> 0:09:47.079 you know, if we have a second inflation wave here 0:09:47.080 --> 0:09:49.520 and it looks like one maybe underway, you know, people 0:09:49.559 --> 0:09:53.320 will be much more sensitive. I think that's that's astute point, David. 0:09:53.360 --> 0:09:56.280 Given that backdrop, what's your view of the US consumer 0:09:56.440 --> 0:09:57.400 these days? 0:09:59.280 --> 0:10:02.200 Well, look, consumer I think has proven more resilient than 0:10:02.200 --> 0:10:04.360 a lot of people had anticipated at the outset of 0:10:04.360 --> 0:10:07.160 this oil price spike, same store sales growth I was 0:10:07.200 --> 0:10:08.840 looking at it the other day is up close to 0:10:08.880 --> 0:10:11.800 ten percent year over year. We've had solid retail sales 0:10:11.800 --> 0:10:15.080 growth through April, so it looks like the spending has continued, 0:10:15.559 --> 0:10:17.240 which I think the sum has been a bit of 0:10:17.400 --> 0:10:20.520 a puzzle given the higher gasoline prices some had anticipated 0:10:20.320 --> 0:10:24.000 would be more of a drag. Tax re elevated tax 0:10:24.040 --> 0:10:25.640 refund checks I think are part of the story. And 0:10:25.640 --> 0:10:27.360 then I think another undertold part of the story is 0:10:27.360 --> 0:10:30.960 credit growth. Right, credit loosening is taking place, and consumers 0:10:31.000 --> 0:10:34.240 are making up for the higher gasoline prices through taking 0:10:34.280 --> 0:10:35.000 out credit. 0:10:35.160 --> 0:10:37.640 So one final question, my summary of all this, David 0:10:37.640 --> 0:10:40.000 Doyle is I got to start modeling out of FED 0:10:40.080 --> 0:10:40.800 rate increase. 0:10:43.000 --> 0:10:44.880 I think that's right. Look, we've been calling for a 0:10:44.880 --> 0:10:48.040 Federate the next move for an increase since the start 0:10:48.040 --> 0:10:51.120 of the year. You know, right now we're in early 0:10:51.160 --> 0:10:53.960 twenty twenty seven, but it's possible if the data continue 0:10:54.000 --> 0:10:56.000 to evolve then in the way that it has been 0:10:56.000 --> 0:10:58.520 that they have to start moving in twenty twenty six. 0:10:58.559 --> 0:11:00.520 So I do think that we'll be talking about that 0:11:00.520 --> 0:11:01.240 more than the months to. 0:11:01.160 --> 0:11:04.120 Come, David do Thank you so much Macquari this morning. 0:11:04.120 --> 0:11:06.160 That was a great summary of where we are. We're 0:11:06.160 --> 0:11:09.920 not doing that enough now given all the distractions, stay 0:11:09.920 --> 0:11:13.800 with us. More from Bloomberg Surveillance coming up after this. 0:11:21.080 --> 0:11:24.640 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:11:24.720 --> 0:11:27.840 weekday afternoons from seven to ten am Eastern Listen on 0:11:27.960 --> 0:11:31.360 Apple Karplay and Android Otto with the Bloomberg Business app, 0:11:31.520 --> 0:11:34.600 or watch us live on YouTube for Global Wall Street. 0:11:34.640 --> 0:11:37.240 Now, this is a tree his public service to America 0:11:37.280 --> 0:11:41.000 at the White House for President Trump. Joseph Flifornia. Jones 0:11:41.120 --> 0:11:43.480 joins us. But what you don't know, and probably President 0:11:43.480 --> 0:11:46.840 Trump didn't know, he was at Deutsche Bank years ago 0:11:46.880 --> 0:11:51.680 in the combine that melded economics into fixed income. We're 0:11:51.679 --> 0:11:54.920 thrilled he could be with us today with parchment from 0:11:55.000 --> 0:11:58.640 Vassar and some work at New York University as well. Okay, 0:11:58.960 --> 0:12:00.800 I got to get this out of the way right now. 0:12:00.840 --> 0:12:03.360 I saw Gold and Sach's treatment and they look at 0:12:03.400 --> 0:12:06.680 four point six zero ten years a pivot point. Okay, 0:12:06.760 --> 0:12:09.360 we're there, and we're there quickly. Do you have in 0:12:09.400 --> 0:12:13.839 your head a ten year yield where the system unravels. 0:12:14.559 --> 0:12:16.880 No, but I do think rates are going higher Tom 0:12:16.960 --> 0:12:19.600 for a whole host of factors, a higher inflation risk 0:12:19.679 --> 0:12:22.320 premium they need at some point for treasure to raise 0:12:22.360 --> 0:12:25.040 more supply, and the fact that the market has really 0:12:25.040 --> 0:12:28.080 only priced about one tightening, and I could see potentially 0:12:28.080 --> 0:12:30.200 a series of tightening, So yields go higher. 0:12:30.280 --> 0:12:32.600 Okay, Paul's got eight questions. I'm going to get this 0:12:32.640 --> 0:12:33.720 one in quickly here. 0:12:34.120 --> 0:12:39.120 If yields go higher, price down, it can be ambiguous, 0:12:39.240 --> 0:12:42.760 good or bad or zag and posen say you're going 0:12:42.840 --> 0:12:46.080 to see a higher wage, a higher real wage. 0:12:46.160 --> 0:12:48.560 Do you buy that optimism or is it going to 0:12:48.559 --> 0:12:49.079 be stress? 0:12:49.320 --> 0:12:52.160 It's possible, I mean the AI the productivity story could 0:12:52.160 --> 0:12:55.200 translate into much higher wages. The corporate share of income 0:12:55.280 --> 0:12:58.160 is high, so hopefully at some point that does flow 0:12:58.160 --> 0:13:01.160 to workers. I was very bullish on the economy, and 0:13:01.160 --> 0:13:04.640 we was talking in my prior role of a disinflationary boom, 0:13:05.160 --> 0:13:08.240 which seems very reasonable until the Middle East warst started, 0:13:08.240 --> 0:13:11.440 because I think that completely changed the dynamics. So yes, 0:13:11.480 --> 0:13:14.360 I'm bullish on I was bullish on growth in terms 0:13:14.400 --> 0:13:16.960 of being lower and non inflationary and rates coming down 0:13:17.000 --> 0:13:19.280 in the FED easing, All that's kind of thrown by 0:13:19.320 --> 0:13:21.600 the wayside. In terms of what level of yields crack 0:13:21.679 --> 0:13:24.560 the system, we don't really know. It's really a liquidity 0:13:24.640 --> 0:13:27.720 and confidence story. Could be four seventy five on tens, 0:13:27.720 --> 0:13:29.679 it could be five percent on tens, and there's so 0:13:29.720 --> 0:13:32.000 many other dynamics up playing. As you're well aware the 0:13:32.120 --> 0:13:34.560 narrowness of the market. The equity market has been a 0:13:34.559 --> 0:13:37.520 handful of companies, and at some point you know that 0:13:38.200 --> 0:13:40.880 exuberance may itself be stretched. So if if it's tightening, 0:13:40.880 --> 0:13:44.199 financial conditions suddenly tighten, risk appetite changes, then it could 0:13:44.280 --> 0:13:45.120 unravel quickly. 0:13:46.280 --> 0:13:48.320 Joe and your notes, you say inflation is a problem. 0:13:48.360 --> 0:13:50.640 I think most of our viewers and listeners would agree 0:13:50.640 --> 0:13:53.120 with you. How long is it going to be a problem? 0:13:53.120 --> 0:13:55.600 Do you think that's a great question? I mean, when's 0:13:55.600 --> 0:13:57.160 the war going to end? And how quickly can these 0:13:57.160 --> 0:14:00.000 bottlenecks stop. I mean the way to think of it 0:14:00.240 --> 0:14:02.640 is too many COVID, and I think that's what most 0:14:02.720 --> 0:14:05.000 investors don't understand, which makes me think yield to go higher. 0:14:05.000 --> 0:14:08.040 When I say many COVID, there's major supply chain disruptions. 0:14:08.400 --> 0:14:11.920 It's not just energy, it's nitrogenior relates to fertilizer, different 0:14:11.960 --> 0:14:14.760 material that going with the plastics are the sensitive commodities. 0:14:15.160 --> 0:14:17.160 And what we learned during COVID is just can't turn 0:14:17.280 --> 0:14:19.680 wells off. You just can't shut this on a much 0:14:19.760 --> 0:14:22.600 much smaller scale. But you can't just turn the system 0:14:22.680 --> 0:14:25.520 off and like a light switch, automatically goes back and 0:14:25.600 --> 0:14:27.840 the market is I don't think the bond market isn't 0:14:27.880 --> 0:14:28.880 fully appreciative of that. 0:14:29.000 --> 0:14:32.240 Joe Varona SMBC and Eco securities threatenly could be with 0:14:32.360 --> 0:14:34.920 us at today and we continue here, I guess with 0:14:35.000 --> 0:14:38.480 the arch idea and you live this at the White House. 0:14:38.960 --> 0:14:43.680 This is a president who likes joint stimuli all the time. 0:14:44.120 --> 0:14:48.040 We've got a nominal GDP pop in five percent plus 0:14:48.080 --> 0:14:52.480 persistently there, We've got you know, inflation well above the 0:14:52.520 --> 0:14:55.040 FED target and all that are we just living in 0:14:55.080 --> 0:14:59.040 a new stimulus driven miliu and it goes until it goes. 0:14:59.040 --> 0:15:01.080 We might tom but it's that's the case. Then you 0:15:01.080 --> 0:15:04.600 know inflation expectations need to be reset and you need 0:15:04.640 --> 0:15:07.000 a higher term structure rates to reflect the environment you 0:15:07.120 --> 0:15:09.360 just described. So to either one or the other. Either 0:15:09.360 --> 0:15:12.640 the economy is going to produce non inflationary growth and 0:15:12.680 --> 0:15:14.760 eventually the FED can get rates to neutral. 0:15:14.560 --> 0:15:15.560 Or right that work. 0:15:15.640 --> 0:15:18.560 We're in a regime where you've got rising debt to GDP, 0:15:19.480 --> 0:15:22.840 higher inflation relative to where the fence cart is, and 0:15:22.920 --> 0:15:24.720 that would be in the Fed's not cutting and that's 0:15:24.760 --> 0:15:25.760 a higher rate regime. 0:15:25.920 --> 0:15:29.160 Do you perceive that model is one hundred basis points 0:15:29.160 --> 0:15:33.120 shift sorry folks, jargon, a one percentage point shift up 0:15:33.120 --> 0:15:35.760 in the curve? Or could it be more sixties like 0:15:35.800 --> 0:15:38.080 can be a real shift into Provoker? 0:15:38.480 --> 0:15:40.360 Well, in the sixties is very as you know, Tom's 0:15:40.440 --> 0:15:45.880 very gradual, yet cyclical. The floor on inflation higher cyclical 0:15:45.920 --> 0:15:48.240 floors as you move through the sixties into the seventies. 0:15:49.120 --> 0:15:50.920 Best guess it's the latter that it would be like 0:15:50.960 --> 0:15:53.440 maybe let's say one hundred basis points repricing. It's a 0:15:53.520 --> 0:15:56.480 nice round number, but you know, could it be something longer? 0:15:56.520 --> 0:15:58.440 It's possible. I mean, in the last couple of years 0:15:58.800 --> 0:16:01.800 inflation is running about seventy five bases point above the 0:16:01.800 --> 0:16:04.520 Fed's target. We're going to go higher than that in 0:16:04.520 --> 0:16:06.720 the next few months. When could it end? Maybe by 0:16:06.760 --> 0:16:10.280 the fall we'll see. I mean, how I guess question 0:16:10.320 --> 0:16:13.160 is how disinflationary is AI in the short term may 0:16:13.200 --> 0:16:15.120 actually be contributing to the problems we have for the 0:16:15.200 --> 0:16:18.000 data center build out and energy usage. Longer term is 0:16:18.000 --> 0:16:19.320 probably disinflationary. 0:16:20.320 --> 0:16:23.920 We've got a new FED chairman, presumably he feels a 0:16:23.960 --> 0:16:25.560 little pressure to get rates down. 0:16:26.120 --> 0:16:29.720 A boy, the data doesn't seem great question, Paul, we're 0:16:29.800 --> 0:16:32.360 going to make some news here. Are you interviewing for 0:16:32.440 --> 0:16:33.520 a position at the FED? 0:16:34.000 --> 0:16:36.240 No, I'm not interviewing for the position at the FED. No, 0:16:36.400 --> 0:16:39.080 by the way, And I've gotten to know them. I 0:16:39.120 --> 0:16:41.760 think they're a bunch of FED people. That was one 0:16:41.760 --> 0:16:43.880 cool thing about the job. There's a lot of super 0:16:43.920 --> 0:16:47.240 talented people there. Kevin worsh will do a great job. 0:16:47.440 --> 0:16:50.240 I'm very confident of that. However, I don't see how 0:16:50.280 --> 0:16:52.400 Kevin's going to make a plausible case for Raycots. 0:16:52.520 --> 0:16:54.360 Yeah, it just is just not there. 0:16:54.800 --> 0:16:57.720 And if the market continues to price tightening, maybe he 0:16:57.920 --> 0:17:01.680 just pushes back against the committee that's certainly becoming, at 0:17:01.760 --> 0:17:04.200 least on from the President's more hawkish. Maybe he pushes 0:17:04.240 --> 0:17:06.320 back a bit, gets it more center, and then kind 0:17:06.359 --> 0:17:08.680 of hope for the best things may be unfold in 0:17:08.720 --> 0:17:10.560 a positive way in the back half of the year, 0:17:10.600 --> 0:17:13.000 but right now, look at like the Price is Paid 0:17:13.040 --> 0:17:15.320 series in the isms. The New York Fed's got this 0:17:15.400 --> 0:17:18.280 global Pressure Supply Index. Not sure exactly how they put 0:17:18.320 --> 0:17:21.320 it together, but the picture certainly shows these supply chain 0:17:21.440 --> 0:17:24.840 disruptions that's all pro inflation in the system. 0:17:25.240 --> 0:17:27.920 So again, is this a inflation? 0:17:28.400 --> 0:17:28.760 I don't know. 0:17:29.240 --> 0:17:31.680 It just feels stickier to me than just. 0:17:31.640 --> 0:17:32.439 A bit sticky. 0:17:32.480 --> 0:17:34.040 Well, well, you could see if you look at like 0:17:34.080 --> 0:17:37.080 the San Francisco Fed, they've got the acyclical and cyclical 0:17:37.840 --> 0:17:41.640 price trends. You look at the Atlanta fit sticky price index. Yeah, 0:17:41.680 --> 0:17:44.080 you're seeing it absolutely sticky. And by the way, it's 0:17:44.080 --> 0:17:46.320 been above trend, so you know, we've been well above 0:17:46.359 --> 0:17:48.919 two and a lot of these components, the supercre that 0:17:49.000 --> 0:17:52.080 the former chair Jay Powell likes looking at and running 0:17:52.080 --> 0:17:54.520 about three and a half percent, definitely sticky. 0:17:54.920 --> 0:17:58.280 So I mean there's nothing the FED can do, right, 0:17:58.400 --> 0:17:58.800 I mean. 0:17:59.119 --> 0:18:01.119 There's nothing the Fed can do other than at some 0:18:01.160 --> 0:18:04.080 point potentially raise rates try to slow demand. And the 0:18:04.080 --> 0:18:07.120 problem with raising rates to slow demand to bring inflation 0:18:07.240 --> 0:18:09.480 back to target, which right now is probably going to 0:18:09.520 --> 0:18:10.760 be at least a point, if not a point and 0:18:10.760 --> 0:18:14.200 a half above target is generally a recession. The question 0:18:14.200 --> 0:18:15.480 is does if FED want to do that. If it 0:18:15.600 --> 0:18:18.280 doesn't want to do that, they implicitly change their target. 0:18:18.680 --> 0:18:20.080 You're going to be in a world then where rates 0:18:20.080 --> 0:18:22.280 are higher, You're gonna have a steeper urb and higher yields. 0:18:22.359 --> 0:18:25.440 Real true for you across this nation and worldwide. Joseph 0:18:25.600 --> 0:18:30.159