WEBVTT - Surveillance: Tech is Tricky, says Kaiser 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:09.200 --> 0:00:12.720 with Jonathan Ferrill and Lisa are Brownwitz Jay Leye. We 0:00:12.840 --> 0:00:16.760 bring you insight from the best and economics, finance, investment 0:00:17.079 --> 0:00:22.400 and international relations. Fine Bloomberg Surveillance, an Apple podcast, Suncloud, 0:00:22.800 --> 0:00:26.280 Bloomberg dot Com, and of course on the Bloomberg terminal. 0:00:30.000 --> 0:00:32.240 Quite in the morning came from Stuart Kaiser. Came actually 0:00:32.360 --> 0:00:34.640 yesterday evening as I was sitting there on the Bloomberg. 0:00:35.200 --> 0:00:36.959 It dropped from City in the inbox and it read 0:00:36.960 --> 0:00:39.400 as follows. Timing is the key word for markets. He 0:00:39.440 --> 0:00:42.120 went on to say, for data, will inflation crest before 0:00:42.159 --> 0:00:45.320 growth deteriorates? And let the FMC deal with those risks 0:00:45.360 --> 0:00:48.480 to its mandates separately? For markets, how long an investible 0:00:48.479 --> 0:00:51.919 window is there between those two waves of economic risk? 0:00:52.000 --> 0:00:54.000 To which joins us? Right now? Just do awesome to 0:00:54.080 --> 0:00:56.320 catch up. Let's start there. I think it's really important. 0:00:56.320 --> 0:00:58.160 I've heard a couple of times after last week. Now 0:00:58.440 --> 0:01:01.160 the sequencing of what happens growth and inflation and what 0:01:01.240 --> 0:01:03.920 rolls over more quickly and what rolls over first? Where 0:01:03.960 --> 0:01:06.640 are we now? It's a great question. Good morning, you 0:01:06.640 --> 0:01:08.440 know I think the challenge here is I think when 0:01:08.440 --> 0:01:10.840 the Fed started hiking, they were hoping inflation would sort 0:01:10.840 --> 0:01:13.520 of already have crusted by now and they would sort of, 0:01:13.560 --> 0:01:15.400 you know, be able to deal with the growth weaknesses. 0:01:15.440 --> 0:01:17.720 It came at Leasta mentioned housing you started to slow down. 0:01:17.760 --> 0:01:19.720 That's kind of one of those early indicators that growth 0:01:19.760 --> 0:01:21.760 is going to slow it down in the future. You know. 0:01:21.800 --> 0:01:23.520 I think what the Fed is hoping and markets are 0:01:23.520 --> 0:01:26.080 hoping is we had a softer print last week. We'll 0:01:26.080 --> 0:01:28.160 get a softer print hopefully in December, and that will 0:01:28.200 --> 0:01:30.720 be evidence that that inflation started to come down at 0:01:30.720 --> 0:01:33.200 the time when unemployment still sub four percent, right, And 0:01:33.200 --> 0:01:35.880 that's kind of a really nice balance for the Fed, 0:01:36.080 --> 0:01:39.360 especially because based on lags of monetary policy, we haven't 0:01:39.360 --> 0:01:42.000 seen their rate hikes really hit the economy yet, right, 0:01:42.040 --> 0:01:44.120 So they really need this inflation problem to get under 0:01:44.120 --> 0:01:46.919 control before that starts to happen. You mentioned that investable window. 0:01:47.400 --> 0:01:50.880 Is that basically the window before growth collapses essentially? Yeah, 0:01:50.920 --> 0:01:52.320 I mean I think it is right. It's it's the 0:01:52.360 --> 0:01:55.400 window between Hey, inflation looks like it's peak, the FED 0:01:55.440 --> 0:01:58.160 can back off on rate hikes and oh, you know, 0:01:58.240 --> 0:02:00.600 the unemployment rate is rising in other other forms of 0:02:00.680 --> 0:02:03.880 economic growth are slowing. Exactly how well can you actually 0:02:03.920 --> 0:02:06.120 time this market though, if you're looking at something that's 0:02:06.120 --> 0:02:08.720 flip flopped by you know, ten percent in a week. 0:02:09.280 --> 0:02:10.760 I mean, I don't think you can. And I think 0:02:10.760 --> 0:02:13.120 that's why the investable windows are really really short. Um, 0:02:13.200 --> 0:02:15.640 that's why you know you're not taking victory laps, are 0:02:15.720 --> 0:02:17.720 kind of riding positions too long. I think clients are 0:02:17.720 --> 0:02:20.240 in and out of position as quickly as possible, you know, 0:02:20.360 --> 0:02:22.480 just for that reason. Um, it does feel like the 0:02:22.480 --> 0:02:25.040 markets moving data point to data point at this at 0:02:25.040 --> 0:02:27.040 this time, And I think that's why right now are 0:02:27.080 --> 0:02:29.120 people are already asking what are non fond payroll is 0:02:29.160 --> 0:02:31.120 going to look like in early December? What is that 0:02:31.120 --> 0:02:33.680 inflation pretty going to look like? In December? The markets 0:02:33.680 --> 0:02:36.239 are pricing almost at two point eight percent SMP move 0:02:36.560 --> 0:02:38.960 on the CPI in the middle of December, So it 0:02:39.000 --> 0:02:40.760 just gives you a sense of how much risk is 0:02:40.800 --> 0:02:43.720 priced for that day already, you know, sitting here and 0:02:43.720 --> 0:02:46.959 we're not even Thanksgiving, is it easier to look longer term, 0:02:47.040 --> 0:02:49.760 especially at the leadership and we're talking to Lori Calvacina 0:02:49.800 --> 0:02:52.000 about the leadership and the rally that we've seen in 0:02:52.080 --> 0:02:54.720 big tech recently over the past couple of sessions, and 0:02:54.760 --> 0:02:57.160 she sees that it could be sustainable to you agree 0:02:57.200 --> 0:03:00.120 that there is some sort of return the rise of 0:03:00.160 --> 0:03:03.480 the big tech behemoth as leaders. You know, I don't 0:03:03.480 --> 0:03:05.240 think we're I don't think I'm behind that fully. Yet 0:03:05.400 --> 0:03:07.040 there could be, it could not be. I think it's 0:03:07.040 --> 0:03:10.560 just it's impossible to tell me. Look, tech should work 0:03:10.760 --> 0:03:13.160 if the pressure from rates eases a bit. I think 0:03:13.160 --> 0:03:14.960 the challenge with tech for me at this point, it's 0:03:15.000 --> 0:03:17.520 the beginning of the year. This was a valuation discussion, right, 0:03:17.520 --> 0:03:20.080 We're gonna push yields higher, that's gonna push PE's down. 0:03:20.080 --> 0:03:23.840 For the NASTAC third quarter earnings were not about valuation, right. 0:03:24.000 --> 0:03:27.079 Those are about actual fundamentals and what's going on in growth, 0:03:27.160 --> 0:03:30.160 what's going on with Amazon, Facebook, everybody laying off employees. 0:03:30.360 --> 0:03:32.960 Seeing The question here for tech is if I take 0:03:33.000 --> 0:03:36.200 that pressure off from rates, do I get evaluation rerating 0:03:36.360 --> 0:03:37.920 or do people take a step back and say, I 0:03:37.920 --> 0:03:40.760 need to see how this this cost cutting initiative plays out, 0:03:40.920 --> 0:03:42.840 Which is why it's I think tech is a really 0:03:42.840 --> 0:03:45.400 tricky trade right here, just for that reason. I keep 0:03:45.440 --> 0:03:47.920 going back to this Brian Chesky tweet. John, I mean, 0:03:47.920 --> 0:03:50.040 you brought this up, and I keep thinking about it. Yeah, 0:03:50.280 --> 0:03:52.400 it feels like we were in a nightclub and the 0:03:52.480 --> 0:03:55.000 light's just turned on, And I keep thinking about this 0:03:55.040 --> 0:03:58.000 in terms to tell me what happens when Yeah, because 0:03:58.000 --> 0:04:02.600 you have no idea clearly so obviously very true. I'm curious, though, 0:04:02.880 --> 0:04:05.960 what else is there that's going to get exposed? John? Well? 0:04:05.960 --> 0:04:08.760 How how big is the iceberg? Is basically what I'm 0:04:08.760 --> 0:04:10.920 trying to work out and everybody's trying to work out. 0:04:10.960 --> 0:04:13.280 And I saw all those comments over Twitter over the weekend. 0:04:13.480 --> 0:04:16.920 How big is the iceberg? Let's talk about crypto for instance, 0:04:16.920 --> 0:04:18.520 And I think this is the big question right now, 0:04:19.080 --> 0:04:22.719 to what degree if we had widespread institutional adoption with 0:04:22.800 --> 0:04:25.640 that in mind, how much scope is there for contagion 0:04:25.720 --> 0:04:29.599 from that asset class across to traditional asset classes. And 0:04:29.600 --> 0:04:31.320 the number one question I'm filled in right now is 0:04:31.320 --> 0:04:34.240 for people that never touched crypto, never touch bitcoin, and 0:04:34.240 --> 0:04:35.919 they want to understand what does it mean for me? 0:04:36.160 --> 0:04:37.360 What does it mean for me? And what are the 0:04:37.400 --> 0:04:39.640 risks around these stories right now? What are they? What 0:04:39.680 --> 0:04:41.440 are your telling clients, well, I think I think that 0:04:41.520 --> 0:04:45.279 question rule relates to what is the FED going to break? Essentially, 0:04:45.320 --> 0:04:48.040 you had ten years of easy monetary policy. You've now 0:04:48.160 --> 0:04:50.400 hiked massively over a short period of time, and I 0:04:50.480 --> 0:04:52.320 think a lot of clients are think, well, if they're 0:04:52.360 --> 0:04:54.400 able to hike this motor over a short time, not 0:04:54.480 --> 0:04:56.800 create a hard lending in the economy and not break 0:04:57.120 --> 0:05:01.280 any asset classes, that's gonna be you ouplishment of a lifetime. So, 0:05:01.560 --> 0:05:03.279 you know, Crypto was one of that people have pointed 0:05:03.320 --> 0:05:05.839 to and that was a beneficiary of easy money. Um, 0:05:06.160 --> 0:05:07.880 you know, is that is that the evidence? Is it 0:05:08.000 --> 0:05:10.680 something like again, is it? Is it easy credit? Is 0:05:10.720 --> 0:05:13.000 it housing? And this is why it's it's just very 0:05:13.040 --> 0:05:14.640 hard to sort of step in and say, over a 0:05:14.680 --> 0:05:17.880 medium term horizon, I'm comfortable owning risk here because we 0:05:17.920 --> 0:05:20.400 haven't had sort of that moment, right, that moment where 0:05:20.400 --> 0:05:22.440 an asset class that you didn't expect to kind of 0:05:22.440 --> 0:05:25.559 come under pressure has So it's it's a great question 0:05:25.560 --> 0:05:27.040 how big is it? I mean, you've you've seen the 0:05:27.080 --> 0:05:29.719 size of the balanty. You know, you've seen you know, 0:05:29.800 --> 0:05:33.040 negative rates in Europe, um, you've seen Cryptogo where it went. 0:05:33.120 --> 0:05:35.880 You've seen tech performance where it was. I mean, if 0:05:35.920 --> 0:05:38.080 there's an iceberg, it's fairly big, right, because all of 0:05:38.080 --> 0:05:40.680 these trends have been extremely powerful and for an extended 0:05:40.680 --> 0:05:42.920 period of time. So I think that's why a lot 0:05:42.960 --> 0:05:45.279 of clients haven't fully re risked and why they're not 0:05:45.360 --> 0:05:48.239 fully bought in yet, because there's a sense that there's 0:05:48.279 --> 0:05:51.080 something out there that that hasn't worked itself out yet. 0:05:51.240 --> 0:05:53.039 We hear from economists that we haven't built up that 0:05:53.120 --> 0:05:56.080 much access. We've been asking on this program, what are 0:05:56.080 --> 0:05:58.320 you talking about the excess of the last two years 0:05:58.400 --> 0:06:00.760 or the excess of the last decade? What is the 0:06:00.760 --> 0:06:03.280 excess we need to unwind the last two years or 0:06:03.640 --> 0:06:06.520 the last ten? I mean I has to I would 0:06:06.520 --> 0:06:08.520 say it's the last ten, right, I mean those are 0:06:08.520 --> 0:06:10.480 two two separate times. It ain't the last two years 0:06:10.520 --> 0:06:12.720 to me is much more a fiscal discussion of how 0:06:12.800 --> 0:06:15.160 much money the government spent the last ten years. Is 0:06:15.240 --> 0:06:18.080 much more monetary discussion in terms of in terms of 0:06:18.160 --> 0:06:20.960 you know, easier monetary policy. So I mean you have 0:06:21.000 --> 0:06:23.680 to unwind all of that. Probably not, but you do 0:06:23.760 --> 0:06:25.680 have to unwind I think a portion of it. And 0:06:25.720 --> 0:06:27.640 the question I think they're for equities. That was a 0:06:27.680 --> 0:06:31.400 discussion about valuation, particularly of growth stocks and tech, and 0:06:31.440 --> 0:06:33.520 a lot of that got sort of dealt with earlier 0:06:33.520 --> 0:06:35.480 in the year. I think what a lot of clients 0:06:35.520 --> 0:06:38.440 struggle with is who have been the biggest beneficiaries of 0:06:38.560 --> 0:06:42.560 easy monetary policy? Um, you know, what have they invested in? 0:06:43.240 --> 0:06:45.479 And have we seen what they've invested in? Kind of 0:06:45.520 --> 0:06:48.440 re rate itself, and there's some questions out there. Real 0:06:48.560 --> 0:06:50.560 estate in particular, I think is one people are really 0:06:50.600 --> 0:06:53.200 really focused on UM And ultimately, yeah, we're just gonna 0:06:53.200 --> 0:06:54.960 have to see how this plays out. But again, this 0:06:55.000 --> 0:06:56.560 is why I think it's hard to say, yeah, all 0:06:56.600 --> 0:07:00.240 clear once inflation peaks were good to go, because again, 0:07:00.240 --> 0:07:03.520 if monetary policy acts with somewhere between the six and 0:07:03.520 --> 0:07:06.360 eighteen month leg depending on who you talk to, what 0:07:06.440 --> 0:07:08.840 was the FED doing twelve months ago? Right? The Fed 0:07:08.960 --> 0:07:11.760 was at zero twelve months ago and they were buying bonds. So, 0:07:12.160 --> 0:07:15.600 you know, while we've hiked a bit, the real estate 0:07:15.640 --> 0:07:18.320 market has weakened a bit. You know, there's a case 0:07:18.360 --> 0:07:20.720 to be made that a very small partition of this 0:07:20.960 --> 0:07:23.320 portion of this tightening has hit the markets. Um, other 0:07:23.360 --> 0:07:25.160 than maybe f c I, which is just the market 0:07:25.160 --> 0:07:29.320 itself anyways, thought, um, if it wasn't holiday season, it 0:07:29.320 --> 0:07:31.640 won't you know, I was just gonna say, I think 0:07:31.680 --> 0:07:33.280 that he hasn't written his review and he's not going 0:07:33.320 --> 0:07:35.160 to and he's just basically coming on. He would explain 0:07:35.160 --> 0:07:37.040 why you're ahead of you is not necessary and he 0:07:37.080 --> 0:07:39.320 can go home and enjoy his holidays. Right the year 0:07:39.320 --> 0:07:42.640 I had outlook in March, I say all the time. 0:07:42.840 --> 0:07:45.920 Just at the end of the first quarter, the new 0:07:46.000 --> 0:07:49.679 poecasts Stuart Kister City, Stuart's great to see you again 0:07:49.840 --> 0:07:56.520 in person in the studio. Doan Swamp Chief Economists the 0:07:56.600 --> 0:07:59.880 KPMG and charts with following some of the Fed speak Dank. 0:08:00.040 --> 0:08:02.600 We start with Governor Walla yesterday evening in Australia. What 0:08:02.600 --> 0:08:04.760 did you make of these lightest comments and a pushback 0:08:04.800 --> 0:08:07.160 seemingly against the market action. I think we're going to 0:08:07.240 --> 0:08:08.920 see more of it. I think what you see with 0:08:08.960 --> 0:08:11.080 the Fed is, you know, they've agreed to do more 0:08:11.160 --> 0:08:13.880 measured rate hikes, but there as they close in on 0:08:13.960 --> 0:08:16.600 a terminal rate, but they still think that terminal rate, 0:08:16.640 --> 0:08:19.880 the peak in short term rates is higher than they 0:08:19.880 --> 0:08:21.880 did just a few months ago. And they're going to 0:08:22.000 --> 0:08:24.800 stick to that kind of language for some time. I 0:08:24.840 --> 0:08:26.880 think we're going to also see when we see the 0:08:26.920 --> 0:08:31.240 PC index because of that weird medical cost deceleration in 0:08:31.280 --> 0:08:33.559 the c p I, the PC index, which is a 0:08:33.640 --> 0:08:37.720 day before the FED meets in December, that when that's released, 0:08:37.720 --> 0:08:40.400 it's going to show a little hotter corese c p I, 0:08:40.600 --> 0:08:43.360 and the Fed's going to feel pretty justified about continuing 0:08:43.360 --> 0:08:46.040 to raise rates, although at a fifty basis point pace 0:08:46.360 --> 0:08:48.920 instead of a seventy five basis point pace. And the 0:08:48.960 --> 0:08:53.320 FED also doesn't like to see financial market conditions easy 0:08:53.640 --> 0:08:55.960 right now when they're still trying to tighten I know 0:08:56.080 --> 0:08:58.200 that sounds strange, but the bottom line is this is 0:08:58.280 --> 0:09:01.760 undoing much of the forward guidance that the FED has 0:09:01.880 --> 0:09:04.439 worked so hard to establish. It was like that summer 0:09:04.520 --> 0:09:06.720 rally on repeat, and I think Governor want to alluded 0:09:06.760 --> 0:09:08.760 to the problems that come about from that. We put 0:09:08.800 --> 0:09:11.120 some numbers just on the SEP that might come out 0:09:11.120 --> 0:09:12.600 in the middle of December. In fact, it will come 0:09:12.640 --> 0:09:14.720 out in the middle of December. We put some numbers 0:09:14.720 --> 0:09:17.280 on that. Diane. We saw the SEP and the dot 0:09:18.160 --> 0:09:20.640 three moved from three to four sixty I thought that 0:09:20.679 --> 0:09:22.680 was a major jump. It was a big jump. Are 0:09:22.679 --> 0:09:26.040 you expecting something similar, something similar in the December meeting 0:09:26.080 --> 0:09:30.120 four sixty two? What Well, we did have six participants 0:09:30.200 --> 0:09:33.480 at that meeting that had five percent as the high 0:09:33.640 --> 0:09:36.800 end of that um that range, and so I would 0:09:36.840 --> 0:09:39.720 expect to see those six participants to move above five 0:09:40.400 --> 0:09:43.280 And we could see that SEP the high end of 0:09:43.320 --> 0:09:46.679 that rate move slightly above five percent as well. Our 0:09:46.720 --> 0:09:49.600 expectation now is that the high end of the range 0:09:49.640 --> 0:09:52.160 is five and a quarter percent, which is five point 0:09:52.200 --> 0:09:54.560 one to five in the middle of the target range. 0:09:54.800 --> 0:09:56.760 But I think that's important to remember is that we 0:09:56.920 --> 0:10:00.160 already had six participants at the meeting in September are 0:10:00.160 --> 0:10:03.640 looking to go higher than what the SCP was telling us. 0:10:04.200 --> 0:10:06.160 Ian you mentioned the medical costs, and I don't want 0:10:06.160 --> 0:10:07.920 to get too far in the weeds, but there was 0:10:08.320 --> 0:10:11.920 a glitch or a strange confluence of numbers in the 0:10:12.000 --> 0:10:14.680 latest CPI report. If you back out that health care 0:10:14.760 --> 0:10:17.800 and component, what does cp I look like? But the 0:10:17.840 --> 0:10:21.680 cp I, certainly the underlying inflation members numbers look like 0:10:21.720 --> 0:10:23.960 they're beginning to peak, which is the good news. And 0:10:24.040 --> 0:10:27.040 I'm actually much more optimistic that we're going to see 0:10:27.280 --> 0:10:31.880 a disorderly or a welcome sort of deceleration in shelter 0:10:32.000 --> 0:10:35.719 costs as we get into three much more quickly than 0:10:35.760 --> 0:10:39.480 the Federal Reserve expects. That said, this is still a 0:10:39.559 --> 0:10:42.200 number that's too hot for the FED and not low 0:10:42.320 --> 0:10:44.920 enough for the Fed to feel like, you know, the 0:10:44.960 --> 0:10:47.640 war is over. And I think that's very important that 0:10:47.720 --> 0:10:49.560 the Fed still feels like they still have to go 0:10:49.760 --> 0:10:53.640 higher on rates to cool inflation, and it's still too 0:10:53.679 --> 0:10:56.400 hot of an inflation right for them to stop thinking 0:10:56.440 --> 0:10:59.360 about the pain that might accompany it, which is a 0:10:59.480 --> 0:11:01.760 rise in the unemployment rate. We're just talking with drum 0:11:01.800 --> 0:11:04.959 Schneider of PIMCO about how this feels like it could 0:11:05.000 --> 0:11:08.200 be a prolonged downturn, even if it's shallow, it's going 0:11:08.240 --> 0:11:10.440 to last a long time. Do you adhere to that 0:11:10.520 --> 0:11:13.160 kind of view that perhaps the worst case scenario of 0:11:13.160 --> 0:11:16.240 a severe downturn seems taken off the table a little 0:11:16.240 --> 0:11:19.199 bit more, but that it could be a very long 0:11:19.240 --> 0:11:22.319 time before we see meaningful growth at levels that we've 0:11:22.320 --> 0:11:24.520 seen over the past decade. I think it's going to 0:11:24.559 --> 0:11:27.920 be you know, every recession is different. Our own expectations 0:11:27.960 --> 0:11:31.720 are for a moderate recession of a couple of quarters 0:11:31.880 --> 0:11:35.880 without a robust rebound in the second half of three, 0:11:36.240 --> 0:11:39.520 and then really gaining momentum in the end of four. 0:11:39.679 --> 0:11:42.920 So as a prolonged period of weakness, that is what 0:11:43.040 --> 0:11:46.680 we are seeing. That said, we're only talking about high 0:11:46.720 --> 0:11:49.680 in the unemployment rate, nipping close to six percent. That 0:11:49.840 --> 0:11:53.960 is really low for an unemployment rate for recession. There's 0:11:54.000 --> 0:11:55.959 a lot of reasons for that and none the list 0:11:56.000 --> 0:11:58.720 of which is the aging of the population and the 0:11:58.800 --> 0:12:02.240 loss of participation by those over sixty five. Those are 0:12:02.240 --> 0:12:05.400 going to be holding the participation ratedown and the overall 0:12:05.480 --> 0:12:08.360 unemployment rate down. But this is a very different kind 0:12:08.360 --> 0:12:13.439 of recession, disproportionately hitting housing, some spill over into consumer spending, 0:12:13.800 --> 0:12:17.040 business investment will be hit, but unevenly. We've got the 0:12:17.160 --> 0:12:21.520 ramp up of electric via electric battery pants going on. 0:12:21.640 --> 0:12:24.679 We've got subsidies for chip plants going on. Those are 0:12:24.760 --> 0:12:28.320 ramping up much more quickly than the infrastructure spending bill, 0:12:28.360 --> 0:12:31.000 which was passed sooner, and that's not going to hit 0:12:31.080 --> 0:12:35.600 until we get into well into and just out of interest. 0:12:35.720 --> 0:12:37.960 If the Democrats hold onto the House, and they may 0:12:37.960 --> 0:12:39.559 well to do. I've got no idea what happens here. 0:12:39.600 --> 0:12:42.600 Everyone's still talking about gridlock, but ultimately things have shifted 0:12:42.600 --> 0:12:45.160 the other way more recently. But that changed your round 0:12:45.160 --> 0:12:47.440 look at all. I think the biggest change in the 0:12:47.480 --> 0:12:50.680 outlook is the risks of battle over the debt ceiling 0:12:50.720 --> 0:12:53.080 and what that would mean at a time when the 0:12:53.120 --> 0:12:55.760 Fed still raising rates. You know, we already had the 0:12:55.800 --> 0:12:58.600 debacle of two thousand eleven and the debt ceiling debate 0:12:58.640 --> 0:13:01.080 back then. To take that off the table, I think 0:13:01.280 --> 0:13:03.840 is good news now. Whether or not it means more 0:13:03.920 --> 0:13:07.040 stimulus or more stimulus if we hit a downturn. I 0:13:07.080 --> 0:13:10.040 still think that we're limited in fiscal space, so I'm 0:13:10.040 --> 0:13:12.960 not sure that it actually means more steamless out there. 0:13:13.360 --> 0:13:15.520 It's certainly I don't think they're going to have an 0:13:15.520 --> 0:13:19.960 easy path to any kind of changes in policy, which 0:13:20.040 --> 0:13:22.400 is a bit unfortunate because we need to make some 0:13:22.559 --> 0:13:25.719 major decisions on policy that I believe need to be 0:13:25.800 --> 0:13:29.199 bipartisan in scope, and I don't see that no matter 0:13:29.240 --> 0:13:32.280 what the outcome is either way, Dian, fantastic as a 0:13:32.280 --> 0:13:34.319 white to catch up with you. Dian Swunk, the of 0:13:34.400 --> 0:13:46.360 KPMG Prams rejoins us now they had a level of 0:13:46.400 --> 0:13:49.640 right strategy of TV securities prayer. It's the question that 0:13:49.720 --> 0:13:53.280 every strategist face right now. Has the twenty three outlook 0:13:53.400 --> 0:13:57.600 coming along? Oh gosh, you know every year it's tough, 0:13:57.640 --> 0:14:00.960 but I would say this year we're debating economic outload, 0:14:01.000 --> 0:14:04.040 inflation growth. I actually think that the growth outlook will 0:14:04.040 --> 0:14:06.800 become more interesting as we go into twenty three, and 0:14:06.840 --> 0:14:09.840 the FED reaction function. We normally don't have uncertainty on 0:14:09.960 --> 0:14:13.920 all these aspects, plus a fairly liquid market positioning. I mean, 0:14:14.160 --> 0:14:17.040 just look at the reaction on Thursday. I think it 0:14:17.080 --> 0:14:19.160 tells you it's It's never easy, but I think this 0:14:19.240 --> 0:14:21.880 year is particularly hard. You're supposed to take these outlooks 0:14:21.920 --> 0:14:24.400 with a pinch of salt or a fistful of salt 0:14:24.560 --> 0:14:27.480 and be nimble. So but but we're all going to 0:14:27.560 --> 0:14:30.200 be writing it over the next you know, a couple 0:14:30.200 --> 0:14:33.320 of weeks. Do you have any convictions whatsoever prere you know? 0:14:33.440 --> 0:14:36.640 I do think I think liquidity is important, um, you know, 0:14:36.680 --> 0:14:39.520 so I think making sure that you've got enough liquid 0:14:39.520 --> 0:14:41.560 assets so that you're not forced to sell what you 0:14:41.600 --> 0:14:44.160 don't want to sell. I think that is I would 0:14:44.160 --> 0:14:46.240 say a theme that we've had this year. I think 0:14:46.240 --> 0:14:49.400 that continues. The other big conviction I have is I 0:14:49.440 --> 0:14:52.760 know that the data right now is still strong. Um, 0:14:52.800 --> 0:14:54.760 you know, we think inflation is going to be it's 0:14:55.000 --> 0:14:57.160 it's less about the peak, it's how quickly it's going 0:14:57.200 --> 0:14:58.920 to decline. So I think we're going to move from 0:14:59.120 --> 0:15:02.000 whether we speak to that pace of decline. If the 0:15:02.040 --> 0:15:05.080 pace of decline is shallow, which is actually our our 0:15:05.120 --> 0:15:07.800 call here, the fat's going to stay restrictive for longer, 0:15:07.840 --> 0:15:10.000 and and so a recession is almost a done deal. 0:15:10.120 --> 0:15:14.840 So we've got these views around sticky inflation, recession. It's 0:15:14.920 --> 0:15:17.280 timing that, treating that that's going to be hard. I 0:15:17.400 --> 0:15:19.480 still like ten your treasuries. I mean, I don't know 0:15:19.520 --> 0:15:22.040 why we move thirty basis points on Thursday. So that 0:15:22.040 --> 0:15:24.440 can absolutely be undone a little bit. But I think 0:15:24.520 --> 0:15:27.880 owning some duration risks, which has been shunned by investors 0:15:28.200 --> 0:15:30.760 all through this year, I think it's actually it actually 0:15:30.800 --> 0:15:34.440 makes sense to start to position for duration coming back. Um, 0:15:34.480 --> 0:15:36.920 you know, the tenure should not be around four percent 0:15:36.960 --> 0:15:39.400 if you're heading into a recession. I'm not going to 0:15:39.520 --> 0:15:41.840 let that go. I have no idea why it rallied 0:15:41.840 --> 0:15:45.240 thirty basis points on Friday or on Thursday rather Friday 0:15:45.280 --> 0:15:47.440 the bottom market was closed. So what do you do 0:15:47.480 --> 0:15:49.400 with these types of moves? How do you understand them 0:15:49.400 --> 0:15:52.600 in terms of positioning a liquidity standpoint and what that 0:15:52.640 --> 0:15:55.760 means in terms of coming up with some sort of trade. So, 0:15:55.800 --> 0:15:59.080 as Governor Wallace said, you know, to become to to 0:15:59.200 --> 0:16:01.920 breathe that. I think that's actually good advice. The market 0:16:02.000 --> 0:16:04.520 has been extremely volatile. You know, when we track standard 0:16:04.560 --> 0:16:07.640 deviation of tenure changes, this is the highest we've seen 0:16:07.720 --> 0:16:10.640 including the seventies in terms of how much the tenure. 0:16:10.920 --> 0:16:12.880 When the risk free rate moves that much, you can 0:16:12.920 --> 0:16:17.080 just imagine positioning the importance of flows. I think understanding 0:16:17.080 --> 0:16:20.240 that the market is not as liquid, dealers have constrained capacity. 0:16:20.440 --> 0:16:22.640 I think that's important, which is why you're supposed to 0:16:22.760 --> 0:16:25.880 keep some cash. I think bills are actually attractive. You 0:16:26.040 --> 0:16:28.760 keep money in the front end, UH to make sure 0:16:28.800 --> 0:16:31.200 that if the moves are excessive, you don't have to sell. 0:16:31.240 --> 0:16:34.200 There's no fire sale. You can potentially put money to work. 0:16:34.520 --> 0:16:37.240 I think being nimble, I think all of this is 0:16:37.720 --> 0:16:40.000 you know, we shouldn't see this as a one off 0:16:40.200 --> 0:16:44.120 maybe positioning was was particularly exaggerated. I see it as 0:16:44.160 --> 0:16:46.320 a structural issue and something I think we have to 0:16:46.360 --> 0:16:49.560 get used to, particularly because we have a data dependent FED. 0:16:49.640 --> 0:16:52.280 It's very different from when forward guidance was there. You 0:16:52.280 --> 0:16:55.880 could actually expect volatility to stay low. I think volatility 0:16:55.920 --> 0:16:58.200 stays high all through next day. It's just the market 0:16:58.200 --> 0:17:01.240 focus will shift from in lation to growth. With that 0:17:01.320 --> 0:17:03.200 in mind, prayer how much influence that this FED have 0:17:03.800 --> 0:17:06.760 on the long end, on the ten year? You know, 0:17:06.880 --> 0:17:08.719 I actually think they do. I don't know why they 0:17:08.720 --> 0:17:11.879 don't talk as much about QT. They're letting about a 0:17:11.920 --> 0:17:15.040 hundred billion of treasuries and mortgages run off the balance 0:17:15.080 --> 0:17:18.040 sheet every single month. I think that's the reason why 0:17:18.080 --> 0:17:20.560 the long end of the treasury CLUVE has underperformed. There's 0:17:20.600 --> 0:17:23.480 a lot more supply, there's mortgages, which also long duration, 0:17:24.000 --> 0:17:26.240 and the market is looking for that marginal buyer. So 0:17:26.320 --> 0:17:29.159 I do think that they have control. Um. You know, 0:17:29.240 --> 0:17:31.040 at some point, I do think QUT is going to 0:17:31.200 --> 0:17:33.400 end once they start to ease. We actually have them 0:17:33.440 --> 0:17:36.080 starting to ease. I know, I just talked about sticky inflation, 0:17:36.400 --> 0:17:38.720 but if the unemployment rate is at five percent or 0:17:38.800 --> 0:17:41.760 higher and inflation is getting down to three percent. We 0:17:41.800 --> 0:17:44.679 actually think then the tradeoff will look will start to 0:17:44.680 --> 0:17:47.600 skew the FED towards rate cuts. And I think if 0:17:47.600 --> 0:17:49.880 the Fed starts to put trade, they're going to stop QUT. 0:17:50.520 --> 0:17:53.520 And so while people think that's really a front end trade. Now, 0:17:53.600 --> 0:17:56.320 if quantitative tightening stops, I think the tenure has a 0:17:56.320 --> 0:17:58.840 lot more room to go. So I do think that 0:17:58.920 --> 0:18:01.640 they have control over along end. They just don't talk 0:18:01.640 --> 0:18:04.280 about that control a whole lot. When you press send 0:18:04.359 --> 0:18:07.000 on the outlook, come and see us right, premisra of 0:18:07.040 --> 0:18:14.399 TV Securities, Thank you. Lori Canvassino had a US acurity 0:18:14.400 --> 0:18:17.280 strategy at NBC Capital Markets. Laurie, Mike Wilson, and Morgan 0:18:17.320 --> 0:18:20.640 Stanley talking about the volatile path back to thirty after 0:18:20.680 --> 0:18:24.160 maybe testing something like three K in the first quarter. Laurie, 0:18:24.240 --> 0:18:26.240 earnings risk. Can you walk us through where you see 0:18:26.240 --> 0:18:28.959 the earnings risk in the economy right now for corporate 0:18:29.000 --> 0:18:32.360 America and why you expect that to land? Sure, it's 0:18:32.359 --> 0:18:34.520 a great question, John, and let me let me say, Look, 0:18:34.560 --> 0:18:36.440 I don't think we're out of the woods on earning yet. 0:18:36.520 --> 0:18:38.719 That being said, I do think it's possible that markets 0:18:38.720 --> 0:18:40.800 put in the ultimate low in October because three to 0:18:40.920 --> 0:18:44.119 six months before you get the final earnings downgrades is 0:18:44.119 --> 0:18:46.440 typically when the stock market bottoms and big sort of 0:18:46.520 --> 0:18:49.080 challenge periods. But just kind of backing up from that, 0:18:49.240 --> 0:18:51.120 I think we're at too oh wait for next year 0:18:51.160 --> 0:18:53.560 on earnings. I think the consensus is still tracking around, 0:18:53.560 --> 0:18:56.879 say to thirty three. Um, you know, what we really 0:18:56.880 --> 0:18:59.760 have baked in is moderating inflation, which is really taking 0:18:59.800 --> 0:19:02.040 our of a new number. It doesn't really end up 0:19:02.040 --> 0:19:04.199