WEBVTT - Surveillance: Soft vs Hard Landing 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.000 with Jonathan Farrell and Lisa A. Bramowitz. Join us each 0:00:12.080 --> 0:00:16.040 day for insight from the best and economics, geopolitics, finance 0:00:16.120 --> 0:00:20.680 and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.920 --> 0:00:25.480 Spotify and anywhere you get your podcasts, and always I'm 0:00:25.480 --> 0:00:29.760 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App. 0:00:30.000 --> 0:00:32.240 Dony Constant joint us now head of Mac Price Strategy 0:00:32.400 --> 0:00:35.800 and Massoo. How America's dumb is this? Heke today the 0:00:35.880 --> 0:00:41.920 penultimate hike of this cycle? Uh, it work could be. 0:00:42.720 --> 0:00:45.559 I mean we're very close, I think to the Fed. Uh, 0:00:46.040 --> 0:00:49.519 I'm finishing. UM. I think the key message though, is 0:00:49.560 --> 0:00:52.360 they can't kind of tell you they're about to finish. 0:00:52.400 --> 0:00:56.400 They're going to obviously give a hawks hawkish message around that. Uh. 0:00:56.520 --> 0:00:59.480 And they could either sort of, you know, in the 0:00:59.520 --> 0:01:01.960 second quarter to you declare an outright course like the 0:01:02.000 --> 0:01:04.440 Bank of Canada, or they could keep it more uncertain 0:01:04.800 --> 0:01:06.720 in a way that almost say that, you know, we 0:01:07.000 --> 0:01:09.480 might be done, but we'll see how it goes in 0:01:09.520 --> 0:01:12.559 the end. I think they're going to be done, though, Uh, 0:01:12.640 --> 0:01:14.680 you know, around five percent, so this could be the 0:01:14.720 --> 0:01:17.600 penultimate hike. On the back of that two ideas here 0:01:17.600 --> 0:01:20.479 you made national world nation worldwide headlines, I should say, 0:01:20.600 --> 0:01:23.039 was super restrictive the last time you were on is 0:01:23.080 --> 0:01:28.040 this a fat nearing or in a super restrictive phase? Yeah, 0:01:28.200 --> 0:01:30.160 I mean they are super restrictive. I mean it kind 0:01:30.160 --> 0:01:32.440 of depends on how you look at inflation. And we 0:01:32.440 --> 0:01:34.800 we were we look at it very carefully in in 0:01:34.840 --> 0:01:36.920 a in a lot of different ways in terms of 0:01:36.920 --> 0:01:40.800 the impacts of inflation expectations, wage price spirals you mentioned earlier, 0:01:41.040 --> 0:01:44.759 and dissecting it in terms of demand drivers and supply drivers, 0:01:44.840 --> 0:01:47.120 and when you sort of dig really deep, uh, and 0:01:47.280 --> 0:01:50.280 I would argue the inflation story is looking very good. 0:01:50.800 --> 0:01:54.640 It is basically normalizing. We're putting to bed the fears 0:01:54.920 --> 0:01:57.880 that inflation was in a whole new regime. And when 0:01:57.920 --> 0:02:01.280 you look at that, then essentially, when you measure uh 0:02:01.880 --> 0:02:04.520 monthly policy in terms of restrictiveness, both in terms of 0:02:04.560 --> 0:02:08.359 real interest rates and financial conditions, there's only one conclusion, 0:02:08.480 --> 0:02:11.440 and that it is super restrictive. And you mentioned NASTAC 0:02:11.560 --> 0:02:15.040 doing well, etcetera. But of overall, financial conditions are still 0:02:15.160 --> 0:02:18.360 very restrictive, and there is a danger that as you 0:02:18.400 --> 0:02:21.760 squeeze out the excess demand and profit margins, you're in 0:02:21.760 --> 0:02:23.799 a hard landing before you know it. And that's why 0:02:23.880 --> 0:02:26.079 the FED has to be quite careful and not pushing 0:02:26.160 --> 0:02:28.639 rates too high. Dominic, we're gonna talk to Richard Claire, 0:02:28.720 --> 0:02:31.560 the founder of DSGE or to talk about the time 0:02:31.600 --> 0:02:34.680 continuum on the X access the way I see it, 0:02:34.720 --> 0:02:38.760 and you mentioned this is an extended period of rates 0:02:38.880 --> 0:02:42.600 here or a little bit above versus pushing rates up 0:02:42.680 --> 0:02:46.240 up up to a higher rate level can extend it, 0:02:46.320 --> 0:02:51.040 and can an extended FED substitute for the migration to 0:02:51.160 --> 0:02:55.840 a higher higher rate absolutely uh, And I think the 0:02:55.880 --> 0:02:59.600 point is that, um, the idea of the soft landing 0:02:59.720 --> 0:03:03.520 versus high hard landing is like a sequencing. You can 0:03:03.600 --> 0:03:08.000 basically do the soft landing, keep rates uh an extended 0:03:08.040 --> 0:03:11.359 period elevated, but in order to avoid the hard landing, 0:03:11.560 --> 0:03:15.080 you need to scurry very fast to get back to neutral, 0:03:15.280 --> 0:03:17.920 which we think and the FEDS certainly still thinks is 0:03:17.919 --> 0:03:19.840 around two and a half percent. And that's the story. 0:03:21.560 --> 0:03:24.760 So the danger is of of not doing extended but 0:03:24.840 --> 0:03:27.800 just for for example, to keep on raising rates means 0:03:27.800 --> 0:03:31.040 you just got much more scurrying to do at the 0:03:31.120 --> 0:03:33.440 end of the day, and with with more risk. I 0:03:33.440 --> 0:03:35.800 would argue of making a mistake that you can't move 0:03:35.840 --> 0:03:38.560 fast enough if you're already you know, at say six 0:03:38.600 --> 0:03:41.840 percent funds, So basically staying around five getting to two 0:03:41.880 --> 0:03:43.440 and a half, that's doable. You do a bunch of 0:03:43.440 --> 0:03:46.840 fifty based point cuts in it's quite aggressive, but they 0:03:46.880 --> 0:03:49.200 can do that, and that way they avoid the hard landing. 0:03:49.320 --> 0:03:51.600 This isn't a choice of soft versus hard landing. It's 0:03:51.600 --> 0:03:54.360 a soft landing until it becomes a hard landing. And 0:03:54.360 --> 0:03:56.400 that's why the FED needs to be very alert and 0:03:56.440 --> 0:03:59.720 that reversal and policy which we would expect in four 0:03:59.760 --> 0:04:02.440 not the year domin I can feel like a little 0:04:02.440 --> 0:04:05.600 bit philosophical as we talk about FED communication and the 0:04:05.600 --> 0:04:08.720 market's response. If the FED speaks and markets don't respond, 0:04:08.840 --> 0:04:11.080 did the FED make noise? Right? I mean basically, if 0:04:11.080 --> 0:04:14.880 the FED tries to give guidance laughing me, tries to 0:04:14.920 --> 0:04:17.800 give guidance but the market doesn't sell off, is that 0:04:17.880 --> 0:04:20.960 actually effective in getting the Feds up? Who's laughing at me? 0:04:21.160 --> 0:04:24.520 In getting the FEDS message across? Yeah? I mean I 0:04:24.520 --> 0:04:26.880 don't think the FED needs to get the bond markets 0:04:26.880 --> 0:04:28.840 selling off. I mean, the bond market obviously is looking 0:04:28.839 --> 0:04:32.120 through all of this and discounting a pretty restrictive policy 0:04:32.160 --> 0:04:34.880 stance in terms of rates. Obviously, it's the financial condition 0:04:34.960 --> 0:04:38.279 side of it. It's basically the dollar and credit spreads 0:04:38.279 --> 0:04:40.680 and equities. So I think if there's too much of 0:04:40.680 --> 0:04:43.480 a relief rally in these things, and they can definitely 0:04:43.480 --> 0:04:46.640 push back, and they can definitely sort of trying jaw 0:04:46.720 --> 0:04:50.960 bone financial conditions tighter by introducing this uncertainty around maybe 0:04:50.960 --> 0:04:53.320 the peak and the funds rate, the uncertainty about how 0:04:53.440 --> 0:04:56.479 how committed they are to actually a pause, and that's 0:04:56.560 --> 0:04:59.159 very that's very likely they'll do that. I'm not sure 0:04:59.160 --> 0:05:01.560 they'll do that today. They could hint at that, but 0:05:01.560 --> 0:05:04.920 it's certainly very likely in Q two or maybe in 0:05:04.960 --> 0:05:07.560 the March meeting when to do that. And I think 0:05:07.640 --> 0:05:10.880 Larry Summers, you know, I mean, he said something sensible 0:05:11.640 --> 0:05:15.039 over the weekend and maybe the faith maybe the FED 0:05:15.120 --> 0:05:18.480 shouldn't I said that very carefully. Maybe the Fed shouldn't, 0:05:18.800 --> 0:05:21.400 you know, shouldn't recommit pre commit to tow hikes, and 0:05:21.400 --> 0:05:23.120 and that's really you know, it would be an interesting 0:05:23.160 --> 0:05:25.080 thing of the FED could perhaps have a bit more 0:05:25.160 --> 0:05:29.000 uncertainty around, you know, their policy going forward, even if 0:05:29.040 --> 0:05:32.320 they are effectively pausing with the benefit of hindsight. That's 0:05:32.320 --> 0:05:36.279 the line in the morning, dumb run I've got nothing left, 0:05:36.279 --> 0:05:38.880 nothing left for today. If we put it up there, 0:05:38.880 --> 0:05:45.839 come on, Amy, give me that Summers something says the morning, 0:05:45.880 --> 0:05:49.320 Professor Summers, and we look for the panel in London, 0:05:49.440 --> 0:05:52.920 Lawrence Summers and dominate Custom. That'll be a graced in 0:05:52.960 --> 0:05:54.920 a don't worry about it. He's not working up yet, 0:05:55.080 --> 0:06:09.400 Donnie Custom of Mr America's don't thank you now joining 0:06:09.480 --> 0:06:12.400 us Jerome Schneider, who's better than good in the short 0:06:12.520 --> 0:06:15.719 term space with Pimco as well. No, Jerome, I'm not 0:06:15.720 --> 0:06:18.200 gonna ask you about Tom Brady, but I am going 0:06:18.240 --> 0:06:21.240 to ask you what we've observed through the morning. What 0:06:21.400 --> 0:06:24.600 a January bounce? I guess you could take four or 0:06:24.600 --> 0:06:27.760 five six percent? And I know, Jerome, you're sitting with 0:06:27.760 --> 0:06:32.160 your Bloomberg and your Monroe Trader annualizing that out as well. 0:06:32.640 --> 0:06:38.440 What's the now what for you after a January pop? Yeah? 0:06:38.640 --> 0:06:40.400 In reality, you know what used to be just a 0:06:40.400 --> 0:06:43.760 handful of basis points is pretty substantial, and you're right, Tom, 0:06:43.760 --> 0:06:46.440 the annualized returns you have in a single month now 0:06:46.640 --> 0:06:49.000 add up to something if for cash, that's something in 0:06:49.000 --> 0:06:50.520 the realm of you know, four and a half to 0:06:50.560 --> 0:06:53.839 six percent, depending upon your strategy. That's an important factor 0:06:53.880 --> 0:06:56.599 to consider when you look at the landscape right now 0:06:56.640 --> 0:07:00.680 that's punctuated with economic uncertainty, potential for volatility, and we're 0:07:00.680 --> 0:07:03.800 at a crossroads right now where clearly the market is 0:07:04.400 --> 0:07:06.760 impass with the Federal Reserve and where they're going, and 0:07:06.800 --> 0:07:09.600 so that's gonna probably be reconciled over the next couple 0:07:09.600 --> 0:07:12.840 of weeks months, And as it is, it doesn't necessarily 0:07:12.840 --> 0:07:14.920 portrayed to be a smooth ride. So we do still 0:07:14.960 --> 0:07:17.760 find value within that front end of the yield space, 0:07:18.000 --> 0:07:21.720 within the within the within the global bond world. However, 0:07:21.760 --> 0:07:23.600 I think it's what it really The question is not 0:07:23.680 --> 0:07:26.760 necessarily where to be on the yield curve, but more importantly, 0:07:26.800 --> 0:07:28.920 it's a discussion of how much to allocate the fixed 0:07:28.920 --> 0:07:31.520 income in general given the recalibrations we've seen. And Jerome 0:07:31.640 --> 0:07:34.240 was so important. Here is o b E where you're 0:07:34.280 --> 0:07:37.160 overcome by events and here Jeroma and I'm speaking as 0:07:37.160 --> 0:07:41.320 a total hack. People in the mid maturity decide they 0:07:41.320 --> 0:07:44.680 want to enter the Jerome Schneider's space, and you get 0:07:44.760 --> 0:07:48.440 price up, yield down where it's no fun for you. 0:07:48.720 --> 0:07:52.400 Are you gonna be overwhelmed by people's running dashing to 0:07:52.560 --> 0:07:57.240 short term Well, there's actually pretty much a truando supply 0:07:57.320 --> 0:07:58.960 of that, and I think it's sort of met on 0:07:59.040 --> 0:08:01.760 two folds. Number one on you have the of course 0:08:01.800 --> 0:08:05.000 people looking for moving from lower yielding investments now that 0:08:05.000 --> 0:08:07.880 they're aware that there is attractive options in cash, but 0:08:07.920 --> 0:08:11.120 there's also significant opportunities that persist, and it's really typically 0:08:11.160 --> 0:08:13.840 outside the traditional landscape of money market funds and tea bills. 0:08:14.040 --> 0:08:17.200 It's more in buying short dated asset back securities, high 0:08:17.280 --> 0:08:21.120 quality commercial paper, things that really have self liquidating features 0:08:21.120 --> 0:08:23.720 and but yet remain fairly insulated to where we are 0:08:23.760 --> 0:08:26.520 in the global economic cycle. That's the key. But I 0:08:26.560 --> 0:08:28.840 do think that there is an overall focus right now 0:08:28.920 --> 0:08:31.239 where people have shunned for more than the past decade, 0:08:31.520 --> 0:08:34.240 an overallocation to bonds, and that really cuts to the 0:08:34.280 --> 0:08:36.600 point right now of instead of a discussion of where 0:08:36.600 --> 0:08:38.959 on the yield curve to be, despite the discussions of 0:08:39.000 --> 0:08:40.840 where we are with the ft today, it's more about 0:08:40.960 --> 0:08:42.920 how do you want to create a more balanced portfolio 0:08:43.200 --> 0:08:46.440 given the yield enhancement that we can see for portfolio performance. 0:08:46.480 --> 0:08:49.000 More broadly, the shift in tone drome that you have 0:08:49.160 --> 0:08:51.719 right now is telling to be because you are one 0:08:51.720 --> 0:08:54.240 of the most popular people, I'm sure in the investment world. 0:08:54.280 --> 0:08:56.520 About six months ago and everyone was plotting to cash 0:08:56.720 --> 0:08:58.679 and it was all about the appeal of cash as 0:08:58.679 --> 0:09:01.760 an income producing instrument. Now now it's fixed income is 0:09:01.800 --> 0:09:05.360 an appealing alternative to other assets, perhaps in a way 0:09:05.360 --> 0:09:08.280 that they haven't been. Does that indicate the people are 0:09:08.320 --> 0:09:11.160 moving out of cash at a really rapid pace and 0:09:11.240 --> 0:09:16.040 going into other either denominations of credit or equities. Well, 0:09:16.080 --> 0:09:18.320 not necessarily, And I think what is still prevalent in 0:09:18.320 --> 0:09:20.800 people's mind is sort of getting getting a little bit 0:09:20.840 --> 0:09:24.079 stung by the third rail of volatility within the broader marketplace. 0:09:24.120 --> 0:09:27.200 People obviously don't really dismiss what happened in two thousand 0:09:27.280 --> 0:09:30.120 twenty two so quickly, and more importantly, when they see 0:09:30.120 --> 0:09:33.040 periods of risk off. There is a mindset now even 0:09:33.080 --> 0:09:35.839 in the retail investor, to be very focused on how 0:09:35.920 --> 0:09:38.640 much volatility your portfolio is going to produce during those 0:09:38.720 --> 0:09:42.079 uncertain times. And so while people right might might seem 0:09:42.160 --> 0:09:45.800 opportunistic or perhaps see a Salter landing, given the real 0:09:45.880 --> 0:09:48.160 data we've seen over the real over the recent past, 0:09:48.440 --> 0:09:51.040 the reality is you're not seeing that risk appetite being 0:09:51.040 --> 0:09:54.720 as pervasive as it once was, specifically because that inciting 0:09:54.760 --> 0:09:57.480 action was driven by extremely low yields. That has a 0:09:57.520 --> 0:10:00.560 factor that's recalibrated people's expectations to create a more balanced 0:10:00.600 --> 0:10:03.559 approach to how they handle risk and again focusing on 0:10:03.600 --> 0:10:07.360 the volatility within their portfolios, whether institutional investors or retail 0:10:07.400 --> 0:10:10.120 investors for that matter. So flows continued that you have 0:10:10.160 --> 0:10:12.520 observed at least into your funds and into the fixed 0:10:12.520 --> 0:10:15.760 income space at the same clip that they did, say 0:10:15.800 --> 0:10:19.640 a month or two months ago. Yeah, No, I think 0:10:19.679 --> 0:10:21.679 we're seeing a sort of a pause right after the year, 0:10:21.760 --> 0:10:25.000 and people are really sort of accepting the fact that 0:10:25.120 --> 0:10:27.559 you know, these higher yields are are are are still 0:10:27.600 --> 0:10:30.560 here to stay. They're taking that initial step into perhaps 0:10:30.559 --> 0:10:33.120 money market funds. Some T bill suppli has come and 0:10:33.120 --> 0:10:35.320 that's sort of being met with some initial demands. But 0:10:35.400 --> 0:10:38.400 we are seeing people utilize this as a more strategic 0:10:38.480 --> 0:10:41.960 approach front dated fixed income LOA duration type of strategies. 0:10:42.120 --> 0:10:44.360 Things really within the zero to five year part of 0:10:44.360 --> 0:10:46.920 the YOKER are really sort of giving people an opportunity 0:10:46.920 --> 0:10:49.240 set to create that balance. What I think is important 0:10:49.320 --> 0:10:52.760 right now is there's a natural tension within the market attention, 0:10:52.800 --> 0:10:55.520 which is that the market is clearly trying to forecast 0:10:55.520 --> 0:10:58.160 and get ahead of the perspective fed cuts that might come. 0:10:58.200 --> 0:11:01.480 From a historical perspective, the market is fixated that that comes. 0:11:01.760 --> 0:11:04.440 But that's a probability based event, and what I mean 0:11:04.480 --> 0:11:07.480 by that is that there's an uncertain action that when 0:11:07.520 --> 0:11:10.160 we look at market pricing says there's a certain probability 0:11:10.200 --> 0:11:11.520 that will be assigned to it. It It doesn't mean with 0:11:12.240 --> 0:11:14.280 certainty there's cuts on the way at all. It's just 0:11:14.320 --> 0:11:17.400 the probability that that would happen. What's more important, though, 0:11:17.400 --> 0:11:19.720 is that the Federal Reserve is operating from the next 0:11:19.800 --> 0:11:22.560 chapter of that playbook from a historical perspective, and they're 0:11:22.600 --> 0:11:25.680 fully in mind that there's lasting damage promotiflation. What it 0:11:25.679 --> 0:11:28.400 means for the investor is that there is going to 0:11:28.440 --> 0:11:32.199 be some reconciliation. That reconciliation isn't necessarily as painless as 0:11:32.200 --> 0:11:35.120 people might portray even if we do get that soft landing. 0:11:35.240 --> 0:11:38.440 Tom Jr. Own Lisa from Fargo emails in thanks for 0:11:38.520 --> 0:11:41.079 watching Lisa, and she says, does a guy like Jerome 0:11:41.160 --> 0:11:45.720 Schneider care about the death ceiling? Do you care? Yeah? 0:11:45.920 --> 0:11:47.800 Of course we care. Of course we care. But it's 0:11:47.800 --> 0:11:50.120 a little bit too early. It's the prelude to the 0:11:50.160 --> 0:11:53.520 actual act, and not that we're forecasting any default situation, 0:11:53.600 --> 0:11:56.959 although that is a potentially remote uh situation that we 0:11:57.000 --> 0:11:59.040 have to be prepared for. This is not really a 0:11:59.040 --> 0:12:01.959 discussion for today or tomorrow or even March April. It's 0:12:02.000 --> 0:12:04.040 well into the summer, and I think that we have 0:12:04.120 --> 0:12:06.280 a good playbook on how on how it happens for 0:12:06.360 --> 0:12:08.440 our point of view, where we say right now is 0:12:08.440 --> 0:12:11.040 really focused not obviously stay on the Fed today, but 0:12:11.120 --> 0:12:12.920 more over the past over the next six weeks, where 0:12:12.920 --> 0:12:15.360 we're going to be getting frankly more important messaging from 0:12:15.360 --> 0:12:17.679 the Fed in terms of the summary of economic projections 0:12:17.960 --> 0:12:20.520 in March, and so the March toward March is really 0:12:20.520 --> 0:12:22.560 where we where we can see a little bit more 0:12:22.600 --> 0:12:25.960 definitive posturing in terms of the broader market impacts. The 0:12:26.000 --> 0:12:28.120 death ceiling is not something dou jure that we have 0:12:28.160 --> 0:12:31.120 to worry about perhaps perhaps being drump by the Tom 0:12:31.120 --> 0:12:33.959 Brady news. Trum Schinder, thank you so much for their 0:12:34.000 --> 0:12:41.040 coming in. Mr Brady. He is with Pimco joining us now, 0:12:41.160 --> 0:12:44.679 Christie Llick Klissman, the managing director for Portfolio Strategy over 0:12:44.840 --> 0:12:47.120 Goverment Sacks, Christie, and a simple one for you. Are 0:12:47.120 --> 0:12:49.560 you expecting chairman Power to deliver a little bit of 0:12:49.559 --> 0:12:51.880 pushback later on this afternoon? Yeah, I mean it's a 0:12:51.880 --> 0:12:55.320 good question. I think you mentioned earlier already. UM, it 0:12:55.400 --> 0:12:59.000 feels like the data has been quite supportive and and 0:12:59.040 --> 0:13:01.920 you're making progress. I think the wage inflation is coming in, 0:13:01.960 --> 0:13:05.160 the services inflation is coming in. I think, um, you 0:13:05.200 --> 0:13:08.280 are on on track for a soft landing. Certainly markets 0:13:08.280 --> 0:13:10.960 are shifting in this direction, so it seems to be 0:13:11.040 --> 0:13:13.839 like everything is on track. UM. So we expect him 0:13:13.920 --> 0:13:17.559 to reiterate the message he has given. Four. We expect 0:13:17.559 --> 0:13:21.600 three more twenty five basis point hikes and probably a 0:13:21.679 --> 0:13:24.800 relatively balanced meeting. You mentioned earlier to me the macro 0:13:24.920 --> 0:13:27.280 data would be much more important. UM. I think the 0:13:27.320 --> 0:13:31.480 central banks are probably a bit in state of course mode. Christian. 0:13:31.520 --> 0:13:33.959 We talked to the head of the Norwegian Serving Wealth 0:13:34.000 --> 0:13:37.520 Fund yesterday, who's got an immense challenge moving the needle 0:13:37.600 --> 0:13:41.439 because of his mass, his size. Many of us don't 0:13:41.520 --> 0:13:45.120 have that problem. Do we want to be index based 0:13:45.320 --> 0:13:49.120 or more choosy, skew to a lower our squared, more 0:13:49.240 --> 0:13:53.840 actively managed Listen, I think, as you know, in the 0:13:53.920 --> 0:13:56.880 last cycle, it was fine to be an indecs. I 0:13:56.920 --> 0:14:00.120 think the market cap weights when your favor both in 0:14:00.200 --> 0:14:03.760 global indcs with the US being the largest market and 0:14:03.840 --> 0:14:07.360 within the US with tech being the largest weight. And 0:14:07.400 --> 0:14:09.679 what we've been saying for some time is um that 0:14:09.760 --> 0:14:12.520 in the next few years stock picking will get more important. 0:14:12.640 --> 0:14:15.720 Not the same sector leadership, not the same style leadership, 0:14:16.040 --> 0:14:18.600 and not the same regional leadership. So it means you 0:14:18.679 --> 0:14:21.920 have to be a bit more active Christian looking forward, 0:14:21.920 --> 0:14:23.920 I know government sex has the view the oil prices 0:14:23.960 --> 0:14:26.960 are going to go up. What trade does that challenge 0:14:27.000 --> 0:14:30.880 that we saw really invoked during the month of January. Yeah, 0:14:30.960 --> 0:14:34.400 I mean like it's it's the big conundrum. Um, everybody 0:14:34.480 --> 0:14:38.080 is starting to believe the soft landing is happening, and 0:14:38.240 --> 0:14:42.520 China is reopening, and Europe is avoiding the energy crisis 0:14:42.600 --> 0:14:45.600 and the recession as a result, But the oil price 0:14:45.640 --> 0:14:48.360 hasn't moved, and I think it's in my kind of 0:14:48.400 --> 0:14:52.720 category of good news becomes bad news risks because both 0:14:52.840 --> 0:14:55.680 rates haven't really followed in the in the optimism and 0:14:55.760 --> 0:14:59.480 the commodity prices in particular oil. So if they start following, 0:14:59.560 --> 0:15:03.640 if further cements, that kind of growth is fine narrative, 0:15:04.120 --> 0:15:06.720 and that eventually means that good news might become bad 0:15:06.800 --> 0:15:09.320 news because central banks have to react. So I think 0:15:09.320 --> 0:15:11.920 the reason why oil hasn't reacted as much might be 0:15:11.960 --> 0:15:14.680 related again to the winter, because of less gas to 0:15:14.760 --> 0:15:18.480 oil substitution, and because there's probably still a lot of 0:15:18.560 --> 0:15:22.440 kind of oil floating around um with regards to Russian oil, 0:15:22.960 --> 0:15:25.280 which is being discounted. But I think net net, it's 0:15:25.320 --> 0:15:28.040 been a big lag. Christian, would you then lean against 0:15:28.080 --> 0:15:31.560 this long euro trade that we've seen long European equities 0:15:31.600 --> 0:15:35.520 trade that is really dominated all of January. I think 0:15:35.560 --> 0:15:38.800 generally we prefer non US versus US markets for all 0:15:38.880 --> 0:15:41.560 kinds of reasons. I mean, non US equities are cheaper, 0:15:41.680 --> 0:15:45.520 there's more runway economically, there's more slack um, so you 0:15:45.560 --> 0:15:48.880 have like a European manufacturing slowdown, you have exposure to 0:15:49.000 --> 0:15:52.760 China UM. So I think generally it feels like Europe 0:15:52.840 --> 0:15:56.160 had a bit of a better asymmetry, both from a 0:15:56.240 --> 0:15:58.600 valuation point of view and where you are in terms 0:15:58.600 --> 0:16:01.560 of growth. There's more more roomed improve. The challenge you 0:16:01.640 --> 0:16:05.840 have now is the repricing has been incredibly fast. So 0:16:05.880 --> 0:16:09.920 if you look at risk premier credit um like European 0:16:09.920 --> 0:16:13.520 credit versus US credit, sickly kids versus defensives in Europe 0:16:13.520 --> 0:16:16.120 compared to the rest of the world, and and also 0:16:16.160 --> 0:16:19.240 the equity risk premium, you've taken out a lot of 0:16:19.280 --> 0:16:21.760 that discount in a short period of time. I think 0:16:21.800 --> 0:16:26.080 momentum can continue to be positive and risk premier are 0:16:26.160 --> 0:16:28.760 seldom a good market timing tool. Like short term you 0:16:28.760 --> 0:16:31.680 always want to follow momentum um and in the more 0:16:31.720 --> 0:16:35.120 medium term valuations and asymmetry matter more so in the 0:16:35.160 --> 0:16:38.400 near term, where we were reasonably constructive on Europe. Just quickly, Christian, 0:16:38.440 --> 0:16:40.840 how far do you think this a CP takes interest? Right? 0:16:42.200 --> 0:16:44.000 So we have to terminal rate at three point to 0:16:44.160 --> 0:16:47.280 five UM, and that's two more fifty bibs and then 0:16:47.320 --> 0:16:50.880 another twenty five bibs Hyde And I mean it's already 0:16:50.960 --> 0:16:55.840 quite amazing where we have gotten to considering from negative rates. UM. 0:16:55.840 --> 0:16:58.920 But I think the fact what we're learning here everywhere 0:16:58.920 --> 0:17:02.040 in the world is that we are not as addicted 0:17:02.720 --> 0:17:05.879 to to to low rates as we thought. UM. There's 0:17:05.960 --> 0:17:09.879 a certain ability to deal with higher rates, and we 0:17:09.960 --> 0:17:12.760 know that in Europe that historically has always been a 0:17:12.760 --> 0:17:16.320 bigger question mark because of sovereign debt concerns UM. And 0:17:16.320 --> 0:17:18.920 we'll have to see how how that kind of comes back. 0:17:18.960 --> 0:17:23.119 But as of now, Italian BTP spreads have come in UM, 0:17:23.160 --> 0:17:26.159 and you are in this positive growth momentum phase. So 0:17:26.200 --> 0:17:28.200 I think three point two five is the base case 0:17:28.600 --> 0:17:32.040 and depending on inflation normalization of course, UM, there's there's 0:17:32.119 --> 0:17:35.000 kind of risks to to both sides and they deposit 0:17:35.119 --> 0:17:37.600 right right now two maybe a hundred and twenty five 0:17:37.640 --> 0:17:40.560 basis points still at Christian Thank you, Christie mcclishman. They 0:17:40.560 --> 0:17:53.159 have gone with sex. One of the great fears of 0:17:53.320 --> 0:17:55.880 academics on the island of Manhattan this year has been 0:17:55.920 --> 0:18:00.920 to audit Professor Cohen that Colombia Business School joining us 0:18:00.920 --> 0:18:03.800 now is she rockets out of a term into tests 0:18:04.119 --> 0:18:06.960 and grading Abbey Joseph co And of course I'm not 0:18:07.080 --> 0:18:11.159 in acquaintance with Goldman Saxon, Professor, Columbia Business School. Are 0:18:11.160 --> 0:18:13.040 you enjoying it? Abby? I mean, is this like a 0:18:13.080 --> 0:18:15.440 whole new life for you where you're gonna you're gonna 0:18:15.480 --> 0:18:17.320 be there? Tell your emeritus? I mean, is that where 0:18:17.320 --> 0:18:21.400 we're heading. Good morning, Tom and good morning Lisa. Um. 0:18:21.440 --> 0:18:25.159 I'm having a great time at Columbia. The students who 0:18:25.160 --> 0:18:28.120 are absolutely wonderful. About half of them are from outside 0:18:28.119 --> 0:18:32.640 the United States, and they're all extraordinarily well prepared. Most 0:18:32.720 --> 0:18:35.520 of them have worked before they've come to business school, 0:18:35.800 --> 0:18:37.960 and so these are people who are really committed and 0:18:38.520 --> 0:18:41.320 focused on what they're doing. Let us talk about a 0:18:41.359 --> 0:18:43.159 paper you did. I don't know if you dragged it 0:18:43.160 --> 0:18:46.000 out for your students and punish them c FA Institute 0:18:46.320 --> 0:18:50.000 where you brought some Greek philosophy to Columbia Business School. 0:18:50.600 --> 0:18:54.680 And what Aristotle suggested in your iconic paper is get 0:18:54.720 --> 0:18:58.200 off the wagon of believing every day to point tell 0:18:58.280 --> 0:19:02.119 us what suspect right now? What's the humility we in 0:19:02.200 --> 0:19:07.160 the chairman have to bring to scanning every tea leaf? Um, 0:19:07.320 --> 0:19:11.720 fabulous question in a very timely one, tom Um. Right now, 0:19:11.880 --> 0:19:15.680 I think there's so much focus on us data among 0:19:15.920 --> 0:19:18.879 us investors. We have to recognize that the FED is 0:19:18.920 --> 0:19:22.600 also looking internationally UM, and they're looking at the trends 0:19:22.640 --> 0:19:27.080 they're both with regard to economic growth and inflation UM. 0:19:27.119 --> 0:19:30.080 And then of course there are the concerns about what 0:19:30.280 --> 0:19:33.840 happens to the data in China. Uh. People don't quite 0:19:33.880 --> 0:19:37.000 trust those data UM. And so when we turn our 0:19:37.040 --> 0:19:40.600 attention back to the US, you know, it's our employment data. 0:19:40.960 --> 0:19:43.800 But today alone we're going to be getting the Jolts data, 0:19:43.920 --> 0:19:46.639 which will be a very important element of what we 0:19:46.720 --> 0:19:49.919 look at, and of course the employment cost Index information, 0:19:50.520 --> 0:19:52.960 which is critical. UM. When I think about what I 0:19:53.040 --> 0:19:56.320 worry about most right now in terms of too much 0:19:56.400 --> 0:20:00.359 instant analysis, it would be the company reports. We're in 0:20:00.400 --> 0:20:03.040 the middle of earnings reporting season, and what we know 0:20:03.160 --> 0:20:06.600 from history is that in periods when the market has 0:20:06.640 --> 0:20:10.600 been down, companies will take a look at those fourth 0:20:10.680 --> 0:20:14.919 quarter results and say, you know what, let's take some reserves, 0:20:15.200 --> 0:20:18.320 let's throw in the kitchen sink. It clears the slate 0:20:18.600 --> 0:20:20.960 and gives them a lower base from which to work 0:20:21.440 --> 0:20:24.400 for the subsequent year. So I wouldn't read too much 0:20:24.400 --> 0:20:28.000 into the fourth quarter results, particularly when they seem to 0:20:28.040 --> 0:20:32.520 be you know, throwing in all kinds of disappointments that 0:20:32.560 --> 0:20:35.159 they knew about for a long time. Um and and 0:20:35.200 --> 0:20:38.840 I'm much more focused on economic activity going forward. Have 0:20:38.960 --> 0:20:43.040 we priced out free money from equity valuations abby UH 0:20:43.080 --> 0:20:45.320 to a very large extent? You know, we saw that 0:20:45.400 --> 0:20:49.800 happening during the course of LISA when we saw pees 0:20:49.880 --> 0:20:53.760 in general going down, but the segments of the market, 0:20:53.880 --> 0:20:56.480 not just in the United States but outside as well. 0:20:56.960 --> 0:21:01.480 We're basically the high beta, fast growing areas that really 0:21:01.520 --> 0:21:04.840 depended on low interest rates for the low discount rate 0:21:04.880 --> 0:21:07.360 and gave the valuation. So now we saw it here 0:21:07.359 --> 0:21:10.960 in technology stocks other growth areas, but we also saw 0:21:10.960 --> 0:21:14.199 it in emerging markets, particularly in the first half of 0:21:14.320 --> 0:21:16.399 last year, and by the time we got to the 0:21:16.480 --> 0:21:21.240 third quarter, I think that investors were looking at this revaluation, 0:21:21.400 --> 0:21:24.280 let's call it the devaluation of some of these growth 0:21:24.320 --> 0:21:27.560 areas and saying there may be some opportunities there. It's 0:21:27.600 --> 0:21:30.080 one of the reasons we have seen some of these 0:21:30.359 --> 0:21:34.200 non US markets outperforming the US market, even though our 0:21:34.240 --> 0:21:36.720 market has been doing quite well. And of course we've 0:21:36.760 --> 0:21:39.920