WEBVTT - Special Report: Global Market Selloff Easing with Mike Wilson and Mohamed El-Erian

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. Good morning, I'm Nathan Hager.

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<v Speaker 1>I want to get a fuller view of what's been

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<v Speaker 1>happening in the market over the last several days. Joining

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<v Speaker 1>us now live Mike Wilson, Chief US equity strategist at

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<v Speaker 1>Morgan Stanley. Mike, it is great to speak with you

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<v Speaker 1>on this what looks to be a turnaround Tuesday. Have

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<v Speaker 1>we found bottom after the sell off or is this

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<v Speaker 1>a dead cat bounce for you?

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<v Speaker 2>Good morning, Good morning, Nathan. Look, I don't I mean,

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<v Speaker 2>nobody knows if this is going to be it or not,

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<v Speaker 2>but I will tell you that, you know, Friday look

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<v Speaker 2>like that may have been it because we held the

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<v Speaker 2>diner day moving average, you know, into the clothes, and

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<v Speaker 2>then you know, kind of gave that back quickly on

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<v Speaker 2>pretty good volume yesterday. So you know, look, we've been

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<v Speaker 2>We've been pretty clear in our guidance this year. We

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<v Speaker 2>felt like the first half was going to be tougher

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<v Speaker 2>after the strong finish, mainly because we saw mostly growth

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<v Speaker 2>negative features in the initial moves of the administration. But

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<v Speaker 2>in addition to that, something that doesn't get talked about

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<v Speaker 2>much is that earnings revisions have been you know, rolling

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<v Speaker 2>over for several months and led by the you know,

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<v Speaker 2>big tech gross stocks. So you know, that's the that's

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<v Speaker 2>a story that gets buried in the you know, in

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<v Speaker 2>the in the fine print for some reason, which is

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<v Speaker 2>that you know, this AI capex story is decelerating. Obviously,

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<v Speaker 2>the deep seek story that came out earlier this year

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<v Speaker 2>and and all of that is really what's what's weighed

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<v Speaker 2>on the kind of you know, US indices as much

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<v Speaker 2>as say doze the immigration enforcement in terraces and the like. So, look,

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<v Speaker 2>the growth story has been deteriorating, markets have quickly adjusted.

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<v Speaker 2>We've been using fifty five hundred as a low end

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<v Speaker 2>of our range for the first half. We're almost there.

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<v Speaker 2>You know, it's hard to predict things to the dollar obviously,

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<v Speaker 2>are what we're really focused on is the revision factors

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<v Speaker 2>and when they could next turn up or at least stabilize.

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<v Speaker 2>And we think there's a chance for that later this

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<v Speaker 2>month because the dollar has been weaker and rates have

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<v Speaker 2>come down a bunch, and those tend to work with

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<v Speaker 2>a little bit of a lead. So by the end

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<v Speaker 2>of this month we could see perhaps some of those

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<v Speaker 2>revision factors stabilized and that's really the positive canalysts that

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<v Speaker 2>we're looking for to kind of get buyers to come

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<v Speaker 2>in here in the meantime. You know, look, I mean

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<v Speaker 2>the markets have been very efficient in you know, focusing

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<v Speaker 2>on the areas which have had positive earning revisions, and

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<v Speaker 2>those areas being financial, software, consumer services, and media and entertainment,

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<v Speaker 2>and likewise punishing those areas with bad revisions like materials, energy,

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<v Speaker 2>some of the lower quality small cap areas, consumer goods, etc.

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<v Speaker 1>Is some of that bounce back that you're calling for

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<v Speaker 1>in earnings revisions going to be driven by tax cuts?

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<v Speaker 1>I only asked because we heard from the National Economic

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<v Speaker 1>Council Director Kevin Hassett saying that the economy is going

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<v Speaker 1>to take off in the second quarter with tax cuts.

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<v Speaker 1>Is that what your view?

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<v Speaker 2>No, we're not anticipating tax cuts packed estimates anytime soon.

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<v Speaker 2>I mean maybe later this year, once the legislative process continues.

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<v Speaker 2>But you know, the way we're the way we understand

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<v Speaker 2>it is is that these are not incremental tax cuts.

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<v Speaker 2>These are an extension of existing tax cuts. So I

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<v Speaker 2>don't I don't anticipate revision factors to increase because of that. Now,

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<v Speaker 2>of course, if the tax cuts don't get extended, that

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<v Speaker 2>would be a real negative that that's not our expectation

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<v Speaker 2>at the moment.

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<v Speaker 1>The President has talked about this as a period of transition.

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<v Speaker 1>If that's the case, what are we transitioning to and

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<v Speaker 1>can it support stocks?

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<v Speaker 2>Yeah, I mean that's the that's just kind of the

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<v Speaker 2>bull case. You know, Secretary best And talked about this

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<v Speaker 2>last week and that there's no sort of Trump put,

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<v Speaker 2>but there may be a Trump call, meaning, you know,

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<v Speaker 2>the short term pain of some of the things that

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<v Speaker 2>need to do to rebalance the economy, which I think

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<v Speaker 2>is a good idea, could lead to benefits later. And

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<v Speaker 2>the most simplistic way of kind of explained that would

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<v Speaker 2>be that we shrink the size of government and that

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<v Speaker 2>sort of liberates the private economy ultimately via deregulation and

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<v Speaker 2>some of the crowding out that's been going on now

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<v Speaker 2>for several years. I mean, this is, by the way,

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<v Speaker 2>that's not a new phenomenon. The government has been growing

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<v Speaker 2>for the better part of my adult life. And so

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<v Speaker 2>you know, the fact that we're finally talking about maybe

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<v Speaker 2>shrinking the government, I'm not really sure you know who's

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<v Speaker 2>against that, because we know that's a that's an inefficient

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<v Speaker 2>way to allocate capital. And if you can get the

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<v Speaker 2>private sector doing that job instead, that's the payoff down

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<v Speaker 2>the road. We'll see how long it takes to get there,

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<v Speaker 2>but that's I think the explanation for what they're talking about.

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<v Speaker 1>Speaking with Mike Wilson, chief US equity strategist at Morgan

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<v Speaker 1>Stanley in your start to the week, note Mike, of

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<v Speaker 1>course you talked about putting your bottom for the S

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<v Speaker 1>and P five hundred at fifty five hundred, we're pretty

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<v Speaker 1>close to there. Now, what's the risk it could go

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<v Speaker 1>even lower than that?

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<v Speaker 2>Well, the risk is that this, you know, turns into

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<v Speaker 2>a hard landing. That's not our view at the moment.

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<v Speaker 2>I think, you know, we need to see more more

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<v Speaker 2>damage here. But it also becomes somewhat reflexive, meaning the

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<v Speaker 2>more the stock market goes down, the risk that that

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<v Speaker 2>turns into you know, consumer spending at the high end

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<v Speaker 2>coming down as well, so it becomes kind of self fulfilling.

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<v Speaker 2>So we're in we're just in that reflective period right now.

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<v Speaker 2>I would say, you know, as I mentioned earlier, there's

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<v Speaker 2>no quote unquote Trump put If you want to put

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<v Speaker 2>it that way, I think there is a FED put,

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<v Speaker 2>and I you know, I think if growth were to

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<v Speaker 2>deteriorate meaningfully, and you know Chair Powell talked about this

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<v Speaker 2>last week. I mean, they have a lot of firepower

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<v Speaker 2>to respond, So it's going to be, you know, one

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<v Speaker 2>of these one of these years where you just got

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<v Speaker 2>to be really paying attention minutes to minute, day to day,

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<v Speaker 2>week to week, kind of to the to the changes

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<v Speaker 2>here at the margin. The good news is that the

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<v Speaker 2>markets have quickly adjusted to kind of what we've been forecasting,

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<v Speaker 2>which is, you know, growth is disappointing in the first half.

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<v Speaker 2>And look at me. While the S and P is

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<v Speaker 2>only down eight percent, I mean a lot of stocks

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<v Speaker 2>are down twenty thirty, forty percent. So, like you know,

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<v Speaker 2>when these corrections happen, they happen quickly. And my guess

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<v Speaker 2>is that we're already seeing bargains in some areas that

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<v Speaker 2>you know probably will end up being being good entry

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<v Speaker 2>points right here right now.

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<v Speaker 1>Well, Mike, if you're looking for a FED put, do

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<v Speaker 1>you think we could get one this half?

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<v Speaker 2>Well, like I said, the downside, you know, the risk

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<v Speaker 2>is that we have a you know, the growth scare

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<v Speaker 2>turns into a recession scare, and and we're not there yet,

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<v Speaker 2>right And I think you know, Terry poul said that,

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<v Speaker 2>he said the economy's fine at the moment. What I'm

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<v Speaker 2>saying is is if it deteriorates quickly, I think the

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<v Speaker 2>FED will respond quickly. But that's a you know, they'll

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<v Speaker 2>respond to growth. Uh, then that they probably won't respond

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<v Speaker 2>to the stock market. So I think there's a there's

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<v Speaker 2>a put as it relates to the growth risk.

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<v Speaker 1>So in our last minute, where are you advising your

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<v Speaker 1>clients to reposition? If you are advising that, where should

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<v Speaker 1>people be putting their money to work at this moment?

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<v Speaker 2>Well, we're pretty comfortable right now. I mean, we we

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<v Speaker 2>have a focused list that's actually up on the year

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<v Speaker 2>close to seven percent, so you know, and that's that's

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<v Speaker 2>really a large cap quality somewhat defensive bid to it,

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<v Speaker 2>you know, And so we feel like we've been positioned

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<v Speaker 2>for this. And now the question is when do we

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<v Speaker 2>pivot to get more aggressive and get you know, kind

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<v Speaker 2>of go higher beta, maybe even go down the cap curve.

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<v Speaker 2>We're not there yet, but I mean that so we're

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<v Speaker 2>we think we're set up for it, and and and

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<v Speaker 2>and our portfolios are performing as a result. The key

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<v Speaker 2>question is, you know, when is the time to get

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<v Speaker 2>more aggressive like we did last fall kind of going

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<v Speaker 2>into the election and the FED cuts that we saw,

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<v Speaker 2>and you know, well, we'll let you know, We'll let

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<v Speaker 2>you know when we think it's time. We don't think

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<v Speaker 2>it's time yet. We think it's going to remain choppy

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<v Speaker 2>here at least for the next couple of weeks. And

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<v Speaker 2>as you know, we publish every week, so you know,

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<v Speaker 2>stay tuned.

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<v Speaker 1>Really appreciate you coming on with us to give us

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<v Speaker 1>your latest view. That's Mike Wilson, chief US equity strategist

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<v Speaker 1>at Morgan Stanley. We are very pleased to be joined

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<v Speaker 1>now by Mohammad Alarian, the chief economics advisor at Alliance,

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<v Speaker 1>President of Queen's College, Cambridge, and columnist for Bloomberg Opinion. Muhammad,

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<v Speaker 1>thanks so much for joining us this morning on Bloomberg Daybreak.

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<v Speaker 1>As we do see futures bouncing back just a bit

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<v Speaker 1>this morning from the broad sell off that we've seen

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<v Speaker 1>over the last several days. Do you think this is

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<v Speaker 1>as far as it's going? Could it go down further?

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<v Speaker 1>Good morning, Good.

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<v Speaker 3>Morning, Nathan. It's hard to tell it could go further

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<v Speaker 3>or consolidate. And I don't want to sound wishy washy,

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<v Speaker 3>but there are some really complex technicals here, and there's

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<v Speaker 3>a lot of policy uncertainty. So these are One of

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<v Speaker 3>these is a situation where the most important question is

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<v Speaker 3>an investor that you need to ask yourself is what

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<v Speaker 3>mistake can our fort to make? Because when the world

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<v Speaker 3>is so unpredictable, the probability of a mistake goes up.

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<v Speaker 3>No one wants to make a mistake, Nathan, but sometimes

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<v Speaker 3>mistakes are forced on you, and people have to make

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<v Speaker 3>sure that their mistakes are recoverable, because the good news is,

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<v Speaker 3>with time, most investment mistakes are recoverable.

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<v Speaker 1>Are you implying that it was a mistake to expect

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<v Speaker 1>that we would see broad stimulus right away from President Trump?

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<v Speaker 1>The market seemed to be pricing in after his election

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<v Speaker 1>in November, So.

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<v Speaker 3>I think, Nathan, the market understood that there were five

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<v Speaker 3>policy areas that the president intended to pursue that would

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<v Speaker 3>impact corporate profitability and financial markets. And you know them

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<v Speaker 3>is trade and tariffs in particular, It's about public sector

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<v Speaker 3>reform and what DOGE is doing. It's about energy, it's

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<v Speaker 3>about deregulation, and the view was that we will get

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<v Speaker 3>a big bang that the President would move on all

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<v Speaker 3>five simultaneously, and the markets would benefit from deregulation, they

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<v Speaker 3>would benefit from lower energy prices, and they would be

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<v Speaker 3>able to absorb the little disturbances that comes from tariff

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<v Speaker 3>and DOGE. As it turns out, we're getting the tariffs

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<v Speaker 3>under DOGE first and the others will come later, including

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<v Speaker 3>tax cuts. So the question that the market has to

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<v Speaker 3>deal with today, Nathan, is can we manage this bumpy

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<v Speaker 3>journey to a better destination? And that is what people

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<v Speaker 3>are trying to figure out.

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<v Speaker 1>As we try to figure this out, Muhammad, is US

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<v Speaker 1>exceptionalism something you've been talking about for quite some time

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<v Speaker 1>is that at risk?

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<v Speaker 3>Now? I think what's that risk? Is one of the

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<v Speaker 3>US's edges, And it's really important in financial markets, in

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<v Speaker 3>global in the global economy to understand what your edge

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<v Speaker 3>is is. And one of the US edges is predictability

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<v Speaker 3>and the rule of law. And the more these two

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<v Speaker 3>things are questioned, the more people are going to start

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<v Speaker 3>questioning economic exceptionalisms. The other elements of economic exceptionalism are

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<v Speaker 3>still sound. We have an incredibly entrepreneurial economy. We have

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<v Speaker 3>one of the best private sectors. We are relatively closed,

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<v Speaker 3>meaning that other countries can't force outcomes on us. So

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<v Speaker 3>there's a lot that's still going well for the US economy,

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<v Speaker 3>but there's a question about this edge of predictability, transparency,

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<v Speaker 3>and the rule of law.

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<v Speaker 1>We're speaking with Muhammad al Arian, columnists for Bloomberg Opinion

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<v Speaker 1>and president of Queen's College, Cambridge. Muhammad what brings us

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<v Speaker 1>exceptionalism back more strongly for the market as we continue

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<v Speaker 1>to watch these policy uncertainties play out For investors.

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<v Speaker 3>I'll quote a CEO friend of mine who simply said,

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<v Speaker 3>I just want to know what operating environment I am

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<v Speaker 3>in ore Tariff's going to stay and they're not going

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<v Speaker 3>to stay. Is there going to be a massive layoff

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<v Speaker 3>from the federal government or not? Is the federal government

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<v Speaker 3>going to honor the commitments in terms of contracts or not.

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<v Speaker 3>Clarity is what people want, Nathan, that you know, the

0:12:30.960 --> 0:12:35.120
<v Speaker 3>US is agile enough to operate in many different environments,

0:12:35.520 --> 0:12:38.640
<v Speaker 3>but what business leaders need is clarity. And you're starting

0:12:38.679 --> 0:12:42.360
<v Speaker 3>to hear this phrase wait and see over and over

0:12:42.440 --> 0:12:48.960
<v Speaker 3>again in corporate calls. Companies are just waiting to see

0:12:49.160 --> 0:12:52.160
<v Speaker 3>what's happening before they commit to major expenditure. The problem

0:12:52.360 --> 0:12:56.680
<v Speaker 3>is if they wait and see and if consumers not

0:12:56.840 --> 0:13:02.000
<v Speaker 3>feeling income insecure, then we could easily walk ourselves or

0:13:02.040 --> 0:13:03.600
<v Speaker 3>weigh ourselves into a recession.

0:13:04.440 --> 0:13:08.920
<v Speaker 1>Our investors finding clarity outside the US. Is that something

0:13:09.120 --> 0:13:13.839
<v Speaker 1>that could cause investors to think about putting more of

0:13:13.880 --> 0:13:17.760
<v Speaker 1>their money into assets outside the US.

0:13:19.240 --> 0:13:21.520
<v Speaker 3>That's happening, you know, There's been an enormous up ending

0:13:21.880 --> 0:13:25.320
<v Speaker 3>of all the consensus trades that were in place at

0:13:25.320 --> 0:13:26.800
<v Speaker 3>the beginning of the year. So in the beginning of

0:13:26.800 --> 0:13:30.680
<v Speaker 3>the year, consensus was favor US equities over the rest

0:13:30.720 --> 0:13:34.720
<v Speaker 3>of the world. It was usuels will go higher while

0:13:34.760 --> 0:13:38.840
<v Speaker 3>Germany yels will stay low. It was the dollar with strengthen,

0:13:39.480 --> 0:13:43.560
<v Speaker 3>especially against the Euro, which may reach parody. All those

0:13:43.600 --> 0:13:46.800
<v Speaker 3>trades have been turned on their head. People are favoring

0:13:48.400 --> 0:13:52.200
<v Speaker 3>foreign equities relative to US that massively outperformed the US.

0:13:52.800 --> 0:13:56.880
<v Speaker 3>We've seen a significant compression in the yield differential between

0:13:57.400 --> 0:14:01.079
<v Speaker 3>the US and Germany and the dollars weekend. It's another

0:14:01.160 --> 0:14:03.600
<v Speaker 3>half a percent week of today, and the euro, which

0:14:03.640 --> 0:14:06.160
<v Speaker 3>was expected to go to parody, is at one o nine.

0:14:06.679 --> 0:14:12.040
<v Speaker 3>So the market has seen a reason to exploit what

0:14:12.280 --> 0:14:15.920
<v Speaker 3>have been significant valuation difference is why not only because

0:14:15.960 --> 0:14:19.000
<v Speaker 3>there's a growth sca in the US, but there's the

0:14:19.120 --> 0:14:22.040
<v Speaker 3>hope for what's called the spot Nik moment in Germany,

0:14:22.040 --> 0:14:25.640
<v Speaker 3>in particular the Germany. Will we sorry go ahead?

0:14:25.840 --> 0:14:28.960
<v Speaker 1>Do you think we could see clarity from the Federal

0:14:29.000 --> 0:14:31.040
<v Speaker 1>Reserve or do you think the FED is going to

0:14:31.200 --> 0:14:34.840
<v Speaker 1>stay on the sidelines waiting for some of this policy

0:14:34.880 --> 0:14:37.479
<v Speaker 1>uncertainty to get ironed out from the Trump administration.

0:14:38.760 --> 0:14:42.080
<v Speaker 3>Chair Power made it very clear they do not see

0:14:42.080 --> 0:14:44.760
<v Speaker 3>a reason to move. They will also be in a

0:14:44.800 --> 0:14:45.960
<v Speaker 3>wait and see attitude.

0:14:49.200 --> 0:14:51.560
<v Speaker 1>Is that the right move? I mean, what could get

0:14:51.600 --> 0:14:52.960
<v Speaker 1>the FED off the sidelines?

0:14:54.160 --> 0:14:57.120
<v Speaker 3>So, Nathan, you know that for a very long time

0:14:57.960 --> 0:15:02.640
<v Speaker 3>of complaining that the FED is open reactive, that by

0:15:02.720 --> 0:15:06.520
<v Speaker 3>being so reactive, whether it's data dependence with wait and see,

0:15:07.040 --> 0:15:12.280
<v Speaker 3>it tends to add and accentuate volatility rather than act

0:15:12.720 --> 0:15:17.200
<v Speaker 3>as an anank of stability and as a nose star.

0:15:17.880 --> 0:15:20.560
<v Speaker 3>But this is the reality of the day's Fed, after

0:15:20.600 --> 0:15:23.440
<v Speaker 3>the big mistake they made in twenty twenty one twenty

0:15:23.480 --> 0:15:28.000
<v Speaker 3>two by cooling inflation transitory that become very reactive. So

0:15:28.040 --> 0:15:31.200
<v Speaker 3>we should not expect the FED to take the lead here.

0:15:32.560 --> 0:15:36.080
<v Speaker 1>We want to get into your latest column for Bloomberg Opinion.

0:15:36.120 --> 0:15:40.280
<v Speaker 1>Talking about the FED, you are arguing that the fixation

0:15:40.640 --> 0:15:44.600
<v Speaker 1>on the two percent inflation target is risky. Talk a

0:15:44.640 --> 0:15:46.880
<v Speaker 1>little bit more about that view and why you see

0:15:46.880 --> 0:15:48.200
<v Speaker 1>that risk, what the risk is.

0:15:49.720 --> 0:15:55.320
<v Speaker 3>You know, the two percent target is a historic accident.

0:15:56.040 --> 0:15:58.640
<v Speaker 3>It was something that in the Bank of New Zealand,

0:15:59.080 --> 0:16:01.160
<v Speaker 3>the Reserve Bank of Newton and came up during an

0:16:01.160 --> 0:16:06.400
<v Speaker 3>inflation targeting exercise and it stuck because the world entered

0:16:06.440 --> 0:16:10.920
<v Speaker 3>a massive phase of disinflation. The entry of China into

0:16:10.960 --> 0:16:14.440
<v Speaker 3>the global economy was a very positive supply shock. The

0:16:14.760 --> 0:16:18.360
<v Speaker 3>dismantling of the Soviet Union was a very positive supply shock,

0:16:19.160 --> 0:16:21.040
<v Speaker 3>and we didn't have to worry about inflation, and two

0:16:21.080 --> 0:16:26.360
<v Speaker 3>percent seem fine. Now we are having not favorable supply shocks,

0:16:26.520 --> 0:16:30.880
<v Speaker 3>but unfavorable supply shock. The global economy is fragmenting. Supply

0:16:31.040 --> 0:16:36.200
<v Speaker 3>chains are being rewired, we're having tariffs, we're having trade ward,

0:16:36.240 --> 0:16:40.320
<v Speaker 3>we have rapidization of investment tools. In a world like this,

0:16:40.560 --> 0:16:43.240
<v Speaker 3>you have to ask you the question, is two percent

0:16:43.440 --> 0:16:47.080
<v Speaker 3>still the right target? Because if you pursue the wrong target,

0:16:47.840 --> 0:16:51.880
<v Speaker 3>then you will sacrifice growth, you will sacrifice employment and

0:16:52.080 --> 0:16:55.760
<v Speaker 3>Ultimately you will undermine the independence of the FED.

0:16:55.880 --> 0:16:56.120
<v Speaker 2>Now.

0:16:56.280 --> 0:16:59.120
<v Speaker 3>I don't think the FED will change its inflation target

0:16:59.480 --> 0:17:02.480
<v Speaker 3>anytime soon, but it certainly needs to be thinking about

0:17:02.840 --> 0:17:04.719
<v Speaker 3>whether two percent is the right target.

0:17:05.800 --> 0:17:08.040
<v Speaker 1>Well, what would the market impact be if the FED

0:17:08.280 --> 0:17:13.800
<v Speaker 1>did decide to change its two percent inflation target move

0:17:13.920 --> 0:17:16.520
<v Speaker 1>things higher? How would the market react to that?

0:17:17.800 --> 0:17:19.960
<v Speaker 3>And that's the argument that's being used that if you

0:17:20.119 --> 0:17:26.200
<v Speaker 3>change it, then you will destabilize inflation expectations. I think

0:17:26.359 --> 0:17:29.800
<v Speaker 3>that argument has been taken to an extreme. Most of

0:17:29.880 --> 0:17:32.840
<v Speaker 3>us who believe that the FED should think about this

0:17:34.880 --> 0:17:37.919
<v Speaker 3>suggesting two things. One, the change wouldn't be massive. It

0:17:37.920 --> 0:17:40.800
<v Speaker 3>would include going to a band, not a point estimate,

0:17:41.320 --> 0:17:44.880
<v Speaker 3>and the lower end of that band would be either

0:17:44.920 --> 0:17:46.359
<v Speaker 3>two and a quarter in two and a half, so

0:17:46.600 --> 0:17:48.439
<v Speaker 3>call it a two and a half to three percent

0:17:48.560 --> 0:17:53.840
<v Speaker 3>inflation target. That is not something that will fundamentally decibilized market.

0:17:55.200 --> 0:17:57.880
<v Speaker 3>And on second thing that we argue is it can

0:17:57.920 --> 0:18:04.480
<v Speaker 3>be done in a phase manner that doesn't de stabilized markets.

0:18:04.760 --> 0:18:08.320
<v Speaker 1>I wonder if inflation expectations are starting to get unanchored

0:18:08.359 --> 0:18:11.840
<v Speaker 1>now when we're seeing a lot of survey data showing

0:18:12.560 --> 0:18:16.320
<v Speaker 1>three percent inflation expectations in the short to medium term

0:18:16.520 --> 0:18:18.920
<v Speaker 1>and a lot of worry as we've been talking about

0:18:19.280 --> 0:18:22.639
<v Speaker 1>that tariffs could raise prices longer term.

0:18:23.480 --> 0:18:25.560
<v Speaker 3>Yes, and we saw another one at four point eight

0:18:25.920 --> 0:18:29.600
<v Speaker 3>two weeks ago. So inflation expectations have moved up as

0:18:29.600 --> 0:18:34.359
<v Speaker 3>people have realized that we're having all these disruptions. I

0:18:34.359 --> 0:18:37.879
<v Speaker 3>think people have also realized that if the FED was

0:18:38.080 --> 0:18:42.200
<v Speaker 3>truly pursuing a two percent inflation target, we would be

0:18:42.359 --> 0:18:46.160
<v Speaker 3>speculating in the marketplace not about how many cuts are

0:18:46.160 --> 0:18:48.840
<v Speaker 3>we going to get next this year, but we'd be

0:18:49.000 --> 0:18:52.520
<v Speaker 3>speculating about when is the first hike. And we will

0:18:52.520 --> 0:18:55.720
<v Speaker 3>get the CPI report tomorrow, and my hope is that

0:18:55.800 --> 0:18:59.000
<v Speaker 3>it's not hot. But there was a sense in the

0:18:59.000 --> 0:19:02.800
<v Speaker 3>marketplace right now that actually two percent is not the

0:19:02.840 --> 0:19:05.159
<v Speaker 3>target being pursued, but no one quite knows what is

0:19:05.200 --> 0:19:08.920
<v Speaker 3>being pursued, and that's the danger that they right now

0:19:08.960 --> 0:19:09.760
<v Speaker 3>in this environment.

0:19:10.800 --> 0:19:14.840
<v Speaker 1>So with this idea that we could see inflation start

0:19:14.880 --> 0:19:18.840
<v Speaker 1>to get unanchored, what does that mean for the growth outlook?

0:19:18.960 --> 0:19:23.040
<v Speaker 1>When we're seeing so much concern in the market with

0:19:23.240 --> 0:19:26.480
<v Speaker 1>this sell off, that we could be heading into, if

0:19:26.520 --> 0:19:28.040
<v Speaker 1>not a slowdown or recession.

0:19:29.600 --> 0:19:33.840
<v Speaker 3>So let's speak numbers, Nathan. The US economy grew by

0:19:33.880 --> 0:19:37.760
<v Speaker 3>two point eight percent last year. Coming into this year,

0:19:38.200 --> 0:19:43.600
<v Speaker 3>the consensus forecast was two point five. I strongly believe

0:19:43.680 --> 0:19:48.080
<v Speaker 3>that we're going to have a massive round of revisions

0:19:48.080 --> 0:19:51.800
<v Speaker 3>to these forecasts, and that the consensus forecast will fall

0:19:51.840 --> 0:19:54.560
<v Speaker 3>from two and a half the somewhere between one and

0:19:54.640 --> 0:19:58.720
<v Speaker 3>a half and two. It's not recession. In fact, my

0:19:58.800 --> 0:20:01.879
<v Speaker 3>properlity of recession is twenty five to thirty percent. But it

0:20:01.960 --> 0:20:04.920
<v Speaker 3>is close to this notion of stall speed, which is

0:20:04.960 --> 0:20:09.320
<v Speaker 3>about one percent. So the US is looking right now

0:20:10.160 --> 0:20:13.600
<v Speaker 3>at slower growth, and the US is looking right now

0:20:13.720 --> 0:20:16.880
<v Speaker 3>at higher inflation than what was expected a few months ago.

0:20:18.520 --> 0:20:22.680
<v Speaker 3>It's the good old fashioned stackflation. It's the smell of stackfation.

0:20:22.760 --> 0:20:24.840
<v Speaker 3>I want to stress those of us who lived through

0:20:24.840 --> 0:20:28.000
<v Speaker 3>stackfas in the seventies and the early eighties think that

0:20:28.520 --> 0:20:32.440
<v Speaker 3>this is nothing, but it is a whiff of stackflation.

0:20:32.960 --> 0:20:35.119
<v Speaker 3>H an economy that has not had to deal with this.

0:20:36.800 --> 0:20:39.560
<v Speaker 1>Really appreciate the extended time this morning. Muhammed, great to

0:20:39.600 --> 0:20:42.520
<v Speaker 1>have you with us on daybreak this morning. That was

0:20:42.640 --> 0:20:45.040
<v Speaker 1>Mohammad Alrian with us this morning. He is the chief

0:20:45.080 --> 0:20:48.879
<v Speaker 1>Economics advisor at Alliance, President of Queen's College, Cambridge, and

0:20:48.960 --> 0:20:51.600
<v Speaker 1>of course he is a columnist for Bloomberg Opinion. You

0:20:51.640 --> 0:20:55.720
<v Speaker 1>can find his columns OPI, n GO on the Bloomberg

0:20:55.840 --> 0:20:56.159
<v Speaker 1>terminal