WEBVTT - Surveillance: U.S. Inflation Picture with Saravelos 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.960 and of course on the Bloomberg terminal. As far as 0:00:29.960 --> 0:00:32.640 I'm concerned, this is the domestic In the Finance Interview 0:00:32.640 --> 0:00:36.400 of the day, George Saravellos has been brilliant feeding in 0:00:36.520 --> 0:00:40.120 all of David folkers Landau's research at Deutsche Bank into 0:00:40.240 --> 0:00:45.160 foreign exchange research, and this morning an absolutely brilliant tour 0:00:45.240 --> 0:00:48.239 to force paragraph from Sarah Bellois. Let's go to it 0:00:48.360 --> 0:00:51.320 right now. And you know this, folks, the real wage 0:00:51.479 --> 0:00:54.520 it ain't happening. Real wages at negative two percent are 0:00:54.560 --> 0:00:56.520 the weakest since two thousand and eight. This is very 0:00:56.520 --> 0:00:59.920 different from the inflationary environment of the nineteen seventies when 0:01:00.000 --> 0:01:03.120 real rages were growing sharply. This is leading to a 0:01:03.240 --> 0:01:06.840 very different message. The consumer is defferring as opposed to 0:01:06.880 --> 0:01:10.640 accelerating consumption like in the nineties seventies. We're gonna try 0:01:10.760 --> 0:01:13.240 Mr Sarah Ellis now as we wait for the Secretary 0:01:13.520 --> 0:01:16.080 of State, George, you're more important than Anthony Blincoln. But 0:01:16.200 --> 0:01:20.280 let's try this as we can. You take a starkly 0:01:20.400 --> 0:01:24.039 different view on what inflation will do to our economies. 0:01:24.360 --> 0:01:29.280 Where will we be in April or may? Thank you Tom. 0:01:29.760 --> 0:01:33.000 I think if you look back through various commentary, UM, 0:01:33.680 --> 0:01:36.920 we constantly try to find parallels. Is this two thousand 0:01:36.959 --> 0:01:40.920 and eight, is this een? And I think the reality 0:01:41.080 --> 0:01:44.560 is this is twenty two and it's just very, very 0:01:44.600 --> 0:01:48.680 different to anything we've seen before. And part of that 0:01:48.760 --> 0:01:51.920 is the inflation picture you allude to, and what you're 0:01:51.920 --> 0:01:55.240 seeing in the US now is pretty remarkable. US real 0:01:55.280 --> 0:01:59.080 disposable income is below its pre COVID trend, so everyone 0:01:59.200 --> 0:02:01.840 is very focused these excess savings. But in terms of 0:02:01.880 --> 0:02:05.760 future expectations for income, UM, they're going down. You have 0:02:05.840 --> 0:02:10.160 a story of supply that is frankly terrible. The labor 0:02:10.200 --> 0:02:13.040 market is shrinking for the first time since World War Two, 0:02:13.320 --> 0:02:17.080 and you exclude durable goods, you haven't had capex. So 0:02:17.120 --> 0:02:19.480 I take issue with this idea that it's all about 0:02:19.560 --> 0:02:23.160 strong demand, booming demand. That's why the Fed's hiking. The 0:02:23.200 --> 0:02:25.919 FED shore will have to hike but there's also bad 0:02:26.000 --> 0:02:28.800 things happening in the background. And I guess the last 0:02:28.800 --> 0:02:31.680 point to make is if you look at the starting 0:02:31.720 --> 0:02:35.840 point of inflation, we're talking about a totally different environment 0:02:35.880 --> 0:02:39.080 to the last thirty years. The last few hiking cycles 0:02:39.120 --> 0:02:42.920 have always started with inflation at or below target UM. 0:02:43.040 --> 0:02:46.799 So this idea that somehow the FED can maintain easy 0:02:46.840 --> 0:02:50.000 financial conditions, keep things nice and smooth. That was the 0:02:50.040 --> 0:02:53.160 policy objective in the last hiking cycles because inflation wasn't 0:02:53.160 --> 0:02:56.240 as high. And again this is a very different environment 0:02:56.320 --> 0:02:59.520 and a very very unique one, so to speak. Well, 0:02:59.639 --> 0:03:02.640 during to that point, there is an idea embedded in 0:03:02.680 --> 0:03:06.040 your words where they're FED has to tighten policy in 0:03:06.160 --> 0:03:09.400 order to keep the economy from slowing down more because 0:03:09.400 --> 0:03:12.120 of this restrictive inflation that you talk about from the 0:03:12.120 --> 0:03:15.200 negative real wages. Can you talk about how they might 0:03:15.440 --> 0:03:17.720 try to orchestrate a soft landing or whether you think 0:03:17.720 --> 0:03:22.080 it's too late. Well, this is really the big question. 0:03:22.200 --> 0:03:24.840 Can the soft landing be orchestrated? And I think that's 0:03:25.200 --> 0:03:28.680 precisely the worry of two. It's going to be the 0:03:28.720 --> 0:03:31.120 stage of the cycle we're in. Will we be able 0:03:31.200 --> 0:03:34.160 to stay mid cycle or are we going into a 0:03:34.200 --> 0:03:37.440 more late cycle environment. Um, I think that the jury 0:03:37.480 --> 0:03:39.440 is still out, but what we can say for sure, 0:03:39.720 --> 0:03:43.160 it's just going to be much more challenging than last year, 0:03:43.200 --> 0:03:45.360 where if you look at real yields, you know they 0:03:45.400 --> 0:03:48.680 made record lows back in October November. So this is 0:03:48.720 --> 0:03:51.400 a very fresh story. I guess the last point to 0:03:51.440 --> 0:03:54.400 make is if you look at the fixed income market, yes, 0:03:54.600 --> 0:03:56.760 we have to reprice more for the FED in the 0:03:56.760 --> 0:04:00.520 near term to bring inflation down, but more medium the 0:04:00.600 --> 0:04:03.480 rate market has for six nine months been giving you 0:04:03.560 --> 0:04:09.160 this message that neutral rates trend growth has issues, and 0:04:09.920 --> 0:04:12.920 I think if this continues, what you will see as 0:04:12.920 --> 0:04:16.599 an aggressively flattening curve. Potentially the curve can invert because 0:04:16.680 --> 0:04:20.800 essentially the FED has to hike rate. The purpose of 0:04:20.880 --> 0:04:23.400 hiking those rates is to bring long forwards down, it's 0:04:23.440 --> 0:04:26.240 to bring inflation expectations down, and at the end of 0:04:26.279 --> 0:04:29.240 the day, that's actually positive for the long end of 0:04:29.279 --> 0:04:32.640 the fixed income market. So, George, give us a sense 0:04:32.760 --> 0:04:34.640 of what you would say to people who point the 0:04:34.720 --> 0:04:37.599 labor market and say it's incredibly tight and sure, maybe 0:04:37.880 --> 0:04:40.800 real wages are negative, but they're going to go up 0:04:40.839 --> 0:04:43.360 because you're going to see a rolling over in the inflation, 0:04:43.720 --> 0:04:46.160 and you're going to see wages continue to accelerate, as 0:04:46.200 --> 0:04:48.479 we've seen in some of the earnings reports that have 0:04:48.560 --> 0:04:50.800 come out so far. What would you respond to that? 0:04:52.480 --> 0:04:55.120 So I very much agree with the phrase that the 0:04:55.200 --> 0:04:58.839 labor market is tight. I very much disagree with the 0:04:58.880 --> 0:05:02.160 phrase that the labor market it is strong. The labor 0:05:02.200 --> 0:05:04.600 market would have been strong if U S employment had 0:05:04.640 --> 0:05:07.320 recovered back to where it was a pre COVID trend. 0:05:07.720 --> 0:05:11.080 The Australian labor market is strong, the Canadian labor market 0:05:11.120 --> 0:05:13.840 is strong. The U S market is weak. And that's 0:05:13.880 --> 0:05:18.080 exactly what is creating this wage pressure. You don't have 0:05:18.240 --> 0:05:20.680 enough work is coming back in. It's shrinking at the 0:05:20.720 --> 0:05:24.440 fastest pace in many, many decades, and I think that's 0:05:24.440 --> 0:05:26.880 precisely what's going to create the issue for the FED. 0:05:27.480 --> 0:05:30.640 Wages maybe going up, but it's it's essentially for bad reasons, 0:05:30.839 --> 0:05:33.359 and it ultimately means the speed limb of the economy 0:05:33.680 --> 0:05:36.000 is slower than what's assumed. If you're joining us on 0:05:36.000 --> 0:05:39.040 Bloomberg Radio and Bloomberg Television, George sarave ellis where us 0:05:39.040 --> 0:05:42.279 with Deutsche Bank an important conversation and the state of 0:05:42.279 --> 0:05:46.200 our economics, financial investment, John Farrell, Lisa Bramwerts, and I, 0:05:46.279 --> 0:05:48.960 oh wait the press conference of the Secretary of State 0:05:49.120 --> 0:05:53.720 in Geneva after we heard from Mr Lavrov earlier George Saravellis, 0:05:53.800 --> 0:05:56.080 I want to go on Peter Hooper and you right now. 0:05:56.480 --> 0:06:00.320 My criticism is a static analysis that's out there right now. 0:06:00.600 --> 0:06:04.240 You and your team are wonderfully dynamic. Which part of 0:06:04.279 --> 0:06:08.080 the dynamic continuum of the I S l M structure 0:06:08.400 --> 0:06:12.839 matters right now? I think for the market at the moment, 0:06:12.920 --> 0:06:17.680 it's really all about the speed of this expected inflation 0:06:17.720 --> 0:06:22.200 slow down. If you look at the current inflation COREPC 0:06:22.320 --> 0:06:26.479 around four percent, it's expected to go down onto a 0:06:26.520 --> 0:06:30.640 two handle. So any deceleration that's not as fast as 0:06:30.680 --> 0:06:34.479 that will create pressure on the FED UM. The key 0:06:34.560 --> 0:06:37.840 question really is how that interacts into into a slowing 0:06:37.839 --> 0:06:41.560 economy um and again that has the potential to impact 0:06:41.560 --> 0:06:45.080 all asset classes, equity markets of course the dollar. But 0:06:45.160 --> 0:06:47.000 the big question for this year for me is really 0:06:47.000 --> 0:06:49.919 are we mid cycle or are we late cycle? And 0:06:49.960 --> 0:06:52.000 I worry we are in late cite in the late 0:06:52.040 --> 0:06:56.360 cycle situation, the end is near sounds like Bramo everything does. 0:06:57.800 --> 0:07:01.200 I'm loving this. I honestly kind s. It's fascinating and 0:07:01.240 --> 0:07:02.599 I have to say that it makes a lot of 0:07:02.640 --> 0:07:05.120 sense and it goes against a narrative that we've heard continually. 0:07:05.160 --> 0:07:08.240 So thank you. I appreciate it. Utsche Bank, Mike in 0:07:08.320 --> 0:07:10.400 Laser ram it's happy this morning, I George, thank you, 0:07:10.440 --> 0:07:20.080 just wonderful right now with an extremely sharp note. And 0:07:20.160 --> 0:07:23.440 there's always at Wells Fargo putting the timeline on that. 0:07:23.560 --> 0:07:26.880 Their senior economist Sarah House joins us, Sarah, I want 0:07:26.920 --> 0:07:29.080 to go to the certitude of March. Let's take it 0:07:29.120 --> 0:07:32.679 from one J Caesar, beware the rate hikes of March. 0:07:33.080 --> 0:07:35.160 Are we going to see in the literature this weekend? 0:07:35.520 --> 0:07:37.960 Are we going to see in the work of economists 0:07:37.960 --> 0:07:41.080 next week a beginning of an adjustment to what's going 0:07:41.120 --> 0:07:45.080 to occur in March? I think we've already seen it 0:07:45.240 --> 0:07:47.720 move that way, so both in terms of market pricing, 0:07:47.800 --> 0:07:50.920 but also I think a lot of economists calls, and 0:07:50.960 --> 0:07:52.800 I think that will be the big theme of next 0:07:52.800 --> 0:07:56.000 week SPED meeting, is what they're doing to just signal 0:07:56.400 --> 0:07:59.200 not just the timing of liftoff. But I think increasingly 0:07:59.200 --> 0:08:01.960 we're going to see more attention, and I think really 0:08:01.960 --> 0:08:04.160 a lot of word parsing in terms of what the 0:08:04.200 --> 0:08:07.120 pace looks like. So is it going to be roughly 0:08:07.200 --> 0:08:10.320 that twenty five basis points per quarter pace like we 0:08:10.360 --> 0:08:13.080 saw last cycle, or could we actually see something a 0:08:13.080 --> 0:08:16.400 little bit more aggressive, whether that's back to back meetings 0:08:16.560 --> 0:08:19.400 or potentially, as there's been some rumblings, even a fifty 0:08:19.440 --> 0:08:21.800 basis point move coming out of the Gate question I've 0:08:21.840 --> 0:08:24.080 asked a couple of times this week. Let me rephrase 0:08:24.120 --> 0:08:27.200 it to you. It's simple, why can't they come out 0:08:27.280 --> 0:08:31.080 and say we're in a pandemic, we have massive uncertainty, 0:08:31.080 --> 0:08:34.680 including the diplomatic events in Geneva. We're gonna go twenty 0:08:34.679 --> 0:08:38.520 five beeps and then sit? Why can't they say that? 0:08:40.320 --> 0:08:41.839 So I think when you step back and you look 0:08:41.840 --> 0:08:44.839 at the overall state of the economy, so even as 0:08:44.840 --> 0:08:49.280 we're in a pandemic, we're still seeing an extraordinarily strong picture. 0:08:49.480 --> 0:08:52.800 So labor markets are are quite solid right now. So 0:08:52.840 --> 0:08:57.320 of course unemployment already below four percent, and I think 0:08:57.360 --> 0:09:01.000 when we look at where policy is, it still actually accommodative. 0:09:01.000 --> 0:09:03.440 And it's hard to sit when you have seven percent 0:09:03.640 --> 0:09:06.480 CPI numbers. It's it's hard for the Fed to to 0:09:06.520 --> 0:09:09.120 stand idly by the optics on that don't look good. 0:09:09.800 --> 0:09:12.000 The optics on that don't look good. The reality of 0:09:12.040 --> 0:09:15.760 it is actually incredibly nuances George Saravellos of Deutsche BEG 0:09:15.760 --> 0:09:19.240 because Thomas Mentioning earlier talked about in his note this morning, 0:09:19.520 --> 0:09:22.240 this idea that the inflation that we're seeing could be 0:09:22.400 --> 0:09:25.600 contractionary in its own right, that if the Fed doesn't act, 0:09:25.960 --> 0:09:29.200 that actually the economy was slow much more than people 0:09:29.240 --> 0:09:32.240 are certainly expecting. Later on, how much are you seeing 0:09:32.280 --> 0:09:35.720 people not spend because they are concerned about how high 0:09:35.960 --> 0:09:39.400 prices have gone? So I think we've certainly seen that 0:09:39.480 --> 0:09:42.880 and some of the buying plans for some big ticket purchases. 0:09:42.920 --> 0:09:45.679 So if you look at the Michigan survey, you've seen 0:09:45.960 --> 0:09:49.599 the buying plans for homes, autos, large household durables and 0:09:49.720 --> 0:09:52.880 absolutely cratered. And when you dig into the reasons for that, 0:09:53.000 --> 0:09:55.640 it's it's not so much households being worried about their 0:09:55.679 --> 0:09:58.680 home finances. It's just a sheer uh, It's just a 0:09:58.720 --> 0:10:00.920 sheer price. And so I think we are seeing this 0:10:01.000 --> 0:10:04.319 inflation cannibalize some of those sales, and I think it 0:10:04.400 --> 0:10:07.079 is one of the factors that's leading us to expect 0:10:07.360 --> 0:10:10.680 a much more trend like pace of of consumer spending 0:10:10.720 --> 0:10:12.720 this year, which is going to offer some relief on 0:10:12.720 --> 0:10:15.520 on the inflation picture, but it's going to be more 0:10:15.600 --> 0:10:17.600 towards the back half of the year. And even then, 0:10:17.640 --> 0:10:20.599 I think we're still looking at an environment of inflation 0:10:20.880 --> 0:10:23.080 well above where the FED wants it to be. And 0:10:23.160 --> 0:10:26.959 meanwhile the nature of this inflation is becoming more politically perilous, 0:10:27.200 --> 0:10:30.199 with the lowest income or workers who originally enjoyed the 0:10:30.240 --> 0:10:33.760 biggest wage gains starting to see there's fall behind on 0:10:33.800 --> 0:10:38.000 a percentage basis are relative to the highest earners you're 0:10:38.000 --> 0:10:41.679 seeing So, for example, bank employees with massive gains in 0:10:41.720 --> 0:10:44.680 their salaries, how much does this change the narrative in 0:10:44.720 --> 0:10:47.240 a significant way and push the FED to move faster? 0:10:47.640 --> 0:10:50.360 Because right now we are back in a scenario where 0:10:50.400 --> 0:10:54.360 the top brackets are are benefiting the most, right so 0:10:54.400 --> 0:10:57.079 I think this is this is an important element. So 0:10:57.200 --> 0:11:00.840 we focused a lot on the labor market being broader 0:11:00.880 --> 0:11:04.080 and more inclusive over the last cycle, but I think 0:11:04.120 --> 0:11:06.079 when we look at the current environment and the current 0:11:06.120 --> 0:11:09.839 state of inflation. So grocery store prices rising the most 0:11:09.880 --> 0:11:13.520 in thirteen years, same as energy housing costs when you 0:11:13.600 --> 0:11:16.760 factor in those those utilities also up, you know, by 0:11:16.760 --> 0:11:18.839 the most we've seen since the early nights nineties. This 0:11:18.960 --> 0:11:22.600 disproportionately affects through lower income households, and so I think 0:11:22.640 --> 0:11:25.000 there there is something to be said for the FED 0:11:25.080 --> 0:11:28.320 tackling this and inflation, making sure that it doesn't become 0:11:28.440 --> 0:11:31.559 an entrenched try to half to tighten policy even further 0:11:31.600 --> 0:11:35.400 down the road that actually has disproportionate benefits to lower 0:11:35.400 --> 0:11:37.880 income households that don't have as much room to to 0:11:37.920 --> 0:11:40.360 hedge around the entire prices. They don't have the savings 0:11:40.400 --> 0:11:43.120 to dip in to the same extent as as higher 0:11:43.160 --> 0:11:46.760 income households as as well. Okay, let's go back to 0:11:46.800 --> 0:11:49.400 the great John Sylvia who developed Wells Fargo and you 0:11:49.480 --> 0:11:52.720 people have continued it forward. Sarah House, what are real 0:11:52.760 --> 0:11:55.400 wages doing? I don't mean so much the real wage, 0:11:55.559 --> 0:11:58.640 but what does the real paycheck do? Here? The inflation 0:11:58.679 --> 0:12:03.600 adjusted paycheck, right, so in terms of real average early earning, 0:12:03.679 --> 0:12:06.880 so we've seen them turn deeply negative over over the 0:12:06.920 --> 0:12:09.880 past year. Now, I think we'll see some improvement in 0:12:09.920 --> 0:12:12.640 that dynamic as as the year moves forward. So we're 0:12:12.679 --> 0:12:16.600 expecting stronger wage growth as we do see the labor 0:12:16.640 --> 0:12:19.600 market continuing to tighten and businesses have come around to 0:12:19.640 --> 0:12:22.560 the fact that if they want to attract and retain workers, 0:12:22.640 --> 0:12:24.520 they have to pay up. That was a lesson that 0:12:24.600 --> 0:12:29.160 was hard to learn the past. The past could go 0:12:29.240 --> 0:12:32.120 away from hourly wages. You sound like an economist. Go 0:12:32.240 --> 0:12:35.480 to somebody that's a house. Somebody's making one forty, the 0:12:35.480 --> 0:12:38.199 other person is making one twenty or ninety or one 0:12:38.280 --> 0:12:41.640 eighty whatever, but bundled all in there doing a tax 0:12:41.760 --> 0:12:44.400 form of one fifty or two hundred thousand. That's not 0:12:44.440 --> 0:12:48.199 an average aly wage. But they're getting closed by inflation. 0:12:48.600 --> 0:12:50.440 Are they going to be able to keep up that 0:12:50.840 --> 0:12:54.480 upper middle class household that everyone aspires to. Are they 0:12:54.480 --> 0:12:56.040 going to be able to keep up in the next 0:12:56.040 --> 0:12:59.520 twenty four months. I don't see it. I think the 0:12:59.559 --> 0:13:01.920 pictures actually going to look better when we talk about 0:13:02.040 --> 0:13:04.440 some of these stronger wage gains, not just in those 0:13:04.480 --> 0:13:08.200 lower income, high contact service sectors like leisure in hospitality 0:13:08.200 --> 0:13:10.440 that we've seen, as we do see wage pressures filter 0:13:10.960 --> 0:13:14.720 up into too higher pain brackets as well, and then 0:13:14.760 --> 0:13:17.760 the fact that we are expecting inflation to receive over 0:13:17.800 --> 0:13:19.480 the course of that year, so that balance is going 0:13:19.520 --> 0:13:21.640 to get a little bit better. And I think when 0:13:21.640 --> 0:13:24.120 we talk about overall household income, we have to remember 0:13:24.160 --> 0:13:26.680 that we're also adding a lot of jobs this year, 0:13:26.800 --> 0:13:28.480 and so that's going to help in terms of that 0:13:28.559 --> 0:13:31.840 aggregate wage and salary income. That's going to help offset 0:13:31.920 --> 0:13:35.360 some of this. These inflationary pressures that that household are 0:13:35.400 --> 0:13:38.360 seen as we see more people step back into the 0:13:38.440 --> 0:13:40.640 labor market and you go back to more to income 0:13:40.679 --> 0:13:43.880 household Sarah before we let you go. The feed is 0:13:43.920 --> 0:13:46.839 increasingly moving to a data dependency, as they keep saying, 0:13:46.840 --> 0:13:48.760 and there's a lot of people in the market seem 0:13:48.840 --> 0:13:51.680 to believe. The question is which data? So what is 0:13:51.720 --> 0:13:54.640 the most important data that you're watching in the weeks 0:13:54.640 --> 0:13:58.160 and months to come. I think your term it boils 0:13:58.200 --> 0:14:01.920 down to inflation. So we are under the assumption that 0:14:02.000 --> 0:14:04.680 employment is going to hit near pocket here in January 0:14:04.720 --> 0:14:09.240 and February with amicron staffing apps and absences, difficulty staffing 0:14:09.320 --> 0:14:11.400 up and bringing on new workers. But I think it 0:14:11.480 --> 0:14:14.880 really comes down to how quickly or whether at all, 0:14:15.000 --> 0:14:18.400 we do see those inflation pressures begin to recede. So 0:14:18.600 --> 0:14:21.360 we expect inflation on your rear basis to talk out 0:14:21.360 --> 0:14:23.800 here in the first quarter. But on a monthly basis, 0:14:23.840 --> 0:14:26.240 we're still gonna be seen some pretty strong games here 0:14:26.280 --> 0:14:27.640 in the near term. And so I think it's a 0:14:27.640 --> 0:14:30.120 matter of of how much some of those monthly games 0:14:30.200 --> 0:14:33.160 come down. If we're still seeing you know, three times 0:14:33.200 --> 0:14:35.760 four times of we're sent monthly increases, I think that's 0:14:35.760 --> 0:14:37.760 still going to keep the pressure very much on the 0:14:37.800 --> 0:14:41.360 feed into um signal that they are are closely trying, 0:14:41.560 --> 0:14:44.320 closely tracking inflation and trying to rein that in before 0:14:44.320 --> 0:14:47.680 it becomes to entrenched. So the House of Los Franco, Sarah, 0:14:47.720 --> 0:14:56.920 thank you. Now your level joins us right now, senior 0:14:57.040 --> 0:15:00.720 US equity strategists at an optimistic you. Yes, Now you 0:15:00.880 --> 0:15:03.920 frame what you have changed in the first twenty one 0:15:04.000 --> 0:15:07.880 days of January. How have you amended and adjusted the 0:15:07.960 --> 0:15:11.920 U B S view? You know, we haven't changed our 0:15:12.040 --> 0:15:14.520 view much. Clearly, the market has had a choppy start 0:15:14.520 --> 0:15:16.480 to the year, but it does feel like most of 0:15:16.520 --> 0:15:19.520 the selling might be behind as we're approaching some clean 0:15:19.720 --> 0:15:23.560 technical support level on the SMP and that would suggest 0:15:23.640 --> 0:15:27.040 that the market is near over soul territory. So we 0:15:27.080 --> 0:15:29.880 are looking forward for this narrative to change and some 0:15:30.000 --> 0:15:32.920 stability in the market going forward. I think that UM 0:15:33.040 --> 0:15:35.720 investors have become somewhat spoiled in the last couple of years, 0:15:35.760 --> 0:15:38.400 have not seen any sort of pullback to this magnetude. 0:15:38.480 --> 0:15:41.240 Usually you see a couple of these five percent pullbacks. 0:15:41.240 --> 0:15:44.200 So we're starting to see that market approach out oversells 0:15:44.280 --> 0:15:47.440 territory and really opportunity to start thinking about buying those deeps. 0:15:47.520 --> 0:15:49.160 And now that you've heard these phrases in the past, 0:15:49.160 --> 0:15:52.000 don't catch a falling knife. Remember covering the European debt crisis, 0:15:52.040 --> 0:15:53.920 a decadeed guy I was told, don't be your hand 0:15:54.200 --> 0:15:56.920 in a food blender. When it feels uncomfortable, that's when 0:15:56.920 --> 0:15:59.040 you should buy. How uncomfortable is it now? You said, 0:15:59.040 --> 0:16:00.440 buy the dip on the s and pay. Would you 0:16:00.440 --> 0:16:04.120 buy the tip on this last one? We have been 0:16:04.160 --> 0:16:06.640 somewhat usual on tech for some time. We do think 0:16:06.680 --> 0:16:09.600 that tech will continue to pray some pressure from rising 0:16:09.680 --> 0:16:12.320 interest rate and uh, those valuation needs to come in 0:16:12.360 --> 0:16:15.800 a little bit more. There are areas of tacto that 0:16:15.840 --> 0:16:18.920 we do like, and we'll use the opportunity that's happening 0:16:18.960 --> 0:16:23.120 that this sort of indiscriminate selling to build opportunity position 0:16:23.160 --> 0:16:26.440 over the long term, particularly in areas like artificial intelligence, 0:16:26.480 --> 0:16:30.400 big data, cybersecurity. So there's some opportunity here to build 0:16:30.560 --> 0:16:34.840 position and high quality names was sustainable business models. Do 0:16:34.880 --> 0:16:36.440 you think that the market's got in ahead of itself 0:16:36.440 --> 0:16:41.200 with fat expectations? Oh, we we do. We do think so. 0:16:41.320 --> 0:16:44.160 In terms of our base case is that we expect 0:16:44.240 --> 0:16:47.360 three great heights this year started in March, followed by 0:16:47.520 --> 0:16:50.360 June and September. We're looking for a balance sheet role 0:16:50.680 --> 0:16:53.080 run off to start later this year. I mean, what's 0:16:53.160 --> 0:16:55.400 driving our view is that we continue to believe that 0:16:55.480 --> 0:16:59.280 inflation will meaningfully moderate as the year progress. We're looking 0:16:59.320 --> 0:17:01.600 for our to two percent by the end of the year, 0:17:01.640 --> 0:17:04.120 and we think that will alleviate some of the pressure 0:17:04.119 --> 0:17:06.359 on the feed to be more aggressive. Uh and it 0:17:06.480 --> 0:17:09.480 needs to bring back a modnteler policy to neutral. The 0:17:09.520 --> 0:17:11.639 reason why I ask is because you expect or you 0:17:11.720 --> 0:17:13.879 call for your your your firm calls for three rate 0:17:14.000 --> 0:17:16.720 hikes this year versus the four that are baked into 0:17:16.760 --> 0:17:20.320 market expectations, and I wonder at what point you start 0:17:20.400 --> 0:17:23.080 to see tech becoming a buyo. We're just talking about 0:17:23.119 --> 0:17:26.080 how you're not there yet. It's neutral, but what is 0:17:26.119 --> 0:17:28.280 the tipping point for you to say, Okay, now is 0:17:28.280 --> 0:17:30.600 the time to really go overweight and to go all in. 0:17:32.359 --> 0:17:34.080 I think you know what you need to see is 0:17:34.160 --> 0:17:37.000 one while we're watching the earnest season very closely, and 0:17:37.080 --> 0:17:39.399 so you know, if the tech companies can put up 0:17:39.440 --> 0:17:42.000 good numbers, which traditionally they have been able to do. 0:17:42.119 --> 0:17:44.760 So I think if you've got another you know, five 0:17:45.160 --> 0:17:47.359 or so pulled back here in tech, it becomes a 0:17:47.400 --> 0:17:50.119 little bit more attractive. But right now we are really 0:17:50.160 --> 0:17:54.240 focused on taking advantage of value. We think the value 0:17:54.280 --> 0:17:58.520 continued to be well positioned, particularly as rates move higher. 0:17:58.760 --> 0:18:03.040 Financials well so looking at energy given that the continue 0:18:03.400 --> 0:18:05.600 upward pressure that we have seen on all prices, and 0:18:05.720 --> 0:18:08.680 we think that prices were stabilized at a higher level, 0:18:08.920 --> 0:18:10.960 and so we think that energy is also some of 0:18:10.960 --> 0:18:13.800 the best opportunities right now in the market. Nadia, I 0:18:13.840 --> 0:18:16.560 am and this is my own bias, folks. Full disclosure, 0:18:16.720 --> 0:18:22.240 I'm absolutely fascinated at the comparison of Microsoft using spare 0:18:22.320 --> 0:18:26.200 change to go after activision versus the travails of Netflix. 0:18:26.240 --> 0:18:29.200 I don't want to do individual stock here, but what's 0:18:29.280 --> 0:18:33.560 the value of profit right now? What is the value 0:18:33.760 --> 0:18:38.879 of free cash flow right now? You know, having good 0:18:38.920 --> 0:18:41.760 profit growth and also having a strong balance sheet and 0:18:41.840 --> 0:18:45.320 free cash flow can be a very powerful currency in 0:18:45.320 --> 0:18:48.600 this market. As you're seeing valuation pull in and some 0:18:48.680 --> 0:18:52.200 of these tech companies, it is providing opportunities for pick 0:18:52.280 --> 0:18:54.200 up and m and A, which is already playing out 0:18:54.640 --> 0:18:56.679 early in the year. And so we do think that 0:18:56.680 --> 0:18:59.440 that is very valuable. A lot of these tech companies 0:18:59.680 --> 0:19:02.640 large colganies of flashbord cash, and we wouldn't be surprised 0:19:02.680 --> 0:19:06.080 to see even more m andy app activity later this year. 0:19:06.119 --> 0:19:08.440 And nowda, how does the international story stack up now 0:19:08.840 --> 0:19:10.960 versus the US. I've heard so many people throw around 0:19:11.040 --> 0:19:13.359 names like Japan. Maybe take a look at China as 0:19:13.359 --> 0:19:15.560 they start at as how did they stack up against 0:19:15.600 --> 0:19:19.159 the US at the moment? Yeah, we we we we do. 0:19:19.359 --> 0:19:22.040 We do have a preference to the US. I mean 0:19:22.320 --> 0:19:27.480 in terms of looking overseas like your your zone looks interesting, Um, China, 0:19:27.520 --> 0:19:30.520 We're still mutual on China, but the market has re 0:19:30.760 --> 0:19:33.200 rated down work quite a bit. Over the last year, 0:19:33.480 --> 0:19:36.879 and there might be some opportunities there in incoming weeks 0:19:36.880 --> 0:19:39.760 around around China, but right now we are utual on China, 0:19:40.000 --> 0:19:49.920 not your level of us, Nadia, thank you. Our goal 0:19:50.240 --> 0:19:53.520 is to bring you experts, people with zero bs about 0:19:53.520 --> 0:19:55.199 the things at the moment, and we've hit a home 0:19:55.280 --> 0:19:58.760 run out of the park here over the Massachusetts Turnpike 0:19:59.119 --> 0:20:02.520 with Tina Ford, head of Global Political Strategy at Avon 0:20:02.560 --> 0:20:06.040 Hurst where their academics at Colombia and far more her 0:20:06.080 --> 0:20:09.040 ability to trapes across the Atlantic like no one I know. 0:20:09.480 --> 0:20:12.520 Tina thrilled to have you on at this historic moment. 0:20:12.960 --> 0:20:18.520 Secretary B. Lincoln's family is steeped in Eastern Europe, steeped 0:20:18.560 --> 0:20:23.040 in this fractious relationship between Russia and the West. I 0:20:23.119 --> 0:20:27.199 featured that John Meersheimer real politic moments ago, the idea 0:20:27.240 --> 0:20:31.000 that NATO is overreached. How does the President of the 0:20:31.080 --> 0:20:36.680 United States react to Mr Putin's belief that we have overreached? 0:20:38.280 --> 0:20:42.440 President needs to hold the line and Secretary B. Lincoln, um, 0:20:42.480 --> 0:20:45.240 as you said, with his family history in Eastern Europe, 0:20:45.320 --> 0:20:49.159 just like Angela Merkel, the former German Chancellor, knows that 0:20:49.200 --> 0:20:53.800 you cannot show weakness to Vladimir Putin. Blurring the red 0:20:53.840 --> 0:20:57.560 lines dividing the West in NATO is part of what's 0:20:57.600 --> 0:21:02.880 happening here. How do we show strength away from sanctions? 0:21:02.920 --> 0:21:08.600 What are the avenues we have east of Kiev. Well, 0:21:08.640 --> 0:21:12.080 whilst we've all been busy with COVID fighting, COVID and 0:21:12.280 --> 0:21:16.800 and everything else, Russia has been able to make significant 0:21:16.840 --> 0:21:24.119 inroads in destabilizing UM. It's a former UM, former satellite 0:21:24.160 --> 0:21:29.199 states Lithuania for example, UM Belarus with the with the 0:21:29.240 --> 0:21:32.920 protests and the support that's come from Moscow, also support 0:21:33.000 --> 0:21:38.119 from from Moscow to to some current EU member states. UM. 0:21:38.160 --> 0:21:41.280 That is why To those who ask you know why now, 0:21:41.560 --> 0:21:45.000 I would say, We've got US midterms in November, as 0:21:45.119 --> 0:21:48.440 as as all Americans now, we've got a new government 0:21:48.880 --> 0:21:52.119 in Germany. We have the UK focused on its own trouble. 0:21:52.160 --> 0:21:54.760 So if there was ever a time to test the 0:21:54.840 --> 0:21:57.560 resolve of Europe and the United States when it comes 0:21:57.600 --> 0:22:02.080 to enforcing borders and and other measures, now is that time. 0:22:02.119 --> 0:22:04.640 I think the question that you know, to refer back 0:22:04.680 --> 0:22:08.480 to what you're saying, is whether the sanctions that have 0:22:08.640 --> 0:22:12.360