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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Another day, another record the S and P clock and

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Speaker 2: its twentieth all time high this year. On optimism, the

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Speaker 2: FED will be able to engineer a soft landing. FED

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Speaker 2: Speak picking back up today with Powell, bar and Bostick

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Speaker 2: all on tap joining us now to discuss the President

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Speaker 2: of Course College Cambridge, Muhammad our Arian Muhammed, Let's get

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Speaker 2: straight into it. How overwhelming is the enthusiasm of the

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Speaker 2: last week for this market.

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Speaker 3: It's totally overwhelming, and for good reason. John. Initially we

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Speaker 3: had bottom up drivers, secular themes that were very powerful,

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Speaker 3: but that rally was narrowing. Now suddenly you have a

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Speaker 3: very powerful top down factor that has come in, enabling

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Speaker 3: central banks that clearly are going to do what they

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Speaker 3: want to do, regardless of selective data focus about the

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Speaker 3: thing we can. These two things coming together are really powerful.

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Speaker 2: We did the pre game together, we didn't do the game,

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Speaker 2: so you were with us fortunately going into that news conference.

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Speaker 2: Were you surprised by what came out of the news

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Speaker 2: conference with Chairman Powell.

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Speaker 3: I was surprised by the extent to which he stressed

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Speaker 3: patients in two ways. Patients with inflation running higher. He

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Speaker 3: basically dismissed the fact that we've had some pretty surprising

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Speaker 3: hotter than expected inflation prints. And then the second patients

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Speaker 3: with the balance sheet, saying, you know what, we may

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Speaker 3: get the slower than we would have otherwise, which means

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Speaker 3: that monetary policy is going to be more expansion than

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Speaker 3: it would have been otherwise. So I was struck that

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Speaker 3: on the balance sheet he took such a big step

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Speaker 3: forward when he could have waited till the next meeting

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Speaker 3: to do that.

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Speaker 1: So we keep wondering what shoe is going to drop? Right,

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Speaker 1: We keep thinking everyone's bullish, and then more bullish, and

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Speaker 1: then bullish on top of bull and you have to wonder, okay,

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Speaker 1: well when does something break And we were talking on Wednesday,

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Speaker 1: it's the inflation expectations that at some point this is

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Speaker 1: going to be a higher, more inflationary environment with a

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Speaker 1: FED that is less willing to fight it. And yet

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Speaker 1: I'm not seeing it in break even rates. I'm not

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Speaker 1: seeing it in other places that you normally would.

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Speaker 3: Why do you think that is? You're seeing it in gold.

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Speaker 3: Look at the reaction of gold record highs on gold.

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Speaker 3: I think what you're having is and you've all said

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Speaker 3: it really well, everything rally, so it's going everywhere. What's

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Speaker 3: interesting now is this notion of market enthusiasm not economic enthusiasm.

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Speaker 3: There's a big difference. Market enthusiasm. Enthusiasm could spread to

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Speaker 3: the rest of the world, and that is quite a

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Speaker 3: consequential statement. If that occurs, then the US relative strength

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Speaker 3: is going to be somewhat diminished. I think it's actually

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Speaker 3: too early to pivot. I do think that, to use

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Speaker 3: your phrase, US exceptionalism, economic exceptionalism isn't going to expand

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Speaker 3: to the rest of the world. The US is really

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Speaker 3: exceptional when it comes to its economy. The others aren't

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Speaker 3: doing what the US is doing in terms of investing

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Speaker 3: in the future drivers of growth. They don't have the

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Speaker 3: entrepreneurial society that we have. They don't have the mobility

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Speaker 3: of factors of production that we have. The US is

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Speaker 3: truly exceptional among other advanced economies.

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Speaker 1: So do you think it's rational for people to stay

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Speaker 1: in the United States and to keep adding more even

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Speaker 1: if valuations are at such high levels relative to the

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Speaker 1: rest of the world, to continue to kind of bet

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Speaker 1: on this ship and not expect it to expand out.

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Speaker 3: So I've been asked that question every single year for

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Speaker 3: the last five years, and every single year the US

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Speaker 3: premium has increased, and every single year I said, don't

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Speaker 3: fait the US too early. I see some argument for

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Speaker 3: diversify flying away from the US purely on this enthusiasm

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Speaker 3: and on relative valuation, but I don't see it as strong.

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Speaker 3: It is not being supported by fundamentals. People have to

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Speaker 3: realize this. This is more betting on the momentum. And

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Speaker 3: I understand that the momentum factor is very strong. Right now.

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Speaker 3: You mentioned just a moment ago. There's enthusiasms for stock market,

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Speaker 3: there's no enthusiasms for the economy. Well, how does not

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Speaker 3: make any sense? So what the reason why it makes sense?

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Speaker 3: And I've learned this the painful way is that markets

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Speaker 3: are not the economy. Markets can the couple from economies

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Speaker 3: for a very long time, and we've seen that happen

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Speaker 3: over and over again. But that parts of the world.

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Speaker 3: For example, one of the biggest puzzle is while you've

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Speaker 3: had a surge into inflows in US high yield and

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Speaker 3: corporate bonds, investment grade bonds, you haven't had them in

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Speaker 3: emerging markets. And people can't figure it. So we have

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Speaker 3: this very peculiar situation whereby it is US investors managing

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Speaker 3: US investment grade bonds that are taking off benchmark bets

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Speaker 3: in emerging markets. And I think that's because most investors

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Speaker 3: think it's enough to be in the US.

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Speaker 2: You wear a few camps. Can we got to the

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Speaker 2: grammar Sey camp and talk about what's happening in them?

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Speaker 2: What's the reason for that? What are you and the

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Speaker 2: team of a grammacy thinking about EM at the moment?

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Speaker 3: I think that people have been hurt so much, and

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Speaker 3: people like the same reason why so many people are

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Speaker 3: in cash. They think they can take get adequate returns

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Speaker 3: from safer places to be in.

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Speaker 2: If we were looking at EM and we saw a

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Speaker 2: central banker that appeared to tacitly accept high in flight

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Speaker 2: and for longer, I think we've been doing something very

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Speaker 2: different with the assets of that country, particularly with the currency.

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Speaker 3: Why is it different with the US because the US

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Speaker 3: issues the reserve currency. Because the US is the place

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Speaker 3: where people outsource their savings to be managed, the US

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Speaker 3: can misbehave quote unquote much longer and in a much

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Speaker 3: bigger way than any other country.

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Speaker 1: In the world, which is the reason why we've all

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Speaker 1: been waiting for this to show up in longer term

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Speaker 1: bond yields, and waiting and waiting and asking lots of

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Speaker 1: people the question, and everybody says it's not going to

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Speaker 1: happen because we're the reserve currency of the world at

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Speaker 1: a certain point. Is the concern about inflation only going

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Speaker 1: to show up in gold? Is this the only place?

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Speaker 3: Or will you start to see it?

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Speaker 2: Wake up?

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Speaker 1: Is that something that you're willing.

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Speaker 3: To bet on? Look, we've set aside free concerns that

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Speaker 3: are still in play. We just are not focusing on

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Speaker 3: them right now. One is the US deficit and the

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Speaker 3: tremendous amount of issuance. I remember being with you back

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Speaker 3: in October where the question was who's going to buy

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Speaker 3: all these bonds? No one cares right now. So that's

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Speaker 3: issue number one. Issue number two is we've taken a

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Speaker 3: small step in Japan for exiting from a highly distorted

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Speaker 3: monetary policy regime, and we have a really long journey

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Speaker 3: ahead of us, But no one is asking the question,

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Speaker 3: will Japanese investors have to sell all these foreign securities

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Speaker 3: they've bought? And of course the third one is a

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Speaker 3: banking system. There are This is not a banking system issue.

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Speaker 3: This is a few banks that are still facing difficulties

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Speaker 3: and that is going to play out this year. But

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Speaker 3: it's not a banking system issue. You talk about.

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Speaker 1: Japan, and let's go there for a minute, because they

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Speaker 1: did come out with some inflation numbers overnight that were

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Speaker 1: hotter than expected, and yet people aren't concerned because it

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Speaker 1: seems like the boj put is as consistent as the

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Speaker 1: Federal Reserve put in terms of not over hiking or

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Speaker 1: being over ambitious about how much to really tighten the screws.

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Speaker 1: Does that make you think, you know what, even if

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Speaker 1: that's a sort of outside threat, that's not going to happen.

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Speaker 1: This isn't a normalizing cycle. This was simply kicking the

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Speaker 1: goalpost a little bit further out the field.

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Speaker 3: So Lisa, you're doing what John does, which get me

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Speaker 3: on a Friday and then I front run my Financial

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Speaker 3: Times article coming out next week. It's okay, no one's listening.

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Speaker 3: Go on. So I think we're going to look back

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Speaker 3: this week on this week as the week in which

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Speaker 3: central banks abandoned a point inflation target for a range

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Speaker 3: that we're going to look back and say this was

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Speaker 3: the point when they realized in a case of the FED,

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Speaker 3: for example, is no longer a good idea to have

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Speaker 3: a two percent Let's have two to three percent. It's

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Speaker 3: going to happen in a very slow way. It's going

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Speaker 3: to for the first step was taken this week. When

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Speaker 3: you acknowledge that inflation will be higher, your acknowledge growth

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Speaker 3: will be higher. But you see straight through it Japan,

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Speaker 3: same thing happened. So we're going to look back, and

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Speaker 3: this is my hypothus on this as this has have

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Speaker 3: been a really important moment, but it's going to play

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Speaker 3: out very slowly. Japan is going to play out very slowly.

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Speaker 3: They will tolerate harder than expected inflation for much longer

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Speaker 3: than anybody expected. Now, if in the equity market, that's

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Speaker 3: music to your ear, as long as it doesn't get

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Speaker 3: out of control. And so far inflation expectations have been

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Speaker 3: relatively anchored.

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Speaker 2: As you said, Rais's questions about what it means for

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Speaker 2: the bond market. We'll talk about the consequences a little

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Speaker 2: bit later. That was the greatest promotion the FT's ever had.

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Speaker 3: Mohammed.

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Speaker 2: You do it to me every sing, but it's good

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Speaker 2: for everyone. We get a little bit, they get a

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Speaker 2: little bit. Everybody wins, Okay,