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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Sarah Hunt Alpine Saxon

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Speaker 2: would saying this, just when you think you can make

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Speaker 2: a case for a summer cup, in comes the jobs

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Speaker 2: number and takes it off the table. While that noise

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Speaker 2: we all heard is likely the sound of the door

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Speaker 2: closing on July, the inflation numbers will add or detract

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Speaker 2: the evidence being used by the competing Yes, they should

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Speaker 2: and know they shouldn't.

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Speaker 3: Cams.

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Speaker 2: Sarah's with us for more. Sarah good wanted to you

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Speaker 2: good morning, Never mind good news, bad news? What was Friday?

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Speaker 3: What was that? I think it was mixed news?

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Speaker 1: Right?

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Speaker 4: So this is you start to have all these discussions

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Speaker 4: about the differences between this survey and that survey, and

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Speaker 4: can we count on this and what's the birth death

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Speaker 4: model doing. I think it just is indicative of the

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Speaker 4: fact that it's a confusing market. And I think that

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Speaker 4: that is on the labor side certainly, and I think

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Speaker 4: that that's part of what's coming into play as we

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Speaker 4: go forward. We started off this monster rally when the

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Speaker 4: FED basically said at the end of last year, or

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Speaker 4: you know, the October of last year.

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Speaker 3: We're done raising rates.

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Speaker 4: There's going to be an easing cycle. People built in

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Speaker 4: a ton of easing and now people are looking at

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Speaker 4: maybe taking that away. And I thought that laur Calvalstina's

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Speaker 4: note this morning was really interesting on you know, if

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Speaker 4: we don't get one at all, you've got some weakness

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Speaker 4: in the equity.

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Speaker 3: Market, and at least it's got thoughts on that.

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Speaker 2: But before we get there, if the payrolls report slammed

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Speaker 2: the door shut on July, can Wednesday morning reopen it?

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Speaker 4: Wednesday morning could reopen it because, as a number of

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Speaker 4: people have noted this morning, it's not just the labor

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Speaker 4: market that the FED is looking at. If the inflation

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Speaker 4: really looks like it's come out down. But to your

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Speaker 4: point earlier, the housing market is not getting any better.

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Speaker 4: Rents are not coming down. They're not looking at a

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Speaker 4: whole lot cheaper, at least not in urban areas. So

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Speaker 4: I think it could because you have that discussion of

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Speaker 4: are we cutting rates or are we normalizing? And obviously

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Speaker 4: the market's going to take any cut as a start

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Speaker 4: of amazing cycle. But if they can do something like

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Speaker 4: the UCV, they would just basically say we're normalizing, but

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Speaker 4: we're hawkishly normalizing and we're not going to cut don't

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Speaker 4: look at this as a cycle. It could certainly open it,

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Speaker 4: but I don't think to July. I think it opens

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Speaker 4: it later in the year.

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Speaker 5: On the flip side, if we get a hot as

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Speaker 5: an expected CPI print. You were talking about Lori Cavacina's

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Speaker 5: call this idea that if there are no rate cuts

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Speaker 5: this year, it could cause an eight percent decline in

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Speaker 5: the S and P five hundred. What if Judson Wang

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Speaker 5: comes out later this week and says that he has

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Speaker 5: a new development that's going to build robots that do

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Speaker 5: our dishes and take care of our children. Could that

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Speaker 5: totally change any kind of selloff?

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Speaker 4: Well, I think that there's already been a bifurcation in

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Speaker 4: what a selloff means. Nvidia has not been part of

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Speaker 4: any of that sell off. You've seen other tech sell

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Speaker 4: off in ways that Nvidia has not. There is there's

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Speaker 4: a secular story there that is difficult to say that

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Speaker 4: whatever is going on with the FED is going to

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Speaker 4: be important for that piece of technology. But there's also

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Speaker 4: a big future element, and I think that that's what

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Speaker 4: people are starting to recognize, is that you have to

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Speaker 4: really go further into the future to try to monetize

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Speaker 4: this unless you're in video and you're selling them the

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Speaker 4: chips right now. So there's a little bit of a

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Speaker 4: thing going on right there where there's a secular story

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Speaker 4: in one part of technology, but a market story in

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Speaker 4: the rest of technology.

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Speaker 5: And do you believe that we're currently at rates that

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Speaker 5: could cause the market story to gain legs if we

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Speaker 5: stay here, for example, in the market I'm not just

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Speaker 5: talking about FED funds rate that that could really crimp

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Speaker 5: how people understand forward looking profits for a lot of

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Speaker 5: the companies in the other ninety three four hundred and

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Speaker 5: ninety three.

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Speaker 4: Interestingly enough, I think it's almost less about profits as

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Speaker 4: what it does to things like the housing market, which

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Speaker 4: is still pretty stagnant, and what it does to people

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Speaker 4: who have been waiting for a chance to refinance. Because

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Speaker 4: the idea was we're going to hike, We're going to

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Speaker 4: go very high, then we're going to come down quickly.

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Speaker 4: That's not happening. So there's a lot of extent going

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Speaker 4: on in some of the fixed income markets, and I

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Speaker 4: think that whether or not the stresses start to be

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Speaker 4: a part there, I'm less worried about the larger cash

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Speaker 4: rich companies on whether or not higher five percent versus

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Speaker 4: four point seventy five or four fifty makes a big difference.

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Speaker 4: But if you don't get a cycle coming down, there's

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Speaker 4: a lot of areas where I think that there's some

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Speaker 4: tension and refinancing.

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Speaker 2: So let's get into it. Places you want to be,

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Speaker 2: places you want to avoid.

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Speaker 4: What are they well, I think you need to be

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Speaker 4: in the part of the technology sector that's quite clearly

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Speaker 4: throwing off buckets of cash and doing really well in

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Speaker 4: almost any environment. I think it's hard to say that

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Speaker 4: that's a place you want to stay away from. The

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Speaker 4: oil picture just got more difficult for energy, and I

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Speaker 4: think that that's still something that is throwing off a

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Speaker 4: lot of cash, throwing off a lot of dividends. You've

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Speaker 4: got good buybacks there. Retail's very difficult right now. You've

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Speaker 4: seen a bunch of retailers come out and say, you know,

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Speaker 4: your year sales are not doing that well, and we're

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Speaker 4: kind of worried about the next couple of quarters. So

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Speaker 4: there are areas where it's quite clear that there has

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Speaker 4: been a slowing and there are areas where there may

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Speaker 4: be some acceleration, but the overall economic picture is going

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Speaker 4: to weigh on some of those materials and energy kind

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Speaker 4: of stocks. Some of the industrials are doing quite well

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Speaker 4: and going to continue to do quite well. It's very

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Speaker 4: pick and choose right now.

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Speaker 5: You hinted at something that the longer rates stay at

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Speaker 5: these levels, there could be some real credit stresses that

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Speaker 5: percolate into something different. Can you give us a sense

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Speaker 5: walk us through what that looks like. How severe could

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Speaker 5: that look? Is that a credit crunch, is it a

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Speaker 5: sudden plunge, or is it just sort of a slow

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Speaker 5: bleed on economic growth? It just becomes more and more

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Speaker 5: evident over time.

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Speaker 4: So I think that one of the reasons that you've seen,

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Speaker 4: I mean, there has been some equity volatility, but not

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Speaker 4: the kind of volatility you would expect given some of

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Speaker 4: the things that have gone on with interest rates over

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Speaker 4: the last couple of years. Is that we've had all

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Speaker 4: these government programs that came through in the financial crisis

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Speaker 4: that people now look to to say, you know what,

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Speaker 4: if there's a really big problem with interest rates, there's

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Speaker 4: going to be some sort of program to help them.

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Speaker 1: Right.

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Speaker 4: So the whole issue with the banks that started last

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Speaker 4: year where the Fed said okay or Treasury said you

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Speaker 4: can go put us collateral at one hundred cents on

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Speaker 4: the dollar, even though rates have gone up and that

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Speaker 4: collateral may not be worth one hundred cents on the dollar.

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Speaker 4: There are a lot of programs to deal with that.

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Speaker 4: So I don't know that it's as much of a

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Speaker 4: crisis as it would have been in past eras where

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Speaker 4: you didn't have a kind of backstop on some of that.

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Speaker 4: So I don't know where that goes. But you've seen

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Speaker 4: commercial real estate have problems. You've seen even apartment housing.

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Speaker 4: There's certain parts of the real estate market that are

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Speaker 4: really showing some stress, and those are long assets and

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Speaker 4: a lot of those were financed at times where now

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Speaker 4: if you have to refinance anything, you're looking at a

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Speaker 4: much bigger number, and what you paid for that asset

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Speaker 4: is now problematic relative to where interest rates are. So

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Speaker 4: I think that there's a question of what those assets

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Speaker 4: are worth. But I also feel like there's an underlying

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Speaker 4: feeling that there will be something if it gets really bad.

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Speaker 5: So, just to sum this all up, and John was

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Speaker 5: asking what you like and what you don't like. You

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Speaker 5: do like big tech and companies that are just generating

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Speaker 5: bucket loads of cash. Consumer cyclicals are a little bit questionable.

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Speaker 5: How cautious are you given that you just don't have

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Speaker 5: visibility at the time when you also are charged with

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Speaker 5: generating alpha.

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Speaker 4: Well, it's tough because you have a multiple situation that

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Speaker 4: I mean, if you take that, you know to Peter

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Speaker 4: Cheers point at the top ten STOC thirty five percent

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Speaker 4: of the SMP. But you have a multiple issue in

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Speaker 4: some of the other areas, and I think you have

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Speaker 4: to be careful both about what you pay and what

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Speaker 4: everybody's balance. It looks like, right this comes back to cash.

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Speaker 4: Am I generating cash? Because if you're not, and or

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Speaker 4: if you have any refinancing that you have to do, you.

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Speaker 3: Have to be quite difficult.

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Speaker 4: It could be quite difficult, So you have to be

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Speaker 4: careful about that. So I think that you just really

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Speaker 4: need to pay attention to valuations in a way that

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Speaker 4: we really haven't had to in sort of a while,

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Speaker 4: because you just now have more vulnerability on what happens

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Speaker 4: with the rest of the financial picture and what happens

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Speaker 4: with interest rates.

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Speaker 2: We started this hour and we've been talking about politics,

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Speaker 2: and I could see about the corner of my eye

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Speaker 2: not a gelang twenty five.

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Speaker 3: Have we got a clue? Well, the next year has

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Speaker 3: in store for us? We do not. How difficult is that?

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Speaker 3: As an investor, it is difficult.

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Speaker 4: But if also like if you take the politics out

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Speaker 4: of it, and you say how much has the regime

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Speaker 4: changed in terms of what that means for the equity markets,

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Speaker 4: as long as you're not radically changing tax policy or

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Speaker 4: you're radically changing a lot of the tariff policy. I mean,

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Speaker 4: there was supposed to be a big switch when Biden

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Speaker 4: took office about what was going to happen with China.

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Speaker 4: It didn't really switch that much. There may be a

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Speaker 4: change in immigration. That may we'll see what that could

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Speaker 4: happen to the labor markets. If you get a change

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Speaker 4: in administrations. We don't know enough yet to start trying

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Speaker 4: to figure out how what that playbook looks like. And

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Speaker 4: I think that's going to be very difficult to party.

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Speaker 2: So do you're short in the time horizon, make really

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Speaker 2: tactical calls or just assume that things carry on as

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Speaker 2: usual and there's no big change.

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Speaker 4: I think we're always looking for a longer picture, right,

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Speaker 4: We're not very short term traders. We're looking for a

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Speaker 4: longer picture. This goes back to am I generating cash?

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Speaker 4: What does my balance you look like? What is the

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Speaker 4: economy going to? Do you look at the macro picture

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Speaker 4: more because the political picture is going to change and

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Speaker 4: we just don't know how that's.

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Speaker 3: Going to change.

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Speaker 2: Sarah, this was great. Sarah Hunt of Amplied Saxon would

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Speaker 2: were a bit of a rookie figh frequency economics rights

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Speaker 2: in this well incoming data will ultimately drive rate moves.

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Speaker 2: Our base case remains that the Fed will make the

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Speaker 2: policy stance lesser strict if this yere in response to

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Speaker 2: a slow in growth and inflation backdop Repeta is with

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Speaker 2: us right now, repeta before we run away with this

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Speaker 2: way can start on Wednesday.

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Speaker 3: We need to start with last Friday.

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Speaker 2: Do you believe that that job states a Friday morning

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Speaker 2: overstates the strength of the US economy.

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Speaker 1: The job data show us that this economy is still creating,

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Speaker 1: you know, jobs that are very fast faced. You know,

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Speaker 1: this is something that you know if you look at

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Speaker 1: the underlying trend though, you know, we're not really seeing

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Speaker 1: a breakout either to the upside or downside. But the

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Speaker 1: US economy is still creating a lot of jobs. The

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Speaker 1: it's the household survey where you know, there's a little

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Speaker 1: bit more of a concern. The unemployment trade ticking up,

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Speaker 1: still very low by historical standards, still you know, in

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Speaker 1: line with where you know the FED marks the longer

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Speaker 1: run rate. But this economy is still very strong. The

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Speaker 1: labor market is very supportive of incomes of households, and

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Speaker 1: we continue to see that.

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Speaker 5: Numbers if you take them at face value. From Friday,

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Speaker 5: we saw wages increase at a faster paced month of

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Speaker 5: a month so many people expected you say that the

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Speaker 5: data are pointing to little threat of inflation from labor costs.

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Speaker 3: What gives you that conviction?

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Speaker 1: You know, if you look at the average hourly earning number,

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Speaker 1: buy on their own. Yes, you know there's an reacceleration.

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Speaker 1: That's you know that we saw in the latest numbers

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Speaker 1: if you look at unit labor costs, and you know

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Speaker 1: these data are extremely volative order to quarter. But if

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Speaker 1: you look at the underlying trend we have seen. If

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Speaker 1: you look at the year and ear changes, we are

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Speaker 1: seeing a consistent improvement in productivity. And you know, if

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Speaker 1: you look at the revision to the latest numbers on

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Speaker 1: unit labor costs, consist a consistent deceleration at unit labor costs.

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Speaker 1: Also if you look at other numbers, right, I mean

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Speaker 1: we are seeing sort of mixed signals, So I don't

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Speaker 1: want to overreact to one month's number. If our base

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Speaker 1: case is that economic activity is slowing, that demand side

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Speaker 1: of the economy is slowing, especially in the services sector.

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Speaker 1: If you look at the services spending numbers in the

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Speaker 1: latest two months, that is slower. The problem is that

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Speaker 1: we've seen this before, right, We see a slowdown and

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Speaker 1: then we see rebounds. So what we're looking for is

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Speaker 1: a consistent slowdown. The early numbers are certainly suggesting that,

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Speaker 1: So we're not expecting a reacceleration in economic activity. We've

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Speaker 1: already seen a step down in household spending. It's just

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Speaker 1: a matter of some more evidence. Then the Fed is

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Speaker 1: also looking for the same.

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Speaker 5: Can you frame how important then CPI is going to

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Speaker 5: be on Wednesday in terms of either supporting your thesis

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Speaker 5: of a gradual slowing but also disinflation versus sort of rejecting.

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Speaker 1: It, right, I mean the CPI data, We expect them

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Speaker 1: to show what the pc data is showing. Right The

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Speaker 1: inflation is sort of moving sideway. It's really not much

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Speaker 1: of an improvement right now. But what we are seeing

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Speaker 1: is a deceleration, you know, a deflation in goods prices.

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Speaker 1: The services side is where you know, all the problem lies.

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Speaker 1: That's what's boosting prices in you know, the CPI versus PCE.

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Speaker 1: You've got that housing component which is much waightier in

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Speaker 1: the CPI numbers. We do think that that is also

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Speaker 1: going to come down, but gradually. And we also think

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Speaker 1: that this you know, ex housing component of course, services

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Speaker 1: that is also something that we're watching very carefully. And

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Speaker 1: all indications are if you see services spending you know,

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Speaker 1: sort of moderate, then you would expect that, you know,

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Speaker 1: if as that demand slows, that those price pressures will

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Speaker 1: also abeate. But if you look at you know, some

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Speaker 1: of the there's conflicting evidence, right, if you look at

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Speaker 1: some of the numbers on travel, on entertainment, you know,

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Speaker 1: those numbers are still there. There's still signaling that there

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Speaker 1: is staying power to the services side. But we do

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Speaker 1: think that we're going to see you know, overcoming a

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Speaker 1: months of moderation. You know. The whole the whole idea

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Speaker 1: is that the US economy continues to grow. The FED

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Speaker 1: has delivered over five hundred and twenty bass points of

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Speaker 1: tightening without causing a recession. They're going to be careful

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Speaker 1: as they move forward. We think the base case still

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Speaker 1: is that the US economy grows, you know, but it

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Speaker 1: slows down the moreventum de series.

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Speaker 3: Rabeta appreciate it. Ubita Feruki.

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Speaker 2: There five frequency economics looking ahead to Wednesday, a FED decision,

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Speaker 2: and the data in the morning. Joining us now is

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Speaker 2: black Rock, Samanda Line. I'm alongside Mark Sandy of Moody's Analystics.

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Speaker 2: Let's set the stage like this. There's two surveys that

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Speaker 2: go into the jobs report, Amanda, you know them, well,

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Speaker 2: two very very different stories.

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Speaker 3: What was Friday about?

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Speaker 6: Well, I think just taking a step back, as you

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Speaker 6: note that the overall establishment survey showed really strong momentum.

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Speaker 6: Perhaps that might have been driven by some of the

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Speaker 6: immigration that's coming into the country. The household survey showed

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Speaker 6: a pretty meaningful decline, but that was really in folks

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Speaker 6: that are under the age of twenty five, so it

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Speaker 6: was it was really concentrated. And I think we've spoken

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Speaker 6: about the bifurcation in the economy in sessions past. I

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Speaker 6: think that's partly what you're seeing there, But in aggregate,

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Speaker 6: as Mike noted, the economy is still chugging along. Even

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Speaker 6: if we expect some deceleration from say we're the Atlanta

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Speaker 6: Fed GDP now is say we end the year at

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Speaker 6: two percent, that's still trend or above trend growth. And

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Speaker 6: I think for us, the shallow rate cutting cycle that

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Speaker 6: we're expecting is really a product of that, because it's

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Speaker 6: not obvious to us that there's urgency for the Fed

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Speaker 6: to ease. We expect them to normalize, but not really

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Speaker 6: to ease policy.

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Speaker 2: Mark Zandy two very different surveys. From your perspective, would

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Speaker 2: you put more weight on one versus the other? If

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Speaker 2: you're sitting on the fmsay.

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Speaker 7: The establishment survey, the survey businesses.

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Speaker 8: I think that's the better measure Meanche's the job market strong, resilient,

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Speaker 8: creating lots of jobs.

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Speaker 7: The job growth is very broad based. But you can't

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Speaker 7: dismiss the household survey.

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Speaker 8: In the increase in the unemployment rate, it does indicate

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Speaker 8: that the liver market is really cooling off.

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Speaker 7: You look under the hood of.

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Speaker 8: The job market, you know, hiring is weakening or seeing

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Speaker 8: fewer quits, unfield positions or declining number of ten jobs

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Speaker 8: are declining, hours work or declining. So you know, the

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Speaker 8: job market's okay, it's fine, it's moving forward, but it's

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Speaker 8: cooled off. It's you know, exactly where the Fed would

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Speaker 8: want to see the labor market resilient, creating jobs, but

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Speaker 8: you know, not at a point where it's fading inflationary pressures.

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Speaker 5: Dialing this weird aspect of the jobs report into what

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Speaker 5: we're expecting in terms of CPI On Wednesday, Mark, are

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Speaker 5: we measuring inflation correctly?

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Speaker 8: Well, yeah, we're measuring it, but there's all kinds of

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Speaker 8: problems with it. I mean, you know, if Barbara King

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Speaker 8: for the day at the Federal Reserve Board and looking

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Speaker 8: at the inflation measures I'd be focused on something that's

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Speaker 8: called the harmonized inflation measure or harmonized CPI or harmonized PCEE.

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Speaker 8: That's everything except owner's equivalent rent. That's a mouthful bute

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Speaker 8: Or is this implicit cost of owning your own home?

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Speaker 8: That is very problematic. You know, I've learned a lot

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Speaker 8: about this, you know, digging deep into it. It's very problematic.

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Speaker 8: Even when things are going well. The housing market is

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Speaker 8: well functioning, but as you know, the housing market's a mess.

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Speaker 8: We've got a very severe shortage of affordable housing. We

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Speaker 8: have a surfeit of high end housing, and that's a

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Speaker 8: scrambling thing. So if you really want to get a

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Speaker 8: sense of underlying inflation, my view is you use harmonized

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Speaker 8: by the way, that's what's used in the rest of

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Speaker 8: the world, and if you.

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Speaker 7: Do, it shows that, well, you know, mission accomplished. We're there.

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Speaker 8: Inflation's back to the FEDS target has been for quite

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Speaker 8: some time.

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Speaker 5: Amanda picking up on that point, I'm glad that Mark

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Speaker 5: brought up the housing market. We heard this from Sarah

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Speaker 5: Hunt also that this is actually completely skewing a lot

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Speaker 5: of the measures that we're looking at because the housing

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Speaker 5: market's broken, and this is a key aspect of the

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Speaker 5: US economy and input into inflation.

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Speaker 3: How much are you watching that and.

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Speaker 5: Sort of using that as a gauge of credit strength

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Speaker 5: more broadly.

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Speaker 6: Yeah, that's part of the reason why we like to

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Speaker 6: look at the supercore, which is the services x housing.

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Speaker 6: We're looking at a range of metrics when we're looking

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Speaker 6: at the degree of restriction of monetary policy. I think

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Speaker 6: from a pragmatic view, we're not expecting major changes to

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Speaker 6: the Fed's inflation targets or the reaction function. I think

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Speaker 6: they need to get to their target before they even

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Speaker 6: think about kind of re evaluating whether or not these

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Speaker 6: metrics make sense in.

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Speaker 3: This new cycle.

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Speaker 6: But from a credit perspective, really we're not seeing a

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Speaker 6: massive degree of restriction across the credit landscape. We're seeing

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Speaker 6: it in pockets, but we're not seeing it widespread. And

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Speaker 6: so there are certain areas where sure borrowers would love

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Speaker 6: to have some rate relief, But is twenty five or

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Speaker 6: fifty basis points going to move the needle for them?

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Speaker 6: Probably not, And it's really the depth of that cutting

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Speaker 6: cycle that really matters for risk appetite. I think the

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Speaker 6: good news is that most of these corporates are managing

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Speaker 6: this backdrop in a resilient way. It's largely a function

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Speaker 6: of growth. However, if we have a significant slowdown in

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Speaker 6: growth and we have persistently elevated cost of capital, I

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Speaker 6: think that's where we could become much more cautious.

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Speaker 2: If the sources of finance shifted. We've talked a little

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Speaker 2: bit about this over time. Does that make it more

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Speaker 2: difficult for the Fed's policy to really get to maybe

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Speaker 2: where it needs to go.

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Speaker 6: They have shifted in the sense that you've seen private

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Speaker 6: credit player bigger role. But even in the syndicated markets,

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Speaker 6: we're seeing significant demand for leverage loans, both from investors

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Speaker 6: and for borrowers to issue there because the demand is

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Speaker 6: so strong. See a low creation is high. There's a

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Speaker 6: lot of technicals are really important in the credit market.

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Speaker 6: But I think, yes, the sources of financing have kind

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Speaker 6: of helped out a bit, but in general, the tone

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Speaker 6: is just still very strong, and I think part of

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Speaker 6: that is a function of corporates ended this or entered

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Speaker 6: this period from a position of strength. But again, the

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Speaker 6: growth has allowed corporate credit to absorb the higher cost

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Speaker 6: of capital. I think it really hinges on growth. Even

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Speaker 6: on Friday, the yield backup, we saw buying an ig

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Speaker 6: credit right, We saw investors coming into the market when

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Speaker 6: we had a fifteen basis point backup in yields. So

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Speaker 6: it shows you the strength of that demand is really there.

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Speaker 6: So it's hard to get incredibly negative on corporate credit

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Speaker 6: spreads because even when it tries to sell off, you

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Speaker 6: see either in spreads or in rates that.

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Speaker 3: The buying comes in market.

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Speaker 2: It's really difficult to reconcile the conversation we have on

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Speaker 2: Wall Street with the conversation you hear from FOMC officials

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Speaker 2: around the issue with financial conditions. Can you tell us

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Speaker 2: what is the difference between a federates of officials saying

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Speaker 2: financial conditions are tight and people on Wall Street still

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Speaker 2: saying they're easy.

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Speaker 8: Well, I think they're right where they need to be.

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Speaker 8: You know, if you put into the equity market or

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Speaker 8: the credit spreads, yeah, it feels like conditions are easy,

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Speaker 8: but if you look at bank lending standards and the

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Speaker 8: banking system in general, not so much. You know, credit

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Speaker 8: is much tougher to come by. So the value of

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Speaker 8: the dollar is strong that that's consistent with tight financial conditions.

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Speaker 8: So if you add it all up and you know,

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00:19:49,560 --> 00:19:51,800
Speaker 8: fix it up in the pot. It feels like financial

440
00:19:52,119 --> 00:19:54,280
Speaker 8: conditions are right where they need to be. So yeah,

441
00:19:54,280 --> 00:19:56,159
Speaker 8: you can find things that show that they're easy, some

442
00:19:56,200 --> 00:19:59,480
Speaker 8: things that show that they're tight, but all in you know,

443
00:19:59,480 --> 00:20:03,439
Speaker 8: it feels so again, the Fed's got financial conditions exactly

444
00:20:03,480 --> 00:20:04,840
Speaker 8: where they want them at.

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Speaker 5: This point, though, Mark, how much is this boiling the frog?

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00:20:07,800 --> 00:20:09,360
Speaker 5: And this has been sort of one of the questions

447
00:20:09,359 --> 00:20:11,560
Speaker 5: with the long and variable lags, that you know, we're

448
00:20:11,600 --> 00:20:13,800
Speaker 5: sort of doing damage under the hood that's suddenly going

449
00:20:13,800 --> 00:20:15,359
Speaker 5: to come to the fore. And that was the belief

450
00:20:15,440 --> 00:20:18,320
Speaker 5: earlier this year, is a belief last year and then

451
00:20:18,359 --> 00:20:20,880
Speaker 5: people abandoned that is that actually things are just fine

452
00:20:20,920 --> 00:20:23,159
Speaker 5: and we can live with rates right here. Do you

453
00:20:23,200 --> 00:20:25,000
Speaker 5: have a sense of which it is, of where the

454
00:20:25,040 --> 00:20:28,640
Speaker 5: balance of risks is in terms of holding conditions at

455
00:20:28,640 --> 00:20:30,919
Speaker 5: this level for just a longer period of time.

456
00:20:31,480 --> 00:20:34,560
Speaker 8: Yeah, Well, you know, the most likely scenario is the

457
00:20:34,560 --> 00:20:36,439
Speaker 8: Fed's going to pull this off. Then kind is going

458
00:20:36,480 --> 00:20:38,720
Speaker 8: to soft land and they'll start cutting rates here pretty soon,

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00:20:38,840 --> 00:20:40,320
Speaker 8: and you know things will settle in.

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00:20:40,480 --> 00:20:42,840
Speaker 7: But I do worry that they're holding on.

461
00:20:42,840 --> 00:20:47,520
Speaker 8: Here too long. That's too high for too long. You know,

462
00:20:48,320 --> 00:20:51,880
Speaker 8: the liver market has signs of weakness. I went through

463
00:20:52,040 --> 00:20:55,639
Speaker 8: a litany of those. The financial system is fragile, it

464
00:20:55,680 --> 00:20:58,720
Speaker 8: feels to me. I mean, your curve is inverted. You know,

465
00:20:58,760 --> 00:21:01,159
Speaker 8: short term rates are still above long term rates. That's not,

466
00:21:01,480 --> 00:21:04,040
Speaker 8: you know, consistent with a well functioning financial system. That

467
00:21:04,160 --> 00:21:06,160
Speaker 8: you know, it's a very uncomfortable position to be in

468
00:21:06,200 --> 00:21:08,320
Speaker 8: for the system. So that you know, I've got this

469
00:21:08,400 --> 00:21:11,000
Speaker 8: image in my mind and the system as an engine,

470
00:21:11,200 --> 00:21:14,880
Speaker 8: and it's shaking tremendously under the stress of these higher rates.

471
00:21:14,880 --> 00:21:17,000
Speaker 8: And so far, you know, it's held together with a

472
00:21:17,040 --> 00:21:19,080
Speaker 8: little bit of a duct tape and some help from

473
00:21:19,119 --> 00:21:22,359
Speaker 8: the Reserve and you know, banking regulars. But for how long?

474
00:21:22,480 --> 00:21:26,399
Speaker 8: And why why would you do this? I mean, I

475
00:21:26,440 --> 00:21:30,239
Speaker 8: think mission accomplished. I mean, full employment, four percent, unemployment rate,

476
00:21:30,280 --> 00:21:33,399
Speaker 8: inflation's back at target properly measured and has been for

477
00:21:33,440 --> 00:21:36,680
Speaker 8: a long time. So why take the risk? So yeah,

478
00:21:36,720 --> 00:21:38,880
Speaker 8: I do worry about that scenario. I don't think it's

479
00:21:38,880 --> 00:21:40,680
Speaker 8: off the table, and I don't think we can take

480
00:21:40,680 --> 00:21:41,119
Speaker 8: it off.

481
00:21:40,960 --> 00:21:43,360
Speaker 7: The table until the Fed starts lowering interest rates.

482
00:21:43,520 --> 00:21:45,080
Speaker 2: He wrote about it in the Washington Post and not

483
00:21:45,119 --> 00:21:47,680
Speaker 2: it's a feed. It's okay to cut interest rates now.

484
00:21:47,920 --> 00:21:49,680
Speaker 2: So it goes against mock what we had from Bill

485
00:21:49,760 --> 00:21:53,280
Speaker 2: Dupley who said the FED thinks it's finding inflation. Think again,

486
00:21:53,720 --> 00:21:55,800
Speaker 2: how would you convince the cash canories of this world

487
00:21:56,080 --> 00:21:58,800
Speaker 2: this week at a two time mating stack tomorrow won't

488
00:21:58,840 --> 00:22:01,120
Speaker 2: be the sort of cheake guys site you're wrung.

489
00:22:01,400 --> 00:22:02,880
Speaker 3: This is the way I see the world.

490
00:22:03,160 --> 00:22:05,800
Speaker 7: Well, there's nothing that's going to convince anybody except data.

491
00:22:06,040 --> 00:22:08,760
Speaker 7: So we get that CPI report. You know, the consensus

492
00:22:08,840 --> 00:22:10,520
Speaker 7: is that the core CPI.

493
00:22:10,240 --> 00:22:13,480
Speaker 8: Comes in at point three I mean point two five,

494
00:22:13,600 --> 00:22:16,359
Speaker 8: I think to the second significant digit, and you need,

495
00:22:16,560 --> 00:22:18,600
Speaker 8: you know, you need some point twos and point twenty

496
00:22:18,600 --> 00:22:20,600
Speaker 8: fives here over the next couple three months. And I

497
00:22:20,600 --> 00:22:22,760
Speaker 8: think then you make believers out of folks on the

498
00:22:22,760 --> 00:22:23,240
Speaker 8: FED that they.

499
00:22:23,200 --> 00:22:24,120
Speaker 7: Can they can cut rights.

500
00:22:24,160 --> 00:22:27,000
Speaker 8: By the way, point twenty five you analyze that that's

501
00:22:27,040 --> 00:22:29,440
Speaker 8: just about three percent, a little bit of three that's

502
00:22:29,480 --> 00:22:32,159
Speaker 8: on the CPI. You you know, make adjustments because the

503
00:22:33,400 --> 00:22:37,560
Speaker 8: consumer expenditis reflator is constructed differently. You're you're pretty close

504
00:22:37,600 --> 00:22:39,280
Speaker 8: to you're within spinning distance of target.

505
00:22:39,320 --> 00:22:42,280
Speaker 7: And by the way, we're still you know, I get it.

506
00:22:42,320 --> 00:22:46,200
Speaker 8: We're slavishly holding this two percent target on the PCEE deflator.

507
00:22:46,480 --> 00:22:49,159
Speaker 8: You know, I understand the necessary necessity to do that

508
00:22:49,800 --> 00:22:53,760
Speaker 8: because of the credibility and everything else. But really, at

509
00:22:53,800 --> 00:22:55,680
Speaker 8: the end of the day, I mean, it's two percent

510
00:22:55,720 --> 00:22:57,679
Speaker 8: the right number. I think most people would say, no,

511
00:22:57,760 --> 00:23:00,800
Speaker 8: it's probably higher than that. So why sacrific the economy

512
00:23:01,240 --> 00:23:03,719
Speaker 8: to the alter of a two percent inflation target if

513
00:23:03,720 --> 00:23:04,280
Speaker 8: you don't need to.

514
00:23:04,520 --> 00:23:06,840
Speaker 2: We've had a similar argument from mohammadal Arian over the

515
00:23:06,880 --> 00:23:08,960
Speaker 2: last couple of months as well, Mark Rader Caatsa, Mark

516
00:23:09,000 --> 00:23:14,199
Speaker 2: Andyder of Moody's Analytics, alongside Black Rocks Amandalina. This is

517
00:23:14,240 --> 00:23:18,600
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518
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521
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