WEBVTT - Surveillance: Recession Chances with Hatzius (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.560 To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:30.040 com and of course on the Bloomberg terminal. Trum Dudley 0:00:30.040 --> 0:00:33.559 and mckelby to the era of Hatzius, Goldman Sachs research 0:00:33.640 --> 0:00:37.120 has been about acuity. On this Friday, we're gonna lose 0:00:37.159 --> 0:00:40.559 the numbers, the many numbers of Jan Hatzius work as 0:00:40.600 --> 0:00:43.520 team's work, but we're gonna go to one number, which 0:00:43.560 --> 0:00:46.560 is your queue four number. They've marked down g d 0:00:46.720 --> 0:00:52.879 P from a sterling one three to sub one. That 0:00:52.960 --> 0:00:55.320 gives you some of the direction of the recession call. 0:00:55.760 --> 0:00:58.960 But at the same time, Jan Hatzius calls for a 0:00:59.160 --> 0:01:03.320 shallow rees session. If we get a shallow recession, you 0:01:03.440 --> 0:01:06.560 quantify what it will mean for jobs in America. How 0:01:06.560 --> 0:01:12.199 does the magnitude of recession work into the dynamics of unemployment. Yeah, 0:01:12.280 --> 0:01:15.280 let's just be clear that we don't have a recession 0:01:15.280 --> 0:01:18.800 in our baseline forecast. We do have significantly below trend 0:01:18.880 --> 0:01:21.640 growth zero point nine percent is only half the long 0:01:21.720 --> 0:01:25.920 term trend pace, but our our best guess is that 0:01:26.040 --> 0:01:30.680 will be below trend, that rebalances the imbalance in the 0:01:30.760 --> 0:01:35.600 labor market, and that ultimately also helps bring inflation back down. 0:01:36.040 --> 0:01:38.640 That said, there's a very significant risk of recession. I 0:01:38.640 --> 0:01:41.920 think it has gone up because it's very difficult to 0:01:42.840 --> 0:01:48.160 reduce labor demand without you know, the deterioration feeding on 0:01:48.240 --> 0:01:52.120 itself and then ultimately culminating in a recession. So we're 0:01:52.120 --> 0:01:55.040 giving one and three chance of a recession in the 0:01:55.080 --> 0:01:57.520 next twelve months, and it's close to fifty fifty I 0:01:57.520 --> 0:01:59.720 think over the next But you've got to to cernam 0:02:00.040 --> 0:02:03.440 floyment rate baked into a two thousand one ish kind 0:02:03.480 --> 0:02:06.200 of recession. In two thousand and one, it was a 0:02:06.200 --> 0:02:08.960 two percentage point increase. That was the bottom end of 0:02:09.040 --> 0:02:10.959 the historical range. If you look at all of the 0:02:11.040 --> 0:02:14.000 recessions in post war history, the top end of the 0:02:14.120 --> 0:02:16.800 range is five and a half percentage points. I think 0:02:16.840 --> 0:02:19.600 if we do have a recession, it's likely that it 0:02:19.600 --> 0:02:23.400 would be on the shallower end for two reasons. One, 0:02:23.840 --> 0:02:27.880 private sector balance sheets are in better shape than at 0:02:27.880 --> 0:02:30.760 the end of previous business cycles, and too, I think 0:02:31.040 --> 0:02:34.200 while inflation was very high, I don't think it's as entrenched, 0:02:34.680 --> 0:02:37.920 certainly not as entrenched and expectations as it was in 0:02:37.960 --> 0:02:41.840 previous high inflation episodes seventies early eighties. Yeah. No, we 0:02:41.960 --> 0:02:43.600 just got off a couple of weeks where people were 0:02:43.639 --> 0:02:46.400 ratcheting up their expectations for the terminal Fed funds rate 0:02:46.480 --> 0:02:49.880 about four percent as of at some point next year, 0:02:49.960 --> 0:02:52.040 And here we are looking at a huge rally in 0:02:52.080 --> 0:02:55.000 two year yields. Can you translate the rally that we 0:02:55.080 --> 0:02:57.880 have seen through an economics lens in terms of what 0:02:57.960 --> 0:03:02.040 people are forecasting and whether it's seems plausible in your mind? Well, 0:03:02.080 --> 0:03:05.120 our forecast is a terminal rate of three and a 0:03:05.200 --> 0:03:07.600 quarter to three and a half percent. We think we'll 0:03:07.639 --> 0:03:11.160 get there by the end of two thousand and twenty two. 0:03:11.680 --> 0:03:14.680 We don't have any additional rate hikes in two thousand 0:03:14.760 --> 0:03:19.320 and twenty three, basically because the economy is decelerating, is 0:03:19.360 --> 0:03:23.119 growing below trend, inflation is coming down, and I think 0:03:23.160 --> 0:03:26.639 at that level the Fed would probably hold. You're right, 0:03:26.840 --> 0:03:31.520 we had priced something around four percent, you know, immediately 0:03:31.600 --> 0:03:34.840 after the ft C meeting or right around the fom 0:03:34.920 --> 0:03:37.400 C meeting. But I think people have looked at the 0:03:37.400 --> 0:03:41.280 fact that the economy actually is decelerating and that has 0:03:41.600 --> 0:03:44.400 led to a reversal of that, and I think fundamentally 0:03:44.440 --> 0:03:47.120 that's appropriate. But yeah, given the fact that we are 0:03:47.200 --> 0:03:50.640 see a deceleration, but we're not seeing a deceleration when 0:03:50.680 --> 0:03:53.800 it comes to the inputs into inflation. We're seeing rents 0:03:53.800 --> 0:03:56.240 continue to climb at a record pace. We're continuing to 0:03:56.240 --> 0:03:58.800 see some of the disruptions to oil supplies and the 0:03:58.880 --> 0:04:02.480 food supplies that causing some of the price increases. When 0:04:02.520 --> 0:04:04.960 do you start to talk stagflation? When do you start 0:04:04.960 --> 0:04:06.880 to talk about a FED that is forced to act 0:04:07.000 --> 0:04:10.640 despite an unemployment rate that's rising and despite weakening economic 0:04:10.720 --> 0:04:13.160 data points. Well, I think it's a little bit more mixed. 0:04:13.200 --> 0:04:16.839 If I look at the inflation indicators, No question, the 0:04:16.920 --> 0:04:20.440 last CPI and the rent number there was bad. There 0:04:20.520 --> 0:04:23.240 was an increase in the long term University of Michigan 0:04:23.800 --> 0:04:29.000 Inflation Expectations measure. But the supply chain measures are actually 0:04:29.040 --> 0:04:32.320 getting better. You look at the supply delivery indices in 0:04:32.360 --> 0:04:36.240 the business surveys, those are coming down. Um, the wage 0:04:36.360 --> 0:04:39.960 numbers in two thousand and twenty two have been sequentially 0:04:40.320 --> 0:04:43.560 clearly slower than the second half of last year, and 0:04:43.600 --> 0:04:48.000 I think broadly speaking, inflation expectations, look at just the 0:04:48.040 --> 0:04:51.080 break evens in the bond market are still very well anchored. 0:04:51.120 --> 0:04:53.039 So I think it's a it's a more mixed picture. 0:04:53.640 --> 0:04:56.479 And in an environment where growth comes down to a 0:04:56.480 --> 0:04:59.560 below trend pace, I just don't think that the FED would, 0:05:00.320 --> 0:05:04.159 you know, keep hiking aggressively when the economy is already 0:05:04.200 --> 0:05:06.920 slowing and inflation is already coming down. So yeah, And 0:05:07.000 --> 0:05:09.880 essentially what you're saying is that when Chairman Powell was 0:05:09.920 --> 0:05:12.719 speaking on Capitol Hill yesterday saying that our commitment to 0:05:12.760 --> 0:05:16.320 fighting inflation is unconditional, that there actually are conditions in 0:05:16.360 --> 0:05:20.200 which the FED blinks. I think there are conditions where 0:05:20.200 --> 0:05:24.200 the FED blinks, but it's partly because there's a feedback 0:05:24.279 --> 0:05:29.120 from economic activity into into inflation. If the economy weakens 0:05:29.240 --> 0:05:32.400 and labor demand declines, and maybe the unemployment rate starts 0:05:32.520 --> 0:05:35.400 edging up, then you also just go and become less 0:05:35.480 --> 0:05:39.960 concerned about inflation. So I do think the commitment to 0:05:40.080 --> 0:05:43.960 ultimately getting back down to two percent is unconditional, but 0:05:44.080 --> 0:05:47.400 they will be, you know, factors other than the current 0:05:47.440 --> 0:05:50.320 inflation prints that will sort of drive what they do 0:05:50.360 --> 0:05:52.800 on a on a meeting by meeting basis. While we're 0:05:52.800 --> 0:05:55.640 talking about the specific year words that your own Powell 0:05:55.720 --> 0:05:58.400 has used. I've talked earlier in the show about the 0:05:58.440 --> 0:06:02.120 tweets Bill Ackman posted overnight talking about how the FED 0:06:02.240 --> 0:06:04.520 clearly has a credibility problem in the bond market is 0:06:04.560 --> 0:06:06.880 misreading the Federal Reserve, and what he said is ultimately 0:06:06.920 --> 0:06:09.760 that comes down to the communication of the chairman. Do 0:06:09.800 --> 0:06:12.080 you think that Powell and others on the f O 0:06:12.200 --> 0:06:15.120 m C are are accurately communicating to this market what 0:06:15.160 --> 0:06:18.240 it is they intend to do. No, I think there 0:06:18.240 --> 0:06:22.960 are accurately uh communicating. I think in ways that that 0:06:22.960 --> 0:06:25.240 that are clear that that they do want to get 0:06:25.279 --> 0:06:29.560 back down to two percent eventually. They're tightening policy aggressively, 0:06:30.000 --> 0:06:33.200 much more aggressively than they expected to do six months 0:06:33.200 --> 0:06:37.160 ago or twelve months ago, in part because inflation turned 0:06:37.160 --> 0:06:39.640 out to be much higher. So I think at that 0:06:39.760 --> 0:06:42.800 level it's it's all pretty clear on the credibility problem. 0:06:42.839 --> 0:06:46.280 I would also say, you know, look at inflation break evens. 0:06:46.320 --> 0:06:50.560 I mean the credibility from the bond market's perspective or 0:06:50.600 --> 0:06:53.960 from the perspective of forecasters of the two percent inflation target, 0:06:54.080 --> 0:06:56.240 it still seems seems intact. Yeah, And I want to 0:06:56.279 --> 0:06:58.880 go to Peter Orzag of the London School of Economics 0:06:58.880 --> 0:07:01.280 and a small banking up in New York. Computer Or 0:07:01.720 --> 0:07:05.640 loves the phrase glide path, and maybe that's differential equations. 0:07:05.680 --> 0:07:08.600 Let's just it's Friday. Let's just stay with calculus. Are 0:07:08.640 --> 0:07:12.240 we completely misjudging the second and first derivative of core 0:07:12.320 --> 0:07:17.360 inflation coming in where it may come in shockingly rapidly 0:07:17.640 --> 0:07:21.440 and we underestimate that? Good news. I do think that 0:07:21.680 --> 0:07:24.520 core inflation is likely to come down. In fact, if 0:07:24.560 --> 0:07:28.640 you look at statistical measures of core inflation, like the 0:07:28.680 --> 0:07:33.320 trimmed means, that has been improving over the last few 0:07:33.480 --> 0:07:37.880 few months. It's so little, too early to tell, but 0:07:37.960 --> 0:07:40.640 the last couple of readings have been more encouraging, and 0:07:40.680 --> 0:07:44.520 I think that does suggest that over time core inflation 0:07:44.600 --> 0:07:48.520 is going to come down. And you know, we were 0:07:48.600 --> 0:07:52.040 at about four percent for core pc core in this 0:07:52.080 --> 0:07:55.400 case to find us ex food and energy by the 0:07:55.960 --> 0:07:57.840 end of the year, and then at about two and 0:07:57.840 --> 0:07:59.600 a half percent by the end of next year. So 0:07:59.600 --> 0:08:01.880 I don't think it is going to happen overnight. But 0:08:02.200 --> 0:08:04.080 I think we're headed in that direct. So when your 0:08:04.080 --> 0:08:06.520 own poulss we get back to two percent inflation, that's 0:08:06.640 --> 0:08:09.640 what he's talking about, And Hatzius says Powell will get 0:08:09.720 --> 0:08:13.160 his wish in eighteen months. Not quite. We're at you know, 0:08:13.280 --> 0:08:15.600 two and a half, but that's not too far away 0:08:15.640 --> 0:08:18.720 from two and two and a half. It's TV who's counting, 0:08:19.160 --> 0:08:24.000 especially if you look at this as an average inflation target. 0:08:24.360 --> 0:08:26.840 So at some point there will you know whether there's 0:08:26.840 --> 0:08:30.040 a recession next year or not. You know, all best 0:08:30.080 --> 0:08:32.360 guests is not, but there will be a recession at 0:08:32.400 --> 0:08:34.599 some point, and that will bring inflation down further. I 0:08:34.600 --> 0:08:38.320 should say, with great respect, I'm busting Dr Horts. Chapter 0:08:38.559 --> 0:08:40.400 is a huge difference between two and two and a 0:08:40.440 --> 0:08:45.160 half percent in the inflation game. With Goldman Sex, thank 0:08:45.200 --> 0:08:53.880 you so much for coming in. Ian Lincoln is out 0:08:53.920 --> 0:08:57.040 of Minnesota and the Carlson School of Finance. It is 0:08:57.200 --> 0:09:00.679 absolutely definitive with a tour of dude to yell as 0:09:00.720 --> 0:09:04.199 well in Old Court at Beamon Capital Markets and writes 0:09:04.400 --> 0:09:09.360 absolutely the most dense note on fixed income dynamics on 0:09:09.480 --> 0:09:12.760 the street. We're Thrilly Goad Jonas and Studio Today. Ian, 0:09:12.800 --> 0:09:15.360 Welcome to Bloomberg. I'm gonna cut to the chase. Forget 0:09:15.360 --> 0:09:18.679 about the y axis moving yields. Your note right now 0:09:19.080 --> 0:09:22.440 is on the mystery of the X axis. Is Bullard 0:09:22.520 --> 0:09:25.960 talks about front loaning and that give us the nuance 0:09:26.080 --> 0:09:30.160 to the pro pro audience of the X axis dynamic, 0:09:30.280 --> 0:09:34.280 the first and second derivatives of the time change we're 0:09:34.320 --> 0:09:36.560 gonna see. Well, I think that this is the most 0:09:36.640 --> 0:09:40.320 important conversation in financial markets at the moment. It's really 0:09:40.360 --> 0:09:43.000 the answer to the question how can Bullard be talking 0:09:43.080 --> 0:09:46.719 about a three fifty terminal rate when the reality is 0:09:46.880 --> 0:09:49.800 that two year yields are trading at or below three. 0:09:50.520 --> 0:09:53.640 It really comes down to the twenty four month moving 0:09:53.720 --> 0:09:57.400 window represented by the two year notes, and effectively, what 0:09:57.520 --> 0:10:00.360 the market is saying is you might hike now, but 0:10:00.480 --> 0:10:02.520 you're going to have to start cutting much sooner than 0:10:02.600 --> 0:10:04.800 in prior cycles. Lee fixed in coming. Go over to 0:10:04.880 --> 0:10:08.199 Jan Nazis Globen Sex Economics, where he and I talked 0:10:08.320 --> 0:10:11.920 about core c p I and the idea that we 0:10:12.160 --> 0:10:14.839 don't have a real understanding of the rate of change 0:10:14.880 --> 0:10:17.120 of how court c p I is going to come 0:10:17.200 --> 0:10:20.480 down do you share that uncertainty, I certainly do. I 0:10:20.559 --> 0:10:24.559 would add one nuance, however, and that is all inflation 0:10:25.000 --> 0:10:27.440 is the same at this moment for the FED headline 0:10:27.440 --> 0:10:31.880 inflation core inflation, they've made no distinction. That's interesting because 0:10:31.880 --> 0:10:35.199 in the past they would always focus on core inflation 0:10:35.400 --> 0:10:39.480 overheadline because it was less volatile. But the realities of 0:10:39.760 --> 0:10:43.360 higher energy prices, higher food prices, and the fact that 0:10:43.640 --> 0:10:48.559 inflation has become the political touchstone at this point makes 0:10:48.600 --> 0:10:51.520 all inflation equal. And I think that will change, but 0:10:51.760 --> 0:10:55.920 not intel the midterms. And it's peak rates, it's peak yields. 0:10:55.960 --> 0:10:58.360 Have we already gotten past that? Are we basically out 0:10:58.400 --> 0:11:00.839 of place where you can say definitively that that is 0:11:00.840 --> 0:11:03.959 an accurate characterization of what we've seen. Well, that is 0:11:04.040 --> 0:11:07.240 certainly our call. But I will note that I said 0:11:07.280 --> 0:11:09.520 the same thing once we got to three twenty. So 0:11:09.840 --> 0:11:12.640 at three fifty the logic holds a lot better. But 0:11:12.880 --> 0:11:16.280 the reality is there's going to eventually be demand for 0:11:16.600 --> 0:11:20.640 ten and thirty years paper and we haven't seen the 0:11:20.880 --> 0:11:24.920 key investor classes of Japan or certain parts of Europe 0:11:25.000 --> 0:11:27.400 really come in and start buying treasuries yet. And when 0:11:27.480 --> 0:11:31.280 we do that will be worth thirty five to forty 0:11:31.360 --> 0:11:33.400 five basis points in tens, and that gets you back 0:11:33.520 --> 0:11:37.520 below three, the curve more inverted and the market even 0:11:37.600 --> 0:11:40.720 more worried about a recession. So ian is this supportive 0:11:40.800 --> 0:11:42.920 for risk assets if the market is going to get 0:11:43.000 --> 0:11:47.440 more worried about recession and could potentially have to reduce 0:11:47.520 --> 0:11:52.440 their estimates for margins and profits. So that is again 0:11:52.600 --> 0:11:55.880 one of the key uncertainties. I would normally say, yes, 0:11:55.960 --> 0:11:58.079 you have a less aggressive FED, you have lower race, 0:11:58.200 --> 0:12:01.560 you should have a good set up for risk assets. 0:12:01.679 --> 0:12:05.480 But this FED is behaving much differently than we might 0:12:05.559 --> 0:12:09.360 have otherwise anticipated. So we could see a process the 0:12:09.400 --> 0:12:13.640 possibility of recession increase. But the FED, instead of having 0:12:13.679 --> 0:12:16.319 the traditional response just push forward and say yeah, three 0:12:16.320 --> 0:12:18.040 and a half, we're going to get there. We might 0:12:18.280 --> 0:12:20.600 push it into a recession. But the reality is it's 0:12:20.640 --> 0:12:24.880 worth keeping the decades of hard one credibility as an 0:12:24.880 --> 0:12:28.040 inflation fighter for the FED for this one cycle. Well. 0:12:28.160 --> 0:12:30.760 Bill Ackman of Pershing Square says the FED already has 0:12:30.800 --> 0:12:33.559 a credibility problem and that the bond market is misreading 0:12:33.600 --> 0:12:35.400 the FED. To quote one of his tweets, he said 0:12:35.800 --> 0:12:37.760 that the market is flat out ignoring Powell and the 0:12:37.800 --> 0:12:41.320 governor's commentary. Expect even more hawkish commentary until the bond 0:12:41.440 --> 0:12:44.800 market wakes up. Who's a sleepy and Bill Ackman or 0:12:44.840 --> 0:12:47.320 the bond market? Well, I'll tell you this much. If 0:12:47.360 --> 0:12:49.839 you look at break evens, what you can see is 0:12:49.960 --> 0:12:53.760 that inflation expectations continue to move lower and lower and lower, 0:12:54.080 --> 0:12:57.280 and that is a vote of confidence in the Fed's 0:12:57.360 --> 0:13:01.120 ability to control inflation and forward and Asian expectations. So 0:13:01.880 --> 0:13:04.400 one thing can be said, the tips market certainly isn't 0:13:04.440 --> 0:13:07.320 asleep at the moment. Well and Jim Bowlard, as we said, 0:13:07.360 --> 0:13:09.920 have said that the tips pricing is pretty much right 0:13:10.040 --> 0:13:12.120 on at the moment. So as we put all of 0:13:12.200 --> 0:13:15.320 this together, the market has confidence in the FED ability 0:13:15.440 --> 0:13:18.439 to fight inflation. What it has less confidence in is 0:13:18.559 --> 0:13:21.360 what the ultimate result of that inflation fighting is, how 0:13:21.480 --> 0:13:24.439 deep a recession will be when and if one arrives in, 0:13:24.640 --> 0:13:26.959 what is your assessment of that and ultimately what that 0:13:27.120 --> 0:13:30.280 means for how low we could see yields going. So 0:13:30.520 --> 0:13:33.120 I think that at this point, part of the conversation 0:13:33.440 --> 0:13:37.280 that isn't occurring in markets is we're just coming off 0:13:37.600 --> 0:13:41.240 of a negative real g DP print for Q one, 0:13:41.559 --> 0:13:45.000 which was negative one point five after revisions. Right now, 0:13:45.640 --> 0:13:48.679 GDP for the second quarter is tracking at zero. So 0:13:48.960 --> 0:13:51.800 if we have a repeat of the higher than expected 0:13:51.920 --> 0:13:55.640 inflation profile in the US, we could actually dip below 0:13:56.000 --> 0:13:58.480 zero for real growth in the second quarter, and that 0:13:58.559 --> 0:14:02.920 would make a recession a very near term event caveat 0:14:03.000 --> 0:14:05.640 though that's not the same type of recession that the 0:14:05.720 --> 0:14:07.920 market is talking about. The markets worried about a real 0:14:08.000 --> 0:14:11.959 recession with higher unemployment, that we actually see an aggregate 0:14:12.080 --> 0:14:14.880 hit to nominal demand, and that's not where we are 0:14:14.960 --> 0:14:16.959 yet in Lincoln party order. If you're on radio and 0:14:17.000 --> 0:14:19.800 television and lingo to bemo, Capital Markets joins us right 0:14:19.840 --> 0:14:22.640 now the conversation of the week on fixed income. You 0:14:22.760 --> 0:14:25.840 and I have never seen these bond losses, and I'm 0:14:25.960 --> 0:14:28.600 fascinated and I wanted to ask you this question, which 0:14:28.680 --> 0:14:31.680 is getaway from the nuances. The bottom line is the 0:14:31.720 --> 0:14:35.280 total return index of Bloomberg Lincoln total return index is 0:14:35.360 --> 0:14:40.360 negative twelve. How does bond psychology change if people are 0:14:40.400 --> 0:14:45.160 looking out to two thousand twenty four to catch up 0:14:45.240 --> 0:14:48.960 from these losses. I think an important aspect of bond 0:14:49.040 --> 0:14:51.320 losses in the treasury market is to keep in mind 0:14:51.720 --> 0:14:54.600 who the major players tend to be. All the people 0:14:54.680 --> 0:14:57.640 taking a loss. A lot of the people taking the 0:14:57.760 --> 0:15:01.800 loss are indexed or are or match attempting to match 0:15:01.840 --> 0:15:04.840 their index. But everybody's been short and so on paper, 0:15:04.880 --> 0:15:07.400 it's a pretty significant loss, but a good portion of 0:15:07.480 --> 0:15:11.360 the investment community has fair reason. Come on, what about 0:15:11.400 --> 0:15:14.120 mere mortals? They open up their statement from Demo Capital 0:15:14.240 --> 0:15:17.320 Markets and go they start saying profanity about Lincoln the 0:15:17.440 --> 0:15:20.080 real world out there. This is a bond market we've 0:15:20.160 --> 0:15:23.320 never seen. It's worse than Boker's bond market. I think 0:15:23.360 --> 0:15:26.160 that the person at home opening their statement what they're 0:15:26.240 --> 0:15:28.240 really going to be thinking in the back of their 0:15:28.280 --> 0:15:31.120 mind as well, mortgage rates are almost six percent, that 0:15:31.360 --> 0:15:33.600 might be the problem. So a little bit of pain 0:15:33.720 --> 0:15:37.320 in terms of the opportunity to invest in higher treasure 0:15:37.400 --> 0:15:41.160 yields is one thing. But as the ramifications of the 0:15:41.240 --> 0:15:44.920 feds tighter monetary policy continue to push through to the 0:15:45.120 --> 0:15:48.080 the employment and the housing market, I think that's where 0:15:48.080 --> 0:15:50.000 we start to get worried. Ian how much is your 0:15:50.000 --> 0:15:54.080 peak yields thesis right now? Hinging on this idea that 0:15:54.400 --> 0:15:57.280 the inflationary inputs our transitory that we still have this 0:15:57.440 --> 0:16:01.160 stealth transitory narrative guiding a lot of investors and even 0:16:01.200 --> 0:16:04.360 the Fedure Reserve. I think that the peak inflation of 0:16:04.440 --> 0:16:07.840 the peak rates narrative is actually based more on the 0:16:08.000 --> 0:16:11.480 hawkishness and the aggressiveness of the FED regardless of how 0:16:11.640 --> 0:16:15.120 inflation plays out. What we know is that a lot 0:16:15.200 --> 0:16:16.960 of what has occurred, at least over the course of 0:16:17.040 --> 0:16:19.040 the last six or eight months, has been a function 0:16:19.120 --> 0:16:22.560 of distortions created by the pandemic, the supply side on 0:16:22.720 --> 0:16:26.480 the energy sector and now food inflation is very material. 0:16:26.920 --> 0:16:30.360 Fast forward to UH this time next year, the year 0:16:30.400 --> 0:16:32.880 over year inflation prints will not be as high. That 0:16:33.000 --> 0:16:35.680 doesn't mean it was necessarily transitory. That either means that 0:16:35.760 --> 0:16:38.800 the FED was that much more hawkish or in fact 0:16:39.160 --> 0:16:42.600 prices moderated just based on demand. Ian While we're fast 0:16:42.600 --> 0:16:44.760 forwarding fast forward to ten AM, when we get those 0:16:44.840 --> 0:16:47.280 humish sentiment numbers, is the bond market going to latch 0:16:47.320 --> 0:16:50.320 onto more the pure sentiment read how how bad it 0:16:50.560 --> 0:16:52.680 is and what that means for growth prospects or the 0:16:52.760 --> 0:16:55.440 inflation expectations, and what that means is to whether or 0:16:55.480 --> 0:16:57.080 not the FED is actually going to have to be 0:16:57.160 --> 0:16:59.280 more hawkish for longer if that is becoming entrenched in 0:16:59.320 --> 0:17:04.240 the economy. I think that the headline consumer confidence figure 0:17:04.320 --> 0:17:08.359 at record low levels is extremely telling. And when we 0:17:08.440 --> 0:17:12.119 look at the correlation, it really comes down to gasoline 0:17:12.160 --> 0:17:15.800 prices and equity performance, and both of those have been 0:17:15.840 --> 0:17:19.320 going the wrong direction for the there to be any 0:17:19.440 --> 0:17:22.560 additional confidence. I think that we are going to focus 0:17:22.640 --> 0:17:27.480 on confidence over inflation expectations because the FED has communicated 0:17:27.520 --> 0:17:29.640 that they're going to do everything it takes to keep 0:17:29.680 --> 0:17:34.320 inflation anchored very quickly. Here do bonds have catharsis? We 0:17:34.400 --> 0:17:38.600 think about stocks going down, vixiforty, etcetera. Does that happen 0:17:38.680 --> 0:17:41.680 with bonds? Does everybody sell at the same time? So 0:17:42.119 --> 0:17:45.960 there does tend to be key moments of capitulation in 0:17:46.240 --> 0:17:49.359 one direction or the other. And right now, as I 0:17:49.440 --> 0:17:53.160 mentioned of the vast majority of the market is short treasuries. 0:17:53.359 --> 0:17:55.040 There will be a point where people wake up and 0:17:55.119 --> 0:17:57.720 they say, I don't I don't want to miss out 0:17:57.840 --> 0:18:00.040 on these higher yields. Wonderful to see. You have a 0:18:00.160 --> 0:18:02.720 lot of message here onions research. Again, we protect the 0:18:02.760 --> 0:18:05.480 copyright of all of our guests. Find that research at 0:18:05.520 --> 0:18:12.359 BEMO Capital markets Ian Lincoln with his It's Tuna Fordam 0:18:12.400 --> 0:18:15.520 with the futures of thirty Right Now founder and geopolitical 0:18:15.560 --> 0:18:19.959 strategist Fordham Global uh Uh Foresight joins us right now, 0:18:20.200 --> 0:18:22.320 thrilled to have her on this morning. Tina, I want 0:18:22.359 --> 0:18:25.159 to digress to the British elections in the uproar of 0:18:25.359 --> 0:18:29.760 Mr Dowton, the Conservative Tory Party leader resigning at five 0:18:29.880 --> 0:18:33.080 thirty in the morning, London time, and I want to 0:18:33.119 --> 0:18:35.440 go out far west of London on the way out 0:18:35.480 --> 0:18:38.480 to Cornwall. And this is not the time of Paul 0:18:38.560 --> 0:18:42.240 Dark this is the time of now and north of Exeter, 0:18:42.720 --> 0:18:47.560 Tiverton and lovely Devon, I hopened pronouncing everything correctly and 0:18:47.680 --> 0:18:53.080 Boris Johnson was absolutely crushed. What is the symbolism that 0:18:53.240 --> 0:19:01.000 he was crushed in friendly Devon going back to nineteen Well, 0:19:01.119 --> 0:19:04.920 it's it's another blow to to this Prime Minister, who 0:19:05.280 --> 0:19:08.080 nevertheless is you will have seen Tom has vowed to 0:19:08.440 --> 0:19:13.360 to carry on exactly as he has been. Um, we've 0:19:13.440 --> 0:19:17.800 had scandal after scandal. The chairman of the Conservative Party, 0:19:17.840 --> 0:19:21.080 as you've said, resigned this morning and a you know, 0:19:21.240 --> 0:19:25.000 sternly worded letter. And yet Boris Johnson doesn't seem to 0:19:25.040 --> 0:19:28.920 have plans to go anywhere, and that tells you a 0:19:28.960 --> 0:19:31.920 lot about the times that we're living in Um. There 0:19:32.000 --> 0:19:35.520 there certainly is no no shame in politics, knows no 0:19:35.680 --> 0:19:39.120 sense of accountability. And as long as the labor leader 0:19:39.280 --> 0:19:43.560 Kire starmer Um is not you know, a serious challenge, 0:19:43.920 --> 0:19:48.080 Johnson will probably stay where he is. Um. It's you know, 0:19:48.200 --> 0:19:52.119 defining the laws of political gravity by elections in the 0:19:52.320 --> 0:19:57.639 UK aren't typically you know, very very much participated in. 0:19:58.000 --> 0:20:01.600 Posters will tell you that they're miner importance. But again, 0:20:01.680 --> 0:20:05.360 in the face of so many crises that this government 0:20:05.560 --> 0:20:09.080 is spacing, um, how many times can Boris Johnson get 0:20:09.119 --> 0:20:12.080 on a plane and go see his friend Zeninski in 0:20:12.400 --> 0:20:15.399 Que when things are looking tough at home, Tina, you 0:20:15.600 --> 0:20:19.760 point to this political gravity or lack thereof that Boris 0:20:19.880 --> 0:20:22.520 Johnson has and other leaders may have as well. As 0:20:22.600 --> 0:20:24.800 we face a lot of individuals who want to be 0:20:24.920 --> 0:20:26.760 heard about the pain that they are feeling in the 0:20:26.800 --> 0:20:29.200 face of inflation. And that brings us to some of 0:20:29.240 --> 0:20:31.400 the strikes and some of the protests that we're seeing 0:20:31.520 --> 0:20:34.600 erupt throughout Europe, throughout the world. What is the hotspot 0:20:34.680 --> 0:20:37.120 that you're watching and what is the consequence both politically 0:20:37.160 --> 0:20:42.639 and economically that will result. Well, strikes in inflation go 0:20:43.040 --> 0:20:47.240 hand in hand, and uh, coming out of the pandemic 0:20:47.359 --> 0:20:51.520 and probably heading into a recession, and with those workers 0:20:51.560 --> 0:20:54.520 who are on kind of fixed contracts not having seen 0:20:54.720 --> 0:20:57.680 a pay rise for a very long time. You know, 0:20:57.800 --> 0:21:02.040 the old summer of discontent term is being bandied about 0:21:02.200 --> 0:21:05.440 a lot. Um. You guys were talking about the price 0:21:05.560 --> 0:21:09.080 of lobster rolls. Um. You know. Similarly, I can say 0:21:09.119 --> 0:21:12.840 that British Airways is threatening I think meaningfully here in 0:21:12.880 --> 0:21:17.719 the UK to start striking as soon as school vacations begin. Um, 0:21:17.880 --> 0:21:21.240 that's going to be very unpopular. But the question is 0:21:21.280 --> 0:21:26.000 whether it's going to to actually force a compromise in advance. Um. 0:21:26.359 --> 0:21:30.280 In the UK, this is very acute. Uh. France also 0:21:30.400 --> 0:21:33.159 is known to to have strikes and that will recur. 0:21:33.600 --> 0:21:35.560 And I guess what I feel is there's a sense 0:21:35.640 --> 0:21:40.240 of helplessness about this for so many public sector and 0:21:40.320 --> 0:21:43.800 other workers. Wages have been staggnant through the pandemic, and 0:21:44.240 --> 0:21:47.639 you know, it's just take the inflation focus mines, Tina, 0:21:48.040 --> 0:21:50.800 we talked about lobster rolls tongue in cheek because this 0:21:50.960 --> 0:21:53.720 is the least of our concerns. It's basic stables, it's wheat, 0:21:53.840 --> 0:21:56.959 it's basic meat, it's all of these other uh, basic 0:21:57.280 --> 0:22:01.040 groceries and gas prices that are impeding. As Tom said, 0:22:01.080 --> 0:22:04.640 the lower deciles. How do we look at possible possible 0:22:04.680 --> 0:22:07.879 fiscal spending to offset some of the pressures that are 0:22:08.080 --> 0:22:11.560 very real, very tangible, and a big threat, and particularly 0:22:11.600 --> 0:22:13.840 to the lower income individuals around the world, in Europe 0:22:14.000 --> 0:22:18.840 in particular. Well, of course, the people most acutely affected 0:22:19.000 --> 0:22:21.600 are are the very poorest in in Mia and those 0:22:21.680 --> 0:22:24.840 who depend on on grain supplies that are being blockaded 0:22:24.880 --> 0:22:28.560 by Russia out of the Black seaports. UM. And so 0:22:29.320 --> 0:22:31.680 that's happening in the Middle East, where there are many 0:22:31.760 --> 0:22:34.680 concerns which I've addressed elsewhere about kind of Arab spring 0:22:34.800 --> 0:22:37.760 to point, oh and that sort of thing. In developed countries, 0:22:38.400 --> 0:22:40.840 we don't get riot sort of civil unrest in the 0:22:40.920 --> 0:22:44.399 same kind of way. We get more organized expressions of 0:22:44.640 --> 0:22:48.800 popular discontent UM and that means strikes of course, UH 0:22:48.920 --> 0:22:53.760 and protests. Governments, having responded with so much fiscal largest 0:22:53.920 --> 0:22:56.720 during the pandemic, are really going to be expected to 0:22:56.840 --> 0:22:59.760