WEBVTT - Surveillance: UK Fiscal Plan 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:09.200 --> 0:00:12.720 with Jonathan Ferrill and Lisa A. Brownowitz jay Leie, we 0:00:12.840 --> 0:00:16.759 bring you insight from the best an economics, finance, investment 0:00:17.079 --> 0:00:22.400 and international relations. Find Bloomberg Surveillance and Apple Podcast SoundCloud, 0:00:22.800 --> 0:00:26.280 Bloomberg dot Com and of course on the Bloomberg terminal. 0:00:28.720 --> 0:00:32.480 Joining us now Andrew Griffith, the UK Finances Financial Secretary 0:00:32.640 --> 0:00:36.080 to the Treasury and the City Minister. Andrew fantastically catch 0:00:36.159 --> 0:00:38.880 up with you, sir. We understand the Chancellor and the 0:00:38.920 --> 0:00:40.720 Prime Minister is meeting with the o b R today 0:00:41.159 --> 0:00:43.440 the Bank of Engle's guilt market operation and in the 0:00:43.440 --> 0:00:46.000 middle of October. Should those forecasts from the o b 0:00:46.159 --> 0:00:50.120 R be published before then? Well, the key thing to 0:00:50.240 --> 0:00:53.960 take away is that the Government, the o b R 0:00:54.120 --> 0:00:56.760 and the Bank of England are all working coorp in 0:00:56.760 --> 0:01:00.840 a coordinated fashion, each doing their respective job. So the 0:01:00.880 --> 0:01:04.720 Banks doing its job on monetary policy and market conduct, 0:01:05.280 --> 0:01:08.640 the o b R its job on forecasts and bringing 0:01:08.680 --> 0:01:12.240 forward though the forecasts when they're ready to be able 0:01:12.240 --> 0:01:15.679 to wrap in the recently announced Government Growth Plan. And 0:01:15.680 --> 0:01:18.560 then of course the Government Growth Plan which has features 0:01:18.600 --> 0:01:22.560 about energy, protecting households and businesses, how we're going to 0:01:22.600 --> 0:01:27.160 go forward on energy security, building clean energy going forward, 0:01:27.880 --> 0:01:31.040 and also a lot of supply side measures in the UK. 0:01:31.319 --> 0:01:34.080 It's a very growth orientated plan. So what you've seen 0:01:34.120 --> 0:01:36.640 over the last week is each of those players do 0:01:36.720 --> 0:01:39.400 their job. It's good that the Chancellor and the Prime 0:01:39.440 --> 0:01:41.720 Minister are joined up with the o b R. I 0:01:41.720 --> 0:01:45.240 think that meeting finishes shortly. But you've seen a lot 0:01:45.280 --> 0:01:49.440 of coordinated activity over the last coordinated action at all. 0:01:49.640 --> 0:01:52.040 I've seen a mess. So you come out last week 0:01:52.080 --> 0:01:54.440 with a mini budget, the Bank having the follow up 0:01:54.480 --> 0:01:57.480 with unprecedented intervention in the guilt market, and the o 0:01:57.600 --> 0:01:59.760 b R. Now you visit the o b R and 0:01:59.800 --> 0:02:02.560 look for some forecasts after the fact. Why weren't these 0:02:02.600 --> 0:02:07.320 forecasts published alongside this many budget last week? Because the 0:02:07.360 --> 0:02:09.760 growth plans got lots of components to it. There was 0:02:09.800 --> 0:02:13.720 an imperative to act this time last week. It's tomorrow, 0:02:13.880 --> 0:02:16.440 you know, this is the quarter end. It's tomorrow that 0:02:16.639 --> 0:02:19.360 energy prices would have gone up across the United Kingdom, 0:02:20.120 --> 0:02:23.799 real uncertainty for businesses and households, so it was right 0:02:23.840 --> 0:02:26.240 to do that. Then there's a lot of detail in 0:02:26.360 --> 0:02:28.799 terms of how the UK government wants to see growth 0:02:28.840 --> 0:02:31.840 going forward, and that wouldn't have been available to the 0:02:31.880 --> 0:02:34.920 O b R to factor into their forecast. Indeed, some 0:02:35.000 --> 0:02:38.280 of that we're still waiting to announce over the coming weeks, 0:02:38.320 --> 0:02:42.240 plans for infrastructure, to the housing market, for childcare, some 0:02:42.280 --> 0:02:45.200 of the deep seated challenges that probably all of our 0:02:45.240 --> 0:02:48.280 major economies have with growth. So you know, look, it's 0:02:48.280 --> 0:02:50.760 been a it's been a busy week, but each of 0:02:50.800 --> 0:02:54.080 those players are doing their job in a coordinated fashion. 0:02:54.440 --> 0:02:58.360 How concerned are you about the increase in borrowing class 0:02:58.400 --> 0:03:01.000 with some people citing it's and in a half percent 0:03:01.120 --> 0:03:03.880 mortgage cost at a time when the Bank of England 0:03:04.040 --> 0:03:07.160 is being tasked with offsetting a proposal that has not 0:03:07.240 --> 0:03:10.799 been put out there, but the market is responding. Yeah. Look, 0:03:10.840 --> 0:03:14.040 of course, of course rising rates are a concern. We've 0:03:14.080 --> 0:03:17.240 seen that obviously, you know, going into last week, I 0:03:17.240 --> 0:03:19.920 think you've seen more tightening in the US that's now 0:03:20.919 --> 0:03:24.200 happened in the UK as well. We've seen figures out 0:03:24.240 --> 0:03:27.639 of Europe as well today indicating that they've got exactly 0:03:27.680 --> 0:03:31.359 the same sort of issues around inflation. What the Energy 0:03:31.400 --> 0:03:34.960 package measures do is actually reduced the headline rates of inflation, 0:03:35.520 --> 0:03:37.640 and that's something that's going the other way to the 0:03:37.640 --> 0:03:41.520 tread birrel seeing. But Andrew, there is this discussion about 0:03:41.600 --> 0:03:44.800 not releasing the o BR report earlier than the November 0:03:44.840 --> 0:03:47.720 twenty three deadline at a time when the markets moving, 0:03:47.840 --> 0:03:50.760 it's having real term effects. Now, why not just release 0:03:50.840 --> 0:03:55.040 it earlier to give people a sense of what's going on. Yeah, well, Lisa, look, 0:03:55.040 --> 0:03:57.560 I was a finance director for eleven years. You know 0:03:57.760 --> 0:04:00.680 my board wanted me to release my figure as early 0:04:00.720 --> 0:04:04.160 as I could, but they also wanted them to be credible, 0:04:04.360 --> 0:04:06.960 to take the time to reflect all the information in 0:04:07.000 --> 0:04:10.800 a very fast moving world that's available, so everyone to 0:04:10.880 --> 0:04:12.440 have their own view on that. I think you just 0:04:12.480 --> 0:04:15.480 have to recognize there is a balance between speed and 0:04:15.560 --> 0:04:19.480 velocity and being able to wrap in information. Some of 0:04:19.480 --> 0:04:22.080 that information, as I say, will be coming forward. The 0:04:22.080 --> 0:04:25.520 growth plan itself is a forty page document and some 0:04:25.640 --> 0:04:28.880 of that detail will still be released over the coming weeks. 0:04:28.920 --> 0:04:30.520 And it's not for you to decide how long the 0:04:30.560 --> 0:04:33.400 o b R nates is it. Let's get real about this. 0:04:33.839 --> 0:04:37.479 We're reporting now that you haven't sought to accelerate the 0:04:37.480 --> 0:04:41.320 watchdogs ECO forecast at all, that's our latest report. According 0:04:41.360 --> 0:04:44.200 to officials familiar with the comments after the o BR 0:04:44.240 --> 0:04:48.840 Treasury meeting, why haven't you asked them to accelerate it. Well, 0:04:48.880 --> 0:04:51.719 I've just talked about how there's a lot of different detail. 0:04:51.960 --> 0:04:54.359 How familiar are with all of the growth plan? People 0:04:54.400 --> 0:04:57.360 have heard some of the headline measures. They've been widely rewarded, 0:04:57.960 --> 0:05:01.159 perhaps less so about the plan for interest structure, the 0:05:01.160 --> 0:05:04.960 plan for immigration housing. You know, these elements really important 0:05:05.000 --> 0:05:07.479 elements of the growth Plan. That is how we're going 0:05:07.520 --> 0:05:11.160 to finance the fiscal announcements that were made last Friday. 0:05:11.360 --> 0:05:13.080 So I think you've just got to look at it 0:05:13.120 --> 0:05:16.040 as a package. When the Chancellor asked the bar to 0:05:16.200 --> 0:05:19.719 report on the twenty three November, it was in contemplation 0:05:20.240 --> 0:05:22.360 of being able to take into account the whole of 0:05:22.360 --> 0:05:25.080 that package. You in the media, BR tell you what, 0:05:26.760 --> 0:05:29.320 have you asked the o b R to bring forward 0:05:29.360 --> 0:05:31.919 those forecasts as soon as possible or have you told 0:05:31.960 --> 0:05:35.919 them that you want them at the end of November. Well, 0:05:36.000 --> 0:05:38.599 the chance that will read out on on his meeting 0:05:38.640 --> 0:05:41.760 in due course, but in the meantime, you know, don't 0:05:41.800 --> 0:05:44.560 don't lose sight of the fact that the fundamentals here 0:05:45.120 --> 0:05:49.479 were strong coming in We started this with some of 0:05:49.520 --> 0:05:52.599 the lowest rates of the lowest jet debt to GDP 0:05:52.760 --> 0:05:56.279 and the G seven. The economy is still growing or 0:05:56.320 --> 0:06:00.000 bit we acknowledge that. Andrews time Keenan New York comes 0:06:00.040 --> 0:06:03.160 sorry about you. As we speak. The Bloomberg Financial Conditions 0:06:03.200 --> 0:06:07.279 Index for the United Kingdom is a negative four standard deviations. 0:06:07.600 --> 0:06:10.880 You have seen a seven standard deviation move and the 0:06:10.920 --> 0:06:15.680 blended guilt price move. You have a derivative disaster. You 0:06:15.680 --> 0:06:19.400 are the city minister. What are the regulators gonna do 0:06:19.800 --> 0:06:23.960 finally to amend the derivative shell game that caused the 0:06:24.000 --> 0:06:27.960 Bank of England to bail out the marketing industry of 0:06:28.240 --> 0:06:32.480 l d I. Yeah, and you'll be aware Tom about 0:06:32.520 --> 0:06:35.680 the independence of the regulators. So one of the things 0:06:35.720 --> 0:06:39.080 that you learn a city minister is the regulators have 0:06:39.200 --> 0:06:42.120 their job to do. What my time did? They feel 0:06:43.000 --> 0:06:46.240 that we have the most competitive environment in which to 0:06:46.360 --> 0:06:49.200 do business. Okay, you have a competitive environment that on 0:06:49.240 --> 0:06:53.200 a seventh standard deviation move, blew up. Fine, what does 0:06:53.200 --> 0:06:57.039 the United Kingdom do off of the scandals of of 0:06:57.360 --> 0:06:59.920 two thousand seven and two thousand and eight to five 0:07:00.000 --> 0:07:05.159 only control the natural greed of the derivative business. You're 0:07:05.200 --> 0:07:08.279 at the heart of this, is City Minister, how do 0:07:08.360 --> 0:07:15.080 we finally get our every eight year derivative blow up fixed? Well, 0:07:15.120 --> 0:07:17.480 the Bank of England is taking the actions that they 0:07:17.520 --> 0:07:20.320 need to in the market right now. In the long term, 0:07:20.360 --> 0:07:22.400 of course, we look at the getting the right the 0:07:22.520 --> 0:07:26.840 right regulatory structure and that's a shared objective of ourselves 0:07:27.040 --> 0:07:30.360 and the bank and the prudential regulators. So you know, 0:07:30.480 --> 0:07:34.320 of course one will always look at wherever there are 0:07:34.360 --> 0:07:37.800 there are the points in the regulatory structure that there 0:07:37.840 --> 0:07:39.920 needs to be looked at, but that's not but that's 0:07:39.960 --> 0:07:43.560 not the focus for today. The Bank's made its its 0:07:43.680 --> 0:07:46.920 judgment and it's into the markets and the thing the 0:07:46.960 --> 0:07:49.960 thing to your to your point earlier, Tom in terms 0:07:50.000 --> 0:07:54.560 of the politics, is that we need to communicate how 0:07:54.600 --> 0:07:56.800 this country is going to grow. That's what's going to 0:07:56.880 --> 0:08:00.520 give people the confidence to invest, the confidence to hold 0:08:00.520 --> 0:08:05.800 the currency, and the ability for us as government to 0:08:06.160 --> 0:08:09.320 find the high quality in all of the instruction that 0:08:09.360 --> 0:08:12.760 we need to Mr Ferrell's questions earlier, what do you 0:08:12.840 --> 0:08:16.640 need to do on this Friday evening to give confidence 0:08:16.920 --> 0:08:22.000 Monday that the different experts are advising the Trust government 0:08:22.480 --> 0:08:29.040 of the outcomes of their Reaganomics like policy. Well, I 0:08:29.040 --> 0:08:32.560 wouldn't accept that characterization. What what you need to know 0:08:32.679 --> 0:08:34.880 and the markets need to understand, is that we are 0:08:34.920 --> 0:08:38.600 working absolutely in lockstep. You've seen a number of coordinated 0:08:38.640 --> 0:08:41.880 announcements from both the Government and the Governor of the 0:08:41.880 --> 0:08:44.240 Bank of England over the course of this week. I 0:08:44.320 --> 0:08:48.600 spend my time meeting investors, talking to regulators, talking to 0:08:48.679 --> 0:08:53.560 the fancial markets. But these are volatile times um and 0:08:53.640 --> 0:08:57.560 we're seeing that in every market, sometimes a different different 0:08:57.600 --> 0:09:00.120 speeds and pace, but it's a macro trend that is 0:09:00.160 --> 0:09:03.480 seeing and some of the things that we are asked 0:09:03.480 --> 0:09:07.400 to do is to bring forward supply side reforms to 0:09:07.520 --> 0:09:11.720 improve the UK's energy security situation because the aberrant here 0:09:12.120 --> 0:09:14.280 is the strength of the US economy and the strength 0:09:14.320 --> 0:09:17.480 of the US dollar as a function of your greater 0:09:17.640 --> 0:09:22.600 energy overnight. It's I just want to make this clear, John, 0:09:22.679 --> 0:09:25.240 I believe the Minister just told us it's our fault. 0:09:25.280 --> 0:09:27.680 The UK is blown up. I think that's what I heard. 0:09:27.920 --> 0:09:29.800 We don't have time and that's not that's not that 0:09:29.960 --> 0:09:31.880 is not what you heard. What you heard, is that 0:09:32.679 --> 0:09:35.559 we've got a job to do to try and improve 0:09:35.600 --> 0:09:39.880 our energy security. And if anyone thinks that this isn't 0:09:39.960 --> 0:09:44.920 ultimately a macro issue that flows in part from Pugeon's 0:09:44.920 --> 0:09:52.120 invasion of Ukraine, this is bloomberg. What we do know 0:09:52.360 --> 0:09:54.440 is from the moment it was known that Jane Foley, 0:09:54.440 --> 0:09:57.480 a rubber bank would speak with US pounders weaken from 0:09:57.559 --> 0:10:00.920 one twelve to a one ten handle as well. Jane Foley, 0:10:00.960 --> 0:10:03.400 I rarely do this, but I've got to get exceptionally 0:10:03.520 --> 0:10:06.520 narrow here right down in the g I P function 0:10:06.559 --> 0:10:09.920 and some of the technicals and Sterling give us your 0:10:10.000 --> 0:10:14.760 key support and key resistance levels for cable, Well we 0:10:14.840 --> 0:10:17.760 see huge ranges right now, so that's really difficult to 0:10:17.760 --> 0:10:20.640 do what we are targeting one oh four. Certainly cable 0:10:21.000 --> 0:10:24.160 remains really very vulnerable because you've got to ask the question, well, 0:10:24.160 --> 0:10:26.240 what happens when the Bank of England takes away this 0:10:26.320 --> 0:10:29.400 extraordinary support of the guilt market. You know, the cracks 0:10:29.440 --> 0:10:32.120 of the problem is still there, which is what is 0:10:32.160 --> 0:10:34.280 this government going to do in terms of it's its 0:10:34.280 --> 0:10:37.480 fiscal policies. Now it's one thing during the pandemic to 0:10:37.480 --> 0:10:38.880 to wish you more debt when you have the Bank 0:10:38.920 --> 0:10:41.960 of England hoovering up some of that depth through quantity 0:10:42.000 --> 0:10:44.160 of easing. But to try and do that when the 0:10:44.200 --> 0:10:48.320 Central Bank has reversed course, it's clearly very difficult to 0:10:48.360 --> 0:10:50.880 do a Now the Central Bank again is going through 0:10:50.920 --> 0:10:54.440 its quantity of visa program. That is a credibility issue. 0:10:54.520 --> 0:10:57.200 Is is it supporting that the government's discal stands. Jane 0:10:57.200 --> 0:11:00.920 explained to us the efficacy of foreign ex ange analysis 0:11:01.080 --> 0:11:04.640 right now, when I look at fancy ratio and financial 0:11:04.640 --> 0:11:08.839 conditions indexes and fixed income spreads that are grim, does 0:11:08.920 --> 0:11:12.800 foreign exchange really tell me what's going on? I think 0:11:12.840 --> 0:11:15.280 it does. I think Sterling has been saying all year 0:11:15.360 --> 0:11:18.440 that UK fundamentals are grim. Sterling has been a poor 0:11:18.480 --> 0:11:21.080 performer all year. The Bank of England has been failing 0:11:21.400 --> 0:11:23.800 to turn Sterling around with interest rate hikes and that's 0:11:23.800 --> 0:11:26.760 certainly been the case since the spring um. And that 0:11:26.920 --> 0:11:30.080 tells you that investors don't like what they see, and 0:11:30.120 --> 0:11:33.120 they don't like what they see even more because of it, 0:11:33.280 --> 0:11:35.880 because of the budget last week. And you know, even 0:11:35.960 --> 0:11:38.880 if even if you know some of those measures were 0:11:38.960 --> 0:11:41.000 to be at reverse, and there's no sign at all 0:11:41.040 --> 0:11:43.480 that the government wants to do that. There is still 0:11:43.679 --> 0:11:47.079 being a dirty stain now on the credibility perhaps of 0:11:47.120 --> 0:11:50.280 the Bank of England, but certainly the credibility of dis government. 0:11:50.360 --> 0:11:52.880 And and you know the government's talking about the necessity 0:11:52.920 --> 0:11:56.040 of this budget because it wanted to improve growth. Well actually, 0:11:56.120 --> 0:11:58.240 you know, for many, many people, a lot of those 0:11:58.280 --> 0:12:01.080 subsidies on the energy price it's going to be taken 0:12:01.120 --> 0:12:03.560 away in the form of higher mortgage payments. Anyway, people 0:12:03.559 --> 0:12:05.800 are going to be poor as a consequence of this, 0:12:05.880 --> 0:12:08.440 and also maybe because of the way guilts look in 0:12:08.440 --> 0:12:12.120 their pension portfolios. So no wonder We've got the latest 0:12:12.120 --> 0:12:15.120 opinion polls saying that Labor has got a thirty three 0:12:15.440 --> 0:12:18.079 point lead over the Tories at this point. The United 0:12:18.160 --> 0:12:21.520 Kingdom has unique circumstances some ways but others not so much. 0:12:21.559 --> 0:12:24.079 And we are seeing fiscal spending around the euroregion to 0:12:24.160 --> 0:12:26.520 try to grapple with what is going to be a 0:12:26.600 --> 0:12:29.600 difficult winter. How much does this just accelerate the dollar 0:12:29.720 --> 0:12:32.760 dominance at a time when the US faces a different picture. 0:12:33.120 --> 0:12:36.160 Isn't necessarily engaged in the same kind of fiscal band 0:12:36.160 --> 0:12:39.280 aid for a problem that has a longer lasting kind 0:12:39.280 --> 0:12:43.199 of timeframe. I think it does accelerate the outlook of 0:12:43.240 --> 0:12:45.240 the dollar. Mean, like you said, the market was already 0:12:45.600 --> 0:12:48.599 worried about global growth, it was already worried about UK fundamentals, 0:12:48.600 --> 0:12:50.280 which of course is why the time in all this 0:12:50.320 --> 0:12:53.160 BUDGECT was so particularly so bad, the chance of failing 0:12:53.200 --> 0:12:56.679 to read those market conditions. But it does accelerate the 0:12:56.880 --> 0:12:59.360 the the movement into say favor for the dollar. But 0:12:59.600 --> 0:13:01.440 you know, would really like just to state that I 0:13:01.480 --> 0:13:06.040 don't think that US fundamentals operate on the on the 0:13:06.040 --> 0:13:08.640 dollar in the same way that fundamentals of say that 0:13:08.760 --> 0:13:12.600 the UK operate on on sterling. And this is because 0:13:12.640 --> 0:13:15.120 the dollar has his own set of fundamentals. It is 0:13:15.120 --> 0:13:18.960 a huge invoicing currency. It is a massive reserve currency 0:13:19.000 --> 0:13:22.120 because it's a huge invoicing currency. And the long the 0:13:22.160 --> 0:13:24.520 short of it, the simplicity of it is that when 0:13:24.559 --> 0:13:28.400 there is crisis, when there is uncertainty, people just need dollars. 0:13:28.600 --> 0:13:31.160 They need it to cover their liabilities, to pay their invoices, 0:13:31.320 --> 0:13:34.800 perhaps to cover their dollar debt liabilities, depending on where 0:13:34.800 --> 0:13:37.680 you are. So the dollar operates to his own set 0:13:37.720 --> 0:13:40.880 of fundamentals, which are pretty quite distinct from the fundamentals 0:13:40.960 --> 0:13:43.960 of the of the US and Jane Foley, Jane just 0:13:43.960 --> 0:13:46.760 wantedfull to catch up with you in London and then 0:13:46.800 --> 0:13:48.679 back here in New York as well. Jane Foley, thank 0:13:48.720 --> 0:14:02.760 you Rather Bank for John, Lisa and I and all 0:14:02.800 --> 0:14:05.079 of our team. We are going to continue to monitor 0:14:05.160 --> 0:14:09.599 this through the weekend as well, and it is across equities, bonds, currencies, 0:14:10.160 --> 0:14:14.240 and hydrocarbons. Given a war in Ukraine. Expert on this 0:14:14.320 --> 0:14:18.120 is Regina Mayor, Global Head of Energy at KPMG, which 0:14:18.200 --> 0:14:22.600 barely describes the nexus of our military experience with the 0:14:22.680 --> 0:14:26.240 study of hydrocarbons at Rice University. Regina, thank you so 0:14:26.320 --> 0:14:30.320 much for joining today. What are you watching in the 0:14:30.360 --> 0:14:34.240 oil and gas market when you begin your day? What 0:14:34.440 --> 0:14:37.040 is the thing we need to focus on right now? 0:14:39.000 --> 0:14:41.560 So when I'm thinking about what's happening in Europe, because 0:14:41.600 --> 0:14:43.600 that's where there's a lot of attention these days, I 0:14:43.640 --> 0:14:46.960 am looking at three things at every daytime. That is, 0:14:47.000 --> 0:14:50.480 what is the natural gas stocks supply look like, what 0:14:50.600 --> 0:14:54.080 are the spotting forward natural gas prices in Europe? And 0:14:54.120 --> 0:14:56.520 what do we think the weather projections will be? Both 0:14:56.600 --> 0:15:01.240 but today, tomorrow and the coming winter the near term. 0:15:01.080 --> 0:15:05.040 I'm near term optimistic because European gas docks are at 0:15:05.120 --> 0:15:08.600 nine of normal for this time. They were at fifty 0:15:08.680 --> 0:15:10.440 percent over the summer, so I think the EU has 0:15:10.480 --> 0:15:13.920 done a great job of rebuilding that stock. Short term 0:15:13.960 --> 0:15:16.880 prices are down fifty percent from their highs over the summer, 0:15:17.120 --> 0:15:19.720 though there's still two higher than they were at this 0:15:19.760 --> 0:15:22.720 time last year, but they have by the summer, and 0:15:22.760 --> 0:15:25.680 I think we're hoping that the weather stays more in 0:15:25.720 --> 0:15:28.760 our favor. So near term optimism, But those are some 0:15:28.760 --> 0:15:31.520 of the things I look at near term. What about 0:15:31.600 --> 0:15:35.600 longer term? Yeah, well, longer term, there's so much volatility. 0:15:35.600 --> 0:15:38.120 If you just look at this week alone, Lisa Cradle 0:15:38.240 --> 0:15:42.640 price jumped around eight up and down, and so I 0:15:42.640 --> 0:15:44.600 think the market has a lot of jitters. We saw 0:15:44.640 --> 0:15:48.680 some downward price pressure with recessionary concerns UH and the 0:15:48.720 --> 0:15:52.640 strengthening of the dollar, but then we worried about demand 0:15:52.920 --> 0:15:55.240 because the market got jittery with the what's happened with 0:15:55.280 --> 0:15:57.520 the North String pipelines, even though that actually does not 0:15:57.600 --> 0:16:01.240 affect near term European gas, like is this pipeline for 0:16:01.320 --> 0:16:04.080 not serving Europe? But the EU has done a great 0:16:04.160 --> 0:16:07.400 job of reducing its short term dependence on Russian gas, 0:16:07.520 --> 0:16:10.400 and so I think that the added threats will create 0:16:10.560 --> 0:16:15.000 upward price pressure. It will continue that, but the recessionary fears, 0:16:15.040 --> 0:16:17.240 the rampant inflation that you all have been talking about, 0:16:17.560 --> 0:16:20.120 that breeds a downward price pressure that keeps US more 0:16:20.120 --> 0:16:23.760 in balanced. The analysts are are pegging average group price 0:16:23.800 --> 0:16:26.400 for to be in the seventies, which I don't think 0:16:26.440 --> 0:16:29.720 I would have expected that just three months ago. Well, 0:16:29.840 --> 0:16:32.400 sticking on the energy story in Europe, but we heard 0:16:32.400 --> 0:16:35.840 from Enery Herdering, our correspondent in Washington, d C. About 0:16:36.120 --> 0:16:39.520 how they're increasing calls from Europe for the US to 0:16:39.640 --> 0:16:43.080 lower its natural gas prices as exports to Europe to 0:16:43.160 --> 0:16:46.640 give them some assistance through the winter. Do you see 0:16:46.680 --> 0:16:49.520 that as a realistic outcome that the US is willing 0:16:49.520 --> 0:16:53.320 to provide marginal demand and somehow cap prices in some manner. 0:16:54.680 --> 0:16:56.600 I didn't think that most interesting. And that the paper 0:16:56.680 --> 0:17:00.160 that the EU is issued about creating an lergy transaction 0:17:00.280 --> 0:17:05.080 based benchmark. Uh, you know, the markets are very transparent, 0:17:05.400 --> 0:17:07.879 and you know high departments have been trading in the 0:17:07.880 --> 0:17:12.280 ways that they've been trading for almost decades, right, So 0:17:12.440 --> 0:17:15.520 I don't know how successful that will ultimately be given 0:17:15.560 --> 0:17:18.520 all this volatility that we've been talking about. I do 0:17:18.640 --> 0:17:22.160 think though, the governments are really interested in having more 0:17:22.240 --> 0:17:26.800 unified policies to protect their electorate and to secure energy 0:17:26.840 --> 0:17:33.600 supplies for the coming winter month Regina the Netherlands. Inflation 0:17:34.119 --> 0:17:36.320 in the hydrocarbon part of that, I believe is a 0:17:36.400 --> 0:17:40.720 hundred and fourteen percent, just unimaginable numbers. What are the 0:17:40.840 --> 0:17:46.199 ramifications if we get ninety days of sevent inflation in 0:17:46.240 --> 0:17:50.200 the Netherlands. Well, I'm not an economist, Tom, but I 0:17:50.240 --> 0:17:53.440 mean I think it's you're seeing major price escalation. I'm 0:17:53.440 --> 0:17:56.520 talking to a lot of senior executives that run manufacturing 0:17:56.520 --> 0:18:00.520 companies all across Europe, and their energy costs are through 0:18:00.560 --> 0:18:03.600 the roof, and that cost then has to get translated 0:18:03.640 --> 0:18:07.600 back down into goods and services that go to consumers, 0:18:07.800 --> 0:18:09.760 and that I think is what's driving some of these 0:18:10.400 --> 0:18:14.280 these crazy inflationary numbers that we're seeing. And until we 0:18:14.359 --> 0:18:17.680 can drive that overall energy cost down, you know, they're 0:18:17.680 --> 0:18:20.720 making short term decisions to cut manufacturing runs as a 0:18:20.800 --> 0:18:23.680 demand management response. But I think will continue to see 0:18:23.800 --> 0:18:26.480 a lot of upward pressure on price given these higher 0:18:26.560 --> 0:18:29.719 energy costs. Regina, thank you and thanks for making it 0:18:29.720 --> 0:18:32.000 this morning to join us. We appreciate it. Regina Mada 0:18:32.240 --> 0:18:39.600 of KPMG holding on as the expertise of the chief 0:18:39.640 --> 0:18:43.120 investment strategist at LUTH, Jim Paulson recalibrates in the fourth 0:18:43.160 --> 0:18:46.040 quarter with us this morning. What's the value of cash 0:18:46.119 --> 0:18:51.960 right now? Mr Paulson? I, UM, it's nice to see 0:18:52.000 --> 0:18:55.399 cash tom at least giving a positive yield of some merit, 0:18:55.520 --> 0:18:57.600 but I don't think it's the right asset to be 0:18:57.720 --> 0:19:01.480 in right now. UM. I think they are pretty unsustainable 0:19:01.520 --> 0:19:05.040 at the moment um, and it's all tied to police 0:19:05.080 --> 0:19:10.879 officials raising rates. Um. In this country, the tenure yield 0:19:10.960 --> 0:19:14.720 is going straight north, while commodity prices are collapsing, while 0:19:14.760 --> 0:19:18.000 inflation surprise index is falling, while while the I S 0:19:18.119 --> 0:19:22.000 M S price surveys from service and manufacturers are are 0:19:22.119 --> 0:19:25.680 falling out of bed, while inflation expectations in the bond 0:19:25.720 --> 0:19:30.159 market break even rates are collapsing. Um. The dollar is 0:19:31.119 --> 0:19:34.200 simply out of control and the upside is a reflection 0:19:34.280 --> 0:19:37.439 of yields, and I think you know, something's got to change. 0:19:37.480 --> 0:19:42.520 It's gotten too extreme and probably what changes is rates 0:19:42.560 --> 0:19:45.239 stopped going up soon? And if that's the case, I 0:19:45.280 --> 0:19:48.240 think the stock market is gonna have a good rip yet. 0:19:48.520 --> 0:19:50.720 Um And I don't think you'll be pleased by putting 0:19:50.720 --> 0:19:53.880 too much in cash, but having some in cash. It's 0:19:54.000 --> 0:19:57.960 nice to have a bond market that's yielding something, in 0:19:57.600 --> 0:20:01.439 a cash market that shielding something. It's certainly gives Asset 0:20:01.520 --> 0:20:06.760 allocators are just people, individuals and opportunity to diversify some 0:20:06.840 --> 0:20:10.200 risks that they haven't had for quite some time. What's 0:20:10.200 --> 0:20:12.080 that coon option? You've got the gym on a rip? 0:20:12.480 --> 0:20:14.280 What are you playing? What are you sitting? What's the 0:20:14.280 --> 0:20:18.160 pocket of the knocket you want to be present in? Well? 0:20:18.320 --> 0:20:20.960 I I think I look at this like coming out 0:20:20.960 --> 0:20:24.560 of a recession, uh, Jonathan, I I would. I would 0:20:24.560 --> 0:20:27.520 look at early cycle stocks. And my favorite sector is 0:20:27.560 --> 0:20:30.560 the consumer discretionary sector. I think it's the one sector 0:20:30.600 --> 0:20:35.560 that's been most harmed by inflation. It destroys UH not 0:20:35.680 --> 0:20:40.040 only their operations by squeezing their margins of the companies, 0:20:40.040 --> 0:20:43.080 but it destroys the confidence of their customer base, and 0:20:43.160 --> 0:20:45.960 so as inflation rolls over, I think those stocks come 0:20:46.320 --> 0:20:50.520 back to life. I'd also, you know, look at growth stocks, 0:20:50.600 --> 0:20:54.560 particularly small cap growth. I my favorite tilt would be 0:20:54.600 --> 0:20:57.119 towards small caps, which by the way, have held up 0:20:57.160 --> 0:21:00.000 remarkably well in this last draft in the stock market 0:21:00.119 --> 0:21:05.160 here uh since August, and I think that I would 0:21:05.240 --> 0:21:08.800 I would have some exposure there. I also think that 0:21:08.840 --> 0:21:14.080 there's cycles beyond the UH consumer discretionary that probably play, 0:21:14.359 --> 0:21:17.560 like industrials and and so forth. And I also think 0:21:17.560 --> 0:21:19.159 there could be a play on the dollar. Yet, I 0:21:19.480 --> 0:21:21.119 just think the dollar is too high, has got to 0:21:21.160 --> 0:21:23.600 come down. And I don't know if i'd have a 0:21:23.640 --> 0:21:26.359 broad based international bet right now, but I would maybe 0:21:26.359 --> 0:21:29.239 in the emerging markets excluding China, so Jim right now 0:21:29.359 --> 0:21:36.119 Nike shares down premarket trading and screaming pie Uh. No, 0:21:36.280 --> 0:21:39.560 I don't have any particular preference to Nike. Uh, Lisa. 0:21:41.200 --> 0:21:42.640 I mean, I'm not mean to put you on the spot. 0:21:42.640 --> 0:21:44.720 I know that you're you're viewing this from a more big, 0:21:44.920 --> 0:21:47.680 big picture sense. But I guess that the point that 0:21:47.720 --> 0:21:48.879 I was trying to make is what's the risk to 0:21:48.920 --> 0:21:51.000 the downside as you wait for the FED to blank. 0:21:51.040 --> 0:21:53.000 When the FED saying we're not going to blink and 0:21:53.160 --> 0:21:55.359 no things are not breaking, it looks like actually financial 0:21:55.400 --> 0:22:00.200 stabilities holding in just fine in the US. I we're 0:22:00.200 --> 0:22:03.240 getting really close to a blink and and probably a force. 0:22:03.320 --> 0:22:06.119 It could be that we get a you know, a 0:22:06.200 --> 0:22:08.520 really weak economic report. It could be that we get 0:22:08.560 --> 0:22:13.160 a really good inflation report, probably more likely as something breaks. 0:22:13.680 --> 0:22:16.520 And you guys are bringing up things this morning that 0:22:16.560 --> 0:22:20.080 are starting to show some cracks in the foundation. And 0:22:20.200 --> 0:22:22.880 right now, if something breaks in the US and it's 0:22:22.920 --> 0:22:26.439 a systemic problem, there's more downside risk in the stock market. 0:22:26.800 --> 0:22:30.600 But I think that the private balance sheets of the 0:22:30.720 --> 0:22:34.960 United States, both households and corporations, are very solid, and 0:22:35.000 --> 0:22:38.919 they're very liquid, and the banking industry squeaky clean in 0:22:38.960 --> 0:22:42.480 this country, and the chance of a systemic balance sheet 0:22:42.520 --> 0:22:46.480 break here, I think are low. So I think something breaks, 0:22:46.600 --> 0:22:49.760 but if it's not systemic, it will cause a pause 0:22:49.800 --> 0:22:52.200