1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,039 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz. Daily we bring 3 00:00:13,119 --> 00:00:17,119 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,239 --> 00:00:22,400 Speaker 1: international relations. To find Bloomberg Surveillance on Apple podcast, SoundCloud, 5 00:00:22,800 --> 00:00:26,280 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg terminal. 6 00:00:29,200 --> 00:00:32,560 Speaker 1: He has been the big winner of the last eighteen months. 7 00:00:32,760 --> 00:00:37,120 Speaker 1: Michael Wilson, chief US equity strategist at Morgan Stanley, was 8 00:00:37,240 --> 00:00:41,200 Speaker 1: out front with a cute week to week talk about 9 00:00:41,200 --> 00:00:44,440 Speaker 1: a bear market, and then up in June, down again, 10 00:00:44,960 --> 00:00:47,840 Speaker 1: and now up again. An important conversation, John, why don't 11 00:00:47,840 --> 00:00:49,280 Speaker 1: you lead off with Mr Wilson? I think we could 12 00:00:49,280 --> 00:00:51,000 Speaker 1: have got to mix Chrystal Bull Mike. I think the 13 00:00:51,000 --> 00:00:52,480 Speaker 1: code of the year wasn't the code of the start 14 00:00:52,479 --> 00:00:55,200 Speaker 1: of the year. It was that tactical rally, that buddish 15 00:00:55,240 --> 00:00:57,360 Speaker 1: cool you made about a month or sub ago, and 16 00:00:57,440 --> 00:00:59,400 Speaker 1: Mike were seen it play out, and I think we're 17 00:00:59,440 --> 00:01:04,040 Speaker 1: all wondering whether you said it's much more upside from here. Well, 18 00:01:04,080 --> 00:01:06,880 Speaker 1: thanks John, good to see you guys, And look, I 19 00:01:06,880 --> 00:01:08,520 Speaker 1: I mean we talked about this the last time. I 20 00:01:08,560 --> 00:01:11,080 Speaker 1: was on the tactical rally. I felt like the move 21 00:01:11,160 --> 00:01:13,760 Speaker 1: to four thousand was was pretty much in the cards, 22 00:01:13,840 --> 00:01:15,440 Speaker 1: and then we said, look, we don't know if we're 23 00:01:15,440 --> 00:01:18,160 Speaker 1: gonna get another level to this. If it's going to happen, 24 00:01:18,280 --> 00:01:21,080 Speaker 1: we're gonna need rates to come in further. Uh. And 25 00:01:21,080 --> 00:01:22,680 Speaker 1: that's what That's what's happening now, and it's gonna be 26 00:01:22,720 --> 00:01:26,440 Speaker 1: probably led by you know, the NASDAC and also the 27 00:01:26,480 --> 00:01:29,600 Speaker 1: you know stocks that are most heavily shorted as rates 28 00:01:29,600 --> 00:01:32,160 Speaker 1: come down along duration plays and that's exactly what we 29 00:01:32,200 --> 00:01:35,600 Speaker 1: saw yesterday. And so we have more confidence that this 30 00:01:35,720 --> 00:01:39,640 Speaker 1: rally will continue into December. It's not gonna be easy 31 00:01:40,120 --> 00:01:41,520 Speaker 1: because I want to make it clear, as we said 32 00:01:41,600 --> 00:01:43,520 Speaker 1: last time as well, it's still a bear market. Um, 33 00:01:43,560 --> 00:01:46,200 Speaker 1: these things are tricky, but we have to try and 34 00:01:46,480 --> 00:01:49,080 Speaker 1: trade these. When you get moves to go against you, 35 00:01:49,080 --> 00:01:51,200 Speaker 1: you don't want to miss it. And sometimes we get 36 00:01:51,240 --> 00:01:52,920 Speaker 1: it right. Sometimes we know this one we did. So 37 00:01:53,000 --> 00:01:55,680 Speaker 1: we're we think it can extend here. Now, we think 38 00:01:55,760 --> 00:01:58,880 Speaker 1: rates will go lower. We think you know, Polle's commentaries 39 00:01:59,000 --> 00:02:00,600 Speaker 1: right in line with what we've been saying, which is 40 00:02:00,600 --> 00:02:03,720 Speaker 1: that they're going to pause probably in January. And the 41 00:02:03,760 --> 00:02:05,400 Speaker 1: market is getting in front of that, and this is 42 00:02:05,440 --> 00:02:07,960 Speaker 1: a this is a classic uh you know, kind of 43 00:02:08,160 --> 00:02:12,240 Speaker 1: uh kind of bed pause stock market rally and then 44 00:02:12,320 --> 00:02:14,160 Speaker 1: ultimately you think we get beaten around the head with 45 00:02:14,160 --> 00:02:16,800 Speaker 1: Paul earnings as we got into three. Now, Mike, I'm 46 00:02:16,800 --> 00:02:18,880 Speaker 1: going to read you a quote and it reads as follows. 47 00:02:18,919 --> 00:02:21,400 Speaker 1: Previous slows and equity markets are likely to be retested 48 00:02:21,680 --> 00:02:23,920 Speaker 1: as there may be a significant decline in corporate earnings. 49 00:02:23,960 --> 00:02:26,680 Speaker 1: We're inclined to think that this market decline could happen 50 00:02:26,720 --> 00:02:29,440 Speaker 1: between now and the end of the first quarter of three. Now, 51 00:02:29,440 --> 00:02:31,520 Speaker 1: if someone gave me that quote, Mike, I can't think 52 00:02:31,560 --> 00:02:34,520 Speaker 1: it was you, except it wasn't. It was JP Morgan's 53 00:02:34,520 --> 00:02:37,760 Speaker 1: Marko Kolanovich yesterday. Now, Mike, you like to be contrarian, 54 00:02:37,840 --> 00:02:39,800 Speaker 1: you have been through much of this year. I have 55 00:02:39,919 --> 00:02:42,560 Speaker 1: to say that view now of early twenty three earnings 56 00:02:42,639 --> 00:02:45,840 Speaker 1: risk is almost consensus. Mike, How are you thinking about 57 00:02:45,840 --> 00:02:48,639 Speaker 1: it as we go into a new year. Yeah, I mean, 58 00:02:48,800 --> 00:02:51,280 Speaker 1: like you know, you can say for other people too. 59 00:02:51,320 --> 00:02:53,880 Speaker 1: Were all trying to, you know, stand out with something 60 00:02:53,919 --> 00:02:57,359 Speaker 1: that's you know, insafeful or different, and you're right, I mean, 61 00:02:57,360 --> 00:02:59,680 Speaker 1: our our call this year now has become pretty much 62 00:02:59,680 --> 00:03:02,079 Speaker 1: concerned it's this that. But that's why we flipped in 63 00:03:01,840 --> 00:03:05,160 Speaker 1: in October quite frankly, as we felt like that call, 64 00:03:05,320 --> 00:03:07,680 Speaker 1: the fire and ice call right fed tightening into a 65 00:03:07,720 --> 00:03:12,040 Speaker 1: slowdown became consensus. Now we see kind of this idea 66 00:03:12,120 --> 00:03:14,760 Speaker 1: that we're gonna make a lower low in the first quarter. 67 00:03:14,760 --> 00:03:16,760 Speaker 1: I don't think that's quite consensus yet. But I tell 68 00:03:16,760 --> 00:03:19,480 Speaker 1: you what's not consensus is this taxble rally, Okay, that 69 00:03:20,200 --> 00:03:23,120 Speaker 1: we watched that you know, our competitors, we watch touch 70 00:03:23,160 --> 00:03:24,679 Speaker 1: a lot of clients to try and get a sense 71 00:03:24,720 --> 00:03:27,120 Speaker 1: for where that sentiment is. And I would say this 72 00:03:27,160 --> 00:03:29,440 Speaker 1: is one of the most hated bear market rallies that 73 00:03:29,480 --> 00:03:32,079 Speaker 1: I can recall, even more so than this summer. So 74 00:03:32,200 --> 00:03:34,040 Speaker 1: I think the right set up now is this rally 75 00:03:34,040 --> 00:03:36,560 Speaker 1: will go further and we'll probably drag people back into 76 00:03:36,560 --> 00:03:39,040 Speaker 1: thinking that the bear market is over, and then that 77 00:03:39,080 --> 00:03:40,880 Speaker 1: will be part of the signal for us to kind 78 00:03:40,880 --> 00:03:43,600 Speaker 1: of press on the other side again. Pushing again, staid 79 00:03:43,640 --> 00:03:45,960 Speaker 1: perhaps Mike, and this goes to Allen Setner and maybe 80 00:03:46,040 --> 00:03:50,160 Speaker 1: jobs day tomorrow is what inflation does, what the economy does? 81 00:03:50,640 --> 00:03:53,640 Speaker 1: What are your analysts and Morgan Stanley say about the 82 00:03:53,720 --> 00:03:57,800 Speaker 1: mystery of revenue growth at the top line next year, 83 00:03:58,440 --> 00:04:01,280 Speaker 1: and if you get better revenue growth because of high 84 00:04:01,360 --> 00:04:06,800 Speaker 1: nominal GDP, how does that redound upon margins. Yeah, this 85 00:04:06,840 --> 00:04:09,960 Speaker 1: has been an ongoing debate we've had with clients since 86 00:04:10,000 --> 00:04:12,280 Speaker 1: really April. Uh, you know, we were out in front 87 00:04:12,360 --> 00:04:16,080 Speaker 1: on earnings disappointing at some point into twenty three. And 88 00:04:16,160 --> 00:04:18,800 Speaker 1: but it does contrast with this idea that we have 89 00:04:18,839 --> 00:04:21,599 Speaker 1: in a nominal world. Uh, you know GDP. Nomenal GDP 90 00:04:21,720 --> 00:04:23,919 Speaker 1: is probably gonna stay positive next year, even if we 91 00:04:23,960 --> 00:04:26,120 Speaker 1: have a recession. You know, Ellen's forecast next year is 92 00:04:26,120 --> 00:04:28,440 Speaker 1: for not a recession, but basically zero percent real growth, 93 00:04:28,520 --> 00:04:31,160 Speaker 1: So it's gonna feel like a recession. What's your point 94 00:04:31,160 --> 00:04:33,320 Speaker 1: if you get you know, if inflation is still positive, 95 00:04:33,360 --> 00:04:35,920 Speaker 1: you can have positive revenue growth. We have that baked 96 00:04:35,920 --> 00:04:37,760 Speaker 1: into our numbers time when in other words, our base 97 00:04:37,839 --> 00:04:40,840 Speaker 1: case a D nine dollars next year assumes if we 98 00:04:40,880 --> 00:04:43,919 Speaker 1: still have positive revenue growth about three percent due to 99 00:04:44,000 --> 00:04:46,960 Speaker 1: you nominal GDP staying in positive territory. But it all 100 00:04:47,000 --> 00:04:48,800 Speaker 1: comes down to margins. And this is the part of 101 00:04:48,800 --> 00:04:51,760 Speaker 1: the story that we think is underappreciated by a lot 102 00:04:51,839 --> 00:04:54,960 Speaker 1: of investors, which is, you know, inflation is what drove 103 00:04:55,040 --> 00:04:58,240 Speaker 1: profits higher, and so as inflation comes down next year, 104 00:04:58,279 --> 00:05:00,839 Speaker 1: as we're forecasting we have inflation going back towards to 105 00:05:01,040 --> 00:05:02,960 Speaker 1: two two three by the end of the next year. 106 00:05:03,360 --> 00:05:07,000 Speaker 1: That's actually bad for equities, good for bonds, but bad 107 00:05:07,000 --> 00:05:10,240 Speaker 1: for equities because it's going to crush margins. And this 108 00:05:10,320 --> 00:05:12,120 Speaker 1: is the story that we think is once again under 109 00:05:12,120 --> 00:05:14,840 Speaker 1: appreciate the negative operating leverage that we're seeing in business 110 00:05:14,839 --> 00:05:18,080 Speaker 1: models as companies scrambled for supply six eight months ago 111 00:05:18,160 --> 00:05:20,640 Speaker 1: and over higher. That has to be you know, run 112 00:05:20,680 --> 00:05:23,440 Speaker 1: through the income statement now and that's gonna be the 113 00:05:23,640 --> 00:05:25,640 Speaker 1: that's gonna what that's gonna be what makes the low 114 00:05:25,800 --> 00:05:27,520 Speaker 1: in the first and second quarter. So I would say 115 00:05:27,520 --> 00:05:29,880 Speaker 1: where people are maybe catching up on the earning story, 116 00:05:30,320 --> 00:05:32,040 Speaker 1: I don't think they're bearish enough in terms of this 117 00:05:32,160 --> 00:05:34,960 Speaker 1: margin degradation. Mike, you said that there perhaps could be 118 00:05:35,000 --> 00:05:37,520 Speaker 1: a trough of three thousand and thirty two hundred in 119 00:05:37,560 --> 00:05:39,840 Speaker 1: the first quarter of next year as we do get 120 00:05:39,920 --> 00:05:43,280 Speaker 1: that reality check from earnings, have the recent data with 121 00:05:43,360 --> 00:05:46,039 Speaker 1: respect to the latest CPI, with respect to some of 122 00:05:46,080 --> 00:05:48,479 Speaker 1: the other metrics that people are seeing a softening in 123 00:05:48,800 --> 00:05:50,440 Speaker 1: and that we're hearing a change in tone from the 124 00:05:50,480 --> 00:05:54,640 Speaker 1: rhetoric of J. Pow perhaps yesterday. Have you changed that view? 125 00:05:54,680 --> 00:05:57,200 Speaker 1: Does that seem further away in terms of that fair 126 00:05:57,240 --> 00:06:01,320 Speaker 1: case scenario? Well, once in in, I mean the bearcase 127 00:06:01,320 --> 00:06:04,560 Speaker 1: scenario assumes we have probably a modest recession next year. 128 00:06:04,920 --> 00:06:07,440 Speaker 1: And in that scenario, all we're all that happens is 129 00:06:07,520 --> 00:06:11,680 Speaker 1: revenue growth goes flat, maybe maybe slightly negative, but that 130 00:06:11,720 --> 00:06:14,640 Speaker 1: will make the negative operating leverage even worse. And so 131 00:06:14,720 --> 00:06:16,960 Speaker 1: that's a hundred eighty dollars and earnings next year. So 132 00:06:16,960 --> 00:06:19,520 Speaker 1: with a hundred eighty dollars and earnings next year, you know, 133 00:06:19,760 --> 00:06:22,400 Speaker 1: three thousand is not is not really a stretch. So look, 134 00:06:22,440 --> 00:06:24,680 Speaker 1: we don't you know, we don't have a crystal ball. Unfortunately, 135 00:06:24,720 --> 00:06:26,839 Speaker 1: I wish I did. In terms of what I'm most 136 00:06:26,920 --> 00:06:29,560 Speaker 1: uncertain about is the timing of this. You know, we 137 00:06:29,600 --> 00:06:31,599 Speaker 1: thought it could have actually happened in the fourth quarter 138 00:06:31,960 --> 00:06:34,320 Speaker 1: of this year, needing these earnings revisions, and that's one 139 00:06:34,320 --> 00:06:36,960 Speaker 1: of the reasons we flipped positive in octobers. We felt 140 00:06:36,960 --> 00:06:38,760 Speaker 1: like it's gonna be pushed out and that's what's happening. 141 00:06:38,839 --> 00:06:41,720 Speaker 1: Couldn't get pushed out further into the middle of next year. Yes, 142 00:06:42,120 --> 00:06:44,680 Speaker 1: do we think we can avoid it? No, so we're 143 00:06:44,720 --> 00:06:47,000 Speaker 1: you know, we think at a minimum will take out 144 00:06:47,040 --> 00:06:50,159 Speaker 1: thirty sometime in the first half of next year. And yes, 145 00:06:50,200 --> 00:06:53,640 Speaker 1: that bearcase, unfortunately is alive, and that's three thousand. In 146 00:06:53,640 --> 00:06:56,080 Speaker 1: the meantime, let's get one final call from you. What 147 00:06:56,160 --> 00:06:58,279 Speaker 1: would you buy and hold right now? Got into your rend? 148 00:06:58,520 --> 00:06:59,760 Speaker 1: What would it be? And it could be a wife 149 00:06:59,800 --> 00:07:02,800 Speaker 1: in the index she's how may Yeah, well, I think 150 00:07:02,800 --> 00:07:04,520 Speaker 1: it's bonds. I mean like we're you know, I think 151 00:07:04,520 --> 00:07:07,080 Speaker 1: that that that if you think about bear markets that 152 00:07:07,120 --> 00:07:11,040 Speaker 1: are punctuated by a either economic or earnings recession, we 153 00:07:11,040 --> 00:07:12,600 Speaker 1: think we're gonna get at least one of those, the 154 00:07:12,600 --> 00:07:15,720 Speaker 1: earnings recession, the CE. The sort of order of operations 155 00:07:15,760 --> 00:07:17,400 Speaker 1: is very clear. You want to buy a cat, you 156 00:07:17,400 --> 00:07:19,360 Speaker 1: want to be cashed first, then you want to buy 157 00:07:19,400 --> 00:07:22,120 Speaker 1: treasuries long duration, then you want to buy credit, and 158 00:07:22,160 --> 00:07:24,600 Speaker 1: you want to buy equities last. So you know, we're 159 00:07:24,600 --> 00:07:27,680 Speaker 1: already a lot already overweight cash. So front end cash 160 00:07:28,280 --> 00:07:31,760 Speaker 1: or you own back end treasuries. Now for a trade, Okay, 161 00:07:31,840 --> 00:07:34,920 Speaker 1: we think it's Nasdaq or you know, long duration stocks 162 00:07:34,960 --> 00:07:37,840 Speaker 1: will will like that move in rates lower. It's but 163 00:07:37,920 --> 00:07:40,800 Speaker 1: that's more speculative. That's for the training community, I think 164 00:07:40,840 --> 00:07:43,720 Speaker 1: for the investment community and for asset owners it's basically 165 00:07:43,760 --> 00:07:46,360 Speaker 1: bonds might just phenomenal. Thanks for your time and let's 166 00:07:46,400 --> 00:07:59,080 Speaker 1: catch up before year Rent, Mike Wilson, what we news 167 00:07:59,120 --> 00:08:01,360 Speaker 1: dive into this with Joy and Rochester? G turn effect 168 00:08:01,400 --> 00:08:04,120 Speaker 1: strategist number. I'm gonna ask one question here and how 169 00:08:04,160 --> 00:08:05,960 Speaker 1: do you not lose money? And then John's going to 170 00:08:06,040 --> 00:08:08,640 Speaker 1: pick it up and the currency dynamics you just mentioned. 171 00:08:08,720 --> 00:08:12,560 Speaker 1: Jordan Rochester, you, like every adult out there, uses a 172 00:08:12,640 --> 00:08:16,960 Speaker 1: thing like stop losses. You've been enjoying being stopped out 173 00:08:17,000 --> 00:08:20,600 Speaker 1: of trades right now explained to our audience why it's 174 00:08:20,680 --> 00:08:25,160 Speaker 1: amateur our If you don't have stops, well, I don't 175 00:08:25,240 --> 00:08:27,880 Speaker 1: enjoy being stopped out, Tom, but they're absolutely essential to 176 00:08:27,880 --> 00:08:30,520 Speaker 1: your risk management. I think with the FTX scandal that 177 00:08:30,600 --> 00:08:33,080 Speaker 1: I think the ANAMDA bragged that they didn't have stop losses, 178 00:08:33,120 --> 00:08:35,960 Speaker 1: So that's quite clear what can happen if you don't. 179 00:08:36,120 --> 00:08:38,400 Speaker 1: But look what's happening in the markets, Tom, how to 180 00:08:38,440 --> 00:08:41,280 Speaker 1: avoid losing money? Here is the markets looking at US 181 00:08:41,360 --> 00:08:44,520 Speaker 1: energy prices. They've cooled off year on year, that leads 182 00:08:44,720 --> 00:08:48,800 Speaker 1: PPI producer prices lower, that leads headline inflation with a 183 00:08:48,880 --> 00:08:52,160 Speaker 1: lag lower. So it's quite hard to see reasons why 184 00:08:52,200 --> 00:08:56,080 Speaker 1: the Fed would get suddenly more hawkish, especially after Chair 185 00:08:56,200 --> 00:08:58,960 Speaker 1: Pal's speech last night signaling that slow down to fifty 186 00:08:58,960 --> 00:09:01,440 Speaker 1: basis points. You had a green light from the Fed 187 00:09:01,559 --> 00:09:05,199 Speaker 1: chair last night to sell the dollar and by risk appetite, 188 00:09:05,240 --> 00:09:07,440 Speaker 1: and that's why you've seen the NaSTA cup over four 189 00:09:07,480 --> 00:09:12,199 Speaker 1: percent yesterday. In ffex Tom, the correlations between foreign exchange 190 00:09:12,200 --> 00:09:14,640 Speaker 1: and interest rates have really dropped off a cliff. The 191 00:09:14,679 --> 00:09:17,640 Speaker 1: most predominant fact that's driving everything right now is where 192 00:09:17,679 --> 00:09:20,800 Speaker 1: global equities are going. So I'm currently long euro dollar. 193 00:09:21,040 --> 00:09:22,719 Speaker 1: We do have a stop on that round one oh one, 194 00:09:22,760 --> 00:09:24,880 Speaker 1: one oh one seventy, but I think that's gonna go 195 00:09:24,920 --> 00:09:26,920 Speaker 1: towards one oh eight. I think that's gonna be something 196 00:09:26,920 --> 00:09:29,120 Speaker 1: that could go towards one ten in the new year 197 00:09:29,360 --> 00:09:32,439 Speaker 1: because of what's happening in China, because the low energy 198 00:09:32,480 --> 00:09:35,360 Speaker 1: prices we've seen over recent weeks in Europe as well, 199 00:09:35,600 --> 00:09:39,480 Speaker 1: helping boost European production. So that risk on sentiment that 200 00:09:39,520 --> 00:09:42,320 Speaker 1: you see in equities feeds directly to the dollar. Now 201 00:09:42,440 --> 00:09:45,600 Speaker 1: does that famous spider meme spider man meme on Twitter 202 00:09:45,840 --> 00:09:51,480 Speaker 1: where everyone points at each other blaming each other surveillance. 203 00:09:52,240 --> 00:09:55,360 Speaker 1: So as EFEX guys say it's equities driving everything, empty 204 00:09:55,360 --> 00:09:57,920 Speaker 1: guys say it's effects. Well, I just the main point 205 00:09:57,960 --> 00:09:59,720 Speaker 1: I would say is if you think that this risk 206 00:09:59,800 --> 00:10:02,880 Speaker 1: on carry on in the SMP five hundred, it means 207 00:10:02,920 --> 00:10:05,640 Speaker 1: the dollars will continue to weaken into your end and 208 00:10:05,679 --> 00:10:09,080 Speaker 1: you play that through the Euro. Where does Sterling fit in? Well, 209 00:10:09,120 --> 00:10:11,480 Speaker 1: we had short Sterling Swiss on because we thought we 210 00:10:11,520 --> 00:10:14,560 Speaker 1: needed some RV to hedge are sort of risk one position. 211 00:10:15,040 --> 00:10:18,040 Speaker 1: Sterling Swiss had been less correlated to the equity market 212 00:10:18,080 --> 00:10:20,840 Speaker 1: than of of acrosses. But you can't ignore that Swissy 213 00:10:21,000 --> 00:10:23,599 Speaker 1: is a risk off hedge. So what's happen is we 214 00:10:23,679 --> 00:10:26,080 Speaker 1: got stopped at that short Sterling Swiss, not because we 215 00:10:26,120 --> 00:10:28,560 Speaker 1: had some amazing news out of the UK, but for 216 00:10:28,640 --> 00:10:31,880 Speaker 1: two reasons. One, everybody agreed with the trade, and that 217 00:10:31,880 --> 00:10:34,280 Speaker 1: always tells you that everyone's position the same way as you. 218 00:10:34,600 --> 00:10:37,560 Speaker 1: And to risk one, Sterling always does well when the 219 00:10:37,600 --> 00:10:40,760 Speaker 1: equity markets rally. It's very rare that it doesn't. Only 220 00:10:40,840 --> 00:10:44,120 Speaker 1: during Brexit. Really did we see that change in so 221 00:10:44,480 --> 00:10:46,480 Speaker 1: for the likes of sterling, we think that you could 222 00:10:46,520 --> 00:10:49,800 Speaker 1: climb towards one by the end of next year. And 223 00:10:49,920 --> 00:10:52,920 Speaker 1: in these markets, guys, we're seeing big moves and dolly 224 00:10:52,960 --> 00:10:55,120 Speaker 1: and for example, four four big figures in just twenty 225 00:10:55,120 --> 00:10:57,480 Speaker 1: four hours. You know, one is not that big of 226 00:10:57,520 --> 00:10:59,800 Speaker 1: a push to see earlier if we have more good news. 227 00:10:59,840 --> 00:11:01,600 Speaker 1: But based on what we know right now, it's gonna 228 00:11:01,600 --> 00:11:03,559 Speaker 1: be a slow grind higher. It's hard for me to 229 00:11:03,600 --> 00:11:06,040 Speaker 1: see any of this other than a big dollar story. 230 00:11:06,080 --> 00:11:08,480 Speaker 1: And everyone else is coming along and rationalizing it in 231 00:11:08,520 --> 00:11:10,440 Speaker 1: some way or another. I mean, it was pretty much 232 00:11:10,480 --> 00:11:14,040 Speaker 1: all of the major currency pairs were really big gainers 233 00:11:14,120 --> 00:11:16,920 Speaker 1: in the past month versus the dollar, and our people 234 00:11:16,920 --> 00:11:19,520 Speaker 1: getting ahead of themselves with this idea of fading inflation 235 00:11:19,960 --> 00:11:21,840 Speaker 1: and a fair that's going to somehow respond to that. 236 00:11:21,920 --> 00:11:23,920 Speaker 1: I mean, could this really whips are in the other direction? 237 00:11:23,960 --> 00:11:26,720 Speaker 1: Based on positioning, I think it really cood li SA 238 00:11:27,200 --> 00:11:29,800 Speaker 1: But not now. That's that's problem markets. We could have 239 00:11:29,840 --> 00:11:31,439 Speaker 1: a view about what could happen in Q two or 240 00:11:31,480 --> 00:11:34,719 Speaker 1: Q three next year, but the markets don't trade that 241 00:11:34,800 --> 00:11:38,000 Speaker 1: just yet. Sometimes, and I think the risks are for 242 00:11:37,760 --> 00:11:40,720 Speaker 1: all my leading indicators for inflation in the US, they 243 00:11:40,760 --> 00:11:42,760 Speaker 1: all point down. There's none of them pointing up. I 244 00:11:42,840 --> 00:11:44,760 Speaker 1: can't really say, oh my god, watch out for this 245 00:11:44,800 --> 00:11:47,200 Speaker 1: inflation risk. Look at this chart. They're all pointing to 246 00:11:47,320 --> 00:11:51,160 Speaker 1: lower entery prices, lower inflation. Therefore, you can say CPI 247 00:11:51,240 --> 00:11:53,240 Speaker 1: has peaked, and it's quite clearly peaked. We're looking for 248 00:11:53,280 --> 00:11:55,960 Speaker 1: no point three pc on the core again month on month. 249 00:11:56,040 --> 00:11:58,599 Speaker 1: Namura was the only team, the economics team in the 250 00:11:58,679 --> 00:12:00,880 Speaker 1: US to get that number right last month. So if 251 00:12:00,880 --> 00:12:02,640 Speaker 1: they get that right again and we have another nor 252 00:12:02,720 --> 00:12:04,640 Speaker 1: point three or even lower, it's kind of hard for 253 00:12:04,679 --> 00:12:06,800 Speaker 1: the dollar to rally. But let's look to next year. 254 00:12:07,240 --> 00:12:10,280 Speaker 1: We could have in Q two China's reopen. Q three 255 00:12:10,360 --> 00:12:12,920 Speaker 1: we start to feel the impact of that in energy markets, 256 00:12:13,120 --> 00:12:16,000 Speaker 1: and the FED doesn't cut rates. Perhaps that's the risk 257 00:12:16,160 --> 00:12:18,200 Speaker 1: we think they will, But the risks are we have 258 00:12:18,240 --> 00:12:20,720 Speaker 1: a wave of energy inflation again next year in Q 259 00:12:20,960 --> 00:12:23,720 Speaker 1: three as energy markets tighten up and demand comes back, 260 00:12:24,080 --> 00:12:26,080 Speaker 1: and that could change the narrative quite a lot. So 261 00:12:26,400 --> 00:12:28,440 Speaker 1: right here, right now, I don't think we're getting ahead 262 00:12:28,440 --> 00:12:30,400 Speaker 1: of ourselves. I think the dollar can can continue to 263 00:12:30,440 --> 00:12:33,120 Speaker 1: weaken against the euro at least and that should feed 264 00:12:33,120 --> 00:12:35,720 Speaker 1: free to risk on another G ten crosses toward. One 265 00:12:35,760 --> 00:12:37,600 Speaker 1: reason why I love reading our reports is because you've 266 00:12:37,640 --> 00:12:40,160 Speaker 1: got this confidence metric and you have, you know, three 267 00:12:40,160 --> 00:12:42,160 Speaker 1: out of five, five out of five. I remember back 268 00:12:42,160 --> 00:12:43,800 Speaker 1: when you were five out of five. Now you're three 269 00:12:43,800 --> 00:12:46,520 Speaker 1: out of five. How much are you seeing a lack 270 00:12:46,559 --> 00:12:49,320 Speaker 1: of conviction or pulling back or humility in some of 271 00:12:49,360 --> 00:12:52,480 Speaker 1: the positioning that you're seeing across effects as you sort 272 00:12:52,520 --> 00:12:56,880 Speaker 1: of sort out all of these uncertainties that are lying ahead. Well, 273 00:12:56,920 --> 00:12:58,840 Speaker 1: I think there's a lot of uncertainty. What we tend 274 00:12:58,840 --> 00:13:01,920 Speaker 1: to have in this market is prices moving, make narratives. 275 00:13:02,000 --> 00:13:05,880 Speaker 1: Narratives then drive research pieces, but fundamentals ultimately drive where 276 00:13:05,880 --> 00:13:09,000 Speaker 1: prices will be. Right now, the fundamentals are that we 277 00:13:09,040 --> 00:13:11,440 Speaker 1: could perhaps see software inflation therefore week or dollar. But 278 00:13:12,000 --> 00:13:14,199 Speaker 1: we're getting to year end and a lot of accounts 279 00:13:14,320 --> 00:13:16,480 Speaker 1: were sat long dollar for most of this year, including 280 00:13:16,480 --> 00:13:18,800 Speaker 1: ourselves since February pretty much of of the year when 281 00:13:18,840 --> 00:13:21,760 Speaker 1: Russia invaded Ukraine. Why wouldn't you be along the dollars? 282 00:13:21,760 --> 00:13:25,240 Speaker 1: So that trade is still being unwound in certain sectors, 283 00:13:25,559 --> 00:13:28,480 Speaker 1: and that means perhaps everything we're seen right now is 284 00:13:28,520 --> 00:13:31,920 Speaker 1: just position reduction and no one really changing their optimism 285 00:13:31,960 --> 00:13:33,800 Speaker 1: for next year. For US, we think there's gonna be 286 00:13:33,800 --> 00:13:36,600 Speaker 1: recession risks. Usually when there's a recession the dollars as well. 287 00:13:36,920 --> 00:13:39,199 Speaker 1: The problem is we start we're starting to see signs 288 00:13:39,280 --> 00:13:42,720 Speaker 1: of early rebounds in European p M mice for example, 289 00:13:42,840 --> 00:13:45,760 Speaker 1: China's credit impulses going up. So there are fundamental reasons 290 00:13:45,800 --> 00:13:48,360 Speaker 1: why you could see this risk and be sustained. You 291 00:13:48,440 --> 00:13:51,360 Speaker 1: just need hope to prevail. And we do have risk 292 00:13:51,440 --> 00:13:53,679 Speaker 1: coming up. We've got OPEC next week, We've got the 293 00:13:53,679 --> 00:13:56,679 Speaker 1: EU oil sanctions on Monday as well. That's twenty one 294 00:13:57,280 --> 00:14:01,280 Speaker 1: of the e use oil imports from Russia being sanctioned 295 00:14:01,280 --> 00:14:03,679 Speaker 1: from Monday onwards. I'm not sure where they're going to 296 00:14:03,760 --> 00:14:06,680 Speaker 1: get that one of their total oil imports from in 297 00:14:06,720 --> 00:14:09,880 Speaker 1: the next month, So there's there are certainly risks to 298 00:14:10,040 --> 00:14:12,200 Speaker 1: this outlook. Jordan, you've got twenty seconds. Are you more 299 00:14:12,240 --> 00:14:14,920 Speaker 1: confident about your europe dollar call or England getting past 300 00:14:14,920 --> 00:14:18,560 Speaker 1: Senegale later this weekend? I'm pretty comfroment the England team. 301 00:14:18,920 --> 00:14:21,040 Speaker 1: I mean, we've had the US Gay game. USA game 302 00:14:21,080 --> 00:14:22,960 Speaker 1: was a bit boring, was like watching paint dry, But 303 00:14:23,040 --> 00:14:26,560 Speaker 1: what a fantastic Wales game and hopefully they'll bring that 304 00:14:26,600 --> 00:14:29,760 Speaker 1: back to the pitch. Should Jack Grayler should be playing more? 305 00:14:29,760 --> 00:14:32,160 Speaker 1: You're asking a Birmingham boy where the Jack really should 306 00:14:32,160 --> 00:14:34,440 Speaker 1: be playing more? I just already know what Jordan's going 307 00:14:34,520 --> 00:14:38,120 Speaker 1: to say. I'm happy with him playing every game, at 308 00:14:38,160 --> 00:14:40,640 Speaker 1: least in the second half. He gets a showing you know, 309 00:14:40,640 --> 00:14:41,960 Speaker 1: you've got one of the goals as well in the 310 00:14:42,000 --> 00:14:44,560 Speaker 1: first game of the World Cup. So this is fantastic 311 00:14:44,600 --> 00:14:47,000 Speaker 1: for Birmingham. And it's not just greedish. Now I've got 312 00:14:46,960 --> 00:14:49,720 Speaker 1: to betting into He's grillish is on the urge of Gareth. 313 00:14:49,840 --> 00:14:51,480 Speaker 1: I mean, he gets on the field and things happen. 314 00:14:51,600 --> 00:14:56,800 Speaker 1: He's great, a really classy player, Jordan Ranchester. During you 315 00:14:57,000 --> 00:15:00,400 Speaker 1: and World Cup, we're breaking it down city to city 316 00:15:00,520 --> 00:15:02,800 Speaker 1: where these players come from. Tim, You'll get into another level, 317 00:15:03,640 --> 00:15:06,880 Speaker 1: another level, thank you. I'm just doing it because of 318 00:15:06,880 --> 00:15:14,440 Speaker 1: our love. It's so deep. What we do every day 319 00:15:14,480 --> 00:15:17,560 Speaker 1: is our guests, and it starts and ends with the 320 00:15:17,640 --> 00:15:21,200 Speaker 1: research capabilities of vincent Reinhart, Assistant chair in green Span 321 00:15:21,680 --> 00:15:24,360 Speaker 1: over many many years at the Federal Drive US Melon 322 00:15:24,480 --> 00:15:29,120 Speaker 1: Holding Court and important writings in the pandemic about the 323 00:15:29,160 --> 00:15:32,520 Speaker 1: state of our economy, vince Reinhart, just a general question 324 00:15:32,560 --> 00:15:35,800 Speaker 1: of a two hour conversation. Do you buy the idea 325 00:15:35,840 --> 00:15:38,960 Speaker 1: we're heading for recession? In your years with green Span, 326 00:15:39,040 --> 00:15:43,720 Speaker 1: were you able to predict a recession? Nobody really predicts 327 00:15:43,720 --> 00:15:47,640 Speaker 1: a recession. What you can say is there's an elevated 328 00:15:47,920 --> 00:15:50,120 Speaker 1: chance of it, just like you could say you have 329 00:15:50,200 --> 00:15:53,520 Speaker 1: an elevated chance of infection if you go into bad 330 00:15:53,600 --> 00:15:57,840 Speaker 1: places without a mask. Uh. There is an extremely elevated 331 00:15:57,920 --> 00:16:01,320 Speaker 1: chance of recession. Uh. And if you had to place 332 00:16:01,360 --> 00:16:05,520 Speaker 1: your money, I bet that within twelve months the economy 333 00:16:05,600 --> 00:16:08,120 Speaker 1: is in downturn. I look at this vents, and then 334 00:16:08,120 --> 00:16:10,000 Speaker 1: I look at the parlor game of the FED, which 335 00:16:10,040 --> 00:16:12,760 Speaker 1: is now different than when you were holding court at 336 00:16:12,760 --> 00:16:15,840 Speaker 1: the Echos building. And the basic idea here is there 337 00:16:15,880 --> 00:16:19,760 Speaker 1: gaming out a rate movement higher and then we are 338 00:16:19,880 --> 00:16:23,040 Speaker 1: quote unquote going to figure out to pivot and guess 339 00:16:23,120 --> 00:16:25,880 Speaker 1: when that occurs. Have you ever seen anything like this 340 00:16:26,320 --> 00:16:31,080 Speaker 1: or is this mound territory? This? This is old style 341 00:16:31,240 --> 00:16:36,840 Speaker 1: monetary policy right now. Monetary policy is hard but simple. 342 00:16:37,240 --> 00:16:39,760 Speaker 1: It's hard in the sense they have to inflict point 343 00:16:39,880 --> 00:16:43,840 Speaker 1: pain on the economy to get inflation down. It's simple 344 00:16:43,920 --> 00:16:47,400 Speaker 1: because the strategy is, if you don't know what the 345 00:16:47,640 --> 00:16:51,600 Speaker 1: right neutral funds rate is, put it at a level 346 00:16:51,720 --> 00:16:56,280 Speaker 1: you sure is restrictive, and then keep it there until 347 00:16:56,360 --> 00:17:00,960 Speaker 1: you have demonstrable evidence that in flaition is going back 348 00:17:01,000 --> 00:17:03,800 Speaker 1: to goal. So if you're not exactly sure how to 349 00:17:03,880 --> 00:17:07,600 Speaker 1: calibrate policy, don't put it at a plateau next year 350 00:17:07,920 --> 00:17:11,040 Speaker 1: and just wait. That's what cheer pal poll is yesterday? 351 00:17:11,240 --> 00:17:13,080 Speaker 1: Is that what he told us yesterday? Incidant, did you 352 00:17:13,119 --> 00:17:15,920 Speaker 1: hear perhaps a little bit more of a concession around 353 00:17:15,960 --> 00:17:19,159 Speaker 1: perhaps moderating their stance in order to avoid a hard landing. 354 00:17:20,320 --> 00:17:23,760 Speaker 1: I don't get how most of the headlines came out 355 00:17:23,800 --> 00:17:29,840 Speaker 1: of that UH remarks. Yesterday afternoon, he repeated his press 356 00:17:29,920 --> 00:17:35,800 Speaker 1: conference UH characterization, you were raising rates till we get 357 00:17:35,840 --> 00:17:37,720 Speaker 1: them to a level, and then we're going to keep 358 00:17:37,760 --> 00:17:42,000 Speaker 1: them there. He dismissed a lot of data with regard. 359 00:17:42,119 --> 00:17:43,960 Speaker 1: I don't don't want to be on the other side 360 00:17:43,960 --> 00:17:48,399 Speaker 1: of Mike's argument, but I think I have to be. Yesterday, 361 00:17:48,480 --> 00:17:54,480 Speaker 1: Chair Pal said inflation moves around sometimes, UH, after good numbers, 362 00:17:54,560 --> 00:17:57,240 Speaker 1: bad numbers come out, so I think that they would 363 00:17:57,280 --> 00:18:01,639 Speaker 1: down down Wait the pce ace part of this, and 364 00:18:01,680 --> 00:18:04,160 Speaker 1: then what he was saying was we've got to keep 365 00:18:04,240 --> 00:18:08,600 Speaker 1: the pace of aggregate demand below that a trend, so 366 00:18:08,640 --> 00:18:11,080 Speaker 1: he should be worried about the spending part about it. 367 00:18:11,160 --> 00:18:13,719 Speaker 1: This is not a good morning for the Fed. Well vincent. 368 00:18:13,840 --> 00:18:15,800 Speaker 1: This is really the key point. A lot of people 369 00:18:15,840 --> 00:18:18,919 Speaker 1: are saying that there is a downward shift in inflation 370 00:18:18,960 --> 00:18:21,840 Speaker 1: and it's coming at a pace that's surprising analysts that 371 00:18:21,920 --> 00:18:23,920 Speaker 1: this is good news, is going to allow the Fed 372 00:18:24,240 --> 00:18:25,800 Speaker 1: to move away from some of the rate hikes and 373 00:18:25,840 --> 00:18:28,480 Speaker 1: even cut rights student than previously expected. Do you think 374 00:18:28,760 --> 00:18:31,400 Speaker 1: people are getting ahead of themselves, that really those inputs 375 00:18:31,400 --> 00:18:33,960 Speaker 1: are not declining quickly enough and that they could even 376 00:18:34,000 --> 00:18:37,000 Speaker 1: re accelerate basis some of the rollover effects in areas, 377 00:18:37,040 --> 00:18:41,359 Speaker 1: For example, I used cars, events always look bigger in 378 00:18:41,400 --> 00:18:44,600 Speaker 1: the rear view mirror than they really are. I think 379 00:18:44,600 --> 00:18:48,679 Speaker 1: there is a tendency to over over overweight this incoming information. 380 00:18:48,800 --> 00:18:51,200 Speaker 1: Chare Pal said that yesterday. By the way, he said, 381 00:18:51,240 --> 00:18:56,359 Speaker 1: inflation ballattle. Sometimes after good readings, you get bad readings. 382 00:18:56,880 --> 00:19:01,560 Speaker 1: He was basically telling us not to be so stressed 383 00:19:01,560 --> 00:19:04,520 Speaker 1: about it. Do I believe inflation is off its peak? 384 00:19:04,720 --> 00:19:10,480 Speaker 1: Absolutely goods price inflation has come off the boil because 385 00:19:10,640 --> 00:19:15,640 Speaker 1: supply chains have been been improving and market economies work 386 00:19:15,760 --> 00:19:19,960 Speaker 1: by bringing resources into sectors that are overheated. But it's 387 00:19:20,000 --> 00:19:23,680 Speaker 1: spill over to service inflation. That's what you gotta worry about. 388 00:19:23,760 --> 00:19:28,520 Speaker 1: That's what pals worried about, the durable part, part of 389 00:19:28,640 --> 00:19:32,280 Speaker 1: inflation that's still above the FED goal. Vincent reinhard Olivia, 390 00:19:32,359 --> 00:19:37,560 Speaker 1: Blanchard reaffirmed higher level of inflation we can be comfortable with. 391 00:19:37,720 --> 00:19:40,359 Speaker 1: He went from four percent in the crisis of oh 392 00:19:40,440 --> 00:19:43,480 Speaker 1: eight oh nine down to something more like a three 393 00:19:43,520 --> 00:19:48,400 Speaker 1: percent level. Is the new two percent without going into 394 00:19:48,480 --> 00:19:51,679 Speaker 1: the details of the Blanchard essay and the ft, is 395 00:19:51,720 --> 00:19:54,880 Speaker 1: he onto something here which we are going to rationalize 396 00:19:54,880 --> 00:19:59,400 Speaker 1: our way away from the two percent level. So yes 397 00:19:59,440 --> 00:20:02,320 Speaker 1: and no. The the s part is back in the 398 00:20:02,359 --> 00:20:06,359 Speaker 1: mid nineties when central banks settled on a two percent 399 00:20:06,440 --> 00:20:10,040 Speaker 1: inflation goal, it's not like they had a great conversation 400 00:20:10,240 --> 00:20:13,240 Speaker 1: about the costs and benefits of that long term goal. 401 00:20:13,560 --> 00:20:16,480 Speaker 1: And we know more about problems with the zero lower 402 00:20:16,520 --> 00:20:20,520 Speaker 1: abound and so we should have a serious discussion of 403 00:20:20,640 --> 00:20:23,560 Speaker 1: what the right goal is In the United States. It's 404 00:20:23,560 --> 00:20:26,040 Speaker 1: got to inconclude the Congress by the way, because it's 405 00:20:26,040 --> 00:20:30,440 Speaker 1: a Congress that's specifies price stability. That's my note part. 406 00:20:30,600 --> 00:20:32,720 Speaker 1: I wouldn't want to have a conversation with the Congress 407 00:20:32,760 --> 00:20:36,720 Speaker 1: about the federal reserves goals most times, certainly not in 408 00:20:36,800 --> 00:20:41,880 Speaker 1: the next in the next two years. Moreover, it's one 409 00:20:41,960 --> 00:20:45,800 Speaker 1: thing to redefine the goal when you're succeeding. It's another 410 00:20:46,000 --> 00:20:51,160 Speaker 1: thing to redefine the goal when you're failing. That that's 411 00:20:51,280 --> 00:20:55,560 Speaker 1: just base drift that you just can't do. It said, 412 00:20:56,520 --> 00:21:10,560 Speaker 1: that was really wonderful. Thank you, Meta net Reveala Ferokie 413 00:21:10,640 --> 00:21:13,639 Speaker 1: joins US now Chief US Economist with Carl Weinberg at 414 00:21:13,680 --> 00:21:17,760 Speaker 1: High Frequency Economics. Reveala, what is the distinction of what 415 00:21:17,840 --> 00:21:21,919 Speaker 1: we're gonna hear Friday tomorrow at eight thirty What matters 416 00:21:21,960 --> 00:21:25,520 Speaker 1: to you and Carl? Good morning, Thanks for having me. 417 00:21:26,240 --> 00:21:29,080 Speaker 1: What we're really looking at beyond you know the usual 418 00:21:29,680 --> 00:21:32,760 Speaker 1: you know the headline job numbers, at the participation rate, 419 00:21:32,760 --> 00:21:35,359 Speaker 1: its wages, right. The chair Poud made it very clear 420 00:21:35,440 --> 00:21:39,240 Speaker 1: yesterday what they're focusing on in terms of the inflation uh, 421 00:21:39,320 --> 00:21:41,560 Speaker 1: you know, dynamics, and that is what we're going to 422 00:21:41,600 --> 00:21:44,440 Speaker 1: be looking at. We're looking for a very small deceleration 423 00:21:44,560 --> 00:21:49,040 Speaker 1: but really very far above where the pre pandemic trend was, 424 00:21:49,160 --> 00:21:51,399 Speaker 1: very far above with what the FED is saying is 425 00:21:51,440 --> 00:21:54,479 Speaker 1: consistent with the two percent inflation target. So you know, 426 00:21:55,000 --> 00:21:57,440 Speaker 1: just definitely is going to be something we're focusing on, 427 00:21:57,840 --> 00:22:00,119 Speaker 1: but not something that we're going to see, uh, you know, 428 00:22:00,240 --> 00:22:03,480 Speaker 1: imminent imminent improvement on either. I want to dovetail with 429 00:22:03,600 --> 00:22:06,840 Speaker 1: the academic site. Guys, it's out there Rebelia and this 430 00:22:06,920 --> 00:22:10,639 Speaker 1: is the academic saying maybe the labor partition just like 431 00:22:10,800 --> 00:22:14,840 Speaker 1: labor participation rate is not accurate because of the pandemic 432 00:22:15,200 --> 00:22:18,840 Speaker 1: and older people retiring. Is this good math that we 433 00:22:18,920 --> 00:22:24,720 Speaker 1: see Friday? I mean, we've seen that this adjustment right 434 00:22:24,760 --> 00:22:28,760 Speaker 1: post pandemic where you've seen access retirements. So we really 435 00:22:28,800 --> 00:22:33,000 Speaker 1: shouldn't be looking for the participation rate to improve too much. 436 00:22:33,520 --> 00:22:36,040 Speaker 1: But if you remember, you know, before the pandemic, when 437 00:22:36,080 --> 00:22:39,199 Speaker 1: the labor market was strong, job growth was strong, but 438 00:22:39,359 --> 00:22:42,639 Speaker 1: people were coming back into the labor market. So what 439 00:22:42,800 --> 00:22:45,360 Speaker 1: is the dynamic here? Is growth going to slow off 440 00:22:45,640 --> 00:22:48,520 Speaker 1: slow enough that people will want to get back into 441 00:22:48,560 --> 00:22:51,960 Speaker 1: the labor market. Are their savings going to diminish enough? Uh, 442 00:22:52,000 --> 00:22:54,879 Speaker 1: you know, is the cushion from uh you know the 443 00:22:54,960 --> 00:22:58,720 Speaker 1: income support that they've had, is that going to dissipate 444 00:22:58,800 --> 00:23:00,359 Speaker 1: and they are going to be motivate do to come 445 00:23:00,359 --> 00:23:03,199 Speaker 1: back into the labor market certainly a possibility, not our 446 00:23:03,240 --> 00:23:05,680 Speaker 1: base case right now, not the first blase case certainly. 447 00:23:05,960 --> 00:23:08,959 Speaker 1: You know, if you heard pout yesterday, that's not what 448 00:23:09,000 --> 00:23:13,320 Speaker 1: they are expecting to see. So I think those dynamics 449 00:23:13,359 --> 00:23:16,800 Speaker 1: that that both pandemic distortion is probably going to last 450 00:23:16,800 --> 00:23:19,320 Speaker 1: for some time. Really, you mentioned fed cher J. Powey 451 00:23:19,400 --> 00:23:21,600 Speaker 1: in his speech yesterday. Some people, a lot of people 452 00:23:21,600 --> 00:23:24,440 Speaker 1: thought that it was more devish than expected. At least 453 00:23:24,440 --> 00:23:27,119 Speaker 1: he didn't come out with a hawkish rebud of some 454 00:23:27,280 --> 00:23:30,119 Speaker 1: of the gains that we've seen in the equity markets. However, 455 00:23:30,480 --> 00:23:33,720 Speaker 1: to your point, he talked about the labor market tightness 456 00:23:33,720 --> 00:23:36,040 Speaker 1: and how significant of a concern this is for him. 457 00:23:36,400 --> 00:23:38,800 Speaker 1: How much geth view that that is causing the FED 458 00:23:38,840 --> 00:23:41,199 Speaker 1: to raise rates higher than the market is currently pricing. 459 00:23:41,200 --> 00:23:45,679 Speaker 1: And even after yesterday's rally, even after yesterday's perhaps shift 460 00:23:45,800 --> 00:23:49,320 Speaker 1: slightly in tone from J Power. So you know, what 461 00:23:49,440 --> 00:23:52,960 Speaker 1: I've heard from what he said yesterday is that higher 462 00:23:53,000 --> 00:23:55,960 Speaker 1: for longer, right, rates have to rise further. They don't 463 00:23:55,960 --> 00:23:58,760 Speaker 1: really know how restrictive because they don't really know where 464 00:23:58,840 --> 00:24:02,879 Speaker 1: that level is. But certainly we're going to move higher, 465 00:24:02,960 --> 00:24:05,159 Speaker 1: you know, our base cases, they're going to go fifty, 466 00:24:05,200 --> 00:24:08,600 Speaker 1: then another fifty in the first quarter, top out around five. 467 00:24:09,400 --> 00:24:12,520 Speaker 1: But if the labor market does not start responding our 468 00:24:12,520 --> 00:24:15,080 Speaker 1: base cases, it is right, I mean, five percentage points 469 00:24:15,080 --> 00:24:18,800 Speaker 1: of rate heights. We don't see how the economy doesn't 470 00:24:18,840 --> 00:24:21,200 Speaker 1: respond to that. But if they, we don't see the 471 00:24:21,240 --> 00:24:24,080 Speaker 1: type of improvement we need to see, and we don't 472 00:24:24,080 --> 00:24:27,960 Speaker 1: see sustained easing ob wage pressures off of these levels, 473 00:24:28,000 --> 00:24:30,040 Speaker 1: you know, four point seven percent to maybe three and 474 00:24:30,040 --> 00:24:33,920 Speaker 1: a half is then yes, certainly the there's this risk 475 00:24:34,000 --> 00:24:36,360 Speaker 1: that rates move higher. But I think what markets really 476 00:24:36,400 --> 00:24:38,560 Speaker 1: need to understand is that the Fed does not want 477 00:24:38,600 --> 00:24:41,880 Speaker 1: to overtighten now because then crash the economy and then 478 00:24:41,880 --> 00:24:44,040 Speaker 1: come out on the other side and easy rates. So 479 00:24:44,320 --> 00:24:47,040 Speaker 1: they're going to go gradually. They're going to watch what's 480 00:24:47,080 --> 00:24:49,479 Speaker 1: happening in you know, in response to what they've already 481 00:24:49,520 --> 00:24:51,960 Speaker 1: done so far, and then they're going to see how 482 00:24:52,000 --> 00:24:54,760 Speaker 1: long they need to stay there. We think that you know, 483 00:24:54,840 --> 00:24:58,159 Speaker 1: they reach be great whatever that rate is in the 484 00:24:58,200 --> 00:25:00,200 Speaker 1: first quarter, and then they stay there for the rest 485 00:25:00,200 --> 00:25:03,800 Speaker 1: of the year at least to see that sustained, you know, 486 00:25:04,119 --> 00:25:07,680 Speaker 1: improvement in inflation from slightly restrictive policy stands. People would 487 00:25:07,680 --> 00:25:09,960 Speaker 1: push back, including Ben Laidler, who says that if you 488 00:25:09,960 --> 00:25:13,479 Speaker 1: look around, there is disinflation everywhere. Is there any area 489 00:25:13,800 --> 00:25:16,200 Speaker 1: or that's not true? You're starting to see inflation starting 490 00:25:16,240 --> 00:25:20,320 Speaker 1: to re accelerate. Well, I mean what we've seen is 491 00:25:20,640 --> 00:25:24,800 Speaker 1: inflation readings right now are still not that far off peaks. 492 00:25:24,880 --> 00:25:27,760 Speaker 1: I mean, seven point seven on the CPI down from 493 00:25:27,800 --> 00:25:31,200 Speaker 1: nine pound point one percent, quite substantial, but still way 494 00:25:31,240 --> 00:25:35,159 Speaker 1: above target for pc accelerating, they're going to see a 495 00:25:35,280 --> 00:25:39,040 Speaker 1: slight we expect to see a slightly sederation, but these 496 00:25:39,040 --> 00:25:42,439 Speaker 1: are not levels that are consistent with you know, what 497 00:25:42,520 --> 00:25:45,600 Speaker 1: the FIT wants to see. Yes, there are signs of disinflation, 498 00:25:45,680 --> 00:25:48,040 Speaker 1: but on the good sides of this, inflation is still 499 00:25:48,119 --> 00:25:52,119 Speaker 1: very sticky. What Pow talked about in particular yesterday was 500 00:25:52,240 --> 00:25:55,479 Speaker 1: that core services ex housing and that you know has 501 00:25:55,520 --> 00:25:58,960 Speaker 1: a strong wage component to it. So adjustment in the 502 00:25:59,040 --> 00:26:01,679 Speaker 1: labor market rebound, don't think it is necessary so that 503 00:26:01,840 --> 00:26:05,120 Speaker 1: those which pressures can come under control, bitch will give 504 00:26:05,160 --> 00:26:07,920 Speaker 1: them a little bit more room, you know, to sort 505 00:26:07,960 --> 00:26:10,800 Speaker 1: of justice see where we're going from here. For a 506 00:26:10,840 --> 00:26:12,960 Speaker 1: man who set that wasn't spice for nuance at the 507 00:26:13,040 --> 00:26:14,560 Speaker 1: last news conference, I have to say there was a 508 00:26:14,600 --> 00:26:16,720 Speaker 1: lot of nuance yesterday had And why thought I didn't 509 00:26:16,720 --> 00:26:19,800 Speaker 1: anticipate rebate a fantastic as always rebate Ferriki that of 510 00:26:19,880 --> 00:26:27,320 Speaker 1: high frequency economics. Somebody that was there when Mao took 511 00:26:27,359 --> 00:26:31,720 Speaker 1: over China was Robert Dahl. He's chief investment officer at Crossbark. 512 00:26:31,760 --> 00:26:33,960 Speaker 1: He's been doing this a few years along with me, 513 00:26:34,040 --> 00:26:37,000 Speaker 1: and we're thrilled. He joins us in the studio. Uh, 514 00:26:37,160 --> 00:26:39,480 Speaker 1: this morning, you got a little bit in your note there. 515 00:26:39,560 --> 00:26:42,920 Speaker 1: For the first time in fifty years, we've been this gloomy. 516 00:26:43,000 --> 00:26:45,760 Speaker 1: We've had this much gloom out there. And that's how 517 00:26:45,800 --> 00:26:50,119 Speaker 1: I make the joke back. But part of that is 518 00:26:50,200 --> 00:26:53,760 Speaker 1: years in my history is when inflation moves, it moves 519 00:26:53,840 --> 00:26:56,960 Speaker 1: suddenly to disinflation. Is that where we are right now? 520 00:26:57,200 --> 00:27:00,480 Speaker 1: I don't think we're quite there yet, Tom, unless you're 521 00:27:00,480 --> 00:27:05,280 Speaker 1: going to call acceptable or disinflation three or four percent um. 522 00:27:05,320 --> 00:27:07,480 Speaker 1: I think we can get there with what we've done, 523 00:27:07,480 --> 00:27:09,560 Speaker 1: but not to nowhere close to two Okay, But not 524 00:27:09,640 --> 00:27:12,200 Speaker 1: to two, but then we're there, and that means I've 525 00:27:12,200 --> 00:27:15,960 Speaker 1: got nominal g d P which helps corporate revenues. Yes, 526 00:27:16,200 --> 00:27:19,880 Speaker 1: who are the survivors of a better corporate revenue? Given 527 00:27:19,920 --> 00:27:22,639 Speaker 1: an inflation milieu that you and I are the only 528 00:27:22,680 --> 00:27:27,320 Speaker 1: two that have ever lived. Given that we want some 529 00:27:27,680 --> 00:27:30,440 Speaker 1: pricing power, you've got to go to places where people 530 00:27:30,520 --> 00:27:33,280 Speaker 1: can raise prices. We haven't been in that environment in 531 00:27:33,320 --> 00:27:36,200 Speaker 1: a long long time. And I'm gonna tell Lisa You're 532 00:27:36,200 --> 00:27:37,960 Speaker 1: gonna love this. I used to go up and down 533 00:27:37,960 --> 00:27:41,800 Speaker 1: the elevator in Boston with the giant Philip Curay, who 534 00:27:41,800 --> 00:27:45,560 Speaker 1: Bob and I worship, did I think four? And Mr 535 00:27:45,640 --> 00:27:48,640 Speaker 1: Kuray would and it is Mr Kay. Mr Kay would 536 00:27:48,640 --> 00:27:51,919 Speaker 1: talk about the bright lights of inflation. That's where we 537 00:27:51,960 --> 00:27:54,399 Speaker 1: are now. So if we're gonna talk history, let's talk history, 538 00:27:54,520 --> 00:27:57,000 Speaker 1: and let's talk a half a century ago, which was 539 00:27:57,040 --> 00:27:59,679 Speaker 1: the last time that we saw three consecutive quarters of 540 00:27:59,680 --> 00:28:03,760 Speaker 1: stock and bonds losing value together? What does history say 541 00:28:03,800 --> 00:28:06,720 Speaker 1: and is it instructive in terms of what that means 542 00:28:07,040 --> 00:28:10,159 Speaker 1: going forward? Well, first of all, the reason that happened 543 00:28:10,200 --> 00:28:13,600 Speaker 1: was the rapid adjustment. We had essentially zero inflation and 544 00:28:13,720 --> 00:28:16,879 Speaker 1: zero interest rates not to exaggerate by much. Then all 545 00:28:16,920 --> 00:28:19,919 Speaker 1: of a sudden it fits, Oh it's not transitory, and 546 00:28:19,960 --> 00:28:21,680 Speaker 1: we got to get moving. And so we've had the 547 00:28:21,720 --> 00:28:25,280 Speaker 1: most rapid increase in FED funds, and you guys said 548 00:28:25,320 --> 00:28:30,040 Speaker 1: it a few minutes ago. The lag is impossible to 549 00:28:30,119 --> 00:28:33,719 Speaker 1: predict about the impact of that, and so we're going 550 00:28:33,760 --> 00:28:36,320 Speaker 1: to have a slowing economy and that will help bring 551 00:28:36,359 --> 00:28:39,160 Speaker 1: the inflation right down. The Fed's got it prey that 552 00:28:39,240 --> 00:28:42,560 Speaker 1: the labor market quiets down. So one guest after another 553 00:28:42,680 --> 00:28:46,160 Speaker 1: has talked about flooding into treasuries, flooding into duration. Even 554 00:28:46,160 --> 00:28:48,400 Speaker 1: Michaelson and Morgan Stanley comes out, what would you be 555 00:28:48,480 --> 00:28:51,320 Speaker 1: buying the equity strategistic bonds? Right? I mean how much 556 00:28:51,400 --> 00:28:53,680 Speaker 1: do you lean into that versus step away and say, 557 00:28:53,720 --> 00:28:58,240 Speaker 1: maybe people are overestimating how much inflation can drop. I think, 558 00:28:58,360 --> 00:29:01,720 Speaker 1: Lisa that um owning some bonds is just fine. It's 559 00:29:01,840 --> 00:29:03,680 Speaker 1: zero at the beginning of the year. You didn't want 560 00:29:03,680 --> 00:29:07,840 Speaker 1: any When treasuries approach four on the tenure, we say 561 00:29:07,920 --> 00:29:09,920 Speaker 1: you've gotta be nibbling away bonds. And we're not that 562 00:29:10,000 --> 00:29:13,800 Speaker 1: far from that now. So the old sixty forty is dead. 563 00:29:13,840 --> 00:29:16,080 Speaker 1: That we all preached a year ago. Not true anymore. 564 00:29:16,360 --> 00:29:19,160 Speaker 1: Bonds have a place in the portfolio, especially if you 565 00:29:19,200 --> 00:29:22,040 Speaker 1: believe inflation is coming down to three or four. Forget 566 00:29:22,040 --> 00:29:23,920 Speaker 1: the two for the moment, my theme for next year. 567 00:29:23,960 --> 00:29:27,040 Speaker 1: You're the only one breathing and remembers, especially coming up 568 00:29:27,120 --> 00:29:32,840 Speaker 1: of years ago. Remember what is this to Bob and 569 00:29:32,840 --> 00:29:35,720 Speaker 1: I remember whenever every wise guy in Manhattan said we 570 00:29:35,760 --> 00:29:38,120 Speaker 1: got to roll up the chemical industry, remember this, we 571 00:29:38,160 --> 00:29:40,720 Speaker 1: all want mental for eighteen months and turned it into 572 00:29:40,760 --> 00:29:43,800 Speaker 1: three companies or whatever. I'm talking about the great zombie 573 00:29:43,840 --> 00:29:46,920 Speaker 1: roll up next year, where we de market between profit 574 00:29:47,000 --> 00:29:51,440 Speaker 1: making and cash flow making companies and everybody else. Do 575 00:29:51,440 --> 00:29:53,680 Speaker 1: you agree with that that there's going to be a demarcation? 576 00:29:54,000 --> 00:29:58,520 Speaker 1: So agree? And what that means more broadly, as fundamentals matter. Again, 577 00:29:58,920 --> 00:30:01,880 Speaker 1: when interest rates are zero row, they're artificially low, and 578 00:30:01,960 --> 00:30:04,840 Speaker 1: you can't really say that the good guy wins from 579 00:30:04,840 --> 00:30:09,320 Speaker 1: a stockbright standpoint. How did Sears last so long? The 580 00:30:09,360 --> 00:30:12,160 Speaker 1: answer is because they were given artificially low interest rates 581 00:30:12,200 --> 00:30:15,200 Speaker 1: and that was tough for places like Target. Now in 582 00:30:15,280 --> 00:30:18,120 Speaker 1: this environment, the Targets will do well and the Seares 583 00:30:18,400 --> 00:30:23,640 Speaker 1: will struggle. Explain to people that under duress corporations adjust. 584 00:30:23,880 --> 00:30:27,440 Speaker 1: How does that process actually happen. Yeah, it's slow because 585 00:30:27,440 --> 00:30:32,040 Speaker 1: they've been so used to zero inflation and exactly and 586 00:30:32,080 --> 00:30:34,680 Speaker 1: got used to operating in that sort of environment. This 587 00:30:34,720 --> 00:30:37,160 Speaker 1: is a different world now, and we come back to 588 00:30:37,400 --> 00:30:40,880 Speaker 1: can you raise your price? Can you attract customers and 589 00:30:41,000 --> 00:30:44,280 Speaker 1: keep them as your price rises? Look look at what's 590 00:30:44,280 --> 00:30:47,440 Speaker 1: happening in the steel stocks, for example. You mentioned chemicals, 591 00:30:47,480 --> 00:30:52,040 Speaker 1: early steeler poking their head up, and this is telling 592 00:30:52,120 --> 00:30:54,960 Speaker 1: us where an environment where inflation is not going back 593 00:30:54,960 --> 00:30:57,760 Speaker 1: to zero. I don't think the US steel is still x. 594 00:30:57,840 --> 00:31:01,120 Speaker 1: I haven't looked at that year. People are talking. People 595 00:31:01,120 --> 00:31:04,400 Speaker 1: are talking about how the real economy is getting its revenge. 596 00:31:04,440 --> 00:31:06,760 Speaker 1: That has been the theme for two and it's rearing 597 00:31:06,760 --> 00:31:09,080 Speaker 1: its head, and that's why you're seeing the inflation under 598 00:31:09,560 --> 00:31:13,880 Speaker 1: underpinning some of these commodity sectors. How much does that 599 00:31:13,960 --> 00:31:15,920 Speaker 1: mean that the other areas that got bit up and 600 00:31:16,000 --> 00:31:19,520 Speaker 1: thinking big tech in particular can't really come back in 601 00:31:19,560 --> 00:31:22,800 Speaker 1: the same kind of way and won't necessarily drive indexes 602 00:31:22,840 --> 00:31:25,200 Speaker 1: to the same extent. I think you're onto it. We've 603 00:31:25,240 --> 00:31:27,920 Speaker 1: obviously seen it this this past year, but I think 604 00:31:27,960 --> 00:31:30,520 Speaker 1: going forward, going to the same sort of issues. If 605 00:31:30,520 --> 00:31:33,840 Speaker 1: your company that is operating only on unit growth, your 606 00:31:33,880 --> 00:31:36,400 Speaker 1: unit growth going to be really strong to get you through. 607 00:31:36,920 --> 00:31:39,560 Speaker 1: And tech is mostly unit growth, I think they will 608 00:31:39,600 --> 00:31:41,880 Speaker 1: be a lagging sector. Again, what are your clients? What 609 00:31:41,920 --> 00:31:43,800 Speaker 1: are you cross mark out of Houston and you know 610 00:31:44,280 --> 00:31:46,560 Speaker 1: a nationwide and all that? Are they loaded up their 611 00:31:46,560 --> 00:31:49,800 Speaker 1: eyeballs in cash? What are they actually doing with their money? Yeah? 612 00:31:49,800 --> 00:31:52,160 Speaker 1: So people, people are asking a lot of questions. Too 613 00:31:52,200 --> 00:31:56,360 Speaker 1: many people are frozen, um, but they're making investments. You 614 00:31:56,360 --> 00:31:58,080 Speaker 1: have to hold their hand and draw them to the 615 00:31:58,120 --> 00:32:01,960 Speaker 1: horst of the water and saying let go get something 616 00:32:02,000 --> 00:32:05,520 Speaker 1: like that. It's something like that. But they're they're they're 617 00:32:05,600 --> 00:32:08,680 Speaker 1: they're they're doing something. They're doing more get educated and 618 00:32:08,720 --> 00:32:11,240 Speaker 1: buying some alternatives, Like we have an equity market neutral 619 00:32:11,280 --> 00:32:15,160 Speaker 1: product that's getting some attention. You have an equity market 620 00:32:15,160 --> 00:32:17,760 Speaker 1: neutral product. Yes, Bob do all the great Optimus, Thank 621 00:32:17,800 --> 00:32:21,640 Speaker 1: you so much with cross market all the best global investments. 622 00:32:21,920 --> 00:32:25,680 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 623 00:32:25,800 --> 00:32:29,120 Speaker 1: us live weekdays from seven to ten am Eastern on 624 00:32:29,240 --> 00:32:33,480 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 625 00:32:33,560 --> 00:32:38,440 Speaker 1: to nine am for insight from the best in economics, finance, investment, 626 00:32:38,600 --> 00:32:43,600 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 627 00:32:43,680 --> 00:32:47,520 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 628 00:32:47,640 --> 00:32:51,760 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg.