WEBVTT - SURVpodcast_12-01-22_1 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa A. Brawmowitz. Daily we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:22.400 international relations. To find Bloomberg Surveillance on Apple podcast, SoundCloud, 0:00:22.800 --> 0:00:26.280 Bloomberg dot Com, and of course, on the Bloomberg terminal. 0:00:29.200 --> 0:00:32.560 He has been the big winner of the last eighteen months. 0:00:32.760 --> 0:00:37.120 Michael Wilson, chief US equity strategist at Morgan Stanley, was 0:00:37.240 --> 0:00:41.200 out front with a cute week to week talk about 0:00:41.200 --> 0:00:44.440 a bear market, and then up in June, down again, 0:00:44.960 --> 0:00:47.840 and now up again. An important conversation, John, why don't 0:00:47.840 --> 0:00:49.280 you lead off with Mr Wilson? I think we could 0:00:49.280 --> 0:00:51.000 have got to mix Chrystal Bull Mike. I think the 0:00:51.000 --> 0:00:52.480 code of the year wasn't the code of the start 0:00:52.479 --> 0:00:55.200 of the year. It was that tactical rally, that buddish 0:00:55.240 --> 0:00:57.360 cool you made about a month or sub ago, and 0:00:57.440 --> 0:00:59.400 Mike were seen it play out, and I think we're 0:00:59.440 --> 0:01:04.040 all wondering whether you said it's much more upside from here. Well, 0:01:04.080 --> 0:01:06.880 thanks John, good to see you guys, And look, I 0:01:06.880 --> 0:01:08.520 I mean we talked about this the last time. I 0:01:08.560 --> 0:01:11.080 was on the tactical rally. I felt like the move 0:01:11.160 --> 0:01:13.760 to four thousand was was pretty much in the cards, 0:01:13.840 --> 0:01:15.440 and then we said, look, we don't know if we're 0:01:15.440 --> 0:01:18.160 gonna get another level to this. If it's going to happen, 0:01:18.280 --> 0:01:21.080 we're gonna need rates to come in further. Uh. And 0:01:21.080 --> 0:01:22.680 that's what That's what's happening now, and it's gonna be 0:01:22.720 --> 0:01:26.440 probably led by you know, the NASDAC and also the 0:01:26.480 --> 0:01:29.600 you know stocks that are most heavily shorted as rates 0:01:29.600 --> 0:01:32.160 come down along duration plays and that's exactly what we 0:01:32.200 --> 0:01:35.600 saw yesterday. And so we have more confidence that this 0:01:35.720 --> 0:01:39.640 rally will continue into December. It's not gonna be easy 0:01:40.120 --> 0:01:41.520 because I want to make it clear, as we said 0:01:41.600 --> 0:01:43.520 last time as well, it's still a bear market. Um, 0:01:43.560 --> 0:01:46.200 these things are tricky, but we have to try and 0:01:46.480 --> 0:01:49.080 trade these. When you get moves to go against you, 0:01:49.080 --> 0:01:51.200 you don't want to miss it. And sometimes we get 0:01:51.240 --> 0:01:52.920 it right. Sometimes we know this one we did. So 0:01:53.000 --> 0:01:55.680 we're we think it can extend here. Now, we think 0:01:55.760 --> 0:01:58.880 rates will go lower. We think you know, Polle's commentaries 0:01:59.000 --> 0:02:00.600 right in line with what we've been saying, which is 0:02:00.600 --> 0:02:03.720 that they're going to pause probably in January. And the 0:02:03.760 --> 0:02:05.400 market is getting in front of that, and this is 0:02:05.440 --> 0:02:07.960 a this is a classic uh you know, kind of 0:02:08.160 --> 0:02:12.240 uh kind of bed pause stock market rally and then 0:02:12.320 --> 0:02:14.160 ultimately you think we get beaten around the head with 0:02:14.160 --> 0:02:16.800 Paul earnings as we got into three. Now, Mike, I'm 0:02:16.800 --> 0:02:18.880 going to read you a quote and it reads as follows. 0:02:18.919 --> 0:02:21.400 Previous slows and equity markets are likely to be retested 0:02:21.680 --> 0:02:23.920 as there may be a significant decline in corporate earnings. 0:02:23.960 --> 0:02:26.680 We're inclined to think that this market decline could happen 0:02:26.720 --> 0:02:29.440 between now and the end of the first quarter of three. Now, 0:02:29.440 --> 0:02:31.520 if someone gave me that quote, Mike, I can't think 0:02:31.560 --> 0:02:34.520 it was you, except it wasn't. It was JP Morgan's 0:02:34.520 --> 0:02:37.760 Marko Kolanovich yesterday. Now, Mike, you like to be contrarian, 0:02:37.840 --> 0:02:39.800 you have been through much of this year. I have 0:02:39.919 --> 0:02:42.560 to say that view now of early twenty three earnings 0:02:42.639 --> 0:02:45.840 risk is almost consensus. Mike, How are you thinking about 0:02:45.840 --> 0:02:48.639 it as we go into a new year. Yeah, I mean, 0:02:48.800 --> 0:02:51.280 like you know, you can say for other people too. 0:02:51.320 --> 0:02:53.880 Were all trying to, you know, stand out with something 0:02:53.919 --> 0:02:57.359 that's you know, insafeful or different, and you're right, I mean, 0:02:57.360 --> 0:02:59.680 our our call this year now has become pretty much 0:02:59.680 --> 0:03:02.079 concerned it's this that. But that's why we flipped in 0:03:01.840 --> 0:03:05.160 in October quite frankly, as we felt like that call, 0:03:05.320 --> 0:03:07.680 the fire and ice call right fed tightening into a 0:03:07.720 --> 0:03:12.040 slowdown became consensus. Now we see kind of this idea 0:03:12.120 --> 0:03:14.760 that we're gonna make a lower low in the first quarter. 0:03:14.760 --> 0:03:16.760 I don't think that's quite consensus yet. But I tell 0:03:16.760 --> 0:03:19.480 you what's not consensus is this taxble rally, Okay, that 0:03:20.200 --> 0:03:23.120 we watched that you know, our competitors, we watch touch 0:03:23.160 --> 0:03:24.679 a lot of clients to try and get a sense 0:03:24.720 --> 0:03:27.120 for where that sentiment is. And I would say this 0:03:27.160 --> 0:03:29.440 is one of the most hated bear market rallies that 0:03:29.480 --> 0:03:32.079 I can recall, even more so than this summer. So 0:03:32.200 --> 0:03:34.040 I think the right set up now is this rally 0:03:34.040 --> 0:03:36.560 will go further and we'll probably drag people back into 0:03:36.560 --> 0:03:39.040 thinking that the bear market is over, and then that 0:03:39.080 --> 0:03:40.880 will be part of the signal for us to kind 0:03:40.880 --> 0:03:43.600 of press on the other side again. Pushing again, staid 0:03:43.640 --> 0:03:45.960 perhaps Mike, and this goes to Allen Setner and maybe 0:03:46.040 --> 0:03:50.160 jobs day tomorrow is what inflation does, what the economy does? 0:03:50.640 --> 0:03:53.640 What are your analysts and Morgan Stanley say about the 0:03:53.720 --> 0:03:57.800 mystery of revenue growth at the top line next year, 0:03:58.440 --> 0:04:01.280 and if you get better revenue growth because of high 0:04:01.360 --> 0:04:06.800 nominal GDP, how does that redound upon margins. Yeah, this 0:04:06.840 --> 0:04:09.960 has been an ongoing debate we've had with clients since 0:04:10.000 --> 0:04:12.280 really April. Uh, you know, we were out in front 0:04:12.360 --> 0:04:16.080 on earnings disappointing at some point into twenty three. And 0:04:16.160 --> 0:04:18.800 but it does contrast with this idea that we have 0:04:18.839 --> 0:04:21.599 in a nominal world. Uh, you know GDP. Nomenal GDP 0:04:21.720 --> 0:04:23.919 is probably gonna stay positive next year, even if we 0:04:23.960 --> 0:04:26.120 have a recession. You know, Ellen's forecast next year is 0:04:26.120 --> 0:04:28.440 for not a recession, but basically zero percent real growth, 0:04:28.520 --> 0:04:31.160 So it's gonna feel like a recession. What's your point 0:04:31.160 --> 0:04:33.320 if you get you know, if inflation is still positive, 0:04:33.360 --> 0:04:35.920 you can have positive revenue growth. We have that baked 0:04:35.920 --> 0:04:37.760 into our numbers time when in other words, our base 0:04:37.839 --> 0:04:40.840 case a D nine dollars next year assumes if we 0:04:40.880 --> 0:04:43.919 still have positive revenue growth about three percent due to 0:04:44.000 --> 0:04:46.960 you nominal GDP staying in positive territory. But it all 0:04:47.000 --> 0:04:48.800 comes down to margins. And this is the part of 0:04:48.800 --> 0:04:51.760 the story that we think is underappreciated by a lot 0:04:51.839 --> 0:04:54.960 of investors, which is, you know, inflation is what drove 0:04:55.040 --> 0:04:58.240 profits higher, and so as inflation comes down next year, 0:04:58.279 --> 0:05:00.839 as we're forecasting we have inflation going back towards to 0:05:01.040 --> 0:05:02.960 two two three by the end of the next year. 0:05:03.360 --> 0:05:07.000 That's actually bad for equities, good for bonds, but bad 0:05:07.000 --> 0:05:10.240 for equities because it's going to crush margins. And this 0:05:10.320 --> 0:05:12.120 is the story that we think is once again under 0:05:12.120 --> 0:05:14.840 appreciate the negative operating leverage that we're seeing in business 0:05:14.839 --> 0:05:18.080 models as companies scrambled for supply six eight months ago 0:05:18.160 --> 0:05:20.640 and over higher. That has to be you know, run 0:05:20.680 --> 0:05:23.440 through the income statement now and that's gonna be the 0:05:23.640 --> 0:05:25.640 that's gonna what that's gonna be what makes the low 0:05:25.800 --> 0:05:27.520 in the first and second quarter. So I would say 0:05:27.520 --> 0:05:29.880 where people are maybe catching up on the earning story, 0:05:30.320 --> 0:05:32.040 I don't think they're bearish enough in terms of this 0:05:32.160 --> 0:05:34.960 margin degradation. Mike, you said that there perhaps could be 0:05:35.000 --> 0:05:37.520 a trough of three thousand and thirty two hundred in 0:05:37.560 --> 0:05:39.840 the first quarter of next year as we do get 0:05:39.920 --> 0:05:43.280 that reality check from earnings, have the recent data with 0:05:43.360 --> 0:05:46.039 respect to the latest CPI, with respect to some of 0:05:46.080 --> 0:05:48.479 the other metrics that people are seeing a softening in 0:05:48.800 --> 0:05:50.440 and that we're hearing a change in tone from the 0:05:50.480 --> 0:05:54.640 rhetoric of J. Pow perhaps yesterday. Have you changed that view? 0:05:54.680 --> 0:05:57.200 Does that seem further away in terms of that fair 0:05:57.240 --> 0:06:01.320 case scenario? Well, once in in, I mean the bearcase 0:06:01.320 --> 0:06:04.560 scenario assumes we have probably a modest recession next year. 0:06:04.920 --> 0:06:07.440 And in that scenario, all we're all that happens is 0:06:07.520 --> 0:06:11.680 revenue growth goes flat, maybe maybe slightly negative, but that 0:06:11.720 --> 0:06:14.640 will make the negative operating leverage even worse. And so 0:06:14.720 --> 0:06:16.960 that's a hundred eighty dollars and earnings next year. So 0:06:16.960 --> 0:06:19.520 with a hundred eighty dollars and earnings next year, you know, 0:06:19.760 --> 0:06:22.400 three thousand is not is not really a stretch. So look, 0:06:22.440 --> 0:06:24.680 we don't you know, we don't have a crystal ball. Unfortunately, 0:06:24.720 --> 0:06:26.839 I wish I did. In terms of what I'm most 0:06:26.920 --> 0:06:29.560 uncertain about is the timing of this. You know, we 0:06:29.600 --> 0:06:31.599 thought it could have actually happened in the fourth quarter 0:06:31.960 --> 0:06:34.320 of this year, needing these earnings revisions, and that's one 0:06:34.320 --> 0:06:36.960 of the reasons we flipped positive in octobers. We felt 0:06:36.960 --> 0:06:38.760 like it's gonna be pushed out and that's what's happening. 0:06:38.839 --> 0:06:41.720 Couldn't get pushed out further into the middle of next year. Yes, 0:06:42.120 --> 0:06:44.680 do we think we can avoid it? No, so we're 0:06:44.720 --> 0:06:47.000 you know, we think at a minimum will take out 0:06:47.040 --> 0:06:50.159 thirty sometime in the first half of next year. And yes, 0:06:50.200 --> 0:06:53.640 that bearcase, unfortunately is alive, and that's three thousand. In 0:06:53.640 --> 0:06:56.080 the meantime, let's get one final call from you. What 0:06:56.160 --> 0:06:58.279 would you buy and hold right now? Got into your rend? 0:06:58.520 --> 0:06:59.760 What would it be? And it could be a wife 0:06:59.800 --> 0:07:02.800 in the index she's how may Yeah, well, I think 0:07:02.800 --> 0:07:04.520 it's bonds. I mean like we're you know, I think 0:07:04.520 --> 0:07:07.080 that that that if you think about bear markets that 0:07:07.120 --> 0:07:11.040 are punctuated by a either economic or earnings recession, we 0:07:11.040 --> 0:07:12.600 think we're gonna get at least one of those, the 0:07:12.600 --> 0:07:15.720 earnings recession, the CE. The sort of order of operations 0:07:15.760 --> 0:07:17.400 is very clear. You want to buy a cat, you 0:07:17.400 --> 0:07:19.360 want to be cashed first, then you want to buy 0:07:19.400 --> 0:07:22.120 treasuries long duration, then you want to buy credit, and 0:07:22.160 --> 0:07:24.600 you want to buy equities last. So you know, we're 0:07:24.600 --> 0:07:27.680 already a lot already overweight cash. So front end cash 0:07:28.280 --> 0:07:31.760 or you own back end treasuries. Now for a trade, Okay, 0:07:31.840 --> 0:07:34.920 we think it's Nasdaq or you know, long duration stocks 0:07:34.960 --> 0:07:37.840 will will like that move in rates lower. It's but 0:07:37.920 --> 0:07:40.800 that's more speculative. That's for the training community, I think 0:07:40.840 --> 0:07:43.720 for the investment community and for asset owners it's basically 0:07:43.760 --> 0:07:46.360 bonds might just phenomenal. Thanks for your time and let's 0:07:46.400 --> 0:07:59.080 catch up before year Rent, Mike Wilson, what we news 0:07:59.120 --> 0:08:01.360 dive into this with Joy and Rochester? G turn effect 0:08:01.400 --> 0:08:04.120 strategist number. I'm gonna ask one question here and how 0:08:04.160 --> 0:08:05.960 do you not lose money? And then John's going to 0:08:06.040 --> 0:08:08.640 pick it up and the currency dynamics you just mentioned. 0:08:08.720 --> 0:08:12.560 Jordan Rochester, you, like every adult out there, uses a 0:08:12.640 --> 0:08:16.960 thing like stop losses. You've been enjoying being stopped out 0:08:17.000 --> 0:08:20.600 of trades right now explained to our audience why it's 0:08:20.680 --> 0:08:25.160 amateur our If you don't have stops, well, I don't 0:08:25.240 --> 0:08:27.880 enjoy being stopped out, Tom, but they're absolutely essential to 0:08:27.880 --> 0:08:30.520 your risk management. I think with the FTX scandal that 0:08:30.600 --> 0:08:33.080 I think the ANAMDA bragged that they didn't have stop losses, 0:08:33.120 --> 0:08:35.960 So that's quite clear what can happen if you don't. 0:08:36.120 --> 0:08:38.400 But look what's happening in the markets, Tom, how to 0:08:38.440 --> 0:08:41.280 avoid losing money? Here is the markets looking at US 0:08:41.360 --> 0:08:44.520 energy prices. They've cooled off year on year, that leads 0:08:44.720 --> 0:08:48.800 PPI producer prices lower, that leads headline inflation with a 0:08:48.880 --> 0:08:52.160 lag lower. So it's quite hard to see reasons why 0:08:52.200 --> 0:08:56.080 the Fed would get suddenly more hawkish, especially after Chair 0:08:56.200 --> 0:08:58.960 Pal's speech last night signaling that slow down to fifty 0:08:58.960 --> 0:09:01.440 basis points. You had a green light from the Fed 0:09:01.559 --> 0:09:05.199 chair last night to sell the dollar and by risk appetite, 0:09:05.240 --> 0:09:07.440 and that's why you've seen the NaSTA cup over four 0:09:07.480 --> 0:09:12.199 percent yesterday. In ffex Tom, the correlations between foreign exchange 0:09:12.200 --> 0:09:14.640 and interest rates have really dropped off a cliff. The 0:09:14.679 --> 0:09:17.640 most predominant fact that's driving everything right now is where 0:09:17.679 --> 0:09:20.800 global equities are going. So I'm currently long euro dollar. 0:09:21.040 --> 0:09:22.719 We do have a stop on that round one oh one, 0:09:22.760 --> 0:09:24.880 one oh one seventy, but I think that's gonna go 0:09:24.920 --> 0:09:26.920 towards one oh eight. I think that's gonna be something 0:09:26.920 --> 0:09:29.120 that could go towards one ten in the new year 0:09:29.360 --> 0:09:32.439 because of what's happening in China, because the low energy 0:09:32.480 --> 0:09:35.360 prices we've seen over recent weeks in Europe as well, 0:09:35.600 --> 0:09:39.480 helping boost European production. So that risk on sentiment that 0:09:39.520 --> 0:09:42.320 you see in equities feeds directly to the dollar. Now 0:09:42.440 --> 0:09:45.600 does that famous spider meme spider man meme on Twitter 0:09:45.840 --> 0:09:51.480 where everyone points at each other blaming each other surveillance. 0:09:52.240 --> 0:09:55.360 So as EFEX guys say it's equities driving everything, empty 0:09:55.360 --> 0:09:57.920 guys say it's effects. Well, I just the main point 0:09:57.960 --> 0:09:59.720 I would say is if you think that this risk 0:09:59.800 --> 0:10:02.880 on carry on in the SMP five hundred, it means 0:10:02.920 --> 0:10:05.640 the dollars will continue to weaken into your end and 0:10:05.679 --> 0:10:09.080 you play that through the Euro. Where does Sterling fit in? Well, 0:10:09.120 --> 0:10:11.480 we had short Sterling Swiss on because we thought we 0:10:11.520 --> 0:10:14.560 needed some RV to hedge are sort of risk one position. 0:10:15.040 --> 0:10:18.040 Sterling Swiss had been less correlated to the equity market 0:10:18.080 --> 0:10:20.840 than of of acrosses. But you can't ignore that Swissy 0:10:21.000 --> 0:10:23.599 is a risk off hedge. So what's happen is we 0:10:23.679 --> 0:10:26.080 got stopped at that short Sterling Swiss, not because we 0:10:26.120 --> 0:10:28.560 had some amazing news out of the UK, but for 0:10:28.640 --> 0:10:31.880 two reasons. One, everybody agreed with the trade, and that 0:10:31.880 --> 0:10:34.280 always tells you that everyone's position the same way as you. 0:10:34.600 --> 0:10:37.560 And to risk one, Sterling always does well when the 0:10:37.600 --> 0:10:40.760 equity markets rally. It's very rare that it doesn't. Only 0:10:40.840 --> 0:10:44.120 during Brexit. Really did we see that change in so 0:10:44.480 --> 0:10:46.480 for the likes of sterling, we think that you could 0:10:46.520 --> 0:10:49.800 climb towards one by the end of next year. And 0:10:49.920 --> 0:10:52.920 in these markets, guys, we're seeing big moves and dolly 0:10:52.960 --> 0:10:55.120 and for example, four four big figures in just twenty 0:10:55.120 --> 0:10:57.480 four hours. You know, one is not that big of 0:10:57.520 --> 0:10:59.800 a push to see earlier if we have more good news. 0:10:59.840 --> 0:11:01.600 But based on what we know right now, it's gonna 0:11:01.600 --> 0:11:03.559 be a slow grind higher. It's hard for me to 0:11:03.600 --> 0:11:06.040 see any of this other than a big dollar story. 0:11:06.080 --> 0:11:08.480 And everyone else is coming along and rationalizing it in 0:11:08.520 --> 0:11:10.440 some way or another. I mean, it was pretty much 0:11:10.480 --> 0:11:14.040 all of the major currency pairs were really big gainers 0:11:14.120 --> 0:11:16.920 in the past month versus the dollar, and our people 0:11:16.920 --> 0:11:19.520 getting ahead of themselves with this idea of fading inflation 0:11:19.960 --> 0:11:21.840 and a fair that's going to somehow respond to that. 0:11:21.920 --> 0:11:23.920 I mean, could this really whips are in the other direction? 0:11:23.960 --> 0:11:26.720 Based on positioning, I think it really cood li SA 0:11:27.200 --> 0:11:29.800 But not now. That's that's problem markets. We could have 0:11:29.840 --> 0:11:31.439 a view about what could happen in Q two or 0:11:31.480 --> 0:11:34.719 Q three next year, but the markets don't trade that 0:11:34.800 --> 0:11:38.000 just yet. Sometimes, and I think the risks are for 0:11:37.760 --> 0:11:40.720 all my leading indicators for inflation in the US, they 0:11:40.760 --> 0:11:42.760 all point down. There's none of them pointing up. I 0:11:42.840 --> 0:11:44.760 can't really say, oh my god, watch out for this 0:11:44.800 --> 0:11:47.200 inflation risk. Look at this chart. They're all pointing to 0:11:47.320 --> 0:11:51.160 lower entery prices, lower inflation. Therefore, you can say CPI 0:11:51.240 --> 0:11:53.240 has peaked, and it's quite clearly peaked. We're looking for 0:11:53.280 --> 0:11:55.960 no point three pc on the core again month on month. 0:11:56.040 --> 0:11:58.599 Namura was the only team, the economics team in the 0:11:58.679 --> 0:12:00.880 US to get that number right last month. So if 0:12:00.880 --> 0:12:02.640 they get that right again and we have another nor 0:12:02.720 --> 0:12:04.640 point three or even lower, it's kind of hard for 0:12:04.679 --> 0:12:06.800 the dollar to rally. But let's look to next year. 0:12:07.240 --> 0:12:10.280 We could have in Q two China's reopen. Q three 0:12:10.360 --> 0:12:12.920 we start to feel the impact of that in energy markets, 0:12:13.120 --> 0:12:16.000 and the FED doesn't cut rates. Perhaps that's the risk 0:12:16.160 --> 0:12:18.200 we think they will, But the risks are we have 0:12:18.240 --> 0:12:20.720 a wave of energy inflation again next year in Q 0:12:20.960 --> 0:12:23.720 three as energy markets tighten up and demand comes back, 0:12:24.080 --> 0:12:26.080 and that could change the narrative quite a lot. So 0:12:26.400 --> 0:12:28.440 right here, right now, I don't think we're getting ahead 0:12:28.440 --> 0:12:30.400 of ourselves. I think the dollar can can continue to 0:12:30.440 --> 0:12:33.120 weaken against the euro at least and that should feed 0:12:33.120 --> 0:12:35.720 free to risk on another G ten crosses toward. One 0:12:35.760 --> 0:12:37.600 reason why I love reading our reports is because you've 0:12:37.640 --> 0:12:40.160 got this confidence metric and you have, you know, three 0:12:40.160 --> 0:12:42.160 out of five, five out of five. I remember back 0:12:42.160 --> 0:12:43.800 when you were five out of five. Now you're three 0:12:43.800 --> 0:12:46.520 out of five. How much are you seeing a lack 0:12:46.559 --> 0:12:49.320 of conviction or pulling back or humility in some of 0:12:49.360 --> 0:12:52.480 the positioning that you're seeing across effects as you sort 0:12:52.520 --> 0:12:56.880 of sort out all of these uncertainties that are lying ahead. Well, 0:12:56.920 --> 0:12:58.840 I think there's a lot of uncertainty. What we tend 0:12:58.840 --> 0:13:01.920 to have in this market is prices moving, make narratives. 0:13:02.000 --> 0:13:05.880 Narratives then drive research pieces, but fundamentals ultimately drive where 0:13:05.880 --> 0:13:09.000 prices will be. Right now, the fundamentals are that we 0:13:09.040 --> 0:13:11.440 could perhaps see software inflation therefore week or dollar. But 0:13:12.000 --> 0:13:14.199 we're getting to year end and a lot of accounts 0:13:14.320 --> 0:13:16.480 were sat long dollar for most of this year, including 0:13:16.480 --> 0:13:18.800 ourselves since February pretty much of of the year when 0:13:18.840 --> 0:13:21.760 Russia invaded Ukraine. Why wouldn't you be along the dollars? 0:13:21.760 --> 0:13:25.240 So that trade is still being unwound in certain sectors, 0:13:25.559 --> 0:13:28.480 and that means perhaps everything we're seen right now is 0:13:28.520 --> 0:13:31.920 just position reduction and no one really changing their optimism 0:13:31.960 --> 0:13:33.800 for next year. For US, we think there's gonna be 0:13:33.800 --> 0:13:36.600 recession risks. Usually when there's a recession the dollars as well. 0:13:36.920 --> 0:13:39.199 The problem is we start we're starting to see signs 0:13:39.280 --> 0:13:42.720 of early rebounds in European p M mice for example, 0:13:42.840 --> 0:13:45.760 China's credit impulses going up. So there are fundamental reasons 0:13:45.800 --> 0:13:48.360 why you could see this risk and be sustained. You 0:13:48.440 --> 0:13:51.360 just need hope to prevail. And we do have risk 0:13:51.440 --> 0:13:53.679 coming up. We've got OPEC next week, We've got the 0:13:53.679 --> 0:13:56.679 EU oil sanctions on Monday as well. That's twenty one 0:13:57.280 --> 0:14:01.280 of the e use oil imports from Russia being sanctioned 0:14:01.280 --> 0:14:03.679 from Monday onwards. I'm not sure where they're going to 0:14:03.760 --> 0:14:06.680 get that one of their total oil imports from in 0:14:06.720 --> 0:14:09.880 the next month, So there's there are certainly risks to 0:14:10.040 --> 0:14:12.200 this outlook. Jordan, you've got twenty seconds. Are you more 0:14:12.240 --> 0:14:14.920 confident about your europe dollar call or England getting past 0:14:14.920 --> 0:14:18.560 Senegale later this weekend? I'm pretty comfroment the England team. 0:14:18.920 --> 0:14:21.040 I mean, we've had the US Gay game. USA game 0:14:21.080 --> 0:14:22.960 was a bit boring, was like watching paint dry, But 0:14:23.040 --> 0:14:26.560 what a fantastic Wales game and hopefully they'll bring that 0:14:26.600 --> 0:14:29.760 back to the pitch. Should Jack Grayler should be playing more? 0:14:29.760 --> 0:14:32.160 You're asking a Birmingham boy where the Jack really should 0:14:32.160 --> 0:14:34.440 be playing more? I just already know what Jordan's going 0:14:34.520 --> 0:14:38.120 to say. I'm happy with him playing every game, at 0:14:38.160 --> 0:14:40.640 least in the second half. He gets a showing you know, 0:14:40.640 --> 0:14:41.960 you've got one of the goals as well in the 0:14:42.000 --> 0:14:44.560 first game of the World Cup. So this is fantastic 0:14:44.600 --> 0:14:47.000 for Birmingham. And it's not just greedish. Now I've got 0:14:46.960 --> 0:14:49.720 to betting into He's grillish is on the urge of Gareth. 0:14:49.840 --> 0:14:51.480 I mean, he gets on the field and things happen. 0:14:51.600 --> 0:14:56.800 He's great, a really classy player, Jordan Ranchester. During you 0:14:57.000 --> 0:15:00.400 and World Cup, we're breaking it down city to city 0:15:00.520 --> 0:15:02.800 where these players come from. Tim, You'll get into another level, 0:15:03.640 --> 0:15:06.880 another level, thank you. I'm just doing it because of 0:15:06.880 --> 0:15:14.440 our love. It's so deep. What we do every day 0:15:14.480 --> 0:15:17.560 is our guests, and it starts and ends with the 0:15:17.640 --> 0:15:21.200 research capabilities of vincent Reinhart, Assistant chair in green Span 0:15:21.680 --> 0:15:24.360 over many many years at the Federal Drive US Melon 0:15:24.480 --> 0:15:29.120 Holding Court and important writings in the pandemic about the 0:15:29.160 --> 0:15:32.520 state of our economy, vince Reinhart, just a general question 0:15:32.560 --> 0:15:35.800 of a two hour conversation. Do you buy the idea 0:15:35.840 --> 0:15:38.960 we're heading for recession? In your years with green Span, 0:15:39.040 --> 0:15:43.720 were you able to predict a recession? Nobody really predicts 0:15:43.720 --> 0:15:47.640 a recession. What you can say is there's an elevated 0:15:47.920 --> 0:15:50.120 chance of it, just like you could say you have 0:15:50.200 --> 0:15:53.520 an elevated chance of infection if you go into bad 0:15:53.600 --> 0:15:57.840 places without a mask. Uh. There is an extremely elevated 0:15:57.920 --> 0:16:01.320 chance of recession. Uh. And if you had to place 0:16:01.360 --> 0:16:05.520 your money, I bet that within twelve months the economy 0:16:05.600 --> 0:16:08.120 is in downturn. I look at this vents, and then 0:16:08.120 --> 0:16:10.000 I look at the parlor game of the FED, which 0:16:10.040 --> 0:16:12.760 is now different than when you were holding court at 0:16:12.760 --> 0:16:15.840 the Echos building. And the basic idea here is there 0:16:15.880 --> 0:16:19.760 gaming out a rate movement higher and then we are 0:16:19.880 --> 0:16:23.040 quote unquote going to figure out to pivot and guess 0:16:23.120 --> 0:16:25.880 when that occurs. Have you ever seen anything like this 0:16:26.320 --> 0:16:31.080 or is this mound territory? This? This is old style 0:16:31.240 --> 0:16:36.840 monetary policy right now. Monetary policy is hard but simple. 0:16:37.240 --> 0:16:39.760 It's hard in the sense they have to inflict point 0:16:39.880 --> 0:16:43.840 pain on the economy to get inflation down. It's simple 0:16:43.920 --> 0:16:47.400 because the strategy is, if you don't know what the 0:16:47.640 --> 0:16:51.600 right neutral funds rate is, put it at a level 0:16:51.720 --> 0:16:56.280 you sure is restrictive, and then keep it there until 0:16:56.360 --> 0:17:00.960 you have demonstrable evidence that in flaition is going back 0:17:01.000 --> 0:17:03.800 to goal. So if you're not exactly sure how to 0:17:03.880 --> 0:17:07.600 calibrate policy, don't put it at a plateau next year 0:17:07.920 --> 0:17:11.040 and just wait. That's what cheer pal poll is yesterday? 0:17:11.240 --> 0:17:13.080 Is that what he told us yesterday? Incidant, did you 0:17:13.119 --> 0:17:15.920 hear perhaps a little bit more of a concession around 0:17:15.960 --> 0:17:19.159 perhaps moderating their stance in order to avoid a hard landing. 0:17:20.320 --> 0:17:23.760 I don't get how most of the headlines came out 0:17:23.800 --> 0:17:29.840 of that UH remarks. Yesterday afternoon, he repeated his press 0:17:29.920 --> 0:17:35.800 conference UH characterization, you were raising rates till we get 0:17:35.840 --> 0:17:37.720 them to a level, and then we're going to keep 0:17:37.760 --> 0:17:42.000 them there. He dismissed a lot of data with regard. 0:17:42.119 --> 0:17:43.960 I don't don't want to be on the other side 0:17:43.960 --> 0:17:48.399 of Mike's argument, but I think I have to be. Yesterday, 0:17:48.480 --> 0:17:54.480 Chair Pal said inflation moves around sometimes, UH, after good numbers, 0:17:54.560 --> 0:17:57.240 bad numbers come out, so I think that they would 0:17:57.280 --> 0:18:01.639 down down Wait the pce ace part of this, and 0:18:01.680 --> 0:18:04.160 then what he was saying was we've got to keep 0:18:04.240 --> 0:18:08.600 the pace of aggregate demand below that a trend, so 0:18:08.640 --> 0:18:11.080 he should be worried about the spending part about it. 0:18:11.160 --> 0:18:13.719 This is not a good morning for the Fed. Well vincent. 0:18:13.840 --> 0:18:15.800 This is really the key point. A lot of people 0:18:15.840 --> 0:18:18.919 are saying that there is a downward shift in inflation 0:18:18.960 --> 0:18:21.840 and it's coming at a pace that's surprising analysts that 0:18:21.920 --> 0:18:23.920 this is good news, is going to allow the Fed 0:18:24.240 --> 0:18:25.800 to move away from some of the rate hikes and 0:18:25.840 --> 0:18:28.480 even cut rights student than previously expected. Do you think 0:18:28.760 --> 0:18:31.400 people are getting ahead of themselves, that really those inputs 0:18:31.400 --> 0:18:33.960 are not declining quickly enough and that they could even 0:18:34.000 --> 0:18:37.000 re accelerate basis some of the rollover effects in areas, 0:18:37.040 --> 0:18:41.359 For example, I used cars, events always look bigger in 0:18:41.400 --> 0:18:44.600 the rear view mirror than they really are. I think 0:18:44.600 --> 0:18:48.679 there is a tendency to over over overweight this incoming information. 0:18:48.800 --> 0:18:51.200 Chare Pal said that yesterday. By the way, he said, 0:18:51.240 --> 0:18:56.359 inflation ballattle. Sometimes after good readings, you get bad readings. 0:18:56.880 --> 0:19:01.560 He was basically telling us not to be so stressed 0:19:01.560 --> 0:19:04.520 about it. Do I believe inflation is off its peak? 0:19:04.720 --> 0:19:10.480 Absolutely goods price inflation has come off the boil because 0:19:10.640 --> 0:19:15.640 supply chains have been been improving and market economies work 0:19:15.760 --> 0:19:19.960 by bringing resources into sectors that are overheated. But it's 0:19:20.000 --> 0:19:23.680 spill over to service inflation. That's what you gotta worry about. 0:19:23.760 --> 0:19:28.520 That's what pals worried about, the durable part, part of 0:19:28.640 --> 0:19:32.280 inflation that's still above the FED goal. Vincent reinhard Olivia, 0:19:32.359 --> 0:19:37.560 Blanchard reaffirmed higher level of inflation we can be comfortable with. 0:19:37.720 --> 0:19:40.359 He went from four percent in the crisis of oh 0:19:40.440 --> 0:19:43.480 eight oh nine down to something more like a three 0:19:43.520 --> 0:19:48.400 percent level. Is the new two percent without going into 0:19:48.480 --> 0:19:51.679 the details of the Blanchard essay and the ft, is 0:19:51.720 --> 0:19:54.880 he onto something here which we are going to rationalize 0:19:54.880 --> 0:19:59.400 our way away from the two percent level. So yes 0:19:59.440 --> 0:20:02.320 and no. The the s part is back in the 0:20:02.359 --> 0:20:06.359 mid nineties when central banks settled on a two percent 0:20:06.440 --> 0:20:10.040 inflation goal, it's not like they had a great conversation 0:20:10.240 --> 0:20:13.240 about the costs and benefits of that long term goal. 0:20:13.560 --> 0:20:16.480