WEBVTT - Wall Street Relief After Inflation Report 0:00:00.080 --> 0:00:12.879 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:12.960 --> 0:00:16.960 Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join 0:00:17.079 --> 0:00:21.000 us each day for insight from the best in economics, finance, investment, 0:00:21.200 --> 0:00:24.840 and international relations. You can also watch the show live 0:00:25.079 --> 0:00:29.400 on YouTube. Visit the Bloomberg Podcast channel on YouTube to 0:00:29.520 --> 0:00:32.920 see the show weekday mornings from seven to ten am 0:00:32.960 --> 0:00:37.000 Eastern from our global headquarters in New York City. Subscribe 0:00:37.000 --> 0:00:40.360 to the podcast on Apple, Spotify, or anywhere else you 0:00:40.440 --> 0:00:44.600 listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and 0:00:44.640 --> 0:00:48.160 the Bloomberg Business App. Critically, the ten year reel yield 0:00:48.200 --> 0:00:51.839 one point ninety seven percent comes in more accommodative to 0:00:51.920 --> 0:00:54.640 one point ninety five percent. We get a first look 0:00:55.000 --> 0:00:59.000 with Ira Jersey of Bloomberg Intelligence. Ira, what's the nuance here? 0:01:00.160 --> 0:01:03.040 So you know, looking at some of these revisions, it 0:01:03.120 --> 0:01:05.000 actually is a little bit of a weaker report if 0:01:05.000 --> 0:01:07.720 you take those revisions into account. So you look at 0:01:07.720 --> 0:01:10.960 the PC deflator month a month plus the core deflator, 0:01:10.959 --> 0:01:15.319 same thing came in at one tenth in December instead 0:01:15.360 --> 0:01:18.039 of a little bit higher. So I think you know, 0:01:18.160 --> 0:01:21.040 in totality just from the headlines that we have right now, 0:01:21.319 --> 0:01:24.800 haven't dug into all the data yet, it's you know, 0:01:24.880 --> 0:01:28.040 as expected to slightly weaker. And you've seen that reaction 0:01:28.120 --> 0:01:30.440 in the bond market. You look at two year yields, 0:01:30.440 --> 0:01:33.480 you've rallied now four basis points since the number came out, 0:01:34.040 --> 0:01:37.160 So we know people less concerned about the inflationary environment 0:01:37.240 --> 0:01:39.440 with this, you know as expected. I think some people 0:01:39.440 --> 0:01:40.560 were worried that it was going to come in a 0:01:40.600 --> 0:01:42.640 little hotter obviously and had positions. 0:01:42.720 --> 0:01:45.680 Yeah, I got a memory of like zero. When we're 0:01:45.680 --> 0:01:48.360 doing the show. It's such a blur, folks. I'm spending 0:01:48.440 --> 0:01:51.400 more time on live chat than listening to Ira. Did 0:01:51.440 --> 0:01:54.840 I think in the last ten minutes, Ira Jersey absolutely 0:01:54.960 --> 0:01:56.440 nailed this call. 0:01:56.600 --> 0:01:57.760 He's pretty good, I don't think. 0:01:57.760 --> 0:02:00.880 I mean, he's got a big reputation comes through every day. 0:02:00.920 --> 0:02:03.720 So some some of the headlines, Tom, the PCE deflator 0:02:03.760 --> 0:02:05.760 came in at zero point three percent, right in line 0:02:05.760 --> 0:02:08.880 with expectations on an annual basis, that's two point four 0:02:08.919 --> 0:02:12.040 percent on the headline, right in line with expectations. The 0:02:12.160 --> 0:02:15.640 PCE core deflator month on month zero point four percent, 0:02:16.440 --> 0:02:19.280 and that's again right in line with expectations you annualize 0:02:19.320 --> 0:02:22.840 that it's two point eight percent is a PCE core deflator, folks, 0:02:23.120 --> 0:02:25.320 And that's kind of what the Federal Reserve looks at. 0:02:25.360 --> 0:02:27.919 So again, if Iraf I'm the Federal Reserve, I just 0:02:28.040 --> 0:02:30.160 kind of kick back in my chair, twitter my thumbs 0:02:30.200 --> 0:02:32.200 and saying I'm doing a pretty good job here. 0:02:33.440 --> 0:02:36.240 Yeah, I think for the Fed, like, there's this whole 0:02:36.320 --> 0:02:40.000 narrative about how quickly inflation is going to come down, right, 0:02:40.040 --> 0:02:41.959 and that's one of the reasons why we've priced out 0:02:42.280 --> 0:02:44.480 a lot of the interest rate cuts that we had earlier. 0:02:44.800 --> 0:02:47.280 And you know this this data just kind of proves 0:02:47.280 --> 0:02:50.480 that point where you know, yes, we're we're under three 0:02:50.520 --> 0:02:53.320 percent in terms of the core PC deflator, but we're 0:02:53.320 --> 0:02:55.919 still a two point eight percent And if it's persistent there, 0:02:56.200 --> 0:02:58.600 then why should the Federal Reserve cut interest rates? 0:02:58.639 --> 0:02:58.799 Right? 0:02:58.840 --> 0:03:00.799 That's going to be a narrative and a question that 0:03:00.840 --> 0:03:02.600 people are going to ask, like, you know, why cut 0:03:02.639 --> 0:03:06.799 interest rates now? Because the economy seems pretty decent, even 0:03:06.800 --> 0:03:10.160 the two hundred and fifteen thousand jobless claims historically speaking, 0:03:10.200 --> 0:03:12.760 that's not particularly high. Of course, you know, we have 0:03:12.800 --> 0:03:14.800 to keep in mind. Something with jobless claims is that 0:03:14.800 --> 0:03:16.919 that's only one side of the equation. That's only the 0:03:17.000 --> 0:03:19.440 number of people being laid off. If nobody is hired, 0:03:19.639 --> 0:03:21.760 you still have eight hundred thousand job losses. That would 0:03:21.800 --> 0:03:23.720 be bad, right, but we know that there are people 0:03:24.080 --> 0:03:26.120 being hired on the other side of that, So people 0:03:26.360 --> 0:03:27.919 you know who lose their jobs are able to find 0:03:28.000 --> 0:03:28.760 jobs very quickly. 0:03:28.800 --> 0:03:31.200 Now, if you're just joining us across this nation, around 0:03:31.200 --> 0:03:34.320 the world, this is Bloomberg Surveillance. Michael bar Lisa Matteo, 0:03:34.440 --> 0:03:37.320 Paul Sweeney, and Tom Keen, we welcome you with key 0:03:37.440 --> 0:03:41.720 economic data. Thank you out on YouTube for your watching. 0:03:41.800 --> 0:03:45.119 You go to YouTube Bloomberg Podcast. We're building that audience out. 0:03:45.200 --> 0:03:48.720 We're stunned. I don't think Google's stunned. They're like, you know, um, 0:03:48.920 --> 0:03:50.760 they're like, you know, book Taylor Swift and then we'll 0:03:50.800 --> 0:03:54.240 pay attention. But thank you out on YouTube for your 0:03:54.320 --> 0:03:57.600 interest in live chat and on Apple cart play as well. Paul. 0:03:57.640 --> 0:04:01.080 Two more questions, Ira Jersey before we go, the mister writing. 0:04:00.760 --> 0:04:03.240 All right, Ira, I mean, so we've got this kind 0:04:03.280 --> 0:04:05.720 of in our pocket here, what's next? 0:04:05.760 --> 0:04:07.120 What do you think the market's going to be looking 0:04:07.160 --> 0:04:08.560 at next. 0:04:09.000 --> 0:04:11.000 Yes, so a couple of data prints that come out 0:04:11.000 --> 0:04:13.839 early in the month. Obviously the Payrolls report next next 0:04:13.840 --> 0:04:16.679 Friday will be key among them. But you know, we're 0:04:16.720 --> 0:04:19.000 looking at some of the survey data, and there's been 0:04:19.000 --> 0:04:21.200 this disconnect between the survey data and some of the 0:04:21.200 --> 0:04:23.080 hard data. So we pointed that out in a note 0:04:23.080 --> 0:04:26.520 that we put out on on Monday, where we were 0:04:26.839 --> 0:04:29.040 you know, we were surprised to see things like the 0:04:29.080 --> 0:04:33.080 ism surveys and some of those, you know, not being 0:04:33.480 --> 0:04:36.280 or pointing to contraction, whereas you look at some of 0:04:36.320 --> 0:04:38.880 the harder data, like the retail sales report, like CPI, 0:04:39.040 --> 0:04:41.640 like the jobs report, and and those seem to show 0:04:41.680 --> 0:04:43.960 that the data is being better and and I would 0:04:43.960 --> 0:04:46.640 overweight the hard data a little bit more than some 0:04:46.720 --> 0:04:48.719 of the survey data. And I think some of the 0:04:48.760 --> 0:04:54.760 reason why why economists across across their forecasts are thinking 0:04:54.760 --> 0:04:56.880 that the economy is going to slow significantly is that 0:04:57.240 --> 0:04:59.240 is that the survey data has been so weak, and 0:04:59.279 --> 0:05:01.720 those those sometimes get weighted maybe a little bit more 0:05:01.760 --> 0:05:04.719 than they should. But the hard data certainly right now 0:05:05.120 --> 0:05:07.080 is not showing any sign of So I mean, just 0:05:07.080 --> 0:05:09.600 look at the personal income number. You know, one percent 0:05:09.680 --> 0:05:13.359 personal income growth is pretty spectacular. That means, you know, 0:05:13.400 --> 0:05:16.080 savings rates up because you only had personal spending up 0:05:16.160 --> 0:05:18.680 zero point two percent. But that's still decent for GDP 0:05:18.760 --> 0:05:19.960 and national income in general. 0:05:20.120 --> 0:05:23.640 Ira John from Coventry says, time shut up, more soccer talk, 0:05:24.080 --> 0:05:26.680 aston Villa Luton. I mean, come on, that's a must 0:05:26.720 --> 0:05:28.040 win for aston Villa. 0:05:27.920 --> 0:05:30.000 Right, yeah, we we have to win. I want to 0:05:30.040 --> 0:05:31.840 stay in the top four. I really you know, the 0:05:31.880 --> 0:05:34.960 Europa Conference League is great, but making the Champions League 0:05:35.000 --> 0:05:37.880 next year I think is key for my for my villains. 0:05:37.920 --> 0:05:38.440 Yeah, for sure. 0:05:38.520 --> 0:05:41.120 Very good, Ira Jersey, thank you so much with your 0:05:41.160 --> 0:05:49.440 aston Villa report, John writing joining us now for Breen Capital. John, 0:05:49.480 --> 0:05:51.680 Before we get to the serious economics of this, I've 0:05:51.720 --> 0:05:55.480 gotta the FA thing is really good. Where a Preston 0:05:55.560 --> 0:05:59.160 north En can actually destroy a Premier League team, Explain 0:05:59.240 --> 0:06:02.479 to our American audience the magic of this tournament that 0:06:02.560 --> 0:06:05.360 you have in the United Kingdom. 0:06:05.520 --> 0:06:07.800 Well, I wish Preston north End I'd destroyed a Premier 0:06:07.880 --> 0:06:12.680 League team, but we lost to Chelsea. But it's a tournament, 0:06:12.680 --> 0:06:15.880 the f A Cup that is open all if you 0:06:15.920 --> 0:06:18.880 will try, essays FA Cup open all the way. You're 0:06:18.960 --> 0:06:21.880 down into a non league football, so you can get 0:06:21.920 --> 0:06:25.560 these great giant killing moments. 0:06:27.240 --> 0:06:29.920 But we didn't see it. But I thought this was 0:06:29.960 --> 0:06:33.560 a joke, and John Ferreau trained me yep to understand 0:06:33.600 --> 0:06:36.400 how magical this is. And you see that within Premier 0:06:36.480 --> 0:06:39.720 League Guston Villa or John's real commitment to what's going 0:06:39.760 --> 0:06:42.840 on Preston North End. Let's get to the topic of 0:06:42.880 --> 0:06:45.440 the moment John writing, which is economics. The market loves it, 0:06:45.560 --> 0:06:52.120 futures red go green. What does Jerome Powell do other 0:06:52.200 --> 0:06:55.200 than say I'm data dependent. I didn't learn anything in 0:06:55.240 --> 0:06:57.719 this report. What a shock. I've got to wait for 0:06:57.760 --> 0:07:00.400 the February jobs report that we'll see soon. 0:07:01.760 --> 0:07:04.159 Well, I think the first thing he does, because you 0:07:04.279 --> 0:07:08.239 talked about that personal income increase of one percent, that's 0:07:08.279 --> 0:07:10.960 not really an indication of what's going on in the 0:07:11.040 --> 0:07:15.960 underlying economy. Wage and salary income was only up four 0:07:16.080 --> 0:07:20.800 tenths of a percent, and you had some very odd numbers. 0:07:20.920 --> 0:07:24.560 Rental income up one point six percent, And there was 0:07:24.560 --> 0:07:28.600 an element of that also in the CPI report, where 0:07:28.720 --> 0:07:34.040 the owner's equivalent rent appeared to have been pushed up 0:07:34.480 --> 0:07:40.400 by a change in the waiting on the single family homes, 0:07:40.440 --> 0:07:45.800 and that's very inside baseball, and he's going to want 0:07:45.880 --> 0:07:47.559 to know what's happening to the trend. 0:07:47.560 --> 0:07:47.720 Now. 0:07:47.760 --> 0:07:51.360 The trend is we have at this point a fairly 0:07:51.480 --> 0:07:56.080 solid economy and inflation that is slowly coming down. So 0:07:56.360 --> 0:07:59.640 why does he want to do anything at this point? 0:08:00.160 --> 0:08:04.400 You can't imagine that financial conditions are tight, given where 0:08:04.400 --> 0:08:11.320 the equity market is, for example, So just sit on 0:08:11.360 --> 0:08:16.640 your hands and enjoy it. And the people who thought 0:08:17.600 --> 0:08:22.280 that the economy would have been destroyed by the FED 0:08:22.400 --> 0:08:25.760 raising interest rates from zero to five and a quarter 0:08:25.840 --> 0:08:30.720 to five and a half percent, that just didn't come back. 0:08:30.800 --> 0:08:34.440 So you know, if it's not broken, don't do anything. 0:08:34.480 --> 0:08:37.600 What you just heard there, folks, it's leap Day. That's 0:08:37.640 --> 0:08:40.920 our inside of February, all twenty nine days. Paul I 0:08:41.040 --> 0:08:44.360 can't say enough about John Writing. And I grew up 0:08:44.640 --> 0:08:47.360 where a central bank was allowed to sit on their hands, 0:08:47.800 --> 0:08:51.079 and with the financial media today where we want action. 0:08:51.280 --> 0:08:54.840 It's like Michael Barr, he's addicted to Detroit Tiger's action. 0:08:55.000 --> 0:08:58.160 The answer is action. What's the FED going to do next? 0:08:58.200 --> 0:08:58.280 This? 0:08:58.520 --> 0:09:01.480 The parlor game is a new era, and to sit 0:09:01.559 --> 0:09:04.360 in your hands. Nobody wants that, and they're wrong. Sit 0:09:04.440 --> 0:09:04.840 in your hands. 0:09:04.840 --> 0:09:06.360 It seems like they're doing okay. 0:09:06.600 --> 0:09:08.960 Hey, John, you know I saw also the data coming 0:09:09.000 --> 0:09:12.800 out today, personal income of one percent, well above expectations, 0:09:13.080 --> 0:09:16.120 Personal spending up to zero point two percent, right aligned 0:09:16.120 --> 0:09:19.840 with expectations. Boy, the consumer strong. Does it surprise you 0:09:20.240 --> 0:09:22.079 how strong the consumer seems to be? 0:09:24.720 --> 0:09:28.840 I think there is some elements of surprise. But bear 0:09:28.880 --> 0:09:35.080 in mind, you have enormous amounts of wealth, given what's 0:09:35.120 --> 0:09:38.719 happened in the equity market and also housing, which is 0:09:38.760 --> 0:09:43.240 an extremely important asset for so many people. You know, 0:09:43.360 --> 0:09:47.720 housing wealth hasn't been declining. House prices didn't really have 0:09:47.800 --> 0:09:51.800 a trench with this move up, which in mortgage rates. Now, 0:09:52.440 --> 0:09:56.079 as I said, the personal income of one percent, I 0:09:56.120 --> 0:10:00.640 would ignore that's that's that's clearly an anomaly in the data. 0:10:00.960 --> 0:10:04.000 I would look at the trend in ways in the 0:10:04.080 --> 0:10:07.480 salary income, and that's rising four to five pence of 0:10:07.520 --> 0:10:10.920 a percent per month, around five percent per year. Inflation 0:10:11.600 --> 0:10:14.080 is running it between two and a half and three 0:10:14.160 --> 0:10:16.880 percent on these data, So that's your increase two and 0:10:16.920 --> 0:10:19.679 a half percent or so, is your increase trend increase 0:10:19.720 --> 0:10:24.239 in real income, and that's pretty good for the consumer. 0:10:25.440 --> 0:10:29.800 Not spectacular, but pretty good. And so until the employment 0:10:30.360 --> 0:10:34.240 market shows signs of cracking, the FED probably isn't too 0:10:34.240 --> 0:10:37.360 worried about the real economy and the job as claims. 0:10:37.440 --> 0:10:43.800 Data which we haven't mentioned we continue, which continue to 0:10:43.800 --> 0:10:47.080 hold near the two hundred thousand level, suggests that companies 0:10:47.160 --> 0:10:53.520 aren't in total making mass layoffs. So the employment market 0:10:53.760 --> 0:10:56.360 is holding, in the jobs markets, holding in job creations, 0:10:56.360 --> 0:11:01.920 holding and will know more next job's number doesn't come 0:11:01.920 --> 0:11:05.400 out tomorrow. It's a delay. We'll no more next Friday. 0:11:06.559 --> 0:11:08.720 But I want to I just want to think, you know, 0:11:08.960 --> 0:11:11.120 the other conversation about cutting rates that you're having with 0:11:11.200 --> 0:11:13.880 IR it's a key point. I keep making it. I 0:11:13.880 --> 0:11:17.160 can't make it enough times. There is an enormous difference 0:11:17.679 --> 0:11:21.560 between cutting interest rates in this environment and easing policy. 0:11:21.920 --> 0:11:24.640 The FED can cut rates two or three times this 0:11:24.800 --> 0:11:28.600 year as inflation comes down, and not ease policy, because 0:11:28.640 --> 0:11:32.800 inflation's coming down, right, and so real interest rates would 0:11:32.880 --> 0:11:35.240 rise in interest rates so just for inflation would rise 0:11:35.520 --> 0:11:38.200 if the FED doesn't cut rig But the problem is 0:11:38.920 --> 0:11:41.800 a FED has not done a good job communicating that, 0:11:42.480 --> 0:11:47.000 and that started with the December FENC press conference. 0:11:47.360 --> 0:11:49.120 Yeah, I mean a run out of time, John, But 0:11:49.160 --> 0:11:51.040 I really take your point on the residual that the 0:11:51.040 --> 0:11:54.320 FED has not communicated the real yield dynamics are I 0:11:54.320 --> 0:11:56.440 think they think it's too complicated for the public. I 0:11:56.480 --> 0:11:59.520 got thirty seconds. Where's our nominal GDP? 0:11:59.760 --> 0:11:59.960 Right now? 0:12:00.240 --> 0:12:03.480 Where's our animal spirit? Are we way above four. 0:12:03.280 --> 0:12:10.840 Percent nominal GDP? You saw the real GDP with three 0:12:10.840 --> 0:12:13.679 point two percent in the fourth quarter. We're probably running 0:12:13.720 --> 0:12:16.560 around five percent and that is in line with those 0:12:16.600 --> 0:12:18.120 ways and salary incomes. 0:12:18.640 --> 0:12:21.160 So yeah, that's an. 0:12:21.080 --> 0:12:25.720 Environment back in the old days of nominal thoughts of 0:12:25.720 --> 0:12:28.800 nominal GDP targeting with three percent real growth which the 0:12:28.800 --> 0:12:31.679 economy can't achieve right now on a sustained basis, and 0:12:31.720 --> 0:12:34.760 two percent inflation. Five percent is about right. There's no 0:12:34.960 --> 0:12:38.600 sign despite the level of race of monetary tightness. 0:12:38.800 --> 0:12:51.120 Gospel. They're from John writing, thank you so much. Francis 0:12:51.200 --> 0:12:54.280 Donald joins us now from manual Life. Francis, if we 0:12:54.360 --> 0:12:58.760 get a decent economy, is the residual the nominal rate 0:12:58.960 --> 0:13:03.000 less dis inflation going to lead to a higher real 0:13:03.120 --> 0:13:07.679 rate that gums up the financial system. 0:13:08.080 --> 0:13:12.560 I feel like that's a third trimester test question for 0:13:12.600 --> 0:13:14.800 which I have to do some side notes in the margin. 0:13:16.200 --> 0:13:21.360 So yes, the issue now is that we are seeing 0:13:21.440 --> 0:13:24.000 less inflation in the system. And if you are real 0:13:24.080 --> 0:13:29.160 rates minded, that is, you look at nominal rates minus inflation, 0:13:29.600 --> 0:13:32.520 then the real rate will naturally climb. And if you 0:13:32.600 --> 0:13:35.320 believe that the real rate is the major rate that 0:13:35.360 --> 0:13:39.040 controls what's happening in the economy, policy is becoming increasingly 0:13:39.240 --> 0:13:44.240 tighter without FED cuts. And this is in some ways 0:13:44.240 --> 0:13:47.720 the most important question, Tom, because at this point there 0:13:47.760 --> 0:13:50.880 doesn't appear to be any evidence that the FED should 0:13:50.880 --> 0:13:53.480 be cutting, and yet they've told us that they will 0:13:53.480 --> 0:13:55.520 begin an easing cycle later this year, and so have 0:13:55.600 --> 0:13:59.040 other central banks. And the question is are they doing 0:13:59.040 --> 0:14:01.520 this to target the real day or do they actually 0:14:01.559 --> 0:14:04.240 think the economy will slow? And this isn't just a 0:14:04.320 --> 0:14:08.960 technical adjustment. I think they're going to try to continue 0:14:08.960 --> 0:14:12.199 this soft landing narrative and say we're real rates folks. 0:14:12.840 --> 0:14:14.840 My take, of course, Tom and Paul, as you know, 0:14:14.960 --> 0:14:17.520 is that the economy will slow materially later this year, 0:14:17.679 --> 0:14:19.280 not yet, but certainly later. 0:14:19.360 --> 0:14:21.520 That's okay. So that's exactly where I wanted to go. 0:14:21.560 --> 0:14:25.760 Francis from reading your research, You've been consistent concerned about 0:14:25.800 --> 0:14:28.280 the US economy. Barish on the US economy preps, as 0:14:28.320 --> 0:14:30.840 you suggest, when you get data today like with like 0:14:30.920 --> 0:14:35.200 personal income, personal spending, when you get the jobs data, 0:14:35.320 --> 0:14:39.360 does that dent your cautiousness about the US economy at all? 0:14:41.640 --> 0:14:44.880 You know, on balance, I am a little bit worried 0:14:44.920 --> 0:14:47.520 about the math. When are the two quarters of negative 0:14:47.560 --> 0:14:50.440 GDP going to arise, because that, of course would be 0:14:50.480 --> 0:14:54.000 what will qualify as a US recession. However, you know, 0:14:54.160 --> 0:14:57.880 there is almost nothing happening right now that didn't happen 0:14:58.080 --> 0:15:02.080 immediately before recessions route history. So much of what we 0:15:02.080 --> 0:15:04.360 hear is how this time is different, and the models 0:15:04.360 --> 0:15:07.120 are broken, and there are certainly things that are different. 0:15:07.160 --> 0:15:10.480 There are elements that are different. But we saw very 0:15:10.560 --> 0:15:13.560 strong growth prior to every recession that's come through. It 0:15:13.600 --> 0:15:17.440 has always been on average two years from rate hikes 0:15:17.440 --> 0:15:20.240 starting to its impact on the economy, which is sometime 0:15:20.400 --> 0:15:22.920 in the next six months. We have always seen a 0:15:23.000 --> 0:15:25.960 surge in soft landing arguments right before, and markets are 0:15:26.000 --> 0:15:29.160 strong prior to recessions. So there is no data now 0:15:29.240 --> 0:15:31.280 that tells me, you know, I need to be less 0:15:31.280 --> 0:15:35.640 concerned that very typical economic relationships, like when things cost more, 0:15:35.720 --> 0:15:38.120 you spend less. I can't throw those out the window, 0:15:38.200 --> 0:15:40.280 even though I can agree that some things are different. 0:15:40.680 --> 0:15:43.000 But yes, the timing of this is of course the 0:15:43.040 --> 0:15:46.960 really big challenge, and the timing is complicated by Washington 0:15:47.320 --> 0:15:49.400 and fiscal spending that's coming through. But I'll just add 0:15:49.400 --> 0:15:53.440 one thing here. The US, of course not in a recession, 0:15:53.800 --> 0:15:56.880 but most of the G seven is near or in 0:15:56.960 --> 0:16:01.960 a technical recession. Japan, UK, Germany and France are very close. 0:16:02.000 --> 0:16:04.400 They're kind of coming off on decimal points. So the 0:16:04.440 --> 0:16:06.960 whole recession or no recession call first of all far 0:16:07.000 --> 0:16:09.680 too binary, but also a US versus rest of the 0:16:09.680 --> 0:16:12.720 world call, And for most investors, I think that trade 0:16:12.800 --> 0:16:15.120 is far more important than are we going to get 0:16:15.120 --> 0:16:17.400 two quarters of negative dUTP? Which yes, I think we will, 0:16:18.040 --> 0:16:20.120 but I think that's most important. 0:16:20.440 --> 0:16:24.240 How unusual relatively, I'm glad you called out kind of 0:16:24.240 --> 0:16:27.920 the US what some people will call economic exceptionalism here 0:16:28.600 --> 0:16:28.960 visa to. 0:16:28.880 --> 0:16:30.440 Be the rest of the world in terms of economy. 0:16:30.480 --> 0:16:33.440 How unusual is that Francis to have I guess the 0:16:33.560 --> 0:16:35.680 US doing one way, going one way, and the rest 0:16:35.680 --> 0:16:37.960 of the world governed another well. 0:16:37.960 --> 0:16:39.640 When I came up in the business, we would often 0:16:39.680 --> 0:16:42.880 be told the US consumer is the most important thing 0:16:42.920 --> 0:16:46.280 globally because the US economy is driven by the US consumer. 0:16:46.560 --> 0:16:49.680 And in this case, there is one peculiar thing happening 0:16:49.680 --> 0:16:53.200 in the cycle that has contributed to US exceptionalism, and 0:16:53.240 --> 0:16:56.240 that is that the manufacturing cycles and the services cycles 0:16:56.240 --> 0:16:59.960 are extremely disconnected. This was the twenty twenty three recession mistake, 0:17:00.440 --> 0:17:03.440 which is that all of the manufacturing indicators suggested we 0:17:03.440 --> 0:17:06.720 were heading into a recession. And historically the lag between 0:17:06.720 --> 0:17:10.000 manufacturing and services is very short, but it hasn't happened. 0:17:10.040 --> 0:17:14.240 So manufacturing exposed economies they're really doing poorly right now, 0:17:14.240 --> 0:17:15.879 and in fact they've done so poorly they might be 0:17:15.880 --> 0:17:18.600 coming out of it. But services based economies like the 0:17:18.720 --> 0:17:22.080 United States have had resilience. What is very different this time, 0:17:22.080 --> 0:17:24.320 and I think this has caught investors off guard, is 0:17:24.320 --> 0:17:27.040 that typically it's the FED or the US that leads 0:17:27.040 --> 0:17:30.120 the easing and hiking cycles. That didn't happen right now now. 0:17:30.119 --> 0:17:32.399 It's actually emerging market. So if you count out the 0:17:32.440 --> 0:17:34.280 amount of central banks that are easing right now, one 0:17:34.320 --> 0:17:37.879 in four global central banks is already cutting rates. The US, 0:17:37.880 --> 0:17:39.440 instead of being at the front of that pack, is 0:17:39.480 --> 0:17:41.160 probably going to be near the end of the pack. 0:17:41.359 --> 0:17:43.200 That's very different this time around. 0:17:43.440 --> 0:17:46.880 Francis, how's a Canadian economy doing? You know, I think 0:17:46.920 --> 0:17:49.280 our basic take as we cover it, way too little 0:17:50.160 --> 0:17:53.280 with manual life out of Montreal and across all of Canada, 0:17:53.480 --> 0:17:56.919 goods producing, the mining cliches in that give us just 0:17:57.000 --> 0:18:00.880 a quick snapshot of how Canada is doing well. 0:18:00.920 --> 0:18:03.320 I'm so happy you asked. We did get Canadian GDP 0:18:03.480 --> 0:18:06.520 this morning, and Canada of birded a recession. They had 0:18:06.600 --> 0:18:10.680 negative GDP last quarter. But Canada is in a little 0:18:10.720 --> 0:18:14.159 bit more trouble than the United States because of how 0:18:14.200 --> 0:18:17.200 exposed to rates it is. And again this is another 0:18:17.359 --> 0:18:19.560 differential between the US and the rest of the world, 0:18:19.640 --> 0:18:22.720 is what is your rate sensitivity. Canada, of course, is 0:18:22.720 --> 0:18:26.800 seeing a more material pull back consumer spending, consumer confidence 0:18:26.880 --> 0:18:30.000 is very different, and the economy basically hasn't grown in 0:18:30.040 --> 0:18:33.160 a year. So there's no soft landing versus hard landing 0:18:33.160 --> 0:18:36.159 discussion in Canada. It's very clearly hard landing and it 0:18:36.200 --> 0:18:38.400 comes down to the rate sensitivity. The US, of course, 0:18:38.400 --> 0:18:40.920 because of its housing market, very differently exposed. 0:18:41.040 --> 0:18:44.639 Francis, Thank you, Francis donald Is with manual Life with 0:18:44.720 --> 0:18:47.640 a greade over there of the data that we saw 0:18:47.680 --> 0:18:54.960 that was market moving, Drew Matis with us, and Drew, 0:18:55.000 --> 0:18:57.960 I'm going to surprise you here, and I understand I 0:18:57.960 --> 0:19:01.240 don't want you to talk about MetLife, pension plans or 0:19:01.560 --> 0:19:06.080 actuarial theory. But Jillian Tann out with an inside baseball 0:19:06.240 --> 0:19:10.840 pension story today how and it's still around Eastman Kodak 0:19:10.880 --> 0:19:15.840 Company is disbanding their team that manages four billion of 0:19:15.920 --> 0:19:20.200 pension in the summary of this complexity is because they're 0:19:20.240 --> 0:19:24.399 making so much money. That's why. So Drew, let's go 0:19:24.440 --> 0:19:27.840 to the wealth effect here of the post pandemic market 0:19:27.880 --> 0:19:29.920 that we're seeing. And I don't mean to talk about MetLife, 0:19:29.960 --> 0:19:33.000 I know that's inappropriate. But are we in a massive 0:19:33.040 --> 0:19:37.480 wealth creation right now, Drew, of price up, yield down, 0:19:37.640 --> 0:19:39.040 and equities up. 0:19:40.560 --> 0:19:42.440 Well, I think we're you know, there's a lot of 0:19:42.480 --> 0:19:45.640 signs that we're still a wash in liquidity. So that 0:19:45.800 --> 0:19:49.000 kind of raises a great question about quantitative tightening and 0:19:49.040 --> 0:19:52.639 how important quantitative tightening is and whether or not we 0:19:52.680 --> 0:19:56.480 should really be you know, the FED should actually really 0:19:56.480 --> 0:19:58.800 be talking about dialing back quantitative tightening. 0:19:59.040 --> 0:19:59.240 You know. 0:19:59.280 --> 0:20:02.000 I my opinion is the balance sheets way too large, 0:20:02.920 --> 0:20:07.159 significantly too large, and that it's too large, and you 0:20:07.200 --> 0:20:09.480 know it's too large because there are no signs of 0:20:09.520 --> 0:20:13.360 stress in funding markets, right, and so that's an abnormal thing. 0:20:13.560 --> 0:20:16.480 What you actually do want during periods of the year 0:20:16.600 --> 0:20:19.720 is for there to be stressed in funding markets. Think 0:20:19.760 --> 0:20:22.720 of it as, you know, getting a fever and then 0:20:22.960 --> 0:20:26.240 realizing that you're sick. If you never get a fever, 0:20:26.800 --> 0:20:29.000 you know, the sickness is going to be the thing 0:20:29.000 --> 0:20:32.159 that surprises you, whereas you want the symptoms to actually 0:20:32.200 --> 0:20:36.040 be there so that market participants and people like the 0:20:36.080 --> 0:20:38.360 FED can understand that there are issues in the market 0:20:39.080 --> 0:20:42.320 and a lot you know, the amount of liquidity where 0:20:42.320 --> 0:20:44.920 a washing is actually disrupting a whole bunch of signals 0:20:44.920 --> 0:20:47.439 that I think is leaving us blind to some risks. 0:20:48.160 --> 0:20:52.080 So, Drew, I'm just looking at the CPE data. I mean, 0:20:52.440 --> 0:20:56.000 I'm sorry, the PC data, Thank you, Tom, the p 0:20:56.480 --> 0:20:59.399 E I E I O exactly. But if I'm the 0:20:59.400 --> 0:21:02.760 Federal Reserve, I look at that data, I don't see 0:21:02.760 --> 0:21:05.680 a need to cut rates here. I mean, do you 0:21:05.680 --> 0:21:08.960 think this better reserve can kind of outlast the market 0:21:08.960 --> 0:21:10.159 here in terms of waiting. 0:21:11.640 --> 0:21:14.600 So I'll go. I'll go somewhere I never thought i'd go. 0:21:14.680 --> 0:21:18.120 And you know, I think Larry Summers is right. I mean, 0:21:18.240 --> 0:21:20.240 there's got to be some chance that they hike rates 0:21:20.240 --> 0:21:25.840 in this environment. And you know, the reason being is simply, 0:21:25.880 --> 0:21:28.760 you know, three point seven percent unemployment rate and inflation 0:21:29.000 --> 0:21:31.280 well above your target. How long do you let that 0:21:31.359 --> 0:21:34.280 persist for? It's one thing, if unemployment is beginning to 0:21:34.320 --> 0:21:36.840 move higher, then you can argue, well, we know inflation 0:21:36.920 --> 0:21:38.880 will gradually come down, or we can have a high 0:21:38.920 --> 0:21:42.639 expectation that will come down. But if if unemployment is 0:21:42.680 --> 0:21:44.800 not moving higher and inflation is just kind of staying 0:21:44.800 --> 0:21:48.040 where it's at, you know, it doesn't make sense to 0:21:48.040 --> 0:21:49.920