WEBVTT - Spotlight on Buffett’s Annual Letter 0:00:01.280 --> 0:00:05.640 This is Bloomberg Business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:20.000 --> 0:00:22.960 We'll set your alarms everyone, because tomorrow we will get 0:00:23.000 --> 0:00:26.880 Warren Buffett's always closely watched annual letter to shareholders, along 0:00:26.920 --> 0:00:30.440 with Berkshire's full year twenty twenty two results. This is 0:00:30.480 --> 0:00:33.279 coming about eleven days after we got news that Buffett 0:00:33.640 --> 0:00:36.720 had slashed his holding of TSM. We're talking about Taiwan 0:00:36.840 --> 0:00:41.159 Semiconductor Manufacturing, just months after disclosing a major stake, an 0:00:41.200 --> 0:00:44.200 unusually quick reversal by the legendary stock picker who tends 0:00:44.200 --> 0:00:47.120 to buy and hold in a big way. Yeah. And also, 0:00:47.240 --> 0:00:51.080 just Berkshire is such a beloved like we love to 0:00:51.120 --> 0:00:53.680 watch it, We love to analyze this letter. So we're 0:00:53.720 --> 0:00:56.080 going to break it down with Bloomberg News Regional Banks 0:00:56.080 --> 0:00:58.840 and Insurance reporter at Max Reyes. He's here with us 0:00:58.840 --> 0:01:01.760 in our Bloomberg Interact of Broker's studio. Max, thank you 0:01:01.800 --> 0:01:04.640 so much for joining us to talk about this. First 0:01:04.640 --> 0:01:07.039 of all, just to give us the breakdown on why 0:01:07.280 --> 0:01:10.880 we know and love this annual letter so much. Sure, 0:01:10.920 --> 0:01:13.280 I mean, I think there are a lot of executives 0:01:13.319 --> 0:01:15.959 who do these, but Warren Buffett really sort of set 0:01:16.000 --> 0:01:18.720 the template. He set the mold when it comes to 0:01:18.959 --> 0:01:22.440 doing them. Buffett is known for talking about any number 0:01:22.480 --> 0:01:26.240 of things. Very often returns to his love for and 0:01:26.280 --> 0:01:29.680 his major bets on the US economy, but you know, 0:01:29.959 --> 0:01:32.080 literally anything could come up. The one thing I would 0:01:32.080 --> 0:01:34.880 say is that he's become a bit more reserved in 0:01:34.959 --> 0:01:38.080 terms of what he talks about. But it's I'm still 0:01:38.080 --> 0:01:41.800 expecting to see some surprises tomorrow. You never know. Last year, 0:01:41.880 --> 0:01:44.600 for the first time, he gives them space to Greg Abele, 0:01:44.640 --> 0:01:47.080 who's sort of the air apparent there. So I'm just 0:01:47.080 --> 0:01:49.279 curious to see what he has in store for us. Okay, 0:01:49.280 --> 0:01:53.240 real quickly, on that succession plan, do you anticipate any 0:01:53.280 --> 0:01:55.760 more of that coming up in the letter coming out tomorrow? 0:01:55.880 --> 0:01:58.360 I really don't want to jinx it, but that's what 0:01:58.400 --> 0:02:01.080 you're hoping for, So I think I don't think we'll 0:02:01.120 --> 0:02:03.240 hear more about what Buffett is wanting to do. I 0:02:03.280 --> 0:02:06.680 think Buffett will you know, he's there for the long term, right. 0:02:06.880 --> 0:02:09.120 But what we what we have been hearing, what we 0:02:09.480 --> 0:02:11.799 have been wondering about, is whether or not there might 0:02:11.840 --> 0:02:16.560 be plans around declaring or noting Joe Brandon, who runs 0:02:16.639 --> 0:02:20.680 Allegheny the the insurer they bought last year, whether or 0:02:20.680 --> 0:02:23.120 not that might make it clear that he's ready or 0:02:23.400 --> 0:02:27.160 trime to take over the insurance business. Right. Um, currently 0:02:27.200 --> 0:02:29.840 a g Jane runs that, but it's unclear how long 0:02:29.840 --> 0:02:31.960 he'll be there, how long he'll stay, and whether or 0:02:32.000 --> 0:02:36.480 not there are thoughts about making a sort of clear 0:02:36.919 --> 0:02:39.480 indication as to who's going to be in that role next. 0:02:39.600 --> 0:02:44.720 But we know really who the successor is, right for Buffett, Yeah, Yeah, 0:02:44.840 --> 0:02:47.200 that's that's Greg. That's Greg Gabel And so we think 0:02:47.280 --> 0:02:49.800 Jane will ultimately leave because that those two were in 0:02:49.800 --> 0:02:52.440 the running for a while sort of. Yeah, so so 0:02:52.520 --> 0:02:56.079 right now they're both vice chairmen. Essentially, Jane runs all 0:02:56.120 --> 0:03:00.639 of the insurance. Greg Abele runs everything else, ventially non 0:03:00.639 --> 0:03:02.640 insurance as they call it. But insurance has been a 0:03:02.680 --> 0:03:05.680 big business for it's sort of the business, and that 0:03:05.800 --> 0:03:08.360 it is what allowed Berkshire to be Berkshire. Right. They 0:03:08.440 --> 0:03:11.280 use the cash that the insurance businesses generate to do 0:03:11.400 --> 0:03:13.240 all of the deals and all of the stock picks 0:03:13.280 --> 0:03:15.640 that we love to talk about. Right. So, but having 0:03:15.680 --> 0:03:19.440 said that, are we expecting at some point Jane, because yeah, 0:03:19.440 --> 0:03:21.639 just as he gets older, you know, as as the 0:03:21.720 --> 0:03:24.160 company evolves, and kind of going back to what we 0:03:24.160 --> 0:03:27.160 were saying about Taiwan semi right, that's another sign of 0:03:27.200 --> 0:03:30.440 how Berkshire is changing, not just in terms of the leadership, 0:03:30.520 --> 0:03:32.959 but in how those stock decisions are being made, what 0:03:33.160 --> 0:03:35.720 stocks are picking, how long they are in them when 0:03:35.720 --> 0:03:38.640 they rotate out. That kind of comes down to very 0:03:38.640 --> 0:03:42.400 often Buffet's deputies, you know, Todd Combs and then Ted Weschler. 0:03:42.800 --> 0:03:46.440 So I think what we're seeing is Berkshire slowly but 0:03:46.520 --> 0:03:49.080 surely moving towards this era where a lot of the 0:03:49.080 --> 0:03:51.560 folks at the top who have been there basically forever 0:03:51.960 --> 0:03:56.160 eventually are not How are your sources reading the swift 0:03:56.320 --> 0:04:00.920 change on TSMC? Is it as big of a deal 0:04:00.960 --> 0:04:03.360 as it seems? It's a big question mark. A lot 0:04:03.400 --> 0:04:05.400 of folks who I spoke to say that they think 0:04:05.400 --> 0:04:08.800 it's indicative of a bet, that that bet was made 0:04:08.800 --> 0:04:11.800 by Todd or Ted, because again Buffett is known for 0:04:11.880 --> 0:04:15.080 really sticking around there are some exceptions to that he 0:04:15.400 --> 0:04:18.040 did something that looks kind of similar on Oracle. The 0:04:18.440 --> 0:04:20.760 real thing that makes this difficult to sort out is 0:04:20.760 --> 0:04:24.680 the fact that unless Buffett talks about it, either in 0:04:24.680 --> 0:04:26.520 the letter or the annual meeting, we just won't know 0:04:26.880 --> 0:04:29.480 who made the call. He's gone out of his way 0:04:29.720 --> 0:04:32.360 on some occasions to spell out this is my chunk 0:04:32.360 --> 0:04:34.719 of the portfolio, this is someone else's, but it's not 0:04:34.760 --> 0:04:36.800 always clear. So that's the thing that we also have 0:04:36.839 --> 0:04:39.480 to sort of wonder about well. And it's interesting because 0:04:39.480 --> 0:04:41.280 for such a long time, right, Berkshire was really kind 0:04:41.320 --> 0:04:44.400 of your old line companies, right. We know. It was jewelry, 0:04:44.440 --> 0:04:46.880 it was chocolate, it was trained, it was like things 0:04:46.920 --> 0:04:50.360 that you felt like the old time economy, if you will. 0:04:50.360 --> 0:04:53.040 And then when it made the Apple investment a few 0:04:53.120 --> 0:04:55.679 years ago, we realized, okay, things were a little bit different. 0:04:55.720 --> 0:04:58.720 Right now, the younger generation, if you will, at Berkshire 0:04:59.040 --> 0:05:02.520 was certainly making it's mark. Yeah, I mean to your point, right, 0:05:02.720 --> 0:05:05.680 Buffett in Berkshire are kind of infamous for how late 0:05:05.720 --> 0:05:08.279 that they woke up to the sort of value of tech. 0:05:08.839 --> 0:05:13.400 But we are definitely seeing changes there. There's right, there's 0:05:13.440 --> 0:05:16.320 any kind of number of metaphors about how a ship 0:05:16.400 --> 0:05:17.800 is slow to turn or that sort of thing. What 0:05:17.800 --> 0:05:20.479 we are seeing at turn, We're seeing these changes coming about. 0:05:20.839 --> 0:05:23.039 I do wonder in terms of bigger, broader macro like 0:05:23.040 --> 0:05:24.960 if you think about it, I still remember during the 0:05:24.960 --> 0:05:28.080 financial crisis when I want to say, I can't remember 0:05:28.200 --> 0:05:30.760 was it who Buffett was on with? Was it Jamie 0:05:30.800 --> 0:05:34.000 Diamond on sixty minutes? And I remember working in like 0:05:34.040 --> 0:05:37.120 the dark depths, but who basically went on and like 0:05:37.440 --> 0:05:40.320 provided some comfort for everyone, you know, in terms of 0:05:40.360 --> 0:05:43.279 talking about the US economy it's going to exist, and 0:05:43.480 --> 0:05:45.200 my faith in America and those kinds of things. And 0:05:45.240 --> 0:05:48.640 we've seen him in times of stress certainly come out 0:05:48.960 --> 0:05:52.279 and lend his support. We're at this interesting juncture of 0:05:52.279 --> 0:05:54.960 trying to figure out what post pandemic life is like, right, 0:05:55.040 --> 0:05:57.800 and we talk a lot about the FED and high inflation. 0:05:58.480 --> 0:06:01.080 Is it safe to assume that he will dress some 0:06:01.160 --> 0:06:03.120 of these in terms of high inflation, some of the 0:06:03.160 --> 0:06:06.440 big macro stories that are out there. I wish I 0:06:06.480 --> 0:06:08.599 could say yes, and we'll definitely see that, I know, 0:06:08.680 --> 0:06:10.560 we hope. So yeah, again, it's the kind of thing 0:06:10.640 --> 0:06:13.719 where but he tends to touch on the exactly. So 0:06:13.960 --> 0:06:17.400 our assumption is it he'll talk the macro picture, he'll 0:06:17.640 --> 0:06:19.960 walk us through what he sees there, what he thinks there. 0:06:20.320 --> 0:06:23.280 But I don't want to commit to any promises that 0:06:23.320 --> 0:06:25.400 I won't be able to keep come tomorrow morning when 0:06:25.400 --> 0:06:27.640 we see what the case actually is. Well, another story 0:06:27.680 --> 0:06:30.120 I love and the Buffet space is I think it 0:06:30.200 --> 0:06:32.800 was Lebron James. He gave him the investment advice to 0:06:32.800 --> 0:06:35.520 play basketball, right, like, just be good at what you're 0:06:35.520 --> 0:06:37.600 good at, put your money in an index fund. Do 0:06:37.680 --> 0:06:39.360 you mean if it wasn't for Warren, we wouldn't have 0:06:39.440 --> 0:06:43.000 Lebron James. I mean it's possible that he's responsible for Lebron. Right, 0:06:43.440 --> 0:06:45.440 I can't believe I'm talking about sports. This is so 0:06:45.480 --> 0:06:49.120 out of character. But is that investment advice of just 0:06:49.200 --> 0:06:53.520 like stick to a traditional index fund still the mainstay 0:06:53.800 --> 0:06:56.080 of Warren Buffet in Berkshire or do you think it 0:06:56.240 --> 0:06:59.800 is starting to modernize a bit? I think I think 0:07:00.080 --> 0:07:02.440 this is might be not a super helpful answer. But 0:07:02.520 --> 0:07:05.640 what you're saying about sports there, Buffett and people in 0:07:05.680 --> 0:07:08.160 a circle have always stuck to this sort of stick 0:07:08.160 --> 0:07:11.640 to what you're good at ideology. There's actually Charlie Munger 0:07:11.640 --> 0:07:14.160 once said something along lines of, you know, Buffett just 0:07:14.640 --> 0:07:16.720 keeps his head down and focuses on what he needs 0:07:16.760 --> 0:07:18.960 to do to make the company run well and does 0:07:19.040 --> 0:07:20.680 lets the other stuff fall to the side. The same 0:07:20.680 --> 0:07:23.080 reason Buffet's good at his job. It's the same reason 0:07:23.120 --> 0:07:25.320 that Roger Federer is good at a tennis right. It's 0:07:25.320 --> 0:07:27.840 an idea that if you're focusing on what makes sense 0:07:27.840 --> 0:07:30.040 to you and what you know well, and you just 0:07:31.200 --> 0:07:33.800 knock that out right, that's the best thing you can do. 0:07:33.920 --> 0:07:35.880 So if those strategies have been working for you, that 0:07:36.040 --> 0:07:39.000 makes sense. I feel like Berkshire thinks that its strategies 0:07:39.000 --> 0:07:41.080 have been making sense. That's that kind of thing. So 0:07:41.240 --> 0:07:44.320 his strategy is not shifting, then this isn't ye, I 0:07:44.360 --> 0:07:46.600 would say. I would say that Buffett's doing his own thing. 0:07:46.760 --> 0:07:49.080 His deputies are doing what they're doing, that sort of thing. Yeah, 0:07:49.120 --> 0:07:52.720 he definitely has. He does his thing for sure. Shares 0:07:52.720 --> 0:07:55.440 a Berkshire. I'm just looking at them Class A shares. 0:07:55.440 --> 0:07:59.080 They're just down about one percent so far here in 0:07:59.160 --> 0:08:02.480 twenty twenty three. They were up about four percent last year. 0:08:02.480 --> 0:08:04.400 We're going to get full year results what are you 0:08:04.440 --> 0:08:08.520 watching out for it in that regard? Well, So I 0:08:08.680 --> 0:08:11.600 also cover the insurance world pretty closely, so I'm I'm 0:08:11.680 --> 0:08:13.520 kind of an insurance nerd. I'm really curious about what 0:08:13.520 --> 0:08:19.800 we see with Geico. Overall, the results for auto insurers 0:08:19.840 --> 0:08:22.440 across the board have been really difficult because inflation has 0:08:22.440 --> 0:08:26.480 squeezed margins, squeezed out the profitability, And what people really 0:08:26.480 --> 0:08:29.160 want to see is a better sense of what Berkshire 0:08:29.400 --> 0:08:33.120 is doing to combat that, whether that's rate hikes, whether 0:08:33.160 --> 0:08:36.160 that's cutting back on advertising that sort of thing. We've 0:08:36.160 --> 0:08:40.280 gotten a lot of granularity, say advertise so much as yeah, yeah, 0:08:40.880 --> 0:08:44.240 the Gecko all that. So we've gotten a lot of 0:08:44.240 --> 0:08:47.960 granularity in visibility into that from other insurers. I'm keen 0:08:48.000 --> 0:08:50.480 to see what, if anything Berkshire has to say about 0:08:50.520 --> 0:08:54.400 that and how results compare to the sort of difficult 0:08:54.400 --> 0:08:57.439 period we've seen the last few years. Is there one 0:08:57.480 --> 0:09:02.120 particular data point or choice that's gonna be really critical 0:09:02.160 --> 0:09:05.120 for you that you're really on the lookout for on that? Uh, 0:09:06.040 --> 0:09:08.120 it's funny you said the press are here just because 0:09:08.160 --> 0:09:12.000 I control f It's just like succession buffett able. But 0:09:12.160 --> 0:09:15.800 on underwriting specifically, it's just whether or not you know, 0:09:16.240 --> 0:09:19.400 how how the bottom line looks, how underwriting profitability is 0:09:19.400 --> 0:09:21.440 shaping up. Just those factors are going to be what 0:09:21.480 --> 0:09:24.880 determines kind of trajectory at Ico just twenty seconds, which 0:09:24.880 --> 0:09:26.800 of his businesses are doing the best right now? Because 0:09:26.800 --> 0:09:29.440 he's got energy, he's got railroad, he's got manufacturing, He's 0:09:29.480 --> 0:09:31.679 got a lot. Obviously the bets on energy have really 0:09:31.720 --> 0:09:35.000 been paying off. The railroad is a consistent performer, right, 0:09:35.040 --> 0:09:37.599 and that's that's what he looks for. He looks for utilities, 0:09:37.840 --> 0:09:40.040 the sorts of things that will bring in the cash 0:09:40.120 --> 0:09:42.400 in the long term consistently. Well, we really want to know, Max, 0:09:42.480 --> 0:09:43.360 is what time do you have to get up in 0:09:43.400 --> 0:09:47.640 the morning to like read this? What time doing am Eastern? Okay? Sorry, 0:09:47.800 --> 0:09:51.800 tough Friday night for you. We'll be looking forward to 0:09:51.840 --> 0:09:53.760 it because it's certainly a must read. Max. That was 0:09:53.800 --> 0:09:57.800 a great comprehensive background. Uh and and breakdown if you will, 0:09:57.840 --> 0:10:00.280 Max ray As he's Regional Banks and Insurance for Porter 0:10:00.400 --> 0:10:03.320 here at Bloomberg News, joining us in our interactive Brokers studio. 0:10:04.320 --> 0:10:07.880 You're listening to the Bloomberg Business Week podcast. Catch us 0:10:07.920 --> 0:10:11.600 live weekdays from two to five pm Eastern on Bloomberg Radio, 0:10:11.800 --> 0:10:14.720 The Bloomberg Business a band you two. You can also 0:10:14.800 --> 0:10:18.080 listen live to our flagship New York station, Just Say 0:10:18.200 --> 0:10:37.319 Alexa play Bloomberg eleven thirty. All right, speaking of pain, 0:10:37.640 --> 0:10:40.800 we know the strong dollar has created a lot of 0:10:40.960 --> 0:10:45.120 pain across global markets. We talk a lot about the dollar, 0:10:45.360 --> 0:10:48.680 it's impact on earnings, on emerging markets, and so much more. 0:10:49.080 --> 0:10:51.160 This is the US currency has been on a global 0:10:51.240 --> 0:10:55.320 rampage since the Fed started hiking interest rates. Now some 0:10:55.360 --> 0:10:57.960 of the world's biggest investors are saying, Mattie, we talked 0:10:57.960 --> 0:11:00.719 about this at the US dollars rain is finally over. 0:11:00.760 --> 0:11:02.719 So now we have to figure out what this ultimately 0:11:02.800 --> 0:11:05.920 means and what this means for global markets. Yeah, it's 0:11:06.000 --> 0:11:09.760 it's absolutely critical, and we've got an amazing voice on 0:11:09.760 --> 0:11:12.360 our program to talk about this. It's the amn or 0:11:12.440 --> 0:11:14.760 most read on the Bloomberg. It's today's big take. Here 0:11:14.760 --> 0:11:19.120 to discuss is Liz McCormack, chief correspondent for Global macro Markets, 0:11:19.240 --> 0:11:22.640 joining us from zoom here in NYC. Liz, thank you 0:11:22.640 --> 0:11:25.240 for being here with us. Tell us about just the 0:11:25.280 --> 0:11:29.960 status of the dollar. Give us the big context here. Yeah, 0:11:30.000 --> 0:11:32.320 so my colleague Ruth Carson, like you said, it had 0:11:32.320 --> 0:11:34.440 a great big take today that you know, there's a 0:11:34.440 --> 0:11:37.280 lot of investors and of course today was a crazy day, right, 0:11:37.360 --> 0:11:39.840 this hot data even talking about and yields one up 0:11:39.840 --> 0:11:42.280 and the dollar one up. But all that noise said, 0:11:42.800 --> 0:11:45.440 you know that investors are really a lot of them 0:11:45.520 --> 0:11:49.400 leaning into that. Really you know, huge high we saw 0:11:49.520 --> 0:11:52.160 last year and the dollar is just the peak. You 0:11:52.200 --> 0:11:54.959 know that things have gotten more inline. Other central banks 0:11:54.960 --> 0:11:57.960 are tightening as fast as the Fed. That maybe we've 0:11:58.000 --> 0:11:59.760 seen the worst of it. And like Carol said that 0:11:59.800 --> 0:12:02.040 it's been a lot of pain for a lot of folks, 0:12:02.080 --> 0:12:05.760 the strong dollars. So maybe you know, nois aside the 0:12:05.800 --> 0:12:08.200 worst of the dollar strength is over. That's the theme 0:12:08.280 --> 0:12:10.760 that people feel, Liz. How much of this is just 0:12:10.760 --> 0:12:13.120 what's going on with the Fed and the expectations that okay, 0:12:13.160 --> 0:12:15.680 we know the Feds on it's you know, fight against inflation. 0:12:15.720 --> 0:12:17.960 We're going to see some more higher rates. It's going 0:12:18.000 --> 0:12:20.080 to go on for a little while, but ultimately we're 0:12:20.080 --> 0:12:23.880 starting to see the end of the Fed's right rate 0:12:23.960 --> 0:12:26.800 hiking cycle. How much of that is impacting the dollar 0:12:26.840 --> 0:12:30.280 at this point, Well, I think that's a lot of it, right, 0:12:30.360 --> 0:12:32.560 Like like we said, when there's some noise and hot day, 0:12:32.600 --> 0:12:34.360 that moves around. But you know, I was talking to 0:12:34.360 --> 0:12:36.600 a fund manager yesterday, Carroll and kind of asked him 0:12:36.600 --> 0:12:38.800 the same exact thing, and he said, yeah, a lot 0:12:38.840 --> 0:12:41.480 of it is that that the FEDS may be closer 0:12:41.520 --> 0:12:43.760 to done. But then he was leaning and we're not 0:12:43.800 --> 0:12:47.120 seeing that yet. Into that, you know, the FEDS closer 0:12:47.160 --> 0:12:49.920 to done and all this tightening, which as we know, 0:12:50.040 --> 0:12:53.360 has a lagged effect. He sees a recession coming at 0:12:53.400 --> 0:12:55.800 the end of this year early twenty twenty four, and 0:12:55.880 --> 0:12:58.559 that the US is going to weaken sharply and that's 0:12:58.600 --> 0:13:01.000 going to be bad for the dollar, right, So I 0:13:01.040 --> 0:13:03.600 think it's the global mac we're all outlook, and you know, 0:13:03.679 --> 0:13:06.920 things globally've gotten a little better than they were, right. 0:13:07.000 --> 0:13:08.839 You know that Europe has done a good job at 0:13:08.840 --> 0:13:13.240 replacing Russian energy sources, right, and so that was better. 0:13:13.480 --> 0:13:16.840 China has reopened faster than some thought, So kind of 0:13:16.880 --> 0:13:19.320 things are helping the other currencies. As of course, the 0:13:19.320 --> 0:13:21.760 dollars always against a pair, right, And then the factors 0:13:21.800 --> 0:13:23.600 we're talking about with the fit and maybe a US 0:13:23.679 --> 0:13:27.240 recession coming faster is kind of kind of taken the 0:13:27.280 --> 0:13:30.680 dollar down. But we just got this paper from investors 0:13:30.679 --> 0:13:33.360 saying that we should go up to potentially a six 0:13:33.440 --> 0:13:36.920 point five percent terminal rate. I have to wonder, and 0:13:36.960 --> 0:13:38.880 I'd love for you to help me understand this, Liz. 0:13:39.080 --> 0:13:41.800 If we're going to get a higher terminal rate, why 0:13:41.800 --> 0:13:44.840 does that not mean a stronger green back? How have 0:13:44.960 --> 0:13:47.400 we already reached the peak then? And what are you 0:13:47.559 --> 0:13:51.240 and the people you speak with thinking about that? Well, Maddie, 0:13:51.240 --> 0:13:54.920 that's like the million dollar question. People saying where the terminal? Right? Right? 0:13:54.920 --> 0:13:57.160 So I saw that paper was great. They're saying six 0:13:57.200 --> 0:13:59.200 and a half. We've had some people on TV and 0:13:59.280 --> 0:14:02.840 on the radio saying it could be higher. But there's 0:14:02.840 --> 0:14:06.679 a lot of people saying, listen, the Fed's probably going 0:14:06.720 --> 0:14:08.719 to get to five and a quarter five and a 0:14:08.760 --> 0:14:10.960 half and maybe just stay there for a long time. 0:14:11.000 --> 0:14:16.280 So I think the jury's out from economists investors of actually, really, 0:14:16.320 --> 0:14:18.840 how high does the FED have to go? Like I think, 0:14:19.240 --> 0:14:21.320 in fact, Ruth had it in her story. One investor 0:14:21.360 --> 0:14:23.920 we talked to that said, listen, I don't think the 0:14:23.960 --> 0:14:25.920 Fed's got to get to six percent. Those were his 0:14:26.000 --> 0:14:28.640 exact words. I'm forgetting his name right now, but that 0:14:28.880 --> 0:14:31.440 some people think that five and a half. I mean, 0:14:31.440 --> 0:14:33.920 think about where we were about a year ago at zero, 0:14:34.160 --> 0:14:36.920 right five and a half. They've done a lot of tightening. 0:14:37.040 --> 0:14:39.920 So I think that's why they stepped down from fifty 0:14:40.040 --> 0:14:42.080 to twenty five, and of course I've gone from seventy 0:14:42.080 --> 0:14:47.000 five to fifty. That I don't know. That's the big 0:14:47.080 --> 0:14:49.120 question that maybe the FED doesn't have to get to 0:14:49.160 --> 0:14:51.000 six or seven, and if they get to five and 0:14:51.040 --> 0:14:53.200 a half and stay there for a year, that may 0:14:53.240 --> 0:14:55.880 not be enough to keep the dollars stronger relative to 0:14:56.000 --> 0:14:58.280 its global peers. You know, Liz, I think the person 0:14:58.320 --> 0:15:00.640 who're talking about is Eric Stein, chief and investment Officer 0:15:00.680 --> 0:15:04.320 of fixed income at Morgan Stanley Investment Management, who said 0:15:04.320 --> 0:15:06.480 the FED says they're going to get inflation to two percent, 0:15:06.480 --> 0:15:09.320 but in reality, I'd say they get more to a 0:15:09.400 --> 0:15:11.240 level of like three percent. I don't think that they 0:15:11.240 --> 0:15:13.440 will continue to port rate to six percent just because 0:15:13.480 --> 0:15:15.640 of that, you know, Can I ask you something, you 0:15:15.800 --> 0:15:19.960 understand these markets and the FED really really well and 0:15:20.160 --> 0:15:26.120 investor sentiment does the FED? Can they come back now 0:15:26.160 --> 0:15:28.640 and say, yeah, we got it wrong. It's not going 0:15:28.680 --> 0:15:31.880 to be two percent, Like, can they how do they 0:15:31.960 --> 0:15:35.120 do that? How do they unwind? Or does it really matter? 0:15:35.200 --> 0:15:37.760 Can they continue to stick to two percent even though 0:15:37.800 --> 0:15:41.880 markets maybe see something ultimately a little bit differently? Well, 0:15:41.920 --> 0:15:44.520 you know, I don't think, and you know we have 0:15:44.600 --> 0:15:48.040 Mike McKeon, who's our expert, how we talked about this. Yes, 0:15:48.600 --> 0:15:50.840 I don't think that they want to come out and 0:15:50.880 --> 0:15:53.560 say that, especially now where they're really talking. We had 0:15:53.560 --> 0:15:55.480 one of the FED officials today talking about we have 0:15:55.560 --> 0:15:59.800 much more credibility. So if I think if they design 0:16:00.360 --> 0:16:02.840 to god, I say, well we're at three percent, that's 0:16:02.840 --> 0:16:05.080 pretty good. I think for now they're going to keep 0:16:05.120 --> 0:16:07.920 talking that, you know, we're still on course to eventually 0:16:07.960 --> 0:16:10.280 get to two percent, Like I think it was Romaine 0:16:10.280 --> 0:16:13.040 and your previous segment was saying eventually we get to 0:16:13.080 --> 0:16:15.880 two percent. But I don't think they want to lose 0:16:15.920 --> 0:16:18.440 that credibility. So maybe at some point, we know a 0:16:18.440 --> 0:16:20.880 lot of people have said that. I think Muhammad Alarian 0:16:21.000 --> 0:16:24.280 has talked about that that going for two percent is 0:16:24.320 --> 0:16:26.560 just not the right number. But like you said, they've 0:16:26.560 --> 0:16:29.120 got to be very careful because so much about the 0:16:29.200 --> 0:16:32.440 FED winning on inflation is credibility the market believing they'll 0:16:32.480 --> 0:16:34.960 do what they say. So, I mean that might be 0:16:35.000 --> 0:16:38.120 a big rethink, but I suspect they want to get 0:16:38.160 --> 0:16:40.760 through this year before they even kind of flick at 0:16:40.800 --> 0:16:44.160 that they're thinking about thinking about thinking about that. Yeah, yeah, 0:16:44.520 --> 0:16:46.720 Well I just have to wonder too about the Fed's 0:16:46.800 --> 0:16:50.080 ability to achieve that goal with the tools that they have. 0:16:50.240 --> 0:16:53.280 I mean, we would all love for inflation to come down, Liz, 0:16:53.360 --> 0:16:55.640 but can the FED do that with the tools that 0:16:55.680 --> 0:17:00.120 they currently have at their disposal. Well, it's funny that 0:17:00.280 --> 0:17:02.360 one thing, you know, an investor said to me, and 0:17:02.440 --> 0:17:04.119 I always love when they bring something up because they're 0:17:04.119 --> 0:17:05.800 supposed to be smarter than me, and they are, but 0:17:05.920 --> 0:17:09.680 I'm not asking that about they are. Well at least 0:17:09.680 --> 0:17:12.120 they say. Well Liz, by the way, and one guy 0:17:12.160 --> 0:17:15.640 said to me, an investor, listen, Liz, you know, rate 0:17:15.720 --> 0:17:18.080 hikes are one thing, but I'm really worried about the 0:17:18.119 --> 0:17:20.760 quantitative tightening, which we've kind of forgotten about, which is 0:17:20.760 --> 0:17:23.400 the FED rolling off its balance sheet, which is at 0:17:23.440 --> 0:17:26.680 full speed now. And you know what if that does 0:17:26.760 --> 0:17:29.320 continue on for another year or so, like the FED 0:17:29.320 --> 0:17:31.359 would like, there's some saying if the Fed, of course 0:17:31.480 --> 0:17:34.399 has to eventually cut, they'll stop that. But so you 0:17:34.840 --> 0:17:37.760 do have these two tools going. The rate tool is 0:17:37.800 --> 0:17:40.919 the most blunt. Chair pals made that very clear. But 0:17:40.960 --> 0:17:44.119 they also are like pretty quickly trying to bring that 0:17:44.200 --> 0:17:47.000 balance sheet down. So there is a lot of tightening 0:17:47.000 --> 0:17:49.160 in the system. And like you said, none of us 0:17:49.160 --> 0:17:52.200 feel too good. My vegetables are still more expensive than ever, 0:17:52.359 --> 0:17:55.720 but eventually they should get there. We hope to bring 0:17:55.760 --> 0:17:58.240 down inflation. Hey, Liz, when you look at the trade, 0:17:58.280 --> 0:18:00.520 especially in the treasury trade over the last couple of weeks, 0:18:00.520 --> 0:18:03.800 it does feel like investors have gotten religion to some 0:18:03.880 --> 0:18:07.480 extent in terms of what the FED officials and FOEMC 0:18:07.640 --> 0:18:10.560 members have been saying. So what do you think our 0:18:10.600 --> 0:18:13.320 audience has to kind of note when it comes to 0:18:13.359 --> 0:18:14.879 that treasury trade. I mean, right now I'm looking at 0:18:14.920 --> 0:18:16.600 a two year note. It's off its highs of the day, 0:18:17.280 --> 0:18:20.200 but we're still at four point eight. What is it 0:18:20.240 --> 0:18:22.640 that they need to understand about the action that we've 0:18:22.680 --> 0:18:25.560 seen over the last week or so. Well, you know, 0:18:25.600 --> 0:18:27.760 it's interesting you bring that up because we were looking because, 0:18:27.800 --> 0:18:30.240 like you said, this month has been brutal for bonds, right, 0:18:30.480 --> 0:18:33.240 feel just took off. Remember how January was also the 0:18:33.280 --> 0:18:36.520 everything rally, everything round, including bonds, And I remember one 0:18:36.600 --> 0:18:39.800 investment manager saying to me it was like January twenty fifth, Well, 0:18:39.800 --> 0:18:41.280 if we could stop the year now, I've had a 0:18:41.320 --> 0:18:45.560 great year, you know. Unfortunately it doesn't work that way, right, 0:18:45.720 --> 0:18:48.560 But so I think you know, remember all the street 0:18:48.600 --> 0:18:50.960 analysts called this the year of the bond, right, you know, 0:18:51.040 --> 0:18:52.960 things are better, yields are better, So I don't think 0:18:52.960 --> 0:18:54.840 we want to write that off yet. This was a 0:18:54.880 --> 0:18:58.320 brutal beating this month. Rates are very high, like you said, 0:18:58.920 --> 0:19:00.879 but what if it does prove the FED gets to 0:19:00.920 --> 0:19:02.600 five and a quarter or five and a half and 0:19:02.680 --> 0:19:04.960 stop sin platient starts to come down. You know, six 0:19:05.000 --> 0:19:07.680 months time, things could be looking better. So I don't 0:19:07.760 --> 0:19:09.679 think a lot of people who are bullish on bonds 0:19:09.680 --> 0:19:12.280 are willing to give up. They're kind of like willing 0:19:12.320 --> 0:19:14.680 to basically take the pain for a while. That may 0:19:14.720 --> 0:19:16.800 not be true if this keeps up for another three 0:19:16.920 --> 0:19:19.359 six months, But for now, I think the bullish bond 0:19:19.400 --> 0:19:22.480 people are saying, Okay, yeah, I'm not doing so great now, 0:19:22.520 --> 0:19:24.720 but I do think it'll be better. I'm making some 0:19:24.800 --> 0:19:27.760 decent income. I don't think fed's going to six percent. 0:19:27.800 --> 0:19:29.520 You know, they're in that camp, you know, So we'll 0:19:29.560 --> 0:19:32.760 see really quickly here, Liz. The thing that I would 0:19:32.760 --> 0:19:34.480 love for you to help me be smarter on is 0:19:34.480 --> 0:19:37.800 the FED updating it's basic model of understanding in like 0:19:37.920 --> 0:19:39.919 thirty seconds. Can you tell me do you think that 0:19:40.080 --> 0:19:44.720 update was enough? Do they understand our current economy? Well, 0:19:44.760 --> 0:19:47.760 that's another million dollar question. Let's talk about their update 0:19:47.800 --> 0:19:49.639 on what they think. The neutral rate is kind of 0:19:49.640 --> 0:19:52.399 that standard based rate where they're not adding stimulus or 0:19:52.440 --> 0:19:56.240