1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,840 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,560 Speaker 1: the Bloomberg Terminal and the Bloomberg Business App if you're 7 00:00:30,680 --> 00:00:34,400 Speaker 1: part of Global Wall Street. Arguably this is the conversation 8 00:00:34,600 --> 00:00:38,320 Speaker 1: of the day. Kata Kaminsky and the titles boring Chief 9 00:00:38,360 --> 00:00:43,360 Speaker 1: Research Strategist at Elphas Simplex, but far more importantly out 10 00:00:43,400 --> 00:00:49,120 Speaker 1: of the Andrew Low Combine in MIT Boston is trend based. 11 00:00:49,440 --> 00:00:53,519 Speaker 1: She and her shop follow trends in the probability of 12 00:00:53,560 --> 00:00:57,560 Speaker 1: coming out of a range into some trend across all assets, 13 00:00:58,080 --> 00:01:02,040 Speaker 1: like nobody on the street. Katie Minsky to briefist this morning, Katie, 14 00:01:02,080 --> 00:01:04,800 Speaker 1: I'm gonna be honest here. You correlate across some bonds, 15 00:01:05,640 --> 00:01:08,600 Speaker 1: economics and all that over to equity markets where you 16 00:01:08,640 --> 00:01:13,280 Speaker 1: are more than tentative. Tell us about the repricing that 17 00:01:13,319 --> 00:01:15,360 Speaker 1: we could see in the equity markets. 18 00:01:16,480 --> 00:01:19,160 Speaker 2: Good point. Okay, So this year, what we've really seen 19 00:01:19,520 --> 00:01:22,319 Speaker 2: is that the equity market has been disjointed from the 20 00:01:22,319 --> 00:01:27,120 Speaker 2: fixed income market. So it's been blissfully going along, relatively positively, 21 00:01:27,480 --> 00:01:29,800 Speaker 2: ignoring the fact that there might be some issues and 22 00:01:29,840 --> 00:01:32,640 Speaker 2: we might need to have higher rates for longer. We 23 00:01:32,720 --> 00:01:36,160 Speaker 2: feel like last week we finally saw a point of recognition. 24 00:01:36,640 --> 00:01:39,080 Speaker 2: We saw a breakout in the fixed income market where 25 00:01:39,120 --> 00:01:42,200 Speaker 2: we saw yields higher significantly on the long end. What 26 00:01:42,280 --> 00:01:45,720 Speaker 2: this means is the market has really finally said, wait 27 00:01:45,760 --> 00:01:50,400 Speaker 2: a minute, these upside risks are real, like higher energy praises. 28 00:01:50,520 --> 00:01:51,280 Speaker 3: That's a challenge. 29 00:01:51,320 --> 00:01:53,840 Speaker 2: I mean, these things have to be solved for the 30 00:01:53,880 --> 00:01:56,480 Speaker 2: equity market to waiver through this. 31 00:01:56,720 --> 00:01:59,040 Speaker 1: And now we go over the prosphere to tread Wells 32 00:01:59,080 --> 00:02:03,480 Speaker 1: Wilder nineteen with Katie Coominski. Katie cut to the chase. 33 00:02:03,880 --> 00:02:06,760 Speaker 1: There's a green equity feel of up up, up and 34 00:02:06,760 --> 00:02:11,160 Speaker 1: a red down down down from Wells Wilder called ADX DMI. 35 00:02:11,520 --> 00:02:14,960 Speaker 1: It's a toxic soup of calculus as well. What are 36 00:02:14,960 --> 00:02:17,840 Speaker 1: you learning right now from a broader S and P 37 00:02:18,040 --> 00:02:21,959 Speaker 1: or NASDAQ one hundred ADX DMI available only on the 38 00:02:22,000 --> 00:02:23,000 Speaker 1: Bloomberg terminal. 39 00:02:24,200 --> 00:02:26,400 Speaker 2: Well, if you look at most of the technical signals 40 00:02:26,480 --> 00:02:30,040 Speaker 2: right now, they all are pretty consistent. The equity has 41 00:02:30,080 --> 00:02:33,720 Speaker 2: been relatively positive, but a little more tentative recently. But 42 00:02:33,800 --> 00:02:36,160 Speaker 2: if you look at fixed income, I mean, let's be honest, 43 00:02:36,240 --> 00:02:39,000 Speaker 2: fixed income is actually set to have two years in 44 00:02:39,040 --> 00:02:42,160 Speaker 2: a row of negative returns, and fixed income signals have 45 00:02:42,240 --> 00:02:47,320 Speaker 2: been consistently short for months and working well, particularly this month. 46 00:02:47,360 --> 00:02:50,520 Speaker 2: We've seen energy breaking out more recently, and then we've 47 00:02:50,560 --> 00:02:53,640 Speaker 2: seen in the currency basket we've seen the dollar trade 48 00:02:53,639 --> 00:02:55,720 Speaker 2: also being one of the stronger ones in the last 49 00:02:55,720 --> 00:02:58,640 Speaker 2: two months. So really seeing last year repeating itself. 50 00:02:58,840 --> 00:03:00,280 Speaker 4: So is that what you're leaning in too well? I mean, 51 00:03:00,320 --> 00:03:02,640 Speaker 4: that's my question is are you basically doubling down on 52 00:03:02,680 --> 00:03:06,320 Speaker 4: your bond bar thesis and doubling down also on oil 53 00:03:06,360 --> 00:03:08,960 Speaker 4: prices going higher, or are you seeing this starting to 54 00:03:09,560 --> 00:03:12,639 Speaker 4: reach a top, a topping point that makes you pull back. 55 00:03:13,680 --> 00:03:15,799 Speaker 2: This is a good question, Litza, because we're not really 56 00:03:15,840 --> 00:03:18,240 Speaker 2: in the business of picking tops and bottoms. But what 57 00:03:18,280 --> 00:03:21,120 Speaker 2: we are doing is following where market themes are moving 58 00:03:21,440 --> 00:03:24,200 Speaker 2: and what people are actually doing, and what people have 59 00:03:24,240 --> 00:03:26,560 Speaker 2: been doing all year. Which has confused me is sol 60 00:03:26,639 --> 00:03:29,520 Speaker 2: bonds but said that they like them so it's really 61 00:03:29,560 --> 00:03:32,400 Speaker 2: sort of this weird dichotomy. And so what we're seeing 62 00:03:32,440 --> 00:03:36,080 Speaker 2: as well as we're seeing continued acceleration in the bond 63 00:03:36,120 --> 00:03:38,320 Speaker 2: market on the short side, not more than before, So 64 00:03:38,320 --> 00:03:41,440 Speaker 2: I wouldn't say that we're seeing more short positions. We're 65 00:03:41,440 --> 00:03:44,960 Speaker 2: just seeing a consistent view. Although we've seen somewhat of 66 00:03:44,960 --> 00:03:46,880 Speaker 2: a bottom at the short end of the curve. So 67 00:03:47,000 --> 00:03:49,880 Speaker 2: remember in earlier this year we saw the short end 68 00:03:49,920 --> 00:03:52,280 Speaker 2: of the curve bottom to some degree, we've been looking 69 00:03:52,320 --> 00:03:54,400 Speaker 2: for more of a bottom on the long end of 70 00:03:54,440 --> 00:03:57,360 Speaker 2: the curve. So when are long term rates going to 71 00:03:57,560 --> 00:04:00,240 Speaker 2: sell off or long term bonds And that's exact that 72 00:04:00,320 --> 00:04:02,400 Speaker 2: we saw last week, and that was our point of 73 00:04:02,440 --> 00:04:06,160 Speaker 2: recognition where the market said, wait a minute, you're right, 74 00:04:06,560 --> 00:04:09,240 Speaker 2: maybe we have to be higher for longer and we 75 00:04:09,320 --> 00:04:12,680 Speaker 2: need to disinvert the curve. And that's finally starting to happen. 76 00:04:12,840 --> 00:04:13,200 Speaker 5: Katie. 77 00:04:13,280 --> 00:04:17,159 Speaker 4: I was struck by maybe people capitulate just ahead of 78 00:04:17,200 --> 00:04:19,360 Speaker 4: the market actually turning their way or the economy turning 79 00:04:19,400 --> 00:04:21,720 Speaker 4: their way. And it feels like a market that wants 80 00:04:21,720 --> 00:04:23,760 Speaker 4: to inflict the most pain on the greatest number of 81 00:04:23,800 --> 00:04:26,760 Speaker 4: people as markets are wont to do. It feels like 82 00:04:26,839 --> 00:04:29,800 Speaker 4: things are turning on the edges in ways that might 83 00:04:29,960 --> 00:04:32,640 Speaker 4: challenge the pond very thesis and how high yields can go. 84 00:04:33,000 --> 00:04:35,320 Speaker 4: So is this a point where you start to reassess 85 00:04:35,360 --> 00:04:38,480 Speaker 4: this is the capitulation moment where things can start to 86 00:04:38,920 --> 00:04:41,560 Speaker 4: normalize in a more significant way. How much are you 87 00:04:41,640 --> 00:04:42,279 Speaker 4: leaning into that? 88 00:04:43,480 --> 00:04:46,040 Speaker 2: So what's interesting is we did a study last year. 89 00:04:46,040 --> 00:04:49,640 Speaker 2: We study the short bond trade and empirically, if you 90 00:04:49,680 --> 00:04:54,000 Speaker 2: look over different cycles of the markets during inverted yield curves, 91 00:04:54,120 --> 00:04:57,000 Speaker 2: trend signals tend to work very well being short fixed income. 92 00:04:57,440 --> 00:05:00,880 Speaker 2: During a flatter yield curve, it becomes more mixed, and 93 00:05:00,960 --> 00:05:03,280 Speaker 2: as we see a steeper yield curve, then we tend 94 00:05:03,279 --> 00:05:06,560 Speaker 2: to lean more into longer positions. So that's something we've 95 00:05:06,560 --> 00:05:09,479 Speaker 2: been kind of monitoring and thinking about over the last year, 96 00:05:09,880 --> 00:05:12,680 Speaker 2: is this concept of we need to find that inflection point. 97 00:05:12,839 --> 00:05:15,080 Speaker 2: And since we now have a much flatter you'll look 98 00:05:15,120 --> 00:05:17,360 Speaker 2: at that tenure today, it's close to four or five. 99 00:05:17,920 --> 00:05:21,480 Speaker 2: That's pretty flat, and so as we see that flattening 100 00:05:21,520 --> 00:05:24,280 Speaker 2: and disinversion, it means that we're going to see more 101 00:05:24,320 --> 00:05:26,680 Speaker 2: of that inflection point closer to the bottom of the 102 00:05:26,680 --> 00:05:27,280 Speaker 2: bond market. 103 00:05:27,320 --> 00:05:30,159 Speaker 1: Well, you just heard there, folks, as gospel from Katie community. 104 00:05:30,240 --> 00:05:33,200 Speaker 1: I can't say enough about disinversion and the point of 105 00:05:33,279 --> 00:05:35,840 Speaker 1: a tip point, if you will, an emotional point to 106 00:05:35,880 --> 00:05:37,880 Speaker 1: pick up on that, Katie. I'm looking at the Bloomberg 107 00:05:38,360 --> 00:05:42,280 Speaker 1: Total Return Treasury Index. You know we're back to twenty 108 00:05:42,440 --> 00:05:45,919 Speaker 1: sixteen pricing. You mentioned two years of negative return in 109 00:05:46,000 --> 00:05:48,479 Speaker 1: the bond market. For the pros out there on bills, 110 00:05:48,480 --> 00:05:52,720 Speaker 1: on notes, on bonds, do they have gamma like equities? 111 00:05:52,880 --> 00:05:55,320 Speaker 1: Is there an emotion there where if we break through 112 00:05:55,720 --> 00:05:59,960 Speaker 1: certain support levels on price go lower in price hiring year, 113 00:06:00,560 --> 00:06:03,360 Speaker 1: that you get so called gamma or the emotion. 114 00:06:03,120 --> 00:06:06,320 Speaker 2: Get me out, Yeah, I think. I mean that's part 115 00:06:06,400 --> 00:06:09,200 Speaker 2: of what we've seen recently is at a certain point 116 00:06:09,240 --> 00:06:12,000 Speaker 2: you have that aha moment. We have that in short 117 00:06:12,080 --> 00:06:14,960 Speaker 2: term bonds earlier this year when people realize so people 118 00:06:15,040 --> 00:06:16,960 Speaker 2: can focus on the shorter end of the curve. But 119 00:06:17,000 --> 00:06:19,640 Speaker 2: I think right now you're hitting that moment where people 120 00:06:19,680 --> 00:06:24,039 Speaker 2: are saying, if inflation is higher for longer, longer term 121 00:06:24,080 --> 00:06:27,480 Speaker 2: cash flows will be exposed more to that particular pressure. 122 00:06:28,000 --> 00:06:30,320 Speaker 2: And even if we have higher yields yield you know, 123 00:06:30,400 --> 00:06:32,960 Speaker 2: higher real yields plus inflation is a nominal rates, So 124 00:06:33,040 --> 00:06:35,920 Speaker 2: we have to have higher nominal rates until we deal 125 00:06:35,960 --> 00:06:38,720 Speaker 2: with the problems. And the problems are higher oil prices, 126 00:06:38,920 --> 00:06:42,520 Speaker 2: inflation not going down. It's dealing with supply chain issues 127 00:06:42,560 --> 00:06:44,520 Speaker 2: and other things that we just didn't have in a 128 00:06:44,600 --> 00:06:46,080 Speaker 2: low interstate world a. 129 00:06:46,080 --> 00:06:48,280 Speaker 1: Clinic, Katie, thank you so much. Four point four to 130 00:06:48,320 --> 00:06:50,080 Speaker 1: ninety percent right now in the ten year yield. She 131 00:06:50,200 --> 00:07:03,880 Speaker 1: was quoting Katherine communscate with Elpha simplex. Earl Davis joins 132 00:07:03,960 --> 00:07:07,039 Speaker 1: us to bounce off what Katherin Kaminski just said. Earl, 133 00:07:07,200 --> 00:07:10,520 Speaker 1: you say priced down, yield up. You have a greater 134 00:07:10,640 --> 00:07:12,880 Speaker 1: conviction on that than the last time we talked. 135 00:07:14,480 --> 00:07:16,920 Speaker 3: So here's the interesting thing. The answer is definitely yes. 136 00:07:17,000 --> 00:07:19,200 Speaker 3: This is unfolding largely as we saw it, and we 137 00:07:19,240 --> 00:07:22,400 Speaker 3: still see, you know what, significant room for our sell 138 00:07:22,440 --> 00:07:25,480 Speaker 3: off on ten to thirty year bonds, you know, possibly 139 00:07:25,520 --> 00:07:28,040 Speaker 3: fifty to seventy five basis points higher before the end 140 00:07:28,080 --> 00:07:30,640 Speaker 3: of the year on ten to thirty year bonds. Having 141 00:07:30,800 --> 00:07:34,000 Speaker 3: said that, we do see that as a buying opportunity. 142 00:07:34,080 --> 00:07:37,520 Speaker 3: You know, Friday, we actually reduced our short positions slightly, 143 00:07:38,320 --> 00:07:42,200 Speaker 3: not by buying nominal bonds, interestingly, by buying tips. We 144 00:07:42,240 --> 00:07:44,440 Speaker 3: do see tremendous value in the tip market at a 145 00:07:44,480 --> 00:07:47,640 Speaker 3: two to twenty real yield. Not to say it can't 146 00:07:47,640 --> 00:07:50,000 Speaker 3: get cheaper, which we believe it will, but that's where 147 00:07:50,000 --> 00:07:52,200 Speaker 3: we're looking to buy when we're reducing our short position. 148 00:07:52,320 --> 00:07:54,760 Speaker 1: Well, two questions, one, very short. Where does the ten 149 00:07:54,840 --> 00:07:56,920 Speaker 1: year real yield? Where can that frame out from a 150 00:07:56,920 --> 00:08:00,440 Speaker 1: two twenty? Does that have scope and scale team sweens 151 00:08:00,480 --> 00:08:03,520 Speaker 1: out to twenty two to twenty five or can it really 152 00:08:03,640 --> 00:08:04,200 Speaker 1: jump out? 153 00:08:05,080 --> 00:08:07,200 Speaker 3: It could really jump out to two fifty to three 154 00:08:07,240 --> 00:08:10,080 Speaker 3: percent of that three percent in two thousand and eight, 155 00:08:10,240 --> 00:08:13,280 Speaker 3: And let me explain the reason why. When the real 156 00:08:13,360 --> 00:08:16,640 Speaker 3: yields goes up, investors obviously get a real return. And 157 00:08:16,680 --> 00:08:20,040 Speaker 3: with the economy being so resilient and still being strong, 158 00:08:20,120 --> 00:08:23,360 Speaker 3: you know solid, as the Fed said, what they have 159 00:08:23,440 --> 00:08:26,880 Speaker 3: to do is take dollars out of the growth economy, 160 00:08:27,080 --> 00:08:29,520 Speaker 3: put it in the savings economy, and you do that 161 00:08:29,600 --> 00:08:32,520 Speaker 3: by having a higher real rate to attract more buyers. 162 00:08:32,520 --> 00:08:35,120 Speaker 3: So we can see it going above two fifty We 163 00:08:35,200 --> 00:08:38,959 Speaker 3: think possibly possibly three percent, very top end. 164 00:08:39,360 --> 00:08:41,800 Speaker 1: Don't stop to show your folks, this is so important. 165 00:08:41,880 --> 00:08:45,720 Speaker 1: You've got Katie Kaminski and Earl Davis pushing against the 166 00:08:45,760 --> 00:08:50,440 Speaker 1: broad consensus looking for lower price, higher yield. This is 167 00:08:50,480 --> 00:08:54,920 Speaker 1: a global Wall Street issue right now, Earl Davis. That 168 00:08:55,040 --> 00:08:58,720 Speaker 1: comes down to the gamma that we see, this instability, 169 00:08:58,920 --> 00:09:03,280 Speaker 1: the the convexity almost that we see in equities. If 170 00:09:03,320 --> 00:09:07,960 Speaker 1: we get a Davis bond pricing to things unraveled, did 171 00:09:07,960 --> 00:09:12,040 Speaker 1: we get to an instability? Do we get the greater gamma? 172 00:09:12,120 --> 00:09:16,760 Speaker 3: So the answer is yes, but for a very short period. 173 00:09:17,480 --> 00:09:20,040 Speaker 3: We believe twenty twenty four to market, the economy will 174 00:09:20,080 --> 00:09:23,200 Speaker 3: still do all right. So we do like credit, We 175 00:09:23,240 --> 00:09:26,720 Speaker 3: do like risk assets, not at these valuations. So we 176 00:09:26,760 --> 00:09:29,360 Speaker 3: do believe we unravel because you have to reprice for 177 00:09:29,400 --> 00:09:32,840 Speaker 3: the higher discount rate. Once it does unravel, we will 178 00:09:32,840 --> 00:09:35,600 Speaker 3: be buying, We will be going overweight. And I think 179 00:09:35,640 --> 00:09:37,880 Speaker 3: that's something important to note that you know, these are 180 00:09:37,880 --> 00:09:40,319 Speaker 3: the flows and ebbs of the market, and it presents 181 00:09:40,360 --> 00:09:43,240 Speaker 3: itself with opportunity. That's why you know what we're active managers, 182 00:09:43,240 --> 00:09:45,200 Speaker 3: and that's what we believe active managers should do. 183 00:09:45,559 --> 00:09:45,760 Speaker 1: Well. 184 00:09:46,000 --> 00:09:47,559 Speaker 4: You were saying that real yields go to two and 185 00:09:47,600 --> 00:09:50,080 Speaker 4: a half to three percent? Is that correct? Really? 186 00:09:50,480 --> 00:09:53,400 Speaker 3: Credit by carollability? Nothing for sure, but. 187 00:09:53,440 --> 00:09:56,400 Speaker 4: To me, this is the lead of this whole thing 188 00:09:56,640 --> 00:09:58,040 Speaker 4: because a lot of people are saying this is not 189 00:09:58,120 --> 00:10:01,160 Speaker 4: driven by inflation. It's not driven and by growth, it's 190 00:10:01,240 --> 00:10:04,280 Speaker 4: driven by something else. What is that something else driving 191 00:10:04,320 --> 00:10:05,160 Speaker 4: the real yield hire? 192 00:10:06,679 --> 00:10:09,960 Speaker 3: Well, i'll tell you what it is. It's expectations. You know, 193 00:10:10,240 --> 00:10:13,680 Speaker 3: when you read history books and the seventies and inflation 194 00:10:14,320 --> 00:10:17,920 Speaker 3: throughout the sixty seventies, inflation wasn't an annoyance. It wasn't 195 00:10:17,960 --> 00:10:21,480 Speaker 3: public enemy number one. It wasn't until Reagan and Volker 196 00:10:21,520 --> 00:10:24,200 Speaker 3: came in where they said, inflation's public enemy number one. 197 00:10:24,280 --> 00:10:26,199 Speaker 3: We're going to grasp, we're going to cut it, we're 198 00:10:26,200 --> 00:10:28,760 Speaker 3: going to get it down. Right now, we're still in 199 00:10:28,840 --> 00:10:33,480 Speaker 3: the annoyance sphace of inflation. That's why we think it 200 00:10:33,480 --> 00:10:35,839 Speaker 3: will persist. That's why we think this is a secular 201 00:10:35,960 --> 00:10:38,480 Speaker 3: change towards high yields, because it takes a lot to 202 00:10:38,480 --> 00:10:40,840 Speaker 3: get it to be public enemy number one, and we're 203 00:10:40,880 --> 00:10:41,959 Speaker 3: not quite there yet. 204 00:10:42,080 --> 00:10:43,319 Speaker 4: At this point. You said that you're going to be 205 00:10:43,360 --> 00:10:45,439 Speaker 4: a buyer when there is some sort of unraveling. What 206 00:10:45,559 --> 00:10:47,120 Speaker 4: kind of unraveling is going to cause you to be 207 00:10:47,160 --> 00:10:49,680 Speaker 4: a buyer If everybody's been saying this, they're waiting for 208 00:10:49,720 --> 00:10:51,440 Speaker 4: the dip to buy, and that's the reason why there 209 00:10:51,440 --> 00:10:52,160 Speaker 4: hasn't been a dip. 210 00:10:53,320 --> 00:10:55,840 Speaker 3: Yeah, you know what were The way we take risk 211 00:10:55,920 --> 00:10:59,240 Speaker 3: is a mix of quantitative and qualitative. You know, we 212 00:10:59,280 --> 00:11:03,200 Speaker 3: have structural risk and tactical risk. Our structural risk will 213 00:11:03,200 --> 00:11:05,800 Speaker 3: be buying as yields get higher. We have our levels, 214 00:11:05,840 --> 00:11:08,480 Speaker 3: we have our view, and then we reassess as they 215 00:11:08,559 --> 00:11:11,160 Speaker 3: get to those levels. But as I said, we're still short, 216 00:11:11,200 --> 00:11:14,040 Speaker 3: and we're still fairly significantly short, but we will be 217 00:11:14,120 --> 00:11:17,480 Speaker 3: covering that on any further weakness and ultimately going long. 218 00:11:18,360 --> 00:11:20,840 Speaker 4: How concerned are you about the quintuple risk that we 219 00:11:20,920 --> 00:11:23,599 Speaker 4: keep talking about that maybe we're seeing right now capitulation 220 00:11:23,920 --> 00:11:26,680 Speaker 4: ahead of the market turning towards all of the expectations 221 00:11:26,960 --> 00:11:32,200 Speaker 4: of slower growth given shutdown strikes, higher gas prices, student 222 00:11:32,240 --> 00:11:34,960 Speaker 4: loan repayments, and just the rates the cost of borrowing 223 00:11:35,040 --> 00:11:37,800 Speaker 4: going up as much as it has it. 224 00:11:37,840 --> 00:11:40,200 Speaker 3: Loosten, I don't have any concern, and the reason is 225 00:11:40,240 --> 00:11:42,000 Speaker 3: I look at the market. It's all about framing and 226 00:11:42,080 --> 00:11:44,080 Speaker 3: how you look at the market. So I look at 227 00:11:44,120 --> 00:11:47,000 Speaker 3: the market like a Boeing a Boeing airplane. So We're 228 00:11:47,040 --> 00:11:49,640 Speaker 3: getting all these weather patterns hitting each other, low inflation, 229 00:11:49,840 --> 00:11:52,840 Speaker 3: high grow, low growth, all this and we're getting turbulence. 230 00:11:53,559 --> 00:11:55,480 Speaker 3: And you know what. The turbulence could shake the plane, 231 00:11:55,480 --> 00:11:57,760 Speaker 3: it could drop five hundred feet, but it's going to 232 00:11:57,800 --> 00:12:00,679 Speaker 3: survive coming out of it. So I have no worries 233 00:12:00,679 --> 00:12:02,240 Speaker 3: about it. But I do believe we're going to have 234 00:12:02,240 --> 00:12:03,800 Speaker 3: a lot of turbulence over the next year. 235 00:12:04,120 --> 00:12:06,880 Speaker 1: Ear very quickly here, and folks, we're gonna get a 236 00:12:06,880 --> 00:12:11,080 Speaker 1: little nerdy here, as we did with Katie Kaminski. Excuse me, 237 00:12:11,120 --> 00:12:15,040 Speaker 1: Earl Davis. I've got looney at a one thirty four. 238 00:12:15,440 --> 00:12:19,880 Speaker 1: It is stochastic, weak Canadian dollar, it' all one forty. 239 00:12:20,040 --> 00:12:24,880 Speaker 1: It's stochastic because the systems overcome by events. If I 240 00:12:24,960 --> 00:12:28,520 Speaker 1: get an Earl Davis market, I get a stronger dollar. 241 00:12:29,120 --> 00:12:33,520 Speaker 1: And does a stronger dollar itself solve its own problem? 242 00:12:34,240 --> 00:12:37,400 Speaker 3: That is a great question, and I agree with the 243 00:12:37,440 --> 00:12:42,920 Speaker 3: sequencing of that. What the stronger dollar itself does? It 244 00:12:42,960 --> 00:12:45,360 Speaker 3: allows us to play out into our story where there's 245 00:12:45,360 --> 00:12:47,600 Speaker 3: going to be some volatility in this quarter, but twenty 246 00:12:47,640 --> 00:12:50,679 Speaker 3: twenty four is going to be all right economically. And 247 00:12:50,720 --> 00:12:54,360 Speaker 3: the key to that stability from an economic perspective is 248 00:12:54,360 --> 00:12:57,719 Speaker 3: a stable, strong dollar, so I think it allows us 249 00:12:57,760 --> 00:13:00,360 Speaker 3: to play into the story of yes, we're going to 250 00:13:00,400 --> 00:13:03,000 Speaker 3: have vaults all times, but we're on the best of 251 00:13:03,080 --> 00:13:06,320 Speaker 3: airplanes and we'll serve it's made for this and we'll 252 00:13:06,320 --> 00:13:09,240 Speaker 3: be able to survive and not only rice thrive. You 253 00:13:09,320 --> 00:13:12,199 Speaker 3: have to remember, as yields go higher, that's a longer 254 00:13:12,320 --> 00:13:16,360 Speaker 3: expected return for retirees, for pensioneers, for investors and bonds. 255 00:13:16,720 --> 00:13:20,040 Speaker 3: There's going to be tremendous opportunity here. And even though 256 00:13:20,080 --> 00:13:23,120 Speaker 3: we believe we're in a secular beer market, I see 257 00:13:23,360 --> 00:13:26,640 Speaker 3: twenty twenty four being a cyclical bull for gields. 258 00:13:27,120 --> 00:13:29,599 Speaker 1: This is fabulous. Earl Davis, thank you so much with 259 00:13:29,679 --> 00:13:36,080 Speaker 1: b MO Asset Manager for picking up the debris of 260 00:13:36,080 --> 00:13:41,000 Speaker 1: our London trip. Is Holger Schmeting is chief economist in 261 00:13:41,080 --> 00:13:45,960 Speaker 1: Behrenberg and has been incredibly perceptive about this linkage of 262 00:13:46,040 --> 00:13:49,280 Speaker 1: monetary and fiscal economics in Europe and. 263 00:13:49,360 --> 00:13:52,320 Speaker 4: China, which is really a key question at a moment 264 00:13:52,480 --> 00:13:55,080 Speaker 4: of flux. In Holger Schmeting, I would love to get 265 00:13:55,080 --> 00:13:57,760 Speaker 4: your opinions starting on what we were just talking about, 266 00:13:57,800 --> 00:14:00,920 Speaker 4: which is this trip of all these Sambrovskis over in China. 267 00:14:01,800 --> 00:14:05,040 Speaker 4: What is the likely outcome to some of the rhetoric 268 00:14:05,160 --> 00:14:08,440 Speaker 4: that is increasingly hardline out of European leaders, Well, the. 269 00:14:08,520 --> 00:14:13,839 Speaker 5: Likely outcome is clear. Germany, the European Union is reducing 270 00:14:13,960 --> 00:14:18,000 Speaker 5: its dependence on China. De risking is the word, not decoupling. 271 00:14:18,440 --> 00:14:21,560 Speaker 5: But the message from Dombsko Doro is clear. We are 272 00:14:21,720 --> 00:14:25,560 Speaker 5: serious about this and in a way we are self 273 00:14:25,640 --> 00:14:28,600 Speaker 5: confident in Europe. Yes, we do have some economic problems, 274 00:14:28,640 --> 00:14:31,840 Speaker 5: but China probably has economic problems that are worse. We 275 00:14:31,920 --> 00:14:35,440 Speaker 5: are the bigger market than China. We the European Union. Yeah, 276 00:14:35,680 --> 00:14:40,040 Speaker 5: don't have to just accept what China does with subsidies, 277 00:14:40,160 --> 00:14:43,520 Speaker 5: with its distortions. We can push back. 278 00:14:43,760 --> 00:14:46,560 Speaker 4: Well, is there a sort of a tacit acceptance of 279 00:14:46,640 --> 00:14:51,040 Speaker 4: slower growth or even recession during this transition process away 280 00:14:51,080 --> 00:14:53,440 Speaker 4: from really depending on trade with China. 281 00:14:54,120 --> 00:14:58,200 Speaker 5: There is a tacit acceptance yes, that, of course the 282 00:14:58,280 --> 00:15:02,160 Speaker 5: de risking with China will means some short term losses. 283 00:15:02,520 --> 00:15:06,160 Speaker 5: It also is an acceptance that, yes, if we want 284 00:15:06,240 --> 00:15:08,800 Speaker 5: to be less dependent on China in the long run, 285 00:15:09,040 --> 00:15:12,040 Speaker 5: an economy China that is actually struggling and will likely 286 00:15:12,120 --> 00:15:15,000 Speaker 5: continue to struggle for quite a while. It means we 287 00:15:15,040 --> 00:15:18,320 Speaker 5: get less boost out of foreign create with China. But 288 00:15:18,440 --> 00:15:22,640 Speaker 5: having said that, the lesson we've learned from Putin is clear, 289 00:15:22,920 --> 00:15:26,400 Speaker 5: if you're too dependent on somebody whom you don't fully trust, 290 00:15:26,640 --> 00:15:29,040 Speaker 5: you may eventually pay a heavy price for that. So 291 00:15:29,120 --> 00:15:32,560 Speaker 5: it's probably worth de risking now with modest near term 292 00:15:32,600 --> 00:15:36,880 Speaker 5: pain in order to secure a longer term, fairer, more 293 00:15:36,920 --> 00:15:38,640 Speaker 5: equal relationship with China. 294 00:15:39,480 --> 00:15:42,560 Speaker 1: You know, one of the great criminal acts in New 295 00:15:42,600 --> 00:15:44,760 Speaker 1: York City is the Oak Room at the Plaza Hotel 296 00:15:44,800 --> 00:15:47,560 Speaker 1: has been shut for I think twenty years, absolutely ridiculous, 297 00:15:47,560 --> 00:15:52,400 Speaker 1: beautiful and historic room as well holgrish mating right now 298 00:15:52,400 --> 00:15:55,400 Speaker 1: with dollar day after day, up up, day after day, 299 00:15:55,480 --> 00:15:58,800 Speaker 1: Euro down down down, over nine ten weeks, whatever it is. 300 00:15:59,040 --> 00:16:01,360 Speaker 1: Are we getting a distance to a plaza accord? How 301 00:16:01,360 --> 00:16:04,640 Speaker 1: many kilometers are we from the discussion of a new 302 00:16:04,640 --> 00:16:05,400 Speaker 1: plaza accord? 303 00:16:05,560 --> 00:16:07,800 Speaker 5: I think we are quite far away from any discussion 304 00:16:07,840 --> 00:16:10,000 Speaker 5: of that. So far, the move seems to be gradual. 305 00:16:10,080 --> 00:16:13,480 Speaker 5: It's not disruptive. It seems to reflect that the US 306 00:16:13,600 --> 00:16:17,160 Speaker 5: economy is holding up better than expected, whereas the Eurozone 307 00:16:17,640 --> 00:16:20,800 Speaker 5: is kind of in stagnation. So as long as the 308 00:16:20,920 --> 00:16:24,520 Speaker 5: currency moves gradually, and does not seem to be fully 309 00:16:24,520 --> 00:16:26,840 Speaker 5: out of kilted with fundamentals. I don't think we need 310 00:16:26,880 --> 00:16:31,000 Speaker 5: a massive intervention come next year. With the European economy 311 00:16:31,000 --> 00:16:34,120 Speaker 5: picking up again, the FED cutting rates sometime next year, 312 00:16:34,120 --> 00:16:36,520 Speaker 5: and the easy be possibly not cutting rates, the euro 313 00:16:36,640 --> 00:16:38,200 Speaker 5: will likely recover on its own. 314 00:16:38,360 --> 00:16:41,120 Speaker 1: This is really really important because the key thing there 315 00:16:41,200 --> 00:16:44,920 Speaker 1: you said was we are not disruptive. Right now, market 316 00:16:44,960 --> 00:16:50,160 Speaker 1: participants feel we're disruptive. We're making jokes about a quinfect 317 00:16:50,200 --> 00:16:54,240 Speaker 1: of five different things we're bouncing off of right now. 318 00:16:54,280 --> 00:16:57,800 Speaker 1: What is the policy the best policy prescription for La 319 00:16:57,840 --> 00:16:59,800 Speaker 1: Guard and government leaders in Brussels. 320 00:17:00,600 --> 00:17:04,719 Speaker 5: I think it's basically now, stay the course for monetary policy. Okay, 321 00:17:04,760 --> 00:17:06,720 Speaker 5: I think we've tied a bit more than we should have, 322 00:17:07,200 --> 00:17:10,440 Speaker 5: but now the mythelic clear message is we're probably at 323 00:17:10,480 --> 00:17:13,320 Speaker 5: the peak, which has actually been one when it came out, 324 00:17:13,520 --> 00:17:16,920 Speaker 5: been sort of reassuring for markets and for physical policy. 325 00:17:16,960 --> 00:17:20,600 Speaker 5: I would say the same, stay the course, which largely 326 00:17:20,720 --> 00:17:23,720 Speaker 5: means we have a big fiscal program in Europe. This 327 00:17:23,960 --> 00:17:26,320 Speaker 5: next to any U program which is now above eight 328 00:17:26,400 --> 00:17:29,600 Speaker 5: hundred billion. The task is more to make sure the 329 00:17:29,680 --> 00:17:33,040 Speaker 5: money is being spent. That is the rollout of the 330 00:17:33,119 --> 00:17:36,200 Speaker 5: program rather than thinking about any new money. 331 00:17:36,160 --> 00:17:38,760 Speaker 1: Is Jerown Powell. Central banker to the world is jer 332 00:17:38,760 --> 00:17:41,440 Speaker 1: Own Powell, whether we want to admit it, or a 333 00:17:41,440 --> 00:17:42,960 Speaker 1: central banker to Europe. 334 00:17:43,720 --> 00:17:46,760 Speaker 5: Not quite. Europe is not that dependent on the US 335 00:17:46,800 --> 00:17:49,399 Speaker 5: to really say so. For Europe, it really is Madame 336 00:17:49,520 --> 00:17:52,400 Speaker 5: la Guarde, the central banker that we have to that 337 00:17:52,440 --> 00:17:54,080 Speaker 5: we are glad to watch. 338 00:17:54,400 --> 00:17:56,159 Speaker 4: Do you think that people are too bearish in Europe? 339 00:17:56,200 --> 00:17:57,440 Speaker 4: Is that basically what I'm hearing from you. 340 00:17:59,080 --> 00:18:01,159 Speaker 5: Not. For the next few month, we are having a 341 00:18:01,200 --> 00:18:05,000 Speaker 5: sharp inventory correction manufacturing. We talked about China. The US 342 00:18:05,080 --> 00:18:07,800 Speaker 5: economy near term will probably be slowing down. So near 343 00:18:07,920 --> 00:18:11,360 Speaker 5: term trade export dependent Europe is having trouble. But come 344 00:18:11,480 --> 00:18:15,639 Speaker 5: next year, global manufacturing will pick up. The inventory correction 345 00:18:15,720 --> 00:18:18,600 Speaker 5: will be over next year. I think Europe could actually 346 00:18:18,640 --> 00:18:21,000 Speaker 5: surprise here, and they're a bit on the upside. 347 00:18:21,160 --> 00:18:24,199 Speaker 4: Will some of this slow down and surprising negativity in 348 00:18:24,280 --> 00:18:25,800 Speaker 4: Europe correct inflation? 349 00:18:27,640 --> 00:18:31,280 Speaker 5: Our inflation doesn't have that much to do with domestic demand. 350 00:18:31,400 --> 00:18:35,040 Speaker 5: A bit. Inflation is coming down largely because this big 351 00:18:35,080 --> 00:18:38,160 Speaker 5: poutine shock on energy and food prices is largely fading. 352 00:18:38,640 --> 00:18:41,080 Speaker 5: We have a bit of wage inflation to come to 353 00:18:41,200 --> 00:18:44,000 Speaker 5: pass through for the next half year. But all in all, 354 00:18:44,080 --> 00:18:46,560 Speaker 5: inflation in Europe is having two probably around two point 355 00:18:46,640 --> 00:18:49,320 Speaker 5: five percent by the second half of next year. 356 00:18:50,040 --> 00:18:52,560 Speaker 4: Okay, but this to me is really the dilemma, right 357 00:18:52,600 --> 00:18:55,640 Speaker 4: if it's not going to really lead to low inflation, 358 00:18:56,160 --> 00:18:59,439 Speaker 4: if we're facing a stagflationary type of environment in Europe, 359 00:18:59,640 --> 00:19:02,440 Speaker 4: how much just at the template that we're basically being 360 00:19:02,520 --> 00:19:07,080 Speaker 4: forced to live with higher inflation, even with taking the 361 00:19:07,119 --> 00:19:10,480 Speaker 4: pain of de risking, with taking the pain of recession, 362 00:19:10,600 --> 00:19:13,159 Speaker 4: even with all of the other toxic brew of the 363 00:19:13,240 --> 00:19:15,200 Speaker 4: quinfecta that we're talking about this morning. 364 00:19:15,960 --> 00:19:18,400 Speaker 5: Well, seculation is a description as to where we are now. 365 00:19:18,440 --> 00:19:21,720 Speaker 5: Probably in Europe, we may see later this week already 366 00:19:21,760 --> 00:19:24,800 Speaker 5: a fall in this inflation rate year over year into 367 00:19:24,840 --> 00:19:27,000 Speaker 5: the four percent hand or from a five percent hand 368 00:19:27,240 --> 00:19:32,639 Speaker 5: basically on Bays effects. And again the big prorise in energy, 369 00:19:32,800 --> 00:19:35,760 Speaker 5: especially gears and electricity prices late last year drops out 370 00:19:35,800 --> 00:19:39,760 Speaker 5: of the comparison goods prices are stabilizing. I think that 371 00:19:40,280 --> 00:19:46,240 Speaker 5: even without needing to constrain demand further, inflation will fall 372 00:19:47,240 --> 00:19:49,680 Speaker 5: to around two point five percent by the second half 373 00:19:49,720 --> 00:19:51,240 Speaker 5: of next year on its own. 374 00:19:52,600 --> 00:19:55,840 Speaker 1: I look Holger at our trip to London, and I 375 00:19:55,920 --> 00:19:59,960 Speaker 1: look back on how Europeans the United Kingdom, how they 376 00:20:00,000 --> 00:20:04,280 Speaker 1: we perceive in America in disarray. How's it different this time? 377 00:20:05,880 --> 00:20:09,359 Speaker 5: Well, it is a weird perception. On the one hand, 378 00:20:09,760 --> 00:20:13,240 Speaker 5: we marvel that the US economy is holding up better 379 00:20:13,280 --> 00:20:17,360 Speaker 5: than expected despite the massive FED rate hikes. But if 380 00:20:17,400 --> 00:20:20,560 Speaker 5: we and we find reasons for that, yes, consumers and 381 00:20:20,880 --> 00:20:25,200 Speaker 5: companies had good money to start with. Yeah, but when 382 00:20:25,240 --> 00:20:27,919 Speaker 5: we look at anything that comes close to US politics, 383 00:20:28,119 --> 00:20:31,760 Speaker 5: we basically shake our heads. How is this going to end? 384 00:20:32,240 --> 00:20:34,680 Speaker 5: Was there another talk of a government shut down? We've 385 00:20:34,720 --> 00:20:38,200 Speaker 5: had that so awful that it's kind of pouch by 386 00:20:38,240 --> 00:20:41,200 Speaker 5: those standards we think European politics, especially the ones that 387 00:20:41,280 --> 00:20:42,800 Speaker 5: Brussel actually are not working on. 388 00:20:43,359 --> 00:20:46,879 Speaker 1: A Swiss watch luckily and JFK holders meeting, thank you 389 00:20:46,960 --> 00:21:02,200 Speaker 1: so much with Behner Blverara joins us this morning here 390 00:21:02,240 --> 00:21:05,719 Speaker 1: in another time and place from two thousand and seven. Sheila, 391 00:21:05,720 --> 00:21:09,600 Speaker 1: if I'd read Daisy Bubble on that August afternoon in 392 00:21:09,600 --> 00:21:13,280 Speaker 1: two thousand and seven where libor Ois went out forced 393 00:21:13,280 --> 00:21:16,560 Speaker 1: to enter deviations, what would you have written about to 394 00:21:16,640 --> 00:21:18,119 Speaker 1: sprightly seven year olds? 395 00:21:20,200 --> 00:21:22,600 Speaker 6: Well, to you, I would have said, you should have 396 00:21:22,800 --> 00:21:25,120 Speaker 6: read Daisy Bubble, probably in two thousand and two, Tess 397 00:21:25,160 --> 00:21:28,840 Speaker 6: and three, when the house in Cobble was starting off. Yeah, 398 00:21:28,920 --> 00:21:30,760 Speaker 6: I would say to young people, as I say in 399 00:21:30,800 --> 00:21:32,920 Speaker 6: the book, and there's some back matter in the book 400 00:21:32,920 --> 00:21:34,920 Speaker 6: that talks a bit about the housing bubble and were 401 00:21:34,920 --> 00:21:39,440 Speaker 6: recent crypto bubble, that speculation is dangerous. You know, her 402 00:21:39,520 --> 00:21:42,320 Speaker 6: behavior is dangerous. How many times we told our kids 403 00:21:42,359 --> 00:21:45,320 Speaker 6: don't do something just because everybody else is And bubbly 404 00:21:45,359 --> 00:21:48,040 Speaker 6: markets are a lot about that. Gen Z has a 405 00:21:48,040 --> 00:21:50,720 Speaker 6: word for it. Fear of missing out fomo, you know, right, 406 00:21:50,800 --> 00:21:53,200 Speaker 6: and everybody else is getting in, and then the bubble pops, 407 00:21:53,280 --> 00:21:54,879 Speaker 6: usually by the smart money selling. 408 00:21:55,040 --> 00:21:55,760 Speaker 1: You were a seller. 409 00:21:55,920 --> 00:21:58,320 Speaker 6: Yeah, for the investor, they sh just stay away. 410 00:21:58,520 --> 00:22:02,919 Speaker 1: Kids were adults a saint with accolade from Democrats and 411 00:22:02,960 --> 00:22:07,399 Speaker 1: Republicans alike about a patient approach in times of crisis. 412 00:22:07,680 --> 00:22:10,119 Speaker 1: We had a banking crisis a number of months ago, 413 00:22:10,680 --> 00:22:13,000 Speaker 1: and we're already back to fear and missing out. That 414 00:22:13,119 --> 00:22:16,760 Speaker 1: crisis is over, is it? 415 00:22:18,080 --> 00:22:18,320 Speaker 3: Well? 416 00:22:18,359 --> 00:22:20,800 Speaker 6: I hope the crisis is over. As I wrote at 417 00:22:20,800 --> 00:22:23,359 Speaker 6: the time, I thought regulators did overreact. I'm not sure. 418 00:22:23,359 --> 00:22:27,879 Speaker 6: Three mid sized regional banks failing buzzer crisis they treated 419 00:22:27,960 --> 00:22:30,880 Speaker 6: as such. The rest is history. But yeah, I think 420 00:22:30,920 --> 00:22:34,919 Speaker 6: more banks are going to fail. I think if properly managed, 421 00:22:34,960 --> 00:22:37,960 Speaker 6: it will not be a crisis. Banks do fail. The 422 00:22:38,000 --> 00:22:40,320 Speaker 6: reality is the very largest banks are too big to fail, 423 00:22:40,400 --> 00:22:43,359 Speaker 6: notwithstanding our best efforts to try to kill that doctrine, 424 00:22:43,400 --> 00:22:47,320 Speaker 6: and the smaller banks are heavily relied on insured deposits, 425 00:22:47,320 --> 00:22:50,040 Speaker 6: which are stickier than the regional banks are suffering some 426 00:22:50,320 --> 00:22:52,840 Speaker 6: they rely more on uninsured deposits for their where they're 427 00:22:52,840 --> 00:22:58,240 Speaker 6: seeing outflows. But yeah, with the inverted yield curve inverted 428 00:22:58,240 --> 00:23:00,159 Speaker 6: for over a year, now, you know if you're or 429 00:23:00,280 --> 00:23:03,000 Speaker 6: deposed fending costs are going higher than your long term 430 00:23:03,040 --> 00:23:06,880 Speaker 6: loan rates, you got a big problem. And with ci 431 00:23:06,920 --> 00:23:09,360 Speaker 6: ARIA there, I can only assume there will be more 432 00:23:09,359 --> 00:23:12,520 Speaker 6: bank fayers. I don't think it will be a lot. 433 00:23:12,680 --> 00:23:16,040 Speaker 6: I think that FDIC and other government agencies have the 434 00:23:16,080 --> 00:23:18,080 Speaker 6: tools to deal with it. But yes, I do. Over 435 00:23:18,119 --> 00:23:20,399 Speaker 6: the next twelve eighteens, I think there will be more 436 00:23:20,440 --> 00:23:21,000 Speaker 6: bank fayers. 437 00:23:21,160 --> 00:23:23,320 Speaker 4: Let's put together some of the ideas that you're talking about, 438 00:23:23,359 --> 00:23:27,520 Speaker 4: the concept of excesses, bubbles, people chasing the fomo trades, 439 00:23:27,760 --> 00:23:30,480 Speaker 4: which we saw in mass over the past ten years, 440 00:23:30,520 --> 00:23:32,920 Speaker 4: and then this idea of a rate regime that harkens 441 00:23:32,920 --> 00:23:36,119 Speaker 4: back to when you were FDIC chair for the first time. 442 00:23:36,760 --> 00:23:40,159 Speaker 4: How much have we seen the excess bubbles kind of 443 00:23:40,440 --> 00:23:43,240 Speaker 4: worked through the system or are they yet to be 444 00:23:43,320 --> 00:23:44,960 Speaker 4: worked through the system? In other words, are we still 445 00:23:45,000 --> 00:23:47,480 Speaker 4: going to see that reckoning that people said what happen 446 00:23:48,040 --> 00:23:50,280 Speaker 4: back in two thousand and seven, two thousand and or 447 00:23:50,359 --> 00:23:52,120 Speaker 4: back in I should say, twenty thirteen. 448 00:23:53,880 --> 00:23:56,920 Speaker 6: Yeah, so I think there's still there's some bubbles left 449 00:23:57,200 --> 00:24:00,600 Speaker 6: that need to be popped. Hopefully it'll be gradual. You're 450 00:24:00,600 --> 00:24:04,160 Speaker 6: seeing valuations come down, commercial real estate still inflated, You're 451 00:24:04,200 --> 00:24:07,120 Speaker 6: seeing some of that start to correct. The stock market, 452 00:24:07,600 --> 00:24:10,040 Speaker 6: you know, I think it's probably got some ways to 453 00:24:10,119 --> 00:24:13,040 Speaker 6: go to go down again. So it's just a matter 454 00:24:13,080 --> 00:24:15,199 Speaker 6: of whether we can you know, the expectations are right, 455 00:24:15,280 --> 00:24:17,480 Speaker 6: people want to understand what's going on and we can 456 00:24:17,560 --> 00:24:21,240 Speaker 6: manage it. But yeah, I think there's there's still many 457 00:24:21,240 --> 00:24:24,119 Speaker 6: shoes left to drop. And of course, just in terms 458 00:24:24,119 --> 00:24:28,359 Speaker 6: of credit markets and distress in debt refinancings, We've got 459 00:24:28,359 --> 00:24:30,440 Speaker 6: a lot of corporate debt refinancing over the next couple 460 00:24:30,440 --> 00:24:33,160 Speaker 6: of years. A lot of that CIA debt is expiring, 461 00:24:33,240 --> 00:24:36,679 Speaker 6: needs to be refinanced. So these are shoes that are 462 00:24:36,720 --> 00:24:38,480 Speaker 6: left to drop, which is why, even though I'm an 463 00:24:38,480 --> 00:24:40,919 Speaker 6: inflation hawk, i am glad. I'm so glad that the 464 00:24:40,960 --> 00:24:42,800 Speaker 6: bet has been hitting pause. I think they were going 465 00:24:42,800 --> 00:24:46,040 Speaker 6: too fast. There's only so much of this transition to 466 00:24:46,200 --> 00:24:50,400 Speaker 6: higher rates that the economy can absorb without triggering very 467 00:24:50,880 --> 00:24:54,080 Speaker 6: broader problems in the financial sector, in the overall economy. 468 00:24:53,680 --> 00:24:55,840 Speaker 4: And Chila, You've been saying that you think that ultimately 469 00:24:55,960 --> 00:25:00,280 Speaker 4: is good to have the discipline that higher you old 470 00:25:00,640 --> 00:25:03,960 Speaker 4: does invoke, that they do invoke, But you think it's 471 00:25:03,960 --> 00:25:06,199 Speaker 4: been too fast. Do you think that that ensures something 472 00:25:06,320 --> 00:25:08,840 Speaker 4: of a recession that people are perhaps overlooking. 473 00:25:10,640 --> 00:25:12,720 Speaker 6: Well, I think if you go too fast, then you 474 00:25:12,800 --> 00:25:15,399 Speaker 6: do truer crisis, and then the FED has to do 475 00:25:15,480 --> 00:25:17,719 Speaker 6: you turn and ratchet back down, and you start this 476 00:25:17,760 --> 00:25:21,840 Speaker 6: whole problem all over again. There's not much research that 477 00:25:21,920 --> 00:25:25,639 Speaker 6: shows low rates and boost sustainable economic growth. There's a 478 00:25:25,680 --> 00:25:29,520 Speaker 6: lot of research that shows as harms productivity, larger companies 479 00:25:29,800 --> 00:25:34,240 Speaker 6: benefit much more than smaller ones. Actually, high rates help 480 00:25:34,280 --> 00:25:37,280 Speaker 6: the smaller businesses because they get their credit from banks. 481 00:25:37,400 --> 00:25:40,040 Speaker 6: It's easier to lend for banks, but bates are higher. 482 00:25:40,320 --> 00:25:42,320 Speaker 6: And even though some pain in the banking system now, 483 00:25:42,359 --> 00:25:44,840 Speaker 6: if we can transition into a more normalized high rate 484 00:25:44,920 --> 00:25:47,600 Speaker 6: environment overall, I think that will make it make the 485 00:25:47,720 --> 00:25:50,320 Speaker 6: traditional banking system the banks and pick deposits and make 486 00:25:50,440 --> 00:25:54,560 Speaker 6: loans stronger. So you know, I've been a lot of 487 00:25:54,600 --> 00:25:58,479 Speaker 6: corporate boards since leaving. My sentence is is that they 488 00:25:58,560 --> 00:26:01,520 Speaker 6: don't borrow to invest in productivity. I mean that comes 489 00:26:01,520 --> 00:26:04,640 Speaker 6: out of operating income. They want to do that anyway. 490 00:26:04,800 --> 00:26:08,000 Speaker 6: So if you just make it cheaper to borrow, you know, 491 00:26:08,080 --> 00:26:11,080 Speaker 6: that goes into m and a activity might go and buybacks. 492 00:26:11,240 --> 00:26:13,919 Speaker 6: There's really no evidence that the ability to borrow cheaply 493 00:26:14,080 --> 00:26:17,439 Speaker 6: by large companies goes into productivity. And I think the 494 00:26:17,520 --> 00:26:21,520 Speaker 6: low productivity we've had since this very accommodative policy stance 495 00:26:21,560 --> 00:26:23,440 Speaker 6: has taken hold shows that. 496 00:26:23,560 --> 00:26:26,840 Speaker 1: Sheila, thank you so much. Shela br the former president Washington, 497 00:26:26,840 --> 00:26:31,719 Speaker 1: Come College of Maryland, former FDIC chairs as well. Subscribe 498 00:26:31,760 --> 00:26:35,520 Speaker 1: to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere 499 00:26:35,560 --> 00:26:39,919 Speaker 1: else you get your podcasts. Listen live every weekday starting 500 00:26:39,960 --> 00:26:44,120 Speaker 1: at seven am Eastern. I'm Bloomberg dot com. The iHeartRadio 501 00:26:44,200 --> 00:26:47,960 Speaker 1: app tune In, and the Bloomberg Business App. You can 502 00:26:48,080 --> 00:26:51,840 Speaker 1: watch us live on Bloomberg Television and always I'm the 503 00:26:51,880 --> 00:26:56,160 Speaker 1: Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this 504 00:26:56,760 --> 00:27:04,040 Speaker 1: is Bloomberg