WEBVTT - Surveillance: Growth Outlook with Dutta 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.760 and of course on the Bloomberg terminal. Right now, for 0:00:30.800 --> 0:00:34.240 Global Wall Street, this is the important conversation for those 0:00:34.320 --> 0:00:39.279 pushing against the gloom crew. Neil Datta has absolutely nailed 0:00:40.000 --> 0:00:43.760 the inability to go to recession and certainly nailed the 0:00:43.840 --> 0:00:47.000 market reaction to better than good news with China opening 0:00:47.320 --> 0:00:50.800 and with a more resilient American economy with Renaissance Macro. 0:00:51.200 --> 0:00:54.440 The optim optimists hang on every word. What is the 0:00:54.560 --> 0:00:57.840 distinction of your optimism right now? What is the thing 0:00:57.960 --> 0:01:02.480 that you would describe as the data optimism. Well, I 0:01:02.520 --> 0:01:05.120 think it's the composition of growth that's improving. I was 0:01:05.120 --> 0:01:07.240 gonna say, you know, Mike, one reason why the Empire 0:01:07.360 --> 0:01:10.480 number is coming in maybe they surveyed people before the 0:01:10.520 --> 0:01:12.520 Giants win against the Vikings. I mean, that could that 0:01:12.560 --> 0:01:15.119 could be, that could be what's going on. But um, 0:01:15.200 --> 0:01:19.000 you know, Tom, I think the composition of growth is improving, right, 0:01:19.040 --> 0:01:22.520 so even though inflation is moderating, real economic growth is accelerating. 0:01:22.760 --> 0:01:25.920 And um, I think that that combination of growth is 0:01:25.920 --> 0:01:27.880 the sort of challenge for for markets to kind of 0:01:27.920 --> 0:01:30.760 deal with. Let's dove till your comments with Ken Rogoff, 0:01:31.200 --> 0:01:33.679 with Lisa brand Wanson Davos. And this is the idea 0:01:33.720 --> 0:01:37.200 of disinflation. And even if we're having this parlor game 0:01:37.200 --> 0:01:39.640 of where it moves you put out a blistering chart. 0:01:40.120 --> 0:01:43.040 I'll say eight days ago they said, wait a minute, 0:01:43.080 --> 0:01:47.640 if you get disinflation and incomes do okay, real incomes 0:01:47.680 --> 0:01:52.160 can stabilize or dare I say inflation adjusted incomes could 0:01:52.200 --> 0:01:56.440 actually go up. Well, they're accelerating right now. Real incomes 0:01:56.520 --> 0:02:00.120 net of transfer payments are accelerating. I mean, that's not 0:02:00.200 --> 0:02:02.800 even a debatable point. Um. You know, as an example, 0:02:02.800 --> 0:02:05.480 in December, we know that aggregate wages and salaries probably 0:02:05.560 --> 0:02:08.200 rose around two to three tenths and we know that 0:02:08.320 --> 0:02:11.320 headline inflation felt so that means that real incomes rose. 0:02:11.520 --> 0:02:14.200 And then you have to basically make the assumption what 0:02:14.240 --> 0:02:15.799 do people go out and do with the new founder 0:02:16.360 --> 0:02:18.720 and um, you know, my senses that they probably spend 0:02:18.720 --> 0:02:21.600 it financial conditions have been easing. I don't think you 0:02:21.600 --> 0:02:23.240 can really make much of a case right now that 0:02:23.280 --> 0:02:26.200 people are going to just spontaneously increase their rates of savings. 0:02:26.320 --> 0:02:30.560 You know that should keep you know, firm under belly 0:02:30.600 --> 0:02:33.160 to consumer spending. And we know that housing is now 0:02:33.280 --> 0:02:36.720 picking up again. So Davos, I wouldn't do algebra, But 0:02:36.760 --> 0:02:39.799 since we're in New York, we're gonna go algebra algebra Tuesday. Here. 0:02:39.800 --> 0:02:42.920 Why will see plus I plus G plus n x 0:02:42.960 --> 0:02:44.480 and all of a sudden to me, n X is 0:02:44.480 --> 0:02:49.639 a constructive mystery with China reopening, just China reopening and 0:02:49.760 --> 0:02:53.799 exporting important dynamics of America. Does that give you more 0:02:53.880 --> 0:02:56.440 data optimism that we could avoid a recession? Sure? I 0:02:56.520 --> 0:03:00.239 mean back in I think then Vice chairs to Only 0:03:00.240 --> 0:03:05.720 Fisher did a seminal speech on the impact of dollars 0:03:05.919 --> 0:03:08.679 on on inflation and growth. Remember, at the time the 0:03:08.720 --> 0:03:11.600 dollar strengthening, the FED was backing off. But now it's 0:03:11.639 --> 0:03:13.240 kind of working in reverse. And if you look at 0:03:13.240 --> 0:03:16.840 the broad dollar index, it's off about ten percent um 0:03:16.880 --> 0:03:19.440 I think since September. And you know, the dollar has 0:03:19.480 --> 0:03:21.919 a very mechanical impact on the Fed's kind of workhorse 0:03:21.960 --> 0:03:25.040 models and the fact that the dollars declining UM. I 0:03:25.080 --> 0:03:28.799 think that boost real exports um maybe three to four 0:03:28.840 --> 0:03:32.239 percent in real terms, and it introduces some upside to 0:03:32.320 --> 0:03:35.280 core inflation over the next year. So I think the 0:03:35.320 --> 0:03:40.080 dollar selling off is a sign that global growth expectations 0:03:40.080 --> 0:03:42.800 are improving, and I think it's an unambiguous positive. What 0:03:42.880 --> 0:03:46.000 is your two thousand, twenty three GDP number for the 0:03:46.040 --> 0:03:48.880 United States, I'll tell you what. It's not done. It's 0:03:48.920 --> 0:03:52.680 not zero point five percent. I think that it'll I mean, 0:03:52.760 --> 0:03:56.480 I look, I think something slightly above potential is plausible, 0:03:56.560 --> 0:03:59.480 maybe two. I mean, I think underlying growth right now 0:03:59.520 --> 0:04:01.240 is around two and a half. I'll drive me key 0:04:01.280 --> 0:04:03.360 into this right now. Is to help me here with 0:04:03.440 --> 0:04:05.600 the dots, I mean, help me here with the dispersion 0:04:05.600 --> 0:04:08.440 of the dots. Are any dots as optimistic as dotta? 0:04:08.560 --> 0:04:11.160 Is there a Dotta dot on the dots? There's not 0:04:11.200 --> 0:04:13.760 a Dotta dot on the dots right now, Which sounds 0:04:13.840 --> 0:04:18.440 silly to say, rubber baby buggy bumpers. But what you've 0:04:18.440 --> 0:04:21.600 got going is is a situation. And Neil and I 0:04:21.680 --> 0:04:24.839 actually argued this out on the Bloomberg message system the 0:04:24.880 --> 0:04:28.600 other day. The FED makes its forecasts, and they make 0:04:28.680 --> 0:04:31.920 nineteen forecasts, and we arbitrarily picked the media and say 0:04:32.000 --> 0:04:36.400 that's the FED forecast, and it's made once every three months, 0:04:36.880 --> 0:04:39.839 and Wall Street changes its mind about what growth and 0:04:40.080 --> 0:04:43.360 unemployment and UH interest rates are going to be every day, 0:04:43.400 --> 0:04:46.440 every five minutes. And so to go back and say 0:04:46.480 --> 0:04:49.400 the Fed is wrong by saying half a percentage point 0:04:49.440 --> 0:04:53.520 growth in December, that's not really fair. The FED starts 0:04:53.560 --> 0:04:56.080 to change its mind as well, and they will have 0:04:56.120 --> 0:04:59.279 a new forecast in March. But even at this upcoming meeting, 0:04:59.360 --> 0:05:02.720 I suspect you're going to hear j Pill say that 0:05:03.360 --> 0:05:05.920 growth forecasts are rising. And we heard Pat Harker, the 0:05:05.920 --> 0:05:08.480 Philadelphia FED president, the other day say he's marked his 0:05:08.640 --> 0:05:10.920 up to one percent for the right. But they're they're 0:05:10.920 --> 0:05:13.520 taking down there, they're taking let's assume that that's right there, 0:05:13.520 --> 0:05:15.360 taking up their growth forecast as we go into the 0:05:15.360 --> 0:05:18.080 March f ONEm C meeting and in February. But at 0:05:18.120 --> 0:05:20.880 the same time, the market odds of a basis point 0:05:20.880 --> 0:05:23.440 move are also solidifying, So the idea that they're going 0:05:23.480 --> 0:05:25.720 to go another fifty that's going down even as they're 0:05:25.800 --> 0:05:28.719 raising their But I look at Bloomberg, though, look at 0:05:28.760 --> 0:05:34.960 your own Bloomberg consensus e CFC going every day q 0:05:35.240 --> 0:05:37.600 Q one Q one real g d P Q ever 0:05:37.720 --> 0:05:42.200 Q percent change annualized zero point one percent Q two 0:05:42.240 --> 0:05:46.039 coming in at minus point six. These are very very 0:05:46.080 --> 0:05:48.400 depressed forecast for and this is the consensus, so the 0:05:48.440 --> 0:05:51.760 one that updates quite frequently. So I think that's dramatically offside. 0:05:51.760 --> 0:05:55.680 It's considering we're going into the year something close to 0:05:55.720 --> 0:05:58.320 three maybe if you trust the Atlanta had four percent. 0:05:58.400 --> 0:06:00.400 So I think there's the consensus had a lot of 0:06:00.440 --> 0:06:03.599 work to do and kind of adjusting their expectations. Okay, Well, 0:06:03.640 --> 0:06:06.479 in search of it, where is the dutta dot out there? 0:06:06.480 --> 0:06:08.880 When are we going to see not just a single dot, 0:06:08.880 --> 0:06:11.240 but get you know, go plural, get datta dots out 0:06:11.240 --> 0:06:13.760 there from the FED? When do they migrate, how many 0:06:13.800 --> 0:06:17.520 meetings out do they migrate? Where the dispersion lifts up? 0:06:18.000 --> 0:06:20.440 And there's some real optimism about one or two even 0:06:20.480 --> 0:06:25.760 three g d P to me, the dots. The risk 0:06:25.839 --> 0:06:27.720 with the dots right now is that the cuts that 0:06:27.760 --> 0:06:30.920 are currently baked into the four outlook get priced out 0:06:30.960 --> 0:06:33.320 because growth is coming in a lot stronger than expect it. 0:06:33.360 --> 0:06:35.440 So if the Fed I mean right, all of these 0:06:35.440 --> 0:06:38.680 are sort of premised on your your your assumptions around 0:06:38.720 --> 0:06:42.280 unemployment and so forth. The FED expects the unemployment rate 0:06:42.279 --> 0:06:43.960 to go up a full percentage point from where it 0:06:44.040 --> 0:06:46.239 is right now. And if growth is coming in slightly 0:06:46.279 --> 0:06:48.640 above potential, as I expect that, that means that there's 0:06:48.680 --> 0:06:51.040 room for the unemployment rate to fall. And if the 0:06:51.120 --> 0:06:55.599 unemployment rate remains low, then the likelihood of them cutting 0:06:56.960 --> 0:06:58.560 I think that goes away. So that to me is 0:06:58.560 --> 0:06:59.840 the risk with they. I can tell you what it 0:06:59.839 --> 0:07:03.320 hap Pitged Thomas. There is the FED meeting at which 0:07:03.320 --> 0:07:05.800 they will have a new summary of economics. We will 0:07:07.000 --> 0:07:10.600 and data DUTs help me with retail sales here Mike 0:07:10.680 --> 0:07:12.880 was setting us up for it was this grim empire number. 0:07:13.360 --> 0:07:15.640 You know where I am on this, and I'm like, okay, whatever, 0:07:16.040 --> 0:07:21.280 But the answer is retail sales matter the economy. Inflation 0:07:21.360 --> 0:07:23.880 coming in, it's going to be dampened. So how do 0:07:24.000 --> 0:07:27.960 you interpret retail sales with the dynamic of disinflation. There's 0:07:28.000 --> 0:07:30.600 some flukey season, I mean, I think, if I'm not mistaken, 0:07:30.640 --> 0:07:35.160 I think December of one was a really weird month. 0:07:35.200 --> 0:07:37.760 We had a big decline in in quar retail sales 0:07:37.800 --> 0:07:39.760 that month. And UM, I think there might be some 0:07:39.800 --> 0:07:42.239 seasonal adjustment issues that are going on, you know, following 0:07:42.240 --> 0:07:46.080 the pandemic that kind of depressed the numbers like retail 0:07:46.120 --> 0:07:49.560 sales in December, and you know, we probably make that 0:07:49.680 --> 0:07:52.840 up and seasonally adjusted terms sometime in the spring. What 0:07:52.920 --> 0:07:56.000 I can tell you is that, UM, you know, it 0:07:56.040 --> 0:07:59.800 looks like the inventory adjustment is largely over and so 0:08:00.160 --> 0:08:02.440 um right, and so I think that could be one 0:08:02.480 --> 0:08:05.679 reason why prices and things like apparel aren't really collapsing 0:08:05.720 --> 0:08:07.840 as much as this is really important. I'm glad you 0:08:07.840 --> 0:08:09.760 bring this up. Dana Telsey has been lights out the 0:08:09.800 --> 0:08:12.120 last time of the tells the advisory group folks on 0:08:12.560 --> 0:08:16.120 I don't retail. I sort of knew that was gonna happen, Mike, 0:08:16.160 --> 0:08:20.160 but school us on inventories, which is this obscure thing 0:08:20.200 --> 0:08:23.840 nobody really understand. Don't give me life of FIFO. But 0:08:24.080 --> 0:08:26.680 are you surprised, like Mr Dudda mentions here that we 0:08:26.800 --> 0:08:31.160 cleared inventories. It seems really rapidly. UM. I don't know 0:08:31.200 --> 0:08:34.280 if I'm surprised, because there's no point to a business 0:08:34.320 --> 0:08:36.880 holding on the inventories, it's not gonna sell. So if 0:08:36.880 --> 0:08:40.120 you go to t J Max or Marshals or something 0:08:40.160 --> 0:08:42.640 like that, you'll see some of that inventory and it 0:08:42.679 --> 0:08:44.760 will be marked down because people are just trying to 0:08:44.800 --> 0:08:46.560 get rid of it because you get new stuff coming 0:08:46.559 --> 0:08:49.960 in all the time. But also in the retail sales report, um, 0:08:50.080 --> 0:08:54.360 we saw in December gasoline prices continue to fall, so 0:08:54.400 --> 0:08:59.000 that'll take some off of retail sales. Autos are they 0:08:59.080 --> 0:09:02.920 fell sales? They were not as high, but it's a 0:09:02.920 --> 0:09:05.600 difficult one to translate into the retail sales report. You know, 0:09:05.800 --> 0:09:08.560 this is so important, Mike, that we've got people bring 0:09:08.559 --> 0:09:12.079 the camera over here. Uh and and they're talking about 0:09:12.080 --> 0:09:14.559 on the internet about your socks right now and the 0:09:14.679 --> 0:09:18.679 symbolism you know, low you know, I mean, these are 0:09:18.720 --> 0:09:21.679 extraordinary socks. So I could never be got dead using those. 0:09:22.240 --> 0:09:25.280 What is the economy is that those optimistic socks? Is that? 0:09:25.320 --> 0:09:28.160 What those well, if it's the donut, it was reflects 0:09:28.160 --> 0:09:31.240 the donut on headline inflation. Okay, very good, Neil, donta 0:09:31.280 --> 0:09:34.760 there or the donut socks giving us a signal of optimistic, 0:09:34.920 --> 0:09:49.079 optimistic economic growth. And what's important here is the timeline 0:09:49.120 --> 0:09:51.160 Mike Wilson's idea of a long term within you know 0:09:51.200 --> 0:09:53.280 the structure of a big Wall Street firm, as I'm 0:09:53.320 --> 0:09:56.320 gonna say, six months, nine months, maybe a year. What 0:09:56.400 --> 0:09:58.480 do you do, John, if you have a longer term 0:09:58.520 --> 0:10:01.280 time frame three years, five years, coming out of a 0:10:01.320 --> 0:10:05.360 pandemic China reopening, you've had this nice gift of a lift, 0:10:06.000 --> 0:10:08.520 then what And that's sort of where we are going 0:10:08.559 --> 0:10:10.760 into February. Let's say some of them right now with Christophe, 0:10:10.840 --> 0:10:13.840 the head off Exquvity Strategy Atlas Foco Securities. Chris, let's start. 0:10:13.920 --> 0:10:16.120 The band markets are like a whole a mirrors design 0:10:16.200 --> 0:10:18.560 to confuse investors and take their money. Is this a 0:10:18.600 --> 0:10:23.000 band market rally? Um? Bear market rally? This is a rally, 0:10:23.040 --> 0:10:27.880 no doubt, has a lot of the hallmarkings of a 0:10:28.320 --> 0:10:31.920 January effect. As your point out, credit spreads are tightening, 0:10:32.240 --> 0:10:35.120 high yield I g but but risk is rallying, smaller 0:10:35.160 --> 0:10:37.719 caps are rallying. I don't know if i'd call it 0:10:38.040 --> 0:10:40.800 a bear market rally. What I what I think is 0:10:41.040 --> 0:10:44.080 we're probably going to begin to stall out here. We 0:10:44.120 --> 0:10:46.480 think fair value in the short terms somewhere around four 0:10:46.600 --> 0:10:49.480 thousand at the end of the day. It's true that 0:10:49.600 --> 0:10:52.280 credit spread excusan not credit spreads, but margins are going 0:10:52.320 --> 0:10:55.040 to we're going to compress. EPs is going to come down. 0:10:55.320 --> 0:10:57.679 But we think we're really facing more of an economic 0:10:57.760 --> 0:11:01.760 malaise than than we are some sort a sharp recession. 0:11:02.200 --> 0:11:04.480 And so as a result, you have to be careful, 0:11:04.559 --> 0:11:07.200 you have to place your bets. We think maccap growth 0:11:07.360 --> 0:11:11.840 is that sweet spot, and overall the broader the broader 0:11:11.880 --> 0:11:13.880 market is a little bit tough. We think things will 0:11:13.880 --> 0:11:16.880 trade higher, but you can't see a pretty big downside 0:11:16.880 --> 0:11:18.760 from here. So Chris within that there was a cool 0:11:18.800 --> 0:11:20.520 on the economy and there was a cool on annings. 0:11:20.559 --> 0:11:21.960 Can we just separate it so you just from i'ming 0:11:21.960 --> 0:11:24.400 to focus on Anne's Chris, what kind of learnings are 0:11:24.440 --> 0:11:26.640 you expect in this quarter and the outlook for the 0:11:26.640 --> 0:11:29.440 rest of the year. Yeah, So let me say this, 0:11:29.559 --> 0:11:31.440 for the last two or three quarters, there's been a 0:11:31.480 --> 0:11:34.480 lot of fear mongering coming into earnings, right, and so 0:11:34.520 --> 0:11:37.640 when you fear monger, what happens is you lower expectations. 0:11:37.880 --> 0:11:40.199 We've lowered expectations so much in the last couple of 0:11:40.240 --> 0:11:43.800 quarters that the numbers haven't been great but the phrase 0:11:44.160 --> 0:11:46.720 things are better than expected has been true, and I 0:11:46.760 --> 0:11:49.080 think that's going to be true this time around. We 0:11:49.200 --> 0:11:51.000 are going to see some magic com pressure. We are 0:11:51.080 --> 0:11:53.200 going to see some revisions down. But now is not 0:11:53.280 --> 0:11:55.719 the time where you really lowered guidance, because because it 0:11:56.280 --> 0:11:59.640 is still okay. What we're worried about more so is 0:11:59.679 --> 0:12:02.160 when you report first quarter numbers. But right now we 0:12:02.200 --> 0:12:05.640 think things will be okay for now or better better 0:12:05.679 --> 0:12:08.439 than feared. It's probably the right one, Christian, your beautifully 0:12:08.440 --> 0:12:13.040 concise note. You speak of a tactical shift, and as 0:12:13.080 --> 0:12:15.880 I guess that there's been a tactical shift, everybody's gotten 0:12:15.920 --> 0:12:19.679 this mother of all recession calls wrong, wrong, wrong? Help 0:12:19.720 --> 0:12:23.520 me with April or May is June? How do I 0:12:23.600 --> 0:12:29.320 prosecute tactics now to survive in the second quarter? Tom 0:12:29.400 --> 0:12:31.760 That that's a great question, and that's a question that 0:12:31.800 --> 0:12:33.480 we're having with a lot of clients. We had a 0:12:33.480 --> 0:12:36.360 lot of clients that performed quite well last year come 0:12:36.400 --> 0:12:38.680 into this year and they've just gotten run over it. 0:12:38.880 --> 0:12:41.120 And what they're saying is, hey, do I turn, do 0:12:41.200 --> 0:12:43.920 I shift? Do I do I tactically move? Our answer 0:12:44.000 --> 0:12:47.720 is no, right, because ultimately we're going to see some 0:12:47.800 --> 0:12:50.240 sort of downside. We're going to see some sort of pain, 0:12:50.480 --> 0:12:53.800 whether it's economic, whether it's earnings, or whether it's macro. 0:12:54.240 --> 0:12:57.160 And so you we have twelve months eleven twelve months 0:12:57.160 --> 0:13:00.240 in the year, too early to shift and is a 0:13:00.280 --> 0:13:02.880 lot of a lot of room between now that so 0:13:02.920 --> 0:13:05.199 at the end of the day we're having a bout. 0:13:05.280 --> 0:13:09.320 That bounce we kind of understand, but ultimately the worst 0:13:09.360 --> 0:13:12.160 isn't over just yet. Christo financial media is guilty of this, 0:13:12.320 --> 0:13:15.360 and frankly Bloomberg and myself we're as guilty as anyone 0:13:15.360 --> 0:13:18.240 of a complete focus on the big banks, uh and 0:13:18.320 --> 0:13:20.240 you know, and the what Wills Fargo is doing and 0:13:20.280 --> 0:13:24.960 the rest okay, great after the big banks, Which earnings 0:13:25.000 --> 0:13:29.280 matter to you, Which earnest So what we're looking for 0:13:29.520 --> 0:13:32.680 is we're looking at cyclical earnings because we think that's 0:13:32.720 --> 0:13:35.920 where where the pain is going to be. Right, cyclical earnings. 0:13:36.240 --> 0:13:39.800 The old economy stocks out outputs their weight last year, 0:13:40.559 --> 0:13:42.480 and that's where we think the pain is going to be. 0:13:42.520 --> 0:13:45.040 If you're going to believe that the economy is slowing down, 0:13:45.080 --> 0:13:47.720 which we do, that's where you should see most of 0:13:47.720 --> 0:13:50.040 the pain. That's where we should see the margin compression, 0:13:50.360 --> 0:13:52.880 and that's where I think stocks are most liable. Chris, 0:13:52.920 --> 0:13:56.680 and thanks that cycnical story that you just described. Yeah, 0:13:56.760 --> 0:13:59.559 banks are part of that. But but we're not as 0:13:59.600 --> 0:14:02.800 worried about credit as other people because one of the 0:14:02.800 --> 0:14:06.000 reasons being is the job picture is much better than 0:14:06.000 --> 0:14:08.320 many people expecting. What we expect that the job picks 0:14:08.280 --> 0:14:11.080 should be pretty robustant, at least for now, and so 0:14:11.160 --> 0:14:14.280 as a result, credit should be okay. And what we've 0:14:14.320 --> 0:14:16.800 seen so far is credit is not great, but it's 0:14:16.840 --> 0:14:19.520 normalizing it. It's okay, or it's where it should be. 0:14:19.880 --> 0:14:22.240 It's not worse than expectations. For a long time, we 0:14:22.320 --> 0:14:25.240 used to talk about tech as the secular growers, these 0:14:25.240 --> 0:14:27.640 big things that didn't worry about the cycles at the 0:14:27.640 --> 0:14:29.600 global economy. Christ do you think those tech names and 0:14:29.640 --> 0:14:33.560 now cyclicals? Um so? Someone, if you you look at 0:14:33.560 --> 0:14:37.360 semi semis are definitely cyclical software, I'd say less so. 0:14:37.960 --> 0:14:39.840 And one of the things that we're seeing is a 0:14:39.840 --> 0:14:42.920 lot of industrials are becoming a little bit more growthy um. 0:14:43.280 --> 0:14:45.760 And here here's the thing. The big debate that we're 0:14:45.760 --> 0:14:48.920 having right now is what takes leadership? Is it energy, 0:14:49.280 --> 0:14:51.920 does tech come back, And what we think is it's 0:14:51.920 --> 0:14:54.040 going to be a lot more idios and cratic market. 0:14:54.400 --> 0:14:56.680 It don't look so much for this one big trade 0:14:56.760 --> 0:15:00.120 or this this one big knockout. Really get back to 0:15:00.160 --> 0:15:03.040 the fundamentals. Look for that good school again. We think 0:15:03.080 --> 0:15:05.800 it's in that MidCap growth space and you can get 0:15:05.800 --> 0:15:09.080 some good valuations down there fifteen times earnings or so um, 0:15:09.720 --> 0:15:12.480 and don't focus so much on the macro. Okay, well 0:15:12.480 --> 0:15:16.280 that's great. I'm focusing right now on SMP five hundred 0:15:16.520 --> 0:15:20.360 four point two percent. And you know, ten days, whatever 0:15:20.400 --> 0:15:22.400 we've had this year, are you gonna give me a 0:15:22.400 --> 0:15:26.320 double digit return in two thousand twenty three. So what 0:15:26.440 --> 0:15:28.600 we think in two thousand twenty three is ultimately're gonna 0:15:28.600 --> 0:15:31.400 get toto. You're gonna get to forty two hundred. We 0:15:31.400 --> 0:15:34.440 think you're gonna come down. We think inflation is coming down, 0:15:35.040 --> 0:15:37.280 and we think the economy is slowing. And what is 0:15:37.320 --> 0:15:39.920 that that's a growth market and what is the SMP 0:15:39.960 --> 0:15:42.200 five hundred that's a growth in the see and at 0:15:42.240 --> 0:15:44.440 the end of the year, even if a FIT doesn't cut, 0:15:44.480 --> 0:15:46.800 which we don't think it will cut, the market will 0:15:46.800 --> 0:15:49.280 believe that it's going to cut and we should see 0:15:49.280 --> 0:15:51.600 that reflecting the shape of deal curtain and interest rate. 0:15:51.720 --> 0:15:53.440 Zion go to Chris on this. This is the heart 0:15:53.440 --> 0:15:56.360 of Bloomberg surveillance. Do we have two opposing views here 0:15:56.760 --> 0:15:59.080 between what we see from Welles farguing what we see 0:15:59.080 --> 0:16:01.960 from Morgan Stanley couldn't be farther apart? Are you talking 0:16:01.960 --> 0:16:04.400 about the path or points to point both because the 0:16:04.440 --> 0:16:05.920 shape of the path, I mean, Chris, didn't you talk 0:16:05.960 --> 0:16:08.960 about a potential for real downside here? So at least 0:16:09.520 --> 0:16:12.720 that's right. We we think there's downside the hundred, but 0:16:12.880 --> 0:16:15.760 ultimately do recover, right. We we do think that we 0:16:15.800 --> 0:16:17.920 earn would excuse me, that we end up higher fort 0:16:19.000 --> 0:16:21.400 is the high for this year, and we do think 0:16:21.400 --> 0:16:24.400 we get there. We think that again, what you're facing 0:16:24.840 --> 0:16:27.640 is more of an economic malaise, not a sharp sell off, 0:16:27.720 --> 0:16:30.320 not something that that's going to be horrific. And as 0:16:30.360 --> 0:16:33.360 a result, we can muddle through that. And let's not 0:16:33.440 --> 0:16:35.560 forget the FETE is going through. We think the Fed 0:16:35.640 --> 0:16:38.120 is going to stop raising rates sometime this year. That's 0:16:38.160 --> 0:16:40.760 a positive. And if we get through a situation where 0:16:40.760 --> 0:16:43.360 it's more of an economic malaise, than a sharp sell off, 0:16:43.640 --> 0:16:46.800 then their earnings they'll be dent died, but they won't 0:16:46.800 --> 0:16:50.000 be they won't collapse. Chris enjoyed this, Thank you, BUDDYGA. 0:16:50.080 --> 0:16:57.480 So why's Chris Hamphy there? Wils Farca now Seleneo's Global 0:16:57.480 --> 0:17:00.200 Ahead of Fact Strategy ABC. Join just right now, Alse 0:17:00.280 --> 0:17:02.440 we'll talk about the BJ in just a moment. I 0:17:02.480 --> 0:17:05.160 think investors not interested in good versus bad, but better 0:17:05.320 --> 0:17:10.119 versus worse as things getting better or worse. So it 0:17:10.240 --> 0:17:13.000 feels like you've got conflicting signals coming at the moment, 0:17:13.320 --> 0:17:16.520 muddeled outlook for many in that if you look at 0:17:16.520 --> 0:17:19.840 the equity market, as you highlighted at the start, huge 0:17:19.920 --> 0:17:22.680 rallies to start the years, some real optimism airing in 0:17:23.040 --> 0:17:26.639 at the same time, yields moving lower, so bonds rallying. 0:17:26.920 --> 0:17:29.840 It's that kind of bond equity rally that's the perfect 0:17:29.920 --> 0:17:32.480 storm for the U. S. Dollar. But it does feel 0:17:32.520 --> 0:17:34.359 like there's a bit of a conflict between the messages 0:17:34.400 --> 0:17:36.159 we're getting from the two sides. Do you think that 0:17:36.280 --> 0:17:39.239 move we've seen the dollar so far is sustainable? Are 0:17:39.240 --> 0:17:41.720 there some sustainable headwinds against the U. S Dollar that 0:17:41.800 --> 0:17:45.400 you think last three. We've had a ten percent plus 0:17:45.480 --> 0:17:47.520 move since the end of September our, so that's quite 0:17:47.560 --> 0:17:51.280 a move exactly. And I think the danger is we're 0:17:51.280 --> 0:17:54.040 falling into the same traps that markets fell into at 0:17:54.080 --> 0:17:55.520 the start of twenty two and at the start of 0:17:55.560 --> 0:17:58.199 twenty one, where everybody starts the year with a very 0:17:58.320 --> 0:18:01.600 strongly bearished dollar concern insis. I know it feels weird 0:18:01.680 --> 0:18:03.600 given how strong the dollar wasn't twenty two, but that 0:18:03.800 --> 0:18:06.159 was the consensus at the start of the year, and 0:18:06.520 --> 0:18:08.720 we spent all of January putting on those positions, and 0:18:08.760 --> 0:18:11.200 then it snaps back, you know, whether it's snaps back 0:18:11.200 --> 0:18:13.680 in February March, whether this year takes a little bit longer, 0:18:14.040 --> 0:18:16.080 maybe in the back half of the year. Um, it's 0:18:16.119 --> 0:18:18.119 not going to be quite straightforward. It's just sell dollars 0:18:18.160 --> 0:18:21.240 and close your eyes. Also, Lisa Abramowitz in the last 0:18:21.359 --> 0:18:25.080 hour with Kenneth Rogoff at Davos in the World Economic Forum, 0:18:25.119 --> 0:18:27.760 and they're talking there about the FED in about this 0:18:27.920 --> 0:18:33.159 relentless rate increase against that is a distraction of Japan. 0:18:33.280 --> 0:18:36.080 I thought Ambrose seven's preachered in the Telegraph with Professor 0:18:36.200 --> 0:18:40.520 Rogoff today with anad Olivier Blanchard was just brilliant. The 0:18:40.680 --> 0:18:45.000 giant wild card Japanese inflation is returned in the aftermath 0:18:45.040 --> 0:18:48.560 of COVID, pushing the country from a bed but stable 0:18:48.640 --> 0:18:53.280 equilibrium into an unstable equilibrium. And just for perspective, folks, 0:18:53.400 --> 0:18:57.840 Japan owns eight percent of Francis public debt ELSA, how 0:18:57.880 --> 0:19:04.200 do you synthesize the Japanese conundrum? Just a really interesting point, Tom, 0:19:04.280 --> 0:19:07.160 because we've actually started to see it in the data 0:19:07.240 --> 0:19:10.720 coming out from Japan. They have turned into sellers of 0:19:10.840 --> 0:19:13.399 European government dead um and as you highlight, there are 0:19:13.480 --> 0:19:16.679 big holders of French government bonds. My colleague m Call 0:19:16.720 --> 0:19:18.480 has done a lot of fantastic work on this and 0:19:18.720 --> 0:19:21.240 that they've been selling treasuries in large size for a while. 0:19:21.520 --> 0:19:23.520 The last few months have been notable in that we've 0:19:23.560 --> 0:19:25.440 seen e g b s take the lead. Why is 0:19:25.480 --> 0:19:27.879 that happening, Well, it's the cost of hedging. It's euro 0:19:28.000 --> 0:19:30.600 yen and the cost of hedging the exposure what you 0:19:30.680 --> 0:19:32.880 do on this and A P has a wonderful chart 0:19:32.960 --> 0:19:36.280 in this should take the yen swap yield versus the 0:19:36.359 --> 0:19:39.480 published yield and one folks at Johan Farrell follows so closely, 0:19:40.040 --> 0:19:43.399 and there's a huge gap. Where does dollar yen go 0:19:43.720 --> 0:19:46.399 on that presumed gap? Can you get the one twenty 0:19:46.760 --> 0:19:49.200 or dare I say an even stronger yen down to 0:19:49.320 --> 0:19:53.160 parody so that I actually look at it the other 0:19:53.240 --> 0:19:55.840 way and say, unless the Fed is going to be 0:19:55.920 --> 0:19:58.879 cutting rates dramatically in three and we're not talking one 0:19:58.960 --> 0:20:03.280 or two cards, but really slashing raids under most other scenarios, 0:20:03.640 --> 0:20:06.680 the cost of hedging continues to rise for Japanese investors, 0:20:06.680 --> 0:20:08.840 they're actually going to have to reduce those hedge ratios 0:20:09.000 --> 0:20:11.080 dollar yen goes higher. I know that's not a popular 0:20:11.119 --> 0:20:12.800 thing to say. That could be what we see for 0:20:12.800 --> 0:20:14.240 the balance of the year as a whole. Now, so 0:20:14.280 --> 0:20:15.919 can we talk about the b J this week? There 0:20:16.000 --> 0:20:18.919 is massive speculation they're going to adjust yield curve control, 0:20:19.040 --> 0:20:21.080 maybe drop it all together, adjust the band, move the 0:20:21.160 --> 0:20:25.760 maturity they focus on, what are you focused on? So 0:20:26.280 --> 0:20:29.320 it's the combination of factors, right, It's yield curve control 0:20:29.600 --> 0:20:32.800 coupled with the inflation forecast. A lot of speculation that 0:20:32.920 --> 0:20:35.720 Corona's going to want to leave a clean slate for 0:20:35.800 --> 0:20:39.119 the next incoming Bank of Japan governor in April. It 0:20:39.240 --> 0:20:41.679 may not happen today. Actually, I think most analysts expected 0:20:41.720 --> 0:20:43.440 happen in March. But as you said, a huge amount 0:20:43.480 --> 0:20:46.399 of speculation. We've actually gone long Swiss end into this 0:20:46.600 --> 0:20:48.960 meeting only because we might be getting a bit ahead 0:20:48.960 --> 0:20:51.399