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Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.

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Speaker 1: My name is Mike Reagan. I'm a senior editor at

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Speaker 1: Bloomberg and I'm downa higher across acid reporter with Bloomberg

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Speaker 1: at this week on the show, Well, that inflation just

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Speaker 1: keeps going higher and higher, doesn't it. According to the

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Speaker 1: latest data out this week, the consumer price index climbed

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Speaker 1: nine point one percent in June, the most in almost

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Speaker 1: forty one years, and not markets are pricing in an

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Speaker 1: even more aggressive response from the Federal Reserve to team

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Speaker 1: surging prices with interest rate hikes. But is triggering a

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Speaker 1: recession the only way the Fed contained inflation? What we'll

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Speaker 1: get into it with a very well known economist who,

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Speaker 1: by the way, the don is from my hometown of Westchester,

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Speaker 1: p A. I'm very excited, but I thought I also

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Speaker 1: had to ask you. Um, I keep reading about these

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Speaker 1: problems with airlines and and everyone's flight being delayed. I

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Speaker 1: think it's all your fault. I was about to say,

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Speaker 1: you're about to blame me. Every week you're off to

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Speaker 1: another exotic location. I did go to Florida last week.

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Speaker 1: Did you clog up the airlines? No? I flew from

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Speaker 1: the Trenton Airport, the Trenton Trenton, New Jersey. It really

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Speaker 1: shouldn't be publicizing this because I want to keep it

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Speaker 1: a secret. It was so easy to get in and

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Speaker 1: it literally took two minutes to get off the plane,

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Speaker 1: Like no, there were no people there. It was the

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Speaker 1: easiest process in the world from the Trenton, New Jersey airport,

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Speaker 1: which I know well from my days in Trenton. Did

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Speaker 1: they serve like pork roll on the on the flight, No,

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Speaker 1: that's that actually would be mustard part of them. No,

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Speaker 1: But it's like my parents lived really close to it.

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Speaker 1: I went with my parents to Florida. It was the easiest,

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Speaker 1: easiest process in the best flight, Like so so easy,

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Speaker 1: you can not be advertising it. But possibly our guest,

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Speaker 1: who actually I think lives close by to Trenton as well,

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Speaker 1: he might be utilizing this airport, not them, talked it

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Speaker 1: up so so much. But I want to welcome Mark Sandy.

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Speaker 1: He's the chief economist for Moody's Analytics and he's the

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Speaker 1: host of the Inside Economics podcast. Thank you so much

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Speaker 1: for joining us. It's good to be with you. I

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Speaker 1: had no idea you could fly from Trenton where in Flori.

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Speaker 1: Did you fly to so you can fly to I

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Speaker 1: flew to Fort Lauderdale. I hung out with our old

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Speaker 1: colleague Sarah Ponzac actually Mike and who who she lives

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Speaker 1: in Fort Lauderdale now, um, and it was just the

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Speaker 1: easiest process. It was, honestly like, I'm never going to

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Speaker 1: New York again. I was gonna say, you can only

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Speaker 1: fly from Trenton to Camden is the Yeah, that's it,

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Speaker 1: But but you can. It's it's very smooth flying. Yeah,

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Speaker 1: it was. It was really Yeah to check that out.

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Speaker 1: I have a home and vera Vera which is just

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Speaker 1: up the coast from Fort Lauderdale, so oh, you gotta

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Speaker 1: do it. It was, yeah, check that out. And sticks

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Speaker 1: were okay priced. Oh they were so cheap. I don't

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Speaker 1: even don't want to tell you. Yea very good. I'm

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Speaker 1: really talking this up. You're gonna go and have a

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Speaker 1: bad experience. Mike, I should ask you what high school

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Speaker 1: did you go to? West Bishop Shanahan High School? When

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Speaker 1: I was still in the borough Westchester. Now they well, yeah,

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Speaker 1: you try, I try. You know tall. Did you play basketball?

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Speaker 1: My reputation precedes me. I did indeed play best j

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Speaker 1: V j V well, you know basketball. Yeah, and we

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Speaker 1: had a good squad back then. We were state champions

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Speaker 1: in I did not play on the stage. He wasn't

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Speaker 1: on that. He was on the team in like the

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Speaker 1: thirties or something. Yeah, I can make fun of Mike,

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Speaker 1: but it sounds like she's abuse of me. I feel like, yeah,

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Speaker 1: we've reached our limit on that. Yeah, No, I think

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Speaker 1: there's more to go. So Mark, I want to start

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Speaker 1: with the CPI print, which we got this week, and

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Speaker 1: then I saw you actually tweet about it. You said

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Speaker 1: it was predictably ugly, and then it might take eighteen

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Speaker 1: to twenty four months for us to get back down

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Speaker 1: to Another thing you said was that rent growth will

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Speaker 1: be an impediment. There's a shortage of affordable homes. So

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Speaker 1: can you can you talk to us about what we

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Speaker 1: got this week and what you're forecasting? Yeah? Right, Uh,

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Speaker 1: nine point one percent. You're over your CPI inflation through

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Speaker 1: the month of June. Uh. Just here's a good here's

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Speaker 1: an interesting fact, toy. I mean, I think it strikes

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Speaker 1: the point home. The average or the typical American household

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Speaker 1: who makes about this sixt k year, they need to

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Speaker 1: spend almost five dollars more a month to buy the

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Speaker 1: same goods and services that they were purchasing a year ago.

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Speaker 1: So just think about that for a second. That's pretty painful.

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Speaker 1: And you know there's no way around the high inflation.

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Speaker 1: I mean you took at gasoline prices. I mean you

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Speaker 1: gotta go to work, you gotta go grocery shopping, you

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Speaker 1: gotta go to school, So no way around that. Rents

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Speaker 1: are up a lot, uh, given the affordable housing shortage.

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Speaker 1: Food prices are up. A lot of that goes back

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Speaker 1: to energy because of diesel prices, you know, getting the

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Speaker 1: things for the food from the the from the farm

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Speaker 1: to the store. Sheelf. But everything's up a lot, very

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Speaker 1: few in fact, is you know, I was looking through

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Speaker 1: the report for things that had fallen in price, and

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Speaker 1: I can count them on one hand. Really, like smartphones

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Speaker 1: are down, and that's because of improvement in technological change

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Speaker 1: and technology. Men's pants, believe it or not, they're selling

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Speaker 1: for less today than a year ago. I you know,

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Speaker 1: I'm in my short right now. Somebody's gonna say sweatpants

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Speaker 1: are sweatpants now they think about it. How many pairs

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Speaker 1: of pants have I bought in the last year? I can't.

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Speaker 1: I can't tell you anyway. So prices are up a

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Speaker 1: lot and it's really hurting. Um, I will, I'll just

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Speaker 1: tease it and I'll stop, but I you know, I

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Speaker 1: do think that will be the worst of it. I

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Speaker 1: say that with intrepidation because I said that before in

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Speaker 1: the last few months, because you know, pegging the peak

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Speaker 1: and inflation is intrepid because it depends on oil prices

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Speaker 1: and gasoline prices, which goes back the Russian invasion of

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Speaker 1: Ukraine and sanctions and the timing and sanctions. Hard to

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Speaker 1: get that right. But it feels like we're moving on

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Speaker 1: the right side of the inflation picture. Now. A long

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Speaker 1: way to get back, because I said eighteen twenty four

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Speaker 1: months to something we all feel comfortable with. But I

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Speaker 1: think we're on our way and it fingers crossed. You know.

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Speaker 1: The one weird thing I've noticed mark with people trying

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Speaker 1: to call the peak and inflation is that it's such

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Speaker 1: a moving target as far as what's driving it. I mean,

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Speaker 1: obviously energy, oil, gasoline prices, um. But you know last

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Speaker 1: year everyone was looking at lumber when lumber prices peaked,

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Speaker 1: they thought, oh, that's it, that's the sign that inflation

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Speaker 1: is peaked. Now I have to wonder about rent owners

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Speaker 1: equivalent rent in the CPI report UM. And I talked

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Speaker 1: to Rob Barnett of a few months ago of Research Affiliates,

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Speaker 1: and he was sort of very hawkish about inflation because

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Speaker 1: he said, look, home prices have risen something like thirty

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Speaker 1: some percent since the end of two thousand and nineteen,

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Speaker 1: and and his in his thinking, that has to trickle

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Speaker 1: into the owner's equivalent rent or the other shelter components

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Speaker 1: of c p I. UM. So, even if energy comes

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Speaker 1: off the boil, how how big of a deal is

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Speaker 1: rent going to be going forward? Do you think? I mean,

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Speaker 1: is there still some of that? How home price appreciation

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Speaker 1: as are not predicts that that has to trickle into

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Speaker 1: the rent UH component of CPI. Yeah. The reason well,

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Speaker 1: I mean, just give give a set of numbers to

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Speaker 1: make a concrete I mean, let's say inflation inflation we

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Speaker 1: know now is nine point one. If oil prices simply

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Speaker 1: go flat, and that means gasoline prices we'll start will

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Speaker 1: come down a bit, diesel prices will come in a bit.

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Speaker 1: Jet fuel because we've been paying a lot more for

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Speaker 1: air fare, except if you fly from Trent and apparently,

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Speaker 1: you know, you can pay more for air fare. Airfares,

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Speaker 1: they'll take about half the inflation away. So you go

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Speaker 1: from nine to you know, four and a half five,

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Speaker 1: you know, something like that, and that getting from five

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Speaker 1: to two and a half, which is kind of the

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Speaker 1: upper end of the Vetch target for CPI inflation, that's

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Speaker 1: going to be much more difficult because that goes to

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Speaker 1: some supply chain, some product services, excuse me, products that

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Speaker 1: have been disrupted by supply chain issues like the vehicle prices.

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Speaker 1: But the big chunk of that is, in fact the

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Speaker 1: higher rent rents that were now paying and they're in

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Speaker 1: the very strong rent growth, which is actually the market

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Speaker 1: rents have been rising now for more than a year

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Speaker 1: double digit, but it's only now getting into the because

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Speaker 1: of measurement methodologies by the er of labor statistics, only

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Speaker 1: now getting into the c p I for rent in

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Speaker 1: in in a full fulsome way. In a full way,

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Speaker 1: I will say, though, uh that it feels like market

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Speaker 1: rents growth is has topped out, that it is starting

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Speaker 1: to roll over. And that goes to the fact I

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Speaker 1: think a couple of things. One is, renters just can't

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Speaker 1: afford these rents, you know, they're balking, and they're just

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Speaker 1: they're gonna double up, the triple up, go back to

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Speaker 1: their parents house. You're not gonna see households formed because

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Speaker 1: you know, kids can't afford in households can't afford these rents.

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Speaker 1: So that that's starting to I think, uh affect the

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Speaker 1: ability of landlords to increase the rent growth and more

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Speaker 1: supplies coming uh. You know, we're actually putting up a

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Speaker 1: lot of multi family units by historical standards, and a

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Speaker 1: lot more is in train. In fact, there's a record

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Speaker 1: number of of units multi family units in the pipeline

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Speaker 1: going towards completion. They've been delayed because of the pandemic

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Speaker 1: and the supply chain issues, which have got back to

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Speaker 1: your point about lumber. You know, it's disrupted all kinds

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Speaker 1: of building materials and it's affected labor markets. So construction

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Speaker 1: workers have been been they've been builders have been having

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Speaker 1: troll finding construction workers in some parts of the country.

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Speaker 1: But is that that gets ironed out, I think rent

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Speaker 1: growth will roll over even further. It will remain high,

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Speaker 1: you know, kind of high mid high single digit your

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Speaker 1: over your growth, but it's gonna start to come in.

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Speaker 1: And once that does, by this time next year, rank

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Speaker 1: rint growth will become less additive to inflation. That will

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Speaker 1: become still add but less additive. And I think it

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Speaker 1: will allow inflation broadly to moderate back down close to

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Speaker 1: the Fed Reserve's target. But but again, it's gonna take

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Speaker 1: a while to get there. What about all the other

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Speaker 1: pieces of inflation besides housing, Because you know you have

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Speaker 1: this projection about the next eighteen to twenty four months.

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Speaker 1: What else is going to be happening over the next

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Speaker 1: eighteen to twenty four months. I know you have downgraded

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Speaker 1: your GDP outlook for this year and next, right, I have, uh,

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Speaker 1: still no recession. Obviously, recession risks or high and we

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Speaker 1: could talk about that. I mean, clearly when inflation is

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Speaker 1: so high and the Fed is on de con one

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Speaker 1: and really rightfully focus on getting that inflation down by

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Speaker 1: jacking up interest rates and and and sentiment is miserable, right,

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Speaker 1: I mean I talked to CEO CFOs investors, you know, friends, family,

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Speaker 1: to the person, they think we're going into recession. I've

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Speaker 1: never seen anything like it. I mean, I you know,

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Speaker 1: you can look at my hairline. I've seen a lot

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Speaker 1: of business cycles now and no one predicts recessions. Uh.

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Speaker 1: You know, but in this one, everyone is predicting a recession.

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Speaker 1: So when sentiment is so fragile, it's not gonna take

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Speaker 1: a whole lot to push us in. You know, I

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Speaker 1: think with a little bit of luck, we can talk

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Speaker 1: about what that means, and some reasonably good policy making

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Speaker 1: by the FED, and we can talk about what that means,

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Speaker 1: we're gonna be able to avoid recession. But I don't

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Speaker 1: say that with a lot of confidence. I think that's

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Speaker 1: you know, recession risks are are very high, but I

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Speaker 1: don't think we need a recession to get you know,

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Speaker 1: inflation back in. You know, all prices are gonna roll over.

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Speaker 1: Natural gas prices are gonna fall. We're gonna see vehicle

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Speaker 1: prices come down as supply chain issues airing themselves out,

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Speaker 1: we get more vehicle production, UM, commodity prices, more goods prices,

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Speaker 1: more broad they are going to come in. UM. So

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Speaker 1: you know, I think, uh, again, with a little bit

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Speaker 1: of luck and some reasonably deft policymaking by the FED,

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Speaker 1: we should be able to navigate through. But you know,

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Speaker 1: obviously it's gonna be a close call. Well It's it's funny, Mark,

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Speaker 1: because there's once again, there's this debate about what exactly

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Speaker 1: is the definition of a recession. You know, if you

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Speaker 1: boil it down to the most simplest form, people tend

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Speaker 1: to say, well, two quarters of negative GDP growth, which

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Speaker 1: we might actually get for the first half of this year.

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Speaker 1: But then everyone else says, well, now, the the National

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Speaker 1: Bureau of Economic Researchers, Uh, they're the ones who decide

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Speaker 1: if it's a recession, but they have a long list

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Speaker 1: of other items. Are you pretty comfortable um in sort

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Speaker 1: of wrapping your head around what it takes for the

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Speaker 1: m b e R to declare recession or is there

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Speaker 1: some wiggle room there? Is there some sort of qualitative

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Speaker 1: elements with that that would allow them to say, yeah,

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Speaker 1: this one doesn't count, you know, especially you know, especially Mark,

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Speaker 1: when you think of this job market. We still have

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Speaker 1: eleven million job openings in this country. You know, is

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Speaker 1: it you know, two quarters of negative growth? Uh? Yeah, yeah,

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Speaker 1: I mean it's worked in the past. It correlates very

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Speaker 1: well with the decisions by the academics sitting on the

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Speaker 1: Business Cycle Dating Committee of the National dar of Economic Research.

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Speaker 1: But you know, GDP is like one thing they look

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Speaker 1: at and I only even think at the top of

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Speaker 1: the list of things that they look at, I mean,

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Speaker 1: it's employment, it's income less transfer payments, it's manufacturing and

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Speaker 1: trade sales. There's a lot, a lot of different indicators

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Speaker 1: that they gave. They look at the gauge. What you know,

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Speaker 1: whether this feels like saying, by the way, the way

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Speaker 1: they define a recession, I think it's right now. I'm

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Speaker 1: gonna paraphrase, so I don't got I don't know the

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Speaker 1: wording exactly right, but don't get the get the gist

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Speaker 1: of it. It's a broad based, persistent decline in economic activity.

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Speaker 1: Lots of wiggle room there in that definition. No, I

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Speaker 1: don't what we experienced the first half of the years

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Speaker 1: that is not a recession. I mean, can't create were

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Speaker 1: creating what we created four or five a dozen jobs

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Speaker 1: on average per month in the first half the year.

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Speaker 1: And I think the if you look at layoffs, you know,

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Speaker 1: as measured by a claims round employment insurance, I think

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Speaker 1: that's at a record law in the first half of

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Speaker 1: the year. I mean, it's just that's not a recession.

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Speaker 1: And I don't think they'll call not that, you know,

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Speaker 1: a recession isn't dead ahead that you know, obviously there's

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Speaker 1: a lot of risk, but that what we've experienced so far,

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Speaker 1: that's a non recession. And here's a here's an intrepid

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Speaker 1: forecast for you. You have to ask me back, you know,

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Speaker 1: five years from now. But once we get all the

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Speaker 1: GDP revisions in and GDP gets revised, you know, it's

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Speaker 1: an imprecise representation of reality like most data. But once

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Speaker 1: it gets you know, revised with all of the data

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Speaker 1: that comes available, my guess is, uh, these declines could

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Speaker 1: get completely Q one. That decline may not get completely

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Speaker 1: borrowsed away, but Q two, if we get a small decline,

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Speaker 1: I'm guessing that gets revised away. I just don't think

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Speaker 1: it's it's accurately representing what's going on. And there's a

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Speaker 1: lot of reasons to suspect that, given that the pandemic

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Speaker 1: has created havoc with you know, all the different economic

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Speaker 1: statistics that we look at. Yeah, I also wonder, Mark,

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Speaker 1: does it really matter whether Recession Dating Committee says yes,

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Speaker 1: it's a recession, No it's not. You know what, what

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Speaker 1: difference does it really make? Well, obviously makes a political

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Speaker 1: difference that I mean, besides that, I'm just trying to

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Speaker 1: think because there's some bond covenant somewhere that's triggered. You know,

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Speaker 1: anything like that. I'm at a loss for you know,

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Speaker 1: if whether there's a material distinction between well it feels

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Speaker 1: like a recession and someone you know, rubber stamping and saying, yes,

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Speaker 1: this is technically a recession. You know what I mean? Yeah,

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Speaker 1: I mean policy probably, you know, policy probably if they

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Speaker 1: come out if the business cycle dating committees that came

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Speaker 1: out and said recession started in January, Uh, you know,

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Speaker 1: that might uh light of fire under policy makers and

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Speaker 1: they say, oh, maybe we need to do X, Y

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Speaker 1: and z, so it might have some impact there. There

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Speaker 1: are some interesting line up that you bring it up.

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Speaker 1: There's efforts uh to codify where we are in the

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Speaker 1: business cycle for different types of economic policy. So you know,

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Speaker 1: for example, of unemployment rises by a certain amount over

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Speaker 1: a certain period of time, then you automatically trigger you know,

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Speaker 1: supplemental unemployment ssurance benefits or some other form of benefit.

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Speaker 1: You know, we have these automatic whether we call automatic

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Speaker 1: stabilizers in the federal budget, things that help the economy

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Speaker 1: out when it's not doing well. But you could you

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Speaker 1: could reinforce those out of automatic stabilizers by you know,

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Speaker 1: pegging two recession dates or something like that. But that's

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Speaker 1: not the case now. But you're right. I mean, you're

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Speaker 1: right whether the recession began in March or April or May,

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Speaker 1: you're right. I don't, I don't. It matters a whole

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Speaker 1: lot to the in the grand scheme of things. So Mark,

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Speaker 1: when you downgraded your GDP growth outlook, I think you

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Speaker 1: said odds remain that the economic expansion will continue. And

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Speaker 1: I wanted to ask you what specifically you were thinking there.

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Speaker 1: Was it the jobs figures we were just talking about,

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Speaker 1: or what goes into that thought? Well, bunch of stuff,

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Speaker 1: But I'll name one thing. The thing that that that

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Speaker 1: I take the most soulless in is that, in my mind,

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Speaker 1: the firewall between a continuing growing economy and a recession

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Speaker 1: is the American consumer. American consumer hanks tough, just do

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Speaker 1: their part, you know, spend like they've always been spending,

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Speaker 1: will avoid a recession. And by the way, if the

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Speaker 1: American consumers hanks tough, they'll they'll keep the global economy

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Speaker 1: moving forward as well. You know, some parts of the

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Speaker 1: global economy will go in but you know, the US

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Speaker 1: consumers kind of driving the train, right now. And if

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Speaker 1: you look at the American consumer and pretty good chick.

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Speaker 1: I mean, obviously they're getting hammered by the high inflation

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Speaker 1: right now, but you know they've got a lot of

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Speaker 1: excess saving they built up during the pandemic, and just

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Speaker 1: cross all income groups. For the typical American household, by

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Speaker 1: my calculation, they as of June had seven eight thousand

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Speaker 1: dollars and excess savings. So if I'm paying five more

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Speaker 1: a month for the for the higher inflation, and I

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Speaker 1: have seven eight thousand dollars in nextless saving, you can

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Speaker 1: do the arithmetic. That buys me a little bit of time, right,

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Speaker 1: I can use that excess saving to supplement my income

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Speaker 1: to compensate to offset the ill effects of the high inflation.

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Speaker 1: That is low, That service burdens are about as low

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Speaker 1: as they've ever been. That services, what share people's income

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Speaker 1: is going to servicing their debt, interest payments, principal payments.

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Speaker 1: That's pretty close to a record low. People have locked

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Speaker 1: in the previously low record interest rates through refinancing way,

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Speaker 1: so they're very insulated from the higher rates. The stock

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Speaker 1: prices are down, but house prices are up. People are

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Speaker 1: wealthier today, particularly middle American households are more wealthy today

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Speaker 1: than they were a year ago, and a lot more

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Speaker 1: wealthy than they were three or five, ten years ago.

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Speaker 1: So I can go on. But that just gives me

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Speaker 1: a sense that the consumers are gonna they're gonna hang tough, uh,

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Speaker 1: and they're gonna continue and just not They're not gonna

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Speaker 1: They're not gonna spend with abandoned they haven't been doing that.

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Speaker 1: But if they just simply spend at a rate that

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Speaker 1: they have consistently done in recent history pre pandemic, uh

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Speaker 1: and up and through the pandemic, I think we should

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Speaker 1: be able to get through this without you know, going

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Speaker 1: into a full blown recession. So number that's at the

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Speaker 1: very top of the tippity top of reasons. Why you know,

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Speaker 1: I'm still saying when I say that with intrepidation, I

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Speaker 1: don't want to sound Pollyannish. Obviously, my recession odds are

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Speaker 1: pretty high, uncomfortably high. But but nonetheless, I you know,

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Speaker 1: that gives me some confidence that you know, again, with

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Speaker 1: a little bit of luck on the pandemic and the

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Speaker 1: Russian invasion and some death policymaking, we come make we

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Speaker 1: can make our way through without an actual recession. Yeah,

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Speaker 1: I think you're from the note I read, your recession

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Speaker 1: probability is like in the next twelve months, in the

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Speaker 1: next twenty four months. You know, if you look at

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Speaker 1: like a recession probability index that is that's alarmingly high.

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Speaker 1: You know, they get that. I mean, I'm very and

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Speaker 1: I again I go back to the sentiment, it's just

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Speaker 1: very very dark consumers. You saw the small business UH

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Speaker 1: survey from the National feuure at Fish Independent Business. I

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Speaker 1: think that did that hit a kind of all time lower,

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Speaker 1: pretty close lower than even the teeth of the pandemic. Yeah,

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Speaker 1: it's very low. I don't know if it hit the record,

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Speaker 1: but yeah, yeah, it's say, are you guys feeling it's well,

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Speaker 1: let's say the the vibes recession? I think I like that.

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Speaker 1: Have you heard that vibes recently? Mark? I wanted to

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Speaker 1: get back to that. You know, you you touched on

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Speaker 1: the home price that this amazing acceleration in home prices

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Speaker 1: we've seen over the last uh two years. Um. Obviously,

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Speaker 1: everyone I've talked to UH says, well, housing cool off.

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Speaker 1: The financial systems on much better footing than it was

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Speaker 1: in the days of subprime liar loans and whatnot, and

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Speaker 1: and this you know, structured finance that got out of

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Speaker 1: control in the in the mortgage market. But I can't

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Speaker 1: help but wonder if we are in for a pretty

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Speaker 1: nasty cooling off of the housing market. Um. And given

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Speaker 1: its importance to your point to sort of household net worth,

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Speaker 1: to the labor market, when you're talking about uh, new

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Speaker 1: home construction, to the retail market, when you're talking about

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Speaker 1: people buying and selling homes and and doing uh home

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Speaker 1: improvement projects, it should such an important component of the economy.

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Speaker 1: What what does housing look like to you in the

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Speaker 1: next year too, um? And sort of what are the

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Speaker 1: potential ripple effects of it? Uh, potentially cooling off on

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Speaker 1: the rest of the economy. Oh no, it might gets

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Speaker 1: cooling off. It's going into deep freeze pretty fast here. Uh.

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Speaker 1: You know, mortgage rates at just north of or just

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Speaker 1: south of six percent, almost double what they were a

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Speaker 1: year ago at their all time low. And you you know,

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Speaker 1: you just take that higher interest rate, you multiplied by

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Speaker 1: the higher house price, and you look at the monthly

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Speaker 1: payment that the first time homebuyers facing, it's you know,

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Speaker 1: five more now than it was a year ago. That's prohibitive.

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Speaker 1: So first, some homebuyers are locked out of the market,

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Speaker 1: and trade of buyers are kind of locked in, right,

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Speaker 1: because the average rate on outstanding mortgage is given all

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Speaker 1: the reefinancing I talked about earlier, is three and a

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Speaker 1: half to four percent. So if you sell your home

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Speaker 1: and buy another one and get a mortgage, you're going

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Speaker 1: from three and a half four to six. That's a

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Speaker 1: big increase in payment. So people just aren't going to

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Speaker 1: do that. Uh. So you're seeing home sales come down dramatically,

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Speaker 1: you know already, and listings are starting to I mean

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Speaker 1: I follow different markets across the country and I can

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Speaker 1: you know, I get listings email to me, and I

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Speaker 1: can just feel it. I can just see the list

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Speaker 1: of if I go back, you know, six months ago

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Speaker 1: there was nothing, no no inventory. But now the lot

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Speaker 1: the list is getting longer and longer and longer. And

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Speaker 1: I expect house prices h to parts of the country

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Speaker 1: to fall, and particularly the most the areas where prices

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Speaker 1: have been duced the most. Uh you know, in the

426
00:22:32,080 --> 00:22:37,520
Speaker 1: pandemic in the southeast in Florida. Um, you know, except

427
00:22:37,600 --> 00:22:41,560
Speaker 1: my home in Verreau that should be problem. Um, it's

428
00:22:41,560 --> 00:22:44,199
Speaker 1: always it's always Florida for some reason. The house it's

429
00:22:44,200 --> 00:22:47,600
Speaker 1: always Florida. You know, the Mountain West. You can draw

430
00:22:47,640 --> 00:22:51,200
Speaker 1: a line. I now know how to pronounce Boisey, Boisey,

431
00:22:51,680 --> 00:22:55,400
Speaker 1: wondering Boisey down to Phoenix. You can draw a line

432
00:22:55,440 --> 00:22:58,760
Speaker 1: and go few hundred miles on either side. Um, so

433
00:22:58,800 --> 00:23:01,359
Speaker 1: I expect some price to clients are nationwide. We might

434
00:23:01,400 --> 00:23:03,840
Speaker 1: be able to sneak through with prices just essentially going

435
00:23:03,920 --> 00:23:06,000
Speaker 1: flat here for a couple of three years and let

436
00:23:06,400 --> 00:23:09,400
Speaker 1: household incomes and rents and construction costs kind of catch up.

437
00:23:09,840 --> 00:23:12,320
Speaker 1: But there is no recession. If we get into recession,

438
00:23:12,880 --> 00:23:15,800
Speaker 1: then I think that's gonna put real downward weight on house.

439
00:23:15,840 --> 00:23:18,679
Speaker 1: Person will see some national house persus claims. But but

440
00:23:18,720 --> 00:23:21,160
Speaker 1: I'll but I'll say two other things about this one.

441
00:23:21,240 --> 00:23:25,040
Speaker 1: This is by design, right, The Federals is raising interest

442
00:23:25,119 --> 00:23:27,920
Speaker 1: rates to slow growth, and that happens through the most

443
00:23:27,960 --> 00:23:31,720
Speaker 1: rate sensitive sectors of the economy. Housing is the single

444
00:23:31,840 --> 00:23:34,080
Speaker 1: most interest rate sensitive sector of the economy. So this

445
00:23:34,160 --> 00:23:37,639
Speaker 1: is not, you know, a big surprise, that's exactly what

446
00:23:37,720 --> 00:23:41,240
Speaker 1: you would expect. And second, I don't expect the prices

447
00:23:41,280 --> 00:23:45,400
Speaker 1: to crash because the lending the mortgage lending that's been

448
00:23:45,400 --> 00:23:47,840
Speaker 1: done since the financial crisis and the collapse in housing

449
00:23:47,880 --> 00:23:49,600
Speaker 1: back over a decade ago has been fat I'm on

450
00:23:49,640 --> 00:23:52,439
Speaker 1: the board of directors of I should disclose this of

451
00:23:52,640 --> 00:23:56,000
Speaker 1: m g I C and nationwide publicly traded mortgage insurer,

452
00:23:56,760 --> 00:23:59,359
Speaker 1: and UM on the chair of the Risk Committee. So

453
00:23:59,359 --> 00:24:03,600
Speaker 1: I look underwriting very carefully, and you know, it's been

454
00:24:03,720 --> 00:24:07,120
Speaker 1: pristine since the collapse. And the other thing is it's

455
00:24:07,160 --> 00:24:11,720
Speaker 1: all plain vanilla. You know, thirty year, fifteen year fixed

456
00:24:11,800 --> 00:24:15,440
Speaker 1: rate pre paigal mortgage is nothing fancy, no no adjustable

457
00:24:15,520 --> 00:24:18,480
Speaker 1: rate to your subprime. And just so, I just don't

458
00:24:18,520 --> 00:24:22,800
Speaker 1: see the stresses here to result in a big sharp

459
00:24:22,840 --> 00:24:27,240
Speaker 1: decline in prices. But you know, prices going flat nationwide

460
00:24:27,280 --> 00:24:30,240
Speaker 1: and down in fair share markets. Yeah, I would. I

461
00:24:30,240 --> 00:24:33,080
Speaker 1: would anticipate that, and I would say that's that's that's

462
00:24:33,080 --> 00:24:35,960
Speaker 1: that's exactly what the FED wants to see. Well, actually, Mark,

463
00:24:36,000 --> 00:24:37,679
Speaker 1: I wanted to ask you to speak a little bit

464
00:24:37,720 --> 00:24:40,280
Speaker 1: more about that, like which areas are the most at

465
00:24:40,359 --> 00:24:44,400
Speaker 1: risk across the country. I know you had said recently

466
00:24:44,440 --> 00:24:47,520
Speaker 1: that from coast to coast will be seeing housing prices

467
00:24:47,520 --> 00:24:50,880
Speaker 1: coming down overall. What is the downside risk for housing.

468
00:24:50,960 --> 00:24:55,280
Speaker 1: How bad can things get and where specifically? Yeah, no

469
00:24:55,359 --> 00:24:58,800
Speaker 1: more session Again, I think national prices HASH prices expectively

470
00:24:58,840 --> 00:25:02,439
Speaker 1: go flat here over the next two, three, maybe four years.

471
00:25:03,119 --> 00:25:05,920
Speaker 1: That means big parts of the country you're gonna experience

472
00:25:06,000 --> 00:25:10,399
Speaker 1: meaningful price declines. So in the most uh juice markets

473
00:25:10,400 --> 00:25:14,760
Speaker 1: where I expect the biggest price corrections because of affordability,

474
00:25:14,760 --> 00:25:18,440
Speaker 1: primarily because of affordability, that would be in the southeast

475
00:25:18,520 --> 00:25:21,600
Speaker 1: and in the West. So the poster child would probably be,

476
00:25:21,920 --> 00:25:27,080
Speaker 1: you know, like a Charlotte, North Carolina, a Tampa, Florida. Uh,

477
00:25:27,119 --> 00:25:31,600
Speaker 1: you know, a Phoenix, Arizona, a Boise, Idaho. And it's there.

478
00:25:31,720 --> 00:25:35,919
Speaker 1: You know, it fundamentally goes to affordability, right, because prices

479
00:25:35,960 --> 00:25:39,520
Speaker 1: have risen so far, so fast in these markets, and

480
00:25:39,640 --> 00:25:44,000
Speaker 1: you you add in these higher mortgage rates and you

481
00:25:44,080 --> 00:25:47,640
Speaker 1: just simply people just simply can't afford to buy the home.

482
00:25:47,840 --> 00:25:49,919
Speaker 1: Doesn't make you know, they just can't come up with

483
00:25:49,920 --> 00:25:52,240
Speaker 1: a monthly payment that they need, and so that means

484
00:25:52,280 --> 00:25:54,200
Speaker 1: prices have to come in. Now, I will say it

485
00:25:54,240 --> 00:25:56,200
Speaker 1: may take a bit of time for prices to come

486
00:25:56,240 --> 00:25:59,000
Speaker 1: in because people have in their minds what they think

487
00:25:59,040 --> 00:26:01,320
Speaker 1: their home is worth. You know, the in real estate

488
00:26:02,119 --> 00:26:04,600
Speaker 1: at turning points like this, seller's and buyers go into

489
00:26:04,680 --> 00:26:06,600
Speaker 1: kind of like a kabuki dance trying to figure out

490
00:26:06,640 --> 00:26:09,040
Speaker 1: what real value is, and that takes a little bit

491
00:26:09,040 --> 00:26:12,000
Speaker 1: of time transaction stop. That's why I think home sales

492
00:26:12,040 --> 00:26:14,360
Speaker 1: are gonna be getting crushed on while they're gonna be weak,

493
00:26:14,480 --> 00:26:15,760
Speaker 1: But it takes a little bit of time for them

494
00:26:15,800 --> 00:26:19,280
Speaker 1: to figure out value price transact and for that to

495
00:26:19,280 --> 00:26:22,280
Speaker 1: show up in the data. So it may take you know, six, twelve,

496
00:26:22,760 --> 00:26:25,080
Speaker 1: eighteen months before this all shows up. The other thing

497
00:26:25,080 --> 00:26:27,360
Speaker 1: I throw into the mix is and some of these

498
00:26:27,359 --> 00:26:32,280
Speaker 1: most juiced markets we have seen uh more flipping going on,

499
00:26:32,480 --> 00:26:36,640
Speaker 1: which is not surprising. Something meaning uh investors that come

500
00:26:36,680 --> 00:26:39,439
Speaker 1: in and buy a property with the intent of selling

501
00:26:39,440 --> 00:26:41,560
Speaker 1: it rapidly. You know, the ie buyer, for example, will

502
00:26:41,600 --> 00:26:45,639
Speaker 1: be kind of an institutional flipper, and they have infected

503
00:26:45,680 --> 00:26:50,840
Speaker 1: some markets like a Phoenix is the best example. That Raleigh, Charlotte, Atlanta,

504
00:26:51,640 --> 00:26:54,359
Speaker 1: those Florida markets again and as a result, you know,

505
00:26:54,400 --> 00:26:56,840
Speaker 1: they'll get wrong out and that means they'll you'll see

506
00:26:56,880 --> 00:26:59,320
Speaker 1: bigger price declines in those in those parts of the country.

507
00:26:59,359 --> 00:27:02,359
Speaker 1: But you know, I know you're you're primarily focused on

508
00:27:02,400 --> 00:27:04,080
Speaker 1: the US, so this might be a little bit of

509
00:27:04,080 --> 00:27:07,720
Speaker 1: a curve ball. But now, Mike, I my remits you know,

510
00:27:08,119 --> 00:27:10,520
Speaker 1: pretty wide, not that I you know, I'll give you

511
00:27:10,560 --> 00:27:13,399
Speaker 1: my three cents about almost anything so far away, all right, good, good,

512
00:27:13,520 --> 00:27:17,760
Speaker 1: well three euro cents, which is is parody's parody these days.

513
00:27:17,840 --> 00:27:21,399
Speaker 1: So but I you know, I can't help but think

514
00:27:21,440 --> 00:27:29,399
Speaker 1: about temperatures getting cooler, and Europe and the Russia tension escalating,

515
00:27:29,600 --> 00:27:33,560
Speaker 1: and the possibility of the gas getting turned off or

516
00:27:33,600 --> 00:27:35,960
Speaker 1: at least threatened to be turned off. A lot of

517
00:27:35,960 --> 00:27:40,680
Speaker 1: people are talking about that these days, I know, for

518
00:27:40,680 --> 00:27:43,480
Speaker 1: for someone like you, who you know, is based in

519
00:27:43,600 --> 00:27:47,640
Speaker 1: data and and history and all that, it's it's got

520
00:27:47,640 --> 00:27:49,560
Speaker 1: to be tough to sort of all of a sudden

521
00:27:49,640 --> 00:27:53,280
Speaker 1: incorporate of Vladimir Putin type of character into your you

522
00:27:53,320 --> 00:27:56,640
Speaker 1: know how you're thinking about the future. But um, how

523
00:27:56,640 --> 00:27:59,040
Speaker 1: big of a risk is that some sort of you know,

524
00:27:59,760 --> 00:28:03,160
Speaker 1: es relation of tensions between Russia and Europe that causes

525
00:28:03,320 --> 00:28:06,800
Speaker 1: an even bigger energy crisis there? And and what is

526
00:28:07,560 --> 00:28:10,800
Speaker 1: what are the sort of global spillover risks of that?

527
00:28:10,840 --> 00:28:14,199
Speaker 1: I mean, obviously I'm guessing they're pretty bad. All around.

528
00:28:14,240 --> 00:28:17,080
Speaker 1: But but how are you thinking about, um, sort of

529
00:28:17,119 --> 00:28:19,840
Speaker 1: the fall and winter, uh, and Europe and and and

530
00:28:19,880 --> 00:28:24,080
Speaker 1: this conflict really showing no signs of abating. Yeah, good point.

531
00:28:24,160 --> 00:28:26,760
Speaker 1: And by the way, just because you've made reference to

532
00:28:26,800 --> 00:28:29,879
Speaker 1: this earlier, you know the reason why, in my view,

533
00:28:30,640 --> 00:28:34,320
Speaker 1: economists got, including me, inflation wrong, because we got the

534
00:28:34,320 --> 00:28:37,199
Speaker 1: pandemic wrong, and we got Russia wasn't even on the

535
00:28:37,280 --> 00:28:40,120
Speaker 1: radar screen, you know, this time last year. Right. So

536
00:28:40,560 --> 00:28:43,080
Speaker 1: and when I say the pandemic, we got the vaccines

537
00:28:43,120 --> 00:28:45,640
Speaker 1: a little over a year ago. Remember President Biden say,

538
00:28:45,680 --> 00:28:48,080
Speaker 1: go enjoy your families on July four. We thought the

539
00:28:48,080 --> 00:28:52,320
Speaker 1: pandemic was behind us. But delta was literally already a

540
00:28:52,360 --> 00:28:55,120
Speaker 1: problem and create all kinds of havoc, and particularly in

541
00:28:55,160 --> 00:28:58,280
Speaker 1: Asia with the supply chains. Again, so the surprise isn't

542
00:28:58,440 --> 00:29:03,160
Speaker 1: inflation per se, a price was just the pandemic. And

543
00:29:03,160 --> 00:29:06,240
Speaker 1: and of course what Putin has done in Russia, which

544
00:29:06,280 --> 00:29:09,000
Speaker 1: has been you know, incredibly debilitating, you know, to the

545
00:29:09,000 --> 00:29:12,640
Speaker 1: global economy and really a problem for Europe because they

546
00:29:12,720 --> 00:29:17,240
Speaker 1: depend so much Europeans, uh, continental Europeans in particular on

547
00:29:17,320 --> 00:29:20,520
Speaker 1: Russian uh energy. Um, you know, there's a lot of

548
00:29:20,600 --> 00:29:26,440
Speaker 1: other links agriculture and metals and and the technology and

549
00:29:26,600 --> 00:29:28,960
Speaker 1: all kinds of things. But you know, the the energy

550
00:29:29,640 --> 00:29:33,040
Speaker 1: has been very very secondvance, not just oil, but even

551
00:29:33,080 --> 00:29:35,719
Speaker 1: more importantly is natural gas for some of these countries.

552
00:29:35,720 --> 00:29:37,320
Speaker 1: And I think, I think, I think if I think

553
00:29:37,360 --> 00:29:41,760
Speaker 1: like this, right, Germany gets its natural gas from from Russia,

554
00:29:41,800 --> 00:29:44,280
Speaker 1: and they really rely on the natural gas for not

555
00:29:44,280 --> 00:29:46,560
Speaker 1: only home heating, but for their industry. And you know,

556
00:29:46,880 --> 00:29:50,280
Speaker 1: for Germany that's less a locomotive for the EU economy,

557
00:29:50,400 --> 00:29:52,880
Speaker 1: and they a lot of it is industry's it's a

558
00:29:52,960 --> 00:29:56,840
Speaker 1: vehicle industry for example, that really relies on on uh,

559
00:29:57,080 --> 00:29:59,640
Speaker 1: it really drives the train and and uh and you

560
00:29:59,640 --> 00:30:03,080
Speaker 1: know Obvio really struggling with this. So I do worry

561
00:30:03,120 --> 00:30:04,920
Speaker 1: about that. And there's a lot of script to be

562
00:30:04,920 --> 00:30:07,520
Speaker 1: written here, right. I mean, the EU, the European Union

563
00:30:08,320 --> 00:30:11,400
Speaker 1: sanctioned Russian oil back in early June. By the way,

564
00:30:11,400 --> 00:30:14,640
Speaker 1: that's why gas prices prices with skyward and gas prices

565
00:30:14,640 --> 00:30:17,720
Speaker 1: at their record high in June. And that's what we're

566
00:30:17,720 --> 00:30:20,440
Speaker 1: seeing in today in this week's CPI report, you know,

567
00:30:20,480 --> 00:30:26,040
Speaker 1: this week's CPI report. Uh. But but I do worry that, uh,

568
00:30:26,080 --> 00:30:29,680
Speaker 1: you know, going forward that they actually implement the sanctions

569
00:30:29,760 --> 00:30:32,080
Speaker 1: and stop buying. Right now, they said they're gonna sanction,

570
00:30:32,520 --> 00:30:34,680
Speaker 1: but they're still buying the oil. So it's oil still

571
00:30:34,720 --> 00:30:37,960
Speaker 1: getting into the marketplace. But what happens if they actually

572
00:30:38,160 --> 00:30:41,040
Speaker 1: stopped buying or the Russians turn it off, all prices

573
00:30:41,040 --> 00:30:42,920
Speaker 1: will go right back up again. And that, don't, you know,

574
00:30:42,920 --> 00:30:45,040
Speaker 1: obviously create a lot of part or what are the

575
00:30:45,120 --> 00:30:47,720
Speaker 1: Russians turn off that natural gas? You know that they

576
00:30:47,760 --> 00:30:50,240
Speaker 1: don't just stop pumping the natural gassion shipping it through

577
00:30:50,240 --> 00:30:54,040
Speaker 1: the pipelines to Germany, and that would send the European economy,

578
00:30:54,160 --> 00:30:58,040
Speaker 1: you know, deeply in recession. So yeah, I think that's

579
00:30:58,040 --> 00:31:01,920
Speaker 1: a real Obviously Europe is if our recession risks are high,

580
00:31:02,000 --> 00:31:05,120
Speaker 1: there's our I'd be surprised if they're able to avoid recession.

581
00:31:05,120 --> 00:31:06,800
Speaker 1: It's gonna be very, very difficult, and that does reverb

582
00:31:06,920 --> 00:31:11,520
Speaker 1: rate back on us. Now. Fortunately, the US economy remains

583
00:31:11,680 --> 00:31:15,840
Speaker 1: uh quite uh insulated. You know, we're were we have globalized,

584
00:31:16,120 --> 00:31:19,560
Speaker 1: uh but we when we do the arithmetic, we still

585
00:31:19,600 --> 00:31:23,880
Speaker 1: are mostly a domestically driven economy, consumers and US businesses

586
00:31:23,920 --> 00:31:27,720
Speaker 1: driving growth. So we can navigate through to some degree.

587
00:31:27,720 --> 00:31:31,880
Speaker 1: But you know, Europe and UM and emerging economies are

588
00:31:31,880 --> 00:31:34,680
Speaker 1: in recession, and you know, the dollars going skyward, and

589
00:31:34,680 --> 00:31:37,040
Speaker 1: our experts are weakening, and we're sucking in a lot

590
00:31:37,080 --> 00:31:39,719
Speaker 1: of imports, which we've been doing. That makes it very

591
00:31:39,720 --> 00:31:42,360
Speaker 1: difficult for us to avoid recession as well. Anything I

592
00:31:42,560 --> 00:31:44,120
Speaker 1: just add to the mix. I don't know if I

593
00:31:44,160 --> 00:31:46,880
Speaker 1: mentioned this, but you know, it's not only about oil

594
00:31:46,880 --> 00:31:50,200
Speaker 1: and natural gas. You know, it's about refining capacity and

595
00:31:50,320 --> 00:31:54,040
Speaker 1: gasoline and diesel and jet fuel, and refining capacity is

596
00:31:54,080 --> 00:31:56,400
Speaker 1: paper thin. We just don't have. We're running out a

597
00:31:56,480 --> 00:31:59,520
Speaker 1: hundred percent. So if anything that disrupts that, you know,

598
00:32:00,040 --> 00:32:02,160
Speaker 1: all prices may not go up, but gas prices, jet

599
00:32:02,200 --> 00:32:05,560
Speaker 1: fuel prices, diesel prices may and now that will do this,

600
00:32:05,680 --> 00:32:08,040
Speaker 1: that will do the same damage to our economy. So

601
00:32:08,200 --> 00:32:11,120
Speaker 1: something else to worry about. Oh good, something else to

602
00:32:11,160 --> 00:32:16,640
Speaker 1: worry about. I did ask. We haven't even got through

603
00:32:16,640 --> 00:32:19,480
Speaker 1: a hurricane season, so there's there's that to worry about. Three.

604
00:32:19,520 --> 00:32:22,880
Speaker 1: Finding capacity I have. I have one more question about

605
00:32:22,880 --> 00:32:25,480
Speaker 1: the housing market for you, because you focus on that

606
00:32:25,560 --> 00:32:27,040
Speaker 1: quite a bit. I wanted to ask you how how

607
00:32:27,200 --> 00:32:30,680
Speaker 1: you think rates can go. Well, I think we're seeing

608
00:32:31,120 --> 00:32:34,840
Speaker 1: the high point in rates right now. Uh, in a

609
00:32:34,840 --> 00:32:37,959
Speaker 1: well functioning economy in the When I said that, an

610
00:32:38,000 --> 00:32:42,120
Speaker 1: economy that is it full employment, inflation at target, uh,

611
00:32:42,400 --> 00:32:46,720
Speaker 1: growing at its potential. Fixed mortgage rates thirty year loan

612
00:32:46,800 --> 00:32:49,000
Speaker 1: should be five and a half percent that you know,

613
00:32:49,160 --> 00:32:51,800
Speaker 1: give or take. That's where we are today, five and

614
00:32:51,800 --> 00:32:54,040
Speaker 1: a half percent. So I think we kind of race

615
00:32:54,120 --> 00:32:56,080
Speaker 1: will go up and down and all around, depending on

616
00:32:56,360 --> 00:32:59,760
Speaker 1: recession concerns, inflation worries, what the FETE is doing. But

617
00:32:59,840 --> 00:33:02,440
Speaker 1: I think we're going to settle in about where we

618
00:33:02,480 --> 00:33:06,400
Speaker 1: are today, give or take. And so I think the

619
00:33:06,480 --> 00:33:09,680
Speaker 1: adjustment in the mortgage market in terms of rates has

620
00:33:09,840 --> 00:33:14,320
Speaker 1: has happened very very quickly, and uh, you know obviously

621
00:33:14,400 --> 00:33:16,400
Speaker 1: that's why the market's kind of seizing up here, is

622
00:33:16,400 --> 00:33:18,720
Speaker 1: trying to adjust to these higher rates that came out

623
00:33:18,720 --> 00:33:21,120
Speaker 1: of nowhere and rose very rapidly. But I think five

624
00:33:21,160 --> 00:33:24,120
Speaker 1: and a half percent it's kind of i'd say, my

625
00:33:24,560 --> 00:33:26,440
Speaker 1: kind of rule of some of where rates should be

626
00:33:27,160 --> 00:33:29,960
Speaker 1: long run, and that's where we're going to settle in here.

627
00:33:30,000 --> 00:33:32,600
Speaker 1: Going park again, it could go higher, you know, for

628
00:33:32,680 --> 00:33:34,440
Speaker 1: lots of different reasons. It can go lower if we

629
00:33:34,520 --> 00:33:37,680
Speaker 1: go into recession. But five and a half is roughly

630
00:33:37,680 --> 00:33:54,880
Speaker 1: where we're going to settle in. Speaking of interest rates, smart,

631
00:33:55,000 --> 00:33:56,960
Speaker 1: let me squeeze one more in before we get to

632
00:33:57,480 --> 00:34:01,520
Speaker 1: to crazy things. But obviously the Bann and I and uh,

633
00:34:01,880 --> 00:34:06,000
Speaker 1: honestly most of us here at Bloomberger obviously market nerds,

634
00:34:06,040 --> 00:34:09,759
Speaker 1: as you know. And one thing everyone's fixated on these

635
00:34:09,840 --> 00:34:13,120
Speaker 1: days is the yield curve inversion. We have rates on

636
00:34:13,280 --> 00:34:16,800
Speaker 1: two year treasuries uh today on Wednesday, as we're recording

637
00:34:16,840 --> 00:34:21,240
Speaker 1: something like twenty basis points higher than ten year rates. Um,

638
00:34:21,280 --> 00:34:24,640
Speaker 1: many believe, uh that is sort of a slam dunk

639
00:34:24,840 --> 00:34:27,360
Speaker 1: precursor of a recession. Do you pay much attention to

640
00:34:27,360 --> 00:34:30,440
Speaker 1: the yield curve and it's predictive value as an economist,

641
00:34:30,760 --> 00:34:32,520
Speaker 1: I didn't. I put a lot of weight on it.

642
00:34:32,600 --> 00:34:35,560
Speaker 1: So you know, it's twenty basis points today in four

643
00:34:35,640 --> 00:34:38,440
Speaker 1: or five days that ten two year has been inverted.

644
00:34:39,280 --> 00:34:41,760
Speaker 1: That's not enough if that's the end of the story

645
00:34:41,960 --> 00:34:45,560
Speaker 1: to signal to me that the economy signaling definitely, economy

646
00:34:45,600 --> 00:34:48,120
Speaker 1: is gonna slow, but it's you know, and really kind

647
00:34:48,160 --> 00:34:50,560
Speaker 1: of stall come to stall speed at some point over

648
00:34:50,600 --> 00:34:53,000
Speaker 1: the next year, six twelve months. But I don't I

649
00:34:53,000 --> 00:34:57,360
Speaker 1: don't think it's signaling yet that we're going into recession before.

650
00:34:57,560 --> 00:35:00,480
Speaker 1: If we stay down twenty basis points in twenty I thirty,

651
00:35:00,480 --> 00:35:02,240
Speaker 1: and we stay there for a few weeks a month,

652
00:35:02,960 --> 00:35:06,440
Speaker 1: then uh yeah, my forecast will probably change. I'll probably

653
00:35:06,440 --> 00:35:08,960
Speaker 1: adopt a recession forecast from the baseline because I think

654
00:35:09,000 --> 00:35:14,040
Speaker 1: that is a very prescient indicator of future economic downturns.

655
00:35:14,080 --> 00:35:16,080
Speaker 1: It's it does a very good job of kind of

656
00:35:16,080 --> 00:35:18,759
Speaker 1: pegging things. There's a lot of situation behind it which

657
00:35:18,760 --> 00:35:21,319
Speaker 1: we can go into. But it's you know, it's it's

658
00:35:21,320 --> 00:35:24,200
Speaker 1: not just a statistical result. There is there is there

659
00:35:24,320 --> 00:35:27,040
Speaker 1: is actual intuition behind why that is such a good

660
00:35:27,040 --> 00:35:30,040
Speaker 1: predictor of future future. Yeah, quickly, let's let's get into

661
00:35:30,080 --> 00:35:32,160
Speaker 1: that real quickly. The sort of cause and effect of it.

662
00:35:32,200 --> 00:35:35,279
Speaker 1: Is it just a tightening in credit conditions when you

663
00:35:35,320 --> 00:35:38,880
Speaker 1: know the near term rates are higher than long term rates. Yeah,

664
00:35:38,960 --> 00:35:41,680
Speaker 1: I mean that's the that's one way of thinking about it.

665
00:35:41,719 --> 00:35:45,560
Speaker 1: I mean, the credit is the mother's milk of economic activity.

666
00:35:45,640 --> 00:35:48,160
Speaker 1: Too much credit, you've got a problem. You get the

667
00:35:48,200 --> 00:35:51,959
Speaker 1: financial crisis. Not enough credit you sees up kind of

668
00:35:52,000 --> 00:35:55,480
Speaker 1: the period after the financial crisis. You need a you know,

669
00:35:55,600 --> 00:35:59,480
Speaker 1: a steady flow of credit to businesses and households to

670
00:35:59,520 --> 00:36:02,839
Speaker 1: keep the kind I mean moving forward. And if they

671
00:36:03,040 --> 00:36:07,160
Speaker 1: curve inverts, that means the financial system can't make money

672
00:36:07,280 --> 00:36:10,640
Speaker 1: or hard to make money. Right, because banks and other

673
00:36:10,640 --> 00:36:14,160
Speaker 1: financial institutions fund themselves with short term money. They take that,

674
00:36:14,239 --> 00:36:16,839
Speaker 1: they lend it long and get that higher interest rate

675
00:36:17,200 --> 00:36:20,399
Speaker 1: they work. They benefit from that that net interest margin

676
00:36:20,520 --> 00:36:23,000
Speaker 1: or that spread. So when the curve inverts, they can't

677
00:36:23,000 --> 00:36:25,640
Speaker 1: do that. Their margin is gone, and therefore they're less

678
00:36:25,680 --> 00:36:29,080
Speaker 1: likely to extend credit and that causes the economy, businesses,

679
00:36:29,080 --> 00:36:32,399
Speaker 1: households to kind of slow up their activity and lays

680
00:36:32,400 --> 00:36:37,640
Speaker 1: the foundation for recession. Is more of a signaling intuition,

681
00:36:37,680 --> 00:36:40,880
Speaker 1: and that is just bond investors, right. So bond investors

682
00:36:40,920 --> 00:36:43,280
Speaker 1: they see they have a view of what the Fed's

683
00:36:43,280 --> 00:36:45,560
Speaker 1: gonna do, and in this environment, the Fed has been

684
00:36:45,760 --> 00:36:48,799
Speaker 1: crystal clear what it's gonna do, so no no ambiguity.

685
00:36:48,920 --> 00:36:50,799
Speaker 1: That is reflected in the two year yield. And right

686
00:36:50,800 --> 00:36:53,160
Speaker 1: now they're saying I'm gonna jack up interest rates very aggressively.

687
00:36:53,160 --> 00:36:54,800
Speaker 1: You can see that in the higher two year yield,

688
00:36:55,280 --> 00:36:58,840
Speaker 1: and then the bond investors say, oh, well, that's definitely

689
00:36:58,880 --> 00:37:02,680
Speaker 1: going to slow the economy. Put just intercession, bring inflation down. Therefore,

690
00:37:02,840 --> 00:37:05,120
Speaker 1: I think I'm going to do well buying a longer

691
00:37:05,200 --> 00:37:07,920
Speaker 1: term bond like a tenure bond, so that drives down

692
00:37:07,960 --> 00:37:10,520
Speaker 1: the tenure heel. So if it gets inverted, that reflects

693
00:37:10,520 --> 00:37:13,160
Speaker 1: both the bond investors expectation of what the FED is

694
00:37:13,160 --> 00:37:15,440
Speaker 1: going to do and what they think is that's all

695
00:37:15,480 --> 00:37:17,960
Speaker 1: going to do to the economy going forward. And that's

696
00:37:17,960 --> 00:37:21,319
Speaker 1: that's bond investors are. You know, this is books that

697
00:37:21,320 --> 00:37:23,040
Speaker 1: put their money where their mouth is, right, so they're

698
00:37:23,080 --> 00:37:25,960
Speaker 1: really thinking about these things. And so I think, you know,

699
00:37:26,040 --> 00:37:29,200
Speaker 1: we should pay attention to what they're saying. Great stuff,

700
00:37:29,239 --> 00:37:32,480
Speaker 1: Mark really really appreciate it. And Uh, one thing we

701
00:37:32,520 --> 00:37:36,120
Speaker 1: pay attention to around here, vildonna is do you know

702
00:37:36,160 --> 00:37:39,239
Speaker 1: what we know where I'm going the craziest things in

703
00:37:39,280 --> 00:37:43,400
Speaker 1: the market. I got predictable, craziest, craziest. I remember I

704
00:37:43,440 --> 00:37:45,399
Speaker 1: used to call it weirdest for for such. You think

705
00:37:45,400 --> 00:37:47,560
Speaker 1: after a hundred or so podcasts you'd get it right

706
00:37:47,560 --> 00:37:50,520
Speaker 1: by now, But yeah, I still can't. Yeh can't affriendiate.

707
00:37:50,719 --> 00:37:53,080
Speaker 1: I've got a good one. In honor of Mark Sandy

708
00:37:53,160 --> 00:37:57,120
Speaker 1: of Moody's first will you guys come up with one

709
00:37:57,200 --> 00:38:00,600
Speaker 1: every week? Oh my gosh, you must like a day

710
00:38:00,640 --> 00:38:03,160
Speaker 1: trying to figure this out. Actually, this one was easy

711
00:38:03,360 --> 00:38:05,480
Speaker 1: for me because it was just the most interesting story

712
00:38:05,520 --> 00:38:08,640
Speaker 1: to me. It's not actually so much markets related, but

713
00:38:08,960 --> 00:38:11,240
Speaker 1: close enough, so I'm going to give myself a pass.

714
00:38:11,320 --> 00:38:13,879
Speaker 1: But it's a Boomark story story called Eat the Rich

715
00:38:13,920 --> 00:38:17,919
Speaker 1: Popsicles draw NYC crowd opining on musk Twitter. So there's

716
00:38:17,920 --> 00:38:20,480
Speaker 1: an ice cream truck in New York City and this

717
00:38:20,560 --> 00:38:24,680
Speaker 1: guy is selling popsicles of faces of elon musk Jack, Ma,

718
00:38:25,000 --> 00:38:28,800
Speaker 1: Bill Gates, like all these people. It's the whole stunt

719
00:38:28,840 --> 00:38:32,440
Speaker 1: is called Eat the Rich, and I guess people gathered

720
00:38:32,520 --> 00:38:36,400
Speaker 1: bought ice cream pops The only thing is each popsicle

721
00:38:36,520 --> 00:38:41,439
Speaker 1: is ten dollars. I guess there's inflation and ice cream too.

722
00:38:41,800 --> 00:38:46,799
Speaker 1: Ice cream truck driver is gonna I haven't musk face pop.

723
00:38:47,239 --> 00:38:50,880
Speaker 1: I don't actually the faces. I maybe we can tweet

724
00:38:50,920 --> 00:38:52,880
Speaker 1: tweet out a picture or something the face. Some of

725
00:38:52,920 --> 00:38:55,680
Speaker 1: the faces were like spot on, you can tell it's

726
00:38:55,680 --> 00:38:59,320
Speaker 1: Bill Gates has little glasses. Ten bucks for Bill Gates

727
00:38:59,320 --> 00:39:01,759
Speaker 1: pops class. It have to be a hot day for

728
00:39:01,800 --> 00:39:05,000
Speaker 1: me to chuck out ten bucks. How about you, Mark,

729
00:39:05,040 --> 00:39:07,840
Speaker 1: you see anything crazy this week? Well, I'm gonna go

730
00:39:07,840 --> 00:39:11,160
Speaker 1: back to my home and virea. Uh this is crazy

731
00:39:11,200 --> 00:39:13,600
Speaker 1: to me. I don't know, And I think it's symptomatic

732
00:39:13,640 --> 00:39:17,440
Speaker 1: of the craziness according to Zillo, And I think we

733
00:39:17,520 --> 00:39:20,040
Speaker 1: all look at Zillo. I tend to look at Zillo

734
00:39:20,120 --> 00:39:24,319
Speaker 1: when prices are going going down, but I have been

735
00:39:24,320 --> 00:39:26,440
Speaker 1: looking a lot in the last couple of years because

736
00:39:26,440 --> 00:39:30,000
Speaker 1: my according to Zillo, my home and bureau is literally

737
00:39:30,120 --> 00:39:33,520
Speaker 1: doubled in price a few years in two years. Now

738
00:39:34,600 --> 00:39:38,680
Speaker 1: crazy Now, how accurate to you think Zelo is these days?

739
00:39:39,040 --> 00:39:41,040
Speaker 1: Back in the day, I feel like it was pretty off,

740
00:39:41,080 --> 00:39:44,920
Speaker 1: but it's gotten better to you think, Uh, yeah, you know,

741
00:39:45,040 --> 00:39:47,840
Speaker 1: I don't think that's what my home is gonna transact

742
00:39:47,840 --> 00:39:49,760
Speaker 1: at that price, But I think it's in the ballpark,

743
00:39:49,840 --> 00:39:53,319
Speaker 1: right because they can transaction level data you can do there.

744
00:39:55,880 --> 00:39:57,960
Speaker 1: You can do a pretty good job with the transactions

745
00:39:57,960 --> 00:40:01,560
Speaker 1: that I actually occurred. So I think it's it's reasonably accurate.

746
00:40:01,960 --> 00:40:05,480
Speaker 1: But but nonetheless that's not I don't you know, I

747
00:40:05,680 --> 00:40:08,520
Speaker 1: don't I'm not expecting that I can sell that house

748
00:40:08,840 --> 00:40:11,960
Speaker 1: at that price. That is crazy. Sell now, Sell now?

749
00:40:12,000 --> 00:40:14,560
Speaker 1: I said, that's why I love that home. I'm not

750
00:40:14,680 --> 00:40:19,560
Speaker 1: selling but yeah, well all right. My crazy thing is actually, uh,

751
00:40:19,840 --> 00:40:24,719
Speaker 1: someone someone's famous home, someone famous, someone who's famous is

752
00:40:25,080 --> 00:40:27,719
Speaker 1: how don't you know how to say that? I'm tongue

753
00:40:27,719 --> 00:40:32,319
Speaker 1: twisted famous person, famous person's home. First of all, Donna,

754
00:40:32,400 --> 00:40:34,680
Speaker 1: I have to ask you, do you know the name

755
00:40:34,960 --> 00:40:38,120
Speaker 1: of Elvis Presley's home in Tennessee? Mark? I know you

756
00:40:38,239 --> 00:40:42,439
Speaker 1: know it? What is it? Oh? Wait? Shoot, I should

757
00:40:42,440 --> 00:40:45,120
Speaker 1: have watched to give you a hand. Is also a

758
00:40:45,160 --> 00:40:48,719
Speaker 1: great Paul Simon album in the eighties? Yeah right, I

759
00:40:48,760 --> 00:40:56,120
Speaker 1: know you guys are both this Graceland right now. What

760
00:40:56,200 --> 00:40:58,239
Speaker 1: I did not know about grace Land and Mark? Maybe

761
00:40:58,280 --> 00:41:00,279
Speaker 1: you knew this set at Moody's. I know you guys

762
00:41:00,280 --> 00:41:04,960
Speaker 1: are heavy into the municipal bond market. There are MUNI

763
00:41:05,000 --> 00:41:08,960
Speaker 1: bonds attached to Graceland. The City of Memphis and the

764
00:41:09,000 --> 00:41:13,120
Speaker 1: County of Shelby, Tennessee have issued Moody bonds to sort

765
00:41:13,120 --> 00:41:17,320
Speaker 1: of restore and make improvements to it. Um Unfortunately, they defaulted.

766
00:41:18,760 --> 00:41:21,920
Speaker 1: The MUNI bonds on Elvis's homes defaulted. So I talk

767
00:41:21,960 --> 00:41:24,279
Speaker 1: about rock and roll being dead, I think that's you know,

768
00:41:24,480 --> 00:41:27,480
Speaker 1: that's your biggest sign right now, did rate those bonds?

769
00:41:28,880 --> 00:41:31,560
Speaker 1: I'm sure they did. I'm sure they did. I would

770
00:41:31,600 --> 00:41:33,120
Speaker 1: imagine they did. I don't know. I'll have to I'll

771
00:41:33,160 --> 00:41:35,759
Speaker 1: have to look at that. I'm very, very curious. This

772
00:41:35,840 --> 00:41:38,560
Speaker 1: is all based on a calm by our own MUNI expert,

773
00:41:38,640 --> 00:41:41,480
Speaker 1: Joe Mysak, who is, uh, you know, one of the

774
00:41:41,480 --> 00:41:44,719
Speaker 1: best columnists on this space around. Uh. I don't think

775
00:41:44,760 --> 00:41:47,319
Speaker 1: he got into uh any of the ratings on him.

776
00:41:47,360 --> 00:41:50,200
Speaker 1: But Mark, as you may or may not know, I

777
00:41:50,320 --> 00:41:54,399
Speaker 1: like to turn this part into a game of prices, right.

778
00:41:54,480 --> 00:41:59,240
Speaker 1: So my Sack in his column says he uses the

779
00:41:59,360 --> 00:42:02,279
Speaker 1: yearly attend in dance at of Graceland as sort of

780
00:42:02,280 --> 00:42:06,200
Speaker 1: a benchmark for other MUNI bonds around the country that

781
00:42:06,239 --> 00:42:08,480
Speaker 1: are based on some sort of attraction like this, whether

782
00:42:08,560 --> 00:42:11,040
Speaker 1: you know, a county wants to open a museum or

783
00:42:11,120 --> 00:42:14,320
Speaker 1: something like that, and they're they're selling mooney bonds to

784
00:42:14,320 --> 00:42:16,680
Speaker 1: to purchase it. I think I can't imagine Dolly has

785
00:42:16,719 --> 00:42:19,640
Speaker 1: a MUNI attached. Maybe I don't know. Maybe I think

786
00:42:19,640 --> 00:42:23,400
Speaker 1: that's all Dolly's money that went into that um. But

787
00:42:23,520 --> 00:42:27,280
Speaker 1: so his line of thinking is if some county somewhere

788
00:42:27,719 --> 00:42:30,799
Speaker 1: is floating a Muni bond based on the prospect of

789
00:42:30,840 --> 00:42:36,720
Speaker 1: attendance at museum or whatever the attraction is. Grace Lands

790
00:42:36,800 --> 00:42:39,920
Speaker 1: his his sort of benchmark. Okay, if they're expecting to

791
00:42:40,000 --> 00:42:43,719
Speaker 1: do better than grace Land and it's yearly attendance, he's skeptical.

792
00:42:44,040 --> 00:42:46,319
Speaker 1: U if they're somewhere below it, he sort of hears

793
00:42:46,360 --> 00:42:51,319
Speaker 1: them out. So the game show today is what do

794
00:42:51,360 --> 00:42:58,200
Speaker 1: you think the yearly attendance at Graceland was in nineteen

795
00:42:58,600 --> 00:43:02,840
Speaker 1: part of me not last year before the pandemic. We

796
00:43:02,880 --> 00:43:06,160
Speaker 1: can ask my wife. She's lurking in the shadow. I

797
00:43:06,200 --> 00:43:09,000
Speaker 1: have no idea. Why an Elvis fan? Are you an

798
00:43:09,000 --> 00:43:13,600
Speaker 1: Elvis fan? Her dad was? Her dad was all right,

799
00:43:13,880 --> 00:43:18,040
Speaker 1: have her guest for you. Will spousal guests grace Land

800
00:43:18,080 --> 00:43:21,560
Speaker 1: attendance in twenty nineteen, Yeah, full your attendance. Should I

801
00:43:21,600 --> 00:43:24,040
Speaker 1: go first? Or Mark? Would you like to go first?

802
00:43:24,080 --> 00:43:25,719
Speaker 1: I'm very bad at guessing this, so I'm going to

803
00:43:25,840 --> 00:43:29,080
Speaker 1: go with I'm guessing this number is much higher than

804
00:43:29,120 --> 00:43:32,719
Speaker 1: I would ever imagine. I'm keeping a poker face. I'm

805
00:43:32,719 --> 00:43:36,960
Speaker 1: not going to tell I'll go with fifteen million, fifteen million,

806
00:43:37,520 --> 00:43:40,319
Speaker 1: fifteen millions. Oh my gosh, is that too high? Can

807
00:43:40,360 --> 00:43:50,560
Speaker 1: I revise. Thats like a lot of people. True already, Okay, Mark,

808
00:43:50,880 --> 00:43:53,040
Speaker 1: Mark could be playing you here, could be if you

809
00:43:53,360 --> 00:43:58,280
Speaker 1: playing with you, Yeah, he could. He could be one revision,

810
00:43:58,320 --> 00:44:02,760
Speaker 1: one revision. Okay, two million, two million? Mark, what's your guests?

811
00:44:02,760 --> 00:44:05,880
Speaker 1: Remember prices, right, rules are in effect. What's your guests

812
00:44:05,960 --> 00:44:09,839
Speaker 1: for the yearly attendance at Graceland in two thousand prices? Right? Thing?

813
00:44:10,040 --> 00:44:15,799
Speaker 1: But I'll take a guess. I'll say three hundred thousand,

814
00:44:17,840 --> 00:44:21,560
Speaker 1: five hundred and thirty four thousand, four for the year

815
00:44:21,880 --> 00:44:28,920
Speaker 1: of nine. So wins? Okay? Yeah, Well I just multiplied

816
00:44:28,920 --> 00:44:30,879
Speaker 1: a thousand times the number of days in the year.

817
00:44:31,040 --> 00:44:33,400
Speaker 1: Take a few vacation days, because how many people can

818
00:44:33,400 --> 00:44:36,160
Speaker 1: actually go through a home in one day? Fifteen million,

819
00:44:36,239 --> 00:44:38,919
Speaker 1: I think is I'm not going to see the foot

820
00:44:38,920 --> 00:44:44,239
Speaker 1: traffic at Aldona's place sometimes looking back there, I just

821
00:44:44,320 --> 00:44:48,080
Speaker 1: figured it's some absurd number because the stakes are so high.

822
00:44:48,120 --> 00:44:52,120
Speaker 1: If this is the benchmark, all right, But his point

823
00:44:52,200 --> 00:44:55,359
Speaker 1: is that, you know, if you think you can beat

824
00:44:55,400 --> 00:44:58,719
Speaker 1: Graceland numbers of half million a year, you know six

825
00:44:59,360 --> 00:45:02,759
Speaker 1: what is your action to, uh well, six flags? You know,

826
00:45:02,920 --> 00:45:05,520
Speaker 1: I don't. I don't think the ship of Jackson New

827
00:45:05,560 --> 00:45:07,600
Speaker 1: Jersey has Ammuni bond to touch. No, no, but I

828
00:45:07,680 --> 00:45:11,080
Speaker 1: was just thinking. I was just thinking about visitors. Yeah, okay, yeah,

829
00:45:11,760 --> 00:45:14,440
Speaker 1: I think he's donna just give it up. You're never

830
00:45:14,480 --> 00:45:17,120
Speaker 1: gonna get one. I didn't really want to the last

831
00:45:17,120 --> 00:45:20,200
Speaker 1: a couple of weeks though. That's if it had been

832
00:45:20,239 --> 00:45:23,919
Speaker 1: fifteen million, I think they wouldn't have defaulted on their bonds. Maybe, yeah,

833
00:45:24,200 --> 00:45:28,359
Speaker 1: you never know, all right, I'll give it up. I'll

834
00:45:28,400 --> 00:45:30,719
Speaker 1: look up Moody's writing on that one. Mark. I don't know.

835
00:45:30,800 --> 00:45:32,759
Speaker 1: I think Joe would have made some hay out of

836
00:45:32,760 --> 00:45:34,480
Speaker 1: it if you guys got that one wrong. So I'm

837
00:45:34,480 --> 00:45:37,000
Speaker 1: guessing that you uh, maybe it went unrated. I don't know.

838
00:45:37,400 --> 00:45:40,840
Speaker 1: I was a good one though, the King Elvis. But

839
00:45:40,880 --> 00:45:44,320
Speaker 1: I am disappointed you couldn't remember Graceland. Oh yeah, well

840
00:45:44,640 --> 00:45:48,759
Speaker 1: you know, I've forgotten more important things. I'm a millennial.

841
00:45:49,239 --> 00:45:51,279
Speaker 1: Yeah you get a pass. I guess you get a pass.

842
00:45:51,960 --> 00:45:54,440
Speaker 1: All right. With that said, I think that is all

843
00:45:54,480 --> 00:45:58,240
Speaker 1: the time we have, uh marksany of Moody. Such a

844
00:45:58,280 --> 00:46:01,800
Speaker 1: pleasure to hear your thoughts, um, especially with this important

845
00:46:01,800 --> 00:46:05,520
Speaker 1: week of cp I and uh whatever comes next. Uh,

846
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Speaker 1: We're sure you'll be right with all your predictions today

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Speaker 1: and it's my goal. Mike h Yeah, I appreciate it.

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Speaker 1: I really thank you so much for the opportunity. It

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Speaker 1: was very, very enjoyable. Thank you. Thanks for joining us

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Speaker 1: What Goes Up. We'll be back next week and so

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Speaker 1: then you can find us on the Bloomberg Terminal website

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00:46:32,640 --> 00:46:36,040
Speaker 1: and app or wherever you get your podcasts. We love

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Speaker 1: it if you took the time to rate and review

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Speaker 1: the show on Apple Podcasts so more listeners can find us.

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Speaker 1: And you can find us on Twitter, follow me at

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Speaker 1: Rea Anonymous, Bildanna hirach is at Bldanna Hira. You can

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Speaker 1: also follow Bloomberg Podcasts at podcasts. What Goes Up is

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Speaker 1: produced by Stacy Wong. Thanks for listening. To see you

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Speaker 1: next time. Just not being