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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jay Lee, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg

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Speaker 1: dot com, and of course, on the Bloomberg terminal. Jean

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Speaker 1: Bavaan with us now the head of the black Rock

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Speaker 1: Investment Institute. John, I've been following your research. You're writing,

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Speaker 1: you know I do, and I'm pleased you writing on

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Speaker 1: something that I don't think enough people are thinking about

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Speaker 1: the appropriate time horizon to bring inflation back to target

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Speaker 1: with the circumstances to backdrop that we have at the moment, John,

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Speaker 1: What is it? And why aren't we talking enough about it?

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Speaker 1: There used to be I'm all school, I guess, but

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Speaker 1: there used to be a two key principles under lying

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Speaker 1: monetary policy. One was that, you know, you need to

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Speaker 1: be thoughtful about the link with tradeoffs and being deliberate

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Speaker 1: around that, and the other was about being forward looking. Um.

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Speaker 1: Those two principles seem to be pretty much absent from

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Speaker 1: the current discussion. UM, and I think that speaks to

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Speaker 1: the horizons. Here we're dealing with a massive shock that

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Speaker 1: is more of a supply and nature, and that leads

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Speaker 1: to uh, you know, you just we're just talking about

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Speaker 1: how much GDP cost we need to go through. We

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Speaker 1: think the g because it's pretty significant if we want

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Speaker 1: to bring inflation down to too quickly. It's a two

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Speaker 1: percent of GDP UM, you know, recession type we need

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Speaker 1: to to go to in in in short order. Um.

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Speaker 1: That's a very brutal cost. And nowhere in the discussion

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Speaker 1: right now you see this explicitly being acknowledged, being discussed

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Speaker 1: or hearing from Central Bengal. And how do you want

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Speaker 1: to navigate that? You know, we used to think that

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Speaker 1: in the face of the shock, you would take longer

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Speaker 1: to bring inflation back to target. Nobody is really making

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Speaker 1: this argument, Jean, I want you to talk about the

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Speaker 1: asymmetry is there of strong dollar versus week doll? Now

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Speaker 1: we have strong dollar. I'm not going to ask you

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Speaker 1: for a level and your Canada and loney one thirty two,

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Speaker 1: but one is the asymmetric differences of a bold strong

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Speaker 1: dollar versus a week dollar. Reality, we don't have that

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Speaker 1: right now. We have strong dollar. It seems new. Yeah,

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Speaker 1: I think, I think, you know. I mean we always

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Speaker 1: break that down in terms of what we think is

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Speaker 1: that the key driver think of the currency being driven

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Speaker 1: typically by two broad regimes. In my view, one is uh,

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Speaker 1: interest rate differentials and the other is um the broad

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Speaker 1: risk on risk of global sentiment. Um. I think we're

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Speaker 1: in a world now that is mostly driven by overall

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Speaker 1: risk sentiments. So I see the gyration being about whether

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Speaker 1: we are we are risk averse, which tends to bid

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Speaker 1: provide a bid to the US dollar, and that when

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Speaker 1: that wins, we see some weekending. So I think we

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Speaker 1: haven't seen the full implication of this world yet. The

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Speaker 1: pressure is gonna put globally um. Um. You know Canada

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Speaker 1: is one place, but like emerging markets um, so that

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Speaker 1: hasn't really played out yet. Um. And I think that's

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Speaker 1: that's where here. I wanted to go there because Ozzie

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Speaker 1: and is out wanting to have standard deviations, which is

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Speaker 1: a rare occurrence. Tell me of the Pacific rim risks

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Speaker 1: that we face now or are they in some way

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Speaker 1: protected from the tumult in the Western world? Uh? No,

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Speaker 1: no one is protected, but I think there's there's own

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Speaker 1: grown kind of headwinds right that we see. Uh, you know,

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Speaker 1: we were just talking about lockdowns in China, so the

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Speaker 1: poll of growth there, it certainly has been challenged. We've

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Speaker 1: we've been neutral on on the region for for some

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Speaker 1: time now as a result of this um and I

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Speaker 1: think a global recession or slowdown that would be significant.

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Speaker 1: We'll have some rippling effect there as well. So I

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Speaker 1: think we see these the part of the transmission of

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Speaker 1: the slowdown through the impact call of growth. It is

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Speaker 1: your good morning from London. What are they? Good afternoon?

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Speaker 1: Even now it's time catching up with me. What are

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Speaker 1: the monetary policy lags that we need to keep in

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Speaker 1: mind when you're talking about the tining of policy as

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Speaker 1: you are there and talking about the time horizons ever

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Speaker 1: which we should be correcting inflation. What are the lags

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Speaker 1: in policy that you have in focus? I mean, I'm

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Speaker 1: thinking here about the US, so so we in general,

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Speaker 1: I think we're still in the world where like monetary

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Speaker 1: policy works with at least like you know, a year

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Speaker 1: to two year of like eighteen months is the is

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Speaker 1: the number you would get from typically if you pin

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Speaker 1: me you to one number. I think that still is

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Speaker 1: the case in this one and I would argue that um,

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Speaker 1: it might be even more delayed because the interest rate

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Speaker 1: here is not the cure for the source of the

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Speaker 1: inflation we're we're experiencing. UM. So we will need to

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Speaker 1: basically crush the interest rate, since it'sive part of the economy,

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Speaker 1: which is not the culprit of the inflation at this point,

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Speaker 1: to really upset the other inflation pressures. And so that

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Speaker 1: needs to work its way through the system. None of

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Speaker 1: the rate heights we've seen so far are really containing inflation.

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Speaker 1: We're getting now to the phase where it's going to

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Speaker 1: be restrictive. It will have an impact, but that's gonna

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Speaker 1: be about the twenty tw our story really, UM. And

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Speaker 1: that's why I think we see a lot of optics

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Speaker 1: of central bank talking tough on inflation. But this is

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Speaker 1: really optics and politics ventilation, not really the economics of inflation.

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Speaker 1: So Sean, let's talk about what it would take for

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Speaker 1: you to get bullish on the security market. San, What

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Speaker 1: you need to say, we need to see a couple

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Speaker 1: of things. Right. I think now we're equities UH and

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Speaker 1: UH generally are reflecting a path of policy tightening UH

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Speaker 1: that is more than is in line with what we

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Speaker 1: think will materialize. So um, you know, Jackson hole as

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Speaker 1: I think crush any hopes of backing off from hiking

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Speaker 1: intention soon. I think equities are starting to reflect that properly.

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Speaker 1: The part of is not yet in the price is

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Speaker 1: um the earnings story. And you know, we think we're

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Speaker 1: gonna see a recession early twenty twenty three, uh in

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Speaker 1: in the US, but it's it's happening earlier and deeper

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Speaker 1: in Europe and that is not reflected in the in

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Speaker 1: the eity price. So to be to turn in bullish,

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Speaker 1: which will be the big call to make over the

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Speaker 1: next few months, is when we're gonna gonna be able

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Speaker 1: to start to look through the size of this reception.

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Speaker 1: I have more handle on this. And the second is

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Speaker 1: when we get to the point where we get some

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Speaker 1: sense that central banks are waking up to the damage

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Speaker 1: that has been caused and are starting to take that

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Speaker 1: into account. So what are we gonna see to see

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Speaker 1: start to see sign of that. I think will be

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Speaker 1: now in a position to really talk about a version

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Speaker 1: of a pivot or slowing down or stopping. And when

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Speaker 1: we once we have visibility on this, then I think

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Speaker 1: that's gonna be a more positive, backrupt and will catch

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Speaker 1: up soon on it. John, really deeply thoughtful stuff. We

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Speaker 1: appreciate it. Jomp Off on that Flee flank Rock Investment Institute.

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Speaker 1: It is a crisis in Germany, it is a crisis,

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Speaker 1: and Edwards, United Kingdom, and it goes to is John

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Speaker 1: mentioned the grid Francisco Blanche. I've seen endless, endless studies Davos.

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Speaker 1: You could fill up the promenade with all the fancy

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Speaker 1: studies about what to do. Why can't we fix this

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Speaker 1: energy crisis? Why can't we fix the global grid of

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Speaker 1: electricity and hydrocarbons? Well, Uh, Tom, You've you've kind of

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Speaker 1: burning a lot of issues into a single question. But

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Speaker 1: I think I think the best answer that I can

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Speaker 1: give you is the uncertainty that we have created in

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Speaker 1: terms of what the future demand for energy looks like. UM.

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Speaker 1: If you if you start with the international energy agencies

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Speaker 1: UH scenarios for for the conronization, UM, there's a huge

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Speaker 1: gap between the business as usual scenario, the aggressive scenario,

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Speaker 1: or the zero scenario. And it's really hard to tell

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Speaker 1: which way we're gonna go into whether global coal demand

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Speaker 1: is going to collapse or maybe it's going to hold

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Speaker 1: in a little bit or maybe oil demand will collapse

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Speaker 1: or maybe won't. And I think, um, the same thing

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Speaker 1: applies to electricity, right, Um, so all that's kind of

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Speaker 1: really different, making it very difficult for companies to make

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Speaker 1: a decision and in terms of how to allocate their capital.

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Speaker 1: And then of course we've had the Russia Ukraine situation

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Speaker 1: which has made things a lot worse. UM surveillance research

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Speaker 1: Francisco is that you and Sevita Supermanian are actually on

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Speaker 1: speaking terms at Bank of America. She has provides stunning

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Speaker 1: leadership in the quantitative aspects of E s G. When

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Speaker 1: you have a cup of coffee with her, can you

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Speaker 1: state that E s G is here to stay or

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Speaker 1: is it dead? With the war in Ukraine? Look, I

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Speaker 1: mean I think he s she is here to stay

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Speaker 1: in most people's minds. I think that's true for investors,

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Speaker 1: true for governments, which which I think ultimately means for

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Speaker 1: a lot of a lot of the pieces of the

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Speaker 1: energy sector you're talking about, like how how you fix them,

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Speaker 1: I think you're gonna have to end up with a

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Speaker 1: lot more government involvement. We've seen it already in Germany

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Speaker 1: and in France with with the takeover of UNIPAWER and

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Speaker 1: e d F. I think we'll see just a lot

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Speaker 1: more participation of governments generally. Um Even when you look

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Speaker 1: at oil and gas investments OPEC this time around, particularly

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Speaker 1: the Gulf Corporation Council countries have actually been leading investment

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Speaker 1: reactive to other parts of the world. Um So, so

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Speaker 1: I think I think governments are just going to get

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Speaker 1: a lot more involved in in the energy space on

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Speaker 1: on a forward basis um to to essentially get us

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Speaker 1: through the current mess. Francisco, do you think climate change

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Speaker 1: has become a convenient excuse for some of the challenge

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Speaker 1: which we faced right now when a lot of it

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Speaker 1: is about investment and lack thereof a lack of planning.

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Speaker 1: And I understand we've had a big shock this year,

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Speaker 1: but I think that's a convenient excuse in the minds

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Speaker 1: of many people Francisco, that we've tried to transition too fast,

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Speaker 1: too quickly and move away from fossil fuels without a

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Speaker 1: more resilient plan in place. Which one is it? Look?

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Speaker 1: I mean, I think I think the the climate change

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Speaker 1: data that we're getting every day really points to the

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Speaker 1: urgency of doing something about the carbonate missions that we

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Speaker 1: have on on a daily basis. We are warming up

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Speaker 1: the planet very quickly, and we've seen that in Pakistan

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Speaker 1: more recently with pretty catastrophic outcomes. We've seen a complete

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Speaker 1: drop in in water restaoirts in in the Alps as well,

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Speaker 1: which is leading to two lower rare levels across Europe.

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Speaker 1: So I think climate change is real. We're seeing one

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Speaker 1: of the biggest routes I think is I think you

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Speaker 1: guys put that out recently. In Europe we have the

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Speaker 1: biggest rather in five hundred years UM, So you're having

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Speaker 1: a lot of a lot of data points out there

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Speaker 1: that really suggests that the climate change is happening very quickly,

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Speaker 1: and and that's further straining our our energy system as

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Speaker 1: it would now. I do think we wouldn't be in

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Speaker 1: the current situation if we hadn't been losing as much

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Speaker 1: Russian energy as we have over the course of the

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Speaker 1: past six months, Right, Francisco, Can I ask you about

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Speaker 1: proposals in Europe to cap gas prices and what you

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Speaker 1: think is that I suppose to my guests earlier, and

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Speaker 1: this goes to what you were saying there about relying

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Speaker 1: on Russian energy, I spoied to with guests earlier who

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Speaker 1: said she doesn't want to see a cap on gas prices.

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Speaker 1: She thinks fiscal stimulus should just be given to those

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Speaker 1: who are struggling to pay because with with a cap,

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Speaker 1: you don't have quite such a strong price signal, and

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Speaker 1: we need that to make the transitions and the investments

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Speaker 1: that you talk about. I I think that's completely wrong.

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Speaker 1: I mean, I think you need to put a bit

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Speaker 1: of a cap on the price of gas, and you

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Speaker 1: need to bring Remember, the price of gas is setting

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Speaker 1: the marginal price of electricity, right, so let's say that.

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Speaker 1: Let's say that you know, if the price of electricity

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Speaker 1: is a thousand euros a mega at hour, you're not

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Speaker 1: really incentivizing anything at that price point. Um and and

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Speaker 1: and there is a clear market failure that I think, UM.

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Speaker 1: I think um she should encourage governments to take action here.

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Speaker 1: Um and And again it's pretty simple stuff. I mean,

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Speaker 1: you're you're above two hundred years of mega at our

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Speaker 1: most European industrials cannot operate, right, So when you're at

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Speaker 1: the faust inuris a mega at hour, this is past

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Speaker 1: beyond the point of the Aman destruction. Um and And

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Speaker 1: it's also as the point of supply increases of vernal

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Speaker 1: energy in the future. You don't need a thousand US

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Speaker 1: and may our encourage wind or solar power. You need

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Speaker 1: a much much lower number. So I think I think

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Speaker 1: governments are taking the right steps to try to cap

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Speaker 1: the price of the price of gas um and and

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Speaker 1: again it's going to be a subsidy for sure, um.

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Speaker 1: But I do think that the consequences of not tackling

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Speaker 1: the current shortage of gas and Europe could be devastating

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Speaker 1: to both consumers and industry over the course of the

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Speaker 1: next of the next six months. Remember, you're probably destroying

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Speaker 1: about about five percent of European uh power gas and

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Speaker 1: power demand every month with this kind of price levels

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Speaker 1: we were seeing here, and this is just massive numbers.

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Speaker 1: Francisco that and I think we still fully internalized and

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Speaker 1: recognized how bad this is gonna be. Francisco Blanche, the

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Speaker 1: of Bank American Global Research. Francisco, you one of the best.

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Speaker 1: We appreciate your time. Rubella Feruki joins US chief US

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Speaker 1: economist high Frequency Economics. Oh, he's channeling the inner national

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Speaker 1: views of Carl Weinberg. Rebel and bring it back to

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Speaker 1: America and bring it back to what matters, which is

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Speaker 1: in the A d P Report Wages Clock seven, what

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Speaker 1: will we see on a wage spiral tomorrow? Good morning,

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Speaker 1: Thanks for having me. What we're expecting to see is

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Speaker 1: you know, still elevated to wage gains. You know, maybe

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Speaker 1: a slide take up. Uh, you know, still a five

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Speaker 1: handle on your your changes in average early earnings. You know.

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Speaker 1: The central point of this is what are we seeing

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Speaker 1: on supply? And we really are not seeing any relief

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Speaker 1: on supply. The participation rate has gone down. If you

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Speaker 1: look at the civilian labor force, it's declined in three

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Speaker 1: of the last four months, and that is where the

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Speaker 1: stresses lie. And you know, without that and without any

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Speaker 1: relief on wage gains, you know, the FED is going

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Speaker 1: to remain focused on these things and really the trajectory

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Speaker 1: is not going to change at all. Uh. You know,

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Speaker 1: on tomorrow's numbers, I find the analysis of the FED

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Speaker 1: action and this goes to crush carry of Minneapolis, US.

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Speaker 1: But a FED action to desire to move the unemployment

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Speaker 1: rate higher to be way too simple. What's the complex

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Speaker 1: part of that analysis matters for our viewers and listeners. Well,

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Speaker 1: I mean what we're seeing right now is severe dislocations

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Speaker 1: in the labor market right, and we're seeing supply and

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Speaker 1: demand imbalances. Does the FED necessarily want to see the

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Speaker 1: unemployment trade go up? No, absolutely not not. I mean

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Speaker 1: that's not what central banks want. But you know, in

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Speaker 1: this instance, you know, we keep hearing about a tight

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Speaker 1: labor market and J. Powell has said a labor market

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Speaker 1: that is, you know, tied to an unhealthy level. So

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Speaker 1: that's what we're trying to figure out. How can this FED,

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Speaker 1: you know, orchestrate rate hiking cycle where there's still positive

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Speaker 1: growth but and you know, unemployment goes up but not

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Speaker 1: by much. And I think the best case for them

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Speaker 1: is that, uh, you know, you do you know, the

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Speaker 1: demand side is so strong that you're going to see

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Speaker 1: limited and uh increase in layoffs. But I'm not really

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Speaker 1: sure that that is really possible. Okay, we'll be a

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Speaker 1: good morning from London. You talked about participation having dropped off,

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Speaker 1: and clearly during COVID and the immediate aftermath, it was

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Speaker 1: obvious why that was. What's your analysis now of why

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Speaker 1: participation is so poor? There are similarities with the UK

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Speaker 1: market and it's clear why it's why it's poor here,

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Speaker 1: But what's the story in the US. I mean, what

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Speaker 1: we're seeing is you know, elevated retirements that really contributed

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Speaker 1: in a large way. We still have people who are

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Speaker 1: suffering the effects of COVID. Excuse me, we's still affecting,

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Speaker 1: you know, being affected by the effects of COVID, and

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Speaker 1: you're still seeing you know, some challenges, uh in terms

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Speaker 1: of you know, primary prime age participation, in terms of

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Speaker 1: childcare issues, health issues, elder care issues. So those still

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Speaker 1: those things are still you know, persisting, and it's really

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Speaker 1: not clear that we're going to see any relief. What

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Speaker 1: we did see last time around was you know, as

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Speaker 1: we were going into in two thousand nineteen before the

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Speaker 1: COVID crisis, what we saw as people strong labor market

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Speaker 1: did draw people back into the labor force. And that's

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Speaker 1: what the federally is looking for. That strong job growth,

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Speaker 1: high inflation, you know, the lower of higher wages. Maybe

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Speaker 1: that is where the relief comes in. But really that's

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Speaker 1: not something that is part of a base case scenario anymore.

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Speaker 1: You know, we've been expecting for participation to go up

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Speaker 1: and we really haven't seen it. So if we want

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Speaker 1: job wipings to come down, it has to come from

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Speaker 1: from unemployment, has to come from from layoffs, then REBELA, Well,

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Speaker 1: not necessarily. We do think that demand for labor is

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Speaker 1: going to go down. But you know, we're trying to

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Speaker 1: figure out why are layoffs so low? Is it just

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Speaker 1: that demand is strong? Or is it that companies are

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Speaker 1: also reluctant. You know that they've they've suffered, you know,

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Speaker 1: for you know, persistent shortages. So are they just hanging

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Speaker 1: onto their workforce? Are they just reluctant to lettle of

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Speaker 1: the workers? Rebell? Here's the mystery question right now? What

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Speaker 1: is non firm payrolls normal number? It used to be

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Speaker 1: two hundred and we'd model out one fifty. We all

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Speaker 1: got that wrong. That was a great wrong call of

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Speaker 1: a decade. We're now rocking two hundred three hundred thousand

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Speaker 1: three per months. What's normal? It's very difficult to assess

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Speaker 1: what this labor market is. You know, what what normal

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Speaker 1: is where we're going to balance out? If we look

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Speaker 1: at the numbers, you know, break even is probably around

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Speaker 1: a hundred thousand. Maybe it's like really but yeah, exactly.

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Speaker 1: And but again, you know, we are basing our analysis

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Speaker 1: on things that prevailed before the before the pandemic. So

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Speaker 1: it's really difficult to assess. Right now. What we're seeing

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Speaker 1: is you know, extremely solid job growth um and also

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Speaker 1: I mean it's it's really not tying in with the

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Speaker 1: concept of you know economy that has really you know,

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Speaker 1: just flattened out in the first half of the year.

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Speaker 1: But you know what's what's appearing now is companies still uh,

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Speaker 1: you know, adding to the workforce and the unemployment rate

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Speaker 1: at historical laws maybe even said to go down a

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Speaker 1: little bit more. And you know, a fact that is

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Speaker 1: facing a huge challenge Rebeta a massive challenge and not

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Speaker 1: just a fat The a c BA has a challenge

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Speaker 1: of his son, Rebeta fury that high frequency economics. It's

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Speaker 1: a rare and beautiful thing. John, she's here for what, John?

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Speaker 1: Is this like a two hour interviewer? Could we could?

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Speaker 1: We could do it? Here's what you need to know.

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Speaker 1: In one a young boy named Mick Jagger went to

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Speaker 1: the London School of Economics and went down in flames

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Speaker 1: and mathematics. Tracy Alloway followed on from Mick Jagger and

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Speaker 1: actually got through the rigorous math course to get your

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Speaker 1: way along at LC and went on to a sterling

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Speaker 1: journalism career include work working Mr Wisenthal and Adlats and

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Speaker 1: she joins us here on the aerospace engineer from Minneapolis.

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Speaker 1: He's talking about, Oh, the interesting thing about cash car

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Speaker 1: is that he's transformed from the fed's biggest dove into

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Speaker 1: the biggest talk And he says it's because he's been

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Speaker 1: watching the data. Data didn't come in quite the way

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Speaker 1: he thought it would, so like Kines, he changed his mind. Right,

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Speaker 1: So that's the interesting thing about him at the moment.

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Speaker 1: I look at this, Tracy. What's so important here is

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Speaker 1: what of the monetary pro stinc It was Clarada and

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Speaker 1: now it's maybe John Williams and a few others. What

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Speaker 1: do they think of presidents shooting from the hip. That's

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Speaker 1: quite a question what I will say. You know, Jonathan

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Speaker 1: kind of alluded to this about the interview that we

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Speaker 1: had with cash Cary where he was talking about how

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Speaker 1: he welcomed that stock reaction, stocks actually going down, So

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Speaker 1: following Jackson hole, I cannot believe that markets were so surprised.

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Speaker 1: You have had a FED, and you've had central bankers

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Speaker 1: on the FED talking about how they want financial conditions

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Speaker 1: to tighten for months and months and months and a

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Speaker 1: component of financial conditions. Of course, it's stocks financial conditions.

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Speaker 1: They need stocks slower, then he spreads wider. Tracy, what

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Speaker 1: was the biggest piece of pushback you had against that?

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Speaker 1: Because I was watching all the commentary of a Twitter

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Speaker 1: the people who were surprised, and you and I who

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Speaker 1: were surprised about them being surprised. What was the biggest

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Speaker 1: piece of pushback that you saw from this interview. There

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Speaker 1: were a lot of people talking about how the FED

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Speaker 1: said the quiet part out loud. But these are the

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Speaker 1: same people who would make jokes about how the FED

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Speaker 1: only wants to push up asset prices for the past

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Speaker 1: five or ten years. Right, If the FED only wants

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Speaker 1: to push up asset prices, then they can have situations

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Speaker 1: where they also want to push them down. Now is

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Speaker 1: arguably one of those times the FED is explicitly telling

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Speaker 1: you that it needs financial conditions to tighten in order

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Speaker 1: to get a grip on inflation. The components of financial

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Speaker 1: conditions got things like mortgage spreads, bonds, and of course stocks,

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Speaker 1: So I'm not entirely sure why people were so surprised, Hi, Tracy,

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Speaker 1: it was a really fascinating conversation that you had with him.

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Speaker 1: I mean, if he wants, I can find you mentioned

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Speaker 1: the other ways you get sites of financial conditions. Do

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Speaker 1: we have a sense of which of the elements the

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Speaker 1: FED would prefer? I mean we've got Cashgarian saying stocks

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Speaker 1: doesn't mind if they go down, but that's not quite

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Speaker 1: the same thing as saying, you know, you really want

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Speaker 1: them to drop. Yeah. Well, I think the big question

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Speaker 1: in markets right now is why, even with all this

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Speaker 1: FED jaw boning, why financial conditions haven't tightened more, Why

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Speaker 1: our investors, I guess dragging their feet when it comes

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Speaker 1: to this issue. Does the FED have a preference on

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Speaker 1: exactly what moves the most? I think it doesn't want

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Speaker 1: to see anything break in the financial market, doesn't necessarily

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Speaker 1: want to cut off capital inflows. It doesn't want to

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Speaker 1: see a seize up in the credit market, which is

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Speaker 1: something that we almost saw over the summer. But that said,

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Speaker 1: it still wants something to happen. And the longer this

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Speaker 1: sort of tension, the standoff between investors and the FED

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Speaker 1: goes on, the more likely we are to see a

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Speaker 1: big move from the central Bank that actually gets us there.

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Speaker 1: And that was really interesting in the context of what

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Speaker 1: we've saw from UBS and those around credit markets just

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Speaker 1: in the last twenty four hours saying credit markets are

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Speaker 1: simply not pricing in enough a chance of a recession.

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Speaker 1: We saw this from UBS. They said, credit markets, by

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Speaker 1: their analysis, are just giving it a chance, when actually

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Speaker 1: they think it should be pricing in for a much

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Speaker 1: higher chance that we get a recession in the U S.

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Speaker 1: Maybe this is the mismatch that that you're talking about. Yeah,

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Speaker 1: this is kind of the amazing thing about the credit

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Speaker 1: market at the moment. So you look at something like

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Speaker 1: high old spreads, so risk premiums on junk graded bonds.

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Speaker 1: These are the things that are supposed to show concerns

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Speaker 1: about a looming recession first, and we are far far

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Speaker 1: from those levels. I think it's something like eight hundred

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Speaker 1: basis points on the high yield index. Were at like

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Speaker 1: four fifty right now. And then you have other people

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Speaker 1: who are saying, well, don't look at junk bonds because

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Speaker 1: the junk bond market has changed so much over the years.

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Speaker 1: You know, it's mostly double B rated debt now, it's

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Speaker 1: far from what it used to be. Look at something

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Speaker 1: like leverage loans. These are the floating rate loans that

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Speaker 1: junk graded companies took out on mass for the past

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Speaker 1: five years. They're supposedly very risky, or there are some

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Speaker 1: people in the market that think they're very risky, and

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Speaker 1: so those are where the first signs of stress could

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Speaker 1: show up. But even if you look at the s

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Speaker 1: M P L S T A leverage loan index were

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Speaker 1: at something like nine on the cash level. Now eight

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Speaker 1: five is generally considered distressed. When you were at the

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Speaker 1: kind of of sacred art in Tokyo a million years ago,

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00:23:18,920 --> 00:23:21,320
Speaker 1: used to sneak into the Imperial bar at the Imperial

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Speaker 1: Hotel the front, How did you know that has it?

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Speaker 1: What does Japan do? As JP Morgan says, there could

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Speaker 1: be a one yen. Everybody's standing around in the West

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Speaker 1: going no big deal. I don't buy it. Well, this

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Speaker 1: is the other big question that I have about the

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Speaker 1: FED right now, and I actually asked Kari about this.

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Speaker 1: What happens to the rest of the world when you

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Speaker 1: are raising rates at the fastest pace in decades. We've

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Speaker 1: already seen the dollar appreciate considerably. We haven't necessarily seen

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Speaker 1: us financial conditions move as much as we might expect,

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Speaker 1: but we know that financial conditions elsewhere in the world

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Speaker 1: are tightening. That seems like a problem for me. When

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Speaker 1: you're talking about economies, you know, Europe, emerging markets to

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Speaker 1: some extent Japan that are now experiencing an energy crisis,

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00:24:07,480 --> 00:24:10,159
Speaker 1: and everything is priced in dollars. The FETE is heaping

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Speaker 1: more pain on the rest of the world. The U

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Speaker 1: s economy is relatively resilient right now, but at some

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Speaker 1: point you're going to get that boomerang effect that's what

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Speaker 1: Cashkari called it, where it comes back and it impacts

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Speaker 1: the US economy. Interesting, trit Cee, it's been too long.

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Speaker 1: It's the podcast stat right now. It's out right now.

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Speaker 1: Check out all thoughts. I was talking with Promo gotta

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Speaker 1: have it come on. I was talking with Tom and

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Speaker 1: you know he was actually our first guest when we

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Speaker 1: launched the podcast. Five the downhill from that or uphill

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Speaker 1: from that? Up there, up uphill Tricey on the way

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00:24:43,920 --> 00:24:47,640
Speaker 1: Joe Weston could do far you can do it all

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00:24:47,720 --> 00:24:50,000
Speaker 1: football and that is already downhill. Tom, I think they

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Speaker 1: want some expertise on markets, not on football. At the weekend.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

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00:24:56,920 --> 00:25:00,280
Speaker 1: us live weekdays from seven to ten am Eastern on

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00:25:00,359 --> 00:25:04,600
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

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00:25:04,720 --> 00:25:09,560
Speaker 1: to nine am for insight from the best in economics, finance, investment,

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00:25:09,720 --> 00:25:14,720
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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00:25:14,840 --> 00:25:18,639
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

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00:25:18,760 --> 00:25:22,879
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg