Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brawmowitz Jay Lee, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course, on the Bloomberg terminal. Jean
Speaker 1: Bavaan with us now the head of the black Rock
Speaker 1: Investment Institute. John, I've been following your research. You're writing,
Speaker 1: you know I do, and I'm pleased you writing on
Speaker 1: something that I don't think enough people are thinking about
Speaker 1: the appropriate time horizon to bring inflation back to target
Speaker 1: with the circumstances to backdrop that we have at the moment, John,
Speaker 1: What is it? And why aren't we talking enough about it?
Speaker 1: There used to be I'm all school, I guess, but
Speaker 1: there used to be a two key principles under lying
Speaker 1: monetary policy. One was that, you know, you need to
Speaker 1: be thoughtful about the link with tradeoffs and being deliberate
Speaker 1: around that, and the other was about being forward looking. Um.
Speaker 1: Those two principles seem to be pretty much absent from
Speaker 1: the current discussion. UM, and I think that speaks to
Speaker 1: the horizons. Here we're dealing with a massive shock that
Speaker 1: is more of a supply and nature, and that leads
Speaker 1: to uh, you know, you just we're just talking about
Speaker 1: how much GDP cost we need to go through. We
Speaker 1: think the g because it's pretty significant if we want
Speaker 1: to bring inflation down to too quickly. It's a two
Speaker 1: percent of GDP UM, you know, recession type we need
Speaker 1: to to go to in in in short order. Um.
Speaker 1: That's a very brutal cost. And nowhere in the discussion
Speaker 1: right now you see this explicitly being acknowledged, being discussed
Speaker 1: or hearing from Central Bengal. And how do you want
Speaker 1: to navigate that? You know, we used to think that
Speaker 1: in the face of the shock, you would take longer
Speaker 1: to bring inflation back to target. Nobody is really making
Speaker 1: this argument, Jean, I want you to talk about the
Speaker 1: asymmetry is there of strong dollar versus week doll? Now
Speaker 1: we have strong dollar. I'm not going to ask you
Speaker 1: for a level and your Canada and loney one thirty two,
Speaker 1: but one is the asymmetric differences of a bold strong
Speaker 1: dollar versus a week dollar. Reality, we don't have that
Speaker 1: right now. We have strong dollar. It seems new. Yeah,
Speaker 1: I think, I think, you know. I mean we always
Speaker 1: break that down in terms of what we think is
Speaker 1: that the key driver think of the currency being driven
Speaker 1: typically by two broad regimes. In my view, one is uh,
Speaker 1: interest rate differentials and the other is um the broad
Speaker 1: risk on risk of global sentiment. Um. I think we're
Speaker 1: in a world now that is mostly driven by overall
Speaker 1: risk sentiments. So I see the gyration being about whether
Speaker 1: we are we are risk averse, which tends to bid
Speaker 1: provide a bid to the US dollar, and that when
Speaker 1: that wins, we see some weekending. So I think we
Speaker 1: haven't seen the full implication of this world yet. The
Speaker 1: pressure is gonna put globally um. Um. You know Canada
Speaker 1: is one place, but like emerging markets um, so that
Speaker 1: hasn't really played out yet. Um. And I think that's
Speaker 1: that's where here. I wanted to go there because Ozzie
Speaker 1: and is out wanting to have standard deviations, which is
Speaker 1: a rare occurrence. Tell me of the Pacific rim risks
Speaker 1: that we face now or are they in some way
Speaker 1: protected from the tumult in the Western world? Uh? No,
Speaker 1: no one is protected, but I think there's there's own
Speaker 1: grown kind of headwinds right that we see. Uh, you know,
Speaker 1: we were just talking about lockdowns in China, so the
Speaker 1: poll of growth there, it certainly has been challenged. We've
Speaker 1: we've been neutral on on the region for for some
Speaker 1: time now as a result of this um and I
Speaker 1: think a global recession or slowdown that would be significant.
Speaker 1: We'll have some rippling effect there as well. So I
Speaker 1: think we see these the part of the transmission of
Speaker 1: the slowdown through the impact call of growth. It is
Speaker 1: your good morning from London. What are they? Good afternoon?
Speaker 1: Even now it's time catching up with me. What are
Speaker 1: the monetary policy lags that we need to keep in
Speaker 1: mind when you're talking about the tining of policy as
Speaker 1: you are there and talking about the time horizons ever
Speaker 1: which we should be correcting inflation. What are the lags
Speaker 1: in policy that you have in focus? I mean, I'm
Speaker 1: thinking here about the US, so so we in general,
Speaker 1: I think we're still in the world where like monetary
Speaker 1: policy works with at least like you know, a year
Speaker 1: to two year of like eighteen months is the is
Speaker 1: the number you would get from typically if you pin
Speaker 1: me you to one number. I think that still is
Speaker 1: the case in this one and I would argue that um,
Speaker 1: it might be even more delayed because the interest rate
Speaker 1: here is not the cure for the source of the
Speaker 1: inflation we're we're experiencing. UM. So we will need to
Speaker 1: basically crush the interest rate, since it'sive part of the economy,
Speaker 1: which is not the culprit of the inflation at this point,
Speaker 1: to really upset the other inflation pressures. And so that
Speaker 1: needs to work its way through the system. None of
Speaker 1: the rate heights we've seen so far are really containing inflation.
Speaker 1: We're getting now to the phase where it's going to
Speaker 1: be restrictive. It will have an impact, but that's gonna
Speaker 1: be about the twenty tw our story really, UM. And
Speaker 1: that's why I think we see a lot of optics
Speaker 1: of central bank talking tough on inflation. But this is
Speaker 1: really optics and politics ventilation, not really the economics of inflation.
Speaker 1: So Sean, let's talk about what it would take for
Speaker 1: you to get bullish on the security market. San, What
Speaker 1: you need to say, we need to see a couple
Speaker 1: of things. Right. I think now we're equities UH and
Speaker 1: UH generally are reflecting a path of policy tightening UH
Speaker 1: that is more than is in line with what we
Speaker 1: think will materialize. So um, you know, Jackson hole as
Speaker 1: I think crush any hopes of backing off from hiking
Speaker 1: intention soon. I think equities are starting to reflect that properly.
Speaker 1: The part of is not yet in the price is
Speaker 1: um the earnings story. And you know, we think we're
Speaker 1: gonna see a recession early twenty twenty three, uh in
Speaker 1: in the US, but it's it's happening earlier and deeper
Speaker 1: in Europe and that is not reflected in the in
Speaker 1: the eity price. So to be to turn in bullish,
Speaker 1: which will be the big call to make over the
Speaker 1: next few months, is when we're gonna gonna be able
Speaker 1: to start to look through the size of this reception.
Speaker 1: I have more handle on this. And the second is
Speaker 1: when we get to the point where we get some
Speaker 1: sense that central banks are waking up to the damage
Speaker 1: that has been caused and are starting to take that
Speaker 1: into account. So what are we gonna see to see
Speaker 1: start to see sign of that. I think will be
Speaker 1: now in a position to really talk about a version
Speaker 1: of a pivot or slowing down or stopping. And when
Speaker 1: we once we have visibility on this, then I think
Speaker 1: that's gonna be a more positive, backrupt and will catch
Speaker 1: up soon on it. John, really deeply thoughtful stuff. We
Speaker 1: appreciate it. Jomp Off on that Flee flank Rock Investment Institute.
Speaker 1: It is a crisis in Germany, it is a crisis,
Speaker 1: and Edwards, United Kingdom, and it goes to is John
Speaker 1: mentioned the grid Francisco Blanche. I've seen endless, endless studies Davos.
Speaker 1: You could fill up the promenade with all the fancy
Speaker 1: studies about what to do. Why can't we fix this
Speaker 1: energy crisis? Why can't we fix the global grid of
Speaker 1: electricity and hydrocarbons? Well, Uh, Tom, You've you've kind of
Speaker 1: burning a lot of issues into a single question. But
Speaker 1: I think I think the best answer that I can
Speaker 1: give you is the uncertainty that we have created in
Speaker 1: terms of what the future demand for energy looks like. UM.
Speaker 1: If you if you start with the international energy agencies
Speaker 1: UH scenarios for for the conronization, UM, there's a huge
Speaker 1: gap between the business as usual scenario, the aggressive scenario,
Speaker 1: or the zero scenario. And it's really hard to tell
Speaker 1: which way we're gonna go into whether global coal demand
Speaker 1: is going to collapse or maybe it's going to hold
Speaker 1: in a little bit or maybe oil demand will collapse
Speaker 1: or maybe won't. And I think, um, the same thing
Speaker 1: applies to electricity, right, Um, so all that's kind of
Speaker 1: really different, making it very difficult for companies to make
Speaker 1: a decision and in terms of how to allocate their capital.
Speaker 1: And then of course we've had the Russia Ukraine situation
Speaker 1: which has made things a lot worse. UM surveillance research
Speaker 1: Francisco is that you and Sevita Supermanian are actually on
Speaker 1: speaking terms at Bank of America. She has provides stunning
Speaker 1: leadership in the quantitative aspects of E s G. When
Speaker 1: you have a cup of coffee with her, can you
Speaker 1: state that E s G is here to stay or
Speaker 1: is it dead? With the war in Ukraine? Look, I
Speaker 1: mean I think he s she is here to stay
Speaker 1: in most people's minds. I think that's true for investors,
Speaker 1: true for governments, which which I think ultimately means for
Speaker 1: a lot of a lot of the pieces of the
Speaker 1: energy sector you're talking about, like how how you fix them,
Speaker 1: I think you're gonna have to end up with a
Speaker 1: lot more government involvement. We've seen it already in Germany
Speaker 1: and in France with with the takeover of UNIPAWER and
Speaker 1: e d F. I think we'll see just a lot
Speaker 1: more participation of governments generally. Um Even when you look
Speaker 1: at oil and gas investments OPEC this time around, particularly
Speaker 1: the Gulf Corporation Council countries have actually been leading investment
Speaker 1: reactive to other parts of the world. Um So, so
Speaker 1: I think I think governments are just going to get
Speaker 1: a lot more involved in in the energy space on
Speaker 1: on a forward basis um to to essentially get us
Speaker 1: through the current mess. Francisco, do you think climate change
Speaker 1: has become a convenient excuse for some of the challenge
Speaker 1: which we faced right now when a lot of it
Speaker 1: is about investment and lack thereof a lack of planning.
Speaker 1: And I understand we've had a big shock this year,
Speaker 1: but I think that's a convenient excuse in the minds
Speaker 1: of many people Francisco, that we've tried to transition too fast,
Speaker 1: too quickly and move away from fossil fuels without a
Speaker 1: more resilient plan in place. Which one is it? Look?
Speaker 1: I mean, I think I think the the climate change
Speaker 1: data that we're getting every day really points to the
Speaker 1: urgency of doing something about the carbonate missions that we
Speaker 1: have on on a daily basis. We are warming up
Speaker 1: the planet very quickly, and we've seen that in Pakistan
Speaker 1: more recently with pretty catastrophic outcomes. We've seen a complete
Speaker 1: drop in in water restaoirts in in the Alps as well,
Speaker 1: which is leading to two lower rare levels across Europe.
Speaker 1: So I think climate change is real. We're seeing one
Speaker 1: of the biggest routes I think is I think you
Speaker 1: guys put that out recently. In Europe we have the
Speaker 1: biggest rather in five hundred years UM, So you're having
Speaker 1: a lot of a lot of data points out there
Speaker 1: that really suggests that the climate change is happening very quickly,
Speaker 1: and and that's further straining our our energy system as
Speaker 1: it would now. I do think we wouldn't be in
Speaker 1: the current situation if we hadn't been losing as much
Speaker 1: Russian energy as we have over the course of the
Speaker 1: past six months, Right, Francisco, Can I ask you about
Speaker 1: proposals in Europe to cap gas prices and what you
Speaker 1: think is that I suppose to my guests earlier, and
Speaker 1: this goes to what you were saying there about relying
Speaker 1: on Russian energy, I spoied to with guests earlier who
Speaker 1: said she doesn't want to see a cap on gas prices.
Speaker 1: She thinks fiscal stimulus should just be given to those
Speaker 1: who are struggling to pay because with with a cap,
Speaker 1: you don't have quite such a strong price signal, and
Speaker 1: we need that to make the transitions and the investments
Speaker 1: that you talk about. I I think that's completely wrong.
Speaker 1: I mean, I think you need to put a bit
Speaker 1: of a cap on the price of gas, and you
Speaker 1: need to bring Remember, the price of gas is setting
Speaker 1: the marginal price of electricity, right, so let's say that.
Speaker 1: Let's say that you know, if the price of electricity
Speaker 1: is a thousand euros a mega at hour, you're not
Speaker 1: really incentivizing anything at that price point. Um and and
Speaker 1: and there is a clear market failure that I think, UM.
Speaker 1: I think um she should encourage governments to take action here.
Speaker 1: Um and And again it's pretty simple stuff. I mean,
Speaker 1: you're you're above two hundred years of mega at our
Speaker 1: most European industrials cannot operate, right, So when you're at
Speaker 1: the faust inuris a mega at hour, this is past
Speaker 1: beyond the point of the Aman destruction. Um and And
Speaker 1: it's also as the point of supply increases of vernal
Speaker 1: energy in the future. You don't need a thousand US
Speaker 1: and may our encourage wind or solar power. You need
Speaker 1: a much much lower number. So I think I think
Speaker 1: governments are taking the right steps to try to cap
Speaker 1: the price of the price of gas um and and
Speaker 1: again it's going to be a subsidy for sure, um.
Speaker 1: But I do think that the consequences of not tackling
Speaker 1: the current shortage of gas and Europe could be devastating
Speaker 1: to both consumers and industry over the course of the
Speaker 1: next of the next six months. Remember, you're probably destroying
Speaker 1: about about five percent of European uh power gas and
Speaker 1: power demand every month with this kind of price levels
Speaker 1: we were seeing here, and this is just massive numbers.
Speaker 1: Francisco that and I think we still fully internalized and
Speaker 1: recognized how bad this is gonna be. Francisco Blanche, the
Speaker 1: of Bank American Global Research. Francisco, you one of the best.
Speaker 1: We appreciate your time. Rubella Feruki joins US chief US
Speaker 1: economist high Frequency Economics. Oh, he's channeling the inner national
Speaker 1: views of Carl Weinberg. Rebel and bring it back to
Speaker 1: America and bring it back to what matters, which is
Speaker 1: in the A d P Report Wages Clock seven, what
Speaker 1: will we see on a wage spiral tomorrow? Good morning,
Speaker 1: Thanks for having me. What we're expecting to see is
Speaker 1: you know, still elevated to wage gains. You know, maybe
Speaker 1: a slide take up. Uh, you know, still a five
Speaker 1: handle on your your changes in average early earnings. You know.
Speaker 1: The central point of this is what are we seeing
Speaker 1: on supply? And we really are not seeing any relief
Speaker 1: on supply. The participation rate has gone down. If you
Speaker 1: look at the civilian labor force, it's declined in three
Speaker 1: of the last four months, and that is where the
Speaker 1: stresses lie. And you know, without that and without any
Speaker 1: relief on wage gains, you know, the FED is going
Speaker 1: to remain focused on these things and really the trajectory
Speaker 1: is not going to change at all. Uh. You know,
Speaker 1: on tomorrow's numbers, I find the analysis of the FED
Speaker 1: action and this goes to crush carry of Minneapolis, US.
Speaker 1: But a FED action to desire to move the unemployment
Speaker 1: rate higher to be way too simple. What's the complex
Speaker 1: part of that analysis matters for our viewers and listeners. Well,
Speaker 1: I mean what we're seeing right now is severe dislocations
Speaker 1: in the labor market right, and we're seeing supply and
Speaker 1: demand imbalances. Does the FED necessarily want to see the
Speaker 1: unemployment trade go up? No, absolutely not not. I mean
Speaker 1: that's not what central banks want. But you know, in
Speaker 1: this instance, you know, we keep hearing about a tight
Speaker 1: labor market and J. Powell has said a labor market
Speaker 1: that is, you know, tied to an unhealthy level. So
Speaker 1: that's what we're trying to figure out. How can this FED,
Speaker 1: you know, orchestrate rate hiking cycle where there's still positive
Speaker 1: growth but and you know, unemployment goes up but not
Speaker 1: by much. And I think the best case for them
Speaker 1: is that, uh, you know, you do you know, the
Speaker 1: demand side is so strong that you're going to see
Speaker 1: limited and uh increase in layoffs. But I'm not really
Speaker 1: sure that that is really possible. Okay, we'll be a
Speaker 1: good morning from London. You talked about participation having dropped off,
Speaker 1: and clearly during COVID and the immediate aftermath, it was
Speaker 1: obvious why that was. What's your analysis now of why
Speaker 1: participation is so poor? There are similarities with the UK
Speaker 1: market and it's clear why it's why it's poor here,
Speaker 1: But what's the story in the US. I mean, what
Speaker 1: we're seeing is you know, elevated retirements that really contributed
Speaker 1: in a large way. We still have people who are
Speaker 1: suffering the effects of COVID. Excuse me, we's still affecting,
Speaker 1: you know, being affected by the effects of COVID, and
Speaker 1: you're still seeing you know, some challenges, uh in terms
Speaker 1: of you know, primary prime age participation, in terms of
Speaker 1: childcare issues, health issues, elder care issues. So those still
Speaker 1: those things are still you know, persisting, and it's really
Speaker 1: not clear that we're going to see any relief. What
Speaker 1: we did see last time around was you know, as
Speaker 1: we were going into in two thousand nineteen before the
Speaker 1: COVID crisis, what we saw as people strong labor market
Speaker 1: did draw people back into the labor force. And that's
Speaker 1: what the federally is looking for. That strong job growth,
Speaker 1: high inflation, you know, the lower of higher wages. Maybe
Speaker 1: that is where the relief comes in. But really that's
Speaker 1: not something that is part of a base case scenario anymore.
Speaker 1: You know, we've been expecting for participation to go up
Speaker 1: and we really haven't seen it. So if we want
Speaker 1: job wipings to come down, it has to come from
Speaker 1: from unemployment, has to come from from layoffs, then REBELA, Well,
Speaker 1: not necessarily. We do think that demand for labor is
Speaker 1: going to go down. But you know, we're trying to
Speaker 1: figure out why are layoffs so low? Is it just
Speaker 1: that demand is strong? Or is it that companies are
Speaker 1: also reluctant. You know that they've they've suffered, you know,
Speaker 1: for you know, persistent shortages. So are they just hanging
Speaker 1: onto their workforce? Are they just reluctant to lettle of
Speaker 1: the workers? Rebell? Here's the mystery question right now? What
Speaker 1: is non firm payrolls normal number? It used to be
Speaker 1: two hundred and we'd model out one fifty. We all
Speaker 1: got that wrong. That was a great wrong call of
Speaker 1: a decade. We're now rocking two hundred three hundred thousand
Speaker 1: three per months. What's normal? It's very difficult to assess
Speaker 1: what this labor market is. You know, what what normal
Speaker 1: is where we're going to balance out? If we look
Speaker 1: at the numbers, you know, break even is probably around
Speaker 1: a hundred thousand. Maybe it's like really but yeah, exactly.
Speaker 1: And but again, you know, we are basing our analysis
Speaker 1: on things that prevailed before the before the pandemic. So
Speaker 1: it's really difficult to assess. Right now. What we're seeing
Speaker 1: is you know, extremely solid job growth um and also
Speaker 1: I mean it's it's really not tying in with the
Speaker 1: concept of you know economy that has really you know,
Speaker 1: just flattened out in the first half of the year.
Speaker 1: But you know what's what's appearing now is companies still uh,
Speaker 1: you know, adding to the workforce and the unemployment rate
Speaker 1: at historical laws maybe even said to go down a
Speaker 1: little bit more. And you know, a fact that is
Speaker 1: facing a huge challenge Rebeta a massive challenge and not
Speaker 1: just a fat The a c BA has a challenge
Speaker 1: of his son, Rebeta fury that high frequency economics. It's
Speaker 1: a rare and beautiful thing. John, she's here for what, John?
Speaker 1: Is this like a two hour interviewer? Could we could?
Speaker 1: We could do it? Here's what you need to know.
Speaker 1: In one a young boy named Mick Jagger went to
Speaker 1: the London School of Economics and went down in flames
Speaker 1: and mathematics. Tracy Alloway followed on from Mick Jagger and
Speaker 1: actually got through the rigorous math course to get your
Speaker 1: way along at LC and went on to a sterling
Speaker 1: journalism career include work working Mr Wisenthal and Adlats and
Speaker 1: she joins us here on the aerospace engineer from Minneapolis.
Speaker 1: He's talking about, Oh, the interesting thing about cash car
Speaker 1: is that he's transformed from the fed's biggest dove into
Speaker 1: the biggest talk And he says it's because he's been
Speaker 1: watching the data. Data didn't come in quite the way
Speaker 1: he thought it would, so like Kines, he changed his mind. Right,
Speaker 1: So that's the interesting thing about him at the moment.
Speaker 1: I look at this, Tracy. What's so important here is
Speaker 1: what of the monetary pro stinc It was Clarada and
Speaker 1: now it's maybe John Williams and a few others. What
Speaker 1: do they think of presidents shooting from the hip. That's
Speaker 1: quite a question what I will say. You know, Jonathan
Speaker 1: kind of alluded to this about the interview that we
Speaker 1: had with cash Cary where he was talking about how
Speaker 1: he welcomed that stock reaction, stocks actually going down, So
Speaker 1: following Jackson hole, I cannot believe that markets were so surprised.
Speaker 1: You have had a FED, and you've had central bankers
Speaker 1: on the FED talking about how they want financial conditions
Speaker 1: to tighten for months and months and months and a
Speaker 1: component of financial conditions. Of course, it's stocks financial conditions.
Speaker 1: They need stocks slower, then he spreads wider. Tracy, what
Speaker 1: was the biggest piece of pushback you had against that?
Speaker 1: Because I was watching all the commentary of a Twitter
Speaker 1: the people who were surprised, and you and I who
Speaker 1: were surprised about them being surprised. What was the biggest
Speaker 1: piece of pushback that you saw from this interview. There
Speaker 1: were a lot of people talking about how the FED
Speaker 1: said the quiet part out loud. But these are the
Speaker 1: same people who would make jokes about how the FED
Speaker 1: only wants to push up asset prices for the past
Speaker 1: five or ten years. Right, If the FED only wants
Speaker 1: to push up asset prices, then they can have situations
Speaker 1: where they also want to push them down. Now is
Speaker 1: arguably one of those times the FED is explicitly telling
Speaker 1: you that it needs financial conditions to tighten in order
Speaker 1: to get a grip on inflation. The components of financial
Speaker 1: conditions got things like mortgage spreads, bonds, and of course stocks,
Speaker 1: So I'm not entirely sure why people were so surprised, Hi, Tracy,
Speaker 1: it was a really fascinating conversation that you had with him.
Speaker 1: I mean, if he wants, I can find you mentioned
Speaker 1: the other ways you get sites of financial conditions. Do
Speaker 1: we have a sense of which of the elements the
Speaker 1: FED would prefer? I mean we've got Cashgarian saying stocks
Speaker 1: doesn't mind if they go down, but that's not quite
Speaker 1: the same thing as saying, you know, you really want
Speaker 1: them to drop. Yeah. Well, I think the big question
Speaker 1: in markets right now is why, even with all this
Speaker 1: FED jaw boning, why financial conditions haven't tightened more, Why
Speaker 1: our investors, I guess dragging their feet when it comes
Speaker 1: to this issue. Does the FED have a preference on
Speaker 1: exactly what moves the most? I think it doesn't want
Speaker 1: to see anything break in the financial market, doesn't necessarily
Speaker 1: want to cut off capital inflows. It doesn't want to
Speaker 1: see a seize up in the credit market, which is
Speaker 1: something that we almost saw over the summer. But that said,
Speaker 1: it still wants something to happen. And the longer this
Speaker 1: sort of tension, the standoff between investors and the FED
Speaker 1: goes on, the more likely we are to see a
Speaker 1: big move from the central Bank that actually gets us there.
Speaker 1: And that was really interesting in the context of what
Speaker 1: we've saw from UBS and those around credit markets just
Speaker 1: in the last twenty four hours saying credit markets are
Speaker 1: simply not pricing in enough a chance of a recession.
Speaker 1: We saw this from UBS. They said, credit markets, by
Speaker 1: their analysis, are just giving it a chance, when actually
Speaker 1: they think it should be pricing in for a much
Speaker 1: higher chance that we get a recession in the U S.
Speaker 1: Maybe this is the mismatch that that you're talking about. Yeah,
Speaker 1: this is kind of the amazing thing about the credit
Speaker 1: market at the moment. So you look at something like
Speaker 1: high old spreads, so risk premiums on junk graded bonds.
Speaker 1: These are the things that are supposed to show concerns
Speaker 1: about a looming recession first, and we are far far
Speaker 1: from those levels. I think it's something like eight hundred
Speaker 1: basis points on the high yield index. Were at like
Speaker 1: four fifty right now. And then you have other people
Speaker 1: who are saying, well, don't look at junk bonds because
Speaker 1: the junk bond market has changed so much over the years.
Speaker 1: You know, it's mostly double B rated debt now, it's
Speaker 1: far from what it used to be. Look at something
Speaker 1: like leverage loans. These are the floating rate loans that
Speaker 1: junk graded companies took out on mass for the past
Speaker 1: five years. They're supposedly very risky, or there are some
Speaker 1: people in the market that think they're very risky, and
Speaker 1: so those are where the first signs of stress could
Speaker 1: show up. But even if you look at the s
Speaker 1: M P L S T A leverage loan index were
Speaker 1: at something like nine on the cash level. Now eight
Speaker 1: five is generally considered distressed. When you were at the
Speaker 1: kind of of sacred art in Tokyo a million years ago,
Speaker 1: used to sneak into the Imperial bar at the Imperial
Speaker 1: Hotel the front, How did you know that has it?
Speaker 1: What does Japan do? As JP Morgan says, there could
Speaker 1: be a one yen. Everybody's standing around in the West
Speaker 1: going no big deal. I don't buy it. Well, this
Speaker 1: is the other big question that I have about the
Speaker 1: FED right now, and I actually asked Kari about this.
Speaker 1: What happens to the rest of the world when you
Speaker 1: are raising rates at the fastest pace in decades. We've
Speaker 1: already seen the dollar appreciate considerably. We haven't necessarily seen
Speaker 1: us financial conditions move as much as we might expect,
Speaker 1: but we know that financial conditions elsewhere in the world
Speaker 1: are tightening. That seems like a problem for me. When
Speaker 1: you're talking about economies, you know, Europe, emerging markets to
Speaker 1: some extent Japan that are now experiencing an energy crisis,
Speaker 1: and everything is priced in dollars. The FETE is heaping
Speaker 1: more pain on the rest of the world. The U
Speaker 1: s economy is relatively resilient right now, but at some
Speaker 1: point you're going to get that boomerang effect that's what
Speaker 1: Cashkari called it, where it comes back and it impacts
Speaker 1: the US economy. Interesting, trit Cee, it's been too long.
Speaker 1: It's the podcast stat right now. It's out right now.
Speaker 1: Check out all thoughts. I was talking with Promo gotta
Speaker 1: have it come on. I was talking with Tom and
Speaker 1: you know he was actually our first guest when we
Speaker 1: launched the podcast. Five the downhill from that or uphill
Speaker 1: from that? Up there, up uphill Tricey on the way
Speaker 1: Joe Weston could do far you can do it all
Speaker 1: football and that is already downhill. Tom, I think they
Speaker 1: want some expertise on markets, not on football. At the weekend.
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