1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,880 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,680 Speaker 1: the Bloomberg Terminal and the Bloomberg Business app on set. 7 00:00:30,760 --> 00:00:32,919 Speaker 1: Right now is our interview of the day for those 8 00:00:33,000 --> 00:00:36,560 Speaker 1: of you who concerned about the persistency of inflation. Andrew 9 00:00:36,560 --> 00:00:40,080 Speaker 1: Hollenhorst is chief US Economist at Citygroup and has been 10 00:00:40,120 --> 00:00:44,400 Speaker 1: shockingly prescient about elevated inflation not only in America but 11 00:00:44,520 --> 00:00:47,920 Speaker 1: for Citygroup worldwide as well. Andrew, I want to go 12 00:00:47,960 --> 00:00:51,760 Speaker 1: back to yesterday's Free for all on one year, six months, 13 00:00:51,800 --> 00:00:56,920 Speaker 1: three months, one month annualized John's beautiful job there on PPI. Seriously, 14 00:00:56,960 --> 00:00:59,640 Speaker 1: the granularity of the data. Are we getting way too 15 00:00:59,640 --> 00:01:02,840 Speaker 1: grand n here? Andrew? Are we so desperate that we're 16 00:01:02,920 --> 00:01:04,559 Speaker 1: just looking at every single tea leaf? 17 00:01:05,720 --> 00:01:07,920 Speaker 2: Well, I really think you have to do both here, Tom, 18 00:01:07,920 --> 00:01:11,120 Speaker 2: and I would say for John, PPI is one of 19 00:01:11,160 --> 00:01:14,160 Speaker 2: the hardest releases to read. You have a lot of 20 00:01:14,240 --> 00:01:16,920 Speaker 2: different subcomponents, a lot of different core measures, and we 21 00:01:16,959 --> 00:01:19,039 Speaker 2: look at all of those things. We look at those 22 00:01:19,040 --> 00:01:23,240 Speaker 2: things in course CPI also the supercore. We're looking at 23 00:01:23,400 --> 00:01:28,160 Speaker 2: various measures of underlying inflation one month trends, three month trends, 24 00:01:28,280 --> 00:01:30,759 Speaker 2: So you have to look at the details, but then 25 00:01:30,800 --> 00:01:34,119 Speaker 2: you have to look back, step back and look at 26 00:01:34,760 --> 00:01:40,039 Speaker 2: where is the factory broadly in the economy. So looking 27 00:01:40,080 --> 00:01:44,400 Speaker 2: at the details, there's some upside risks we're seeing. If 28 00:01:44,400 --> 00:01:47,200 Speaker 2: we look at inflation in August, we obviously have gasoline 29 00:01:47,240 --> 00:01:50,880 Speaker 2: prices that are up. Airs are down twenty percent since March. 30 00:01:50,960 --> 00:01:54,080 Speaker 2: That's certainly not the experience I've had with airfares, so 31 00:01:54,120 --> 00:01:55,520 Speaker 2: we think we're going to see those coming up in 32 00:01:55,560 --> 00:01:59,160 Speaker 2: the official data. That's on the kind of details, the 33 00:01:59,480 --> 00:02:02,040 Speaker 2: you know, short term movements month to month. But then 34 00:02:02,080 --> 00:02:03,840 Speaker 2: you step back and you say, where are we going 35 00:02:03,880 --> 00:02:06,639 Speaker 2: as an economy. It's an economy that's generating two percent 36 00:02:06,720 --> 00:02:09,519 Speaker 2: plus growth, it's an economy with a very tight labor 37 00:02:09,560 --> 00:02:13,919 Speaker 2: market wave growth running around five percent by various different measures. 38 00:02:14,240 --> 00:02:17,040 Speaker 2: That's not an economy that's going to bring inflation back 39 00:02:17,080 --> 00:02:19,480 Speaker 2: down to two percent. So yeah, we're getting a couple 40 00:02:19,600 --> 00:02:22,760 Speaker 2: months of softer inflation readings here, that's certainly going to 41 00:02:22,840 --> 00:02:24,680 Speaker 2: look like a soft landing. I don't think that's where 42 00:02:24,680 --> 00:02:25,160 Speaker 2: we're headed. 43 00:02:25,240 --> 00:02:27,920 Speaker 3: We were speaking with Vish Turbotur of Morgan Stanley earlier 44 00:02:27,960 --> 00:02:30,600 Speaker 3: and he said that the bond market action this week 45 00:02:30,639 --> 00:02:34,000 Speaker 3: was a head scratcher since you got softer than expected 46 00:02:34,080 --> 00:02:37,240 Speaker 3: economic data. You did get confirmation at least in the 47 00:02:37,560 --> 00:02:40,960 Speaker 3: data that we're getting right now of disinflation. Do you 48 00:02:41,040 --> 00:02:43,440 Speaker 3: agree or do you think that this makes perfect sense 49 00:02:43,520 --> 00:02:46,400 Speaker 3: that the more the Fed gets complacent, the more concerned 50 00:02:46,440 --> 00:02:48,320 Speaker 3: people are about longer term inflation. 51 00:02:49,560 --> 00:02:49,800 Speaker 1: Yeah. 52 00:02:49,800 --> 00:02:51,560 Speaker 2: I think there is a way to make sense of 53 00:02:51,600 --> 00:02:54,440 Speaker 2: the price action this weekly, so, which is partly that 54 00:02:54,520 --> 00:02:59,080 Speaker 2: this soft landing idea narrative and the softer inflation data 55 00:02:59,080 --> 00:03:02,079 Speaker 2: that's come in really well priced into the market. Speaking 56 00:03:02,120 --> 00:03:06,080 Speaker 2: to investors ahead of the CPI release yesterday, it was 57 00:03:06,160 --> 00:03:08,840 Speaker 2: hard to find anyone who really thought that this wasn't 58 00:03:08,880 --> 00:03:11,519 Speaker 2: going to be a very soft print. So I think 59 00:03:11,520 --> 00:03:14,880 Speaker 2: that was already in the price. So then what investors 60 00:03:14,919 --> 00:03:17,000 Speaker 2: are looking at is some of those details, some of 61 00:03:17,000 --> 00:03:19,680 Speaker 2: those trends in the labor market, the longer term trends 62 00:03:19,680 --> 00:03:22,320 Speaker 2: in the economy, and exactly like you're saying, Lisa, if 63 00:03:22,320 --> 00:03:25,640 Speaker 2: the FED is going to be finishing up rate hikes 64 00:03:25,680 --> 00:03:28,000 Speaker 2: and pretty much everyone thinks either they're done or maybe 65 00:03:28,000 --> 00:03:29,840 Speaker 2: they're going to do another twenty five basis points in 66 00:03:29,880 --> 00:03:32,919 Speaker 2: November and be done, then we're looking at where does 67 00:03:32,919 --> 00:03:35,640 Speaker 2: inflation go from here? And do FED officials just need 68 00:03:35,680 --> 00:03:38,640 Speaker 2: to keep policy rates higher for longer? I think that 69 00:03:38,640 --> 00:03:41,000 Speaker 2: that's a discussion that we're going to increasingly be hearing 70 00:03:41,400 --> 00:03:44,320 Speaker 2: amongst FED officials, is increasingly going to play out in 71 00:03:44,360 --> 00:03:47,400 Speaker 2: the market, this idea that maybe just the neutral policy 72 00:03:47,480 --> 00:03:51,360 Speaker 2: rate where policy makers need to leave FED funds in 73 00:03:51,440 --> 00:03:53,320 Speaker 2: the longer term, is going to be higher. 74 00:03:53,600 --> 00:03:57,320 Speaker 3: How much do oil prices do commodity prices feature into this? 75 00:03:57,400 --> 00:03:59,560 Speaker 3: I was looking at a Muhammad al Arian column yesterday 76 00:04:00,040 --> 00:04:03,120 Speaker 3: saying there's an asterisk next to the disinflation that everybody 77 00:04:03,200 --> 00:04:05,800 Speaker 3: was celebrating yesterday, and it has to do with oil 78 00:04:05,840 --> 00:04:10,680 Speaker 3: prices heading toward their seventh weekly gain. Looking at food 79 00:04:10,680 --> 00:04:13,120 Speaker 3: prices which are starting to inflect higher. How much do 80 00:04:13,200 --> 00:04:16,359 Speaker 3: these sort of affect the larger input prices like the 81 00:04:16,400 --> 00:04:17,960 Speaker 3: factory gauge ones that we just got. 82 00:04:19,279 --> 00:04:21,479 Speaker 2: Yeah, so I think the FED really got helped out 83 00:04:21,480 --> 00:04:24,839 Speaker 2: with lower inflation, with gasoline prices coming down, energy prices 84 00:04:24,839 --> 00:04:29,360 Speaker 2: coming down, food prices that stopped rising as quickly, And 85 00:04:29,480 --> 00:04:31,800 Speaker 2: we were saying at that time FED officials should be 86 00:04:31,800 --> 00:04:34,560 Speaker 2: a little bit careful in terms of take credit for 87 00:04:34,680 --> 00:04:38,720 Speaker 2: that down shift in inflation, because FED policy doesn't really 88 00:04:38,839 --> 00:04:42,960 Speaker 2: control oil prices or food prices, and now they may 89 00:04:43,040 --> 00:04:47,520 Speaker 2: start experiencing the opposite scenario where you actually get some 90 00:04:47,560 --> 00:04:51,919 Speaker 2: of these commodity prices moving higher, most notably energy prices. 91 00:04:51,960 --> 00:04:55,159 Speaker 2: So that is something that FED officials economists tend to 92 00:04:55,200 --> 00:04:58,400 Speaker 2: look through to the core measures. But ye know I 93 00:04:58,440 --> 00:05:01,159 Speaker 2: mentioned airfares before. We're going to higher jet fuel prices. 94 00:05:01,200 --> 00:05:04,160 Speaker 2: That's going to boost airfares, and that that August inflation reading, 95 00:05:04,680 --> 00:05:07,640 Speaker 2: we could get a month on month increase on the headline, 96 00:05:07,839 --> 00:05:11,280 Speaker 2: something like zero point four, zero point five, zero point 97 00:05:11,360 --> 00:05:14,640 Speaker 2: six percent month on month, So that could really kind 98 00:05:14,680 --> 00:05:16,880 Speaker 2: of change the narrative in terms of how the numbers 99 00:05:16,880 --> 00:05:17,640 Speaker 2: are coming in. 100 00:05:17,839 --> 00:05:21,279 Speaker 1: Andrew, just a simple question, are we beyond the pandemic? 101 00:05:21,480 --> 00:05:25,440 Speaker 1: Are we back to conventional macroeconomic analysis? 102 00:05:26,960 --> 00:05:31,640 Speaker 2: So I think we can still use conventional macroeconomic analysis, 103 00:05:32,279 --> 00:05:36,120 Speaker 2: and I think that's one way that we've been forecasting 104 00:05:36,200 --> 00:05:39,560 Speaker 2: inflation and thinking about inflation staying higher for longer, the 105 00:05:39,640 --> 00:05:43,680 Speaker 2: idea that tight labor markets do drive inflation over the 106 00:05:43,720 --> 00:05:46,800 Speaker 2: medium term. So I think that framework of analysis has 107 00:05:46,839 --> 00:05:50,520 Speaker 2: actually been a useful one throughout the pandemic and then 108 00:05:50,640 --> 00:05:53,800 Speaker 2: this post pandemic period. But the idea that the economy 109 00:05:53,880 --> 00:05:56,720 Speaker 2: is going to kind of normalize back to where we were, 110 00:05:57,279 --> 00:05:59,560 Speaker 2: you know, let's say twenty twelve or twenty thirteen, I 111 00:05:59,880 --> 00:06:03,679 Speaker 2: just really don't understand that analysis. A lot of people 112 00:06:03,720 --> 00:06:06,440 Speaker 2: would have thought in twenty thirteen things look pretty different 113 00:06:06,440 --> 00:06:08,320 Speaker 2: than where we were in two thousand and five, so 114 00:06:08,680 --> 00:06:10,880 Speaker 2: I'm not sure why there's this belief that we would 115 00:06:10,920 --> 00:06:11,480 Speaker 2: go back there. 116 00:06:11,520 --> 00:06:13,160 Speaker 1: So this is the heart of the question. I'm gonna 117 00:06:13,160 --> 00:06:15,160 Speaker 1: get a little wonky er folks. This is wrapped around 118 00:06:15,240 --> 00:06:19,599 Speaker 1: John Williams our start and and all the theory mumble 119 00:06:19,680 --> 00:06:22,960 Speaker 1: jumble that doctor Hollenhurst is really quite good at the 120 00:06:23,000 --> 00:06:25,640 Speaker 1: school of thought out there, Andrew is that we return 121 00:06:25,720 --> 00:06:28,960 Speaker 1: to a quiescent our start, and then there's debate. I'm 122 00:06:28,960 --> 00:06:31,480 Speaker 1: going to wrap it around what Olivia Blanchard has done, 123 00:06:31,839 --> 00:06:34,760 Speaker 1: where there's a new higher our start set or dare 124 00:06:34,800 --> 00:06:37,920 Speaker 1: I say, people debt worried looking at an even ever 125 00:06:38,120 --> 00:06:41,000 Speaker 1: higher our start Where are you on this? How do 126 00:06:41,040 --> 00:06:45,760 Speaker 1: you position our start out three and five years right now? 127 00:06:46,760 --> 00:06:49,800 Speaker 2: Yeah, I think we have to think about the possibility 128 00:06:49,839 --> 00:06:52,640 Speaker 2: at least that our star is migrating higher. And if 129 00:06:52,720 --> 00:06:56,760 Speaker 2: you take the famous Laubach Williams model, which to your point, 130 00:06:56,839 --> 00:06:59,839 Speaker 2: Tom is full of complexities and the ideas, you're doing 131 00:06:59,839 --> 00:07:02,200 Speaker 2: this so called baysy An update, where you look at 132 00:07:02,200 --> 00:07:05,560 Speaker 2: the account of figure out where our stars, I mean 133 00:07:05,680 --> 00:07:07,760 Speaker 2: you can very simply, you can say, essentially what that 134 00:07:07,800 --> 00:07:10,520 Speaker 2: model is doing is saying, if growth comes in higher 135 00:07:10,560 --> 00:07:13,560 Speaker 2: than we expect, if inflation comes in higher than we expect, 136 00:07:13,840 --> 00:07:16,600 Speaker 2: then it must be the case that the neutral real 137 00:07:16,680 --> 00:07:19,840 Speaker 2: interest rate is higher than we thought it was. Well, 138 00:07:19,880 --> 00:07:22,480 Speaker 2: where's growth come in stronger than we expect it, where's 139 00:07:22,480 --> 00:07:26,400 Speaker 2: inflation come in higher than we expected? So that model, 140 00:07:26,440 --> 00:07:29,120 Speaker 2: over time should start catching up to what we've seen 141 00:07:29,160 --> 00:07:31,680 Speaker 2: in the data that looks like our star is rising. 142 00:07:32,800 --> 00:07:34,680 Speaker 2: I think we're going to hear about this at Jackson Hole. 143 00:07:34,720 --> 00:07:37,320 Speaker 2: I think that that really could be the interesting conversation 144 00:07:37,400 --> 00:07:39,400 Speaker 2: that Powell brings up. Now to your point, new York 145 00:07:39,440 --> 00:07:42,960 Speaker 2: Fed President Williams, the father of the Lavak Williams model. 146 00:07:43,440 --> 00:07:45,760 Speaker 2: I don't think that he thinks that our star has 147 00:07:45,760 --> 00:07:48,840 Speaker 2: moved up yet he's made comments to that effect. So Powell, 148 00:07:48,880 --> 00:07:51,480 Speaker 2: I think, can't kind of completely break away from what 149 00:07:51,520 --> 00:07:54,360 Speaker 2: Williams is talking about. But let's watch Jackson Hole at 150 00:07:54,360 --> 00:07:55,960 Speaker 2: the end of this month. I think we're going to 151 00:07:56,040 --> 00:07:58,720 Speaker 2: hear some discussion about the possibility at least that our 152 00:07:58,760 --> 00:07:59,480 Speaker 2: star is higher. 153 00:07:59,560 --> 00:08:02,400 Speaker 3: How long can the Fed hold rates around these levels 154 00:08:02,520 --> 00:08:04,200 Speaker 3: five and a quarter to five and a half percent 155 00:08:04,520 --> 00:08:07,840 Speaker 3: before it causes recession at a time where perhaps growth 156 00:08:07,880 --> 00:08:09,520 Speaker 3: is still strong but it's coming down. 157 00:08:10,360 --> 00:08:13,560 Speaker 2: Yeah, I think there are lags of monetary policy that 158 00:08:14,000 --> 00:08:17,800 Speaker 2: will vary slowly but surely slow down the economy. We 159 00:08:17,880 --> 00:08:20,600 Speaker 2: see that in the Senior Loan Officer Opinion Survey, where 160 00:08:20,600 --> 00:08:24,000 Speaker 2: you see banks that are still tightening lending standards. You 161 00:08:24,040 --> 00:08:27,320 Speaker 2: think about many people right now have a mortgage at 162 00:08:27,520 --> 00:08:30,680 Speaker 2: three percent three and a half percent. Mortgage rates for 163 00:08:30,720 --> 00:08:32,880 Speaker 2: thirty or fixed rate mortgage are seven percent now, So 164 00:08:33,040 --> 00:08:36,720 Speaker 2: over time people will start slowly but surely resetting into 165 00:08:36,760 --> 00:08:41,679 Speaker 2: those higher mortgages. But those effects that slow the economy 166 00:08:42,000 --> 00:08:44,840 Speaker 2: work with a very long lag. You're not going to 167 00:08:44,840 --> 00:08:46,960 Speaker 2: be very incentivized to sell your house now and go 168 00:08:46,960 --> 00:08:48,960 Speaker 2: pick up a new house at a higher mortgage rate. 169 00:08:49,559 --> 00:08:51,480 Speaker 2: So that will only happen if you have a life event, 170 00:08:51,520 --> 00:08:54,800 Speaker 2: you change your job, or your family size increases. So 171 00:08:54,840 --> 00:08:56,880 Speaker 2: that does slow the economy, but it takes a long time, 172 00:08:56,920 --> 00:09:00,440 Speaker 2: So Lisa, it could be quite a long period of 173 00:09:00,520 --> 00:09:01,240 Speaker 2: higher for longer. 174 00:09:01,520 --> 00:09:03,880 Speaker 1: Andrew Hollanders, thank you so much. You're lighting up the airways. 175 00:09:03,880 --> 00:09:06,320 Speaker 1: You're written in all sorts of emails here, and Andrew Hollanders. 176 00:09:16,679 --> 00:09:20,400 Speaker 4: Emily Rowland joins now cou Chief Investment strategistic John Hancock 177 00:09:20,559 --> 00:09:23,640 Speaker 4: Investment Management. Emily, don't worry, we'll keep him in line. 178 00:09:23,960 --> 00:09:28,000 Speaker 4: Let's talk about China. Emily, do we want stimulus out 179 00:09:28,000 --> 00:09:30,040 Speaker 4: of China right now? If you have a seat at 180 00:09:30,040 --> 00:09:31,000 Speaker 4: the federers. 181 00:09:30,720 --> 00:09:34,600 Speaker 5: F well, I don't know if it's working necessarily. You 182 00:09:34,640 --> 00:09:36,800 Speaker 5: look at some of this lone growth data this morning 183 00:09:36,880 --> 00:09:39,640 Speaker 5: and it's simply not showing up. I think the China 184 00:09:39,720 --> 00:09:42,720 Speaker 5: stimulus narrative is one that the markets have really loved 185 00:09:42,720 --> 00:09:45,400 Speaker 5: and embraced, and we're getting a bit of a reality 186 00:09:45,520 --> 00:09:48,079 Speaker 5: check on that as it relates to commodity prices. All 187 00:09:48,120 --> 00:09:50,560 Speaker 5: of this news of stimulus has certainly pushed them up, 188 00:09:50,600 --> 00:09:54,160 Speaker 5: pushed inflation expectations higher, and that's become a big problem 189 00:09:54,200 --> 00:09:56,959 Speaker 5: for the Fed here, who certainly has not yet claimed 190 00:09:57,040 --> 00:10:00,720 Speaker 5: victory on inflation. So we're watching that really cool here, 191 00:10:01,040 --> 00:10:03,080 Speaker 5: but a lot of mixed messages. And by the way, 192 00:10:03,080 --> 00:10:06,080 Speaker 5: speaking of mixed messages, I understand trying to get to 193 00:10:06,120 --> 00:10:09,000 Speaker 5: the weekend here. As you've said all morning long, if 194 00:10:09,000 --> 00:10:12,120 Speaker 5: you watch the macro and you watch the fundamentals, this week, 195 00:10:12,160 --> 00:10:14,600 Speaker 5: the market action didn't really make a ton of sense. 196 00:10:15,320 --> 00:10:15,520 Speaker 1: You know. 197 00:10:15,559 --> 00:10:18,000 Speaker 5: Of course, we had the treasury auction that you talked about, 198 00:10:18,040 --> 00:10:21,000 Speaker 5: pushing yields higher, but at the same time, the economic 199 00:10:21,040 --> 00:10:24,160 Speaker 5: data were pretty disappointing. You know, you had softer inflation, 200 00:10:24,800 --> 00:10:27,480 Speaker 5: you had initial claims picking up, you had dubvish comments 201 00:10:27,480 --> 00:10:30,240 Speaker 5: from the Fed. Meanwhile, the tenure treasureyeld sort of right 202 00:10:30,280 --> 00:10:33,600 Speaker 5: where we started, and European equities trading on another planet 203 00:10:33,679 --> 00:10:34,080 Speaker 5: right now. 204 00:10:34,320 --> 00:10:36,439 Speaker 1: And Emily, it was in your note you talk about 205 00:10:36,480 --> 00:10:39,520 Speaker 1: whipsaw and I think it's perfect if there's one big 206 00:10:39,559 --> 00:10:42,280 Speaker 1: group whipsaw here over the last number weeks, whatever anybody's 207 00:10:42,600 --> 00:10:45,600 Speaker 1: belief with that said, in the group whipsaw that we're 208 00:10:45,600 --> 00:10:49,040 Speaker 1: in right now. How do you position out one year 209 00:10:49,160 --> 00:10:52,200 Speaker 1: or two year in my depleted two to oh one K. 210 00:10:53,840 --> 00:10:56,880 Speaker 5: Yeah, it's tough. So the macro signals right now are 211 00:10:56,960 --> 00:10:59,880 Speaker 5: like a stoplight. They're going from red to green and 212 00:11:00,360 --> 00:11:02,920 Speaker 5: back to red. And we look at the macro messages 213 00:11:03,000 --> 00:11:05,560 Speaker 5: right now is more of a yellow. You know, you 214 00:11:05,600 --> 00:11:07,680 Speaker 5: want to maybe take your foot off the gas a 215 00:11:07,679 --> 00:11:10,120 Speaker 5: little bit. You want to look both ways, You want 216 00:11:10,120 --> 00:11:13,320 Speaker 5: to proceed with caution. So we're starting to see this 217 00:11:13,400 --> 00:11:16,280 Speaker 5: big shift in sentiment. It's been pulled back a little 218 00:11:16,280 --> 00:11:18,920 Speaker 5: bit over the last couple of weeks from fear to greed, 219 00:11:19,000 --> 00:11:22,040 Speaker 5: and you're starting to see more cyclical, higher beta parts 220 00:11:22,040 --> 00:11:25,160 Speaker 5: of the market outperforming. We would be mindful of taking 221 00:11:25,200 --> 00:11:27,640 Speaker 5: too much risk in this environment. Again, we still want 222 00:11:27,679 --> 00:11:30,760 Speaker 5: to be invested. We still like higher quality stocks. We 223 00:11:30,800 --> 00:11:33,479 Speaker 5: think bonds can do more heavy lifting in a portfolio. 224 00:11:33,760 --> 00:11:36,560 Speaker 5: But look, the leading economic indicators have been negative for 225 00:11:36,679 --> 00:11:39,600 Speaker 5: twelve straight months. The yield curve has been inverted for 226 00:11:39,679 --> 00:11:43,400 Speaker 5: thirteen straight months. I mean, it's just become exhausting. But 227 00:11:43,440 --> 00:11:46,200 Speaker 5: we need to stick to our premise here. We need 228 00:11:46,240 --> 00:11:47,960 Speaker 5: to stick to our work that tells us that our 229 00:11:48,000 --> 00:11:51,360 Speaker 5: recession is likely to unfold due to the lagged impact 230 00:11:51,360 --> 00:11:54,800 Speaker 5: of FED tightening. It's becoming difficult to stay patient for sure. 231 00:11:55,080 --> 00:11:56,520 Speaker 3: I just want to pick up on what you said 232 00:11:56,520 --> 00:11:59,560 Speaker 3: about European equity is trading on another planet, what do 233 00:11:59,559 --> 00:12:01,360 Speaker 3: you mean, And just the fact that they haven't sold 234 00:12:01,360 --> 00:12:03,720 Speaker 3: off more aggressively in the face of China weakness. 235 00:12:04,559 --> 00:12:07,200 Speaker 5: Yeah, I think it's notable to look at the strength 236 00:12:07,280 --> 00:12:11,760 Speaker 5: particularly versus domestic equities. As of late, Europe has certainly 237 00:12:11,840 --> 00:12:15,439 Speaker 5: been more tied to China stimulus. You've seen that, You've 238 00:12:15,440 --> 00:12:17,880 Speaker 5: seen a big momentum trade there. I think is some 239 00:12:18,000 --> 00:12:20,960 Speaker 5: short covering has resulted in a lot of gains in 240 00:12:21,000 --> 00:12:24,400 Speaker 5: that market, and you're seeing some major companies in Europe 241 00:12:24,480 --> 00:12:28,200 Speaker 5: disappointing on the earnings front, some solvency issues there. You know, 242 00:12:28,320 --> 00:12:31,160 Speaker 5: markets really seem to be very much enamored with Europe. 243 00:12:31,200 --> 00:12:33,920 Speaker 5: They're very much enamored with this China story, and it 244 00:12:34,000 --> 00:12:36,640 Speaker 5: just doesn't match up with the macroeconomic dan look at 245 00:12:36,640 --> 00:12:40,000 Speaker 5: the City Group Economic Surprise Index. It's surging in the 246 00:12:40,120 --> 00:12:42,760 Speaker 5: United States right now, and it's about negative one hundred 247 00:12:42,800 --> 00:12:45,800 Speaker 5: in Europe, and yet those markets are outperforming to US 248 00:12:45,880 --> 00:12:49,280 Speaker 5: as macro investors. We want to continue to emphasize domestic 249 00:12:49,320 --> 00:12:52,160 Speaker 5: equities because of the relative economic strength here. 250 00:12:52,440 --> 00:12:56,120 Speaker 3: That said, US tech underperformed this year. This week, I 251 00:12:56,120 --> 00:12:58,800 Speaker 3: should say not this year. This year, they've outperformed tremendously. 252 00:12:58,880 --> 00:13:01,360 Speaker 3: But how much is that going to be a real 253 00:13:01,480 --> 00:13:03,520 Speaker 3: challenge to your thesis if it continues. 254 00:13:04,679 --> 00:13:06,760 Speaker 5: Yeah, we've definitely seen a pull back there, and of 255 00:13:06,800 --> 00:13:10,199 Speaker 5: course valuations were stretched and we were expecting to potentially 256 00:13:10,280 --> 00:13:13,880 Speaker 5: see you know, a bit of a profit taking there. 257 00:13:14,000 --> 00:13:16,800 Speaker 5: And you know, I still wonder if tech is the 258 00:13:16,840 --> 00:13:20,080 Speaker 5: biggest issue that market should be focused on. It's hard 259 00:13:20,120 --> 00:13:22,400 Speaker 5: not to like quality in this type of a market, 260 00:13:22,480 --> 00:13:24,959 Speaker 5: and of course tech is your poster child there. I 261 00:13:25,000 --> 00:13:28,360 Speaker 5: think over three five years we've seen the US technology 262 00:13:28,559 --> 00:13:32,199 Speaker 5: sector has produced of the best earnings globally. Of course, 263 00:13:32,200 --> 00:13:34,480 Speaker 5: we want to diversify from some of that. Look at 264 00:13:34,480 --> 00:13:36,600 Speaker 5: some of the ways the sectors that are starting to 265 00:13:36,640 --> 00:13:39,760 Speaker 5: perk up a little bit here. Healthcare one of our favorites. 266 00:13:39,800 --> 00:13:42,480 Speaker 5: It's trading at a meaningful discount to the S and 267 00:13:42,520 --> 00:13:45,559 Speaker 5: P five hundred. It's got the quality metrics that we love, 268 00:13:45,640 --> 00:13:48,080 Speaker 5: great balance sheets, good return on equity, and it's more 269 00:13:48,120 --> 00:13:50,680 Speaker 5: defensive so I do think that the baton can be 270 00:13:50,800 --> 00:13:53,400 Speaker 5: passed here in the back hap of the year into 271 00:13:53,480 --> 00:13:56,360 Speaker 5: next year to some of these more defensive sectors in 272 00:13:56,440 --> 00:13:59,040 Speaker 5: order to create that balance away from the tech sector. 273 00:13:59,160 --> 00:14:01,400 Speaker 4: Emily, final question, and you on the strong doll to 274 00:14:01,440 --> 00:14:04,640 Speaker 4: train as well, then yeah, we have been. 275 00:14:04,679 --> 00:14:06,560 Speaker 5: The way that we look at the dollar is where's 276 00:14:06,600 --> 00:14:10,360 Speaker 5: the best relative economic growth and which central bankers globally 277 00:14:10,400 --> 00:14:13,120 Speaker 5: are going to be continuing to tighten the most. And 278 00:14:13,160 --> 00:14:16,120 Speaker 5: because of the relative strength we talked about here in 279 00:14:16,160 --> 00:14:19,240 Speaker 5: the US, we think that's the US Federal Reserve. We 280 00:14:19,280 --> 00:14:21,880 Speaker 5: think the US economy is doing the best. We also 281 00:14:21,920 --> 00:14:24,600 Speaker 5: think if a recession on folds, which is our base case, 282 00:14:24,640 --> 00:14:25,880 Speaker 5: there should be a bit. 283 00:14:25,800 --> 00:14:26,760 Speaker 2: For US dollars. 284 00:14:26,800 --> 00:14:29,080 Speaker 5: I don't know that the dollar goes gangbusters like it 285 00:14:29,160 --> 00:14:31,840 Speaker 5: did in the first few quarters of twenty twenty two, 286 00:14:32,200 --> 00:14:34,920 Speaker 5: but I would say I would fade any weaker dollar 287 00:14:35,000 --> 00:14:35,520 Speaker 5: trade here. 288 00:14:35,720 --> 00:14:37,720 Speaker 4: You're got to pay Malkes on another planet. That's the 289 00:14:37,720 --> 00:14:40,120 Speaker 4: headline from every island of John Hancock. Whether we intended 290 00:14:40,160 --> 00:14:43,000 Speaker 4: that's the headline or not, it will be heavily. Thank you. 291 00:14:47,040 --> 00:14:49,240 Speaker 1: To brief you forward in the next week. Joseph Feldman 292 00:14:49,280 --> 00:14:51,840 Speaker 1: Joins just senior research analysts. You working with Dana Telsea 293 00:14:51,920 --> 00:14:54,160 Speaker 1: at the Telsia Advisory Group. They've been in a fire 294 00:14:54,760 --> 00:14:56,520 Speaker 1: the last forty eight hours. Joe, I want to get 295 00:14:56,520 --> 00:14:59,640 Speaker 1: the big box, but I really want to frame out 296 00:14:59,640 --> 00:15:03,560 Speaker 1: the different here at Tarja. I've got a women's boxy 297 00:15:03,800 --> 00:15:09,240 Speaker 1: zip up denim jacket wild Fable Blue denim for thirty 298 00:15:09,280 --> 00:15:13,240 Speaker 1: five dollars. That's what you're looking at, your colleague in crime, 299 00:15:13,320 --> 00:15:16,800 Speaker 1: Dana Telsey's looking at the MEDUSA ninety five. Do a 300 00:15:16,880 --> 00:15:19,920 Speaker 1: leap of denim jacket over at for Sachi for one 301 00:15:19,960 --> 00:15:23,440 Speaker 1: three d and fifty dollars. When all this is done 302 00:15:23,560 --> 00:15:26,080 Speaker 1: three years out, is there going to be anything left 303 00:15:26,120 --> 00:15:32,600 Speaker 1: in the middle between Coach Corps, Versace or LVMH and Target. 304 00:15:32,720 --> 00:15:35,080 Speaker 1: What's the middle end up doing in the coming years. 305 00:15:35,840 --> 00:15:38,640 Speaker 6: Yeah, the middle is kind of squeezed right now, and 306 00:15:38,680 --> 00:15:42,359 Speaker 6: that's where we're seeing that middle has been trading down 307 00:15:42,440 --> 00:15:44,680 Speaker 6: and then the upper end is kind of staying where 308 00:15:44,680 --> 00:15:48,600 Speaker 6: they are. It's that aspirational customer has traded down a little, 309 00:15:48,600 --> 00:15:50,880 Speaker 6: the middle has traded down. So I think that still 310 00:15:50,920 --> 00:15:56,000 Speaker 6: positions Target and Walmart pretty well. Data. I think likes 311 00:15:56,080 --> 00:16:00,200 Speaker 6: the deal with Tapestry and Capri in the sense you 312 00:16:00,200 --> 00:16:02,840 Speaker 6: can bring these two companies together. There are a house 313 00:16:02,880 --> 00:16:04,640 Speaker 6: of brands, and I know there are more of those 314 00:16:04,720 --> 00:16:09,280 Speaker 6: middle aspirational type brands, but you can operate them more efficiently, 315 00:16:09,400 --> 00:16:11,920 Speaker 6: and maybe the way you allocate resources to the different 316 00:16:11,920 --> 00:16:14,400 Speaker 6: brands and do the back end can make it more 317 00:16:14,440 --> 00:16:18,000 Speaker 6: profitable and make them more of a stronger venture to 318 00:16:18,040 --> 00:16:20,240 Speaker 6: go forward. So I think that we kind of like 319 00:16:20,400 --> 00:16:24,600 Speaker 6: that lineup and the strategy there. And you know, honestly, 320 00:16:24,640 --> 00:16:27,560 Speaker 6: the Capricecide has been kind of languishing for a little bit, 321 00:16:27,640 --> 00:16:29,360 Speaker 6: and so I think that now if you put it together, 322 00:16:29,400 --> 00:16:31,760 Speaker 6: you could maybe make a go of it, make it stronger. 323 00:16:32,200 --> 00:16:34,680 Speaker 6: That all said, the near term, the consumer's still under 324 00:16:34,680 --> 00:16:38,320 Speaker 6: a lot of pressure. Discretionary sales have been slow, and 325 00:16:38,440 --> 00:16:41,920 Speaker 6: especially big ticket discretionary sales have been slow. And so 326 00:16:42,080 --> 00:16:44,560 Speaker 6: that's where we're at heading into this earning season. And 327 00:16:44,560 --> 00:16:46,120 Speaker 6: why we like Walmart. 328 00:16:45,760 --> 00:16:49,960 Speaker 4: Engineer well Walmart yet today outperformance target by massive margin 329 00:16:50,080 --> 00:16:53,160 Speaker 4: underperformance from Target outperformance from Walmart. 330 00:16:53,320 --> 00:16:53,520 Speaker 6: Joe. 331 00:16:53,520 --> 00:16:56,320 Speaker 4: There's a word I really don't like around the retail names. 332 00:16:56,400 --> 00:16:58,800 Speaker 4: It's shrink. Why don't they just call it what it is? 333 00:16:59,520 --> 00:17:01,360 Speaker 4: Theft and how much are we going to be talking 334 00:17:01,400 --> 00:17:02,320 Speaker 4: about that next week? 335 00:17:03,400 --> 00:17:04,960 Speaker 6: Yeah, I think we're going to hear a lot about 336 00:17:04,960 --> 00:17:08,200 Speaker 6: Shrink next week. You know. Target has laid it out 337 00:17:08,240 --> 00:17:10,560 Speaker 6: and told us, you know, they're expecting around five hundred 338 00:17:10,560 --> 00:17:14,480 Speaker 6: million of incremental strength this year. Walmart's got a big 339 00:17:14,560 --> 00:17:16,800 Speaker 6: number as well. Now they haven't quantified it, but it 340 00:17:16,920 --> 00:17:20,280 Speaker 6: is big and Home Depot and Low's and Best Buying, 341 00:17:20,320 --> 00:17:22,240 Speaker 6: you go down the list, and it's been a big 342 00:17:22,280 --> 00:17:25,399 Speaker 6: problem for everybody. I mean, theft has really kicked in 343 00:17:25,520 --> 00:17:28,840 Speaker 6: higher you know, the shrink side. Yeah, there's always been 344 00:17:28,960 --> 00:17:32,840 Speaker 6: damages for turns that you can't really sell, things that 345 00:17:32,920 --> 00:17:34,960 Speaker 6: maybe walk out the store with an employee every once 346 00:17:34,960 --> 00:17:37,679 Speaker 6: in a while, things like that. But this organized crime 347 00:17:37,760 --> 00:17:40,119 Speaker 6: that's happening in retail is really a big problem for 348 00:17:40,160 --> 00:17:44,000 Speaker 6: this especially for these big box retailers. You know, Dana 349 00:17:44,240 --> 00:17:46,840 Speaker 6: actually recently was in Beverly Hills and witness at firsthand 350 00:17:46,840 --> 00:17:49,080 Speaker 6: one of those grabbing gos somebody just running out of 351 00:17:49,720 --> 00:17:52,800 Speaker 6: the high end store and literally right in front of her, 352 00:17:52,800 --> 00:17:55,880 Speaker 6: And it's just it's frustrating to see and it's scary 353 00:17:56,560 --> 00:17:58,120 Speaker 6: for the average consumer to see that. 354 00:17:58,080 --> 00:18:01,159 Speaker 3: Happen, and it's something that we've seen, particularly with respect 355 00:18:01,200 --> 00:18:04,440 Speaker 3: to a lot of drug stores, particularly in city centers. 356 00:18:04,520 --> 00:18:07,439 Speaker 3: I'm wondering how much this pushes the emphasis then on 357 00:18:07,480 --> 00:18:10,119 Speaker 3: the online presences of some of these companies, and I 358 00:18:10,160 --> 00:18:13,520 Speaker 3: think of Walmart in particular, which is actually putting up 359 00:18:13,560 --> 00:18:16,520 Speaker 3: competition to the likes of Amazon with what they can 360 00:18:16,560 --> 00:18:17,760 Speaker 3: offer in e commerce. 361 00:18:19,200 --> 00:18:21,560 Speaker 6: Yeah. Absolutely, I mean the e commerce side of the 362 00:18:21,560 --> 00:18:25,160 Speaker 6: business at Walmart, at Target, really many of the big 363 00:18:25,160 --> 00:18:30,960 Speaker 6: boxes improved significantly. They're very robust, and we see Walmart 364 00:18:31,359 --> 00:18:33,560 Speaker 6: is going toe to toe with Amazon, especially on the 365 00:18:33,560 --> 00:18:36,560 Speaker 6: retail side of it. It's clearly Walmart doesn't have AWS, 366 00:18:36,960 --> 00:18:39,399 Speaker 6: but on the retail side and the physical presence, to 367 00:18:39,520 --> 00:18:43,000 Speaker 6: leverage the physical with the digital is a real advantage, 368 00:18:43,080 --> 00:18:46,280 Speaker 6: especially relevant to Amazon at the moment. Now Amazon wants 369 00:18:46,320 --> 00:18:49,440 Speaker 6: to get more physical. They're trying to open grocery stores. 370 00:18:49,480 --> 00:18:51,560 Speaker 6: I think we'll see that accelerate once they've kind of 371 00:18:51,560 --> 00:18:55,240 Speaker 6: figured out the box that they want. But there's definitely 372 00:18:55,320 --> 00:18:57,399 Speaker 6: this conflict is going to be around for a while, 373 00:18:57,760 --> 00:19:00,520 Speaker 6: and you can get great value of both of these tailers, 374 00:19:02,080 --> 00:19:05,359 Speaker 6: adding Target, adding Costco, adding all the other big box guys, 375 00:19:05,400 --> 00:19:08,040 Speaker 6: And you're absolutely right, you know, that is a way 376 00:19:08,080 --> 00:19:11,800 Speaker 6: around this. We have seen East commerce sales decelerate a 377 00:19:11,800 --> 00:19:14,879 Speaker 6: little bit, you know, broadly speaking in retail as people 378 00:19:14,920 --> 00:19:16,840 Speaker 6: have returned to the stores a bit more. But that's 379 00:19:16,880 --> 00:19:21,399 Speaker 6: definitely a strong area of opportunity for the retailers forward. 380 00:19:21,520 --> 00:19:24,160 Speaker 3: Walmart's kind of a confusing read on the US consumer 381 00:19:24,280 --> 00:19:26,320 Speaker 3: because on one hand, if it does well, that's a 382 00:19:26,320 --> 00:19:28,200 Speaker 3: good thing. People are spending money. On the other hand, 383 00:19:28,240 --> 00:19:30,320 Speaker 3: it's been people who are trading down, who are trying 384 00:19:30,320 --> 00:19:32,480 Speaker 3: to spend less, who are going from Whole Foods or 385 00:19:32,560 --> 00:19:35,480 Speaker 3: whole paycheck is Ton likes to call it to Walmart 386 00:19:35,600 --> 00:19:39,960 Speaker 3: and looking for a bargain. So is Walmart's gain everybody 387 00:19:39,960 --> 00:19:43,000 Speaker 3: else's pain? Is it sort of a counter indicator of 388 00:19:43,080 --> 00:19:43,960 Speaker 3: consumer strength. 389 00:19:45,000 --> 00:19:48,439 Speaker 6: Well, that's a great point, you know that it is 390 00:19:48,640 --> 00:19:51,280 Speaker 6: an indicator of where the health of the consumer is now. 391 00:19:51,320 --> 00:19:54,520 Speaker 6: The good sign is the consumer is still spending, they 392 00:19:54,560 --> 00:19:56,800 Speaker 6: are trying to save money. They may be trading down, 393 00:19:56,840 --> 00:19:59,399 Speaker 6: they may be trading in. But Walmart has done a 394 00:19:59,440 --> 00:20:02,359 Speaker 6: really good job over the past few years and making 395 00:20:02,640 --> 00:20:06,159 Speaker 6: that their business model stickier, and so they're retaining a 396 00:20:06,200 --> 00:20:09,280 Speaker 6: lot of those customers. So they've seen trade down and 397 00:20:09,359 --> 00:20:12,600 Speaker 6: trade into the business, but they're seeing those people stay. 398 00:20:12,920 --> 00:20:15,479 Speaker 6: So yes, that's not great for the rest of retail. 399 00:20:15,480 --> 00:20:18,040 Speaker 6: It just shows that Walmart's gaining market share. But some 400 00:20:18,080 --> 00:20:21,119 Speaker 6: of their latest formats, especially the ones over in New 401 00:20:21,200 --> 00:20:24,640 Speaker 6: Jersey if you just cross the river, they're really phenomenal stores, 402 00:20:25,720 --> 00:20:29,080 Speaker 6: and they're very much target light, to be quite honest, 403 00:20:29,720 --> 00:20:32,960 Speaker 6: it has that little slightly more upscale feel. Really goes 404 00:20:33,040 --> 00:20:38,200 Speaker 6: after that the core American consumer, And you're actually right, 405 00:20:38,280 --> 00:20:41,080 Speaker 6: we are concerned about how things will shape up, especially 406 00:20:41,080 --> 00:20:44,119 Speaker 6: for that middle income consumer for this holiday season. 407 00:20:44,240 --> 00:20:45,959 Speaker 4: So, Joe, we talked a little bit about the prospect 408 00:20:46,000 --> 00:20:48,080 Speaker 4: of trade down to Walmart. We've heard that over the 409 00:20:48,160 --> 00:20:51,080 Speaker 4: last few quarters from the company itself on the earnings call. Joe, 410 00:20:51,160 --> 00:20:52,920 Speaker 4: what about holding onto talent. We've seen a bit of 411 00:20:52,960 --> 00:20:55,359 Speaker 4: softening in the labor market. You're talking about maybe the 412 00:20:55,400 --> 00:20:58,760 Speaker 4: economy deteriorating. Do they have that issue on the talent side? 413 00:20:58,800 --> 00:21:00,639 Speaker 4: Do they have a ups pro Do they have a 414 00:21:00,680 --> 00:21:02,000 Speaker 4: problem like GM Ford. 415 00:21:03,400 --> 00:21:06,879 Speaker 6: I don't think so. I think Walmart and Target and 416 00:21:06,880 --> 00:21:08,640 Speaker 6: all these guys have done a really good job over 417 00:21:08,680 --> 00:21:11,560 Speaker 6: the past few years of trying to pay their people better, 418 00:21:11,880 --> 00:21:16,280 Speaker 6: to raise wages, opening opening starting wages, I should say, 419 00:21:16,560 --> 00:21:19,920 Speaker 6: and raise the average wage for everybody. They've added more 420 00:21:19,960 --> 00:21:23,560 Speaker 6: benefits to their consumer and to their to their employees, 421 00:21:23,920 --> 00:21:27,040 Speaker 6: and you know, they've done a much better job with that. 422 00:21:27,160 --> 00:21:30,040 Speaker 6: And we haven't heard as much of the griping that 423 00:21:30,119 --> 00:21:32,600 Speaker 6: we used to hear a few years ago, especially around 424 00:21:32,640 --> 00:21:34,840 Speaker 6: Walmart or Target or some of the others that the 425 00:21:34,920 --> 00:21:36,560 Speaker 6: employees felt underpaid. 426 00:21:36,720 --> 00:21:39,359 Speaker 4: Ass Joe, and I'm jumping in because we've only got 427 00:21:39,400 --> 00:21:42,160 Speaker 4: about sixty seconds left. I can only imagine how difficult 428 00:21:42,160 --> 00:21:44,119 Speaker 4: it would be to work at some of those stores 429 00:21:44,160 --> 00:21:47,920 Speaker 4: in certain locations, a Target, at CVS, when you're seeing 430 00:21:47,960 --> 00:21:50,680 Speaker 4: people come in clear off the shells and you're told 431 00:21:50,720 --> 00:21:52,600 Speaker 4: that you can't intervene, you can't do anything. You've just 432 00:21:52,600 --> 00:21:54,960 Speaker 4: got to step by step back and watch it. What's 433 00:21:54,960 --> 00:21:57,480 Speaker 4: happening to those locations? Have they just been shut down? 434 00:21:58,960 --> 00:22:02,359 Speaker 6: Unfortunately? Some have in I mean, you saw Walmart shut 435 00:22:02,359 --> 00:22:06,400 Speaker 6: down a couple of stores in Chicago. Others have shut 436 00:22:06,400 --> 00:22:10,440 Speaker 6: down stores in San Francisco and other parts of the country. 437 00:22:10,720 --> 00:22:13,480 Speaker 6: You know, the retailers tell us there's definitely isolated pockets 438 00:22:13,480 --> 00:22:16,560 Speaker 6: and they're limited to certain stores. It's not everywhere, but 439 00:22:16,920 --> 00:22:19,840 Speaker 6: it's a concern, and it's scary for employees, it's scary 440 00:22:19,880 --> 00:22:23,520 Speaker 6: for the shopper while you're there. And it's very frustrating too. 441 00:22:23,560 --> 00:22:26,480 Speaker 6: I mean, we keep hearing stories of employees that occasionally, 442 00:22:26,880 --> 00:22:29,359 Speaker 6: you know, step in and when they're told not to, 443 00:22:29,680 --> 00:22:32,520 Speaker 6: and yet it's just so frustrating to them that they 444 00:22:32,520 --> 00:22:34,480 Speaker 6: step in and try to stop it, and some have 445 00:22:34,560 --> 00:22:37,359 Speaker 6: actually lost their jobs for doing so, because you know, 446 00:22:37,560 --> 00:22:39,359 Speaker 6: it does put them at risk. It puts a company 447 00:22:39,359 --> 00:22:42,160 Speaker 6: of risk, and puts everybody these the shopper at risk 448 00:22:42,200 --> 00:22:45,040 Speaker 6: as well. So it's best to let the people go. 449 00:22:45,560 --> 00:22:47,480 Speaker 6: But very frustrating for sure. 450 00:22:47,840 --> 00:22:50,199 Speaker 4: Some shocking images Joe, thank you, sir, Joe found when 451 00:22:50,200 --> 00:22:52,880 Speaker 4: they of the TAUSI Advisory Group going into warnings next week. 452 00:23:03,760 --> 00:23:07,240 Speaker 1: It's about yes, US, China, China, US, but also the 453 00:23:07,320 --> 00:23:11,879 Speaker 1: complexities of other nations as well. We have an expert 454 00:23:11,960 --> 00:23:15,480 Speaker 1: on this, the banker from Arkansas, the Republican French Hill, 455 00:23:15,600 --> 00:23:19,800 Speaker 1: joins us this morning. French, you and Arkansas live this. 456 00:23:20,000 --> 00:23:24,480 Speaker 1: You are absolutely front and center on agriculture. I'll use 457 00:23:24,520 --> 00:23:28,600 Speaker 1: Tyson's as the iconic chicken maker and also pork and 458 00:23:28,680 --> 00:23:33,840 Speaker 1: the simplicity that's in the political dialogue. Versus the complexities 459 00:23:34,280 --> 00:23:39,000 Speaker 1: of chicken from America to China, chicken from Brazil to China, 460 00:23:39,440 --> 00:23:42,000 Speaker 1: and the stew of it all. Not to use a 461 00:23:42,080 --> 00:23:47,159 Speaker 1: pun here, what is your best policy with China given 462 00:23:47,200 --> 00:23:52,840 Speaker 1: the complex realities of a multinational export import reality. 463 00:23:55,160 --> 00:23:57,640 Speaker 7: Well, Tom Jonathan, great to be with you. Yeah, this 464 00:23:57,720 --> 00:23:59,840 Speaker 7: is a super complex issue. You know, we're not going 465 00:23:59,880 --> 00:24:04,440 Speaker 7: to fronted with a Cold War situation like we had 466 00:24:04,560 --> 00:24:06,960 Speaker 7: in the nineteen fifties to the nineteen nineties with the 467 00:24:07,000 --> 00:24:10,600 Speaker 7: Soviet unions Soviet Union, where we were not an integrated 468 00:24:10,640 --> 00:24:14,320 Speaker 7: economy there. The case is exactly the opposite with China, 469 00:24:14,400 --> 00:24:18,960 Speaker 7: for Japan, for South Korea, for Taiwan, for the United States, 470 00:24:18,960 --> 00:24:21,639 Speaker 7: and for the EU. So, first of all, I think 471 00:24:22,000 --> 00:24:24,240 Speaker 7: your comment has to be thought of in a multilateral 472 00:24:24,280 --> 00:24:28,359 Speaker 7: way because all these developed economies have supply chain and 473 00:24:28,920 --> 00:24:33,040 Speaker 7: market revenue opportunity. In China, this de risking that we're 474 00:24:33,080 --> 00:24:36,439 Speaker 7: seeing led by the private sector, I think is one 475 00:24:36,480 --> 00:24:40,920 Speaker 7: of the most important components of why you see concern 476 00:24:41,040 --> 00:24:43,679 Speaker 7: in China, and I hope that's the case, because in 477 00:24:43,720 --> 00:24:47,800 Speaker 7: my view, economic deterrence to Beijing is one of the 478 00:24:47,880 --> 00:24:50,440 Speaker 7: most important things that we can do on a multilateral 479 00:24:50,880 --> 00:24:54,680 Speaker 7: basis to keep them from being provocative visa the Taiwan 480 00:24:54,800 --> 00:24:57,840 Speaker 7: or the South China Sea. And I think that's a 481 00:24:57,880 --> 00:24:58,520 Speaker 7: key point. 482 00:24:58,880 --> 00:25:00,959 Speaker 1: French. We're thrilled dead you on as you are the 483 00:25:01,000 --> 00:25:03,560 Speaker 1: only Republican that will not be debating here at the 484 00:25:03,720 --> 00:25:05,800 Speaker 1: end of the month. It's good to see at least 485 00:25:05,800 --> 00:25:09,080 Speaker 1: one Republican won't be up on stage. But French, can 486 00:25:09,200 --> 00:25:13,879 Speaker 1: all of Washington, Democrat and Republican the bipartisan China view. 487 00:25:14,359 --> 00:25:19,320 Speaker 1: Can we have an adult, multilateral and complex discussion or 488 00:25:19,400 --> 00:25:22,960 Speaker 1: we just gonna end up with silly simplicities that we 489 00:25:23,080 --> 00:25:23,959 Speaker 1: hear and listen to. 490 00:25:24,040 --> 00:25:28,199 Speaker 7: Now, Yeah, such a good point. And that's why I 491 00:25:28,200 --> 00:25:32,399 Speaker 7: think Mike Gallagher, who chairs the China Select Committee on 492 00:25:32,520 --> 00:25:36,159 Speaker 7: behalf of Speaker McCarthy, has got a good worldview. He 493 00:25:36,240 --> 00:25:39,800 Speaker 7: comes from obviously a military background, but he understands these 494 00:25:40,160 --> 00:25:44,360 Speaker 7: global capital market and trade market complexities that are multilateral 495 00:25:44,359 --> 00:25:47,160 Speaker 7: and not solely with the United States. And that's why 496 00:25:47,160 --> 00:25:49,800 Speaker 7: I was glad to see the G seven countries think 497 00:25:49,840 --> 00:25:54,080 Speaker 7: about a reverse Scithius type approach at the G seven meeting. 498 00:25:54,440 --> 00:25:57,199 Speaker 7: This is the essence of where Joe Biden's going with 499 00:25:57,280 --> 00:26:01,480 Speaker 7: his executive order yesterday. I do agree that I think 500 00:26:01,520 --> 00:26:04,720 Speaker 7: it's more complicated. I think don't think it goes far 501 00:26:04,840 --> 00:26:08,960 Speaker 7: enough because everything in China is a dual use technology 502 00:26:09,359 --> 00:26:12,199 Speaker 7: and that's how they operate. So it makes very hard 503 00:26:12,680 --> 00:26:15,480 Speaker 7: for us to monitor and think about how to limit 504 00:26:15,920 --> 00:26:19,160 Speaker 7: capital flows or technology flows into China. 505 00:26:19,480 --> 00:26:22,200 Speaker 3: That's the China story. There's a very big domestic story 506 00:26:22,200 --> 00:26:24,639 Speaker 3: that was highlighted last week by Fitch that a lot 507 00:26:24,680 --> 00:26:27,560 Speaker 3: of people are discussing, especially in light of the auctions 508 00:26:27,640 --> 00:26:31,440 Speaker 3: which were okay to pour as the week went on. 509 00:26:31,440 --> 00:26:33,520 Speaker 3: One thing that Michael Zesus of Morgan Stanley said in 510 00:26:33,560 --> 00:26:36,480 Speaker 3: a recent note was we're taking seriously the risk of 511 00:26:36,520 --> 00:26:39,000 Speaker 3: a government shutdown this fall. Do you think that a 512 00:26:39,080 --> 00:26:42,639 Speaker 3: government shutdown should be on the table in order to 513 00:26:42,680 --> 00:26:44,000 Speaker 3: reduce the deficit. 514 00:26:45,960 --> 00:26:48,760 Speaker 7: Well, Lisa, here's my view. The House is behind the 515 00:26:48,800 --> 00:26:51,680 Speaker 7: curve here. We need to pass the other eleven bill 516 00:26:51,840 --> 00:26:54,560 Speaker 7: appropriations bills that we did not get to in July. 517 00:26:54,640 --> 00:26:57,320 Speaker 7: We passed one. We need to pass all twelve that 518 00:26:57,359 --> 00:27:01,479 Speaker 7: gives us the maximum negotiation capability on behalf of the 519 00:27:01,520 --> 00:27:04,000 Speaker 7: House of Representatives, with the Senate and with the Biden 520 00:27:04,040 --> 00:27:07,640 Speaker 7: administration to get the kind of spending deal that we 521 00:27:08,160 --> 00:27:11,840 Speaker 7: anticipated from the debt sealing negotiations. We want to hold 522 00:27:12,119 --> 00:27:14,400 Speaker 7: the line on that and the best way we can 523 00:27:14,440 --> 00:27:15,840 Speaker 7: do it is to get our work done on the 524 00:27:15,880 --> 00:27:19,600 Speaker 7: appropriations bill in the short time of remaining. Those conversations 525 00:27:19,640 --> 00:27:23,240 Speaker 7: are going on every day. Secondly, look if we can't 526 00:27:23,280 --> 00:27:26,960 Speaker 7: get all that done before September thirtieth, I think a 527 00:27:27,000 --> 00:27:30,240 Speaker 7: short term continuing resolution in order to get that work 528 00:27:30,280 --> 00:27:33,119 Speaker 7: done is important. We don't need to go into a 529 00:27:33,160 --> 00:27:37,120 Speaker 7: government shut down when we've done the hard work through 530 00:27:37,160 --> 00:27:39,720 Speaker 7: the debt sealing negotiation, and we've done the hard work 531 00:27:39,720 --> 00:27:42,280 Speaker 7: in our committees both in the House and Senate on 532 00:27:42,440 --> 00:27:43,840 Speaker 7: the appropriations process. 533 00:27:43,960 --> 00:27:46,960 Speaker 3: Is there enough unity right now within the Republican congress 534 00:27:46,960 --> 00:27:49,639 Speaker 3: members and senators to really get an agreement that everyone 535 00:27:49,640 --> 00:27:51,520 Speaker 3: can get on board with because it was splintered in 536 00:27:51,560 --> 00:27:53,199 Speaker 3: order to get anything through. Is that one of the 537 00:27:53,200 --> 00:27:54,240 Speaker 3: big obstacles for you? 538 00:27:56,080 --> 00:27:57,719 Speaker 7: Yeah, I think it is, Lisa. I think we are 539 00:27:57,760 --> 00:28:00,680 Speaker 7: talking with our members every day, as we've done all year, 540 00:28:00,720 --> 00:28:04,640 Speaker 7: as we've accomplished. I think a broad set of solid 541 00:28:04,680 --> 00:28:07,680 Speaker 7: policy accomplishments this year that some of which have even 542 00:28:07,720 --> 00:28:10,639 Speaker 7: gone to President Biden's desk. We have to do that 543 00:28:10,760 --> 00:28:13,720 Speaker 7: on each of these appropriations bills, you've got concerned about 544 00:28:13,720 --> 00:28:17,399 Speaker 7: each one from different members of the Republican Conference. And 545 00:28:17,440 --> 00:28:20,080 Speaker 7: I think that's good. I think it's constructive. We can 546 00:28:20,119 --> 00:28:22,879 Speaker 7: handle some of that with amendments on the floor. But 547 00:28:22,920 --> 00:28:25,680 Speaker 7: we do need to get these bills move forward because look, 548 00:28:26,119 --> 00:28:29,840 Speaker 7: that maximizes our negotiating clout. And I would say to 549 00:28:29,880 --> 00:28:33,400 Speaker 7: my Republican colleagues, if you go to a continuing resolution 550 00:28:33,640 --> 00:28:36,520 Speaker 7: and don't do your work, what you're doing is essentially 551 00:28:36,640 --> 00:28:41,160 Speaker 7: institutionalizing Nancy Pelosi and Joe Biden's spending levels of last 552 00:28:41,240 --> 00:28:44,760 Speaker 7: year and their policy positions, which is not something that 553 00:28:44,840 --> 00:28:46,840 Speaker 7: House Republicans are in support of. 554 00:28:47,160 --> 00:28:49,000 Speaker 1: You know, French, we got to cut to the chase 555 00:28:49,040 --> 00:28:51,040 Speaker 1: on what matters here. You and I have talked about 556 00:28:51,040 --> 00:28:54,440 Speaker 1: this before. But if you look at razorback football and 557 00:28:54,600 --> 00:28:57,600 Speaker 1: you look at the schedule, A Western Carolina Kent State 558 00:28:57,680 --> 00:29:01,840 Speaker 1: BYU LSU finally a real game LSU and Texas A 559 00:29:01,960 --> 00:29:05,000 Speaker 1: and M later on, what in God's name is happening 560 00:29:05,040 --> 00:29:07,240 Speaker 1: to college football? And what are you going to do 561 00:29:07,280 --> 00:29:09,920 Speaker 1: in Congress to tell these people to get their act together. 562 00:29:11,600 --> 00:29:13,320 Speaker 7: Well, let me tell you, Tom, this is all about 563 00:29:13,320 --> 00:29:16,640 Speaker 7: the money, and those schools love coming to they love 564 00:29:16,680 --> 00:29:18,760 Speaker 7: coming to Arkansas. They're going to make a lot of money. 565 00:29:18,840 --> 00:29:20,920 Speaker 7: And I guess the Razorback is going to hopefully have 566 00:29:21,000 --> 00:29:24,360 Speaker 7: three victories in a row. But college sports is now 567 00:29:24,760 --> 00:29:27,880 Speaker 7: absolutely all about the money. And that's why Jonathan needs 568 00:29:27,920 --> 00:29:30,320 Speaker 7: to come out here and watch some good SEC football 569 00:29:30,560 --> 00:29:34,240 Speaker 7: and stop talking about quote European football close quote. 570 00:29:34,040 --> 00:29:37,360 Speaker 4: French tells you, Frenchman gonna make it happen. It's a 571 00:29:37,400 --> 00:29:39,040 Speaker 4: treat of mine. I want to make it happen. I 572 00:29:39,040 --> 00:29:40,840 Speaker 4: want to go and watch college football in the South. 573 00:29:40,960 --> 00:29:42,360 Speaker 4: I think want to come watch shit. 574 00:29:42,640 --> 00:29:45,600 Speaker 1: To someone like Congress school Hill tell us it's all 575 00:29:45,640 --> 00:29:48,440 Speaker 1: about the money. I mean, that's the most shocking thing 576 00:29:48,520 --> 00:29:50,520 Speaker 1: I've heard I've heard this year. 577 00:29:50,680 --> 00:29:54,160 Speaker 4: This year, French is going to happen. Congressman, Thank you, Congressman. 578 00:29:54,200 --> 00:29:55,320 Speaker 4: French Show at Bakers. 579 00:29:56,040 --> 00:30:00,040 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 580 00:30:00,080 --> 00:30:04,200 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 581 00:30:04,480 --> 00:30:08,000 Speaker 1: starting at seven am Easter. I'm Bloomberg dot Com, the 582 00:30:08,120 --> 00:30:12,640 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 583 00:30:12,680 --> 00:30:16,719 Speaker 1: can watch us live on Bloomberg Television and always I'm 584 00:30:16,760 --> 00:30:20,720 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and 585 00:30:20,880 --> 00:30:22,400 Speaker 1: this is Bloomberg