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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowits. Join us each day

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Speaker 1: for insight from the best in economics, geopolitics, financing, investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business Apps. Batterish Appa

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Speaker 1: of silk Gen expecting another twenty five basis point hike

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Speaker 1: at the fed's main meeting before holding rates study for

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Speaker 1: the rest of the year. This is what's the batteris

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Speaker 1: got to say at the moment, Tom, with the team

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Speaker 1: at sulk Gen, with sticky inflation, a strong labor market

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Speaker 1: and a Brasilian consumer WI, do you not expect the

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Speaker 1: FED to pivot quickly brace for more volatility and rates

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Speaker 1: and the curve. This is the tension at the moment again,

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Speaker 1: We're playing this game again, the separation between fattest guiding

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Speaker 1: us towards in their projections and what this market is

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Speaker 1: price for and this market is price for a lot

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Speaker 1: of counts. And what's important here is a sack and

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Speaker 1: heritage of derivatives where they slice and dice all of

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Speaker 1: the different dynamics. So Broder, what is the dynamic of

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Speaker 1: service sector inflation that you see right now? That's a

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Speaker 1: very good question, Tom, because the tug of war is

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Speaker 1: really between the services side inflation higher rents, at least

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Speaker 1: in the first half, which is going to really dictate

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Speaker 1: what the thinking is on CPI. And we really this

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Speaker 1: week's report in CPI is going to be very interesting

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Speaker 1: because we might start seeing Mason signs of a cooling

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Speaker 1: and the housing market, which is what we're looking to see.

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Speaker 1: But that's really more of a second half story than

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Speaker 1: a first half story. But you know, the services sector,

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Speaker 1: broadly speaking, is a chordinary strong. People have jobs. You've

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Speaker 1: got a very very strong jobs report. So as long

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Speaker 1: as people are employed, you're going to see more spending

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Speaker 1: and more services side inflation. So Broder, in your research

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Speaker 1: note of a while back, you go all birds on us.

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Speaker 1: You've got the Roger mcgwinn David Crosby channeling here, and

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Speaker 1: you say, turn, turn turn. Is that what we're doing

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Speaker 1: right now? We're going all birds in two every season

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Speaker 1: or turn turn turn. Yeah, I mean the big question

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Speaker 1: coming into this year. For us was when is that

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Speaker 1: turn going to be. Was it October of last year

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Speaker 1: when telling yeals peaked at for a quarter percent, or

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Speaker 1: are we going to see another high in yeals before

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Speaker 1: we start seeing a steady decline. Our view has been that,

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Speaker 1: you know, yields peaked in the fourth quarter of last year,

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Speaker 1: and then yields should gradually decline during the course of

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Speaker 1: the year. But again, accurately pinpointing where that turn is

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Speaker 1: on inflation is going to be extraordinarily difficult in an

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Speaker 1: environment like this, because you're looking at a variety of factors,

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Speaker 1: you know, sort of the push and pull between sometimes

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Speaker 1: higher energy prices leading to higher headline inflation. Sometimes it's

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Speaker 1: it's certain sectors on the on the services side of

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Speaker 1: the economy that are that are pushing higher. Rents are

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Speaker 1: going to remain high for the first half of the year.

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Speaker 1: Second half the year, we should see some easing in

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Speaker 1: rents and shelter costs, but really call it causing that

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Speaker 1: in Calling that turn is going to be very, very difficult.

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Speaker 1: But it looks to us like you'll seem to have peaked.

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Speaker 1: It feels like we have one more hike in the

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Speaker 1: cards for the for the main meeting, and the Fed

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Speaker 1: keeps policy stable for the remainder of the year. Why

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Speaker 1: because of the fact that the employment picture is still

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Speaker 1: pretty strong. The labor market as well as the consumer

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Speaker 1: are still pretty resilient. So nearly the flow through has

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Speaker 1: to come perhaps from tachning credit conditions, which is what

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Speaker 1: you're starting to see in the banking sector a little bit.

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Speaker 1: How important was that data on Friday that alluded to

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Speaker 1: some of that subantra, Yeah, I know, it was very

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Speaker 1: important in my In my view, we've been tracking uh,

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Speaker 1: you know, both the FEDS h DOT four data as

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Speaker 1: well as the h DOT eight data to see what

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Speaker 1: the takeoff has been in some other facilities, as well

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Speaker 1: as what the deposit runoffs have been from from smaller banks. Um,

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Speaker 1: you know, I think it last few a couple of

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Speaker 1: weeks back, we had you know, Dallas FED President x

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Speaker 1: Dallas FED President Kaplan talk about the credit conditions broadly

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Speaker 1: tightening for small and medium sized banks almost ceasing. I mean,

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Speaker 1: when you see this sort of tremendous amount of deposit

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Speaker 1: outclass coming from the smaller banks, guess what the smaller

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Speaker 1: and medium mid sized banks are going to really tighten

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Speaker 1: credit conditions, and that's really where you're seeing a credit crunch.

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Speaker 1: It's not in the top ten banks, it's in the

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Speaker 1: small to medium size banks, mid sized banks where you're

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Speaker 1: seeing that sort of tightening of credit conditions are a

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Speaker 1: credit crunch, as we would call it. So batter I've

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Speaker 1: asked this question a few times mixed responses so far

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Speaker 1: on Friday. What do you consider to be the more

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Speaker 1: important data point, the data that you alluded to just

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Speaker 1: moments ago talked about or the payroll support that came

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Speaker 1: earlier in the morning. I think both. I mean, that's

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Speaker 1: what makes this whole fair equation very confusing, because they're

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Speaker 1: trying awaigh financial stability concerns over inflation and employment, you know,

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Speaker 1: being quite strong and inflation continue to rise, and that's

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Speaker 1: the balancing app that the FED has to, you know,

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Speaker 1: play meeting after meeting. I think that they're going to

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Speaker 1: really focus on getting rates to a certain level, which

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Speaker 1: we think is around five to five and a quarter

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Speaker 1: percent and FED funds and then keep policy stable while

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Speaker 1: they assess an actual stability concerns across this arc. Will

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Speaker 1: foreigners continue to bid for bills, notes and bonds? Absolutely,

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Speaker 1: I mean, look at what's happening. You're all the cash

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Speaker 1: that's going out of the smaller region exactly into the

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Speaker 1: into the larger banks, is going all into into money

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Speaker 1: market funds. Why, because cash is keen. That's really where

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Speaker 1: you want to keep your money if you don't know

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Speaker 1: how things are going to pan out in a high

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Speaker 1: volatility environment. And this is typical of end of cycle

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Speaker 1: dynamics that you see in almost every FED cycle, is

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Speaker 1: that the market has to be very volatile, you know,

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Speaker 1: because we don't really know how things are going to

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Speaker 1: pan out. And in that sort of environment, it probably

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Speaker 1: makes sense to put your money in cash. And this time,

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Speaker 1: relative to past cycles, you're actually getting a pretty decent

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Speaker 1: return in putting your money to money market funds. So

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Speaker 1: you're seeing this rush to rush you put money to

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Speaker 1: money market funds. You're seeing demand from foreign investors for

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Speaker 1: short term investments. On a duration adjusted basis, your returns

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Speaker 1: are pretty good. By being in the very very front

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Speaker 1: end of the treasy curve. I look at the treasury

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Speaker 1: curve and I'm sorry, give me the mystery here of

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Speaker 1: curve disinversion. Janet's the one thing not in the literature

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Speaker 1: right now. And a messages of station recently. Tell yeah,

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Speaker 1: is a vision of where where's the curve and version

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Speaker 1: going to be in six months or a year? I'm

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Speaker 1: not hearing about this. So we've actually looked at past

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Speaker 1: cycles and what we notice is that typically when the

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Speaker 1: curve of inverts or where peak conversion is, and then

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Speaker 1: about after peak conversion of a year, about six months

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Speaker 1: after that is when defense policy starts to pivot. So

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Speaker 1: I think we've probably seen peak conversion. We've seen a

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Speaker 1: pretty dramatic rise in the two stents part of the

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Speaker 1: eel curve and the deepening of peel curve. That tends

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Speaker 1: to be sort of a leading indicator in my view

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Speaker 1: of the risk of a recession or a meaningful surround

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Speaker 1: and the economy. So again, you know, a peak conversion

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Speaker 1: looks like it's behind us. If policy is U is

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Speaker 1: on a pivot, this is kind of you're getting. You're

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Speaker 1: starting to see nascent signs, if you will, of a

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Speaker 1: switch in the policy from hiking to perhaps more easing

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Speaker 1: posture or easing bias, if you will, so, Patra, wonderful,

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Speaker 1: O Kate if you on this pad market as always,

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Speaker 1: thanks for beaming with a spatra men Jampa there of

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Speaker 1: suck gen with us this morning around the type one

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Speaker 1: place to site, pay to chip at a macro strategy

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Speaker 1: at Academy Security, it's moaning Pat Morning, John, which might

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Speaker 1: cannot pay ROSA put on Friday, leaves the door opened

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Speaker 1: green life for the FED to come again. My fit. Yeah,

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Speaker 1: I think there were some mixed parts of the data,

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Speaker 1: but if the Fed wants to go, they've got the

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Speaker 1: excuse to go. Twenty five BIPs. We've got a lot

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Speaker 1: more data coming out. I think they should have stopped.

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Speaker 1: I think they should have passed last time and just said, hey,

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Speaker 1: let's see what goes on with the banking, because I

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Speaker 1: think that's a bigger concern. But they seem intent on

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Speaker 1: driving rates higher, so they'll use that LORI kieviously, you

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Speaker 1: know looks the neutral urine. Timor says, you know, there's

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Speaker 1: a set of fears out there which leads to just nowhere.

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Speaker 1: I love what you say. You call it the comfort zone.

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Speaker 1: Define the comfort zone right now now. I think we're

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Speaker 1: all waiting to see how the economic data plays out.

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Speaker 1: It's generally been weak, it's been turning back down after

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Speaker 1: a really strong string, and finally we gets to the earnings.

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Speaker 1: I think the earnings are what's going to actually drive it.

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Speaker 1: The biggest thing I'm looking for in this kind of

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Speaker 1: comfort zone is to see how company how the market

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Speaker 1: responds to, say, weak earnings. Do we get a huge

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Speaker 1: bounce on weak earnings, I'll tell me that I'm being

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Speaker 1: too barished. If we actually don't respond well to earnings,

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Speaker 1: then I think that we had lower Is it ten stocks,

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Speaker 1: seven stocks, twenty stocks, or can it broaden out given

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Speaker 1: a more optimistic tone, I think the market's still going

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Speaker 1: to take its cues from those ten to twenty stocks

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Speaker 1: that we've been looking to for a while. I think

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Speaker 1: you can hide out and do very well. And some

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Speaker 1: of these stocks that have underperformed I'm certainly looking at,

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Speaker 1: like the Russell two thousand verses the Nasdaq one hundred.

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Speaker 1: The underperformance has been stark, and it's been unusual because

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Speaker 1: high yield's done well, and usually if the Russell two

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Speaker 1: thousand's doing well, high yields struggling for it tends to

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Speaker 1: be a correlation. So maybe that's what we get. Does

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Speaker 1: he no, Bramo's not here. He does he's a wind

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Speaker 1: Oh that's why he's doing it, just to fill in

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Speaker 1: give credit to mad Time. Pete. Talk to me about

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Speaker 1: bank lending data, the bank lending data that we got

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Speaker 1: on Friday. How important is that going to be for

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Speaker 1: this market going forward? So some people will take the

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Speaker 1: fact that the banks are boring less from the emergency

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Speaker 1: facilities is a good sign. I would agree with that,

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Speaker 1: except we saw a big in bank lending as a whole.

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Speaker 1: So I think banks are pulling back on the lending,

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Speaker 1: which is why they don't need to borrow as much.

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Speaker 1: That's negative. And we also saw the tenth straight week

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Speaker 1: of deposit outflows of the reason I believe sixty five

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Speaker 1: sixty seven billion of deposit outflows. And my concern is

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Speaker 1: that we've shifted from a credit risk concern to just like, wow,

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Speaker 1: my bank's only paying point two percent or point four percent.

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Speaker 1: I can get three three and a half four percent

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Speaker 1: relatively easy. So I think you see that drain on

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Speaker 1: the banking system continue. That's going to affect lending. So

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Speaker 1: this is just a slow burn, I think, and it's

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Speaker 1: going to be a big headwin for the economy. Why

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Speaker 1: do you believe that's a signal of what's to come

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Speaker 1: and not just the reflection of what's happened over the

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Speaker 1: last month. You know, I think part of it is

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Speaker 1: I tend to view these things as cycles. Right, So

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Speaker 1: we get this negative data, everyone's worried about banks, everyone's

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Speaker 1: worried about the faults. So you go into panic mode.

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Speaker 1: Then you take it back. Now you get that time. Okay,

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Speaker 1: maybe we have too much money sitting in bank deposits.

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Speaker 1: What do we do with it? And that's a multi week,

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Speaker 1: maybe a multi month process for a lot of corporations

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Speaker 1: to go through. Right, We've got to figure out can

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Speaker 1: we do it? How do we manage this? So I

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Speaker 1: think that's a slower process, But that's the phase that

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Speaker 1: we've moved into, and a lot of that's just coming

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Speaker 1: from discussions with customers. I've got to ask you, because

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Speaker 1: more than anyone on Global Wall Street, you have you

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Speaker 1: have Academy securities, you have a military vision, a set

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Speaker 1: of board of people completely tied into geopolitics, which is

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Speaker 1: what we're hearing about each and every day. James Travitas

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Speaker 1: wrote two thirty four, Are we there now? Is what

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Speaker 1: he wrote about that would be out there somewhere. Does

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Speaker 1: your board think it's now? And how does that play

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Speaker 1: into the investment guests? So, yeah, We've got the nineteen

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Speaker 1: retired generals and admirals who serves this Geopolitical intelligence group.

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Speaker 1: We see the world probably as the most dangerous it's

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Speaker 1: been in a long time. And whether it's Russia, Ukraine,

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Speaker 1: whether we're now seeing tensions pick up in the Middle

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Speaker 1: East with Iran. We do not like the fact that

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Speaker 1: China seems to be getting the Saudiast to embrace China

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Speaker 1: a little bit more, playing us away. So everywhere we look,

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Speaker 1: I think there's this danger. It's growing, and I'm getting

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Speaker 1: a little bit nervous that a lot of investors pay

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Speaker 1: lip service to geopolitical risk but then kind of push

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Speaker 1: it off. Oh this is too far down the future.

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Speaker 1: Oh this is five years away, ten years away. Oh

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Speaker 1: I'm an American company, How does this impact me? While

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Speaker 1: it's going to impact rates, it's going to impact everything.

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Speaker 1: So I think we're being a little bit too complacent

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Speaker 1: on the geopolitical front. Gold over two thousand and yet

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Speaker 1: Peter Shears saying, look at the Russell two thousand. Which

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Speaker 1: two thousand do I want own gold or the speculation

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Speaker 1: of the Russell two thousand. You know, for now, I

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Speaker 1: think probably neither. I can watch gold. I try not

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Speaker 1: to get too involved in gold. It's almost a religion

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Speaker 1: to me. So I just did ever feel like I've

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Speaker 1: got a good handle on gold. On the Russell two thousand,

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Speaker 1: I'm watching. I want to see how Arnie's got my

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Speaker 1: little bit barish on stocks. But if I get positive,

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Speaker 1: that's where I jump into Pete. You mentioned that maybe

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Speaker 1: people were underestimating, under appreciating what was developing on the

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Speaker 1: geopolitical front. Well, let me ask you the question what

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Speaker 1: should people be doing? And I think that's what they

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Speaker 1: struggle with. They see the news of it a weekend,

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Speaker 1: ministry drills, military exercises from China around the island of Taiwan.

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Speaker 1: People to sit here and say, sin it before it's important,

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Speaker 1: I'll keep it on it. What are they meant to do?

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Speaker 1: You know? I think you're supposed to be lightning up

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Speaker 1: on some of the tech companies there will be most

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Speaker 1: effective of anything happens there. We don't see anything imminent

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Speaker 1: happening there yet, there's this further element of fear. I

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Speaker 1: think you're supposed to be looking though to South America

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Speaker 1: Mexico countries that we are ultimately going to have to

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Speaker 1: shift production too. I think you're telling me to sell

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Speaker 1: Apple and go long Bolivia. I don't talk about any

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Speaker 1: individual stocks, but I'm certainly lightning up on QQQ, for example.

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Speaker 1: Are you lightning up Okay, let me put you can't

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Speaker 1: talk about single names, so let me freight it. In

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Speaker 1: another way, are you lightning up on companies that have

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Speaker 1: direct to exposure to China, to the mainland tech firms?

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Speaker 1: In that sense, you're lightning up on chipmakers that get

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Speaker 1: caught up in the cross test A little bit of

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Speaker 1: people thinking about it. I think that's a little part

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Speaker 1: of it. It's also more driven right now by the

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Speaker 1: fact that I think people are expecting this lower rates

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Speaker 1: and a fad to juice up all these stocks, just

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Speaker 1: like it did in two and twenty. I don't think

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Speaker 1: that's going to play out the same way. So I'm

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Speaker 1: thinking we're going to get some earnings, We're gonna get

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Speaker 1: some fear coming out of those companies. So on the

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Speaker 1: long side, then when you say get long some of

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Speaker 1: these Latin American stories the near shore or in so

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Speaker 1: to speak, is that an FX trite set a bonds trite?

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Speaker 1: Is that an equity trite? What is that? I think

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Speaker 1: you can do it a little bit of each. I

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Speaker 1: think you're going to have closer relationships, and I don't

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Speaker 1: think it's an urgent trade. You don't have to put

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Speaker 1: all your money in there, but you want to be

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Speaker 1: kind of trading those from the longside and building and

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Speaker 1: cumulating a larger position. Mexico's has got its own set

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Speaker 1: of dangers. It's you know, basically at some point we're

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Speaker 1: going to have civil war. Is probably too strong, but

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Speaker 1: either the cartel is going to have to get pushed

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Speaker 1: back on to have the real development, or that's also

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Speaker 1: going to be a problem. So there's no easy answer.

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Speaker 1: But there with these geopolitical tensions, whether it's across this

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Speaker 1: board of that board of the other or distant and removed,

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Speaker 1: doesn't Global Wall Street find comfort in American equities institutional basis?

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Speaker 1: What's the Norwegian Sovereign Wealth Fund going to do? At

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Speaker 1: the margin? So I think they are going to do that,

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Speaker 1: but I think they're going to have had more and

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Speaker 1: more into fix income, more and more into safe stocks,

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Speaker 1: not necessarily the gross stocks. I still believe that there's

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Speaker 1: this somehow hope that we are going to renormalize with China.

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Speaker 1: Right every Chinese headline that talks about some sort of normalization,

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Speaker 1: reopening China bit gets really treated highly well. Everyone likes that.

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Speaker 1: And yet we've had a steady trend away from China

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Speaker 1: and to me with Taiwan. The one thing that's really

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Speaker 1: accelerating is people reconsidering how they think about Southeast Asia

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Speaker 1: as a whole. Right, this isn't back if we look

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Speaker 1: two years ago, if you weren'ting to produce in China,

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Speaker 1: you are likely to produce in Cambodia, at Thailand, Vietnam.

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Speaker 1: Some are there. Companies who have the time are thinking

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Speaker 1: of moving away from that area because it is clear

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Speaker 1: that China has that ability ability to flex their might.

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Speaker 1: They've developed what we call this bluewater navy. So a

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Speaker 1: brown water navy is what China used to have, which

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Speaker 1: is really a coastal navy. They are able to project

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Speaker 1: their power much further into this blue water navy. They've

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Speaker 1: set up the South Sea Islands, They've worked with the

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Speaker 1: Solomon Islands to get planned. So I think you've got

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Speaker 1: to be a little bit aware of their ability to

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Speaker 1: blockade the region. To do things like that. Why bother

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Speaker 1: in this day and age when there are alternatives? This

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Speaker 1: was great just fascinating gun into an ex sason thinking

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Speaker 1: about some of these political issues as well. Put to

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Speaker 1: share that of academy securities. And right now we get

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Speaker 1: lucky as previously booked with us. But let me tell you,

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Speaker 1: I'd be dialing one eight hundred missooo right now. Stephen

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Speaker 1: Rashido joins chief economists at missoo O. Stephen, just perfect

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Speaker 1: time to have you on. I guess we can outdo

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Speaker 1: guestimates of two two point two two point six three

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Speaker 1: percent GDP, but I'm going to call that out of

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Speaker 1: the textbooks a global recession? Are we heading for global recession?

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Speaker 1: Even with buoyant China and India growth. I think what

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Speaker 1: we're going to discover is that the industrialized economies are

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Speaker 1: suffering to a great degree. And I don't think the

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Speaker 1: rebounding China is going to be enough, because even though

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Speaker 1: there is an opening up of China and there will

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Speaker 1: be some rebounded underlying economic activity, a greater grip that

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Speaker 1: the Communist Party has over the economy I think will

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Speaker 1: limit its ability to really surprise to the upside, and

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Speaker 1: that will wind up being a continuous headwind for the

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Speaker 1: global economic environment. With that backdrop is the central banker

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Speaker 1: to the world more restrictive than he thinks he is.

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Speaker 1: Into the Many third press conference, does your own Powell

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Speaker 1: face a forward restriction that's not priced into markets. Well,

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Speaker 1: that's a good question. I think what you're really getting

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Speaker 1: at in here is what is the right path for

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Speaker 1: monetary policy at this juncture. The market seems to continue

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Speaker 1: to believe that they're going to raise rates one more

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Speaker 1: time and that'll break something, and we'll wind up break

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Speaker 1: something even bigger than we've already broken, and that'll create

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Speaker 1: an environment whether it be forced to cut interest rates

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Speaker 1: later this year. I think the prudent path for monetary policy,

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Speaker 1: and I think the debate that comes out of this

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Speaker 1: week's fmc mans will lay the groundwork for the fact

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Speaker 1: that it's more likely to be a pause with holding

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Speaker 1: open the door or the wind night for additional rate

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Speaker 1: hikes down the road. Oh, this is right where we

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Speaker 1: have to go, because this came up. I'm going to

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Speaker 1: say five six days ago. What mister Rashido is talking

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Speaker 1: about their folks, is are we asymmetric in our view?

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Speaker 1: Given an action, a tangible action by a central bank.

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Speaker 1: So Stephen, they come out and they say pause, And

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Speaker 1: I would say. The reigning school of thought is echoed

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Speaker 1: by Matt Lozetti over Deutsche Bank, is if you pause,

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Speaker 1: your next step asymmetrically has to be a cut. You

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Speaker 1: don't agree with that. I don't agree with that at all. No,

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Speaker 1: I think you have to let the dust set on.

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Speaker 1: I think the details that you got out of the

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Speaker 1: labor market report last Friday, and I think the way

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Speaker 1: the inflation numbers this week and even the retail sales

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Speaker 1: numbers at the end of the week are going to unfold,

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Speaker 1: they're going to tell you that there's a lot more

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Speaker 1: resilience in this economy than you thought. I still think

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Speaker 1: you're going to go into a second half recession. But

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Speaker 1: not all recessions are created equal. Some recessions are very

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Speaker 1: very shallow recessions. Some recessions are very very deep recessions.

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Speaker 1: And I think most people in this market right now

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Speaker 1: only remember deep recessions. They don't really remember shallow recessions.

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Speaker 1: If you go back to even the twenty twenty recession,

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Speaker 1: it was a very very shallow recession, and there was

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Speaker 1: a bit more of a systemic credit crunch in that

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Speaker 1: than there is in this environment. There's a lot of

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Speaker 1: videosyncratic risk. But there's the key difference. John Taylor at

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Speaker 1: Stanford has lectured me on stabilizers. So we go under

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Speaker 1: recession or we get a stabilizer, and one of them

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Speaker 1: is fiscal oomph. Do we have the fiscal space to

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Speaker 1: commit fiscal umph if we get a slowdown? Well, the

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Speaker 1: question is where are we going in the recession. I mean,

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Speaker 1: you know, we're starting from a three point five percent

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Speaker 1: jobless rate. If we get back to four and a

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Speaker 1: half percent, you know that's basically a balanced labor market environment.

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Speaker 1: How much extra fiscal oomp do we really need in

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Speaker 1: that environment? If we're talking about getting to five and

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Speaker 1: a half six percent, then we're going to need something.

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Speaker 1: But I don't see that coming through. The labor market

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Speaker 1: is tight enough, and we saw that from the details

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Speaker 1: of the jokes numbers. All the people that answered the

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Speaker 1: labor for us, the bulk of them got jobs, which

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Speaker 1: is why the unemployment rate drifted low. We're not upwards

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Speaker 1: as expected. Okay, well, let's frame this right now, folks.

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Speaker 1: And this comes back to what I mentioned at the

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Speaker 1: top of the show. The fact is, with revisions and

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Speaker 1: they'll change again, we've generated a million jobs in ninety days,

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Speaker 1: you know, Steve and I, that's like price, that's like

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Speaker 1: economy to perfection. And yet we're talking about negative non

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Speaker 1: farm payrolls out there somewhere. We're talking about wages out

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Speaker 1: there somewhere. Maybe you get some inflation. And I'm like,

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Speaker 1: right now, sort of kind of like no, maybe, But

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Speaker 1: the answer is, what's the rare shooto timeline here to

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Speaker 1: the kind of labored data that forces a central bank

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Speaker 1: to adjust? To me, that's completely ambiguous. Right now it is,

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Speaker 1: and I think it's later rather than sooner. I think

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Speaker 1: that's the real neck conclusion. If you want to get

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Speaker 1: the best real time sense of what's happening in the

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Speaker 1: labor market, just continue to follow the weekly unemployment claims.

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Speaker 1: And I know a lot of people trying to make

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Speaker 1: a lot of hay out of the revisions the claims

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Speaker 1: numbers last week and everything. The reality you've got to

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Speaker 1: get into that three hundred and fifty ish type range.

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Speaker 1: Your kid, they start seeing a deterioration and claims and

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Speaker 1: we're nowhere near that. This is really important, folks. I mean,

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Speaker 1: I haven't brought this up. I'm doing it right now, folks.

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Speaker 1: We can do this on the Bloomberg terminal. I bring

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Speaker 1: up the four wall. I think a type correctly that

428
00:21:15,920 --> 00:21:21,119
Speaker 1: would help I N J J C four. There it

429
00:21:21,240 --> 00:21:24,440
Speaker 1: is the four week moving average of the Rashodo claims

430
00:21:25,119 --> 00:21:27,960
Speaker 1: statistic two hundred and thirty seven. Right now, I didn't

431
00:21:28,000 --> 00:21:31,080
Speaker 1: realize it was that high, Stephen, When was the last

432
00:21:31,119 --> 00:21:34,320
Speaker 1: time we were at three something? And the answers a

433
00:21:34,400 --> 00:21:37,919
Speaker 1: long time ago? Yeah, I mean, clearly we exceeded that

434
00:21:38,000 --> 00:21:40,960
Speaker 1: during the COVID recession. But then when you go beyond that,

435
00:21:41,240 --> 00:21:42,960
Speaker 1: back to the previous one, we remember we had one

436
00:21:43,040 --> 00:21:46,440
Speaker 1: hundred and twenty eight month long expansion that led into

437
00:21:46,440 --> 00:21:48,520
Speaker 1: the COVID environment. So if you'd get into those kind

438
00:21:48,520 --> 00:21:51,680
Speaker 1: of claims now was outside of the COVID recession, you're

439
00:21:51,760 --> 00:21:55,520
Speaker 1: going back, you know, twelve fourteen years. Okay, Well, how

440
00:21:55,520 --> 00:21:57,600
Speaker 1: do we get back to a twelve or fourteen year

441
00:21:57,680 --> 00:22:01,400
Speaker 1: labor economy? My textbooks say you don't do that unless

442
00:22:01,920 --> 00:22:07,480
Speaker 1: you have a huge seventy four, seventy three, seventy four recession. Well, again,

443
00:22:07,520 --> 00:22:09,679
Speaker 1: getting back to three hundred and fifteen claims would just

444
00:22:09,800 --> 00:22:12,480
Speaker 1: be getting you to the three and the four and

445
00:22:12,520 --> 00:22:15,920
Speaker 1: a half type unemployment statistic. To get to the five

446
00:22:15,960 --> 00:22:18,320
Speaker 1: and a half percent number. Yeah, you're gonna need something

447
00:22:18,359 --> 00:22:21,040
Speaker 1: more than mister Malpass was talking about in terms of

448
00:22:21,080 --> 00:22:23,280
Speaker 1: the growth numbers for this year and next year or

449
00:22:23,280 --> 00:22:26,080
Speaker 1: even for what the fellow Reserve is talking about. And

450
00:22:26,119 --> 00:22:28,600
Speaker 1: I think the market is discounting that, and I think

451
00:22:28,680 --> 00:22:31,960
Speaker 1: the reality is what we're seeing is that's not coming

452
00:22:31,960 --> 00:22:34,360
Speaker 1: to fruition. Even the retail sales numbers that are coming

453
00:22:34,359 --> 00:22:37,399
Speaker 1: out this Friday. People have a very very weak headline number.

454
00:22:37,640 --> 00:22:41,080
Speaker 1: Unit automobile sales held in very very nicely in the

455
00:22:41,160 --> 00:22:44,200
Speaker 1: latest month, and pricing is holding up. So it's hard

456
00:22:44,240 --> 00:22:45,960
Speaker 1: to see that we're going to get the zero point

457
00:22:45,960 --> 00:22:49,000
Speaker 1: five percent decline that people are looking for in retail sales.

458
00:22:49,000 --> 00:22:50,760
Speaker 1: So I just looked it up in the Bloomberg while

459
00:22:50,840 --> 00:22:54,400
Speaker 1: mister Roshudo was informing US folks three hundred thousand pre

460
00:22:54,520 --> 00:23:00,080
Speaker 1: pandemic September of two fourteen. That's how far away you

461
00:23:00,119 --> 00:23:03,560
Speaker 1: are from the reshooter caution well within that, and I

462
00:23:03,680 --> 00:23:06,480
Speaker 1: noticed use cars being resilient as well. Steven, what's the

463
00:23:06,560 --> 00:23:09,560
Speaker 1: microdata you need to inform our audience of right now?

464
00:23:09,880 --> 00:23:14,800
Speaker 1: The acclaim bizoo microdata away from use cars? Well, I mean,

465
00:23:14,840 --> 00:23:17,399
Speaker 1: I think what we're looking at in here is just

466
00:23:17,640 --> 00:23:22,879
Speaker 1: general labor market tightness creating income and that income is

467
00:23:23,000 --> 00:23:26,480
Speaker 1: real really the driving factor, and I think the fact

468
00:23:26,480 --> 00:23:29,280
Speaker 1: they use car prices are holding up so well is

469
00:23:29,320 --> 00:23:32,200
Speaker 1: one of the important indicators that showing you the households

470
00:23:32,520 --> 00:23:36,240
Speaker 1: still have that income to drive the economy. And that's

471
00:23:36,280 --> 00:23:38,800
Speaker 1: one of the reasons why I think the market's much

472
00:23:38,840 --> 00:23:42,280
Speaker 1: too presumptuous in terms of the degree of economic slack.

473
00:23:42,600 --> 00:23:45,200
Speaker 1: They're discounting it to forward structures of race and others

474
00:23:45,200 --> 00:23:48,920
Speaker 1: including Neil dudda renaissance Stephen would say, if you get

475
00:23:48,920 --> 00:23:52,320
Speaker 1: some rising income and even if you get a type

476
00:23:52,320 --> 00:23:58,040
Speaker 1: of disinflation all of a sudden, real incomes inflation adjusted incomes,

477
00:23:58,680 --> 00:24:03,200
Speaker 1: they're not gloomy. They may maintains some form of constructive tone.

478
00:24:03,320 --> 00:24:06,639
Speaker 1: Is that the missooo model without a doubt, and the

479
00:24:06,800 --> 00:24:08,840
Speaker 1: I think, going even beyond that, when you look at

480
00:24:08,840 --> 00:24:11,520
Speaker 1: the balance sheet of the household sector and you look

481
00:24:11,520 --> 00:24:15,560
Speaker 1: at how much income was generated and provided to households

482
00:24:15,640 --> 00:24:19,080
Speaker 1: during the COVID environment, we still are the belief that

483
00:24:19,160 --> 00:24:23,719
Speaker 1: their substantial amount of firepower left in the consumer and

484
00:24:23,800 --> 00:24:28,040
Speaker 1: that that additional firepower will keep the economy more resilient

485
00:24:28,359 --> 00:24:31,160
Speaker 1: and that's than argues for the Federal Reserve to keep

486
00:24:31,240 --> 00:24:35,720
Speaker 1: rates higher for longer rather than pivoting. Is the market's anticipating, Well, then,

487
00:24:35,800 --> 00:24:38,040
Speaker 1: what is your GDP number forward, I mean to the

488
00:24:38,119 --> 00:24:40,960
Speaker 1: end of the year twelve months twenty twenty three is

489
00:24:40,960 --> 00:24:43,920
Speaker 1: compared to what mister mail Pass of bear Stearns in

490
00:24:43,960 --> 00:24:46,680
Speaker 1: the World Bank just commented on, Well, I mean, our

491
00:24:47,119 --> 00:24:50,199
Speaker 1: view basically is the numbers at the Federal Reserve has

492
00:24:50,320 --> 00:24:53,680
Speaker 1: laid out, which are basically that we're going to be

493
00:24:53,760 --> 00:24:58,040
Speaker 1: in the very very shallow single digits this year, probably

494
00:24:58,240 --> 00:25:01,240
Speaker 1: in the decimal point year over a year or fourth

495
00:25:01,280 --> 00:25:04,800
Speaker 1: quarter over fourth quarter type GDP numbers followed up next

496
00:25:04,880 --> 00:25:06,960
Speaker 1: year by only a one point one percent in twenty

497
00:25:07,000 --> 00:25:10,399
Speaker 1: twenty four, So we have a bit more weakness in

498
00:25:10,440 --> 00:25:13,800
Speaker 1: the near term than the official institutions have, but we

499
00:25:13,840 --> 00:25:16,199
Speaker 1: don't really have much of a rebound either in twenty

500
00:25:16,280 --> 00:25:20,480
Speaker 1: twenty four, and that I think is again another differentiating point. Right, Well,

501
00:25:20,520 --> 00:25:23,080
Speaker 1: then let me finish that with what I heard from

502
00:25:23,080 --> 00:25:28,119
Speaker 1: the managing director in Washington last week, Stephen Roshudo. You

503
00:25:28,240 --> 00:25:30,240
Speaker 1: and I know how difficult this is to look out

504
00:25:30,320 --> 00:25:34,119
Speaker 1: five months the IMF for the five year view the

505
00:25:34,280 --> 00:25:40,960
Speaker 1: grimmest since nineteen ninety of three percentage sustained five year

506
00:25:41,240 --> 00:25:44,919
Speaker 1: GDP real GDP. Does that get it done for the

507
00:25:44,960 --> 00:25:50,080
Speaker 1: world against the demographics, The answer is probably yes. Part

508
00:25:50,080 --> 00:25:52,639
Speaker 1: of the reason why you have this grim outlook for

509
00:25:52,680 --> 00:25:56,080
Speaker 1: the next five years is the demographic situation, you know,

510
00:25:56,119 --> 00:25:59,879
Speaker 1: the aging of the global population, especially in the industrialized world,

511
00:26:00,200 --> 00:26:04,640
Speaker 1: the aging of the population in China. In particularly where

512
00:26:04,680 --> 00:26:07,440
Speaker 1: again you know, men retire at fifty five and women

513
00:26:07,560 --> 00:26:10,080
Speaker 1: retire at fifty. You know, you have a very very

514
00:26:10,200 --> 00:26:14,479
Speaker 1: rapidly aging population and his population's age, you tend to

515
00:26:14,520 --> 00:26:18,560
Speaker 1: see that reduced the overall potential ready to growth. Stephen Raschuto,

516
00:26:18,680 --> 00:26:22,879
Speaker 1: thank you so much, greatly, greatly appreciate that with Missoi USA,

517
00:26:23,080 --> 00:26:36,000
Speaker 1: very informative. There. Then we get this headline from from

518
00:26:36,040 --> 00:26:39,120
Speaker 1: Teslas that both a large new battery factory and drum

519
00:26:39,200 --> 00:26:43,439
Speaker 1: Row Shanghai, Shanghai. This is where the push is for

520
00:26:43,560 --> 00:26:45,399
Speaker 1: that company at the moment. There it is for Elon

521
00:26:45,520 --> 00:26:48,120
Speaker 1: Musk and we're gonna touch on that right now. Usually

522
00:26:48,160 --> 00:26:51,240
Speaker 1: with Daniel Ives, senior equity research analyst at web Bush,

523
00:26:51,280 --> 00:26:54,080
Speaker 1: we go to things larger cap and maybe more stable,

524
00:26:54,800 --> 00:26:57,639
Speaker 1: but today we don't Dan, I'm Tesla. John wants to

525
00:26:57,680 --> 00:27:00,560
Speaker 1: talk about Shanghai, and mister Musk, I want to talk

526
00:27:00,600 --> 00:27:04,359
Speaker 1: about Muskie and brand destruction. I get the novelty of

527
00:27:04,400 --> 00:27:08,479
Speaker 1: a price cut and then a second price cut and

528
00:27:08,520 --> 00:27:13,800
Speaker 1: then a third one. Is Elon Musk committing brand destruction? Look,

529
00:27:13,840 --> 00:27:16,159
Speaker 1: I think right now, I mean they're being aggressive on

530
00:27:16,240 --> 00:27:19,680
Speaker 1: price cuts because competitions increasing and they got to put

531
00:27:19,680 --> 00:27:22,360
Speaker 1: an iron fence around their custom base, and I think

532
00:27:22,440 --> 00:27:27,640
Speaker 1: ultimately it's sacrificing margins for volumes and naturally the balance

533
00:27:27,720 --> 00:27:31,960
Speaker 1: right now, I looked on the Masters, which is basically

534
00:27:31,960 --> 00:27:35,919
Speaker 1: a Mercedes Benz commercial wandering around the beauty of the

535
00:27:36,000 --> 00:27:40,160
Speaker 1: golf course, and Mercedes was flagging their electric vehicle. I'm

536
00:27:40,160 --> 00:27:43,679
Speaker 1: sure I can't get until two twenty seven. Is that

537
00:27:43,880 --> 00:27:47,600
Speaker 1: Gorgiosity that I saw driving around the Masters? Is that

538
00:27:47,760 --> 00:27:51,920
Speaker 1: car going to compete with Elon? Yeah? Look, I think

539
00:27:51,920 --> 00:27:54,680
Speaker 1: what's happened with Mercedes, I think with a while of

540
00:27:54,680 --> 00:27:58,160
Speaker 1: the other European players, of course with Detroit in terms

541
00:27:58,160 --> 00:28:01,600
Speaker 1: of you know, GM and Fordians increasing across the board.

542
00:28:01,640 --> 00:28:04,360
Speaker 1: And that's why Tesla and Musk, that's why they're being

543
00:28:04,400 --> 00:28:06,960
Speaker 1: so aggressive on price carts. Because This is right now

544
00:28:07,000 --> 00:28:10,359
Speaker 1: an eve the arms race that's playing out. They have

545
00:28:10,480 --> 00:28:13,360
Speaker 1: a queer lead. But that's why the price cuts right now.

546
00:28:13,359 --> 00:28:16,240
Speaker 1: It's a necessary I'll call it near term pain for

547
00:28:16,359 --> 00:28:19,160
Speaker 1: long term gain. That's so far paying out the town.

548
00:28:19,240 --> 00:28:21,479
Speaker 1: You talked about who's got to stomach the pain, and

549
00:28:21,520 --> 00:28:24,320
Speaker 1: it's not Testa, it's the competitors. Then, as you look

550
00:28:24,359 --> 00:28:28,240
Speaker 1: at things, some of these big manufactress order manufactures on

551
00:28:28,240 --> 00:28:32,600
Speaker 1: this massive investment cycle to shift towards a few who

552
00:28:32,640 --> 00:28:36,640
Speaker 1: do you think is most vulnerable? Look, I think right

553
00:28:36,640 --> 00:28:39,320
Speaker 1: now the one that has the most to gain and

554
00:28:39,440 --> 00:28:42,000
Speaker 1: probably the most to lose is GM because I think

555
00:28:42,040 --> 00:28:44,720
Speaker 1: they've laid out the Strategyy Marry and the team have

556
00:28:44,800 --> 00:28:47,600
Speaker 1: done a great job, especially on the battery side. But

557
00:28:47,760 --> 00:28:50,280
Speaker 1: you talk about hell to a different standard. Mean investors

558
00:28:50,280 --> 00:28:53,120
Speaker 1: are lease are focused on the profits, on what that

559
00:28:53,240 --> 00:28:57,160
Speaker 1: margins is. And for GM, you're competing against Tesla and

560
00:28:57,280 --> 00:29:00,400
Speaker 1: that's gonna be the uphill battle here. But I believe

561
00:29:00,560 --> 00:29:03,440
Speaker 1: GM is ultimately going to be successful. It's not a

562
00:29:03,600 --> 00:29:05,800
Speaker 1: zero some games. There's gonna be many winners of this

563
00:29:05,960 --> 00:29:08,520
Speaker 1: green tidal way of playing out. Don told to me

564
00:29:08,560 --> 00:29:11,840
Speaker 1: about multiples, the appropriate multiple for these companies and how

565
00:29:11,880 --> 00:29:14,920
Speaker 1: we should think about them exactly. Okay, I think what

566
00:29:14,960 --> 00:29:17,120
Speaker 1: you're seeing here and I think one key earnings is

567
00:29:17,160 --> 00:29:19,680
Speaker 1: going to be a key theme. Tax holding up a

568
00:29:19,680 --> 00:29:22,440
Speaker 1: lot better than feared, and I think Moost, you're looking

569
00:29:22,600 --> 00:29:26,040
Speaker 1: you're going into two twenty four numbers where I think growth,

570
00:29:26,360 --> 00:29:29,600
Speaker 1: especially areas like software cyber security. You looking at growth

571
00:29:29,600 --> 00:29:33,040
Speaker 1: anywhere from eighteen to twenty five percent. So I think

572
00:29:33,160 --> 00:29:36,840
Speaker 1: multiples now are really starting to reflect what I viewer

573
00:29:36,960 --> 00:29:41,520
Speaker 1: is a really growth elevated relative to a non growth environment.

574
00:29:41,880 --> 00:29:44,800
Speaker 1: And that's why tech it's a green light in my opinion,

575
00:29:44,880 --> 00:29:46,960
Speaker 1: to own these names. You know, Dan, you don't know

576
00:29:47,000 --> 00:29:48,800
Speaker 1: this with John and I are on the phone all

577
00:29:48,840 --> 00:29:51,520
Speaker 1: week and we're watching Liverpool get it done against Arsenal

578
00:29:51,560 --> 00:29:53,720
Speaker 1: and we're going back and forth on questions for eyes

579
00:29:53,760 --> 00:29:57,479
Speaker 1: and John just nailed it there. Where teslasm twenty four months,

580
00:29:57,800 --> 00:30:00,600
Speaker 1: Let's say they're making twenty cents on the dollar right now,

581
00:30:00,640 --> 00:30:03,680
Speaker 1: it's some form of margin down the income statement. Ford

582
00:30:03,760 --> 00:30:06,600
Speaker 1: Motor is doing a half as much ten cents on

583
00:30:06,680 --> 00:30:10,000
Speaker 1: the dollar. Does Teslam migrate from twenty cents on the

584
00:30:10,080 --> 00:30:12,680
Speaker 1: dollar to ten cents on the dollar, and as they

585
00:30:12,680 --> 00:30:15,440
Speaker 1: do it, Do they migrate from a tech darling to

586
00:30:15,520 --> 00:30:19,640
Speaker 1: being a boring auto company. Yeah, And to that debat,

587
00:30:19,880 --> 00:30:22,160
Speaker 1: I believe there's a line in the sand in terms

588
00:30:22,200 --> 00:30:24,720
Speaker 1: of price cuts. And also they have the scale that

589
00:30:24,760 --> 00:30:27,880
Speaker 1: no one else has in terms of from capacity from

590
00:30:27,880 --> 00:30:31,120
Speaker 1: a battery perspective. That's really them flexing them muscles again

591
00:30:31,480 --> 00:30:33,320
Speaker 1: in terms of what you saw with the China News

592
00:30:33,360 --> 00:30:35,840
Speaker 1: over the weekend. And that's the difference right now. They have,

593
00:30:36,520 --> 00:30:40,200
Speaker 1: you know, ultimately a really i'd say, you know, a

594
00:30:40,320 --> 00:30:44,240
Speaker 1: multiple reath that's happening behind them, but they continue to

595
00:30:44,280 --> 00:30:47,280
Speaker 1: be the queer leader and they have that margin leverage

596
00:30:47,400 --> 00:30:50,760
Speaker 1: which enables them to do these price cuts. Okay, great,

597
00:30:50,840 --> 00:30:53,200
Speaker 1: But if they have lithium batteries in Shanghai, what do

598
00:30:53,280 --> 00:30:55,920
Speaker 1: they do? Are they moving over there? Because the environmental

599
00:30:56,360 --> 00:30:57,920
Speaker 1: it's just they're not going to get as much heat

600
00:30:57,960 --> 00:31:00,560
Speaker 1: from the Chinese government as they are if they plant

601
00:31:00,600 --> 00:31:05,360
Speaker 1: the plan in Arizona or North Carolina. Look, they're starting

602
00:31:05,360 --> 00:31:07,360
Speaker 1: to build out in the US. But the reality it's

603
00:31:07,360 --> 00:31:10,160
Speaker 1: not just for Tasso, for Apple as well. I mean,

604
00:31:10,440 --> 00:31:12,760
Speaker 1: you look at it, that's the hearts and lungs of

605
00:31:12,840 --> 00:31:15,320
Speaker 1: the supply chain of their production. And I don't really

606
00:31:15,360 --> 00:31:18,800
Speaker 1: see that changing dramatically in the near term, despite what

607
00:31:18,800 --> 00:31:22,000
Speaker 1: we're seeing from the tour to area occurred, and I

608
00:31:22,040 --> 00:31:24,560
Speaker 1: think that's really what we're hearing out of Tassela, and

609
00:31:24,760 --> 00:31:27,680
Speaker 1: I think that's something investors understand that's going to be

610
00:31:27,760 --> 00:31:31,000
Speaker 1: a balance, and Kirk is no different. In Coupertino two

611
00:31:31,080 --> 00:31:34,040
Speaker 1: or two area code, I think that's Washington. Thanks for transplant.

612
00:31:34,160 --> 00:31:36,960
Speaker 1: I appreciate that. I actually detonate that. Just to wrap

613
00:31:37,040 --> 00:31:42,280
Speaker 1: things up, investments in Russia became stranded assets, particularly after

614
00:31:42,320 --> 00:31:46,360
Speaker 1: what's developed with Ukraina for the last twelve months or so. Dan,

615
00:31:46,440 --> 00:31:48,479
Speaker 1: do you see a similar risk on the horizon? How

616
00:31:48,480 --> 00:31:50,680
Speaker 1: do you think about that issue at the moment with

617
00:31:50,720 --> 00:31:53,120
Speaker 1: regards to China and Taiwan and some of the investments

618
00:31:53,120 --> 00:31:55,640
Speaker 1: the US based companies are making in the mainland at

619
00:31:55,680 --> 00:31:59,720
Speaker 1: the moment. Look, I think right now it's clearly a

620
00:32:00,040 --> 00:32:02,680
Speaker 1: broad or risk, but I think if you look from

621
00:32:02,680 --> 00:32:05,320
Speaker 1: an investor perspective, it's contained. And I think the China

622
00:32:05,400 --> 00:32:08,280
Speaker 1: Taiwan right now, bark's still worse than a bite. And

623
00:32:08,400 --> 00:32:10,760
Speaker 1: that's why you look at names like Apple and Tessa,

624
00:32:11,120 --> 00:32:13,240
Speaker 1: look at what those stocks are doing. I think investors

625
00:32:13,240 --> 00:32:16,560
Speaker 1: are sort of looking through that risk right now, although

626
00:32:16,680 --> 00:32:19,840
Speaker 1: obviously it's something in the horizon that that's ultimately going

627
00:32:19,880 --> 00:32:23,000
Speaker 1: to be reflecting. These stocks just want to ful gave

628
00:32:23,040 --> 00:32:30,600
Speaker 1: few on things. And because every second here with this

629
00:32:30,840 --> 00:32:33,840
Speaker 1: incredibly important guest is important, we're going to get right

630
00:32:33,840 --> 00:32:37,640
Speaker 1: to it with a gentleman from King's College in Cambridge,

631
00:32:37,680 --> 00:32:41,200
Speaker 1: Adam Two's joins us now with Columbia at university. But

632
00:32:41,280 --> 00:32:45,120
Speaker 1: that barely describes this contribution to this discussion we're having

633
00:32:45,680 --> 00:32:48,320
Speaker 1: on what our world looks like at one year, two years,

634
00:32:48,640 --> 00:32:51,760
Speaker 1: three years. What's the difference between King's College and Queen's

635
00:32:51,840 --> 00:32:55,680
Speaker 1: College at Cambridge? Like do they fight? Do they fight

636
00:32:55,760 --> 00:33:01,600
Speaker 1: each other at different chapels? Wells were competition? Are they

637
00:33:01,600 --> 00:33:04,760
Speaker 1: like far apart from each other? It can two minutes

638
00:33:05,720 --> 00:33:08,040
Speaker 1: on each other, okay, but they're barely on speaking. We

639
00:33:08,040 --> 00:33:11,920
Speaker 1: should get unl area at something behind doing that joke.

640
00:33:12,000 --> 00:33:15,200
Speaker 1: That's it's a really an impressive contribution he's making. It's

641
00:33:15,720 --> 00:33:18,760
Speaker 1: he was very emotional about it. Actually I mentioned it

642
00:33:18,800 --> 00:33:21,840
Speaker 1: to him and he said, what's so important? He didn't

643
00:33:21,880 --> 00:33:26,520
Speaker 1: expect this was these super bright kids from really difficult

644
00:33:26,640 --> 00:33:29,960
Speaker 1: backgrounds that have to make this huge jump to the

645
00:33:30,040 --> 00:33:33,200
Speaker 1: high falutin culture of Cambridge University. Yeah, it's can be

646
00:33:33,280 --> 00:33:36,120
Speaker 1: quite abiding. It was intimidating. Right now, we're going to

647
00:33:36,200 --> 00:33:39,880
Speaker 1: intimidate ourselves for the most important essay into these IMF meetings.

648
00:33:39,880 --> 00:33:42,680
Speaker 1: With great respect to Adam Posen, who I thought had

649
00:33:42,720 --> 00:33:46,480
Speaker 1: a great essay on globalization, Adam Two's in the Financial

650
00:33:46,520 --> 00:33:50,280
Speaker 1: Times where he writes often with a superb essay on

651
00:33:50,320 --> 00:33:55,160
Speaker 1: the state of where we are in this new higher inflation.

652
00:33:55,200 --> 00:33:58,240
Speaker 1: At the beginning of your essay, Professor Two's, you speak

653
00:33:58,720 --> 00:34:01,960
Speaker 1: about we're trying to have pain free crises. I spoke

654
00:34:02,000 --> 00:34:05,400
Speaker 1: to a leading government official in two thousand and eight

655
00:34:05,480 --> 00:34:09,120
Speaker 1: about this. We're trying to let the zambie zambie out.

656
00:34:09,160 --> 00:34:11,840
Speaker 1: We're trying to not have moral hazard. We're trying to

657
00:34:11,880 --> 00:34:14,640
Speaker 1: be pain free in our crises. How do we get

658
00:34:14,640 --> 00:34:17,560
Speaker 1: out of that difficult process. Well, it's a funny way

659
00:34:17,600 --> 00:34:19,880
Speaker 1: of describing the world of last year, right, I mean,

660
00:34:19,920 --> 00:34:21,800
Speaker 1: in the sense that the bond market took the biggest

661
00:34:21,880 --> 00:34:24,560
Speaker 1: hit in its history. And what I'm kind of focused

662
00:34:24,600 --> 00:34:26,840
Speaker 1: on there is this question of how the double whammy

663
00:34:26,880 --> 00:34:31,239
Speaker 1: of this sudden, sudden, unexpected surge in inflation and the

664
00:34:31,400 --> 00:34:34,400
Speaker 1: concomitant increase in interest rates. Well, that does to the

665
00:34:34,440 --> 00:34:37,359
Speaker 1: balance of the biggest market that really matters, the fixed

666
00:34:37,360 --> 00:34:41,160
Speaker 1: income market, and there is this huge trillion dollars shift underway.

667
00:34:41,719 --> 00:34:44,279
Speaker 1: Part of it is simply lost to and on the

668
00:34:44,280 --> 00:34:47,440
Speaker 1: accounts of the fixed income investors. Part of it's a

669
00:34:47,520 --> 00:34:50,080
Speaker 1: kind of real transfer in that if we have a

670
00:34:50,120 --> 00:34:53,160
Speaker 1: sudden shop, an unanticipated shot to the price level, it

671
00:34:53,239 --> 00:34:56,560
Speaker 1: shifts the balance between creditors and debtors. And we are

672
00:34:56,560 --> 00:34:59,560
Speaker 1: seeing swings, say in the debt to GDP ratio, which

673
00:34:59,600 --> 00:35:02,719
Speaker 1: is the standard measure of fiscal space that we've never

674
00:35:02,760 --> 00:35:06,120
Speaker 1: seen before, twenty percent shifts in the US debt to

675
00:35:06,200 --> 00:35:08,839
Speaker 1: GDP level over a matter of eighteen months to two years.

676
00:35:08,840 --> 00:35:11,120
Speaker 1: And mondays who do math later in the conversation, we'll

677
00:35:11,160 --> 00:35:13,920
Speaker 1: get to that in a moment. You end your wonderful

678
00:35:14,160 --> 00:35:17,759
Speaker 1: essay by parsing the haves and the have nuts. The

679
00:35:17,920 --> 00:35:20,840
Speaker 1: cynics out there will say, we'll just blow up. And

680
00:35:20,920 --> 00:35:24,279
Speaker 1: with this huge surgeon interest rates, by definition they have

681
00:35:24,600 --> 00:35:28,160
Speaker 1: the elites win and everybody else's crushed. Is it that gloomy?

682
00:35:28,280 --> 00:35:30,200
Speaker 1: We're not seeing that in the data so far, right,

683
00:35:30,239 --> 00:35:32,080
Speaker 1: because the people who have money on the line in

684
00:35:32,080 --> 00:35:34,440
Speaker 1: the fixed income market are generally the haves, right, This

685
00:35:34,520 --> 00:35:37,680
Speaker 1: is the top end of the income distribution. The entire struggle,

686
00:35:37,680 --> 00:35:39,880
Speaker 1: if you like, between taxpayers on one end of this

687
00:35:40,320 --> 00:35:42,480
Speaker 1: and bondholders on the other, is played out in the

688
00:35:42,480 --> 00:35:45,560
Speaker 1: top twenty to thirty percent of the wealth distribution. The

689
00:35:45,680 --> 00:35:47,239
Speaker 1: question I ask at the end, and I think we

690
00:35:47,320 --> 00:35:49,560
Speaker 1: all have to be cognizant of, is what's happening to

691
00:35:49,600 --> 00:35:52,840
Speaker 1: those folks who basically live paycheck to paycheck. They are

692
00:35:52,880 --> 00:35:55,120
Speaker 1: at a flow economy in not a stock economy. And

693
00:35:55,160 --> 00:35:57,080
Speaker 1: what we've seen across the world for all of the

694
00:35:57,600 --> 00:36:00,799
Speaker 1: wage price spirals is falling real wages and that we

695
00:36:00,840 --> 00:36:03,399
Speaker 1: really need to be laser focused on as a long

696
00:36:03,520 --> 00:36:07,040
Speaker 1: term effect of this sudden anticipated inflation. There was a

697
00:36:07,120 --> 00:36:09,600
Speaker 1: huge study at London School of Economics where your work

698
00:36:09,680 --> 00:36:13,399
Speaker 1: to think of robins and back before that beverage. Are

699
00:36:13,400 --> 00:36:16,760
Speaker 1: we in for a slag? Here is the managing director

700
00:36:16,760 --> 00:36:20,000
Speaker 1: of the IMF talked about last week a sub three

701
00:36:20,080 --> 00:36:22,960
Speaker 1: percent David moult bess out moments ago with two percent.

702
00:36:23,320 --> 00:36:26,040
Speaker 1: Is it a slog for the next five years with

703
00:36:26,800 --> 00:36:30,440
Speaker 1: permanent week real wages? I think it critically depends on

704
00:36:30,480 --> 00:36:32,160
Speaker 1: where you look in the world economy, and I think

705
00:36:32,160 --> 00:36:34,920
Speaker 1: that's where the IMF World Bank gloom is coming from.

706
00:36:35,000 --> 00:36:37,239
Speaker 1: If you look at the emerging market low income world,

707
00:36:37,320 --> 00:36:40,800
Speaker 1: we're definitely in a slog scenario. Their recovery from COVID

708
00:36:40,960 --> 00:36:44,320
Speaker 1: was much much tamer. Indeed, in many countries it's barely happened,

709
00:36:44,719 --> 00:36:47,680
Speaker 1: whereas in the United States we're dealing with a very

710
00:36:47,719 --> 00:36:51,239
Speaker 1: strange situation of a really buoyant labor market but with

711
00:36:51,960 --> 00:36:54,200
Speaker 1: falling real wages for much of the time, right month

712
00:36:54,239 --> 00:36:56,880
Speaker 1: after months, we've seen falling real wages. So it's a

713
00:36:57,600 --> 00:37:02,520
Speaker 1: it's a strange reallocation and the priorities are rebalancing between

714
00:37:02,520 --> 00:37:06,320
Speaker 1: employers and workers. There's an incredible common ground between Kenneth

715
00:37:06,400 --> 00:37:09,560
Speaker 1: Rogoff of Harvard and Olivier Blanchard of a school down

716
00:37:09,600 --> 00:37:13,560
Speaker 1: the river at called Massachusetts Institute of Technology, And of

717
00:37:13,600 --> 00:37:16,400
Speaker 1: course between the two they look at the future and

718
00:37:16,400 --> 00:37:20,160
Speaker 1: they say, what will growth be. Olivier Blanchard suggests a

719
00:37:20,280 --> 00:37:25,040
Speaker 1: more lower permanent our starred maybe there's many with him,

720
00:37:25,040 --> 00:37:28,080
Speaker 1: and ken Rogoff is much more suspective of new high

721
00:37:28,280 --> 00:37:31,040
Speaker 1: permanence to inflation. Where do you fit into that debate.

722
00:37:31,360 --> 00:37:33,439
Speaker 1: I'm somebody who I think thinks we're going to find

723
00:37:33,480 --> 00:37:35,719
Speaker 1: it hard to get back to two percent, right. I

724
00:37:35,760 --> 00:37:37,919
Speaker 1: think that is really going to be where the rubber

725
00:37:38,000 --> 00:37:40,920
Speaker 1: hits the road. The decisions right now, I think are

726
00:37:41,040 --> 00:37:44,279
Speaker 1: relatively strange. And Richard claridare writing in The Economists last week.

727
00:37:44,280 --> 00:37:46,359
Speaker 1: He's been such a friend of the show on our

728
00:37:46,400 --> 00:37:49,200
Speaker 1: fed days. He agrees with you. Clarda as a former

729
00:37:49,280 --> 00:37:52,560
Speaker 1: vice chairman, goes, you got to go two point xx yeah,

730
00:37:52,600 --> 00:37:56,360
Speaker 1: because I just don't see the final squeeze down that

731
00:37:56,480 --> 00:37:58,799
Speaker 1: the paid is going to be massively disproportionate for the

732
00:37:58,840 --> 00:38:01,600
Speaker 1: benefit that we get that bringing inflation under control. When

733
00:38:01,600 --> 00:38:03,560
Speaker 1: you're in the eight to ten percent rate, right, you

734
00:38:03,640 --> 00:38:05,680
Speaker 1: do it. But once you get down in the four

735
00:38:05,760 --> 00:38:08,120
Speaker 1: to two percent, this is also a Blanchard point, Right,

736
00:38:08,160 --> 00:38:10,040
Speaker 1: you really have to begin to think hard about what

737
00:38:10,080 --> 00:38:12,960
Speaker 1: the trade offs are at that level. We're somewhere away

738
00:38:13,000 --> 00:38:15,239
Speaker 1: from having that problem quite yet, but you know that,

739
00:38:15,360 --> 00:38:16,880
Speaker 1: I think for Europe as well, is going to be

740
00:38:16,920 --> 00:38:19,960
Speaker 1: a really tough choice. In everyone's life. There's a moment

741
00:38:19,960 --> 00:38:22,279
Speaker 1: where it crystallizes. One of them for me was a

742
00:38:22,360 --> 00:38:25,720
Speaker 1: my grandfather showed me his bond book from the nineteen twenties,

743
00:38:25,719 --> 00:38:28,919
Speaker 1: and one day he made a three percent coupon all

744
00:38:28,960 --> 00:38:33,040
Speaker 1: of Icano Babel. What's it mean for investment? Do we

745
00:38:33,120 --> 00:38:37,520
Speaker 1: get to forget about transitory in the Babbel now? But

746
00:38:37,600 --> 00:38:39,960
Speaker 1: do we get to a new permanence of a lower

747
00:38:40,080 --> 00:38:44,520
Speaker 1: rate regime in investment? I think the tendency is to

748
00:38:44,560 --> 00:38:46,640
Speaker 1: go back there. I don't think we are going to

749
00:38:46,760 --> 00:38:49,120
Speaker 1: stay at the kind of interest rates that we're currently at.

750
00:38:49,160 --> 00:38:51,040
Speaker 1: Are we going to go back to the zero rate,

751
00:38:51,080 --> 00:38:55,719
Speaker 1: the negative rate world that Japan that's off the table now,

752
00:38:55,760 --> 00:38:58,680
Speaker 1: I think, And so the balance shifts there into a

753
00:38:58,719 --> 00:39:00,480
Speaker 1: world where you have to pay for my but you're

754
00:39:00,480 --> 00:39:03,040
Speaker 1: not paying. You're not paying hard. If you're in the

755
00:39:03,040 --> 00:39:05,719
Speaker 1: privileged group out there in the emerging market, low income world,

756
00:39:05,719 --> 00:39:08,720
Speaker 1: it's tougher there. The rates are in the Nosebley territory.

757
00:39:08,800 --> 00:39:11,520
Speaker 1: We welcome all of you, and particularly on Bloomberg Radio,

758
00:39:11,600 --> 00:39:14,480
Speaker 1: Adam two's with US of Columbia University as we begin

759
00:39:14,560 --> 00:39:17,359
Speaker 1: our coverage of the IMF from the World Bank into

760
00:39:17,400 --> 00:39:21,120
Speaker 1: this week in Washington at tomorrow. Okay, let's go there, Adam.

761
00:39:21,120 --> 00:39:26,080
Speaker 1: Everybody's work up on a Monday morning. Italy, Italy has

762
00:39:26,120 --> 00:39:31,799
Speaker 1: had a debt improvement that is absolutely superb Explain why

763
00:39:31,880 --> 00:39:34,880
Speaker 1: it is a mystery. It is a fog of optimism

764
00:39:35,440 --> 00:39:38,800
Speaker 1: where Italy is in much more trouble than the recent numbers.

765
00:39:39,200 --> 00:39:41,759
Speaker 1: Un debt to GDP would say, yeah, I mean this

766
00:39:42,120 --> 00:39:44,560
Speaker 1: is the classic case of a nominal GDP recovery. Right,

767
00:39:44,600 --> 00:39:46,799
Speaker 1: this is what we've been begging for for years now,

768
00:39:46,880 --> 00:39:49,560
Speaker 1: just some juice in the European economy. We've got juice.

769
00:39:49,680 --> 00:39:52,000
Speaker 1: We've got juice. We saw seven percent DiPT in the

770
00:39:52,000 --> 00:39:54,480
Speaker 1: debt to GDP rat show. That takes us out of

771
00:39:54,800 --> 00:39:57,040
Speaker 1: terror territory, right, It takes us out of the territory

772
00:39:57,040 --> 00:40:00,480
Speaker 1: where we constantly worry about Italian spreads. We also have

773
00:40:00,520 --> 00:40:03,640
Speaker 1: a backstop from the ECB. The longer term questions are

774
00:40:03,680 --> 00:40:06,480
Speaker 1: really all about whether you can sustain that when inflation

775
00:40:06,560 --> 00:40:08,840
Speaker 1: does come down, and that's where the worry is. You

776
00:40:08,840 --> 00:40:11,880
Speaker 1: were citing earlier on the demographic numbers for it. But demographic,

777
00:40:11,920 --> 00:40:17,360
Speaker 1: I think we shouldn't overdo the biological. It's about politics,

778
00:40:17,360 --> 00:40:20,279
Speaker 1: It's about institutions. The crucial factor with Italy is not

779
00:40:20,360 --> 00:40:22,239
Speaker 1: so much, as it were, the quantity of labor. It's

780
00:40:22,239 --> 00:40:24,200
Speaker 1: the quality of labor. It's the capital they have to

781
00:40:24,239 --> 00:40:27,240
Speaker 1: work with. Its investment. It's investment in the university system

782
00:40:27,239 --> 00:40:30,160
Speaker 1: in Italy, which is incredibly dilapidated at this point. It's

783
00:40:30,160 --> 00:40:33,960
Speaker 1: rebalancing public expenditure, which is hard to do from the

784
00:40:34,040 --> 00:40:36,600
Speaker 1: old to the young, so as to dynamize growth. You

785
00:40:36,680 --> 00:40:38,719
Speaker 1: do that, you don't have to worry that much about

786
00:40:38,719 --> 00:40:41,960
Speaker 1: the demographic side of this as the key driver. Right.

787
00:40:42,000 --> 00:40:44,279
Speaker 1: So I think it's really about the politics, and we

788
00:40:44,320 --> 00:40:46,279
Speaker 1: see how hard those are in France. Right you try

789
00:40:46,320 --> 00:40:48,319
Speaker 1: and move the retirement age by two years and you

790
00:40:48,440 --> 00:40:52,439
Speaker 1: have somethink akin to an uprising. Right, So figuring out

791
00:40:52,480 --> 00:40:55,600
Speaker 1: a good politics of this shift, of how we mobilize

792
00:40:55,600 --> 00:41:00,719
Speaker 1: an aging population and maximize the quality of labor it's available,

793
00:41:00,840 --> 00:41:03,160
Speaker 1: that's where I think a small politics needs to be. Oh,

794
00:41:03,200 --> 00:41:06,600
Speaker 1: we're going to continue this discussion. We're out of time, Adam,

795
00:41:06,600 --> 00:41:08,080
Speaker 1: but you've got to come back and we've got to

796
00:41:08,080 --> 00:41:10,279
Speaker 1: do like an hour discussion or something. We have to

797
00:41:10,320 --> 00:41:14,520
Speaker 1: figure this out, Adam. Two's leading off intellectually, I think

798
00:41:14,560 --> 00:41:17,520
Speaker 1: for all of these IMF meetings, really the first post

799
00:41:17,520 --> 00:41:21,279
Speaker 1: pandemic meetings we've had with a phenomenal essay in the

800
00:41:21,320 --> 00:41:22,880
Speaker 1: ft I'll get it out to you here. I put

801
00:41:22,920 --> 00:41:24,640
Speaker 1: it out a number of times in the last number

802
00:41:24,640 --> 00:41:29,200
Speaker 1: of days. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify,

803
00:41:29,320 --> 00:41:33,239
Speaker 1: and anywhere else you get your podcasts. Listen live every

804
00:41:33,239 --> 00:41:37,400
Speaker 1: weekday starting at seven am Eastern. I'm Bloomberg dot Com,

805
00:41:37,400 --> 00:41:41,560
Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.

806
00:41:42,040 --> 00:41:45,719
Speaker 1: You can watch us live. I'm Bloomberg Television and always

807
00:41:46,080 --> 00:41:49,960
Speaker 1: I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keane,

808
00:41:50,120 --> 00:41:51,920
Speaker 1: and this is Bloomberg