Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrell and Lisa Abramowits. Join us each day
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Speaker 1: of silk Gen expecting another twenty five basis point hike
Speaker 1: at the fed's main meeting before holding rates study for
Speaker 1: the rest of the year. This is what's the batteris
Speaker 1: got to say at the moment, Tom, with the team
Speaker 1: at sulk Gen, with sticky inflation, a strong labor market
Speaker 1: and a Brasilian consumer WI, do you not expect the
Speaker 1: FED to pivot quickly brace for more volatility and rates
Speaker 1: and the curve. This is the tension at the moment again,
Speaker 1: We're playing this game again, the separation between fattest guiding
Speaker 1: us towards in their projections and what this market is
Speaker 1: price for and this market is price for a lot
Speaker 1: of counts. And what's important here is a sack and
Speaker 1: heritage of derivatives where they slice and dice all of
Speaker 1: the different dynamics. So Broder, what is the dynamic of
Speaker 1: service sector inflation that you see right now? That's a
Speaker 1: very good question, Tom, because the tug of war is
Speaker 1: really between the services side inflation higher rents, at least
Speaker 1: in the first half, which is going to really dictate
Speaker 1: what the thinking is on CPI. And we really this
Speaker 1: week's report in CPI is going to be very interesting
Speaker 1: because we might start seeing Mason signs of a cooling
Speaker 1: and the housing market, which is what we're looking to see.
Speaker 1: But that's really more of a second half story than
Speaker 1: a first half story. But you know, the services sector,
Speaker 1: broadly speaking, is a chordinary strong. People have jobs. You've
Speaker 1: got a very very strong jobs report. So as long
Speaker 1: as people are employed, you're going to see more spending
Speaker 1: and more services side inflation. So Broder, in your research
Speaker 1: note of a while back, you go all birds on us.
Speaker 1: You've got the Roger mcgwinn David Crosby channeling here, and
Speaker 1: you say, turn, turn turn. Is that what we're doing
Speaker 1: right now? We're going all birds in two every season
Speaker 1: or turn turn turn. Yeah, I mean the big question
Speaker 1: coming into this year. For us was when is that
Speaker 1: turn going to be. Was it October of last year
Speaker 1: when telling yeals peaked at for a quarter percent, or
Speaker 1: are we going to see another high in yeals before
Speaker 1: we start seeing a steady decline. Our view has been that,
Speaker 1: you know, yields peaked in the fourth quarter of last year,
Speaker 1: and then yields should gradually decline during the course of
Speaker 1: the year. But again, accurately pinpointing where that turn is
Speaker 1: on inflation is going to be extraordinarily difficult in an
Speaker 1: environment like this, because you're looking at a variety of factors,
Speaker 1: you know, sort of the push and pull between sometimes
Speaker 1: higher energy prices leading to higher headline inflation. Sometimes it's
Speaker 1: it's certain sectors on the on the services side of
Speaker 1: the economy that are that are pushing higher. Rents are
Speaker 1: going to remain high for the first half of the year.
Speaker 1: Second half the year, we should see some easing in
Speaker 1: rents and shelter costs, but really call it causing that
Speaker 1: in Calling that turn is going to be very, very difficult.
Speaker 1: But it looks to us like you'll seem to have peaked.
Speaker 1: It feels like we have one more hike in the
Speaker 1: cards for the for the main meeting, and the Fed
Speaker 1: keeps policy stable for the remainder of the year. Why
Speaker 1: because of the fact that the employment picture is still
Speaker 1: pretty strong. The labor market as well as the consumer
Speaker 1: are still pretty resilient. So nearly the flow through has
Speaker 1: to come perhaps from tachning credit conditions, which is what
Speaker 1: you're starting to see in the banking sector a little bit.
Speaker 1: How important was that data on Friday that alluded to
Speaker 1: some of that subantra, Yeah, I know, it was very
Speaker 1: important in my In my view, we've been tracking uh,
Speaker 1: you know, both the FEDS h DOT four data as
Speaker 1: well as the h DOT eight data to see what
Speaker 1: the takeoff has been in some other facilities, as well
Speaker 1: as what the deposit runoffs have been from from smaller banks. Um,
Speaker 1: you know, I think it last few a couple of
Speaker 1: weeks back, we had you know, Dallas FED President x
Speaker 1: Dallas FED President Kaplan talk about the credit conditions broadly
Speaker 1: tightening for small and medium sized banks almost ceasing. I mean,
Speaker 1: when you see this sort of tremendous amount of deposit
Speaker 1: outclass coming from the smaller banks, guess what the smaller
Speaker 1: and medium mid sized banks are going to really tighten
Speaker 1: credit conditions, and that's really where you're seeing a credit crunch.
Speaker 1: It's not in the top ten banks, it's in the
Speaker 1: small to medium size banks, mid sized banks where you're
Speaker 1: seeing that sort of tightening of credit conditions are a
Speaker 1: credit crunch, as we would call it. So batter I've
Speaker 1: asked this question a few times mixed responses so far
Speaker 1: on Friday. What do you consider to be the more
Speaker 1: important data point, the data that you alluded to just
Speaker 1: moments ago talked about or the payroll support that came
Speaker 1: earlier in the morning. I think both. I mean, that's
Speaker 1: what makes this whole fair equation very confusing, because they're
Speaker 1: trying awaigh financial stability concerns over inflation and employment, you know,
Speaker 1: being quite strong and inflation continue to rise, and that's
Speaker 1: the balancing app that the FED has to, you know,
Speaker 1: play meeting after meeting. I think that they're going to
Speaker 1: really focus on getting rates to a certain level, which
Speaker 1: we think is around five to five and a quarter
Speaker 1: percent and FED funds and then keep policy stable while
Speaker 1: they assess an actual stability concerns across this arc. Will
Speaker 1: foreigners continue to bid for bills, notes and bonds? Absolutely,
Speaker 1: I mean, look at what's happening. You're all the cash
Speaker 1: that's going out of the smaller region exactly into the
Speaker 1: into the larger banks, is going all into into money
Speaker 1: market funds. Why, because cash is keen. That's really where
Speaker 1: you want to keep your money if you don't know
Speaker 1: how things are going to pan out in a high
Speaker 1: volatility environment. And this is typical of end of cycle
Speaker 1: dynamics that you see in almost every FED cycle, is
Speaker 1: that the market has to be very volatile, you know,
Speaker 1: because we don't really know how things are going to
Speaker 1: pan out. And in that sort of environment, it probably
Speaker 1: makes sense to put your money in cash. And this time,
Speaker 1: relative to past cycles, you're actually getting a pretty decent
Speaker 1: return in putting your money to money market funds. So
Speaker 1: you're seeing this rush to rush you put money to
Speaker 1: money market funds. You're seeing demand from foreign investors for
Speaker 1: short term investments. On a duration adjusted basis, your returns
Speaker 1: are pretty good. By being in the very very front
Speaker 1: end of the treasy curve. I look at the treasury
Speaker 1: curve and I'm sorry, give me the mystery here of
Speaker 1: curve disinversion. Janet's the one thing not in the literature
Speaker 1: right now. And a messages of station recently. Tell yeah,
Speaker 1: is a vision of where where's the curve and version
Speaker 1: going to be in six months or a year? I'm
Speaker 1: not hearing about this. So we've actually looked at past
Speaker 1: cycles and what we notice is that typically when the
Speaker 1: curve of inverts or where peak conversion is, and then
Speaker 1: about after peak conversion of a year, about six months
Speaker 1: after that is when defense policy starts to pivot. So
Speaker 1: I think we've probably seen peak conversion. We've seen a
Speaker 1: pretty dramatic rise in the two stents part of the
Speaker 1: eel curve and the deepening of peel curve. That tends
Speaker 1: to be sort of a leading indicator in my view
Speaker 1: of the risk of a recession or a meaningful surround
Speaker 1: and the economy. So again, you know, a peak conversion
Speaker 1: looks like it's behind us. If policy is U is
Speaker 1: on a pivot, this is kind of you're getting. You're
Speaker 1: starting to see nascent signs, if you will, of a
Speaker 1: switch in the policy from hiking to perhaps more easing
Speaker 1: posture or easing bias, if you will, so, Patra, wonderful,
Speaker 1: O Kate if you on this pad market as always,
Speaker 1: thanks for beaming with a spatra men Jampa there of
Speaker 1: suck gen with us this morning around the type one
Speaker 1: place to site, pay to chip at a macro strategy
Speaker 1: at Academy Security, it's moaning Pat Morning, John, which might
Speaker 1: cannot pay ROSA put on Friday, leaves the door opened
Speaker 1: green life for the FED to come again. My fit. Yeah,
Speaker 1: I think there were some mixed parts of the data,
Speaker 1: but if the Fed wants to go, they've got the
Speaker 1: excuse to go. Twenty five BIPs. We've got a lot
Speaker 1: more data coming out. I think they should have stopped.
Speaker 1: I think they should have passed last time and just said, hey,
Speaker 1: let's see what goes on with the banking, because I
Speaker 1: think that's a bigger concern. But they seem intent on
Speaker 1: driving rates higher, so they'll use that LORI kieviously, you
Speaker 1: know looks the neutral urine. Timor says, you know, there's
Speaker 1: a set of fears out there which leads to just nowhere.
Speaker 1: I love what you say. You call it the comfort zone.
Speaker 1: Define the comfort zone right now now. I think we're
Speaker 1: all waiting to see how the economic data plays out.
Speaker 1: It's generally been weak, it's been turning back down after
Speaker 1: a really strong string, and finally we gets to the earnings.
Speaker 1: I think the earnings are what's going to actually drive it.
Speaker 1: The biggest thing I'm looking for in this kind of
Speaker 1: comfort zone is to see how company how the market
Speaker 1: responds to, say, weak earnings. Do we get a huge
Speaker 1: bounce on weak earnings, I'll tell me that I'm being
Speaker 1: too barished. If we actually don't respond well to earnings,
Speaker 1: then I think that we had lower Is it ten stocks,
Speaker 1: seven stocks, twenty stocks, or can it broaden out given
Speaker 1: a more optimistic tone, I think the market's still going
Speaker 1: to take its cues from those ten to twenty stocks
Speaker 1: that we've been looking to for a while. I think
Speaker 1: you can hide out and do very well. And some
Speaker 1: of these stocks that have underperformed I'm certainly looking at,
Speaker 1: like the Russell two thousand verses the Nasdaq one hundred.
Speaker 1: The underperformance has been stark, and it's been unusual because
Speaker 1: high yield's done well, and usually if the Russell two
Speaker 1: thousand's doing well, high yields struggling for it tends to
Speaker 1: be a correlation. So maybe that's what we get. Does
Speaker 1: he no, Bramo's not here. He does he's a wind
Speaker 1: Oh that's why he's doing it, just to fill in
Speaker 1: give credit to mad Time. Pete. Talk to me about
Speaker 1: bank lending data, the bank lending data that we got
Speaker 1: on Friday. How important is that going to be for
Speaker 1: this market going forward? So some people will take the
Speaker 1: fact that the banks are boring less from the emergency
Speaker 1: facilities is a good sign. I would agree with that,
Speaker 1: except we saw a big in bank lending as a whole.
Speaker 1: So I think banks are pulling back on the lending,
Speaker 1: which is why they don't need to borrow as much.
Speaker 1: That's negative. And we also saw the tenth straight week
Speaker 1: of deposit outflows of the reason I believe sixty five
Speaker 1: sixty seven billion of deposit outflows. And my concern is
Speaker 1: that we've shifted from a credit risk concern to just like, wow,
Speaker 1: my bank's only paying point two percent or point four percent.
Speaker 1: I can get three three and a half four percent
Speaker 1: relatively easy. So I think you see that drain on
Speaker 1: the banking system continue. That's going to affect lending. So
Speaker 1: this is just a slow burn, I think, and it's
Speaker 1: going to be a big headwin for the economy. Why
Speaker 1: do you believe that's a signal of what's to come
Speaker 1: and not just the reflection of what's happened over the
Speaker 1: last month. You know, I think part of it is
Speaker 1: I tend to view these things as cycles. Right, So
Speaker 1: we get this negative data, everyone's worried about banks, everyone's
Speaker 1: worried about the faults. So you go into panic mode.
Speaker 1: Then you take it back. Now you get that time. Okay,
Speaker 1: maybe we have too much money sitting in bank deposits.
Speaker 1: What do we do with it? And that's a multi week,
Speaker 1: maybe a multi month process for a lot of corporations
Speaker 1: to go through. Right, We've got to figure out can
Speaker 1: we do it? How do we manage this? So I
Speaker 1: think that's a slower process, But that's the phase that
Speaker 1: we've moved into, and a lot of that's just coming
Speaker 1: from discussions with customers. I've got to ask you, because
Speaker 1: more than anyone on Global Wall Street, you have you
Speaker 1: have Academy securities, you have a military vision, a set
Speaker 1: of board of people completely tied into geopolitics, which is
Speaker 1: what we're hearing about each and every day. James Travitas
Speaker 1: wrote two thirty four, Are we there now? Is what
Speaker 1: he wrote about that would be out there somewhere. Does
Speaker 1: your board think it's now? And how does that play
Speaker 1: into the investment guests? So, yeah, We've got the nineteen
Speaker 1: retired generals and admirals who serves this Geopolitical intelligence group.
Speaker 1: We see the world probably as the most dangerous it's
Speaker 1: been in a long time. And whether it's Russia, Ukraine,
Speaker 1: whether we're now seeing tensions pick up in the Middle
Speaker 1: East with Iran. We do not like the fact that
Speaker 1: China seems to be getting the Saudiast to embrace China
Speaker 1: a little bit more, playing us away. So everywhere we look,
Speaker 1: I think there's this danger. It's growing, and I'm getting
Speaker 1: a little bit nervous that a lot of investors pay
Speaker 1: lip service to geopolitical risk but then kind of push
Speaker 1: it off. Oh this is too far down the future.
Speaker 1: Oh this is five years away, ten years away. Oh
Speaker 1: I'm an American company, How does this impact me? While
Speaker 1: it's going to impact rates, it's going to impact everything.
Speaker 1: So I think we're being a little bit too complacent
Speaker 1: on the geopolitical front. Gold over two thousand and yet
Speaker 1: Peter Shears saying, look at the Russell two thousand. Which
Speaker 1: two thousand do I want own gold or the speculation
Speaker 1: of the Russell two thousand. You know, for now, I
Speaker 1: think probably neither. I can watch gold. I try not
Speaker 1: to get too involved in gold. It's almost a religion
Speaker 1: to me. So I just did ever feel like I've
Speaker 1: got a good handle on gold. On the Russell two thousand,
Speaker 1: I'm watching. I want to see how Arnie's got my
Speaker 1: little bit barish on stocks. But if I get positive,
Speaker 1: that's where I jump into Pete. You mentioned that maybe
Speaker 1: people were underestimating, under appreciating what was developing on the
Speaker 1: geopolitical front. Well, let me ask you the question what
Speaker 1: should people be doing? And I think that's what they
Speaker 1: struggle with. They see the news of it a weekend,
Speaker 1: ministry drills, military exercises from China around the island of Taiwan.
Speaker 1: People to sit here and say, sin it before it's important,
Speaker 1: I'll keep it on it. What are they meant to do?
Speaker 1: You know? I think you're supposed to be lightning up
Speaker 1: on some of the tech companies there will be most
Speaker 1: effective of anything happens there. We don't see anything imminent
Speaker 1: happening there yet, there's this further element of fear. I
Speaker 1: think you're supposed to be looking though to South America
Speaker 1: Mexico countries that we are ultimately going to have to
Speaker 1: shift production too. I think you're telling me to sell
Speaker 1: Apple and go long Bolivia. I don't talk about any
Speaker 1: individual stocks, but I'm certainly lightning up on QQQ, for example.
Speaker 1: Are you lightning up Okay, let me put you can't
Speaker 1: talk about single names, so let me freight it. In
Speaker 1: another way, are you lightning up on companies that have
Speaker 1: direct to exposure to China, to the mainland tech firms?
Speaker 1: In that sense, you're lightning up on chipmakers that get
Speaker 1: caught up in the cross test A little bit of
Speaker 1: people thinking about it. I think that's a little part
Speaker 1: of it. It's also more driven right now by the
Speaker 1: fact that I think people are expecting this lower rates
Speaker 1: and a fad to juice up all these stocks, just
Speaker 1: like it did in two and twenty. I don't think
Speaker 1: that's going to play out the same way. So I'm
Speaker 1: thinking we're going to get some earnings, We're gonna get
Speaker 1: some fear coming out of those companies. So on the
Speaker 1: long side, then when you say get long some of
Speaker 1: these Latin American stories the near shore or in so
Speaker 1: to speak, is that an FX trite set a bonds trite?
Speaker 1: Is that an equity trite? What is that? I think
Speaker 1: you can do it a little bit of each. I
Speaker 1: think you're going to have closer relationships, and I don't
Speaker 1: think it's an urgent trade. You don't have to put
Speaker 1: all your money in there, but you want to be
Speaker 1: kind of trading those from the longside and building and
Speaker 1: cumulating a larger position. Mexico's has got its own set
Speaker 1: of dangers. It's you know, basically at some point we're
Speaker 1: going to have civil war. Is probably too strong, but
Speaker 1: either the cartel is going to have to get pushed
Speaker 1: back on to have the real development, or that's also
Speaker 1: going to be a problem. So there's no easy answer.
Speaker 1: But there with these geopolitical tensions, whether it's across this
Speaker 1: board of that board of the other or distant and removed,
Speaker 1: doesn't Global Wall Street find comfort in American equities institutional basis?
Speaker 1: What's the Norwegian Sovereign Wealth Fund going to do? At
Speaker 1: the margin? So I think they are going to do that,
Speaker 1: but I think they're going to have had more and
Speaker 1: more into fix income, more and more into safe stocks,
Speaker 1: not necessarily the gross stocks. I still believe that there's
Speaker 1: this somehow hope that we are going to renormalize with China.
Speaker 1: Right every Chinese headline that talks about some sort of normalization,
Speaker 1: reopening China bit gets really treated highly well. Everyone likes that.
Speaker 1: And yet we've had a steady trend away from China
Speaker 1: and to me with Taiwan. The one thing that's really
Speaker 1: accelerating is people reconsidering how they think about Southeast Asia
Speaker 1: as a whole. Right, this isn't back if we look
Speaker 1: two years ago, if you weren'ting to produce in China,
Speaker 1: you are likely to produce in Cambodia, at Thailand, Vietnam.
Speaker 1: Some are there. Companies who have the time are thinking
Speaker 1: of moving away from that area because it is clear
Speaker 1: that China has that ability ability to flex their might.
Speaker 1: They've developed what we call this bluewater navy. So a
Speaker 1: brown water navy is what China used to have, which
Speaker 1: is really a coastal navy. They are able to project
Speaker 1: their power much further into this blue water navy. They've
Speaker 1: set up the South Sea Islands, They've worked with the
Speaker 1: Solomon Islands to get planned. So I think you've got
Speaker 1: to be a little bit aware of their ability to
Speaker 1: blockade the region. To do things like that. Why bother
Speaker 1: in this day and age when there are alternatives? This
Speaker 1: was great just fascinating gun into an ex sason thinking
Speaker 1: about some of these political issues as well. Put to
Speaker 1: share that of academy securities. And right now we get
Speaker 1: lucky as previously booked with us. But let me tell you,
Speaker 1: I'd be dialing one eight hundred missooo right now. Stephen
Speaker 1: Rashido joins chief economists at missoo O. Stephen, just perfect
Speaker 1: time to have you on. I guess we can outdo
Speaker 1: guestimates of two two point two two point six three
Speaker 1: percent GDP, but I'm going to call that out of
Speaker 1: the textbooks a global recession? Are we heading for global recession?
Speaker 1: Even with buoyant China and India growth. I think what
Speaker 1: we're going to discover is that the industrialized economies are
Speaker 1: suffering to a great degree. And I don't think the
Speaker 1: rebounding China is going to be enough, because even though
Speaker 1: there is an opening up of China and there will
Speaker 1: be some rebounded underlying economic activity, a greater grip that
Speaker 1: the Communist Party has over the economy I think will
Speaker 1: limit its ability to really surprise to the upside, and
Speaker 1: that will wind up being a continuous headwind for the
Speaker 1: global economic environment. With that backdrop is the central banker
Speaker 1: to the world more restrictive than he thinks he is.
Speaker 1: Into the Many third press conference, does your own Powell
Speaker 1: face a forward restriction that's not priced into markets. Well,
Speaker 1: that's a good question. I think what you're really getting
Speaker 1: at in here is what is the right path for
Speaker 1: monetary policy at this juncture. The market seems to continue
Speaker 1: to believe that they're going to raise rates one more
Speaker 1: time and that'll break something, and we'll wind up break
Speaker 1: something even bigger than we've already broken, and that'll create
Speaker 1: an environment whether it be forced to cut interest rates
Speaker 1: later this year. I think the prudent path for monetary policy,
Speaker 1: and I think the debate that comes out of this
Speaker 1: week's fmc mans will lay the groundwork for the fact
Speaker 1: that it's more likely to be a pause with holding
Speaker 1: open the door or the wind night for additional rate
Speaker 1: hikes down the road. Oh, this is right where we
Speaker 1: have to go, because this came up. I'm going to
Speaker 1: say five six days ago. What mister Rashido is talking
Speaker 1: about their folks, is are we asymmetric in our view?
Speaker 1: Given an action, a tangible action by a central bank.
Speaker 1: So Stephen, they come out and they say pause, And
Speaker 1: I would say. The reigning school of thought is echoed
Speaker 1: by Matt Lozetti over Deutsche Bank, is if you pause,
Speaker 1: your next step asymmetrically has to be a cut. You
Speaker 1: don't agree with that. I don't agree with that at all. No,
Speaker 1: I think you have to let the dust set on.
Speaker 1: I think the details that you got out of the
Speaker 1: labor market report last Friday, and I think the way
Speaker 1: the inflation numbers this week and even the retail sales
Speaker 1: numbers at the end of the week are going to unfold,
Speaker 1: they're going to tell you that there's a lot more
Speaker 1: resilience in this economy than you thought. I still think
Speaker 1: you're going to go into a second half recession. But
Speaker 1: not all recessions are created equal. Some recessions are very
Speaker 1: very shallow recessions. Some recessions are very very deep recessions.
Speaker 1: And I think most people in this market right now
Speaker 1: only remember deep recessions. They don't really remember shallow recessions.
Speaker 1: If you go back to even the twenty twenty recession,
Speaker 1: it was a very very shallow recession, and there was
Speaker 1: a bit more of a systemic credit crunch in that
Speaker 1: than there is in this environment. There's a lot of
Speaker 1: videosyncratic risk. But there's the key difference. John Taylor at
Speaker 1: Stanford has lectured me on stabilizers. So we go under
Speaker 1: recession or we get a stabilizer, and one of them
Speaker 1: is fiscal oomph. Do we have the fiscal space to
Speaker 1: commit fiscal umph if we get a slowdown? Well, the
Speaker 1: question is where are we going in the recession. I mean,
Speaker 1: you know, we're starting from a three point five percent
Speaker 1: jobless rate. If we get back to four and a
Speaker 1: half percent, you know that's basically a balanced labor market environment.
Speaker 1: How much extra fiscal oomp do we really need in
Speaker 1: that environment? If we're talking about getting to five and
Speaker 1: a half six percent, then we're going to need something.
Speaker 1: But I don't see that coming through. The labor market
Speaker 1: is tight enough, and we saw that from the details
Speaker 1: of the jokes numbers. All the people that answered the
Speaker 1: labor for us, the bulk of them got jobs, which
Speaker 1: is why the unemployment rate drifted low. We're not upwards
Speaker 1: as expected. Okay, well, let's frame this right now, folks.
Speaker 1: And this comes back to what I mentioned at the
Speaker 1: top of the show. The fact is, with revisions and
Speaker 1: they'll change again, we've generated a million jobs in ninety days,
Speaker 1: you know, Steve and I, that's like price, that's like
Speaker 1: economy to perfection. And yet we're talking about negative non
Speaker 1: farm payrolls out there somewhere. We're talking about wages out
Speaker 1: there somewhere. Maybe you get some inflation. And I'm like,
Speaker 1: right now, sort of kind of like no, maybe, But
Speaker 1: the answer is, what's the rare shooto timeline here to
Speaker 1: the kind of labored data that forces a central bank
Speaker 1: to adjust? To me, that's completely ambiguous. Right now it is,
Speaker 1: and I think it's later rather than sooner. I think
Speaker 1: that's the real neck conclusion. If you want to get
Speaker 1: the best real time sense of what's happening in the
Speaker 1: labor market, just continue to follow the weekly unemployment claims.
Speaker 1: And I know a lot of people trying to make
Speaker 1: a lot of hay out of the revisions the claims
Speaker 1: numbers last week and everything. The reality you've got to
Speaker 1: get into that three hundred and fifty ish type range.
Speaker 1: Your kid, they start seeing a deterioration and claims and
Speaker 1: we're nowhere near that. This is really important, folks. I mean,
Speaker 1: I haven't brought this up. I'm doing it right now, folks.
Speaker 1: We can do this on the Bloomberg terminal. I bring
Speaker 1: up the four wall. I think a type correctly that
Speaker 1: would help I N J J C four. There it
Speaker 1: is the four week moving average of the Rashodo claims
Speaker 1: statistic two hundred and thirty seven. Right now, I didn't
Speaker 1: realize it was that high, Stephen, When was the last
Speaker 1: time we were at three something? And the answers a
Speaker 1: long time ago? Yeah, I mean, clearly we exceeded that
Speaker 1: during the COVID recession. But then when you go beyond that,
Speaker 1: back to the previous one, we remember we had one
Speaker 1: hundred and twenty eight month long expansion that led into
Speaker 1: the COVID environment. So if you'd get into those kind
Speaker 1: of claims now was outside of the COVID recession, you're
Speaker 1: going back, you know, twelve fourteen years. Okay, Well, how
Speaker 1: do we get back to a twelve or fourteen year
Speaker 1: labor economy? My textbooks say you don't do that unless
Speaker 1: you have a huge seventy four, seventy three, seventy four recession. Well, again,
Speaker 1: getting back to three hundred and fifteen claims would just
Speaker 1: be getting you to the three and the four and
Speaker 1: a half type unemployment statistic. To get to the five
Speaker 1: and a half percent number. Yeah, you're gonna need something
Speaker 1: more than mister Malpass was talking about in terms of
Speaker 1: the growth numbers for this year and next year or
Speaker 1: even for what the fellow Reserve is talking about. And
Speaker 1: I think the market is discounting that, and I think
Speaker 1: the reality is what we're seeing is that's not coming
Speaker 1: to fruition. Even the retail sales numbers that are coming
Speaker 1: out this Friday. People have a very very weak headline number.
Speaker 1: Unit automobile sales held in very very nicely in the
Speaker 1: latest month, and pricing is holding up. So it's hard
Speaker 1: to see that we're going to get the zero point
Speaker 1: five percent decline that people are looking for in retail sales.
Speaker 1: So I just looked it up in the Bloomberg while
Speaker 1: mister Roshudo was informing US folks three hundred thousand pre
Speaker 1: pandemic September of two fourteen. That's how far away you
Speaker 1: are from the reshooter caution well within that, and I
Speaker 1: noticed use cars being resilient as well. Steven, what's the
Speaker 1: microdata you need to inform our audience of right now?
Speaker 1: The acclaim bizoo microdata away from use cars? Well, I mean,
Speaker 1: I think what we're looking at in here is just
Speaker 1: general labor market tightness creating income and that income is
Speaker 1: real really the driving factor, and I think the fact
Speaker 1: they use car prices are holding up so well is
Speaker 1: one of the important indicators that showing you the households
Speaker 1: still have that income to drive the economy. And that's
Speaker 1: one of the reasons why I think the market's much
Speaker 1: too presumptuous in terms of the degree of economic slack.
Speaker 1: They're discounting it to forward structures of race and others
Speaker 1: including Neil dudda renaissance Stephen would say, if you get
Speaker 1: some rising income and even if you get a type
Speaker 1: of disinflation all of a sudden, real incomes inflation adjusted incomes,
Speaker 1: they're not gloomy. They may maintains some form of constructive tone.
Speaker 1: Is that the missooo model without a doubt, and the
Speaker 1: I think, going even beyond that, when you look at
Speaker 1: the balance sheet of the household sector and you look
Speaker 1: at how much income was generated and provided to households
Speaker 1: during the COVID environment, we still are the belief that
Speaker 1: their substantial amount of firepower left in the consumer and
Speaker 1: that that additional firepower will keep the economy more resilient
Speaker 1: and that's than argues for the Federal Reserve to keep
Speaker 1: rates higher for longer rather than pivoting. Is the market's anticipating, Well, then,
Speaker 1: what is your GDP number forward, I mean to the
Speaker 1: end of the year twelve months twenty twenty three is
Speaker 1: compared to what mister mail Pass of bear Stearns in
Speaker 1: the World Bank just commented on, Well, I mean, our
Speaker 1: view basically is the numbers at the Federal Reserve has
Speaker 1: laid out, which are basically that we're going to be
Speaker 1: in the very very shallow single digits this year, probably
Speaker 1: in the decimal point year over a year or fourth
Speaker 1: quarter over fourth quarter type GDP numbers followed up next
Speaker 1: year by only a one point one percent in twenty
Speaker 1: twenty four, So we have a bit more weakness in
Speaker 1: the near term than the official institutions have, but we
Speaker 1: don't really have much of a rebound either in twenty
Speaker 1: twenty four, and that I think is again another differentiating point. Right, Well,
Speaker 1: then let me finish that with what I heard from
Speaker 1: the managing director in Washington last week, Stephen Roshudo. You
Speaker 1: and I know how difficult this is to look out
Speaker 1: five months the IMF for the five year view the
Speaker 1: grimmest since nineteen ninety of three percentage sustained five year
Speaker 1: GDP real GDP. Does that get it done for the
Speaker 1: world against the demographics, The answer is probably yes. Part
Speaker 1: of the reason why you have this grim outlook for
Speaker 1: the next five years is the demographic situation, you know,
Speaker 1: the aging of the global population, especially in the industrialized world,
Speaker 1: the aging of the population in China. In particularly where
Speaker 1: again you know, men retire at fifty five and women
Speaker 1: retire at fifty. You know, you have a very very
Speaker 1: rapidly aging population and his population's age, you tend to
Speaker 1: see that reduced the overall potential ready to growth. Stephen Raschuto,
Speaker 1: thank you so much, greatly, greatly appreciate that with Missoi USA,
Speaker 1: very informative. There. Then we get this headline from from
Speaker 1: Teslas that both a large new battery factory and drum
Speaker 1: Row Shanghai, Shanghai. This is where the push is for
Speaker 1: that company at the moment. There it is for Elon
Speaker 1: Musk and we're gonna touch on that right now. Usually
Speaker 1: with Daniel Ives, senior equity research analyst at web Bush,
Speaker 1: we go to things larger cap and maybe more stable,
Speaker 1: but today we don't Dan, I'm Tesla. John wants to
Speaker 1: talk about Shanghai, and mister Musk, I want to talk
Speaker 1: about Muskie and brand destruction. I get the novelty of
Speaker 1: a price cut and then a second price cut and
Speaker 1: then a third one. Is Elon Musk committing brand destruction? Look,
Speaker 1: I think right now, I mean they're being aggressive on
Speaker 1: price cuts because competitions increasing and they got to put
Speaker 1: an iron fence around their custom base, and I think
Speaker 1: ultimately it's sacrificing margins for volumes and naturally the balance
Speaker 1: right now, I looked on the Masters, which is basically
Speaker 1: a Mercedes Benz commercial wandering around the beauty of the
Speaker 1: golf course, and Mercedes was flagging their electric vehicle. I'm
Speaker 1: sure I can't get until two twenty seven. Is that
Speaker 1: Gorgiosity that I saw driving around the Masters? Is that
Speaker 1: car going to compete with Elon? Yeah? Look, I think
Speaker 1: what's happened with Mercedes, I think with a while of
Speaker 1: the other European players, of course with Detroit in terms
Speaker 1: of you know, GM and Fordians increasing across the board.
Speaker 1: And that's why Tesla and Musk, that's why they're being
Speaker 1: so aggressive on price carts. Because This is right now
Speaker 1: an eve the arms race that's playing out. They have
Speaker 1: a queer lead. But that's why the price cuts right now.
Speaker 1: It's a necessary I'll call it near term pain for
Speaker 1: long term gain. That's so far paying out the town.
Speaker 1: You talked about who's got to stomach the pain, and
Speaker 1: it's not Testa, it's the competitors. Then, as you look
Speaker 1: at things, some of these big manufactress order manufactures on
Speaker 1: this massive investment cycle to shift towards a few who
Speaker 1: do you think is most vulnerable? Look, I think right
Speaker 1: now the one that has the most to gain and
Speaker 1: probably the most to lose is GM because I think
Speaker 1: they've laid out the Strategyy Marry and the team have
Speaker 1: done a great job, especially on the battery side. But
Speaker 1: you talk about hell to a different standard. Mean investors
Speaker 1: are lease are focused on the profits, on what that
Speaker 1: margins is. And for GM, you're competing against Tesla and
Speaker 1: that's gonna be the uphill battle here. But I believe
Speaker 1: GM is ultimately going to be successful. It's not a
Speaker 1: zero some games. There's gonna be many winners of this
Speaker 1: green tidal way of playing out. Don told to me
Speaker 1: about multiples, the appropriate multiple for these companies and how
Speaker 1: we should think about them exactly. Okay, I think what
Speaker 1: you're seeing here and I think one key earnings is
Speaker 1: going to be a key theme. Tax holding up a
Speaker 1: lot better than feared, and I think Moost, you're looking
Speaker 1: you're going into two twenty four numbers where I think growth,
Speaker 1: especially areas like software cyber security. You looking at growth
Speaker 1: anywhere from eighteen to twenty five percent. So I think
Speaker 1: multiples now are really starting to reflect what I viewer
Speaker 1: is a really growth elevated relative to a non growth environment.
Speaker 1: And that's why tech it's a green light in my opinion,
Speaker 1: to own these names. You know, Dan, you don't know
Speaker 1: this with John and I are on the phone all
Speaker 1: week and we're watching Liverpool get it done against Arsenal
Speaker 1: and we're going back and forth on questions for eyes
Speaker 1: and John just nailed it there. Where teslasm twenty four months,
Speaker 1: Let's say they're making twenty cents on the dollar right now,
Speaker 1: it's some form of margin down the income statement. Ford
Speaker 1: Motor is doing a half as much ten cents on
Speaker 1: the dollar. Does Teslam migrate from twenty cents on the
Speaker 1: dollar to ten cents on the dollar, and as they
Speaker 1: do it, Do they migrate from a tech darling to
Speaker 1: being a boring auto company. Yeah, And to that debat,
Speaker 1: I believe there's a line in the sand in terms
Speaker 1: of price cuts. And also they have the scale that
Speaker 1: no one else has in terms of from capacity from
Speaker 1: a battery perspective. That's really them flexing them muscles again
Speaker 1: in terms of what you saw with the China News
Speaker 1: over the weekend. And that's the difference right now. They have,
Speaker 1: you know, ultimately a really i'd say, you know, a
Speaker 1: multiple reath that's happening behind them, but they continue to
Speaker 1: be the queer leader and they have that margin leverage
Speaker 1: which enables them to do these price cuts. Okay, great,
Speaker 1: But if they have lithium batteries in Shanghai, what do
Speaker 1: they do? Are they moving over there? Because the environmental
Speaker 1: it's just they're not going to get as much heat
Speaker 1: from the Chinese government as they are if they plant
Speaker 1: the plan in Arizona or North Carolina. Look, they're starting
Speaker 1: to build out in the US. But the reality it's
Speaker 1: not just for Tasso, for Apple as well. I mean,
Speaker 1: you look at it, that's the hearts and lungs of
Speaker 1: the supply chain of their production. And I don't really
Speaker 1: see that changing dramatically in the near term, despite what
Speaker 1: we're seeing from the tour to area occurred, and I
Speaker 1: think that's really what we're hearing out of Tassela, and
Speaker 1: I think that's something investors understand that's going to be
Speaker 1: a balance, and Kirk is no different. In Coupertino two
Speaker 1: or two area code, I think that's Washington. Thanks for transplant.
Speaker 1: I appreciate that. I actually detonate that. Just to wrap
Speaker 1: things up, investments in Russia became stranded assets, particularly after
Speaker 1: what's developed with Ukraina for the last twelve months or so. Dan,
Speaker 1: do you see a similar risk on the horizon? How
Speaker 1: do you think about that issue at the moment with
Speaker 1: regards to China and Taiwan and some of the investments
Speaker 1: the US based companies are making in the mainland at
Speaker 1: the moment. Look, I think right now it's clearly a
Speaker 1: broad or risk, but I think if you look from
Speaker 1: an investor perspective, it's contained. And I think the China
Speaker 1: Taiwan right now, bark's still worse than a bite. And
Speaker 1: that's why you look at names like Apple and Tessa,
Speaker 1: look at what those stocks are doing. I think investors
Speaker 1: are sort of looking through that risk right now, although
Speaker 1: obviously it's something in the horizon that that's ultimately going
Speaker 1: to be reflecting. These stocks just want to ful gave
Speaker 1: few on things. And because every second here with this
Speaker 1: incredibly important guest is important, we're going to get right
Speaker 1: to it with a gentleman from King's College in Cambridge,
Speaker 1: Adam Two's joins us now with Columbia at university. But
Speaker 1: that barely describes this contribution to this discussion we're having
Speaker 1: on what our world looks like at one year, two years,
Speaker 1: three years. What's the difference between King's College and Queen's
Speaker 1: College at Cambridge? Like do they fight? Do they fight
Speaker 1: each other at different chapels? Wells were competition? Are they
Speaker 1: like far apart from each other? It can two minutes
Speaker 1: on each other, okay, but they're barely on speaking. We
Speaker 1: should get unl area at something behind doing that joke.
Speaker 1: That's it's a really an impressive contribution he's making. It's
Speaker 1: he was very emotional about it. Actually I mentioned it
Speaker 1: to him and he said, what's so important? He didn't
Speaker 1: expect this was these super bright kids from really difficult
Speaker 1: backgrounds that have to make this huge jump to the
Speaker 1: high falutin culture of Cambridge University. Yeah, it's can be
Speaker 1: quite abiding. It was intimidating. Right now, we're going to
Speaker 1: intimidate ourselves for the most important essay into these IMF meetings.
Speaker 1: With great respect to Adam Posen, who I thought had
Speaker 1: a great essay on globalization, Adam Two's in the Financial
Speaker 1: Times where he writes often with a superb essay on
Speaker 1: the state of where we are in this new higher inflation.
Speaker 1: At the beginning of your essay, Professor Two's, you speak
Speaker 1: about we're trying to have pain free crises. I spoke
Speaker 1: to a leading government official in two thousand and eight
Speaker 1: about this. We're trying to let the zambie zambie out.
Speaker 1: We're trying to not have moral hazard. We're trying to
Speaker 1: be pain free in our crises. How do we get
Speaker 1: out of that difficult process. Well, it's a funny way
Speaker 1: of describing the world of last year, right, I mean,
Speaker 1: in the sense that the bond market took the biggest
Speaker 1: hit in its history. And what I'm kind of focused
Speaker 1: on there is this question of how the double whammy
Speaker 1: of this sudden, sudden, unexpected surge in inflation and the
Speaker 1: concomitant increase in interest rates. Well, that does to the
Speaker 1: balance of the biggest market that really matters, the fixed
Speaker 1: income market, and there is this huge trillion dollars shift underway.
Speaker 1: Part of it is simply lost to and on the
Speaker 1: accounts of the fixed income investors. Part of it's a
Speaker 1: kind of real transfer in that if we have a
Speaker 1: sudden shop, an unanticipated shot to the price level, it
Speaker 1: shifts the balance between creditors and debtors. And we are
Speaker 1: seeing swings, say in the debt to GDP ratio, which
Speaker 1: is the standard measure of fiscal space that we've never
Speaker 1: seen before, twenty percent shifts in the US debt to
Speaker 1: GDP level over a matter of eighteen months to two years.
Speaker 1: And mondays who do math later in the conversation, we'll
Speaker 1: get to that in a moment. You end your wonderful
Speaker 1: essay by parsing the haves and the have nuts. The
Speaker 1: cynics out there will say, we'll just blow up. And
Speaker 1: with this huge surgeon interest rates, by definition they have
Speaker 1: the elites win and everybody else's crushed. Is it that gloomy?
Speaker 1: We're not seeing that in the data so far, right,
Speaker 1: because the people who have money on the line in
Speaker 1: the fixed income market are generally the haves, right, This
Speaker 1: is the top end of the income distribution. The entire struggle,
Speaker 1: if you like, between taxpayers on one end of this
Speaker 1: and bondholders on the other, is played out in the
Speaker 1: top twenty to thirty percent of the wealth distribution. The
Speaker 1: question I ask at the end, and I think we
Speaker 1: all have to be cognizant of, is what's happening to
Speaker 1: those folks who basically live paycheck to paycheck. They are
Speaker 1: at a flow economy in not a stock economy. And
Speaker 1: what we've seen across the world for all of the
Speaker 1: wage price spirals is falling real wages and that we
Speaker 1: really need to be laser focused on as a long
Speaker 1: term effect of this sudden anticipated inflation. There was a
Speaker 1: huge study at London School of Economics where your work
Speaker 1: to think of robins and back before that beverage. Are
Speaker 1: we in for a slag? Here is the managing director
Speaker 1: of the IMF talked about last week a sub three
Speaker 1: percent David moult bess out moments ago with two percent.
Speaker 1: Is it a slog for the next five years with
Speaker 1: permanent week real wages? I think it critically depends on
Speaker 1: where you look in the world economy, and I think
Speaker 1: that's where the IMF World Bank gloom is coming from.
Speaker 1: If you look at the emerging market low income world,
Speaker 1: we're definitely in a slog scenario. Their recovery from COVID
Speaker 1: was much much tamer. Indeed, in many countries it's barely happened,
Speaker 1: whereas in the United States we're dealing with a very
Speaker 1: strange situation of a really buoyant labor market but with
Speaker 1: falling real wages for much of the time, right month
Speaker 1: after months, we've seen falling real wages. So it's a
Speaker 1: it's a strange reallocation and the priorities are rebalancing between
Speaker 1: employers and workers. There's an incredible common ground between Kenneth
Speaker 1: Rogoff of Harvard and Olivier Blanchard of a school down
Speaker 1: the river at called Massachusetts Institute of Technology, And of
Speaker 1: course between the two they look at the future and
Speaker 1: they say, what will growth be. Olivier Blanchard suggests a
Speaker 1: more lower permanent our starred maybe there's many with him,
Speaker 1: and ken Rogoff is much more suspective of new high
Speaker 1: permanence to inflation. Where do you fit into that debate.
Speaker 1: I'm somebody who I think thinks we're going to find
Speaker 1: it hard to get back to two percent, right. I
Speaker 1: think that is really going to be where the rubber
Speaker 1: hits the road. The decisions right now, I think are
Speaker 1: relatively strange. And Richard claridare writing in The Economists last week.
Speaker 1: He's been such a friend of the show on our
Speaker 1: fed days. He agrees with you. Clarda as a former
Speaker 1: vice chairman, goes, you got to go two point xx yeah,
Speaker 1: because I just don't see the final squeeze down that
Speaker 1: the paid is going to be massively disproportionate for the
Speaker 1: benefit that we get that bringing inflation under control. When
Speaker 1: you're in the eight to ten percent rate, right, you
Speaker 1: do it. But once you get down in the four
Speaker 1: to two percent, this is also a Blanchard point, Right,
Speaker 1: you really have to begin to think hard about what
Speaker 1: the trade offs are at that level. We're somewhere away
Speaker 1: from having that problem quite yet, but you know that,
Speaker 1: I think for Europe as well, is going to be
Speaker 1: a really tough choice. In everyone's life. There's a moment
Speaker 1: where it crystallizes. One of them for me was a
Speaker 1: my grandfather showed me his bond book from the nineteen twenties,
Speaker 1: and one day he made a three percent coupon all
Speaker 1: of Icano Babel. What's it mean for investment? Do we
Speaker 1: get to forget about transitory in the Babbel now? But
Speaker 1: do we get to a new permanence of a lower
Speaker 1: rate regime in investment? I think the tendency is to
Speaker 1: go back there. I don't think we are going to
Speaker 1: stay at the kind of interest rates that we're currently at.
Speaker 1: Are we going to go back to the zero rate,
Speaker 1: the negative rate world that Japan that's off the table now,
Speaker 1: I think, And so the balance shifts there into a
Speaker 1: world where you have to pay for my but you're
Speaker 1: not paying. You're not paying hard. If you're in the
Speaker 1: privileged group out there in the emerging market, low income world,
Speaker 1: it's tougher there. The rates are in the Nosebley territory.
Speaker 1: We welcome all of you, and particularly on Bloomberg Radio,
Speaker 1: Adam two's with US of Columbia University as we begin
Speaker 1: our coverage of the IMF from the World Bank into
Speaker 1: this week in Washington at tomorrow. Okay, let's go there, Adam.
Speaker 1: Everybody's work up on a Monday morning. Italy, Italy has
Speaker 1: had a debt improvement that is absolutely superb Explain why
Speaker 1: it is a mystery. It is a fog of optimism
Speaker 1: where Italy is in much more trouble than the recent numbers.
Speaker 1: Un debt to GDP would say, yeah, I mean this
Speaker 1: is the classic case of a nominal GDP recovery. Right,
Speaker 1: this is what we've been begging for for years now,
Speaker 1: just some juice in the European economy. We've got juice.
Speaker 1: We've got juice. We saw seven percent DiPT in the
Speaker 1: debt to GDP rat show. That takes us out of
Speaker 1: terror territory, right, It takes us out of the territory
Speaker 1: where we constantly worry about Italian spreads. We also have
Speaker 1: a backstop from the ECB. The longer term questions are
Speaker 1: really all about whether you can sustain that when inflation
Speaker 1: does come down, and that's where the worry is. You
Speaker 1: were citing earlier on the demographic numbers for it. But demographic,
Speaker 1: I think we shouldn't overdo the biological. It's about politics,
Speaker 1: It's about institutions. The crucial factor with Italy is not
Speaker 1: so much, as it were, the quantity of labor. It's
Speaker 1: the quality of labor. It's the capital they have to
Speaker 1: work with. Its investment. It's investment in the university system
Speaker 1: in Italy, which is incredibly dilapidated at this point. It's
Speaker 1: rebalancing public expenditure, which is hard to do from the
Speaker 1: old to the young, so as to dynamize growth. You
Speaker 1: do that, you don't have to worry that much about
Speaker 1: the demographic side of this as the key driver. Right.
Speaker 1: So I think it's really about the politics, and we
Speaker 1: see how hard those are in France. Right you try
Speaker 1: and move the retirement age by two years and you
Speaker 1: have somethink akin to an uprising. Right, So figuring out
Speaker 1: a good politics of this shift, of how we mobilize
Speaker 1: an aging population and maximize the quality of labor it's available,
Speaker 1: that's where I think a small politics needs to be. Oh,
Speaker 1: we're going to continue this discussion. We're out of time, Adam,
Speaker 1: but you've got to come back and we've got to
Speaker 1: do like an hour discussion or something. We have to
Speaker 1: figure this out, Adam. Two's leading off intellectually, I think
Speaker 1: for all of these IMF meetings, really the first post
Speaker 1: pandemic meetings we've had with a phenomenal essay in the
Speaker 1: ft I'll get it out to you here. I put
Speaker 1: it out a number of times in the last number
Speaker 1: of days. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify,
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