WEBVTT - Surveillance: Peak Yields with Rajappa 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Farrell and Lisa Abramowits. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best in economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:31.600 the Bloomberg Terminal and the Bloomberg Business Apps. Batterish Appa 0:00:31.680 --> 0:00:34.440 of silk Gen expecting another twenty five basis point hike 0:00:34.680 --> 0:00:37.400 at the fed's main meeting before holding rates study for 0:00:37.400 --> 0:00:39.240 the rest of the year. This is what's the batteris 0:00:39.240 --> 0:00:40.479 got to say at the moment, Tom, with the team 0:00:40.479 --> 0:00:43.840 at sulk Gen, with sticky inflation, a strong labor market 0:00:43.880 --> 0:00:46.280 and a Brasilian consumer WI, do you not expect the 0:00:46.360 --> 0:00:49.640 FED to pivot quickly brace for more volatility and rates 0:00:50.000 --> 0:00:52.400 and the curve. This is the tension at the moment again, 0:00:52.440 --> 0:00:55.240 We're playing this game again, the separation between fattest guiding 0:00:55.280 --> 0:00:57.640 us towards in their projections and what this market is 0:00:57.680 --> 0:00:59.800 price for and this market is price for a lot 0:00:59.840 --> 0:01:02.800 of counts. And what's important here is a sack and 0:01:02.880 --> 0:01:05.480 heritage of derivatives where they slice and dice all of 0:01:05.520 --> 0:01:08.600 the different dynamics. So Broder, what is the dynamic of 0:01:08.680 --> 0:01:12.319 service sector inflation that you see right now? That's a 0:01:12.480 --> 0:01:15.120 very good question, Tom, because the tug of war is 0:01:15.120 --> 0:01:20.440 really between the services side inflation higher rents, at least 0:01:20.440 --> 0:01:22.640 in the first half, which is going to really dictate 0:01:22.640 --> 0:01:26.960 what the thinking is on CPI. And we really this 0:01:27.040 --> 0:01:30.240 week's report in CPI is going to be very interesting 0:01:30.319 --> 0:01:33.720 because we might start seeing Mason signs of a cooling 0:01:33.760 --> 0:01:36.160 and the housing market, which is what we're looking to see. 0:01:36.760 --> 0:01:38.920 But that's really more of a second half story than 0:01:38.920 --> 0:01:42.320 a first half story. But you know, the services sector, 0:01:42.319 --> 0:01:45.319 broadly speaking, is a chordinary strong. People have jobs. You've 0:01:45.319 --> 0:01:48.120 got a very very strong jobs report. So as long 0:01:48.120 --> 0:01:51.360 as people are employed, you're going to see more spending 0:01:51.360 --> 0:01:54.160 and more services side inflation. So Broder, in your research 0:01:54.280 --> 0:01:56.680 note of a while back, you go all birds on us. 0:01:56.760 --> 0:02:00.280 You've got the Roger mcgwinn David Crosby channeling here, and 0:02:00.400 --> 0:02:03.640 you say, turn, turn turn. Is that what we're doing 0:02:03.760 --> 0:02:06.240 right now? We're going all birds in two every season 0:02:06.680 --> 0:02:11.520 or turn turn turn. Yeah, I mean the big question 0:02:11.600 --> 0:02:13.840 coming into this year. For us was when is that 0:02:13.919 --> 0:02:18.480 turn going to be. Was it October of last year 0:02:18.560 --> 0:02:21.280 when telling yeals peaked at for a quarter percent, or 0:02:21.280 --> 0:02:24.360 are we going to see another high in yeals before 0:02:24.400 --> 0:02:27.960 we start seeing a steady decline. Our view has been that, 0:02:29.040 --> 0:02:31.519 you know, yields peaked in the fourth quarter of last year, 0:02:31.639 --> 0:02:34.079 and then yields should gradually decline during the course of 0:02:34.120 --> 0:02:37.600 the year. But again, accurately pinpointing where that turn is 0:02:37.600 --> 0:02:40.520 on inflation is going to be extraordinarily difficult in an 0:02:40.600 --> 0:02:44.720 environment like this, because you're looking at a variety of factors, 0:02:44.840 --> 0:02:47.040 you know, sort of the push and pull between sometimes 0:02:47.160 --> 0:02:51.000 higher energy prices leading to higher headline inflation. Sometimes it's 0:02:51.080 --> 0:02:53.440 it's certain sectors on the on the services side of 0:02:53.480 --> 0:02:57.000 the economy that are that are pushing higher. Rents are 0:02:57.040 --> 0:02:59.639 going to remain high for the first half of the year. 0:03:00.080 --> 0:03:01.880 Second half the year, we should see some easing in 0:03:01.919 --> 0:03:04.680 rents and shelter costs, but really call it causing that 0:03:05.080 --> 0:03:08.639 in Calling that turn is going to be very, very difficult. 0:03:08.680 --> 0:03:12.000 But it looks to us like you'll seem to have peaked. 0:03:12.080 --> 0:03:14.600 It feels like we have one more hike in the 0:03:14.680 --> 0:03:16.799 cards for the for the main meeting, and the Fed 0:03:16.880 --> 0:03:19.560 keeps policy stable for the remainder of the year. Why 0:03:19.800 --> 0:03:23.160 because of the fact that the employment picture is still 0:03:23.200 --> 0:03:25.840 pretty strong. The labor market as well as the consumer 0:03:25.840 --> 0:03:28.760 are still pretty resilient. So nearly the flow through has 0:03:28.800 --> 0:03:31.600 to come perhaps from tachning credit conditions, which is what 0:03:31.720 --> 0:03:34.480 you're starting to see in the banking sector a little bit. 0:03:34.560 --> 0:03:37.440 How important was that data on Friday that alluded to 0:03:37.480 --> 0:03:40.320 some of that subantra, Yeah, I know, it was very 0:03:40.360 --> 0:03:43.440 important in my In my view, we've been tracking uh, 0:03:43.480 --> 0:03:46.920 you know, both the FEDS h DOT four data as 0:03:46.920 --> 0:03:49.960 well as the h DOT eight data to see what 0:03:50.080 --> 0:03:52.200 the takeoff has been in some other facilities, as well 0:03:52.200 --> 0:03:56.880 as what the deposit runoffs have been from from smaller banks. Um, 0:03:56.920 --> 0:03:58.560 you know, I think it last few a couple of 0:03:58.560 --> 0:04:02.680 weeks back, we had you know, Dallas FED President x 0:04:02.800 --> 0:04:09.160 Dallas FED President Kaplan talk about the credit conditions broadly 0:04:09.320 --> 0:04:13.960 tightening for small and medium sized banks almost ceasing. I mean, 0:04:14.000 --> 0:04:16.520 when you see this sort of tremendous amount of deposit 0:04:16.560 --> 0:04:19.640 outclass coming from the smaller banks, guess what the smaller 0:04:19.640 --> 0:04:22.440 and medium mid sized banks are going to really tighten 0:04:22.480 --> 0:04:26.240 credit conditions, and that's really where you're seeing a credit crunch. 0:04:26.400 --> 0:04:28.960 It's not in the top ten banks, it's in the 0:04:29.000 --> 0:04:32.280 small to medium size banks, mid sized banks where you're 0:04:32.320 --> 0:04:34.200 seeing that sort of tightening of credit conditions are a 0:04:34.240 --> 0:04:36.280 credit crunch, as we would call it. So batter I've 0:04:36.279 --> 0:04:39.240 asked this question a few times mixed responses so far 0:04:39.800 --> 0:04:42.080 on Friday. What do you consider to be the more 0:04:42.120 --> 0:04:46.320 important data point, the data that you alluded to just 0:04:46.440 --> 0:04:49.800 moments ago talked about or the payroll support that came 0:04:49.839 --> 0:04:52.880 earlier in the morning. I think both. I mean, that's 0:04:52.880 --> 0:04:57.039 what makes this whole fair equation very confusing, because they're 0:04:57.080 --> 0:05:03.280 trying awaigh financial stability concerns over inflation and employment, you know, 0:05:03.320 --> 0:05:07.680 being quite strong and inflation continue to rise, and that's 0:05:07.720 --> 0:05:10.680 the balancing app that the FED has to, you know, 0:05:10.720 --> 0:05:14.800 play meeting after meeting. I think that they're going to 0:05:14.839 --> 0:05:20.000 really focus on getting rates to a certain level, which 0:05:20.000 --> 0:05:21.800 we think is around five to five and a quarter 0:05:21.839 --> 0:05:25.679 percent and FED funds and then keep policy stable while 0:05:25.720 --> 0:05:30.479 they assess an actual stability concerns across this arc. Will 0:05:30.560 --> 0:05:35.360 foreigners continue to bid for bills, notes and bonds? Absolutely, 0:05:35.400 --> 0:05:37.680 I mean, look at what's happening. You're all the cash 0:05:37.760 --> 0:05:41.320 that's going out of the smaller region exactly into the 0:05:41.360 --> 0:05:43.920 into the larger banks, is going all into into money 0:05:43.960 --> 0:05:47.960 market funds. Why, because cash is keen. That's really where 0:05:47.960 --> 0:05:50.400 you want to keep your money if you don't know 0:05:50.440 --> 0:05:52.040 how things are going to pan out in a high 0:05:52.120 --> 0:05:55.360 volatility environment. And this is typical of end of cycle 0:05:55.480 --> 0:05:59.160 dynamics that you see in almost every FED cycle, is 0:05:59.200 --> 0:06:02.039 that the market has to be very volatile, you know, 0:06:02.040 --> 0:06:03.680 because we don't really know how things are going to 0:06:03.720 --> 0:06:07.240 pan out. And in that sort of environment, it probably 0:06:07.320 --> 0:06:10.080 makes sense to put your money in cash. And this time, 0:06:10.120 --> 0:06:13.560 relative to past cycles, you're actually getting a pretty decent 0:06:13.640 --> 0:06:16.720 return in putting your money to money market funds. So 0:06:17.040 --> 0:06:19.960 you're seeing this rush to rush you put money to 0:06:20.000 --> 0:06:24.040 money market funds. You're seeing demand from foreign investors for 0:06:24.480 --> 0:06:28.359 short term investments. On a duration adjusted basis, your returns 0:06:28.360 --> 0:06:31.080 are pretty good. By being in the very very front 0:06:31.120 --> 0:06:34.880 end of the treasy curve. I look at the treasury 0:06:34.920 --> 0:06:39.400 curve and I'm sorry, give me the mystery here of 0:06:39.520 --> 0:06:43.239 curve disinversion. Janet's the one thing not in the literature 0:06:43.320 --> 0:06:45.920 right now. And a messages of station recently. Tell yeah, 0:06:46.120 --> 0:06:48.520 is a vision of where where's the curve and version 0:06:48.600 --> 0:06:50.640 going to be in six months or a year? I'm 0:06:50.680 --> 0:06:54.800 not hearing about this. So we've actually looked at past 0:06:54.920 --> 0:06:59.560 cycles and what we notice is that typically when the 0:06:59.640 --> 0:07:02.840 curve of inverts or where peak conversion is, and then 0:07:02.920 --> 0:07:05.359 about after peak conversion of a year, about six months 0:07:05.360 --> 0:07:09.240 after that is when defense policy starts to pivot. So 0:07:09.640 --> 0:07:12.040 I think we've probably seen peak conversion. We've seen a 0:07:12.080 --> 0:07:15.560 pretty dramatic rise in the two stents part of the 0:07:15.560 --> 0:07:18.160 eel curve and the deepening of peel curve. That tends 0:07:18.200 --> 0:07:20.440 to be sort of a leading indicator in my view 0:07:21.000 --> 0:07:23.840 of the risk of a recession or a meaningful surround 0:07:23.880 --> 0:07:27.160 and the economy. So again, you know, a peak conversion 0:07:27.480 --> 0:07:32.360 looks like it's behind us. If policy is U is 0:07:32.440 --> 0:07:34.840 on a pivot, this is kind of you're getting. You're 0:07:34.840 --> 0:07:37.520 starting to see nascent signs, if you will, of a 0:07:37.560 --> 0:07:42.760 switch in the policy from hiking to perhaps more easing 0:07:42.840 --> 0:07:45.960 posture or easing bias, if you will, so, Patra, wonderful, 0:07:45.960 --> 0:07:48.000 O Kate if you on this pad market as always, 0:07:48.000 --> 0:07:50.280 thanks for beaming with a spatra men Jampa there of 0:07:50.360 --> 0:08:02.960 suck gen with us this morning around the type one 0:08:02.960 --> 0:08:05.440 place to site, pay to chip at a macro strategy 0:08:05.640 --> 0:08:08.320 at Academy Security, it's moaning Pat Morning, John, which might 0:08:08.320 --> 0:08:10.640 cannot pay ROSA put on Friday, leaves the door opened 0:08:10.640 --> 0:08:12.960 green life for the FED to come again. My fit. Yeah, 0:08:13.000 --> 0:08:14.480 I think there were some mixed parts of the data, 0:08:14.520 --> 0:08:16.320 but if the Fed wants to go, they've got the 0:08:16.320 --> 0:08:18.080 excuse to go. Twenty five BIPs. We've got a lot 0:08:18.080 --> 0:08:20.040 more data coming out. I think they should have stopped. 0:08:20.040 --> 0:08:22.000 I think they should have passed last time and just said, hey, 0:08:22.080 --> 0:08:23.720 let's see what goes on with the banking, because I 0:08:23.800 --> 0:08:26.760 think that's a bigger concern. But they seem intent on 0:08:26.960 --> 0:08:30.080 driving rates higher, so they'll use that LORI kieviously, you 0:08:30.080 --> 0:08:33.760 know looks the neutral urine. Timor says, you know, there's 0:08:33.840 --> 0:08:36.680 a set of fears out there which leads to just nowhere. 0:08:37.040 --> 0:08:40.000 I love what you say. You call it the comfort zone. 0:08:40.200 --> 0:08:43.520 Define the comfort zone right now now. I think we're 0:08:43.559 --> 0:08:46.280 all waiting to see how the economic data plays out. 0:08:46.280 --> 0:08:49.120 It's generally been weak, it's been turning back down after 0:08:49.200 --> 0:08:51.960 a really strong string, and finally we gets to the earnings. 0:08:52.000 --> 0:08:53.720 I think the earnings are what's going to actually drive it. 0:08:53.760 --> 0:08:55.320 The biggest thing I'm looking for in this kind of 0:08:55.320 --> 0:08:58.240 comfort zone is to see how company how the market 0:08:58.240 --> 0:09:00.640 responds to, say, weak earnings. Do we get a huge 0:09:00.679 --> 0:09:02.520 bounce on weak earnings, I'll tell me that I'm being 0:09:02.520 --> 0:09:05.480 too barished. If we actually don't respond well to earnings, 0:09:05.480 --> 0:09:07.959 then I think that we had lower Is it ten stocks, 0:09:07.960 --> 0:09:11.640 seven stocks, twenty stocks, or can it broaden out given 0:09:11.880 --> 0:09:14.600 a more optimistic tone, I think the market's still going 0:09:14.679 --> 0:09:16.559 to take its cues from those ten to twenty stocks 0:09:16.600 --> 0:09:18.480 that we've been looking to for a while. I think 0:09:18.520 --> 0:09:20.080 you can hide out and do very well. And some 0:09:20.120 --> 0:09:22.920 of these stocks that have underperformed I'm certainly looking at, 0:09:23.040 --> 0:09:26.000 like the Russell two thousand verses the Nasdaq one hundred. 0:09:26.080 --> 0:09:28.920 The underperformance has been stark, and it's been unusual because 0:09:29.000 --> 0:09:31.079 high yield's done well, and usually if the Russell two 0:09:31.080 --> 0:09:34.320 thousand's doing well, high yields struggling for it tends to 0:09:34.320 --> 0:09:36.679 be a correlation. So maybe that's what we get. Does 0:09:36.720 --> 0:09:39.920 he no, Bramo's not here. He does he's a wind 0:09:40.080 --> 0:09:41.839 Oh that's why he's doing it, just to fill in 0:09:42.320 --> 0:09:45.040 give credit to mad Time. Pete. Talk to me about 0:09:45.040 --> 0:09:47.920 bank lending data, the bank lending data that we got 0:09:47.960 --> 0:09:50.400 on Friday. How important is that going to be for 0:09:50.480 --> 0:09:53.840 this market going forward? So some people will take the 0:09:53.840 --> 0:09:56.040 fact that the banks are boring less from the emergency 0:09:56.080 --> 0:09:58.520 facilities is a good sign. I would agree with that, 0:09:58.559 --> 0:10:01.840 except we saw a big in bank lending as a whole. 0:10:02.080 --> 0:10:03.960 So I think banks are pulling back on the lending, 0:10:04.000 --> 0:10:05.520 which is why they don't need to borrow as much. 0:10:05.640 --> 0:10:08.240 That's negative. And we also saw the tenth straight week 0:10:08.280 --> 0:10:10.400 of deposit outflows of the reason I believe sixty five 0:10:10.520 --> 0:10:13.640 sixty seven billion of deposit outflows. And my concern is 0:10:13.679 --> 0:10:18.240 that we've shifted from a credit risk concern to just like, wow, 0:10:18.360 --> 0:10:20.920 my bank's only paying point two percent or point four percent. 0:10:21.240 --> 0:10:23.240 I can get three three and a half four percent 0:10:23.280 --> 0:10:25.680 relatively easy. So I think you see that drain on 0:10:25.679 --> 0:10:28.640 the banking system continue. That's going to affect lending. So 0:10:28.679 --> 0:10:30.600 this is just a slow burn, I think, and it's 0:10:30.640 --> 0:10:32.439 going to be a big headwin for the economy. Why 0:10:32.440 --> 0:10:34.200 do you believe that's a signal of what's to come 0:10:34.440 --> 0:10:36.679 and not just the reflection of what's happened over the 0:10:36.760 --> 0:10:38.400 last month. You know, I think part of it is 0:10:39.040 --> 0:10:40.760 I tend to view these things as cycles. Right, So 0:10:40.800 --> 0:10:43.280 we get this negative data, everyone's worried about banks, everyone's 0:10:43.280 --> 0:10:45.199 worried about the faults. So you go into panic mode. 0:10:45.360 --> 0:10:48.160 Then you take it back. Now you get that time. Okay, 0:10:48.160 --> 0:10:50.599 maybe we have too much money sitting in bank deposits. 0:10:50.640 --> 0:10:52.760 What do we do with it? And that's a multi week, 0:10:52.760 --> 0:10:55.120 maybe a multi month process for a lot of corporations 0:10:55.120 --> 0:10:56.560 to go through. Right, We've got to figure out can 0:10:56.559 --> 0:10:58.320 we do it? How do we manage this? So I 0:10:58.360 --> 0:11:00.800 think that's a slower process, But that's the phase that 0:11:00.800 --> 0:11:02.720 we've moved into, and a lot of that's just coming 0:11:02.720 --> 0:11:05.640 from discussions with customers. I've got to ask you, because 0:11:05.679 --> 0:11:11.720 more than anyone on Global Wall Street, you have you 0:11:11.800 --> 0:11:16.320 have Academy securities, you have a military vision, a set 0:11:16.320 --> 0:11:20.319 of board of people completely tied into geopolitics, which is 0:11:20.360 --> 0:11:23.559 what we're hearing about each and every day. James Travitas 0:11:23.720 --> 0:11:27.560 wrote two thirty four, Are we there now? Is what 0:11:27.679 --> 0:11:30.760 he wrote about that would be out there somewhere. Does 0:11:30.800 --> 0:11:33.800 your board think it's now? And how does that play 0:11:33.800 --> 0:11:36.040 into the investment guests? So, yeah, We've got the nineteen 0:11:36.080 --> 0:11:39.240 retired generals and admirals who serves this Geopolitical intelligence group. 0:11:39.720 --> 0:11:42.319 We see the world probably as the most dangerous it's 0:11:42.320 --> 0:11:45.120 been in a long time. And whether it's Russia, Ukraine, 0:11:45.160 --> 0:11:47.560 whether we're now seeing tensions pick up in the Middle 0:11:47.559 --> 0:11:49.760 East with Iran. We do not like the fact that 0:11:49.840 --> 0:11:52.280 China seems to be getting the Saudiast to embrace China 0:11:52.280 --> 0:11:55.120 a little bit more, playing us away. So everywhere we look, 0:11:55.160 --> 0:11:58.160 I think there's this danger. It's growing, and I'm getting 0:11:58.160 --> 0:12:00.200 a little bit nervous that a lot of investors pay 0:12:00.200 --> 0:12:02.679 lip service to geopolitical risk but then kind of push 0:12:02.720 --> 0:12:04.120 it off. Oh this is too far down the future. 0:12:04.120 --> 0:12:06.079 Oh this is five years away, ten years away. Oh 0:12:06.400 --> 0:12:08.319 I'm an American company, How does this impact me? While 0:12:08.320 --> 0:12:10.280 it's going to impact rates, it's going to impact everything. 0:12:10.440 --> 0:12:12.200 So I think we're being a little bit too complacent 0:12:12.240 --> 0:12:15.199 on the geopolitical front. Gold over two thousand and yet 0:12:15.240 --> 0:12:18.440 Peter Shears saying, look at the Russell two thousand. Which 0:12:18.480 --> 0:12:22.240 two thousand do I want own gold or the speculation 0:12:22.320 --> 0:12:24.320 of the Russell two thousand. You know, for now, I 0:12:24.400 --> 0:12:26.760 think probably neither. I can watch gold. I try not 0:12:26.800 --> 0:12:28.600 to get too involved in gold. It's almost a religion 0:12:28.640 --> 0:12:31.320 to me. So I just did ever feel like I've 0:12:31.320 --> 0:12:33.480 got a good handle on gold. On the Russell two thousand, 0:12:33.520 --> 0:12:34.959 I'm watching. I want to see how Arnie's got my 0:12:35.040 --> 0:12:37.320 little bit barish on stocks. But if I get positive, 0:12:37.360 --> 0:12:39.959 that's where I jump into Pete. You mentioned that maybe 0:12:39.960 --> 0:12:43.360 people were underestimating, under appreciating what was developing on the 0:12:43.400 --> 0:12:46.120 geopolitical front. Well, let me ask you the question what 0:12:46.160 --> 0:12:48.040 should people be doing? And I think that's what they 0:12:48.040 --> 0:12:49.920 struggle with. They see the news of it a weekend, 0:12:50.160 --> 0:12:54.520 ministry drills, military exercises from China around the island of Taiwan. 0:12:55.160 --> 0:12:58.199 People to sit here and say, sin it before it's important, 0:12:58.200 --> 0:12:59.760 I'll keep it on it. What are they meant to do? 0:13:00.280 --> 0:13:01.920 You know? I think you're supposed to be lightning up 0:13:01.920 --> 0:13:03.520 on some of the tech companies there will be most 0:13:03.520 --> 0:13:05.760 effective of anything happens there. We don't see anything imminent 0:13:05.800 --> 0:13:09.920 happening there yet, there's this further element of fear. I 0:13:09.920 --> 0:13:11.840 think you're supposed to be looking though to South America 0:13:11.920 --> 0:13:14.120 Mexico countries that we are ultimately going to have to 0:13:14.120 --> 0:13:17.080 shift production too. I think you're telling me to sell 0:13:17.160 --> 0:13:20.240 Apple and go long Bolivia. I don't talk about any 0:13:20.240 --> 0:13:23.480 individual stocks, but I'm certainly lightning up on QQQ, for example. 0:13:23.880 --> 0:13:25.880 Are you lightning up Okay, let me put you can't 0:13:25.880 --> 0:13:27.599 talk about single names, so let me freight it. In 0:13:27.640 --> 0:13:30.160 another way, are you lightning up on companies that have 0:13:30.240 --> 0:13:34.080 direct to exposure to China, to the mainland tech firms? 0:13:34.160 --> 0:13:36.200 In that sense, you're lightning up on chipmakers that get 0:13:36.200 --> 0:13:38.040 caught up in the cross test A little bit of 0:13:38.040 --> 0:13:39.839 people thinking about it. I think that's a little part 0:13:39.840 --> 0:13:41.599 of it. It's also more driven right now by the 0:13:41.640 --> 0:13:44.200 fact that I think people are expecting this lower rates 0:13:44.240 --> 0:13:47.040 and a fad to juice up all these stocks, just 0:13:47.080 --> 0:13:49.240 like it did in two and twenty. I don't think 0:13:49.240 --> 0:13:50.719 that's going to play out the same way. So I'm 0:13:50.760 --> 0:13:52.439 thinking we're going to get some earnings, We're gonna get 0:13:52.480 --> 0:13:54.720 some fear coming out of those companies. So on the 0:13:54.760 --> 0:13:57.120 long side, then when you say get long some of 0:13:57.120 --> 0:14:00.280 these Latin American stories the near shore or in so 0:14:00.440 --> 0:14:03.480 to speak, is that an FX trite set a bonds trite? 0:14:03.600 --> 0:14:05.160 Is that an equity trite? What is that? I think 0:14:05.200 --> 0:14:06.280 you can do it a little bit of each. I 0:14:06.320 --> 0:14:08.360 think you're going to have closer relationships, and I don't 0:14:08.360 --> 0:14:09.679 think it's an urgent trade. You don't have to put 0:14:09.679 --> 0:14:10.760 all your money in there, but you want to be 0:14:10.880 --> 0:14:13.280 kind of trading those from the longside and building and 0:14:13.480 --> 0:14:16.200 cumulating a larger position. Mexico's has got its own set 0:14:16.200 --> 0:14:18.319 of dangers. It's you know, basically at some point we're 0:14:18.320 --> 0:14:20.760 going to have civil war. Is probably too strong, but 0:14:20.800 --> 0:14:22.440 either the cartel is going to have to get pushed 0:14:22.480 --> 0:14:25.200 back on to have the real development, or that's also 0:14:25.240 --> 0:14:27.560 going to be a problem. So there's no easy answer. 0:14:27.680 --> 0:14:31.240 But there with these geopolitical tensions, whether it's across this 0:14:31.320 --> 0:14:34.560 board of that board of the other or distant and removed, 0:14:35.320 --> 0:14:43.680 doesn't Global Wall Street find comfort in American equities institutional basis? 0:14:43.680 --> 0:14:46.320 What's the Norwegian Sovereign Wealth Fund going to do? At 0:14:46.360 --> 0:14:48.280 the margin? So I think they are going to do that, 0:14:48.320 --> 0:14:49.400 but I think they're going to have had more and 0:14:49.400 --> 0:14:51.320 more into fix income, more and more into safe stocks, 0:14:51.320 --> 0:14:53.880 not necessarily the gross stocks. I still believe that there's 0:14:53.880 --> 0:14:57.000 this somehow hope that we are going to renormalize with China. 0:14:57.120 --> 0:15:00.800 Right every Chinese headline that talks about some sort of normalization, 0:15:00.880 --> 0:15:05.440 reopening China bit gets really treated highly well. Everyone likes that. 0:15:05.920 --> 0:15:08.680 And yet we've had a steady trend away from China 0:15:08.760 --> 0:15:11.080 and to me with Taiwan. The one thing that's really 0:15:11.080 --> 0:15:14.560 accelerating is people reconsidering how they think about Southeast Asia 0:15:14.560 --> 0:15:16.880 as a whole. Right, this isn't back if we look 0:15:16.920 --> 0:15:19.000 two years ago, if you weren'ting to produce in China, 0:15:19.040 --> 0:15:21.400 you are likely to produce in Cambodia, at Thailand, Vietnam. 0:15:21.520 --> 0:15:23.760 Some are there. Companies who have the time are thinking 0:15:23.800 --> 0:15:26.160 of moving away from that area because it is clear 0:15:26.200 --> 0:15:29.320 that China has that ability ability to flex their might. 0:15:29.680 --> 0:15:32.240 They've developed what we call this bluewater navy. So a 0:15:32.280 --> 0:15:34.440 brown water navy is what China used to have, which 0:15:34.480 --> 0:15:36.920 is really a coastal navy. They are able to project 0:15:36.920 --> 0:15:39.440 their power much further into this blue water navy. They've 0:15:39.440 --> 0:15:41.640 set up the South Sea Islands, They've worked with the 0:15:41.680 --> 0:15:44.240 Solomon Islands to get planned. So I think you've got 0:15:44.240 --> 0:15:46.480 to be a little bit aware of their ability to 0:15:46.480 --> 0:15:49.200 blockade the region. To do things like that. Why bother 0:15:49.280 --> 0:15:51.400 in this day and age when there are alternatives? This 0:15:51.480 --> 0:15:54.040 was great just fascinating gun into an ex sason thinking 0:15:54.080 --> 0:15:56.880 about some of these political issues as well. Put to 0:15:56.920 --> 0:16:04.760 share that of academy securities. And right now we get 0:16:04.840 --> 0:16:07.600 lucky as previously booked with us. But let me tell you, 0:16:07.640 --> 0:16:10.880 I'd be dialing one eight hundred missooo right now. Stephen 0:16:10.960 --> 0:16:15.120 Rashido joins chief economists at missoo O. Stephen, just perfect 0:16:15.120 --> 0:16:18.400 time to have you on. I guess we can outdo 0:16:18.600 --> 0:16:21.760 guestimates of two two point two two point six three 0:16:21.840 --> 0:16:24.920 percent GDP, but I'm going to call that out of 0:16:24.920 --> 0:16:30.359 the textbooks a global recession? Are we heading for global recession? 0:16:30.760 --> 0:16:34.920 Even with buoyant China and India growth. I think what 0:16:35.000 --> 0:16:39.120 we're going to discover is that the industrialized economies are 0:16:39.240 --> 0:16:42.200 suffering to a great degree. And I don't think the 0:16:42.320 --> 0:16:46.200 rebounding China is going to be enough, because even though 0:16:46.240 --> 0:16:48.480 there is an opening up of China and there will 0:16:48.520 --> 0:16:52.560 be some rebounded underlying economic activity, a greater grip that 0:16:52.640 --> 0:16:56.160 the Communist Party has over the economy I think will 0:16:56.240 --> 0:17:00.200 limit its ability to really surprise to the upside, and 0:17:00.280 --> 0:17:04.000 that will wind up being a continuous headwind for the 0:17:04.040 --> 0:17:08.159 global economic environment. With that backdrop is the central banker 0:17:08.200 --> 0:17:11.040 to the world more restrictive than he thinks he is. 0:17:11.080 --> 0:17:14.520 Into the Many third press conference, does your own Powell 0:17:14.640 --> 0:17:20.200 face a forward restriction that's not priced into markets. Well, 0:17:20.560 --> 0:17:22.520 that's a good question. I think what you're really getting 0:17:22.520 --> 0:17:25.000 at in here is what is the right path for 0:17:25.160 --> 0:17:28.719 monetary policy at this juncture. The market seems to continue 0:17:28.760 --> 0:17:31.560 to believe that they're going to raise rates one more 0:17:31.600 --> 0:17:35.080 time and that'll break something, and we'll wind up break 0:17:35.160 --> 0:17:38.280 something even bigger than we've already broken, and that'll create 0:17:38.320 --> 0:17:40.880 an environment whether it be forced to cut interest rates 0:17:41.280 --> 0:17:44.879 later this year. I think the prudent path for monetary policy, 0:17:44.920 --> 0:17:46.600 and I think the debate that comes out of this 0:17:46.640 --> 0:17:49.640 week's fmc mans will lay the groundwork for the fact 0:17:49.720 --> 0:17:52.480 that it's more likely to be a pause with holding 0:17:52.560 --> 0:17:55.600 open the door or the wind night for additional rate 0:17:55.680 --> 0:17:57.439 hikes down the road. Oh, this is right where we 0:17:57.480 --> 0:17:59.040 have to go, because this came up. I'm going to 0:17:59.080 --> 0:18:02.520 say five six days ago. What mister Rashido is talking 0:18:02.520 --> 0:18:06.439 about their folks, is are we asymmetric in our view? 0:18:07.160 --> 0:18:10.560 Given an action, a tangible action by a central bank. 0:18:10.960 --> 0:18:13.880 So Stephen, they come out and they say pause, And 0:18:13.920 --> 0:18:16.200 I would say. The reigning school of thought is echoed 0:18:16.200 --> 0:18:19.400 by Matt Lozetti over Deutsche Bank, is if you pause, 0:18:19.760 --> 0:18:22.879 your next step asymmetrically has to be a cut. You 0:18:22.920 --> 0:18:25.879 don't agree with that. I don't agree with that at all. No, 0:18:26.119 --> 0:18:28.040 I think you have to let the dust set on. 0:18:28.160 --> 0:18:29.840 I think the details that you got out of the 0:18:29.920 --> 0:18:32.920 labor market report last Friday, and I think the way 0:18:32.920 --> 0:18:35.879 the inflation numbers this week and even the retail sales 0:18:35.960 --> 0:18:38.359 numbers at the end of the week are going to unfold, 0:18:38.400 --> 0:18:40.360 they're going to tell you that there's a lot more 0:18:40.400 --> 0:18:43.000 resilience in this economy than you thought. I still think 0:18:43.000 --> 0:18:45.320 you're going to go into a second half recession. But 0:18:45.440 --> 0:18:48.720 not all recessions are created equal. Some recessions are very 0:18:48.800 --> 0:18:52.800 very shallow recessions. Some recessions are very very deep recessions. 0:18:52.960 --> 0:18:55.120 And I think most people in this market right now 0:18:55.200 --> 0:18:59.840 only remember deep recessions. They don't really remember shallow recessions. 0:19:00.000 --> 0:19:02.080 If you go back to even the twenty twenty recession, 0:19:02.440 --> 0:19:06.040 it was a very very shallow recession, and there was 0:19:06.040 --> 0:19:08.119 a bit more of a systemic credit crunch in that 0:19:08.480 --> 0:19:10.240 than there is in this environment. There's a lot of 0:19:10.280 --> 0:19:13.720 videosyncratic risk. But there's the key difference. John Taylor at 0:19:13.760 --> 0:19:17.280 Stanford has lectured me on stabilizers. So we go under 0:19:17.320 --> 0:19:19.560 recession or we get a stabilizer, and one of them 0:19:19.640 --> 0:19:23.199 is fiscal oomph. Do we have the fiscal space to 0:19:23.400 --> 0:19:27.840 commit fiscal umph if we get a slowdown? Well, the 0:19:27.920 --> 0:19:30.480 question is where are we going in the recession. I mean, 0:19:30.520 --> 0:19:32.600 you know, we're starting from a three point five percent 0:19:32.680 --> 0:19:34.639 jobless rate. If we get back to four and a 0:19:34.680 --> 0:19:38.880 half percent, you know that's basically a balanced labor market environment. 0:19:39.119 --> 0:19:41.919 How much extra fiscal oomp do we really need in 0:19:41.920 --> 0:19:44.199 that environment? If we're talking about getting to five and 0:19:44.240 --> 0:19:46.959 a half six percent, then we're going to need something. 0:19:47.000 --> 0:19:50.000 But I don't see that coming through. The labor market 0:19:50.160 --> 0:19:52.479 is tight enough, and we saw that from the details 0:19:52.520 --> 0:19:54.680 of the jokes numbers. All the people that answered the 0:19:54.760 --> 0:19:57.359