1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane along 2 00:00:09,200 --> 00:00:12,720 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jay Lee. We 3 00:00:12,840 --> 00:00:16,759 Speaker 1: bring you insight from the best and economics, finance, investment, 4 00:00:17,079 --> 00:00:22,400 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, 5 00:00:22,800 --> 00:00:26,240 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg terminal. 6 00:00:28,400 --> 00:00:30,440 Speaker 1: Let's get the way it starts it in a very 7 00:00:30,520 --> 00:00:32,600 Speaker 1: very good way. We can do that with Lori Cavassin 8 00:00:32,640 --> 00:00:35,280 Speaker 1: at the head of US equity strategy at RBC Capital Markets. 9 00:00:35,360 --> 00:00:36,960 Speaker 1: Laura saw your likes nowe and I think it's an 10 00:00:37,000 --> 00:00:40,280 Speaker 1: important one to address. Can you establish a major bottom 11 00:00:40,280 --> 00:00:45,280 Speaker 1: before we've seen the big EPs forecast cuts? The truth 12 00:00:45,320 --> 00:00:47,159 Speaker 1: of the matter, John you is and I keep getting that. 13 00:00:47,280 --> 00:00:49,680 Speaker 1: I keep I keep getting that question from clients. And 14 00:00:49,720 --> 00:00:52,080 Speaker 1: it's not only that you can get the market bottom 15 00:00:52,080 --> 00:00:54,080 Speaker 1: while earnings estimates are coming down, but if you go 16 00:00:54,120 --> 00:00:56,960 Speaker 1: back and you look at major periods of stress like 17 00:00:57,120 --> 00:01:02,040 Speaker 1: the tech bubble, like like only sixteen industrial recession, that 18 00:01:02,160 --> 00:01:03,920 Speaker 1: is often the case that the stock market puts on 19 00:01:04,000 --> 00:01:07,520 Speaker 1: the bottom several months while before you actually flip back 20 00:01:07,520 --> 00:01:11,399 Speaker 1: into positive revision territory. So I'm not sitting here telling 21 00:01:11,400 --> 00:01:14,480 Speaker 1: you that reducing earnings estimates further isn't going to be 22 00:01:14,520 --> 00:01:16,240 Speaker 1: a headwind for the market. I think that it is, 23 00:01:16,560 --> 00:01:18,680 Speaker 1: But in my mind it's something that causes us to 24 00:01:18,720 --> 00:01:21,880 Speaker 1: merely retest the June lows, maybe check another swing low 25 00:01:21,920 --> 00:01:23,679 Speaker 1: at them. But I think we probably did put the 26 00:01:23,720 --> 00:01:27,040 Speaker 1: low for the cycle in place in June. Were sentiment 27 00:01:27,160 --> 00:01:31,600 Speaker 1: this morning. So someone asked me this question last week 28 00:01:31,640 --> 00:01:33,640 Speaker 1: and I said, you know, percent of the people I 29 00:01:33,680 --> 00:01:36,160 Speaker 1: talked to are still barish, about fifteen per cent or bullish. 30 00:01:36,200 --> 00:01:38,679 Speaker 1: It did feel like, you know, maybe over the last 31 00:01:38,720 --> 00:01:42,000 Speaker 1: couple of weeks that bullish cohort grew from about five 32 00:01:42,040 --> 00:01:44,959 Speaker 1: to fifteen percent. But if you look at the CFTC 33 00:01:45,160 --> 00:01:48,080 Speaker 1: data and just want to get the quantitative read, I 34 00:01:48,120 --> 00:01:51,600 Speaker 1: think that sentiment and NAZDAC has become euphoric again. Futures 35 00:01:51,640 --> 00:01:53,800 Speaker 1: positioning is getting close to the highs that we've seen 36 00:01:53,840 --> 00:01:55,760 Speaker 1: in recent years. But if you look at something like 37 00:01:55,840 --> 00:01:59,160 Speaker 1: small cap, the DAL futures, or even SMP futures, we 38 00:01:59,200 --> 00:02:02,120 Speaker 1: are still very much in the early days of recovering 39 00:02:02,160 --> 00:02:04,760 Speaker 1: off of an extreme low in the case of small cap, 40 00:02:04,800 --> 00:02:07,120 Speaker 1: in the Dow off of new lows that were below 41 00:02:07,160 --> 00:02:10,720 Speaker 1: PAN or below a great financial crisis lows. So I 42 00:02:10,760 --> 00:02:12,320 Speaker 1: think it's a bit of a mix. I think there 43 00:02:12,360 --> 00:02:14,760 Speaker 1: are some pockets of euphoria, but I do think overall 44 00:02:14,800 --> 00:02:18,040 Speaker 1: positioning has still been pretty depressed, and sentiment reflects that 45 00:02:18,280 --> 00:02:20,360 Speaker 1: Lorie was going to drive small caps higher at a 46 00:02:20,400 --> 00:02:22,840 Speaker 1: time when you see consumer sentiment falling off a cliff 47 00:02:22,840 --> 00:02:26,720 Speaker 1: and consumer spending, while still resilient, showing signs of weakening 48 00:02:26,720 --> 00:02:30,120 Speaker 1: pretty much across the board. So I think the issue 49 00:02:30,120 --> 00:02:32,880 Speaker 1: with small caps is that they have very clearly banked 50 00:02:32,880 --> 00:02:35,480 Speaker 1: in a recession at this point in time, We've gone 51 00:02:35,480 --> 00:02:37,600 Speaker 1: through a bunch of the numbers. UM. What we have 52 00:02:37,680 --> 00:02:39,600 Speaker 1: seen essentially is that if you look at small caps 53 00:02:39,639 --> 00:02:42,280 Speaker 1: against jobless claims, they're already baking in a pretty big 54 00:02:42,320 --> 00:02:44,839 Speaker 1: spike from here. Even with the recent move that we've 55 00:02:44,840 --> 00:02:47,880 Speaker 1: seen up in small cap recently, small caps are also 56 00:02:47,960 --> 00:02:50,639 Speaker 1: baking in a trough like move, a plunge really in 57 00:02:50,720 --> 00:02:53,560 Speaker 1: I S N manufacturing that hasn't happened yet, it's probably coming. 58 00:02:53,800 --> 00:02:56,240 Speaker 1: It is baked into the small cap stocks UM. But 59 00:02:56,320 --> 00:02:59,400 Speaker 1: I think the other issue that we see is that historically, 60 00:02:59,720 --> 00:03:02,919 Speaker 1: long term investors know that recessions are usually good buying 61 00:03:02,919 --> 00:03:05,639 Speaker 1: opportunities for small cap. They sniff out the pain early on, 62 00:03:05,840 --> 00:03:08,360 Speaker 1: they sniff out the recovery early on, and at the 63 00:03:08,440 --> 00:03:10,240 Speaker 1: end of the day, small cap is really, I think 64 00:03:10,280 --> 00:03:12,640 Speaker 1: the one part of the market that has clearly baked 65 00:03:12,639 --> 00:03:16,079 Speaker 1: in an economic downturn. Glauria, over my break, I was 66 00:03:16,160 --> 00:03:19,120 Speaker 1: thinking a lot about the talk about re shoring or 67 00:03:19,200 --> 00:03:23,079 Speaker 1: on shoring a lot of manufacturing from China from Asia 68 00:03:23,200 --> 00:03:25,960 Speaker 1: in response to some of the supply chain disruptions. Is 69 00:03:26,000 --> 00:03:29,040 Speaker 1: this more talk than action? Are you actually seeing this 70 00:03:29,160 --> 00:03:32,359 Speaker 1: on the ground with small caps? So I don't think 71 00:03:32,360 --> 00:03:34,480 Speaker 1: we're seeing it in a massive way yet, but I 72 00:03:34,520 --> 00:03:37,400 Speaker 1: will tell you Lisa and my recent travels with investors, 73 00:03:37,480 --> 00:03:40,760 Speaker 1: that issue is something that small cap portfolio managers are 74 00:03:40,840 --> 00:03:43,720 Speaker 1: highly engaged on and highly focused on, particularly when it 75 00:03:43,760 --> 00:03:46,400 Speaker 1: comes to the industrial sector. And there is a view 76 00:03:46,400 --> 00:03:49,200 Speaker 1: out there from professional money manners who specialize in this space. 77 00:03:49,400 --> 00:03:51,120 Speaker 1: But that will ultimately be a good thing for the 78 00:03:51,120 --> 00:03:54,400 Speaker 1: small cap industrial stocks. It may ultimately be challenging for 79 00:03:54,520 --> 00:03:57,000 Speaker 1: margins for the bigger cap companies um, but there is 80 00:03:57,040 --> 00:03:58,360 Speaker 1: a view that this is something that's going to be 81 00:03:58,400 --> 00:04:00,280 Speaker 1: a tail one for the small cap space and hasn't 82 00:04:00,280 --> 00:04:02,320 Speaker 1: really played out yet. Laurie, I've got you at forty 83 00:04:02,320 --> 00:04:04,880 Speaker 1: two hundred year end on the SMP five hundred. I've 84 00:04:04,880 --> 00:04:08,080 Speaker 1: got the market on Friday at the close at what 85 00:04:08,200 --> 00:04:11,720 Speaker 1: now what you tell clients? So look, I think that 86 00:04:11,800 --> 00:04:14,480 Speaker 1: the argument that valuations are too high right now, I 87 00:04:14,480 --> 00:04:16,840 Speaker 1: think that's kind of a thin argument for saying we 88 00:04:16,960 --> 00:04:18,760 Speaker 1: got to peek out right now. I do think it's 89 00:04:18,760 --> 00:04:21,560 Speaker 1: a concerning data point. It reigns in my enthusiasm through 90 00:04:21,560 --> 00:04:23,400 Speaker 1: the end of the year. We're close to twenty times 91 00:04:23,400 --> 00:04:26,440 Speaker 1: my numbers for next year and this year. Um, But 92 00:04:26,520 --> 00:04:28,839 Speaker 1: I do think that you know, these are year in targets, John, 93 00:04:28,839 --> 00:04:30,280 Speaker 1: We're trying to guess where the market is going to 94 00:04:30,360 --> 00:04:33,440 Speaker 1: be on December thirty one, not high it's gonna achieve 95 00:04:33,480 --> 00:04:35,880 Speaker 1: this year. So I do think that we're setting up 96 00:04:35,880 --> 00:04:38,960 Speaker 1: for further volatility in the very short term, especially if 97 00:04:38,960 --> 00:04:40,839 Speaker 1: we get favorable messages at the end of the week 98 00:04:40,839 --> 00:04:42,760 Speaker 1: from Powell. I could see this thing going just a 99 00:04:42,839 --> 00:04:45,599 Speaker 1: little bit longer, just based on how low and extreme 100 00:04:45,640 --> 00:04:48,040 Speaker 1: the positioning has been. But I do think if we're 101 00:04:48,040 --> 00:04:49,839 Speaker 1: being intellectually honest, we have to set up for some 102 00:04:49,920 --> 00:04:52,359 Speaker 1: choppiness and volatility through the end of the year. Laurie 103 00:04:52,400 --> 00:04:56,520 Speaker 1: awesome as always, Laurie Cavastin and that of obvious capital markets. 104 00:05:01,000 --> 00:05:03,560 Speaker 1: Right now we get a voice on China. Ian Shepherdson 105 00:05:03,640 --> 00:05:06,080 Speaker 1: joined us. We could talk fifteen things with the chief 106 00:05:06,080 --> 00:05:10,479 Speaker 1: economists at Pantheon Macroeconomics, but the duration of his Chinese 107 00:05:10,560 --> 00:05:16,000 Speaker 1: slowdown is jaw dropping. Ian Shepherdson models out twenty four months. 108 00:05:16,040 --> 00:05:19,239 Speaker 1: It's three and five percent, make it four percent China 109 00:05:19,360 --> 00:05:21,760 Speaker 1: g d P. What does that do I into the 110 00:05:21,880 --> 00:05:27,880 Speaker 1: labor mandate that Beijing needs and hairs. Yeah, it's a problem. 111 00:05:28,040 --> 00:05:30,440 Speaker 1: We just cut our China forecast. We just don't see 112 00:05:30,440 --> 00:05:34,120 Speaker 1: any bottom yet to the real estate disaster. Prices falling, 113 00:05:34,200 --> 00:05:37,720 Speaker 1: volumes falling, no sign of affix coming through. And it's 114 00:05:37,720 --> 00:05:39,479 Speaker 1: a huge trunk of the economy. It's been a big 115 00:05:39,480 --> 00:05:42,600 Speaker 1: engine of growth for the last couple of decades and 116 00:05:42,680 --> 00:05:44,640 Speaker 1: it has not found a flaw yet. So it's gonna 117 00:05:44,680 --> 00:05:47,200 Speaker 1: put real pressure on the labor market, real pressure on 118 00:05:47,240 --> 00:05:48,960 Speaker 1: the authorities, and I think the bottom line is that 119 00:05:49,000 --> 00:05:51,960 Speaker 1: they will have to be some substantial policy action from 120 00:05:51,960 --> 00:05:55,800 Speaker 1: the center from beating because the local authorities who effectively 121 00:05:55,880 --> 00:05:58,000 Speaker 1: right now are being tasked with dealing with this mess 122 00:05:58,080 --> 00:06:00,880 Speaker 1: just don't have the resources. So this entral government, which 123 00:06:00,920 --> 00:06:03,440 Speaker 1: is resisting eventually it's going to have to fold, is 124 00:06:03,480 --> 00:06:04,720 Speaker 1: going to have to step in with a lot of 125 00:06:04,760 --> 00:06:07,200 Speaker 1: public money and try and try and put a floor 126 00:06:07,240 --> 00:06:09,360 Speaker 1: under the under the problem, because if they don't, they're 127 00:06:09,360 --> 00:06:11,920 Speaker 1: going to find an economy that is way, way weaker 128 00:06:11,960 --> 00:06:14,400 Speaker 1: than they want for a very extended period. And that's 129 00:06:14,400 --> 00:06:16,120 Speaker 1: a threat. That's a real threat to them, and a 130 00:06:16,160 --> 00:06:18,800 Speaker 1: threat to the global economy as well, because obviously China 131 00:06:18,839 --> 00:06:21,400 Speaker 1: is such a big part of global growth, especially through 132 00:06:21,400 --> 00:06:25,840 Speaker 1: the manufacturing sector. In the ambiguities of inflation Ian Shepherdson, 133 00:06:26,400 --> 00:06:32,359 Speaker 1: do they export disinflation and deflation, thus making some of 134 00:06:32,360 --> 00:06:38,479 Speaker 1: the inflation fear cause of the West maybe overrut Yeah, 135 00:06:38,800 --> 00:06:42,159 Speaker 1: the margin I mean, you know, Chinese inflation PPI inflation, 136 00:06:42,160 --> 00:06:44,400 Speaker 1: which passes through into Europe and into the US, you know, 137 00:06:44,560 --> 00:06:47,560 Speaker 1: is really rolling over, no question about that. But I 138 00:06:47,560 --> 00:06:49,520 Speaker 1: think it's important to appreciate that the bulk of the 139 00:06:49,560 --> 00:06:52,760 Speaker 1: inflation shock in the US especially, but but also in Europe, 140 00:06:53,320 --> 00:06:56,440 Speaker 1: apart from energy in the core, has been through margin 141 00:06:56,520 --> 00:07:01,320 Speaker 1: expansion in the retail services, say too so that's not 142 00:07:01,440 --> 00:07:03,840 Speaker 1: really China contingent. That's really been more a story of 143 00:07:04,080 --> 00:07:07,599 Speaker 1: booming consumer spending against constraint supply. But you know, right now, 144 00:07:07,880 --> 00:07:10,960 Speaker 1: central banks everywhere we'll take anything they can get, and 145 00:07:11,040 --> 00:07:13,440 Speaker 1: if you know, the slow down inflation in China gives 146 00:07:13,440 --> 00:07:15,480 Speaker 1: them a little bit of room from over that, that's great, 147 00:07:15,880 --> 00:07:17,800 Speaker 1: but it's not going to be the heart of the 148 00:07:17,880 --> 00:07:20,280 Speaker 1: of the disinflation story in the US over the next year. 149 00:07:20,440 --> 00:07:23,559 Speaker 1: And of course Europe is still struggling with the energy 150 00:07:23,560 --> 00:07:26,280 Speaker 1: inflation shock, which is much bigger and it's likely to 151 00:07:26,280 --> 00:07:28,200 Speaker 1: have been much more persistent. So we've still got some 152 00:07:28,240 --> 00:07:30,760 Speaker 1: really big problems. Let's talk about u K s Whaler 153 00:07:31,160 --> 00:07:33,080 Speaker 1: and I don't own the rights to that one. And 154 00:07:33,360 --> 00:07:35,240 Speaker 1: how bad are things going to get in the UK 155 00:07:35,640 --> 00:07:40,200 Speaker 1: and across Europe for that matter too. Well, Europe's in 156 00:07:40,280 --> 00:07:42,640 Speaker 1: recession now already. I mean that that's that's pretty obvious. 157 00:07:42,640 --> 00:07:44,920 Speaker 1: Now we see that lasting for a while, there's easy 158 00:07:44,960 --> 00:07:48,120 Speaker 1: be still gonna hike because you know, the German influence 159 00:07:48,120 --> 00:07:50,160 Speaker 1: on the anti inflation story is very intense. So we're 160 00:07:50,160 --> 00:07:51,880 Speaker 1: going to get at fifty bids at the next meeting. 161 00:07:52,360 --> 00:07:54,680 Speaker 1: UK is different. I mean, I think there's a reasonable 162 00:07:54,720 --> 00:07:58,400 Speaker 1: chance of inflation. Sorry, recession can be averted, but only 163 00:07:58,600 --> 00:08:01,120 Speaker 1: if the new Prime minis to who presumably will be 164 00:08:01,240 --> 00:08:04,120 Speaker 1: Liz trust in two weeks time, takes some more drastic 165 00:08:04,160 --> 00:08:06,720 Speaker 1: action to bail out households from the energy price shock. 166 00:08:07,160 --> 00:08:10,320 Speaker 1: So now that isn't a promise right now, it's a forecast, 167 00:08:10,480 --> 00:08:12,320 Speaker 1: and you know it could be wrong. They might not 168 00:08:12,440 --> 00:08:14,560 Speaker 1: do it, which would be crazy given the pressure the 169 00:08:14,640 --> 00:08:17,080 Speaker 1: households are under, and that probably would mean the UK 170 00:08:17,120 --> 00:08:19,240 Speaker 1: would end up been recession lated this year. But right 171 00:08:19,280 --> 00:08:21,960 Speaker 1: now I kind of think the politics pointing towards doing 172 00:08:22,000 --> 00:08:25,800 Speaker 1: something more aggressive, effectively handing households more money and with 173 00:08:25,840 --> 00:08:29,040 Speaker 1: a bit of look that will allow the consumer sector 174 00:08:29,080 --> 00:08:31,360 Speaker 1: to just take over through the second half of the 175 00:08:31,760 --> 00:08:34,320 Speaker 1: preventory session, but it's going to be a close run thing. 176 00:08:34,360 --> 00:08:36,480 Speaker 1: And of course the bankming I still gonna be raising right, 177 00:08:36,559 --> 00:08:39,199 Speaker 1: so there's a real squeeze going on there which is 178 00:08:39,280 --> 00:08:43,120 Speaker 1: unlikely to abate anytime soon. So just avoiding recession, that's 179 00:08:43,160 --> 00:08:45,360 Speaker 1: not the same as the forecast of everything being okay. 180 00:08:45,800 --> 00:08:47,480 Speaker 1: It isn't and it isn't going to be okay for 181 00:08:47,520 --> 00:08:50,959 Speaker 1: the foreseeable future in the UK because you know, even 182 00:08:51,000 --> 00:08:53,719 Speaker 1: if the energy price thing goes away, you've still got 183 00:08:53,760 --> 00:08:57,000 Speaker 1: the lingering catastrophe that is Brexit, dragging the whole economy 184 00:08:57,000 --> 00:09:00,520 Speaker 1: down essentially for the foreseeable future. And it's a looking 185 00:09:00,520 --> 00:09:02,720 Speaker 1: across Europe. Just how love is the bar in Europe? 186 00:09:02,720 --> 00:09:08,360 Speaker 1: Can they afford recession? Well, they've got one now. It's 187 00:09:08,640 --> 00:09:10,680 Speaker 1: it's probably not going to be very deep or very long, 188 00:09:10,800 --> 00:09:12,880 Speaker 1: though that does depend to some extent on what happens 189 00:09:12,880 --> 00:09:16,920 Speaker 1: to energy prices. But but they're in in recession already, 190 00:09:17,480 --> 00:09:20,760 Speaker 1: h and you know, a turnaround probably will come at 191 00:09:20,760 --> 00:09:22,960 Speaker 1: some point next year, but we've got to get through 192 00:09:23,000 --> 00:09:26,000 Speaker 1: the worst of it first. So things are a real mess. 193 00:09:26,040 --> 00:09:29,280 Speaker 1: There's no growth momentum anywhere in Europe. The only place 194 00:09:29,280 --> 00:09:32,120 Speaker 1: where I can see any growth momentum coming through before 195 00:09:32,120 --> 00:09:33,720 Speaker 1: the end of the year is probably in the US, 196 00:09:33,760 --> 00:09:35,600 Speaker 1: and even there it's going to be patchy because the 197 00:09:35,640 --> 00:09:39,920 Speaker 1: housing markets are catastrophe. Manufacturing is under pressure from the 198 00:09:39,960 --> 00:09:43,080 Speaker 1: business is being nervous about energy prices. But it's nowhere 199 00:09:43,120 --> 00:09:45,560 Speaker 1: near as bad as it is in Europe. And I 200 00:09:45,559 --> 00:09:48,160 Speaker 1: think that the US is going to avoid recession quite comfortably, 201 00:09:48,280 --> 00:09:50,439 Speaker 1: which of course is why markets are getting nervous because 202 00:09:50,480 --> 00:09:52,600 Speaker 1: and I'm thinking, well, you know, the US isn't going 203 00:09:52,679 --> 00:09:55,400 Speaker 1: to move into recession and the FED is not yet 204 00:09:55,400 --> 00:09:57,839 Speaker 1: talking Davis Lee, so we've seen this upper pressure on 205 00:09:57,920 --> 00:10:01,760 Speaker 1: heels again. You're making me sound rosy. I'm thinking about this. 206 00:10:01,840 --> 00:10:05,600 Speaker 1: Housing is a catastrophe. Nothing is positive in Europe. At 207 00:10:05,640 --> 00:10:08,719 Speaker 1: what point has this been priced in already and at 208 00:10:08,760 --> 00:10:12,520 Speaker 1: what point is this something that requires a much broader 209 00:10:12,800 --> 00:10:19,360 Speaker 1: and more drastic repricing of risk acids across the board. Well, 210 00:10:19,400 --> 00:10:20,760 Speaker 1: that's a good question. I think a lot of this 211 00:10:20,840 --> 00:10:22,560 Speaker 1: is is priceding. I mean, if you if you're not 212 00:10:22,600 --> 00:10:25,640 Speaker 1: expecting a recession in Europe now, you probably haven't been 213 00:10:25,640 --> 00:10:27,679 Speaker 1: paying attention. So I think that that story is pretty 214 00:10:27,679 --> 00:10:30,559 Speaker 1: well understood. Now. The question is what do we get 215 00:10:30,559 --> 00:10:32,760 Speaker 1: out of it? I mean, the problem, the fundamental problem 216 00:10:32,840 --> 00:10:35,079 Speaker 1: for Europe is that the rising energy prices has made 217 00:10:35,200 --> 00:10:38,079 Speaker 1: everyone in Europe poorer. There's no way to avoid that. 218 00:10:38,200 --> 00:10:42,160 Speaker 1: You know, cutting interest rates or pushing money into people's 219 00:10:42,160 --> 00:10:45,319 Speaker 1: pockets to fiscal policy is just delaying the inevitable and 220 00:10:45,440 --> 00:10:48,040 Speaker 1: hiding the truth, which is that an energy price shock 221 00:10:48,520 --> 00:10:52,800 Speaker 1: in an energy consuming region makes everyone poorer and makes 222 00:10:52,840 --> 00:10:55,439 Speaker 1: the economy weaker and hits corporate earnings, and there's just 223 00:10:55,640 --> 00:10:57,719 Speaker 1: no way to avoid this. You can work through it, 224 00:10:58,040 --> 00:11:00,040 Speaker 1: you can ameliorate some of the worst impacts of that, 225 00:11:00,160 --> 00:11:02,480 Speaker 1: but you can't get away from the fundamental fact that 226 00:11:02,520 --> 00:11:05,120 Speaker 1: if you're an energy user and energy prices go up, 227 00:11:05,440 --> 00:11:09,040 Speaker 1: your poor. And this is much worse, incontinently than it 228 00:11:09,120 --> 00:11:11,880 Speaker 1: is in the UK, and it's it's it's much less 229 00:11:11,880 --> 00:11:13,560 Speaker 1: bad in the US, and it gas prices are are 230 00:11:13,640 --> 00:11:15,920 Speaker 1: falling very sharply, but Europe at the front and center 231 00:11:15,960 --> 00:11:18,400 Speaker 1: of this because of Ukraine and because of their energy 232 00:11:18,440 --> 00:11:20,240 Speaker 1: policy over the last twenty years, and they're going to 233 00:11:20,280 --> 00:11:21,800 Speaker 1: be paying for it for a long time, and so 234 00:11:22,440 --> 00:11:25,439 Speaker 1: risk assets in this environment, you know, it's it's very 235 00:11:25,760 --> 00:11:28,439 Speaker 1: it's very difficult, and it's probably not going to be 236 00:11:28,520 --> 00:11:31,199 Speaker 1: a very quick turnaround. And we talk about the United 237 00:11:31,200 --> 00:11:33,040 Speaker 1: States and how it's in a better situation. A lot 238 00:11:33,080 --> 00:11:34,600 Speaker 1: of the notes that I've been reading, I've been talking 239 00:11:34,640 --> 00:11:37,840 Speaker 1: about the inventory glot that a lot of analysts are 240 00:11:37,880 --> 00:11:42,000 Speaker 1: expecting a company is including big retailers that have ordered 241 00:11:42,040 --> 00:11:44,440 Speaker 1: too much stuff and that this will be disinflationary heading 242 00:11:44,440 --> 00:11:47,840 Speaker 1: into your end. How much will this be a disinflationary force. 243 00:11:47,920 --> 00:11:50,120 Speaker 1: How much will this take some of the pressure off 244 00:11:50,160 --> 00:11:54,800 Speaker 1: the FED? Yeah, this is the thing I'm watching more 245 00:11:54,840 --> 00:11:57,400 Speaker 1: closely than pretty much anything else, because when we had 246 00:11:57,440 --> 00:11:59,960 Speaker 1: the inventory shortages last year, what we saw was a giant, 247 00:12:00,000 --> 00:12:03,400 Speaker 1: gantic widening of retailers margins because effectively, people were bidding 248 00:12:03,480 --> 00:12:06,960 Speaker 1: for whatever imagery they could find, especially in the vehicle market, 249 00:12:07,000 --> 00:12:10,320 Speaker 1: where retail dealers margins tripled. I mean that that's an 250 00:12:10,320 --> 00:12:14,920 Speaker 1: official number of retailed auto dealers margins tripled across last year. 251 00:12:15,160 --> 00:12:17,880 Speaker 1: Now that leads them at a ridiculously overextended level. So 252 00:12:18,000 --> 00:12:20,320 Speaker 1: now the auto production is rising because the chips are 253 00:12:20,320 --> 00:12:22,880 Speaker 1: available again, and now that we've had all this retail 254 00:12:22,920 --> 00:12:25,480 Speaker 1: imagery arriving on boats over the last six months or so, 255 00:12:25,920 --> 00:12:27,880 Speaker 1: we are in a position now where that that that 256 00:12:28,160 --> 00:12:31,440 Speaker 1: enormous margin expansion should reverse and it could easily take 257 00:12:31,559 --> 00:12:35,160 Speaker 1: two or three, even four percentage points off of core 258 00:12:35,200 --> 00:12:37,960 Speaker 1: inflation over the course of the next twelve months. Now, 259 00:12:38,160 --> 00:12:39,960 Speaker 1: it kind of surprises me that the FED isn't talking 260 00:12:40,000 --> 00:12:41,560 Speaker 1: about this. I'm sure they know it's going to happen, 261 00:12:41,640 --> 00:12:44,640 Speaker 1: but but this margin expansion and contraction story, to me, 262 00:12:44,800 --> 00:12:47,040 Speaker 1: has been the big driver of inflation on the upside 263 00:12:47,320 --> 00:12:50,000 Speaker 1: and will be the big driver inflation on the down side. 264 00:12:50,040 --> 00:12:52,160 Speaker 1: Of course, the problem is, you know, for for an 265 00:12:52,240 --> 00:12:56,080 Speaker 1: investor in in in the consumer sphere, you're looking at 266 00:12:56,160 --> 00:12:59,920 Speaker 1: retailers Target, Walmart, we've heard all about them facing a 267 00:13:00,320 --> 00:13:03,880 Speaker 1: margin squeeze. Are really quite substantial proportions over the course 268 00:13:03,920 --> 00:13:06,240 Speaker 1: of the next year. But you know, again this from 269 00:13:06,240 --> 00:13:08,440 Speaker 1: the FATS perspective, this is this is good news because 270 00:13:08,480 --> 00:13:11,640 Speaker 1: this is what we need to renormalize inflation to get 271 00:13:11,720 --> 00:13:14,760 Speaker 1: margins back to something that's recognizably normal. It's a long 272 00:13:14,840 --> 00:13:18,960 Speaker 1: way off, but the return of inventory and the excessive 273 00:13:19,000 --> 00:13:21,800 Speaker 1: inventory is what's going to bring about that margin compression 274 00:13:22,000 --> 00:13:24,000 Speaker 1: and drive inflation down a long way. Can we talk 275 00:13:24,000 --> 00:13:26,880 Speaker 1: about some almost good news if any football games ended 276 00:13:26,920 --> 00:13:29,800 Speaker 1: in the fifty four minute Karen trip here putting you 277 00:13:29,960 --> 00:13:33,079 Speaker 1: up against Manchester City and what a beautiful thing that 278 00:13:33,160 --> 00:13:37,520 Speaker 1: almost was. Yeah, that's all we get. That's a beautiful 279 00:13:37,559 --> 00:13:39,360 Speaker 1: thing for when he scored, it was right in front 280 00:13:39,360 --> 00:13:42,960 Speaker 1: of me, even the stadium. Yesterday's the best date since 281 00:13:43,000 --> 00:13:47,520 Speaker 1: James is for a long time. You happier? Yeah, yes, yeah, 282 00:13:47,640 --> 00:13:50,320 Speaker 1: he is. I mean this is a very mott to you. Too, 283 00:13:50,400 --> 00:13:53,079 Speaker 1: because I'm going to be in the surveillance now. But 284 00:13:53,360 --> 00:13:57,640 Speaker 1: advisors signed this game today Liverpool and the other Manchester. 285 00:13:57,840 --> 00:14:00,440 Speaker 1: Is this like a huge deal or Tom? They lost 286 00:14:00,480 --> 00:14:02,920 Speaker 1: the first two games of the season Manchester United, and 287 00:14:02,920 --> 00:14:04,439 Speaker 1: they're going against one of the best teams in a 288 00:14:04,480 --> 00:14:08,079 Speaker 1: premiership against Liverpool a little bit later. I imagine they're 289 00:14:08,080 --> 00:14:12,560 Speaker 1: gonna get crushed based on recent performance. Does the coach 290 00:14:12,679 --> 00:14:15,439 Speaker 1: go in, Oh, it's a little bit too early for 291 00:14:15,520 --> 00:14:20,120 Speaker 1: that song, not necessarily bit early, but yeah, bit early. 292 00:14:20,200 --> 00:14:21,880 Speaker 1: But if it carries on then yeah, it's a mess 293 00:14:22,080 --> 00:14:34,880 Speaker 1: and awesome to catch up in Cheperdson, Newcastle supporter joining 294 00:14:34,960 --> 00:14:37,880 Speaker 1: us now. It has been far, far too long. Peter 295 00:14:38,000 --> 00:14:41,880 Speaker 1: Truber's professor of International Relations and LS and of course 296 00:14:41,920 --> 00:14:44,400 Speaker 1: with Chatham House and of course an affinity to the 297 00:14:44,520 --> 00:14:47,720 Speaker 1: University of Texas as well. Professor, thank you, thank you 298 00:14:47,880 --> 00:14:51,280 Speaker 1: so much for joining us. What happens after six months 299 00:14:51,440 --> 00:14:55,440 Speaker 1: in a war? What happens now to the two forces 300 00:14:55,600 --> 00:14:59,640 Speaker 1: of this war in Ukraine? Tom, I first want to 301 00:14:59,680 --> 00:15:02,320 Speaker 1: just go on record saying I'm an old time Mets fan, 302 00:15:03,040 --> 00:15:06,520 Speaker 1: so she exactly what you had to say there, Um, 303 00:15:08,440 --> 00:15:12,280 Speaker 1: you know, I mean, it's pretty damn clear that this 304 00:15:12,480 --> 00:15:15,960 Speaker 1: war is going to continue going on. It's a it's 305 00:15:15,960 --> 00:15:18,160 Speaker 1: a long slog. I think the thing that caught my 306 00:15:18,320 --> 00:15:22,120 Speaker 1: attention over the weekend, actually I guess it was announced 307 00:15:22,200 --> 00:15:25,600 Speaker 1: on Friday, was that Biden was going to send another 308 00:15:25,880 --> 00:15:29,040 Speaker 1: seven hundred and seventy five million in military aid to 309 00:15:30,760 --> 00:15:33,240 Speaker 1: two Kiev. And I think the timing of this is 310 00:15:33,800 --> 00:15:37,920 Speaker 1: is no accident. It's it's it's both symbolic and and 311 00:15:38,120 --> 00:15:44,320 Speaker 1: it serves a practical strategic purpose. Um Symbolically, Wednesday is 312 00:15:44,480 --> 00:15:48,920 Speaker 1: Ukrainian Independence Day, and also, you know, as you're suggesting, 313 00:15:49,120 --> 00:15:53,000 Speaker 1: is coincidentally the six month mark in a war that 314 00:15:53,160 --> 00:15:55,840 Speaker 1: I think most analysts I thought it was going to 315 00:15:55,920 --> 00:15:58,960 Speaker 1: be a romp for Moscow, and so I think in 316 00:15:59,040 --> 00:16:01,960 Speaker 1: a way this is, you know, the administration is trying 317 00:16:02,000 --> 00:16:08,280 Speaker 1: to underscore its commitment to Ukraine's security and acknowledge really 318 00:16:08,480 --> 00:16:12,120 Speaker 1: Kiev's tenacity in the face of long odds. But I 319 00:16:12,160 --> 00:16:14,600 Speaker 1: want to pick up something that John began with at 320 00:16:14,640 --> 00:16:18,160 Speaker 1: the start of this segment, which is recession, because I 321 00:16:18,280 --> 00:16:22,600 Speaker 1: think the administration's announcement also comes at a time when 322 00:16:22,720 --> 00:16:29,120 Speaker 1: European financial and political support for the Ukrainian case. I 323 00:16:29,160 --> 00:16:32,680 Speaker 1: would say it's flagging. I mean, European military commitments have 324 00:16:32,880 --> 00:16:36,600 Speaker 1: not increased since um April. Arguably they are on a 325 00:16:36,720 --> 00:16:41,680 Speaker 1: downward trend, and European support for the war is not 326 00:16:41,840 --> 00:16:45,440 Speaker 1: as stout as it was in the spring. And partly 327 00:16:45,520 --> 00:16:49,320 Speaker 1: this is because of concerns about inflation, the price of food, 328 00:16:49,400 --> 00:16:51,320 Speaker 1: the price of gas that you were talking about in 329 00:16:51,360 --> 00:16:55,720 Speaker 1: the last segment, but also fears of recession, which are 330 00:16:55,960 --> 00:16:59,280 Speaker 1: you know, fairly widespread in Europe at this point, Peter 331 00:16:59,560 --> 00:17:02,680 Speaker 1: how To, is the bombing of in Moscow that killed 332 00:17:02,720 --> 00:17:06,359 Speaker 1: Daria Dugina changed the conversation? There was a lot of 333 00:17:06,400 --> 00:17:10,120 Speaker 1: speculation over the weekend that this could harden the nationalist 334 00:17:10,240 --> 00:17:14,320 Speaker 1: sentiment and harden it against both Ukraine and the United States. 335 00:17:14,720 --> 00:17:17,640 Speaker 1: What's your view on how it sort of changes the narrative, 336 00:17:19,040 --> 00:17:23,879 Speaker 1: you know, I mean speculation about the the attackers and 337 00:17:24,440 --> 00:17:29,000 Speaker 1: and how Putin is going to respond is rife right 338 00:17:29,040 --> 00:17:32,280 Speaker 1: now on Twitter. I'm sure you're following it. I Mean, 339 00:17:32,359 --> 00:17:35,920 Speaker 1: one thing I think that's pretty clear already from the 340 00:17:36,520 --> 00:17:40,679 Speaker 1: the attack is that Putin's regime looks a little weaker 341 00:17:40,880 --> 00:17:44,560 Speaker 1: today than it did before the attack. I mean, whether 342 00:17:44,640 --> 00:17:48,119 Speaker 1: it was the result of a Ukrainian strike. I doubt it, 343 00:17:48,240 --> 00:17:52,200 Speaker 1: but that's out there of course, or rivalry within the Kremlin, 344 00:17:52,760 --> 00:17:57,480 Speaker 1: or domestic resistance to Putin's nationalism. The fact is the 345 00:17:57,560 --> 00:18:01,800 Speaker 1: attackers succeeded um and uh. And this is gonna fuel 346 00:18:01,920 --> 00:18:07,040 Speaker 1: doubts about Putin's ability to guarantee security for those aligned 347 00:18:07,080 --> 00:18:10,720 Speaker 1: with him. He'll look for some way to strike out, 348 00:18:11,040 --> 00:18:16,040 Speaker 1: you know, perhaps against Kiev. He has plenty of reasons 349 00:18:16,119 --> 00:18:20,280 Speaker 1: for doing that this week though, as a interrupt independence 350 00:18:20,400 --> 00:18:22,960 Speaker 1: day there, but I think this perhaps adds some fuel 351 00:18:23,000 --> 00:18:24,920 Speaker 1: to that fire. On the flip side, Peter, there is 352 00:18:24,960 --> 00:18:28,200 Speaker 1: this discussion, and we heard about President Biden having discussions 353 00:18:28,240 --> 00:18:31,119 Speaker 1: with a number of the Western allies about reinstating the 354 00:18:31,200 --> 00:18:34,639 Speaker 1: Iranian nuclear deal, and that's gaining steam and giving some 355 00:18:34,800 --> 00:18:37,719 Speaker 1: support and the reason why perhaps the oil prices are 356 00:18:37,760 --> 00:18:39,760 Speaker 1: dipping just to touch at least that's what the narrative. 357 00:18:39,800 --> 00:18:43,600 Speaker 1: It will tell you how much can that actually replace Russia? 358 00:18:43,680 --> 00:18:47,080 Speaker 1: Does that further isolate Russia as a pipeline for Europe 359 00:18:47,320 --> 00:18:51,639 Speaker 1: going forward? I mean, first of all, I don't think 360 00:18:51,680 --> 00:18:54,080 Speaker 1: there's going to be an agreement anytime soon. Maybe I 361 00:18:54,280 --> 00:18:57,679 Speaker 1: end up eating those words, but he's got a lot 362 00:18:57,720 --> 00:19:02,080 Speaker 1: of people to play Kate inside inside the region, and 363 00:19:02,200 --> 00:19:05,920 Speaker 1: it's just hard for me to see from a political standpoint, 364 00:19:06,640 --> 00:19:10,879 Speaker 1: domestic political standpoint, Biden pushing for this before the mid 365 00:19:11,040 --> 00:19:14,520 Speaker 1: term elections. After the mid term elections, Yeah, you know, 366 00:19:14,880 --> 00:19:17,680 Speaker 1: then I can see them moving on it. That's not 367 00:19:17,800 --> 00:19:20,800 Speaker 1: to say there's a lot of interest and push inside 368 00:19:20,840 --> 00:19:24,800 Speaker 1: the administration to make this happen. Partly for the reasons 369 00:19:24,880 --> 00:19:29,240 Speaker 1: that you suggest alternative sources of energy, but I think 370 00:19:29,720 --> 00:19:33,639 Speaker 1: also because they think it was a mistake fundamentally to 371 00:19:33,880 --> 00:19:37,080 Speaker 1: undo the agreement that was struck during the Obama years 372 00:19:37,320 --> 00:19:39,240 Speaker 1: to pay it. Just awesome to catch out with you 373 00:19:39,359 --> 00:19:42,200 Speaker 1: said this morning, thank you pity tributes that on the 374 00:19:42,280 --> 00:19:49,080 Speaker 1: latest in Europe you cry in Russia and beyond. He 375 00:19:49,160 --> 00:19:51,239 Speaker 1: had a big final song the Champions League twenty nine 376 00:19:51,240 --> 00:19:54,439 Speaker 1: s Yeah, I was remember that case. You know, as 377 00:19:54,480 --> 00:19:56,399 Speaker 1: we get prepared for today, we have to remember there 378 00:19:56,480 --> 00:19:59,320 Speaker 1: was a point where Menu defeated Tottenham. Was one of 379 00:19:59,320 --> 00:20:03,680 Speaker 1: the worst to I called him Sunday April, I think 380 00:20:03,760 --> 00:20:07,040 Speaker 1: of eighteen or nineteen. I don't remember any Sanchez was 381 00:20:07,160 --> 00:20:09,640 Speaker 1: just just killed. Us don't remember any of this. We're 382 00:20:09,680 --> 00:20:11,760 Speaker 1: gonna beat Chelsea, but we couldn't beat Chelsea. Okay, we're 383 00:20:11,760 --> 00:20:14,240 Speaker 1: talking about sting, but ultimately we're actually looking forward to 384 00:20:14,240 --> 00:20:16,560 Speaker 1: a bigger game time at three pm astant time, did 385 00:20:16,600 --> 00:20:18,880 Speaker 1: the juring Rochester will be watching in England? He joins 386 00:20:18,960 --> 00:20:22,280 Speaker 1: us now with a sharp research note from numerous internationals. 387 00:20:22,359 --> 00:20:26,080 Speaker 1: This is required listening for Global Wall Street. Jordan's I 388 00:20:26,200 --> 00:20:29,480 Speaker 1: want to know the why right now? The partial differential 389 00:20:30,160 --> 00:20:33,480 Speaker 1: is the euro weaker or is this just dollar flight? 390 00:20:33,960 --> 00:20:37,879 Speaker 1: Is witnessed by strong Swiss Frank as well. But I 391 00:20:37,960 --> 00:20:40,320 Speaker 1: think what Jane Folly was saying before that we came on, 392 00:20:40,720 --> 00:20:43,800 Speaker 1: it has been been resurprising. How Yeah, Euros three party, 393 00:20:43,920 --> 00:20:46,440 Speaker 1: but it has been mostly a dollar story. Euro hasn't 394 00:20:46,520 --> 00:20:48,600 Speaker 1: underperformed as much as I think it should. I think 395 00:20:48,680 --> 00:20:53,560 Speaker 1: the FX market is totally mispricing the situation Europe. I mean, 396 00:20:53,680 --> 00:20:55,800 Speaker 1: credit markets are doing a better job at pricing and 397 00:20:55,840 --> 00:20:59,200 Speaker 1: the riskless seeing credit spreads widen, but in European equities 398 00:20:59,480 --> 00:21:01,320 Speaker 1: they essent. You say it's going to be a mild 399 00:21:01,400 --> 00:21:05,639 Speaker 1: slow down towards average growth in Europe, where every single 400 00:21:05,760 --> 00:21:08,879 Speaker 1: day we're seeing violet hills. In term of the energy 401 00:21:08,920 --> 00:21:12,280 Speaker 1: price spike, it's getting worse. The situation for European energy markets. 402 00:21:12,960 --> 00:21:15,200 Speaker 1: If you look at the past twenty two days of 403 00:21:15,240 --> 00:21:17,600 Speaker 1: August today, check the date. I want to say that 404 00:21:18,160 --> 00:21:22,880 Speaker 1: eighty percent higher energy prices this month alone. And we've 405 00:21:22,880 --> 00:21:24,960 Speaker 1: been talking about this for months. They were awful before 406 00:21:25,000 --> 00:21:28,440 Speaker 1: we got to August. Now eighty percent higher. So if 407 00:21:28,680 --> 00:21:31,440 Speaker 1: the governments do nothing, the UK household, if they have 408 00:21:31,560 --> 00:21:34,320 Speaker 1: no subsidies, and we know they will have, but imagine 409 00:21:34,359 --> 00:21:37,440 Speaker 1: the world where they don't, they'd be spending twenty of 410 00:21:37,520 --> 00:21:39,920 Speaker 1: their disposal income on energy bills for just turning the 411 00:21:40,000 --> 00:21:42,480 Speaker 1: lights on heating in their homes. So the situation is 412 00:21:42,560 --> 00:21:45,520 Speaker 1: a complete rethink of the economic model in the Eurozone, 413 00:21:45,720 --> 00:21:48,280 Speaker 1: and I'm just it is struggle. It's strange for all 414 00:21:48,320 --> 00:21:50,480 Speaker 1: of us to see the euro setting off so slowly. 415 00:21:50,480 --> 00:21:52,560 Speaker 1: I think it should be much faster. We'll be testing 416 00:21:53,320 --> 00:21:57,000 Speaker 1: fifty down towards cents in the next few months, so 417 00:21:57,119 --> 00:21:59,440 Speaker 1: you think maybe get down to ninety five. I guess 418 00:21:59,480 --> 00:22:02,119 Speaker 1: I would us off the back of that. Jordan, does 419 00:22:02,200 --> 00:22:05,600 Speaker 1: interest rate policy even matter in this world to this currency, 420 00:22:06,000 --> 00:22:10,840 Speaker 1: given we're expecting fifty basis points again on September eight, Yeah, 421 00:22:10,840 --> 00:22:13,080 Speaker 1: there is one central amount that matters, which is the Fed. 422 00:22:13,720 --> 00:22:16,560 Speaker 1: If you look at FX, what's been quite strangers. Idiosyncratic 423 00:22:16,640 --> 00:22:18,240 Speaker 1: stories in Europe and all the detail we can go 424 00:22:18,359 --> 00:22:21,480 Speaker 1: into have been largely irrelevant. For the past few weeks 425 00:22:21,520 --> 00:22:23,800 Speaker 1: at least. All you needed to know was what's going 426 00:22:23,880 --> 00:22:25,760 Speaker 1: to happen in US rates, and you knew where you're 427 00:22:25,760 --> 00:22:27,840 Speaker 1: a dollar, where cable was going to go. I think 428 00:22:27,880 --> 00:22:30,040 Speaker 1: in the windsor will be so obvious to everyone there 429 00:22:30,119 --> 00:22:32,640 Speaker 1: is an extreme recession taking place in Europe that those 430 00:22:32,720 --> 00:22:35,720 Speaker 1: idiosyncratic factors, this energy story, what's going on for the 431 00:22:35,760 --> 00:22:39,920 Speaker 1: European consumer will matter. The other factor taken into account 432 00:22:40,320 --> 00:22:42,880 Speaker 1: is that it's not just about what the ECB does 433 00:22:42,920 --> 00:22:44,640 Speaker 1: and what the FED does. You have to take into 434 00:22:44,640 --> 00:22:47,480 Speaker 1: account of the markets inflation premium. So a lot of 435 00:22:47,560 --> 00:22:50,560 Speaker 1: questions this morning from clients and investors why is the 436 00:22:50,600 --> 00:22:53,840 Speaker 1: euro lower when spreads would actually say nominal yield spreads 437 00:22:54,000 --> 00:22:56,439 Speaker 1: would say, you're a dollar should be higher. Well, it's 438 00:22:56,480 --> 00:22:59,840 Speaker 1: because there's now a large inflation component in yields of 439 00:23:00,160 --> 00:23:02,920 Speaker 1: e g B s and UK guilts. You have to 440 00:23:03,000 --> 00:23:05,400 Speaker 1: treat it a bit more like an emerging market. Their 441 00:23:05,520 --> 00:23:08,200 Speaker 1: rates markets are selling off and the currencies are heading lower. 442 00:23:08,520 --> 00:23:10,320 Speaker 1: That is very different to what we've been used to 443 00:23:10,359 --> 00:23:12,359 Speaker 1: for the past twenty years. Joinin the fact that you 444 00:23:12,440 --> 00:23:16,040 Speaker 1: think that the euro is wildly mispriced to the marketers, underplayed. 445 00:23:16,119 --> 00:23:19,480 Speaker 1: Some of the weakness is in starka divide with what 446 00:23:19,560 --> 00:23:21,640 Speaker 1: we heard from Ian Shepherdson earlier on the show. He said, 447 00:23:21,640 --> 00:23:23,639 Speaker 1: if you're not expecting recession in Europe, you haven't been 448 00:23:23,640 --> 00:23:28,200 Speaker 1: paying attention. What is the distinguishing feature of why you 449 00:23:28,400 --> 00:23:30,800 Speaker 1: think there has not been the recognition that you're talking 450 00:23:30,840 --> 00:23:34,560 Speaker 1: about in the currency markets to date. Well, I think 451 00:23:34,600 --> 00:23:36,600 Speaker 1: the market has just been looking at the FED and 452 00:23:36,880 --> 00:23:39,600 Speaker 1: we had that CPI number and the market pricing a 453 00:23:39,680 --> 00:23:42,840 Speaker 1: Fed Dovish pivot, which kind of has come out the 454 00:23:42,880 --> 00:23:45,080 Speaker 1: price a little bit. We've seen the rate cuts for 455 00:23:45,200 --> 00:23:48,080 Speaker 1: last for next year, at one stage of seventy five 456 00:23:48,119 --> 00:23:50,639 Speaker 1: basis points priced in, that's now eased off quite a 457 00:23:50,680 --> 00:23:53,040 Speaker 1: bit more. It's below fifty basis points. I think this morning, 458 00:23:53,720 --> 00:23:56,320 Speaker 1: essentially the markets are feeling pretty yellow about the Eurozone, 459 00:23:56,560 --> 00:23:58,840 Speaker 1: but it's only credit that seems to be reflecting it 460 00:23:59,240 --> 00:24:02,000 Speaker 1: and eventually or feed through the other markets. It happens 461 00:24:02,000 --> 00:24:05,240 Speaker 1: all the time. Markets are not perfect, they're not always rational, 462 00:24:05,600 --> 00:24:07,560 Speaker 1: and they just sometimes need to be given the alarm 463 00:24:07,640 --> 00:24:10,240 Speaker 1: bells such as the ECB. For example, do we really 464 00:24:10,280 --> 00:24:12,600 Speaker 1: think they're going to keep raising rates next year if 465 00:24:12,640 --> 00:24:14,960 Speaker 1: there's blackouts in Germany? So that could leave that could 466 00:24:14,960 --> 00:24:17,159 Speaker 1: be one of those trigger moments when the lights are 467 00:24:17,160 --> 00:24:19,800 Speaker 1: literally turned off for German industry or parts of it, 468 00:24:20,080 --> 00:24:22,920 Speaker 1: where it just becomes unfeasible for euro to keep the levels. 469 00:24:22,960 --> 00:24:24,919 Speaker 1: It's currently asked if Jordan this race is an important 470 00:24:25,000 --> 00:24:27,879 Speaker 1: question and I'm not comparing the two situations. I just 471 00:24:28,200 --> 00:24:31,000 Speaker 1: look for a candalyst. Back in the pandemic, we all 472 00:24:31,040 --> 00:24:34,400 Speaker 1: saw this risk brewing and the market was unshaken, unmoved, 473 00:24:34,760 --> 00:24:36,600 Speaker 1: And I think it was that weekend when Italy shut 474 00:24:36,680 --> 00:24:39,000 Speaker 1: down that people work up on Monday morning and thought, Wow, 475 00:24:39,080 --> 00:24:41,199 Speaker 1: this is real. It's coming, and it's probably gonna come 476 00:24:41,200 --> 00:24:43,440 Speaker 1: to the United States as well. Jording with that in mind, 477 00:24:43,720 --> 00:24:45,800 Speaker 1: are you thinking of that kind of catalyst, because, like 478 00:24:45,920 --> 00:24:48,040 Speaker 1: you say, all of this is so obvious, we're setting 479 00:24:48,080 --> 00:24:50,119 Speaker 1: it play out. You can see it on the screen, 480 00:24:50,560 --> 00:24:52,440 Speaker 1: you see it in the numbers, in the price of gas, 481 00:24:52,520 --> 00:24:56,040 Speaker 1: and yet very calmly, very slowly just sort of breaking down. Again, 482 00:24:56,080 --> 00:24:58,359 Speaker 1: what's the catalysts you think that's going to lead to 483 00:24:58,400 --> 00:25:01,040 Speaker 1: the wake up cool. I think you're right there, John, 484 00:25:01,080 --> 00:25:02,359 Speaker 1: I think the human mind is a part of the 485 00:25:02,400 --> 00:25:05,040 Speaker 1: reason why it's difficult for marketing prices in We are 486 00:25:05,119 --> 00:25:08,440 Speaker 1: linear animals. We think in linear terms. Where these energy 487 00:25:08,480 --> 00:25:11,080 Speaker 1: prices are rising exponentially, it's just really difficult for us 488 00:25:11,119 --> 00:25:14,000 Speaker 1: to comprehend the impact of it. There's another aspect to 489 00:25:14,080 --> 00:25:16,600 Speaker 1: it as well. We do expect that governments will step in. 490 00:25:16,920 --> 00:25:19,840 Speaker 1: If they don't, they'll be risking civil strife essentially, So 491 00:25:20,080 --> 00:25:22,320 Speaker 1: there is an aspect of the market which says, don't worry, 492 00:25:22,480 --> 00:25:24,399 Speaker 1: it is pretty bad in energy, but they're going to 493 00:25:24,480 --> 00:25:26,760 Speaker 1: do something about it. On the government side, the point 494 00:25:26,800 --> 00:25:29,760 Speaker 1: I'm making is when energy prices keep rising in the 495 00:25:29,800 --> 00:25:32,800 Speaker 1: past twenty two days, it's really difficult for governments to 496 00:25:32,920 --> 00:25:35,480 Speaker 1: keep up with those sort of moves and supplies the 497 00:25:35,560 --> 00:25:38,280 Speaker 1: problem and price of the problem. So there's two aspects 498 00:25:38,320 --> 00:25:41,080 Speaker 1: of that. The trigger could be, John, essentially, when Germany 499 00:25:41,160 --> 00:25:44,600 Speaker 1: triggers phase free of its gash ration plan. At the moment, 500 00:25:44,720 --> 00:25:48,119 Speaker 1: it's slowly going to give up the costs to consumer. 501 00:25:48,280 --> 00:25:50,080 Speaker 1: We've had some mixed moves from Germany, so we've got 502 00:25:50,080 --> 00:25:52,560 Speaker 1: an energy levy coming in in October, but they're also 503 00:25:52,640 --> 00:25:54,560 Speaker 1: cutting v A T, so it's kind offsetting it to 504 00:25:54,640 --> 00:25:57,600 Speaker 1: some extent. When Phase free comes in, the government actually 505 00:25:57,640 --> 00:26:00,840 Speaker 1: just needs to do demand destruction and policies literally saying 506 00:26:00,920 --> 00:26:03,399 Speaker 1: you there, you can't turn on your industrial plant, you 507 00:26:03,440 --> 00:26:06,119 Speaker 1: need to turn down your gas usage. When that happens, 508 00:26:06,200 --> 00:26:09,040 Speaker 1: it becomes much clearer to everyone that the Eurozone will 509 00:26:09,160 --> 00:26:12,240 Speaker 1: use a lot more imports to help their supply chains continue. 510 00:26:12,480 --> 00:26:14,800 Speaker 1: Factories will still want to keep producing, keep their jobs, 511 00:26:15,080 --> 00:26:19,480 Speaker 1: but for certain like products like steel, aluminium, glass, ceramics, plastics, chemicals, 512 00:26:19,680 --> 00:26:21,119 Speaker 1: and I think that's at the lower end of the 513 00:26:21,119 --> 00:26:24,600 Speaker 1: supply chain, but very highly energy intensive, or just get 514 00:26:24,640 --> 00:26:27,600 Speaker 1: imported from America from China where energy is much cheaper, 515 00:26:27,880 --> 00:26:29,879 Speaker 1: and that's gonna way on the euro even more. Jordan's 516 00:26:29,880 --> 00:26:34,760 Speaker 1: got ten seconds price target Manchester United, What are you 517 00:26:34,880 --> 00:26:53,600 Speaker 1: thinking We're going to be corregation and still Rochester right now? 518 00:26:53,760 --> 00:26:56,440 Speaker 1: With that question our conversation of the Week on China. 519 00:26:56,560 --> 00:26:59,440 Speaker 1: Leland Miller is co founder and chief executive officer of 520 00:26:59,560 --> 00:27:02,600 Speaker 1: China A Book International. More than anyone I know, is 521 00:27:02,760 --> 00:27:07,359 Speaker 1: wired into the minutia of China. Leland, do you believe 522 00:27:07,480 --> 00:27:11,000 Speaker 1: the GDP numbers. Do you believe the new regime under 523 00:27:11,040 --> 00:27:16,320 Speaker 1: five under four percent three ish g d P. I 524 00:27:16,359 --> 00:27:18,560 Speaker 1: don't even think we're gonna hit three percent. But it 525 00:27:18,760 --> 00:27:21,560 Speaker 1: is notable that the data have gotten, the official data 526 00:27:21,640 --> 00:27:23,760 Speaker 1: have gotten more honest, which is why people are coming 527 00:27:23,800 --> 00:27:25,879 Speaker 1: around with the idea that, wow, this really is a 528 00:27:26,000 --> 00:27:28,680 Speaker 1: very weak economy. Uh, they're they're they're lying on a 529 00:27:28,840 --> 00:27:32,480 Speaker 1: lot lot less about about the numbers, and so people 530 00:27:32,520 --> 00:27:35,520 Speaker 1: can actually see how weak consumption is, how weak the 531 00:27:35,560 --> 00:27:38,399 Speaker 1: property sector is now, how weak every aspect of the 532 00:27:38,520 --> 00:27:41,560 Speaker 1: entire economy outside exports has been, and even exports now 533 00:27:42,000 --> 00:27:44,920 Speaker 1: are fading. So, uh, you know, the data, the data 534 00:27:44,960 --> 00:27:47,359 Speaker 1: aren't great, but what they are signaling is that not 535 00:27:47,480 --> 00:27:49,480 Speaker 1: only you nowhere near the five percent g d P, 536 00:27:49,680 --> 00:27:52,240 Speaker 1: I mean, you're you're probably significantly less than half that 537 00:27:52,280 --> 00:27:54,600 Speaker 1: at this point, Leland. Are we also seeing how little 538 00:27:54,680 --> 00:27:58,760 Speaker 1: power the PBOC has to really stimulate an economy that 539 00:27:59,119 --> 00:28:03,760 Speaker 1: already has got and some stimulus and hasn't really responded absolutely. 540 00:28:03,840 --> 00:28:06,399 Speaker 1: And you know, the story actually goes back about you know, 541 00:28:06,480 --> 00:28:08,600 Speaker 1: six to twelve months on this because when we were 542 00:28:08,680 --> 00:28:13,040 Speaker 1: at the end of beginning two, we actually saw loan 543 00:28:13,160 --> 00:28:16,600 Speaker 1: demand increase from firms across the country. We saw four 544 00:28:16,640 --> 00:28:19,480 Speaker 1: straight months where loan demand was increasing. I think firms 545 00:28:19,520 --> 00:28:21,240 Speaker 1: were starting to get back into it, maybe because it 546 00:28:21,280 --> 00:28:23,880 Speaker 1: was a Party Congress year, maybe because they saw something 547 00:28:23,960 --> 00:28:27,119 Speaker 1: uncertainty going away. But then the COVID lockdowns hit and 548 00:28:27,359 --> 00:28:30,520 Speaker 1: they they they were strangled through that for several months. 549 00:28:30,640 --> 00:28:33,920 Speaker 1: And then even when the lockdowns have eased, you've seen, 550 00:28:34,160 --> 00:28:36,000 Speaker 1: you know, a refusal to get back in it would 551 00:28:36,080 --> 00:28:39,400 Speaker 1: borrow and invest and higher. So now that they're dropping rates, 552 00:28:39,640 --> 00:28:41,240 Speaker 1: you know, had this been done nine months ago, I 553 00:28:41,280 --> 00:28:43,200 Speaker 1: think you would have had some sort of kick from it. 554 00:28:43,280 --> 00:28:45,200 Speaker 1: But right now, all they're trying to do is staunch 555 00:28:45,240 --> 00:28:48,280 Speaker 1: the bleeding. With all of the investors who speak with 556 00:28:48,440 --> 00:28:51,800 Speaker 1: all of the private sector, how much is there a 557 00:28:51,880 --> 00:28:54,360 Speaker 1: recognition of the reality that you're telling them, how much 558 00:28:54,440 --> 00:28:58,320 Speaker 1: is there a recognition of what the ramifications of China's 559 00:28:58,320 --> 00:29:01,240 Speaker 1: slowed down in a much more in fashion will have 560 00:29:02,840 --> 00:29:04,560 Speaker 1: We we have been screaming into the window this. I 561 00:29:04,680 --> 00:29:06,520 Speaker 1: think people are starting to get this now because the 562 00:29:06,600 --> 00:29:09,720 Speaker 1: government itself is admitting that the economy is an extraordinarily 563 00:29:09,720 --> 00:29:12,520 Speaker 1: weak position. But you know, two months ago, four months ago, 564 00:29:12,560 --> 00:29:14,360 Speaker 1: six months ago, we sit on panels, and people on 565 00:29:14,360 --> 00:29:17,440 Speaker 1: our left would say there's a big stimulus coming. People 566 00:29:17,440 --> 00:29:20,480 Speaker 1: on our right the big recoveries coming. Party Congress year, 567 00:29:20,880 --> 00:29:23,520 Speaker 1: all the old, all the old platitudes about how the 568 00:29:23,560 --> 00:29:25,880 Speaker 1: economy would get better simply because of the politics the 569 00:29:25,920 --> 00:29:28,800 Speaker 1: country dictated it. That's not the world we live in 570 00:29:28,920 --> 00:29:31,440 Speaker 1: right now. It's not the Chinese economy that we're tracking. So, 571 00:29:31,920 --> 00:29:34,120 Speaker 1: you know, I think only when the government started to 572 00:29:34,160 --> 00:29:37,600 Speaker 1: admit that, Look, July got worse than June. Lockdowns are easy, 573 00:29:37,680 --> 00:29:39,600 Speaker 1: but the economy is getting worse all of a sudden. 574 00:29:39,640 --> 00:29:42,200 Speaker 1: A lot of light bulbs going off around the world 575 00:29:42,320 --> 00:29:45,360 Speaker 1: right now, Leland, I want to talk about an idea 576 00:29:45,440 --> 00:29:48,280 Speaker 1: that I learned from the engineer, from Leon Jean Claude Triche. 577 00:29:48,720 --> 00:29:53,400 Speaker 1: He would talk about how you diffuse policy and economics 578 00:29:53,480 --> 00:29:59,080 Speaker 1: through a system. You diffuse productivity, you diffuse a fiscal impulse. 579 00:29:59,680 --> 00:30:05,280 Speaker 1: How this Beijing, given their artificial structure, diffuse a large 580 00:30:05,440 --> 00:30:09,400 Speaker 1: fiscal plan. How do they actually do that? Well, I 581 00:30:09,520 --> 00:30:12,200 Speaker 1: think they're gonna have a very hard time doing any 582 00:30:12,280 --> 00:30:17,200 Speaker 1: type of stimulus, fiscal or otherwise until they until COVID's gone, 583 00:30:17,320 --> 00:30:19,600 Speaker 1: until COVID zero is gone, and there doesn't seem to 584 00:30:19,640 --> 00:30:21,840 Speaker 1: be any sign of that happening. You know right now, 585 00:30:22,280 --> 00:30:25,120 Speaker 1: you know lockdowns are easy, so markets thought, oh, well, 586 00:30:25,160 --> 00:30:27,120 Speaker 1: we're going to see a big bounce back. But what 587 00:30:27,320 --> 00:30:29,000 Speaker 1: firms are telling us on the ground is they don't 588 00:30:29,040 --> 00:30:31,360 Speaker 1: want to borrow, they don't want invest that now, they 589 00:30:31,400 --> 00:30:33,719 Speaker 1: don't want to hire, which is something new, because they 590 00:30:33,840 --> 00:30:37,360 Speaker 1: don't see this COVID zero nightmare ending anytime soon. Unless 591 00:30:37,400 --> 00:30:40,160 Speaker 1: you convince businesses that things are going to get better, 592 00:30:40,280 --> 00:30:43,080 Speaker 1: you convinced consumers that they should be spending. Unless you 593 00:30:43,440 --> 00:30:46,720 Speaker 1: can convince China people in China rid large that there's 594 00:30:46,800 --> 00:30:49,520 Speaker 1: that there's an improvement coming and not more lockdowns, you're 595 00:30:49,560 --> 00:30:52,000 Speaker 1: gonna have a very hard time stimulating the economy, no 596 00:30:52,080 --> 00:30:54,080 Speaker 1: matter what your vehicle for that is. Meanwhile, I've been 597 00:30:54,520 --> 00:30:56,880 Speaker 1: focusing on Morning Leland on the drought and the heat 598 00:30:56,920 --> 00:30:59,400 Speaker 1: wave that's been taking place across the world, and it's 599 00:30:59,440 --> 00:31:02,720 Speaker 1: having very real ramifications not just on food supply but 600 00:31:02,840 --> 00:31:05,600 Speaker 1: in China and industrial output. You're seeing this in Sichuan 601 00:31:05,640 --> 00:31:09,480 Speaker 1: in particular, with them halting production in certain areas because 602 00:31:09,520 --> 00:31:12,160 Speaker 1: they want to try to save energy at a time 603 00:31:12,200 --> 00:31:14,920 Speaker 1: when a lot of people are requiring air conditioning. How 604 00:31:15,000 --> 00:31:18,120 Speaker 1: much is this smoke screen to cover just a lack 605 00:31:18,200 --> 00:31:20,680 Speaker 1: of demand and a tack of workers. How much this 606 00:31:20,760 --> 00:31:24,360 Speaker 1: something that's very real that will further disrupt manufacturing. Now, 607 00:31:24,440 --> 00:31:26,720 Speaker 1: I think it's very real, you know, and it's and 608 00:31:26,800 --> 00:31:29,280 Speaker 1: it should be concerning people a great deal because what 609 00:31:29,440 --> 00:31:31,400 Speaker 1: has held up the Chinese economy for the last two 610 00:31:31,440 --> 00:31:35,000 Speaker 1: to three years. It's been big time production. It's been manufacturing, 611 00:31:35,080 --> 00:31:38,720 Speaker 1: it's been exports, while while everything else has been weak properly, 612 00:31:39,200 --> 00:31:42,000 Speaker 1: retail at services have just been just been a mess. 613 00:31:42,400 --> 00:31:44,400 Speaker 1: So what has held the Chinese economy up, It's it's 614 00:31:44,440 --> 00:31:47,400 Speaker 1: been this production. Now you're getting hit production on one 615 00:31:47,480 --> 00:31:49,360 Speaker 1: side from the heat waves that are that are shutting 616 00:31:49,400 --> 00:31:52,760 Speaker 1: down hydropower production and and and uh causing all kinds 617 00:31:52,800 --> 00:31:54,840 Speaker 1: of problems from that. And on the other hand you've 618 00:31:54,840 --> 00:31:57,440 Speaker 1: got a global slow down, so the demand is faltering 619 00:31:57,800 --> 00:32:01,120 Speaker 1: around the globe. This is very concerning. China has got 620 00:32:01,160 --> 00:32:03,960 Speaker 1: a lot of problems to worry about right now, not 621 00:32:04,120 --> 00:32:07,280 Speaker 1: just the normal one two or three of the China 622 00:32:07,320 --> 00:32:10,640 Speaker 1: bash Book International leading awesome, gotta catch up set as 623 00:32:10,680 --> 00:32:16,840 Speaker 1: owis what we're gonna do. Because of the urgency and 624 00:32:16,960 --> 00:32:20,080 Speaker 1: battle over bulls and bears is keep the baseball talk 625 00:32:20,160 --> 00:32:22,080 Speaker 1: to a minimum of Douglas cast. We can do this 626 00:32:22,600 --> 00:32:26,680 Speaker 1: because big series, Mets playing six forty two ball, Yankees 627 00:32:26,720 --> 00:32:32,160 Speaker 1: playing six or seven ball. Are the Yankees done? Doug? Uh? 628 00:32:32,840 --> 00:32:35,520 Speaker 1: The market might be done though. Okay, let's switch right 629 00:32:35,560 --> 00:32:39,120 Speaker 1: now a little. There's little joy in Mudville. You will 630 00:32:39,200 --> 00:32:42,400 Speaker 1: probably not be surprised that I'm thinking more about the 631 00:32:42,880 --> 00:32:45,880 Speaker 1: Massapequa Little League team and Williams Sport than the Bronx. 632 00:32:46,120 --> 00:32:48,240 Speaker 1: There we go, There we go, and that was good 633 00:32:48,280 --> 00:32:51,840 Speaker 1: to see Baltimore, Boston. Uh, and honor of all of that, 634 00:32:52,000 --> 00:32:54,200 Speaker 1: Duck cast, Let's cut to it right now. Why are 635 00:32:54,240 --> 00:32:59,040 Speaker 1: the Bulls wrong? Well? I'm thinking also, um, as it 636 00:32:59,040 --> 00:33:02,200 Speaker 1: relates to the market about that great song from the 637 00:33:02,480 --> 00:33:05,400 Speaker 1: from the Broadway show Anything Goes Cold? Porter is You're 638 00:33:05,520 --> 00:33:09,600 Speaker 1: the top Q Tom Keane and his melodious voice, or 639 00:33:09,640 --> 00:33:12,760 Speaker 1: maybe we should wait for ethel mermon um. But seriously, 640 00:33:12,760 --> 00:33:14,920 Speaker 1: I think there's a non trivial chance that the SMP 641 00:33:15,960 --> 00:33:18,600 Speaker 1: early last year made a top for the balance of 642 00:33:18,720 --> 00:33:23,720 Speaker 1: the year. Um to me after the recent what I 643 00:33:23,800 --> 00:33:28,440 Speaker 1: described as a position based rally, Brammo talked about that 644 00:33:28,640 --> 00:33:32,240 Speaker 1: this morning, which was expected and discussed uh. In my 645 00:33:32,400 --> 00:33:37,080 Speaker 1: lance interview, risk has returned to risk assets as the 646 00:33:37,120 --> 00:33:40,920 Speaker 1: fundamental backdrop is eroding at a time in which stocks 647 00:33:40,960 --> 00:33:44,040 Speaker 1: have rallied traumatically and now we have, as you noted 648 00:33:44,080 --> 00:33:47,120 Speaker 1: on Friday, a vis at twenty and that position based 649 00:33:47,200 --> 00:33:49,960 Speaker 1: rally and squeeze is likely over and stocks have to 650 00:33:50,120 --> 00:33:54,360 Speaker 1: justify for the games based on funds and macro. In 651 00:33:54,480 --> 00:33:56,840 Speaker 1: my view, the available opportunity set up six weeks ago 652 00:33:57,000 --> 00:33:58,920 Speaker 1: is likely coming gone, and we have going to see 653 00:33:58,920 --> 00:34:03,040 Speaker 1: a hyper team about utility. So um, I think an 654 00:34:03,040 --> 00:34:06,640 Speaker 1: important one thing that you guys don't mention that much 655 00:34:07,000 --> 00:34:09,239 Speaker 1: is Tina, and I think Tina is dead. There is 656 00:34:09,320 --> 00:34:13,160 Speaker 1: now an alternative. In terms of history, the differential between 657 00:34:13,160 --> 00:34:15,520 Speaker 1: the yield and stocks and the yield of bonds that 658 00:34:15,640 --> 00:34:20,839 Speaker 1: exists today is uncomfortably wide. The SMP dividend yield has 659 00:34:20,920 --> 00:34:25,719 Speaker 1: recently fallen from one at a time in which the 660 00:34:25,760 --> 00:34:29,200 Speaker 1: two year US note we've gone from there at three. 661 00:34:30,440 --> 00:34:31,719 Speaker 1: Just because of the time, I want Paul to get 662 00:34:31,760 --> 00:34:34,600 Speaker 1: in your dug very quickly. Here ben leylor reaffirms his 663 00:34:34,719 --> 00:34:37,279 Speaker 1: love for the large, big decks, and you know how 664 00:34:37,520 --> 00:34:41,880 Speaker 1: narrow this bullmarket advance was wrapped around four or five stocks. 665 00:34:42,160 --> 00:34:45,480 Speaker 1: What does that narrowness signal to you? And that's a 666 00:34:45,560 --> 00:34:48,000 Speaker 1: real negative, and I think you have to avoid big text. 667 00:34:48,080 --> 00:34:51,120 Speaker 1: In fact, we have new two new big texts shortly 668 00:34:51,680 --> 00:34:55,839 Speaker 1: early last week in Microsoft and Apple UM And we're 669 00:34:55,920 --> 00:34:58,640 Speaker 1: comptant about the strength that yeah, and we're concerned about 670 00:34:58,680 --> 00:35:03,040 Speaker 1: this continuing strength of US dollar, which you've noted incessantly 671 00:35:03,120 --> 00:35:08,160 Speaker 1: this morning, the stickiness inflation and um UM. And one 672 00:35:08,239 --> 00:35:10,400 Speaker 1: interesting note is that the monthly rate of increase in 673 00:35:10,440 --> 00:35:13,200 Speaker 1: the p p I has exceeded that of the CPI 674 00:35:13,320 --> 00:35:17,120 Speaker 1: for nineteen consecutive months. And this means that corporate profitability, 675 00:35:17,280 --> 00:35:20,759 Speaker 1: especially high growth tech and profit margins are living on 676 00:35:20,840 --> 00:35:23,799 Speaker 1: barrow time and are not likely to meet the optimistic 677 00:35:23,880 --> 00:35:29,000 Speaker 1: consensus expectations. That's something that Ian Shepherdson also discussed this morning. 678 00:35:29,360 --> 00:35:33,120 Speaker 1: So we see a vulnerability in SMP profits. I would 679 00:35:33,160 --> 00:35:35,400 Speaker 1: note that only fifty seven percent of the companies that 680 00:35:35,560 --> 00:35:38,800 Speaker 1: reported in the second quarter have beaten and sells estimates 681 00:35:39,160 --> 00:35:42,320 Speaker 1: their sales and profit estimates. Who was over sevent in 682 00:35:42,360 --> 00:35:44,879 Speaker 1: the previous quarter. And I think one out of every 683 00:35:44,960 --> 00:35:47,719 Speaker 1: five companies lowered guidance. And if you take out the 684 00:35:47,840 --> 00:35:52,280 Speaker 1: robust energy profit contribution to second quarter SMP profits overall 685 00:35:52,800 --> 00:35:57,160 Speaker 1: energy was down three percent. So do we retrace? Do 686 00:35:57,280 --> 00:36:02,640 Speaker 1: we retest those June lows in SMP? You think? I know, 687 00:36:02,840 --> 00:36:04,120 Speaker 1: I think that as I said that there's a non 688 00:36:04,160 --> 00:36:06,000 Speaker 1: trivial chance that we've seen a high for the year. 689 00:36:06,560 --> 00:36:11,239 Speaker 1: I personally don't think we're going to retest um, but 690 00:36:11,520 --> 00:36:16,439 Speaker 1: I am concerned about the the magnitude of the overboard. Paul. 691 00:36:16,560 --> 00:36:19,879 Speaker 1: Last week, Um, I remember talking to you in June. 692 00:36:20,160 --> 00:36:23,400 Speaker 1: I was buying when two of the SMP index components 693 00:36:23,680 --> 00:36:26,480 Speaker 1: traded above their daily fifty day moving average, and last 694 00:36:26,520 --> 00:36:30,560 Speaker 1: Tuesday that moved to eighty six. And last week was 695 00:36:30,760 --> 00:36:34,400 Speaker 1: only the thirteenth time in two decades that of industry 696 00:36:34,440 --> 00:36:38,080 Speaker 1: groups closed above their ten week average. That too, is 697 00:36:38,120 --> 00:36:42,520 Speaker 1: an extreme overboard. And in the last ten years of data, 698 00:36:42,600 --> 00:36:45,759 Speaker 1: no bear market is bottom at not even closed. So 699 00:36:46,160 --> 00:36:48,440 Speaker 1: I think there's a lot of vulnerability to the downside. 700 00:36:48,480 --> 00:36:51,920 Speaker 1: There's certainly an unfavorable reward versus risk. So do we 701 00:36:52,000 --> 00:36:54,480 Speaker 1: just trade this market until we get a better sense 702 00:36:54,520 --> 00:36:57,320 Speaker 1: of where the feed is going? And it kind of 703 00:36:57,520 --> 00:37:00,279 Speaker 1: feels like you're talking about, you know, kind of a 704 00:37:00,960 --> 00:37:03,320 Speaker 1: reasonable trading range, but one that can be traded. I 705 00:37:03,360 --> 00:37:04,960 Speaker 1: guess I think we're at the high end of the 706 00:37:05,040 --> 00:37:07,920 Speaker 1: trading range, Paul. That will move towards the lower end, 707 00:37:07,960 --> 00:37:11,839 Speaker 1: and I think we'll probably destined to be. Oh, let's 708 00:37:11,880 --> 00:37:19,160 Speaker 1: say s m P three fifty the balance of the year. Well, 709 00:37:19,239 --> 00:37:21,080 Speaker 1: let's go to that right now. Sp X four one 710 00:37:21,280 --> 00:37:25,440 Speaker 1: six off. Mr cass is fifty down negative four points 711 00:37:25,520 --> 00:37:29,319 Speaker 1: thirty three two nine VIX twenty three point three six. 712 00:37:29,400 --> 00:37:32,239 Speaker 1: Here's me twenty Yes, I got that right. Yeah, my 713 00:37:32,320 --> 00:37:34,880 Speaker 1: eyes are glazing over because I'm still worried about Bucky 714 00:37:35,000 --> 00:37:38,000 Speaker 1: f twenty three point three six. Paul, Doug, what do 715 00:37:38,040 --> 00:37:39,799 Speaker 1: you think about energy here? I mean, I'm looking at 716 00:37:39,920 --> 00:37:42,080 Speaker 1: w t I crude oil below ninety. It kind of 717 00:37:42,120 --> 00:37:45,120 Speaker 1: feels like we've seen the high in crude, but the 718 00:37:45,200 --> 00:37:48,120 Speaker 1: stocks have. They certainly had the strong move off the bottom. 719 00:37:48,160 --> 00:37:50,640 Speaker 1: The people actually talk about the energy space, and we 720 00:37:50,719 --> 00:37:53,719 Speaker 1: haven't done that in a long time. I actually have 721 00:37:53,960 --> 00:37:56,600 Speaker 1: just started by O I H, which is the energy 722 00:37:56,680 --> 00:37:59,480 Speaker 1: E t F, for the first time, um, I think 723 00:38:00,239 --> 00:38:03,080 Speaker 1: in a decade, and I seek down another three percent. 724 00:38:03,120 --> 00:38:04,839 Speaker 1: I'll be buying some more this morning. When we get 725 00:38:04,880 --> 00:38:06,840 Speaker 1: off the phone. There are a bunch of areas that 726 00:38:06,920 --> 00:38:08,880 Speaker 1: I like on the long side, although I have a 727 00:38:08,960 --> 00:38:12,600 Speaker 1: substantial amount of shorts, energy is one of them. The 728 00:38:12,680 --> 00:38:16,239 Speaker 1: dog will pause here go do go? You trade? Yeah? 729 00:38:16,520 --> 00:38:19,759 Speaker 1: Come back, I'm kidding, Doug. What can you talk to 730 00:38:19,960 --> 00:38:22,759 Speaker 1: us in the time we've got left about something? So 731 00:38:22,880 --> 00:38:26,440 Speaker 1: many of our listeners worldwide and certainly in the East Coast, 732 00:38:26,640 --> 00:38:31,480 Speaker 1: are just curious about which is the new boom in Florida? 733 00:38:32,000 --> 00:38:35,760 Speaker 1: What is the character this time of the boom in Florida. 734 00:38:35,840 --> 00:38:38,560 Speaker 1: I mean, you were there with Bogard and McCall a 735 00:38:38,680 --> 00:38:41,600 Speaker 1: few years ago, but what's the character of the boom 736 00:38:41,680 --> 00:38:44,680 Speaker 1: this time? I would say that the real estate boom 737 00:38:45,040 --> 00:38:49,520 Speaker 1: boll and Tom is extraordinary. I purchased my house on 738 00:38:49,680 --> 00:38:54,719 Speaker 1: the on the island of Palm Beach. It is up 739 00:38:54,800 --> 00:39:01,440 Speaker 1: seventeen X. So what do you do? And who is 740 00:39:01,520 --> 00:39:02,960 Speaker 1: and who are these people? I mean are do you 741 00:39:03,000 --> 00:39:05,040 Speaker 1: get the sense? I mean they say that they don't 742 00:39:05,040 --> 00:39:07,840 Speaker 1: have they're moving from up here, but that'sn't always happened. 743 00:39:07,880 --> 00:39:09,919 Speaker 1: But do you think that it's sticky? I mean, aren' 744 00:39:09,960 --> 00:39:11,600 Speaker 1: they aren't they gonna wake up and say, you know 745 00:39:11,760 --> 00:39:13,920 Speaker 1: they are the hedge fund guys like me. But the 746 00:39:13,960 --> 00:39:18,000 Speaker 1: thirty years younger. What's a mistake to hedge fun guys 747 00:39:18,080 --> 00:39:21,160 Speaker 1: like you thirty years younger making right now? Lisian Saunders 748 00:39:21,520 --> 00:39:24,480 Speaker 1: had a great chart out today of the mood of 749 00:39:24,560 --> 00:39:28,840 Speaker 1: alternative investments. What's a different practice now versus when you 750 00:39:28,920 --> 00:39:33,160 Speaker 1: were in your ute? UM, Well, I think i've i've 751 00:39:33,360 --> 00:39:38,359 Speaker 1: I've labored on the transformation of market structure, movement from 752 00:39:38,400 --> 00:39:43,640 Speaker 1: active money management investing to passive investing, with parity the 753 00:39:43,680 --> 00:39:48,000 Speaker 1: popularity and explosion of exchange traded funds. So I think 754 00:39:48,040 --> 00:39:50,200 Speaker 1: the one mistake, and this is one of the reasons 755 00:39:50,239 --> 00:39:52,479 Speaker 1: that Sea Breeze why I always average into my loans 756 00:39:52,560 --> 00:39:57,360 Speaker 1: and shorts, is that market structure changed tend to exaggerate 757 00:39:57,480 --> 00:39:59,640 Speaker 1: short term moves and no short term moves, by the way, 758 00:40:00,280 --> 00:40:03,360 Speaker 1: can be weeks or a month, as we saw in 759 00:40:03,719 --> 00:40:06,799 Speaker 1: um in the polar opposite action in June and July 760 00:40:06,960 --> 00:40:09,920 Speaker 1: in the indices. So I think it's important. The mistake 761 00:40:10,160 --> 00:40:13,120 Speaker 1: to answer your question is to not take a full 762 00:40:13,160 --> 00:40:15,320 Speaker 1: position at the get go to average in because the 763 00:40:15,400 --> 00:40:18,480 Speaker 1: market because the market market structure is so different than 764 00:40:18,520 --> 00:40:20,640 Speaker 1: when I was a kid, a kid Peabody as a 765 00:40:20,719 --> 00:40:23,040 Speaker 1: housing ANALYSIM was a few years ago duck Cast. Thank 766 00:40:23,080 --> 00:40:25,600 Speaker 1: you so much, Series partners, and was in there. He 767 00:40:25,920 --> 00:40:29,960 Speaker 1: is a bit tepid short run the market. This is 768 00:40:30,000 --> 00:40:33,960 Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 769 00:40:34,120 --> 00:40:37,880 Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio 770 00:40:38,120 --> 00:40:41,719 Speaker 1: and on Bloomberg Television each day from six to nine 771 00:40:41,760 --> 00:40:46,160 Speaker 1: am for insight from the best in economics, finance, investment, 772 00:40:46,360 --> 00:40:51,320 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 773 00:40:51,440 --> 00:40:55,279 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 774 00:40:55,400 --> 00:40:59,480 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg