WEBVTT - Surveillance: US Eco. Reacceleration with Bullard 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.880 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.160 --> 0:00:34.680 This is Bloomberg Surveillance. Alongside Damian Sassaur and Gina Martin Adams. 0:00:34.760 --> 0:00:37.920 I am Matt Miller, Tom John and Lisa are on 0:00:38.080 --> 0:00:42.400 assignment today in Jackson Hole, head of our special coverage. 0:00:42.520 --> 0:00:45.080 Let's get out to Jackson Hole. Right now, Bloomberg's Mike 0:00:45.159 --> 0:00:49.520 McKee kicks off our coverage with former Saint Louis FED 0:00:49.600 --> 0:00:52.680 president Jim Bullard, now at Purdue. Mike take it away. 0:00:52.800 --> 0:00:55.640 Well, good morning everybody, and good morning to Jim Bullard. 0:00:55.640 --> 0:00:58.600 You know it's a tradition here at Jackson Hole that 0:00:58.680 --> 0:01:01.760 we start our coverage with an interview with Jim Bullard. 0:01:02.880 --> 0:01:03.360 Every year. 0:01:03.360 --> 0:01:06.200 We come out at six am in the morning and 0:01:06.480 --> 0:01:09.880 Jim joins us in the cold. Jim left the Fed, 0:01:10.120 --> 0:01:12.200 but We're not letting him get away. He's joining us 0:01:12.200 --> 0:01:15.120 now from Purdue University, where he is the dean of 0:01:15.160 --> 0:01:20.039 the Daniels School of Business. Welcome back to our show, Jim, 0:01:20.160 --> 0:01:21.959 even if you're not here in person. 0:01:22.160 --> 0:01:24.480 Well, I'm glad to be here. And I wore my 0:01:25.280 --> 0:01:28.959 Jackson Holt coat in solidarity with the cold weather that 0:01:29.040 --> 0:01:32.120 you have to endure every year when you're out in 0:01:32.160 --> 0:01:32.920 the mountains there. 0:01:33.120 --> 0:01:35.240 Well, I offered you coffee. I just want everybody to 0:01:35.280 --> 0:01:37.160 know that, but you didn't want to come get some 0:01:38.280 --> 0:01:40.800 the first question, and I'm not the only person to 0:01:40.840 --> 0:01:43.240 wonder this, and I'm sure you know this is why 0:01:43.440 --> 0:01:45.880 you left the FED when you did and why you 0:01:45.920 --> 0:01:47.560 took this job that you have now. 0:01:48.040 --> 0:01:51.480 Well, this is a great challenge for me and for 0:01:51.760 --> 0:01:55.960 the Mitch Daniel's School of Business. We're going to get 0:01:58.200 --> 0:02:00.280 much better. We're already good, but we're gonna to go 0:02:00.280 --> 0:02:03.240 to great And I thought it'd be a great opportunity. 0:02:03.280 --> 0:02:06.480 I have been in the FED for fifteen years as 0:02:06.560 --> 0:02:10.880 president and longer before that, so my time was running out. 0:02:11.800 --> 0:02:14.799 So this is a great challenge later in my career, 0:02:14.919 --> 0:02:16.919 so I'm really looking forward to it. 0:02:17.080 --> 0:02:18.239 Well, you recently moved. 0:02:18.280 --> 0:02:20.600 So you still, i'm sure, have a lot of economics 0:02:20.600 --> 0:02:22.320 and monetary policy on your brain. 0:02:22.520 --> 0:02:24.160 Let me pick it a little bit. 0:02:24.360 --> 0:02:27.680 And ask you what you think of the economy at 0:02:27.680 --> 0:02:30.480 the moment if you were still trying to decide whether 0:02:30.520 --> 0:02:33.320 you would vote one way or another. Are we getting 0:02:33.560 --> 0:02:36.799 signals that give you a strong view one way or another? 0:02:37.360 --> 0:02:40.919 I think the biggest question right now is the reacceleration 0:02:41.120 --> 0:02:46.560 in the US economy. Atlanta Feds GDP now showing substantially 0:02:46.600 --> 0:02:50.359 above trend growth for the US economy in the third quarter. 0:02:51.600 --> 0:02:55.919 That's following higher than expected growth in the first half 0:02:55.960 --> 0:02:58.040 of twenty twenty three, and for that matter, in the 0:02:58.080 --> 0:03:01.520 second half of twenty twenty two. So I think that 0:03:01.720 --> 0:03:06.359 those that have been predicting imminent recession are having a 0:03:06.360 --> 0:03:09.640 lot of trouble here. It doesn't seem to be happening, 0:03:09.680 --> 0:03:15.280 and this reacceleration could put upward pressure on inflation, stem 0:03:15.320 --> 0:03:21.240 the disinflation that we're seeing, and instead delay plans for 0:03:21.280 --> 0:03:24.800 the FED to change policy. 0:03:25.320 --> 0:03:26.079 How are we going to do? 0:03:26.240 --> 0:03:28.360 Let me separate those questions out a little bit in 0:03:28.480 --> 0:03:32.160 terms of inflation absent the growth level that we have 0:03:32.240 --> 0:03:33.519 at the moment, and of course. 0:03:33.280 --> 0:03:36.160 That's just a very early read from the Atlanta Fed. 0:03:36.560 --> 0:03:39.960 Absent that would you be thinking that inflation would re 0:03:40.120 --> 0:03:43.760 accelerate anyway based on what you've seen in the economy. 0:03:44.360 --> 0:03:48.480 There's some talk about base effects fading and going the 0:03:48.520 --> 0:03:50.800 other way during the second half of the year, So 0:03:50.840 --> 0:03:55.240 we'll see if that occurs. You know, I like to 0:03:55.280 --> 0:04:00.560 look at the twelve month numbers because they rints out 0:04:00.600 --> 0:04:04.800 some of the seasonal effects, and so you could get 0:04:05.560 --> 0:04:09.440 at least a pause in the disinflation or even a 0:04:09.520 --> 0:04:13.360 little bit of reacceleration. I think that would suggest a 0:04:13.440 --> 0:04:18.559 higher rate profile for the FED than otherwise, So yeah, 0:04:18.720 --> 0:04:19.400 it could happen. 0:04:20.400 --> 0:04:20.640 Well. 0:04:20.800 --> 0:04:23.159 Chairman Powell and the other members of the committee have 0:04:23.279 --> 0:04:26.200 been very careful in what they've said about additional rate 0:04:26.279 --> 0:04:30.360 increases because they seem to feel they're pretty tight right 0:04:30.360 --> 0:04:32.279 now and they want to make sure they don't tip 0:04:32.320 --> 0:04:33.600 the economy into recession. 0:04:33.839 --> 0:04:35.640 How great a danger do you think that is? 0:04:36.560 --> 0:04:38.880 Yeah, I don't know. I think that committee should take 0:04:38.920 --> 0:04:41.000 a little bit of a victory lap here. I mean, 0:04:41.120 --> 0:04:45.120 the unemployment rate is three and a half percent, and 0:04:45.440 --> 0:04:48.520 we were very aggressive in twenty twenty two and into 0:04:48.560 --> 0:04:53.600 twenty twenty three, but the real side of the economy 0:04:53.640 --> 0:04:58.000 has been growing faster than potential. Labor market is still 0:04:58.080 --> 0:05:04.880 very strong, that should consumption, which should continue to proceed 0:05:04.960 --> 0:05:07.920 a pace here in the second half of twenty twenty three. So, 0:05:08.520 --> 0:05:13.159 and in the meantime CPI inflation headline CPI inflation was 0:05:13.200 --> 0:05:15.800 actually on a twelve month basis was nine percent at 0:05:15.800 --> 0:05:19.800 one point, now three percent, and the core measures are 0:05:19.800 --> 0:05:22.840 coming down as well. So it really looks like the 0:05:23.480 --> 0:05:27.840 twenty twenty two policy, including seventy five basis point hikes 0:05:27.880 --> 0:05:32.400 four meetings in a row, has a good chance of success. 0:05:32.680 --> 0:05:35.440 You never know, but it seems like it has a 0:05:35.440 --> 0:05:37.400 good chance of success here. So if there was ever 0:05:37.440 --> 0:05:41.880 a soft landing, taking six percentage points off the headline 0:05:41.920 --> 0:05:45.280 inflation rate without an increase in unemployment would sound like 0:05:45.320 --> 0:05:46.279 a soft landing to me. 0:05:46.880 --> 0:05:50.000 Well, the argument some of your former colleagues make about 0:05:50.160 --> 0:05:54.599 not raising rates further is that we have long and 0:05:54.680 --> 0:05:57.520 variable lags that are just beginning to hit the economy. 0:05:57.520 --> 0:06:01.320 That twenty twenty two rate increase path is only just 0:06:01.360 --> 0:06:03.360 beginning to hit the economy, and we have seen some 0:06:03.440 --> 0:06:08.520 of the sentiment indicators suggest that we have seen manufacturing 0:06:08.680 --> 0:06:12.679 drop off. Do you think that we really need more 0:06:12.960 --> 0:06:17.360 rate increases or should we wait and see if these 0:06:17.480 --> 0:06:21.360 lags are finally starting to hit and this speedy economy 0:06:21.440 --> 0:06:22.560 will slow down at last. 0:06:22.839 --> 0:06:23.039 Yeah. 0:06:23.240 --> 0:06:26.120 I don't think that the long and variable lags are 0:06:26.200 --> 0:06:29.080 quite what they were when Milton Freeman first talked about 0:06:29.120 --> 0:06:33.320 them decades ago. I think a lot of the transmission 0:06:33.360 --> 0:06:37.080 is much faster than it was at that time. I 0:06:37.120 --> 0:06:40.640 would point to housing as one of the prime examples. 0:06:41.080 --> 0:06:44.480 The housing market basically came to a stop in the 0:06:44.520 --> 0:06:47.919 spring of twenty twenty two, and at that point, the 0:06:48.000 --> 0:06:53.159 Committee hadn't actually done anything. The policy rate was still 0:06:53.600 --> 0:06:56.640 not very far from zero at that point, but markets 0:06:56.640 --> 0:07:01.400 anticipate what the Fed is going to do, and so 0:07:01.440 --> 0:07:04.400 you've got a big impact in the spring and summer 0:07:04.920 --> 0:07:07.520 and fall of twenty twenty two on the housing market. 0:07:07.600 --> 0:07:11.760 So that's an example of how markets pull forward the 0:07:11.760 --> 0:07:15.600 policy of the FED, and I think that's more prevalent 0:07:15.640 --> 0:07:18.760 today than would have been in the sixties or the seventies. 0:07:19.160 --> 0:07:21.640 So I think these long and variable lag estimates are 0:07:21.680 --> 0:07:24.720 a little out of date. You have to think about 0:07:25.840 --> 0:07:29.960 transmission coming much faster than it would have during that 0:07:30.000 --> 0:07:31.080 period of time. 0:07:30.880 --> 0:07:33.880 A couple of newspaper stories, and now Wall Street is 0:07:33.880 --> 0:07:36.840 talking about is our star and whether the Fed is 0:07:36.880 --> 0:07:42.040 going to be adjusting its estimates. Two questions, One, what 0:07:42.080 --> 0:07:44.040 do you think it is? And does it tell you anything? 0:07:44.080 --> 0:07:47.480 And the second question is is it really relevant to 0:07:47.800 --> 0:07:49.920 policy at this point? 0:07:50.040 --> 0:07:52.800 I think it is relevant, but we don't have very 0:07:52.840 --> 0:07:57.680 good estimates of this number. I think Chair Powell has 0:07:58.760 --> 0:07:59.920 said we really don't know. 0:08:00.000 --> 0:08:00.120 Oh. 0:08:00.120 --> 0:08:03.520 I think that was one quote from him on our Star. 0:08:03.720 --> 0:08:07.200 So it is an interesting debate, but you probably can't 0:08:07.200 --> 0:08:13.280 make too much of it because the estimates are so uncertain. 0:08:15.000 --> 0:08:17.840 I do think it matters, though, because people want to 0:08:17.880 --> 0:08:21.560 have some idea of where they think they're going. 0:08:22.760 --> 0:08:23.680 In the medium term. 0:08:24.000 --> 0:08:26.040 Well that's my next question is where do you think 0:08:26.080 --> 0:08:28.280 we're going in the medium term. You've got some people 0:08:28.320 --> 0:08:31.480 who think John Williams, a New York FED president, that 0:08:31.680 --> 0:08:34.160 our star, the neutral rate of interest, let's put it 0:08:34.160 --> 0:08:38.840 that way, is going to be somewhere where it was 0:08:39.440 --> 0:08:42.200 prior to the pandemic. Others think we've moved into a 0:08:42.240 --> 0:08:44.680 new regime, to quote the old Saint Louis FED President 0:08:44.760 --> 0:08:47.520 Jim Bullard, and we're going to be back to say, 0:08:47.520 --> 0:08:51.240 the nineteen nineties versions of interest rates and growth rates 0:08:51.880 --> 0:08:54.480 and inflation rates. Where do you think we come out 0:08:54.480 --> 0:08:55.360 of this pandemic? 0:08:55.880 --> 0:09:00.240 Yeah, I think the probabilities are that we are in 0:09:00.280 --> 0:09:03.120 a new regime that'll be a higher interest rate regime. 0:09:03.200 --> 0:09:07.520 It'll be more like the nineties than we're used to 0:09:08.720 --> 0:09:12.200 in the last two decades. And the reason I say 0:09:12.200 --> 0:09:16.720 that is that inflation is above target today. Core inflation 0:09:16.880 --> 0:09:20.040 is likely to be sticky and come down rather slowly, 0:09:21.320 --> 0:09:24.800 and the rule of thumb would be that the policy 0:09:24.880 --> 0:09:28.160 rate has to be above the inflation rate in order 0:09:28.200 --> 0:09:32.000 to continue to push inflation back toward our two percent target. 0:09:32.720 --> 0:09:36.800 So you would expect from those considerations that interest rates 0:09:36.840 --> 0:09:42.839 would be rather high over this timeframe going forward over 0:09:42.840 --> 0:09:47.360 the medium term, more like the nineties, less like the 0:09:47.600 --> 0:09:51.920 twenty nine to twenty nineteen period where you had inflation 0:09:52.000 --> 0:09:56.560 below target and interest rates pinned down at low levels. 0:09:57.120 --> 0:10:00.599 So I think we have probably switched here to a 0:10:00.679 --> 0:10:05.839 higher interest rate regime with higher nominal Interesting. Now, I 0:10:05.880 --> 0:10:07.800 wouldn't say about the nineties. You and I have talked 0:10:07.800 --> 0:10:11.200 about this before. The second half of the nineties was 0:10:11.280 --> 0:10:15.599 actually one of the best periods for US macroeconomic performance. 0:10:15.679 --> 0:10:19.520 So you know, maybe it's a good sign for the economy. 0:10:19.559 --> 0:10:22.560 The economy can boom even with a higher nominal interest 0:10:22.640 --> 0:10:23.240 rate environment. 0:10:23.559 --> 0:10:24.800 Well, we'll hope you're correct. 0:10:24.880 --> 0:10:28.600 Jim Bullard, the dean of the business school at Purdue University, 0:10:28.640 --> 0:10:31.000 the Daniels Business School, thank you for joining us and 0:10:31.080 --> 0:10:34.640 helping us kick off once again our Jackson Hole coverage. 0:10:34.920 --> 0:10:37.679 Matt Michael McKee, thanks very much for that, and thanks 0:10:37.679 --> 0:10:51.199 also to former Saint Louis FED President Jim Bullard reer 0:10:51.280 --> 0:10:54.520 in for Tom John and Lisa. They're out doing some 0:10:54.720 --> 0:10:58.400 reporting at Jackson Hole as well, and there could be 0:10:58.520 --> 0:11:03.040 some really big market moving speeches out of this symposium, 0:11:03.160 --> 0:11:06.040 or maybe not. Let's ask Michael Darla, chief economist and 0:11:06.240 --> 0:11:10.520 macro strategist Roth MKM Partners. Michael, you know, what do 0:11:10.559 --> 0:11:13.560 you expect from the Fed in a week when a 0:11:13.559 --> 0:11:16.000 lot of people have been saying and videos may be 0:11:16.120 --> 0:11:17.960 more important than j Powell's speech. 0:11:18.480 --> 0:11:21.520 Thanks for having me on, Matt. Well, that's clearly been 0:11:21.520 --> 0:11:24.160 the case in terms of the equity market. As we've seen, 0:11:25.120 --> 0:11:27.640 all eyes are going to be on Powell tomorrow at 0:11:27.679 --> 0:11:30.880 ten am. You know, last year it was very short, 0:11:31.160 --> 0:11:33.760 very blunt, very to the point. But the FED has 0:11:34.000 --> 0:11:38.200 certainly moved quite a bit, you know, over the course 0:11:38.240 --> 0:11:40.959 of the last year and a half. So I don't 0:11:41.000 --> 0:11:44.400 think Powell's intent here is going to be to make 0:11:44.520 --> 0:11:47.679 new news. I think, you know, essentially, the FED is 0:11:47.720 --> 0:11:50.600 getting close to where it thinks the policy rate is 0:11:50.640 --> 0:11:54.240 above neutral, but their eyes are on the macro data. 0:11:54.520 --> 0:11:57.920 And you just heard Bollard there essentially saying if the 0:11:58.000 --> 0:12:00.480 data looks like it's above trend, the Fed's to believe 0:12:00.480 --> 0:12:02.640 that the job is not quite finished. So I really 0:12:02.720 --> 0:12:04.480 don't think Paul is going to come out and make 0:12:04.520 --> 0:12:08.480 some kind of declaration that the FED is done tightening. 0:12:08.760 --> 0:12:10.680 I think they're going to take it meeting by meeting, 0:12:10.679 --> 0:12:11.920 which is, you know what they've. 0:12:11.760 --> 0:12:15.600 Been saying, Michael rising, real yields are a negative for 0:12:15.679 --> 0:12:17.720 risk assets. Here we have the US ten year real 0:12:17.840 --> 0:12:20.600 yield approaching ten percent. It's jumped something on the order 0:12:20.640 --> 0:12:24.000 of fifty BIPs since July. Just how much higher can 0:12:24.040 --> 0:12:25.080 real yields go from here? 0:12:26.120 --> 0:12:30.760 Yeah, that's a really important point. They could certainly go 0:12:30.920 --> 0:12:34.000 higher with tighter FED policy. Real rates can go up, 0:12:34.800 --> 0:12:37.680 But you know, consider the fact that the last period 0:12:37.720 --> 0:12:40.319 in which we had ten year real yields around two 0:12:40.400 --> 0:12:43.480 hundred basis points spanning from two thousand and three to 0:12:43.520 --> 0:12:47.000 two thousand and nine. The forward PE ratio on the 0:12:47.080 --> 0:12:50.000 S and P five hundred was right around fifteen and 0:12:50.080 --> 0:12:53.200 we're back above nineteen times now. We were at twenty 0:12:53.280 --> 0:12:58.120 times forward estimates earlier this year before a pullback started. 0:12:58.160 --> 0:13:01.120 So I think that ultimately is going to be a 0:13:01.200 --> 0:13:04.880 hurdle for the equity market. There is competition now from 0:13:04.920 --> 0:13:07.960 the bond market, and there's a lot of competition from cash. 0:13:08.160 --> 0:13:08.360 You know. 0:13:08.400 --> 0:13:10.839 We published a piece yesterday that took a look at 0:13:10.880 --> 0:13:14.840 the treasury bill yield relative to the earnings yield on stocks, 0:13:14.880 --> 0:13:18.960 and T bill yields are now higher than the earnings 0:13:19.000 --> 0:13:21.080 yield on the S and P five hundred. That's actually 0:13:21.160 --> 0:13:25.800 fairly rare historically, and when it has occurred, the equity 0:13:25.880 --> 0:13:29.680 market is tended to fall into fairly serious corrections or 0:13:29.720 --> 0:13:33.040 bear markets. It's going to be impossible to time. But 0:13:33.320 --> 0:13:35.440 the point is a good one. The higher the yield, 0:13:35.480 --> 0:13:37.960 the lower the PE ratio. And we have pretty elevated 0:13:38.000 --> 0:13:40.800 PE ratios now in the equity market, even on a 0:13:40.840 --> 0:13:42.000 forward looking basis. 0:13:42.240 --> 0:13:45.320 But this is great for you know Tom Keen is 0:13:45.360 --> 0:13:48.480 in a triple leverage to all cash lot, right, so 0:13:48.520 --> 0:13:51.160 he's been doing very well. This is when Gina, Michael's 0:13:51.200 --> 0:13:54.320 going to talk about the equity risk premium or the 0:13:54.360 --> 0:13:58.120 negative equity risk premium, which you know, it's difficult for 0:13:58.200 --> 0:14:01.000 me to get my head around that well. 0:14:01.600 --> 0:14:03.360 So the thing I think you want to focus on 0:14:03.400 --> 0:14:06.800 with respect to the equity risk premium is most analysts 0:14:06.840 --> 0:14:08.920 are going to look at the PE on the S 0:14:08.960 --> 0:14:12.040 and P five hundred and compare that to some version 0:14:12.080 --> 0:14:14.200 of a yield or a cash yield, as Michael does 0:14:14.200 --> 0:14:17.160 in some of his notes, And I think that the 0:14:17.559 --> 0:14:19.640 missing link there is when you look at the PE 0:14:19.680 --> 0:14:21.520 of the S and P five hundred, you're really looking 0:14:21.600 --> 0:14:24.800 at a distorted pe based upon seven stocks. When you 0:14:24.840 --> 0:14:27.240 look at the rest of the broader equity markets, you 0:14:27.240 --> 0:14:29.320 look at global stocks, you look at small cap stocks, 0:14:29.360 --> 0:14:32.200 you look at the X seven s and P five hundred, 0:14:32.240 --> 0:14:34.880 you actually find the risk premium is much closer to 0:14:34.960 --> 0:14:38.200 long term average. But you do have these distortions which 0:14:38.200 --> 0:14:42.880 are creating this really bizarre environment for investment. I mean, 0:14:42.920 --> 0:14:46.280 my question to Michael would be where are we going 0:14:46.320 --> 0:14:48.760 to go with this? Michael Are we going to see 0:14:49.240 --> 0:14:52.880 some rotation then as a default of the equity risk 0:14:52.960 --> 0:14:55.280 premium or is this just to sell all stocks because 0:14:55.320 --> 0:14:56.440 you're selling the top seven. 0:14:57.440 --> 0:15:00.000 Yeah, that's a really important point and a great question, 0:15:00.040 --> 0:15:03.120 and I think you know, the answer is it really 0:15:03.160 --> 0:15:05.880 depends on how the business cycle fares from here. So 0:15:05.920 --> 0:15:09.080 we have been seeing the rally broadened out, and we're 0:15:09.120 --> 0:15:15.560 hearing the word soft landing and even goldilocks now fairly frequently. 0:15:16.200 --> 0:15:18.840 And so it looks like a soft landing in the 0:15:18.880 --> 0:15:22.000 sense that the economy has slowed to about trend, inflation 0:15:22.160 --> 0:15:24.920 is coming down, and that's starting to catalyze a lot 0:15:24.960 --> 0:15:27.840 of confidence that will avoid a recession. And there's no 0:15:27.920 --> 0:15:30.880 recession happening now. We know there's a recession on if 0:15:30.880 --> 0:15:33.760 the unemployment rate is lifting, and that has not occurred yet. 0:15:34.520 --> 0:15:36.120 But I don't think we're quite out of the woods 0:15:36.200 --> 0:15:39.000 in terms of, you know, looking out over the next year. 0:15:39.520 --> 0:15:42.840 I still think the probability of a recession is quite high, 0:15:43.320 --> 0:15:45.560 just because we dodged one in the first half of 0:15:45.600 --> 0:15:48.080 the year. Q three looks like it's shaping up pretty 0:15:48.080 --> 0:15:51.400 well so far. I think it's a bit premature to say, Okay, 0:15:51.440 --> 0:15:53.800 the coast is clear now. So if we do end 0:15:53.880 --> 0:15:56.200 up with a recession hitting some time between now and 0:15:56.240 --> 0:15:58.840 say the end of next summer, you know, I think 0:15:58.880 --> 0:16:01.760 that's going to be a difficult environment for the equity market, 0:16:01.880 --> 0:16:04.440 even you know, even given the fact that we've had 0:16:04.440 --> 0:16:07.560 these distortions by the seven stocks you've mentioned. The rest 0:16:07.600 --> 0:16:10.040 of the market certainly doesn't look that expensive. But an 0:16:10.120 --> 0:16:14.560 environment where top line growth is weakening and potentially e've 0:16:14.560 --> 0:16:18.280 ben falling and you have that pressure on profit margins, 0:16:18.320 --> 0:16:21.000 I think we're going to have difficulty and risk assets 0:16:21.040 --> 0:16:23.040 and not just equity markets. I mean, the high yield 0:16:23.120 --> 0:16:27.200 market looks insanely expensive here, so I wouldn't touch that 0:16:27.280 --> 0:16:30.200 with a ten foot hole. The triple levered cash fund 0:16:30.280 --> 0:16:34.600 met that the top is a pretty good way. 0:16:34.480 --> 0:16:35.160 To go here. 0:16:35.360 --> 0:16:39.360 He's done very well, but he's avoided bitcoin from I 0:16:39.440 --> 0:16:41.240 have to say, from like six hundred dollars when I 0:16:41.240 --> 0:16:41.640 first talked to. 0:16:41.680 --> 0:16:42.040 Him about it. 0:16:42.040 --> 0:16:43.840 He could have made a killing in it. I want 0:16:43.880 --> 0:16:47.840 to ask about, getting back to Jackson hole, how restrictive 0:16:47.920 --> 0:16:50.600 the FED is, because you point out that we have 0:16:50.720 --> 0:16:53.680 obviously an inverted yield curve. We're seeing a shrinkage and 0:16:53.880 --> 0:16:57.280 money supply for the first time and who knows how long, 0:16:57.320 --> 0:17:00.720 and that typically indicates a recession is coming. Both of 0:17:00.760 --> 0:17:03.360 those things. On the other hand, you know, Neil Dutta 0:17:04.359 --> 0:17:06.959 the note after the minutes, put out a note pointing 0:17:07.000 --> 0:17:09.720 out something that Damien was bringing up earlier as well, 0:17:09.760 --> 0:17:11.879 which is that we have unemployment at three and a 0:17:11.920 --> 0:17:14.359 half percent, we have growth that looks like four percent 0:17:14.440 --> 0:17:16.679 right now. So how restrictive can the Fed really be? 0:17:17.960 --> 0:17:21.399 Yeah, I think that's the critical question for the Fed. 0:17:21.480 --> 0:17:25.080 If they're looking at you know, the coincident data month 0:17:25.119 --> 0:17:28.359 by month, week by week, If the data looks like 0:17:28.440 --> 0:17:31.320 it's coming in above trend, the Fed is going to 0:17:31.359 --> 0:17:35.320 assume that whatever the policy rate is, it's not high enough. Right. 0:17:35.400 --> 0:17:38.480 So that's why there's still a question about whether they 0:17:38.560 --> 0:17:41.119 raise rates again and whether they're really done in the 0:17:41.119 --> 0:17:43.920 Future's markets have been, you know, starting to price in 0:17:44.000 --> 0:17:46.560 at least one more rate hike although it's you know, 0:17:46.720 --> 0:17:50.359 low probability. So if you continue to get hot data, 0:17:50.440 --> 0:17:52.399 then the Fed is just going to keep at it 0:17:52.440 --> 0:17:54.600 because they don't you know, they will admit they don't 0:17:54.720 --> 0:17:57.879 really know where the so called called our star, the 0:17:58.200 --> 0:18:02.119 equilibrium interest rate. If you think about what they've most 0:18:02.119 --> 0:18:05.520 of them have been saying, the fo MC voters since 0:18:05.760 --> 0:18:09.520 last year. They're talking about getting to a restrictive stance 0:18:09.560 --> 0:18:11.480 and holding there. And if you ask them to define, 0:18:11.800 --> 0:18:14.720 you know what does that mean. It means that activity 0:18:14.840 --> 0:18:17.480 is coming in below trend. So if that's not happening, 0:18:17.640 --> 0:18:19.639 that's going to keep at it until it does happen. 0:18:20.119 --> 0:18:23.080 And you know, in my mind, that's actually the risk 0:18:23.160 --> 0:18:25.840 to the to the business cycle. And you know that 0:18:25.840 --> 0:18:28.639 that reinforces the message of the yield curve in money 0:18:28.640 --> 0:18:31.280 and some of these longer leading indicators that tend to 0:18:31.280 --> 0:18:34.800 weaken well before recessions hit. The problem is, you know, 0:18:34.800 --> 0:18:38.240 there are long and varied lags what's impossible to time, 0:18:38.280 --> 0:18:41.600 and you can have these rip roaring equity market rallies, 0:18:41.920 --> 0:18:45.919 even if they're narrowly driven, leading an economic cycle. We 0:18:45.960 --> 0:18:48.960 saw that in six seven. We also saw the eighty 0:18:49.119 --> 0:18:52.000 nine to ninety, so that one was before most of 0:18:52.040 --> 0:18:53.560 our time here on the panel. 0:18:55.880 --> 0:18:58.800 Absolutely for all of us here, definitely way before our times. Michael, 0:18:58.800 --> 0:19:02.479 thanks so much. Michael Darta there of Wrath MKM talking 0:19:02.480 --> 0:19:04.200 to us about rates. 0:19:08.440 --> 0:19:08.760 Springing. 0:19:08.840 --> 0:19:12.919 Max Kattner right now, chief Multi Asset strategist over at HSBC. 0:19:13.119 --> 0:19:16.359 He joins us live out of Copenhagen. Max, let me 0:19:16.400 --> 0:19:20.359 first get your take on the big news of the day, 0:19:20.560 --> 0:19:24.919 which is yesterday's and Video earnings report. I thought expectations 0:19:24.960 --> 0:19:26.919 were so high it would be tough to beat, and 0:19:27.000 --> 0:19:27.639 yet they did it. 0:19:29.480 --> 0:19:30.440 Yeah, good morning. 0:19:30.520 --> 0:19:33.120 I think, look just like we've had before, right, there's 0:19:33.119 --> 0:19:36.040 really nothing bad about that report, and it's going to 0:19:36.119 --> 0:19:38.000 be you know, it's going to be pretty interesting how 0:19:38.000 --> 0:19:40.639 the stock opens. I guess we're going to go towards 0:19:40.680 --> 0:19:43.320 a new all time high. I guess in terms of 0:19:43.400 --> 0:19:45.840 the market sentiment, and it's a complete switch from what 0:19:45.880 --> 0:19:50.199 we've seen last week. However, I would also say in 0:19:50.280 --> 0:19:53.399 terms of the broader market sentiment, not just in video, 0:19:53.560 --> 0:19:56.040 not just AI, but if we look at the broader 0:19:56.080 --> 0:19:58.800 market sentiment, that's clearly become. 0:19:58.560 --> 0:20:01.520 A little bit more bare over the last you know, 0:20:01.600 --> 0:20:02.840 the last two weeks or so. 0:20:03.200 --> 0:20:06.400 When we look, for example, at survey based sent and sentiment, 0:20:06.480 --> 0:20:10.639 look at the AAII survey, look at several other indicators 0:20:10.960 --> 0:20:14.040 in general, they've become a little bit more bearish. And 0:20:14.119 --> 0:20:16.280 that is good news, right. That means that, you know, 0:20:16.320 --> 0:20:20.520 if you get a bit further further dips in US equities. 0:20:20.680 --> 0:20:23.840 That definitely is really territory to buy on dips. 0:20:24.600 --> 0:20:24.919 Max. 0:20:24.960 --> 0:20:27.760 You've been pretty constructive and talking about buying on dips 0:20:27.760 --> 0:20:29.560 now for a bit of time. Is it more than 0:20:29.600 --> 0:20:32.240 just sentiment. Talk us through your theory or sort of 0:20:32.240 --> 0:20:34.880 your justification for getting a little bit more bullish as 0:20:34.880 --> 0:20:36.800 we approach the end of the year, because it seems 0:20:36.800 --> 0:20:39.639 to stand out as many people have sort of gotten 0:20:39.680 --> 0:20:42.520 a little scared off by what we've experienced over the 0:20:42.600 --> 0:20:43.120 last month. 0:20:44.480 --> 0:20:45.200 Yeah, I do think. 0:20:45.240 --> 0:20:47.320 Look, I do think there could be a few further 0:20:47.359 --> 0:20:49.399 deps now in the next week or two, right, or 0:20:49.480 --> 0:20:53.520 with Jackson Hall, you guys just mentioned treasury supply, right, 0:20:53.560 --> 0:20:56.720 If one or two of these auctions tail a little bit, yeah, fine, 0:20:56.920 --> 0:20:59.960 that may be bringing a few further dips, but those 0:21:00.000 --> 0:21:02.600 steps have to be bought, right. It is number one, 0:21:02.640 --> 0:21:05.280 the sentiment side of things that we've just talked about, 0:21:05.400 --> 0:21:08.240 but it's also the fundamental side, right, Like you before 0:21:08.280 --> 0:21:10.920 mentioned the broad based earnings recovery. 0:21:11.000 --> 0:21:11.880 Let's remember that. 0:21:11.880 --> 0:21:15.280 We've just had the second quarter in a row where 0:21:15.359 --> 0:21:18.719 average earning surprise factors have picked up again, where the 0:21:18.760 --> 0:21:22.439 earnings b trade has picked up again, both way above 0:21:23.040 --> 0:21:27.040 tenure averages and pre COVID averages. So that's pretty good, right, 0:21:27.040 --> 0:21:30.040 And it's also really when we look at the strength 0:21:30.040 --> 0:21:33.440