1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Brownowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,800 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:32,240 Speaker 1: and of course on the Bloomberg terminal. Leon Cooperman folks 6 00:00:32,280 --> 00:00:35,640 Speaker 1: for like forty seven years, was named head Research Strategists 7 00:00:35,920 --> 00:00:39,720 Speaker 1: by Institutional Investor at a tour of duty with Goldman 8 00:00:39,760 --> 00:00:42,000 Speaker 1: Sax a few years ago, Leon, I want to talk 9 00:00:42,040 --> 00:00:45,080 Speaker 1: about the character of this bear market, and you and 10 00:00:45,159 --> 00:00:48,760 Speaker 1: I do that with a bond overlay we've never seen, 11 00:00:49,280 --> 00:00:53,159 Speaker 1: which is bond priced down, yield up. The losses and 12 00:00:53,240 --> 00:00:58,000 Speaker 1: bonds are extraordinary. How does that redound over to a 13 00:00:58,240 --> 00:01:02,960 Speaker 1: stock bear market? Well, actually I went taking a slightly 14 00:01:02,960 --> 00:01:05,240 Speaker 1: different approach. I'm shocked at interest rate to as low 15 00:01:05,280 --> 00:01:07,800 Speaker 1: as they are. You know, for most of my career 16 00:01:07,880 --> 00:01:10,080 Speaker 1: there was a real return associated with buying a bond. 17 00:01:10,600 --> 00:01:14,000 Speaker 1: The bond nominally yield was an excess of inflation. We 18 00:01:14,080 --> 00:01:16,880 Speaker 1: have inflation rate in this country, quote eight percent. You 19 00:01:16,880 --> 00:01:19,240 Speaker 1: have real growth a couple of percent. You have nominal 20 00:01:19,319 --> 00:01:22,440 Speaker 1: GDP growing at ten percent and you have the tenure 21 00:01:22,480 --> 00:01:25,840 Speaker 1: bond at three makes no sense. And that makes everything 22 00:01:25,840 --> 00:01:29,640 Speaker 1: in the stock market look attractive. The stock market looks attractive. 23 00:01:29,680 --> 00:01:31,720 Speaker 1: What parton looks attractive to you? Or are you in 24 00:01:31,760 --> 00:01:36,319 Speaker 1: the triple leverage doll cash fund? No, I'm basically I'm 25 00:01:36,319 --> 00:01:38,840 Speaker 1: of the view that equities are the best house and 26 00:01:38,880 --> 00:01:42,160 Speaker 1: the financial asset neighborhood. But I don't like the neighborhood 27 00:01:42,600 --> 00:01:45,360 Speaker 1: for a lot of reasons, so I have a cautious view. 28 00:01:45,840 --> 00:01:48,280 Speaker 1: I've been a seller on strength and not a buyer 29 00:01:48,360 --> 00:01:52,320 Speaker 1: a weakness. I think that ultimately the price of oil 30 00:01:53,040 --> 00:01:57,120 Speaker 1: or the FED or maybe the strong dollar will lead 31 00:01:57,200 --> 00:02:00,200 Speaker 1: us into a recession. And when the recession hits, which 32 00:02:00,200 --> 00:02:04,680 Speaker 1: will be a three event, when it is that, the 33 00:02:04,720 --> 00:02:08,800 Speaker 1: market will find the bottom somewhere between thirty five below 34 00:02:09,280 --> 00:02:13,520 Speaker 1: its peak of And I think coming on the program 35 00:02:13,600 --> 00:02:17,440 Speaker 1: and having excuse me, a questious view is not evaluated, 36 00:02:17,960 --> 00:02:21,600 Speaker 1: so I differentiate myself. I talked about the Pharaoh. You know, 37 00:02:21,960 --> 00:02:23,800 Speaker 1: I don't know what you know about the Bible. Tom 38 00:02:23,880 --> 00:02:26,440 Speaker 1: but the foul had a dream. The dream was interpreted 39 00:02:26,440 --> 00:02:28,880 Speaker 1: by Joseph, and the dream was We're gonna have seven 40 00:02:28,919 --> 00:02:32,200 Speaker 1: lean years following the seven fat years. I'm not making 41 00:02:32,200 --> 00:02:35,360 Speaker 1: a seven year forecast, but what I'm saying is I 42 00:02:35,360 --> 00:02:37,519 Speaker 1: would be very, very surprised if we went into a 43 00:02:37,560 --> 00:02:40,760 Speaker 1: new bull market anytime soon. We've just been through the 44 00:02:40,760 --> 00:02:45,640 Speaker 1: most speculative period now financials three you know, SPACs, Uh 45 00:02:46,120 --> 00:02:51,639 Speaker 1: would be you know, um fangs, zero commissions and interests. 46 00:02:51,880 --> 00:02:55,200 Speaker 1: We just saw an extraordinary expected the period and Uh, 47 00:02:55,760 --> 00:02:57,720 Speaker 1: we're not going into a bull market at least. What's 48 00:02:57,720 --> 00:03:00,079 Speaker 1: so important here is we can't have the coup for 49 00:03:00,160 --> 00:03:02,840 Speaker 1: bond angle because the seven years of abundance led by 50 00:03:02,880 --> 00:03:06,080 Speaker 1: the seven years of famine. Lisa, that doesn't get it 51 00:03:06,120 --> 00:03:09,640 Speaker 1: done for us. We'll have to put the exodus aside 52 00:03:09,720 --> 00:03:12,960 Speaker 1: and talk about what we're looking for in terms of 53 00:03:12,960 --> 00:03:16,480 Speaker 1: the safety during the seven years of leanness. And you 54 00:03:16,560 --> 00:03:19,360 Speaker 1: talked about bonds in the surprise that yields were so low, 55 00:03:19,919 --> 00:03:24,080 Speaker 1: particularly a bunchmark rates. What is the safety if it's 56 00:03:24,120 --> 00:03:29,480 Speaker 1: not bonds, Oh, I would think under valid common stocks. 57 00:03:30,040 --> 00:03:32,240 Speaker 1: I'd rather be in a common stock that would be 58 00:03:32,240 --> 00:03:34,360 Speaker 1: in a bond any day of the week. Given the 59 00:03:34,360 --> 00:03:38,760 Speaker 1: relative price of bonds versus equities, can buy what we 60 00:03:38,840 --> 00:03:42,840 Speaker 1: gotta what we gotta understand is stocks are very heterogeneous. 61 00:03:43,080 --> 00:03:45,800 Speaker 1: Bonds are homeost genius. What I mean by that is 62 00:03:46,240 --> 00:03:48,840 Speaker 1: a triple a bond, double a bond. They're all trade 63 00:03:48,840 --> 00:03:52,800 Speaker 1: within a quarter point of each other. Stocks are heterogeneous. 64 00:03:53,240 --> 00:03:55,120 Speaker 1: You know, I look at a City bank at seven 65 00:03:55,120 --> 00:03:58,360 Speaker 1: times journeys at discount, the Book Bank of American nine 66 00:03:58,400 --> 00:04:03,960 Speaker 1: times earnings, Apole, Uh, the financial service company at any 67 00:04:04,040 --> 00:04:07,680 Speaker 1: times earnings. Uh. You know I have my I'm doing 68 00:04:07,680 --> 00:04:09,760 Speaker 1: relatively well this year because I have a big energy 69 00:04:09,800 --> 00:04:12,280 Speaker 1: exposure and I had breakfast with the CEO of a 70 00:04:12,360 --> 00:04:15,680 Speaker 1: coming called Paramount Resources up in Canada, and the stocks 71 00:04:15,680 --> 00:04:18,920 Speaker 1: gone from two to like, and I was wondering where 72 00:04:18,920 --> 00:04:20,640 Speaker 1: I should take some money off the table. When I 73 00:04:20,640 --> 00:04:24,200 Speaker 1: got finished talking to the CEO, I figured, I add 74 00:04:24,240 --> 00:04:27,080 Speaker 1: to my position, this is a company that generates over 75 00:04:27,240 --> 00:04:29,080 Speaker 1: three percent of it in the yield, so it was 76 00:04:29,120 --> 00:04:33,920 Speaker 1: at three times cash earnings. It's growing production double digits UM. 77 00:04:34,279 --> 00:04:37,200 Speaker 1: And uh, they have something like the ten eleven twelve 78 00:04:37,240 --> 00:04:41,320 Speaker 1: dollars of cash flow training it like three times cash flow, 79 00:04:41,600 --> 00:04:44,080 Speaker 1: and they have a portfolilo on the other energy holdings 80 00:04:44,240 --> 00:04:46,960 Speaker 1: that are equal to five dollars per share. The ironomy, 81 00:04:47,200 --> 00:04:50,080 Speaker 1: I'm very negative on bonds. My biggest position is a bond, 82 00:04:50,360 --> 00:04:53,640 Speaker 1: but it's very complex. But I happen to think it's 83 00:04:53,640 --> 00:04:55,960 Speaker 1: like a layup. I could be dead wrong. It's a 84 00:04:56,040 --> 00:04:59,680 Speaker 1: coming called Lagato. They had first lean dead outstanding fifteen 85 00:04:59,680 --> 00:05:02,400 Speaker 1: and a half sent coupon. We're to make hope of vision. 86 00:05:02,480 --> 00:05:04,840 Speaker 1: You have paid interest to the end of twenty three 87 00:05:04,839 --> 00:05:08,000 Speaker 1: when the bond matures. And these are very real people, 88 00:05:08,320 --> 00:05:10,880 Speaker 1: they have very real assets. Where I say real people. 89 00:05:10,960 --> 00:05:14,599 Speaker 1: Chairman the boards, Ivan Seidenberg, formerly head of Horizon Red Hunt, 90 00:05:14,640 --> 00:05:17,479 Speaker 1: formerly had of the fccs on the board. Mr Kana 91 00:05:17,520 --> 00:05:19,520 Speaker 1: you who is number two guy to Craig mccoord built 92 00:05:19,560 --> 00:05:23,320 Speaker 1: mcorse Cellulos on the board. There's so much of the 93 00:05:23,480 --> 00:05:26,800 Speaker 1: specific story here that's important to talk about and discern. 94 00:05:27,200 --> 00:05:29,720 Speaker 1: Let's talk about the bear case or the recession call 95 00:05:29,920 --> 00:05:32,679 Speaker 1: of a draw down from the peak, which is about 96 00:05:33,520 --> 00:05:36,760 Speaker 1: further than where we are today in the SMP. What 97 00:05:37,040 --> 00:05:40,760 Speaker 1: leads things lower If there are these positive stories of 98 00:05:40,800 --> 00:05:44,040 Speaker 1: whether it's undervalued financials as you said, or whether it's 99 00:05:44,160 --> 00:05:48,680 Speaker 1: undervalued or at least uh fairly valued energy companies, well, 100 00:05:48,680 --> 00:05:52,520 Speaker 1: I'm a classicist, you know. Let's face it, we have recessions. 101 00:05:52,760 --> 00:05:54,839 Speaker 1: We used to have recessions every four or five years, 102 00:05:55,200 --> 00:05:58,400 Speaker 1: but because of very liberal policies, has been stretched out. 103 00:05:58,760 --> 00:06:01,520 Speaker 1: But if we have a recession, and uh, typically you 104 00:06:01,560 --> 00:06:04,479 Speaker 1: have a bad market preceding recession, and uh, you know 105 00:06:04,520 --> 00:06:07,120 Speaker 1: we're in a bad market already, and the question is 106 00:06:07,240 --> 00:06:10,320 Speaker 1: we're probing for the bottom. And I think given the 107 00:06:10,360 --> 00:06:13,760 Speaker 1: excesses that we've had, having a bottom thirty five or 108 00:06:14,440 --> 00:06:17,720 Speaker 1: below the peak would not be an unreasonable guests multiples, 109 00:06:17,760 --> 00:06:21,960 Speaker 1: that would not unreasonable, you know. Uh, let's face, everybody's 110 00:06:22,040 --> 00:06:24,240 Speaker 1: using the wrong profit est of it. You know, I 111 00:06:24,279 --> 00:06:26,440 Speaker 1: think someone on your program this morning said every one 112 00:06:26,480 --> 00:06:30,200 Speaker 1: percent point improvement a dollar is about eight percent off 113 00:06:30,200 --> 00:06:34,200 Speaker 1: of earnings. Uh, let's talk about that, Leon Cooperman, you 114 00:06:34,240 --> 00:06:36,480 Speaker 1: have seen dollar a bounce. You know, I believe you 115 00:06:36,520 --> 00:06:38,360 Speaker 1: were in the meetings of the Plaza Court a few 116 00:06:38,440 --> 00:06:41,360 Speaker 1: years ago. What does a strong dollar mean for our 117 00:06:41,480 --> 00:06:46,239 Speaker 1: viewers and our listeners? Negative for corporate profits? You already 118 00:06:46,279 --> 00:06:49,719 Speaker 1: got a profit warning out of Microsoft on the strong dollar, 119 00:06:50,320 --> 00:06:53,360 Speaker 1: and uh, you know in a recession, profits typically drop. 120 00:06:54,480 --> 00:06:58,040 Speaker 1: I don't see any uh estimates that would have earnings 121 00:06:58,120 --> 00:07:03,800 Speaker 1: on the SMP five comes, Leon, help me with institutional 122 00:07:03,920 --> 00:07:07,159 Speaker 1: money and what they do with whatever part of their 123 00:07:07,160 --> 00:07:11,200 Speaker 1: portfolio was bonds and those bond losses. We have guests 124 00:07:11,280 --> 00:07:15,560 Speaker 1: after guests after guests rationalizing a bond bear market. Do this, 125 00:07:15,640 --> 00:07:18,720 Speaker 1: do this, do this, do this? Fine, But the fact is, 126 00:07:18,760 --> 00:07:21,760 Speaker 1: on an actually assumption, even if you have a formal 127 00:07:21,800 --> 00:07:25,120 Speaker 1: water or you don't boy, or you underwater off that 128 00:07:25,160 --> 00:07:29,800 Speaker 1: bond bear market, what do you do shift the stocks? Well, 129 00:07:31,080 --> 00:07:34,440 Speaker 1: I would say it's a combination of cash and stocks 130 00:07:34,920 --> 00:07:38,080 Speaker 1: that were in my answer. You know, I'm a different position. 131 00:07:38,400 --> 00:07:41,400 Speaker 1: I'm approaching eighty years of age. I don't have any clients. 132 00:07:41,440 --> 00:07:43,640 Speaker 1: I run my own money. I could take a longer 133 00:07:43,720 --> 00:07:47,760 Speaker 1: term horizon, and I recognize that in the bear market, 134 00:07:47,840 --> 00:07:51,120 Speaker 1: he who loses wins, he who loses least wins. We 135 00:07:51,200 --> 00:07:55,320 Speaker 1: all leon at your August age of seventy nine in holding. 136 00:07:55,960 --> 00:07:59,560 Speaker 1: Should President Biden's serve a second term? Give us the 137 00:07:59,600 --> 00:08:04,840 Speaker 1: Cooper energy level? Is the nation considers a second term 138 00:08:04,920 --> 00:08:08,800 Speaker 1: for the president? I think he definitely should not run, 139 00:08:08,920 --> 00:08:11,520 Speaker 1: and I don't think he will run. I am told 140 00:08:11,520 --> 00:08:13,800 Speaker 1: by people that you're not happy in Washington. He spent 141 00:08:13,960 --> 00:08:17,920 Speaker 1: more time with his grandkids in Delaware. You know, he 142 00:08:17,960 --> 00:08:20,560 Speaker 1: has not done a good job. I voted for him 143 00:08:20,720 --> 00:08:23,760 Speaker 1: because I voted my values and not my pocketbook. And 144 00:08:24,120 --> 00:08:28,160 Speaker 1: I found Trump, who has superior economic ideas to Biden. 145 00:08:28,560 --> 00:08:33,080 Speaker 1: His conduct was just totally unacceptable. And uh, but I 146 00:08:33,120 --> 00:08:36,520 Speaker 1: think the Democrats are gonna get crushed in December, the 147 00:08:36,559 --> 00:08:39,040 Speaker 1: progressives that led them too far to the left, the 148 00:08:39,040 --> 00:08:42,280 Speaker 1: country of centrist in nature. And uh, we gotta we 149 00:08:42,360 --> 00:08:45,600 Speaker 1: gotta start working together, we gotta start cooperating. And you know, 150 00:08:46,280 --> 00:08:48,240 Speaker 1: let me if I may make this point, it's not 151 00:08:48,320 --> 00:08:51,520 Speaker 1: about politics, but I had a sense I would have 152 00:08:51,559 --> 00:08:54,760 Speaker 1: smile my face blame a good man by the name 153 00:08:54,760 --> 00:08:57,640 Speaker 1: of Barack Obama for a lot of these problems. I 154 00:08:57,679 --> 00:09:00,840 Speaker 1: don't think that Bush wanted Bush to don't Reagan. Bill 155 00:09:00,880 --> 00:09:04,440 Speaker 1: Clinton villainized wealth. He villainized wealth. And I sent him 156 00:09:04,440 --> 00:09:06,400 Speaker 1: a letter twelve years ago. They went viral on the end, 157 00:09:06,559 --> 00:09:09,720 Speaker 1: remember that, Okay, And I said to him, Mr President, 158 00:09:10,120 --> 00:09:13,280 Speaker 1: you're telling the pent being screwed by the one percent. 159 00:09:13,400 --> 00:09:15,840 Speaker 1: You should be telling the ercent. But hard work and luck, 160 00:09:15,840 --> 00:09:18,319 Speaker 1: they could become part of the one percent. You depreciate 161 00:09:18,320 --> 00:09:21,720 Speaker 1: the American dream. And unfortunately President Biden has picked up 162 00:09:21,720 --> 00:09:24,559 Speaker 1: on that theme. I see no reason to villainize wealth. 163 00:09:24,760 --> 00:09:26,360 Speaker 1: How do you get to be wealthy? You develop a 164 00:09:26,360 --> 00:09:29,240 Speaker 1: partner service in world needs. And we continue with Leon 165 00:09:29,320 --> 00:09:32,199 Speaker 1: Cooperman of Omega Leon just because Jasmin and beat me 166 00:09:32,320 --> 00:09:35,120 Speaker 1: over the head with this. Are you in bitcoin? Leon? 167 00:09:35,280 --> 00:09:38,240 Speaker 1: What do you think a bitcoin? I take the easy 168 00:09:38,280 --> 00:09:41,079 Speaker 1: way out of bitcoin. They say, if you don't understand bitcoin, 169 00:09:41,120 --> 00:09:43,280 Speaker 1: it means you're old. I'm old, But I take a 170 00:09:43,360 --> 00:09:47,720 Speaker 1: side with Warren Buffett who had said he wouldn't pay 171 00:09:47,960 --> 00:09:50,480 Speaker 1: cents for all the bitcoin out standing for his partner 172 00:09:50,559 --> 00:09:53,720 Speaker 1: Charlie Mungo, who refers to his rat poison. I don't 173 00:09:53,760 --> 00:09:56,079 Speaker 1: see it at all. I don't understand it. I think 174 00:09:56,120 --> 00:09:59,840 Speaker 1: it's a product of the times of very similative policies. 175 00:10:00,440 --> 00:10:04,840 Speaker 1: And uh think, okay, I think Leon Cooperman. Critty just 176 00:10:04,920 --> 00:10:07,760 Speaker 1: told me I was old. I think guess what I heard. 177 00:10:07,800 --> 00:10:11,160 Speaker 1: They're thrilled heavily on Cooperman as we extend our discussion 178 00:10:11,640 --> 00:10:15,319 Speaker 1: with him in these tumultuous times, Leon, over the years, 179 00:10:15,320 --> 00:10:18,320 Speaker 1: how do you adapt and adjust when there's a CEO 180 00:10:18,600 --> 00:10:23,600 Speaker 1: change at a company, even if it's coordinated and there's 181 00:10:23,600 --> 00:10:26,680 Speaker 1: a ballet of course, I'm thinking of Amazon. It could 182 00:10:26,679 --> 00:10:29,040 Speaker 1: be any other company. Is it well, but let's just 183 00:10:29,040 --> 00:10:32,160 Speaker 1: take Amazon Bezos to Jesse. How do you adapt it 184 00:10:32,200 --> 00:10:34,959 Speaker 1: adjust to that? Well, you have to make a judgment 185 00:10:35,000 --> 00:10:41,120 Speaker 1: whether the change in leadership is appropriate, uh and logical? 186 00:10:41,160 --> 00:10:43,720 Speaker 1: It makes sense? And is his leadership change occurring at 187 00:10:43,720 --> 00:10:46,440 Speaker 1: the time when the company doing well poorly? I get 188 00:10:46,480 --> 00:10:49,120 Speaker 1: more worried when the chief financial officers leave for no 189 00:10:49,280 --> 00:10:53,640 Speaker 1: apparent reason. I don't worry about CEOs. You know, Bezos 190 00:10:53,880 --> 00:10:56,360 Speaker 1: wants to kick back a little bit. He has outside ventures. 191 00:10:57,480 --> 00:11:00,880 Speaker 1: It's his handpicked successor. He's not selling his uck, you know, 192 00:11:01,000 --> 00:11:04,079 Speaker 1: So I don't get worried about that. Leon, I want to. 193 00:11:04,200 --> 00:11:06,120 Speaker 1: I can't generalize, you know, you've got to take each 194 00:11:06,160 --> 00:11:09,560 Speaker 1: situation one at a time. Fair enough, Leon, I want to. 195 00:11:09,600 --> 00:11:11,040 Speaker 1: I want to circle back to a comment you made 196 00:11:11,040 --> 00:11:14,000 Speaker 1: on Bloomberg Surveillance just moments ago. You brought up a 197 00:11:14,040 --> 00:11:16,440 Speaker 1: historical trend that a recession used to come every four 198 00:11:16,520 --> 00:11:19,000 Speaker 1: or five years. That's, of course not been the recent trend. 199 00:11:19,000 --> 00:11:21,600 Speaker 1: But I'm curious if you see a return to that 200 00:11:21,679 --> 00:11:25,600 Speaker 1: kind of pattern. No, I wouldn't forecast. And look, we're 201 00:11:25,640 --> 00:11:30,360 Speaker 1: a democracy. Democracy politicians do a better job and fighting recession. 202 00:11:30,400 --> 00:11:34,760 Speaker 1: They're doing fighting inflation, so you know we're I wouldn't 203 00:11:34,840 --> 00:11:37,560 Speaker 1: forecast a change in the pattern, but I what I'm 204 00:11:37,600 --> 00:11:40,520 Speaker 1: worried about is that we're long in the tooth and 205 00:11:40,559 --> 00:11:43,760 Speaker 1: we see a lot of structural imbalances, and we've created 206 00:11:43,760 --> 00:11:46,559 Speaker 1: a tremendous amount of debt, and we don't have the 207 00:11:46,679 --> 00:11:49,800 Speaker 1: leadership in the country that we need. So I'm assuming 208 00:11:49,840 --> 00:11:52,800 Speaker 1: that we're heading to recession, not that they want one, 209 00:11:53,080 --> 00:11:56,559 Speaker 1: but I think this idea of inflation moderating, My guess 210 00:11:56,600 --> 00:11:58,400 Speaker 1: is you have to split it two for one to 211 00:11:58,440 --> 00:12:00,640 Speaker 1: get the inflation rate down to where the Fed wants it. 212 00:12:01,200 --> 00:12:05,520 Speaker 1: You know, a typical business courses labor. Labor is not moderating. 213 00:12:05,520 --> 00:12:07,319 Speaker 1: We're in an environment where there's much more demand for 214 00:12:07,440 --> 00:12:10,160 Speaker 1: labor than their supply. There's not an environment with prices 215 00:12:10,160 --> 00:12:13,880 Speaker 1: go down. So we don't have we don't have intelligent policies. 216 00:12:14,160 --> 00:12:16,920 Speaker 1: They wanted to cut the gasoline tax the last time 217 00:12:16,960 --> 00:12:18,960 Speaker 1: I heard the way do you get prices downage you 218 00:12:19,000 --> 00:12:22,800 Speaker 1: get more supplied, not more, not more not not lower taxes, 219 00:12:22,840 --> 00:12:27,599 Speaker 1: which stimulates consumption. Leon you mentioned the eye word inflation. 220 00:12:27,679 --> 00:12:30,400 Speaker 1: I'm curious about the macro heads that seems to be. 221 00:12:30,480 --> 00:12:32,320 Speaker 1: It feels like the momentum trade of the day, which 222 00:12:32,320 --> 00:12:35,080 Speaker 1: is you buy commodities to hedge against all the other 223 00:12:35,120 --> 00:12:37,480 Speaker 1: turmoil in the markets. Is that a trade you support? 224 00:12:40,400 --> 00:12:42,839 Speaker 1: I understand the merits of the trade. Now. I'm very 225 00:12:42,920 --> 00:12:45,280 Speaker 1: much of a bottom up stock picking kind of guy. 226 00:12:45,559 --> 00:12:47,280 Speaker 1: I got lucky the last couple of years. You know. 227 00:12:47,320 --> 00:12:50,400 Speaker 1: I came into last year with a very overweighted energy 228 00:12:50,440 --> 00:12:53,040 Speaker 1: position because you know, the energy was three percent of 229 00:12:53,080 --> 00:12:55,480 Speaker 1: the index and nobody liked it. And these guys were 230 00:12:55,600 --> 00:12:58,480 Speaker 1: very cheap, And now over a sudden, everybody likes it, 231 00:12:58,520 --> 00:13:02,040 Speaker 1: and I'm getting nervous, but I've held on because they 232 00:13:02,080 --> 00:13:06,200 Speaker 1: seem so inexpensive. Flow you at the time we've got 233 00:13:06,320 --> 00:13:10,480 Speaker 1: left with you, I am fascinated what you think of 234 00:13:10,600 --> 00:13:14,240 Speaker 1: the speed that the SEC is moving where Mr Gunsler 235 00:13:14,320 --> 00:13:18,520 Speaker 1: has so many issues. You mentioned crypto bitcoin whatever earlier, 236 00:13:19,040 --> 00:13:21,600 Speaker 1: or the meme stocks. I know, Leon, you were sitting 237 00:13:21,640 --> 00:13:25,400 Speaker 1: on your couch down in Florida playing Game Stop. But 238 00:13:26,240 --> 00:13:29,760 Speaker 1: for you and me, some of this modern trading stuff 239 00:13:30,120 --> 00:13:35,079 Speaker 1: is nuts. What should THEE do about a tremendous disservice 240 00:13:35,160 --> 00:13:37,880 Speaker 1: to the public? And I expressed that, you know, I 241 00:13:37,920 --> 00:13:41,160 Speaker 1: became a big letter writer in my old age. I 242 00:13:41,200 --> 00:13:45,680 Speaker 1: followed the advice of Aristotle, who said in tolerance and 243 00:13:45,760 --> 00:13:48,319 Speaker 1: indifference is the last vertues of society. So I started 244 00:13:48,320 --> 00:13:51,880 Speaker 1: to speak out. So I sent Jake Clayton a letter 245 00:13:52,400 --> 00:13:55,559 Speaker 1: pointing out to him that the market structure has been destroyed. 246 00:13:56,200 --> 00:13:57,800 Speaker 1: And why do I say that? When I came to 247 00:13:57,840 --> 00:14:01,680 Speaker 1: Goldman Sacks sixty years ago, whether it's Golden Morgan, Stanley, Solomon, Brothers, 248 00:14:02,080 --> 00:14:04,600 Speaker 1: Mary Lynch, they traded stocks to fifty or sixty cents 249 00:14:04,600 --> 00:14:06,959 Speaker 1: to share, and the vocal rule didn't exist. Now it 250 00:14:07,040 --> 00:14:09,880 Speaker 1: commissions near zero and the vocal rule the brokers are 251 00:14:09,880 --> 00:14:13,440 Speaker 1: not stabilizers. Secondly, fifty years ago specialist in New York 252 00:14:13,440 --> 00:14:16,839 Speaker 1: Stock Exchange, and eighty percent of the vium today is 253 00:14:16,920 --> 00:14:20,600 Speaker 1: offboard and thot polls, So specialists are not stabilizers. And 254 00:14:20,600 --> 00:14:24,520 Speaker 1: then finally, for some unexplained reason, they limited the uptick rule, 255 00:14:24,720 --> 00:14:29,000 Speaker 1: which gave rise to these high frequency algorithmic traders. Nothing 256 00:14:29,040 --> 00:14:31,640 Speaker 1: about value, you know everything about price, and they drive 257 00:14:31,720 --> 00:14:33,720 Speaker 1: the market higher than there should be on fundamentals, and 258 00:14:33,760 --> 00:14:36,600 Speaker 1: they driving lower than it should be on fundamentals. Uh 259 00:14:36,640 --> 00:14:39,920 Speaker 1: and uh. He pleaded with the SEC to reinstate the 260 00:14:40,000 --> 00:14:42,680 Speaker 1: uptick role for a period of a few months to 261 00:14:42,800 --> 00:14:47,840 Speaker 1: see what just to experiment. Just I agree, we're out 262 00:14:47,840 --> 00:14:49,720 Speaker 1: of time, we gotta go, but I want to get 263 00:14:49,720 --> 00:14:52,080 Speaker 1: you back on to pick up on the uptick rule. 264 00:14:52,120 --> 00:14:55,680 Speaker 1: I think that's a not a small item. Leon Cooperman, 265 00:14:55,840 --> 00:14:59,880 Speaker 1: I'm gonna call him constructively cautious on the markets, of course, 266 00:15:00,240 --> 00:15:10,480 Speaker 1: iconic and with his omega as well. The distinction today 267 00:15:10,600 --> 00:15:12,600 Speaker 1: is a link up here with yen weaker as well. 268 00:15:12,680 --> 00:15:15,360 Speaker 1: One seven thirty nine is critical and one thirty eight 269 00:15:15,440 --> 00:15:18,320 Speaker 1: print would be truly shocking. George Sarah Ellis has been 270 00:15:18,360 --> 00:15:20,440 Speaker 1: out front on this with global head of Foreign Exchange 271 00:15:20,440 --> 00:15:24,280 Speaker 1: Research at Deutsche Bank, with a note published Worldwide moments. 272 00:15:25,040 --> 00:15:28,520 Speaker 1: I go, there are real interest rates, nominal interest rates, 273 00:15:28,560 --> 00:15:32,800 Speaker 1: George Sarah Ellis, their capital flows, and then there is 274 00:15:32,840 --> 00:15:38,040 Speaker 1: the thermodynamics statics of the hoarding of dollars. What is 275 00:15:38,080 --> 00:15:43,000 Speaker 1: the importance of a static hoarding of dollars versus normative 276 00:15:43,120 --> 00:15:48,120 Speaker 1: flows in the global economy? Hi, tom So, I think 277 00:15:48,160 --> 00:15:51,080 Speaker 1: it's extremely important because if you look at what happened 278 00:15:51,120 --> 00:15:53,280 Speaker 1: this year, you've had a very big regime shift in 279 00:15:53,320 --> 00:15:57,880 Speaker 1: the market. Currencies were generally pretty highly correlated to interest 280 00:15:57,960 --> 00:16:01,360 Speaker 1: rate differentials up until Arch, so you had the more 281 00:16:01,360 --> 00:16:05,600 Speaker 1: hawkish fed the dollar was rallying. Then the ECB turn 282 00:16:05,680 --> 00:16:09,200 Speaker 1: more hawkish, and the rate differential actually turned significantly higher 283 00:16:09,240 --> 00:16:12,160 Speaker 1: in favor of the Euro. But the euro failed to follow, 284 00:16:12,320 --> 00:16:16,200 Speaker 1: and the market more broadly has stopped being responsive to 285 00:16:16,400 --> 00:16:19,040 Speaker 1: the interest rate differential and is instead a lot more 286 00:16:19,080 --> 00:16:22,480 Speaker 1: sensitive to the flow dynamics you discussed, And what we're 287 00:16:22,480 --> 00:16:27,080 Speaker 1: seeing globally is essentially a huge holding of dollars from investors. 288 00:16:28,000 --> 00:16:31,800 Speaker 1: Europe obviously really burdened at the moment by this huge 289 00:16:31,920 --> 00:16:35,640 Speaker 1: energy crisis. Japan also has the energy problems, plus the 290 00:16:35,720 --> 00:16:39,200 Speaker 1: b o J which is easing aggressively. And the conclusion 291 00:16:39,240 --> 00:16:42,680 Speaker 1: the market has is it's just holding onto dollars even 292 00:16:42,720 --> 00:16:45,880 Speaker 1: if investors are selling US assets, the selling U S 293 00:16:45,880 --> 00:16:48,200 Speaker 1: ecurities and bonds as we're seeing, it's just not being 294 00:16:48,200 --> 00:16:51,120 Speaker 1: repatriated back. And for example, that's one reason why the 295 00:16:51,160 --> 00:16:53,480 Speaker 1: yen is no longer a safe haven. So George, let's 296 00:16:53,480 --> 00:16:55,960 Speaker 1: focus on the euro hand locan that currency pair go 297 00:16:56,560 --> 00:17:00,400 Speaker 1: one and two great heights from the ECB. Alish your 298 00:17:00,440 --> 00:17:04,119 Speaker 1: bearish for that, Couracy. Well, your last question is an 299 00:17:04,160 --> 00:17:06,000 Speaker 1: interesting one if if you look at the UK, the 300 00:17:06,040 --> 00:17:08,560 Speaker 1: Bank of England was one of the first currencies, one 301 00:17:08,560 --> 00:17:10,960 Speaker 1: of the first central banks to high grates, and that 302 00:17:11,000 --> 00:17:13,800 Speaker 1: really didn't benefit You've seen the RB a Swede and 303 00:17:13,840 --> 00:17:16,679 Speaker 1: altern hawk ish. So I would say at the moment, 304 00:17:17,119 --> 00:17:20,639 Speaker 1: central bank reaction functions, rate hikes don't seem to matter 305 00:17:20,720 --> 00:17:23,240 Speaker 1: all that much, and it's a lot more about the 306 00:17:23,320 --> 00:17:26,760 Speaker 1: underlying energy balance. How far can it go? I just 307 00:17:26,760 --> 00:17:30,119 Speaker 1: crunched some numbers in the piece this morning. If you 308 00:17:30,200 --> 00:17:33,760 Speaker 1: map out the extra energy deterioration on the back of 309 00:17:33,760 --> 00:17:37,520 Speaker 1: this big spike in natural gas prices, that's worth about 310 00:17:37,520 --> 00:17:40,920 Speaker 1: two hundred billion euros extra off supplying to the market. 311 00:17:41,560 --> 00:17:45,639 Speaker 1: Roughly speaking, that equates to euro dollar parity. But of 312 00:17:45,680 --> 00:17:48,600 Speaker 1: course these are only rough estimates and numbers. When you 313 00:17:48,720 --> 00:17:52,119 Speaker 1: look at how much the Euro has overshot in the past, 314 00:17:52,760 --> 00:17:54,919 Speaker 1: we've come up with a range of anywhere between nine 315 00:17:55,560 --> 00:17:58,320 Speaker 1: and parity, and I think in the current environment that 316 00:17:58,440 --> 00:18:01,800 Speaker 1: sort of range is not early unreasonable. This is actually 317 00:18:01,880 --> 00:18:04,200 Speaker 1: biling on towards City Group is calling for as well 318 00:18:04,200 --> 00:18:08,160 Speaker 1: in on the Euro. Should this gas band go into 319 00:18:08,200 --> 00:18:11,160 Speaker 1: an effect with some sort of weaponization, at what point 320 00:18:11,240 --> 00:18:14,480 Speaker 1: does that become your base case versus a bearish outlier. 321 00:18:14,480 --> 00:18:16,960 Speaker 1: At what point do you have conviction around it? Given 322 00:18:17,240 --> 00:18:20,520 Speaker 1: that Germany is already starting to tweak how it's handling 323 00:18:20,640 --> 00:18:22,959 Speaker 1: a potential lack of gas applies down at the end 324 00:18:22,960 --> 00:18:27,320 Speaker 1: of the year. So when an outcome rests so much 325 00:18:27,640 --> 00:18:30,439 Speaker 1: on what would happen out of Russia and President Putin, 326 00:18:30,640 --> 00:18:33,600 Speaker 1: it's very difficult to have a base case. I think 327 00:18:33,880 --> 00:18:35,440 Speaker 1: the best thing we can do at the moment is 328 00:18:35,480 --> 00:18:39,000 Speaker 1: just put numbers around the different scenarios, and under the 329 00:18:39,000 --> 00:18:42,840 Speaker 1: scenario of a complete gas cut off, I really wouldn't 330 00:18:42,840 --> 00:18:45,080 Speaker 1: say ninety five would be unreasonable, but we can just 331 00:18:45,119 --> 00:18:48,560 Speaker 1: see how unpredictable things are up until three weeks ago, 332 00:18:48,600 --> 00:18:51,320 Speaker 1: and that gas prices will much lower and the flows 333 00:18:52,720 --> 00:18:55,080 Speaker 1: we're going through that pipe, So it is all about 334 00:18:55,160 --> 00:18:58,280 Speaker 1: the North Stream pipeline. What I would say, however, now 335 00:18:58,359 --> 00:19:01,080 Speaker 1: the market is built to risk premium because it knows 336 00:19:01,080 --> 00:19:03,800 Speaker 1: there's uncertainty. It knows it can be switched off. So 337 00:19:03,920 --> 00:19:07,600 Speaker 1: even if this gas returns in terms of full flow 338 00:19:07,680 --> 00:19:10,720 Speaker 1: after the maintenance period, the risk premium is unlikely to 339 00:19:10,720 --> 00:19:13,120 Speaker 1: go away. And I think that's a critical thing that's 340 00:19:13,200 --> 00:19:15,400 Speaker 1: changed over the last few weeks. George, to your point, 341 00:19:15,440 --> 00:19:17,240 Speaker 1: we can do a bunch of scenario studies, but you 342 00:19:17,280 --> 00:19:19,800 Speaker 1: have to understand what regime we're in and what manage 343 00:19:19,800 --> 00:19:22,359 Speaker 1: to foreign exchange and what doesn't. And to your point, 344 00:19:22,760 --> 00:19:24,720 Speaker 1: it's not been about rate so much as it's been 345 00:19:24,760 --> 00:19:26,879 Speaker 1: about flows. So, George, do you think it's going to 346 00:19:27,040 --> 00:19:29,200 Speaker 1: stay that way? Is the reason to believe it stays 347 00:19:29,240 --> 00:19:32,400 Speaker 1: that way because the recession scenario staff, all the scenario analysis, 348 00:19:32,480 --> 00:19:34,800 Speaker 1: whatever it is, that's helpful, But unless we understand what's 349 00:19:34,840 --> 00:19:39,800 Speaker 1: actually driving the underlying currency, who knows where this goes absolutely? 350 00:19:39,840 --> 00:19:41,960 Speaker 1: And what's driving the dollar at the moment is safe 351 00:19:41,960 --> 00:19:45,560 Speaker 1: haven flows. The dollar is the so called risk parity antipole. 352 00:19:45,640 --> 00:19:47,280 Speaker 1: And I think you would need two things for that 353 00:19:47,359 --> 00:19:51,639 Speaker 1: to change, the FED being more sensitive to growth, and 354 00:19:51,680 --> 00:19:53,800 Speaker 1: at the moment that's not the case. They're very growth 355 00:19:53,800 --> 00:19:56,080 Speaker 1: agnostic so to speak. The u S data is slowing, 356 00:19:56,320 --> 00:19:59,000 Speaker 1: but they're still talking about three percent. So number one 357 00:19:59,040 --> 00:20:01,040 Speaker 1: and shift from the FED, and number two are change 358 00:20:01,080 --> 00:20:03,960 Speaker 1: in the energy dynamics, especially as they relate to your 359 00:20:04,080 --> 00:20:06,200 Speaker 1: and the end. So I don't really see the current 360 00:20:06,320 --> 00:20:08,959 Speaker 1: environment changing, which is why we we pushed down our 361 00:20:09,000 --> 00:20:12,800 Speaker 1: euro dollar forecasts in recent months. The last point I'd 362 00:20:12,800 --> 00:20:17,240 Speaker 1: make everyone is talking about this recession. I'd argue the 363 00:20:17,280 --> 00:20:21,040 Speaker 1: recession should be a given. Indeed, the markets already pricing it. 364 00:20:21,040 --> 00:20:24,240 Speaker 1: It's now a question of length and depth, and the 365 00:20:24,320 --> 00:20:26,359 Speaker 1: second half of the year is all going to be 366 00:20:26,400 --> 00:20:31,080 Speaker 1: about that learning process amidst an extremely unusual environment. For example, 367 00:20:31,280 --> 00:20:34,680 Speaker 1: the growth data is slowing, the labor markets globally are 368 00:20:34,760 --> 00:20:38,399 Speaker 1: extremely tight and strong, and people talk about the US. 369 00:20:38,440 --> 00:20:41,520 Speaker 1: If you look at the Canadian data, the unemployment rate 370 00:20:41,600 --> 00:20:45,560 Speaker 1: built a huge record low and drop sharply, and it's 371 00:20:45,640 --> 00:20:48,320 Speaker 1: these things central banks are looking at and they would 372 00:20:48,320 --> 00:20:51,400 Speaker 1: need to see the labor markets overall. Turn, I think 373 00:20:51,480 --> 00:20:53,879 Speaker 1: before we start talking about a more dabash pivot and 374 00:20:53,880 --> 00:20:57,000 Speaker 1: George super interest is stuff as always George Saravellos there 375 00:20:57,320 --> 00:21:04,960 Speaker 1: of Deutsche Bank. Yeah, it's a quote for you. We 376 00:21:05,000 --> 00:21:07,520 Speaker 1: see a high probability that further Hawke is surprises lae 377 00:21:07,560 --> 00:21:10,840 Speaker 1: ahead as even the current expected policy path would leave 378 00:21:10,880 --> 00:21:13,920 Speaker 1: real interest rates negative one into next year. The team 379 00:21:13,920 --> 00:21:16,920 Speaker 1: behind that quote Franklin Templeton, the fixed incomes ce IO 380 00:21:17,320 --> 00:21:19,400 Speaker 1: join us right now, sort I desire sort of great 381 00:21:19,400 --> 00:21:21,159 Speaker 1: to catch up with you. Walk me through why you 382 00:21:21,200 --> 00:21:24,440 Speaker 1: still believe that we could face further hawke Is surprises. 383 00:21:25,600 --> 00:21:28,240 Speaker 1: So I think the surprises stopped being surprises as the 384 00:21:28,280 --> 00:21:32,560 Speaker 1: market starts expecting them, right, so we wrote that even before. Currently, 385 00:21:32,760 --> 00:21:35,840 Speaker 1: I would say, I think that we're going to get 386 00:21:35,880 --> 00:21:39,200 Speaker 1: an inflation number which is higher than one percent this 387 00:21:39,200 --> 00:21:42,400 Speaker 1: this week month on month terms, so we're getting close 388 00:21:42,480 --> 00:21:44,840 Speaker 1: to nine. We might even trickle a little bit about 389 00:21:44,960 --> 00:21:47,920 Speaker 1: nine this month. That's a big number, and I think 390 00:21:48,000 --> 00:21:50,480 Speaker 1: it's going to be extremely difficult to end this year 391 00:21:51,320 --> 00:21:54,640 Speaker 1: with inflation being significantly below eight, which means we're looking 392 00:21:54,680 --> 00:21:56,960 Speaker 1: at seven and a half to eight percent for year end. 393 00:21:57,400 --> 00:22:00,720 Speaker 1: And my concern is that regardless of where we are 394 00:22:00,800 --> 00:22:03,400 Speaker 1: on FED funds at btwhere at three or three point 395 00:22:03,400 --> 00:22:06,520 Speaker 1: two five, it's not going to be enough. And the 396 00:22:06,560 --> 00:22:11,160 Speaker 1: market currently is already pricing in rate cuts next year, 397 00:22:11,600 --> 00:22:14,000 Speaker 1: that might just be way too soon, And that that's 398 00:22:14,000 --> 00:22:17,080 Speaker 1: the call that we will actually see the FED deliver 399 00:22:17,480 --> 00:22:20,560 Speaker 1: getting closer the form, but it will not spin on 400 00:22:20,600 --> 00:22:23,160 Speaker 1: a dime and start cutting as soon as it hits 401 00:22:23,200 --> 00:22:26,040 Speaker 1: four because it does need to get inflation out of 402 00:22:26,080 --> 00:22:30,240 Speaker 1: the system. This happened once before in the seventies. They 403 00:22:30,640 --> 00:22:34,600 Speaker 1: backed off too quickly, and then inflation came back. This 404 00:22:34,680 --> 00:22:37,400 Speaker 1: is a pretty bold call. So no, And I'm wondering 405 00:22:37,440 --> 00:22:39,800 Speaker 1: where you think on the yield curve it is most 406 00:22:39,920 --> 00:22:43,080 Speaker 1: mispriced that there will be cuts to those rates, to 407 00:22:43,160 --> 00:22:45,840 Speaker 1: those rates of the Fed next year. Where is it 408 00:22:45,880 --> 00:22:48,360 Speaker 1: most miss priced that we're going to see inflation come 409 00:22:48,400 --> 00:22:50,760 Speaker 1: down to a mere five or six percent versus what 410 00:22:50,880 --> 00:22:53,800 Speaker 1: you're expecting of eight percent. So I'd say that if 411 00:22:53,800 --> 00:22:55,560 Speaker 1: I look at the yield curve, if I look at 412 00:22:55,640 --> 00:23:00,160 Speaker 1: what is priced in looking forward, we are seeing can 413 00:23:00,200 --> 00:23:04,480 Speaker 1: you we are seeing short end rates pricing in rate 414 00:23:04,560 --> 00:23:07,040 Speaker 1: carts in the second half of next year, and is 415 00:23:07,080 --> 00:23:09,679 Speaker 1: that that to me is a miss pricing. Now the 416 00:23:09,720 --> 00:23:12,840 Speaker 1: long end, it is interesting because I don't think that 417 00:23:13,680 --> 00:23:18,359 Speaker 1: current levels are cheap. I think they're still rich. I 418 00:23:18,359 --> 00:23:20,200 Speaker 1: think the long end does need to sell off more. 419 00:23:20,560 --> 00:23:23,160 Speaker 1: There's a market is counting very much on the Fed 420 00:23:23,240 --> 00:23:26,679 Speaker 1: being in a position to immediately cut rates once we 421 00:23:26,760 --> 00:23:29,480 Speaker 1: get the slow down in the economy, which clearly they're 422 00:23:29,480 --> 00:23:33,360 Speaker 1: expecting and hoping for. That's only if inflation comes down 423 00:23:33,359 --> 00:23:36,000 Speaker 1: as well. And if inflation doesn't come down, I don't 424 00:23:36,000 --> 00:23:40,800 Speaker 1: think the Fed can cut rates even the economy slow sorry, 425 00:23:40,960 --> 00:23:44,480 Speaker 1: you mentioned the nineteen seventies, long ago and far away, 426 00:23:44,600 --> 00:23:46,880 Speaker 1: when I could shave once a week. I was given 427 00:23:46,920 --> 00:23:50,280 Speaker 1: a private meeting with Sir John Templeton that began a 428 00:23:50,359 --> 00:23:55,800 Speaker 1: relationship over decades, and he told me, then provoker, that 429 00:23:55,880 --> 00:23:59,440 Speaker 1: there would be a shortage of bands, essentially folks. John 430 00:23:59,480 --> 00:24:03,480 Speaker 1: Templeton called the Great Moderation, and other people did as well. 431 00:24:03,760 --> 00:24:07,000 Speaker 1: But boy, that was a lonely call. Is the Great 432 00:24:07,200 --> 00:24:10,480 Speaker 1: Moderation over? So? Now, can you you you were a 433 00:24:10,520 --> 00:24:14,320 Speaker 1: morning Star fixed income Manager of the Year, can you say, 434 00:24:14,520 --> 00:24:18,119 Speaker 1: finally we've broken through the trend of the Great Moderation. 435 00:24:20,080 --> 00:24:25,679 Speaker 1: I think that the Great Moderation happened at a time 436 00:24:25,960 --> 00:24:30,399 Speaker 1: when governments and central banks hadn't. We're not coming off 437 00:24:30,880 --> 00:24:35,360 Speaker 1: fifteen years of various forms of QUI from central banks, 438 00:24:35,720 --> 00:24:39,480 Speaker 1: and for governments at least three or four years of 439 00:24:39,720 --> 00:24:44,400 Speaker 1: massively expansionary fiscal policy. So do I think that shortage 440 00:24:44,400 --> 00:24:49,720 Speaker 1: of bonds is history? Eventually it will come back again, 441 00:24:49,760 --> 00:24:53,800 Speaker 1: But I think for the next three to five years, 442 00:24:53,920 --> 00:24:56,359 Speaker 1: I don't see a shortage of bonds. So just quickly 443 00:24:56,480 --> 00:24:58,399 Speaker 1: need to squace this in. We've got about thirty seconds 444 00:24:58,440 --> 00:25:00,840 Speaker 1: with you. What's the big market call for you. I've 445 00:25:00,840 --> 00:25:03,080 Speaker 1: had the big fat code, the big inflation code. What's 446 00:25:03,080 --> 00:25:05,920 Speaker 1: the big market code? The big market call is much 447 00:25:05,960 --> 00:25:09,320 Speaker 1: more volatility coming forward. I've heard in two weeks time 448 00:25:09,520 --> 00:25:12,439 Speaker 1: we had treasuries, the deepest apparently most liquid market in 449 00:25:12,480 --> 00:25:15,480 Speaker 1: the in the world, rally sixty basis points. In two 450 00:25:15,560 --> 00:25:18,119 Speaker 1: days time we had them sell off another twenty or 451 00:25:18,119 --> 00:25:21,040 Speaker 1: twenty five basis points. These types of moves are not done. 452 00:25:21,280 --> 00:25:23,920 Speaker 1: So I'm not ready to make that call to say 453 00:25:24,040 --> 00:25:26,280 Speaker 1: jump into risk assets. I think it's way too soon, 454 00:25:26,440 --> 00:25:28,000 Speaker 1: son of Wonderful to catch out with your son of 455 00:25:28,080 --> 00:25:36,680 Speaker 1: designer of Franklin Templeton. This is a joy and timely 456 00:25:36,720 --> 00:25:40,240 Speaker 1: with dollar strength. Michael Sholl joins US now. Dr Schoel 457 00:25:40,280 --> 00:25:43,760 Speaker 1: out of Manchester. UH does great interest in money and 458 00:25:43,800 --> 00:25:46,760 Speaker 1: also in commodities and um as well. Michael, I got 459 00:25:46,760 --> 00:25:48,280 Speaker 1: eight ways to go here, and I'm gonna go to 460 00:25:48,320 --> 00:25:51,480 Speaker 1: one important idea in your note, which is this time 461 00:25:51,720 --> 00:25:55,240 Speaker 1: is different and that we are far along in the 462 00:25:55,320 --> 00:26:00,240 Speaker 1: tightening cycle. What does that mean for Jerome Powell? You know, 463 00:26:00,359 --> 00:26:02,480 Speaker 1: I think the great danger here is is that the 464 00:26:02,520 --> 00:26:06,080 Speaker 1: third titans too much for financial markets. I think we're 465 00:26:06,119 --> 00:26:08,800 Speaker 1: in a very tricky spot. I think the sort of 466 00:26:08,920 --> 00:26:13,399 Speaker 1: underlying economy of the labor market obviously can withstand a 467 00:26:13,520 --> 00:26:18,600 Speaker 1: fair amount more tightening. But but financial markets here are wobbling. Um. 468 00:26:18,640 --> 00:26:20,920 Speaker 1: And it's the dual nature of this tightening. It's it's 469 00:26:20,920 --> 00:26:24,520 Speaker 1: the combination of the withdrawal of liquidity and the increase 470 00:26:24,560 --> 00:26:26,440 Speaker 1: of interest rates, which I think is starting to bother 471 00:26:26,560 --> 00:26:30,359 Speaker 1: financial markets. Um. And you know, I mean I you know. 472 00:26:30,680 --> 00:26:33,280 Speaker 1: My bet would be that at some point in the 473 00:26:33,320 --> 00:26:36,639 Speaker 1: next few months, maybe even next few weeks, you know, 474 00:26:36,640 --> 00:26:39,040 Speaker 1: we are heading for some kind of a financial accident, 475 00:26:39,400 --> 00:26:43,240 Speaker 1: a break in financial markets that really puts pressure on 476 00:26:43,280 --> 00:26:45,719 Speaker 1: the FED to do something different. Michael, You are and 477 00:26:45,760 --> 00:26:48,879 Speaker 1: I are old enough where we remember the Little Red Book, 478 00:26:49,119 --> 00:26:51,840 Speaker 1: which was Stanley Fisher out of the I M F 479 00:26:53,560 --> 00:26:56,959 Speaker 1: writing I M F essays from a time of crisis, folks. 480 00:26:57,040 --> 00:26:59,520 Speaker 1: Everyone in the game had to read that book at 481 00:26:59,520 --> 00:27:02,840 Speaker 1: the time. And this was Fisher looking at the effect 482 00:27:02,920 --> 00:27:06,760 Speaker 1: of E M. Redounding on the developed world. When you 483 00:27:06,880 --> 00:27:12,040 Speaker 1: see rupia, rupie, any other number of currencies, choy and 484 00:27:12,119 --> 00:27:16,600 Speaker 1: pay so on wine, what does that signal to you? 485 00:27:16,520 --> 00:27:20,840 Speaker 1: You know, it's not like we don't have FX pegs 486 00:27:20,880 --> 00:27:23,280 Speaker 1: to deal with you know, I would say more than 487 00:27:23,359 --> 00:27:26,320 Speaker 1: the e M currencies. But the really surprising thing is 488 00:27:26,359 --> 00:27:29,720 Speaker 1: the weakness of other developed markets against the dollar. You know, 489 00:27:29,760 --> 00:27:31,520 Speaker 1: the sort of stunning weakness, as you said at the 490 00:27:31,720 --> 00:27:35,320 Speaker 1: end of the year of the euro off sterling, and 491 00:27:35,320 --> 00:27:38,280 Speaker 1: and this sort of ability of the dollar to just 492 00:27:38,320 --> 00:27:42,040 Speaker 1: suck up all available liquidity. Um. You know, if we 493 00:27:42,040 --> 00:27:44,120 Speaker 1: were going to have a ninety eight moment, I think 494 00:27:44,160 --> 00:27:46,080 Speaker 1: you're more likely to be at the heart of it 495 00:27:46,119 --> 00:27:48,800 Speaker 1: in East Asia this time. Michael. When you say something 496 00:27:48,840 --> 00:27:50,159 Speaker 1: will break and we can get to that, you're a 497 00:27:50,240 --> 00:27:52,280 Speaker 1: point in a moment because it's an important one. But 498 00:27:52,320 --> 00:27:54,200 Speaker 1: when you say we could have a financial accent, what 499 00:27:54,240 --> 00:27:58,080 Speaker 1: do you think that looks like you've got anything in mind? Well, 500 00:27:58,160 --> 00:28:00,720 Speaker 1: I mean it looks like very sharp Hanward moves and 501 00:28:00,760 --> 00:28:03,359 Speaker 1: a number, you know, in a number of assets. You know. 502 00:28:03,560 --> 00:28:06,040 Speaker 1: I think so far what we've done is sort of 503 00:28:06,040 --> 00:28:09,119 Speaker 1: blew the froth off the equity market and take yields 504 00:28:09,200 --> 00:28:12,920 Speaker 1: up and you know, impose very unpleasant losses on people. 505 00:28:13,080 --> 00:28:16,399 Speaker 1: But by large people have lost what they've made in 506 00:28:16,400 --> 00:28:19,480 Speaker 1: the last twelve to eighteen months, which for themselves outside games, 507 00:28:20,080 --> 00:28:22,800 Speaker 1: you know, I think the danger that we have is 508 00:28:22,359 --> 00:28:24,679 Speaker 1: is you know, I think credits what we have to 509 00:28:24,680 --> 00:28:27,399 Speaker 1: watch now. But if you know, if credit markets start 510 00:28:27,440 --> 00:28:30,280 Speaker 1: to dislocate at the speed with rates markets or or 511 00:28:30,520 --> 00:28:33,720 Speaker 1: sort of peas have come down in equity markets, well, 512 00:28:33,760 --> 00:28:37,960 Speaker 1: then I think that two has the ability to impose 513 00:28:38,000 --> 00:28:42,240 Speaker 1: the sorts of losses on people that they emotionally cannot withstand. 514 00:28:42,440 --> 00:28:43,920 Speaker 1: And Michael, I guess that's what I'm trying to get 515 00:28:43,960 --> 00:28:46,560 Speaker 1: to the point of what's a dislocation. What's the difference 516 00:28:46,560 --> 00:28:49,480 Speaker 1: between just to sell off and the equity market aggressive 517 00:28:49,520 --> 00:28:52,640 Speaker 1: widening of credit spreads and a dislocation? And who would 518 00:28:52,680 --> 00:28:56,280 Speaker 1: be an accident? Four? No, I think the dislocation is 519 00:28:56,320 --> 00:28:58,680 Speaker 1: where you look at market prices and you really can't 520 00:28:58,680 --> 00:29:00,440 Speaker 1: make sense of them. You know, you can make a 521 00:29:00,440 --> 00:29:02,520 Speaker 1: great deal of sense of the reduction in peace that 522 00:29:02,600 --> 00:29:04,720 Speaker 1: we've seen so far. You know, you can argue it 523 00:29:04,720 --> 00:29:06,520 Speaker 1: should be high, you can argue it should be lower, 524 00:29:06,960 --> 00:29:09,000 Speaker 1: but you know, most of what we've seen so far 525 00:29:09,600 --> 00:29:12,640 Speaker 1: has been you know, understandable when one looks at earnings, 526 00:29:12,720 --> 00:29:15,240 Speaker 1: or one when one looks at inflation. The dislocation is 527 00:29:15,280 --> 00:29:18,040 Speaker 1: when markets as they did in ninety seven in October 528 00:29:19,760 --> 00:29:23,000 Speaker 1: August through October in eighty seven. You know, it is 529 00:29:23,040 --> 00:29:27,200 Speaker 1: a move in markets that really breaks its fundamental link. 530 00:29:27,240 --> 00:29:28,920 Speaker 1: But you look at it and you're like, WHOA, well, 531 00:29:28,960 --> 00:29:32,080 Speaker 1: this is just this is just liquidity being withdrawn. Michael. 532 00:29:32,120 --> 00:29:34,239 Speaker 1: This raises a question of when the FED steps in 533 00:29:34,360 --> 00:29:37,160 Speaker 1: just to build on that point, especially if they still 534 00:29:37,200 --> 00:29:39,760 Speaker 1: are trying to fight inflation that may not come down 535 00:29:40,240 --> 00:29:42,680 Speaker 1: beyond seven and a half percent, if you believe Sadasi 536 00:29:42,960 --> 00:29:46,680 Speaker 1: of Franklin Templeton. How do they come in and back 537 00:29:46,760 --> 00:29:49,440 Speaker 1: away even in the face of some of these dislocations 538 00:29:49,440 --> 00:29:54,120 Speaker 1: that you expect very tricky. UM. You know, I think 539 00:29:54,160 --> 00:29:57,440 Speaker 1: they take whatever success they can to the bank. You know. 540 00:29:57,480 --> 00:29:59,280 Speaker 1: My guess is that you know, you may see a 541 00:29:59,320 --> 00:30:04,040 Speaker 1: moderation some of the commodity inflation over a period like that, UM, 542 00:30:04,080 --> 00:30:07,080 Speaker 1: and the FED would usually excuse of looking forwards to 543 00:30:07,160 --> 00:30:10,360 Speaker 1: do something different. UM. I also think the FED has 544 00:30:10,400 --> 00:30:13,400 Speaker 1: different mandates. Fed it balances. It talks about the employment 545 00:30:13,440 --> 00:30:15,960 Speaker 1: mandate and the inflation mandate a lot, but we all 546 00:30:16,000 --> 00:30:19,600 Speaker 1: do understand that there is an implicit mandate to keep 547 00:30:19,600 --> 00:30:24,640 Speaker 1: the financial system functioning at a tolel at a tolerable level. UM. 548 00:30:24,720 --> 00:30:28,120 Speaker 1: And you know, I think that you know, there are 549 00:30:28,240 --> 00:30:31,800 Speaker 1: price levels at which or speeds of movement at which 550 00:30:31,800 --> 00:30:34,120 Speaker 1: the Federal Reserve would be forced to do something. But 551 00:30:34,280 --> 00:30:36,480 Speaker 1: also not the only central bank on the planet. You know, 552 00:30:36,520 --> 00:30:38,960 Speaker 1: You've got the Bank of Japan PBOC and and and 553 00:30:39,040 --> 00:30:41,400 Speaker 1: the ECB to consider. To that point, I did want 554 00:30:41,400 --> 00:30:42,880 Speaker 1: to follow up on what you said about the euro 555 00:30:43,240 --> 00:30:46,120 Speaker 1: being the next real crisis and there will be akin 556 00:30:46,200 --> 00:30:48,320 Speaker 1: to some of the emerging market fissures that we saw 557 00:30:48,600 --> 00:30:51,600 Speaker 1: in previous years. How far along in this are we 558 00:30:51,640 --> 00:30:56,280 Speaker 1: and what is the potential contagion there? You know, very 559 00:30:56,280 --> 00:30:58,960 Speaker 1: difficult to say. You know, I think Europe is you know, 560 00:30:59,160 --> 00:31:01,640 Speaker 1: was a mess going inter this and and continues to 561 00:31:01,680 --> 00:31:05,520 Speaker 1: be a mess, and has the additional strain now of 562 00:31:05,680 --> 00:31:08,720 Speaker 1: you know, sanctions on on Russia, and you know, the 563 00:31:08,800 --> 00:31:12,320 Speaker 1: potential for some you know, some rashoning of energy you 564 00:31:12,320 --> 00:31:14,600 Speaker 1: know into the winter period, and that that that then 565 00:31:14,640 --> 00:31:17,480 Speaker 1: does start to look a lot like the mid nineties seventies, 566 00:31:17,920 --> 00:31:20,320 Speaker 1: where you know, it wasn't just inflation but you had 567 00:31:20,360 --> 00:31:23,680 Speaker 1: to deal with but an actual shortage of energy available 568 00:31:23,720 --> 00:31:28,040 Speaker 1: for general industrial activity and consumer purposes. So you know, 569 00:31:28,080 --> 00:31:30,440 Speaker 1: as I say that the Europe is a risk, it 570 00:31:30,480 --> 00:31:34,160 Speaker 1: has poor political leadership. You know, VCB is not an 571 00:31:34,280 --> 00:31:38,320 Speaker 1: entirely credible central bank. And you know, I would say 572 00:31:38,360 --> 00:31:42,400 Speaker 1: that your itself is a is a major currency, um, 573 00:31:42,440 --> 00:31:45,400 Speaker 1: but for a lot of people it's a voluntary currency. UM. 574 00:31:45,760 --> 00:31:48,239 Speaker 1: So you know, as I say that that that you know, 575 00:31:48,280 --> 00:31:51,600 Speaker 1: if we had a region pulling everything else lower, I 576 00:31:51,600 --> 00:31:53,680 Speaker 1: think that's the region you need to watch out for. 577 00:31:53,840 --> 00:31:55,720 Speaker 1: So Michael, with that in mind, what are you buying 578 00:31:56,240 --> 00:32:01,719 Speaker 1: right now? UM? You know we're still with with energy. 579 00:32:02,080 --> 00:32:04,959 Speaker 1: I still think that that's a sector that has you know, 580 00:32:05,040 --> 00:32:09,280 Speaker 1: that has value. UM. I think that you know, as 581 00:32:09,360 --> 00:32:11,840 Speaker 1: panic builds, you know, I think you'd want to be 582 00:32:11,880 --> 00:32:15,840 Speaker 1: more aggressive. UM. I think that that fascist medals I 583 00:32:15,880 --> 00:32:18,760 Speaker 1: think still have potential here. But the honest truth is 584 00:32:19,320 --> 00:32:21,600 Speaker 1: we're a lot less long today than we were six 585 00:32:21,600 --> 00:32:25,600 Speaker 1: months ago. UM. And you know, to have used recent 586 00:32:25,640 --> 00:32:28,840 Speaker 1: strength to become less longer than we were, you know, 587 00:32:29,040 --> 00:32:31,000 Speaker 1: less long than we were a month ago. So as 588 00:32:31,000 --> 00:32:33,760 Speaker 1: I say, this looks like one of those times that 589 00:32:34,120 --> 00:32:37,680 Speaker 1: you know, whatever, whatever your mandate allows you to do, UM, 590 00:32:37,720 --> 00:32:40,240 Speaker 1: you know, you'll take your exposure down to more I 591 00:32:40,240 --> 00:32:42,960 Speaker 1: would say, cautious levels than in a normal market environment. 592 00:32:43,200 --> 00:32:45,360 Speaker 1: Michael Shell, thank you, sir for catching up with this 593 00:32:45,400 --> 00:32:51,360 Speaker 1: market field asset management CEO. This is the Bloomberg Surveillance Podcast. 594 00:32:51,600 --> 00:32:54,960 Speaker 1: Thanks for listening. Join us live weekdays from seven to 595 00:32:55,040 --> 00:32:59,120 Speaker 1: ten AMI Eastern. I'm Bloomberg Radio and I'm Bloomberg Television 596 00:32:59,440 --> 00:33:03,480 Speaker 1: each day from six to nine AM for insight from 597 00:33:03,520 --> 00:33:08,040 Speaker 1: the best in economics, finance, investment, and international relations. And 598 00:33:08,160 --> 00:33:13,280 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 599 00:33:13,360 --> 00:33:16,680 Speaker 1: dot com, and of course, on the terminal. I'm Tom 600 00:33:16,760 --> 00:33:19,080 Speaker 1: keene In. This is Bloomberg