WEBVTT - Surveillance: Harris's recession forecast 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.360 --> 0:00:32.640 This is a joy and I'm gonna cut to the 0:00:32.720 --> 0:00:36.080 chase of what Ethan Harris really did. There was a 0:00:36.159 --> 0:00:40.400 small shop that went under. It was called Lehman Brothers, 0:00:40.840 --> 0:00:43.520 and he was one of a select few that provided 0:00:43.680 --> 0:00:48.599 immense stability to Lehman Brothers in the debris. After that, 0:00:48.680 --> 0:00:52.159 he migrated over to Bank of America marilynch where he's 0:00:52.159 --> 0:00:53.000 been a force. 0:00:52.760 --> 0:00:56.840 For decades and he's retiring. Here, I'm gonna cut to 0:00:56.920 --> 0:00:57.360 the chase. 0:00:57.360 --> 0:01:00.520 Its moynihanna aware of this because Brian comes out Bloomberg. 0:01:00.720 --> 0:01:02.200 Well, I really think real. 0:01:02.080 --> 0:01:04.160 GDP, he's going to do this, and he's looking at 0:01:04.280 --> 0:01:05.680 down at Ethan Harris and stuff. 0:01:06.040 --> 0:01:08.560 Moynihn allow this, Yeah, he's allowing it. 0:01:08.640 --> 0:01:10.720 You know. One of the great things about our CEO 0:01:10.920 --> 0:01:13.800 is that he does read our stuff and he really 0:01:13.920 --> 0:01:17.920 cares about his research department. So I'm going to miss that. 0:01:17.959 --> 0:01:19.520 I mean, one of the great things about working at 0:01:19.600 --> 0:01:22.319 b of A is that the firm really cares about research. 0:01:22.760 --> 0:01:26.240 I've been busting. He's selling this like it's just great. Brian. 0:01:26.360 --> 0:01:28.119 You can't come out in front of the campus. Stay 0:01:28.160 --> 0:01:29.480 over there, Brian. 0:01:29.840 --> 0:01:33.040 What's important here is you wrote a magnificent book years ago, 0:01:33.080 --> 0:01:37.800 Ben Bernanke's FED. That was a piercing book with your 0:01:37.800 --> 0:01:40.320 experience at the FED about the dynamics of the FED. 0:01:40.720 --> 0:01:42.840 What does Jerome Powell's FED look like? 0:01:43.280 --> 0:01:45.160 Is you go to write your next book? 0:01:45.360 --> 0:01:47.680 Yeah, so I am going to finally write that next 0:01:47.680 --> 0:01:50.600 book you've been asking me about for fifteen years. 0:01:51.480 --> 0:01:51.720 You know. 0:01:52.000 --> 0:01:54.919 I think what we're going to see is a turning 0:01:54.960 --> 0:01:57.440 back the clock. I think the experiment that the FED 0:01:57.520 --> 0:02:02.360 did with this twenty twenty new framework didn't work, and 0:02:02.360 --> 0:02:03.880 we're going to see a turning back of the clock 0:02:03.960 --> 0:02:06.320 to something that looks more like a Ben Bernanke or 0:02:06.360 --> 0:02:10.040 a Janet Yallen FED. I don't think it makes sense 0:02:10.080 --> 0:02:12.280 for the FED to do what they did was which 0:02:12.320 --> 0:02:14.920 is way to the last second, wait for inflation to 0:02:15.000 --> 0:02:18.919 be really underway and then start to hike interest rates. 0:02:18.919 --> 0:02:22.360 So I don't expect radical change, but rather kind of 0:02:22.400 --> 0:02:23.920 just go back to the old model. 0:02:24.280 --> 0:02:25.240 Well, the old model. 0:02:25.720 --> 0:02:28.320 Is it the old model meaning ten years ago, or 0:02:28.320 --> 0:02:30.560 is it the old model forty years ago which was 0:02:30.680 --> 0:02:32.800 very different? And that's really the big debate we've been 0:02:32.840 --> 0:02:35.440 hearing about. What's your view of how we're going to 0:02:35.480 --> 0:02:37.600 look back at this moment in history. 0:02:37.919 --> 0:02:39.600 Was it a sea change that. 0:02:39.600 --> 0:02:42.720 Ushered in a new era of high inflation or was 0:02:42.760 --> 0:02:45.320 it a pandemic and dous blip it's going to go 0:02:45.360 --> 0:02:46.880 back to what we were seeing five years ago. 0:02:47.200 --> 0:02:50.000 Well, I think the Fed is demonstrated that they learned 0:02:50.000 --> 0:02:53.280 a lesson here. They started very late, and you'll hear 0:02:53.320 --> 0:02:56.040 that from Bill Dudley later today. He was one of 0:02:56.040 --> 0:02:59.120 the people arguing they should get moving and they start 0:02:59.160 --> 0:03:05.120 too late. They did an incredibly aggressive catching up, and 0:03:05.160 --> 0:03:07.280 that was a signal to me that they understood that 0:03:07.280 --> 0:03:09.560 they'd made a mistake. Because you don't want to be 0:03:09.600 --> 0:03:13.200 going seventy five basis points a meeting. It's very dangerous normally, 0:03:13.280 --> 0:03:16.720 but if you're way behind the curve, you catch up, 0:03:16.800 --> 0:03:19.760 So I don't agree with people who say they're going 0:03:19.800 --> 0:03:23.720 to compromise on their inflation target. At his press conference, 0:03:23.919 --> 0:03:26.960 he repeats over and over and over again every chance 0:03:27.000 --> 0:03:29.720 he gets, he says, we're serious about hitting our two 0:03:29.760 --> 0:03:32.959 percent inflation target. He's putting his credibility in the line. 0:03:33.040 --> 0:03:35.200 He does not want to be Arthur Burns. He wants 0:03:35.320 --> 0:03:36.840 to be Paul Vulker. 0:03:37.080 --> 0:03:39.640 What have we learned though, about this aggressive tightening. You're 0:03:39.640 --> 0:03:41.720 saying they don't want to do that. They did that, 0:03:42.560 --> 0:03:46.800 nothing broke. You could argue, Okay, we saw some bank rumbles, 0:03:47.400 --> 0:03:50.800 but right now we're looking at housing reaccelerating, seeming to 0:03:50.800 --> 0:03:53.480 have already bottomed, and much of the economy before being 0:03:53.520 --> 0:03:55.080 better than expected. What do you make of that? 0:03:55.200 --> 0:03:58.600 Well, I think that they were up against some very 0:03:58.640 --> 0:04:00.960 big tail winds in the I mean, you had all 0:04:01.000 --> 0:04:04.760 that massive excess saving left over from the fiscal stimulus 0:04:04.800 --> 0:04:08.000 during the crisis. You've had a pent up demand for 0:04:08.080 --> 0:04:11.600 workers with all these job openings, and so the Fed 0:04:11.720 --> 0:04:14.320 did achieve some weakening in parts of the economy that 0:04:14.320 --> 0:04:18.599 are intrasensitive, but the consumer just refused to roll over. 0:04:18.839 --> 0:04:23.039 You know, jobs were great, the savings were high, and 0:04:23.080 --> 0:04:25.920 they could spend their savings. So I think it's delayed 0:04:26.080 --> 0:04:30.480 the weakness, and we still think a mild recession, probably 0:04:30.600 --> 0:04:33.440 early next year. But like a lot of other forecasters, 0:04:33.480 --> 0:04:37.000 we've been forced to conceive that it's not here. It's 0:04:37.120 --> 0:04:39.920 gonna take a while. I don't think it's the end 0:04:39.960 --> 0:04:43.440 of the world. There's this hot hard landing soft landing debate. 0:04:44.200 --> 0:04:47.040 Come on, if you're forecasting the unemployment rate going from 0:04:47.080 --> 0:04:49.320 three and a half to four and a half, that's 0:04:49.320 --> 0:04:53.599 not a hard landing. That's great, that's normal unemployment. So 0:04:54.200 --> 0:04:57.360 it's the people I disagree with, the perfect landing crowd 0:04:57.400 --> 0:04:59.680 that says, oh, you don't have to have any pain 0:04:59.720 --> 0:05:02.000 at all. All that inflation is going to go away 0:05:02.000 --> 0:05:05.839 on its own. No adjustment in the economy that I 0:05:05.920 --> 0:05:08.719 disagree with. But it's going to be a soft landing, 0:05:08.880 --> 0:05:13.320 either bumpy or a little more bumpy. But it's not 0:05:13.320 --> 0:05:15.360 going to be a hard landing. 0:05:15.120 --> 0:05:18.240 With our new data capture, with all the noise that's 0:05:18.320 --> 0:05:22.279 out there, is there too much communication? We open the 0:05:22.320 --> 0:05:25.479 show with a beautiful vignette one of our interns put 0:05:25.480 --> 0:05:28.039 together of all these fed speakers speaking. 0:05:28.240 --> 0:05:29.480 Is there too much communication? 0:05:29.800 --> 0:05:32.360 Well, I mean that's the structure of the FED, right, 0:05:32.440 --> 0:05:36.400 it's a very old FED. Well, when when Greenspan dominated, 0:05:36.520 --> 0:05:41.120 he would he's suppressed the rest of the committee's openness, 0:05:41.120 --> 0:05:44.920 and so that's changed under the new FED chairs. So 0:05:44.960 --> 0:05:46.760 there's a lot of information coming out. 0:05:47.880 --> 0:05:48.400 I think the. 0:05:50.200 --> 0:05:53.880 Business reporters are a bit too hyped up about this 0:05:53.960 --> 0:05:57.279 whole thing. They keep talking about hawks and doves and 0:05:57.279 --> 0:06:00.680 all that hawks hawkish pulls. Yeah, well, look look at 0:06:00.680 --> 0:06:04.840 the FED. There's been virtually no descents through a period 0:06:04.880 --> 0:06:08.880 of way behind the curve, fastest titan history and now 0:06:09.000 --> 0:06:13.080 data dependent. Nobody's dissenting, right. So the idea that you know, 0:06:13.160 --> 0:06:16.680 you need to get all pumped up about what some 0:06:16.839 --> 0:06:18.840 dove said or what some hawks said, I think is 0:06:18.960 --> 0:06:20.000 way overdone. 0:06:20.440 --> 0:06:23.720 You have been prodigious in building careers. I mean what 0:06:23.760 --> 0:06:25.720 you did for Michelle Myers she went off to some 0:06:25.800 --> 0:06:28.839 charge card company. I know what she was thinking. Moine 0:06:28.880 --> 0:06:31.640 hands you have to recover from Michelle Meyer Levn. But 0:06:31.720 --> 0:06:35.000 the bottom line is you built careers. You came out 0:06:35.000 --> 0:06:38.720 of the Newtonian calculus at Clark University up in Massachuse. 0:06:38.800 --> 0:06:41.120 It's the idea here of math matters is there's too 0:06:41.160 --> 0:06:43.120 much math now in the game. 0:06:43.560 --> 0:06:47.159 Well not in the part of the area I'm in. Right, 0:06:47.640 --> 0:06:50.200 If you're a fed economist or a street economist and 0:06:50.240 --> 0:06:53.640 you're trying to figure out the economy and policy, we 0:06:53.760 --> 0:06:58.200 all understand that it's a lot of storytelling and historic 0:06:58.279 --> 0:07:01.719 analogy that you don't want to get crazy about the modeling. 0:07:02.279 --> 0:07:06.280 In academia, there is has been this drift into mathiness 0:07:06.320 --> 0:07:10.960 where you impress people by the complexity of the model, 0:07:11.320 --> 0:07:13.800 but it doesn't really work in the real world. So 0:07:14.160 --> 0:07:17.520 there's become a split in economics profession between people are 0:07:17.600 --> 0:07:20.840 practical economists and the ones that do the mathiness. 0:07:21.360 --> 0:07:24.080 We're speaking with Ethan Harris of Bank of America Securities 0:07:24.200 --> 0:07:26.960 after more than a decade at Bank of America, who 0:07:27.040 --> 0:07:30.160 is retiring as of this Friday. I believe I believe 0:07:30.240 --> 0:07:34.600 this is your last interview that has been scheduled, and 0:07:34.680 --> 0:07:37.800 we appreciate you sharing it with us. I want to 0:07:37.920 --> 0:07:41.440 pivot a little bit because we're talking about looking back 0:07:41.520 --> 0:07:44.280 over a trajectory of a career and understanding where we are. 0:07:44.320 --> 0:07:45.280 At this moment. 0:07:46.000 --> 0:07:48.520 Do you think that in the future people coming into 0:07:48.520 --> 0:07:51.560 this industry, we'll be working in an office to the 0:07:51.560 --> 0:07:53.280 same degree, do you think that that will be one 0:07:53.280 --> 0:07:57.320 of the big sea changes that persists over the next decades. 0:07:57.760 --> 0:08:01.280 Well, I think it to some degree. Hybrid is the 0:08:01.320 --> 0:08:05.320 new normal. I think there's a battle going on between 0:08:05.680 --> 0:08:08.920 a corporate leadership and the and the staff about whether 0:08:09.000 --> 0:08:10.280 that's really what they want to do. 0:08:10.440 --> 0:08:17.360 Harris getting himself into Troubletdown's compliance is like, what's he saying, Yeah, so. 0:08:17.280 --> 0:08:21.920 Maybe maybe today is my last day. But I'm not 0:08:21.920 --> 0:08:24.320 talking about Bank of America. I'm talking about in general, 0:08:24.440 --> 0:08:27.280 you know, And there's a trade off, right, So it's 0:08:27.360 --> 0:08:31.600 definitely not good for developing new people to have everyone 0:08:31.680 --> 0:08:34.760 sitting and their pajamas at home. That's not a good. 0:08:34.840 --> 0:08:36.600 Maybe quote you on that exactly. 0:08:37.120 --> 0:08:39.400 If they don't have their panamason then you're early trouble. 0:08:39.400 --> 0:08:43.880 But anyways, so you don't want to be entirely at home. 0:08:44.320 --> 0:08:46.559 On the other hand, in my case, I have a 0:08:46.600 --> 0:08:50.679 crazy New York City suburb commute, and so for me, 0:08:50.760 --> 0:08:54.560 I'm more productive if I'm working hybrid. So that's really 0:08:54.640 --> 0:08:58.760 the debate. It's about, you know, what's the most productive model, 0:08:59.080 --> 0:09:01.360 And I think in many industry's hybrid it's going to 0:09:01.480 --> 0:09:02.880 end up being the thing. 0:09:02.760 --> 0:09:05.440 A sensitive question as we talk about some of the 0:09:05.480 --> 0:09:09.880 earnings of tech companies and artificial intelligence. Is chat gpt 0:09:10.080 --> 0:09:11.720 going to be your new research assistant? 0:09:12.520 --> 0:09:12.720 You know? 0:09:12.800 --> 0:09:15.440 I tried it, and in fact, a friend of my 0:09:15.600 --> 0:09:17.960 son tried it out, and he put my name in 0:09:18.000 --> 0:09:20.600 there and started asking questions about me. Now I've got 0:09:20.640 --> 0:09:24.720 a lot of visibility in the press and stuff. What 0:09:24.840 --> 0:09:29.040 I found with chat the chat app is that at 0:09:29.080 --> 0:09:33.320 first it gave very good answers. It found my bio 0:09:33.960 --> 0:09:36.760 and wrote it up in better language than I did. 0:09:37.920 --> 0:09:41.360 But then as my son's friend kept asking tougher questions, 0:09:41.679 --> 0:09:45.880 it started returning nonsense. It started telling me that I'd 0:09:45.920 --> 0:09:51.240 won some great prize in Japan for some Yeah, there's 0:09:51.280 --> 0:09:54.520 something like it's like a peace prize or something in Japan. 0:09:54.640 --> 0:09:56.960 And so if you pushed it and tried to get 0:09:56.960 --> 0:09:59.920 it to get really interesting, it gave you junk. 0:10:00.520 --> 0:10:02.800 I've got to ask you this, because it's the heritage. 0:10:03.160 --> 0:10:05.200 Can you give all of our global. 0:10:04.880 --> 0:10:08.360 Wall Street audience a vignette of what it was like, 0:10:08.600 --> 0:10:12.800 not the final days of Lehman, but a week after Lehman, 0:10:13.120 --> 0:10:16.520 a month after Lehman. Give us a window and how 0:10:16.600 --> 0:10:19.280 you and others had the leadership there to pick up 0:10:19.280 --> 0:10:19.840 the pieces. 0:10:20.080 --> 0:10:24.720 Well, I mean everyone was in shell shock, and I 0:10:24.840 --> 0:10:30.960 was lucky my team got picked up by Barclay's and 0:10:31.040 --> 0:10:36.480 so we had a life raft to lifeboat to jump into. 0:10:37.920 --> 0:10:39.840 But you know, you were kind of in this environment 0:10:39.880 --> 0:10:44.320 where you had both these forced marriages going on in 0:10:44.360 --> 0:10:48.079 Wall Street, which are never fun, at the same time 0:10:48.120 --> 0:10:52.679 that you have this incredibly demanding and interesting and challenging 0:10:53.920 --> 0:10:58.640 world you're trying to forecast where the economy is just collapsing. 0:11:00.280 --> 0:11:03.160 It was an amazing time and you just had to 0:11:03.280 --> 0:11:06.680 kind of, you know, lean on each other a bit. 0:11:06.720 --> 0:11:10.080 I guess Ethan Harris thank you so much. With a 0:11:10.240 --> 0:11:11.440 huge commitment to the show. 0:11:11.520 --> 0:11:25.240 It's just been great research. 0:11:25.720 --> 0:11:28.160 Francis, I just can't believe how transparency k just was 0:11:28.200 --> 0:11:29.520 so for a legal issue. 0:11:29.600 --> 0:11:31.839 Well, in the CFA curriculum they talk a lot about 0:11:31.880 --> 0:11:34.560 transparency and they talk about how you shouldn't even give 0:11:34.600 --> 0:11:37.520 the appearance of conflicts. So Tom looks like it's done 0:11:37.640 --> 0:11:38.480 a great job there. 0:11:38.679 --> 0:11:41.000 Yeah, But the other issue is letter in. 0:11:42.520 --> 0:11:45.959 The major issue here is insider trading is not as 0:11:45.960 --> 0:11:48.680 clear cut as the public thinks they get. 0:11:48.960 --> 0:11:51.960 It can get really back and forth about who said what? 0:11:52.160 --> 0:11:55.280 When I was stunned by the allegations, I would think 0:11:55.880 --> 0:11:57.360 Francis Donald is with us. 0:11:57.440 --> 0:12:00.000 All right now we say thank you. I thrilled your 0:12:00.120 --> 0:12:02.760 here this morning. What are you writing about this weekend? 0:12:02.920 --> 0:12:06.440 And why will see plus iplet's cheapless NX. What's the 0:12:06.559 --> 0:12:09.559 dynamic there? Is it investment or is it the mystery 0:12:09.559 --> 0:12:10.760 of this buoyant consumer? 0:12:11.240 --> 0:12:14.439 You know, we are trying to stick to process even 0:12:14.520 --> 0:12:17.880 as price moves against our base case, which is that, yes, 0:12:18.080 --> 0:12:21.600 still all of our leading indicators and our economic model 0:12:21.640 --> 0:12:24.360 suggests that the best base case scenario is indeed a 0:12:24.520 --> 0:12:26.280 recession in Q four. 0:12:26.840 --> 0:12:27.679 Now that's not. 0:12:27.720 --> 0:12:30.160 Actually the game. The game is an asset manager is 0:12:30.200 --> 0:12:32.280 not to say whether there's recession or a soft lanning, 0:12:32.280 --> 0:12:34.040 but to get a sense as to what markets will 0:12:34.040 --> 0:12:36.800 price in and out over the next three to six months. 0:12:36.840 --> 0:12:37.840 So what we're. 0:12:37.600 --> 0:12:39.520 Talking about is that in the next one to two 0:12:39.600 --> 0:12:42.559 months we actually see economic data that will still give 0:12:42.559 --> 0:12:45.640 the appearance of soft lanning. That's an opportunity to chase 0:12:45.679 --> 0:12:48.200 some risk. But if you're looking further out, if you're 0:12:48.240 --> 0:12:50.520 looking beyond the next three months, we still have to 0:12:50.559 --> 0:12:54.600 maintain this call. It doesn't feel good as everyone moves 0:12:54.600 --> 0:12:56.800 towards the soft lanning thesis. But when you stick to 0:12:56.840 --> 0:12:59.400 the leading indicators, we have to say that is the 0:12:59.400 --> 0:12:59.960 best base case. 0:13:00.240 --> 0:13:02.360 What does it mean to lean into risk right now? 0:13:02.480 --> 0:13:04.640 What are those areas well? 0:13:04.720 --> 0:13:07.240 There is even as a macro strategist, as an economist, 0:13:07.320 --> 0:13:10.000 I can say sometimes you need to participate in momentum 0:13:10.120 --> 0:13:11.000 driven rallies. 0:13:11.320 --> 0:13:12.160 This happens. 0:13:12.760 --> 0:13:16.160 Macro is not always the primary investment driver. Again, that 0:13:16.280 --> 0:13:18.200 is not the most comfortable thing to say as a 0:13:18.200 --> 0:13:21.360 macro strategist, but an overlay and it matters much more 0:13:21.400 --> 0:13:24.240 at inflection points. I do not believe right now we 0:13:24.280 --> 0:13:27.480 are at an inflection point, even though today's a FED 0:13:27.520 --> 0:13:30.040 meeting and it may feel that way. That inflection point 0:13:30.080 --> 0:13:32.200 is to win. That recession will probably come back into 0:13:32.240 --> 0:13:34.679 the story is probably three months from now. So if 0:13:34.720 --> 0:13:37.600 you want to play off momentum, sentiment and technicals, now 0:13:37.679 --> 0:13:39.240 is the time to shine if those are your strength. 0:13:39.320 --> 0:13:42.559 Did somebody overnight push their recession call out to twenty 0:13:42.640 --> 0:13:43.160 twenty five? 0:13:43.200 --> 0:13:45.080 I want to say gold and sex, but I'm making it. 0:13:45.280 --> 0:13:46.160 I didn't say that. 0:13:46.080 --> 0:13:52.280 Somebody out there finding everybody's pushing it out, not nar Yeah, 0:13:52.440 --> 0:13:52.840 I'm sure. 0:13:54.040 --> 0:13:56.680 Fortunately, can you raise it to twenty twenty six? 0:13:56.960 --> 0:13:57.240 Sure? 0:13:57.280 --> 0:13:59.480 And I'm sure that if you asked any economists, they 0:13:59.480 --> 0:14:01.640 would have some sort of recession in over the next 0:14:01.640 --> 0:14:05.240 five years, because I don't believe that cycles are necessarily dead. 0:14:05.360 --> 0:14:07.679 But it's a good question, and we ask ourselves all 0:14:07.760 --> 0:14:10.960 the time, which is why hasn't the recession that everyone's 0:14:11.040 --> 0:14:14.480 forecast materialized? It's probably because, and again, you know, you 0:14:14.559 --> 0:14:17.000 have to look at what a standard economic model would 0:14:17.040 --> 0:14:19.840 tell you. You also have to say what may be not 0:14:20.000 --> 0:14:23.000 true about that model or what's different about this environment, 0:14:23.200 --> 0:14:25.200 And a lot of strategists has said this time is 0:14:25.320 --> 0:14:28.080 fundamentally different. My view is that, well, you can't throw 0:14:28.080 --> 0:14:30.200 the baby out with the bathwater. There are elements of 0:14:30.240 --> 0:14:32.440 this story that are going to be very different. This 0:14:32.480 --> 0:14:34.840 recession that occurs later this year and into twenty twenty 0:14:34.920 --> 0:14:37.880 four will look slightly different. Unemployment rate probably not going 0:14:37.880 --> 0:14:39.840 to rise to the same extent, and you do have 0:14:39.880 --> 0:14:42.280 to question why isn't it here yet? It's probably because 0:14:42.320 --> 0:14:45.040 you have what we like to call cycle extenders in play, 0:14:45.160 --> 0:14:48.680 things like labor shortages, excess savings. We're not talking, you 0:14:48.720 --> 0:14:50.480 know, you don't need a PhD to figure it out that 0:14:50.480 --> 0:14:52.680 there are things that are different about this story. But 0:14:52.840 --> 0:14:56.080 negating all of history, negating all of the power of 0:14:56.160 --> 0:14:59.120 leading indicators, to me, is not prudent in this environment. 0:14:59.200 --> 0:15:02.760 So Geremeny has session, Yes, Europe still has an inflation problem. 0:15:03.080 --> 0:15:06.000 As you anticipate that growth downturn in the United States, 0:15:06.080 --> 0:15:08.160 do you also envision that maybe we have a sticky 0:15:08.160 --> 0:15:09.920 inflation problem too simultaneously? 0:15:10.000 --> 0:15:12.920 Yeah, absolutely, And this is actually what concerns me more. 0:15:12.960 --> 0:15:16.680 We spend so much time talking about recession or soft landing. 0:15:16.880 --> 0:15:19.080 There are a heck of a lot of environments in 0:15:19.120 --> 0:15:22.840 between those two things. And frankly, if I'm an asset manager, 0:15:22.920 --> 0:15:24.880 which i am, and trying to figure out how to 0:15:24.920 --> 0:15:28.400 invest over the next five years, a classic recession rebound, 0:15:28.640 --> 0:15:30.800 we have a playbook for that. You can do well 0:15:30.800 --> 0:15:33.120 in that type of environment. What concerns me more, what 0:15:33.160 --> 0:15:35.560 we don't have the playbooks for is what Europe is 0:15:35.600 --> 0:15:40.600 experiencing now, sticky high inflation with no growth. One thing 0:15:40.640 --> 0:15:42.960 I'm worried about is actually this concept of the soft 0:15:43.040 --> 0:15:47.000 landing being green light being the most bullish outcome. I'm 0:15:47.040 --> 0:15:49.440 not sure that a soft landing is as bullish as 0:15:49.480 --> 0:15:51.040 everybody makes it out to be. 0:15:51.040 --> 0:15:52.080 Because we have four. 0:15:51.920 --> 0:15:54.000 Cuts priced in for next year, and if we don't 0:15:54.040 --> 0:15:56.480 get those, because the economy is all clear, we have 0:15:56.520 --> 0:15:59.200 a rerating to be made in a variety of risk assets. 0:15:59.360 --> 0:16:02.120 I'm not sure that we've really thought through what does 0:16:02.200 --> 0:16:05.160 soft landing need for equity markets. It's not as bullish 0:16:05.160 --> 0:16:05.800 as it may appear. 0:16:05.960 --> 0:16:08.320 How much do you think it's a bear market trap 0:16:08.400 --> 0:16:11.680 almost to lure people back to the sixty forty ahead 0:16:11.720 --> 0:16:14.600 of what you just explained in terms of the vulnerabilities 0:16:14.920 --> 0:16:18.920 in that type of maybe soft landing, but high inflation, 0:16:19.080 --> 0:16:20.560 no growth kind of a circumstances. 0:16:20.640 --> 0:16:23.280 Well, again, it really depends on your timeline. If you're 0:16:23.400 --> 0:16:26.120 operating on a one to two month timeline, it's not 0:16:26.160 --> 0:16:29.480 a trap. It's an opportunity in order to really leverage 0:16:29.480 --> 0:16:32.560 what we'll probably see is some cyclicality, some cyclical bounds, 0:16:32.600 --> 0:16:35.160 and things like manufacturing data. But if you're a longer 0:16:35.240 --> 0:16:38.600 term investor, absolutely you should be looking at these bullish 0:16:38.680 --> 0:16:41.120 runs as opportunities to add back to quality and maybe 0:16:41.200 --> 0:16:43.600 reduce your risk. I think it's also going to call 0:16:43.600 --> 0:16:45.840 into play why there's a lot more focus on alternative 0:16:45.880 --> 0:16:49.560 assets and private assets, because in this type of environment, 0:16:49.640 --> 0:16:53.040 one that John is describing as slower growth for sessions 0:16:53.040 --> 0:16:54.960 with sticky hin inflation, we're going to be looking for 0:16:55.000 --> 0:16:57.960 asset classes that really reduce that volatility and are less 0:16:57.960 --> 0:17:00.200 correlated with the sixty forty As for. 0:17:00.160 --> 0:17:03.360 A friend, is the meeting, this afternoon is the press conference? 0:17:03.360 --> 0:17:04.880 This afternoon is snoozefest. 0:17:05.760 --> 0:17:07.840 I hope for Marcus that it is, and I would expect 0:17:07.840 --> 0:17:10.560 that Chair Powell also hopes that it's a smooth what 0:17:10.640 --> 0:17:14.280 you produce. I don't believe there is anything that Chair 0:17:14.320 --> 0:17:17.720 Powell could say today that would convince the market to 0:17:17.880 --> 0:17:21.080 take out rate cuts from next year. And that's because 0:17:21.240 --> 0:17:25.000 just about everybody recognizes that the Fed does not have 0:17:25.040 --> 0:17:28.240 the luxury of pivoting. What's happened since the last meeting. 0:17:28.280 --> 0:17:32.040 We've got ad prices surging, inflation expectations in the longer 0:17:32.200 --> 0:17:33.960 end of the curve are up quite a bit, and 0:17:34.040 --> 0:17:37.720 financial conditions are easing. He has no choice. He cannot 0:17:37.800 --> 0:17:40.000 go dubbish. If he does, it'll be a little bit 0:17:40.040 --> 0:17:42.640 of an accident. So this is a market that's probably 0:17:42.640 --> 0:17:44.399 going to start putting a little less weight on what 0:17:44.400 --> 0:17:46.720 the Fed says and more on what twenty twenty four 0:17:46.800 --> 0:17:47.359 is going to look like. 0:17:47.440 --> 0:17:49.840 How do you think he manages what is increasingly looking 0:17:49.920 --> 0:17:52.560 like a broken consensus on the FMCA. 0:17:52.600 --> 0:17:54.560 Well, that's a tough one, probably like a lot of 0:17:54.600 --> 0:17:57.240 strategists are doing, which is coming out with a base 0:17:57.320 --> 0:18:00.399 case and then thinking through all the other scenarios behind 0:18:00.440 --> 0:18:03.040 the scenes. Goldman does a good job about talking about 0:18:03.080 --> 0:18:06.639 a base case and then a probability weighted base case, 0:18:07.200 --> 0:18:09.280 and so the FED can start talking a little bit 0:18:09.320 --> 0:18:11.760 more about scenarios. But it comes back to the issue 0:18:11.760 --> 0:18:14.640 that the FED has to control inflation expectations. I think 0:18:14.680 --> 0:18:16.640 this is a big theme for the next five years 0:18:16.840 --> 0:18:18.680 that central banks will have to have a moment where 0:18:18.680 --> 0:18:21.760 they admit, we don't know what's always going on, and secondly, 0:18:21.840 --> 0:18:25.280 we can't combat all elements of inflation. That's going to 0:18:25.280 --> 0:18:28.480 be the story for how markets trade around central banks 0:18:28.520 --> 0:18:30.040 over the secular theme. 0:18:30.160 --> 0:18:32.520 Francis, this was awesome coming to studium more often. 0:18:32.560 --> 0:18:32.920 I'd love to. 0:18:33.040 --> 0:18:35.480 I love it, Francis Donald of Manueline. 0:18:38.800 --> 0:18:40.359 Right now in the bond gent I'm going to bounce 0:18:40.359 --> 0:18:42.560 it back to you here because Kathy Jones is with us. 0:18:42.560 --> 0:18:46.040 She's Chief Fixed income strategist at Charles Schwab, and I 0:18:46.040 --> 0:18:48.680 think this is under play, John. There's been real stasis here, 0:18:48.760 --> 0:18:52.439 the real yield stasis, ten year old stasis. All my 0:18:52.560 --> 0:18:55.040 radars up in the boondom market because it's boring. 0:18:54.800 --> 0:18:56.840 Right now, Kathy, let's get to it. Will it be boring? 0:18:56.920 --> 0:18:58.200 Get to thirty Eastern time? 0:18:58.520 --> 0:19:01.080 Oh, I'm sure we'll get some excited, you know, you 0:19:01.119 --> 0:19:05.920 always do. But as you said, that's widely anticipated that 0:19:05.920 --> 0:19:08.760 it's going to hike. And then what's forward guidance going 0:19:08.800 --> 0:19:13.240 to be? And I think the expectation is they'll sound hawkish, 0:19:13.320 --> 0:19:16.400 but they may indicate a pause. How does that get 0:19:16.440 --> 0:19:19.320 parsed out in the Q and A session? What does 0:19:19.359 --> 0:19:22.440 Paul kind of communicate here? Will we get a dissenting 0:19:22.720 --> 0:19:26.040 vote possibly, or at least a hint that a handful 0:19:26.119 --> 0:19:29.240 of Fed officials are not on board with more rate hikes. 0:19:29.840 --> 0:19:31.639 That could communicate a lot to the market. 0:19:31.680 --> 0:19:33.680 We've spoken to a couple of people this morning who 0:19:33.680 --> 0:19:36.880 think the inflation reaccelerates later this year. I just wonder 0:19:36.920 --> 0:19:38.440 if that's in your base case and what it would 0:19:38.440 --> 0:19:41.280 mean for a yield curve right now that's already deeply inverted. 0:19:41.680 --> 0:19:45.359 Yeah, we don't have a really acceleration and inflation built in. 0:19:45.760 --> 0:19:48.639 There's a lot of disinflation in the pipeline that is 0:19:48.680 --> 0:19:52.119 still flowing through, especially when you look at wholesale goods prices, 0:19:52.560 --> 0:19:56.040 and we're not seeing that huge amount of pressure on 0:19:56.080 --> 0:20:00.000 the inflation side. Of course, you have oil, which is 0:20:00.080 --> 0:20:02.119