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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Lisa A.

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Speaker 1: Brahmwoid's along with Tom Keen and Jonathan Ferrell. Join us

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Speaker 1: each day for insight from the best in economics, geopolitics,

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Speaker 1: finance and investment. Subscribe to Bloomberg Surveillance un demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App.

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Speaker 3: Joining us now Jeff you Seney, market strategist at bm

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Speaker 3: Y Mellon to kick off the program with us.

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Speaker 2: Jeff, great to have you with us, Sir.

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Speaker 3: Your reaction, I guess, first of all, to what we

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Speaker 3: saw from the BOJ what is the new line in

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Speaker 3: the sand for a Japanese ten year government bond yield?

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Speaker 4: Well, if you look at that slide that the BOJ announced,

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Speaker 4: you know there's this hazy part between a point five

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Speaker 4: point and a one percent, right, So I think that's

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Speaker 4: a boj to telling you there is no actual line

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Speaker 4: in the sand. The strategic ambiguity, I guess you know,

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Speaker 4: there's some components of that, but taking a step back,

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Speaker 4: you know, if it's tidying and financial gage and in

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Speaker 4: financial conditions that you're trying to achieve, then generating volatility

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Speaker 4: and FX markets which Governor Rada talked about, and in

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Speaker 4: fixed income markets.

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Speaker 2: Then job done.

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Speaker 4: Every BOJ meeting is probably going to be live upp

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Speaker 4: ahead and that marks a change compared to the previous decade.

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Speaker 3: So Jeff, you actually believe that maybe this opens the

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Speaker 3: door to taking a step towards raising interest rates next year.

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Speaker 4: I think everything is on the table. So Governor Raider

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Speaker 4: himself admitted April the outlook and perhaps a bit too

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Speaker 4: much on the benign side, and there's a sementy basis

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Speaker 4: point increase and this year's inflation outlook hence a tweak.

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Speaker 4: Now you cannot phrase or you cannot really characterize such

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Speaker 4: a tweak in response to a higher inflation print or

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Speaker 4: inflation forecast as an easing step, right, So I think

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Speaker 4: the market can see that. But again it's about the

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Speaker 4: next step that we know. The trajectory is towards tightening

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Speaker 4: and comprehensive conditions. The phrase that they're using and markets

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Speaker 4: yen next three markets and in particular jgb's global fixed

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Speaker 4: income will need to react accordingly.

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Speaker 1: Has the reaction in global markets we did see a

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Speaker 1: sell off in sovereign developed market bonds. We also saw

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Speaker 1: sell off and risk assets. Is that indicative of what

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Speaker 1: could potentially happen that it will be orderly but it

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Speaker 1: will be disruptive or do we not have any sense

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Speaker 1: at all of what the response will be to true

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Speaker 1: yield curve control abandonment given that we've just heard whispers

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Speaker 1: and unclear guidance all of the above.

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Speaker 4: Really, but what we do know is you know those

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Speaker 4: and figures out you mentioned earlier, So US ten years,

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Speaker 4: and you're moving much more than what the JGB has done.

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Speaker 4: One basis point in the US in bunds is not

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Speaker 4: equivalent to one basis point in JGB ten years.

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Speaker 2: Let's make that clear.

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Speaker 4: So the more that it's going to move, then if

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Speaker 4: you assume the process is going to be linear, then

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Speaker 4: the stronger the reaction is going to be. Having said that,

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Speaker 4: Japanese investors they've been retreating from Europe for some time now,

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Speaker 4: they've been retreating from the US on a relative basis.

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Speaker 4: China has been retreating as well. So looking for new purchasers,

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Speaker 4: you know, for the Europe, for the Eurozone bond market,

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Speaker 4: and for the US treasury market. I think that has

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Speaker 4: been going on for some time now, So in that

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Speaker 4: context shouldn't generate too much volatility of Japan steps back

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Speaker 4: a bit more.

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Speaker 1: Okay. So in other words, even if we do get

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Speaker 1: full normalization, you could see it happen in an orderly

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Speaker 1: fashion that won't necessarily present a tail risk or some

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Speaker 1: sort of headwind to sovereign binds globally.

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Speaker 4: I think as long as the normalization itself from Japan

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Speaker 4: from Tokyo is going to be more orderly than the

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Speaker 4: answer is yes. If it's going to be sudden, stepwise changes,

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Speaker 4: large discrete changes of twenty five to fifty basis points

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Speaker 4: something like that, then it's a different story. So it

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Speaker 4: takes two to tango.

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Speaker 3: We have to go beyond wrapping up the last twenty

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Speaker 3: four hours. We've got to wrap up the last twelve months.

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Speaker 3: For the last decade, we've had two anchors around the

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Speaker 3: neck of the global bond market, the ECB the BOJ

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Speaker 3: byan government bond yields. Seeing what's been happening in Germany

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Speaker 3: for a long long time, Jeff, those anchors, those anchors

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Speaker 3: are away slowly being lifted over in Japan. So I

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Speaker 3: need to think about a new flaw in a global

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Speaker 3: bond market when it comes to yields.

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Speaker 2: Yeah, how are you thinking about that?

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Speaker 3: Now?

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Speaker 4: Well, two things there. Firstly, you said the word yourself.

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Speaker 4: It's going to be slowly lifted, right, So they'll make

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Speaker 4: sure that it's not going to be volatile process, you know,

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Speaker 4: as excess reserves that aspect of the central banks balance

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Speaker 4: sheet and continues them to come off. They'll be monitoring

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Speaker 4: that very very quickly. But the second part of it

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Speaker 4: is going to be data. And here I think the

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Speaker 4: emphasis is more on the ECB or anything. Imagine previous environments.

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Speaker 4: If we are general manufacturing pmis, you're on the thirty

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Speaker 4: handle DCB, we'd be talking about easing, right. So now

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Speaker 4: that's where the direction of travel is. So I think

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Speaker 4: we have to think about, you know, who's going to

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Speaker 4: stop this ban sheet online process. I think that will

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Speaker 4: help to serve them as an offset. But overall, at

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Speaker 4: this point look in all the central banks. I think

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Speaker 4: that markets can absorb this for now.

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Speaker 1: Well, but Jeff, just to push us a little further

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Speaker 1: as we look here, question whether we're seeing the end

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Speaker 1: of the rate hiking cycles for both the FED and

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Speaker 1: the ECB, which some people believe is the case. We're

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Speaker 1: talking about the potential abandonment of yield curve control. Where

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Speaker 1: are we going to head if yields do come down?

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Speaker 1: What is to John's point, the floor that we hit

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Speaker 1: that seems like the new normal at a time when

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Speaker 1: some of the more unconventional policies are no longer in effect.

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Speaker 4: Well, if you really want a normal number, my rule

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Speaker 4: of thumb is always whereas potential growth on a nominal basis.

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Speaker 4: So in the US, is it on the four handle,

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Speaker 4: five handle? In the Eurozone, if growth isn't close to

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Speaker 4: flat your inflation target term two percent? Is it on

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Speaker 4: the two in the two to three range? Japan probably

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Speaker 4: slightly lower. So that's where longer term, the Wiselian rate,

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Speaker 4: you know, so to speak, that really starts to come in.

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Speaker 4: But to get there, we need to get inflation back

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Speaker 4: to target first, and I think that is the risk

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Speaker 4: that means a lot more unwinding, more QT first. Before

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Speaker 4: we can even start that discussion.

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Speaker 3: Let's get to favorite trade in FX right now, Jeff,

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Speaker 3: Which one?

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Speaker 4: So you want to own a pack funders against the

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Speaker 4: dollar right now? So what I mean by that your

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Speaker 4: Korean ones, your tai one, dollars even women be in

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Speaker 4: the short term in this respect right because now that

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Speaker 4: Japan has moved the yen can strengthen a bit. Then

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Speaker 4: that gives more room for Asian central banks to tighten things,

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Speaker 4: or at least a shift towards a more assertive stance.

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Speaker 4: Because you have China Japan put together, the youngerman be

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Speaker 4: forty percent and your trade weighted basket. You can't afford

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Speaker 4: to let your currency strengthen. Now they are allowing a

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Speaker 4: bit more tolerance for strength, so can you. And given

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Speaker 4: in our iflow data, our custodial positioning data, these currencies

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Speaker 4: are quite underheld right now.

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Speaker 2: Good risk of water to stop buying them back, Jeff.

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Speaker 2: Just to be clear, that's apak versus the US dollar.

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Speaker 4: Yes, and euros and versus g ten as well.

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Speaker 2: Okay, Jeff Wander for the catch up.

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Speaker 3: As always, buddy, Jeff, you there if bin Y Mellon

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Speaker 3: wrapping up the Central Bank and trilogy.

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Speaker 2: This week, we have.

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Speaker 1: With us someone who has been at the FED who

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Speaker 1: might tell us about happy hour after getting good economic

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Speaker 1: reas Jonathan Pingle, chief US economist at UBS, who is

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Speaker 1: not at happy hour currently sitting at his office. I'm

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Speaker 1: curious from your vantage point, Jonathan, how much conviction you

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Speaker 1: can have in this soft landing narrative when we keep

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Speaker 1: getting data print after data print showing you know, this inflation,

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Speaker 1: robust growth, this feeling that maybe we will just immaculately

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Speaker 1: get price stability.

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Speaker 5: Yeah, I mean this, you know, this is certainly good news,

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Speaker 5: but we're still actually a long way from price stability.

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Speaker 5: And I think, you know, looking at today's employment cost

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Speaker 5: index data, as you know, some sort of Mike was saying,

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Speaker 5: as well as the core PC deflator, you know, the

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Speaker 5: year over a year change following to four point one

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Speaker 5: percent puts the FED actually within striking distance two tens

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Speaker 5: if there's sort of full year projection for later this year.

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Speaker 5: But even at four percent of the fed's three to

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Speaker 5: nine in Q four, you're still a ways away from

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Speaker 5: what you would call price stability. So everything looks looks

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Speaker 5: great now, I mean, looking at you know, Mike was

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Speaker 5: mentioning real spending coming in a little stronger. You know,

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Speaker 5: we'd actually sort of expected the four tenths increase, and

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Speaker 5: he's right. I mean, we ended up revising up our

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Speaker 5: Q three consumption estimates after retail sales as a result,

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Speaker 5: so this is all good news and the economy has

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Speaker 5: certainly proved resilient, but they do have this problem that

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Speaker 5: they know we're making progress on inflation it looks like,

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Speaker 5: but we're not actually at two yet, and there's actually

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Speaker 5: a pretty big gap between now and how we're going

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Speaker 5: to get there and a lot of uncertainty. But you know,

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Speaker 5: at the moment, Lisa, yeah, the data looks good.

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Speaker 1: What's the bigger risk right now that we're wrong about

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Speaker 1: inflation just steadily coming down and we see a reignition

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Speaker 1: of some of the price increase is or that the

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Speaker 1: economy slows down more dramatically, and that the strength that

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Speaker 1: we've seen recently perhaps is an indicative of the longer

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Speaker 1: term trend.

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Speaker 5: Well, I am pretty worried that this economy is going

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Speaker 5: to slow meaningfully in the coming quarters. You know, there

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Speaker 5: are a lot of positives right now, but they're also headwinds.

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Speaker 5: And I still kind of agree with share Powell that

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Speaker 5: there's still follow through from the monetary policy tightening. I

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Speaker 5: think there's you know, there's still excess savings that's percolating

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Speaker 5: through and supporting you know, and some of these forces

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Speaker 5: could diminish. We also have things like student loan repayments

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Speaker 5: coming up. I mean, there's a number of headwinds and

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Speaker 5: challenges that we're still going to have to face as

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Speaker 5: an economy. But I think you've you've nailed the sort

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Speaker 5: of risks on the head right because you know, everybody,

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Speaker 5: of course would like to have a soft landing and

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Speaker 5: not have job loss and have this this this continue.

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Speaker 5: But the initial conditions are a little tough. And by

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Speaker 5: initial conditions, I mean, you know, we're starting with a

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Speaker 5: low unemployment rate, you know, even with the e c

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Speaker 5: I at one percent. I mean, I think that's going

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Speaker 5: to be great news at the FED. Take a little

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Speaker 5: bit of the wind out of the you know, sales

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Speaker 5: of the more work to do component of the committee,

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Speaker 5: but that's still you know, a little over it's you know,

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Speaker 5: four percent annualized, and that kind of needs it to

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Speaker 5: get it down closer to three and a half. So

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Speaker 5: you get a low and employment rate, nominal wage inflation

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Speaker 5: that's still a little brisk. If the economy stays strong,

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Speaker 5: you know, there is the risk that the FED might

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Speaker 5: have to hike more and do more work to get

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Speaker 5: the slowing that they need in the economy.

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Speaker 1: A lot of people Jonathan, have been talking about how

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Speaker 1: it's been easier to get a disinflationary trend just simply

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Speaker 1: on the year of your comparison numbers, at least over

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Speaker 1: the past few months. What changes what areas of the

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Speaker 1: inflation overview are you looking at?

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Speaker 3: Is it housing?

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Speaker 1: Is it car prices? Is it something else that could

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Speaker 1: fuel some sort of strengthening in the inflation reads?

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Speaker 5: Well, I mean it's all of that. I mean, I

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Speaker 5: don't think the details of the inflation data in my

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Speaker 5: career have ever been as looked at as they are

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Speaker 5: today because of how crucial it's.

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Speaker 6: Been for monetary policy.

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Speaker 5: But when we think about, you know, sort of what's

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Speaker 5: unfolding in the various chunks of the basket, I mean,

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Speaker 5: I think, you know, you know, there's people have talked about,

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Speaker 5: you know, supercre and sort of these measures. I mean,

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Speaker 5: I don't want to put a label on it. But

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Speaker 5: when we look at some of the services components that

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Speaker 5: are most linked to waged inflation, many of them also

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Speaker 5: have relatively persistent components. You know, I think we can

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Speaker 5: get comfortable with the goods disinflation and we can see

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Speaker 5: it and I think, you know, we're watching sort of

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Speaker 5: you know oere and rents slow and the CPI data,

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Speaker 5: but you know, these other services, you know, are really

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Speaker 5: sort of what what what I think is worth watching

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Speaker 5: for where the improvement could come or you know, what

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Speaker 5: might re accelerate because of the low unemployment rate. That's

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Speaker 5: one of the reasons I think, you know, Chair Powell

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Speaker 5: and his press conference, you know when went ahead and

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Speaker 5: mentioned the e c I a sort of one important

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Speaker 5: data point they would get between the July and September

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Speaker 5: FOMC meetings.

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Speaker 1: And if you're just joining us now, we did see

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Speaker 1: the e c I, the Employment cost Index come in

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Speaker 1: at one percent for the second quarter. The expectation had

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Speaker 1: been one point one percent. It was down from one

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Speaker 1: point two percent. Personal spending coming in stronger than expected

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Speaker 1: at zero point five percent, personal income coming in softer,

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Speaker 1: so people making less and spending more. Michael McKee, you've

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Speaker 1: been digging under the numbers.

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Speaker 3: What do you see?

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Speaker 7: Yeah, Le's look un to the hood. A couple of

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Speaker 7: things that Jonathan was talking about. The ECI for wages

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Speaker 7: goes down to a one percent gain from a one

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Speaker 7: point two percent gain in the first quarter, and that

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Speaker 7: would be considered reasonably good news. But when you look

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Speaker 7: under the personal income figures, wages went up six tenths

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Speaker 7: of eight percent in the month of June, and that

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Speaker 7: is up from half percent. It is actually the highest

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Speaker 7: increase since January. So we have two sort of contrasting

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Speaker 7: views of what wage pressures are doing at the moment.

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Speaker 7: And John mentioned, as we do every time we get

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Speaker 7: an inflation figure, the supercore, which is J. Powell's favorite thing,

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Speaker 7: core services x housing comes in at a two tenths

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Speaker 7: gain to point two two if you want to round

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Speaker 7: it out to three figures, and that puts it at

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Speaker 7: a four point four point one percent increase for the year,

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Speaker 7: which is going to be your lowest since basically last August.

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Speaker 7: So things moving in the supercore direction take out housing

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Speaker 7: out of the equation, and services for the PCE like

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Speaker 7: the CPI are down, but the wage numbers still healthy,

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Speaker 7: and that suggests consumers can still keep spending. The question

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Speaker 7: is will the fancy that as inflationary?

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Speaker 1: Jonathan, As we talk about these numbers four point one

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Speaker 1: percent down significantly from what it had been from four

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Speaker 1: point six percent the previous reading, what's it enough? Are

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Speaker 1: we heading back toward two percent or to the conversation

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Speaker 1: we had with Richard Clarita. Are we looking at a

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Speaker 1: two and a half or something somewhat above the target

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Speaker 1: that the FED is just going to live with?

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Speaker 5: Well, I mean, so this is a this is probably

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Speaker 5: I mean, this is a question they're going to have

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Speaker 5: to answer at some point I think next year. At

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Speaker 5: the moment, you know, obviously the four point one is

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Speaker 5: not enough. I do think it's pretty relevant though, for

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Speaker 5: sort of the meeting by meeting decisions they're going to

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Speaker 5: make going forward. I mean this, I mean, at four

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Speaker 5: point one percent, they're only zero point two percent points

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Speaker 5: away from their full year core inflation projection already in

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Speaker 5: the June data, so they're clearly making some progress. The

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Speaker 5: other thing they're making progress on is real rates. You know,

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Speaker 5: this is going to widen the gap between the funds

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Speaker 5: rate after the rate hike on Wednesday, to a level

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Speaker 5: you know that hasn't been around since two thousand and seven,

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Speaker 5: So they are. So they're they're making progress in terms

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Speaker 5: of restrictiveness, not just because of the rate hikes now,

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Speaker 5: but also because they're making progress on inflation now. A

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Speaker 5: year from now, you know, let's say inflation is moving

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Speaker 5: down to two and a half percent. They're going to

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Speaker 5: have to make a decision about how hard they push

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Speaker 5: to get it back down to two point oh. I mean,

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Speaker 5: I do think that monetary policy makers would like to

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Speaker 5: actually get it back to two point zher for their

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Speaker 5: credibility to show that they can do it. Are they

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Speaker 5: going to really work very hard to run it at

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Speaker 5: you know, one point eight so that they can show

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Speaker 5: that they're on both sides. I don't know that that's

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Speaker 5: worth really costing a lot of people their jobs, but

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Speaker 5: I do think they're gonna leave, you know, if they're

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Speaker 5: struggling to get back to their target. I think they

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Speaker 5: probably would leave restrictive policy in place for a while.

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Speaker 1: Jonathan Peingle of UBS, thank you so much for taking

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Speaker 1: the time.

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Speaker 3: Jane Fully of Rabberbanks saying this that the BOJ tweeked

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Speaker 3: YCC in quote a very cautious way. As expected, the

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Speaker 3: BOJ raise this twenty twenty three inflation forecast, but there

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Speaker 3: was no upward revision to course CPI in twenty four

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Speaker 3: or twenty five. Therein lies the reason for continued caution

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Speaker 3: from the Bank of Japan. If further progress is made

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Speaker 3: in reviving domestically driven inflation. The BOJ will act again,

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Speaker 3: but they are clearly in no rush. So Jane, we've

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Speaker 3: got to start with that question. Lisa has asked it

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Speaker 3: a few times and Danny Berger asked it again this morning,

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Speaker 3: and Jane, thanks for being with us. Is this the

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Speaker 3: starting gun on timing or just sending up policy to

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Speaker 3: keep things a little bit more sustainable and easier for longer.

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Speaker 8: You know, the starting gun really reminds me of that

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Speaker 8: the tortoise and the hair, and I think the Bankerjapan

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Speaker 8: really is the tortoise in this race. It is going

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Speaker 8: to be in no rush. And this is you know,

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Speaker 8: backing away from your curve control because it can be

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Speaker 8: a nuisance sort of policy. It can push policymakers into corners.

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Speaker 8: And we have this in December when when the Bank

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Speaker 8: of Japan you know, made an adjustment to the range

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Speaker 8: for the ten year yield and said it was an adjustment. Now,

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Speaker 8: clearly we can see those distortions. You know, you have

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Speaker 8: the possibility where you have maybe five year years seven

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Speaker 8: year eels rising above the ten year old. That's not

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Speaker 8: what they want to signal, so they had to raise

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Speaker 8: the parameters. And really, I think there's something about what's

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Speaker 8: happened today, which is the same you know, they want

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Speaker 8: to take themselves away from being pushed into a corner

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Speaker 8: by market conditions and hence the loosening. But on the

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Speaker 8: other hand, you know, if you read through a lot

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Speaker 8: of the rhetoric from some of the Bank of Japan

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Speaker 8: policy makers, some of them are clearly seeing these signs

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Speaker 8: that inflation conditions are just beginning to normalize. And I

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Speaker 8: would say, perhaps, you know, the real piece of juicy

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Speaker 8: news from Japan, you know this week, is that the

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Speaker 8: government it looks likely to be recommending another hike in

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Speaker 8: the minimum wages. That would be a four percent hike.

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Speaker 8: There was already, you know, a really big rise this year.

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Speaker 8: So if that four percent goes through, that is your

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Speaker 8: wheels and motion of domestically generated inflation. That's what they

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Speaker 8: want to see. That's the sort of news that we

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Speaker 8: really ought to be reacting to.

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Speaker 3: So Jane, that long term forecast for inflation that comes

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Speaker 3: from the Bank of Japan. Should I view that as

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Speaker 3: an honest view on where they think inflation will be

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Speaker 3: or just a signal to the market for where they

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Speaker 3: want the market to believe policy will be.

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Speaker 8: Well, the government came out with a pretty similar forecast

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Speaker 8: for cour CPI. I think it was one point five

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Speaker 8: percent for the next fiscal year, stripping out in some

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Speaker 8: of the base effects because there have been some energy

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Speaker 8: related subsidies, for instance. So again in the government of

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Speaker 8: the Bank of Japan, lots of economists are on the

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Speaker 8: same page here. They think inflation next year will be

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Speaker 8: lower than this year, and that is why they've got

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Speaker 8: to be cautious, because they've got to remember a lot

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Speaker 8: of the inflation that we are seeing. You know, people

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Speaker 8: are saying, oh, you know, Bank of Japan or Japanese

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Speaker 8: inflation on the headline is firmer than in the US.

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Speaker 8: Maybe they should be tidy, but that is really misleading

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Speaker 8: because a lot of the inflation in that particular print

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Speaker 8: is imported prices. Now, imported prices are not domestically driven.

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Speaker 8: That's what they want to see. It's the opposite really

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Speaker 8: to Europe, to the Bank of England, to the US.

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Speaker 8: They want to see this wage price spiral getting themselves

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Speaker 8: up to sustained inflation around about two percent. We're on

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Speaker 8: that road, but they're not quite there yet.

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Speaker 1: Is it a coincidence, Jane that the Bank of Japan's

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Speaker 1: tweak I should say comes after a real shift from

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Speaker 1: both the FED and the ECB moving away from forward

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Speaker 1: guidance and away from committing to further rate hikes.

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Speaker 8: Well, you know, I think the movie Been Away from

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Speaker 8: Forward Guidance sort of reflects the fact that the committees

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Speaker 8: within those central banks and perhaps there's bigger gaps between

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Speaker 8: the doves and the hawks, because if everyone was on

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Speaker 8: the same page, it's obviously easy to give forward guidance,

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Speaker 8: but when you have this more diverse range of opinions,

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Speaker 8: you can't really do that. And I think that's probably

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Speaker 8: true of the Bank of Japan as well. I think

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Speaker 8: there is a range of opinions within the Bank of

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Speaker 8: Japan if you read through some of their rhetoric, some

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Speaker 8: of those policy makers are perhaps more ready to act

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Speaker 8: on policy than others. But you know, a caution has

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Speaker 8: always prevailed through the Bank of Japan because of its history,

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Speaker 8: because of its history with deflation and disinflation, and I

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Speaker 8: think that is still here, and I think that's very

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Speaker 8: evidence in the commentary this morning from the Bank of

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Speaker 8: Japan governor.

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Speaker 1: It hasn't just been the Bank of Japan that's been

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Speaker 1: causing some waves this week. There seems to be a

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Speaker 1: feeling that both the FED and the ECB may be

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Speaker 1: done with raid hikes, which calls into question whether the

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Speaker 1: ECB actually will end up hiking further than the FED

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Speaker 1: this year, which was the consensus heading into twenty twenty three.

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Speaker 1: What's your view on this. Do we have to rethink

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Speaker 1: this that maybe both are at their peak and their

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Speaker 1: rate hiking cycle over in Europe isn't going to be

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Speaker 1: as long as many people thought it might be.

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Speaker 8: Yeah, you know, we're coming down on the view that

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Speaker 8: they may pause in September, that there may not be

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Speaker 8: any more moves from from the ECB. You know, some

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Speaker 8: of the commentary from some of the officials from the

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Speaker 8: UCP in the last couple of weeks, you know, it

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Speaker 8: has been mixed, but there have been some comments indicating

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Speaker 8: that perhaps core inflation could be pattering, because obviously that's

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Speaker 8: the focus for Europe, you know, this this core inflation,

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Speaker 8: this stickiness there. But if we look at some of

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Speaker 8: the economic data, for instance, He's pmis that we had

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Speaker 8: for Europe at the start of the week, they were

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Speaker 8: really quite worrying. If we still you know that the

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Speaker 8: credit service from the UCB too this week, well that

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Speaker 8: showed that that the higher interest rates are clearly impacting.

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Speaker 8: So there are you know, recession is hanging above Europe.

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Speaker 8: Germany of course already in recession. Recession risks are really

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Speaker 8: very real and that may give the UCB course for

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Speaker 8: constraints in set timber and pause policy. So we are

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Speaker 8: data dependent. We have to make up our minds on

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Speaker 8: that according to the data. But there is certainly a

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Speaker 8: risk that the market is going into the possibility of

437
00:21:11,320 --> 00:21:13,280
Speaker 8: a pause in September whilst.

438
00:21:13,000 --> 00:21:14,600
Speaker 2: It's long the euro.

439
00:21:14,640 --> 00:21:17,240
Speaker 8: And that's really important because I think positioning here is

440
00:21:17,280 --> 00:21:19,320
Speaker 8: going to be adjusted, and I think the market has

441
00:21:19,480 --> 00:21:21,680
Speaker 8: has got very long the euro and anticipated with a

442
00:21:21,760 --> 00:21:25,959
Speaker 8: very high hawkish ECB, and that might have been overdone.

443
00:21:26,080 --> 00:21:29,520
Speaker 3: All favorite trades. Let's wrap up Jane downside on the Euro.

444
00:21:29,760 --> 00:21:30,280
Speaker 2: What is it?

445
00:21:31,040 --> 00:21:33,760
Speaker 8: Well, you know, we've had, you know, for a while now,

446
00:21:34,200 --> 00:21:36,040
Speaker 8: a three month forcus for your a dollar at one

447
00:21:36,080 --> 00:21:39,200
Speaker 8: o eight, you know, a few weeks ago. I think

448
00:21:39,200 --> 00:21:41,080
Speaker 8: people you know, wouldn't have agreed with that. I think

449
00:21:41,119 --> 00:21:43,960
Speaker 8: now maybe people are coming round to that. The market

450
00:21:44,080 --> 00:21:46,320
Speaker 8: is very long the euro, and I think it's increasingly

451
00:21:46,359 --> 00:21:49,000
Speaker 8: difficult to see that situation being justified.

452
00:21:49,240 --> 00:21:51,639
Speaker 3: Jane, thank you for getting on board with the program

453
00:21:51,680 --> 00:21:53,320
Speaker 3: this morning following that breaking news from the Bank of

454
00:21:53,400 --> 00:21:56,399
Speaker 3: Japan appreciated. Jane Foley of Rubber Bank, responding to the

455
00:21:56,440 --> 00:22:09,760
Speaker 3: latest headlines out of the BOJ Stave Chevron joined us

456
00:22:09,760 --> 00:22:12,720
Speaker 3: now had a multi asset solutions at Federated Hermes. Steve

457
00:22:12,760 --> 00:22:14,560
Speaker 3: wanted for to catch up with you. You mentioned the pain

458
00:22:14,640 --> 00:22:17,560
Speaker 3: trade in this equity market may well be a higher

459
00:22:17,760 --> 00:22:19,560
Speaker 3: equity market just walk us through as Steve.

460
00:22:20,960 --> 00:22:23,480
Speaker 9: Yeah, I mean, it's been the thesis that we started

461
00:22:23,520 --> 00:22:26,000
Speaker 9: with in January when we went back overweight, which was

462
00:22:26,040 --> 00:22:30,399
Speaker 9: that look even if for session risks do materialize at

463
00:22:30,400 --> 00:22:33,560
Speaker 9: some point, and that's still an open question, it's not

464
00:22:33,760 --> 00:22:36,439
Speaker 9: today and tomorrow doesn't look good, John. I mean, you

465
00:22:36,480 --> 00:22:38,400
Speaker 9: look out if you're still in a position of tight

466
00:22:38,480 --> 00:22:43,359
Speaker 9: labor markets, inflation that's sticky, a FED that at best

467
00:22:43,480 --> 00:22:46,960
Speaker 9: is maybe pausing, may still be in the hike cycle.

468
00:22:47,040 --> 00:22:50,320
Speaker 9: We'll see what September and November bring, but it's certainly

469
00:22:50,320 --> 00:22:54,520
Speaker 9: not anywhere near a place where they're cutting. Historically, that's

470
00:22:54,560 --> 00:22:57,200
Speaker 9: not an environment where you have big equity sell offs.

471
00:22:57,200 --> 00:23:01,560
Speaker 9: If you look FED pauses are really good for equity markets.

472
00:23:01,600 --> 00:23:06,280
Speaker 9: Fifteen percent returns on average twenty percent max rallies drawdowns

473
00:23:06,320 --> 00:23:09,280
Speaker 9: that are relatively small. And so I think that you're

474
00:23:09,320 --> 00:23:11,600
Speaker 9: in this scenario. And I heard you mention in the

475
00:23:11,640 --> 00:23:14,000
Speaker 9: prior segment this idea of a you know, a kind

476
00:23:14,000 --> 00:23:17,119
Speaker 9: of summer window. I don't think it's a summer window.

477
00:23:17,520 --> 00:23:20,960
Speaker 9: I think this goes higher for longer. And I'm talking

478
00:23:21,000 --> 00:23:23,400
Speaker 9: about equity markets right now. So we see upside through

479
00:23:23,400 --> 00:23:27,880
Speaker 9: the old highs even if storm clouds do eventually you know, materialize,

480
00:23:27,880 --> 00:23:29,240
Speaker 9: but we don't think it's it's soon.

481
00:23:29,480 --> 00:23:32,919
Speaker 3: So, Steve, upside where because people are willing or at

482
00:23:33,000 --> 00:23:35,760
Speaker 3: least want to shift away from the tech winners. They

483
00:23:35,760 --> 00:23:38,359
Speaker 3: want to think about maybe the things that are left behind, sick,

484
00:23:38,400 --> 00:23:40,800
Speaker 3: the coos, banks, energy take you pick, Steve, how are

485
00:23:40,800 --> 00:23:41,600
Speaker 3: you thinking about that?

486
00:23:42,840 --> 00:23:45,440
Speaker 9: Yeah? So again, if you look at both fed pauses

487
00:23:45,480 --> 00:23:48,160
Speaker 9: and then even once you get into FED cuts, cyclicals

488
00:23:48,200 --> 00:23:53,600
Speaker 9: tend to do better than you're kind of defensive growth names. Also,

489
00:23:53,720 --> 00:23:56,800
Speaker 9: at twenty seven times multiple for the Russell one thousand value,

490
00:23:57,040 --> 00:23:59,159
Speaker 9: that's hard for us to kind of just hold our

491
00:23:59,200 --> 00:24:02,040
Speaker 9: nose and buy. But we're buying is everything else pretty much,

492
00:24:02,080 --> 00:24:06,080
Speaker 9: So we've been overweight value, particularly cyclicals and the defensive

493
00:24:06,119 --> 00:24:08,479
Speaker 9: dividend payers a little bit as a hedge. And then

494
00:24:08,520 --> 00:24:10,879
Speaker 9: our newest buying has been in small cap growth. The

495
00:24:10,960 --> 00:24:13,640
Speaker 9: idea is that it edited itsel off the year before.

496
00:24:14,200 --> 00:24:16,560
Speaker 9: Those names are still down twenty percent on a two

497
00:24:16,600 --> 00:24:19,920
Speaker 9: year basis, and while valuations look high on an absolute

498
00:24:20,000 --> 00:24:22,679
Speaker 9: basis relative to where they were two years ago, we

499
00:24:22,720 --> 00:24:25,400
Speaker 9: think they're attractive. So if there's any disruption to the

500
00:24:25,480 --> 00:24:27,960
Speaker 9: kind of big tech in growth names, it's going to

501
00:24:27,960 --> 00:24:30,560
Speaker 9: be those smaller companies we think that emerge and we

502
00:24:30,640 --> 00:24:33,360
Speaker 9: just think that offers a much better kind of upside scenario.

503
00:24:33,440 --> 00:24:35,840
Speaker 9: So it's really cyclicals, yes, a little bit of those

504
00:24:35,840 --> 00:24:38,560
Speaker 9: defensive divid eendpires, but then also the small cap growth

505
00:24:38,800 --> 00:24:40,480
Speaker 9: where we think there's some better opportunities.

506
00:24:40,560 --> 00:24:42,600
Speaker 1: I want to point to something that Torstenslock wrote that

507
00:24:42,680 --> 00:24:46,000
Speaker 1: John was talking about earlier of Apollo, where he wrote

508
00:24:46,080 --> 00:24:48,600
Speaker 1: for markets to continue to trade higher, the soft landing

509
00:24:48,800 --> 00:24:52,399
Speaker 1: must be a soft landing, not a reacceleration. And he's speaking,

510
00:24:52,400 --> 00:24:56,160
Speaker 1: of course about inflation. How much does your bullish call

511
00:24:56,320 --> 00:25:00,560
Speaker 1: hinge on inflation not reaccelerating and continuing to go down?

512
00:25:01,960 --> 00:25:03,919
Speaker 9: Yeah, so you know in the list of things that

513
00:25:04,000 --> 00:25:06,520
Speaker 9: you need to watch. I'd put that in there. You know,

514
00:25:06,520 --> 00:25:09,960
Speaker 9: you've gotten the housing market at home prices have shown

515
00:25:10,000 --> 00:25:13,040
Speaker 9: some signs of reacceleration. I know, we've all seen some

516
00:25:13,080 --> 00:25:15,880
Speaker 9: of the labor deals that have come through. We're watching wages.

517
00:25:17,080 --> 00:25:17,360
Speaker 1: You know.

518
00:25:17,560 --> 00:25:21,280
Speaker 9: Our expectation is that you will see some reacceleration in

519
00:25:21,560 --> 00:25:23,480
Speaker 9: at least a headline number in the back half of

520
00:25:23,520 --> 00:25:26,239
Speaker 9: the year. That's just math lee So I mean your

521
00:25:26,359 --> 00:25:28,800
Speaker 9: your toughest comps or your easiest comps coming on how

522
00:25:28,880 --> 00:25:30,800
Speaker 9: you want to think about it. We're really in the

523
00:25:30,800 --> 00:25:33,600
Speaker 9: first half of last year. As you get to the

524
00:25:33,640 --> 00:25:36,359
Speaker 9: back half, just the base effect should take you up.

525
00:25:36,400 --> 00:25:40,040
Speaker 9: So we still have a three point nine percent core

526
00:25:40,160 --> 00:25:43,280
Speaker 9: CPI forecaster this year. If it was materially higher than that,

527
00:25:44,000 --> 00:25:46,400
Speaker 9: and we're talking about a FED, then that is forced

528
00:25:46,520 --> 00:25:49,879
Speaker 9: into you know, much more aggressive policy action. Again that

529
00:25:49,880 --> 00:25:52,880
Speaker 9: could have some disruption. But if you look, there has

530
00:25:53,040 --> 00:25:55,760
Speaker 9: never been a market in the last forty years an

531
00:25:55,840 --> 00:25:58,240
Speaker 9: SMP five hundred that was negative during the hike site.

532
00:25:59,080 --> 00:26:01,399
Speaker 9: There was never a more except for one that was

533
00:26:01,480 --> 00:26:05,560
Speaker 9: negative during the pause cycle. And so it really is

534
00:26:05,640 --> 00:26:08,399
Speaker 9: once that economic data has deteriorated and you're in a

535
00:26:08,400 --> 00:26:11,000
Speaker 9: cut cycle that you start to worry about those big downsides.

536
00:26:11,400 --> 00:26:13,840
Speaker 9: But it's hard to see us in that scenario in

537
00:26:13,920 --> 00:26:16,959
Speaker 9: twenty three. And that's the story that if you're a

538
00:26:16,960 --> 00:26:20,240
Speaker 9: soft landing person or you or you're someone who sees

539
00:26:20,840 --> 00:26:23,040
Speaker 9: a kind of new bullish trend to your being overweight

540
00:26:23,040 --> 00:26:26,760
Speaker 9: equities obviously makes sense. Even if you're someone that's cautious,

541
00:26:26,800 --> 00:26:30,080
Speaker 9: though the historical track record suggests that for some time,

542
00:26:30,440 --> 00:26:32,720
Speaker 9: and not a very short period of time, you probably

543
00:26:32,800 --> 00:26:35,119
Speaker 9: still have upside risk. You know, at least through the

544
00:26:35,119 --> 00:26:35,639
Speaker 9: old highs.

545
00:26:35,800 --> 00:26:38,120
Speaker 1: When do you know it's gone steve the upside risk

546
00:26:38,240 --> 00:26:41,200
Speaker 1: or the upside potential for some of the risk assets.

547
00:26:42,200 --> 00:26:44,639
Speaker 9: Yeah, I think what you watch and what we're watching

548
00:26:44,680 --> 00:26:46,480
Speaker 9: are going to be spreads. You know, spreads are one.

549
00:26:46,520 --> 00:26:48,680
Speaker 9: When you start to see spreads move up, I think

550
00:26:48,680 --> 00:26:50,960
Speaker 9: you need to see a little bit more deterioration in

551
00:26:52,359 --> 00:26:53,639
Speaker 9: initial little job as claims.

552
00:26:53,680 --> 00:26:54,679
Speaker 6: You know, you've got at least.

553
00:26:54,560 --> 00:26:56,800
Speaker 9: Get to that three hundred thousand level before you can

554
00:26:56,800 --> 00:27:01,240
Speaker 9: start to really think about a material acceleration force. You know,

555
00:27:01,240 --> 00:27:03,919
Speaker 9: the unemployment rate would need to kind of creep up

556
00:27:03,960 --> 00:27:06,560
Speaker 9: on the back of that. The ye'll curve not just

557
00:27:06,600 --> 00:27:08,840
Speaker 9: being inverted, but starting to re steep. It would be

558
00:27:08,840 --> 00:27:11,120
Speaker 9: a sign, you know, if you start seeing that you'll

559
00:27:11,160 --> 00:27:14,600
Speaker 9: curve get back towards zero. Historically, that's a sign that

560
00:27:14,600 --> 00:27:18,879
Speaker 9: that's starting to happen. Bond yields that are falling, you

561
00:27:18,880 --> 00:27:20,840
Speaker 9: get the theme here. Those are all the things that

562
00:27:20,920 --> 00:27:24,240
Speaker 9: I think the most verished folks thought would be happening already.

563
00:27:24,400 --> 00:27:27,080
Speaker 9: And granted, even though we saw a first half rally,

564
00:27:27,119 --> 00:27:30,639
Speaker 9: I might have expected to see more progress in that

565
00:27:30,720 --> 00:27:33,480
Speaker 9: direction so far this year, but it hasn't happened, and

566
00:27:33,520 --> 00:27:36,240
Speaker 9: so until it does, you've got to stick with the

567
00:27:36,280 --> 00:27:37,000
Speaker 9: regime that you're in.

568
00:27:37,160 --> 00:27:39,440
Speaker 3: Stick with it, Steve, That's the message. Thank you, sir,

569
00:27:39,480 --> 00:27:42,680
Speaker 3: Steve Chevron, a federated Hermes on this sweet spot in

570
00:27:42,760 --> 00:27:44,399
Speaker 3: the market that he thinks can last a whole lot

571
00:27:44,440 --> 00:27:46,080
Speaker 3: longer than many others do.

572
00:27:51,400 --> 00:27:52,360
Speaker 2: I've got favorite guests.

573
00:27:52,359 --> 00:27:56,359
Speaker 3: Here's one now, Jake Piloski, principal and founder of TPW Advisory.

574
00:27:56,440 --> 00:27:58,399
Speaker 3: Jay's going to catch up buddy, as always. Can we

575
00:27:58,400 --> 00:28:00,760
Speaker 3: start in Japan? Just briefly the latest change from the

576
00:28:00,800 --> 00:28:02,959
Speaker 3: boj I know it's an equity market, Jay, you've been

577
00:28:02,960 --> 00:28:04,240
Speaker 3: looking at more closely.

578
00:28:04,480 --> 00:28:06,600
Speaker 2: Did you like what you heard this morning.

579
00:28:07,760 --> 00:28:11,479
Speaker 10: Yes, I think Japan has had success. That's something that

580
00:28:11,480 --> 00:28:14,600
Speaker 10: they've been fighting for forty years John right, which is

581
00:28:14,640 --> 00:28:17,640
Speaker 10: to get rid of deflation, and they've done that. They

582
00:28:17,680 --> 00:28:21,560
Speaker 10: now have inflation, and so we like Japan as an

583
00:28:21,560 --> 00:28:26,439
Speaker 10: equity market. It's set up beautifully. The currency is super

584
00:28:26,520 --> 00:28:32,320
Speaker 10: cheap on OECD purchasing power parity basis fifty percent undervalued

585
00:28:32,920 --> 00:28:36,680
Speaker 10: stocks are super cheap. Right, you have stocks that sell

586
00:28:36,760 --> 00:28:40,160
Speaker 10: for less than cash. I think twenty percent of top

587
00:28:40,400 --> 00:28:43,360
Speaker 10: X sells for less than the cash that's on the

588
00:28:43,400 --> 00:28:44,120
Speaker 10: balance sheet.

589
00:28:45,320 --> 00:28:46,440
Speaker 6: We like Japan a lot.

590
00:28:46,600 --> 00:28:51,320
Speaker 10: We think the boj is exiting yield curve control. That's

591
00:28:51,360 --> 00:28:55,200
Speaker 10: going to set off not only a potential allocation out

592
00:28:55,240 --> 00:28:59,000
Speaker 10: of foreign assets, which is what japan institutions have been

593
00:28:59,000 --> 00:29:04,120
Speaker 10: doing for years back into domestic assets, but also within

594
00:29:04,760 --> 00:29:09,800
Speaker 10: the domestic acid allocation where the famous Missus Wantanabi, the

595
00:29:09,840 --> 00:29:14,480
Speaker 10: retail investor, has been doing nothing but buying bonds. Now

596
00:29:14,640 --> 00:29:17,760
Speaker 10: bonds in Japan are going into the same bear market

597
00:29:18,120 --> 00:29:21,920
Speaker 10: that US bonds and European bonds have been in for

598
00:29:21,960 --> 00:29:24,880
Speaker 10: the last year and a half or so, and so

599
00:29:24,960 --> 00:29:30,760
Speaker 10: that means an allocation shift to equities and so Japan

600
00:29:30,920 --> 00:29:33,640
Speaker 10: is we think one of the most attractive markets in

601
00:29:33,680 --> 00:29:36,760
Speaker 10: the world at this present moment looking out on a

602
00:29:36,800 --> 00:29:38,560
Speaker 10: six or twelve month basis.

603
00:29:38,240 --> 00:29:40,400
Speaker 3: Jay, just to build on that, Yesterday evening, I was

604
00:29:40,440 --> 00:29:43,480
Speaker 3: going through some decks, some slides from Apollo's Tossed and

605
00:29:43,560 --> 00:29:47,000
Speaker 3: slock on Japanese banks and looking at net interest margins.

606
00:29:47,000 --> 00:29:49,640
Speaker 3: It was shocking to see just how narrow themse net

607
00:29:49,640 --> 00:29:52,320
Speaker 3: interest margins are at a Japanese bank compared to say

608
00:29:52,560 --> 00:29:55,800
Speaker 3: a wels Fago, which is sort of multiple of that. Jay,

609
00:29:55,800 --> 00:29:57,680
Speaker 3: would you play it through the Japanese banks and how

610
00:29:57,760 --> 00:30:00,320
Speaker 3: much of a move have we already seen anticipating what

611
00:30:00,360 --> 00:30:01,200
Speaker 3: we got this morning.

612
00:30:02,080 --> 00:30:05,360
Speaker 10: Yeah, the banks have moved first obviously because this rates

613
00:30:05,400 --> 00:30:09,040
Speaker 10: go up, that issue that you spoke of gets helped out,

614
00:30:09,080 --> 00:30:12,880
Speaker 10: as we've seen with US banks, right, you know, we've

615
00:30:12,920 --> 00:30:15,120
Speaker 10: been in this extreme low rate environment.

616
00:30:15,160 --> 00:30:16,080
Speaker 6: And one of our.

617
00:30:16,120 --> 00:30:20,680
Speaker 10: Key conclusions Lisa was talking about strategic ambiguity brought me

618
00:30:20,760 --> 00:30:23,480
Speaker 10: back to my National security days studying for.

619
00:30:23,440 --> 00:30:25,040
Speaker 6: A master down in DC.

620
00:30:25,640 --> 00:30:29,920
Speaker 10: But they're looking to do something different, and the opportunity

621
00:30:30,200 --> 00:30:35,160
Speaker 10: is to grow the economy and to have inflation come back,

622
00:30:35,200 --> 00:30:39,800
Speaker 10: and that helps the margins that helps earnings. And just

623
00:30:39,880 --> 00:30:44,560
Speaker 10: as we look at in the US right high nominal growth. John,

624
00:30:44,560 --> 00:30:47,400
Speaker 10: you remember we've been talking about this for ages, high

625
00:30:47,400 --> 00:30:51,240
Speaker 10: nominal growth. The same thing applies in Japan, which is

626
00:30:51,280 --> 00:30:53,560
Speaker 10: why you're going to have good earnings, You're going to

627
00:30:53,640 --> 00:30:57,680
Speaker 10: have good bank results. And again you're not paying anything

628
00:30:57,800 --> 00:31:01,600
Speaker 10: for it less than cash. Percent of the market sells

629
00:31:01,600 --> 00:31:04,160
Speaker 10: for less than the cash on the balance sheet. It's

630
00:31:04,200 --> 00:31:07,840
Speaker 10: a value player's dream, it's a growth player's dream. The

631
00:31:07,920 --> 00:31:12,000
Speaker 10: currency is going to appreciate, rates are going up, bonds

632
00:31:12,000 --> 00:31:15,560
Speaker 10: are going to sell off, people are going to buy stocks. Really,

633
00:31:16,600 --> 00:31:18,240
Speaker 10: I think it's a fantastic setup.

634
00:31:18,560 --> 00:31:21,440
Speaker 1: To be clear, it was Jeff you who coined strategic ambiguity.

635
00:31:21,440 --> 00:31:25,040
Speaker 1: I was just parroting a perfect explanation of central banks

636
00:31:25,120 --> 00:31:28,400
Speaker 1: this week. You say a value player's dream over in Japan.

637
00:31:28,600 --> 00:31:31,160
Speaker 1: What about in Europe, which you have been overweight, Is

638
00:31:31,160 --> 00:31:35,239
Speaker 1: there's still a value player's dream in an area that

639
00:31:35,320 --> 00:31:37,600
Speaker 1: has disappointed in a way that the US has not.

640
00:31:38,680 --> 00:31:41,240
Speaker 10: Yeah, I mean Europe has more of a challenge on

641
00:31:41,280 --> 00:31:45,080
Speaker 10: the economic front. Lisa, I think that's pretty clear. But

642
00:31:45,320 --> 00:31:47,960
Speaker 10: I think again the sentiment. Look, one of the things

643
00:31:47,960 --> 00:31:51,240
Speaker 10: that we've been talking about is this tremendous gap between

644
00:31:51,360 --> 00:31:55,560
Speaker 10: data and surveys, you know, sentiment and the data continues

645
00:31:55,600 --> 00:31:58,080
Speaker 10: to come in pretty good, and the surveys and the

646
00:31:58,120 --> 00:32:01,480
Speaker 10: sentiment continues to be, for the most part, you know,

647
00:32:01,600 --> 00:32:05,320
Speaker 10: pretty lousy, and data is winning out. And the same

648
00:32:05,680 --> 00:32:08,760
Speaker 10: applies in Europe. You know, we talked about banks, right,

649
00:32:08,800 --> 00:32:12,440
Speaker 10: John knows this and Lisa we've talked about it over time.

650
00:32:12,520 --> 00:32:15,320
Speaker 10: We've been a buyer and an owner of European financials

651
00:32:15,720 --> 00:32:18,719
Speaker 10: for the last several years, and they continue to hit

652
00:32:18,800 --> 00:32:22,080
Speaker 10: new highs, just hit new highs in the last couple

653
00:32:22,080 --> 00:32:25,480
Speaker 10: of weeks. So we think this situation in Europe is

654
00:32:25,520 --> 00:32:30,080
Speaker 10: better than it's being portrayed. But to be clear, we

655
00:32:30,080 --> 00:32:34,200
Speaker 10: were bullish Europe last year. We've been bullish Japan in

656
00:32:34,240 --> 00:32:38,000
Speaker 10: Asia this year. We've talked about rotation. We wrote a

657
00:32:38,040 --> 00:32:41,360
Speaker 10: piece called Rotation two months ago. That's been what's going

658
00:32:41,400 --> 00:32:44,280
Speaker 10: on in the markets. We have a rolling rotation. So

659
00:32:44,680 --> 00:32:47,400
Speaker 10: now looking forward, we're all about what's next.

660
00:32:47,640 --> 00:32:47,840
Speaker 6: Right.

661
00:32:48,120 --> 00:32:50,960
Speaker 10: We want to look forward because markets are moving very

662
00:32:51,440 --> 00:32:54,880
Speaker 10: very fast, and so to us, what's next is we

663
00:32:55,000 --> 00:32:58,600
Speaker 10: have clear skies, we have a manufacturing recovery. I think

664
00:32:58,600 --> 00:33:01,040
Speaker 10: that's what's going to be the surprise in the second

665
00:33:01,080 --> 00:33:04,040
Speaker 10: half of the year. Manufacturing is going to pick up

666
00:33:04,320 --> 00:33:08,360
Speaker 10: as we restock the inventory drawdowns that have taken place.

667
00:33:08,360 --> 00:33:10,560
Speaker 10: You're just talking about that on the oil side. One

668
00:33:10,560 --> 00:33:14,000
Speaker 10: reason why we're bullish energy is exactly that thesis. And

669
00:33:14,080 --> 00:33:17,440
Speaker 10: so we think the big opportunity right now for the

670
00:33:17,480 --> 00:33:20,560
Speaker 10: next six to twelve eighteen months is an emerging market

671
00:33:20,600 --> 00:33:24,920
Speaker 10: equities and commodities, both of which are at fifteen to

672
00:33:24,960 --> 00:33:30,080
Speaker 10: twenty year lows relative to the US equity market as

673
00:33:30,120 --> 00:33:33,240
Speaker 10: an example, So lots of upside in those two segments.

674
00:33:33,320 --> 00:33:35,560
Speaker 2: Do you need stimulus out of China to make that work?

675
00:33:35,640 --> 00:33:39,640
Speaker 6: Chack, No, We think China is again.

676
00:33:39,720 --> 00:33:42,320
Speaker 10: China is another, you know, the poster child for a

677
00:33:42,520 --> 00:33:43,400
Speaker 10: negative sentiment.

678
00:33:44,240 --> 00:33:46,920
Speaker 6: Just ridiculous about how negative people are about an.

679
00:33:46,760 --> 00:33:50,600
Speaker 10: Economy that's a massive, second biggest economy the world, is

680
00:33:50,600 --> 00:33:54,360
Speaker 10: growing at five percent, double the United States. It's growing

681
00:33:54,400 --> 00:33:58,040
Speaker 10: at five percent, John with you know, pretty much an

682
00:33:58,080 --> 00:34:02,239
Speaker 10: assurance and they're making ship right. They're welcoming back the

683
00:34:02,320 --> 00:34:04,120
Speaker 10: tech companies because they need them.

684
00:34:04,800 --> 00:34:07,520
Speaker 6: So the whole issue around China tech is over.

685
00:34:07,880 --> 00:34:09,600
Speaker 10: And one of the things we've talked about in the

686
00:34:09,680 --> 00:34:12,200
Speaker 10: last couple of weeks, take some profits in US big

687
00:34:12,239 --> 00:34:16,520
Speaker 10: tech reallocate back into China tech things like k Web, etc.

688
00:34:17,480 --> 00:34:21,920
Speaker 10: We think emerging markets are going to lead the next

689
00:34:22,360 --> 00:34:26,399
Speaker 10: cycle in central banks, which is rape cutting. Right We're

690
00:34:26,440 --> 00:34:29,279
Speaker 10: at the end of the rate hiking cycle in the

691
00:34:29,320 --> 00:34:33,240
Speaker 10: West and the US and Europe, maybe just beginning in Japan,

692
00:34:33,360 --> 00:34:36,000
Speaker 10: fair enough, but emerging markets are going to lead the

693
00:34:36,080 --> 00:34:41,319
Speaker 10: rate cutting cycle, and we think markets like Brazil are

694
00:34:41,440 --> 00:34:45,319
Speaker 10: very attractive. We like China, We like Brazil in particular.

695
00:34:45,640 --> 00:34:49,040
Speaker 10: Within emerging markets right now, we like Japan. And then

696
00:34:49,080 --> 00:34:53,600
Speaker 10: within the commodity space, we like energy, we like industrials,

697
00:34:53,640 --> 00:34:58,080
Speaker 10: we like precious metals. Commodities we think are really the

698
00:34:58,160 --> 00:34:59,960
Speaker 10: next thing, and they're breaking out again.

699
00:35:00,239 --> 00:35:03,120
Speaker 6: Within the last two weeks. WTI has broken.

700
00:35:02,800 --> 00:35:06,799
Speaker 10: Out, Goldman Sachs Commodity index has broken out, and that's

701
00:35:06,840 --> 00:35:09,040
Speaker 10: telling you that we're not going to have a recession.

702
00:35:09,120 --> 00:35:12,239
Speaker 10: So bonds priced out recession first by getting rid of

703
00:35:12,280 --> 00:35:15,799
Speaker 10: the rate cut for next year, oh sorry for this year.

704
00:35:15,840 --> 00:35:18,359
Speaker 10: Second half of this year. Ben stocks with the move

705
00:35:18,400 --> 00:35:22,360
Speaker 10: into cyclicals and now commodities are pricing out recessions. So

706
00:35:22,400 --> 00:35:25,840
Speaker 10: you're not going to have a breakout in commodities in

707
00:35:25,920 --> 00:35:28,160
Speaker 10: a recession, right, those two things don't go together.

708
00:35:28,280 --> 00:35:29,720
Speaker 3: Jay, this would have been easy. If we just started

709
00:35:29,719 --> 00:35:33,040
Speaker 3: the interview by saying, what done you like? This would

710
00:35:33,040 --> 00:35:35,640
Speaker 3: have lasted thirty seconds. Jay, it's going to hear from you.

711
00:35:35,719 --> 00:35:38,719
Speaker 3: We've got to let you go dot welcome back.

712
00:35:38,840 --> 00:35:42,600
Speaker 2: Let me tell you, Yeah, I don't like you. We

713
00:35:42,640 --> 00:35:43,480
Speaker 2: get luck dwork.

714
00:35:45,000 --> 00:35:48,440
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715
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716
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