1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferroll and Lisa Bramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,120 Speaker 1: and of course on the Bloomberg terminal. Right now, Lisa 6 00:00:30,160 --> 00:00:32,159 Speaker 1: Brown wants and I are thrilled to give you a 7 00:00:32,200 --> 00:00:35,880 Speaker 1: different view. It's been a really intellectually interesting Monday here 8 00:00:36,280 --> 00:00:39,599 Speaker 1: at Surveillance. We've had some optimism out there. We've had 9 00:00:39,640 --> 00:00:43,560 Speaker 1: a lot of measured views of a measured recession. Neira 10 00:00:43,680 --> 00:00:48,440 Speaker 1: Rabini flat out doesn't agree. He's chief executive Officer Rebini 11 00:00:48,520 --> 00:00:51,800 Speaker 1: Macro Associates, who joins us now here and will continue 12 00:00:51,840 --> 00:00:54,840 Speaker 1: on radio into our next hour as well. I have 13 00:00:54,960 --> 00:00:58,920 Speaker 1: talked about Villain Bowder's rigger this weekend and looking at 14 00:00:58,960 --> 00:01:01,200 Speaker 1: t P I which to cut to the chase he 15 00:01:01,320 --> 00:01:04,959 Speaker 1: thinks as complete folly as well, what was it like 16 00:01:05,040 --> 00:01:09,080 Speaker 1: when you walked in his office at Yale University decades 17 00:01:09,280 --> 00:01:12,199 Speaker 1: and decades ago. Well, he was the one who hired 18 00:01:12,200 --> 00:01:14,920 Speaker 1: me at Yale, so it has been a great intellectual friend, 19 00:01:15,319 --> 00:01:18,319 Speaker 1: always a rigorous, very opening your native and so on, 20 00:01:18,400 --> 00:01:21,800 Speaker 1: and mostly right YouTube and mostly right YouTube. The gentleman 21 00:01:21,840 --> 00:01:24,959 Speaker 1: from Netherlands and the gentleman from Mitan Bull in Italy. 22 00:01:25,200 --> 00:01:28,480 Speaker 1: You too have an old world view? What is the 23 00:01:28,560 --> 00:01:33,040 Speaker 1: old world view of this recession, this slowdown that we're 24 00:01:33,080 --> 00:01:35,600 Speaker 1: in where maybe it's a mega threat. As your new 25 00:01:35,680 --> 00:01:39,280 Speaker 1: book is called this this this new world, It's all 26 00:01:39,319 --> 00:01:42,039 Speaker 1: going to be fine? Is off the mark? Well, now 27 00:01:42,080 --> 00:01:45,440 Speaker 1: the consensus view is becoming that hard landing is likely 28 00:01:45,480 --> 00:01:47,760 Speaker 1: as opposed to soft landing. But now people say, well, 29 00:01:47,800 --> 00:01:52,720 Speaker 1: be short, shallow, mild plane, vanilla, you know, garden variety. 30 00:01:53,040 --> 00:01:55,400 Speaker 1: I beg to disagree. I think that many reasons why 31 00:01:55,440 --> 00:01:58,120 Speaker 1: we're gonna have a severe recession and a severe that 32 00:01:58,360 --> 00:02:02,720 Speaker 1: and financial crisis ratios are a historically high for and 33 00:02:02,760 --> 00:02:06,040 Speaker 1: twent of GDP and advanced economies and rising. Lots of 34 00:02:06,160 --> 00:02:11,480 Speaker 1: zombie corporation, household government financial institutions were built out during COVID. 35 00:02:11,520 --> 00:02:14,400 Speaker 1: This time around, we're tightening in monetary policy. During the 36 00:02:14,440 --> 00:02:18,040 Speaker 1: seventies we had stagflation, but that racis were low after 37 00:02:18,080 --> 00:02:20,880 Speaker 1: the GFC where the dead crisis, but the inflation was 38 00:02:21,120 --> 00:02:24,359 Speaker 1: falling deflation because it was a demand shock, and you're 39 00:02:24,400 --> 00:02:28,359 Speaker 1: a credit crunch. This time we have staclationary negative aggregate 40 00:02:28,400 --> 00:02:32,000 Speaker 1: supply shocks and that racis that are historically high and 41 00:02:32,080 --> 00:02:35,720 Speaker 1: in previous recession like the last two, with massive monitoring fiscalism, 42 00:02:35,880 --> 00:02:39,160 Speaker 1: this time around gonna go in recession by tightening monetary policy. 43 00:02:39,320 --> 00:02:41,320 Speaker 1: We have no fiscal space. So the idea this is 44 00:02:41,360 --> 00:02:44,280 Speaker 1: going to be short and shallow. It's a totally delusional 45 00:02:44,360 --> 00:02:47,800 Speaker 1: out of their COVID disaster. Can China come to the rescue? 46 00:02:47,880 --> 00:02:53,040 Speaker 1: If we see resurgen Asian growth, does that help us well? 47 00:02:53,080 --> 00:02:56,280 Speaker 1: If China were to grow faster than otherwise, that would 48 00:02:56,320 --> 00:02:59,320 Speaker 1: help everything. All sequel, But until November, until she is 49 00:02:59,360 --> 00:03:02,760 Speaker 1: re elected, going to keep their zero tolerance COVID policy, 50 00:03:03,000 --> 00:03:06,720 Speaker 1: and the overall policies are essentially against economic growth. Yes, 51 00:03:06,800 --> 00:03:10,799 Speaker 1: political objectives already distributing wealth and income is at the 52 00:03:10,880 --> 00:03:13,480 Speaker 1: backlash against the private sector, against the tax sector, and 53 00:03:13,600 --> 00:03:15,639 Speaker 1: so on. And I don't think that the Chinese policies 54 00:03:15,639 --> 00:03:18,079 Speaker 1: are going to change. That are bound to have low 55 00:03:18,160 --> 00:03:20,720 Speaker 1: economic growth. They have high that ratios. They'll be lack 56 00:03:20,760 --> 00:03:23,440 Speaker 1: if the next few years have four percent growth, most 57 00:03:23,440 --> 00:03:25,680 Speaker 1: likely lower than that. You're not going to be a 58 00:03:25,680 --> 00:03:27,800 Speaker 1: source of growth for the global economy. A lot of 59 00:03:27,840 --> 00:03:31,239 Speaker 1: people look at the lack of leverage, at least financial 60 00:03:31,280 --> 00:03:33,640 Speaker 1: market leverage into what we saw leading up to the 61 00:03:33,680 --> 00:03:36,040 Speaker 1: two thousand and eight crash, and they say that alone 62 00:03:36,400 --> 00:03:39,280 Speaker 1: will allow this recovery to be quicker and allow the 63 00:03:39,960 --> 00:03:43,280 Speaker 1: downturn to be more shallow. Where do you see nodes 64 00:03:43,400 --> 00:03:47,240 Speaker 1: of leverage that could be unwound or be unwieldly, they 65 00:03:47,240 --> 00:03:50,480 Speaker 1: could actually cause what you're looking for. Well, first of all, 66 00:03:50,520 --> 00:03:53,520 Speaker 1: there is leverage in the corporate sector that ratios are 67 00:03:53,600 --> 00:03:56,560 Speaker 1: very high for some subset of the corporate sector. It's 68 00:03:56,560 --> 00:03:59,440 Speaker 1: through the banks now are not as leverage because after 69 00:03:59,520 --> 00:04:02,240 Speaker 1: the global financial crisis they deleverage, but there's been a 70 00:04:02,360 --> 00:04:06,080 Speaker 1: rise significantly of the debt and the leverage of the 71 00:04:06,720 --> 00:04:10,960 Speaker 1: non bank shadow financial system leverage, a loan, cellos and 72 00:04:11,000 --> 00:04:13,280 Speaker 1: you name it, and those spreads already widening and there 73 00:04:13,280 --> 00:04:15,840 Speaker 1: could be a shutdown of them of those markets if 74 00:04:15,840 --> 00:04:18,680 Speaker 1: you have a severe recession. So I would say corporate first, 75 00:04:19,120 --> 00:04:22,960 Speaker 1: then shadow banks. Many sovereigns are in trouble. And there's 76 00:04:23,040 --> 00:04:26,719 Speaker 1: half of the household sector that there's low income, is fragile, 77 00:04:26,760 --> 00:04:28,919 Speaker 1: has a lot of that not much wealth and in 78 00:04:28,960 --> 00:04:32,919 Speaker 1: recessional risk of unemployment. So even the household sector is divided. 79 00:04:33,240 --> 00:04:36,880 Speaker 1: In the past, the financial sector has led the economic sector. 80 00:04:36,920 --> 00:04:39,240 Speaker 1: You've seen the financial meltdown and then some people people 81 00:04:39,279 --> 00:04:41,200 Speaker 1: would say cast right, and I'm thinking about the two 82 00:04:41,200 --> 00:04:43,760 Speaker 1: thousand and seven two eight bust and then the two 83 00:04:43,800 --> 00:04:46,440 Speaker 1: thousand and nine recession. Is this time different? Are we 84 00:04:46,440 --> 00:04:49,599 Speaker 1: going to see the economic downturn before the markets wake 85 00:04:49,720 --> 00:04:52,240 Speaker 1: up to the reality that you're talking about and start 86 00:04:52,320 --> 00:04:56,479 Speaker 1: to respond en suit. Yes, the economic downturn this time 87 00:04:56,520 --> 00:04:59,520 Speaker 1: around is going to lead to severe that distress. I 88 00:04:59,520 --> 00:05:01,560 Speaker 1: would say, you're going to see parts of the corporate 89 00:05:01,600 --> 00:05:04,840 Speaker 1: sector going bass, will see the parts of the shadow 90 00:05:04,880 --> 00:05:07,560 Speaker 1: banking system going Bass, will see the household sector that 91 00:05:07,760 --> 00:05:10,880 Speaker 1: is partly fragile going in trouble. You'll see some sovereign 92 00:05:11,040 --> 00:05:14,120 Speaker 1: going trouble. Yeah, they trigger for the financial distress is 93 00:05:14,120 --> 00:05:17,279 Speaker 1: going to be a recession. And recession is not milch shallow, 94 00:05:17,440 --> 00:05:19,320 Speaker 1: but it's going to be severe and protracted, and there 95 00:05:19,320 --> 00:05:22,080 Speaker 1: will be then afficious cycle within the real side and 96 00:05:22,120 --> 00:05:24,560 Speaker 1: the financial side of the economy. In this tag inflation, 97 00:05:24,760 --> 00:05:26,640 Speaker 1: do you believe with so many guests on this show, 98 00:05:26,640 --> 00:05:28,320 Speaker 1: I've said today that we have seen the peak in 99 00:05:28,400 --> 00:05:31,760 Speaker 1: tenure yields for this cycle. Um No, I expect that 100 00:05:31,800 --> 00:05:35,800 Speaker 1: inflation is gonna remain persistently high. There are actually medium 101 00:05:35,880 --> 00:05:39,520 Speaker 1: term forces gonna lead to stag flation over time. Protection 102 00:05:39,600 --> 00:05:43,160 Speaker 1: is when the globalization reshoring a manufacturing from lock host 103 00:05:43,200 --> 00:05:47,760 Speaker 1: to high cost, aging of populations, restriction to migration, the 104 00:05:47,880 --> 00:05:52,320 Speaker 1: coupling between US and China, global climate change, cyber warfare, 105 00:05:52,600 --> 00:05:57,479 Speaker 1: new pandemics, backlashing, its inequality, weaponization of the dollar. People 106 00:05:57,480 --> 00:05:59,640 Speaker 1: are not thinking about the medium term and the medium 107 00:05:59,720 --> 00:06:02,000 Speaker 1: term I see in my book, but at least a 108 00:06:02,000 --> 00:06:05,360 Speaker 1: dozen different types of stagflation and medium term shocks. Gotta 109 00:06:05,440 --> 00:06:08,120 Speaker 1: keep growth low and cost of production. We're going to 110 00:06:08,160 --> 00:06:10,520 Speaker 1: continue this on radio, but I gotta ask one question 111 00:06:10,600 --> 00:06:13,960 Speaker 1: for a television audience and for those worldwide. Did really 112 00:06:14,000 --> 00:06:17,279 Speaker 1: really listened to New Rubini? Have you ever been this 113 00:06:17,400 --> 00:06:21,320 Speaker 1: gloomy before or is it a different gloomy? Well, it's 114 00:06:21,320 --> 00:06:24,240 Speaker 1: a different grouping. I was gloomy right before the global 115 00:06:24,240 --> 00:06:28,280 Speaker 1: financial crisis. Sertain Davos come on, We Satin Davos over 116 00:06:28,320 --> 00:06:31,800 Speaker 1: a beverage, and you absolutely nailed that. That's why people 117 00:06:32,040 --> 00:06:34,760 Speaker 1: are listening now. Well, I think in some sense right 118 00:06:34,800 --> 00:06:37,320 Speaker 1: now is worse because in the seventhies, as I pointed out, 119 00:06:37,360 --> 00:06:40,040 Speaker 1: we had stagflation, but that ratio were law, so there 120 00:06:40,120 --> 00:06:42,360 Speaker 1: was not a dead crisis. There was one in Latin America, 121 00:06:42,880 --> 00:06:45,159 Speaker 1: and after the GFC we had the dead crisis, but 122 00:06:45,200 --> 00:06:47,520 Speaker 1: we had the low flation and deflation. I think that 123 00:06:47,600 --> 00:06:50,719 Speaker 1: this time around you've got a confluence of stagflation and 124 00:06:51,000 --> 00:06:54,400 Speaker 1: of a severe dead crisis. You have a stagflationary that crisis, 125 00:06:54,440 --> 00:06:57,160 Speaker 1: so it could be worse than the seventhies and POSTFC. 126 00:06:57,400 --> 00:07:00,000 Speaker 1: Really continuing radio Dr Roubini, you dont want to make 127 00:07:00,040 --> 00:07:01,839 Speaker 1: clear he will not be a stranger. And of course 128 00:07:01,880 --> 00:07:04,320 Speaker 1: an important book coming out. It's a kind of book 129 00:07:04,320 --> 00:07:06,680 Speaker 1: where if you're an optimism and you've optimistic and you 130 00:07:06,800 --> 00:07:09,840 Speaker 1: flat out and disagree with Nora Robini, you still got 131 00:07:09,840 --> 00:07:12,080 Speaker 1: to read the book to frame out your thoughts to 132 00:07:12,120 --> 00:07:14,760 Speaker 1: push against mega threats. Will see that. I believe in 133 00:07:14,760 --> 00:07:23,560 Speaker 1: October they we have a new estimate, a new stock 134 00:07:23,600 --> 00:07:26,920 Speaker 1: market killed some SMP five hundred year end price target 135 00:07:27,000 --> 00:07:30,360 Speaker 1: forty two hundred down from forty seven. It's Laurie Canvasino 136 00:07:30,360 --> 00:07:32,680 Speaker 1: of MPC and she joined us right now Laurie, great 137 00:07:32,720 --> 00:07:34,960 Speaker 1: to catch up with you. Why that down? Great, Let's 138 00:07:34,960 --> 00:07:38,360 Speaker 1: stop write that. So look, I think that targets are 139 00:07:38,400 --> 00:07:41,200 Speaker 1: always challenging in years like this, and frankly, the market 140 00:07:41,280 --> 00:07:43,800 Speaker 1: broke lower than we thought it would earlier in the year. 141 00:07:44,280 --> 00:07:46,280 Speaker 1: What we wanted to do with this target was signal 142 00:07:46,320 --> 00:07:48,320 Speaker 1: that we do see upside between now and your end. 143 00:07:48,360 --> 00:07:50,960 Speaker 1: We think there's a decent chance stops bottomed in mid June, 144 00:07:50,960 --> 00:07:52,800 Speaker 1: and if they didn't, we think we could probably get 145 00:07:52,840 --> 00:07:55,840 Speaker 1: that before the end of the third quarter. But really 146 00:07:55,880 --> 00:07:57,920 Speaker 1: we wanted to send the signal that we thought there 147 00:07:58,000 --> 00:08:00,800 Speaker 1: was some modest upside between now and year end, that 148 00:08:00,880 --> 00:08:03,000 Speaker 1: we do think you need to be leaning into recession 149 00:08:03,040 --> 00:08:05,880 Speaker 1: rebound plays as opposed to really kind of leveraging up 150 00:08:05,880 --> 00:08:08,120 Speaker 1: on the defense the defensives here, which we think are 151 00:08:08,160 --> 00:08:10,800 Speaker 1: overbought and over sold. Um. I will tell you John 152 00:08:10,800 --> 00:08:12,680 Speaker 1: that some of my sentiment models tell us that my 153 00:08:12,680 --> 00:08:16,040 Speaker 1: original forty targets probably still the right one. But when 154 00:08:16,040 --> 00:08:18,720 Speaker 1: we look at our cross asset analysis stocks versus bonds, 155 00:08:18,760 --> 00:08:21,760 Speaker 1: that really does temper our enthusiasms. Well, this is important, 156 00:08:22,320 --> 00:08:26,520 Speaker 1: Sarah over in Europe this weekend aggressively rights take risk 157 00:08:26,720 --> 00:08:30,360 Speaker 1: in credit, Sarah says, grab a six to seven percent coupon, 158 00:08:30,760 --> 00:08:33,400 Speaker 1: get your foot in the water, let's go. You're saying 159 00:08:33,440 --> 00:08:36,800 Speaker 1: the same thing on recession rebound. What does the recession 160 00:08:36,880 --> 00:08:42,319 Speaker 1: rebound sector or part of a sector look like. So 161 00:08:42,360 --> 00:08:45,040 Speaker 1: some of the areas that typically do well are things 162 00:08:45,080 --> 00:08:48,080 Speaker 1: like financials and technology stocks. These are areas that typically 163 00:08:48,200 --> 00:08:51,240 Speaker 1: underperform in the draw downs and outperform on the rebounds. 164 00:08:51,520 --> 00:08:53,280 Speaker 1: So those are two areas we like. We think the 165 00:08:53,320 --> 00:08:56,000 Speaker 1: financials are dirt cheap at this point in time. Our 166 00:08:56,040 --> 00:08:58,959 Speaker 1: banks analysts are very, very constructive and think that even 167 00:08:59,000 --> 00:09:02,120 Speaker 1: if we do have a mild technical recession, that banks 168 00:09:02,120 --> 00:09:04,679 Speaker 1: will execute very well through it. Then how will you 169 00:09:04,840 --> 00:09:07,679 Speaker 1: use the GDP statistics and review this week? I get 170 00:09:07,720 --> 00:09:10,040 Speaker 1: it's a first look and all that, but if the 171 00:09:10,120 --> 00:09:14,679 Speaker 1: banks are doing well, that means we underestimate the resiliency 172 00:09:14,720 --> 00:09:18,240 Speaker 1: of the consumer. Do you buy that line? I think 173 00:09:18,280 --> 00:09:20,440 Speaker 1: that the banks are telling you if you look through 174 00:09:20,480 --> 00:09:22,240 Speaker 1: some of the reports that we've seen so far, is 175 00:09:22,240 --> 00:09:24,679 Speaker 1: that the consumer is at a very good starting point 176 00:09:24,720 --> 00:09:27,880 Speaker 1: to whether whatever this economic storm ends up being called. 177 00:09:28,280 --> 00:09:30,320 Speaker 1: And I think that's one of the lessons that equity 178 00:09:30,360 --> 00:09:32,480 Speaker 1: investors have learned over the last four or five years, 179 00:09:32,520 --> 00:09:34,680 Speaker 1: Thomas that every time we enter one of these dicey 180 00:09:34,720 --> 00:09:36,960 Speaker 1: periods in the equity market, whether it was the trade war, 181 00:09:37,400 --> 00:09:39,760 Speaker 1: whether it was the pandemic itself, whether it was simply 182 00:09:39,760 --> 00:09:42,880 Speaker 1: sluggish growth out there, that the consumer is pretty resilient, 183 00:09:42,920 --> 00:09:45,240 Speaker 1: and that consumer part starting point does seem to be 184 00:09:45,400 --> 00:09:47,560 Speaker 1: very very strong right now. I think that's getting lost 185 00:09:47,559 --> 00:09:50,120 Speaker 1: in some of these recession discussions. Hello, the big theme then, 186 00:09:50,160 --> 00:09:52,959 Speaker 1: Am I playing the inflation story still or pivoting to 187 00:09:53,000 --> 00:09:54,640 Speaker 1: slow of growth? Which one? Is it a bit of 188 00:09:54,720 --> 00:09:57,400 Speaker 1: both or one or the other. I would a little 189 00:09:57,400 --> 00:09:58,880 Speaker 1: bit of both. You know. We get asked a lot 190 00:09:58,880 --> 00:10:01,960 Speaker 1: about stagflation, and what we've told people is that we 191 00:10:02,040 --> 00:10:04,640 Speaker 1: do expect inflation rates to moderate, but they could stay 192 00:10:04,720 --> 00:10:07,000 Speaker 1: high relative to history. For that, I think you want 193 00:10:07,040 --> 00:10:08,800 Speaker 1: to keep some energy in your back pocket. I'm a 194 00:10:08,800 --> 00:10:10,640 Speaker 1: little bit, you know, concerned that we may not be 195 00:10:10,679 --> 00:10:13,280 Speaker 1: out of the woods on energy in the very short term, 196 00:10:13,280 --> 00:10:15,720 Speaker 1: but longer term, if we are in that staglationary environment, 197 00:10:15,720 --> 00:10:17,360 Speaker 1: I think you want to play there. I think that 198 00:10:17,440 --> 00:10:19,520 Speaker 1: technology is a great way to sort of play that 199 00:10:19,559 --> 00:10:22,040 Speaker 1: slowing growth theme, and we do see the market starting 200 00:10:22,080 --> 00:10:25,400 Speaker 1: to shift away from these overvalued, over crowded defensives back 201 00:10:25,440 --> 00:10:28,840 Speaker 1: towards more reasonably valued secular growth areas of the market, 202 00:10:28,880 --> 00:10:31,680 Speaker 1: like big cap technology. And I think that one of 203 00:10:31,679 --> 00:10:34,200 Speaker 1: the things we've learned the last few years is that 204 00:10:34,280 --> 00:10:37,640 Speaker 1: these big cap software companies in particular, are the tools 205 00:10:38,000 --> 00:10:40,600 Speaker 1: that companies used to fight just about whatever battle gets 206 00:10:40,640 --> 00:10:42,240 Speaker 1: thrown their way. So if you think that we're sort 207 00:10:42,240 --> 00:10:44,440 Speaker 1: of hitting the bottom in here, that we're gonna get 208 00:10:44,440 --> 00:10:46,600 Speaker 1: perhaps a better path from the FED, that the consumer 209 00:10:46,679 --> 00:10:48,440 Speaker 1: is going to stay resilient, but things aren't gonna be 210 00:10:48,480 --> 00:10:51,120 Speaker 1: all roses and sunshine. I think technology is an area 211 00:10:51,120 --> 00:10:52,960 Speaker 1: you really do want to look at very hard. LORI, 212 00:10:53,240 --> 00:10:55,760 Speaker 1: how do small caps fit into this? Considering that you're 213 00:10:55,800 --> 00:10:58,839 Speaker 1: now going overweight small cats heading into what most people 214 00:10:58,840 --> 00:11:02,880 Speaker 1: think is the US for session. So look, I think 215 00:11:02,920 --> 00:11:05,439 Speaker 1: you have to really evaluate what do you think has 216 00:11:05,440 --> 00:11:07,880 Speaker 1: been priced into different points in the market, different parts 217 00:11:07,880 --> 00:11:10,080 Speaker 1: of the market. At this point in time covered small 218 00:11:10,120 --> 00:11:11,720 Speaker 1: caps for a long time leads, so we know that 219 00:11:11,760 --> 00:11:14,480 Speaker 1: they always have a very hard pivot midway through recession. 220 00:11:14,760 --> 00:11:17,480 Speaker 1: They tend to really underperform hard heading in and on 221 00:11:17,520 --> 00:11:20,079 Speaker 1: the way down initially, but they tend to really experience 222 00:11:20,080 --> 00:11:22,640 Speaker 1: that pivot and outperforming the late parts of recession and 223 00:11:22,720 --> 00:11:25,280 Speaker 1: on the way out. What we see, in particular when 224 00:11:25,280 --> 00:11:28,520 Speaker 1: we look at small cap performance against economic indicators like 225 00:11:28,600 --> 00:11:31,680 Speaker 1: jobless claims and I S N manufacturing is that small 226 00:11:31,679 --> 00:11:34,199 Speaker 1: caps are already trading as though we've had a spiking 227 00:11:34,280 --> 00:11:37,080 Speaker 1: jobless claims and as though I S M manufacturing has 228 00:11:37,080 --> 00:11:39,920 Speaker 1: plunged and hit typical trough like levels. So I don't 229 00:11:39,920 --> 00:11:42,000 Speaker 1: really need to have that are we having a recession? 230 00:11:42,280 --> 00:11:44,840 Speaker 1: When is it happening? Debate within small cap They are 231 00:11:44,880 --> 00:11:47,000 Speaker 1: already pricing then, and it's more clear to me in 232 00:11:47,080 --> 00:11:49,160 Speaker 1: that part of the market than just SUP any other part. 233 00:11:49,360 --> 00:11:51,360 Speaker 1: Do you think that this means that small caps are 234 00:11:51,400 --> 00:11:53,240 Speaker 1: ahead of the rest of the market, or is this 235 00:11:53,600 --> 00:11:56,040 Speaker 1: leading indicator that we're already in recession? As good as 236 00:11:56,200 --> 00:11:58,439 Speaker 1: is going to get confirmed on Thursday with that second 237 00:11:58,520 --> 00:12:02,080 Speaker 1: quarter GDP print. I think it's gonna be interesting if 238 00:12:02,080 --> 00:12:04,320 Speaker 1: you do get a negative GDP print for the quarter, 239 00:12:04,440 --> 00:12:06,440 Speaker 1: whether or not people view that as a recession. I 240 00:12:06,440 --> 00:12:08,719 Speaker 1: think that debate will rage on. But I do think 241 00:12:08,720 --> 00:12:12,240 Speaker 1: that small caps are very economically sensitive because they do 242 00:12:12,320 --> 00:12:15,280 Speaker 1: have primarily most of their revenues coming out of the US. 243 00:12:15,559 --> 00:12:17,880 Speaker 1: So if there was a technical recession in place, small 244 00:12:17,880 --> 00:12:20,360 Speaker 1: caps were going to have snipped that out. Um, and 245 00:12:20,400 --> 00:12:23,360 Speaker 1: it will really make sense kind of the carnage we've 246 00:12:23,400 --> 00:12:25,640 Speaker 1: seen in that space. Frankly since March of last year. 247 00:12:26,120 --> 00:12:27,800 Speaker 1: I could make that, you know, kind of move that 248 00:12:27,800 --> 00:12:29,800 Speaker 1: we've seen make a lot of sense. But frankly, lest 249 00:12:29,840 --> 00:12:31,560 Speaker 1: it already makes sense based on what you're seeing in 250 00:12:31,559 --> 00:12:34,320 Speaker 1: im manufacturing right now. Laurie, great to catch up with you, 251 00:12:34,360 --> 00:12:36,599 Speaker 1: and thank you for issuing the down grade before the 252 00:12:36,640 --> 00:12:40,680 Speaker 1: appearance and unlike some guests who do it after the interview. 253 00:12:41,160 --> 00:12:47,800 Speaker 1: Cavasse and if I let us get a handle on 254 00:12:47,840 --> 00:12:50,240 Speaker 1: where we're going to the FED meeting, and that involves 255 00:12:50,679 --> 00:12:56,960 Speaker 1: actually doing economics at Columbia University. He took, uh, macroeconomics 256 00:12:57,120 --> 00:12:59,520 Speaker 1: kind of sort of three oh one, and Bruce Kasiman 257 00:12:59,600 --> 00:13:02,760 Speaker 1: joins us know from a small bank, JP Morgan this morning, 258 00:13:03,000 --> 00:13:05,440 Speaker 1: I love it. Bruce fer Alwis says, it's a kind 259 00:13:05,480 --> 00:13:08,599 Speaker 1: of sort of recession. What kind of sort of recession 260 00:13:08,760 --> 00:13:12,679 Speaker 1: is this? Well, as you know, there's a good chance 261 00:13:12,679 --> 00:13:15,600 Speaker 1: second quarter GDP will print a negative for a second 262 00:13:15,640 --> 00:13:18,760 Speaker 1: quarter in a row in Q two. UM, as you 263 00:13:18,880 --> 00:13:21,720 Speaker 1: kind of break down the data. With job growth so strong, 264 00:13:21,800 --> 00:13:24,600 Speaker 1: with what we continue to expect to be a positive 265 00:13:24,600 --> 00:13:28,559 Speaker 1: consumer spending number UH in this week's report, it doesn't 266 00:13:28,880 --> 00:13:31,520 Speaker 1: feel like a normal break into what we would call 267 00:13:31,559 --> 00:13:34,240 Speaker 1: a recession, and I think we should We should recognize 268 00:13:34,240 --> 00:13:36,440 Speaker 1: that about the first half, but at the same time, 269 00:13:36,920 --> 00:13:40,719 Speaker 1: we should recognize the momentum loss that we had at midyear. UM, 270 00:13:40,840 --> 00:13:43,520 Speaker 1: we're gonna probably print a second negative consumption number in 271 00:13:43,520 --> 00:13:45,880 Speaker 1: a row this week for June. As you've noted the 272 00:13:45,920 --> 00:13:49,000 Speaker 1: survey data for July, the flash p M I s 273 00:13:49,040 --> 00:13:51,720 Speaker 1: were ugly. We're not just seeing that in the US, 274 00:13:51,800 --> 00:13:55,160 Speaker 1: We're seeing it elsewhere and claims arising. So what feels 275 00:13:55,200 --> 00:13:58,040 Speaker 1: like a technical event as we moved through the first 276 00:13:58,080 --> 00:14:00,679 Speaker 1: half of the year could easily turn into a real 277 00:14:00,760 --> 00:14:03,240 Speaker 1: recession event as we go through the next couple of months. 278 00:14:03,320 --> 00:14:07,520 Speaker 1: In your spreadsheet, you've got a one off on exports 279 00:14:07,760 --> 00:14:13,640 Speaker 1: this quarter. Is it export growth to the rescue? UM, 280 00:14:13,679 --> 00:14:17,000 Speaker 1: There is some support there, particularly as we see China 281 00:14:17,120 --> 00:14:20,280 Speaker 1: and Asia lifting after what was a big second quarter 282 00:14:20,360 --> 00:14:22,960 Speaker 1: set of lockdowns, but with the dollar rising and with 283 00:14:23,080 --> 00:14:26,560 Speaker 1: Europe very much in the crosshairs of a recession right now, 284 00:14:26,640 --> 00:14:30,080 Speaker 1: I would not be counting on on exports saving US here. 285 00:14:30,120 --> 00:14:32,280 Speaker 1: I think the saving grace has to be the business 286 00:14:32,280 --> 00:14:35,160 Speaker 1: sector bending, not breaking in the face of the drags 287 00:14:35,160 --> 00:14:38,040 Speaker 1: that we're seeing. Also inflation coming off in the summer, 288 00:14:38,240 --> 00:14:41,240 Speaker 1: with gasoline prices starting to move lower. Bruce, I'm looking 289 00:14:41,280 --> 00:14:43,120 Speaker 1: at certain data pauns. You're looking at the same ones. 290 00:14:43,160 --> 00:14:45,320 Speaker 1: Claims a higher the last few weeks. The p m 291 00:14:45,320 --> 00:14:47,760 Speaker 1: I last week was really bad. We're starting to see 292 00:14:47,760 --> 00:14:50,120 Speaker 1: this show up in housing, Bruce. I'm trying to work 293 00:14:50,120 --> 00:14:53,080 Speaker 1: out which part of this is desirable, the intended consequence 294 00:14:53,080 --> 00:14:54,920 Speaker 1: of what the central bank is trying to do, and 295 00:14:55,000 --> 00:15:01,240 Speaker 1: which part of it is undesirable. Well, I don't the 296 00:15:01,280 --> 00:15:05,360 Speaker 1: movement towards softer growth is undesirable on the part of 297 00:15:05,400 --> 00:15:07,480 Speaker 1: the Fed. That's what they want. They want to slow 298 00:15:07,600 --> 00:15:10,960 Speaker 1: the economy, they want to take out the demand component 299 00:15:11,040 --> 00:15:13,720 Speaker 1: of inflation, and then they're hoping that that, with the 300 00:15:13,760 --> 00:15:15,920 Speaker 1: moderation of some of the drags, gets you back to 301 00:15:16,040 --> 00:15:19,240 Speaker 1: something more acceptable. However, and I think this is really 302 00:15:19,240 --> 00:15:22,520 Speaker 1: what's behind your question. The momentum loss. There the idea 303 00:15:22,600 --> 00:15:25,640 Speaker 1: that layoffs are starting to rise, that's starting to push 304 00:15:25,680 --> 00:15:30,000 Speaker 1: together a dynamic which traditionally has been recession and recessions. 305 00:15:30,000 --> 00:15:33,160 Speaker 1: We should understand in US context is a breaking, it's 306 00:15:33,200 --> 00:15:35,960 Speaker 1: a move up and unemployment rates of two percent or more. 307 00:15:36,480 --> 00:15:38,880 Speaker 1: That's the risk here is that we're letting something take 308 00:15:38,920 --> 00:15:41,480 Speaker 1: hold here that's going to give us a much sharper 309 00:15:41,520 --> 00:15:44,640 Speaker 1: move than anything like what you might characterize the first 310 00:15:44,640 --> 00:15:48,040 Speaker 1: half of the year is looking like. Embedded in John's question, Bruce, 311 00:15:48,320 --> 00:15:50,600 Speaker 1: is the fight that is articulated in the article on 312 00:15:50,640 --> 00:15:54,600 Speaker 1: Bloomberg the houses of Morgan divided Morgan Stanley disagreeing with 313 00:15:54,680 --> 00:15:57,080 Speaker 1: your own JP Morgan. And when the FED is going 314 00:15:57,120 --> 00:16:00,600 Speaker 1: to reverse course, pause and then start cutting rate after 315 00:16:00,720 --> 00:16:03,600 Speaker 1: raising rates? At what point is the softening that we're 316 00:16:03,600 --> 00:16:07,080 Speaker 1: seeing in data now reflection of a FED that will 317 00:16:07,120 --> 00:16:11,920 Speaker 1: be able to backtrack as soon as next year. Well, 318 00:16:11,960 --> 00:16:15,440 Speaker 1: I actually think that's far sooner than next year. Uh, 319 00:16:15,800 --> 00:16:18,880 Speaker 1: we're looking for seventy five basis points this week. We're 320 00:16:18,880 --> 00:16:21,240 Speaker 1: looking for more open ended guidance. I don't think they're 321 00:16:21,240 --> 00:16:23,120 Speaker 1: going to commit to a size of a move at 322 00:16:23,160 --> 00:16:26,800 Speaker 1: the September meeting. September is a tough call. I think 323 00:16:26,840 --> 00:16:30,240 Speaker 1: we probably still do get a fifty at the September meeting. 324 00:16:30,520 --> 00:16:33,640 Speaker 1: But beyond that, if we're seeing the economy really soften, 325 00:16:34,000 --> 00:16:36,960 Speaker 1: job growth slow towards zero, I don't think the FED 326 00:16:37,040 --> 00:16:38,760 Speaker 1: is going to continue to be tightening here at an 327 00:16:38,760 --> 00:16:41,840 Speaker 1: aggressive pace. We've got them pausing at about three fifty. 328 00:16:41,920 --> 00:16:44,120 Speaker 1: We don't have them easing at this point because we 329 00:16:44,120 --> 00:16:48,040 Speaker 1: don't have a real recession call in our forecast um. 330 00:16:48,080 --> 00:16:50,120 Speaker 1: But I think it's about the economy. If the economy 331 00:16:50,200 --> 00:16:53,200 Speaker 1: starts to slow, given that the FED gets rates into 332 00:16:53,200 --> 00:16:56,920 Speaker 1: a modestly neutral stance, the the equation changes at the FED. 333 00:16:56,920 --> 00:17:00,160 Speaker 1: It's not there today with a level of ray. It's 334 00:17:00,160 --> 00:17:03,920 Speaker 1: an economy that's still generating over four jobs a month, 335 00:17:04,240 --> 00:17:05,960 Speaker 1: but it will be there in three or four months 336 00:17:05,960 --> 00:17:08,600 Speaker 1: if we're right, Bruce. What's enough to cause the FED 337 00:17:08,840 --> 00:17:11,200 Speaker 1: to take a step back? I mean, there's an unemployment 338 00:17:11,280 --> 00:17:13,520 Speaker 1: rate at four and a half percent, is it inflation 339 00:17:13,600 --> 00:17:16,760 Speaker 1: coming down to five from nine point one percent? How 340 00:17:16,800 --> 00:17:19,080 Speaker 1: far do we have to see progress? And I put 341 00:17:19,080 --> 00:17:21,960 Speaker 1: this in quotes when it comes to the deterioration in 342 00:17:22,040 --> 00:17:25,160 Speaker 1: momentum does the FED have to see before perhaps taking 343 00:17:25,160 --> 00:17:29,679 Speaker 1: a break? I think the short answer to that is 344 00:17:29,720 --> 00:17:33,480 Speaker 1: the FED needs to have a policy stance of trajectory 345 00:17:33,520 --> 00:17:37,360 Speaker 1: on inflation and dynamics on growth. That gives them comfort 346 00:17:37,400 --> 00:17:39,520 Speaker 1: that in a year two year and a half time 347 00:17:39,840 --> 00:17:44,400 Speaker 1: inflation is going to be below three perils and the 348 00:17:44,480 --> 00:17:46,879 Speaker 1: job growth we're seeing now is not there. Three or 349 00:17:46,920 --> 00:17:48,760 Speaker 1: four months from now, I payil growth is down to 350 00:17:48,840 --> 00:17:51,560 Speaker 1: a hundred thousand, and the run rate on inflation with 351 00:17:51,680 --> 00:17:55,080 Speaker 1: energy prices off is moving more into the point three 352 00:17:55,200 --> 00:17:59,000 Speaker 1: percent per monthly base. Um, we think you could you 353 00:17:59,000 --> 00:18:02,040 Speaker 1: could easily be in that in that zone. First year 354 00:18:02,160 --> 00:18:06,639 Speaker 1: update please on emerging markets, the currencies give way, I 355 00:18:06,640 --> 00:18:10,880 Speaker 1: am told conversation after conversation, this time is different. All 356 00:18:10,880 --> 00:18:16,120 Speaker 1: my radars up. Well. I think the currencies give way 357 00:18:16,480 --> 00:18:19,240 Speaker 1: creates more risk here, especially since we're not going to 358 00:18:19,280 --> 00:18:22,720 Speaker 1: see the relief on central bank policy. I think where 359 00:18:22,760 --> 00:18:25,240 Speaker 1: this time is different as in the larger e M economies. 360 00:18:25,280 --> 00:18:27,680 Speaker 1: And there is a certainly a significant problem in low 361 00:18:27,720 --> 00:18:32,160 Speaker 1: income economies facing problems with food security and debt dynamics. 362 00:18:32,160 --> 00:18:34,760 Speaker 1: But in the larger e M economies, you just don't 363 00:18:34,800 --> 00:18:37,920 Speaker 1: have the debt overhangs, you don't have the current account imbalances, 364 00:18:38,160 --> 00:18:40,720 Speaker 1: and you have policy makers that have been willing to 365 00:18:40,840 --> 00:18:44,800 Speaker 1: continue to use fiscal policy so growth is slowing. E 366 00:18:44,960 --> 00:18:47,159 Speaker 1: M is certainly a threat if the US and Europe 367 00:18:47,160 --> 00:18:48,960 Speaker 1: go into a sssion, and we shouldn't lose site of 368 00:18:49,040 --> 00:18:52,000 Speaker 1: the European recession story. But we don't think there's a 369 00:18:52,040 --> 00:18:56,320 Speaker 1: systemic magnifying effect through credit, which is often the case 370 00:18:56,920 --> 00:18:58,960 Speaker 1: when you see some of these dynamics take place in 371 00:18:59,000 --> 00:19:01,400 Speaker 1: the M and pretty swam risk the leverage right now? 372 00:19:01,400 --> 00:19:03,639 Speaker 1: Can we finish that because whenever we talk about this 373 00:19:03,680 --> 00:19:06,840 Speaker 1: recession story, you've acknowledged the risk in America, you've acknowledged 374 00:19:06,840 --> 00:19:08,960 Speaker 1: the risk in Europe in AM Yet we keep hearing 375 00:19:09,000 --> 00:19:11,719 Speaker 1: the same thing that consumer advantage seats a strong, corporate 376 00:19:11,720 --> 00:19:13,960 Speaker 1: Bannagh sheets are strong. Why do you think the leverage 377 00:19:14,000 --> 00:19:18,280 Speaker 1: is going to show up? Well, that's the interesting question 378 00:19:18,359 --> 00:19:20,840 Speaker 1: is are we going to see the dynamic on growth 379 00:19:20,840 --> 00:19:24,240 Speaker 1: which still has a healthy private sector uh, you know 380 00:19:24,400 --> 00:19:27,240 Speaker 1: sort of cushion here? Is that going to get magnified 381 00:19:27,280 --> 00:19:30,840 Speaker 1: by credit? It certainly isn't happening yet, but there's certainly 382 00:19:30,880 --> 00:19:34,040 Speaker 1: signs of stress building. And you know, I think there's 383 00:19:34,080 --> 00:19:37,560 Speaker 1: always the underlying point here. When you're raising interest rates 384 00:19:37,560 --> 00:19:41,159 Speaker 1: and slowing growth, you can be surprised that where something 385 00:19:41,200 --> 00:19:44,040 Speaker 1: shows up that doesn't um you know, seem to be 386 00:19:44,119 --> 00:19:47,160 Speaker 1: a big story. I would worry about European banks here 387 00:19:47,200 --> 00:19:49,600 Speaker 1: in an environment in which we're seeing I think more 388 00:19:49,680 --> 00:19:52,159 Speaker 1: sharp slow down and growth than we're just getting the 389 00:19:52,200 --> 00:19:54,840 Speaker 1: ECB going. I would worry that some of the smaller 390 00:19:54,840 --> 00:19:59,040 Speaker 1: em economies show more tendency to spill over in ways 391 00:19:59,040 --> 00:20:01,760 Speaker 1: we're not expecting. From a geopolitical point of view and 392 00:20:01,840 --> 00:20:04,880 Speaker 1: from a credit market point of view, there are things there. 393 00:20:04,920 --> 00:20:08,080 Speaker 1: But I'll tell you for sure, I always am surprised 394 00:20:08,359 --> 00:20:10,360 Speaker 1: where these things show up. But I think we shouldn't 395 00:20:10,359 --> 00:20:12,720 Speaker 1: lose sight of the context that this is an environment 396 00:20:12,760 --> 00:20:16,040 Speaker 1: where that's a likely outcome also gonna catch. I'm gonna 397 00:20:16,040 --> 00:20:18,919 Speaker 1: get your views on a range of things. Bruce Castmanett 398 00:20:19,040 --> 00:20:28,399 Speaker 1: of j K. Mulkin. Stephen Englander is esteemed in foreign 399 00:20:28,400 --> 00:20:31,320 Speaker 1: exchange analysis. He has flat out the best cross rate 400 00:20:31,400 --> 00:20:35,720 Speaker 1: strategist in the world. He joins US now as standard charter. Steve, 401 00:20:36,000 --> 00:20:39,879 Speaker 1: your view is an outlier. We go to three point 402 00:20:40,000 --> 00:20:44,000 Speaker 1: zero percent and then we stay there for something like 403 00:20:44,160 --> 00:20:48,080 Speaker 1: five or even six quarters. If we get a Stephen 404 00:20:48,240 --> 00:20:53,119 Speaker 1: Englander outcome way below the gloom that's out there, what 405 00:20:53,240 --> 00:20:56,280 Speaker 1: does that do to the certitude, the belief and a 406 00:20:56,359 --> 00:21:01,720 Speaker 1: resilient and strong dollar, it's going to damage it. I 407 00:21:02,080 --> 00:21:06,280 Speaker 1: think that the market is waiting to see, um, you know, 408 00:21:06,359 --> 00:21:09,240 Speaker 1: clear signs of a recession. I mean their designs are 409 00:21:09,240 --> 00:21:13,000 Speaker 1: powerful but not definitive yet, and they're waiting to see 410 00:21:13,040 --> 00:21:15,680 Speaker 1: some sign that inflation is coming off. We think all 411 00:21:15,720 --> 00:21:19,520 Speaker 1: of that will begin to occur in UH to four 412 00:21:20,320 --> 00:21:22,639 Speaker 1: and um, you know, we think the Fed will call 413 00:21:22,680 --> 00:21:24,600 Speaker 1: it quits at that point. That the sort of saying, look, 414 00:21:24,600 --> 00:21:28,159 Speaker 1: we're going to wait and see, um where inflation goes 415 00:21:29,080 --> 00:21:31,719 Speaker 1: until you know, before we start we keep on hiking. 416 00:21:32,280 --> 00:21:36,240 Speaker 1: What size of big figure move does that mean for 417 00:21:36,280 --> 00:21:39,240 Speaker 1: the dollar? I mean, are you looking for five or 418 00:21:39,280 --> 00:21:42,920 Speaker 1: ten big figures of euro strength off of your three 419 00:21:42,960 --> 00:21:49,840 Speaker 1: point zero percent? And stay there? US call mostly but yes, 420 00:21:49,920 --> 00:21:55,399 Speaker 1: but mostly in three I think, um, there's still some 421 00:21:56,320 --> 00:21:59,680 Speaker 1: you know risks that um you know a that the 422 00:22:00,040 --> 00:22:03,399 Speaker 1: you know, profits stay weak or look weak, and that 423 00:22:03,520 --> 00:22:06,439 Speaker 1: the equities come off. We're still not sure what's going 424 00:22:06,480 --> 00:22:08,480 Speaker 1: to happen in China or what's going to happen in 425 00:22:08,520 --> 00:22:10,919 Speaker 1: Europe over the winter. So we think that's you know, 426 00:22:10,960 --> 00:22:13,040 Speaker 1: the risk on trade is going to be harder than 427 00:22:13,080 --> 00:22:17,840 Speaker 1: the market thinks over the last week. But three I 428 00:22:17,880 --> 00:22:21,000 Speaker 1: think will be a week dollar year, and five to 429 00:22:21,280 --> 00:22:27,119 Speaker 1: percent is perfectly reasonable. So five isn't necessarily ten obviously, 430 00:22:27,240 --> 00:22:29,359 Speaker 1: but this is a big differential when it comes to 431 00:22:29,600 --> 00:22:32,359 Speaker 1: how much some of risk assets can rally on the 432 00:22:32,359 --> 00:22:34,639 Speaker 1: heels of that. What will be the driver here? Is 433 00:22:34,680 --> 00:22:37,560 Speaker 1: it euro's strength or is it dollar weakness? More broadly, 434 00:22:37,880 --> 00:22:40,720 Speaker 1: in a phase of more optimistic sentiment and risk assets, 435 00:22:42,560 --> 00:22:44,720 Speaker 1: I'd say it's the second. I think the key thing 436 00:22:44,800 --> 00:22:47,440 Speaker 1: is to get some evidence that inflation is is coming 437 00:22:47,480 --> 00:22:52,360 Speaker 1: down and notwithstanding some of the pessimism. UM, what we've 438 00:22:52,400 --> 00:22:55,200 Speaker 1: seen is that wages are lagging, so there's no sort 439 00:22:55,240 --> 00:22:58,560 Speaker 1: of red hot labor market pushing up inflation. Real wages 440 00:22:58,600 --> 00:23:02,159 Speaker 1: are are falling like a rock. Um, we're likely to 441 00:23:02,240 --> 00:23:07,719 Speaker 1: see uh, some of the you know, demand destruction leading 442 00:23:07,760 --> 00:23:11,320 Speaker 1: to price falls and energy prices. We're ready seeing that 443 00:23:11,440 --> 00:23:15,800 Speaker 1: even in things like cars and some other goods. UM. 444 00:23:15,920 --> 00:23:18,080 Speaker 1: I don't know that this this inflation is going to 445 00:23:18,119 --> 00:23:20,600 Speaker 1: be permanent, but I think the the outlook over the 446 00:23:20,640 --> 00:23:23,720 Speaker 1: next year is actually pretty good, and I think that 447 00:23:23,800 --> 00:23:26,399 Speaker 1: west the market sees that. UM, it's a risk on 448 00:23:26,520 --> 00:23:31,280 Speaker 1: market you know, both hands. Steve is incredibly lonely. I mean, 449 00:23:31,480 --> 00:23:33,359 Speaker 1: you know, everybody's out of three and a half percent, 450 00:23:33,359 --> 00:23:36,600 Speaker 1: and John helped me here, we're out of four. It's 451 00:23:36,640 --> 00:23:41,639 Speaker 1: city group, you mean, some of it's a huge, huge differential, folks. 452 00:23:41,640 --> 00:23:45,159 Speaker 1: I really can't say enough about it. What what do 453 00:23:45,200 --> 00:23:47,560 Speaker 1: you say to people that are convinced they're just gonna 454 00:23:47,640 --> 00:23:50,040 Speaker 1: keep going and going and going. What will be the 455 00:23:50,160 --> 00:23:55,480 Speaker 1: damage to their portfolios? Steve? Well, look, I think a 456 00:23:55,640 --> 00:23:58,919 Speaker 1: very famous economists once everybody's got a plan until they 457 00:23:58,920 --> 00:24:03,280 Speaker 1: get punched in the face. And right now, um, you know, 458 00:24:03,320 --> 00:24:05,880 Speaker 1: we we haven't seen the downside on the economy. Labor 459 00:24:05,920 --> 00:24:08,320 Speaker 1: market numbers. Look okay, you know there's there's you know, 460 00:24:08,880 --> 00:24:12,320 Speaker 1: no big unemployment. We we think that that pickup is coming, 461 00:24:13,520 --> 00:24:16,560 Speaker 1: and when it comes, the pressures on the FED are 462 00:24:16,560 --> 00:24:18,760 Speaker 1: going to be different, and and the FED itself. It's 463 00:24:18,760 --> 00:24:21,240 Speaker 1: not even you know, sort of responding to a shift 464 00:24:21,240 --> 00:24:24,879 Speaker 1: in the political climate. It's the idea that if the 465 00:24:24,960 --> 00:24:27,440 Speaker 1: unemployment rate is going up, it means that demand is 466 00:24:27,480 --> 00:24:31,239 Speaker 1: below supply, and every model they have tells them that 467 00:24:31,240 --> 00:24:33,760 Speaker 1: that means inflation comes down. It's it could come down 468 00:24:33,800 --> 00:24:36,040 Speaker 1: a little bit quicker, come down a little bit slower, 469 00:24:36,640 --> 00:24:38,800 Speaker 1: but it means that they've sort of got themselves on 470 00:24:38,840 --> 00:24:41,879 Speaker 1: the track that they want to be. Having gotten on 471 00:24:41,920 --> 00:24:45,359 Speaker 1: that track, you know, why keep pushing it? Since the 472 00:24:45,400 --> 00:24:49,080 Speaker 1: big uncertainty, if you're at the central bank, is not 473 00:24:49,400 --> 00:24:51,720 Speaker 1: what the neutral rate of interest is, because they don't 474 00:24:51,760 --> 00:24:54,439 Speaker 1: have a clue, and and nobody's got a clue. The 475 00:24:54,480 --> 00:24:58,840 Speaker 1: big uncertainty is how fast the economy is responding to 476 00:24:59,840 --> 00:25:03,000 Speaker 1: h the tightening of monetary conditions, and how fast inflation 477 00:25:03,040 --> 00:25:05,000 Speaker 1: is going to respond to that. And only time will 478 00:25:05,000 --> 00:25:07,000 Speaker 1: give us that answer because we don't have any good 479 00:25:07,000 --> 00:25:09,800 Speaker 1: models for that. Stephen, given with the last point that 480 00:25:09,840 --> 00:25:11,520 Speaker 1: you made that we don't have any good models for this, 481 00:25:11,640 --> 00:25:14,760 Speaker 1: can you give us a sense in your history strategizing 482 00:25:14,800 --> 00:25:18,480 Speaker 1: about markets how uncertain this scenario is, how much of 483 00:25:18,520 --> 00:25:20,960 Speaker 1: a lack of a conviction you have over a dollar 484 00:25:21,040 --> 00:25:23,120 Speaker 1: call at a time when the dollar has really been 485 00:25:23,600 --> 00:25:26,960 Speaker 1: one of the most difficult calls to get right. Well, 486 00:25:27,000 --> 00:25:29,560 Speaker 1: it certainly it's been difficult to get right, but right 487 00:25:29,560 --> 00:25:33,600 Speaker 1: now everybody's got dollars, and you know, markets very long. 488 00:25:33,640 --> 00:25:36,159 Speaker 1: I can't think of a currency that's long versus the 489 00:25:36,280 --> 00:25:40,399 Speaker 1: usd at this stage. And I think that the you know, 490 00:25:40,440 --> 00:25:44,119 Speaker 1: what you're seeing is not evidence that the U. S. 491 00:25:44,160 --> 00:25:46,840 Speaker 1: Economy is better than in some ways than everybody else. 492 00:25:46,880 --> 00:25:50,600 Speaker 1: What you're seeing is indications that, um, the world is 493 00:25:50,640 --> 00:25:52,800 Speaker 1: such a scary place that the only you know, the 494 00:25:52,840 --> 00:25:56,520 Speaker 1: only currency asset you want to hold is dollars. I 495 00:25:56,560 --> 00:26:00,840 Speaker 1: think once those fears received, the dollar is very vulnerable. 496 00:26:01,040 --> 00:26:04,040 Speaker 1: And and you know, again it's a three story. At 497 00:26:04,040 --> 00:26:06,800 Speaker 1: one point we thought this might be a story before 498 00:26:06,800 --> 00:26:09,920 Speaker 1: the Russian invasion. It wasn't the case. But I think 499 00:26:09,920 --> 00:26:13,159 Speaker 1: you have to see continued, like you know, a terrible 500 00:26:13,200 --> 00:26:17,159 Speaker 1: world continuing for dollar strength. Um, you know, to to 501 00:26:17,240 --> 00:26:19,600 Speaker 1: keep going in the way it has them. Stave awsome, 502 00:26:19,600 --> 00:26:22,120 Speaker 1: gonna get ave you on things as things evolve over 503 00:26:22,160 --> 00:26:23,840 Speaker 1: at the same as standard chat as stay congling too. 504 00:26:23,920 --> 00:26:27,920 Speaker 1: That This is the Bloomberg Surveillance Podcast. Thanks for listening. 505 00:26:28,280 --> 00:26:31,600 Speaker 1: Join us live weekdays from seven to ten am Eastern 506 00:26:31,840 --> 00:26:35,880 Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from 507 00:26:35,960 --> 00:26:41,200 Speaker 1: six to nine am for insight from the best in economics, finance, investment, 508 00:26:41,359 --> 00:26:46,359 Speaker 1: and international relations. And subscribe to the Surveillance Podcast on 509 00:26:46,480 --> 00:26:50,280 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 510 00:26:50,400 --> 00:27:00,280 Speaker 1: the terminal, I'm Tom Keene and this is Bloomberg two.