WEBVTT - Repricing Risk Assets in a Higher Rate Environment 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.560 the Bloomberg Terminal, and the Bloomberg Business App. Right now, 0:00:30.560 --> 0:00:33.279 we're going to begin here benis Grant and Lisa Bramitz 0:00:33.280 --> 0:00:35.560 and Tom kan with our definitive call in the day 0:00:35.600 --> 0:00:39.559 on global fixed income. Way lead as global chief investment 0:00:39.600 --> 0:00:43.880 strategists at Blackrock, prodigious in mathematics and joins us here 0:00:44.000 --> 0:00:48.800 on our fears of price down and yield up. Walley, 0:00:48.920 --> 0:00:52.479 thank you so much for finding the time. Where is 0:00:52.560 --> 0:00:56.920 the bid on bonds? To me, the bid is walked away? 0:00:57.480 --> 0:01:00.360 Is that true? Is there just a dearth of bid 0:01:00.480 --> 0:01:02.000 across all of fixed income? 0:01:03.640 --> 0:01:07.360 There are lots of moving parts right now. Good morning everyone. 0:01:08.040 --> 0:01:11.760 In terms of our review on long bonds long duration, 0:01:12.360 --> 0:01:17.039 we have been underweight US long duration for three years now. 0:01:17.120 --> 0:01:20.559 Since late twenty twenty one, ten year yields was below 0:01:20.640 --> 0:01:24.880 one percent, and last week we closed the underweight to 0:01:25.040 --> 0:01:28.120 get to neutral. There are a couple of moving parts 0:01:28.120 --> 0:01:32.080 in terms of why rates have reprised so very meaningfully. 0:01:32.200 --> 0:01:36.319 The first piece is policy path repricing, and a second 0:01:36.360 --> 0:01:40.679 piece is term premier repricing, and within that, inflation premier 0:01:40.840 --> 0:01:43.800 is part of tim premier. So where we are now 0:01:43.840 --> 0:01:48.080 with ten year yields testing five percent in our assessment, 0:01:48.280 --> 0:01:51.880 policy path is not that different from where we think 0:01:52.080 --> 0:01:55.680 it should be. But term premier, depending on which measure 0:01:55.800 --> 0:01:59.120 you use, we're looking at somewhere between twenty based point 0:01:59.240 --> 0:02:04.680 forty basis in different methodology actually could push even higher 0:02:04.800 --> 0:02:08.080 over the strategic horizon. So we're talking about term premier 0:02:08.120 --> 0:02:11.440 over the strategic horizon at one hundred basis point, not 0:02:11.639 --> 0:02:14.760 out of this world because of fiscal imbalance, because of 0:02:14.880 --> 0:02:19.600 insurance dynamics, because of higher rate environment, rate volatility, as 0:02:19.600 --> 0:02:23.360 well as because of higher inflationary environment. So when you 0:02:23.400 --> 0:02:27.200 bring all of that together, strategically we're still underweight, but 0:02:27.280 --> 0:02:32.760 technically we're not neutral because risks have now become more balanced. 0:02:32.919 --> 0:02:34.520 And when we think about kind of the reader cross 0:02:34.560 --> 0:02:40.240 of weight repricing to risk assets, actually policy path repricing 0:02:40.280 --> 0:02:43.639 can be negative for equities because it impacts the discount 0:02:43.720 --> 0:02:47.880 rates directly, but time premier repricing doesn't have to be 0:02:47.960 --> 0:02:52.600 negative for equities because it's more an assessment of the 0:02:52.639 --> 0:02:56.040 relative appeal of duration in portfolios. 0:02:56.320 --> 0:02:58.239 Do you think way, I know that you've been leaning 0:02:58.280 --> 0:03:01.280 into the whole AI discussion and the whole AI thesis, 0:03:01.280 --> 0:03:03.840 and that's been driving some of your equity bets. Do 0:03:03.880 --> 0:03:07.760 you think that that area is completely immune to term 0:03:07.840 --> 0:03:11.040 premium in these discussions of yields, given the cash cows 0:03:11.040 --> 0:03:11.720 that they've become. 0:03:13.280 --> 0:03:16.400 Well, what has been very interesting with regards to this 0:03:16.600 --> 0:03:19.560 mega tech and AI theme is that on the one hand, 0:03:19.639 --> 0:03:24.000 they benefit from the growth upgrade earnings upgrates that we're 0:03:24.040 --> 0:03:26.880 seeing coming through. So, for example, next year ten percent 0:03:27.120 --> 0:03:30.480 EPs podcasts for S and B five hundred, half of 0:03:30.520 --> 0:03:33.720 that is driven by mega tech names, right, five percent 0:03:34.400 --> 0:03:37.200 is coming from the tech names. So they're definitely benefiting 0:03:37.240 --> 0:03:40.520 from earning's upgrades, which we appay a lot of attention to. 0:03:40.800 --> 0:03:43.800 But at the same time, they are more long duration 0:03:44.320 --> 0:03:49.400 compared with the broader equity market, so when the rate reprices, 0:03:49.720 --> 0:03:53.119 it pressures down on long duration a little bit more. 0:03:53.280 --> 0:03:55.680 Everything else be equal. But when you bring the two 0:03:55.760 --> 0:03:59.960 factors together, actually the growth prospect and the AI theme 0:04:00.200 --> 0:04:05.600 gathering momentum and the earnings upgrades actually trunk the duration sensitivity, 0:04:05.800 --> 0:04:07.720 as we have seen so far earlier in the year, 0:04:07.760 --> 0:04:11.120 but also in recent periods of reprising. Actually the AI 0:04:11.240 --> 0:04:13.800 theme the nastac have been holding up better than you 0:04:13.840 --> 0:04:16.760 would have accepted given the rate folatility. 0:04:17.480 --> 0:04:18.279 Well, good morning. 0:04:18.760 --> 0:04:20.480 Just to carry on from that, this week they're going 0:04:20.520 --> 0:04:23.200 to see sixteen trillion dollars worth of equity reports and 0:04:23.200 --> 0:04:25.440 the magnificent part of the magnificent seven of tech are 0:04:25.480 --> 0:04:28.440 going to be in there. What Tom, Lisa and myself 0:04:29.200 --> 0:04:33.200 what we're talking about was the balance sheets, the cash 0:04:33.200 --> 0:04:35.520 on the balance sheets, the cash on Apples balance sheet, 0:04:35.600 --> 0:04:37.799 the cash on the other big tech. Is that another 0:04:37.839 --> 0:04:41.600 defensive hallmark and a reason to endure and stay long 0:04:41.720 --> 0:04:42.240 big tech. 0:04:43.960 --> 0:04:47.040 That is why we are still overweight to the big 0:04:47.080 --> 0:04:50.160 tech and AI theme, because when we think about kind 0:04:50.200 --> 0:04:55.040 of quality characteristics as growth slows down reacts to the 0:04:55.120 --> 0:04:58.880 tightening environment that we're all experiencing, actually having cash on 0:04:58.920 --> 0:05:02.080 your balance sheet and not being as geared up in 0:05:02.160 --> 0:05:05.920 this environment is a definite is a definite plus and 0:05:06.000 --> 0:05:09.080 more broadly, we're talking about kind of the impression of 0:05:09.120 --> 0:05:12.360 the earning season. The feeling is that it's holding up better, 0:05:12.440 --> 0:05:16.440 but actually not forget the broader backdrop, which is the earnings. 0:05:16.480 --> 0:05:19.560 Actually the three quarters have been stagnating, and we're just 0:05:19.600 --> 0:05:23.520 talking about incremental rebound from the stagnating maddrob So that's 0:05:23.520 --> 0:05:24.400 the big picture here. 0:05:24.760 --> 0:05:28.200 Well, Lawrence from New York emails in and says, ask 0:05:28.279 --> 0:05:32.320 way Lee, if an institutional for marks to market and 0:05:32.360 --> 0:05:35.520 everything else is on the balance sheet, and the rationalization 0:05:36.279 --> 0:05:38.320 is I can own it forever and I'll get paid 0:05:38.360 --> 0:05:41.640 back eventually. Blowny, how do you do the math and 0:05:41.680 --> 0:05:44.839 the midpoint of where the stuff you hold on the 0:05:44.880 --> 0:05:48.320 balance sheet gets a valuation. If I've got eight years 0:05:48.360 --> 0:05:51.880 of maturity, how close is it to where you get 0:05:51.920 --> 0:05:54.920 a tipping point where you've got to confront what's on 0:05:54.960 --> 0:05:55.880 the balance sheet. 0:05:57.400 --> 0:06:01.240 Well, first say hello to Lawrence, and so yes, indeed 0:06:01.360 --> 0:06:06.640 we have we have to see more repricing of risk 0:06:06.720 --> 0:06:11.240 assets reflecting the higher rate environment. We look at duration 0:06:11.440 --> 0:06:14.039 work kind of almost there, which is why tactically we 0:06:14.120 --> 0:06:18.080 turned neutral. But if you look at equities, it has 0:06:18.160 --> 0:06:22.200 yet to reflect the higher rate environment. By our bras 0:06:22.200 --> 0:06:25.240 and for kind of arithmetic, kind of braise and for 0:06:25.360 --> 0:06:29.839 back of the envelope analysis, you know, like further five 0:06:29.880 --> 0:06:34.440 percent to ten percent adjustment is not you know, unthinkable. 0:06:34.560 --> 0:06:36.560 And then you think about private markets, there is also 0:06:36.600 --> 0:06:41.159 further reprising to go, which is why greater dispersion, greater 0:06:41.279 --> 0:06:44.320 selectivity is really warranted as we think about kind of 0:06:44.400 --> 0:06:49.400 deploying your risk budget in this environment, because there is 0:06:49.920 --> 0:06:53.520 a different rate sensitivity across risk spectrum, which is why 0:06:53.560 --> 0:06:56.120 we're very selective when it comes to our these we're 0:06:56.160 --> 0:07:00.280 focusing on sceptor cell growing earnings, but also very selective 0:07:00.360 --> 0:07:03.240 in terms of the private market. We like private credit, 0:07:03.279 --> 0:07:07.359 we like infrastructure that all these parts and private markets 0:07:07.400 --> 0:07:09.320 that benefits sail. 0:07:09.120 --> 0:07:11.560 Wings on your full faith and credit there way, Lee, 0:07:11.680 --> 0:07:19.360 thank you so much of black Crack. Tom Stauris is 0:07:19.400 --> 0:07:22.640 with Strtigas is a bird company. He's had a fixed income, 0:07:22.640 --> 0:07:24.880 but he's got to bounce off the great Jason Trenner 0:07:25.000 --> 0:07:28.800 as well. And you floored me. Within an analysis, it's 0:07:28.840 --> 0:07:33.680 seventy percent of America our voters that are small business 0:07:33.800 --> 0:07:36.400 and they're in the churn, and they only make up 0:07:36.520 --> 0:07:40.040 five percent of the GDP has the Fed left them 0:07:40.120 --> 0:07:42.400 behind in this yield environment. 0:07:42.520 --> 0:07:44.560 Well, I would very much say so. The Fed, by 0:07:44.760 --> 0:07:47.720 overly relying on the Fed funds rate to titan, has 0:07:47.720 --> 0:07:50.840 put so much of that pain on main Street USA. 0:07:50.960 --> 0:07:53.560 It's almost as if we've decided there's too big defail. 0:07:54.240 --> 0:07:57.160 The earlier this year we decided there medium is too 0:07:57.160 --> 0:08:00.160 big to fail. Medium sized businesses still kind of val 0:08:00.320 --> 0:08:03.960 bank signature bank depositors there. So if that means that 0:08:04.000 --> 0:08:06.600 if there's large companies are too big to fail, medium 0:08:06.600 --> 0:08:08.720 sized companies are too big to fail. The only place 0:08:08.760 --> 0:08:11.040 you can actually tighten in the US economy these days 0:08:11.240 --> 0:08:13.960 is small businesses and households, and the FED has done 0:08:14.000 --> 0:08:16.760 exactly that by overly relying on the FED funds rate. 0:08:16.840 --> 0:08:19.520 With that said, balance sheet reduction is catching up with 0:08:19.560 --> 0:08:21.880 the bond market. Now we're seeing treasury yields rise in 0:08:21.920 --> 0:08:22.880 the belly of the curve. 0:08:22.960 --> 0:08:24.600 Okay, and we'll get there on one sec which is 0:08:24.600 --> 0:08:26.720 a technical underpinnings of why we're seeing a sell off. 0:08:26.720 --> 0:08:29.000 But to stick on the point that Tom was talking about, 0:08:29.280 --> 0:08:32.080 if you have such a swath of the voter base 0:08:32.400 --> 0:08:34.880 that is feeling this kind of pain, and if you 0:08:34.960 --> 0:08:37.680 have small businesses that account for a significant proportion of 0:08:37.720 --> 0:08:41.400 the jobs losing momentum. When does that start to trickle 0:08:41.440 --> 0:08:43.600 into a higher unemployment rate, When does it start to 0:08:43.640 --> 0:08:47.000 reinforce and then actually bring rates down because of slower growth. 0:08:47.080 --> 0:08:49.240 Well, we were already at that point in March of 0:08:49.240 --> 0:08:51.720 this year. We were forty eight hours from recession, which 0:08:51.720 --> 0:08:54.599 would have been very deep, and then we had financial 0:08:54.760 --> 0:08:58.920 stabilization via liquidity injections. So when does it begin to 0:08:58.960 --> 0:09:03.760 bite again, Probably sometime between Christmas and we'll say Valentine's Day, 0:09:03.800 --> 0:09:08.160 when the consumer gets those late twenty twenty three credit 0:09:08.200 --> 0:09:10.640 card bills in January and you start to see a pullback. 0:09:10.800 --> 0:09:13.520 I don't see any sort of slow down in consumption. 0:09:13.679 --> 0:09:15.680 We didn't see it in the data last week. So 0:09:15.720 --> 0:09:17.760 that suggests to us the labor market's going to continue 0:09:17.760 --> 0:09:19.600 to remain strong, at least until the end of the year. 0:09:19.720 --> 0:09:23.120 But at some point in time, those higher interest rates 0:09:23.160 --> 0:09:25.200 are going to bite all corners of the economy, not 0:09:25.240 --> 0:09:26.560 just small businesses and households. 0:09:26.600 --> 0:09:29.320 Are yields rising right now because of the perception of 0:09:29.360 --> 0:09:31.800 strength that is given by some of the bigger businesses 0:09:31.800 --> 0:09:33.079 that are much stronger, I. 0:09:33.040 --> 0:09:33.520 Don't think so. 0:09:33.559 --> 0:09:36.400 I think yields are rising because we're finally seeing supply 0:09:36.640 --> 0:09:39.560 come in and really scare those bond vigilantes. The bond 0:09:39.600 --> 0:09:42.440 vigilantes are back, and they're pushing the term premium up 0:09:42.480 --> 0:09:44.680 on all treasuries, not just the front end of the curve. 0:09:44.720 --> 0:09:46.440 Now, well, they've been on at leach, not just in 0:09:46.480 --> 0:09:49.600 the US treasury market, but also in UK gilds and 0:09:49.720 --> 0:09:51.679 on boons. What goes through my mind is that when 0:09:51.720 --> 0:09:54.080 you trigger through five percent and you see the curve 0:09:54.160 --> 0:09:58.640 moving so aggressively, do you think that we hit some 0:09:58.760 --> 0:10:01.400 kind of a point of where risk powergy trades begin 0:10:01.520 --> 0:10:05.760 to get smacked, or where var limits at various various 0:10:06.000 --> 0:10:08.920 trading houses get triggered. Do you think that we're going 0:10:09.000 --> 0:10:11.720 to go into that next evolution of where we see 0:10:11.760 --> 0:10:13.120 a real liquidation moment. 0:10:13.320 --> 0:10:16.720 That's a tough question because I think we've seen now 0:10:16.760 --> 0:10:19.240 this is really the third substantial rise in ten year 0:10:19.280 --> 0:10:21.600 treasury as we've seen over the last three years. Each 0:10:21.679 --> 0:10:24.680 time you've probably seen those var strategies take a turn 0:10:24.679 --> 0:10:28.079 of leverage off along the way. So the sensitivity today 0:10:28.240 --> 0:10:30.800 to a five percent is probably less than it was 0:10:30.880 --> 0:10:33.600 to a three percent two years ago because they've taken. 0:10:33.840 --> 0:10:35.880 From what we can see, there's been some leverage nets 0:10:35.880 --> 0:10:38.680 come off. With that said, there's always another break point. 0:10:38.960 --> 0:10:41.720 I don't know if it's five h two or five seventeen, 0:10:41.960 --> 0:10:43.720 or we might have already hit it at four ninety, 0:10:43.960 --> 0:10:46.040 but there's a break point here where you're going to 0:10:46.040 --> 0:10:49.000 see another round of leverage come off. And that's part 0:10:49.040 --> 0:10:51.400 of the reason why we're it's probably a multi step process, 0:10:51.400 --> 0:10:53.160 but that's probably one of the reasons why we're seeing 0:10:53.200 --> 0:10:55.880 the SMP off again as well, and credit spreads inching 0:10:55.920 --> 0:10:57.920 higher because I think we're getting close to that point again. 0:10:58.080 --> 0:10:59.720 So who steps in here? This is the debate that 0:10:59.720 --> 0:11:01.800 we three of us have had for the past two hours, 0:11:01.840 --> 0:11:05.839 which is duration heroes aren't to be seen. Yeash, you're 0:11:05.840 --> 0:11:09.760 trading above five percent. Insurance companies have a different accounting system. 0:11:09.840 --> 0:11:12.680 They don't need to come in and hedge themselves. Who 0:11:12.720 --> 0:11:16.040 steps into this bond market to comp yields? 0:11:16.080 --> 0:11:18.480 Well, there's a good and a bad to this. The 0:11:18.520 --> 0:11:20.600 good is there's need to mean the good. The good 0:11:20.640 --> 0:11:23.559 is an enormous amount of plain vanilla core fixed income 0:11:23.559 --> 0:11:26.960 strategies that will just love to keep buying and buying 0:11:27.000 --> 0:11:29.920 and buying treasuries. The bad news is those are price 0:11:30.040 --> 0:11:33.440 sensitive investors. They're not like the leveraged investorship past. So 0:11:33.480 --> 0:11:36.320 they're going to basically come in after there's a concession, 0:11:36.360 --> 0:11:39.760 so treasury supply comes in, yields tick a little higher, 0:11:39.840 --> 0:11:41.800 they come in and buy on the cheap. They're not 0:11:41.880 --> 0:11:44.080 going to be price and sensitive who will buy on 0:11:44.160 --> 0:11:44.680 any tip. 0:11:44.880 --> 0:11:46.920 You are a grizzled veteran of this. I'm going to 0:11:46.920 --> 0:11:48.959 give you two ideas. One that we talked to way 0:11:49.040 --> 0:11:51.320 Lee about at black Rock, which is the bid walks 0:11:51.320 --> 0:11:54.560 away all of a sudden, non priced folks, not yield 0:11:55.240 --> 0:11:58.960 price of bonds, the bid walks away. And the great 0:11:59.040 --> 0:12:02.680 Chris Whaling call this the Wayland's silence. You're out there, 0:12:02.720 --> 0:12:04.880 you're on your phone. This is the old days. Man 0:12:04.960 --> 0:12:07.400 is you buy tickets here, sell tickets here. You're on 0:12:07.440 --> 0:12:09.800 your phone and you're going, I got a gazillion dollars 0:12:10.200 --> 0:12:13.600 of the trender, you know what, And there's just silence. 0:12:13.679 --> 0:12:16.240 Nobody wants that piece of paper. Are we close to that? 0:12:16.720 --> 0:12:19.360 Well, some would say we've actually hit that people. There's 0:12:19.400 --> 0:12:21.480 a lot of fair about thirty year auction. There's a 0:12:21.520 --> 0:12:23.200 lot of fair about auctions on the front of the 0:12:23.240 --> 0:12:25.920 curve over the last few weeks, saying they were even 0:12:25.920 --> 0:12:26.800 having desks. 0:12:26.880 --> 0:12:29.320 Norway calls up and they go, I gotta sell a 0:12:29.440 --> 0:12:33.440 zillion years of that cranny of twenty forty two. Is 0:12:33.440 --> 0:12:34.960 there somebody there to buy this garbage? 0:12:35.160 --> 0:12:37.120 There is, but you're going to have to put in 0:12:37.160 --> 0:12:39.680 a price concession. That is, yields are going to have 0:12:39.720 --> 0:12:42.880 to push higher than what the market is trading at. 0:12:42.960 --> 0:12:45.080 And the treasury is now no longer immune to this. 0:12:45.240 --> 0:12:49.600 I said price concession, and the bramokamshook. I mean, at 0:12:49.600 --> 0:12:51.640 what point the reality. 0:12:51.320 --> 0:12:53.440 Just real quick here Tom, to sum it all together. 0:12:53.760 --> 0:12:56.719 Are you getting compensated for the uncertainty right now? Are 0:12:56.720 --> 0:12:58.120 you buying duration? 0:12:59.160 --> 0:12:59.880 Yes, we would be. 0:13:00.080 --> 0:13:02.720 I think you're being fairly compensated. Our own measure of 0:13:02.720 --> 0:13:04.760 the term premium on the ten year treasury it's above 0:13:04.800 --> 0:13:08.319 one hundred basis points. That's a very important level, not 0:13:08.360 --> 0:13:10.920 just symbolically, but what it's telling you is that you're 0:13:10.960 --> 0:13:15.679 getting normalized cushion for that uncertainty. This is where you 0:13:15.760 --> 0:13:18.280 normally would be. So we feel you're being compensated. Doesn't 0:13:18.320 --> 0:13:20.679 mean we can't see yields tick higher here but you're 0:13:20.720 --> 0:13:23.080 being compensated for the risk going forward. I believe at this. 0:13:23.080 --> 0:13:25.679 Point Asson from a cigar bar in East Side emails 0:13:25.720 --> 0:13:28.040 and it says, talk about me. Okay, let's talk about 0:13:28.120 --> 0:13:30.760 Jason Trunnan. How does this fold in? How does your 0:13:30.840 --> 0:13:34.520 fixed income analysis fold into Jason Trennan's calling this on 0:13:34.600 --> 0:13:35.760 the equity markets? 0:13:35.840 --> 0:13:38.280 Well, it makes us that much more bearish on the 0:13:38.320 --> 0:13:41.920 economy because we continue to see another source of stress 0:13:41.920 --> 0:13:44.800 for the consumer and now businesses picking up here. So 0:13:45.120 --> 0:13:47.920 what we're doing is we've delayed recession and we've said 0:13:47.960 --> 0:13:50.360 we're going to avoid recession at all costs in twenty 0:13:50.400 --> 0:13:53.440 twenty three. But that itself, there's cost to that, and 0:13:53.480 --> 0:13:55.600 the cost is going to be that the breaking point 0:13:55.760 --> 0:13:57.560 is going to be when yields are higher, which means 0:13:57.559 --> 0:14:00.360 there's more risk of financial credit events. 0:14:00.760 --> 0:14:01.600 Have you predicted that? 0:14:02.240 --> 0:14:03.839 Nothing that we can see right now, But by the 0:14:03.920 --> 0:14:05.760 nature of those types of events, they are places you 0:14:05.840 --> 0:14:10.240 can't see them. So at a five ten year treasury 0:14:10.240 --> 0:14:12.320 it's much more likely than it was when we were 0:14:12.360 --> 0:14:15.280 at three point fifty. So where it is lurking that 0:14:15.480 --> 0:14:18.640 leveraged investor who is caught off guard, we don't know. 0:14:18.960 --> 0:14:21.400 We don't see that happening at this moment, but it's 0:14:21.400 --> 0:14:23.120 on our horizon. 0:14:22.720 --> 0:14:25.640 Bottle at tom Soasaurus. There are statigas there and fixed 0:14:25.680 --> 0:14:40.880 income the effect across all of the American economy. Kathleen 0:14:40.920 --> 0:14:46.000 Bes johnsik joins us now Chief Economists Nationwide Mutual Insurance. Kathy, 0:14:46.120 --> 0:14:49.400 once again you have failed and everybody else with a 0:14:49.440 --> 0:14:53.000 bang up third quarter GDP modeled out at five percent. 0:14:53.840 --> 0:14:56.480 You're gonna tell me we can't sustain that? All my 0:14:56.680 --> 0:15:00.800 radars up. Why can't we sustain above average? That's real GDP? 0:15:02.400 --> 0:15:07.080 Good morning, Tom, Well, it is unsustainable, and the main 0:15:07.160 --> 0:15:10.920 reason is that we just don't have enough workers. Really, 0:15:10.920 --> 0:15:14.120 if you break down GDP growth, right, you look at 0:15:14.120 --> 0:15:16.880 the number of workers and how productive unless we're getting 0:15:16.880 --> 0:15:20.520 a real boom and productivity growth, really hard to sustain 0:15:20.640 --> 0:15:23.560 five percent growth. And what it also does in the meantime, 0:15:23.680 --> 0:15:26.640 as you know, is overheats the economy and makes it 0:15:26.680 --> 0:15:30.160 more difficult for the Fed Reserve to lower inflation, and 0:15:30.200 --> 0:15:33.200 that's their primary goal. So I think one way or 0:15:33.200 --> 0:15:36.880 the other said will lower inflation and continue to lower it. 0:15:37.600 --> 0:15:39.560 But that may you know, that means that five percent 0:15:39.640 --> 0:15:40.840 is not very sustainable. 0:15:41.400 --> 0:15:43.280 Where are you on that good morning, good to see you. 0:15:43.560 --> 0:15:46.360 Where are you on the outlook for wages is the 0:15:46.440 --> 0:15:51.240 heat and I suppose the fury of wage negotiation. Is 0:15:51.280 --> 0:15:53.600 that in the rear view mirror as you look into 0:15:53.600 --> 0:15:54.880 twenty twenty four? 0:15:56.560 --> 0:15:56.760 Yeah? 0:15:56.880 --> 0:16:00.760 Good, good question, manis So we'll keep and I on 0:16:01.200 --> 0:16:04.080 wage growth. But what we have seen, despite the numerous 0:16:04.120 --> 0:16:08.280 strikes that have popped up and concerns there, we've actually 0:16:08.280 --> 0:16:12.520 seen wage growth decelerate. It's come down from six to 0:16:12.600 --> 0:16:16.640 seven percent. It's still running too high for the FEDS comfort, right, 0:16:16.680 --> 0:16:18.920 it's running around four percent or so, a little bit 0:16:18.920 --> 0:16:22.000 above that. They'd really like to see that between three 0:16:22.080 --> 0:16:23.880 and three and a half, to be consisted with two 0:16:23.960 --> 0:16:27.920 percent inflation. But you know, going back to labor market 0:16:28.000 --> 0:16:30.400 is the key right now in terms of wage growth. 0:16:30.440 --> 0:16:34.080 But also how long this you know, strong growth continues. 0:16:34.160 --> 0:16:37.840 It's not ultimately sustainable. But do we see some meaningful 0:16:37.880 --> 0:16:40.680 slowdown in the fourth quarter. That's that's really what's important. 0:16:42.200 --> 0:16:45.320 Tom chasing me a little bit earlier on. There's a 0:16:45.360 --> 0:16:47.520 great phrase that I use of its grand. It depends 0:16:47.560 --> 0:16:49.640 how I say the word grand. Grand can mean many 0:16:49.640 --> 0:16:54.040 different things. I said, the US consumer is grand, and 0:16:54.320 --> 0:16:56.360 Tom rightly chasing me, he said, did you look at 0:16:56.360 --> 0:16:59.400 the delinquencies on subprime in the auto industry? Did you 0:16:59.440 --> 0:17:03.440 look perhaps the underbelly of what is going on? We're 0:17:03.480 --> 0:17:07.080 going to get retail sales, you know, they remain grand 0:17:07.600 --> 0:17:10.439 in inverted commas, but suddenly we're dealing with a shift 0:17:10.480 --> 0:17:14.080 in rates to above five percent. Would you describe the 0:17:14.080 --> 0:17:17.399 consumer as grand or high challenge? Does the consumer become 0:17:17.440 --> 0:17:21.640 in a world of world rates actually tightening tightening, tightening? 0:17:23.560 --> 0:17:23.840 Yeah? 0:17:23.920 --> 0:17:26.719 I think the way I would say it is the 0:17:26.760 --> 0:17:29.400 consumer looks to be grand, but there are a lot 0:17:29.400 --> 0:17:33.560 of headwinds hitting the consumer now. The tailwind has been 0:17:33.560 --> 0:17:36.240 the labor market very strong. Right, as long as the 0:17:36.359 --> 0:17:39.120 labor market is churning out the jobs, you know two 0:17:39.160 --> 0:17:41.919 hundred thousand, three hundred thousand, right, the consumer is going 0:17:41.960 --> 0:17:46.119 to keep spending. But you have still elevated inflation. You 0:17:46.280 --> 0:17:49.359 have a consumer loan payments, you know, kicking in and 0:17:49.400 --> 0:17:52.560 as you said, certain demographics are really challenged right now, 0:17:53.160 --> 0:17:55.879 and delinquencies picking up a little bit. So it's not 0:17:55.960 --> 0:17:58.440 a completely rosy picture here. But I would say say 0:17:58.520 --> 0:18:01.520 you got to follow the labor market. That is the key. 0:18:01.520 --> 0:18:03.600 So if I'm the FED, I'm going to follow the 0:18:03.680 --> 0:18:07.680 labor market. I'm data dependent, But I would suggest November 0:18:07.720 --> 0:18:11.639 one ish is upon us, and you know we're gonna 0:18:11.840 --> 0:18:14.240 sort of have a post Halloween party. I guess it's 0:18:14.240 --> 0:18:18.080 a non meeting December for Kathy bus johnsick. How key 0:18:18.119 --> 0:18:19.240 is the December meeting? 0:18:20.960 --> 0:18:24.720 Oh, it's important, you know, I think each meeting is 0:18:24.760 --> 0:18:26.800 important in the sense not what they do, but it's 0:18:27.000 --> 0:18:29.320 what Chairman pal guides is right, what do we hear 0:18:29.359 --> 0:18:33.320 in the press conference? But December, we'll get the revised forecast, right, 0:18:33.320 --> 0:18:36.520 We'll get the macro forecast and the doc lot estimate, 0:18:37.160 --> 0:18:39.240 even though those aren't you know, golden rule. 0:18:39.359 --> 0:18:39.560 Right. 0:18:39.640 --> 0:18:41.560 It doesn't mean that's exactly what the FED is going 0:18:41.600 --> 0:18:46.040 to do, right, but it's guidance. And you know, it'd 0:18:46.080 --> 0:18:48.600 be interesting to see. Our view is growth closed by 0:18:48.600 --> 0:18:50.520 more than half? Right in the fourth quarter, we see 0:18:50.520 --> 0:18:52.760 it running a bit above two percent. But I have 0:18:52.840 --> 0:18:54.920 to say that handoff. You know, men have talked about 0:18:54.960 --> 0:18:58.000 retail sales. The handoff consumer spending to the fourth quarter 0:18:58.160 --> 0:19:00.920 was a bit firmer than we thought. We really need 0:19:00.960 --> 0:19:02.960 to see consumer We need to see growth for the 0:19:02.960 --> 0:19:06.480 fedly feel comfortable below two percent. I mean Chairman Palell 0:19:06.560 --> 0:19:09.480 told us he thinks more potential growth is two percent, right, 0:19:09.520 --> 0:19:11.760 so he wants it on a sub same basis. 0:19:11.920 --> 0:19:14.119 I mean, Kathy, you're with Nationwide. Do you have tickets 0:19:14.119 --> 0:19:17.560 to Michigan right around Thanksgiving? I mean it's at Michigan. 0:19:17.600 --> 0:19:19.919 I get that, But you're Kathy Bus Johnsick. Can you 0:19:19.920 --> 0:19:22.360 get us into one hundred thousand people at ann Arbor. 0:19:23.160 --> 0:19:26.360 Only if you're voting for Ohio state? It can only 0:19:26.400 --> 0:19:27.240 do that very good. 0:19:27.280 --> 0:19:34.840 We're from Columbus and Nationwide, Kathleen Bus Johnsick. Let's get 0:19:34.920 --> 0:19:38.040 right too. It's your definitive brief here on this transaction 0:19:38.240 --> 0:19:42.560 sixty billion of a total enterprise value. Emrita send expert 0:19:42.560 --> 0:19:46.000 at the micro foundations of the price of oil and 0:19:46.119 --> 0:19:52.040 also expert out of the geography of oil. Emrita. I 0:19:52.160 --> 0:19:54.320 was up to speed on this in a fake O way, 0:19:54.359 --> 0:19:59.639 and I'm getting up to speed quickly. Guyana twenty fifteen. 0:20:00.440 --> 0:20:03.639 Exxon finds more oil than God in the Gulf of 0:20:03.720 --> 0:20:07.760 Mexico off of South America. This is hess and this 0:20:07.840 --> 0:20:12.679 is a Guiana acquisition by mister Worth and Chevron explain 0:20:12.720 --> 0:20:16.960 to our audience the magnitude of the Guiana oil fields. 0:20:19.680 --> 0:20:22.560 I think it's a fantastic acquisition if you ask me, 0:20:22.640 --> 0:20:24.959 given the fact that Guyana is actually going to be 0:20:25.760 --> 0:20:30.760 the most prolific non OPEC supply growth in the coming years. Exon, 0:20:30.840 --> 0:20:33.960 like you said, already has footprint and as does hes 0:20:34.000 --> 0:20:38.040 so Chevron now through Hess gets exposure to that. You know, 0:20:38.080 --> 0:20:41.520 Guyana's production has been growing by two to three hundred 0:20:41.560 --> 0:20:46.040 thousand barrels per day. It's got several new fbsos planned 0:20:46.119 --> 0:20:50.520 in the coming years. We're talking about production reaching and 0:20:50.840 --> 0:20:53.639 breaching a million barrels for day and continuing to grow. 0:20:54.040 --> 0:20:56.600 So it is, like I said, the most promising non 0:20:56.640 --> 0:21:00.320 OPEC supply prospect. You know, we've had Brazil take that 0:21:00.680 --> 0:21:03.560 position for the last few years and that's now flipped 0:21:03.560 --> 0:21:08.000 to Guyana. So again, in that sense, a fantastic acquisition. 0:21:08.600 --> 0:21:11.919 What is the distinction of Guyana? And then I believe 0:21:11.960 --> 0:21:13.760 it is too. You're going to get my map out, manus, 0:21:13.760 --> 0:21:16.520 I'm going down in flames here. What is the distinction 0:21:16.640 --> 0:21:20.840 between Guyana and Venezuela on the southern side of the Caribbean. 0:21:23.320 --> 0:21:26.679 I mean, of course, there's political stability, for one, and 0:21:26.760 --> 0:21:29.320