1 00:00:05,120 --> 00:00:07,119 Speaker 1: This is the Bloomberg Surveillance Podcast. 2 00:00:07,160 --> 00:00:11,039 Speaker 2: I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 3 00:00:11,280 --> 00:00:15,760 Speaker 2: Join us each day for insight from the best and economics, geopolitics, 4 00:00:15,760 --> 00:00:20,720 Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 5 00:00:20,960 --> 00:00:25,400 Speaker 2: Spotify and anywhere you get your podcasts, and always on 6 00:00:25,520 --> 00:00:29,880 Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 7 00:00:30,200 --> 00:00:32,720 Speaker 3: Jan Hatzius and a team I've read Goldman still calling 8 00:00:32,760 --> 00:00:34,879 Speaker 3: for a pause at the next meeting, is saying this. 9 00:00:35,000 --> 00:00:38,000 Speaker 3: Here's the latest from them. The CPI report is supportive 10 00:00:38,200 --> 00:00:40,479 Speaker 3: of our call for reports at the June FMC meeting. 11 00:00:40,880 --> 00:00:45,360 Speaker 3: The shelter step down, Tom looks increasingly durable, information breadth 12 00:00:45,479 --> 00:00:48,000 Speaker 3: soft and somewhat further and the strength and news car 13 00:00:48,120 --> 00:00:50,440 Speaker 3: prices is likely temporary. 14 00:00:50,560 --> 00:00:52,239 Speaker 2: In just in the last forty eight hours, this has 15 00:00:52,360 --> 00:00:55,080 Speaker 2: changed because of the misguests on housing in the United Kingdom. 16 00:00:55,120 --> 00:00:57,080 Speaker 1: Completely different story, but it shows. 17 00:00:56,840 --> 00:00:59,760 Speaker 2: You how humility is an order. Here, what's a key point. 18 00:00:59,800 --> 00:01:03,200 Speaker 2: You have a humility at the moment, doctor Hatzias. You 19 00:01:03,240 --> 00:01:05,760 Speaker 2: look at the things you've made right, the things you've 20 00:01:05,760 --> 00:01:08,880 Speaker 2: made wrong. Into the first five months of twenty twenty three. 21 00:01:08,959 --> 00:01:11,720 Speaker 2: What's the humility you're writing about this weekend on inflation. 22 00:01:12,440 --> 00:01:17,480 Speaker 4: I would say mostly things have evolved the way we thought, 23 00:01:17,640 --> 00:01:19,479 Speaker 4: at least in the labor market. For me, the labor 24 00:01:19,520 --> 00:01:22,240 Speaker 4: market is really key, and the rebalancing that we're seeing 25 00:01:22,280 --> 00:01:26,760 Speaker 4: there I think is very encouraging with job openings coming 26 00:01:26,800 --> 00:01:29,160 Speaker 4: down and the unemployment rates still staying very low. So 27 00:01:29,160 --> 00:01:32,440 Speaker 4: it's a very benign form of rebalancing. In terms of 28 00:01:32,480 --> 00:01:37,399 Speaker 4: the tactics of FED policy, I would have thought a 29 00:01:37,720 --> 00:01:40,839 Speaker 4: pause in March would have made sense, and we thought 30 00:01:40,880 --> 00:01:48,640 Speaker 4: that was the likely outcome. But I think now a 31 00:01:48,640 --> 00:01:51,200 Speaker 4: lot of humility is in order as we go into 32 00:01:51,880 --> 00:01:54,840 Speaker 4: the next few months. There's obviously a lot of event risk, 33 00:01:55,400 --> 00:01:58,720 Speaker 4: but I would say were reasonably well set up in 34 00:01:58,800 --> 00:02:00,960 Speaker 4: terms of the disinflation process that's underway. 35 00:02:01,000 --> 00:02:02,360 Speaker 2: The part of gain that's out there that you have 36 00:02:02,440 --> 00:02:04,560 Speaker 2: to battle every day is on the X axis, and 37 00:02:04,600 --> 00:02:06,760 Speaker 2: to me, the markets are in short term they're looking 38 00:02:06,760 --> 00:02:10,400 Speaker 2: for drameda Labor day drama to October. Does Goldman Sachs 39 00:02:10,760 --> 00:02:14,320 Speaker 2: extend out the X axis? The healing out of the 40 00:02:14,320 --> 00:02:17,639 Speaker 2: pandemic is the things we're talking about for October twenty three. 41 00:02:18,000 --> 00:02:19,679 Speaker 2: Really the things we're going to be talking about in 42 00:02:19,760 --> 00:02:21,280 Speaker 2: June of twenty twenty four. 43 00:02:22,160 --> 00:02:24,680 Speaker 4: Well, I think by June of twenty twenty four, I 44 00:02:24,680 --> 00:02:28,400 Speaker 4: would have you know, our baseline has the rebalancing in 45 00:02:28,480 --> 00:02:31,839 Speaker 4: the in the labor market completed at that point, and 46 00:02:32,160 --> 00:02:38,760 Speaker 4: inflation down from right nulbu four and a half by 47 00:02:39,639 --> 00:02:42,359 Speaker 4: next year, I think will be below three percent. So 48 00:02:42,639 --> 00:02:43,960 Speaker 4: I do think we're going to be in a very 49 00:02:44,000 --> 00:02:47,519 Speaker 4: different place in terms of the funds rate, though I 50 00:02:47,560 --> 00:02:51,799 Speaker 4: would expect that will still be close to here in fact, 51 00:02:52,280 --> 00:02:55,000 Speaker 4: where we are right now. I mean, our baseline forecast 52 00:02:55,160 --> 00:02:57,720 Speaker 4: is that the funds rate stays at five to five 53 00:02:57,760 --> 00:03:00,880 Speaker 4: and a quarter for the next a year or so. 54 00:03:01,480 --> 00:03:04,560 Speaker 4: I'm you know, risks of that, certainly on the downside, 55 00:03:04,720 --> 00:03:06,680 Speaker 4: I think it's much more likely that you go from 56 00:03:06,800 --> 00:03:10,560 Speaker 4: five to three than that you go from five to seven. Okay, 57 00:03:10,680 --> 00:03:14,600 Speaker 4: but I do think the market is overly aggressive in 58 00:03:14,680 --> 00:03:15,760 Speaker 4: building in rate cuts. 59 00:03:15,840 --> 00:03:17,720 Speaker 3: Let's explore that a little bit further. This was a 60 00:03:17,800 --> 00:03:19,960 Speaker 3: question I got from a Bloomberg subscribe, but just moments ago, 61 00:03:19,960 --> 00:03:22,440 Speaker 3: as soon as they knew that you were appearing, they said, 62 00:03:22,480 --> 00:03:24,360 Speaker 3: if stock's running big over the summer because of the 63 00:03:24,400 --> 00:03:28,120 Speaker 3: FED pause, the economy holds up, the debtlimit issue is sorted. 64 00:03:28,840 --> 00:03:31,160 Speaker 3: What does the FED do in the fall. How would 65 00:03:31,160 --> 00:03:33,079 Speaker 3: you think about that just a piece of scenario analysis. 66 00:03:33,080 --> 00:03:33,880 Speaker 3: What would that mean for you? 67 00:03:33,960 --> 00:03:36,360 Speaker 4: Well, I mean directionally, it would point to, you know, 68 00:03:36,400 --> 00:03:39,640 Speaker 4: a higher funds rate. And obviously the market is below 69 00:03:40,400 --> 00:03:43,680 Speaker 4: the current level in terms of forward pricing, so you know, 70 00:03:44,040 --> 00:03:48,320 Speaker 4: holding would already be you know, would already have some 71 00:03:48,520 --> 00:03:51,120 Speaker 4: impact in terms of an impulse, but you might need 72 00:03:51,640 --> 00:03:55,080 Speaker 4: you know, additional hikes. That's certainly a possibility. I don't 73 00:03:55,120 --> 00:04:01,480 Speaker 4: think it's you know, particularly likely. If we see going adjustment, 74 00:04:01,760 --> 00:04:06,080 Speaker 4: if we see adjustment in inflation and the labor market, 75 00:04:06,240 --> 00:04:08,080 Speaker 4: then there's also going to be a little bit more 76 00:04:08,080 --> 00:04:12,400 Speaker 4: tolerance for easier financial conditions and stronger growth. But there's 77 00:04:12,400 --> 00:04:13,040 Speaker 4: a limit to it. 78 00:04:13,360 --> 00:04:16,200 Speaker 3: If forward pricing adjusts upwards towards the federal reserve? Would 79 00:04:16,200 --> 00:04:18,680 Speaker 3: you consider that a tightening of policy somewhat? 80 00:04:18,720 --> 00:04:18,839 Speaker 5: Is that? 81 00:04:18,839 --> 00:04:19,640 Speaker 3: How you think about it? 82 00:04:19,640 --> 00:04:21,960 Speaker 4: It depends on what is driven by it's if it's 83 00:04:22,040 --> 00:04:25,440 Speaker 4: driven by a stronger economy, then no. If it's driven 84 00:04:25,480 --> 00:04:29,640 Speaker 4: by you FED messaging that they're less willing to cut 85 00:04:30,279 --> 00:04:33,400 Speaker 4: you know, relative to the market's expectation, then I would 86 00:04:33,480 --> 00:04:34,360 Speaker 4: view it as a tightening. 87 00:04:34,600 --> 00:04:37,920 Speaker 6: People are waiting for something big to happen because they're impatient, 88 00:04:38,000 --> 00:04:40,520 Speaker 6: and they're looking for trading opportunity, And I'm curious, what 89 00:04:40,560 --> 00:04:42,680 Speaker 6: is the next shoot to drop? Is it housing prices crashing? 90 00:04:44,279 --> 00:04:47,640 Speaker 4: Well? Housing? I think, you know, we had declients in 91 00:04:47,680 --> 00:04:50,680 Speaker 4: house prices in the second half of last year. We 92 00:04:50,720 --> 00:04:55,400 Speaker 4: actually have seen some stabilization in twenty twenty three so far, 93 00:04:56,040 --> 00:05:00,720 Speaker 4: so I wouldn't really expect, barring another major shock, for example, 94 00:05:01,200 --> 00:05:04,240 Speaker 4: the sort of thing that John was talking about, significant 95 00:05:04,279 --> 00:05:07,320 Speaker 4: further upward pressure on the funds rate, I wouldn't really 96 00:05:07,400 --> 00:05:12,599 Speaker 4: expect a sharp, sharp drop in house prices from here. 97 00:05:13,120 --> 00:05:16,320 Speaker 4: You know, there's still some I think erosion happening. Some 98 00:05:16,440 --> 00:05:20,400 Speaker 4: of that is also because the official indices lagged behind 99 00:05:20,440 --> 00:05:24,720 Speaker 4: reality somewhat, but I wouldn't expect that to be a 100 00:05:24,760 --> 00:05:25,280 Speaker 4: big shot. 101 00:05:25,600 --> 00:05:28,120 Speaker 6: Was the banking crisis basically resolved and now it's just 102 00:05:28,160 --> 00:05:30,400 Speaker 6: sort of the slow bleed of the reality of higher 103 00:05:30,480 --> 00:05:33,440 Speaker 6: yields or is there something percolating there that you're keeping 104 00:05:33,440 --> 00:05:36,320 Speaker 6: an eye on as also a potential catalyst, especially if 105 00:05:36,320 --> 00:05:38,559 Speaker 6: what John said does come to pass. For people price 106 00:05:38,640 --> 00:05:40,040 Speaker 6: out some of those rate cuts. 107 00:05:40,600 --> 00:05:43,599 Speaker 4: I mean, our view is that the banking turmoil is 108 00:05:43,640 --> 00:05:46,880 Speaker 4: going to be a drag on growth. We've said about 109 00:05:47,040 --> 00:05:49,719 Speaker 4: you know, forty basis points or so, you know, half 110 00:05:49,760 --> 00:05:51,320 Speaker 4: a percentage point or a little less. 111 00:05:51,440 --> 00:05:52,359 Speaker 3: How did you come up with that? 112 00:05:52,440 --> 00:05:53,800 Speaker 1: Yeah? Can I ask there? 113 00:05:53,960 --> 00:05:55,320 Speaker 3: How do you even the team come up with that 114 00:05:55,440 --> 00:05:57,239 Speaker 3: forty to fifty vices points number? 115 00:05:57,320 --> 00:06:01,800 Speaker 4: Well, the primary approach was to to basically look at 116 00:06:02,520 --> 00:06:07,400 Speaker 4: past changes in lending conditions in the FED Senior Law 117 00:06:07,480 --> 00:06:11,719 Speaker 4: Officers survey, making assumptions about where that goes, and then 118 00:06:11,960 --> 00:06:17,000 Speaker 4: feeding that into our model, which also includes financial conditions, 119 00:06:17,560 --> 00:06:20,560 Speaker 4: and then getting sort of the extra effect over and 120 00:06:20,600 --> 00:06:25,800 Speaker 4: above what you'd normally expect in a tightening financial conditions environment. 121 00:06:26,040 --> 00:06:28,159 Speaker 4: That's how we came up with it. I would say 122 00:06:28,200 --> 00:06:31,080 Speaker 4: that so far what we've seen in these surveys has 123 00:06:31,120 --> 00:06:33,919 Speaker 4: been less pronounced. There's been less of a tightening that 124 00:06:33,960 --> 00:06:37,160 Speaker 4: we expected than we expected. And now the question is 125 00:06:37,160 --> 00:06:40,200 Speaker 4: is it just delayed or are we just seeing a 126 00:06:40,200 --> 00:06:42,440 Speaker 4: smaller impact. I think that's a little bit too early 127 00:06:42,480 --> 00:06:45,800 Speaker 4: to tell. Also, because obviously some of these banking issues 128 00:06:45,839 --> 00:06:48,480 Speaker 4: are not yet resolved. There's still pressure in the market. 129 00:06:49,279 --> 00:06:51,919 Speaker 4: So the last chapter probably hasn't been written yet, but 130 00:06:52,080 --> 00:06:55,640 Speaker 4: right now we're still estimating that forty basis point. 131 00:06:55,839 --> 00:06:58,240 Speaker 6: What's more pernicious for this economy for it to be 132 00:06:58,279 --> 00:07:00,839 Speaker 6: a slow burn, a slow tick, tick to a reduced 133 00:07:01,040 --> 00:07:04,560 Speaker 6: lending of tightening credit standards, or a sudden shock. 134 00:07:05,520 --> 00:07:08,560 Speaker 4: Well, a sudden shock is more pernicious because a slow burn, 135 00:07:08,839 --> 00:07:11,360 Speaker 4: you know, there are a lot of other factors in 136 00:07:11,400 --> 00:07:15,080 Speaker 4: the economy that can offset the slow barn, policy can 137 00:07:15,600 --> 00:07:19,960 Speaker 4: react to it. So you know, clearly something that happens 138 00:07:20,040 --> 00:07:23,600 Speaker 4: very suddenly in large size is much more difficult to 139 00:07:23,680 --> 00:07:27,160 Speaker 4: manage if you're an economic policy maker. So I'll go 140 00:07:27,320 --> 00:07:28,840 Speaker 4: with a with a quick shock here. 141 00:07:28,800 --> 00:07:31,400 Speaker 2: A longer going far away, there was a guy named 142 00:07:31,400 --> 00:07:34,480 Speaker 2: O'Neill and Dudley. They were at Goldman Sachs with Ed McKelvey. 143 00:07:34,560 --> 00:07:37,640 Speaker 2: And there's this young whipper snapper out of Wisconsin, Madison 144 00:07:37,720 --> 00:07:42,840 Speaker 2: in Germany who made his name on mortgage equity withdrawal. 145 00:07:42,920 --> 00:07:45,560 Speaker 2: John Farrell brought up in the last hour the new 146 00:07:45,600 --> 00:07:49,120 Speaker 2: housing dilemma. We have an America of two point six 147 00:07:49,200 --> 00:07:54,280 Speaker 2: percent mortgages locked in and they're never ever going to sell. 148 00:07:54,680 --> 00:07:57,920 Speaker 2: What does your team say about the housing economy of America. 149 00:07:58,200 --> 00:08:00,480 Speaker 2: This is where you got your fame. Yh what does 150 00:08:00,520 --> 00:08:04,239 Speaker 2: your team say now about all those people out there 151 00:08:04,320 --> 00:08:06,520 Speaker 2: locked in the mortgages of their dreams. 152 00:08:07,080 --> 00:08:09,360 Speaker 4: So first of all, I would say, you know, the 153 00:08:09,440 --> 00:08:14,320 Speaker 4: housing bubble was really central in the pre eight economy. Obviously, 154 00:08:14,400 --> 00:08:18,920 Speaker 4: it hasn't been central in the recent economy. It's been important. 155 00:08:19,040 --> 00:08:21,360 Speaker 4: There has been a you know, a big boom and 156 00:08:21,880 --> 00:08:25,680 Speaker 4: somewhat of a bust. And you know, mortgage equity withdrawal 157 00:08:25,760 --> 00:08:28,920 Speaker 4: did pick up in twenty twenty one to levels that 158 00:08:28,960 --> 00:08:32,520 Speaker 4: were appreciable I would say, not dramatic, but appreciable. And 159 00:08:33,000 --> 00:08:36,640 Speaker 4: mortgage equity withdrawal coming down since the peak of that 160 00:08:36,800 --> 00:08:41,040 Speaker 4: cycle has been a drag on growth. You know, I'd 161 00:08:41,040 --> 00:08:45,480 Speaker 4: say specifically on the you know lock in from seven 162 00:08:45,559 --> 00:08:50,440 Speaker 4: percent thirty mortgage rates versus maybe three percent or four 163 00:08:50,440 --> 00:08:53,720 Speaker 4: percent that people took out the mortgage rates at I 164 00:08:53,760 --> 00:08:56,120 Speaker 4: do think that is part of the sort of slow 165 00:08:56,160 --> 00:08:59,240 Speaker 4: burn that that that Lisa talked about. I mean, I 166 00:08:59,280 --> 00:09:03,560 Speaker 4: do think it probably at the margin reduces mobility somewhat. 167 00:09:03,880 --> 00:09:06,760 Speaker 4: The research on those issues has been somewhat mixed. So 168 00:09:06,800 --> 00:09:10,840 Speaker 4: that's why I'm putting this in somewhat cautious cautious terms, 169 00:09:10,840 --> 00:09:13,679 Speaker 4: but I do think it probably is at the margin 170 00:09:14,480 --> 00:09:19,000 Speaker 4: more negative for mobility, you know, until more time has passed. 171 00:09:19,080 --> 00:09:21,560 Speaker 3: Are you're avoriding debt scene? In conversations at the moment 172 00:09:21,640 --> 00:09:23,559 Speaker 3: with clients, do they want to talk about it? 173 00:09:23,720 --> 00:09:26,480 Speaker 4: I talk about what what clients want to talk about. 174 00:09:26,520 --> 00:09:31,480 Speaker 2: Of course, is that the solemon method of economics. 175 00:09:31,640 --> 00:09:32,480 Speaker 3: Is it top of mind? 176 00:09:32,760 --> 00:09:35,839 Speaker 4: Yeah, it's top of mind for for a lot of people, 177 00:09:35,880 --> 00:09:38,600 Speaker 4: and you know, undoubtedly over the next few few weeks, 178 00:09:38,720 --> 00:09:41,760 Speaker 4: until you know, whatever the X state is, it will 179 00:09:41,800 --> 00:09:45,240 Speaker 4: remain top of mind. It probably will go you know, 180 00:09:45,400 --> 00:09:47,719 Speaker 4: right up to the to the wire just looking at 181 00:09:47,760 --> 00:09:52,640 Speaker 4: the political dynamics and it's still you know, unclear how 182 00:09:52,679 --> 00:09:56,920 Speaker 4: exactly it's going to be resolved. Our baseline is that 183 00:09:57,040 --> 00:09:59,920 Speaker 4: you know, there's going to be a resolution very close 184 00:10:00,440 --> 00:10:06,840 Speaker 4: to the X state, and that you know, ultimately you 185 00:10:06,920 --> 00:10:10,320 Speaker 4: do get some spending cuts of some spending caps, but 186 00:10:10,400 --> 00:10:12,520 Speaker 4: we don't expect anything as large as what we have 187 00:10:12,720 --> 00:10:14,160 Speaker 4: in the twenty eleventh situation. 188 00:10:14,200 --> 00:10:15,560 Speaker 3: We'll have to say what that means for the outlook 189 00:10:15,559 --> 00:10:18,720 Speaker 3: as well. Janhasiers at Golban, Yeah, thank you. 190 00:10:27,440 --> 00:10:29,240 Speaker 2: What we know is if you go back to the 191 00:10:29,400 --> 00:10:33,600 Speaker 2: Orlando Sentinel from a few years ago. You can talk 192 00:10:33,720 --> 00:10:38,800 Speaker 2: about a sterling ballerina and a ballerina career that was legit. 193 00:10:39,040 --> 00:10:41,800 Speaker 2: In what the parents said to Cameron Dawson is have 194 00:10:41,880 --> 00:10:45,600 Speaker 2: a fallback. Her fallback has been sterling strategy for Bank 195 00:10:45,640 --> 00:10:48,520 Speaker 2: of America, among others. She's at New Edge Wealth right now, 196 00:10:48,720 --> 00:10:52,160 Speaker 2: their chief investment officer. Tell me about the ballet we're 197 00:10:52,200 --> 00:10:55,439 Speaker 2: in right now. You know, ballet, that's a tough business. 198 00:10:55,640 --> 00:10:58,920 Speaker 2: Your body falls apart, is our economy? Is our financial 199 00:10:58,920 --> 00:10:59,920 Speaker 2: system falling apart? 200 00:11:00,120 --> 00:11:00,520 Speaker 1: Right now? 201 00:11:00,640 --> 00:11:03,520 Speaker 7: Well, the interesting thing about ballets is that they always 202 00:11:03,559 --> 00:11:07,120 Speaker 7: either end in a wedding or a death. And so 203 00:11:07,520 --> 00:11:09,720 Speaker 7: I think that's what we're looking at with this cycle, 204 00:11:09,760 --> 00:11:12,359 Speaker 7: which is that are we going to have a recession 205 00:11:12,679 --> 00:11:15,280 Speaker 7: or not? And that's why this market has been flat 206 00:11:15,360 --> 00:11:18,160 Speaker 7: because we're in this world where we know the risk 207 00:11:18,240 --> 00:11:20,920 Speaker 7: of recession is high, but we're not seeing the whites 208 00:11:20,920 --> 00:11:23,080 Speaker 7: of the eyes of it in hard data, and that's 209 00:11:23,120 --> 00:11:25,199 Speaker 7: why we continue to have this sideways chop. 210 00:11:25,400 --> 00:11:27,160 Speaker 3: Do you operate with the assumption that we will get 211 00:11:27,200 --> 00:11:28,000 Speaker 3: one this year? 212 00:11:29,080 --> 00:11:31,640 Speaker 7: This year, I think is the operative word. It could 213 00:11:31,760 --> 00:11:35,119 Speaker 7: lean more into twenty twenty four. I think the interesting 214 00:11:35,160 --> 00:11:38,120 Speaker 7: thing is just at the precise moment when economists and 215 00:11:38,200 --> 00:11:41,080 Speaker 7: the bond market are expecting a recession to hit those 216 00:11:41,160 --> 00:11:44,280 Speaker 7: cuts to hit is when the equity market has earnings 217 00:11:44,320 --> 00:11:47,400 Speaker 7: starting to reaccelerate and rebound, and that's a really big 218 00:11:47,440 --> 00:11:48,640 Speaker 7: schism for this market. 219 00:11:48,679 --> 00:11:50,440 Speaker 3: Have you got this tradable window, then what do you 220 00:11:50,480 --> 00:11:53,040 Speaker 3: do with it between the last FED hike, even dat 221 00:11:53,120 --> 00:11:57,319 Speaker 3: it was the mating before and the recession that you 222 00:11:57,400 --> 00:11:59,000 Speaker 3: start to see in some of the days to pay rolls, 223 00:11:59,040 --> 00:12:00,440 Speaker 3: et cetera. What do you do in that window? 224 00:12:00,880 --> 00:12:04,360 Speaker 7: You probably trade on technicals, things like momentum, and you 225 00:12:04,440 --> 00:12:07,400 Speaker 7: trade on positioning and sentiment. Those kinds of things can 226 00:12:07,480 --> 00:12:09,960 Speaker 7: drive the market in the short term, and it's really 227 00:12:10,000 --> 00:12:12,480 Speaker 7: in the medium term where the fundamentals start to matter. 228 00:12:12,720 --> 00:12:14,760 Speaker 7: So when we look at that forty two hundred level, 229 00:12:14,840 --> 00:12:16,920 Speaker 7: there is this risk that we move higher, and I 230 00:12:16,920 --> 00:12:20,040 Speaker 7: say risk because people aren't positioned for it. That is 231 00:12:20,120 --> 00:12:22,960 Speaker 7: the pain trade that we don't get above forty two 232 00:12:23,280 --> 00:12:25,520 Speaker 7: and it may not be justified by the fundamentals in 233 00:12:25,559 --> 00:12:29,040 Speaker 7: the medium term, but the technicals, the sentiment, positioning, could 234 00:12:29,080 --> 00:12:31,280 Speaker 7: get us above that and really make it a very 235 00:12:31,280 --> 00:12:32,120 Speaker 7: big pain trade. 236 00:12:32,200 --> 00:12:34,800 Speaker 6: What happens though, if we don't get a catalytic event, 237 00:12:34,960 --> 00:12:37,080 Speaker 6: if it's just sort of, you know, little data points 238 00:12:37,120 --> 00:12:39,240 Speaker 6: that you could justify with the narrative that you desire. 239 00:12:39,280 --> 00:12:40,640 Speaker 6: And this is what we've been getting for a lot 240 00:12:40,640 --> 00:12:42,400 Speaker 6: of this year, and we're going to continue getting for 241 00:12:42,480 --> 00:12:44,280 Speaker 6: a number of months based in what a lot of 242 00:12:44,320 --> 00:12:47,120 Speaker 6: people are saying. Do markets to stay in this range? 243 00:12:47,880 --> 00:12:50,000 Speaker 7: It reminds you of two thousand and six, two thousand 244 00:12:50,000 --> 00:12:51,840 Speaker 7: and seven, because the writing was on the wall that 245 00:12:51,880 --> 00:12:55,120 Speaker 7: things were certainly starting to weaken, yet market shrug them 246 00:12:55,120 --> 00:12:57,320 Speaker 7: off because you didn't see the whites of the eyes 247 00:12:57,360 --> 00:12:59,959 Speaker 7: of the weakness. The Fed had paused, and it was 248 00:13:00,280 --> 00:13:02,880 Speaker 7: until two thousand and eight that we started to see 249 00:13:03,000 --> 00:13:06,080 Speaker 7: unemployment tick up and really the Feds start to react 250 00:13:06,120 --> 00:13:08,400 Speaker 7: to that. So there is a long precedent for these 251 00:13:08,400 --> 00:13:12,320 Speaker 7: cycles simply taking a long time. It's like watching paint dry. 252 00:13:12,360 --> 00:13:14,120 Speaker 7: Which is why we have to think of this in 253 00:13:14,120 --> 00:13:18,240 Speaker 7: two timeframes, the short term being driven by those momentum indicators, 254 00:13:18,240 --> 00:13:21,080 Speaker 7: and medium term by the actual fundamentals, the boiling. 255 00:13:20,760 --> 00:13:23,600 Speaker 6: Of the frog until suddenly there is no frog that 256 00:13:23,720 --> 00:13:26,120 Speaker 6: is alive and hopping. There's a question about you know, 257 00:13:26,160 --> 00:13:27,920 Speaker 6: this is not two thousand and eight, and people are 258 00:13:27,960 --> 00:13:30,640 Speaker 6: talking about that base in the global banks that have 259 00:13:30,679 --> 00:13:34,160 Speaker 6: plenty of capital. But is this leading to some sort 260 00:13:34,200 --> 00:13:37,560 Speaker 6: of fissure, some sort of seizure that is going to 261 00:13:37,600 --> 00:13:40,080 Speaker 6: lead to mass evaluation drops or is it not or 262 00:13:40,160 --> 00:13:41,760 Speaker 6: is it going to be something that's more akin to 263 00:13:41,800 --> 00:13:43,679 Speaker 6: the recessions of your Well, I think it. 264 00:13:43,640 --> 00:13:46,280 Speaker 7: Starts from your point, Jonathan all the time about how 265 00:13:46,320 --> 00:13:48,679 Speaker 7: we shouldn't always just index to two thousand and eight, 266 00:13:49,080 --> 00:13:52,360 Speaker 7: because just indexing to the extreme is not helpful. The 267 00:13:52,400 --> 00:13:54,960 Speaker 7: reality here is that we're likely going to see some 268 00:13:55,120 --> 00:13:58,280 Speaker 7: slowing in loan growth, and that typically coincides with slowing 269 00:13:58,280 --> 00:14:02,160 Speaker 7: in economic activity. It should be expected that banks, small 270 00:14:02,160 --> 00:14:04,960 Speaker 7: banks who have been annualizing loan growth at eight percent 271 00:14:05,080 --> 00:14:08,200 Speaker 7: for the last cycle will see that slow in response 272 00:14:08,240 --> 00:14:11,120 Speaker 7: to that. That will have real economic impact, and at 273 00:14:11,120 --> 00:14:12,480 Speaker 7: this point it's not being priced in. 274 00:14:12,760 --> 00:14:14,520 Speaker 3: I'm with you. I agree with you obviously because you 275 00:14:14,600 --> 00:14:16,079 Speaker 3: agree with mat and you can come back any time 276 00:14:16,120 --> 00:14:18,560 Speaker 3: to talk about people will want to benchmark to something. 277 00:14:18,600 --> 00:14:21,840 Speaker 3: Though what should you benchmark too? What is the parallel 278 00:14:21,960 --> 00:14:22,560 Speaker 3: right now for you? 279 00:14:23,360 --> 00:14:26,840 Speaker 7: I think it's somewhere in between the twenty eighteen experience 280 00:14:26,840 --> 00:14:28,720 Speaker 7: where we didn't have a recession and the FED was 281 00:14:29,240 --> 00:14:31,800 Speaker 7: able to ease and there was no inflation. In that 282 00:14:31,880 --> 00:14:35,280 Speaker 7: extreme of two thousand and eight, remember twenty sixteen, we 283 00:14:35,360 --> 00:14:38,960 Speaker 7: got very very close to a recession. We flew very 284 00:14:38,960 --> 00:14:41,280 Speaker 7: close to the sun, and we were able to avoid 285 00:14:41,320 --> 00:14:44,280 Speaker 7: it in that scenario. I think that's probably a good 286 00:14:44,320 --> 00:14:47,200 Speaker 7: parallel for us to say, where could the earnings risk be. 287 00:14:47,440 --> 00:14:49,560 Speaker 7: We think that we have some recession, it just won't 288 00:14:49,560 --> 00:14:50,480 Speaker 7: be as deep as o weight. 289 00:14:50,680 --> 00:14:53,240 Speaker 2: One of the great realities of Florida right now, your 290 00:14:53,320 --> 00:14:55,800 Speaker 2: Florida's everybody's been there for three cups of coffee and 291 00:14:55,840 --> 00:14:59,280 Speaker 2: think they're experts. You own the high ground on Florida. 292 00:14:59,800 --> 00:15:03,920 Speaker 2: Is the economy boom there legit and it is symbol 293 00:15:04,080 --> 00:15:07,000 Speaker 2: of an optimism in America that we underestimate. 294 00:15:07,640 --> 00:15:10,960 Speaker 7: I've always considered Florida beta on the economy because there 295 00:15:11,040 --> 00:15:14,160 Speaker 7: is so much discretionary spending in Florida and it tends 296 00:15:14,200 --> 00:15:17,560 Speaker 7: to have more pronounced boom bus cycles than most other states. 297 00:15:18,040 --> 00:15:20,640 Speaker 7: And always when you're in a boom, there's always this 298 00:15:20,720 --> 00:15:24,000 Speaker 7: notion that this time is different, It's never going to end. 299 00:15:24,280 --> 00:15:27,320 Speaker 7: But I'm hearing people leave places like Miami because they're 300 00:15:27,360 --> 00:15:29,840 Speaker 7: getting priced out they can't afford it. That may be 301 00:15:29,960 --> 00:15:32,800 Speaker 7: the first indicators that some of this high beta flying 302 00:15:32,840 --> 00:15:35,440 Speaker 7: parts of the economy are finally starting to feel the 303 00:15:35,520 --> 00:15:36,440 Speaker 7: pinch of price pressure. 304 00:15:36,880 --> 00:15:39,720 Speaker 2: I mentioned the Bellot at the beginning, and I look 305 00:15:39,760 --> 00:15:42,120 Speaker 2: at the damage out there, and my whole thing is 306 00:15:42,280 --> 00:15:47,640 Speaker 2: corporations will adapt and adjust given cards dealt That's what 307 00:15:47,720 --> 00:15:50,600 Speaker 2: I see right now for a part of the standard 308 00:15:50,600 --> 00:15:53,600 Speaker 2: impores five hundred not all. How's that trend going to 309 00:15:53,600 --> 00:15:54,520 Speaker 2: play out this year? 310 00:15:54,840 --> 00:15:56,880 Speaker 7: Well, certainly that's what we saw in the first quarter. 311 00:15:57,040 --> 00:16:01,200 Speaker 7: That's how earnings came in better than expected. Saw corporations 312 00:16:01,280 --> 00:16:04,520 Speaker 7: adapt and adjust and defend on the margin line. The 313 00:16:04,600 --> 00:16:07,080 Speaker 7: thing that will be interesting to watch is that if 314 00:16:07,120 --> 00:16:10,560 Speaker 7: inflation really does roll over and it falls, that means 315 00:16:10,640 --> 00:16:12,000 Speaker 7: revenue growth is going to fall. 316 00:16:12,120 --> 00:16:14,160 Speaker 1: Nomenal GDB comes in, revenue comes. 317 00:16:14,080 --> 00:16:17,520 Speaker 7: In, and that usually leads to margin pressure regardless of 318 00:16:17,560 --> 00:16:19,600 Speaker 7: what you do on the cost side, because you lose 319 00:16:19,640 --> 00:16:21,240 Speaker 7: the incremental margin dynamic. 320 00:16:21,640 --> 00:16:24,640 Speaker 2: John Honeywell with the banner across the Bloomberg years ago, 321 00:16:24,680 --> 00:16:26,760 Speaker 2: all of a sudden they were doing eight percent organic 322 00:16:26,800 --> 00:16:29,840 Speaker 2: revenue growth. No one had ever frame that and when 323 00:16:29,840 --> 00:16:32,960 Speaker 2: they come back to six percent, not to pick on honeywell, that's. 324 00:16:32,840 --> 00:16:33,760 Speaker 1: Going to be the game changer. 325 00:16:33,800 --> 00:16:36,640 Speaker 3: This was great, Cameron. Thank you. Cameron Dawson of New 326 00:16:36,720 --> 00:16:42,200 Speaker 3: EDH twelfth may to share with us around the table. 327 00:16:42,280 --> 00:16:45,800 Speaker 3: They had a macro strategy at Academy Securities. Pete, good morning. 328 00:16:45,880 --> 00:16:48,040 Speaker 3: Let's start with this one. He's more complacent right now. 329 00:16:48,080 --> 00:16:50,040 Speaker 3: This market or politicians in Washington. 330 00:16:50,440 --> 00:16:53,080 Speaker 8: I think the politicians in Washington, because this market, I think, 331 00:16:53,160 --> 00:16:55,240 Speaker 8: is trying to figure out do we get some sort 332 00:16:55,280 --> 00:16:57,320 Speaker 8: of soft landing, does this work out, do we get 333 00:16:57,320 --> 00:16:59,520 Speaker 8: through a bunch of these problems or not? And I 334 00:16:59,520 --> 00:17:02,160 Speaker 8: think that's we're on this potential for a large gap 335 00:17:02,200 --> 00:17:04,440 Speaker 8: either direction. I think the people in DC have kind 336 00:17:04,440 --> 00:17:06,520 Speaker 8: of lost the focus. There's plenty of other things we 337 00:17:06,520 --> 00:17:08,840 Speaker 8: should be focusing on other than the debt ceiling, and 338 00:17:08,880 --> 00:17:10,960 Speaker 8: that's just a time sink. At this point, we've. 339 00:17:10,760 --> 00:17:11,840 Speaker 1: Got copper rolling over. 340 00:17:11,880 --> 00:17:15,640 Speaker 2: I look carefully at the Bloomberg Commodity indexes, good mathematics, and. 341 00:17:15,600 --> 00:17:17,480 Speaker 1: It's not a pretty chart. 342 00:17:17,600 --> 00:17:21,359 Speaker 2: You have your firm has a wonderful Pacific RIM study ongoing. 343 00:17:21,520 --> 00:17:23,200 Speaker 2: What do you see there? Is it real slow down? 344 00:17:23,520 --> 00:17:23,760 Speaker 1: Yeah? 345 00:17:23,800 --> 00:17:25,760 Speaker 8: I think China is having some troubles, but I think 346 00:17:25,800 --> 00:17:28,560 Speaker 8: even beyond that, I really sticking to this theme that 347 00:17:28,600 --> 00:17:31,000 Speaker 8: we're going from maid in China to made by China. 348 00:17:31,200 --> 00:17:33,640 Speaker 8: We're across the globe. China is now trying to compete 349 00:17:33,680 --> 00:17:36,040 Speaker 8: with our products, compete with our companies more than they 350 00:17:36,080 --> 00:17:38,600 Speaker 8: ever did. It's something we're hearing from companies. We're running 351 00:17:38,640 --> 00:17:43,520 Speaker 8: into people who are losing contracts denominated in the Chinese currency. 352 00:17:43,800 --> 00:17:46,760 Speaker 8: I think that's a long going play. China's still struggling, 353 00:17:46,800 --> 00:17:48,400 Speaker 8: but it's going to be at our expense as well. 354 00:17:48,680 --> 00:17:51,680 Speaker 1: With the military exposure of your firm, Can you invest 355 00:17:51,720 --> 00:17:54,600 Speaker 1: in Taiwan, even with the United States committing to three 356 00:17:55,000 --> 00:18:00,359 Speaker 1: and indeed four military bases in the Philippines, is Taiwan uninvestable? Yeah? 357 00:18:00,480 --> 00:18:02,600 Speaker 8: So I think our firm has a pretty strong view 358 00:18:02,640 --> 00:18:05,640 Speaker 8: that China is not going to invade Taiwan anymore anytime soon. 359 00:18:06,000 --> 00:18:08,520 Speaker 8: The defenses of Taiwan are very strong. China has learned 360 00:18:08,520 --> 00:18:11,200 Speaker 8: a bunch of lessons from Russia. Having said that, there 361 00:18:11,280 --> 00:18:13,600 Speaker 8: is this erosion of confidence and how we're going to 362 00:18:13,600 --> 00:18:15,320 Speaker 8: be able to deal with Taiwan overtime. So I think 363 00:18:15,320 --> 00:18:16,400 Speaker 8: you've got to be careful. 364 00:18:16,080 --> 00:18:18,080 Speaker 6: There right now. A lot of people are cautious. We 365 00:18:18,160 --> 00:18:21,040 Speaker 6: are seeing this sort of volatility come down. People getting 366 00:18:21,080 --> 00:18:23,639 Speaker 6: a sense that they're just waiting for godoh, waiting for 367 00:18:23,680 --> 00:18:26,120 Speaker 6: some catalyst, waiting for a sense of which direction we're 368 00:18:26,119 --> 00:18:28,760 Speaker 6: going to pivot in? What are you looking for to 369 00:18:29,000 --> 00:18:30,639 Speaker 6: really represent that catalyst? 370 00:18:31,080 --> 00:18:33,440 Speaker 8: So I think people have been patient. They latched onto 371 00:18:33,440 --> 00:18:35,400 Speaker 8: the AI story. So that's been what all the bulls 372 00:18:35,440 --> 00:18:37,720 Speaker 8: have gravitated to, and it's an interesting story. There's definitely 373 00:18:37,760 --> 00:18:41,240 Speaker 8: some run room there. For me, the catalyst is what 374 00:18:41,359 --> 00:18:43,840 Speaker 8: happens with the banking Do we really see this slow down? 375 00:18:44,119 --> 00:18:47,280 Speaker 8: And you know, when we look at that the SLEUS report, 376 00:18:47,280 --> 00:18:49,439 Speaker 8: which that we would never really pay that much attention to, 377 00:18:49,720 --> 00:18:53,040 Speaker 8: we do now apparently. But I think really the important 378 00:18:53,080 --> 00:18:55,320 Speaker 8: thing there was it's a demand side issue, right, There's 379 00:18:55,480 --> 00:18:57,320 Speaker 8: lack of demand for loans. It's not just that banks 380 00:18:57,320 --> 00:18:59,560 Speaker 8: don't have deposits. So I think we're seeing the economy 381 00:18:59,600 --> 00:19:02,440 Speaker 8: slow down. Jobs data, a lot of it's still good. 382 00:19:02,480 --> 00:19:04,600 Speaker 8: You're seeing little bits and pieces like we're starting to 383 00:19:04,600 --> 00:19:07,760 Speaker 8: see a tick up in unemployment claims. How good is 384 00:19:07,760 --> 00:19:10,280 Speaker 8: that when every headline really is about layoffs? So I 385 00:19:10,320 --> 00:19:13,400 Speaker 8: think there's a slow bleed. It's slowly playing into the economy, 386 00:19:13,640 --> 00:19:16,280 Speaker 8: and I'm looking for either confirmation for that or that 387 00:19:16,359 --> 00:19:17,760 Speaker 8: somehow we've avoided that problem. 388 00:19:17,840 --> 00:19:19,520 Speaker 6: Okay, so what is that problem? 389 00:19:19,640 --> 00:19:19,760 Speaker 9: Right? 390 00:19:19,760 --> 00:19:21,959 Speaker 6: Because things are slowing down and this is by design, 391 00:19:22,200 --> 00:19:24,239 Speaker 6: and this is sort of the difficulty where people are 392 00:19:24,240 --> 00:19:27,000 Speaker 6: saying that's happening and it's a good thing. Yes, we're 393 00:19:27,000 --> 00:19:29,000 Speaker 6: seeing a rise in unemployment claims. This is exactly what 394 00:19:29,040 --> 00:19:32,280 Speaker 6: the FED wanted. Yes, we're seeing deceleration. Okay, great, And 395 00:19:32,320 --> 00:19:35,400 Speaker 6: guess what. Companies are actually more profitable because margins are increasing, 396 00:19:35,400 --> 00:19:38,480 Speaker 6: they're passing along those prices. When is it a negative? 397 00:19:39,240 --> 00:19:40,919 Speaker 8: I think it's already a negative. I think one of 398 00:19:40,920 --> 00:19:43,280 Speaker 8: the things is we're addressing something that was really a 399 00:19:43,320 --> 00:19:46,520 Speaker 8: supply chain shock, and we're trying to use monetary policy 400 00:19:46,560 --> 00:19:48,840 Speaker 8: to address the supply chain shock. So that was a problem. 401 00:19:48,880 --> 00:19:51,400 Speaker 8: So we're doing the wrong things, and I think we're 402 00:19:51,880 --> 00:19:54,560 Speaker 8: forgetting about all these lags. Right. It takes months and 403 00:19:54,600 --> 00:19:56,760 Speaker 8: months from the person who gets let go by the 404 00:19:56,760 --> 00:19:59,000 Speaker 8: time they get their severiance package and all these things 405 00:19:59,000 --> 00:20:00,959 Speaker 8: to hit the economy. I think the rate hikes from 406 00:20:01,040 --> 00:20:04,320 Speaker 8: last November haven't even really hit the economy, people rolling 407 00:20:04,320 --> 00:20:06,639 Speaker 8: over their car loans. Everyone I talked to is looking 408 00:20:06,640 --> 00:20:09,080 Speaker 8: at releasing a car after their three yearly. They're shocked 409 00:20:09,080 --> 00:20:10,800 Speaker 8: by the price. They didn't have to deal with that 410 00:20:10,840 --> 00:20:12,639 Speaker 8: a year ago if their lease wasn't coming due. So 411 00:20:12,960 --> 00:20:15,680 Speaker 8: I think that lag is something we've all forgotten about 412 00:20:15,720 --> 00:20:16,880 Speaker 8: in this real time economy. 413 00:20:16,920 --> 00:20:19,040 Speaker 2: One of the quiet charts of the week were bankruptcies 414 00:20:19,040 --> 00:20:22,000 Speaker 2: in the United States. I was thunderstruck how they're elevated here. 415 00:20:22,160 --> 00:20:24,280 Speaker 3: It's a process. I think we're all waiting for this 416 00:20:24,320 --> 00:20:27,200 Speaker 3: event boom. It's a process and you can put the 417 00:20:27,200 --> 00:20:29,159 Speaker 3: pieces together. The other issue that I think a lot 418 00:20:29,160 --> 00:20:31,400 Speaker 3: of people have got right now is that we had 419 00:20:31,840 --> 00:20:35,200 Speaker 3: excessive monetary easing for so long, for an extended period 420 00:20:35,200 --> 00:20:37,679 Speaker 3: of time, way beyond the time that we needed it, 421 00:20:38,000 --> 00:20:39,879 Speaker 3: and then the feders have had to play catch up, 422 00:20:39,920 --> 00:20:43,320 Speaker 3: not frontloading. I hate that language. Wasn't front loading, was backloading. 423 00:20:43,400 --> 00:20:45,520 Speaker 3: They were late, and we're trying to work out what 424 00:20:45,560 --> 00:20:48,000 Speaker 3: the prices we've got to pay for that as market participants. 425 00:20:48,040 --> 00:20:49,840 Speaker 3: Is it just a thirty percent move on the nastak 426 00:20:50,359 --> 00:20:51,840 Speaker 3: last year or is there more to come? 427 00:20:51,960 --> 00:20:53,399 Speaker 8: I think there's going to be more to come. And 428 00:20:53,400 --> 00:20:55,880 Speaker 8: I completely agree they were very late, which ironic, even 429 00:20:55,880 --> 00:20:57,960 Speaker 8: as they were discussing rate hikes, they were still doing 430 00:20:58,280 --> 00:21:02,240 Speaker 8: large scale asset purchase January twenty twenty two, so they 431 00:21:02,280 --> 00:21:04,560 Speaker 8: missed a lot on that. And when I look at 432 00:21:04,600 --> 00:21:06,760 Speaker 8: the banking crisis or whatever you want to call it, 433 00:21:06,880 --> 00:21:09,719 Speaker 8: to me, it's very simple. Basically, during COVID, banks went 434 00:21:09,760 --> 00:21:12,120 Speaker 8: from thirteen trillion to eighteen trillion, So in two years 435 00:21:12,119 --> 00:21:14,639 Speaker 8: they took in five trillion dollars of assets, which is 436 00:21:14,720 --> 00:21:16,640 Speaker 8: much more than the five hundred billion they normally take 437 00:21:16,680 --> 00:21:19,600 Speaker 8: in at the exact worst time to find good investments. 438 00:21:19,760 --> 00:21:21,679 Speaker 8: So it would not be surprising to find that some 439 00:21:21,760 --> 00:21:24,040 Speaker 8: percentage of the banks were very conservative and dealt with 440 00:21:24,080 --> 00:21:26,320 Speaker 8: it well, and some maybe got a little bit aggressive. 441 00:21:26,320 --> 00:21:28,439 Speaker 8: And I think that's what's playing out right now. This 442 00:21:28,560 --> 00:21:31,200 Speaker 8: no longer has anything to do with uninsured deposits, About 443 00:21:31,320 --> 00:21:33,040 Speaker 8: what did banks do with the money when they took 444 00:21:33,080 --> 00:21:35,240 Speaker 8: it in and what are they going to pay people 445 00:21:35,280 --> 00:21:37,080 Speaker 8: to keep the deposits? Because I don't think anyone's really 446 00:21:37,119 --> 00:21:40,119 Speaker 8: worried about their deposits defaulting. It's now, am I getting 447 00:21:40,119 --> 00:21:41,960 Speaker 8: a fair rate on that? And what does this bank 448 00:21:42,000 --> 00:21:42,720 Speaker 8: own on the back of that. 449 00:21:42,840 --> 00:21:45,879 Speaker 3: Wow, said Pete. We could be facing what years of 450 00:21:45,960 --> 00:21:48,960 Speaker 3: some of these banks just being quite unprofitable for a 451 00:21:49,000 --> 00:21:49,560 Speaker 3: long time. 452 00:21:50,040 --> 00:21:52,199 Speaker 8: Yeah, I think that's right. I think it's going to 453 00:21:52,240 --> 00:21:55,000 Speaker 8: be a unwined period. And my big concern it's a 454 00:21:55,040 --> 00:21:56,960 Speaker 8: tail risk. I don't think it happens, but the tail 455 00:21:57,000 --> 00:21:59,440 Speaker 8: risk is as one comes through and their balance sheet 456 00:21:59,440 --> 00:22:02,879 Speaker 8: becomes availed lable for sale, it drags prices down, bringing 457 00:22:02,920 --> 00:22:05,119 Speaker 8: another one into that leg. So that domino effects. So 458 00:22:05,119 --> 00:22:07,280 Speaker 8: I think that's what we've got to be regret working 459 00:22:07,280 --> 00:22:09,280 Speaker 8: on the Fed's got to be very careful about hiking rates. 460 00:22:09,320 --> 00:22:12,159 Speaker 8: They've got to be very careful about causing pressure on 461 00:22:12,359 --> 00:22:16,159 Speaker 8: bond prices because that will, you know, basically create that 462 00:22:16,200 --> 00:22:16,879 Speaker 8: domino effect. 463 00:22:16,880 --> 00:22:20,400 Speaker 3: We'll be talking about this for years. Yes, mortgages sold 464 00:22:20,400 --> 00:22:23,280 Speaker 3: at two percent, We'll be talking about this for decades. 465 00:22:23,560 --> 00:22:25,199 Speaker 3: What people aren't going to sell their houses? 466 00:22:25,560 --> 00:22:27,160 Speaker 8: Well, they do with this, you know, the running joke's 467 00:22:27,160 --> 00:22:29,359 Speaker 8: been for a lot of people. Certainly last year your 468 00:22:29,359 --> 00:22:30,680 Speaker 8: best asset was your mortgage. 469 00:22:30,720 --> 00:22:33,399 Speaker 3: So it's like crazy things about the house. Who on 470 00:22:33,480 --> 00:22:35,800 Speaker 3: earth is going to sound their house unless they're forced 471 00:22:35,840 --> 00:22:38,159 Speaker 3: to move for a job or something out of their 472 00:22:38,160 --> 00:22:40,600 Speaker 3: control happens. Who is voluntarily going to sound their house 473 00:22:40,920 --> 00:22:43,080 Speaker 3: with a thirty year mortgage on it with the rate 474 00:22:43,119 --> 00:22:44,040 Speaker 3: of two to three percent. 475 00:22:44,200 --> 00:22:45,760 Speaker 8: And so that's been one of the ironies of this 476 00:22:45,760 --> 00:22:47,840 Speaker 8: whole thing. Right, the home builders are doing well because 477 00:22:48,320 --> 00:22:50,000 Speaker 8: they can build a new house that someone has to 478 00:22:50,040 --> 00:22:52,439 Speaker 8: move in because there is the supply shortage because of 479 00:22:52,480 --> 00:22:54,160 Speaker 8: this weird phenomenal about mortgages. 480 00:22:55,240 --> 00:22:57,720 Speaker 6: Well, and then there's this question about financial engineering where 481 00:22:57,720 --> 00:22:59,639 Speaker 6: people are going to basically just pass along this mortgage 482 00:22:59,680 --> 00:23:01,399 Speaker 6: is I don't know. Taking a step back, I just 483 00:23:01,440 --> 00:23:03,560 Speaker 6: wonder how much this is normal, right that you get 484 00:23:03,560 --> 00:23:06,240 Speaker 6: a washed out in banks, and how much is different? 485 00:23:06,440 --> 00:23:09,520 Speaker 6: How much is this something that is a unique distortion. 486 00:23:09,800 --> 00:23:12,639 Speaker 3: I have no idea what normal is anymore. What's normal? 487 00:23:12,760 --> 00:23:13,760 Speaker 1: We don't know what normal is. 488 00:23:13,800 --> 00:23:15,720 Speaker 3: We've had a distortion for like the last ten to 489 00:23:15,800 --> 00:23:16,480 Speaker 3: fifteen years. 490 00:23:16,760 --> 00:23:19,440 Speaker 2: This was a calculus exercise the first and second to 491 00:23:19,520 --> 00:23:21,560 Speaker 2: rud of the rate change, and Peter was way out 492 00:23:21,560 --> 00:23:22,080 Speaker 2: front on. 493 00:23:22,000 --> 00:23:23,800 Speaker 1: This was truly historic. 494 00:23:23,840 --> 00:23:25,960 Speaker 2: If you get yields coming back in in a Steve 495 00:23:26,040 --> 00:23:29,240 Speaker 2: Major way and ed Heiman way in a David Rosenberg way, 496 00:23:29,240 --> 00:23:31,480 Speaker 2: does this self adjust price up, yield down? 497 00:23:32,320 --> 00:23:32,399 Speaker 3: No? 498 00:23:32,440 --> 00:23:34,080 Speaker 1: One's looking for that. No one's looking. 499 00:23:34,160 --> 00:23:36,320 Speaker 2: You talk two to three percent mortgages, what if you 500 00:23:36,359 --> 00:23:38,440 Speaker 2: get back to a three point six percent mortgage? 501 00:23:38,520 --> 00:23:40,200 Speaker 8: And I just add the one thing, right, We never 502 00:23:40,240 --> 00:23:43,880 Speaker 8: experienced these large scale asset purchases are QE until two 503 00:23:43,920 --> 00:23:46,120 Speaker 8: thousand and eight. And I don't think we have any 504 00:23:46,160 --> 00:23:49,000 Speaker 8: idea how those really affect asset prices are not so 505 00:23:49,040 --> 00:23:51,320 Speaker 8: I think people like to try and convert. Oh how 506 00:23:51,359 --> 00:23:53,680 Speaker 8: much Q is or QT is a basis point. I 507 00:23:53,720 --> 00:23:55,359 Speaker 8: don't think we have any idea, And I think QE 508 00:23:55,359 --> 00:23:58,359 Speaker 8: and QT go much more directly to asset prices. And 509 00:23:58,400 --> 00:24:00,119 Speaker 8: you keep looking at the FED balance. She didn't the 510 00:24:00,200 --> 00:24:00,760 Speaker 8: stock market. 511 00:24:00,840 --> 00:24:04,520 Speaker 1: Steve heated about this miszono sta just stop it. 512 00:24:04,560 --> 00:24:04,760 Speaker 8: Now. 513 00:24:04,880 --> 00:24:06,560 Speaker 3: You know what normal is. It's when you went to 514 00:24:06,600 --> 00:24:09,360 Speaker 3: the industry on Wall Street, whatever date that was exactly. 515 00:24:09,440 --> 00:24:11,959 Speaker 3: That's very interesting what you believe when you first got 516 00:24:12,000 --> 00:24:13,720 Speaker 3: your mortgage. I speaking of some of the airport the 517 00:24:13,720 --> 00:24:17,040 Speaker 3: other day. Let me tell you about the eighties, just 518 00:24:17,080 --> 00:24:19,280 Speaker 3: like I had to pay. It's always the same. 519 00:24:19,400 --> 00:24:20,400 Speaker 1: Can I say thank you? 520 00:24:20,840 --> 00:24:24,760 Speaker 2: I had no idea about snakes and ladders, no idea, 521 00:24:25,080 --> 00:24:25,639 Speaker 2: no sense. 522 00:24:26,000 --> 00:24:27,960 Speaker 1: It's history. It goes back to the India of the 523 00:24:28,080 --> 00:24:29,520 Speaker 1: raj all that do. 524 00:24:29,520 --> 00:24:30,880 Speaker 6: They slide down snakes back then? 525 00:24:31,119 --> 00:24:33,840 Speaker 1: No, but they're scary and that's why they changed the shoots. 526 00:24:33,520 --> 00:24:36,960 Speaker 3: And Americans scary for the kids forty three. They make 527 00:24:37,000 --> 00:24:37,640 Speaker 3: him soft hair. 528 00:24:37,760 --> 00:24:42,320 Speaker 1: Every they learned something, every single. 529 00:24:42,760 --> 00:24:45,720 Speaker 3: Got soft sweet. 530 00:24:45,760 --> 00:24:46,159 Speaker 1: You should come. 531 00:24:46,200 --> 00:24:49,040 Speaker 3: This is what Governor Youngkin was talking about. Oh my gosh, 532 00:24:49,240 --> 00:24:50,560 Speaker 3: this is what he was talking about. 533 00:24:50,720 --> 00:24:51,520 Speaker 10: Suits and ladders. 534 00:24:51,880 --> 00:24:57,520 Speaker 3: You know what's handling an education these days? Should that's 535 00:24:57,520 --> 00:24:59,720 Speaker 3: the color safe for another time, Peter, Chair of the 536 00:24:59,760 --> 00:25:01,439 Speaker 3: count Me Securities, Thank you. 537 00:25:01,520 --> 00:25:13,160 Speaker 1: Set Kelsey Burrow with us right now. 538 00:25:13,200 --> 00:25:17,160 Speaker 2: Fixed Income portfolio manager JP Morgan Asset Management briefing mister 539 00:25:17,200 --> 00:25:21,080 Speaker 2: Diamond yesterday as he spoke to Friendcing Laqua, I look 540 00:25:21,119 --> 00:25:24,080 Speaker 2: at the bond market and what I would say in equities, 541 00:25:24,119 --> 00:25:29,280 Speaker 2: foreign exchanging, commodities, commodities, very weak bonds always send a message. 542 00:25:29,320 --> 00:25:32,440 Speaker 2: What's the message being sent by fixed income right now? 543 00:25:32,800 --> 00:25:35,399 Speaker 9: Well? I think the message being sent by fixed income 544 00:25:35,600 --> 00:25:39,520 Speaker 9: is there is slower growth and slower inflation ahead. And 545 00:25:39,880 --> 00:25:42,040 Speaker 9: you know, we continue to look at the yield curve 546 00:25:42,440 --> 00:25:44,600 Speaker 9: and look at the signal that the yield curve is giving, 547 00:25:44,640 --> 00:25:47,480 Speaker 9: which is a very inverted yield curve. You have the 548 00:25:47,560 --> 00:25:49,760 Speaker 9: short rate at five percent now and you have the 549 00:25:49,840 --> 00:25:53,040 Speaker 9: ten year at three point four percent, and it's saying 550 00:25:53,160 --> 00:25:55,879 Speaker 9: that you know things are going to slow down. So 551 00:25:56,160 --> 00:25:59,440 Speaker 9: historically what happens, our favorite yield curve is the three 552 00:25:59,440 --> 00:26:02,160 Speaker 9: month bill rate versus the eighteen month forward bill rate. 553 00:26:02,800 --> 00:26:05,520 Speaker 9: Now that is about two hundred basis points inverted at 554 00:26:05,520 --> 00:26:09,480 Speaker 9: this point. It's the most inverted back to the nineties. Historically, 555 00:26:09,560 --> 00:26:12,479 Speaker 9: when that starts to get inverted, it's about twelve months 556 00:26:12,480 --> 00:26:16,600 Speaker 9: to recession. Now that inverted November of twenty twenty two. 557 00:26:17,160 --> 00:26:20,080 Speaker 10: That puts you in about Q four for recession. 558 00:26:20,320 --> 00:26:21,840 Speaker 3: For you in the team, we've got first right cut 559 00:26:21,840 --> 00:26:24,800 Speaker 3: once September. We do September. Do you have any idea 560 00:26:24,800 --> 00:26:26,239 Speaker 3: of what they come back to? Is it's still too 561 00:26:26,280 --> 00:26:27,840 Speaker 3: early to make those kind of calls. 562 00:26:28,720 --> 00:26:31,560 Speaker 9: We don't necessarily think they're going back to the zero 563 00:26:31,600 --> 00:26:35,560 Speaker 9: lower bound, but we all we are positioned long duration, 564 00:26:35,760 --> 00:26:38,480 Speaker 9: which means that we have to feel that the FED 565 00:26:38,520 --> 00:26:40,920 Speaker 9: is going to be more aggressive than what's already priced 566 00:26:41,359 --> 00:26:44,560 Speaker 9: into the market. So you know, you've probably heard the 567 00:26:45,080 --> 00:26:47,479 Speaker 9: expression that you know, the FED takes the stairs up 568 00:26:47,520 --> 00:26:48,720 Speaker 9: and then the elevator down. 569 00:26:49,200 --> 00:26:51,040 Speaker 10: I like of thinking about about it like. 570 00:26:51,040 --> 00:26:55,480 Speaker 9: Shoots and Ladders if you've ever played that children's game. Essentially, 571 00:26:55,880 --> 00:26:57,960 Speaker 9: you know, what we expect is that when the FED 572 00:26:58,080 --> 00:27:01,280 Speaker 9: does cut, they are going to be hutting fairly aggressively. 573 00:27:01,320 --> 00:27:04,000 Speaker 9: And it's not because of the inflation store. We actually 574 00:27:04,040 --> 00:27:07,560 Speaker 9: already see the inflation trends, the disinflationary trends fairly well 575 00:27:07,560 --> 00:27:09,480 Speaker 9: in trends. We expect to see them over the course 576 00:27:09,480 --> 00:27:11,600 Speaker 9: of the year. What's going to have to happen for 577 00:27:11,680 --> 00:27:14,560 Speaker 9: them to actually cut rates is going to be to 578 00:27:14,600 --> 00:27:17,199 Speaker 9: start to see cracks in the labor market. So you 579 00:27:17,800 --> 00:27:21,560 Speaker 9: mentioned continuing claims. Continuing claims really, you know, I think 580 00:27:21,880 --> 00:27:24,080 Speaker 9: is showing an important trend. So if you look at 581 00:27:24,080 --> 00:27:27,720 Speaker 9: continuing claims year over year, it's up twenty five percent. 582 00:27:28,200 --> 00:27:32,359 Speaker 9: That's never happened outside of recession. That's going going back 583 00:27:32,480 --> 00:27:34,480 Speaker 9: all the way to the nineteen sixties. 584 00:27:34,880 --> 00:27:36,679 Speaker 6: But is that enough for cracks? I mean, honestly, this 585 00:27:36,760 --> 00:27:39,280 Speaker 6: is really the question. A lot of people are saying, Okay, 586 00:27:39,400 --> 00:27:41,440 Speaker 6: this is what Ed's been looking for. Maybe it's a 587 00:27:41,480 --> 00:27:44,240 Speaker 6: little bit above. It still is pretty low relative to history. 588 00:27:44,320 --> 00:27:47,560 Speaker 6: It's coming off an incredibly historically low base. How much 589 00:27:47,680 --> 00:27:49,520 Speaker 6: is this enough of a crack or does it have 590 00:27:49,560 --> 00:27:51,919 Speaker 6: to be an acceleration in the regional banking crisis. Does 591 00:27:51,920 --> 00:27:53,600 Speaker 6: it have to be commercial real estates, does it have 592 00:27:53,680 --> 00:27:54,600 Speaker 6: to be private equity. 593 00:27:54,960 --> 00:27:57,280 Speaker 9: Yeah, So what we're trying to do right now is 594 00:27:57,320 --> 00:27:59,520 Speaker 9: we're trying to build a ledger, and there's things on 595 00:27:59,560 --> 00:28:01,440 Speaker 9: both sides of the ledger. There are things that are 596 00:28:01,440 --> 00:28:04,359 Speaker 9: saying the expansion can continue. And I think, you know, 597 00:28:04,400 --> 00:28:06,720 Speaker 9: the biggest thing there, you know, is some of the 598 00:28:06,800 --> 00:28:09,480 Speaker 9: data still in the labor market, we're still growing jobs 599 00:28:09,480 --> 00:28:12,360 Speaker 9: around two hundred thousand, that's well above the break even rate, 600 00:28:12,440 --> 00:28:14,840 Speaker 9: and as a result, the unemployment rate is still falling. 601 00:28:15,160 --> 00:28:17,280 Speaker 10: But the number of things on the other. 602 00:28:17,200 --> 00:28:20,080 Speaker 9: Side of the ledger that are suggesting that we should 603 00:28:20,080 --> 00:28:24,160 Speaker 9: be slowing is just building and building and building now, 604 00:28:24,400 --> 00:28:26,840 Speaker 9: and it's really allowing us to, you know, increase our 605 00:28:26,880 --> 00:28:29,199 Speaker 9: confidence that as bond managers, what we want to be 606 00:28:29,280 --> 00:28:34,040 Speaker 9: doing is staying long duration, adding curve steepeners to portfolios 607 00:28:34,080 --> 00:28:37,960 Speaker 9: on opportunities you know, where the curve may tactically flatten, 608 00:28:38,400 --> 00:28:40,920 Speaker 9: and staying very up in quality in terms of our 609 00:28:40,960 --> 00:28:42,440 Speaker 9: credit credit quality bias. 610 00:28:42,600 --> 00:28:44,920 Speaker 6: This is something that we saw with the fund flows 611 00:28:44,960 --> 00:28:47,520 Speaker 6: over the past week. Global bond funds had their seventh 612 00:28:47,600 --> 00:28:50,400 Speaker 6: straight week of inflows, the focus really being on develop 613 00:28:50,480 --> 00:28:53,040 Speaker 6: market debt equity flows were interesting and how yield up 614 00:28:53,080 --> 00:28:53,680 Speaker 6: put in there. 615 00:28:53,800 --> 00:28:55,640 Speaker 10: There were outflows of the. 616 00:28:55,760 --> 00:28:58,200 Speaker 6: US, there were inflows for the rest of the world, 617 00:28:58,280 --> 00:29:01,120 Speaker 6: particularly China. Do you agree with this assessment the US 618 00:29:01,200 --> 00:29:03,600 Speaker 6: is the weak spot, but globally risk is a little 619 00:29:03,640 --> 00:29:04,320 Speaker 6: bit more appealing. 620 00:29:05,080 --> 00:29:07,520 Speaker 9: Well, I do think that the stories are not the same, 621 00:29:07,640 --> 00:29:09,680 Speaker 9: you know, particularly on the central bank side. On the 622 00:29:09,680 --> 00:29:12,720 Speaker 9: inflation side, you have Europe inflation is really not showing 623 00:29:12,720 --> 00:29:16,800 Speaker 9: any improvements, UK not showing any improvements in terms of inflation. 624 00:29:17,640 --> 00:29:19,720 Speaker 9: You know, they are a little bit behind in terms 625 00:29:19,800 --> 00:29:22,680 Speaker 9: of the monetary policy cycle. But I actually point to 626 00:29:22,720 --> 00:29:25,640 Speaker 9: something more global, which is the commodity market. We were 627 00:29:25,640 --> 00:29:29,280 Speaker 9: looking at the copper gold ratio yesterday. That's actually back 628 00:29:29,360 --> 00:29:30,280 Speaker 9: down to where it was. 629 00:29:30,320 --> 00:29:32,960 Speaker 10: Two years ago. So, you know, I think that. 630 00:29:32,960 --> 00:29:35,560 Speaker 9: The commodity market is telling you that there may be 631 00:29:35,600 --> 00:29:37,920 Speaker 9: a little bit more stress globally in terms of demand. 632 00:29:38,160 --> 00:29:40,440 Speaker 9: Those investors are saying, I'm not sure there's as much 633 00:29:40,480 --> 00:29:43,400 Speaker 9: demand for all of this industrial product. 634 00:29:43,560 --> 00:29:45,160 Speaker 3: That tells you more about love of growth is that 635 00:29:45,160 --> 00:29:47,360 Speaker 3: the call there is that what you're seeing, Yes, so 636 00:29:47,440 --> 00:29:49,120 Speaker 3: maybe yield to the long end right cuts to be 637 00:29:49,160 --> 00:29:50,840 Speaker 3: priced in at the front end. What does the debt 638 00:29:50,880 --> 00:29:52,880 Speaker 3: scening fit into all of that? When you start talking 639 00:29:52,920 --> 00:29:55,520 Speaker 3: about curves and mention T bills, I'm like, how much 640 00:29:55,560 --> 00:29:56,720 Speaker 3: of that at the front end of the curve is 641 00:29:56,760 --> 00:29:59,040 Speaker 3: just driven by this mess right now in Washington. 642 00:30:00,000 --> 00:30:03,200 Speaker 9: So definitely there is distortions in the T bill market 643 00:30:03,240 --> 00:30:05,000 Speaker 9: as a result of the debt ceiling. I mean, you 644 00:30:05,040 --> 00:30:09,720 Speaker 9: have five trillion, six trillion nearly in assets and money 645 00:30:09,720 --> 00:30:12,440 Speaker 9: market funds and they're all being moved around to try 646 00:30:12,440 --> 00:30:16,120 Speaker 9: to adjust for this potential stress this x state that 647 00:30:16,640 --> 00:30:21,320 Speaker 9: Cherry Yellen is our Treasury secretary. Yellen is putting on 648 00:30:21,400 --> 00:30:25,040 Speaker 9: June first. You know, in our mind, ultimately this is 649 00:30:25,120 --> 00:30:28,440 Speaker 9: just another stressor at a point where you know, the 650 00:30:28,480 --> 00:30:31,440 Speaker 9: system is fairly fragile, and what we're thinking about is 651 00:30:31,520 --> 00:30:34,719 Speaker 9: kind of these unintended consequences and there's a lot of 652 00:30:34,800 --> 00:30:37,600 Speaker 9: operational risks that people don't understand that's going on in 653 00:30:37,640 --> 00:30:41,240 Speaker 9: the background. The treasury market is the backbone of the 654 00:30:41,280 --> 00:30:43,920 Speaker 9: financial system, you know, it's not just that you know 655 00:30:43,960 --> 00:30:46,360 Speaker 9: we talk about is yield going up, is the eeld's 656 00:30:46,360 --> 00:30:49,040 Speaker 9: going down. It's used as collateral, you know, it's used 657 00:30:49,040 --> 00:30:52,160 Speaker 9: as the safe haven across the world. And so if 658 00:30:52,200 --> 00:30:55,360 Speaker 9: you have a bill that is going to mature during 659 00:30:55,360 --> 00:30:57,640 Speaker 9: the X state, and we do run through that X state, 660 00:30:57,680 --> 00:31:00,720 Speaker 9: there's a lot of questions about how things are. 661 00:31:00,560 --> 00:31:01,160 Speaker 10: Going to work. 662 00:31:01,200 --> 00:31:05,080 Speaker 9: And you mentioned Jamie, you know here at Bloomberg yesterday, 663 00:31:05,080 --> 00:31:07,800 Speaker 9: he's talking about the war rooms. You know, that's what 664 00:31:07,880 --> 00:31:11,000 Speaker 9: everyone is looking at now, is setting up those. 665 00:31:10,800 --> 00:31:13,880 Speaker 3: War Roomsacy signed your war room. Can you describe what 666 00:31:13,880 --> 00:31:15,880 Speaker 3: that day might look like? I want to ask you 667 00:31:15,880 --> 00:31:17,480 Speaker 3: for the probability that we're going to see that day. 668 00:31:17,480 --> 00:31:19,120 Speaker 3: That would be unfair, But describe what you think that 669 00:31:19,200 --> 00:31:23,080 Speaker 3: day might look like. I own an at risk maturity, 670 00:31:23,520 --> 00:31:26,840 Speaker 3: whatever that one might be. That day comes, we go 671 00:31:26,920 --> 00:31:29,280 Speaker 3: through it, what happens, What does that look like? 672 00:31:29,960 --> 00:31:30,120 Speaker 7: Well? 673 00:31:30,160 --> 00:31:33,160 Speaker 9: I do think that the money market funds are preparing 674 00:31:33,240 --> 00:31:36,000 Speaker 9: for this, and that's why you're already seeing the distortions 675 00:31:36,240 --> 00:31:36,959 Speaker 9: in the market. 676 00:31:37,080 --> 00:31:39,200 Speaker 10: So you know, the investors that. 677 00:31:39,720 --> 00:31:44,960 Speaker 9: Are needing to adjust are already making those adjustments now. 678 00:31:45,000 --> 00:31:47,920 Speaker 9: But I do think, of course, the broader sentiment in 679 00:31:47,960 --> 00:31:49,720 Speaker 9: the market, if we were to pass the X date 680 00:31:49,840 --> 00:31:52,360 Speaker 9: and not have the money that we needed to continue 681 00:31:52,440 --> 00:31:56,920 Speaker 9: to pay bills would be a fairly a stressful situation 682 00:31:57,120 --> 00:32:00,640 Speaker 9: for the broader markets. I think credit spreads would widening. 683 00:32:00,680 --> 00:32:02,600 Speaker 9: I think equity markets would be falling. 684 00:32:02,680 --> 00:32:05,040 Speaker 10: The treasure he's rallying, and I think treasuries will be 685 00:32:05,120 --> 00:32:07,680 Speaker 10: rallying similar to the experience we had in twenty eleven. 686 00:32:07,840 --> 00:32:08,360 Speaker 1: Were I want to go. 687 00:32:08,720 --> 00:32:11,959 Speaker 2: The US aggregate Total Return Index needs to go up 688 00:32:12,000 --> 00:32:14,600 Speaker 2: twelve percent in price to get back to where it 689 00:32:14,680 --> 00:32:17,360 Speaker 2: was before all this storm and thunder. 690 00:32:17,960 --> 00:32:18,280 Speaker 1: Great. 691 00:32:18,320 --> 00:32:19,960 Speaker 2: How long is it going to take for people to 692 00:32:20,000 --> 00:32:23,160 Speaker 2: get price up yield down so they recover from the 693 00:32:23,160 --> 00:32:25,320 Speaker 2: bond tobaccle of the last two years. 694 00:32:25,640 --> 00:32:27,880 Speaker 10: Well, the good news is they're already getting some of that. 695 00:32:27,960 --> 00:32:28,840 Speaker 1: They've gotten some of it. 696 00:32:28,920 --> 00:32:29,640 Speaker 3: I'll give you that. 697 00:32:29,680 --> 00:32:31,880 Speaker 2: But come on, is it quarters or are you and 698 00:32:31,920 --> 00:32:35,520 Speaker 2: Bob looking out years to see a price recovery in bonds. 699 00:32:35,640 --> 00:32:39,520 Speaker 9: Well, we've looked at how bonds perform once the FED 700 00:32:39,600 --> 00:32:44,960 Speaker 9: has paused, and bonds handily outperformed cash once. 701 00:32:44,720 --> 00:32:45,880 Speaker 10: The FED has paused. 702 00:32:46,120 --> 00:32:48,719 Speaker 9: So we are looking at a situation where you know, 703 00:32:48,760 --> 00:32:50,720 Speaker 9: this is the time to get invested, this is the 704 00:32:50,760 --> 00:32:53,600 Speaker 9: time to lock in the yields, get them now and 705 00:32:53,640 --> 00:32:56,760 Speaker 9: benefit from the capital appreciation once the Fed starts hiking. 706 00:32:56,840 --> 00:32:58,080 Speaker 10: We expect that in Q four. 707 00:32:58,200 --> 00:33:00,360 Speaker 3: So think you rition on what we do leave. It's 708 00:33:00,360 --> 00:33:02,360 Speaker 3: the last hike seems to be the cool rite. 709 00:33:02,520 --> 00:33:02,960 Speaker 10: That's it. 710 00:33:03,120 --> 00:33:05,880 Speaker 3: Cassie, wonderful to getting view on things. Cassie Paraday f 711 00:33:05,960 --> 00:33:07,240 Speaker 3: Jpmulkan asset management. 712 00:33:11,760 --> 00:33:15,680 Speaker 2: To so many of Americans, Japan is Tokyo. There's a 713 00:33:15,720 --> 00:33:17,600 Speaker 2: whole other Japan, and part of it is on the 714 00:33:17,640 --> 00:33:20,760 Speaker 2: West coast, overlooking the sea to Korea and Russia. That's 715 00:33:20,760 --> 00:33:23,120 Speaker 2: where Ann Marie Horden is. She is our Bloomberg G 716 00:33:23,240 --> 00:33:27,520 Speaker 2: seven Finance Minister's corresponded after her most interesting interview with 717 00:33:27,600 --> 00:33:29,880 Speaker 2: the Secretary of Treasury Emory Harden. 718 00:33:29,920 --> 00:33:31,760 Speaker 1: The Secretary is seventy six years old. 719 00:33:31,800 --> 00:33:36,240 Speaker 2: She has bulletproof economic academics as well. And what I 720 00:33:36,440 --> 00:33:38,880 Speaker 2: really heard today is she's going to stay the course 721 00:33:38,920 --> 00:33:40,200 Speaker 2: and serve out her term. 722 00:33:40,280 --> 00:33:42,760 Speaker 1: Is that true? 723 00:33:44,160 --> 00:33:46,240 Speaker 5: Yes, that is true. She said this number of times. 724 00:33:46,320 --> 00:33:48,520 Speaker 5: She confirmed that with me today. I asked her a 725 00:33:48,520 --> 00:33:50,080 Speaker 5: little bit of a tongue in cheek question at the 726 00:33:50,200 --> 00:33:53,320 Speaker 5: very end, if she'd considered another four years if President 727 00:33:53,320 --> 00:33:57,480 Speaker 5: Biden worked to win because Obviously, he has relaunched his 728 00:33:57,800 --> 00:33:59,920 Speaker 5: next bid for the White House for twenty twenty four, 729 00:34:00,320 --> 00:34:02,760 Speaker 5: and she laughed, But she says she enjoys doing the 730 00:34:02,760 --> 00:34:05,800 Speaker 5: work and she will continue to see out this term. Obviously, 731 00:34:05,840 --> 00:34:08,759 Speaker 5: her work right now, whether it's in Washington or here 732 00:34:08,760 --> 00:34:12,799 Speaker 5: in Nagata, Japan, is the debt ceiling on the sidelines. 733 00:34:12,880 --> 00:34:15,279 Speaker 5: This is what her peers at the G seven are 734 00:34:15,440 --> 00:34:19,439 Speaker 5: very concerned with. The risks to the global economy. They're 735 00:34:19,480 --> 00:34:21,680 Speaker 5: all emanating from the United States right now. 736 00:34:21,920 --> 00:34:25,440 Speaker 2: Emmery, you know that each White House has a process 737 00:34:25,560 --> 00:34:29,400 Speaker 2: of debate and dialogue. Where does Secretary Yellen fit into 738 00:34:29,440 --> 00:34:36,360 Speaker 2: the debate and dialogue of the Biden sixteen hundred Pennsylvania Avenue. 739 00:34:37,400 --> 00:34:38,960 Speaker 5: Well, when it comes to the debt ceiling, of course, 740 00:34:39,040 --> 00:34:41,560 Speaker 5: the Treasury Secretary is the individual that is going to 741 00:34:41,560 --> 00:34:44,440 Speaker 5: continuously update us on the X date. She said in 742 00:34:44,440 --> 00:34:48,640 Speaker 5: my conversation that as we get closer to that June first, 743 00:34:48,680 --> 00:34:51,359 Speaker 5: as early as June first is what she's outlined, that 744 00:34:51,400 --> 00:34:54,359 Speaker 5: potentially Treasury could run out of the extraordinary measures they've 745 00:34:54,360 --> 00:34:57,480 Speaker 5: been taking since January, that she will update Congress with 746 00:34:57,520 --> 00:35:00,719 Speaker 5: a more precise time frame. So her team is going 747 00:35:00,760 --> 00:35:03,680 Speaker 5: to be obviously communicating all of this first and foremost 748 00:35:03,760 --> 00:35:05,759 Speaker 5: to the White House. And then of course we got 749 00:35:05,800 --> 00:35:08,640 Speaker 5: a little bit into what happens if there were to 750 00:35:08,760 --> 00:35:11,080 Speaker 5: be a default, if we go over the X date. 751 00:35:11,480 --> 00:35:15,080 Speaker 5: Treasury Secretary Janet Yellen was at the Fed in twenty 752 00:35:15,120 --> 00:35:18,359 Speaker 5: eleven when the Fed went through these scenarios of what 753 00:35:18,400 --> 00:35:21,520 Speaker 5: Treasury was doing, and it was under the assumption then, 754 00:35:21,640 --> 00:35:23,920 Speaker 5: and I've read the transcript, it was under her assumption 755 00:35:24,080 --> 00:35:28,200 Speaker 5: then that Treasury would service the debt first. She says 756 00:35:28,239 --> 00:35:30,839 Speaker 5: that she has not yet spoken about these paths yet 757 00:35:30,880 --> 00:35:33,319 Speaker 5: with the President. It's going to be politically fraught for 758 00:35:33,360 --> 00:35:36,399 Speaker 5: this administration if there is no deal and they need 759 00:35:36,440 --> 00:35:40,680 Speaker 5: to decide to pay bondholders or pay recipients of Social Security. 760 00:35:40,880 --> 00:35:42,600 Speaker 6: Meanwhile, John was saying that it has to get worse 761 00:35:42,640 --> 00:35:44,160 Speaker 6: before it gets better. In other words, people have to 762 00:35:44,200 --> 00:35:48,080 Speaker 6: care more before they can resolve anything. In Washington, DC, 763 00:35:48,400 --> 00:35:51,040 Speaker 6: over at the G seven finance minister meetings. How much 764 00:35:51,080 --> 00:35:53,160 Speaker 6: do they care? How much is this a focus versus 765 00:35:53,400 --> 00:35:55,640 Speaker 6: people looking past this and saying the same thing that 766 00:35:55,640 --> 00:35:57,719 Speaker 6: people in the markets are, which is we've seen this 767 00:35:57,760 --> 00:36:00,600 Speaker 6: movie before. It always gets resolved. 768 00:36:02,320 --> 00:36:05,279 Speaker 5: There's a lot of concern and angst amongst other financial 769 00:36:05,440 --> 00:36:08,440 Speaker 5: ministers at the G seven, and we heard from the 770 00:36:08,440 --> 00:36:11,000 Speaker 5: German finance minister. He's saying he hopes that Washington makes 771 00:36:11,040 --> 00:36:14,600 Speaker 5: a matured decision. They are all also on the edge 772 00:36:14,600 --> 00:36:17,439 Speaker 5: of their seat waiting to see how this plays out. 773 00:36:17,800 --> 00:36:20,040 Speaker 5: And there is concern when you think about the makeup 774 00:36:20,080 --> 00:36:24,040 Speaker 5: of this Congress, only about thirty three percent. NBC recently 775 00:36:24,040 --> 00:36:26,879 Speaker 5: did analysis of this. Thirty three percent of lawmakers were 776 00:36:26,920 --> 00:36:30,040 Speaker 5: here in twenty eleven. They witnessed that down break, they 777 00:36:30,120 --> 00:36:33,440 Speaker 5: witness the pain in the market. Not a ton of 778 00:36:33,520 --> 00:36:36,960 Speaker 5: a lot of these lawmakers are fresh, and Kevin McCarthy 779 00:36:37,000 --> 00:36:39,759 Speaker 5: has a very difficult line to walk. I think many 780 00:36:39,840 --> 00:36:43,160 Speaker 5: people are viewing that the negotiations stopped today, that the 781 00:36:43,200 --> 00:36:46,960 Speaker 5: meeting stopped today is postponed for early next week. They 782 00:36:47,000 --> 00:36:49,520 Speaker 5: do see that as progressed, because that means on the 783 00:36:49,560 --> 00:36:52,520 Speaker 5: staff level they are working through a number of items 784 00:36:52,560 --> 00:36:55,080 Speaker 5: before they want to sit down with the principles. But 785 00:36:55,160 --> 00:36:57,239 Speaker 5: next week is going to be incredibly busy, and for 786 00:36:57,280 --> 00:37:00,719 Speaker 5: the Treasury Secretary, she will be meeting with bank executives. 787 00:37:00,800 --> 00:37:03,759 Speaker 5: She said recently she's been speaking to business leaders, but 788 00:37:03,840 --> 00:37:07,359 Speaker 5: she hasn't spoken to bank executives since January, and she 789 00:37:07,440 --> 00:37:09,960 Speaker 5: wants to learn from them what is going on, and 790 00:37:10,000 --> 00:37:12,560 Speaker 5: potentially she wants to put some pressure on them to 791 00:37:12,600 --> 00:37:16,279 Speaker 5: start calling other members of Congress because for her, she 792 00:37:16,320 --> 00:37:19,400 Speaker 5: does not want to even speak out loud the contingency plans. 793 00:37:19,680 --> 00:37:23,280 Speaker 5: She says, there is no good deal unless Congress lifts 794 00:37:23,320 --> 00:37:23,960 Speaker 5: the debt ceiling. 795 00:37:24,080 --> 00:37:26,800 Speaker 6: Amory just quickly here putting those ideas together. The concerns 796 00:37:26,800 --> 00:37:28,879 Speaker 6: about the banking sector, not just with respect to them 797 00:37:28,880 --> 00:37:31,560 Speaker 6: getting more excited about the bank the debt default ceiling, 798 00:37:31,840 --> 00:37:34,520 Speaker 6: but also just with some of the regional banking crisis. 799 00:37:34,920 --> 00:37:37,160 Speaker 6: How much is the US on a back foot relative 800 00:37:37,200 --> 00:37:38,360 Speaker 6: to where it has been in the past. 801 00:37:38,440 --> 00:37:39,360 Speaker 3: These G seven. 802 00:37:39,160 --> 00:37:44,920 Speaker 5: Meetings, well, the US always wants to lead, especially at 803 00:37:44,920 --> 00:37:46,879 Speaker 5: a G seven like this. They want to lead when 804 00:37:46,920 --> 00:37:50,160 Speaker 5: it comes to China. The G seven meeting is really 805 00:37:50,200 --> 00:37:52,480 Speaker 5: the prep work as well for the ministerial meeting that 806 00:37:52,600 --> 00:37:56,000 Speaker 5: also be attending with President Biden in Hiroshima. And one 807 00:37:56,040 --> 00:37:57,799 Speaker 5: thing we know they want to work on is this 808 00:37:57,880 --> 00:38:02,120 Speaker 5: economic coersion against China. Secretary Yellen has spoke about the 809 00:38:02,120 --> 00:38:04,760 Speaker 5: work that they're doing potentially on outbound investment. They're supposed 810 00:38:04,760 --> 00:38:07,640 Speaker 5: to be an executive order. But this administration, the way 811 00:38:07,680 --> 00:38:09,800 Speaker 5: they confront China, they want to do so in a 812 00:38:09,880 --> 00:38:13,600 Speaker 5: multilateral approach. It's very difficult to make sure you're corraling 813 00:38:13,640 --> 00:38:17,120 Speaker 5: all the troops when you come here and they're asking 814 00:38:17,160 --> 00:38:18,960 Speaker 5: you questions, When is the US going to raise the 815 00:38:18,960 --> 00:38:19,520 Speaker 5: debt ceiling? 816 00:38:19,719 --> 00:38:20,759 Speaker 10: How do we know that the. 817 00:38:20,719 --> 00:38:24,200 Speaker 5: Treasuries that are the underlying bedrock of the global financial 818 00:38:24,200 --> 00:38:26,799 Speaker 5: system are going to be paid and secure? It does 819 00:38:26,880 --> 00:38:28,440 Speaker 5: put them in a very precarious place. 820 00:38:28,600 --> 00:38:32,960 Speaker 3: I MH. Wonderful conversation, fantastic job this morning. Thanks for 821 00:38:33,000 --> 00:38:35,200 Speaker 3: joining us. I'm Marie Hoden. There out of the G 822 00:38:35,400 --> 00:38:37,240 Speaker 3: seven meetink Open Japan. 823 00:38:37,640 --> 00:38:41,480 Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and 824 00:38:41,600 --> 00:38:45,840 Speaker 2: anywhere else you get your podcasts. Listen live every weekday 825 00:38:46,080 --> 00:38:49,560 Speaker 2: starting at seven am Eastern on Bloomberg dot Com, the 826 00:38:49,680 --> 00:38:51,439 Speaker 2: iHeartRadio app. 827 00:38:51,360 --> 00:38:53,680 Speaker 1: Tune In, and the Bloomberg Business app. 828 00:38:54,120 --> 00:38:57,800 Speaker 2: You can watch us live on Bloomberg Television and always 829 00:38:58,160 --> 00:38:59,400 Speaker 2: on the Bloomberg terminal. 830 00:39:00,000 --> 00:39:03,880 Speaker 1: Thanks for listening. I'm Tom Keane, and this is blumber