WEBVTT - Surveillance: Fed Outlook with Hatzius 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.039 I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.200 --> 0:00:32.720 Jan Hatzius and a team I've read Goldman still calling 0:00:32.760 --> 0:00:34.879 for a pause at the next meeting, is saying this. 0:00:35.000 --> 0:00:38.000 Here's the latest from them. The CPI report is supportive 0:00:38.200 --> 0:00:40.479 of our call for reports at the June FMC meeting. 0:00:40.880 --> 0:00:45.360 The shelter step down, Tom looks increasingly durable, information breadth 0:00:45.479 --> 0:00:48.000 soft and somewhat further and the strength and news car 0:00:48.120 --> 0:00:50.440 prices is likely temporary. 0:00:50.560 --> 0:00:52.239 In just in the last forty eight hours, this has 0:00:52.360 --> 0:00:55.080 changed because of the misguests on housing in the United Kingdom. 0:00:55.120 --> 0:00:57.080 Completely different story, but it shows. 0:00:56.840 --> 0:00:59.760 You how humility is an order. Here, what's a key point. 0:00:59.800 --> 0:01:03.200 You have a humility at the moment, doctor Hatzias. You 0:01:03.240 --> 0:01:05.760 look at the things you've made right, the things you've 0:01:05.760 --> 0:01:08.880 made wrong. Into the first five months of twenty twenty three. 0:01:08.959 --> 0:01:11.720 What's the humility you're writing about this weekend on inflation. 0:01:12.440 --> 0:01:17.480 I would say mostly things have evolved the way we thought, 0:01:17.640 --> 0:01:19.479 at least in the labor market. For me, the labor 0:01:19.520 --> 0:01:22.240 market is really key, and the rebalancing that we're seeing 0:01:22.280 --> 0:01:26.760 there I think is very encouraging with job openings coming 0:01:26.800 --> 0:01:29.160 down and the unemployment rates still staying very low. So 0:01:29.160 --> 0:01:32.440 it's a very benign form of rebalancing. In terms of 0:01:32.480 --> 0:01:37.399 the tactics of FED policy, I would have thought a 0:01:37.720 --> 0:01:40.839 pause in March would have made sense, and we thought 0:01:40.880 --> 0:01:48.640 that was the likely outcome. But I think now a 0:01:48.640 --> 0:01:51.200 lot of humility is in order as we go into 0:01:51.880 --> 0:01:54.840 the next few months. There's obviously a lot of event risk, 0:01:55.400 --> 0:01:58.720 but I would say were reasonably well set up in 0:01:58.800 --> 0:02:00.960 terms of the disinflation process that's underway. 0:02:01.000 --> 0:02:02.360 The part of gain that's out there that you have 0:02:02.440 --> 0:02:04.560 to battle every day is on the X axis, and 0:02:04.600 --> 0:02:06.760 to me, the markets are in short term they're looking 0:02:06.760 --> 0:02:10.400 for drameda Labor day drama to October. Does Goldman Sachs 0:02:10.760 --> 0:02:14.320 extend out the X axis? The healing out of the 0:02:14.320 --> 0:02:17.639 pandemic is the things we're talking about for October twenty three. 0:02:18.000 --> 0:02:19.679 Really the things we're going to be talking about in 0:02:19.760 --> 0:02:21.280 June of twenty twenty four. 0:02:22.160 --> 0:02:24.680 Well, I think by June of twenty twenty four, I 0:02:24.680 --> 0:02:28.400 would have you know, our baseline has the rebalancing in 0:02:28.480 --> 0:02:31.839 the in the labor market completed at that point, and 0:02:32.160 --> 0:02:38.760 inflation down from right nulbu four and a half by 0:02:39.639 --> 0:02:42.359 next year, I think will be below three percent. So 0:02:42.639 --> 0:02:43.960 I do think we're going to be in a very 0:02:44.000 --> 0:02:47.519 different place in terms of the funds rate, though I 0:02:47.560 --> 0:02:51.799 would expect that will still be close to here in fact, 0:02:52.280 --> 0:02:55.000 where we are right now. I mean, our baseline forecast 0:02:55.160 --> 0:02:57.720 is that the funds rate stays at five to five 0:02:57.760 --> 0:03:00.880 and a quarter for the next a year or so. 0:03:01.480 --> 0:03:04.560 I'm you know, risks of that, certainly on the downside, 0:03:04.720 --> 0:03:06.680 I think it's much more likely that you go from 0:03:06.800 --> 0:03:10.560 five to three than that you go from five to seven. Okay, 0:03:10.680 --> 0:03:14.600 but I do think the market is overly aggressive in 0:03:14.680 --> 0:03:15.760 building in rate cuts. 0:03:15.840 --> 0:03:17.720 Let's explore that a little bit further. This was a 0:03:17.800 --> 0:03:19.960 question I got from a Bloomberg subscribe, but just moments ago, 0:03:19.960 --> 0:03:22.440 as soon as they knew that you were appearing, they said, 0:03:22.480 --> 0:03:24.360 if stock's running big over the summer because of the 0:03:24.400 --> 0:03:28.120 FED pause, the economy holds up, the debtlimit issue is sorted. 0:03:28.840 --> 0:03:31.160 What does the FED do in the fall. How would 0:03:31.160 --> 0:03:33.079 you think about that just a piece of scenario analysis. 0:03:33.080 --> 0:03:33.880 What would that mean for you? 0:03:33.960 --> 0:03:36.360 Well, I mean directionally, it would point to, you know, 0:03:36.400 --> 0:03:39.640 a higher funds rate. And obviously the market is below 0:03:40.400 --> 0:03:43.680 the current level in terms of forward pricing, so you know, 0:03:44.040 --> 0:03:48.320 holding would already be you know, would already have some 0:03:48.520 --> 0:03:51.120 impact in terms of an impulse, but you might need 0:03:51.640 --> 0:03:55.080 you know, additional hikes. That's certainly a possibility. I don't 0:03:55.120 --> 0:04:01.480 think it's you know, particularly likely. If we see going adjustment, 0:04:01.760 --> 0:04:06.080 if we see adjustment in inflation and the labor market, 0:04:06.240 --> 0:04:08.080 then there's also going to be a little bit more 0:04:08.080 --> 0:04:12.400 tolerance for easier financial conditions and stronger growth. But there's 0:04:12.400 --> 0:04:13.040 a limit to it. 0:04:13.360 --> 0:04:16.200 If forward pricing adjusts upwards towards the federal reserve? Would 0:04:16.200 --> 0:04:18.680 you consider that a tightening of policy somewhat? 0:04:18.720 --> 0:04:18.839 Is that? 0:04:18.839 --> 0:04:19.640 How you think about it? 0:04:19.640 --> 0:04:21.960 It depends on what is driven by it's if it's 0:04:22.040 --> 0:04:25.440 driven by a stronger economy, then no. If it's driven 0:04:25.480 --> 0:04:29.640 by you FED messaging that they're less willing to cut 0:04:30.279 --> 0:04:33.400 you know, relative to the market's expectation, then I would 0:04:33.480 --> 0:04:34.360 view it as a tightening. 0:04:34.600 --> 0:04:37.920 People are waiting for something big to happen because they're impatient, 0:04:38.000 --> 0:04:40.520 and they're looking for trading opportunity, And I'm curious, what 0:04:40.560 --> 0:04:42.680 is the next shoot to drop? Is it housing prices crashing? 0:04:44.279 --> 0:04:47.640 Well? Housing? I think, you know, we had declients in 0:04:47.680 --> 0:04:50.680 house prices in the second half of last year. We 0:04:50.720 --> 0:04:55.400 actually have seen some stabilization in twenty twenty three so far, 0:04:56.040 --> 0:05:00.720 so I wouldn't really expect, barring another major shock, for example, 0:05:01.200 --> 0:05:04.240 the sort of thing that John was talking about, significant 0:05:04.279 --> 0:05:07.320 further upward pressure on the funds rate, I wouldn't really 0:05:07.400 --> 0:05:12.599 expect a sharp, sharp drop in house prices from here. 0:05:13.120 --> 0:05:16.320 You know, there's still some I think erosion happening. Some 0:05:16.440 --> 0:05:20.400 of that is also because the official indices lagged behind 0:05:20.440 --> 0:05:24.720 reality somewhat, but I wouldn't expect that to be a 0:05:24.760 --> 0:05:25.280 big shot. 0:05:25.600 --> 0:05:28.120 Was the banking crisis basically resolved and now it's just 0:05:28.160 --> 0:05:30.400 sort of the slow bleed of the reality of higher 0:05:30.480 --> 0:05:33.440 yields or is there something percolating there that you're keeping 0:05:33.440 --> 0:05:36.320 an eye on as also a potential catalyst, especially if 0:05:36.320 --> 0:05:38.559 what John said does come to pass. For people price 0:05:38.640 --> 0:05:40.040 out some of those rate cuts. 0:05:40.600 --> 0:05:43.599 I mean, our view is that the banking turmoil is 0:05:43.640 --> 0:05:46.880 going to be a drag on growth. We've said about 0:05:47.040 --> 0:05:49.719 you know, forty basis points or so, you know, half 0:05:49.760 --> 0:05:51.320 a percentage point or a little less. 0:05:51.440 --> 0:05:52.359 How did you come up with that? 0:05:52.440 --> 0:05:53.800 Yeah? Can I ask there? 0:05:53.960 --> 0:05:55.320 How do you even the team come up with that 0:05:55.440 --> 0:05:57.239 forty to fifty vices points number? 0:05:57.320 --> 0:06:01.800 Well, the primary approach was to to basically look at 0:06:02.520 --> 0:06:07.400 past changes in lending conditions in the FED Senior Law 0:06:07.480 --> 0:06:11.719 Officers survey, making assumptions about where that goes, and then 0:06:11.960 --> 0:06:17.000 feeding that into our model, which also includes financial conditions, 0:06:17.560 --> 0:06:20.560 and then getting sort of the extra effect over and 0:06:20.600 --> 0:06:25.800 above what you'd normally expect in a tightening financial conditions environment. 0:06:26.040 --> 0:06:28.159 That's how we came up with it. I would say 0:06:28.200 --> 0:06:31.080 that so far what we've seen in these surveys has 0:06:31.120 --> 0:06:33.919 been less pronounced. There's been less of a tightening that 0:06:33.960 --> 0:06:37.160 we expected than we expected. And now the question is 0:06:37.160 --> 0:06:40.200 is it just delayed or are we just seeing a 0:06:40.200 --> 0:06:42.440 smaller impact. I think that's a little bit too early 0:06:42.480 --> 0:06:45.800 to tell. Also, because obviously some of these banking issues 0:06:45.839 --> 0:06:48.480 are not yet resolved. There's still pressure in the market. 0:06:49.279 --> 0:06:51.919 So the last chapter probably hasn't been written yet, but 0:06:52.080 --> 0:06:55.640 right now we're still estimating that forty basis point. 0:06:55.839 --> 0:06:58.240 What's more pernicious for this economy for it to be 0:06:58.279 --> 0:07:00.839 a slow burn, a slow tick, tick to a reduced 0:07:01.040 --> 0:07:04.560 lending of tightening credit standards, or a sudden shock. 0:07:05.520 --> 0:07:08.560 Well, a sudden shock is more pernicious because a slow burn, 0:07:08.839 --> 0:07:11.360 you know, there are a lot of other factors in 0:07:11.400 --> 0:07:15.080 the economy that can offset the slow barn, policy can 0:07:15.600 --> 0:07:19.960 react to it. So you know, clearly something that happens 0:07:20.040 --> 0:07:23.600 very suddenly in large size is much more difficult to 0:07:23.680 --> 0:07:27.160 manage if you're an economic policy maker. So I'll go 0:07:27.320 --> 0:07:28.840 with a with a quick shock here. 0:07:28.800 --> 0:07:31.400 A longer going far away, there was a guy named 0:07:31.400 --> 0:07:34.480 O'Neill and Dudley. They were at Goldman Sachs with Ed McKelvey. 0:07:34.560 --> 0:07:37.640 And there's this young whipper snapper out of Wisconsin, Madison 0:07:37.720 --> 0:07:42.840 in Germany who made his name on mortgage equity withdrawal. 0:07:42.920 --> 0:07:45.560 John Farrell brought up in the last hour the new 0:07:45.600 --> 0:07:49.120 housing dilemma. We have an America of two point six 0:07:49.200 --> 0:07:54.280 percent mortgages locked in and they're never ever going to sell. 0:07:54.680 --> 0:07:57.920 What does your team say about the housing economy of America. 0:07:58.200 --> 0:08:00.480 This is where you got your fame. Yh what does 0:08:00.520 --> 0:08:04.239 your team say now about all those people out there 0:08:04.320 --> 0:08:06.520 locked in the mortgages of their dreams. 0:08:07.080 --> 0:08:09.360 So first of all, I would say, you know, the 0:08:09.440 --> 0:08:14.320 housing bubble was really central in the pre eight economy. Obviously, 0:08:14.400 --> 0:08:18.920 it hasn't been central in the recent economy. It's been important. 0:08:19.040 --> 0:08:21.360 There has been a you know, a big boom and 0:08:21.880 --> 0:08:25.680 somewhat of a bust. And you know, mortgage equity withdrawal 0:08:25.760 --> 0:08:28.920 did pick up in twenty twenty one to levels that 0:08:28.960 --> 0:08:32.520 were appreciable I would say, not dramatic, but appreciable. And 0:08:33.000 --> 0:08:36.640 mortgage equity withdrawal coming down since the peak of that 0:08:36.800 --> 0:08:41.040 cycle has been a drag on growth. You know, I'd 0:08:41.040 --> 0:08:45.480 say specifically on the you know lock in from seven 0:08:45.559 --> 0:08:50.440 percent thirty mortgage rates versus maybe three percent or four 0:08:50.440 --> 0:08:53.720 percent that people took out the mortgage rates at I 0:08:53.760 --> 0:08:56.120 do think that is part of the sort of slow 0:08:56.160 --> 0:08:59.240 burn that that that Lisa talked about. I mean, I 0:08:59.280 --> 0:09:03.560 do think it probably at the margin reduces mobility somewhat. 0:09:03.880 --> 0:09:06.760 The research on those issues has been somewhat mixed. So 0:09:06.800 --> 0:09:10.840 that's why I'm putting this in somewhat cautious cautious terms, 0:09:10.840 --> 0:09:13.679 but I do think it probably is at the margin 0:09:14.480 --> 0:09:19.000 more negative for mobility, you know, until more time has passed. 0:09:19.080 --> 0:09:21.560 Are you're avoriding debt scene? In conversations at the moment 0:09:21.640 --> 0:09:23.559 with clients, do they want to talk about it? 0:09:23.720 --> 0:09:26.480 I talk about what what clients want to talk about. 0:09:26.520 --> 0:09:31.480 Of course, is that the solemon method of economics. 0:09:31.640 --> 0:09:32.480 Is it top of mind? 0:09:32.760 --> 0:09:35.839 Yeah, it's top of mind for for a lot of people, 0:09:35.880 --> 0:09:38.600 and you know, undoubtedly over the next few few weeks, 0:09:38.720 --> 0:09:41.760 until you know, whatever the X state is, it will 0:09:41.800 --> 0:09:45.240 remain top of mind. It probably will go you know, 0:09:45.400 --> 0:09:47.719 right up to the to the wire just looking at 0:09:47.760 --> 0:09:52.640 the political dynamics and it's still you know, unclear how 0:09:52.679 --> 0:09:56.920 exactly it's going to be resolved. Our baseline is that 0:09:57.040 --> 0:09:59.920 you know, there's going to be a resolution very close 0:10:00.440 --> 0:10:06.840 to the X state, and that you know, ultimately you 0:10:06.920 --> 0:10:10.320 do get some spending cuts of some spending caps, but 0:10:10.400 --> 0:10:12.520 we don't expect anything as large as what we have 0:10:12.720 --> 0:10:14.160 in the twenty eleventh situation. 0:10:14.200 --> 0:10:15.560 We'll have to say what that means for the outlook 0:10:15.559 --> 0:10:18.720 as well. Janhasiers at Golban, Yeah, thank you. 0:10:27.440 --> 0:10:29.240 What we know is if you go back to the 0:10:29.400 --> 0:10:33.600 Orlando Sentinel from a few years ago. You can talk 0:10:33.720 --> 0:10:38.800 about a sterling ballerina and a ballerina career that was legit. 0:10:39.040 --> 0:10:41.800 In what the parents said to Cameron Dawson is have 0:10:41.880 --> 0:10:45.600 a fallback. Her fallback has been sterling strategy for Bank 0:10:45.640 --> 0:10:48.520 of America, among others. She's at New Edge Wealth right now, 0:10:48.720 --> 0:10:52.160 their chief investment officer. Tell me about the ballet we're 0:10:52.200 --> 0:10:55.439 in right now. You know, ballet, that's a tough business. 0:10:55.640 --> 0:10:58.920 Your body falls apart, is our economy? Is our financial 0:10:58.920 --> 0:10:59.920 system falling apart? 0:11:00.120 --> 0:11:00.520 Right now? 0:11:00.640 --> 0:11:03.520 Well, the interesting thing about ballets is that they always 0:11:03.559 --> 0:11:07.120 either end in a wedding or a death. And so 0:11:07.520 --> 0:11:09.720 I think that's what we're looking at with this cycle, 0:11:09.760 --> 0:11:12.359 which is that are we going to have a recession 0:11:12.679 --> 0:11:15.280 or not? And that's why this market has been flat 0:11:15.360 --> 0:11:18.160 because we're in this world where we know the risk 0:11:18.240 --> 0:11:20.920 of recession is high, but we're not seeing the whites 0:11:20.920 --> 0:11:23.080 of the eyes of it in hard data, and that's 0:11:23.120 --> 0:11:25.199 why we continue to have this sideways chop. 0:11:25.400 --> 0:11:27.160 Do you operate with the assumption that we will get 0:11:27.200 --> 0:11:28.000 one this year? 0:11:29.080 --> 0:11:31.640 This year, I think is the operative word. It could 0:11:31.760 --> 0:11:35.119 lean more into twenty twenty four. I think the interesting 0:11:35.160 --> 0:11:38.120 thing is just at the precise moment when economists and 0:11:38.200 --> 0:11:41.080 the bond market are expecting a recession to hit those 0:11:41.160 --> 0:11:44.280 cuts to hit is when the equity market has earnings 0:11:44.320 --> 0:11:47.400 starting to reaccelerate and rebound, and that's a really big 0:11:47.440 --> 0:11:48.640 schism for this market. 0:11:48.679 --> 0:11:50.440 Have you got this tradable window, then what do you 0:11:50.480 --> 0:11:53.040 do with it between the last FED hike, even dat 0:11:53.120 --> 0:11:57.319 it was the mating before and the recession that you 0:11:57.400 --> 0:11:59.000 start to see in some of the days to pay rolls, 0:11:59.040 --> 0:12:00.440 et cetera. What do you do in that window? 0:12:00.880 --> 0:12:04.360 You probably trade on technicals, things like momentum, and you 0:12:04.440 --> 0:12:07.400 trade on positioning and sentiment. Those kinds of things can 0:12:07.480 --> 0:12:09.960 drive the market in the short term, and it's really 0:12:10.000 --> 0:12:12.480 in the medium term where the fundamentals start to matter. 0:12:12.720 --> 0:12:14.760 So when we look at that forty two hundred level, 0:12:14.840 --> 0:12:16.920 there is this risk that we move higher, and I 0:12:16.920 --> 0:12:20.040 say risk because people aren't positioned for it. That is 0:12:20.120 --> 0:12:22.960 the pain trade that we don't get above forty two 0:12:23.280 --> 0:12:25.520 and it may not be justified by the fundamentals in 0:12:25.559 --> 0:12:29.040 the medium term, but the technicals, the sentiment, positioning, could 0:12:29.080 --> 0:12:31.280 get us above that and really make it a very 0:12:31.280 --> 0:12:32.120 big pain trade. 0:12:32.200 --> 0:12:34.800 What happens though, if we don't get a catalytic event, 0:12:34.960 --> 0:12:37.080 if it's just sort of, you know, little data points 0:12:37.120 --> 0:12:39.240 that you could justify with the narrative that you desire. 0:12:39.280 --> 0:12:40.640 And this is what we've been getting for a lot 0:12:40.640 --> 0:12:42.400 of this year, and we're going to continue getting for 0:12:42.480 --> 0:12:44.280 a number of months based in what a lot of 0:12:44.320 --> 0:12:47.120 people are saying. Do markets to stay in this range? 0:12:47.880 --> 0:12:50.000 It reminds you of two thousand and six, two thousand 0:12:50.000 --> 0:12:51.840 and seven, because the writing was on the wall that 0:12:51.880 --> 0:12:55.120 things were certainly starting to weaken, yet market shrug them 0:12:55.120 --> 0:12:57.320 off because you didn't see the whites of the eyes 0:12:57.360 --> 0:12:59.959 of the weakness. The Fed had paused, and it was 0:13:00.280 --> 0:13:02.880 until two thousand and eight that we started to see 0:13:03.000 --> 0:13:06.080 unemployment tick up and really the Feds start to react 0:13:06.120 --> 0:13:08.400 to that. So there is a long precedent for these 0:13:08.400 --> 0:13:12.320 cycles simply taking a long time. It's like watching paint dry. 0:13:12.360 --> 0:13:14.120 Which is why we have to think of this in 0:13:14.120 --> 0:13:18.240 two timeframes, the short term being driven by those momentum indicators, 0:13:18.240 --> 0:13:21.080 and medium term by the actual fundamentals, the boiling. 0:13:20.760 --> 0:13:23.600 Of the frog until suddenly there is no frog that 0:13:23.720 --> 0:13:26.120 is alive and hopping. There's a question about you know, 0:13:26.160 --> 0:13:27.920 this is not two thousand and eight, and people are 0:13:27.960 --> 0:13:30.640 talking about that base in the global banks that have 0:13:30.679 --> 0:13:34.160 plenty of capital. But is this leading to some sort 0:13:34.200 --> 0:13:37.560 of fissure, some sort of seizure that is going to 0:13:37.600 --> 0:13:40.080 lead to mass evaluation drops or is it not or 0:13:40.160 --> 0:13:41.760 is it going to be something that's more akin to 0:13:41.800 --> 0:13:43.679 the recessions of your Well, I think it. 0:13:43.640 --> 0:13:46.280 Starts from your point, Jonathan all the time about how 0:13:46.320 --> 0:13:48.679 we shouldn't always just index to two thousand and eight, 0:13:49.080 --> 0:13:52.360 because just indexing to the extreme is not helpful. The 0:13:52.400 --> 0:13:54.960 reality here is that we're likely going to see some 0:13:55.120 --> 0:13:58.280 slowing in loan growth, and that typically coincides with slowing 0:13:58.280 --> 0:14:02.160 in economic activity. It should be expected that banks, small 0:14:02.160 --> 0:14:04.960 banks who have been annualizing loan growth at eight percent 0:14:05.080 --> 0:14:08.200 for the last cycle will see that slow in response 0:14:08.240 --> 0:14:11.120 to that. That will have real economic impact, and at 0:14:11.120 --> 0:14:12.480 this point it's not being priced in. 0:14:12.760 --> 0:14:14.520 I'm with you. I agree with you obviously because you 0:14:14.600 --> 0:14:16.079 agree with mat and you can come back any time 0:14:16.120 --> 0:14:18.560 to talk about people will want to benchmark to something. 0:14:18.600 --> 0:14:21.840 Though what should you benchmark too? What is the parallel 0:14:21.960 --> 0:14:22.560 right now for you? 0:14:23.360 --> 0:14:26.840 I think it's somewhere in between the twenty eighteen experience 0:14:26.840 --> 0:14:28.720 where we didn't have a recession and the FED was 0:14:29.240 --> 0:14:31.800 able to ease and there was no inflation. In that 0:14:31.880 --> 0:14:35.280 extreme of two thousand and eight, remember twenty sixteen, we 0:14:35.360 --> 0:14:38.960 got very very close to a recession. We flew very 0:14:38.960 --> 0:14:41.280 close to the sun, and we were able to avoid 0:14:41.320 --> 0:14:44.280 it in that scenario. I think that's probably a good 0:14:44.320 --> 0:14:47.200 parallel for us to say, where could the earnings risk be. 0:14:47.440 --> 0:14:49.560 We think that we have some recession, it just won't 0:14:49.560 --> 0:14:50.480 be as deep as o weight. 0:14:50.680 --> 0:14:53.240 One of the great realities of Florida right now, your 0:14:53.320 --> 0:14:55.800 Florida's everybody's been there for three cups of coffee and 0:14:55.840 --> 0:14:59.280 think they're experts. You own the high ground on Florida. 0:14:59.800 --> 0:15:03.920 Is the economy boom there legit and it is symbol 0:15:04.080 --> 0:15:07.000 of an optimism in America that we underestimate. 0:15:07.640 --> 0:15:10.960 I've always considered Florida beta on the economy because there 0:15:11.040 --> 0:15:14.160 is so much discretionary spending in Florida and it tends 0:15:14.200 --> 0:15:17.560 to have more pronounced boom bus cycles than most other states. 0:15:18.040 --> 0:15:20.640 And always when you're in a boom, there's always this 0:15:20.720 --> 0:15:24.000 notion that this time is different, It's never going to end. 0:15:24.280 --> 0:15:27.320 But I'm hearing people leave places like Miami because they're 0:15:27.360 --> 0:15:29.840 getting priced out they can't afford it. That may be 0:15:29.960 --> 0:15:32.800 the first indicators that some of this high beta flying 0:15:32.840 --> 0:15:35.440 parts of the economy are finally starting to feel the 0:15:35.520 --> 0:15:36.440 pinch of price pressure. 0:15:36.880 --> 0:15:39.720 I mentioned the Bellot at the beginning, and I look 0:15:39.760 --> 0:15:42.120 at the damage out there, and my whole thing is 0:15:42.280 --> 0:15:47.640 corporations will adapt and adjust given cards dealt That's what 0:15:47.720 --> 0:15:50.600 I see right now for a part of the standard 0:15:50.600 --> 0:15:53.600 impores five hundred not all. How's that trend going to 0:15:53.600 --> 0:15:54.520 play out this year? 0:15:54.840 --> 0:15:56.880 Well, certainly that's what we saw in the first quarter. 0:15:57.040 --> 0:16:01.200 That's how earnings came in better than expected. Saw corporations 0:16:01.280 --> 0:16:04.520 adapt and adjust and defend on the margin line. The 0:16:04.600 --> 0:16:07.080 thing that will be interesting to watch is that if 0:16:07.120 --> 0:16:10.560 inflation really does roll over and it falls, that means 0:16:10.640 --> 0:16:12.000 revenue growth is going to fall. 0:16:12.120 --> 0:16:14.160 Nomenal GDB comes in, revenue comes. 0:16:14.080 --> 0:16:17.520 In, and that usually leads to margin pressure regardless of 0:16:17.560 --> 0:16:19.600 what you do on the cost side, because you lose 0:16:19.640 --> 0:16:21.240 the incremental margin dynamic. 0:16:21.640 --> 0:16:24.640 John Honeywell with the banner across the Bloomberg years ago, 0:16:24.680 --> 0:16:26.760 all of a sudden they were doing eight percent organic 0:16:26.800 --> 0:16:29.840 revenue growth. No one had ever frame that and when 0:16:29.840 --> 0:16:32.960 they come back to six percent, not to pick on honeywell, that's. 0:16:32.840 --> 0:16:33.760 Going to be the game changer. 0:16:33.800 --> 0:16:36.640 This was great, Cameron. Thank you. Cameron Dawson of New 0:16:36.720 --> 0:16:42.200 EDH twelfth may to share with us around the table. 0:16:42.280 --> 0:16:45.800 They had a macro strategy at Academy Securities. Pete, good morning. 0:16:45.880 --> 0:16:48.040 Let's start with this one. He's more complacent right now. 0:16:48.080 --> 0:16:50.040 This market or politicians in Washington. 0:16:50.440 --> 0:16:53.080 I think the politicians in Washington, because this market, I think, 0:16:53.160 --> 0:16:55.240 is trying to figure out do we get some sort 0:16:55.280 --> 0:16:57.320 of soft landing, does this work out, do we get 0:16:57.320 --> 0:16:59.520 through a bunch of these problems or not? And I 0:16:59.520 --> 0:17:02.160 think that's we're on this potential for a large gap 0:17:02.200 --> 0:17:04.440 either direction. I think the people in DC have kind 0:17:04.440 --> 0:17:06.520 of lost the focus. There's plenty of other things we 0:17:06.520 --> 0:17:08.840 should be focusing on other than the debt ceiling, and 0:17:08.880 --> 0:17:10.960 that's just a time sink. At this point, we've. 0:17:10.760 --> 0:17:11.840 Got copper rolling over. 0:17:11.880 --> 0:17:15.640 I look carefully at the Bloomberg Commodity indexes, good mathematics, and. 0:17:15.600 --> 0:17:17.480 It's not a pretty chart. 0:17:17.600 --> 0:17:21.359 You have your firm has a wonderful Pacific RIM study ongoing. 0:17:21.520 --> 0:17:23.200 What do you see there? Is it real slow down? 0:17:23.520 --> 0:17:23.760 Yeah? 0:17:23.800 --> 0:17:25.760 I think China is having some troubles, but I think 0:17:25.800 --> 0:17:28.560 even beyond that, I really sticking to this theme that 0:17:28.600 --> 0:17:31.000 we're going from maid in China to made by China. 0:17:31.200 --> 0:17:33.640 We're across the globe. China is now trying to compete 0:17:33.680 --> 0:17:36.040 with our products, compete with our companies more than they 0:17:36.080 --> 0:17:38.600 ever did. It's something we're hearing from companies. We're running 0:17:38.640 --> 0:17:43.520 into people who are losing contracts denominated in the Chinese currency. 0:17:43.800 --> 0:17:46.760 I think that's a long going play. China's still struggling, 0:17:46.800 --> 0:17:48.400 but it's going to be at our expense as well. 0:17:48.680 --> 0:17:51.680 With the military exposure of your firm, Can you invest 0:17:51.720 --> 0:17:54.600 in Taiwan, even with the United States committing to three 0:17:55.000 --> 0:18:00.359 and indeed four military bases in the Philippines, is Taiwan uninvestable? Yeah? 0:18:00.480 --> 0:18:02.600 So I think our firm has a pretty strong view 0:18:02.640 --> 0:18:05.640 that China is not going to invade Taiwan anymore anytime soon. 0:18:06.000 --> 0:18:08.520 The defenses of Taiwan are very strong. China has learned 0:18:08.520 --> 0:18:11.200 a bunch of lessons from Russia. Having said that, there 0:18:11.280 --> 0:18:13.600 is this erosion of confidence and how we're going to 0:18:13.600 --> 0:18:15.320 be able to deal with Taiwan overtime. So I think 0:18:15.320 --> 0:18:16.400 you've got to be careful. 0:18:16.080 --> 0:18:18.080 There right now. A lot of people are cautious. We 0:18:18.160 --> 0:18:21.040 are seeing this sort of volatility come down. People getting 0:18:21.080 --> 0:18:23.639 a sense that they're just waiting for godoh, waiting for 0:18:23.680 --> 0:18:26.120 some catalyst, waiting for a sense of which direction we're 0:18:26.119 --> 0:18:28.760 going to pivot in? What are you looking for to 0:18:29.000 --> 0:18:30.639 really represent that catalyst? 0:18:31.080 --> 0:18:33.440 So I think people have been patient. They latched onto 0:18:33.440 --> 0:18:35.400 the AI story. So that's been what all the bulls 0:18:35.440 --> 0:18:37.720 have gravitated to, and it's an interesting story. There's definitely 0:18:37.760 --> 0:18:41.240 some run room there. For me, the catalyst is what 0:18:41.359 --> 0:18:43.840 happens with the banking Do we really see this slow down? 0:18:44.119 --> 0:18:47.280 And you know, when we look at that the SLEUS report, 0:18:47.280 --> 0:18:49.439 which that we would never really pay that much attention to, 0:18:49.720 --> 0:18:53.040 we do now apparently. But I think really the important 0:18:53.080 --> 0:18:55.320 thing there was it's a demand side issue, right, There's 0:18:55.480 --> 0:18:57.320 lack of demand for loans. It's not just that banks 0:18:57.320 --> 0:18:59.560 don't have deposits. So I think we're seeing the economy 0:18:59.600 --> 0:19:02.440 slow down. Jobs data, a lot of it's still good. 0:19:02.480 --> 0:19:04.600 You're seeing little bits and pieces like we're starting to 0:19:04.600 --> 0:19:07.760 see a tick up in unemployment claims. How good is 0:19:07.760 --> 0:19:10.280 that when every headline really is about layoffs? So I 0:19:10.320 --> 0:19:13.400 think there's a slow bleed. It's slowly playing into the economy, 0:19:13.640 --> 0:19:16.280 and I'm looking for either confirmation for that or that 0:19:16.359 --> 0:19:17.760 somehow we've avoided that problem. 0:19:17.840 --> 0:19:19.520 Okay, so what is that problem? 0:19:19.640 --> 0:19:19.760 Right? 0:19:19.760 --> 0:19:21.959 Because things are slowing down and this is by design, 0:19:22.200 --> 0:19:24.239 and this is sort of the difficulty where people are 0:19:24.240 --> 0:19:27.000 saying that's happening and it's a good thing. Yes, we're 0:19:27.000 --> 0:19:29.000 seeing a rise in unemployment claims. This is exactly what 0:19:29.040 --> 0:19:32.280 the FED wanted. Yes, we're seeing deceleration. Okay, great, And 0:19:32.320 --> 0:19:35.400 guess what. Companies are actually more profitable because margins are increasing, 0:19:35.400 --> 0:19:38.480 they're passing along those prices. When is it a negative? 0:19:39.240 --> 0:19:40.919 I think it's already a negative. I think one of 0:19:40.920 --> 0:19:43.280 the things is we're addressing something that was really a 0:19:43.320 --> 0:19:46.520 supply chain shock, and we're trying to use monetary policy 0:19:46.560 --> 0:19:48.840 to address the supply chain shock. So that was a problem. 0:19:48.880 --> 0:19:51.400