WEBVTT - Bloomberg Surveillance TV: July 12, 2024 0:00:02.440 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hortern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.840 Terminal and the Bloomberg Business app. 0:00:36.360 --> 0:00:40.200 Distraction's not going away, But one individual that is hyper 0:00:40.200 --> 0:00:43.840 focus on the actual policies that were discussed this week 0:00:44.040 --> 0:00:46.760 is of course the NATO Secretary General Jen Stoltenberg, and 0:00:46.760 --> 0:00:49.879 this was his final NATO summit. You're going to be 0:00:50.280 --> 0:00:52.279 retiring in the fall. You've been at the Helm for 0:00:52.320 --> 0:00:54.040 a decade, so you've seen a lot. We're going to 0:00:54.040 --> 0:00:56.880 get into some of those distractions that were happening at 0:00:56.880 --> 0:00:58.120 the summit, but I want to get into some of 0:00:58.160 --> 0:01:00.440 the policies. We just heard President Biden and they're talking 0:01:00.440 --> 0:01:04.160 about the limits they've placed on Ukraine, about striking deeper 0:01:04.200 --> 0:01:06.280 into Russia. He basically said they don't want to even 0:01:06.319 --> 0:01:09.200 capacity to hit the Kremlin. But Celenzi is asking to 0:01:09.240 --> 0:01:13.840 attack Russian jets on Russian air bases that strike Ukrainian cities. 0:01:14.120 --> 0:01:16.800 Do you get the sense that the US doesn't trust Zelenski. 0:01:17.840 --> 0:01:20.560 Well, First of all, the US and other allies have 0:01:21.000 --> 0:01:24.800 loosened the restrictions that have imposed on the use of 0:01:24.880 --> 0:01:29.000 the weapons that have deniated to Ukraine. So Ukraine is 0:01:29.040 --> 0:01:34.000 now able to also strike against the military targets inside 0:01:34.000 --> 0:01:35.880 the Russia. And we need to remember what this is. 0:01:35.920 --> 0:01:38.640 This is a word of Russian Russia has attacked the Ukraine. 0:01:39.120 --> 0:01:43.000 That's violation in national law. Ukraine has the right, according 0:01:43.040 --> 0:01:46.880 to national law, to defend themselves. That includes also striking 0:01:47.080 --> 0:01:51.400 legitimate military targets inside the territory of Russia and allies. 0:01:51.400 --> 0:01:53.960 Some allies have given them that permission. All the allies 0:01:54.000 --> 0:01:57.280 have some restrictions, but they have been loosened up a bit. 0:01:57.400 --> 0:02:00.280 But of course the most important ally sending them most 0:02:00.280 --> 0:02:02.600 weaponry is the United States, and they've only said you 0:02:02.640 --> 0:02:07.200 can go about forty kilometers. But to really the Lensky's 0:02:07.200 --> 0:02:09.600 point is to really start to push back the Russians 0:02:10.000 --> 0:02:12.680 and be defensive. They need to get on top of it, 0:02:12.720 --> 0:02:15.800 meaning going maybe three hundred kilometers. Do you think I 0:02:15.800 --> 0:02:17.639 mean you were part of these discussions. Do you think 0:02:17.639 --> 0:02:20.160 there's something the new United States? We've seen them before 0:02:20.240 --> 0:02:22.520 drag their feet and then make decisions that the lenscape 0:02:22.600 --> 0:02:25.160 is pushing for. Could you see them coming around to this? 0:02:25.160 --> 0:02:27.760 This was an issue that was discussed at the NATO summit, 0:02:27.760 --> 0:02:31.040 and again some allies have no restrictions on the use 0:02:31.080 --> 0:02:34.560 of their weapons they have delivered. Others have resistions but 0:02:34.639 --> 0:02:38.360 have loosened them. The US is of course important, but 0:02:39.080 --> 0:02:42.480 half of the military support to Ukraine comes from a 0:02:42.680 --> 0:02:47.680 non US allaies comes from Europe and Canada. So when 0:02:47.680 --> 0:02:50.680 it comes to Ukraine and the Europeans have really stepped up, 0:02:50.840 --> 0:02:53.080 and with the decision we made at the NATO summit 0:02:53.120 --> 0:02:55.400 to have a long term pledge and to have a 0:02:55.560 --> 0:02:58.240 formula for burnishing, we will ensure that also in the 0:02:58.280 --> 0:03:03.040 future Europe and I will provide half of the military 0:03:03.080 --> 0:03:06.800 support because they have half of the economic strength of 0:03:06.840 --> 0:03:07.399 the alliance. 0:03:07.880 --> 0:03:11.360 Ukraine didn't get the formal invitation they were helping for, 0:03:12.360 --> 0:03:15.120 so they are still at the gates, knocking on the 0:03:15.160 --> 0:03:17.480 door and they're not let into NATO just yet. While 0:03:17.520 --> 0:03:21.240 they do this, though, it unnerves putin do you think 0:03:21.320 --> 0:03:25.360 they're in a sense almost the worst position, this security 0:03:25.400 --> 0:03:28.799 purgatory because they're still stuck in the middle because they're 0:03:28.840 --> 0:03:31.360 not yet an alliance, but even asking to be an 0:03:31.400 --> 0:03:35.840 alliance really underscores the issue that they're having with their 0:03:35.840 --> 0:03:36.680 neighbor next door. 0:03:37.920 --> 0:03:40.560 At the summit, Allies were very clear that Ukraine will 0:03:40.600 --> 0:03:43.560 become a member. We also stated that this is a 0:03:43.680 --> 0:03:49.640 reversible path towards membership. But actually as important, or perhaps 0:03:49.680 --> 0:03:52.920 even more important than the language in the statement we agreed, 0:03:53.400 --> 0:03:56.120 is that actually we took actions to move Ukraine closer 0:03:56.160 --> 0:04:00.000 to membership. We established a Native Command with seven hundred 0:04:00.080 --> 0:04:05.880 personnel to organize the provisional training and military support to Ukraine. 0:04:06.160 --> 0:04:09.280 We with this long term pledge, and we stepped up 0:04:09.280 --> 0:04:12.400 the work to do what we call interoperability, to ensure 0:04:12.400 --> 0:04:16.479 that Ukrainian forces are fully interoperable with NATAL forces. These 0:04:16.480 --> 0:04:19.800 are concrete actions that actually helps them to prevail, to 0:04:20.320 --> 0:04:25.080 help Ukraine to prevail as a servant independent nation in Europe, 0:04:25.480 --> 0:04:28.680 and all of that moves them closer to membership, and 0:04:28.720 --> 0:04:31.800 then when the time is right, and AWLS agreed they 0:04:31.800 --> 0:04:33.559 will become members straight away. 0:04:33.960 --> 0:04:37.920 As you know, politics overshadowed this summit. Everyone was talking about, 0:04:38.360 --> 0:04:42.679 if not officially, unofficially President Biden's age as the native 0:04:42.680 --> 0:04:45.839 Secretary General who's worked with both of these US presidents 0:04:45.880 --> 0:04:50.240 who are the candidates for November. Do you see potential 0:04:50.400 --> 0:04:53.040 change in the future US commitment to the alliance? 0:04:54.960 --> 0:04:58.080 I expect that the United States will remain a strong 0:04:58.160 --> 0:05:02.480 NATAL ally also in the future, for at least three reasons. 0:05:02.600 --> 0:05:05.040 One is that this is in the US security and 0:05:05.560 --> 0:05:07.719 interest to have a strong NATO in NATO. The United 0:05:07.720 --> 0:05:11.040 States has something Russia and China doesn't have more than 0:05:11.040 --> 0:05:15.280 thirty different anallies. Second, it's very strong bipartisan support in 0:05:15.320 --> 0:05:18.760 the United States for NATO in the public where have 0:05:18.800 --> 0:05:22.280 seen your opinion polls also confirming that, but also in 0:05:22.320 --> 0:05:26.159 the US Congress. I met congress men from both parties 0:05:26.200 --> 0:05:29.440 and they will express some strong support to NATO. And Thirdly, 0:05:29.880 --> 0:05:33.839 the main criticism from former President Trump and others have 0:05:33.920 --> 0:05:37.840 actually not been against NATO. It has been against NATO 0:05:38.000 --> 0:05:41.520 allies not spending enough on NATO and that has changed 0:05:42.400 --> 0:05:45.120 or just during the last years, we have seen significant 0:05:45.120 --> 0:05:47.719 increase in number of allies spending at least two percent 0:05:47.720 --> 0:05:49.559 of GDP on defense, which is a NATO ADI. 0:05:49.720 --> 0:05:53.520 So is your expectation to ignore potentially your expectations that 0:05:53.560 --> 0:05:56.159 Trump's rhetoric will not match his policies on the ground. 0:05:56.680 --> 0:05:59.560 Well, I worked with him when he was from president 0:05:59.680 --> 0:06:03.720 last and again I expect that the United States will 0:06:04.200 --> 0:06:08.280 remain a strong NATO ally because this also makes the 0:06:08.360 --> 0:06:12.360 United States safer and stronger. The United States is big 0:06:12.440 --> 0:06:15.440 twenty five percent of the world's GDP, but toget with 0:06:15.520 --> 0:06:18.640 NATO allies, we are fifty percent of the world's GDP, 0:06:18.839 --> 0:06:21.840 twice as big, fifty percent of the world's military right, 0:06:21.920 --> 0:06:25.679 and this makes the United States stronger. And the main 0:06:25.760 --> 0:06:29.200 criticism the fact that European allies didn't spend that has 0:06:29.240 --> 0:06:32.479 really changed. Twenty three allies spending two percent, and those 0:06:32.520 --> 0:06:35.000 allies are not yet a two percent have a promise 0:06:35.080 --> 0:06:38.039 to be there soon. So this has really improved, not 0:06:38.200 --> 0:06:41.480 least because the criticism from the United States was valid 0:06:40.880 --> 0:06:44.240 and Europeans have heard the call and have stepped up. 0:06:44.800 --> 0:06:46.719 Yen center Berg, thank you so much for your time. 0:06:46.760 --> 0:06:59.720 That was of course John jen Stilterburg, the outgoing Menogy. 0:07:00.080 --> 0:07:02.680 Keith Learner of Truists staying bullish, saying this stocks are 0:07:02.680 --> 0:07:06.359 in a bull market that deserves the benefit of the doubt. Moreover, 0:07:06.480 --> 0:07:08.800 strong first half tend to lead to further gains by 0:07:08.880 --> 0:07:11.960 year end, albeit with normal corrections along the way. Near term, 0:07:12.000 --> 0:07:15.080 we anticipate the stocks will trade in a choppier fashion, 0:07:15.160 --> 0:07:18.680 but still the primary up trend appears intact. Keith's with 0:07:18.800 --> 0:07:20.320 us for more. Keith, I want to build on what 0:07:20.400 --> 0:07:22.240 Lisa has been talking about. I think it's perfect. It's 0:07:22.280 --> 0:07:24.720 the way to think about things. Yesterday we had some 0:07:24.880 --> 0:07:28.559 data the spoke to this goldilocks optimistic, constructive view of things. 0:07:28.680 --> 0:07:31.520 We also had some earnings that said the opposite, and Keith, 0:07:31.640 --> 0:07:33.880 I'm wondering how you view things both on the economic 0:07:33.920 --> 0:07:36.120 data side of things and through the lens of earnings 0:07:36.160 --> 0:07:37.360 in the last twenty four hours. 0:07:38.600 --> 0:07:40.520 Surean great to be with you all. Yeah, yesterday, it 0:07:40.560 --> 0:07:44.520 was an interesting day. We actually downgraded a tech in 0:07:44.600 --> 0:07:48.560 late June after upgrading it in November, and basically our 0:07:48.640 --> 0:07:51.680 view was that after a forty percent gain since we upgraded, 0:07:52.080 --> 0:07:54.520 that things have gone a little bit too stretched. And 0:07:55.000 --> 0:07:56.840 in July we saw the text have to continue to 0:07:56.920 --> 0:07:59.240 kind of grind higher. On the other side, what we 0:07:59.280 --> 0:08:02.120 saw on this kind of mean reversion trade, the road 0:08:02.160 --> 0:08:05.480 bands just got too stretched. The relative performance of small 0:08:05.520 --> 0:08:09.000 caps up until yesterday was at the on a six 0:08:09.040 --> 0:08:12.480 month basis. Was that the greatest underperformance we've seen since 0:08:12.560 --> 0:08:16.280 two thousand is twenty percent underperformance over six months. It's incredible. 0:08:16.520 --> 0:08:19.560 The average stock, the Eco weighted index, also had the 0:08:19.640 --> 0:08:24.080 greatest underperformance on a six month basis since since two thousand. 0:08:24.360 --> 0:08:26.800 So I think what we're seeing right now what happened yesterday, Jonathan, 0:08:26.920 --> 0:08:30.240 is the road band got two stretched, and basically a 0:08:30.280 --> 0:08:31.920 little bit of good news went a long way for 0:08:32.160 --> 0:08:34.880 the other stocks. We got that broadening that everyone's looking for. 0:08:34.960 --> 0:08:37.640 But that boarding is happening. Those big cap tech stocks 0:08:37.640 --> 0:08:41.240 were came in and the market below the surface was 0:08:41.280 --> 0:08:43.040 strong with the headline index was weak. So it's kind 0:08:43.080 --> 0:08:44.960 of interesting in the way this kind of played out. 0:08:45.000 --> 0:08:46.640 I have this image in my head of kids in 0:08:46.679 --> 0:08:48.719 a rubber band fight, stretching it out and waiting to 0:08:48.800 --> 0:08:51.800 kind of let go. Then letting go yesterday was the 0:08:51.840 --> 0:08:54.880 potential for rate cuts on this sort of Goldilocks like 0:08:55.160 --> 0:08:58.080 kind of environment. At what point do you start to 0:08:58.080 --> 0:09:01.559 get concerned that maybe it's still well, not threading a 0:09:01.640 --> 0:09:02.520 needle perfectly. 0:09:02.840 --> 0:09:04.520 That's some of the guidance that we've. 0:09:04.320 --> 0:09:07.560 Heard from banks, from other companies that have reported earnings 0:09:07.640 --> 0:09:11.560 so far. It is early days signals something else that 0:09:11.800 --> 0:09:13.400 might portend a bit more weakness. 0:09:14.600 --> 0:09:16.760 Well, I do think we are seeing a cooling of 0:09:16.760 --> 0:09:17.240 the economy. 0:09:17.320 --> 0:09:18.080 We wouldn't call. 0:09:17.960 --> 0:09:20.640 It weak, and I expect that, you know, earnings will 0:09:20.679 --> 0:09:22.680 be fine, probably not the blowout that we've seen in 0:09:22.720 --> 0:09:25.360 the past, but enough to continue to move the market 0:09:25.400 --> 0:09:26.199 forward by the end. 0:09:26.200 --> 0:09:26.680 Of the year. 0:09:27.040 --> 0:09:30.079 Forward earning estimates continue to grind higher, and I will say, 0:09:30.120 --> 0:09:32.000 I will you know, I think the one lesson during 0:09:32.040 --> 0:09:34.439 this whole period we've seen the last couple of years 0:09:34.480 --> 0:09:40.040 is don't estimate underestimate corporate corporation's resiliency around profits. Right, 0:09:40.040 --> 0:09:44.280 we had this once in a generation pandemic and inflation backdrop, 0:09:44.480 --> 0:09:47.320 and we've seen corporations handle that, you know, pretty pretty well. 0:09:47.360 --> 0:09:49.120 So again, I do think we'll be a little bit 0:09:49.120 --> 0:09:51.480 more of a choppier fashion here near term. But I 0:09:51.520 --> 0:09:53.079 do think then the line trend for the market is 0:09:53.120 --> 0:09:55.800 still is still higher and the economy is just moving 0:09:55.840 --> 0:09:59.680 more towards a trend growth from this really post pandemic stimulus, 0:10:00.320 --> 0:10:02.680 you know boom that we had that's behind us. 0:10:02.760 --> 0:10:04.840 Now, let's talk about some of the areas where we're 0:10:04.840 --> 0:10:07.520 seeing a broadening. Smaller banks, for example, which has been 0:10:07.559 --> 0:10:09.520 one of the most beaten up areas, and we saw 0:10:10.120 --> 0:10:12.520 some gains yesterday as we get some of the banker 0:10:12.640 --> 0:10:15.480 nings from some of the behemoths Chimping, Morgan, Wells, Fargo, 0:10:15.480 --> 0:10:15.960 and City. 0:10:16.440 --> 0:10:18.199 Is there a takeaway that makes. 0:10:17.960 --> 0:10:21.200 You more positive, more constructive just in general on the 0:10:21.200 --> 0:10:22.760 financial financial sector. 0:10:24.400 --> 0:10:27.560 I think timeframes matter, right, so longer term, we still 0:10:27.559 --> 0:10:29.439 actually like tech on a longer term basis, and we 0:10:29.600 --> 0:10:31.719 think there'll be an opportunity to redeploy there on a 0:10:31.760 --> 0:10:35.800 shorter term basis. I just think that areas like the financials, 0:10:35.960 --> 0:10:39.280 even the smaller financials, along with some of the industrials, 0:10:39.920 --> 0:10:42.120 even places like the reads, will likely to perform because 0:10:42.400 --> 0:10:45.640 expectations are so low. So I think by now I 0:10:45.640 --> 0:10:47.679 think we should be thinking more about how things are 0:10:47.679 --> 0:10:50.480 coming in relative to expectations. I think some of these 0:10:50.520 --> 0:10:52.959 areas that have been being up, where you know, the 0:10:53.640 --> 0:10:56.400 small cap index, some PCE small cap index was actually 0:10:56.400 --> 0:10:59.360 negative for the year up until yesterday, that the expectations 0:10:59.360 --> 0:11:01.440 are low. I think you think about the tech side, 0:11:01.440 --> 0:11:03.200 I think expectations there are a little bit higher. So 0:11:03.480 --> 0:11:05.319 I think I think we're going to have maybe more 0:11:05.360 --> 0:11:08.240 that bifurcation during this earning season. 0:11:08.360 --> 0:11:10.560 Keith, give us some clarity on financial it's not exactly 0:11:10.679 --> 0:11:12.560 left for dead. Bank of America is up twenty four 0:11:12.559 --> 0:11:15.720 percent yet today, Goldman's up twenty four percent, Cities up 0:11:15.720 --> 0:11:19.240 twenty seven, close to twenty eight before today's moves. Granted, Keith, 0:11:19.240 --> 0:11:22.040 are you're talking more specifically about the smaller players, the 0:11:22.120 --> 0:11:23.320 regionals midscise. 0:11:23.559 --> 0:11:24.240 Yeah, that's right. 0:11:24.600 --> 0:11:26.160 Yeah, I'm sorry, Yeah, that's right, Johnthan. I mean, it 0:11:26.240 --> 0:11:28.559 was interesting. It was like yesterday during that big rebound, 0:11:28.640 --> 0:11:31.720 the big banks were actually down because what we've seen 0:11:31.800 --> 0:11:34.000 it wasn't just tech. It was this gravitational towards the 0:11:34.120 --> 0:11:38.000 highest quality companies in the different sectors, so not just tech. 0:11:38.120 --> 0:11:40.319 So what you saw yesterday is the smaller banks actually 0:11:40.400 --> 0:11:42.400 outperformed and the other ones came in a bit. I 0:11:42.400 --> 0:11:44.280 think we'll see more of that just because of that. 0:11:44.280 --> 0:11:47.400 Diverned is again longer term, as we moved past this 0:11:47.520 --> 0:11:49.680 kind of snapping back of the Lurber band, which I 0:11:49.679 --> 0:11:51.800 could I think could last, you know, weeks, if not 0:11:51.840 --> 0:11:54.240 a few months. I think the rotation will go back 0:11:54.280 --> 0:11:56.800 towards these larger quality companies. I just think it got 0:11:56.920 --> 0:11:59.559 overdone as far as just the quality theme on a 0:11:59.640 --> 0:12:01.520 very short trend basis, and we're going to see more 0:12:01.559 --> 0:12:04.120 of that unwine because position it has further to go 0:12:04.760 --> 0:12:06.440 based on our world got it? Keith? 0:12:06.480 --> 0:12:08.920 Thank you, sir, Keith Learner of Truists on the latest 0:12:08.920 --> 0:12:21.400 in this market. So response to the data we just 0:12:21.440 --> 0:12:23.440 got and the data we've had over the last few weeks, 0:12:23.440 --> 0:12:25.720 and really placed to say that a good friend of 0:12:25.760 --> 0:12:28.440 ours on this program joins us now Mohammad al Aaron 0:12:28.440 --> 0:12:31.520 of Bloomberg Opinion and of Queen's College, Cambridge. Mohammed one 0:12:31.559 --> 0:12:33.240 for the went the week with you, sir. Let's just 0:12:33.280 --> 0:12:35.440 work through this economic data we got this morning and 0:12:35.480 --> 0:12:37.240 the data yesterday as well. When you look at the 0:12:37.240 --> 0:12:39.679 totality of the data, what kind of conclusions are you 0:12:39.800 --> 0:12:40.640 drawing currently? 0:12:42.200 --> 0:12:44.640 So I have two conclusions when you look at the 0:12:44.720 --> 0:12:49.000 vitality of the data. One is based mostly on the CPI, 0:12:49.800 --> 0:12:52.960 which is that what we're seeing is demand destruction and 0:12:53.000 --> 0:12:56.680 a loss of pricing power. When Mike Mickey commented on 0:12:56.760 --> 0:12:58.800 it yesterday, he said, it's very. 0:12:58.600 --> 0:12:59.760 Broad based. 0:13:01.040 --> 0:13:05.360 Benign inflation numbers, and you're really starting to see the 0:13:05.400 --> 0:13:08.320 demand destruction and the loss of pricing power. And that's 0:13:08.360 --> 0:13:11.720 consistent with what we've heard from companies, and it will 0:13:11.760 --> 0:13:14.440 be consistent with what we will hear from companies next 0:13:14.440 --> 0:13:17.040 week and the week after. And it is also consistent 0:13:17.080 --> 0:13:19.440 with the macro data that's starting to weaken. So that's 0:13:19.679 --> 0:13:24.000 conclusion number one. Conclusion number two is on the cost side, 0:13:24.200 --> 0:13:30.200 we're living in a global economy that, despite China's deflationary impact, 0:13:30.800 --> 0:13:33.200 is not giving us the sort of deflation that we'd like. 0:13:34.400 --> 0:13:37.679 On the PPI, the supply site simply isn't there to 0:13:37.840 --> 0:13:40.960 help what's happening on the demand destruction, which is going 0:13:41.000 --> 0:13:43.960 to force something that you don't like me talking about, 0:13:44.520 --> 0:13:46.240 but I will that you know, there'll be a lot 0:13:46.280 --> 0:13:50.480 more discussion as to what's the right inflation target given 0:13:51.040 --> 0:13:56.240 the dual mandate. So I expect the FED to focus 0:13:56.600 --> 0:14:01.679 much more going forward on the two side risks, and 0:14:01.880 --> 0:14:06.360 within that much more on the employment side of those risks. 0:14:06.520 --> 0:14:08.000 You brought it up, so let's talk about it, and 0:14:08.000 --> 0:14:10.280 then we can talk about the labor market, Muhammad, the 0:14:10.360 --> 0:14:14.000 right inflation target. The question that the chairman's been asking 0:14:14.040 --> 0:14:15.560 for a while, and he talked about it in his 0:14:15.600 --> 0:14:19.160 testimony twice this week. It's their question, are we on 0:14:19.200 --> 0:14:22.360 a sustainable path back to two percent? Do we need 0:14:22.400 --> 0:14:24.960 more confidence? And he said repeatedly, we need more confidence. 0:14:25.480 --> 0:14:28.320 If some officials start to say that they believe they 0:14:28.360 --> 0:14:31.800 are confident we're on a sustainable path back to two percent, 0:14:31.920 --> 0:14:34.840 not two point something, not two point five, not around three, 0:14:35.360 --> 0:14:38.680 but two percent, why would you caution them? How are 0:14:38.680 --> 0:14:40.720 you thinking about the world differently? Why do you think 0:14:40.720 --> 0:14:42.520 that's going to be so difficult. 0:14:43.480 --> 0:14:45.440 So if they just say we're on the path to 0:14:45.520 --> 0:14:48.040 two percent and leave it wide open as to when 0:14:48.040 --> 0:14:50.960 we're going to get there, Already the chair has said 0:14:50.960 --> 0:14:53.040 we won't get in then twenty four. We probably won't 0:14:53.040 --> 0:14:55.320 get there in twenty five. If they leave it wide open, 0:14:55.360 --> 0:14:58.920 I'm fine with that. If, however, they feel that they 0:14:58.960 --> 0:15:02.120 need to deliver the two percent either this year or 0:15:02.160 --> 0:15:06.320 next year, I would worry as to all the undue 0:15:06.440 --> 0:15:11.200 losses to output. I would worry about the employment side 0:15:11.320 --> 0:15:11.840 as well. 0:15:12.000 --> 0:15:12.240 John. 0:15:12.320 --> 0:15:17.160 The only thing keeping segments of the household sector, the 0:15:17.200 --> 0:15:20.120 lower income one and the small business going. The only 0:15:20.160 --> 0:15:23.440 thing keeping those going is labor income. And if we 0:15:23.520 --> 0:15:26.240 lose labor income, we no longer have the balance sheet 0:15:26.240 --> 0:15:29.320 strengths that we had before, and it will result in 0:15:29.360 --> 0:15:32.600 a much much stronger decline in demand. 0:15:33.000 --> 0:15:35.240 Weh but what you're saying is fascinating at a time 0:15:35.480 --> 0:15:38.400 where Steve Shudo yesterday came on of Mizujo and said, 0:15:38.840 --> 0:15:42.440 his fear is, you are seeing companies lose pricing powers. 0:15:42.440 --> 0:15:45.520 We sell from delta and pepsi at the same time 0:15:46.000 --> 0:15:49.840 that that supply side inflation is still present. His worry 0:15:49.920 --> 0:15:51.840 is that leads to margin compression. Now, if the Fed 0:15:51.880 --> 0:15:55.080 cuts rates, they'll be able to pass along those price 0:15:55.160 --> 0:15:59.320 increases to consumers. Inflation will go higher from here. Why 0:15:59.440 --> 0:16:01.600 is that a parferable outcome in your view? 0:16:02.600 --> 0:16:04.480 So I listened to him, and the only question I 0:16:04.520 --> 0:16:07.400 asked myself is what about the lags? What about the lags? 0:16:07.840 --> 0:16:10.880 It's not going to happen instantaneously. In fact, we still 0:16:11.000 --> 0:16:14.800 have the lagged effects of one of the most concentrating 0:16:14.880 --> 0:16:19.880 hiking cycles in history. So the lags right now are 0:16:19.920 --> 0:16:24.720 working the other way. So it doesn't work instantaneously. That's 0:16:24.800 --> 0:16:26.520 not how monetary policy works. 0:16:27.120 --> 0:16:29.680 So when you talk about the labor market, and let's 0:16:29.680 --> 0:16:32.240 go there, because yesterday we got a good sign in 0:16:32.320 --> 0:16:35.920 terms of initial jobless claims and how much they actually 0:16:36.080 --> 0:16:39.760 came down below expectations, why are you looking through that 0:16:39.880 --> 0:16:43.240 as an anomaly, a blip, rather than a sign of 0:16:43.720 --> 0:16:45.520 strength underpinning the economy. 0:16:46.920 --> 0:16:49.440 So you said earlier, you know, how much should we 0:16:49.960 --> 0:16:54.600 conclude from a data that's every month, how about every week? 0:16:55.240 --> 0:16:59.160 The data, the jobless claims data is inherently noisy. If 0:16:59.200 --> 0:17:02.400 you were to take a more the average of three months, 0:17:02.560 --> 0:17:06.480 six months, there is absolutely no doubt that you will 0:17:06.520 --> 0:17:09.159 see that that indicator is not as strong as it 0:17:09.280 --> 0:17:11.480 was before. Now from week to week, it will differ 0:17:11.600 --> 0:17:15.520 enormously because it is noisy data. 0:17:15.640 --> 0:17:17.560 At this point, when you talk about we should really 0:17:17.640 --> 0:17:20.480 be thinking about what the right inflation target is. What's 0:17:20.520 --> 0:17:25.919 the correct balance between inflation target and employment at a 0:17:25.960 --> 0:17:29.000 time when we're talking about something like four point one 0:17:29.040 --> 0:17:33.119 percent on unemployment and you're talking about inflation of two percent. 0:17:34.440 --> 0:17:38.480 Yeah, and it's this notion of undue damage to employment 0:17:39.160 --> 0:17:43.080 and to the economy. There's also a very important distributional 0:17:43.119 --> 0:17:47.720 effect here. So it's pretty easy now because the Fed 0:17:47.800 --> 0:17:51.000 told us that they expect unemployment at four percent. We 0:17:51.080 --> 0:17:55.240 are above that number in June, and we're lucky to 0:17:55.240 --> 0:17:58.320 go even higher than four point one percent. So already 0:17:58.480 --> 0:18:03.040 that part of the mandate is flashing yellow. Meanwhile, the 0:18:03.080 --> 0:18:06.600 other part of the mandate, the even though the Chair 0:18:06.680 --> 0:18:09.680 didn't call it as such this week but did call 0:18:09.760 --> 0:18:15.520 it last week, the disinflation trend is continuing. The big 0:18:15.600 --> 0:18:18.880 question is this inflationary trend to where and at what time. 0:18:19.560 --> 0:18:22.000 I think the Fed will keep this wide open. They'll 0:18:22.040 --> 0:18:24.280 keep on saying two percent is our target. We get there, 0:18:24.280 --> 0:18:27.880 when we get there, They're not gonna sort of be 0:18:28.000 --> 0:18:30.159 very precise as when they're going to get there, and 0:18:30.200 --> 0:18:33.160 they're going to wait and see how the economy economy accommodates. 0:18:33.240 --> 0:18:36.800 And that's the way of doing slightly high inflation targeting 0:18:36.800 --> 0:18:37.639 without calling it that. 0:18:38.080 --> 0:18:39.840 If you are just joining us, welcome to the program. 0:18:39.920 --> 0:18:42.639 Lucky to have with us. Mohammad al Aerial moments after 0:18:42.800 --> 0:18:44.760 we got PPI dight, I want to go through some 0:18:44.800 --> 0:18:46.399 of that data for you, coming in a little bit 0:18:46.440 --> 0:18:49.480 hotter than expected. Going into that print, the rustle of 0:18:49.480 --> 0:18:52.120 small caps was up again by something like one percent, 0:18:52.320 --> 0:18:54.360 faded off the back of it, then started to climb again. 0:18:54.400 --> 0:18:57.000 We're positive again by three quarters of one percent. If 0:18:57.000 --> 0:18:58.320 you switch on the board and turn to the bond 0:18:58.359 --> 0:19:00.480 market going into the number yields will at the front 0:19:00.560 --> 0:19:03.240 end by a couple of basis points. We've erased some 0:19:03.280 --> 0:19:05.240 of that move. We're just about unchanged now on the 0:19:05.280 --> 0:19:08.840 session at about four point fifty eighty two. Not major moves, Mohammad, 0:19:08.880 --> 0:19:10.760 but they're the moves in the last ten minutes or so. 0:19:11.240 --> 0:19:13.480 You said something interesting, many things in fact, but I 0:19:13.560 --> 0:19:15.840 want to pinpoint just one, and you said the labor 0:19:15.920 --> 0:19:19.240 market was starting to flash yellow. When you hear from 0:19:19.280 --> 0:19:22.360 the FED chair, he describes the labor market as being 0:19:22.440 --> 0:19:26.120 strong and a reason to get this right. You've said 0:19:26.200 --> 0:19:28.960 before that this FED should be thinking about moving in July, 0:19:29.480 --> 0:19:32.680 not waiting until September. What is a couple of months 0:19:32.680 --> 0:19:35.600 between friends? Why do you think it is important to 0:19:35.600 --> 0:19:38.840 start getting going and get a moving earlier and sooner 0:19:38.920 --> 0:19:39.600 rather than later. 0:19:40.920 --> 0:19:42.879 If I was as certain as the market is that 0:19:42.920 --> 0:19:45.320 he was going to move in September, I will tell 0:19:45.359 --> 0:19:49.680 you that a couple of months there wasn't much in it. However, 0:19:49.800 --> 0:19:54.160 you have two factors that may complicate a September cut. 0:19:53.880 --> 0:19:56.160 For this FED, and I want to stress for this FED. 0:19:56.840 --> 0:20:00.119 One is they may get one bad data point and 0:20:00.119 --> 0:20:03.760 then because they're so overly data dependent and they're not 0:20:03.800 --> 0:20:09.240 looking forward enough, that could postpone that the first cut 0:20:09.320 --> 0:20:11.720 to November, and then you're starting to talk about it 0:20:11.720 --> 0:20:15.719 along the lane. The second issue the politics, John, is 0:20:16.119 --> 0:20:19.520 what does the politics look like when we get to 0:20:19.560 --> 0:20:23.000 September and how worried are they that that's going to 0:20:23.040 --> 0:20:27.639 be an inflationary shock coming after the elections due to policies. 0:20:28.080 --> 0:20:29.879 So it's not as. 0:20:29.720 --> 0:20:32.840 Simple as saying, well, the market thinks is over eighty 0:20:32.880 --> 0:20:36.359 percent powability is going to happen because this FED is 0:20:36.480 --> 0:20:40.440 very impacted by high frequency indicators. 0:20:40.920 --> 0:20:42.520 Let's flip this on its head, because a number of 0:20:42.560 --> 0:20:44.520 guests have come on the show and said that the 0:20:44.560 --> 0:20:47.560 big fear for the FED and most the worst case 0:20:47.600 --> 0:20:49.440 outcome would be if they had to reverse course and 0:20:49.520 --> 0:20:51.639 high grates again at some point in response to an 0:20:51.640 --> 0:20:55.359 inflationary shock. Do you think that that isn't that big 0:20:55.400 --> 0:20:57.879