1
00:00:00,080 --> 00:00:12,960
Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

2
00:00:13,480 --> 00:00:17,560
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:30,200
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg here

5
00:00:30,200 --> 00:00:32,720
Speaker 1: in New York. As a rascate joining us now HSBC

6
00:00:32,920 --> 00:00:37,280
Speaker 1: chief Investment Strategist at HSBC Private Bank Americus. I was

7
00:00:37,400 --> 00:00:38,879
Speaker 1: great to catch up with you walk us through that

8
00:00:38,920 --> 00:00:41,319
Speaker 1: take well. I think if you look at where we are,

9
00:00:41,440 --> 00:00:44,280
Speaker 1: you know clearly the FED had a tremendous effect on

10
00:00:44,320 --> 00:00:47,120
Speaker 1: emerging markets last year, on markets and on the economy,

11
00:00:47,159 --> 00:00:50,040
Speaker 1: and as a result, we feel the Fed as patient

12
00:00:50,200 --> 00:00:53,440
Speaker 1: or on hold this year. Uh So, no question about it,

13
00:00:53,479 --> 00:00:56,040
Speaker 1: and we think that's positive for markets, but largely priced

14
00:00:56,040 --> 00:00:59,200
Speaker 1: in at this point. We're over to the fundamentals, psycho

15
00:00:59,680 --> 00:01:03,120
Speaker 1: and how constructive value on those two things. Well, for us,

16
00:01:02,960 --> 00:01:05,720
Speaker 1: it's those two things right and improving economy after Q

17
00:01:05,880 --> 00:01:07,559
Speaker 1: one is going to be weak we think one point

18
00:01:07,560 --> 00:01:09,720
Speaker 1: six percent, but we're average about two and a quarter

19
00:01:09,760 --> 00:01:11,840
Speaker 1: the rest of the year. Uh and then earnings have

20
00:01:11,920 --> 00:01:13,840
Speaker 1: to improve. John and I have mentioned this a number

21
00:01:13,880 --> 00:01:15,759
Speaker 1: of times. Let's do a victory lamp on this again.

22
00:01:16,120 --> 00:01:18,440
Speaker 1: I'm not picking the bottom of the market. Pharaoh was

23
00:01:18,480 --> 00:01:20,319
Speaker 1: smart enough to do that. He used the games that

24
00:01:20,360 --> 00:01:22,600
Speaker 1: he got there to buy his eight thousand lift shares

25
00:01:22,640 --> 00:01:25,600
Speaker 1: that have tanked. But I wasn't smart enough to do it.

26
00:01:25,720 --> 00:01:28,160
Speaker 1: If I just sort of randomly late December picked a

27
00:01:28,240 --> 00:01:33,280
Speaker 1: spot off of Ben Laidler's recommendation and Jose Rascoe's recommendation. John,

28
00:01:33,280 --> 00:01:36,520
Speaker 1: I'm up eighteen percent. I mean that's that's not only

29
00:01:36,560 --> 00:01:40,640
Speaker 1: a year's performance, that's a bowl market. Now what what

30
00:01:40,720 --> 00:01:42,920
Speaker 1: are the what are the optimists that have been so right?

31
00:01:43,280 --> 00:01:46,280
Speaker 1: What's the now what for you? And now? What is volatility?

32
00:01:46,640 --> 00:01:50,040
Speaker 1: Balls cheap? We we are concerned things are priced to perfection,

33
00:01:50,080 --> 00:01:51,920
Speaker 1: and we think we're going to see more volatility as

34
00:01:51,960 --> 00:01:54,480
Speaker 1: we head into a Q two in fit in the

35
00:01:54,520 --> 00:01:57,880
Speaker 1: face of an improving economy, so because we think there's

36
00:01:57,880 --> 00:01:59,400
Speaker 1: gonna be a lot of noise out there. So as

37
00:01:59,400 --> 00:02:02,800
Speaker 1: a result, as earnings improve, more vol and we could

38
00:02:02,800 --> 00:02:05,000
Speaker 1: see a bit of a retrenchment in the markets. But

39
00:02:05,080 --> 00:02:07,360
Speaker 1: longer term we still think a little bit deeper here

40
00:02:07,400 --> 00:02:10,440
Speaker 1: the catalysts for higher volatility. The u S data has

41
00:02:10,440 --> 00:02:13,480
Speaker 1: been remarkably staple. I mean, I think it's a Deutsche

42
00:02:13,480 --> 00:02:15,799
Speaker 1: Bank coming out with all the two's two percent inflation,

43
00:02:15,880 --> 00:02:19,600
Speaker 1: two percent GDP growth, It has been remarkably staple. So

44
00:02:19,680 --> 00:02:22,000
Speaker 1: walk me through what you think the catalysts for volatility

45
00:02:22,000 --> 00:02:25,480
Speaker 1: would ultimately be. I think some of it will be earnings.

46
00:02:25,480 --> 00:02:27,520
Speaker 1: On the earning side, We're gonna see some difficulty and

47
00:02:27,800 --> 00:02:30,280
Speaker 1: we've seen, but we think we'll see upward revisions to

48
00:02:30,360 --> 00:02:32,640
Speaker 1: earnings and that will be part of the adjustment we

49
00:02:32,680 --> 00:02:34,760
Speaker 1: have as we go forward. The big ones we think

50
00:02:34,800 --> 00:02:37,600
Speaker 1: will be political on the trade front, in particular. You

51
00:02:37,720 --> 00:02:41,760
Speaker 1: do private bank, which means I need some coupon? Is

52
00:02:41,840 --> 00:02:45,360
Speaker 1: coupon of any value right now? Are there fixed income

53
00:02:45,400 --> 00:02:48,079
Speaker 1: of any value? Absolutely? Are you know, high net worth

54
00:02:48,080 --> 00:02:51,960
Speaker 1: individuals are still looking for that that return, that yield. Absolutely,

55
00:02:52,160 --> 00:02:55,560
Speaker 1: but they're looking for growth. And what we're seeing increasingly

56
00:02:55,720 --> 00:02:57,959
Speaker 1: is clients are saying, you know, I'm seeing the market

57
00:02:58,040 --> 00:02:59,799
Speaker 1: is up. What what do I do? How do I care?

58
00:02:59,840 --> 00:03:02,040
Speaker 1: But is a dividend of proxy for yield? I and

59
00:03:02,120 --> 00:03:04,919
Speaker 1: my all my radar goes up when I say that. Yeah, yeah, well,

60
00:03:04,960 --> 00:03:07,400
Speaker 1: I think look, we've we've had some investors do it

61
00:03:07,440 --> 00:03:09,200
Speaker 1: but you have to be really careful obviously with a

62
00:03:09,240 --> 00:03:11,920
Speaker 1: dividend deal strategy. So where do you put fixed income

63
00:03:12,000 --> 00:03:13,920
Speaker 1: for hitters right now? I mean, was it full faith

64
00:03:13,960 --> 00:03:17,680
Speaker 1: and credit? Are you going out and find something goofy esoteric? Well,

65
00:03:17,720 --> 00:03:19,800
Speaker 1: we're out in EM debt. We like EM debt. We

66
00:03:20,160 --> 00:03:22,840
Speaker 1: like EM hard currency debt in particular. We've taken our

67
00:03:22,880 --> 00:03:25,920
Speaker 1: winnings from from high yield. We still like high yield

68
00:03:25,919 --> 00:03:27,679
Speaker 1: a bit, but but it did really well in the

69
00:03:27,680 --> 00:03:33,799
Speaker 1: first couple of huge exactly. So we took our victory

70
00:03:33,840 --> 00:03:36,000
Speaker 1: lap there as you just mentioned, and we're gonna sit

71
00:03:36,040 --> 00:03:38,480
Speaker 1: back and we still like it, but not as much. Yeah,

72
00:03:38,520 --> 00:03:40,840
Speaker 1: but now we're more and more focused on investment grade

73
00:03:41,200 --> 00:03:44,840
Speaker 1: with this other pole being emerging market. So somebody walks

74
00:03:44,840 --> 00:03:47,120
Speaker 1: on the door and they've got fifteen percent of their

75
00:03:47,160 --> 00:03:50,640
Speaker 1: portfolio on Amazon because it used to be three, exactly,

76
00:03:50,720 --> 00:03:53,360
Speaker 1: and it's not what come on, you're telling me to

77
00:03:53,400 --> 00:03:56,480
Speaker 1: sell Amazon or Apple or Microsoft to the rest of

78
00:03:56,520 --> 00:03:59,600
Speaker 1: these you know, linear moonshots that are out there. You know,

79
00:04:00,200 --> 00:04:02,640
Speaker 1: we think back to two thousand one. The biggest problem

80
00:04:02,640 --> 00:04:05,000
Speaker 1: we had in the market, the correction in the market

81
00:04:05,000 --> 00:04:07,760
Speaker 1: in two thousand one was people allowed their portfolio to

82
00:04:07,800 --> 00:04:10,880
Speaker 1: get out of whack. They did not redistribute profits, and

83
00:04:10,960 --> 00:04:14,160
Speaker 1: that was a big part of the people rebalanced were

84
00:04:14,240 --> 00:04:17,600
Speaker 1: looking out of the studio. Not weekly, but no, we

85
00:04:17,640 --> 00:04:20,680
Speaker 1: have quarterly meetings with clients. Monthly meetings with clients, uh,

86
00:04:20,760 --> 00:04:24,159
Speaker 1: to talk about rebalancing portfolios, especially with the volatility we

87
00:04:24,160 --> 00:04:26,320
Speaker 1: see increasing going forward. What did I miss if I

88
00:04:26,400 --> 00:04:29,720
Speaker 1: rebalanced Amazon just as you know, or Microsoft pick Microsoft

89
00:04:29,720 --> 00:04:31,960
Speaker 1: in the last couple of months, years whatever in the

90
00:04:32,040 --> 00:04:35,800
Speaker 1: last rebalanced Microsoft. Well, I mean, look, hindsight is twenty

91
00:04:35,800 --> 00:04:37,960
Speaker 1: if if I right, And that's the thing with with

92
00:04:38,240 --> 00:04:40,880
Speaker 1: you know, if you're gonna, if you're gonna do portfolio management,

93
00:04:41,040 --> 00:04:43,839
Speaker 1: hindsight is twenty. But uh, you know, so put it

94
00:04:43,880 --> 00:04:45,800
Speaker 1: all on one stock doesn't make a lot of sense.

95
00:04:45,839 --> 00:04:48,840
Speaker 1: So I think we want to make sure that that

96
00:04:48,920 --> 00:04:51,880
Speaker 1: earning stream is solid for for investors going forward. They

97
00:04:51,880 --> 00:04:53,560
Speaker 1: thank you so much. Can we get to three of you, you,

98
00:04:53,720 --> 00:04:56,040
Speaker 1: Ben Laidler and Steve Major all on the set at

99
00:04:56,040 --> 00:04:58,680
Speaker 1: the same time, or even who's who's the nutcase in

100
00:04:58,800 --> 00:05:05,920
Speaker 1: for David? David Bloom to a guest is another The

101
00:05:05,960 --> 00:05:07,800
Speaker 1: problem with Bloom is all he wants to do is

102
00:05:07,839 --> 00:05:13,800
Speaker 1: talk English football. But where where's Bloom on for an exchange? Right? Interesting?

103
00:05:13,839 --> 00:05:16,479
Speaker 1: I'm surprised you didn't mention the interesting qual with Stephen Major.

104
00:05:16,520 --> 00:05:18,240
Speaker 1: You know what our qualit is on the tenure right

105
00:05:18,560 --> 00:05:23,240
Speaker 1: two point? Yeah, you're still one dollar stability or even

106
00:05:23,279 --> 00:05:25,919
Speaker 1: dollar strength. Right. Well, that's the problem is we're not

107
00:05:25,920 --> 00:05:28,280
Speaker 1: looking for dollar strength. But to Bloom's point, and and

108
00:05:28,760 --> 00:05:30,480
Speaker 1: you know, how do you see dollar weakness in an

109
00:05:30,520 --> 00:05:34,200
Speaker 1: environment where everybody else is cutting? So congratulations to your back.

110
00:05:34,279 --> 00:05:38,359
Speaker 1: You guys have been on fire. Thank you, HSBC Private.

111
00:05:52,600 --> 00:05:54,800
Speaker 1: Should you welcome our next guest? Well, I'm going to

112
00:05:54,920 --> 00:05:58,160
Speaker 1: take the welcome here because it doesn't look to impress

113
00:05:58,240 --> 00:06:02,240
Speaker 1: with you. It's government's next chief economists and head of

114
00:06:02,240 --> 00:06:04,680
Speaker 1: global economics and markets research. Yeah, and great to see

115
00:06:04,720 --> 00:06:07,279
Speaker 1: you have anything to say to Tom after that? It's

116
00:06:07,320 --> 00:06:10,039
Speaker 1: great to be here. And the trendier reception has always

117
00:06:10,040 --> 00:06:13,680
Speaker 1: appreciated good. But seriously, to Jeff, how did you take

118
00:06:13,760 --> 00:06:17,200
Speaker 1: Jeff curies working folded into what we're seeing and we

119
00:06:17,279 --> 00:06:20,360
Speaker 1: were all at ourselves into pulled up the Business Week

120
00:06:20,640 --> 00:06:23,680
Speaker 1: magazine article from Mr Hatzies. Dr Hatzi is here is

121
00:06:23,720 --> 00:06:27,360
Speaker 1: inflation dead? Comment on there? Please? I don't think inflation

122
00:06:27,400 --> 00:06:29,960
Speaker 1: is dead. But obviously we're in a very different regime

123
00:06:30,080 --> 00:06:32,760
Speaker 1: from where we were in the nineteen nineteen eighties and

124
00:06:32,839 --> 00:06:36,040
Speaker 1: nineteen nineties, and I think that's still a gradual adjustment

125
00:06:36,720 --> 00:06:40,840
Speaker 1: of forecasters, you know, the idea that we're going to be,

126
00:06:41,680 --> 00:06:44,520
Speaker 1: you know, not even with a three percent unemployment rate,

127
00:06:44,640 --> 00:06:47,159
Speaker 1: not necessarily at two and a half percent plus on

128
00:06:47,200 --> 00:06:49,840
Speaker 1: inflation is still something that that is taking a while

129
00:06:49,880 --> 00:06:53,760
Speaker 1: to sink in. Now. Beyond that regime change, I think

130
00:06:53,760 --> 00:06:57,520
Speaker 1: we've also seen some kind of more genuine downside surprises

131
00:06:57,560 --> 00:07:00,880
Speaker 1: and some of the h inflation indicator US recently so

132
00:07:01,000 --> 00:07:04,000
Speaker 1: or um. You know, if you'd asked me three, three

133
00:07:04,080 --> 00:07:06,320
Speaker 1: or six months ago, I would have said late this year,

134
00:07:06,400 --> 00:07:08,560
Speaker 1: we'd we'd be you know, maybe two and two and

135
00:07:08,600 --> 00:07:11,000
Speaker 1: a quarter per sandals or for core pc inflation. And

136
00:07:11,000 --> 00:07:15,320
Speaker 1: now it looks like that's not going to happen. Thank

137
00:07:15,360 --> 00:07:31,000
Speaker 1: you so much, Thank you always. Let's bring it Dantan

138
00:07:31,080 --> 00:07:34,040
Speaker 1: about shall we? P WC United States Principal and Global

139
00:07:34,240 --> 00:07:39,040
Speaker 1: Sanctions Leader, Dan Let's begin with what happened yesterday, the

140
00:07:39,160 --> 00:07:42,480
Speaker 1: concept of waivers for Irani and crude exports, and what's

141
00:07:42,480 --> 00:07:44,920
Speaker 1: going to change in the next couple of weeks time.

142
00:07:44,960 --> 00:07:47,000
Speaker 1: I think I'm going to the wrong parties, so no

143
00:07:47,040 --> 00:07:49,240
Speaker 1: one's talking about sanctions where I go, or maybe you're

144
00:07:49,240 --> 00:07:53,480
Speaker 1: going to the right party. That's fair. The announcement shouldn't

145
00:07:53,560 --> 00:07:56,840
Speaker 1: really surprise anyone because the government has been telegraphing for

146
00:07:56,880 --> 00:07:59,200
Speaker 1: the last few months that there weren't going to extend

147
00:07:59,240 --> 00:08:02,360
Speaker 1: the waivers. The unpredictability they've been exhibiting over the last

148
00:08:02,400 --> 00:08:05,040
Speaker 1: couple of years has made people skeptical that they would

149
00:08:05,040 --> 00:08:07,760
Speaker 1: follow through. But the announcement came out. They want the

150
00:08:07,800 --> 00:08:10,960
Speaker 1: world to go to zero on Iranian crude. The Iranians

151
00:08:10,960 --> 00:08:14,040
Speaker 1: have respectfully disagreed, as well as a number of allies

152
00:08:14,080 --> 00:08:16,000
Speaker 1: that still continue to trade, and so we're gonna have

153
00:08:16,000 --> 00:08:18,440
Speaker 1: a bit of a standoff potentially. How quickly can you

154
00:08:18,480 --> 00:08:22,040
Speaker 1: get to zero? I mean they waivers are due to

155
00:08:22,120 --> 00:08:25,520
Speaker 1: expire on May second, so next week. I think it's

156
00:08:25,640 --> 00:08:28,080
Speaker 1: very unlikely that anyone is going to zero by the

157
00:08:28,160 --> 00:08:33,720
Speaker 1: end of next week. They have an Ahwah's oil field

158
00:08:33,880 --> 00:08:39,000
Speaker 1: and Smari formation. They pump oil, it's put in barrels

159
00:08:39,080 --> 00:08:42,800
Speaker 1: or whatever, or on boats. How do you actually sanction it?

160
00:08:43,880 --> 00:08:46,400
Speaker 1: So I mean it is like you know, the confederacy

161
00:08:46,400 --> 00:08:48,719
Speaker 1: where you put boats around our harbor. Well, I mean

162
00:08:48,760 --> 00:08:51,120
Speaker 1: what they do with some of those boats. The whole

163
00:08:51,120 --> 00:08:54,480
Speaker 1: fleet of ghost tankers that essentially are filled with oil

164
00:08:54,520 --> 00:08:57,520
Speaker 1: and floating in the water, is floating supply depots because

165
00:08:57,600 --> 00:09:01,200
Speaker 1: they just need to store the barrels somewhere. The sanctioning

166
00:09:01,200 --> 00:09:05,559
Speaker 1: will come not necessarily against the Iranians, but against companies

167
00:09:05,559 --> 00:09:07,760
Speaker 1: that are found to continue to trade in Iran. So

168
00:09:07,800 --> 00:09:11,400
Speaker 1: if you're a bank that had financed the legal Iranian

169
00:09:11,520 --> 00:09:14,600
Speaker 1: oil trade, you could potentially be at risk after the waivers.

170
00:09:14,760 --> 00:09:18,120
Speaker 1: Just because Dan, this is so important folding China into this,

171
00:09:18,200 --> 00:09:21,360
Speaker 1: because one of these nations is China, and yet we're

172
00:09:21,360 --> 00:09:24,120
Speaker 1: trying to be happy, touchy feely with China right now,

173
00:09:24,320 --> 00:09:27,960
Speaker 1: right This won't help, This won't help, thank you. I mean,

174
00:09:28,080 --> 00:09:32,480
Speaker 1: maybe we look at is this compartmentalization. They don't write,

175
00:09:32,520 --> 00:09:34,679
Speaker 1: they don't and this is going to get roped into

176
00:09:34,679 --> 00:09:37,320
Speaker 1: the broader trade debate that's been ongoing. And I know

177
00:09:37,400 --> 00:09:41,160
Speaker 1: ambassad Lightheiser's due to be on another delegation to Beijing.

178
00:09:41,360 --> 00:09:44,360
Speaker 1: This will certainly be part of that agenda. But the

179
00:09:44,440 --> 00:09:47,400
Speaker 1: Chinese do not compartmentalize like the U S. You're trying

180
00:09:47,440 --> 00:09:49,880
Speaker 1: to on this issue. Every now and again we hear

181
00:09:49,920 --> 00:09:54,719
Speaker 1: threats of shutting down the straight off Homus, which separates

182
00:09:54,720 --> 00:09:58,360
Speaker 1: the Persian Gulf and the Gulf into the Arabian Say,

183
00:09:58,360 --> 00:10:02,280
Speaker 1: which I think around about scent of global oil flows through.

184
00:10:02,720 --> 00:10:05,319
Speaker 1: We hear those threats again in the last twenty four hours.

185
00:10:05,320 --> 00:10:09,160
Speaker 1: How seriously should we take the prospect of Iran trying

186
00:10:09,200 --> 00:10:11,680
Speaker 1: to shut down the Straight of almost I think that's

187
00:10:11,679 --> 00:10:14,120
Speaker 1: an unlikely scenario that they're going to shut down that

188
00:10:14,240 --> 00:10:18,319
Speaker 1: straight There's other countries that are allies to Iran, that

189
00:10:18,360 --> 00:10:21,360
Speaker 1: are actually allies to the US, that would all potentially

190
00:10:21,360 --> 00:10:24,040
Speaker 1: have an adverse reaction to that, and all that would

191
00:10:24,120 --> 00:10:27,280
Speaker 1: be harmed, mostly the Iranians as a result of that,

192
00:10:27,360 --> 00:10:30,560
Speaker 1: because other countries could come and punish them similarly, How

193
00:10:30,640 --> 00:10:33,400
Speaker 1: harmed are they if we go to quote unquote zero,

194
00:10:33,960 --> 00:10:37,160
Speaker 1: So you know, the as I understand it, oil makes

195
00:10:37,240 --> 00:10:41,480
Speaker 1: up about of the Iranian economy. It would be a

196
00:10:41,520 --> 00:10:44,520
Speaker 1: significant harm to the government and to the country of

197
00:10:44,559 --> 00:10:49,120
Speaker 1: Iran if oil goes to zero. There are a number

198
00:10:49,120 --> 00:10:52,480
Speaker 1: of trading partners, like India, like China that have no

199
00:10:52,640 --> 00:10:56,640
Speaker 1: interest in suspending activity in trading in Iranian oil. Now.

200
00:10:56,679 --> 00:10:59,720
Speaker 1: Of the eight countries that got waivers, Greece, Italy and

201
00:11:00,000 --> 00:11:03,400
Speaker 1: Taiwan have already suspended, but that leaves five countries still

202
00:11:03,440 --> 00:11:05,440
Speaker 1: in the mix, and two of them have large volumes.

203
00:11:05,800 --> 00:11:08,520
Speaker 1: Is there a black market? I don't want to get

204
00:11:08,559 --> 00:11:11,640
Speaker 1: in trouble with p WC, but the you know, forget

205
00:11:11,640 --> 00:11:14,320
Speaker 1: about the visible market. Is there a black market where

206
00:11:14,360 --> 00:11:18,160
Speaker 1: the people that desire Iranian oil get it? I don't

207
00:11:18,160 --> 00:11:20,439
Speaker 1: think it's so much a black market, but a shifting

208
00:11:20,480 --> 00:11:24,120
Speaker 1: of transactions out of US dollar denominated transactions and move

209
00:11:24,200 --> 00:11:26,640
Speaker 1: them to the Euro to attempt to keep them entirely

210
00:11:26,679 --> 00:11:29,640
Speaker 1: away from U S jurisdiction. That's been floated for years

211
00:11:29,760 --> 00:11:32,800
Speaker 1: in response to the Iran related sanctions. The dollar is

212
00:11:32,840 --> 00:11:35,280
Speaker 1: obviously a much more stable currency, that's why it's been

213
00:11:35,280 --> 00:11:38,120
Speaker 1: pegged for oil. But that's always a scenario. And there's

214
00:11:38,160 --> 00:11:40,880
Speaker 1: also mechanisms that the EU have set up, for example,

215
00:11:41,240 --> 00:11:45,240
Speaker 1: to allow humanitarian trade to be processed called instincts, and

216
00:11:45,559 --> 00:11:48,360
Speaker 1: that is a mechanism that is technically legal, even in

217
00:11:48,400 --> 00:11:50,920
Speaker 1: the eyes of the U S, to facilitate humanitarian aid,

218
00:11:51,000 --> 00:11:53,840
Speaker 1: but it goes outside the traditional banking sector. Down great

219
00:11:53,880 --> 00:11:56,520
Speaker 1: to catch out with you busy twenty four hours. Again

220
00:11:56,600 --> 00:11:58,280
Speaker 1: for you, I'm sure and no doubt down we'll be

221
00:11:58,320 --> 00:12:00,120
Speaker 1: bank with us as we canty it down to the

222
00:12:00,160 --> 00:12:02,400
Speaker 1: prospect of the wave is being removed and potentially an

223
00:12:02,400 --> 00:12:16,640
Speaker 1: effort to send Irani and crude exports down to zero.

224
00:12:20,080 --> 00:12:23,400
Speaker 1: Lindsay p X joins us right now with Staple, their

225
00:12:23,440 --> 00:12:26,679
Speaker 1: chief economists. Lindsay, good morning. What part of why will

226
00:12:26,760 --> 00:12:29,280
Speaker 1: C plus I plus G plus n X matters to you?

227
00:12:29,600 --> 00:12:33,160
Speaker 1: What will you look at first in the GDP report? Oh,

228
00:12:33,200 --> 00:12:36,640
Speaker 1: I think everyone will be focusing on the sea the consumer,

229
00:12:36,760 --> 00:12:39,520
Speaker 1: how healthy the consumer is as a one of the

230
00:12:39,600 --> 00:12:43,560
Speaker 1: largest components, the largest component of the growth equation. It

231
00:12:43,760 --> 00:12:46,559
Speaker 1: really depends on whether or not the consumer is happy

232
00:12:46,600 --> 00:12:50,000
Speaker 1: and healthy out in the marketplace doing what they do best,

233
00:12:50,040 --> 00:12:54,040
Speaker 1: which is spending on discretionary goods, new big screen TVs

234
00:12:54,120 --> 00:12:57,400
Speaker 1: and new spring dresses. So we really need to look

235
00:12:57,440 --> 00:13:00,280
Speaker 1: at how much the consumer is spending and whether or

236
00:13:00,280 --> 00:13:04,000
Speaker 1: not they're able to maintain that spending trend going forward

237
00:13:04,040 --> 00:13:07,320
Speaker 1: into the remaining quarters. Well, what does your work what's

238
00:13:07,360 --> 00:13:10,120
Speaker 1: your forecast on that? I don't mean a single digit number,

239
00:13:10,200 --> 00:13:16,480
Speaker 1: but but what what's the what's the Lindsay vector of consumption, Well,

240
00:13:16,520 --> 00:13:19,440
Speaker 1: I think the consumer is still spending. That's the good news.

241
00:13:20,080 --> 00:13:23,280
Speaker 1: The glass half empty, however, is that the consumers spending

242
00:13:23,280 --> 00:13:26,120
Speaker 1: at a noticeably reduced pace to what we saw in

243
00:13:27,160 --> 00:13:29,600
Speaker 1: For a number of reasons. There were a couple of

244
00:13:30,000 --> 00:13:33,520
Speaker 1: very temporary but strong factors helping to prop up the

245
00:13:33,559 --> 00:13:37,040
Speaker 1: consumer over the past couple of years, ramping up credit

246
00:13:37,240 --> 00:13:41,520
Speaker 1: to above pre crisis levels, drawing down savings even that

247
00:13:41,679 --> 00:13:46,480
Speaker 1: lingering wealth effects that consumers had accumulated from filling up

248
00:13:46,520 --> 00:13:50,000
Speaker 1: their car lower cost. What about the tax plan? Come on,

249
00:13:50,160 --> 00:13:52,520
Speaker 1: come on, everybody got hit over the head on taxes.

250
00:13:52,880 --> 00:13:55,440
Speaker 1: Did that have a lot to do with this? Well,

251
00:13:55,559 --> 00:13:58,440
Speaker 1: taxes did play a role here, but a lot of

252
00:13:58,480 --> 00:14:01,920
Speaker 1: that boost for the consumer or was already spent. If

253
00:14:01,960 --> 00:14:06,160
Speaker 1: you look at the consumption numbers, specifically the discretionary spending numbers,

254
00:14:06,160 --> 00:14:09,360
Speaker 1: which we look at for the retail sales figures, consumers

255
00:14:09,360 --> 00:14:12,240
Speaker 1: actually went and spent well above trend at the end

256
00:14:12,240 --> 00:14:15,760
Speaker 1: of seen But nothing had happened in terms of taxes

257
00:14:15,800 --> 00:14:19,640
Speaker 1: in seventeen, but consumers were more than willing to spend

258
00:14:20,080 --> 00:14:24,240
Speaker 1: in anticipation of tax reform coming down the pipeline. But

259
00:14:24,320 --> 00:14:26,440
Speaker 1: what we actually saw is when we turned the page

260
00:14:26,440 --> 00:14:30,600
Speaker 1: into the expectations of tax reform. In terms of our

261
00:14:30,640 --> 00:14:34,480
Speaker 1: after tax take home pay, we're well above reality, and

262
00:14:34,520 --> 00:14:38,400
Speaker 1: consumers actually had to pull back, so we overspent, we

263
00:14:38,480 --> 00:14:42,040
Speaker 1: intenipated more in terms of return, and then we reverted

264
00:14:42,120 --> 00:14:44,440
Speaker 1: right back to the trend pace of expenditure for the

265
00:14:44,520 --> 00:14:47,440
Speaker 1: latter part of eighteen and now we're starting to see

266
00:14:47,440 --> 00:14:50,920
Speaker 1: that more downward bias in many people expected this first

267
00:14:51,000 --> 00:14:53,760
Speaker 1: quarter to be soft. It's not actually as soft as

268
00:14:53,800 --> 00:14:55,960
Speaker 1: I think some people would have thought it might have been.

269
00:14:55,960 --> 00:15:00,000
Speaker 1: Going into January. Looking out and extrapolating this forward, lindsay,

270
00:15:00,080 --> 00:15:02,000
Speaker 1: is this what the rest of the looks like? Something

271
00:15:02,080 --> 00:15:04,760
Speaker 1: in the low twos. Is that what you're looking for? Well,

272
00:15:04,800 --> 00:15:07,000
Speaker 1: I think actually we are going to see an annual

273
00:15:07,040 --> 00:15:10,400
Speaker 1: paste below two percent. We're looking for an annual range

274
00:15:10,400 --> 00:15:12,280
Speaker 1: of one and a half to one point eight percent,

275
00:15:12,320 --> 00:15:15,520
Speaker 1: so still not terrible, right up near that two ish

276
00:15:15,560 --> 00:15:18,960
Speaker 1: percent mark. But what we're seeing is this very clear

277
00:15:19,040 --> 00:15:22,720
Speaker 1: decline in momentum from a top line perspective number. Four

278
00:15:22,760 --> 00:15:25,480
Speaker 1: percent growth in the second quarters, three percent in the third,

279
00:15:25,840 --> 00:15:28,360
Speaker 1: two percent by the end of the year. We're clearly

280
00:15:28,400 --> 00:15:31,160
Speaker 1: seeing this this ladder cap down in terms of top

281
00:15:31,200 --> 00:15:33,760
Speaker 1: line growth. Do you expect that to continue this year?

282
00:15:34,040 --> 00:15:36,920
Speaker 1: I believe that's a linear vector four three to one

283
00:15:36,920 --> 00:15:40,080
Speaker 1: blast off. Are you willing to predict blast off or

284
00:15:40,200 --> 00:15:43,760
Speaker 1: are you going to get on the recession crew of Well,

285
00:15:43,800 --> 00:15:46,360
Speaker 1: I do think that we see the first negative print

286
00:15:46,600 --> 00:15:49,880
Speaker 1: by now, whether or not we fall into recession, we're

287
00:15:49,960 --> 00:15:52,760
Speaker 1: kind of splitting hairs there. Of course, recession is typically

288
00:15:52,800 --> 00:15:55,480
Speaker 1: back to back quarters of negative growth. And whether or

289
00:15:55,480 --> 00:15:57,240
Speaker 1: not we see that dip in the first quarter, in

290
00:15:57,360 --> 00:16:00,480
Speaker 1: third quarter, or some sort of combination. Are we do

291
00:16:00,560 --> 00:16:05,080
Speaker 1: expect the economy to fall below zero in and whether

292
00:16:05,160 --> 00:16:08,360
Speaker 1: or not again we maintain that consistency of negative growth,

293
00:16:08,480 --> 00:16:12,480
Speaker 1: or more concerning lee we fall into a non accelerating

294
00:16:12,640 --> 00:16:17,760
Speaker 1: growth platform, in meaning GDP falls consistently below one percent.

295
00:16:18,440 --> 00:16:22,920
Speaker 1: I do think that we see the economy decelerate noticeably

296
00:16:23,280 --> 00:16:25,680
Speaker 1: over the coming twelve to twenty four months. So is

297
00:16:25,720 --> 00:16:27,800
Speaker 1: that accompanied by federals of right cuts? Is that in

298
00:16:27,840 --> 00:16:30,920
Speaker 1: your base cases? Well, lindsay yes, we do think that

299
00:16:31,000 --> 00:16:34,800
Speaker 1: the FED is going to acknowledge that the growing level

300
00:16:34,800 --> 00:16:36,960
Speaker 1: of weakness. Now they've already acknowledged the fact that the

301
00:16:37,040 --> 00:16:39,480
Speaker 1: data is not necessarily sending a clear signal to the

302
00:16:39,560 --> 00:16:42,440
Speaker 1: upside or the downside. So the Fed this time around

303
00:16:42,480 --> 00:16:46,440
Speaker 1: seems to be willing to make policy a bit more preemptively,

304
00:16:46,920 --> 00:16:50,240
Speaker 1: and as they anticipate that decline and momentum going into

305
00:16:51,160 --> 00:16:52,760
Speaker 1: we do think they're going to set the stage for

306
00:16:52,840 --> 00:16:56,080
Speaker 1: the market, giving ample time and notification that they're willing

307
00:16:56,400 --> 00:16:59,240
Speaker 1: to move into a defensive policy position, and we get

308
00:16:59,240 --> 00:17:02,720
Speaker 1: that first rate cut in the first quarter of Lizzie.

309
00:17:02,720 --> 00:17:07,919
Speaker 1: Thank you so much, Chief Economists. Thanks for listening to

310
00:17:07,960 --> 00:17:12,480
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

311
00:17:12,560 --> 00:17:18,400
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

312
00:17:18,440 --> 00:17:21,720
Speaker 1: on Twitter at Tom Keane before the podcast. You can

313
00:17:21,760 --> 00:17:24,960
Speaker 1: always catch us worldwide. I'm Bloomberg Radio.