WEBVTT - Bloomberg Surveillance: The Fed's Unlikely Inflation Goal 0:00:05.120 --> 0:00:07.200 This is the Bloomberg Surveillance Podcast. 0:00:07.680 --> 0:00:10.799 I'm Lisa Abramoids along with Tom Keane and Jonathan Farrow. 0:00:11.160 --> 0:00:15.280 Join us each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.840 Subscribe to Bloomberg Surveillance. 0:00:18.360 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.160 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:26.440 the Bloomberg Business App. 0:00:26.920 --> 0:00:29.639 Right now, I've been out a few days, but I 0:00:29.720 --> 0:00:32.800 really want to reset here on the American economy, and 0:00:32.800 --> 0:00:35.040 there's no one better to do that than Tiffany Wilding, 0:00:35.640 --> 0:00:38.000 economist at Pimco. Tiffy, I'm going to go beyond the 0:00:38.040 --> 0:00:41.040 labor reports. We'll circle back to that. What is your 0:00:41.120 --> 0:00:44.680 real GDP growth for twenty twenty four? 0:00:47.159 --> 0:00:49.320 Yeah, I mean, so we think that the good news 0:00:49.320 --> 0:00:52.040 from twenty twenty three, the resilient story, the you know, 0:00:52.040 --> 0:00:55.800 two and a half percent kind of above trend GDP growth, 0:00:56.120 --> 0:00:58.840 you know, that's probably squarely behind us. You know, the 0:00:58.880 --> 0:01:01.280 saying kind of goes you can't go to heaven twice, 0:01:01.280 --> 0:01:03.600 and we think some of the factors that led to that, 0:01:04.360 --> 0:01:06.600 you know, we're still some of these excess savings sloshing 0:01:06.680 --> 0:01:09.080 around from the pandemic and other supports, and you know, 0:01:09.120 --> 0:01:11.240 and those kinds of things in our and under our 0:01:11.360 --> 0:01:14.640 estimation are going away next year. And when you when 0:01:14.680 --> 0:01:16.920 those things go away, what you're left with is still 0:01:17.040 --> 0:01:20.200 tight monetary policy, you know. And obviously we have a 0:01:20.200 --> 0:01:22.120 Federal Reserve that is telling us they're going to remain 0:01:22.200 --> 0:01:24.759 on hold. So those policy drags are continuing to build. 0:01:24.840 --> 0:01:27.280 So overall, we think growth probably is closer to something, 0:01:28.000 --> 0:01:31.319 you know, the stagnant. You know, whether it's slightly positive 0:01:31.360 --> 0:01:33.479 or slightly negative, I think is anyone's guest. But we're 0:01:33.520 --> 0:01:35.240 kind of a stagnant situation next year. 0:01:35.440 --> 0:01:37.720 So are you basically saying that we're in heaven and 0:01:37.760 --> 0:01:39.760 that this is the Goldilocks and that you can't go 0:01:39.840 --> 0:01:40.880 there again it's over? 0:01:43.680 --> 0:01:45.640 Yeah, I mean, so we do think there's a lot 0:01:45.640 --> 0:01:48.840 of good news this year with the US economy. There's 0:01:48.840 --> 0:01:51.800 a lot of surprising resilience in the growth numbers, of course, 0:01:51.840 --> 0:01:54.440 you know, and and so we think, you know, the 0:01:54.440 --> 0:01:57.560 supply picture, as the Federal Reserve has also pointed out, 0:01:57.840 --> 0:02:00.280 has also helped that, you know. But again, if you 0:02:00.280 --> 0:02:02.880 looked at twenty twenty four, you have demand which is 0:02:02.880 --> 0:02:06.000 potentially coming down, you know, but some of the things 0:02:06.000 --> 0:02:09.800 that added to supply, like supply chain normalizations. You know, 0:02:09.800 --> 0:02:12.080 we have the labor force participation rate for the prime 0:02:12.120 --> 0:02:14.440 age folks that are now you know, it's back to 0:02:14.520 --> 0:02:17.480 pre pandemic levels. You know, we're just not convinced maybe 0:02:17.480 --> 0:02:19.640 that you're going to get as much on the supply 0:02:19.800 --> 0:02:22.680 side next year. Now. Of course, immigration has been a 0:02:22.720 --> 0:02:26.080 story here, and that's why we've also seen you know, 0:02:26.120 --> 0:02:29.639 the unemployment rate rise because some of those labor market 0:02:29.639 --> 0:02:32.800 inflows aren't getting absorbed by just a strong labor demand. 0:02:33.040 --> 0:02:35.200 But again, overall, all of those signals kind of point 0:02:35.240 --> 0:02:37.520 to us of something that's closer to more stagnant. More 0:02:37.560 --> 0:02:38.480 stagnant economy. 0:02:38.600 --> 0:02:40.480 Baked into this is this assumption that you're going to 0:02:40.560 --> 0:02:42.760 have higher yields for a longer period of time. You said, 0:02:42.800 --> 0:02:44.560 what we're going to be left with is just tighter 0:02:44.639 --> 0:02:47.760 financial conditions, and yet it's unclear. 0:02:47.280 --> 0:02:48.399 Whether that's going to be the case. 0:02:48.400 --> 0:02:50.160 There have been a lot of people calling for pretty 0:02:50.160 --> 0:02:52.920 substantial rate cuts by the Fed, by the ECP in 0:02:52.960 --> 0:02:55.600 response to inflation coming down significantly. 0:02:55.639 --> 0:02:56.880 Do you agree with the. 0:02:56.840 --> 0:03:00.360 Paradigm or oil prices stay lower than they have and 0:03:00.440 --> 0:03:03.920 keep inflecting lower because of production, because of supply, you 0:03:03.960 --> 0:03:08.960 start to see a re engagement of global trade, forget deglobalization, 0:03:09.320 --> 0:03:11.480 and you start to get more people come into the workforce. 0:03:11.520 --> 0:03:13.280 It's basically everyone that people use. 0:03:13.400 --> 0:03:15.240 It's the opposite of the this. 0:03:15.280 --> 0:03:17.200 Time is different narrative that we heard this year. 0:03:19.000 --> 0:03:21.720 Yeah, well, I mean, I'm not exactly sure in terms 0:03:21.800 --> 0:03:25.400 of labor market inflows. You know, higher participation rates for 0:03:25.440 --> 0:03:27.280 that prime age cohort, you know, I'm not sure that 0:03:27.280 --> 0:03:30.720 that's going to continue to increase. I do think there's 0:03:30.720 --> 0:03:34.960 some potential for immigration flows to stay high in twenty 0:03:35.000 --> 0:03:36.960 twenty four. That's been a story not only in the 0:03:37.040 --> 0:03:41.280 US but across the developed markets. Obviously geop elevated, you know, 0:03:41.320 --> 0:03:44.760 geopolitical risks and conflicts are are contributing to that as well. 0:03:45.520 --> 0:03:48.520 But overall, you know, I guess what we would say 0:03:48.600 --> 0:03:51.880 is is that, you know, the Federal Reserve has told 0:03:51.960 --> 0:03:54.600 us that they are still worried about the last mile 0:03:54.680 --> 0:03:58.400 problem on inflation. In order to really ensure that inflation's 0:03:58.440 --> 0:03:59.960 back to target, you know, I think we think, you do, 0:04:00.040 --> 0:04:01.920 you need to see some more labor market loosening. 0:04:02.080 --> 0:04:05.040 Marketing's coming back here in equity's, bonds, currencies, commodities, a 0:04:05.040 --> 0:04:07.280 little bit of adjustment off the claims, and we've come 0:04:07.320 --> 0:04:09.839 back in a little bit. I call it noodling. As 0:04:09.840 --> 0:04:13.200 we staggered to tomorrow morning at eight thirty, Tiffany, one 0:04:13.200 --> 0:04:16.080 of the great responsibilities you have is to stagger down 0:04:16.120 --> 0:04:20.360 the rows at PIMCO, tripping over the antique Monroe traders 0:04:20.400 --> 0:04:24.359 and looking at people's Bloomberg screens. And the two minute 0:04:24.440 --> 0:04:26.440 drill is what is a short space going to do, 0:04:26.560 --> 0:04:29.640 the Jerome Schneider space, And what's it going to do 0:04:29.720 --> 0:04:32.279 in terms of the wall of money that's out there 0:04:32.920 --> 0:04:36.600 that's off your remit? But your remit is what are 0:04:36.640 --> 0:04:42.000 the economic conditions that make cash finally move? Can you 0:04:42.040 --> 0:04:45.400 come up with a scenario where cash finally moves? 0:04:47.000 --> 0:04:47.279 Yeah? 0:04:47.320 --> 0:04:50.040 Absolutely, I mean I do think it's it's certainly this 0:04:50.560 --> 0:04:53.840 quote soft landing scenario, right, you know. And I think 0:04:53.839 --> 0:04:56.520 that the fact that the Federal Reserve as well as 0:04:56.560 --> 0:04:59.200 other central banks have signaled that they're at the top 0:04:59.240 --> 0:05:03.119 of their cycle, you know, along with this coinciding shock 0:05:03.200 --> 0:05:07.080 to term premiums, just made bond market valuations look really 0:05:07.120 --> 0:05:11.000 attractive and as a result, those higher yields just didn't 0:05:11.000 --> 0:05:13.520 stay around that long, and you are starting to see 0:05:13.560 --> 0:05:15.800 cash I think, come off the sidelines, go into the 0:05:15.839 --> 0:05:18.520 bond market now, you know, I think there's a question 0:05:18.560 --> 0:05:21.359 around the equity market, you know, riskier assets. I mean, 0:05:21.480 --> 0:05:24.919 certainly the soft landing will be helpful, but when we 0:05:24.920 --> 0:05:27.839 look at valuations, you know, for equities, for example, we 0:05:27.920 --> 0:05:32.040 are more cautious. Equity risk premiums are still within their 0:05:32.120 --> 0:05:34.279 historical range. They're not pricing in a lot of recession 0:05:34.320 --> 0:05:36.000 risk in our view, and we don't think were out 0:05:36.000 --> 0:05:37.599 of the water yet or out of the woods yet. 0:05:37.720 --> 0:05:40.120 There's still a lot of uncertainty here, and we just 0:05:40.120 --> 0:05:41.960 don't know that you're paid for it going out the 0:05:42.040 --> 0:05:42.680 risk spectrum. 0:05:42.839 --> 0:05:46.039 The quality of a lower GDP reset off of the 0:05:46.080 --> 0:05:49.400 shock of what happened in two thousand and three, two thousand. Listen, ma, 0:05:49.400 --> 0:05:53.320 I'm decades away. Lisa helped me here twenty twenty three. 0:05:53.920 --> 0:05:57.760 To me, what's so important, Tiffany, is the productivity discussion 0:05:58.320 --> 0:06:01.880 of the last ninety days. Give us the PIMCO brief 0:06:02.400 --> 0:06:05.799 on the efficiencies of the American economy. 0:06:07.000 --> 0:06:09.160 Yeah, well, you know, I think if you look more, 0:06:09.320 --> 0:06:11.680 you know, kind of a more broadly, there was a 0:06:11.680 --> 0:06:15.240 lot of noise around the productivity statistics during the pandemic 0:06:15.640 --> 0:06:19.559 because you had unproductive sectors that were effectively shut down 0:06:20.200 --> 0:06:23.080 then they reopened, and so there was kind of a mixshift, 0:06:23.120 --> 0:06:25.719 if you will, in terms of economic output that impacted 0:06:25.720 --> 0:06:28.600 the productivity data. But if you look more broadly, it 0:06:28.640 --> 0:06:32.760 looks like it's on trend at a low level, you know. 0:06:32.800 --> 0:06:35.279 And I would say that there is you know, probably 0:06:35.320 --> 0:06:38.599 good news in terms of the productivity outlook that's embedded 0:06:38.680 --> 0:06:41.320 in you know, AI and large language models and things 0:06:41.360 --> 0:06:45.240 like that. But if we look at research that you know, 0:06:45.360 --> 0:06:48.400 just kind of estimates how long it takes for those 0:06:48.400 --> 0:06:50.920 types of technologies to puller for it, obviously that time 0:06:50.960 --> 0:06:53.440 has come down, but it's not twenty twenty four. It's 0:06:53.480 --> 0:06:56.520 still likely a quote secular horiso three to five year 0:06:56.560 --> 0:07:00.560 time horizon that you're really seeing the productivity gains from 0:07:00.560 --> 0:07:02.280 something like that. And the last thing I would just 0:07:02.360 --> 0:07:05.040 highlight is that, you know, we saw PCs or the internet, 0:07:05.640 --> 0:07:07.840 you know that it took you know, quite some time 0:07:07.880 --> 0:07:10.160 for us to actually see productivity gains in the nineties 0:07:10.160 --> 0:07:12.040 to come from that. So you know, at least from 0:07:12.080 --> 0:07:15.480 a twenty twenty four perspective. You know, we're not as 0:07:15.520 --> 0:07:17.440 convinced that you really start to see that in the data. 0:07:17.840 --> 0:07:20.320 But I think there's you know, room for encouragement on 0:07:20.360 --> 0:07:21.920 a secular timeframe. 0:07:22.040 --> 0:07:24.119 Just quickly, Tiffany, you seem to be pushing back against 0:07:24.200 --> 0:07:26.680 market expectations for rate cuts next year. Do you think 0:07:26.680 --> 0:07:28.440 that we will get rate cuts by the Fed? Do 0:07:28.480 --> 0:07:30.240 you think that they'll be in the first half or 0:07:30.240 --> 0:07:31.560 do you think that they're going to be squarely in 0:07:31.600 --> 0:07:32.800 the second half and not that many? 0:07:34.840 --> 0:07:37.760 Yeah, well, I mean, look, I do think it depends. 0:07:37.800 --> 0:07:41.800 I mean the real side of the economy. You know, 0:07:41.840 --> 0:07:44.800 it does need to slow in our view, and it 0:07:44.880 --> 0:07:46.559 needs to slow, and you need to see a little 0:07:46.560 --> 0:07:50.440 bit more you know, loosening of the labor market, we think, 0:07:50.520 --> 0:07:53.360 in order for central banks to really feel confident that 0:07:53.440 --> 0:07:57.800 inflation is more sustainably at their target and you know, 0:07:57.880 --> 0:08:00.640 looking at you know, I think there's definitely some still 0:08:00.680 --> 0:08:04.360 resilience in the economy and we could see central banks 0:08:04.480 --> 0:08:08.520 lag worried about that outcome. You know, Powell has very 0:08:08.600 --> 0:08:11.200 clearly stated, you know, that he wants to be a 0:08:11.280 --> 0:08:14.240 vulgar you know, and Nana Burns, and so you know, 0:08:14.240 --> 0:08:16.040 we think they could be laggy in terms of when 0:08:16.080 --> 0:08:19.120 they start to cut, you know. But but nevertheless, you know, 0:08:19.160 --> 0:08:22.440 obviously the market's going to price a balance of risks here, 0:08:22.840 --> 0:08:24.720 and the inflation data certainly has been good over the 0:08:24.800 --> 0:08:25.720 last couple of months. 0:08:25.880 --> 0:08:27.200 Tiffany, thank you so much. 0:08:27.240 --> 0:08:27.960 Tiffany World. 0:08:28.080 --> 0:08:30.560 With pimcoll they manage Bill's notes and bonds out of 0:08:30.600 --> 0:08:35.000 Newport Beach, California. 0:08:36.080 --> 0:08:37.920 I think David Fann is doing what every other guest 0:08:38.040 --> 0:08:40.000 is comes on this program over the last ten years, 0:08:40.000 --> 0:08:41.880 does trying to work out the first question that Tom's 0:08:41.880 --> 0:08:43.280 going to ask, because no one's got any. 0:08:43.840 --> 0:08:44.360 I got two. 0:08:44.520 --> 0:08:46.679 It's a double bear. I hear it from guests all 0:08:46.760 --> 0:08:47.120 the time. 0:08:47.160 --> 0:08:48.760 I thought he was going to ask me what devis was. 0:08:48.760 --> 0:08:49.839 That's where I was leaning. 0:08:49.559 --> 0:08:52.640 Over David Baale and CIO and head of investments at 0:08:52.640 --> 0:08:54.800 City Global Wath with this in just a moment, let's 0:08:54.800 --> 0:08:56.680 turn to the price section equities on the S and 0:08:56.679 --> 0:08:59.160 P five hundred shaping up as follows, t K positive 0:08:59.320 --> 0:09:02.760 by point one yields up five basis points four fifteen 0:09:02.880 --> 0:09:04.880 fifty two on a US ten yet. 0:09:04.800 --> 0:09:08.280 Audible question to Baalen, you worked with John Henry years ago, 0:09:08.440 --> 0:09:10.720 the owner of the Boston Red Sox. How in God's 0:09:10.800 --> 0:09:13.560 name is John Henry let one Soto go to the 0:09:13.600 --> 0:09:15.800 New York Yankees and not the Boston Red Sox. 0:09:15.840 --> 0:09:17.800 And if you I won't answer that question, but tell 0:09:17.800 --> 0:09:20.320 me how it is that John Henry, as a trend 0:09:20.360 --> 0:09:22.840 followers won three World Series when the Yankees have only 0:09:22.880 --> 0:09:26.360 won one. And that's said very nicely finased, Thank you, 0:09:26.480 --> 0:09:27.440 very much, very good. 0:09:27.520 --> 0:09:28.280 Let's go to cash. 0:09:28.320 --> 0:09:29.280 I mentioned at the Bramo. 0:09:29.360 --> 0:09:31.920 It's in your review here the mystery here of all 0:09:31.960 --> 0:09:34.800 this cash and you talk about there's just too much 0:09:34.840 --> 0:09:36.560 cash out there. What do we do with our cash? 0:09:36.720 --> 0:09:37.200 Next year? 0:09:37.520 --> 0:09:40.800 You've laid out actually an incredible introduction to our what 0:09:40.840 --> 0:09:42.640 we're writing for this next year. We're just called slow 0:09:42.720 --> 0:09:45.280 then Grow, And the idea is that you are going 0:09:45.360 --> 0:09:47.680 to see a slowing economy at the beginning of the year. 0:09:48.160 --> 0:09:50.000 A lot of the concerns at LISTA just talked about, 0:09:50.040 --> 0:09:51.640 you know, actually could come to bear right, which is 0:09:51.640 --> 0:09:54.600 the economy slows down, but it does not crash. We 0:09:54.640 --> 0:09:56.280 do not have a recession, we do not have a 0:09:56.360 --> 0:09:58.800 v shape recovery. And because we don't have a clear 0:09:58.880 --> 0:10:02.240 signal to investors. They sit there in cash five point 0:10:02.280 --> 0:10:04.800 eight trillion dollars worth of cash at this point in 0:10:04.840 --> 0:10:07.960 overnight funds. It's extraordinary. And yet when you take a 0:10:07.960 --> 0:10:09.960 look at all the different parts of the economy, right, 0:10:10.000 --> 0:10:11.719 you take a look at the average stock in the 0:10:11.800 --> 0:10:14.640 US hasn't done that well. Ten stocks have done incredibly well. 0:10:14.800 --> 0:10:18.160 Bond market's already started to move, energy is down. You 0:10:18.240 --> 0:10:21.079 are seeing real signs that inflation is not an issue 0:10:21.160 --> 0:10:23.360 and that the FED will hit their target of two 0:10:23.440 --> 0:10:24.760 to two and a half percent by the end of 0:10:24.800 --> 0:10:25.120 the year. 0:10:25.480 --> 0:10:27.320 So if that's true, right, what. 0:10:27.200 --> 0:10:29.000 You then need is a boost of earnings, right in 0:10:29.080 --> 0:10:31.320 order to believe that all of this comes together. And 0:10:31.360 --> 0:10:33.440 this is where I think the story is being missed 0:10:33.480 --> 0:10:36.040 by the average investor, is that in the US you're 0:10:36.040 --> 0:10:39.320 going to see ambient like earnings up by probably five 0:10:39.360 --> 0:10:42.440 percent this year and then eight percent in twenty twenty five. 0:10:43.080 --> 0:10:45.240 And that sets us up for a thing where you know, 0:10:45.280 --> 0:10:48.280 an opportunity where a balanced portfolio. Right, you put your 0:10:48.320 --> 0:10:50.440 money in bonds, and you put your money in stocks, 0:10:50.640 --> 0:10:53.000 and you sit there and you're patient, and over the 0:10:53.000 --> 0:10:55.000 next eighteen months you can get yourself a fifteen or 0:10:55.000 --> 0:10:58.880 twenty percent total return. Now you're giving me the skeptical look, Lisa, Right, 0:10:58.920 --> 0:11:02.520 and here here's there's the here's the here's the here's. 0:11:02.320 --> 0:11:03.480 The interesting data point. 0:11:03.720 --> 0:11:06.880 In nineteen thirty one and in nineteen sixty nine, the 0:11:06.960 --> 0:11:09.440 last two times we had stock and bond markets down 0:11:09.480 --> 0:11:12.200 for an entire year, if you looked out just two 0:11:12.320 --> 0:11:15.080 years later, in each of those periods, you know the 0:11:15.280 --> 0:11:18.440 A balanced portfolio sixty forty was up more than twenty percent. 0:11:18.920 --> 0:11:21.880 And while that's not statistically significant, what's interesting is we've 0:11:21.920 --> 0:11:25.400 already had incredible negativity in the stock market and incredible 0:11:25.440 --> 0:11:27.280 negativity in the bond market this year. 0:11:27.920 --> 0:11:30.560 Okay, you point to Tom, but this to me is 0:11:30.600 --> 0:11:34.079 really a question of can you bet on the grow 0:11:34.600 --> 0:11:35.840 before we get the slow? 0:11:36.760 --> 0:11:36.920 Right? 0:11:36.920 --> 0:11:39.600 Well, the grow is already the grow is the is 0:11:39.640 --> 0:11:41.360 really the is the coming off of it? 0:11:41.400 --> 0:11:41.720 Was good? 0:11:41.800 --> 0:11:44.679 One sec. Did you just make that up? Because that's correct. 0:11:45.160 --> 0:11:47.720 But that's essentially what we're asking is can you bet 0:11:47.760 --> 0:11:50.480 on the expansion before we get any kind of slow? 0:11:50.640 --> 0:11:51.680 I love that. That's awesome. 0:11:51.880 --> 0:11:54.240 Okay, so we have to answer the question that please stake. 0:11:55.280 --> 0:11:58.880 So let's let's take a look along real estate, right, which, right, 0:11:58.920 --> 0:12:01.800 has already been in a recession. We've had manufacturing already 0:12:01.840 --> 0:12:02.560 been in a recession. 0:12:02.600 --> 0:12:03.120 We've had. 0:12:04.520 --> 0:12:08.040 Parts of the you know, parts of our economy like healthcare, right, 0:12:08.080 --> 0:12:10.439 negative earnings for the first time in fifteen years this 0:12:10.520 --> 0:12:14.160 last year, lots of these you know parts of our economy. 0:12:14.160 --> 0:12:16.280 Forty or fifty percent of our sectors are going to 0:12:16.280 --> 0:12:19.040 be having very positive earnings relative to twenty twenty three. 0:12:19.280 --> 0:12:21.840 And then the average stock which has gone virtually nowhere 0:12:21.840 --> 0:12:24.440 this year, you know, has the opportunity to rise. You know, 0:12:24.440 --> 0:12:26.640 one of the things we put into our portfolios is 0:12:26.679 --> 0:12:29.200 the most boring investment we've added, which is sn P 0:12:29.360 --> 0:12:31.920 equal weight. If ten stocks have done well, you want 0:12:31.960 --> 0:12:34.160 to own the other four hundred and ninety. So I 0:12:34.240 --> 0:12:36.600 just think that this is where people have sort of 0:12:36.600 --> 0:12:39.080 missed it is that we haven't seen the overall market 0:12:39.200 --> 0:12:41.520 rise yet. And that's what twenty four is going to 0:12:41.559 --> 0:12:42.520 be about in terms of earning. 0:12:42.640 --> 0:12:44.679 So the double digit percentage point game that you think 0:12:44.679 --> 0:12:46.600 we can get next year, that's the equal weight and 0:12:46.679 --> 0:12:48.079 not the market can't whites it index. 0:12:48.240 --> 0:12:50.760 That's right, Okay, that's right, And I think that's you know, 0:12:50.800 --> 0:12:53.240 that's the opportunity, is this rising earnings because you've had 0:12:53.640 --> 0:12:56.160 you know, large portions of the US economy are coming 0:12:56.160 --> 0:12:58.680 out of a recession. Now, their inventories are down, they've 0:12:58.679 --> 0:12:59.959 got to rebuild, they're not hiring. 0:13:00.120 --> 0:13:01.920 Wage cross are coming down. You know. 0:13:02.000 --> 0:13:04.280 It's it's not about a landing. That's the other things 0:13:04.280 --> 0:13:06.680 everyone's LP does. This is the hard landing something forget 0:13:06.720 --> 0:13:09.120 about it. We're now in the situation where we're now 0:13:09.280 --> 0:13:12.560 beginning a normalization of markets to back to you know, 0:13:12.600 --> 0:13:14.439 sort of where they were like four years ago, pre 0:13:14.520 --> 0:13:16.920 pandemic conditions, and we're going to be coming out of 0:13:16.920 --> 0:13:17.160 this in. 0:13:17.160 --> 0:13:18.040 A grow mode. 0:13:18.160 --> 0:13:20.600 A bank structured well for that moment. 0:13:21.200 --> 0:13:23.480 A bank structure or our client structure now. 0:13:23.360 --> 0:13:26.120 A bank structured as in the equities, the bank equities 0:13:26.120 --> 0:13:28.360 that have struggled so much this year off the back 0:13:28.360 --> 0:13:29.000 of high yeas. 0:13:29.000 --> 0:13:31.319 I mean, I definitely believe that the normalization of the 0:13:31.400 --> 0:13:34.120 yield curve is going to definitely change valuations for banks 0:13:34.120 --> 0:13:36.480 as a segment. I think that's more of a twelve 0:13:36.480 --> 0:13:38.559 to eighteen months trade than it is a long term, 0:13:38.679 --> 0:13:40.720 you know, long term opportunity. I do think that banks 0:13:40.720 --> 0:13:43.120 are very undervalued at these At this point, I guess. 0:13:42.920 --> 0:13:46.400 I'm trying to understand this perfect scenario and how much 0:13:46.440 --> 0:13:49.000 oil plays into it as well, given the fact that 0:13:49.000 --> 0:13:51.560 that has been one of the reasons we've seen this 0:13:51.960 --> 0:13:55.920 disinflation narrative get some legs. How much is that factor 0:13:55.920 --> 0:13:58.120 in that we're going to keep seeing suppressed valuations? 0:13:58.280 --> 0:14:00.319 Right, So, I don't think we expected oil to move 0:14:00.360 --> 0:14:02.839 down as quickly as it has, and I definitely think 0:14:02.840 --> 0:14:05.480 it's supply. Like you said earlier, earlier in the program, 0:14:06.080 --> 0:14:09.920 what we I think discounted as the fact that globalization 0:14:10.080 --> 0:14:14.439 is still a major disinflationary force. Import costs of goods 0:14:14.480 --> 0:14:17.640 coming into the US, both finished and unfinished goods are 0:14:18.120 --> 0:14:21.040 negative three point seven percent relative to last year. They 0:14:21.080 --> 0:14:24.520 are adding to the disinflation story. So between energy and 0:14:24.640 --> 0:14:27.640 import costs, you have this situation where you just don't 0:14:27.640 --> 0:14:31.040 have inflation on goods, and that of course translates into 0:14:31.200 --> 0:14:33.720 a better economic scenario. It seems like you're having trouble 0:14:33.760 --> 0:14:35.960 believing that this is actually that you could have a 0:14:36.000 --> 0:14:38.440 really good backdrop for markets. 0:14:38.560 --> 0:14:40.760 Now, what I find fascinating is just how much the 0:14:40.840 --> 0:14:44.080 narrative has gotten it wrong. Everyone's talking about deglobalization, how 0:14:44.080 --> 0:14:46.320 that would lead to inflation. Oil prices would be higher 0:14:46.320 --> 0:14:49.800 because their production just wasn't capable of meeting demand. As 0:14:49.840 --> 0:14:52.200 all of the transition happens, and all of a sudden, 0:14:52.320 --> 0:14:54.480 workers are going to cost more to do the jobs 0:14:54.600 --> 0:14:57.040 that need to get done. And what we're seeing is 0:14:57.120 --> 0:14:59.640 all of the exact opposite. Isn't that sort of remarkable? 0:15:00.080 --> 0:15:03.200 Is remarkable? Hiring for the last years has been surprising. 0:15:03.240 --> 0:15:06.840 We've hired more people with slower gd GDP growth in 0:15:06.880 --> 0:15:09.720 the US than in history, and now that's coming the 0:15:09.720 --> 0:15:13.280 other side. And you know, the Saudi's and Opek wanted 0:15:13.320 --> 0:15:16.000 to keep oil prices higher, right, but they were unable 0:15:16.040 --> 0:15:18.520 to do so. They were originally willing to cut back production. 0:15:18.840 --> 0:15:20.560 So there's a lot of things where people, you know, 0:15:20.800 --> 0:15:22.960 think they can control market. And just to add one 0:15:22.960 --> 0:15:26.640 more thing, expectations in China and Europe are so low 0:15:26.920 --> 0:15:29.240 that they can't help but contribute, I think, to the 0:15:29.280 --> 0:15:32.120 growth story. Sometimes in twenty twenty thirty four. 0:15:32.080 --> 0:15:33.680 This was great. You should get a podcast. 0:15:34.800 --> 0:15:36.760 You do that all the time here podcasts. 0:15:36.840 --> 0:15:37.880 Yeah, we can do another one. 0:15:38.000 --> 0:15:38.280 Why not? 0:15:38.800 --> 0:15:43.400 What should we cod it? Help and glue something like that. 0:15:45.160 --> 0:15:46.880 We just call it sloth and grow or what was 0:15:46.880 --> 0:15:49.120 the other oh forget okay, but it was good. 0:15:49.160 --> 0:15:53.120 It was like drive, It's awesome. That's his work time 0:15:53.120 --> 0:15:53.480 for that. 0:15:53.480 --> 0:15:55.200 That was the whole thing. I mean, that's the bet 0:15:55.200 --> 0:15:55.920 that we have going on. 0:15:56.200 --> 0:15:58.400 That's great, David, Thank you and thanks for sharing you 0:15:58.400 --> 0:15:59.320 around with us as well. 0:15:59.360 --> 0:16:00.000 My great pleasure. 0:16:00.160 --> 0:16:02.520 Depending then, a city glob of waff looking ahead to 0:16:02.600 --> 0:16:13.720 next year, is. 0:16:13.640 --> 0:16:14.480 The FED put back? 0:16:14.680 --> 0:16:16.800 There's no better way to answer that question than speaking 0:16:16.960 --> 0:16:20.600 with a former FED governor, Randy Krasner, professor of economics 0:16:20.600 --> 0:16:25.000 at the University of Chicago Booth School in Chicago, joining us. Now, Randy, 0:16:25.000 --> 0:16:27.800 do you believe in this idea that the FED will 0:16:27.880 --> 0:16:32.160 cut rates aggressively next year simply in response to disinflation, 0:16:32.600 --> 0:16:34.320 even if it is not accompanied by weakness. 0:16:36.400 --> 0:16:39.560 So, if they've reached their goal of bringing inflation down 0:16:39.600 --> 0:16:43.000 to their two percent target, they'll be happy to bring 0:16:43.160 --> 0:16:45.200 rates down. But I don't think they're going to get 0:16:45.200 --> 0:16:46.520 to their target anytime soon. 0:16:47.880 --> 0:16:49.880 I look, Governor Crasner, and I know you had a 0:16:49.920 --> 0:16:53.600 recent meeting where the Booth School graduate John Stadzinsky, in 0:16:53.640 --> 0:16:56.320 all of his work now at PIMCO as well, but 0:16:56.440 --> 0:17:01.440 what the John Stadinski world is about a global sense 0:17:01.800 --> 0:17:04.399 of we're all in this together. That's been the hallmark 0:17:04.480 --> 0:17:08.040 of his work for years. How linked now our central 0:17:08.160 --> 0:17:13.119 banks to develop a constructive disinflationary trend. 0:17:15.000 --> 0:17:18.000 I think that's right. I think you saw that once 0:17:18.040 --> 0:17:22.000 the FED took off raising rates fairly aggressively, that the 0:17:22.000 --> 0:17:25.359 major central banks in the world did the same, so 0:17:25.400 --> 0:17:27.639 that they kind of played from the same playbook because 0:17:27.640 --> 0:17:30.960 they were experiencing inflation in a similar way, which suggested 0:17:31.000 --> 0:17:33.640 that at least part of the inflation wasn't just due 0:17:33.680 --> 0:17:36.240 to what central banks were doing, but was also doing 0:17:36.240 --> 0:17:39.639 to some of these broader global supply chain factors. And 0:17:39.680 --> 0:17:43.040 we've seen inflation come down, we've seen them move down together. 0:17:43.359 --> 0:17:47.440 But the FED is is really the big player, and 0:17:47.520 --> 0:17:50.240 so it tends to be that other central banks will 0:17:50.280 --> 0:17:52.080 follow what the FED is doing. But of course there's 0:17:52.119 --> 0:17:54.840 some discussion across the central banks, but the Fed's got 0:17:54.880 --> 0:17:57.920 to do what it's got to do for the US economy. 0:17:57.520 --> 0:17:59.320 If we are the big player. And I guess this 0:17:59.359 --> 0:18:02.359 is off the job report tomorrow on the American exceptionalism 0:18:02.400 --> 0:18:06.520 of strong nominal GDP better than good fiscal stimulus. You know, 0:18:06.600 --> 0:18:09.400 we all know the story, But the answer is we're 0:18:09.440 --> 0:18:13.679 dealing with the technological excellence. Does the FED pull that 0:18:13.840 --> 0:18:14.840