WEBVTT - Surveillance: Navigating Sea of Red With Evercore’s Emanuel 0:00:05.120 --> 0:00:09.200 Welcome to the bloombergs surveillance podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz, daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:24.000 Find Bloomberg surveillance on Apple podcast, soundcloud, Bloomberg Dot Com and, 0:00:24.079 --> 0:00:29.680 of course, on the Bloomberg terminal. It is a morning 0:00:29.680 --> 0:00:32.239 of fear. It is also a morning of revision, and 0:00:32.280 --> 0:00:34.440 it has been a week of revision for Wall Street 0:00:34.640 --> 0:00:37.239 strategists across the board, with Goldvin ZAC slashing as year 0:00:37.320 --> 0:00:40.320 end target for the SMP. Five hundred thirty six hundred 0:00:40.320 --> 0:00:44.680 previously had been dred of pretty big revision. Julian Manuel, equity, 0:00:44.680 --> 0:00:47.440 derivatives and quantitative strategistic. Ever, core I, S I, has 0:00:47.440 --> 0:00:50.240 been out ahead of some of what we have been seeing. Julian, 0:00:50.440 --> 0:00:53.800 have you reset some of your expectations based on the 0:00:53.800 --> 0:00:57.800 Fed meeting this week? Oh, we certainly have. Looking we're 0:00:57.880 --> 0:01:01.920 calling for earnings next year, UH, basically to be flat 0:01:02.160 --> 0:01:05.200 year on year. Uh with this year and frankly we 0:01:05.200 --> 0:01:08.640 were a below consensus and continue to be below consensus 0:01:08.840 --> 0:01:12.200 for two as well. And obviously, uh, we slashed our 0:01:12.240 --> 0:01:15.800 price target and it's one of these years. That now, 0:01:16.240 --> 0:01:21.720 actually Wednesday, has ushered in the emotional phase of this 0:01:21.760 --> 0:01:26.000 bear market, which, frankly, every bear market does tend to 0:01:26.040 --> 0:01:29.240 have an emotional phase. UH, simply because when you look 0:01:29.280 --> 0:01:32.640 at what the Fed Chair said and the projections, and 0:01:32.760 --> 0:01:36.760 importantly it's that unemployment number projected to be four point 0:01:36.800 --> 0:01:40.760 four percent next year. Uh, where the rate of change? 0:01:41.080 --> 0:01:45.720 There's never not been a recession following hard upon that 0:01:45.800 --> 0:01:48.640 kind of change, and all of that has caused the 0:01:49.240 --> 0:01:52.480 emotion to come into the markets and subsequently, of course, 0:01:52.520 --> 0:01:55.840 these types of revisions. You know, Julian, I mean rising 0:01:55.880 --> 0:01:58.400 Boun yield's, higher commodity prices. These have been the two 0:01:58.440 --> 0:02:02.320 dominant factors that are impacting US equity earnings. I'm wondering 0:02:02.600 --> 0:02:05.760 the piece of equity earning downward revisions are are we 0:02:05.840 --> 0:02:07.919 comfortable with that? I mean is it going to accelerate 0:02:07.960 --> 0:02:11.280 over the next few months? Well, it's actually less about 0:02:11.320 --> 0:02:14.760 the pace than the band of uncertainty. So if you 0:02:14.880 --> 0:02:18.320 look at estimates for next year, they range from a 0:02:18.400 --> 0:02:20.960 hundred and eighty five on the low end to two 0:02:21.120 --> 0:02:25.200 fifty five on the high end. That's absolutely unprecedented and 0:02:25.240 --> 0:02:29.040 it speaks to the uncertainty in all asset markets. And again, frankly, 0:02:29.080 --> 0:02:31.440 when you think about and you see the screen, uh, 0:02:31.520 --> 0:02:35.320 you know, everything is read today, and that tells you 0:02:35.360 --> 0:02:40.600 that uncertainty really is approaching those critical levels. Well, Julian, 0:02:40.680 --> 0:02:43.000 on the earning side, we have been having the conversation 0:02:43.280 --> 0:02:46.440 for some time now that there is inflationary pressure, higher 0:02:46.440 --> 0:02:48.840 input costs, it's going to weigh on corporate margins. They 0:02:48.840 --> 0:02:50.760 aren't going to be able to pass it on. And 0:02:50.840 --> 0:02:54.600 yet it's been actually okay to this point. Why would 0:02:54.680 --> 0:02:57.280 things change now, as we're seeing some of those inflationary 0:02:57.280 --> 0:03:00.400 pressures winding down a bit? Why is it now, timately 0:03:00.400 --> 0:03:03.000 that those margin pressures are really going to come through? 0:03:03.080 --> 0:03:05.480 Is it just an inability on the demand side to 0:03:05.520 --> 0:03:08.640 be passing those costs, costs onto the end customer? So, Kayleef, 0:03:08.880 --> 0:03:11.440 if you think about this year, it's been very unusual 0:03:11.600 --> 0:03:15.560 in that the sentiment data on the consumer side has been, 0:03:15.840 --> 0:03:19.680 you know, subdued, you know, worse than subdued, the entire 0:03:19.760 --> 0:03:23.919 year because of the consumers sort of internalizing, uh, the 0:03:23.960 --> 0:03:28.120 idea of inflation. But yet the spend has been, you know, 0:03:28.240 --> 0:03:31.480 really quite reasonable. When you think about it, that in 0:03:31.520 --> 0:03:35.720 our view is about to change because, frankly, conditions are 0:03:35.800 --> 0:03:39.760 really warranting, uh, a little bit more of a button 0:03:39.800 --> 0:03:44.560 down type of attitude. And to that point, that's where 0:03:45.040 --> 0:03:49.440 the attack on margins, the attack on, you know, volumes 0:03:49.680 --> 0:03:54.080 comes in and again, the risk in markets. But the 0:03:54.160 --> 0:03:57.840 story is that this is part of the feds calculus. 0:03:58.880 --> 0:04:03.000 The question being, though, are we in the process of 0:04:03.040 --> 0:04:06.600 potentially breaking something? Well, Julian, to that point, let's begin 0:04:06.640 --> 0:04:09.400 where we started. Let's end where we started, rather where 0:04:09.440 --> 0:04:12.880 you said. This marks the emotional phase of this bear market. 0:04:13.280 --> 0:04:15.880 What are we currently pricing in? How long will the 0:04:15.920 --> 0:04:19.040 recession be? How deep? The idea of a soft landing 0:04:19.160 --> 0:04:22.480 or LISA's shallow recession? Is that kind of off the table? 0:04:23.240 --> 0:04:26.520 It's not entirely off the table. What we think the 0:04:26.640 --> 0:04:29.920 Fed may have been missing, uh, and, and it's our 0:04:30.040 --> 0:04:33.719 view that inflation is actually starting to come in, whether 0:04:33.800 --> 0:04:37.159 you measure it by break evens, you know, there's a 0:04:37.200 --> 0:04:43.160 disconnect between the fact that embedded inflation expelications simply aren't there. 0:04:43.360 --> 0:04:46.680 And in this respect, this is not the nineties seventies, uh, 0:04:46.680 --> 0:04:48.680 and in our view, we think the data over the 0:04:48.720 --> 0:04:52.039 next couple of months will reflect that is that going 0:04:52.080 --> 0:04:54.520 to happen quick enough for the Fed not to do 0:04:54.640 --> 0:05:00.720 fifty or seventy five on November two? Possibly not, but frankly, uh, 0:05:00.760 --> 0:05:03.680 we think that that type of reckoning is out there 0:05:03.680 --> 0:05:06.800 in the future and that's the kind of psychology that 0:05:06.880 --> 0:05:12.760 could forestall or make any recession in a more shallow event. 0:05:13.120 --> 0:05:15.480 Julian Emmanuel of ever core I s I adrivatives and 0:05:15.520 --> 0:05:19.040 quantitative strategist. At what point does the rest of the 0:05:19.080 --> 0:05:21.520 world's problem become the US is problem, as a dollar 0:05:21.600 --> 0:05:24.040 strengthens and the rest of the world grapples with not 0:05:24.200 --> 0:05:28.039 only the same backdrop but also the imported inflation of 0:05:28.080 --> 0:05:32.120 a weaker currency? It already is. Okay, look, we know 0:05:32.160 --> 0:05:35.760 what the inflation numbers are here and, frankly, we heard 0:05:35.800 --> 0:05:39.880 from corporate America last week there was one very key, 0:05:40.120 --> 0:05:46.280 uh pre announcement that basically the recession is being imported 0:05:46.800 --> 0:05:50.880 into the US. And so, from that perspective, we are 0:05:51.000 --> 0:05:54.680 at that point. The thing that is different about the 0:05:54.760 --> 0:05:58.719 last several days is that clearly the Fed has been 0:05:58.760 --> 0:06:02.599 guiding the markets in terms of what it expects, what 0:06:02.760 --> 0:06:06.120 it wants, how it wants this to unfold. But the 0:06:06.200 --> 0:06:10.040 last couple of days again, as I said earlier, entering 0:06:10.040 --> 0:06:13.720 the emotional phase. We're now likely at the point where 0:06:13.760 --> 0:06:17.440 the markets are going to start guiding the central banks 0:06:17.640 --> 0:06:21.400 and that flips the script and that, frankly, is sort 0:06:21.440 --> 0:06:24.920 of the danger that you get into in September and October, 0:06:24.920 --> 0:06:28.919 but ultimately for us will provide at some point the 0:06:29.000 --> 0:06:32.480 buying opportunity. Julian, everyone is just so barrassed this morning. 0:06:32.680 --> 0:06:34.680 It's just unbelievable. I mean my question for you is, 0:06:34.680 --> 0:06:36.560 what is the upside risk to global growth? You know, 0:06:36.600 --> 0:06:39.440 what are the markets not seeing here? Is it China reopening? 0:06:39.560 --> 0:06:42.320 Is it rushing Ukraine, the escalation? I mean, how should 0:06:42.440 --> 0:06:45.200 investors even try to position for some of that? So 0:06:46.000 --> 0:06:51.279 that's the challenge, because the tail outcomes on both sides 0:06:51.400 --> 0:06:55.280 or potentially large. The expectation is that zero covid will 0:06:55.440 --> 0:06:59.320 end sometime early in the spring next year. Um obviously 0:06:59.440 --> 0:07:02.760 the new is coming out of Russia and Ukraine has 0:07:02.800 --> 0:07:06.599 been more favorable. We don't know what that outcome could be, 0:07:06.720 --> 0:07:09.840 but certainly the pressures are beginning to build there. As 0:07:09.880 --> 0:07:13.160 an investor, whether you do or you don't use options, 0:07:13.200 --> 0:07:18.880 you have to have an optionality mindset, realizing that without notice. 0:07:19.080 --> 0:07:22.640 You could get that kind of upside and frankly, that 0:07:22.680 --> 0:07:26.400 plays against the fact that sentiment, however you measure it, 0:07:26.480 --> 0:07:29.720 is about as pessimistic as it gets at a time 0:07:29.760 --> 0:07:33.040 of year, September and October, where you do tend to 0:07:33.080 --> 0:07:35.840 see tradeable bottoms. Well, to that point, Julian Bank of 0:07:35.880 --> 0:07:39.520 America publishing this morning saying investor sentiment is unquestionably the 0:07:39.520 --> 0:07:42.720 worst it has been since the crisis of two thousand 0:07:42.760 --> 0:07:45.840 and eight, noting that we'd SAI inflows into cash in 0:07:45.840 --> 0:07:48.880 the week through Wednesday, a thirty point three billion dollars, 0:07:48.880 --> 0:07:52.600 people fleeing equities running into the safety of a cash haven. 0:07:53.680 --> 0:07:55.840 Is Are we at the point where bearish is no 0:07:55.920 --> 0:08:00.000 longer actually bullish, it is just straight up bearish? UH, 0:08:00.280 --> 0:08:02.960 for a time, for a time, and and look, well, 0:08:03.120 --> 0:08:06.040 let's be frank about it. Think about it this way. 0:08:06.080 --> 0:08:10.880 There has only been one bull market in two and 0:08:10.960 --> 0:08:14.520 that's the bull market for cash. Uh So, so, from 0:08:14.520 --> 0:08:18.200 that perspective, we need to see that moderate and we 0:08:18.240 --> 0:08:21.320 would say that the initial signal. Look, think about it. 0:08:22.000 --> 0:08:24.720 The Fed Chair has told you that the base case 0:08:24.840 --> 0:08:28.720 is a recession, inflation break evens. Are telling you that 0:08:28.760 --> 0:08:32.679 the market doesn't actually believe in the persistence of inflation 0:08:32.800 --> 0:08:35.800 in the long run. So in that environment you could 0:08:35.880 --> 0:08:39.400 make the argument that for us, after three years, uh, 0:08:39.640 --> 0:08:42.800 long dated yields in the US start to offer value. 0:08:43.040 --> 0:08:45.480 That's what we're gonna want to see at some point. Okay. 0:08:45.480 --> 0:08:47.199 So what is that trigger point, Julia, just to sort 0:08:47.240 --> 0:08:48.559 of put a bow on all of this, when you 0:08:48.600 --> 0:08:51.960 talk about at some point there will be a buying opportunity, 0:08:52.240 --> 0:08:57.240 what is that trigger? Uh, it's the typical we're gonna 0:08:57.280 --> 0:09:01.640 need to see higher volume, like a move in the 0:09:01.800 --> 0:09:06.040 in the vix towards forty, and then again, and you've 0:09:06.040 --> 0:09:08.960 spoken about this on and off of the morning, the 0:09:09.000 --> 0:09:14.079 credit markets starting to internalize a bit more stress, consistent 0:09:14.400 --> 0:09:16.880 with the kind of moves that we're seeing in the dollar. 0:09:17.360 --> 0:09:19.560 Julian Emmanuel of ever Crys, I thank you so much 0:09:19.840 --> 0:09:34.200 for all the time this morning. How much will the 0:09:34.280 --> 0:09:38.160 reduction in activity reduce the demand for commodities? Right now 0:09:38.160 --> 0:09:40.839 we're looking at someone who has reset their expectations, along 0:09:40.840 --> 0:09:43.280 with the rest of Wall Street this week, although it's 0:09:43.320 --> 0:09:46.280 not perhaps because of the feds. So clearly, Stephen England, 0:09:46.360 --> 0:09:48.960 or global head of G ten fx research at Santard 0:09:49.160 --> 0:09:52.960 chartered bank, joining myself, Kaylee lines and Damian Sassaur this morning. 0:09:53.200 --> 0:09:56.439 I am wondering, Steve, what caused you to reset and 0:09:56.559 --> 0:10:01.360 raise up your expectations of a fed funds rate. Well, luckily, 0:10:01.480 --> 0:10:04.520 we still expect the Fed to moderate the pace of 0:10:04.600 --> 0:10:07.959 hikes once it becomes clear that the labor market is 0:10:08.000 --> 0:10:11.480 beginning to topple over and that the economy is clearly 0:10:11.559 --> 0:10:15.320 under pressure. We expected that to happen Um, around this 0:10:15.400 --> 0:10:19.319 time by now, and it hasn't happened Um, so we're 0:10:19.320 --> 0:10:21.599 stepping back. We think it's possible that one of the 0:10:21.640 --> 0:10:26.040 side effects of lower oil prices is, paradoxically, that by 0:10:26.080 --> 0:10:30.040 putting more money in people's wallets, it's supporting non oil 0:10:30.080 --> 0:10:34.080 consumption and and kind of boosting demand for, you know, 0:10:34.360 --> 0:10:38.200 core CBI type of products and preventing those from coming down. 0:10:38.280 --> 0:10:40.080 So there's kind of looks to be kind of a 0:10:40.120 --> 0:10:44.080 trade off between headline inflation and core inflation, with one, 0:10:44.360 --> 0:10:46.760 you know, going close to zero but the other one's 0:10:46.760 --> 0:10:49.880 staying elevated. And in that world that the Fed is 0:10:49.920 --> 0:10:51.880 just going to keep on hiking, you know, and then 0:10:51.920 --> 0:10:54.360 we just had to get out to that reality. Well, 0:10:54.400 --> 0:10:56.200 it seems like we're all on board now with how 0:10:56.280 --> 0:10:58.200 much the Fed is going to hike and we have 0:10:58.280 --> 0:11:00.040 an idea, maybe a better one, of what term and 0:11:00.240 --> 0:11:02.079 was ultimately going to be. You're at four and a 0:11:02.120 --> 0:11:05.040 half percent, like many others. Yet you still think they're 0:11:05.040 --> 0:11:07.720 going to start cutting by the end of next year 0:11:07.760 --> 0:11:10.200 by twenty five basis points. That's not the message we 0:11:10.280 --> 0:11:12.160 got from the dot plot or the chairman. Why do 0:11:12.160 --> 0:11:17.280 you think that? I think once the unemployment rate starts 0:11:17.280 --> 0:11:20.040 going up, the idea that, you know, you control the 0:11:20.120 --> 0:11:23.280 unemployment rate like you control the you know, the flame 0:11:23.360 --> 0:11:27.840 underneath your omelet while you're cooking it, I think is uh, hopeful, 0:11:28.040 --> 0:11:31.720 to say is the least. and Um, we think that, 0:11:32.040 --> 0:11:35.319 given the pace of hikes, that once it becomes clear 0:11:35.400 --> 0:11:40.120 that they've hiped enough to get unemployment going Um, they'll 0:11:40.160 --> 0:11:41.960 say look, we we we don't have to go that 0:11:42.080 --> 0:11:45.120 much further. So we're you know. And then at some 0:11:45.160 --> 0:11:48.439 point they started say, well, we're clearly well above neutral. 0:11:48.760 --> 0:11:50.840 We don't have to be that far above neutral. We 0:11:50.960 --> 0:11:52.600 you know, we can be a little bit you know 0:11:53.240 --> 0:11:56.400 less about you know, above neutral. But you know it 0:11:56.440 --> 0:11:59.679 doesn't mean dovish, because it's still, you know, basically our 0:11:59.720 --> 0:12:02.679 que or two, you know, queue four forecasts. It doesn't 0:12:02.760 --> 0:12:05.760 change all that much. It just means that they Um, 0:12:05.800 --> 0:12:08.679 you know, they're hawkish and they're modulating their hawkishness according 0:12:08.679 --> 0:12:12.040 to the circumstances. Steve, my colleagues at Bloomberg economics place 0:12:12.120 --> 0:12:14.040 the probability of a recession over the next twelve months 0:12:14.080 --> 0:12:17.600 of roughly. Do you think the Fed can actually engineer 0:12:17.600 --> 0:12:21.200 a soft landing or is that ship sailed? You know, 0:12:21.320 --> 0:12:24.959 I I think a soft lending is um it's something 0:12:25.000 --> 0:12:27.400 that you want, it's you know, it's not something that 0:12:27.480 --> 0:12:29.760 you would ever count on as a central banker. I 0:12:29.800 --> 0:12:33.120 think that Um, you know, it's a way of making 0:12:33.200 --> 0:12:37.360 the the hawkishness and the tightness more palatable. But, you know, 0:12:38.400 --> 0:12:41.360 it's like discussions we had about escape velocity a couple 0:12:41.360 --> 0:12:44.000 of years ago and so on. It's just like so 0:12:44.080 --> 0:12:47.679 hard to grasp that. I think that the risk is 0:12:47.720 --> 0:12:50.839 that if you get you know, you have to slow 0:12:50.880 --> 0:12:53.360 the economy enough to get inflation down. The odds are 0:12:53.440 --> 0:12:55.679 heavily if you're doing that, you think, to have a recession. 0:12:56.440 --> 0:12:58.200 You know, a few months back, Steve, if you recall, 0:12:58.480 --> 0:13:01.040 we were speaking at the hub to a bunch of 0:13:01.080 --> 0:13:03.480 China watchers. And so my question. What was that, Damien? 0:13:03.559 --> 0:13:07.080 Can you just do that? I'm sorry, sorry here. And Yeah, 0:13:07.160 --> 0:13:08.840 so we're talking a bunch of China watchers. We were 0:13:08.880 --> 0:13:11.880 talking about China US yield divergence, we were talking about 0:13:11.880 --> 0:13:13.280 dollar U on and we were talking about the P 0:13:13.320 --> 0:13:15.960 B o c s reluctance to cut rates because of 0:13:16.000 --> 0:13:19.120 capital outflows. I wonder can you just share your thoughts 0:13:19.120 --> 0:13:21.199 on that? I mean, do you see the PBOC continuing 0:13:21.240 --> 0:13:22.959 to cut rates in the face of what's going on here? 0:13:24.120 --> 0:13:27.720 You know, look, when you make the case for sort 0:13:27.720 --> 0:13:30.920 of having some restrictions on capital mobility, I think being 0:13:30.960 --> 0:13:35.040 able to run your domestic economy somewhat independently the rest 0:13:35.080 --> 0:13:38.280 of the world is the most powerful element of this, 0:13:38.559 --> 0:13:41.319 assuming you're you're running, you know, the correct policy. So 0:13:41.360 --> 0:13:44.960 I think that the Um you know, given that the 0:13:44.960 --> 0:13:48.520 economy is soft and has surprised on the downside, it 0:13:48.559 --> 0:13:53.120 looks like they're good to continue to maintain Um, you know, 0:13:53.240 --> 0:13:56.160 kind of easy money. I don't think that they're going 0:13:56.200 --> 0:13:59.839 to Um, you know, be super soft. I think the 0:14:00.000 --> 0:14:03.080 eyes still is towards easy money. There Um you know, 0:14:03.120 --> 0:14:06.280 and and yeah, Stephen, before we let you go, I 0:14:06.320 --> 0:14:08.040 just have really a simple question for you. Would you 0:14:08.040 --> 0:14:14.679 buy the pound today? Um, no, okay, why not? I 0:14:14.720 --> 0:14:18.480 mean basically, how much further does it have to go? Well, 0:14:18.520 --> 0:14:20.800 you know, they're really rolling the dice on this. I 0:14:20.800 --> 0:14:23.160 mean this this will be the greatest experiment ever run 0:14:23.560 --> 0:14:27.880 if it succeeds in stimulating the UK economy. But I 0:14:28.320 --> 0:14:30.960 think there's a real question mark about applying a lot 0:14:31.000 --> 0:14:33.840 of fiscal to an economy which is facing a lot 0:14:33.840 --> 0:14:36.720 of supply constraints. We, you know us, tried that in 0:14:37.560 --> 0:14:40.640 one and we saw what happened. And you know, I 0:14:40.680 --> 0:14:43.920 think the market is, you know, watching the budget and 0:14:44.280 --> 0:14:49.760 just kind of digesting this. Um The most I'd say 0:14:49.800 --> 0:14:55.400 that the range of views is dire to you know, 0:14:55.520 --> 0:14:59.240 cross your fingers and light some candles and, you know, 0:14:59.400 --> 0:15:01.720 if it work, it's great, but I don't think anyone 0:15:01.800 --> 0:15:04.720 really has confidence that this is a policy that's going 0:15:04.800 --> 0:15:08.800 to really get growth going again. It up as a 0:15:08.800 --> 0:15:11.960 weak pound. We just have about thirty seconds. But if 0:15:12.040 --> 0:15:14.960 lighting candles doesn't work and saying a prayer, where we 0:15:15.040 --> 0:15:19.080 headed for the pound dollar cross? We'll have to see. 0:15:19.120 --> 0:15:21.920 I mean you know the look, the Um, there's the 0:15:21.920 --> 0:15:24.960 Bank of England and you know the markets marking up 0:15:25.480 --> 0:15:27.320 what the B O e is doing. I think it's 0:15:27.360 --> 0:15:31.880 gonna be very delicate because raising rates Um harshly in 0:15:31.960 --> 0:15:34.920 this environment could lead to even more pressure on the currency. 0:15:34.920 --> 0:15:37.720 It's a market just sees these things are incompatible. It's 0:15:37.880 --> 0:15:42.320 it's a very tough situation. Stephen, leader of Standard Chartered Bank, 0:15:42.360 --> 0:15:49.320 thank you so much joining us now, Dan Suzuki, always 0:15:49.320 --> 0:15:51.960 a brilliant mind. Wd C I O at Richard Burnstead Advisors, 0:15:51.960 --> 0:15:54.040 who has been ahead of the game for a long time, 0:15:54.120 --> 0:15:58.400 being highly barished, seeing really no upside. Right now the 0:15:58.440 --> 0:16:01.000 world is coming to your view. Are you starting to 0:16:01.040 --> 0:16:03.360 be a little bit more positive, or do you feel 0:16:03.360 --> 0:16:08.640 even worse? Uh, well, good morning, Lisa. You know I don't. 0:16:08.720 --> 0:16:11.080 I don't think there's any real reason to sort of 0:16:11.200 --> 0:16:13.840 change the view. I mean, we're happy to be cautious here, 0:16:14.080 --> 0:16:16.560 I think right now. I mean what we've been saying 0:16:16.600 --> 0:16:19.520 is there's only two certainties for the foreseeable future. It's 0:16:19.560 --> 0:16:23.080 that profits growth is going to continue slow and probably surprised. 0:16:23.160 --> 0:16:26.400 The downside relative to people still pretty you know, elevated 0:16:26.440 --> 0:16:29.480 expectations and liquid is going to continue to tighten and 0:16:29.520 --> 0:16:32.360 that's the worst possible combination for market. So unless you 0:16:32.480 --> 0:16:35.440 see signs that either of those things is reversing course 0:16:35.640 --> 0:16:38.400 or at least stabilizing, it's hard to get really bullish here. 0:16:39.160 --> 0:16:41.960 Do you think, Dan, that the market has now properly, 0:16:42.000 --> 0:16:45.600 properly appropriately priced the Fed? And if we have done that, 0:16:45.880 --> 0:16:49.200 is the next thing going to be properly approached pricing 0:16:49.240 --> 0:16:51.960 in the corporate profit downturn? You think we'll see, and 0:16:52.040 --> 0:16:54.800 what does that look like? Yeah, Kelly, I think that's 0:16:54.800 --> 0:16:58.160 a that's a very good summation of my view. I 0:16:58.200 --> 0:17:02.080 think Um, right now, Um, you know, the market for 0:17:02.080 --> 0:17:05.160 for most of this year people were very skeptical, skeptical 0:17:05.160 --> 0:17:08.240 about inflation initially, and then there are skeptical about the 0:17:08.240 --> 0:17:11.600 Fed's reaction to inflation. Now people have come around to 0:17:11.680 --> 0:17:13.520 believing the feds. So I do believe a lot of 0:17:13.560 --> 0:17:16.640 that's priced in. So as you price in the next 0:17:16.800 --> 0:17:19.720 stage of this cycle, which is that slowing growth environment 0:17:19.760 --> 0:17:22.080 you mentioned, I think that's gonna have a very different 0:17:22.119 --> 0:17:25.240 impact on on rates, particularly the longer end of rates. 0:17:25.280 --> 0:17:27.440 So I think, you know, this one of the big 0:17:27.480 --> 0:17:30.600 transitions we're probably gonna be you know, faced within the 0:17:30.640 --> 0:17:33.720 next month or so or in the next coming months? 0:17:34.040 --> 0:17:36.600 Is that shift of, you know, a tighter fed? Up 0:17:36.680 --> 0:17:39.080 until now I meant higher longer term rates. You know, 0:17:39.160 --> 0:17:41.720 perhaps you know a tighter fed going forward is going 0:17:41.760 --> 0:17:44.080 to actually mean lower rates because it means lower long 0:17:44.200 --> 0:17:47.840 term growth, lower long term inflation. Dan, you've often highlighted 0:17:47.840 --> 0:17:51.360 the difference between an economic recession and a profit recession. 0:17:51.359 --> 0:17:54.879 I'm wondering you know what sectors offer protection from a 0:17:54.920 --> 0:17:58.160 profit recession? Are we talking consumer staples, Health Care, utilities? 0:17:58.160 --> 0:18:01.199 Where are your thoughts there? Yeah, I mean, at the 0:18:01.280 --> 0:18:03.400 end of the day, what we tell people is that 0:18:03.480 --> 0:18:06.639 the cycle is driven by cyclicles, and so, you know, 0:18:06.680 --> 0:18:08.760 the stuff that's going to hold up better when, when 0:18:08.800 --> 0:18:12.800 growth is slowing is are those stable earnings growth sectors 0:18:12.840 --> 0:18:16.520 such as everything you mentioned. You know, staples, utilities, healthcare. 0:18:16.720 --> 0:18:19.119 They're just less economic sensive. You'RE gonna still go out 0:18:19.160 --> 0:18:20.840 there and buy toothpaste and you're still gonna go out 0:18:20.880 --> 0:18:22.840 there and buy your meds, and that's why their earnings 0:18:22.880 --> 0:18:25.639 are going to hold up on a relative basis much better. Now, 0:18:26.119 --> 0:18:29.320 depending on how bad the slowdown gets, you can still see, 0:18:29.480 --> 0:18:32.399 you know, negative growth rates for a negative. You know, 0:18:32.640 --> 0:18:35.480 price performance, you know, but it's a relative game. In 0:18:35.520 --> 0:18:37.880 that type of environment, I love it. Invest in toothpaste 0:18:37.880 --> 0:18:39.560 and toil of paper. That seems to be the trade. 0:18:39.720 --> 0:18:44.560 The other trade is exactly perhaps people will continue with that. Hopefully. Uh. 0:18:44.680 --> 0:18:46.840 There are the other issue, as ever, core I s 0:18:46.840 --> 0:18:48.960 I is Juliana Emmanuel was saying there has been only 0:18:48.960 --> 0:18:51.840 one bull market in two and that's the bull market 0:18:51.880 --> 0:18:55.000 for cash. How much are you invested still in cash 0:18:55.080 --> 0:18:59.560 or cash like instruments as real yields continue to climb? Yeah, 0:18:59.560 --> 0:19:01.320 I think this a great point. I mean right now 0:19:01.400 --> 0:19:03.960 we have probably one of the highest, you know, exposures 0:19:03.960 --> 0:19:06.440 to cash and cash like investments that we've had in 0:19:06.720 --> 0:19:08.719 the history of the firm. So I think that, you know, 0:19:09.160 --> 0:19:10.760 there's a there's a lot to be said for the 0:19:11.119 --> 0:19:14.359 safety the income and being able to capitalize on this 0:19:14.640 --> 0:19:17.280 you know, higher rising short rate of environment that we're 0:19:17.320 --> 0:19:19.719 in the midst of Um but where right now, as 0:19:19.720 --> 0:19:21.960 I mentioned, we're kind of a barbelled between you know, 0:19:22.040 --> 0:19:24.720 that cash position, which is very high, and, you know, 0:19:24.760 --> 0:19:27.480 exposure to long term treasuries, which is if if we're 0:19:27.520 --> 0:19:30.000 right about the growth outlook and we're right about how 0:19:30.040 --> 0:19:32.280 the market's going to have to interpret that growth outlook. 0:19:32.560 --> 0:19:35.760 You know you could actually see meaningful upside uh in 0:19:35.800 --> 0:19:39.040 these areas that have gotten crushed this year, particularly the 0:19:39.080 --> 0:19:40.440 long end of the curve. Can you give us a 0:19:40.480 --> 0:19:43.240 sense down of what that means in terms of the 0:19:43.240 --> 0:19:46.639 biggest cash allocation in the history of your fund and 0:19:46.920 --> 0:19:49.840 sort of the progression over two in terms of how 0:19:49.880 --> 0:19:54.399 you've built that holding? Yeah, you know, we've held a 0:19:54.440 --> 0:19:57.879 decent cast cash position for a while in terms of 0:19:57.880 --> 0:20:00.920 cash like investments, but it's certainly in increased over the last, 0:20:01.000 --> 0:20:03.120 you know, three to six months. You know right now 0:20:03.680 --> 0:20:06.560 you know of our multi asset flagship portfolio. You know 0:20:06.720 --> 0:20:10.960 it's approaching and it's probably about so the portfolio is 0:20:11.000 --> 0:20:13.359 in cash and cash like investments and I think you 0:20:13.400 --> 0:20:15.280 know it's a lot, but it gives you a lot 0:20:15.320 --> 0:20:17.120 of dry powder, it gives you a lot of safety 0:20:17.400 --> 0:20:20.240 and again, you also get to capitalize on these higher 0:20:20.320 --> 0:20:23.399 rates that the Fed is providing. Most Dancey Zuki of 0:20:23.480 --> 0:20:37.520 Richard birdsteed advisors. Thank you. People are concerned that the market, 0:20:37.680 --> 0:20:40.080 that the economy, or not the market. The economy is 0:20:40.080 --> 0:20:43.720 not deteriorating quickly enough. It is highly uncomfortable for economists 0:20:43.720 --> 0:20:46.440 to be looking at that, including Janice Everley, who has 0:20:46.480 --> 0:20:51.240 incredible and extensive experience in administrations as the chief economist 0:20:51.440 --> 0:20:53.680 to the White House from two thousand and Leve two 0:20:53.720 --> 0:20:56.920 thousand thirteen. She is currently senior Associate Dean and professor 0:20:56.960 --> 0:20:59.840 of finance at the Kellogg School of Management and she 0:21:00.040 --> 0:21:02.600 joins us now. Jenn Everley, thank you so much for 0:21:02.680 --> 0:21:05.440 being here. When you take a look at this backdrop 0:21:05.560 --> 0:21:09.080 in markets, what is your fear for how this translates 0:21:09.119 --> 0:21:13.399 to the economy? Good morning, Lisa. It's great to be 0:21:13.560 --> 0:21:16.560 with you. Um. You're right that there's a lot of 0:21:16.600 --> 0:21:21.040 market turmoil. The feds initial announcement of the seventy five 0:21:21.080 --> 0:21:25.200 basis points, of course, wasn't the surprise. It was the 0:21:25.280 --> 0:21:30.760 surrounding messaging that included, you know, the feds not only 0:21:31.119 --> 0:21:34.920 willingness but their expectation that rates would be above four 0:21:35.000 --> 0:21:38.760 percent by the end of the year going into and 0:21:39.040 --> 0:21:41.560 stay higher for a longer period of time than they 0:21:41.560 --> 0:21:47.240 had previously conveyed. So that clearly increases the likelihood of 0:21:47.280 --> 0:21:52.879 a downturn uh and potentially the severity of any subsequent recession. 0:21:53.320 --> 0:21:57.880 So that's what's really created the volatility in the markets 0:21:58.000 --> 0:22:01.560 because it puts much more pressure on the supply side 0:22:01.600 --> 0:22:05.280 of the economy and what we might be looking for 0:22:05.280 --> 0:22:07.920 for on the on on that side, on the real 0:22:07.920 --> 0:22:10.720 side of the economy. Jan The message from the Federal 0:22:10.760 --> 0:22:13.320 Reserve is we're not going to blink, we are going 0:22:13.359 --> 0:22:15.320 to look at the unemployment weight rising and we are 0:22:15.359 --> 0:22:17.480 going to tolerate and keep doing the job until the 0:22:17.560 --> 0:22:20.159 job is done. Do you buy that narrative or do 0:22:20.240 --> 0:22:23.040 you think unemployment may reach a level in which the 0:22:23.040 --> 0:22:25.440 Fed has no choice but to turn the other way? 0:22:26.400 --> 0:22:30.760 They've been abundantly clear that. The chairman said in Jackson Hole, 0:22:30.840 --> 0:22:34.800 and he reiterated this uh in in his news conference 0:22:34.920 --> 0:22:38.959 this week, that the message hasn't changed. What changed was 0:22:39.560 --> 0:22:43.960 the quantitative message that came out. So it gives much 0:22:44.080 --> 0:22:51.399 less room for interpretation and the quantitative message reflects that. 0:22:52.160 --> 0:22:56.359 The message to the economy that the Fed and and 0:22:56.480 --> 0:22:59.920