WEBVTT - Surveillance: Inflation Control with Harker 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.639 and of course on the Bloomberg terminal. This is something 0:00:30.680 --> 0:00:32.880 we take great pride in with the leadership of Michael 0:00:32.960 --> 0:00:36.960 McKee Bloomberg Economics and Policy Directive. Also worst questioner of 0:00:37.080 --> 0:00:39.839 Jerome Paul that we know, and that is they are 0:00:39.840 --> 0:00:42.680 not just FED presidents or FED governors, but they are 0:00:42.720 --> 0:00:48.280 real people with true expertise. Patrick Harker is truly extraordinary 0:00:48.360 --> 0:00:51.440 and a voice for technology at the FED. He is 0:00:51.520 --> 0:00:57.320 definitive and operations research. He holds the youngest endowed professorship 0:00:57.400 --> 0:01:00.160 at Wharton in their history. And all I can say, 0:01:00.240 --> 0:01:04.440 Mike is when the FED needs to understand technology and productivity, 0:01:04.480 --> 0:01:07.320 this is the guy they turned to. Well, let's turn 0:01:07.360 --> 0:01:10.839 to Patrick Harker ourselves, and we should mention that along 0:01:10.920 --> 0:01:13.759 with everything else on your resume there you are a 0:01:13.840 --> 0:01:16.440 voting member of the Open Market Committee as an alternate 0:01:16.520 --> 0:01:20.319 for the vacant Boston seat at the present time. So, uh, 0:01:20.360 --> 0:01:22.679 Tom does have to pay attention to what you have 0:01:22.760 --> 0:01:26.720 to say today. Let me start off. I don't agree 0:01:26.760 --> 0:01:30.640 with him on the question of jay Pal So all right, 0:01:30.680 --> 0:01:34.360 well now I can take it out on you. Mary Daily, 0:01:34.760 --> 0:01:38.399 very firm yesterday. We are not behind the curve, do 0:01:38.440 --> 0:01:42.120 you agree? Look at risk on both sides. I mean, 0:01:42.200 --> 0:01:44.199 let's step back. I think it's worth a step back 0:01:44.240 --> 0:01:46.560 and say, why don't we have inflation running away? It's 0:01:46.600 --> 0:01:50.480 run two things supply demand. Uh, the demand is something 0:01:50.600 --> 0:01:54.480 we can influence through monetary policy. The supply constraints people 0:01:54.600 --> 0:01:59.240 and goods less. So in fact, very little can we 0:01:59.240 --> 0:02:02.559 do about that. Two things are happening at the same time. 0:02:03.120 --> 0:02:06.520 So the question is how quickly, and this has always 0:02:06.560 --> 0:02:09.080 been the question, how quickly are the supply chain constraints 0:02:09.560 --> 0:02:13.840 going to leave us? And it looks right now like 0:02:13.880 --> 0:02:16.560 they're not. They're going to take some time. So slowing 0:02:16.600 --> 0:02:19.960 down some demand, just what monetary policy does? I think 0:02:19.960 --> 0:02:22.440 it's appropriate. I don't think we're behind the curve in 0:02:22.480 --> 0:02:25.600 that sense because we don't affect a big part of 0:02:25.639 --> 0:02:28.760 why there is inflation. That said, I do think we 0:02:28.800 --> 0:02:35.000 need to move now to try to control inflation. That 0:02:35.120 --> 0:02:39.399 is something I firmly believe. Well, move now, but then 0:02:39.600 --> 0:02:43.080 move how often after that and how fast that you 0:02:43.120 --> 0:02:45.440 know the questions out there? The fifty basis points in 0:02:45.520 --> 0:02:50.280 March of the seven rate increases proposed by Bank of America, 0:02:50.480 --> 0:02:53.399 Where do you come down on that? So let me again, 0:02:53.480 --> 0:02:55.160 let me step back from it. So we're going to 0:02:55.240 --> 0:02:59.160 stop the tapering in March. I would be supportive of 0:03:00.080 --> 0:03:04.680 point increase in March. Could we do fifty yeah? Should? 0:03:04.680 --> 0:03:07.640 We am a little less convinced to that right now, 0:03:07.800 --> 0:03:09.960 But we'll see how the data turn out in the 0:03:09.960 --> 0:03:13.760 next couple of weeks, and then when we're sufficiently away 0:03:13.800 --> 0:03:17.079 from zero, we can argue with above zero d five 0:03:17.080 --> 0:03:21.520 basis points under basis points. Then we start normalizing the 0:03:21.520 --> 0:03:24.040 balance she start bringing the balanty down, which of course 0:03:24.080 --> 0:03:30.079 will also reduce accommodation. So truly a two step process here. Yes, 0:03:30.160 --> 0:03:32.320 we want to increase the fed country, which is our 0:03:32.320 --> 0:03:35.320 primary tour of monetary pulse. At the same time we 0:03:35.360 --> 0:03:39.000 want to start removing accommodation by shrinking the balance sheet. 0:03:39.400 --> 0:03:41.840 Both things have to happen in tandem. In my mind, 0:03:42.560 --> 0:03:44.840 Let's step into March and then build on your comments 0:03:44.840 --> 0:03:48.360 on the balance sheet, President Harker on March, tell me 0:03:48.440 --> 0:03:50.280 the data that you are looking at, the data that 0:03:50.280 --> 0:03:52.600 will influence and shape that decision. A lot of people 0:03:52.640 --> 0:03:55.920 de emphasizing Friday's payrolls print. We would all love a 0:03:55.960 --> 0:03:59.000 deeper understanding of whether you will look at that, how 0:03:59.040 --> 0:04:01.920 you would process that information given the omicron scare as well, 0:04:01.960 --> 0:04:04.200 and additionally the data you'd be looking at going into 0:04:04.240 --> 0:04:08.200 the March cool. Yeah, So you know, I heard some 0:04:08.240 --> 0:04:11.720 of the common earlier from some of your colleagues or 0:04:11.760 --> 0:04:15.320 tweet people who have tweeted about maximum employment. I think 0:04:15.320 --> 0:04:18.159 we're there. So really this is an inflation story in 0:04:18.240 --> 0:04:20.800 my mind, and so what we're looking at is the 0:04:20.960 --> 0:04:24.919 signs that inflation, at least the precursors to inflation, like 0:04:25.040 --> 0:04:28.800 the supply chain issues, are starting to mitigate. If I 0:04:28.839 --> 0:04:30.840 don't see that, then I would be for a more 0:04:30.880 --> 0:04:34.159 aggressive policy. Right now, I think four twenty five basis 0:04:34.160 --> 0:04:37.320 point increases this year is appropriate. But there's a lot 0:04:37.360 --> 0:04:40.200 of risk here. There's risk both to the upside of 0:04:40.240 --> 0:04:44.120 inflation that is worse than then I would anticipate, but 0:04:44.200 --> 0:04:48.960 there's also some risks that inflation will start to ease 0:04:49.560 --> 0:04:52.520 faster than we have anticipated. I think that is a 0:04:52.600 --> 0:04:55.279 lesser risk and is a good risk to have. But 0:04:55.320 --> 0:04:58.000 this is where we need to keep flexible with respective policy. 0:04:58.080 --> 0:05:00.680 We can't define a path right now and just stick 0:05:00.720 --> 0:05:02.520 to it. We've got to look at the data, and 0:05:02.600 --> 0:05:04.960 to me, primarily it's the inflation. Can we keep building 0:05:04.960 --> 0:05:06.719 on that? Then? Just on the inflation front, do you 0:05:06.720 --> 0:05:11.039 need to see deceleration into March? It's persistence enough to 0:05:11.080 --> 0:05:13.480 worry if it persisted at this level, with that worry 0:05:13.520 --> 0:05:16.320 you enough? Which one would it be? Sure? I mean, 0:05:16.400 --> 0:05:19.279 I think persistence would worry me, continue to worry me, 0:05:19.480 --> 0:05:21.440 And that's why I'd like to see some signs whether 0:05:21.480 --> 0:05:24.560 it's actually in the inflation numbers themselves. Whereas I said 0:05:24.560 --> 0:05:27.599 in the precursors to inflation that we're starting to see 0:05:27.720 --> 0:05:31.000 some easy of the pressures on wages or the supply 0:05:31.080 --> 0:05:33.440 chain constraints, etcetera. What would you be looking for a 0:05:33.480 --> 0:05:37.800 president hu Harker to possibly go fifty basis points? You 0:05:37.839 --> 0:05:40.920 said that, you know, should we that's less clear? Could 0:05:41.000 --> 0:05:45.920 we sure? Absolutely? What kind of inflation read? I think 0:05:45.920 --> 0:05:48.560 we're looking at a fairly significant spike from where we 0:05:48.600 --> 0:05:51.560 are now in inflation. If inflation stays where it is 0:05:51.680 --> 0:05:54.560 right now and continues to start to come down, I 0:05:54.560 --> 0:05:56.520 don't see a fifty basis weren't increased, But if we 0:05:56.560 --> 0:05:58.840 see a spike, then I think we might have to 0:05:58.880 --> 0:06:02.480 act more aggressively. Are you concerned about the possibility of 0:06:02.520 --> 0:06:05.479 a hard landing being dismissed by a lot of feed 0:06:05.520 --> 0:06:09.839 officials is probably unlikely, and this sort of confidence that 0:06:09.880 --> 0:06:14.360 they can engineer this. Look, it's always a risk. Let's 0:06:14.360 --> 0:06:16.839 be clear, it's always a risk. But I think we 0:06:16.839 --> 0:06:20.920 we actually can do this if we really listen to 0:06:20.960 --> 0:06:25.040 the data and act appropriately. And again, my first step 0:06:25.040 --> 0:06:28.279 in acting approprictly is marked stop the paper, stop the 0:06:28.320 --> 0:06:32.320 balance sheet purchases, and let's start raising rates by twenty 0:06:32.360 --> 0:06:37.120 five basis points. You in two two twenty adopted a 0:06:37.160 --> 0:06:40.360 new framework which made you state dependent in terms of 0:06:40.440 --> 0:06:43.720 moving interest rates. Is that out the window now? Are 0:06:43.720 --> 0:06:48.839 we back to forecast dependence? Since policy works with a lag, well, 0:06:48.839 --> 0:06:51.160 there's always you always have to take that into account. 0:06:51.160 --> 0:06:53.440 But I think in this case, if you just look 0:06:53.520 --> 0:06:57.120 at the states of our dual mandate, we're there, so 0:06:57.240 --> 0:06:59.960 we need to act. I mean, I don't with there's 0:07:00.040 --> 0:07:02.400 back to employment. This is one of my pet peeves. Look, 0:07:02.440 --> 0:07:06.920 we're probably going to have a bad jobs report in 0:07:06.920 --> 0:07:09.520 in the end of this week. I mean, just because 0:07:09.560 --> 0:07:12.240 of Omicron. I mean, it's just simply because of Omicron 0:07:12.840 --> 0:07:15.360 that said, I mean, and the media will saying I'm 0:07:15.360 --> 0:07:19.440 not criticizing the media here, but it'll say the economy 0:07:19.480 --> 0:07:22.440 only created X number of jobs. Now, the economy has 0:07:22.480 --> 0:07:24.960 created millions of jobs. We just can't fill them. It's 0:07:25.000 --> 0:07:29.480 a supply constraint and that is not what monetary policy affects. 0:07:29.760 --> 0:07:33.240 So I think with respect to employment and with respect 0:07:33.280 --> 0:07:36.320 to inflation, we are there at our dual mandate and 0:07:36.320 --> 0:07:38.400 that's why we need to act. Well, let me ask 0:07:38.440 --> 0:07:40.880 you the question I asked Chairman Powell, and that is 0:07:41.040 --> 0:07:44.400 what is your goal in terms of the inflation rate. 0:07:44.600 --> 0:07:47.440 It was understood that you were trying to average two 0:07:47.440 --> 0:07:50.880 percent over time, but he told me you're not trying 0:07:50.880 --> 0:07:53.040 to go below two percent, which you would have to 0:07:53.080 --> 0:07:56.680 do to get an average. Yeah. I mean, at some 0:07:56.720 --> 0:07:58.920 point we'll go below two would be our guests. But 0:07:58.920 --> 0:08:00.760 we don't have to rush it. I mean, if we 0:08:00.800 --> 0:08:03.640 can get it in the ballpark, that's good enough. I mean, 0:08:04.640 --> 0:08:08.040 the measurement are sufficient where if it's slightly above or 0:08:08.080 --> 0:08:10.119 below two two and a half the one and a half, 0:08:10.520 --> 0:08:13.120 I worry less right now where we are it is 0:08:13.160 --> 0:08:15.360 clearly a problem. The President Hunter, I want to try 0:08:15.400 --> 0:08:17.480 and move the dial on the balance sheet conversation because 0:08:17.480 --> 0:08:19.760 we really don't have much clarity, and some banks on 0:08:19.760 --> 0:08:22.120 Wall Street are trying out some pretty big numbers. Mattla Zedlia, 0:08:22.160 --> 0:08:25.200 Deutsche Banks talking about one trillion dollars of reduction next year, 0:08:25.240 --> 0:08:28.320 five sixty billion in the back half. You're about four hikes. 0:08:29.800 --> 0:08:33.200 How does the balance sheet conversation influence that decision? Is 0:08:33.200 --> 0:08:35.760 it separate to your rate high code? Does it complements it? 0:08:36.000 --> 0:08:39.079 How does it fit in? Yeah, that's a really good question. 0:08:39.120 --> 0:08:43.320 So in my mind we have to reassert that the 0:08:43.320 --> 0:08:46.439 Fed Funds rate is the primary tool of buntary policy, 0:08:46.880 --> 0:08:50.360 but recognizing that the balance sheet clearly has an effect 0:08:50.440 --> 0:08:54.000 that ads or removes accommodation. So I would like to 0:08:54.000 --> 0:08:56.400 get the Fed funds rate up and then start a 0:08:56.480 --> 0:09:00.120 process of normalization that is like watching paint dry, that 0:09:00.200 --> 0:09:03.600 has put it in motion, start reducing it. That reduction 0:09:03.640 --> 0:09:07.600 will be faster and steeper than the last time we've 0:09:07.600 --> 0:09:11.800 tried it until of course all this happened, and just 0:09:11.840 --> 0:09:14.720 because the balance sheet is so much larger. But we 0:09:14.800 --> 0:09:17.920 put that in process, we start reducing the size of 0:09:17.960 --> 0:09:22.280 the balance sheet and use the FED funds as the 0:09:22.280 --> 0:09:24.920 tool that we need to adjust if we need to adjust, 0:09:25.200 --> 0:09:28.320 no question about that. Do you think that you will 0:09:28.400 --> 0:09:31.560 need to sell assets to get the balid sheet down, 0:09:31.800 --> 0:09:34.640 particularly on the mortgage side, since the Fed says it 0:09:34.679 --> 0:09:37.640 wants to hold primarily treasuries and you'll be stuck with 0:09:37.640 --> 0:09:41.600 mortgages for thirty years if you don't. Yeah, maybe, I 0:09:41.600 --> 0:09:44.200 mean this is something we're actively looking at right now. 0:09:44.360 --> 0:09:47.440 No decisions have been made on the balance sheet question. 0:09:47.800 --> 0:09:49.400 It is why where we're going to take our time. 0:09:49.440 --> 0:09:52.360 We have some time here right now to think about it, 0:09:52.400 --> 0:09:57.040 to model it. Uh. Could could we sell assets? Possibly, 0:09:57.360 --> 0:09:59.400 but right now I wouldn't commit to any of that. 0:09:59.520 --> 0:10:03.240 Enjoys the analysis. President could just finally from me, do 0:10:03.280 --> 0:10:05.560 you have a number in mind when you think about 0:10:05.600 --> 0:10:07.640 balance sheet reduction on a monthly basis, one that would 0:10:07.679 --> 0:10:09.600 make sense? Can you give us some insights and real 0:10:09.640 --> 0:10:12.880 time thinking about this? Yeah? Yeah, not yet. I mean 0:10:12.960 --> 0:10:14.920 I think we have to let that play out. Like 0:10:14.960 --> 0:10:17.960 I said the analysis, And what matters to me more 0:10:18.120 --> 0:10:21.200 right now is that we're committed to doing it, and 0:10:21.240 --> 0:10:22.840 that we're going to commit to doing this for the 0:10:22.960 --> 0:10:25.120 long run. That is, it's going to take some time 0:10:25.760 --> 0:10:28.160 to get balance sheet back to whatever normal is. And 0:10:28.160 --> 0:10:30.280 I know there's an argument about what normal is, and 0:10:30.320 --> 0:10:32.520 there should be an argument about what normal is because 0:10:32.520 --> 0:10:34.920 we're not the economy we were before we came into 0:10:34.920 --> 0:10:38.560 the pandemic. So I can't put this precise number on it, 0:10:38.880 --> 0:10:42.000 but I think what matters now is that we are committed. 0:10:42.040 --> 0:10:44.760 I can say I am committed to making sure that 0:10:44.840 --> 0:10:48.000 we start this process possibly later this year or early 0:10:48.080 --> 0:10:50.880 in twenty three, and then let it run to get 0:10:50.920 --> 0:10:53.400 back to normal. This is a real time conversation. You 0:10:53.400 --> 0:10:56.640 guys are looking for tons of flexibility, Patrick, How could 0:10:56.679 --> 0:10:58.800 just to find a one from me? You satisfied with 0:10:59.320 --> 0:11:02.400 how the mark it is discounting some of the communication 0:11:02.440 --> 0:11:06.560 coming out of central bank right now? You know the 0:11:06.600 --> 0:11:11.240 markets will will interpret what we say how they want 0:11:11.280 --> 0:11:13.520 to interpret it, and I think we can be as 0:11:13.559 --> 0:11:15.840 clear as we can be. At least I'm trying to 0:11:15.840 --> 0:11:17.280 be as clear as I could be where I think 0:11:17.280 --> 0:11:21.120 Powerlson should go and I think it's really important that 0:11:21.440 --> 0:11:24.319 the market participants are seeing the same data we're saying. 0:11:24.320 --> 0:11:26.920 We're not seeing anything different than what they're saying. It's 0:11:27.000 --> 0:11:31.199 all question of interpretation and that we can we can 0:11:31.240 --> 0:11:33.800 disagree on, but at this point we need to let 0:11:33.840 --> 0:11:37.199 the data play out. President Haka of the Philadelphia FETE, 0:11:37.280 --> 0:11:39.520 fantastic to catch up with you, say thank you very 0:11:39.600 --> 0:11:41.960 much for being with us alongside Michael McKay, Tom Kane, 0:11:42.320 --> 0:11:51.440 Lisa Bramison, Jonathan Pharaoh, Alicia Levine with this head of 0:11:51.440 --> 0:11:55.680 equity's capital market advisory at B and Y Melon Wealth Management, Alicia, 0:11:55.720 --> 0:11:57.600 what do you see in the corporate space that will 0:11:57.920 --> 0:12:01.640 inform the FETE of the tough decisions they have to make. Look, 0:12:01.679 --> 0:12:04.559 the really interesting thing about earning season so far is 0:12:04.600 --> 0:12:07.920 that with all the concern about margins and inflationary pressures, 0:12:08.000 --> 0:12:12.199 actually margins have held up very well in the face 0:12:12.320 --> 0:12:16.199 of of input costs going higher and employee costs going higher. 0:12:16.640 --> 0:12:19.600 So that's an important thing because that's what the markets 0:12:19.640 --> 0:12:22.520 focused on, which is is the inflation out of control? 0:12:22.920 --> 0:12:26.600 And what will earnings be? Can we project earnings with 0:12:26.679 --> 0:12:30.280 inflation is high? And the answer so far is yes. 0:12:30.320 --> 0:12:32.560 And I think that's why you've seen some stabilization in 0:12:32.600 --> 0:12:37.000 the market, because the fundamentals are actually coming in better 0:12:37.040 --> 0:12:41.760 than feared two and three weeks ago. So Corporate America 0:12:41.880 --> 0:12:44.920 is telling you it's still okay. Um. I was shocked 0:12:44.920 --> 0:12:47.400 to see the margin number and the aggregate and the 0:12:47.480 --> 0:12:52.320 company's already reported. So that's that's what's stabilizing here. And 0:12:52.360 --> 0:12:54.000 the other thing is, let me pay. It's an interesting 0:12:54.040 --> 0:12:57.600 scenario for you. So we're all concerned about Russia, Ukraine 0:12:57.920 --> 0:13:00.840 and oil prices and have have being a hundred twenty 0:13:00.840 --> 0:13:04.240 dollar oil sort of destabilized markets. Well, what if it's 0:13:04.280 --> 0:13:06.680 done right? What if we what if the West says, 0:13:06.760 --> 0:13:09.080 you know what, we're not going to bring Ukraine in 0:13:09.120 --> 0:13:13.120 to NATO. Putin gets what he wants without, you know, uh, 0:13:13.280 --> 0:13:16.199 blood and treasure being wasted and oiled all of a 0:13:16.280 --> 0:13:20.200 sudden has a different kind of a price. And that's 0:13:20.240 --> 0:13:23.000 the case that I think the big shock worry to 0:13:23.040 --> 0:13:25.000 the market is over. And I think that's a very 0:13:25.040 --> 0:13:27.800 realistic scenario. I'm just going through your sector right down. 0:13:28.360 --> 0:13:31.240 Some of the style calls just a thematic calls as 0:13:31.280 --> 0:13:34.680 well by business capital spending coatious on the consumer by 0:13:34.720 --> 0:13:38.640 Profitable Tank, by industrials, by haalth care, by financials. Where's 0:13:38.640 --> 0:13:41.520 the energy pace in all this than, Alicia? So we 0:13:41.679 --> 0:13:44.360 like energy here. We just think that there's been a 0:13:44.440 --> 0:13:48.040 huge price shift upwards so far, and with the calls 0:13:48.080 --> 0:13:49.920 in the market for a hundred and twenty to even 0:13:49.920 --> 0:13:52.840 a hundred and fifty dollar oil price, I think I 0:13:52.880 --> 0:13:56.440 think that given the scenario, it may not happen, and 0:13:56.480 --> 0:13:58.800 we may be close to high as we're not there yet. 0:13:58.840 --> 0:14:01.760 There's still upward pressure on oil prices here, but I 0:14:01.800 --> 0:14:04.960 think many of the many of much of the move 0:14:05.080 --> 0:14:08.120 is already done. We like energy, we're strong energy. But 0:14:08.120 --> 0:14:11.840 if we're talking about adding new capital today, I wouldn't 0:14:11.840 --> 0:14:15.080 add new capital today simply because the move is over 0:14:15.160 --> 0:14:18.080 and this expectations for World War three in Europe are 0:14:18.120 --> 0:14:21.600 probably not going to happen. Alicia. The scenario that you're 0:14:21.600 --> 0:14:24.880 portraying isn't that optimistic. The idea that we're going to 0:14:25.000 --> 0:14:28.400 have lower long term run raids in terms of yields, 0:14:28.400 --> 0:14:30.520 that we have the priced in fed, that we have 0:14:30.560 --> 0:14:32.640 oil prices that are gonna come back down, and the 0:14:32.720 --> 0:14:37.160 margin story remaining intact even as you see wage inflation 0:14:37.440 --> 0:14:40.600 really raging. I wonder how much cost cutting, how much 0:14:40.600 --> 0:14:43.560 were This really indicates a later cycle type of stage 0:14:43.680 --> 0:14:47.680 rather than something that is a resurgent economy. So look, 0:14:47.800 --> 0:14:50.560 we do think we're mid cycle here, and as you've 0:14:50.600 --> 0:14:53.440 been talking about all morning, this is dancing on the 0:14:53.440 --> 0:14:57.080 head of a pin for the FED. It's a dynamic economy. 0:14:57.240 --> 0:15:00.640 It's not linear. These are not linear decision ends. But 0:15:00.760 --> 0:15:02.760 I think the yield curve has told us a lot 0:15:02.840 --> 0:15:06.880 in the last few weeks, which is, as rate expectations 0:15:06.920 --> 0:15:09.600 go higher for the FED funds rate and that two 0:15:09.680 --> 0:15:12.920 year moves higher, the ten year softens, and so we're 0:15:12.920 --> 0:15:15.920 now in a position where essentially, if the FED moved 0:15:16.000 --> 0:15:18.280 fifty basis points in March, which is not our base 0:15:18.280 --> 0:15:22.440 case scenario, you're going to destabilize rate pricing in the market. 0:15:22.560 --> 0:15:24.320 And that's the last thing the FED needs to do 0:15:24.440 --> 0:15:27.160 right now because it limits their hands on the on 0:15:27.240 --> 0:15:30.400 the out meetings. So we do think you'll get Fed 0:15:30.480 --> 0:15:34.000 hikes uh March, May, in June, and then we have 0:15:34.160 --> 0:15:36.240 the FED will have to reassess where we are in 0:15:36.280 --> 0:15:40.240 the real economy. I think the FED issue here is 0:15:40.240 --> 0:15:42.480 not so much slow in the economy. It's job is 0:15:42.520 --> 0:15:45.120 to slow the economy right now because we're frying in oil. 0:15:45.440 --> 0:15:47.680 It cannot do anything about the supply chain. It can 0:15:47.720 --> 0:15:50.560 do something about demands. So that is its job right 0:15:50.600 --> 0:15:53.920 now to soften the inflation picture because that's its mandate. 0:15:53.960 --> 0:15:56.480 And if it fails at that, at the mandate, that 0:15:56.560 --> 0:15:58.760 tends that's not going to be good for the institution. 0:15:59.200 --> 0:16:01.200 They be looking at a plas want to squeeze this 0:16:01.280 --> 0:16:04.960 in what is that leaf? The banks tride? So look, 0:16:05.360 --> 0:16:08.880 we we like financials. We prefer the insurance companies here 0:16:08.920 --> 0:16:12.239 because the insurance companies will do very well. Again, financials 0:16:12.240 --> 0:16:15.200 have moved strongly. We've seen some of the pricing issues. 0:16:15.720 --> 0:16:18.200 We think this is the year for be selective. I 0:16:18.240 --> 0:16:20.440 think it's very difficult to play the sectors. You have 0:16:20.520 --> 0:16:23.120 to play cash flow, you have to play earnings, and 0:16:23.200 --> 0:16:25.640 you can't just buy. I think the year of buying 0:16:25.680 --> 0:16:28.760 an index or buying a sector call is going to 0:16:28.800 --> 0:16:31.440 be very difficult. You have to buy individual companies here 0:16:31.440 --> 0:16:34.640 with dividends, cash flow, and earnings power. It's a very 0:16:34.680 --> 0:16:37.680 complicated year. Yes, we're still bullish, and we do think 0:16:37.680 --> 0:16:39.840 the Fed cannot go seven times this year, just like 0:16:39.920 --> 0:16:42.520 the OL curve is telling them that Alicia f B 0:16:42.600 --> 0:16:52.320 and y Melon Wealth Management. Alicia, thank you. This is 0:16:52.320 --> 0:16:55.040 a joy. We begin a two hour conversation with Douglas 0:16:55.120 --> 0:16:57.960 Cass of Sea Breeze here or automby Doug. Let me 0:16:58.000 --> 0:17:04.280 start out with trading. How was your January? Sea Breeze, 0:17:04.320 --> 0:17:08.240 which we just started, actually had a modestly up January, 0:17:08.280 --> 0:17:13.040 which I could pretty well differentiates us. So your your 0:17:13.080 --> 0:17:16.600 your note this morning is fascinating and basically a lot 0:17:16.680 --> 0:17:21.760 of it's about being courageous when the fear is out there? 0:17:22.320 --> 0:17:24.879 How do you judge the when of that when to 0:17:25.000 --> 0:17:31.800 be courageous given present fear. I tend to look um 0:17:31.840 --> 0:17:40.800 at um measures of sentiment, um um a AII investor survey, 0:17:41.000 --> 0:17:46.200 oversold over what that sort of thing. Doug, late last year, 0:17:46.680 --> 0:17:48.920 mid to late last year on this program, you were 0:17:49.080 --> 0:17:54.199 notably notably cautious slash barish um. And this is the 0:17:54.240 --> 0:17:57.720 beginning of this year, certainly, you know kind of I 0:17:57.760 --> 0:18:01.480 think kind of brought that to the four year Is 0:18:01.520 --> 0:18:04.639 it time to get more constructive on this equity markets? 0:18:04.640 --> 0:18:09.200 From your perspective, we got a little more constructive, um, 0:18:09.240 --> 0:18:14.879 I would say about two weeks ago. Since then, the 0:18:15.040 --> 0:18:21.119 SMP has rallied by roughly UM two d and twenty 0:18:21.920 --> 0:18:28.120 SMP points. I know it sounds astonishing, and UM, we're 0:18:28.119 --> 0:18:30.639 sort of doing it about face now, we're taking advantage 0:18:30.680 --> 0:18:34.000 of that trading tradeable trading opportunity, which I called it, 0:18:34.920 --> 0:18:37.840 and I question whether we're in a bear market rally. 0:18:38.000 --> 0:18:43.320 Investors face a number of dilemmas UH. As mentioned in 0:18:43.359 --> 0:18:47.800 the previous segment, rates are being raised into a slowing 0:18:47.800 --> 0:18:55.880 economy multiples UH compression, stag slug flation, sluggish growth, stained inflation, 0:18:56.480 --> 0:18:59.600 and hot and heightened volatility seems to lie ahead. And 0:18:59.640 --> 0:19:01.760 I think the strike on the Fed put as much 0:19:01.760 --> 0:19:05.399 lower than many believe. So UH it's my view that 0:19:05.440 --> 0:19:07.680 the odds favor that the rally over the last three 0:19:07.760 --> 0:19:10.560 days of January and into today may have been a 0:19:10.600 --> 0:19:14.280 bear market rally UM, but not likely the basis for 0:19:14.280 --> 0:19:18.240 a new bowl market leg UM. Yesterday I sent M 0:19:18.920 --> 0:19:22.840 Paul Tom Lisa John Um an important chart that I 0:19:22.920 --> 0:19:25.600 published on Real Money pro where I've been doing a 0:19:25.680 --> 0:19:28.760 block for twenty four years, and it's the NASTAC index. 0:19:29.119 --> 0:19:32.040 It has cut through the downside of the fifty two 0:19:32.080 --> 0:19:35.159 hundred day moving averages and even with the remarkable two 0:19:35.200 --> 0:19:38.040 day rally is only back approaching the resistance of the 0:19:38.080 --> 0:19:44.080 two hundred day. So unfortunately I suspect januaries. UH. Market 0:19:44.080 --> 0:19:47.239 weakness was the first shot across the bow. In is 0:19:47.480 --> 0:19:49.840 going to be a down year? Frequities? How deep is? 0:19:49.960 --> 0:19:54.680 It's obviously uncertain. What are you doing with with your capital? 0:19:54.760 --> 0:19:56.440 You mentioned your your hedge fund. What are you doing 0:19:56.440 --> 0:19:59.439 with your capital? Are there places to be uh in 0:19:59.520 --> 0:20:02.240 this mark in a rising interest rate environment, in any 0:20:02.320 --> 0:20:07.199 slowing economy. We have basically moved from in that long position. UM. 0:20:07.240 --> 0:20:09.520 And I didn't expect to do it this quickly, Paul, 0:20:10.359 --> 0:20:15.760 But UM, we take what the market gives us. UM. 0:20:15.800 --> 0:20:19.320 A walk is as good as a hit, Tom and Um, 0:20:19.359 --> 0:20:22.439 by the way, thirteen days too, pictures and catchers and 0:20:22.480 --> 0:20:26.920 the majesty and grace to show up. Yeah, that's a 0:20:27.040 --> 0:20:29.920 very good question. So there are pockets of opportunity of 0:20:30.000 --> 0:20:33.560 a large position in the cannabis stocks. UM. Most of 0:20:33.560 --> 0:20:38.560 our stocks that were long our bottom up stocks UM. 0:20:38.760 --> 0:20:42.960 Based upon the bottom up analysis, companies like City Group, 0:20:43.080 --> 0:20:47.639 Federal Express, an interesting biotech company, fiber Gen, etcetera. But 0:20:47.760 --> 0:20:52.639 on on the whole, UM, I think that the winds 0:20:52.680 --> 0:20:56.920 of change are growing stronger, and um that that there 0:20:56.920 --> 0:20:59.920 are problems. I think that the FETE is clearly committed 0:21:00.000 --> 0:21:02.520 a fighting inflation. I was listening to the interesting Fed 0:21:02.560 --> 0:21:07.720 worser president interview you had, Um, and we're moving into 0:21:07.760 --> 0:21:12.080 tighter financial conditions, and I don't believe many, especially the 0:21:12.080 --> 0:21:15.360 bullish cabal Cabal believe that the power will be very hawkish, 0:21:15.359 --> 0:21:18.320 and I disagree. I'm convinced he's going to stick to 0:21:18.359 --> 0:21:22.399 his mandates. Um. You know, the FED and its chairman 0:21:22.400 --> 0:21:25.760 have become very politicized, and Pal is now effectively part 0:21:25.800 --> 0:21:29.760 of a liberal administration which is justifiably concerned with social 0:21:29.760 --> 0:21:33.480 well being for citizens. He listened to any interview that 0:21:33.520 --> 0:21:39.120 Secretary Yelling gives. You see that clearly, Um, they've continually 0:21:39.160 --> 0:21:42.520 emphasized recently the pain that the lower classes is going 0:21:42.520 --> 0:21:44.840 through today and over the last couple of years. So 0:21:44.920 --> 0:21:48.360 he must be inflation at any cost, and that political 0:21:48.440 --> 0:21:52.639 viewpoint will likely be matched or more harkish policy. And 0:21:52.680 --> 0:21:56.280 I don't think this is being understood by many investors do. 0:21:56.760 --> 0:21:59.159 I want to talk about the charm of Douglas cast 0:21:59.320 --> 0:22:05.520 Trading and also writing consistently about big tech is a 0:22:05.640 --> 0:22:07.960 long term vehicle and you've led that with I believe 0:22:08.000 --> 0:22:11.959 a discussion on Amazon as well. Amazon, we saw Microsoft deliver, 0:22:12.080 --> 0:22:15.879 we saw Apple deliver Jim Suva's twenty pages on Apple 0:22:15.920 --> 0:22:18.280 three or four days ago. Is it whether you believe 0:22:18.280 --> 0:22:20.680 it or not? As a tour to force of looking 0:22:20.720 --> 0:22:25.639 out five years, how do you treat for fortress or 0:22:25.760 --> 0:22:29.280 moat tech is Ben Laylor calls it, how do you 0:22:29.320 --> 0:22:33.080 treat him out five years? When the Montreal Canadians finally 0:22:33.080 --> 0:22:37.680 get good again. It's really tough because the risk free 0:22:37.760 --> 0:22:41.280 rate of return because of tightening, um, you know, because 0:22:41.280 --> 0:22:45.000 of the Federal reserve tightening, uh produces a lower value 0:22:45.000 --> 0:22:48.880 to present value of their earnings. So the opportunity short 0:22:48.960 --> 0:22:51.960 term becomes a little bit mooded. But you asked about 0:22:51.960 --> 0:22:54.639 the long term, and it is remarkable to also use 0:22:54.680 --> 0:23:00.000