WEBVTT - Surveillance: Fed Pause with Hyman 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.720 the Bloomberg Terminal, and the Bloomberg Business App. Edward Heiman 0:00:30.800 --> 0:00:34.000 joins us today. He is vice chairman at evercoreps ISSI 0:00:34.080 --> 0:00:37.559 were thrilled that he will have an extended conversation with us, 0:00:37.560 --> 0:00:40.360 and yes, we'll get to the China call here in 0:00:40.440 --> 0:00:43.160 a bit. Edheiman, thank you so much for your generous 0:00:43.200 --> 0:00:48.760 time this morning. You say inflation is slowing significantly. David 0:00:48.880 --> 0:00:52.239 Rosenberg you knew him at Mary Lynch says inflation is 0:00:52.240 --> 0:00:56.480 slowing significantly. It's on the good side. Do you see 0:00:56.600 --> 0:01:02.400 service sector inflation slowing? Yes? I do. So. There's a 0:01:02.560 --> 0:01:05.479 Thomas It's great to be on your program. It's it's 0:01:05.480 --> 0:01:08.240 a trip program released in John. I tell you guys, 0:01:08.240 --> 0:01:14.520 it's just wonderful. But there's a PMI for services and 0:01:14.560 --> 0:01:18.080 it's dropped twenty points from seventy five to fifty five. 0:01:19.040 --> 0:01:23.080 And there are plenty of services that I think are slowing, 0:01:23.560 --> 0:01:29.280 particularly the financial services area, insurance, etc. But that's the key, 0:01:29.600 --> 0:01:34.160 is to get the measure that PAL watches to slow down. 0:01:35.360 --> 0:01:39.679 One of the big services is rents, and I'm convinced 0:01:39.720 --> 0:01:43.200 they're going to slow dramatically and maybe even go negative. 0:01:43.240 --> 0:01:47.840 For the shelter CPI. There are half a dozen measures 0:01:47.880 --> 0:01:53.000 of rents, surveys of rents, and they've all slowed significantly, 0:01:53.880 --> 0:01:57.320 if not declined, over the past nine months, and they 0:01:57.400 --> 0:02:02.320 leave the shelter CPI by about eight months. So I'm 0:02:02.360 --> 0:02:05.440 a couple of months late now on this showing up, 0:02:05.760 --> 0:02:10.679 but I think the shelter is gonna slow. And then 0:02:11.240 --> 0:02:15.639 before if you ask it, wagers are gonna slow. If 0:02:16.040 --> 0:02:19.919 if Mackenzie is laying off people, what can you say, Well, 0:02:19.919 --> 0:02:22.079 can we make news here today as ever core SI 0:02:22.240 --> 0:02:27.200 laying off people, I mean you know they may lay 0:02:27.240 --> 0:02:30.160 off me. If inflation does this slowly, that's uh, well, 0:02:30.520 --> 0:02:33.040 we've heard this in C. J. Lawrence and Julian Emmanuel 0:02:33.120 --> 0:02:35.720 be very careful here with a tough guy and Iyman 0:02:36.000 --> 0:02:38.000 and I want to cut to the chase, which is 0:02:38.000 --> 0:02:41.000 the heritage is what you've done since C. J. Lawrence. 0:02:41.000 --> 0:02:43.320 I mean it goes back to Wayne Angel. It's about 0:02:43.400 --> 0:02:47.359 monitoring M two. Is you know M two is in disrepute. 0:02:47.680 --> 0:02:50.960 Let's say over the last decade, why are you following 0:02:51.160 --> 0:02:54.600 M two and it's collapse so carefully in your research? 0:02:54.720 --> 0:02:59.600 Note So, I've met Milton Friedman when I was twenty 0:02:59.600 --> 0:03:06.920 three years old, and in the seventies he was became 0:03:06.960 --> 0:03:10.280 a rock star, and every time you had about of 0:03:10.320 --> 0:03:15.360 inflation money growth accelerated ten to fifteen percent, and so 0:03:15.400 --> 0:03:18.960 it was an easy connection in that regard. Then getting 0:03:18.960 --> 0:03:23.400 to today, bank deposits, which are eighty five percent of 0:03:23.480 --> 0:03:26.600 the mice supply, are a practical way to track it 0:03:26.840 --> 0:03:32.360 every week, and they have declined significantly. They're down about 0:03:32.360 --> 0:03:35.680 two percent now and they've declined one hundred billion in 0:03:35.720 --> 0:03:40.600 the past two weeks. This is going back to the 0:03:40.680 --> 0:03:45.280 nineteen thirties to have a situation like this. Now, we 0:03:45.400 --> 0:03:49.520 found over a decade that the mice supply might not 0:03:49.640 --> 0:03:53.040 have much of an impact if it's in a normal range, 0:03:53.120 --> 0:03:56.520 say five to ten percent. I think Margaret Thatcher found 0:03:56.560 --> 0:04:00.000 that out when she was trying to gear Monterrey Paul, 0:04:00.000 --> 0:04:03.120 I'll see with Freeman off of swings and the money supply. 0:04:03.560 --> 0:04:07.800 But last year the money supply increased almost thirty percent. 0:04:08.960 --> 0:04:12.960 The year before that, government outlays increased fifty percent, and 0:04:13.000 --> 0:04:17.720 the Fed monetized it. And now MP two last week 0:04:17.839 --> 0:04:23.600 was minus three percent, which is a ominous or significant climb, 0:04:24.360 --> 0:04:30.440 and it leads by one and two years. So you 0:04:30.480 --> 0:04:35.839 can't see it on the program you have this this morning, 0:04:35.960 --> 0:04:38.200 but it's it's coming, and I think it shows up 0:04:38.240 --> 0:04:42.280 in some of the slowdown of inflation readings we're seeing now, 0:04:42.360 --> 0:04:46.640 like container freight rates, well, natural game. This really speaks 0:04:46.680 --> 0:04:49.839 to long and variable lags. Ed this discussion around the 0:04:49.920 --> 0:04:52.720 tightening and the removal of accommodation and how long it's 0:04:52.760 --> 0:04:54.520 going to take before we start seeing it the data, 0:04:54.600 --> 0:04:56.920 and as you say, you and many others have been 0:04:56.960 --> 0:04:58.719 surprised that we are not seeing it more and that 0:04:58.720 --> 0:05:01.720 you're even seeing a re excel leration in certain inflationary 0:05:01.720 --> 0:05:05.960 reads in specific segments of the economy. What does long 0:05:06.040 --> 0:05:08.320 and variable lags look like in twenty twenty three, in 0:05:08.400 --> 0:05:11.880 an era of so many cross currents of different trends 0:05:13.160 --> 0:05:17.240 one in two years, That's that was the standard. We 0:05:17.480 --> 0:05:21.400 do a lot of standard for Milton Friedman, We've done 0:05:21.960 --> 0:05:26.960 a lot of econometric work on global short rates. They 0:05:27.040 --> 0:05:29.600 lead by one in two years, and if you'll hang 0:05:29.640 --> 0:05:34.320 on for a second. In nineteen twenty three, nineteen twenty three, 0:05:35.240 --> 0:05:38.200 John Maynard Kane sort of paper that said the mine 0:05:38.200 --> 0:05:45.200 supply leads by sixteen months. So I've not been I've 0:05:45.200 --> 0:05:47.600 been surprised, but i haven't been fighting the idea of 0:05:47.600 --> 0:05:51.120 the economy is strong now because a year ago FED 0:05:51.200 --> 0:05:58.839 funds were zero zero, QWE was in place, and the 0:05:58.960 --> 0:06:02.760 mince supply was around Yeah, you know, those are all 0:06:02.880 --> 0:06:06.479 out totally different, and so that will show up more 0:06:06.560 --> 0:06:08.680 towards the end of this year and on end of 0:06:08.720 --> 0:06:11.160 twenty twenty four. I think until we see the long 0:06:11.200 --> 0:06:14.000 and variable lags actually play out. People are talking about 0:06:14.000 --> 0:06:16.920 a no landing scenario that we possibly could avoid any 0:06:17.000 --> 0:06:19.839 kind of recession or downturn or even a significant slowdown 0:06:19.880 --> 0:06:23.240 and end up reaccelerating into a new bull market. Do 0:06:23.320 --> 0:06:26.280 you push back against that and say, look, in a year, 0:06:26.400 --> 0:06:28.680 two years, we're going to see some sort of downturn. 0:06:28.720 --> 0:06:31.760 And the longer that you have faith in this no 0:06:32.040 --> 0:06:36.960 landing scenario, the more potentially fraught. It could be on 0:06:37.040 --> 0:06:41.120 the no landing card. I mentioned long and variable lags, 0:06:41.720 --> 0:06:46.960 and they're pretty painful. Reinhart Rogue a piece in early 0:06:47.600 --> 0:06:51.560 two thousand and nine criticizing people that had moved to 0:06:51.640 --> 0:06:55.760 the view that we would have no recession, that the 0:06:55.960 --> 0:07:00.839 housing weakness would be contained and it's different time became 0:07:00.960 --> 0:07:04.880 very popular, and that's what's going to happen. That's what's 0:07:04.920 --> 0:07:09.880 happening now and will continue to happen. But I think, 0:07:10.040 --> 0:07:14.080 judging by it, will end up creating a re section 0:07:14.240 --> 0:07:17.560 for the end of this year or into twenty four. 0:07:18.080 --> 0:07:21.000 But it's going to be pretty painful. And the no 0:07:21.200 --> 0:07:23.800 landing story, I think he's looking at things right now, 0:07:24.680 --> 0:07:29.000 right now doing great well, you know with that hymen folks, 0:07:29.000 --> 0:07:31.040 and we welcome all of you on radio and television 0:07:31.160 --> 0:07:33.360 generous to be with us for this half hour. I 0:07:33.400 --> 0:07:36.080 do want to point out that there's a full econometric 0:07:36.600 --> 0:07:39.320 display in his research note, including in our square to 0:07:39.440 --> 0:07:42.000 sixty eight percent on what short rates are going to 0:07:42.040 --> 0:07:44.520 be doing. But to get out front, folks, we protect 0:07:44.520 --> 0:07:47.520 the copyright of all of our guests. Go to evercres 0:07:47.520 --> 0:07:50.040 Is side to get the ed Hyman Jack Rippi and 0:07:50.040 --> 0:07:53.720 the rest of them. Religion if you will, and Hyman, 0:07:53.800 --> 0:07:56.560 I want you to speak to those younger. They didn't 0:07:56.600 --> 0:07:59.120 read you at C. J. Lawrence. They barely know your 0:07:59.160 --> 0:08:03.800 research note over core Issi. They've never faced this rate structure, 0:08:03.880 --> 0:08:07.679 this return to a real rate. There's a whole feeling 0:08:07.840 --> 0:08:12.280 life can't go on. Explain how life goes on if 0:08:12.320 --> 0:08:17.480 we come back to a legitimate interest rate regime. It 0:08:17.520 --> 0:08:20.400 seems to me, Tom that we're already getting into an 0:08:20.480 --> 0:08:24.560 environment where life goes on because the economy is doing 0:08:24.840 --> 0:08:28.800 so well right now. I know their lags involved, but 0:08:28.920 --> 0:08:32.880 the stock market, you know, is pretty contemporaneous, and they 0:08:32.920 --> 0:08:37.360 know that rates are high, and so I think we're 0:08:37.440 --> 0:08:42.240 getting there. But it's a learning process. The FIT, I think, 0:08:42.320 --> 0:08:47.360 is doing a pretty good job of communicating what their 0:08:47.520 --> 0:08:51.040 plans are. If I was them, I would pause and 0:08:51.160 --> 0:08:54.640 see what they've gotten done so far, and then is 0:08:54.679 --> 0:08:57.280 that they need to keep going They can. It turns 0:08:57.280 --> 0:09:01.719 out they should continue to pause or cut race, and 0:09:01.760 --> 0:09:04.480 they can do through that. I would pause, given how 0:09:04.520 --> 0:09:07.520 much water's under the bridge, and iiman as we speak 0:09:07.520 --> 0:09:09.640 to you, it is images of the President of the 0:09:09.720 --> 0:09:13.120 United States meeting with a Bucharest nine. Of course, this 0:09:13.280 --> 0:09:16.680 historic moment for Eastern Europe after the President's trip to 0:09:17.000 --> 0:09:20.400 Ukraine him and I say this with immense respect, and 0:09:20.480 --> 0:09:24.040 you remember the politics that we've all faced. How do 0:09:24.120 --> 0:09:28.760 you overlay the politics of the nation into what has 0:09:28.760 --> 0:09:32.880 been a multiple decade Himan optimism. How do you take 0:09:32.880 --> 0:09:36.640 the challenges of the time of Jimmy Carter, fold them 0:09:36.640 --> 0:09:39.920 over to the time of Joe Biden and overlay them 0:09:40.040 --> 0:09:44.640 on a belief in the American economy. That's too much 0:09:44.920 --> 0:09:49.880 for this morning, But you know, I have a deep 0:09:49.920 --> 0:09:57.680 respect for democracy, and I'm a conservative, but I see 0:09:58.559 --> 0:10:01.680 a benefit in the back and forth that we have 0:10:02.040 --> 0:10:05.760 going on right now. I think it's too extreme, but 0:10:06.679 --> 0:10:10.480 it plays a role in our system, and so at 0:10:10.520 --> 0:10:14.720 the moment, I don't see it being a terrible impediment. 0:10:16.040 --> 0:10:19.480 Pal is doing what he's doing. I don't know if 0:10:19.480 --> 0:10:23.760 you have seen it, but the federal outlays are scheduled 0:10:23.800 --> 0:10:27.760 to decline about five percent this year in twenty twenty three. 0:10:28.600 --> 0:10:34.800 Now that's they went up twenty twenty nine. Does not 0:10:34.880 --> 0:10:39.680 celebrate too too much, but it is a crazy world. 0:10:40.920 --> 0:10:43.480 The parts that I find most troubling and I'm sure 0:10:43.520 --> 0:10:48.120 you do too. Is the war situation and also the 0:10:48.160 --> 0:10:54.199 situation in China, which I'm constructive on, but they definitely 0:10:55.440 --> 0:10:58.600 they have a more problematic situation politically than we do. 0:10:58.720 --> 0:11:01.040 Did you stop traffic here the last time you're on 0:11:01.720 --> 0:11:05.480 with an optimism on the China reopening, I believe you'd 0:11:05.480 --> 0:11:08.760 have adjusted real GDP. Where's your number right now on 0:11:08.840 --> 0:11:12.920 a China reopening? Is it still near six percent? We 0:11:13.000 --> 0:11:14.559 have six at the end of the end of the year. 0:11:15.520 --> 0:11:20.079 It's a complicated situation, actually a little more complicated than 0:11:20.120 --> 0:11:22.920 I expected, but we still think it's going to be 0:11:23.400 --> 0:11:29.840 very strong. They're opening up, and I've learned either the 0:11:29.880 --> 0:11:32.480 hardware the easy way. That makes a very big difference. 0:11:33.480 --> 0:11:37.079 When we had the pandemic collapse and China did. I 0:11:37.160 --> 0:11:40.560 learned from China because their GDP was minus fifty and 0:11:40.640 --> 0:11:44.080 so I was estimating minus fifty for the US, which 0:11:44.160 --> 0:11:48.600 wasn't too far off. And then we had a big 0:11:48.640 --> 0:11:54.920 rebound and GDP was something like thirty and that same 0:11:55.559 --> 0:11:57.760 China and in the US, and so they have that 0:11:57.880 --> 0:12:02.000 dynamic coming on now they reopened and it seems to 0:12:02.040 --> 0:12:06.760 be pretty successful. They've gotten through the pandemic and a 0:12:06.920 --> 0:12:09.800 very big percentage of people, very big percentage of people 0:12:09.840 --> 0:12:14.080 have had the virus, and so that they have a 0:12:14.280 --> 0:12:21.720 current immunity going on. Plus stimulus YEA working through the system. Well, 0:12:22.640 --> 0:12:24.559 how much will that actually trickle into the rest of 0:12:24.559 --> 0:12:27.640 the global economy given the increasing isolation of China, both 0:12:27.679 --> 0:12:32.199 deliberately for a more focus on nationalism versus also an 0:12:32.200 --> 0:12:35.360 isolation with respect to the fissures that we hear right 0:12:35.400 --> 0:12:39.960 now with China in Russia, Lisa, I think they'll I 0:12:40.000 --> 0:12:45.240 think they'll export, you know, once they get the factories going. 0:12:46.040 --> 0:12:50.560 I think they'll be an increased source of exports. Just 0:12:50.760 --> 0:12:59.079 recently they became the biggest exporter of vehicles, and so 0:12:59.160 --> 0:13:00.520 I think they'll do that. And I think they're going 0:13:00.600 --> 0:13:05.840 to push up commodity prices like copper, but then come 0:13:05.880 --> 0:13:10.160 in and push down finished good prices. I will say 0:13:10.160 --> 0:13:14.880 that I'm watching most closely the price of oil and 0:13:15.080 --> 0:13:19.680 that is my north star as to how China is 0:13:19.679 --> 0:13:25.360 progressing right now, and all prices which I look at 0:13:25.760 --> 0:13:31.800 Bloomberg frankly, all of the dime they're pretty quiet right now, 0:13:31.880 --> 0:13:37.160 around seventy five dollars for West Texas, and so that 0:13:37.200 --> 0:13:43.120 tells me that China hasn't gotten ripping ahead yet. I 0:13:43.440 --> 0:13:46.040 think that's coming. All prices will go up. This is 0:13:46.040 --> 0:13:48.040 incredibly important because a lot of people have come on 0:13:48.080 --> 0:13:51.360 this program at and said that the oil is incredibly 0:13:51.440 --> 0:13:53.920 muddied in terms of the price signal, given the fact 0:13:53.960 --> 0:13:56.320 that people are changing to renewables, given the fact that 0:13:56.400 --> 0:14:00.240 China has increased domestic production of wind of soul, of 0:14:00.280 --> 0:14:03.600 even using coal, or exporting or importing some of the 0:14:03.800 --> 0:14:06.680 materials from Australia. Are you saying that that's not true 0:14:06.800 --> 0:14:10.400 that oil is the cleanest read on what's happening with China. 0:14:10.520 --> 0:14:13.120 I think that's a fair point. I think it's an 0:14:13.160 --> 0:14:18.080 excellent point. And on the price of oil, it's just 0:14:18.120 --> 0:14:22.280 to pick one commodity price. If things like what you're 0:14:22.320 --> 0:14:27.360 mentioning are true for a number of commodity prices, it 0:14:27.480 --> 0:14:31.280 could feed into my wrong view that inflation is going 0:14:31.320 --> 0:14:34.920 to be less than what people expect. Not to mention 0:14:34.960 --> 0:14:37.840 the fact that the money supply is contracted, but I 0:14:37.880 --> 0:14:43.160 think some of these technological advances that you mentioned, could 0:14:43.600 --> 0:14:46.920 you know, put dour pressure on some commodities. Now a 0:14:47.240 --> 0:14:50.320 money like copper is right in the middle of the 0:14:50.480 --> 0:14:56.280 technology advances. You need to copper wires to make the 0:14:56.320 --> 0:15:00.760 technologies work. But some other commodities, I mean watching natural 0:15:00.800 --> 0:15:04.280 gas and you can see making new lows, both in 0:15:04.320 --> 0:15:07.880 Europe and in the US, and you can see when 0:15:07.880 --> 0:15:14.200 that happens. It really helps economic activity on a current basis, right, 0:15:14.320 --> 0:15:18.600 particularly Europe. But I think it's also working a little 0:15:18.600 --> 0:15:22.440 bit here. I mean, I understand that you know, once 0:15:22.480 --> 0:15:25.520 a week, maybe once a quarter, you read Julian Emmanuel's 0:15:25.520 --> 0:15:29.800 work at evercore is SI. But let's dovetail the stock market, 0:15:29.800 --> 0:15:35.600 the equity market, and ownership of American equities into your economics. 0:15:36.000 --> 0:15:38.240 With all of this said, are we at a point 0:15:38.280 --> 0:15:41.520 of nineteen seventy five or maybe the great bull market 0:15:41.520 --> 0:15:45.480 of nineteen eighty two, where corporations like they did then, 0:15:45.960 --> 0:15:52.560 will adapt and adjust and prosper well. First, we have 0:15:52.600 --> 0:15:59.680 an open office architecture. I learned this from Michael Bloomberg. 0:16:02.800 --> 0:16:07.480 This is when you were on Park Avenue, and so 0:16:07.560 --> 0:16:10.760 we have. And so I am cursed with the fact 0:16:10.760 --> 0:16:14.080 that Julian sits right next to me, So I have 0:16:14.120 --> 0:16:15.800 to put one up with the guy all the time. 0:16:16.680 --> 0:16:19.040 But he is he is terrific and thinks the world 0:16:19.200 --> 0:16:25.600 of all three of you. But on the current picture, 0:16:26.960 --> 0:16:31.960 my view is that inflation is the key. The FED 0:16:32.280 --> 0:16:37.720 is going to keep tightening until either the economy slows 0:16:38.640 --> 0:16:45.440 or inflation slows significantly. And I think the inflation is 0:16:45.440 --> 0:16:48.560 slowing more than the FED things. And a year ago, 0:16:48.640 --> 0:16:55.800 if I may say, I was pretty agitated that transitory 0:16:56.160 --> 0:17:00.840 was the wrong idea. Inflation was going up everywhere, every 0:17:00.840 --> 0:17:02.960 place I looked at was going up, and the FED 0:17:03.080 --> 0:17:07.280 kept saying transitory and they kept rate to zero. And 0:17:07.440 --> 0:17:12.360 now I see inflation coming down in most places. Unfortunately, 0:17:13.359 --> 0:17:16.399 it's not coming down in the most visible places that 0:17:16.520 --> 0:17:20.280 the FED looks at, like the consumer Price Index or 0:17:20.400 --> 0:17:24.400 the PC. But as a student of this, I see 0:17:24.400 --> 0:17:27.800 it coming down in so many places underneath the surface, 0:17:29.359 --> 0:17:32.360 in the real world, if you will, and I think 0:17:32.400 --> 0:17:35.760 inflation is going to keep coming down, I think it 0:17:35.760 --> 0:17:39.560 could undershoot the FIDS target two. Ed Hyman, thank you 0:17:39.600 --> 0:17:41.520 so much for this half hour. Generous of you to 0:17:41.560 --> 0:17:53.040 be with us. Edward Hyman is ever court I side. 0:17:54.960 --> 0:17:57.439 Let's talk about how stale these FED minutes A So 0:17:57.520 --> 0:18:00.160 that FED meeting was at the start of February. Since then, 0:18:00.560 --> 0:18:03.600 when chem and Pou said the disinflationary process has started. 0:18:03.680 --> 0:18:07.159 We've had payrolls at five hundred and seventeen thousand, unemployment 0:18:07.160 --> 0:18:09.800 at three point four percent, big jump in the ICEM 0:18:09.920 --> 0:18:12.399 Service s Index for the month of January. CPI not 0:18:12.480 --> 0:18:15.320 dropping as quickly as people hoped for. PPI delivering an 0:18:15.359 --> 0:18:18.719 upside surprise retail sales with a three hand tool. And 0:18:18.760 --> 0:18:20.600 then we've got a first look at February with a 0:18:20.680 --> 0:18:24.080 PMI yesterday improven as well. Jeff you joins us right 0:18:24.119 --> 0:18:26.000 now of Bmy Melon and Jeff, I guess I'm going 0:18:26.040 --> 0:18:28.120 to lead with a question I've already answered, just how 0:18:28.119 --> 0:18:31.399 stared at these minutes they applied sale not just in 0:18:31.480 --> 0:18:34.080 domestic sense, but in the international sense as well. Look 0:18:34.080 --> 0:18:37.800 at what's going on globally. Your services m I wrong 0:18:37.840 --> 0:18:40.879 in the UK, in the Eurozone went forth for Jeremy 0:18:40.960 --> 0:18:43.280 Hunt deer chancefer that. So are we going to look 0:18:43.280 --> 0:18:46.080 at fistal similars in our Europe? And that's one trade 0:18:46.080 --> 0:18:48.760 side which the US is it's supposed to what'sover in China. 0:18:49.000 --> 0:18:51.240 So now not just a mestic side. Are strong for 0:18:51.280 --> 0:18:53.960 the US economy, You're looking at an external lift as well. 0:18:54.359 --> 0:18:56.320 So going back to the point made earlier, so higher 0:18:56.400 --> 0:18:58.399 rates the price of the great wi have to be 0:18:58.440 --> 0:19:00.720 a price. Why isn't it something to sell rate? And 0:19:00.840 --> 0:19:02.800 Jeff you I look at this in your student of 0:19:02.920 --> 0:19:07.560 history and this as well OMG rates. Higher inflation, if 0:19:07.600 --> 0:19:13.119 not higher, at least inflation or disinflation sustain. And the 0:19:13.280 --> 0:19:16.800 basic simplistic thought is the world will come to an 0:19:16.920 --> 0:19:19.080 end as we know it. There will not be revenues, 0:19:19.080 --> 0:19:21.840 there will not be earnings. Life won't go on, And 0:19:21.960 --> 0:19:25.040 yet history says the complete opposite. How do we come 0:19:25.160 --> 0:19:28.679 people down that life will go on? Well, well, I 0:19:28.720 --> 0:19:30.600 think they're going to need to look at the margins. 0:19:30.640 --> 0:19:32.399 They're going to have to look at earnings. So maybe 0:19:32.520 --> 0:19:35.080 a couple of weeks ago the spot by Dob Losses 0:19:35.119 --> 0:19:38.520 and the tech sector thists talk about a margin recession 0:19:38.760 --> 0:19:40.440 a bit more so on the top line. But again 0:19:40.520 --> 0:19:42.399 let's just look at what under line demanders. Look at 0:19:42.400 --> 0:19:44.919 the at receipts in the UK and Europe, they are rising. 0:19:45.119 --> 0:19:48.760 People are spending on the continent normally where people are savers, 0:19:48.880 --> 0:19:50.840 they are starting to spend a Seeing that energy bills 0:19:50.840 --> 0:19:53.640 starting to come down, they saved for very high energy 0:19:53.680 --> 0:19:56.080 bills in an oil above a hundred, but now it's 0:19:56.119 --> 0:19:58.040 not come to that, so maybe they can use in 0:19:58.080 --> 0:20:00.679 their purse springs again. So let's look at earnings upside 0:20:00.680 --> 0:20:03.679 surprises that will probably calm people down. Jeff. If you 0:20:03.720 --> 0:20:05.359 take the j unfair of view of the world and 0:20:05.440 --> 0:20:07.720 you create your ear a head outlook on March thirty first, 0:20:08.000 --> 0:20:10.399 how would you reshape it right now? Based on what 0:20:10.440 --> 0:20:12.240 people were going into the year of feeling that there 0:20:12.280 --> 0:20:14.800 could be some sort of softness the first half, then 0:20:14.920 --> 0:20:16.679 a real strength in the back half. Now people have 0:20:16.680 --> 0:20:20.080 adjusted to real weakness in the first real strength in 0:20:20.119 --> 0:20:22.280 the first half, and weakness in the second half. Where 0:20:22.320 --> 0:20:26.359 do you land? So I would still land on no recession, 0:20:26.520 --> 0:20:28.159 and we were skepticaled that there was going to be 0:20:28.160 --> 0:20:30.359 a chance of a heavy recession in the first place, 0:20:30.359 --> 0:20:33.640 and certainly at a higher level for longer. It's probably 0:20:33.680 --> 0:20:36.080 not in the camp of Oh, let's think about above 0:20:36.200 --> 0:20:39.639 six percent or something wild along those lines. Is trend 0:20:39.680 --> 0:20:42.480 growth in the US or globally higher than where we 0:20:42.480 --> 0:20:44.720 were fifteen to twenty years ago. Absolutely not. So no 0:20:44.800 --> 0:20:46.760 gravity will come to play a role at some point, 0:20:46.800 --> 0:20:48.720 but we have to land in a place where it's 0:20:49.280 --> 0:20:52.560 real rates or longer and asset allocation we'll have to 0:20:52.600 --> 0:20:55.520 follow when I'm following right now. Also cash on the sidelines, 0:20:55.640 --> 0:20:57.560 money has to be put at work. Where is it 0:20:57.600 --> 0:20:59.240 going to go? I still don't think it's going to 0:20:59.280 --> 0:21:01.560 be in the dollar, because most people own that already. 0:21:01.640 --> 0:21:04.280 Will Jeff, let's put it all together. I said the Barclays. 0:21:04.280 --> 0:21:07.200 It's said the higher yield, higher rates at a price 0:21:07.240 --> 0:21:08.800 to pay for better growth. And you said, why is 0:21:08.840 --> 0:21:11.480 that a price? That's something we should celebrate any you 0:21:11.560 --> 0:21:14.920 celebrate it. Well if you have an Europe for example, 0:21:14.960 --> 0:21:17.359 if you look at pace like Switzerland right, which has 0:21:17.400 --> 0:21:20.399 struggled with unlow rates for a long time, and we 0:21:20.400 --> 0:21:22.520 discussed this a couple of months ago, you know, suddenly 0:21:22.560 --> 0:21:25.680 the financial services industry there will be able to offer 0:21:25.760 --> 0:21:27.959 yields and to actually keep money on shore as well. 0:21:28.000 --> 0:21:30.480 So this is going to change the flow dynamic whereby 0:21:30.520 --> 0:21:34.359 everyone blindly chasing yield, sometimes not of the dubious credit quality. 0:21:34.400 --> 0:21:36.960 I might add, you can now look for the better 0:21:37.080 --> 0:21:40.760 gems out there, stay onshore in particularly savings heavy's economies, 0:21:40.840 --> 0:21:44.080 and then domestic productivity, because higher yield means there are 0:21:44.119 --> 0:21:47.399 rather higher returns domestically to generate that as well. So 0:21:47.440 --> 0:21:49.760 I would see this as a good thing, but as allocation, 0:21:49.960 --> 0:21:51.720 they need to just go with an you play book. 0:21:51.800 --> 0:21:55.359 I'm a simple man. Does that mean by banks? Well, 0:21:55.400 --> 0:21:58.760 if we look at our high folcus flows financials both 0:21:58.800 --> 0:22:03.000 in emerging markets and developed markets, financials the most sold 0:22:03.040 --> 0:22:06.000 sector globally, full stop, right, And that's what's telling me 0:22:06.080 --> 0:22:08.960 is we have high front end yields, high funding costs, 0:22:09.000 --> 0:22:12.479 but there's no loan demand out there. That's the missing link, right, 0:22:12.960 --> 0:22:14.960 go back to Tom Leis to talk about the velocity 0:22:14.960 --> 0:22:17.439 of money that has not picked up because people are 0:22:17.440 --> 0:22:20.800 still scared. But if we see a consumer demand and 0:22:20.960 --> 0:22:23.960 further analyte industrial demand out there, then banks can start 0:22:24.000 --> 0:22:26.040 to lend. There will be a margin, but that is 0:22:26.080 --> 0:22:27.920 where the opportunity is going to be given the amount 0:22:27.920 --> 0:22:30.280 of setting we've seen. Hey, Jeff, this was fun. As always. 0:22:30.280 --> 0:22:32.280 It's going to hatch up, Jeff. You there a senior 0:22:32.280 --> 0:22:40.240 amount strategist over at bmy melon driving forward right now 0:22:40.240 --> 0:22:42.399 and this is a joy. Emrida send all of these 0:22:42.440 --> 0:22:44.680 strategists fools take a different view. And what I love 0:22:44.680 --> 0:22:48.000 about Amrita send half of maybe Jeff Curry and as 0:22:48.040 --> 0:22:51.280 microeconomics at Chicago. She really looks at the dynamics of 0:22:51.440 --> 0:22:54.000 supply and demand. Co founder and head of research in 0:22:54.240 --> 0:22:57.920 Energy Aspects in London and reader as simple as I can, 0:22:58.000 --> 0:23:01.040 and I don't need a central theorem lesson, but what's 0:23:01.040 --> 0:23:04.479 a correlation of your world right now to the stack 0:23:04.560 --> 0:23:09.960 in bond upset we're living, how does crude correlate? Great question, Tom, 0:23:10.000 --> 0:23:12.600 and as always, thank you for having me. Always a pleasure. 0:23:13.240 --> 0:23:15.119 I mean, look, I think part of the problem is 0:23:15.320 --> 0:23:19.359 crude oil specific fundamentals are not particularly strong. We've built 0:23:19.359 --> 0:23:23.120 a ton of infantries, We've had bad weather, we've obviously 0:23:23.160 --> 0:23:26.080 had we do have right now a lot of refinery maintenance. 0:23:26.080 --> 0:23:29.359 And that's why right now crude is pretty much at 0:23:29.359 --> 0:23:32.320 the mercy off exactly like you're saying, the bonds and 0:23:32.359 --> 0:23:35.440 the equity markets, and this is why the six sessions 0:23:35.440 --> 0:23:37.720 we've seen that's been trending lower. And this is something 0:23:37.800 --> 0:23:40.679 we call for just recently as well, that crude is 0:23:40.720 --> 0:23:43.480 probably going to be at the mercy off macro headlines 0:23:43.520 --> 0:23:46.080 and by the way, now even good news is bad news. 0:23:46.160 --> 0:23:48.400 You would think, oh, strong labor market in the US 0:23:48.600 --> 0:23:51.960 is actually really bullish for gasoline demand. But guess what, No, 0:23:51.960 --> 0:23:54.360 now the fears that means effects going to raise interest rates? 0:23:54.400 --> 0:23:57.160 What does it mean for the future of the US economy. 0:23:57.240 --> 0:24:01.480 So it is very, very problematic for crude until fundamentals 0:24:01.480 --> 0:24:04.000 pick up. Well, when the fundamentals pick up, we do 0:24:04.119 --> 0:24:06.960 have China reopening. What is your ex excess on the 0:24:07.119 --> 0:24:10.240 China reopening? Are you waiting for May or are you 0:24:10.280 --> 0:24:14.959 waiting for May of twenty twenty four. No, I'd say 0:24:15.000 --> 0:24:17.000 May of this year. We've got a million barrels per 0:24:17.040 --> 0:24:19.760 day baked into our numbers of Chinese demand growth. I 0:24:19.760 --> 0:24:22.119 think the problem, of course, is that China again just 0:24:22.200 --> 0:24:24.720 coming out of the lunar New York holidays, that it 0:24:24.800 --> 0:24:27.600 too has maintenance. Look, we are hearing right now of 0:24:27.640 --> 0:24:30.760 potentially very low Chinese product exports coming out in March. 0:24:30.800 --> 0:24:33.719 We need to confirm that it's still very early stages. 0:24:33.760 --> 0:24:35.680 Will be the very first sign that he has domestic 0:24:35.680 --> 0:24:38.600 demand is strong. It will take a little bit of 0:24:38.640 --> 0:24:41.360 time for this to percolate through. I would say right 0:24:41.400 --> 0:24:44.439