WEBVTT - Surveillance: 'Screaming Buy' with Lyngen 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.720 the Bloomberg Terminal, and the Bloomberg Business App. This is 0:00:31.000 --> 0:00:33.960 the Interview of the Day on rates. Ian Lincoln is 0:00:34.000 --> 0:00:36.800 watched across all of global Wall Street. At being on 0:00:36.960 --> 0:00:42.360 capital markets, he writes incredibly terse, dense notes on the 0:00:42.479 --> 0:00:45.839 dynamics of fixed income. He joins us this morning, I 0:00:45.880 --> 0:00:48.800 got eight ways to go here, one single sentenced. Friday 0:00:49.200 --> 0:00:53.160 you call most influential jobs report of twenty. 0:00:52.600 --> 0:00:53.880 Twenty three wide. 0:00:54.360 --> 0:00:57.240 I think that the relevance of non farm payrolls on 0:00:57.280 --> 0:01:00.880 Friday simply can't be overstated. The Fed has achieved what 0:01:00.960 --> 0:01:03.600 they wanted to, at least thus far in terms of 0:01:04.080 --> 0:01:08.640 moderating CPI. Now the question is have they overshot on 0:01:08.680 --> 0:01:11.440 the jobs front. We know that jobs are cooling, We 0:01:11.560 --> 0:01:15.560 are expecting a relatively benign The consensus, I think is 0:01:15.600 --> 0:01:19.280 one seventy for headline non farm payrolls. But we do 0:01:19.400 --> 0:01:22.679 have that joltz print and the quits rate within that 0:01:22.840 --> 0:01:26.440 is very troubling. It's now down to two point three percent, 0:01:26.760 --> 0:01:31.360 which was the average between two thousand and eighteen twenty nineteen, 0:01:31.440 --> 0:01:33.600 so we're back to kind of the pre pandemic norms. 0:01:33.840 --> 0:01:36.479 So what happens for the macro outlook if we get 0:01:36.480 --> 0:01:37.800 disappointing jobs print? 0:01:37.959 --> 0:01:41.080 What concerns you most? The number or the speed the 0:01:41.160 --> 0:01:42.120 right of change? 0:01:43.120 --> 0:01:47.160 I think that if I were given the choice between 0:01:47.160 --> 0:01:49.680 the outright level and the rate of change, I would 0:01:49.680 --> 0:01:53.440 say we're in the right We're at the right pace. 0:01:53.880 --> 0:01:56.560 We're just getting to levels that are far more concerning. 0:01:56.640 --> 0:01:58.440 So I would go with not the rate of change yet, 0:01:58.480 --> 0:01:59.440 but the outright levels. 0:02:00.120 --> 0:02:02.760 And if the levels and the rate of change suggests 0:02:02.760 --> 0:02:05.320 that the Fed's work is getting closer to being more 0:02:05.360 --> 0:02:08.120 fully accomplished, obviously there's still a long way to go. 0:02:08.720 --> 0:02:12.120 The move in the two year yesterday was suggest that 0:02:12.120 --> 0:02:14.519 that has run perhaps too far. Did we see the 0:02:14.520 --> 0:02:16.720 peak already? We hit that north of five percent, stayed 0:02:16.760 --> 0:02:18.840 there for a little bit, and now we're done. 0:02:19.800 --> 0:02:21.880 So a lot of that comes down to whether or 0:02:21.960 --> 0:02:24.920 not the FED is able to avoid cutting rates throughout 0:02:24.960 --> 0:02:29.080 the first half if twenty twenty four, even potentially avoid 0:02:29.240 --> 0:02:32.720 cutting rates until the beginning of twenty and twenty five. Now, 0:02:32.800 --> 0:02:35.280 I don't expect that that will happen, but there's a 0:02:35.320 --> 0:02:38.760 contingent in the market that thinks that higher policy rates 0:02:38.800 --> 0:02:41.560 are going to be in place for the foreseeable future. 0:02:41.760 --> 0:02:43.720 And if that's the case, we're going to see two 0:02:43.760 --> 0:02:46.920 year yields back up above five percent again, which we 0:02:47.000 --> 0:02:49.799 continue to view as a pretty attractive buying opportunity. 0:02:50.000 --> 0:02:52.080 But when we're thinking about how the FED is going 0:02:52.160 --> 0:02:54.200 to be thinking about deciding whether or not to cut 0:02:54.320 --> 0:02:57.080 rates next year, is the bar for that even higher 0:02:57.120 --> 0:02:59.760 than the bar for them to hike again, given how 0:02:59.800 --> 0:03:03.240 this that has been conditioned by the mistakes it made 0:03:03.280 --> 0:03:04.040 earlier on. 0:03:04.880 --> 0:03:07.640 That's actually a great observation. What I would say is 0:03:07.919 --> 0:03:11.119 the FED has already signaled that they plan to cut 0:03:11.200 --> 0:03:13.920 rates by one hundred bases points next year, but they're 0:03:13.919 --> 0:03:17.040 going to allow the QT to run off in the 0:03:17.080 --> 0:03:20.200 background or to continue shrinking the balance sheet. And so 0:03:20.240 --> 0:03:23.600 what they're doing is they're reframing the conversation around rate 0:03:23.680 --> 0:03:26.680 cuts being a response to a slowdown and rate cuts 0:03:26.720 --> 0:03:31.160 being a recalibration closer to normal policy rates. So I 0:03:31.160 --> 0:03:33.880 think that they've given themselves a fair amount of flexibility 0:03:33.919 --> 0:03:34.560 for the year ahead. 0:03:34.840 --> 0:03:36.680 And all anybody wants to know is for you to 0:03:36.760 --> 0:03:38.960 frame the real rate. The ten year real rate we 0:03:39.000 --> 0:03:40.680 got up to two to two point zero, I've got 0:03:40.680 --> 0:03:43.040 some numbers above that, which so the real stress is 0:03:43.520 --> 0:03:46.600 bracket the real rate right now where it could come 0:03:46.640 --> 0:03:49.360 back down to that level. We're now at a one 0:03:49.360 --> 0:03:51.880 point eight, three, eight four whatever, and then bracket up. 0:03:52.000 --> 0:03:53.560 What frame that for us? 0:03:53.760 --> 0:03:56.240 If I were to put a range on ten year 0:03:56.600 --> 0:03:59.800 real yields, I would put it at one sixty five 0:04:00.000 --> 0:04:03.880 two fifteen, and that's well within what the FED wants 0:04:03.920 --> 0:04:04.240 to see. 0:04:04.320 --> 0:04:06.720 Okay, But if the two fifteen, I don't mean interpret 0:04:06.800 --> 0:04:09.320 this is so important. If we pop to a two 0:04:09.360 --> 0:04:12.320 point fifteen, what does that do to the greater American 0:04:12.360 --> 0:04:13.400 financial system? 0:04:13.560 --> 0:04:16.760 I think that's when we start to see strains in equities, 0:04:16.800 --> 0:04:21.000 in risk assets, and it becomes a much bigger burden 0:04:21.120 --> 0:04:22.880 for the overall business community. 0:04:22.960 --> 0:04:26.120 Let's put it all together. There's clear dividing line between 0:04:26.120 --> 0:04:28.520 the kind of data this FED appreciates wants to see 0:04:28.520 --> 0:04:31.880 it's objective and what you think is undesirable. And what 0:04:31.920 --> 0:04:33.760 a sense from you is that we're creeping towards the 0:04:33.800 --> 0:04:36.080 latter and moving away from the former. Now, if that's 0:04:36.080 --> 0:04:37.800 the case, isn't the ten year treasury and you'll mind 0:04:37.800 --> 0:04:39.280 a screaming by right now? 0:04:39.320 --> 0:04:41.480 The tenuere treasury, in my mind is a screaming buy. 0:04:41.839 --> 0:04:45.080 I think that from here the path forward phenomenal tenure 0:04:45.120 --> 0:04:46.960 yield is going to be lower. For two reasons. 0:04:46.960 --> 0:04:49.400 Well, slow down, I got to take notes and screaming by. 0:04:50.640 --> 0:04:55.040 For two reasons. One, the Fed's credibility is being re 0:04:55.240 --> 0:04:57.960 established as an inflation fighter, and that will put downward 0:04:57.960 --> 0:05:00.880 pressure on break evens. And one of the reasons that 0:05:00.960 --> 0:05:03.640 real yields are where they are is because break evens 0:05:03.920 --> 0:05:07.640 haven't repriced higher. Think about Jackson Hall. They're holding the 0:05:07.680 --> 0:05:11.680 two percent inflation target. They're doing everything that they can 0:05:11.839 --> 0:05:15.000 to convince the market that they're here for the long 0:05:15.040 --> 0:05:18.159 haul in the battle with inflation. So if we believe, 0:05:18.200 --> 0:05:20.760 which we do, that there is still a six to 0:05:20.839 --> 0:05:24.360 nine month lag of monetary policy actions hitting the real economy. 0:05:24.520 --> 0:05:26.440 The second half of this year is going to be 0:05:26.520 --> 0:05:30.080 pivotal for the effectiveness of what Powell has been attempting 0:05:30.120 --> 0:05:30.320 to do. 0:05:30.520 --> 0:05:32.320 So is he saying load the boat on the ninety 0:05:32.320 --> 0:05:33.320 seven year Austrian. 0:05:33.680 --> 0:05:38.880 Not quite like that. Make some money here, and I 0:05:38.920 --> 0:05:41.239 think we've got to put some numbers on it. Difficult 0:05:41.279 --> 0:05:42.719 to do, I know, but I just want to understanding 0:05:42.720 --> 0:05:44.800 a better understanding of the direction here on what you're 0:05:44.839 --> 0:05:47.440 looking for right now? North of four percent? We got 0:05:47.440 --> 0:05:49.200 through four point thirty in the last week or so. 0:05:49.440 --> 0:05:51.640 What are you thinking about three? Could I go to 0:05:51.680 --> 0:05:53.160 a two hand or what kind of numbers are you 0:05:53.200 --> 0:05:53.719 thinking about? 0:05:53.880 --> 0:05:56.200 I think that we do get ten year yields back 0:05:56.240 --> 0:05:58.800 to three percent. I don't think it happens this year. 0:05:58.880 --> 0:06:01.039 I think that that will be a first half of 0:06:01.080 --> 0:06:04.960 twenty and twenty four event. But we can easily close 0:06:05.040 --> 0:06:07.640 in a range of three fifty to three seventy five 0:06:07.680 --> 0:06:08.520 by the end of this year. 0:06:08.839 --> 0:06:11.640 And that's not just monetary policy dependent either, it's fiscal 0:06:11.680 --> 0:06:14.039 as well. Treasury still issuing a ton of debt. We 0:06:14.120 --> 0:06:16.640 have a deficit spending that we need, that we need 0:06:16.680 --> 0:06:18.560 to fund. How does that factor into this equation. 0:06:19.279 --> 0:06:22.359 I think that what primarily sets the outright level of 0:06:22.400 --> 0:06:26.719 treasury yields are the global macros of inflation and growth. 0:06:27.160 --> 0:06:31.880 The incremental supply considerations will lead to concessions in and 0:06:31.920 --> 0:06:35.800 around the events themselves. And frankly, the market knows that 0:06:35.839 --> 0:06:38.320 there's a bunch of treasury issuance coming. We have that 0:06:38.520 --> 0:06:41.920 largely priced in. The Treasury Department has been very clear 0:06:42.040 --> 0:06:45.360 in their signaling, and still we have ten year yields 0:06:45.400 --> 0:06:49.440 at four fifteen, not five point fifty. 0:06:50.360 --> 0:06:52.719 I look at this, and I just look at what 0:06:53.040 --> 0:06:56.599 will break. Torsten Slock is out this morning with a 0:06:56.640 --> 0:07:01.080 spectacular look at aling's market has changed, and there's the 0:07:01.120 --> 0:07:04.640 debt servicing costs up up, up up, But we're also 0:07:04.680 --> 0:07:07.960 making more in our coupon up up up. Mister Slock 0:07:08.120 --> 0:07:11.920 takes it back to nineteen fifty nine that this market 0:07:11.960 --> 0:07:14.040 is out of wack. Do you sense that as well, 0:07:14.360 --> 0:07:15.400 that your world's that. 0:07:15.440 --> 0:07:15.960 Out of whack. 0:07:16.560 --> 0:07:21.280 I do think that there is a significant mismatch between 0:07:21.720 --> 0:07:27.000 the primary buyers of treasuries and the incremental players. The 0:07:27.000 --> 0:07:30.120 people who are fundamentally adding treasuries, whether it's a major 0:07:30.160 --> 0:07:33.800 central bank or an institutional investor or they're really generally 0:07:33.800 --> 0:07:36.720 starting to look at these levels as attractive buying opportunities, 0:07:36.840 --> 0:07:40.480 especially once we have some degree of clarity from the 0:07:40.520 --> 0:07:45.600 monetary policy side, the incremental investor people playing for a 0:07:45.720 --> 0:07:48.440 quick two or three week trade I think are a 0:07:48.480 --> 0:07:51.280 lot more aggressive on the bears side. So there does 0:07:51.320 --> 0:07:53.680 seem to be a fair amount of mismatch. 0:07:53.960 --> 0:07:56.320 And it's going to say and I apologize, We'll run 0:07:56.360 --> 0:07:57.800 with that headline of with diapex up at words in 0:07:57.840 --> 0:08:00.240 your mouth, But then we got financial media for you 0:08:00.560 --> 0:08:02.360 ailing a female capital mouth case. 0:08:12.840 --> 0:08:15.240 He wasn't a Jackson hole. He should have been. He 0:08:15.280 --> 0:08:17.679 would have done the thirty one mile paint Bush Divide 0:08:17.960 --> 0:08:20.360 hike goes way up in the thunder there at twelve 0:08:20.360 --> 0:08:24.360 thousand feet. Doctor Carpenter darkens the door with many years 0:08:24.360 --> 0:08:27.120 of experience at the Federal Reserve System, Seth Carpenter is 0:08:27.160 --> 0:08:30.880 with Morgan Stanley. You have to Carrell Zettner when she's 0:08:30.880 --> 0:08:33.640 not in some trout stream trying to catch trout. What 0:08:33.800 --> 0:08:37.880 is the Zetner mood? Now the Morgan Stanley recession meter. 0:08:38.000 --> 0:08:39.640 Have we just discarded recession? 0:08:40.000 --> 0:08:42.600 So I wouldn't say that we've discarded it wholesale. There's 0:08:42.600 --> 0:08:44.760 always a risk. As I like to say, bad things 0:08:44.760 --> 0:08:48.000 happen to good economies all the time, Tom, But you know, 0:08:48.080 --> 0:08:50.520 since the beginning of this hiking cycle, we've tried to 0:08:50.559 --> 0:08:53.880 say a soft landing is the most likely outcome. The 0:08:53.960 --> 0:08:56.120 economy is not going to go into recession as a 0:08:56.160 --> 0:08:59.080 base case forecast. In so far that view hit has 0:08:59.160 --> 0:09:00.880 come true. I mean it was not, I have to say, 0:09:00.880 --> 0:09:03.040 the most popular view with our clients three months ago, 0:09:03.120 --> 0:09:06.360 six months ago, nine months ago. On the other hand, 0:09:06.800 --> 0:09:09.080 things haven't slowed down quite as much as we thought 0:09:09.120 --> 0:09:13.000 it would either. Mike was talking about the GDP data. 0:09:13.600 --> 0:09:16.560 The Doward revision sort of pulls things sort of along 0:09:16.600 --> 0:09:18.920 the slowing line, but it's still a pretty punchy number. 0:09:18.920 --> 0:09:21.960 Two point one percent is above I think most people's 0:09:22.080 --> 0:09:25.480 estimate of potential growth, so we still have a ways 0:09:25.520 --> 0:09:28.360 to go. We still think there's more drag from monetary 0:09:28.400 --> 0:09:32.600 policy in the pipeline, but inflation's coming down. Job growth 0:09:32.640 --> 0:09:35.120 is slow, and we'll get another print on Friday. Our 0:09:35.200 --> 0:09:40.800 number is I think around one fifty five for private payrolls, 0:09:41.200 --> 0:09:44.560 so that'll be another tick lower in terms of job demand. 0:09:44.600 --> 0:09:46.600 We saw the Jolts data that had a market reaction 0:09:46.640 --> 0:09:48.480 as well, so things are cooling off a bit, but 0:09:48.480 --> 0:09:49.200 they're not cold. 0:09:49.400 --> 0:09:53.040 The hallmark of Morgan Stanley economics is invented by Stephen 0:09:53.160 --> 0:09:56.000 Roach and Richard Berners. Everybody fights like cats and dogs. 0:09:56.080 --> 0:10:00.640 What is the point of conversation around the desk and Stanley? 0:10:00.679 --> 0:10:02.880 What's the thing everybody's arguing about? 0:10:04.040 --> 0:10:06.680 Gosh, right now, I have to say, every corner of 0:10:06.679 --> 0:10:09.800 the world has its own quirky story. I mean, I 0:10:09.800 --> 0:10:12.640 think we for us in the US, there is definitely 0:10:12.679 --> 0:10:15.160 the slow down, the soft landing, but boy, the data 0:10:15.160 --> 0:10:18.160 are surprising to the upside, in very stark contrast. On 0:10:18.200 --> 0:10:20.520 the other side of the world, I'm always in conversation 0:10:20.600 --> 0:10:23.360 with my team in Asia China. We had come into 0:10:23.400 --> 0:10:25.760 this year pretty bullish on China. The first quarter was 0:10:25.800 --> 0:10:29.280 super strong, and now things have slowed down a great deal, 0:10:29.360 --> 0:10:31.680 and so the question is when do we get enough 0:10:32.000 --> 0:10:34.360 of a policy response from Beijing to pull things back 0:10:34.360 --> 0:10:36.160 in So that's where those are two of the main 0:10:36.160 --> 0:10:37.680 topics where we're really debating. 0:10:37.920 --> 0:10:40.280 Yeah, and we've talked about China a lot in recent 0:10:40.320 --> 0:10:42.360 weeks because it just seems like piece mail, one thing 0:10:42.400 --> 0:10:45.960 after another, they're doing things to try to stimulate that economy. 0:10:46.040 --> 0:10:48.760 Just to return to your soft landing thesis and the 0:10:48.800 --> 0:10:51.360 avoidance of a recession. Are we really talking about a 0:10:51.360 --> 0:10:54.560 recession entirely avoided or one that potentially is just pushed off, 0:10:55.040 --> 0:10:57.079 just delayed further out into the future as we think 0:10:57.080 --> 0:10:59.319 about these lagged defects kicking in in a way they 0:10:59.320 --> 0:10:59.920 have not yet full. 0:11:00.760 --> 0:11:03.320 I mean, I think that still remains a key question 0:11:03.400 --> 0:11:06.440 for us. We still think it is a recession avoided. 0:11:06.480 --> 0:11:09.680 That's been our view for a long time. The troth, 0:11:09.760 --> 0:11:12.000 though in terms of economic growth, does seem like it's 0:11:12.040 --> 0:11:13.920 got pushed off a little bit. We think things will 0:11:13.920 --> 0:11:16.840 come down further from here. And there are things besides 0:11:16.920 --> 0:11:19.880 monetary policy that are a downside risk for the rest 0:11:19.880 --> 0:11:23.000 of this year. I mean student loan moratorium that has 0:11:23.240 --> 0:11:26.560 gone away. If you look at the Treasury's daily Treasury statement, 0:11:26.600 --> 0:11:28.320 you can start to see some of those inflows going. 0:11:28.360 --> 0:11:32.600 So that could weigh things down on Ellen's team. Sarah 0:11:32.679 --> 0:11:35.120 Wolf is our consumer specialist and she's been all over 0:11:35.720 --> 0:11:39.280 student loan debt repayments as a really key downside risk 0:11:39.280 --> 0:11:41.680 for the fourth quarter. So are there still risks of 0:11:41.679 --> 0:11:44.319 a recession? Absolutely, there always are, but we don't think 0:11:44.360 --> 0:11:48.000 that's the main story. That the labor market slowing, But 0:11:48.120 --> 0:11:48.880 still resilient. 0:11:49.120 --> 0:11:52.320 Yeah, in October, that's definitely going to be something of concern. 0:11:52.559 --> 0:11:54.800 Two weeks before that though, actually, just two weeks from 0:11:54.800 --> 0:11:58.160 tomorrow is when we're on watch for United Auto Workers strike. 0:11:58.240 --> 0:12:00.920 How are you thinking about the labor movement in particular 0:12:01.040 --> 0:12:03.520 the power of these unions to ask for things is audacious, 0:12:03.559 --> 0:12:06.280 to use their own words as a forty six percent payhike. 0:12:06.320 --> 0:12:08.920 What does that signal to you about still the supply 0:12:09.080 --> 0:12:10.800 issue and the ability of workers. 0:12:10.440 --> 0:12:13.839 To demand for So, I think it's definitely something that's 0:12:13.880 --> 0:12:15.480 going to matter a lot. It's going to have We 0:12:15.520 --> 0:12:18.120 already have one strike in the books, right the screen 0:12:18.160 --> 0:12:20.320 Actor's Guild and all of that, and that's going to 0:12:20.320 --> 0:12:23.840 have an influence on Friday's jobs report, and so we're 0:12:23.840 --> 0:12:26.360 going to have to try to read what the underlying 0:12:26.880 --> 0:12:28.680 trend is and data. So I think the first part 0:12:28.720 --> 0:12:30.840 of it is going to be not to be hopefully 0:12:30.880 --> 0:12:33.599 avoid being confused by swings in the data because of 0:12:34.200 --> 0:12:36.200 if there is a strike with the auto workers, what 0:12:36.200 --> 0:12:39.120 that means for the numbers. But yeah, I mean you've 0:12:39.160 --> 0:12:40.959 got a question of how long are they on strike? 0:12:41.040 --> 0:12:44.719 How much does that disrupt production? If they are we 0:12:44.800 --> 0:12:46.959 know that the auto industry was one of the last 0:12:47.000 --> 0:12:49.959 ones to be able to catch up to supply chain disruptions. 0:12:50.640 --> 0:12:52.760 Now we're starting to see auto prices fall, so it's 0:12:52.800 --> 0:12:55.680 a real mixed bag. I think we're going to be 0:12:55.720 --> 0:12:57.920 trying to watch very very closely. We're going to pull 0:12:57.920 --> 0:13:00.280 in our equities analysts who cover the auto indus tree 0:13:00.280 --> 0:13:03.760 to see sort of where production is going. But for now, 0:13:04.320 --> 0:13:06.360 you know, I don't think it's easy for us to 0:13:06.440 --> 0:13:09.240 forecast whether or not the strike will happen your Princeton. 0:13:09.600 --> 0:13:12.880 A guy named Bernanki wrote a really important paper, Bernanki 0:13:12.920 --> 0:13:16.120 Del Negro on our Star. We missed you at Jackson Hole. 0:13:16.720 --> 0:13:21.079 Give us the carpenter our star. De Should our audience 0:13:21.160 --> 0:13:25.800 pay attention to it? Or is it economic babble distraction? 0:13:26.480 --> 0:13:28.080 It's a little bit of both. I mean, it's hard 0:13:28.120 --> 0:13:31.000 to avoid the relevance of the concept of our stars. 0:13:31.040 --> 0:13:34.240 So how high is the level of interest rates that's 0:13:34.280 --> 0:13:38.120 neither stimulating the economy nor putting a drag on it. 0:13:38.160 --> 0:13:41.439 That's got to be fundamental to everything about the economy. 0:13:42.040 --> 0:13:45.120 But in real time, at any specific point in time, 0:13:45.200 --> 0:13:48.959 knowing where that is with any precision is borderline impossible. 0:13:49.040 --> 0:13:54.559 The statistical models that lots of my academic minded colleagues 0:13:54.679 --> 0:13:57.839 use are really really, really sophisticated ways of showing off 0:13:57.840 --> 0:13:59.199 how much matthe you know. But at the end of 0:13:59.200 --> 0:14:02.160 the day is all they can do is say, we 0:14:02.160 --> 0:14:04.199 know where the current level of interustrates is. Let's just 0:14:04.400 --> 0:14:07.760 look is the economy accelerating or decelerating, and then we 0:14:07.800 --> 0:14:10.240 make an inference about whether we're above or below our star. 0:14:10.559 --> 0:14:12.880 So I don't think there's a whole lot there that 0:14:12.960 --> 0:14:16.840 you can judge for sure right now. Over time, if 0:14:16.920 --> 0:14:19.600 the Fed keeps the policy rate where it is now 0:14:19.760 --> 0:14:21.800 and the economy not only doesn't slow, but it starts to 0:14:21.800 --> 0:14:23.800 accelerate a quarter from that two quarters from now, you 0:14:23.920 --> 0:14:26.880 gotta have a view. But the same thing could be 0:14:26.880 --> 0:14:30.440 said there could be extra residual push coming on from 0:14:30.440 --> 0:14:34.200 fiscal policy. That doesn't tell you anything about the permanent 0:14:34.280 --> 0:14:36.000 level of our star. That just says, right now, there's 0:14:36.000 --> 0:14:36.480 more demands. 0:14:41.360 --> 0:14:43.720 Thank you to Peter Sheer for attendance right now, Head 0:14:43.720 --> 0:14:47.880 of Macro Strategy Academy Securities. Peter, did your journey in 0:14:47.920 --> 0:14:52.840 the markets? Did it change yesterday with a Jolts report? Not? 0:14:52.960 --> 0:14:54.600 Really, It was more or less in line with what 0:14:54.640 --> 0:14:57.280 we're looking for. Is basically the FED is looking for 0:14:57.320 --> 0:14:59.440 an excuse not to height. So they're going to be 0:14:59.440 --> 0:15:01.880 looking across a broad spectrum of data, and I think 0:15:01.880 --> 0:15:04.000 the one area that's going to disappoint is jobs. I 0:15:04.000 --> 0:15:06.960 think they are going to be downward revisions. You mentioned 0:15:06.960 --> 0:15:09.160 a bunch of other parts of the Duet report yesterday. 0:15:09.400 --> 0:15:11.760 The higher's rate continues to drop down. There's been this 0:15:11.840 --> 0:15:15.560 dichotomy that the hire's rate has been off very strangely 0:15:15.640 --> 0:15:18.240 low relative to job openings. I think that's going to 0:15:18.320 --> 0:15:20.080 catch up, so it's jobs slow down. I think the 0:15:20.080 --> 0:15:22.080 Fed's going to have the excuse to do nothing. And 0:15:22.080 --> 0:15:24.280 then it's going to become a question of you know, 0:15:24.440 --> 0:15:26.800 where all the economists, including myself, we're looking for a 0:15:26.800 --> 0:15:28.440 recession this year, going to turn out to be right 0:15:28.520 --> 0:15:28.720 or not. 0:15:29.760 --> 0:15:31.800 Okay, Well, as we talk about whether or not you 0:15:31.880 --> 0:15:34.280 turn out to be right. If the job market is 0:15:34.280 --> 0:15:37.240 slowing down, if we're starting to see the growth deterioration happen, 0:15:37.400 --> 0:15:40.320 but inflation is still too far above where the Fed 0:15:40.360 --> 0:15:43.200 would like to be, which they say still is two percent, 0:15:43.520 --> 0:15:44.280 what do they do then? 0:15:45.120 --> 0:15:46.760 I think the key word is they say is still 0:15:46.760 --> 0:15:48.920 three percent. I'm not sure it's really three percent. I 0:15:48.920 --> 0:15:50.960 think they're going to be looking for excuses to delay. 0:15:51.280 --> 0:15:52.800 So I think we get ten year yields back to 0:15:52.840 --> 0:15:55.400 four percent, and then we're going to need significant either 0:15:55.760 --> 0:15:59.560 jobs data, you know, consumer sales data, real you know 0:15:59.640 --> 0:16:01.960 inflation dat again, because they're already trying to downplace some 0:16:02.000 --> 0:16:04.080 of that saying they're seeing it finally trickle into the 0:16:04.080 --> 0:16:06.520 housing market. So I don't think they do anything if 0:16:06.560 --> 0:16:07.600 they can avoid it at all. 0:16:08.080 --> 0:16:10.240 We talked about the housing market the last couple of days. 0:16:10.480 --> 0:16:13.640 Home prices in America totally distorted by the rates of 0:16:13.680 --> 0:16:16.080 the last two years of record lows and the rates 0:16:16.120 --> 0:16:19.520 more recently a two decade highs pete. Is that something 0:16:19.560 --> 0:16:23.200 they can ignore? Can they ignore the distortions of house 0:16:23.280 --> 0:16:27.160 prices given their contribution to shelter and what might be 0:16:27.240 --> 0:16:30.360 elevated inflation for maybe the next year or. 0:16:30.360 --> 0:16:33.440 So now, I think, sadly they're going to have to. Partly, 0:16:33.480 --> 0:16:35.120 this is very location based. So when you look at 0:16:35.120 --> 0:16:37.640 where the homebuilders are doing, and they've been very successful, 0:16:37.880 --> 0:16:39.960 they're building homes and areas that people are moving to, 0:16:40.080 --> 0:16:44.280 right as people continue to leave California. Maybe Illinois's Illinois 0:16:44.360 --> 0:16:46.680 moved to other states. That's what they've been able to 0:16:46.680 --> 0:16:49.240 take advantage. So I think we're seeing a very regional economy, 0:16:49.280 --> 0:16:51.560 particularly on housing. I think the FED is just going 0:16:51.640 --> 0:16:53.240 to have to give this time for people to either 0:16:53.240 --> 0:16:55.680 get forced to move, choose to move, figure out what 0:16:55.720 --> 0:16:58.840 they're going to do with their mortgage rates. So it's problematic. Again, 0:16:59.040 --> 0:17:00.720 I think this all goes back and we're not you 0:17:01.040 --> 0:17:03.720 can ham home on this. They were so slow to react. 0:17:03.760 --> 0:17:06.879 They allowed this bubble to create itself. They should have 0:17:06.880 --> 0:17:10.720 reacted much sooner, much earlier, done much more. Unfortunately we're here, 0:17:10.760 --> 0:17:12.080 so I think this is just going to take time 0:17:12.119 --> 0:17:12.520 to play out. 0:17:12.600 --> 0:17:15.959 Unfortunately, your view sounds like high for longer. Ian Lingoln 0:17:15.960 --> 0:17:18.600 of BIMO came on this program moments ago, Pete, and 0:17:18.640 --> 0:17:22.719 he said ten year treasury yield ten year treasury screaming 0:17:22.800 --> 0:17:26.000 by He thinks yield goes down to three percent. He 0:17:26.080 --> 0:17:29.199 indicated that, and these are my words I'm paraphrasing here, 0:17:29.200 --> 0:17:32.239 but ultimately Pete, his characterization of the data was this 0:17:32.280 --> 0:17:35.199 isn't desirable. Some of this is undesirable. Maybe things have 0:17:35.280 --> 0:17:38.440 gone too far. Pete, What's the counterpoint. 0:17:37.960 --> 0:17:41.360 To that one. I'm definitely worried that he could be right. 0:17:41.440 --> 0:17:42.840 So I think we get to this four percent of 0:17:42.880 --> 0:17:45.000 the tenure, I think that's good for stocks. Then I 0:17:45.000 --> 0:17:46.760 think we actually get to three point eight percent. As 0:17:46.800 --> 0:17:49.480 we start moving lower, it becomes negative for stock because 0:17:49.560 --> 0:17:52.160 people have to start repricing in is there a potential 0:17:52.200 --> 0:17:55.560 recession risk? My outlier on the inflation story is really India. 0:17:55.600 --> 0:17:57.800 I'm watching India to see if they can generate some growth, 0:17:57.840 --> 0:18:00.479 what happens with China. So if we get in I'm 0:18:00.520 --> 0:18:02.880 not really worried about domestic inflation. I think we're seeing 0:18:02.920 --> 0:18:06.080 enough slowing down both in the goods and the services market. 0:18:06.680 --> 0:18:08.879 Inflation is not going to be domestically generated. It's going 0:18:08.880 --> 0:18:11.240 to be something happens with India or China that could 0:18:11.240 --> 0:18:12.840 set us eye off that way. So I'm kind of 0:18:12.920 --> 0:18:15.639 into an inflection point right now. I'm very comfortable yields 0:18:15.640 --> 0:18:17.879 lower down below four percent good for stocks. As they 0:18:17.880 --> 0:18:19.840 go much lower weak for stocks. Then we'll see how 0:18:19.840 --> 0:18:20.680 the data plays out. 0:18:21.280 --> 0:18:26.160 Peter Overlay on this. The Geopolitical Matrix Academy is acclaimed 0:18:26.520 --> 0:18:31.480 for putting a geopolitical tinge on my investment. Is it 0:18:31.600 --> 0:18:34.200 steady as she goes? Or do I need to worry 0:18:34.359 --> 0:18:36.600 about geopolitics in the next year. 0:18:37.520 --> 0:18:39.800 You know, I think we need to worry about geopolitics. 0:18:39.920 --> 0:18:42.280 Certainly what's going on with Russia, right, Putin clearly showed 0:18:42.320 --> 0:18:44.919 his hand when he was willing to kill the person 0:18:45.320 --> 0:18:48.159 who went against him. So don't forget what's going on 0:18:48.320 --> 0:18:50.440 between Russia and Ukraine. But for us, the real story 0:18:50.480 --> 0:18:53.440 is still China, and I think people are underestimating China's 0:18:53.480 --> 0:18:56.400 desire to start selling their own goods, their own brands 0:18:56.640 --> 0:18:59.840 and possibly denominated and wand mostly to emerging markets countries. 0:19:00.000 --> 0:19:02.320 When we sit here and examine China day, they are 0:19:02.359 --> 0:19:05.199 clearly experiencing trouble. They're going to do some things to 0:19:05.240 --> 0:19:06.960 fix that, but I think it's going to have to 0:19:06.960 --> 0:19:09.120 be pushing their brands globally. 0:19:09.720 --> 0:19:12.000 Well, Peter, to your point on China, I was really 0:19:12.000 --> 0:19:13.720 struck by the research that came out in the last 0:19:13.720 --> 0:19:15.800 twenty four hours by our own team here at Bloomberg 0:19:15.840 --> 0:19:19.240