1
00:00:05,120 --> 00:00:09,200
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along

2
00:00:09,200 --> 00:00:13,080
Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jailey. We bring

3
00:00:13,119 --> 00:00:17,119
Speaker 1: you insight from the best an economics, finance, investment, and

4
00:00:17,239 --> 00:00:23,320
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

5
00:00:23,360 --> 00:00:30,280
Speaker 1: dot Com, and of course on the Bloomberg Terminal. Joining

6
00:00:30,320 --> 00:00:33,000
Speaker 1: us now, Christian Miller Glissman, Manager Downright Death for portfolio

7
00:00:33,080 --> 00:00:38,160
Speaker 1: Strategy at Gilment SAX. Christian, is this a bubble burst? Think? Listen?

8
00:00:38,280 --> 00:00:41,520
Speaker 1: I think, Um, you definitely are dealing with a significant evaluation.

9
00:00:41,600 --> 00:00:44,479
Speaker 1: We set here, There's no doubt about it, and to

10
00:00:44,640 --> 00:00:47,800
Speaker 1: some extent that that was in the making. You remember

11
00:00:47,840 --> 00:00:50,120
Speaker 1: we spoke about it a few months ago, Um, and

12
00:00:50,159 --> 00:00:53,960
Speaker 1: we wrote about it in all balanced air research. Unfortunately,

13
00:00:53,960 --> 00:00:57,320
Speaker 1: coming out of COVID, you had this constellation of both

14
00:00:57,360 --> 00:01:01,480
Speaker 1: bonds and equities being incredibly expensive. It and now you're

15
00:01:01,680 --> 00:01:05,880
Speaker 1: entering into a very challenging growth inflation mix where I

16
00:01:05,959 --> 00:01:08,920
Speaker 1: think inflation is sticky, growth is decelerating, and I think

17
00:01:08,920 --> 00:01:12,640
Speaker 1: the market is now de rating those valuations. And as

18
00:01:12,640 --> 00:01:15,160
Speaker 1: you were saying, in particular in the markets where I

19
00:01:15,200 --> 00:01:18,600
Speaker 1: guess the uncertainty on the growth and all the earnings

20
00:01:18,720 --> 00:01:22,720
Speaker 1: is the highest or long duration tech more recently, UM

21
00:01:22,760 --> 00:01:25,399
Speaker 1: and before that sickly consverse defenses. I think they've also

22
00:01:25,480 --> 00:01:28,800
Speaker 1: been derated materially. How far along in this de rate

23
00:01:28,880 --> 00:01:33,080
Speaker 1: in Christian are we always tough to say, because if

24
00:01:33,080 --> 00:01:37,000
Speaker 1: you look at valuations compared to the average since the nineties,

25
00:01:37,400 --> 00:01:39,800
Speaker 1: where we're moving below that average now, but we know

26
00:01:39,880 --> 00:01:42,240
Speaker 1: we're not in the nineties anymore. I think we're dealing

27
00:01:42,280 --> 00:01:46,720
Speaker 1: with much higher inflation, much higher inflation volatility, a very

28
00:01:46,760 --> 00:01:50,840
Speaker 1: different uncertainty on monetary policy, and even the growth picture

29
00:01:50,840 --> 00:01:54,280
Speaker 1: I think has certain uncertainties which are maybe more tactical

30
00:01:54,320 --> 00:01:57,680
Speaker 1: in nature with Russia, Ukraine and China. But I think

31
00:01:57,680 --> 00:02:00,600
Speaker 1: there's also some structural questions with us to what's the

32
00:02:00,640 --> 00:02:03,560
Speaker 1: next growth engine. So you could argue that the valuation

33
00:02:03,680 --> 00:02:07,640
Speaker 1: d rating could continue. But what I would say though, is,

34
00:02:07,720 --> 00:02:10,320
Speaker 1: and I think John mentioned that earlier, I think we

35
00:02:10,400 --> 00:02:14,000
Speaker 1: start to see the peak a bit in the bomb yields,

36
00:02:14,040 --> 00:02:16,920
Speaker 1: and we we we also have seen tentative signs of

37
00:02:17,000 --> 00:02:19,760
Speaker 1: the peak and inflation, and we might shift from a

38
00:02:19,840 --> 00:02:23,920
Speaker 1: high end rising inflation regime to something where inflation maybe

39
00:02:23,960 --> 00:02:26,640
Speaker 1: is starting to decline, so that could start to to

40
00:02:26,720 --> 00:02:30,280
Speaker 1: stabilize things a bit. Hopefully we didn't disrupt anything too

41
00:02:30,360 --> 00:02:32,960
Speaker 1: much and anyone's calling from the compliance department to say

42
00:02:33,480 --> 00:02:36,360
Speaker 1: please think he cleared it perfectly, see the bumble, and

43
00:02:36,360 --> 00:02:39,960
Speaker 1: he said it's evaluation re rent ratings. That's that's how

44
00:02:40,000 --> 00:02:42,040
Speaker 1: you do this diplomatically, all right, so that we didn't

45
00:02:42,080 --> 00:02:46,240
Speaker 1: necessarily get the DJ in charge to call and get complain.

46
00:02:46,320 --> 00:02:48,519
Speaker 1: I am wondering what the opportunities are that might be

47
00:02:48,560 --> 00:02:52,000
Speaker 1: emerging if the D rating has been uneven or perhaps

48
00:02:52,000 --> 00:02:54,280
Speaker 1: have he handed Do you see any opportunities or do

49
00:02:54,320 --> 00:02:57,160
Speaker 1: you think that at this point hiding out in treasuries,

50
00:02:57,200 --> 00:02:59,400
Speaker 1: in duration, in the dollar seems to be a better

51
00:02:59,400 --> 00:03:02,320
Speaker 1: bet and just go at the flow, listen. I think

52
00:03:02,400 --> 00:03:05,239
Speaker 1: near term we might easily be stuck a bit longer

53
00:03:05,320 --> 00:03:07,359
Speaker 1: in a in a fat and flat range. As as

54
00:03:07,360 --> 00:03:09,880
Speaker 1: we've been saying, the range is getting fatter and flatter,

55
00:03:10,000 --> 00:03:12,640
Speaker 1: if you know what I mean. Sort of volatility definitely

56
00:03:12,639 --> 00:03:16,040
Speaker 1: has been a bit larger. Positioning and sentiment is getting

57
00:03:16,040 --> 00:03:19,720
Speaker 1: more bearish as we speak, and that creates a symmetry

58
00:03:19,760 --> 00:03:23,480
Speaker 1: that creates opportunities. But you still need to find momentum.

59
00:03:23,720 --> 00:03:26,560
Speaker 1: Like a good trade, a good investment thesis is always

60
00:03:26,600 --> 00:03:30,400
Speaker 1: built on gooder symmetry, kind of more upside and downside

61
00:03:30,520 --> 00:03:33,440
Speaker 1: and and and good momentum. And I think right now

62
00:03:33,639 --> 00:03:36,280
Speaker 1: you have to be very selective in picking those battles.

63
00:03:36,440 --> 00:03:39,240
Speaker 1: I think we've been very focused on real assets UM,

64
00:03:39,320 --> 00:03:43,480
Speaker 1: and I think opportunities related to that UM. I think

65
00:03:43,520 --> 00:03:46,720
Speaker 1: clearly commodities are pretty high up in that range, and

66
00:03:46,800 --> 00:03:51,040
Speaker 1: commodity related assets. Infrastructure is a very interesting real asset

67
00:03:51,080 --> 00:03:54,200
Speaker 1: because it doesn't do only well when inflation is high.

68
00:03:54,520 --> 00:03:56,960
Speaker 1: It also does well when inflation is high and falling.

69
00:03:57,680 --> 00:04:00,240
Speaker 1: But I think clearly what we need to engage with

70
00:04:00,320 --> 00:04:02,600
Speaker 1: in the next six to twelve months as we kind

71
00:04:02,600 --> 00:04:05,280
Speaker 1: of look a bit forward, is to really add risk

72
00:04:05,760 --> 00:04:08,640
Speaker 1: UM and eventually at cyclical risk, because that's where the

73
00:04:08,680 --> 00:04:11,320
Speaker 1: market is getting the most bearish. So you can think

74
00:04:11,360 --> 00:04:15,840
Speaker 1: about at some point a capic cycle driving selective opportunities.

75
00:04:15,920 --> 00:04:19,120
Speaker 1: You can think about kind of even places that are

76
00:04:19,160 --> 00:04:23,159
Speaker 1: linked to the consumer discretionary spending, which are clearly a

77
00:04:23,160 --> 00:04:28,080
Speaker 1: lot under pressure. Eventually they would prevent provide good asymmetries. Well, Christian,

78
00:04:28,200 --> 00:04:31,000
Speaker 1: as you say these things, and as John Lisa and

79
00:04:31,040 --> 00:04:33,560
Speaker 1: I have been talking about the brutal action we have

80
00:04:33,600 --> 00:04:35,599
Speaker 1: seen in the market. Someone writing into me on Twitter

81
00:04:35,680 --> 00:04:37,479
Speaker 1: that the three of you make me want to crawl

82
00:04:37,560 --> 00:04:39,599
Speaker 1: up in a ball, crawl up into a ball and

83
00:04:39,640 --> 00:04:41,320
Speaker 1: cry this morning. And I'm sure there are a lot

84
00:04:41,360 --> 00:04:43,960
Speaker 1: of people out there who are feeling that way. For

85
00:04:44,000 --> 00:04:46,160
Speaker 1: those people who just want to pull their money out

86
00:04:46,160 --> 00:04:48,000
Speaker 1: of the market and go into cash, what would you

87
00:04:48,040 --> 00:04:50,320
Speaker 1: advise them about how much cash you want to hold

88
00:04:50,360 --> 00:04:53,520
Speaker 1: now to redeploy when those opportunities you just were talking

89
00:04:53,520 --> 00:04:57,280
Speaker 1: about present themselves. Yeah, I mean, this is a very

90
00:04:57,279 --> 00:05:00,040
Speaker 1: tough thing to generalize because it depends on each a

91
00:05:00,080 --> 00:05:03,159
Speaker 1: visual investor, the circumstances, you know it, like the risk

92
00:05:03,200 --> 00:05:06,080
Speaker 1: tolerance and and and these type of things. But I

93
00:05:06,120 --> 00:05:09,720
Speaker 1: think we've been overweight cash since the beginning of the year,

94
00:05:09,920 --> 00:05:13,359
Speaker 1: and and I think I'm not saying that there's not

95
00:05:13,480 --> 00:05:17,880
Speaker 1: opportunities emerging for medium term investors, but I do feel

96
00:05:18,080 --> 00:05:21,159
Speaker 1: a decent cash allocation still makes sense. I think to

97
00:05:21,279 --> 00:05:24,280
Speaker 1: your point, Um, I think bonds are starting to buffer

98
00:05:24,400 --> 00:05:26,839
Speaker 1: a bit, so you could argue that if you're really

99
00:05:26,880 --> 00:05:30,560
Speaker 1: worried about a recession, um kind of starting to introduce

100
00:05:30,640 --> 00:05:33,839
Speaker 1: duration risk via bonds back in the portfolio might make sense.

101
00:05:34,120 --> 00:05:37,560
Speaker 1: But what we've been saying is that duration to some

102
00:05:37,640 --> 00:05:39,520
Speaker 1: extent is not a buffer right now. It's a risk.

103
00:05:39,880 --> 00:05:42,160
Speaker 1: So it really depends on on what you own right now.

104
00:05:42,200 --> 00:05:45,640
Speaker 1: If you own long duration assets, I think adding duration

105
00:05:45,640 --> 00:05:48,839
Speaker 1: back in the portfolio probably doesn't make much sense. So

106
00:05:48,839 --> 00:05:52,359
Speaker 1: I think a decent cash allocation makes sense. Real assets

107
00:05:52,720 --> 00:05:55,120
Speaker 1: UM kind of assets that that can protect you from

108
00:05:55,160 --> 00:05:58,960
Speaker 1: the basement. If your dollar investment a Dollar investor, that's

109
00:05:58,960 --> 00:06:02,120
Speaker 1: been difficult because the dollar has been the key safe asset.

110
00:06:02,360 --> 00:06:05,320
Speaker 1: But if you are a non US investor, UM, clearly

111
00:06:05,320 --> 00:06:09,000
Speaker 1: the dollar still has that characteristic that currently it's protecting

112
00:06:09,400 --> 00:06:12,599
Speaker 1: UM kind of purchasing power as the fetus fighting inflation.

113
00:06:12,800 --> 00:06:15,160
Speaker 1: Christian brilliant work has always made Thanks for being on

114
00:06:15,160 --> 00:06:22,920
Speaker 1: with this, Christian Miliklasman there of government sex. Gabrielle Santos Get,

115
00:06:22,920 --> 00:06:25,880
Speaker 1: a global market strategist of jpmwork in Assets Strategy Management,

116
00:06:25,960 --> 00:06:28,880
Speaker 1: is joining us now. Gabriella, what will give you the

117
00:06:28,960 --> 00:06:31,680
Speaker 1: conviction to go in there and say this is it,

118
00:06:31,960 --> 00:06:34,680
Speaker 1: this is the washout? We can start to buy at

119
00:06:34,720 --> 00:06:37,680
Speaker 1: least I think the issues we have three things happening

120
00:06:37,760 --> 00:06:41,000
Speaker 1: at the same time, there's this growth conundrum with investors

121
00:06:41,000 --> 00:06:43,720
Speaker 1: trying to figure out which is the most likely path

122
00:06:43,839 --> 00:06:46,280
Speaker 1: from here. Is it a soft landing, is it a recession,

123
00:06:46,360 --> 00:06:49,000
Speaker 1: is its stagflation. But you add on to that a

124
00:06:49,120 --> 00:06:52,800
Speaker 1: correction of the excesses that we've built up over the

125
00:06:52,880 --> 00:06:56,920
Speaker 1: last four years and amplified by a third factor, which

126
00:06:57,000 --> 00:07:01,520
Speaker 1: was very low liquidity in both equities and fixed income markets.

127
00:07:01,560 --> 00:07:03,840
Speaker 1: So I think at the moment we've seen a big

128
00:07:03,880 --> 00:07:07,960
Speaker 1: correction and valuations. We've seen nearly a twenty percent contraction

129
00:07:08,560 --> 00:07:11,360
Speaker 1: in the multiple with the SMP five now trading at

130
00:07:11,440 --> 00:07:15,320
Speaker 1: average valuations, But you still have very low conviction from

131
00:07:15,320 --> 00:07:19,680
Speaker 1: investors to really truly believe this is um the end

132
00:07:19,720 --> 00:07:23,160
Speaker 1: because you still have all of these uncertainties. So what

133
00:07:23,200 --> 00:07:25,360
Speaker 1: do we need to see? I think you specially need

134
00:07:25,520 --> 00:07:29,280
Speaker 1: a bigger conviction on that growth scenario front. So you

135
00:07:29,320 --> 00:07:32,960
Speaker 1: do need to see peak uh in housing costs, You

136
00:07:33,000 --> 00:07:36,680
Speaker 1: need to see peak sanctions towards Russia to feel more

137
00:07:36,680 --> 00:07:39,920
Speaker 1: comfortable about commodity prices, and you need to see peak

138
00:07:40,000 --> 00:07:43,080
Speaker 1: lockdowns in China to feel more comfortable about the growth

139
00:07:43,120 --> 00:07:47,000
Speaker 1: outlook there. Gabriella, you talked about liquidity concerns the fact

140
00:07:47,000 --> 00:07:49,360
Speaker 1: that there is such little liquidity. You talked about the

141
00:07:49,360 --> 00:07:53,200
Speaker 1: froth in markets that's getting beaten out by the readjustment

142
00:07:53,280 --> 00:07:56,880
Speaker 1: in valuations. Are you starting to worry about financial market conditions,

143
00:07:56,920 --> 00:07:59,480
Speaker 1: about the functioning of the basic nuts and bolts of

144
00:07:59,480 --> 00:08:03,120
Speaker 1: how things trade and sell. So, in terms of financial conditions,

145
00:08:03,160 --> 00:08:06,600
Speaker 1: we have definitely seen a tightening in those ultra loose

146
00:08:06,640 --> 00:08:08,440
Speaker 1: conditions that we had at the beginning of the year.

147
00:08:08,840 --> 00:08:11,480
Speaker 1: You now have the tightest financial conditions that we had

148
00:08:11,520 --> 00:08:15,680
Speaker 1: since twenty ten, but still uh pretty loose and and

149
00:08:15,800 --> 00:08:19,160
Speaker 1: just approaching neutral levels. So we're not quite concerned about

150
00:08:19,240 --> 00:08:22,680
Speaker 1: tight financial conditions quite yet. In terms of the actual

151
00:08:22,760 --> 00:08:26,360
Speaker 1: functioning of the markets, I think at the moment um

152
00:08:26,440 --> 00:08:29,480
Speaker 1: that is not a reason for concern or a need

153
00:08:29,760 --> 00:08:33,280
Speaker 1: for the Federal Reserve or other regulators to step in.

154
00:08:33,640 --> 00:08:36,800
Speaker 1: It's just something that amplifies any of the moves that

155
00:08:36,840 --> 00:08:40,240
Speaker 1: we see driven by the macro stories, and something that

156
00:08:40,320 --> 00:08:45,760
Speaker 1: causes more risk aversion and hesitancy to step in from investors. Well,

157
00:08:45,760 --> 00:08:48,720
Speaker 1: in your base case, is still being able to execute

158
00:08:48,720 --> 00:08:51,120
Speaker 1: that soft landing on that very very narrow landing strip

159
00:08:51,120 --> 00:08:53,640
Speaker 1: that John and Lisa we're just talking about with each

160
00:08:53,720 --> 00:08:57,720
Speaker 1: day that passes, how much risk grows around that idea.

161
00:08:58,000 --> 00:09:01,120
Speaker 1: So I think you invest based your base case, which

162
00:09:01,160 --> 00:09:04,080
Speaker 1: for us is a soft landing, but you diversify the

163
00:09:04,160 --> 00:09:07,880
Speaker 1: other routes just in case the recession and stagflation scenarios.

164
00:09:08,320 --> 00:09:10,840
Speaker 1: So in terms of the investing based on the soft landing,

165
00:09:10,880 --> 00:09:13,960
Speaker 1: we would still advocate for having a small overweight to stocks,

166
00:09:13,960 --> 00:09:17,959
Speaker 1: a small underweight to duration, a balance between growth and value,

167
00:09:18,440 --> 00:09:21,040
Speaker 1: but you want to still be diversifying the other scenarios.

168
00:09:21,040 --> 00:09:24,920
Speaker 1: So to diversify the recession scenario, it's a small underway

169
00:09:24,960 --> 00:09:26,959
Speaker 1: to duration versus a big one at the beginning of

170
00:09:27,040 --> 00:09:30,600
Speaker 1: the year. It's overlaying a quality factor on top of

171
00:09:30,679 --> 00:09:33,760
Speaker 1: any of the stocks that we're thinking about investing. And

172
00:09:33,800 --> 00:09:37,760
Speaker 1: in terms of diversifying the stagflation scenario, it means bringing

173
00:09:38,240 --> 00:09:42,080
Speaker 1: the prime candidate for a stagflation Europe downboard of a neutral.

174
00:09:42,200 --> 00:09:46,120
Speaker 1: It's focusing on commodity exporting regions like Canada, and it's

175
00:09:46,160 --> 00:09:50,119
Speaker 1: focusing on diversifiers like real assets that do well in inflation.

176
00:09:50,480 --> 00:09:53,360
Speaker 1: Is the concern. Well, while we're talking about regional diversification,

177
00:09:53,400 --> 00:09:55,560
Speaker 1: you mentioned Europe in Canada there, let's talk about China,

178
00:09:55,600 --> 00:09:58,160
Speaker 1: which you mentioned at the beginning, Investors kind of need

179
00:09:58,240 --> 00:10:00,920
Speaker 1: to see something changed with co A zero policy. But

180
00:10:00,960 --> 00:10:03,120
Speaker 1: it's not just that. You also have a serious crisis

181
00:10:03,160 --> 00:10:06,120
Speaker 1: in the property sector. Soon Act defaulted today because it

182
00:10:06,160 --> 00:10:08,360
Speaker 1: didn't make its payment on a dollar bond coupon after

183
00:10:08,400 --> 00:10:12,199
Speaker 1: that grace period expired. How are you thinking about China

184
00:10:12,320 --> 00:10:14,439
Speaker 1: right now and where you would find an entry point

185
00:10:14,440 --> 00:10:17,800
Speaker 1: in that market in particular. So I think emerging markets

186
00:10:17,800 --> 00:10:21,000
Speaker 1: in China are also dealing with this trifecta issues that

187
00:10:21,080 --> 00:10:23,560
Speaker 1: we mentioned. In China, you had a correction of the

188
00:10:23,600 --> 00:10:26,920
Speaker 1: accesses that already happened last year. That was a market

189
00:10:26,960 --> 00:10:31,760
Speaker 1: that February was one standard deviation expensive. Now it's nearly

190
00:10:32,160 --> 00:10:35,640
Speaker 1: one standard deviation cheap. You also have a growth scare

191
00:10:35,679 --> 00:10:38,200
Speaker 1: happening at the same time, driven by some of those

192
00:10:38,240 --> 00:10:42,880
Speaker 1: structural slowdowns in the economy, namely property and low and manufacturing,

193
00:10:43,000 --> 00:10:46,360
Speaker 1: as well as the pandemic. So I think for investors,

194
00:10:46,679 --> 00:10:50,240
Speaker 1: the correction of the valuation accesses is already there in China.

195
00:10:50,280 --> 00:10:52,200
Speaker 1: Now you need to get a bit more comfortable on

196
00:10:52,280 --> 00:10:55,040
Speaker 1: the growth picture. And for that really I'm looking for

197
00:10:55,120 --> 00:10:59,040
Speaker 1: three things. The first is a redefinition of success when

198
00:10:59,040 --> 00:11:02,160
Speaker 1: it comes to COVID zero, So it doesn't mean abandoning

199
00:11:02,200 --> 00:11:04,640
Speaker 1: the policy, which was very tough to do. It's just

200
00:11:04,760 --> 00:11:09,360
Speaker 1: redefining success, lowering the threshold for reopening. We also want

201
00:11:09,360 --> 00:11:11,679
Speaker 1: to see that the policy put is still in place

202
00:11:11,760 --> 00:11:13,439
Speaker 1: in China, so we want to see a little bit

203
00:11:13,440 --> 00:11:16,640
Speaker 1: more monetary stimulus, maybe a cut in the loan prime

204
00:11:16,760 --> 00:11:19,240
Speaker 1: rate this month. And lastly, we want to just see

205
00:11:19,840 --> 00:11:24,079
Speaker 1: silence and regulations for investors talking to get a bit

206
00:11:24,120 --> 00:11:26,679
Speaker 1: more comfortable that we're past the wars and there's an

207
00:11:26,679 --> 00:11:29,960
Speaker 1: important innovation meeting next week and it would be just

208
00:11:30,120 --> 00:11:32,400
Speaker 1: welcome news to not see anything new come out of that.

209
00:11:32,720 --> 00:11:35,400
Speaker 1: Gril A. Santos, if you Morgan Asset Management, thank you

210
00:11:35,440 --> 00:11:43,719
Speaker 1: so much. You want for Shooter, chief US economist of

211
00:11:43,720 --> 00:11:47,080
Speaker 1: Missooi America, Steve, is that light at the end of

212
00:11:47,080 --> 00:11:50,040
Speaker 1: the knock tunnel, Well, there is light at the end

213
00:11:50,040 --> 00:11:52,280
Speaker 1: of the tunnel. Unfortunately, I think we're in the final

214
00:11:52,400 --> 00:11:55,640
Speaker 1: stage of what is going to be a significant bear market,

215
00:11:55,760 --> 00:11:59,600
Speaker 1: especially in equities, as we've started to disengage stocks and

216
00:11:59,640 --> 00:12:02,760
Speaker 1: bond yesterday and it looks like again this morning. I

217
00:12:02,800 --> 00:12:06,280
Speaker 1: think that's recognition of the fact that what's taking place

218
00:12:06,280 --> 00:12:09,120
Speaker 1: in terms of the equity market now is a recialization

219
00:12:09,600 --> 00:12:11,880
Speaker 1: or a recognition of the fact that the Federal Reserve

220
00:12:12,000 --> 00:12:15,760
Speaker 1: is not going to be executing the Greenspan put any time,

221
00:12:16,080 --> 00:12:18,520
Speaker 1: and as a result of not doing that, the equity

222
00:12:18,559 --> 00:12:22,560
Speaker 1: market has to be in taking down earnings expectations. So far,

223
00:12:22,640 --> 00:12:25,880
Speaker 1: the decline and equities has been concentrated in the multiple.

224
00:12:25,960 --> 00:12:29,040
Speaker 1: As long term interest rates go up, the multiple comes down,

225
00:12:29,120 --> 00:12:32,080
Speaker 1: stock in disease come down. Now we're at the phase

226
00:12:32,440 --> 00:12:35,160
Speaker 1: I believe we're starting to see bonds go down and

227
00:12:35,280 --> 00:12:37,600
Speaker 1: equities still go down. At the same time bonds go

228
00:12:37,640 --> 00:12:40,840
Speaker 1: down and yield and equities go down in price. I

229
00:12:40,840 --> 00:12:42,920
Speaker 1: think that's telling us that we're starting to get to

230
00:12:43,000 --> 00:12:45,640
Speaker 1: the point where people need to start to downgrade their

231
00:12:45,640 --> 00:12:48,520
Speaker 1: earnings numbers, and that's the final shoe that needed to

232
00:12:48,559 --> 00:12:50,920
Speaker 1: fall on the equity market. We still could get down

233
00:12:51,000 --> 00:12:54,680
Speaker 1: to that thirty five hundred UM on the SMP five hundred,

234
00:12:54,679 --> 00:12:57,199
Speaker 1: and we could still wind up with slightly wider spreads.

235
00:12:57,240 --> 00:13:00,000
Speaker 1: But if this train continues with the two markets disengage

236
00:13:00,120 --> 00:13:03,640
Speaker 1: hi E bond yields can go down while equity prices

237
00:13:03,679 --> 00:13:06,480
Speaker 1: go down. We've really reached the top in the the

238
00:13:06,559 --> 00:13:10,079
Speaker 1: yield on the tenure note, maybe three thirty would have

239
00:13:10,080 --> 00:13:12,760
Speaker 1: been the absolute top three oh five eyes where we hit.

240
00:13:12,840 --> 00:13:15,120
Speaker 1: I believe at the top on the last couple of weeks.

241
00:13:15,559 --> 00:13:17,240
Speaker 1: I think we could very well be at the point

242
00:13:17,280 --> 00:13:19,839
Speaker 1: where we have the top in the interest rate environment. Yes, okay,

243
00:13:19,840 --> 00:13:21,640
Speaker 1: so there's a lot to unpack there. I want to

244
00:13:21,679 --> 00:13:23,920
Speaker 1: just start with what you first started on the idea

245
00:13:24,040 --> 00:13:28,000
Speaker 1: of where at the final stages of a significant bear market.

246
00:13:28,440 --> 00:13:32,040
Speaker 1: I'm curious what kind of recession you see getting priced

247
00:13:32,080 --> 00:13:35,160
Speaker 1: into markets and frankly as the most plausible in the

248
00:13:35,200 --> 00:13:38,640
Speaker 1: next twelve twenty four months. Yeah, you've asked a great

249
00:13:38,720 --> 00:13:41,080
Speaker 1: question there, Lisa. I mean, I think when you when

250
00:13:41,080 --> 00:13:43,600
Speaker 1: you look at what's taking place in the economy, I

251
00:13:43,679 --> 00:13:46,679
Speaker 1: find a hard landing, which is a growth recession. I

252
00:13:46,679 --> 00:13:49,160
Speaker 1: I think the economy is gonna be running well below trend.

253
00:13:49,240 --> 00:13:51,840
Speaker 1: I can't discount or ignore the fact that we can

254
00:13:51,880 --> 00:13:55,240
Speaker 1: have another quarter of negative GDP in here, unlikely to

255
00:13:55,240 --> 00:13:57,480
Speaker 1: be back to back negative quarters of g d P.

256
00:13:57,920 --> 00:14:00,280
Speaker 1: But we're gonna have an economy running in that one

257
00:14:00,360 --> 00:14:04,320
Speaker 1: percent or slightly lower growth environment over the next four quarters.

258
00:14:04,600 --> 00:14:06,839
Speaker 1: The reason why we don't get a classical recession is

259
00:14:06,840 --> 00:14:10,280
Speaker 1: there's no major inventory overhang, there's no overbuilding in any

260
00:14:10,360 --> 00:14:15,400
Speaker 1: major hard asset category. There are no insignificant financial dislocations

261
00:14:15,440 --> 00:14:18,480
Speaker 1: that we know about um and therefore I think in

262
00:14:18,559 --> 00:14:22,040
Speaker 1: that environment, the hard landing is a more realistic scenario

263
00:14:22,160 --> 00:14:25,560
Speaker 1: than the outright recession. But an economy running at you know,

264
00:14:25,680 --> 00:14:28,080
Speaker 1: sub one percent means Q four of a Q four

265
00:14:28,120 --> 00:14:30,840
Speaker 1: growth for this year is about zero point four percent

266
00:14:30,880 --> 00:14:34,480
Speaker 1: in contrast to five last year, and that takes down

267
00:14:35,120 --> 00:14:38,800
Speaker 1: should take down operating earnings to about five percent growth

268
00:14:39,000 --> 00:14:41,840
Speaker 1: as opposed to ten to eleven percent growth as has

269
00:14:41,880 --> 00:14:45,000
Speaker 1: been recently discounted by the marketplace. Steve, we don't get

270
00:14:45,000 --> 00:14:47,760
Speaker 1: the sense that the Federal Reserve is particularly concerned at

271
00:14:47,760 --> 00:14:51,200
Speaker 1: this point about growth. There laser focused on inflation. Where

272
00:14:51,240 --> 00:14:53,320
Speaker 1: do you think inflation will be able to get down

273
00:14:53,320 --> 00:14:55,160
Speaker 1: to by the end of this year? And where is

274
00:14:55,240 --> 00:14:58,640
Speaker 1: that going to leave the Fed? Well, again, when you

275
00:14:58,680 --> 00:15:00,800
Speaker 1: when you think about what's happening to base rate effects,

276
00:15:00,800 --> 00:15:02,480
Speaker 1: you're gonna come off. So I think we're gonna lose

277
00:15:02,480 --> 00:15:06,120
Speaker 1: about three percent there. It's everything else beyond the three

278
00:15:06,160 --> 00:15:08,640
Speaker 1: percent decline in the year over year numbers from the

279
00:15:08,680 --> 00:15:11,760
Speaker 1: peak that are gonna matter for the FED UM and

280
00:15:11,800 --> 00:15:13,760
Speaker 1: I think, you know, I think in the reality of

281
00:15:13,760 --> 00:15:16,520
Speaker 1: the situation is we're gonna come down more quickly. I

282
00:15:16,520 --> 00:15:19,640
Speaker 1: think we can lose about half of the gains that

283
00:15:19,680 --> 00:15:22,160
Speaker 1: we've seen in the operating numbers year over years. So

284
00:15:22,200 --> 00:15:25,960
Speaker 1: I believe somewhere between July and let's say September, we'll

285
00:15:26,000 --> 00:15:28,800
Speaker 1: see sort of a pivot by the Federal Reserve away

286
00:15:28,800 --> 00:15:33,440
Speaker 1: from aggressively hiking rates to developing a more shallow rate

287
00:15:33,520 --> 00:15:36,680
Speaker 1: hikes scenario that will probably continue over the balance of

288
00:15:36,680 --> 00:15:39,680
Speaker 1: the expansion. What do you expect us to see the

289
00:15:39,760 --> 00:15:43,880
Speaker 1: actual tightening matter to the economy start filtering out to

290
00:15:43,920 --> 00:15:46,440
Speaker 1: whether it's the slowdown and housing the people are expecting

291
00:15:46,680 --> 00:15:50,280
Speaker 1: our companies borrowing less money. Well, I think you're already

292
00:15:50,280 --> 00:15:51,640
Speaker 1: seeing it, to be honest with you. I mean, you

293
00:15:51,680 --> 00:15:55,160
Speaker 1: look at the headlines of the conversation by Meta, You

294
00:15:55,200 --> 00:15:56,920
Speaker 1: look at what's happened to Uber, you look at what's

295
00:15:56,920 --> 00:15:59,680
Speaker 1: happened to Lift. You look at the conversation from Amazon

296
00:15:59,760 --> 00:16:02,120
Speaker 1: that HAPs they may have over built issues. You look

297
00:16:02,120 --> 00:16:06,000
Speaker 1: at the inventory of some of the retailers that we

298
00:16:06,040 --> 00:16:09,240
Speaker 1: see in inventory is accumulating, and then you look within

299
00:16:09,400 --> 00:16:13,040
Speaker 1: the you know, the financial component, and you look at

300
00:16:13,080 --> 00:16:15,800
Speaker 1: the people who lend to households in the middle income

301
00:16:16,120 --> 00:16:19,680
Speaker 1: to lower income areas, and they're starting to see already

302
00:16:19,760 --> 00:16:23,040
Speaker 1: that the performance on the loan book is deteriorating. So

303
00:16:23,080 --> 00:16:25,360
Speaker 1: I think you're beginning to see it already at the

304
00:16:25,400 --> 00:16:28,640
Speaker 1: micro level. When do we get it in the macro statistics.

305
00:16:28,680 --> 00:16:30,600
Speaker 1: I think that just takes about another month or so

306
00:16:30,760 --> 00:16:33,320
Speaker 1: before we'll starts. Steve, Thanks for writing that down, buddy.

307
00:16:33,520 --> 00:16:41,520
Speaker 1: As So, why Steve a shooter that America. Let's talk

308
00:16:41,560 --> 00:16:44,320
Speaker 1: to a member of the Republican Party, Congressman French Hill,

309
00:16:44,600 --> 00:16:47,960
Speaker 1: Republican from Arkansas. Congressman, let's stop that. The president says,

310
00:16:48,000 --> 00:16:50,960
Speaker 1: you have a plan. Mrcono said, it's not the plan.

311
00:16:51,120 --> 00:16:55,160
Speaker 1: What is the plan? Hey, Jonathan Leasa, it's great to

312
00:16:55,160 --> 00:16:58,360
Speaker 1: be with you. You're right, Lisa, there's not a silver

313
00:16:58,480 --> 00:17:02,160
Speaker 1: bullet here. This is the result of ten years more

314
00:17:02,320 --> 00:17:06,040
Speaker 1: plus of suppressed interest rates that have led to increased

315
00:17:06,080 --> 00:17:10,439
Speaker 1: asset values, and then by the Biden administration failed policies.

316
00:17:10,960 --> 00:17:14,639
Speaker 1: They doubled down on spending and increasing demand by adding

317
00:17:14,680 --> 00:17:18,080
Speaker 1: four treeon dollars to spending last year passed through the

318
00:17:18,119 --> 00:17:19,920
Speaker 1: Congress on top of the four and a half tree,

319
00:17:19,920 --> 00:17:22,520
Speaker 1: and that we already uh spend every year to run

320
00:17:22,560 --> 00:17:26,399
Speaker 1: the government, and uh the Federal Reserve was too lax

321
00:17:26,440 --> 00:17:29,000
Speaker 1: and too late in beginning to shrink its balance sheet

322
00:17:29,040 --> 00:17:32,639
Speaker 1: and raise rates. That's coupled with the supply chain issues

323
00:17:32,680 --> 00:17:35,640
Speaker 1: that we have. And here again, the Biden administration has

324
00:17:35,640 --> 00:17:39,639
Speaker 1: done nothing to unleash American energy or really ease the

325
00:17:39,680 --> 00:17:43,560
Speaker 1: supply chain constraints on hiring workers, getting truck drivers back

326
00:17:43,600 --> 00:17:47,919
Speaker 1: to work, easing the logistics burden. So the Republican plan is, first,

327
00:17:48,280 --> 00:17:52,119
Speaker 1: don't keep spending money like drunken sailors to encouraged the

328
00:17:52,160 --> 00:17:54,760
Speaker 1: Fed to do the work that it should do. And three,

329
00:17:54,840 --> 00:17:58,320
Speaker 1: let's unleash the supply side and break down these supply

330
00:17:58,400 --> 00:18:01,560
Speaker 1: chain barriers. Congressman, the Republican plan sounds a lot like

331
00:18:01,600 --> 00:18:03,639
Speaker 1: the Biden plan from what you're saying, because they're not

332
00:18:03,680 --> 00:18:06,800
Speaker 1: talking about spending more, they're actually talking about reducing the deficit.

333
00:18:06,880 --> 00:18:09,439
Speaker 1: They are talking about investing in the supply chain, and

334
00:18:09,480 --> 00:18:12,359
Speaker 1: they have talked about releasing oil and gas and trying

335
00:18:12,359 --> 00:18:14,960
Speaker 1: to figure out ways to bring down costs. What's the

336
00:18:15,040 --> 00:18:18,240
Speaker 1: distinguishing feature about what you're saying, other than just pointing

337
00:18:18,280 --> 00:18:21,879
Speaker 1: at different places for the blame game. Right, Well, thanksfully, so.

338
00:18:21,920 --> 00:18:25,119
Speaker 1: I mean the look the Biden administration policies are the

339
00:18:25,119 --> 00:18:29,000
Speaker 1: ones who have created this demand slide surge on top

340
00:18:29,040 --> 00:18:31,720
Speaker 1: of low interest rates. It's the four trillion dollars that

341
00:18:31,800 --> 00:18:37,320
Speaker 1: he's added in spending that was warned against by Larry Summers,

342
00:18:37,400 --> 00:18:41,680
Speaker 1: Jason Furman, Steve Rattner, strong Democratic economists, saying it would

343
00:18:41,720 --> 00:18:45,520
Speaker 1: lead to too high banned in the face of supply

344
00:18:45,680 --> 00:18:49,639
Speaker 1: and strength on energy. It's all talk. He's doing nothing

345
00:18:49,680 --> 00:18:52,760
Speaker 1: to unleash American energy and make it easier for companies

346
00:18:53,040 --> 00:18:56,360
Speaker 1: to get the permitting, build the pipelines, get the permits

347
00:18:56,400 --> 00:18:59,080
Speaker 1: for new l en G export facilities, and get our

348
00:18:59,119 --> 00:19:03,400
Speaker 1: production back up to over thirteen million barrels a day. Congressman,

349
00:19:03,440 --> 00:19:05,960
Speaker 1: if we could focus on the monetary policy aspect of

350
00:19:06,000 --> 00:19:09,320
Speaker 1: what you mentioned, having the FED do its job. In theory,

351
00:19:09,440 --> 00:19:12,479
Speaker 1: if the Fed does tighten aggressively, it could lead to

352
00:19:12,960 --> 00:19:15,760
Speaker 1: a higher unemployment rate. It could lead to a slowdown

353
00:19:15,800 --> 00:19:18,120
Speaker 1: in growth, if not an outright recession, which is something

354
00:19:18,119 --> 00:19:21,000
Speaker 1: the market in particular is concerned about. Would you be

355
00:19:21,040 --> 00:19:25,600
Speaker 1: happy to see those things if it got inflation under control. Well,

356
00:19:25,640 --> 00:19:29,160
Speaker 1: inflation is a thief. Inflation steals for hard working families.

357
00:19:29,200 --> 00:19:31,720
Speaker 1: It makes it very hard, and also it hurts our

358
00:19:31,760 --> 00:19:35,159
Speaker 1: seniors who are mostly on fixed income. This is a

359
00:19:35,200 --> 00:19:38,800
Speaker 1: result of bad fiscal policies by the Biden administration and

360
00:19:38,880 --> 00:19:41,640
Speaker 1: keeping interest rates too low for too long at the FED.

361
00:19:42,080 --> 00:19:45,040
Speaker 1: So this is the anguish of central banking faced by

362
00:19:45,200 --> 00:19:49,040
Speaker 1: Chairman Pale and his colleagues. They have a tough policy

363
00:19:49,119 --> 00:19:54,040
Speaker 1: choice of tightening and potentially reducing a recession, or uh,

364
00:19:54,240 --> 00:19:57,800
Speaker 1: not tightening as much and perhaps leading to stagflation or

365
00:19:57,840 --> 00:20:01,040
Speaker 1: market volatility. It's a tough position to be in. But

366
00:20:01,160 --> 00:20:05,080
Speaker 1: we should begin to shrink the balance sheet and lower,

367
00:20:05,520 --> 00:20:08,000
Speaker 1: i mean raise rates, and the Fed should try to

368
00:20:08,040 --> 00:20:10,879
Speaker 1: do the best it can to achieve a soft landing,

369
00:20:10,880 --> 00:20:14,159
Speaker 1: which I know as Chairman Pal's ultimate objective. A Congressman,

370
00:20:14,240 --> 00:20:16,720
Speaker 1: two points you've made in the last four or five minutes,

371
00:20:16,880 --> 00:20:20,200
Speaker 1: I'll put some emphasis on them. That this administration made

372
00:20:20,240 --> 00:20:23,080
Speaker 1: some policy mistakes with fiscal policy, and this feeder reserve

373
00:20:23,359 --> 00:20:26,199
Speaker 1: waited too long. Chairman Poal hasn't been confirmed by the

374
00:20:26,200 --> 00:20:28,639
Speaker 1: Senate for another term yet, do you think he deserves

375
00:20:28,640 --> 00:20:32,280
Speaker 1: a second term. I do, Jonathan. Let me tell you why.

376
00:20:32,400 --> 00:20:35,520
Speaker 1: J Powe has the temperament, the knowledge, and the leadership

377
00:20:35,600 --> 00:20:39,160
Speaker 1: skills to navigate the FED through this process. And because

378
00:20:39,200 --> 00:20:42,080
Speaker 1: he was there and I thought did an outstanding job

379
00:20:42,200 --> 00:20:46,000
Speaker 1: during the pandemics height in March of he knows that

380
00:20:46,040 --> 00:20:48,520
Speaker 1: the FED has the tools to do this. I want

381
00:20:48,560 --> 00:20:50,960
Speaker 1: him to own this issue and help guide the FED

382
00:20:51,040 --> 00:20:53,960
Speaker 1: through this next phase that's so challenging. What do you

383
00:20:54,000 --> 00:20:57,080
Speaker 1: think in this term ultramaca that the president's using at

384
00:20:57,080 --> 00:21:00,240
Speaker 1: the moment, Congressman, what do you make of that? What

385
00:21:00,320 --> 00:21:02,520
Speaker 1: I make of Joe Biden is that he campaigned on

386
00:21:02,600 --> 00:21:05,080
Speaker 1: bringing the country together and he's done nothing but drug

387
00:21:05,160 --> 00:21:08,159
Speaker 1: vibe the country even more. In the first year and

388
00:21:08,200 --> 00:21:11,800
Speaker 1: a half of his presidency. He's constantly uh saying the

389
00:21:11,840 --> 00:21:15,720
Speaker 1: dog ate his homework on the exit and Afghanistan inflation

390
00:21:16,119 --> 00:21:19,000
Speaker 1: crisis at the southwest border, and to try to build

391
00:21:19,000 --> 00:21:22,400
Speaker 1: relationships with Republicans, he calls them names. So I don't

392
00:21:22,440 --> 00:21:24,840
Speaker 1: think Joe Biden has been very effective in managing the

393
00:21:24,920 --> 00:21:28,040
Speaker 1: US government or building a coalition to get things done

394
00:21:28,040 --> 00:21:30,479
Speaker 1: on a bipartisan basis, and complishmen great to get your

395
00:21:30,520 --> 00:21:35,560
Speaker 1: perspective of things as awaits to catch up brilliant as owais.

396
00:21:36,800 --> 00:21:40,560
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

397
00:21:40,640 --> 00:21:44,080
Speaker 1: us live weekdays from seven to ten am Eastern. I'm

398
00:21:44,080 --> 00:21:48,359
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

399
00:21:48,440 --> 00:21:53,320
Speaker 1: to nine am for insight from the best in economics, finance, investment,

400
00:21:53,440 --> 00:21:58,439
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

401
00:21:58,560 --> 00:22:02,000
Speaker 1: Apple podcast, sound Out, Bloomberg dot com, and of course,

402
00:22:02,320 --> 00:22:06,639
Speaker 1: on the terminal. I'm Tom keene In. This is Bloomberg

403
00:22:13,800 --> 00:22:13,840
Speaker 1: m