WEBVTT - Surveillance: Valuation with Mueller-Glissmann (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:13.080 with Jonathan Ferrell and Lisa A. Brawmowitz Jailey. We bring 0:00:13.119 --> 0:00:17.119 you insight from the best an economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.280 dot Com, and of course on the Bloomberg Terminal. Joining 0:00:30.320 --> 0:00:33.000 us now, Christian Miller Glissman, Manager Downright Death for portfolio 0:00:33.080 --> 0:00:38.160 Strategy at Gilment SAX. Christian, is this a bubble burst? Think? Listen? 0:00:38.280 --> 0:00:41.520 I think, Um, you definitely are dealing with a significant evaluation. 0:00:41.600 --> 0:00:44.479 We set here, There's no doubt about it, and to 0:00:44.640 --> 0:00:47.800 some extent that that was in the making. You remember 0:00:47.840 --> 0:00:50.120 we spoke about it a few months ago, Um, and 0:00:50.159 --> 0:00:53.960 we wrote about it in all balanced air research. Unfortunately, 0:00:53.960 --> 0:00:57.320 coming out of COVID, you had this constellation of both 0:00:57.360 --> 0:01:01.480 bonds and equities being incredibly expensive. It and now you're 0:01:01.680 --> 0:01:05.880 entering into a very challenging growth inflation mix where I 0:01:05.959 --> 0:01:08.920 think inflation is sticky, growth is decelerating, and I think 0:01:08.920 --> 0:01:12.640 the market is now de rating those valuations. And as 0:01:12.640 --> 0:01:15.160 you were saying, in particular in the markets where I 0:01:15.200 --> 0:01:18.600 guess the uncertainty on the growth and all the earnings 0:01:18.720 --> 0:01:22.720 is the highest or long duration tech more recently, UM 0:01:22.760 --> 0:01:25.399 and before that sickly consverse defenses. I think they've also 0:01:25.480 --> 0:01:28.800 been derated materially. How far along in this de rate 0:01:28.880 --> 0:01:33.080 in Christian are we always tough to say, because if 0:01:33.080 --> 0:01:37.000 you look at valuations compared to the average since the nineties, 0:01:37.400 --> 0:01:39.800 where we're moving below that average now, but we know 0:01:39.880 --> 0:01:42.240 we're not in the nineties anymore. I think we're dealing 0:01:42.280 --> 0:01:46.720 with much higher inflation, much higher inflation volatility, a very 0:01:46.760 --> 0:01:50.840 different uncertainty on monetary policy, and even the growth picture 0:01:50.840 --> 0:01:54.280 I think has certain uncertainties which are maybe more tactical 0:01:54.320 --> 0:01:57.680 in nature with Russia, Ukraine and China. But I think 0:01:57.680 --> 0:02:00.600 there's also some structural questions with us to what's the 0:02:00.640 --> 0:02:03.560 next growth engine. So you could argue that the valuation 0:02:03.680 --> 0:02:07.640 d rating could continue. But what I would say though, is, 0:02:07.720 --> 0:02:10.320 and I think John mentioned that earlier, I think we 0:02:10.400 --> 0:02:14.000 start to see the peak a bit in the bomb yields, 0:02:14.040 --> 0:02:16.920 and we we we also have seen tentative signs of 0:02:17.000 --> 0:02:19.760 the peak and inflation, and we might shift from a 0:02:19.840 --> 0:02:23.920 high end rising inflation regime to something where inflation maybe 0:02:23.960 --> 0:02:26.640 is starting to decline, so that could start to to 0:02:26.720 --> 0:02:30.280 stabilize things a bit. Hopefully we didn't disrupt anything too 0:02:30.360 --> 0:02:32.960 much and anyone's calling from the compliance department to say 0:02:33.480 --> 0:02:36.360 please think he cleared it perfectly, see the bumble, and 0:02:36.360 --> 0:02:39.960 he said it's evaluation re rent ratings. That's that's how 0:02:40.000 --> 0:02:42.040 you do this diplomatically, all right, so that we didn't 0:02:42.080 --> 0:02:46.240 necessarily get the DJ in charge to call and get complain. 0:02:46.320 --> 0:02:48.519 I am wondering what the opportunities are that might be 0:02:48.560 --> 0:02:52.000 emerging if the D rating has been uneven or perhaps 0:02:52.000 --> 0:02:54.280 have he handed Do you see any opportunities or do 0:02:54.320 --> 0:02:57.160 you think that at this point hiding out in treasuries, 0:02:57.200 --> 0:02:59.400 in duration, in the dollar seems to be a better 0:02:59.400 --> 0:03:02.320 bet and just go at the flow, listen. I think 0:03:02.400 --> 0:03:05.239 near term we might easily be stuck a bit longer 0:03:05.320 --> 0:03:07.359 in a in a fat and flat range. As as 0:03:07.360 --> 0:03:09.880 we've been saying, the range is getting fatter and flatter, 0:03:10.000 --> 0:03:12.640 if you know what I mean. Sort of volatility definitely 0:03:12.639 --> 0:03:16.040 has been a bit larger. Positioning and sentiment is getting 0:03:16.040 --> 0:03:19.720 more bearish as we speak, and that creates a symmetry 0:03:19.760 --> 0:03:23.480 that creates opportunities. But you still need to find momentum. 0:03:23.720 --> 0:03:26.560 Like a good trade, a good investment thesis is always 0:03:26.600 --> 0:03:30.400 built on gooder symmetry, kind of more upside and downside 0:03:30.520 --> 0:03:33.440 and and and good momentum. And I think right now 0:03:33.639 --> 0:03:36.280 you have to be very selective in picking those battles. 0:03:36.440 --> 0:03:39.240 I think we've been very focused on real assets UM, 0:03:39.320 --> 0:03:43.480 and I think opportunities related to that UM. I think 0:03:43.520 --> 0:03:46.720 clearly commodities are pretty high up in that range, and 0:03:46.800 --> 0:03:51.040 commodity related assets. Infrastructure is a very interesting real asset 0:03:51.080 --> 0:03:54.200 because it doesn't do only well when inflation is high. 0:03:54.520 --> 0:03:56.960 It also does well when inflation is high and falling. 0:03:57.680 --> 0:04:00.240 But I think clearly what we need to engage with 0:04:00.320 --> 0:04:02.600 in the next six to twelve months as we kind 0:04:02.600 --> 0:04:05.280 of look a bit forward, is to really add risk 0:04:05.760 --> 0:04:08.640 UM and eventually at cyclical risk, because that's where the 0:04:08.680 --> 0:04:11.320 market is getting the most bearish. So you can think 0:04:11.360 --> 0:04:15.840 about at some point a capic cycle driving selective opportunities. 0:04:15.920 --> 0:04:19.120 You can think about kind of even places that are 0:04:19.160 --> 0:04:23.159 linked to the consumer discretionary spending, which are clearly a 0:04:23.160 --> 0:04:28.080 lot under pressure. Eventually they would prevent provide good asymmetries. Well, Christian, 0:04:28.200 --> 0:04:31.000 as you say these things, and as John Lisa and 0:04:31.040 --> 0:04:33.560 I have been talking about the brutal action we have 0:04:33.600 --> 0:04:35.599 seen in the market. Someone writing into me on Twitter 0:04:35.680 --> 0:04:37.479 that the three of you make me want to crawl 0:04:37.560 --> 0:04:39.599 up in a ball, crawl up into a ball and 0:04:39.640 --> 0:04:41.320 cry this morning. And I'm sure there are a lot 0:04:41.360 --> 0:04:43.960 of people out there who are feeling that way. For 0:04:44.000 --> 0:04:46.160 those people who just want to pull their money out 0:04:46.160 --> 0:04:48.000 of the market and go into cash, what would you 0:04:48.040 --> 0:04:50.320 advise them about how much cash you want to hold 0:04:50.360 --> 0:04:53.520 now to redeploy when those opportunities you just were talking 0:04:53.520 --> 0:04:57.280 about present themselves. Yeah, I mean, this is a very 0:04:57.279 --> 0:05:00.040 tough thing to generalize because it depends on each a 0:05:00.080 --> 0:05:03.159 visual investor, the circumstances, you know it, like the risk 0:05:03.200 --> 0:05:06.080 tolerance and and and these type of things. But I 0:05:06.120 --> 0:05:09.720 think we've been overweight cash since the beginning of the year, 0:05:09.920 --> 0:05:13.359 and and I think I'm not saying that there's not 0:05:13.480 --> 0:05:17.880 opportunities emerging for medium term investors, but I do feel 0:05:18.080 --> 0:05:21.159 a decent cash allocation still makes sense. I think to 0:05:21.279 --> 0:05:24.280 your point, Um, I think bonds are starting to buffer 0:05:24.400 --> 0:05:26.839 a bit, so you could argue that if you're really 0:05:26.880 --> 0:05:30.560 worried about a recession, um kind of starting to introduce 0:05:30.640 --> 0:05:33.839 duration risk via bonds back in the portfolio might make sense. 0:05:34.120 --> 0:05:37.560 But what we've been saying is that duration to some 0:05:37.640 --> 0:05:39.520 extent is not a buffer right now. It's a risk. 0:05:39.880 --> 0:05:42.160 So it really depends on on what you own right now. 0:05:42.200 --> 0:05:45.640 If you own long duration assets, I think adding duration 0:05:45.640 --> 0:05:48.839 back in the portfolio probably doesn't make much sense. So 0:05:48.839 --> 0:05:52.359 I think a decent cash allocation makes sense. Real assets 0:05:52.720 --> 0:05:55.120 UM kind of assets that that can protect you from 0:05:55.160 --> 0:05:58.960 the basement. If your dollar investment a Dollar investor, that's 0:05:58.960 --> 0:06:02.120 been difficult because the dollar has been the key safe asset. 0:06:02.360 --> 0:06:05.320 But if you are a non US investor, UM, clearly 0:06:05.320 --> 0:06:09.000 the dollar still has that characteristic that currently it's protecting 0:06:09.400 --> 0:06:12.599 UM kind of purchasing power as the fetus fighting inflation. 0:06:12.800 --> 0:06:15.160 Christian brilliant work has always made Thanks for being on 0:06:15.160 --> 0:06:22.920 with this, Christian Miliklasman there of government sex. Gabrielle Santos Get, 0:06:22.920 --> 0:06:25.880 a global market strategist of jpmwork in Assets Strategy Management, 0:06:25.960 --> 0:06:28.880 is joining us now. Gabriella, what will give you the 0:06:28.960 --> 0:06:31.680 conviction to go in there and say this is it, 0:06:31.960 --> 0:06:34.680 this is the washout? We can start to buy at 0:06:34.720 --> 0:06:37.680 least I think the issues we have three things happening 0:06:37.760 --> 0:06:41.000 at the same time, there's this growth conundrum with investors 0:06:41.000 --> 0:06:43.720 trying to figure out which is the most likely path 0:06:43.839 --> 0:06:46.280 from here. Is it a soft landing, is it a recession, 0:06:46.360 --> 0:06:49.000 is its stagflation. But you add on to that a 0:06:49.120 --> 0:06:52.800 correction of the excesses that we've built up over the 0:06:52.880 --> 0:06:56.920 last four years and amplified by a third factor, which 0:06:57.000 --> 0:07:01.520 was very low liquidity in both equities and fixed income markets. 0:07:01.560 --> 0:07:03.840 So I think at the moment we've seen a big 0:07:03.880 --> 0:07:07.960 correction and valuations. We've seen nearly a twenty percent contraction 0:07:08.560 --> 0:07:11.360 in the multiple with the SMP five now trading at 0:07:11.440 --> 0:07:15.320 average valuations, But you still have very low conviction from 0:07:15.320 --> 0:07:19.680 investors to really truly believe this is um the end 0:07:19.720 --> 0:07:23.160 because you still have all of these uncertainties. So what 0:07:23.200 --> 0:07:25.360 do we need to see? I think you specially need 0:07:25.520 --> 0:07:29.280 a bigger conviction on that growth scenario front. So you 0:07:29.320 --> 0:07:32.960 do need to see peak uh in housing costs, You 0:07:33.000 --> 0:07:36.680 need to see peak sanctions towards Russia to feel more 0:07:36.680 --> 0:07:39.920 comfortable about commodity prices, and you need to see peak 0:07:40.000 --> 0:07:43.080 lockdowns in China to feel more comfortable about the growth 0:07:43.120 --> 0:07:47.000 outlook there. Gabriella, you talked about liquidity concerns the fact 0:07:47.000 --> 0:07:49.360 that there is such little liquidity. You talked about the 0:07:49.360 --> 0:07:53.200 froth in markets that's getting beaten out by the readjustment 0:07:53.280 --> 0:07:56.880 in valuations. Are you starting to worry about financial market conditions, 0:07:56.920 --> 0:07:59.480 about the functioning of the basic nuts and bolts of 0:07:59.480 --> 0:08:03.120 how things trade and sell. So, in terms of financial conditions, 0:08:03.160 --> 0:08:06.600 we have definitely seen a tightening in those ultra loose 0:08:06.640 --> 0:08:08.440 conditions that we had at the beginning of the year. 0:08:08.840 --> 0:08:11.480 You now have the tightest financial conditions that we had 0:08:11.520 --> 0:08:15.680 since twenty ten, but still uh pretty loose and and 0:08:15.800 --> 0:08:19.160 just approaching neutral levels. So we're not quite concerned about 0:08:19.240 --> 0:08:22.680 tight financial conditions quite yet. In terms of the actual 0:08:22.760 --> 0:08:26.360 functioning of the markets, I think at the moment um 0:08:26.440 --> 0:08:29.480 that is not a reason for concern or a need 0:08:29.760 --> 0:08:33.280 for the Federal Reserve or other regulators to step in. 0:08:33.640 --> 0:08:36.800 It's just something that amplifies any of the moves that 0:08:36.840 --> 0:08:40.240 we see driven by the macro stories, and something that 0:08:40.320 --> 0:08:45.760 causes more risk aversion and hesitancy to step in from investors. Well, 0:08:45.760 --> 0:08:48.720 in your base case, is still being able to execute 0:08:48.720 --> 0:08:51.120 that soft landing on that very very narrow landing strip 0:08:51.120 --> 0:08:53.640 that John and Lisa we're just talking about with each 0:08:53.720 --> 0:08:57.720 day that passes, how much risk grows around that idea. 0:08:58.000 --> 0:09:01.120 So I think you invest based your base case, which 0:09:01.160 --> 0:09:04.080 for us is a soft landing, but you diversify the 0:09:04.160 --> 0:09:07.880 other routes just in case the recession and stagflation scenarios. 0:09:08.320 --> 0:09:10.840 So in terms of the investing based on the soft landing, 0:09:10.880 --> 0:09:13.960 we would still advocate for having a small overweight to stocks, 0:09:13.960 --> 0:09:17.959 a small underweight to duration, a balance between growth and value, 0:09:18.440 --> 0:09:21.040 but you want to still be diversifying the other scenarios. 0:09:21.040 --> 0:09:24.920 So to diversify the recession scenario, it's a small underway 0:09:24.960 --> 0:09:26.959 to duration versus a big one at the beginning of 0:09:27.040 --> 0:09:30.600 the year. It's overlaying a quality factor on top of 0:09:30.679 --> 0:09:33.760 any of the stocks that we're thinking about investing. And 0:09:33.800 --> 0:09:37.760 in terms of diversifying the stagflation scenario, it means bringing 0:09:38.240 --> 0:09:42.080 the prime candidate for a stagflation Europe downboard of a neutral. 0:09:42.200 --> 0:09:46.120 It's focusing on commodity exporting regions like Canada, and it's 0:09:46.160 --> 0:09:50.119 focusing on diversifiers like real assets that do well in inflation. 0:09:50.480 --> 0:09:53.360 Is the concern. Well, while we're talking about regional diversification, 0:09:53.400 --> 0:09:55.560 you mentioned Europe in Canada there, let's talk about China, 0:09:55.600 --> 0:09:58.160 which you mentioned at the beginning, Investors kind of need 0:09:58.240 --> 0:10:00.920 to see something changed with co A zero policy. But 0:10:00.960 --> 0:10:03.120 it's not just that. You also have a serious crisis 0:10:03.160 --> 0:10:06.120 in the property sector. Soon Act defaulted today because it 0:10:06.160 --> 0:10:08.360 didn't make its payment on a dollar bond coupon after 0:10:08.400 --> 0:10:12.199 that grace period expired. How are you thinking about China 0:10:12.320 --> 0:10:14.439 right now and where you would find an entry point 0:10:14.440 --> 0:10:17.800 in that market in particular. So I think emerging markets 0:10:17.800 --> 0:10:21.000 in China are also dealing with this trifecta issues that 0:10:21.080 --> 0:10:23.560 we mentioned. In China, you had a correction of the 0:10:23.600 --> 0:10:26.920 accesses that already happened last year. That was a market 0:10:26.960 --> 0:10:31.760 that February was one standard deviation expensive. Now it's nearly 0:10:32.160 --> 0:10:35.640 one standard deviation cheap. You also have a growth scare 0:10:35.679 --> 0:10:38.200 happening at the same time, driven by some of those 0:10:38.240 --> 0:10:42.880 structural slowdowns in the economy, namely property and low and manufacturing, 0:10:43.000 --> 0:10:46.360 as well as the pandemic. So I think for investors, 0:10:46.679 --> 0:10:50.240 the correction of the valuation accesses is already there in China. 0:10:50.280 --> 0:10:52.200 Now you need to get a bit more comfortable on 0:10:52.280 --> 0:10:55.040 the growth picture. And for that really I'm looking for 0:10:55.120 --> 0:10:59.040 three things. The first is a redefinition of success when 0:10:59.040 --> 0:11:02.160 it comes to COVID zero, So it doesn't mean abandoning 0:11:02.200 --> 0:11:04.640 the policy, which was very tough to do. It's just 0:11:04.760 --> 0:11:09.360 redefining success, lowering the threshold for reopening. We also want 0:11:09.360 --> 0:11:11.679 to see that the policy put is still in place 0:11:11.760 --> 0:11:13.439 in China, so we want to see a little bit 0:11:13.440 --> 0:11:16.640 more monetary stimulus, maybe a cut in the loan prime 0:11:16.760 --> 0:11:19.240 rate this month. And lastly, we want to just see 0:11:19.840 --> 0:11:24.079 silence and regulations for investors talking to get a bit 0:11:24.120 --> 0:11:26.679 more comfortable that we're past the wars and there's an 0:11:26.679 --> 0:11:29.960 important innovation meeting next week and it would be just 0:11:30.120 --> 0:11:32.400 welcome news to not see anything new come out of that. 0:11:32.720 --> 0:11:35.400 Gril A. Santos, if you Morgan Asset Management, thank you 0:11:35.440 --> 0:11:43.719 so much. You want for Shooter, chief US economist of 0:11:43.720 --> 0:11:47.080 Missooi America, Steve, is that light at the end of 0:11:47.080 --> 0:11:50.040 the knock tunnel, Well, there is light at the end 0:11:50.040 --> 0:11:52.280 of the tunnel. Unfortunately, I think we're in the final 0:11:52.400 --> 0:11:55.640 stage of what is going to be a significant bear market, 0:11:55.760 --> 0:11:59.600 especially in equities, as we've started to disengage stocks and 0:11:59.640 --> 0:12:02.760 bond yesterday and it looks like again this morning. I 0:12:02.800 --> 0:12:06.280 think that's recognition of the fact that what's taking place 0:12:06.280 --> 0:12:09.120 in terms of the equity market now is a recialization 0:12:09.600 --> 0:12:11.880 or a recognition of the fact that the Federal Reserve 0:12:12.000 --> 0:12:15.760 is not going to be executing the Greenspan put any time, 0:12:16.080 --> 0:12:18.520 and as a result of not doing that, the equity 0:12:18.559 --> 0:12:22.560 market has to be in taking down earnings expectations. So far, 0:12:22.640 --> 0:12:25.880 the decline and equities has been concentrated in the multiple. 0:12:25.960 --> 0:12:29.040 As long term interest rates go up, the multiple comes down, 0:12:29.120 --> 0:12:32.080 stock in disease come down. Now we're at the phase 0:12:32.440 --> 0:12:35.160 I believe we're starting to see bonds go down and 0:12:35.280 --> 0:12:37.600 equities still go down. At the same time bonds go 0:12:37.640 --> 0:12:40.840 down and yield and equities go down in price. I 0:12:40.840 --> 0:12:42.920 think that's telling us that we're starting to get to 0:12:43.000 --> 0:12:45.640 the point where people need to start to downgrade their 0:12:45.640 --> 0:12:48.520 earnings numbers, and that's the final shoe that needed to 0:12:48.559 --> 0:12:50.920 fall on the equity market. We still could get down 0:12:51.000 --> 0:12:54.680 to that thirty five hundred UM on the SMP five hundred, 0:12:54.679 --> 0:12:57.199 and we could still wind up with slightly wider spreads. 0:12:57.240 --> 0:13:00.000 But if this train continues with the two markets disengage 0:13:00.120 --> 0:13:03.640 hi E bond yields can go down while equity prices 0:13:03.679 --> 0:13:06.480 go down. We've really reached the top in the the 0:13:06.559 --> 0:13:10.079 yield on the tenure note, maybe three thirty would have 0:13:10.080 --> 0:13:12.760 been the absolute top three oh five eyes where we hit. 0:13:12.840 --> 0:13:15.120 I believe at the top on the last couple of weeks. 0:13:15.559 --> 0:13:17.240 I think we could very well be at the point 0:13:17.280 --> 0:13:19.839 where we have the top in the interest rate environment. Yes, okay, 0:13:19.840 --> 0:13:21.640 so there's a lot to unpack there. I want to 0:13:21.679 --> 0:13:23.920 just start with what you first started on the idea 0:13:24.040 --> 0:13:28.000 of where at the final stages of a significant bear market. 0:13:28.440 --> 0:13:32.040 I'm curious what kind of recession you see getting priced 0:13:32.080 --> 0:13:35.160 into markets and frankly as the most plausible in the 0:13:35.200 --> 0:13:38.640 next twelve twenty four months. Yeah, you've asked a great 0:13:38.720 --> 0:13:41.080 question there, Lisa. I mean, I think when you when 0:13:41.080 --> 0:13:43.600 you look at what's taking place in the economy, I 0:13:43.679 --> 0:13:46.679 find a hard landing, which is a growth recession. I 0:13:46.679 --> 0:13:49.160 I think the economy is gonna be running well below trend. 0:13:49.240 --> 0:13:51.840 I can't discount or ignore the fact that we can 0:13:51.880 --> 0:13:55.240 have another quarter of negative GDP in here, unlikely to 0:13:55.240 --> 0:13:57.480 be back to back negative quarters of g d P. 0:13:57.920 --> 0:14:00.280 But we're gonna have an economy running in that one 0:14:00.360 --> 0:14:04.320 percent or slightly lower growth environment over the next four quarters. 0:14:04.600 --> 0:14:06.839 The reason why we don't get a classical recession is 0:14:06.840 --> 0:14:10.280 there's no major inventory overhang, there's no overbuilding in any 0:14:10.360 --> 0:14:15.400 major hard asset category. There are no insignificant financial dislocations 0:14:15.440 --> 0:14:18.480 that we know about um and therefore I think in 0:14:18.559 --> 0:14:22.040 that environment, the hard landing is a more realistic scenario 0:14:22.160 --> 0:14:25.560 than the outright recession. But an economy running at you know, 0:14:25.680 --> 0:14:28.080 sub one percent means Q four of a Q four 0:14:28.120 --> 0:14:30.840 growth for this year is about zero point four percent 0:14:30.880 --> 0:14:34.480 in contrast to five last year, and that takes down 0:14:35.120 --> 0:14:38.800 should take down operating earnings to about five percent growth 0:14:39.000 --> 0:14:41.840 as opposed to ten to eleven percent growth as has 0:14:41.880 --> 0:14:45.000 been recently discounted by the marketplace. Steve, we don't get 0:14:45.000 --> 0:14:47.760 the sense that the Federal Reserve is particularly concerned at 0:14:47.760 --> 0:14:51.200 this point about growth. There laser focused on inflation. Where 0:14:51.240 --> 0:14:53.320 do you think inflation will be able to get down 0:14:53.320 --> 0:14:55.160 to by the end of this year? And where is 0:14:55.240 --> 0:14:58.640 that going to leave the Fed? Well, again, when you 0:14:58.680 --> 0:15:00.800 when you think about what's happening to base rate effects, 0:15:00.800 --> 0:15:02.480 you're gonna come off. So I think we're gonna lose 0:15:02.480 --> 0:15:06.120 about three percent there. It's everything else beyond the three 0:15:06.160 --> 0:15:08.640 percent decline in the year over year numbers from the 0:15:08.680 --> 0:15:11.760 peak that are gonna matter for the FED UM and 0:15:11.800 --> 0:15:13.760 I think, you know, I think in the reality of 0:15:13.760 --> 0:15:16.520 the situation is we're gonna come down more quickly. I 0:15:16.520 --> 0:15:19.640 think we can lose about half of the gains that 0:15:19.680 --> 0:15:22.160 we've seen in the operating numbers year over years. So 0:15:22.200 --> 0:15:25.960 I believe somewhere between July and let's say September, we'll 0:15:26.000 --> 0:15:28.800 see sort of a pivot by the Federal Reserve away 0:15:28.800 --> 0:15:33.440 from aggressively hiking rates to developing a more shallow rate 0:15:33.520 --> 0:15:36.680 hikes scenario that will probably continue over the balance of 0:15:36.680 --> 0:15:39.680 the expansion. What do you expect us to see the 0:15:39.760 --> 0:15:43.880 actual tightening matter to the economy start filtering out to 0:15:43.920 --> 0:15:46.440 whether it's the slowdown and housing the people are expecting 0:15:46.680 --> 0:15:50.280 our companies borrowing less money. Well, I think you're already 0:15:50.280 --> 0:15:51.640 seeing it, to be honest with you. I mean, you 0:15:51.680 --> 0:15:55.160 look at the headlines of the conversation by Meta, You 0:15:55.200 --> 0:15:56.920 look at what's happened to Uber, you look at what's 0:15:56.920 --> 0:15:59.680 happened to Lift. You look at the conversation from Amazon 0:15:59.760 --> 0:16:02.120 that HAPs they may have over built issues. You look 0:16:02.120 --> 0:16:06.000 at the inventory of some of the retailers that we 0:16:06.040 --> 0:16:09.240 see in inventory is accumulating, and then you look within 0:16:09.400 --> 0:16:13.040 the you know, the financial component, and you look at 0:16:13.080 --> 0:16:15.800 the people who lend to households in the middle income 0:16:16.120 --> 0:16:19.680 to lower income areas, and they're starting to see already 0:16:19.760 --> 0:16:23.040 that the performance on the loan book is deteriorating. So 0:16:23.080 --> 0:16:25.360 I think you're beginning to see it already at the 0:16:25.400 --> 0:16:28.640 micro level. When do we get it in the macro statistics. 0:16:28.680 --> 0:16:30.600 I think that just takes about another month or so 0:16:30.760 --> 0:16:33.320 before we'll starts. Steve, Thanks for writing that down, buddy. 0:16:33.520 --> 0:16:41.520 As So, why Steve a shooter that America. Let's talk 0:16:41.560 --> 0:16:44.320 to a member of the Republican Party, Congressman French Hill, 0:16:44.600 --> 0:16:47.960 Republican from Arkansas. Congressman, let's stop that. The president says, 0:16:48.000 --> 0:16:50.960 you have a plan. Mrcono said, it's not the plan. 0:16:51.120 --> 0:16:55.160 What is the plan? Hey, Jonathan Leasa, it's great to 0:16:55.160 --> 0:16:58.360 be with you. You're right, Lisa, there's not a silver 0:16:58.480 --> 0:17:02.160 bullet here. This is the result of ten years more 0:17:02.320 --> 0:17:06.040 plus of suppressed interest rates that have led to increased 0:17:06.080 --> 0:17:10.439 asset values, and then by the Biden administration failed policies. 0:17:10.960 --> 0:17:14.639 They doubled down on spending and increasing demand by adding 0:17:14.680 --> 0:17:18.080 four treeon dollars to spending last year passed through the 0:17:18.119 --> 0:17:19.920 Congress on top of the four and a half tree, 0:17:19.920 --> 0:17:22.520 and that we already uh spend every year to run 0:17:22.560 --> 0:17:26.399 the government, and uh the Federal Reserve was too lax 0:17:26.440 --> 0:17:29.000 and too late in beginning to shrink its balance sheet 0:17:29.040 --> 0:17:32.639 and raise rates. That's coupled with the supply chain issues 0:17:32.680 --> 0:17:35.640 that we have. And here again, the Biden administration has 0:17:35.640 --> 0:17:39.639 done nothing to unleash American energy or really ease the 0:17:39.680 --> 0:17:43.560 supply chain constraints on hiring workers, getting truck drivers back 0:17:43.600 --> 0:17:47.919 to work, easing the logistics burden. So the Republican plan is, first, 0:17:48.280 --> 0:17:52.119 don't keep spending money like drunken sailors to encouraged the 0:17:52.160 --> 0:17:54.760 Fed to do the work that it should do. And three, 0:17:54.840 --> 0:17:58.320 let's unleash the supply side and break down these supply 0:17:58.400 --> 0:18:01.560 chain barriers. Congressman, the Republican plan sounds a lot like 0:18:01.600 --> 0:18:03.639 the Biden plan from what you're saying, because they're not 0:18:03.680 --> 0:18:06.800 talking about spending more, they're actually talking about reducing the deficit. 0:18:06.880 --> 0:18:09.439 They are talking about investing in the supply chain, and 0:18:09.480 --> 0:18:12.359 they have talked about releasing oil and gas and trying 0:18:12.359 --> 0:18:14.960 to figure out ways to bring down costs. What's the 0:18:15.040 --> 0:18:18.240 distinguishing feature about what you're saying, other than just pointing 0:18:18.280 --> 0:18:21.879 at different places for the blame game. Right, Well, thanksfully, so. 0:18:21.920 --> 0:18:25.119 I mean the look the Biden administration policies are the 0:18:25.119 --> 0:18:29.000 ones who have created this demand slide surge on top 0:18:29.040 --> 0:18:31.720 of low interest rates. It's the four trillion dollars that 0:18:31.800 --> 0:18:37.320 he's added in spending that was warned against by Larry Summers, 0:18:37.400 --> 0:18:41.680 Jason Furman, Steve Rattner, strong Democratic economists, saying it would 0:18:41.720 --> 0:18:45.520 lead to too high banned in the face of supply 0:18:45.680 --> 0:18:49.639 and strength on energy. It's all talk. He's doing nothing 0:18:49.680 --> 0:18:52.760 to unleash American energy and make it easier for companies 0:18:53.040 --> 0:18:56.360 to get the permitting, build the pipelines, get the permits 0:18:56.400 --> 0:18:59.080 for new l en G export facilities, and get our 0:18:59.119 --> 0:19:03.400 production back up to over thirteen million barrels a day. Congressman, 0:19:03.440 --> 0:19:05.960 if we could focus on the monetary policy aspect of 0:19:06.000 --> 0:19:09.320 what you mentioned, having the FED do its job. In theory, 0:19:09.440 --> 0:19:12.479 if the Fed does tighten aggressively, it could lead to 0:19:12.960 --> 0:19:15.760 a higher unemployment rate. It could lead to a slowdown 0:19:15.800 --> 0:19:18.120 in growth, if not an outright recession, which is something 0:19:18.119 --> 0:19:21.000 the market in particular is concerned about. Would you be 0:19:21.040 --> 0:19:25.600 happy to see those things if it got inflation under control. Well, 0:19:25.640 --> 0:19:29.160 inflation is a thief. Inflation steals for hard working families. 0:19:29.200 --> 0:19:31.720 It makes it very hard, and also it hurts our 0:19:31.760 --> 0:19:35.159 seniors who are mostly on fixed income. This is a 0:19:35.200 --> 0:19:38.800 result of bad fiscal policies by the Biden administration and 0:19:38.880 --> 0:19:41.640 keeping interest rates too low for too long at the FED. 0:19:42.080 --> 0:19:45.040 So this is the anguish of central banking faced by 0:19:45.200 --> 0:19:49.040 Chairman Pale and his colleagues. They have a tough policy 0:19:49.119 --> 0:19:54.040 choice of tightening and potentially reducing a recession, or uh, 0:19:54.240 --> 0:19:57.800 not tightening as much and perhaps leading to stagflation or 0:19:57.840 --> 0:20:01.040 market volatility. It's a tough position to be in. But 0:20:01.160 --> 0:20:05.080 we should begin to shrink the balance sheet and lower, 0:20:05.520 --> 0:20:08.000 i mean raise rates, and the Fed should try to 0:20:08.040 --> 0:20:10.879 do the best it can to achieve a soft landing, 0:20:10.880 --> 0:20:14.159 which I know as Chairman Pal's ultimate objective. A Congressman, 0:20:14.240 --> 0:20:16.720 two points you've made in the last four or five minutes, 0:20:16.880 --> 0:20:20.200 I'll put some emphasis on them. That this administration made 0:20:20.240 --> 0:20:23.080 some policy mistakes with fiscal policy, and this feeder reserve 0:20:23.359 --> 0:20:26.199 waited too long. Chairman Poal hasn't been confirmed by the 0:20:26.200 --> 0:20:28.639 Senate for another term yet, do you think he deserves 0:20:28.640 --> 0:20:32.280 a second term. I do, Jonathan. Let me tell you why. 0:20:32.400 --> 0:20:35.520 J Powe has the temperament, the knowledge, and the leadership 0:20:35.600 --> 0:20:39.160 skills to navigate the FED through this process. And because 0:20:39.200 --> 0:20:42.080 he was there and I thought did an outstanding job 0:20:42.200 --> 0:20:46.000 during the pandemics height in March of he knows that 0:20:46.040 --> 0:20:48.520 the FED has the tools to do this. I want 0:20:48.560 --> 0:20:50.960 him to own this issue and help guide the FED 0:20:51.040 --> 0:20:53.960 through this next phase that's so challenging. What do you 0:20:54.000 --> 0:20:57.080 think in this term ultramaca that the president's using at 0:20:57.080 --> 0:21:00.240 the moment, Congressman, what do you make of that? What 0:21:00.320 --> 0:21:02.520 I make of Joe Biden is that he campaigned on 0:21:02.600 --> 0:21:05.080 bringing the country together and he's done nothing but drug 0:21:05.160 --> 0:21:08.159 vibe the country even more. In the first year and 0:21:08.200 --> 0:21:11.800 a half of his presidency. He's constantly uh saying the 0:21:11.840 --> 0:21:15.720 dog ate his homework on the exit and Afghanistan inflation 0:21:16.119 --> 0:21:19.000 crisis at the southwest border, and to try to build 0:21:19.000 --> 0:21:22.400 relationships with Republicans, he calls them names. So I don't 0:21:22.440 --> 0:21:24.840 think Joe Biden has been very effective in managing the 0:21:24.920 --> 0:21:28.040 US government or building a coalition to get things done 0:21:28.040 --> 0:21:30.479 on a bipartisan basis, and complishmen great to get your 0:21:30.520 --> 0:21:35.560 perspective of things as awaits to catch up brilliant as owais. 0:21:36.800 --> 0:21:40.560 This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 0:21:40.640 --> 0:21:44.080 us live weekdays from seven to ten am Eastern. I'm 0:21:44.080 --> 0:21:48.359 Bloomberg Radio and on Bloomberg Television each day from six 0:21:48.440 --> 0:21:53.320 to nine am for insight from the best in economics, finance, investment, 0:21:53.440 --> 0:21:58.439 and international relations. And subscribe to the Surveillance podcast on 0:21:58.560 --> 0:22:02.000