Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Faroe and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, financing, investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Right now,
Speaker 1: and we're going to do this quickly because every second matters.
Speaker 1: With Susan Collins, it's very simple. She is associated with
Speaker 1: the University of Michigan, but far more her sterling academics
Speaker 1: that we've seen from Susan Collins at Harvard and then
Speaker 1: deep down the Charles River to Mit and of course,
Speaker 1: as Michael mckeeg goes plunging across to near South Station
Speaker 1: and the Federal Reserve Bank of Boston, Michael McKee was
Speaker 1: Susan Collins. Thank you very much. Time. We have the
Speaker 1: Boston Fed President here with us in Washington, and we'd
Speaker 1: like to thank you for joining us today here at
Speaker 1: Bloomberg and to our audience around the world on Bloomberg
Speaker 1: Radio and television. Thank you for joining us. Let's start
Speaker 1: with the numbers, because they just came out. Personal income
Speaker 1: up three tenths, personal spending two tenths, and then the
Speaker 1: PC indicator, which of course is the Fed's favorite. Three
Speaker 1: tenths for the headline, three tenths for the core. What
Speaker 1: does this tell you about the state of the economy
Speaker 1: and where the FED is in its inflation fight? So
Speaker 1: let me start by saying, just absolutely delighted to be
Speaker 1: here with you. Look forward to our conversation, and of
Speaker 1: course I haven't had a chance to dig deeply into
Speaker 1: the numbers yet, and sometimes the you know, the details
Speaker 1: actually are important in terms of understanding the story. But
Speaker 1: starting with the PC inflation, that's about what was expected,
Speaker 1: and so that is some positive news. At the same time,
Speaker 1: let me say two things about that. Once, that the
Speaker 1: monthly data really noisy. We've seen that, and so one
Speaker 1: month of move in a kind of more helpful direction
Speaker 1: is not something that really indicates a sustained change. And
Speaker 1: the other thing I'll say is that if you recognizing
Speaker 1: the high the elevated numbers we saw in December and January,
Speaker 1: this a bit lower number that we expected just means
Speaker 1: that the three month average is about what the twelve
Speaker 1: month average is, and so that's not a lot of progress.
Speaker 1: We still do have more work to do and more
Speaker 1: to see to know that inflation is really on a
Speaker 1: sustained downward path. Well, you're on record is saying your
Speaker 1: favorite at least one more move by the Fed. Does
Speaker 1: this sort of lock it in for May, that you
Speaker 1: do it because inflation is still at a high level,
Speaker 1: and you don't pause for a month to see how
Speaker 1: things are going. Well. Actually, what I think I'm on
Speaker 1: record as saying is that I'm highly data dependent, and
Speaker 1: so my assessment at the last meeting just last week
Speaker 1: with the summary of economic projections did suggest an additional
Speaker 1: rate hike and then pausing and holding over the year.
Speaker 1: But I need to assess all of the data that's
Speaker 1: going to come in between now and when our next
Speaker 1: meeting is in early May. And you know where I
Speaker 1: am at the moment. The new data that I've seen
Speaker 1: just in the past week has not materially changed how
Speaker 1: I'm thinking about things. But I certainly don't make a
Speaker 1: decision this far in advance about what I'm going to
Speaker 1: think is the right thing to do. Well, the markets
Speaker 1: have looked at all the data and they're pricing in
Speaker 1: four rate cuts this year. Are traders crazy? What I
Speaker 1: would say is obviously there's a range of views about
Speaker 1: these things. I mean, look, inflation is just really too
Speaker 1: high when we talk about price stability. To me, what
Speaker 1: that means is a level of low stable inflation. When
Speaker 1: I was thinking about inflation, well, everybody is thinking about inflation,
Speaker 1: and that really does mean we have more work to do.
Speaker 1: And what history has told us is that you need
Speaker 1: to have conditions sufficiently tight and then really hold the
Speaker 1: course in order to know that you have in a
Speaker 1: sustainable way gotten inflation. Going back to what the target is, well,
Speaker 1: spending was down during not down, but decelerated significantly during
Speaker 1: the month of February according to this report. Do you
Speaker 1: worry about going too far and tipping the country into recession?
Speaker 1: That's the standard view of what the FED does. It
Speaker 1: is absolutely a balance, and I think it's important to
Speaker 1: recognize that there are uncertainties, there are risks, and in particular,
Speaker 1: we do need to balance the risk that we don't
Speaker 1: do enough, that we're not sustained, don't hold the course
Speaker 1: and don't bring inflation down. And again, as I mentioned before,
Speaker 1: inflation is really costly to businesses and households, and so
Speaker 1: that's important. At the same time, you're absolut right. I
Speaker 1: do monitor the data looking at the when we might
Speaker 1: see the economy turning, and some of the slower data
Speaker 1: I think is helpful in that context. That's what we
Speaker 1: would help to hope to see at the same time
Speaker 1: early days. Yet in terms of assessing whether we really
Speaker 1: have gone as far as we need to go, well,
Speaker 1: in terms of assessing, have you got any assessment of
Speaker 1: what impact the recent banking issues will have on the economy.
Speaker 1: There's a theory out there thanks are going to tighten
Speaker 1: credit and do some of your work for you, and
Speaker 1: that could also send us into recession. That is certainly
Speaker 1: an important factor. There's absolutely a theory out there, and
Speaker 1: we could see some of that. My expectation is that
Speaker 1: we're likely to see at least some, but we'll have
Speaker 1: to continue to really monitor the data and see what
Speaker 1: happens in terms of how things evolve. But you knows.
Speaker 1: As I've said, I had expected early in March that
Speaker 1: I might think we would need to do more work
Speaker 1: and the banking stresses and what I think is at
Speaker 1: least a possible response of banks in terms of their
Speaker 1: own liquidity needs has influenced that, and so it's certainly
Speaker 1: one of the important things to factor. You know, one
Speaker 1: of the things I do want to just emphasize is
Speaker 1: I continue to see, given the resilience in our economy,
Speaker 1: that there's a pathway that we can bring inflation down
Speaker 1: without a significant downturn, and so monitoring holistically the range
Speaker 1: of data and that balance that we just talked about
Speaker 1: is a really important factor in that outlook. Do you
Speaker 1: think the FED bears any responsibility for what happened with
Speaker 1: the banks because they raise rates interest rates so fast
Speaker 1: and so far. I think that there were a number
Speaker 1: of mistakes and challenges that were made. I also think
Speaker 1: it's really important that the review that Vice share Bar
Speaker 1: is conducting that's underway be thorough unfettered, and that we
Speaker 1: not kind of prejudge what lessons and findings from that
Speaker 1: report are going to be, but we commit with a
Speaker 1: bit of a sense of humility, that we will take
Speaker 1: those findings really seriously and act on them to continue
Speaker 1: to strengthen what I see as already a sound and
Speaker 1: resilient banking system. Well, what are banks in your district
Speaker 1: telling you about their situation. So of course we monitor
Speaker 1: very closely and we are in close contact with the
Speaker 1: banks throughout the first district, which is most of New England,
Speaker 1: and what we're seeing is that they are very focused
Speaker 1: on the their activities to really support the communities throughout
Speaker 1: our district. The you know, as you know, small and
Speaker 1: medium banks play a critical role in a vibrant economy,
Speaker 1: and they also, you know, are particularly focused on what
Speaker 1: some of the risks might be, especially in the aftermath
Speaker 1: of some of the stresses that we've seen, and so
Speaker 1: we very much work to support those activities and appreciate
Speaker 1: the work that they're doing. You and your colleagues talk
Speaker 1: a lot about the cumulative impact of your rate increases.
Speaker 1: Is that hitting now? Has that hit? When do we
Speaker 1: really see five percent fed funds rate have an impact? Yeah,
Speaker 1: so that's a really important question. And the way that
Speaker 1: I think about it is that there are absolutely lags.
Speaker 1: There's some sectors, some parts of the economy that see
Speaker 1: the increase in rates and they respond relatively quickly, and
Speaker 1: I would put housing markets there. We certainly saw responses
Speaker 1: in housing markets to tighter financial conditions relatively quickly, and
Speaker 1: that's what we would expect at the same time, other markets,
Speaker 1: such as labor markets often are impacted over time, and
Speaker 1: it really is only in the second half of twenty
Speaker 1: twenty two that our interest rates got to a broader
Speaker 1: range that we're quite restrictive, and so my assessment is
Speaker 1: that it will still be some time, but over the
Speaker 1: coming quarters we really should see other sectors of the
Speaker 1: economy respond to the tightening that is already kind of
Speaker 1: factoring through the system. Well, I guess we'll check back
Speaker 1: with you with the fall. One last question, Tom Kane,
Speaker 1: Since I know the Red Sox lost yesterday and uron
Speaker 1: record is saying that the season is over, let me
Speaker 1: ask the Boston Fedbank president one loss? Is the season
Speaker 1: over for the resolutely not? And we look forward to
Speaker 1: our Red Sox and our other teams having a wonderful
Speaker 1: season and many exciting games ahead. All right, Tom, Somebody
Speaker 1: she absolutely nailed that. Michael Zelden is described by that
Speaker 1: adjunct professor at American University Washington College of Law. Michael,
Speaker 1: thank you so much for joining us. What was your
Speaker 1: first day at Justice? Like ages ago? Is a Justice
Speaker 1: department now? The same Justice department where you walked in
Speaker 1: out of Binghamton in your legal practice years ago. I
Speaker 1: believe it is. I believe that under Merrick Garland they
Speaker 1: are committed to the rule of law and to following
Speaker 1: the facts and the law, and to dispense justice even handedly.
Speaker 1: So yes, I think they are. What will we see Tuesday?
Speaker 1: If we have a presumed arrayment of X number of items?
Speaker 1: Can you prejudge that or pre analyze that? Well, we
Speaker 1: can guess that Trump is going to be charged with
Speaker 1: a campaign violation, campaign law violation, and the business records violation.
Speaker 1: The business records will probably be ten or twelve different
Speaker 1: business entries that reflect payment to Michael Cohen as legal fees,
Speaker 1: which were in fact repayment of the Stormy Daniels thirty
Speaker 1: thousand dollars hush money payment. So we might see a
Speaker 1: ten or twelve count entitement, but really it boils down
Speaker 1: to one hush money payment by Cohen to Stormy Daniels,
Speaker 1: and that a ten part or twelve part reimbursement of
Speaker 1: Cohen for that. That is a business crimes offense in
Speaker 1: New York and it is a misdemeanor. They can make
Speaker 1: it a felony if they say that those payments were
Speaker 1: made as part of a other crime, and that other
Speaker 1: crime is a federal campaign elections crime, a theory not
Speaker 1: previously tested in New York. So it's not a simple case,
Speaker 1: but that I think will be the outline of what
Speaker 1: we'll see on Tuesday, Michael. There are people who are watching,
Speaker 1: those who are frustrated to be dragged back into wall
Speaker 1: to all circus coverage of this question of you know,
Speaker 1: hush money paid to people who may or may not
Speaker 1: have had affairs. This is really one consequence of an
Speaker 1: era that a lot of people want to perhaps move on,
Speaker 1: move forward, and yet the erosion of the trust in
Speaker 1: the judicial system continues. How much do prosecutors away this
Speaker 1: type of social response when deciding whether to go forward.
Speaker 1: It's part of the calculus, but it shouldn't be the
Speaker 1: primary calculus. The primary aunt calculus has to be war
Speaker 1: laws violated and is accountability required for that law violation?
Speaker 1: And I think that in this case, though it's an
Speaker 1: old case by current standards, it is a case that
Speaker 1: I think the Manhattan disc Aturney's office felt accountability was
Speaker 1: required and therefore they brought it. Now. Yes, it's true
Speaker 1: that people would like to move on from this, but
Speaker 1: people would like to move on from January sixth, and
Speaker 1: there needs to be accountability there and people want to
Speaker 1: be moving on from all sorts of things in the
Speaker 1: Trump error, but we still need a reconciliation with what
Speaker 1: occurred so that we can learn from it and move
Speaker 1: forward as a country away from it. Given the fact
Speaker 1: that you just talked about the nature of this particular crime,
Speaker 1: do you think that there will be blowback The New
Speaker 1: York prosecutor is going forward with us there already is.
Speaker 1: I mean, he's already been labeled as a sorrows funded
Speaker 1: liberal and a racist by the former president. So yes,
Speaker 1: I think that part of the strategy in the court
Speaker 1: of public opinion is going to be to demonize Bragg
Speaker 1: and try to delegitimize the prosecution. Oh, Michael, and the
Speaker 1: honest thing, folks, I remember exactly where I was standing
Speaker 1: on the oj decision years ago, and you provided the
Speaker 1: nation with legal coverage at that time, Michael Zelda and
Speaker 1: Donald Trump was twenty seven, twenty eight years old in
Speaker 1: nineteen seventy four, were Wilbe Mills, and you know it
Speaker 1: was in the Jefferson title basin and the scandal and
Speaker 1: or then and the fourteen other scandals you've followed. Is
Speaker 1: the job change for federal prosecutors because of the cultural
Speaker 1: acceptance of this or that vice along the way? Is
Speaker 1: a job now of your world totally different than it
Speaker 1: was in nineteen seventy four, Well, yes and no. So
Speaker 1: when Wilbur Mills and Fanny Fox fall into the title basin,
Speaker 1: I don't think people were talking then in me too terms.
Speaker 1: I think that was thought of as well. That's just
Speaker 1: the way the system works now in the aftermath of
Speaker 1: the me too movement. I think that sort of behavior
Speaker 1: is intolerable and that's good, and so I think, for example,
Speaker 1: had Bill Clinton done what he did with Monica Lewinsky now,
Speaker 1: he would have been removed from the office of president.
Speaker 1: I think that we're in a better time now than
Speaker 1: we were then with respect to this misogynistic behavior. Michael Zelden,
Speaker 1: for our audience international, what should they look for on
Speaker 1: Tuesday when we get this arrayment? How should we approach
Speaker 1: the news frenzy that we're going to see. I really
Speaker 1: think that a lot of that depends on how Donald
Speaker 1: Trump wants to play this. That is to say, if
Speaker 1: he wants to do what the Justice Department would like
Speaker 1: to do, or the Department the Manhattan disc Attorney's Office
Speaker 1: would like to do. He'll come in through a private
Speaker 1: entrance in a car. He'll go up in the judge's elevator.
Speaker 1: He'll go into the courtroom, he'll make his not guilty plea,
Speaker 1: He'll be fingerprinted and mugshot. He'll go back down that
Speaker 1: elevator and leave, and that will be the end of
Speaker 1: the day, a one hour process. If he elects to
Speaker 1: make a spectacle of it, wanting to be handcuffed or
Speaker 1: go out in front of the court and talk about
Speaker 1: how he's the most persecuted person in the history of America,
Speaker 1: then you'll have a street scene that really won't be
Speaker 1: controllable as easily. So hopefully he'll do the right thing
Speaker 1: and just try this case in the court of law.
Speaker 1: But you know, Donald Trump is Donald Trump, and he'll
Speaker 1: do what he thinks is in his best interest, irrespective
Speaker 1: of whether it's in the national or the city's best interest.
Speaker 1: Michael Zolden, thank you for joining Bloomberg Surveillance this morning.
Speaker 1: He is a former federal prosecutor years of public service
Speaker 1: in our Department of Justice. Elon Musk meet Jim Bianco
Speaker 1: Jim Bianco is what Twitter is all about, and he
Speaker 1: is definitively led on Twitter in this banking crisis with
Speaker 1: intelligence threads. He joins us, right now, have the flows stopped,
Speaker 1: the deposit flows, the money market flows? Where are we
Speaker 1: right now? It hasn't stopped, but it has slowed down
Speaker 1: a little bit, but it is still If you go
Speaker 1: back to prior to Marches, a huge number of money
Speaker 1: is moving from the banks to higher yielding alternatives, whether
Speaker 1: it's money market funds or it's treasury bills or ETFs
Speaker 1: that are a very short term. The public has woken up.
Speaker 1: They've found out that I'm getting zero at the bank,
Speaker 1: I can get four and a half in something else.
Speaker 1: If you have two or fifty thousand dollars that's in
Speaker 1: the bank, that's like fifteen grand a year or fourteen
Speaker 1: grand a year. And they're making that move. They have been,
Speaker 1: and they're not stopping. Is it still destabilizing? There seems
Speaker 1: to be a zeitgeist out there that well, that was harsh,
Speaker 1: silicon veil and all that, But we're through that and
Speaker 1: now there'll be a lesser instability. Do you buy it?
Speaker 1: Yes and no? Yes. The initial response that is another
Speaker 1: bank going to fail, Probably not at this point. Is
Speaker 1: there gonna be another hemorrhage? Hopefully not? But is the
Speaker 1: public going to slow down? Are they gonna say, I'm
Speaker 1: fine with two basis points literally at my Chase account,
Speaker 1: and now'll just leave my money there. No, they're not
Speaker 1: going to do that either. So the flow I think
Speaker 1: away from the low yielding bank deposits to high yielding
Speaker 1: alternatives will continue. That will continue to press your banks
Speaker 1: as they struggle to understand their deposit base. So let's
Speaker 1: talk about those money market funds, which reached five point
Speaker 1: two trillion dollars is the latest data from ICI that
Speaker 1: came out on Wednesday. We have seen it increase at
Speaker 1: an astronomical pace over the past two weeks, with one
Speaker 1: hundred billion dollars alone. Over the past four weeks, more
Speaker 1: than three hundred billion dollars of inflows, which is taking
Speaker 1: us back to the pandemic era. Where do you expect
Speaker 1: this to go? What are you looking for for when
Speaker 1: this hits the breaking point at a time when you're
Speaker 1: also starting potentially to see the ramifications of the rate
Speaker 1: hikes and other capacities. I think once you see the
Speaker 1: spread between deposit rates and market rates collapse and basically
Speaker 1: offer the same deal as long as I said, as
Speaker 1: long as you get one percent or less in the bank,
Speaker 1: and you can get four more than four in a
Speaker 1: money market fund, that is going to continue. Also keep
Speaker 1: in mind, in the post financial crisis era, seventy five
Speaker 1: percent of the money that is invested by a money
Speaker 1: market fund is either in a T bill or FED
Speaker 1: reverse repo. So in the old days, pre two thousand
Speaker 1: and nine, you say, well, the money's going to money
Speaker 1: market funds, they buy commercial paper, and they still fund
Speaker 1: Corporate America and they still do that, but not nearly
Speaker 1: to the degree that they used to. They're funding the
Speaker 1: government and they're funding the FED now. So translate this
Speaker 1: into six months from now, and what this means in
Speaker 1: terms of access to credit either defaults or simply firings
Speaker 1: and sort of straint a restraint with respect to business plans.
Speaker 1: How much more do you see that than perhaps is
Speaker 1: getting priced in. Well, I do worry about that. Collectively,
Speaker 1: the regional banks are six point eight trillion in assets. Collectively,
Speaker 1: they're larger than JP Morgan and Bank of America combined,
Speaker 1: so collectively they matter. They fund eighty percent of commercial
Speaker 1: real estate, fifty percent of personal loans, forty of commercial
Speaker 1: industrial loans. If they've lost visibility on their deposit base
Speaker 1: and they don't know what striving their depositors, and their
Speaker 1: positors are leaving and going somewhere else, they're going to
Speaker 1: pull back on their lending. A quick point when you
Speaker 1: ask whe we talk about banks, I would like to
Speaker 1: ask people what do you think a bank is? And
Speaker 1: most people would say, it's a warehouse where I keep
Speaker 1: my money and I get an interest rate. Okay, that
Speaker 1: is a definition of a bank. But for regulators and
Speaker 1: bankers and everybody else's it's a credit intermediation. It's a
Speaker 1: way to get a loan, it's a way to extend
Speaker 1: a business. And if the warehouse of money is going
Speaker 1: somewhere else, that lending action is going to really change.
Speaker 1: We're seeing in the price of bank stocks. Where are
Speaker 1: we not seeing this priced in? Well? The thing about
Speaker 1: bank stocks is there's two things about them. Is it
Speaker 1: are they pricing in potential more defaults or to failure,
Speaker 1: or what I think they're pricing in is a squeeze
Speaker 1: of their margins because they're going to have to raise
Speaker 1: deposit rates and their profitability is going to be under pressure.
Speaker 1: That's why the bank stocks have not really recovered, because
Speaker 1: there's a worry that in order to get past this
Speaker 1: problem they have to start making less money. Let's bring
Speaker 1: them back to the FED economic data here. In seven minutes,
Speaker 1: Michael mckew will join us with a Jim beyond the
Speaker 1: Fed here, and we had no landing. This landing dot
Speaker 1: dot dot hair landing, whatever the landing is. What's the
Speaker 1: efficacy of a pause right now? Or as I mentioned
Speaker 1: earlier in the show, how about three pauses? Pause, pause, pause,
Speaker 1: just to wait to see to get to July, to
Speaker 1: see where we are. Is a pause a good thing
Speaker 1: if if we continue to have a credit crisis or
Speaker 1: credit problem. Yes, but the Fed is not thinking pause
Speaker 1: right now. They're thinking about inflation. They're thinking about a
Speaker 1: pre March eighth world and whether or not we are
Speaker 1: going to continue to see you know, high inflation, persistent inflation,
Speaker 1: a no landing, a strong economy. If that's what they believe,
Speaker 1: they're going to continue to move forward with their rate hikes.
Speaker 1: But if we start to see a slowdown in credit,
Speaker 1: that should lead them to a pause. Cubs, white socks,
Speaker 1: what do you think, what's the story in Chicago this year?
Speaker 1: And now they're both one hundred percent right now one
Speaker 1: and oh, and we're at the Cody Bellinger era in
Speaker 1: the in the north side of town, and we're still
Speaker 1: in the Tim Anderson era outside of town. Which way
Speaker 1: are you, Tilton? I mean, who are you going to see?
Speaker 1: This is a hugely important Midwest thing. It really is
Speaker 1: at this point. I hate to say it, but I'm
Speaker 1: kind of leaning towards the Cubs. I've always kind of
Speaker 1: had a bias for the white side of what. The
Speaker 1: Cubs are the more interesting team right now. So we've
Speaker 1: got news we can use there. You see that South Side.
Speaker 1: Let's go Jim beyond can think and Jim congratulations on
Speaker 1: being definitive on Twitter. I mean, if Elon Musk needs
Speaker 1: to know anything about the communicative thrust in the crisis
Speaker 1: of Twitter, there's other people out there as well. But
Speaker 1: Bianco's doing these threads. You can just feel all of
Speaker 1: Twitter just stops. He goes, I've got another block. I
Speaker 1: got to read it. It's a continuation of the amazing
Speaker 1: notes and the amazing reports that he's put out for decades.
Speaker 1: Joining us now and all timely as Matt Luzatti's chief
Speaker 1: yours economist at Deutsche Bank, who had a shocking call
Speaker 1: long ago and far away of economic slow down, but
Speaker 1: was emphasizing it would be out there somewhere where so
Speaker 1: many others we're looking for immediate economic slowdown. We could
Speaker 1: recalibrate this morning with Matt Lozzetti. I guess we see
Speaker 1: disinflation out there. Can you establish off this data disinflationary
Speaker 1: vectors and goods and services? Yeah, I think we need
Speaker 1: to put the disinflation into context. It's still a point
Speaker 1: three percent core PC month on month print, still well
Speaker 1: above the FED subjective. Four point six percent year on
Speaker 1: year is well above the FEDS objective. We were expecting
Speaker 1: this to be a bit softer than CPI, in part
Speaker 1: because airfares were much weaker in the PC data. We'll
Speaker 1: have to see, you know, what we get in the
Speaker 1: core services X shelter, which has been Chairpal's main focus.
Speaker 1: But I think what we'd see from this data is
Speaker 1: a little bit softer than expected, but still well above
Speaker 1: the FEDS objective. Still to Mike's point, I mean, this
Speaker 1: is basically inflation, perhaps not as hot, but growth also slowing,
Speaker 1: perhaps more than people had expected. At what point does
Speaker 1: that story start to get priced in more In other words,
Speaker 1: not exactly supportive of this robust we can make it
Speaker 1: through anything kind of narrative. Yeah, we saw it yesterday
Speaker 1: with the GDP revisions. Consumer spending revised down. Basically the
Speaker 1: domestic economy didn't grow in Q four. We have an
Speaker 1: alternative version. GDI was actually negative in Q four. So
Speaker 1: I do think you have some evidence of slowing in
Speaker 1: the economy. We have to be cognizant. Yet a lot
Speaker 1: of strength in January, and so a lot of this
Speaker 1: is a give back to that. I think it all
Speaker 1: comes down to the labor market. You know, do we
Speaker 1: eventually begin to see that to soften. Do we eventually
Speaker 1: begin to see employment games slowing, unemployment atsurance roles picking up.
Speaker 1: I think that's the key question from the FT's perspective.
Speaker 1: A lot of people are wondering whether the Fed's going
Speaker 1: to cut rates later this year the face of whatever
Speaker 1: weakness right now materializes later as a greater weakness. How
Speaker 1: is the response going to be at a time when
Speaker 1: you do say that inflation is well above their targets,
Speaker 1: they need to bring it down, but it is going
Speaker 1: down and a lot of people think it will continue
Speaker 1: to do so as time crimes on. Yeah, I think
Speaker 1: you know, inflation is obviously well above the rejective. The
Speaker 1: way that Chapou has been talking about the labor markets,
Speaker 1: it's either extremely tight or tight to one unhealthy degree,
Speaker 1: and so there's no difference in the tension in their
Speaker 1: demand data at this point. I think the real issue
Speaker 1: comes when that tension arises. We think it begins to
Speaker 1: arise this year as you see the unemployment rate begin
Speaker 1: to increase at a time where inflation is still well
Speaker 1: above their objectives. You know, their own forecast at the
Speaker 1: end of this year have four point six percent on
Speaker 1: the unemployment rate, about three point six percent on core
Speaker 1: PC and them not cutting at this point. We expect
Speaker 1: that the cut rates in January, but a lot of
Speaker 1: it depends on how this credit chuck plays out. You know,
Speaker 1: certainly it could mean that the recessions earlier, labor market
Speaker 1: weekends earlier in the FED has to cut earlier. Susan
Speaker 1: Collins will be with us in ten minutes with Michael McKee.
Speaker 1: She's absolutely definitive academics, as are you from UCLA and
Speaker 1: who has a Harvard mit heritage, and she's been at Michigan,
Speaker 1: and Michigan has a cottage industry of studying inflation in
Speaker 1: price change when they debate at the FED and whether
Speaker 1: voting or non voting. When Susan Collins leaned forward and
Speaker 1: talks about inflation, does she talk about the same inflation
Speaker 1: that Peter Hooper talks about, or that Muhammad Alarian talks about,
Speaker 1: or that Law Brainerd talks about. Does everybody on the
Speaker 1: same page on what to look at? Yeah? I think
Speaker 1: her speech yesterday was very clear. She broke down the
Speaker 1: baskett of the three components that Cherpal has been emphasizing,
Speaker 1: core goods shelter and core services at shelter. I thought
Speaker 1: it was most interesting from our comments yesterday, she used
Speaker 1: a language about rate hikes that was a bit different
Speaker 1: than the statement. She said that additional tending will likely
Speaker 1: be necessary, you know, not May, which is what the
Speaker 1: statement indicated. I thought that was a firmer indication of
Speaker 1: another rate hike, at least at the MAYFIMC meeting. That's
Speaker 1: our bait based case at the moment. But I was
Speaker 1: surprised about that. I opened the Quentin Pa game for
Speaker 1: him yesterday with the slew rate of this rate rise.
Speaker 1: It's just incredible how quick we got here, and in hindsight,
Speaker 1: maybe too quick. What's the efficacy of a pause when
Speaker 1: you aditt your banks sit around and say lift, cut
Speaker 1: or pause? To me, a pause gives you optionality? Am
Speaker 1: I wrong on that? No doubt it can. But I
Speaker 1: think it's a multifaceted question. You know, if they pause,
Speaker 1: what does the market do in response to that? You know,
Speaker 1: we have a market that has been pricing race cuts
Speaker 1: earlier than the FED has wanted. If they pause, what
Speaker 1: happens with that? I think ray cuts come much sooner
Speaker 1: and earlier. And I think that's a difficult Really. They
Speaker 1: can't pause and say we're just pausing to see the data,
Speaker 1: even if we think it's going up. I think it's
Speaker 1: very difficult for them to pause and not pull forward
Speaker 1: the markets. Pissy. I'm a bit distracted over here because
Speaker 1: I'm trying to understand this market movement, and it basically
Speaker 1: seems to say a soft landing looks more certain after
Speaker 1: this data comes out. What's your take on that? I mean,
Speaker 1: do you think that what we have seen from the data,
Speaker 1: from the response mechanism from central bankers that we're heading
Speaker 1: closer or further away from a soft landing. So I
Speaker 1: think it all depends on how you're viewing this credit, Chuck.
Speaker 1: We think it can be material, but to be quite honest,
Speaker 1: at the moment, it's it's speculative because we don't have
Speaker 1: data on how it's playing out. You know, we're we're
Speaker 1: looking towards the FED Senior Loan Officer Survey in early May.
Speaker 1: Everybody is. We're looking at the H eight data LA
Speaker 1: later today to see what's happening with CNI loan cer loans.
Speaker 1: What we saw that at the Fed's balance sheet data
Speaker 1: yesterday was supportive. It's you know, things are not getting worse.
Speaker 1: We saw an aggregate reduction in their lending facilities so far.
Speaker 1: But we do think that credit conditions are going to
Speaker 1: tighten the way that we've tried to quantify it suggested
Speaker 1: could be anywhere from half a percent on growth to
Speaker 1: certainly more than one percent, but at this point it's
Speaker 1: difficult to gauge if that does Titan, I think it
Speaker 1: certainly means hard landing is more more likely than even
Speaker 1: we were intense moments ago. Lisa Oil seventy five dollars
Speaker 1: a barrel American oil from that sixty nine level up
Speaker 1: to seventy five. Just an example of this correlated lift
Speaker 1: away from all the gloom, this feeling we're gonna make
Speaker 1: it through. I mean, oil has been its own animal,
Speaker 1: with a lot of other specific stories, but there has
Speaker 1: been this feeling we will get through, and if there
Speaker 1: is some sort of downturn, it would be short and
Speaker 1: shallow as the theme. And now it's maybe we won't
Speaker 1: get one, the no landing, and maybe we're back to that.
Speaker 1: Do you still believe that if we prolong some sort
Speaker 1: of recession it will be a worse recession? Not necessarily.
Speaker 1: I think the way that we typically think about this
Speaker 1: is imbalances can build up the longer that this goes on,
Speaker 1: and therefore the recession can be deeper, more protracted as
Speaker 1: you have to delever. You know, this time around, we
Speaker 1: haven't seen the imbalances being built. You have household balance
Speaker 1: sheets that are in very good shape. You have a
Speaker 1: housing markets that is already going through the correction. You know,
Speaker 1: we haven't seen overbuildings certainly take place there. So our
Speaker 1: view is still that this is a modern recession. It
Speaker 1: looks a lot like the early nineteen nineties. We've always
Speaker 1: thought it happens in the second half of this year
Speaker 1: and haven't really changed that view. I think it's consistent
Speaker 1: with what we're seeing. I would not say that just
Speaker 1: because we got a point three percent on core PC
Speaker 1: that we've shifted to our soft landing type narrative here.
Speaker 1: You know, inflation is still well too high for the
Speaker 1: fence like equities lifting here as well, and the two
Speaker 1: year yield comes in four point one zero. We're looking
Speaker 1: to the two year, folks, just because of the banking crisis.
Speaker 1: It's got some more information than three point five two
Speaker 1: and the ten year yield. Let's review your home call.
Speaker 1: You came out said recession. Everybody got all bent out
Speaker 1: of shape. But what you really did and said recession
Speaker 1: in late twenty twenty three, how do you nudge that out?
Speaker 1: What economic data would would force you to move your
Speaker 1: recession call that's been fabulous into twenty twenty four. Yeah,
Speaker 1: I think it's again all about the labor market, job
Speaker 1: and what are you seeing? And not only because it's
Speaker 1: you know, if you if you see the unplumber rate rise,
Speaker 1: it's always shows a recession is happening. But the labor
Speaker 1: market tells us about the underlying strength and the consumer
Speaker 1: and household, and so for producing strong wage gained strong
Speaker 1: income gains. The idea that the consumer can remain resilient
Speaker 1: in the recession further off is the key question. I mean,
Speaker 1: it's a Lozetti statistic. I missed it yesterday because I
Speaker 1: was doing the Quinnipiac thing claims one ninety one to
Speaker 1: one ninety eight. We're gonna stop the show right now
Speaker 1: and get some humility with Daniel Eyes. He's seen your
Speaker 1: equity analyst Wedbush now, who absolutely nailed have courage stay
Speaker 1: with Apple. You've heard me tell this story before a
Speaker 1: cillion reasons Apple was going to blow up. Ago, Lawrence
Speaker 1: Harty and I stood on Fifth Avenue and discussed all
Speaker 1: the reasons the Apple game was done. It's not there
Speaker 1: were so many reasons to sell Apple ninety days ago.
Speaker 1: What did you see ninety days ago that gave you
Speaker 1: confidence to be long Apple? It's the install base of
Speaker 1: Apple is still underappreciated by investors. And I think, ultimately
Speaker 1: what we've seen with our checks and ages that demand,
Speaker 1: despite many yelling fire in a crowded theater, has actually
Speaker 1: held in more rock or Gibraltar, and is that's played
Speaker 1: out us the key. Let's get out front of Mark
Speaker 1: German here, who owns a high ground on Apple technology
Speaker 1: gossip and all that it is part of your calculus
Speaker 1: of Apple higher a new chip because to me it's
Speaker 1: the chips at the bedrock of why they do well.
Speaker 1: Are we to see new chips with this June meeting
Speaker 1: or sware or whatever they're I think that I think
Speaker 1: you have and you're gonna have chips as well as
Speaker 1: the ARVR in terms of Apple glass. And I think
Speaker 1: it just shows that even though many say innovations in
Speaker 1: the rear view mirror, you have the biggest install base
Speaker 1: in consumer and now you're just further monetizing with services.
Speaker 1: And I think in these environments you can never underestimate
Speaker 1: how bad Imagine team is or just how good the tactician,
Speaker 1: the Hall of Famer Cook, I think, is again going
Speaker 1: to navigate Apple, in our opinion, back to a three
Speaker 1: trillion dollar market. When can we stop calling it big
Speaker 1: tech and talk about communication companies and hardware companies and
Speaker 1: cloud companies and something much more specific. The caters to
Speaker 1: a very different cycle than perhaps each of the company
Speaker 1: is combined well I think that's starting to happen. I mean,
Speaker 1: if you look at like Cloud, you look at Microsoft
Speaker 1: and what the Dell is doing in Redman, that demands
Speaker 1: held up and that started to seep in what we've
Speaker 1: seen with bending off at Salesforce and the broader group.
Speaker 1: Cybersecurity I think is a pocket of strength. But I
Speaker 1: think overall, at least you hit it on a great
Speaker 1: in terms of big tech the cost cutting. Once that
Speaker 1: started to happen, the bottom and tech, in my opinion,
Speaker 1: was done. And that's why I believe there's still another
Speaker 1: ten to fifteen percent upside and tech. But there's a
Speaker 1: ten to fifteen percent upside at a time, and a
Speaker 1: lot of people think that it's already gotten overblown. That said,
Speaker 1: they're different kinds of job cuts. They're job cuts because
Speaker 1: you have excess because you overhired, and because you have
Speaker 1: a lot of perhaps excess weight. There's also the kind
Speaker 1: of cuts that come because you see the potential for
Speaker 1: growth diminishing at a time when possibly you cannot borrow
Speaker 1: the same kind of way and the potentially is less demand.
Speaker 1: And oh yeah, people already loaded up on devices and
Speaker 1: on services during the pandemic. How do you distinguish between
Speaker 1: the two. Yeah, and well, I think you see it
Speaker 1: in terms of profitless tech and frafit tach oh ah,
Speaker 1: that really hasn't come back. But I think what you're
Speaker 1: seeing with a lot of bigger tech or i'll say
Speaker 1: like high quality tech, you know they've cut costs they
Speaker 1: were spending like nineteen eights rock stars that stopped, and
Speaker 1: now numbers of stave wise and also on the other
Speaker 1: side of this, now you are seeing strong demand that's
Speaker 1: really starting to come back despite this macro and I
Speaker 1: think that's what we've seen with Apple specifically in China
Speaker 1: when you talk about and talk about China. We'll get
Speaker 1: there in a second. But just going forward, are there
Speaker 1: any tech names that you do not think will participate
Speaker 1: in this game of fifteen to twenty percent as you predicted? Look,
Speaker 1: I think when you look at I Share donors, and
Speaker 1: when you look at the ciscos, some of the hardware players,
Speaker 1: but what's really ultimately happening is the likes of Microsoft.
Speaker 1: You're seeing some bigger attack players more and more like
Speaker 1: a pal out though, and cybersecurity further expand. And I
Speaker 1: think that's I think that the ultimate headline of one
Speaker 1: Q earnings is going to be Wow, didn't fall off
Speaker 1: a cliff, And I view that as more something I
Speaker 1: embrace rather than fear in terms of one que and
Speaker 1: right now, look the New York City cab drivers barrash on'
Speaker 1: at tech and I continue to like that dynamic as
Speaker 1: it plays out. Oh, it's time for the gossip ower
Speaker 1: here at Bloomberg Surveillance and we can always do that
Speaker 1: with a well dressed Dan ives a Disney Apple mating
Speaker 1: that to me is just like an ib frenzy there.
Speaker 1: I mean, the lunch is at the Sunset Tower Hotel,
Speaker 1: Mister Cook's hanging out with mister Eiger, and they're at
Speaker 1: the Sunset Tower. Ives is over a couple of tables,
Speaker 1: the bankers are surrounded. Any ability for Apple to acquire Disney, look,
Speaker 1: I think it's a possibility. I think that the difference
Speaker 1: now for Apple is that this is the first time
Speaker 1: I think brilliant that their history that they're going to
Speaker 1: have to significantly look at m and A. You know,
Speaker 1: I think when you look at Disney, I think if
Speaker 1: TikTok's potentially on the table, depending on what happens with
Speaker 1: Cepheus in terms of a forced deal, I think this
Speaker 1: is the time that Cooper Tino, you know, that's really
Speaker 1: never done. M and A is going to have to
Speaker 1: look at this and look at Disney comes that something
Speaker 1: that strategically is a marriage makes a ton of sense
Speaker 1: and their creative My take on this, and I'm not
Speaker 1: going to try to be Moffatt Nathanson here or Dane
Speaker 1: lives is these mergers always fall apart when non creatives
Speaker 1: take over the creative process. Do you have the confidence
Speaker 1: that Apple management can be humble enough to let Disney
Speaker 1: and the creatives like mister Iger be creative. Yeah, I
Speaker 1: think that's something that I think uniquely they could balance
Speaker 1: that because ultimately, if you look at that marriage, what
Speaker 1: that could do Apple and Disney, that would really be
Speaker 1: the golden goose. And I think something that Apple has
Speaker 1: been missing is we know is content and that's something
Speaker 1: in terms of streaming services that's gonna be a one
Speaker 1: hundred billion dollar business terms of services, I think that's
Speaker 1: going to be the next the stool German talks about
Speaker 1: us all the time. Services. That is the really jewel
Speaker 1: that I think has been the key rerating here in Apple.
Speaker 1: You mentioned TikTok, you mentioned China and with respect to Apple,
Speaker 1: and how much is this the fly in the ointment?
Speaker 1: We hear that Tim Cook is heading to China potentially
Speaker 1: in April, this being reported by Reuters this morning. Is
Speaker 1: this going to become a liability for companies at a
Speaker 1: time of increasing tensions between the US and China. Well,
Speaker 1: Cook's part politician, part CEO, and I think what he's
Speaker 1: been able to do is a tactician better than anyone
Speaker 1: out there. Is tight rope because ultimately Apple it's basically
Speaker 1: one hundred percent iPhone production, twenty percent demand, but that
Speaker 1: ultimately continues to be part of their success. Slow news day,
Speaker 1: you're one ninety on Apple up seventeen percent? What are
Speaker 1: we get an ivesy and lift above two hundred dollars? Look,
Speaker 1: I think right now, in terms of our check this
Speaker 1: this is a stock that I believe is gonna you know,
Speaker 1: have I believe back to the three trillion dollars mark
Speaker 1: cap over the look, I think you start to look
Speaker 1: at you know, ultimately you start to look now what
Speaker 1: I believe fifteen twenty hour upside from here we start
Speaker 1: to approach three trillion. I didn't get it out of him.
Speaker 1: He's you know, he's got compliance on him, Dan ives,
Speaker 1: thank you, that was wonderful. Thought that that was really interesting,
Speaker 1: especially given that so many people are shrugging off the
Speaker 1: story of tech pre eminence right now is simply people
Speaker 1: sing in lower rates and that pulling the story right back,
Speaker 1: and it seems like the efficiency story coming in, perhaps
Speaker 1: in a more significant way. I'm so this is I
Speaker 1: can't get it. Wait a minute, quantests, I'm surrounded by
Speaker 1: Mets fans. I just figured, look at this, let's go.
Speaker 1: It's a Mets than for lander looked pretty good there. Well,
Speaker 1: here's easy. I think this is the year for the
Speaker 1: match sides. Are you going? Are you going? You know,
Speaker 1: like this weekend or soon with a horde. I'm gonna
Speaker 1: go crawling to Ben and stay there for the whole weekend,
Speaker 1: like I think everybody in the market is. Because I
Speaker 1: think it's been an exhausting couple of weeks and I
Speaker 1: think that I'm looking for, you know, just a dark,
Speaker 1: quiet space. We call that the land of the bust
Speaker 1: and red sicks go away. Thank you for what Bush.
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