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Speaker 1: Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg

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Speaker 1: dot Com, and of course on the Bloomberg terminal. Can

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Speaker 1: I tell you the Sundgrights have people alongside us Andrew Sheets,

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Speaker 1: one of them just dropped by from malc and Stanley,

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Speaker 1: the chief cross assets strategist. Andrew, It's gonna say, Mr

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Speaker 1: Schats when camp by this equity market, Well, thanks, It's

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Speaker 1: nice to be with you. It's nice to be with

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Speaker 1: you in person. Look, this is an equity market that

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Speaker 1: I think, over the next month is still dealing with

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Speaker 1: a real crucible of challenges. We are into the thick

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Speaker 1: of what we think is going to be a disappointing

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Speaker 1: earnings revision lower. That's a key view of my colleague

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Speaker 1: Michael Wilson in the US, by colleagu Graham Secker. Here

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Speaker 1: in Europe, I think this is still a period where

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Speaker 1: it's going to be very difficult for the Fed to

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Speaker 1: sound anything other than hawkish given these upside surprises to inflation.

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Speaker 1: And then on the geopolitical front, right, it's too soon

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Speaker 1: to get anything real developments in terms of changes in

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Speaker 1: China policy, and still a lot of uncertainty into European

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Speaker 1: energy policy heading into winter. So we think it's still

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Speaker 1: too soon, especially with rates rising, especially in the front end,

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Speaker 1: and think investors should stay cautious, and we think that

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Speaker 1: cash will outperform a lot of assets. There is at

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Speaker 1: Brown University a fabulous tradition of differential geometry. Cornellen Brown

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Speaker 1: on the high ground on that, and it all comes

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Speaker 1: down to calculus. Are you frightened by the rates of

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Speaker 1: change right now? And the second derivative as well well,

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Speaker 1: I think the biggest change that I think the market

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Speaker 1: is going to have to adjust to is you investors

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Speaker 1: over the last twelve years, which is a quite long

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Speaker 1: period of time, have known mostly rates of zero or

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Speaker 1: less than zero on cash, and so Tell said that's

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Speaker 1: out on Twitter yesterday he said, it's like physics without

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Speaker 1: are we going to use to gravity again? I think

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Speaker 1: we're getting used to gravity. I think we're seeing a

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Speaker 1: real large adjustment. And so if you think about the

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Speaker 1: SMP five having an earnings yield of about five point

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Speaker 1: nine percent, and you know one to five year corporate

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Speaker 1: bonds having a yield of four point nine percent, that

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Speaker 1: is an enormous convergence in ass cross asset yields and

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Speaker 1: so and that's a shift we haven't seen for twelve years.

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Speaker 1: So I think that's an adjustment that is truly different

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Speaker 1: and that the market's going to have to, you know,

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Speaker 1: make some make some adjustments. For there's a difference between

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Speaker 1: more downside and risk assets and something breaking and something

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Speaker 1: that becomes a systemic issue, that is a fissure, and

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Speaker 1: that is rapid when does something break As we take

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Speaker 1: a look at that pace of change, particularly with the

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Speaker 1: front end rate, Yes, at least I think that's such

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Speaker 1: a great point because I think ironically here the fact

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Speaker 1: that stuff is good not breaking, means that the FED

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Speaker 1: can and likely will do more. You know, I think

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Speaker 1: we see banks with very healthy balance sheets. We see

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Speaker 1: consumers and corporates with healthy balance sheets. The low rates

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Speaker 1: of last two years allowed a lot of Americans to

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Speaker 1: refinance into low third year fixed rate mortgages, which means

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Speaker 1: their largest liability, their highest cost, is almost immune from

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Speaker 1: the rate hikes, and so that strength I think means

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Speaker 1: that the market is sending the Fed signals you can

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Speaker 1: keep going. We haven't yet hit that point where its disorderly.

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Speaker 1: So what is that point? I mean, can they get

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Speaker 1: up to the Deutsche Bank call of four point nine

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Speaker 1: percent on a FED funds rate and still have things

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Speaker 1: be sanguine enough to give them some confidence that they

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Speaker 1: can stay there for a while. Well, so we don't

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Speaker 1: think rates will get that high, but we do think

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Speaker 1: that the skew is that they will continue to press

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Speaker 1: higher and go for longer. And again, I think the

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Speaker 1: Fed is is having a real challenge right in in

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Speaker 1: hockey terms, they're trying to skate to the puck and

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Speaker 1: and we don't know exactly what the delay between you know,

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Speaker 1: a rate hike today and impact and the economy is

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Speaker 1: going to be. And so this is a real, real

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Speaker 1: uncertain I think the market was hopeful that we would

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Speaker 1: get some relief that inflation would start heading in the

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Speaker 1: right direction and that would buy the Fed some time.

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Speaker 1: But I think it's quite clear with that sticky core inflation,

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Speaker 1: they just cannot pivot yet. And then the skew is

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Speaker 1: excu st Gretzky is that what that was like that

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Speaker 1: I'm going to tear up here, get the spelling right

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Speaker 1: on that banner. I mean, I saw Gretzky actually do

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Speaker 1: this is an absolutely where he does. He was playing

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Speaker 1: the Buffalo sabers in Pero, and Gretzky did exactly what

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Speaker 1: you said, Jerol, Jerol Powell is no way in Gretzky,

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Speaker 1: is he? Well. I do think what you're dealing with is,

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Speaker 1: if you ask a lot of economists, right, there's not

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Speaker 1: an agreement on what that delay between a rate hike

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Speaker 1: today is on the economy. And then I think there's

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Speaker 1: still very divergent camps theoretically, right, I think there's a

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Speaker 1: camp and we heard this last year the Fed can

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Speaker 1: never hike very much because there's so much debt in

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Speaker 1: the economy. They'll never hike more than one or two

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Speaker 1: percent versus well, actually, maybe companies and households have termed

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Speaker 1: out so much debt at super low rates that the

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Speaker 1: sensitivity is lower. And I think this is a real

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Speaker 1: question that you kind of don't really know until it

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Speaker 1: makes contact with the economy. So Andrew became out the

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Speaker 1: last crisis, and I oh nine, and you all remember

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Speaker 1: the projections for high yields every single year high yields

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Speaker 1: high yield, it's never materialized year it's went lower. Do

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Speaker 1: you sense it's that kind of story in reverse, that

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Speaker 1: we haven't quite fully capitulated on this view of a

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Speaker 1: low interest rate world, that we just seem to think

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Speaker 1: that this is an anomaly and we're going back to

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Speaker 1: where we were before. I think there's still some of that,

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Speaker 1: you know. And I think that the real rate is

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Speaker 1: a very interesting debate where real rates are still quite

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Speaker 1: low in the US, in the Eurozone, in the UK,

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Speaker 1: they have not yet gone back to kind of just

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Speaker 1: the PREGFC level, let alone kind of the higher levels

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Speaker 1: we saw in the nineties. So I think there's still

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Speaker 1: room for the market to readjust especially as you see

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Speaker 1: a healthy household, healthy corporate balance sheets, more capital expenditure

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Speaker 1: that again could point to kind of hire somewhat higher

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Speaker 1: neutral neutral levels of interest. I put out that Deutsche

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Speaker 1: Bank cool from Matt Lizette five fed funds next year.

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Speaker 1: The amount of pushback I got on that cool just

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Speaker 1: because people wonder whether we can actually live least when

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Speaker 1: you've spoken to this a few times in a five

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Speaker 1: percent interest rate world anymore. Yeah, And I think that

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Speaker 1: Andrew's Jesus point saying that basically people have turned it

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Speaker 1: out and the fact that they are coping with it

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Speaker 1: gives this uncertainty of maybe we have gotten less rate

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Speaker 1: sensitive and allows the FED to go further is really

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Speaker 1: underpinning the reality of what people are pressing in. You

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Speaker 1: know how you try and get me to explain football

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Speaker 1: to people who don't know? Can you explain? Can you

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Speaker 1: explain Gretzky to every world? This is where you think

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Speaker 1: the park is going to be. Everybody, I mean everybody

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Speaker 1: knows I know less about English football ice hockey? Are

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Speaker 1: you dazzling me? How do you know that Gretzky skated

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Speaker 1: to where the park wasn't because his daughter married a

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Speaker 1: very very good golfer. So a sort of reverse engineered

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Speaker 1: it from golf through his wife and back into ice hockey.

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Speaker 1: That's how I did it. Does that work for you?

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Speaker 1: That word? Does that work for you? So sort of

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Speaker 1: reversed engineered it from golf to ice hockey and then Tom.

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Speaker 1: You know it takes a lot of work. Andrew sheets

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Speaker 1: and more? Can Stanley Andrew think it's good to see it? Well,

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Speaker 1: we get on for the next two hours. We will

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Speaker 1: get along with Jane Foley, I can guarantee you that

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Speaker 1: kind of effect strategy at Rubber Bank. Jane. The significance

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Speaker 1: of a one thirteen on sterling, can we start there, Well,

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Speaker 1: it's very significant. As Leasta talked about Nino and Sterling

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Speaker 1: being fuced out of the e RM, and you know,

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Speaker 1: thinking about that story this morning, the first thing that

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Speaker 1: came to my mind was the current account position of

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Speaker 1: the UK, because if you've got a current account deficit,

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Speaker 1: and don't forget the UK deficit as in the center

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Speaker 1: of GDP is right now at record levels. It's much

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Speaker 1: worse than it was. But if you have a deficit,

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Speaker 1: really you're you're exposing your country to more of the

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Speaker 1: whims of of of non domestic investors. And if they

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Speaker 1: do not like the fundamentals that they see, your currency

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Speaker 1: is going to adjust lower now right now. I think

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Speaker 1: that's something which has been happening to the pound. You know,

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Speaker 1: for a while. The market doesn't like the growth story,

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Speaker 1: doesn't like the Brexit story, and and it doesn't like

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Speaker 1: that the fact that the tax cuts that are coming

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Speaker 1: from the new Prime Minister could really push the public finance.

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Speaker 1: Isn't it to numbers that people just don't like, so

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Speaker 1: Sterling is vulnerable and that current account position really exposes

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Speaker 1: the UK. Now, of course a lot of the story

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Speaker 1: is Donna strength, but there was certainly Sterling weakness in here.

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Speaker 1: And one thing that we did see earlier in the

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Speaker 1: years interest rate pikes couldn't it couldn't pull the band

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Speaker 1: out of the whole. Less point to Lisa's point, does

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Speaker 1: it will a seventy five basis points move offer that

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Speaker 1: much protection? Some maybe, but not all. Chris Gerles the too,

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Speaker 1: with a brilliant short essay pulling the United Kingdom back

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Speaker 1: to I believe nineteen seventy four and Mr Barber the

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Speaker 1: complete failed plan. Then is this Chancellor of the Exchequer

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Speaker 1: going down in flames with a growth model that's undoable? Well,

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Speaker 1: certainly the market is extremely skeptical. I mean he's he's

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Speaker 1: been talking about a growth target for the UK to

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Speaker 1: two and a half percent. Nobody really expects that can happen.

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Speaker 1: So you're talking about tax cuts which will give it

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Speaker 1: a bit of a boost, But actually what investors will

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Speaker 1: to see our measures that I'm going to prove you know,

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Speaker 1: productivity and growth and and and potential app but not

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Speaker 1: just a quick from text cuts. So investors a skeptical

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Speaker 1: and that is what the government is facing, and that

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Speaker 1: is what the government today appears to be ignoring. It's

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Speaker 1: a sterling story, it's a Chinese u N story. There

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Speaker 1: are specific stories about weakness. But on the other side,

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Speaker 1: it's very much a dollar story, especially as we're pricing

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Speaker 1: in such high potential FED funds rates next year. What

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Speaker 1: is your sense of when things break of, when at

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Speaker 1: the stronger dollar creates weakness that becomes hard for all

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Speaker 1: of these other central banks and these economies to get

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Speaker 1: out from under. I think you could probably already argue

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Speaker 1: that the the the the strength of the dollar is

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Speaker 1: already pushing half of the economy, half the world economy

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Speaker 1: under the bus. You know, it is very, very difficult,

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Speaker 1: and I think we see this already for a long

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Speaker 1: time in emerging market so many interstrate hikes there to

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Speaker 1: try and protect their currencies. Look at just care a well,

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Speaker 1: you see it's I don't think that's a particularly logical.

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Speaker 1: But because if you have a central bank putting up

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Speaker 1: interest rates, you know you've got to say, well, a

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Speaker 1: strong dollar is a byproduct that policy, So why then

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Speaker 1: come in On the other hand, and say, well, we're

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Speaker 1: going to weaken this country. It's not logical. So maybe

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Speaker 1: we were talking about some sort of plaza thing maybe

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Speaker 1: next year when the FED is confident that it has

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Speaker 1: got inflation under control. But a negative feedback loop that

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Speaker 1: you can think of, from the rest of the world

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Speaker 1: into the US economy for the FED has to respond to. Well,

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Speaker 1: I mean, I don't know whether the FED has to

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Speaker 1: respond to it, because after all that the FEDS in

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Speaker 1: a primary object is domestic inflation and domestic employment. Should

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Speaker 1: it address it? You know, I don't know. You know,

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Speaker 1: that's another question. But certainly there is a feedback loop

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Speaker 1: into the US dollar because as the rest of the

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Speaker 1: world weakens, is emerging markets weaken, people tend to buy

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Speaker 1: the dollar. And so if you're if you're buying the

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Speaker 1: dollar because the strong dollar is worsening the environment for

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Speaker 1: the rest of the world. Is you've got this, You've

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Speaker 1: got this absolutely, So you know what is going to

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Speaker 1: break it? I think it's it's only going to break maybe,

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Speaker 1: you know next year when when the FED things, you

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Speaker 1: know what, we can come down and this we we've

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Speaker 1: got to handle on medium term inflation. Expect Until then,

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Speaker 1: let's talk about some levels and squeeze this in cable

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Speaker 1: stirring against the US dollar one thirteen. You're a dollar

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Speaker 1: in and around parity dollar China through seven. Do you

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Speaker 1: think there's some big moves from here or is this

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Speaker 1: kind of it? I don't think it's it yet. And

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Speaker 1: we're thinking on your a dollar. I mean, we've got

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Speaker 1: a horrible winter to come for for Europe, you know,

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Speaker 1: energy price crisis, you know, rationing? Is that all priced

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Speaker 1: in up? I think perhaps not. Are we going an

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Speaker 1: enter turn your election? You know, will the far right

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Speaker 1: get in? You know that's that's perhaps you know the

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Speaker 1: next potential trigger for the for the euro in just

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Speaker 1: a few weeks time on cable. Our target now is

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Speaker 1: one oh nine. People are out there talking about parity

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Speaker 1: and we dismiss that, you know, no, I don't think

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Speaker 1: we can dismiss it's not our target. But you know

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Speaker 1: it depends very much on the US dollar. So you know,

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Speaker 1: these are are still nasty numbers to come and and

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Speaker 1: right now, you know, I think the dollar strength will

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Speaker 1: will sustain until you can honestly answer the question, we'll

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Speaker 1: what else are you going to buy? For the best

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Speaker 1: part of ten years, I think it's fantasize. The phone

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Speaker 1: exchange was kind of boring, and it's not boring anymore,

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Speaker 1: no at so Jank writes a catch shop, James Rabbit

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Speaker 1: Bank right now with your most important brief of the

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Speaker 1: day and fixed income. Sobrato Rijapa joins us head of

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Speaker 1: the United States rate strategy at the French Bank Society General.

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Speaker 1: Their history of math derivative dynamics is world class, Sobrata,

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Speaker 1: thank you for joining us. When you look at the

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Speaker 1: derivative mathematics of what we've seen in the last two

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Speaker 1: days or even the last two weeks, what is the

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Speaker 1: telling story about the rates of change in fixed income?

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Speaker 1: It's stunning. I mean we were looking at if you

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Speaker 1: look at a chart I think John was showing the

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Speaker 1: chart earlier the two years, we've gone somewhere between twenty

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Speaker 1: basis points last year this time to close to four

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Speaker 1: percent right now. So the rate of change has been

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Speaker 1: just absolutely stunning. You know. To me, what I'm looking

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Speaker 1: at is the message that you're getting from the barn market,

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Speaker 1: which is, you know, to take a page from you know,

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Speaker 1: I think Facebook's you know, um motto, it's like move

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Speaker 1: fast and break things. That's kind of what the FED

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Speaker 1: is it's about to do, which is, if they do

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Speaker 1: go along the path that the market has laid out,

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Speaker 1: they're going to have to break things ultimately, and that's

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Speaker 1: what the curve is really suggesting to us. I got

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Speaker 1: eight ways to go here, I'm going to go pro

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Speaker 1: on your right now, Sabadre. And that's of all the

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Speaker 1: different spreads, there's that one across all the yield curve.

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Speaker 1: The two years you go to three months, but let's

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Speaker 1: take the two years the former benchmark thirty year bond.

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Speaker 1: It isn't a place we literally haven't seen almost in

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Speaker 1: a lifetime two thousand. What is the importance of the

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Speaker 1: level of inversion of the two thirty spread? Absolutely the

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Speaker 1: five thirties a two thirty spread is Juliet levels we

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Speaker 1: haven't seen in two decades. So so to me, what

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Speaker 1: the message there is at the market ultimately, if you

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Speaker 1: look at ten years and beyond, is looking at the

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Speaker 1: potential for a meaningful slow down and growth and you know,

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Speaker 1: perhaps a hard landing, especially if the FED high strates

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Speaker 1: as aggressively as what's placed in the market. You're looking

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Speaker 1: at the term FED fund strate right now around four

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Speaker 1: and a half percent I mean that level was at

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Speaker 1: four percent or below just before the CPI print this week.

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Speaker 1: So the move and the repricing higher of the term

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Speaker 1: I fed fund strates quite dramatic in a very short

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Speaker 1: amount of time. So that would mean that there's a potential,

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Speaker 1: much higher potential for hard landing at LISA. I'm going

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Speaker 1: to tear up here what a control room we have?

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Speaker 1: Quantas in the crew they throw up a two thirty

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Speaker 1: spread chart. No one else in financial media does you

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Speaker 1: stop referring to our Australia to see there on radio.

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Speaker 1: It's just it's just active, definitely know he rejected be

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Speaker 1: a little bit ago. Let's get back to the bottom market.

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Speaker 1: I think that's a safer place for us to sit

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Speaker 1: on maybe, although maybe not. The question is where do

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Speaker 1: we stop right and where do we stop not only

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Speaker 1: with twos but also with tens, given that people are

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Speaker 1: wondering are we going to break something? And what does

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Speaker 1: the post breakage look like? Are we still looking at

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Speaker 1: a higher inflation rate, at a higher uh real interest

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Speaker 1: rate in an era where we're not talking about zero

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Speaker 1: yields anymore? Yeah? I know I think that really at

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Speaker 1: this you know, next meeting, given how dramatically yields have risen.

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Speaker 1: I'd be looking to hear from share Powell on what

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Speaker 1: they think that policy path is going to be. And

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Speaker 1: in my view, at least, I feel like the market

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Speaker 1: has gotten a little bit ahead of itself and and

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Speaker 1: Powell might have to thread the needle and try to

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Speaker 1: sort of talk the market away from the ledge, if

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Speaker 1: you will, Because yes, they do want to frontal rate heights.

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Speaker 1: Yes they do want to get to four percent and

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Speaker 1: a rush, but I think that they're going to take

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Speaker 1: a much more measured approach beyond four percent to make

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Speaker 1: sure that they're not breaking things as they're raising. Right,

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Speaker 1: So it's gonna be balancing act between what's happening on

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Speaker 1: the employment front. You know you you spoke about FedEx earlier.

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Speaker 1: They'll be looking at a variety of metrics see what

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Speaker 1: the impact of high interest rates are on the broader economy.

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Speaker 1: They know that Monterrey policy acts with lags, so they're

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Speaker 1: gonna have to figure out what that lag is and

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Speaker 1: how to act now so that the Montrey policy transmission

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Speaker 1: is effective and doesn't break things over the longer run. Sabad,

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Speaker 1: does that mean the area they're buying too? Your bonds,

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Speaker 1: buying two your bonds, um, you know, not necessarily. I mean,

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Speaker 1: I think the FED is not going to be you know,

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Speaker 1: buying bonds anytime soon. I'm saying, sorry, excuse me. I'm

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Speaker 1: just wondering whether it's a good opportunity, whether we basically

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Speaker 1: have seen a peak, if you're gonna expect a FED

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Speaker 1: to push back and give the market a little bit

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Speaker 1: of ashore as that perhaps they've got ahead of themselves.

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Speaker 1: Does this mean there's an opportunity and short term death, Uh,

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Speaker 1: there might be. The question is whether you want to

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Speaker 1: enter to that trade now, perhaps Legan, if you start

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Speaker 1: getting you know, closer to four percent and twoes, I mean,

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Speaker 1: you'll start looking very, very attractive. I think you're going

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Speaker 1: to see perhaps a little bit of a tactical steepening

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Speaker 1: between say the three year and the tenure part of

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Speaker 1: the curve. I'm still afraid to ted to year part

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Speaker 1: of the curve because it's it's peggy fat expectations that

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Speaker 1: has the potential to move higher. But I would say

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Speaker 1: tactically position for a three year ten year steepening makes

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Speaker 1: sense to me, at least over the short term, so

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Speaker 1: broad it's away from your Remit. When I'm going there,

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Speaker 1: it's a Friday, no one's listening or watching. What do

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Speaker 1: you do with the sixty forty allocations and bonds? I mean,

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Speaker 1: come on, in this world where these rates have changed.

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Speaker 1: I look at the Bloomberg Total Return Index and sixty

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Speaker 1: forty is getting absolutely crushed. Absolutely. I think that you know,

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Speaker 1: all assets are very collated. Right now, you're seeing you know,

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Speaker 1: bond sell off, equity sell off, the daughter continue to tighten.

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Speaker 1: At some point when you've seen a significant move and

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Speaker 1: risky assets, you're the best place you want to be

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Speaker 1: is going to be in bonds because yields are looking very,

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Speaker 1: very attractive across the curve. You know, even in the

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Speaker 1: long end, even though yields haven't risen as much as

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Speaker 1: they've done in the very front end, you know, you

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Speaker 1: still see pretty consistent demand from mass and liability managers

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Speaker 1: and pension funds for the very long end. So I

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Speaker 1: think that that's sort of trade is here to stay,

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Speaker 1: and that's going to keep long and yields you know

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Speaker 1: somewhat you know, pegged, and you know it makes sense

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Speaker 1: because if you're looking at a much longer term horizon,

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Speaker 1: you probably want to be long bonds, especially at a

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Speaker 1: time when equities are performing very poorly. So Patra, I'm

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Speaker 1: gonna leave it there, thank you, So Padra Jaffa there

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Speaker 1: of sock gem on the like market. Jose Antonio Ocounvo

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Speaker 1: joins us now Minister of Finance and Public Credit for

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Speaker 1: his Columbia or thrilled that he could join us this morning.

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Speaker 1: There's so much to talk about, minister, but I have

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Speaker 1: to go larger. After reach back to stan Fisher in

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Speaker 1: do you, through the prism of Colombia economics and foreign exchange,

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Speaker 1: see anything like an international upset that we witnessed in

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Speaker 1: and frankly before that in well, thank you, I'm delighted

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Speaker 1: to be with you. Let me say on that that

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Speaker 1: I don't think the same kind of crisis. It was

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Speaker 1: very much an emerging market crisis. This is a global crisis, uh,

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Speaker 1: both the slowdown, particularly the inflation on the increasing interest rate,

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Speaker 1: which is affecting all very heavily, very importantly, Sir, I

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Speaker 1: look at the caps, the limitation of price increase. We

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Speaker 1: see it on India and their channel just with Rice.

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Speaker 1: Here in the United Kingdom we see it, and indeed

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Speaker 1: Colombia and others talk about it given a more global economy,

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Speaker 1: the speed of information, the transfer of finance can caps

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Speaker 1: be effective in two thousand twenty three. But let me

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Speaker 1: say that the major problem that we're getting from the

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Speaker 1: global economy is the inflation, but particularly defect it has

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Speaker 1: had on interest rates. So both domestic interest rates in

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Speaker 1: Colombia as well as the interest rate in in double

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Speaker 1: capital markets are very high, and that the major specifically effect.

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Speaker 1: Of course, inflation is hard to fight due to the

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Speaker 1: international dimensions of inflation. So for a specific country, it

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Speaker 1: is very tough to to fight that inflation, which you

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Speaker 1: can say it's a supply inflation, right, and the man inflation.

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Speaker 1: Central banks are good at managing the man inflation. But

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Speaker 1: let's so in imagining supply inflation. There's a great concern

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Speaker 1: that when the FED hikes rates by as much as

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Speaker 1: the market is currently pricing administer that it will create

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Speaker 1: some real problems for the rest of the world. And

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Speaker 1: I wonder from your Columbia, whether you're taking a look

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Speaker 1: at the dollar market and saying we cannot raise money

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Speaker 1: in that right now at affordable rates? Is that really

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Speaker 1: the situation as you look at your financing needs looking out, Yes,

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Speaker 1: private capital markets are very expensive for emerging economies today,

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Speaker 1: including the Fort Columbia. So for the time being, our

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Speaker 1: international financing is coming from multilatal development banks and official institutions.

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Speaker 1: But so far we have not gone this year into

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Speaker 1: the private capital markets. We hope things that normaliza, I

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Speaker 1: think in the near future, and we'll go back to

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Speaker 1: the market. We're expecting to raise about one half billion

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Speaker 1: dollars in the private capital markets next year. What does

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Speaker 1: it mean for things to stabilize, Minister? Does it mean

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Speaker 1: that the dollar stabilizes. Does it mean that the Fed

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Speaker 1: star ups raising rates. Does it mean that inflation stops accelerating.

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Speaker 1: But it really means that the the long term interest

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Speaker 1: rates of the US start to fall. They were falling

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Speaker 1: actually before the the recent announcement of the fact that

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Speaker 1: they would likely increase interest rates again in the next meeting,

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Speaker 1: But before that they were falling, and and also the

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Speaker 1: risk markets for emerging markets were also falling. But the

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Speaker 1: situation has changed again, but we helped the At one point,

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Speaker 1: when the inflation stabilizes in the United States, UH, the

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Speaker 1: interest rates of the US effectively long term interest rate,

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00:22:41,160 --> 00:22:43,840
Speaker 1: which is irrelevant for for US to start to fall.

431
00:22:45,200 --> 00:22:47,880
Speaker 1: Dr Campo. You have been one of the great voices

432
00:22:48,080 --> 00:22:52,800
Speaker 1: of Columbia through time, and the stereotype in America is

433
00:22:52,840 --> 00:22:56,720
Speaker 1: of true civil unrest. In Colombia, you've moved beyond that

434
00:22:56,960 --> 00:23:01,520
Speaker 1: with a new government. In your participation as well, can

435
00:23:01,560 --> 00:23:06,720
Speaker 1: you describe the stability in Colombia and what it means

436
00:23:06,760 --> 00:23:08,960
Speaker 1: for your tourism. So many people have go on to

437
00:23:09,040 --> 00:23:13,720
Speaker 1: Cartoner and the rest of it. Describe the tourism future

438
00:23:13,840 --> 00:23:19,240
Speaker 1: for Colombia after decades of real unrest. Well, let me

439
00:23:19,359 --> 00:23:23,480
Speaker 1: say that the peace process that took place UH five

440
00:23:23,560 --> 00:23:28,920
Speaker 1: years ago has been fairly successful in in generating UH

441
00:23:29,280 --> 00:23:33,000
Speaker 1: peace in several parts of the country. The current government

442
00:23:33,080 --> 00:23:37,640
Speaker 1: is involved in UH in other negotiations that we hope

443
00:23:37,800 --> 00:23:42,439
Speaker 1: would be successful and and let's say they returned to

444
00:23:42,520 --> 00:23:45,280
Speaker 1: peace in many parts of the country. Has generated UH

445
00:23:45,520 --> 00:23:49,200
Speaker 1: effectively what you say, UH actually a boom of tourism.

446
00:23:49,800 --> 00:23:54,440
Speaker 1: We hope that it will come back when the what

447
00:23:54,640 --> 00:23:58,080
Speaker 1: economy is fully recovers, because the tourism in the world

448
00:23:58,800 --> 00:24:02,159
Speaker 1: is still a bit depressed. Let's say UH oh tho

449
00:24:02,240 --> 00:24:05,639
Speaker 1: it's recovering, and in Columbia, WILL would hope to have

450
00:24:06,400 --> 00:24:11,040
Speaker 1: a boom tourism and then step. We appreciate you time today.

451
00:24:11,119 --> 00:24:12,760
Speaker 1: It's lucky to catch up with you. We're lucky to

452
00:24:12,800 --> 00:24:15,600
Speaker 1: catch up with you. How's the antonio, I'll campo that

453
00:24:20,280 --> 00:24:23,440
Speaker 1: general equilibrium theory and in the middle of all that

454
00:24:23,920 --> 00:24:27,200
Speaker 1: is stochastic. And what that means is things are moving rapidly.

455
00:24:27,560 --> 00:24:31,240
Speaker 1: And Seth Carpenter's chief global economis at Morgan Stanley and

456
00:24:31,280 --> 00:24:36,320
Speaker 1: those decidedly it is a stochastic two thousand twenty two. Seth,

457
00:24:36,520 --> 00:24:41,400
Speaker 1: what is the process or path to get to calmer times,

458
00:24:41,800 --> 00:24:46,800
Speaker 1: a calmer economy and calmer markets. I think that prospect

459
00:24:46,800 --> 00:24:48,840
Speaker 1: will require a fair amount of luck. I think the

460
00:24:48,920 --> 00:24:52,600
Speaker 1: challenge here, especially you started off talking about the Fed.

461
00:24:52,760 --> 00:24:56,359
Speaker 1: They are feeling their way to how far they have

462
00:24:56,480 --> 00:24:59,280
Speaker 1: to raise the federal funds. Right. They want to be restrictive,

463
00:24:59,359 --> 00:25:02,040
Speaker 1: They want to get demand to slow down a lot

464
00:25:02,080 --> 00:25:05,760
Speaker 1: so that that underlying inflationary pressure starts to EBB. But

465
00:25:05,800 --> 00:25:08,800
Speaker 1: what they don't want to do is intentionally cause a

466
00:25:08,800 --> 00:25:11,560
Speaker 1: recession and one and getting to that point I think

467
00:25:11,560 --> 00:25:14,920
Speaker 1: will require a bit of luck. How do you respond

468
00:25:15,119 --> 00:25:20,280
Speaker 1: to the idea that the inflation impulse has a certain

469
00:25:20,320 --> 00:25:24,600
Speaker 1: effect on the public, but the jobless impulse has a

470
00:25:24,720 --> 00:25:28,840
Speaker 1: much greater effect. Oh, I think they're I think they're

471
00:25:28,840 --> 00:25:32,280
Speaker 1: both very very important. Clearly for people who have lost

472
00:25:32,320 --> 00:25:35,439
Speaker 1: their jobs, that's that's just very very difficult. And crimps

473
00:25:35,440 --> 00:25:38,800
Speaker 1: they're spending a great deal. We don't have in our

474
00:25:38,840 --> 00:25:42,760
Speaker 1: forecast any meaningful rise in in in layoffs. In fact,

475
00:25:42,800 --> 00:25:44,560
Speaker 1: if you look at the last jobs report, that was

476
00:25:44,560 --> 00:25:47,120
Speaker 1: super strong and over three hundred thousands of so far,

477
00:25:48,119 --> 00:25:51,720
Speaker 1: that's been okay. Uh. The inflationary side of things, though,

478
00:25:51,920 --> 00:25:54,840
Speaker 1: very much hits the pocketbooks of everyday people. The rise

479
00:25:54,920 --> 00:25:57,240
Speaker 1: in gas prices that we saw a few months ago

480
00:25:57,359 --> 00:26:00,240
Speaker 1: was painful. That's starting to come off now. Think the

481
00:26:00,320 --> 00:26:02,920
Speaker 1: challenge for the FED then will be if gas prices

482
00:26:02,960 --> 00:26:05,159
Speaker 1: come down to people go back to spending more or

483
00:26:05,280 --> 00:26:07,000
Speaker 1: or have they been hit hard enough in the wall

484
00:26:07,119 --> 00:26:09,879
Speaker 1: in the pocketbook it seth We spend the whole of

485
00:26:09,920 --> 00:26:12,000
Speaker 1: summer trying to work out what the threshold would be

486
00:26:12,160 --> 00:26:14,960
Speaker 1: for a pivot, a pause, maybe even right cuts next year.

487
00:26:15,320 --> 00:26:18,600
Speaker 1: You've got right cuts out in. I just wonder what

488
00:26:18,720 --> 00:26:21,399
Speaker 1: is it about where you think this threshold is going

489
00:26:21,480 --> 00:26:25,960
Speaker 1: to be breached and the FETE starts cutting. So I

490
00:26:26,000 --> 00:26:28,640
Speaker 1: will I will just own up front the uncertainty here

491
00:26:28,800 --> 00:26:32,160
Speaker 1: is huge um of what we've been for many many years.

492
00:26:32,240 --> 00:26:34,640
Speaker 1: Lower for longer was what central banks are doing. Now

493
00:26:34,640 --> 00:26:37,960
Speaker 1: it is higher for longer. And again I think what

494
00:26:38,000 --> 00:26:39,960
Speaker 1: the FED is trying to do is feel their way

495
00:26:40,040 --> 00:26:43,520
Speaker 1: to where they can rain in the economy without actually

496
00:26:43,600 --> 00:26:46,479
Speaker 1: causing an outright recession. And that's the reason why they

497
00:26:46,520 --> 00:26:50,080
Speaker 1: go to what they call restrictive territory, but then not

498
00:26:50,280 --> 00:26:52,400
Speaker 1: so much that things actually crashed, and then hang out

499
00:26:52,400 --> 00:26:54,919
Speaker 1: there as the economy slows down. So that's what we

500
00:26:55,000 --> 00:26:59,119
Speaker 1: have as our baseline, is getting some traction and then

501
00:26:59,160 --> 00:27:02,480
Speaker 1: they just wait for things to slow down. John, I

502
00:27:02,520 --> 00:27:05,119
Speaker 1: just want to point out equity futures just moved to

503
00:27:05,240 --> 00:27:09,480
Speaker 1: new lows for the morning. And that's the story so far, Seth.

504
00:27:09,520 --> 00:27:12,640
Speaker 1: And the story many people are grappling with for participants

505
00:27:12,640 --> 00:27:15,320
Speaker 1: in markets at the moment is whether these are sufficiently

506
00:27:15,359 --> 00:27:19,000
Speaker 1: type financial conditions for this FED to achieve its objective.

507
00:27:19,080 --> 00:27:23,040
Speaker 1: Do you think they are right now sufficiently tight? Very

508
00:27:23,080 --> 00:27:24,840
Speaker 1: hard to say. I will say one of the most

509
00:27:24,960 --> 00:27:28,000
Speaker 1: typically sensitive sectors is housing, and we have seen a

510
00:27:28,160 --> 00:27:31,200
Speaker 1: very strong roll over there in housing. On the other hand,

511
00:27:31,560 --> 00:27:34,320
Speaker 1: consumer durable good spending is actually still holding up to

512
00:27:34,400 --> 00:27:36,800
Speaker 1: some degree, so it's not clear that things have actually

513
00:27:36,840 --> 00:27:40,800
Speaker 1: been yet. That said, you were talking about equities. You know,

514
00:27:41,000 --> 00:27:44,119
Speaker 1: my colleague Mike Wilson always points out that this probably

515
00:27:44,160 --> 00:27:46,760
Speaker 1: needs to be a lower and earnings projections, and I

516
00:27:46,840 --> 00:27:49,439
Speaker 1: think that makes sense. If the economy is going to

517
00:27:49,440 --> 00:27:52,960
Speaker 1: slow down enough to get inflationary pressures under control, you

518
00:27:53,080 --> 00:27:55,480
Speaker 1: just have to expect earnings across the board to be

519
00:27:55,560 --> 00:27:58,359
Speaker 1: lower than they are now, and we're just not there yet.

520
00:27:59,520 --> 00:28:02,679
Speaker 1: I like your call for holding it at four percent

521
00:28:02,760 --> 00:28:05,480
Speaker 1: though for almost a year for the Fed funds rate,

522
00:28:05,520 --> 00:28:08,720
Speaker 1: and I wonder if people are underestimating the pain of

523
00:28:08,840 --> 00:28:11,479
Speaker 1: holding rates at a level like that, rather than just

524
00:28:11,800 --> 00:28:14,400
Speaker 1: missing the boat raising too far and then quickly cutting again,

525
00:28:14,440 --> 00:28:17,440
Speaker 1: which seems to be the projection in markets. I think

526
00:28:17,440 --> 00:28:19,720
Speaker 1: there probably is a bit of underestimation there. But I

527
00:28:19,800 --> 00:28:25,400
Speaker 1: suspect the even greater underestimation is is what happens if

528
00:28:25,560 --> 00:28:28,320
Speaker 1: getting hiking rates to four percent isn't enough. What happens

529
00:28:28,320 --> 00:28:31,240
Speaker 1: if they hike to four percent, wait there for a

530
00:28:31,320 --> 00:28:34,320
Speaker 1: quarter or two and the economy just proves to be

531
00:28:34,400 --> 00:28:37,720
Speaker 1: strong enough that demand is there and inflation doesn't come down,

532
00:28:37,960 --> 00:28:40,080
Speaker 1: then the Fed's just going to keep hiking, and I

533
00:28:40,120 --> 00:28:43,760
Speaker 1: think that point that there's not really an upside economic

534
00:28:43,760 --> 00:28:46,440
Speaker 1: growth right now. It is either things slow down and

535
00:28:46,520 --> 00:28:49,280
Speaker 1: inflation comes under control, or they don't slow down and

536
00:28:49,320 --> 00:28:52,040
Speaker 1: the FED just hikes more until they do slow down.

537
00:28:52,960 --> 00:28:54,600
Speaker 1: John and Tom both make fun of me because at

538
00:28:54,600 --> 00:28:56,600
Speaker 1: four thirty pm on Thursdays I take a look at

539
00:28:56,640 --> 00:28:58,760
Speaker 1: the Fed's balance sheet to see where it is and

540
00:28:58,800 --> 00:29:02,080
Speaker 1: whether it's coming down as they promised quantitative tightening. Over

541
00:29:02,120 --> 00:29:05,240
Speaker 1: the past week, it actually rose. It became bigger, even

542
00:29:05,280 --> 00:29:08,760
Speaker 1: though they insensibly we're supposed to be accelerating quantitative tightening.

543
00:29:08,760 --> 00:29:10,400
Speaker 1: When do we start to feel the effects of this,

544
00:29:10,720 --> 00:29:13,760
Speaker 1: When does it start to matter for markets? That's a

545
00:29:13,800 --> 00:29:15,640
Speaker 1: great question, and you and I can can sort of

546
00:29:16,400 --> 00:29:18,680
Speaker 1: bond on Thursday afternoons. That was a big part of

547
00:29:18,720 --> 00:29:21,720
Speaker 1: my job at was in charge of the H four

548
00:29:21,720 --> 00:29:27,160
Speaker 1: one statistical release nerd alert. Um. Yeah. The challenge I

549
00:29:27,240 --> 00:29:29,880
Speaker 1: think with with getting QT to actually show up on

550
00:29:29,920 --> 00:29:32,040
Speaker 1: the balance sheet, and large part is, you know, some

551
00:29:32,120 --> 00:29:36,640
Speaker 1: of the way they're settling their mortgage back securities holdings

552
00:29:36,640 --> 00:29:39,040
Speaker 1: on a forward basis, and so it really hasn't shown up.

553
00:29:39,320 --> 00:29:41,520
Speaker 1: Just give it a couple more months. The treasuries are

554
00:29:41,520 --> 00:29:44,600
Speaker 1: coming off their balanty. Over time, the mortgage backed securities

555
00:29:44,600 --> 00:29:47,280
Speaker 1: will prepay and go away, but it does take a

556
00:29:47,320 --> 00:29:50,680
Speaker 1: long time. So if I look at the d X,

557
00:29:50,880 --> 00:29:54,560
Speaker 1: Y is a bundled Pacific rim thermometer. If you would

558
00:29:54,640 --> 00:29:58,800
Speaker 1: I look at Korean one unraveling through the week, help

559
00:29:58,920 --> 00:30:02,600
Speaker 1: us in the week and into the Asia morning. What

560
00:30:02,840 --> 00:30:06,760
Speaker 1: is the gamesmanship Morgan Stanley season, You've got Robbie Feldman

561
00:30:06,840 --> 00:30:11,440
Speaker 1: in Tokyo, who's iconic, But what is the gamesmanship you

562
00:30:11,480 --> 00:30:14,280
Speaker 1: see of the Bank of Japan and the Ministry of

563
00:30:14,320 --> 00:30:18,600
Speaker 1: Finance into their Monday morning our Sunday evening. Are we

564
00:30:18,760 --> 00:30:23,760
Speaker 1: close to action? That is a great question. So our

565
00:30:23,800 --> 00:30:27,080
Speaker 1: baseline view is no. Not from the Bank of Japan.

566
00:30:27,240 --> 00:30:30,440
Speaker 1: You have Governor Corona in place. His term is up

567
00:30:31,000 --> 00:30:33,560
Speaker 1: in the first half of next year. He has been

568
00:30:33,600 --> 00:30:37,160
Speaker 1: committed for so long to be easy with policy, to

569
00:30:37,200 --> 00:30:40,880
Speaker 1: try to get inflation up. Now it is working, clearly.

570
00:30:41,040 --> 00:30:43,320
Speaker 1: The end has gone on a on a tear, going

571
00:30:43,480 --> 00:30:46,400
Speaker 1: lower and lower and lower against the dollar um but

572
00:30:46,600 --> 00:30:51,160
Speaker 1: finally they're starting to get some traction with inflation. So

573
00:30:51,560 --> 00:30:54,360
Speaker 1: very importantly, what do you read and listen to from

574
00:30:54,480 --> 00:30:58,600
Speaker 1: Robbie Feldman? You have the advantage of Dr Feldman in Tokyo,

575
00:30:58,680 --> 00:31:03,080
Speaker 1: who's absolutely kind of on this. What is Robbie's twist

576
00:31:03,200 --> 00:31:07,080
Speaker 1: on this? No, Robbie is fantastic, and I think everybody

577
00:31:07,120 --> 00:31:10,160
Speaker 1: should get the opportunity to read his work. I think

578
00:31:10,200 --> 00:31:13,000
Speaker 1: the key really is here all about legacy and the

579
00:31:13,000 --> 00:31:15,840
Speaker 1: amount of time and effort that has been put into

580
00:31:16,120 --> 00:31:18,800
Speaker 1: this very easy policy to try to get inflation of

581
00:31:18,960 --> 00:31:22,880
Speaker 1: Japan has had lost decades plural now when it comes

582
00:31:22,920 --> 00:31:26,960
Speaker 1: to the deflationary spiral, and I think there really is

583
00:31:26,960 --> 00:31:30,080
Speaker 1: a sense, at least with Governor Krota, that it's critical

584
00:31:30,160 --> 00:31:33,600
Speaker 1: to to stay the course to get inflation of Seth.

585
00:31:33,600 --> 00:31:35,880
Speaker 1: Can we just wrap things up with FedEx. It's such

586
00:31:35,920 --> 00:31:39,120
Speaker 1: a big story for everyone this morning, guess, arguably contributing

587
00:31:39,160 --> 00:31:41,000
Speaker 1: to some of the nervous that's around the equity market

588
00:31:41,040 --> 00:31:44,880
Speaker 1: as well. The stocks down almost in the pre market.

589
00:31:45,320 --> 00:31:47,520
Speaker 1: We all know this is not a small company. It

590
00:31:47,680 --> 00:31:50,120
Speaker 1: was something like a fifty sixty billion dollar company. It

591
00:31:50,160 --> 00:31:52,920
Speaker 1: won't be if we close here a little bit later, Seth.

592
00:31:52,960 --> 00:31:55,960
Speaker 1: They're talking about speed that things have slowed down really

593
00:31:56,000 --> 00:31:58,800
Speaker 1: really quickly. Is there anything that you look at on

594
00:31:58,880 --> 00:32:04,360
Speaker 1: your dashboard that would perhaps resonate with what FedEx rexperiencing.

595
00:32:04,480 --> 00:32:07,680
Speaker 1: Can you see anything like this? Well, I think one

596
00:32:07,680 --> 00:32:10,200
Speaker 1: of the key points with companies like fed X in

597
00:32:10,240 --> 00:32:14,400
Speaker 1: the shipping business is we did see this massive, massive

598
00:32:14,440 --> 00:32:18,520
Speaker 1: surge in good spending. Yesterday's retail sales report didn't really

599
00:32:18,560 --> 00:32:21,360
Speaker 1: make you feel like it has unwound completely yet, but

600
00:32:21,480 --> 00:32:23,400
Speaker 1: it does seem that at some point we're going to

601
00:32:23,520 --> 00:32:26,080
Speaker 1: have to see that consumer pull back from as much

602
00:32:26,120 --> 00:32:29,120
Speaker 1: consumer spending as had been going on on physical goods,

603
00:32:29,360 --> 00:32:31,640
Speaker 1: and that's going to have ripple effects across the economy.

604
00:32:31,640 --> 00:32:33,680
Speaker 1: Two retailers, but also two companies that do a lot

605
00:32:33,680 --> 00:32:37,520
Speaker 1: of shipping. Seth comment of Morgus Stanley Seth. Thank you, Seth.

606
00:32:38,440 --> 00:32:43,040
Speaker 1: From you. This is the Bloomberg Surveillance Podcast. Thanks for listening.

607
00:32:43,440 --> 00:32:46,760
Speaker 1: Join us live weekdays from seven to ten am Eastern

608
00:32:47,000 --> 00:32:51,040
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

609
00:32:51,120 --> 00:32:56,360
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

610
00:32:56,520 --> 00:33:01,520
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

611
00:33:01,640 --> 00:33:05,440
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

612
00:33:05,560 --> 00:33:17,040
Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg. M