WEBVTT - Surveillance: Earnings Revision with Sheets 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane, along 0:00:09.200 --> 0:00:13.039 with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.239 --> 0:00:23.320 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.120 dot Com, and of course on the Bloomberg terminal. Can 0:00:29.160 --> 0:00:32.159 I tell you the Sundgrights have people alongside us Andrew Sheets, 0:00:32.200 --> 0:00:34.080 one of them just dropped by from malc and Stanley, 0:00:34.120 --> 0:00:37.520 the chief cross assets strategist. Andrew, It's gonna say, Mr 0:00:37.520 --> 0:00:40.519 Schats when camp by this equity market, Well, thanks, It's 0:00:40.640 --> 0:00:41.920 nice to be with you. It's nice to be with 0:00:41.920 --> 0:00:44.519 you in person. Look, this is an equity market that 0:00:44.520 --> 0:00:46.720 I think, over the next month is still dealing with 0:00:46.760 --> 0:00:50.280 a real crucible of challenges. We are into the thick 0:00:50.320 --> 0:00:52.320 of what we think is going to be a disappointing 0:00:52.440 --> 0:00:55.240 earnings revision lower. That's a key view of my colleague 0:00:55.240 --> 0:00:57.840 Michael Wilson in the US, by colleagu Graham Secker. Here 0:00:57.840 --> 0:01:00.160 in Europe, I think this is still a period where 0:01:00.200 --> 0:01:01.960 it's going to be very difficult for the Fed to 0:01:02.000 --> 0:01:06.080 sound anything other than hawkish given these upside surprises to inflation. 0:01:06.200 --> 0:01:08.559 And then on the geopolitical front, right, it's too soon 0:01:08.640 --> 0:01:11.880 to get anything real developments in terms of changes in 0:01:11.959 --> 0:01:15.320 China policy, and still a lot of uncertainty into European 0:01:15.400 --> 0:01:18.080 energy policy heading into winter. So we think it's still 0:01:18.080 --> 0:01:22.240 too soon, especially with rates rising, especially in the front end, 0:01:22.440 --> 0:01:25.800 and think investors should stay cautious, and we think that 0:01:25.920 --> 0:01:28.840 cash will outperform a lot of assets. There is at 0:01:28.880 --> 0:01:33.920 Brown University a fabulous tradition of differential geometry. Cornellen Brown 0:01:34.000 --> 0:01:36.280 on the high ground on that, and it all comes 0:01:36.319 --> 0:01:38.920 down to calculus. Are you frightened by the rates of 0:01:39.000 --> 0:01:41.840 change right now? And the second derivative as well well, 0:01:41.840 --> 0:01:45.399 I think the biggest change that I think the market 0:01:45.480 --> 0:01:47.920 is going to have to adjust to is you investors 0:01:47.960 --> 0:01:49.640 over the last twelve years, which is a quite long 0:01:49.680 --> 0:01:53.760 period of time, have known mostly rates of zero or 0:01:53.840 --> 0:01:57.200 less than zero on cash, and so Tell said that's 0:01:57.200 --> 0:01:59.720 out on Twitter yesterday he said, it's like physics without 0:02:00.520 --> 0:02:02.240 are we going to use to gravity again? I think 0:02:02.240 --> 0:02:04.000 we're getting used to gravity. I think we're seeing a 0:02:04.080 --> 0:02:06.040 real large adjustment. And so if you think about the 0:02:06.080 --> 0:02:08.880 SMP five having an earnings yield of about five point 0:02:08.960 --> 0:02:12.200 nine percent, and you know one to five year corporate 0:02:12.200 --> 0:02:15.240 bonds having a yield of four point nine percent, that 0:02:15.360 --> 0:02:19.160 is an enormous convergence in ass cross asset yields and 0:02:19.160 --> 0:02:21.359 so and that's a shift we haven't seen for twelve years. 0:02:21.400 --> 0:02:23.840 So I think that's an adjustment that is truly different 0:02:23.880 --> 0:02:25.960 and that the market's going to have to, you know, 0:02:26.000 --> 0:02:28.480 make some make some adjustments. For there's a difference between 0:02:28.520 --> 0:02:32.320 more downside and risk assets and something breaking and something 0:02:32.360 --> 0:02:35.440 that becomes a systemic issue, that is a fissure, and 0:02:35.480 --> 0:02:38.880 that is rapid when does something break As we take 0:02:38.919 --> 0:02:41.639 a look at that pace of change, particularly with the 0:02:41.680 --> 0:02:43.680 front end rate, Yes, at least I think that's such 0:02:43.720 --> 0:02:45.800 a great point because I think ironically here the fact 0:02:45.840 --> 0:02:49.760 that stuff is good not breaking, means that the FED 0:02:50.000 --> 0:02:52.240 can and likely will do more. You know, I think 0:02:52.280 --> 0:02:54.440 we see banks with very healthy balance sheets. We see 0:02:54.440 --> 0:02:58.200 consumers and corporates with healthy balance sheets. The low rates 0:02:58.200 --> 0:03:00.840 of last two years allowed a lot of Americans to 0:03:01.120 --> 0:03:04.440 refinance into low third year fixed rate mortgages, which means 0:03:04.440 --> 0:03:08.400 their largest liability, their highest cost, is almost immune from 0:03:08.400 --> 0:03:10.960 the rate hikes, and so that strength I think means 0:03:11.000 --> 0:03:12.880 that the market is sending the Fed signals you can 0:03:13.000 --> 0:03:15.680 keep going. We haven't yet hit that point where its disorderly. 0:03:15.760 --> 0:03:17.760 So what is that point? I mean, can they get 0:03:17.840 --> 0:03:20.120 up to the Deutsche Bank call of four point nine 0:03:20.120 --> 0:03:22.919 percent on a FED funds rate and still have things 0:03:22.960 --> 0:03:25.840 be sanguine enough to give them some confidence that they 0:03:25.840 --> 0:03:27.839 can stay there for a while. Well, so we don't 0:03:27.840 --> 0:03:30.000 think rates will get that high, but we do think 0:03:30.040 --> 0:03:32.320 that the skew is that they will continue to press 0:03:32.840 --> 0:03:35.680 higher and go for longer. And again, I think the 0:03:35.720 --> 0:03:38.400 Fed is is having a real challenge right in in 0:03:38.720 --> 0:03:41.800 hockey terms, they're trying to skate to the puck and 0:03:41.800 --> 0:03:46.600 and we don't know exactly what the delay between you know, 0:03:46.600 --> 0:03:48.680 a rate hike today and impact and the economy is 0:03:48.680 --> 0:03:50.280 going to be. And so this is a real, real 0:03:50.320 --> 0:03:52.200 uncertain I think the market was hopeful that we would 0:03:52.200 --> 0:03:54.040 get some relief that inflation would start heading in the 0:03:54.080 --> 0:03:56.080 right direction and that would buy the Fed some time. 0:03:56.600 --> 0:03:59.600 But I think it's quite clear with that sticky core inflation, 0:04:00.040 --> 0:04:02.280 they just cannot pivot yet. And then the skew is 0:04:02.360 --> 0:04:06.400 excu st Gretzky is that what that was like that 0:04:08.240 --> 0:04:10.760 I'm going to tear up here, get the spelling right 0:04:10.800 --> 0:04:13.800 on that banner. I mean, I saw Gretzky actually do 0:04:13.880 --> 0:04:17.320 this is an absolutely where he does. He was playing 0:04:17.320 --> 0:04:20.840 the Buffalo sabers in Pero, and Gretzky did exactly what 0:04:20.920 --> 0:04:25.039 you said, Jerol, Jerol Powell is no way in Gretzky, 0:04:25.160 --> 0:04:28.039 is he? Well. I do think what you're dealing with is, 0:04:28.120 --> 0:04:30.200 if you ask a lot of economists, right, there's not 0:04:30.240 --> 0:04:32.640 an agreement on what that delay between a rate hike 0:04:32.720 --> 0:04:35.400 today is on the economy. And then I think there's 0:04:35.440 --> 0:04:38.400 still very divergent camps theoretically, right, I think there's a 0:04:38.440 --> 0:04:40.800 camp and we heard this last year the Fed can 0:04:40.839 --> 0:04:42.680 never hike very much because there's so much debt in 0:04:42.720 --> 0:04:44.680 the economy. They'll never hike more than one or two 0:04:44.680 --> 0:04:48.360 percent versus well, actually, maybe companies and households have termed 0:04:48.360 --> 0:04:50.919 out so much debt at super low rates that the 0:04:50.960 --> 0:04:52.920 sensitivity is lower. And I think this is a real 0:04:53.000 --> 0:04:55.560 question that you kind of don't really know until it 0:04:55.600 --> 0:04:58.480 makes contact with the economy. So Andrew became out the 0:04:58.560 --> 0:05:01.520 last crisis, and I oh nine, and you all remember 0:05:01.560 --> 0:05:04.520 the projections for high yields every single year high yields 0:05:04.560 --> 0:05:07.400 high yield, it's never materialized year it's went lower. Do 0:05:07.480 --> 0:05:10.120 you sense it's that kind of story in reverse, that 0:05:10.200 --> 0:05:13.520 we haven't quite fully capitulated on this view of a 0:05:13.520 --> 0:05:15.840 low interest rate world, that we just seem to think 0:05:15.920 --> 0:05:17.599 that this is an anomaly and we're going back to 0:05:17.640 --> 0:05:19.800 where we were before. I think there's still some of that, 0:05:19.839 --> 0:05:21.360 you know. And I think that the real rate is 0:05:21.400 --> 0:05:23.720 a very interesting debate where real rates are still quite 0:05:23.800 --> 0:05:26.760 low in the US, in the Eurozone, in the UK, 0:05:26.880 --> 0:05:28.760 they have not yet gone back to kind of just 0:05:28.800 --> 0:05:31.839 the PREGFC level, let alone kind of the higher levels 0:05:31.880 --> 0:05:33.840 we saw in the nineties. So I think there's still 0:05:33.920 --> 0:05:36.360 room for the market to readjust especially as you see 0:05:36.400 --> 0:05:40.440 a healthy household, healthy corporate balance sheets, more capital expenditure 0:05:40.520 --> 0:05:43.599 that again could point to kind of hire somewhat higher 0:05:44.240 --> 0:05:47.080 neutral neutral levels of interest. I put out that Deutsche 0:05:47.080 --> 0:05:50.280 Bank cool from Matt Lizette five fed funds next year. 0:05:50.320 --> 0:05:52.640 The amount of pushback I got on that cool just 0:05:52.760 --> 0:05:55.080 because people wonder whether we can actually live least when 0:05:55.080 --> 0:05:57.080 you've spoken to this a few times in a five 0:05:57.080 --> 0:05:59.440 percent interest rate world anymore. Yeah, And I think that 0:05:59.640 --> 0:06:02.359 Andrew's Jesus point saying that basically people have turned it 0:06:02.400 --> 0:06:04.560 out and the fact that they are coping with it 0:06:04.600 --> 0:06:07.440 gives this uncertainty of maybe we have gotten less rate 0:06:07.520 --> 0:06:10.520 sensitive and allows the FED to go further is really 0:06:10.640 --> 0:06:13.159 underpinning the reality of what people are pressing in. You 0:06:13.160 --> 0:06:15.240 know how you try and get me to explain football 0:06:15.279 --> 0:06:18.200 to people who don't know? Can you explain? Can you 0:06:18.279 --> 0:06:21.320 explain Gretzky to every world? This is where you think 0:06:21.400 --> 0:06:24.480 the park is going to be. Everybody, I mean everybody 0:06:24.480 --> 0:06:28.360 knows I know less about English football ice hockey? Are 0:06:28.400 --> 0:06:31.640 you dazzling me? How do you know that Gretzky skated 0:06:31.640 --> 0:06:34.400 to where the park wasn't because his daughter married a 0:06:34.560 --> 0:06:38.520 very very good golfer. So a sort of reverse engineered 0:06:38.520 --> 0:06:42.360 it from golf through his wife and back into ice hockey. 0:06:42.680 --> 0:06:44.159 That's how I did it. Does that work for you? 0:06:45.000 --> 0:06:47.479 That word? Does that work for you? So sort of 0:06:47.520 --> 0:06:52.839 reversed engineered it from golf to ice hockey and then Tom. 0:06:52.839 --> 0:06:54.640 You know it takes a lot of work. Andrew sheets 0:06:54.640 --> 0:07:01.840 and more? Can Stanley Andrew think it's good to see it? Well, 0:07:01.880 --> 0:07:03.520 we get on for the next two hours. We will 0:07:03.520 --> 0:07:05.840 get along with Jane Foley, I can guarantee you that 0:07:06.279 --> 0:07:09.480 kind of effect strategy at Rubber Bank. Jane. The significance 0:07:09.480 --> 0:07:12.400 of a one thirteen on sterling, can we start there, Well, 0:07:12.440 --> 0:07:16.200 it's very significant. As Leasta talked about Nino and Sterling 0:07:16.200 --> 0:07:17.680 being fuced out of the e RM, and you know, 0:07:18.920 --> 0:07:20.640 thinking about that story this morning, the first thing that 0:07:20.680 --> 0:07:22.520 came to my mind was the current account position of 0:07:22.640 --> 0:07:25.680 the UK, because if you've got a current account deficit, 0:07:25.960 --> 0:07:28.920 and don't forget the UK deficit as in the center 0:07:29.000 --> 0:07:32.120 of GDP is right now at record levels. It's much 0:07:32.200 --> 0:07:35.480 worse than it was. But if you have a deficit, 0:07:35.840 --> 0:07:39.240 really you're you're exposing your country to more of the 0:07:39.240 --> 0:07:42.600 whims of of of non domestic investors. And if they 0:07:42.680 --> 0:07:45.360 do not like the fundamentals that they see, your currency 0:07:45.400 --> 0:07:48.200 is going to adjust lower now right now. I think 0:07:48.240 --> 0:07:51.120 that's something which has been happening to the pound. You know, 0:07:51.160 --> 0:07:54.000 for a while. The market doesn't like the growth story, 0:07:54.080 --> 0:07:57.240 doesn't like the Brexit story, and and it doesn't like 0:07:57.320 --> 0:07:59.920 that the fact that the tax cuts that are coming 0:08:00.040 --> 0:08:04.920 from the new Prime Minister could really push the public finance. 0:08:04.920 --> 0:08:06.800 Isn't it to numbers that people just don't like, so 0:08:07.200 --> 0:08:10.880 Sterling is vulnerable and that current account position really exposes 0:08:10.880 --> 0:08:12.320 the UK. Now, of course a lot of the story 0:08:12.440 --> 0:08:15.520 is Donna strength, but there was certainly Sterling weakness in here. 0:08:15.520 --> 0:08:17.200 And one thing that we did see earlier in the 0:08:17.280 --> 0:08:21.200 years interest rate pikes couldn't it couldn't pull the band 0:08:21.240 --> 0:08:23.640 out of the whole. Less point to Lisa's point, does 0:08:23.680 --> 0:08:26.200 it will a seventy five basis points move offer that 0:08:26.280 --> 0:08:29.680 much protection? Some maybe, but not all. Chris Gerles the too, 0:08:29.840 --> 0:08:33.920 with a brilliant short essay pulling the United Kingdom back 0:08:33.920 --> 0:08:38.160 to I believe nineteen seventy four and Mr Barber the 0:08:38.240 --> 0:08:41.920 complete failed plan. Then is this Chancellor of the Exchequer 0:08:42.000 --> 0:08:46.360 going down in flames with a growth model that's undoable? Well, 0:08:46.480 --> 0:08:50.040 certainly the market is extremely skeptical. I mean he's he's 0:08:50.080 --> 0:08:52.199 been talking about a growth target for the UK to 0:08:52.440 --> 0:08:55.199 two and a half percent. Nobody really expects that can happen. 0:08:55.280 --> 0:08:57.760 So you're talking about tax cuts which will give it 0:08:57.840 --> 0:09:00.000 a bit of a boost, But actually what investors will 0:09:00.080 --> 0:09:03.160 to see our measures that I'm going to prove you know, 0:09:03.200 --> 0:09:06.720 productivity and growth and and and potential app but not 0:09:06.800 --> 0:09:09.920 just a quick from text cuts. So investors a skeptical 0:09:09.960 --> 0:09:12.240 and that is what the government is facing, and that 0:09:12.440 --> 0:09:15.160 is what the government today appears to be ignoring. It's 0:09:15.160 --> 0:09:18.480 a sterling story, it's a Chinese u N story. There 0:09:18.520 --> 0:09:21.360 are specific stories about weakness. But on the other side, 0:09:21.360 --> 0:09:23.920 it's very much a dollar story, especially as we're pricing 0:09:23.960 --> 0:09:27.240 in such high potential FED funds rates next year. What 0:09:27.520 --> 0:09:30.640 is your sense of when things break of, when at 0:09:30.640 --> 0:09:34.559 the stronger dollar creates weakness that becomes hard for all 0:09:34.600 --> 0:09:36.920 of these other central banks and these economies to get 0:09:36.960 --> 0:09:39.880 out from under. I think you could probably already argue 0:09:40.000 --> 0:09:42.079 that the the the the strength of the dollar is 0:09:42.080 --> 0:09:44.560 already pushing half of the economy, half the world economy 0:09:44.640 --> 0:09:47.280 under the bus. You know, it is very, very difficult, 0:09:47.280 --> 0:09:49.360 and I think we see this already for a long 0:09:49.400 --> 0:09:52.360 time in emerging market so many interstrate hikes there to 0:09:52.440 --> 0:09:56.280 try and protect their currencies. Look at just care a well, 0:09:56.440 --> 0:09:59.760 you see it's I don't think that's a particularly logical. 0:09:59.840 --> 0:10:02.959 But because if you have a central bank putting up 0:10:02.960 --> 0:10:04.920 interest rates, you know you've got to say, well, a 0:10:04.920 --> 0:10:08.040 strong dollar is a byproduct that policy, So why then 0:10:08.080 --> 0:10:10.240 come in On the other hand, and say, well, we're 0:10:10.240 --> 0:10:12.800 going to weaken this country. It's not logical. So maybe 0:10:12.840 --> 0:10:15.960 we were talking about some sort of plaza thing maybe 0:10:16.040 --> 0:10:18.640 next year when the FED is confident that it has 0:10:18.679 --> 0:10:22.120 got inflation under control. But a negative feedback loop that 0:10:22.120 --> 0:10:23.720 you can think of, from the rest of the world 0:10:23.840 --> 0:10:26.400 into the US economy for the FED has to respond to. Well, 0:10:26.600 --> 0:10:28.320 I mean, I don't know whether the FED has to 0:10:28.400 --> 0:10:30.560 respond to it, because after all that the FEDS in 0:10:30.600 --> 0:10:35.080 a primary object is domestic inflation and domestic employment. Should 0:10:35.080 --> 0:10:38.160 it address it? You know, I don't know. You know, 0:10:38.240 --> 0:10:40.440 that's another question. But certainly there is a feedback loop 0:10:40.480 --> 0:10:42.480 into the US dollar because as the rest of the 0:10:42.520 --> 0:10:45.840 world weakens, is emerging markets weaken, people tend to buy 0:10:45.960 --> 0:10:48.720 the dollar. And so if you're if you're buying the 0:10:48.800 --> 0:10:51.840 dollar because the strong dollar is worsening the environment for 0:10:51.880 --> 0:10:53.840 the rest of the world. Is you've got this, You've 0:10:53.840 --> 0:10:57.000 got this absolutely, So you know what is going to 0:10:57.080 --> 0:10:59.480 break it? I think it's it's only going to break maybe, 0:10:59.640 --> 0:11:01.480 you know next year when when the FED things, you 0:11:01.480 --> 0:11:04.000 know what, we can come down and this we we've 0:11:04.000 --> 0:11:07.880 got to handle on medium term inflation. Expect Until then, 0:11:07.920 --> 0:11:10.560 let's talk about some levels and squeeze this in cable 0:11:10.600 --> 0:11:13.199 stirring against the US dollar one thirteen. You're a dollar 0:11:13.440 --> 0:11:16.600 in and around parity dollar China through seven. Do you 0:11:16.600 --> 0:11:18.440 think there's some big moves from here or is this 0:11:18.559 --> 0:11:20.960 kind of it? I don't think it's it yet. And 0:11:21.000 --> 0:11:23.840 we're thinking on your a dollar. I mean, we've got 0:11:23.600 --> 0:11:26.280 a horrible winter to come for for Europe, you know, 0:11:26.400 --> 0:11:29.160 energy price crisis, you know, rationing? Is that all priced 0:11:29.200 --> 0:11:31.240 in up? I think perhaps not. Are we going an 0:11:31.320 --> 0:11:33.120 enter turn your election? You know, will the far right 0:11:33.160 --> 0:11:35.120 get in? You know that's that's perhaps you know the 0:11:35.600 --> 0:11:38.040 next potential trigger for the for the euro in just 0:11:38.080 --> 0:11:41.160 a few weeks time on cable. Our target now is 0:11:41.440 --> 0:11:43.760 one oh nine. People are out there talking about parity 0:11:43.840 --> 0:11:46.199 and we dismiss that, you know, no, I don't think 0:11:46.240 --> 0:11:48.040 we can dismiss it's not our target. But you know 0:11:48.080 --> 0:11:51.440 it depends very much on the US dollar. So you know, 0:11:51.520 --> 0:11:54.400 these are are still nasty numbers to come and and 0:11:54.600 --> 0:11:56.719 right now, you know, I think the dollar strength will 0:11:56.760 --> 0:12:00.000 will sustain until you can honestly answer the question, we'll 0:12:00.120 --> 0:12:01.760 what else are you going to buy? For the best 0:12:01.760 --> 0:12:04.280 part of ten years, I think it's fantasize. The phone 0:12:04.320 --> 0:12:06.800 exchange was kind of boring, and it's not boring anymore, 0:12:07.480 --> 0:12:10.680 no at so Jank writes a catch shop, James Rabbit 0:12:10.720 --> 0:12:23.559 Bank right now with your most important brief of the 0:12:23.640 --> 0:12:26.640 day and fixed income. Sobrato Rijapa joins us head of 0:12:26.640 --> 0:12:30.320 the United States rate strategy at the French Bank Society General. 0:12:30.760 --> 0:12:35.640 Their history of math derivative dynamics is world class, Sobrata, 0:12:35.720 --> 0:12:37.840 thank you for joining us. When you look at the 0:12:37.880 --> 0:12:41.520 derivative mathematics of what we've seen in the last two 0:12:41.600 --> 0:12:44.360 days or even the last two weeks, what is the 0:12:44.480 --> 0:12:48.160 telling story about the rates of change in fixed income? 0:12:48.600 --> 0:12:51.440 It's stunning. I mean we were looking at if you 0:12:51.440 --> 0:12:53.079 look at a chart I think John was showing the 0:12:53.160 --> 0:12:56.400 chart earlier the two years, we've gone somewhere between twenty 0:12:56.440 --> 0:12:59.079 basis points last year this time to close to four 0:12:59.120 --> 0:13:02.000 percent right now. So the rate of change has been 0:13:02.040 --> 0:13:05.199 just absolutely stunning. You know. To me, what I'm looking 0:13:05.240 --> 0:13:07.760 at is the message that you're getting from the barn market, 0:13:07.800 --> 0:13:10.720 which is, you know, to take a page from you know, 0:13:10.760 --> 0:13:15.200 I think Facebook's you know, um motto, it's like move 0:13:15.320 --> 0:13:18.000 fast and break things. That's kind of what the FED 0:13:18.120 --> 0:13:20.440 is it's about to do, which is, if they do 0:13:20.679 --> 0:13:23.760 go along the path that the market has laid out, 0:13:24.320 --> 0:13:26.720 they're going to have to break things ultimately, and that's 0:13:26.720 --> 0:13:30.680 what the curve is really suggesting to us. I got 0:13:30.720 --> 0:13:32.400 eight ways to go here, I'm going to go pro 0:13:32.559 --> 0:13:34.680 on your right now, Sabadre. And that's of all the 0:13:34.760 --> 0:13:38.400 different spreads, there's that one across all the yield curve. 0:13:38.480 --> 0:13:40.600 The two years you go to three months, but let's 0:13:40.640 --> 0:13:44.559 take the two years the former benchmark thirty year bond. 0:13:45.160 --> 0:13:48.560 It isn't a place we literally haven't seen almost in 0:13:48.600 --> 0:13:52.559 a lifetime two thousand. What is the importance of the 0:13:52.640 --> 0:13:58.120 level of inversion of the two thirty spread? Absolutely the 0:13:58.160 --> 0:14:01.360 five thirties a two thirty spread is Juliet levels we 0:14:01.400 --> 0:14:05.440 haven't seen in two decades. So so to me, what 0:14:05.760 --> 0:14:08.800 the message there is at the market ultimately, if you 0:14:08.800 --> 0:14:11.600 look at ten years and beyond, is looking at the 0:14:11.640 --> 0:14:15.480 potential for a meaningful slow down and growth and you know, 0:14:15.559 --> 0:14:19.200 perhaps a hard landing, especially if the FED high strates 0:14:19.280 --> 0:14:21.640 as aggressively as what's placed in the market. You're looking 0:14:21.640 --> 0:14:24.200 at the term FED fund strate right now around four 0:14:24.240 --> 0:14:26.640 and a half percent I mean that level was at 0:14:26.720 --> 0:14:31.360 four percent or below just before the CPI print this week. 0:14:31.440 --> 0:14:34.080 So the move and the repricing higher of the term 0:14:34.080 --> 0:14:36.320 I fed fund strates quite dramatic in a very short 0:14:36.360 --> 0:14:39.400 amount of time. So that would mean that there's a potential, 0:14:39.560 --> 0:14:42.760 much higher potential for hard landing at LISA. I'm going 0:14:42.800 --> 0:14:44.920 to tear up here what a control room we have? 0:14:45.120 --> 0:14:48.280 Quantas in the crew they throw up a two thirty 0:14:48.400 --> 0:14:51.600 spread chart. No one else in financial media does you 0:14:51.720 --> 0:14:58.400 stop referring to our Australia to see there on radio. 0:14:58.840 --> 0:15:05.440 It's just it's just active, definitely know he rejected be 0:15:05.520 --> 0:15:08.280 a little bit ago. Let's get back to the bottom market. 0:15:08.280 --> 0:15:09.960 I think that's a safer place for us to sit 0:15:10.000 --> 0:15:13.120 on maybe, although maybe not. The question is where do 0:15:13.160 --> 0:15:15.320 we stop right and where do we stop not only 0:15:15.320 --> 0:15:18.240 with twos but also with tens, given that people are 0:15:18.320 --> 0:15:20.800 wondering are we going to break something? And what does 0:15:20.840 --> 0:15:23.720 the post breakage look like? Are we still looking at 0:15:23.720 --> 0:15:28.160 a higher inflation rate, at a higher uh real interest 0:15:28.280 --> 0:15:30.600 rate in an era where we're not talking about zero 0:15:30.680 --> 0:15:35.200 yields anymore? Yeah? I know I think that really at 0:15:35.200 --> 0:15:39.520 this you know, next meeting, given how dramatically yields have risen. 0:15:40.400 --> 0:15:42.920 I'd be looking to hear from share Powell on what 0:15:43.120 --> 0:15:46.240 they think that policy path is going to be. And 0:15:46.280 --> 0:15:48.240 in my view, at least, I feel like the market 0:15:48.240 --> 0:15:50.280 has gotten a little bit ahead of itself and and 0:15:51.040 --> 0:15:53.080 Powell might have to thread the needle and try to 0:15:53.080 --> 0:15:55.680 sort of talk the market away from the ledge, if 0:15:55.680 --> 0:15:59.440 you will, Because yes, they do want to frontal rate heights. 0:15:59.800 --> 0:16:01.640 Yes they do want to get to four percent and 0:16:01.680 --> 0:16:03.240 a rush, but I think that they're going to take 0:16:03.240 --> 0:16:06.960 a much more measured approach beyond four percent to make 0:16:07.000 --> 0:16:09.480 sure that they're not breaking things as they're raising. Right, 0:16:09.560 --> 0:16:12.160 So it's gonna be balancing act between what's happening on 0:16:12.200 --> 0:16:15.400 the employment front. You know you you spoke about FedEx earlier. 0:16:15.520 --> 0:16:17.640 They'll be looking at a variety of metrics see what 0:16:17.680 --> 0:16:21.120 the impact of high interest rates are on the broader economy. 0:16:21.160 --> 0:16:24.400 They know that Monterrey policy acts with lags, so they're 0:16:24.400 --> 0:16:26.480 gonna have to figure out what that lag is and 0:16:26.520 --> 0:16:30.040 how to act now so that the Montrey policy transmission 0:16:30.080 --> 0:16:34.400 is effective and doesn't break things over the longer run. Sabad, 0:16:34.520 --> 0:16:36.400 does that mean the area they're buying too? Your bonds, 0:16:38.680 --> 0:16:42.120 buying two your bonds, um, you know, not necessarily. I mean, 0:16:42.160 --> 0:16:43.760 I think the FED is not going to be you know, 0:16:43.800 --> 0:16:49.280 buying bonds anytime soon. I'm saying, sorry, excuse me. I'm 0:16:49.320 --> 0:16:51.680 just wondering whether it's a good opportunity, whether we basically 0:16:51.720 --> 0:16:53.320 have seen a peak, if you're gonna expect a FED 0:16:53.400 --> 0:16:55.320 to push back and give the market a little bit 0:16:55.360 --> 0:16:57.440 of ashore as that perhaps they've got ahead of themselves. 0:16:57.600 --> 0:17:01.960 Does this mean there's an opportunity and short term death, Uh, 0:17:02.000 --> 0:17:04.720 there might be. The question is whether you want to 0:17:04.840 --> 0:17:07.600 enter to that trade now, perhaps Legan, if you start 0:17:07.600 --> 0:17:10.320 getting you know, closer to four percent and twoes, I mean, 0:17:10.440 --> 0:17:13.760 you'll start looking very, very attractive. I think you're going 0:17:13.800 --> 0:17:16.399 to see perhaps a little bit of a tactical steepening 0:17:16.480 --> 0:17:18.840 between say the three year and the tenure part of 0:17:18.840 --> 0:17:21.160 the curve. I'm still afraid to ted to year part 0:17:21.160 --> 0:17:23.840 of the curve because it's it's peggy fat expectations that 0:17:23.920 --> 0:17:26.560 has the potential to move higher. But I would say 0:17:26.560 --> 0:17:30.240 tactically position for a three year ten year steepening makes 0:17:30.240 --> 0:17:33.440 sense to me, at least over the short term, so 0:17:33.560 --> 0:17:35.800 broad it's away from your Remit. When I'm going there, 0:17:35.800 --> 0:17:38.879 it's a Friday, no one's listening or watching. What do 0:17:38.920 --> 0:17:42.160 you do with the sixty forty allocations and bonds? I mean, 0:17:42.240 --> 0:17:45.080 come on, in this world where these rates have changed. 0:17:45.359 --> 0:17:48.480 I look at the Bloomberg Total Return Index and sixty 0:17:48.600 --> 0:17:55.000 forty is getting absolutely crushed. Absolutely. I think that you know, 0:17:55.040 --> 0:17:58.240 all assets are very collated. Right now, you're seeing you know, 0:17:58.320 --> 0:18:01.600 bond sell off, equity sell off, the daughter continue to tighten. 0:18:02.119 --> 0:18:06.280 At some point when you've seen a significant move and 0:18:06.400 --> 0:18:08.840 risky assets, you're the best place you want to be 0:18:09.000 --> 0:18:12.040 is going to be in bonds because yields are looking very, 0:18:12.119 --> 0:18:14.639 very attractive across the curve. You know, even in the 0:18:14.720 --> 0:18:17.320 long end, even though yields haven't risen as much as 0:18:17.320 --> 0:18:19.639 they've done in the very front end, you know, you 0:18:19.800 --> 0:18:24.120 still see pretty consistent demand from mass and liability managers 0:18:24.119 --> 0:18:26.639 and pension funds for the very long end. So I 0:18:26.680 --> 0:18:28.720 think that that's sort of trade is here to stay, 0:18:28.920 --> 0:18:31.080 and that's going to keep long and yields you know 0:18:31.160 --> 0:18:34.520 somewhat you know, pegged, and you know it makes sense 0:18:34.560 --> 0:18:37.000 because if you're looking at a much longer term horizon, 0:18:37.480 --> 0:18:40.600 you probably want to be long bonds, especially at a 0:18:40.680 --> 0:18:45.200 time when equities are performing very poorly. So Patra, I'm 0:18:45.240 --> 0:18:47.119 gonna leave it there, thank you, So Padra Jaffa there 0:18:47.440 --> 0:18:56.280 of sock gem on the like market. Jose Antonio Ocounvo 0:18:56.400 --> 0:19:00.159 joins us now Minister of Finance and Public Credit for 0:19:00.359 --> 0:19:04.040 his Columbia or thrilled that he could join us this morning. 0:19:04.359 --> 0:19:06.840 There's so much to talk about, minister, but I have 0:19:06.920 --> 0:19:10.600 to go larger. After reach back to stan Fisher in 0:19:12.359 --> 0:19:17.320 do you, through the prism of Colombia economics and foreign exchange, 0:19:17.800 --> 0:19:22.399 see anything like an international upset that we witnessed in 0:19:23.840 --> 0:19:29.400 and frankly before that in well, thank you, I'm delighted 0:19:29.440 --> 0:19:32.080 to be with you. Let me say on that that 0:19:32.920 --> 0:19:37.600 I don't think the same kind of crisis. It was 0:19:37.680 --> 0:19:41.520 very much an emerging market crisis. This is a global crisis, uh, 0:19:42.040 --> 0:19:48.840 both the slowdown, particularly the inflation on the increasing interest rate, 0:19:49.400 --> 0:19:54.080 which is affecting all very heavily, very importantly, Sir, I 0:19:54.080 --> 0:19:57.919 look at the caps, the limitation of price increase. We 0:19:58.000 --> 0:20:00.800 see it on India and their channel just with Rice. 0:20:01.160 --> 0:20:04.040 Here in the United Kingdom we see it, and indeed 0:20:04.080 --> 0:20:08.040 Colombia and others talk about it given a more global economy, 0:20:08.119 --> 0:20:12.200 the speed of information, the transfer of finance can caps 0:20:12.440 --> 0:20:17.600 be effective in two thousand twenty three. But let me 0:20:17.680 --> 0:20:20.760 say that the major problem that we're getting from the 0:20:20.800 --> 0:20:25.080 global economy is the inflation, but particularly defect it has 0:20:25.160 --> 0:20:28.600 had on interest rates. So both domestic interest rates in 0:20:28.720 --> 0:20:33.639 Colombia as well as the interest rate in in double 0:20:33.720 --> 0:20:39.000 capital markets are very high, and that the major specifically effect. 0:20:39.000 --> 0:20:41.960 Of course, inflation is hard to fight due to the 0:20:42.080 --> 0:20:47.919 international dimensions of inflation. So for a specific country, it 0:20:48.040 --> 0:20:51.280 is very tough to to fight that inflation, which you 0:20:51.280 --> 0:20:54.040 can say it's a supply inflation, right, and the man inflation. 0:20:54.400 --> 0:20:57.480