WEBVTT - Surveillance: China Troubles with Mueller-Glissmann 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.680 and of course, on the Bloomberg Terminal. Christian Mollery Glissman Banishing, 0:00:31.680 --> 0:00:35.600 director of Poor Poor Portfolio Strategy at Goldman Sachs, and 0:00:35.680 --> 0:00:39.000 Christian I want to start in Damien's specialty in the 0:00:39.040 --> 0:00:42.640 developing world because overnight the lockdowns in Beijing, the first 0:00:42.720 --> 0:00:46.080 lockdown in the capital of China, to me, is a 0:00:46.120 --> 0:00:50.120 really significant story that changes potentially the narrative for next year. 0:00:50.400 --> 0:00:53.000 How do you view that that story in light of 0:00:53.080 --> 0:00:57.279 some of the optimism around China's reopening. Oh, you make 0:00:57.280 --> 0:00:59.040 a great point. I think if you if you think 0:00:59.080 --> 0:01:02.840 about like outlook for next year, um, like China was 0:01:02.880 --> 0:01:06.520 one of those bright spots because there's a symmetry. The 0:01:06.560 --> 0:01:10.920 economy is in its knees for clear reasons like asset 0:01:10.959 --> 0:01:14.840 prices and in in in very bearish kind of territory. 0:01:14.920 --> 0:01:17.960 So it felt like there is a story that's emerging 0:01:18.000 --> 0:01:20.640 that can to some extent support next year and and 0:01:20.720 --> 0:01:24.760 drive growth acceleration, drive that trough and economic activity. But 0:01:24.840 --> 0:01:26.679 I think what we're learning, and I think what our 0:01:26.720 --> 0:01:29.000 economists have been saying as well, it's going to be 0:01:29.040 --> 0:01:33.800 incredibly bumpy. I think the end game is that China 0:01:33.880 --> 0:01:38.120 will probably by second half of next year accelerate with 0:01:38.160 --> 0:01:41.080 regards to growth, help by the reopening, but the path 0:01:41.200 --> 0:01:44.520 to that could be incredibly bumpy. And the real reopening 0:01:44.560 --> 0:01:47.680 we always thought what would occur kind of around Q two, 0:01:48.080 --> 0:01:50.480 And as you see those cases go up, you could 0:01:50.520 --> 0:01:53.200 say that, um, yeah, the risk is definitely that it's 0:01:53.200 --> 0:01:56.000 being pushed further out. But Christian, how does this affect, 0:01:56.080 --> 0:01:58.840 right the different parameters if it reopens, if it doesn't, 0:01:58.840 --> 0:02:02.320 the bumpy nous that you see, is it bullish if 0:02:02.320 --> 0:02:05.920 they reopen, if that means incredible demand suddenly coming online 0:02:06.120 --> 0:02:08.640 for energy to their in for commodities generally at a 0:02:08.680 --> 0:02:11.160 time when that's one of the main drivers of disinflation 0:02:11.280 --> 0:02:14.320 right now, Yeah, and you you highlight one of the 0:02:14.320 --> 0:02:17.000 big discon answers, like one of the big kind of 0:02:17.480 --> 0:02:20.320 negative cycles there. I think right now, as you know, 0:02:20.360 --> 0:02:24.040 oil prices have kind of come down significantly like curves 0:02:24.080 --> 0:02:26.560 are in the front and a bit in contangle. So 0:02:26.600 --> 0:02:28.760 I think you're dealing currently with the setup where there's 0:02:28.800 --> 0:02:31.320 a bit of a buffer. But you're absolutely right there 0:02:31.400 --> 0:02:35.720 is definitely a chance of a replay of headline inflation 0:02:36.280 --> 0:02:40.040 volatility next year, which then feeds a bit into rates 0:02:40.360 --> 0:02:43.760 and and and and to some extent kind of can 0:02:43.880 --> 0:02:47.120 drive also spill over us too risky assets. But I 0:02:47.160 --> 0:02:50.280 think at this juncture, this full reopening, as I mentioned, 0:02:50.360 --> 0:02:52.960 is to us more of an Age two story. I 0:02:53.000 --> 0:02:55.360 think in the near term it seems to be more 0:02:55.360 --> 0:02:58.000 of a dragon oil than anything, but it does highlight 0:02:58.080 --> 0:03:01.760 something which you mentioned. I think to me, risk premium 0:03:02.200 --> 0:03:05.560 um in the last month have significantly come down across 0:03:05.600 --> 0:03:09.880 the board on China assets, but also on global cyclic classets, 0:03:09.919 --> 0:03:14.120 on China exposed companies in Europe, and it just feels 0:03:14.160 --> 0:03:17.520 like there's not that many good growth stories to go on. 0:03:17.760 --> 0:03:21.160 The market has embraced it very quickly. Partially that has 0:03:21.200 --> 0:03:24.040 contributed to a bit of a false start in in 0:03:24.160 --> 0:03:27.080 kind of relief on on the growth side, and it 0:03:27.120 --> 0:03:30.320 could very quickly reverse to some extent if if if 0:03:30.320 --> 0:03:32.520 that doesn't prove to be the case, well, let's just 0:03:32.560 --> 0:03:34.400 crystallize that. I mean a bit of relief. I mean 0:03:34.400 --> 0:03:38.000 we saw increase in the HANK saying China Enterprises Index 0:03:38.040 --> 0:03:41.840 in October, but we're still down year today. Talked to me, 0:03:42.160 --> 0:03:44.600 I think investors are realizing myself included that you just 0:03:44.640 --> 0:03:48.120 can't have zero exposure to emerging markets in China. Right, 0:03:48.160 --> 0:03:51.400 So my question for you is, you know, what is 0:03:51.400 --> 0:03:53.160 the best way to get that China exposure? What is 0:03:53.200 --> 0:03:57.120 the best way to play the reopening narrative in China. 0:03:57.600 --> 0:04:00.280 You make a great point because it's it's been really 0:04:00.320 --> 0:04:04.640 difficult for international investors from a strategic point of view 0:04:05.120 --> 0:04:07.960 um to to to get excited about China. And and 0:04:08.000 --> 0:04:13.080 there's a concern with regards to how investors will benefit 0:04:13.240 --> 0:04:16.400 from from China economic growth in the coming years. There's 0:04:16.440 --> 0:04:20.600 been a concern with regards to obviously zero covid um 0:04:20.720 --> 0:04:23.560 and and at the same time you have this reopening story. 0:04:23.839 --> 0:04:27.480 The reopening story, if you follow the kind of template 0:04:27.480 --> 0:04:31.839 from developed markets, should be very good for domestic consumer ciglicals, 0:04:31.839 --> 0:04:35.599 services sectors, and and it's not easy to get exposure 0:04:35.640 --> 0:04:39.839 to that via the headline indices. Our team generally have 0:04:40.080 --> 0:04:43.800 become quite a bit more constructive the whole North Asia complex, 0:04:44.080 --> 0:04:46.800 which they think will be pulled along. So you can 0:04:46.839 --> 0:04:51.080 diversify to some extent just being in China with maybe 0:04:51.120 --> 0:04:53.960 being a bit more in Korea, being a bit more 0:04:54.000 --> 0:04:56.680 on Taiwan. Um. But but in the end, if you 0:04:56.760 --> 0:05:01.400 really wanna kind of go directly exposed to the reopening, 0:05:01.400 --> 0:05:04.400 you need to go potentially much more on specific sector 0:05:04.560 --> 0:05:07.760 specific stocks, and it becomes much more of an alpha theme. 0:05:07.800 --> 0:05:10.640 So all strategy team they've created a basket for that, 0:05:11.040 --> 0:05:13.440 which clearly for a lot of the acid allocates. I 0:05:13.440 --> 0:05:17.640 speak to um that that becomes too specific Christian AKA 0:05:17.680 --> 0:05:19.560 talk South Korean Taiwan with you all day. But let's 0:05:19.600 --> 0:05:21.680 shift back to the US here for a minute. I mean, look, 0:05:21.720 --> 0:05:24.120 there's been a lot of talk no recession, shallow recession. 0:05:24.120 --> 0:05:26.000 I think markets are pretty much coming to terms of 0:05:26.000 --> 0:05:28.200 the fact that growth will indeed be slower next year 0:05:28.240 --> 0:05:30.960 in the US. Meanwhile, you know, inflation, while it is 0:05:31.000 --> 0:05:33.800 expected to come off, it's going to be above pre 0:05:33.880 --> 0:05:36.159 COVID levels I think for some time. So in a 0:05:36.160 --> 0:05:38.680 world of slower growth and inflation, you know kind of 0:05:38.720 --> 0:05:41.560 remaining elevated, you know what fixed in commassive classes, our 0:05:41.560 --> 0:05:45.680 best position outperform. Yeah. I mean, especially after what I 0:05:45.760 --> 0:05:49.000 mentioned this, this risk premium contraction, I mean, you've seen 0:05:49.000 --> 0:05:54.840 a remarkable tightening and credit spreads even down in quality. UM, 0:05:54.880 --> 0:05:56.600 it just tells me that you need to be up 0:05:56.600 --> 0:05:59.280 in quality into next year. I think generally we feel 0:05:59.320 --> 0:06:02.440 that next year you you know you you you spoke 0:06:02.440 --> 0:06:04.640 about this earlier. This year, a lot of the fear 0:06:04.800 --> 0:06:08.359 was about peak hawcusionness and very high rates volatility. And 0:06:08.400 --> 0:06:10.760 I think next year will be more about growth volatility. 0:06:10.880 --> 0:06:14.280 I think rates volatility will will will normalize just by 0:06:14.320 --> 0:06:18.840 extension of central banks slowing the pace of hiking and 0:06:18.839 --> 0:06:21.560 and and that just means that UM, you're shifting a 0:06:21.600 --> 0:06:24.840 bit towards solvency risk, and you're shifting towards strength of 0:06:24.920 --> 0:06:28.200 balance sheet UM. And this year, as you know, UM, 0:06:28.520 --> 0:06:30.480 you have had very little cash flow risk, very little 0:06:30.480 --> 0:06:33.080 cash flow shops and and next year you would probably 0:06:33.080 --> 0:06:35.520 see more of those which needs. At this juncture with 0:06:35.560 --> 0:06:38.280 the type of risk premier, you're getting to move up 0:06:38.320 --> 0:06:41.360 the risk curve. We feel up in quality investment create 0:06:41.440 --> 0:06:43.920 credit is where we would be UM, and and there's 0:06:43.960 --> 0:06:47.040 opportunities there to to kind of harvest more attractive year 0:06:47.080 --> 0:06:50.800 to volatility ratios. So, for example, mortgage backed securities that 0:06:50.920 --> 0:06:54.360 benefit a lot from a decline in rates volatility is 0:06:54.400 --> 0:06:57.039 a relatively low risk asset. So we'd rather be in 0:06:57.080 --> 0:07:00.480 these places until we get a bit more read in 0:07:00.560 --> 0:07:02.680 risk premium, which we expect could be in the Q 0:07:02.839 --> 0:07:06.120 one next year rebuild in risk premium. It's such a 0:07:06.200 --> 0:07:08.760 nice way of say saying, hi, old bonds selling off. 0:07:08.800 --> 0:07:11.280 Christian Maller, Glisbon and Gilman Sachs, thank you so much 0:07:11.480 --> 0:07:23.600 for being with us. Joining us now is somebody who 0:07:23.600 --> 0:07:24.920 thought that it was going to be a great day, 0:07:25.560 --> 0:07:27.600 you know, I might as well join them because it's 0:07:27.600 --> 0:07:30.040 going to be so great here, And instead he's se 0:07:30.120 --> 0:07:32.960 question in a corner because it's so bright in his rooms. 0:07:33.080 --> 0:07:35.440 Chief effect strategists to see at a general thank you 0:07:35.480 --> 0:07:37.559 so much for being with us. Kid, you talk about 0:07:37.840 --> 0:07:39.480 that it's not a black Friday so much as a 0:07:39.520 --> 0:07:44.560 gray one, not perhaps in your room, but generally how so, well, 0:07:44.600 --> 0:07:46.480 it's a day when you know, I'm not sure there's 0:07:46.480 --> 0:07:48.720 that much optimism around in the global economy this morning, 0:07:48.760 --> 0:07:51.160 and I'm not sure that there's um, you know, much 0:07:51.160 --> 0:07:53.920 going on, but but it is this sense of, you know, 0:07:53.960 --> 0:07:57.000 even in the US, slowing economy across Europe, and it's 0:07:57.400 --> 0:07:58.920 you know, how do you go running out on all 0:07:58.920 --> 0:08:01.920 these cheap crisis to buy things when you're worried about 0:08:02.040 --> 0:08:05.680 energy costs, worried about mortgage payments and so on. So 0:08:06.080 --> 0:08:09.200 you know, the global economy is clearly slowing. And that's 0:08:09.240 --> 0:08:12.240 the backdrop that the shocker. You mentioned it, but it's 0:08:12.280 --> 0:08:16.800 how much yields have fallen, how much the market is 0:08:16.840 --> 0:08:21.119 priced back FED expectations since j. Powell gave that press 0:08:21.160 --> 0:08:23.400 conference and told us that rates had to be higher 0:08:23.440 --> 0:08:26.400 for longer than the market was pricing just then, you know, 0:08:26.560 --> 0:08:30.080 so we are we are just definitely giving the birth 0:08:30.120 --> 0:08:33.040 to a central bank collectively because we didn't global economy 0:08:33.120 --> 0:08:36.440 sign well. But this is really confusing, especially because in 0:08:36.480 --> 0:08:40.520 those meeting minutes, essentially FED officials said that they expect 0:08:40.600 --> 0:08:43.839 recession as almost as likely as their base case. This 0:08:43.880 --> 0:08:47.520 is as close to capitulation from a central bank that yes, 0:08:47.600 --> 0:08:49.640 there is going to be a downturn, and yes we 0:08:49.679 --> 0:08:52.920 are going to keep rates high in order to curtail inflation, 0:08:52.960 --> 0:08:55.200 even if that does become the base case. Do you 0:08:55.200 --> 0:08:58.800 think that hasn't got enough attention. Um, I think it 0:08:58.800 --> 0:09:01.160 gets attention. I think he's the difficulty with this cycle, 0:09:01.200 --> 0:09:04.280 and it's probably true pretty much everywhere, is that in 0:09:04.640 --> 0:09:09.000 most major economies were going into a downturn at full employment, 0:09:09.360 --> 0:09:11.800 and um, you know, I if the last, if the 0:09:11.880 --> 0:09:14.400 last big recession was, this time is different. This is 0:09:14.480 --> 0:09:18.439 different all over again. Differently, I can't remember a time 0:09:18.720 --> 0:09:22.680 when you have full employment into slowdowns and probably through 0:09:22.760 --> 0:09:25.880 quite a long time, so that the battle is between 0:09:25.920 --> 0:09:29.560 central bankers and how much they think they need to 0:09:29.679 --> 0:09:33.760 tighten and for how long to cool labor market at 0:09:33.800 --> 0:09:37.640 the same time as they can see economies weakening significantly. 0:09:37.840 --> 0:09:39.920 Different sides of the Atlantic you have a slightly different 0:09:39.960 --> 0:09:41.400 take on it. But I think I think that's the 0:09:41.640 --> 0:09:44.199 that's the piece. The central bankers are looking at slower 0:09:44.240 --> 0:09:45.920 at slower data and things, but they're looking at the 0:09:45.960 --> 0:09:49.160 labor market and thinking, how do I really get to 0:09:49.240 --> 0:09:54.480 grips with inflation without getting a higher unemployment rate. You know, 0:09:54.520 --> 0:09:57.000 it's a sleepy Friday here in November, and for me, 0:09:57.360 --> 0:09:58.760 you know, it's not always been that way. If you 0:09:58.760 --> 0:10:01.360 think about the year intern if thinking about cross currency 0:10:01.400 --> 0:10:04.920 basis swamp spreads. They've really behaved rather well given all 0:10:04.960 --> 0:10:06.839 of the tightening and the liquidity pressure we would have 0:10:06.880 --> 0:10:09.000 expected to see into your end. Are you surprised by 0:10:09.000 --> 0:10:12.040 any of this? Um, Well, they were behaving so badly 0:10:12.120 --> 0:10:15.600 six weeks ago that everyone got themselves into a into 0:10:15.600 --> 0:10:17.760 a state about them. And I think and I think 0:10:17.760 --> 0:10:20.280 people started dealing with it very early, so we had 0:10:20.280 --> 0:10:22.520 a we had a longer lead through. I still worry 0:10:22.520 --> 0:10:24.640 that they'll come back in the last week of December 0:10:24.679 --> 0:10:27.240 and ruin my life. But that's just that's what we're 0:10:27.240 --> 0:10:28.840 paid to do, is to worry about things like that. 0:10:28.880 --> 0:10:30.800 But you know, I think that what we make that 0:10:30.840 --> 0:10:33.400 there's a possibility that I mean, particularly in the foreign 0:10:33.440 --> 0:10:36.160 exchange market that you know, from the war in the Ukraine, 0:10:36.160 --> 0:10:39.160 the FED hiking first, the energy crisis, the fact that 0:10:39.200 --> 0:10:42.160 the US benefits from terms of trade as the world's 0:10:42.160 --> 0:10:45.080 second biggest energy producer, never had that before and in 0:10:45.120 --> 0:10:49.079 an energy crisis in modern times. That that all all 0:10:49.160 --> 0:10:51.880 my clients of of you know, written the dollar rally 0:10:51.960 --> 0:10:55.400 for months and months and by and large that they 0:10:55.440 --> 0:10:58.240 you know, let's close up the turn, let's shut everything down, 0:10:58.360 --> 0:11:02.320 let's quieten down, and um and start getting ready for Christmas. Okay, 0:11:02.360 --> 0:11:05.719 we're also seeing tentative signs of investors re engaging with 0:11:05.920 --> 0:11:08.440 non dollar asset classes here as we approach your end. 0:11:08.440 --> 0:11:10.640 So I'm just gonna ask the elephant in the room, 0:11:10.640 --> 0:11:14.079 has the dollar peaked? It's ppeaking? I think it's for 0:11:14.320 --> 0:11:16.240 one of the description it's not a matter Horn peak, 0:11:16.280 --> 0:11:18.640 but a Dolomite speak if that works for Americans. But 0:11:18.720 --> 0:11:20.920 it's it's going to be a series of jagged peaks 0:11:20.960 --> 0:11:24.200 because you know, the other elephants in the room, the 0:11:24.240 --> 0:11:27.160 crisis in Ukraine. Can you know we're all down playing 0:11:27.440 --> 0:11:29.760 the tail risk from that. It can come back in 0:11:29.800 --> 0:11:32.480 a flash, you know. So we we've got we've got 0:11:32.480 --> 0:11:34.720 things we can get concerned about. Clearly, if things are escalating, 0:11:34.720 --> 0:11:36.440 you know, things things get worse in China, that can 0:11:36.480 --> 0:11:39.360 make us worried. But but yes, I look, the dollar 0:11:39.520 --> 0:11:42.600 is going to be significantly weaker by the end of 0:11:42.679 --> 0:11:45.240 next year. We may see I think there's a real 0:11:45.320 --> 0:11:47.199 chance that we may see the dollar quite a lot 0:11:47.240 --> 0:11:49.840 weaker by the end of this year and then stronger 0:11:49.880 --> 0:11:53.600 in January. Just to blow up every outlook piece of anybody, right, 0:11:54.840 --> 0:11:58.000 just because positions come off Kit I'm glad that you 0:11:58.040 --> 0:12:00.679 talked about positioning. And I've to say, when I was 0:12:00.720 --> 0:12:03.040 reading your note, I felt like it was pretty gloomy, 0:12:03.080 --> 0:12:05.000 and I thought, you know, okay, I wonder what your 0:12:05.000 --> 0:12:07.600 pushback is. I get accused of being gloomy all the time. 0:12:08.000 --> 0:12:10.760 How much do you buy into this argument that there's 0:12:10.760 --> 0:12:13.640 already so much gloom that there's no room to be gloomier, 0:12:13.800 --> 0:12:15.880 that stocks have to rally, that the dollar has to 0:12:15.920 --> 0:12:18.840 weaken just because people have already baked in all of 0:12:18.880 --> 0:12:23.040 the bare cases that could potentially happen. I hear that 0:12:23.160 --> 0:12:26.400 from from our equity people and our credit people, And 0:12:26.520 --> 0:12:30.480 for example, you know, in the season of outlooks, if 0:12:30.679 --> 0:12:32.760 the first one I saw from anybody said, you know, 0:12:33.000 --> 0:12:35.440 the next year is the year of yield, which sounds 0:12:35.440 --> 0:12:37.240 pretty gloomy. If before you're supposed to do is to 0:12:37.280 --> 0:12:39.480 buy bonds um the next you know that the view 0:12:39.480 --> 0:12:42.000 that we would have is is that credit spreads look 0:12:42.040 --> 0:12:45.599 as if that that better able to cope with the 0:12:45.679 --> 0:12:48.280 kind of downturn we will get them than equities in 0:12:48.320 --> 0:12:50.920 some ways, but that the equity problem is maybe more 0:12:50.920 --> 0:12:54.040 in small companies than big ones, which small ones which 0:12:54.080 --> 0:12:56.640 can't cope with the volatility we've had in sort of 0:12:56.679 --> 0:12:59.240 events that affect them. But yeah, I think there's a 0:12:59.240 --> 0:13:01.920 lot of there's a lot of negativity for for the 0:13:01.960 --> 0:13:04.360 way that this will let play up priced in. I 0:13:04.400 --> 0:13:07.040 think in the foreign exchange market. Part of it is 0:13:07.320 --> 0:13:09.240 that I have you it slightly differently when when people 0:13:09.280 --> 0:13:11.440 start looking at a soft landing and they say, you know, 0:13:11.440 --> 0:13:13.600 growth's gonna slow, We're going to manage soft landings, that 0:13:13.640 --> 0:13:16.199 seems likely the Fed's done soon they sell the dollar 0:13:16.320 --> 0:13:18.880 because we get to the the the ideal point of 0:13:18.920 --> 0:13:22.200 the smile, where ECB still raising rates, the Feds, the 0:13:22.240 --> 0:13:24.199 Fed stop, where it's all priced in and so on. 0:13:24.720 --> 0:13:27.199 I I still worry that the bigger problem could be 0:13:27.280 --> 0:13:29.360 later now we we don't think we're really going to 0:13:29.360 --> 0:13:32.720 get a recession in the United States. Four. The danger 0:13:32.840 --> 0:13:36.560 with this labor market and with the Fed hiking the 0:13:36.600 --> 0:13:39.319 way they've been is is that if the labor market 0:13:39.360 --> 0:13:41.880 is so tight and going into a recession, that the 0:13:42.000 --> 0:13:44.960 hammer that you need to break them nup of inflation 0:13:45.360 --> 0:13:48.480 might have to be hit really hard. Um and you 0:13:48.559 --> 0:13:52.480 may get later harder landings rather than earlier softer ones. 0:13:52.760 --> 0:13:56.120 But kind of so it may well be that you 0:13:56.160 --> 0:13:57.920 get you know, equities do reasonably well in the first 0:13:57.920 --> 0:13:59.720 half of next year, and then we have to rethink it. 0:13:59.800 --> 0:14:04.120 But uh yeah, for now that everybody, everybody is believing 0:14:04.200 --> 0:14:07.600 that you can soft land the global economy despite this 0:14:08.120 --> 0:14:12.640 unique combination of zero unemployment. At the beginning of our session, 0:14:14.080 --> 0:14:16.839 Cecia General, thank you so much for joining us, kid. 0:14:16.840 --> 0:14:19.640 I hope you enjoy the beautiful sunshine outside despite the 0:14:19.800 --> 0:14:26.600 gloom of what we're talking about. Claudia Sam, founder of 0:14:26.600 --> 0:14:29.120 Some consulting and former Fetterers or of Economist Claudia, thank 0:14:29.160 --> 0:14:30.840 you so much for being with us on this post 0:14:30.920 --> 0:14:34.280 Thanksgiving Friday. How much are you looking to this holiday 0:14:34.320 --> 0:14:39.560 shopping season as a gauge of consumer spending. I'm really optimistic. 0:14:39.840 --> 0:14:43.000 Consumers have delivered this year. We have had a very 0:14:43.040 --> 0:14:46.840 steady pace in terms of overall spending, and the labor 0:14:46.880 --> 0:14:49.880 market is great. I worked at the FED over a 0:14:49.920 --> 0:14:54.880 decade focusing on consumer spending, our forecast, our analysis. People 0:14:54.920 --> 0:14:59.640 when they have income, they spend it. Americans have income 0:14:59.800 --> 0:15:02.440 these jobs. It's true some of the spending now is 0:15:02.480 --> 0:15:04.400 going to be at the higher end, but you know what, 0:15:04.560 --> 0:15:07.080 those people that work at Macy's. They need to keep 0:15:07.120 --> 0:15:10.320 their paychecks, They need people to come in and spend. 0:15:10.920 --> 0:15:15.760 I we have everything for another good holiday season, even 0:15:15.880 --> 0:15:19.440 after inflation adjusted. So I I see a really good 0:15:19.480 --> 0:15:22.280 path forward. And honestly, I'm not too worried about some 0:15:22.400 --> 0:15:25.640 of these businesses, the big businesses taking a little bit 0:15:25.720 --> 0:15:28.400 less in profit. I've been doing pretty well. But you've 0:15:28.400 --> 0:15:31.080 got a little big picture here. But Claudia, on the 0:15:31.080 --> 0:15:33.880 flip side, you could say that that resilience that's spending 0:15:34.080 --> 0:15:36.640 is exactly what's causing a problem for the Federal Reserve, 0:15:36.760 --> 0:15:39.320 because it's the reason there's still momentum, the reason that 0:15:39.360 --> 0:15:42.880 inflation can last longer than many of the lower income 0:15:42.920 --> 0:15:45.640 families can stand it. How does this really cohere with 0:15:45.680 --> 0:15:48.560 this idea that the Fed should be somewhat careful rather 0:15:48.600 --> 0:15:51.800 than just keep going with a sledgehammer. The Fed needs 0:15:51.800 --> 0:15:54.720 to back off. It is absolutely clear, and it's become 0:15:54.800 --> 0:15:58.000 clear over time. A lot of that inflation is coming 0:15:58.000 --> 0:16:03.640 from disruptions on the supply side, disruptions from COVID, disruptions 0:16:03.640 --> 0:16:06.400 from the war in Ukraine. We have seen a lot 0:16:06.480 --> 0:16:10.040 of encouraging signs even in the last consumer price index 0:16:10.440 --> 0:16:13.520 numbers that things are turning over. We're seeing things work 0:16:13.600 --> 0:16:16.840 themselves out. Yeah, it's gonna take time to show up 0:16:16.840 --> 0:16:20.840 in consumer prices. For whatever reason, the Fed has decided 0:16:20.880 --> 0:16:22.920 they've got to see it there, even though we see 0:16:22.920 --> 0:16:27.480 it in producer prices, import prices, rents are turning over 0:16:27.680 --> 0:16:30.240 like we have all the signs that relief is coming 0:16:30.600 --> 0:16:33.400 to consumers, and as the ft does too much, they're 0:16:33.400 --> 0:16:37.840 gonna undo that relief and and overdo it. Claudia, the 0:16:37.880 --> 0:16:41.080 sumerule has been It's why they regarded indicator of recession. 0:16:41.120 --> 0:16:43.400 You know that you created it. Um On. My colleagues 0:16:43.440 --> 0:16:47.560 at Bloomberg Intelligence are calling for probability of a recession 0:16:47.600 --> 0:16:49.400 in the US over the next twelve months. What are 0:16:49.400 --> 0:16:54.000 your thoughts on that? So respectfully, I disagree with them, 0:16:54.480 --> 0:16:57.200 and and frankly, as the data are coming in, particularly 0:16:57.240 --> 0:17:00.560 on the inflation side, I am more and more courage 0:17:01.000 --> 0:17:05.600 that we could skirt the re session. I think if 0:17:05.640 --> 0:17:08.320 we see one, it's almost absolutely going to be of 0:17:08.400 --> 0:17:11.720 a mild variety. At he's given what we know right now, 0:17:11.920 --> 0:17:14.040 right know, they're bad things could happen, and that forecast 0:17:14.080 --> 0:17:16.800 could change. But we have again, there's a lot of 0:17:16.920 --> 0:17:20.800 encouraging signs the labor market is good. You don't. The 0:17:20.840 --> 0:17:24.159 sound role is based on the unemployment rate rising, and 0:17:24.760 --> 0:17:28.560 it's really not. Things look really good in the labor market. 0:17:29.359 --> 0:17:32.520 You know, we're getting back to a more normal, sustainable pace. 0:17:33.640 --> 0:17:36.000 So I don't. I don't see it, and less and 0:17:36.080 --> 0:17:38.680 less I'm seeing it. But you know, I have been 0:17:38.720 --> 0:17:42.680 wrong multiple times, as economy is upside down and backwards, 0:17:42.720 --> 0:17:44.919 and we keep having really bad luck in terms of 0:17:44.960 --> 0:17:47.239 bad things happening in the world. You know, Claudie, you've 0:17:47.240 --> 0:17:50.480 also written extensively on FED activity during periods of wartime, 0:17:50.720 --> 0:17:52.840 right and historically what we've seen, like in World War Two, 0:17:52.880 --> 0:17:55.360 for example, you saw you know, um, you know, basically 0:17:55.400 --> 0:17:57.919 the FED not you know, hiking rates, as aggressively providing 0:17:57.920 --> 0:17:59.960 income support and the like. You know, we just saw, 0:18:00.200 --> 0:18:02.960 you know, roughly seventy the parity key have knocked out 0:18:02.960 --> 0:18:05.760 in Ukraine yesterday. We know the difficulties that are going 0:18:05.800 --> 0:18:07.840 on on the ground there. What should the FED be doing, 0:18:07.880 --> 0:18:09.879 Should they be paying attention and how how should they 0:18:09.920 --> 0:18:14.479 be handling that? Congress should be stepping in and the 0:18:14.480 --> 0:18:17.119 funder Reserve is following their mandate, that's what they have 0:18:17.240 --> 0:18:19.560 to do. They're going to follow the letter of the 0:18:19.640 --> 0:18:22.520 law here in wartime. You can look back to World 0:18:22.560 --> 0:18:26.320 War Two. That was a time when the FED worked 0:18:26.560 --> 0:18:30.560 closely with the Congress and Treasury told them, you are 0:18:30.680 --> 0:18:33.920 going to keep interest rates load, so financing the war 0:18:34.119 --> 0:18:37.199 doesn't cost American taxpayers even more than it has to. 0:18:38.440 --> 0:18:41.159 The independence of the FED is not God given, it 0:18:41.280 --> 0:18:44.119 is Congress given. Now that's a big step forward. And 0:18:44.160 --> 0:18:46.479 I know, even talking about it is like wow. If 0:18:46.480 --> 0:18:50.399 Fed economists is talking about, you know, putting independence temporarily 0:18:50.400 --> 0:18:53.560 on the side, I just I don't get it. I 0:18:53.840 --> 0:18:56.120 don't get why the Federal Reserve is pushing so hard, 0:18:56.160 --> 0:18:59.000 and I certainly don't understand European Central Bank and the 0:18:59.040 --> 0:19:01.640 Bank of England. But this is making a very bad 0:19:01.680 --> 0:19:05.320 situation in Europe worse. Claudia Sam, thank you so much 0:19:05.359 --> 0:19:07.919 for being with us. Claudia Sam of some consulting and 0:19:07.960 --> 0:19:21.520 former Federaliser of Economists. Well, let's see what's going on. 0:19:21.560 --> 0:19:24.440 As we tried to go on the ground and Joe 0:19:24.480 --> 0:19:27.600 Feldman in his car going from store to store, senior 0:19:27.600 --> 0:19:31.280 research analysts and assistant director of research over at Telsey, Joe, 0:19:31.640 --> 0:19:33.240 where are you right now? What are you seeing on 0:19:33.280 --> 0:19:37.120 the ground. Yeah, so I'm in West justestern New York, 0:19:37.160 --> 0:19:39.879 up in the near White Plains, uh and was just 0:19:40.240 --> 0:19:43.440 going through a Best Buy And so far this morning, 0:19:43.440 --> 0:19:45.600 it's really quiet out there. I don't think there's this 0:19:45.680 --> 0:19:49.320 massive rush to get in the store to grab a Doorbuster. Well, 0:19:49.359 --> 0:19:51.280 how much is this? How much is this? Joe? That 0:19:51.320 --> 0:19:54.159 we're just basically seeing the end of this. You know, 0:19:54.200 --> 0:19:56.360 you get in at four am and you get the goods, 0:19:56.440 --> 0:19:58.560 and that's you know, see people line up. That that's 0:19:58.720 --> 0:20:01.080 over because of the online and channels, because of the 0:20:01.119 --> 0:20:05.320 other areas of distribution. Yeah, I think that's absolutely rightly 0:20:05.400 --> 0:20:08.320 so that you you are seeing maybe the end of 0:20:08.359 --> 0:20:10.560 that early morning rush that need to get in for 0:20:10.600 --> 0:20:13.280 a Doorbuster. You know, just talking to some associates in 0:20:13.320 --> 0:20:15.640 one of the stores that I visited, and they were saying, yeah, 0:20:15.680 --> 0:20:18.320 there was no major rush. The prices are basically the 0:20:18.320 --> 0:20:20.440 same that you could have had all all this past 0:20:20.480 --> 0:20:24.880 week online or even walking into the store earlier this week. 0:20:24.920 --> 0:20:28.920 So I think that impetus that that push to get 0:20:28.960 --> 0:20:31.639 you in has maybe waned. But I'm very curious to 0:20:31.640 --> 0:20:34.160 see how traffic is this afternoon, because I do think 0:20:34.160 --> 0:20:36.920 that that people will come out, they want to get social, 0:20:37.320 --> 0:20:40.000 and we haven't had a real true Black Friday in 0:20:40.040 --> 0:20:42.560 a couple of years. Joe, you're fifteen minutes from my 0:20:42.600 --> 0:20:44.360 home in roy Brook, New York there on Central Lab 0:20:44.400 --> 0:20:48.639 and White Plains. How indicative? How representative is that best 0:20:48.640 --> 0:20:51.199 Buy on Central Lab of you know, what's going on 0:20:51.200 --> 0:20:55.920 across the nation. I actually think it's fairly representative. I mean, look, 0:20:55.920 --> 0:20:59.120 it's a nice you know, um, you know, solid community, 0:20:59.520 --> 0:21:02.959 middle through the middle class community around here, people that 0:21:03.240 --> 0:21:05.560 are looking to buy, and and there's a it's a 0:21:05.640 --> 0:21:08.960 very good retail area here in Westchester. And I do 0:21:09.200 --> 0:21:12.000 find that it has been fairly indicative. You know, when 0:21:12.000 --> 0:21:14.000 I speak to the people on my team who live 0:21:14.000 --> 0:21:16.320