WEBVTT - Surveillance: Tech Fatigue with Kaiser 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.840 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.040 --> 0:00:32.400 This to me is the question how much do we 0:00:32.440 --> 0:00:37.080 see shares absolutely pummeled? If anything is disappointed. 0:00:37.120 --> 0:00:40.599 There's only one person to answer the question, Walgreen's analyst 0:00:40.720 --> 0:00:45.680 Stuart Geiser, US equity trading strategy head. It's any group, Stewart. 0:00:45.720 --> 0:00:48.159 I know you don't talk about individual stocks, but this 0:00:48.320 --> 0:00:51.120 is just a microcosm of the earnings battle over the 0:00:51.159 --> 0:00:51.960 next six weeks. 0:00:52.360 --> 0:00:54.280 Yeah, yeah, I think look at earnings have been obviously 0:00:54.280 --> 0:00:57.080 a very pleasant surprise or a very painful surprise. If 0:00:57.120 --> 0:00:59.160 you've been bearish on a your date basis, you know 0:00:59.360 --> 0:01:01.720 I would agree with you. The bar is pretty high 0:01:01.760 --> 0:01:04.679 going into earnings this quarter, particularly in the tech space, 0:01:05.360 --> 0:01:07.360 so that's going to be I think a very very 0:01:07.400 --> 0:01:10.240 strong test. We have seen investors kind of gravitating towards 0:01:10.280 --> 0:01:13.040 stocks that have strong EPs momentum. This kind of happened 0:01:13.040 --> 0:01:15.399 to head a last earning season as well, so you know, 0:01:15.400 --> 0:01:17.039 when the bar is high, you try to go with 0:01:17.040 --> 0:01:18.600 the stocks I think you feel like you can rely 0:01:18.640 --> 0:01:20.039 on from an earnings perspective, what are. 0:01:19.920 --> 0:01:22.480 Your securities analysts say? It's City Group, They've got this. 0:01:22.640 --> 0:01:24.959 I get all the feed from City Group for some reason. 0:01:25.319 --> 0:01:28.319 And you know, Jane Frazier's she's long on you know, IBM, 0:01:28.360 --> 0:01:30.440 I hear about it first. But the bottom line is 0:01:30.480 --> 0:01:33.319 what do the troops say about this pending season? 0:01:33.840 --> 0:01:35.320 Look, I think it's I think it's going to be 0:01:35.360 --> 0:01:37.839 a mixed bag. And the question is, you know where 0:01:37.840 --> 0:01:40.000 do you put the most focus? You know, to me 0:01:40.240 --> 0:01:43.280 a lot of you know, to continue the Walgridge conversation, 0:01:43.600 --> 0:01:45.759 it's it's the services side of the economy, and it's 0:01:45.760 --> 0:01:48.360 the labor market and consumer spending that that are the 0:01:48.400 --> 0:01:50.240 things I think you need to pay most most close 0:01:50.280 --> 0:01:52.800 attention to going to the second half of the year. 0:01:53.200 --> 0:01:55.560 I'm looking right now. Walgreen shares down seven point four 0:01:55.600 --> 0:01:58.120 percent in pre market trading on the heels of this disappointment. 0:01:58.120 --> 0:02:01.120 It wasn't a severe disappointment, but it was appointment. What 0:02:01.160 --> 0:02:04.000 does that say about the potential sell off if there 0:02:04.120 --> 0:02:07.440 is any crack in any of the big tech names, 0:02:07.480 --> 0:02:11.519 given where valuations are, given where expectations are, and given 0:02:11.840 --> 0:02:15.760 how lofty some of these stock prices really are right now. 0:02:15.720 --> 0:02:17.560 Yeah, it's going to be a minefield, I think, you know, 0:02:17.639 --> 0:02:19.480 for tech earnings. And the tough part too is you 0:02:19.480 --> 0:02:23.080 look at that week between July twenty fourth and July thirty. 0:02:23.080 --> 0:02:25.079 First you get the FMC and that's when you get 0:02:25.080 --> 0:02:26.880 you know, large cap earning. So you know that last 0:02:26.880 --> 0:02:28.560 week in July I think is going to be very 0:02:28.560 --> 0:02:30.760 busy for you all and obviously very busy for us. 0:02:31.040 --> 0:02:32.720 And yeah, to your point, I think that the bar 0:02:32.800 --> 0:02:34.200 is very high here for a lot of those stocks, 0:02:34.200 --> 0:02:36.560 particularly if you look back to last quarter, you know, 0:02:36.639 --> 0:02:40.280 stocklike Microsoft, A stocklike and Video, which were considered consensus longs, 0:02:40.919 --> 0:02:44.880 still managed to rise considerably on earnings, and I think 0:02:44.880 --> 0:02:46.480 they've now face the challenge of backing that. 0:02:46.560 --> 0:02:51.040 Up headline out right now. Delta Airlines thanks the Abramowitz 0:02:51.120 --> 0:02:54.120 fan for profit making travel in July. 0:02:54.960 --> 0:02:57.080 Thank you. Yeah, are you just basically just. 0:02:57.000 --> 0:03:01.760 Continue to Walgreen's tank as we go and delta out 0:03:01.760 --> 0:03:04.200 with a complete reado. Lisa, why don't you visit it? 0:03:04.360 --> 0:03:07.639 Your free cash flow was greater than two billion. They 0:03:07.680 --> 0:03:12.040 popped FCF up to three billion dollars. I believe that's 0:03:12.040 --> 0:03:14.080 a fifty percent lift on free cash. 0:03:14.360 --> 0:03:16.400 Well, this has been the perennial story, right, that people 0:03:16.480 --> 0:03:20.799 keep traveling, that the distortions post pandemic have continued. Given 0:03:21.000 --> 0:03:23.560 some of these post pandemic distortions, And we were talking 0:03:23.600 --> 0:03:26.280 before we went on about how people do keep on 0:03:26.320 --> 0:03:29.600 spending and maybe they were conditioned by remaining cooped up 0:03:30.080 --> 0:03:32.040 and feeling like they have to seize life at the 0:03:32.080 --> 0:03:35.280 horns or whatever kind of psychological rationale you want to 0:03:35.280 --> 0:03:37.560 put on it. But Stuart, how does that color your 0:03:37.680 --> 0:03:41.560 view of whether you're more optimistic or more pessimistic once 0:03:41.600 --> 0:03:43.119 we get the reality of these earnings. 0:03:43.520 --> 0:03:44.400 Look, I think. 0:03:44.320 --> 0:03:46.560 It's earnings and to your point, is consumer spending employment. 0:03:46.640 --> 0:03:48.120 And you know, if we're going to have a recession 0:03:48.120 --> 0:03:49.480 in the second half of the year, it's going to 0:03:49.520 --> 0:03:51.560 have to come from the consumer side of the market, right, 0:03:51.600 --> 0:03:53.600 So that's why there's so much focus on the labor 0:03:53.640 --> 0:03:56.200 market I think going into earnings. Yet there's a high 0:03:56.200 --> 0:03:58.760 bar for tech, mostly because tech has been leadership of 0:03:58.800 --> 0:04:00.560 the market, and I think there's a higher, you know, 0:04:00.600 --> 0:04:03.160 a high bar. A lot of focus on consumer companies 0:04:03.200 --> 0:04:05.080 just to see if the spending is following through. Are 0:04:05.080 --> 0:04:07.680 they continuing to be able to pass through inflation or 0:04:07.720 --> 0:04:09.560 are they starting to have to discount, you know, to 0:04:09.600 --> 0:04:11.640 get to get people in the door. So I think, 0:04:11.680 --> 0:04:13.840 you know, those are the two areas will probably focused 0:04:13.840 --> 0:04:15.640 on the most f earnings coming up is can tech 0:04:15.720 --> 0:04:18.039 hit the bar? And what signal are we getting on 0:04:18.040 --> 0:04:18.680 consumer spend? 0:04:18.839 --> 0:04:20.880 What does it mean that tech is that tech earnings 0:04:21.080 --> 0:04:23.560 is a minefield, that that whole period is a minefield 0:04:23.600 --> 0:04:26.360 at a time when you've been pretty optimistic about where 0:04:26.400 --> 0:04:27.119 the market's heading. 0:04:27.520 --> 0:04:30.400 Yeah, look, the tech the tech trade is obviously not 0:04:30.520 --> 0:04:32.400 as we say, as clean as it was you know 0:04:32.440 --> 0:04:33.920 at the beginning of the year. You know, I think 0:04:33.960 --> 0:04:36.799 the bottom line here is if you look at sales revisions, 0:04:36.839 --> 0:04:39.280 if you look at EBITDA revisions, they've been you know, 0:04:39.440 --> 0:04:41.880 higher for tech and even higher in the AI space. 0:04:42.120 --> 0:04:43.960 So that kind of sets your bar, you know a 0:04:43.960 --> 0:04:46.560 little bit higher for expectations, and you know what we've 0:04:46.560 --> 0:04:49.120 seen the last I would say one to two months 0:04:49.120 --> 0:04:51.960 is is long only investors in particular starting to have 0:04:52.000 --> 0:04:54.280 some fatigue in terms of tech buying. We're starting to 0:04:54.279 --> 0:04:56.560 see some outflows from the space. So you put those 0:04:56.560 --> 0:04:58.760 two things together, you have a high bar and what 0:04:58.839 --> 0:05:01.839 looks like some fatigue on the institutional side, and that 0:05:02.000 --> 0:05:03.600 just to your point, sets it up that you need 0:05:03.640 --> 0:05:06.159 to need to deliver results here to kind of justify 0:05:06.200 --> 0:05:07.680 your performance out of your today basis. 0:05:07.720 --> 0:05:10.600 I want you to talk to market timers right now. 0:05:10.720 --> 0:05:13.479 You have been brilliant bailing the rest at City Group 0:05:13.560 --> 0:05:16.520 about saying you got to be in the game to win. 0:05:16.920 --> 0:05:21.800 Talk about market timing right now, the efficacy of being 0:05:21.960 --> 0:05:25.200 hyper cautious versus the optimism I hear from City Group. 0:05:25.720 --> 0:05:28.000 Yeah, look, I think even our optimism is starting to 0:05:28.000 --> 0:05:29.760 get a little bit tired, you know, to be completely 0:05:29.760 --> 0:05:32.320 honest with you, you know, partly its price action and partly 0:05:32.360 --> 0:05:34.400 it's one of the reasons we were kind of more 0:05:34.440 --> 0:05:37.200 bullish coming into the year was so much stock had 0:05:37.200 --> 0:05:39.680 been sold last year, and we thought that that those 0:05:39.680 --> 0:05:42.599 positions kind of needed to be rebuilt. And just the 0:05:42.680 --> 0:05:46.000 data we're seeing on flows suggests that those positions have 0:05:46.120 --> 0:05:48.719 largely been rebuilt, call it your seventy five percent of 0:05:48.720 --> 0:05:52.080 the way you know, along that path. So from our perspective, 0:05:52.440 --> 0:05:54.520 it does kind of impact risk reward a little bit. 0:05:54.560 --> 0:05:56.880 So look, you know, we are still relatively positive, you know, 0:05:56.920 --> 0:05:58.920 gun to our head, we'd say up up rather than 0:05:58.960 --> 0:06:03.160 down at this point. But the risk reward is definitely. 0:06:02.920 --> 0:06:04.960 The nature of a bull market. I mean, I mean, 0:06:05.200 --> 0:06:07.039 I'm sorry, we're not in the first leg off the 0:06:07.080 --> 0:06:10.400 Matt Bramo was wicked gloomy the third week of October 0:06:10.480 --> 0:06:12.279 last year, and guess what, we all got off the 0:06:12.320 --> 0:06:15.800 mat and went, it's not supposed to be like that now, right, No, 0:06:16.040 --> 0:06:16.320 it's not. 0:06:16.440 --> 0:06:18.800 I mean for a number of reasons. One is, you've 0:06:18.839 --> 0:06:22.360 had a tremendously positive economic data surprise to start the year. 0:06:22.440 --> 0:06:24.800 That's flowed through to earnings expectations as well. I think 0:06:24.839 --> 0:06:27.360 that's that's helped lift the market. Look, you get above 0:06:27.400 --> 0:06:31.400 forty four hundred, you know, and it looks like institutional 0:06:31.400 --> 0:06:34.880 investors at least have started to you know, just sort 0:06:34.880 --> 0:06:36.800 of call pause a little bit in terms of their 0:06:36.800 --> 0:06:38.720 inflows into the market. So that that means one of 0:06:38.800 --> 0:06:40.799 two things. Either, I think you need to take recession 0:06:40.839 --> 0:06:42.640 risk out of the system, which would be your next 0:06:42.720 --> 0:06:45.280 leg higher or you're going to need, you know, retail 0:06:45.320 --> 0:06:47.279 to continue to sponsor this market to the upside. 0:06:47.320 --> 0:06:48.840 Are you one of those people who says if there 0:06:48.880 --> 0:06:51.359 is a sell off in tech, it's a biable dip. 0:06:51.400 --> 0:06:53.280 That's what I keep hearing from everyone. 0:06:54.240 --> 0:06:56.320 Look, I think if there's a cello in tech, I 0:06:56.320 --> 0:06:58.560 think that means markets are down in general. You're not 0:06:58.560 --> 0:07:01.480 going to get tech down with markets off, right, So 0:07:01.880 --> 0:07:04.120 every dip is a Bible tip, I guess. But you know, 0:07:04.120 --> 0:07:06.080 from our perspective, I think if you get a pull 0:07:06.160 --> 0:07:07.479 back here, I agree with you. I think there are 0:07:07.480 --> 0:07:09.400 a lot of people waiting to get into the market, 0:07:09.440 --> 0:07:12.920 you know, a bit lower, which probably mean like right 0:07:12.920 --> 0:07:15.000 now we're in the pain trade. To the upside, you know, 0:07:15.000 --> 0:07:16.720 people didn't want to chase it. I think what you'll 0:07:16.720 --> 0:07:18.800 probably have is people buy a little too quickly on 0:07:18.840 --> 0:07:20.760 the way down and then and then kind of have 0:07:20.840 --> 0:07:23.760 to average themselves in the floor is clearly higher than 0:07:23.800 --> 0:07:26.240 it was to start the year. Again, Yeah, I agree 0:07:26.240 --> 0:07:27.480 with you. I do think you'll see so I don't 0:07:27.480 --> 0:07:29.360 want to call it value picking, but you'll definitely see 0:07:29.360 --> 0:07:31.480 some people who'd be happy to buy the market call 0:07:31.520 --> 0:07:33.920 it five to ten percent lower here, which, as you know, 0:07:34.040 --> 0:07:34.880 lives the downside. 0:07:35.240 --> 0:07:37.280 I don't know if you knew this. This is brilliant Stewart, 0:07:37.320 --> 0:07:39.720 thank you so much. But Bramo's got the east Bay 0:07:39.800 --> 0:07:43.000 forty four from grand Banks on delivery later this summer. 0:07:43.280 --> 0:07:47.760 Gorgeous with a light blue and she's named Bible Dip. 0:07:50.200 --> 0:07:52.760 This is great. It's a picnic boat for Bramo to 0:07:52.760 --> 0:07:55.320 have a picnic. It's like the Hinkley one. But actually 0:07:55.320 --> 0:07:58.200 I think it has more character than the Hinkley picnic boat. 0:07:58.440 --> 0:08:01.160 I think I got lost in me paddle to blow 0:08:01.240 --> 0:08:02.600 up paddle board instead. 0:08:02.800 --> 0:08:04.120 That sort of my speed. 0:08:04.200 --> 0:08:06.960 But here out it was great. I love the site Thrusters, 0:08:06.960 --> 0:08:09.520 but I'm sorry the East Space betteran you know you 0:08:09.600 --> 0:08:10.200 might this. 0:08:10.280 --> 0:08:11.720 Was the last time you were on a boat. 0:08:11.960 --> 0:08:14.960 I mean, come on, it was boat was called the 0:08:15.120 --> 0:08:16.600 USS Drama. 0:08:16.880 --> 0:08:18.840 Yeah exactly, that sounds more like it. 0:08:19.080 --> 0:08:22.320 Yeah, Stuart Kaiser, just bringing in come back, bring Jeff 0:08:22.400 --> 0:08:25.120 you with you from b and ymel every day. Kaiser 0:08:25.200 --> 0:08:38.080 in you it is with our question the Hallmark Research 0:08:38.200 --> 0:08:42.080 analysis of the year. You could hear the silence in 0:08:42.200 --> 0:08:45.679 Washington is the International Monetary Fund, led by the economics 0:08:45.720 --> 0:08:49.760 of gidigopin F looked out to twenty twenty eight and 0:08:49.840 --> 0:08:54.120 saw a growth trajectory that took us back decades to 0:08:54.280 --> 0:08:59.880 nineteen ninety. It was an extraordinary call on tepid economic growth. 0:09:00.240 --> 0:09:03.400 We need an update. We go to Portugal and CenTra 0:09:03.520 --> 0:09:07.000 the meetings of the European Central Bank. Francine Lacroix of 0:09:07.040 --> 0:09:10.920 the Pulse in conversation with doctor Gopineth Francine, good morning, 0:09:11.120 --> 0:09:11.800 Good morning Tom. 0:09:11.840 --> 0:09:14.160 I am delighted to be joined by Gita Goopinoff, of 0:09:14.160 --> 0:09:16.760 course of the IMF, who yesterday also really opened the 0:09:16.800 --> 0:09:20.400 forum here in Syndrome with a very powerful speech linking 0:09:20.520 --> 0:09:23.480 fiscal policy and montary policy and really reminding everyone that 0:09:23.720 --> 0:09:25.400 they had to work in tantem So, Gita, thank you 0:09:25.440 --> 0:09:27.760 so much for joining us. When you look at the 0:09:27.800 --> 0:09:31.760 fight against inflation, there's now a lot of talk about recession. 0:09:32.080 --> 0:09:34.480 You know the fact that core inflation is still high, 0:09:34.559 --> 0:09:37.520 but headline inflation is coming down. What does a policy 0:09:37.559 --> 0:09:39.200 mistake from central banks now look like? 0:09:40.320 --> 0:09:42.920 First of all, it's the pressure to join your friends scene. 0:09:43.720 --> 0:09:47.760 What are you experiencing is that inflation is taking a 0:09:47.800 --> 0:09:49.800 long time to get back to its target. And yes, 0:09:49.880 --> 0:09:53.120 headline is coming down significantly, but core inflation, what it 0:09:53.200 --> 0:09:57.760 has eased, is still persistently high. So in this environment, 0:09:58.559 --> 0:10:00.760 our advice is a central bank will need to stay 0:10:00.760 --> 0:10:01.200 the course. 0:10:01.640 --> 0:10:04.680 In the case of the ECB, that will mean that some. 0:10:04.480 --> 0:10:07.880 More continued tightening and then to stay on hold to 0:10:07.960 --> 0:10:10.640 make sure that you're confident that inflation is coming back 0:10:10.720 --> 0:10:13.840 durably down and that that could come along with more 0:10:13.880 --> 0:10:16.320 weakness in liberal markets that we've seen so far and 0:10:16.400 --> 0:10:19.640 more weakness in the economy in general, but that's what 0:10:19.800 --> 0:10:21.320 is needed to bring inflation down. 0:10:21.640 --> 0:10:22.840 Do you worry about the markets? 0:10:22.880 --> 0:10:24.320 And I know you don't look at the market send 0:10:24.360 --> 0:10:25.840 day out, but there seems to be a bias in 0:10:25.880 --> 0:10:28.319 the markets that are actually inflation is coming down and 0:10:28.400 --> 0:10:32.040 that central banks will be ready to not hike as 0:10:32.120 --> 0:10:35.120 much as maybe they will. So is there a danger 0:10:35.160 --> 0:10:38.080 that the market is mispricing something that will then create 0:10:38.120 --> 0:10:38.880 an event. 0:10:38.840 --> 0:10:40.720 When the markets have been off since the start of 0:10:40.760 --> 0:10:44.359 this year. I mean, if you look at their expectations 0:10:44.360 --> 0:10:48.360 of the policy rate part in some countries, especially the US, 0:10:48.880 --> 0:10:51.720 they were expecting three rate cuts this year for US 0:10:51.760 --> 0:10:55.120 FED policy, and they have adjusted, they've come back now 0:10:55.200 --> 0:10:58.719 to recognizing that no, we are there here for longer 0:10:58.760 --> 0:11:02.400 than was expected. So I think markets have been very optimistic, 0:11:02.480 --> 0:11:06.000 and I suspect there's still somewhat optimistic about the path 0:11:06.040 --> 0:11:07.040 for interest rates. 0:11:07.280 --> 0:11:09.880 What do they most misunderstand is that the fact that 0:11:09.920 --> 0:11:13.120 interest rates have to remain higher for longer, which Christine 0:11:13.160 --> 0:11:15.800 Laguard actually laid out beautifully in her speech, or that 0:11:15.840 --> 0:11:17.760 they have to rise higher than expected. 0:11:18.160 --> 0:11:20.720 I think it's how long they're going to stay at that. 0:11:20.840 --> 0:11:23.439 I think that's the part where there is a disconnect 0:11:23.480 --> 0:11:27.120 between the markets and what central banks are signaling, and 0:11:27.200 --> 0:11:29.520 so far it's the markets that have had to correct 0:11:30.040 --> 0:11:33.440 to the central bank paths as opposed to other way around. 0:11:33.880 --> 0:11:35.800 So I still think that they're off a bit on 0:11:36.120 --> 0:11:37.120 the duration. 0:11:37.000 --> 0:11:38.760 For which they have to keep rates high. 0:11:39.120 --> 0:11:41.560 What's the path forward for growth should we worry about? 0:11:41.760 --> 0:11:44.240 Once we get inflation in control. 0:11:45.640 --> 0:11:49.600 We are seeing growth weakening, We are seeing slowing activity. 0:11:49.679 --> 0:11:52.960 At this point, we need to bring inflation down to 0:11:52.960 --> 0:11:55.640 have sustainable growth, which is why it's super important to 0:11:55.640 --> 0:11:58.360 do this this time around, since it's not just a 0:11:58.400 --> 0:12:03.800 demand phenomenon. Had supply disruptions correct themselves. We've had energy 0:12:03.840 --> 0:12:06.440 prices come down. I think both those factors are helping 0:12:06.640 --> 0:12:10.480 bring inflation down without needing too much of a hit 0:12:10.600 --> 0:12:11.400 to the economy. 0:12:11.920 --> 0:12:13.840 But I think we have to wait and see. 0:12:13.880 --> 0:12:16.120 We're only just seeing the effects of market policy work 0:12:16.160 --> 0:12:18.240 through the system now, and we can see much more slowing. 0:12:18.360 --> 0:12:20.360 But is that why, I mean, why is correntflation so 0:12:20.400 --> 0:12:22.640 stubbornly high. No one can quite figure it out, which 0:12:22.640 --> 0:12:25.080 is why it keeps on surprising us to the upside. 0:12:25.360 --> 0:12:27.839 It's a big part of the conversation we're having at CenTra, 0:12:28.240 --> 0:12:30.840 which is is it the fact that market policy transmission 0:12:31.080 --> 0:12:32.920 is now wicked than it used to be, or is 0:12:32.960 --> 0:12:35.760 it the fact that you haven't raised interest rates by 0:12:35.800 --> 0:12:38.040 an app I think these are questions that are coming up. 0:12:38.679 --> 0:12:39.240 We have a. 0:12:39.120 --> 0:12:43.040 Situation where it has been the case that household balance 0:12:43.080 --> 0:12:46.480 sheets corporate balance sheets have been strong, which has helped 0:12:47.240 --> 0:12:48.240 hold up resilience. 0:12:48.559 --> 0:12:49.720 Labor markets are ties. 0:12:49.840 --> 0:12:52.440 People believe that they will have a job, they can 0:12:52.520 --> 0:12:56.959 keep a job, Wages are going up, and services pending 0:12:57.040 --> 0:13:00.240 tends to be much less intrasensitive than when it comes 0:13:00.280 --> 0:13:04.320 to durable goods, which consumers piled up on already during 0:13:04.360 --> 0:13:06.520 the peak up the pandemic. So I think all these 0:13:06.520 --> 0:13:11.079 factors could be muting the effect of Montre policy transmission. 0:13:11.559 --> 0:13:15.280 But now as those effects decline, we could start seeing 0:13:15.760 --> 0:13:17.400 more of a slowing inactivity. 0:13:17.559 --> 0:13:19.560 I mean, to put it simply, a night mercenario would 0:13:19.559 --> 0:13:21.440 be some kind of spiral. So you have wages going up, 0:13:21.480 --> 0:13:23.840 prices go up, and then you lose control. 0:13:23.960 --> 0:13:26.800 Are we there yet? I don't think so. Don't We're 0:13:26.840 --> 0:13:30.520 not seeing that in like in the US or in 0:13:30.559 --> 0:13:33.360 the Euro Area. We certainly are seeing wage cash up 0:13:33.400 --> 0:13:34.839 and that has happened, That's happened. 0:13:34.600 --> 0:13:35.679 In previous cycles too. 0:13:35.720 --> 0:13:38.640 We should expect to see that, But we're not seeing 0:13:38.640 --> 0:13:42.560 wages pushing up prices. The concern, of course, is that 0:13:42.600 --> 0:13:45.280 if it takes so long to bring inflation down, then 0:13:45.320 --> 0:13:48.480 you might unhinge inflation expectations and then trigger a wage 0:13:48.480 --> 0:13:51.280 price file. This is why President god spends a lot 0:13:51.320 --> 0:13:54.440 of time talking about, you know, the persistence of inflation 0:13:54.559 --> 0:13:56.880 and the reason to stay high for long. 0:13:57.160 --> 0:13:59.240 So is that why interest rates you think have to 0:13:59.240 --> 0:14:00.480 stay higher for longer? 0:14:00.600 --> 0:14:01.360 Is it really? 0:14:01.440 --> 0:14:03.440 I mean, it's to get inflation two percent, but really 0:14:03.440 --> 0:14:06.440 it's to try to break through that spiral. That could 0:14:06.520 --> 0:14:08.640 be impossible actually almost to get out. 0:14:08.760 --> 0:14:11.640 If you look at projections for when inflation gets back 0:14:11.679 --> 0:14:14.040 to targets in the Euro Area, that's the middle of 0:14:14.040 --> 0:14:15.000 twenty twenty five. 0:14:15.600 --> 0:14:16.680 That's two years from now. 0:14:16.760 --> 0:14:19.680 This is a long time and that's why it is 0:14:19.760 --> 0:14:23.440 critical that you can't have any further risks to de 0:14:23.560 --> 0:14:26.120 anchoring of inflation, because it's two years is a long 0:14:26.160 --> 0:14:28.800 time to bring inflation back down to target. To make 0:14:28.800 --> 0:14:30.920 sure it happens, you have to stay the course and 0:14:31.040 --> 0:14:34.440 keep interest ras high and until you see durable signs 0:14:34.960 --> 0:14:36.960 that core inflation is coming down, then of course you 0:14:37.040 --> 0:14:38.240 have to be data dependent. 0:14:38.440 --> 0:14:40.160 I mean, all the world central bankers are here. It 0:14:40.200 --> 0:14:42.080 was quite exciting for me to see j Powell also 0:14:42.120 --> 0:14:44.520 walk in and the sneakers. I don't often see him 0:14:44.520 --> 0:14:47.720 actually in sneakers or face to face. Is a gravitational 0:14:47.760 --> 0:14:50.600 pull of what the FED does. Too heavy to hand 0:14:50.720 --> 0:14:52.920 for the UCB, but also the Bank of England, the 0:14:52.920 --> 0:14:53.560 Bank of Japan. 0:14:54.800 --> 0:14:58.280 What the FED does matters for the whole world, including 0:14:58.320 --> 0:15:01.080 for other major central banks. But I think this is 0:15:01.120 --> 0:15:03.280 a time when central bankers are coming together also to 0:15:03.360 --> 0:15:05.640 understand inflation dynamics better. 0:15:06.120 --> 0:15:08.040 There are still several questions. 0:15:08.080 --> 0:15:11.320 There's a lot of uncertainty on the outlook, and centralize 0:15:11.320 --> 0:15:13.360 a good learning experience for all central bankers. 0:15:13.760 --> 0:15:16.120 How hard is it for a monetary policy to counter 0:15:16.160 --> 0:15:19.680 fiscal policy? And again, because we're seeing inflationarized. 0:15:18.880 --> 0:15:20.880 That means the cost of living goes up. 0:15:20.920 --> 0:15:23.600 So it's understandable that politicians want. 0:15:23.480 --> 0:15:24.880 To be there for their citizens. 0:15:25.880 --> 0:15:29.160 I think it's perfectly good for governments to want to 0:15:29.200 --> 0:15:32.720 be there for their vulnerable citizens and to provide targeted support. 0:15:33.680 --> 0:15:37.040 What is not really good at this point would be 0:15:37.080 --> 0:15:41.320 to have broad based support that generates very large fiscal deficits, 0:15:41.440 --> 0:15:45.160 especially increases in fiscal deficits, and then feeds into inflation. 0:15:45.680 --> 0:15:46.560 That is a problem. 0:15:46.600 --> 0:15:48.800 I mean, all the indicators, the fact that we have 0:15:48.880 --> 0:15:51.480 high inflation now, the fact that debt is high and 0:15:51.520 --> 0:15:53.360 we need to build buffers because they're going to be 0:15:53.360 --> 0:15:57.000 future shocks. All of that point towards fiscal tightening, and 0:15:57.080 --> 0:15:58.239 that's what we're recommending. 0:15:58.640 --> 0:16:00.680 When you look at central the big center bankers around 0:16:00.680 --> 0:16:03.600 the world, and of course you know, dealing with inflation 0:16:03.640 --> 0:16:05.400 and growth, who do you think has the toughest job 0:16:05.680 --> 0:16:06.400 bank of England? 0:16:07.680 --> 0:16:09.520 I think at this point among the major ones. If 0:16:09.520 --> 0:16:11.240 I put the US, the Euro Area on the Bank 0:16:11.280 --> 0:16:15.160 of England, I think in the UK the inflation problem 0:16:15.240 --> 0:16:19.320 looks more difficult than in the other parts because they 0:16:19.320 --> 0:16:22.480 have a self supply shock problem that came from the 0:16:22.560 --> 0:16:26.320 energy prices, and they also have the demand side, which 0:16:26.360 --> 0:16:28.440 is very tight labor markets and if you look at 0:16:28.480 --> 0:16:31.520 wages in fact, in England, this is where you see 0:16:31.520 --> 0:16:34.640 the most amount of wage pressures coming in. 0:16:34.880 --> 0:16:36.000 So how do they get out of it? 0:16:36.200 --> 0:16:39.720 Again, there's also huge reliability on mortgages, so it's not 0:16:39.760 --> 0:16:41.840 as easy as you just keep on hiking because the 0:16:41.880 --> 0:16:43.560 housing market is so sensitive to that. 0:16:44.360 --> 0:16:44.520 Well. 0:16:44.560 --> 0:16:46.360 I think personally the fact that the Bank of England 0:16:46.440 --> 0:16:49.720 raised rates by fifty basis points recently in the most 0:16:49.720 --> 0:16:50.560 recent meeting, I. 0:16:50.480 --> 0:16:51.560 Think that's a welcome step. 0:16:51.640 --> 0:16:55.160 That's a clear signal that they are in the fight 0:16:55.240 --> 0:16:58.920 to bring inflation down. One of the reasons they've been 0:16:59.080 --> 0:17:01.760 somewhat cautious is exactly what can happen to mortgages and 0:17:01.840 --> 0:17:04.760 the housing market. But you know, there's been an increase 0:17:04.800 --> 0:17:07.600 in the duration of fixed rate mortgages in the UK, 0:17:07.800 --> 0:17:11.240 so you have some attenuation of that effect, and household 0:17:11.280 --> 0:17:13.440 balance sheets are much stronger than they were in the. 0:17:13.400 --> 0:17:15.000 Past, so that should also help. 0:17:16.080 --> 0:17:18.080 Tom Keen was also talking about, of course your at 0:17:18.080 --> 0:17:21.400 look and what we saw just a couple of weeks 0:17:21.440 --> 0:17:24.640 ago by the IMF. Are you more optimistic now about 0:17:24.720 --> 0:17:27.399 the world economy in twenty twenty four than new were 0:17:27.480 --> 0:17:28.160 six months ago? 0:17:30.280 --> 0:17:33.480 We had a projection for the world economy to grow 0:17:33.480 --> 0:17:35.560 as around two point eight percent this year, which was 0:17:36.400 --> 0:17:38.680 you know, coming down from three point four percent last 0:17:38.760 --> 0:17:42.199 year and then going up to around three percent. Our 0:17:42.240 --> 0:17:45.119 new numbers will be out in July. We don't have 0:17:45.200 --> 0:17:49.480 it ready at this point. We're getting different data from 0:17:49.480 --> 0:17:52.040 different countries at this point, but I think the overall 0:17:52.200 --> 0:17:54.480 story of an economy that's. 0:17:54.320 --> 0:17:56.600 Slower this year than it was last year will remain. 0:17:57.080 --> 0:17:59.440 So how much of the conversation here is also trying 0:17:59.440 --> 0:18:02.320 to understand and some of these forecasts going forward, and 0:18:02.320 --> 0:18:04.280 how central banks actually can do a better job in 0:18:04.359 --> 0:18:07.760