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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Chairman pell fascinating news conference, the most interesting news conference

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Speaker 2: we've seen with a FED share in quite a while.

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Speaker 2: Let's start with the price action, a big portion of

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Speaker 2: uncertainty with a sprinkle of transit tree equity markets rocketing.

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Speaker 2: We're up by one point five percent on the S

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Speaker 2: and P five hundred on the NASDAG, up by one

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Speaker 2: point nine on a Russell, up by close to two

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Speaker 2: in the bond market, two year, ten year, thirty year

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Speaker 2: yields down and down hard at the front end of

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Speaker 2: the curve by five basis points to three ninety eight.

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Speaker 2: Check out the commodity market, gold all time highs intra

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Speaker 2: day up by about a third of one percent.

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Speaker 3: There's a couple of interpretations here. Here's one.

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Speaker 2: It's the bad news, so they've downgraded the outlook for

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Speaker 2: growth but haven't responded by projecting additional cuts. Here's the

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Speaker 2: good news, and this is what the market seems to

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Speaker 2: be leaning on just a little bit more, and a

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Speaker 2: FED chair spoke to it. Based on the forecast, the

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Speaker 2: FED believes that any upward revision to inflation in twenty

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Speaker 2: twenty five won't last beyond twenty twenty five into twenty

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Speaker 2: six into twenty seven. On that and more, take a

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Speaker 2: listen to what the FED share had to say.

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Speaker 4: It can be the case that it's appropriate sometimes to

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Speaker 4: look through inflation if it's going to go away quickly

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Speaker 4: without action by us, if it's transitory, And that can

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Speaker 4: be the case in the case of tariff inflation. I

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Speaker 4: think that would depend on the tariff inflation moving through

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Speaker 4: fairly quickly, and would depend critically as well on inflation

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Speaker 4: expectations being well anchored longer term inflation expectations being well anchored.

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Speaker 2: A willingness to look through this perhaps reinforced by this

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Speaker 2: take on you, Mitch Michigan. Inflation expectations reading is an outlier.

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Speaker 1: Okay, going back, there's a lot to unpack here. We

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Speaker 1: can talk about you Michigan and how much that actually

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Speaker 1: did or did not inform the back of twenty twenty two,

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Speaker 1: and why it's less relevant now. The point of transitory

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Speaker 1: is a key one. This market is looking through the

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Speaker 1: downward revision to growth, the stagflationary like circumstances that frankly

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Speaker 1: defy logic for why that should be good for risk

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Speaker 1: assets and points squarely to this belief that the Fed

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Speaker 1: has resurrected transitory it is going to cut rates in

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Speaker 1: the face of weakness.

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Speaker 5: What I find fascinating is John, you mentioned it correctly.

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Speaker 5: Does see gold go out to a record high two

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Speaker 5: thirds of the ways of the press conference, Folks, I've

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Speaker 5: never said that in the technical destruction of the equity markets,

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Speaker 5: to see the Dow and the S and P popped

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Speaker 5: the way they are, by no means do they have

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Speaker 5: some buoyancy of a bicygnal. I mean there's some damage

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Speaker 5: out there from the politics folding into what he has

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Speaker 5: to deal with.

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Speaker 2: The market reaction carries a lot of way, and right now,

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Speaker 2: this equity market, it's rallying, going into the closing ball

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Speaker 2: about forty minutes from now. Joining us on the program

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Speaker 2: to react, the former New York Fed President Bill Duntley

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Speaker 2: Bell three poun acts. We've wrapped it up, We've had

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Speaker 2: the full cost that decision, and now the news conference.

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Speaker 2: What's your reaction to all of the above.

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Speaker 6: The summary of economic projections is actually a bit hawkish

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Speaker 6: in the sense that they that keep down graded growth

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Speaker 6: and pushed up inflation, and the dot plots, you know

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Speaker 6: that plot did shift up. They didn't shift up enough

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Speaker 6: to change it from two to one rate cut this year,

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Speaker 6: but they did did shift up.

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Speaker 7: Powell then came in, and I think he gave.

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Speaker 6: A pretty dubbish performance in the sense that you know,

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Speaker 6: we got this, We're in a good place, we can

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Speaker 6: afford to wait, we'll see how it goes, We're going

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Speaker 6: to get the job done. So he I think was

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Speaker 6: pretty reassuring to people that this was all, you know,

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Speaker 6: quite manageable. I think the reality is, I mean, growth

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Speaker 6: outlook is worse, the inflation outlook is worse, and certainty

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Speaker 6: is a lot higher.

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Speaker 7: I'm not really sure how you parse that out as positive.

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Speaker 7: But Paul put a pretty dubbish spin on it.

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Speaker 1: Bill that's where transitory comes in. It was resurrected, the

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Speaker 1: word that was once left for dead. Thought to look

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Speaker 1: through some of the tariff induced inflation, saying it probably

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Speaker 1: would subside. What do you make of that, because it's

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Speaker 1: giving a lot of confident to this market.

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Speaker 6: Well, one thing that he did talk about was inflation expectations,

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Speaker 6: and he basically said, look, there's only one indicator that's

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Speaker 6: really shown a significant increase in long term inflation expectations.

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Speaker 7: Everything else looks fine.

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Speaker 6: So he's basically telling people if you can ignore the

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Speaker 6: University of Michigan long Term inflation Expectations measure, which has

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Speaker 6: shot up very sharply the last month or so.

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Speaker 7: So that's reassuring.

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Speaker 6: So I think people think that's got this, you know,

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Speaker 6: I think the reality is they're flying blind. They don't

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Speaker 6: really know what's going to happen to growth, they don't

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Speaker 6: know what it's going to happen to inflation, and you know,

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Speaker 6: that increases the risk of making a policy mistake or

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Speaker 6: just being late.

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Speaker 5: There's a book years ago, Bill Dudley, with a chapter

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Speaker 5: by Bill Dudley and Ed McKelvey, and you set off

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Speaker 5: of Patrick O'Brien. There's not a moment to lose, how

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Speaker 5: x post is this fed? They're to me not, It

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Speaker 5: is not a moment to lose.

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Speaker 7: They are weight.

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Speaker 5: Wait, wait, isn't their their best outcome?

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Speaker 7: Well, I don't fault them for waiting.

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Speaker 6: I mean, I think when uncertainty's really high and you're

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Speaker 6: in the economy is in a pretty good place. I mean,

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Speaker 6: on inflation's rates running two and a half three percent,

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Speaker 6: the unemploying rates around four percent, you know, staying here,

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Speaker 6: you know, and definitely would not be a really bad outcome.

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Speaker 6: So I think that's what gives them the ability to wait,

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Speaker 6: because you're the starting point is actually pretty good. Another

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Speaker 6: thing I thought it was interesting about Pauwell's remarks is

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Speaker 6: he started to minimize the soft data that's showing a

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Speaker 6: lot of weakness and said, we're really sort of focusing

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Speaker 6: on the hard data. We haven't seen weakness in the

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Speaker 6: hard data yet, So that was also reassuring.

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Speaker 2: This is what Marko Khlanovic formally, if JP Morgan has

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Speaker 2: to say out on excess afternoon, not in a hurry

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Speaker 2: means we will drag our feet when things get worse

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Speaker 2: like in the fall of twenty eighteen. This is not

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Speaker 2: bullish at all, but you've lived a lot of this

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Speaker 2: in the past. Is there a risk of a repeat

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Speaker 2: of twenty eighteen here?

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Speaker 6: Well, I just think there's a risk that the FED

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Speaker 6: will be late, because if you have to have the

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Speaker 6: information in hand before you act, and they're long and

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Speaker 6: vera lags of monetary policy, you're not gonna uh to

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Speaker 6: the necessary action in a timely way. I think that

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Speaker 6: the same. But at the same time, I mean, which

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Speaker 6: way does the FED lean? Do they willing against the

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Speaker 6: inflation or do you lean against the growth side. That

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Speaker 6: was interesting in the summary of the economic projections also

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Speaker 6: didn't get a lot of attention, but people's assessment of

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Speaker 6: uncertainty about inflation and employment both went up. Their assessment

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Speaker 6: of risk to inflation and employment both went up. But

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Speaker 6: I think that's really what tells you what's what's bad

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Speaker 6: about the economic outlook now is that this dispersion of

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Speaker 6: possible outcomes is pretty wide, and we just don't know

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Speaker 6: which which way we're heading.

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Speaker 1: Bill, you said that this is a FED that's flying

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Speaker 1: blind and essentially fed.

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Speaker 5: Char J.

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Speaker 1: Powell said it as much when he was asked why

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Speaker 1: there was this ongoing to rate cuts priced into a

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Speaker 1: market where you'd had some pretty sizable changes to growth

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Speaker 1: and inflation, and he said, what would you write down?

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Speaker 1: It's really hard to know how this is going to

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Speaker 1: work out. Is there any time in history, Bill that

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Speaker 1: you can think of where the FED was as flying

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Speaker 1: blind as they are right now?

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Speaker 7: Well, I'm sure there's been other times.

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Speaker 6: For example, you know, when you had the two oil

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Speaker 6: price shocks in the nineteen seventies, that wasn't very good.

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Speaker 6: They had a great financial crisis in two thousand and seven,

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Speaker 6: two thousand and eight, you know, the week Lennon Brothers

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Speaker 6: failed over the weekend, and then the FED was meeting

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Speaker 6: the next Tuesday and Wednesday. So that was probably a

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Speaker 6: pretty flying blind moment. So I think there's been other

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Speaker 6: times like this. The good news is that you're economy,

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Speaker 6: as Chair Paul made it clear, is starting from a

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Speaker 6: pretty good police That's the important part.

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Speaker 5: John Pharaoh, David Rosenberg just out on Twitter right now. Really,

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Speaker 5: this is the insight that I had with Boby Michael before.

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Speaker 5: A four point four percent unemployment is a single stick

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Speaker 5: one hundred basis points above the three point four percent low.

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Speaker 5: You got to go back to nineteen forty eight to

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Speaker 5: see that abruptness without a recession.

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Speaker 2: So we had some deterioration last Summer's Home. I'm with you,

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Speaker 2: but it turned out to be a head fake, and

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Speaker 2: the Federal Reserve was somewhat unerved by going into Jackson

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Speaker 2: Hull and Sick noted some reaction to it, Lisa, and

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Speaker 2: they followed up with a hundred basis points of interest

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Speaker 2: rate reductions. And here we are again, and we're trying

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Speaker 2: to figure out if the soft data and the deterioration

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Speaker 2: we've seen in the survey data is a head fake

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Speaker 2: or not on whether it will translate into softer heart

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Speaker 2: data down the road.

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Speaker 1: And it seemed like this was a FED more willing

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Speaker 1: to say maybe it is a headfake with respect to

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Speaker 1: soft data, and not necessarily emphasizing it as much as say,

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Speaker 1: the hard data at the same time reducing their forecast.

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Speaker 1: I wonder if we're making too much of the dots.

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Speaker 1: I wonder if we're making too much of all of

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Speaker 1: these utterances when essentially you have a FED chair himself

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Speaker 1: saying we have no clue, we don't know, we don't

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Speaker 1: know inertia, we kept it the same because what are

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Speaker 1: we supposed to do? And so there is this element

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Speaker 1: where you have to look at this and say, on

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Speaker 1: a fundamental level, is monetary policy still in the driver's

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Speaker 1: seat at this point or is this a fiscally fiscal

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Speaker 1: policy driven market and frankly an economically driven market that

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Speaker 1: the FED cannot really engage with in a constructive way.

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Speaker 2: So, Lisa, for moments like this, I wouldn't put too

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Speaker 2: much weight on the forecast because the chairman is telling you,

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Speaker 2: we don't know. I'd put a lot of weight on

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Speaker 2: the communicated reaction function, how they're communicating, how we'd respond

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Speaker 2: to certain information points. And Bill, I wonder what we've

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Speaker 2: learned today If we did get a deterioration in the

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Speaker 2: economic data over the next several months in the hard data,

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Speaker 2: have we learned that this FED would respond to that,

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Speaker 2: or would this FED weight because I think that's critical

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Speaker 2: for a lot of investors. Are they constrained it's the

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Speaker 2: easy bus now constrained by the inflation uncertainty of the

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Speaker 2: next twelve months.

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Speaker 6: It's definitely constrained to a degree. I think the thing

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Speaker 6: to focus on is the unemployment rate. If the unemployer

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Speaker 6: rate stays where it is, then the fact can wait.

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Speaker 6: The underplanner rate goes up to say four and a

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Speaker 6: half percent, then the FED has to worry about the

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Speaker 6: whole thing giving way. So I think the the tightness

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Speaker 6: of the layer market, how the layer market's performing, is

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Speaker 6: really important. That itself has a lot of uncertainty because remember,

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Speaker 6: the growth rate of the labor force this year is

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Speaker 6: to be much much slower.

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Speaker 7: Than it was in twenty twenty three or twenty.

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Speaker 6: Twenty four because very little in migration keyportations so speak,

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Speaker 6: slow down in the layer force growth.

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Speaker 7: So what that means is you can have growth and

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Speaker 7: not have much change in the unemployer rate.

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Speaker 6: So I think the unemploy rate is the summary statistic

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Speaker 6: that I'd be focusing on.

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Speaker 5: I agree with that, doctor Dudley. And my question is,

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Speaker 5: is a four point four to four point five percent

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Speaker 5: YOU three unemployment rate? Is that the same as a

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Speaker 5: YOU three unemployment rate of ten or twenty or thirty

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Speaker 5: years ago.

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Speaker 6: Oh, I mean, I think the unemployed rate consistent with

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Speaker 6: full employment has come down over time.

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Speaker 7: Part of that's due to the aging of the population.

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Speaker 6: You know, older workers are employed at a higher percentage

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Speaker 6: of the time.

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Speaker 7: So I think, you.

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Speaker 6: Know, the fed's view is that we're basically at full

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Speaker 6: employment right now four percent or so. But if we

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Speaker 6: go it to four and a half, the Fed's going

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Speaker 6: to be starting to worry that this whole thing is

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Speaker 6: unwinding in a bad way, and then they'll be really

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Speaker 6: assessing is if inflation bad news bad news transitory or

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Speaker 6: is it getting into into into inflation expectations.

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Speaker 2: It's difficult to say. With that, you might build that

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Speaker 2: this FED is a is in a good place. Do

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Speaker 2: you think it's in a good place.

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Speaker 6: Well, they're in a good place in the sense that

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Speaker 6: the the starting point for the commie is in a

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Speaker 6: good place. They're not in a good place in the

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Speaker 6: sense that they're being hit with shocks that are bad

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Speaker 6: for growth and bad for inflation, and they don't really

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Speaker 6: know what the policy is going to be yet.

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Speaker 7: So I think they're not in.

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Speaker 6: Good shape in the sense that, let's put it this way,

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Speaker 6: they like where their car is sitting today, but they

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Speaker 6: now have to drive down the road a very big

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Speaker 6: foggy environment.

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Speaker 7: Hi.

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Speaker 2: Bill, thanks for having to make sense of it. Appreciate it.

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Speaker 2: Built down be that the former New York FED president lates,

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Speaker 2: after a conversation like that, you wouldn't have guessed the

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Speaker 2: equity market is up by one point percent.

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Speaker 3: On a SMP.

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Speaker 1: I don't go understand in any way why a stagflationary

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Speaker 1: environment would be positive for risk assets. I think that

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Speaker 1: that was sort of what Bill Dudley had to say

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Speaker 1: as well.

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Speaker 8: You raised a point though, if this is a FED that.

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Speaker 1: Still is going back to the transitory idea and believes

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Speaker 1: as their base case that these tariffs are going to

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Speaker 1: have a one time inflation ramification, but that will die down,

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Speaker 1: then why wouldn't they be more inclined to cut rates

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Speaker 1: in the face of weakness, And that goes to this

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Speaker 1: dubvish aspect that's being reflected in markets.

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Speaker 2: Mi McKay joins us. Now he's run out of the

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Speaker 2: news conference to catch out with us. Michael McKay, the

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Speaker 2: T word makes a comeback in the news conference.

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Speaker 9: What was your reaction, Well, it did cause my eyebrows

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Speaker 9: to go up a little bit, and I wondered if

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Speaker 9: he had been warned against that. But seriously, you guys

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Speaker 9: had the smart people out ahead of me, Bill Sadley

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Speaker 9: and Lisa brahm Witz. I agree with both of the

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Speaker 9: things that they said. That Bill Dudley said, this FED

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Speaker 9: is lost, and I think that is the case. They

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Speaker 9: don't have any idea what's going on in the economy.

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Speaker 9: And as Lisa said, you really can't believe or take

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Speaker 9: seriously anything that they projected today because they don't know.

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Speaker 9: This stuff has a half life of the next tweet.

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Speaker 9: So at this point, the FED is just trying to

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Speaker 9: reassure the country, which probably explains what we're seeing in

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Speaker 9: the markets today. Is that J. Powell sounded like he

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Speaker 9: was reassuring, But I wouldn't take any message out of this.

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Speaker 9: Everything after that, he said, after good afternoon, I would

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Speaker 9: sort of put to the side.

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Speaker 1: What did you make, Mike of his complete dismissal at

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Speaker 1: the University of Michigan sentiment survey.

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Speaker 9: Well, that's this kind of standard thing for Fed officials,

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Speaker 9: the old uh. We watch what they do, not what

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Speaker 9: they say, and people have The inflation numbers in these

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Speaker 9: surveys have been distorted a lot in the past because

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Speaker 9: people don't really have a good handle on what the

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Speaker 9: inflation rate is. They just know their grocery prices are

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Speaker 9: going up. So I can understand why he said that,

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Speaker 9: And it was just a one month move in the

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Speaker 9: longer run. The shorter run has moved up for a

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Speaker 9: couple of months, So I think this is maybe a

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Speaker 9: little whistling past the graveyard in terms of not trying

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Speaker 9: to give the impression that the Fed is worried and

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Speaker 9: going to have to take some action.

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Speaker 2: Mat McKay appreciated the updates, looking forward to your conference

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Speaker 2: frant today and into the weekend as well. Lost the

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Speaker 2: process here, equity is up nice by one point two

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Speaker 2: percent on the S and P five hundred. That bounce

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Speaker 2: continues with us around the table to close things out.

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Speaker 2: Amandalina of black croc Amanda.

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Speaker 3: Where to begin? So lots of process here.

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Speaker 2: One thing we haven't talked about enough, and Lisa mentioned

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Speaker 2: it coming into the decision, a reduction in QT.

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Speaker 3: How important is that to this market?

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Speaker 10: Well, good afternoon, thank you for having me. Two things

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Speaker 10: jump out to me. One is going back to the

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Speaker 10: growth inflation mix being more challenging. A lot of this

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Speaker 10: was baked in heading into this expectation, and so I

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Speaker 10: think that's part of why we're seeing the market reaction.

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Speaker 10: We've had just such a bruising few weeks in the

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Speaker 10: equity market. Most forecasters have reflected a lower growth and

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Speaker 10: higher inflation, and I think that's part of what's driving

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Speaker 10: this here. And I would just underscore something that Bill

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Speaker 10: Dudley said, which is I think this just makes the

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Speaker 10: growth backdrop all the more critical because the FED is

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Speaker 10: telling you that inflation will not allow them to be responsive.

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Speaker 10: And so really that one point seven percent growth in

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Speaker 10: the s SEP slightly below trend that really has to

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Speaker 10: hold up for risk assets to validate this move, because

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Speaker 10: the Fed's telling you that they can't respond as it

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Speaker 10: really to QT. I think maybe that's why you're seeing

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Speaker 10: some modest relief in longer and yields and in the

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Speaker 10: bond market. I think on the margin that could be

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Speaker 10: somewhat helpful versus the counterfactual, but I don't think it's

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Speaker 10: the main driver.

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Speaker 8: I think the main driver here is that.

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Speaker 10: A lot of this bad news was baked in heading

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Speaker 10: into this expectation. A more challenging growth inflation mix is

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Speaker 10: the base case, and I think it warrants some widening

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Speaker 10: in credit spreads.

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Speaker 1: Do you think it's positive that he resurrected the transitory word.

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Speaker 10: I mean, I think it was accompanied with a healthy

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Speaker 10: dose of we're not quite sure what's going on, I

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Speaker 10: think so, I don't. I think the market is kind

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Speaker 10: of looking through that. But from my perspective, his kind

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Speaker 10: of reinforcing that the labor market is still in a

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Speaker 10: solid place is to me the key thing, because if

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Speaker 10: you think what's driving the resilient growth that we've seen

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Speaker 10: over the past few quarters in the US, it's the

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Speaker 10: consumer in aggregate, if we have a higher layoff rate,

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Speaker 10: so if corporates start to be concerned about margins, they

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Speaker 10: flex that layoff tool more aggressively, which is still quite

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Speaker 10: low that's a situation where that weakness that's so far

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Speaker 10: confined to the low end consumer could extend more broadly.

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Speaker 10: So what to watch micro level commentary, high frequency data

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Speaker 10: on a labor market, capital markets functioning right, like the

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Speaker 10: idea that corporates can issue just at a higher cost.

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Speaker 10: That's fine for market functioning. I think where the FED

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Speaker 10: starts to get concerned as if the markets are frozen.

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Speaker 1: There's also this question of the long end of the

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Speaker 1: yield curve and why it should go down. If this

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Speaker 1: FED is biased to looking through any inflationary shock as

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Speaker 1: simply near term, if that is their base case and

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Speaker 1: we will not know for a longer period of time,

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Speaker 1: does that raise concerns about longer term entrenched inflation, especially

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Speaker 1: at a time of global fiscal releveraging.

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Speaker 10: Absolutely, And I think our base case is that longer

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Speaker 10: end yields are structurally higher.

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Speaker 5: Right.

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Speaker 10: So that's the view across a variety of platforms at

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Speaker 10: black Rock, and I think right now what we're seeing

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Speaker 10: is that treasuries are not a reliable hedge in risk

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Speaker 10: asset underperformance. And so what you've seen, you've seen to

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Speaker 10: a certain extent, treasuries can rally when there are growth

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Speaker 10: can but it kind of peters out at a certain point.

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Speaker 10: And really for rates to rally significantly, you actually need

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Speaker 10: to have more valid recessionary like concerns.

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Speaker 8: You can't just have a growth slow down. So what we're.

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Speaker 10: Seeing is that it's almost like a quasi hedge, but

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Speaker 10: it's not a firm hedge. As for the inflation expectations,

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Speaker 10: I do think it is concerning that they're not expecting

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Speaker 10: inflation to get back to target until twenty twenty seven.

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Speaker 10: Similar message from the ECB Frankly, where President Leaguard said.

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Speaker 8: It's going to be a further path.

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Speaker 10: When you think about the spillovers of German fiscal spending right,

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Speaker 10: higher bund yields. These markets don't operate in a vacuum, right,

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Speaker 10: So equity is verse credit or you're versus us, and

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Speaker 10: so I think we are bracing for structurally higher rates

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Speaker 10: and structuring higher inflation.

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Speaker 5: If we have one point seven percent, and if we

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Speaker 5: get the X axis were on and it extends, that

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Speaker 5: tells me Republicans get tossed out of Congress just as

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Speaker 5: one talking point, and it'll be huge pressure. Does it

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Speaker 5: just evolve down to price up, yield down? And we

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Speaker 5: go through four percent. As Bob Michael told us the conference.

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Speaker 10: I think, I mean, I think you asked earlier the

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Speaker 10: unemployment rate that's really problematic for consumer credit. Five percent

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Speaker 10: is the metric that we're hearing that things really become problematic.

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Speaker 10: But I think on the way to that journey, so

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Speaker 10: when you start to get to four and a half percent,

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Speaker 10: I think you start to get concerning. It's the velocity

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Speaker 10: of that move and then and often these are nonlinear, right,

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Speaker 10: so the deteriation happens quickly, as we've seen in prior cycles.

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Speaker 8: I think that is very concerning.

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Speaker 10: But to me, it really just hinges on Sharpal mentioned

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Speaker 10: a low hiring, low firing environment. If that firing picks up,

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Speaker 10: that's really problematic.

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Speaker 2: That's exactly where I wanted to go. Tomorrow morning, I

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Speaker 2: got thirty Eastern time jobless claims drop. Help me understand

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Speaker 2: the scenario. If we start to see some weakness that,

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Speaker 2: how will markets respond to that? How will we think

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Speaker 2: about the federal reserves response to it?

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Speaker 10: I think markets have front loaded it a bit. You've

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Speaker 10: seen some widening in credit spreads. European credit is still

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Speaker 10: holding in well, So I think that points to the

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Speaker 10: US concern. From my perspective, the FED, though, is somewhat

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Speaker 10: constrained in how they can respond to.

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Speaker 8: That given the inflation backdrop.

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Speaker 10: So I think that's why the deterioration in the growth

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Speaker 10: backdrop is so important to monitor. And it's also probably

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Speaker 10: more critical than it was even a few months ago,

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Speaker 10: because a few months ago the expectation was inflation will

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Speaker 10: continue to cooperate. If further progress on inflation is delayed,

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Speaker 10: then you somewhat have one hand tied behind your back

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Speaker 10: in terms of what you how I guess the question

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Speaker 10: is how much of a growth deterioration needs to occur

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Speaker 10: before the FED can react, and it seems to be

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Speaker 10: that the bar is pretty high for that.

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Speaker 2: That's another way saying bad news is bad news if

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Speaker 2: it is bad news over the next few weeks.

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Speaker 1: Especially when accompanied with even your term inflation. I'm just

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Speaker 1: struggling to understand what kind of offset they can provide

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Speaker 1: by cutting rates at a time or inflation is a

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Speaker 1: concerned I just keep going back to that and this

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Speaker 1: question about how supportive that will actually be. I guess

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Speaker 1: that if the news is bad enough and they cut rates,

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Speaker 1: it'll still be bad. But you also might get a

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Speaker 1: little cheaper borrowing.

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Speaker 2: Cause this goes to the wait and see. Confidence was

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Speaker 2: a word that came up in that news conference. How

440
00:19:53,359 --> 00:19:55,359
Speaker 2: long before you have any confidence. I'm not sure anyone

441
00:19:55,400 --> 00:19:57,399
Speaker 2: can have any confidence right now. How long do they

442
00:19:57,480 --> 00:19:59,000
Speaker 2: have to wait before they see?

443
00:19:59,080 --> 00:20:01,400
Speaker 10: Well, that's that's what I think makes the high frequency

444
00:20:01,480 --> 00:20:03,680
Speaker 10: data so valuable. And as we saw during the pandemic,

445
00:20:03,720 --> 00:20:06,200
Speaker 10: it was the company commentary that actually shined the light

446
00:20:06,240 --> 00:20:08,480
Speaker 10: on how pervasive the supply chain disruptions are.

447
00:20:08,560 --> 00:20:09,160
Speaker 8: I think that's just.

448
00:20:09,160 --> 00:20:11,080
Speaker 10: Underscores the point you have to be invested for a

449
00:20:11,119 --> 00:20:14,600
Speaker 10: wide range of growth, inflation and policy outcomes. All right,

450
00:20:14,640 --> 00:20:16,400
Speaker 10: So it's not even just the growth inflation mix, it's

451
00:20:16,400 --> 00:20:19,840
Speaker 10: the policy mix. So incorporating floating rate exposures, real assets,

452
00:20:19,880 --> 00:20:22,080
Speaker 10: inflation hedges, those are all things that are really valuable

453
00:20:22,080 --> 00:20:24,080
Speaker 10: because I think there are just so many paths on

454
00:20:24,080 --> 00:20:26,879
Speaker 10: this probability tree that we really have to position for

455
00:20:26,920 --> 00:20:27,520
Speaker 10: all scenarios.

456
00:20:27,520 --> 00:20:29,520
Speaker 1: When we were coming into twenty twenty five, there was

457
00:20:29,560 --> 00:20:31,320
Speaker 1: this belief that we have on one hand a FED

458
00:20:31,359 --> 00:20:33,639
Speaker 1: put and on the other hand a Trump put. Trump

459
00:20:33,640 --> 00:20:35,760
Speaker 1: put still out there is sort of a question mark.

460
00:20:36,000 --> 00:20:38,359
Speaker 1: The FED put people are saying, well, maybe they're going

461
00:20:38,400 --> 00:20:41,399
Speaker 1: to be willing to step in. Can we really frame

462
00:20:41,440 --> 00:20:43,960
Speaker 1: the issue in that kind of way? I guess that

463
00:20:43,960 --> 00:20:46,280
Speaker 1: that's sort of the fundamental question of today, where the

464
00:20:46,320 --> 00:20:49,480
Speaker 1: market's treating a duvish response from the FED as being

465
00:20:49,600 --> 00:20:53,240
Speaker 1: positive for risk assets. Is that is that the new paradigm?

466
00:20:53,320 --> 00:20:54,320
Speaker 3: Is it the old paradigm?

467
00:20:54,520 --> 00:20:55,960
Speaker 10: The one thing that jumped out to me from chair

468
00:20:56,000 --> 00:20:58,320
Speaker 10: Pouse comments. Previously he had talked about that they would

469
00:20:58,320 --> 00:21:01,600
Speaker 10: respond to an unexpected weakening the labor market. If the

470
00:21:01,880 --> 00:21:04,880
Speaker 10: now base case is four point four percent unemployment, then

471
00:21:05,040 --> 00:21:06,879
Speaker 10: it seems to me like you'd actually have to have

472
00:21:06,960 --> 00:21:09,919
Speaker 10: something beyond four point four percent unemployment to step in

473
00:21:10,000 --> 00:21:12,119
Speaker 10: and respond to that. So I guess it's saying that

474
00:21:12,160 --> 00:21:15,160
Speaker 10: the bar is actually high, because right now they're telling

475
00:21:15,200 --> 00:21:17,360
Speaker 10: you that they're expecting some weakness in the labor market

476
00:21:17,440 --> 00:21:17,720
Speaker 10: beyond that.

477
00:21:17,920 --> 00:21:19,919
Speaker 5: Unlike the three of us you went to class on

478
00:21:20,040 --> 00:21:23,240
Speaker 5: Friday at Villanova years ago. I mean remember this, well,

479
00:21:23,920 --> 00:21:28,040
Speaker 5: when you study stagflation or hints of stagflation, there's a

480
00:21:28,080 --> 00:21:31,840
Speaker 5: point where every central bank has to choose price change

481
00:21:31,880 --> 00:21:36,600
Speaker 5: finance or jobs, jobs, jobs. I see no indication of anything,

482
00:21:36,880 --> 00:21:40,160
Speaker 5: but they're going to capitulate to a higher unemployment rate

483
00:21:40,240 --> 00:21:43,159
Speaker 5: down the road and ignore the rate markets. Is that

484
00:21:43,200 --> 00:21:43,919
Speaker 5: the way you read it?

485
00:21:43,960 --> 00:21:46,600
Speaker 10: I mean, I think that's what their forecasts are telling you,

486
00:21:46,680 --> 00:21:49,520
Speaker 10: is that they're baking in some deterioration. And so what

487
00:21:49,520 --> 00:21:52,280
Speaker 10: does that mean for risk assets? Stag A stagflationary environment

488
00:21:52,320 --> 00:21:55,720
Speaker 10: is unquestionably negative for risk assets because in that scenario

489
00:21:55,760 --> 00:21:57,399
Speaker 10: you have a bit of a double whammy of wider

490
00:21:57,440 --> 00:21:58,399
Speaker 10: spreads and higher rates.

491
00:21:58,400 --> 00:22:00,360
Speaker 5: We don't do logs as late we've all been since

492
00:22:00,400 --> 00:22:03,439
Speaker 5: five am or four am, But the answer is as nonlinear,

493
00:22:03,640 --> 00:22:03,840
Speaker 5: is it?

494
00:22:03,920 --> 00:22:05,239
Speaker 3: That's really what that's right?

495
00:22:05,320 --> 00:22:07,560
Speaker 10: And I think I think that's right, And I think

496
00:22:07,560 --> 00:22:09,159
Speaker 10: when you take a step back, yes we've had some

497
00:22:09,200 --> 00:22:11,520
Speaker 10: widening and credit spreads, but all things considered, we're still

498
00:22:11,560 --> 00:22:14,240
Speaker 10: really tight, and so we're baking in an expectation for

499
00:22:14,280 --> 00:22:15,959
Speaker 10: an ongoing rebuild of versus premius.

500
00:22:16,000 --> 00:22:17,359
Speaker 8: So I think the market.

501
00:22:17,119 --> 00:22:19,080
Speaker 10: Is rallying today because this was not as hawkish as

502
00:22:19,080 --> 00:22:21,560
Speaker 10: it could have been. I think the risk coming into

503
00:22:21,600 --> 00:22:23,560
Speaker 10: this was maybe we just saw one cut in twenty

504
00:22:23,600 --> 00:22:27,040
Speaker 10: twenty five, we kept the two. But going forward, I

505
00:22:27,040 --> 00:22:29,640
Speaker 10: think we should be baking in some widening in credit spreads,

506
00:22:29,640 --> 00:22:31,119
Speaker 10: and we would do that as an opportunity. And I

507
00:22:31,400 --> 00:22:33,920
Speaker 10: heard your conversation with Bob earlier. There is a lot

508
00:22:33,920 --> 00:22:35,879
Speaker 10: of demand on the sideline, So I think being opportunistic

509
00:22:36,000 --> 00:22:36,720
Speaker 10: is really the key to take it.

510
00:22:36,800 --> 00:22:38,600
Speaker 3: You say the same thing, how much appeatize is that's a.

511
00:22:38,600 --> 00:22:41,480
Speaker 10: Fix thing case we are And I think I would

512
00:22:41,520 --> 00:22:44,159
Speaker 10: say save for the lowest quality pockets of the market

513
00:22:44,320 --> 00:22:46,720
Speaker 10: where for example, triple C interest coverage is still below

514
00:22:46,760 --> 00:22:49,159
Speaker 10: one times, and so that's a very tenuous place. But

515
00:22:49,240 --> 00:22:53,040
Speaker 10: foreign demand, yield based demand, long duration spread product, high

516
00:22:53,080 --> 00:22:55,960
Speaker 10: quality spread product. The US is the largest broadest market

517
00:22:55,960 --> 00:22:58,120
Speaker 10: for that, and so there is a significant amount of demand.

518
00:22:58,119 --> 00:23:00,399
Speaker 10: But but I do think there needs to be a

519
00:23:00,440 --> 00:23:02,760
Speaker 10: rebuild of risk premium, given this is unquestionably a more

520
00:23:02,840 --> 00:23:04,080
Speaker 10: challenging growth inflation mix.

521
00:23:04,240 --> 00:23:05,600
Speaker 8: Where is that money coming from.

522
00:23:05,680 --> 00:23:09,040
Speaker 1: Does it come at the expense of risk assets like stocks?

523
00:23:09,040 --> 00:23:10,840
Speaker 1: And I speak at a time where Howard Marks of

524
00:23:10,840 --> 00:23:12,840
Speaker 1: Oak Tree came out and said he prefers credit right

525
00:23:12,880 --> 00:23:15,840
Speaker 1: now over at equity risk because you are getting income

526
00:23:16,000 --> 00:23:18,200
Speaker 1: and you have a greater degree of certainty.

527
00:23:17,800 --> 00:23:19,240
Speaker 8: And you're higher in the capital structure.

528
00:23:19,600 --> 00:23:21,800
Speaker 10: And I think maybe one of the understated themes of

529
00:23:21,880 --> 00:23:24,159
Speaker 10: the past few quarters or maybe past few years, is

530
00:23:24,160 --> 00:23:26,600
Speaker 10: that corporate bonds, because of the higher interest rate, are

531
00:23:26,640 --> 00:23:29,280
Speaker 10: throwing off more cash just on an ongoing basis, and

532
00:23:29,320 --> 00:23:31,760
Speaker 10: so just reinvesting that cash is something that's important.

533
00:23:32,040 --> 00:23:34,160
Speaker 8: Foreign demand has been a big talent. I will say, on.

534
00:23:34,119 --> 00:23:36,720
Speaker 10: The margin, we are bracing for some of the foreign

535
00:23:36,800 --> 00:23:40,880
Speaker 10: demand for US dollar credit to overtime perhaps be repatriated

536
00:23:40,920 --> 00:23:43,920
Speaker 10: back to European markets now that European yields are quite attractive,

537
00:23:43,920 --> 00:23:46,560
Speaker 10: and so on the margin, that's something to watch for.

538
00:23:47,480 --> 00:23:50,520
Speaker 10: But again, these risk assets don't happen in a vacuum.

539
00:23:51,040 --> 00:23:53,200
Speaker 10: But I do think there's a significant amount of demand,

540
00:23:53,200 --> 00:23:56,560
Speaker 10: whether it's coming from equities, it's coming maybe from different

541
00:23:56,600 --> 00:23:57,000
Speaker 10: parts of.

542
00:23:58,760 --> 00:23:59,480
Speaker 8: Foreign markets.

543
00:24:00,040 --> 00:24:01,600
Speaker 5: One thing we haven't talked about here. We got black

544
00:24:01,680 --> 00:24:03,320
Speaker 5: rock on the desk here. I mean, John is just

545
00:24:03,400 --> 00:24:07,440
Speaker 5: simple bit dog moonshot out to eighty five thousand. I mean,

546
00:24:07,880 --> 00:24:10,119
Speaker 5: you know, these are the indicators, and technically it's not

547
00:24:10,160 --> 00:24:12,760
Speaker 5: telling me anything, but I'm sorry, you're going seventy eight

548
00:24:12,800 --> 00:24:14,200
Speaker 5: thousand to eighty five thousand.

549
00:24:14,320 --> 00:24:15,640
Speaker 3: Galla six know something too?

550
00:24:16,040 --> 00:24:18,359
Speaker 2: What are we seeing that from crypto from gout I

551
00:24:18,400 --> 00:24:19,560
Speaker 2: think that's diversification.

552
00:24:19,680 --> 00:24:22,119
Speaker 8: I think that's the market saying that p'erhapping, that's fear.

553
00:24:23,280 --> 00:24:24,600
Speaker 8: I think that the gold.

554
00:24:24,440 --> 00:24:28,520
Speaker 10: Is perhaps central bank buying, some other dynamics going on there.

555
00:24:28,520 --> 00:24:30,880
Speaker 10: But I think a big part of it is portfolio diversification,

556
00:24:30,960 --> 00:24:36,560
Speaker 10: real assets, inflation, hedges, uncorrelated exposures, real roads, the stagflationary

557
00:24:36,600 --> 00:24:40,000
Speaker 10: backdrop that we suggested that the sixty forty portfolio wouldn't

558
00:24:40,000 --> 00:24:42,040
Speaker 10: fare that well in that sort of passive.

559
00:24:42,200 --> 00:24:44,960
Speaker 5: She's a machine, he's been false.

560
00:24:45,080 --> 00:24:46,760
Speaker 3: Need to buy rucks.

561
00:24:47,320 --> 00:24:49,520
Speaker 5: Look, I'm looking at this. I don't have any technical

562
00:24:49,600 --> 00:24:52,119
Speaker 5: veracity on baitcoin that well.

563
00:24:52,000 --> 00:24:52,640
Speaker 8: As I got pause.

564
00:24:52,760 --> 00:24:56,080
Speaker 1: Is that your haven trade?

565
00:24:56,840 --> 00:24:58,360
Speaker 5: My haven trade is tuition.

566
00:24:58,520 --> 00:25:02,760
Speaker 2: Okay, find out what's happened with a triple leverage cash

567
00:25:03,160 --> 00:25:03,879
Speaker 2: down to rugs.

568
00:25:04,119 --> 00:25:06,919
Speaker 5: Oh my god, I just upset Blackrock. I was in syndication,

569
00:25:07,000 --> 00:25:09,159
Speaker 5: but then they wouldn't go for triple everstoll cash.

570
00:25:09,240 --> 00:25:12,600
Speaker 2: Amanda appreciate the time. Fantastic, What a moment, Amanda lanam

571
00:25:12,600 --> 00:25:14,800
Speaker 2: there of black Rock. Perhaps we're being fast and loose

572
00:25:14,840 --> 00:25:17,440
Speaker 2: with the s words stagflation. We're looking for growth close

573
00:25:17,440 --> 00:25:20,000
Speaker 2: to two percent and inflation anywhere between two two and

574
00:25:20,040 --> 00:25:22,760
Speaker 2: a half three percent. But it's the mix, and this

575
00:25:22,840 --> 00:25:25,399
Speaker 2: is what Amanda was talking about. The mix here, This

576
00:25:25,440 --> 00:25:27,520
Speaker 2: is the challenge the feder reserve is facing. It's the

577
00:25:27,600 --> 00:25:31,080
Speaker 2: central banker's dilemma. Typically the tind of dilemma you see

578
00:25:31,119 --> 00:25:34,480
Speaker 2: in emerging markets are not in developed markets. Downside risk

579
00:25:34,480 --> 00:25:38,280
Speaker 2: to growth, upside risk to inflation, and a feeder reserve uncertain,

580
00:25:38,600 --> 00:25:40,399
Speaker 2: low on confidence and not sure what to do.

581
00:25:40,680 --> 00:25:43,080
Speaker 1: And that's the reason why gold is really telling us something,

582
00:25:43,400 --> 00:25:46,520
Speaker 1: and that is this real question about whether the United States,

583
00:25:46,560 --> 00:25:49,440
Speaker 1: with the policy mix and the monetary policy backdrop and

584
00:25:49,520 --> 00:25:53,879
Speaker 1: inflation where it's coming from, can avoid a stagflationary like spiral,

585
00:25:54,040 --> 00:25:57,520
Speaker 1: not necessarily stagflation of the nineteen seventies, but an environment

586
00:25:57,560 --> 00:26:00,280
Speaker 1: that makes it more difficult to repay a debt load

587
00:26:00,320 --> 00:26:02,800
Speaker 1: that's causing a lot of concerns for a lot of people.

588
00:26:02,800 --> 00:26:05,080
Speaker 5: Peter Fisher taught me is get your hands out. This

589
00:26:05,240 --> 00:26:06,879
Speaker 5: is on radio. It doesn't work. We're going to go

590
00:26:06,920 --> 00:26:10,560
Speaker 5: with this. The answer is here on a nominal GDP basis,

591
00:26:10,800 --> 00:26:14,240
Speaker 5: today the lower growth was balanced up by stagflation to

592
00:26:14,359 --> 00:26:19,040
Speaker 5: a pretty much level nominal GDP. What happens to amandoline

593
00:26:19,160 --> 00:26:23,320
Speaker 5: loans call if we get nominal GDP to begin to compress.

594
00:26:23,680 --> 00:26:25,160
Speaker 5: That's what's not in the discussion.

595
00:26:25,200 --> 00:26:26,720
Speaker 2: I'll tell you what this market is doing for the

596
00:26:26,720 --> 00:26:29,720
Speaker 2: benefit of our TV audience. Like this up into the right,

597
00:26:29,960 --> 00:26:31,920
Speaker 2: just sort of up into the right. That's the story today.

598
00:26:31,920 --> 00:26:33,800
Speaker 2: We'll see if this holds. We're positive by one point

599
00:26:33,840 --> 00:26:36,080
Speaker 2: five percent on the S and P five hundred going

600
00:26:36,080 --> 00:26:37,800
Speaker 2: into the closing bow. Coming up on the close, the

601
00:26:37,800 --> 00:26:39,720
Speaker 2: team's going to take it over. They'll be catching up

602
00:26:39,720 --> 00:26:42,040
Speaker 2: with the former Fed Governor Betsy ju from New York

603
00:26:42,080 --> 00:26:44,560
Speaker 2: City this afternoon. Good afternoon, tea, Well, thank you for

604
00:26:44,640 --> 00:26:47,440
Speaker 2: choosing Bloomberg. This was Bloomberg surveillance