Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Chairman pell fascinating news conference, the most interesting news conference
Speaker 2: we've seen with a FED share in quite a while.
Speaker 2: Let's start with the price action, a big portion of
Speaker 2: uncertainty with a sprinkle of transit tree equity markets rocketing.
Speaker 2: We're up by one point five percent on the S
Speaker 2: and P five hundred on the NASDAG, up by one
Speaker 2: point nine on a Russell, up by close to two
Speaker 2: in the bond market, two year, ten year, thirty year
Speaker 2: yields down and down hard at the front end of
Speaker 2: the curve by five basis points to three ninety eight.
Speaker 2: Check out the commodity market, gold all time highs intra
Speaker 2: day up by about a third of one percent.
Speaker 3: There's a couple of interpretations here. Here's one.
Speaker 2: It's the bad news, so they've downgraded the outlook for
Speaker 2: growth but haven't responded by projecting additional cuts. Here's the
Speaker 2: good news, and this is what the market seems to
Speaker 2: be leaning on just a little bit more, and a
Speaker 2: FED chair spoke to it. Based on the forecast, the
Speaker 2: FED believes that any upward revision to inflation in twenty
Speaker 2: twenty five won't last beyond twenty twenty five into twenty
Speaker 2: six into twenty seven. On that and more, take a
Speaker 2: listen to what the FED share had to say.
Speaker 4: It can be the case that it's appropriate sometimes to
Speaker 4: look through inflation if it's going to go away quickly
Speaker 4: without action by us, if it's transitory, And that can
Speaker 4: be the case in the case of tariff inflation. I
Speaker 4: think that would depend on the tariff inflation moving through
Speaker 4: fairly quickly, and would depend critically as well on inflation
Speaker 4: expectations being well anchored longer term inflation expectations being well anchored.
Speaker 2: A willingness to look through this perhaps reinforced by this
Speaker 2: take on you, Mitch Michigan. Inflation expectations reading is an outlier.
Speaker 1: Okay, going back, there's a lot to unpack here. We
Speaker 1: can talk about you Michigan and how much that actually
Speaker 1: did or did not inform the back of twenty twenty two,
Speaker 1: and why it's less relevant now. The point of transitory
Speaker 1: is a key one. This market is looking through the
Speaker 1: downward revision to growth, the stagflationary like circumstances that frankly
Speaker 1: defy logic for why that should be good for risk
Speaker 1: assets and points squarely to this belief that the Fed
Speaker 1: has resurrected transitory it is going to cut rates in
Speaker 1: the face of weakness.
Speaker 5: What I find fascinating is John, you mentioned it correctly.
Speaker 5: Does see gold go out to a record high two
Speaker 5: thirds of the ways of the press conference, Folks, I've
Speaker 5: never said that in the technical destruction of the equity markets,
Speaker 5: to see the Dow and the S and P popped
Speaker 5: the way they are, by no means do they have
Speaker 5: some buoyancy of a bicygnal. I mean there's some damage
Speaker 5: out there from the politics folding into what he has
Speaker 5: to deal with.
Speaker 2: The market reaction carries a lot of way, and right now,
Speaker 2: this equity market, it's rallying, going into the closing ball
Speaker 2: about forty minutes from now. Joining us on the program
Speaker 2: to react, the former New York Fed President Bill Duntley
Speaker 2: Bell three poun acts. We've wrapped it up, We've had
Speaker 2: the full cost that decision, and now the news conference.
Speaker 2: What's your reaction to all of the above.
Speaker 6: The summary of economic projections is actually a bit hawkish
Speaker 6: in the sense that they that keep down graded growth
Speaker 6: and pushed up inflation, and the dot plots, you know
Speaker 6: that plot did shift up. They didn't shift up enough
Speaker 6: to change it from two to one rate cut this year,
Speaker 6: but they did did shift up.
Speaker 7: Powell then came in, and I think he gave.
Speaker 6: A pretty dubbish performance in the sense that you know,
Speaker 6: we got this, We're in a good place, we can
Speaker 6: afford to wait, we'll see how it goes, We're going
Speaker 6: to get the job done. So he I think was
Speaker 6: pretty reassuring to people that this was all, you know,
Speaker 6: quite manageable. I think the reality is, I mean, growth
Speaker 6: outlook is worse, the inflation outlook is worse, and certainty
Speaker 6: is a lot higher.
Speaker 7: I'm not really sure how you parse that out as positive.
Speaker 7: But Paul put a pretty dubbish spin on it.
Speaker 1: Bill that's where transitory comes in. It was resurrected, the
Speaker 1: word that was once left for dead. Thought to look
Speaker 1: through some of the tariff induced inflation, saying it probably
Speaker 1: would subside. What do you make of that, because it's
Speaker 1: giving a lot of confident to this market.
Speaker 6: Well, one thing that he did talk about was inflation expectations,
Speaker 6: and he basically said, look, there's only one indicator that's
Speaker 6: really shown a significant increase in long term inflation expectations.
Speaker 7: Everything else looks fine.
Speaker 6: So he's basically telling people if you can ignore the
Speaker 6: University of Michigan long Term inflation Expectations measure, which has
Speaker 6: shot up very sharply the last month or so.
Speaker 7: So that's reassuring.
Speaker 6: So I think people think that's got this, you know,
Speaker 6: I think the reality is they're flying blind. They don't
Speaker 6: really know what's going to happen to growth, they don't
Speaker 6: know what it's going to happen to inflation, and you know,
Speaker 6: that increases the risk of making a policy mistake or
Speaker 6: just being late.
Speaker 5: There's a book years ago, Bill Dudley, with a chapter
Speaker 5: by Bill Dudley and Ed McKelvey, and you set off
Speaker 5: of Patrick O'Brien. There's not a moment to lose, how
Speaker 5: x post is this fed? They're to me not, It
Speaker 5: is not a moment to lose.
Speaker 7: They are weight.
Speaker 5: Wait, wait, isn't their their best outcome?
Speaker 7: Well, I don't fault them for waiting.
Speaker 6: I mean, I think when uncertainty's really high and you're
Speaker 6: in the economy is in a pretty good place. I mean,
Speaker 6: on inflation's rates running two and a half three percent,
Speaker 6: the unemploying rates around four percent, you know, staying here,
Speaker 6: you know, and definitely would not be a really bad outcome.
Speaker 6: So I think that's what gives them the ability to wait,
Speaker 6: because you're the starting point is actually pretty good. Another
Speaker 6: thing I thought it was interesting about Pauwell's remarks is
Speaker 6: he started to minimize the soft data that's showing a
Speaker 6: lot of weakness and said, we're really sort of focusing
Speaker 6: on the hard data. We haven't seen weakness in the
Speaker 6: hard data yet, So that was also reassuring.
Speaker 2: This is what Marko Khlanovic formally, if JP Morgan has
Speaker 2: to say out on excess afternoon, not in a hurry
Speaker 2: means we will drag our feet when things get worse
Speaker 2: like in the fall of twenty eighteen. This is not
Speaker 2: bullish at all, but you've lived a lot of this
Speaker 2: in the past. Is there a risk of a repeat
Speaker 2: of twenty eighteen here?
Speaker 6: Well, I just think there's a risk that the FED
Speaker 6: will be late, because if you have to have the
Speaker 6: information in hand before you act, and they're long and
Speaker 6: vera lags of monetary policy, you're not gonna uh to
Speaker 6: the necessary action in a timely way. I think that
Speaker 6: the same. But at the same time, I mean, which
Speaker 6: way does the FED lean? Do they willing against the
Speaker 6: inflation or do you lean against the growth side. That
Speaker 6: was interesting in the summary of the economic projections also
Speaker 6: didn't get a lot of attention, but people's assessment of
Speaker 6: uncertainty about inflation and employment both went up. Their assessment
Speaker 6: of risk to inflation and employment both went up. But
Speaker 6: I think that's really what tells you what's what's bad
Speaker 6: about the economic outlook now is that this dispersion of
Speaker 6: possible outcomes is pretty wide, and we just don't know
Speaker 6: which which way we're heading.
Speaker 1: Bill, you said that this is a FED that's flying
Speaker 1: blind and essentially fed.
Speaker 5: Char J.
Speaker 1: Powell said it as much when he was asked why
Speaker 1: there was this ongoing to rate cuts priced into a
Speaker 1: market where you'd had some pretty sizable changes to growth
Speaker 1: and inflation, and he said, what would you write down?
Speaker 1: It's really hard to know how this is going to
Speaker 1: work out. Is there any time in history, Bill that
Speaker 1: you can think of where the FED was as flying
Speaker 1: blind as they are right now?
Speaker 7: Well, I'm sure there's been other times.
Speaker 6: For example, you know, when you had the two oil
Speaker 6: price shocks in the nineteen seventies, that wasn't very good.
Speaker 6: They had a great financial crisis in two thousand and seven,
Speaker 6: two thousand and eight, you know, the week Lennon Brothers
Speaker 6: failed over the weekend, and then the FED was meeting
Speaker 6: the next Tuesday and Wednesday. So that was probably a
Speaker 6: pretty flying blind moment. So I think there's been other
Speaker 6: times like this. The good news is that you're economy,
Speaker 6: as Chair Paul made it clear, is starting from a
Speaker 6: pretty good police That's the important part.
Speaker 5: John Pharaoh, David Rosenberg just out on Twitter right now. Really,
Speaker 5: this is the insight that I had with Boby Michael before.
Speaker 5: A four point four percent unemployment is a single stick
Speaker 5: one hundred basis points above the three point four percent low.
Speaker 5: You got to go back to nineteen forty eight to
Speaker 5: see that abruptness without a recession.
Speaker 2: So we had some deterioration last Summer's Home. I'm with you,
Speaker 2: but it turned out to be a head fake, and
Speaker 2: the Federal Reserve was somewhat unerved by going into Jackson
Speaker 2: Hull and Sick noted some reaction to it, Lisa, and
Speaker 2: they followed up with a hundred basis points of interest
Speaker 2: rate reductions. And here we are again, and we're trying
Speaker 2: to figure out if the soft data and the deterioration
Speaker 2: we've seen in the survey data is a head fake
Speaker 2: or not on whether it will translate into softer heart
Speaker 2: data down the road.
Speaker 1: And it seemed like this was a FED more willing
Speaker 1: to say maybe it is a headfake with respect to
Speaker 1: soft data, and not necessarily emphasizing it as much as say,
Speaker 1: the hard data at the same time reducing their forecast.
Speaker 1: I wonder if we're making too much of the dots.
Speaker 1: I wonder if we're making too much of all of
Speaker 1: these utterances when essentially you have a FED chair himself
Speaker 1: saying we have no clue, we don't know, we don't
Speaker 1: know inertia, we kept it the same because what are
Speaker 1: we supposed to do? And so there is this element
Speaker 1: where you have to look at this and say, on
Speaker 1: a fundamental level, is monetary policy still in the driver's
Speaker 1: seat at this point or is this a fiscally fiscal
Speaker 1: policy driven market and frankly an economically driven market that
Speaker 1: the FED cannot really engage with in a constructive way.
Speaker 2: So, Lisa, for moments like this, I wouldn't put too
Speaker 2: much weight on the forecast because the chairman is telling you,
Speaker 2: we don't know. I'd put a lot of weight on
Speaker 2: the communicated reaction function, how they're communicating, how we'd respond
Speaker 2: to certain information points. And Bill, I wonder what we've
Speaker 2: learned today If we did get a deterioration in the
Speaker 2: economic data over the next several months in the hard data,
Speaker 2: have we learned that this FED would respond to that,
Speaker 2: or would this FED weight because I think that's critical
Speaker 2: for a lot of investors. Are they constrained it's the
Speaker 2: easy bus now constrained by the inflation uncertainty of the
Speaker 2: next twelve months.
Speaker 6: It's definitely constrained to a degree. I think the thing
Speaker 6: to focus on is the unemployment rate. If the unemployer
Speaker 6: rate stays where it is, then the fact can wait.
Speaker 6: The underplanner rate goes up to say four and a
Speaker 6: half percent, then the FED has to worry about the
Speaker 6: whole thing giving way. So I think the the tightness
Speaker 6: of the layer market, how the layer market's performing, is
Speaker 6: really important. That itself has a lot of uncertainty because remember,
Speaker 6: the growth rate of the labor force this year is
Speaker 6: to be much much slower.
Speaker 7: Than it was in twenty twenty three or twenty.
Speaker 6: Twenty four because very little in migration keyportations so speak,
Speaker 6: slow down in the layer force growth.
Speaker 7: So what that means is you can have growth and
Speaker 7: not have much change in the unemployer rate.
Speaker 6: So I think the unemploy rate is the summary statistic
Speaker 6: that I'd be focusing on.
Speaker 5: I agree with that, doctor Dudley. And my question is,
Speaker 5: is a four point four to four point five percent
Speaker 5: YOU three unemployment rate? Is that the same as a
Speaker 5: YOU three unemployment rate of ten or twenty or thirty
Speaker 5: years ago.
Speaker 6: Oh, I mean, I think the unemployed rate consistent with
Speaker 6: full employment has come down over time.
Speaker 7: Part of that's due to the aging of the population.
Speaker 6: You know, older workers are employed at a higher percentage
Speaker 6: of the time.
Speaker 7: So I think, you.
Speaker 6: Know, the fed's view is that we're basically at full
Speaker 6: employment right now four percent or so. But if we
Speaker 6: go it to four and a half, the Fed's going
Speaker 6: to be starting to worry that this whole thing is
Speaker 6: unwinding in a bad way, and then they'll be really
Speaker 6: assessing is if inflation bad news bad news transitory or
Speaker 6: is it getting into into into inflation expectations.
Speaker 2: It's difficult to say. With that, you might build that
Speaker 2: this FED is a is in a good place. Do
Speaker 2: you think it's in a good place.
Speaker 6: Well, they're in a good place in the sense that
Speaker 6: the the starting point for the commie is in a
Speaker 6: good place. They're not in a good place in the
Speaker 6: sense that they're being hit with shocks that are bad
Speaker 6: for growth and bad for inflation, and they don't really
Speaker 6: know what the policy is going to be yet.
Speaker 7: So I think they're not in.
Speaker 6: Good shape in the sense that, let's put it this way,
Speaker 6: they like where their car is sitting today, but they
Speaker 6: now have to drive down the road a very big
Speaker 6: foggy environment.
Speaker 7: Hi.
Speaker 2: Bill, thanks for having to make sense of it. Appreciate it.
Speaker 2: Built down be that the former New York FED president lates,
Speaker 2: after a conversation like that, you wouldn't have guessed the
Speaker 2: equity market is up by one point percent.
Speaker 3: On a SMP.
Speaker 1: I don't go understand in any way why a stagflationary
Speaker 1: environment would be positive for risk assets. I think that
Speaker 1: that was sort of what Bill Dudley had to say
Speaker 1: as well.
Speaker 8: You raised a point though, if this is a FED that.
Speaker 1: Still is going back to the transitory idea and believes
Speaker 1: as their base case that these tariffs are going to
Speaker 1: have a one time inflation ramification, but that will die down,
Speaker 1: then why wouldn't they be more inclined to cut rates
Speaker 1: in the face of weakness, And that goes to this
Speaker 1: dubvish aspect that's being reflected in markets.
Speaker 2: Mi McKay joins us. Now he's run out of the
Speaker 2: news conference to catch out with us. Michael McKay, the
Speaker 2: T word makes a comeback in the news conference.
Speaker 9: What was your reaction, Well, it did cause my eyebrows
Speaker 9: to go up a little bit, and I wondered if
Speaker 9: he had been warned against that. But seriously, you guys
Speaker 9: had the smart people out ahead of me, Bill Sadley
Speaker 9: and Lisa brahm Witz. I agree with both of the
Speaker 9: things that they said. That Bill Dudley said, this FED
Speaker 9: is lost, and I think that is the case. They
Speaker 9: don't have any idea what's going on in the economy.
Speaker 9: And as Lisa said, you really can't believe or take
Speaker 9: seriously anything that they projected today because they don't know.
Speaker 9: This stuff has a half life of the next tweet.
Speaker 9: So at this point, the FED is just trying to
Speaker 9: reassure the country, which probably explains what we're seeing in
Speaker 9: the markets today. Is that J. Powell sounded like he
Speaker 9: was reassuring, But I wouldn't take any message out of this.
Speaker 9: Everything after that, he said, after good afternoon, I would
Speaker 9: sort of put to the side.
Speaker 1: What did you make, Mike of his complete dismissal at
Speaker 1: the University of Michigan sentiment survey.
Speaker 9: Well, that's this kind of standard thing for Fed officials,
Speaker 9: the old uh. We watch what they do, not what
Speaker 9: they say, and people have The inflation numbers in these
Speaker 9: surveys have been distorted a lot in the past because
Speaker 9: people don't really have a good handle on what the
Speaker 9: inflation rate is. They just know their grocery prices are
Speaker 9: going up. So I can understand why he said that,
Speaker 9: And it was just a one month move in the
Speaker 9: longer run. The shorter run has moved up for a
Speaker 9: couple of months, So I think this is maybe a
Speaker 9: little whistling past the graveyard in terms of not trying
Speaker 9: to give the impression that the Fed is worried and
Speaker 9: going to have to take some action.
Speaker 2: Mat McKay appreciated the updates, looking forward to your conference
Speaker 2: frant today and into the weekend as well. Lost the
Speaker 2: process here, equity is up nice by one point two
Speaker 2: percent on the S and P five hundred. That bounce
Speaker 2: continues with us around the table to close things out.
Speaker 2: Amandalina of black croc Amanda.
Speaker 3: Where to begin? So lots of process here.
Speaker 2: One thing we haven't talked about enough, and Lisa mentioned
Speaker 2: it coming into the decision, a reduction in QT.
Speaker 3: How important is that to this market?
Speaker 10: Well, good afternoon, thank you for having me. Two things
Speaker 10: jump out to me. One is going back to the
Speaker 10: growth inflation mix being more challenging. A lot of this
Speaker 10: was baked in heading into this expectation, and so I
Speaker 10: think that's part of why we're seeing the market reaction.
Speaker 10: We've had just such a bruising few weeks in the
Speaker 10: equity market. Most forecasters have reflected a lower growth and
Speaker 10: higher inflation, and I think that's part of what's driving
Speaker 10: this here. And I would just underscore something that Bill
Speaker 10: Dudley said, which is I think this just makes the
Speaker 10: growth backdrop all the more critical because the FED is
Speaker 10: telling you that inflation will not allow them to be responsive.
Speaker 10: And so really that one point seven percent growth in
Speaker 10: the s SEP slightly below trend that really has to
Speaker 10: hold up for risk assets to validate this move, because
Speaker 10: the Fed's telling you that they can't respond as it
Speaker 10: really to QT. I think maybe that's why you're seeing
Speaker 10: some modest relief in longer and yields and in the
Speaker 10: bond market. I think on the margin that could be
Speaker 10: somewhat helpful versus the counterfactual, but I don't think it's
Speaker 10: the main driver.
Speaker 8: I think the main driver here is that.
Speaker 10: A lot of this bad news was baked in heading
Speaker 10: into this expectation. A more challenging growth inflation mix is
Speaker 10: the base case, and I think it warrants some widening
Speaker 10: in credit spreads.
Speaker 1: Do you think it's positive that he resurrected the transitory word.
Speaker 10: I mean, I think it was accompanied with a healthy
Speaker 10: dose of we're not quite sure what's going on, I
Speaker 10: think so, I don't. I think the market is kind
Speaker 10: of looking through that. But from my perspective, his kind
Speaker 10: of reinforcing that the labor market is still in a
Speaker 10: solid place is to me the key thing, because if
Speaker 10: you think what's driving the resilient growth that we've seen
Speaker 10: over the past few quarters in the US, it's the
Speaker 10: consumer in aggregate, if we have a higher layoff rate,
Speaker 10: so if corporates start to be concerned about margins, they
Speaker 10: flex that layoff tool more aggressively, which is still quite
Speaker 10: low that's a situation where that weakness that's so far
Speaker 10: confined to the low end consumer could extend more broadly.
Speaker 10: So what to watch micro level commentary, high frequency data
Speaker 10: on a labor market, capital markets functioning right, like the
Speaker 10: idea that corporates can issue just at a higher cost.
Speaker 10: That's fine for market functioning. I think where the FED
Speaker 10: starts to get concerned as if the markets are frozen.
Speaker 1: There's also this question of the long end of the
Speaker 1: yield curve and why it should go down. If this
Speaker 1: FED is biased to looking through any inflationary shock as
Speaker 1: simply near term, if that is their base case and
Speaker 1: we will not know for a longer period of time,
Speaker 1: does that raise concerns about longer term entrenched inflation, especially
Speaker 1: at a time of global fiscal releveraging.
Speaker 10: Absolutely, And I think our base case is that longer
Speaker 10: end yields are structurally higher.
Speaker 5: Right.
Speaker 10: So that's the view across a variety of platforms at
Speaker 10: black Rock, and I think right now what we're seeing
Speaker 10: is that treasuries are not a reliable hedge in risk
Speaker 10: asset underperformance. And so what you've seen, you've seen to
Speaker 10: a certain extent, treasuries can rally when there are growth
Speaker 10: can but it kind of peters out at a certain point.
Speaker 10: And really for rates to rally significantly, you actually need
Speaker 10: to have more valid recessionary like concerns.
Speaker 8: You can't just have a growth slow down. So what we're.
Speaker 10: Seeing is that it's almost like a quasi hedge, but
Speaker 10: it's not a firm hedge. As for the inflation expectations,
Speaker 10: I do think it is concerning that they're not expecting
Speaker 10: inflation to get back to target until twenty twenty seven.
Speaker 10: Similar message from the ECB Frankly, where President Leaguard said.
Speaker 8: It's going to be a further path.
Speaker 10: When you think about the spillovers of German fiscal spending right,
Speaker 10: higher bund yields. These markets don't operate in a vacuum, right,
Speaker 10: So equity is verse credit or you're versus us, and
Speaker 10: so I think we are bracing for structurally higher rates
Speaker 10: and structuring higher inflation.
Speaker 5: If we have one point seven percent, and if we
Speaker 5: get the X axis were on and it extends, that
Speaker 5: tells me Republicans get tossed out of Congress just as
Speaker 5: one talking point, and it'll be huge pressure. Does it
Speaker 5: just evolve down to price up, yield down? And we
Speaker 5: go through four percent. As Bob Michael told us the conference.
Speaker 10: I think, I mean, I think you asked earlier the
Speaker 10: unemployment rate that's really problematic for consumer credit. Five percent
Speaker 10: is the metric that we're hearing that things really become problematic.
Speaker 10: But I think on the way to that journey, so
Speaker 10: when you start to get to four and a half percent,
Speaker 10: I think you start to get concerning. It's the velocity
Speaker 10: of that move and then and often these are nonlinear, right,
Speaker 10: so the deteriation happens quickly, as we've seen in prior cycles.
Speaker 8: I think that is very concerning.
Speaker 10: But to me, it really just hinges on Sharpal mentioned
Speaker 10: a low hiring, low firing environment. If that firing picks up,
Speaker 10: that's really problematic.
Speaker 2: That's exactly where I wanted to go. Tomorrow morning, I
Speaker 2: got thirty Eastern time jobless claims drop. Help me understand
Speaker 2: the scenario. If we start to see some weakness that,
Speaker 2: how will markets respond to that? How will we think
Speaker 2: about the federal reserves response to it?
Speaker 10: I think markets have front loaded it a bit. You've
Speaker 10: seen some widening in credit spreads. European credit is still
Speaker 10: holding in well, So I think that points to the
Speaker 10: US concern. From my perspective, the FED, though, is somewhat
Speaker 10: constrained in how they can respond to.
Speaker 8: That given the inflation backdrop.
Speaker 10: So I think that's why the deterioration in the growth
Speaker 10: backdrop is so important to monitor. And it's also probably
Speaker 10: more critical than it was even a few months ago,
Speaker 10: because a few months ago the expectation was inflation will
Speaker 10: continue to cooperate. If further progress on inflation is delayed,
Speaker 10: then you somewhat have one hand tied behind your back
Speaker 10: in terms of what you how I guess the question
Speaker 10: is how much of a growth deterioration needs to occur
Speaker 10: before the FED can react, and it seems to be
Speaker 10: that the bar is pretty high for that.
Speaker 2: That's another way saying bad news is bad news if
Speaker 2: it is bad news over the next few weeks.
Speaker 1: Especially when accompanied with even your term inflation. I'm just
Speaker 1: struggling to understand what kind of offset they can provide
Speaker 1: by cutting rates at a time or inflation is a
Speaker 1: concerned I just keep going back to that and this
Speaker 1: question about how supportive that will actually be. I guess
Speaker 1: that if the news is bad enough and they cut rates,
Speaker 1: it'll still be bad. But you also might get a
Speaker 1: little cheaper borrowing.
Speaker 2: Cause this goes to the wait and see. Confidence was
Speaker 2: a word that came up in that news conference. How
Speaker 2: long before you have any confidence. I'm not sure anyone
Speaker 2: can have any confidence right now. How long do they
Speaker 2: have to wait before they see?
Speaker 10: Well, that's that's what I think makes the high frequency
Speaker 10: data so valuable. And as we saw during the pandemic,
Speaker 10: it was the company commentary that actually shined the light
Speaker 10: on how pervasive the supply chain disruptions are.
Speaker 8: I think that's just.
Speaker 10: Underscores the point you have to be invested for a
Speaker 10: wide range of growth, inflation and policy outcomes. All right,
Speaker 10: So it's not even just the growth inflation mix, it's
Speaker 10: the policy mix. So incorporating floating rate exposures, real assets,
Speaker 10: inflation hedges, those are all things that are really valuable
Speaker 10: because I think there are just so many paths on
Speaker 10: this probability tree that we really have to position for
Speaker 10: all scenarios.
Speaker 1: When we were coming into twenty twenty five, there was
Speaker 1: this belief that we have on one hand a FED
Speaker 1: put and on the other hand a Trump put. Trump
Speaker 1: put still out there is sort of a question mark.
Speaker 1: The FED put people are saying, well, maybe they're going
Speaker 1: to be willing to step in. Can we really frame
Speaker 1: the issue in that kind of way? I guess that
Speaker 1: that's sort of the fundamental question of today, where the
Speaker 1: market's treating a duvish response from the FED as being
Speaker 1: positive for risk assets. Is that is that the new paradigm?
Speaker 3: Is it the old paradigm?
Speaker 10: The one thing that jumped out to me from chair
Speaker 10: Pouse comments. Previously he had talked about that they would
Speaker 10: respond to an unexpected weakening the labor market. If the
Speaker 10: now base case is four point four percent unemployment, then
Speaker 10: it seems to me like you'd actually have to have
Speaker 10: something beyond four point four percent unemployment to step in
Speaker 10: and respond to that. So I guess it's saying that
Speaker 10: the bar is actually high, because right now they're telling
Speaker 10: you that they're expecting some weakness in the labor market
Speaker 10: beyond that.
Speaker 5: Unlike the three of us you went to class on
Speaker 5: Friday at Villanova years ago. I mean remember this, well,
Speaker 5: when you study stagflation or hints of stagflation, there's a
Speaker 5: point where every central bank has to choose price change
Speaker 5: finance or jobs, jobs, jobs. I see no indication of anything,
Speaker 5: but they're going to capitulate to a higher unemployment rate
Speaker 5: down the road and ignore the rate markets. Is that
Speaker 5: the way you read it?
Speaker 10: I mean, I think that's what their forecasts are telling you,
Speaker 10: is that they're baking in some deterioration. And so what
Speaker 10: does that mean for risk assets? Stag A stagflationary environment
Speaker 10: is unquestionably negative for risk assets because in that scenario
Speaker 10: you have a bit of a double whammy of wider
Speaker 10: spreads and higher rates.
Speaker 5: We don't do logs as late we've all been since
Speaker 5: five am or four am, But the answer is as nonlinear,
Speaker 5: is it?
Speaker 3: That's really what that's right?
Speaker 10: And I think I think that's right, And I think
Speaker 10: when you take a step back, yes we've had some
Speaker 10: widening and credit spreads, but all things considered, we're still
Speaker 10: really tight, and so we're baking in an expectation for
Speaker 10: an ongoing rebuild of versus premius.
Speaker 8: So I think the market.
Speaker 10: Is rallying today because this was not as hawkish as
Speaker 10: it could have been. I think the risk coming into
Speaker 10: this was maybe we just saw one cut in twenty
Speaker 10: twenty five, we kept the two. But going forward, I
Speaker 10: think we should be baking in some widening in credit spreads,
Speaker 10: and we would do that as an opportunity. And I
Speaker 10: heard your conversation with Bob earlier. There is a lot
Speaker 10: of demand on the sideline, So I think being opportunistic
Speaker 10: is really the key to take it.
Speaker 3: You say the same thing, how much appeatize is that's a.
Speaker 10: Fix thing case we are And I think I would
Speaker 10: say save for the lowest quality pockets of the market
Speaker 10: where for example, triple C interest coverage is still below
Speaker 10: one times, and so that's a very tenuous place. But
Speaker 10: foreign demand, yield based demand, long duration spread product, high
Speaker 10: quality spread product. The US is the largest broadest market
Speaker 10: for that, and so there is a significant amount of demand.
Speaker 10: But but I do think there needs to be a
Speaker 10: rebuild of risk premium, given this is unquestionably a more
Speaker 10: challenging growth inflation mix.
Speaker 8: Where is that money coming from.
Speaker 1: Does it come at the expense of risk assets like stocks?
Speaker 1: And I speak at a time where Howard Marks of
Speaker 1: Oak Tree came out and said he prefers credit right
Speaker 1: now over at equity risk because you are getting income
Speaker 1: and you have a greater degree of certainty.
Speaker 8: And you're higher in the capital structure.
Speaker 10: And I think maybe one of the understated themes of
Speaker 10: the past few quarters or maybe past few years, is
Speaker 10: that corporate bonds, because of the higher interest rate, are
Speaker 10: throwing off more cash just on an ongoing basis, and
Speaker 10: so just reinvesting that cash is something that's important.
Speaker 8: Foreign demand has been a big talent. I will say, on.
Speaker 10: The margin, we are bracing for some of the foreign
Speaker 10: demand for US dollar credit to overtime perhaps be repatriated
Speaker 10: back to European markets now that European yields are quite attractive,
Speaker 10: and so on the margin, that's something to watch for.
Speaker 10: But again, these risk assets don't happen in a vacuum.
Speaker 10: But I do think there's a significant amount of demand,
Speaker 10: whether it's coming from equities, it's coming maybe from different
Speaker 10: parts of.
Speaker 8: Foreign markets.
Speaker 5: One thing we haven't talked about here. We got black
Speaker 5: rock on the desk here. I mean, John is just
Speaker 5: simple bit dog moonshot out to eighty five thousand. I mean,
Speaker 5: you know, these are the indicators, and technically it's not
Speaker 5: telling me anything, but I'm sorry, you're going seventy eight
Speaker 5: thousand to eighty five thousand.
Speaker 3: Galla six know something too?
Speaker 2: What are we seeing that from crypto from gout I
Speaker 2: think that's diversification.
Speaker 8: I think that's the market saying that p'erhapping, that's fear.
Speaker 8: I think that the gold.
Speaker 10: Is perhaps central bank buying, some other dynamics going on there.
Speaker 10: But I think a big part of it is portfolio diversification,
Speaker 10: real assets, inflation, hedges, uncorrelated exposures, real roads, the stagflationary
Speaker 10: backdrop that we suggested that the sixty forty portfolio wouldn't
Speaker 10: fare that well in that sort of passive.
Speaker 5: She's a machine, he's been false.
Speaker 3: Need to buy rucks.
Speaker 5: Look, I'm looking at this. I don't have any technical
Speaker 5: veracity on baitcoin that well.
Speaker 8: As I got pause.
Speaker 1: Is that your haven trade?
Speaker 5: My haven trade is tuition.
Speaker 2: Okay, find out what's happened with a triple leverage cash
Speaker 2: down to rugs.
Speaker 5: Oh my god, I just upset Blackrock. I was in syndication,
Speaker 5: but then they wouldn't go for triple everstoll cash.
Speaker 2: Amanda appreciate the time. Fantastic, What a moment, Amanda lanam
Speaker 2: there of black Rock. Perhaps we're being fast and loose
Speaker 2: with the s words stagflation. We're looking for growth close
Speaker 2: to two percent and inflation anywhere between two two and
Speaker 2: a half three percent. But it's the mix, and this
Speaker 2: is what Amanda was talking about. The mix here, This
Speaker 2: is the challenge the feder reserve is facing. It's the
Speaker 2: central banker's dilemma. Typically the tind of dilemma you see
Speaker 2: in emerging markets are not in developed markets. Downside risk
Speaker 2: to growth, upside risk to inflation, and a feeder reserve uncertain,
Speaker 2: low on confidence and not sure what to do.
Speaker 1: And that's the reason why gold is really telling us something,
Speaker 1: and that is this real question about whether the United States,
Speaker 1: with the policy mix and the monetary policy backdrop and
Speaker 1: inflation where it's coming from, can avoid a stagflationary like spiral,
Speaker 1: not necessarily stagflation of the nineteen seventies, but an environment
Speaker 1: that makes it more difficult to repay a debt load
Speaker 1: that's causing a lot of concerns for a lot of people.
Speaker 5: Peter Fisher taught me is get your hands out. This
Speaker 5: is on radio. It doesn't work. We're going to go
Speaker 5: with this. The answer is here on a nominal GDP basis,
Speaker 5: today the lower growth was balanced up by stagflation to
Speaker 5: a pretty much level nominal GDP. What happens to amandoline
Speaker 5: loans call if we get nominal GDP to begin to compress.
Speaker 5: That's what's not in the discussion.
Speaker 2: I'll tell you what this market is doing for the
Speaker 2: benefit of our TV audience. Like this up into the right,
Speaker 2: just sort of up into the right. That's the story today.
Speaker 2: We'll see if this holds. We're positive by one point
Speaker 2: five percent on the S and P five hundred going
Speaker 2: into the closing bow. Coming up on the close, the
Speaker 2: team's going to take it over. They'll be catching up
Speaker 2: with the former Fed Governor Betsy ju from New York
Speaker 2: City this afternoon. Good afternoon, tea, Well, thank you for
Speaker 2: choosing Bloomberg. This was Bloomberg surveillance