1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,440 Speaker 2: Terminal and the Bloomberg Business app. We beginning our Solf story, 10 00:00:37,560 --> 00:00:40,479 Speaker 2: another heart set that expected inflation print pushing gat rate 11 00:00:40,520 --> 00:00:43,320 Speaker 2: cut bets ahead of next week's Fed decision. John Stolfus 12 00:00:43,320 --> 00:00:45,600 Speaker 2: of Oppenheimer still expecting the end of free money to 13 00:00:45,640 --> 00:00:47,680 Speaker 2: come to a close. Quote for those of us who 14 00:00:47,720 --> 00:00:51,120 Speaker 2: began our careers when ten year treasury yields, corporate yields, 15 00:00:51,120 --> 00:00:54,080 Speaker 2: and mortgage rates were at double digit levels, the phrase 16 00:00:54,200 --> 00:00:56,880 Speaker 2: none of me thanks or none for me thanks comes 17 00:00:56,920 --> 00:00:59,880 Speaker 2: readily to mind. Should the Fed cut rates too early? 18 00:01:00,040 --> 00:01:02,120 Speaker 2: In place to say that? John joins us. Now, John, 19 00:01:02,120 --> 00:01:05,480 Speaker 2: we talked about the scentsif snackflation. Do you Smeuth the 20 00:01:05,560 --> 00:01:06,559 Speaker 2: sensive snackflation. 21 00:01:07,760 --> 00:01:10,480 Speaker 3: I think it's a little too early to call that, John. 22 00:01:10,640 --> 00:01:13,840 Speaker 3: I think a couple of hot numbers in terms of 23 00:01:14,440 --> 00:01:17,720 Speaker 3: hotter that expected numbers in terms of inflation in the 24 00:01:17,760 --> 00:01:21,360 Speaker 3: process of a fed fud's pipe cycle that has been 25 00:01:21,520 --> 00:01:26,800 Speaker 3: remarkably sensitive to its effects on the economy just tells 26 00:01:26,880 --> 00:01:29,759 Speaker 3: us this is part of the bumpingness to get coming 27 00:01:29,800 --> 00:01:33,520 Speaker 3: out of where we have been going into a sustainable 28 00:01:33,560 --> 00:01:38,160 Speaker 3: economic recovery at moderate pace with what is the equivalent 29 00:01:38,200 --> 00:01:40,880 Speaker 3: of full employment three to four percent unemployment. 30 00:01:41,319 --> 00:01:43,679 Speaker 1: There is one takeaway though from some of the price action, John, 31 00:01:44,080 --> 00:01:45,680 Speaker 1: and it's that all the hopes and dreams of a 32 00:01:45,720 --> 00:01:47,920 Speaker 1: broadening out in the rally seem to die when we 33 00:01:48,000 --> 00:01:51,000 Speaker 1: have the idea of rate hikes to laid deferred or 34 00:01:51,040 --> 00:01:53,800 Speaker 1: put off indefinitely. Really, that has been the takeaway for 35 00:01:53,880 --> 00:01:56,280 Speaker 1: me is that this week, when people were worried about 36 00:01:56,440 --> 00:01:59,559 Speaker 1: fewer rate cuts or even no rate cuts, you saw 37 00:01:59,840 --> 00:02:03,000 Speaker 1: the equal weight underperformed dramatically the S and P. 38 00:02:03,080 --> 00:02:03,600 Speaker 2: Five hundred. 39 00:02:03,680 --> 00:02:06,640 Speaker 1: Do you take away something about that in terms of 40 00:02:07,080 --> 00:02:08,600 Speaker 1: how vulnerable that trade. 41 00:02:08,360 --> 00:02:14,040 Speaker 4: Is too short a period to take away you know 42 00:02:14,560 --> 00:02:18,560 Speaker 4: and think that this vulnerability does not exist. 43 00:02:18,639 --> 00:02:22,880 Speaker 3: It certainly does exist. But at the same time, we're 44 00:02:22,919 --> 00:02:25,200 Speaker 3: headed in the right direction from what we can tell, 45 00:02:25,240 --> 00:02:30,440 Speaker 3: and you've got just extraordinary times when it comes to innovation, 46 00:02:31,880 --> 00:02:36,800 Speaker 3: the resilience that's seen by business in the latest earning 47 00:02:36,919 --> 00:02:39,720 Speaker 3: season for the S and P five hundred with earnings 48 00:02:39,800 --> 00:02:46,640 Speaker 3: up close just under eight percent, revenue growth about four percent. Sorry, 49 00:02:47,160 --> 00:02:51,600 Speaker 3: and with that, you know, four sectors double digit earnings growth. 50 00:02:51,639 --> 00:02:55,360 Speaker 3: And not all tech things are good. It's just that 51 00:02:55,400 --> 00:02:57,400 Speaker 3: they're not as great as people would like to see. 52 00:02:57,480 --> 00:02:59,640 Speaker 3: We're not there yet. You know, we're in the car. 53 00:03:00,240 --> 00:03:01,040 Speaker 3: Are we there yet? 54 00:03:01,120 --> 00:03:03,560 Speaker 1: Not yet? Okay, So you're waiting for the there to happen. 55 00:03:03,639 --> 00:03:05,440 Speaker 1: You're not waiting for the stiflation to happen. And I 56 00:03:05,440 --> 00:03:08,480 Speaker 1: guess what's the line between the two, Because ultimately, what 57 00:03:08,520 --> 00:03:11,160 Speaker 1: we did see yesterday, our minds have to kind of 58 00:03:11,200 --> 00:03:13,360 Speaker 1: go to the ciflation point, like John was mentioning, given 59 00:03:13,360 --> 00:03:15,560 Speaker 1: the fact that we saw inflation come in hotter than expected, 60 00:03:15,600 --> 00:03:18,720 Speaker 1: retail sales come in lighter than expected. When do we 61 00:03:18,760 --> 00:03:21,600 Speaker 1: start to get some sort of definitive read on which 62 00:03:21,639 --> 00:03:24,480 Speaker 1: it is. Is it the strength or is it the slowdown? 63 00:03:25,840 --> 00:03:29,520 Speaker 3: It probably it probably comes from a combination of both. 64 00:03:29,600 --> 00:03:32,959 Speaker 3: It's the combination of the resilience with the slow and 65 00:03:33,120 --> 00:03:35,080 Speaker 3: because you've got the FED, I mean, in the last 66 00:03:35,160 --> 00:03:38,600 Speaker 3: two years hasn't been on holiday. It's been involved, you know, 67 00:03:38,720 --> 00:03:42,640 Speaker 3: bringing down the rate of inflation. But inflation is an 68 00:03:42,680 --> 00:03:45,640 Speaker 3: insidious thing. The other thing I think that we're waiting 69 00:03:45,680 --> 00:03:49,000 Speaker 3: to see, and it's beginning to happen in food. We've 70 00:03:49,040 --> 00:03:52,480 Speaker 3: seen it in some aspects in clothing, not really yet 71 00:03:52,520 --> 00:03:56,920 Speaker 3: in rents. But is competition competition, you know, when you 72 00:03:56,960 --> 00:04:01,120 Speaker 3: go into inflation. Originally, those who experience height input costs, 73 00:04:01,760 --> 00:04:04,560 Speaker 3: they eat the inflation, don't pass it on. Then once 74 00:04:04,600 --> 00:04:08,200 Speaker 3: everybody knows inflation is weird, its ugly head, they pass 75 00:04:08,240 --> 00:04:10,440 Speaker 3: it on to their customers. And then once the FED 76 00:04:10,520 --> 00:04:13,240 Speaker 3: does what it's supposed to do and begin to have 77 00:04:13,320 --> 00:04:18,680 Speaker 3: some significant success, then suddenly those that originally eat the 78 00:04:18,760 --> 00:04:21,719 Speaker 3: inflation then pass it on, hold on passing it on 79 00:04:21,880 --> 00:04:23,960 Speaker 3: for a bit longer so they can make up for 80 00:04:24,040 --> 00:04:27,440 Speaker 3: the losses at the beginning of the cycle. And then 81 00:04:27,600 --> 00:04:30,520 Speaker 3: somebody says, hey, you know what, I think I can 82 00:04:30,560 --> 00:04:35,840 Speaker 3: sacrifice my unit a price and maybe make it up 83 00:04:35,839 --> 00:04:38,839 Speaker 3: in volume. And that is what we're waiting to see. 84 00:04:38,920 --> 00:04:41,200 Speaker 3: And right now, I think it's a good thing that 85 00:04:41,240 --> 00:04:45,400 Speaker 3: the consumer, based on those consumer set of IT indices, 86 00:04:45,520 --> 00:04:49,280 Speaker 3: shows that they are beginning to think genuinely inflation will 87 00:04:49,320 --> 00:04:53,839 Speaker 3: be here for longer. Indeed, it may be very well, 88 00:04:53,880 --> 00:04:56,360 Speaker 3: but at the same time, the direction of the growth 89 00:04:56,360 --> 00:04:58,760 Speaker 3: of inflation is on the way down, and that's where 90 00:04:58,800 --> 00:05:02,120 Speaker 3: we see the op tunity remains in the equity market. 91 00:05:02,240 --> 00:05:04,120 Speaker 2: So, as Emory pointed out, look out for you mentioned 92 00:05:04,120 --> 00:05:07,440 Speaker 2: a little bit later for consumer inflation expectations, John, I 93 00:05:07,480 --> 00:05:09,799 Speaker 2: want to look ahead to next week a risk factor 94 00:05:09,839 --> 00:05:11,200 Speaker 2: in the near term, and you could talk to me 95 00:05:11,240 --> 00:05:13,120 Speaker 2: about how big a risk this is. Is it that 96 00:05:13,240 --> 00:05:16,080 Speaker 2: median dot in the FED projections comes down from three 97 00:05:16,120 --> 00:05:18,600 Speaker 2: to two. Is that a big deal to you, given 98 00:05:18,640 --> 00:05:20,800 Speaker 2: that this market has gone from seven to three and 99 00:05:20,839 --> 00:05:22,560 Speaker 2: equities are still close to all time heighs. 100 00:05:24,640 --> 00:05:26,920 Speaker 3: I don't think it's a really big deal. I think 101 00:05:27,160 --> 00:05:29,520 Speaker 3: the Feds, it's not just the Fed's hard is in 102 00:05:29,600 --> 00:05:33,279 Speaker 3: the right place, but the general tone of FED speak 103 00:05:34,040 --> 00:05:36,760 Speaker 3: is very much aware of what is going on. It's 104 00:05:36,839 --> 00:05:39,960 Speaker 3: into this idea. Well they won't say it, but it's 105 00:05:39,960 --> 00:05:42,919 Speaker 3: going gently into that good night, you know, in this case, 106 00:05:43,640 --> 00:05:46,280 Speaker 3: in the sense that they are very sensitive to what 107 00:05:46,520 --> 00:05:50,359 Speaker 3: is the essentially the mandate of the FED, which is 108 00:05:50,400 --> 00:05:53,200 Speaker 3: to produce an economy that grows at a sustainable pace 109 00:05:53,279 --> 00:05:57,560 Speaker 3: without horrible inflation, with manageable rates of inflation. And then 110 00:05:57,600 --> 00:06:01,880 Speaker 3: when it comes to employment unemployment as defined by somewhere 111 00:06:01,880 --> 00:06:04,640 Speaker 3: between three and four person unemployment, and it looks like 112 00:06:04,680 --> 00:06:07,520 Speaker 3: they're doing the job. And I don't think Powell and 113 00:06:07,760 --> 00:06:10,960 Speaker 3: his FED wanted to be have a legacy of either 114 00:06:11,040 --> 00:06:14,799 Speaker 3: cutting too soon or staying staying at the high levels 115 00:06:15,040 --> 00:06:17,479 Speaker 3: where we are now relative to where we were before 116 00:06:18,200 --> 00:06:21,480 Speaker 3: for too much long. That said, we continue to think 117 00:06:21,520 --> 00:06:23,839 Speaker 3: it's a second half of the year when we see 118 00:06:23,680 --> 00:06:27,880 Speaker 3: the rate cuts happen. We never expected the five to 119 00:06:28,000 --> 00:06:30,039 Speaker 3: seven that others were. We always thought it would be 120 00:06:30,160 --> 00:06:33,000 Speaker 3: likely one to two, perhaps three, which is what the 121 00:06:33,000 --> 00:06:35,600 Speaker 3: FED had initially intimated towards the end of last year. 122 00:06:35,680 --> 00:06:37,360 Speaker 2: You've been outspoken about that, John, I just want to 123 00:06:37,400 --> 00:06:39,839 Speaker 2: finish out by talking about sectors and what you like 124 00:06:39,880 --> 00:06:43,000 Speaker 2: in the equity market. I know you like cyclicals over defensives. Now, 125 00:06:43,040 --> 00:06:46,880 Speaker 2: traditionally defensives would include things like healthcare. Now healthcare has 126 00:06:46,920 --> 00:06:50,240 Speaker 2: this GLP one element to it which makes it almost offensive. 127 00:06:50,240 --> 00:06:51,560 Speaker 2: It's where a lot of money is going in this 128 00:06:51,600 --> 00:06:54,920 Speaker 2: bull market at the moment, John, what is defensive to you? 129 00:06:56,160 --> 00:07:02,480 Speaker 3: The defensive would be consumer staples, the utes, a significant 130 00:07:02,480 --> 00:07:08,599 Speaker 3: portion of healthcare outside the weight loss drugs, and some 131 00:07:08,720 --> 00:07:11,920 Speaker 3: of the the the offsets that come to that, or 132 00:07:11,960 --> 00:07:15,520 Speaker 3: rather the additional things that come with that related to 133 00:07:16,240 --> 00:07:19,080 Speaker 3: perhaps what can what can be done against the heart 134 00:07:19,080 --> 00:07:21,480 Speaker 3: attacks and things like that with the same drugs. But 135 00:07:21,800 --> 00:07:23,920 Speaker 3: we can't help but think that you want to be 136 00:07:24,080 --> 00:07:31,200 Speaker 3: you want to be in technology, consumer discretionary industrials, financials UH. 137 00:07:31,360 --> 00:07:35,320 Speaker 3: And we're gaining the addigital exposure to materials here. And 138 00:07:36,600 --> 00:07:39,560 Speaker 3: it just looks like people are looking at the world 139 00:07:39,560 --> 00:07:42,440 Speaker 3: and thinking China may be having real problems that it 140 00:07:42,640 --> 00:07:45,480 Speaker 3: still has to address, but the rest of the world 141 00:07:45,560 --> 00:07:49,600 Speaker 3: is in a process of normalization where we're in a better, 142 00:07:50,000 --> 00:07:53,880 Speaker 3: better situation. We're leaving the emergency status of the world 143 00:07:53,920 --> 00:07:58,520 Speaker 3: economy UH and in that process moving towards a more 144 00:07:58,560 --> 00:08:02,960 Speaker 3: stable environment. Now that doesn't mean anything can happen that 145 00:08:03,000 --> 00:08:06,120 Speaker 3: would counter that. Okay, So you have to be diversified, 146 00:08:06,480 --> 00:08:08,120 Speaker 3: and you have to know what you own, why you 147 00:08:08,160 --> 00:08:11,600 Speaker 3: own it, and have light sized expectations you can't get 148 00:08:11,640 --> 00:08:14,480 Speaker 3: too gaga over the market here. You have to be 149 00:08:14,640 --> 00:08:16,640 Speaker 3: you know, that's why our target. We're only one percent 150 00:08:16,680 --> 00:08:20,280 Speaker 3: away from our year end target now. And you know 151 00:08:20,360 --> 00:08:23,480 Speaker 3: we people were asking us through most of the first quarter, 152 00:08:23,720 --> 00:08:26,080 Speaker 3: why don't you raise your target? Well, when we started 153 00:08:26,080 --> 00:08:30,000 Speaker 3: out in December, we showed we were indicating thirteen percent upside. 154 00:08:30,120 --> 00:08:32,800 Speaker 3: We just didn't relox like how fast food we're going 155 00:08:32,880 --> 00:08:33,200 Speaker 3: to move? 156 00:08:33,360 --> 00:08:36,640 Speaker 1: John to that point, are you going to upgrade your forecast? 157 00:08:37,320 --> 00:08:42,080 Speaker 3: Ah, we'll have to see. At Lisa, I'm looking at 158 00:08:42,120 --> 00:08:44,960 Speaker 3: all this stuff you're looking at and John's looking at 159 00:08:44,720 --> 00:08:48,600 Speaker 3: and when I think of it, we've got to give 160 00:08:48,600 --> 00:08:52,040 Speaker 3: a consideration. But I must say, from where we're sitting 161 00:08:52,040 --> 00:08:55,520 Speaker 3: here today, it would seem like the likelihood of being 162 00:08:55,600 --> 00:08:59,280 Speaker 3: forced to raise might be necessary after all these bears 163 00:08:59,360 --> 00:09:03,520 Speaker 3: of suddenly gotten under the bull case. But they're talk 164 00:09:03,640 --> 00:09:05,480 Speaker 3: Some of these guys are talking out of both sides 165 00:09:05,520 --> 00:09:09,520 Speaker 3: of their mouth, you know, stagflation. Other people within their 166 00:09:09,600 --> 00:09:11,840 Speaker 3: groups saying, oh, it's going to go higher. I don't know. 167 00:09:12,920 --> 00:09:15,680 Speaker 3: I try to avoid the noise, to separate the signal 168 00:09:15,720 --> 00:09:16,280 Speaker 3: from the noise. 169 00:09:16,720 --> 00:09:18,600 Speaker 2: H John, appreciate your time. I think there was a 170 00:09:18,600 --> 00:09:21,440 Speaker 2: diplomatic way of dancing around that question and answering yes, 171 00:09:21,440 --> 00:09:23,600 Speaker 2: maybe perhaps at some point in the next couple of days, 172 00:09:32,840 --> 00:09:35,439 Speaker 2: Sarah Hunt of Outpine Saxon words right in this there 173 00:09:35,480 --> 00:09:38,400 Speaker 2: is a tension between the idea that not cutting rates 174 00:09:38,440 --> 00:09:42,400 Speaker 2: means financial conditions will passively tighten if inflation continues to 175 00:09:42,480 --> 00:09:46,559 Speaker 2: wend its way lower, and concerns that when there's enough liquidity, 176 00:09:46,600 --> 00:09:50,520 Speaker 2: the conditions are still too loose. Sarah and place to 177 00:09:50,559 --> 00:09:52,199 Speaker 2: say it joins us. Now, Sarah, what do you think 178 00:09:52,240 --> 00:09:56,040 Speaker 2: of that data? PPI upside surprise, CPI upside surprise. How 179 00:09:56,040 --> 00:09:57,800 Speaker 2: does it change next week's FED mating? 180 00:09:58,280 --> 00:10:00,120 Speaker 5: It's going to be interesting because I agree with the 181 00:10:00,160 --> 00:10:01,800 Speaker 5: guests that you've had on earlier in which you guys 182 00:10:01,840 --> 00:10:03,640 Speaker 5: have been talking about the FED wants to cut right. 183 00:10:03,679 --> 00:10:06,000 Speaker 5: They're looking for an excuse to cut because they don't 184 00:10:06,000 --> 00:10:08,080 Speaker 5: want to get to the point where they're passively tightening 185 00:10:08,120 --> 00:10:10,800 Speaker 5: as opposed to you know, they don't want that to happen. 186 00:10:11,280 --> 00:10:13,360 Speaker 5: But I think that this data was not does not 187 00:10:13,400 --> 00:10:16,040 Speaker 5: give them any help in that the odd I mean, 188 00:10:16,040 --> 00:10:18,040 Speaker 5: they could just sort of ignore it and say, well, yes, 189 00:10:18,080 --> 00:10:20,360 Speaker 5: we're looking at other things. To your point, memory that 190 00:10:20,440 --> 00:10:22,280 Speaker 5: you know, we're going to look for the PC. We're 191 00:10:22,320 --> 00:10:24,360 Speaker 5: not using this, but I think that it makes it 192 00:10:24,400 --> 00:10:26,440 Speaker 5: a little bit tougher for them to do it on 193 00:10:26,480 --> 00:10:28,160 Speaker 5: the timeframe that they were looking at. If this had 194 00:10:28,200 --> 00:10:29,800 Speaker 5: been a more benign number, I think you would have 195 00:10:29,840 --> 00:10:32,840 Speaker 5: seen that may call come back, and I think, I mean, 196 00:10:32,840 --> 00:10:34,839 Speaker 5: I don't think anyone was looking for anything in March, 197 00:10:35,000 --> 00:10:37,520 Speaker 5: so they may just not say a whole lot about it. 198 00:10:37,559 --> 00:10:37,959 Speaker 2: But we'll see. 199 00:10:38,000 --> 00:10:39,160 Speaker 5: I mean, it's going to be interesting to see what 200 00:10:39,160 --> 00:10:39,439 Speaker 5: they say. 201 00:10:39,440 --> 00:10:42,240 Speaker 2: Should jompless claims make them comfortable or should retail sales 202 00:10:42,240 --> 00:10:46,040 Speaker 2: make them uncomfortable? Yes, yes too, yes to both. 203 00:10:46,040 --> 00:10:47,800 Speaker 5: I mean, and that's the problem, right, because we keep 204 00:10:47,800 --> 00:10:50,680 Speaker 5: getting these different pieces. The labor market has stayed stronger. 205 00:10:50,920 --> 00:10:52,920 Speaker 5: You know, in December when they pivoted, one of the 206 00:10:52,960 --> 00:10:55,600 Speaker 5: things that they that char Pal said was we now 207 00:10:55,640 --> 00:10:58,079 Speaker 5: see the risks as being balanced between inflation and a 208 00:10:58,160 --> 00:11:00,600 Speaker 5: labor market, whereas before that everybody like they're going to 209 00:11:00,600 --> 00:11:02,440 Speaker 5: try to kill the labor market. So I think that 210 00:11:02,520 --> 00:11:05,559 Speaker 5: the fact that we are seeing still good labor, they 211 00:11:05,679 --> 00:11:07,880 Speaker 5: really don't want to put the country into a bad 212 00:11:07,960 --> 00:11:10,160 Speaker 5: labor market. They don't want to do that, So that's 213 00:11:10,160 --> 00:11:12,080 Speaker 5: going to be helpful, but it's just the other data 214 00:11:12,200 --> 00:11:13,120 Speaker 5: was just not that great. 215 00:11:13,640 --> 00:11:17,080 Speaker 1: It strikes me in some of my conversations that just hypothetically, 216 00:11:17,400 --> 00:11:19,560 Speaker 1: some people might be very bored with the muddle because 217 00:11:19,559 --> 00:11:21,640 Speaker 1: it's been muddle for quite a while. What does a 218 00:11:21,640 --> 00:11:23,760 Speaker 1: board trader do given the fact that we've got a 219 00:11:23,760 --> 00:11:25,760 Speaker 1: lot of them, Well. 220 00:11:25,640 --> 00:11:27,560 Speaker 5: They probably take out too many leverage bets that come 221 00:11:27,600 --> 00:11:28,160 Speaker 5: back to bite them. 222 00:11:28,160 --> 00:11:28,480 Speaker 3: I don't know. 223 00:11:28,480 --> 00:11:31,040 Speaker 5: I mean, this is the problem of having the non 224 00:11:31,080 --> 00:11:33,600 Speaker 5: directional you were asking earlier on the FX trade, like 225 00:11:33,600 --> 00:11:36,199 Speaker 5: we're looking for someone's looking for a big directional trade. 226 00:11:36,280 --> 00:11:40,400 Speaker 5: We have these little incremental moves where the moves are incremental, 227 00:11:40,440 --> 00:11:42,480 Speaker 5: but the zeitgeist swings from oh my god, we're going 228 00:11:42,480 --> 00:11:44,840 Speaker 5: into recession to oh, the economy is so great, we 229 00:11:44,840 --> 00:11:46,840 Speaker 5: don't have to cut rates. Mean, there's been a lot 230 00:11:46,840 --> 00:11:49,520 Speaker 5: of moving back and forth, but it's the same from 231 00:11:49,520 --> 00:11:52,360 Speaker 5: the same two places, and that does tend to get people. 232 00:11:52,720 --> 00:11:54,560 Speaker 5: You know, you can't quite figure out what's going on. 233 00:11:54,640 --> 00:11:57,480 Speaker 5: If people are not worried about rate cuts being pushed 234 00:11:57,480 --> 00:11:59,360 Speaker 5: out because the economy is good, well that's great for 235 00:11:59,360 --> 00:12:01,920 Speaker 5: the market that they're getting pushed out because. 236 00:12:01,720 --> 00:12:04,200 Speaker 2: Inflation is bad. That's bad for the people are so spoiled. 237 00:12:04,240 --> 00:12:06,440 Speaker 2: The fact that people are bored. We've just had an 238 00:12:06,440 --> 00:12:08,720 Speaker 2: all time high in Japan, haven't seen one since nineteen 239 00:12:08,760 --> 00:12:11,760 Speaker 2: eighty nine. I've had records in Europe. Record state side, 240 00:12:11,760 --> 00:12:14,400 Speaker 2: we've got two huge bull markets taking place, one in 241 00:12:14,480 --> 00:12:17,800 Speaker 2: Ai another in GLP. Once I understand that they want more. 242 00:12:18,040 --> 00:12:20,480 Speaker 2: We always want more. But seriously, some of the levels 243 00:12:20,480 --> 00:12:22,760 Speaker 2: we've here in the last few months have been pretty incredible. 244 00:12:22,840 --> 00:12:24,720 Speaker 1: Yeah, but they haven't been a street shot up. It's 245 00:12:24,720 --> 00:12:28,600 Speaker 1: been basically and it hasn't been with any. 246 00:12:28,400 --> 00:12:32,440 Speaker 2: Convintions feby alone. Yes, we had two if the biggest 247 00:12:32,679 --> 00:12:35,480 Speaker 2: single day market cap gains on single names in the 248 00:12:35,520 --> 00:12:36,920 Speaker 2: history of this stock market. 249 00:12:36,920 --> 00:12:39,360 Speaker 1: But has it been because people are just plowing in 250 00:12:39,440 --> 00:12:42,400 Speaker 1: and just so excited and looking for their upside surprise 251 00:12:42,480 --> 00:12:45,040 Speaker 1: or is it because basically it's just been the story 252 00:12:45,040 --> 00:12:47,720 Speaker 1: that keeps on giving. You've won by not shifting around 253 00:12:47,760 --> 00:12:50,440 Speaker 1: your portfolio at all, which is hard to do. 254 00:12:50,640 --> 00:12:52,840 Speaker 2: That's why they're bored, because they're waiting for the rotation 255 00:12:52,960 --> 00:12:54,840 Speaker 2: that hasn't developed in the way they wish it was. 256 00:12:55,160 --> 00:12:57,240 Speaker 2: I mean, we caught up with Seaburn Mandy Zoo earlier 257 00:12:57,240 --> 00:12:59,360 Speaker 2: this week, and she said they're positioning upside by US, 258 00:12:59,400 --> 00:13:02,600 Speaker 2: upside by some way light on WALP smow caps right 259 00:13:02,760 --> 00:13:05,520 Speaker 2: that board. Because the same things keep winning, should they 260 00:13:05,559 --> 00:13:08,080 Speaker 2: start to get used to the same things winning all 261 00:13:08,120 --> 00:13:09,960 Speaker 2: the time or is that going to change sometime soon? 262 00:13:10,080 --> 00:13:12,520 Speaker 5: Well there's also the issue of you know, the same 263 00:13:12,520 --> 00:13:14,800 Speaker 5: things are winning, but that then echoes a lot of 264 00:13:14,840 --> 00:13:16,840 Speaker 5: other market bubbles and people start worrying about a market 265 00:13:16,840 --> 00:13:19,000 Speaker 5: bubble too, So there's that problem as well. I think 266 00:13:19,520 --> 00:13:21,880 Speaker 5: to the extent that the AI stocks are winning, there 267 00:13:21,960 --> 00:13:24,839 Speaker 5: is a they're really making money. There's actual cash flow there. 268 00:13:24,880 --> 00:13:27,560 Speaker 5: This isn't a group of stocks that is running on 269 00:13:27,600 --> 00:13:30,080 Speaker 5: a promise, right, It's running on some actual results. 270 00:13:30,280 --> 00:13:31,200 Speaker 2: So there's that So I. 271 00:13:31,200 --> 00:13:33,040 Speaker 5: Think that that is say sticky. 272 00:13:33,320 --> 00:13:34,160 Speaker 2: But on the other. 273 00:13:34,040 --> 00:13:36,439 Speaker 5: Side, there is some concern that you're seeing these big 274 00:13:36,520 --> 00:13:39,080 Speaker 5: run ups in things like the glpeople there's but there's 275 00:13:39,120 --> 00:13:41,439 Speaker 5: real money there. But then what happens to the rest 276 00:13:41,440 --> 00:13:42,640 Speaker 5: of the market. And there's a lot of parts of 277 00:13:42,679 --> 00:13:45,080 Speaker 5: the market that haven't been participating. 278 00:13:44,480 --> 00:13:47,160 Speaker 1: Including energy to some degree. And I know that you 279 00:13:47,200 --> 00:13:49,640 Speaker 1: are bullets and energy, and then you pulled back a 280 00:13:49,679 --> 00:13:52,280 Speaker 1: bit we're seeing this rally though that's pretty persistent. We're 281 00:13:52,280 --> 00:13:54,720 Speaker 1: seeing oil prices at the highest levels going back to November, 282 00:13:54,760 --> 00:13:58,079 Speaker 1: and this idea that maybe supply can't keep up finally 283 00:13:58,120 --> 00:14:00,880 Speaker 1: with demand after a pretty strong have you shifted your 284 00:14:00,960 --> 00:14:02,160 Speaker 1: view on a not j well? 285 00:14:02,280 --> 00:14:04,760 Speaker 5: Still to your point also earlier, there is still excess 286 00:14:04,760 --> 00:14:06,840 Speaker 5: supply out there right because they're still being oil held 287 00:14:06,880 --> 00:14:09,680 Speaker 5: off the market. The question is it's moved up, and 288 00:14:09,720 --> 00:14:11,640 Speaker 5: it's moved up in a quiet way, so the stocks 289 00:14:11,640 --> 00:14:13,800 Speaker 5: haven't really caught up, so there's value in that trade 290 00:14:13,880 --> 00:14:17,520 Speaker 5: right now. The question becomes, does this problem that's going 291 00:14:17,559 --> 00:14:20,400 Speaker 5: on with transportation, because it's still a problem. They're still 292 00:14:20,400 --> 00:14:23,880 Speaker 5: seeing that issue going through does that change because if 293 00:14:23,920 --> 00:14:26,600 Speaker 5: it doesn't change, then you can see tighter markets and 294 00:14:26,640 --> 00:14:28,720 Speaker 5: you're seeing them right now. And that move up hasn't 295 00:14:28,760 --> 00:14:32,080 Speaker 5: been a convulsive move up. It's been like that incremental 296 00:14:32,200 --> 00:14:33,600 Speaker 5: you know, it's if it's a spider move up. 297 00:14:33,680 --> 00:14:36,360 Speaker 6: So it's kind of crazy that we're all excited potentially 298 00:14:36,440 --> 00:14:39,240 Speaker 6: about a Breton crude move in the eighties and there 299 00:14:39,280 --> 00:14:41,960 Speaker 6: is literally a hot war in the Middle East and 300 00:14:42,040 --> 00:14:45,360 Speaker 6: you have Husi's still striking vessels. They're the red seat 301 00:14:45,360 --> 00:14:46,880 Speaker 6: in the Gulf of Aden. I mean, how high could 302 00:14:46,920 --> 00:14:48,120 Speaker 6: you see oil prices actually go? 303 00:14:48,200 --> 00:14:51,080 Speaker 5: Though, Well, I think so right now you've seen the 304 00:14:51,120 --> 00:14:53,720 Speaker 5: problem that that's causing, which is higher transportation costs in 305 00:14:53,800 --> 00:14:57,240 Speaker 5: longer transportation times. But it hasn't hit production. It hasn't 306 00:14:57,280 --> 00:14:59,760 Speaker 5: hit something like right now. That's staying within a frame 307 00:14:59,760 --> 00:15:03,280 Speaker 5: work that is not problematic for the fields themselves. It's 308 00:15:03,280 --> 00:15:05,800 Speaker 5: problematic for transportation. If that changes, I think you could 309 00:15:05,800 --> 00:15:08,320 Speaker 5: see bigger moves because then you don't know where you're 310 00:15:08,560 --> 00:15:10,160 Speaker 5: where the supply is going to come from. Right now, 311 00:15:10,200 --> 00:15:11,680 Speaker 5: supply is not so much the issue. 312 00:15:11,720 --> 00:15:14,120 Speaker 2: So we've got these two risk events on the calendar, 313 00:15:14,200 --> 00:15:16,400 Speaker 2: the Federal Reserve in June because that's when this rate 314 00:15:16,440 --> 00:15:18,680 Speaker 2: cut is going to happen. Now most people agree, And 315 00:15:18,680 --> 00:15:20,960 Speaker 2: then you've got this election in November, and people just 316 00:15:20,960 --> 00:15:22,840 Speaker 2: sort of look at it the calendar and say, it's 317 00:15:22,840 --> 00:15:24,920 Speaker 2: out there somewhere. I don't need to think about it 318 00:15:25,120 --> 00:15:27,800 Speaker 2: right now. Do they need to think about it right now? 319 00:15:28,640 --> 00:15:30,520 Speaker 5: I think the difficult thing is that there is such 320 00:15:30,520 --> 00:15:32,840 Speaker 5: a long period of time and that there's this expectation 321 00:15:32,920 --> 00:15:34,800 Speaker 5: that any number of things could happen, and so that 322 00:15:35,080 --> 00:15:37,120 Speaker 5: it's hard for anyone to pin it down, and that 323 00:15:37,200 --> 00:15:40,160 Speaker 5: any changes either on the global stage or other places 324 00:15:40,160 --> 00:15:42,480 Speaker 5: could shift things one way or the other. So deciding 325 00:15:42,520 --> 00:15:44,600 Speaker 5: today what you think the outcome is going to be 326 00:15:44,600 --> 00:15:47,160 Speaker 5: in acting on that is quite difficult, I think. With 327 00:15:47,240 --> 00:15:49,520 Speaker 5: the FED, you know, there is that expectation that we're 328 00:15:49,560 --> 00:15:52,080 Speaker 5: going to get some rate cuts, but as those dialed back, 329 00:15:52,160 --> 00:15:54,360 Speaker 5: it's not the same as saying, you know, we were 330 00:15:54,400 --> 00:15:56,560 Speaker 5: going to be down two hundred basis points right now, 331 00:15:56,680 --> 00:15:58,280 Speaker 5: was going to change everything. And that's okay, and that's 332 00:15:58,320 --> 00:16:00,280 Speaker 5: great for tech stocks and it's great for fall sorts 333 00:16:00,320 --> 00:16:00,680 Speaker 5: of things. 334 00:16:00,800 --> 00:16:01,480 Speaker 2: But on the other. 335 00:16:01,360 --> 00:16:03,560 Speaker 5: Hand, the fact that you're getting interested on cash is 336 00:16:03,600 --> 00:16:05,880 Speaker 5: a good thing too. So where the FED goes ultimately 337 00:16:05,960 --> 00:16:07,160 Speaker 5: is going to be a big deal. And that keeps 338 00:16:07,160 --> 00:16:09,720 Speaker 5: shifting around too. We keep hearing now north of three 339 00:16:09,760 --> 00:16:11,600 Speaker 5: and a half, maybe it's four percent. There's a lot 340 00:16:11,640 --> 00:16:13,680 Speaker 5: of change that's been going on with both of those things. 341 00:16:13,800 --> 00:16:16,640 Speaker 5: So it's hard to say, yes, let's make a plan, 342 00:16:16,720 --> 00:16:18,440 Speaker 5: and let's make a plan on the basis of this 343 00:16:18,760 --> 00:16:19,600 Speaker 5: X going this way. 344 00:16:19,680 --> 00:16:23,080 Speaker 1: Michael Sharper was just talking about how either way, whoever wins, 345 00:16:23,280 --> 00:16:25,360 Speaker 1: there is going to be this emphasis on trying to 346 00:16:25,800 --> 00:16:30,320 Speaker 1: protect the US security, to protect US workers from some 347 00:16:30,400 --> 00:16:34,040 Speaker 1: of the international competition. Does that feature in what you 348 00:16:34,120 --> 00:16:37,680 Speaker 1: decide to buy, what you think might be susceptible to 349 00:16:37,760 --> 00:16:41,160 Speaker 1: national security claims and real kind of interference on that level. 350 00:16:41,480 --> 00:16:43,720 Speaker 5: I think that really shifted from the beginning of the 351 00:16:43,760 --> 00:16:48,200 Speaker 5: pandemic even to now, because the move was for whatever 352 00:16:48,240 --> 00:16:51,120 Speaker 5: reasons you want to call it was either home shoring 353 00:16:51,200 --> 00:16:54,440 Speaker 5: or onshoing or friendshoring, or however you want to whatever 354 00:16:54,680 --> 00:16:56,920 Speaker 5: terminology you want to use, that says, I need to 355 00:16:56,920 --> 00:16:58,800 Speaker 5: make sure that I have a decent line of sight 356 00:16:58,840 --> 00:17:02,520 Speaker 5: into my supply chain where is because we've had transportation 357 00:17:02,560 --> 00:17:04,920 Speaker 5: issues before, we're now seeing this issue in the Red Sea. 358 00:17:05,160 --> 00:17:07,320 Speaker 5: There's all sorts of things on the international stage, and 359 00:17:07,480 --> 00:17:09,240 Speaker 5: or somebody who was an ally could become less of 360 00:17:09,280 --> 00:17:10,679 Speaker 5: an ally and then all of a sudden they're going 361 00:17:10,720 --> 00:17:12,399 Speaker 5: to threaten not to give me the things that I need. 362 00:17:12,600 --> 00:17:14,600 Speaker 5: So I think that that was already happening, and I 363 00:17:14,640 --> 00:17:17,240 Speaker 5: don't think that either side of the aisle right now 364 00:17:17,480 --> 00:17:19,639 Speaker 5: is pushing in the opposite direction. So I think that 365 00:17:19,720 --> 00:17:21,120 Speaker 5: directionally that's going to continue. 366 00:17:21,200 --> 00:17:22,960 Speaker 1: Has it happened because a lot of people say that 367 00:17:22,960 --> 00:17:24,879 Speaker 1: it actually hasn't happened, and the whole near shoring and 368 00:17:24,920 --> 00:17:27,679 Speaker 1: front shoring was sort of a lot of lip service 369 00:17:27,960 --> 00:17:30,840 Speaker 1: that didn't really come to fruition. Do you buy this 370 00:17:30,920 --> 00:17:33,399 Speaker 1: story that were in the process that is going to 371 00:17:33,400 --> 00:17:36,160 Speaker 1: be naturally inflationary, that's going to build in redundant seas, 372 00:17:36,400 --> 00:17:37,680 Speaker 1: that's going to have legs. 373 00:17:37,880 --> 00:17:40,080 Speaker 5: I think that it's not happening for a variety of reasons. 374 00:17:40,119 --> 00:17:42,879 Speaker 5: There's a number of stories about the Chipsack about why 375 00:17:42,920 --> 00:17:45,720 Speaker 5: that money isn't going places, and there's too many regulations 376 00:17:45,760 --> 00:17:48,639 Speaker 5: and restrictions on that. But I think from a standpoint 377 00:17:48,680 --> 00:17:50,640 Speaker 5: of I'm a corporate CEO, I want to make sure 378 00:17:50,640 --> 00:17:52,199 Speaker 5: I know where my things are coming from. Is it 379 00:17:52,240 --> 00:17:54,080 Speaker 5: going to be a chip plant in the US at 380 00:17:54,080 --> 00:17:56,760 Speaker 5: some point? Probably, But in the scheme of things, I'm 381 00:17:56,800 --> 00:17:58,639 Speaker 5: going to be much more attuned to that than I 382 00:17:58,760 --> 00:18:00,719 Speaker 5: was before, regardless who ends up in the way. 383 00:18:00,760 --> 00:18:02,720 Speaker 6: Now, how does the US talk about friendshoring when they 384 00:18:02,760 --> 00:18:05,160 Speaker 6: want to block a deal from a friendly ally? 385 00:18:06,080 --> 00:18:07,840 Speaker 5: That is a difficult question to answer it and I 386 00:18:07,880 --> 00:18:09,760 Speaker 5: did not block back deal, so I cannot answer it. 387 00:18:11,320 --> 00:18:13,760 Speaker 2: How do you prepare for that? It's almost inflexible. It's 388 00:18:13,800 --> 00:18:16,640 Speaker 2: such a good question, Sarah Hunt vampired saxon words. We're 389 00:18:16,680 --> 00:18:19,800 Speaker 2: seeing this repeatedly. We're dressing things up in language that 390 00:18:19,960 --> 00:18:22,280 Speaker 2: might be palatable for our allies, but ultimately, look at 391 00:18:22,280 --> 00:18:24,399 Speaker 2: the action, don't listen to the words. This is the 392 00:18:24,400 --> 00:18:27,400 Speaker 2: difference between former president talks about America. First, starts talking 393 00:18:27,440 --> 00:18:30,280 Speaker 2: about America first, Everyone's like, whoa America? First? What's this 394 00:18:30,400 --> 00:18:33,240 Speaker 2: about tariffs on China? How dare he? And then here 395 00:18:33,280 --> 00:18:36,400 Speaker 2: we are, same policies, same policies, dressed up in very 396 00:18:36,400 --> 00:18:38,560 Speaker 2: different language, but ultimately same thing. 397 00:18:38,720 --> 00:18:40,879 Speaker 6: National Security in the Wall Street Journal editorial view this 398 00:18:40,960 --> 00:18:44,800 Speaker 6: morning calls it self destruction and they say, regardless of 399 00:18:44,800 --> 00:18:48,240 Speaker 6: Trump or Biden, it's going to be a nasty election, 400 00:18:48,480 --> 00:19:00,520 Speaker 6: but there's going to be policy damage because of it. 401 00:19:00,520 --> 00:19:03,159 Speaker 2: It's the lacest this morning. Treasury selling graft after a 402 00:19:03,240 --> 00:19:06,640 Speaker 2: hotter than expected inflation print, reinforcing beds that the Fed 403 00:19:06,720 --> 00:19:08,640 Speaker 2: is in no rush to kind of interest rates, while 404 00:19:08,640 --> 00:19:11,800 Speaker 2: lower than expected retail cells, leaving in Lincoln of Bemos 405 00:19:11,840 --> 00:19:14,840 Speaker 2: saying this the pace of retail cells during Q one 406 00:19:15,200 --> 00:19:18,480 Speaker 2: hints if the specter of snagflation, although it's only a 407 00:19:18,480 --> 00:19:22,240 Speaker 2: couple of prints and insufficient to draw any broad based conclusion. 408 00:19:22,560 --> 00:19:24,800 Speaker 2: Ian Lincoln joins us, Now for more, and let's get 409 00:19:24,800 --> 00:19:27,399 Speaker 2: into this, is that what we're starting to smell the 410 00:19:27,480 --> 00:19:28,920 Speaker 2: sense of stagflation this year. 411 00:19:29,480 --> 00:19:31,919 Speaker 7: I think that there's a non zero probability that we 412 00:19:32,000 --> 00:19:36,200 Speaker 7: find ourselves in a environment where demand continues to slow 413 00:19:36,400 --> 00:19:40,159 Speaker 7: more and more certain aspects of inflation proves stickier than 414 00:19:40,160 --> 00:19:42,720 Speaker 7: the FED wants to see. And then the big question 415 00:19:42,800 --> 00:19:43,960 Speaker 7: is how does a Fed respond to that? 416 00:19:44,119 --> 00:19:44,760 Speaker 2: What do they do? 417 00:19:45,080 --> 00:19:47,320 Speaker 7: I think they've done a very good job of laying 418 00:19:47,320 --> 00:19:50,720 Speaker 7: the groundwork to cut, not ease, and we're far enough 419 00:19:50,720 --> 00:19:52,280 Speaker 7: into the cycle that they can justify that. 420 00:19:52,560 --> 00:19:54,880 Speaker 2: So if the dual mandate goes into conflict, you think 421 00:19:54,880 --> 00:19:57,879 Speaker 2: they can still kind of interest rights later this year precisely. Okay, 422 00:19:58,119 --> 00:20:00,960 Speaker 2: So here's the question for the markets. The market believes 423 00:20:01,000 --> 00:20:03,800 Speaker 2: now that this Federal Reserve has established a more asymmetric 424 00:20:03,840 --> 00:20:06,600 Speaker 2: approach to monetary policy, that if strong growth comes through, 425 00:20:06,640 --> 00:20:08,760 Speaker 2: they don't have to hike, but if growth weakens they 426 00:20:08,760 --> 00:20:12,359 Speaker 2: can cut. Does it temper their ability to respond to 427 00:20:12,520 --> 00:20:15,720 Speaker 2: adverse shocks of inflation remains sticky? You're saying they can 428 00:20:15,760 --> 00:20:18,320 Speaker 2: still cut. I want to understand by how much are 429 00:20:18,320 --> 00:20:21,680 Speaker 2: we talking about one or two versus say five plus. 430 00:20:22,600 --> 00:20:24,359 Speaker 7: You know, it's interesting because I think it really comes 431 00:20:24,359 --> 00:20:28,560 Speaker 7: down to the composition of inflation and where the stickiness 432 00:20:28,600 --> 00:20:31,280 Speaker 7: comes in. If it ends up being on the supercore measure, 433 00:20:31,280 --> 00:20:34,000 Speaker 7: which is highly correlated with wages, that's a problem for 434 00:20:34,040 --> 00:20:34,359 Speaker 7: the FED. 435 00:20:34,680 --> 00:20:36,080 Speaker 2: If it's housing, if it's all we. 436 00:20:36,040 --> 00:20:39,360 Speaker 7: Are, If it's rent, that's a residual from what happened 437 00:20:39,400 --> 00:20:41,680 Speaker 7: a year and a half ago, and if that ends 438 00:20:41,760 --> 00:20:44,760 Speaker 7: up being the case, then they can easily justify moving 439 00:20:44,880 --> 00:20:48,640 Speaker 7: back closer to neutral if the situation warrants it, and 440 00:20:48,920 --> 00:20:52,120 Speaker 7: what warrants it It certainly isn't a flat GDP print. 441 00:20:52,160 --> 00:20:54,520 Speaker 7: It would have to be well into negative territory. 442 00:20:54,240 --> 00:20:57,120 Speaker 1: Which raises this question what is neutral? And I keep 443 00:20:57,160 --> 00:20:59,119 Speaker 1: going to El Selinos and this idea that she was 444 00:20:59,119 --> 00:21:01,680 Speaker 1: saying maybe neutral in their view is actually north to 445 00:21:01,720 --> 00:21:03,440 Speaker 1: four percent. And that's what we're looking at. The sort 446 00:21:03,480 --> 00:21:07,120 Speaker 1: of rolling ball of cash that's shifting into different areas 447 00:21:07,119 --> 00:21:09,360 Speaker 1: and causing inflation to surge in different places that will 448 00:21:09,400 --> 00:21:12,800 Speaker 1: keep inflationary pressure is higher than they have been traditionally. 449 00:21:13,080 --> 00:21:14,080 Speaker 1: Can you get on board with that? 450 00:21:15,040 --> 00:21:18,080 Speaker 7: I'm very much on board with the notion that neutral 451 00:21:18,080 --> 00:21:21,320 Speaker 7: policy rates are a moving target and it's not a 452 00:21:21,560 --> 00:21:24,200 Speaker 7: single number that will hold indefinitely over time. 453 00:21:24,480 --> 00:21:26,280 Speaker 2: I think that the FED would probably. 454 00:21:25,880 --> 00:21:28,800 Speaker 7: Agree that, because of a lot of the dislocations that 455 00:21:28,840 --> 00:21:32,840 Speaker 7: occurred during the pandemic, that our star was higher over 456 00:21:32,880 --> 00:21:34,760 Speaker 7: the course of the last couple of years. The bigger 457 00:21:34,840 --> 00:21:38,040 Speaker 7: question becomes, what is it like at the moment? Are 458 00:21:38,040 --> 00:21:41,520 Speaker 7: we truly in restrictive territory? The combination of the balance 459 00:21:41,560 --> 00:21:44,880 Speaker 7: sheet rundown and the fact that as year over year 460 00:21:45,359 --> 00:21:48,520 Speaker 7: core inflation numbers start to decline, real policy rates will 461 00:21:48,520 --> 00:21:51,199 Speaker 7: increase really puts the FED in a unique situation and 462 00:21:51,240 --> 00:21:52,680 Speaker 7: one that I certainly don't envy. 463 00:21:52,960 --> 00:21:54,680 Speaker 1: Well, what do you think, I mean, do you think 464 00:21:54,680 --> 00:21:57,320 Speaker 1: that it's restrictive based on the evidence that inflation isn't 465 00:21:57,320 --> 00:21:59,200 Speaker 1: really getting tamped down as much as people expect? And 466 00:21:59,280 --> 00:22:01,800 Speaker 1: sure we got one weaker as an expected retail sales number, 467 00:22:02,000 --> 00:22:03,680 Speaker 1: but you look at the earnings and companies are still 468 00:22:03,680 --> 00:22:04,200 Speaker 1: doing all right. 469 00:22:04,920 --> 00:22:07,240 Speaker 7: So I would say that it was clearly restrictive during 470 00:22:07,240 --> 00:22:09,159 Speaker 7: the second half of last year, which is why we 471 00:22:09,200 --> 00:22:12,000 Speaker 7: saw the progress made on the inflation front. But the 472 00:22:12,000 --> 00:22:14,960 Speaker 7: equity market doesn't believe that it's restrictive, and that's actually 473 00:22:15,000 --> 00:22:18,480 Speaker 7: really problematic for the FED, since overall financial conditions are 474 00:22:18,560 --> 00:22:21,240 Speaker 7: much easier than power would want them to be. And 475 00:22:21,280 --> 00:22:24,520 Speaker 7: that feedback loop to a large extent, is why I 476 00:22:24,560 --> 00:22:27,040 Speaker 7: believe that there is some stickiness in the inflation complex 477 00:22:27,080 --> 00:22:27,480 Speaker 7: at the moment. 478 00:22:27,520 --> 00:22:29,760 Speaker 2: I got two questions. You've kind of alluded to the 479 00:22:29,760 --> 00:22:32,399 Speaker 2: fact that you think he cares about equity markets, but 480 00:22:32,560 --> 00:22:35,520 Speaker 2: bat he talks about financial conditions when we raise the 481 00:22:35,520 --> 00:22:37,679 Speaker 2: fact that equity is a cloister all time highs and 482 00:22:37,720 --> 00:22:39,800 Speaker 2: credit spreads a super tih get people come on this 483 00:22:39,840 --> 00:22:42,040 Speaker 2: program and site. That's not that important to cham and 484 00:22:42,080 --> 00:22:44,040 Speaker 2: Pound anymore. Why do you think it is impultant. 485 00:22:44,760 --> 00:22:47,040 Speaker 7: I think that he's very strategic in the way that 486 00:22:47,119 --> 00:22:50,960 Speaker 7: he chooses to emphasize the relevance of financial conditions when 487 00:22:50,960 --> 00:22:53,159 Speaker 7: they were tighter at the end of last year. It 488 00:22:53,240 --> 00:22:56,000 Speaker 7: was very important because it was consistent with the messaging 489 00:22:56,040 --> 00:22:59,200 Speaker 7: that he was putting forward, which is we're nearing the 490 00:22:59,200 --> 00:23:02,120 Speaker 7: point where we're going to start cutting rates. If the 491 00:23:02,119 --> 00:23:06,000 Speaker 7: FED starts to reintroduce the conversation about financial conditions, that's 492 00:23:06,000 --> 00:23:08,800 Speaker 7: hawkish in this environment. It's not dubvish, and that would 493 00:23:08,840 --> 00:23:11,720 Speaker 7: suggest that while the market seems content to price in 494 00:23:11,760 --> 00:23:14,400 Speaker 7: a June rate cut at this moment, maybe the real 495 00:23:14,480 --> 00:23:17,480 Speaker 7: departure point for normalization is July or. 496 00:23:17,480 --> 00:23:20,000 Speaker 2: Later twenty twenty dollars co for you now trys to 497 00:23:20,040 --> 00:23:22,200 Speaker 2: remark it, what do I do with the longend? You've 498 00:23:22,200 --> 00:23:23,399 Speaker 2: teld me what you think is going to happen with 499 00:23:23,440 --> 00:23:25,399 Speaker 2: a federal serf to some extent, well, that could make 500 00:23:25,440 --> 00:23:26,560 Speaker 2: for the front end of the curve. What do I 501 00:23:26,600 --> 00:23:28,159 Speaker 2: do with a ten year What does that look like? 502 00:23:28,200 --> 00:23:30,320 Speaker 2: In the world that was starting to sense is development 503 00:23:30,320 --> 00:23:31,240 Speaker 2: in twenty twenty four. 504 00:23:31,800 --> 00:23:33,879 Speaker 7: So I would say that we are in a period 505 00:23:33,920 --> 00:23:36,600 Speaker 7: where we might see upward pressure continue to develop in 506 00:23:36,640 --> 00:23:38,760 Speaker 7: the longer end of the curve, but ten year yields 507 00:23:38,760 --> 00:23:42,080 Speaker 7: aren't going back to five percent, And eventually we will 508 00:23:42,400 --> 00:23:45,639 Speaker 7: find ourselves in a situation where inflation does start to moderate, 509 00:23:45,800 --> 00:23:48,160 Speaker 7: and that means break evens will compress, and that means 510 00:23:48,200 --> 00:23:52,240 Speaker 7: that ten year yields above let's call it four thirty 511 00:23:52,280 --> 00:23:54,520 Speaker 7: five or four fifty start to look attractive. 512 00:23:54,560 --> 00:23:56,520 Speaker 1: But we're not there yet, which is really the reason 513 00:23:56,560 --> 00:23:58,840 Speaker 1: why I was going to El Selinos's call, and people 514 00:23:58,920 --> 00:24:01,040 Speaker 1: might say our star neutral rate, my eyes glaze over, 515 00:24:01,080 --> 00:24:03,520 Speaker 1: I don't care. But the idea here is that if 516 00:24:03,520 --> 00:24:06,399 Speaker 1: the overnight rate is more than four percent, it doesn't 517 00:24:06,400 --> 00:24:08,520 Speaker 1: make sense for ten year treasures to be trading at 518 00:24:08,520 --> 00:24:11,359 Speaker 1: four point two seven percent. Currently they would be trading 519 00:24:11,400 --> 00:24:14,040 Speaker 1: at a much higher rate. So at what point does 520 00:24:14,080 --> 00:24:17,159 Speaker 1: this market sniff that out? Since right now there is 521 00:24:17,240 --> 00:24:18,479 Speaker 1: none of that being priced in. 522 00:24:19,280 --> 00:24:21,399 Speaker 7: I would say that logic holds very well for the 523 00:24:21,400 --> 00:24:24,920 Speaker 7: two year sector, and the operative issue is whether or 524 00:24:24,960 --> 00:24:27,760 Speaker 7: not the Fed ever chooses to review the two percent 525 00:24:27,760 --> 00:24:31,200 Speaker 7: inflation target, because even if our star is higher, if 526 00:24:31,240 --> 00:24:33,439 Speaker 7: the Fed is going to get us back to two percent, 527 00:24:33,600 --> 00:24:36,200 Speaker 7: that just means they have to risk greater demand destruction 528 00:24:36,280 --> 00:24:38,680 Speaker 7: to get us there. And so, like I said, I'm 529 00:24:38,760 --> 00:24:40,600 Speaker 7: very very on board with Barish in the front end 530 00:24:40,600 --> 00:24:43,720 Speaker 7: of the curve. Really hard to justify a ten year 531 00:24:43,800 --> 00:24:46,439 Speaker 7: yields at five percent even if our star is one 532 00:24:46,480 --> 00:24:48,040 Speaker 7: hundred basis points higher to put. 533 00:24:47,880 --> 00:24:49,440 Speaker 1: A ball on it. Are you basically saying the biggest 534 00:24:49,480 --> 00:24:51,000 Speaker 1: risk case for next week is for FED chair by 535 00:24:51,080 --> 00:24:53,080 Speaker 1: j Pal to come out and say I care about equities. 536 00:24:54,560 --> 00:24:57,520 Speaker 7: I would say the biggest risk for next week is 537 00:24:57,600 --> 00:25:00,639 Speaker 7: that we all look at the twenty twenty four and 538 00:25:00,720 --> 00:25:03,399 Speaker 7: it says fifty, not seventy five business points worth of 539 00:25:03,480 --> 00:25:07,520 Speaker 7: rate cuts, and that's what triggers a more dramatic beer steepening. 540 00:25:07,640 --> 00:25:10,280 Speaker 2: Andrew Harnenholser said he just published on that. He said, 541 00:25:10,320 --> 00:25:13,080 Speaker 2: seventy five basis points. The medium dot will still imply 542 00:25:13,320 --> 00:25:15,520 Speaker 2: seventy five basis points. Can we have your base case? 543 00:25:15,600 --> 00:25:17,160 Speaker 2: Is it fifty or seventy five? Next week? 544 00:25:17,280 --> 00:25:20,600 Speaker 7: This cases fifteen, this case is seventy five, but there 545 00:25:20,640 --> 00:25:21,919 Speaker 7: is a real risk of fifty. 546 00:25:22,119 --> 00:25:24,879 Speaker 2: Interesting, Thank you, sir, really thoughtful stuff in link and 547 00:25:24,920 --> 00:25:29,040 Speaker 2: thet of BIMO. This is the Bloomberg Surveillance podcast, bringing 548 00:25:29,080 --> 00:25:32,679 Speaker 2: you the best in markets, economics, angiot politics. You can 549 00:25:32,720 --> 00:25:35,479 Speaker 2: watch the show live on Bloomberg TV weekday mornings from 550 00:25:35,520 --> 00:25:38,800 Speaker 2: six am to nine am Eastern. 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