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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. Chure Viceman

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Speaker 1: is a global interest rate strategists and currency strategist at

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Speaker 1: Macquarie with decades of experience in this Are you close

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Speaker 1: to amending your view? Are you close to making a

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Speaker 1: mcquarree shift here, or is it pretty much like Okay,

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Speaker 1: this is what we've been dealt full speed ahead. I

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Speaker 1: think it's fair to say we're gonna delay our view,

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Speaker 1: not a mend our view. Our view has been that

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Speaker 1: there will be a recession in the US this year.

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Speaker 1: It's clearly not going to start in the first quarter,

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Speaker 1: based on all the evidence we've gathered so far on sales,

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Speaker 1: on on employment trends. But at the on the other hand,

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Speaker 1: surveys are still pointing to a recession coming in the US.

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Speaker 1: Look at the p m I s. They're they're below

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Speaker 1: fifty for both services and manufacturing. When you look at

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Speaker 1: the survey of consumer expectations coming out of New York

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Speaker 1: FED last week, it is still pointing to downbeat expectations.

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Speaker 1: So are the Michigan surveys, the Conference Board surveys. The consumer,

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Speaker 1: while he might be spending, is not in a happy mood.

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Speaker 1: Tom and I think that we're going to see we're

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Speaker 1: going to consumers not in a happy mood. Given the

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Speaker 1: data I just saw. These are these are fluctuations, These

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Speaker 1: are not trends. Uh. Look, there was a lot of

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Speaker 1: spending in October in the US by the consumer who

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Speaker 1: was afraid of inflation taking away his ability to to

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Speaker 1: properly gather the gifts he needed to for Christmas. They

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Speaker 1: were afraid of hotel rooms being fully booked, they were

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Speaker 1: afraid of airlines being fully booked. They did a lot

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Speaker 1: of spending in October ahead of what they would normally do.

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Speaker 1: That caused the big jump in consumption. But was that

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Speaker 1: a reflection of a positive mood. Not necessarily. Inflation has

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Speaker 1: a way of making people fear the future and they

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Speaker 1: spend now. As opposed to you that from Barkin yesterday.

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Speaker 1: That's exactly what arrangements. And then and then look once

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Speaker 1: all that spending got through in October November, we had

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Speaker 1: a pretty dull December in terms of spending, especially when

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Speaker 1: you when you you know, when you adjust by bye bye,

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Speaker 1: where inflation was so genuine seeing a bit of a

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Speaker 1: bounce back from that. Admittedly, I always remind my desk people,

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Speaker 1: though you've gotta take these numbers and and and deflate them,

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Speaker 1: make them in real terms. It doesn't look that great prospective.

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Speaker 1: You said something interesting there. It's about the inflationary bank

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Speaker 1: trap that you buy now because you were at the

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Speaker 1: prices go up later. It isn't that something that carries

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Speaker 1: on spiral ink. Isn't that something that becomes entrenched that behavior.

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Speaker 1: That's not something typically just fight away. But maybe it can.

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Speaker 1: But it cannot continue forever because obviously budgets are limited.

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Speaker 1: But it also inflation has a way of eventually breaking

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Speaker 1: the back of that spending. Eventually, you see your real

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Speaker 1: wages of road, you see your real income a road

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Speaker 1: because of inflation, and you're forced to settle into a

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Speaker 1: lower level of spending because of it in real terms.

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Speaker 1: So yeah, it could happen for a short amount of time, Jonathan.

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Speaker 1: It could happen for a few months. It can't happen indefinitely.

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Speaker 1: So what's the head fake here? The witness in December

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Speaker 1: or the strength in January. We've had three head fix right,

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Speaker 1: We've had We've had employment in January much stronger than

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Speaker 1: most most people surmised. We then had inflation come down

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Speaker 1: less than people's surmise. Now we have a boost to

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Speaker 1: retail spending in January that's greater than people's surmid It's

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Speaker 1: been three They've been three head fakes. Sorry, just reality.

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Speaker 1: Why isn't that just an accurate characterization of where we are?

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Speaker 1: It is stronger than we think it is. It is

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Speaker 1: an accurate It is an accurate reflection of where we are.

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Speaker 1: What I'm talking about is the future, not now. Right,

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Speaker 1: We're not saying, as I said, that that the recession

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Speaker 1: is starting now, and in fact, it's like I said,

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Speaker 1: there's nothing consistent in the data to suggest that the

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Speaker 1: procession is upon us. But in the next few months,

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Speaker 1: you're going to start to see the US economy weekend,

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Speaker 1: and it's going to be in the context of a

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Speaker 1: global economy that may actually continue to strengthen our view,

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Speaker 1: for example, on the dollars, predicated on that we don't

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Speaker 1: think that the weakness in the dollars over in part

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Speaker 1: because we see a more deeper recession coming in the

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Speaker 1: US and North America generally than we do in the

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Speaker 1: rest of the world. And what we've seen here from

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Speaker 1: inflation to retail we have claims tomorrow, John were as

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Speaker 1: data dependent as ever seen. We make jokes about it.

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Speaker 1: We've got a countdown clock. You like our countdown clock.

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Speaker 1: We're all into our contown. Would you put up the

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Speaker 1: arsenal man City countdown clock please? Like the atomic clock.

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Speaker 1: It's remember I remember when you were at bear Stearns

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Speaker 1: and we waited ten days from mel past to approve

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Speaker 1: an edit on what Emmy shy I was doing. I

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Speaker 1: mean it was slow motion. What does all this hyper

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Speaker 1: ventilating about day to do to us, and critically to

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Speaker 1: the fat It makes us crazy. It makes me crazy

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Speaker 1: from time to time. Admittedly, it's a difficult to to

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Speaker 1: to be be certain in the trends that you're looking

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Speaker 1: at when you see these fluctuations. But look, I'm gonna

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Speaker 1: I'm gonna tell you that, you know, there's a lot

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Speaker 1: of things that the market is getting wrong right now.

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Speaker 1: I think they're underestimating the amount of credit tightness there

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Speaker 1: is in the US. If you look at the Loan

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Speaker 1: Officer Survey, if you look at the n f I

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Speaker 1: B Survey of Small business lending, it is collapsing. It's

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Speaker 1: at recessionary levels, at least with regard to things that

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Speaker 1: are pertinent to the FED. The credit markets. Things look

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Speaker 1: recessionary or about to go into a recession in the

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Speaker 1: U S. It's Terry, this was great and we appreciate

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Speaker 1: your perspective as oise. Terry Weisman of mcquarie, on an

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Speaker 1: upside Surprise on ret House, says there's something going on

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Speaker 1: in luxury. Dana Telsey owns the high ground here. She

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Speaker 1: is chief executive officer of Telsey Advisory Group, with a

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Speaker 1: family fabric that speaks of Fifth Avenue at Street. Dana,

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Speaker 1: I'm not going to mince words. The windows are screaming

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Speaker 1: at me post pandemic here except for one house. I

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Speaker 1: want you to explain to our international audience at Curing

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Speaker 1: Group and good morning to Carring have been very kind

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Speaker 1: to me over the years. Gucci is a train wreck.

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Speaker 1: What's this new guy gonna do? At Gucci Sabato di Sarno.

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Speaker 1: How does he pick up the pieces on their underperformance.

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Speaker 1: One of the elements of luxury that always makes brands

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Speaker 1: reinvent themselves. They have archives. You can go back and

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Speaker 1: reinvent what was successful in the past with the twist

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Speaker 1: of what's modern in today, that appeals to younger consumers,

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Speaker 1: that appeals to an international consumer. He has, frankly the

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Speaker 1: luxury no pun intended of being able to capture everyone's interest.

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Speaker 1: I think you can redo the logo. I think you

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Speaker 1: can redo the clothing and the leather goods. I think

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Speaker 1: you can put out some new items that become iconic.

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Speaker 1: Look what Daniel Lead did at Bottega and created a

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Speaker 1: bag and he's not berberis now at Berbery that he's

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Speaker 1: gonna make Burbery interesting. And I always believe there's a

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Speaker 1: fifteen year life cycle to a bunch of these designers.

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Speaker 1: What's so important here at Leasta to the aspiration of

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Speaker 1: this you Darbysh of the San Diego Padres just signed

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Speaker 1: a six year extension. He's Japanese and there he is

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Speaker 1: in the Berbery plaid top to bottom. I mean, that's

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Speaker 1: the that's the world. Dana is living in are the

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Speaker 1: retail sales We've just got a real sort of really

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Speaker 1: speaking to this question on the luxury purchaser, on the

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Speaker 1: wealthy individual, or is this broad based? Broad based? I

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Speaker 1: think it was interesting about the January sales number. Obviously

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Speaker 1: it was very strong. You looked at apparel, you looked

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Speaker 1: at furniture, they showed strength also in addition to a

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Speaker 1: big uptick in restaurants. Keep in mind, I don't take

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Speaker 1: January as seriously as I take March, April and May.

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Speaker 1: January is about clearing out promotional and clearance goods. You're

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Speaker 1: hearing about retailers having inventory levels that are up twenty

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Speaker 1: and thirty percent in the third quarter and now they're

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Speaker 1: down in the fourth quarter. The fact that you went

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Speaker 1: from up twenty and thirty and now you're negative. You

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Speaker 1: moved product, some of it at Markdown's. So just to

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Speaker 1: build on that, how much is also fueled and pardon

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Speaker 1: the pun, on this idea that gasoline prices are lower

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Speaker 1: so people had more discretionary spending. You have that, plus

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Speaker 1: take a look at the savings rate. People have been

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Speaker 1: using their savings to to live on. Given the strength

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Speaker 1: and essential prices, we saw food inflation yesterday, and it's high.

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Speaker 1: Those costs of eggs don't keep, don't come down. So

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Speaker 1: how sustainable is this given the fact that some people

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Speaker 1: are expecting that the savings will go down by the

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Speaker 1: middle or the third quarter of this year. I think

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Speaker 1: these rates are extraordinarily high. I think that we will

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Speaker 1: get more moderation as we go to March. Going forward,

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Speaker 1: I think the comparison with Amicron also definitely boosted sales

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Speaker 1: in the month of January. The other thing we saw

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Speaker 1: is the flip to physical stores. I think that frankly

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Speaker 1: can hold a little bit the flip to physical stores

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Speaker 1: and perhaps sort of unfortunate for the Federal Reserve, a

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Speaker 1: flip back to physical goods on a sort of the

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Speaker 1: car and the other space. How much do you start

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Speaker 1: to expect a re acceleration of some of the inflation

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Speaker 1: in those areas as people have been sitting on their

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Speaker 1: hands for a bit waiting for things to stabilize and

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Speaker 1: are now getting back in I expect that to re accelerate.

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Speaker 1: I think we'll see some acceleration there and some of

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Speaker 1: the basic goods. I think some of the discretionary items,

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Speaker 1: though the price increases are over if anything, I've heard

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Speaker 1: of some retailers, some categories looking to maybe reduce prices

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Speaker 1: by five per cent or so from the increases they

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Speaker 1: took last year. Span is over to the Joe Feldman world.

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Speaker 1: Span it over, and it's in retail sales. Is Amazon?

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Speaker 1: I mean we're going from a digital space to talking

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Speaker 1: about the windows and luxury New York City. Who's going

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Speaker 1: to win the war? I think overall it's going to

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Speaker 1: be the innovative retailers that win the war. What you're

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Speaker 1: saying out there right now, I mean home always remains

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Speaker 1: relevant and important, whether it's remodels, whether it's new and

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Speaker 1: existing home sales that need to pick up in order

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Speaker 1: to drive gains there. But one of the surprising things

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Speaker 1: is you saw pick up an electronics too, And I

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Speaker 1: think new items and new innovation drives electronic sales. I'm

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Speaker 1: afraid to ask which which electronics sales are. Lisa and

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Speaker 1: I get to see at our house, Um, you're gonna

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Speaker 1: see newness and television's I think it's going to be

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Speaker 1: one of the new items. I think there's gonna be

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Speaker 1: some new items also with laptops, I think the smaller,

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Speaker 1: more micro items become ever more popular. So when do

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Speaker 1: we start to see a subserve diminishing in this momentum

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Speaker 1: and people are talking about this with the surprising strength

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Speaker 1: in the economy from your vantage point, when do we

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Speaker 1: see it in what they're willing to buy? I think

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Speaker 1: overall we've seen it in discretionary. Discretionary sales have moderated

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Speaker 1: given given inflationary pressures. I think overall discretionary continues to

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Speaker 1: move on steadily. It'll be the back half where you

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Speaker 1: see some improvement. I think the lower to middle income consumer,

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Speaker 1: where you've seen the trade down is what I'm concerned

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Speaker 1: about as we go through this first half of the year.

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Speaker 1: Can you build on that how much he's starting to

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Speaker 1: see some fractures, some fissures in people who don't have

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Speaker 1: that same discretionary spetting. We're talking about windows on Fifth Avenue.

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Speaker 1: But the reality is food, rent cars, all of this

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Speaker 1: is incredibly expensive and really biting into the average American.

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Speaker 1: So what we've heard so far is you're seeing even

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Speaker 1: customers with hund a thousand dollar household incomes. Companies like

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Speaker 1: Walmart are seeing more consumers who have that level of

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Speaker 1: household income. You're seeing some of the lower tier companies,

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Speaker 1: some of the dollar store and even off pricers, where

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Speaker 1: their average household income they were getting was under forty dollars,

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Speaker 1: and now consumers with sixty dollar household income are going there.

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Speaker 1: The trade down is real, and that's what impacts I

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Speaker 1: think the March go forward time period when inflationary pressures moderate.

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Speaker 1: In the big picture, have we cleared inventory ninety days ago?

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Speaker 1: We're all wringing our hands about stuff. I've always learned

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Speaker 1: price clears inventory, and I once again that's what happened. Yeah,

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Speaker 1: that's what happened. On the same side, price cleared inventory.

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Speaker 1: You're gonna see inventory come down for some it was

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Speaker 1: up twenty and thirty percent at the end of the

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Speaker 1: third quarter. It'll be negative in the fourth quarter. But

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Speaker 1: one of the other elements of that, wholesale accounts like

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Speaker 1: department stores, are moderating orders for the first half of

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Speaker 1: the year. So cut to the chase here. Macy's, they

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Speaker 1: don't of the wooden escalator anymore. They're they're there. They've

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Speaker 1: had a wonderful strategy of going to the middle or

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Speaker 1: maybe the lower middle is well, what's Macy's doing to

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Speaker 1: get through the summer, to get the back to school.

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Speaker 1: You know what they're doing. They're using data science to

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Speaker 1: modernize their department store in order to figure out what

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Speaker 1: categories are working and had a price appropriate more makeup,

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Speaker 1: an look at toys. They've brought in toys r Us,

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Speaker 1: They've brought in Pandora Jewelry, they have an Apple in

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Speaker 1: store shop. They've expanded the categories in order to capture

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Speaker 1: more wallet chair well, remaining competitive on price share. That

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Speaker 1: that's that's good. So you put the wallet of the

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Speaker 1: wallet chair in your new bag. That's what you do.

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Speaker 1: The wallet chair is going to the stores and not

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Speaker 1: staying in the wallet, and that is what we're seeing

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Speaker 1: right now. And what is interesting is the market trying

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Speaker 1: to understand this because on one hand, bad books that

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Speaker 1: means if it's going to raise rates. On the other hand,

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Speaker 1: good because that means that companies are going to keep

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Speaker 1: getting the revenue from that time. And then what's the

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Speaker 1: flow through to the margins. I think we have more

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Speaker 1: class already on margins and sales increases ten seconds. We've

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Speaker 1: got to go to a research on Dana Telsa's single

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Speaker 1: best buy right now, single best buy right now. I

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Speaker 1: like Ralph Floren I like Deckers very good. Dana Telsey

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Speaker 1: with us today with enthusiasm on an enthusiastic retail report.

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Speaker 1: Over the years for so many it has been an

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Speaker 1: interesting conversation to speak to and listen to James Bianco,

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Speaker 1: Jim Bianco's president and macro strategist at Bianco Research. It's

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Speaker 1: a wonderful holistic note because he's listening to Wall Street. Jim.

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Speaker 1: I like what you do in your note this morning.

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Speaker 1: You reach out to the recent work from Deutsche Bank

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Speaker 1: to Apollo of Torsten Slock, and you're looking at the

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Speaker 1: no landing scenario that he and others are talking about.

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Speaker 1: Tell us on the possibility of a no landing no,

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Speaker 1: I think that the no landing scenario, you know, using

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Speaker 1: the plane metaphor that it just continues at thirty thousand feet,

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Speaker 1: is going every day, and what is driving that is

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Speaker 1: the labor market. As we all know, or as I

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Speaker 1: like to say, the problem with the labor market is

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Speaker 1: there is no problem with the labor market. And if

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Speaker 1: there isn't a problem with the labor market, the FETE

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Speaker 1: is not going to see a reason to pivot. And

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Speaker 1: something new is starting to come up in the marketplace

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Speaker 1: in just the last few days. Uh, the probability that

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Speaker 1: the FED raises rates in June to go to five

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Speaker 1: and a half is now gone above. And that's the

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Speaker 1: first time I believe this cycle that the market has

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Speaker 1: actually gotten ahead of the Fed. The whole cycle has

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Speaker 1: always been the fete is said they're going to do

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Speaker 1: something in the market things. Now they're gonna pivot, they're

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Speaker 1: gonna step down, they're gonna pause, They're not gonna go

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Speaker 1: as far as they think. Now the markets starting to

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Speaker 1: think the Fed's gonna go further. Then they are communicating

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Speaker 1: right now, So something has changed, and I think what

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Speaker 1: that is is the inflation report yesterday. Services are not

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Speaker 1: in disinflation. They look very sticky right now, and we

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Speaker 1: have a positive base effect, meaning that we're dropping off

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Speaker 1: big numbers from last year point seven in February, one

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Speaker 1: in March on the inflation report. And once we get

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Speaker 1: past June, that all turns and it becomes the tail

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Speaker 1: wind for inflation to push higher, so we might not

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Speaker 1: get to two percent, and then the second half of

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Speaker 1: the year we start moving higher. And I think that's

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Speaker 1: what the markets starting to sniff out. So we've raped price.

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Speaker 1: It's high treasuries LAWA, we've priced in a hot terminal, right,

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Speaker 1: as while why record sub resident in the size of that?

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Speaker 1: What you make of them? Well, I think there's a

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Speaker 1: couple of things going on with equities. The first thing

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Speaker 1: is the rally and the equity market state stocks. It's

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Speaker 1: the Fang stocks plus Microsoft, Navideo and Tesla. It's one

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Speaker 1: all over again. We've even got Bedbeth and Beyond moving,

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Speaker 1: and we've got you know, the meme stocks starting to go.

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Speaker 1: So we've seen this movie before. And so when you

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Speaker 1: strip that out and you look at the rest of

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Speaker 1: the market, it's up. I mean it's not down or anything.

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Speaker 1: It's up, but it's not up nearly as much as

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Speaker 1: everybody thinks. But I think the problem the equity market

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Speaker 1: is going to face. Hey, no landing. That means earnings

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Speaker 1: are gonna come back. That's bullish. The forward pe ratio,

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Speaker 1: the pe ratio of what earnings are expected to be

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Speaker 1: in the next year's eighteen and a half. You're not

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Speaker 1: paying a cheap multiple for this market. You're gonna pay

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Speaker 1: full for this market if you if you're gonna bet

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Speaker 1: on some kind of economic rebound. What are variable lags

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Speaker 1: that in this scenario, given that we're not seeing it,

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Speaker 1: and that if by anything, we're seeing easier financial conditions. Yeah,

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Speaker 1: I think that that's going to be the biggest concern

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Speaker 1: that we're gonna have when we go forward. Here is

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Speaker 1: the uncomfortable question of maybe the Fed is not at

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Speaker 1: sufficiently restrictive. Maybe what we're at at four and a

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Speaker 1: half on our way to five on the funds rate

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Speaker 1: is neutral, and that's all we've done in the last

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Speaker 1: year is gone to neutral. That's why we're having a

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Speaker 1: no landing. That's why the inflation rate is being so sticky,

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Speaker 1: and that were we all assume. And I think that's

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Speaker 1: what was the assumption behind all the recession calls at

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Speaker 1: the beginning of the year was we've raised rates a lot.

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Speaker 1: That's got to hurt, But maybe it doesn't. Maybe all

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Speaker 1: we've done is gone to neutral. And that's what the

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Speaker 1: markets starting to sniff out. Why we're starting to see

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Speaker 1: a price in five and a half is that we

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Speaker 1: were not it sufficiently restrictive and we've got further to go. Jim,

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Speaker 1: what don't you make of that phrase? Long and vable lacks?

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Speaker 1: How Renvan is that to this moment it's relevant to

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Speaker 1: the extent, you know, and you know, going on, what's

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Speaker 1: a lot of other people are saying about that this

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Speaker 1: is an unusual market and they're having a hard time

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Speaker 1: understanding it. I come back to it's a post COVID economy. Now,

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Speaker 1: I know that's a fancy word, but what that means

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Speaker 1: is all the rules that we understood about the economy

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Speaker 1: pre COVID they've changed. And the biggest one we all

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Speaker 1: know about his work from home. Barely half of the

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Speaker 1: offices in the United States are now occupied five days

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Speaker 1: a week. You know, everybody's on some kind of range

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Speaker 1: of remote work. That is a huge change in the economy.

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Speaker 1: And there's been other huge changes in the post pandemic economy.

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Speaker 1: So when people say I'm confused, I don't understand the

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Speaker 1: economy isn't behaving. We have to look along and variable lags,

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Speaker 1: we have to be data dependent. It's I think what

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Speaker 1: it is is that they're saying, when is it going

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Speaker 1: to start looking like the rules have changed and we

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Speaker 1: need to start to figure out what those rules are.

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Speaker 1: I don't know what they are. I just know they're

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Speaker 1: not rule. I want to dovetail Reinhardt Rogoff, Jim uh Into,

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Speaker 1: what we're gonna see here in eleven minutes twenty four seconds,

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Speaker 1: and that is this time is different within consumer America.

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Speaker 1: We're off of pandemic. Are we acting almost in a

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Speaker 1: drunken state because this time is different after the shock

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Speaker 1: of a pandemic? Or is this just typical boom from stimulus.

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Speaker 1: I think it's more typical boom from stimulus. Bank of

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Speaker 1: America has put out a lot of statistics about balances

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Speaker 1: and everybody's checking account and they're still very elevated. So

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Speaker 1: a lot of the stimulus money that we saw handed

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Speaker 1: out in one especially at the lower income levels, haven't

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Speaker 1: been spent, and so these people still have spending power.

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Speaker 1: And I think we're starting to see that. We don't

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Speaker 1: see a booming economy, but what we do see is

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Speaker 1: numbers that are continuing to move forward. In detail, sales

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Speaker 1: numbers are expected to rebound. Remember December they were negative

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Speaker 1: and they're supposed to be up a decent amount, maybe

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Speaker 1: two percent when we get them, meaning that spending will

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Speaker 1: be continuing. And if we're talking about a recession and

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Speaker 1: a pivot and we're talking about three point four percent

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Speaker 1: unemployment and we start seeing spending, I gotta think at

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Speaker 1: the Federal Reserve, they look around and go, I don't

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Speaker 1: see any reason that they even think about pivot, let

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Speaker 1: alone think about stopping raising rates. And five and a

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Speaker 1: half looks like a target that we're gonnahead. We're gonna

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Speaker 1: percent and let's just pretend there that's three months lie

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Speaker 1: or from another time in place gets back to five

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Speaker 1: and a half percent, and that gets us back to

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Speaker 1: a Bob Seeger economy. I was mentioning the giant of

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Speaker 1: the Midwest there, great Jim, But are we prepared for

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Speaker 1: the way we adapt and adjust if we get back

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Speaker 1: to Rogoff six or a five and a half percent

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Speaker 1: three month lifeboard. No. I think that that's gonna be

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Speaker 1: a difficult adjustment for us, because if we get back

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Speaker 1: to a six percent funds right, we will probably have

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Speaker 1: a six percent treasury bill rate. Look, we just hit

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Speaker 1: five percent yesterday on the six month bill. That is

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Speaker 1: the first Treasury security to yield five in fifteen years.

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Speaker 1: If we start to see six on those numbers, all

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Speaker 1: of a sudden, people are gonna look around and go,

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Speaker 1: what's the long term return in the stock market? It's

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Speaker 1: nine or ten. I could get six without taking any

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Speaker 1: whatsoever by parking it in a treasury bill or a

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Speaker 1: short term treasury security, that is going to prove to

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Speaker 1: be a lot of competition for the idea that the

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Speaker 1: stock market can continue to roar ahead, which is the

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Speaker 1: reason why a lot of people say that the bond

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Speaker 1: market's inversion that you're seeing in the two tents spread

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Speaker 1: is somewhat indicative of what's to come with respect to

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Speaker 1: recession and box do you think that this time is different,

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Speaker 1: that it is not a predictive measure of a downturn

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Speaker 1: in say twelve months. I'm not so sure. I'd go

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Speaker 1: that far to say that it's not predictive. I'll put

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Speaker 1: some numbers on it. I tend to look like Cam

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Speaker 1: Harvey of Duke, who's the guy that developed the yield

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Speaker 1: curve indicator that when it persistently inverts. That happened around

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Speaker 1: Thanksgiving when it was ten days in a row that

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Speaker 1: it inverted, and it usually leads by about ten months.

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Speaker 1: That would put you in the fourth quarter for a

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Speaker 1: recession on average, but it can be as long as

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Speaker 1: eighteen months. That could put you out in the first

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Speaker 1: or second quarter of next year. So we could still

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Speaker 1: be a year away from the recession, and the yield

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Speaker 1: curve will have worked as an indicator. But I don't

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Speaker 1: think wall streets that patient. I think that the whole

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Speaker 1: idea that the Fed's gotta pivot that there's a recession

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Speaker 1: and downturn coming. I don't think they think, well, it'll

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Speaker 1: be here in a year. I think they think it

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Speaker 1: will be here in ninety days or twenty days. So yes,

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Speaker 1: the yield curve still might work, except we just have

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Speaker 1: to dial our expectations that it still might be scenario

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Speaker 1: where we see the downturn or recession and not in

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Speaker 1: the middle of this year. If we do prolong when

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Speaker 1: a recession comes, will it be a more problematic recession

429
00:22:16,400 --> 00:22:18,520
Speaker 1: because of how far the Federal have to raise rates

430
00:22:18,760 --> 00:22:20,720
Speaker 1: in response to sort of an easing that we're seeing

431
00:22:20,760 --> 00:22:24,560
Speaker 1: in financial conditions and the strengthen the economy. You know,

432
00:22:24,680 --> 00:22:27,200
Speaker 1: it can be a more problematic recession if it is

433
00:22:27,720 --> 00:22:30,040
Speaker 1: you know, going back to Bob Seeger again, if it

434
00:22:30,200 --> 00:22:33,240
Speaker 1: is a recession or an inflation driven recession that we

435
00:22:33,320 --> 00:22:36,240
Speaker 1: see the inflation rates staying very elevated, I don't know

436
00:22:36,280 --> 00:22:38,280
Speaker 1: if the Fed will have to raise rates as much,

437
00:22:38,680 --> 00:22:41,080
Speaker 1: but they're not gonna They're not gonna see recession and

438
00:22:41,160 --> 00:22:44,119
Speaker 1: say okay, here we go back to zero and quantitative easing.

439
00:22:44,480 --> 00:22:46,600
Speaker 1: They'll probably say maybe we got to cut rates back

440
00:22:46,640 --> 00:22:48,840
Speaker 1: to three or two two and a half and then

441
00:22:48,920 --> 00:22:51,159
Speaker 1: see how things go. And I think a lot of

442
00:22:51,200 --> 00:22:55,080
Speaker 1: people are expecting that in a downturn it's going to

443
00:22:55,160 --> 00:22:57,320
Speaker 1: be a road right back to zero on interest rates.

444
00:22:57,359 --> 00:23:00,440
Speaker 1: And we mean when we might not see that this time. Jim,

445
00:23:00,520 --> 00:23:03,760
Speaker 1: financial conditions, how the track that? What you look at?

446
00:23:03,840 --> 00:23:06,680
Speaker 1: What's you think Offen's looking at? You know, that's a

447
00:23:06,760 --> 00:23:10,479
Speaker 1: good question because there's all different financial conditions indicators. They

448
00:23:10,560 --> 00:23:14,760
Speaker 1: all measure things differently. The FED has various measures as well.

449
00:23:15,480 --> 00:23:17,520
Speaker 1: I if I was to look at it, I look

450
00:23:17,520 --> 00:23:20,480
Speaker 1: at the more traditional Goldman Sachs type of indicators, and

451
00:23:20,560 --> 00:23:23,119
Speaker 1: that says that they've eased a lot and then an

452
00:23:23,200 --> 00:23:27,720
Speaker 1: adotally with zero DT options, with meme stocks like bed

453
00:23:27,760 --> 00:23:30,200
Speaker 1: Beth and beyond doubling in a day, with the fang

454
00:23:30,280 --> 00:23:32,840
Speaker 1: stock starting to move, it seems like it's a very

455
00:23:33,040 --> 00:23:37,240
Speaker 1: easy environment right now, and it is not a tight environment.

456
00:23:37,560 --> 00:23:39,760
Speaker 1: And that should be concerning over at the FED. And

457
00:23:40,160 --> 00:23:43,240
Speaker 1: that's why it was very confused when Sherman Paul was

458
00:23:43,320 --> 00:23:46,240
Speaker 1: talking about tightening financial conditions at his press conference a

459
00:23:46,280 --> 00:23:49,359
Speaker 1: couple of weeks ago, because that's not the case by

460
00:23:49,400 --> 00:23:52,560
Speaker 1: a lot of measures. Right now. What's amazing about this is,

461
00:23:52,640 --> 00:23:55,160
Speaker 1: and I'm Bloomberg Radio. You're not observing this, but over

462
00:23:55,240 --> 00:23:58,120
Speaker 1: the right shoulder of Jim Bianco is this Monroe trader

463
00:23:58,240 --> 00:24:01,920
Speaker 1: from another time. You know, I'm sorry, you know, we're

464
00:24:02,000 --> 00:24:05,159
Speaker 1: harkening back to interest rates when Bianco was using the

465
00:24:05,280 --> 00:24:08,879
Speaker 1: Monroe trader to figure out convectity in duration. Back then,

466
00:24:08,880 --> 00:24:11,119
Speaker 1: I'm not sure he was talking about zero d t A.

467
00:24:12,320 --> 00:24:15,879
Speaker 1: It was I've got sixty seconds left to squeeze that end,

468
00:24:15,960 --> 00:24:18,639
Speaker 1: so that zero days to expire the options at the

469
00:24:18,680 --> 00:24:22,399
Speaker 1: index level, really short term stuff. Now, Jim, can you

470
00:24:22,520 --> 00:24:24,399
Speaker 1: tell me how much do you think that has shaken

471
00:24:24,480 --> 00:24:28,119
Speaker 1: this market? About? Yeah, what has happened is is that

472
00:24:28,280 --> 00:24:31,560
Speaker 1: they now list options every day and they expire every day.

473
00:24:31,600 --> 00:24:34,640
Speaker 1: In about half the volume is in options that will

474
00:24:34,720 --> 00:24:38,080
Speaker 1: expire today. I think what it's done is it's created

475
00:24:38,240 --> 00:24:41,440
Speaker 1: intra day volatility. So you see these big swings from

476
00:24:41,760 --> 00:24:44,359
Speaker 1: yesterday was a great example of the right up one percent,

477
00:24:44,480 --> 00:24:48,840
Speaker 1: down one percent, close around unchanged day to day volatility.

478
00:24:49,080 --> 00:24:51,960
Speaker 1: Maybe it doesn't really impact that, but we have to

479
00:24:52,040 --> 00:24:54,639
Speaker 1: be ready for this idea that hey, look the markets

480
00:24:54,720 --> 00:24:56,960
Speaker 1: up one percent. What does it mean? Wait, wait an hour,

481
00:24:57,200 --> 00:24:59,240
Speaker 1: it's now down on the day. Wait an hour, it's

482
00:24:59,280 --> 00:25:01,399
Speaker 1: back up on the day. That's where I think that

483
00:25:01,840 --> 00:25:05,160
Speaker 1: the zero DT options are really starting to play into

484
00:25:05,200 --> 00:25:07,239
Speaker 1: the market and confusing a lot of people. We need

485
00:25:07,280 --> 00:25:09,080
Speaker 1: a new PRIMI what does it mean? And then we

486
00:25:09,240 --> 00:25:17,200
Speaker 1: just play Jim Bianco standard sex standard conversation. Jim, Thank you, buddy.

487
00:25:17,200 --> 00:25:29,919
Speaker 1: Do you appreciate that Jim Bianca Bianca Research joining us

488
00:25:30,040 --> 00:25:34,040
Speaker 1: now as someone who absolutely nailed the dynamics of hydro

489
00:25:34,119 --> 00:25:38,720
Speaker 1: carbon's downstream upstream? Uh here, Stephen Short joins us the

490
00:25:38,720 --> 00:25:42,200
Speaker 1: principle with a short group right now. Steven, thank you

491
00:25:42,320 --> 00:25:43,639
Speaker 1: so much for being with us. I want to have

492
00:25:43,680 --> 00:25:46,720
Speaker 1: a more general conversation, John, am I right that there's

493
00:25:46,760 --> 00:25:50,240
Speaker 1: a massive bet on a hundred dollar barrel oil. I

494
00:25:50,240 --> 00:25:51,680
Speaker 1: would say it's a massive I think there are some

495
00:25:51,720 --> 00:25:53,920
Speaker 1: people out there looking for triple ditch it. I think

496
00:25:54,000 --> 00:25:56,640
Speaker 1: Jeff Carry Goldman is one of them, and I'm pretty

497
00:25:56,640 --> 00:25:59,080
Speaker 1: sure Francisco Blanche be have. I talked abut the possibility

498
00:25:59,119 --> 00:26:00,879
Speaker 1: that happened in this ship, Steve. But it's not what

499
00:26:01,080 --> 00:26:04,080
Speaker 1: you do. You don't you know game or try to

500
00:26:04,160 --> 00:26:06,840
Speaker 1: guess a barrel. You're looking at the microstoff which valves

501
00:26:06,880 --> 00:26:10,520
Speaker 1: are being turned in America. How do you react to

502
00:26:11,359 --> 00:26:15,719
Speaker 1: the certitude of a hundred dollar a barrel oil? Right now,

503
00:26:15,840 --> 00:26:19,280
Speaker 1: I'm not there Tom quite yet. Through the first six

504
00:26:19,359 --> 00:26:22,040
Speaker 1: months of this year, we do do a lot of alga,

505
00:26:22,080 --> 00:26:25,440
Speaker 1: a lot of quantitative modeling here with regard to price

506
00:26:25,560 --> 00:26:28,840
Speaker 1: forecasting right now for the third quarter coming into this

507
00:26:29,000 --> 00:26:30,920
Speaker 1: excuse me, for the first quarter come into this year,

508
00:26:31,320 --> 00:26:34,560
Speaker 1: we had the meeting of our outputs on the high

509
00:26:34,680 --> 00:26:37,720
Speaker 1: end at a barrel. When we go and look to

510
00:26:37,840 --> 00:26:40,640
Speaker 1: the start of the summer, that mean jumps to let's

511
00:26:40,680 --> 00:26:42,879
Speaker 1: look at my notes here at nineties six dollars a barrel,

512
00:26:43,160 --> 00:26:45,879
Speaker 1: and there is a potential of one hundred dollar a

513
00:26:45,960 --> 00:26:49,760
Speaker 1: barrel at some point this summer. So so clearly there

514
00:26:50,000 --> 00:26:53,960
Speaker 1: is that statistically that that probability and it makes sense

515
00:26:54,040 --> 00:26:57,800
Speaker 1: to demand is expected to be strong. We still, as

516
00:26:57,840 --> 00:27:00,439
Speaker 1: it always we we could drain in appair, we are

517
00:27:00,600 --> 00:27:04,840
Speaker 1: going to drain uh the spr because apparently slush fund

518
00:27:05,200 --> 00:27:07,480
Speaker 1: so you can take that down to zero still doesn't

519
00:27:07,680 --> 00:27:10,800
Speaker 1: increase the amount of refinery capacity here that states and

520
00:27:10,840 --> 00:27:13,320
Speaker 1: there in lies the problem Steven is is the Kansas

521
00:27:13,359 --> 00:27:16,959
Speaker 1: City Chiefs are playing Uh. The other team is they?

522
00:27:17,000 --> 00:27:20,280
Speaker 1: We're playing your your beloved Eagles. Every other ad was

523
00:27:20,359 --> 00:27:24,960
Speaker 1: an electric car? Read our electric vehicle usage? Is that

524
00:27:25,240 --> 00:27:28,440
Speaker 1: in the short hydrocarbon world? Now do you see that

525
00:27:28,640 --> 00:27:32,760
Speaker 1: within the data? Absolutely, we're being in the city and

526
00:27:32,920 --> 00:27:35,600
Speaker 1: and we're most likely seeing it in guest line demand. Tom,

527
00:27:36,240 --> 00:27:40,600
Speaker 1: Guest line demand, UH is problematic if you're just assuming

528
00:27:40,960 --> 00:27:44,560
Speaker 1: no one's driving e vs because demand is anemic. You

529
00:27:44,680 --> 00:27:47,000
Speaker 1: have to consider this winter and we don't have a winter.

530
00:27:47,200 --> 00:27:50,600
Speaker 1: I mean up to the main border, there's no snow

531
00:27:50,640 --> 00:27:53,760
Speaker 1: on the road. I ad out to white Omen from

532
00:27:53,800 --> 00:27:56,480
Speaker 1: the east coast to wyomingst no snow. So we have

533
00:27:56,680 --> 00:28:00,040
Speaker 1: eye healed driving conditions and yet gas line to and

534
00:28:00,119 --> 00:28:02,399
Speaker 1: it's still about four percent below a year ago and

535
00:28:02,480 --> 00:28:05,200
Speaker 1: according to our modeling about two percent below. There are

536
00:28:05,320 --> 00:28:09,439
Speaker 1: are are probabilistic range that means two percent below normal. UH.

537
00:28:09,520 --> 00:28:11,560
Speaker 1: And we've had a significant you know, it's went to

538
00:28:11,600 --> 00:28:14,280
Speaker 1: great guess lene prices so they are cheaper than summer prices,

539
00:28:14,480 --> 00:28:17,600
Speaker 1: and yet demands not kicking in. So if you're on

540
00:28:17,720 --> 00:28:20,199
Speaker 1: one hand, you're saying it's just the fossil fuels, then

541
00:28:20,240 --> 00:28:22,200
Speaker 1: we've got a problem. This economy has a problem because

542
00:28:22,240 --> 00:28:26,159
Speaker 1: guest Lean demand is a tremendous economic leading indicator. But

543
00:28:26,280 --> 00:28:28,320
Speaker 1: we do have to factor out the fact that more

544
00:28:28,359 --> 00:28:31,920
Speaker 1: people are driving hybrids. Tom I was I was bragging

545
00:28:32,040 --> 00:28:34,240
Speaker 1: over the Super Bowl because I was crying about the Eagles.

546
00:28:34,440 --> 00:28:37,080
Speaker 1: But to console myself, I kept on having to remind

547
00:28:37,160 --> 00:28:41,040
Speaker 1: myself I drive an electric hybrid SUV. I put seventeen

548
00:28:41,160 --> 00:28:44,320
Speaker 1: gallons of gas lene in this thing about every four months,

549
00:28:44,560 --> 00:28:47,320
Speaker 1: and I drive fourteen hundred miles before I have to

550
00:28:47,400 --> 00:28:50,640
Speaker 1: refill those seventeen gallons. I'm getting seventy eight seventy nine

551
00:28:50,680 --> 00:28:54,480
Speaker 1: miles to the gallon. That is the future. Unfortunately, we're

552
00:28:54,480 --> 00:28:56,960
Speaker 1: in the e V world where zero sum game e

553
00:28:57,120 --> 00:28:59,600
Speaker 1: vs are great, but there's certainly no panacea and the

554
00:28:59,720 --> 00:29:02,360
Speaker 1: certain you're not great for the environment. See that, and

555
00:29:02,520 --> 00:29:05,440
Speaker 1: we can build on that point. I'm trying to understand then,

556
00:29:05,640 --> 00:29:07,640
Speaker 1: how you can parse out the dynamics to come in

557
00:29:07,720 --> 00:29:10,160
Speaker 1: with some expectation of where prices are going to go.

558
00:29:10,280 --> 00:29:12,920
Speaker 1: The International Energy Agency put out this report this morning

559
00:29:13,160 --> 00:29:15,640
Speaker 1: saying world oil supply looks set to exceed demand through

560
00:29:15,680 --> 00:29:18,520
Speaker 1: the first half of three, but the balance could quickly

561
00:29:18,560 --> 00:29:21,040
Speaker 1: shift to deficit as demand recovers and some Russian output

562
00:29:21,080 --> 00:29:24,040
Speaker 1: is shut in. Basically, we have no clue anything could happen.

563
00:29:24,280 --> 00:29:28,560
Speaker 1: Have you ever had a corollary to this? Yeah? No, absolutely,

564
00:29:28,960 --> 00:29:31,880
Speaker 1: it's what we're going here, except maybe. Now. This is

565
00:29:31,920 --> 00:29:34,600
Speaker 1: why you do the probabilistic model and quantitative modeling, because

566
00:29:34,600 --> 00:29:38,840
Speaker 1: you're looking at, excuse me, a series of of price

567
00:29:39,080 --> 00:29:42,640
Speaker 1: variants over daily returns, weekly returns, monthly returns, and you're

568
00:29:42,680 --> 00:29:46,080
Speaker 1: coming out and you're running simulation models of of these

569
00:29:46,240 --> 00:29:49,800
Speaker 1: potential exogenous factors, these Black Swan events. Two years ago.

570
00:29:49,920 --> 00:29:53,280
Speaker 1: No one knew about Ukraine UH coming to the four

571
00:29:53,360 --> 00:29:55,800
Speaker 1: and being a major factor two years ago. I certainly

572
00:29:55,840 --> 00:29:58,360
Speaker 1: no one was expecting to see a hostile white house

573
00:29:58,400 --> 00:30:01,880
Speaker 1: towards the US hydrocarping industry. So we do not know.

574
00:30:02,120 --> 00:30:04,240
Speaker 1: So there is that random component that you have to

575
00:30:04,320 --> 00:30:07,560
Speaker 1: kind of model in UH into these probabilistic models, and

576
00:30:07,600 --> 00:30:09,240
Speaker 1: then you come out with a range. So there's no

577
00:30:09,360 --> 00:30:13,520
Speaker 1: such thing as an accurate forecast with regard to we're

578
00:30:13,560 --> 00:30:16,480
Speaker 1: gonna hit this price, We're gonna we're gonna hit that price. No,

579
00:30:16,680 --> 00:30:18,480
Speaker 1: but you can come out and come out with with

580
00:30:18,760 --> 00:30:22,240
Speaker 1: a probability of ranges of events. And hence why we're

581
00:30:22,240 --> 00:30:24,240
Speaker 1: coming out with the kind of the median output of

582
00:30:24,360 --> 00:30:27,280
Speaker 1: all the modeling we're running is where we're getting this

583
00:30:27,400 --> 00:30:30,360
Speaker 1: potential uh oil by the end of the summer, as

584
00:30:30,400 --> 00:30:34,000
Speaker 1: potentially low as dollars a barrel and as potentially high

585
00:30:34,200 --> 00:30:37,600
Speaker 1: as nine hundred one dollars one heck of the range. Stephen,

586
00:30:37,600 --> 00:30:39,840
Speaker 1: I want to squeeze one further question, and you set

587
00:30:39,880 --> 00:30:42,040
Speaker 1: a line there. I think it was a vase. Are

588
00:30:42,120 --> 00:30:46,640
Speaker 1: certainly not that environmentally friendly. Let's explain that to us. Yeah,

589
00:30:46,680 --> 00:30:49,120
Speaker 1: I mean, just look what's happening in California right now.

590
00:30:49,240 --> 00:30:52,719
Speaker 1: We're at the first life cycle ending of those solar panels.

591
00:30:52,960 --> 00:30:57,200
Speaker 1: California does not, never had a plan to dispose of

592
00:30:57,320 --> 00:31:00,040
Speaker 1: those solar panels. So now all the heavy metal it

593
00:31:00,120 --> 00:31:03,840
Speaker 1: was soul pentil was sitting in um dumps. With the

594
00:31:03,880 --> 00:31:06,520
Speaker 1: potential of all the heavy metals in, they're leaking out

595
00:31:06,640 --> 00:31:09,680
Speaker 1: into the environment. And now when you factor in the

596
00:31:09,800 --> 00:31:13,120
Speaker 1: fact that evs are such a small percentage of the

597
00:31:13,160 --> 00:31:15,840
Speaker 1: global market, when we talk about the amount of earth

598
00:31:16,400 --> 00:31:18,280
Speaker 1: and we're talking about something about the size of the

599
00:31:18,400 --> 00:31:21,480
Speaker 1: state of Arizona and Nevada just here the United States

600
00:31:21,560 --> 00:31:24,040
Speaker 1: to state our demand the amount of earth you're going

601
00:31:24,120 --> 00:31:27,040
Speaker 1: to have to rip up to get to these heavy metals.

602
00:31:27,240 --> 00:31:29,400
Speaker 1: So that's we're ripping up China, We're gonna rip up

603
00:31:29,520 --> 00:31:31,800
Speaker 1: the Congo, which we already are. We're gonna rip up

604
00:31:31,920 --> 00:31:34,880
Speaker 1: Argentina to get to the to the cobalt there. When

605
00:31:34,920 --> 00:31:37,000
Speaker 1: we have to rip up that earth, it will make

606
00:31:37,040 --> 00:31:39,880
Speaker 1: one and one hundred thirty years of coal mining and

607
00:31:40,000 --> 00:31:44,680
Speaker 1: oil drilling look like a pin prick of the amount

608
00:31:44,720 --> 00:31:47,560
Speaker 1: of environmental degradation we're gonna have to do to get

609
00:31:47,640 --> 00:31:51,920
Speaker 1: those virtual signaling heavy metals into that e V battery

610
00:31:52,160 --> 00:31:55,000
Speaker 1: state from Why don't we having that conversation, mall I,

611
00:31:56,000 --> 00:31:58,040
Speaker 1: I don't know. I mean, it's well, you know, because

612
00:31:58,080 --> 00:32:02,000
Speaker 1: it's such a fractured political nation. If I'm saying something,

613
00:32:03,640 --> 00:32:05,680
Speaker 1: the people watching this think I'm nuts and think I'm

614
00:32:05,760 --> 00:32:08,480
Speaker 1: some kind of I'm pushing some sort of agenda. I'm

615
00:32:08,520 --> 00:32:10,400
Speaker 1: just looking for a meeting of the minds and I

616
00:32:10,480 --> 00:32:12,560
Speaker 1: want to. I want to I want to really promote

617
00:32:12,600 --> 00:32:14,960
Speaker 1: my my hybrid. It's it's the best of both worlds.

618
00:32:15,320 --> 00:32:17,520
Speaker 1: It's a little bit of fossil fueld, which we need

619
00:32:17,560 --> 00:32:20,080
Speaker 1: because demands not going away there, and it's a little

620
00:32:20,080 --> 00:32:21,920
Speaker 1: bit of electricity. It's a little bit of both, and

621
00:32:22,080 --> 00:32:24,280
Speaker 1: it's a great compromise. We love you, We love you,

622
00:32:24,440 --> 00:32:26,360
Speaker 1: you know. We love the different opinions, and we we

623
00:32:26,480 --> 00:32:29,760
Speaker 1: love how you've taken the Eagles defeat. It's just taking

624
00:32:29,800 --> 00:32:33,200
Speaker 1: a cho the egos on the heels of the Phillies,

625
00:32:33,480 --> 00:32:35,840
Speaker 1: tom So, this has been a tough year for for Philadelphia.

626
00:32:35,840 --> 00:32:39,080
Speaker 1: For Philadelphia, it's been a brutal sports year. Didn't emins

627
00:32:39,160 --> 00:32:43,040
Speaker 1: as well? Isn't like, oh yeah, Short's never gonna come

628
00:32:43,040 --> 00:32:45,920
Speaker 1: back if you keep it up, John ste I'm not

629
00:32:46,000 --> 00:32:49,920
Speaker 1: sure he casts about that. I'm watch ms Steven tank Key.

630
00:32:50,200 --> 00:32:54,000
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Ample, Spotify and

631
00:32:54,160 --> 00:32:58,320
Speaker 1: anywhere else you get your podcasts. Listen live every weekday

632
00:32:58,640 --> 00:33:02,080
Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the

633
00:33:02,240 --> 00:33:06,160
Speaker 1: I Heart Radio app, tune In, and the Bloomberg Business app.

634
00:33:06,680 --> 00:33:10,320
Speaker 1: You can watch us live. I'm Bloomberg Television and always

635
00:33:10,720 --> 00:33:14,600
Speaker 1: on the Bloomberg Terminal. Thanks for listening. I'm Tom Keane,

636
00:33:14,800 --> 00:33:16,560
Speaker 1: and this is Bloomberg,