WEBVTT - Surveillance: Delayed Recession with Wizman 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:31.440 the Bloomberg Terminal and the Bloomberg Business App. Chure Viceman 0:00:31.840 --> 0:00:35.199 is a global interest rate strategists and currency strategist at 0:00:35.240 --> 0:00:39.360 Macquarie with decades of experience in this Are you close 0:00:39.400 --> 0:00:42.920 to amending your view? Are you close to making a 0:00:43.040 --> 0:00:46.960 mcquarree shift here, or is it pretty much like Okay, 0:00:46.960 --> 0:00:49.680 this is what we've been dealt full speed ahead. I 0:00:49.680 --> 0:00:51.360 think it's fair to say we're gonna delay our view, 0:00:51.440 --> 0:00:52.960 not a mend our view. Our view has been that 0:00:52.960 --> 0:00:54.720 there will be a recession in the US this year. 0:00:54.800 --> 0:00:56.840 It's clearly not going to start in the first quarter, 0:00:56.880 --> 0:00:59.600 based on all the evidence we've gathered so far on sales, 0:01:01.280 --> 0:01:04.520 on on employment trends. But at the on the other hand, 0:01:04.640 --> 0:01:07.880 surveys are still pointing to a recession coming in the US. 0:01:07.920 --> 0:01:09.720 Look at the p m I s. They're they're below 0:01:09.760 --> 0:01:12.720 fifty for both services and manufacturing. When you look at 0:01:12.720 --> 0:01:15.000 the survey of consumer expectations coming out of New York 0:01:15.040 --> 0:01:18.360 FED last week, it is still pointing to downbeat expectations. 0:01:18.400 --> 0:01:22.720 So are the Michigan surveys, the Conference Board surveys. The consumer, 0:01:23.360 --> 0:01:26.119 while he might be spending, is not in a happy mood. 0:01:26.120 --> 0:01:29.440 Tom and I think that we're going to see we're 0:01:29.480 --> 0:01:32.240 going to consumers not in a happy mood. Given the 0:01:32.319 --> 0:01:35.360 data I just saw. These are these are fluctuations, These 0:01:35.360 --> 0:01:38.120 are not trends. Uh. Look, there was a lot of 0:01:38.160 --> 0:01:40.880 spending in October in the US by the consumer who 0:01:40.920 --> 0:01:44.319 was afraid of inflation taking away his ability to to 0:01:44.640 --> 0:01:49.120 properly gather the gifts he needed to for Christmas. They 0:01:49.120 --> 0:01:51.560 were afraid of hotel rooms being fully booked, they were 0:01:51.560 --> 0:01:53.840 afraid of airlines being fully booked. They did a lot 0:01:53.840 --> 0:01:56.400 of spending in October ahead of what they would normally do. 0:01:56.800 --> 0:01:59.600 That caused the big jump in consumption. But was that 0:02:00.000 --> 0:02:03.640 a reflection of a positive mood. Not necessarily. Inflation has 0:02:03.680 --> 0:02:06.840 a way of making people fear the future and they 0:02:06.840 --> 0:02:10.040 spend now. As opposed to you that from Barkin yesterday. 0:02:10.160 --> 0:02:13.600 That's exactly what arrangements. And then and then look once 0:02:13.639 --> 0:02:16.000 all that spending got through in October November, we had 0:02:16.000 --> 0:02:19.160 a pretty dull December in terms of spending, especially when 0:02:19.160 --> 0:02:22.120 you when you you know, when you adjust by bye bye, 0:02:22.280 --> 0:02:25.000 where inflation was so genuine seeing a bit of a 0:02:25.000 --> 0:02:28.440 bounce back from that. Admittedly, I always remind my desk people, 0:02:28.480 --> 0:02:32.280 though you've gotta take these numbers and and and deflate them, 0:02:32.600 --> 0:02:36.520 make them in real terms. It doesn't look that great prospective. 0:02:36.639 --> 0:02:39.880 You said something interesting there. It's about the inflationary bank 0:02:39.919 --> 0:02:41.880 trap that you buy now because you were at the 0:02:41.919 --> 0:02:44.920 prices go up later. It isn't that something that carries 0:02:44.919 --> 0:02:48.880 on spiral ink. Isn't that something that becomes entrenched that behavior. 0:02:48.960 --> 0:02:51.560 That's not something typically just fight away. But maybe it can. 0:02:51.680 --> 0:02:55.120 But it cannot continue forever because obviously budgets are limited. 0:02:55.160 --> 0:02:58.160 But it also inflation has a way of eventually breaking 0:02:58.200 --> 0:03:00.320 the back of that spending. Eventually, you see your real 0:03:00.320 --> 0:03:02.120 wages of road, you see your real income a road 0:03:02.120 --> 0:03:04.640 because of inflation, and you're forced to settle into a 0:03:04.720 --> 0:03:07.760 lower level of spending because of it in real terms. 0:03:08.000 --> 0:03:11.320 So yeah, it could happen for a short amount of time, Jonathan. 0:03:11.360 --> 0:03:13.679 It could happen for a few months. It can't happen indefinitely. 0:03:14.440 --> 0:03:16.720 So what's the head fake here? The witness in December 0:03:17.120 --> 0:03:19.440 or the strength in January. We've had three head fix right, 0:03:19.440 --> 0:03:22.360 We've had We've had employment in January much stronger than 0:03:22.520 --> 0:03:25.400 most most people surmised. We then had inflation come down 0:03:25.560 --> 0:03:27.519 less than people's surmise. Now we have a boost to 0:03:27.560 --> 0:03:30.560 retail spending in January that's greater than people's surmid It's 0:03:30.720 --> 0:03:34.280 been three They've been three head fakes. Sorry, just reality. 0:03:34.360 --> 0:03:37.360 Why isn't that just an accurate characterization of where we are? 0:03:37.960 --> 0:03:40.000 It is stronger than we think it is. It is 0:03:40.000 --> 0:03:42.560 an accurate It is an accurate reflection of where we are. 0:03:42.600 --> 0:03:44.800 What I'm talking about is the future, not now. Right, 0:03:44.840 --> 0:03:47.280 We're not saying, as I said, that that the recession 0:03:47.320 --> 0:03:48.839 is starting now, and in fact, it's like I said, 0:03:48.840 --> 0:03:51.160 there's nothing consistent in the data to suggest that the 0:03:51.240 --> 0:03:54.480 procession is upon us. But in the next few months, 0:03:54.520 --> 0:03:56.800 you're going to start to see the US economy weekend, 0:03:56.920 --> 0:03:58.320 and it's going to be in the context of a 0:03:58.360 --> 0:04:01.600 global economy that may actually continue to strengthen our view, 0:04:01.680 --> 0:04:04.160 for example, on the dollars, predicated on that we don't 0:04:04.160 --> 0:04:06.280 think that the weakness in the dollars over in part 0:04:06.320 --> 0:04:09.720 because we see a more deeper recession coming in the 0:04:09.840 --> 0:04:11.880 US and North America generally than we do in the 0:04:11.880 --> 0:04:14.520 rest of the world. And what we've seen here from 0:04:14.560 --> 0:04:21.000 inflation to retail we have claims tomorrow, John were as 0:04:21.120 --> 0:04:23.480 data dependent as ever seen. We make jokes about it. 0:04:23.520 --> 0:04:26.320 We've got a countdown clock. You like our countdown clock. 0:04:27.880 --> 0:04:30.080 We're all into our contown. Would you put up the 0:04:30.240 --> 0:04:33.280 arsenal man City countdown clock please? Like the atomic clock. 0:04:33.320 --> 0:04:36.560 It's remember I remember when you were at bear Stearns 0:04:36.560 --> 0:04:39.280 and we waited ten days from mel past to approve 0:04:39.360 --> 0:04:41.640 an edit on what Emmy shy I was doing. I 0:04:41.680 --> 0:04:44.880 mean it was slow motion. What does all this hyper 0:04:45.000 --> 0:04:49.000 ventilating about day to do to us, and critically to 0:04:49.040 --> 0:04:51.520 the fat It makes us crazy. It makes me crazy 0:04:51.560 --> 0:04:53.840 from time to time. Admittedly, it's a difficult to to 0:04:54.040 --> 0:04:57.600 to be be certain in the trends that you're looking 0:04:57.600 --> 0:05:00.600 at when you see these fluctuations. But look, I'm gonna 0:05:00.640 --> 0:05:02.280 I'm gonna tell you that, you know, there's a lot 0:05:02.279 --> 0:05:04.039 of things that the market is getting wrong right now. 0:05:04.120 --> 0:05:06.760 I think they're underestimating the amount of credit tightness there 0:05:06.839 --> 0:05:08.480 is in the US. If you look at the Loan 0:05:08.560 --> 0:05:10.080 Officer Survey, if you look at the n f I 0:05:10.160 --> 0:05:13.000 B Survey of Small business lending, it is collapsing. It's 0:05:13.040 --> 0:05:15.840 at recessionary levels, at least with regard to things that 0:05:15.839 --> 0:05:18.440 are pertinent to the FED. The credit markets. Things look 0:05:18.480 --> 0:05:21.080 recessionary or about to go into a recession in the 0:05:21.160 --> 0:05:23.120 U S. It's Terry, this was great and we appreciate 0:05:23.120 --> 0:05:25.960 your perspective as oise. Terry Weisman of mcquarie, on an 0:05:26.000 --> 0:05:39.160 upside Surprise on ret House, says there's something going on 0:05:39.320 --> 0:05:42.320 in luxury. Dana Telsey owns the high ground here. She 0:05:42.480 --> 0:05:45.600 is chief executive officer of Telsey Advisory Group, with a 0:05:45.680 --> 0:05:50.440 family fabric that speaks of Fifth Avenue at Street. Dana, 0:05:50.520 --> 0:05:53.200 I'm not going to mince words. The windows are screaming 0:05:53.279 --> 0:05:57.000 at me post pandemic here except for one house. I 0:05:57.000 --> 0:05:59.919 want you to explain to our international audience at Curing 0:06:00.080 --> 0:06:02.839 Group and good morning to Carring have been very kind 0:06:02.839 --> 0:06:06.440 to me over the years. Gucci is a train wreck. 0:06:07.240 --> 0:06:11.440 What's this new guy gonna do? At Gucci Sabato di Sarno. 0:06:11.800 --> 0:06:14.760 How does he pick up the pieces on their underperformance. 0:06:15.080 --> 0:06:17.720 One of the elements of luxury that always makes brands 0:06:17.760 --> 0:06:21.080 reinvent themselves. They have archives. You can go back and 0:06:21.160 --> 0:06:23.839 reinvent what was successful in the past with the twist 0:06:23.880 --> 0:06:27.360 of what's modern in today, that appeals to younger consumers, 0:06:27.360 --> 0:06:30.839 that appeals to an international consumer. He has, frankly the 0:06:30.920 --> 0:06:34.839 luxury no pun intended of being able to capture everyone's interest. 0:06:35.120 --> 0:06:37.320 I think you can redo the logo. I think you 0:06:37.320 --> 0:06:40.200 can redo the clothing and the leather goods. I think 0:06:40.200 --> 0:06:42.640 you can put out some new items that become iconic. 0:06:42.960 --> 0:06:45.560 Look what Daniel Lead did at Bottega and created a 0:06:45.600 --> 0:06:48.560 bag and he's not berberis now at Berbery that he's 0:06:48.560 --> 0:06:51.640 gonna make Burbery interesting. And I always believe there's a 0:06:51.680 --> 0:06:54.400 fifteen year life cycle to a bunch of these designers. 0:06:54.560 --> 0:06:57.080 What's so important here at Leasta to the aspiration of 0:06:57.120 --> 0:07:00.599 this you Darbysh of the San Diego Padres just signed 0:07:00.640 --> 0:07:04.480 a six year extension. He's Japanese and there he is 0:07:04.960 --> 0:07:08.960 in the Berbery plaid top to bottom. I mean, that's 0:07:09.000 --> 0:07:11.120 the that's the world. Dana is living in are the 0:07:11.160 --> 0:07:15.080 retail sales We've just got a real sort of really 0:07:15.080 --> 0:07:18.520 speaking to this question on the luxury purchaser, on the 0:07:18.560 --> 0:07:21.280 wealthy individual, or is this broad based? Broad based? I 0:07:21.280 --> 0:07:24.520 think it was interesting about the January sales number. Obviously 0:07:24.600 --> 0:07:27.040 it was very strong. You looked at apparel, you looked 0:07:27.040 --> 0:07:30.160 at furniture, they showed strength also in addition to a 0:07:30.160 --> 0:07:33.240 big uptick in restaurants. Keep in mind, I don't take 0:07:33.320 --> 0:07:36.520 January as seriously as I take March, April and May. 0:07:36.960 --> 0:07:40.440 January is about clearing out promotional and clearance goods. You're 0:07:40.480 --> 0:07:44.480 hearing about retailers having inventory levels that are up twenty 0:07:44.480 --> 0:07:47.119 and thirty percent in the third quarter and now they're 0:07:47.160 --> 0:07:49.360 down in the fourth quarter. The fact that you went 0:07:49.400 --> 0:07:51.920 from up twenty and thirty and now you're negative. You 0:07:52.040 --> 0:07:54.840 moved product, some of it at Markdown's. So just to 0:07:54.840 --> 0:07:57.720 build on that, how much is also fueled and pardon 0:07:57.800 --> 0:08:00.600 the pun, on this idea that gasoline prices are lower 0:08:00.680 --> 0:08:03.760 so people had more discretionary spending. You have that, plus 0:08:03.800 --> 0:08:05.840 take a look at the savings rate. People have been 0:08:05.920 --> 0:08:08.920 using their savings to to live on. Given the strength 0:08:08.920 --> 0:08:12.840 and essential prices, we saw food inflation yesterday, and it's high. 0:08:12.920 --> 0:08:15.440 Those costs of eggs don't keep, don't come down. So 0:08:15.480 --> 0:08:17.520 how sustainable is this given the fact that some people 0:08:17.520 --> 0:08:19.520 are expecting that the savings will go down by the 0:08:19.560 --> 0:08:21.680 middle or the third quarter of this year. I think 0:08:21.720 --> 0:08:24.880 these rates are extraordinarily high. I think that we will 0:08:24.880 --> 0:08:27.560 get more moderation as we go to March. Going forward, 0:08:27.800 --> 0:08:31.920 I think the comparison with Amicron also definitely boosted sales 0:08:31.960 --> 0:08:34.040 in the month of January. The other thing we saw 0:08:34.160 --> 0:08:37.240 is the flip to physical stores. I think that frankly 0:08:37.280 --> 0:08:39.520 can hold a little bit the flip to physical stores 0:08:39.720 --> 0:08:43.520 and perhaps sort of unfortunate for the Federal Reserve, a 0:08:43.559 --> 0:08:46.680 flip back to physical goods on a sort of the 0:08:46.760 --> 0:08:49.080 car and the other space. How much do you start 0:08:49.120 --> 0:08:51.920 to expect a re acceleration of some of the inflation 0:08:51.960 --> 0:08:54.000 in those areas as people have been sitting on their 0:08:54.000 --> 0:08:56.199 hands for a bit waiting for things to stabilize and 0:08:56.240 --> 0:08:59.160 are now getting back in I expect that to re accelerate. 0:08:59.400 --> 0:09:01.640 I think we'll see some acceleration there and some of 0:09:01.679 --> 0:09:04.559 the basic goods. I think some of the discretionary items, 0:09:04.559 --> 0:09:07.800 though the price increases are over if anything, I've heard 0:09:07.800 --> 0:09:12.200 of some retailers, some categories looking to maybe reduce prices 0:09:12.320 --> 0:09:14.679 by five per cent or so from the increases they 0:09:14.679 --> 0:09:18.760 took last year. Span is over to the Joe Feldman world. 0:09:18.960 --> 0:09:22.200 Span it over, and it's in retail sales. Is Amazon? 0:09:22.679 --> 0:09:25.040 I mean we're going from a digital space to talking 0:09:25.080 --> 0:09:28.560 about the windows and luxury New York City. Who's going 0:09:28.600 --> 0:09:31.079 to win the war? I think overall it's going to 0:09:31.120 --> 0:09:33.600 be the innovative retailers that win the war. What you're 0:09:33.600 --> 0:09:36.560 saying out there right now, I mean home always remains 0:09:36.559 --> 0:09:39.720 relevant and important, whether it's remodels, whether it's new and 0:09:39.760 --> 0:09:42.640 existing home sales that need to pick up in order 0:09:42.679 --> 0:09:45.400 to drive gains there. But one of the surprising things 0:09:45.440 --> 0:09:48.000 is you saw pick up an electronics too, And I 0:09:48.040 --> 0:09:52.480 think new items and new innovation drives electronic sales. I'm 0:09:52.520 --> 0:09:55.960 afraid to ask which which electronics sales are. Lisa and 0:09:56.000 --> 0:09:58.480 I get to see at our house, Um, you're gonna 0:09:58.480 --> 0:10:00.679 see newness and television's I think it's going to be 0:10:00.760 --> 0:10:02.599 one of the new items. I think there's gonna be 0:10:02.679 --> 0:10:05.840 some new items also with laptops, I think the smaller, 0:10:06.120 --> 0:10:08.920 more micro items become ever more popular. So when do 0:10:09.000 --> 0:10:11.840 we start to see a subserve diminishing in this momentum 0:10:11.840 --> 0:10:14.439 and people are talking about this with the surprising strength 0:10:14.440 --> 0:10:17.280 in the economy from your vantage point, when do we 0:10:17.320 --> 0:10:19.600 see it in what they're willing to buy? I think 0:10:19.600 --> 0:10:23.160 overall we've seen it in discretionary. Discretionary sales have moderated 0:10:23.200 --> 0:10:30.040 given given inflationary pressures. I think overall discretionary continues to 0:10:30.080 --> 0:10:32.360 move on steadily. It'll be the back half where you 0:10:32.360 --> 0:10:35.760 see some improvement. I think the lower to middle income consumer, 0:10:35.800 --> 0:10:38.240 where you've seen the trade down is what I'm concerned 0:10:38.280 --> 0:10:40.040 about as we go through this first half of the year. 0:10:40.040 --> 0:10:42.080 Can you build on that how much he's starting to 0:10:42.120 --> 0:10:45.600 see some fractures, some fissures in people who don't have 0:10:45.640 --> 0:10:48.760 that same discretionary spetting. We're talking about windows on Fifth Avenue. 0:10:48.960 --> 0:10:51.960 But the reality is food, rent cars, all of this 0:10:52.080 --> 0:10:55.720 is incredibly expensive and really biting into the average American. 0:10:55.920 --> 0:10:58.640 So what we've heard so far is you're seeing even 0:10:58.840 --> 0:11:02.800 customers with hund a thousand dollar household incomes. Companies like 0:11:02.880 --> 0:11:05.800 Walmart are seeing more consumers who have that level of 0:11:05.840 --> 0:11:09.800 household income. You're seeing some of the lower tier companies, 0:11:09.880 --> 0:11:12.520 some of the dollar store and even off pricers, where 0:11:12.520 --> 0:11:16.040 their average household income they were getting was under forty dollars, 0:11:16.320 --> 0:11:20.360 and now consumers with sixty dollar household income are going there. 0:11:20.720 --> 0:11:23.400 The trade down is real, and that's what impacts I 0:11:23.400 --> 0:11:27.240 think the March go forward time period when inflationary pressures moderate. 0:11:27.320 --> 0:11:30.680 In the big picture, have we cleared inventory ninety days ago? 0:11:30.840 --> 0:11:35.400 We're all wringing our hands about stuff. I've always learned 0:11:35.520 --> 0:11:39.480 price clears inventory, and I once again that's what happened. Yeah, 0:11:39.480 --> 0:11:42.480 that's what happened. On the same side, price cleared inventory. 0:11:42.480 --> 0:11:45.320 You're gonna see inventory come down for some it was 0:11:45.400 --> 0:11:47.160 up twenty and thirty percent at the end of the 0:11:47.160 --> 0:11:49.880 third quarter. It'll be negative in the fourth quarter. But 0:11:49.960 --> 0:11:52.720 one of the other elements of that, wholesale accounts like 0:11:52.800 --> 0:11:56.720 department stores, are moderating orders for the first half of 0:11:56.760 --> 0:11:59.800 the year. So cut to the chase here. Macy's, they 0:11:59.800 --> 0:12:02.840 don't of the wooden escalator anymore. They're they're there. They've 0:12:02.880 --> 0:12:05.440 had a wonderful strategy of going to the middle or 0:12:05.480 --> 0:12:08.840 maybe the lower middle is well, what's Macy's doing to 0:12:08.920 --> 0:12:11.280 get through the summer, to get the back to school. 0:12:11.360 --> 0:12:13.640 You know what they're doing. They're using data science to 0:12:13.720 --> 0:12:16.679 modernize their department store in order to figure out what 0:12:16.760 --> 0:12:19.760 categories are working and had a price appropriate more makeup, 0:12:20.080 --> 0:12:22.679 an look at toys. They've brought in toys r Us, 0:12:22.679 --> 0:12:25.360 They've brought in Pandora Jewelry, they have an Apple in 0:12:25.480 --> 0:12:29.080 store shop. They've expanded the categories in order to capture 0:12:29.120 --> 0:12:32.760 more wallet chair well, remaining competitive on price share. That 0:12:34.280 --> 0:12:37.120 that's that's good. So you put the wallet of the 0:12:37.120 --> 0:12:40.120 wallet chair in your new bag. That's what you do. 0:12:40.280 --> 0:12:43.000 The wallet chair is going to the stores and not 0:12:43.120 --> 0:12:44.760 staying in the wallet, and that is what we're seeing 0:12:44.880 --> 0:12:47.000 right now. And what is interesting is the market trying 0:12:47.040 --> 0:12:49.880 to understand this because on one hand, bad books that 0:12:49.880 --> 0:12:51.560 means if it's going to raise rates. On the other hand, 0:12:51.600 --> 0:12:53.679 good because that means that companies are going to keep 0:12:53.720 --> 0:12:56.240 getting the revenue from that time. And then what's the 0:12:56.240 --> 0:12:59.640 flow through to the margins. I think we have more 0:12:59.679 --> 0:13:02.640 class already on margins and sales increases ten seconds. We've 0:13:02.640 --> 0:13:04.600 got to go to a research on Dana Telsa's single 0:13:04.640 --> 0:13:07.960 best buy right now, single best buy right now. I 0:13:08.000 --> 0:13:10.920 like Ralph Floren I like Deckers very good. Dana Telsey 0:13:11.000 --> 0:13:15.640 with us today with enthusiasm on an enthusiastic retail report. 0:13:20.480 --> 0:13:23.600 Over the years for so many it has been an 0:13:23.760 --> 0:13:27.760 interesting conversation to speak to and listen to James Bianco, 0:13:27.880 --> 0:13:31.719 Jim Bianco's president and macro strategist at Bianco Research. It's 0:13:31.720 --> 0:13:36.640 a wonderful holistic note because he's listening to Wall Street. Jim. 0:13:36.679 --> 0:13:38.360 I like what you do in your note this morning. 0:13:38.679 --> 0:13:41.000 You reach out to the recent work from Deutsche Bank 0:13:41.040 --> 0:13:44.840 to Apollo of Torsten Slock, and you're looking at the 0:13:44.840 --> 0:13:48.920 no landing scenario that he and others are talking about. 0:13:49.240 --> 0:13:53.640 Tell us on the possibility of a no landing no, 0:13:53.800 --> 0:13:56.480 I think that the no landing scenario, you know, using 0:13:56.480 --> 0:13:59.560 the plane metaphor that it just continues at thirty thousand feet, 0:13:59.679 --> 0:14:03.280 is going every day, and what is driving that is 0:14:03.320 --> 0:14:05.880 the labor market. As we all know, or as I 0:14:05.960 --> 0:14:08.160 like to say, the problem with the labor market is 0:14:08.200 --> 0:14:10.880 there is no problem with the labor market. And if 0:14:10.880 --> 0:14:13.160 there isn't a problem with the labor market, the FETE 0:14:13.240 --> 0:14:16.160 is not going to see a reason to pivot. And 0:14:16.440 --> 0:14:19.040 something new is starting to come up in the marketplace 0:14:19.080 --> 0:14:22.360 in just the last few days. Uh, the probability that 0:14:22.400 --> 0:14:25.360 the FED raises rates in June to go to five 0:14:25.400 --> 0:14:29.240 and a half is now gone above. And that's the 0:14:29.320 --> 0:14:32.400 first time I believe this cycle that the market has 0:14:32.400 --> 0:14:35.240 actually gotten ahead of the Fed. The whole cycle has 0:14:35.240 --> 0:14:37.440 always been the fete is said they're going to do 0:14:37.520 --> 0:14:39.600 something in the market things. Now they're gonna pivot, they're 0:14:39.600 --> 0:14:41.560 gonna step down, they're gonna pause, They're not gonna go 0:14:41.600 --> 0:14:44.120 as far as they think. Now the markets starting to 0:14:44.120 --> 0:14:47.920 think the Fed's gonna go further. Then they are communicating 0:14:48.040 --> 0:14:51.040 right now, So something has changed, and I think what 0:14:51.160 --> 0:14:55.640 that is is the inflation report yesterday. Services are not 0:14:55.760 --> 0:15:00.080 in disinflation. They look very sticky right now, and we 0:15:00.160 --> 0:15:03.160 have a positive base effect, meaning that we're dropping off 0:15:03.240 --> 0:15:06.600 big numbers from last year point seven in February, one 0:15:07.080 --> 0:15:10.560 in March on the inflation report. And once we get 0:15:10.600 --> 0:15:14.440 past June, that all turns and it becomes the tail 0:15:14.480 --> 0:15:16.680 wind for inflation to push higher, so we might not 0:15:16.760 --> 0:15:18.760 get to two percent, and then the second half of 0:15:18.760 --> 0:15:20.240 the year we start moving higher. And I think that's 0:15:20.240 --> 0:15:23.000 what the markets starting to sniff out. So we've raped price. 0:15:23.200 --> 0:15:26.400 It's high treasuries LAWA, we've priced in a hot terminal, right, 0:15:26.560 --> 0:15:29.400 as while why record sub resident in the size of that? 0:15:29.520 --> 0:15:32.440 What you make of them? Well, I think there's a 0:15:32.480 --> 0:15:34.360 couple of things going on with equities. The first thing 0:15:34.520 --> 0:15:38.120 is the rally and the equity market state stocks. It's 0:15:38.160 --> 0:15:41.960 the Fang stocks plus Microsoft, Navideo and Tesla. It's one 0:15:42.040 --> 0:15:44.400 all over again. We've even got Bedbeth and Beyond moving, 0:15:44.760 --> 0:15:47.200 and we've got you know, the meme stocks starting to go. 0:15:47.360 --> 0:15:50.160 So we've seen this movie before. And so when you 0:15:50.280 --> 0:15:52.560 strip that out and you look at the rest of 0:15:52.640 --> 0:15:55.560 the market, it's up. I mean it's not down or anything. 0:15:55.640 --> 0:15:58.000 It's up, but it's not up nearly as much as 0:15:58.040 --> 0:16:01.280 everybody thinks. But I think the problem the equity market 0:16:01.360 --> 0:16:03.600 is going to face. Hey, no landing. That means earnings 0:16:03.600 --> 0:16:06.920 are gonna come back. That's bullish. The forward pe ratio, 0:16:07.360 --> 0:16:10.480 the pe ratio of what earnings are expected to be 0:16:10.560 --> 0:16:13.160 in the next year's eighteen and a half. You're not 0:16:13.320 --> 0:16:16.080 paying a cheap multiple for this market. You're gonna pay 0:16:16.280 --> 0:16:18.800 full for this market if you if you're gonna bet 0:16:18.880 --> 0:16:21.800 on some kind of economic rebound. What are variable lags 0:16:21.840 --> 0:16:24.600 that in this scenario, given that we're not seeing it, 0:16:24.720 --> 0:16:28.840 and that if by anything, we're seeing easier financial conditions. Yeah, 0:16:28.880 --> 0:16:31.360 I think that that's going to be the biggest concern 0:16:31.520 --> 0:16:34.000 that we're gonna have when we go forward. Here is 0:16:34.120 --> 0:16:37.440 the uncomfortable question of maybe the Fed is not at 0:16:37.520 --> 0:16:40.760 sufficiently restrictive. Maybe what we're at at four and a 0:16:40.840 --> 0:16:43.440 half on our way to five on the funds rate 0:16:43.560 --> 0:16:46.160 is neutral, and that's all we've done in the last 0:16:46.280 --> 0:16:49.280 year is gone to neutral. That's why we're having a 0:16:49.360 --> 0:16:52.920 no landing. That's why the inflation rate is being so sticky, 0:16:53.440 --> 0:16:56.160 and that were we all assume. And I think that's 0:16:56.200 --> 0:16:59.280 what was the assumption behind all the recession calls at 0:16:59.320 --> 0:17:02.080 the beginning of the year was we've raised rates a lot. 0:17:02.200 --> 0:17:04.720 That's got to hurt, But maybe it doesn't. Maybe all 0:17:04.760 --> 0:17:06.879 we've done is gone to neutral. And that's what the 0:17:06.960 --> 0:17:08.960 markets starting to sniff out. Why we're starting to see 0:17:08.960 --> 0:17:11.240 a price in five and a half is that we 0:17:11.520 --> 0:17:14.560 were not it sufficiently restrictive and we've got further to go. Jim, 0:17:14.600 --> 0:17:17.080 what don't you make of that phrase? Long and vable lacks? 0:17:17.840 --> 0:17:21.800 How Renvan is that to this moment it's relevant to 0:17:21.920 --> 0:17:24.880 the extent, you know, and you know, going on, what's 0:17:24.920 --> 0:17:26.480 a lot of other people are saying about that this 0:17:26.600 --> 0:17:28.320 is an unusual market and they're having a hard time 0:17:28.400 --> 0:17:32.840 understanding it. I come back to it's a post COVID economy. Now, 0:17:32.880 --> 0:17:34.720 I know that's a fancy word, but what that means 0:17:34.840 --> 0:17:37.760 is all the rules that we understood about the economy 0:17:38.119 --> 0:17:41.359 pre COVID they've changed. And the biggest one we all 0:17:41.440 --> 0:17:44.200 know about his work from home. Barely half of the 0:17:44.320 --> 0:17:48.640 offices in the United States are now occupied five days 0:17:48.640 --> 0:17:52.040 a week. You know, everybody's on some kind of range 0:17:52.119 --> 0:17:56.160 of remote work. That is a huge change in the economy. 0:17:56.480 --> 0:17:59.520 And there's been other huge changes in the post pandemic economy. 0:17:59.600 --> 0:18:02.520 So when people say I'm confused, I don't understand the 0:18:02.600 --> 0:18:05.800 economy isn't behaving. We have to look along and variable lags, 0:18:05.840 --> 0:18:08.480 we have to be data dependent. It's I think what 0:18:08.640 --> 0:18:10.560 it is is that they're saying, when is it going 0:18:10.600 --> 0:18:13.960 to start looking like the rules have changed and we 0:18:14.080 --> 0:18:16.040 need to start to figure out what those rules are. 0:18:16.080 --> 0:18:17.880 I don't know what they are. I just know they're 0:18:17.880 --> 0:18:22.120 not rule. I want to dovetail Reinhardt Rogoff, Jim uh Into, 0:18:22.240 --> 0:18:25.280 what we're gonna see here in eleven minutes twenty four seconds, 0:18:25.560 --> 0:18:30.000 and that is this time is different within consumer America. 0:18:30.520 --> 0:18:34.320 We're off of pandemic. Are we acting almost in a 0:18:34.480 --> 0:18:37.560 drunken state because this time is different after the shock 0:18:38.000 --> 0:18:42.879 of a pandemic? Or is this just typical boom from stimulus. 0:18:44.440 --> 0:18:47.000 I think it's more typical boom from stimulus. Bank of 0:18:47.080 --> 0:18:50.280 America has put out a lot of statistics about balances 0:18:50.400 --> 0:18:54.200 and everybody's checking account and they're still very elevated. So 0:18:54.480 --> 0:18:57.720 a lot of the stimulus money that we saw handed 0:18:57.760 --> 0:19:01.920 out in one especially at the lower income levels, haven't 0:19:01.960 --> 0:19:05.719 been spent, and so these people still have spending power. 0:19:06.200 --> 0:19:08.080 And I think we're starting to see that. We don't 0:19:08.119 --> 0:19:11.399 see a booming economy, but what we do see is 0:19:11.560 --> 0:19:14.040 numbers that are continuing to move forward. In detail, sales 0:19:14.119 --> 0:19:17.720 numbers are expected to rebound. Remember December they were negative 0:19:17.720 --> 0:19:20.200 and they're supposed to be up a decent amount, maybe 0:19:20.240 --> 0:19:23.640 two percent when we get them, meaning that spending will 0:19:23.680 --> 0:19:27.000 be continuing. And if we're talking about a recession and 0:19:27.040 --> 0:19:29.920 a pivot and we're talking about three point four percent 0:19:29.960 --> 0:19:33.320 unemployment and we start seeing spending, I gotta think at 0:19:33.320 --> 0:19:35.480 the Federal Reserve, they look around and go, I don't 0:19:35.480 --> 0:19:38.280 see any reason that they even think about pivot, let 0:19:38.359 --> 0:19:41.600 alone think about stopping raising rates. And five and a 0:19:41.720 --> 0:19:44.040 half looks like a target that we're gonnahead. We're gonna 0:19:44.560 --> 0:19:46.679 percent and let's just pretend there that's three months lie 0:19:46.880 --> 0:19:49.600 or from another time in place gets back to five 0:19:49.640 --> 0:19:51.200 and a half percent, and that gets us back to 0:19:51.280 --> 0:19:54.320 a Bob Seeger economy. I was mentioning the giant of 0:19:54.359 --> 0:19:59.600 the Midwest there, great Jim, But are we prepared for 0:19:59.760 --> 0:20:02.960 the way we adapt and adjust if we get back 0:20:03.000 --> 0:20:06.000 to Rogoff six or a five and a half percent 0:20:06.119 --> 0:20:09.760 three month lifeboard. No. I think that that's gonna be 0:20:10.080 --> 0:20:13.520 a difficult adjustment for us, because if we get back 0:20:13.640 --> 0:20:16.720 to a six percent funds right, we will probably have 0:20:17.280 --> 0:20:19.639 a six percent treasury bill rate. Look, we just hit 0:20:19.720 --> 0:20:23.399 five percent yesterday on the six month bill. That is 0:20:23.480 --> 0:20:27.840 the first Treasury security to yield five in fifteen years. 0:20:28.359 --> 0:20:31.159 If we start to see six on those numbers, all 0:20:31.160 --> 0:20:32.720 of a sudden, people are gonna look around and go, 0:20:32.800 --> 0:20:34.840 what's the long term return in the stock market? It's 0:20:34.920 --> 0:20:38.760 nine or ten. I could get six without taking any 0:20:39.440 --> 0:20:42.240 whatsoever by parking it in a treasury bill or a 0:20:42.280 --> 0:20:45.080 short term treasury security, that is going to prove to 0:20:45.119 --> 0:20:48.560 be a lot of competition for the idea that the 0:20:48.600 --> 0:20:51.600 stock market can continue to roar ahead, which is the 0:20:51.680 --> 0:20:53.240