WEBVTT - Oil Peak? Consumer pique? 0:00:03.840 --> 0:00:07.200 Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. It's 0:00:07.360 --> 0:00:09.360 kind of the scariest call that you ever make as 0:00:09.400 --> 0:00:12.240 someone who writes about energy. That's David Fickling there, and 0:00:12.320 --> 0:00:15.680 we'll hear that prediction a little later. Also, people are 0:00:15.960 --> 0:00:18.599 just opting not to buy this thing. Still a lot 0:00:18.640 --> 0:00:21.360 of trading down as well, but some people are just 0:00:21.520 --> 0:00:24.439 turning around, doing one and walking out the door. Jonathan 0:00:24.480 --> 0:00:26.640 Levin and what might be the first signs the US 0:00:26.680 --> 0:00:29.680 consumer is starting to think before they shop first? Though 0:00:29.720 --> 0:00:32.919 to the markets and Bloomberg opinions, John Authors, John ys 0:00:33.040 --> 0:00:35.479 me have hundreds down more than on the year, the 0:00:35.600 --> 0:00:39.479 nazack down more, and yet we still don't feel like 0:00:39.520 --> 0:00:43.760 we've capitulated. Yes, and that's because I don't think we 0:00:43.840 --> 0:00:46.680 have capitulated, at least when it comes to equities. Bank 0:00:46.720 --> 0:00:50.520 of America's regular monthly survey of global fund managers, which 0:00:50.520 --> 0:00:53.159 has been going on over twenty years, finds that the 0:00:53.280 --> 0:00:56.600 number who are bearish on equities or who say they 0:00:56.600 --> 0:01:00.440 are getting more underweight is now the highest since they've 0:01:00.440 --> 0:01:02.800 been doing it, which is quite something because that includes 0:01:02.840 --> 0:01:05.800 two eight Now, how do we read that survey? Because 0:01:05.800 --> 0:01:10.520 the a AII survey, for example, is sort of counterintuitive exactly. 0:01:10.640 --> 0:01:15.160 That's what should be positive about the b of A survey, 0:01:15.360 --> 0:01:18.080 which accounts for people who are controlling very much more 0:01:18.120 --> 0:01:22.919 money than the AII. And generally speaking, what you want 0:01:23.280 --> 0:01:27.520 is capitulation. You want all the bad news to get 0:01:27.520 --> 0:01:29.960 into the price, or even more bad news than there 0:01:29.959 --> 0:01:33.000 actually is. You want all hope to be abandoned. And 0:01:33.840 --> 0:01:39.840 this report certainly does suggest that we're getting close. The 0:01:39.920 --> 0:01:44.880 problem is if you actually look at money flows into equities, 0:01:45.040 --> 0:01:48.520 they are still flows in much lower than they used 0:01:48.520 --> 0:01:53.480 to be. But you can't exactly say this is a 0:01:53.520 --> 0:01:57.920 capitulation when money is still flowing in. Where is it 0:01:58.000 --> 0:02:01.279 coming from? Is it just that there's so much cash 0:02:01.360 --> 0:02:03.600 out there and people are desperate to deploy, and we're 0:02:03.600 --> 0:02:05.600 coming into the fourth quarter and we're going to need 0:02:05.600 --> 0:02:07.560 to see returns at the end of the year somehow, 0:02:07.600 --> 0:02:10.000 and there's just denial going on. Well, that's a that's 0:02:10.040 --> 0:02:12.240 quite a good list of the things that might be moving. 0:02:12.360 --> 0:02:14.760 I think the other thing you have to bear in 0:02:14.840 --> 0:02:18.120 mind is that the Tina narrative is much weaker than 0:02:18.160 --> 0:02:21.400 it was. But it's not as though anybody wildly wants 0:02:21.440 --> 0:02:27.200 to own bonds at this point, and if you have rebalancing, 0:02:27.280 --> 0:02:31.399 you would be accustomed over the years for rebalancing every 0:02:31.480 --> 0:02:35.359 quarter to involve buying some bonds because stocks have gone 0:02:35.400 --> 0:02:38.320 up more, and you sell some stocks to rebalance into bonds. 0:02:38.560 --> 0:02:41.400 In the third quarter, stocks and bonds, by most measures 0:02:41.400 --> 0:02:44.480 fell almost exactly the same amount. That's part of the problems. 0:02:44.480 --> 0:02:47.320 Everything is correlated, yes, and at the margin that means 0:02:47.360 --> 0:02:51.080 that there isn't the money leaving the stock market that 0:02:51.120 --> 0:02:54.200 you would expect. I guess. The other point you can 0:02:54.320 --> 0:02:57.440 make is that volatility, or at least the vixed measure 0:02:57.440 --> 0:03:01.440 of volatility, how much people are used ing options to 0:03:01.520 --> 0:03:04.280 guard against falls in the market in the future. The 0:03:04.400 --> 0:03:07.680 VIX index has been very oddly calm, given it is 0:03:07.720 --> 0:03:11.960 around thirty these days, which is high. It got over 0:03:12.000 --> 0:03:15.120 a hundred on that Wednesday, and it got near to 0:03:15.160 --> 0:03:19.360 our hundred during two thousand and eight. Those are capitulations, right, 0:03:19.440 --> 0:03:21.480 All these measures seem to be teaching us. But right there, 0:03:22.440 --> 0:03:26.519 fix at its current level is elevated and shows concerned, 0:03:26.520 --> 0:03:30.040 which you know that we knew that anyway, it's certainly 0:03:30.040 --> 0:03:33.920 not giving the kind of signal that you would expect 0:03:34.120 --> 0:03:38.000 if we really reached a capitulative bottom. We had another 0:03:38.000 --> 0:03:41.240 small eas board of FED speakers this week. Timballeran, though, 0:03:41.280 --> 0:03:43.800 talked a little bit about equity markets and how he 0:03:43.880 --> 0:03:46.480 didn't see financial conditions as being particularly tight or tight 0:03:46.520 --> 0:03:49.400 at all. In fact, I guess would that commas news 0:03:49.400 --> 0:03:52.800 to some people. It's interesting if you look at our 0:03:52.880 --> 0:03:57.840 own Bloomberg's Financial Conditions Index, we still have it within 0:03:58.000 --> 0:04:01.280 one standard deviation of the north for the last five years. 0:04:01.640 --> 0:04:05.080 One standard deviation tighter than the norm is reasonable. It's 0:04:05.080 --> 0:04:06.800 not the kind of thing that is really going to 0:04:06.880 --> 0:04:10.400 reign in a major burst in inflation. There are lots 0:04:10.400 --> 0:04:13.640 of things that go into that. The dollar obviously is 0:04:14.000 --> 0:04:16.880 exceptionally strong, and that does have the effect of tightening 0:04:16.880 --> 0:04:22.680 conditions for Americans. The stock market, part of valuations and 0:04:22.800 --> 0:04:25.120 the ability to to raise I p os, the ability 0:04:25.200 --> 0:04:27.919 to to a secondary offerings are a big part of 0:04:27.920 --> 0:04:32.880 financial conditions, and the stock market is still anything remotely 0:04:32.920 --> 0:04:36.560 like cheap. So I think what Jimmy Bullard wants to 0:04:36.600 --> 0:04:42.320 see is enough negativity in financial conditions that it really 0:04:42.400 --> 0:04:46.120 does have an effect on people's behaviors. I don't want 0:04:46.160 --> 0:04:47.840 to read too much into what jim Buller had said, 0:04:47.839 --> 0:04:49.839 but it did sound like he was pressing the idea 0:04:49.920 --> 0:04:54.040 that they absolutely were not interested in equity markets and 0:04:54.080 --> 0:04:57.440 how much they dive. Was it almost expressing a wish 0:04:57.440 --> 0:05:00.839 that they would dive. I think it was. Uh. The 0:05:00.880 --> 0:05:05.520 other thing, obviously, is he's he's disavowing any interest in pivoting, 0:05:05.640 --> 0:05:08.960 or at least pivoting for the sake of equities. If 0:05:09.080 --> 0:05:12.960 you have something like what happens to Britain's guilts market 0:05:13.000 --> 0:05:15.280 a couple of weeks ago, they're probably not going to 0:05:15.360 --> 0:05:21.440 have any choice but to pivot or intervene. And because 0:05:21.480 --> 0:05:26.560 because central banks are also lenders of last resorts, that 0:05:26.839 --> 0:05:29.400 I think is where the chance of a pivot is greatest. 0:05:29.520 --> 0:05:33.960 You see lots of concerns about liquidity um and this 0:05:34.000 --> 0:05:36.599 has obviously gained a lot of steam since you know, 0:05:36.600 --> 0:05:42.279 the British implotion, and that's where you could probably see 0:05:43.800 --> 0:05:46.279 if we're going to have a change in direction from 0:05:46.440 --> 0:05:48.560 what it looks like we're having at the moment, which 0:05:48.600 --> 0:05:52.000 is a stock market enjoy enduring a bear market that 0:05:52.040 --> 0:05:55.159 grinds on for a while and rates that rise for 0:05:55.320 --> 0:05:58.880 a few more months yet and stay pretty high, you know, 0:05:58.920 --> 0:06:01.880 through to the end. Of next year. If we're going 0:06:01.920 --> 0:06:03.760 to get a change to that, I think it's because 0:06:03.760 --> 0:06:09.600 of some British style financial accident, rather than because inflation 0:06:09.640 --> 0:06:12.160 comes down a little bit faster than expected or because 0:06:12.400 --> 0:06:14.440 the FED is worried about the stock market. We're not 0:06:14.520 --> 0:06:17.600 going to talk about Britain because things will change inevitably 0:06:17.640 --> 0:06:19.599 in the next ten minutes on Britain, so we're going 0:06:19.640 --> 0:06:21.200 to leave that there. But I do feel like we 0:06:21.279 --> 0:06:24.280 needed a new era called the British implosion as opposed 0:06:24.279 --> 0:06:29.479 to the old British invasions. I have whatever. Yes, it's 0:06:29.600 --> 0:06:35.640 it's a it's hard to find the language to express 0:06:36.320 --> 0:06:41.680 quite what is going on. It's all basically an unforced 0:06:41.760 --> 0:06:47.960 error and yes words fail. John authors there. The US 0:06:48.000 --> 0:06:51.120 consumer has been pretty resilient for the most part post pandemic. 0:06:51.160 --> 0:06:55.680 As inflationary pressure is persist and persist, consumer facing companies 0:06:55.720 --> 0:06:58.360 are reporting pretty solid earnings, even if there's a little 0:06:58.360 --> 0:07:01.320 trepidation about how long this can last. Here's Bank of 0:07:01.320 --> 0:07:04.800 America's CEO Brian moynihan giving a broadly positive outlook. If 0:07:04.839 --> 0:07:07.480 you look at the consumers, there's there's not the signs 0:07:07.480 --> 0:07:09.400 that we see in our numbers or other people's numbers. 0:07:09.480 --> 0:07:11.920 Quite frankly, it says they're slowing down yet, or they're 0:07:11.920 --> 0:07:13.840 in stress yet, and that will have to be part 0:07:13.840 --> 0:07:16.000 of what happens in order for there to be a 0:07:16.040 --> 0:07:18.040 deep procession, because if the consumers have money in this 0:07:18.160 --> 0:07:21.240 big consumer driven economy, you know, that's that's what keeps 0:07:21.280 --> 0:07:25.400 America strong. So the consumer isn't in stress, but is 0:07:25.440 --> 0:07:29.200 the consumer beginning just beginning to alter spending patterns. Here's 0:07:29.240 --> 0:07:31.640 Moynahan again. What we told people is you're seeing it 0:07:31.720 --> 0:07:35.240 slow just a hair So it was very early in 0:07:35.280 --> 0:07:38.720 the year twelve and now ten, which is frankly, what 0:07:39.240 --> 0:07:40.720 people are trying to do is get the spending down 0:07:40.720 --> 0:07:42.560 a little bit, get the inflationary pressures down in the 0:07:42.640 --> 0:07:44.960 in the drag of the interest rates, but it's still strong. 0:07:45.040 --> 0:07:47.440 I spoke with Bloomer Opinions Jonathan Levin, who has been 0:07:47.440 --> 0:07:50.800 examining data that also suggests consumers are beginning to make 0:07:50.840 --> 0:07:54.000 some changes. So, Jonathan, what consumers say they'll do and 0:07:54.040 --> 0:07:56.400 what they actually do are often very different. That's an 0:07:56.480 --> 0:07:59.440 established behavior, but now it seems like we're seeing what 0:07:59.560 --> 0:08:02.880 they're doing shift. You've been examining the data. What is 0:08:02.880 --> 0:08:06.960 it telling you. I looked at a fascinating series that 0:08:07.000 --> 0:08:12.280 Morning Console does and every month they interview hundred US 0:08:12.320 --> 0:08:15.200 adults and one of the things that they've been asking 0:08:15.240 --> 0:08:17.760 them for the past six months is like, when you 0:08:17.800 --> 0:08:20.640 go to the store, do you experience sticker shock? And 0:08:20.720 --> 0:08:23.480 when people say you say, yes, I'm experiencing sticker shock, 0:08:23.600 --> 0:08:25.880 Morning Console then ask them, Okay, so how do you 0:08:25.920 --> 0:08:28.400 deal with sticker shock? Do you just walk out the 0:08:28.440 --> 0:08:32.000 door and go home empty handed? Or are you trading 0:08:32.120 --> 0:08:34.800 down or are you just sort of sucking it up 0:08:34.840 --> 0:08:39.040 and paying those higher prices? And what Morning Console is 0:08:39.360 --> 0:08:44.640 increasingly seeing, especially for their very latest round of this data, 0:08:45.000 --> 0:08:48.480 is that people are just opting not to buy the thing. 0:08:48.880 --> 0:08:51.480 Still a lot of trading down as well, but some 0:08:51.520 --> 0:08:54.000 people are just turning around, doing a one A D 0:08:54.080 --> 0:08:56.160 and walking out the door. And it had been kind 0:08:56.160 --> 0:08:58.480 of a mystery, right how the consumer was being so 0:08:58.640 --> 0:09:01.280 resilient in the face of so much inflation. I guess 0:09:01.280 --> 0:09:03.680 the mystery is now being solved. The consumer is starting 0:09:03.679 --> 0:09:07.440 to not be so resilient. Yeah, exactly. And to be clear, 0:09:07.720 --> 0:09:10.120 you know, I see these developments with the U S. 0:09:10.200 --> 0:09:13.400 Consumer is a very very slow burn, right, so what 0:09:13.480 --> 0:09:16.880 the morning consule data seems to be predicting. If you 0:09:16.960 --> 0:09:20.560 sort of run the time series against real personal consumption 0:09:20.640 --> 0:09:23.240 and real retail sales and things like that seems to 0:09:23.280 --> 0:09:27.240 be suggesting that we are going to see real declines 0:09:27.520 --> 0:09:31.800 in spending in the months ahead. Of course, in nominal terms, 0:09:31.840 --> 0:09:35.040 you might interpret that as continued resiliency. That does not 0:09:35.200 --> 0:09:38.480 mean like a crash in corporate earnings. That doesn't mean 0:09:38.559 --> 0:09:42.600 that retail sales automatically fall off the cliff, But it 0:09:42.640 --> 0:09:44.880 does put the U s consumer in sort of a 0:09:44.920 --> 0:09:49.200 precarious position, whereby if we are hit by another shock, 0:09:49.480 --> 0:09:51.719 and there's a lot of scary stuff out there that 0:09:51.800 --> 0:09:54.760 could deliver such a shock, the US consumer is in 0:09:54.800 --> 0:09:58.280 a very perilous position. Sticker shock, Jonathan, define it for 0:09:58.360 --> 0:10:00.840 us a little more. Is it about actual spending power 0:10:01.160 --> 0:10:05.240 or more like elevated inflation expectations or fear of recession? Yeah, 0:10:05.280 --> 0:10:09.080 I think it's mostly just the consumer's response to inflation. 0:10:09.520 --> 0:10:13.240 In other words, sticker shock is defined here is you know, 0:10:13.320 --> 0:10:15.520 you go to the store, You're expecting to pay one 0:10:15.559 --> 0:10:19.560 thing and the store is charging something else. Of course, 0:10:19.600 --> 0:10:22.720 you combine that with the fact that in real terms, 0:10:22.960 --> 0:10:26.559 people's purchasing power has been going down for the better 0:10:26.600 --> 0:10:30.840 part of two Wages have indeed been increasing at a 0:10:30.840 --> 0:10:34.600 meaningful clip, but they're losing their purchasing power after adjusting 0:10:34.600 --> 0:10:37.520 for inflation. So that's another thing I want to ask. 0:10:37.559 --> 0:10:40.640 When consumers retrench and it looks like they're beginning to 0:10:40.720 --> 0:10:43.600 just start retrenching, do they start sticking more closely to 0:10:43.640 --> 0:10:45.400 their jobs? Will we see it in the quits rate, 0:10:45.440 --> 0:10:49.080 for example, or the Jewels survey. Yeah, that's a very 0:10:49.120 --> 0:10:51.640 interesting point, you know, and when you think about how 0:10:51.679 --> 0:10:56.000 all these dynamics work together, is potentially going to be 0:10:56.240 --> 0:10:58.960 as weird as it sounds, maybe even a net positive 0:10:59.040 --> 0:11:02.400 in the short run as far as monetary policy goes. 0:11:02.880 --> 0:11:06.560 You know, there's some interesting tradeoffs there. The FED, of course, 0:11:06.760 --> 0:11:10.800 would love to see people quitting at lower rates and 0:11:10.840 --> 0:11:14.319 be able to get the trend rate of wage increases 0:11:14.400 --> 0:11:17.560 down from somewhere in the five percent range to something 0:11:17.600 --> 0:11:19.920 that they think is more sustainable, like a three point 0:11:20.000 --> 0:11:23.720 five Now. Bank of American CEO Bin moynahan told us 0:11:23.800 --> 0:11:26.680 that consumers are showing resilience. Are we talking about the 0:11:26.720 --> 0:11:28.800 same consumers or does it just take longer If we're 0:11:28.880 --> 0:11:31.880 to percolate through the banking system. I think what moynihan 0:11:32.200 --> 0:11:34.760 is saying is very much consistent with what we have 0:11:34.840 --> 0:11:38.280 seen in the data. Essentially, you know, three Q was 0:11:38.320 --> 0:11:42.480 a pretty decent quarter, and that's consistent with this sort 0:11:42.520 --> 0:11:45.839 of slow burn thesis. Right. We have to remember that 0:11:46.440 --> 0:11:50.800 the consumer went into two with an extraordinarily strong balance sheet, 0:11:51.559 --> 0:11:56.360 large cash balances, and a tremendous capacity to borrow more. 0:11:56.480 --> 0:11:59.400 They paid down a lot of their deaths during the pandemic, 0:11:59.480 --> 0:12:03.280 they re finance their mortgages at very attractive rate, and 0:12:03.360 --> 0:12:07.720 so they had a long, long runway. Then as much 0:12:07.760 --> 0:12:10.600 as the psychology, you know, starts to weigh on them, 0:12:10.600 --> 0:12:13.160 and I think that the psychology started to weigh on 0:12:13.240 --> 0:12:15.800 the months and months ago, you know, even when we 0:12:15.840 --> 0:12:18.760 first got hit with the gasoline shock. But they were 0:12:18.800 --> 0:12:21.160 able to take a step back and say, well, you know, 0:12:21.320 --> 0:12:23.880 this is tough, but I can deal with this for 0:12:23.960 --> 0:12:26.840 a few months, six months, and twelve months because my 0:12:26.920 --> 0:12:29.160 bank account is flushed. So I'm going to suck it 0:12:29.240 --> 0:12:31.760 up and I'm not going to change the way that 0:12:31.920 --> 0:12:35.840 I live. What the Morning Console data is flagging for 0:12:35.960 --> 0:12:39.640 us is that that runway is getting a little bit shorter, right, 0:12:39.840 --> 0:12:42.800 and people are finally starting to say, you know what, 0:12:43.120 --> 0:12:45.920 this is maybe not crisis mode for me yet, but 0:12:46.320 --> 0:12:50.719 I really need to start to make some lifestyle adjustments 0:12:50.760 --> 0:12:53.320 to make sure that I'm going to be okay if 0:12:53.360 --> 0:12:55.840 things get dicey going forward. So it's a little chilling 0:12:55.840 --> 0:12:57.600 when you see how Row saying that people are buying 0:12:57.640 --> 0:13:00.400 fewer toys, because the last people you want to punished 0:13:00.480 --> 0:13:03.200 in an environment where you're experiencing a little bit of 0:13:03.520 --> 0:13:07.000 tightening our children, right, the people you buy toys for. Yeah, 0:13:08.160 --> 0:13:10.400 and you know you bring up toys. I think the 0:13:10.440 --> 0:13:14.280 holiday season is another important part of this. If you want, 0:13:14.360 --> 0:13:15.960 you know, a little bit of a bull case to 0:13:16.120 --> 0:13:20.800 temper some of my my personal negativity on this. My 0:13:20.800 --> 0:13:24.680 my colleague Andrew Felsted wrote a great column recently where 0:13:24.720 --> 0:13:27.720 she really focuses on this is going to be the 0:13:27.800 --> 0:13:32.400 first holiday see is in without really any sort of 0:13:32.520 --> 0:13:36.640 restrictions on movement from COVID. So, you know, as much 0:13:36.720 --> 0:13:40.160 as some of these factors are starting to weigh, it 0:13:40.280 --> 0:13:43.120 could be that consumers, at least in many parts of 0:13:43.160 --> 0:13:47.000 the world reach for one last hurrah in this fourth quarter, 0:13:47.559 --> 0:13:49.800 and that you know, the slover and that I keep 0:13:49.880 --> 0:13:53.480 talking about gets pushed back yet another quarter here. But 0:13:53.520 --> 0:13:56.040 it is so fascinating just talking about inflation, isn't it, 0:13:56.080 --> 0:13:58.600 Because as you point out, at the beginning, it was 0:13:58.640 --> 0:14:02.040 gasoline used car price is then most of the inflation 0:14:02.240 --> 0:14:05.520 was being blamed on commodity cars after the invasion of Ukraine. 0:14:06.160 --> 0:14:08.600 But now it seems to be not just about things 0:14:08.600 --> 0:14:11.440 like shelter or used cars. It's broad and deep, as 0:14:11.480 --> 0:14:14.240 you point out. Yeah, absolutely, I think it's been pretty 0:14:14.240 --> 0:14:17.960 clear to anybody who has come to this debate with 0:14:18.000 --> 0:14:22.080 an open mind that inflation has been everywhere for at 0:14:22.120 --> 0:14:24.800 least the past six to nine months. It's a broad 0:14:24.880 --> 0:14:29.360 based adjustment in the price level. It's not about idiosyncratic factors. 0:14:29.800 --> 0:14:34.760 And you know, frankly, it began to six six to 0:14:34.840 --> 0:14:38.080 nine months ago. The team Transitory just kept on looking 0:14:38.160 --> 0:14:43.800 for new excuses for this thing. To the latest excuse 0:14:44.280 --> 0:14:47.280 seems to be, well, you know, let's focus on the 0:14:47.400 --> 0:14:50.640 lags in the housing data. And what I've been trying 0:14:50.640 --> 0:14:53.680 to say is just yes, of course, there are major 0:14:53.760 --> 0:14:56.480 lags in the housing data. Everybody is aware of that 0:14:56.600 --> 0:14:59.400 at this point. There have been many, many economist papers 0:14:59.400 --> 0:15:02.840 written about this. The Fed absolutely accounts for that when 0:15:02.880 --> 0:15:07.560 they conduct monetary policy. But you have, you know, plenty 0:15:07.600 --> 0:15:11.760 of market participants and commentators out there saying, well, look, 0:15:11.800 --> 0:15:14.080 inflation is actually not that bad. Look how much of 0:15:14.120 --> 0:15:17.560 an influence housing is having right now? And actually no, 0:15:18.000 --> 0:15:21.880 you know, every month, I do the exercise of let's 0:15:21.960 --> 0:15:25.560 strip housing out of this completely, because yeah, they're right, 0:15:25.600 --> 0:15:30.680 it could distort your ability to see an inflection point. 0:15:31.000 --> 0:15:34.160 But that inflection point is just not there period. You 0:15:34.160 --> 0:15:37.000 you do the exercise, you strip it out, uh, and 0:15:37.160 --> 0:15:41.080 core inflation is still very high. It's in many categories 0:15:41.120 --> 0:15:44.320 that have absolutely nothing to do with housing. Big gainers 0:15:44.360 --> 0:15:47.920 in the past month, including pet services. I'm not sure 0:15:47.920 --> 0:15:53.280 where they are impacted by mortgages, you know, automobile insurance. Right, 0:15:53.520 --> 0:15:57.000 it's just sort of pick your poison. And the problem 0:15:57.120 --> 0:16:00.840 here is broad based structural inflation and you just can't 0:16:00.880 --> 0:16:02.880 make excuses for it. And you point out that it 0:16:02.920 --> 0:16:05.280 could actually make a resurgence, that it doesn't mean that 0:16:05.360 --> 0:16:08.560 it's plateaued at this point. How long does it take 0:16:08.600 --> 0:16:10.960 for consumers slowdown? And I know you're calling it a 0:16:11.000 --> 0:16:13.200 slow burn, but how long does it take for it 0:16:13.240 --> 0:16:15.320 to eventually be reflected in prices, in other words, to 0:16:15.360 --> 0:16:17.120 shift to the supply side of the economy. And how 0:16:17.160 --> 0:16:19.240 does that even happen our companies forced in our their 0:16:19.240 --> 0:16:21.640 margins eventually, or how does it work? That's what you 0:16:21.680 --> 0:16:25.000 would expect, right, you know, it depends on what industry 0:16:25.040 --> 0:16:27.440 you're talking about. Right, So, if you're talking about a 0:16:27.560 --> 0:16:33.000 services industry where they're facing very sticky wage pressure, for instance, 0:16:33.280 --> 0:16:35.840 from that tight labor market, but all of a sudden 0:16:36.440 --> 0:16:38.720 they're waking up to the fact that they can no 0:16:38.800 --> 0:16:42.440 longer pass on their higher input costs to the folks 0:16:42.440 --> 0:16:45.720 that are dining at their establishments, you might start to 0:16:45.720 --> 0:16:49.840 see if those margin pressures come up as soon as now. Um, 0:16:49.920 --> 0:16:53.520 you know, I think the consumer sector is an important 0:16:53.520 --> 0:16:57.000 place to remember the famous long and variable lags, and 0:16:57.320 --> 0:17:00.120 they are variously estimated to be in the twelve to 0:17:00.240 --> 0:17:04.800 eighteen months range. But basically, like I say, it's going 0:17:04.840 --> 0:17:08.199 to take some time for this to show up in 0:17:08.359 --> 0:17:13.200 the corporate numbers. You know, it seems reasonable to say, 0:17:13.320 --> 0:17:16.560 you know, maybe Q four is is the inflection point. 0:17:16.840 --> 0:17:20.560 But if things keep going the way they have been going, 0:17:21.200 --> 0:17:25.200 which is to say, little by little the consumer adjust 0:17:25.240 --> 0:17:28.760 their behavior each month, you're still not going to see 0:17:28.840 --> 0:17:34.440 any shocking shifts in the nominal numbers, maybe for many 0:17:34.520 --> 0:17:37.440 quarters to come well, which means it's on for the FED. 0:17:37.520 --> 0:17:40.720 Right another seven five basis point hike in November most 0:17:40.720 --> 0:17:44.520 likely does that punish the consumer instantaneously or even quicker 0:17:44.560 --> 0:17:47.720 than six to eighteen months. You know, it really doesn't 0:17:47.760 --> 0:17:51.480 seem like it. Until now, the consumer sector has really 0:17:51.560 --> 0:17:54.520 been able to take these hikes. I think everybody is 0:17:54.560 --> 0:17:57.080 concerned that, you know, one day we're going to wake 0:17:57.200 --> 0:17:59.960 up to the true impact of these long and very 0:18:00.040 --> 0:18:02.760 of ole legs. And I think the Deves would say 0:18:02.880 --> 0:18:05.760 that the FED maybe has no idea what it's getting into, 0:18:06.119 --> 0:18:08.240 that it could be ugly when we finally get there. 0:18:08.920 --> 0:18:11.960 But you know, the real question just comes down to 0:18:12.240 --> 0:18:15.320 are you going to see an outside shock? You know, 0:18:15.400 --> 0:18:18.280 are we going to wake up one day and see 0:18:18.400 --> 0:18:21.800 that the housing market is crashing and suddenly people are 0:18:21.840 --> 0:18:24.640 looking at their home equity and they're saying, oh my goodness, 0:18:24.680 --> 0:18:28.320 I need to dramatically change my consumer behaviors. That would 0:18:28.320 --> 0:18:31.480 certainly be a breaking point. Any number of things that 0:18:31.520 --> 0:18:34.320 could happen with the war and the energy market could 0:18:34.359 --> 0:18:37.040 be a breaking point. Any number of things that could 0:18:37.080 --> 0:18:41.000 happen with European and Asian economies could do the trick. 0:18:41.640 --> 0:18:45.840 So it's impossible and probably imprudent to guess what such 0:18:45.880 --> 0:18:48.440 a shock could actually be. But there are so many 0:18:48.440 --> 0:18:51.200 things out there, Jonathan. How much is the bond market 0:18:51.240 --> 0:18:53.760 reflecting this as opposed to say, you know, a whole 0:18:53.760 --> 0:18:56.719 bunch of things, including expectations for Fed policy. Yeah, I 0:18:56.720 --> 0:18:59.080 think the bond market seems to be in a fairly 0:18:59.200 --> 0:19:03.879 rational place, right. You've got the two year treading essentially 0:19:04.600 --> 0:19:07.679 call it thirty five forty basis points below where the 0:19:07.760 --> 0:19:11.080 FED funds futures would imply. You know, we think the 0:19:11.200 --> 0:19:14.800 terminal rate is headache. That makes a degree of sense, right, 0:19:14.880 --> 0:19:18.920 because the bontom market is pricing in this possibility that 0:19:19.160 --> 0:19:21.520 they may well not get there, that they may have 0:19:21.600 --> 0:19:25.120 to stop short because one of this series of unfortunate 0:19:25.119 --> 0:19:28.520 events could play out and they'll have to stop sooner. Jonathan, 0:19:28.560 --> 0:19:32.840 live in there. You're listening to Bloomberg Opinion. I'm Valley Quinn. Well, 0:19:32.920 --> 0:19:35.240 it's a call that's been made before once or twice 0:19:35.320 --> 0:19:38.960 over the past one years Bloomberg Opinions. David Fickling, though, 0:19:39.119 --> 0:19:41.119 is making it now. For the first time I had 0:19:41.119 --> 0:19:44.440 a conversation with him where all was revealed. David, you 0:19:44.520 --> 0:19:46.720 made a bold call in a recent column, and you 0:19:46.800 --> 0:19:49.000 say it's mostly your own power's fault. I guess what 0:19:49.119 --> 0:19:50.879 isn't these days. But we'll get to his fault in 0:19:50.920 --> 0:19:53.400 a moment. Talk to us about this bold call. It's 0:19:53.560 --> 0:19:55.560 kind of the scariest call that you ever make as 0:19:55.600 --> 0:19:58.960 someone who writes about energy, because it's a call about 0:19:58.960 --> 0:20:01.040 peak oil, and it's a phrase that you hear from 0:20:01.040 --> 0:20:03.320 time to time, and almost always when you have suggested 0:20:03.359 --> 0:20:05.600 it's wrong. In fact, I was tracing back one historical 0:20:05.680 --> 0:20:08.120 call of a peaking in oil production made in nineteen 0:20:08.240 --> 0:20:11.159 nineteen by the chief geology of the U S Geological Survey. 0:20:11.640 --> 0:20:13.680 He said, peaking our production in the US was going 0:20:13.720 --> 0:20:16.280 to be in nineteen twenty one UM. And so here 0:20:16.320 --> 0:20:18.160 we are a century or later, and we are very, 0:20:18.280 --> 0:20:21.200 very very far above that peak. And of course, about 0:20:21.240 --> 0:20:22.960 fifteen years ago there was a lot of talk about 0:20:22.960 --> 0:20:25.320 a sort of peaking conventional oil production. And then of 0:20:25.359 --> 0:20:27.960 course we had the shale oil boom and that was 0:20:28.000 --> 0:20:29.560 the end of that. But back then a lot of 0:20:29.560 --> 0:20:31.960 people thought that essentially the world was running out of 0:20:31.960 --> 0:20:34.400 oil and that prices were going to go ridiculously high. 0:20:34.480 --> 0:20:36.879 We did in two thousand and eight see oil at 0:20:36.880 --> 0:20:39.280 nearly hundred and fifty dollars a barrel. Because so obviously 0:20:39.320 --> 0:20:41.600 I've got a little bit of trepidation about making this claim, 0:20:41.960 --> 0:20:44.040 but I think there is reason to think that things 0:20:44.160 --> 0:20:47.440 are actually changing quite substantially, because I think the key 0:20:47.560 --> 0:20:50.840 is not a peak in oil production and geological shortage 0:20:50.880 --> 0:20:52.720 of it. I don't think we'll ever see that, but 0:20:52.960 --> 0:20:55.680 rather is a peak in demand, which is a thing 0:20:55.800 --> 0:21:00.000 we do see in commodity market where essentially people starts 0:21:00.000 --> 0:21:03.440 obstituting other products and the products are no longer as 0:21:03.520 --> 0:21:06.159 much in demand as they were. And I think we 0:21:06.200 --> 0:21:09.080 are close to or I think we've probably passed that point. 0:21:09.080 --> 0:21:11.639 And I think we're already fairly close to that point. 0:21:11.720 --> 0:21:14.399 But the crucial factories, as you said, what's happening with 0:21:14.440 --> 0:21:17.480 the Federal Reserve, what makes you say that we're past 0:21:17.560 --> 0:21:19.840 peake demand even though I know all the workouts out 0:21:19.880 --> 0:21:22.040 there are that demand is going to be less next year. 0:21:22.480 --> 0:21:24.720 I think the crucial factor is half of all of 0:21:24.760 --> 0:21:28.880 demand goes into road transport fuel essentially, and that is plastics, 0:21:28.920 --> 0:21:32.560 and everything else. But it's crucial to think about what 0:21:32.640 --> 0:21:35.520 has been happening with road transport fuel efficiency over the 0:21:35.600 --> 0:21:38.960 last fifteen years. After that last hundred and fifty dollar 0:21:39.040 --> 0:21:42.360 barrel oil period in two thousand and eight, and obviously 0:21:42.359 --> 0:21:45.200 with people more focused on the issues of climate change, 0:21:45.480 --> 0:21:49.040 there was some pretty dramatic improvements in energy efficiency that 0:21:49.080 --> 0:21:51.800 were passed file fuel economy in the US Europe. We 0:21:51.880 --> 0:21:54.639 see the same also in China and India. Every major 0:21:54.680 --> 0:21:57.320 car market. The cars are required now to be much 0:21:57.400 --> 0:22:00.119 much more efficient than they were fifteen years ago. How 0:22:00.200 --> 0:22:03.719 the life of a car is about twelve years, so 0:22:03.800 --> 0:22:06.560 we're sort of twelve years on from these regulations passing, 0:22:07.080 --> 0:22:10.320