WEBVTT - Jay Powell, Tech, Credit, and Markets (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.000 at Bloomberg dot com slash podcast. We've got pretty groupeda 0:00:23.040 --> 0:00:24.720 here with me because Matt Miller is we have no 0:00:24.840 --> 0:00:28.200 idea where he is. Wes He's in the ocean somewhere. 0:00:28.200 --> 0:00:30.720 He'll be back at some point, but he's missing. An 0:00:30.800 --> 0:00:34.800 all star round table here. Neil Grossman, former c I 0:00:34.920 --> 0:00:38.000 O with t k n G Capital, Danielle di Martino 0:00:38.040 --> 0:00:43.320 Booth Quill Intelligence, both in our Bloomberg Interactive Broker Studio, 0:00:43.440 --> 0:00:45.879 stars from Paul Gold stars for me because you're not 0:00:45.880 --> 0:00:48.680 phoning it in your coming. All right, guys, here's my takeaway. 0:00:48.720 --> 0:00:50.360 I don't know anything, but you guys are the experts. 0:00:50.360 --> 0:00:54.160 But listening to Pal yesterday, I just felt like he's 0:00:54.320 --> 0:01:00.400 over doing. He's over compensating. Danielle, do you agree. I 0:01:00.440 --> 0:01:04.280 don't think he's overcompensating as much as he is. He's 0:01:04.319 --> 0:01:06.960 kind of the new sheriff in town, and he really is. 0:01:07.680 --> 0:01:10.880 I maintained that his aim is to kill the feed PUT. 0:01:11.520 --> 0:01:13.520 And if you want to do that, then you disregard 0:01:13.959 --> 0:01:17.120 any signs of slowing inflation, You disregard any kind of 0:01:17.120 --> 0:01:20.399 anecdotal data on the employment market. You just stick to 0:01:21.120 --> 0:01:24.399 the lad the most lagging data in order to continue 0:01:24.440 --> 0:01:27.319 pushing through with your agenda. If your agenda is to 0:01:27.400 --> 0:01:31.560 kill the FED put, this agenda to kill the FED put, 0:01:31.680 --> 0:01:33.839 or is it? Do we take him out his word? Neil, 0:01:34.560 --> 0:01:36.920 I'm just here to fight inflation. I well, first of all, 0:01:36.920 --> 0:01:39.480 I agree with Danielle. I think the problem is that 0:01:42.000 --> 0:01:45.000 he's doing as little in the sense as he did before. 0:01:45.040 --> 0:01:48.600 I mean, if you want to we had hyper liquidity 0:01:48.640 --> 0:01:52.320 for generation, and in fact, I think it's not only 0:01:52.360 --> 0:01:55.360 killing the fed PUT, but the problem with letting stocks rise. 0:01:55.400 --> 0:01:58.040 I mean, you look, you went from thirty four and 0:01:58.160 --> 0:02:01.040 changed to almost four thousand and week or ten days. 0:02:01.920 --> 0:02:06.080 Ask yourself what four s and P points equates to 0:02:06.240 --> 0:02:08.840 in liquidity. And the bottom line is if they're going 0:02:08.919 --> 0:02:12.399 to reflate the stock market while you still have I 0:02:12.400 --> 0:02:14.519 I don't totally agree. Yes, there are signs inflation is 0:02:14.560 --> 0:02:16.880 coming down. But the real question, by let's let's throw 0:02:16.919 --> 0:02:20.760 back in a really interesting word called transitory. We are 0:02:20.840 --> 0:02:25.480 going to have a transitory period now where prices moderate. 0:02:25.520 --> 0:02:27.800 My guess is by next June or so, we're gonna 0:02:27.800 --> 0:02:29.400 probably at four and a half to five and a 0:02:29.400 --> 0:02:32.280 half six inflation. But the real question is going to 0:02:32.400 --> 0:02:36.360 be where we settle in after that period. And my 0:02:36.480 --> 0:02:38.720 guess is we're gonna be lucky if it's three to five, 0:02:39.160 --> 0:02:41.600 and it's going to have high the upside risk if 0:02:41.600 --> 0:02:43.920 they don't do why did they talk about two? By 0:02:43.919 --> 0:02:46.920 the way, Well, there's their mandate zero. Let's keep that 0:02:46.960 --> 0:02:49.959 in mind, price stability. If anyone has any mathematical training, 0:02:50.280 --> 0:02:54.040 zero rate of change. Well, green Span maintained that zero 0:02:54.240 --> 0:02:56.880 was the absolute ideal rate, and it was not until 0:02:56.919 --> 0:02:59.960 green Span left that Bernanke and Yellen were able to 0:03:00.120 --> 0:03:02.880 tag team and impose that two percent inflation target. That 0:03:03.000 --> 0:03:05.680 became very arbitrary. Well, so I would not agree with 0:03:05.680 --> 0:03:07.680 you with not or I think the problem is they 0:03:07.720 --> 0:03:11.960 have a dual mandate, which is full employment and price 0:03:12.000 --> 0:03:15.280 stability has nothing to do with equities. The problem is 0:03:15.280 --> 0:03:19.280 it becomes a two factor optimization problem and you it's 0:03:19.280 --> 0:03:22.880 almost impossible to get both near zero. The sad thing 0:03:22.960 --> 0:03:25.600 is they actually had it almost perfectly in a sense, 0:03:25.600 --> 0:03:28.120 with one and a quarter one and a half inflation 0:03:28.840 --> 0:03:33.720 and roughly in unemployment at these rates, and and um 0:03:33.919 --> 0:03:36.320 Powell and BERNANKI decided they wanted to say that's not 0:03:36.360 --> 0:03:39.480 good enough. We want to push inflation up, by the 0:03:39.480 --> 0:03:41.880 way the two percent averaging, which they've gone for it, 0:03:41.920 --> 0:03:43.920 so I think he should do. You're gonna have to 0:03:44.000 --> 0:03:46.520 run inflation at one percent or less for almost a 0:03:46.520 --> 0:03:49.560 decade to get back to a two percent average. They've 0:03:49.600 --> 0:03:52.120 let the cat out of the bag, and the distortions 0:03:52.120 --> 0:03:55.560 with this type of inflation are gonna are gonna propagate 0:03:55.600 --> 0:03:59.440 through this economy and for a long time to come. Well, Danielle, 0:03:59.480 --> 0:04:02.520 that brings me to a question on the fiscal role 0:04:02.640 --> 0:04:05.120 that Washington, Washington plays. We're looking at two percent long 0:04:05.240 --> 0:04:08.120 term inflation target? Is that taking into account these massive 0:04:08.160 --> 0:04:11.400 moves from Washington to bring a lot of this manufacturing 0:04:11.560 --> 0:04:14.560 right back here state side, things cost more money. Wage 0:04:14.560 --> 0:04:17.200 spiral is a very real thing. Doesn't that kind of 0:04:17.240 --> 0:04:19.719 throw the two percent long term inflation target out the window? 0:04:19.960 --> 0:04:22.760 The whole idea of on shoring, is that there's an 0:04:22.800 --> 0:04:26.760 implicit agreement to have wages run higher than they have before, 0:04:26.839 --> 0:04:30.359 given what caused off shoring to begin with, which was 0:04:30.440 --> 0:04:35.000 desperately seeking lower wages somewhere in Asia. So, uh, you know, 0:04:35.200 --> 0:04:37.480 if this is really the long term goal, and you 0:04:37.560 --> 0:04:41.159 see in company earnings reports and conference calls that there 0:04:41.160 --> 0:04:45.279 are tons of mentions of freend shoring, reshoring, talking about 0:04:45.839 --> 0:04:49.160 building stronger ties between Canada, Mexico, and the United States, 0:04:49.200 --> 0:04:51.640 all of this is going to be inflationary on a 0:04:51.760 --> 0:04:55.960 long term structural basis in order to reverse years of 0:04:56.440 --> 0:05:00.679 effectively China exporting deflation to the United States via lower 0:05:00.680 --> 0:05:02.640 wage costs. But then why is the Fed still sticking 0:05:02.640 --> 0:05:05.719 to that two inflation target? Then I think right now 0:05:05.760 --> 0:05:09.039 that the two percent inflation target gives j. Powell cover 0:05:09.440 --> 0:05:12.400 because it's such a difficult number to get back to. 0:05:12.800 --> 0:05:15.960 But he keeps repeating the number two, meaning don't get 0:05:15.960 --> 0:05:18.000 your hopes up that that I'm going to pivot if 0:05:18.000 --> 0:05:21.480 it hits four. Maybe. Well, first of all, again, this 0:05:21.520 --> 0:05:23.800 is the problem, and this is my legal side, you know, 0:05:24.400 --> 0:05:31.680 as a lawyer as well, um the shop. Um, the 0:05:30.600 --> 0:05:36.400 the problem is there's there's a statutory authorization. The FED 0:05:36.520 --> 0:05:39.200 is an agency that is created and it's been given 0:05:39.680 --> 0:05:42.480 a legal obligation. It really shouldn't be up to the 0:05:42.480 --> 0:05:44.479 FED to read deefine, which by the way, they have 0:05:44.560 --> 0:05:46.719 been doing for a long time. But for the FED 0:05:46.800 --> 0:05:50.799 to simply say we don't really care and inflation shouldn't 0:05:50.839 --> 0:05:54.799 be that's congress is obligation. Congress can change it. Otherwise, 0:05:54.800 --> 0:05:57.440 the FED should be looking at what the authorization statutes 0:05:57.520 --> 0:06:00.320 say and they should be following it. And that actually, 0:06:00.320 --> 0:06:03.000 again one of the things I like to say about economists, 0:06:03.120 --> 0:06:07.040 they're not really mathematicians. They use the wrong mathematical manifold, 0:06:07.480 --> 0:06:09.800 the manifold they should be using as a five or 0:06:09.839 --> 0:06:13.080 ten year lens. And trying to do things for three 0:06:13.120 --> 0:06:16.039 weeks to have a shorter time span than a tweet 0:06:16.400 --> 0:06:20.800 is a bad idea. Like a true trader, Danielle, are 0:06:20.800 --> 0:06:23.560 we going into recession here? I just had the bunch 0:06:23.560 --> 0:06:26.680 of transportation companies saying they don't see it, but boy, 0:06:26.680 --> 0:06:29.040 everybody else seems to see it. Well, it's ironic that 0:06:29.080 --> 0:06:31.440 you say transportation companies, because truckers are going out of 0:06:31.440 --> 0:06:33.840 business at the fastest pace in two thousand eighteen. Right 0:06:33.880 --> 0:06:37.520 now and transportations in a pickle um. But no, I 0:06:37.520 --> 0:06:39.800 I don't think that there should be a debate anymore 0:06:39.800 --> 0:06:42.000 about whether or not we're going into recession. When the 0:06:42.000 --> 0:06:46.120 conference board queries uh CEO of them say that we 0:06:46.200 --> 0:06:50.040 are or almost in a recession and thereby you know, 0:06:50.080 --> 0:06:52.120 therefore they are in cost cutting mode. I would point 0:06:52.160 --> 0:06:55.160 out that the I S M Services UH survey that 0:06:55.240 --> 0:06:57.120 just came out a few minutes ago showed that that 0:06:57.400 --> 0:07:01.520 employment actually such a contraction last month. So if if 0:07:01.560 --> 0:07:04.240 the employment caboose is finally going to come into the station, 0:07:04.680 --> 0:07:06.719 I mean, that's that's the final nail and the coffin 0:07:06.760 --> 0:07:11.720 of the recession debate. I'm confused, Neil, when it comes 0:07:11.760 --> 0:07:14.600 to what you're actually supposed to do in this environment 0:07:14.640 --> 0:07:17.120 in terms of the trade itself, because it kind of 0:07:17.120 --> 0:07:21.040 felt like the bowl case for the equity market and 0:07:21.200 --> 0:07:24.720 arguably for yields as well, was the idea that the 0:07:24.800 --> 0:07:27.040 terminal rate would stall out at five percent and that 0:07:27.080 --> 0:07:29.280 was going to be the peak policy rate. But it 0:07:29.400 --> 0:07:31.880 keeps kind of shifting higher and higher every every couple 0:07:31.920 --> 0:07:33.760 of months, So it kind of feels like there's this 0:07:33.800 --> 0:07:36.440 consistent upside risk that just doesn't go away. What do 0:07:36.480 --> 0:07:38.920 you trade in that environment? Well, a couple of things. 0:07:39.000 --> 0:07:41.960 Right now, I think UM number one. From a dollar perspective, 0:07:42.000 --> 0:07:45.320 this probably still raises um the strength of the dollar, 0:07:45.400 --> 0:07:48.280 at least in the short term. You're seeing, for example, 0:07:48.320 --> 0:07:51.520 commodities come off today. I think probably commodity prices have 0:07:51.560 --> 0:07:54.000 some pressure, which of course is what they what they want. 0:07:54.680 --> 0:07:56.440 I've been having a rougher time trying to figure out 0:07:56.440 --> 0:07:57.960 what I would do with the yield curve. I'm looking 0:07:57.960 --> 0:07:59.680 for a point where I can actually put on a 0:07:59.760 --> 0:08:02.000 yield curse steep and her. I think the long end 0:08:02.000 --> 0:08:04.840 of the yeld curve is still too low, but you know, 0:08:04.880 --> 0:08:07.080 you're still fighting with the adjustment at the front of 0:08:07.080 --> 0:08:10.280 the curve. And from a broader perspective, what I like 0:08:10.400 --> 0:08:14.200 to in this environment I use I use optionality because 0:08:14.240 --> 0:08:16.640 I think with higher volatility prices, even though we have 0:08:16.720 --> 0:08:20.920 had the haven't had the explosion in volatility that you 0:08:21.000 --> 0:08:24.080 might like to see, volatility is still high enough that 0:08:24.160 --> 0:08:28.680 you can put on trades with very very favorable break even. So, um, 0:08:28.720 --> 0:08:32.160 that's sort of what I've been doing. Um. Hey, Daniel, 0:08:32.640 --> 0:08:35.000 you know, I'm a simple equity guy, and I get 0:08:35.000 --> 0:08:37.760 the inflation talk. I get the recession talk. I think 0:08:37.760 --> 0:08:40.080 I've got that. What else am I missing? What's the 0:08:40.120 --> 0:08:43.080 thing out there that you think maybe investors or people 0:08:43.080 --> 0:08:45.600 in general are just not talking about enough, are thinking 0:08:45.600 --> 0:08:49.480 about enough? So I think I think what is getting 0:08:49.559 --> 0:08:52.920 left behind is any talk or discussion of what's happening 0:08:52.960 --> 0:08:57.400 in the credit markets. You've seen rates volatility, The VIX 0:08:57.520 --> 0:09:00.640 is like subdued, Yes, it's like it under a rock. 0:09:01.280 --> 0:09:04.880 But rates volatility viewed through the move index has just 0:09:05.240 --> 0:09:08.560 gone ballistic. It's at the highest level since two thousand seven, 0:09:09.000 --> 0:09:12.880 and it's basically saying there's a credit event lurking out, 0:09:13.440 --> 0:09:15.720 lurking out there, and we forget that in two thousand eighteen, 0:09:16.080 --> 0:09:18.200 the last time we were trying quantitative tightening that it 0:09:18.240 --> 0:09:20.920 was a credit event that actually bled through into the 0:09:20.960 --> 0:09:24.720 equity market at around this time of the year, heading 0:09:24.720 --> 0:09:28.080 into Thanksgiving in the holidays that caused that that Christmas 0:09:28.120 --> 0:09:30.400 Eve sell off in two thousand eighteen, which by the way, 0:09:30.400 --> 0:09:34.000 prompted the first pal pivot. That's right, That's right, So, Neil, 0:09:34.040 --> 0:09:36.000 I mean again, I'll I'll put it to you. What 0:09:35.800 --> 0:09:38.160 what am I missing? I'm a simple guy. Well, let's 0:09:38.160 --> 0:09:41.080 buy stock. Let's go to things for going back. Let's 0:09:41.080 --> 0:09:42.920 go back to the Fed for one moment. That there 0:09:42.920 --> 0:09:48.360 are two things they're watching, employment and inflation, and the 0:09:48.400 --> 0:09:51.280 employment one is beginning to rise in priority because the 0:09:51.360 --> 0:09:54.080 unemployment rate has stults so low. You have to understand, 0:09:54.640 --> 0:09:58.560 if you went back in history up until COVID and 0:09:58.559 --> 0:10:04.400 what happened afterwards, the single highest twelve month average job 0:10:04.480 --> 0:10:09.080 creation was about three thirty thousand a month. Even after 0:10:09.200 --> 0:10:13.319 last month's number, we're still at four hundred fifty one 0:10:13.360 --> 0:10:17.160 thousand a month. So and and an historical basis, the 0:10:17.240 --> 0:10:19.640 general view has been that a hundred hundred fifty thousand 0:10:19.760 --> 0:10:23.680 is a static employment market. Now, we have a very 0:10:23.760 --> 0:10:28.360 low um job participation rate, and so if you can 0:10:28.400 --> 0:10:31.960 get a large jump that would help bring that, you know, 0:10:32.000 --> 0:10:34.040 push up the unemployment rate. But if we're not going 0:10:34.080 --> 0:10:37.440 to get that, To get a four and a half 0:10:37.480 --> 0:10:40.080 percent unemployment rate, which they're talking about is going to 0:10:40.160 --> 0:10:45.280 take a lot of work, and even that, well you 0:10:45.520 --> 0:10:47.040 just have to look at them. It may happen next 0:10:47.120 --> 0:10:48.880 year this time, but it's not going to happen easily. 0:10:48.920 --> 0:10:50.719 For six months. You're gonna have to lay off, you're 0:10:50.720 --> 0:10:54.080 gonna have to have losing jobs two hundred thousand a 0:10:54.080 --> 0:10:56.960 month for six months net to get there. So I'm 0:10:56.960 --> 0:10:58.840 gonna push back a little bit if you if you 0:10:58.920 --> 0:11:02.880 look into the weekly jobless claims data, which appears to 0:11:02.960 --> 0:11:06.480 be benign on the surface, you'll see that in early 0:11:06.520 --> 0:11:12.040 September that jobless claims nationwide we're down. In the subsequent 0:11:12.080 --> 0:11:16.160 weeks up until this morning's data, now they're down. Continuing 0:11:16.160 --> 0:11:19.680 claims bottomed out in early May. They have continued to 0:11:19.800 --> 0:11:22.559 quietly march upwards. Continuing claims is the one that you 0:11:22.559 --> 0:11:26.160 should follow more closely because that's people actually week after 0:11:26.200 --> 0:11:30.160 week collecting unemployment insurance. So that's an early May low 0:11:30.240 --> 0:11:34.000 point that I think there's an unemployment rate shock building 0:11:34.000 --> 0:11:36.520 in this system right now. Just just what this economy needs. 0:11:36.520 --> 0:11:39.160 Al Right, guys, thank you so much for spending this 0:11:39.240 --> 0:11:41.280 extended a period of time with us. We really appreciated 0:11:41.440 --> 0:11:44.400 smart discussion. That's what we tried to do here. Neo Grossman, 0:11:44.480 --> 0:11:48.320 former CEO of t k n G Capital, and Daniel D. 0:11:48.400 --> 0:11:52.080 Martino Booth of Quill Intelligence, both in the Bloomberg Interactive 0:11:52.080 --> 0:11:54.720 Broker studio. They are not mailing it in so the guys, 0:11:55.000 --> 0:12:00.680 you get gold stars here. Read on the screen for 0:12:00.720 --> 0:12:03.880 your equities. We've got the ten year treasury yielding four 0:12:03.880 --> 0:12:06.400 point one four percent here. I want to check in 0:12:06.440 --> 0:12:09.240 with a professional who does this stuff for a living 0:12:09.280 --> 0:12:11.360 to get a sense of where we go from here, 0:12:11.880 --> 0:12:15.200 because we have a Federal Reserve that is raising rates 0:12:15.200 --> 0:12:18.240 and they may go even higher than market initially anticipated. 0:12:18.520 --> 0:12:22.640 Brent Shooty, he's a chief investment strategist for Northwestern UH Mutual. 0:12:22.720 --> 0:12:24.720 We got an NBA from Chicago, so that means he 0:12:24.800 --> 0:12:27.480 likes numbers. I'm not a real big numbers guy, but 0:12:27.520 --> 0:12:30.000 that's why we talk to these smart people. So, Brett, 0:12:30.000 --> 0:12:34.280 what did you take away from FED Chairman Pal yesterday? 0:12:34.360 --> 0:12:37.600 Because that seemed to move the markets yesterday afternoon and today, 0:12:38.320 --> 0:12:40.480 so I think it's good. I started talking about long 0:12:40.520 --> 0:12:42.520 and variable legs and so they've done a lot already, 0:12:42.600 --> 0:12:45.000 and the economy is weak. We can talk about that 0:12:45.000 --> 0:12:46.679 because I keep hering the economy strong, and I think 0:12:46.720 --> 0:12:49.200 we're one jobs report away from ending that conversation, which 0:12:49.200 --> 0:12:52.320 maybe tomorrow's um but in general, I'm glad they brought 0:12:52.320 --> 0:12:54.600 that conversation in. But to me, the FED is still 0:12:54.640 --> 0:12:57.520 too backwards looking Um, they are looking at the CPI 0:12:57.720 --> 0:12:59.280 data and that's what they're looking at. And they're so 0:12:59.360 --> 0:13:01.520 worried about the US to the nineteen seventies that they're 0:13:01.520 --> 0:13:03.559 going to go too far. I don't. I don't think 0:13:03.559 --> 0:13:05.920 they have to do much more of anything. I think 0:13:05.960 --> 0:13:08.160 you're seeing the economy weekend. I think you're seeing all 0:13:08.160 --> 0:13:12.440 the forward looking variables of inflation coming down. That's why 0:13:12.440 --> 0:13:14.360 I think the market is actually starting to come off 0:13:14.400 --> 0:13:16.319 the boil. Just are starting to rally just a bit 0:13:16.360 --> 0:13:19.360 today or at least erase some the losses because the 0:13:19.360 --> 0:13:21.720 market sees the potential for a week jobs report tomorrow 0:13:21.800 --> 0:13:25.200 and then what happens to me, I think that's gonna 0:13:25.200 --> 0:13:28.199 be done soon. One of the things that stuck out 0:13:28.200 --> 0:13:30.959 to me which Harryan Powell spoke yesterday was he said, well, 0:13:31.240 --> 0:13:34.720 the risk to overtightening is still less than undertightening. And 0:13:34.720 --> 0:13:38.120 the logic he kind of put out was if we overtightened, 0:13:38.160 --> 0:13:40.320 we can use our policy tools a k a. Cutting 0:13:40.360 --> 0:13:44.080 rates to kind of reverse and back pedal a little bit. 0:13:44.120 --> 0:13:47.720 But I have to ask if, if if the Federal 0:13:47.720 --> 0:13:52.240 Reserve has undergone so much scrutiny for perhaps using of 0:13:53.000 --> 0:13:55.480 the idea of cutting rates to the point where created 0:13:55.559 --> 0:13:57.559 kind of a bubble in asset prices, which I think 0:13:57.600 --> 0:14:01.000 is consensus now that it did. Can we really take 0:14:01.040 --> 0:14:03.080 to your power at his word that he's willing to 0:14:03.120 --> 0:14:06.160 cut rates when it has gone too far. I think 0:14:06.200 --> 0:14:07.600 you hit the nail on the head. I mean to me, 0:14:07.960 --> 0:14:09.959 if you recall. So the odd thing about all this 0:14:10.040 --> 0:14:11.560 is that you know, two or three years ago we're 0:14:11.559 --> 0:14:14.200 talking about deflation and talking about getting inflation up, and 0:14:14.200 --> 0:14:16.640 the Federal Reserve would tell you, look, we have all 0:14:16.679 --> 0:14:19.400 the tools necessary, so when inflation rises, we know how 0:14:19.440 --> 0:14:21.040 to stomp it out. But we don't know how to 0:14:21.040 --> 0:14:23.720 create inflation. We don't know how to create recoveries that 0:14:23.760 --> 0:14:25.960 are really robust yet. And so think about what he 0:14:25.960 --> 0:14:28.640 told you yesterday. He told you the exact opposite. What 0:14:28.800 --> 0:14:30.680 just goes to show you how how how kind of 0:14:30.720 --> 0:14:33.800 reactionary this Federal Reserve is. And to me, I don't 0:14:33.800 --> 0:14:35.640 think that's as easy as that. I do think they 0:14:35.640 --> 0:14:38.200 will cut rates. But what I worry about is that 0:14:38.240 --> 0:14:40.360 you have all these people who have been rehired into 0:14:40.360 --> 0:14:42.960 the labor market. I worry that they're going to lose 0:14:43.000 --> 0:14:45.800 their jobs and then become disenfranchised and drop out of 0:14:45.800 --> 0:14:48.280 the labor market for some time, which will hurt our 0:14:48.280 --> 0:14:51.320 economic growth. I don't think the FED needs to eviscerate 0:14:51.360 --> 0:14:54.440 the labor market to get inflation down. I think it's happening, 0:14:54.600 --> 0:14:56.560 and I think it's so um. I don't know what 0:14:56.600 --> 0:14:58.600 the correct word is. I think his comments were a 0:14:58.640 --> 0:15:02.120 little out of line with what reality actually is. Pretty 0:15:02.160 --> 0:15:06.640 guess where Brent in the Northwestern Mutual folks reside is 0:15:06.760 --> 0:15:09.480 the Chicago. No, it's even better than that. Remember my 0:15:09.560 --> 0:15:13.680 favorite financial market that is most overlooked Milwaukee is Milwaukee. 0:15:13.760 --> 0:15:17.360 The wicked smart people Milwaukee. I was there two or 0:15:17.360 --> 0:15:19.560 three times a year when I was a cellsider, because 0:15:19.560 --> 0:15:22.240 there's some smart people there, you know, Northwestern Mutual. We've 0:15:22.240 --> 0:15:24.800 got the strong folks, lots of good I've never been. Oh, 0:15:24.800 --> 0:15:26.560 it's awesome, especially in the winter. You go there for 0:15:26.680 --> 0:15:30.920 the winter car Yeah, we gotta get blue Market Field trip. Yes, 0:15:30.920 --> 0:15:33.000 we'll go to walk and you do it in January, 0:15:33.040 --> 0:15:35.080 go to like the winter festival where it's like twelve 0:15:35.120 --> 0:15:37.400 below and the people like a happy planning out the 0:15:37.400 --> 0:15:39.880 air conditioning all day today. If all not ready for Milwaukee, 0:15:39.960 --> 0:15:43.680 winter comes exactly all right, Brett, So what do you 0:15:43.680 --> 0:15:46.160 guys thinking at Northwestern Mutual? And by the way, you 0:15:46.160 --> 0:15:49.920 have some of my money, so so behave carefully. What 0:15:49.960 --> 0:15:51.800 do you guys think about a recession here? Is it 0:15:51.800 --> 0:15:53.280 gonna are we gonna have one? Is it going to 0:15:53.360 --> 0:15:56.000 be a deep one, a long one? What are your thoughts? 0:15:56.800 --> 0:15:59.080 I mean, I unless the FED decides to keep going 0:15:59.280 --> 0:16:00.800 and tightening into it, I think it's going to be 0:16:00.840 --> 0:16:03.160 mild just given the state of the consumer. And that's 0:16:03.160 --> 0:16:04.720 brought up quite a bit. But the consumers in as 0:16:04.720 --> 0:16:06.560 good as shape as they have been since nineteen seventy 0:16:06.600 --> 0:16:10.080 from a balance sheet perspective and from an income statement perspective, yes, 0:16:10.240 --> 0:16:12.720 rising grates will road that UM. But if you look 0:16:12.760 --> 0:16:15.520 at what mortgages have been delivered the past thirteen years, 0:16:15.560 --> 0:16:17.920 or what mortgages have been chosen by consumers, they're fixed 0:16:18.520 --> 0:16:20.480 and so it will happen with a with a lag 0:16:20.920 --> 0:16:23.640 UM as far as kind of harming that UM that 0:16:23.680 --> 0:16:26.440 income statement. So there's still in good shape. Uh. And 0:16:26.560 --> 0:16:29.000 I think that's an important effect. You know, at the 0:16:29.000 --> 0:16:31.040 beginning year we call for an uneven recession UM, and 0:16:31.080 --> 0:16:32.840 I think you're seeing that right now. I think parts 0:16:32.840 --> 0:16:36.080 of the economy are in recession. You're seeing job losses there, 0:16:36.120 --> 0:16:39.000 which I I do think the jobs market is weakening. 0:16:39.040 --> 0:16:41.200 I can give you a data point here in a second, UM, 0:16:41.240 --> 0:16:43.280 but I think you're seeing the services side kind of 0:16:43.320 --> 0:16:45.600 carry away. It's not a recession yet there, and so 0:16:45.680 --> 0:16:48.400 overall I think it's mild. I think it's uneven. Uh, 0:16:48.440 --> 0:16:50.360 And I'm hopeful that the opposite side of this is 0:16:50.440 --> 0:16:53.760 much better. With the standpoint of both stocks and bonds, which, 0:16:53.800 --> 0:16:55.880 as you mentioned in kind of creating your bubble comments, 0:16:56.080 --> 0:16:58.600 they've both been repriced to more reasonable levels. Right now, 0:16:58.800 --> 0:17:02.520 the Broactly's aggregate yield five, people are hiding in the 0:17:02.520 --> 0:17:05.840 front of the yield curve unnecessarily that began the year one. 0:17:06.680 --> 0:17:09.159 I think people should think about, um not hiding in 0:17:09.200 --> 0:17:11.600 the front and not hiding in cash and beginning to 0:17:11.640 --> 0:17:14.000 potentially lock in some of these rates that are a 0:17:14.040 --> 0:17:17.320 little bit higher longer term as a just in case 0:17:17.400 --> 0:17:20.360 we go back down to based upon the Fed's reactionary 0:17:20.400 --> 0:17:22.680 has pretty kind of opened with the FED actually cutting 0:17:22.760 --> 0:17:28.160 rates back down to again front. What does that then 0:17:28.240 --> 0:17:30.879 mean for the equity market if we have now priced 0:17:30.920 --> 0:17:35.080 in or are pricing in, for example, even higher terminal 0:17:35.200 --> 0:17:37.679 rate than five percent, which, by the way, just a 0:17:37.680 --> 0:17:41.080 couple of months ago was such a contrarian take, especially 0:17:41.119 --> 0:17:43.640 from Anna long over Economics way ahead of the game 0:17:43.640 --> 0:17:46.000 on that call. But if we if the if the 0:17:46.040 --> 0:17:49.560 goal post basically keeps changing, does that just mean that 0:17:49.760 --> 0:17:53.760 the bull case for equities may never resurface, or at 0:17:53.800 --> 0:17:55.159 least that's what it feels like. I'm sure for a 0:17:55.200 --> 0:17:58.119 lot of short term traders. No, I mean, I certainly 0:17:58.119 --> 0:17:59.600 it will. And I think if you've looked, I mean 0:17:59.640 --> 0:18:01.840 the cheaper parts of the market that we've encouraged people 0:18:01.840 --> 0:18:04.040 to invest in network under love, that are unloved for 0:18:04.080 --> 0:18:06.000 the prior four or five years, are the areas of 0:18:06.000 --> 0:18:07.760 the market that are actually doing well, and they're actually 0:18:07.840 --> 0:18:10.320 cheap right now. Um. And so I'm not suggesting that 0:18:10.359 --> 0:18:12.520 earnings might not fall some more. But if you look 0:18:12.520 --> 0:18:14.440 at small caps, the S and P six hundred, not 0:18:14.480 --> 0:18:17.080 the Rustle two thousand, they traded around eleven times earnings, 0:18:17.119 --> 0:18:21.280 eleven and a half times rings cut my earning. Um certainly, Um, 0:18:21.359 --> 0:18:23.760 you know it won't be pleasant, but they're still roomed 0:18:24.080 --> 0:18:26.600 um from that standpoint of margin of safety. And I 0:18:26.600 --> 0:18:28.480 think on the opposite side of this, if we're able 0:18:28.520 --> 0:18:31.080 to get past this inflation without too much damage inflicted 0:18:31.080 --> 0:18:33.000 by the FED, think about the opposite side of that 0:18:33.040 --> 0:18:35.919 and asset class being one that typically performs well earlier 0:18:35.920 --> 0:18:38.080 in an economic cycle. And so I just think it's 0:18:38.080 --> 0:18:39.840 a little bit different position that people aren't used to. 0:18:39.840 --> 0:18:41.640 They're used to buying tech stocks, are used to buying 0:18:41.640 --> 0:18:44.960 growth stocks. UM. I still think value owes opportunities. UM, 0:18:44.960 --> 0:18:47.439 you can own sector neutral value, which we own. You 0:18:47.440 --> 0:18:50.359 can own US UH small caps and dare I say 0:18:50.400 --> 0:18:54.520 at some point UH international stocks after we get past 0:18:54.560 --> 0:18:58.119 the FED talking tough and overtightening. The opposite side of this, 0:18:58.200 --> 0:19:01.320 if you're a US based investor, could have currency strength 0:19:01.359 --> 0:19:03.399 that will that will be a tail wind, not a 0:19:03.440 --> 0:19:06.119 headwind like it has been over the past few months. 0:19:06.840 --> 0:19:09.359 All Right, Brent, great stuff. We appreciate it as always. 0:19:09.400 --> 0:19:13.879 Brent Shooty, chief investment strategist for north Western Mutual based 0:19:13.960 --> 0:19:19.760 in what I think is a financial powerhouse hub of Milwaukee, Wisconsin. 0:19:19.840 --> 0:19:22.399 I'm telling you there's a four or five six really 0:19:23.000 --> 0:19:25.920 good firms in that town. I think it's you know, 0:19:26.000 --> 0:19:28.679 you go to Chicago, yeah, but you gotta go to 0:19:28.720 --> 0:19:31.080 Milwaukee when you're touring the Midwest and seeing the smart 0:19:31.080 --> 0:19:33.639 money managers check it out. Yeah, we'll do it. Do 0:19:33.680 --> 0:19:35.440 it in February when they have their winter carnival. It's 0:19:35.440 --> 0:19:38.040 like twenty below. When the people are happy, they don't 0:19:38.080 --> 0:19:42.800 mind it. It's it's good stuff, Nathan. We've got so 0:19:42.880 --> 0:19:45.160 much tech stories to digest, and but it's the it's 0:19:45.200 --> 0:19:47.439 the I don't want to say tier two companies, but 0:19:47.520 --> 0:19:50.199 not your megacap tech companies, your qual calms, your Twitters, 0:19:50.200 --> 0:19:54.000 your pelotons. We were given strict instructions by our producer 0:19:54.040 --> 0:19:58.240 Slash DJ slash bouncer Eric Molow to run the gambit 0:19:58.680 --> 0:20:02.120 with blah blow. Well, we do have quite a lot 0:20:02.240 --> 0:20:06.600 to talk about with Ed Ludlow or West Coast correspondent 0:20:06.640 --> 0:20:09.000 out there. The are you in the nine sixties studios 0:20:09.000 --> 0:20:11.160 in San Francisco? Their Ed, I am in the nine 0:20:11.200 --> 0:20:15.760 sixties studios. Hello from the nine sixties studios. Gotta flog 0:20:15.840 --> 0:20:20.000