WEBVTT - Bloomberg Surveillance: End of the Everything Rally? 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farroll and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.640 the Bloomberg Terminal, and the Bloomberg Business app. Joining us 0:00:30.640 --> 0:00:33.720 with twenty two V Research. Twenty two V Research is 0:00:33.760 --> 0:00:37.520 Michael Herson, head of their China research. This morning, Michael, 0:00:37.520 --> 0:00:40.800 were you surprised by the NBC report of a discussion 0:00:40.840 --> 0:00:44.159 between the two world leaders over the future of Taiwan. 0:00:44.960 --> 0:00:48.680 No, not particularly surprised. It was consistent with what I 0:00:48.840 --> 0:00:51.960 heard from the meeting. I obviously wasn't there, so I 0:00:52.000 --> 0:00:55.200 can't speak to the details, but I think the notion 0:00:55.320 --> 0:00:59.360 that she didn Ping is determined to pursue reunification with 0:00:59.440 --> 0:01:02.600 Taiwan is not new. I think in some ways it 0:01:02.640 --> 0:01:05.960 was equally as interesting that he told US officials, according 0:01:06.000 --> 0:01:09.480 to this report, that there is no set timeline for 0:01:09.640 --> 0:01:11.800 China to do so, and I think that is consistent 0:01:11.840 --> 0:01:16.200 with the view that while this is a really important issue. 0:01:16.840 --> 0:01:20.840 Beijing continues to exercise what you could call strategic patients 0:01:20.840 --> 0:01:23.280 on this issue, and that's important because if that changes, 0:01:23.920 --> 0:01:26.240 it does I think, you know, increase the near term 0:01:26.319 --> 0:01:29.039 risks around Taiwan. For now, I think those near term 0:01:29.160 --> 0:01:30.200 risks are manageable. 0:01:30.440 --> 0:01:33.119 There is this question around whether China is going to 0:01:33.240 --> 0:01:35.319 take an opportunity at a time where the US is 0:01:35.360 --> 0:01:38.559 involved in a two front proxy war with both Russia 0:01:38.680 --> 0:01:43.000 and Iran, to try to engage in this more aggressively 0:01:43.440 --> 0:01:46.840 since it's already difficult for the US to commit exactly 0:01:47.000 --> 0:01:49.720 how much they're going to weigh on these other conflicts. 0:01:50.840 --> 0:01:53.760 I don't think we should dismiss those kinds of concerns. 0:01:53.760 --> 0:01:56.680 I mean, we need to be realistic about, you know, 0:01:56.720 --> 0:01:59.200 not mirror imaging in terms of how China thinks that 0:01:59.200 --> 0:02:00.920 they're going to think about this the same way that 0:02:00.960 --> 0:02:03.520 we do. At the same time, I think we need 0:02:03.560 --> 0:02:06.080 to keep in mind there's a fundamental calculus that work 0:02:06.120 --> 0:02:10.080 for Beijing, which is right now, it would be extremely risky, 0:02:10.280 --> 0:02:12.960 even with the US tied down, so to speak, with 0:02:13.000 --> 0:02:18.880 other conflicts, to pursue reunification through military means. And I 0:02:18.919 --> 0:02:21.960 don't think that the urgency is there for China. I 0:02:21.960 --> 0:02:25.839 think Beijing continues to feel that time is on their 0:02:25.880 --> 0:02:30.359 side now that timeline is not infinite, as according to 0:02:30.400 --> 0:02:32.920 the report she Dian paying stress to President Biden. But 0:02:32.960 --> 0:02:35.320 I think the notion that Beijing would take this kind 0:02:35.360 --> 0:02:38.480 of gamble in the near term seems to me probably 0:02:38.520 --> 0:02:40.760 not worth it from the standpoint of China's leadership. 0:02:40.880 --> 0:02:44.240 What is the motivation to try to take Taiwan at 0:02:44.280 --> 0:02:46.280 a time where there are some real clouds over the 0:02:46.320 --> 0:02:49.160 economic outlook for China, where they're trying to woo back 0:02:49.360 --> 0:02:53.880 US and other international businesses, and where Xijinping is dealing 0:02:53.880 --> 0:02:56.120 with a host of issues around the housing market that 0:02:56.160 --> 0:02:57.000 are also challenging. 0:02:58.080 --> 0:03:00.359 I think that's exactly right. I think if they made 0:03:00.440 --> 0:03:04.040 this kind of move now, it would basically be trading 0:03:04.080 --> 0:03:07.640 off all of Sheet and Pang's broader ambitions for China 0:03:07.800 --> 0:03:12.359 in terms of economic development and its place in global leadership. 0:03:12.440 --> 0:03:14.600 So I don't think that the calculus is worth it 0:03:14.639 --> 0:03:18.239 for Beijing. I think the risk is that this could 0:03:18.320 --> 0:03:21.600 change over time. Beijing could decide that it's less risky 0:03:21.880 --> 0:03:24.480 and we're urgent for them as time goes on. But 0:03:24.560 --> 0:03:27.079 I don't think that that calculus is going to shift 0:03:27.400 --> 0:03:30.960 such as to arguing for in our conflict over Taiwan 0:03:31.000 --> 0:03:33.400 anytime to it. We should add, though, we have a 0:03:33.480 --> 0:03:36.440 very important election coming up in Taiwan January thirteenth, the 0:03:36.440 --> 0:03:39.320 presidential election, which is going to have an important bearing 0:03:39.360 --> 0:03:39.880 on these issues. 0:03:39.880 --> 0:03:41.440 This is right where I wanted to go, michae Elson. 0:03:41.480 --> 0:03:43.480 One final question. We've got to march on here with 0:03:43.560 --> 0:03:45.800 our day and thank you so much for joining, but 0:03:45.920 --> 0:03:50.440 abruptly here our stereotype is the KMT in the Pan 0:03:50.560 --> 0:03:55.800 Blue coalition they lost in twenty sixteen. The domestic politics 0:03:55.800 --> 0:04:01.200 of Taiwan, are they uniformly for America and four independencers? 0:04:01.200 --> 0:04:04.480 There are a nuance there that Beijing can play off of. 0:04:05.320 --> 0:04:09.160 There's a nuance. I do think fundamentally voters in Taiwan 0:04:09.520 --> 0:04:12.320 want to maintain the status quo, and the difference between 0:04:12.360 --> 0:04:15.680 the two camps really is what is the best way 0:04:15.680 --> 0:04:18.600 to maintain that status quo? Keeping China aut in arm's 0:04:18.640 --> 0:04:22.080 length or engaging with China in a more close, you know, 0:04:22.120 --> 0:04:23.800 political economic relationship. 0:04:24.080 --> 0:04:27.080 A terrific brief Michael Hurston, thank you so much, sirill 0:04:27.120 --> 0:04:27.880 that you could join. 0:04:27.839 --> 0:04:33.960 Us, super excited that Francis Donald's with us in the 0:04:34.000 --> 0:04:38.120 studio Global Chief Economist, strategist a manual Life morte Francis, 0:04:38.160 --> 0:04:40.800 good morning. You've taken all that beautiful fed speak of 0:04:40.880 --> 0:04:42.359 the last week, any Cleara. 0:04:43.000 --> 0:04:45.680 I think it's all semantics. We are in a global 0:04:45.920 --> 0:04:49.120 easing cycle. They can tell us they're not talking about it, 0:04:49.160 --> 0:04:51.960 but then we're talking about how they're not talking about it. 0:04:52.320 --> 0:04:55.640 Emerging markets are cutting. Every single day I get a 0:04:55.720 --> 0:04:58.279 new emerging market that's cutting. They led the cycle on 0:04:58.360 --> 0:05:00.520 the way up in rates, they are leading on the 0:05:00.600 --> 0:05:03.720 way down. Every morning I wake up to inflation prints 0:05:03.720 --> 0:05:07.839 that are surprising to the downside. Macro is most valuable 0:05:07.880 --> 0:05:11.640 at inflection points. The toothpaste is out of the tube. 0:05:11.720 --> 0:05:15.640 We have already effectively eased. We will see it very 0:05:15.680 --> 0:05:19.960 soon in some areas, like housing that has very strong reactivity. 0:05:20.320 --> 0:05:23.960 It doesn't change that. I still technically have two quarters 0:05:24.000 --> 0:05:27.960 of negative GDP in my forecast, so that's technically a recession. 0:05:28.240 --> 0:05:32.240 But if we do get this earlier easing via financial markets, 0:05:32.360 --> 0:05:34.520 it will help us come out faster, and it will 0:05:34.560 --> 0:05:37.680 reduce the odds of financial accidents, which has been a 0:05:37.720 --> 0:05:39.479 concern for some economists on the show with. 0:05:39.480 --> 0:05:42.040 Apple with thirty times forward earnings, right, excuse me on 0:05:42.120 --> 0:05:45.040 present earnings thirty two times pe multiple. They need to 0:05:45.080 --> 0:05:47.599 make earnings, they need to make revenues, which means they 0:05:47.680 --> 0:05:50.800 need to live within decent nominal GDP. Are we going 0:05:50.839 --> 0:05:55.279 to see enough on nominal GDP to keep the earnings 0:05:55.279 --> 0:05:56.360 in revenue boat going? 0:05:56.920 --> 0:05:58.760 I don't know where it's going to come from. Tom. 0:05:58.880 --> 0:06:02.120 It's not coming from CAP which is declining sharply. There's 0:06:02.160 --> 0:06:04.480 not a lot of fiscal room. We talk about the 0:06:05.240 --> 0:06:08.480 soft lining hard landing. That's only a US conversation because 0:06:08.520 --> 0:06:11.680 anywhere else I go in the world, we're not discussing 0:06:11.720 --> 0:06:14.640 soft landing or hardlining because we're already in hard landing. 0:06:14.880 --> 0:06:18.520 Germany is most probably in a recession. A whole range 0:06:18.520 --> 0:06:22.919 of dms are already in recession. Asia is slowing very prominently, 0:06:23.000 --> 0:06:25.480 so we don't have the global impulse that comes through, 0:06:25.760 --> 0:06:28.320 and the consumer is declining and slow. We don't need 0:06:28.360 --> 0:06:30.400 the consumer to be in a recession for the US 0:06:30.440 --> 0:06:33.040 economy to be in a recession. So two things can 0:06:33.040 --> 0:06:35.200 be true at the same time. We can be celebrating 0:06:35.279 --> 0:06:38.520 the pivot party, which we are, and recognize that it's 0:06:38.560 --> 0:06:40.680 not going to be a straight line up for equities 0:06:40.760 --> 0:06:42.960 and a straight line down for bonds. In fact, I 0:06:43.320 --> 0:06:45.080 my ask of you actually at this table is every 0:06:45.120 --> 0:06:46.360 time you have a guest, come on, ask them what 0:06:46.400 --> 0:06:49.880 their investment horizon is, because your investment horizon for the 0:06:49.960 --> 0:06:52.320 next three months is very different than your nine month 0:06:52.360 --> 0:06:54.479 to twelvemonth horizon, and you have to be able to 0:06:54.520 --> 0:06:57.440 reconcile the two when they are different perspectives, and in 0:06:57.480 --> 0:06:59.239 this environment they are different perspective. 0:06:59.279 --> 0:07:01.200 We already know it's happ and yes that I extrap 0:07:01.279 --> 0:07:03.480 light that out five minutes and say if it changes, 0:07:03.600 --> 0:07:05.800 isn't that it brama the last two months? 0:07:05.920 --> 0:07:07.640 I mean, this is a reason why people are saying 0:07:07.640 --> 0:07:10.360 we're bullish. There might be some volatility, but by it 0:07:10.480 --> 0:07:12.560 and so at what point is this just basically being 0:07:12.640 --> 0:07:14.480 bullish into next year and trying to have a unique 0:07:14.480 --> 0:07:17.000 take on it. Here's my question to you, is there 0:07:17.040 --> 0:07:19.280 a risk of us not getting a landing if you 0:07:19.360 --> 0:07:21.880 have a longer term horizon, does it have to include 0:07:21.880 --> 0:07:23.480 a greater risk of reinflation? 0:07:24.040 --> 0:07:26.040 You know, if you have a five to tenure horizon, 0:07:26.040 --> 0:07:29.320 which a lot of sticky institutional money does. They are 0:07:29.360 --> 0:07:31.440 not asking me, do you have a recession call? They 0:07:31.440 --> 0:07:33.680 want to know what the five to ten year inflation 0:07:33.760 --> 0:07:35.720 outlook is. They want to know where interest rates are 0:07:35.720 --> 0:07:37.920 going to be. They want to know our central Bank's 0:07:37.960 --> 0:07:41.440 going to be changing inflation targets because if so, then 0:07:41.480 --> 0:07:44.200 our relationship between inflation and interest rate changes, and that 0:07:44.280 --> 0:07:47.800 changes our long term asset allocation models. So no, there 0:07:47.840 --> 0:07:50.960 are certain investors who do not care about recession risk 0:07:51.000 --> 0:07:54.160 for twenty twenty four, and that's important. They are asking larger, 0:07:54.240 --> 0:07:57.360 more important questions about the framework within our front with 0:07:57.400 --> 0:07:59.840 which our financial markets change. And that's why I think 0:07:59.840 --> 0:08:02.760 the Powell pivot is so critical and interesting to this 0:08:02.960 --> 0:08:06.240 large sticky money because it basically said this concept of 0:08:06.440 --> 0:08:08.560 you know what, we need two percent inflation in order 0:08:08.600 --> 0:08:10.640 to cut We need to see the evidence. We're focused 0:08:10.680 --> 0:08:15.120 on services, ex rents, all of this discussion around financial conditions. 0:08:15.320 --> 0:08:17.520 Now I've heard you over the past few days question 0:08:17.680 --> 0:08:21.160 what was it that led to the pivot? That question, 0:08:21.280 --> 0:08:24.000 to me is far more important than how many rate 0:08:24.040 --> 0:08:25.800 cuts do we have next year? Or is it one 0:08:25.880 --> 0:08:27.960 quarter or two quarters of negative GDPs? 0:08:28.000 --> 0:08:29.680 So let's go to the labor market and talk about 0:08:29.680 --> 0:08:32.680 some of the forces underpinning maybe this pivot. There's a 0:08:32.679 --> 0:08:34.600 belief on the street from a lot of people, I think, 0:08:34.679 --> 0:08:36.480 led by Neil data earlier on this year, that this 0:08:36.559 --> 0:08:39.359 labor market is no longer a reason to be hawkish. 0:08:39.559 --> 0:08:42.280 What America has benefited from is this supply side led 0:08:42.320 --> 0:08:46.360 rebalancing in the labor market, increased participation. Do you see 0:08:46.400 --> 0:08:49.960 reason to believe that continues into next year? Is that 0:08:50.040 --> 0:08:51.200 something we're taking for granted. 0:08:51.520 --> 0:08:54.040 Yeah, any sort of leading indicator you have of the 0:08:54.120 --> 0:08:55.840 job market right now is going to tell you that 0:08:55.920 --> 0:08:58.760 things are deteriorating and going in the wrong direction. Now, 0:08:58.840 --> 0:09:02.440 markets are second rerivative creatures. They're going to care more 0:09:02.440 --> 0:09:05.160 about the rise and the unemployment rate than how far 0:09:05.240 --> 0:09:08.040 it necessarily goes up until a breaking point. So the 0:09:08.120 --> 0:09:11.640 unemployment rate is going to rise. It takes two years 0:09:11.679 --> 0:09:14.959 for the first FED rate hike to impact the labor market. 0:09:15.200 --> 0:09:18.400 That's q one. The mistaken calling for that to happen 0:09:18.640 --> 0:09:21.240 last year was thinking that that lag would be shorter 0:09:21.679 --> 0:09:24.719 because the Fed moved faster. But until we get through 0:09:24.760 --> 0:09:26.800 the next three to six months, we won't be able 0:09:26.840 --> 0:09:29.040 to say that the relationship between rates and the labor 0:09:29.080 --> 0:09:32.439 market is truly broken because we haven't even passed the 0:09:32.480 --> 0:09:35.720 first starting post of when that's going to impact things. 0:09:35.720 --> 0:09:37.920 So I can't throw out the argument that the labor 0:09:37.960 --> 0:09:41.360 market interest rate conversation is totally different than it has 0:09:41.400 --> 0:09:43.440 been in the past because we're not even there yet. 0:09:43.679 --> 0:09:48.080 So what do you watch to see if wage disinflation begins? 0:09:48.800 --> 0:09:51.920 Well, real time data. Probably we need surveys, We need 0:09:51.960 --> 0:09:54.080 to be keeping a close eye on that, But maybe 0:09:54.120 --> 0:09:56.200 tom we also need to be asking how much is 0:09:56.200 --> 0:09:58.520 it going to matter to the inflation story. We went 0:09:58.559 --> 0:10:00.800 from nine percent down to three per and change on 0:10:00.840 --> 0:10:05.680 inflation largely off of the disinflation from supply chain dynamics. 0:10:05.800 --> 0:10:07.920 Are we allowed to say that that was transitory? 0:10:08.040 --> 0:10:08.280 Yet? 0:10:08.400 --> 0:10:10.360 Like, is my head going to be on a stick 0:10:10.400 --> 0:10:10.800 for that? 0:10:10.800 --> 0:10:12.520 Would you like to I'll just floated. 0:10:12.559 --> 0:10:14.320 I'm going to throw up the balloon and see what 0:10:14.400 --> 0:10:17.720 kind of push back again on Twitter. The next phase 0:10:17.880 --> 0:10:21.040 is when you say, you know, the next phase of 0:10:21.160 --> 0:10:24.120 disinflation is what they call the painful part, not because 0:10:24.160 --> 0:10:26.240 it's hard to go from three percent to two percent, 0:10:26.360 --> 0:10:29.920 but because consumers and wages carry the brunt of that. 0:10:30.360 --> 0:10:32.959 So we would posit that the disinflation we've seen so far, 0:10:33.160 --> 0:10:35.360 we don't get to actually say thank you Fed for that. 0:10:35.760 --> 0:10:38.360 It's the next part that comes. And so what I 0:10:38.440 --> 0:10:41.400 want to know is this wage inflation story, how critical 0:10:41.559 --> 0:10:44.079 is it to actually the inflation that we're monitoring? And 0:10:44.240 --> 0:10:46.280 what inflation does the FED need to see. Is it 0:10:46.400 --> 0:10:48.920 just a headline number or core number around two or 0:10:48.960 --> 0:10:51.240 does it matter where it's coming from, because my sense 0:10:51.360 --> 0:10:53.600 is we got told a lot in the past year. 0:10:53.720 --> 0:10:55.839 It mattered where it was coming from. I think it 0:10:55.960 --> 0:10:57.480 just matters that we're closer to Targe. 0:10:57.559 --> 0:10:59.440 I'm so pleased that you brought some of these issues 0:10:59.520 --> 0:11:01.840 up because think it's so important. Lisa, just how much 0:11:01.880 --> 0:11:04.400 of the disinflation that we've seen so far is actually 0:11:04.440 --> 0:11:05.959 off the back of the feder reserve tightening in the 0:11:06.040 --> 0:11:08.760 last eighteen months. Speak to people like Francis, the answer 0:11:08.840 --> 0:11:09.360 is not much of it. 0:11:09.800 --> 0:11:12.040 When you talk to a lot of economists, they've been 0:11:12.120 --> 0:11:14.320 using the tea word all along. They just are being 0:11:14.360 --> 0:11:16.760 a little bit louder about it and basically saying maybe 0:11:16.800 --> 0:11:19.480 the FED was right and it was transitory, and that's 0:11:19.520 --> 0:11:21.559 the reason why the Fed's getting nervous, because if the 0:11:21.640 --> 0:11:24.520 Fed's actual raid hike start to kick in, then it 0:11:24.600 --> 0:11:27.600 starts to become something else in a downward cycle. That said, 0:11:27.640 --> 0:11:30.199 the jury is still out and services sector inflation is 0:11:30.240 --> 0:11:32.640 still going up. So this is a huge question mark. 0:11:32.720 --> 0:11:33.080 Not too much. 0:11:33.160 --> 0:11:34.200 We still have supply tain. 0:11:34.080 --> 0:11:38.480 Issues recycling the tea words shameless, just shameless. Yeah, are 0:11:38.520 --> 0:11:42.640 you talking to me, Francis Donald head on a state Francis, 0:11:42.720 --> 0:11:44.360 thank you. You one of the best to appreciate it. 0:11:55.120 --> 0:11:57.880 The inflation adjusted yield, which is what I look at 0:11:58.000 --> 0:12:00.319 and our next guest looks at, is one point six 0:12:00.520 --> 0:12:03.800 nine percent. It was a two and there was sweat 0:12:03.880 --> 0:12:06.640 on effect hired a two point two zero or even 0:12:07.000 --> 0:12:11.360 unimaginately high. In this melt up, the inflation adjusted yield, 0:12:11.440 --> 0:12:14.720 one measurement of our good feeling, has really come down. 0:12:15.280 --> 0:12:18.760 Jim Caron is expert at the CIO of Portfolio Solutions 0:12:18.800 --> 0:12:22.040 Group at Morgan Stanley. You take the Christmas field, Jim, 0:12:22.440 --> 0:12:25.280 you talk about naughty or nice in the real yield. 0:12:25.720 --> 0:12:29.160 What is a level of the real yield that keeps 0:12:29.360 --> 0:12:31.160 asset inflation going? 0:12:33.040 --> 0:12:35.920 So I think where the Fed wants to go with this, 0:12:36.040 --> 0:12:38.440 because what really matters is what they think. And I'm 0:12:38.480 --> 0:12:41.280 gonna talk about the policy the real policy yield. So 0:12:41.400 --> 0:12:44.599 this is a nominal FED funds rate minus inflation. I 0:12:44.720 --> 0:12:47.720 think that number is around one and a half percent, 0:12:47.880 --> 0:12:50.040 so it's lower than what it is today. So if 0:12:50.080 --> 0:12:52.320 we look at nominal If we look at nominal FED 0:12:52.400 --> 0:12:54.400 funds today at five and a half percent, and let's 0:12:54.400 --> 0:12:58.440 say US inflation is at three, that means real policy 0:12:58.559 --> 0:13:01.000 rates are at two and a half percent, which means 0:13:01.040 --> 0:13:03.760 that the Fed could cut one hundred basis points just 0:13:03.880 --> 0:13:05.360 to get to their neutral level. 0:13:05.679 --> 0:13:06.640 So I know we've been talking. 0:13:06.880 --> 0:13:09.480 I've listened on the show that yes, there's like six 0:13:09.640 --> 0:13:12.400 rate cuts priced in, but remember one hundred basis points 0:13:12.440 --> 0:13:15.520 of those rate cuts is really just getting to neutral, right, 0:13:16.360 --> 0:13:18.600 and they don't start really easing until they start doing 0:13:18.640 --> 0:13:19.360 more than one hundred. 0:13:19.520 --> 0:13:21.520 I did some fancy math, Jim, in honor of your 0:13:21.559 --> 0:13:24.640 attending today, on the standard deviation move of the Bloomberg 0:13:24.760 --> 0:13:28.800 Financial Conditions Index. We've gone from a commodative and this 0:13:28.960 --> 0:13:31.720 is not Stan Fisher one oh one, it's Tom Keene 0:13:31.720 --> 0:13:36.120 one on one. We're grossly accommodative. Well, how does it fed? 0:13:36.760 --> 0:13:40.200 Their degrees of freedom just seem to have shrunk because 0:13:40.240 --> 0:13:42.719 of the market statement on accommodation. 0:13:44.240 --> 0:13:47.520 Right, So when we look at financial conditions, this is 0:13:47.640 --> 0:13:50.079 really a way for the FED to gauge how their 0:13:50.120 --> 0:13:54.240 monetary policy is impacting the broader markets, and there should 0:13:54.240 --> 0:13:56.880 be some feedback mechanism from markets to what their policy 0:13:56.960 --> 0:14:00.439 is actually saying. So the way that I think about 0:14:00.480 --> 0:14:04.680 this is that if the market's are rallying, that's okay 0:14:04.760 --> 0:14:06.800 with the FED. The FED doesn't have to push back 0:14:06.880 --> 0:14:09.120 on a rally because they don't like a rally. 0:14:09.200 --> 0:14:10.080 That's not their job. 0:14:10.559 --> 0:14:14.440 Effectively, what they're saying is can we get this rally 0:14:15.120 --> 0:14:19.080 and can inflation also stay low? And if the answer 0:14:19.160 --> 0:14:21.600 is yes to both, then they don't care. If the 0:14:21.640 --> 0:14:23.440 market continues the rally, they don't feel so they have 0:14:23.520 --> 0:14:26.040 to push back on that. And right now, the look 0:14:26.160 --> 0:14:29.080 through to inflation going forward. As you mentioned in the UK, 0:14:29.640 --> 0:14:32.680 we had a downside surprise in inflation. Inflation is coming 0:14:32.760 --> 0:14:35.240 down in the US. As long as it does, then 0:14:35.280 --> 0:14:39.640 the FED is okay with higher equity prices, tighter credit spreads, 0:14:39.680 --> 0:14:43.640 and even easier financial conditions, as long as we don't 0:14:43.680 --> 0:14:46.440 get inflation starting to move higher. 0:14:47.040 --> 0:14:49.640 Which is let's park that for a second. This idea 0:14:49.840 --> 0:14:53.640 that disinflation goldilocks this idea of the FED just simply 0:14:53.680 --> 0:14:56.760 cutting rate surgically in order to keep in tandem with 0:14:56.880 --> 0:14:59.720 where inflation is going and go to actually the fundamental 0:15:00.360 --> 0:15:02.840 and earnings. And I wonder how much that is the 0:15:02.920 --> 0:15:05.440 real risk that people are not talking about right now, 0:15:05.760 --> 0:15:08.720 Given the fact that FedEx disappointed shares lower by some 0:15:08.880 --> 0:15:12.080 twelve percent in early and pre market trading, general mills 0:15:12.520 --> 0:15:15.640 retracting some of their full year forecast, downgrading it in 0:15:15.720 --> 0:15:19.720 response to lower sales, those shares falling even after an 0:15:19.800 --> 0:15:23.600 underwhel underwhelming performance, is this the theme of January that 0:15:23.680 --> 0:15:24.400 people are missing. 0:15:25.520 --> 0:15:28.800 So that's a really good question, Lisa, because effectively we 0:15:28.920 --> 0:15:30.440 have to we have to think about the look through 0:15:30.480 --> 0:15:33.520 to this if the unemployment rate starts to rise, because 0:15:33.520 --> 0:15:35.560 that's what we're talking about when we're talking about earnings 0:15:35.640 --> 0:15:38.760 and missing earnings and things like this. What we're really saying, 0:15:38.840 --> 0:15:41.720 what an economist is really saying, is at what point 0:15:41.840 --> 0:15:44.840 do these companies start laying workers off and at what 0:15:45.000 --> 0:15:48.280 point does that boost the unemployment rate. So what we're 0:15:48.320 --> 0:15:50.400 seeing at this point, at least the last data point 0:15:50.640 --> 0:15:53.840 in the unemployment rate, the unemployment rate has come down 0:15:53.920 --> 0:15:58.000 the labor market still remains relatively tight, and it's relatively strong. 0:15:58.440 --> 0:16:01.120 Yes it's softening, Yes we are seeing signs of softening, 0:16:01.400 --> 0:16:04.400 but we're not seeing signs of a collapse. So ultimately, 0:16:04.520 --> 0:16:06.680 some of these things are going to be somewhat cyclical. 0:16:06.840 --> 0:16:09.480 Some companies are going to post worse earning, some companies 0:16:09.520 --> 0:16:11.280 is going to post better earnings. But if we look 0:16:11.280 --> 0:16:15.360 at the broad market, the story for December is actually 0:16:15.560 --> 0:16:19.120 not that these supercharged seven stocks are doing really well 0:16:19.160 --> 0:16:22.520 in tech. The story for December is that the market's 0:16:22.640 --> 0:16:26.600 actually broadening out, is that the other sectors, the other 0:16:26.680 --> 0:16:29.640 four hundred and ninety three stocks out of the S 0:16:29.680 --> 0:16:34.000 and P five hundred excluding those seven, are actually participating 0:16:34.160 --> 0:16:36.560 in the upside. So yes, it's not going to be 0:16:36.560 --> 0:16:39.080 a straight line. It's going to be volatile. But the 0:16:39.200 --> 0:16:41.760 point here is that missing earnings is one thing, and 0:16:41.840 --> 0:16:44.680 that could be cyclical, and I get that sector by sector, 0:16:45.000 --> 0:16:49.000 But as long as it doesn't affect hiring and wages 0:16:49.360 --> 0:16:52.320 and things like that to the degree that it creates 0:16:52.360 --> 0:16:56.560 a deeper downturn and loss of consumption, then that's just markets. 0:16:56.800 --> 0:16:57.200 Markets. 0:16:57.360 --> 0:16:59.280 It sounds like you're pretty bullish, are you just telling 0:16:59.320 --> 0:17:01.720 clients to go all in that basically their biggest risk 0:17:01.840 --> 0:17:03.400 is missing out in the upside next year. 0:17:04.280 --> 0:17:05.240 No, I'm not saying that. 0:17:05.520 --> 0:17:07.159 Actually, you know, one of the things that we you know, 0:17:07.440 --> 0:17:10.560 we've been bullish, we've been positive, we've been overweight inequities 0:17:10.600 --> 0:17:14.360 all year, and right now, towards the end of this year, 0:17:14.480 --> 0:17:17.840 we're starting to think about reducing that and moving towards neutral. 0:17:18.119 --> 0:17:20.320 We haven't done it yet, but that's but that's probably 0:17:20.400 --> 0:17:24.000 our next step. And why that is is because everything 0:17:24.040 --> 0:17:28.439 that we thought about in late October November is actually 0:17:28.680 --> 0:17:31.600 already come through by the end of the year. So 0:17:31.720 --> 0:17:35.159 we've got this like fifteen percent rally across the board inequities. 0:17:35.200 --> 0:17:38.080 We've got credit spreads a lot tighter, bond yels ten 0:17:38.160 --> 0:17:40.359 year yeelds are below four percent. I mean, my gosh, 0:17:40.440 --> 0:17:42.159 my year end forecast with a ten yure note not 0:17:42.240 --> 0:17:43.520 that I make a forecast, but it. 0:17:43.560 --> 0:17:45.920 Was around four percent and we're already We're already there. 0:17:46.400 --> 0:17:48.119 So I think a lot of that good news has 0:17:48.160 --> 0:17:51.520 been pulled forward, so we need another catalyst to get higher, 0:17:51.880 --> 0:17:53.959 and I'm I'd rather go to neutral, and I think 0:17:54.040 --> 0:17:57.080 neutral is the new defensive. So we can be tactical 0:17:57.160 --> 0:17:59.240 of the new year ahead because there will be dislocations. 0:17:59.400 --> 0:18:02.359 Jim mccarr, that's a question for those trying to recover 0:18:02.480 --> 0:18:06.359 from the bond tobaccle use negative ten degrees at Boden. 0:18:06.400 --> 0:18:09.399 You were studying physics, you go, oh, kel Tech, that 0:18:09.520 --> 0:18:11.440 may be warm, so you go out to kel Tech 0:18:11.800 --> 0:18:15.879 to get some decent weather and aeronautical engineering. Okay, great, 0:18:16.400 --> 0:18:21.239 are these gl glide pass of stability and do they 0:18:21.400 --> 0:18:26.040 indicate the dividend growth is a proxy for yield forward? 0:18:27.000 --> 0:18:30.920 That back and forth between your world of bonds inequities 0:18:31.040 --> 0:18:33.760 is a yield alternative? Can that be possible? 0:18:35.520 --> 0:18:38.840 So I think it can be possible. I don't see 0:18:38.880 --> 0:18:42.880 it as highly probable. And the thing that I'm concerned 0:18:42.880 --> 0:18:44.920 about the most is that I do think that twenty 0:18:44.960 --> 0:18:47.960 twenty four will be a very rocky year. So I 0:18:48.040 --> 0:18:52.600 know we're talking about these glidepaths and soft landings. We 0:18:52.760 --> 0:18:56.600 may ultimately get a mild slow down or a mild recession, 0:18:56.640 --> 0:18:59.800 which would be characterized as a soft landing. But I 0:19:00.440 --> 0:19:03.399 I think it's a really dangerous landing at this point, 0:19:04.480 --> 0:19:06.960 and it's one of the reasons why I think that 0:19:07.119 --> 0:19:08.600 we need to engage in more of. 0:19:08.640 --> 0:19:10.159 A balanced portfolio approach. 0:19:10.240 --> 0:19:13.200 So have some fixing income, have some equity, have some growth, 0:19:13.320 --> 0:19:15.840 have some value, and just real quick. 0:19:15.760 --> 0:19:17.639 Jare before we run out of time, what do you 0:19:17.720 --> 0:19:18.879 mean by dangerous landing? 0:19:20.640 --> 0:19:23.880 So I think there's more geopolitical tensions and more geopolitical 0:19:23.960 --> 0:19:25.840 risks that are out there to start this year. 0:19:25.720 --> 0:19:26.360 Than last year. 0:19:27.000 --> 0:19:30.159 We have obviously, you know, China, Taiwan, we have Taiwan elections, 0:19:30.200 --> 0:19:32.760 we have a US presidential election. I think that's going 0:19:32.800 --> 0:19:34.920 to create a lot of volatility, and I think the 0:19:35.000 --> 0:19:36.840 markets are and don't forget, we have the twenty twenty 0:19:36.880 --> 0:19:39.119 five you know, the Trump tax cuts come come due 0:19:39.160 --> 0:19:42.120 in twenty twenty five. At some point in twenty twenty four, 0:19:42.520 --> 0:19:44.960 we're going to start to price the outcome of that 0:19:45.200 --> 0:19:48.160 in and that can swing the markets from an earning 0:19:48.320 --> 0:19:51.040 perspective quite a bit and from a multiple perspective. So 0:19:51.400 --> 0:19:54.200 I think let's just enjoy this calumn right now, because 0:19:54.240 --> 0:19:55.879 I think it's going to get a lot rockier and 0:19:55.960 --> 0:19:58.879