WEBVTT - Surveillance: Dollar Call with Verrone 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.039 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business app. 0:00:30.040 --> 0:00:32.640 Christopherroun with us around a tay Bupana had a technical 0:00:32.680 --> 0:00:35.400 of Matros Strategy strtig us a bad company. Chris good moins, 0:00:35.560 --> 0:00:37.120 it's great to be here. Is it time to buy 0:00:37.120 --> 0:00:37.520 that story? 0:00:37.560 --> 0:00:40.920 In China, I would say this, I wouldn't be sure. 0:00:41.200 --> 0:00:44.000 Think about how terrible the newsflow has been the last 0:00:44.000 --> 0:00:45.640 three or four which probably the most barrett news out 0:00:45.680 --> 0:00:48.880 of China I've seen since eight And what hasn't broken 0:00:48.920 --> 0:00:51.680 down iron Ore come to your point, has knockne down? 0:00:52.240 --> 0:00:55.200 Copper has not broken down. The Chinese two year yield 0:00:55.320 --> 0:00:58.280 has stopped going down. So I think the price action 0:00:58.960 --> 0:01:02.520 doesn't reflect the bearishness from the news. As someone who 0:01:02.520 --> 0:01:05.400 tries to marry, how does price action first news interact 0:01:05.440 --> 0:01:07.720 every day? It will be difficult for me to be 0:01:07.760 --> 0:01:11.319 here short and comfortable with that when I've gotten every 0:01:11.360 --> 0:01:14.360 piece of information in the direction of the bears, and 0:01:14.440 --> 0:01:17.080 price won't break lower. So I think, at a minimum, 0:01:17.200 --> 0:01:20.080 cover your shorts and open your imagination to the idea 0:01:20.120 --> 0:01:21.360 that something might be changing there. 0:01:21.440 --> 0:01:23.720 Chris, you and I are trend based analysis. There's a 0:01:23.760 --> 0:01:26.240 stochastic catching a knife in the dark and getting on 0:01:26.280 --> 0:01:28.720 a trend, staying on a trend. The trend you're most 0:01:28.720 --> 0:01:33.319 interested in is oil. I link oil demand directly to 0:01:33.400 --> 0:01:35.160 a Pacific rim recovery. 0:01:35.240 --> 0:01:36.160 Am I right to do that? 0:01:37.040 --> 0:01:39.160 I think we can link it to a number of 0:01:39.200 --> 0:01:42.840 inputs that certainly being one of them limited supply. I 0:01:42.840 --> 0:01:45.400 think the supply side of this is equally as important. 0:01:45.800 --> 0:01:47.920 But at the end of the day, we've had this 0:01:48.320 --> 0:01:52.120 just bearish onslaught of Russia news and of China news. 0:01:52.680 --> 0:01:55.440 And what hasn't gone down is crude. Crud's bottomed. It's 0:01:55.480 --> 0:01:57.760 positive in our trend work, I think brent on its 0:01:57.760 --> 0:02:00.600 way to ninety. Here. Look how the energy stocks, after 0:02:00.680 --> 0:02:04.520 a pretty meaningful consolidation or pause this year, have just 0:02:04.720 --> 0:02:08.440 regained the flag of leadership. When I look sector bisector, 0:02:08.840 --> 0:02:11.520 there's not another group that has say ninety percent of 0:02:11.560 --> 0:02:15.600 issues of the two hundred day, that has relative leadership. 0:02:15.639 --> 0:02:18.040 Inflecting again that the energy you have. 0:02:17.960 --> 0:02:20.440 A sex sound just as one example, what is xomb 0:02:20.600 --> 0:02:24.320 I mean basically it hasn't gone down as oil went 0:02:24.360 --> 0:02:27.680 from one twenty to seventy whatever back up to eighty 0:02:27.800 --> 0:02:31.400 as well. Is oil catching up to the equity stocks 0:02:31.600 --> 0:02:35.480 or do the oil stocks surge ahead of a recovering oil? 0:02:35.600 --> 0:02:37.480 Yeah, Tom, I think one of the things we try 0:02:37.480 --> 0:02:40.600 to do in our work is understand the regime we're in, 0:02:40.720 --> 0:02:43.560 and therefore we know what rules to play by. I 0:02:43.560 --> 0:02:47.280 think for so many years, every single rally in crude 0:02:47.440 --> 0:02:50.160 was one you could sell. Every time the energy stocks bounced, 0:02:50.160 --> 0:02:52.600 you should sell them. This is a different regime. We've 0:02:52.639 --> 0:02:55.720 had six months of a benign consolidation and energy and 0:02:55.760 --> 0:02:58.520 now it's reasserting itself to the point on exon. What 0:02:58.520 --> 0:03:01.720 I'm encouraged by is a lot of the return to 0:03:01.840 --> 0:03:05.760 leadership from energy has come without the major integrators doing 0:03:06.360 --> 0:03:08.280 a whole heck of a lot here. This has been 0:03:08.320 --> 0:03:10.600 the service names, this has been the EP names. Look 0:03:10.600 --> 0:03:12.840 at some of the big global names here as well, 0:03:12.880 --> 0:03:17.160 which have all really reignited in terms of a leadership story. 0:03:17.400 --> 0:03:20.959 Okay, what about elsewhere in cyclicals? Financial stocks in particular. 0:03:21.000 --> 0:03:22.360 I know you're looking at some of the banks. We 0:03:22.360 --> 0:03:24.480 were just talking about how we're continuing to see the 0:03:24.560 --> 0:03:28.200 ramifications of the failures we've seen this year. What's happening 0:03:28.240 --> 0:03:28.720 in those guys. 0:03:28.800 --> 0:03:31.040 I think if you told me that the Bank index 0:03:31.080 --> 0:03:33.560 would be down fifteen percent year to day, I wouldn't 0:03:33.600 --> 0:03:36.160 guess the SMP would be up fifteen percent year to day. 0:03:36.920 --> 0:03:40.720 We went back yesterday and looked at every major SMP 0:03:40.840 --> 0:03:43.040 low over the last hundred years. This would be the 0:03:43.040 --> 0:03:45.440 first time in one hundred years where you're nearly a 0:03:45.520 --> 0:03:48.680 year off the low last October, where SMP's up some 0:03:48.840 --> 0:03:51.680 number and banks are actually down. It would be more 0:03:51.720 --> 0:03:54.160 normal if banks were up seventy percent. Here they're down 0:03:54.200 --> 0:03:57.839 fifteen from where they were last October. You name by name. 0:03:58.080 --> 0:04:00.320 It's just odd to me that city group was back 0:04:00.360 --> 0:04:03.480 on the loads. Big of America's right there. Goldman and 0:04:03.480 --> 0:04:06.320 Morgan Stanley look weak, and we know the regionals have rolled. 0:04:07.480 --> 0:04:11.560 I think it's difficult to entirely dismiss that. I think 0:04:11.600 --> 0:04:15.080 the benign explanation is listen, fifty percent of the S 0:04:15.080 --> 0:04:17.280 and p's above, the two hundred and fifty percent is below. 0:04:17.480 --> 0:04:19.880 It's a very very split tape. What I don't like 0:04:20.000 --> 0:04:21.800 is on the wrong side of the split tape, you 0:04:21.839 --> 0:04:23.839 have some pretty important groups like banks. 0:04:24.360 --> 0:04:26.840 So if you're saying we're too pessimistic on China, are 0:04:26.880 --> 0:04:29.080 we too constructive on the United States? 0:04:29.400 --> 0:04:29.599 Yeah? 0:04:29.600 --> 0:04:32.760 I think we're probably first, probably too constructive on Europe, 0:04:32.800 --> 0:04:35.440 which I think is deteriorating right now. Like look at 0:04:35.680 --> 0:04:37.839 three month low German d acts, three month low French 0:04:37.880 --> 0:04:39.640 CAC and you know what drove a lot of those 0:04:39.680 --> 0:04:42.040 markets where European luxury names, those have all rolled here, 0:04:42.160 --> 0:04:45.840 European discretionary has rolled. So you know, in a way, 0:04:46.040 --> 0:04:48.680 go back fourteen to fifteen months ago, Europe was kind 0:04:48.720 --> 0:04:50.919 of first to bottom and turn up and lead. That 0:04:51.160 --> 0:04:53.599 seems to be flagging here. So I think before you 0:04:53.720 --> 0:04:57.359 talk about US at major risk, I think there's a 0:04:57.440 --> 0:04:59.960 change going on in Europe. You see in euro usdcross 0:05:00.080 --> 0:05:03.360 as well, which has come in sharply as US German 0:05:03.440 --> 0:05:04.880 rate differentials have changed. 0:05:04.960 --> 0:05:06.919 So what am I positioning for Donna strengths? What are 0:05:06.920 --> 0:05:08.919 you looking for? Why do your positions take advantage of that. 0:05:09.240 --> 0:05:11.720 You know what's funny is I think it's interesting how 0:05:11.800 --> 0:05:14.839 consensus short dollar is yet dollars really not going down 0:05:14.920 --> 0:05:17.840 almost against anything I pair it against in a way 0:05:17.920 --> 0:05:21.360 time it actually makes energies resilience here even more noted 0:05:21.480 --> 0:05:24.920 that it's happened even as dollar has firm, but dollars 0:05:24.960 --> 0:05:28.479 firm against end, it's firm against Euro, it's firm against Stirling, 0:05:28.800 --> 0:05:31.919 it's firm against C and H. So hard for me 0:05:31.960 --> 0:05:34.560 to really embrace the short dollar call when it's just 0:05:34.600 --> 0:05:35.279 not on the charts. 0:05:35.440 --> 0:05:39.120 And I'm looking at BBDXY, which is a blended bank 0:05:39.160 --> 0:05:41.800 index which includes a lot of emerging market in China 0:05:41.839 --> 0:05:43.800 as well, and to be kind, it's well behaved and 0:05:43.920 --> 0:05:47.279 centered trend on the trading level of two standard deviations 0:05:47.320 --> 0:05:49.160 as well. You suggest that break stronger. 0:05:50.200 --> 0:05:52.640 I think if you look pair by pair, it's hard 0:05:52.640 --> 0:05:55.120 to come up with a really compelling short dollar call here. 0:05:55.279 --> 0:06:00.000 I mean, even like also USD, right, that's been soft. 0:06:00.680 --> 0:06:02.400 I think the pair you ought to focus on here 0:06:02.520 --> 0:06:06.800 is actually EUROCNH. Euro has been so strong versus C 0:06:06.880 --> 0:06:08.360 and H for the better part of the last year 0:06:08.440 --> 0:06:10.120 that actually seems to be changing here. And I think 0:06:10.160 --> 0:06:13.880 it's in step with this idea that something's changing with China. 0:06:14.440 --> 0:06:18.440 Perhaps a stronger CNH relative to euro is one more 0:06:18.520 --> 0:06:19.840 sign in that direction. 0:06:20.000 --> 0:06:23.040 You've got a call for lagat next month, September fourteenth. 0:06:23.520 --> 0:06:27.160 You know, when I look at say German rates is 0:06:27.240 --> 0:06:31.320 kind of our barometer here. They've effectively been in this 0:06:31.440 --> 0:06:34.920 range for the last six or seven months. My experience 0:06:35.000 --> 0:06:37.960 in this business has always surprises break in the direction 0:06:38.040 --> 0:06:40.600 of the trend, and I think the trending global rate 0:06:40.720 --> 0:06:43.040 is still up. So I think if there's a surprise, 0:06:43.720 --> 0:06:46.360 its rates have one more or last push in them. 0:06:46.560 --> 0:06:47.280 That would be our. 0:06:47.200 --> 0:06:49.560 Guest, Chris. This was awesome. Thank you, by thank you, 0:06:49.680 --> 0:06:52.080 Thank you, Chris around mister to take us there. If 0:06:52.120 --> 0:06:54.520 you want to call on the FX market, Goldman Sachs 0:06:54.920 --> 0:06:57.240 out with the call on the FX market six month 0:06:57.320 --> 0:07:00.000 call dolly n. They were looking for one thirty five, 0:07:00.640 --> 0:07:03.760 they're now looking for one fifty five on dolly En. 0:07:03.800 --> 0:07:06.960 They've gone back to the nineteen nineties on the Japanese end. 0:07:07.040 --> 0:07:09.240 Governor, you had to have the chance to clear the 0:07:09.240 --> 0:07:11.440 air at Jackson Hall. From what I can tell, he 0:07:11.480 --> 0:07:15.080 did not. There's a huge uncertainty there and here what 0:07:15.200 --> 0:07:17.360 you said, John, one thirty five in the Golden Sex, 0:07:17.400 --> 0:07:17.800 cause what. 0:07:18.040 --> 0:07:20.240 They're looking for one fifty five? The co what's one. 0:07:20.280 --> 0:07:21.640 Forty seven right now? 0:07:21.680 --> 0:07:23.600 And I would say kid Jukes and others are really 0:07:23.640 --> 0:07:26.720 heightened here at one forty seven. I don't know where 0:07:26.720 --> 0:07:29.880 you break through one fifty, but I'm sorry. The Bank 0:07:29.920 --> 0:07:34.760 of Japan, the Ministry of Finance will defend the yen 0:07:35.280 --> 0:07:36.840 on the path to one fifty five. 0:07:36.920 --> 0:07:39.120 You got a level of mind there, Chris. But when 0:07:39.280 --> 0:07:43.080 that happens for the bijah high higher? How much higher? 0:07:43.120 --> 0:07:43.440 Weaker? 0:07:43.520 --> 0:07:43.600 Ye? 0:07:43.960 --> 0:07:46.120 I'm drawn to the fifty five number. It's an important 0:07:46.120 --> 0:07:48.360 Fibinac number actually if you look at kind of the 0:07:48.400 --> 0:07:51.800 long term dollary en charp. But you kind of can't 0:07:51.800 --> 0:07:53.520 have both ways. You're either going to defend the bond 0:07:53.560 --> 0:07:54.960 market or you're going to defend the end, and I 0:07:54.960 --> 0:07:57.520 don't think you can do both. The big winner, though, 0:07:57.680 --> 0:08:02.000 I think is domestic Japanese assets, if they're doing everything 0:08:02.040 --> 0:08:04.320 they can to keep money at home. I think Japanese 0:08:04.360 --> 0:08:06.640 bank stocks reflect that did the strongest bank stocks anywhere 0:08:06.640 --> 0:08:08.680 in the world. I don't think that's an accident. 0:08:09.480 --> 0:08:14.360 Chris Farrean go to Thank you twice. 0:08:15.560 --> 0:08:16.520 What a joy to get. 0:08:16.800 --> 0:08:20.200 A brief summary from Jay Brice and chief economist at 0:08:20.200 --> 0:08:20.920 Wills Fargo. 0:08:21.160 --> 0:08:22.760 I love, love, love Jay. 0:08:23.040 --> 0:08:26.600 The two sentences in your report on a real yield 0:08:26.640 --> 0:08:31.280 and inflation adjusted ten year yield that will quote drift 0:08:31.680 --> 0:08:35.560 through two percent. What's the ramification to our viewers and 0:08:35.640 --> 0:08:38.640 listeners of a two point one or a two point 0:08:38.760 --> 0:08:40.440 two percent real rate? 0:08:41.880 --> 0:08:45.840 Well, so, I think the ramification is that exerts significant 0:08:45.880 --> 0:08:48.680 headwinds on the US economy. I mean, what you look 0:08:48.720 --> 0:08:50.480 at with the real rate, and Mike was kind of 0:08:50.520 --> 0:08:53.200 talking about this before, is that's what matters for the 0:08:53.200 --> 0:08:56.840 real US economy. And if the potential growth rate of 0:08:56.840 --> 0:08:59.839 the US economy, no one really knows exactly where that. 0:08:59.880 --> 0:09:01.840 Is, but let's call it roughly two percent. 0:09:02.240 --> 0:09:04.280 I mean, you kind of want, you know, a real 0:09:04.559 --> 0:09:07.040 FED funds rate, you know, at that or maybe even 0:09:07.080 --> 0:09:09.959 a little bit below that would be neutral. You get 0:09:10.040 --> 0:09:12.439 north of two percent, then you're putting some real restraint 0:09:12.480 --> 0:09:15.440 on the economy. Whether it's enough to actually cause you know, 0:09:15.559 --> 0:09:19.560 a technical downturn, technical recession, that kind of remains to 0:09:19.600 --> 0:09:23.000 be seen. But even if it's not enough, it certainly 0:09:23.000 --> 0:09:24.400 puts headwinds on the economy. 0:09:24.400 --> 0:09:26.520 It slows growth in the US economy. 0:09:26.600 --> 0:09:29.320 I mean, jee, I've got a Bloomberg Financial Conditions Index 0:09:30.080 --> 0:09:31.360 a positive. 0:09:30.840 --> 0:09:31.880 Point three one. Folks. 0:09:31.920 --> 0:09:33.800 All you need to know in the mathiness of it 0:09:33.840 --> 0:09:37.640 is it screams accommodation to me, how many rate rises 0:09:37.679 --> 0:09:40.680 do we need to get truly restrictive? 0:09:41.840 --> 0:09:45.320 Well, so, Tom, the index that you're referring to, and 0:09:45.400 --> 0:09:47.880 just for your viewers, it comes up with like there's 0:09:47.920 --> 0:09:51.160 ten different variables beneath it, okay, And one would be 0:09:51.520 --> 0:09:55.320 credit spreads on corporate bonds, one would be volatility and 0:09:55.440 --> 0:09:58.120 markets things of that nature. Those are the big, the 0:09:58.120 --> 0:10:00.720 big sort of things. And so how do you how 0:10:00.720 --> 0:10:02.520 do you get it more restrictive? I guess it would 0:10:02.559 --> 0:10:06.040 be if the Fed were to become really more hawkish 0:10:06.040 --> 0:10:09.319 here and so you start to price in some more rate. 0:10:09.200 --> 0:10:09.920 Hikes in there. 0:10:10.080 --> 0:10:12.560 That leads to volatility in the stock market, that pushes 0:10:12.640 --> 0:10:13.760 bond spreads wider. 0:10:14.120 --> 0:10:15.319 All those things. 0:10:15.040 --> 0:10:17.720 Really matter for you know, for the real economy as well. 0:10:17.800 --> 0:10:21.040 And right now markets you know, are looking at markets 0:10:21.040 --> 0:10:24.480 have been I would say, very accommodative. Recently, bond spreads 0:10:24.480 --> 0:10:27.040 have narrowed, you know, the stock markets holding in there. 0:10:27.600 --> 0:10:29.800 But you know, if we get let's say we got 0:10:29.840 --> 0:10:34.280 a bad PCEE print, you know tomorrow, or or you know, 0:10:34.480 --> 0:10:39.079 a really strong labor market number, and people start to believe, okay, 0:10:39.080 --> 0:10:41.400 there's even more tightening coming in there. You'll start to 0:10:41.440 --> 0:10:44.000 see that tightening in terms of the financial markets. 0:10:44.559 --> 0:10:46.640 But but the question is, you know when that tightening 0:10:46.679 --> 0:10:48.920 will come. Even if we do get those things this week, 0:10:48.960 --> 0:10:50.839 If we get a blowout jobs report, if there's more 0:10:50.840 --> 0:10:54.120 inflation pressure, then perhaps the Fed would like to see 0:10:54.559 --> 0:10:57.199 would that actually result in a hike in September. We 0:10:57.200 --> 0:11:01.199 were discussing earlier how the bar for next seems quite high. 0:11:01.240 --> 0:11:03.680 Would they still not pause, wait to see the lagged defects, 0:11:03.679 --> 0:11:06.480 perhaps kicking in more than make a call on November? 0:11:07.240 --> 0:11:10.800 Yeah, Kelly, we agree. I agree with your sentiment there. 0:11:10.840 --> 0:11:13.040 I mean, I think that, as you said, the bar 0:11:13.160 --> 0:11:15.240 for a rate hike in September, I think is pretty 0:11:15.320 --> 0:11:17.920 high at this point. I think, you know, my sense 0:11:18.120 --> 0:11:21.720 is where the consensus on the FOMC is right now 0:11:21.880 --> 0:11:23.280 is we want to see a. 0:11:23.280 --> 0:11:24.400 Little bit more data. 0:11:24.480 --> 0:11:26.880 And so if you do get a blowout jobs report, 0:11:26.880 --> 0:11:29.679 if you do get a bad PCEE print. I think 0:11:29.720 --> 0:11:32.800 what happens in terms of markets is that pushes the 0:11:32.840 --> 0:11:35.160 probability of rate hike in November up. 0:11:35.240 --> 0:11:37.880 But that would also, I think lead to some volatility 0:11:38.040 --> 0:11:38.600 in markets. 0:11:38.880 --> 0:11:42.320 Jay question, with immense respect for what Wills Fargo's done 0:11:42.320 --> 0:11:47.040 on labor economics for decades, is our job market accountable 0:11:47.760 --> 0:11:50.600 or are we going to be surprised every job's day forever? 0:11:50.640 --> 0:11:53.760 Where we really guys like you sort of don't in 0:11:53.800 --> 0:11:57.319 your great team, don't really have a handle on the 0:11:57.320 --> 0:11:59.400 accountability of the two surveys. 0:12:00.520 --> 0:12:03.600 Well, so you know, when we look at our model, 0:12:03.640 --> 0:12:05.760 we look at the you know, the error bands around 0:12:05.800 --> 0:12:08.000 that are estimate. You know, the arab bands around our 0:12:08.080 --> 0:12:11.400 estimates are you know, similar, like plus or minus seventy thousand. 0:12:11.559 --> 0:12:14.199 So you know, in some sense you're you are throwing 0:12:14.240 --> 0:12:17.360 a little bit of a dart with that, and and so, 0:12:17.960 --> 0:12:20.839 and then that gets magnified in terms of the of 0:12:20.880 --> 0:12:23.840 the pandemic because that just puts so much volatility into 0:12:23.840 --> 0:12:26.839 the underlying numbers that you're using to try to come 0:12:26.880 --> 0:12:29.720 up with a prediction. So as the pandemic stuff starts 0:12:29.760 --> 0:12:31.839 to fade away over time, I think those aerror bands 0:12:31.840 --> 0:12:34.400 will start to narrow, but it's always at the end 0:12:34.400 --> 0:12:36.040 of the day, you know, a little bit of a 0:12:36.440 --> 0:12:39.000 guessing game as it relates to the labor market. 0:12:39.400 --> 0:12:41.520 Yeah, and as it relates to you know, the headline 0:12:41.520 --> 0:12:44.000 figures on non farm payrolls. But when we think about 0:12:44.040 --> 0:12:45.960 some of the other components of the labor market data, 0:12:45.960 --> 0:12:49.880 specifically the pressure, the upward pressure perhaps on wages. We 0:12:49.920 --> 0:12:52.880 were speaking with City earlier on in the show about 0:12:52.960 --> 0:12:55.360 what we're seeing in terms of strike activity and union 0:12:55.440 --> 0:12:58.440 activity and the power of labor and in pushing for 0:12:58.640 --> 0:13:01.679 higher compensation. How should we be thinking about that and 0:13:01.720 --> 0:13:04.200 how it relates to the FEDS fight against inflation. 0:13:05.520 --> 0:13:07.679 So you get a lot of headlines in terms of 0:13:08.480 --> 0:13:10.880 you know, unions and things of that nature. I want 0:13:10.880 --> 0:13:12.760 to say that I don't remember the number off the 0:13:12.840 --> 0:13:14.679 exact top of my head, but I want to say, 0:13:14.720 --> 0:13:17.319 the percent of the labor force that's unionized today, it's 0:13:17.320 --> 0:13:19.679 only like six percent. I mean, we're not talking the 0:13:19.760 --> 0:13:22.800 nineteen fifties or nineteen sixties here. It's a much smaller 0:13:22.840 --> 0:13:26.600 sort of a piece of that. And so it's you know, 0:13:26.760 --> 0:13:28.560 there's gets a lot of headlines, but at the end 0:13:28.640 --> 0:13:31.480 of the day, it's a marginal sort of effects in 0:13:31.559 --> 0:13:32.360 terms of wages. 0:13:32.520 --> 0:13:35.240 And sorry to interrupt, but the thesis, the thinking from 0:13:35.240 --> 0:13:37.560 City says that this is more just an indication of 0:13:37.559 --> 0:13:39.920 the supply problems we are still seeing in labor, which 0:13:39.960 --> 0:13:42.320 is why workers feel empowered to ask for more and 0:13:42.360 --> 0:13:44.559 in theory that goes beyond beyond unions. 0:13:45.120 --> 0:13:47.160 Yeah, that's a good point. 0:13:47.200 --> 0:13:49.920 I mean, obviously, the labor market is very very tight 0:13:50.040 --> 0:13:53.760 right now. You know, to push for higher, higher wage gains. 0:13:53.760 --> 0:13:56.720 That's easier when you are unionized, when you have collective 0:13:56.760 --> 0:13:59.320 bargaining than if you're just out there independently doing it. 0:13:59.400 --> 0:14:02.560 But know, the point is that the labor market is tight. 0:14:02.760 --> 0:14:05.080 But you know, anything that we've seen right now, whether 0:14:05.120 --> 0:14:07.719 you're looking at the ECI, whether you're looking at the 0:14:07.760 --> 0:14:11.000 employment cost Index, whether you're looking at average hourly earnings, 0:14:11.160 --> 0:14:14.079 all of those things showed there has been some deceleration 0:14:14.240 --> 0:14:17.200 in terms of wages. Now we're probably still above where 0:14:17.200 --> 0:14:19.120 we need to be to be consistent with a two 0:14:19.200 --> 0:14:23.360 percent inflation rates. But that said, it's it's we're not 0:14:23.400 --> 0:14:25.560 getting the same sort of upward pressure on wages that 0:14:25.600 --> 0:14:27.160 we were, say last year at this time. 0:14:27.360 --> 0:14:30.120 Jay personal income, personal spending, are they acting in a 0:14:30.160 --> 0:14:30.720 normal way? 0:14:32.480 --> 0:14:35.000 Personal yes, I mean, given it's given as tight as 0:14:35.040 --> 0:14:37.760 the labor market is right now, personal income is acting 0:14:37.760 --> 0:14:39.760 in the normal way if you look at the last 0:14:40.000 --> 0:14:42.720 the last I don't know, ten eleven out eleven months, 0:14:42.960 --> 0:14:48.480 we've had positive real disposable income growth because wages are 0:14:48.520 --> 0:14:51.360 growing faster than what prices are going up. 0:14:51.440 --> 0:14:54.040 Right now, J Brison, thank you so much. Doctor Bryson 0:14:54.200 --> 0:14:55.400 is with Wells Fargo to. 0:15:06.120 --> 0:15:06.880 Joining us now. 0:15:07.080 --> 0:15:10.400 Smartest guy in a block, John Ovallo, US homebuilders analyst 0:15:10.480 --> 0:15:12.520 at UBS. Did you see this coming? 0:15:12.960 --> 0:15:13.040 Like? 0:15:13.120 --> 0:15:17.400 Were you like pounding the table Ubs strong by back 0:15:17.400 --> 0:15:19.800 when everybody said they're all going to die and they didn't. 0:15:20.360 --> 0:15:21.960 I'll tell you we came out of the gates pretty 0:15:21.960 --> 0:15:24.040 bullish when we when we launched about a year and 0:15:24.080 --> 0:15:26.280 a half ago, and we did not expect this to 0:15:26.280 --> 0:15:27.320 play out the way it did. 0:15:27.560 --> 0:15:28.760 However, we your thumb up. 0:15:28.840 --> 0:15:30.080 You were a thumb up at the time. 0:15:30.000 --> 0:15:31.600 One hundred percent. And I mean we were looking at 0:15:31.640 --> 0:15:33.640 stocks that were trading at a fraction of book value 0:15:33.720 --> 0:15:36.000 right when we saw very little risk to book value. 0:15:36.160 --> 0:15:38.760 Now, what I mean a DH hort and venerable company, 0:15:38.760 --> 0:15:42.000 are they all the executives all unload and shares and 0:15:42.000 --> 0:15:44.560 and that on a log basis, it's a log convex 0:15:44.640 --> 0:15:46.600 to say the least are going to call it a moonshot. 0:15:47.120 --> 0:15:49.560 Now, what for the homebuilders, we're still bullish. 0:15:49.640 --> 0:15:52.440 I think that it's an incredibly interesting dynamic that's playing 0:15:52.440 --> 0:15:55.200 out right now where there is just very very little 0:15:55.240 --> 0:15:58.360 existing home inventory three point two months to be exact, 0:15:58.720 --> 0:16:01.640 that's about half of what it should And so you 0:16:01.680 --> 0:16:03.960 couple that with the fact that demand out there is 0:16:04.000 --> 0:16:06.840 still resilient, regardless of the fact that rates are at 0:16:06.840 --> 0:16:09.040 seven and a half percent, and the demand is all 0:16:09.040 --> 0:16:11.119 being funnel towards these public homebuilders. 0:16:11.160 --> 0:16:13.120 I just wonder how long that could last. John. If 0:16:13.120 --> 0:16:16.640 we're north of seven already on the approach to eight percent, 0:16:17.000 --> 0:16:18.960 that's got to hit demand at some point, even for 0:16:19.000 --> 0:16:20.040 people who are trying to. 0:16:20.000 --> 0:16:23.560 Buy new one hundred percent. But the beauty of being 0:16:23.560 --> 0:16:25.960 a public home builder is that you have arrows in 0:16:25.960 --> 0:16:29.600 your quiver. What they can do that the existing incentives incentives, 0:16:29.640 --> 0:16:32.040 so they can buy down mortgage rates, and not only that, 0:16:32.320 --> 0:16:34.400 they can build smaller footprints, they can build a little 0:16:34.440 --> 0:16:37.000 further away from the city center, so there's optionality that 0:16:37.040 --> 0:16:39.080 the existing home market doesn't have. You can't pick up 0:16:39.080 --> 0:16:41.320 the home and move it, and so there's a lot 0:16:41.320 --> 0:16:44.000 of things that are favoring being a builder at this point. 0:16:44.160 --> 0:16:46.600 So John, in the UK, this can slowly correct because 0:16:46.640 --> 0:16:48.960 they fixed rate mortgage over there is maybe an agreement 0:16:48.960 --> 0:16:52.480 for two, three, four, five years, some even on floating. 0:16:52.560 --> 0:16:56.640 Right the US mortgage market thirty you're fixed. I'm trying 0:16:56.680 --> 0:17:00.280 to work out, johnni we're facing something generational here. Is 0:17:00.280 --> 0:17:03.280 this something that goes over the next decade, twenty years? 0:17:03.400 --> 0:17:05.280 How are you thinking about that? Just what kind of 0:17:05.280 --> 0:17:07.280 time arison have you got for this to play out. 0:17:07.720 --> 0:17:09.800 I think that there's a long, long runway here in 0:17:10.000 --> 0:17:13.040 the US housing market. You have, first of all, a 0:17:13.080 --> 0:17:16.680 massive generational wealth transfer sixty eight trillion dollars being funneled 0:17:16.720 --> 0:17:19.919 from baby boomers to millennials in Gen X, And you 0:17:20.040 --> 0:17:23.439 have an underbuilt housing market in the US and a 0:17:23.480 --> 0:17:25.760 lot of millennials that are coming to the market right 0:17:25.800 --> 0:17:27.399 now that have been kind of shut out of the 0:17:27.400 --> 0:17:31.080 market for fifteen years, and all of a sudden they're saying, well, 0:17:31.080 --> 0:17:32.520 you know what, I think we do want to own 0:17:32.520 --> 0:17:35.520 a home. They're a little bit wealthier than prior, prior generations, 0:17:35.560 --> 0:17:38.600 they have the ability to borrow from parents and so forth, 0:17:38.760 --> 0:17:42.240 and so that capacity and ability to buy is actually there. 0:17:42.680 --> 0:17:43.800 And he adds to the fact that. 0:17:43.720 --> 0:17:46.800 So our housing market is based on rich parents giving 0:17:46.840 --> 0:17:48.320 money to kids. 0:17:48.760 --> 0:17:51.280 That's part of it for sure. But I would say 0:17:51.280 --> 0:17:53.440 that the generation that's coming through right now as the 0:17:53.440 --> 0:17:55.720 first time home buyer is a little bit better healed 0:17:55.720 --> 0:17:58.000 than prior generations because they're a little bit older, they're 0:17:58.040 --> 0:18:00.320 doing things a little bit later in life. So there 0:18:00.440 --> 0:18:03.119 is wealth that has been been accumulated. And this is 0:18:03.119 --> 0:18:04.400 a need based player, right. 0:18:04.840 --> 0:18:08.240 Okay, the fancy people you follow have I mean, Granted's 0:18:08.280 --> 0:18:09.440 out now writing kitchens. 0:18:09.440 --> 0:18:09.880 You don't do. 0:18:09.840 --> 0:18:13.120 Granted courts now courts Thanks Katie Lin's on top of that. 0:18:13.400 --> 0:18:16.280 Everybody you talk to who's got courts kitchens. Why can't 0:18:16.320 --> 0:18:20.760 we build a starter home that's respectful. 0:18:22.200 --> 0:18:23.239 Why can't we do that? 0:18:23.640 --> 0:18:26.120 It's a great question, Tom. I mean, the one thing 0:18:26.160 --> 0:18:28.679 that this industry has not done over the years is 0:18:28.840 --> 0:18:32.679 really sort of adopted technology like other like other industries have. 0:18:32.720 --> 0:18:35.720 Think about the automotive industry, right, they're building a home 0:18:35.760 --> 0:18:38.800 today exactly the same way was built one hundred years ago, 0:18:39.160 --> 0:18:42.120 So there needs to be technology infusion into this industry. 0:18:42.160 --> 0:18:44.600