WEBVTT - Surveillance: Central Bank Decisions 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:22.440 international relations. Find Bloomberg Surveillance on Apple podcast, sun Cloud, 0:00:22.840 --> 0:00:26.320 Bloomberg dot Com, and of course on the Bloomberg terminal. 0:00:29.760 --> 0:00:33.080 George boy joins us now, and this is extremely timely 0:00:33.200 --> 0:00:35.879 with all Spring global investment. He's trying to place a 0:00:35.920 --> 0:00:39.479 long term perspective on short term and marshal emotions and 0:00:39.520 --> 0:00:42.680 were thrilled it he could be with us today. George, 0:00:42.680 --> 0:00:45.040 What is a bond investor to do if I am 0:00:45.040 --> 0:00:48.000 in fixed income and I want a coupon, do I 0:00:48.120 --> 0:00:52.879 just as soon yield up in price down? Well, thank you, 0:00:52.960 --> 0:00:55.480 good morning, good morning, Thanks for having me on the show. 0:00:55.920 --> 0:00:58.280 It's it's great to be on again. Um you know, 0:00:58.320 --> 0:01:00.760 as as as Lisa just mentioned, you know, it's sort 0:01:00.800 --> 0:01:04.080 of opposite day and markets. It seems, as you know, 0:01:04.120 --> 0:01:08.200 the market is rallying, at least stock markets rallying as um, 0:01:08.240 --> 0:01:10.560 you know, as central banks kind of around the world 0:01:10.959 --> 0:01:14.440 that they're trying to re establish their credibility as inflation 0:01:14.520 --> 0:01:17.800 fighters and you know, the playbook if you will to 0:01:17.920 --> 0:01:20.840 fight to fight inflation is is pretty well understood. You 0:01:21.240 --> 0:01:26.280 tighten policy, you hopefully you reduce liquidity in the system, 0:01:26.319 --> 0:01:30.959 that slows growth and inflation comes under control. Now, all 0:01:31.000 --> 0:01:33.679 that takes time, takes a lot of effort, and what 0:01:33.760 --> 0:01:35.840 seems to have happened in the last day or so 0:01:36.880 --> 0:01:39.720 is the Fed. You know, the Fed has basically met 0:01:39.800 --> 0:01:43.360 market expectations and in doing so, you know, now the 0:01:43.400 --> 0:01:46.640 market seems to believe that we're on course for a 0:01:46.720 --> 0:01:49.920 soft landing, that the market knew what they wanted, the 0:01:50.000 --> 0:01:52.640 Fed gave it to them, and now all we need 0:01:52.720 --> 0:01:55.640 to do is sit back. The glide path is set, 0:01:56.080 --> 0:01:59.880 and we're gonna see slower growth next year and moderating inflation. 0:02:00.280 --> 0:02:04.120 That's a very optimistic outlook. You know. Our view is that, 0:02:04.320 --> 0:02:06.040 you know that things are gonna be a little bit 0:02:06.080 --> 0:02:09.919 more choppy than that. And even Powell acknowledge that this 0:02:10.000 --> 0:02:13.360 is this isn't this is a totally unique market, and 0:02:13.400 --> 0:02:16.000 that they're going to watch the economy just like we will, 0:02:16.280 --> 0:02:20.359 and they're gonna respond. They've basically told us that their 0:02:20.400 --> 0:02:22.720 forward guidance is going to be a little less clear 0:02:22.800 --> 0:02:26.480 going forward. So to use that flight path analogy, you know, 0:02:26.639 --> 0:02:29.000 it's it's not so safe to move around the cabin. 0:02:29.600 --> 0:02:32.160 It maybe might take a little bit more. There might 0:02:32.160 --> 0:02:34.600 be a little bit more volatility. And you're right, Tom, 0:02:34.680 --> 0:02:38.040 bond investors need to watch this very closely. It's been 0:02:38.080 --> 0:02:41.440 pretty benign action in the bond market. Ten Your yields are, 0:02:41.720 --> 0:02:44.359 you know, up a little They're probably gonna go up 0:02:44.400 --> 0:02:47.119 a little more, and curves could steep in a bit 0:02:47.200 --> 0:02:49.800 in here. But we're now starting to sort of play 0:02:49.800 --> 0:02:53.320 the expectation game. FED hikes are now priced in and 0:02:53.360 --> 0:02:56.120 the long end has remained anchored, so you have to 0:02:56.160 --> 0:02:58.880 reach for yield. Sorry, go ahead, but Georgia have to 0:02:58.919 --> 0:03:00.560 reach for yield. And this is the reason why you've 0:03:00.560 --> 0:03:02.960 seen such disability and the credit markets as well. I'm 0:03:03.000 --> 0:03:06.120 looking at spreads. They didn't widen on the heels of this, 0:03:06.720 --> 0:03:09.600 of this announcement and more hawkish tilt from the Federal Reserve. 0:03:09.840 --> 0:03:12.160 This is exactly again, the opposite of what happened in 0:03:12.200 --> 0:03:15.720 two thousand and thirteen when our markets going to get 0:03:15.760 --> 0:03:18.280 a little more rattled. Could that happen or is there 0:03:18.480 --> 0:03:21.799 ultimate faith that FED share J. Powell will step in 0:03:21.840 --> 0:03:25.000 the moment that there's turbulence and and really try to 0:03:25.040 --> 0:03:27.320 calm the waters by taking a step off the pedal. 0:03:28.160 --> 0:03:30.160 I think bond markets, we think bond markets are a 0:03:30.200 --> 0:03:32.120 little too sanguine in here. You know, if you take 0:03:32.160 --> 0:03:35.160 the largest buyer of bonds of certainly uh, you know, 0:03:35.240 --> 0:03:38.760 treasuries out of the market. As we go forward, you 0:03:38.760 --> 0:03:42.440 should expect more volatility. Also, the economic outcomes here are 0:03:42.520 --> 0:03:45.520 not quite as certain perhaps as the market expects. But 0:03:45.720 --> 0:03:47.520 the one thing that is certain is that, you know, 0:03:47.560 --> 0:03:50.920 the economy is strong, inflations running high. That is pretty 0:03:50.920 --> 0:03:53.640 good for for corporations. And so there's a there's an 0:03:53.720 --> 0:03:56.000 argument to be made as to why, you know, stock 0:03:56.040 --> 0:03:58.480 prices are at least holding moving up a bit higher. 0:03:58.600 --> 0:04:00.600 But in the world of credit and the world of 0:04:00.600 --> 0:04:03.280 of sort of you know, sort of credit based fixed income, 0:04:03.640 --> 0:04:06.280 you know, sort of higher inflation is actually a pretty 0:04:06.320 --> 0:04:10.400 good environment from from a default perspective, default should go down, 0:04:10.480 --> 0:04:13.800 stay low, go down, remain low as we move forward. 0:04:14.040 --> 0:04:17.360 And that's that's that's that's a healthy indication you need 0:04:17.440 --> 0:04:21.119 the extra income. Diversified sources of income are the best 0:04:21.120 --> 0:04:24.320 thing you can have in a fixed income portfolio today, 0:04:24.360 --> 0:04:26.760 and you need that extra income. Number one, you may 0:04:26.839 --> 0:04:29.880 use it, but more importantly, from an investment perspective, you're 0:04:29.920 --> 0:04:33.240 looking for opportunities to reinvest. The income yields should go 0:04:33.320 --> 0:04:35.479 a bit higher. We need to be able to reinvest 0:04:35.520 --> 0:04:38.479 at higher rates, so we want slightly shorter duration. And 0:04:38.480 --> 0:04:41.880 then liquidity. Liquidity is really really important in the market. 0:04:42.000 --> 0:04:44.520 Liquidity has been great for a long period of time, 0:04:44.680 --> 0:04:47.760 which is why risk premiums are so low. As liquidity 0:04:47.839 --> 0:04:50.840 starts to decline, we need to preserve that liquidity and 0:04:50.920 --> 0:04:53.880 portfolios we need to be able to tactically move when 0:04:53.920 --> 0:04:56.520 the market shifts. Now all those things come together in 0:04:56.520 --> 0:04:59.599 a fixed income portfolio, and so we need to protect 0:04:59.600 --> 0:05:02.279 CAPA in a rising rate environment where the FED is 0:05:02.640 --> 0:05:06.080 basically given the green light to start tightening policy. As 0:05:06.120 --> 0:05:09.120 you guys have mentioned, Bank of England saw the green light. 0:05:09.360 --> 0:05:12.800 They moved, Other banks around the world they've moved. We're 0:05:12.839 --> 0:05:16.359 moving into a regime of tighter monetary policy. You know, 0:05:16.440 --> 0:05:19.839 sort of basic principle of don't fight the Fed is 0:05:19.880 --> 0:05:24.200 something that people should adhere to. One Taylor Riggs teaches 0:05:24.240 --> 0:05:26.840 me day in day out that it is about rate 0:05:26.920 --> 0:05:30.040 of change. And of course we are seeing significant rate 0:05:30.080 --> 0:05:32.400 of change a move of were boring cost for the 0:05:32.480 --> 0:05:35.240 United Kingdom yell spike higher across the Guild curve. I mean, 0:05:35.279 --> 0:05:37.160 you see the six basis point move on the teniest 0:05:37.200 --> 0:05:39.520 similar moves. Who're seeing the short term, but we've seen 0:05:39.520 --> 0:05:44.000 a slight bull stephening of the US yel curve today. 0:05:44.040 --> 0:05:46.400 What though a rate of change of how much steeper 0:05:46.440 --> 0:05:48.640 these yel C couves could become and how quickly? From 0:05:48.640 --> 0:05:51.720 your perspective, So, I think the rate of change has 0:05:51.760 --> 0:05:53.960 a lot to do with market expectations. And I think 0:05:53.960 --> 0:05:56.720 one of the reasons that the the the long end 0:05:56.760 --> 0:05:59.640 of curves are remaining so well behaved is they still 0:06:00.040 --> 0:06:04.480 market still sees very strong government intervention. And the market 0:06:04.480 --> 0:06:07.200 and the and the and the Fed and other central 0:06:07.200 --> 0:06:10.040 banks have indicated the pace at which they are going 0:06:10.080 --> 0:06:12.799 to change. Now the Fed increase the rate of change, 0:06:12.920 --> 0:06:15.640 and bond yield state the same. So there's always sort 0:06:15.640 --> 0:06:18.080 of this tension between the market and the you know, 0:06:18.200 --> 0:06:21.760 policymakers is to where is the breaking point? Uh and 0:06:21.760 --> 0:06:23.920 and the market seems to be comfortable with the rate 0:06:23.920 --> 0:06:27.040 of change, of the deceleration if you will, of q 0:06:27.240 --> 0:06:31.080 E and and not too spooked, spooked by that. If 0:06:31.120 --> 0:06:34.760 inflation remains much hotter than expected, if it actually accelerates 0:06:34.800 --> 0:06:37.640 from here, well, then those paces that rate of change 0:06:38.040 --> 0:06:40.680 is ultimately going to have to change. The rate of 0:06:40.760 --> 0:06:43.119 change of money coming into the market was like nothing 0:06:43.160 --> 0:06:46.479 you've never experienced. Back in the rate of change of 0:06:46.480 --> 0:06:48.960 money coming out of the market tends to be slow 0:06:49.120 --> 0:06:52.520 and steady until you reach that tipping point the markets 0:06:52.520 --> 0:06:55.520 selling you. Right now, we're far far from that tipping point. 0:06:55.760 --> 0:06:58.760 There's a long runway ahead of us, but we simply 0:06:58.760 --> 0:07:00.920 don't know, and we're gonna have to see. It does 0:07:01.000 --> 0:07:04.160 seem like it's more than twelve months away, but again 0:07:04.240 --> 0:07:06.240 we're gonna have to see. We think you should keep 0:07:06.279 --> 0:07:11.200 those seatbelts buckled, extra income, shorter duration, and lots of 0:07:11.200 --> 0:07:14.840 liquidity in your fixed income. Work secuy nicely for me, George, 0:07:14.840 --> 0:07:17.120 as we talk about seat belts buckled. George Bowie with 0:07:17.280 --> 0:07:19.800 us there from all spring, and thank you for the perspective. 0:07:25.520 --> 0:07:29.200 We now moved to Seth Carpenter, cheat global economist at Morgan, 0:07:29.280 --> 0:07:32.480 Stanley and South. I want to frame those pushing against 0:07:32.960 --> 0:07:35.760 the zeitgeist. I think of Priam Miserable at t D 0:07:35.960 --> 0:07:39.880 Securities who made clear, yes, rising inflation is there, but 0:07:40.080 --> 0:07:44.120 if it ebbs, it will not dissuade the Central Bank. 0:07:44.560 --> 0:07:48.200 And the brilliant note from your colleague Ellen Zentner overnight, 0:07:48.560 --> 0:07:52.880 who stood aground and said inflation will cool in February 0:07:53.000 --> 0:07:57.280 or March of next year. What does Jerome Pool Jerome 0:07:57.400 --> 0:08:03.880 Powell do if we see a inflation I think the 0:08:03.920 --> 0:08:06.280 real answer is it depends on how much it's cooling. 0:08:06.360 --> 0:08:10.080 So uh, Ellen's forecast is great, and we think the 0:08:10.200 --> 0:08:12.200 monthly prints are going to start to come down and 0:08:12.240 --> 0:08:14.240 you'll start to see it in Q one and more 0:08:14.280 --> 0:08:17.560 in Q two um. But just coming down isn't going 0:08:17.600 --> 0:08:20.360 to be enough. What I took the change in Powell's 0:08:20.440 --> 0:08:23.000 rhetoric to mean is that he still cares a lot 0:08:23.160 --> 0:08:26.440 about the trajectory of inflation, but he also cares about 0:08:26.480 --> 0:08:30.040 the level. Now he started talking about price stability being 0:08:30.280 --> 0:08:33.760 uh the path to to full employment, and he said 0:08:33.800 --> 0:08:35.840 there's versions of the world where they would hike even 0:08:35.880 --> 0:08:38.400 before they got to full employment if inflation was too high. 0:08:38.720 --> 0:08:40.680 So now we're looking at not just the need for 0:08:40.720 --> 0:08:43.320 inflation to come down, for them to sort of come 0:08:43.320 --> 0:08:45.400 off the boiler a little bit. But also what that 0:08:45.480 --> 0:08:48.000 level is going to look like. SOE, I'd loved your 0:08:48.000 --> 0:08:51.320 sense of what happened yesterday in markets in response to 0:08:51.360 --> 0:08:54.040 this hawk is chilt from a fatal reserve that may 0:08:54.040 --> 0:08:56.280 be unwarranted to some degree if you do see a 0:08:56.320 --> 0:09:00.760 cooling off in inflation. We saw stocks rally, bonds rally, 0:09:00.840 --> 0:09:03.360 we saw everything rally, and people said why. And one 0:09:03.400 --> 0:09:06.720 theory is because Jerome Powell basically said they would not 0:09:06.920 --> 0:09:09.720 just halt any purchases right away because they didn't want 0:09:09.720 --> 0:09:12.960 to disrupt markets. It would be too difficult to absorb. 0:09:13.240 --> 0:09:16.560 Is this basically tacit admission that the markets are an 0:09:16.559 --> 0:09:19.320 incredible call on anything that they do, and that they 0:09:19.360 --> 0:09:24.880 will not do anything to unduly route royal valuations. Well, 0:09:25.440 --> 0:09:27.280 I don't think it's quite quite as strong as that. 0:09:27.400 --> 0:09:30.480 I think Powell was clear that they are going to 0:09:30.480 --> 0:09:34.200 be cautious, they were not intending to to disrupt markets, 0:09:34.280 --> 0:09:36.720 and so I think there's probably some comfort taken from that. 0:09:37.240 --> 0:09:41.400 I think there's probably a slightly more fundamental version of things, though, 0:09:41.440 --> 0:09:44.400 which is the whole market started to has already had 0:09:44.400 --> 0:09:47.080 already thought that that the FED was going to turn hawkish. 0:09:47.120 --> 0:09:49.320 If you look at market pricing for rate hikes. There's 0:09:49.320 --> 0:09:52.520 still material probability on a rate hike as soon as March. 0:09:53.320 --> 0:09:56.880 So the turn to hawkishness I think was not a surprise. 0:09:58.160 --> 0:10:00.160 The relief, perhaps in part, was that they didn't in 0:10:00.200 --> 0:10:02.640 fact get more hawkish than they than they did. I 0:10:02.640 --> 0:10:05.360 think there was a part of the market at tail, 0:10:05.400 --> 0:10:07.640 if you will, the distribution that was worried that they 0:10:07.640 --> 0:10:09.520 could be even more hawkish than they were. So you 0:10:09.559 --> 0:10:11.760 put together the fact that he he said they weren't 0:10:11.760 --> 0:10:14.640 going to actively try to disrupt markets, and the fact 0:10:14.679 --> 0:10:17.560 that some people were probably relieved that they weren't more hawkish, 0:10:17.559 --> 0:10:19.880 and you get the price action. How much can we 0:10:19.920 --> 0:10:23.040 actually glean in terms of a narrative from the market, 0:10:23.040 --> 0:10:25.680 and particularly the bond market, because right now it is 0:10:25.720 --> 0:10:29.160 not signaling any worry about runaway inflation or frankly any 0:10:29.200 --> 0:10:32.560 inflation whatsoever, and doesn't see what the FED is seeing 0:10:32.640 --> 0:10:36.839 in terms of something new. Uh Yeah, So that I 0:10:36.880 --> 0:10:40.480 think is the tricky part. Tom mentioned ellen Zentner and 0:10:40.600 --> 0:10:43.360 the great work that she does here. I'll highlight Matt 0:10:43.400 --> 0:10:46.120 Hornback and his team at the point to jet Still, 0:10:47.240 --> 0:10:50.200 how much liquidity central banks globally or put you know, 0:10:50.240 --> 0:10:52.480 have have added to markets just how big balance sheets 0:10:52.480 --> 0:10:54.720 still are, and that's got to be weighing on the 0:10:54.800 --> 0:10:58.080 long end of the curve, you know, over time. As uh, 0:10:58.360 --> 0:11:01.200 the FED keeps hiking rates over the course of next 0:11:01.280 --> 0:11:04.520 year and starts to signal the discussion about balance sheet runoff. 0:11:04.880 --> 0:11:07.880 Presumably the long end starts to go up from here. 0:11:08.520 --> 0:11:11.800 But there they've been very vocal that the global central 0:11:11.800 --> 0:11:14.520 bank liquidity of provision is weighing on the long end. 0:11:16.000 --> 0:11:18.520 You of course, that's spent fifteen years over at the FED, 0:11:18.600 --> 0:11:21.160 and I'm interested. There was a lot of handwringing across 0:11:21.200 --> 0:11:24.680 Bloomberg and many an intelligent writer saying, look, they there's 0:11:24.760 --> 0:11:27.319 never been such a signal from the yield curve and 0:11:27.360 --> 0:11:30.160 we cannot hike into this sort of a flatten yield 0:11:30.160 --> 0:11:32.680 curve expectation. But from your perspective, we heard from j 0:11:32.800 --> 0:11:35.560 Pow saying, look, we are focused on maximum employment, on 0:11:35.600 --> 0:11:39.720 price stability, and not on some model. What does how 0:11:39.800 --> 0:11:41.559 much do they care about the yield curve or not. 0:11:43.160 --> 0:11:45.480 One of my former bosses that the FED was find 0:11:45.480 --> 0:11:48.120 of saying that the m C is seventeen people that 0:11:48.160 --> 0:11:50.920 don't agree on the color of an orange. So there's 0:11:50.920 --> 0:11:53.240 a range of views as to how important the yield 0:11:53.280 --> 0:11:55.120 curve is. We can just go back to the last 0:11:55.200 --> 0:11:58.480 right hiking cycle. The market chatter then was also about 0:11:58.480 --> 0:12:00.280 the flattening of the yield curve, and they were members 0:12:00.280 --> 0:12:02.680 of the committee that said they would not vote for 0:12:02.720 --> 0:12:06.160 a rate hike that would flatten or invert the curve, 0:12:06.679 --> 0:12:08.559 and there are others that were willing to just keep 0:12:09.600 --> 0:12:11.559 hiking along with it. I think what I heard from 0:12:11.559 --> 0:12:15.720 Powell yesterday as he pointed to strong job growth, he 0:12:15.760 --> 0:12:19.200 pointed to strong GDP growth that's still above potential and 0:12:19.240 --> 0:12:23.320 inflation running well above target as as a backdrop for 0:12:23.440 --> 0:12:26.920 an economy that he thinks can handle some more normalization 0:12:26.920 --> 0:12:29.480 of policy. So if I want to go to your 0:12:29.520 --> 0:12:33.360 Princeton PhD. And there's a good guy there named Blinder 0:12:33.640 --> 0:12:37.240 who's done pretty good in economics and blind one of 0:12:37.280 --> 0:12:41.600 Blinders acclaimed quotes is, you know inflation is not a 0:12:41.640 --> 0:12:45.760 problem when people stop talking about it. When do we 0:12:45.880 --> 0:12:51.280 stop talking about inflation? I think that's probably some time off, 0:12:51.800 --> 0:12:56.120 because I think for the regular person, they don't look 0:12:56.120 --> 0:12:58.600 at the CPI index and take the month on month 0:12:58.720 --> 0:13:01.600 change annualize it. They they ask themselves, and might paying 0:13:01.640 --> 0:13:05.560 more to put gas in my guest tank? Am I 0:13:05.640 --> 0:13:08.439 paying more to buy food of the grocery store? And 0:13:08.760 --> 0:13:12.240 we could easily see inflation itself come down a great deal, 0:13:12.480 --> 0:13:15.040 but price levels staying high, especially for the ones that 0:13:15.080 --> 0:13:17.320 are most salient for consumers. So I think there's gonna 0:13:17.320 --> 0:13:19.880 be a long time that the discussion of inflation is 0:13:20.640 --> 0:13:22.840 in the air. Seth, thank you so much, Seth Carpenter. 0:13:22.960 --> 0:13:28.800 With Morgan Stanley, it's so hard to make sense of 0:13:28.840 --> 0:13:30.840 any of this. Biat of her will do a better 0:13:30.920 --> 0:13:33.200 job than I. She has co head of investment Strategies 0:13:33.240 --> 0:13:36.520 at Bernstein Private Wealth Management, joining us now Biada. What 0:13:36.600 --> 0:13:39.600 do you make of the markets shrug to all of 0:13:39.640 --> 0:13:42.920 these hawkish proclamations. Has it all just been baked in 0:13:43.160 --> 0:13:47.920 or is there something that you're gleaning that's a message. Well, 0:13:47.920 --> 0:13:50.880 what we make of the market's reaction to the FED 0:13:50.960 --> 0:13:55.319 statement yesterday is the market cares about clarity and communication, 0:13:55.840 --> 0:13:57.960 and what the market is responding to is that this 0:13:58.200 --> 0:14:01.640 FED has moved in an extraordinary every way from their 0:14:01.760 --> 0:14:05.240 talk track this summer when transitory ruled the day and 0:14:05.280 --> 0:14:08.400 there was not an acknowledgement of the persistence of inflation. 0:14:09.000 --> 0:14:12.679 Just one meeting later, the mood has shifted completely, and 0:14:12.720 --> 0:14:15.240 I think the market just feels confident that the FED 0:14:15.360 --> 0:14:19.800 is being clear about its communication, being transparent about what 0:14:19.880 --> 0:14:22.720 it intends to do, and I think that is really 0:14:22.760 --> 0:14:26.640 confidence inducing. What part of the equity market am I 0:14:26.720 --> 0:14:30.880 most comfortable in? While I'm going to go with the 0:14:30.920 --> 0:14:32.960 part that it's not a sector and it's not a stock, 0:14:33.040 --> 0:14:37.680 it's quality. Which companies can control the supply chain the best, 0:14:38.160 --> 0:14:42.000 which companies have an edge in terms of retention of 0:14:42.120 --> 0:14:46.200 labor assets and attraction of labor assets, and then which 0:14:46.200 --> 0:14:50.760 companies can exert pricing power. It's not an even outcome. 0:14:50.840 --> 0:14:53.720 It is very much a stock pickers market because some 0:14:53.800 --> 0:14:56.400 companies are going to be able to exert that price 0:14:56.440 --> 0:14:59.440 pressure and really control the supply chain better than others. 0:14:59.680 --> 0:15:02.000 It's to of out there, and we see that with 0:15:02.320 --> 0:15:05.240 both the employment picture and the supply chain picture, and 0:15:05.320 --> 0:15:08.360 that's not going to be easily resolved in twenty two. 0:15:08.880 --> 0:15:11.680 What will be the dynamic of margins We really haven't 0:15:11.680 --> 0:15:13.440 talked about it in the last week, but the bulls 0:15:13.480 --> 0:15:17.520 obviously taking a victory lap here with a terrific move, 0:15:18.120 --> 0:15:22.760 but what is your shops say about margin dynamics? Given 0:15:23.120 --> 0:15:27.280 what central banks are doing, we think there's likely to 0:15:27.320 --> 0:15:30.080 be real pressure on margins. We do feel like that's 0:15:30.080 --> 0:15:32.600 a vulnerability of the market, that's a risk that we 0:15:32.680 --> 0:15:36.240 have to watch. We're still optimistic about equities because we 0:15:36.320 --> 0:15:39.720 see earnings growth next year still in the high single 0:15:39.760 --> 0:15:43.480 digit range. But again, it's going to be very specific 0:15:43.520 --> 0:15:46.440 to companies on what they are able to control, and 0:15:46.680 --> 0:15:49.080 there's not that much that they can control. It's just 0:15:49.200 --> 0:15:52.040 which companies are taking matters into their own hands, whether 0:15:52.080 --> 0:15:56.240 it's buying their own planes for logistics and distribution, or 0:15:56.480 --> 0:15:59.360 real changes on the labor cost pecture. But margins are 0:15:59.360 --> 0:16:03.200 a key area for us to watch next year. So 0:16:03.320 --> 0:16:05.240 can you go as far to say as you can 0:16:05.840 --> 0:16:09.920 look at industry groups or indeed the way in which 0:16:09.920 --> 0:16:12.120 you can focus on a value versus a growth stock, 0:16:12.240 --> 0:16:14.560 or do you really have to be individual stock named 0:16:14.560 --> 0:16:17.080 by individual stock name at this moment because we all 0:16:17.120 --> 0:16:19.600 anticipated that at some point value might get its time 0:16:19.640 --> 0:16:22.480 in the sun. Many anticipating in Europe could outperform us, 0:16:22.560 --> 0:16:25.400 for example, because they're more value in nature than growth. 0:16:25.520 --> 0:16:29.240 But growth can can sometimes help held up in terms 0:16:29.240 --> 0:16:32.800 of margins, certainly for big tech. Yeah, I look at 0:16:32.800 --> 0:16:36.040 the market response yesterday in big cap tech. A lot 0:16:36.120 --> 0:16:39.280 of market watchers really believe that when the FED starts 0:16:39.440 --> 0:16:41.680 raising rates, growth is going to be vulnerable. And in 0:16:41.760 --> 0:16:44.720 the end big cap tech, when you look at their 0:16:44.760 --> 0:16:48.920 defensive modes around pricing and the need for their goods, 0:16:49.040 --> 0:16:52.160 that didn't happen. So we would not be abanned any growth, 0:16:52.200 --> 0:16:54.640 but we also would not be ignoring value. We want 0:16:54.680 --> 0:16:57.800 to remain balanced across sectors. We want to remain a 0:16:57.920 --> 0:17:01.960 global investor as well. You can't deny that x US 0:17:02.080 --> 0:17:06.800 markets are more attractive on evaluation basis. And let's talk 0:17:06.840 --> 0:17:10.000 about Europe in particular. You've got more cyclicals there, You've 0:17:10.000 --> 0:17:13.600 got more financials, So as Amicron makes its way around 0:17:13.640 --> 0:17:16.800 the world, they may be able to emerge first, really 0:17:16.880 --> 0:17:20.600 opening up the opportunity for more of those value stocks 0:17:20.600 --> 0:17:25.359 and cyclicals x US where valuations are much more attractive. Vietta, 0:17:25.520 --> 0:17:28.640 does it concern you that the consensus is bullish at 0:17:28.640 --> 0:17:31.920 a time of such incredibly high valuation, certainly on many 0:17:31.960 --> 0:17:36.560 historical levels. Well, if you look at valuations on the 0:17:36.680 --> 0:17:40.040 US market at twenty one times with the tenure where 0:17:40.040 --> 0:17:42.840 it is. It's not that out of line, Frankly, and 0:17:42.880 --> 0:17:45.240 I think you have to look back to rate hike 0:17:45.480 --> 0:17:48.560 cycles and I think we've got thirteen of them since 0:17:48.680 --> 0:17:52.680 nineteen fifty. The S and P is actually up eight 0:17:52.680 --> 0:17:56.280 percent on average in those rate hike periods, and that's 0:17:56.280 --> 0:17:59.520 an important statistic to keep in mind. Again, Why did 0:17:59.520 --> 0:18:03.800 Actuality have the response they did yesterday and continuing throughout today? 0:18:04.080 --> 0:18:07.200 It could be okay, right, the messaging from the FAT 0:18:07.280 --> 0:18:09.960 is going to be the most important part of what 0:18:10.119 --> 0:18:13.080 happens in twenty two, So we don't look at valuations 0:18:13.400 --> 0:18:16.760 as incredibly high relative to the rate environment. We come 0:18:16.760 --> 0:18:20.400 back to Tina, there is no alternative. The flows into 0:18:20.480 --> 0:18:23.480 equities are going to continue to be sustained. Um. We 0:18:23.520 --> 0:18:26.480 think there's tremendous liquidity and excess savings out there to 0:18:26.520 --> 0:18:29.280 support that. Be out to thank you so much. Out 0:18:29.280 --> 0:18:37.959 of Kurt with burnste in Private Wealth Management right now 0:18:38.200 --> 0:18:42.040 parachuting in. Stephen Englander joins us with that question. The 0:18:42.160 --> 0:18:44.879 number one Cross Rates guy in the world working for 0:18:45.000 --> 0:18:48.280 the Cross Rates Bank standard Charter. We're thrilled at Steve 0:18:48.359 --> 0:18:51.639 Englander could attend this morning. Steve, I want to go 0:18:51.800 --> 0:18:54.040 Matthew on you what you have the ability to do. 0:18:54.880 --> 0:18:58.320 Chairman Powell changed the ex excess yesterday he was on 0:18:58.400 --> 0:19:00.800 the edge of draggy and he tried to pull the 0:19:00.880 --> 0:19:05.040 discussion out to twenty three and twenty four. What is 0:19:05.119 --> 0:19:11.520 the lengthening of the Fed's vista mean for the US dollar? Well, 0:19:11.840 --> 0:19:13.840 you know, I agree with what Bill Dudley said, and 0:19:14.080 --> 0:19:16.920 I think that's going to be the eventual outcome, that 0:19:17.000 --> 0:19:19.440 the Fed ends up being more dubbish and that the 0:19:20.400 --> 0:19:24.760 uh sort of token withdrawal of stimulus isn't going to 0:19:24.800 --> 0:19:28.480 be enough um and the dollar is gonna fall. I 0:19:28.840 --> 0:19:32.040 think that the you know, circumstances that were likely to 0:19:32.119 --> 0:19:35.120 find ourselves, say in the middle of next year when 0:19:35.280 --> 0:19:38.560 rates hikes are going to be on the table, will 0:19:38.600 --> 0:19:42.600 be somewhat different, and that they probably won't be quite 0:19:42.640 --> 0:19:45.640 as hawkish as they make themselves out to be made 0:19:45.680 --> 0:19:48.440 themselves out to be yesterday, Stephen is that basically the 0:19:48.520 --> 0:19:51.840 Betton markets right now that the FED isn't going to 0:19:52.040 --> 0:19:54.200 balk and is not going to come through on some 0:19:54.320 --> 0:19:56.640 of his projections for as many as three rate hikes 0:19:56.680 --> 0:19:59.480 next year. You know, I don't know if it's the 0:19:59.520 --> 0:20:03.120 bed and more kids. But I think looking at the forecast, right, 0:20:03.240 --> 0:20:06.960 the inflation rates up like half a percent in two 0:20:07.119 --> 0:20:10.760 and you know, almost a quarter percent, I think, and 0:20:11.080 --> 0:20:14.560 all you all you have is a quarter percent more 0:20:15.040 --> 0:20:17.320 interest rate hikes. So you know, for much of the period, 0:20:17.800 --> 0:20:21.040 real rates are even more negative projectively more negative than 0:20:21.040 --> 0:20:23.800 they were before. You know, I think the market looking 0:20:23.880 --> 0:20:25.920 at this is kind of saying that, you know, they're 0:20:26.000 --> 0:20:28.200 they're not over the top, And that was the big 0:20:28.359 --> 0:20:30.880 fear I think going into the meeting. You know, our 0:20:30.960 --> 0:20:34.240 questions weren't are they going to stick to you know, 0:20:34.800 --> 0:20:38.920 fifteen billion, the questions where are they going to do fifty? 0:20:39.000 --> 0:20:41.680 Are they gonna go to zero? And so the market 0:20:41.760 --> 0:20:44.399 was really scared and kind of was caught, meaning in 0:20:44.440 --> 0:20:47.920 the hawkers direction, and that was pulling back. So what's 0:20:47.920 --> 0:20:50.560 your view on the dollar? Considering that people have the 0:20:50.640 --> 0:20:53.320 most overweight according to one Bank of America survey, going 0:20:53.359 --> 0:20:56.640 back to thinking that the dollar will strengthen more next 0:20:56.720 --> 0:20:59.840 year after what maybe it's biggest annual gain in six years, 0:21:00.400 --> 0:21:03.800 is it basically premature to make that bet that this 0:21:04.160 --> 0:21:06.199 is one of the most likely bets to get up 0:21:06.320 --> 0:21:09.320 ended as the FED is likely to disappoint, as is 0:21:09.359 --> 0:21:14.040 being basically communicated to us by the market. I think 0:21:14.040 --> 0:21:16.639 they're likely to disappoint. But that said that there are 0:21:16.640 --> 0:21:19.960 two forces driving up the market. With dragging up the dollar. 0:21:20.200 --> 0:21:22.720 You know, since say beginning of October when is that 0:21:22.800 --> 0:21:26.720 inflation numbers have been much higher than expected. But I 0:21:26.800 --> 0:21:29.879 think the market is also underestimating the risk off fact 0:21:29.920 --> 0:21:32.679 there by COVID first, you know, the spread of delta 0:21:32.720 --> 0:21:36.800 across the world, and now concerns about omicron um. Both 0:21:36.880 --> 0:21:40.720 of those together are very dollar positive. We expect both 0:21:40.800 --> 0:21:43.480 of them to say over time. So in the short 0:21:43.600 --> 0:21:47.200 term we're getting bad COVID news and you know, bad 0:21:47.280 --> 0:21:51.760 inflation news, and dollars still confined some support once that passes, 0:21:51.880 --> 0:21:53.639 which we think will be kind of at the end 0:21:53.680 --> 0:21:56.600