WEBVTT - Surveillance: Time to Buy, Says Harvey 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 Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:30.240 dot com, and of course on the Bloomberg Terminal. Chris 0:00:30.280 --> 0:00:33.160 Halfey of Well Found mistake for two thousand joints now 0:00:33.400 --> 0:00:36.680 the head of Ectday Strategy. You're line Chris, the high 0:00:36.720 --> 0:00:43.520 volume cathartic puke. We were waiting for Chris. What's that? Well? 0:00:43.680 --> 0:00:46.600 First off, that's my scientific term, and typically what we 0:00:46.720 --> 0:00:48.920 see at the end of the sell off is we 0:00:49.040 --> 0:00:51.840 see volume increase, we see money moved from the weaker 0:00:51.880 --> 0:00:54.360 hands to the stronger hands. And that's exactly what we 0:00:54.400 --> 0:00:57.280 saw yesterday. Yesterday there were probably three things that we 0:00:57.360 --> 0:00:59.440 wanted to see and three things that we got. The 0:00:59.560 --> 0:01:02.160 vics at thirty nine are close to thirty nine. We 0:01:02.200 --> 0:01:05.560 don't think that's sustainable based on the fundamentals. U two, 0:01:05.600 --> 0:01:08.560 you had small caps, I'll perform large. That's typically what 0:01:08.640 --> 0:01:11.440 you see when you you have a very aggressive hedge 0:01:11.480 --> 0:01:13.520 fund de grossing or the end of a very hedge 0:01:13.959 --> 0:01:16.920 aggressive hedge fund de grossing. And the last thing is, again, 0:01:16.959 --> 0:01:20.040 as you you point out so eloquently, that cathartic pute 0:01:20.040 --> 0:01:23.840 that we need that, that capitulation of those weaker hands, 0:01:23.880 --> 0:01:26.160 and now we can move forward. And that's exactly what. 0:01:26.160 --> 0:01:28.880 What about the Catharsis across the x X as we 0:01:28.920 --> 0:01:31.520 seem to be doing Catharsis in a three hour span, 0:01:32.080 --> 0:01:34.000 I don't buy that. If you go back to John 0:01:34.040 --> 0:01:38.360 Maggie in a slower maybe forty four and a slower time, 0:01:38.800 --> 0:01:41.640 Catharsis took a couple of days, even a week is 0:01:41.680 --> 0:01:46.200 the new Catharsis minutes? Tom, You know, everything happens fast 0:01:46.360 --> 0:01:49.160 enough nowadays. So can we have more of a sellout? 0:01:49.280 --> 0:01:52.560 Sure we can, But yesterday was one heck of a 0:01:52.600 --> 0:01:55.640 sell off. I think every time I looked down, we 0:01:55.640 --> 0:01:58.080 were gapping lower. Um, if you looked at some of 0:01:58.120 --> 0:02:01.000 the stories, we did hear about some edge fun liquidation, 0:02:01.360 --> 0:02:03.640 we did hear about margin calls, we did hear about 0:02:03.680 --> 0:02:07.279 some capitulation on the retail side. And I guess, as 0:02:07.280 --> 0:02:11.680 we were saying before, everything just happened a bit quicker nowadays. Okay, 0:02:11.720 --> 0:02:13.920 well it's quicker nowadays, I'll go with that. So do 0:02:13.960 --> 0:02:16.080 you do? You step in and by this morning, what 0:02:16.160 --> 0:02:20.480 does ubs suggest someone do with not ample cash, but 0:02:20.600 --> 0:02:27.480 someone managing retail or institutional portfolio does have cash. It's 0:02:27.520 --> 0:02:31.600 one one this morning an so Lasa did the rest 0:02:31.600 --> 0:02:33.680 of the show with Alice, which let's fight say. It's 0:02:33.720 --> 0:02:35.880 what people have been waiting full for the last few years. 0:02:36.120 --> 0:02:39.639 Just what do you buying? Don't don't know what? Well? 0:02:40.000 --> 0:02:44.360 I mean, I don't know what you do? Wow, this 0:02:44.400 --> 0:02:48.600 has got off the rails. Roll past. Anyway back to 0:02:48.639 --> 0:02:51.960 our show. We think you should be buying here. Yesterday 0:02:52.080 --> 0:02:54.000 midday we wanted to get a note out. I couldn't 0:02:54.000 --> 0:02:56.320 do it quick enough and we were looking for a 0:02:56.320 --> 0:02:59.080 ten percent pullback. We were looking for this and not 0:02:59.160 --> 0:03:02.639 break mentality to crack it. Did we checked those boxes 0:03:02.880 --> 0:03:05.560 as we talked about we we got good information on 0:03:05.600 --> 0:03:09.040 the BIX on small caps as well as our our 0:03:09.120 --> 0:03:12.080 buying or cathartic puke. And now what we want people 0:03:12.120 --> 0:03:14.200 to do is we want them to buy or higher 0:03:14.240 --> 0:03:16.880 COVID beta portfolio. We want them to buy the reopening trade. 0:03:17.040 --> 0:03:21.200 Fundamentals are improving, the COVID wave is coming down, and 0:03:21.240 --> 0:03:24.600 what we're seeing is a pretty good opportunity, we think, 0:03:24.880 --> 0:03:27.880 to get more aggressive and play the economy. For now. 0:03:28.120 --> 0:03:30.160 We think the economy is fine, We think the FED 0:03:30.280 --> 0:03:32.560 is doing a good job, and we think the probability 0:03:32.600 --> 0:03:35.480 of stack flation has diminished greatly as a fit as 0:03:35.480 --> 0:03:37.840 a curve is flattened, as competence in the FED has 0:03:37.920 --> 0:03:40.360 has come back. Chris, is there a high frequency data 0:03:40.400 --> 0:03:43.160 that you're looking at that really edifies this view that 0:03:43.200 --> 0:03:46.040 we're moving past the omicron wave and back to this 0:03:46.160 --> 0:03:49.120 solid growth picture that people believed in so strongly maybe 0:03:49.200 --> 0:03:52.880 three weeks ago. UM, high frequency data. We we look 0:03:52.960 --> 0:03:54.840 at the COVID cases every day. We look at them 0:03:54.840 --> 0:03:56.440 on a state by safe basis, We look at the 0:03:56.560 --> 0:03:59.680 country basis, and what you expected to see was a 0:03:59.720 --> 0:04:02.400 sharp run off, excuse me, a sharp run up and 0:04:02.480 --> 0:04:05.960 a pretty quick or pretty quick decay. Right. We're seeing that. 0:04:06.520 --> 0:04:09.640 As far as the high frequency economic data, one of 0:04:09.640 --> 0:04:11.840 the things that we said coming into the years, we 0:04:11.960 --> 0:04:15.760 thought the consumer needed to normalize. We're beginning to see that. Um. 0:04:15.800 --> 0:04:18.400 You've seen a lot of disruption on the retail side 0:04:18.400 --> 0:04:20.200 with people not being able to come into work. I 0:04:20.200 --> 0:04:22.200 mean this weekend I tried to go to library with 0:04:22.240 --> 0:04:24.960 my son and the library was closed. Right, We'll get 0:04:24.960 --> 0:04:28.680 through that. And now more importantly, what we're looking at 0:04:28.839 --> 0:04:31.880 is consumer balance sheets. Consumer balance sheets are quite strong, 0:04:32.360 --> 0:04:34.920 and that's a very good sign. So we'll have a hiccup, 0:04:34.960 --> 0:04:38.160 we'll have some you know, back and forth, but at 0:04:38.200 --> 0:04:40.520 the end of the day, with consumer spending being strong, 0:04:40.800 --> 0:04:43.400 with still a lot of pent up demand on the 0:04:43.480 --> 0:04:46.680 leisure and the travel side and on the service to 0:04:46.720 --> 0:04:48.880 spend side, that's where we think people are going to 0:04:48.960 --> 0:04:51.400 spend their money. I think that's where the real opportunity is. 0:04:51.520 --> 0:04:53.960 Do you think we should leave this conversation off the podcast. 0:04:54.440 --> 0:04:55.840 I don't think this is going to work somewhere on 0:04:55.880 --> 0:05:00.160 the podcast. A little bit like a christhing christ at 0:05:00.160 --> 0:05:03.520 you buddy, pleasure, Thank you mate, thank you, thank you 0:05:03.640 --> 0:05:10.480 very much. Glenn Hobbard, you go back to our best 0:05:10.520 --> 0:05:14.440 intentions on page one twenty two. You've got JFK before 0:05:14.480 --> 0:05:20.719 assassination with great intentions. But lb J could not implement 0:05:21.120 --> 0:05:25.160 the trade assistance. He couldn't build the bridge that JFK 0:05:25.400 --> 0:05:28.560 tried to build. That's just one example. Are we going 0:05:28.600 --> 0:05:32.880 to repeat a fractured American history? Oh? I don't think 0:05:32.920 --> 0:05:35.919 we have to. You know, the growth we celebrate always 0:05:36.000 --> 0:05:39.159 is the heads of a coin whose tails is disruption, 0:05:39.839 --> 0:05:43.560 and disruption is a demand for adaptation, and the supply 0:05:43.680 --> 0:05:46.560 could either be walls of protection or bridges like Kennedy 0:05:46.600 --> 0:05:49.400 tried to do with trade adjustment assistance. Problem is it's 0:05:49.440 --> 0:05:52.320 too small in US history that we've done it right. 0:05:52.440 --> 0:05:55.719 Lincoln did it, the land Grant colleges, FDR did it 0:05:55.880 --> 0:05:58.400 with g I Bill. It's time to think bigger again. 0:05:58.480 --> 0:06:00.720 That's really the theme of the book. It's really about 0:06:00.760 --> 0:06:04.200 Adam Smith, a delicate call maybe about Donald Trump as well. 0:06:04.240 --> 0:06:08.080 A delicate question Dean Hubbard. Can the Republican Party get 0:06:08.160 --> 0:06:12.960 beyond trump economics and Trump certitude is defined by the 0:06:13.000 --> 0:06:16.640 wall and the bridge you'd like to build. I think 0:06:16.680 --> 0:06:19.480 both parties can get behind bridge ideas because they're about 0:06:19.520 --> 0:06:23.080 two simple points. One is preparing people for the world 0:06:23.200 --> 0:06:26.559 that is and will be, and the others reconnecting people 0:06:26.680 --> 0:06:30.640 who get disconnected from an economy influx. That's something that 0:06:30.680 --> 0:06:33.440 doesn't have a Republican or a Democrat flavor to it, 0:06:33.680 --> 0:06:37.160 and in the past, people as disparate as former House 0:06:37.200 --> 0:06:40.279 Speaker Paul Ryan and President Obama have had many of 0:06:40.279 --> 0:06:42.680 the ideas I talked about in the book. When one 0:06:42.720 --> 0:06:45.920 thing that sort of tying the hands of certainly both 0:06:45.920 --> 0:06:48.839 Republicans and Democrats right now and spending more money is 0:06:48.880 --> 0:06:52.000 the inflationary backdrop. How do you incur more debt at 0:06:52.040 --> 0:06:54.840 a time when there does seem to be a concern. 0:06:55.200 --> 0:06:57.560 How do you think the Federal Reserve should handle it 0:06:57.680 --> 0:07:01.279 at the meeting that begins today. Well, I think most 0:07:01.320 --> 0:07:04.560 of the programs that I advocate are actually fairly small 0:07:04.680 --> 0:07:07.720 and spending that's the shocking political thing, and I describe 0:07:07.720 --> 0:07:10.240 ways in which we could pay for it. From the 0:07:10.240 --> 0:07:13.000 Fed's perspective, I think the Fed is behind the curve. 0:07:13.160 --> 0:07:16.400 It has acknowledged that, in a sense, it is behind 0:07:16.440 --> 0:07:18.920 the curve and is trying to catch up. The key 0:07:19.000 --> 0:07:23.040 question is not to add to demand while supply constraints find. 0:07:23.200 --> 0:07:25.800 I think the Fed now gets that the key will 0:07:25.840 --> 0:07:30.040 be communication and what Wall Street thinks then about stocks 0:07:30.080 --> 0:07:33.200 and what the economy thinks about near term growth prospects. 0:07:33.240 --> 0:07:35.760 How high can rates go before it becomes a real problem, 0:07:35.760 --> 0:07:37.920 given how much debt has been incurred, not only by 0:07:37.920 --> 0:07:42.920 corporations but by the United States, Well, actually, not that high. 0:07:42.960 --> 0:07:44.960 You know think about it. Even if you shifted the 0:07:45.160 --> 0:07:48.360 entire term structure of interest rates up by two hundred 0:07:48.440 --> 0:07:51.760 basis points, which is hardly super high, you would have 0:07:51.840 --> 0:07:55.120 real problems in the federal budget. I think the Fed 0:07:55.280 --> 0:07:57.920 is independent. It will do what it takes to to 0:07:58.080 --> 0:08:01.600 bring inflation under control. Think is a warning to official 0:08:01.640 --> 0:08:04.320 them in Washington that we have to take the federal 0:08:04.360 --> 0:08:08.800 budget more seriously than we have Glenn. The moment that 0:08:08.840 --> 0:08:13.160 we're in is defined by Ira Jersey at Bloomberg. Intelligence 0:08:13.760 --> 0:08:16.720 is a balancing of a rate policy and a balance 0:08:16.800 --> 0:08:20.000 sheet unwind. Let's call it QT, which is not an 0:08:20.040 --> 0:08:25.720 original thought. Are you optimistic that we can do original economics? 0:08:27.440 --> 0:08:31.280 I think it's harder than people thinking. It's certainly academically 0:08:31.320 --> 0:08:34.400 quite possible. You can do the math and try to 0:08:34.480 --> 0:08:39.400 count in equivalent rate hikes what QT would be. The 0:08:39.480 --> 0:08:43.120 problem is QT is not just the opposite of q E. 0:08:43.280 --> 0:08:45.440 There are a lot of asymmetries built in that we 0:08:45.520 --> 0:08:48.080 don't have experience with. I think the Fed is taking 0:08:48.080 --> 0:08:51.160 this very very careful. Does that extend the X access? 0:08:51.160 --> 0:08:53.160 I mean we had this conversation earlier with a great 0:08:53.160 --> 0:08:57.199 Claudius some of Michigan talking about Michael Woodford and what 0:08:57.240 --> 0:09:00.400 we all learned an interest in prices. Okay, great, But 0:09:00.840 --> 0:09:03.600 is a solution here for any central bank that the 0:09:03.840 --> 0:09:06.840 x axis here is much longer than any of us presume, 0:09:07.240 --> 0:09:12.000 and that they will take their time and wait for data. Well, 0:09:12.040 --> 0:09:14.440 I think the FED will certainly wait for data. How 0:09:14.520 --> 0:09:17.920 much time the FED has, of worse, depends on inflation 0:09:18.040 --> 0:09:20.800 readings and the reason for those media readings. You don't 0:09:20.800 --> 0:09:25.000 want to let inflation get ingrained into wage bargaining processes. 0:09:25.040 --> 0:09:28.000 So I think the FED could wind up moving, perhaps 0:09:28.040 --> 0:09:32.640 even more rapidly than people think. Glenn Glenn Hubbard of Columbia. 0:09:32.800 --> 0:09:35.960 I am curious for the economics profession with the takeaway 0:09:36.120 --> 0:09:39.600 is after the FED got inflation so wrong, and it 0:09:39.679 --> 0:09:42.600 wasn't just a FED, it was pretty much everyone, how 0:09:42.600 --> 0:09:45.480 did it happen? I don't know that I would call 0:09:45.520 --> 0:09:48.959 it pretty much everyone. I think a number of economists 0:09:48.960 --> 0:09:52.280 and myself in that boat said that we're adding to 0:09:52.520 --> 0:09:55.559 demand both the FED and frankly the government to at 0:09:55.559 --> 0:09:58.560 aprement supply constraints or binding. So I think this was 0:09:58.600 --> 0:10:03.040 a policy error that need not have happened. Okay, So 0:10:03.080 --> 0:10:05.120 if you think this is a policy error that need 0:10:05.160 --> 0:10:08.400 not have happened. Is it something that can be curtailed 0:10:08.400 --> 0:10:10.880 by aggressive FED actions such as what's being priced into 0:10:10.880 --> 0:10:12.800 the market, or do you think this has longer lasting 0:10:13.200 --> 0:10:16.840 sort of influences based on wages, based on rent prices 0:10:16.840 --> 0:10:19.920 and some of the other pressures. I do think the 0:10:19.960 --> 0:10:22.760 FED can get this under control. It has all the tools, 0:10:22.880 --> 0:10:26.160 and it has all the institutional incentives and independence to 0:10:26.200 --> 0:10:30.440 do that. Having said that, it's hard, meaning that history 0:10:30.559 --> 0:10:32.760 isn't kind of the view that you could have this 0:10:32.840 --> 0:10:35.920 kind of FED tightening without any kind of economic or 0:10:35.960 --> 0:10:39.319 financial hiccup. So the FED is walking it tightly. Can 0:10:39.320 --> 0:10:42.320 I did this fat chances of a second time? I 0:10:42.400 --> 0:10:45.880 think so? I mean I think Chair Powell acted very 0:10:46.000 --> 0:10:50.280 vigorously in the coronavirus pandemic. I think that the bias 0:10:50.320 --> 0:10:53.120 would be towards keeping a FED chair. You think is 0:10:53.120 --> 0:10:56.360 is doing a good job absence some obvious alternatives. So 0:10:56.440 --> 0:10:58.520 I I think so. But the only person whose opinion 0:10:58.559 --> 0:11:00.880 counts there's and I was May the president made the 0:11:00.920 --> 0:11:02.640 decision to give him a second term. The reason I 0:11:02.640 --> 0:11:04.360 asked the question is because for some people who lost 0:11:04.400 --> 0:11:07.720 a lot of credibility with this inflation code. Are you saying, 0:11:07.800 --> 0:11:10.880 Glen in your comments to Lisa, that ultimately you can 0:11:10.880 --> 0:11:14.800 win that back and win that back quite quickly. You can, 0:11:14.920 --> 0:11:17.320 but it's not without cost. It would have been better 0:11:17.400 --> 0:11:20.199 how to policy or not been made. But yes, the 0:11:20.200 --> 0:11:23.800 FED can win this battle, but I'm afraid we all 0:11:23.840 --> 0:11:25.560 in the economy are going to pay a cost. Well, 0:11:25.600 --> 0:11:27.520 let's talk about those costs. Gland. How big do you 0:11:27.520 --> 0:11:29.680 think those costs will be? We have the discussion on 0:11:29.679 --> 0:11:32.640 this program daily. Some people say soft landing, others say 0:11:32.640 --> 0:11:35.960 it's too late, recession inevitable. How large do you think 0:11:36.000 --> 0:11:39.640 the cost will be? I would say that the chances 0:11:39.800 --> 0:11:43.040 are better for a relatively soft landing if the FED 0:11:43.160 --> 0:11:47.920 is clear in its communication and everybody understands what is happening. 0:11:48.280 --> 0:11:52.079 The risks would be if inflationary pressures move faster than 0:11:52.120 --> 0:11:55.240 the FED things and it has to move faster and 0:11:55.400 --> 0:11:59.400 were they're bad reactions either in financial markets are frankly 0:11:59.720 --> 0:12:01.920 on the government budget. That's the tight rope I was 0:12:01.960 --> 0:12:05.000 referring to. But yes, the FED can pull this off, 0:12:05.240 --> 0:12:07.199 so they should look through what was happening on the 0:12:07.200 --> 0:12:09.480 screens this morning yesterday threw much of the start this 0:12:09.520 --> 0:12:14.160 year glean with equities down and down hot again. Well, that, 0:12:14.160 --> 0:12:15.719 of course it's for the FED to decide. I don't 0:12:15.760 --> 0:12:17.480 think the FED should be in the business of putting 0:12:17.480 --> 0:12:20.240 a put from the stock market. The question is more 0:12:20.240 --> 0:12:25.200 are Fed actions affecting financial stability or economic performance? Those 0:12:25.200 --> 0:12:27.560 are legitimate questions and I think they're very much on 0:12:27.600 --> 0:12:30.079 the Fed's mind in put and comments. Glen as always 0:12:30.080 --> 0:12:32.000 and really enjoy catching up with you circle. And how 0:12:32.040 --> 0:12:41.600 about that of Columbia University. It was stunning ninety days 0:12:41.600 --> 0:12:45.320 ago to CEG announced a three company breakup. It is 0:12:45.360 --> 0:12:48.720 far more stunning this morning to see General Electric really 0:12:48.760 --> 0:12:52.240 put some meat on the discussion. And the discussion is simple. 0:12:52.559 --> 0:12:55.960 They've got two divisions, two new companies getting it done, 0:12:56.000 --> 0:12:59.520 including g Aviation, and they've got another one which they 0:12:59.520 --> 0:13:04.120 title Renewable Energy Power in Digital. We're just simply it 0:13:04.200 --> 0:13:08.680 ain't happening. Claudia sam is this industrial analyst, senior fellow 0:13:08.679 --> 0:13:12.400 at Jane Family Institute and joins us this morning. Claudia 0:13:12.559 --> 0:13:17.520 ge is a metaphor for how everyone, including your own Powell, 0:13:17.720 --> 0:13:22.080 is dealing with the structural changes of America. How does 0:13:22.120 --> 0:13:29.240 a central bank deal with industrial failure, industrial breakup, global competition, 0:13:29.800 --> 0:13:33.439 and at the same time deal with a technological boom 0:13:33.559 --> 0:13:36.760 has seen in the excellence of ge aviation. What is 0:13:36.760 --> 0:13:41.160 an economist to do? Right? Well, good morning. I mean, 0:13:41.200 --> 0:13:44.320 these are just one of the many questions that the 0:13:44.320 --> 0:13:47.560 Federal Reserve is puzzling over right now. I mean, frankly, 0:13:47.559 --> 0:13:50.000 I would put a lot more of it on consumer demand. 0:13:50.440 --> 0:13:53.600 But we do know that demand has been strong, and 0:13:53.800 --> 0:13:57.280 we have heard multiple times about the production, particularly of goods, 0:13:57.320 --> 0:14:01.439 not making up for the demand. We have basically anything 0:14:01.480 --> 0:14:04.839 that's bad news on that front, whether it's COVID or 0:14:05.040 --> 0:14:07.400 problems in the production sector. I mean, this is not 0:14:07.679 --> 0:14:10.320 good news. But if you step back and look at 0:14:10.400 --> 0:14:13.440 big picture industrial production and a lot of the consumer 0:14:13.480 --> 0:14:16.719 good spaces, it looks a lot better now and it 0:14:16.800 --> 0:14:18.880 did even months ago. This is not saying much, but 0:14:18.960 --> 0:14:21.600 you know, we need anything moving in the right direction here. 0:14:21.760 --> 0:14:26.000 If corporations are clearing markets, including getting rid of the debris, 0:14:26.040 --> 0:14:30.600 as General Electric is doing, do we assume consumer demand 0:14:30.720 --> 0:14:36.600 and the buoyant consumer demand is legitimate and sustainable. Yeah. So, 0:14:37.000 --> 0:14:40.400 having worked on consumer demand for over a decade at 0:14:40.400 --> 0:14:43.920 the Federal Reserve, I know that the biggest thing driving 0:14:43.960 --> 0:14:47.800 demand is in common people's pockets, and we have seen, 0:14:48.000 --> 0:14:52.000 particularly from the federal government letting child tax credit expire, 0:14:52.360 --> 0:14:55.840 seeing millions of workers be out of work even five 0:14:55.960 --> 0:14:59.400 days like that. A lot of families cannot make that work, 0:14:59.760 --> 0:15:01.760 and certainly are going to make it work and go 0:15:01.760 --> 0:15:05.040 out and buy a big, durable purchases that you know 0:15:05.120 --> 0:15:06.880 they can put off a little while. So I think 0:15:06.920 --> 0:15:09.440 we've seen a lot and will see when we have 0:15:09.520 --> 0:15:13.320 the January numbers that's done more than a FED increase 0:15:13.400 --> 0:15:16.880 is going to do in terms of pulling the demand out. Claudia, 0:15:17.200 --> 0:15:20.400 there is a conflation in between fiscal and monetary policy often, 0:15:20.520 --> 0:15:23.040 and people look to monetary policy to do a lot 0:15:23.080 --> 0:15:27.000 of things that fiscal policy have done years and years ago. 0:15:27.280 --> 0:15:30.240 I am wondering at this point, given the sense that 0:15:30.280 --> 0:15:32.240 you've long called for the FED to be patient, you 0:15:32.240 --> 0:15:34.440 think that they're on track, they're not behind the curve, 0:15:34.840 --> 0:15:38.320 At what point do you see the inflation mandate becoming 0:15:38.400 --> 0:15:41.440 pressing and important for them to address at a time 0:15:41.600 --> 0:15:44.400 when it seems unclear what more they can do on 0:15:44.480 --> 0:15:48.120 the employment front. Right, So, I know the narrative is 0:15:48.160 --> 0:15:50.880 really gloom and doom right now, but we gotta step back. 0:15:51.040 --> 0:15:55.520 We had unemployment moved below four percent at the end 0:15:55.560 --> 0:15:58.480 of last year. Yes, we have had inflation, but we 0:15:58.560 --> 0:16:02.640 have inflation adjusted because sumer spending, business investment, you name it. 0:16:03.040 --> 0:16:07.760 This is not stagflation. And fiscal and monetary policy really 0:16:07.920 --> 0:16:11.960 push that. And that's that is so important. It is 0:16:12.040 --> 0:16:15.080 absolutely appropriate. And we've seen this in messaging from j 0:16:15.240 --> 0:16:19.320 Powell and lay Layo Brainerd. We are so much closer 0:16:19.800 --> 0:16:23.600 on the maximum employment and yeah, the thing that's you know, 0:16:23.800 --> 0:16:26.040 not where we wanted to be as inflation. So I 0:16:26.080 --> 0:16:30.320 don't think they've changed how they are valuing or kind 0:16:30.320 --> 0:16:33.120 of waiting the two. It's just we're a lot close 0:16:33.160 --> 0:16:35.960 to the finish unemployment and that's a big deal for 0:16:36.000 --> 0:16:39.120 American family. Although participation rate has not gotten back up, 0:16:39.120 --> 0:16:41.720 and this is something that people are concerned about. And 0:16:41.760 --> 0:16:44.200 given that, and given that it may not recover two 0:16:44.240 --> 0:16:47.240 pre pandemic levels, people are starting to worry about a 0:16:47.240 --> 0:16:50.760 wage spiral. How are you thinking about that? Yeah, so 0:16:51.080 --> 0:16:53.560 we have to remember the two things that push up 0:16:53.560 --> 0:16:57.600 on prices or supply and demand, right, and consumers aren't 0:16:57.640 --> 0:17:00.680 out demanding and omicrons taken the ends out of some 0:17:00.760 --> 0:17:03.600 of the service sector. Well, if the demands not there 0:17:04.240 --> 0:17:07.800 from the consumers in there from the employers either. So 0:17:07.920 --> 0:17:09.800 I do think when we get the numbers for the 0:17:09.840 --> 0:17:14.040 fourth quarter, they good employment compensation index numbers, We're gonna 0:17:14.080 --> 0:17:18.520 see some pretty big numbers in December, unfortunately for the FED. 0:17:18.600 --> 0:17:21.480 And this is for markets to the information that we 0:17:21.680 --> 0:17:25.440 really need to understand where demand is going is January 0:17:25.480 --> 0:17:27.400 and we're not going to We do not have your 0:17:27.560 --> 0:17:29.760 right now, you know, we're data dependent, waiting out for 0:17:29.800 --> 0:17:32.240 the data. Claudia. A lot of good analysis into this 0:17:32.320 --> 0:17:34.840 FED meeting, and one of them is Kit Jukes. There 0:17:34.880 --> 0:17:38.640 is a society general with decades of experience of linking 0:17:38.640 --> 0:17:42.439 in the dollar into other markets as well. Mr Jukes 0:17:42.440 --> 0:17:46.400 this morning suggests that the FED can slow demand, Can 0:17:46.440 --> 0:17:52.520 any central bank slow demand? Absolutely? Again, I think the 0:17:52.560 --> 0:17:57.040 fiscal support income out of people's pockets COVID is wreaking 0:17:57.280 --> 0:18:01.880 havoc right like that is the big straightforward effect on demand. 0:18:02.320 --> 0:18:05.120 But the FED does have an effect on the borrowing 0:18:05.200 --> 0:18:09.119 costs of consumers. Now the tenure Treasury is not moving 0:18:09.160 --> 0:18:12.240 in a way that's really helping them push on those costs. 0:18:12.280 --> 0:18:15.000 But in a world without the FED moving right like, 0:18:15.200 --> 0:18:17.880 the FED can make it more expensive and can take 0:18:17.960 --> 0:18:21.560 particularly the durable goods which consumers often need to borrow 0:18:21.960 --> 0:18:26.320 to make it happen. Yes, the FED can bring demand 0:18:26.680 --> 0:18:31.360 cool it off some Uh, that's that is what's happening. 0:18:31.400 --> 0:18:34.879 It's sad because the real way to fix inflation. And J. 0:18:35.000 --> 0:18:37.320 Pau said this is to get us out of the pandemic. 0:18:37.760 --> 0:18:40.640 But I think, frankly, listening to President Biden last week, 0:18:41.040 --> 0:18:42.800 this is not going to happen. So the FED is 0:18:42.800 --> 0:18:45.880 going to have to cool off demand. Claudian, an unfair question. 0:18:46.119 --> 0:18:49.040 And this goes to fancy mathematics which gives us beautiful 0:18:49.119 --> 0:18:52.000 curves that we never read in Michael Woodford's book on 0:18:52.119 --> 0:18:54.719 Interesting Prices, and there are oil functions. I don't want 0:18:54.720 --> 0:18:56.760 to go into it. What I do want to say, Claudia, 0:18:56.920 --> 0:18:59.199 is there's all sorts of lovely curves. Is get us 0:18:59.240 --> 0:19:02.760 back to an inflation rate? Where is your image of 0:19:02.800 --> 0:19:06.400 where that new inflation rate is? Is it two percent? 0:19:07.000 --> 0:19:10.879 Is it adam posens three new inflation rate? Or is 0:19:10.920 --> 0:19:14.040 it a number that's higher but not frightening? Where? Where? 0:19:14.359 --> 0:19:19.080 Where does inflation settle out? Ad on the glide path? Yeah, 0:19:19.119 --> 0:19:21.560 so first of all, I just say every single one 0:19:21.600 --> 0:19:24.080 of my forecasts about where inflation is headed, and this 0:19:24.119 --> 0:19:27.800 has been true now the entire pandemic. Is when the 0:19:27.840 --> 0:19:31.280 pandemic moves into an endemic and we really have this 0:19:31.480 --> 0:19:35.880 under control, then when that happens, we're talking another six 0:19:35.920 --> 0:19:38.440 months of getting us back to something that's really close 0:19:38.480 --> 0:19:41.200 to two percent. The longer this goes on, the harder 0:19:41.400 --> 0:19:44.360 the more backup we have, the more things have gone haywire. 0:19:44.840 --> 0:19:50.199 But the fundamentals in the US economy are not notably worse. 0:19:50.280 --> 0:19:52.920 And that's a lot of the response last year is 0:19:53.000 --> 0:19:56.439 just we have this other factor that is, until the 0:19:56.480 --> 0:19:58.680 pandemic is under control, we are going to see well 0:19:58.720 --> 0:20:02.760 above two percent something, not seven. If the Change Family Institute, 0:20:02.760 --> 0:20:04.600 I think we all hope it's not going to be seven. Clodia, 0:20:04.680 --> 0:20:12.800 thank you for joining us right now, and this is 0:20:12.840 --> 0:20:15.120 up Lisa ramots As weel so I'm gonna ask one 0:20:15.200 --> 0:20:17.840 question and get out of the way. Winnie Caesar joins 0:20:17.880 --> 0:20:21.120 us from Credit Sites. She was with Wells Fargo for years, 0:20:21.160 --> 0:20:24.640 global head of credit Strategy at Credit Sites. And what's 0:20:24.680 --> 0:20:28.119 absolutely fascinating here is the dynamics and the things we 0:20:28.200 --> 0:20:32.280 can learn from the credit market, and particularly high yield. 0:20:32.640 --> 0:20:36.600 There is this phrase Winnie yield to worst. We have 0:20:36.720 --> 0:20:40.120 yield to worsened out, worser now And as you say 0:20:40.160 --> 0:20:42.879 in your lovely research note, there's a point where you 0:20:43.040 --> 0:20:46.400 step in and buy the price for yields to come 0:20:46.440 --> 0:20:49.200 down or yield to worse to come down? Are the 0:20:49.359 --> 0:20:54.000 Are we there at this moment? We are just about there. 0:20:54.119 --> 0:20:57.359 We had been telling investors that five percent yields worst 0:20:57.640 --> 0:21:00.959 for high yield was the level that we up was 0:21:01.240 --> 0:21:05.000 much more attractive, and we got there yesterday with the 0:21:05.040 --> 0:21:08.440 market volatility that we saw. Now, how yields off to 0:21:08.480 --> 0:21:11.320 a pretty rocky start to start the year. This is 0:21:11.320 --> 0:21:14.600 actually the worst January performance on record at this point, 0:21:14.680 --> 0:21:18.400 worth than two thousand sixteen. Commodity sell off worse than 0:21:18.960 --> 0:21:22.679 two eight as well. But we think at this point, 0:21:22.720 --> 0:21:25.159 given the amount of cash that still fits on the 0:21:25.200 --> 0:21:27.919 sidelines and the need to generate some income in this 0:21:28.040 --> 0:21:31.919 inflationary environment, five percent on HW yield doesn't look too shabby. 0:21:32.040 --> 0:21:34.080 Let's take a step back and talk about the credit 0:21:34.160 --> 0:21:37.480 markets is an important functioning tool that the Federal Reserve 0:21:37.560 --> 0:21:39.960 looks at. They're not going to get that concerned about 0:21:39.960 --> 0:21:42.879 the stock market sell off. If you see the fixed 0:21:42.880 --> 0:21:46.399 income market, in particular credit behaving. You talk about that 0:21:46.480 --> 0:21:48.560 five percent level for yield to worse, But if you 0:21:48.560 --> 0:21:51.720 look at credit spreads, the extra premium that investors charge 0:21:51.720 --> 0:21:54.879 of our benchmark rates, it stayed incredibly tame for the 0:21:54.960 --> 0:21:58.280 riskiest securities. What's the message that you get from that? 0:21:59.680 --> 0:22:01.679 The that so that we get from that is that 0:22:01.800 --> 0:22:05.920 investors should consider continue to expect a very low default 0:22:06.040 --> 0:22:10.920 environment this year. Nobody has expected economic growth to really 0:22:11.040 --> 0:22:14.159 roll over quite yet. And with that, borrowing conditions in 0:22:14.200 --> 0:22:17.920 the credit markets have remained pretty favorable to issuers, which 0:22:17.960 --> 0:22:21.160 means that companies are going to continue to enjoy access 0:22:21.160 --> 0:22:25.400 to liquidity at levels that are still very attractive relative 0:22:25.480 --> 0:22:29.240 to historic norms, despite the fact that we've seen yields 0:22:29.320 --> 0:22:33.560 move higher overall. So the strice action that we've seen 0:22:33.800 --> 0:22:37.200