WEBVTT - Surveillance: Goldilocks Scenario with Levine 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.440 and of course on the Bloomberg terminal. We need to recalibrate, 0:00:30.520 --> 0:00:32.920 as you do. We know the surveillance heads are spinning. 0:00:32.960 --> 0:00:36.000 Over all the different opinions, it would be good to 0:00:36.080 --> 0:00:41.040 get a strategy grounded in first order condition mathematics. That's 0:00:41.040 --> 0:00:44.639 Alicia Levina, head of Equities and Capital Market Advisory at 0:00:44.640 --> 0:00:47.960 b n y Mellon, with some serious math chops out 0:00:48.000 --> 0:00:50.639 the end of the algebraic function. There's an epsilon. It's 0:00:50.640 --> 0:00:52.559 a Greek letter. You and I used to look at 0:00:52.600 --> 0:00:55.960 it like, what's that mean? Now it really means something. 0:00:56.200 --> 0:00:58.680 What does the systemic risk we see right now? So 0:00:58.800 --> 0:01:03.920 the systemic risk is that we've priced in the Goldilocks scenario, 0:01:04.000 --> 0:01:06.919 which is that the FED manages to do the soft 0:01:07.000 --> 0:01:10.720 landing with inflation that's coming down on its own, so 0:01:10.760 --> 0:01:13.039 it doesn't have to go that last mile from the 0:01:13.080 --> 0:01:16.119 four to the two percent, and that the consumer more 0:01:16.200 --> 0:01:19.800 or less stays healthy even as the FED hits the 0:01:19.880 --> 0:01:24.640 labor market job openings but not actual jobs. That's the 0:01:24.680 --> 0:01:29.039 goldilocks scenario. It is possible, but that's what we're priced for. 0:01:29.200 --> 0:01:31.760 We've now got the s Impeach rating at eighteen times 0:01:31.800 --> 0:01:35.399 forward earnings as the tenure move lower, and you know, 0:01:35.440 --> 0:01:39.679 the risk is, of course, that that stickiness of inflation 0:01:39.720 --> 0:01:41.959 that you've talked about this morning is going to make 0:01:42.000 --> 0:01:44.160 things a lot more difficult. So Alicia, how do you 0:01:44.160 --> 0:01:46.720 want to use that strength over the last couple of months? 0:01:46.959 --> 0:01:48.800 How do you reposition? What do you fade? Where do 0:01:48.800 --> 0:01:52.160 you fight what's vulnerable? So I think that the what's 0:01:52.240 --> 0:01:55.560 vulnerable here are the are the stocks that have rallied 0:01:55.600 --> 0:01:59.600 the most. So when you think about the long duration 0:01:59.680 --> 0:02:02.600 text sucks and the growth names, they've bounced back the most. 0:02:03.080 --> 0:02:05.720 And they've bounced back because tens have that ten years 0:02:05.760 --> 0:02:08.000 have moved lower. So I think there's going to be 0:02:08.120 --> 0:02:09.799 some sort of reversion to the meme there, and I 0:02:09.840 --> 0:02:12.160 think that's what we've seen really all year. When sectors 0:02:12.200 --> 0:02:16.120 have become over bought or um oversold, they tend to 0:02:16.200 --> 0:02:19.440 bounce back. We're coming into the most seasonally difficult time 0:02:19.520 --> 0:02:22.880 of the year September and October, with the with the 0:02:22.919 --> 0:02:26.680 Goalilocks scenario priced in. Now, our investors stayed fully invested 0:02:26.720 --> 0:02:29.000 all the time. We don't trade around the market, so 0:02:29.080 --> 0:02:32.799 they've participated in this rally, but we do think that 0:02:32.919 --> 0:02:36.280 the inflation stickiness is not going away anytime soon. So 0:02:36.400 --> 0:02:39.320 the minutes today, I don't think we're going to add 0:02:39.400 --> 0:02:42.720 anything necessarily new because you've had this panoply of FED 0:02:42.840 --> 0:02:45.280 speakers that have come out over the last three weeks 0:02:45.440 --> 0:02:49.560 essentially trying to talk down expectations of a pivot, and 0:02:49.720 --> 0:02:52.600 all we've gotten is the tenure moving lower and lower 0:02:52.680 --> 0:02:57.799 and lower, financial conditions going going, UM easier, and the 0:02:58.080 --> 0:03:01.320 and tech stocks rallying. And find America touched on this yesterday, 0:03:01.720 --> 0:03:03.520 and I'd like you to put it in English for us. 0:03:03.720 --> 0:03:06.760 They talked about us no longer being apocalyptically bearish, but 0:03:06.800 --> 0:03:09.520 we were still too bearish to get an immediate turnaround 0:03:09.560 --> 0:03:12.240 in the bear market rally. Can you translate that west 0:03:12.320 --> 0:03:14.639 sentiment and what does that mean for the prospect of 0:03:14.680 --> 0:03:17.520 a further move high here? So I think this rally 0:03:17.600 --> 0:03:22.400 took most strategists off guard. UM because the market was 0:03:22.520 --> 0:03:25.799 and strategists were essentially pricing in a recession as the 0:03:25.880 --> 0:03:29.079 base case scenario with earnings going lower. And what that 0:03:29.240 --> 0:03:32.880 means is that the risk is still higher because investors 0:03:32.960 --> 0:03:38.840 are still defensively positioned, meaning not buying duration and and 0:03:39.000 --> 0:03:42.600 not really going all in on risk trades. And so 0:03:42.800 --> 0:03:45.960 with that you could see a squeeze higher simply because 0:03:46.040 --> 0:03:49.920 you've had such a huge structural shift to the defensive side. 0:03:50.400 --> 0:03:53.320 The real pain in this market, as terrible as the 0:03:53.360 --> 0:03:55.880 first five and a half months were, where where the 0:03:56.000 --> 0:04:00.640 accounts that were defensively positioned starting in mid noon, because 0:04:00.680 --> 0:04:04.040 those positions got destroyed. So, you know, we tend to 0:04:04.120 --> 0:04:06.360 be very neutral. We tend to be you know, we 0:04:06.440 --> 0:04:10.240 tell our clients stay, stay, stay fully invested because you 0:04:10.320 --> 0:04:13.400 can't trade it because when it turns, you're not going 0:04:13.520 --> 0:04:16.680 to get those upward moves. Alicia, you mentioned earnings there, 0:04:16.680 --> 0:04:18.320 and of course we're at the tail end now of 0:04:18.400 --> 0:04:21.200 the second quarter earning season. There's only about thirty companies 0:04:21.200 --> 0:04:23.720 in the S and P five left to report, and 0:04:23.839 --> 0:04:26.799 by and large, it's been pretty decent, at least relative 0:04:26.800 --> 0:04:30.360 to expectations. Average revenue growth of fourteen percent earnings growth 0:04:30.400 --> 0:04:32.520 of eight point four percent. Both have been surprising to 0:04:32.560 --> 0:04:35.880 the upside more often than not. Looking forward, though, are 0:04:35.960 --> 0:04:39.200 we too optimistic about the trajectory of earnings through the 0:04:39.240 --> 0:04:41.880 back half of the year. So look, earning season has 0:04:41.920 --> 0:04:44.040 definitely come in better than feared. I think some of 0:04:44.080 --> 0:04:47.839 that was definitely um the impact of inflation, because earnings 0:04:47.880 --> 0:04:50.680 are nominal so much better. And I think some of 0:04:50.800 --> 0:04:53.960 the retail reports we've gotten over the last couple of 0:04:54.040 --> 0:04:57.440 days have actually come in better than feared. And then 0:04:57.520 --> 0:05:00.240 with some optimism looking forward, i'd say that as I 0:05:00.560 --> 0:05:03.400 think that the falling gas prices is really something very 0:05:03.520 --> 0:05:07.960 interesting because while in one sense it's it's disinflationary, on 0:05:08.000 --> 0:05:10.600 the other hand, if you're putting lower gas prices on 0:05:10.720 --> 0:05:13.080 top of an economy where workers are getting five point 0:05:13.160 --> 0:05:16.040 five percent wage increases, you do see that there's more 0:05:16.080 --> 0:05:19.279 spending power there um. And if July is better than 0:05:19.400 --> 0:05:22.480 June because of falling energy prices, then you have to 0:05:22.560 --> 0:05:26.520 wonder whether what direction inflation really is going in. If 0:05:26.600 --> 0:05:28.520 you look at new orders on the I s M, 0:05:28.640 --> 0:05:32.400 that tends to be predictive of where SMP earnings are going. 0:05:32.480 --> 0:05:35.240 By about six months, we've been under fifty for a 0:05:35.320 --> 0:05:38.080 couple of months, and at forty eight, it tends to 0:05:38.160 --> 0:05:40.720 mean that your SMP earnings will be moving lower in 0:05:40.839 --> 0:05:43.760 the next six months. We're just not there yet. Oh 0:05:43.920 --> 0:05:45.880 you and I are reminiscing you were too young for it. 0:05:45.920 --> 0:05:47.920 But when you were talking about the joys of turkey 0:05:48.000 --> 0:05:51.799 tetrazini with a can of cream of Campbell's cream of celery. 0:05:52.240 --> 0:05:55.880 So there's a whole analysis going on now, the Dow 0:05:56.040 --> 0:05:59.880 Jones Industrial average of the inflation now versus the inflation 0:06:00.080 --> 0:06:03.880 back when I was eating turkey tetrazzini at school. This 0:06:04.080 --> 0:06:07.640 inflation is different than that inflation, right, This inflation is 0:06:07.680 --> 0:06:11.440 different because essentially it's been driven one by commodities, but 0:06:11.560 --> 0:06:14.400 also on the service sector and the wage side. It's 0:06:14.440 --> 0:06:18.320 a different America, a different economy, right, totally different economy. 0:06:18.360 --> 0:06:21.520 We're not manufacturing based anymore. We're a service based economy, 0:06:21.640 --> 0:06:23.719 and so when the inflation is on the services side, 0:06:23.800 --> 0:06:26.000 it's going to be harder to get it down. And 0:06:26.080 --> 0:06:28.800 also we're more heterogeneous. I mean, back then it was 0:06:28.839 --> 0:06:31.880 a more aggregated analysis and you can't do that now, 0:06:32.200 --> 0:06:34.880 which is our factor analysis is more important. It is 0:06:35.240 --> 0:06:37.480 more important I think the interesting thing to hear to 0:06:37.600 --> 0:06:40.760 watch is, even as we've talked about the lower end 0:06:40.880 --> 0:06:45.920 consumer struggling, it is completely obvious that the higher end 0:06:45.960 --> 0:06:49.640 consumer is not just doing fine spending, you know, in 0:06:49.720 --> 0:06:53.520 a profligate way, supporting the economy and supporting corporate America. 0:06:53.880 --> 0:06:56.160 And so I think that's different that the range and 0:06:56.320 --> 0:06:59.920 income and what that the effect of top line nine 0:07:00.120 --> 0:07:04.240 percent inflation means is very different. John, do you know 0:07:04.360 --> 0:07:07.760 Turkey Tutrasini? John was wasn't familiar with that something. The 0:07:07.800 --> 0:07:10.680 big debate we had that, Yeah, the big debate with 0:07:10.720 --> 0:07:13.720 Turkey Tutrasini is do you do put the soup in 0:07:13.920 --> 0:07:17.400 before the parmesan cheese or after trying to wind out 0:07:17.960 --> 0:07:20.320 what account? Which part of this is winding me up something? 0:07:20.680 --> 0:07:23.200 The Mail of the Doubt John's reference with the mail 0:07:23.520 --> 0:07:26.120 back then, that's all there was. In fact, still there 0:07:26.240 --> 0:07:34.400 is no town. Wasn't down now down? Yeah, thousand within 0:07:34.480 --> 0:07:37.240 the gloom out there. Alicia Levin is put pushed against 0:07:37.280 --> 0:07:40.480 the gloom. We're two thousand dow points away from Nirvana. 0:07:40.640 --> 0:07:44.920 Point change on the Doubt song, You're killing me, wag, 0:07:45.120 --> 0:07:48.000 Turkey will kill you to have you with us in 0:07:48.120 --> 0:07:55.840 a studio Michael Collins with us. Now this is an 0:07:55.840 --> 0:07:59.800 important conversation senior portfolio manager at p JAM and steeped 0:07:59.840 --> 0:08:03.680 in the mathematics of Binghamton and other good universities. Was 0:08:03.720 --> 0:08:06.520 all Michael Love talking to you about the dynamics of 0:08:06.600 --> 0:08:11.720 the moment. There's a major core debate on the glide 0:08:11.800 --> 0:08:16.680 path of disinflation. How does it fold into owning and 0:08:16.760 --> 0:08:21.080 a husbanding yield right now? Yeah? Well, Tom, one thing 0:08:21.160 --> 0:08:24.400 we're seeing is this big tug of war between growth 0:08:24.880 --> 0:08:28.480 and inflation, right, and growth globally actually seems to be 0:08:28.560 --> 0:08:32.280 holding up pretty well. We've seen European GDP continue to 0:08:32.320 --> 0:08:34.719 be actually a little bit stronger than expected. In in 0:08:34.800 --> 0:08:37.000 the US, you know, we saw it in the labor market. 0:08:37.040 --> 0:08:40.000 We'll get retail sales UH in an hour, and real 0:08:40.120 --> 0:08:43.960 retail sales will probably continue to be really weak, are 0:08:44.040 --> 0:08:48.720 slightly negative, but obviously nominal retail sales are really strong UH. 0:08:48.920 --> 0:08:51.760 And And inflation, right, inflation, as you've all pointed out, 0:08:52.040 --> 0:08:54.599 especially in places like Europe, in the UK, UH and 0:08:54.720 --> 0:08:59.000 to some extent the US are really sticky. But that disinflation, 0:08:59.040 --> 0:09:02.600 every trend is beginning to re emerge. We are seeing 0:09:02.679 --> 0:09:06.640 goods inflation. We are seeing leading indicators of goods inflation 0:09:07.040 --> 0:09:10.719 pointing towards zero goods inflation, and I would bet in 0:09:10.760 --> 0:09:15.400 the next six twelve months you see zero goods inflation 0:09:15.960 --> 0:09:19.280 globally in the US, and I think that's a big deal. Obviously, 0:09:19.360 --> 0:09:22.160 services inflation is sticky, but I think that will give 0:09:22.200 --> 0:09:26.120 the FED some optatism to slow down the pace of John. 0:09:26.240 --> 0:09:28.400 This is like Michael Collins is writing the speech for 0:09:28.520 --> 0:09:32.120 Jerome Pale, the separation your services and goods. How many 0:09:32.200 --> 0:09:36.040 people John are expecting the massive disinflation of goods. I'd 0:09:36.080 --> 0:09:38.200 say it's a lonely crowd. So how much more work 0:09:38.200 --> 0:09:40.160 does this FED need to do with that in mind? 0:09:40.160 --> 0:09:41.839 I think this is so important. Mike, You've been in 0:09:41.880 --> 0:09:43.319 the camp that we've seen the high of the year 0:09:43.600 --> 0:09:46.080 on a tenure yield. I wonder if that same theory 0:09:46.120 --> 0:09:49.360 applies to the two years. Something's happening quietly here for 0:09:49.440 --> 0:09:51.480 the two year yield. It peeps back in the middle 0:09:51.480 --> 0:09:54.080 of June, two days before the equity market bottomed at 0:09:55.320 --> 0:09:57.360 then it faded away and equities were off to the 0:09:57.440 --> 0:09:59.400 racist and we ran it really hard as we faded 0:09:59.440 --> 0:10:01.600 that real yield as well we've seen that two year Ye, 0:10:01.760 --> 0:10:04.240 the nominal yield just pick up pick up a fair 0:10:04.280 --> 0:10:05.800 bit as well, Mike. I just wonder what you think 0:10:05.800 --> 0:10:08.240 about that back at three four on a two year 0:10:08.280 --> 0:10:11.679 in America and the way US bond geeks look at it, 0:10:11.760 --> 0:10:14.559 as you know, Jonathan and Tom and Kaylee to we 0:10:14.640 --> 0:10:17.160 look at those forward rates and what's priced into the 0:10:17.240 --> 0:10:19.840 market right now with this jump in in the front 0:10:19.880 --> 0:10:22.320 end of the curve, the markets are pricing in obviously 0:10:22.720 --> 0:10:26.480 a higher terminal funds rate of getting close to three 0:10:26.559 --> 0:10:29.160 and three quarters. So the question is is the Fed 0:10:29.360 --> 0:10:32.400 actually going to be able to engineer another you know, 0:10:32.559 --> 0:10:36.480 hundred and fifty basis points of rate hikes from here 0:10:36.760 --> 0:10:38.880 and and that is not clear. I mean, I don't 0:10:38.920 --> 0:10:41.560 have a lot of conviction either way on that. I mean, 0:10:41.600 --> 0:10:44.920 even if goods inflation goes to zero and services inflation 0:10:45.000 --> 0:10:46.960 is at five, that's still a three and a half percent, 0:10:47.400 --> 0:10:50.520 you know, core PC or core c P. I I 0:10:50.559 --> 0:10:53.520 don't know if the Fed stops hiking at three and 0:10:53.559 --> 0:10:58.199 a half percent unless growth is probably below two. So 0:10:58.280 --> 0:11:01.600 I think it's this balancing act between growth and inflation. 0:11:01.640 --> 0:11:04.440 I'd like to think about it in nominal GDP terms. 0:11:04.480 --> 0:11:06.520 You know, if you add those two up, If those 0:11:06.559 --> 0:11:10.120 two added up are below four, let's say, maybe that's 0:11:10.240 --> 0:11:12.200 enough for the Fed to to pause. But if they 0:11:12.240 --> 0:11:15.800 remain above for I think the Fed probably keeps going. Well, 0:11:15.920 --> 0:11:17.719 John was talking about the work being done at the 0:11:17.760 --> 0:11:19.360 short end and where that leaves to the two year 0:11:19.400 --> 0:11:22.280 yield is about forty five basis points above that of 0:11:22.360 --> 0:11:25.920 the ten year yield. How much further can this inversion go? 0:11:26.120 --> 0:11:28.480 What will the depths ultimately be and how does your 0:11:28.480 --> 0:11:30.560 assumption of what the height of the FED funds rate 0:11:30.960 --> 0:11:34.600 factor into that? Yeah, you know that that curve inversion 0:11:34.720 --> 0:11:37.839 has has been you know, not totally unsurprising in a 0:11:37.960 --> 0:11:40.959 world where inflation is sticky, central banks all over the 0:11:41.000 --> 0:11:44.640 world of raising rates and and growth is moderating and slowing, 0:11:45.200 --> 0:11:47.800 you do see these flat inverted curves. The question is 0:11:47.840 --> 0:11:50.400 how deep can that inversion go? It's you know, negative 0:11:50.880 --> 0:11:53.839 call it two's tens can go to negative eighty or 0:11:53.960 --> 0:11:56.840 negative a hundred. Sure, I mean if the funds rate 0:11:56.960 --> 0:12:01.520 ends up at four this cycle, certain, probably, Bryan Weinstein 0:12:01.559 --> 0:12:05.920 Morgan Stanley said the same thing last week too. Sure, 0:12:06.040 --> 0:12:09.199 I mean, I mean we're actually thinking over the next. 0:12:09.280 --> 0:12:11.079 You know, we're long term thinkers, as you all know, 0:12:11.200 --> 0:12:13.839 and long term investors. Over the next three years, what 0:12:14.040 --> 0:12:16.079 is the curve going to look like? And I think 0:12:16.120 --> 0:12:18.120 it's gonna be back to the old you know, bull 0:12:18.160 --> 0:12:21.079 steepener where the FED. By that point, we'll be cutting 0:12:21.200 --> 0:12:24.040 rates and you'll have this big bull steepener. But in 0:12:24.120 --> 0:12:26.719 the meantime, you know, it's really unclear which direction that 0:12:27.080 --> 0:12:29.600 that curve shape is going. We're pretty flat right now 0:12:30.000 --> 0:12:32.439 in terms of the curve positioning because of the uncertainty. 0:12:32.520 --> 0:12:34.640 But but yeah, I mean, if the FED keeps going, 0:12:34.760 --> 0:12:37.800 the curve continues to invert. So, Mike, given that what 0:12:37.960 --> 0:12:41.000 business to how your spreads have being down at forms 0:12:41.040 --> 0:12:45.160 the basis points. Yeah, where we are in the camp, 0:12:45.320 --> 0:12:48.120 you know that that you're supposed to really take some 0:12:48.280 --> 0:12:50.920 chips off the table here. I mean, ye, credit quality 0:12:51.000 --> 0:12:54.320 has been sound. We've just started to see the first 0:12:54.400 --> 0:12:57.800 sign of some downgrades, uh in the high old market 0:12:57.880 --> 0:13:01.800 and some very specific sectors cruise lines and healthcare. But 0:13:01.960 --> 0:13:05.920 by and large the upgrades continue to out number downgrades. 0:13:05.960 --> 0:13:08.520 Credit quality is good. These companies are flushed with cash. 0:13:08.600 --> 0:13:12.480 They've done a great job managing liquidity, managing the bottom lines, 0:13:12.559 --> 0:13:16.079 but valuations I don't think right now. And maybe you 0:13:16.120 --> 0:13:18.160 could apply this to the stock market as well. The 0:13:18.200 --> 0:13:22.640 investment great corporate market may not be fully compensating investors 0:13:22.720 --> 0:13:25.319 for these for these big kind of tail riffs that 0:13:25.360 --> 0:13:27.199 are still out there, right I mean, we could have 0:13:27.320 --> 0:13:31.040 a deepening recession globally that that is certainly in the 0:13:31.120 --> 0:13:33.160 cards as well. Mike Colon is just awesome to get 0:13:33.200 --> 0:13:35.760 you on the show. Let's catch up against suit. Mikelin's 0:13:35.760 --> 0:13:42.680 there with PHM on the nicest inness bond market. Right now, 0:13:42.760 --> 0:13:46.200 we're going to digress and move to Norway. Nicola Tangan 0:13:46.320 --> 0:13:49.680 his chief executive officer of the Norwegian Sovereign Wealth Fund. 0:13:49.800 --> 0:13:53.679 They are challenged by his target mentions the uncertainty that 0:13:54.280 --> 0:13:56.440 is out there, and we are thrilled. He joins us 0:13:56.480 --> 0:14:00.360 today with an up date. Nikolai, you know there on 0:14:00.440 --> 0:14:02.839 the back end of the core algebraic function as a 0:14:02.880 --> 0:14:06.839 Greek letter epsilon for uncertainty, What is the level of 0:14:06.960 --> 0:14:10.920 uncertainty your Sovereign Wealth Fund sees as you drift to 0:14:11.000 --> 0:14:14.679 two thousand twenty three. Well, I would say it's a 0:14:14.720 --> 0:14:17.679 continuation of the uncertainty we've seen for for a year 0:14:17.760 --> 0:14:22.520 or so. Now it consists of the inflation, the energy prices, 0:14:23.520 --> 0:14:26.200 and the geopolitics, and so it's a continuation of what 0:14:26.280 --> 0:14:31.120 we've seen for some time. With the situation that we're in. 0:14:32.120 --> 0:14:36.560 Leads to diversification. You people are to using American phrase 0:14:36.600 --> 0:14:42.280 ser ginormous. How do you diversify or choose bets given 0:14:42.320 --> 0:14:45.760 this uncertainty? Well, first of all, we have a very 0:14:45.800 --> 0:14:47.800 long term view on what we do, so we um 0:14:48.080 --> 0:14:51.760 you know, invest with kind of a generation hats on. 0:14:52.720 --> 0:14:56.880 We spread over investments across the world. We are we 0:14:57.000 --> 0:15:00.280 have ownership in the nine thousand companies across the world. 0:15:00.480 --> 0:15:03.920 We have both equities and bonds and VTA sate so 0:15:04.400 --> 0:15:06.840 well verse of out portfolio for the long term. What 0:15:06.920 --> 0:15:10.800 do you think of the American growth technology companies? Are 0:15:10.880 --> 0:15:13.280 you overweighting them? Do you own too much of them? 0:15:13.360 --> 0:15:16.040 I know the Swiss National Bank has a little bit 0:15:16.120 --> 0:15:20.080 of Apple as well, But is there the opportunity there 0:15:20.120 --> 0:15:25.240 in the TUMBL to reaffirm large cap growth. Well, these 0:15:25.320 --> 0:15:28.800 companies are of course very very big parts of the index, 0:15:28.880 --> 0:15:32.120 and so we would have big holdings in these companies. Uh. 0:15:32.320 --> 0:15:36.160 The USA companies typically be amongst the top down holdings, 0:15:36.280 --> 0:15:40.400 and and we continue to think the well positioned And 0:15:40.560 --> 0:15:42.880 clearly we have seen a bit of a recovery in 0:15:42.880 --> 0:15:45.280 the equity markets in recent weeks. Nikolai, there is a 0:15:45.360 --> 0:15:47.320 bet on the part of the markets that we're going 0:15:47.400 --> 0:15:49.920 to see a more devish tilt from federal reserve. How 0:15:50.000 --> 0:15:54.720 are you positioning potentially for Fed policy and how ultimately 0:15:54.840 --> 0:15:58.200 do you think they will react? How does that inform 0:15:58.280 --> 0:16:02.320 your decision making going forward? Well, it's uh, that's a 0:16:02.440 --> 0:16:04.760 really really tough one. We came into this year with 0:16:05.400 --> 0:16:08.760 with some underweighting shares and and uh, you know, a 0:16:08.880 --> 0:16:11.920 less risky bond portfolio. We've taken off some of that underweight, 0:16:12.600 --> 0:16:17.160 but we remain slightly cautious on the oklak care. You know, 0:16:17.280 --> 0:16:19.520 clearly markets don't go down in a straight line, and 0:16:20.240 --> 0:16:23.480 and we are in certain in terms of whether we've 0:16:23.480 --> 0:16:25.680 seen a bit of a bottoming hair or whether we'll 0:16:25.680 --> 0:16:28.160 see a continuation of that of the tough market. And 0:16:28.240 --> 0:16:30.760 of course, in addition to the monetary policy picture, there's 0:16:30.760 --> 0:16:32.680 a number of risks that the market has to weigh 0:16:32.680 --> 0:16:35.200 as well, including the ongoing war in Ukraine which is 0:16:35.240 --> 0:16:38.600 now approaching six months. Have you come to any decisions 0:16:38.640 --> 0:16:44.120 around strategies of what your endgame with your Russian assets is. Well, 0:16:44.600 --> 0:16:46.560 when it comes to the Russian assets, we have been 0:16:47.160 --> 0:16:50.800 instructed by by the government to to exit these for 0:16:50.920 --> 0:16:53.600 the time being, they don't really trade and also we 0:16:53.760 --> 0:16:56.640 can't be certain about where they where they end up, 0:16:57.080 --> 0:17:00.520 so so they are still frozen and we we haven't 0:17:01.240 --> 0:17:05.040 sold them yet. Nicola I'd like you to step away 0:17:05.160 --> 0:17:08.320 from the huge mass and the different responsibilities you have 0:17:09.080 --> 0:17:12.359 with your sovereign wealth fund and look at the heritage 0:17:12.359 --> 0:17:15.000 you have of hedge funds. It has been an absolute 0:17:15.080 --> 0:17:19.200 battle for hedge funds in timing the market. Obviously they've 0:17:19.200 --> 0:17:22.320 got a much more shorter term mandate than what you 0:17:22.560 --> 0:17:25.080 have now. And then there's a question of long short 0:17:25.160 --> 0:17:29.159 and the different formulas or that is the alternative investment 0:17:29.280 --> 0:17:35.200 game over? Is the two and twenty game over? Well, 0:17:35.280 --> 0:17:37.520 it's a tough one to say. I mean it's over 0:17:37.600 --> 0:17:39.960 for me personally in that by network for the Someone 0:17:40.040 --> 0:17:43.160 Love Fund, but now it's it's it's difficult to say, 0:17:43.200 --> 0:17:45.439 I mean the returns from that as Claus goes up 0:17:45.480 --> 0:17:48.040 and down. Um for the moment, they are having a 0:17:48.160 --> 0:17:50.960 tough time. They have previously bounced back from these tip 0:17:51.040 --> 0:17:54.040 of situations. But but I haven't really got a storm 0:17:54.160 --> 0:17:57.800 on this. I must ask Nikolai the view from Oslo 0:17:58.400 --> 0:18:00.840 of the rest of continental Europe. I've been working through 0:18:00.920 --> 0:18:05.639 the morning and natural gas equivalences in dollar and in 0:18:05.800 --> 0:18:10.639 Brent crude barrels that directly involves Norway. Your comments on 0:18:10.800 --> 0:18:14.920 how Norway and your investment fund will withstand what we're 0:18:14.960 --> 0:18:21.160 seeing in hydrocarbon prices. Yeah, now energy prices are high, 0:18:21.240 --> 0:18:25.840 guess price high, but unfortunately for some sad reasons. The 0:18:26.520 --> 0:18:29.040 result is that we have big influence into the fund, 0:18:29.600 --> 0:18:31.560 and we have big influence into the fund at a 0:18:31.680 --> 0:18:35.959 time where bondsen and in equities are cheaper than they 0:18:36.000 --> 0:18:37.520 have been. So from that point of view, that's a 0:18:37.560 --> 0:18:40.919 bit of a silver lining from this fund. Nikolai always 0:18:41.000 --> 0:18:42.959 enjoy hearing from you, and what a time to hear 0:18:43.000 --> 0:18:45.680 from you. A wound difficult complex the future with Nikolai's 0:18:45.680 --> 0:18:48.200 hanging there to see of the Norwegian self or in 0:18:48.240 --> 0:18:56.840 Wealth Fund. Michael Dart joins its chief economists and micro 0:18:56.960 --> 0:19:00.399 strategist at M Camp Partners, and what's wonderful about his 0:19:00.520 --> 0:19:04.720 work is how he synthesizes the economic view into the 0:19:04.880 --> 0:19:08.000 equity belief. Michael, I'm not going to mince words, and 0:19:08.119 --> 0:19:11.280 my umpteen years of doing this, I've never seen the 0:19:11.520 --> 0:19:15.760 raging debate about the stock market linked to the mysteries 0:19:15.920 --> 0:19:19.280 of our economy. Do you feel the same way? Do 0:19:19.400 --> 0:19:24.639 you see record uncertainty out there? Well, Tom. One of 0:19:24.680 --> 0:19:27.080 the last times I was on in the dark days 0:19:27.119 --> 0:19:30.560 of mid June, one of my messages for your retail 0:19:30.600 --> 0:19:34.480 investors was not to get too negative, even though the 0:19:34.680 --> 0:19:38.040 SMP five was down almost twenty four percent, and the 0:19:38.160 --> 0:19:43.119 reason for that was it's notoriously difficult, probably impossible, to 0:19:43.240 --> 0:19:46.560 time market bottoms, and what we were seeing with the 0:19:46.600 --> 0:19:49.160 big decline in equity markets in the first six months 0:19:49.160 --> 0:19:51.400 of the year was mostly a rate shock, the ten 0:19:51.480 --> 0:19:53.640 year yield going from one and a half to almost 0:19:53.720 --> 0:19:56.960 three and a half percent. But we're well off the 0:19:57.160 --> 0:19:59.680 highs in terms of the ten year treasury yield, even 0:19:59.680 --> 0:20:01.960 though the rates bumped up today with a good data 0:20:02.520 --> 0:20:05.480 and the stock market is now up seventeen plus percent 0:20:05.640 --> 0:20:08.760 from the lows. So the first six months of the year, 0:20:08.840 --> 0:20:12.359 the equity market decline really wasn't about negative GDP or 0:20:12.400 --> 0:20:16.040 recession or a big earnings crash. It was about evaluation 0:20:16.160 --> 0:20:19.840 adjustment as the ten year yield moved up, and that 0:20:19.960 --> 0:20:23.960 adjustment is now mostly in their rear view mirror. I 0:20:24.080 --> 0:20:27.120 looked Michael at the view forward, and the view forwards 0:20:27.800 --> 0:20:30.600 ends with the thud. I believe it's on Thursday or Friday, 0:20:31.080 --> 0:20:35.040 Friday next week at Jackson Hole. What does Chairman Powell 0:20:35.440 --> 0:20:39.640 not want to do in his speech at Jackson Hall. Well, 0:20:39.720 --> 0:20:42.920 we've seen a bevy of recent FETE speakers out there 0:20:43.000 --> 0:20:45.800 with essentially the same message, which is that they're going 0:20:45.880 --> 0:20:49.800 to continue to persist in pushing the front end of 0:20:49.960 --> 0:20:52.680 the curve up, meaning the policy rates and those rates 0:20:52.760 --> 0:20:55.440 most closely tied to it, and they're not going to 0:20:55.520 --> 0:20:58.720 be deterred. They expect some economics loaning, but they want 0:20:58.800 --> 0:21:02.520 to be very certain and inflation comes down and stays down, 0:21:03.080 --> 0:21:06.399 and that inflation expectations stay anchored at low levels. So 0:21:06.440 --> 0:21:09.520 they're going to persist with the rate hikes. They're going 0:21:09.600 --> 0:21:12.680 to persist at a slower pace, though, and that's what 0:21:12.840 --> 0:21:15.120 the market has gotten wind of, and I think that's 0:21:15.119 --> 0:21:17.840 the main reason that we've seen this big equity market 0:21:17.960 --> 0:21:20.639 move off of the lows in the stabilization and the 0:21:20.720 --> 0:21:22.920 long end of the curve. If that can do whatever 0:21:23.000 --> 0:21:24.920 it wants with short rates, it doesn't mean the long 0:21:25.000 --> 0:21:27.120 rates are going to go along with it. So we're 0:21:27.160 --> 0:21:31.240 seeing an increasing array of yield curves move into inversion 0:21:31.359 --> 0:21:35.639 now and that is a cautionary tale about three. But 0:21:35.840 --> 0:21:37.920 I think the mistake that some people made with the 0:21:38.000 --> 0:21:41.800 yield curve is that it's not an immediate indicator of 0:21:42.080 --> 0:21:45.160 imminent recession. It tends to be a long leading indicator. 0:21:45.200 --> 0:21:48.000 The bond market is simply saying the short rates are 0:21:48.040 --> 0:21:50.000 going to go up above three, but they're not going 0:21:50.040 --> 0:21:53.440 to persist there for years and years and years because 0:21:53.480 --> 0:21:56.280 the economy to take it. So, Mike, do you think though, 0:21:56.359 --> 0:21:58.719 that the using of financial conditions we have seen are 0:21:58.840 --> 0:22:02.159 underminding well Fedish trying to achieve And how do you 0:22:02.240 --> 0:22:04.040 think this fat chair is going to address some of 0:22:04.080 --> 0:22:07.200 that next week in Jackson Hope. Yeah, that seems to 0:22:07.280 --> 0:22:09.520 be the perception of some of the FED speakers that 0:22:09.600 --> 0:22:12.040 are trying to push pretty hard against this idea of 0:22:13.320 --> 0:22:15.879 rate cuts, but they really have no idea what the 0:22:16.800 --> 0:22:19.440 economy is going to look like. I would say this, 0:22:20.040 --> 0:22:23.439 if financial conditions are easying because credit spreads are narrowing 0:22:23.520 --> 0:22:25.639