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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best an economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Kathy Wood came out of USC a long time ago,

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Speaker 2: put out a shingle with a lovelace family at Capitol Group,

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Speaker 2: and then built an investment career quite different from others,

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Speaker 2: not so much based on the long term solidity of

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Speaker 2: a given portfolio, but capturing the trend going up large

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Speaker 2: and at sometimes going down large. She holds court on

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Speaker 2: the ark. Noah's Ark is where she is right now.

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Speaker 2: I want to know, with all you've been through the

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Speaker 2: last number of years, are you going to shift to

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Speaker 2: a more long term strategy. I look at morning Star

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Speaker 2: one year, three year, five year, your bottom coure tile,

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Speaker 2: but your claim is more short term. With your new

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Speaker 2: ETF effort and with what you're doing with ARC, are

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Speaker 2: you going to be still on trend or do you

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Speaker 2: invest more for long term?

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Speaker 3: We We've always invested for the long term. And what

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Speaker 3: interrupted what was a very nice move up in innovation stocks,

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Speaker 3: especially disruptive innovation, was a massive increase in interest rates,

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Speaker 3: the likes of which we have never seen, of course,

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Speaker 3: twenty fourfold increase. So all long duration assets, especially in

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Speaker 3: twenty twenty two, were destroyed, including bonds, which are usually

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Speaker 3: a flight to safety. They had their worst year last

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Speaker 3: year since the seventeen hundreds. There's no way in that

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Speaker 3: environment that our strategy would have done well. But I

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Speaker 3: do think that what's happening this year is that the

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Speaker 3: market is starting to look over the moves, whether there's

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Speaker 3: one more or not into falling interest rates. You know,

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Speaker 3: we started underperforming in twenty one just with the anticipation

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Speaker 3: of rising rates, and even more so in twenty two.

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Speaker 1: Are you going to change?

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Speaker 2: I want to know how you're going to change the

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Speaker 2: sobering quarters.

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Speaker 1: You've been through. What is the new?

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Speaker 2: Kathy would approach to macroeconomics, frankly, pandemic economics intruding on

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Speaker 2: your belief and innovation.

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Speaker 3: If anything, innovation gains traction during tough times, and if

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Speaker 3: you look at how the reason our portfolios are outperforming

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Speaker 3: this year is they are and they are is it

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Speaker 3: is because they are gaining share in what is becoming

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Speaker 3: a difficult environment, right, and so one by one we're

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Speaker 3: going to earn our way back and it's all about

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Speaker 3: revenue growth, margin expansion.

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Speaker 2: In the Wall Street Journal, they do a fabulous thing

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Speaker 2: with al farts like me, and it's people with over

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Speaker 2: five million dollars and they believed in Kathy would to

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Speaker 2: a person, those retirees bought innovation, they bought tech, they

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Speaker 2: bought apple, Apple, Apple Apple, and they didn't listen to

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Speaker 2: financial TV or radio. Can you do the Kathy would

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Speaker 2: approach for one three five years given the volatility you've.

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Speaker 3: Seen, Yes, I think we're on the other side of

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Speaker 3: that massive interest rate increase which did destroy a lot

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Speaker 3: of performance. That's the most important thing, and we are

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Speaker 3: ready for prime time. Many people are concerned about our

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Speaker 3: kind of strategy and.

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Speaker 4: The company we just.

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Speaker 3: Acquired rises because in Europe, in London here, for all

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Speaker 3: of Europe and UK, they're focused on global mega trends

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Speaker 3: as well, and you know, interest rates hurt everyone in

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Speaker 3: that space. If we are right, and rates are going

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Speaker 3: to down at some point in the next year. You know,

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Speaker 3: the market is a discounting mechanism. Then I think that

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Speaker 3: the muscle memory that hurt our strategy, and it all

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Speaker 3: has everything to do with the tech and telecom bust

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Speaker 3: and people thinking, oh my gosh, are we here again?

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Speaker 3: Know what happened during the twenty years that ended in

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Speaker 3: the tech and telecom bubble is the seeds for what

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Speaker 3: is happening now we're planned in this.

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Speaker 2: John is really important that the profitability stream down the

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Speaker 2: income statement of new tech is very different than two

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Speaker 2: thousand tech.

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Speaker 4: Let's talk about evase and not just Tesla. Is it

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Speaker 4: good news for Tesla? What's happening in Detroit right now?

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Speaker 3: Yes, because if there's a strike, of course there will

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Speaker 3: be more production shortfalls. You know, I think that there's

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Speaker 3: just now the supply chain is freed up, so unfortunately,

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Speaker 3: we'll have all kinds of questions about that. But you know,

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Speaker 3: I don't think think it has anything really to do

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Speaker 3: with the strike. It has everything to do with a

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Speaker 3: consumer preference shift towards better vehicles electric that are falling

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Speaker 3: in price. Tesla is leading that price decline simply by

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Speaker 3: passing cost declines onto its customers. So I think that's

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Speaker 3: what's good for Tesla.

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Speaker 4: The complaint we hear is that people can't afford these vehicles.

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Speaker 4: That is changing in the UKs. You can see Richie

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Speaker 4: Sunac is pushing back targets to get rid of all

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Speaker 4: of these total combustion engines to twenty thirty five from

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Speaker 4: twenty thirty. We're being unrealistic about this transition. We don't

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Speaker 4: think so big.

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Speaker 3: No, no, no, we do not think so We actually

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Speaker 3: the total cost of ownership, Now this is in the

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Speaker 3: United States. It's a little bit different here, but the

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Speaker 3: total cost of ownership of an electric vehicle fell below

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Speaker 3: that of a gas powered vehicle about two to three

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Speaker 3: years ago. Soon sticker prices.

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Speaker 4: Does that include insurance?

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Speaker 3: Yes, includes insurance. Yes, and as I said, local differences,

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Speaker 3: but yes, in the United States, that does include insurance.

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Speaker 3: And in fact, Tesla is so sure that its cars

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Speaker 3: will have fewer accidents and fewer fatalities that it's willing

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Speaker 3: to provide insurance. So yes, that does include everything.

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Speaker 2: All in you were a USC you didn't get to

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Speaker 2: be Laffer called up Robert Kirby a Capitol group, and

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Speaker 2: so I just shut up and hire her.

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Speaker 1: So you walk into Capitol Group, which is.

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Speaker 2: The land of an R square to ninety eight Washington

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Speaker 2: Mutual Fund Investment Company of America, everything is completely diversified.

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Speaker 2: Out you're the polar extreme that through y'ad you almost

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Speaker 2: fell into the Pacific Ocean.

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Speaker 1: They were so upset with you.

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Speaker 2: So you go out and you're saying, I'm not going

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Speaker 2: tight R square to SPX, I'm going out and do

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Speaker 2: my own thing. Yes, people have prospered off of innovation

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Speaker 2: and technology.

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Speaker 1: How does that continue in America?

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Speaker 2: Can you be less diversified and win five years out?

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Speaker 3: Well, you mentioned Capital Group, and that is where I

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Speaker 3: did start my career, and that is where I saw

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Speaker 3: tremendous research and a long term time horizon. So really

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Speaker 3: what we're doing with ARC is just going back to

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Speaker 3: the future my initial experience, which was in the late

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Speaker 3: seventies when I was in college. And we're doing deep research,

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Speaker 3: first principles based white sheet of paper.

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Speaker 2: But you're away from a R square like Washington, neutral

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Speaker 2: of the other funds.

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Speaker 1: What's your squared right now?

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Speaker 3: To be honest, we're the correlation of our performance to

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Speaker 3: broad based benchmarks is very low. For better or worse.

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Speaker 3: What it tells. What it tells our clients and perspective

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Speaker 3: clients is we have a very good diversification strategy. Our funds.

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Speaker 3: The active weight if you're comparing to MSCI World or

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Speaker 3: SMP or Nasdaq, the active weight is less than five percent,

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Speaker 3: So really good diversification strategy focused on companies that are

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Speaker 3: going to transform the way the world works. We look

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Speaker 3: at the broad based benchmarks and sure there are companies

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Speaker 3: that are sustaining innovation, like an Apple, but they are

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Speaker 3: not going to transform the way the world works. From here,

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Speaker 3: our companies.

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Speaker 4: Are Kathy, Thank you, Kathy, work about convesting, joining us

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Speaker 4: around the table here in London. The conversations continue. Patrick

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Speaker 4: Armstrong's CIO of Plerimi Wealth, Patrick got to see you.

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Speaker 4: Things good are just terrible because I can't decide based

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Speaker 4: on our conversation so far.

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Speaker 5: Normal things are pretty normal. Everything feels so different to

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Speaker 5: how it was. But we've got inflation on a track

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Speaker 5: down to something that's going to be sub three percent

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Speaker 5: next year. I don't think it's going to fall to

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Speaker 5: the FEDS mandate. I don't think they want it to.

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Speaker 5: You've got economic growth that's potential in the United States.

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Speaker 5: Who would have thought that you're probably going to go

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Speaker 5: two percent for the US economy this year. That's probably

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Speaker 5: the long term potential. Interest rates at five percent on

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Speaker 5: the two year pretty normal. Doesn't seem normal over recent years,

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Speaker 5: but we're in an environment where things are pretty normal.

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Speaker 4: We come back to the old normal.

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Speaker 5: I think we are going back to the old normal.

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Speaker 5: I think inflation is going to prove to be persistent, sticky,

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Speaker 5: with intermittent spikes, just because the big picture issues are

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Speaker 5: populism and protectionism from governments, and that's just by its

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Speaker 5: nature inflationary. You've got unions coming back like the seventies,

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Speaker 5: maybe a little bit. You've got job seekers having some

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Speaker 5: power that's inflationary, but you've got disinflationary forces coming from China,

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Speaker 5: and you've got fed policy at a point where it

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Speaker 5: is restrictive. So all of those things normal.

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Speaker 2: Your charm is your truly cross asset at the margin,

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Speaker 2: How are you changing your cross asset allocation into the

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Speaker 2: fourth quarter.

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Speaker 5: So what we've done over the summer months is we've

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Speaker 5: marginally reduced our equities that have just kept drifting to overweight.

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Speaker 5: We wanted to have neutral weight, but just as equities

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Speaker 5: performed so well, they kept moving overweight. We've moved marginally

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Speaker 5: underweight now, not so much that we're worried about equities.

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Speaker 5: That we're getting pretty compelling returns on tips right now

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Speaker 5: that you're getting at two percent real yield, And like

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Speaker 5: I said, inflations are still a risk in the long term,

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Speaker 5: but I'm getting the duration there. If we do fall

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Speaker 5: into a recession, we'll see lower yields on conventionals and

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Speaker 5: tips will benefit.

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Speaker 2: So talk to our audience at radio and television, particularly

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Speaker 2: across America. How does Patrick Armstrong utilize the ten year

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Speaker 2: inflation adjusted yield or the five year inflation adjusted yield?

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Speaker 2: How do you use that as a tool to have

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Speaker 2: confidence in market allocation.

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Speaker 5: Well, the tenure break even is two point three percent,

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Speaker 5: and my view is we're going to have persistent above

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Speaker 5: fed target inflation, so I want to be hedged against that.

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Speaker 5: I'm happy to get a real yield of two percent.

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Speaker 5: You put your capital at risk to preserve capital as

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Speaker 5: a starting point and row the purchasing power of that

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Speaker 5: over time. The tip provides that to you right now

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Speaker 5: in the tenure, So I like duration there, but you're

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Speaker 5: being compensated with really high yields on we talked about

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Speaker 5: our diamond JP Morgan bonds. I'm getting six percent on

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Speaker 5: a two year and that's almost.

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Speaker 2: It's a Chris Whalen moment. He's channeling Chris Whalen. Those

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Speaker 2: JP Morgan preferreds.

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Speaker 4: Whalen would say, should we do single names? A lot

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Speaker 4: of people at the start of the year, we're getting

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Speaker 4: checked up on LVMH. One of them say you back

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Speaker 4: to white, you stepped away. The post of chart of

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Speaker 4: the European market now is Nubber Nordisk. Where are you

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Speaker 4: on now?

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Speaker 5: That's my biggest stock right now. And again it's come

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Speaker 5: from drifting. The pandemic used to be COVID. The pandemic's

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Speaker 5: obesity and diabetes in the West, and Novo NORDICSIC and

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Speaker 5: Eli Lilly. They don't have monopoly positions, but they got

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Speaker 5: the dominant share here.

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Speaker 2: Boing earnings if luxury come in enough off China gloom

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Speaker 2: Bernstein I believe is out with a note overnight saying

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Speaker 2: we've got some ratios of luxury back to two thousand

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Speaker 2: and eight.

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Speaker 1: Is it pulled back enough for Patrick Armstrong almost?

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Speaker 2: So?

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Speaker 5: I sold LVMH in March. It was at thirty two

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Speaker 5: times forecast startings. We're now in the mid twenties. I

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Speaker 5: bought it in October the previous year when it was

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Speaker 5: at twenty one times. That's a small premium to the

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Speaker 5: market multiple. That's where I'd like to buy it. So

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Speaker 5: I think it's fair.

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Speaker 1: Folks right there.

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Speaker 2: We don't do much equity chat because you know who cares.

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Speaker 2: The answer is what you just heard there from Patrick

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Speaker 2: Armstrong is a clinic and how you bracket a beloved

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Speaker 2: dominant stuck?

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Speaker 4: I was with you, we were talking about it when

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Speaker 4: you backed out of ALVMH. You kept ms though we did. Yeah,

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Speaker 4: how was that?

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Speaker 3: Well?

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Speaker 5: I didn't want to move against what I still think

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Speaker 5: is the dominant trend is the spending power of high

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Speaker 5: net worth individuals and also the immunity to input prices.

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Speaker 5: Rischmond talked about inflation hurting spending power of people, but

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Speaker 5: at the input prices are things that are hurting mass

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Speaker 5: market retailers and it doesn't impact the high in luxury.

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Speaker 2: So what's the distinctive feature of the Duma family? Ermez,

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Speaker 2: what are they doing differently? Bloomberg Intelligence Deborah Aiken is

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Speaker 2: just brilliant.

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Speaker 1: On this, and she singles out a few of these names.

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Speaker 2: What is the Ames model that makes them different from

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Speaker 2: forty seven other luxury brands.

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Speaker 5: The leather goods part of it is incredible, the margins,

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Speaker 5: the growth they get there and people pay up for

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Speaker 5: that and there's just a waiting lines of cues for

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Speaker 5: that sort of things. But it's their brand management. There

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Speaker 5: may scarves and ties and the leather goods, it's all.

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Speaker 4: We touched on it briefly. Let's finish there another nor Esk.

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Speaker 4: We're already out forty percent this year. The stock's been

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Speaker 4: climbing for five consecutive years. Can you spend just a

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Speaker 4: little bit of time, a couple of minutes just outlining

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Speaker 4: how big this opportunity actually is.

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Speaker 5: Well, it was a vanity type drug, their weight loss.

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Speaker 5: It is vanity product basically, that's people in Europe, America

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Speaker 5: and China. They spend the money to look good, field good.

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Speaker 5: But what they've found is the heart disease and the

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Speaker 5: benefits on that. It may become an ensurable product as well.

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Speaker 5: So that just expands the potential market where you're not

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Speaker 5: just getting vanity uses, but health uses which may be

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Speaker 5: ensurable as well. So a heart and stroke disease it's

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Speaker 5: it does expand the market a lot. Because it's an

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Speaker 5: expensive product that a lot of people can afford. It

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Speaker 5: may move much more mass market because of that.

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Speaker 4: The run on the stocks home has been phenomenal, absolutely phenomenal.

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Speaker 4: I'm not sure where we are right now versus alvimh

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Speaker 4: percently at one point earlier this year it was bigger

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Speaker 4: than alviam Ice, right.

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Speaker 5: It's I think it's bigger right now. They're basically the

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Speaker 5: same market caps.

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Speaker 2: Can there be European exceptionalism without technology?

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Speaker 1: The way we trumpet Apple in the other eighteenth s.

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Speaker 4: Well, and I never noticed. I think is a form

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Speaker 4: of US exceptionalist Yeah, the wrong kind of US exceptionalism, right.

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Speaker 1: Yeah, it's buoyant, to say the least.

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Speaker 5: It's yeah, it's exceptionalism is very clear in US and technology.

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Speaker 5: Europe can compete in healthcare. It's showing no ability quickly.

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Speaker 1: Are you buying big oil? You buy big oil.

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Speaker 5: Here we basically there's going to be more oil consumed

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Speaker 5: in the next three months. We've already had more oil consumed.

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Speaker 2: Today's single best by come on, Patrick Ironstrong, single best

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Speaker 2: buy big.

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Speaker 5: Oil EOG I like rather than the Integrated's exploration production.

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Speaker 4: Patrick got to say Patrick Armstrong of Plarini Wealth.

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Speaker 2: Also Lingos is hugely qualified global had a foreign exchange

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Speaker 2: strategy at RBC tour of duty working in Europe with

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Speaker 2: different institutions to look at the political economics of the

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Speaker 2: moment as well. You know, to you, I can say, like,

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Speaker 2: what's euro going to do or what's Sterling you to do?

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Speaker 2: What are they going to do if they actually get disinflation?

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Speaker 2: Can you call a disinflationary trend in place?

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Speaker 1: Yet?

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Speaker 6: Too soon for that, But I do think this morning's

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Speaker 6: CPI data will be very welcome news from the Bank

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Speaker 6: of England perspective, because they'll feel like finally their policy

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Speaker 6: measures are biting and they're removing some of that tail

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Speaker 6: risk of stagflation.

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Speaker 2: How many months or quarters do you need to establish

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Speaker 2: a disinflationary trend?

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Speaker 1: Not the data dependency.

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Speaker 2: The media is focused on one surgical point, Well, what's

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Speaker 2: your timeline to say trend in place?

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Speaker 6: Well, I think it's also the composition of inflation, right,

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Speaker 6: because we've seen headline inflation come off on energy prices.

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Speaker 6: In fact, if anything, now ticking back up again, as

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Speaker 6: we saw yesterday in Canada. So really what we're focusing

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Speaker 6: on is that core measure, or even more so, the

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Speaker 6: supercre measure. What's happening to those demand driven components of

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Speaker 6: inflation and are those weakening enough to signify that we're

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Speaker 6: going to get to target?

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Speaker 2: And Paul Krugman with a brilliant essay out Folks Wheelhouse

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Speaker 2: for the Nobel Laureate on Trends. He looks at disinflation

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Speaker 2: and I love what he says about plane vanilla inflation.

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Speaker 2: John Ferrell's family in England is living plain vanilla six

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Speaker 2: percent plus inflation. Do people like you and these elites

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Speaker 2: do they look at plain vanilla inflation?

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Speaker 6: I mean, you see plain vanilla inflation across the board, right,

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Speaker 6: And I think that's the important part about the current

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Speaker 6: rise and energy prices because for all that, central banks

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Speaker 6: like to look through those and focus on core inflation.

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Speaker 6: If headline inflation goes up, comes down, a bit goes

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Speaker 6: up again because in oil prices or commodity prices don't

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Speaker 6: really come off. What does that mean to your average consumer?

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Speaker 6: Their kind of lived experience is that prices just keep

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Speaker 6: going up.

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Speaker 4: I can't believe we're sitting here and we've got this

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Speaker 4: note from bank, not the bank of England from the

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Speaker 4: Goldman Sax team on the Bank of England suggesting we're

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Speaker 4: done here when inflation is in the high sixes. Can

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Speaker 4: you make sense of that for our audience? If we

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Speaker 4: were in the high sixes in the United States, we'd

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Speaker 4: be talking about the prospect of a fifty basis point

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Speaker 4: height from the Federal Reserve this afternoon. Why are we

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Speaker 4: talking about the Bank of England being done with inflation

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Speaker 4: in the high sixes and wage growth pushing eight percent.

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Speaker 6: I think it's the wage growth that's more important, right

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Speaker 6: because don't forget the Bank of England look through high

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Speaker 6: inflation in the immediate aftermath of the GFC, and there

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Speaker 6: was a long period wheen Mervin King was writing regular

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Speaker 6: letters the Chancellor about inflation being outside the target ban

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Speaker 6: and yet you know they were happy to leave it zero.

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Speaker 6: It's that which is the difference. It's the fact that

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Speaker 6: they're happy to look through it if they feel like

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Speaker 6: their policy is working. And I will say this morning, stated,

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Speaker 6: do make tomorrow's decision much more finely balanced.

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Speaker 4: As Simon French with panmil Gilden was in your seat yesterday,

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Speaker 4: he suggested that this Bank of It has a communication problem,

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Speaker 4: a credibility issue.

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Speaker 6: Do you agree, Yeah, it's hard to say they don't.

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Speaker 6: And I think more than anything, it's the inconsistency in

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Speaker 6: the messaging that people struggle with. I mean, sure, this

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Speaker 6: is a particularly difficult time to be forecasting. I think

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Speaker 6: economists have struggled in the Byside. But from the Bank

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Speaker 6: of Indians perspective, it's the fact that that message seems

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Speaker 6: to change every month, rather than just sticking to this

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Speaker 6: data dependency mantra.

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Speaker 2: You speak fourteen languages, you've got parchment and physics from Cambridge.

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Speaker 2: I want you to talk about the physics of Christine

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Speaker 2: Legard's speech at Jackson Hall. You live the ECB theory,

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Speaker 2: the ECB process, if you will.

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Speaker 1: Is there any hope.

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Speaker 2: In prayer that the ECB can get away from the

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Speaker 2: data dependency that she despises sadly?

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Speaker 6: Not really, And I think the reality is that you've

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Speaker 6: got so many competing views on governing council. You saw

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Speaker 6: that just over the weekend, right, they had that announcement

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Speaker 6: last week and then they already came out with voice

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Speaker 6: of saying, oh you we should be doing more. We're

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Speaker 6: not quite done yet. And it's that kind of coophony

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Speaker 6: of voices which ends up with the data departs.

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Speaker 2: Are you tour expert in this, John, you've lived it

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Speaker 2: as well as is also And what I find fast

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Speaker 2: in your is a simplistic American view of Bundesbank versus Portugal.

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Speaker 1: Now it's not that way. You both know, it's richer

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Speaker 1: and more complex.

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Speaker 2: To be honest, my good friend Christine Leakarr doesn't have

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Speaker 2: a chance on this.

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Speaker 1: There's no chance that they're going to take a.

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Speaker 2: More holistic, longer Philip Lane trend.

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Speaker 1: Is the difference in this policy.

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Speaker 4: Under Dragi, who was not a consensus builder, he would

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Speaker 4: builly the Government Council into a corner and say we're

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Speaker 4: doing this, and he'd have to get the Bundesbank to

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Speaker 4: come along. The god is a consensus builder, but she

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Speaker 4: gets an easy time of it now because Germany is

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Speaker 4: the weak spot. Germany is the Weekskan And what I

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Speaker 4: don't hear from the hawks on the Governing Council they're

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Speaker 4: not screaming rate hikes. They're not screaming rate hikes at all.

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Speaker 4: So how much of a deal was there actually to

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Speaker 4: strike on the Governing Council last week? People make out

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Speaker 4: of the deal between doves and hawks. The hawks that

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Speaker 4: I'm hearing from aren't that hawkish at the ECP, are they?

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Speaker 6: Well, there are a lot less hawkish than they used

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Speaker 6: to be, because, as you say, Germany itself is feeling

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Speaker 6: the weakness. But also Draghi in many ways had to

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Speaker 6: do that right because it was chrisis situation and that

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Speaker 6: forced his hand. Whereas now we're not really there. We're

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Speaker 6: kind of in a situation where central bankers have a

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Speaker 6: bit more time to assess, to be data dependent, to

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Speaker 6: build that consensus.

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Speaker 4: I teased this a little bit earlier when we were

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Speaker 4: assessing what was happening with Sterling, and Lisa raised the

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Speaker 4: question I think is a really important question to ask

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Speaker 4: regarding the UK and Sterling, but I think we can

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Speaker 4: take this broadly to Europe and the euro How important

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Speaker 4: are rate differentials for currency pairs at the moment When

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Speaker 4: you see developments in the UK, it's this kind of

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Speaker 4: development meant to be Sterling weaker or Sterling stronger? What

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Speaker 4: does it mean?

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Speaker 6: Fully agree with Lisa that it's ambiguous, right. I've heard

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Speaker 6: a lot of people, probably more from the cell side

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Speaker 6: than the byside, trying to talk up Sterling as this

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Speaker 6: carry trade.

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Speaker 4: There's much better carry out there. I mean, if you

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Speaker 4: really want carry.

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Speaker 6: You're going to Mexico, You're going to Brazil, like the

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Speaker 6: UK is not necessarily where you're going to get it.

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Speaker 6: But at the same time, the fact that, like I

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Speaker 6: said earlier, you kind of remove some of that terro

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Speaker 6: risk of stagflation. That's a good thing. And from a

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Speaker 6: policy credit ability perspective, it's good that the Bank of

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Speaker 6: England is finally seemingly getting inflation under control.

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Speaker 2: What is your question for Pole today you're in the

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Speaker 2: press conference. McKee gives the last question, they go go

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Speaker 2: lingos here here, we'll give you one. What's your question?

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Speaker 2: Did your own pile today? From your EUO.

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Speaker 6: Perspective, I'd be really interested to hear how he's thinking

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Speaker 6: about the run up and energy prices and the feed

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Speaker 6: through that will have to headline inflation.

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Speaker 1: Oh wait, we'll stop the show here. Halima Craft. Okay,

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Speaker 1: you've got something. It's pretty good at this right.

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Speaker 2: What does the wonderful Helena Craft? Heleima, wonderful to see you,

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Speaker 2: Thanks so much for stopping by.

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Speaker 1: Helena Croft. What does she say about this move to

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Speaker 1: one hundred?

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Speaker 6: I think she's been bang on the money with that call.

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Speaker 6: Now that we're there, it becomes a lot less obvious

440
00:21:40,320 --> 00:21:42,760
Speaker 6: that we continue further from here. But she was very

441
00:21:42,800 --> 00:21:45,360
Speaker 6: open and talking a lot about it earlier in the year,

442
00:21:45,400 --> 00:21:47,119
Speaker 6: and markets were just ignoring it for a while. They

443
00:21:47,119 --> 00:21:49,920
Speaker 6: were ignoring the supply cuts, the production cuts were here.

444
00:21:49,960 --> 00:21:51,280
Speaker 6: Now we feel the impact.

445
00:21:51,359 --> 00:21:54,320
Speaker 4: You can para ignore this later on this afternoon, and.

446
00:21:54,400 --> 00:21:56,920
Speaker 6: Let's see, it's a very short inter meeting period between

447
00:21:56,960 --> 00:22:00,240
Speaker 6: September and November. December is probably the time they to

448
00:22:00,240 --> 00:22:00,760
Speaker 6: make that call.

449
00:22:00,960 --> 00:22:02,359
Speaker 4: Did you think the Bank of any can ignore it

450
00:22:02,400 --> 00:22:04,560
Speaker 4: a little bit more? I'm just wondering who is this

451
00:22:04,600 --> 00:22:10,120
Speaker 4: more important to? Bailey A Eueida.

452
00:22:10,200 --> 00:22:12,920
Speaker 6: We can almost forget about the Bank of Japan and

453
00:22:13,000 --> 00:22:15,000
Speaker 6: not doing anything anytime soon, and even when they do,

454
00:22:15,040 --> 00:22:17,400
Speaker 6: it's going to be tiny. Now I'd be most concerned

455
00:22:17,400 --> 00:22:20,919
Speaker 6: in the ECB's position energy and porter. You still have

456
00:22:21,040 --> 00:22:24,760
Speaker 6: that regional difference between US energy prices and European and

457
00:22:24,760 --> 00:22:27,040
Speaker 6: they're the ones really that are facing the economic weakness.

458
00:22:27,119 --> 00:22:31,800
Speaker 2: We're staggering beyond Duisenberg through Truche. John mentions the wonderful

459
00:22:31,880 --> 00:22:34,879
Speaker 2: Draugy of Italy and now La guard is the easy

460
00:22:35,000 --> 00:22:39,080
Speaker 2: be a more mature institutional or are they still making

461
00:22:39,119 --> 00:22:41,440
Speaker 2: it up as they go as they did when Mercing

462
00:22:41,600 --> 00:22:42,200
Speaker 2: was there.

463
00:22:42,400 --> 00:22:44,720
Speaker 6: And absolutely more mature. And you know, you've got to

464
00:22:44,720 --> 00:22:47,280
Speaker 6: remember they've been now in existence for over twenty years.

465
00:22:47,640 --> 00:22:50,719
Speaker 6: They've been through several crises. That's knitting them together. But

466
00:22:50,760 --> 00:22:52,600
Speaker 6: more than anything, the fact that it's the core now

467
00:22:52,600 --> 00:22:53,720
Speaker 6: feeling the weakness, I think.

468
00:22:53,640 --> 00:22:55,960
Speaker 1: Yeah, I don't mention it naturally. I didn't mention that.

469
00:22:56,800 --> 00:22:59,359
Speaker 4: Jen Foley talked at the prospect of paralty on the

470
00:22:59,400 --> 00:23:01,840
Speaker 4: euro in the new year. You're going there yet? Can

471
00:23:01,880 --> 00:23:02,280
Speaker 4: we finish that?

472
00:23:03,440 --> 00:23:03,840
Speaker 1: Come on?

473
00:23:04,040 --> 00:23:06,960
Speaker 6: We've had one O four for year end podcast since

474
00:23:06,960 --> 00:23:07,680
Speaker 6: the start of the year.

475
00:23:08,000 --> 00:23:08,879
Speaker 4: That hasn't changed.

476
00:23:08,960 --> 00:23:12,160
Speaker 6: But we looked into twenty twenty four and actually said,

477
00:23:12,600 --> 00:23:13,480
Speaker 6: why should it stop?

478
00:23:13,520 --> 00:23:13,680
Speaker 2: Hell?

479
00:23:13,720 --> 00:23:14,720
Speaker 6: Why should it bounce back?

480
00:23:14,760 --> 00:23:15,479
Speaker 4: We've got one O two.

481
00:23:15,560 --> 00:23:16,680
Speaker 6: Could we get to party shore?

482
00:23:16,720 --> 00:23:18,360
Speaker 4: Maybe? I just don't think it. We'll stay that long

483
00:23:18,640 --> 00:23:21,320
Speaker 4: old Alsa. Thank you. That's quite a cool so far.

484
00:23:21,400 --> 00:23:23,240
Speaker 4: The yeh, we'll see how we ended, but quite a

485
00:23:23,240 --> 00:23:37,080
Speaker 4: cool so far. Alsa, Thank you. Aselling us there of RBC, As.

486
00:23:37,000 --> 00:23:40,119
Speaker 2: Joan mentions, the week starts today for Bruce Kasman, it

487
00:23:40,119 --> 00:23:44,199
Speaker 2: does not on Friday, evening, Kasman, along with the dreaded

488
00:23:44,240 --> 00:23:48,320
Speaker 2: doctor Faroli and others, put out their Weekly Prospects. The

489
00:23:48,400 --> 00:23:52,120
Speaker 2: way things are moving, it could be daily Prospects Kasman

490
00:23:52,160 --> 00:23:53,680
Speaker 2: of JP Morgan Jones.

491
00:23:54,040 --> 00:23:57,640
Speaker 1: This morning, Bruce Kasman, what will you listen for from

492
00:23:57,760 --> 00:24:00,440
Speaker 1: Jerome Powell today? Well?

493
00:24:00,480 --> 00:24:04,359
Speaker 7: I think the issue really when the FED certainly stays

494
00:24:04,400 --> 00:24:08,080
Speaker 7: on hold and certainly also continues to maintain an August bias,

495
00:24:08,720 --> 00:24:12,400
Speaker 7: is how on this color are we talking about their

496
00:24:12,960 --> 00:24:15,880
Speaker 7: confidence that they're done here? And I think of course

497
00:24:15,920 --> 00:24:18,479
Speaker 7: they're going to continue to maintain that bias. They're going

498
00:24:18,520 --> 00:24:21,520
Speaker 7: to give us some sense of progress on inflation, some

499
00:24:21,680 --> 00:24:23,639
Speaker 7: ongoing concern. I don't think we're going to get a

500
00:24:23,680 --> 00:24:26,439
Speaker 7: strong message, and quite frankly, I don't think it's going

501
00:24:26,480 --> 00:24:28,480
Speaker 7: to tell us that much. In a world in which

502
00:24:28,520 --> 00:24:30,679
Speaker 7: the data is going to decide what the FED is

503
00:24:30,680 --> 00:24:32,919
Speaker 7: going to do over the next few meetings.

504
00:24:32,760 --> 00:24:36,800
Speaker 2: Our optionality, our ambiguity, our degrees of freedom, and all

505
00:24:36,800 --> 00:24:41,800
Speaker 2: the other mumbo jumbo buttresses up against Michael Faroli's arch

506
00:24:41,880 --> 00:24:46,600
Speaker 2: call and potential GDP that goes into our stard Do

507
00:24:46,640 --> 00:24:49,280
Speaker 2: you have a low statistic on potential GDP?

508
00:24:49,840 --> 00:24:52,720
Speaker 1: Does that give you a low our stard that goal.

509
00:24:52,840 --> 00:24:56,040
Speaker 1: The Jerome Power says he's trying to get to well.

510
00:24:56,080 --> 00:24:59,080
Speaker 7: I think there's two things here. One, which is perhaps

511
00:24:59,119 --> 00:25:03,760
Speaker 7: most important, is potential. GDP is low, but cyclically there

512
00:25:03,760 --> 00:25:07,359
Speaker 7: are a number of forces which have raised. What interest

513
00:25:07,440 --> 00:25:11,880
Speaker 7: rate is consistent with stabilizing inflation and stabilizing utilization rates.

514
00:25:11,880 --> 00:25:15,320
Speaker 7: So I think that's what's operational for the current environment.

515
00:25:15,440 --> 00:25:18,600
Speaker 7: The second point, Mike and I have both been writing

516
00:25:18,640 --> 00:25:22,720
Speaker 7: about the hints that US supply side performance is actually improving.

517
00:25:22,880 --> 00:25:25,320
Speaker 7: We've been running two hundred and fifty thousand a month

518
00:25:25,320 --> 00:25:26,680
Speaker 7: on labor supply this year.

519
00:25:27,080 --> 00:25:28,480
Speaker 8: Productivity growth, which has.

520
00:25:28,400 --> 00:25:30,879
Speaker 7: Been stuck in the low ones, looks like it's moving

521
00:25:31,119 --> 00:25:33,960
Speaker 7: higher on an underlying basis. It's too early to get

522
00:25:33,960 --> 00:25:37,000
Speaker 7: confident about this, but it does feel to us that

523
00:25:37,200 --> 00:25:39,840
Speaker 7: US supply side and pro performance is actually improving here.

524
00:25:40,240 --> 00:25:42,639
Speaker 2: I know you and Bob Michael aren on speaking terms,

525
00:25:42,640 --> 00:25:44,440
Speaker 2: but just a few times where you've got to get

526
00:25:44,440 --> 00:25:48,720
Speaker 2: together in dovetail your economics into Bob Michael's fixed income,

527
00:25:49,080 --> 00:25:52,560
Speaker 2: which I believe is price moving against yield. Can you

528
00:25:52,600 --> 00:25:56,560
Speaker 2: make a yield call here? If we get kasmin disinflation,

529
00:25:57,080 --> 00:25:58,160
Speaker 2: do yields come down.

530
00:25:58,840 --> 00:26:00,960
Speaker 7: I think it's going to be a lot before yields

531
00:26:00,960 --> 00:26:03,680
Speaker 7: come down. If we're right, inflation is going to stay

532
00:26:03,720 --> 00:26:06,520
Speaker 7: sticky here. The Fed is not going to have the

533
00:26:06,600 --> 00:26:10,280
Speaker 7: room to ease anytime soon. The economy is not really

534
00:26:10,800 --> 00:26:14,000
Speaker 7: at material thread of going into recession anytime soon. So

535
00:26:14,200 --> 00:26:17,320
Speaker 7: I think, you know, four percent tenure yields five and

536
00:26:17,320 --> 00:26:19,359
Speaker 7: a half percent policy rates is going to be with

537
00:26:19,440 --> 00:26:20,119
Speaker 7: us for a while.

538
00:26:20,520 --> 00:26:22,439
Speaker 4: Bruce, you touched on it, and I think it's a

539
00:26:22,480 --> 00:26:25,200
Speaker 4: really important aspect. I mentioned of the feder Reserve conversation

540
00:26:25,359 --> 00:26:27,720
Speaker 4: today and into this decision and news conference, the extent

541
00:26:27,800 --> 00:26:30,880
Speaker 4: to which this labor market has rebalanced. Do you think

542
00:26:30,920 --> 00:26:33,800
Speaker 4: that rebalancing is close to complete then, Bruce.

543
00:26:34,119 --> 00:26:36,920
Speaker 7: No, we have a very tight labor market. We still

544
00:26:36,960 --> 00:26:40,560
Speaker 7: have very elevated wage inflation. I think we're seeing good

545
00:26:40,680 --> 00:26:42,919
Speaker 7: signs on the labor market that things are moving in

546
00:26:42,960 --> 00:26:45,640
Speaker 7: the right direction. But whether we get all the way

547
00:26:45,680 --> 00:26:48,360
Speaker 7: back to what is consistent with the Fed achieving its

548
00:26:48,400 --> 00:26:52,959
Speaker 7: inflation target, I think is still not by any means determined.

549
00:26:53,480 --> 00:26:55,560
Speaker 7: From my point of view, I think it's more likely

550
00:26:55,600 --> 00:26:58,200
Speaker 7: that things stick at a level that's going to keep

551
00:26:58,240 --> 00:26:59,960
Speaker 7: the Fed uncomfortable over the next year.

552
00:27:00,440 --> 00:27:04,359
Speaker 4: Does that mean low unemployment with elevated inflation or higher

553
00:27:04,400 --> 00:27:07,960
Speaker 4: unemployment with elevated inflation, because one makes is a lot

554
00:27:08,000 --> 00:27:09,360
Speaker 4: more toxic than the other.

555
00:27:09,800 --> 00:27:12,200
Speaker 7: I think it's most likely the unplayed rate stays below

556
00:27:12,240 --> 00:27:15,080
Speaker 7: four percent. I think it's most likely that wage inflation

557
00:27:15,600 --> 00:27:18,440
Speaker 7: stays at four percent or higher. I think it's most

558
00:27:18,480 --> 00:27:20,760
Speaker 7: likely in that environment, the FED is not going to

559
00:27:20,800 --> 00:27:22,200
Speaker 7: have the opportunity to ease.

560
00:27:22,640 --> 00:27:24,679
Speaker 8: And the question is whether or not that.

561
00:27:24,640 --> 00:27:28,240
Speaker 7: Restrictive stance over time undermines what is still a pretty

562
00:27:28,280 --> 00:27:32,919
Speaker 7: healthy US private sector and eventually causes an end to

563
00:27:32,920 --> 00:27:36,280
Speaker 7: the expansion, or whether the supply side improvement, whether some

564
00:27:36,320 --> 00:27:38,800
Speaker 7: of the other supports can carry us along here.

565
00:27:38,800 --> 00:27:41,800
Speaker 8: And put us on a path to a soft landing.

566
00:27:41,840 --> 00:27:44,160
Speaker 7: I'm going to boil the frog scenario, which is the

567
00:27:44,240 --> 00:27:46,439
Speaker 7: first one I described, but I think it's still a

568
00:27:46,480 --> 00:27:49,320
Speaker 7: pretty close call here as to how the environment plays

569
00:27:49,320 --> 00:27:50,480
Speaker 7: out over the next year or two.

570
00:27:50,920 --> 00:27:53,600
Speaker 2: I mean, Ris Keseen, what's so important here is simply

571
00:27:53,640 --> 00:27:56,760
Speaker 2: there was a pandemic. Are we beyond the pandemic? Are

572
00:27:56,800 --> 00:28:01,520
Speaker 2: we beyond supply side studies? Getting back to Chasmin one

573
00:28:01,560 --> 00:28:02,280
Speaker 2: oh one.

574
00:28:02,760 --> 00:28:04,960
Speaker 7: Look, I think we're beyond the I hope we're beyond

575
00:28:05,040 --> 00:28:08,679
Speaker 7: the pandemic in terms of its impact direct impact on

576
00:28:08,720 --> 00:28:09,800
Speaker 7: economic activity.

577
00:28:09,840 --> 00:28:11,360
Speaker 8: But I think there's two issues here.

578
00:28:11,440 --> 00:28:13,879
Speaker 7: One, we're still in an unwind of some of the

579
00:28:13,920 --> 00:28:18,800
Speaker 7: pandemic dislocations. That's what inflation coming down is about. That's

580
00:28:18,840 --> 00:28:21,360
Speaker 7: what some of the normalization going on in service sectors

581
00:28:21,359 --> 00:28:23,880
Speaker 7: are about. We're not quite done with it, We're starting

582
00:28:23,880 --> 00:28:26,080
Speaker 7: to get closer to the end. And then we're dealing

583
00:28:26,119 --> 00:28:29,320
Speaker 7: also with the reverberations of this pandemic on a more

584
00:28:29,440 --> 00:28:32,760
Speaker 7: lasting basis, And a couple of them are the damage

585
00:28:32,800 --> 00:28:35,960
Speaker 7: done to the supply side globally. And I also think

586
00:28:36,040 --> 00:28:38,520
Speaker 7: the health of the private sector balance sheet, which is

587
00:28:38,600 --> 00:28:40,760
Speaker 7: a really weird thing to say comes out of such

588
00:28:40,800 --> 00:28:42,680
Speaker 7: a bad event as a pandemic.

589
00:28:42,560 --> 00:28:45,000
Speaker 2: Chirst Let me expand on this was one thought you

590
00:28:45,080 --> 00:28:48,680
Speaker 2: pick up on it. Can China export disinflation or a

591
00:28:48,720 --> 00:28:53,680
Speaker 2: deflationary trend? What does JP Morgan see of domestic China

592
00:28:53,880 --> 00:28:55,719
Speaker 2: exported out across the world.

593
00:28:55,960 --> 00:28:59,640
Speaker 7: I think China is exporting deflation and goods pricing to

594
00:28:59,640 --> 00:29:03,200
Speaker 7: the rest of the world. Chinese production is picking up

595
00:29:03,280 --> 00:29:06,480
Speaker 7: right now. You see impoort prices in Europe and the

596
00:29:06,640 --> 00:29:10,920
Speaker 7: US from China going down sharply. We think global industry

597
00:29:10,960 --> 00:29:13,800
Speaker 7: is starting to pick up, China's benefiting from it. So

598
00:29:13,840 --> 00:29:15,720
Speaker 7: I think the Chinese economy is going to be weak,

599
00:29:15,800 --> 00:29:18,600
Speaker 7: but not hit the fears I think of a real

600
00:29:18,760 --> 00:29:20,320
Speaker 7: disaster that people expect.

601
00:29:20,600 --> 00:29:22,280
Speaker 8: I think global industry is picking up.

602
00:29:22,400 --> 00:29:24,920
Speaker 7: I think China is going to keep a lid on

603
00:29:24,960 --> 00:29:29,400
Speaker 7: global goods price inflation among other things for a while, except,

604
00:29:29,400 --> 00:29:30,920
Speaker 7: of course, for what we're seeing in oil.

605
00:29:31,160 --> 00:29:32,560
Speaker 4: So just before you go, I've got to do a

606
00:29:32,600 --> 00:29:35,280
Speaker 4: little bit of housekeeping. The takeaway from this conversation Hi

607
00:29:35,400 --> 00:29:37,160
Speaker 4: for longer got all of that. Can we just play

608
00:29:37,160 --> 00:29:38,600
Speaker 4: with the dot plot a little bit and get out

609
00:29:38,640 --> 00:29:40,600
Speaker 4: to twenty twenty four. What do you think that doll

610
00:29:40,640 --> 00:29:42,800
Speaker 4: plot will look like lights on this afternoon?

611
00:29:42,920 --> 00:29:45,000
Speaker 7: Well, the most important is probably twenty three, and it

612
00:29:45,040 --> 00:29:47,040
Speaker 7: looks like you're going to have a divided committee. We're

613
00:29:47,040 --> 00:29:49,480
Speaker 7: on the side of them still having the median voter

614
00:29:49,560 --> 00:29:51,800
Speaker 7: with a dot. But it's a close call, I think.

615
00:29:51,920 --> 00:29:54,640
Speaker 7: Regardless of that, and regardless of big changes in the

616
00:29:54,680 --> 00:29:57,800
Speaker 7: forecast for twenty three, the twenty four forecast is still

617
00:29:57,800 --> 00:29:59,880
Speaker 7: going to have something close to one hundred basis points

618
00:30:00,200 --> 00:30:02,360
Speaker 7: of easing it's still going to have a big drop

619
00:30:02,400 --> 00:30:05,560
Speaker 7: in inflation. It's still going to have an aspiration that

620
00:30:05,560 --> 00:30:07,160
Speaker 7: we get an unemployeed rate up to four and a

621
00:30:07,200 --> 00:30:08,840
Speaker 7: half percent without a recession.

622
00:30:09,160 --> 00:30:13,200
Speaker 4: And you don't buy it, Bryce, I'm skeptical.

623
00:30:13,320 --> 00:30:16,080
Speaker 7: I'm not pounding the table on it, but I'm still

624
00:30:16,440 --> 00:30:19,440
Speaker 7: skeptical we can heal here without more damage being done

625
00:30:19,760 --> 00:30:20,320
Speaker 7: to demand.

626
00:30:20,640 --> 00:30:23,120
Speaker 4: Bryce, thank you, sir for the update for Jpie Mulk

627
00:30:23,120 --> 00:30:24,120
Speaker 4: and Bryce Casman Mack.

628
00:30:24,560 --> 00:30:28,400
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629
00:30:28,560 --> 00:30:32,760
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630
00:30:33,000 --> 00:30:36,520
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631
00:30:36,640 --> 00:30:39,000
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632
00:30:39,160 --> 00:30:40,600
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633
00:30:41,040 --> 00:30:44,720
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634
00:30:45,080 --> 00:30:48,960
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