WEBVTT - Surveillance: Cathie Wood on Investing 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.600 --> 0:00:33.040 Kathy Wood came out of USC a long time ago, 0:00:33.080 --> 0:00:35.920 put out a shingle with a lovelace family at Capitol Group, 0:00:36.400 --> 0:00:40.760 and then built an investment career quite different from others, 0:00:40.800 --> 0:00:43.600 not so much based on the long term solidity of 0:00:43.640 --> 0:00:48.000 a given portfolio, but capturing the trend going up large 0:00:48.040 --> 0:00:51.519 and at sometimes going down large. She holds court on 0:00:51.600 --> 0:00:55.000 the ark. Noah's Ark is where she is right now. 0:00:55.480 --> 0:00:57.960 I want to know, with all you've been through the 0:00:58.000 --> 0:01:01.240 last number of years, are you going to shift to 0:01:01.320 --> 0:01:04.280 a more long term strategy. I look at morning Star 0:01:04.440 --> 0:01:07.319 one year, three year, five year, your bottom coure tile, 0:01:07.400 --> 0:01:10.080 but your claim is more short term. With your new 0:01:10.120 --> 0:01:13.360 ETF effort and with what you're doing with ARC, are 0:01:13.360 --> 0:01:15.840 you going to be still on trend or do you 0:01:15.920 --> 0:01:17.480 invest more for long term? 0:01:17.920 --> 0:01:21.560 We We've always invested for the long term. And what 0:01:21.959 --> 0:01:27.920 interrupted what was a very nice move up in innovation stocks, 0:01:28.040 --> 0:01:32.680 especially disruptive innovation, was a massive increase in interest rates, 0:01:32.920 --> 0:01:34.959 the likes of which we have never seen, of course, 0:01:35.080 --> 0:01:40.120 twenty fourfold increase. So all long duration assets, especially in 0:01:40.160 --> 0:01:44.400 twenty twenty two, were destroyed, including bonds, which are usually 0:01:44.400 --> 0:01:46.600 a flight to safety. They had their worst year last 0:01:46.680 --> 0:01:49.880 year since the seventeen hundreds. There's no way in that 0:01:50.080 --> 0:01:52.960 environment that our strategy would have done well. But I 0:01:53.080 --> 0:01:56.960 do think that what's happening this year is that the 0:01:56.960 --> 0:02:01.800 market is starting to look over the moves, whether there's 0:02:01.800 --> 0:02:06.560 one more or not into falling interest rates. You know, 0:02:06.600 --> 0:02:10.200 we started underperforming in twenty one just with the anticipation 0:02:10.520 --> 0:02:13.200 of rising rates, and even more so in twenty two. 0:02:13.280 --> 0:02:14.080 Are you going to change? 0:02:14.120 --> 0:02:16.720 I want to know how you're going to change the 0:02:16.800 --> 0:02:18.800 sobering quarters. 0:02:18.360 --> 0:02:20.800 You've been through. What is the new? 0:02:20.919 --> 0:02:27.680 Kathy would approach to macroeconomics, frankly, pandemic economics intruding on 0:02:27.720 --> 0:02:29.080 your belief and innovation. 0:02:30.200 --> 0:02:35.079 If anything, innovation gains traction during tough times, and if 0:02:35.120 --> 0:02:39.160 you look at how the reason our portfolios are outperforming 0:02:39.320 --> 0:02:43.320 this year is they are and they are is it 0:02:43.400 --> 0:02:46.960 is because they are gaining share in what is becoming 0:02:47.080 --> 0:02:51.880 a difficult environment, right, and so one by one we're 0:02:51.880 --> 0:02:54.360 going to earn our way back and it's all about 0:02:54.440 --> 0:02:56.600 revenue growth, margin expansion. 0:02:57.080 --> 0:02:59.480 In the Wall Street Journal, they do a fabulous thing 0:02:59.560 --> 0:03:02.560 with al farts like me, and it's people with over 0:03:02.680 --> 0:03:06.000 five million dollars and they believed in Kathy would to 0:03:06.120 --> 0:03:10.320 a person, those retirees bought innovation, they bought tech, they 0:03:10.320 --> 0:03:13.080 bought apple, Apple, Apple Apple, and they didn't listen to 0:03:13.120 --> 0:03:17.480 financial TV or radio. Can you do the Kathy would 0:03:17.520 --> 0:03:22.760 approach for one three five years given the volatility you've. 0:03:22.520 --> 0:03:25.799 Seen, Yes, I think we're on the other side of 0:03:25.840 --> 0:03:30.399 that massive interest rate increase which did destroy a lot 0:03:30.400 --> 0:03:34.240 of performance. That's the most important thing, and we are 0:03:34.320 --> 0:03:37.720 ready for prime time. Many people are concerned about our 0:03:37.880 --> 0:03:39.280 kind of strategy and. 0:03:40.880 --> 0:03:41.800 The company we just. 0:03:41.800 --> 0:03:46.760 Acquired rises because in Europe, in London here, for all 0:03:46.800 --> 0:03:51.680 of Europe and UK, they're focused on global mega trends 0:03:51.840 --> 0:03:55.800 as well, and you know, interest rates hurt everyone in 0:03:55.840 --> 0:03:59.720 that space. If we are right, and rates are going 0:03:59.760 --> 0:04:02.680 to down at some point in the next year. You know, 0:04:02.760 --> 0:04:07.880 the market is a discounting mechanism. Then I think that 0:04:08.840 --> 0:04:11.760 the muscle memory that hurt our strategy, and it all 0:04:11.760 --> 0:04:14.200 has everything to do with the tech and telecom bust 0:04:14.800 --> 0:04:17.159 and people thinking, oh my gosh, are we here again? 0:04:17.680 --> 0:04:21.560 Know what happened during the twenty years that ended in 0:04:21.600 --> 0:04:25.240 the tech and telecom bubble is the seeds for what 0:04:25.360 --> 0:04:28.000 is happening now we're planned in this. 0:04:28.000 --> 0:04:31.120 John is really important that the profitability stream down the 0:04:31.160 --> 0:04:34.360 income statement of new tech is very different than two 0:04:34.400 --> 0:04:35.080 thousand tech. 0:04:35.200 --> 0:04:38.400 Let's talk about evase and not just Tesla. Is it 0:04:38.400 --> 0:04:41.200 good news for Tesla? What's happening in Detroit right now? 0:04:43.800 --> 0:04:46.839 Yes, because if there's a strike, of course there will 0:04:46.880 --> 0:04:51.839 be more production shortfalls. You know, I think that there's 0:04:52.160 --> 0:04:55.480 just now the supply chain is freed up, so unfortunately, 0:04:55.560 --> 0:04:58.960 we'll have all kinds of questions about that. But you know, 0:04:59.040 --> 0:05:01.320 I don't think think it has anything really to do 0:05:01.360 --> 0:05:03.719 with the strike. It has everything to do with a 0:05:03.800 --> 0:05:10.920 consumer preference shift towards better vehicles electric that are falling 0:05:11.040 --> 0:05:16.040 in price. Tesla is leading that price decline simply by 0:05:16.120 --> 0:05:22.240 passing cost declines onto its customers. So I think that's 0:05:22.400 --> 0:05:23.719 what's good for Tesla. 0:05:23.880 --> 0:05:26.279 The complaint we hear is that people can't afford these vehicles. 0:05:26.760 --> 0:05:29.360 That is changing in the UKs. You can see Richie 0:05:29.400 --> 0:05:31.760 Sunac is pushing back targets to get rid of all 0:05:31.839 --> 0:05:34.599 of these total combustion engines to twenty thirty five from 0:05:34.680 --> 0:05:38.279 twenty thirty. We're being unrealistic about this transition. We don't 0:05:38.279 --> 0:05:38.840 think so big. 0:05:39.200 --> 0:05:41.520 No, no, no, we do not think so We actually 0:05:41.760 --> 0:05:44.120 the total cost of ownership, Now this is in the 0:05:44.200 --> 0:05:47.120 United States. It's a little bit different here, but the 0:05:47.120 --> 0:05:52.000 total cost of ownership of an electric vehicle fell below 0:05:52.080 --> 0:05:54.520 that of a gas powered vehicle about two to three 0:05:54.600 --> 0:05:57.640 years ago. Soon sticker prices. 0:05:57.920 --> 0:05:59.159 Does that include insurance? 0:06:00.120 --> 0:06:04.200 Yes, includes insurance. Yes, and as I said, local differences, 0:06:04.600 --> 0:06:08.040 but yes, in the United States, that does include insurance. 0:06:08.040 --> 0:06:12.359 And in fact, Tesla is so sure that its cars 0:06:12.400 --> 0:06:16.600 will have fewer accidents and fewer fatalities that it's willing 0:06:17.160 --> 0:06:21.000 to provide insurance. So yes, that does include everything. 0:06:21.080 --> 0:06:22.919 All in you were a USC you didn't get to 0:06:22.960 --> 0:06:25.840 be Laffer called up Robert Kirby a Capitol group, and 0:06:25.880 --> 0:06:27.120 so I just shut up and hire her. 0:06:27.160 --> 0:06:29.440 So you walk into Capitol Group, which is. 0:06:29.400 --> 0:06:31.839 The land of an R square to ninety eight Washington 0:06:31.920 --> 0:06:36.240 Mutual Fund Investment Company of America, everything is completely diversified. 0:06:36.279 --> 0:06:38.719 Out you're the polar extreme that through y'ad you almost 0:06:38.760 --> 0:06:39.960 fell into the Pacific Ocean. 0:06:40.200 --> 0:06:41.320 They were so upset with you. 0:06:41.440 --> 0:06:43.640 So you go out and you're saying, I'm not going 0:06:43.680 --> 0:06:46.599 tight R square to SPX, I'm going out and do 0:06:46.800 --> 0:06:51.680 my own thing. Yes, people have prospered off of innovation 0:06:51.880 --> 0:06:52.839 and technology. 0:06:53.320 --> 0:06:55.360 How does that continue in America? 0:06:55.520 --> 0:06:59.839 Can you be less diversified and win five years out? 0:07:00.400 --> 0:07:02.400 Well, you mentioned Capital Group, and that is where I 0:07:02.440 --> 0:07:06.520 did start my career, and that is where I saw 0:07:07.240 --> 0:07:12.240 tremendous research and a long term time horizon. So really 0:07:12.240 --> 0:07:14.960 what we're doing with ARC is just going back to 0:07:15.000 --> 0:07:17.760 the future my initial experience, which was in the late 0:07:17.800 --> 0:07:22.680 seventies when I was in college. And we're doing deep research, 0:07:22.960 --> 0:07:25.160 first principles based white sheet of paper. 0:07:25.320 --> 0:07:27.920 But you're away from a R square like Washington, neutral 0:07:27.920 --> 0:07:28.720 of the other funds. 0:07:28.720 --> 0:07:30.040 What's your squared right now? 0:07:30.960 --> 0:07:35.840 To be honest, we're the correlation of our performance to 0:07:36.040 --> 0:07:40.320 broad based benchmarks is very low. For better or worse. 0:07:40.520 --> 0:07:43.960 What it tells. What it tells our clients and perspective 0:07:44.000 --> 0:07:50.120 clients is we have a very good diversification strategy. Our funds. 0:07:50.160 --> 0:07:53.640 The active weight if you're comparing to MSCI World or 0:07:53.880 --> 0:07:58.160 SMP or Nasdaq, the active weight is less than five percent, 0:07:58.560 --> 0:08:03.080 So really good diversification strategy focused on companies that are 0:08:03.120 --> 0:08:07.080 going to transform the way the world works. We look 0:08:07.120 --> 0:08:10.640 at the broad based benchmarks and sure there are companies 0:08:10.680 --> 0:08:13.920 that are sustaining innovation, like an Apple, but they are 0:08:13.960 --> 0:08:17.119 not going to transform the way the world works. From here, 0:08:17.480 --> 0:08:18.680 our companies. 0:08:18.240 --> 0:08:32.520 Are Kathy, Thank you, Kathy, work about convesting, joining us 0:08:32.520 --> 0:08:35.200 around the table here in London. The conversations continue. Patrick 0:08:35.280 --> 0:08:39.360 Armstrong's CIO of Plerimi Wealth, Patrick got to see you. 0:08:39.640 --> 0:08:41.600 Things good are just terrible because I can't decide based 0:08:41.600 --> 0:08:42.719 on our conversation so far. 0:08:43.040 --> 0:08:46.120 Normal things are pretty normal. Everything feels so different to 0:08:46.160 --> 0:08:48.280 how it was. But we've got inflation on a track 0:08:48.320 --> 0:08:50.480 down to something that's going to be sub three percent 0:08:50.600 --> 0:08:52.120 next year. I don't think it's going to fall to 0:08:52.160 --> 0:08:53.880 the FEDS mandate. I don't think they want it to. 0:08:54.360 --> 0:08:57.320 You've got economic growth that's potential in the United States. 0:08:57.320 --> 0:08:58.760 Who would have thought that you're probably going to go 0:08:58.800 --> 0:09:01.079 two percent for the US economy this year. That's probably 0:09:01.080 --> 0:09:04.400 the long term potential. Interest rates at five percent on 0:09:04.440 --> 0:09:07.800 the two year pretty normal. Doesn't seem normal over recent years, 0:09:07.840 --> 0:09:10.679 but we're in an environment where things are pretty normal. 0:09:10.720 --> 0:09:11.840 We come back to the old normal. 0:09:12.120 --> 0:09:14.320 I think we are going back to the old normal. 0:09:14.360 --> 0:09:17.480 I think inflation is going to prove to be persistent, sticky, 0:09:17.559 --> 0:09:21.959 with intermittent spikes, just because the big picture issues are 0:09:22.600 --> 0:09:26.360 populism and protectionism from governments, and that's just by its 0:09:26.480 --> 0:09:31.480 nature inflationary. You've got unions coming back like the seventies, 0:09:31.480 --> 0:09:33.560 maybe a little bit. You've got job seekers having some 0:09:33.720 --> 0:09:38.319 power that's inflationary, but you've got disinflationary forces coming from China, 0:09:38.400 --> 0:09:40.400 and you've got fed policy at a point where it 0:09:40.440 --> 0:09:43.440 is restrictive. So all of those things normal. 0:09:43.640 --> 0:09:47.680 Your charm is your truly cross asset at the margin, 0:09:47.800 --> 0:09:51.760 How are you changing your cross asset allocation into the 0:09:51.760 --> 0:09:52.400 fourth quarter. 0:09:52.679 --> 0:09:54.720 So what we've done over the summer months is we've 0:09:54.720 --> 0:09:58.000 marginally reduced our equities that have just kept drifting to overweight. 0:09:58.040 --> 0:09:59.920 We wanted to have neutral weight, but just as equities 0:10:00.120 --> 0:10:02.800 performed so well, they kept moving overweight. We've moved marginally 0:10:02.880 --> 0:10:05.920 underweight now, not so much that we're worried about equities. 0:10:06.240 --> 0:10:09.120 That we're getting pretty compelling returns on tips right now 0:10:09.120 --> 0:10:12.080 that you're getting at two percent real yield, And like 0:10:12.120 --> 0:10:14.559 I said, inflations are still a risk in the long term, 0:10:14.800 --> 0:10:16.760 but I'm getting the duration there. If we do fall 0:10:16.760 --> 0:10:19.800 into a recession, we'll see lower yields on conventionals and 0:10:19.880 --> 0:10:20.520 tips will benefit. 0:10:20.600 --> 0:10:23.880 So talk to our audience at radio and television, particularly 0:10:23.920 --> 0:10:28.640 across America. How does Patrick Armstrong utilize the ten year 0:10:28.760 --> 0:10:33.000 inflation adjusted yield or the five year inflation adjusted yield? 0:10:33.000 --> 0:10:35.200 How do you use that as a tool to have 0:10:35.280 --> 0:10:36.800 confidence in market allocation. 0:10:37.400 --> 0:10:40.640 Well, the tenure break even is two point three percent, 0:10:40.880 --> 0:10:43.679 and my view is we're going to have persistent above 0:10:43.760 --> 0:10:46.520 fed target inflation, so I want to be hedged against that. 0:10:46.600 --> 0:10:48.760 I'm happy to get a real yield of two percent. 0:10:49.080 --> 0:10:51.760 You put your capital at risk to preserve capital as 0:10:51.760 --> 0:10:54.040 a starting point and row the purchasing power of that 0:10:54.120 --> 0:10:56.280 over time. The tip provides that to you right now 0:10:56.320 --> 0:10:58.439 in the tenure, So I like duration there, but you're 0:10:58.440 --> 0:11:01.560 being compensated with really high yields on we talked about 0:11:02.280 --> 0:11:05.160 our diamond JP Morgan bonds. I'm getting six percent on 0:11:05.200 --> 0:11:06.599 a two year and that's almost. 0:11:06.600 --> 0:11:09.520 It's a Chris Whalen moment. He's channeling Chris Whalen. Those 0:11:09.600 --> 0:11:10.800 JP Morgan preferreds. 0:11:10.800 --> 0:11:13.440 Whalen would say, should we do single names? A lot 0:11:13.480 --> 0:11:14.840 of people at the start of the year, we're getting 0:11:14.920 --> 0:11:18.760 checked up on LVMH. One of them say you back 0:11:18.800 --> 0:11:21.040 to white, you stepped away. The post of chart of 0:11:21.080 --> 0:11:23.920 the European market now is Nubber Nordisk. Where are you 0:11:24.000 --> 0:11:24.280 on now? 0:11:24.360 --> 0:11:27.000 That's my biggest stock right now. And again it's come 0:11:27.000 --> 0:11:30.480 from drifting. The pandemic used to be COVID. The pandemic's 0:11:30.480 --> 0:11:33.280 obesity and diabetes in the West, and Novo NORDICSIC and 0:11:33.320 --> 0:11:35.760 Eli Lilly. They don't have monopoly positions, but they got 0:11:35.760 --> 0:11:36.760 the dominant share here. 0:11:36.960 --> 0:11:40.360 Boing earnings if luxury come in enough off China gloom 0:11:40.360 --> 0:11:42.960 Bernstein I believe is out with a note overnight saying 0:11:43.000 --> 0:11:45.480 we've got some ratios of luxury back to two thousand 0:11:45.480 --> 0:11:45.719 and eight. 0:11:45.800 --> 0:11:48.760 Is it pulled back enough for Patrick Armstrong almost? 0:11:49.240 --> 0:11:49.320 So? 0:11:49.400 --> 0:11:51.680 I sold LVMH in March. It was at thirty two 0:11:51.679 --> 0:11:54.160 times forecast startings. We're now in the mid twenties. I 0:11:54.200 --> 0:11:56.079 bought it in October the previous year when it was 0:11:56.120 --> 0:11:59.280 at twenty one times. That's a small premium to the 0:11:59.280 --> 0:12:01.000 market multiple. That's where I'd like to buy it. So 0:12:01.040 --> 0:12:01.720 I think it's fair. 0:12:01.880 --> 0:12:02.800 Folks right there. 0:12:02.920 --> 0:12:05.960 We don't do much equity chat because you know who cares. 0:12:06.040 --> 0:12:08.320 The answer is what you just heard there from Patrick 0:12:08.400 --> 0:12:12.360 Armstrong is a clinic and how you bracket a beloved 0:12:12.360 --> 0:12:13.120 dominant stuck? 0:12:13.240 --> 0:12:14.880 I was with you, we were talking about it when 0:12:14.920 --> 0:12:18.120 you backed out of ALVMH. You kept ms though we did. Yeah, 0:12:18.200 --> 0:12:18.719 how was that? 0:12:19.400 --> 0:12:19.520 Well? 0:12:19.520 --> 0:12:22.200 I didn't want to move against what I still think 0:12:22.400 --> 0:12:25.720 is the dominant trend is the spending power of high 0:12:25.720 --> 0:12:29.800 net worth individuals and also the immunity to input prices. 0:12:30.360 --> 0:12:34.240 Rischmond talked about inflation hurting spending power of people, but 0:12:34.280 --> 0:12:36.520 at the input prices are things that are hurting mass 0:12:36.520 --> 0:12:39.400 market retailers and it doesn't impact the high in luxury. 0:12:39.440 --> 0:12:42.240 So what's the distinctive feature of the Duma family? Ermez, 0:12:42.320 --> 0:12:46.400 what are they doing differently? Bloomberg Intelligence Deborah Aiken is 0:12:46.480 --> 0:12:47.640 just brilliant. 0:12:47.160 --> 0:12:50.040 On this, and she singles out a few of these names. 0:12:50.480 --> 0:12:53.960 What is the Ames model that makes them different from 0:12:54.000 --> 0:12:55.720 forty seven other luxury brands. 0:12:57.320 --> 0:12:59.960 The leather goods part of it is incredible, the margins, 0:13:00.040 --> 0:13:02.880 the growth they get there and people pay up for 0:13:02.920 --> 0:13:05.360 that and there's just a waiting lines of cues for 0:13:05.400 --> 0:13:08.400 that sort of things. But it's their brand management. There 0:13:08.440 --> 0:13:11.160 may scarves and ties and the leather goods, it's all. 0:13:12.600 --> 0:13:15.400 We touched on it briefly. Let's finish there another nor Esk. 0:13:16.200 --> 0:13:19.000 We're already out forty percent this year. The stock's been 0:13:19.000 --> 0:13:22.040 climbing for five consecutive years. Can you spend just a 0:13:22.080 --> 0:13:24.280 little bit of time, a couple of minutes just outlining 0:13:24.480 --> 0:13:27.000 how big this opportunity actually is. 0:13:27.559 --> 0:13:30.320 Well, it was a vanity type drug, their weight loss. 0:13:30.880 --> 0:13:33.920 It is vanity product basically, that's people in Europe, America 0:13:33.960 --> 0:13:39.600 and China. They spend the money to look good, field good. 0:13:40.320 --> 0:13:43.480 But what they've found is the heart disease and the 0:13:43.480 --> 0:13:46.200 benefits on that. It may become an ensurable product as well. 0:13:46.200 --> 0:13:48.680 So that just expands the potential market where you're not 0:13:48.720 --> 0:13:52.079 just getting vanity uses, but health uses which may be 0:13:52.160 --> 0:13:55.199 ensurable as well. So a heart and stroke disease it's 0:13:56.280 --> 0:13:58.160 it does expand the market a lot. Because it's an 0:13:58.200 --> 0:14:00.560 expensive product that a lot of people can afford. It 0:14:00.600 --> 0:14:02.679 may move much more mass market because of that. 0:14:02.840 --> 0:14:06.199 The run on the stocks home has been phenomenal, absolutely phenomenal. 0:14:06.280 --> 0:14:08.480 I'm not sure where we are right now versus alvimh 0:14:08.520 --> 0:14:10.520 percently at one point earlier this year it was bigger 0:14:10.520 --> 0:14:11.600 than alviam Ice, right. 0:14:11.720 --> 0:14:13.920 It's I think it's bigger right now. They're basically the 0:14:13.920 --> 0:14:14.720 same market caps. 0:14:14.760 --> 0:14:18.800 Can there be European exceptionalism without technology? 0:14:19.400 --> 0:14:21.840 The way we trumpet Apple in the other eighteenth s. 0:14:21.840 --> 0:14:23.280 Well, and I never noticed. I think is a form 0:14:23.280 --> 0:14:27.520 of US exceptionalist Yeah, the wrong kind of US exceptionalism, right. 0:14:27.520 --> 0:14:29.240 Yeah, it's buoyant, to say the least. 0:14:29.520 --> 0:14:35.560 It's yeah, it's exceptionalism is very clear in US and technology. 0:14:36.480 --> 0:14:40.200 Europe can compete in healthcare. It's showing no ability quickly. 0:14:40.240 --> 0:14:42.480 Are you buying big oil? You buy big oil. 0:14:42.240 --> 0:14:45.280 Here we basically there's going to be more oil consumed 0:14:45.320 --> 0:14:47.560 in the next three months. We've already had more oil consumed. 0:14:47.560 --> 0:14:50.200 Today's single best by come on, Patrick Ironstrong, single best 0:14:50.200 --> 0:14:50.760 buy big. 0:14:50.560 --> 0:14:54.680 Oil EOG I like rather than the Integrated's exploration production. 0:14:55.040 --> 0:14:58.240 Patrick got to say Patrick Armstrong of Plarini Wealth. 0:15:02.280 --> 0:15:06.480 Also Lingos is hugely qualified global had a foreign exchange 0:15:06.480 --> 0:15:10.760 strategy at RBC tour of duty working in Europe with 0:15:10.840 --> 0:15:14.840 different institutions to look at the political economics of the 0:15:14.840 --> 0:15:18.560 moment as well. You know, to you, I can say, like, 0:15:18.640 --> 0:15:21.280 what's euro going to do or what's Sterling you to do? 0:15:22.040 --> 0:15:25.280 What are they going to do if they actually get disinflation? 0:15:25.600 --> 0:15:28.920 Can you call a disinflationary trend in place? 0:15:29.160 --> 0:15:29.840 Yet? 0:15:30.320 --> 0:15:33.160 Too soon for that, But I do think this morning's 0:15:33.160 --> 0:15:35.640 CPI data will be very welcome news from the Bank 0:15:35.680 --> 0:15:39.920 of England perspective, because they'll feel like finally their policy 0:15:39.960 --> 0:15:43.400 measures are biting and they're removing some of that tail 0:15:43.520 --> 0:15:44.520 risk of stagflation. 0:15:44.880 --> 0:15:48.440 How many months or quarters do you need to establish 0:15:48.520 --> 0:15:50.400 a disinflationary trend? 0:15:50.840 --> 0:15:52.280 Not the data dependency. 0:15:52.360 --> 0:15:56.040 The media is focused on one surgical point, Well, what's 0:15:56.080 --> 0:15:58.280 your timeline to say trend in place? 0:15:58.640 --> 0:16:01.160 Well, I think it's also the composition of inflation, right, 0:16:01.280 --> 0:16:05.080 because we've seen headline inflation come off on energy prices. 0:16:05.200 --> 0:16:07.360 In fact, if anything, now ticking back up again, as 0:16:07.360 --> 0:16:10.440 we saw yesterday in Canada. So really what we're focusing 0:16:10.480 --> 0:16:12.080 on is that core measure, or even more so, the 0:16:12.160 --> 0:16:15.440 supercre measure. What's happening to those demand driven components of 0:16:15.440 --> 0:16:18.520 inflation and are those weakening enough to signify that we're 0:16:18.520 --> 0:16:19.320 going to get to target? 0:16:19.360 --> 0:16:22.920 And Paul Krugman with a brilliant essay out Folks Wheelhouse 0:16:22.960 --> 0:16:26.640 for the Nobel Laureate on Trends. He looks at disinflation 0:16:26.800 --> 0:16:30.440 and I love what he says about plane vanilla inflation. 0:16:30.640 --> 0:16:34.280 John Ferrell's family in England is living plain vanilla six 0:16:34.360 --> 0:16:38.160 percent plus inflation. Do people like you and these elites 0:16:38.200 --> 0:16:40.520 do they look at plain vanilla inflation? 0:16:41.080 --> 0:16:43.560 I mean, you see plain vanilla inflation across the board, right, 0:16:43.600 --> 0:16:46.480 And I think that's the important part about the current 0:16:46.560 --> 0:16:49.160 rise and energy prices because for all that, central banks 0:16:49.240 --> 0:16:51.480 like to look through those and focus on core inflation. 0:16:52.080 --> 0:16:54.760 If headline inflation goes up, comes down, a bit goes 0:16:54.840 --> 0:16:58.440 up again because in oil prices or commodity prices don't 0:16:58.480 --> 0:17:01.200 really come off. What does that mean to your average consumer? 0:17:01.280 --> 0:17:04.920 Their kind of lived experience is that prices just keep 0:17:04.960 --> 0:17:05.360 going up. 0:17:05.520 --> 0:17:07.000 I can't believe we're sitting here and we've got this 0:17:07.080 --> 0:17:09.480 note from bank, not the bank of England from the 0:17:09.480 --> 0:17:12.600 Goldman Sax team on the Bank of England suggesting we're 0:17:12.640 --> 0:17:16.160 done here when inflation is in the high sixes. Can 0:17:16.200 --> 0:17:18.320 you make sense of that for our audience? If we 0:17:18.320 --> 0:17:20.640 were in the high sixes in the United States, we'd 0:17:20.640 --> 0:17:22.800 be talking about the prospect of a fifty basis point 0:17:22.880 --> 0:17:25.480 height from the Federal Reserve this afternoon. Why are we 0:17:25.520 --> 0:17:27.600 talking about the Bank of England being done with inflation 0:17:27.640 --> 0:17:29.840 in the high sixes and wage growth pushing eight percent. 0:17:30.200 --> 0:17:32.280 I think it's the wage growth that's more important, right 0:17:32.280 --> 0:17:34.960 because don't forget the Bank of England look through high 0:17:35.040 --> 0:17:37.919 inflation in the immediate aftermath of the GFC, and there 0:17:38.000 --> 0:17:40.560 was a long period wheen Mervin King was writing regular 0:17:40.640 --> 0:17:44.000 letters the Chancellor about inflation being outside the target ban 0:17:44.119 --> 0:17:47.280 and yet you know they were happy to leave it zero. 0:17:47.480 --> 0:17:49.840 It's that which is the difference. It's the fact that 0:17:50.119 --> 0:17:51.639 they're happy to look through it if they feel like 0:17:51.640 --> 0:17:53.840 their policy is working. And I will say this morning, stated, 0:17:53.880 --> 0:17:56.119 do make tomorrow's decision much more finely balanced. 0:17:56.160 --> 0:17:58.720 As Simon French with panmil Gilden was in your seat yesterday, 0:17:58.760 --> 0:18:01.440 he suggested that this Bank of It has a communication problem, 0:18:01.640 --> 0:18:02.720 a credibility issue. 0:18:02.800 --> 0:18:05.240 Do you agree, Yeah, it's hard to say they don't. 0:18:05.280 --> 0:18:07.800 And I think more than anything, it's the inconsistency in 0:18:07.840 --> 0:18:10.080 the messaging that people struggle with. I mean, sure, this 0:18:10.119 --> 0:18:12.800 is a particularly difficult time to be forecasting. I think 0:18:12.840 --> 0:18:16.400 economists have struggled in the Byside. But from the Bank 0:18:16.400 --> 0:18:18.800 of Indians perspective, it's the fact that that message seems 0:18:18.800 --> 0:18:20.760 to change every month, rather than just sticking to this 0:18:21.040 --> 0:18:22.280 data dependency mantra. 0:18:23.480 --> 0:18:27.280 You speak fourteen languages, you've got parchment and physics from Cambridge. 0:18:27.280 --> 0:18:29.960 I want you to talk about the physics of Christine 0:18:30.000 --> 0:18:33.959 Legard's speech at Jackson Hall. You live the ECB theory, 0:18:34.520 --> 0:18:37.359 the ECB process, if you will. 0:18:37.440 --> 0:18:38.440 Is there any hope. 0:18:38.280 --> 0:18:41.159 In prayer that the ECB can get away from the 0:18:41.240 --> 0:18:44.840 data dependency that she despises sadly? 0:18:44.880 --> 0:18:47.080 Not really, And I think the reality is that you've 0:18:47.080 --> 0:18:50.280 got so many competing views on governing council. You saw 0:18:50.280 --> 0:18:52.520 that just over the weekend, right, they had that announcement 0:18:52.600 --> 0:18:55.720 last week and then they already came out with voice 0:18:55.760 --> 0:18:57.400 of saying, oh you we should be doing more. We're 0:18:57.440 --> 0:19:00.520 not quite done yet. And it's that kind of coophony 0:19:00.560 --> 0:19:03.000 of voices which ends up with the data departs. 0:19:03.040 --> 0:19:04.879 Are you tour expert in this, John, you've lived it 0:19:04.920 --> 0:19:08.159 as well as is also And what I find fast 0:19:08.200 --> 0:19:12.600 in your is a simplistic American view of Bundesbank versus Portugal. 0:19:12.920 --> 0:19:15.639 Now it's not that way. You both know, it's richer 0:19:15.680 --> 0:19:16.560 and more complex. 0:19:17.119 --> 0:19:19.840 To be honest, my good friend Christine Leakarr doesn't have 0:19:19.880 --> 0:19:20.639 a chance on this. 0:19:20.840 --> 0:19:23.400 There's no chance that they're going to take a. 0:19:23.359 --> 0:19:27.440 More holistic, longer Philip Lane trend. 0:19:27.280 --> 0:19:28.400 Is the difference in this policy. 0:19:28.560 --> 0:19:31.240 Under Dragi, who was not a consensus builder, he would 0:19:31.240 --> 0:19:33.359 builly the Government Council into a corner and say we're 0:19:33.359 --> 0:19:35.960 doing this, and he'd have to get the Bundesbank to 0:19:35.960 --> 0:19:38.439 come along. The god is a consensus builder, but she 0:19:38.440 --> 0:19:40.800 gets an easy time of it now because Germany is 0:19:40.800 --> 0:19:43.359 the weak spot. Germany is the Weekskan And what I 0:19:43.400 --> 0:19:46.440 don't hear from the hawks on the Governing Council they're 0:19:46.440 --> 0:19:49.200 not screaming rate hikes. They're not screaming rate hikes at all. 0:19:49.280 --> 0:19:50.800 So how much of a deal was there actually to 0:19:50.840 --> 0:19:53.159 strike on the Governing Council last week? People make out 0:19:53.200 --> 0:19:55.720 of the deal between doves and hawks. The hawks that 0:19:55.760 --> 0:19:59.160 I'm hearing from aren't that hawkish at the ECP, are they? 0:19:59.400 --> 0:20:00.960 Well, there are a lot less hawkish than they used 0:20:00.960 --> 0:20:03.119 to be, because, as you say, Germany itself is feeling 0:20:03.119 --> 0:20:06.199 the weakness. But also Draghi in many ways had to 0:20:06.240 --> 0:20:09.159 do that right because it was chrisis situation and that 0:20:09.240 --> 0:20:12.159 forced his hand. Whereas now we're not really there. We're 0:20:12.240 --> 0:20:14.080 kind of in a situation where central bankers have a 0:20:14.119 --> 0:20:16.440