WEBVTT - Surveillance: Inflation Controls with Ryding 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferroll and Lisa Brownwitz Jay Leie, we bring 0:00:13.119 --> 0:00:17.119 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.720 dot com, and of course, on the Bloomberg Terminal. John 0:00:29.800 --> 0:00:33.320 Rinning joins US now chief Economic Advisor at Bring Capital. John, 0:00:33.520 --> 0:00:35.400 so many people come on the show and talk about 0:00:35.440 --> 0:00:38.320 the prospect of a policy mistake. John, You've repeated it 0:00:38.360 --> 0:00:42.560 a few times. You think the mistake has already been made. Well, 0:00:42.560 --> 0:00:44.840 the mistake was made last year. And the good news 0:00:45.000 --> 0:00:48.760 is even if the fetes not explicitly recognizing it's mistake. 0:00:48.920 --> 0:00:53.159 Treating inflation more as to use the kid's book, a 0:00:53.240 --> 0:00:56.760 series of unfortunate events, with the latest swamp being the 0:00:56.800 --> 0:01:01.360 commodity price impact a rising gradually Ukraine War. The origins 0:01:01.360 --> 0:01:05.560 of the inflation was the Fed's monetary largest continuing to 0:01:05.680 --> 0:01:09.120 ease as the economy recovered, continuing to say inflation was 0:01:09.200 --> 0:01:12.199 just reopening a handful of commodities. It got broader based. 0:01:12.600 --> 0:01:15.720 They pivoted in December. They took a big step last 0:01:15.760 --> 0:01:20.160 week and on Monday with the chairman's speech to the 0:01:20.240 --> 0:01:24.039 National Association the Business Economists. And now they're saying they'll 0:01:24.040 --> 0:01:26.840 do what they have to do, But the problem is 0:01:27.080 --> 0:01:28.560 they're going to have to do a lot more than 0:01:28.600 --> 0:01:31.560 they would have had to do had they not eased 0:01:31.640 --> 0:01:34.920 so much as the economy was getting better. Jim Billard 0:01:34.920 --> 0:01:36.680 came on the show with Mike McKee. I'm sure you 0:01:36.760 --> 0:01:39.520 caught some of that exchange John just yesterday, and he 0:01:39.560 --> 0:01:42.800 talked up and the tightening cycle there and the soft 0:01:42.880 --> 0:01:45.160 landing that he says they achieved. Can you give me 0:01:45.160 --> 0:01:48.080 an idea of the kind of tightening cycle you're expecting, John, 0:01:48.080 --> 0:01:51.920 and what informs that view? Well, I think this is 0:01:52.000 --> 0:01:57.120 quite difficult because the FED shifted to this average inflation 0:01:57.240 --> 0:02:01.800 targeting framework with backward looking metro for adjusting interest rates 0:02:01.800 --> 0:02:05.720 that lift off, and we have way overshot any backward 0:02:05.760 --> 0:02:11.119 looking inflation average, way overshot. Two. The current inflation rate 0:02:11.160 --> 0:02:14.040 in CPI terms is almost a percent and will go 0:02:14.200 --> 0:02:18.440 higher in all likelihood in March. So we don't have 0:02:18.480 --> 0:02:21.119 the framework from the Fed as to how they are 0:02:21.560 --> 0:02:25.919 going to calibrate their policy response to the inflation problem. 0:02:25.960 --> 0:02:29.040 The fact of the matter is inflation is so much 0:02:29.120 --> 0:02:32.239 higher than the level of interest rates that real interest 0:02:32.320 --> 0:02:35.400 rates are more negative than they have been. So we 0:02:35.840 --> 0:02:39.840 don't know how much of the inflation is transitory to 0:02:40.040 --> 0:02:43.120 use that band word now, in the sense of as 0:02:43.120 --> 0:02:46.160 the supply side gets better, supply chains improved, and that 0:02:46.160 --> 0:02:49.679 comes down and how much is underlying? And I think 0:02:49.720 --> 0:02:52.720 that the underlying inflation measures suggest the underlying inflation rates 0:02:52.720 --> 0:02:56.000 somewhere between three and four percent looking at various Federal 0:02:56.000 --> 0:03:00.760 reserve measures. So how does the fedgether? I think the 0:03:00.880 --> 0:03:05.799 logic now since the markets there of making a few 0:03:06.160 --> 0:03:09.480 one or two bigger moves they did fifties and one 0:03:09.600 --> 0:03:14.399 seventy five back. Um, I think that logic is there 0:03:15.080 --> 0:03:18.960 be since since the market is essentially moving to pricing that. 0:03:19.160 --> 0:03:21.080 And then the question is the balance sheet. They have 0:03:21.200 --> 0:03:23.359 to get the balance sheet down, and I think they 0:03:23.360 --> 0:03:28.400 have to move fairly decisively on the balance sheet. And 0:03:28.440 --> 0:03:30.560 that's going to be the next thing we'll hear us 0:03:30.600 --> 0:03:34.359 in the Fed minutes and then uh the early May 0:03:34.480 --> 0:03:37.960 f one CEA meeting, how they're actually going to work 0:03:38.000 --> 0:03:40.960 the balance sheet? Now, I'm gonna ask a really basic question, John, 0:03:41.000 --> 0:03:43.960 because we've talked this morning about how financial conditions have 0:03:44.040 --> 0:03:47.880 actually been loosening after FED Shair J. Powell speech last week. 0:03:48.360 --> 0:03:54.920 How does tightening FED policy actually bring down inflation? Well, 0:03:55.120 --> 0:03:58.560 first of all, you have to say, if financial conditions 0:03:58.560 --> 0:04:01.280 are easing, and this is a point that I know, Jonathan, 0:04:01.320 --> 0:04:05.280 you discussed with my colleague contrad the quadras, if financial 0:04:05.320 --> 0:04:10.520 conditions are easing, how is policy being tightened? So right 0:04:10.560 --> 0:04:15.160 now we're not even close to beginning to tighten policy. Now, 0:04:15.520 --> 0:04:19.800 I will say that the inflation process is a difficult 0:04:19.800 --> 0:04:22.799 one to understand. After all, the Federals didn't even see 0:04:22.839 --> 0:04:26.960 this coming. Um, they said, inflation dynamics don't change on 0:04:27.000 --> 0:04:30.280 the dime, but they but they have. But if we 0:04:30.360 --> 0:04:34.080 don't do something, then, as we had in the late 0:04:34.120 --> 0:04:38.599 sixties and early seventies, these inflation expectations become embedded. And 0:04:38.640 --> 0:04:42.200 the more embedded inflation expectations are, the harder it is 0:04:42.240 --> 0:04:45.920 to get inflation down. So there's a signaling effect. There's 0:04:45.920 --> 0:04:48.800 a simple effect is starting to take liquidity out of 0:04:48.800 --> 0:04:52.279 the financial system. And there's the effect of making the 0:04:52.360 --> 0:04:58.200 cost of money uh actually something other than zero. We're 0:04:58.240 --> 0:05:01.480 massively negative in real terms. And all of those things 0:05:01.520 --> 0:05:05.320 are part of the process, somewhat mysterious, but part of 0:05:05.320 --> 0:05:07.920 the process of bringing inflation down. And if we if 0:05:07.760 --> 0:05:11.080 it's not about meat packers, it's not about what companies 0:05:11.080 --> 0:05:13.919 are doing in terms of refining the oil and passing 0:05:13.960 --> 0:05:17.279 on gasoline causes. It's not about that. At its heart, 0:05:17.360 --> 0:05:20.920 it's about monastory conditions which are far, far, far too loose. 0:05:21.400 --> 0:05:23.960 To be more blunt, John, do you have faith that 0:05:24.040 --> 0:05:26.320 the FED, based in the market response, based on the 0:05:26.320 --> 0:05:29.400 actions they've announced, will be able to control inflation or 0:05:29.440 --> 0:05:31.640 do you think that it is unavoidable that we're gonna 0:05:31.640 --> 0:05:33.720 get a hard landing based in the fact that they're 0:05:33.720 --> 0:05:36.080 going to have to tighten vastly more than some people 0:05:36.080 --> 0:05:39.920 are expecting. Well, I think there was a significant risk 0:05:39.960 --> 0:05:42.800 of a hard landing. And let's since we're being blunt, 0:05:42.920 --> 0:05:46.800 let's say the word recession. Um. I don't think this year, 0:05:47.040 --> 0:05:50.360 I don't think next year. But at some point, um, 0:05:50.480 --> 0:05:52.839 the monastory conditions are going to be inconsistent with the 0:05:52.839 --> 0:05:55.960 public expectations. Because if you're going to get underlying inflation 0:05:55.960 --> 0:05:59.960 down to two and everybody is transacting on the assumpt 0:06:00.040 --> 0:06:02.280 and that that somewhere between three and four percent, which 0:06:02.320 --> 0:06:05.440 is where I think the public and corporate inflation expectations 0:06:05.480 --> 0:06:08.880 are and the underlying price dynamics are. Then it's that 0:06:09.720 --> 0:06:13.800 misalignment of the FED subjective and the public's expectations that 0:06:13.960 --> 0:06:17.680 result in in the hard landing. Um the plane of 0:06:17.720 --> 0:06:21.679 the FED talks, the plane of the FED talks, The 0:06:21.720 --> 0:06:25.479 more decisive they are early, the better the risk that 0:06:25.520 --> 0:06:29.040 we avoid the hard landing going. The FED historically and 0:06:29.400 --> 0:06:34.000 even in the case, ended up doing too much too late, 0:06:34.360 --> 0:06:38.600 and that is one of the histories of monetary policy interventions. 0:06:39.360 --> 0:06:42.160 So now we're we've got this backward looking framework the 0:06:42.160 --> 0:06:45.080 FED used, They're not talking about trying to balance aggregate 0:06:45.120 --> 0:06:48.080 demand and aggregate supply, and the looking at the inflation 0:06:48.160 --> 0:06:51.040 rate and their inflation forecaster probably too low for the 0:06:51.080 --> 0:06:54.240 next three years. So does the FED then continue to 0:06:54.839 --> 0:07:00.760 raise rates much better, to move more decisively sooner even better? 0:07:00.880 --> 0:07:03.400 But without the time machine, we can't do this to 0:07:03.600 --> 0:07:07.320 have not eased so much in the first place. So 0:07:07.440 --> 0:07:09.800 John is effectively what you're saying that there's not a 0:07:09.840 --> 0:07:12.960 binary outcome here of either the FED tightening so aggressively 0:07:13.000 --> 0:07:15.400 to get inflation under control that it ultimately does cause 0:07:15.400 --> 0:07:18.640 a recession or not tightening aggressively enough and letting inflation 0:07:18.720 --> 0:07:22.000 run too hot for longer. There is some form of 0:07:22.080 --> 0:07:27.120 middle ground, there might be, but that's like trying to 0:07:27.280 --> 0:07:29.680 land on the aircraft carrier at night with all your 0:07:30.120 --> 0:07:33.720 infer all your navigation systems out. I mean you can 0:07:33.760 --> 0:07:36.480 pull it off. Maybe the greater risk in the short 0:07:36.560 --> 0:07:39.600 run as we have hotter inflation and then more of 0:07:39.640 --> 0:07:42.280 a monetary policy response. And let's face it, the Fetter 0:07:42.360 --> 0:07:45.400 signaled an enormous shift in the monastary policy response from 0:07:45.400 --> 0:07:48.880 December when they pivoted to three rate hikes to March 0:07:49.280 --> 0:07:52.080 when they indicated that seven rate hikes and a balance 0:07:52.120 --> 0:07:55.080 heat adjustment at least an equivalent of another quarter point 0:07:55.200 --> 0:07:58.520 high would be appropriate for this year. And that's fine, 0:07:58.520 --> 0:08:00.800 it's great. Get interest rates of actually back to two 0:08:00.800 --> 0:08:03.360 percent by the end of the year. The problem is 0:08:03.680 --> 0:08:07.440 the inflation rates running eight percent. So that's not even 0:08:07.520 --> 0:08:11.600 beginning to get policy tight and that's the problem here. 0:08:12.080 --> 0:08:14.600 The problem is and and so it's not the favor 0:08:14.640 --> 0:08:17.760 rate hikes that cause recession. It's the FEDS easing so 0:08:17.840 --> 0:08:21.320 much last year that there has allowed these inflation expectations 0:08:21.360 --> 0:08:24.000 to build up The problem is to get down to 0:08:24.080 --> 0:08:27.280 tups and inflation. You have to bring those inflation expectations down, 0:08:27.520 --> 0:08:30.880 and that's as our experience from the late sixties or 0:08:30.880 --> 0:08:33.320 early seventies, that's very difficult. But if you let it 0:08:33.400 --> 0:08:35.760 run out of hand too far, then you end up 0:08:35.760 --> 0:08:39.280 with the Vulcar style situation and the Federal Reserve doing 0:08:39.679 --> 0:08:43.160 really doing whatever it takes at that time. That that 0:08:43.360 --> 0:08:47.280 ended up in a very very deep recession two and 0:08:47.320 --> 0:08:49.840 a very very strong dollar back to where we started. 0:08:50.120 --> 0:08:53.679 Jump the mistake already made John, thank you, but a 0:08:53.760 --> 0:08:56.199 fantastic catch. Howhether he has been too long John running 0:08:56.240 --> 0:09:05.040 there of bring capital m Christmas Rankie Joyces now co 0:09:05.240 --> 0:09:08.520 chief investment Officer RICKA. Belly Funds. Chris, let's start right there. 0:09:09.160 --> 0:09:11.040 Why are we rallying in the face of what we're 0:09:11.040 --> 0:09:14.800 seeing play out in this bond market. Well, I think 0:09:14.800 --> 0:09:17.320 there's an element of sell the news on two fronts. Obviously, 0:09:17.440 --> 0:09:19.880 you've got the FED move which was probably amongst the 0:09:19.920 --> 0:09:24.000 most telegraphed in history, and then the war which was 0:09:24.040 --> 0:09:28.200 also pretty well telegraphed. And um, so you know, maybe 0:09:28.200 --> 0:09:31.080 things are not as bad as we first thought. But 0:09:31.760 --> 0:09:33.760 in addition to that I hate to echo consensus. I 0:09:33.840 --> 0:09:37.360 don't mind echoing Lisa, but it's Tina. It's there is 0:09:37.400 --> 0:09:39.800 no alternative to to US equities. And when you think 0:09:39.840 --> 0:09:42.800 about all the pressures in the world, there are a 0:09:42.800 --> 0:09:45.480 few better places to put your money than the SMP 0:09:45.559 --> 0:09:48.120 and then ASTAC, which are dominated by five or six 0:09:48.160 --> 0:09:51.960 companies that have fortress balance sheets, pricing power, little or 0:09:51.960 --> 0:09:55.920 no exposure to Russia and Ukraine. Chris does Tina work 0:09:56.160 --> 0:09:58.520 does there is no alternative work when you have an 0:09:58.600 --> 0:10:03.160 actual recession and fundamentals that start to erode. Yeah, I 0:10:03.160 --> 0:10:04.679 think one of the one of the things that will 0:10:04.720 --> 0:10:09.199 be different this time is those fang companies. I've gotten 0:10:09.240 --> 0:10:11.600 so big that they're no longer quite as a cyclicals 0:10:11.760 --> 0:10:14.240 as they once were. In other words, the cyclical the 0:10:14.720 --> 0:10:20.760 secular growth won't necessarily overcome the cyclical pressures that Google 0:10:20.800 --> 0:10:23.440 and Facebook and others that live off an advertising face. 0:10:23.520 --> 0:10:25.160 So so that's going to be I think a surprise 0:10:25.240 --> 0:10:27.880 for some people. But other than that, Yeah, Listen, if 0:10:28.160 --> 0:10:30.480 we enter a recession, it's it's probably not good for 0:10:31.000 --> 0:10:34.480 any company in the A or around the world. But 0:10:34.920 --> 0:10:37.400 you've got to put your money somewhere and treasury is 0:10:37.480 --> 0:10:40.520 probably not still not a great place to do that. Okay, 0:10:40.559 --> 0:10:43.040 So that's kind of the larger cap thang names, Chris, 0:10:43.040 --> 0:10:45.960 what about elsewhere within growth? Is there anywhere that may 0:10:46.000 --> 0:10:48.040 be safe to be where could play a little bit 0:10:48.040 --> 0:10:50.720 of defense. Yeah, So I think there's gonna be a 0:10:50.720 --> 0:10:53.360 shakeout amongst some of these profitless growth companies. And of 0:10:53.360 --> 0:10:55.880 course that's we're value investors, and that's I'm talking to 0:10:55.880 --> 0:10:58.520 my book. That's not where we play. You know, some 0:10:58.520 --> 0:11:00.800 some of the broken growth companies are are going to 0:11:00.960 --> 0:11:04.760 survive and do well and kind of have some deja 0:11:04.840 --> 0:11:07.600 vud to two thousand in that respect. But again, we're 0:11:07.640 --> 0:11:12.199 we're pretty focused on domestic companies, cash flow generators with 0:11:12.280 --> 0:11:18.400 pricing power industries like waste collection, broadband, luxury goods, and 0:11:18.720 --> 0:11:21.959 that's where we're Uh, that's where we have always invested in, 0:11:21.960 --> 0:11:25.120 and that's where we continue to find value. Chris is 0:11:25.440 --> 0:11:28.240 a bet on luxury goods, still a big bet on China. 0:11:28.440 --> 0:11:31.599 Has that changed it? So? Yeah? Of course? Uh, and 0:11:31.880 --> 0:11:34.240 to a less your extent Russia and you've you've seen 0:11:34.240 --> 0:11:36.040 that reflected in some of the some of the names. 0:11:36.080 --> 0:11:40.040 But you know, I look at a name like Diagio, 0:11:40.160 --> 0:11:42.480 which sort of a luxury goods coming. I don't know, 0:11:42.480 --> 0:11:44.920 I don't know what whether you like Kettle or Bullet 0:11:45.360 --> 0:11:48.720 or Johnny Walker, but you know those are those are 0:11:48.760 --> 0:11:51.280 pretty resilient brands, and they benefit, by the way, to 0:11:51.320 --> 0:11:53.640 a certain extent from reopening, which is still going strong 0:11:53.679 --> 0:11:57.200 as people returned to on premise bars Chris, what's the 0:11:57.240 --> 0:12:00.040 warning sign to you that perhaps you should rethink the 0:12:00.040 --> 0:12:05.520 thesis and perhaps the consensus is wrong, well wrong in 0:12:05.520 --> 0:12:07.440 which direction, I guess is always the question that you 0:12:07.480 --> 0:12:09.920 have to ask. I mean, there there are uh some 0:12:10.160 --> 0:12:13.280 very positive outcomes in here which you could see a 0:12:13.320 --> 0:12:16.160 result in a in a melt up. Again, I think 0:12:16.160 --> 0:12:17.839 that's a pretty low probability on the side. You know, 0:12:17.920 --> 0:12:20.760 we could get a recession. We're gonna get a recession 0:12:20.800 --> 0:12:23.080 at some point in the next few years. The question 0:12:23.160 --> 0:12:29.000 is when. And um, you know again we're not once 0:12:29.040 --> 0:12:30.920 the time in the market and go to cash. And 0:12:31.000 --> 0:12:34.440 you know, obviously, if you stayed invested two years ago, 0:12:34.600 --> 0:12:37.520 almost exactly two years ago we were at the bottom 0:12:37.559 --> 0:12:39.760 of the SNP, you did pretty well. And I think 0:12:39.760 --> 0:12:42.000 it's the same case here. There's a man in cash 0:12:42.200 --> 0:12:44.320 who would actually have known every single brand that you've 0:12:44.880 --> 0:12:47.079 recommend it there and he's not here today. Chris, I'm 0:12:47.080 --> 0:12:50.360 sure he's really upset. Christopher Ranchi there of Belly Funds, Chris, 0:12:50.360 --> 0:12:56.920 thank you. Gag Chountry, the head of Ice Shares America's 0:12:56.960 --> 0:13:00.400 investment strategy a black rock, Gagy Mock. It's a meant 0:13:00.400 --> 0:13:03.600 to anticipate. Perhaps on Wednesday they's got some clarity about 0:13:03.640 --> 0:13:05.880 the future plans of the FED, and that's why we've 0:13:05.880 --> 0:13:08.240 got some form of a snap back rally. What are 0:13:08.280 --> 0:13:10.600 your thoughts, CarKey, and what's happening with this equity market 0:13:10.679 --> 0:13:15.840 versus what we've seen in bonds. Sure, good morning, thanks 0:13:15.880 --> 0:13:19.520 for having me. So going into the FED meeting on Wednesday, 0:13:19.559 --> 0:13:21.880 if someone had told all of us, everyone that watches 0:13:21.920 --> 0:13:25.480 the market, that the FED would be aggressively hawkish, and 0:13:25.520 --> 0:13:28.880 then follow up again on Monday at the name conference 0:13:28.880 --> 0:13:32.679 sounding even more hawkish and using the word expeditiously as 0:13:32.679 --> 0:13:36.000 opposed to steadily when they describe their rate path, and 0:13:36.040 --> 0:13:39.800 then if you looked at what the equity market, especially 0:13:39.800 --> 0:13:42.760 the growthier parts of the equity market, would do, I 0:13:42.800 --> 0:13:45.360 think we'd all be surprised not to mention that there's 0:13:45.400 --> 0:13:49.040 a backdrop of a war, there's high inflation. Um, So 0:13:49.080 --> 0:13:52.240 there are some movements in the markets that don't make 0:13:52.280 --> 0:13:54.280 a whole lot of sense, but I think it's telling 0:13:54.360 --> 0:13:57.440 us something. I do think that this move in equities 0:13:57.520 --> 0:14:01.360 is telling us perhaps that the Fed is not going 0:14:01.400 --> 0:14:04.760 to be able to go as much as they what 0:14:04.960 --> 0:14:07.280 is currently being priced in, and also as much as 0:14:07.320 --> 0:14:10.000 they're indicating to us, or at least that's how I'm 0:14:10.040 --> 0:14:14.080 reading it. Let's go derivative. Then, if markets are treating 0:14:14.080 --> 0:14:17.080 this as though the Fed can't raise rates that much, 0:14:17.360 --> 0:14:19.760 does that actually give the Fed the ability to raise 0:14:19.880 --> 0:14:22.880 rates that much in order to convince markets, Yes, we 0:14:22.960 --> 0:14:26.680 will go that way. I mean, look, we have to 0:14:26.760 --> 0:14:29.400 think about why they want to raise rates, right, So 0:14:29.440 --> 0:14:32.280 we know that they're obviously staring at a close to 0:14:32.360 --> 0:14:35.960 eight percent headline CPI at the face, but we also 0:14:36.120 --> 0:14:39.280 know the mathematics of CPI just because of the way 0:14:39.320 --> 0:14:41.840 base effects are going to turn out by the middle 0:14:41.840 --> 0:14:44.440 of the year, there are going to be many reasons 0:14:44.480 --> 0:14:46.720 to believe that inflation is going to come back down 0:14:46.840 --> 0:14:48.800 from this very high level that we're going to hold 0:14:48.840 --> 0:14:52.239 on a couple of months. So you're basically edifying transitory. 0:14:52.280 --> 0:14:54.120 I'm sorry to cut you off, but hold on a second. 0:14:54.160 --> 0:14:56.480 You're in camp transitory still you think that story is 0:14:56.480 --> 0:15:00.360 not dead. I was never in camp transitory, and not 0:15:00.480 --> 0:15:02.960 in camp transitory even now. But I'm just saying that 0:15:03.040 --> 0:15:08.160 today's levels are not going to be at the persistent 0:15:08.200 --> 0:15:09.920 and facial is still going to be high. Don't get 0:15:09.960 --> 0:15:11.920 me wrong, We're not going to go back to pre 0:15:11.960 --> 0:15:16.360 pandemic levels for a very very long time. But much 0:15:16.400 --> 0:15:19.560 of the inflation that we're seeing now is actually being 0:15:19.600 --> 0:15:22.680 caused by the supply side, not by the demand side. 0:15:22.880 --> 0:15:25.720 So if you're looking at food prices, if you're looking 0:15:25.760 --> 0:15:28.280 at energy prices, if you're looking at auto prices, some 0:15:28.360 --> 0:15:31.680 of these are running at significantly higher levels than we've 0:15:31.680 --> 0:15:34.760 seen in the past, and they are related to supply 0:15:34.880 --> 0:15:39.040 chain disruptions or supply disruptions, not just supply chain disruptions. 0:15:39.360 --> 0:15:42.320 And I don't know that the FED raising by two 0:15:42.440 --> 0:15:45.400 hundred basis points is really going to make a dent 0:15:45.680 --> 0:15:49.040 on auto supply or food prices or energy prices. Well, 0:15:49.080 --> 0:15:52.160 speaking of those higher commodity prices, care given how far 0:15:52.280 --> 0:15:54.400 they have run up, and you're indicating that some of 0:15:54.440 --> 0:15:56.920 that will begin to normalize. Is it too late to 0:15:57.000 --> 0:15:59.760 start trying to play the derivative that in the equity 0:15:59.760 --> 0:16:03.080 market being an energy getting into materials at this point? 0:16:04.320 --> 0:16:07.120 Mm hmmm. Um. So, you know, we've been talking about 0:16:07.200 --> 0:16:10.320 sort of the value and quality Barbell sort of from 0:16:10.400 --> 0:16:12.320 the beginning of the year, in fact even from the 0:16:12.360 --> 0:16:15.440 middle of last year, and we've been telling our investors 0:16:15.480 --> 0:16:17.720 that they should be focusing on some of those value 0:16:17.760 --> 0:16:21.520 sectors of the market, the financials, obviously, energies, and Barbell 0:16:21.640 --> 0:16:24.720 that with quality companies to U a L is a 0:16:24.760 --> 0:16:27.320 ticker that gives you access to that and those are 0:16:27.360 --> 0:16:31.320 again companies that do well have better pricing power in 0:16:31.320 --> 0:16:35.880 a rising prices, rising inflationary environment. Now, going back to 0:16:35.960 --> 0:16:39.520 your earlier question around how can you play that despite 0:16:39.560 --> 0:16:42.440 the rise up in energy prices and the rise up 0:16:42.440 --> 0:16:45.040 in commodity prices, one of the things that I think 0:16:45.080 --> 0:16:49.400 investors should continue to focus on is actually using commodities 0:16:49.480 --> 0:16:51.920 as a hedge. And we've talked about the need to 0:16:52.040 --> 0:16:54.400 hedge for inflation. Like I said earlier, we're not in 0:16:54.440 --> 0:16:57.120 the transitory camp at all. You need to be thinking 0:16:57.120 --> 0:17:00.280 about hedging inflation in a multi asset fashion. You know, 0:17:00.360 --> 0:17:02.560 I've been here before, and I've talked about TIPS. Tips 0:17:02.600 --> 0:17:05.480 have obviously had an incredible run. I think now is 0:17:05.480 --> 0:17:08.200 the time, and it's perhaps been a time for UM 0:17:08.240 --> 0:17:11.040 some time now to add commodities as well. And again 0:17:11.359 --> 0:17:14.800 this is where we think a diversified basket of commodities 0:17:14.840 --> 0:17:17.520 make a lot of sense, like CEOMT. And again this 0:17:17.600 --> 0:17:21.800 is not just a energy price story. Obviously we've seen 0:17:21.840 --> 0:17:25.560 that rally over. I think this is much more around 0:17:26.080 --> 0:17:30.359 food prices, agricultural prices, about industrial metals, precious metals, all 0:17:30.400 --> 0:17:34.320 of these which are having some supply and demand imbalances 0:17:34.359 --> 0:17:37.800 as well as structurally there's a reason to own them 0:17:37.800 --> 0:17:40.720 going forward, given the transition to net zero CAR, is 0:17:40.760 --> 0:17:46.320 there any reason right now to own longer data treasuries UM? 0:17:46.400 --> 0:17:49.959 I'd say that if you are a pension client and 0:17:50.000 --> 0:17:53.879 you're looking at your funded status, and you have had 0:17:53.920 --> 0:17:57.159 a huge improvement in your funded status, then yes, to 0:17:57.320 --> 0:18:00.040 de risk, maybe you want to be owning UH and 0:18:00.119 --> 0:18:03.119 your treasuries at two thirty six as opposed to just 0:18:03.160 --> 0:18:06.199 a few weeks ago. But outside of that, outside of 0:18:06.280 --> 0:18:10.119 actually needing it for your liabilities, I think you know, 0:18:10.119 --> 0:18:12.760 interest rates are still going to move higher, especially in 0:18:12.800 --> 0:18:16.600 the longer end of the curve, so that ten plus sector. Um, 0:18:16.840 --> 0:18:18.720 so I don't think so. No, I think I think 0:18:18.720 --> 0:18:21.320 that if you have the liability needs, then yes, but 0:18:21.400 --> 0:18:23.920 outside of that, I don't think so. However, I will 0:18:23.960 --> 0:18:27.159 say that the front end of the market, and again, um, 0:18:27.200 --> 0:18:29.760 you know, I started off by saying that the you know, 0:18:29.920 --> 0:18:31.640 I don't think the FED will be able to go 0:18:32.119 --> 0:18:34.320 as much as what's priced into the market, which means 0:18:34.320 --> 0:18:37.680 that the front end is reaching some exciting levels. So 0:18:37.720 --> 0:18:39.600 if you've been sitting in cash and you're looking to 0:18:39.640 --> 0:18:42.160 step out, sort of that zero to three are part 0:18:42.160 --> 0:18:44.960 of the treasury curve is beginning to look rather attractive 0:18:45.000 --> 0:18:48.879 at close to twenty. Thank you, as always, CarKey Channgry 0:18:48.880 --> 0:18:58.159 there of blank rock. Typically when a president goes abroad 0:18:58.160 --> 0:19:01.560 in a moment like this one, he goes with some deliverables. 0:19:01.600 --> 0:19:04.840 Anyone with any kind of interest in foreign diplomacy knows 0:19:04.880 --> 0:19:06.520 that a lot of this is orchestrated. And this is 0:19:06.560 --> 0:19:09.400 exactly what our next guest says. Here's the quote. Presidential 0:19:09.440 --> 0:19:12.840 trips are usually planned months in advance and are orchestrated 0:19:12.880 --> 0:19:15.720 down to the final detail. But this one, there is 0:19:15.720 --> 0:19:18.159 a bit more uncertainty. The author of that line that 0:19:18.240 --> 0:19:21.000 quote is said Boltanski, the director of policy research at 0:19:21.000 --> 0:19:24.000 bt I g ISAAC. How strange is this to go 0:19:24.080 --> 0:19:27.640 to Europe in a moment like this one without deliverables. 0:19:29.080 --> 0:19:31.560 It's abnormal to say the least. I mean these things, 0:19:31.600 --> 0:19:33.920 as you know, we're usually planned down to the most 0:19:33.960 --> 0:19:37.560 minute detail where the little flags go, and there are 0:19:37.640 --> 0:19:41.880 months of negotiations over the community case that are produced. 0:19:41.880 --> 0:19:44.760 But this time is different, and the president is going 0:19:44.800 --> 0:19:47.600 in without as much normal planning as we've seen in 0:19:47.640 --> 0:19:50.639 the past, which adds some uncertainly. And I think that 0:19:50.760 --> 0:19:53.240 the biggest issue, at least for me, is what is 0:19:53.280 --> 0:19:57.600 this actually going to do to the overall negotiations overall landscape, 0:19:57.640 --> 0:20:02.040 whether it's with Russia or the conversation regarding energy And 0:20:02.080 --> 0:20:05.480 at the moment, given that there's no foreshadowing of what's 0:20:05.560 --> 0:20:08.320 coming out of there, I think there's some question for 0:20:08.359 --> 0:20:11.040 the investment community as we're all assuming there are note that, 0:20:11.040 --> 0:20:12.879 of course, of course, there might be something happening that 0:20:12.920 --> 0:20:15.680 we just haven't heard about. They might be planning for something. 0:20:15.880 --> 0:20:17.880 What we have seen over the last few weeks, in fact, 0:20:17.920 --> 0:20:19.760 the last few months is when the Vice president has 0:20:19.800 --> 0:20:21.880 gone on these trips to Europe. A lot of people 0:20:21.920 --> 0:20:24.040 have considered them to be a total failure because she's 0:20:24.040 --> 0:20:27.840 gone with no deliverables. Now, often when we have events 0:20:27.920 --> 0:20:29.800 like this, we talk about what does success look like. 0:20:29.840 --> 0:20:32.159 I don't know, its sounds cliche, but it's important. What 0:20:32.320 --> 0:20:35.960 is success for this president on this trip? Yeah? Look, 0:20:36.000 --> 0:20:38.560 this is This is statecraft at the highest level and 0:20:38.600 --> 0:20:41.720 its diplomacy um in its purest form. And the way 0:20:41.720 --> 0:20:44.160 that I think about that is diplomacy is the art 0:20:44.480 --> 0:20:47.479 of letting someone else have your way, right. And I 0:20:47.520 --> 0:20:49.639 think that the President is going to Europe in the 0:20:49.680 --> 0:20:53.399 hopes of getting European countries to band together and show 0:20:53.760 --> 0:20:56.240 a unified front. And I think that that will come 0:20:56.280 --> 0:20:59.919 in really three forms. Number one is a reaffirmation of 0:21:00.040 --> 0:21:02.760 the commitment to NATO, and I think that that's one 0:21:02.800 --> 0:21:05.200 of the easier parts of this whole trip that can 0:21:05.240 --> 0:21:08.280 come in the form of a speech and other commitments 0:21:08.280 --> 0:21:10.959 that I think we'll see right away. Um. The second 0:21:11.000 --> 0:21:16.600 part is a European USA statement on China. Can they 0:21:16.680 --> 0:21:24.560 find key similar language regarding the stance on China's support 0:21:24.720 --> 0:21:30.280 of Russia and can they warn China against actually supporting 0:21:30.600 --> 0:21:33.840 Russia either militarily or economically in a way that doesn't 0:21:34.160 --> 0:21:37.760 push China further into Russia's camp. And then the biggest one, 0:21:37.760 --> 0:21:39.359 in the most difficult one, and the one that I 0:21:39.400 --> 0:21:41.320 don't think we're going to have an easy answer for, 0:21:41.880 --> 0:21:44.480 is energy. I don't think that there is a clean 0:21:44.600 --> 0:21:50.600 clear wind given some of the differing views over Russia's energy, Isaac, 0:21:50.640 --> 0:21:53.679 how important will it be to gauge what the potential 0:21:53.760 --> 0:21:56.840 red lines are that Russia would cross and what the 0:21:56.840 --> 0:21:59.359 potential NATO response would be to those, And I'm thinking 0:21:59.359 --> 0:22:02.720 about chemical or biological weapons or you know, as some 0:22:02.800 --> 0:22:07.280 people postulate, perhaps even down the line nukes. Yeah. Look, 0:22:07.320 --> 0:22:09.560 I think that at least for this summit, they're gonna 0:22:09.600 --> 0:22:13.919 avoid using redline um commentary. I think that this is 0:22:13.960 --> 0:22:19.280 about building a multilateral, unified for front around NATO, saying 0:22:19.320 --> 0:22:23.040